Grayson v. At & T Corp., No. 07-CV-1264.

980 A.2d 1137

Alan GRAYSON, Appellant, v. AT & T CORPORATION, et al., Appellees.

No. 07-CV-1264.

District of Columbia Court of Appeals.

Argued March 4, 2009.

Decided September 17, 2009.

Frederick D. Cooke, Jr., Washington, for appellant.

Daniel R. Forman, and Jay P. Lefkowitz, with whom Charlotte E. Gillingham, Ashley N. Bailey, Michael F. Williams, Jennifer K. Hardy, Gregory L. Sidmore, John E. Villafranco, and William M. Bailey, were on the brief, Washington, for appellees.

Before REID and KRAMER, Associate Judges, and BELSON, Senior Judge.

REID, Associate Judge:

Appellant, Alan Grayson, appeals the trial court's dismissal of his District of Columbia False Claims Act ("FCA")¹ and Consumer Protection Procedures Act ("CPPA")² claims against AT & T Corporation, MCI Worldcom Communications, Sprint Corporation, Verizon Communications Corporation, and the corporations' chief fiscal officers (collectively "appellees").³ These claims involved the unused balance on telephone calling cards (escheated telephone calling card prepayments), and Mr. Grayson describes his lawsuit as "a `whistleblower' action" to recover funds belonging to the District. The trial court dismissed Mr. Grayson's FCA claim after concluding that the allegations forming the basis for his claim had been publicly disclosed and that Mr. Grayson was not the original source of the publicly disclosed information. The trial court dismissed Mr. Grayson's CPPA claim because he lacked standing, and even if he suffered injury, his complaint failed to state a claim for which relief may be granted. We affirm the trial court's dismissal of Mr. Grayson's FCA claim. However, we conclude that dismissal of Mr. Grayson's CPPA claim was improper, and therefore, we remand that claim to the trial court for further proceedings.

FACTUAL SUMMARY

Mr. Grayson's Amended Complaint

On March 26, 2004, Mr. Grayson filed an amended complaint in which he set forth two causes of action: (1) "Violation of the Unclaimed Property Act and False Claims Act" ("First Claim for Relief"); and (2) "Consumer Protection and Violation of the False Claims Act" ("Second Claim for Relief"), which he brought as a qui tam plaintiff in the interest of himself and the general public.⁴ His complaint included the following allegations:

he "served as the President of a communications business in 1990 and 1991" which sold prepaid calling cards; "[h]e is a member of the International Prepaid Communications Association, the trade association for prepaid calling cards," and has "edited one of the two leading industry surveys of prepaid communications" and he "has obtained and used prepaid calling cards in [the] District."[⁵]

An owner of a prepaid calling card "pays a deposit for the card . . . [to] establish[] an account with the prepaid communications company holder of the funds, and his prepayment is a deposit or advance payment." "[T]he Defendants record the balance of the owner's prepayment in terms of dollars and cents." They then deduct the cost for using the prepaid calling card from the advance payment until the owner of the card exhausts the advance payment. When an owner of a prepaid calling card fails to exhaust the value of the card, the remaining balance is known as breakage.

The appellees account for a substantial amount of the $4 million to $6 million a year of breakage in the District of Columbia ("the District"), which constitutes "intangible personal property [that] escheat[s] to the District." The Unclaimed Property Act ("UPA") requires persons holding such property to report and deliver the property to the Mayor.[⁶] The appellees, however, "have been retaining [the] breakage since 1992." Mr. Grayson "discussed this misconduct with . . . MCI's Unclaimed Property Reporting Manager" who "confirmed . . . that MCI has retained millions of dollars in prepaid communications breakage." MCI's Unclaimed Property Reporting Manager "also confirmed that . . . his peers at . . . AT & T and Sprint, . . . verified that they followed the same practice." This practice stems from "a widespread deviant view in the industry that the customer's loss is the industry's gain." Moreover, the appellees knew that they had a duty to report and deliver the calling card breakage to the Mayor because their employees are members of the Unclaimed Property Holders Liaison Council ("Holders Council"). As members, they receive and read newsletters from the National Association of Unclaimed Property Administrators (NAUPA), the central organization for state administration of unclaimed property. In the Winter of 1995, the NAUPA issued a newsletter which contained an article entitled "Virtual Money" that stated, in part:

In Europe, for a number of years stored value technology has been used for pay telephones. . . . Could stored value cards create a whole new class of unclaimed property? Absolutely. For those of us in unclaimed property, there is no question that an unclaimed money card balance represents an intangible asset which is due and owing.[⁷] The Holders Council held meetings in which they discussed "the duty to report and pay or deliver prepaid calling card breakage as unclaimed property."

During a CCH State Tax Advisory Board discussion, held on April 16, 1997, accounting firms hired to conduct appellees' annual financial examinations confirmed "that prepaid calling card breakage must be reported and paid or delivered to the States and the District."[⁸] That "discussion was reported in `Trends in Taxation: Trends in State and Local Taxation,' CCH State Tax Review (June 9, 1997)" and reprinted in the September 1997 issue of Taxes. Whenever appellees fail to include breakage on their unclaimed property reports filed with the District; or include calling card breakage as revenue in their financial records; or substantially under-report prepaid calling card revenue to the Federal Communications Commission (FCC); or include breakage as revenue or profit on their tax returns and revenue reports; or certify on a Clean Hands Self-Certification Form that they do not owe more than $100.00 to the District,[⁹] the carriers make false statements "to conceal, avoid or decrease the obligation to pay or transmit breakage to the Mayor" in violation of the FCA. Appellees made at least one or more of these false statements each year from November 1, 1997 to 2003, and have "engaged in the trade practice of soliciting and accepting communications prepayments, and then failing to pay or deliver to the Mayor the unused balances of prepaid calling cards . . ., in violation of D.C.Code § 41-119 and D.C.Code § 2-308.14"; that practice is unlawful under D.C.Code §§ 28-3904(a), (e), (f), (h), and (r) of the CPPA.[¹⁰]

Appellees' Motion to Dismiss

On March 20, 2007, appellees moved to dismiss Mr. Grayson's complaint pursuant to Super. Ct. Civ. R. 12(b)(1) and 12(b)(6). The appellees maintained that the trial court should dismiss Mr. Grayson's FCA claim for lack of jurisdiction over the subject matter and for failure to state a claim upon which relief may be granted. They argued that the NAUPA newsletter¹¹ and CCH State Tax Review article "placed into the public domain specific `allegations or transactions' on which [Mr. Grayson's] claim rests well before he filed this action," and that Mr. Grayson was not the original source of the information; hence, there was a jurisdictional bar to his complaint. Relying in part on United States ex rel. Findley v. FPC-Boron Employees' Club, 323 U.S.App. D.C. 61, 73, 105 F.3d 675, 687 (1997), appellees argued that "the tax and journal reports described in [Mr. Grayson's] complaint disclosed `the questionable legality' of withholding phone card breakage, and . . . [t]hese disclosures placed `enough information in the public domain to identify' with `no trouble' the `allegedly fraudulent transactions' of particular calling card providers." Appellees acknowledged that prior to the filing of Mr. Grayson's complaint, the news media had not reported "that the failure to treat breakage as unclaimed property violated the District of Columbia's False Claims Act and/or Consumer Protection Law." But they maintained that similar circumstances existed in Findley, where the court declared that the "`ability to recognize the legal consequences of a publicly disclosed fraudulent transaction does not alter the fact that the material elements of the violation already have been publicly disclosed.'"¹²

Furthermore, appellees claimed in their motion to dismiss that Mr. Grayson could not overcome the public disclosure jurisdictional bar because he was not the "original source" of the allegations in his complaint. Relying on a similar California case, they asserted that Mr. Grayson did not have "direct and independent knowledge" of the alleged fraud because he never "saw any of the alleged misconduct `with his own eyes,'" and "even if [his] experience could be construed as providing him with specialized knowledge, such knowledge is insufficient to imbue him with `direct and independent' knowledge." Appellees also moved to dismiss Mr. Grayson's claims under the CPPA, contending that he: (1) lacked standing to bring his CPPA claims; and (2) failed to plead the essential elements of a CPPA claim. Moreover, they argued that the CPPA cannot be used to enforce the UPA.¹³

The Trial Court's Ruling

The trial court relied on three cases decided by other courts in its November 7, 2007 oral ruling granting appellees' motion to dismiss. With respect to the FCA's subject matter jurisdictional bar based on prior disclosures in the news media, the trial court found State ex rel. Grayson v. Pacific Bell Tel. Co., 142 Cal.App.4th 741, 48 Cal.Rptr.3d 427 (2006), "persuasive in its analysis" and United States ex rel. Alcohol Found., Inc. v. Kalmanovitz, 186 F.Supp.2d 458 (S.D.N.Y.2002) "very persuasive." The trial court stated that the New York case "found that the publications of scholarly scientific periodicals meet the...