On March 10, 2022, Justice Crane of the New York County Commercial Division issued a decision in Phone Admin. Servs. Inc. v. Verizon N.Y., Inc., 2022 NY Slip Op. 30814(U), holding that a qui tam action was not subject to the public disclosure bar, explaining:
Pursuant to NYFCA, the court shall dismiss a qui tam action under this article if substantially the same allegations or transactions as alleged in the action were publicly disclosed in, as relevant here, the news media or a federal, New York state or New York local government report, hearing, audit or investigation that is made on the public record or disseminated broadly to the general public, unless the qui tam plaintiff is an original source of the information. NYFCA defines an original source as the following:
“a person who (a) prior to a public disclosure under paragraph (b) of subdivision ninety of this article has voluntarily disclosed to the state or local government the information on which allegations or transactions in a cause of action are based, or
(b) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the state or a local government before or simultaneous with filing an action under this action”The public disclosure bar applies where the relevant disclosures exposed all the essential elements of the fraud’ alleged and made public the crux of the alleged fraud. Defendants contend the central allegation in the complaint—that defendants failed to charge, remit, and report the required 911 charges in New York to gain a competitive advantage—has been the subject of extensive reporting in the news media and governmental reports for over a decade. Defendants cite the following evidence:
(1) a New York State Public Service Commission advisory report issued on November 6, 2006, recommending that telecommunications carriers “review their billing practices and be certain that taxes and surcharges are labeled correctly,” and determining “some companies are improperly billing certain taxes and surcharges” and recommending that “each carrier carefully evaluate the propriety of their individual billing charges based on this notice,” including E911 surcharges;
(2) a newspaper article indicating that a federal lawsuit alleged that “AT&T was not charging enough of the fees that are used to support Nashville’s 911 system in an effort to bundle
(3) (i) a newspaper article reporting on audits in Suffolk County indicating that Verizon had taken a three percent “incollectible adjustment” beyond the two percent administrative fee permitted by law,8 (ii) a newspaper article reporting on an audit in Nassau County indicating that Verizon “failed to consistently provide Nassau its required share of the e911 fees the company collected from residents’ monthly bills,” Verizon improperly kept a three percent administrative fee, and “the police department failed to properly account for surcharge revenue from eight telecommunications carriers, and that most of the providers failed to provide the county with annual accounts of the surcharge amounts billed,” and (iii) a New York State Comptroller report from April 2018 indicating that “officials cannot be sure that their county received all the surcharges to which it was entitled and amounts suppliers remitted were accurate and appropriate”; and
(4) a newspaper article reporting that “phone companies have been undercutting one another by lowering those 911 fees for big businesses, resulting in less money for local authorities,” and includes denials of culpability by Verizon and AT&T.
According to defendants, these public disclosures were sufficient to alert the government as to the alleged fraud and decide whether to pursue an investigation into their 911 charge remittance procedures. Defendants point out that these public disclosures led six New York counties to file an action to recover for the allegedly unpaid 911 charges, that was dismissed for failure to state a cause of action.
Defendants contend that the public disclosure bar applies to defendants who were not named within the public disclosures. Where fraud consists of industry-wide misconduct, courts have required allegations specific to a particular defendant be publicly disclosed before finding the action barred, because the government often knows on a general level that fraud is taking place, but has difficulty identifying all of the individual actors engaged in the fraudulent activity. On the other hand, the public disclosure bar may apply to unnamed defendants if the public disclosures alerted the government to the industry-wide nature of the fraud and enabled the government to readily identify wrongdoers through an investigation. In such cases, the public disclosures provided specific details about the fraudulent scheme and the types of actors involved in it, removing this from a situation where the government would need to comb through myriad transactions performed by various types of entities in search of potential fraud.
In United States ex rel. Fine v Sandia Corp. (70 F3d 568 [10th Cir 1995]), prior public disclosure barred a qui tam action. The relator alleged that a laboratory under the control of the Department of Energy (DOE) misappropriated nuclear waste funds. The Tenth Circuit held that a GAO report and congressional report were sufficient to set the government on the trail of the alleged fraud where these disclosures detailed the mechanics of the practice, revealed that at least two of Sandia’s eight sister laboratories were engaged in it, and indicated the DOE’s acquiescence.
Similarly, in United States v ex rel. Gear v Emergency Med. Assoc. of Il., Inc. (436 F3d 726 [7th Cir 2006]), public disclosures that practices had been taking place nationwide barred a relator’s claim about fraudulent billing practices at the hospital where he worked. According to the Seventh Circuit,
“We are unpersuaded by an argument that for there to be public disclosure, the specific defendants named in the lawsuit must have been identified in the public records. The disclosures at issue here were of industry-wide abuses and investigations. Defendants were implicated. Industry-wide public disclosures bar qui tam actions against any defendant who is directly identifiable from the public disclosures.
In this case, the news articles and reports defendants rely upon did not specifically name any telephone companies other than AT&T and Verizon. They do not provide sufficient information about the fraudulent schemes or participants in the schemes to identify other defendants. Thus, the public disclosure bar does not apply to the unnamed defendants.
The court must next consider whether PAS’s claims against AT&T and Verizon are subject to the public disclosure bar. Courts have cautioned against conducting the substantial similarity inquiry at too high a level of generality.
Here, the news articles and government reports disclosed, on a general level, that service providers failed to pay the appropriate amount of 911 surcharges. However, these articles and reports do not discuss the precise mechanism by which the telephone companies allegedly committed fraud. The disclosures do not indicate that the providers undercounted access lines, or treated multiple locations as a single location for purposes of location-based caps on surcharges. These disclosures do not state that telephone companies failed to collect surcharges from customers purchasing services from resellers, or failed to collect surcharges altogether. Nothing in these public disclosures was sufficient to set the government squarely upon the trail of the alleged fraud. Additionally, the complaint alleges that PAS discovered the fraud by studying non-public information, including telephone bills and remittance forms. Accordingly, the public disclosures relied upon by defendants are not substantially the same allegations or transactions as alleged in this action.
Because the court concludes that the news articles and reports do not report on substantially the same allegations or transactions that this action alleges, the public disclosure bar does not preclude plaintiff’s claim. As a result, the court need not reach whether PAS is an original source of the information.
(Internal quotations and citations omitted).