United States District Court, N.D. California
JOHN C. PRATHER, on behalf of himself and the UNITED STATES OF AMERICA and the several states of CALIFORNIA, DELAWARE, FLORIDA, ILLINOIS, INDIANA, MASSACHUSETTS, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, RHODE ISLAND, VIRGINIA, as well as the DISTRICT OF COLUMBIA, Plaintiff/Relator,
AT&T INC., CELLCO PARTNERSHIP d/b/a VERIZON COMMUNICATIONS, QWEST COMMUNICATIONS INTERNATIONAL, INC., and SPRINT NEXTEL CORP., Defendants.
ORDER DENYING MOTIONS FOR ATTORNEYS' FEES
CHARLES R. BREWER, District Judge.
In this qui tam action, Relator John C. Prather ("Relator") alleges that Defendants AT&T, Inc., Cellco Partnership d/b/a Verizon Communications ("Verizon"), Qwest Communications International, Inc. ("Qwest"), and Sprint Nextel Corp. defrauded law enforcement agencies by overcharging for electronic surveillance services in violation of the False Claims Act ("FCA"). The Court dismissed Plaintiff's First Amended Complaint ("First Am. Compl.") on November 5, 2013. Defendants Qwest and Verizon (collectively "Defendants") now move for attorneys' fees and expenses. Upon consideration of the motions, the oppositions thereto, and the arguments of the parties at a hearing, the Court DENIES Defendants' motions.
In 1994, Congress enacted the Communications Assistance to Law Enforcement Agencies Act ("CALEA") to ensure that law enforcement agencies could rely on telecommunications carriers ("Telecoms") to assist in the electronic surveillance of digital telephone technologies. See First Am. Compl. ¶ 54 (dkt. 86). Under CALEA, Telecoms may only charge "reasonable expenses" incurred in providing electronic surveillance and are not permitted to offset their implementation costs when charging for individual wiretaps. Id . ¶ 5.
On March 10, 2004, the United States Department of Justice, Federal Bureau of Investigation, and Drug Enforcement Agency submitted a joint petition to the Federal Communications Commission ("FCC")-the administrative body in charge of implementing CALEA-asking the FCC to resolve outstanding issues related to CALEA. See Joint Petition for Expedited Rulemaking at 1 ("Joint Petition") (dkt. 63-3). In response to the Joint Petition, the FCC initiated rule-making proceedings and invited comments on CALEA. See 2004 FCC Request for Comment on Proposed Rulemaking (dkt. 86-3).
Relator John C. Prather worked for the Office of the New York Attorney General from 1999 to 2008. See First Am. Compl. ¶¶ 40, 37. In response to the FCC's request for comment, the Attorney General's Office attached an affidavit by Relator addressing the issue of overcharging. See April 12, 2004 Comment on Proposed Rulemaking (dkt. 86-1). In 2006, the FCC issued its rule, explaining that Telecoms "bear responsibility for CALEA development and implementation costs." See March 12, 2006 FCC 2nd Report and Order at 186 (dkt. 86-2). The FCC made no finding of culpability (one way or the other).
When the government failed to pursue an action against Telecoms, Relator brought this qui tam action, alleging that Defendants fraudulently overcharged "the Federal government as well as various State and City governments" for electronic surveillance services in violation of the FCA. See First Am. Compl. ¶¶ 2, 145-50. On November 5, 2013, the Court dismissed Relator's First Amended Complaint for lack of subject matter jurisdiction, finding that Relator failed to establish by a preponderance of the evidence that he is an original source under 31 U.S.C. § 3730(e)(4)(B). See generally Order (dkt. 159). Defendants now move for attorneys' fees and expenses. See generally Motions for Attorneys' Fees (dkts. 166, 168).
II. LEGAL STANDARD
In a qui tam action in which the government declines to intervene, the FCA allows a court to award reasonable attorneys' fees and expenses to a prevailing defendant if "the action [is] clearly frivolous, clearly vexatious, or brought primarily for the purposes of harassment." See 31 U.S.C. § 3730(d)(4). The Ninth Circuit has described that an action is "clearly frivolous" when "the result is obvious or the appellant's arguments of error are wholly without merit." See Pfingston v. Ronan Eng'g Co. , 284 F.3d 999, 1006 (9th Cir. 2002). An action is "clearly vexatious' or brought primarily for purposes of harassment' when the plaintiff pursues the litigation with an improper purpose, such as to annoy or embarrass the defendant." Id . (citing Patton v. County of Kings , 857 F.2d 1379, 1381 (9th Cir. 1988)).
A. Defendants Are Not Entitled To Fees Under The FCA
Attorneys' fees for prevailing defendants under the FCA are "reserved for rare and special circumstances." Pfingston v. Ronan Eng'g Co. , 284 F.3d at 1006-07. Courts "must exercise caution in awarding fees to a prevailing defendant in order to avoid discouraging legitimate suits that may not be airtight." See Warren v. City of Carlsbad , 58 F.3d 439, 444 (9th Cir. 1995) (internal citations omitted). Additionally, "it is important that a district court resist the understandable temptation to engage in post hoc reasoning by concluding that, because plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation." See Christiansburg Garment Co. v. E.E.O.C. , 434 U.S. 412, 421-22 (1978).
The Ninth Circuit has explained that courts may deny attorneys' fees where the "circumstances furnish some basis, albeit somewhat tenuous, for one to theorize" a claim, even if "evidence to support such a theory failed to materialize, and summary judgment was properly granted in favor of the defendants." See Karam v. City of Burbank , 352 F.3d 1188, 1196 (9th Cir. 2003) (reversing a fee award to prevailing defendants under section 1988); see also Boyd v. Accuray, Inc., No. 11-1644, 2012 WL 4936591, at *4 (N.D. Cal. Oct. 17, 2012) (denying the defendant's motion for attorneys' fees under the FCA after finding that "Plaintiff's claim, though weak and ultimately unsuccessful, was not wholly lacking in legal merit").
Here, Relator's claim, though ultimately unsuccessful, does not demonstrate a complete lack of factual or legal merit to rise to the level of "clearly frivolous" under the FCA. Indeed, the parties litigated the issue of subject matter jurisdiction for many months, and the Court carefully considered the parties' briefs and arguments at two hearings before dismissing Relator's case in November 2013. See Order at 1-2. In making its decision, the Court did not find the threshold issue of whether Relator constituted an original source to be clear or unequivocal. See September 13, 2013 Transcript of Proceedings at 3:19-21 (dkt. 158) (explaining that Relator's action presented an "interesting and perhaps somewhat difficult question as to whether or not the relator is entitled to be compensated as a qui tam action"). Although Relator lacked ...