Verizon Wireless and AT&T Mobility, the nation's largest wireless providers, have agreed to pay a combined $116 million to settle a whistleblower lawsuit claiming they overcharged California government customers for wireless services. The settlement in the long-running case, brought by the whistleblower in 2012 and approved today by a California court, is the second-largest California False Claims Act settlement in the state's history outside of the healthcare industry. The whistleblower and thirty government entities that joined the lawsuit are represented by Constantine Cannon LLP, the country's largest whistleblower law firm, and Susman Godfrey LLP, the nation's preeminent litigation boutique.
Verizon will pay $68 million and AT&T $48 million to settle claims that, for more than a decade, the carriers knowingly ignored two cost-saving requirements included in multibillion-dollar contracts offering wireless services to state and local government users in California and other states.
"The conduct alleged by the whistleblower was shocking: that our country's largest wireless carriers made promises to California government agencies to get their business but failed to provide the same cost-saving service many Fortune 500 companies receive,"said Wayne T. Lamprey of Constantine Cannon, who filed the lawsuit and was lead counsel. "It may be a rounding error to Verizon and AT&T, but this is real money to California's schools, local governments and state agencies who spent years scraping through their budget to pay what we now know were over-inflated bills."
"We were ready to prove at trial that Verizon and AT&T never delivered on promises they made in order to access our clients' billion-dollar market," said Bill Carmody, partner at Susman Godfrey in New York and co-lead trial counsel. "They pulled a classic bait-and-switch."
The contracts, which are among the largest public-sector telecommunications contracts in the country, mandated that government entities be charged at the "lowest cost available" and that the carrier identify "optimized" rate plans that best suited actual usage patterns that drive cost. The carriers' failure to live up to their contractual promises cheated California government entities out of hundreds of millions in savings, the lawsuit alleged.
The largest users among the nearly 300 state and local entities recovering money for the excessive payments are the State of California, the California State University system, the University of California system, Los Angeles County, and Sacramento, San Diego, San Francisco, and Riverside city and county governments.
The whistleblower entity, OnTheGo Wireless, LLC, was formed by Jeffrey Smith, an early pioneer in wireless optimization at the company he founded in 1997, eOnTheGo, Inc. Smith's company created software applications that compared rate plans offered by carriers, and eOnTheGo has provided rate plan analysis and telecommunications expense management to both wireless carriers and large corporate and government purchasers. Through his work, Smith concluded the carriers failed to provide contractually required cost-saving opportunities to their government customers. OnTheGo sued the carriers under the California False Claims Act, a law that allows whistleblowers to bring suit on behalf of California state and local government entities and share in any government recovery.
OnTheGo Wireless, LLC sued the carriers under the California False Claims Act that allows whistleblower to sue on behalf of California government entities. More than three dozen California government entities joined the lawsuit. The whistleblower and the government plaintiffs were jointly represented by Wayne T. Lamprey, Anne Hayes Hartman, Ari Yampolsky, Sarah "Poppy" Alexander, Chris McLamb, Hallie Noecker, and Ronny Valdes of Constantine Cannon, and Bill Carmody, Amanda Bonn, Arun Subramanian, Steven Shepard, Rachel Black, Jordan Connors, Meng Xi, Rohit Nath, Nicholas Spear, Jesse-Justin Cuevas, and Ari Ruben of Susman Godfrey.
Smith said: "I'm immensely gratified to have helped California taxpayers, and that the government will have these funds at this difficult time. This has been a long and difficult road; the carriers fought hard. But with the help of my lawyers, and the government agencies that jumped in, we brought home a terrific victory for California."
OnTheGo will receive approximately 40% of the settlement as a whistleblower reward under the California False Claims Act.
Because wireless carriers typically offer dozens of rate-plan options at any given time and frequently change these plans' features and costs, the lawsuit alleged that contracts placed the burden on the carriers to identify and bill using optimized plans for each government subscriber in order to spend taxpayer dollars most efficiently. This process, known as rate plan optimization, considers each phone line's historical usage to determine the best rate plan available for that line. Rate plan optimization is well known in the wireless industry, and often used by large purchasers.
As each line's usage varies month-to-month, and plan features and costs change, the cost-effectiveness of a rate plan fluctuates. Because of this, the government contracts required, according to plaintiffs, that the carriers deliver quarterly reports identifying the "optimized" rate plans to the government entities.
Sprint and T-Mobile previously reached settlements in the California case for $9.6 million combined. In total, the four major telecom providers will pay $125.8 million to settle allegations under the California False Claims Act.
Whistleblower attorney Anne Hayes Hartman, a partner at Constantine Cannon in San Francisco, said: "We all relate to the frustration of paying for wireless services that don't seem to fit our needs. This case alleged that to seal a multibillion-dollar deal, the carriers promised to help public agencies find the most efficient rate plans and save taxpayer dollars. But when the time came to deliver on those promises, the carriers instead chose to pad their bottom lines."
Amanda Bonn, Susman Godfrey's lead California trial counsel on this matter and a partner in Los Angeles added: "This is a phenomenal result. We are especially grateful to the thirty California government entities--which ranged in size from the largest county in California to a small local fire district--who joined us in this fight. We are proud to represent them."
The case, presided over by the Honorable Judy Holzer Hersher, is State of California et al. ex rel. OntheGo Wireless, LLC v. Cellco Partnership et al., Case No. 34-2012-00127517 (Sacramento County Superior Court).
1. Regents of the University of California 2. Board of Trustees of the California State University 3. County of Los Angeles 4. County of Marin 5. County of Orange 6. County of Riverside 7. County of Sacramento 8. County of San Bernardino 9. County of Santa Cruz 10. County of Sonoma 11. County of Stanislaus 12. County of Yuba13. City of Chino 14. City of Corona 15. City of Fortuna 16. City of Fresno 17. City of Long Beach 18. City of Oxnard 19. City of Rancho Cucamonga 20. City of Ripon 21. City of Riverside 22. City of Sacramento 23. City of San Bernardino24. City of San Mateo 25. City of Santa Rosa26. City of Vernon 27. San Diego Unified School District 28. Santa Ana Unified School District 29. Sonoma County Water Agency 30. Woodbridge Fire District
About Constantine Cannon LLP
Constantine Cannon has the world's largest international whistleblower practice, with offices in New York, Washington, D.C., San Francisco, and London. The firm's team of dedicated whistleblower lawyers represent whistleblowers under federal and state False Claims Acts as well as the whistleblower programs of the IRS, SEC, CFTC, DOT, and others.
Constantine Cannon's experience spans across multiple practice areas that include antitrust and complex commercial litigation, whistleblower representation, government relations, securities, and e-discovery. The firm's antitrust practice is among the largest and most well recognized in the nation.
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