A lawsuit accusing AT&T of illegally collaborating in government electronic surveillance will help terrorists communicate "more securely and more efficiently'' unless it is promptly dismissed, a Bush administration lawyer argued in a packed San Francisco courtroom Friday.

The suit, the first of more than 30 now pending against major phone companies, was filed in January by the Electronic Frontier Foundation on behalf of AT&T customers. It alleges that the company has allowed the National Security Agency to intercept the phone calls and e-mails of tens of millions of customers for use in its program to monitor contacts with suspected foreign terrorists.

If the privacy-rights case is allowed to proceed, AT&T will have to admit or deny that it gave the National Security Agency access to its telephone and e-mail networks and database so the government could eavesdrop on communications between Americans and suspected terrorists in other countries, said Assistant Attorney General Peter Keisler.

An admission either way by AT&T would betray "a state secret of the highest order,'' he said.

When Chief U.S. District Judge Vaughn Walker pointed out that the alleged cooperation of AT&T and other telecommunications companies has been widely reported in the press, Keisler said public confirmation or denial would allow terrorists to replace suspicion with certainty.

A "reasonable terrorist'' deciding how to contact cohorts weighs the risk that communications on a commercial network will be intercepted against the difficulties of finding other channels, Keisler said. By clarifying AT&T's status, he said, "you are enabling them to communicate more securely and more efficiently.''

Also, he said, a confirmation of AT&T's role in the program would "immediately heighten the risk that the company and its facilities would be subject to attack.''

The suit, the first of more than 30 now pending against major phone companies, was filed in January by the Electronic Frontier Foundation on behalf of AT&T customers. It alleges that the company has allowed the National Security Agency to intercept the phone calls and e-mails of tens of millions of customers for use in its program to monitor contacts with suspected foreign terrorists.

The suit seeks damages, potentially into the billions of dollars, and a ban on AT&T's participation in the program.

President Bush acknowledged in December that the federal agency has eavesdropped on communications between Americans and alleged terrorists abroad without the court warrants required by a 1978 federal law. His claim that he has the constitutional power to authorize the surveillance is being challenged in another lawsuit in Michigan.

Walker, who also heard arguments by AT&T to dismiss the suit, did not issue a ruling and gave no clear indication of which way he was leaning during the three-hour hearing. But he seemed skeptical of the government's broadest claim: that the entire subject of the lawsuit is a state secret, requiring dismissal without further inquiry.

"The state secrets privilege is not unlimited,'' the judge told Keisler.

At another point, Walker questioned the government's reliance on a 1998 ruling by the Ninth U.S. Circuit Court of Appeals in San Francisco dismissing workers' lawsuits against a classified Air Force waste disposal program.

"Isn't this case different?'' he asked. In the 1998 case, "the whole program of disposal was a state secret,'' the judge said.

Walker could also dismiss the case on narrower grounds, by deciding either that AT&T's actions were authorized by the government; that the company does not have to provide proof of federal authorization because its role, if any, is a state secret; or that the individual customers have no right to sue because they can't show that their calls or messages were intercepted.

Electronic Frontier Foundation lawyer Kevin Bankston argued that the plaintiffs don't have to show that the federal agency monitored individual calls, because they have evidence that AT&T, in cooperation with the government, engaged in "wholesale surveillance of its customers.''

That evidence, he said, consists of company documents and a statement by Mark Klein, a former AT&T technician, describing the installation in 2003 of equipment at the company's building on Folsom Street in San Francisco that allowed Internet traffic to be routed to the government. Klein reported that only employees cleared by the National Security Agency were allowed into the room, Bankston said.

But Keisler, the government's lawyer, said Klein's materials and a supporting statement by J. Scott Marcus, an expert on telecommunications networks, were legally worthless.

"With all respect to them, they don't know anything,'' Keisler said. He said Klein's purported information about the federal agency's involvement consisted of secondhand reports, and Marcus' statement was "a mixture of hearsay and speculation.''

AT&T's argument for dismissal was that federal law protects communications companies from being sued for taking part in government intelligence programs.

If the company had a role, which it refuses to confirm or deny, it was merely a "passive instrument of the government,'' said AT&T lawyer Brad Berenson. He also told Walker that the company had no obligation to consider the legality of the program because it was solely the government's concern.

The judge said AT&T appeared to be arguing that "these programs are essentially immune from any kind of review.'' Not quite, Berenson replied, but the review should come from Congress, not the courts.

© Copyright 2006 San Francisco Chronicle

###