In a unanimous opinion, the Supreme Court ruled that a False Claims Act suit alleging E-Rate program fraud can move forward. Specifically, the Court held that the program’s reimbursement requests constitute “claims” under the FCA. Justice Kagan authored the opinion. The decision is a win for both whistleblowers and the Government alike in the fight against fraud.
Whistleblower Alleges E-Rate Program Fraud
The Schools and Libraries Universal Service Support Program (E-Rate program) is a Federal Communications Commission (FCC) program. It subsidizes 20-90% of broadband and telecommunication services for schools or libraries across the country. As a result, it is particularly important to schools and libraries located in economically disadvantaged areas. The program covers a substantial part of internet costs. The funds for the program come from FCC mandated fees from customers’ bills, which are then disbursed by a private company. Under FCC regulations, these funds are made available to either a carrier or a school upon receipt of a reimbursement request.
Service providers participating in the E-Rate program are obligated to comply with the “lowest corresponding price” rule. This requires program schools and libraries to receive the lowest price charged to similarly situated customers. Heath (the whistleblower, known as a “relator”) alleged that “Wisconsin Bell defrauded the E-Rate program out of millions by flouting the FCC’s ‘lowest corresponding price’ rule for more than a decade by charging schools a higher full price than it charged other, similarly situated customers.”
Seventh Circuit Creates a Circuit Split
Wisconsin Bell argued that Heath could not bring suit because the E-Rate reimbursement requests were not “claims” under the False Claims Act. To qualify as a False Claims Act “claim,” the request for funds must be directed to a federal employee, agent, or other recipient. If made to this “other recipient,” it must (1) be “spent or used on the Government’s behalf or to advance a Government program or interest” and (2) the Government must “provide[ ] or ha[ve] provided any portion of the money” requested. § 3729(b)(2)(A)(ii) § 3729(b)(2)(A)(ii)(I).
The Seventh Circuit held that, as a matter of law, the E-Rate program involves federal funds and is therefore subject to the Act. Wisconsin Bell did not dispute that the funds were to “advance a Government program or interest.” Instead, Wisconsin Bell contended that the funds were not “provided by” the Government. The Seventh Circuit rejected this. It held that the Government “provided” funding for the program in two ways. First, through its regulatory role in collecting and distributing the funds for the E-Rate program. Second, by making direct contributions to the fund, including transferring over $100 million from the U.S. Treasury.
This decision conflicted with the Fifth Circuit’s findings in United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379 (5th Cir. 2014). There, the Court held that E-Rate Program cases are not “claims” because “there are no federal funds involved in the program, and [the private company distributing the funds] is not itself a government entity.”
The Seventh Circuit’s decision in Wisconsin Bell thus created a circuit split, and the Supreme Court took up the case.
Supreme Court Affirms that E-Rate Reimbursement Requests are “Claims” Under the False Claims Act
In a unanimous decision, the Supreme Court sided with Heath and affirmed the Seventh Circuit’s finding. Specifically, the Court agreed with the Seventh Circuit’s reasoning that, because the Government contributed over $100 million from the U.S. Treasury, it had provided money. Having ruled on this ground, the Court declined to address the Seventh Circuit’s additional holding.
The Court rejected Wisconsin Bell’s argument that the Government did not provide the money, but “merely collected and held” the private carriers’ contributions. “The federal government,” Wisconsin Bell claimed, does not provide “a single penny to the Fund.” The Court rejected this characterization, noting that that the Government indeed “generated” funds provided to the E-Rate program by prosecuting specific wrongdoings and collecting the delinquent contributions.
The Government was not a passive throughway for the transmission of E-rate moneys from one private party (the carrier) to another (the Administrative Company). Nor were the Government’s activities confined to “facilitating” such transfers, as Wisconsin Bell would have it.
Thus, even if the Government’s contributions were “a small fraction” of the total, that is sufficient.
Under the FCA’s definition of “claim,” “providing some funds is just as good as providing all: The Government, recall, need provide only “any portion” of the amount requested.”
The Court similarly rejected Wisconsin Bell’s “technical ownership” argument. It held that the fact that Government did not “own” the funds while making the transfer is “irrelevant” to the issue. Transfers “look like most Government spending” and “can form the basis of an FCA suit.”
Recall that the definition—including its provides the-money requirement—can be met “whether or not the United States has title to the money” at issue. . . . So as the FCA sees the matter, the technical ownership of the $100 million that the Government conveyed to the Fund makes not a whit of difference. Either way, its transfers can form the basis of an FCA suit.
The decision is a win for schools and libraries who rely on the E-Rate program for essential broadband services. The ruling stays true to the plain text and intent of the FCA. It also indicates that defendants cannot evade liability for E-Rate program fraud with overly technical arguments as to the “provision” of funds. As such, the ruling is an important victory for fraud enforcement and will surely reverberate beyond the telecommunications arena.
Wisconsin Bell v. U.S. ex rel. Heath
