The United States Department of Justice (“DOJ”) recently obtained a $6.5 million dollar settlement with telecom provider Armstrong Group for making false claims to the Federal Communications Commission (“FCC”). Armstrong and its affiliates allegedly manipulated cost-allocation reports submitted to the FCC’s Universal Service Fund (“USF”) High Cost Program, resulting in defendants receiving more in federal subsidies than they would otherwise have been entitled to.
The settlement highlights the potential liability, not to mention significant financial exposure, carriers face under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., when submitting claims for USF administered funds.
Background
The FCA
The FCA is the government’s primary tool for combating fraud against government programs. It imposes liability when a person “knowingly presents . . . a false or fraudulent claim for payment or approval” to the government. 31 U.S.C. § 3729(a)(1)(A). The statute also allows private parties — known as “relators” or “qui tams” — to bring cases on the government’s behalf. Id. at § 3730(b)(1). The government may elect to intervene in the matter or decline and allow the relator to proceed in the government’s stead. Id. at § 3730(b)(4).
Defendants face substantial financial consequences for violating the FCA, including treble damages, civil monetary penalties ranging between $13,500 to $27,000 per claim, and reimbursement of the government’s fees and costs in pursuing the matter. See 31 U.S.C. § 3729(a). Relators are entitled to receive between fifteen (15) and thirty (30) percent of the “proceeds of the action or settlement of the claim,” determined in part by whether the government intervened in the case. Id. at § 3730(d)(1)-(2).
FCC subsidies
The FCC’s Universal Service Fund (“USF”) provides subsidies to telecommunications carriers to expand access to voice and broadband services nationwide. Qualifying carriers serving rural, insular, and areas with limited network infrastructure can apply for federal funds under the USF’s High Cost Program. In order to receive USF funds through the High Cost Program, carriers must follow specific cost allocation rules set by the FCC.
Government Intervenes in Complaint
In 2017, a relator filed an action under 31 U.S.C. § 3730, in the U.S. District Court for the Western District of Pennsylvania. The relator asserted that Armstrong affiliates charged Armstrong Telephone millions of dollars in various costs — including, among others, legal retainer fees, equipment leasing costs, and manager salaries — which Armstong Telephone then included in its cost reports submitted for USF High Cost program subsidies. Pursuant to section 3730(b), the DOJ conducted a confidential investigation and moved to intervene in the matter. The DOJ and FCC alleged that Armstrong and its affiliates knowingly submitted false and fraudulent cost-allocation reports in order increase the amount of subsidies paid to defendants as carriers participating in the program.
Eventually, Armstrong agreed to resolve the allegations by paying $6.5 million dollars and entering into a monitoring agreement with the government. The relator’s share of the settlement is nearly $1.3 million, and the settlement does not include the relator’s attorneys’ fees, which are subject to a separate agreement.
Implications
Armstrong illustrates the various ways in which a USF-participating carrier can be held liable under the FCA. As alleged by the DOJ and relator, the Armstrong defendants:
- Presented or caused to be presented false or fraudulent claims to the federal government for payment or approval;
- Made of used, or caused to be made or used, false or fraudulent records of statements material to false or fraudulent claims; and
- Knowingly concealed receipt of overpayments from the federal government and failed to remit the overpayments.
Thus, the FCA covers much more than just the amounts listed on an invoice to a government program. It encompasses false statements made in support of claims and certifications for compliance with programmatic requirements that fraudulently support a carrier’s eligibility to receive the funds requested.
FCA damages, monetary penalties, and fees and costs can easily reach seven figures. Factor in the length of time it can take to resolve a pending matter (for example, the Armstrong case was filed in 2017 but not resolved until mid-2024), along with being subject to ongoing monitoring for compliance and separate liability for a relator’s attorney fees, and it’s easy to see how an ounce of prevention in compliance with requirements for receiving reimbursement can avoid many pounds of cure.
Key Takeaways
- Carriers must closely adhere to the conditions for payment established by the FCC for receiving funds administered by the USF. As the Armstrong matter shows, this includes making sure that supporting cost allocation reports do not include amounts which are not eligible for reimbursement.
- In the event a carrier finds itself under investigation for submitting false claims for USF funding, it should seek the assistance of counsel experienced in dealing with FCA matters. Counsel can assist with responding to DOJ investigative demands, obtaining assistance from experts, and formulating strategies for countering the government’s damages and penalties calculations. FCA practice has unique substantive and procedural elements, which knowledgeable counsel can help navigate.
Call to Action!
We are excited to announce the strategic association between Marashlian & Donahue, PLLC and the Law Office of Julia A. Clayton. This collaboration enhances our ability to address complex privacy litigation (CCPA and CIPA) and other legal challenges in California and beyond, including False Claims Act matters. Clients of our firm now have access to a broader range of expertise and support, ensuring comprehensive legal solutions. For those interested in or impacted by these issues, this association offers invaluable opportunities to navigate the evolving legal landscape effectively. Contact us to learn how we can assist you with your specific legal needs.
