The U.S. Supreme Court is currently considering Wisconsin Bell v. U.S. ex rel Heath, a case with important ramifications for telecommunications providers participating in the E-rate program. Based on recently held oral arguments, it appears the Court is headed towards a decision holding that E-Rate subsidies are protected by the federal False Claims Act (“FCA”). 31 U.S.C. § 3729 et seq. Several of the Justices homed in on evidence that the E-Rate program received at least $100 million in federal appropriations, and their questions regarding this funding suggest the Court will likely hold that these were “provided by” the government as set forth by the FCA.
If the Court rules as anticipated, providers’ most immediate concern will be ensuring that their claims for E-Rate subsidies comply with all program requirements and accurately reflect amounts the providers are entitled to. Providers may also be concerned about the ruling’s longevity given that the USF’s administration has been called into doubt by court decisions and upcoming changes in presidential administrations. (See here and here for further details about these developments). Ultimately, the Court’s determination will turn on the appropriation of federal funds to the E-Rate Program, not how the Program is administered.
Background
The FCA
The FCA is the government’s primary tool for combating fraud against government programs. 31 U.S.C. § 3729 et seq. In order for a claim (or statement material to such a claim) to be subject to the FCA, it must involve public funds. Id. at § 3729(b)(2). For claims submitted to a contractor or grantee, the public funds requirement is satisfied “if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest” and “if the United States Government provides or has provided any portion of the money.” Id. at § 3729(b)(2)(A)(ii)(I). Alternatively, a claim to presented to “an agent” of the United States can trigger the FCA just as if it was made to a federal government officer or employee. Id. at § 3729(b)(2)(A)(i).
An entity found to have violated the FCA can face substantial financial consequences, 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). The FCA also includes a whistleblower cause of action. Id. at § 3730(b)(1). These private parties— known as “relators” or “qui tams” — are entitled to receive between fifteen (15) and thirty (30) percent of the eventual recovery, determined in part by whether the government prosecuted the case or allowed the relator to pursue the claims on its behalf. Id. at § 3730(d)(1)-(2).
Lower Court Proceedings
In 2008, relator Todd Heath initiated the underlying action against Wisconsin Bell. The complaint alleged that Wisconsin Bell improperly charged school and library customers more than the required “lowest corresponding price” for its services. Heath further alleged that Wisconsin Bell violated the FCA by seeking reimbursement from the E-Rate Program for these inflated charges, and additionally submitted false certifications of compliance with applicable rules and regulations. Heath asserted that the overcharges resulted in Wisconsin Bell receiving more from the E-Rate Program than it was entitled to, thereby harming the public fisc. In 2011, the federal government, through the U.S Department of Justice, declined to intervene, allowing Heath to continue the litigation.
Wisconsin Bell moved for summary judgment in 2022. The district court granted the motion, and Heath appealed the ruling to the Seventh Circuit Court of Appeals.
The Seventh Circuit reversed the grant of summary judgment to Wisconsin Bell. United States ex rel Heath v. Wis. Bell, Inc., 75 F.4th 778 (7th Cir. 2023). Its ruling addressed four requirements for FCA liability: falsity, scienter (knowledge), materiality, and harm to federal funds. The Seventh Circuit’s opinion on this last element – public funds – consisted of a short paragraph and conclusion that there was “sufficient evidence in the record from which a reasonable jury could find that government funds were involved in the payments at issue.” Id. at p. 789.
Supreme Court Takes Up Wisconsin Bell’s Appeal
Wisconsin Bell appealed the Seventh Circuit’s decision to the U.S. Supreme Court. In June 2024, the Court granted cert as to the following question: “Whether reimbursement requests submitted to the E-rate program are ‘claims’ under the False Claims Act.”
The parties’ briefs on the merits focused on whether the federal government “provided” the E-Rate funds at issue. The parties also briefed the issue of whether the Universal Services Administration Company (“USAC”) should be classified as an “agent” for purposes of the FCA’s section 3729(b)(2)(A)(i).
The U.S. Solicitor General also appeared in the case for the government and provided briefing on these same issues.
Oral Argument
The Court heard oral arguments on November 4, 2024.
To the “provided by” question, the Justices homed in on evidence about $100 million in federal appropriations to the E-Rate Program. Justices Barrett and Kavanaugh asked whether a circuit split between Courts of Appeal could be explained by whether or not the lower courts were aware of the $100 million when issuing their decisions. Many hypotheticals posed during the hearing included the following (or similar language): “Assuming relator wins on the $100 million . . . .” Additionally, some of the Justices seemed less inclined to confront the agency question regarding the USAC on the grounds that the Court could decide the case entirely based on the $100 million “provided by” the government. The Justices likewise signaled that they would leave questions about FCA damages for future matters. Thus, the Court appears to be leaning towards ruling that the $100 million in federal appropriations are sufficient to invoke application of the FCA to Wisconsin Bell’s claims.
Predictions
First, a caveat that predicting the outcome of a Supreme Court case based on anything leading up to the actual decision is risky. Stayed tuned for a follow-up advisory once the Court issues its opinion.
Putting the clues in Wisconsin Bell together — the specific issue on appeal of whether public funds were involved, the Justices’ questions about $100 million in federal appropriations to the E-Rate Program, and their expressed hesitancy to wade into related questions about agency and damages — we anticipate that the Court will decide that the FCA applies. The deciding factor will be the $100 million in federal funds folded into the fees and charges assessed on providers. Thus, at least as to the FCA, the Court is focused on identifying federal funds, not how the FCC and USAC administer the E-Rate Program.
Key Takeaways
- Given that Wisconsin Bell is likely to approve application of the FCA to the E-Rate Program, providers should ensure that their claims and submissions comply with regulatory requirements in order to avoid potential FCA liability.
- Regardless of how the E-Rate Program (or USF program as a whole) operates, so long as federal appropriations flow into the programs, the FCA will be employed to protect the public fisc.
In the event a provider finds itself under investigation for submitting false claims for E-Rate 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.
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