Issues
Does the False Claims Act cover reimbursement requests made to a program regulated by the Federal Communications Commission but largely funded by private service providers?
This case asks the Court to determine whether reimbursement requests made by schools and public libraries to the Federal Communications Commission’s E-Rate program can constitute false “claims” under the False Claims Act (FCA). Wisconsin Bell contends that the FCA does not cover reimbursement requests to the E-Rate program because the money for the E-Rate program’s funds comes solely from private companies, and the Universal Service Administrative Company (USAC) is not an agent of the federal government. The federal government argues that the FCA does cover reimbursement requests to the E-Rate program because the funds are made available by the federal government, and the federal government can control the USAC. This case touches on important questions regarding the FCA’s scope and the FCA’s impact on businesses working with the federal government.
Questions as Framed for the Court by the Parties
Whether reimbursement requests submitted to the Federal Communications Commission's E-rate program are “claims” under the False Claims Act.
Facts
A company violates the False Claims Act (FCA) if it “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” that is material to the government’s decision to use federal funds. 31 U.S.C. § 3729(a)(1)(A); United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 659. A “claim” is a request made to an agent or contractor of the federal government. 31. U.S.C. § 3729(b)(2).
In 1996, Congress passed the Telecommunications Act, which created the Education Rate (E-Rate) Program. United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 657. The E-Rate program subsidizes certain service providers that provide telephone and internet services to schools and public libraries. Id. at 657. Under the direction of the Federal Communications Commission (FCC), a government-run private company called the Universal Service Administrative Company (USAC) administers the E-Rate program via funding from the Universal Service Fund (USF). Id. at 668. To be eligible for subsidies, a service provider must annually certify that it is charging schools and libraries the lowest price that the service provider charges similar nonresidential customers for similar services, referred to as the lowest corresponding price (LCP) obligation. Id. at 658; 47 CFR § 54.500.
In 2008, Todd Heath filed a qui tam action under the FCA, alleging that Wisconsin Bell had submitted false claims to the E-Rate program. United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 657. Heath also alleged that Wisconsin Bell had caused schools and public libraries to submit false claims to the E-Rate program by charging schools and public libraries at higher rates than the LCP, and that Wisconsin Bell had falsely certified its compliance with the E-Rate Program. Id. In 2011, the federal government declined to intervene in the action, and the United States District Court for the Eastern District of Wisconsin dismissed the case for lack of subject matter jurisdiction. United States ex rel. Heath v. Wis. Bell, Inc. (District 1) at 5. The United States Court of Appeals for the Seventh Circuit reversed the district court’s decision, finding that there was subject matter jurisdiction. United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 692. In 2015, the district court granted Heath leave to file an amended complaint that includes more details of Wisconsin Bell’s conduct. United States ex rel. Heath v. Wis. Bell, Inc. (District 2) at 929. In 2022, Wisconsin Bell filed a motion for summary judgment, which the district court granted in Wisconsin Bell’s favor, finding that Heath failed to show that Wisconsin Bell violated the LCP obligation, knowingly or otherwise. United States ex rel. Heath v. Wis. Bell, Inc. (District 3) at 859–62. Heath once more appealed to the Seventh Circuit. United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 659.
The Seventh Circuit reversed the district court’s decision, holding that a reasonable jury could find that Wisconsin Bell knowingly violated the LCP obligation. United States ex rel. Heath v. Wis. Bell, Inc. (Circuit) at 662, 664. The Seventh Circuit also found that the alleged claims were plausibly material to the federal government’s decision-making process. Id. at 664–65. The Seventh Circuit additionally determined that the funds provided by the E-Rate program were federal funds because the U.S. treasury directly provided some of the funds, the federal government had helped to create and regulate the E-Rate program, and the USAC is an agent of the federal government. Id. at 667–71. Wisconsin Bell was denied a rehearing en banc. Id. at 671. Wisconsin Bell subsequently petitioned for a writ of certiorari, which the Supreme Court granted on June 17, 2024. SCOTUSBlog.
Analysis
STATUTORY INTERPRETATION OF “CLAIM” AND “PROVIDE” UNDER THE FCA
Wisconsin Bell argues that the reimbursement requests to the E-rate program are not “claims” under the FCA because the federal government does not “provide” any of the funds used by the E-Rate program. Brief for Petitioner, Wisconsin Bell at 17. Wisconsin Bell states that a “claim” only exists under the FCA if the federal government “provided any portion of the money” requested by the claimant. Id. at 17–18. Wisconsin Bell asserts that, under an ordinary reading, to “provide” money means that the federal government would directly reimburse the claimants, rather than regulate a separate entity such as the USAC to reimburse the claimants. Id. at 18.
Wisconsin Bell argues that the text of the FCA supports using an ordinary reading of “claim” because the FCA only imposes penalties on false claimants proportionate to “the amount of damages which the Government sustains.” Id. at 21. Wisconsin Bell argues that the FCA’s statutory history also supports an ordinary reading of “claim” because the FCA definition of “claim” was created to cover any fraud resulting in financial loss for the federal government. Id. Wisconsin Bell emphasizes that alternative readings of “provide,” such as “to make available,” are not permissible in this case because the ordinary meaning of “provide” does not include these alternative readings. Id. at 23. Wisconsin Bell adds that even if the “to make available” definition was permissible under the ordinary reading, the reimbursement requests would still not be “claims” because the funds in the E-Rate program come from private service providers. Id.
Wisconsin Bell also contends that the federal government does not have a financial stake, and that the federal government taking possession of funds while returning the funds to the USAC does not transform the private funds into public funds. Id. at 28–30. Wisconsin Bell analogized that when the post office delivers a birthday card from a grandmother with money included, one would consider the grandmother to be providing the money, not the federal government. Id. at 30.
Heath counters that the reimbursement requests to the E-Rate program are “claims” under the FCA because the federal government provides money to the E-Rate program by requiring and maintaining contributions to the USF. Brief for Respondent, Heath at 29. Heath asserts that under an ordinary meaning, there is no material difference between “supply” and “make available,” referencing multiple dictionaries such as Merriam-Webster that define “supply” as “to make available for use.” Id. at 30–31. Heath also notes that the Supreme Court has previously recognized that the definition of “provide” includes “to make available.” Id. at 29. Heath contends that the federal government has made the funds available because the federal government created the statutory and regulatory scheme that compels private service providers to fund the USF. Id. Heath emphasizes that all programs funded by the federal government first take funds from the private sector, such as through taxes. Id. at 32.
Heath further argues that, even if “supply” only meant to “directly supply,” the federal government still directly supplied $100 million to the USF that the Treasury gathered from debt collection, settlements, and restitution. Id.at 17. Heath also maintains that there is no requirement that the money transferred to the USF be “public” to be covered by the FCA because the FCA’s “claim” definition does not mention “public money.” Id. at 18. By contrast, Heath observes that more than twenty other sections of Title 31 of the U.S. Code, which includes the FCA, specifically mention “public money.” Id. Heath analogizes that when the post office delivers a birthday card from a grandmother with money inside, the answer of who the money comes from depends on who decided to send the money and not who delivered it, thus suggesting in this case that the federal government provides the funds for the E-Rate program. Id. at 20–21.
USAC’S RELATIONSHIP WITH THE FEDERAL GOVERNMENT
Wisconsin Bell argues that the USAC is not an agent of the federal government because the USAC cannot act on the federal government’s behalf, and the federal government does not have close control of the USAC. Brief for the Petitioner at 33. Wisconsin Bell first contends that the USAC cannot act for the federal government because the USAC lacks the power to make policy, interpret statutes and rules, and force the payment of federal funds when processing reimbursement requests from service providers. Id. at 43. Wisconsin Bell notes that since the USAC’s actions can never expose the federal government to any risk of financial loss, the USAC does not appear to be an agent of the federal government. Id.
Wisconsin Bell secondly contends that the federal government must be able to give day-to-day instructions to the USAC for the federal government to have close control over the USAC. Id. at 40–41. Wisconsin Bell argues that the federal government lacks day-to-day control over the USAC because the federal government can only indirectly review the USAC’s actions via the federal government’s power of investigations, rather than directly review reimbursement grants. Id. at 45. Wisconsin Bell notes that most government contractors and grantees would become agents of the federal government if the federal government’s power to set terms for federal programs created an agency relationship, which would render the differentiation between “agent” and “contractor” in the FCA “claim” definition meaningless. Id. at 46. Wisconsin Bell posits that Congress intended for the USAC not to be an agent of the federal government, because subsidizing private service providers with public tax dollars would likely cause protests from taxpayers. Id. at 46–47.
Heath counters that the USAC is an agent of the federal government because the USAC both acts on behalf of the federal government and is subject to the federal government’s control. Brief for the Respondent at 38. Heath states that the USAC acts on the federal government’s behalf because the USAC administers the E-Rate program on orders of the federal government. Id. at 39. Heath notes that the USAC can affect the federal government’s legal rights because the federal government has given the USAC the powers to bill and collect funds from service providers, and to distribute funds to beneficiaries. Id. Heath notes that after the USAC bills service providers, the federal government has the power to collect on any unpaid bills. Id. Heath argues that an agency relationship may be created by the fact that the USAC has the power to receive payments to the E-Rate program on the federal government’s behalf. Id. at 40–41. Heath maintains that an agency relationship may exist even if the federal government cannot directly control everything the USAC does. Id. Rather, Heath states that the federal government exercises enough control over the USAC by being able to review the USAC’s decisions and instruct the USAC through letters. Id. at 47.
Heath further contends that the federal government’s general power to direct the USAC does not illogically merge the definitions of contractors and agents because contractors are distinct from agents in other ways, such as that contractors have more independence than agents do. Id. at 45. Heath also emphasizes that the Supreme Court does not require that there must be day-to-day control for the USAC to be an agent of the federal government. Id. Heath finally posits that Congress intended for the USAC to be an agent of the federal government because legislative history shows Congress intended the FCA to protect federal programs administered by non-governmental entities. Id. at 49.
Discussion
ECONOMIC IMPACT OF EXPANDING THE SCOPE OF THE FALSE CLAIMS ACT
In support of Wisconsin Bell, the Washington Legal Foundation argues that expanding the scope of the FCA would harm disabled Americans, rural Americans, and Americans seeking to own homes. Brief of Amicus Curiae Washington Legal Foundation, in Support of Petitioner at 6, 12, and 17. The Chamber of Commerce claims that expanding the scope of the FCA would increase the general cost of doing business for large sections of the economy, and that these costs would be passed onto the public. Brief of Amicus Curiae Chamber of Commerce of the United States of America, in Support of Petitioner at 22. US Telecom argues that expanding the scope of the FCA would deter telecommunications providers from participating in Universal Service programs due to possible incidental FCA exposure. Brief of Amici Curiae US Telecom et al., in Support of Petitioner at 21.
In support of Heath, the Anti-Fraud Coalition argues that fears of lower federal program participation caused by increased exposure to FCA liability are overblown. Brief of Amicus Curiae Anti-Fraud Coalition, in Support of Respondent at 18–19. The Anti-Fraud Coalition argues that continued participation in the E-Rate program despite the current case pending for the past decade demonstrates that increased enforcement in areas where private contractors administer funds for the United States does not deter participation. Id. The Southern Education Foundation notes the important role that the FCA plays in supporting federal programs by recovering money lost in fraud and ensuring compliance with federal program rules. Brief of Amici Curiae Southern Education Foundation, et al., in Support of Respondents at 27–29. The Professors of Law and Computer Science emphasize how FCA enforcement plays a critical role in helping the government protect its investment and effectively allocate public resources in broadband services. Brief of Amici Curiae Professors of Law and Computer Science, et al., in Support of Respondents at 23–24.
GUARDING AGAINST FRIVOLOUS AND PREDATORY FALSE CLAIMS ACT LAWSUITS
In support of Wisconsin Bell, the Chamber of Commerce highlights the danger that meritless qui tam actions pose to the business community through the risks of substantial legal defense costs and significant financial liability. Brief for US Chamber of Commerce at 22–23. Accordingly, the Chamber of Commerce argues that the Seventh Circuit’s “vague and expansive” standard of what constitutes a FCA claim would damage businesses in the form of protracted litigation and crippling liability, and the Chamber of Commerce fears that expanding the FCA would encourage realtors to seek settlements by bringing suits that are highly unlikely to succeed. Id. at 24–25. The Washington Legal Foundation echoes these concerns and argues that affirming would encourage “parasitic suits” whose primary purpose is to enrich realtors, not recover money for the federal government. Brief for Washington Legal Foundation at 24–25.
In support of Heath, Professors of Law and Computer Science argue that the FCA contains ample protections against duplicative, parasitic, and frivolous suits, pointing to limits as to who can qualify as a relator, limits as to what information can constitute a qui tam complaint, and the government’s ability to take over the relator’s action if it wishes. Brief for Professors of Law and Computer Science at 20. The Southern Education Foundation asserts that the FCA imposes a “demanding” standard because a violation requires either “actual knowledge, deliberate ignorance, or recklessness” regarding the alleged false claim. Brief for Southern Education Foundation at 30. Accordingly, they argue that entities who make good-faith efforts to comply with the requirements of government programs have nothing to fear from false or frivolous FCA lawsuits. Id. at 30–31.
Conclusion
Acknowledgments
Additional Resources
- E-Rate - Schools & Libraries USF Program, Federal Communications Commission (October 10, 2024).
- Davis Wright Tremaine LLP and Fernanda Hilb, FCC Extends E-Rate to Off-Premises Wi-Fi Hotspots, (August 7, 2024).