Justices to Weigh What’s a Government Dollar in FCC Fraud Case

The US Supreme Court on Monday will hear Wisconsin Bell Inc. argue that a False Claims Act suit accusing the company of defrauding a Federal Communications Commission program should be rejected because the suit doesn’t involve government money.

The AT&T subsidiary contends that the FCC’s E-Rate program, which helps schools and libraries afford telecommunications and internet services, is funded by private telecommunications carriers that make contributions to a fund administered by a trade group’s corporation. Therefore, any alleged misconduct by Wisconsin Bell couldn’t have harmed the government, the company has argued.

A Wisconsin Bell victory could limit the FCA’s reach, and shrink the pool of possible FCA targets for whistleblowers and the government.

The distinction Wisconsin Bell draws between public and private funds is “a clean line” the Supreme Court may find appealing, said Amy D. Kossak, who represents FCA defendants with Ropes & Gray LLP.

A win for the company would likely affect a “small fraction of cases” because the type of funding mechanism at issue here isn’t very common in the federal system, she said. But it would be “significant for the telecommunications industry” which, according to Wisconsin Bell’s petition, receives about $10 billion each year through E-Rate and other programs, Kossak said.

But, Max Rodriguez, who represents FCA whistleblowers with Law Office of Max Rodriguez PLLC, said Wisconsin Bell’s stance “shouldn’t be a strong argument.”

The FCA “contemplates covering claims made to private third parties, and contemplates covering money used on the government’s behalf or to advance government programs or interests, and not strictly ‘public funds,’” he said.

Courts have upheld this approach with intermediaries like Medicare Advantage organizations or the Coalition Provisional Authority in Iraq, he said.

E-Rate’s Price Rule

Whistleblower Todd Heath filed suit in 2008 in the US District Court for the Eastern District of Wisconsin. He alleges that Wisconsin Bell submitted claims for subsidies, while falsely certifying compliance with a “lowest corresponding price” rule. The rule is violated if a provider charges E-Rate customers a higher rate than it charged similarly situated customers for similar services.

The district court granted Wisconsin Bell summary judgment in March 2022.

The US Court of Appeals for the Seventh Circuit reversed in August 2023 and issued an amended opinion in January to clarify the federal funds issue. Even a “drop” of federal money given to a defrauded entity will establish liability under the FCA, the appeals court said.

The Supreme Court granted Wisconsin Bell’s petition June 17.

Wisconsin Bell contends that the government isn’t providing money to the Universal Service Administrative Company that administers the Universal Service Fund. “When the Post Office delivers a birthday card with a $20 bill inside, no one would doubt that grandma—not the government—'provides’ the cash,” the company said.

The Supreme Court “may say that without clarifying language from Congress, the FCA can’t reach the conduct of Wisconsin Bell,” said Joe Whitley, who represents FCA defendants with Womble Bond Dickinson (US) LLP.

Predicting a 6-3 decision in favor of Wisconsin Bell, Whitley said the Supreme Court “may cite the 1863 origins of the FCA as being focused on protecting the funds being expended in the then war effort against the Confederacy by the Union. Consistent with that objective, Congress over the last 160 years has not expanded the FCA to reach private funds.”

‘Makes No Difference’

Heath countered Wisconsin Bell by arguing that E-Rate exists because of the government action—the FCC ordering telecommunications carriers to pay money.

The FCC, Treasury Department, and Justice Department initiate enforcement actions to collect money owed to the government when those carriers don’t pay, Heath has argued.

“To satisfy the definition of a claim, one need only make a claim on a fund that is funded in whole or part with government money,” said Reuben A. Guttman of Guttman, Buschner & Brooks PLLC, a firm that represents whistleblowers.

“The idea that the Universal Service Fund is just an aggregation of private dollars is like saying the US Treasury is an aggregation of private funds because it is funded by private taxpayers,” he said.

The Universal Service Fund “is a government created fund. The source of all government funds are private actors,” Guttman said.

The government agrees, stating in its amicus brief to the high court that it “makes no difference” that private payers make contributions to the fund, with regard to the FCA’s applicability, because the government often raises revenue from private sources.

Sparacino PLLC, Goldberg Kohn Ltd., and O’Neil, Cannon, Hollman, DeJong & Laing S.C. represent Heath. Gibson, Dunn, & Crutcher LLP represents Wisconsin Bell.

The case is Wis. Bell Inc. v. United States ex rel. Heath, U.S., No. 23-1127, oral argument 11/4/24.