Supreme Court to Tee Up New Fight Over False Claims Act Scope (2)

The justices are almost certain to reject a narrow reading of the False Claims Act, but unlikely to do so expansively—at least for now.

The FCA, which calls for triple damages and a minimum statutory penalty, is intended to prevent fraud against the government by allowing private parties or whistleblowers to sue on behalf of the government. These “qui tam” actions can be brought against anyone alleged to have submitted a false claim to the government.

The question for the court in the case argued Monday is whether allegedly false claims made against a fund set up through government regulation but using mostly private funds can be the basis of a “claim” under the FCA.

Several justices appeared inclined to rule that an FCA claim can be brought because at least some of the funds are provided by the government. In the first question asked at the argument, Justice Clarence Thomas noted that the government provides at least $100 million to the multi-billion dollar Universal Services Fund.

“That seems somewhat at odds with your argument that it’s not the government’s money,” Thomas told Wisconsin Bell’s attorney Allyson Ho.

But a number of justices appeared hesitant to go further and rule that the nominal amount provided by the government opened up the entire multi-billion dollar fund to FCA claims.

Given potential implications for programs like Medicare and minimum wage laws, it would be improper for the court to rule on that just now, Justice Brett Kavanaugh said. “It seems pretty aggressive to me,” Kavanaugh said.

That would leave for another day questions about how much damages whistleblowers and the government were entitled to. Those “hard questions could be fleshed out later,” Justice Amy Coney Barrett said.

Assume Loss

The case involves the oft-litigated $9 billion Universal Services Fund, which is intended to help expand telecommunications services to rural and low-income communities, including schools and libraries. Under the Federal Communications Commission’s E-Rate program, either schools, libraries, or the telecommunications companies themselves can seek reimbursement requests from the fund for discounts services.

Whistleblower Todd Heath brought an action under the FCA alleging that telecommunications provider Wisconsin Bell overcharged schools and libraries for services under the E-Rate program, resulting in the fund paying out more money.

Wisconsin Bell argued that the reimbursement requests weren’t claims against the government because the fund is financed by the telecommunications providers and not money from the federal government. Wisconsin Bell also argued that the entity set up to administer the fund—the Universal Service Administrative Company—is a private, not-for-profit corporation and not a government agency.

The US Court of Appeals for the Seventh Circuit rejected those arguments and allowed the suit to go forward.

The government does pay some money into the fund through its power to collect delinquent debts and pursue penalties against those who fail to pay into the fund, the Seventh Circuit said.

The Supreme Court seemed to agree.

Chief Justice John Roberts, Barrett, and Justice Neil Gorsuch all asked Ho to assume that the justices were going to rule against the telecommunications on that point. “I know those are unpleasant assumptions, but work with me a minute,” Gorsuch said.

He and the other justices instead probed what implications a limited ruling would have on the litigation going forward.

Both Ho, of Gibson Dunn, and whistleblower Heath’s attorney Tejinder Singh, of Sparacino PLLC, agreed that there would still be questions about what damages could be awarded. Specifically, whether they would somehow be limited to the small percentage of the monies the government put into the fund.

It “will cause a lot of heartburn,” Singh said.

Limiting Principle

But that seemed to be as far as the justices were willing to go, for now. In particular, they appeared unlikely to go as far as the Seventh Circuit did and rule that the government’s role in establishing and overseeing the program means that it “provides” all the money to the fund.

Some justices, like Thomas, seemed to think that holding was wrong. This “is private money from private parties to another private party, and it’s very difficult to see what the government’s financial stake is,” Thomas said.

Others were worried their ruling could have unintended consequences.

If “we decided that larger question, we would be wading into something that really hasn’t percolated very much,” Barrett said.

And Kavanaugh worried that the court might not enough information about the effects such a ruling might have beyond the USF. The justices haven’t “gotten a ton of guidance on this limiting principle and how it would affect all these other programs, he said.

Nondelegation Doctrine

Also playing in the background of the case is the so-called non delegation doctrine and a closely watched petition for review brought by the US Solicitor General. In FCC v. Consumers’ Research, the Biden administration is asking the justices to undo a ruling out of the Fifth Circuit that found the whole USF unconstitutional.

Part of the Fifth Circuit’s ruling was based in part on its finding that the corporation that administers the fund, the USAC, isn’t an agent of the federal government, but rather a private entity.

But the Seventh Circuit in Wisconsin Bell found that the USAC—the entity that administers the fund—is an agent of the federal government, bringing it within the scope of the FCA.

“This Court’s resolution of those issues in Wisconsin Bell could shed light on the nature of the FCC’s relationship with the Company—which, in turn, could affect the nondelegation analysis in this case,” the Biden administration said in its request to review the Fifth Circuit’s ruling.

The SG’s petition is scheduled to go to the justices’ private conference on Nov. 15, at which they will discuss whether to take the case, deny it, or hold it for their decision in Wisconsin Bell.

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