Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Welcome
Go
Free Newsletter Sign Up

Dish Spectrum License Fraud Appeal Has 'Very Little Precedent'

March 2, 2022, 11:00 AM

Dish Network Corp. should face a False Claims Act lawsuit accusing the company of using sham small businesses to win FCC communications licenses worth billions of dollars, whistleblower Vermont National Telephone Co. will argue in a Washington, D.C., appeals court Thursday.

Vermont National said its suit was improperly dismissed under the FCA’s government-action bar, which precludes suits “based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the government is already a party.”

Vermont National has told the U.S. Court of Appeals for the D.C. Circuit that its FCA suit—filed days after an FCC challenge to the licenses—shouldn’t have been dismissed because the FCC proceeding never led to a penalty.

There is “very little precedent” analyzing the government-action bar defense and its elements, especially at the appellate level, said Andrew C. Bernasconi, who represents FCA defendants. He is with Reed Smith LLP in Washington.

The potential importance of the ruling is heightened by the stature of the D.C. Circuit in administrative law, he said.

The entities affiliated with Dish gave up the licenses and made a “default payment” after the FCC proceeding. But those actions were completely voluntary under FCC rules, Vermont National said, meaning Dish never paid a penalty for wrongdoing.

Dish said dismissal of the FCA suit was proper because what matters under the government-action bar is whether the FCC had authority to impose penalties, which it did. And FCC regulations show that default payments are in fact penalties, Dish said.

Thursday’s argument is before Judges Judith W. Rogers, David S. Tatel, and Cornelia T.L. Pillard.

Infrequently Used

The government-action bar is infrequently used by FCA defendants. In a Bloomberg Law opinion search, the government-action bar is only mentioned twice by federal appellate courts—a 2017 Ninth Circuit opinion and a 2021 Fifth Circuit opinion.

Another FCA bar that precludes suits based on publicly disclosed information, by contrast, is mentioned 175 times.

The government-action bar exists to prevent whistleblowers from benefiting from a lawsuit over misconduct the government already knows about.

Dismissal under that bar has been rare and rightly so, said Colette G. Matzzie, who represents whistleblowers. She is with Phillips & Cohen LLP in Washington.

Congress didn’t intend to stop meritorious whistleblower cases because of any administrative action that involves the same transaction, she said.

“If it did, administrative resolution of a bid protest or a contract adjustment or repayment of overpayments alone could preclude a well-founded case alleging fraudulent inducement of a contract or knowing submission of false claims under a government contract,” she said.

‘Crowded Out’

Vermont National says it was “crowded out” by Dish’s scheme to win spectrum licenses at a 2014 FCC auction. Spectrum licenses let companies use specific frequencies to provide provide television, mobile phone, and wireless internet services.

The auction offered a 25% discount on a license to winning bidders with $15 million or less in revenue, Vermont National said.

Dish Network, which had $14.6 billion in adjusted revenue in fiscal 2014, conspired to create sham small businesses to obtain that discount and outbid legitimate small businesses, Vermont National said.

Two entities that won licenses, Northstar Wireless LLC and SNR Wireless License Co. LLC, failed to disclose to the FCC that Dish Network controlled them and that Dish would receive those licenses in the future, Vermont National asserted.

Business Decision

A Vermont National subsidiary and others filed a petition in the FCC to challenge the licenses May 11, 2015. Vermont National filed its FCA lawsuit two days later.

The FCC determined that Northstar and SNR weren’t eligible for the bidding credits, but it didn’t assess forfeiture penalties for misrepresentations, Vermont National said. Instead, Northstar and SNR made voluntary business decisions six weeks after the FCC decision to default on the licenses.

FCC rules allow “efficient breach” by letting winning bidders make default payments in lieu of taking spectrum licenses that they no longer want, Vermont National said.

The federal district court concluded that that voluntary act was a penalty triggering the government-action bar. On appeal, Vermont National says the default payments had nothing to do with conduct during the auction or the fraud the FCA suit alleged.

Selective default appears to be the equivalent of an efficient breach of a contract or a decision to return an overpayment, and not a penalty, Matzzie said.

“Congress was very specific about what precludes a qui tam so as to strike a balance that ensures adequate enforcement against alleged knowing frauds,” she said.

Whether the payments were a penalty “really gets into the weeds of the FCC administrative and regulatory structure,” Bernasconi said.

But the government-action bar focuses on whether there is an administrative civil money proceeding, not the imposition of a penalty, he said.

It shouldn’t matter whether a penalty was imposed, because if a proceeding isn’t successful, a defendant shouldn’t be subjected to a second attempt in the government’s name to penalize the same alleged conduct the government already pursued, he said.

Wiley Rein LLP and MoloLamken LLP represent Vermont National. Hogan Lovells US LLP, Wilmer Cutler Pickering Hale & Dorr LLP, and Covington & Burling LLP represent the defendants.

The case is United States ex rel. Vt. Nat’l Tel. Co. v. Northstar Wireless LLC, D.C. Cir., oral argument 3/3/22.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com