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Dish Network Must Again Face Whistleblower’s License Suit (2)

May 17, 2022, 3:01 PMUpdated: May 17, 2022, 6:30 PM

Dish Network Corp. must again defend itself in a whistleblower’s False Claims Act suit alleging that it used sham small businesses to win FCC communications licenses worth billions of dollars, the D.C. Circuit ruled Tuesday.

Vermont National Telephone Co. showed that a district court was wrong to rule that the FCA’s “government-action bar” required dismissal, Judge David S. Tatel of the US Court of Appeals for the D.C. Circuit said in its decision to reverse.

The bar 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 argued that its FCA suit—filed days after a Federal Communications Commission challenge to the licenses—shouldn’t have been dismissed because the agency proceeding never led to a penalty.

Because the FCC had no authority to assess civil money penalties during its licensing proceeding, the licensing proceeding wasn’t an administrative civil money penalty proceeding, the court said.

Vermont National alleges that the conduct by Dish Network-controlled companies defrauded the government out of $3.3 billion.

Counsel for the parties didn’t immediately respond to a request for comment.

“The DC Circuit’s opinion is good news for whistleblowers. The court affirmed that qui tam actions are barred only by a narrow set of administrative proceedings for ‘civil money penalties’ and not by all government agency actions in which penalties may be imposed such as, in this case, the default payments made by the defendants after the FCC licensing proceedings for spectrum licenses, said Colette G. Matzzie, who represents whistleblowers. She is with Phillips & Cohen LLP in Washington.

“This ruling will encourage whistleblowers with knowledge of fraud directed at federal programs to come forward, assured that the qui tam case is unlikely to be dismissed because of agency actions that are not proceedings to recover civil money penalties for the alleged fraudulent conduct,” she said.

Selective Default

Dish argued that the FCC levied penalties by subjecting the small businesses—Northstar Wireless LLC and SNR Wireless License Co.— to default payments after they selectively defaulted on their winning bids.

But even assuming the default payments are penalties, they had no bearing on whether the FCC’s licensing proceeding was a civil money penalty proceeding, the court said. The default payments weren’t assessed during the licensing proceeding, the court said.

It would “make no sense” to find that the FCC’s ultimate imposition of default payments, triggered by an event that had not yet occurred at the time of the licensing proceeding, retroactively transformed the licensing proceeding into a civil money penalty proceeding, the court said.

Default payments didn’t flow directly from the FCC’s determination in the licensing proceeding that Northstar and SNR were ineligible to bid, the court said.

Dish also argued that the FCC may assess forfeiture penalties for not complying with any FCC rule or regulation. But FCC regulations provide that the agency may authorize forfeiture penalties only in forfeiture proceedings, the court said.

The FCC had no authority to impose forfeiture penalties because it didn’t initiate a forfeiture proceeding, the court said.

Spectrum Auction

Vermont National alleged that Dish’s scheme prevented it from fairly competing in a 2014 FCC auction for spectrum licenses, which let companies provide television, mobile phone, and wireless internet services.

The auction offered discounts to winning bidders with less than $15 million in revenue. But Dish Network, which wasn’t an eligible small business, conspired to create sham businesses to obtain the discount and outbid legitimate small businesses, Vermont National said.

Northstar and SNR failed to disclose to the FCC that Dish Network controlled them and that Dish would receive those licenses in the future, Vermont National asserted.

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.

A district court dismissed the FCA suit under the government-action bar in March 2021. The suit was filed days after an FCC hearing addressed the same allegations and transactions present in Vermont National’s suit, the district court found.

Materiality

The district court also said Vermont National’s complaint didn’t satisfy the FCA materiality requirement because it didn’t show Vermont Wireless failed to show that the disclosure of any secret agreements between Dish and the affiliates would have influenced government payment decisions.

The D.C. Circuit reversed that finding.

Vermont National alleged that Northstar and SNR knowingly failed to disclose all of their agreements with Dish, and they falsely certified they had disclosed all agreements, the D.C. Circuit said.

Alleged false certifications and failures to disclose agreements had the potential to affect the FCC’s eligibility determinations, the court said.

Any disputes regarding how the FCC reviews auction applications should be addressed at a later stage in the case, it said.

Judges Judith W. Rogers and Cornelia T.L. Pillard joined in the decision.

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

The case is United States ex rel. Vt. Nat’l Tel. Co. v. Northstar Wireless LLC, D.C. Cir., No. 21-7039, 5/17/22.

(Updates with attorney comment about the court ruling in eighth and ninth paragraphs)

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

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com