Supreme Court Allows Whistleblower Suit Against Wisconsin Bell

Supreme Court Justice Elena Kagan stands during a group photograph of the justices at the Supreme Court in Washington, on April 23, 2021. Erin Schaff/AFP via Getty Images

The U.S. Supreme Court ruled unanimously that a whistleblower’s fraud lawsuit against a Wisconsin telecommunications company for allegedly overcharging schools for internet services may move forward.

Justice Elena Kagan wrote the court’s 9–0 opinion in Wisconsin Bell Inc. v. United States ex rel. Heath, which was issued on Feb. 21.

Wisconsin Bell argued the lawsuit could not proceed because no government funds were involved, but the justices disagreed, holding that some government funds were involved, and that this meant the whistleblower may proceed with his lawsuit in the lower courts.

The lawsuit concerned the application of the federal False Claims Act (FCA). Sometimes called the Lincoln Law, the FCA was enacted in 1863 to address defense contractor fraud during the Civil War. Under the statute, anyone who knowingly files false claims with the government is liable for triple damages plus a $2,000 penalty for each false claim.

In addition, the law allows individuals and non-governmental organizations to sue in federal courts on behalf of the U.S. government in what is called a “qui tam” claim. Those whistleblowers who report fraud that causes a financial loss to the government may be awarded between 15 percent and 30 percent of the sum the government recovers.

Whistleblower Todd Heath, an auditor, sued under the FCA on behalf of the federal government, alleging that petitioner Wisconsin Bell, a subsidiary of AT&T, misused funds under the E-Rate program.

Short for Education-Rate, the program assists schools and libraries in procuring affordable broadband, according to the Federal Communications Commission (FCC). The program is run by the Universal Service Administrative Company (USAC) under the FCC’s direction. The USAC is a congressionally created, private, not-for-profit corporation that is overseen by the FCC.

For providing internet services to schools and libraries, telecom companies get reimbursed through the Universal Services Fund (USF). The USF is funded by a tax on telephone service and is administered by the USAC. The tax is collected through line-item charges that appear on monthly telephone bills. Schools, school districts, and libraries are allowed to apply individually or as a group for a subsidy in the form of a discount for services.

During oral arguments on Nov. 4, 2024, Heath’s attorney said Wisconsin Bell overcharged hundreds of libraries and schools and sought reimbursement from the USAC. The telephone company argued Heath couldn’t sue under the FCA because the funds were obtained from the USAC, which is a nonprofit that is not part of the federal government.

Before that, U.S. District Judge Lynn Adelman granted summary judgment to Wisconsin Bell in March 2022 and threw out the lawsuit.

The U.S. Court of Appeals for the Seventh Circuit reversed in August 2023, finding Heath compiled sufficient evidence to convince a “reasonable jury” that Wisconsin Bell engaged in discriminatory pricing practices against the schools and libraries.

Wisconsin Bell argued in its Supreme Court petition that the Seventh Circuit erred because the reimbursement requests the company filed under the E-Rate program were aimed at a program that is “funded exclusively by contributions from private carriers and administered by a private non-profit entity.”

In the Supreme Court’s new opinion, Justice Kagan wrote that because at least some of the E-Rate funds constituted government funds, the reimbursement requests were subject to the False Claims Act.

In the period in which the reimbursement requests were presented, “the Government transferred more than $100 million from the Treasury into the pool of funds used to pay E-Rate subsidies,” she wrote. “That is enough to create a ‘claim’ under the Act, and to allow a suit alleging fraud to go forward.”

“The Government was not a passive throughway for the transmission of E-rate moneys from one private party (the carrier) to another (the Administrative Company),” Kagan wrote.

“Nor were the Government’s activities confined to ‘facilitating’ such transfers, as Wisconsin Bell would have it,” she added.

The Supreme Court affirmed the ruling of the Seventh Circuit and sent the case back to that court “for further proceedings consistent with this opinion.”