Supreme Court justices seemed skeptical of Wisconsin Bell’s claim that overbilling alleged by a whistleblower does not fall under the federal False Claims Act (FCA).
The assertion was raised during oral arguments on Nov. 4 in Wisconsin Bell Inc. v. United States ex rel. Heath.
Whistleblower Todd Heath, an auditor, sued on behalf of the federal government.
Sometimes called the Lincoln Law, the FCA was enacted in 1863 to deal with defense contractor fraud during the Civil War.
Anyone who knowingly files false claims with the government is liable for triple damages plus a $2,000 penalty for each false claim.
The program, which distributes as much as $4.5 billion annually, is run by the Universal Service Administrative Company (USAC) under the FCC’s direction.
The nonprofit organization was authorized by the federal Telecommunications Act of 1996.
E-Rate is funded by the Universal Service Fund (USF), which provides subsidies for telecommunications services, including internet service.
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.
Discounts can be from 20 percent to 90 percent depending on the local level of poverty and whether the library or school is situated in a rural or urban area.
Heath sued, alleging petitioner Wisconsin Bell, a subsidiary of AT&T, overbilled libraries and schools for telecom services and then filed for reimbursement with USAC.
But the U.S. Court of Appeals for the Seventh Circuit reversed that in August 2023, finding “Heath identified enough specific evidence of discriminatory pricing to allow a reasonable jury to find that Wisconsin Bell … charged specific schools and libraries more than it charged similarly situated customers.”
The circuit sent the case back to the lower court for trial.
“The False Claims Act is the heavy artillery of the administrative state, wielded to impose effectively punitive liability in the form of treble damages and mandatory minimum civil penalties for regulatory infractions.”
The statute was enacted “to protect funds and property that belong to the public,” yet the Seventh Circuit “aimed the FCA at submissions made to a private non-profit corporation paying out private funds.”
The circuit was wrong to find that reimbursement requests to the E-Rate program were actionable “claims” under the act “even though the program is funded exclusively by contributions from private carriers and administered by a private non-profit entity.”
This is at odds with the Fifth Circuit, which held in 2014 that the FCA does not apply to requests for reimbursement under the program because “the United States does not have a financial stake” in any money lost.
The Seventh Circuit ruling is also inconsistent with rulings of the Second, Third, and Eighth Circuits which have found that for there to be liability under the FCA the government must be facing a potential loss, the petition said.
During oral arguments on Nov. 4, several justices zeroed in on the fact that the U.S. Treasury Department kicked in upwards of $100 million to the USF from 2003 to 2015 for settlements, debts, and criminal restitution that the government collected.
Wisconsin Bell attorney Allyson Ho said that money was not public money, but was “owed” to the USAC.
Justice Brett Kavanaugh pushed back.
“Couldn’t you say that about all public funds? Taxes come in and then they go out to pay for government programs,” he said.
“Most government money comes from taxes, some from fees some from leases, et cetera,” Kavanaugh said.
Chief Justice John Roberts said, “What if we don’t agree with your treatment of the $100 million and … agree with the government’s view of the $100 million?”
Justices Neil Gorsuch and Amy Coney Barrett asked Ho what would happen if the Court rejected her argument regarding the $100 million.
However, Justice Clarence Thomas expressed concern to Heath’s attorney, Tejinder Singh, about what the “government’s stake is.”
“If this had been an appropriated fund and the administrator had been a federal agency, this would be … a very straightforward case. We’d know exactly what the government’s financial stake was.”
“But 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.”
“It doesn’t look like federal funds. It looks like private funds,” Thomas said.
The Supreme Court is expected to rule on the case by June 2025.
