SCOTUS Appears Divided on Wisconsin Bell E-rate Case

Todd Heath sued AT&T subsidiary Wisconsin Bell under the FCA, arguing that the company charged schools and libraries impermissibly high prices under the E-rate program, which made each reimbursement request a false claim.

A district court ruled against Wisconsin Bell’s move to dismiss the case on grounds that the alleged submissions weren’t actionable “claims” under the FCA because they didn’t involve government funds or requests to government agents. But that court dismissed the case on grounds that were not before SCOTUS. The 7th Circuit reversed and remanded the case for trial. A Wisconsin Bell win could potentially limit the pool of possible FCA targets for whistleblowers and the government.

“When Wisconsin Bell requests E-rate funds, the government provides the money,” said Sparacino’s Tejinder Singh, who represents Heath. “The administrator pays on the government’s behalf, using money the government collects and controls, to advance a federal program that the government created.”

FCC mandates “specify who must be paid and how much they must be paid,” Singh said. It doesn’t matter under the FCA whether the money takes “an unnecessary detour through federal Treasury accounts.” FCA applicability “doesn’t turn on bookkeeping conventions.” The program administrator merely does what the government instructs, he said.

The case would be very straightforward if E-rate were an appropriated program that the federal government strictly administered, said Justice Clarence Thomas. “We’d know exactly what the government’s financial stake was,” Thomas added. “This is private money from private parties to another private party,” he said. “It’s very difficult to see what the government’s financial stake is.”

E-rate “doesn’t look like federal funds; it looks like private funds,” Thomas said.

“This is treated for budget purposes as a permanent and definite appropriation,” Singh said. The appropriation is also “located” in the Telecom Act, he said. “Such … appropriations are pretty commonplace throughout the federal budget.” When fewer dollars are available because fraud depletes the USF, “there is less money on hand to pay the beneficiaries.” The FCA is concerned with “protecting the integrity of government programs,” he said.

The Universal Service Administrative Co.'s only job is administering USF programs, Singh said. “It has no real other function.”

The E-rate program could have been funded with public money and administered directly by a government agency, said Gibson Dunn’s Allyson Ho, who represents Wisconsin Bell. “But the political branches chose private funding and a private administrator to prevent E-rate money from being used to mask budget shortfalls and to avoid the Government Corporation Control Act,” she said.

The consequence is that “E-rate reimbursement requests aren’t FCA claims,” Ho said. “Choices have consequences.”

Said Justice Ketanji Jackson, “Ultimately, the reason the money is being collected is because the government has ordered telecom companies to fund this government program.” She continued, “The ultimate beneficiary, I would think, is the public."

Under the text of the FCA, “just having a government purpose isn’t enough” to trip the statute, Ho responded.

The point is that telecom companies are collecting the fee to pay for the E-rate program, Jackson said. What’s the difference between that and “just telling telecom companies you put it into the fund directly?”

Justice Elena Kagan took issue with Ho’s characterization of how money is provided under the E-rate program. She used the example of having a sick friend and providing for Uber to deliver chicken soup. “In some ways, it’s the delivery man who provides the soup, but I provided the soup because I paid for it and I paid the delivery man to go deliver it,” she said.

“I ordered the soup and here the mandate is coming from the federal government in the same way.”

What makes something “government funds?” asked Justice Brett Kavanaugh. “What are the precise indicia?” Most government money comes from taxes, some from fees and leases, “but it’s coming in and going out.”

Kavanaugh and Justice Neil Gorsuch raised concerns that, without defined limits, the FCA could be applied to civil litigation and other areas it wasn’t designed to address.

Vivek Suri, assistant to the U.S. solicitor general, noted that the government exercises control under the E-rate program “at the front end, requiring the money to be paid in,” but also “at the back end, deciding how the money is paid out, how it’s distributed,” he said. In civil litigation, “that back-end control doesn’t exist.”

Suri disagreed with Thomas’ contention that E-rate is private money. In 2008, Congress took $21 million from the program to pay for oversight, Suri noted. “That’s something that simply wouldn’t have done if this were a private bank account,” he said. Congress regards USF “as the government’s money.”

The government treats the funds as “appropriated funds,” and they’re called “backdoor appropriations,” noted Chief Justice John Roberts. That term is “a little bit of a pejorative term … because you do get a very large amount of money without going through the normal appropriations process,” he said.

Roberts cautioned that just because Congress “did something,” doesn’t mean it had the authority to act. “The fact that Congress did it is not particularly determinative,” he said. “We’ve had a few cases that say that Congress’ position is not borne out by the statute.”

The discussions at the court “reaffirm the E-rate program's stability and essential role in supporting internet access for schools and libraries,” emailed John Harrington, CEO of Funds For Learning: “The justices acknowledged the government’s stake in the program and appeared focused on preserving its integrity and mission. We remain confident that E-rate will continue to bridge the digital divide, ensuring connectivity for students nationwide."