The U.S. Supreme Court recently heard arguments in Wisconsin Bell, Inc. v. United States ex rel. Todd Heath, Docket No. 23-1127, a case in which the Court agreed to review whether reimbursement requests submitted to the Federal Communications Commission’s (FCC) “E-Rate Program” are considered “claims” under the False Claims Act (FCA). Although arising in the context of the FCC, the implications of the Court’s decision could extend far beyond, including to industries frequently the target of FCA enforcement, such as health care, defense, and other industries involving government contracts.
What You Need to Know:
- Although arising in the context of the FCC, the implications of the Court’s decision could extend far beyond, including to industries frequently the target of FCA enforcement, such as health care, defense, and other industries involving government contracts.
- The Court’s decision in Wisconsin Bell v. United States ex rel. Todd Heath will clarify what constitutes a “claim” under the FCA.
- Based on the Justices’ questions, particularly those of Justices Barrett, Kagan, Jackson and Sotomayor, a core of Justices appear to disagree with the Fifth Circuit and believe that the reimbursement requests from the E-Rate Program are “claims” under the FCA.
- As in years past, the Court’s docket reflects the continued significance of FCA litigation, and its importance to the government’s recovery of funds.
- For that reason, it remains no less important to companies that are recipients of federal funds, particularly in highly regulated industries such as health care.
In Wisconsin Bell, the Court will consider what constitutes a “claim,” and clarify whether private corporations administering programs such as E-Rate on the government’s behalf are considered government agents.
The FCA creates liability for individuals and entities submitting false claims to the government. Private parties—known as “relators”—may bring suit on the government’s behalf. Enacted following the Civil War, the FCA is one of the primary tools used to combat fraud against the government. To establish an FCA claim, a relator must plead: (1) falsity—i.e., that the claim submitted to the government was false; (2) materiality—i.e., that the false statement mattered to the government; and (3) scienter—i.e., that the party submitting the false claim did so knowingly and intentionally.
Below, we discuss the critical threshold issue in alleging an FCA violation, arising in Wisconsin Bell: what constitutes a “claim” submitted to the government?
A. Wisconsin Bell, Inc. v. United States ex rel. Todd Heath
The E-Rate program, which the FCC established, provides discounted internet and telecommunications services to schools and libraries across the United States. The program subsidizes the cost of these services using funding from private telecommunications carriers, which are pooled in a Universal Service Fund. The Universal Service Fund is administered by a private non-profit corporation: the Universal Service Administrative Company (USAC). Todd Heath, the relator, filed suit against Wisconsin Bell, a subsidiary of AT&T, Inc., alleging Wisconsin Bell violated the FCA by overcharging libraries and schools and submitting false reimbursement requests to the E-Rate Program between 1997-2015.
B. The District Court’s Opinion
In the District Court, Wisconsin Bell moved to dismiss Heath’s complaint, arguing the reimbursement requests were not “claims” because they did not involve government funds or requests to government agents. The District Court for the Eastern District of Wisconsin denied the motion to dismiss but granted leave to amend. See United States ex rel. Heath v. Wisconsin Bell, 111 F. Supp. 3d 923, 929 (E.D. Wis. 2015).
Ultimately, the District Court granted summary judgment in favor of Wisconsin Bell, finding Heath’s claim would fail on both falsity and scienter elements. The District Court reasoned that Heath could not demonstrate that E-Rate customers were charged more than the lowest corresponding price as required by the Act, and Wisconsin Bell’s interpretation of the Act was neither objectively unreasonable nor inconsistent with authoritative guidance. See United States ex rel. Heath v. Wisconsin Bell, 593 F. Supp. 3d 855, 861 (E.D. Wis. 2022).
C. The Circuit Court’s Opinion
The Seventh Circuit reversed, concluding “Heath identified enough specific evidence of discriminatory pricing to allow a reasonable jury to find that Wisconsin Bell, acting with the required scienter, charged specific schools and libraries more than it charged similarly situated customers.” United States ex rel. Heath v. Wisconsin Bell, 75 F.4th 778, 781 (7th Cir. 2023).
Wisconsin Bell filed a petition for rehearing en banc, which the Seventh Circuit denied. Nevertheless, the Seventh Circuit issued an amended opinion addressing the government funds issue as a question of law. The Seventh Circuit reasoned that the reimbursement requests are claims under the FCA because the “government provides a portion of the money” to the Universal Service Fund, and the USAC is an agent of the United States; therefore, there existed a “sufficiently close nexus” between the USAC and the government. United States ex rel. Heath v. Wisconsin Bell, 92 F.4th 654, 669 (7th Cir. 2024).
D. The Parties’ Positions Before the U.S. Supreme Court
In its petition for certiorari and in its opening merits brief, Wisconsin Bell argued the Seventh Circuit created a circuit split with the Fifth Circuit’s decision in United States ex rel. Shupe v. Cisco Systems, Inc., 759 F.3d 379 (5th Cir. 2014). There, the Fifth Circuit held as a matter of law that reimbursement requests from the E-Rate Program are not “claims” because “there are no federal funds involved in the program, and [the USAC] is not itself a government entity.” United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d at 388. Wisconsin Bell further argued the USAC is not an agent of the government. Therefore, it submits, the Seventh Circuit’s decision conflicts with the Second, Third, Fifth, and Eighth Circuits, which have each held that a potential financial loss to the federal government is required to prove a “claim” for purposes of establishing FCA liability.
In opposition to Wisconsin Bell’s petition for certiorari review, Todd Heath argued “a claim subject to the False Claims Act is made whenever the federal government ‘provides any portion’ of the money or property in question.” Docket No. 23-1127, Respondent’s Brief dated May 1, 2024 at 5-6. Heath argues the Seventh and Fifth Circuits agree on this legal principle because the Fifth Circuit did not appreciate that E-Rate program funds come from the U.S. Treasury. The Fifth Circuit applied a pre-amendment version of the False Claims Act in deciding that the USAC was not an agent of the government.
E. The Parties’ Arguments Before the Court
On November 4, 2024, the Court heard oral argument. Based on the Justices’ questions, particularly those of Justices Barrett, Kagan, Jackson and Sotomayor, a core of Justices appear to disagree with the Fifth Circuit and believe that the reimbursement requests from the E-Rate Program are “claims” under the FCA. The Justices were particularly focused on the fact that the FCC directs and controls the reimbursement requests. Based upon the Justices’ questions, it seems they may be less inclined to address broader damages questions raised by Wisconsin Bell.
F. Conclusion
The Court’s decision in Wisconsin Bell v. United States ex rel. Todd Heath will clarify what constitutes a “claim” under the FCA.
As in years past, the Court’s docket reflects the continued significance of FCA litigation, and its importance to the government’s recovery of funds. For that reason, it remains no less important to companies that are recipients of federal funds, particularly in highly regulated industries such as health care.
Summer associate Kiza Zia contributed to this alert.
