The federal E-rate program that funds internet connections in education is subject to a major anti-fraud statute, potentially bolstering schools that have been allegedly overcharged by telecommunications companies, the U.S. Supreme Court ruled on Friday.
In its unanimous decision in Wisconsin Bell Inc. v. United States ex rel. Heath, the court rejected arguments by an AT&T Corp. subsidiary that the $4 billion program is entirely privately funded through the payments from telecommunications companies to a private administrator and thus not subject to the False Claims Act, a Civil War-era law that allows private parties to help root out fraud in federal programs.
Justice Elena Kagan, writing for the court, said the statute covers any false or fraudulent “claim” if the federal government has provided any portion of the money requested.
“We hold today that the E-rate reimbursement requests at issue satisfy that requirement because the government provided (at a minimum) a ‘portion’ of the money applied for,” Kagan said, referring to a particular multiyear period when the U.S. Department of the Treasury transferred some $100 million in collections from delinquent telecom companies into the Universal Service Fund.
Supreme Court accepts a narrow theory based on Treasury Department payments, leaving key questions open
That fund is a privately administered source that is generally financed by quarterly payments from the telecom companies. The court essentially adopted the most narrow rationale for applying the False Claims Act to the Universal Service Fund and the E-rate program, a direction that the justices had signaled during oral arguments in the case in November.
That narrow approach was advocated by the Biden administration. The court declined to decide on the basis argued by lawyers for the private whistleblower who brought the case—that the federal government “provides” all money to the E-rate program through its regulatory oversight. The court also declined to decide whether the Universal Service Administrative Company, the private administrator, is an “agent” of the federal government.
The $100 million in transfers from the Treasury Department to the Universal Service Fund “is enough to create a ‘claim’ under the [FCA], and to allow a suit alleging fraud to go forward,” Kagan said.
Kagan noted that another case to be heard by the high court next month, Federal Communications Commission v. Consumers’ Research, raises broader questions about “the precise relationship” between the FCC and USAC.
In that case, the court will review a decision by a federal appeals court that the funding mechanism for the E-rate and related universal service programs was an unconstitutional “delegation” of Congress’s power to tax to the FCC, and in turn an unlawful “subdelegation” of that power from the FCC to the private administrator. The decision, by the U.S. Court of Appeals for the 5th Circuit, in New Orleans, has cast doubt about the funding mechanism and instilled fear among education groups that the entire E-rate program may be at risk.
Justice Clarence Thomas, in a concurrence in the Wisconsin Bell decision joined by Justice Brett M. Kavanaugh, said that “whether the Administrative Company is in fact an agent of the United States is a complex question that we do not resolve today.”
He joined Kagan’s opinion because it “resolves this case on a narrow, fact-specific ground.”
Kavanaugh wrote his own short concurrence, joined by Thomas, that said he had concerns about the constitutionality of the False Claims Act’s allowance of private whistleblowers to pursue fraud claims on behalf of the federal government. (Such private “relators” can pocket a percentage of recovered funds.)
Allegations that some schools overcharged by hundreds of dollars per month
It was just such a private party who sued Wisconsin Bell alleging that it overcharged school districts for telecommunications services. Todd Heath, of Waupon, Wis., owns a company that conducts audits of school telecom records and bills.
Heath’s FCA suit alleges that Wisconsin Bell did not comply from 2008 through 2015 with the E-rate program’s requirement that schools be offered the “lowest corresponding price” for services and that the company long failed to train its sales representatives about the rule or put in place any mechanism to comply with it. That resulted in some Wisconsin schools being overcharged for telephone lines and internet connections, the underlying lawsuit alleges.
Court papers give examples such as a Milwaukee high school that was charged $1,100 per month for a digital circuit, while a nearby school was charged $743 for the same product.
Kagan, in her opinion, described another way in which alleged fraud worked according to Heath’s suit.
“If the lowest corresponding price for a service is $1,000 and a school is entitled to a 60% subsidy, then the E-rate program should pay out $600,” she said. “But if Wisconsin Bell, in violation of the rule, instead charged the school a full price of $1,500, then the program would instead confer a subsidy of $900. (And the school, rather than pay $400, would pay $600.) The carrier, in Heath’s view, thus wrongly amassed revenues at the E-rate program’s expense.”
Potential False Claim Act suits could be significant for the E-rate program, which the Government Accountability Office has found in a series of reports to be at serious risk for fraud. The Schools, Health & Libraries Broadband Coalition joined a friend-of-the-court brief supporting the application of the False Claims Act to the E-rate program because that will enhance the program for schools, it said.
AT&T, through a spokesperson, said the decision “simply means that, in our case, the government provided a small portion of the funds at issue; it does not change the underlying fact that Mr. Heath’s allegations are wrong. We have always complied with the rules of the E-rate program, and we will continue to defend ourselves at the trial court.”
David J. Chizewer, a Chicago lawyer representing Heath, said via email that “we are gratified that a unanimous court recognized the power of the False Claims Act to root out fraud on government programs such as E-rate. Nothing is more important than protecting the scarce funding available for educating the nation’s children and particularly those most vulnerable who receive the bulk of these government funds.”
Chizewer said he and others representing Heath look forward to presenting the case to a jury in Milwaukee.
The Supreme Court’s decision allows Heath’s suit to proceed. Kagan noted that the parties disagreed about the scope of any damages or amount of money that Heath might be able to recover if he ultimately prevails.
“But those issues were not briefed in this court, and in any event are a long way away,” Kagan said.
