The U.S. Supreme Court ruled that the federal False Claims Act applies to claims made under the E-Rate program, even though the funds are received and handled by the Universal Service Administrative Company. This is an important ruling because the False Claims Act exposes violators to civil penalties and liability for treble damages, and allows the plaintiffs to recover a portion of the recovery.
Here’s a summary by the Court of the claim:
Respondent Todd Heath is an auditor of telecommunications bills who believes that petitioner Wisconsin Bell defrauded the E-Rate program out of millions of dollars. According to Heath, Wisconsin Bell consistently overcharged schools in violation of the “lowest corresponding price” rule. Heath brought suit under the False Claims Act (FCA), which enables private parties to bring civil actions on the Government’s behalf to protect federal programs and funds from fraud. The FCA imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim” as statutorily defined. 31 U. S. C. §3729(a)(1)(A). In Heath’s view, Wisconsin Bell’s violations of the “lowest corresponding price” rule led to reimbursement requests for amounts higher than the E-Rate program should have paid. The premise of Heath’s suit is that an E-Rate reimbursement request can give rise to FCA liability because it qualifies as a “claim,” which, as relevant here, requires the Government to “provide[] or ha[ve] provided any portion of the money” requested. §3729(b)(2)(A)(ii)(I).
The Court ruled that the requests by Wisconsin Bell were “claims” under the False Claims Act because the government provided at least a portion of the money. The Treasury deposited funds collected directly by the Treasury Department and the FCC into the USF directly. Thus, at least a portion of the funds requested by Wisconsin Bell were subject to the False Claims Act. Further litigation will determine how much.
Here’s a summary by the Court of the E-Rate program:
The E-Rate (short for Education-Rate) program, established under the Telecommunications Act of 1996, subsidizes internet and other telecommunications services for schools and libraries across the United States. To finance those subsidies, Congress required that telecommunications carriers pay into a fund (now known as the Universal Service Fund) that is administered by the Universal Service Administrative Company, a private not-for-profit corporation. The Company collects and distributes the resulting pot of money to beneficiaries pursuant to regulations prescribed by the Federal Communications Commission (FCC). In addition to providing for subsidies, those regulations impose upon carriers a rule called the “lowest corresponding price” rule, which prohibits them from charging schools and libraries more than what they would charge a “similarly situated” non-residential customer. Once an appropriate charge is set, a school can obtain its subsidy by paying the carrier a discounted price and requiring the carrier to seek the remainder from the Fund, or by paying the carrier full freight and then applying for reimbursement from the Fund.
