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 , the court rejected 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 鈥渃laim鈥� if the federal government has provided any portion of the money requested.
鈥淲e hold today that the E-rate reimbursement requests at issue satisfy that requirement because the government provided (at a minimum) a 鈥榩ortion鈥� of the money applied for,鈥� 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 . The court declined to decide on the basis who brought the case鈥攖hat the federal government 鈥減rovides鈥� 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 鈥渁gent鈥� of the federal government.
The $100 million in transfers from the Treasury Department to the Universal Service Fund 鈥渋s enough to create a 鈥榗laim鈥� under the [FCA], and to allow a suit alleging fraud to go forward,鈥� Kagan said.
Kagan noted that another case to be heard by the high court next month, , raises broader questions about 鈥渢he precise relationship鈥� 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 鈥渄elegation鈥� of Congress鈥檚 power to tax to the FCC, and in turn an unlawful 鈥渟ubdelegation鈥� 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 鈥渨hether the Administrative Company is in fact an agent of the United States is a complex question that we do not resolve today.鈥�
He joined Kagan鈥檚 opinion because it 鈥渞esolves this case on a narrow, fact-specific ground.鈥�
Kavanaugh wrote his own short concurrence, joined by Thomas, that said he had concerns about the constitutionality of the False Claims Act鈥檚 allowance of private whistleblowers to pursue fraud claims on behalf of the federal government. (Such private 鈥渞elators鈥� 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鈥檚 FCA suit alleges that Wisconsin Bell did not comply from 2008 through 2015 with the E-rate program鈥檚 requirement that schools be offered the 鈥渓owest corresponding price鈥� 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鈥檚 suit.
鈥淚f 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,鈥� she said. 鈥淏ut 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鈥檚 view, thus wrongly amassed revenues at the E-rate program鈥檚 expense.鈥�
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 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 鈥渟imply 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鈥檚 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.鈥�
David J. Chizewer, a Chicago lawyer representing Heath, said via email that 鈥渨e 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鈥檚 children and particularly those most vulnerable who receive the bulk of these government funds.鈥�
Chizewer said he and others representing Heath look forward to presenting the case to a jury in Milwaukee.
The Supreme Court鈥檚 decision allows Heath鈥檚 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.
鈥淏ut those issues were not briefed in this court, and in any event are a long way away,鈥� Kagan said.
