In its most recent False Claims Act decision, the US Supreme Court opted for a narrow “claim” definition analysis, limiting its impact to those involved in the E-Rate program, but signaled interest in addressing the constitutionality of the qui tam provisions in an “appropriate” case.
On February 21, 2025, in Wisconsin Bell Inc. v. U.S. ex rel. Heath, 604 U.S. __ (2025), the US Supreme Court resolved a circuit court split over whether a claim for reimbursement from the Federal Communications Commission’s (FCC’s) “E-Rate” program, funded primarily by assessments on telecommunications carriers, could qualify as a “claim” under § 3729(b)(2) of the False Claims Act (FCA). In a unanimous decision, the Court bypassed the opportunity to decide the full reach of an FCA claim and instead decided the case on a narrow and unremarkable ground: finding the government’s transfer of over $100 million into the E-Rate fund easily satisfied the FCA requirement that the government “provide” at least some portion of the money at issue.
Meanwhile, in a concurring opinion, Justices Clarence Thomas and Brett Kavanaugh reiterated the sentiment they expressed last year in United States ex rel. Polansky v. Executive Health Resources Inc., that the FCA’s qui tam provisions raise substantial constitutional questions under Article II that should be addressed in an appropriate case.
Congress established the Education Rate (E-Rate) program as a means to subsidize internet and other telecommunications services for schools and libraries. Under the program, per FCC rules and regulations, telecommunications companies make payments to a private, not-for-profit corporation, the Universal Service Fund (the Fund), which administers and distributes the funds. Participating schools pay carriers a lower, subsidized rate and the carriers then submit reimbursement requests to the Fund for the difference. The E-Rate program includes a “lowest corresponding price” rule, which prevents a carrier from charging a school a higher full price than it would charge a similarly situated customer.
A qui tam relator, Todd Heath, filed suit against Wisconsin Bell, alleging the carrier defrauded the E-Rate program by violating the “lowest corresponding price” rule, resulting in subsidy reimbursement requests to the Fund for millions of dollars in excess payments. Wisconsin Bell moved to dismiss the suit, arguing that the supposedly excessive reimbursement requests do not qualify as claims under the FCA because, as an administrator, the Fund was not an agent of the United States and because the government did not “provide” the funds at issue.
In addition to requests for money presented to officers/employees/agents of the government, a “claim” under § 3729(b)(2) also “means any request or demand, whether under a contract or otherwise, for money or property, and whether or not the United States has title to the money or property, that— . . . (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government— . . . (I) provides or has provided any portion of the money or property requested or demanded; ….”
The key question before the Court was whether the government “provides or has provided any portion of the money” with respect to the claims at issue. In the proceeding below, the US Court of Appeals for the Seventh Circuit found the reimbursement requests at issue satisfied the FCA claim definition in two ways: (1) the government provided the money by regulating the collection and distribution of the funds from the carriers; and (2) the record reflected that the government had deposited approximately $100 million into the Fund reportedly as a result of government efforts to enforce the program, including through the US Department of Justice, such that it had provided a “portion” of the money.
However, in a separate qui tam case centered on the same E-Rate program, the US Court of Appeals for the Fifth Circuit rejected the relator’s contention that regulatory supervision or direction alone is sufficient to meet the “provides” prong of the claim definition. Notably, the Fifth Circuit did not consider whether the $100 million deposit from the US Department of the Treasury met the definition, as that fact apparently was not raised. The Supreme Court found it unnecessary to reach the Seventh Circuit’s alternative holding that the Fund administrator was an “agent” after addressing the provision of funds question.
Writing for the unanimous Court, Justice Elena Kagan latches onto the $100 million federal funding and concludes that the reimbursement “requests at issue qualify as claims because, in the years they were submitted, the U.S. Treasury deposited money into the Fund for disbursement to those entitled to E-Rate subsidies.” The Court rejects Wisconsin Bell’s argument that the $100 million was still from private companies and that the government was only an intermediary in collecting it, finding the government was not a passive throughway for the funds and that but for the government actions, the additional money may have not come into the Fund.
As the Court notes, “if the Government, by making direct payments, has provided even a small fraction of the money used to fund E-Rate reimbursements, the question presented here is resolved” and “it is then immaterial whether the Government, by exercising regulatory control, provides all the money so used.” That holding generally is consistent with prior circuit court decisions concerning what qualifies as an FCA claim.
Justice Kagan’s opinion expressly characterizes the holding as “narrow,” and notes that “we need not address the alternative theory the Government provides all E-Rate funds by exercising regulatory control over the program.” In fact, the Court observed that, if the Fifth Circuit had known about the $100 million deposit, it likely would have found that fact sufficient to meet the claim definition. The Court also reserved for another day the question of how any damages would be impacted where only a portion of the funds at issue were provided by the government.
In a lengthy concurring opinion, Justice Thomas (joined by Justices Kavanaugh and Alito (in part)) emphasizes the Court’s limited holding and makes clear that “the Court saves for another day” the more difficult question of “whether the Government ‘provides’ the money that it requires private carriers to contribute to the E-Rate program,” as well as an ancillary question of whether the private corporation that administers the program is a government “agent” for purposes of the claim definition. Justice Thomas then explains why he believes the government’s position regarding regulatory supervision—if and when considered—would raise “significant implications for the [ ] scope of the FCA.” Of particular concern to Justice Thomas is the “Government’s leading theory” that the “FCA applies to the E-Rate reimbursement requests because the Government provides all the money in the Fund” where “a federal statute compels these contributions.” Justice Thomas seems to bristle at this prospect, declaring that the Court repeatedly has made clear that FCA liability does not extend to “acts directed at parties that are not the Government” and that the “FCA exists to ‘protect the funds and property of the Government.’” Justice Thomas cautions that acceptance of the government’s theory would expand the reach of the FCA “to cover a wide range of matters until now understood to be outside the scope of the statute.”
Furthermore, in a separate concurrence by Justice Kavanaugh (joined by Justice Thomas), he, too, reiterates the narrow question decided by the Court. More significantly, however, he uses the occasion to repeat the sentiments he and Justice Thomas expressed in Polansky, namely that the “qui tam provisions raise substantial constitutional questions under Article II” that need to be addressed in an appropriate case. Indeed, that constitutional question is now pending in the Eleventh Circuit in the Zafirov case, following a district court’s dismissal of a qui tam action on Article II grounds, as we previously discussed.
While the Supreme Court’s opinion is unlikely to have much impact outside of the E-Rate program, it highlights that the full contours of what constitutes a “claim” under the FCA remain undefined. The decision leaves unanswered whether (1) government oversight and regulation of a program alone equates to the “provision” of funds, (2) the Department of Justice’s contention that the government “provides” funds whenever it directs or facilitates one private person paying another private person is the correct way to interpret the FCA, and (3) an administrator of a fund such as the one at issue here qualifies as an “agent” of the government for purposes of an FCA claim.
The Court also expressly avoided deciding whether any damages in this case would be limited by the amount of funds the government provided. Indeed, it would be impermissible to award damages in excess of US funding, given that FCA damages, under § 3729(a), are limited to the “damages which the Government sustains” because of the violation, and in situations where the government provides only a portion of the total fund, any calculation of damages should be appropriately prorated. Each of these open questions likely serves as a sign of arguments to come in future cases, and with respect to the damages measurement question, possibly in the remand of the case against Wisconsin Bell.
Perhaps of more significance and import is the fact that some Justices continue to press for an opportunity to determine whether the FCA’s qui tam provisions pass constitutional muster under Article II. Because qui tam filings have continued to increase, and were more than double the number of non-qui tam affirmative FCA filings in FY 2024, this constitutional question potentially has a far-reaching impact, even for cases where a qualifying “claim” is not in doubt.
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