United States ex rel. Heath v. AT & T, Inc.

• Decision Date: 23 June 2015
• Docket Number: No. 14–7094.,14–7094.
• Citation: 791 F.3d 112
• Parties: UNITED STATES of America, ex rel. Todd HEATH, et al., and Todd Heath, Appellant v. AT & T, INC., et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

791 F.3d 112

UNITED STATES of America, ex rel. Todd HEATH, et al., and Todd Heath, Appellant

v.AT & T, INC., et al., Appellees.

No. 14–7094.

United States Court of Appeals, District of Columbia Circuit.

Argued March 24, 2015.

Decided June 23, 2015.

Rose F. Luzon argued the cause for appellant. With her on the briefs were Scott R. Shepherd, Jonathan W. Cuneo, Matthew E. Miller, and James E. Miller.

Andrew J. Pincus argued the cause for appellees. With him on the brief was Paul W. Hughes.

Before: GRIFFITH and MILLETT, Circuit Judges, and EDWARDS, Senior Circuit Judge.

Opinion

Opinion for the Court filed by Circuit Judge MILLETT.

MILLETT, Circuit Judge:

Todd Heath appeals the dismissal of his False Claims Act qui tam suit against AT & T, Inc. and nineteen of its subsidiaries across the United States. The first question presented is whether an earlier and still-pending qui tam lawsuit filed against a single AT & T subsidiary bars this suit under the False Claims Act's first-to-file rule, 31 U.S.C. § 3730(b)(5), which prohibits qui tam actions that rely on the same material fraudulent actions alleged in another pending lawsuit. We hold that the first-to-file bar does not apply because the Wisconsin action alleges fraud based on affirmative pricing misrepresentations by seemingly rogue Wisconsin Bell employees. The present complaint, by contrast, alleges fraud and its concealment arising from a centralized and nationwide corporate policy of failing to enforce known statutory pricing requirements.

As a backup, AT & T proposes affirmance on the alternative ground that the complaint fails to plead the alleged fraud with sufficient particularity, as required by Federal Rule of Civil Procedure 9(b). We disagree. The complaint lays out in detail the nature of the fraudulent scheme, the specific governmental program at issue, the specific forms on which misrepresentations were submitted or implicitly conveyed, the particular falsity in the submission's content, its materiality, the means by which the company concealed the fraud, and the timeframe in which the false submissions occurred. That is sufficient on this record for the particular type of statutory fraud asserted in this case.

We accordingly reverse the judgment of the district court and remand for further proceedings.

IStatutory FrameworkThe False Claims Act

The False Claims Act, 31 U.S.C. §§ 3729 et seq., broadly proscribes the knowing or reckless submission of false claims for payment to the federal government or within a federally funded program. See United States ex rel. Oliver v. Philip Morris USA Inc., 763 F.3d 36, 39 (D.C.Cir.2014). As relevant here, the Act imposes liability on “any person” who “knowingly” (i) “presents, or causes to be presented, a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1)(A), (ii) “makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” id. § 3729(a)(1)(B), or (iii) “makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay,” or “conceals * * * an obligation to pay or transmit money or property to the Government,” id. § 3729(a)(1)(G).

The False Claims Act defines the type of “claim” subject to those prohibitions as “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,” if that claim is “presented” or “made” to (i) “an officer, employee, or agent of the United States,” or to (ii) “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” in which the United States government either “provides or has provided any portion of the money or property requested or demanded,” or “will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.” 31 U.S.C. § 3729(b)(2)(A).

The False Claims Act's prohibitions can be enforced through both criminal and civil actions by the federal government. See 18 U.S.C. § 287 ; 31 U.S.C. § 3729. In addition, the Act authorizes private individuals—known as relators—to bring a qui tam civil action “in the name of the Government,” 31 U.S.C. § 3730(b)(1), and to share in any damages recovered, id. § 3730(d). See generally Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 768–770, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).

Qui tam actions augment the government's limited resources by “creating a strong financial incentive for private citizens to guard against efforts to defraud the public fisc.” United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 546 (D.C.Cir.2002). But because that incentive structure can give rise to opportunistic and abusive behavior, Congress interposed a number of conditions that limit qui tam suits to those that expose previously undiscovered fraud or provide new, helpful information to the government. See United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217 (D.C.Cir.2003) (discussing Congress's “efforts to walk a fine line between encouraging whistle-blowing and discouraging opportunistic behavior”).

One such limitation is known as the “first-to-file” rule. It provides that, once a qui tam action has been brought, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). Actions are “related” if they assert the “ ‘same material elements of fraud’ as an earlier suit, even if the allegations ‘incorporate somewhat different details.’ ” Hampton, 318 F.3d at 217 (quoting United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1189 (9th Cir.2001) ).¹

The Universal Service Fund

In the Telecommunications Act of 1996, Congress charged the Federal Communications Commission (“FCC”) with promoting universal access to advanced telecommunications and information services at just, reasonable, and affordable rates. Telecommunications Act of 1996, Pub.L. No. 104–104 § 254, 110 Stat. 56, 71–75. Under the 1996 Act and the FCC's implementing regulations, every interstate telecommunications carrier must contribute a portion of its quarterly interstate and international telecommunications revenue to the Universal Service Fund. See 47 C.F.R. §§ 54.706, 54.709. That portion is established by the Commission “on an equitable and nondiscriminatory basis.” 47 U.S.C. § 254(d). The FCC appointed the Universal Service Administrative Company to administer the Fund, 47 C.F.R. § 54.701(a), and to use the money to support the cost of providing low-cost telecommunications services to schools, libraries, health-care providers, low-income consumers, and subscribers in high cost-areas. See 47 U.S.C. § 254(b) ; 47 C.F.R. § 54.701(c)(1).

One of the many programs administered through the Fund is the Schools and Libraries Program, commonly known as “E–Rate.” See 47 U.S.C. § 254(h)(1)(B). The E–Rate program entitles qualifying schools and libraries to receive Internet and telephone services at discounted rates. See generally United States v. Green, 592 F.3d 1057, 1060–1061 (9th Cir.2010). To receive those discounts, the schools and libraries must first conduct a “competitive bidding process” that is open to all telecommunications service providers. 47 C.F.R. § 54.503(a). As a condition of participation, service providers may only submit bids at or below the “lowest corresponding price” offered by the company. Id. § 54.511(b). That is the “lowest price that a service provider charges to non-residential customers who are similarly situated.” Id. § 54.500(f); see also 47 U.S.C. § 254(h)(1)(B) (the rates charged must be “less than the amounts charged for similar services to other parties”).

The schools and libraries must then select the most cost-effective service from among those bids. 47 C.F.R. § 54.511(a). Once the schools and libraries have reached an agreement with a service provider, they can submit a request for funding approval to the Universal Service Administrative Company. Id. § 54.504(a). Once the agreement is approved, the Company will either reimburse the school or library for its payments to the service provider, or will pay the service provider's invoices directly. Id. § 54.514(a) & (c).

Factual and Procedural Background

At this procedural juncture, we take the facts in the light most favorable to Heath. See Navab–Safavi v. Glassman, 637 F.3d 311, 318 (D.C.Cir.2011).

1. Todd Heath operates a business that audits telecommunications bills to identify improper charges. In October 2011, Heath filed a qui tam suit against AT & T, Inc. and nineteen of its subsidiaries on behalf of the United States government, seventeen States, the District of Columbia, Chicago, and New York City. The complaint alleges that AT & T and its named subsidiaries fraudulently overbilled the Universal Service Fund from 1997 through 2009. Complaint, United States ex rel. Heath v. AT & T, Inc., et al., No. 11–1897 (D.D.C. Oct. 28, 2011) (“AT & T Nationwide Complaint”).

More specifically, Heath alleges that AT & T orchestrated and implemented through its subsidiaries a corporate-wide scheme to have false claims submitted to the Universal Service Fund by depriving schools and libraries in the E–Rate program of the lowest corresponding price for services. Schools and libraries, unaware of those overcharges, then passed those inflated costs on to the federal government for reimbursement through the Universal Service Fund.

Heath also asserts that AT & T is a “recidivist E–Rate Program violator” that “previously has been investigated on multiple occasions for other significant violations of the E–Rate program.” AT & T Nationwide Complaint ¶ 63. One particular investigation led to an administrative consent decree before the FCC, in which AT & T (without conceding liability) agreed to pay the federal...