United States ex rel. Heath v. Wis. Bell, Inc., Case No. 08–cv–0724.

• Court: U.S. District Court — Eastern District of Wisconsin
• Writing for the Court: LYNN ADELMAN, District Judge.
• Citation: United States ex rel. Heath v. Wis. Bell, Inc., 111 F.Supp.3d 923 (E.D. Wis. 2015)
• Decision Date: 01 July 2015
• Docket Number: Case No. 08–cv–0724.
• Parties: UNITED STATES of America ex rel. Todd HEATH, Plaintiff/Relator, v. WISCONSIN BELL, INC., Defendant.

111 F.Supp.3d 923

UNITED STATES of America ex rel. Todd HEATH, Plaintiff/Relator,

v.WISCONSIN BELL, INC., Defendant.

Case No. 08–cv–0724.

United States District Court, E.D. Wisconsin.

Signed July 1, 2015.

Douglas P. Dehler, O'Neil Cannon Hollman Dejong & Laing SC, Keith S. Alexander, Matthew Dean Krueger, Matthew V. Richmond, United States Department of Justice, Michael Best & Friedrich LLP, Milwaukee, WI, Scott Rhead Shepherd, Shepherd Finkelman Miller & Shah LLC, Media, PA, for Plaintiff/Relator.

Andrew P. Legrand, James C. Ho, Robert C. Walters, Gibson Dunn & Crutcher LLP, Dallas, TX, Michael J. Gill, Mayer Brown LLP, Chicago, IL, Paul F. Linn, Michael Best & Friedrich LLP, Milwaukee, WI, for Defendant.

DECISION AND ORDER

LYNN ADELMAN, District Judge.

Relator Todd Heath brings this qui tam action against defendant Wisconsin Bell alleging that defendant violated the False Claims Act ("FCA") by fraudulently obtaining subsidies by falsely certifying that it was providing telecommunications services to schools and libraries at the lowest rate charged to similarly situated customers (the "lowest corresponding price" or "LCP"). See 47 U.S.C. § 254(h)(1)(B) ; 47 C.F.R. § 54.511(b). Before me now is defendant's motion to dismiss under Fed.R.Civ.P. 12(b)(6) and relator's motion for leave to file a second amended complaint.¹

I. Background

Defendant is a common carrier that receives subsidies under the Education Rate ("E–Rate") Program. Congress established the E–Rate program as part of the Telecommunications Act of 1996. The program provides subsidies to common carriers which provide telecommunications services, including telephone and internet services, to schools and libraries in need. To receive a subsidy, a common carrier must certify that it is charging the school or library the LCP. Relator audits the telecommunications records and bills of various school districts and businesses, and he claims that defendant falsely certified that it charged the LCP to one or more of the schools that he audits.

E–Rate subsidies are paid out of the Universal Service Fund (the "Fund"), which is funded by payments from telecommunications carriers which are mandated by the Federal Communications Commission ("FCC"). 47 C.F.R. §§ 54.706, 54.709. The FCC also created and oversees an entity known as the Universal Service Administrative Company ("USAC") which administers the Fund.

II. Motion to Dismiss

To survive a Rule 12(b)(6) motion, relator's complaint must "state a claim to relief that is plausible on its face." Bell. Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). I accept the complaint's factual allegations as true, but allegations in the form of legal conclusions are insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

The FCA seeks "to protect the funds and property of the Government from fraudulent claims." Rainwater v. United States, 356 U.S. 590, 592, 78 S.Ct. 946, 2 L.Ed.2d 996 (1958). It does this by imposing civil liability on an individual or entity that makes such a claim. See 31 U.S.C. § 3729(a)(1). Prior to 2009, the FCA defined a "claim" as "any request or demand ... for money or property" of which "the United States Government provides any portion...." § 3729(c) (2008). In 2009, Congress amended the definition of claim, clarifying that there can be a claim without the government having "title to the money or property," and that a request or demand can be a claim if it is "presented to an ... agent of the United States" even if the government didn't provide any of the money sought.

Defendant contends that plaintiff's case fails because defendant did not make a claim within the meaning of the statute because the government did not "provide" any of the money it sought. The FCA does not define the term "provide," therefore I assume that Congress intended the ordinary meaning of the term when interpreting the statute. U.S. v. Ye, 588 F.3d 411, 414–15 (7th Cir.2009). In common usage, "provide" is a broad term meaning "to furnish" or "to make available." See United States ex rel. Sanders v. Am.-Amicable Life Ins. Co. of Tex., 545 F.3d 256, 260 (3d Cir.2008) (concluding there was no claim under the FCA because the government did not "furnish[ ] or ma[k]e money available to the defendants"); American Heritage Dictionary 1411 (4th ed.2000) (defining "provide" as "to make available"). This definition supports the conclusion that the federal government provided the Fund money. The federal government required the common carriers to pay into the Fund; in the absence of such a requirement, the carriers would not have made any payments. Thus, the federal government made the funds available. Moreover, the Fund is little more than a mechanism to pay for a federal program. 47 C.F.R. §§ 54.706, 54.709 ; see also 47 U.S.C. § 254(h)(1)(B) (creating the E–Rate program). The fact that Fund money does not pass through the Treasury does not make the government any less its source.

The purpose of the FCA also supports a broad interpretation of provide. Congress has twice amended the FCA to broaden liability under the FCA to correct what it viewed as incorrect, narrow court interpretations of the statute. See S.Rep. No. 99–345, 99th Cong., 2d Sess., at 4, 10–12 (1986), reprinted in 1986 U.S.S.C.A.N. 5266, 5269, 5275–77 (stating that the 1986 amendments, which added the pre–2009 definition of claim, were "aimed at correcting restrictive interpretations of the act's liability standard"); S.Rep. No. 111–10, 111th Cong., 1st Sess., at 10–13 (2009), reprinted in 2009 U.S.S.C.A.N. 430, 438–40 (stating that the 2009 amendments, which redefined claim, were intended "to clarify and correct erroneous interpretations of the law" to reflect "Congress's original intent in passing the law"). If I were to interpret "provides" narrowly, the effect would be to allow telecommunications companies to fraudulently obtain funds made available by the federal government, a result contrary to what Congress intended. King v. Burwell, 576 U.S. ––––, at ––––, 135 S.Ct. 2480, 192 L.Ed.2d 483 (2015) ("But in every case we must respect the role of the Legislature, and take care not to undo what it has done."); see also N.Y. State Dep't of Soc. Servs. v. Dublino, 413 U.S. 405, 419–20, 93 S.Ct. 2507, 37 L.Ed.2d 688 (1973) ("We cannot interpret federal statutes to negate their own stated purposes."); Rainwater, 356 U.S. at 592, 78 S.Ct. 946 (The FCA seeks "broadly to protect the funds and property of the Government from fraudulent claims, regardless of the particular form, or function, of the government instrumentality upon which such claims were made.").

Courts have held that to satisfy the "provides" requirement, a request or demand must have the potential to cause the government a financial loss. United States ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379, 385 (5th Cir.2014)see also United States v. Neifert–White Co., 390 U.S. 228, 233, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) ; Sanders, 545 F.3d at 259 ; United States ex rel. Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir.1998) ; United States ex rel. Fellhoelter v. Valley Milk Prods., LLC, 617 F.Supp.2d 723 (E.D.Tenn.2008) ; Lyttle v. AT & T Corp., No. 10–1376, 2012 WL 6738242, at *20 (W.D.Pa. Nov. 15, 2012). This does not defeat the conclusion that the government provided the money at issue in this case despite the fact that the money is held in a private fund and administered by a private company. A financial loss to the government does not require a direct loss to the Treasury. See, e.g., United States ex rel. Shank v. Lewis Enterprises, Inc., No. 04–CV–4105, 2006 WL 1207005, at *7 (S.D.Ill. May 3, 2006) (concluding that fraudulent claims paid out by the Abandoned Mine Reclamation Fund constitute federal funds); United States ex rel. Yesudian v. Howard Univ., 153 F.3d 731 (D.C.Cir.1998) (concluding that a claim submitted to a university receiving federal grant money was a claim within the FCA) United States ex rel. Luther v. Consol. Indus., Inc., 720 F.Supp. 919 (N.D.Ala.1989) (concluding that a claim submitted to a private contractor receiving federal money pursuant to a contract could constitute a claim within the FCA). Rather, it means that "there must be a sufficiently close nexus between the two such that a loss to the [Fund] is effectively a loss to the [government]." Yesudian, 153 F.3d at 738 (D.C.Cir.1998).

Here, the nexus between the Fund and the government is sufficiently close. This conclusion is supported by the mandatory nature of payments into the fund, 47 C.F.R. §§ 54.706, 54.709, the regulatory relationship between the FCC and the Fund, 47 C.F.R. §§ 54.702 (requiring the USAC to seek FCC guidance on policy and interpretation questions), 54.719 (maintaining FCC authority to review all USAC decisions), the fact that the FCC considers Fund money a federal appropriation, Chorpening Decl. Ex. 6, at 34 (ECF No. 106–7) (FCC financial statement audit, stating that Fund "contributions represent appropriated and dedicated collections and are accounted for as a budgetary financing source"), the fact that Fund money is listed as a part of the federal budget, Chorpening Decl. Ex. 5 (ECF No. 106–6) (copy of the Office of Management and Budget 2015 Budget, listing the Fund's balance and setting forth its budget authority for the coming year), and the fact that the Treasury handles collections for the Fund and then returns any money collected to the Fund, Case Decl. (ECF No. 112) (detailing the procedures by which the FCC and Treasury collect debt owed to the Fund and then transfer to money back to the Fund); Stephens Decl. (ECF No. 113) (same). The fact that the government requires entities to contribute directly to the Fund rather than using a two-step process of collecting money through taxes and transferring it to the Fund should not be a basis for enabling a party who attempts to defraud the Fund to escape liability. See Brotherhood of...