Supreme Court Confirms That the Federal Claims Act Applies to the FCC's E-rate Program

Last Friday, in Wisconsin Bell, Inc. v. United States ex rel. Heath, the Supreme Court unanimously held that requests for funding from the FCC’s E-rate program are “claims” for purposes of the False Claims Act (FCA), settling a split among federal courts that arose due to the unusual funding mechanism for the program. The crux of the Court’s decision was that the federal government provided at least some of the funding for the E-rate program by (i) generating funds through enforcement activity and (ii) depositing those funds from the Treasury into the program account. The ruling could pave the way for an increase in FCA cases against recipients of funding from FCC broadband funding programs like the E-rate, RDOF, Lifeline, and the Rural Healthcare programs, which are funded from the same pool of monies.

Background on the USF and its E-rate Program

E-rate is one of the programs funded by the federal Universal Service Fund (USF). The USF annually distributes approximately $9 billion in funding to a variety of programs that support broadband networks and services in rural areas and reduce retail prices for entities such as schools and libraries. Rather than congressionally appropriated tax dollars, which fund most federal programs, the USF is funded primarily from assessments, called “contributions,” imposed under FCC rules on providers of telecommunications and VoIP services. These contributions are collected by a private entity, the Universal Service Administrative Company (USAC), that the FCC appointed to administer the USF. When providers fail to pay their contributions, the FCC or the US Department of Justice (DOJ) may take legal action to compel payment; payments collected in this manner are deposited into the Treasury.

The E-rate program provides subsidies to reduce the prices that schools and libraries pay for internet access and other items, such as internal connections. The schools and libraries either pay the full retail price and receive a subsidy from the program or are charged a discounted amount, and the subsidy is given directly to the provider. There are myriad compliance rules that each must follow, and, therefore, a variety of opportunities to be out of compliance and subject to enforcement. At issue in Wisconsin Bell is the “lowest corresponding price” rule, which requires the provider to charge the school or library the lowest price it charges for the same service(s) to similarly situated non-residential customers. When the FCC or DOJ determines that a provider has not adhered to the rules, that provider may be required to repay some or all of the funding; such payments would also be deposited into the Treasury.

Historically, USAC deposited providers’ USF contributions into a private, interest-bearing bank account, but in 2018, the FCC transitioned the USF to a US Treasury account. Perhaps of note, part of then-Chairman Ajit Pai’s justification for this change was the GAO’s finding in 2005 that USF funds were, in fact, federal funds that legally belonged in the Treasury.

Wisconsin Bell, Inc. v. United States ex rel. Heath

In Wisconsin Bell, the Supreme Court considered whether requests for E-rate funding filed by Wisconsin Bell were claims for purposes of an FCA action. The underlying case concerns allegations that between 2002 and 2015 Wisconsin Bell violated the E-rate program’s “lowest corresponding price” rule, and therefore, when it requested E-rate funding it submitted a false claim as that term is defined under the FCA. The question presented to the Supreme Court is whether requests for E-rate funding qualify as FCA claims.

The Court issued a relatively narrow decision, holding that requests for E-rate funding are FCA claims because, during the relevant years, the Treasury Department deposited over $100 million, consisting of delinquent payments, civil settlements, and criminal restitution payments generated by the enforcement activities of the FCC and the Department of Justice, into the USF and thus, at least some E-rate funds were provided by the federal government. In a separate case, the Fifth Circuit previously held that E-rate funds were not federal funds. The Supreme Court pointed out, however, that the Fifth Circuit never addressed monies resulting from government enforcement activities, apparently because the government did not raise that argument in that case.

Questions in Upcoming Case Avoided (For Now): Consumers’ Research

The narrow holding in Wisconsin Bell avoided the need for the Supreme Court to opine on the status of the funds collected by USAC (the majority of USF funds) or the status of USAC itself and its relationship to the FCC. Those are questions under consideration in two consolidated cases, slated for oral argument at the Supreme Court on March 26, 2025, FCC v. Consumers’ Research and SHLB Coalition v. Consumers’ Research. In Consumers’ Research, the Supreme Court will consider a challenge arguing that the USF contribution system constitutes an unconstitutional delegation of Congress’s powers to the FCC and USAC, a private entity. In the Wisconsin opinion, the Supreme Court was careful to note that it expressed no views on that pending case, and that it did not need to in order to reach its holding. In his concurrence, however, Justice Thomas questions whether USAC is an agent of the FCC, and if so, states that USAC should have been created under the Government Corporation Control Act. Importantly, neither the majority nor Justice Thomas touched on the non-delegation doctrine, which is central to the parties’ arguments in Consumers’ Research. The Supreme Court has not relied on this doctrine to find that a congressional delegation of power to a federal agency is unconstitutional in over 80 years, but recently it has found advocates among those who seek to limit the authority of federal regulatory agencies. Whether and to what extent the Court revives this doctrine in Consumers’ Research is the subject of much attention and debate, particularly in light of other court cases and executive branch actions limiting the powers of federal agencies.

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