On February 21, 2025, the U.S. Supreme Court issued a unanimous decision in Wisconsin Bell, Inc. v. United States ex rel. Heath, ruling that E-Rate reimbursement requests qualify as “claims” under the False Claims Act (FCA) when any portion of the funding comes from the federal government.
Background
The E-Rate Program, established under the Telecommunications Act of 1996, subsidizes telecommunications services for schools and libraries. To finance those subsidies, Congress required that telecommunications carriers pay into a fund (now known as the Universal Service Fund) that is administered by the Universal Service Administrative Company, a private nonprofit corporation. The Company collects and distributes the resulting pot of money to beneficiaries pursuant to regulations prescribed by the Federal Communications Commission (FCC).
In addition to providing subsidies, the FCC regulations impose upon carriers a rule called the “lowest corresponding price” rule, which prohibits them from charging schools and libraries more than what they would charge a “similarly situated” non-residential customer.
Todd Heath, a telecommunications auditor, alleged that Wisconsin Bell, a unit of AT&T, overcharged schools in violation of this rule, resulting in inflated reimbursement claims submitted to the E-Rate program.
Heath filed suit under the FCA, which imposes liability for knowingly submitting false claims for government funds. Wisconsin Bell argued that E-Rate reimbursements were not subject to the FCA because the money was derived from private carrier contributions, not direct government funding.
The District Court and Seventh Circuit Court of Appeals rejected Wisconsin Bell’s argument, ruling that the government had “provided” a portion of E-Rate funds by transferring over $100 million from the U.S. Treasury to the E-Rate fund. The Fifth Circuit had previously ruled differently in a separate case, leading to a circuit split.
Supreme Court’s Ruling
The Supreme Court affirmed the Seventh Circuit’s decision, holding that E-Rate reimbursement requests qualify as FCA “claims” because the government “provided” at least a portion of the money in the fund.
The Supreme Court found that the government provided direct funding to carriers through the FCC and Treasury Department (including interest and penalties), and settlements and restitution from Justice Department actions against E-Rate fraud. When the government provides any portion of the money in question, the FCA applies.
Key Takeaways for California Private Schools
The Supreme Court’s ruling is narrow. It is limited to allowing Heath’s suit to move forward. The Supreme Court did not rule whether participating in the E-rate program constituted accepting government funds – only that participation could lead to an assertion of a violation of the FCA. The Court left to another day consideration of whether reimbursement renders California Private Schools recipients of federal funds that trigger compliance with federal laws that would not otherwise apply.
Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.