On Monday October 4, 2024, the U.S. Supreme Court heard oral argument in U.S. ex rel. Health v. Wisconsin Bell (Health), the latest in a series of major cases to reach the Court raising questions about the authority of qui tam relators under the federal False Claims Act (FCA). The outcome of the case could have significant ramifications for corporate entities who participate in state and local programs with even a minimal nexus to federal funding or oversight.

In Health, relator Todd Health claimed that the defendant, an AT&T subsidiary, overcharged schools and libraries for services provided under the Federal Communication Commission's "E-Rate" program, which is intended to provide discounted internet and telecommunications services to eligible schools and libraries. Unlike the government programs at issue in traditional FCA cases, the E-Rate program is administered by a private not-for-profit corporation, not a government agency, and is financed almost entirely by fees paid by private telecommunications carriers rather than the government. 

On appeal of the Seventh Circuit's opinion reversing summary judgment, Wisconsin Bell argued that its requests for payment from the fund were not "claims" for payment under the FCA because the funds in question were not public funds and were not under the government's direct control. 

In response, Health made three primary arguments, all of which had been accepted by the Seventh Circuit. See United States ex rel. Health v. Wisconsin Bell, Inc., 92 F.4th 654, 669 (7th Cir 2024). First, Health argued that until 2018 a portion of the funding for the E-Rate program (at least $100 million) was provided by the government through its power to collect delinquent debts and to obtain penalties against those who fail to pay into the fund. Based on this, Health argued that the government had provided "a portion of the money or property" at issue, establishing a claim under FCA section 3729(b)(2)(A). Second, Health also argued that the government's role in establishing and overseeing the fund meant that it effectively "provided" all the money to the fund, regardless of whether the funds themselves were public funds. Third, Health argued that the private entity serving as fund administrator was acting as an "agent of the United States," and that therefore any requests for payment from the fund fell within the statutory definition of a "claim." 

The implications of Health's arguments, and the Seventh Circuit's decision, are potentially significant. As the U.S. Chamber of Commerce noted in its amicus brief, the extension of FCA liability to transactions wherever the government "has a high degree of involvement" could lead to claims based on fraud against entities such as the American Red Cross, the Future Farmers of America, the Boy Scouts, the Veterans of Foreign Wars, or the American Legion, as well as other "private nonprofit corporations, institutes, banks, funds, foundations, and other organizations."  

At oral argument, several of the justices appeared likely to accept the narrower position that the government's payment of money into the fund established the existence of a claim in this case. Chief Justice Roberts and Justices Barrett and Gorsuch all asked counsel for Health to assume that they would rule against Wisconsin Bell on that point, and Justice Thomas recognized that "the $100 million that the government says it contributes ... seems to be at odds with [the] argument that it's not the government's money." 

However, the justices also expressed hesitation at Health's broader arguments for treating demands from the fund (and others like it) as claims against the government on the basis of the government's authority to control the fund. Justice Thomas pointed out that unlike a traditional government program, "the program [] administrator here has no liability or no relationship with the - with Congress, for example, and it's not treated as a government agency and is not subject to the government rules."  

In an exchange with the government, Justice Barrett also expressed concern that deciding Health's broader arguments for subjecting the fund to FCA claims "would be wading into something that really hasn't percolated very much," as only two federal courts of appeal have discussed the fund in the context of the FCA. And Justice Kavanaugh expressed similar concerns about "potentially large and a lot of potentially unintended consequences we have no idea about."  

If the Court rules on the narrow basis that the government contributed $100 million to the fund, major issues will remain unresolved, including the scope of any "harm" to the government, which is the real party of interest in an FCA case. As Justice Gorsuch noted, Wisconsin Bell would likely argue, first, "that the hundred million dollars is not traceable to the losses in this case," and second, "that damages would be limited to a hundred million dollars in any event."  

While the outcome of Health is yet to be determined, the case shows that qui tam relators will continue to test the limits of the FCA against a wide range of corporate entities — even those operating under programs with even the slightest connection to federal funding and oversight. That highlights the importance not only of understanding the funding and oversight mechanisms of any public program in which a corporate entity participates, but also the need for such entities to establish internal compliance programs that help avoid any potential allegations of false claims.

For more information, please contact: 

Alex L. Sarria, asarria@milchev.com.com, 202-626-5822

Bradley E. Markano, bmarkano@milchev.com, 202-626-6061

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