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False Claims Act Statistics, News & Analysis

  • 28
  • September
  • 2017

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Futrell Enters the Fray on Whether the FCA Covers the E-Rate Program Despite Funding from Telecomm. Industry

Last month, a Missouri district court in U.S. ex rel. Futrell v. E-Rate Program, LLC handed down a decision of interest to the telecommunications industry. The defendant contracts with schools and school districts to help them obtain funds under the E-Rate Program, a program that provides subsidies and discounts to schools to secure affordable telecommunications and Internet access. The program is administered by USAC, a private non-profit organization subject to regulations of (but not controlled by) the FCC, and is funded by mandatory contributions from private interstate telecommunications carriers. The Futrell court found that FCA liability may exist in such circumstances, even though the USAC funds are not government dollars. The Futrell decision adds to a disagreement between at least two district courts and one circuit court on this issue.

To set the stage, the post-FERA FCA has defined a “claim” as either (1) a claim for money “the United States provides or has provided,” or (2) a “request … for money … that” is either “presented to an officer, employee, or agent of the United States.” Prior to FERA, the FCA did not cover claims presented to government “agent[s],” but the FCA’s “provided” language was the same.

In Futrell, two former-employee relators alleged that the defendant violated the FCA through its noncompliance with the E-Rate Program’s competitive bidding and document retention requirements and subsequent false certification of compliance with those requirements. The defendant filed a motion for judgment on the pleadings, arguing that (1) E-Rate funds are not “provided” by the government because the funds come directly from other telecommunications companies and are held and distributed by a private, non-profit organization; and (2) claims presented to USAC, a non-profit overseen by the FCC, are not presented to “officer[s], employee[s], or agent[s] of the United States” under post-FERA law. The district court rejected both arguments, concluding that the United States “provided” the USAC funds and that USAC was at a minimum an “agent” of the United States.

At least three previous cases have addressed this issue with mixed results.

  • Heath v. Wisconsin Bell Inc., 111 F. Supp. 3d 932 (E.D. Wis. 2015) found that (1) the fact that the federal government had “made the funds available” by requiring private common carriers to pay into the program’s funds meant the United States had “provided” the funds, and (2) in the alternative, because the operations of USAC were carried out under FCC regulations, and the FCC directs USAC’s administration of the E-Rate program funds, USAC is an “agent” of the United States under post-FERA law.
  • U.S. ex rel. Lyttle v. AT&T Corp., No. 2:10-1376, 2012 WL 6738242 (W.D. Pa. Nov. 15, 2012), adopted by 2012 WL 6738149 (W.D. Pa. Dec. 28, 2012), ruled, in a case concerning programs administered by two non-profit entities similar to USAC, (1) that the government had not “provided” funds that were in fact contributed by private parties, but (2) because the FCC regulated the activity of non-profit fund administrators at issue in that case, the administrators should be considered agents of the government under the post-FERA FCA.
  • U.S. ex rel. Shupe v. Cisco Systems, Inc., 759 F.3d 379 (5th Cir. 2014) (1) ruled that USAC was not the “government,” and the government did not otherwise “provide” E-Rate program funds, reasoning that the FCA was limited to “instances of fraud that might result in financial loss to the Government,” and (2) since it was analyzing the pre-FERA law, did not reach the question of whether USAC was a government “agent,” but did note USAC was “exclusively … an agent for its members.”

Futrell joins these cases in a split about whether funds administrated by USAC and similarly structured entities are “provided” by the United States, a key question under pre-FERA law, and whether USAC is an “agent” of the United States under post-FERA law. Telecommunications and information technology companies that sell their services to public schools, local libraries, and other beneficiaries of these programs should be aware that they could face FCA risk as a result of cases like Futrell. These cases also have implications for conducting business with a host of non-governmental entities with federal ties, such as the American Red Cross, the Veterans of Foreign Wars, and even Future Farmers of America and the Boy Scouts — all entities that have not traditionally been understood to be subject to the FCA and that Congress likely never contemplated the FCA would reach.

[Disclosure: Vinson & Elkins LLP attorneys represented the defendants on appeal in Shupe and filed an amicus brief in support of defendants in Heath.]



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Author

Jeremy C. Marwell

Jeremy C. Marwell Partner