Could schools see greater protections against getting overcharged by some telecommunications companies under the E-rate program?
That is a question that will surely arise among K-12 ed-tech leaders following a lively Nov. 4 argument in the U.S. Supreme Court in . The justices seemed inclined to allow a fraud case over a telecommunications company鈥檚 alleged overcharging of schools under the E-rate program鈥攚hich helps fund schools鈥� internet connections and other technology services鈥攖o move forward.
But they seemed to favor a narrow rationale that the federal government directly 鈥減rovides鈥� a small portion of the money in the $4 billion program. At least a few justices seemed wary of ruling that all the money in the $4 billion program was tied to the federal government given that the Federal Communications Commission has delegated the operation of the program to a private company that collects mandatory contributions from telecom companies.
鈥淚f we go 鈥� to the broader argument, there are potentially large and a lot of potentially unintended consequences we have no idea about,鈥� Justice Brett M. Kavanaugh said.
The question before the court is whether funds under the E-rate and related programs administered by the Universal Service Administrative Company are subject to the False Claims Act, a Civil War-era statute aimed at rooting out fraud in federal programs and contracting.
That question is important for the E-rate program, which the Government Accountability Office has found in a series of reports (including to be at serious risk for fraud. The Schools, Health & Libraries Broadband Coalition supporting application of the False Claims Act to the E-rate program because that will enhance the program for schools, it said.
The Wisconsin Bell case includes allegations that the telecom company did not comply from 2008 through 2015 with the E-rate program鈥檚 requirement that schools be offered the 鈥渓owest corresponding price鈥� for services and that the company failed to train its sales representatives about the rule or put in place any mechanism to comply with it until 2009. That resulted in some Wisconsin schools being overcharged for telephone lines and internet connections, the underlying lawsuit alleges.
Telecom company argues that E-rate money is not government money
Wisconsin Bell鈥檚 chief defense is that the money in the E-rate program is not provided by the federal government and thus the program is not subject at all to the False Claims Act.
鈥淭he program could have been funded with public money and administered by a government agency, but the political branches chose private funding and a private administrator,鈥� Allyson N. Ho, a Dallas lawyer representing Wisconsin Bell, which is a subsidiary of AT&T Corp., told the justices.
She quickly ran into difficulty when justices began citing a fallback argument of the federal government and the lawyers for Todd Heath, the private whistleblower who is pressing the fraud claims against Wisconsin Bell.
Both the government and Heath point out that in contrast to regular contributions to the Universal Service Fund, which are collected and distributed by USAC, the federal government has accrued some $100 million over several years in certain collections, such as interest and penalties, from delinquent telecom companies under the program. Those funds are at least briefly held in Department of the Treasury accounts before eventually being returned to USAC.
鈥淭hat seems somewhat at odds with your argument that it鈥檚 not the government鈥檚 money,鈥� Justice Clarence Thomas told Ho. 鈥淗ow could it be collected under the [Telecommunications] Act if it is not owed to the government?鈥�
Ho said the delinquent amounts were no different than the E-rate contributions themselves, and she compared them to child support collected by the government from one parent and given to another, or to a sheriff collecting a court judgment from a private party.
Justice Elena Kagan had a different scenario for Ho.
鈥淚f I have a sick friend and I arrange for Uber to bring that sick friend chicken soup, I mean, in some ways, it鈥檚 the deliveryman who provides the soup, but I provided the soup because I paid for it and I told the deliveryman to go deliver it,鈥� Kagan said. 鈥淎nd, here, the mandate is coming from the federal government in the same way.鈥�
Kagan said that schools benefiting from the E-rate program might thank the federal government more than the telecom companies for the services they received.
鈥淚 think the school might say: Thank you to Congress and the FCC for setting up this program that enables us to, you know, get these services in our schools, because everybody understands that the carriers aren鈥檛 doing it from the goodness of their hearts,鈥� she said.
Justice Ketanji Brown Jackson told Ho that in her view the purpose of the False Claims Act went beyond potential financial fraud to include a goal of maintaining trust in government programs.
鈥淎s I read the history of the FCA [False Claims Act], the purpose is broader than just trying to protect the public fisc,鈥� Jackson said, using a word for a public treasury. She added that even in recent updates to the law Congress was concerned with things such as 鈥渢he loss of confidence in government programs鈥� and 鈥渋ncidents in which the beneficiaries of the program did not get the benefits that Congress wanted them to get. So it was clearly beyond the fiscal impact.鈥�
E-rate advocates push for a broader ruling on the federal government鈥檚 role
Tejinder Singh, a Washington lawyer representing Heath, argued that all the funding under the E-rate program should be subject to the False Claims Act, and he urged the court to decide the case on that broader ground rather on the basis of the $100 million in delinquent funds that the government has directly collected.
鈥淲hen Wisconsin Bell requests E-rate funds, the government provides the money,鈥� he said. 鈥淭he administrator pays on the government鈥檚 behalf using money the government collects and controls to advance a federal program that the government created.鈥�
He added, 鈥淚 think it will also provide more clarity for other cases that aren鈥檛 just about the E-rate program if folks understand that when the government funds its programs, even if it does so through this direct efficient mechanism instead of an inefficient mechanism, the False Claims Act still applies.鈥�
Thomas, despite having expressed doubts to Ho about some of her arguments, seemed more strongly on Wisconsin Bell鈥檚 side in his comments to Singh.
鈥淭his is private money from private parties to another private party, and it鈥檚 very difficult to see what the government鈥檚 financial stake is,鈥� Thomas said. 鈥淚t looks like private funds.鈥�
Vivek Suri, an assistant to the U.S. solicitor general arguing in support of Heath, said that despite offering the fallback argument based on the $100 million collections, the government believes such a narrow rationale for False Claims Act coverage would lead to more questions about the scope of damages available to those who bring such fraud claims.
鈥淚f the court were to rule in our favor, we鈥檇 prefer to win on the ground that the United States provides all of the money in the Universal Service Fund,鈥� Suri said.
But a middle bloc of the court seemed most comfortable ruling for Heath and the federal government on the narrower $100 million basis, even if the justices themselves seemed unclear on what impact the more narrow rationale would have on FCA cases versus the broader view that all the money in the program was federal money.
鈥淚t seems pretty aggressive to me to go beyond the $100 million,鈥� Kavanaugh told Singh. 鈥淎nd not prudent because we don鈥檛 even know what we鈥檙e getting into.鈥�
A larger E-rate case looms at the high court
There was one reference during the Nov. 4 arguments to another E-rate case that the court is weighing whether to take up鈥攐ne that has even more sweeping implications for the school subsidy program.
In July, a federal appeals court ruled that the funding mechanism for the E-rate and its related universal service programs was unconstitutional. The U.S. Court of Appeals for the 5th Circuit, in New Orleans, said that Congress鈥� delegation of its taxing power to the Federal Communications Commission, and the FCC鈥檚 鈥渟ubdelegation鈥� of that power to USAC, violated separation-of-powers principles under Article I of the U.S. Constitution.
The Biden administration has appealed that ruling to the Supreme Court, as has the Schools, Health, & Libraries Broadband Coalition in . The group challenging the funding mechanism, Consumers鈥� Research, the high court to take up the issue despite having won in the appeals court.
Ordinarily, that would make the case a likely one to be granted. But the federal government also pointed out to the justices in Federal Communications Commission v. Consumers鈥� Research that any ruling in the Wisconsin Bell case about the FCC鈥檚 relationship with USAC and whether the federal government provides the funding could hold implications for the broader challenge. So the court might want to hold onto those appeals until Wisconsin Bell is decided, the U.S. solicitor general said.
Chief Justice John G. Roberts Jr. told Singh during the Wisconsin Bell arguments that the GAO has labeled the E-rate funding mechanism 鈥渁 backdoor appropriation,鈥� which Roberts suggested was meant pejoratively.
鈥淭he reason, I think, is because you do get a very large amount of money without going through the normal appropriations process,鈥� the chief justice said. 鈥淚f you can take and spend for whatever purposes you would like any amount of money so long as you require a private entity to pay it into a fund and then you exercise whatever authority you want to dispose of it in a particular way, that seems to me a significant exception to the normal appropriations process, and I wonder if that鈥檚 a concern at all.鈥�
Singh said such issues don鈥檛 affect whether the False Claims Act applies to E-rate funds.
鈥淚f you have concerns about how the program is structured, those are really concerns for another case, not this one,鈥� Singh said.
A decision in the case is expected by next June.
