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The U.S. Supreme Court handed down a unanimous ruling on Friday, reinforcing the federal government’s power to pursue fraud claims against telecom companies accused of overcharging schools and libraries under the FCC’s E-Rate program. The decision, a major victory for whistleblowers, upholds the Seventh Circuit’s ruling that funds from the E-Rate program are subject to the False Claims Act (FCA), as they originate from the U.S. Treasury.

Wisconsin Bell's Defense Falls Flat

At the heart of the dispute was Wisconsin Bell, an AT&T subsidiary, which had sought to escape liability by arguing that E-Rate funds are privately collected fees, rather than government funds. The company contended that since the FCC-mandated fees are collected and distributed by the Universal Service Administrative Co. (USAC)—a private entity—False Claims Act lawsuits should not apply.

But the justices firmly disagreed.

She further explained that funds collected through taxes, fines, or fees are routinely funneled into Treasury accounts before being distributed, reinforcing their governmental nature.

Whistleblower Lawsuit Clears Major Hurdle

The decision allows Todd Heath, a school district auditor, to move forward with his FCA lawsuit, originally filed in 2008. Heath claims that Wisconsin Bell manipulated billing practices, securing inflated reimbursements from the E-Rate program, which helps schools and libraries obtain affordable internet access.

The False Claims Act, a powerful anti-fraud law, enables whistleblowers, known as “relators”, to sue on behalf of the government and claim a share of the recovered funds. With the high court’s ruling, Heath’s case is now set to proceed to trial.

A Landmark Ruling with Far-Reaching Consequences

The ruling has major implications for telecom companies participating in federal subsidy programs. It expands the reach of the False Claims Act, making it clear that companies cannot shield themselves by arguing that federally managed funds are private simply because they pass through third parties.

Despite the ruling, representatives for Wisconsin Bell and the FCC remained tight-lipped, declining to comment on the decision.

Legal Teams at the Forefront

Wisconsin Bell is represented by Gibson Dunn & Crutcher LLP, while Heath’s legal team includes attorneys from Goldberg Kohn Ltd., O'Neil Cannon Hollman Dejong & Laing SC, and Sparacino PLLC.

The government is backed by top legal minds from the FCC and the Department of Justice’s Civil Division.

Case Details

The case, Wisconsin Bell Inc. v. United States ex rel. Todd Heath, case number 23-1127, now heads back to lower courts, where the next battle will unfold over whether Wisconsin Bell defrauded the government—and how much it may owe.