Supreme Court Unanimously Rules E-Rate Program Subject to False Claims Act

In a landmark decision on February 21, 2025, the United States Supreme Court unanimously ruled that telecommunications companies participating in the federal E-Rate program can be sued under the False Claims Act for allegedly fraudulent reimbursement claims. The case, Wisconsin Bell, Inc. v. United States Ex rel. Heath, hinged on whether E-Rate funding qualifies as government money, despite being primarily sourced from private telecommunications companies.

The E-Rate program, established under the Telecommunications Act of 1996, provides critical subsidies for internet and telecommunications services to schools and libraries across the nation. These subsidies are funded through mandatory contributions from private telecommunications companies into a pool administered by the Universal Service Administrative Company (USAC), a private entity that operates under FCC regulations.

At the heart of this case is the “lowest corresponding price” rule, which prohibits carriers from charging schools and libraries more than they would charge similarly situated non-residential customers. Todd Heath, a telecommunications auditor, alleged that Wisconsin Bell, an AT&T subsidiary, systematically violated this rule between 2002 and 2015, resulting in excessive reimbursement claims.

Wisconsin Bell attempted to have the case dismissed, arguing that E-Rate reimbursement requests are not “claims” under the False Claims Act because the funds come from private carriers and are administered by a private company. However, both the district court and the Seventh Circuit rejected this argument.

In the Supreme Court’s opinion, written by Justice Elena Kagan, the Court found that the reimbursement requests qualify as “claims” because the U.S. Treasury had contributed approximately $100 million to the Fund during the relevant period. These contributions came from collections of delinquent carrier payments and Justice Department enforcement activities.

“The basic mechanism remains the same: the government collects money and then furnishes it for some use,” Justice Kagan wrote, emphasizing that the source of government funding—whether from taxes or other collections—was irrelevant to the determination.

The Court’s decision carries significant implications for telecommunications companies participating in the E-Rate program, which has been instrumental in expanding internet access to educational institutions. The program serves as a crucial digital equity initiative, enabling millions of students to access online resources regardless of their school district’s financial resources.

In a concurring opinion, Justice Thomas, joined by Justice Kavanaugh and partially by Justice Alito, raised questions about whether the government truly “provides” money that it requires private carriers to contribute, and whether the USAC functions as a government agent. These questions may foreshadow future challenges to similar funding mechanisms.

Justice Kavanaugh’s separate concurrence, joined by Justice Thomas, expressed constitutional concerns about the qui tam provisions of the False Claims Act, which allow private individuals like Heath to sue on the government’s behalf. This echoes previous skepticism from certain justices about whether such provisions comply with Article II of the Constitution.

Despite these constitutional questions, newly confirmed Attorney General Pam Bondi has pledged to defend the False Claims Act in its entirety, while Deputy Assistant Attorney General Michael Granston recently described the law as a “permanent fixture” in the government’s anti-fraud efforts.

The ruling’s impact extends beyond telecommunications, potentially affecting any company participating in programs with even tenuous connections to government funding. It also highlights that False Claims Act liability can arise from conduct occurring many years in the past, underscoring the importance of robust compliance programs.

Industry analysts note that telecommunications companies may now face increased scrutiny of their E-Rate pricing practices, potentially leading to more whistleblower lawsuits in a sector that has already seen significant regulatory attention.

With Heath’s case now proceeding to trial, the telecommunications industry will be watching closely to see how courts interpret the “lowest corresponding price” rule in practice, which could have significant financial implications for carriers participating in the $4.2 billion E-Rate program.