75 F.4th 778
7th Cir.2023Background:
- Congress created the E‑rate (Schools & Libraries Universal Service Support) program to subsidize telecom/information services for schools and libraries; FCC rules require providers to offer eligible entities the “lowest corresponding price” charged to similarly situated non‑residential customers.
- Wisconsin Bell acknowledged knowledge of the lowest‑corresponding‑price (LCP) rule since the 1990s but had no training, procedures, or systems to identify similarly situated comparators before about 2009; sales practices reportedly prioritized higher prices.
- After the parent company settled a DOJ/FCC investigation in another state, Wisconsin Bell began implementing interim compliance policies in 2009 and reached a steady state only by 2011, but still treated comparator prices as only one factor in pricing decisions.
- Relator Todd Heath filed a qui tam FCA action in 2008 alleging Wisconsin Bell caused submission of inflated E‑rate claims; the government declined intervention and the district court later granted summary judgment for Wisconsin Bell, prompting this appeal.
- Heath’s expert (James Webber) analyzed Wisconsin Bell pricing data and identified specific comparator pairs and charts showing schools/libraries were charged higher rates than similarly situated non‑residential customers (examples included Milwaukee schools and Lake Geneva school vs a private business); overcharge estimates persisted after adjusting for contract length, location, size, and distance.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity (did claims overcharge E‑rate customers?) | Heath: specific comparator analyses show schools/libraries paid higher rates than similarly situated customers. | Wisconsin Bell: Heath failed to identify any properly "similarly situated" comparators, so no false claim. | Court: Heath produced specific comparator evidence raising genuine disputes; falsity is for the jury. |
| Scienter (knowingly/reckless submission) | Heath: Wisconsin Bell knew of LCP rule, lacked compliance systems, and exhibited conduct (e.g., "let a sleeping dog lie") supporting reckless disregard. | Wisconsin Bell: Its interpretation of the LCP rule was objectively reasonable, negating scienter. | Court: After Schutte (Supreme Court), scienter is subjective; evidence supports a reasonable inference of reckless disregard — jury issue. |
| Materiality (would noncompliance affect payment?) | Heath: LCP rule is central to subsidy design and naturally tends to influence payment decisions. | Wisconsin Bell: LCP not an express condition of payment on forms; government continued paying claims while aware of allegations. | Court: Rejected defendant’s view; LCP rule is material to E‑rate subsidy decisions and materiality is a fact issue for trial. |
| Federal funds (were payments from federal sources?) | Heath: Record and government statements show federal funding to E‑rate and support a jury finding federal funds paid the claims. | Wisconsin Bell: Heath did not show specific claims were paid with federal funds. | Court: Record suffices for a jury to find federal funding was involved; not grounds for summary judgment. |
Key Cases Cited
- United States ex rel. Heath v. Wisconsin Bell, Inc., 760 F.3d 688 (7th Cir. 2014) (prior appellate ruling in this litigation reversing dismissal).
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (U.S. 2016) (FCA materiality and implied false certification principles).
- United States ex rel. Schutte v. SuperValu, Inc., 143 S. Ct. 1391 (U.S. 2023) (clarified FCA "knowing"/scienter inquiry is subjective, not objective‑reasonableness).
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard).
- United States v. King‑Vassel, 728 F.3d 707 (7th Cir. 2013) (reckless‑disregard standard under the FCA).
- United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699 (7th Cir. 2014) (use and limits of statistical evidence in FCA cases).