United States Ex Rel. Shupe v. Cisco Systems, Inc.
759 F.3d 379
5th Cir.2014Background
- Relator Rene Shupe filed a qui tam suit under the False Claims Act (pre-2009 version) alleging telecom defendants defrauded the E-Rate program by rigging bids, "gold-plating," and installing ineligible equipment to obtain USF/USAC reimbursements; the government declined to intervene.
- USAC administers the Universal Service Fund (USF)/E-Rate program; funds are collected from private carriers under FCC authority and distributed as discounts to schools and libraries.
- Defendants moved to dismiss under Rules 12(b)(6) and 9(b), arguing FCA does not reach claims submitted to USAC because USAC and the USF are not federal entities nor funded with Treasury dollars, and that alleged conduct did not constitute a false claim to the government.
- The district court denied dismissal, holding the government "provided" the money because USAC collects and disburses funds under FCC mandate and USAC functions as an agent/grantee.
- Defendants obtained certification for interlocutory appeal on whether FCA liability extends to requests submitted to USAC for reimbursement from the USF.
- The Fifth Circuit reversed: it held the FCA does not apply because the USF contains no federal Treasury funds and USAC is not a government entity for FCA purposes; FCA protects fraud that causes financial loss to the government.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FCA "provides any portion" when claims are submitted to USAC/USF | Shupe: FCC/USAC role means the government "provides" funds; USAC acts as government agent so FCA applies | Defs: USF is privately funded mandatory contribution scheme; USAC is private — no Treasury funds or government entity, so FCA doesn't reach claims to USAC | Reversed district court: FCA does not apply because no federal Treasury funds flowed and USAC is not a government entity for FCA purposes |
| Whether regulatory control by FCC makes USAC/USF "government" for FCA | Shupe: Extensive FCC oversight and program origination by Congress makes funds government-provided | Defs: Oversight is insufficient; statutory structure and administration show independence from the government | Held: Regulatory supervision alone insufficient to make USAC/USF government; statute and structure control the inquiry |
| Whether FCA protects harms to an unquantified regulatory interest (rather than Treasury loss) | Shupe: Government has regulatory interest and budget inclusion; FCA should cover those losses | Defs: FCA targets financial injury to the government (Treasury); unquantified regulatory interests are outside FCA scope | Held: FCA is limited to fraud that might result in financial loss to the government; unquantifiable regulatory injury does not trigger FCA recovery |
| Appropriate test for FCA reach: funds-origin or presentment to gov't entity | Shupe: Broader reading — government "provides" when it makes funds available or directs disbursement | Defs: "Provides" requires Treasury money flow to defendant or presentment to a government entity | Held: Adopted narrower test — government "provides any portion" only when Treasury dollars flow to the defrauded entity or the claim is presented to a government entity |
Key Cases Cited
- United States ex rel. DRC, Inc. v. Custer Battles, LLC, 562 F.3d 295 (4th Cir.) (explaining that a grantee who received U.S. money makes the full claim satisfy FCA definition)
- United States v. McNinch, 356 U.S. 595 (1958) (FHA treated as government entity for FCA because of statutory status and congressional appropriation)
- Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176 (3d Cir. 2001) (declining to extend FCA to approvals that would not cause financial loss to the government)
- United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004) (statutory text determines whether an entity is part of government for FCA purposes)
- Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008) (limits on expanding FCA beyond its text and focus on government-directed claims)
- In re Incomnet, 463 F.3d 1064 (9th Cir. 2006) (USAC/NECA hold dominion over USF; FCC oversight insufficient to treat fund as Treasury money)
- Costner v. URS Consultants, Inc., 153 F.3d 667 (8th Cir. 1998) (private fund with no federal monies and no nexus to the United States is outside FCA)
- United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010) (elements of an FCA claim and reliance on particularity under Rule 9(b))