UNITED STATES of America, ex rel. Rene SHUPE, Plaintiff-Appellee v. CISCO SYSTEMS, INCORPORATED; Avnet, Incorporated; Calence, L.L.C., also known as Insight Enterprises, Incorporated, Defendants-Appellants.
No. 13-40807.
United States Court of Appeals, Fifth Circuit.
July 7, 2014.
759 F.3d 379
The real danger in the Appellants’ proposed interpretation of the Act is that it misses the forest for the trees by eliding Congress’ central purpose in enacting the Act: to radically restructure the American health care market with “the most expansive social legislation enacted in decades.” Sheryl Gay Stolberg & Robert Pear, Obama Signs Health Care Overhaul Into Law, With a Flourish, N.Y. Times, March 24, 2010, at A19. The widespread availability of premium tax credits was intended as a critical part of the bill, a point the President highlighted at the bill signing. Transcript of Remarks by the President and Vice President at Signing of the Health Insurance Reform Bill, March 23, 2010 (“And when this exchange is up and running, millions of people will get tax breaks to help them afford coverage, which represents the largest middle-class tax cut for health care in history. That‘s what this reform is about.“). Appellants’ approach would effectively destroy the statute by promulgating a new rule that makes premium tax credits unavailable to consumers who purchased health coverage on federal Exchanges. But of course, as their counsel largely conceded at oral argument, that is their not so transparent purpose.
Appellants, citizens of the Commonwealth of Virginia, do not wish to buy health insurance. Most assuredly, they have the right, but not the unfettered right, Nat‘l Fed‘n of Indep. Bus. v. Sebelius, 567 U.S. 519, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012), to decline to do so. They have a clear choice, one afforded by the admittedly less-than-perfect representative process ordained by our constitutional structure: they can either pay the relatively minimal amounts needed to obtain health care insurance as provided by the Act, or they can refuse to pay and run the risk of incurring a tiny tax penalty. Id. What they may not do is rely on our help to deny to millions of Americans desperately-needed health insurance through a tortured, nonsensical construction of a federal statute whose manifest purpose, as revealed by the wholeness and coherence of its text and structure, could not be more clear.
As elaborated in this separate opinion, I am pleased to concur in full in Judge Gregory‘s carefully reasoned opinion for the panel.
Elizabeth Petrela Papez, Eric Miller Goldstein, Winston & Strawn, L.L.P., John Patrick Elwood, Esq., Craig David Mar-
Charles Wylie Scarborough, U.S. Department of Justice, Washington, DC, for Amicus Curiae.
Before SMITH, CLEMENT, and HIGGINSON, Circuit Judges.
PER CURIAM:
Defendant telecommunication companies file an interlocutory appeal of the denial of a motion to dismiss for failure to state a claim under the False Claims Act,
FACTS AND PROCEEDINGS
Relator Rene Shupe brought a qui tam action on behalf of the United States alleging that defendant telecommunication companies violated the False Claims Act (“FCA“),
The USAC and the USF were byproducts of the
To obtain E-Rate funds an applicant must develop a technology plan outlining its technology needs and submit it for approval to the state, the USAC, or an independent entity approved by the FCC or certified by the USAC as qualified to provide approval.
Shupe, who worked as a project manager for a telecommunications installer, alleges that the defendants tampered with the competitive bidding process, engaged in the “gold-plating” of equipment provided, and substituted E-Rate ineligible products for eligible ones in violation of the FCA by presenting materially false or fraudulent claims for payment or approval by the United States, by using or causing to be used false records or statements regarding equipment to be installed, and by conspiring with each other to defraud the United States. The government inves-
Defendants filed a motion to dismiss for failure to state a claim under
The district court denied the motion on May 13, 2013. It rejected the idea that the “funds must be deposited into the Treasury and/or distributed by a government body for there to be a claim under the FCA.... The only requirement is that the government provide or reimburse a portion of the money or property that is requested.” Because the USAC funds are collected under a mandate from the government and distributed in accordance with FCC regulations, the district court found that the government provided the money. The district court pointed to the “broad definition” of a claim in the FCA and the legislative history of the act to support a “broad application.” The district court found the USAC a “grantee, recipient, and agent” of the government.
The defendants asked the court to certify for interlocutory appeal the threshold issue of whether FCA liability extends to requests submitted to the USAC for reimbursement from the USF. The defendants argued that the district court‘s order created a conflict with Lyttle v. AT & T Corp., No. 2:10-1376, 2012 WL 6738149 (W.D.Pa. Dec. 28, 2012) (adopting report and recommendation). The district court granted the defendants leave to apply for an interlocutory appeal on June 11, 2013.
STANDARD OF REVIEW
We review de novo a district court‘s ruling on a
DISCUSSION
This case decides when the Government “provides any portion of” requested money, as to trigger the protection of the False Claims Act, a statute that shadows
[A]ny request or demand ... for money or property and whether or not the United States has title to the money or property, that ... is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government‘s behalf or to advance a Government program or interest, and if the United States Government ... provides or has provided any portion of the money or property requested or demanded.
“The FCA generally permits the Government or a party suing on the Government‘s behalf to recover for false claims made by the defendants to secure payment by the Government.” United States ex rel. Doe v. Dow Chem. Co., 343 F.3d 325, 329 (5th Cir.2003). We have explained that to state a claim under the FCA in our circuit, “a plaintiff must allege: (1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that is presented to the Government.” Steury, 625 F.3d at 267.
The Government‘s position is that “provides” means “to make available,” and that the Government makes money available when it “direct[s] the collection and disbursement of ... funds.” Gov‘t Br. 2. This broad view of the statutory term is unsupported by the cases interpreting the FCA. To be sure, courts have found that the Government “provides any portion” of the money requested when the Government has given even a drop of treasury money to the defrauded entity. See, e.g., United States ex rel. DRC, Inc. v. Custer Battles, LLC, 562 F.3d 295, 303-04 (4th Cir. 2009) (“Textually, therefore, a claim made to a grantee of U.S. money is not defined by the amount of money that the U.S. government paid directly to the claimant. So long as ‘any portion’ of the claim is or will be funded by U.S. money
Courts have also identified entities that do not receive Government funds, but nevertheless are covered by the FCA because of their status as Government entities. See e.g., United States v. McNinch, 356 U.S. 595, 598, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958) (holding that the Federal Housing Administration is covered by the FCA because “[t]he FHA is an unincorporated agency in the Executive Department created by the President pursuant to congressional authorization. Its head, the Federal Housing Commissioner, is appointed by the President with the Senate‘s consent, and the powers of the agency are vested in him. The agency is responsible for the administration of a number of federal housing programs and operates with funds originally appropriated by Congress. In short, the FHA is about as much a part of the Government as any agency can be.“); United States v. Mackby, 261 F.3d 821, 824, 826 (9th Cir.2001) (noting that it is undisputed that a claim for Medicare payment triggers the FCA); United States v. Hicks, No. 05-4189-GPM, 2008 WL 1990436, at *3 (S.D.Ill. May 5, 2008) (holding that false claims may be made against United States Postal Service and noting that “[a]lthough the Postal Service is a ‘self-funding’ entity, this is not to say that it is divorced from the United States Treasury. The Postal Service is self-funding only in the sense that Congress has appropriated to it all of the Postal Service‘s own revenues. It nevertheless is ‘operated as a basic and fundamental service provided to the people by the Government of the United States.‘“) (quoting Baker v. Runyon, 114 F.3d 668, 672 (7th Cir.1997)).
Importantly, however, courts have identified programs that do not trigger FCA protection because they do not receive federal funds and they have too tenuous of a relationship to the Government to be considered a Government entity. See, e.g., United States ex rel. Sanders v. Am.-Amicable Life Insur. Co. of Tex., 545 F.3d 256, 259 (3d Cir.2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 493 (D.C.Cir.2004) (holding that claim against Amtrak not presented to the Government and noting that “[t]he word ‘provides’ in Section 3729(c), when appropriately limited to the present tense, squares neatly with a presentment requirement. False Claims Act liability will attach if the Government provides the funds to the grantee upon presentment of a claim to the Government.“); Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 184 (3d Cir.2001) (holding that submission of fraudulent legal bills for approval to the United States Bankruptcy Court does not violate the False Claims Act because “the submission of false claims to the United States government for approval which do not or would not cause financial loss to the government are not within the purview of the False Claims Act“); Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir.1998) (holding that United States involvement in negotiations that led to the stipulation under which a private entity agreed to put money into a fund for environmental clean-up costs did not trigger the FCA because “[n]one of the money in the private Vertac trust fund, long since depleted, was provided by the United States Government. No federal funds were ever intermingled with that fund. The United States had no access to the
This last set of cases reveals that courts have limited the FCA‘s application to “instances of fraud that might result in financial loss to the Government.” Sanders, 545 F.3d at 259 (internal quotations omitted); see also Costner, 153 F.3d at 677 (“Essentially, then, only those actions by the claimant which have the purpose and effect of causing the United States to pay out money it is not obligated to pay, or those actions which intentionally deprive the United States of money it is lawfully due, are properly considered ‘claims’ within the meaning of the FCA.“). The money in the USF is untraceable to the United States Treasury. Accordingly, although the United States may have a regulatory interest in the E-Rate program, the United States does not have a financial stake in its fraudulent losses. That recovery for an unquantifiable regulatory interest falls outside of the scope of FCA protection is further supported by the FCA‘s damages provision, which provides a penalty of “3 times the amount of damages which the Government sustains.”
Acknowledging this, the Government urges that the FCA applies because of the extent of the FCC‘s control over the E-Rate program. This control-based test fails to distinguish Hutchins, in which the Third Circuit addressed “fraudulent legal bills for approval to the United States Bankruptcy Court” and rejected the argument that “even if no claim were made against United States Treasury money in connection with the law firm‘s inflated legal bills, the submission of these bills for approval by the Bankruptcy Court violates the False Claims Act.” 253 F.3d at 180, 183. That the bankruptcy court could approve a portion or all of these claims did not matter because “the Act is only intended to cover instances of fraud ‘that might result in financial loss to the Government.‘” Id. at 183 (quoting United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968)). Moreover, the Government‘s involvement in creating the privately capitalized clean-up fund in Costner was insufficient to sustain a claim under the FCA because “[a]ny allegedly false claims for payment made by defendants to the Vertac trust fund had no nexus to the United States.” 153 F.3d at 677.
Courts differentiate between entities that are the Government and those that are not by looking at their statutes rather than the extent of Government supervision. In Totten, for example, then-Judge Roberts distinguished Rainwater v. Unit-
The Postal Service‘s statute similarly explains: “The United States Postal Service shall be operated as a basic and fundamental service provided to the people by the Government of the United States, authorized by the Constitution, created by Act of Congress, and supported by the people.”
Illustratively, in another FCA case the Government did “not challenge the defendants’ contention that the FCA, prior to the 2009 amendments, has no application to Fannie Mae or Freddie Mac.” Brief for United States at 2 n.2, United States ex rel. Adams v. Wells Fargo Bank Nat‘l Ass‘n, No. 2:11-cv-00535-RCJ-PAL, 2013 WL 6506732 (D.Nev. Dec. 11, 2013). Fannie Mae‘s enacting statute, for example, explains:
The purposes of this title include the partition of the Federal National Mortgage Association as heretofore existing into two separate and distinct corporations.... One of such corporations, to be known as Federal National Mortgage Association, will be a Government-sponsored private corporation, will retain the assets and liabilities of the previously existing corporation accounted for under section 1719 of this title, and will continue to operate the secondary market operations authorized by such section 1719.
Although we have recognized in other contexts that “the Congressional Budget Office has treated universal service fund contributions as federal revenues,” Tex. Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 427 (5th Cir.1999), courts have explained that the program is independent from the Government:
While we recognize that the FCC does hold substantial power over the fund indirectly, essentially by overseeing USAC, we also recognize that it has no ability to control the USF through direct seizure or discretionary spending. We hold that USAC, which, as administrator of the USF, has discretion over if, when, and how it disburses universal service funds to beneficiaries, holds dominion over the USF.
In re Incomnet, 463 F.3d 1064, 1071 (9th Cir.2006). Moreover, “[w]hen the FCC created NECA [USAC‘s sole shareholder and therefore the program‘s administrator], it made clear that NECA acted exclusively as an agent for its members and had no authority to perform any adjudicatory
At least one lower court that has closely considered the question for a similar fund has rejected the same arguments that Shupe and the United States now advance. Lyttle v. AT & T Corp., No. 2:10-1376, 2012 WL 6738242, *15-21 (W.D.Pa. Nov. 15, 2012).3 A relator there brought a false claims case against a telephone company on allegations that the company fraudulently certified compliance with FCC regulations while seeking reimbursement from a fund created to subsidize a service to help deaf or speech-impaired persons communicate via phone. Id. at *1-10. The fund for the services was established through congressional and FCC action and initially administered by the same National Exchange Carrier Association, Inc., that oversees the E-Rate fund.
The United States argued that 1) the Administrator is an agent of the United States for purposes of reimbursing money from the Fund (even if not for other purposes); [and] 2) the money is “provided by” the United States because it is collected based on Congressional levy and because it is a line item in the federal budget.... Id. at *13. The defendants responded that “1) the Administrator is not an ‘agent’ of the FCC because it had no authority to bind the FCC by its actions; [and] 2) the contractor provision does not apply because the United States does not ‘provide’ the funds....” Id. at *14.
The magistrate judge rejected the argument that the United States “provides” any portion of the money in the funds. Id. at *18-21. Any submission of false claims did not “cause financial loss to the government.” Id. at *20. Nor could the Government cite “a case in which a court has held that, although money was put into a fund and taken out of it by private parties, the Government nevertheless ‘provided’ the funds because it required that such money be paid or because the program is included in the federal budget.” Id. at *21. The district court adopted the magistrate judge‘s recommendation as its opinion. Lyttle, 2012 WL 6738149, at *1.
Like the court concluded in Lyttle, we conclude that the Government did not provide the funds to the USF to subject claims to it to FCA liability. The text of the relevant version of
Accordingly, that the FCC maintains regulatory supervision over the E-Rate program does not affect the Congress’ decision, embodied in the program‘s independent structure, to externalize the cost of administering the program to a private entity.
CONCLUSION
For the foregoing reasons, we REVERSE the judgment of the district court and REMAND for further proceedings.
PER CURIAM
Notes
Any person who—
- knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
- knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
- conspires to defraud the Government by getting a false or fraudulent claim allowed or paid ...