Amicus Curiae Brief — Wisconsin Bell, Inc., Petitioner v. United States, ex rel. Todd Heath

No. 23-1127

IN THE

Supreme Court of the United States

____________

WISCONSIN BELL, INC.,

Petitioner,

v.

UNITED STATES OF AMERICA EX REL. TODD HEATH,

Respondent.

____________

On Petition for Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

____________

BRIEF OF WASHINGTON LEGAL FOUNDATION AS

AMICUS CURIAE SUPPORTING PETITIONERS

____________

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

May 10, 2024

QUESTION PRESENTED

Whether reimbursement requests submitted to

the E-rate program are “claims” under the False

Claims Act.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED ......................................... i

TABLE OF AUTHORITIES ..................................... iv

INTEREST OF AMICUS CURIAE ............................1

INTRODUCTION .......................................................1

STATEMENT ..............................................................3

I.

STATUTORY BACKGROUND......................................3

II. FACTUAL BACKGROUND AND PROCEDURAL

HISTORY .................................................................4

SUMMARY OF ARGUMENT.....................................5

ARGUMENT ...............................................................6

I.

THIS CASE HAS REPERCUSSIONS FAR

BEYOND THE E-RATE PROGRAM .............................6

A. The Telecommunications Relay

Service Fund Has A Similar

Structure ....................................................7

B. USAC Administers More Than The

E-Rate Program .........................................9

C. Other

Government-Adjacent

Organizations Meet The Seventh

Circuit’s Test For Agent Of The

United States ...........................................13

II. THE FCA’S HISTORY SHOWS THAT IT COVERS

ONLY CLAIMS WHERE THE GOVERNMENT

CAN LOSE MONEY ................................................16

CONCLUSION ..........................................................20

iv

TABLE OF AUTHORITIES

Page(s)

Cases

United States ex rel. Adams

v. Aurora Loan Servs., Inc.,

813 F.3d 1259 (9th Cir. 2016)..............................15

Collins v. Yellen,

141 S. Ct. 1761 (2021)..........................................14

Lyttle v. AT&T Corp.,

2012 WL 6738242

(W.D. Pa. Nov. 15, 2012)....................................8, 9

United States ex rel. Newsham v.

Lockheed Missiles & Space Co.,

722 F. Supp. 607 (N.D. Cal. 1989).................16, 17

United States ex rel. Polansky

v. Exec. Health Res., Inc.,

599 U.S. 419 (2023)..........................................1, 19

United States ex rel. Shupe

v. Cisco Sys., Inc.,

759 F.3d 379 (5th Cir. 2014)..................................5

Universal Health Servs., Inc. v.

United States ex rel. Escobar,

579 U.S. 176 (2016) ............................................1, 2

Statutes

18 U.S.C. § 287 ............................................................2

31 U.S.C.

§ 3730(b)(4)(A) ......................................................19

§ 3730(c)(2)(A) ......................................................19

v

TABLE OF AUTHORITIES

(continued)

Page(s)

47 U.S.C.

§ 225 .......................................................................8

§ 225(a)(3)...............................................................7

§ 225(b)(1)...............................................................7

§ 225(d)(3)(B)..........................................................8

§ 254(b)(3).........................................................9, 11

§ 254(h)(1)(A) .................................................12, 13

§ 254(h)(1)(B) .........................................................3

Act of Dec. 23, 1943, Pub. L.

No. 78-213, 57 Stat. 608 ......................................17

False Claims Act, ch. 67,

12 Stat. 696 (1863) .........................................17, 20

Regulations

47 C.F.R.

§ 54.410(a) ............................................................12

§ 54.420(a) ............................................................12

§ 54.500 ..................................................................4

§ 54.511(b) ..............................................................4

§ 54.606(a) ............................................................13

§ 54.622 ................................................................13

§ 64.604(c)(5)(iii) ....................................................8

Other Authorities

Cong. Globe, 37th Cong., 3d Sess.

(1863) (statement of Sen. Howard). ....................17

Daniel A. Lyons, Narrowing the Digital

Divide: A Better Broadband

Universal Service Program,

52 U.C. Davis L. Rev. 803 (2018) ........................10

vi

TABLE OF AUTHORITIES

(continued)

Page(s)

Douglas W. Baruch et al., In False

Claims Act Cases, Government Must

Provide Full Discovery Regarding

Materiality, WLF LEGAL OPINION

LETTER (Dec. 6, 2018) ............................................1

False Claims Act Amendments:

Hearings before the Subcomm. on

Admin. L. and Governmental Rels.

of the H. Comm. on the Judiciary,

99th Cong. (1986) (statement of Rep.

Dan Glickman) .....................................................16

Fred A. Shannon, The Organization

and Administration of the Union

Army, 1861-1865 (1965).......................................16

Letter from Lynn L. Dorr, Sec’y, Pub.

Serv. Comm’n of Wisc., to Allan J.

Kehl, Cnty. Exec., Kenosha Cnty.,

(Feb. 20, 2003)........................................................4

S. Rep. 99-345, reprinted in,

1986 U.S.C.C.A.N. 5266 ......................................18

Stephen A. Wood, Res Judicata in Qui

Tam Litigation: Why Government

Should Be Bound by Judgments in

Non-Intervened Cases, WLF

WORKING PAPER (Apr. 22, 2021) ............................1

The Tele. Co., Reply Comment Letter

on Modernizing the E-Rate

(Oct. 17. 2013) ........................................................4

1

INTEREST OF AMICUS CURIAE*

Washington Legal Foundation is a nonprofit,

public-interest law firm and policy center with

supporters nationwide. WLF promotes free

enterprise, individual rights, limited government,

and the rule of law. It often appears as amicus curiae

in important False Claims Act cases. See, e.g., United

States ex rel. Polansky v. Exec. Health Res., Inc., 599

U.S. 419 (2023); Universal Health Servs., Inc. v.

United States ex rel. Escobar, 579 U.S. 176 (2016).

WLF’s Legal Studies Division also regularly

publishes papers on FCA issues. See, e.g., Stephen A.

Wood, Res Judicata in Qui Tam Litigation: Why

Government Should Be Bound by Judgments in NonIntervened Cases, WLF WORKING PAPER (Apr. 22,

2021); Douglas W. Baruch et al., In False Claims Act

Cases, Government Must Provide Full Discovery

Regarding Materiality, WLF LEGAL OPINION LETTER

(Dec. 6, 2018).

INTRODUCTION

The FCA has taken on a life of its own in recent

years. Enacted during the Civil War, the statute

began as an important, but limited, tool against

government procurement fraudsters and wartime

opportunists. Today, the opportunists are often not

the targets of the statute, but rather its putative

enforcers: enterprising relators have weaponized the

FCA into a vehicle for debilitating lawsuits over just

* No party’s counsel authored any part of this brief. No

person or entity, other than Washington Legal Foundation and

its counsel, paid for the brief’s preparation or submission. WLF

timely notified all parties of its intent to file this brief.

2

about anything that arguably

remotely—the federal fisc.

touches—even

Companies operating in the shadow of the

FCA’s “essentially punitive” treble-damages regime

face a constant threat of suffering “open-ended

liability” without fair notice of the legal requirements

they are claimed to have violated. Escobar, 579 U.S.

at 182, 192. The Court has therefore warned that, in

the FCA context, respect for basic due process

demands “strict enforcement” of the FCA’s “rigorous”

requirements. Id. at 192. Whatever else such “strict

enforcement” may entail, in a case like this one where

punitive liability hinges on violation of a regulatory

standard, it must, at a bare minimum, require that

defendants know with certainty what the regulation

requires before imposing punitive civil and criminal

penalties. Cf. 18 U.S.C. § 287 (providing for criminal

penalties for FCA violations).

Here, the relevant federal agency refused to

issue guidance about the scope of its regulatory

requirement for telecommunications providers to

offer services to eligible entities at the lowest

corresponding price. Wisconsin Bell therefore took all

reasonable steps to ensure compliance with the

regulatory requirement. And time and again, the

government explicitly and implicitly backed

Wisconsin Bell’s process and its interpretation of the

regulation.

But an opportunistic relator who tried to get

Federal Communications Commission officials

imprisoned for agreeing with Wisconsin Bell sued for

its allegedly violating the regulatory requirement and

thus the FCA. His arguments conflicted with the

3

FCA’s plain text, which shows that Wisconsin Bell did

not submit any “claims” to the United States. Still,

the Seventh Circuit agreed with the relator and split

from the Fifth Circuit’s decision on the identical legal

issue.

STATEMENT

I.

STATUTORY FRAMEWORK

For the past 28 years, the Schools and

Libraries Universal Service Support (E-rate) program

has provided eligible schools, libraries, and consortia

with discounted telecommunications services. During

the relevant timeframe, the program was funded

entirely by telecommunications providers through the

Universal Service Fund. The Universal Service

Administrative Company—a private organization—

administers the Fund. This includes managing the

application process, disbursing funds, and ensuring

regulatory compliance.

The Fund disburses funds in two ways. First,

recipients may pay a provider’s bill and then seek

reimbursement from USAC. Second, recipients may

pay a provider the discounted rate and then have the

provider seek reimbursement from USAC.

Congress forces telecommunications carriers,

to “provide [eligible] services to elementary schools,

secondary schools, and libraries for educational

purposes at rates less than the amounts charged for

similar services to other parties” when requested to

do so. 47 U.S.C. § 254(h)(1)(B). This means they must

charge “the lowest price that a service provider

charges to non-residential customers who are

4

similarly situated to a particular school, library, or

library consortium for similar services.” 47 C.F.R.

§§ 54.500, 54.511(b). There are, however, no blackand-white rules when deciding whether customers

and eligible recipients are similarly situated. In fact,

the FCC has repeatedly declined requests to expand

on that regulatory requirement.

II.

FACTUAL BACKGROUND AND PROCEDURAL

HISTORY

Todd Heath learned about the E-rate program

while running two companies that assisted schools

with their telecommunications billing. He began

accusing providers, including Wisconsin Bell, of not

complying with the price requirement. Over the past

fifteen years, he has filed hundreds of “frivolous”

complaints against Wisconsin Bell and other

providers. Cf. Letter from Lynn L. Dorr, Sec’y, Pub.

Serv. Comm’n of Wisc., to Allan J. Kehl, Cnty. Exec.,

Kenosha Cnty., (Feb. 20, 2003) (describing Heath’s

interpretation of the lowest corresponding price

provision as “frivolous”).

Having convinced no government that it was

being overcharged by Wisconsin Bell and other

companies, Heath began accusing the government of

fraud. He even claimed that FCC officials “should be

indicted for crimes against the American people[ and]

stripped of their position and all future benefits.” The

Tele. Co., Reply Comment Letter on Modernizing the

E-Rate (Oct. 17. 2013), https://perma.cc/P94C-MVPH.

Besides trying to get FCC officials thrown in jail,

Heath sued Wisconsin Bell and others under the FCA.

The District Court granted Wisconsin Bell summary

5

judgment, finding that no genuine issue of material

fact existed about falsity or scienter.

The Seventh Circuit reversed. It found genuine

issues of material fact on both falsity and scienter. It

also declined to affirm on the alternative basis that

Heath failed to prove materiality. The Seventh

Circuit reasoned that E-rate reimbursement requests

submitted to USAC are “claims” for FCA purposes.

This holding openly split with the Fifth Circuit’s

decision in United States ex rel. Shupe v. Cisco Sys.,

Inc., 759 F.3d 379 (5th Cir. 2014) (per curiam).

Wisconsin Bell now asks the Court to resolve that

circuit split.

SUMMARY OF ARGUMENT

I.A. The Seventh Circuit’s decision will affect

programs beyond those administered by USAC. For

example, the telephone service that helps hearingimpaired and speech-impaired people is structured in

a similar way. Under the Seventh Circuit’s decision,

claims for reimbursement by service providers could

lead to FCA liability, which will decrease the supply

of companies willing to offer that crucial service.

B. Besides E-rate, USAC administers three

other programs that are now covered by the FCA in

the Seventh Circuit. Companies that provide

telecommunication services for rural residents, rural

health care providers, and low-income consumers

would all be open to FCA liability. This will cause

problems for service providers and could lead to

higher costs for the programs as businesses increase

their bids because of the potential for FCA liability.

6

C. Under the Seventh Circuit’s reasoning,

Fannie Mae and Freddie Mac are perhaps agents of

the United States for FCA purposes. This means that

innocent homebuyers and lenders could face FCA

liability for one mistake in a mortgage application.

This likewise will raise mortgage costs for all

Americans.

II. The FCA has been on the books for over 160

years. That whole time, it has covered only fraudulent

activity that costs the government money. Here,

Wisconsin Bell’s alleged fraud did not cost the federal

fisc a penny. Yet the Seventh Circuit said that does

not matter and that Wisconsin Bell could face treble

damages and criminal liability. That holding departs

from the FCA’s history.

ARGUMENT

I.

THIS CASE HAS REPERCUSSIONS FAR BEYOND

THE E-RATE PROGRAM.

Heath argues (at 2) that the question presented

is “of little importance beyond the dispute here.” This

argument fails for two reasons. First, the test for

whether the United States “provides” funds has wideranging implications for many ongoing federal

programs. Second, who is an agent of the United

States for FCA purposes implicates programs that are

key to our economy. Thus, the question presented is

of great importance beyond this dispute and the Court

should grant the petition.

7

A.

The Telecommunications Relay

Service Fund Has A Similar

Structure.

Many older Americans remember seeing some

payphones that had special keyboards attached.

These were not used to tweet or text a friend. Rather,

they were integral to ensuring that all Americans

could use those public phones. The Americans with

Disabilities Act requires that “hearing-impaired and

speech-impaired persons in the United States” be able

to communicate using telecommunications devices “to

the extent possible and in the most efficient manner.”

47 U.S.C. § 225(b)(1). To accomplish this goal,

Congress mandated creation of telecommunications

relay services—“telephone transmission services that

provide the ability for” hearing-impaired and speechimpaired individuals “to engage in communication by

wire or radio with one or more individuals, in a

manner that is functionally equivalent to the ability

of a hearing individual who does not have a speech

disability to communicate using voice communication

services by wire or radio.” Id. § 225(a)(3).

Hearing-impaired individuals can dial a

number and have the relay service call the recipient.

The recipient talks normally, then the relay service

sends a transcript to the caller of what the recipient

says. The caller can then speak with the recipient

hearing the caller. A similar process is used for

speech-impaired individuals, only with the roles

reversed.

Users need not pay to use the relay service.

Rather, “[r]elay providers recover their costs from a

fund, called the ‘TRS Fund,’ to which all interstate

8

telecommunications providers contribute.” Lyttle v.

AT&T Corp., 2012 WL 6738242, *2 (W.D. Pa. Nov. 15,

2012) (citing 47 U.S.C. § 225(d)(3)(B); 47 C.F.R.

§ 64.604(c)(5)(iii)), adopted, 2012 WL 6738149 (W.D.

Pa. Dec. 28, 2012). That fund is administered by

Rolka Loube Saltzer Associates, a private company.

This structure is much like the E-rate program. The

only differences are that Rolka Loube Saltzer

Associates—not USAC—controls the money and that

there is always a direct payment to the providers.

“[P]roviders submit monthly requests for

reimbursement for the total number of minutes of

each type of TRS service that they provided in the

prior month,” certifying that “minutes submitted to

the Fund administrator for compensation were

handled in compliance with section 225 of the

Communications Act and the [FCC’s] rules and

orders.” Lyttle, 2012 WL 6738242 at *2 (cleaned up).

This process is like the E-rate program. The only

difference is that rather than certifying the lowest

corresponding price, the provider is certifying

compliance with a different regulatory requirement.

Given this statutory framework, the Lyttle

court held that when “money [i]s put into a fund and

taken out of it by private parties,” that the United

States does not “provide” that money for FCA

purposes. 2012 WL 6738242 at *21. The court reached

this holding despite the United States’s “requir[ing]

that such money be paid” and the program being

“included in the federal budget.” Id. Still, the Lyttle

court applied incorrect reasoning like the Seventh

Circuit’s here and held that Rolka Loube Saltzer

Associates is an agent of the United States because it

“collect[s] and disburse[s] TRS funds on behalf of the

9

FCC, pursuant to federal law and act[s] on the FCC’s

behalf and subject to its control.” Id. at *18.

There is no meaningful daylight between the

TRS Fund’s administration and the E-rate program.

So under the Seventh Circuit’s rule, any provider that

mistakenly certifies to Rolka Loube Saltzer

Associates that it is complying with FCC regulations

on relay services can face FCA liability for claims

submitted before and after 2009. That means both

treble civil damages and criminal liability.

B.

USAC Administers More Than The

E-Rate Program.

Besides

the

E-rate

program,

USAC

administers three other funds. Under the Seventh

Circuit’s reasoning, requests for reimbursement for

all three programs are “claims” for FCA purposes.

This greatly expands the potential for FCA liability

far beyond what Congress intended.

1. Congress decided that “[c]onsumers in all

regions of the Nation, including * * * those in rural,

insular, and high cost areas, should have access to

telecommunications and information services,

including interexchange services and advanced

telecommunications.” 47 U.S.C. § 254(b)(3). This

means that they must be able to obtain “services[]

that are reasonably comparable to those services

provided in urban areas and that are available at

rates that are reasonably comparable to rates charged

for similar services in urban areas.” Id.

To comply with this directive, the FCC

established the High Cost Fund, which “provided

10

direct financial support to telecommunications

providers in areas where local rates would otherwise

be unaffordable for some consumers.” Daniel A.

Lyons, Narrowing the Digital Divide: A Better

Broadband Universal Service Program, 52 U.C. Davis

L. Rev. 803, 819 (2018) (cleaned up). The High Cost

Fund eventually transitioned to a program that

distributes money through at least sixteen different

funds.

The funding for the High Cost Program comes

from the same pool of money used for E-rate. In other

words, the High Cost Program is funded by

telecommunications providers through the Universal

Service Fund. And like E-rate, USAC administers all

the funds under the High Cost Program.

The largest High Cost Program fund is the

Connect America Fund Broadband Loop Support

program. This fund allows telecommunications

providers to recover any difference between costs

associated with providing voice and broadband

services and receipts for providing those services.

Unlike the E-rate program, there is no option

for consumers to pay the full cost of the broadband

services that they receive and then request

reimbursement from USAC. Instead, providers

receive the funds after providing the necessary

services and filing with USAC the necessary

paperwork. In other words, telecommunications

providers give money to USAC—a private entity—

and then a subset of those providers receive money

from USAC. At no time does the money pass through

the treasury.

11

The paperwork requirements to receive this

funding are onerous. Every year, providers must file

about a dozen forms with USAC. Each of these forms

is complex. For example, providers must provide

latitude and longitude coordinates for locations that

have received broadband services supported by the

program and a random sampling of speed

measurements, including latency. There is, however,

no federal regulation that tells carriers how to do this

random sampling. So a provider could conduct a

stratified random sample, and someone like Heath

could sue, arguing that it was not a true “random

sample.”

If a court were to adopt the relator’s argument,

it could mean that the telecommunications provider

could face treble damages for all reimbursements it

received from USAC. The provider could also face

criminal penalties for its actions, despite not one dime

of federal money being at issue. The money just

flowed from a large group of telecommunications

providers to a subset of that group. In other words,

despite no harm to the government by the provider’s

actions, treble damages and criminal penalties could

result.

2. Besides making telecommunications

services available in rural areas, Congress also

directed that services be made available to “lowincome consumers.” 47 U.S.C. § 254(b)(3). To comply

with this directive, the FCC established the Lifeline

Program, which provides direct financial support to

telecommunications providers who give discounted

services to low-income individuals.

12

The funding for the Lifeline Program comes

from the same pool of money used for E-rate. In other

words, the Lifeline Program is funded by

telecommunications providers through the Universal

Service Fund. And like E-rate, USAC administers the

Lifeline Program.

As with E-rate and the High Cost Program,

there are a vast array of regulatory requirements for

participating providers. For example, they “must

obtain a third-party biennial audit of their compliance

with the” program’s rules. 47 C.F.R. § 54.420(a).

Providers also “must implement policies and

procedures for ensuring that their Lifeline

subscribers are eligible to receive Lifeline services.”

Id. § 54.410(a).

Almost every Lifeline provider errs and seeks

reimbursement for at least one individual who is

ineligible for Lifeline services. Under the Seventh

Circuit’s rule, these providers face treble damages

and criminal penalties for every violation of the

Lifeline regulations.

3.

Finally,

Congress

directed

that

telecommunications

providers

must

“provide

telecommunications services which are necessary for

the provision of health care services * * * to any public

or nonprofit health care provider that serves persons

who reside in rural areas in that State at rates that

are reasonably comparable to rates charged for

similar services in urban areas in that State.” 47

U.S.C. § 254(h)(1)(A). Providers of that service are

“entitled to have an amount equal to the difference, if

any, between the rates for services provided to health

care providers for rural areas in a State and the rates

13

for similar services provided to other customers in

comparable rural areas in that State treated as a

service obligation.” Id.

Rural health care providers solicit bids for

services and then award the bids based on FCCmandated criteria. See 47 C.F.R. § 54.622. The rural

health care provider pays the prevailing urban rate

for the state. Service providers can then recover the

difference between the prevailing rural rate and the

prevailing urban rate from the Rural Health Care

Fund. See id. § 54.606(a).

The funding for the Rural Health Care Fund

comes from the same pool of money used for E-rate.

In other words, the Rural Health Care Fund is funded

by telecommunications providers through the

Universal Service Fund. And like E-rate, USAC

administers the two programs under the Rural

Health Care Fund. Service providers invoice USAC

for the difference calculated under Section 54.606(a).

As with the E-rate program, a mistake in

submitting an invoice could lead to FCA liability

under the Seventh Circuit’s decision. That includes

both treble civil damages and criminal penalties.

C.

Other

Government-Adjacent

Organizations Meet The Seventh

Circuit’s Test For Agent Of The

United States.

The Seventh Circuit’s decision stretches far

beyond government programs like Lifeline or the

telephone relay service. Under its definition of

14

“agent,” any claim submitted to Fannie Mae or

Freddie Mac is covered by the FCA.

“Fannie Mae and Freddie Mac are two of the

Nation’s leading sources of mortgage financing. When

the housing crisis hit in 2008, the companies suffered

significant losses, and many feared that their

troubling financial condition would imperil the

national economy.” Collins v. Yellen, 141 S. Ct. 1761,

1770 (2021). To assuage these concerns, Congress

“created the Federal Housing Finance Agency

(FHFA), an independent agency tasked with

regulating the companies and, if necessary, stepping

in as their conservator or receiver.” Id. (cleaned up).

FHFA “is tasked with supervising nearly every aspect

of the companies’ management and operations. For

example, the Agency must approve any new products

that the companies would like to offer. It may reject

acquisitions and certain transfers of interests the

companies seek to execute.” Id. at 1771 (citations

omitted).

In the Seventh Circuit’s view USAC can be an

agent of the United States even if it lacks “final power

to” “make policy, interpret unclear provisions of the

statute or rules, [] interpret the intent of Congress,”

“or to alter the federal government’s legal

obligations.” Pet. App. 25a (cleaned up). Rather, all

that matters is that “[a]ll of the USAC’s actions are

subject to the ultimate control of the principal, the

FCC, acting as a part of the United States

government.” Id.

Again, FHFA “is tasked with supervising

nearly every aspect of the companies’ management

and operations.” Collins, 141 S. Ct. at 1771. This is far

15

more control than the FCC has over USAC. No

provision of federal law allows the FCC to step in and

serve as conservator or receiver for USAC if financial

difficulty looms. So too for Rolka Loube Saltzer

Associates and the telephone relay service. FHFA’s

ability to serve as receiver or controller is the ultimate

type of control. So under the Seventh Circuit’s

reasoning, Fannie Mae and Freddie Mac are agents of

the United States for FCA purposes.

This unavoidable consequence of the Seventh

Circuit’s decision directly conflicts with the Ninth

Circuit’s decision in United States ex rel. Adams v.

Aurora Loan Servs., Inc., 813 F.3d 1259, 1260 (9th

Cir. 2016). Adams was also a qui tam action by

relators trying to recover treble damages for claims

that were never presented to the United States or one

of its agents. The relators sued under the FCA,

arguing that lenders told Fannie Mae and Freddie

Mac that certain properties were free and clear of

homeowner association liens and charges when they

were not. The district court dismissed the complaint

and the Ninth Circuit affirmed.

The Ninth Circuit explained that “Fannie Mae

and Freddie Mac are private companies, albeit

companies sponsored or chartered by the federal

government.” Adams, 813 F.3d at 1260. Thus, they

are not “agents” of the United States for FCA

purposes. See id.

The United States’s amicus brief in Adams is

also helpful. It said that because Fannie Mae and

Freddie Mac “are not part of the federal government,

* * * claims made upon [them] do not fall within the

first definition of ‘claim’ set out in the amended FCA,

16

which requires a request or demand be ‘presented to

an officer, employee, or agent of the United States.’”

Br. of the United States as Amicus Curiae Supporting

Neither Party at 14, Adams, 813 F.3d 1259 (No. 1415031).

If this Court denies the petition, mortgage

companies and borrowers could face FCA liability in

the Seventh Circuit. Under the decision below,

Fannie Mae and Freddie Mac are perhaps agents of

the United States for FCA purposes. This Court

should not allow that to happen. Rather, it should

grant the petition and hold that private corporations

like Fannie Mae, Freddie Mac, and USAC are not

agents of the United States for FCA purposes.

II.

THE FCA’S HISTORY SHOWS THAT IT COVERS

ONLY CLAIMS WHERE THE GOVERNMENT CAN

LOSE MONEY.

During the Civil War, government contractors

were becoming “proverbially and notoriously rich.” 1

Fred A. Shannon, The Organization and

Administration of the Union Army, 1861-1865, 54-56

(1965). The frauds they committed were brazen. For

example, one huckster sold blind, useless mules to the

military for $119 each—about $2,950 in today’s

currency. False Claims Act Amendments: Hearings

before the Subcomm. on Admin. L. and Governmental

Rels. of the H. Comm. on the Judiciary, 99th Cong. 1

(1986) (statement of Rep. Dan Glickman). “The

manufacturers of Colt’s revolvers had been receiving

$25 for a revolver that would ordinarily sell in the

open market for $14.50.” United States ex rel.

Newsham v. Lockheed Missiles & Space Co., 722 F.

Supp. 607, 609 n.2 (N.D. Cal. 1989).

17

So at President Lincoln’s urging, Congress

enacted the FCA to help catch government

procurement fraudsters and wartime opportunists.

See False Claims Act, ch. 67, 12 Stat. 696 (1863). As

the bill’s sponsor explained, it was based on “the oldfashioned idea of holding out a temptation, and

setting a rogue to catch a rogue.” Cong. Globe, 37th

Cong., 3d Sess. 955-56 (1863) (statement of Sen.

Howard). In other words, the entire purpose of the

FCA was to motivate people to blow the whistle on

fraud costing the government money. The purpose

was not to give a windfall for those who might catch

private fraud.

For the next eight decades, the FCA remained

a useful tool in the government’s ongoing battle

against fraudsters. But when World War II arrived, a

different type of fraudster became a menace to

society—parasitic plaintiffs. These “’[p]arasitic’ suits

were often brought based solely on public or quasi

public

information

obtained

from

criminal

indictments. After a criminal indictment came out,

there was a rush to the Courthouse to file a civil suit

and recover the qui tam bounty.” Newsham, 722 F.

Supp. at 609 n.3. So in 1943, Congress amended the

FCA to ban suits based on information that the

government already had in its possession. See Act of

Dec. 23, 1943, Pub. L. No. 78-213, 57 Stat. 608, 609.

The amended version of the FCA then served

our nation well for another four decades. Fraudsters

were kept in check, and parasitic plaintiffs were

prevented from receiving a windfall for suing based

on publicly available information. But in the 1980s

Congress held detailed hearings on the FCA to

determine whether it was still accomplishing its

18

stated goals. Those hearings led to the statute’s

overhaul in 1986, the result of which remains the

FCA’s core today.

The 1986 amendments’ purpose was “to

enhance the Government’s ability to recover losses

sustained as a result of fraud against the

Government.” S. Rep. 99-345, 1, reprinted in, 1986

U.S.C.C.A.N. 5266, 5266. Although it was “difficult to

estimate the exact magnitude of fraud in Federal

programs and procurement,” the spike in fraud cases

against “some of the largest Government contractors”

in the early 1980s led Congress to believe “that the

problem [wa]s severe.” Id. at 1-2, 1986 U.S.C.C.A.N.

at 5266. For example, “[i]n 1984, the Department of

Defense conducted 2,311 fraud investigations, up 30

percent from 1982. Similarly, the Department of

Health and Human Services ha[d] nearly tripled the

number of entitlement program fraud cases referred

for prosecution over the [prior] 3 years.” Id. at 2, 1986

U.S.C.C.A.N. at 5267.

Of course, fraud was not just limited to those

agencies. “The Department of Justice [] estimated

fraud [w]as draining 1 to 10 percent of the entire

Federal budget. Given the spending level in 1985 of

nearly $1 trillion, fraud against the Government

could [have been costing] taxpayers anywhere from

$10 to $100 billion annually.” S. Rep. 99-345 at 3,

1986 U.S.C.C.A.N. at 5268 (footnote omitted).

Congress concluded that the reason fraud was so

pervasive among government contractors was that

“there [were] serious roadblocks to obtaining

information as well as weaknesses in both

investigative and litigative tools.” Id. at 4, 1986

U.S.C.C.A.N. at 5269.

19

Congress’s solution to the problem was to

increase deterrence through better investigative and

litigation tools. One of those tools was to increase the

penalties for FCA violations from double damages to

treble damages. This 50% increase in the potential

penalty for fraudulent behavior, Congress thought,

would help deter fraud among contractors.

The entire discussion in 1986 was about how

Congress could root out fraud against the

government. It was the $10 to $100 billion annually

that was being diverted from the federal fisc that led

Congress to enact substantial FCA amendments in

1986. Nothing in the text of those amendments or the

legislative history even hints at allowing recovery for

frauds against private corporations for which the

government is not liable.

The Seventh Circuit’s decision here, however,

allows for FCA suits against companies and

individuals for alleged fraud against a private

corporation. Even if every allegation in Heath’s

complaint is true, the government did not lose a single

penny because of the alleged fraud. Rather, a private

company may have lost some money when it made Erate reimbursements.

Another part of the FCA’s structure also

suggests that it is not meant to cover claims for which

the government loses nothing. The government may

intervene in an FCA suit and fully control the

litigation. See 31 U.S.C. § 3730(b)(4)(A). This includes

dismissing the suit over the relator’s objection. See id.

§ 3730(c)(2)(A); Polansky, 599 U.S. at 438. The reason

that the Government can intervene and litigate a suit

is because the FCA’s purpose is to recover money that

20

the government lost due to fraud. This is a

continuation from the 1863 legislation, which made it

the “duty” of DOJ to go after fraudsters to “recover[]”

the “damages” done to the United States. False

Claims Act, § 5, 12 Stat. at 698.

In sum, the entire purpose of the FCA, from the

time it was enacted in 1863 until now, is to detect and

deter fraud that cost the United States money. It is

not meant as a way for profiteers like Heath to file

parasitic suits. Congress, in fact, has disapproved of

suing contractors just to recover money for relators.

Yet that is exactly what the Seventh Circuit’s decision

here permits. This Court should not allow the FCA to

be used as a tool for parasites to get rich.

CONCLUSION

This Court should grant the petition.

Respectfully submitted,

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

May 10, 2024