Seventh Circuit: E-Rate Suit Survives Public Disclosure Bar

The Seventh Circuit reversed a district court’s decision finding that it lacked jurisdiction over a whistleblower’s claim under the False Claim Act’s public disclosure bar. In U.S. ex rel. Heath v. Wisconsin Bell, Inc., the Court held that even though the Complaint relied in part upon publicly available information, the Relator’s allegations rested upon a foundation of “genuinely new and material information” as a result of “his own investigation and initiative.” (Heath at 8.)

The Decision

This case was brought by a whistleblower against the telecommunications company, Wisconsin Bell, Inc., regarding the E-Rate federal subsidy program. Relator runs a business that audits telecommunication charges. Wisconsin school districts hired Relator to help determine if they were receiving appropriate discounts under the E-Rate program. Through his investigation, Relator alleges that he discovered districts that were not receiving the properly subsidized rates. As part of his investigation, the Relator relied in part upon a Voice Network Services Agreement (“VNS Agreement”) posted on the Wisconsin Department of Administration’s website.

The Defendant moved to dismiss the case for a lack of subject-matter jurisdiction, arguing that because Relator relied upon publicly disclosed information, the claim was barred under the FCA’s public disclosure bar. The district court agreed, granting Defendant’s motion to dismiss. The Seventh Circuit however reversed and remanded the decision.

The public disclosure bar under the FCA removes subject-matter jurisdiction for FCA claims based in part upon publicly disclosed information unless the relator is the “original source” of the information that the allegations rest upon.

The Seventh Circuit acknowledged that the Relator’s claims relied upon information publicly available in the VNS Agreement. However, the Court found that the VNS Agreement itself did not provide all of the information necessary to bring these allegations: “No one could view the agreement in a vacuum and realize that Wisconsin Bell was overcharging school districts.” (Heath at 7.) Rather, the claims were dependent upon information that the Relator had cultivated through his own initiative and investigation and thereby supplemented the VNS Agreement with his own knowledge. (Heath at 7.)

In reversing the lower court and holding that the public disclosure bar was inapplicable to this case, the Seventh Circuit reinforced a policy of avoiding a “high level of generality” in public disclosure bar challenges to FCA complaints. (Heath at 7.)

The Impact

This case remains in the earliest stages of motion practice. Given the success of other FCA Defendants in E-Rate programs who have challenged the federal subsidy’s program inclusion in FCA suits, it is likely that Wisconsin Bell will mount a similar defense.

More broadly, this decision draws a clearer line in the Seventh Circuit as to what is necessary to challenge a whistleblower’s claim via the public disclosure bar and highlights the Court’s aversion to broad challenges to claims that rely only in part upon publicly available information.

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