United States Ex Rel. Heath v. Wisconsin Bell, Inc. , 760 F.3d 688 ( 2014 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-3383
UNITED STATES OF AMERICA ex rel.
TODD HEATH,
Plaintiff/Relator-Appellant,
v.
WISCONSIN BELL, INC.,
Defendant-Appellee.
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 2:08-cv-00724 — Lynn Adelman, Judge.
ARGUED APRIL 7, 2014 — DECIDED JULY 28, 2014
Before WOOD, Chief Judge, and KANNE and SYKES, Circuit
Judges.
KANNE, Circuit Judge. Relator Todd Heath filed this qui tam
complaint under the False Claims Act. Heath alleged that
defendant Wisconsin Bell was overcharging school districts for
telecommunications services it provided under the Education
Rate Program (the “E-Rate Program”), a federal subsidy
program. He discovered that certain schools received more
2 No. 12-3383
favorable pricing than others, which allowed Wisconsin Bell to
receive more federal subsidies than it was due. Heath also
learned that Wisconsin Bell offered an even lower price to the
Wisconsin Department of Administration (“DOA”), a price
which ought to have been conferred to the school districts. The
district court held that it did not have jurisdiction to hear the
case, as the complaint was based upon publicly disclosed
information in the form of the contract with the DOA; namely
their website. We reverse and remand for further proceedings.
I. BACKGROUND
We first note that this case is still in the jurisdictional phase
of this litigation and therefore, to the extent that these facts are
disputed, we consider them in the light most favorable to
Heath.
This case involves the Educational Rate Program, a federal
subsidy program authorized by the Telecommunications Act
of 1996. The Federal Communications Commission, the
organization responsible for implementing the E-Rate Pro-
gram, established the Universal Service Administrative
Company (“USAC”), a private non-profit corporation, to
administer the E-Rate Program. The USAC provides subsidies
to eligible school districts for the cost of telecommunication
services.
As a condition of participating, telecommunication provid-
ers have a statutory duty to charge “rates less than the amoun-
ts charged for similar services to other parties.” 47 U.S.C.
§ 254(h)(1)(B). Furthermore, the obligation to offer schools the
best pricing is set forth in the FCC regulations, which maintain
that providers must offer schools the “lowest corresponding
No. 12-3383 3
price” (“LCP”) for their services. The LCP is defined as the
“lowest price that a service provider charges to non-residential
customers who are similarly situated to a particular school,
library, or library consortium for similar services.” 47 C.F.R.
§ 54.500(f).
Since 1998, Heath has operated a business that audits
telecommunications bills to identify improper charges. His
company was retained by several Wisconsin school districts to
perform these services. By 2006, Heath ascertained through
extensive review of the charges administered by Wisconsin Bell
that certain schools paid much higher rates than others for the
same telecommunications services. As a direct result, many
Wisconsin school districts did not receive the benefit of the
LCP and the federal government paid subsidies that were
substantially greater than they should have been.
In 2007, upon further investigation, Heath discovered that
the overcharges were more substantial than originally antici-
pated because Wisconsin Bell did not provide the school
districts the benefit of certain favorable pricing offered to state
departments, agencies, universities, and other users under a
contract between Wisconsin Bell and the DOA titled the Voice
Network Services Agreement (“VNS Agreement”). The VNS
Agreement represented the rates the districts should have been
charged as all of the school districts were “similarly situated”
to other government agencies that received the prices charged
to the DOA. See 47 C.F.R. § 54.500(f) (requiring that schools be
charged at rates equal to or lower than those charged to
“similarly situated” non-residential customers for “similar
services”).
4 No. 12-3383
Heath informed Wisconsin Bell of the discrepancy, but it
nonetheless refused to provide the more favorable pricing.
Soon thereafter, Heath discovered more information regarding
the DOA pricing on the DOA’s website, including the VNS
Agreement itself, and continued to press Wisconsin Bell for the
better pricing. Wisconsin Bell granted the DOA pricing to a
small number of schools, but denied it to others. Heath then
sent an open records request to the DOA, but received no
additional information beyond that which was available on the
DOA website, i.e. the VNS Agreement.
Heath filed this qui tam lawsuit in 2008. He alleged that
Wisconsin Bell fraudulently overcharged school districts,
libraries and the United States for telecommunication services.
The United States declined to intervene, following three years
of investigating the claim.
The district court granted Wisconsin Bell’s motion to
dismiss for lack of subject matter jurisdiction. It held that the
public disclosure bar applied, which prohibits courts from
exercising jurisdiction over claims based on public disclosures.
It also found that Heath was not saved by the original source
exception, which permits an individual to pursue a claim based
on publicly disclosed information if he or she is the original
source of the information. The court held that Heath’s reliance
on the DOA’s website in obtaining the information was
determinative and held the bar applicable.
II. ANALYSIS
The district court found that the public disclosure bar
applied to Heath’s qui tam case and it therefore lacked jurisdict-
No. 12-3383 5
ion; a decision that we review de novo. Apex Digital, Inc. v. Sears,
Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009).
The False Claims Act permits “both the Attorney General
and private qui tam relators to recover from persons who make
false or fraudulent claims for payment to the United States.”
Graham Cnty. Soil and Water Conservation Dist. v. U.S. ex rel.
Wilson, 559 U.S. 280, 283 (2010). Yet it also seeks to prevent
parasitic lawsuits by “opportunistic plaintiffs who have no
significant information to contribute of their own[.]” Id. at 294.
To this effect, Congress implemented the public disclosure bar,
which precludes suits “based upon the public disclosure of
allegations or transactions ... in a congressional, administrative,
or Government Accounting Office report, hearing, audit, or
investigation, or from the news media, unless the action is
brought by the Attorney General or the person bringing the
action is the original source of the information.” Addendum 1,
31 U.S.C. § 3730(e)(4)(A) (effective Oct. 27, 1998 – Mar. 22,
2010).1
Determining whether to apply the public disclosure bar
requires the court to complete a three-step inquiry. “First, it
examines whether the relator's allegations have been ‘publicly
disclosed.’ If so, it next asks whether the lawsuit is ‘based
upon’ those publicly disclosed allegations. If it is, the court
determines whether the relator is an ‘original source’ of the
1
The Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat.
119 (2010), amended the public disclosure provision, but the amendment
was not retroactive. Graham Cnty., 559 U.S. at 283 n.1. Therefore, the version
of the statute in place at the time Heath filed this suit applies. Schindler
Elevator Corp. v. U.S. ex rel. Kirk, 131 S. Ct. 1885, 1889 n.1 (2011).
6 No. 12-3383
information upon which his lawsuit is based.” Glaser v. Wound
Care Consultants Inc., 570 F.3d 907, 913 (7th Cir. 2009) (citations
omitted). As we do not believe that Heath’s allegations were
“based upon” a public disclosure, we need not address the first
or third steps.
The district court found that the posting of the VNS
Agreement on the DOA website and providing Heath with a
copy constituted a public disclosure. The court found that this
was sufficient to put the Federal Government on notice of a
potential fraud. It then found that Heath’s allegations were
“based upon” the VNS Agreement because he relied upon the
agreement to prove that Wisconsin Bell was not offering the
lowest price. We disagree.
We have “previously interpreted the phrase ‘based upon [a]
public disclosure’ to mean ‘substantially similar to publicly
disclosed allegations [or transactions].’” Leveski v. ITT Educ.
Servs., Inc., 719 F.3d 818, 828 (7th Cir. 2013) (citing Glaser, 570
F.3d at 920). And we have held that “based upon” does not
mean “solely based upon,” for a “qui tam action even partly
based upon publicly disclosed allegations or transactions is
nonetheless ‘based upon’ such allegations or transactions.”
Glaser, 570 F.3d at 920 (citing United States ex rel. Precision Co. v.
Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992)). In Glaser,
we found that the relator’s claims derived from a previously
published report to which she added extra details. This did not
pass the public disclosure bar, however, because the relator’s
complaint merely added specificity (and maybe a few additio-
nal instances) to the allegations already detailed in the public
investigation. Id. at 920–21. Such is not the case here. Heath’s
No. 12-3383 7
allegations, though they may rely in part on the VNS Agree-
ment, required independent investigation and analysis to
reveal any fraudulent behavior.
Wisconsin Bell urges us to consider, as the district court
did, that the posting of the contract on the DOA website alone
suffices to trigger the public disclosure bar. But the VNS
Agreement, whether publicly disclosed or not (a fact that we
need not address here), is evidence of only one transaction that
had to be supplemented with knowledge of other pricing—in
this case Heath’s insight regarding the pricing received by the
school districts—to establish fraud. No one could view the
agreement in a vacuum and realize that Wisconsin Bell was
overcharging school districts. While the VNS Agreement may
provide a measure for the LCP—or in this case damages—it
certainly cannot, per se, establish fraudulent behavior. See U.S.
ex rel. Goldberg v. Rush Univ. Med. Ctr., 680 F.3d 933, 935–36 (7th
Cir. 2012) (public disclosure bar did not apply when relator
was able to piece together specific information despite the
presence of a corresponding government report).
Moreover, we have cautioned against the use of the public
disclosure bar at a “high level of generality.” Id.; see also Leveski,
719 F.3d at 832; Glaser, 570 F.3d at 936. Heath was contracted to
audit various school districts’ telecommunication services and
found irregularities in the prices charged—some schools were
charged much higher rates than others, i.e. the LCP was not
being administered properly. Upon further investigation,
Heath discovered the VNS Agreement. Wisconsin Bell suggests
that the sole piece of information that Heath relied upon for his
allegations was the agreement, which proved that Wisconsin
Bell was not offering the LCP. Yet this ignores Heath’s allegati-
8 No. 12-3383
on that he discovered that various school districts were
receiving disparate, higher pricing than other districts prior to
the discovery of the VNS Agreement. See U.S. ex rel. Baltazar v.
Warden, 635 F.3d 866, 868 (7th Cir. 2011) (Government Ac-
countability Office reports did “not disclose the allegations or
transactions on which a suit such as [relator]’s is based.”).
Absent Heath’s extensive knowledge of the schools’s telecom-
munication pricing, the VNS Agreement serves only to identify
that a contract with a lower rate than that which was being
offered existed. What was required was knowledge of other
“similarly situated” entities and the price they were being
charged, which is exactly what Heath provided.
Heath is not one of the “opportunistic plaintiffs who have
no significant information to contribute of their own.” Graham
Cnty., 559 U.S. at 294. Through his own investigation and
initiative, Heath established that schools were being charged
prices well above the LCP—both by comparing rates between
the schools and subsequently the VNS Agreement—and
brought “genuinely new and material information” to the
government’s attention. Goldberg, 680 F.3d at 936. Accordingly,
his allegations are not precluded by the public disclosure bar.
III. CONCLUSION
The district court erred in finding that it lacked subject
matter jurisdiction over Heath’s case. Heath’s allegations were
not based on the VNS Agreement within the meaning of the
False Claims Act and therefore the public disclosure bar was
not warranted. For the foregoing reasons, we REVERSE the
district court’s decision and REMAND the case for further
proceedings consistent with this opinion.