uNITED STATES DISTRICT coURT
FoR THE DLSTRICT oF CQLUMBIA F _'[ |_ E D
JUN 1 0 2014
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UNITED STATES OF AMERlCA,
ex rel. TODD HEATH, et al.
Plaintiffs/Relator,
Case No. 1l-cv-l897 (RJL)
V.
AT&T, Inc., et al.
\Jé\¢/\/Sé€\/\/\¢/
Defendants.
MEMoRANDUM oPINIoN
(June b , 2014) [Dkt. #33]
Plaintiff-relator Todd Heath brings suit under the qui lam provisions of the False
Claims Act, 31 U.S.C. § 3729-3732, on behalf of the United States government,
seventeen states, the District of Columbia, and two cities against AT&T, Inc. and
nineteen wholly-owned subsidiaries (together, the "AT&T defendants").] Compl. [Dkt.
#l]. Heath alleges AT&T, lnc. and its regional operating companies fraudulently
overbilled school districts and libraries from 1997 through 2009 for telecommunications
services provided as part of the federal E-Rate program. Id.
l The complaint brings claims on behalf of the following states and localities: California, Delaware,
Florida, Hawaii, Illinois, lndiana, l\/Iassachusetts, Minnesota, Montana, Nevada, New Jersey, New
Mexico, New York, North Carolina, Rhode Island, Tennessee, Virginia, the District of Columbia,
Chicago, and New York City. The United States, California, Florida, Illinois, Massachusetts, New York,
New Jersey, North Carolina, Tennessee, and the District of Columbia have declined to intervene. The
other named states have not made their position known. United States ex rel. Heath v. A T&T, Inc., No.
l:l l-cv-l897 at Dkt. #6-10, 12-14, 25.
Defendants move to dismiss the complaint on a number of grounds. Among them
is that this court lacks jurisdiction to hear the United States False Claims Act claim
because Heath previously had filed a complaint in the Eastern District of Wisconsin
alleging the same fraud by AT&T’S Wisconsin operating company, thereby barring this
action under the Act’s "first-to-file" rule. 2 Defs.’ l\/lot. to Dismiss Relator’s Compl. l
[Dkt. #33]. ln addition, the AT&T defendants argue that this Court should decline to
exercise pendant jurisdiction over Heath’s state and local claims. Ia’. For the reasons
discussed herein, defendants’ motion will be GRAN'I`ED.
BACKGROUND
Pursuant to the Telecommunications Act of l996, the Federal Communications
Commission established what is commonly referred to as the Education'Rate, or E-Rate,
program to subsidize telecommunications and intemet services provided to needy schools
and libraries. Compl. Ml, 46. Eligible schools and libraries can receive reimbursement
from the federal Universal Service Fund for between 20 to 90 percent of the cost of
certain services. Id. *l47. The program has many requirements, both for the applying
schools or libraries and for the bidding service providers. Id. Among them is the
requirement that service providers bidding for a school or library’s contract bid at no
higher than their "lowest corresponding price" ("LCP"): the lowest price charged for
services to similarly situated customers. Id.; see 47 C.F.R. §§ 54.500(f), 54.51 l(b)
2 Defendants also argue that the False Claims Act claim is barred by the Act’s public disclosure bar and
that the Complaint fails to meet the pleading requirements of F ederal Rules of Civil Procedure S(a), 9(b),
and l2(b)(6). Mot. to Dismiss [Dkt. #33]. Because the claim is barred by the first-to-file rule, l need not
and do not reach the AT&T defendants’ arguments regarding public disclosure and failure to satisfy the
pleading requirements.
(2013). An applicant selects a service provider, enters into a contract, and submits a
request for funding to the Universal Service Administrative Company, which is overseen
by the FCC. Compl. Ml, 47. If the request is approved, either the applicant or the
service provider can submit invoices to the USAC for reimbursement. ld. 1]47.
In 2008, Todd Heath brought an action in the Eastem District of Wisconsin under
the qui iam provisions of the False Claims Act, 31 U.S.C. § 3729-3732, against the
AT&T operating company serving Wisconsin, Wisconsin Bell, lnc. Complaint, United
States ex rel. Heath v. Wisconsin Bell, Inc., No. 2:08-0\/-0876 (E.D. Wis. Oct. 16, 2008)
("Wis. Compl."). Heath alleged that Wisconsin Bell entered into E-Rate contracts with
Wisconsin school districts and libraries, but charged them rates above the LCP in
violation of program requirements. Id. 1Hl28-35. Specifically, he claimed that Wisconsin
Bell (which he called "AT&T" throughout the complaint) had entered into an agreement
with the Wisconsin Department of Administration to state departments and agencies at
specified rates, but withheld information about those rates from schools and libraries and
billed most of them at higher rates. Ia’. 1[1]31-35. The complaint was dismissed under the
FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A), which disallows actions based
on certain types of publically-disclosed information. See United Stcztes ex rel. Heath v.
Wisconsin Bell, Inc., No. 2:08-cv-00724, 2012 WL 4128020 (E,D. Wis. Sept. 18, 2012).
lt is currently on appeal in the Seventh Circuit. See Docket, United States ex rel. Heath
v. Wisconsin Bell, Inc., No. 12-3383 (7th Cir.).
Despite his lack of success in Wisconsin_or, more likely, because of it-Heath
brought this qui iam action in 201 l. He alleges that AT&T, Inc., and all of its operating
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companies (including Wisconsin Bell) violated the United States False Claims Act and
related state statutes by submitting program certification and reimbursement forms while
failing to comply with LCP requirements This practice persisted from the program’s
inception in 1997 until 2009, when AT&T, lnc. revamped its E-Rate program to include a
template for service providers to use to determine LCP. Compl. 111161-62, 76. Heath
recites a history of complaints against and investigations into AT&T operating
companies’ E-Rate program compliance in Connecticut, Missouri, and Indiana, as well as
Heath’s previous Wisconsin action. Icz’. 111163-75. The complaint points to one example
of alleged overbilling in Detroit, id. 1111103-105, but does not provide any examples of
specific instances in other states.
ANALYSIS
The False Claims Act allows a private individual to bring a qui lam civil suit on
behalf of the government. 31 U.S.C. § 3730(b)(1). However, "a relator’s failure to clear
the necessary statutory hurdles deprives the court of its power to hear the relator’s
claims." United States ex rel. Baziste v. SLM Corp., 740 F. Supp. 2d 98, 101 (D.D.C.
2010) aj]”’d, 659 F.3d 1204 (D.C. Cir. 2011). The plaintiff bears the burden of
establishing the eourt’s jurisdiction under Federal Rule of Civil Procedure 12(b)(l), but
the court may consider information outside of the pleadings in making its determination.
Ia’.
The statute encourages whistle-blowers by awarding successful relators with a
portion of any damages recovered. 31 U.S.C. §3730(d); United States ex rel. Sprz`ngfz`eld
Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C. Cir. 1994), At the same time, the statute
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restricts would-be plaintiffs from bringing, or the federal courts from hearing, certain
types of claims that would otherwise fall within the purview of the statute. See 31 U.S.C.
§ 3730. Together, these provisions reflect "congressional efforts to walk a fine line
between encouraging whistle-blowing and discouraging opportunistic behavior."
Springfielcz’, 14 F.3d at 651. A1though the AT&T defendants raise two of these statutory
jurisdictional bars in its motion to dismiss, 1 need address only one of them here: the
"f`irst-to-file" bar, 31 U.S.C. § 3730(b)(5).
The False Claims Act’s first-to-file bar precludes successive qui tam actions based
on the same allegations of fraud: "When a person brings [a qui tam action], no person
other than the Govemment may intervene or bring a related action based on the facts
underlying the pending action." 31 U.S.C. § 3730(b)(5). This restriction must be
considered in the context of the "twin goals of rejecting suits which the government is
capable of pursuing itself, while promoting those which the government is not equipped
to bring on its own." Springfz`eld, 14 F.3d at 651; see United States ex rel. Batisi‘e v. SLM
Corp., 659 F.3d 1204, 1208 (D.C. Cir. 2011) (quoting Springfz`elcz’); United States ex rel.
Hampton v. Coiumbz'q/HCA Hea/z‘hcare, 318 F.3d 214_, 217 (D.C. Cir. 2003) (same).
Our Circuit has interpreted § 3730(b)(5) as barring "any action incorporating the same
material elements of fraud as an action filed earlier," Hampz‘on, 318 F.3d at 217, even
when the same relator brings both actions, United States ex rel. Shea v. Cellco
Partnershz'_p, No. 12-7133, 2014 WL 1394687 at *4 (D.C. Cir. Apr. 1l, 2014). The later
action need not rest on "identica1 facts" to be dismissed, and "mere[] variations" on the
fraud described in the first-filed complaint do not suffice to get past the bar. Hampton,
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318 F.3d at 218. Instead, the court looks into whether the first complaint would have
equipped the government to investigate the fraud alleged in the later comp1aint. Bati`sre,
659 F.3d at 1209.
Here, the AT&T defendants argue that this action is "related" to Heath’s
Wisconsin action because the Wisconsin action was sufficient to put the government on
notice about the fraud alleged here. l\/Iem. in Support of Mot. to Dismiss 6-1 1 [Dkt. #33-
2]; Reply l\/Iem. 3-9 [Dkt. #36]. Heath contends that the defendants and scope of the
fraud alleged in this action differ materially from his previous Wisconsin action. Opp. to
Mot. to Dismiss 10 [Dkt. # 35]. He argues that because the Wisconsin action did not
allude to a broader fraud reaching beyond Wisconsin or being perpetrated by any non-
named corporate entities, the rule is inapplicable. Id. 1 disagree.
Whether an action is "related" to a previous action under the meaning of
§ 3730(b)(5) is a case-by-case inquiry. See United States ex rel. Folliard v. CDW Tech.
Servs., lnc. ("Folliard II"), 722 F. Supp. 2d 37, 39 (D.D.C. 2010) (explaining that "there
is no bright line rule for determining whether differences between complaints are
‘material"’). Much of Heath’s first-to-file argument focuses on distinguishing other cases
in this Circuit and District on their facts. Opp. to l\/lot. to Dismiss 8-10. But previous
instances in which courts have found actions to be related, such as Hqmpton, Batisze, and
Folliard II, do not define the universe of such cases. The operative question is "whether
[this] Complaint alleges a fraudulent scheme the govemment already would be equipped
to investigate based on the [Wisconsin] Complaint." Batiste, 659 F.3d at 1209.
Unfortunately for the plaintiff, it does. How so?
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There is no debate that the methodology of the accused fraud is the same in both
actions. Heath accuses AT&T-subsidiary service providers of failing to calculate and
charge the LCP as required by the E-Rate program, thereby overbilling eligible schools
and libraries and getting reimbursed by the federal government for those inflated charges.
The instant complaint does not direct an investigation into a different type of fraud, a
different time period, or different victims than the original Wisconsin complaint.
The only apparent difference is the identity of the allegedly fraudulent actors. lt is
clear that the mere act of naming different defendants in the later-filed complaint is not
sufficient to survive the bar. Hamptorz, 318 F.3d at 218. The different defendants would
have to be actors the govemment was not equipped to investigate after the first complaint
and investigation. Here, Heath names only AT&T, Inc., and its subsidiaries-all
corporate entities closely associated with Wisconsin Bell and participating in the same
federal program,
Wisconsin Bell’s relationship to parent AT&T, lnc. is readily apparent from the
face of the Wisconsin complaint. Wis. Compl. 114. The Wisconsin complaint even
defines the defendant as "AT&T." ]d. Furthermore, AT&T is a nationally-known brand
that provides telecommunications services all over the country. Any federal personnel or
agency considering or investigating Heath’s allegations against Wisconsin Bell would be
aware of the fact that there are many other state or regional AT&T operating companies
that provide precisely the same services and are owned and controlled by the same
parent.
The Wisconsin complaint also makes clear that the E-Rate program is a national
one. The administering agency, the USAC, certainly knew the nature of its program and
the identities of its eligible service providers. Heath emphasizes that the government was
aware of complaints against other AT&T operating companies regarding E-Rate program
implementation. Compl. 111163-75. The government certainly was aware that other
AT&T operating companies were similarly situated to Wisconsin Bell, Upon leaming of
allegations that Wisconsin Bell did not have a practice of charging LCPs, a logical step
would be to see if there was an organization-wide practice or procedure outlined by
parent AT&T, Inc., and whether other AT&T operating companies were abiding by the
rules.
There may well be situations in which fraud allegations against a single subsidiary
would not equip the government to investigate a broader scheme involving related
corporate entities, but this is not one of them. The nature of the corporate relationship
and the govemment program at issue mean the govemment here did not need a private
individual to allege a broader scheme in order for it to identify one. "[T]he allegations
and legal theory of [the Wisconsin action] would alert the government to the possibility
of a fraudulent scheme that went beyond the specifics of [that action]" and equip it to
investigate the expanded allegations. Cellco Partnership, 2014 WL 1394687 at *3.
Thus, the False Claims Act’s first-to-file rule bars the United States False Claims Act
claim in the instant complaint. The complaint brings no other federal elaims, and 1
decline to exercise jurisdiction over the remaining state and local law claims.
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss Relators Complaint
[Dkt. #33] is GRANTED, and plaintiff-relator’s claims for relief are D1SM1SSED. An
appropriate order shall accompany this Memorandum Opinion.
Qt§`ia.iaiu.r/
RiCHARD J.KLBON f
United States District Judge