CHICAGO (CN) — A corporate malfeasance suit almost 15 years in the making came before the Seventh Circuit on Thursday, centered on a federal whistleblower's allegations that AT&T subsidiary Wisconsin Bell overcharged schools and libraries in the Badger State for over a decade.
The origins of this alleged fraud go back to 1997, with the implementation of the federal E-Rate Program under the purview of the Federal Communications Commission. The program uses government funds to subsidize internet and telecommunications services for schools and libraries, particularly those in impoverished areas.
In order to qualify for reimbursement under the E-Rate Program, telecom companies like Wisconsin Bell are required to charge the schools and libraries they contract with no more than the local "lowest corresponding price," or "at rates less than the amounts charged for similar services to other parties." In some places public schools can qualify for as much as a 90% discount off typical rates.
Wisconsin Bell and similar companies can skirt this requirement only if they demonstrate that providing services for local schools and libraries would be so expensive that charging them the lowest corresponding price, or LCP, would put the company at a financial loss.
In 2008 telecom auditor Todd Heath, a resident of Dodge County in eastern Wisconsin, filed a federal fraud lawsuit against numerous telecoms companies that operated in the state. He claimed that the companies, including Wisconsin Bell and its competitor Verizon North, had received federal reimbursement via the E-Rate Program for close to a decade, despite overcharging the state's schools and libraries for their services for just as long.
"Verizon North routinely has withheld information about these available rates from public school and library customers, and it has billed almost all of them at much higher rates, sometimes three times as high as the lowest corresponding price," Heath's initial complaint stated.
The accusation was a hard sell, especially since many of the companies seemed to begin abiding more strictly by the E-Rate Program's LCP rule from 2009 onward. Over the next three years, Heath voluntarily dismissed his claims against all the defendants, except Wisconsin Bell.
"Defendant Wisconsin Bell, Inc., as an E-Rate participating entity, unlawfully and secretly has refused to abide by the [E-Rate Program]’s pricing proscriptions and routinely has failed to bid, offer and as a result invoice its E-Rate eligible services to Wisconsin schools and libraries in accordance with regulatory mandates," Heath's 2011 amended complaint claimed. "In the process, Defendant has subverted the [E-Rate Program]’s goals, unlawfully obtained funding commitments that never should have issued, and mischarged and overcharged participating schools, libraries and the United States."
U.S. District Judge Lynn Adelman in Milwaukee federal court wanted nothing to do with the allegations. The Bill Clinton appointee dismissed Heath's claims in September 2012, opining that his court lacked subject matter jurisdiction. On appeal, the Seventh Circuit disagreed with Adelman and returned the case to district court. The case slowed to a crawl upon its return, barely moving over the next 10 years.
But in March 2022, Adelman again tossed the suit, this time ruling that Heath had not shown how Wisconsin Bell had violated the FCC's LCP rule for the E-Rate program. Even if the company had charged Wisconsin schools and libraries higher rates than other customers, Adelman wrote, the letter of the law only required it to charge the lowest possible rates for "similarly situated customers." In other words, the conditions at different schools and libraries which Wisconsin Bell contracted with may have been so disparate that Heath could not show they were "similarly situated."
"The LCP rule does not require a provider to offer E-rate customers the lowest rate available; it requires providers to offer the lowest rate charged to similarly situated customers. Heath does not show that any customers that were charged the lower rates were similarly situated to those who were charged a higher rate," Adelman wrote.