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United States ex rel. Futrell v. E-Rate Program, LLC

United States District Court, E.D. Missouri, Eastern Division

August 23, 2017

UNITED STATES OF AMERICA ex rel. STEVE FUTRELL AND DAVID GORNSTEIN, Plaintiffs,
v.
E-RATE PROGRAM, LLC, Defendant.

          MEMORANDUM AND ORDER

          E. RICHARD WEBBER SENIOR UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendant E-Rate Program, LLC's Motion for Judgment on the Pleadings [ECF No. 48].

         I. BACKGROUND

         In December 2014, Plaintiffs/Relators Steve Futrell and David Gornstein (“Relators”), filed this qui tam action on behalf of the United States, asserting Defendant E-Rate Program, LLC (“Defendant”) violated the False Claims Act (“FCA”), 31 U.S.C. § 3729, by intentionally and knowingly submitting false claims to defraud the United States government. Relators are former employees of Defendant. Defendant filed a Motion to Dismiss Relator's First Amended Complaint, which the Court granted on August 10, 2016. On September 9, 2016, Relators filed its Second Amended Complaint (“Complaint”). The action seeks to recover damages and civil penalties on behalf of the United States government arising from Defendant submitting false or fraudulent claims to obtain funds from the federal Library Universal Service Support Program, commonly known as the “E-Rate Program.”[1] The Complaint alleges Defendant submitted false or fraudulent claims to the United States government by failing to comply with the E-Rate Program's competitive bidding and document retention requirements. The United States chose not to intervene in this case and is therefore not a party, but it is a real party in interest. The FCA is the United States' primary tool to redress fraud on the government. Thus, the United States has a keen interest in the development of the law in this area and in the correct application of the law in this case.

         Defendant moves this Court, pursuant to the Federal Rules of Civil Procedure (“FRCP”) 12(h)(2)(B) and 12(c), to dismiss Relators' Complaint with prejudice. Defendant argues the Complaint should be dismissed because Relators fail to state a claim against Defendant under the FCA, 31 U.S.C. §§ 3729 et seq., because the E-Rate Program is not subject to the protections of the FCA. On June 6, 2017, the United States submitted a Statement of Interest in response to Defendant's Motion for Judgment on the Pleadings.

         The E-Rate Program was established by the 1996 Telecommunications Act and regulations promulgated by the Federal Communications Commission (“FCC”). It is administered by the Universal Services Administrative Company (“USAC”) under the direction of the FCC. The USAC is responsible for ensuring applicants and service providers comply with the E-Rate Program's rules and regulations. The USAC is an independent non-profit organization which has been designated by the FCC to administer the E-Rate Program. The E-Rate Program is funded by mandatory contributions of interstate telecommunications carriers. See 47 U.S.C. § 254(d); 47 C.F.R. § 54.706.

         In a motion for judgment on the pleadings, the Court accepts the allegations in the complaint as true. The following facts are alleged in Relators' complaint.

         The E-Rate Program helps schools and libraries obtain affordable telecommunication services, broadband internet access and internal network connections. The rules and regulations require competitive bidding for the services funded by the federal government. [ECF No. 36 ¶ 5]. The rules and regulations also require document retention evincing the competitive bidding process for the services. Id.

         Defendant contracted with numerous schools and school districts to assist in obtaining funds under the E-Rate Program. This included providing assistance with the regulations for compliance with the competitive bidding requirements and assistance with completing the paperwork required to request and obtain funds under the E-Rate Program. Defendant's representatives certified compliance with the E-Rate Program requirements for the school systems without ensuring there was retention of supporting documentation to evidence competitive bidding. Defendant did not follow the requirements for competitive bidding, falsely certified competitive bidding occurred, and failed to retain supporting documentation for competitive bidding.

         In its motion, Defendant argues Relators failed to state claim for relief, because the E-Rate Program, administered by the USAC and funded by the Universal Service Fund (“USF”), is not subject to the protections of the FCA. Therefore, it believes the Complaint must be dismissed.

         II.STANDARD

         Rule 12 of the Federal Rules of Civil Procedure allows the Court to dismiss an action for failure to state a claim. Under Rule 12(h)(2)(B), a motion to dismiss for failure to state a claim may be brought by a motion under Rule 12(c). Rule 12(c) provides “[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.”

         The Court applies the same standard in a 12(c) motion as applied in a 12(b)(6) motion to dismiss. See NCMIC Ins. Co. v. Blalock, No. 4:05CV805 HEA, 2005 WL 1926233, at *2 (E.D. Mo. Aug. 10, 2005) (citing Westcott v. Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990)). The Court will grant the motion “if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Id. On a motion for judgment on the pleadings, the Court “accepts as true all facts pleaded by the non-moving party and grants all reasonable inferences from the pleadings in favor of the non-moving party.” Id.

         III. ...


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