When is a Government Action Not an Action?

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The D.C. Circuit held that monetary penalties levied against bidders who defaulted on their successful bids for spectrum licenses did not trigger the government action bar in this FCA case, because the penalties were not directly connected to the original auction but arose from the defendants’ actions after the auction concluded.

United States Court of Appeals for the District of Columbia Circuit No. 21-7039, U.S. ex rel. Vermont National Telephone Company v. Northstar Wireless LLC, et al.

In brief

The D.C. Circuit reversed a lower court’s decision to dismiss a qui tam complaint alleging that several telecommunications companies defrauded the United States Government of $3.3 billion by manipulating Federal Communications Commission rules and falsely certifying their eligibility for discounts on spectrum licenses. The circuit panel held that FCC’s license auction was not a qualifying event triggering the government action bar, because there was no clear line between the auction and the commission’s decision to levy financial penalties after the defendants defaulted on some purchases. Rather, it was the defendants’ decision to default that triggered the government action. The court also found the plaintiff provided evidence alleging the defendants knowingly withheld information about its affiliation with a large business in order to qualify for bidding credits available only to small firms.


Vermont National Telephone Company filed a qui tam suit alleges that several telecommunications companies falsely certified their eligibility for discounts on spectrum licenses, thereby illegally obtaining discounted purchase rates and defrauding the United States of $3.3 billion.

When announcing the auction, the Federal Communications Commission informed prospective bidders that that small businesses would be eligible to receive bidding credits entitling them to either a 15-percent or 25-percent discount on their winning bids.

Defendants Northstar Wireless LLC and SNR Wireless LicenseCo LLC each submitted short-form applications to participate in the auction, claiming eligibility for the 25-percent bidding credit offered to “very small businesses” with less than $15 million in attributable revenues. In their application, the defendants acknowledged that they had acquired the necessary capital from DISH Network, a large corporation that was ineligible for bidding credits, and that the three entities would coordinate bidding activity. FCC found Northstar and SNR eligible to bid.

Northstar and SNR won 43.5 percent of the licenses up for auction, and were eligible for a $3.3 billion discount from the total bid price of $13.3 billion. However, once their applications became public, multiple competitors petitioned FCC to deny their applications, arguing that DISH effectively controlled both entities and therefore they could not qualify as small businesses. The commission agreed that the defendants were not eligible for discount credits, but found no evidence that they withheld information about their relationship with DISH.

The defendants then notified FCC that they would pay the full bid amount for some of the licenses they won and would default on their obligation to buy approximately 28 percent of the licenses. In response, FCC ordered the defendants to pay compensation for the difference between their own winning bids and the amount that the FCC receives when it re-auctions the licenses. FCC also ordered them to make an additional payment equal to fifteen percent of the petitioners’ own bids, or fifteen percent of the winning bid when their licenses are re-auctioned, whichever is less. Vermont Telephone alleged that DISH agreed to pay these deficiency penalties.

Northstar and SNR petitioned the D.C. Circuit for review of the commission’s determination that they were ineligible for bidding credits. The court upheld the ineligibility determination but remanded the matter to FCC to give Northstar and SNR an opportunity to seek to negotiate a cure for the de facto control the FCC found that DISH exercises over them. On remand, the commission directed Northstar and SNR to renegotiate their business arrangements with DISH and then submit revised agreements to the commission.

Meanwhile, this action was filed. The district court dismissed the case, finding the claims barred by the government action bar, which blocks qui tam actions based on allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the government is already a party. The court also found that the plaintiff did not satisfy the materiality standard. This appeal followed.

The Government Action Bar

First, Vermont Telephone argued that the government-action bar is inapplicable because the commission’s licensing proceeding was not an administrative civil money penalty proceeding. In response, the defendants argued that the proceeding qualified, because the FCC imposed, or could have imposed, several different civil money penalties during that proceeding.

First, the defendants argued that FCC levied civil money penalties by subjecting Northstar and SNR to default payments after they selectively defaulted on their winning bids. However, the D.C. Circuit disagreed. Even assuming that these default payments were civil money penalties, the court found they were not assessed during the licensing proceeding. In that proceeding, FCC determined only whether Northstar and SNR were qualified to hold spectrum licenses and eligible for bidding credits. The question of the default payments arose later, and the court found no reason that this event would retroactively transform the licensing proceeding into a civil money penalty proceeding.

Yet, the defendants continued to argue that the process amounted to a singular proceeding. The court was unconvinced, finding that the default payments did not flow directly from FCC’s determination that Northstar and SNR were ineligible for bidding credits. Rather, the defendants’ decision to selectively default triggered the assessment of default payments.

Second, the defendants noted that FCC may assess forfeiture penalties for willful failure to comply with any FCC rule or regulation, including the rule prohibiting the intentional submission of false or misleading statements to the commission. However, the court found that FCC is authorized to assess these penalties only during forfeiture proceedings, which are initiated by either a “notice of apparent liability” or a “notice of opportunity for hearing.” Because neither notice was ever issued, the circuit court held that FCC never initiated a forfeiture proceeding and had no authority to impose penalties. The defendants’ allusion to other penalties was also unavailing.

Accordingly, the court held that because the commission had no authority to assess civil money penalties during its licensing proceeding, which evaluated only Northstar’s and SNR’s long-form applications and the petitions to deny them, the licensing proceeding was not an “administrative civil money penalty proceeding.” The court therefore reversed the lower court’s decision to dismiss the case under the government-action bar.


The D.C. Circuit also disagreed with the district court’s holding on materiality. The district court concluded that the plaintiffs failed to plausibly allege any false claims capable of influencing FCC’s finding that Northstar and SNR were eligible for bidding credits. However, the circuit court noted that Vermont Telephone alleged that Northstar and SNR knowingly failed to disclose all of their instruments, agreements, and understandings with DISH and falsely certified that they had disclosed all information relevant to their claimed bidding credits in the auction.

Specifically, Vermont Telephone alleged that the two companies failed to disclose their agreement to transfer or resell their spectrum to DISH after a five-year non-transfer period. Because FCC would have counted the revenues of any entity to which the defendants had agreed to resell more than 25 percent of the spectrum capacity of any individual license, this arrangement would have increased their attributable revenues beyond the $15-million cap for very-small-business credits. Therefore, the court held that the false certifications and failure to disclose were capable of influencing FCC’s eligibility determination.

The defendants argued that the undisclosed information would not have altered FCC’s determination, because the commission determined they were not eligible even without this disclosure. However, the court noted that a finding of materiality focuses on the potential effect of a false statement when it is made. When the defendants submitted their applications, their eligibility for bidding credits depended on their disclosure of all relevant information. Further, had the defendants made this disclosure upfront, they would never have qualified for the credits. In fact, the plaintiffs asserted that an applicant who failed to certify that it has disclosed all agreements relating to auctioned licenses would not have been permitted to participate in the auction at all.

Plausibility and Particularity

Alternatively, the defendants argued that the plaintiffs failed to adequately plead their claims. The court disagreed, finding that Vermont Telephone pleaded facts allowing the court to draw the reasonable inference that Northstar and SNR falsely certified their disclosure of all agreements related to auctioned licenses when, in fact, they failed to disclose agreements to act on DISH’s behalf and transfer spectrum rights to DISH. For example, the plaintiff alleged that Northstar and SNR were formed as shell companies without any assets or revenues shortly before the deadline to apply for the auction. Vermont Telephone also alleged that the defendants ended the auction with geographic gaps in their licenses, which afforded complete coverage only when combined, even when considering the licenses on which they offered to default. Further, neither entity had taken action to deploy a wireless service in the four years since the auction ended.

The circuit court found these details plausibly alleged fraud. Specifically, the court agreed that the defendants’ conduct made little sense unless they agreed in advance that DISH would ultimately control the licenses won at auction. The court also found the plaintiff pleaded its claims with particularity.

FCA - Vermont National Telephone Company v. Northstar Wireless LLC