In the first action of its kind, on June 7, 2017, the Federal Communications Commission (“FCC”) issued an amendment to a Notice of Apparent Liability for Forfeiture and Order (“NAL”), for alleged violations of the rules governing the Universal Service Rural Health Care Program (“RHCP”). The FCC found that the fine proposed in the initial NAL was not based on the correct violations and included violations beyond the agency’s one-year statute of limitations. However, by changing the type of conduct found to violate the RHCP rules and increasing the proposed fine, the FCC’s amendment presents its own statute of limitations concerns and raises questions about the use of amendments in enforcement actions. The amendment also is the first foray by Chairman Pai into Universal Service enforcement matters since he assumed the chairmanship in January of this year.
On November 4, 2016, the FCC issued an NAL against Network Services Solutions (“NSS”) and its chief executive for allegedly violating the RHCP competitive bidding rules and committing wire fraud. The NAL represented the first proposed fine by the FCC in connection with the RHCP. The FCC charged NSS with using inside information to gain an unfair advantage in the competitive bidding process, providing gifts and other inducements to get contracts with rural health care providers, inflating the actual costs of its services to these providers, and submitting forged documents in support of its claims for RHCP reimbursement. The FCC proposed a fine of more than $21 million against NSS for the alleged competitive bidding violations, based on forms submitted by rural health care providers serviced by NSS that contained false information from the company. The FCC also proposed the $189,361 statutory maximum fine for NSS’s alleged wire fraud and a recovery of over $3.5 million in reimbursements that the company received due to its alleged violations.
While agreeing that NSS violated the RHCP rules and deserved a hefty fine, then-Commissioner Pai partially dissented from the NAL. First, he argued that the proposed fine calculation included forms submitted more than a year before the NAL, which put them outside of the FCC’s one-year statute of limitations. Second, he noted that NSS did not sign, certify, or submit the rural health care provider forms, and stated that the proposed fine instead should have been based on the invoices NSS sent to the FCC seeking improper reimbursements.
The Amended NAL
The amended NAL leaves NSS’s proposed wire fraud fine and reimbursement recovery in place, but changed the methodology for calculating the fine for the alleged competitive bidding violations in line with the dissent. While recognizing that the rural health care provider forms contained false information, the FCC found that the invoices NSS submitted to the FCC in the year leading up to the initial NAL were the “appropriate basis” for the proposed fine. Finding NSS’s invoices violated the RHCP rules increased the proposed fine by over $855,000 (to $22,358,082) because the invoices contained more improper reimbursement requests than the health care provider forms.
The FCC’s action is quite curious. Prior to this action, the FCC had never amended an enforcement action to change the calculation of a proposed fine, nor had it increased a fine in the same proceeding. We have seen the FCC revise its forfeiture calculations, but it has done so in a Forfeiture Order, not in an amendment, and it had always revised forfeitures downward. Moreover, where the FCC has increased fines, it has done so by issuing a separate NAL to the target company. Here, however, the amended NAL alters the theory on which the violation is based and alters the number of proposed violations. While this action has all the hallmarks of Chairman Pai seeking to conform a past FCC action to his preferred basis, the choice of an amendment to an NAL is novel.
Further, the action raises some interesting questions concerning the application of the statute of limitations to FCC enforcement actions. The FCC order is silent on this front, not addressing how its findings comply with the one-year statute of limitations for forfeiture actions. Section 503(b)(6) provides that, for entities other than broadcasters, no forfeiture penalty may be imposed if the violation charged occurred more than one year “prior to the date of issuance of the required notice or notice of apparent liability.” Just what is the “required … notice of apparent liability” here is not clear. Although the amended NAL only covers alleged violations from the year leading up to the initial NAL (that is, for conduct after November 4, 2015), the amended NAL changed the basis for the violations from the rural health care provider forms to NSS’s invoices. Many of these invoices were filed more than a year before the release of the amended NAL. We believe there is a very real question as to which date is applicable for statute of limitations purposes. If the amended NAL “restarts” the statute of limitations clock, then it appears that many of the violations may be time-barred. By contrast, if the amended NAL simply substitutes new language into the initial NAL, as the FCC order states, then the violations may fall within the initial NAL’s one-year limitations period.
Unfortunately, it is unlikely that this question will be resolved soon. NSS declared bankruptcy in March 2017 and the FCC acknowledged in the amended NAL that bankruptcy protections may prevent it from ordering NSS to pay a fine for the alleged violations or reimburse the RHCP. In a footnote, the FCC states that the “automatic stay” under Section 362(a) of the bankruptcy laws, “may prevent the Commission from ordering NSS to pay the amounts assessed in this NAL.” Thus, for all of its novelty, the FCC’s first-ever NAL amendment may end up as an “empty document” with no practical impact on NSS. NSS’s status may also prevent it from effectively challenging the amendment, so the procedural questions raised by the action may not be addressed either. Resolution of these issues may have to await the existence of a more solvent alleged violator.