Whistleblower Qui Tam Law Blog

For-profit colleges have been the target of a number of False Claims Act lawsuits lately, including one against Education Management Corporation. Most recently, the Department of Justice intervened in a qui tam lawsuit under the False Claims Act against American Commercial College Inc. ("ACC"), a chain of for-profit colleges based in Texas. ACC operates five campuses in Texas and one in Louisiana. The lawsuit was filed by two whistleblowers, Shaw Clark and Anthony Delgado, who are former employees of ACC.

The lawsuit, United States of America ex rel. Clark et al. v. American Commercial Colleges, Inc., Case No. 5:10-cv-129-C, was filed in the Northern District of Texas and alleges that the company violated the False Claims Act by falsely certifying compliance with the 90/10 Rule, which is a federal law that prohibits colleges and universities from obtaining more than 90 percent of its yearly tuition from federal student financial aid through the U.S. Department of Education. Tony West, Assistant Attorney General of the Justice Department's Civil Division, commented that "[c]olleges and universities that receive federal funds must be honest with the government and follow the law. . . . We will use the False Claims Act and other tools to protect students and taxpayers from for-profit institutions that fail to measure up to that standard."

The 90/10 Rule also has been the subject of a number of congressional inquiries seeking to strengthen the rule as part of a government crackdown on for-profit educational institutions. A number of senators are calling for changes to the law that would require colleges and universities to count GI Bill benefits, military tuition assistance, and several other sources of federal funds as federal financial student aid in calculating the 90 percent. On February 29, 2012, Senator Thomas R. Carper (D-Del.) held a hearing on a report by the Government Accountability Office, which cited examples of "improper or questionable marketing practices" by for-profit educational institutions. Senator Tom Harkin (D-Iowa), who brought the practices of for-profit educational institutions under the congressional microscope last year, has held a number of hearings on for-profits and expressed a desire to expand the categories of funds included in the 90/10 calculation.

Of course, many for-profit colleges would violate the 90/10 Rule if required to count various types of military aid toward the 90 percent of allowable federal aid. According to the Department of Education, 257 institutions already receive more than 85 percent of their revenue from federal student aid. The 90/10 Rule was originally created by Congress to eliminate for-profit institutions from reaping profits from federal student aid programs - a practice that harms students seeking to obtain an education, the quality of the education they receive, as well as federal taxpayers.

Continue reading "For-Profit Education Company Settles FCA Lawsuit Alleging Violations of the 90/10 Rule" »

The False Claims Act is a first-to-file statute. When a whistleblower brings an action under the FCA, other individuals are barred from bring a related action based on the facts underlying the previously filed lawsuit. 31 U.S.C. § 3730(b)(5).

Last month, the United States Court of Appeals for the District of Columbia upheld the dismissal of an FCA complaint under the first-to-file rule. In United States ex rel. Sheldon Batiste v. SLM Corporation, No. 10-7140 (D.C. Cir. Nov. 4, 2011), Relator Sheldon Batiste alleged that SLM, commonly known as Sallie Mae, defrauded the United States government through its administration of student loans under the Federal Family Education Loan Program ("FFELP"). Batiste alleged that from October 5, 2004 to the time of filing, SLM defrauded the government by unlawfully placing student loans in forbearance and presenting claims for funds to the government, each of which included a false certification that the data SLM submitted with the claims were correct and conformed to federal law. He filed his complaint on June 13, 2008.

Over two years before Batiste filed his complaint, Relator Michael Zahara filed an FCA lawsuit against SLM, alleging that SLM falsified loan records pertaining to delinquent FFELP loans held by Sallie Mae. His complaint focused on falsifying forbearance records and other fraudulent conduct regarding student loans.

Continue reading " U.S. Court of Appeals Dismisses Complaint Based on FCA's First-to-File Rule" »

Last month, the U.S. District Court for the Southern District of Florida decided motions to dismiss in three qui tam actions brought by relators under the False Claims Act against Kaplan Higher Education Corporation and its subsidiaries (collectively, "Kaplan").

There are a number of requirements that schools must meet to receive federal student financial aid funds from the government. For example, every school must certify compliance with the Higher Education Act (HEA). As part of that process, schools execute Program Participation Agreements under which they must agree that they will not provide any commission, bonus, or other incentive program based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in student recruiting, admissions activities, or involved in making decisions on awarding HEA program funds.

HEA compliance also includes advertising rules, including that if a school advertises job placement rates, it must make available to prospective students the most recent available data concerning employment statistics, any other information necessary to substantiate the truthfulness of the advertisements, and the relevant State licensing requirements of the State in which the school is located.

There are also program specific requirements that each school must meet to receive funding. For example, to receive loans through the Direct Loan program and the Federal Family Education Loan (FFEL) program, the school must comply with the 70 Percent Rules, 34 C.F.R. § 668.8(e), which require that the school must have a completion rate and job placement rate of at least 70 percent.

In the first of three filed actions, United States ex rel. Victoria G. Gatsiopoulos et al. v. Kaplan Career Institute, ICM Campus, No. 09-21720, Relators alleged that from at least 2000 through the present, Kaplan submitted false claims to obtain funds to which it was not entitled because it knowingly failed to comply with specified prerequisites for payment.

The alleged violations included compensating admissions representatives based directly on their enrollment success, including awarding trips to admissions representatives who enroll more than their quota; providing inaccurate information to substantiate the truthfulness of advertisements that included job placement rates; failing to make available State licensing requirements; and manipulating its job placement statistics and graduation rate by encouraging instructors to change student grades in order to meet minimum graduation requirements in order to substantiate, albeit falsely, compliance with the 70 Percent Rules.

Kaplan moved to dismiss. First, the Court found that Relators failed to plead violations of HEA's advertising rules with the particularity required by Rule 9(b). Specifically, Relators did not allege with particularity that Defendants provided false data to prospective students or did not make available to prospective students the data underlying the advertised job placement rates. Nor did they allege that Kaplan failed to make licensing information available to prospective students through any means.

Second, the Court held that Relators sufficiently pled claims under the FCA based on violations of the 70 Percent Rules insofar as they identified specific programs subject to the 70 Percent Rules and alleged that such programs must comply with the Rules. Relators' allegations based on the incentive compensation plan were not challenged.
Although the Court dismissed the complaint in part, Relators' action will proceed based on the allegations related to Kaplan's incentive compensation program and its failure to comply with the 70 Percent Rules (along with the retaliation claims).

Continue reading "U.S. District Court Decides Motions to Dismiss In Qui Tam Cases Against Kaplan" »

Congress and Abraham Lincoln enacted the False Claims Act in 1863 in response to widespread corruption and fraud by defense contractors in selling supplies and provisions to the Union Army during and after the Civil War. After being weakened by Congress during World War II, the FCA was revived in 1986 after congressional hearings and GAO reports exposed rampant fraud in the defense industry. Senator Charles Grassley and Congressman Howard Berman pushed the amendments through Congress, and Ronald Reagan signed them into law, thus enhancing the Government's ability to combat fraud and recover losses.

For the past 25 years, the False Claims Act has been the single most effective tool for combating fraud against the government. The law owes much of its success to the courage of whistleblowers, who not only alert the government to fraud, but also provide invaluable assistance by uncovering evidence and explaining highly complex fraudulent schemes. The False Claims Act's qui tam provisions allow whistleblowers with evidence of fraud against the government to sue on behalf of the government, and receive 15 to 30 percent of the amount recovered.

In Fiscal Year 2010, the government recovered over $3 billion under the False Claims Act, 80 percent of which was recovered as a direct result of whistleblower lawsuits. Since the 1986 amendments to the False Claims Act, the government has recovered over $30 billion in judgments and settlements.

Taxpayers Against Fraud, a nonprofit, public interest organization dedicated to combating fraud against government, chronicles the False Claims Act's remarkable success over the last 25 years and highlights the pivotal role of whistleblowers in The 1986 False Claims Act Amendments, A Look At Twenty-Five Years of Effective Fraud Fighting in America.

In United States ex rel. Lee v. Corinthian Colleges, No. 10-55037, 2011 WL 524208 (9th Cir. Aug. 12, 2011), Relators Nyoka Lee and Talala Mshuja appealed the dismissal of their claims under the False Claims Act. Relators alleged that Corinthian Colleges, a company that operates for-profit vocational schools throughout the United States, with the help of Ernst & Young, falsely certified to the Department of Education its compliance with the Higher Education Act's ("HEA") ban on recruiter-incentive compensation in order to receive federal education funds.

Under Title IV of HEA, the federal government distributes funds to assist with the costs of secondary education. To receive federal funds under HEA, schools must enter into a Program Participation Agreement, in which they agree to abide by a host of statutory, regulatory, and contractual requirements. Among these requirements is a recruiter-incentive compensation ban, which prohibits institutions from paying recruiters "incentive payments" based on the number of students they enroll. This requirement is meant to prevent recruiters from signing up poorly qualified students who would derive little benefit from the subsidy and might be unable or unwilling to repay the federally guaranteed loans.

Relators alleged that Corinthian receives billions of dollars from the federal government under Title IV of HEA and, "as a matter of corporate practice," "pay[s] recruiters bonuses amounting to 2.5% to 10% of their base pay based on the number of students they recruit." Relators alleged that Corinthian falsely certified that it complied with HEA's prohibition against using incentive payments for recruiters, a prerequisite for receipt of any HEA Title IV funds. Relators also alleged that Ernst & Young falsely certified that Corinthian was in compliance with recruiter compensation prohibitions.

Defendants moved to dismiss. The district court granted their motions based on the DOE Safe Harbor Provision because increases in recruiter salaries are not awarded "solely" on the basis of the number of new enrollees that the recruiter achieved. The district court also reasoned that, because Corinthian reasonably relied upon the Safe Harbor Provision, it could not have acted with scienter as required by the FCA. It also dismissed the FCA claims against Ernst & Young.

Continue reading "The Ninth Circuit Grants Relators Leave to Amend FCA Claims Against For-Profit Schools" »