In an amicus brief that could have important implications for the whistleblower bar, the U.S. Department of Justice has urged an appeals court to reinstate a False Claims Act case against the for-profit education company Corinthian Colleges Inc. and its auditor Ernst & Young.
Two former Corinthian employees sued Corinthian under the FCA in 2007, alleging it paid recruitment officers based on how many students they enrolled in violation of the Higher Education Act and then improperly collected government financial aid money. The Corinthian employees named E&Y as a co-defendant, alleging it falsely certified that Corinthian complied with the Higher Education Act.
U.S. District Judge Philip Gutierrez in Los Angeles dismissed the case in March 2013, ruling that it was based on information that had already been publicly disclosed in 11 prior lawsuits against the for-profit education industry. Calling the case meritless, Guitierrez ordered the Houston-based solo practitioner representing the plaintiffs, Scott Levy, to pay Corinthian and E&Y a combined $1.48 million in attorney fees.
In its November 12 brief, the DOJ argued that Guitierrez “erred in invoking the public disclosure bar here on the basis of the 11 prior qui tam actions.” According to the government’s lawyers, “the existence of fraud complaints against unrelated members of an industry should not insulate the rest of the industry from qui tam suits where, as here, the industry is large and the disclosures do not render the defendant and its specific fraudulent acts directly identifiable.”
According to Levy, the DOJ brief undermines the notion that he filed a meritless complaint. “Their position is that my clients provided crucial information,” Levy said. “That really cuts to the core of the whole case.”
Levy got another boost in July, when the Seventh Circuit reversed the dismissal of a similar whistleblower case against ITT Educational Services Inc. and lifted a $400,000 sanctions order imposed on Motley Rice and other plaintiffs firms. Like Gutierrez, the trial judge originally assigned to the case ruled that the plaintiffs lawyers based their case on information gleaned from prior cases. Levy argues that the ITT case and the Corinthian case are virtually identical.
The Ninth Circuit has revived the Cortinthian case once before. Guiterrez initially dismissed it in December 2009, finding that Corinthian’s alleged conduct didn’t violate the Higher Education Act. The U.S. Court of Appeals for the Ninth Circuit vacated that decision and remanded the case in 2011, as we reported here.
Robert Hubbell of Morrison & Foerster, who represents E&Y, declined to comment. Blanca Young of Munger Tolles & Olson, who represents Corinthian, did not immediately respond to a request for comment.