Universities targeted by False Claim Act suits

Lawyers are advising colleges and universities that receive federal aid to be on the lookout for whistleblower lawsuits in the wake of several False Claims Act cases that have popped up on campuses.

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Lawyers are advising colleges and universities that receive federal aid to be on the lookout for whistleblower lawsuits in the wake of several False Claims Act cases that have popped up on campuses. Universities are the latest targets for FCA lawsuits, attorneys claim, with whistleblowers alleging that schools are using deceitful methods to obtain federal money from the government. On Aug. 20, a federal judge denied yet another motion by the University of Phoenix to dismiss a whistleblower lawsuit alleging that it fraudulently obtained billions of dollars in student-aid money by paying recruiters incentives for boosting enrollment � a violation of federal law. The school is headquartered in Phoenix, but has campuses in more than 30 states. U.S. ex rel. Hendow v. University of Phoenix, 461 F. 3d 1166 (9th Cir.). On July 30, Oakland City University, in Oakland City, Ind., agreed to pay $5.3 million to settle an FCA case in which the school was accused of paying incentives to recruiters. U.S. ex rel Main v. Oakland City University, 426 F.3d 914 (7th Cir.) And in November, the trial begins in an FCA case against Chapman University, in Orange County, Calif., which is accused of lying about classroom hours to get more in federal dollars. U.S. v. Chapman University, 2006 WL 1562231 (C.D. Cal.). “There’s been an expansion of the FCA in ways that I don’t think anybody understood . . . and that nobody quite envisioned,” said Glenn Whitaker, a partner in the Cincinnati office of Columbus, Ohio-based Vorys Sater Seymour & Pease who specializes in FCA litigation. “There’s a whole area out there where you have entities like universities that receive federal funding, and then lawyers come along and say, ‘Well, if the U.S. knew that you were doing this and this, they wouldn’t fund you.’ “ Then comes the FCA lawsuit, added Whitaker, who believes that currently no entity that receives federal funding is immune from an FCA claim. Dangerous precedent? Attorney Timothy Hatch, who is defending the University of Phoenix in its FCA lawsuit, said the recent decision to allow the FCA case to proceed against the university sets a bad precedent. “We do think it is a very dangerous and extreme expansion of the FCA and will impact not only colleges, but anyone who does business with the government,” said Hatch, a partner at Los Angeles’ Gibson Dunn & Crutcher who defends colleges and government contractors in FCA claims. “The FCA never was intended and should not be used as a way to enforce regulatory or contractual compliance,” Hatch said. But schools have no reason to be concerned if they are following the rules, countered Daniel Bartley, one of several lawyers who is representing the whistleblowers in the University of Phoenix suit. Bartley believes that universities that apply for student loan programs are exactly the types of entities that should be scrutinized for possible FCA violations. “This is an area that is ripe for False Claims Act enforcement,” Bartley said. “The law-abiding institutions don’t have a thing to worry about . . . .Only those that are not following rules for getting government money.” In the University of Phoenix case, Bartley alleged that the university violated a 1992 law that bans giving recruiters incentives for boosting enrollment. “It’s against the law to pay your recruiters like car salesman because it causes them to get people into the programs who shouldn’t be there,” Bartley said. Hatch said the university has not disputed giving recruiters salary bonuses, but those bonuses, he said, were only partially � not solely � based on enrollment figures. Rick Morgan, of Cincinnati’s Volkema Thomas, who represents whistleblowers in FCA cases, disputes claims that the FCA is being overly broadened. He argues that the law is merely being applied to a broader arena of government contractors � such as universities � who are “facing a group of lawyers who now better understand how to handle [FCA] cases.”

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