July 12, 2013 – In a sharp rebuke, the Court of Appeals for the Seventh Circuit reversed a lower court’s dismissal of a whistleblower lawsuit against the for-profit college ITT Educational Services. The full opinion can be found here. Filed in 2007, the lawsuit alleges that ITT improperly received federal student aid funding because it tied employee compensation to student enrollment numbers – a practice prohibited by federal law. The whistleblower, a former employee of ITT’s student enrollment and financial aid departments, filed the action under the False Claims Act- a law that allows a whistleblower to sue on behalf of the federal government and share in the recovery. In reviving the lawsuit, the appeal court found the whistleblower’s allegations sufficient to show a violation of the False Claims Act. It also found that her allegations were different enough from an earlier lawsuit against ITT, making dismissal improper.

The ruling is the latest in a growing list that have upheld False Claims Act claims against for-profit colleges and universities. It also follows recent government reports that are critical of the industry. The reports indicate that many for-profit colleges spend a low percentage of tuition dollars on educating their students. Instead, the tuition- which is mostly federal student loan and grant aid- goes toward marketing, administrative salaries, and excessive profits. The students, on the other hand, are often left with thousands of dollars in student debt, few employment prospects, and a degree that has little value.

Tying employee compensation to student enrollment, even indirectly, is one of the more common False Claims Act violations by colleges and universities. This could even include basing employee reviews, pay, or promotions on student graduation or retention numbers, which are indirectly tied to enrollment. Other claims might arise when a school fails to report that more than 90% of its funding comes from federal student aid under Title IV of the Higher Education Act. Misrepresenting graduate employment statistics and providing false or misleading information to the Department of Education, a state agency, or an accrediting agency might also trigger False Claims Act liability. While a successful False Claims Act whistleblower is awarded 15-30 percent of the amount recovered by the government, the cases involve unique procedural rules and cannot be filed without an attorney according to federal law.

Returning to Seventh Circuit’s ruling, it’s also notable that the court went beyond vacating the dismissal and ordered that the case be reassigned to a new district court judge for further proceedings. Such a move is uncommon and might be indicative of the appeal court’s clear disagreement with the prior dismissal. The appeal court was particularly troubled by the lower court’s improper consideration of the way the plaintiff’s lawyer had recruited the whistleblower. “[J]ust because a party first learns that she may have a valuable legal claim from an attorney seeking her business does not mean that the party’s case is bogus,” remarked the Court. It also pointed out that history is “full of examples of lawyers playing a vital role in encouraging parties to litigate. If done in a proper manner… there is nothing about such attorney involvement that negates the validity of a suit.”

If you have information regarding evidence of college or university grant fraud occurring anywhere in the United States, contact a whistleblower attorney at Levy Konigsberg LLP at 800-315-3806, or by submitting an email inquiry (see form above), for a free and confidential consultation.

IMPORTANT: If you believe you have evidence of fraud against the government, securities fraud, commodities fraud or IRS or New York State tax fraud, contact us for a free, confidential consultation by calling our 24/7 toll-free hotline at 1-800-988-8005 or by submitting an email inquiry (see form above).

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