The United States District Court for the Western District of Pennsylvania has allowed a False Claims Act suit against Pittsburgh-based Education Management Corp. to proceed. The complaint, which was originally brought by two whistleblowers, alleged that Education Management Corporation had violated the Higher Education Act’s prohibition on paying incentives to college recruiters based on the number of students they are able to recruit to an educational institution. The whistleblowers charged that the company’s compensation plan, as written, violated the Higher Education Act and that the manner in which the plan was actually implemented violated the Act, as well. The United States government joined in the second aspect of the whistleblowers’ complaint.
Education Management Corp. sought to dismiss the entire suit. In its opinion addressing the company’s motion to dismiss, the District Court stated that this was a “massive and complex case.” While the Court found that the compensation plan, on its face, appeared to comply with the Higher Education Act, it allowed the plaintiffs to proceed with their allegations that the company violated the Act by the manner in which the plan was actually implemented. According to the Court, the allegations that it was allowing to proceed charged that Education Management Corp. executives made a knowing decision to perpetuate a companywide “sham” to conceal prohibited compensation practices.
As the District Court explained in its opinion, the prohibition on providing recruiters with incentive compensation was passed by Congress in 1992 after an investigation into school’s abuse of federal student-loan programs which guarantee that the institution will be paid. If the student does not repay the money owed, though, the costs of that default are passed on to the taxpayers. The prohibition was intended to avoid the risk that recruiters, who might otherwise be paid based upon the number of students they brought to the institution, would enroll poorly qualified students who would obtain little benefit from the subsidy and may be unwilling or unable to repay the federally-guaranteed loan. The Court noted that the annual federal student loans brought in by Education Management Corp. went from $656 million in 2003 to $2.578 billion in 2010.
In commenting on this case, Marc Raspanti an attorney with Pietragallo Gordon Alfano Bosick & Raspanti, LLP who specializes in qui tam litigation, stated, “these are interesting, somewhat cutting-edge and certainly complex theories of liability.” Mr. Raspanti also noted that the Western District of Pennsylvania has typically not seen a great deal of qui tam litigation and that “Mr. Hickton (the U.S. Attorney for the Western District of Pennsylvania who as sworn in in 2010) is obviously changing the focus of that office.”
For more information, please see: