College Settles False Claims (Qui Tam) Lawsuit

Apollo Group, Inc., the company best known for its subsidiary University of Phoenix, resolved a whistleblower lawsuit earlier this month originally filed in 2003. The online university’s parent company has agreed to pay $78.5M to settle the whistleblower lawsuit.

This qui tam lawsuit is doubly unique: first, it was pursued by a private relator after the U.S. Department of Justice did not join the lawsuit and, secondly, in that the defendant was not guilty of fraudulent Medicare charges or a military contractor but, rather an institute of higher education.

Most qui tam lawsuits that have a likelihood of winning are joined by the DoJ. A whisteblower (“relator” in False Claims Act-speak) works with a qui tam attorney to file the lawsuit with the DoJ. The DoJ has the option, within a set time period, of whether to join the whistleblowing employee’s lawsuit alleging their company, or parent company, of misusing government money, whether this be overcharging, misappropriation, or other fraudulent uses.

When the government does not join the lawsuit, the relator with his or her qui tam attorneys can pursue the matter privately and for a greater percentage of the award. Typically, a relator can receive 15% to 25% of the government’s recovery; if pursued privately, the relator is entitled to up to 30%. The University of Phoenix qui tam settlement, which includes $11 million in plaintiffs’ attorney fees, is among the largest for a False Claim Act fraud case in which the government decided to not intervene.

Though a private institution of higher education, the University of Phoenix receives federal money in the form of government subsidized student loans. When a business misappropriates funds, it stands to face a False Claims lawsuit. Less straightforward than most case qui tam attorneys see, at its core the filed by two former admissions officials’ lawsuit alleged that University of Phoenix violated a federal statute and regulation regarding the compensation of its recruiters, which was largely based on the number of students they enrolled. Under Title IV of the Higher Education Act, universities accepting federal student aid cannot pay college recruiters incentives, like commissions and bonuses, to boost enrollment.

The agreement provides the country’s largest post-secondary education provider immunity from “any further civil or administrative exposure” concerning its compliance with the Higher Education Act from the Department of Education, DoJ, and the plaintiffs. University of Phoenix does not acknowledge, admit, or concede any fault.

The allegedly fraudulent behavior reported by the relators put more than $1.5 billion in federal funds at risk, which would have set the value of a potential verdict several times that if the case had been decided in court.