Whistleblower Sues to Stop Fraud by For-Profit University: “First to File”

Derek Hoggett and Tavis Good both worked at the University of Phoenix as
admissions counselors. I am a
lawyer who represents whistleblowers like Hoggett and Good who know about for-profit
colleges that are defrauding the Government. I thought I would spend several
blog entries using this case as an example of how whistleblower cases
(False Claims Act cases) work.

Back in 2009, the University of Phoenix (UOPX), a for-profit college, had
paid $78.5 million to resolve allegations that it had been paying its
recruiters based on how many students they recruited. See
United States ex rel. Hendow v. University of Phoenix, No. 2:03-cv-0457-GEB-DAD (E.D. Cal.) (Burrell, J.). In the rules that
govern for-profit educational institutions, the Department of Education
(“DOE”) has forbidden colleges from paying recruiters based
on how many students they manage to recruit. The DOE is trying to keep
colleges from pressuring students to apply when they are not qualified
for the classes or when it is unlikely they will be able to get a job
in the field they are pursuing. Students who are recruited based on false
pretenses end up saddled with large debts that they will have trouble
repaying. The students lose, and if they default on their loans, so does
the United States because it has guaranteed the loans the students received
from private lenders.

Derek Hoggett and Tavis Good had worked as admissions counselors for the
University of Phoenix. They brought a
new University of Phoenix suit claiming that, despite the big payment in 2009, the University of Phoenix
had kept on violating the same rules. The employees (known as “relators”
in a False Claims Act lawsuit) claimed that the University of Phoenix
had made a false statement to the Government when it said that it “had
not paid to any persons or entities any commission, bonus, or other incentive
payment based directly or indirectly on success in securing enrollments
. . . for each year at issue.” The Relators said that the University
had decided to maintain the same policies, and furthermore had asked the
relators to destroy documents.

The False Claims Act has a “first to file” provision. In other
words, only the first person to bring a suit can get a percentage of what
the Government recovers. The University of Phoenix argued that this rule
meant that a new relator could not bring suit about “the same type
of wrongdoing as that claimed in a prior action even if the allegations
cover a different time period.”

If the Court had chosen to adopt that rule, then once a defendant settled
one case, it could continue the same fraud with absolute impunity, knowing
that no one else was allowed to bring a case for that type of fraud. The
Hendow court refused to dismiss the case on this ground, observing that
the prior case had been dismissed before this case was filed. The Court
explained that the purpose of the rule is to discourage “opportunistic
or parasitic lawsuits.” The Court explained that it could not accept
UOPX’s argument, because that would bar qui tam lawsuits against
any “defendant who had previously been involved in a fraud action
as long as the previous fraud was related to the subsequent fraud.”
The court noted that the logical conclusion of such a rule would be “absurd”,
because “actors committing fraud would be better off perpetrating
a related fraud instead of finding novel ways to defraud the government.”
The Court wryly observed that if “UOPX is perpetrating a fraud similar
to the fraud that it previously perpetrated against the government, then
there is nothing either opportunistic or parasitic about bringing this
suit.”

I will discuss more about this for-profit university case in my next blog post.