Suit Against the University of Phoenix: “Original Source”

I am a False Claims Act
qui tam lawyer, and I have been blogging about a recent opinion by a California Court
that relates to for-profit colleges, which has recently become a hot area
in False Claims Act law. In the California case,
U.S. ex rel. Hoggett v. University of Phoenix, two former admissions counselors at the for-profit University of Phoenix
allege that the university paid its admissions department employees based
on how many students they were able to enroll. Colleges are forbidden
from paying employees to recruit, because students who are pressured into
signing up can wind up with big loans and no job. The students may not
be qualified to take the classes, may be unable to finish the coursework,
or may not be eligible for work in the field for which they are training.
The college’s admissions employees may be tempted to beef up the
real facts about how many people get jobs in the field after graduation,
in order to lure students to the university. Either way, the students
are saddled with huge loans, and the United States Government can be left
holding the bag, since it guarantees repayment to the private banks that
make these loans.

The former admissions counselors brought suit on behalf of the Government
under the False Claims Act. Yesterday I noted that UOPX actually had the
effrontery to argue that these relators were not entitled to bring their
suit because UOPX had already been accused of – and paid $78.5 million
to resolve – identical allegations. Since the relator’s entire
case was based on the fact that, despite the first settlement, the University
of Phoenix had continued to do the exact same thing, the Court dismissed
UOPX’s argument.

UOPX also maintained that the relators were not an “original source”
of the information. According to31 U.S.C. § 3730(e)(4)(A), qui tam litigants cannot bring a suit “if substantially the same
allegations or transactions as alleged in the action or claim were publicly
disclosed… unless…the person bringing the action is an original
source of the information.” Original source is defined in §
3730(e)(4)(B) as an individual who “has knowledge that is independent
of and materially adds to the publicly disclosed allegations or transactions…”

The court disagreed with UOPX, explaining that the Relators were alleging
a new fraud that was a continuation of the old fraud, and therefore they
had information that was “independent of and materially adds to
the information publicly disclosed.” The fact that the Government
knew about prior incidents of fraud “does not bar other potential
qui tam litigants from bringing additional instances of fraud to light.”
The court pointed out that UOPX’s argument would mean that, once
a company settled a claim for defrauding the Government, it would be insulated
from ever being liable for the same fraud again. Instead of preventing
fraud, that sort of rule would mean that a defendant would be free to
keep on defrauding the Government indefinitely once it paid a small amount
for past fraud.

The purpose of the public disclosure rule is to ensure that the Government
gets a fair return for the work it does to stop fraud. If the Government
already knows about the fraud and is working to stop it, then the relator
has not added anything to the equation.

This case was very different. Here, the Government knew about the fraud
that had happened earlier, but was clueless about the fact that it was
still going on. The Government settled the first case on the assumption
that the fraud was over. The relators in the new UOPX case were giving
the Government new information that, in fact, the University was not continuing
with the same fraud it already had been doing, and therefore they were
original sources of that information.