Suits Against For-Profit Education: the University of Phoenix and Fraud with Particularity

I
represent whistleblowers who know about fraud against the Government, so I have been closely following
the recent litigation against for-profit universities that have been tricking
students into taking huge loans for jobs that they are not qualified for,
and sometimes that do not even exist. Since the federal government insures
these companies, sometimes

Under
Federal Rule of Civil Procedure 9(b), plaintiffs must plead fraud “with particularity”, not simply
generally. The original purpose of the rule was to ensure that plaintiffs
did not come into court making vague allegations of “fraud”
when they really had no good faith belief that fraud had occurred. In
the False Claims Act context, some defendants have tried to take the general
rule to a very extreme level. The defendants have argued that, even if
a relator clearly knew about fraud by the defendant, unless the relator
personally know every detail about how the fraud translated into a claim
against the government, the relator had not pled fraud “with particularity.”

The University of Phoenix tried to take refuge behind this rule. In
U.S. ex rel. Hoggett v. University of Phoenix, the relators alleged that UOPX had paid admissions officers to get students,
and therefore encouraged the admission officers to recruit students who
were not eligible for the courses and who were applying for fields where
jobs simply were not available. Under the law, UOPX could not pay admissions
officers based on the number of recruits they got. UOPX argued that, even
if it had considered the numbers as one factor in compensating its recruiters,
the recruitment numbers were simply one of several criteria that the school
had considered. The court decided, however, that the relators had been
specific enough. The entire point the relators were making was that the
“other criteria” were all fake, only found on paper. According
to the relators, the relators were told that the only factor that really
mattered was the enrollment numbers. Admissions counselors were told that
they had to meet certain targets for enrollments in order to keep their
tuition reimbursement perks. The court concluded that those allegations
were specific enough under Rule 9(b).

UOPX also argued that it should be protected by a “safe harbor provision”
that allowed institutions to make admustments in admissions officers’
salaries provided that the changes in pay are not: “based solely
on the number of students recruited, admitted, enrolled, or awarded financial
aid.” § 668.14(b)(22)(ii)(A). The University of Phoenix argued
that, since it was considering the number of students that were enrolled
as only one of several factors, by definition it could not be liable under
the False Claims Act. The court disagreed noting that the whole point
of the relators’ allegations was that the criteria were fake, and
were “not actually used to make compensation decisions, and are
only included to give the illusion of compliance with the PPA.”
In the Hoggett case, the court noted, the issue was not whether the policy,
as written, complied with the law – the issue was whether the policy,
as implemented, complied with the law.

For-profit education has become a hotbed of False Claims Act qui tam litigation.
More and more universities are being accused of recruiting students in
order to make money, even though the colleges know that the students are
taking loans they cannot possibly repay because the students will never
be able to obtain jobs in the fields for which they supposedly are being
trained. To give an example: some colleges have accepted students who
have criminal records, knowing perfectly well that people with criminal
records are legally disqualified for holding the jobs that the students
are training to get. The Government is losing billions of dollars in unpaid
student loans, and students are being saddled with huge, unpaid debts
and bankruptcies. The practice in this industry has to change, and hopefully
the False Claims Act can make a dent in the behaviors.