While the higher education space continues on an unpredictable path as administration turnover and court rulings have created an ever-changing landscape on key topics like gainful employment, borrower defense, and state authorization, False Claims Act (“FCA”) litigation has remained a consistent concern for institutions and the entities with whom they contract. Two federal courts recently granted motions to dismiss FCA claims related to Title IV-eligible institutions. These rulings are both an encouraging sign of the rigorous application of the heightened pleading standards of Federal Rule of Civil Procedure (“FRCP”) 9(b) to FCA claims, as well as a reminder of the importance of mounting an effective defense against an FCA claim as early as possible.
Background on FCA Litigation
As a primer for those who have not been involved in FCA litigation, the FCA is a federal fraud statute that imposes statutory fines and potentially treble damages (i.e. the amount of damage times three) on individuals or entities who knowingly submit false claims for payment to the Government (or knowingly avoid or decrease an obligation to pay the Government). The FCA includes a whistleblower provision that allows private individuals, styled as “relators,” to bring an FCA claim on behalf of the Government. In the higher education context, this means that students, employees, and other individuals can bring FCA claims against an institution. It is not uncommon for a relator to be a disgruntled ex-administrator, making allegations related to institutional Title IV-eligibility criteria (e.g. violations of the incentive compensation ban, manipulations of 90/10 calculations) or the Department’s misrepresentation regulations.