U.S. ex rel. Hendow v. University of Phoenix

Summary

        9th U.S. Circuit Court of Appeals

        When an educational institution wishes to obtain federal subsidies, pursuant to Title IV and the Higher Education Act, it is required to enter into a Program Participation Agreement with the Dept. of Education. Under the agreement, the institution must adhere to a ban on incentive compensation requirement, which prohibits schools from paying recruiters on a per-student basis. Mary Hendow and Julie Albertson (plaintiffs) worked as enrollment counselors at the University of Phoenix. They claimed that the university falsely certified that it abided by the ban. The district court dismissed the plaintiffs' complaint with prejudice for failure to state a claim.

        Reversed. Where a claim for payment is not explicitly or independently false, there is liability under the False Claims Act when a party falsely certifies adherence with a regulation as a requisite to government payment. Here, the plaintiffs allege that the university did not comply with the incentive compensation ban mandate. They assert that the university even enacted policies violating the mandate. For example, enrollment counselors were compensated for increased enrollment. The plaintiffs further allege that the university knowingly and intentionally engaged in the wrongful conduct. The school staff openly boasted about executing the fraud against the government. Further, according to the plaintiffs, the university would modify its policies to conceal its fraud. Plaintiffs' allegations are sufficient to survive a motion to dismiss.

— Brian Cardile