U.S. Court of Appeals for the Ninth Circuit

Relators, former admissions representatives for Academy of Art University, an art school in San Francisco, alleged that the school violated an incentive compensation ban included in its program participation agreement with the Department of Education, through which it qualified for federal funding in the form of federal financial aid to its students under Title IV of the Higher Education Act.  The Defendant brought a motion for summary judgment which was denied.  The Defendant appealed.

The Department of Education oversees the grant of Title IV funds to colleges and universities. To qualify for grants, schools must comply with an incentive compensation ban which prohibits them from providing “any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities.” 20 U.S.C. § 1094(a)(20); 34 C.F.R. § 668.14(b)(22). If individuals become aware of a school’s violation of the incentive compensation ban, they can bring a qui tam action on behalf of the United States under the False Claims Act.  An FCA claim requires: (1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.

The Ninth Circuit ruled that the incentive program violated the statutory ban. One way to prove falsity is through an implied false certification. The Ninth Circuit ruled that a reasonable fact finder could conclude that requirement for implied false certification were satisfied, and that Defendant has not established as a matter of law that its violations of the incentive compensation ban were immaterial.

United States ex rel. Rose v. Stephens Institute, – F.3d — (9th Cir. 8/24/2018) Graber, N.R. Smith, Zipps (D. Ariz.)