The University of Phoenix must defend itself against charges that it violated federal law by paying its recruiters based on how many students they enrolled, the U.S. Court of Appeals for the Ninth Circuit ruled Tuesday. The federal appeals panel’s unanimous decision, which overturned a lower court’s ruling in Phoenix’s favor, had been eagerly awaited because of the for-profit university’s high profile as one of the country’s largest and because of the mammoth size of the malfeasance alleged billions of dollars could be at stake. But the case is also important because it is the latest in a string of decisions in which federal courts have gradually expanded the grounds under which colleges can be sued under the federal False Claims Act, much to the consternation of some college and university lawyers and legal experts. In siding with the former admissions officials who sued Phoenix on the government’s behalf, the Ninth Circuit panel leaned heavily on one of those earlier decisions, involving Oakland City University. At issue in the Phoenix case is a provision in the Higher Education Act that prohibits colleges from offering bonuses or other incentive pay to admissions officers or recruiters based on specific enrollment goals, to discourage them from giving officials extra incentive to bring in any potential student, regardless of academic ability. Two former enrollment counselors at Phoenix, Mary Hendow and Julie Albertson, charge that the for-profit university paid cash bonuses and other gifts to them and to other recruiters based strictly on how many students they enrolled ? charges Phoenix has denied. In 2003, Hendow and Albertson filed what is known as a qui tam lawsuit, which is filed under the federal False Claims Act by an individual who believes he or she has identified fraud committed against the federal government, and who sues hoping to be joined by the U.S. Justice Department. (The plaintiff then shares in any financial penalties, which can include trebled damages.) The women charged that the allegedly fraudulent behavior had put more than $1.5 billion in federal funds at risk, which set the value of a potential verdict in the case at several times that. The federal government declined to join the lawsuit as a third party, but the Justice Department did file a friend of the court brief in 2005 encouraging the court to rule against Phoenix. A federal district court dismissed the women’s lawsuit in May 2004, concluding that they had not put forward a valid theory for how Phoenix had defrauded the government under the False Claims Act. But in its decision Tuesday, a three judge panel of Ninth Circuit appeals court concluded differently. Reinforcing and even expanding on last October’s decision by the U.S. Court of Appeals for the Seventh Circuit in United States of America ex. rel. Jeffrey E. Main v. Oakland City University, the Ninth Circuit judges declared that the two former admissions officers (known in False Claims Act parlance as the ?relators”) had indeed offered two legitimate theories (known as ?false certification? and ?promissory fraud””) for how the university had defrauded the government. Without ruling on whether the women had actually proven their claims ? impossible without a trial on the facts of the case ? the court concluded that they had met the four requirements of filing a legitimate claim under the federal fraud law: (1) alleging that a defendant had made false statement or engaged in fraudulent conduct; (2) that the action had been taken deliberately; (3) that the act or statement played a direct role in money flowing out of government coffers; and (4) that the government did indeed pay out or forfeit money as a result. At its core
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