College classroomThe Seventh Circuit Court of Appeals recently overturned a federal trial court judge’s 2011 dismissal of a whistleblower case under the federal False Claims Act against ITT Technical Institute (“ITT Tech”). ITT Tech is a for-profit institute of higher education that has over 140 locations across the U.S. and offers post-secondary educational training and a variety of degrees. The case began in 2007 when relator Debra Leveski, a former ITT Tech recruitment representative and financial aid administrator, alleged that her employer knowingly submitted false claims to the Department of Education in order to receive funding from federal student financial aid programs.

Leveski alleged that the institute evaluated financial aid administrators for raises based on the number of students successfully “packaged” and the amount of federal aid money secured. The Higher Education Act (“HEA”), however, prohibits commissions, bonuses, or incentive payments based directly or indirectly on the success of securing student enrollment or financial aid. Educational institutions must certify compliance with the HEA in order to be eligible to receive federal grants. In addition, ITT employees were alleged to have allowed students to falsify income on their Federal Application for Student Financial Aid (“FAFSA”) form.

The government declined to intervene in United States ex rel. Leveski v. ITT Educational Services, Inc. in 2008. Subsequently, the relator’s complaint survived two motions to dismiss by ITT Tech before the case was reassigned. On a third motion to dismiss by ITT Tech, a different federal trial judge granted the request after concluding that the allegations made by Leveski had already been publicly disclosed in an earlier, similar action captioned United States ex rel. Graves v. ITT Educational Services. The Seventh Circuit Court of Appeals instead determined that while the cases were similar in that they both involve former ITT financial aid administrators and allege violations of the incentive provision of the HEA, the cases appear similar only in a very general sense. The appeals court found that the conduct alleged by Leveski involved a more complex and sophisticated violation of the HEA than that alleged by Graves. The court of appeals therefore found the cases to be sufficiently distinct to prevent the implication of the public disclosure bar.

The False Claims Act does not allow a lawsuit to be maintained if based on allegations that have already been publicly disclosed in a federal criminal, civil, or administrative proceeding, federal report, hearing, audit, investigation, or in the news media. Despite this limitation, the public disclosure bar provision of the statute does contain an “original source” exception where the whistleblower has voluntarily disclosed the information to the government in advance of the public disclosure, or where the whistleblower has “knowledge that is independent of and materially adds to the publicly disclosed allegations.” In this case, the appeals court found that Leveski’s claims rest on new information based on her own personal experiences. Even when the government has declined to intervene, as in this case, whistleblowers like Leveski can still pursue False Claims Act allegations on behalf of the government. If the suit is successful, as the relator, Leveski stands to receive up to 30% of any final judgment or settlement against ITT Tech.

 

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