LAWFUEL – The Legal Newswire – Plaintiffs’ counsel announced today that U.S. District Court Judge Garland E. Burrell denied a motion by the University of Phoenix to dismiss a far-reaching lawsuit against the university for violating Federal law, the so-called incentive compensation ban.
“The Higher Education Act prohibits colleges and universities that provide federal financial aid to students from using incentive payments to employees for recruiting students, which is precisely the course of conduct the University of Phoenix pursued,” stated plaintiffs’ attorney Robert J. Nelson. “The Court’s decision is a significant victory for students and taxpayers. We look forward to a trial on the merits.”
“The complaint charges that the University of Phoenix defrauded the federal government of literally billions of dollars since 1997,” noted plaintiffs’ attorney Michael Rubin. “We are grateful that the Court ruled that the serious charges raised in the complaint will be fully litigated. It is time for University of Phoenix to return its ill-gotten profits to the Federal government, and begin abiding by the same set of rules as followed by responsible colleges and universities.”
Hundreds of thousands of former University of Phoenix students without degrees are obligated to pay back high interest loans for decades. “The vast majority of these students should not have been recruited and enrolled,” explained Nancy Krop, part of the plaintiffs’ team of attorneys. “The complaint charges that the university urges counselors to enroll students without reviewing their transcripts to determine their academic qualifications to attend the university, which results in many students being unable to repay their loans.”
Background on the Litigation
The University of Phoenix is the nation’s largest, private, for-profit higher education institution providing educational programs for working adult students. On its website, the university promotes itself as “the largest institution of higher learning in the U.S., serving approximately 300,000 students through its more than 250 campuses and learning centers across the country.”
The lawsuit was filed in 2003 by two enrollment counselors of the university under the False Claims Act, a statute that permits whistle-blowers to sue on behalf of the government for fraud committed against the government and share in the recovery if the suit is successful.
About 80% of its students receive federal financial aid, according to government records. The University of Phoenix collects approximately $2 billion a year in taxpayer-funded federal financial aid on behalf of its students, crediting students for tuition paid.
Many students who enroll at the University of Phoenix never complete their education, and many are unable to even finish the classes they signed up for. First time freshmen have a 7% program completion rate, according to a June 2005 report of the National Consumer Law Center. The lawsuit asserts that the school urges counselors to enroll students without determining their academic qualifications to attend university.
The lawsuit alleges that University of Phoenix executives brag about deceiving the Federal government by creating “smoke and mirrors” so the university may “fly under the radar” of the incentive compensation ban.
In 1992, Congress enacted the Higher Education Act incentive compensation ban to stop egregious recruiting abuses leading to the enrollment of unqualified students. Congress imposed compliance with such ban as a material condition for a university to receive tax payer funded federal financial aid designed to assist poor persons seeking higher education.
When the U.S. Department of Education investigated the whistleblower charges, interviewing about 90 witnesses and reviewing University compensation documents, the Department concluded that the University of Phoenix “systematically and intentionally operates in a duplicitous manner so as to violate the Department’s prohibition against incentive compensation while evading detection.”
The whistleblowers recently augmented their existing legal team of practitioners Nancy Krop and Daniel Bartley, with additional plaintiffs’ attorneys from the three well-regarded law firms of Lieff Cabraser, Heimann & Bernstein, LLP, Altshuler Berzon LLP and McGuinn, Hillsman & Palefsky, LLP.
Below are the recently associated counsel of record on behalf of the relators:
Robert J. Nelson
Lieff Cabraser Heimann & Bernstein, LLP
James M. Finberg
Altshuler Berzon LLP
McGuinn, Hillsman & Palefsky, LLP
Members of the press interested in receiving a copy of the Court’s order, may contact Amy Yu at [email protected]