Title IV’s incentive compensation ban (“ICB”) prohibits higher education institutions from paying bonuses or commissions to student recruiters. In a recent decision, the U.S. District Court for the Northern District of California recognized that an institution’s alleged false statements regarding its compliance with the ICB can provide a basis for a False Claims Act (“FCA”) violation.
In Rose v. Stephens Institute, No. 09-5966 (N.D. Cal. Sept. 20, 2016), the relators claimed that the academic institution violated the ICB, which prohibits institutions that receive federal funds 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 admissions activities.” The relators’ claim was based upon the “implied certification” theory of falsity under the FCA, which the Supreme Court recently addressed in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Escobar, the Supreme Court held that the “implied certification” theory applies where two conditions are satisfied: (1) the alleged false claim did not merely request payment from the federal government, but also made specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.
Applying the Escobar two-part test, the District Court in Rose found a triable issue of fact, preventing summary judgment, when a loan form submitted by the academic institution to the government stated that its request for payment represented that a student-borrower is “eligible” and is enrolled “in an eligible program.” The court reasoned that if the academic institution had violated the ICB, failure to disclose this fact would render the loan forms misleading because the academic institution would not have been an “eligible” institution.
