Qui Tam whistle blower litigation

by Michael B. Goldstein

Part 1 of a GreentreeGazette.Com e-Series

October 2006

Federal False Claims Act litigation has significant disruptive potential

While Latin has long since ceased to be the vernacular of higher education, you should be familiar with the "qui tam lawsuit." Qui tam ("in the name of the King") is quite special. It allows a citizen to bring suit on behalf of the United States government, accusing a person or organization of improperly securing or using federal funds.

Michael B. Goldstein

The qui tam action seeks the recovery of those funds for the government. But the litigation is manifestly not an act of public charity. A successful relator (the plaintiff in this kind of case) stands to take home as much as 30 percent of the federal funds recovered, plus attorneys' fees. Last year the relators' share of the spoils in all qui tam cases was approximately $120 million.

There have now been more than a half dozen higher education cases. Each involved Title IV student financial aid programs, and notably the 'Program Participation Agreement' (PPA) that each institution's chief executive signs to initiate and maintain Title IV participation.

Unique characteristics

Another term for a qui tam action is "whistle blower suit." Qui tam cases are brought "under seal." That means the defendant generally does not know it is being sued - or why - until long after an investigation is initiated. Even when a defendant is first informed that an action has been filed, the full details of the complaint and the identity of the relators may be withheld. The secrecy is intended to protect the relators - who are often current or former employees - from retaliation.

Once the relator files the action, much of the heavy lifting is done at the government's expense. The government conducts the investigation, at the end of which the Justice Department must decide whether it will prosecute the case or turn it over to the relator. In all the known qui tam cases involving higher education to date, Justice has declined to take on the prosecution. But, as we will see, that does not mean they leave the field of combat.

Qui tam cases have been the bane of the health care industry for years, with most cases centering on abuses of the Medicare system. As an example, HealthSouth paid $325 million in 2004 to settle a false billing claim. Qui tam cases have long been commonplace against defense contractors ($800 toilet seats come to mind).

New and noteworthy are court decisions that have the potential to turn an educational institution's Title IV student financial aid participation into a ticking bomb. Recent cases have involved both for-profit and not-for-profit schools, and they may foreshadow a litigious and costly future.

To be continued …

Michael Goldstein is a member of the Washington, DC law firm Dow Lohnes, PLLC and its higher education practice leader.