Trial is around the corner in the Scott Rose v. Stephens Institute college recruiter FCA case

Is Stephens Institute, a San Francisco art school, liable under the False Claims Act for improper student recruitment? After a long journey, an Oakland jury is set to answer that question in April.

Department of Education’s incentive compensation ban

Stephens Institute offers undergraduate and graduate degrees, and receives federal funding through various funding programs available under Title IV of the Higher Education Act.  To qualify for that funding, Stephens agreed with the Department of Education that it would not reward admissions officers for enrolling higher numbers of students.  

The allegations in Rose

Four former admissions representatives for Stephens—Scott Rose, Mary Aquino, Mitchell Nelson, and Lucy Stearns—sued the school claiming it violated this incentive compensation ban. Specifically, they alleged that from 2006 until 2009, the school rewarded salary increases of up to $30,000 to admissions representatives that succeeded in enrolling a high number of students, and would decrease salaries where representatives failed to hit enrollment goals. They alleged that from 2009 until 2010, Stephens implemented a “scorecard” system for salary adjustments, under which admissions representatives were again greatly rewarded for signing up a high number of students. 

Why would incentive compensation implicate the False Claims Act?

The False Claims Act imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” by the government, and offers financial rewards to successful whistleblowers—called relators—that expose fraud. The relators’ theory in Rose is that the government conditioned the payment of Title IV funds on compliance with the incentive compensation ban through statute, regulation, and a Title IV program participation agreement. More than a year ago, the Ninth Circuit held that relators’ theory is viable: “[h]ad Defendant not certified in its program participation agreement that it complied with the incentive compensation ban, it could not have been paid, because Congress required as much.”

What to expect at trial

Plaintiffs will likely paint Stephens’ admissions department as akin to a Jordan Belfort-run boiler room. Defendants will point out that salary adjustments were based on several factors, including some not at all related to the number of students the recruiters signed up, and that the Department of Education—i.e., the alleged victim of the fraud—was fine with compensation arrangements just like the one Stephens implemented.

2/18/2020