United States ex rel. Mary Hendow; Julie Albertson v. University of Phoenix

Mary Hendow and Julie Albertson (plaintiffs) were enrollment counselors at The University of Phoenix (university) (defendant). The university entered into a program participation agreement with the Department of Education (DOE) from which the university received federal student education subsidies under Title IV of the Higher Education Act. An educational institution is only eligible for Title IV if it complies with Title IV’s ban on incentive compensation, meaning that the institution cannot compensate enrollment coordinators based on the number of students enrolled. Hendow and Albertson, as relators on behalf of the federal government (plaintiff), sued the university under the False Claims Act, arguing that the university knowingly and fraudulently certified that it was in compliance with the incentive compensation ban in order to obtain Title IV funding. Hendow and Albertson alleged that the university compensated enrollment counselors based on the number of students enrolled, that the university encouraged counselors to admit students regardless of academic performance, and that the university created false employee payment records to support its fraudulent certification of compliance with the incentive compensation ban. The district court dismissed Hendow and Albertson’s lawsuit for failure to state a claim, holding that the False Claims Act did not apply because Title IV only required the university to agree to the incentive compensation ban and did not require the university to submit a formal certification of compliance in order to receive funding.