The University of Phoenix must defend itself against charges that it violated federal law by paying its recruiters based on how many students they enrolled, the U.S. Court of Appeals for the Ninth Circuit ruled Tuesday. The federal appeals panel's unanimous decision, which overturned a lower court's ruling in Phoenix's favor, had been eagerly awaited because of the for-profit university's high profile as one of the country's largest and because of the mammoth size of the malfeasance alleged billions of dollars could be at stake.

But the case is also important because it is the latest in a string of decisions in which federal courts have gradually expanded the grounds under which colleges can be sued under the federal False Claims Act, much to the consternation of some college and university lawyers and legal experts. In siding with the former admissions officials who sued Phoenix on the government's behalf, the Ninth Circuit panel leaned heavily on one of those earlier decisions, involving Oakland City University.

At issue in the Phoenix case is a provision in the Higher Education Act that prohibits colleges from offering bonuses or other incentive pay to admissions officers or recruiters based on specific enrollment goals, to discourage them from giving officials extra incentive to bring in any potential student, regardless of academic ability. Two former enrollment counselors at Phoenix, Mary Hendow and Julie Albertson, charge that the for-profit university paid cash bonuses and other gifts to them and to other recruiters based strictly on how many students they enrolled ? charges Phoenix has denied.

In 2003, Hendow and Albertson filed what is known as a qui tam lawsuit, which is filed under the federal False Claims Act by an individual who believes he or she has identified fraud committed against the federal government, and who sues hoping to be joined by the U.S. Justice Department. (The plaintiff then shares in any financial penalties, which can include trebled damages.) The women charged that the allegedly fraudulent behavior had put more than $1.5 billion in federal funds at risk, which set the value of a potential verdict in the case at several times that. The federal government declined to join the lawsuit as a third party, but the Justice Department did file a friend of the court brief in 2005 encouraging the court to rule against Phoenix.

A federal district court dismissed the women's lawsuit in May 2004, concluding that they had not put forward a valid theory for how Phoenix had defrauded the government under the False Claims Act.

But in its decision Tuesday, a three judge panel of Ninth Circuit appeals court concluded differently. Reinforcing and even expanding on last October's decision by the U.S. Court of Appeals for the Seventh Circuit in United States of America ex. rel. Jeffrey E. Main v. Oakland City University, the Ninth Circuit judges declared that the two former admissions officers (known in False Claims Act parlance as the ?relators") had indeed offered two legitimate theories (known as ?false certification? and ?promissory fraud") for how the university had defrauded the government.

Without ruling on whether the women had actually proven their claims ? impossible without a trial on the facts of the case ? the court concluded that they had met the four requirements of filing a legitimate claim under the federal fraud law: (1) alleging that a defendant had made false statement or engaged in fraudulent conduct; (2) that the action had been taken deliberately; (3) that the act or statement played a direct role in money flowing out of government coffers; and (4) that the government did indeed pay out or forfeit money as a result. At its core, the Ninth Circuit ruled that the university had ? by participating in a several-step process to accept federal financial aid ? committed to abiding by a wide range of rules and requirements, including the prohibition on incentive compensation.

On multiple fronts, the court rejected arguments made by lawyers for Phoenix. To the suggestion ? which other college officials have echoed in fighting False Claims Act cases ? that ?the incentive compensation ban is nothing more than one of hundreds of boilerplate requirements with which it promises compliance,? as the appeals panel phrased it, the court wrote: ?This may be true, but fraud is fraud, no matter how 'small.'

?The university is worried that our holding today opens it up to greater liability for innocent regulatory violations, but that is not the case ? as we held above, innocent or unintentional violations do not lead to False Claims Act liability,? Judge Cynthia Holcomb Hall wrote for the court. ?But that is no reason to innoculate [sic] institutions of higher education from liability when they knowingly violate a regulatory condition, with the intent to deceive, as is alleged here.?

With that statement, the court seemed to clearly reject the arguments made by college officials that the federal courts' decisions in this line of cases are making colleges significantly more vulnerable to False Claims Act challenges ? even if they have violated federal law by simple mistake.

And Phoenix's assertion that the ban on incentive compensation is a condition on participating in the federal student aid programs, but not a condition on receiving payment from the government, ?is a distinction without a difference,? the court said. ?In the context of Title IV and the Higher Education Act, if we held that conditions of participation were not conditions of payment, there would be no conditions of payment at all ? and thus, an educational institution could flout the law at will.?

The Ninth Circuit's decision not to dismiss the lawsuit against Phoenix would send the case back to the lower federal court for a trial on the merits. But several other possibilities seem likelier at this point. The university could ask the entire U.S. Court of Appeals for the Ninth Circuit to review the decision of the three judge panel.

Or Phoenix's lawyers could appeal the Ninth Circuit's decision to the U.S. Supreme Court, on the hope that the nation's highest court decides to hear the case because it concludes that federal appeals courts have split on the issues in the case. But the Supreme Court declined in April to consider the Oakland City case, letting the Seventh Circuit's decision stand, which would appear to make it unlikely to hear the Phoenix case.

Timothy J. Hatch, a Los Angeles lawyer who represented Phoenix in this case, said that he and the university ?obviously disagree? with the court's conclusions but had not yet decided how to respond to the ruling. Terri Bishop, chief communications officer for the Apollo Group, which owns the University of Phoenix, added in a statement that the decision ?greatly expands the scope of False Claims Act liability beyond what Congress had intended or even what other courts have recognized.? The company is ?carefully reviewing the opinion in order to determine our next steps,? she said.

The two California lawyers who represented the relators in the case, Nancy G. Krop and J. Daniel Bartley, were practically giddy on the telephone late Tuesday afternoon, and said they were eager to get the case before a jury. ?The evidence is all sitting there waiting for a courtroom, and once we get a courtroom,? Krop said, Phoenix ?is in big trouble.?

B - Phoenix, Arizona

U.S.A.

B

phoenix, Arizona
U.S.A.

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8 Updates & Rebuttals

January

El Paso,
Texas,
U.S.A.

Donald in California

#2Consumer Comment

Wed, December 13, 2006

I hate to say this, but the enrollment counselor was told before the enrollment process ever began. I felt that honesty was the best policy. I found Disability Services accidentally one month later. I was not told a great many things. Let's just hope my prayers are answered. By the way, AXIA College students, the "secret" dean whose name no one would give me is Mark Alexander. I found it by pulling press releases. I was born in L.A. by the way. Please talk with me again, and thank you for the information.

Donald

La Crescenta,
California,
U.S.A.

January

#3UPDATE Employee

Wed, December 13, 2006

According to ADA rules the counselors are not allowed to ask if you have any disabilities. They cannot even hint at anything even if you may have something that can obviously be seen. The reason being is that discrimination of someone because they look like they might have a disability is just as bad as direct discrimination. Did you initially state to the counselor that you were disabled in some way? If you had then ADA regulations require they submit a contact form to the local ADA officer for the campus who will in turn be in contact with you. No other documentation is allowed into your record which would allow someone else to find out about your disability. This is required of all campuses at UOP. I've seen a few people violate this rule and they typically get walked out the same day.

January

El Paso,
Texas,
U.S.A.

I, too have been screwed!!!

#4Consumer Comment

Mon, December 11, 2006

All I am going to say is Discrimination of a federally protected mentally disabled student who was making good grades, and the dean wants to fail me! That in itself is sick if you ask me. I just wanted to be somebody in this world, and it was my dream to receive a college education and get off of the system and disability. I am now suffering extreme physical and mental distress because of a grade grievance, and was never told I was eligible for any ADA accomodations. I was excelling until they did this to me. I am heavily sedated, and as you can see, up all night 4:26 a.m. I have a little boy to take care of also, and he has to suffer now by watching what is happening to his Mommy. I am so out of whack over this whole situation. I can no longer function in my studies, as the situation has devastated me and caused such damage of an already existent, but once managed condition. Due to the damage, I may never see my dream of higher education come to fruition. I cannot even write this without breaking down. I wanted to do right by myself and my son. Even with all of the sedatives I cannot rest. I had a nightmare about the school, and ran into a wall, running in my sleep, giving myself a concussion. I am now afraid of the school, and afraid to sleep. In 40 years with this disease, I never hurt myself. It was not intentional. I was asleep dammit! I hope these horrible people are happy. Now they will try to take my only means of income for myself, and my son, and we will be homeless. My ability to receive financial aid will be ruined. Due to the damage, I may now never see my dream. It doesn't seem fair. I believed them and trusted them. How could I have been so stupid? I live on a meager Social Security disability salary of less than $800.00 per month, and have a child to support, and I am fighting with what little they have left me with to function to keep from having to give up my child who is also doomed with this illness. I thought they would treat me better. I was honest about my disease from the beginning, and they took full advantage of it, so much for my 168 IQ. They took that too. Forrest Gump has more intellect than I do now. I pray to God everyday that I will be able to bounce back from this experience. All prayers are welcomed, and to those of you who wish to be crass, bring it. Make a total a** of yourselves. I'll help you drive it home! Then who will look like the retard? Not me!

William

Cranberry Twp,
Pennsylvania,
U.S.A.

Solicitation Calls

#5Consumer Comment

Wed, December 06, 2006

I have read many comments here about Axia College of University of Pheonix. I am sure the comments are ligitament concerens. It is awful to see that institutions such as this College are accused and/or proven of wrong doing. This really is not good for the education process. I myself have never attended this institution, but I am almost constantly bombarded with phone calls. The people that I speak with seem friendly, though very persistant which in itself is a concern. I wish Harvard or Penn State would call me as much!! So this sets up a red flag.

Rhonda

Daleville,
Alabama,
U.S.A.

me too

#6Consumer Comment

Mon, December 04, 2006

UoP took 10,000.from me, in goverment aids, for a degree I never got and they said I still owe them 327.00. The class I took would not transfer over to the new college. I had 40 hours and none of which transfered. What a waste of two years and 10k.

Tiffany

New Haven,
Connecticut,
U.S.A.

Good Info

#7Consumer Comment

Thu, October 19, 2006

Whether the person copied and pasted the news article you people at Axia College, Western International University, and Phoenix online are a bunch of RIP OFFS and I hope the government sticks it to you and repays all of us that have been jerked around by the staff and representatives of the ring of scam and rip off online universities.

Phoenix,
Arizona,
U.S.A.

The Title IV Funding Rules UOP Violates

#8UPDATE EX-employee responds

Thu, September 28, 2006

The reason I cut and paste this article is because many times ROR will omit hyperlinks and this is too important to not post. It leads directly into my next point which you will see below. Without the first post, people might doubt what I am about to post below. Many UOP supports tend to ignore the evidence that is right in front of them. Make no mistake about this pending lawsuit, this is HUGE and UOP is in DEEP ISH and they know it. In case anyone wanted to argue, I thought I would take the time to explain what rules UOP breaks in their compensation plan. This information is taken directly from the Student Financial Aid Handbook on the IFAP.ed.gov website. I would include the entire direct link, but it would be omitted by ROR. There are some basic rules outlined in the FA Handbook designed to keep colleges from compensating recruitment employees for enrolling unqualified students. As UOP uses 1.7B a year in Title IV funding, and their first course drop rate is extremely high, they might want to try and comply with these rules. The first rule: Adjustments to employee compensation 34 CFR 668.14(b)(22)(ii)(A) This safe harbor strikes a balance between a school's need to base its employees' salaries or wages on merit, and the Department's responsibility to ensure that such adjustments do not violate the statutory prohibition against the payment of commissions, bonuses, and other incentive payments. Under this safe harbor, a school may make up to two adjustments (upward or downward) to a covered employee's annual salary or fixed hourly wage rate within any 12-month period without the adjustment being considered an incentive payment, provided that no adjustment is based solely on the number of students recruited, admitted, enrolled, or awarded financial aid. One cost-of-living increase that is paid to all or substantially all of the school's full-time employees will not be considered an adjustment under this safe harbor. In addition, with regard to overtime, if the basic compensation of an employee is not an incentive payment, neither is overtime pay required under the Federal Labor Standards Act. What this essentially says is that UOP has the right to adjust compensation up or down without the adjustment being considered incentive payment provided that the adjustment is not based solely on the number of students recruited, admitted, enrolled or awarded financial aid. This is where UOP enforces their matrix. The term based solely on the number of students recruited is exactly how they get away with their smoke and mirrors matrix. Talk time, outbound/inbound calls, etc are used to make it seem that a review is based on multiple criteria not based solely on enrollments over a 6 month period. However, this method does not stand as valid when it is tied into the rules on paying advisors on ANY enrollments for a revuew. This means that any 6 month review conducted by UOP that considers ANY enrollments in the equation, must still comply with the following rule: Compensation based upon program completion 34 CFR 668.14(b)(22)(ii)(E) This safe harbor recognizes that a major reason for the incentive compensation prohibition is to prevent schools from enrolling unqualified students. Completing a program of education or, in the case of students enrolled in a program longer than one academic year, completing the first academic year of that program, is a reliable indicator that the students were qualified to enroll in the program. Therefore, compensation that is based upon students successfully completing their educational programs, or one academic year of their educational programs, whichever is shorter, does not violate the incentive compensation prohibition. Successful completion of an academic year means that the student has earned at least 24 semester or trimester credit hours or 36 quarter credit hours, or has successfully completed at least 900 clock hours of instruction at the school. (Time may not be substituted for credits earned.) In addition, the 30 weeks of instructional time element of the definition of an academic year does not apply to this safe harbor. Therefore, this safe harbor applies when a student earns, for example, 24 semester credits, no matter how short or long a time that takes. This rule shows that UOP can only consider compensation increases or decreases for enrollments after the recruited students have completed 24 credit hours. There is no way that any student will complete 24 credit hours at UOP or AXIA in a 6 month period. Therefore, if any evaluation includes measurement of any enrollment prior to that student completing 24 credit hours, and any employee compensation is adjusted up or down, University of Phoenix is in direct violation of Title IV compensation rules and regulations. This is why they are in trouble. This is why if the lawyers and the court do their job, and UOP is not allowed to buy their way out of this, it will be the end of UOP. The day Title IV is gone at UOP is the same day their doors shut. I have spoken directly with Title IV representatives regarding this issue. UOP's lobbiests focus on the word semantics of rules and try to segregate one from another. The Title IV representatives informed me directly that these Safe Harbor rules were not written with the intent of requiring compliance with only one rule at the whim of any institution, infact, these rules were designed to be comprehensive and for institutions to comply with all of them. If you are an EA at UOP let me know. I can tell you what to do on your next evaluation to keep them from screwing you. B - Phoenix, Arizona U.S.A.

Ashley

Phoenix,
Arizona,
U.S.A.