A federal appeals court on Monday reinstated a federal False Claims Act lawsuit brought against ITT Educational Services, Inc. by a former enrollment official. A federal judge in Indiana dismissed the suit against the for-profit higher education provider last year, saying the court did not have jurisdiction because the plaintiffs in the case were not the original source of the allegations against the company, as is required under the false claims law. The court also slapped the plaintiffs with nearly $400,000 in fines for having brought, in the judge's words, a "frivolous" lawsuit.
A unanimous three-judge panel of the U.S. Court of Appeals for the Seventh Circuit sharply disagreed Monday. The appeals panel agreed that the False Claims Act -- in which parties sue companies or others on behalf of the federal government, claiming that the defendants have defrauded the treasury of funds and hoping to be joined by the U.S. Justice Department -- requires a suing party to come forward with allegations that were not previously in the public domain. But the Seventh Circuit court concluded that the charges made by Debra Leveski, the former employee at an ITT campus in Michigan, differed sufficiently from previously disclosed information about the company that the case can appropriately be heard by the federal court.
In directing the lower court to consider the case, and in at least temporarily reversing the financial penalties against her lawyer, the court said: "We do not know whether Leveski will ultimately prevail, nor do we state any opinion as to whether Leveski should ultimately prevail. But we do believe that Leveski should be allowed to litigate her case on the merits, and thus, sanctions for bringing a frivolous lawsuit are inappropriate."