Lawsuit Against For-Profit Proceeds

A federal appeals court orders for-profit Heritage College to answer charges it violated federal law by altering records for federal aid -- overturning lower court dismissal.

April 30, 2015

A federal appeals court Wednesday ordered a for-profit college to defend itself on charges it defrauded the U.S. government by altering grade and attendance records in an effort to receive more federal student aid. 

The ruling by the U.S. Court of Appeals for the Eighth Circuit came in a False Claims Act lawsuit launched by two former employees against Western Educational Inc., which operates 10 campuses nationally and is known as Heritage College. A lower court had dismissed the employees' claims. 

The plaintiffs allege the for-profit college committed fraud by signing a federal Program Participation Agreement, or PPA, without intending to maintain the records necessary for receiving federal funds. 

False Claims Act lawsuits against higher education companies are common, and most tend to be dismissed. Under the act, plaintiffs or relators sue on behalf of the federal government claiming the defendants have committed fraud. The government is not required to join the case -- it did not in this case -- and the plaintiff shares any financial penalties.

The lower court had summarily dismissed the case because it accepted Heritage's argument that its failures to keep accurate records under the federal participation agreement did not cause any improper disbursement of federal funds. 

The appeals court ruled the plaintiffs don't have to prove a link between record changes made by the college and fraudulent payments. The appeals panel ordered the case to go back to the district court to decide if Heritage knew that it had an obligation to keep accurate records and intended to do so. 

"We were pleased with the result and we believe this will have a far-reaching effect in terms of cleaning up proprietary schools, the bad actors in the industry," said Matt Bartle, the lead lawyer for the plaintiffs. 

Dennis Cariello, a former Education Department lawyer who co-chairs the education group at the law firm Hogan Marren, said this case is essentially about maintaining proper records, and he found it awfully concerning that it may be setting a high bar for colleges to maintain "perfect" files. 

"The lower court decision that says, 'the school did not promise to keep the world's most accurate records,' that's a fair common sense reading of this," he said. 

Bartle said he and his clients have enough evidence that they're looking forward to taking the case to trial. 

Heritage and 97 percent of its students received federal financial aid, accounting for about 90 percent of the college's gross tuition. The plaintiffs are making the claim that Heritage's actions defrauded the government out of approximately $32.8 million from 2009 to 2012. 


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