As you may know, the False Claims Act is one of the topics that we follow here at the Monitor. We follow FCA developments for a number of reasons, including that it can be used to pin liability on defendants that have never done business with the federal government, it authorizes the award of treble damages and statutory penalties, and the Department of Justice continues to use the statute in new enforcement scenarios regarding allegedly defective products. In fact, you could make a very strong argument that the FCA has come a long way from its origin as a Civil War anti-fraud statute, and you need not look very far for supporting evidence: on Monday, the DOJ filed an FCA whistleblower complaint against the Education Management Corporation (EDMC), a for-profit college company. Though DOJ previously has used the False Claims Act in the context of higher education, we believe it marks the first time that the United States has alleged an FCA violation against a for-profit educational institution relating to the provision of educational services.
In broad strokes, the complaint alleges that EDMC made and/or caused to be made false claims regarding its admissions incentive compensation structure in order to participate in the federal student aid programs under Title IV of the Higher Education Act of 1965. The two whistleblower plaintiffs – who are former EDMC employees – allege that the compensation of admissions department members was improperly tied to student enrollement numbers. EDMC vigorously denies the DOJ and relator allegations.
The EDMC complaint reinforces that the scope of potential FCA liability continues to expand beyond the historical targets of defense contracting and, more recently, medical and pharmaceutical-related marketing. It thus is incumbent on contractors and companies - even those that do not directly do business with the federal government – to reconfirm that they are in strict compliance with any federal or state statutory requirements, and to be certain of whether and how they are subject to those requirements. It is equally important for contractors and companies, particularly component part makers, to know who their customers are and whether they sell products or services to the federal government. A manufacturer can be found liable under the FCA solely because its customer – not the manufacturer itself – sells something to the United States that contains the manufacturer’s product, even though the manufacturer had no intent to sell that product to the United States, much less commit fraud, because the False Claims Act does not require proof of specific intent to defraud in order to recover.