U.S. ex rel. Main v. Oakland City Univ.
| Decision Date | 20 October 2005 |
| Docket Number | No. 05-2016.,05-2016. |
| Citation | 426 F.3d 914 |
| Parties | UNITED STATES of America ex rel. Jeffrey E. MAIN, Plaintiff-Appellant, v. OAKLAND CITY UNIVERSITY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Lane C. Siesky (argued), Barber, Shoulders & Siesky, Evansville, IN, for Plaintiff-Appellant.
James D. Johnson, Evansville, IN, Jonathan D. Tarnow, Michael J. McManus (argued), Drinker, Biddle & Reath, Washington, DC, for Defendant-Appellee.
Erin R. Lewis, Office of the United States Attorney, Indianapolis, IN, for Party-in-Interest
Charles W. Scarborough (argued), Department of Justice, Washington, DC, for Amicus Curiae.
Before COFFEY, EASTERBROOK, and EVANS, Circuit Judges.
Many federal subsidies under the Higher Education Act require multiple layers of paperwork. First the college or university submits an application to establish the institution's eligibility. If this application, which we call phase one, is granted, the institution and its students submit additional ("phase two") applications for specific grants, loans, or scholarships. Both a statute, 20 U.S.C. § 1094, and a regulation, 34 C.F.R. § 668.14(b)(22)(i), condition institutional eligibility on a commitment to refrain from paying recruiters contingent fees for enrolling students. The concern is that recruiters paid by the head are tempted to sign up poorly qualified students who will derive little benefit from the subsidy and may be unable or unwilling to repay federally guaranteed loans. Oakland City University assured the Department of Education on its phase-one application that it complies with the rule against contingent fees.
Jeffrey Main, the relator in this qui tam action under the False Claims Act, 31 U.S.C. §§ 3729-33, contends that the University's representation was fraudulent. According to the complaint, Main himself received contingent fees as a recruiter and later as the University's Director of Admissions. Initially Main thought the compensation system proper, but when he learned of the federal statute and rule he filed this suit. The district court dismissed it on the pleadings, see Fed.R.Civ.P. 12(b)(6), ruling that even wilful falsehoods in phase-one applications do not violate the Act, because the phase-one application requests a declaration of eligibility rather than an immediate payment from the Treasury. The phase-two applications for grants, loans, and scholarships are covered by the Act, the judge ruled, but are not false, because they do not repeat the assurance that the University abides by the rule against paying contingent fees to recruiters.
Given the posture of the litigation, we must assume (as the complaint alleges) that the University (a) knew of the prohibition against paying contingent fees to recruiters, and (b) lied to the Department of Education in order to obtain a certification of eligibility that it could not have obtained had it revealed the truth. These facts imply that the phase-two applications would not have been granted had the truth been told earlier, for all disbursements depended on the phase-one finding that the University was an eligible institution.
Although no published appellate decision to date has addressed the question whether a multi-stage process forecloses liability for fraud in the first stage, the answer is straightforward. The False Claims Act covers anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government". 31 U.S.C. § 3729(a)(2). The University "uses" its phase-one application (and the resulting certification of eligibility) when it makes (or "causes" a student to make or use) a phase-two application for payment. No more is required under the statute. The phase-two application is itself false because it represents that the student is enrolled in an eligible institution, which isn't true. (Likely the student does not know this, however, so the phase-two application is not fraudulent.) The statute requires a causal rather than a temporal connection between fraud and payment. See generally United States ex rel. Lamers v. Green Bay, 168 F.3d 1013, 1018 (7th Cir.1999). If a false statement is integral to a causal chain leading to payment, it is irrelevant how the federal bureaucracy has...
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