ATLANTA (CN) - A federal judge dismissed two of three fraud claims against American InterContinental University, saying previous lawsuits put the government on notice that the for-profit institute may be lying to maximize federal funds.
U.S. District Judge Richard Story rejected claims accusing the for-profit university of violating the ban against incentive-based compensation for enrollment counselors and of recruiting unqualified students, but allowed whistleblowers to pursue accreditation fraud claims.
Story said the first two claims, involving incentive-based pay and recruitment violations, were made in prior lawsuits that have since been dismissed.
"Interestingly, the fact that the prior cases have been dismissed -- and not settled by judgment or otherwise -- supports the notion that the original claims did not have merit in some way or another," Story wrote.
Citing the False Claims Act's first-to-file bar, Story said earlier lawsuits filed on the government's behalf prevented the relators in this case, former AIU employees, from making the same claims.
"Congress' purpose in creating the first-to-file bar was to balance the need for whistleblowers with the concern of parasitic suits," where plaintiffs line up for a cut of any damages awarded, the ruling states.
AIU is a for-profit accredited college that offers undergraduate and graduate courses at four campuses in Atlanta, South Florida, Houston and London, and has online classes through a virtual campus.
In January 2001, the university was acquired by Career Education Corp., which runs several for-profit colleges and universities worldwide.
In the underlying lawsuit, former employees claimed the university and its parent company submitted false claims to the government, failed to meet the prerequisites for federal loans and grants, and failed to comply with the Southern Association of Colleges and Schools' accreditation standards.
AIU argued that four previous lawsuits against CEC and one other suit against AIU Online, which were filed between 2004 and 2006, raised similar claims.
But the whistleblowers argued that the previous actions had been dismissed before they filed suit, and thus were not "pending" under the statute. They also claimed that the actions were not related, because the previous lawsuits did not name AIU as a defendant.
Judge Story disagreed, finding that previously dismissed actions are considered "pending" under the first-to-file rule.
"If a subsequent relator's claims are exactly the same as prior relators' claims, the policies behind the statute do not support successive suits simply because the first suits were dismissed," Story wrote.
He said the first-to-file bar only prevents related suits by private whistleblowers, not the government, which has already sued AIU for the same allegations.
AIU Online, a defendant in one of the previous actions, is part of AIU, and the Department of Education treats the two entities as a single institution, the ruling states.
"The ultimate facts at issue here and the improper conduct alleged are exactly the same," Story concluded. "There is no doubt that the prior qui tam suits have already fulfilled the purpose of the [False Claims Act] - to put the government on notice of the fraud."
But he allowed the whistleblowers to pursue their SACS accreditation fraud claim, saying there was no evidence that the government had knowledge of that conduct.
Career Education Corp. has faced numerous lawsuits from shareholders and former students of its institutions, including Sanford Brown College, the California School of Culinary Arts, the Brooks Institute of Photography and the Western Culinary Institute.
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