(CN) – A federal judge in Miami refused to dismiss several lawsuits in which former employees accuse Kaplan University and Kaplan Higher Education Corp. of violating the Higher Education Act, in search of federal funding and profits.
U.S. District Judge Patricia Seitz rejected claims accusing Kaplan of manipulating students’ academic records and job-placement statistics, and of paying incentives based on student enrollment numbers, but allowed whistle-blowers to pursue claims of retaliation and other violations.
Kaplan University, one of the largest for-profit colleges in the country, offers more than 200 on-campus and online degrees and programs. The university and its parent company, Kaplan Higher Education Corp., are accredited by the Higher Learning Commission and receive federal grants and loans from the U.S. Department of Education.
Kaplan is a subsidiary of The Washington Post Co., and has provided a great deal of that company’s profits as the newspaper industry has been wracked by economic problems.
Since 2006, several former employees have claimed that Kaplan violated the law, and its program-participation agreement with the Department of Education, by recruiting unqualified students, misrepresenting students’ academic progress, manipulating job-placement statistics and paying recruiters bonuses based on how many students they enrolled, to maximize its federal funding.
In November 2006, two former instructors sued Kaplan, claiming it submitted false claims to the government and failed to comply with the Higher Education Act, which was a prerequisite for payment of the claims.
The plaintiffs, formerly employed at Kaplan’s Pittsburgh-based campus, claimed that Kaplan broke the 70 Percent Rule, which requires eligible schools to have graduation rates and job placement rates of at least 70 percent.
They also claimed that Kaplan Career Institute advertised job-placement rates but failed to provide prospective students with job-placement statistics or state licensing requirements.
A federal judge in Pennsylvania upheld the plaintiffs’ 70 Percent Rule claim and one of the whistle-blowers’ retaliation claim. That court also allowed the plaintiffs to pursue claims based on job placement rates and licensing requirements, in an amended complaint.
In one of three rulings on the multidistrict litigation against Kaplan, Judge Seitz in Miami found that the Pennsylvania plaintiffs had failed to adequately plead Kaplan’s failure to provide prospective students with data underlying job placement advertisements, or prove the falsity of the documents that were made available.
The plaintiffs also failed to establish that Kaplan had not provided licensing information to prospective students, Seitz found.
But Seitz upheld the plaintiffs’ 70 Percent Rule claim, finding that “relators have adequately pled which programs must comply with the 70 Percent Rules by alleging that all of defendants’ programs must comply with the rules and setting forth the specific programs.”
In a separate complaint filed in Florida in April 2007, three former employees claimed that Kaplan University inflated student grades to falsely certify that students were maintaining satisfactory academic progress, paid student recruiters bonuses based solely on the number of students they enrolled, broke the Higher Education Act’s 90/10 rule regarding financial aid and falsified documents to receive program accreditation.
One of the whistle-blowers, Jude Gillespie, a former course developer and associate professor, alleged that Kaplan violated the Rehabilitation Act by failing to accommodate his bipolar disorder.
His co-plaintiff Carlos Urquilla-Diaz sued Kaplan for firing him in 2005, after Diaz notified it that he would expose Kaplan’s method of recruiting students and other violations to federal and state authorities.
Seitz ruled in that case that the plaintiffs may sue Kaplan under the False Claims Act if they could prove Kaplan applied for federal funds while knowing it was not in compliance with the Higher Education Act.
But Seitz dismissed several claims, finding that the plaintiffs had failed to plead them with particularity.
“While the second amended complaint alleges that grades were inflated in order to maintain eligibility to receive Title IV funding, which requires satisfactory academic progress, relators have not set out how the alleged grade inflation violates any rules or regulations,” Seitz wrote. “Furthermore, the regulation applies to a student’s eligibility to receive HEA funds, not an institution’s eligibility.”
Seitz applied the same reasoning to the plaintiffs’ incentive compensation claim. While the plaintiffs acknowledged that Kaplan’s retention bonuses, cash bonuses and other incentives paid to student recruiters were based on various factors, they argued that Kaplan took into account only student enrollment numbers. Seitz dismissed that argument as “bare conclusions.”
The plaintiffs also argued that Kaplan violated the 90/10 Rule, which bars an eligible institution from receiving more than 90 percent of its revenue from federal funds for tuition and student fees. They claimed that Kaplan rerouted federal loan money to its employees, who paid tuition at Kaplan and received tuition tax credits from the IRS.
But Seitz ruled that the plaintiffs had failed to show how Kaplan’s accounting practices violated the 90/10 Rule.
Seitz also found that the whistle-blowers’ claims of false statements and false documents failed for lack of specificity.
In its motion to dismiss, Kaplan claimed that Gillespie had argued nonexistent violations of the Rehabilitation Act. Kaplan said these issued cannot serve as the basis for a fraud claim under the False Claims Act.
Seitz disagreed. She noted that in 2007 the Department of Education’s Office of Civil Rights concluded that Kaplan was in violation of the Rehabilitation Act, and directed the school to correct specific violations.
“All of the violations listed by OCR were system-wide violations, not violations arising from the treatment of a specific individual,” Seitz wrote.
Gillespie may pursue alleged violations of the Rehabilitation Act only until the moment when Kaplan corrected the violations, as acknowledged by the DOE’s Office of Civil Rights.
The court also upheld Diaz’s retaliation claim, since Kaplan knew Diaz was notifying federal and state authorities of its noncompliance when it fired him.
Seitz dismissed a third complaint against Kaplan, which also alleged that the school violated the Higher Education Act’s ban on incentive compensation.
Jorge Torres, a former director of admissions at Kaplan’s Milwaukee-based campus, claimed that Kaplan paid bonuses to its student recruiters based on enrollment and financial aid numbers and conditioned its admission staff’s continued employment on the number of students they recruited.
Torres claimed that Kaplan caused students and private lenders to make false claims to the government, because Kaplan was not eligible to receive federal funds.
But Seitz ruled that Kaplan’s policy of conditioning continued employment on minimum enrollment numbers did not violate the Higher Education Act.
Seitz dismissed Torres’ additional claims, finding they were duplicative of the claims in the Pennsylvania and Florida actions.
In August 2010, Kaplan was one of 15 for-profit universities subjected to a Senate hearing on the schools’ alleged misleading practices, such as manipulating job-placement statistics to boost student enrollment and increase federal funding. A scorching Government Accountability Office report that month found violations at every one of more than a dozen for-profit chain colleges the GAO investigated.
Many of the profit-seeking colleges then faced shareholder class actions when their stock prices dropped.