Complaints Against Corinthian Colleges, Ernst & Young Over Education Fund Row Revived

Michelle Remo, “Big 4″ observer
August 14, 2011 /

The federal appeals court in Pasadena reversed on Friday a lower court decision dismissing a lawsuit against Corinthian Colleges and Ernst & Young auditors over illegal collection of billions of dollars in education fund.

The 9th Circuit revived the whistle-blower suit, giving the two Californian relators who brought the action, a chance to amend their claims.

Nyoka Lee and Talala Mshuja sued Corinthian Colleges Inc., its board of directors, and its auditors from Ernst & Young in California’s Central District Court, over claims that Corinthian violated the False Claims Act when it collected federal education funds in violation of the law, and implicating Ernst & Young for certifying Corinthian’s compliance.

Corinthian runs a chain of for-profit vocational schools throughout the country, with billions of dollars that it receives from the federal government in education fund.

Lee and Mshuja further claimed that Corinthian College violated the Higher Education Act’s ban when it paid recruiters.

According to the lawsuit, Corinthian pays bonuses to recruiters based on the number of students they recruit, and that it fires admissions officers who fail to meet recruiting quotas, violating the federal law.

In earlier ruling, U.S. District Judge Philip Gutierrez dismissed the case on grounds that the school’s recruiter-compensation program complied with the safe-harbor provision of education law, which allows some payments to recruiters as long as they are not based solely on quotas.

The judge also ruled that the plaintiffs had failed to show that Corinthian and Ernst & Young had acted “with malicious intent.”

In a unanimous ruling, the appellate court reversed Gutierrez’s decision, giving the plaintiffs the time to amend their complaint.

The three-judge panel found that the lower court had “dismissed with prejudice the complaint without considering whether additional facts could cure any deficiencies.”

“Here, we can conceive of additional facts that could, if formally alleged, support the claim that Corinthian made false statements to the DOE,” Judge Betty Fletcher wrote for the panel, referring to the Department of Education.

“As previously discussed, relators could allege that the Corinthian employee performance rating system is merely a proxy for employee recruitment numbers, or that the system is based merely on those basic requirements that any employee would be required to meet,” Fletcher added.

Fletcher said “relators repeatedly insist in their briefs that, in practice, Corinthian recruiters were expected to meet enrollment quotas and understood that this was the basis on which they would receive promotional salary increases.”

Accordingly, relators could allege that, despite the Compensation Program’s purported or documented reliance on something other than recruitment numbers, these salary increases are in practice determined on the sole basis of recruitment numbers.

“It is Corinthian’s implementation of its policy, rather than the written policy itself, that bears scrutiny under the HEA, and such allegations would require additional discovery,” Fletcher said.

 

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