PwC Wins Dismissal of Qui Tam Suit Alleging False Claims Acts Violations Related to Student Aid Programs

On March 30, 2016, the United States District Court for the District of Utah dismissed a qui tam action seeking treble damages for alleged violations of the False Claims Act (“FCA”) against Cravath client PricewaterhouseCoopers LLP (“PwC”) and two other audit firms. The relators allege that Stevens‑Henager College, its affiliated schools, owner and outside auditors falsely represented the schools’ compliance with the regulations under Title IV of the Higher Education Act concerning payment of enrollment‑based incentive compensation to recruiters in order to qualify for federal student aid programs. The U.S. government intervened in the suit with respect to the college and one of its affiliates, but not with respect to the audit firms.

In her decision, Judge Jill Parrish held that (1) relators’ claim that the auditors failed to comply with audit standards under the Department of Education Audit Guide does not give rise to auditor liability under the FCA, and (2) relators failed to sufficiently plead that the auditors proximately caused the schools to submit false claims to the government. Judge Parrish also held, as an alternative reason for dismissal, that relators failed to plead facts sufficient to support their claim that the auditors committed fraud by knowingly conducting deficient audits. The case against the college defendants was narrowed on the motion to dismiss and remains ongoing.

The Cravath team included partner Antony L. Ryan, senior attorney Samira Shah and associates Deborah L. Fox and Sean M. Sherman. The case is U.S. ex rel. Brooks, et al. v. Stevens‑Henager College, Inc., et al., No. 15‑cv‑0119 (D.Utah).