False Claims Act Qui Tam Actions Won’t Doom Public Universities

No matter one’s views on the Trump administration’s priorities with respect to higher education, one thing has become clear: The administration has wielded the False Claims Act and its qui tam (whistleblower) provisions as a powerful weapon to advance its priorities on public and private university campuses across the country.

This has become apparent in many areas, including the Department of Justice’s recent Civil Rights Fraud Initiative, which aims to hold universities liable under the FCA if they have diversity, equity, and inclusion programs or transgender inclusion initiatives—or are considered antisemitic by the administration.

The threat of a federal investigation and sheer size of the monetary penalties that the FCA brings are undoubtedly intimidating. But for public universities, the FCA’s qui tam provisions aren’t as formidable a weapon as one might assume.

The FCA is a Civil War-era statute designed to prevent and punish fraud against the federal government. In relevant part, the FCA imposes civil liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim” to the government.

Violations of the FCA can result in significant liability, and the government must investigate allegations of FCA violations. When the government declines to file its own direct action, the FCA permits a private person—a “relator”—to bring a civil action “in the name of the Government,” as a qui tam action. However, qui tam actions may only be filed against a person, which the relevant FCA provision doesn’t define.

Twenty-five years ago, the US Supreme Court in Vermont Agency of Nat. Res. v. United States ex rel. Stevens confirmed for the first time that states are immune from FCA liability in qui tam actions.

The Supreme Court explained that the FCA’s liability section doesn’t include any definition of “person,” whereas a subsequent section related to civil investigative demands specifically contains a provision defining the word to include “any State or political subdivision of a State[.]” It concluded that the difference in the two provisions “suggests that States are not ‘persons’ for purposes of qui tam liability under § 3729.”

If states aren’t persons subject to qui tam FCA liability, what does that mean for public universities? Not all public universities are political subdivisions of states, of course, so the first step for public universities to consider is their status vis a vis the state.

In considering whether a public university is an arm of the state, courts typically consider some or all of the following factors (none of which is determinative):

• The legal status of the university, including whether the state appoints a majority of the board of trustees
• The level of state funding provided to the university
• The degree to which the state oversees and controls the university’s fiscal affairs
• Whether the university is subject to state taxation
• Whether a judgment against the university would be paid by the state

This inquiry is institution-specific and not immutable.

Despite the holding in Vermont Agency, a number of public universities over the years have settled with the DOJ to resolve FCA claims. In some cases, universities that would seem to be state entities have instead been found not to be, when applying the factors above. But in other cases, some public universities that may have had strong legal arguments for immunity decided to settle FCA claims with the DOJ for reasons outside of legal risk.

For example, some universities may have decided to avoid potential disruption from a federal investigation, and others may have chosen to avoid potentially significant reputational and financial costs associated with defending against claims. The complaints in most of these recent settlements haven’t been unsealed, so the reasons for settlement could be these and more.

Public universities facing a qui tam FCA claim should be prepared with an understanding of their status as state entity, including whether FCA-targeted subdivisions of the university enjoy the same status. Armed with that threshold information, public universities can more effectively defend themselves against such a claim.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Preston L. Pugh is a partner in Crowell & Moring’s Washington, DC, office and serves as co-chair of the firm’s False Claims Act practice.

Rachel V. Stevens is senior counsel at Crowell & Moring, focusing on general commercial and impact litigation and recovery opportunities for clients.

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