University of Phoenix

Result: $78.5 million settlement
Year: 2009

Lieff Cabraser obtained a record whistleblower settlement against the University of Phoenix (“Phoenix”) in a case that charged that Phoenix had violated the Higher Education Act (“HEA”) by providing improper incentive pay to its recruiters. The HEA prohibits colleges and universities whose students receive federal financial aid from paying their recruiters based on the number of students they enroll, which creates a risk of encouraging recruitment of unqualified students who Congress has determined are more likely to default on their loans. High student loan default rates not only result in wasted federal funds, but the students who receive these loans and then default are burdened for years with tremendous debt without the benefit of a college degree.

Video – Whistleblower False Claims Act Lawyer: Record Settlement in Lawsuit

The complaint alleged that Phoenix defrauded the U.S. Department of Education by obtaining federal student loan and Pell Grant monies from the federal government based on false statements of compliance with HEA. In December 2009, the parties announced a $78.5 million settlement. The settlement constitutes the second-largest settlement ever in a False Claims Act case in which the federal government declined to intervene in the action and largest settlement ever involving the Department of Education.

The University of Phoenix case led to the Obama Administration passing new regulations that took away the so-called “safe harbor” provisions that for-profit universities relied on to justify their alleged recruitment misconduct. For his outstanding work as Lead Counsel and the significance of the case, California Lawyer magazine recognized Lieff Cabraser attorney Robert J. Nelson with a California Lawyer of the Year (CLAY) award.

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