Department of Justice Intervenes in First Incentive Compensation Qui Tam Action

May 3, 2011

An incentive compensation qui tam action filed against EDMC in 2007 was unsealed today after the Department of Justice (“DOJ”) filed a notice of intervention.  This action by DOJ is both disappointing and disturbing because DOJ had declined to intervene in each and every one of the previous 25 or so incentive compensation qui tam actions brought against schools.

As you can see from a review of the relators’ complaint, the factual allegations and claims set forth in the EDMC complaint are almost identical to the allegations and claims in almost all of the prior actions — actions in which DOJ declined to intervene.  In fact, as will become clear as the case proceeds, there are several compelling facts and issues that, in our opinion, make this particular case an even less likely or attractive candidate for DOJ intervention.

There are several other aspects of this decision that might be of interest:

• The EDMC compensation plan at issue in this case is governed by the 2002 Department of Education regulation.  That regulation, of course, will be superseded by the new compensation regulation that goes into effect on July 1 (unless the court acts favorably on the APSCU lawsuit challenging the new compensation regulation).  Under these circumstances, there is absolutely no precedential value to DOJ intervening in this case, at this time.
• Indeed, in the briefs that DOJ submitted in connection with the APSCU lawsuit, DOJ asserted that the 2002 regulation “immunized incentive compensation payments built into semi-annual compensation plans,” like the plan at issue here.
• This case was brought under the Federal False Claims Act as well as the False Claims Acts of several states and a number of states have also intervened in the lawsuit.  Especially, in light of the increased activity by a number of state Attorneys General with regard to the sector, we can probably expect to see this pattern repeated in future qui tam actions.

Clearly, relators’ counsel will attempt to use this intervention decision to convince DOJ to intervene in other cases, both those already filed and those to be filed in the future.  We will continue to update you on the progress of this matter as it proceeds.

Los Angeles
Timothy Hatch (213-229-7368, [email protected])  
Marcellus McRae (213-229-7675, [email protected])
James Zelenay (213-229-7449, [email protected])

Orange County
Wayne Smith (949-451-4108, [email protected])
Joseph Busch (949-451-3898, [email protected])
Nick Hanna (949-451-4270, [email protected])
Kristopher Diulio (949-451-3907, [email protected])
Jessica Boschee (949-451-3857, [email protected])

Washington, D.C.
Douglas Cox (202-887-3531, [email protected])
Michael Bopp (202-955-8256, [email protected])
Amir C. Tayrani (202-887-3692, [email protected])
Nikesh Jindal (202-887-3695, [email protected])

© 2011 Gibson, Dunn & Crutcher LLP

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