## Facts

- Mary Hendow and Julie Albertson, former enrollment counselors at the University of Phoenix, filed a qui tam action under the False Claims Act (FCA).
- The University of Phoenix participated in Title IV federal student aid programs and received funds under a Program Participation Agreement (PPA) with the Department of Education.
- The PPA required compliance with the Higher Education Act’s ban on incentive compensation to recruiters based on enrollments or financial aid secured.
- Relators alleged the University paid recruiters based on the number of students enrolled, violating the incentive-compensation ban.
- Relators alleged the University concealed the true compensation structure through internal practices designed to mislead auditors while continuing to certify compliance.
- Relators alleged the University obtained hundreds of millions of dollars in Title IV funds as a result of its alleged noncompliance and continued certifications.
- The district court dismissed the complaint under Rule 12(b)(6) for failure to state a claim; relators appealed, and the United States declined to intervene.

## Issues

1. Whether a school’s allegedly false promise in a PPA to comply with the Title IV incentive-compensation ban can constitute an actionable false statement under the FCA.
2. Whether the complaint adequately alleged falsity, scienter, materiality, and causation/claims for payment under a fraud-in-the-inducement (false certification) theory.

## Decision

- The Ninth Circuit reversed the dismissal.
- The court held the complaint adequately alleged an FCA claim based on a knowingly false promise of compliance made to obtain and maintain eligibility for Title IV funds.
- The court held relators sufficiently pleaded falsity, scienter, materiality, and that the alleged fraud induced government payment of Title IV funds.

## Legal Principles

- A false promise of future compliance may be actionable under the FCA because it can misrepresent the promisor’s state of mind at the time the promise is made.
- A certification of compliance may support FCA liability when compliance is a prerequisite to obtaining or retaining a government benefit and the defendant knowingly certifies compliance while intending not to comply.
- FCA scienter includes actual knowledge, deliberate ignorance, or reckless disregard; concealment allegations may support an inference of knowing falsity at the pleading stage.
- Materiality requires that the misrepresentation have a natural tendency to influence, or be capable of influencing, the government’s payment decision; where statutory/regulatory compliance is a condition of payment, false certification can be material.
- Under fraud-in-the-inducement, a contract or benefit obtained through false statements can taint subsequent claims for payment made under that relationship, even if later claims are facially accurate.

## Conclusion

The Ninth Circuit reinstated the qui tam action, holding that allegations the University secured and retained Title IV eligibility by knowingly falsely certifying compliance with the incentive-compensation ban plausibly stated an FCA claim under a fraud-in-the-inducement/false certification theory.


United States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166 (9th Cir. 2006)