Stephens Institute, dba Academy of Art University v. United States, ex rel. Scott Rose, et al.

In Universal Health Services v. U.S. ex rel. Escobar, this Court held that a misrepresentation about compliance with a legal requirement must be material to the government’s payment decision to be actionable under the False Claims Act. 136 S.Ct. 1989, 1996 (2016). So then only one question faced the Ninth Circuit below: whether Petitioner Academy of Art University’s alleged failure to disclose noncompliance with the incentive compensation ban (ICB) was material to the Department of Education’s decision to make federal financial aid available to students attending the Academy of Art University. The Department of Education answered that question years ago in an enforcement policy for ICB violations. That policy expressed the Department’s judgment that students attending ICB noncompliant schools remain eligible for financial aid for use at those same schools. And since enacting that policy judgment, the Department of Education has never limited, suspended, or terminated any university’s participation in the federal financial aid programs and never required any university to repay financial aid funds because it violated the ICB. The Department of Education even investigated Respondents’ specific fraud allegations against Petitioner and determined that neither administrative penalties nor termination was warranted. Still, a majority of the Ninth Circuit found the FCA’s demanding and rigorous materiality standard satisfied based on evidence showing that the Department “cared” about ICB compliance in some broad sense. That decision conflicts with Escobar, the general approach to materiality