SAN FRANCISCO – A federal appeals court has affirmed a decision to deny the Academy of Art University's request for summary judgment.
U.S. Circuit Judge Susan Graber, in the panel of the U.S. Court of Appeals for the Ninth Circuit, issued a 30-page ruling on Aug. 24, affirming the U.S. District Court for the Northern District of California decision in the qui tam action brought in by the U.S. Department of Justice, instigated by Scott Rose, Mary Aquino, Mitchell Nelson, and Lucy Stearns against Stephens Institute, doing business as the Academy of Art University.
The department sued the school on behalf of the four individuals on the grounds of false claims. These individuals, who worked as admissions officers for the college, alleged in the ruling that "the school violated an incentive compensation ban included in its program participation agreement with the Department of Education, through which it qualified for federal funding in the form of federal financial aid to its students under Title IV of the Higher Education Act."
As stated in the ruling, Stephens Institute, an art school with undergraduate and graduate programs, "receives federal funding—in the form of federal financial aid to its students—through various funding programs available under Title IV of the Higher Education Act," for which it qualified by entering into a "program participation agreement with the Department of Education, in which it pledged to follow various requirements, including the incentive compensation ban."
That incentive compensation ban, per the ruling, "prohibits schools from rewarding admissions officers for enrolling higher numbers of students."
In 2006, as of the court document, Stephens Institute "admissions department instituted a new policy to encourage admissions representatives to enroll more students." That policy "established an enrollment goal for each admissions representative."
The ruling described that "if a representative succeeded in enrolling that number of students, he or she would receive a salary increase of up to $30,000. Conversely, a representative could have his or her salary decreased by as much as $30,000 for failing to reach the assigned enrollment goal."
Stephens Institute described the policy adjustments as "dependent on both quantitative success," not depending on enrollment. Nevertheless, per the ruling, the employees "understood that their salary adjustments rested entirely on their enrollment numbers."
An example of the deception was a trip to Hawaii at the school expense, which the ruling said it was awarded to the team "solely because of their enrollment numbers."
The enrollment incentive policy was in place until 2009, when it was replaced by a scorecard system, which remained in place until 2010.
In her ruling, Judge Graber stated that Stephens Institute's argument for summary judgment "failed," adding that "the record contains evidence that Defendant did make compensation adjustments based solely on admissions representatives’ enrollment numbers."
Circuit Judge N. Randy Smith issued a dissenting opinion on the case.
In his opinion, Smith stated the lack of evidence to prove the materiality of Stephens Institute illicit.
"There is insufficient evidence to establish that the allegations against Stephens Institute would be considered material," Smith said.
U.S. Court of Appeals for the Ninth Circuit Case number 17-15111