Academy of Art suit
are uncovering corporate fraud against the government,” said Stephen Jaffe, an attorney representing the plaintiffs. “We look forward to getting the case resolved as quickly as possible.”
Attorney Steve Gombos, representing the Academy of Art, said in a statement that “the university is disappointed with the outcome of the three-judge panel’s decision” but is “confident that it adhered to the law.”
Of the 89-year-old Academy of Art’s 13,000 students, 38 percent take courses exclusively online, according to a March review by its accreditor, the Western Association of Schools and Colleges’ Senior College and University Commission. Tuition and fees cost nearly $24,000. Student housing — in buildings the school leases from its owners — costs $8,200 to $16,400 a year.
The case against the school began nine years ago, when three employees and one former employee approached an attorney with evidence that the school offered raises of up to $30,000 based on how many students they enrolled, reduced their pay if they missed recruitment goals and dangled trips to Hawaii as an extra incentive.
The federal government bans such “incentive compensation” so colleges won’t enroll unqualified applicants who stand little chance of graduating and being able to pay back their government-backed student loans.
The four plaintiffs, who no longer work at the school, said the Academy of Art did just that. They sued the school in U.S. District Court in Oakland on Dec. 21, 2009, and promptly became federal whistle-blowers.
The former recruiters — Scott Rose, Mary Aquino, Mitchell Nelson and Lucy Stearns — are suing under the federal False Claims Act, which awards triple damages to encourage whistleblowers to come forward if they believe the government is being cheated.
“I view this as a betthe-company case,” said Jaffe, their lawyer, who has said he may seek damages of up to $150 million in the Academy of Art case, which, tripled, would grow to $450 million.
Since 2006, the Academy of Art has collected more than $1.5 billion in federal student loans and $171 million in Pell and other federal grants, according to a Chronicle analysis of federal records.
The former recruiters say that those millions motivated the school to impose illegal recruiting schemes to vigorously court students.
Representatives of the Academy of Art have said they no longer use such compensation tactics — but that when they did, they were legal. The school’s lawyers have argued that federal law permitted the tactics under a “safe harbor” provision created by the Bush administration in 2002 and rescinded by the Obama administration in 2010.
The lawyers have said the approach was legal at the time because the school did not award raises solely based on the number of students recruited; employees also had to demonstrate good work habits.
But the court said Friday that “the record contains evidence that (the school) did make compensation adjustments based solely on ... enrollment numbers.”
The ruling marks the fourth time since 2009 that the school has unsuccessfully tried to get the case tossed out.
The Academy of Art could ask the U.S. Supreme Court to consider the case. If not, the Ninth Circuit Court of Appeal is expected to send the case back to the federal court in Oakland sometime this fall.