On January 12, 2011, a district court in the Eastern District of Virginia dismissed a qui tam action which involved claims that a private commercial lender authorized to make post-secondary education loans pursuant to the Federal Family Education Loan Program violated the False Claims Act. In United States ex rel. Jones v. Collegiate Funding Services, Inc., et al., Civ. Action No. 3:07-cv-290 (E.D.Va.), relators, former employees in the telemarketing departments of defendants, first alleged that defendants violated the Higher Education Act’s anti-inducement provisions by entering into unlawful preferred-lender agreements with colleges and universities and agreeing to undertake those institutions’ obligations to provide personalized exit loan counseling to graduates. The court dismissed these claims for lack of subject matter jurisdiction based on the prior public disclosure bar.

Applying Fourth Circuit precedent, the court found that relators’ allegations had been based on prior public disclosures by then-New York Attorney General Andrew Cuomo, the defendants’ own SEC filings, and newspaper articles. The court also found that relators were not original sources of the information based on their failure to demonstrate how they could have learned of this alleged conduct from their roles as telemarketers at defendants. Interestingly, the court noted relators’ attorney’s history of recruiting former employees of student lenders to serve as qui tam relators.

Next, relators alleged that defendants paid illegal bonus payments to employees based on the number of student-loan applications initiated daily and engaged in marketing tactics designed to mislead borrowers into believing defendants’ direct mailings were from the federal government. According to relators, this alleged conduct rendered false the certifications of compliance prepared in connection with such loans in the event that the loan went into default and resulted in the submission of a claim for payment to the government.

The court found subject matter jurisdiction to be proper as to these allegations, but dismissed the claims for failure to plead with particularity as required under Fed. R. Civ. Proc. 9(b). The court held that relators failed to provide facts showing that any claims were submitted to the government or that the purportedly false certifications were made to get a false claim paid by the government. The court denied leave to amend.