Pa. can't join suit against for-profit college

The school allegedly violated federal and state false-claims laws. But Pa. doesn't have one.

Posted: August 15, 2011

PITTSBURGH - The federal government and several states are accusing a private Western Pennsylvania for-profit college of illegally paying recruiters to enroll students, but Pennsylvania officials say the commonwealth may be unable to join the lawsuit.

The suit cites federal and state versions of the false claims act in intervening in a whistleblower lawsuit against Education Management Corp. in Pittsburgh, which they accuse of breaking a 1992 law barring for-profit colleges from paying recruiters incentive compensation. The company calls the allegation "flat-out wrong."

But Nils Frederiksen, spokesman for the Pennsylvania Attorney General's Office, says the commonwealth cannot join the lawsuit directly because it does not have its own version of the false claims act. He told the Pittsburgh Tribune-Review that attorneys are reviewing consumer protection and other antifraud laws to see if one of them would provide a mechanism for entering the lawsuit.

Pennsylvania set aside $25 million for student aid for the schools in a 2010 bill funding $3.8 billion in projects across the state but has no estimate how much was paid. The governor's office did not respond to questions about the $25 million.

Education Management spokeswoman Bonnie Campbell said the company has not received the money but has a job-creation contract with the state in which it agrees to create 600 jobs and invest $29 million in its headquarters, data center and online operation in return for a $3 million opportunity grant, $500,000 job training grant and $2 million in tax credits.

Education Management operates 101 schools in 31 states and Canada, including art institutes in Philadelphia, Pittsburgh and York. About 139,800 people enrolled in its schools in 2010, according to the company's annual report. The company employs 7,200 people in the state with a payroll of $347 million, Campbell said.

Campbell said Pennsylvania should not join the lawsuit because the company has done nothing wrong and has "gone to great lengths" to comply with the law.

State Rep. Michael Gerber (D., Montgomery), said he has tried to get a state false claims act, but there has been opposition, especially from the business community. Gerber staff member Dan Wiedemer said the state House unanimously passed a state false claims act twice about a decade ago, but the bill stalled both times in the state Senate.

Sam Denisco, director of governmental affairs for the Pennsylvania Chamber of Business and Industry, said the business community believes many of the claims will be frivolous but will be settled due to the threat of triple damages.

"It's really an incentive for trial attorneys to file more claims," Denisco said.

Twenty-seven states and the District of Columbia have false claims acts, but eight of the states enacted laws covering only Medicaid claims, according to Taxpayers Against Fraud, a nonprofit that tracks the issue and provides assistance for such lawsuits.

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