Charter School Makes False Claims Act Immunity Plea

The False Claims Act (FCA) is long-standing legislation built to punish those who attempt to defraud the government, while rewarding so-called ‘whistleblowers’. 2020 saw the highest number of FCA matters initiated in a single year, most of which involved the healthcare industry. But a unique False Claims Act case handed down last month illustrated a North Carolina charter school’s attempt to use the legislation for their own defense.

Background

A charter school is unique in that it is a private organization that receives government funding to conduct educational programs. North Carolina has allowed these schools since 1996 with a different set of operational rules than those administered by the state.The Kinston Academy was organized as a nonprofit corporation that operated as a charter school in 2004.

The State sued the charter academy as a result of a 2013 enrollment dispute. The Academy reported it would enroll 366 students in the upcoming school year, but the final count would only be 189. A judge opined in a previous trial that the charter school knowingly overestimated the number of students it would enroll and received an over-payment from the government in turn. This is a direct violation of the False Claims Act.

The False Claims Act

The FCA is one of the older pieces of consumer legislation that dates back to the Civil War Era. The federal government enacted the legislation in 1863 as a response to private vendors attempting to defraud the government. The Union army purchased defective weapons from a defense contractor, who profited from the fraudulent sale on the taxpayers dime. 

Today, the FCA covers an array of issues such as Medicare fraud, defense contractor fraud, financial fraud, and education fraud. The original punishment for a false claim was double the government’s damages and $2,000 for each false claim. The whistleblower would receive a percent reward of whatever the government recovered.

The North Carolina regulation echoes many of the principles set forth in the federal legislation, with regards to state level government. The law states its purpose is to deter and punish those defrauding the government by pursuing up to three times the amount of damages the State sustains. A whistleblower can recover a percentage of the settlement as well as treble damages and civil fines.

Immunity Under the Law

The FCA has a clause providing sovereign immunity to states or state agencies in these cases. The law is fashioned to defend the government from outside contractors, and therefore, cannot be used to punish internal fraud.

The Academy’s representatives initially argued they qualified for this exemption because they receive public funding. Last month, the North Carolina Supreme Court decided a charter school is not in fact a government agency. Without sovereign immunity, the school’s directors are liable for treble damages and civil penalties.

Representation for False Claims Act cases

Maginnis Howard is proud to represent clients in False Claims Act cases. If you believe your employer is violating the False Claims Act, please contact our firm’s consumer protection attorneys. Our results speak for themselves and our clients are our number one priority. Reach us by phone at (919) 526-0450 or send us an email through our contact page.