Appeals Court Revives Whistle-Blower Lawsuit Against ITT Educational Services

A federal appeals court has revived a former employee’s whistle-blower lawsuit against ITT Educational Services Inc. that accused the for-profit-college company of submitting false claims to the U.S. Department of Education in order to receive student-aid money.

A federal judge in Indiana had dismissed the lawsuit, saying the court lacked jurisdiction over the case after finding that the employee’s allegations had already been disclosed publicly and that the employee was not the original source of her claims against the company. The court also granted penalties of nearly $395,000 against three law firms representing the plaintiff and one of her lawyers individually after finding her allegations to be “frivolous.”

But in a ruling on Monday, a unanimous three-judge panel of the U.S. Court of Appeals for the Seventh Circuit reversed the penalties and sent the case back to the lower court. In its ruling, the appeals court said the employee’s allegations were sufficiently distinct from prior public disclosures, and ruled that the plaintiff should be allowed to pursue her case on its merits. The court said that at least for now the penalties were inappropriate, though it added that they may be warranted if it later becomes clear that the employee made up her allegations and supporting evidence.

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