Government Contracts Monitor

Northwestern University Settles False Claims Act Case for Nearly $3 Million

September 4, 2013

Northwestern University (“Northwestern”) recently settled a federal False Claims Act (“FCA”) case brought by one of its former employees for nearly $3 million. See United States ex rel. Melissa Theis v. Northwestern Univ., et al., No. 09-C-1943 (N.D.Ill. July 30, 2013).

Northwestern receives significant grant funding from the National Institutes of Health (“NIH”) for research conducted by Northwestern’s medical facilities, faculty, and associated institutions. The complaint alleges that Dr. Charles Bennett, the single Principal Investigator whose actions formed the basis for the settlement, received more than $8 million federal grants from 2003 through 2009. Other institutions and persons affiliated with Northwestern are also alleged to have received millions in federal grant money during the same time frame.

In accordance with the FCA, the complaint was filed under seal and served on the United States. It alleges as follows: Melissa Theis was a purchasing coordinator employed by Northwestern to process and review invoices and travel reimbursements submitted by researchers and Principal Investigators. She noticed a number of accounting irregularities in connection with moneys drawn by Dr. Bennett and another Principal Investigator from their NIH grants, including but not limited to (a) certain allegedly unallowable travel expenses; (b) invoices for consultants and services that were never included in initial grant budgets; (c) alleged co-mingling of researcher time and a failure to allocate researcher time to particular grants. Theis raised these concerns with various internal channels. Unsatisfied with Northwestern’s response, she resigned her position with Northwestern and subsequently filed a FCA civil complaint with the North District of Illinois on March 30, 2009.

While the case remained sealed, Theis’ allegations were investigated by the U.S. Department of Health and Human Services Office of Inspector General, the Federal Bureau of Investigation, the National Institutes of Health, and the U.S. Attorney’s Office. The FCA complaint was unsealed on July 30, 2013. The same day, Northwestern and the government filed a comprehensive settlement agreement resolving the case. The statement from the U.S. Attorney’s Office explains that the “settlement covers improper claims that Dr. Bennett submitted for reimbursement from the federal grants for professional and consulting services, subcontracts, food, hotels, travel and other expenses that benefitted Dr. Bennett, his friends, and family from Jan. 1, 2003 through Aug. 31, 2010.” In particular, the U.S. Attorney’s statement notes that “Dr. Bennett allegedly billed those federal grants for family trips, meals and hotels for himself and friends, and ‘consulting fees’ for unqualified friends and family members, including his brother and cousin.”

The settlement agreement requires Northwestern to pay the government $2,930,000. From that amount, the government will pay Theis $498,100 (or approximately 17% of Northwestern’s settlement) for her role as relator. The settlement also contains the following salient provisions: (a) Northwestern agrees that all costs incurred in connection with the FCA litigation and resulting investigation are deemed “Unallowable Costs”; (b) Northwestern agrees not to charge the government for any Unallowable Costs; (c) Northwestern agrees to repay any previously billed Unallowable Costs; (d) Northwestern agrees “to cooperate fully and truthfully with the United States’ investigation of individual and entities not released” by the settlement; and (e) Northwestern waives certain defenses it may have to any future criminal prosecution or administrative action relating to the subject of the settlement.

While the government provided certain releases in connection with the settlement, the agreement specifically reserved the government’s right to, among other things, (a) pursue suspension and debarment; (b) deny payment under the grants at issue; and (c) pursue certain criminal claims against certain entities and persons.

This settlement serves as yet another reminder that research institutions and institutions of higher education need to be particularly vigilant in how they account for and bill the United States Government for grant moneys they receive. Internal audits and procedures need to be put in place to identify and correct improper billing practices early, before they can rise to the level of a multi-million dollar claim and settlement with the government. Any FCA claim involves a number of very real costs. In addition to the direct monetary impact of such claims (where the FCA requires payment of treble damages), other costs can include: (a) the costs associated with the investigation and defense of such claims; (b) the reputational and public relations costs resulting from press coverage of any settlement or judgment; and (c) the real possibility of suspension or debarment that could jeopardize an institution’s current and future ability to receive grants. Combined, such costs have the potential to pose a significant challenge to a research institution’s very existence --all because of something preventable, like a researcher paying for “family trips, meals and hotels for himself and friends, and ‘consulting fees’ for unqualified friends and family members” from federal grant money.

Michael J. Schrier is the attorney responsible for the content of this article.