Entities that are considered an “arm of the state” are exempt from liability under the federal False Claims Act. There is a split among the Circuit courts as to whether public universities are an arm of the state for the purposes of liability under the federal False Claims Act.
In King v. University of Texas Health Science Center, the U.S. Court of Appeals for the Fifth Circuit held that the Health Science Center, a hospital in the University of Texas System, is an arm of the state, and therefore exempt from liability under the federal False Claims Act. Following the Fifth Circuit’s ruling, the whistleblower petitioned the U.S. Supreme Court to determine the standard for imposing liability on state universities (as well as their research centers and hospitals) under the civil False Claims Act.
The whistleblower in King v. University of Texas Health Science Center, Terri King, is a former associate professor at the university who alleged it committed federal Grant Fraud by covering up misconduct of a professor who received federal research grants. In his qui tam complaint, King alleged that a university professor falsified research data in the federal research grant application. Moreover, the whistleblower alleged that the University’s Health Science Center covered up the professors federal grant scam.
The U.S. District Court dismissed the whistleblower lawsuit, however, concluding that the state university hospital is an arm of the state and therefore exempt under the civil False Claims Act’s qui tam provision. The Fifth Circuit subsequently affirmed the District Court’s ruling, finding that the public University’s Health Science Center cannot be liable under the federal False Claims Act because it qualifies as an arm of the state.
The Fifth Circuit used a six factor test to determine whether an entity qualifies as an arm of the state. The six factors are: (1) whether the state statutes and caselaw characterize the agency as an arm of the state; (2) the source of funds for the entity; (3) the degree of local autonomy the entity enjoys; (4) whether the entity is concerned primarily with local, as opposed to statewide problems; (5) whether the entity has authority to sue and be sued in its own name; and (6) whether the entity has the right to hold and use property.
The Fifth Circuit’s ruling that a state university and its associated entities are “arms of the state” is significant for federal grant fraud whistleblowers. Until the U.S. Supreme Court decides to grant certiorari to set a clear standard for when a state university is considered an arm of the state, whistleblowers and their whistleblower attorneys should carefully consider where to file a federal False Claims Act lawsuit alleging federal research grant fraud against a public university or one of its related entities.
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Ross M. Wolfe and the Weiser Law Firm litigate whistleblower lawsuits on a contingent fee basis, so whistleblowers do not pay attorneys’ fees or court costs unless there is a recovery.
Please contact Ross M. Wolfe if you would like to speak with a whistleblower attorney for more information about the whistleblower process, federal grant fraud or to schedule a meeting to discuss your potential case.