Judge slaps down attorneys behind ITT fraud lawsuit

An Indianapolis federal judge has issued a stinging rebuke to a Mississippi plaintiff’s lawyer after ITT Educational Services spent millions of dollars defending itself against a fraud lawsuit the judge concluded was frivolous.

Judge Tanya Walton Pratt late last month granted ITT’s motion for attorney’s fees and sanctions against attorney Timothy Matusheski of Hattiesburg, Miss., as well as two law firms that worked with him on the case—Motley Rice LLC in Los Angeles and Plews Shadley Racher & Braun LLP in Indianapolis. While the firms received a public scolding, Pratt ordered them to collectively pay just $394,998—a fraction of the $4.7 million ITT sought.
 

Pratt

The brouhaha stems from a whistleblower lawsuit filed in 2007 by Debra Leveski, who was a recruiter for ITT’s Troy, Mich., campus from 1996 to 2002 and a financial aid administrator there from 2002 to 2006.

She charged that ITT violated an agreement with the federal government that bars payments to its recruiters or financial aid administrators based solely on securing enrollment or aid.

The same ban applies to the entire for-profit education industry, which is funded mostly by federal student aid. It’s intended to prevent industry players from unabashedly running up enrollment of unqualified students, causing huge losses to the government when borrowers default.

Leveski brought the case under the federal False Claims Act, which allows private plaintiffs to bring lawsuits on behalf of the government and in return to receive as much as 30 percent of any settlement or judgment.

But when attorneys for ITT deposed Leveski in March 2011, it became clear she had a “dearth of firsthand knowledge about the most basic allegations of this case,” Pratt said in her ruling.

According to testimony, Matusheski, who runs the website www.mississippiwhistleblower.com, became aware of Leveski after trolling public records and noticing she had filed an unrelated lawsuit against her former employer. A private investigator working for Matusheski then contacted Leveski and recruited her as a plaintiff.

Before that contact, Leveski testified that she had not believed ITT violated incentive-compensation rules. She said she changed her mind after speaking with Matusheski, conducting Internet research, and looking back at her ITT annual reviews. She also cited comments from an ITT boss who told her compensation was “a numbers game.”

Pratt, who dismissed the case in August 2011, laid into Matusheski in her order granting sanctions.

“At its core, this was an opportunistic and attorney-driven lawsuit,” Pratt wrote. “In fact, Matusheski’s tactics are far worse than the garden-variety ‘ambulance chasing’—seen in movies and read about in John Grisham novels—that gives many members of the public a negative perception of the legal profession.

“At least in those scenarios, the lawyer has some guess that the prospective plaintiff may have a viable case—he or she has, after all, suffered some harm. Here, by contrast, Matusheski plucked a prospective plaintiff out of thin air and tried to manufacture a lucrative case.”

Matusheski—whom Leveski dismissed in February—did not respond to calls or e-mails. Plews Shadley Racher & Braun, which joined the case in April 2009, said in a statement that it “respectfully disagrees” with the court’s sanction order.

Plews Shadley said it “does not litigate frivolous claims,” is appealing the dismissal and plans to appeal the sanction order. The law firm said that, for sanctions to be warranted following a dismissal, that outcome must be “staggeringly obvious.”

ITT’s attorneys—Gibson Dunn & Crutcher LLP in Los Angeles and Ice Miller LLP in Indianapolis—argued that even before Leveski’s deposition, there were abundant signs she had no hope of prevailing.

They noted that in 2009 and 2010, two other federal courts dismissed similar Matusheski-led lawsuits against competing for-profit education companies. In one case, Matusheski dodged paying attorney’s fees by issuing a public apology to the defendant.

Four days after Leveski’s shaky deposition, ITT dangled what Pratt called a “get-out-of-fail free card”—an offer not to pursue attorney’s fees and sanctions if she voluntarily dropped the case. Matusheski pressed on, and ITT rang up another $2.6 million in legal fees.

Pratt ordered the law firms to pay 15 percent of that amount. She said she didn’t enter judgment for millions of dollars partly because ITT’s attorneys could have brought the case to a speedier conclusion had they not waited more than three years to depose Leveski.

Pratt also declined ITT’s request to issue $25,000 in sanctions against Leveski, in part because the plaintiff already is in dire financial straits. But Pratt said Leveski shares blame for the legal mess.

“Agreeing to be part of this case was a highly irresponsible move on Leveski’s part,” Pratt wrote. “Her common sense simply had to tell her that ‘if something is too good to be true, it probably is.’”•