Outrage-laden ITT ruling tossed aside by appellate court

After federal Judge Tanya Walton Pratt two years ago dismissed a whistleblower lawsuit against Carmel-based ITT Educational Services Inc., she concluded it was so wholly lacking merit that she sanctioned the plaintiffs’ legal team—which included locally based Plews Shadley Racher & Braun—and ordered it to pay nearly $400,000.

But the outrage that seemed to leap from Pratt’s 31-page sanction order in March 2012 was entirely missing from a U.S. Court of Appeals ruling last month reversing her dismissal and the attorneys’ sanctions.

The plaintiff’s case “appears to be substantial, not frivolous,” wrote the Chicago-based panel, which included former Indianapolis federal Judge John Tinder. The panel sent the case back to Indianapolis but with the stipulation it be assigned to a new judge.
 

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.

ITT spent millions of dollars trying to beat back the lawsuit, which charged the for-profit education company with violating an agreement with the federal government that bars payments to 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 with federal student aid. The ban is 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 receive as much as 30 percent of any settlement or judgment.

‘Attorney-driven lawsuit’

In her sanction order, Pratt, a Marion County judge before joining the federal bench in 2010, concluded that Leveski “had a dearth of firsthand knowledge about the most basic allegations” contained in what she called the “opportunistic and attorney-driven lawsuit.”

She especially took umbrage with attorney Timothy Matusheski, who runs the website mississippiwhistleblower.com. He had noticed Leveski’s name while trolling public records and then hired a private investigator to recruit her as a client.

“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 system,” Pratt wrote.

“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.”

Completely different take

The appeals court panel, however, found the characterization unfair.

“Just because a party first learns that she may have a valuable legal claim from an attorney seeking her business does not mean the party’s case is bogus,” the panel wrote.

It also disagreed with Pratt’s conclusion that the same legal issues raised in the ITT case had been covered in prior litigation and that Leveski had little direct knowledge of the wrongdoing she alleged.

“Virtually all of Leveski’s evidence in support of her allegations against ITT comes from a conversation in which she was a party,” the panel said.

A staff member in Pratt’s office said the judge had no comment.

Matusheski told IBJ: “I like having the opportunity to get the appellate court to correct judges. I feel personally vindicated.”

Matusheski is no longer involved with the case, however, because Leveski fired him in early 2012, after things went south.

However, because Matusheski brought the case, he thinks he’ll be able to share in the recovery if Leveski ultimately prevails. But that battle will be waged by Plews Shadley, which joined the case in 2009, and its co-counsel, South Carolina-based Motley Rice•