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U.S. EX REL. ASCH v. TELLER

August 13, 2003

UNITED STATES OF AMERICA, EX. REL., THOMAS F. ASCH AND PEOPLE OF THE STATE OF ILLINOIS, EX. REL. THOMAS F. ASCH, PLAINTIFFS,
v.
TELLER, LEVIT & SILVERTRUST, P.C., AN ILLINOIS PROFESSIONAL CORPORATION, DEFENDANT



The opinion of the court was delivered by: Harry Leinenweber, District Judge

MEMORANDUM OPINION AND ORDER

The relator, Thomas Asch ("Asch"), filed this action on behalf of the United States and the State of Illinois against a law firm, Teller, Levit, & Silvertrust ("Teller"), alleging violation of the Federal False Claims Act, 31 U.S.C. S3729, and the Illinois Whistle blower Reward and Protection Act, 740 ILCS 175/3, through false reporting of delinquent student loan payments it had collected under contract with the Illinois Student Assistance Commission (the "ISAC"), a state agency. Since both the United States and Illinois have declined to pursue the case, Asch is permitted to maintain the case.

BACKGROUND

ISAC insures loans to lenders providing student loans to Illinois residents. If the borrower defaults on the loan, ISAC [ Page 2]

purchases it from the lender and is reimbursed by the federal government. ISAC then undertakes to collect the defaulted loan. The monies collected are divided between the federal government and ISAC. Since at least 1990, Teller has contracted with ISAC to perform collection and litigation services with respect to the delinquent loans. The contract obligates Teller to submit bi-weekly statements to ISAC detailing the money it has collected. At the time it files the statement, it is to forward to ISAC the net sum of money collected during the two-week period less its attorney fees and court costs incurred. At all relevant times Teller's fees have been 18% of the sums collected.

Asch's complaint is based on Teller's practice of not posting payments received in its office to a particular payee's delinquent account until the date Teller deposited the payment into the trust account it maintained on behalf of ISAC, which could be a Lag of several days. Since Teller had reduced to judgment many of the delinquent accounts, a delay in posting a payment would have the effect of increasing post-judgment interest on that particular account if not completely paid. Increasing post-judgment interest, Asch argues, causes the student to pay a greater amount to ISAC which in turn has the effect of fraudulently increasing Teller's fees, because they are based on a percentage of the total amount collected. Teller contends that the practice of not posting the payments on the date of receipt resulted from its need to review a [ Page 3]

check to insure that it contained no release language. It also blames clerical misjudgment and negligence for the delay. Teller also arques that, assuming payment in full by the student, ISAC would actually receive more money so it has suffered no injury. Teller also points out that it is contractually obligated to indemnify and hold ISAC harmless if any student made a claim directly against ISAC. There is no indication that any student ever did so. Asch answers that ISAC is not entitled to the extra money and should refund it because Teller's contract specifically disallows fees on overpayments.

DISCUSSION

The federal False Claims Act provides in relevant part:

(a) Liability for certain act. — Any person who —
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government;
Is liable to the United States Government for a civil penalty. . . .
31 U.S.C. § 3729. The IWRPA mirrors the federal False Claims Act language.

Teller's first argument is that there can be no violation of the Illinois Whistle blower Act because the ISAC contract provides [ Page 4]

that any payment made to Teller are exclusively federal funds. The contract*fn1 provides as follows:

C. Payments pursuant to this contract are subject to the appropriation of adequate funds by the General Assembly. It is understood that the said appropriation is of federal funds, and no state funds are involved in the payment of this paragraph. The Commission is acting as agent for the federal government in collection of federal funds.
Thus, Teller is paid out of state appropriated funds, because the state legislature must appropriate all federal funds it receives in addition to state funds raised through taxes. The Illinois Constitution does not distinguish between state and federal funds but speaks of "public funds" which must be appropriated by the legislature. Constitution of 1970, Art. 8, § 2. The State Act makes it a violation if a person "knowingly presents . . . to an employee of the State . . . a false or fraudulent claim for payment or approval." 740 ILCS 175/2(a)(1). Consequently, if Teller knowingly presented a false or fraudulent report of collection to the ISAC upon which it bases its fees and costs, it arguably would be in violation of the State Act. This is particular true in this case because, under the contract, the money collected was "the property of ISAC,' and was to be kept in an trust account for the [ Page 5]

benefit of ISAC. Teller does not suggest that the Federal Act does not apply so that this issue may therefore be somewhat academic: there is no claim that the Acts should be interpreted differently. See People, ex. rel. Levenstein v. ...


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