UNITED STATES OF AMERICA et al v. ITT EDUCATIONAL SERVICES, INC.

Filing 318

ENTRY ON DEFENDANT'S MOTION FOR ATTORNEY'S FEES AND SANCTIONS - ITT's Motion for Attorney's Fees and Sanctions (Dkt. 245 ) is GRANTED with respect to attorney's fees in the amount of $394,998.33, but DENIED with resp ect to sanctions against Leveski. The attorney's fee award is issued jointly and severally against Timothy J. Matusheski individually, The Law Offices of Timothy J. Matusheski, the law firm of Plews Shadley Racher & Braun, and the law firm of Motley Rice LLP. Leveski's related Motion to Strike or Disregard Declaration of ITT's counsel (Dkt. 268 ) is DENIED. The Court will issue a ruling on ITTs Bill of Costs submission (Dkt. 244 ) in due course.**SEE ENTRY**>. Signed by Judge Tanya Walton Pratt on 3/26/2012. (JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
UNITED STATES OF AMERICA,
DEBRA LEVESKI,
Plaintiffs,
v.
ITT EDUCATIONAL SERVICES, INC.,
Defendant.

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Case No. 1:07-cv-0867-TWP-MJD

ENTRY ON DEFENDANT’S MOTION FOR ATTORNEY’S FEES AND SANCTIONS
This matter comes before the Court on Defendant ITT Educational Services, Inc.’s
(“ITT”) Motion for Attorney’s Fees and Sanctions (Dkt. 245). On July 3, 2007, Plaintiff Debra
Leveski (“Leveski”) filed this lawsuit against ITT, alleging that ITT violated the False Claims
Act (“FCA”) by causing false claims to be presented to the United States for federal educational
funds arising under Title IV of the Higher Education Act (“HEA”). On April 8, 2011, the Court
ruled that it lacked subject matter jurisdiction over this dispute because the FCA’s “public
disclosure bar” applied: that is, the allegations in Leveski’s complaint were publicly disclosed
before she filed this action, and she was not the original source of those allegations. (Dkt. 241);
see 31 U.S.C. § 3730(e)(4) (effective through March 22, 2010).1
The parties viewed the Court’s ruling from different vantage points, perhaps even
different universes. Leveski responded by arguing that the Court’s ruling was so wrong that it
warranted a Motion to Amend/Correct Judgment Pursuant to Rule 59(e) (Dkt. 255). ITT,
1

Signed into law by President Obama on March 23, 2010, the Patient Protection and Affordable Care Act, Pub. L.
111-148, 124 Stat. 119, amended the language of 31 U.S.C. § 3730(e)(4), but Graham Cnty. Soil & Water
Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct. 1396 (2010) concluded that the change is not
retroactive. See 130 S. Ct. at 1400 n.1. Thus, the prior version of the statute applies to the present dispute.

1

meanwhile, viewed the Court’s ruling as an inevitable and obvious upshot of a frivolous lawsuit,
thus compelling it to file a Motion for Attorney’s Fees and Sanctions (Dkt. 245). On January 30,
2012, the Court denied Leveski’s Rule 59(e) motion (Dkt. 297), thus paving the way for the
Court to rule on ITT’s motion pertaining to attorney’s fees and sanctions. For the reasons set
forth below, ITT’s Motion for Attorney’s Fees and Sanctions (Dkt. 245) is GRANTED in the
amount of $394,998.33 against Timothy J. Matusheski individually, The Law Offices of Timothy
J. Matusheski, the law firm of Plews Shadley Racher & Braun, and the law firm of Motley Rice
LLP.
I.

BACKGROUND2

A. General Background on Education Lawsuits Under the FCA
The FCA was enacted to enhance the federal government’s ability to recover losses
sustained by fraudulent activity perpetrated against it. S. REP. NO. 99-345, at 1-2 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266, 5266-67. To effectuate this goal, the FCA “prohibits false
or fraudulent claims for payment to the United States, 31 U.S.C. § 3729(a) . . . .” Rockwell Int’l
Corp. v. United States, 549 U.S. 457, 463 (2007). Historically, the FCA’s roots can be traced
back to the Civil War; it was passed in 1863 in response to private contractors who bilked the
federal government by selling it faulty weaponry, rancid food, and old and unseaworthy ships
that were repainted and passed off as new. James W. Adams, Jr., Proof of Violation Under the
False Claims Act, 78 AM. JUR. 3d Proof of Facts 357, § 3 (2004).
Specifically, to combat fraud, the FCA imposes civil liability on a party who “knowingly
presents, or causes to be presented, a false or fraudulent claim for payment or approval” or

2

Parts of the background section should look familiar to the parties. In drafting this section, the Court borrowed
heavily from the background section of its order on Leveski’s Rule 59(e) motion (Dkt. 297).

2

“knowingly makes, uses, or causes to be made or used, a false record or statement material to a
false or fraudulent claim” paid by the government. 31 U.S.C. § 3729(a)(1) and (2). From an
administrative standpoint, it would be impossible for the government alone to unmask and
prosecute all potential FCA violations. See S. REP. NO. 99-345, at 2 (1986), reprinted in 1986
U.S.C.C.A.N. at 5267 (“Fraud permeates generally all Government programs ranging from
welfare and food stamp benefits, to multibillion dollar defense procurements, to crop subsidies
and disaster relief programs.”). Accordingly, the statute provides a qui tam enforcement
mechanism, which allows a private party (i.e. a relator) to bring a lawsuit on behalf of the
government and against an entity placing fraudulent claims for payment. See 31. U.S.C. §
3730(b).
The statute incentivizes whistleblowing by allowing relators to keep a share of the
proceeds from any judgment or settlement in their cases, as much as 30 percent of the total to
which the United States is entitled. See 31 U.S.C. § 3730(d)(1) and (2). By offering “private
relators bonanzas for valuable information,” United States ex rel. Chovanec v. Apria Healthcare
Group, 606 F.3d 361, 364 (7th Cir. 2010), Congress ensured robust enforcement of the FCA’s
goal of rooting out fraud committed against the government. Predictably, however, the promise
of such bonanzas can also animate individuals with not-so-valuable information to file qui tam
suits. To minimize baseless suits, Congress has implemented various hurdles “designed to
separate the opportunistic relator from the relator who has genuine, useful information that the
government lacks.” In re Natural Gas Royalties Qui Tam Litig., 566 F.3d 956, 961 (10th Cir.
2009). These “wheat from the chaff” measures—in particular, the “public disclosure bar”—are
discussed in more detail later in this section.

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Over the years, numerous FCA claims have been brought in the context of higher
education. Due to Eleventh Amendment sovereign immunity, state colleges and universities are
immune from qui tam liability under the FCA. See Vt. Agency of Nat. Res. v. United States ex rel.
Stevens, 529 U.S. 765, 787-88 (2000) (FCA “does not subject a State (or state agency) to liability
in such actions.”). Moreover, at least one federal court has extended this immunity to community
colleges, which are “most often hybrids of state and local entities.” United States ex rel. Diop v.
Wayne County Comm. Coll. Dist., 242 F. Supp. 2d 497, 526-28 (E.D. Mich. 2003). However,
private educational institutions—both for-profit and not-for-profit—do not enjoy this immunity,
thus making them susceptible to qui tam lawsuits.
For-profit institutions, in particular, have been on the receiving end of numerous qui tam
suits. This is understandable, given that for-profits possess unique characteristics that arguably
divorce their productivity from their incentives, potentially encouraging behavior that runs afoul
of the HEA. As one commentator has noted, for-profits tend to “cater to the very students that
public and private nonprofit institutions often determine are unqualified to attend their
institutions, and for-profits are also generally removed from pressures such as institutional
rankings.” Gayland O. Heathcoat II, For-Profits Under Fire: The False Claims Act as a
Regulatory Check on the For-Profit Education Sector, 24 LOY. CONSUMER L. REV. 1, 18 (2011)
(discussing how not-for-profit private educational institutions do not have the same perverse
incentives as their for-profit counterparts).
Indeed, the available data paints an unflattering picture of the for-profit educational
sector’s performance. The Department of Education’s statistics show that although students at
for-profits represent only 11 percent of all higher-education students, they represent 26 percent
of loan borrowers and 43 percent of loan defaulters. Id. at 4 (citing Press Release, U.S. Dep’t of

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Educ., Department of Education Establishes New Student Aid Rules to Protect Borrowers and
Taxpayers (Oct. 28, 2010), available at http://www.ed.gov/news/press-releases/departmenteducation-establishes-new-student-aid-rules-protect-borrowers-and-tax.)). Taxpayers have every
reason to view these default rates as troubling, given that more than 25 percent of for-profits
derive 80 percent of their revenues from taxpayer-funded federal financial aid. Id. (citation
omitted). These figures have compelled many to argue that the for-profit education sector is in
dire need of an injection of accountability. See id. at 4-5; see also Editorial, An Industry in Need
of Accountability, N.Y. TIMES, Aug. 15, 2011, http://www.nytimes.com/2011/08/16/opinion/anindustry-in-need-of-accountability.html.
The allegations in these FCA lawsuits involving for-profit institutions are often cut from
a similar cloth. Before turning to the nature of these allegations, some brief background is
instructive. Various forms of federal financial aid are authorized by Title IV of the HEA. See id.
at 10 (citing Higher Education Act of 1965, Pub. L. No. 89-329, 79 Stat. 1219 (codified as
amended in scattered sections of 20 U.S.C.)). In order to be eligible to receive Title IV funding,
an educational institution must meet certain requirements and sign a “Program Participation
Agreement” (“PPA”) with the Secretary of Education. By signing the PPA, the institution makes
certain promises and certifications to the federal government. 34 C.F.R. § 668.14.
Often, FCA lawsuits involving a for-profit institution allege that the institution has
defrauded the government by signing a PPA containing falsities. In FCA parlance, this is known
as a “false certification theory,” which provides that a claim “can be false where a party merely
falsely certifies compliance with a statute or regulation as a condition to government payment.”
United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1171 (9th Cir. 2006).
Specifically, under the terms of the PPA, educational institutions are barred from “provid[ing]

5

any commission, bonus, or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any persons or entities engaged in any student recruiting
or admission activities or in making decisions regarding the award of student financial assistance
. . . .” 20 U.S.C. 1094(a)(20) (emphasis added) (“the incentive compensation provision”).
Therefore, if an institution pays student recruiters or financial aid administrators based
solely on securing enrollment or financial aid (i.e. on a contingency basis “paid by the head”),
United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir. 2005), then it is
breaching the promise it made in the PPA to comply with the incentive compensation provision.
See id. at 917 (“To prevail in this suit [plaintiff] must establish that the University not only knew
. . . that contingent fees to recruiters are forbidden, but also planned to continue paying those fees
while keeping the Department of Education in the dark.”). The overarching concern is that
educational entities—motivated by profit rather than rankings or other industry benchmarks—
have every incentive to maximize enrollment by recruiting unqualified students who will not be
able to repay their loans, and the financial consequences of these defaults will trickle down to the
detriment of the federal government and its taxpayers. See id.
B. Leveski’s Lawsuit against ITT
The present lawsuit tracked this general framework. ITT is a publicly-traded corporation
that focuses on technology-oriented programs of study and participates in the federal student
financial assistance program. Leveski worked on ITT’s Troy, Michigan campus for nearly 11
years. From January 8, 1996 to April 15, 2002, Leveski worked as a student recruiter. Then, from
April 15, 2002 to November 3, 2006, she worked as a financial aid administrator. Leveski never
worked at ITT’s headquarters, was never an ITT manager, and never evaluated ITT employees.
In 2005, Leveski brought an unrelated employment suit against ITT. The suit settled and Leveski

6

departed ITT in November 2006. During her employment, Leveski never complained that ITT
was in violation of the FCA because of its compensation practices.
In May 2007, a private investigator working for attorney Timothy Matusheski sent
Leveski a letter explaining that Matusheski would like to speak with her. Based on his review of
public records, Matusheski knew that Leveski was an ex-ITT employee who had filed a lawsuit
against her former employer. For Matusheski, this was not an isolated incident. To the contrary,
Matusheski (whose website domain is www.mississippiwhistleblower.com (last visited March
15, 2012)) advertises for clients who “work or worked in the financial aid or recruitment
department for an institution of higher education” and has a history of seeking out ex-employees
of for-profit educational institutions in hopes of finding an appropriate qui tam plaintiff.
Actually, it is unclear if Matusheski cares whether the prospective plaintiff is appropriate in the
sense that he or she has valuable information. From what the Court can gather, Matusheski’s
view is that virtually any ex-employee will do for purposes of manufacturing an FCA lawsuit.
See Schultz v. DeVry, Inc., 2009 WL 562286, at *1 (N.D. Ill. Mar. 4, 2009) (“Schultz did not
contemplate bringing a False Claims Act lawsuit against DeVry until attorney Timothy
Matusheski telephoned her in May or June 2007.”); United States ex rel. Lopez v. Strayer Educ.,
Inc., 698 F. Supp. 2d 633, 644 (E.D. Va. 2010) (“In the Court’s judgment, Mr. Matusheski
actually derived these allegations from a public disclosure.”); United States ex rel. Jones v.
Collegiate Funding Servs., Inc., 2011 WL 129842, at *10 (E.D. Va. Jan. 12, 2011) (discussing
“Mr. Matusheski’s history of recruiting employees who previously filed employment-related
lawsuits against lenders and colleges to serve as qui tam relators in actions based on prior public
disclosures”); United States ex rel. Batiste v. SLM Corp., 740 F. Supp. 2d 98, 105 (D.D.C. 2010)

7

(dismissing Matusheski case involving alleged false certification to the Department of
Education).
After Leveski returned the private investigators telephone call and left a voicemail, she
received a call directly from Matusheski. Prior to her conversations with Matusheski, Leveski
did not believe that ITT was in violation of the incentive compensation provision; nor had she
ever contemplated bringing an FCA lawsuit against ITT. (Leveski Dep. 244:14-18; 292:21-24).
Apparently, though, the enlightening conversation with Matusheski altered Leveski’s outlook,
and she began researching the possibility of a qui tam action under the FCA. Specifically,
Leveski conducted internet research on Title IV funding and reviewed other qui tam lawsuits
filed against ITT. From there, Leveski came to believe that ITT had violated the incentive
compensation provision as it applies to student recruiters and financial aid administrators.
(Leveski Dep. 293:2-17).
Armed with a newfound perspective on FCA claims, Leveski filed this lawsuit under seal
on July 3, 2007, alleging that ITT violated the FCA by falsely certifying in its PPA that it was
complying with the incentive compensation provision. The Department of Justice declined to
intervene in the lawsuit (Dkt. 23), leaving Leveski and her counsel to pursue it in the name of the
government. See 31 U.S.C. § 3730(b)(4). As discussed above, Leveski’s “false certification”
claim was not uncharted territory. See, e.g., Main, 426 F.3d 914. In fact, years earlier, ITT was
the target of a lawsuit based on similar allegations. See United States ex rel. Graves v. ITT Educ.
Servs., Inc., 284 F. Supp. 2d 487 (S.D. Tex. 2003), affirmed 111 Fed. Appx. 296 (5th Cir. 2004).
Importantly, Leveski reviewed Graves prior to bringing her suit.

8

C. The District Courts’ Decisions in Shultz and Lopez
While Leveski pursued this lawsuit against ITT, two district courts issued opinions
dismissing very similar Matusheski-led cases against for-profit educational institutions. See
Schultz, 2009 WL 562286; Lopez, 698 F. Supp. 2d 633. A prominent theme of ITT’s present
motion is that, in the wake of these rulings, Leveski’s counsel should have immediately
recognized that her claim was destined to fail and voluntarily dismissed this case.
Specifically, on March 4, 2009, Judge Conlon of the Northern District of Illinois granted
the defendant’s motion to dismiss in Schultz. Since that date, ITT has incurred $4,700,051.75 in
total fees in this case. (Dkt. 246-1). A year later, on March 18, 2010, Judge O’Grady of the
Eastern District of Virginia granted a motion to dismiss in another Matusheski case. See Lopez,
698 F. Supp. 2d 633. On May 4, 2010, with the specter of attorney’s fees hanging over his head
(Dkt. 246-6), Matusheski—in consultation with his client, who was fearful of the potentially
devastating financial impact of an attorney’s fees award (Dkt. 270-2)—apologized to the court,
the Department of Justice, and the Defendant. The apology read as follows:
Counsel for Magdalis Lopez accepts the decision and findings of
the Court in Lopez v. Strayer Education, Inc. . . . . Mr. Timothy
Matusheski and The Law Offices of Timothy J. Matusheski, PLLC
apologize for the harm to Strayer University and regret the expense
and effort incurred by the United States Department of Justice and
the Court because of this litigation.
(Dkt. 246-7). After the apology, the defendant withdrew the motion for attorney’s fees. Since the
date of the apology, ITT has incurred $4,559,674.25 in total fees in this case. (Dkt. 246-1).
Undeterred by this course of events, Matusheski and local counsel pressed on with the present
lawsuit.
D. Discovery
The parties conducted extensive discovery in this case. On September 1, 2010 and
9

February 8, 2011, Leveski served on ITT broad discovery requests for production of
documents—pertaining to all of ITT’s 130 campuses, not just the Troy, Michigan campus where
Leveski worked. Ultimately, a meet and confer led to a resolution: “ITT agreed to provide
certain information in exchange for Leveski’s agreement not to seek nationwide discovery.”
(Dkt. 246 at 13).
After years of hard-fought litigation,3 ITT took Leveski’s deposition on March 2 and 3,
2011. During the deposition, numerous significant facts came to light, including:
●

Leveski had no intention of bringing an FCA lawsuit before Matusheski
and his private investigator contacted her. (Leveski Dep. 244:14-18).

●

Leveski was unable to identify where ITT had promised to comply with
the HEA. For instance, Leveski initially testified that, during her time of
employment with ITT, she never once saw a PPA. (During the next day of
her deposition, she clarified that she did not recall whether she saw a PPA
while employed with ITT.) Nor did she know which ITT department
handled PPAs. (Leveski Dep: 224:22-24; 270:3-21; 271:8-13).

●

Tellingly, Leveski admitted that her “factual basis for contending that ITT
promises to comply with Title IV” came from Matusheski and public
materials. For instance, prior to speaking with Matusheski, she had never
read Title IV of the HEA. (Leveski Dep: 289:5-21; 467:18-468:4).

●

Leveski testified that the “basis” for her view that ITT was in breach of the
incentive compensation provision as it applies to student recruiters came
from “talking to [Matusheski] and reading up on the [HEA] and
information from the Department of Education.” As for the basis for her
view that ITT was in breach of the provision as it applies to financial aid
administrators, Leveski testified that her “[b]asis was my conversations
with [Matusheski], reviewing my annual reviews and looking at
information on the HEA Act and on sites from the Department of
Education.” (Leveski Dep. 388:7-16; 389:5-19).

Based on these revelations (which ITT considered fatal to Leveski’s case), ITT issued
Leveski an ultimatum in a letter dated March 7, 2011: voluntarily dismiss the suit or ITT will
“seek to recover its fees and expenses from Ms. Leveski, the bankruptcy trustee, and her counsel
3

Notably, Leveski survived a motion to dismiss (Dkt. 92) before succumbing to ITT’s 12(b)(1) motion based on
lack of subject matter jurisdiction.

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. . . that has continued to pursue this case with clear knowledge that Ms. Leveski lacks
standing[.]” On this point, ITT emphasized that it had incurred significant expenses in defending
this matter to date and that it would continue to do so until it prevailed or Leveski dropped her
lawsuit, adding that “it is unreasonable and vexatious for Ms. Leveski and her counsel to
continue with this frivolous lawsuit in light of Ms. Leveski’s clear testimony regarding Mr.
Matusheski’s role in recruiting her and informing her of the bases of her lawsuit . . . .” (Dkt. 2463). Despite another warning, Leveski forged ahead with the lawsuit.
On March 17, 2011, as discussed in detail below, ITT filed a motion to dismiss under
Fed. R. Civ. P. 12(b)(1). Months later, the Court found this motion to be dispositive. But, in the
meantime, counsel for Leveski litigated the case aggressively, filing various motions and pushing
for additional discovery. Specifically, between the time ITT filed its Rule 12(b)(1) Motion to
Dismiss and the Court’s entry granting that motion, Leveski filed the following opposed motions
(in addition to several unopposed motions): (1) Motion for Continuance of MSJ Briefing (Dkt.
178); (2) Motion to Strike ITT’s Advice of Counsel Defense or Order Additional Discovery
(Dkt. 179); (3) Motion to Compel Production of Evaluation and Compensation Charts (Dkt.
201); and (4) Appeal of Magistrate Judge Dinsmore’s July 6, 2011 Ruling on Motion to Strike
Advice of Counsel Defense (Dkt. 215). From March 7, 2011 (the date of the initial letter asking
Leveski to drop her lawsuit) through August 8, 2011 (the day the Court granted Leveski’s
12(b)(1) motion), ITT incurred $2,633,322.25 in total fees in this case. (Dkt. 246-1).
E. ITT’s Motion to Dismiss
On March 17, 2011, ITT filed a 12(b)(1) motion to dismiss, arguing that this Court lacks
subject matter jurisdiction “because the claims alleged in Leveski’s complaint were publicly
disclosed before she filed this action and Leveski—as confirmed in her recent deposition—is not

11

the original source of those allegations.” (Dkt. 143 at 6). To bolster this argument, ITT
highlighted the numerous deposition excerpts, cited above, that displayed Levenski’s dearth of
firsthand knowledge about the most basic allegations of this case.
Indeed, it is worth emphasizing that not just any aspiring litigant can come out of the
woodwork to bring a qui tam action under the FCA. By amending the FCA in 1986 to include a
“public disclosure bar,” Congress sought to balance two competing goals: (1) rewarding genuine
whistleblowers who possess useful information, (2) without unjustly rewarding parasitic
plaintiffs. See Tipton F. McCubbins, Tara I. Fitzgerald, As False Claims Penalties Mount,
Defendants Scramble for Answers Qui Tam Liability, 31 U.S.C. § 3729 et seq., 62 BUS. LAW.
103, 125 (2006); Graham Cnty., 130 S. Ct. at 1409 (describing the jurisdictional bar as
“[s]eeking the golden mean between adequate incentives for whistle-blowing insiders with
genuinely valuable information and discouragement of opportunistic plaintiffs who have no
significant information to contribute on their own”) (citation and internal quotations omitted).
The first goal ensures that fraud will be uncovered and corruption will be combated; the second
prevents unworthy plaintiffs from reaping a windfall by merely parroting secondhand allegations
that already reside within the public domain.
In effect, the “public disclosure bar . . . deprives courts of jurisdiction over qui tam suits
when the relevant information has already entered the public domain through certain channels,”
unless the relator is the original source of the information. Graham Cnty., 130 S. Ct. at 1401. The
statutory basis of the public disclosure bar provides as follows:
(A) No court shall have jurisdiction over an action under this
section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing, in a
congressional, administrative, or Government Accounting
Office report, hearing, audit, or investigation, or from the news

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media, unless the action is brought by the Attorney General or
the person bringing the action is an original source of the
information.
(B) For purposes of this paragraph, “original source” means an
individual who has direct and independent knowledge of the
information on which the allegations are based and has voluntarily
provided the information to the Government before filing an action
under this section which is based on the information.
31 U.S.C. § 3730(e)(4) (effective through March 22, 2010; emphasis added).4
To determine whether it has subject matter jurisdiction to hear a qui tam suit under 31
U.S.C. § 3730(e)(4), a court must undertake a three-step inquiry. Glaser v. Wound Care
Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009). “First, it examines whether the relator’s
allegations have been ‘publicly disclosed.’” Id. “If so, it next asks whether lawsuit is ‘based
upon’ those publicly disclosed allegations.” Id. “If it is, the court determines whether the relator
is an ‘original source’ of the information upon which his lawsuit is based.” Id. If the relator is not
an original source, the public disclosure bar applies. In its motion to dismiss, ITT argued that the
public disclosure bar defeated Leveski’s claim. Leveski, of course, vehemently disagreed.
F. The Court’s Entries (1) Granting ITT’s Motion to Dismiss, and (2) Denying
Leveski’s Rule 59(e) Motion
On August 8, 2011, the Court granted ITT’s Motion to Dismiss (Dkt. 241), ruling that it
lacked subject matter jurisdiction over this present action. See United States ex rel. Leveski v. ITT
Educ. Servs., Inc., 2011 WL 3471071 (S.D. Ind. Aug. 8, 2011). In doing so, the Court applied the
three-prong framework outlined in Glaser. With relative ease, the Court found that the present
lawsuit was based upon a public disclosure—specifically, the filing of the Graves lawsuit. (Dkt.
241 at 6-7). From there, the Court turned to the more exacting “original source” analysis.

4

For the reason described in footnote 1 above, this is the prior version of the statute. See Graham Cnty., 130 S. Ct.
at 1400 n.1.

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The Court briefly wrestled with this issue. On one hand, Leveski had no inkling that ITT
was allegedly violating the FCA until she reviewed documents in the public domain after being
approached by a private investigator. On the other hand, Leveski contended that although she
was not on the ground-level of the allegedly nefarious compensation scheme, she still had “direct
and independent knowledge of the information underlying the incentive compensation provision
violation.” (Dkt. 241 at 8). In other words, during her 11 years of employment with ITT, Leveski
allegedly learned a paramount fact: her boss told her that compensation was “a numbers game,”
which Leveski inferred to mean that her “compensation was based solely on enrollments.”
(Leveski Dep. 333:14-24). In the end, the Court, relying on nearly on-point authority (i.e. the
Schultz case), found that “[b]ecause Leveski is not a true whistleblower who gained direct and
independent knowledge of the fraud she has alleged while employed at ITT, she does not fall
within the original source exception.” (Dkt. 241 at 12). Accordingly, the Court granted ITT’s
12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction (Dkt. 255).
In lieu of appealing the Court’s ruling, Leveski responded by filing a Rule 59(e) motion,
asking the Court to reconsider and reverse its ruling on ITT’s 12(b)(1) Motion to Dismiss (Dkt.
255). Leveski’s motion contended that the Court committed two fundamental errors when it
granted ITT’s motion. First, the Court ignored the allegedly profound differences between this
case and Graves. Second, the Court did not apply binding Seventh Circuit precedent, specifically
United States ex rel. Baltazar v. Warden, 635 F.3d 866 (7th Cir. 2011), which set out a “notice of
fraud standard” that applies “to the public disclosure issue.” (See Dkt. 267 at 16-17).
As an initial matter, the Court noted that Leveski’s motion was little more than a “second
bite at the apple.” Not only did it make new arguments, it also took old arguments and
repackaged them in a different form. The Court recognized that it would have been within its

14

discretion to deny Leveski’s motion summarily. See Caisse Nationale de Credit Agricole v. CBI
Indus., Inc., 90 F.3d 1264, 1270 (7th Cir. 1996) (a motion for reconsideration is “not an
appropriate forum for rehashing previously rejected arguments or arguing matters that could
have been heard during the pendency of the previous motion”) (citations omitted).
But, for the sake of thoroughness, this Court addressed Leveski’s arguments in detail.
First, the Court found that the present allegations were based upon the public disclosure that
occurred with the filing of Graves because the allegations in the two cases are substantially
similar. Therefore, “the allegations at the heart of [Leveski’s] lawsuit were publicly disclosed by
the time her complaint was filed,” and Graves was more than adequate to put the United States
on notice of the likelihood that fraudulent activity may “be afoot” at ITT. See Glaser, 570 F.3d at
914. In other words, although the lawsuits involved cosmetically different pay schemes, they
were both based upon the same exact fraudulent conduct: the unlawful payment of incentive
compensation by ITT to its employees in violation of the incentive compensation provision,
which had the effect of breaching the PPA and defrauding the government. As a final part of its
Graves analysis, the Court clarified why the 2002 promulgation of the “safe harbor” provision—
a feature of this case that was not present in Graves—is is not a game-changer for purposes of
the public disclosure bar. See 34 C.F.R. § 668.14(b)(22)(ii)(A) (permitting certain salary
adjustments “not based solely on the number of students recruited, admitted, enrolled, or
awarded financial aid”).5
Second, the Court described the Seventh Circuit’s Baltazar decision in detail, finding that
Leveski had, to put it charitably, overstated its impact. Specifically, Baltazar dealt with whether

5

A new version of this regulation became effective on July 1, 2011. The new version eliminates much of the cited
language and bars incentive payments “based in any part, directly or indirectly, upon success in securing
enrollments or the award of financial aid . . . .”

15

government reports that chronicled the pervasiveness of fraud in a given industry—“without
attributing fraud to particular firms”—were adequate to put the government on notice that a
particular entity was committing a particular fraud. See 635 F.3d at 868. Ultimately, the Seventh
Circuit found that such government reports were inadequate. Id. Here, by contrast, Graves
provided information that ITT (a particular entity) allegedly committed fraud by violating the
incentive compensation provision (a particular fraud), thus breaching promises made to the
government in the PPA. For these reasons, the Court denied Leveski’s Rule 59(e) motion. See
Leveski, 2012 WL 266943 (S.D. Ind. Jan. 30, 2012). Additional facts are added below as needed.

II.

DISCUSSION

Two weeks after the Court dismissed this matter, ITT responded by filing a Motion for
Attorney’s Fees and Sanctions (Dkt. 245). This motion seeks (1) an award of attorney’s fees and
sanctions totaling $4,700,051.75 to be paid jointly and severally by the various attorneys and
firms representing Leveski; and (2) an award of sanctions against Leveski in the amount of
$25,000.00. Not surprisingly, Leveski vigorously opposes this motion, with opposition briefing
totaling roughly 75 pages.6
A. Legal Standards
The crux of ITT’s motion is that Leveski’s qui tam suit was obviously improper and
never should have been filed, thus warranting attorney’s fees and sanctions. As an initial matter,
although this Court has found that it lacks subject matter jurisdiction over Leveski’s qui tam
action, the Court still has jurisdiction to consider ITT’s motion for sanctions. See Wojan v.
General Motors Corp., 851 F.2d 969, 972 (7th Cir. 1988) (“[P]arties to a suit are not shielded
6

Each of the three firms involved wrote a separate response brief. (Dkt. 270, 272, and 273).

16

from Rule 11 sanctions simply because the court lacks subject matter jurisdiction over the
underlying case.”).
ITT cites four grounds for an award of attorney’s fees and sanctions: (1) 31 U.S.C. §
3730(d)(4), (2) Fed. R. Civ. P. 11, (3) 28 U.S.C. § 1927, and (4) Fed. R. Civ. P. 54(d)(2). All
four grounds set out unique standards and are directed to different actors in the litigation process.
First, § 3730(d)(4) provides for an award of attorney’s fees to a prevailing defendant in a qui tam
action as follows:
If the Government does not proceed with the action and the
[relator] conducts the action, the court may award to the defendant
its reasonable attorneys’ fees and expenses if the defendant
prevails in the action and the court finds that the claim … was
clearly frivolous, clearly vexatious, or brought primarily for
purposes of harassment.
31 U.S.C. § 3730(d)(4) (emphasis added). The only available on-point authority suggests that
this statute allows the Court to sanction a party, but not an attorney or a law firm. See Pfingston
v. Ronan Engineering Co., 284 F.3d 999, 1006 (9th Cir. 2002). Neither the parties nor the court
were able to locate Seventh Circuit authority addressing this issue.
Next, Rule 11(b) provides, in relevant part, as follows:
By presenting to the court a pleading, written motion, or other
paper … an attorney … certifies that to the best of the person’s
knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances:
(1) it is not being presented for any improper purpose,
such as to harass, cause unnecessary delay, or needlessly
increase the cost of litigation; [and]
(2) the claims, defenses, and other legal contentions are
warranted by existing law or by a nonfrivolous argument
for extending, modifying, or reversing existing law or for
establishing new law.

17

Fed. R. Civ. P. 11(b) (emphasis added). Rule 11 allows the Court to sanction “any attorney, law
firm, or party that violated the rule or is responsible for the violation.” Fed. R. Civ. P. 11(c)(1).
Under 28 U.S.C. § 1927, the Court has authority to order Leveski’s counsel to satisfy the award
personally, providing as follows:
Any attorney or other person admitted to conduct cases in any
court of the United States or any Territory thereof who so
multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorneys’ fees reasonably
incurred because of such conduct.
28 U.S.C. § 1927 (emphasis added). This statute allows the Court to sanction an attorney but not
a party or a law firm. Claiborne v. Wisdom, 414 F.3d 715, 723-24 (7th Cir. 2005). Section 1927’s
principal purpose is “the deterrence of intentional and unnecessary delay in the proceedings.”
Beatrice Foods Co. v. New England Printing & Lithographing Co., 899 F.2d 1171, 1177 (Fed.
Cir. 1990). Given its punitive nature, however, “28 U.S.C. § 1927 has been strictly construed.”
Badillo v. Central Steel & Wire Co., 717 F.2d 1160, 1166 (7th Cir. 1983). Finally, Rule 54(d)(2)
merely provides that “[a] claim for attorney’s fees . . . must be made by motion unless the
substantive law requires those fees to be proved at trial as an element of damages.” Fed. R. Civ.
P. 54(d)(2).
In support of its request for attorney’s fees, ITT points to numerous significant events in
the case and then argues that it is entitled to all fees incurred from those points until the dismissal
of the case. The following chart represents the various fee requests presented by ITT’s motion:
Date

Event

Fees Incurred until dismissal
on August 8, 2011

March 4, 2009

District judge grants
defendant’s 12(b)(1) motion in
Schultz

$4,700,051.75

18

May 4, 2010

March 7, 2011

May 27, 2011

Matusheski and local counsel
apologize after district judge
grants 12(b)(1) motion in
Lopez
After Leveski’s deposition,
ITT demands that she
voluntarily dismiss or it will
seek fees/sanctions
New firm joins representation
of Leveski

$4,559,674.25

$2,633,322.25

$758,204.00

In addition to deterring and punishing Leveski’s attorneys, ITT argues that Leveski herself
should have some skin in the game because “she was aware that she knew absolutely nothing
about illegal conduct at ITT,” yet she agreed to be part of this expensive litigation. (Dkt. 246 at
27). For her complicity on this frivolous lawsuit, ITT seeks $25,000.00 as a sanction.
B. Is an Award of Attorney’s Fees Appropriate?
ITT argues that, during the course of this litigation, it became obvious that Leveski’s
lawsuit was destined to fail. Without belaboring the point, the Court finds that the present lawsuit
is both frivolous and brought for an improper purpose within the meaning of Rule 11.
Frivolous is defined as “[l]acking a legal basis or legal merit; not serious; not reasonably
purposeful.” BLACK’S LAW DICTIONARY 303 (3d. pocket ed. 2006). Leveski only has three
colorable arguments why this lawsuit is not frivolous. First, this case is so different from Graves
that Graves does not constitute a public disclosure. To the contrary, despite the cosmetically
different pay schemes at issue, these cases, for all practical purposes, share uncanny
resemblances. Both cases alleged that ITT had unlawfully paid incentive compensation to certain
employees, thus breaching the PPA and defrauding the government. These allegations are
obviously more than adequate to put the government on notice that ITT was allegedly involved
in a fraudulent scheme.
19

Second, Leveski argues that, despite her dearth of firsthand knowledge about some
aspects of her lawsuits, she was in fact an original source based on her belief that she was paid
exclusively “by the numbers.” In other words, Leveski knew the relevant underlying facts, even
if she had no clue about the legal import of those facts. To bolster her claim that she qualifies as
an original source, Leveski relies on two Seventh Circuit cases. See United States ex rel. Lusby v.
Rolls Royce Corp., 570 F.3d 849, 853-54 (7th Cir. 2009) (rejecting argument in context of Rule
9(b) that plaintiff cannot satisfy the particularity requirement because he did not have RollsRoyce’s billing materials; “[w]e don’t think it essential for a relator to provide the invoices (and
accompanying representations) at the outset of the suit”); United States ex rel. Lamers v. City of
Green Bay, 168 F.3d 1013, 1017-18 (7th Cir. 1999) (ruling that the public disclosure bar did not
apply to relator because he had independent knowledge of city’s non-compliance with
regulations through his own observations of city bus operations; “[t]here is no question that
Lamers had ‘direct’ knowledge of the way GBT was implementing its tripper service.”). These
cases are easily distinguishable. In both Lusby and Lamers, the relators independently knew that
an entity might be violating the FCA, even if they lacked substantiating documentation. Here, by
contrast, Leveski had no idea that ITT may have violated the FCA or that she may have had a
plausible lawsuit against her former employer until she was approached and “educated” by Mr.
Matusheski. Common sense suggests that Leveski is worlds apart from the type of genuine
whistleblower contemplated by the FCA.
Third, and finally, Plaintiff’s counsel argue that this action can’t be frivolous because
Leveski survived a Rule 12(b)(6) motion to dismiss and, more broadly, ITT spent a lot of money
defending this action. If this case was so frivolous, they posit, then why did it take ITT so much
time and so many resources to have it dismissed? This argument may have some teeth under

20

some circumstances, but not in all cases. As the Seventh Circuit acknowledged in In re TCI Ltd.,
769 F.2d 441 (7th Cir. 1985), “[s]ome frivolous cases impose large costs on defendants when
they require counsel to wade through voluminous records or review many cases.” Id. at 448. That
is the case here, where Leveski’s lack of firsthand knowledge could not be demonstrated until
she was deposed. In other words, ITT was required to do some digging before ferreting out the
frivolousness of this case.7
Specifically, Plaintiff’s counsel asked the Court to adopt a bright-line rule: “substantial
fees preclude a finding that the action is frivolous.” (Dkt. 270 at 16). This argument is absurd on
its face. An example easily illustrates this point. A lawyer could easily dream up a very specific
and coherent story of a worldwide price-fixing conspiracy among top players in a huge industry
and file an antitrust lawsuit. In doing so, the lawyer could fabricate specific players, dates, times,
meetings, thus allowing him to survive a motion to dismiss. From there, the charlatan plaintiff
would be entitled to extensive discovery, forcing the defendants to expend tens of millions of
dollars. By Leveski’s counsel’s reasoning, this action—which was based on a completely false
story—would not be frivolous because it was expensive to defend and the plaintiff survived a
motion to dismiss. As ITT notes, “[a] detailed complaint filled with outright fabrications very
well might survive multiple motions to dismiss because a court must take the plaintiff’s
allegations as true when a deciding a Rule 12(b)(6) motion. But that surely does not mean that
Rule 11 or other sanctions would not eventually be available after these allegations are later

7

In some instances, Congress has created a filter to prevent innocent defendants from getting stuck between a rock
and a hard place: either incur stratospheric discovery costs or settle a lawsuit that might lack merit. That is why, for
instance, the Private Securities Litigation Reform Act of 1995 (“PSLRA”) contains an automatic stay of discovery
pending the resolution of motions to dismiss. See Seippel v. Sidley, Austin, Brown & Wood LLP, 2005 WL 388561,
at *3 (S.D.N.Y. Feb. 17, 2005) (“The PSLRA stay is intended to prevent defendants from being forced to bear the
expense of discovery until after a court has assessed the sufficiency of the complaint.”). As this case illustrates,
similar concerns can be found in the realm of the FCA. However, no similar automatic stay exists in these cases.

21

proven false . . . .” (Dkt. 278 at 18). In short, the Court finds that this lawsuit is frivolous for
purposes of Rule 11.
Having determined that this lawsuit is frivolous, the Court easily finds that it was brought
for an improper purpose—presumably, to extract a large settlement from ITT, which would
otherwise be forced to incur massive legal fees. On this point, the Court simply cannot ignore
the genesis of this lawsuit. Matusheski brought this lawsuit after trolling public dockets and
using a private investigator to cold-call ex-employees of for-profit educational institutions who
had sued their former employer. This is as unethical as it is unseemly. Specifically, Model Rule
of Professional Conduct 7.3 prohibits lawyers from soliciting “professional employment from a
prospective client when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary
gain.” At its core, this was an opportunistic and attorney-driven lawsuit.
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. And, given Matusheski’s extensive track record (which includes
an apology to a federal court in a very similar case), the Court is persuaded that some type of
monetary penalty is necessary to deter Matusheski and those attorneys who assist in his schemes
from engaging in this type of conduct going forward. (Obviously, a public shaming is
inadequate.) In the Court’s view, Matusheski’s conduct is precisely the type of abusive behavior
that Rule 11 contemplates.

22

It is true, of course, that Rule 11 sanctions are “to be imposed sparingly, as they can have
significant impact beyond the merits of the individual case and can affect the reputation and
creativity of counsel.” Hartmax Corp. v. Abboud, 326 F.3d 862, 867 (7th Cir. 2003) (citation and
internal quotations omitted). However, if this order has a negative effect on Matusheski’s
reputation, then that is a problem his own making. And, in the Court’s view, something needs to
be done to curtail—not encourage—Mr. Matusheski’s “creativity.”
C. What Amount is Appropriate?
As mentioned, ITT has given the Court three dates that potential trigger the award of
attorney’s fees: (1) March 4, 2009 (the date the district judge granted defendant’s 12(b)(1)
motion in Schultz); (2) May 4, 2010 (the date Matusheski and local counsel apologized after the
district judge granted the defendant’s 12(b)(1) motion in Lopez); and (3) March 7, 2011 (after
Leveski’s deposition, when ITT warned Plaintiff’s counsel that it would seek fees/sanctions if
Leveski did not voluntarily dismiss the lawsuit).
According to ITT, Schultz and Lopez unequivocally clarified that it is inappropriate for an
attorney to seek out a plaintiff who has a tenuous grasp of the fundamental premise of her claims
to serve as a qui tam relator in a lawsuit against a for-profit educational institution. Logically
following, these rulings sealed this case’s fate, and it was frivolous for Leveski’s counsel to
continue pursuing her claims after these decisions were issued. The Court agrees that those two
cases are similar enough to the present case that, once decided, the die was effectively cast in this
case. Moreover, Schultz and Lopez gave Matusheski unmistakably clear warnings that he was
playing with fire by pushing the present case forward.
Specifically, in Schultz, on February 4, 2009, the district judge presided over an oral
argument on DeVry’s Rule 12(b)(1) motion to dismiss. At the argument, the Court expressed

23

concerns regarding Matusheski’s recruitment of the relator and raised the specter of sanctions
sua sponte, stating “if the defendant’s allegations are true, if they are established, there could
possibly be Rule 11 liability.” Complicating matters, Matusheski did not attend the hearing, and
local counsel for the relator conceded that he was “a little chagrined to argue the cause before
you today without [Matusheski] also participating.” Entertaining the possibility of seeking
sanctions, DeVry then sought certain discovery from Matusheski, but he refused to disclose the
documents on privilege grounds. DeVry responded with a motion to compel. (Dkt. 246-2) Before
the Court could address this issue, however, the parties reached a settlement and DeVry
withdrew its motion to compel, thereby mooting the sanctions issue. (Dkt. 246-3).
Lopez followed a similar trajectory. There, the district court ruled that the plaintiff was
“clearly . . . not the source of the Complaint’s allegations that Strayer’s representations to the
government were false and made with the requisite intent,” thus deducing that “the real source of
the information in Lopez’s Complaint [was] her attorney,” Matusheski. Lopez, 698 F. Supp. 2d at
638, 644. Because the plaintiff was “an opportunistic litigant” who “add[ed] no value to the
government’s efforts to combat fraud,” the court concluded that Lopez fell “well short” of
satisfying her burden of proving that her claims were not barred. Id.at 644. In the aftermath of
the dismissal, Strayer filed a motion for attorney’s fees. In response, Matusheski submitted an
apology to the district court, Strayer, and the Department of Justice. In exchange for the apology,
Strayer withdrew its motion one week later.
The main distinguishing feature of this case is that, here, the Court relied on an actual
case against ITT (i.e. Graves)—rather than industry-wide allegations—for purposes of the public
disclosure analysis. Notably, that means that ITT’s defense here was arguably stronger than the
defenses in both Lopez and Schultz. On this point, the United States filed a statement of interest

24

in support of the proposition that the “public disclosure” alleged in Schultz and Lopez “failed to
put the government on notice of the likelihood of Strayer’s alleged fraudulent activity”; in doing
so, the government stressed “that Schultz was incorrectly decided.” See id. at 642. Importantly,
though, such concerns do not exist in the present case. Finally, it is worth again highlighting that,
in the aftermath of both Schultz and Lopez, Matusheski tiptoed around sanctions awards. His
decision to proceed with this case in the wake of those rulings was risky, if not ridiculous.
In the end, however, the Court finds that neither the ruling in Schultz nor the apology in
Lopez is the appropriate trigger for attorney’s fees. At the time those rulings were issued, the
extent of Leveski’s knowledge—or lack thereof—had not been aired out. That is why, in the
Court’s view, the better trigger date is March 7, 2011—after Leveski’s deposition, which
confirmed that this case tracked Matusheski’s modus operandi of recruiting know-nothing
plaintiffs. On this date, ITT offered a grand bargain (or, perhaps more accurately, a “get out of
jail free card”) in which it agreed not to seek attorney’s fees and sanctions if Leveski voluntarily
dismissed the lawsuit. From there, counsel exchanged numerous letters discussing this option,
but these communications were futile. In fact, from these letters, it appears that Plaintiff’s
counsel went to great lengths not to understand ITT’s request; ITT’s counsel likened responding
to the communications to being trapped in an “Abbott and Costello routine.” To quote the
Russian novelist Leo Tolstoy:
The most difficult subjects can be explained to the most slowwitted man if he has not formed any idea of them already; but the
simplest thing cannot be made clear to the most intelligent man if
he is firmly persuaded that he knows already, without a shadow of
doubt, what is laid before him.
In short, the Court finds March 7, 2011 to be the appropriate trigger date for attorney’s fees. ITT
has produced evidence that, since that date, it has incurred $2,633,322.25 in legal expenses.

25

For two reasons, however, the Court will exercise its discretion and not award this
amount in full. First, from the outset of this litigation, ITT’s counsel surely had some inkling that
Ms. Leveski might not be an original source. Therefore, ITT’s counsel should not have waited
over three years into the litigation to depose her. If they made Leveski’s deposition a top priority,
they could have filed a Rule 12(b)(1) motion earlier, and their client’s fees would have been
much smaller. See Dubisky v. Owens, 849 F.2d 1034, 1037 (7th Cir. 1988) (“the court must
consider to what extent a defending party’s injury could have been avoided or was selfinflicted,” which entails “an examination of the promptness and method of bringing the frivolous
conduct to the attention of both the court and the opposing party”). Second, the Court is mindful
that, despite the fact Matusheski has tempted fate with attorney’s fee awards in the past, no judge
has ever actually issued a similar award against him. Although this Court is not hesitant to be the
first, some restraint is warranted under the circumstances. See Fed. R. Civ. P. 11(c)(4) (“A
sanction imposed under this rule must be limited to what suffices to deter repetition of the
conduct or comparable conduct by others similarly situated.”).
In light of these considerations, the Court finds that 15 percent of the amount of
attorney’s fees actually spent from March 7, 2011 onward is an appropriate figure. Thus, the
Court awards attorney’s fees in the amount of $394,998.33. Given this significant markdown
from what ITT is requesting, the Court need not address in detail the reasonableness of ITT’s
counsel’s fees. No one could seriously argue that, given the sheer volume of legal work that has
been done in this case, $394,998.33 is an unreasonable amount. On a related note, Leveski’s
related Motion to Strike or Disregard Declaration” of ITT’s counsel (Dkt. 268) is DENIED.
Finally, the Court must determine who will be subject to this award. The Court will issue
this award against Timothy Matusheski personally and his law firm, The Law Offices of

26

Timothy J. Matusheski. With respect to Mr. Matusheski individually, the Court finds that he has
unreasonably multiplied the proceedings and that his conduct has been vexatious under 28
U.S.C. § 1927, which is marked by intentional bad faith or at least recklessness with respect to
the law. See Ordower v. Feldman, 826 F.2d 1569, 1574 (7th Cir. 1987) (“A lawyer’s reckless
indifference to the law may impose substantial costs on the adverse party. Section 1927 permits a
court to insist that the attorney bear the cost of his own lack of care.”); In re TCI Ltd., 769 F.2d
at 450 (“Litigation must be grounded in an objectively reasonable view of the facts and the law.
If it is not, the lawyer who proceeds recklessly—not his innocent adversaries—must foot the
bill.”). Additionally, the Court will issue this award against the law firms of Plews Shadley
Racher & Braun (which joined this litigation on April 30, 2009) and Motley Rice LLP (who
unfortunately joined this litigation on May 27, 2011), given their intimate involvement with this
case. However, because the Court is not familiar with the extent of each attorney’s knowledge of
and involvement with this case, it will not issue this award against any of the individual attorneys
at those two firms. In sum, these three law firms and Timothy Matusheski individually will be
jointly and severally liable for $394,998.33.8
D. Are Sanctions against Leveski Appropriate?
Leveski agreed to be a pawn in an expensive game of litigation. For this conduct, ITT
asks the Court to sanction Leveski in an amount of $25,000.00. Indeed, prior to being

8

ITT met the Rule 11 safe harbor for both Plews Shadley Racher & Braun and The Law Offices of Timothy J.
Matusheski by notifying them on numerous occasions that ITT would seek fees and expenses if Leveski’s claims
were not voluntarily dismissed. (See Dkt. 246 at 14-17). As for Motley Rice LLP—which had not yet appeared in
this case when ITT issued its safe harbor warnings—the Court finds that it has discretion to impose this sanction
using the inherent power of the court. As the Seventh Circuit has noted, “the court retains inherent power to impose
sanctions when the situation is grave enough to call for them and the misconduct has somehow slipped between the
cracks of the statutes and rules covering the usual situations.” Claiborne v. Wisdom, 414 F.3d 715, 724 (7th Cir.
2005). The Court finds that this is one such rare instance. Notably, here, Motley Rice attorneys actually participated
in the oral arguments on ITT’s 12(b)(1) motion on June 2, 2011. (Dkt. 185). It cannot be seriously argued that
they are somehow detached from the relevant course of events or that one-fourth of the 15% award is unreasonable.

27

approached by Matusheski, Leveski was blissfully ignorant of the crux of her lawsuit: that ITT
allegedly violated the law. But, prior to determining whether to embark on this lawsuit, Leveski
undoubtedly considered its potential costs and benefits. And, hopefully apprised of the risks of
such litigation, Leveski ultimately determined that it was worth pursuing. This calculation was in
error and is not without consequence.
However, in the end, the Court will not level sanctions against Leveski because (although
not the subject of the present motion) it is inclined to grant certain portions—though not all—of
ITT’s Bill of Costs submission (Dkt. 244). See Fed. R. Civ. P. 54(d)(1) (costs “should be allowed
to the prevailing party,” unless “a federal statute, these rules, or a court order provides
otherwise.”); Weeks v. Samsung Heavy Indus. Co., Ltd., 126 F.3d 926, 945 (7th Cir. 1997) (the
strong presumption “in favor of awarding costs to the prevailing party is difficult to overcome,
and the district court’s discretion is narrowly confined—the court must award costs unless it
states good reasons for denying them”). In short, the Bill of Costs will be punishment enough for
Leveski, who is in dire financial straits.
This Bill of Costs ruling will be issued in due course. For now, however, it is worth
noting that the Court is not persuaded by Leveski’s two arguments why the Court should flatly
deny ITT’s Bill of Costs. First, Leveski contends that awarding costs is inappropriate in qui tam
matters because relators pursue lawsuits on behalf of the United States, and a contrary ruling
would have a chilling effect on would-be relators seeking to root out fraud. However, Leveski
does not cite any meaningful authority for this proposition. Instead, she premises her argument
on the fact that, unlike § 3730(d)(1) and (2), § 3730(d)(4) does not explicitly allow a qui tam
defendant to recover its costs. This argument has some appeal, but the Court is not persuaded.
This argument ignores the language of Rule 54(d)(1), which provides that costs should be issued

28

as a default, unless a rule, statute, or order says otherwise. Presumably, Congress knew the “optout” nature of Rule 54(d)(1) when crafting § 3730(d)(4); if they were going to remove costs from
the equation when the relator is litigating alone, they needed to do it explicitly, not through
silence. Other rulings—including Seventh Circuit precedent—reinforce this position. See Luckey
v. Baxter Healthcare Corp., 183 F.3d 730, 734 (7th Cir. 1999) (finding taxation of costs
appropriate where the qui tam relator’s claim did not survive summary judgment); United States
ex rel. Costner v. United States, 317 F.3d 889, 890-91 (8th Cir. 2003) (Ҥ 3730(d)(4) is not an
express provision regarding costs and thus does not displace the district court’s authority to
award costs under Rule 54.”); United States ex rel. Crenshaw v. Degayner, 2009 WL111673, at
*2 (M.D. Fla. Jan. 15, 2009) (finding that there were no express provisions in the FCA that
would preclude an award of costs and noting that the “clear weight of authority” supported this
finding).
Next, Leveski contends that ITT should not recover its costs because she is indigent.
Indeed, Seventh Circuit precedent suggests that the Court has some discretion in this area:
“Generally, only misconduct by the prevailing party worthy of a penalty or the losing party’s
inability to pay will suffice to justify denying costs.” Weeks, 126 F.3d at 945 (emphasis added);
Badillo, 717 F.2d at 1165 (the presumption of awarding costs to the prevailing party “may be
overcome by a showing of indigency” but this is an issue “within the discretion of the district
court”). Leveski has adduced considerable evidence establishing her precarious financial state
and her inability to pay.
Importantly, though, “[a] Plaintiff’s indigency . . . does not require the court to
automatically waive costs to an unsuccessful litigant.” McGill v. Faulkner, 18 F.3d 456, 459 (7th
Cir. 1994). Specifically, in McGill, the plaintiff argued that the district court’s award of costs to

29

the defendants was improper because the plaintiff was indigent and award of costs would have a
“chilling effect” on civil rights litigation. Id. at 460. The Seventh Circuit rejected this argument,
stating that “far from ‘chilling’ prisoners’ litigation, the rule that indigent prisoners, like anybody
else, may be required to reimburse costs others have expended defending the prisoners’
unsuccessful suits serves the valuable purposes of discouraging unmeritorious claims and
treating all unsuccessful litigants alike.” Id. Along these same lines, the Seventh Circuit observed
that “[n]on-indigents who contemplate litigation are routinely forced to decide whether their
claim is ‘worth it’ . . . . We see no reason to treat indigents differently in this respect.” Id.
(citation omitted).
That reasoning applies with particular force here. Employing its discretion, the Court
finds that some award of costs will be appropriate. Agreeing to be part of this case was a highly
irresponsible move on Leveski’s part; she knew that her lawsuit-related knowledge was paltry at
best. Her common sense simply had to tell her that “if something is too good to be true, it
probably is.” Nonetheless, she decided to sue ITT. Now, the Court has ruled that Leveski is an
“unsuccessful litigant,” and Rule 54(d) creates clear consequences for unsuccessful litigants. In
the Court’s view, the presumption articulated in Rule 54(d) should apply, notwithstanding
Leveski’s sympathetic financial condition. See Luckey, 183 F.3d at 734 (“Straitened
circumstances do not justify filing weak suits and then demanding that someone else pay the
bill.”). “Someone has to bear the costs of litigation, and the winner has the much better claim to
be spared them—not just a morally or economically better claim, but under Rule 54(d) a legally
better claim.” Id. In sum, because the Court has resolved to grant portions of ITT’s Bill of Costs
submission, it will not pile on with an additional sanction of $25,000.00 against Ms. Leveski.

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III.

CONCLUSION

For the reasons set forth above, ITT’s Motion for Attorney’s Fees and Sanctions (Dkt.
245) is GRANTED with respect to attorney’s fees in the amount of $394,998.33, but DENIED
with respect to sanctions against Leveski. The attorney’s fee award is issued jointly and severally
against Timothy J. Matusheski individually, The Law Offices of Timothy J. Matusheski, the law
firm of Plews Shadley Racher & Braun, and the law firm of Motley Rice LLP. Leveski’s related
Motion to Strike or Disregard Declaration” of ITT’s counsel (Dkt. 268) is DENIED. The Court
will issue a ruling on ITT’s Bill of Costs submission (Dkt. 244) in due course.

SO ORDERED.

03/26/2012

________________________
Hon. Tanya Walton Pratt, Judge
United States District Court
Southern District of Indiana

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Distribution to:
Kristopher P. Diulio
GIBSON DUNN & CRUTCHER LLP
[e-mail],gross@gibsondun
n.com

Timothy J. Matusheski
LAW OFFICES OF TIMOTHY J.
MATUSHESKI
[e-mail]

Frederick D. Emhardt
PLEWS SHADLEY RACHER & BRAUN
[e-mail],[e-mail]

Brianna J. Schroeder
PLEWS SHADLEY RACHER & BRAUN
[e-mail]

Nicola T. Hanna
GIBSON DUNN & CRUTCHER LLP
[e-mail],TStephens@gibs
ondunn.com

Wayne W. Smith
GIBSON DUNN & CRUTCHER, LLP
[e-mail]
Philip A. Whistler
ICE MILLER LLP
[e-mail]

Timothy John Hatch
GIBSON DUNN & CRUTCHER LLP
[e-mail]

Shelese M. Woods
UNITED STATES ATTORNEY'S OFFICE
[e-mail]

Sean M. Hirschten
PLEWS SHADLEY RACHER & BRAUN
[e-mail]

Robert M. Zabb
MOTLEY RICE LLP
[e-mail]

John M. Ketcham
PLEWS SHADLEY RACHER & BRAUN
[e-mail]

James L. Zelenay , Jr
GIBSON DUNN & CRUTCHER LLP
[e-mail]

Mark I. Labaton
MOTLEY RICE LLP
[e-mail]

32