Blumenstyk, Goldie. "U. of Minnesota with Pay $32-Million to Settle Lawsuit Over Research
Funds," The Chronicle of Higher Education, 27 November 1998, p. A35.
THE University of Minnesota will pay the U. S. government $32-million to settle a lawsuit that
accused the institution of fraud and misuse of federal grants, and of profiting from its illegal sales
of an experimental transplant drug.
The settlement, announced last week, came on the day that the trial was to begin. The Justice
Department said it was the largest amount ever recovered in a case involving National Institutes
of Health grants.
The settlement also brings to a close another multimillion-dollar dispute between the university
and the government, in which the university had convinced several courts that it was not required
to withhold Social Security taxes from the stipends of its medical residents. Under the settlement,
the university will use some of the money it is owed by the government in the Social Security
dispute to cover part of its penalty in the fraud case.
In the fraud case, university officials had acknowledged wrongdoing in connection with most of
the allegations, but differed with the government over the amount of damages. Mark Rotenberg,
the university's general counsel, said the institution could have faced damages in excess of $100-
The case grew in part out of disclosures in the early 1990s that the university's Department of
Surgery had made profits of $85-million selling a drug to minimize rejection of organs during
transplants, even though the drug had never been cleared for commercial sale by the Food and
Drug Administration. The federal government brought criminal charges against John Najarian, a
professor of surgery who ran the drug program. He was acquitted in February 1996.
A WHISTLE BLOWER'S COMPLAINT
As part of the settlement, the government is dropping all charges made in its December 1996
lawsuit against the university, and has promised not to disqualify the university from future
N.I..H. grants as a result of the case. The government had entered the case after a professor of
microbiology at the university, James Zissler, filed a "whistle blower" suit against the institution
under the federal False Claims Act.
For its part, the university is dropping its legal challenge to the use of the False Claims Act
against state universities - a challenge that had won the sympathy of many other public
institutions. The federal judge hearing the Minnesota lawsuit had initially sided with the
university on that matter, but in September, the U. S. Court of Appeals for the Eighth Circuit
reversed that ruling.
Under the settlement, Mr. Zissler will receive $1.5-million from the government. Although
university officials had contended that Mr. Zissler wasn't a true "whistle blower," his lawyer,
Phillip E. Benson, said the settlement proved otherwise. "The government recognized his
contribution," Mr. Benson said.
Mr. Benson, who is known for pursuing false-claims cases against universities and other
organizations that receive federal funds, said Mr. Zissler also deserved credit for helping to
establish a legal precedent in support of the False Claims Act. The federal law allows private
citizens to sue on the government's behalf in cases of alleged fraud and to recover a share of any
The university will pay $20-million of the settlement outright, from funds it received from the
1997 sale of its hospital to outside parties. Over the next three years, it will satisfy an additional
portion of the settlement by using $4-million of its own money to pay for research projects that
would otherwise be financed by the N.I.H.
The final $8-million will come from a $40-million payment the university is due to receive from
the federal government in connection with the Social Security case. In that case, which began in
1986, a U.S. appeals court ruled in July that the university was not required to withhold Social
Security payments because medical residents were to be considered students, not employees. In
settling the false-claims case, the government agreed it would not try to challenge that ruling.