United States of America et al v. Infilaw Corporation et al
ORDER denying 60 Motion to stay discovery. Signed by Magistrate Judge Thomas B. Smith on 2/14/2018. (Smith, Thomas)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
UNITED STATES OF AMERICA and
Case No: 6:16-cv-970-Orl-37TBS
INFILAW CORPORATION and
CHARLOTTE SCHOOL OF LAW, LLC,
This case comes before the Court without a hearing 1 on Defendants Infilaw
Corporation and Charlotte School of Law, LLC’s Motion to Stay Discovery (Doc. 60).
Plaintiff Barbara Bernier opposes the motion (Doc. 61).
Plaintiff’s amended complaint alleges that Defendant Charlotte School of Law
(“CSL”) is controlled by Defendant Infilaw Corporation (“Infilaw”), and that the Defendants
entered into the legal education business to make a profit (Doc. 48, ¶¶ 24-25, 35, 38).
Once CSL was fully accredited by the American Bar Association (“ABA”), it was eligible to
participate in the United States Department of Education’s (“DOE”) student loan programs
under Title IV of the Higher Education Act, 20 U.S.C. § 1070 et seq. (Id., ¶ 16). CSL
entered into a program participation agreement (“PPA”) with the DOE in exchange for
federal financial aid under Title IV (Id.). Plaintiff, a former professor at CSL, alleges that
after entering into the PPA, CSL intentionally and recklessly admitted academically
underqualified students, and retained students who should have been dismissed for lack
Defendants’ Request for Oral Argument (Doc. 60 at 15), is DENIED.
of satisfactory progress (Id., ¶¶ 2, 17). She asserts that CSL failed to maintain
accreditation standards set by the ABA; engaged in practices that violated Title IV’s ban
on incentive compensation; awarded gift aid to students; and deliberately failed to deduct
the amount of the gift aid from the financial aid CSL received from the DOE (Id., ¶¶ 5, 19,
20, 23, 35-38). Plaintiff alleges that the Dean of CSL manipulated its grading structure so
that students appeared to be making satisfactory academic progress and could submit
financial aid claims to the government for payment; and that CSL deleted students’
grades so that they could “start over” and borrow more federal student aid money from the
government (Id., ¶¶ 23, 25). Plaintiff also contends that CSL manipulated its students’ bar
exam passage rates and employment statistics (Id., ¶ 28). She claims that when CSL
received student aid from the DOE, Infilaw used the money for its own purposes, and then
returned it just-in-time for mandatory distributions to students (Id., ¶ 14). Based on these
allegations, Plaintiff sues Defendants for violations of the False Claims Act (“FCA”), 31
U.S.C. § 3279, et seq. (Id.). 2
The FCA authorizes private persons to file civil actions against, and recover
damages on behalf of the United States, from any person who knowingly presents, or
causes to be presented to the government, a false or fraudulent claim for payment or
approval; or 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. 31
U.S.C. § 3729(a)(1), (2). “To establish a cause of action under the False Claims Act, a
relator must prove three elements: (1) a false or fraudulent claim; (2) which was
presented, or caused to be presented, by the defendant to the United States for payment
2 The government advises that while its investigation continues, it is not intervening at this time
(Doc. 14 at 1).
or approval; (3) with the knowledge that the claim was false.” United States v. R & F
Properties of Lake Cty., Inc., 433 F.3d 1349, 1355 (11th Cir. 2005), cert. denied, 549 U.S.
Because the FCA is a fraud statute, claims must be plead with the particularity
required by FED. R. CIV. P. 9(b). U.S. ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d
1301, 1308-09 (11th Cir. 2002). “Rule 9 is satisfied if the complaint sets forth (1) precisely
what statements were made in what documents or oral representations or what omissions
were made, and (2) the time and place of each such statement and the person
responsible for making (or, in the case of omissions, not making) same, and (3) the
content of such statements and the manner in which they misled the plaintiff, and (4) what
the defendants obtained as a consequence of the fraud.” Id., at 1310 (quoting Ziemba v.
Cascade Int’l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quotations and citations
Defendants have moved to dismiss Plaintiff’s amended complaint on the grounds
that Plaintiff lacks any personal knowledge of Defendants’ alleged fraudulent conduct; her
claims were previously disclosed so that she is not an original source; and she has failed
to plead scienter, falsity, presentment, or proper parties to a conspiracy (Doc. 53). While
the parties await a ruling on the motion to dismiss, Plaintiff propounded 68 requests for
production to Defendants and served notice of her intent to subpoena a total of 168
categories of documents and things from the ABA, BARBRI, Inc., Dennis W. Archer, Esq.,
and Sterling Partners, (Doc. 60-2; Doc. 60-3; Doc. 60-4; Doc. 60-5; Doc.60-6).
Defendants now ask the Court to stay all discovery until it finds that Plaintiff has stated a
cause of action against them (Doc. 60).
District courts have inherent power to control their dockets and manage their
cases, including by staying discovery. Perez v. Miami-Dade Cty., 297 F.3d 1255, 1263
(11th Cir. 2002); The Andersons, Inc. v. Enviro Granulation, LLC, Case No. 8:13-cv-3004T-33MAP, 2014 WL 4059886 at *2 (M.D. Fla. Aug. 14, 2014). The Eleventh Circuit has
“emphasized the responsibility of trial courts to manage pretrial discovery properly in
order to avoid a massive waste of judicial and private resources and a loss of society's
confidence in the courts' ability to administer justice.” Perez, 297 F.3d at 1263 (internal
quotation marks omitted). “Granting a discovery stay until an impending motion to dismiss
is resolved is a proper exercise of that responsibility.” Rivas v. The Bank of New York
Melon, 676 F. App’x 926, 932 (11th Cir. 2017). The party seeking the stay has the burden
of showing good cause and reasonableness. Holsapple v. Strong Indus., Case No. 2:12cv-355-UA-SPC, 2012 U.S. Dist. LEXIS 128009, at *2 (M.D. Fla. Sept. 10, 2012); S.D. v.
St. Johns Cnty. Sch. Dist., Case No. 3:09-cv-250-J-20TEM, 2009 U.S. Dist. LEXIS
97835, at * 4-5 (M.D. Fla. Oct. 1, 2009) (citing to Feldman v. Flood, 176 F.R.D. 651, 652
(M.D. Fla. 1997)); McCabe v. Foley, 233 F.R.D. 683, 687 (M.D. Fla. 2006).
In deciding whether to grant a stay the district court,
[M]ust balance the harm produced by a delay in discovery
against the possibility that the motion will be granted and
entirely eliminate the need for such discovery. This involves
weighing the likely costs and burdens of proceeding with
discovery. It may be helpful to take a preliminary peek at the
merits of the allegedly dispositive motion to see if on its face
there appears to be an immediate and clear possibility that it
will be granted.
Simpson v. Specialty Retail Concepts, Inc., 121 F.R.D. 261, 263 (M.D.N.C. Aug. 15,
1988); see also Koock v. Sugar & Felsenthal, LLP, No. 8:09-cv-609-T-17EAJ, 2009 WL
2579307, at *2 (M.D. Fla. Aug. 19, 2009) (“In deciding whether to stay discovery pending
resolution of a motion to dismiss ... the court must take a ‘preliminary peek’ at the merits
of the dispositive motion to see if it ‘appears to be clearly meritorious and truly case
dispositive.’”) (citing McCabe, 233 F.R.D. at 685).
Parties seeking stays of discovery pending a ruling on a motion to dismiss
invariably cite Chudasama v. Mazda Corp., 123 F.3d 1353 (11th Cir. 1997), where the
Facial challenges to the legal sufficiency of a claim or
defense, such as a motion to dismiss based on failure to state
a claim for relief, should, however, be resolved before
discovery begins. Such a dispute always presents a purely
legal question; there are no issues of fact because the
allegations contained in the pleading are presumed to be true.
Therefore, neither the parties nor the court have any need for
discovery before the court rules on the motion.
Id., at 1367 (internal footnote and citation omitted).
Chudasama stands for the “proposition that courts should not delay ruling on a
likely meritorious motion to dismiss while undue discovery costs mount.” Koock, LLP,
2009 WL 2579307, at *2 (citing In re Winn Dixie Stores, Inc., No. 3:04-cv-194-J-33MCR,
2007 WL 1877887, *1 (M.D. Fla. June 28, 2007)). “Since the Eleventh Circuit handed
down Chudasama, it has been analyzed on numerous occasions, and courts have
consistently rejected any per se requirement to stay discovery pending resolution of a
dispositive motion.” Bocciolone v. Solowsky, No. 08-20200-CIV, 2008 WL 2906719, at *1
(S.D. Fla. July 24, 2008); Reilly v. Amy's Kitchen, Inc., No. 13-21525-CIV, 2013 WL
3929709, at *1 (S.D. Fla. July 31, 2013) ([T]there is no general rule that discovery be
stayed while a pending motion to dismiss is resolved."); Simpson v. Specialty Retail
Concepts, Inc., 121 F.R.D. 261, 263 (M.D.N.C. 1988) (Motions to stay discovery are
disfavored because they tend to delay resolution of cases.). The judges of this federal
court have advised litigants that “the pendency of a motion to dismiss or a motion for
summary judgment will not justify a unilateral motion to stay discovery pending resolution
of the dispositive motion.” Middle District Discovery (2015) at 5. 3 “Such motions for stay
are rarely granted.” Id.
But, Defendants argue, a stay of discovery is particularly warranted here because
Plaintiff is suing under the FCA and,
[I]f Plaintiff gets a ticket to the discovery process without
identifying a single claim ... the next stage of the litigation is
clear. The Plaintiff will request production of every ... claim
submitted by the Defendant during the time period
corresponding to Plaintiff’s claims. At that point, the Defendant
may decide to settle the case to avoid the enormous cost of
such discovery and the possible disruption of its ongoing
business. On the other hand, the Defendant may choose to
resist the discovery. In that case, the Court will be presented
with the dilemma of allowing an unlimited fishing expedition or
no discovery at all because of the difficulty in fashioning logical
and principled limits on what has to be produced. The
particularity requirement of Rule 9(b), if enforced, will not only
protect defendants against strike suits, but will result in claims
with discernable boundaries and manageable discovery limits.
U.S. ex rel. Atkins v. McInteer, 470 F.3d 1350, 1359-60 (11th Cir. 2006) (quoting U.S. ex
rel. Clausen v. Lab. Corp. of Am., Inc., 198 F.R.D. 560, 564 (N.D. Ga. 2000), aff’d 290
F.3d 1301 (11th Cir. 2002)); U.S. ex rel. Mastej v. Health Mgmt. Assocs., Inc., 869 F.
Supp. 2d 1336, 1350 (M.D. Fla. 2012) (“Rule 9(b)’s very purpose is to protect from
discovery defendants facing inadequately pled fraud claims”); U.S. ex rel. Bumbury v.
Med-Care Diabetic & Med. Supplies, Inc., Case No. 10-81634-CIVRYSKAMP/HOPKINS, 2014 WL 12284078, at *1 (S.D. Fla. June 17, 2014) (“An FCA
defendant faces exceptional harm where a relator is permitted to litigate without
adequately establishing in the pleadings that the relator has personal knowledge of
The Court has adopted certain rules, practices, and procedures that are embodied in the Local
Rules and the district’s discovery handbook.
specific, non-publicly disclosed false claims that are alleged to have defrauded the
Government”). “Requiring relators to plead FCA claims with particularity is especially
important in light of the quasi-criminal nature of FCA violations (i.e., a violator is liable for
treble damages) Rule 9(b) ensures that the relator’s strong financial incentive to bring an
FCA claim—the possibility of recovering between fifteen and thirty percent of a treble
damages award—does not precipitate the filing of frivolous suits.” U.S. ex rel. Atkins, 470
F.3d at 1360.
The Court agrees that the fact that this is an FCA case is a factor that weighs in
favor of the granting of a stay of discovery. It also recognizes a natural hesitancy on the
part of district courts to completely dispose of cases on motions to dismiss where there is
a reasonable possibility of the existence of a viable claim.
The Court has reviewed Plaintiff’s amended complaint, the motion to dismiss, the
response to the motion, and Defendants’ reply. It finds that Plaintiff has already identified,
without the benefit of discovery, specific claims against Defendants (Docs. 48, 53, 56, 59).
Whether Plaintiff has personal knowledge of her claims; whether those claims have been
publicly disclosed in the news media; and whether the amended complaint is based upon
publicly disclosed claims, are issues on which the parties disagree. After considering the
parties’ arguments, the Court is not persuaded that at this early stage in the litigation there
is an “immediate and clear possibility that” the motion to dismiss will be granted, or that if it
is granted, that Plaintiff will not be given leave to further amend her pleading. Simpson,
121 F.R.D. at 263. These factors weigh against the entry of a stay.
A stay of discovery can be problematic because it may needlessly lengthen the
litigation. It may also create case management problems if the Court is unwilling to grant
an enlargement of time. These factors weigh against the entry of a stay.
Defendants argue that the magnitude of Plaintiff’s discovery suggests she is on a
fishing expedition to discover information to fill the “gaps” in her amended complaint (Doc.
60 at 8-9). The Court agrees that Plaintiff’s discovery is far reaching. Still, Plaintiff has
provided details which the Court believes are sufficient to enable it to decide the issues of
relevancy and proportionality should discovery motions be filed.
Costs are inherent in discovery. It is a process whereby the lawyer for one party
gives a work assignment to his opponent, and the opponent’s client has to pay to have the
work done. Such a system invites abuse. But, there are rules to constrain the parties, and
the Court has already found that Plaintiff has pled enough facts to permit effective
discovery motion practice.
After considering these factors, the Court finds that Defendants have not met their
burden to show that a stay is warranted and therefore, their motion is DENIED.
DONE and ORDERED in Orlando, Florida on February 14, 2018.
Copies furnished to Counsel of Record
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