Thomas v. ITT Educational Services, Inc.
Filing
40
ORDER that 34 Motion to Dismiss is granted in part insofar as it seeks dismissal of her La. Rev. Stat. 23:967 (A)(1) claim, and denied in part insofar as it seeks dismissal of the retaliation claim under the False Claims Act, 31 U.S.C. 3730(h) and the remainder of her La. Rev. Stat. § 23:967 claims. Signed by Judge Martin L.C. Feldman on 8/10/2011. (caa, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SHELLEY THOMAS
CIVIL ACTION
v.
NO. 11-544
ITT EDUCATIONAL SERVICES, INC.
SECTION "F"
ORDER AND REASONS
Before the Court is the defendant’s motion to dismiss. For the
reasons that follow, the motion is DENIED in part and GRANTED in
part.
Background
This litigation arises out of Thomas’s claim that her former
employer,
ITT,
terminated
her
employment
as
a
teacher
in
retaliation for her refusal to falsify student grade records.
ITT receives state and federal subsidies to assist students
with tuition and other school expenses. ITT’s eligibility for these
subsidies is dependent on its satisfying certain requirements,
including being accredited by a nationally recognized accrediting
agency. To be accredited and thus eligible for the subsidies, ITT
must swear to and accurately report its students’ grades, which
must stay at or above a 2.5 cumulative grade point average. Should
ITT fail to accurately report its students’ grade point averages,
it
may
lose
its
accreditation
and
consequently
its
subsidy
eligibility.
Thomas taught at ITT for approximately 10 years.
1
At the end
of the 2010 summer quarter, Thomas informed the academic dean,
Kenya Crocken Waugh, and the associate dean, Dr. Renee Hall, that
she was going to assign many of her students low or even failing
grades as a result of poor attendance, incomplete work, and
inadequate test scores. The deans then urged Thomas, she claims, to
falsely inflate these lower and failing grades. This would permit
those ITT students to remain eligible for the aforementioned
subsidies. Thomas refused to falsify her students’ grades, and on
September 8, 2010, she was terminated.
On March 9, 2011, Thomas sued ITT, asserting two claims:
First, violations of the retaliation provisions of the False Claims
Act, 31 U.S.C. § 3729(h). Second, she claims retaliatory discharge
in violation of
La. Rev. Stat. § 23:967. ITT moved to dismiss the
first of these claims for failure to state a claim upon which
relief may be granted. The Court did not grant Thomas permission to
amend her Complaint or to re-plead her False Claims Act retaliation
claim, and on June 9, 2011, this Court granted ITT’s motion to
dismiss. Specifically, this Court held that Thomas failed to assert
the following elements necessary to establish a retaliation claim
under the False Claims Act: (1)that she was engaged in a protected
activity under the statute; (2)that ITT knew she was engaged in a
protected activity; and (3)that ITT retaliated against her because
she engaged in a protected activity. See United States ex rel.
Patton v. Shaw Services, L.L.C., No. 10-30376, 2011 WL 924292, at
2
*4 (5th Cir. Mar. 17, 2011). Following this Court’s dismissal of
her claim. Thomas requested leave to file an Amended Complaint,
pursuant to Federal Rule of Civil Procedure 15(a)(2).1
In her proposed Amended Complaint Thomas changed the facts of
her case. She now asserts that when she informed Deans Waugh and
Hall of her intention to submit low grades for many of her
students, the deans told Thomas to “create inflated false grade
records reflecting grades her students did not earn so those
students could remain enrolled at ITT and eligible to receive from
financial aid such as grants that are paid from the United States
and Louisiana government[s].” Further, Thomas contends that the
deans told her that the “inflated false grade records ... would be
used to get those governments (United States and Louisiana) to
continue paying financial aid subsidies on behalf of her students.”
In addition to the new factual contentions, Thomas added more
information to support her retaliation claim. Thomas says that
after she was instructed to create the inflated false grade
records, she contacted the Accrediting Counsel of Independent
Colleges and Schools (ACICS), the accrediting agency for ITT. She
maintains that she did so to “report that her employer demanded she
create inflated false grade records that inaccurately reflect her
1
“[A] party may amend its pleading only with the
opposing party’s written consent or the court’s leave. The court
should freely give leave when justice so requires.” Fed. R. Civ. P.
15(a)(2).
3
students’ GPA, and inquired whether this conduct was compliant with
ACICS accreditation guidelines.”
Following hearing on July 13, 2011, Magistrate Judge Knowles
granted Thomas’s Motion for leave of Court to File Opposed First
Supplemental and Amended Complaint. Magistrate Knowles reasoned
that ITT would not be prejudiced by the amendment because it had
not answered the original Complaint, no discovery had occurred, and
the trial date was not set until June 4, 2012. Further, he stated
that Thomas specifically alleges ITT terminated her “with full
knowledge that [she] was engaging in protected activity by refusing
to create inflated false grade records for her ... students to stop
ITT
from
defrauding
the
United
States
and
Louisiana”
government[s].” Magistrate Knowles also reasoned that while the
“allegations are admittedly sparse[,] ... the Court can not find
that Plaintiff (Thomas) has not technically cured the pleading
deficiencies noted by the District Court.” ITT now seeks dismissal
of Thomas’s federal and state retaliation claims.
Law and Analysis
I.
In considering a Rule 12(b)(6) motion, the Court “accepts ‘all
well-pleaded
facts
as
true,
favorable to the plaintiff.’”
viewing
them
in
the
light
most
See Martin K. Eby Constr. Co. v.
Dallas Area Rapid Transit, 369 F.3d 464 (5th Cir. 2004) (quoting
Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999)).
4
But, in
deciding whether dismissal is warranted, the Court will not accept
conclusory allegations in the complaint as true.
Kaiser Aluminum
& Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045,
1050 (5th Cir. 1982). Assuming the veracity of the well-pleaded
factual allegations, the Court must then determine “whether they
plausibly give rise to an entitlement to relief.” Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1950 (2009).
“‘To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.’” Gonzalez v. Kay, 577 F.3d
600,
603
(5th
Cir.
2009)(quoting
Iqbal,
129
S.
Ct.
at
1949
(2009))(internal quotation marks omitted). “Factual allegations
must be enough to raise a right to relief above the speculative
level, on the assumption that all the allegations in the complaint
are true (even if doubtful in fact).” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007).
“A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Iqbal, 129 S. Ct. at 1949
(The plausibility standard is not akin
to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.). This is a
“context-specific task that requires the reviewing court to draw on
its judicial experience and common sense.” Id. “Where a complaint
5
pleads
facts
that
are
merely
consistent
with
a
defendant’s
liability, it stops short of the line between possibility and
plausibility of entitlement to relief.”
Id. (citing Twombly, 550
U.S. at 557) (internal quotations omitted).
II.
A.
ITT
first
seeks
dismissal
of
Thomas’s
False
Claims
Act
retaliation claim for failure to state a claim. However, before the
Court can rule, it must resolve the dispute as to whether Rule 9(b)
or Rule 8(a) of the Federal Rules of Civil Procedure applies. This
is an important threshold matter because Rule 9(b)’s pleading
requirements are more demanding than Rule 8(a)’s, and it is
unlikely that Thomas’s pleadings would survive Rule 9(b) scrutiny.
Rule 9(b) states that “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud
or mistake.
Malice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.”
Fed. R. Civ. P. 9(b). By
contrast, Rule 8(a) requires only “a short and plain statement of
the claim showing that the pleader is entitled to relief.” Fed. R.
Civ. P. 8(a).
ITT contends that 31 U.S.C. § 3730(h) claims are subject to
Federal Rules of Civil Procedure Rule 9(b) and that Ms. Thomas
fails to satisfy Rule 9(b)’s pleading requirements. Thomas counters
that a § 3730(h) claim is merely subject to the Rule 8(a) standard.
6
There is no controlling Fifth Circuit Court of Appeals authority
that
resolves
this
dispute.2
Thus,
the
Court
turns
to
other
circuits for guidance on the issue.
All federal circuit courts of appeal that have faced this
issue have reached the conclusion that 31 U.S.C. § 3730(h) claims
need only “meet the Rule 8(a)... standard.”3 Mendiondo v. Centinela
Hosp. Med. Ctr., 521 F.3d 1097, 1103 (9th Cir. 2008) (stating that
“the heightened pleading requirements of Rule 9(b) do not apply to
FCA (False Claims Act) retaliation claims.”); See United States ex
rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1305 (11th Cir.
2010); United States ex rel. Owens v. First Kuwaiti Gen. Trading &
Contr. Co., 612 F.3d 724 (4th Cir. 2010); United States ex rel.
Elms v. Accenture LLP, 341 Fed. Appx. 869, 873 (4th Cir. 2009)
(unpublished); United States ex rel. Sikkenga v. Regence Bluecross
Blueshield, 472 F.3d 702, 729 (10th Cir. 2006); United States ex
rel. Karvelas v. Melrose-Wakefield Hosp, 360 F.3d 220, 238 n.23
(1st
Cir.
2004).
As
the
First
Circuit
has
observed,
“[a]
retaliation claim under 31 U.S.C. § 3730(h) does not require a
showing of fraud and therefore need not meet the heightened
2
However, the Fifth Circuit, in addressing claims
brought under other sections of the False Claims Act, has held that
Rule 9(b) of the Federal Rules of Civil Procedure is the proper
pleading standard. See United States v. ex rel. Doe v. Dow Chemical
Co., 343 F.3d 325, 328 (5th Cir. 2003)(dealing with a False Claims
Act violation, not a retaliation claim).
7
pleading
requirements
Karvelas,360
F.3d
at
of
Rule
238
9(b).”
n.23.
United
Further,
States
when
ex
faced
rel.
with
a
complaint alleging both § 3730(b) and § 3730(h) violations, the
Tenth Circuit only applied 9(b) to the § 3730(b) claim. United
States ex rel. Sikkenga, 472 F.3d at 729.
Because Thomas only alleges a False Claims Act retaliation
claim and not a violation claim, the Court follows the decisions of
the circuit courts of appeal to have spoken to this issue and
concludes that Thomas need only satisfy the lighter Rule 8(a)
pleading standard. See United States ex rel. Karvelas, 360 F.3d at
238 n.23 (noting that a False Claims Act retaliation claim, unlike
a
violation
claim
“does
not
require
a
showing
of
fraud
and
therefore need not meet the heightened pleading requirements of
Rule 9(b).”).
B.
The pleading standard issue now resolved, this Court must next
focus on whether Thomas’s claim satisfies Rule 8(a)’s requirements.
1. False Claims Act Retaliation Claim
To state a prima facie § 3730(h) claim, Thomas is “required to
show that [s]he engaged in activity protected under the statute,
that h[er] employer knew [s]he engaged in protected activity, and
that [s]he was discharged because of it.”
See United States ex
rel. Patton v. Shaw Services, L.L.C., No. 10-30376, 2011 WL 924292,
at *4 (5th Cir. Mar. 17, 2011) (unpublished) (citing Robertson v.
8
Bell Helicopter Textron, Inc., 32 F.3d 948, 951 (5th Cir. 1994)).4
ITT has not met its burden to show that dismissal of the False
Claims Act retaliation claim is warranted. While the pleadings are
lackluster, it cannot be said that the claim does not have “facial
plausibility.” Iqbal, 129 S. Ct. at 1949. Thomas has now provided
enough factual matter to “allow[] the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Id. Indeed, even ITT seems to concede that Thomas has now cured the
first deficiency of her original complaint, that of failing to
allege that Thomas was concerned with fraud against the government
4
31 U.S.C.§ 3730(h) provides:
(1) In general.--Any employee, contractor, or agent shall be
entitled to all relief necessary to make that employee, contractor,
or agent whole, if that employee, contractor, or agent is
discharged, demoted, suspended, threatened, harassed, or in any
other manner discriminated against in the terms and conditions of
employment because of lawful acts done by the employee, contractor,
agent or associated others in furtherance of an action under this
section or other efforts to stop 1 or more violations of this
subchapter.
(2) Relief.--Relief under paragraph (1) shall include reinstatement
with the same seniority status that employee, contractor, or agent
would have had but for the discrimination, 2 times the amount of
back pay, interest on the back pay, and compensation for any
special damages sustained as a result of the discrimination,
including litigation costs and reasonable attorneys' fees. An
action under this subsection may be brought in the appropriate
district court of the United States for the relief provided in this
subsection.
(3) Limitation on bringing civil action.--A civil action under this
subsection may not be brought more than 3 years after the date when
the retaliation occurred.
9
when she refused to change student grade records.
2. Louisiana Whistleblower Statute Claims
ITT next seeks dismissal of Thomas’s retaliation claim under
La. Rev. Stat. § 23:967 to the extent such a claim is based on an
allegation that ITT violated federal law. Thomas contends this
motion
should
be
denied
in
part
based
on
a
straightforward
application of the text of the statute. The Court agrees.
The
statutory
language
is
clear
on
this
point
in
that
subsection (A)(1) expressly references “violation of state law”
whereas (A)(2) and (A)(3) both include the more general phrase,
“violation of law.” See Wells v. City of Alexandria, 178 Fed. Appx.
430, 434 (5th Cir. 2006) (unpublished)(holding that Complaint
alleging claim under La. Rev. Stat. § 23:967 sections (A)(2) and
(A)(3) based on violations of 42 U.S.C. § 1983); Stansbury v.
Sewell Cadallic-Chevrolet, Inc., 2003 U.S. Dist. Lexis 1682 *11
(E.D.
La.
2003)(recognizing
that
(A)(2)
and
(A)(3)
apply
to
violations of federal and state law). Consequently, Thomas’s claim
under (A)(1) must be dismissed, but her other La. Rev. Stat. §
23:967 claims survive.
Finally, ITT seeks dismissal of Thomas’s retaliation claim
under La. Rev. Stat. § 23:967 (A)(1) and (A)(2) for failure to
state a claim. Having already determined that Thomas’s (A)(1) claim
is flawed, this Court need only address whether Thomas states a
claim under (A)(2).
10
Under
subsection
(A)(2),
Thomas
must
provide
sufficient
information in her pleadings for the Court to infer that she was
retaliated
against
for
“[p]rovid[ing]
information
to
or
testif[ying] before any public body conducting an investigation,
hearing or inquiry into any violation of law.” La. Rev. Stat. §
23:967 (A)(2). In her complaint, Thomas alleges that after the
deans instructed her to create the inflated false grade records,
Thomas contacted ACICS to report the deans’ request. That provides
sufficient factual content for the Court “to draw the reasonable
inference that the defendant (ITT) is liable” under La. Rev. Stat.
§ 23:967 (A)(2). Accordingly, ITT’s motion to dismiss under (A)(2)
is denied. See Iqbal, 129 S. Ct. at 1949.
In conclusion, ITT’s motion to dismiss is GRANTED in part,
insofar as it seeks dismissal of her La. Rev. Stat. § 23:967
(A)(1) claim, and DENIED in part, insofar as it seeks dismissal of
the retaliation claim under the False Claims Act, 31 U.S.C. §
3730(h) and the remainder of her La. Rev. Stat. § 23:967 claims.
New Orleans, Louisiana, August 10, 2011
______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE
11
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