UNITED STATES OF AMERICA et al v. PREMIER EDUCATION GROUP, L.P. et al
OPINION. Signed by Judge Robert B. Kugler on 8/11/17. (dd, )
NOT FOR PUBLICATION
(Doc. Nos. 115, 119, 129, 131, 134, 165, 166)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
UNITED STATES OF AMERICA, ex rel.
LAPORTE, et al.,
PREMIERE EDUCATION GROUP, L.P.,
Civil. No. 11-3523 (RBK/AMD)
KUGLER, United State District Judge:
This matter comes before the Court upon its June 16, 2016 Order directing the parties to
file briefs addressing the impact of Universal Health Services, Inc. v. United States ex rel.
Escobar, 136 S. Ct. 1989 (2016), on its previous decision regarding Defendants’ motion to
dismiss. (Doc. No. 119). For the following reasons, the Court finds that its May 11, 2016
Opinion and Order granting in part and denying in part Defendants’ motion to dismiss the Fourth
Amended Complaint does not require further reconsideration due to intervening changes in the
law. Defendants’ motion for certification for interlocutory appeal (Doc. No. 115) is DENIED.
I. FACTUAL AND PROCEDURAL BACKGROUND
The Court need not recite the facts of this case, as they have been laid out in great detail
in this Court’s previous opinion addressing Defendants’ motion to dismiss the Fourth Amended
Complaint. See May 11, 2016 Opinion at 1-8 (Doc. No. 111). The Court previously dismissed a
number of counts, but found that Plaintiff’s stated False Claims Act claims under the “implied
certification theory” for Defendants’ allegedly misleading career placement performance
numbers, violations of the Incentive Compensation Ban related to providing bonuses based on
enrollments, and altering students’ grades and attendance records. Id. at 26-35. Defendants filed
a Motion for Certificate of Appealability on May 23, 2016, asking this Court to certify a question
to the Third Circuit asking “[w]hether [Program Participation Agreements] and [Higher
Education Act] Title IV statutes and regulations are conditions of participation rather than
conditions of payment such that the [False Claims Act] Remaining claims asserted by Plaintiffs
should have been dismissed?” Defs.’ Mot. Br. for Interlocutory Appeal at 5 (Doc. No. 115-11).
This Court denied Defendants’ request on June 16, 2016, finding that certification would not
materially advance the outcome of the litigation, nor would certification be appropriate in light
of the (then) recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar.
June 16, 2016 Order. The parties have submitted substantial briefing and supplemental briefing
regarding Escobar and subsequent Circuit decisions.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss an action for failure to
state a claim upon which relief can be granted. When evaluating a motion to dismiss, “courts
accept all factual allegations as true, construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)
(quoting Phillips, 515 F.3d at 233). In other words, a complaint is sufficient if it contains enough
factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). It is not
for courts to decide at this point whether the moving party will succeed on the merits, but
“whether they should be afforded an opportunity to offer evidence in support of their claims.” In
re Rockefeller Ctr. Props., Inc., 311 F.3d 198, 215 (3d Cir. 2002). Yet, while “detailed factual
allegations” are unnecessary, a “plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alteration in original)
To make this determination, a court conducts a three-part analysis. Santiago v.
Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010). First, the court must “tak[e] note of the
elements a plaintiff must plead to state a claim.” Id. (quoting Iqbal, 556 U.S. at 675). Second, the
court should identify allegations that, “because they are no more than conclusions, are not
entitled to the assumption of truth.” Id. (quoting Iqbal, 556 U.S. at 680). Finally, “where there
are well-pleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement for relief.” Id. (quoting Iqbal, 556 U.S. at 680).
This plausibility determination is a “context-specific task that requires the reviewing court to
draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. A complaint cannot
survive where a court can infer only that a claim is merely possible rather than plausible. Id.
A claim under the False Claims Act requires a showing of four elements: falsity,
causation, knowledge, and materiality. United States ex rel. Petratos v. Genentech Inc., 855 F.3d
481, 487 (3d Cir. 2017). Defendants claim that the Fourth Amended Complaint fails to
adequately allege both misrepresentation and materiality. Defs.’ Br. at 3-10 (Doc. No. 125).
The Supreme Court in Escobar held that “the False Claims Act encompasses claims that
make fraudulent misrepresentations, which include certain misleading omissions.” Escobar, 136
S. Ct. at 1999. “When . . . a defendant makes representations in submitting a claim but omits its
violations of statutory, regulatory, or contractual requirements, those omissions can be a basis for
liability if they render the defendant’s representations misleading with respect to the goods or
services provided.” Id. At issue in Escobar was whether the Defendant’s payment claims were
more than mere requests for payments that actually constituted misleading half-truths. Defendant
submitted reimbursement claims to Medicaid that used payment codes which were linked to
specific services that patients allegedly received. Id. at 1997. In some instances, the services that
the defendant claimed to provide were not rendered by an employee with the appropriate
credentials or licenses. Id. The Supreme Court held that “[b]y using payment and other codes
that conveyed [employee qualifications] without disclosing Arbour’s many violations of basic
staff and licensing requirements for mental health facilities, Universal Health’s claims
constituted misrepresentations.” Id. at 2000-01.
Defendants claim that the Fourth Amended Complaint fails the first half of the “strict”
two-prong test laid out in Escobar.1 Defs.’ Br. at 2-3. Defendants claim that, unlike the
Defendant in Escobar, “Premier’s alleged submission of claims contained no specific
representation about any services and therefore, no misleading half-truths.” Defs.’ Br. at 3. The
The Court finds that the United States District Court for the Northern District of
California’s opinion in Rose v. Stephens Institute is particularly relevant to the instant case. 2016
WL 5076214 (N.D. Cal. Sep. 20, 2016). Rose is similar to the instant case; the Relators in Rose
1. Plaintiffs refute Defendants’ contention that Escobar creates a strict test. Rather, they assert
that the Supreme Court merely held that an FCA claim can be stated under section 3729(a)(1)(A)
“at least” where the two factors are plead, rather than only when those factors are plead. Pl.’s Br.
at 2 (Doc. No. 126).
alleged that the defendant institution had submitted fraudulent claims for payment because the
institution had violated Title IV’s incentive compensation ban (“ICB”). Id. at *1. Defendant filed
a motion for reconsideration addressing the impact of Escobar on the Northern District of
California’s earlier order. Id. at 3. The Rose court found that the request for payment at issue
“represent[ed] that the student-borrower is ‘eligible’ and is enrolled in an ‘eligible program.’ If
[the institution] was not in compliance with the ICB, failure to disclosure (sic) this fact would
render the loan forms misleading because [the institution] would not have been an ‘eligible
institution.’” Id. at 5.
This Court has previously noted that Defendants’ initial and continued eligibility for
participation in Title IV programs, and by extension, the receipt of Title IV HEA funding was
conditioned on compliance with the terms of the Program Participation Agreement (“PPA”) and
the federal regulations therein. May 11, 2016 Op. at 36. This Court has also previously found
that Relators have adequately alleged that Defendants violated the following regulations: 34
C.F.R. section 668.74 (which prohibits “misrepresentations regarding the employability of an
eligible institution’s graduates); 34 C.F.R. section 668.14(22)(i) (which prohibits incentive
payments based directly or indirectly upon success in securing enrollments); 34 C.F.R. section
668.16(e) (which requires a school to apply reasonable standards to evaluate students’ progress);
and 34 C.F.R. section 668.22(b) (which requires institutions to take attendance if required by an
outside agency). May 11, 2016 Op. at 28, 31-35. Compliance with these regulations was a
condition for Defendants’ continued Title IV eligibility. Relators have alleged that Defendants
were violating these regulations, which would mean that Defendants were not eligible to receive
Title IV funds. Therefore, Relators have alleged that Defendants’ requests for payment were
misleading because they represented that Defendants were eligible to receive Title IV funds
when they were ineligible. Accordingly, the Court finds that Relators have sufficiently alleged
that Defendants’ requests for payment made “specific representations about the goods and
services provided” which constituted misleading half-truths. See Escobar, 136 S. Ct. at 2001.
The Escobar Court also explained how courts should view the materiality requirement.
“It explained that a misrepresentation is not material ‘merely because the Government designates
compliance with a particular statutory, regulatory, or contractual requirement as a condition of
payment . . . [or because] the Government would have the option to decline to pay if it knew of
the defendant’s noncompliance.’” Petratos, 855 F.3d at 489 (quoting Escobar, 136 S. Ct. at
2003). Defendants argue that Relators have also failed to adequately allege that the United States
would have refused payment had it known of PEG’s regulatory violations. Defs.’ Br. at 6-10.
This Court already addressed the sufficiency of the Fourth Amended Complaint with
regard to allegations that the United States would have refused payment. See May 11, 2016 Op.
at 36-37. The Court does not find it necessary to rehash this analysis in light of Escobar. This
Court previously found that “Relators have plead with sufficient particularity that the United
States would have refused payment had it known of PEG’s regulatory violations. Defendants are
welcome to defeat liability at the motion for summary judgment stage, if it can be shown that
United States would not have refused payment.” Id. at 36 (citation omitted). The Court renews its
invitation to Defendants to show that the United States would not have refused payment.
For the foregoing reasons, the Court finds that that its May 11, 2016 Opinion and Order
granting in part and denying in part Defendants’ motion to dismiss the Fourth Amended
Complaint does not require further reconsideration in light of Universal Health Services, Inc. v.
United States ex rel. Escobar. Defendants’ motion for certification for interlocutory appeal is
s/ Robert B. Kugler
ROBERT B. KUGLER
United States District Judge
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