United States of America et al v. Stevens-Henager College, Inc et al
Filing
468
MEMORANDUM DECISION AND ORDER:granting in part and denying in part 438 Motion to Dismiss Relators Fourth Amended Complaint; granting in part and denying in part 439 Motion to Dismiss the Governments Amended Complaint in Intervent ion ; granting 440 Motion for Leave to Take Judicial Notice. the relators Second Amended Complaint 52 , Third Amended Complaint 175 , and Fourth Amended Complaint 427 are STRICKEN for the reasons stated in Part III of this Order. If it desires to expand the scope of its allegations, the Government is directed to file a motion to amend under Federal Rule of Civil Procedure 15(a)(2) by February 4, 2019. Signed by Judge Jill N. Parrish on 1/14/2019. (jds)
FOR PUBLICATION
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
UNITED STATES OF AMERICA ex rel.
KATIE BROOKS and NANNETTE WRIDE,
Plaintiffs,
v.
STEVENS-HENAGER COLLEGE, INC., et
al.,
MEMORANDUM DECISION AND
ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS TO
DISMISS
Case No. 2:15-cv-119-JNP-EJF
District Judge Jill N. Parrish
Defendants.
INTRODUCTION
This is a qui tam action. Relators Katie Brooks and Nannette Wride alleged that Defendants
Stevens-Henager College, Inc.; California College San Diego, Inc.; CollegeAmerica Denver, Inc.;
CollegeAmerica Arizona, Inc.; the Center for Excellence in Higher Education (CEHE); and Carl
Barney (collectively, the Colleges) submitted false claims for federal financial aid.
The Government filed a complaint in intervention. It intervened on some but not all of the
relators’ claims against two defendants: Stevens-Henager and its apparent successor in interest,
CEHE. Shortly thereafter, the relators filed their second amended complaint. This complaint
asserted new claims and named additional defendants. The Government elected to not intervene
as to the new claims but “respectfully refer[red]” the court to 31 U.S.C. § 3730(b)(1), which
supposedly “allows [a] relator to maintain the non-intervened portion of the action in the name of
the United States.”
Since then, the Government’s claims against the Colleges have had two masters. The
United States has pursued some claims directly through its Complaint in Intervention. The relators,
on behalf of the United States, have asserted other claims against the Colleges in a separate
Complaint, which the relators have publicly amended by naming additional defendants and
asserting additional claims for relief. The operative pleadings in this case currently consist of an
Amended Complaint in Intervention filed by the Government and a Fourth Amended Complaint
filed by the relators.
The Colleges filed a motion to dismiss the Government’s Amended Complaint, [Docket
439], and a separate motion to dismiss the relators’ Fourth Amended Complaint, [Docket 438].
The Colleges have also moved this court to take judicial notice of certain documents in relation to
the motions to dismiss. [Docket 440]. The court subsequently asked the parties to brief whether
the False Claims Act permitted the relators to independently pursue claims against the Colleges
after the Government elected to intervene in the lawsuit. Upon consideration of the briefing of the
parties, the court rules as follows: the court GRANTS the motion for judicial notice, GRANTS IN
PART and DENIES IN PART the motion to dismiss the Government’s Amended Complaint, and
GRANTS IN PART and DENIES IN PART the motion to dismiss the relators’ Fourth Amended
Complaint. Finally, the court concludes that the relators may not maintain their separate complaint
in this action because the Government has elected to intervene. The court, therefore, STRIKES the
relators’ post-intervention complaints.
BACKGROUND
The relators filed their complaint in early 2013. They named as defendants StevensHenager, California College, CollegeAmerica Denver, and CollegeAmerica Arizona. The
complaint alleged that these schools were liable under the False Claims Act because they made
false statements concerning compliance with the Incentive Compensation Ban (ICB). Moreover,
the complaint alleged an alternative factual basis for liability as to Stevens-Henager: the school
made false statements to its accreditor regarding faculty qualifications.
2
Toward the end of 2013, the relators amended their complaint, adding CEHE and Carl
Barney as defendants. The amended complaint added three factual bases for liability as to StevensHenager. Specifically, Stevens-Henager allegedly made false statements concerning attendancetaking requirements, academic-progress requirements, and recordkeeping requirements.
In May 2014, the Government intervened in the action. The Government filed a complaint
in intervention that named two defendants: Stevens-Henager and CEHE. The Government stated
that it was intervening on some but not all of the relators’ claims. Specifically, the Government
alleged one factual basis for its claims against Stevens-Henager and CEHE: Stevens-Henager
made false statements concerning the ICB. The Government chose not to intervene as to any of
the claims against California College, CollegeAmerica Denver, CollegeAmerica Arizona, and Mr.
Barney.
Shortly after the Government intervened, the relators filed their second amended
complaint. Purporting to comply with 31 U.S.C. § 3730(b)(2), the relators filed portions of the
second amended complaint under seal because it “alleged violations of the [False Claims Act]
never before set forth in any prior complaint.” The relators included allegations that the Colleges
made false statements concerning the so-called 90/10 Rule—another factual basis for imposing
liability on the Colleges. The relators also expanded the factual bases for liability as to California
College, CollegeAmerica Denver, and CollegeAmerica Arizona.
The Government declined to intervene as to the new claims alleged in the second amended
complaint. But the Government “respectfully referred the Court to 31 U.S.C. § 3730(b)(1),” which
supposedly “allows [a] relator to maintain the non-intervened portion of the action in the name of
the United States . . . .” Section 3730(b)(1) actually provides:
A person may bring a civil action for a violation of section 3729 for the person and
for the United States Government. The action shall be brought in the name of the
3
Government. The action may be dismissed only if the court and the Attorney
General give written consent to the dismissal and their reasons for consenting.
The relators subsequently moved for leave to file a third amended complaint. The stated
purpose of the third amended complaint was to “narrow and streamline the scope of the allegations
and eliminate two theories of falsity from the [second amended complaint]: [the Colleges’]
violations of the attendance-taking and academic-progress requirements.” The relators explained
that they “never intended to pursue these theories” but included them “at the Government’s
request.” But because the Government declined to intervene as to these theories, the relators
“wish[ed] to eliminate them and focus on the . . . more substantial theories.”
Some six months later, following a change of venue to this court, the court granted the
relators leave to file a third amended complaint. At the hearing on the motion to amend, the parties
agreed that the relators could file a complaint that differed from the one attached to the motion to
amend. But despite representing that they would eliminate factual bases for liability related to
violations of attendance-taking and academic-progress requirements, the Third Amended
Complaint actually expanded those factual bases for liability to California College,
CollegeAmerica Denver, and CollegeAmerica Arizona. The Third Amended Complaint also added
Weworski & Associates, an accounting firm, as a defendant. The relators did not file the Third
Amended Complaint under seal, so the Government had no opportunity to intervene while the
complaint remained under seal.
The court eventually dismissed the relators’ Third Amended Complaint and granted the
relators and the Government leave to amend. The court granted both parties leave to amend so that
they could allege facts to support a theory of liability that appeared viable in light of the Supreme
Court’s decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct.
4
1989 (2016). The Government filed an Amended Complaint in intervention, and the relators filed
their Fourth Amended Complaint.
The Fourth Amended Complaint, like the relators’ previous complaints, expands the scope
of their claims. The relators allege that CEHE fraudulently induced the Department of Education
to execute a Program Participation Agreement (PPA) in January 2013—a period that was not
covered by any prior pleadings. And the relators allege that Stevens-Heanger violated the ICB by
paying bonuses to online admissions consultants and enrollment advisors who worked for
Independence University—an online school operated by Stevens-Henager. No prior pleading
mentioned Independence University. The relators did not file the Fourth Amended Complaint
under seal, so the Government had no opportunity to intervene while the complaint remained under
seal.
The Colleges moved to dismiss both the relators’ and the Government’s complaints,
claiming that neither states a claim upon which relief can be granted. After reviewing the briefing,
however, the court became concerned with the way the case had been litigated. Specifically, the
False Claims Act provides that if the Government intervenes in the action, the Government
conducts the action and has the primary responsibility for prosecuting the action. Nothing in the
False Claims Act suggests that a relator could maintain the non-intervened portion of an action,
conducting, in essence, his or her separate action. And in light of how the case had proceeded, the
court expressed concern as to whether the False Claims Act violates the “take Care” clause of
Article II. Accordingly, the court asked the parties to submit supplemental briefs on these issues,
which they did.
ANALYSIS
The court first addresses the Colleges’ motion to dismiss the Government’s Amended
Complaint and the related motion to take judicial notice. The court then turns to the Colleges’
5
motion to dismiss the relators’ Forth Amended Complaint. Finally, the court addresses the issue
of whether the relators may maintain a separate action after the Government chose to intervene.
I.
MOTION TO DISMISS THE GOVERNMENT’S AMENDED COMPLAINT
A.
The Government’s Amended Complaint in Intervention
Stevens-Henager must comply with the ICB, which provides that schools will not provide
“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.”
(Government’s Am. Compl. ¶ 27 (quoting 20 U.S.C. § 1094(a)(20)).)
In 2002, the regulations that accompany the ICB were amended to add certain “safe
harbor[s].” (Id. ¶¶ 30–31.) One of the safe harbors—Safe Harbor E—allows schools to pay
“[c]ompensation that is based upon students successfully completing their educations programs,
or one academic year of their education programs, whichever is shorter.” (Id. ¶ 30 (quoting 34
C.F.R. § 668.14(b)(22)(ii)(E)).)
1)
The Admissions Consultant Bonus Plan
Stevens-Henager distributed manuals to its admissions consultants. (Id. ¶ 69.) Each manual
provides examples of how an admissions consultant can receive bonuses by enrolling students.
(Id.) Stevens-Henager also issued various directives to its admissions consultants in the form of
“Procedure Directives” and “Information Letters.” (Id. ¶ 70.) Mr. Barney, the former sole
shareholder and chairman of Stevens-Henager, issued versions of “Procedure Directive 85R” in
2000, 2003, 2004, and 2007. (Id. ¶ 71.)
The 2007 Procedure Directive 85R details the Admissions Consultant Bonus Plan. (See id.
¶ 72.) When a student completes 36 credits, the admissions consultant who enrolled that student
receives a “Completion Certificate.” (Id. ¶ 74.) The value assigned to a Completion Certificate
6
depends on two factors: (1) the average number of starts (i.e., enrollments) that the admissions
consultant achieved during the last three modules, and (2) the admissions consultant’s “Interview
Conversion Rate.” (Id. ¶ 75.) Each module is about one month long and consists of about three or
four credit hours. (Id. ¶ 90.)
The 2007 Procedure Directive 85R contains a chart for determining the value of
Completion Certificates. (Id. ¶ 75.) The first row in the column is “Packaged Starts.” (Id. ¶ 79.)
Packaged Starts refers to the average number of starts that an admissions consultant achieved per
module during the last three modules. (See id. ¶ 72.) The lowest value in the Packaged Starts
column is five. (Id. ¶ 79.) The top row of the chart lists ascending Interview Conversion Rates, or
“Intconversion%” for short. (Id. ¶ 76.) The lowest value in the Intconversion% row is 33 percent.
(Id. ¶ 77.) Notes to the chart explain that “Intconversion%” is calculated by “[t]otal[ing] the last
three modules’ starts and interviews and dividing the total number of starts by the total number of
interviews.” (Id. ¶ 76.) So if an admissions consultant interviewed ten students and five enrolled,
the “Intconversion%” would be 50 percent. (See id.)
7
According to the chart, before an admissions consultant’s Completion Certificates were
worth anything, the admissions consultant had to (1) “start,” or enroll, at least five students per
module, and (2) enroll at least one out of every three students interviewed. If an admissions
consultant failed to meet either requirement, the admissions consultant’s Completion Certificates
were worthless because he or she would be ineligible to receive a bonus.
Under the 2007 Procedure Directive 85R, an admissions consultant who enrolled four
students, all of whom completed their studies, received no bonus. But an admissions consultant
who achieved a 33 percent Conversion Rate and enrolled five students—three of whom completed
their studies—would receive a $1,500 bonus ($500 per Completion Certificate). And an
admissions consultant who achieved a 40 percent Conversion Rate and enrolled ten students—two
8
of whom completed their studies—would receive an $8,000 bonus ($4,000 per Completion
Certificate).
Hypothetical
Admissions
Consultant
A
B
C
Starts
Completions
Conversion
Rate
Bonus
4
5
10
4
3
2
33%
33%
40%
$0
$1,500
$8,000
Ms. Brooks and Ms. Wride worked at Stevens-Henager between 2009 and 2011, and both
were aware of the Admissions Consultant Bonus Plan. (Id. ¶¶ 13–14.) Ms. Brooks and Ms. Wride
attended conferences in Las Vegas where they learned that Stevens-Henager employed the
Admissions Consultant Bonus Plan at all of its campuses. (Id. ¶ 84.) Stevens-Henager paid bonuses
based on the Admissions Consultant Bonus Plan until at least 2011. (Id. ¶ 89.)
2)
The Program Participation Agreements
To participate in Title IV programs, Stevens-Henager entered into PPAs with the
Department of Education. (Id. ¶ 25 (citing 20 U.S.C. § 1094(a); 34 C.F.R. § 668.14).) Each PPA
provides:
By entering into this [PPA], the Institution agrees that:
...
(22) It will not provide, nor contract with any entity that provides, 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
awarding of student financial assistance . . . .
(Id. ¶ 28 (citing 34 C.F.R. § 668.14(b)(22)).)
Vicky Dewsnup, as the President of Stevens-Henager, executed two PPAs on the school’s
behalf, one on April 19, 2007 and another on January 21, 2010. (Id. ¶¶ 57–58.) In both PPAs,
9
Stevens-Henager promised to comply with the ICB. (Id. ¶ 114.) But Stevens-Henager allegedly
knew that these promises were false because it was paying and planned to continue paying
admissions consultant bonuses based on their success in securing enrollments. (Id.) According to
the Government, Stevens-Henager’s promises to comply with the ICB were material to the
Department of Education’s decision to allow Stevens-Henager to receive Title IV funds. (Id.)
3)
The G5 Certifications
A student applies for financial aid by completing a free application. (Id. ¶ 40.) A school
uses the information in the application to create a financial-aid package for the student. (Id. ¶ 43.)
The student can accept all or part of the package. (Id. ¶ 44.) If the student accepts a Pell Grant, a
Direct Loan, or both, the student’s school creates an electronic origination record. (Id. ¶ 45.) The
school then submits the record to the Department of Education using a computerized database
called the Common Origination and Disbursement System. (Id.)
If the information supplied by the school is consistent with the Department of Education’s
information, the Department of Education makes funds available for the school to draw down from
a computerized system known as G5. (Id. ¶ 46.) Before drawing down funds, a school certifies that
“the funds are being expended within three business days of receipt for the purpose and condition
of the agreement.” (Id. ¶ 47.) The parties refer to this as the G5 certification.
Stevens-Henager submitted numerous claims for Title IV funds under its 2007 and 2010
PPAs. (Id. ¶ 61.) These claims were made in the G5 system and were accompanied by the
representation that the funds would be “expended within three business days of receipt for the
purpose and condition of the agreement.” (Id. ¶ 64.) According to the Government, the
“agreement” referenced in the G5 certification is the school’s PPA. (Id.) And, according to the
Government, “Stevens-Henager failed to disclose that it was violating the [ICB]” when it requested
funds in the G5 system. (Id. ¶ 65.) Because Stevens-Henager was “knowingly violating the [ICB],
10
[it] was not an eligible institution, thus rendering the institution (and its students) ineligible for
Title IV funds.” (Id.)
B.
The Motion to Take Judicial Notice
Stevens-Henager and CEHE (collectively, Stevens-Henager) ask the court to take judicial
notice of five Government documents: (1) the “Hansen Memo,” (2) the “Mitchell Memo,” (3) the
Government Accountability Office, GAO-10-370R, Higher Education: Information on Incentive
Compensation Violations Substantiated by the U.S. Department of Education (First GAO Report),
(4) the United States Government Accountability Office Report to the Congressional Committees:
Stronger Federal Oversight Needed to Enforce Ban on Incentive Payments to School Recruiters
(Second GAO Report), and (5) an Office of Inspector General Audit Report (OIG Report).
1) The Hansen Memo
The Hansen Memo is dated October 30, 2002. It was written by William D. Hansen, the
former Deputy Secretary of Education, and addressed to Terri Shaw, the former Chief Operating
Officer for Federal Student Aid. It provides, in relevant part:
The purpose of the memorandum is to provide direction with regard to the
Department’s response to violations of [the ICB] . . . .
The [ICB] was designed to reduce the financial inventive for an institution to enroll
students by misrepresenting the quality of the institution, or the ability of students
to benefit from its educational programs. The Department has in the past measured
the damages resulting from a violation as the total amount of student aid provided
to each improperly recruited student. After further analysis, I have concluded that
the preferable approach is to view a violation of the [ICB] as not resulting in
monetary loss to the Department. Improper recruiting does not render a recruited
student ineligible to receive student aid funds for attendance at the institution on
whose behalf the recruiting is conducted. Accordingly, the Department should treat
a violation of the law as a compliance matter for which remedial or punitive
sanctions should be considered.
In some instances, violations of the [ICB], either themselves or in combination with
other program violations, may constitute a basis for limitation, suspension, or
termination action. However, much more commonly, the appropriate sanction to
consider will be the imposition of a fine.
11
(footnote omitted).
2)
The Mitchell Memo
The Mitchell Memo is dated June 2, 2015. It was written by Ted Mitchell, the former
Undersecretary to the Secretary of Education, and addressed to James Runcie, the former Chief
Operating Office of Federal Student Aid. It provides, in relevant part:
Until 2002, long after the enactment of the [ICB], the Department measured
damages resulting from a violation of the prohibition as the total amount of student
aid provided to improperly recruited students. In 2002, however, the Department’s
Deputy Secretary issued [the Hansen Memo] that changed the Department’s
approach for measuring damages in the context of establishing administrative
liabilities, to view a violation of [the ICB] as not resulting in monetary loss to the
Department. The [Hansen Memo] rested on the view that the Department
purportedly suffers no loss when an institution receives Title IV funds by violating
the promises and representations it made as a condition of participation in the Title
IV programs.
To the contrary, the Department, in fact, incurs monetary loss upon a violation of
[the ICB], and the appropriate response is to recover that loss, as provided for in
the Department’s original policy. When acting as the Department’s fiduciary, an
institution may receive funds only in accord with the representations it makes in
order to become eligible for those funds. When an institution makes an incentive
payment based upon the number of students enrolled, the institution breaches those
representations. It thus violates a condition of its Title IV program eligibility and is
not entitled to receive those Title IV funds. In this situation, an institution is liable
to the Department for the cost of the funds it received.
Put simply, the Mitchell Memo repealed the Hansen Memo. But between October 30, 2002 and
June 2, 2015, the Department of Education’s position was that ICB violations do not result in
monetary loss and do not render students ineligible to receive Title IV funds.
3)
The Remaining Reports
In addition to the Hansen Memo and the Mitchell Memo, Stevens-Henager asks the court
to take notice of three reports: (1) the First GAO Report, (2) the Second GAO Report, and (3) the
OIG Report.
12
In the First GAO Report, the GAO analyzed the Department of Education’s programreview and audit-report data related to the ICB for January 1998 through December 2009. The
GAO found that during that period the Department of Education reported that 32 schools violated
the ICB. In addition to these 32 schools, the Department of Education entered into settlement
agreements with 22 other schools.
In the Second GAO Report, the GAO provided “additional information” on the Department
of Education’s oversight of the ICB between January 1998 and December 2009. The relevant
findings are as follows:
•
Between 1998 and 2008, [the Department of Education] resolved most incentive
compensation cases by requiring corrective actions or reaching settlement
agreements, and did not limit, suspend, or terminate any school’s access to federal
student aid.
•
[The Department of Education] changed its enforcement policy in 2002, which
resulted in an increased burden on [the Department of Education] to prove a
violation and lessened associated financial penalties (fines and settlement
payments). As a result, it became more difficult for [the Department of Education]
to prove a school violated the [ICB] and schools ultimately paid smaller penalties.
•
[Department of Education] officials shared with [the GAO] internal guidance that
is used to determine fines and settlement payments for incentive compensation
cases. Internal guidance for imposing fines and settlement payments establishes
caps on total penalty amounts, although related regulations do not have such caps.
[Department of Education] officials have stated that the agency has not always used
the guidance to determine fines and settlement payments.
•
[The Department of Education’s] varying approaches for determining fines and
settlement payments could lead to inconsistent treatment of schools without
adequate justification for the differential treatment. For example, some schools
were fined for [ICB] violations, while others were not. In one case, [the Department
of Education] withdrew an initiated school fine of over $2 million dollars, and case
documentation did not reveal the reason for the fine withdrawal.
In the OIG Report, the OIG reiterated the findings from the First and Second GAO Reports,
made findings as to Department of Education’s enforcement of the ICB, and proposed
recommendations that would facilitate enforcement of the ICB.
13
4)
Judicial Notice: Federal Rule of Evidence 201
A court may take judicial notice of a fact that is not subject to reasonable dispute because
the fact “can be accurately and readily determined from sources whose accuracy cannot reasonably
be questioned.” FED. R. EVID. 201(b). This rule allows courts to “take judicial notice of . . . facts
which are a matter of public record.” Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006)
(citation omitted). If a party requests that a court take judicial notice of a fact and supplies the court
with the necessary information to do so, the court must take judicial notice of the fact. FED. R.
EVID. 201(c).
Here, the court must take judicial notice as to the contents of the five documents provided
by Stevens-Henager because their contents can be accurately and readily determined from sources
whose accuracy cannot be questioned. See FED. R. EVID. 201(b); Tal, 453 F.3d at 1264 n.24.
Indeed, no party disputes the authenticity and accuracy of the documents, and the documents are
a matter of public record. Instead, the parties’ dispute centers on what the court should do once it
has taken notice as to the contents of the documents.
Stevens-Henager contends that the court can use the documents to take judicial notice of
the fact that the Department of Education “did not enforce the ICB by seeking the return of Title
IV funds or by terminating or limiting participation in Title IV programs.” The Second GAO
Report provides: “Between 1998 and 2008, [the Department of Education] resolved most incentive
compensation cases by requiring corrective actions or reaching settlement agreements, and did not
limit, suspend, or terminate any school’s access to federal student aid.” 1 The Government has not
argued that the accuracy of this finding can be questioned, so the court takes judicial notice of it.
1
This is hearsay, but it is covered by the public-records exception. See FED. R. EVID. 803(8)(A)(iii)
(factual findings from a legally authorized investigation).
14
But the Government argues that the court must not use this fact to infer that the Department
of Education did not attach importance to a school’s representations about the ICB, and the court
agrees that it would be improper to use this fact to draw inferences against the Government at this
stage. See Sutton v. Utah State Sch. for Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (“The
court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might
present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to state a
claim for which relief may be granted.” (citation omitted)); United States v. Corinthian Colleges,
655 F.3d 984, 999 (9th Cir. 2011) (“Nonetheless, we may not, on the basis of these reports, draw
inferences or take notice of facts that might reasonably be disputed.”).
In sum, the court takes judicial notice of the fact that “[b]etween 1998 and 2008, [the
Department of Education] resolved most incentive compensation cases by requiring corrective
actions or reaching settlement agreements, and did not limit, suspend, or terminate any school’s
access to federal student aid.” But it would nevertheless be improper for the court to use this fact
to draw inferences against the Government or the relators at this stage of the proceedings, which
is, in reality, what Stevens-Henager asks the court to do. Indeed, Stevens-Henager asks the court
to use the judicially noticed fact to conclude that the Department of Education did not attach
importance to a school’s promise to comply with the ICB. This the court cannot do.
C.
The Motion to Dismiss
Stevens-Henager moves to dismiss the Government’s amended complaint on the grounds
that it fails to state a claim upon which relief can be granted. But, as noted above, Stevens-Henager
did not address the Government’s claims for payment by mistake and unjust enrichment, so the
motion is better characterized as a motion to dismiss the Government’s claims that arise under the
False Claims Act. Moreover, Stevens-Henager’s motion focuses almost entirely on only one of the
Government’s two theories of liability, the theory based on Stevens-Henager’s G5 certifications.
15
Stevens-Henager raises, in essence, three arguments. First, Stevens-Henager argues that
the Government fails to allege that Stevens-Henager’s requests for payment in the G5 system
constitute false claims. Second, Stevens-Henager argues that the Government fails to allege that
Stevens-Henager knew that its requests for payment made in the G5 system were false. Third,
Stevens-Henager argues that the Government has not alleged sufficient facts to establish that ICB
noncompliance was material to the Department of Education’s payment decisions.
1) Motion Standard
A complaint must contain “a short and plain statement of the claim showing that the pleader
is entitled to relief.” FED. R. CIV. P. 8(a)(2). This standard “does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the defendant-unlawfully-harmed-me
accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007)). Where the allegations are merely “labels and conclusions” or a “formulaic
recitation of the elements of a cause of action,” the plaintiff’s claim will not survive a motion to
dismiss. Twombly, 550 U.S. at 555. To survive, the plaintiff’s allegations “must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556
U.S. at 678 (quoting Twombly, 550 U.S. at 570). Plausibility, in this context, means that the
allegations allow “the court to draw [a] reasonable inference that the defendant is liable for the
alleged misconduct.” Id. Allegations that are merely consistent with a defendant’s liability do not
give rise to a plausible claim. Id.
A plaintiff alleging violations of the False Claims Act must also satisfy the heightened
pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. U.S. ex rel. Sikkenga v.
Regence BlueCross BlueShield of Utah, 472 F.3d 702, 726 (10th Cir. 2006). Rule 9(b) provides
that a plaintiff must “state with particularity the circumstances constituting fraud.” To satisfy this
standard, a plaintiff must allege the “‘who, what, when, where, and how’ of the alleged fraud.” Id.
16
at 726–27 (citation omitted). Put another way, the plaintiff must “set forth the time, place, and
contents of the false representation, the identity of the party making the false statements and the
consequences thereof.” Id. at 727 (citation omitted). “Underlying schemes and other wrongful
activities that result in the submission of fraudulent claims are included in the ‘circumstances
constituting fraud and mistake’ that must be pled with particularity under Rule 9(b).” Id. (citation
omitted). Moreover, “[a] relator must provide details that identify particular false claims for
payment that were submitted to the government.” Id. (citation omitted).
2)
The False Claims Act: Section 3729
“[A]ny person who knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval . . . is liable to the United States Government for a civil penalty
. . . plus 3 times the amount of damages which the Government sustains because of the act of that
person.” 31 U.S.C. § 3729(a)(1). The term “knowingly” means “that a person, with respect to
information (i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the
truth or falsity of the information; or (iii) acts in reckless disregard to the truth or falsity of the
information.” § 3729(b)(1). The term “claim” means, among other things, “any request or demand
. . . for money or property . . . that is presented to an officer, employee, or agent of the United
States.” § 3729(b)(2). Thus, to state a claim under the False Claims Act, a plaintiff must allege
three things: (1) the defendant submitted a claim for payment to the Government, (2) the claim
was false, and (3) the defendant knew the claim was false. § 3729(a)(1)(A); United States ex rel.
Brooks v. Stephens-Henager College, 305 F. Supp. 3d 1279, 1293 (D. Utah 2018). 2
2
The False Claims Act was amended in 2009. Fraud Enforcement and Recovery Act of 2009, Pub.
L. No. 111-21, sec. 4, 123 Stat. 1617, 1621 (2009). And the Government brings claims under both
the pre- and post-amendment versions of the statute. But the court previously determined that there
is no reason to treat the claims differently, Brooks, 305 F. Supp. 3d at 1293 n.5, and no party has
17
3)
The G5 Certifications
The Government contends that it has sufficiently alleged that Stevens-Henager’s requests
for payment in the G5 system are false claims because they were accompanied by G5 certifications
that were half-truths that misled the Department of Education into believing that Stevens-Henager
was an eligible institution. According to the Government, a G5 certification impliedly certifies that
the student for whom the funds are requested is eligible to receive Title IV funds. And, as the
Government’s argument goes, a student is eligible to receive Title IV funds only if he or she is
enrolled at an eligible institution. And Stevens-Henager, according to the Government, was not an
eligible institution because it violated the ICB. But this theory fails for at least two reasons.
First, the Government’s allegations are inconsistent with Title IV’s regulatory framework.
There is a distinction between an institution’s designation as an eligible institution under Part 600
and its certification to participate in Title IV programs under Part 668. The regulations “recognize
[a] distinction between determinations that institutions meet the definition of an eligible institution,
and matters relating to the assessment of administrative and financial capability, typically referred
to as the certification process.” Institutional Eligibility Under the Higher Education Act of 1965,
as Amended; Student Assistance General Provisions, 55 Fed. Reg. 32,180 (Aug. 7, 1990) (to be
codified at 34 C.F.R. pts. 600 and 668).
An institution must qualify as an eligible institution before it can be certified to participate
in Title IV programs. “The Secretary certifies an institution to participate in the title IV, HEA
programs if the institution qualifies as an eligible institution under 34 CFR Part 600 [and] meets
the standards of [Part 688, subpart B, which includes the PPA requirement].” 34 C.F.R.
suggested that the court do otherwise. Accordingly, the court applies the post-2009 version of the
statute.
18
§ 668.13(a). An institution becomes certified when it enters into a PPA with the Department of
Education. Indeed, the PPA “conditions the initial and continued participation of an eligible
institution in any Title IV programs” on compliance with various legal requirements.
§ 668.14(a)(1) (emphasis added). The “initial and continuing participation” language does not
mean that a school becomes ineligible to participate in Title IV programs simply because it violates
the ICB.
The applicable regulations explain the possible consequences for failing to comply with a
PPA:
Noncompliance with these standards by an institution already participating in any
Title IV, HEA program . . . may subject the institution . . . to proceedings under
subpart G of this part. These proceedings may lead to any of the following actions:
(1) An emergency action.
(2) The imposition of a fine.
(3) The limitation, suspension, or termination of the participation of the institution
in a Title IV HEA, program.
§ 668.11(b) (emphasis added). Notably, an institution may continue to participate in Title IV
programs despite noncompliance with its PPA unless the Secretary of Education commences
proceedings that result in the “termination of the participation of the institution in a Title IV HEA,
program.” § 668.11(b)(3). Moreover, the regulations make clear that “[a]n institution’s
participation in a Title IV, HEA program ends on the date that . . . [t]he institution’s participation
is terminated under the proceedings in subpart G [of Part 668]; [or] . . . [t]he institution’s [PPA]
is terminated or expires under § 668.14 . . . .” § 668.26(a)(3), (5) (emphasis added). That is, an
institution can participate in Title IV programs unless and until its PPA is terminated or expires.
The Government argues that Stevens-Henager “was not an eligible institution because it
violated a core requirement in its PPA—the ICB—and that violation made the institution (and thus
19
its students) ineligible for Title IV funds.” But there is no regulation that provides for an automatic
loss of eligibility when an institution violates “a core requirement of its PPA.” The Government
simply ignores the applicable regulations in an attempt to suit its legal theory.
In short, the Government fails to allege that students at Stevens-Henager were ineligible to
receive Title IV funds. The Government does not allege that the Secretary of Education terminated
Stevens-Henager’s PPA or its participation in Title IV programs. Put simply, the Government’s
allegation that Stevens-Henager was ineligible to participate in Title IV because it violated the ICB
is an unsupported legal conclusion that is belied by the applicable regulations. Consequently, the
Government’s claims fail to the extent they are based on a theory that Stevens-Henager’s students
were ineligible to receive Title IV funds because the school was not an eligible institution.3
Second, even if the Government had alleged that Stevens-Henager was not an eligible
institution (it did not), the Government has failed to allege that Stevens-Henager knowingly
misrepresented that it was an eligible institution when it submitted G5 certifications. The
Government alleges that Stevens-Henager knowingly violated the ICB. (Am. Compl. ¶ 97.) But
“a violation of a regulatory provision, in the absence of a knowingly false or misleading
representation, does not amount to fraud.” United States ex rel. Trim v. McKean, 31 F. Supp. 2d
1308, 1315 (W.D. Okla. 1998) (emphasis added). “Violating a regulation is not synonymous with
filing a false claim.” United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772
F.3d 1102, 1107 (7th Cir. 2014).
3
In fact, the Government, as amicus curiae in another case, admitted that a school’s G5
certifications were “literally true,” despite noncompliance with the ICB, because the Department
of Education had “not (yet) terminated the school’s eligibility.” Brief for the United States of
America as Amicus Curiae Supporting Appellees at 20, United States ex rel. Rose v. Stephens
Institute, No. 17-15111 (filed Aug. 7, 2017). This admission is consistent with the regulatory
framework and contradicts the Government’s theory in this case.
20
The Government argues in its brief that it has alleged that Stevens-Henager knew that it
was ineligible to receive Title IV funds because of ICB violations, rendering its requests for Title
IV funds false or fraudulent. To support this, however, the Government cites a paragraph of its
complaint that provides that Stevens-Henager was not an eligible institution because it “knowingly
violat[ed] the [ICB].” (Am. Compl. ¶ 65.) That is not enough. The Government needed to allege
that Stevens-Henager knew that it was ineligible to receive Title IV funds, and thus knew that its
requests for payment were false or fraudulent.
The Government notes that knowledge may be alleged generally. True, “[k]nowledge . . .
may be alleged generally.” FED. R. CIV. P. 9(b). But the Government has not even attempted to
allege that Stevens-Henager knew that it was ineligible to receive Title IV funds because of ICB
violations. Put simply, the Government misses the point. Perhaps the Government could have
alleged generally that Stevens-Henager knew that it was ineligible to receive Title IV funds based
on ICB violations. But it did not.4 Because the Government has failed to allege that StevensHenager knew that it was ineligible to receive Title IV funds because of ICB violations, the
Government has not plausibly alleged that Stevens-Henager knew that its requests for Title IV
funds were false.
Stevens-Henager also argues that the Government’s claims based on G5 certifications fail
because the Government has not pled “facts supporting materiality.” The court, however, need not
address this argument because the Government has failed to allege that Stevens-Henager’s requests
4
The Government, however, is probably unable to allege this in good faith because its own policy
between 2002 and 2015 was that “[i]mproper recruiting does not render a recruited student
ineligible to receive student aid funds for attendance at the institution on whose behalf the
recruiting is conducted.”
21
for payment in the G5 system were either expressly or impliedly false, and even if they were, the
Government has not alleged that Stevens-Henager knew that the requests for payment were false.
For the reasons stated above, the court dismisses the Government’s claims under the False
Claims Act to the extent that they are based upon its G5 certification theory of liability. Because
there is a fundamental legal impediment to the G5 certification theory, amendment of the
complaint would be futile. Bylin v. Billings, 568 F.3d 1224, 1229 (10th Cir. 2009) (“Refusing leave
to amend is generally only justified upon a showing of undue delay, undue prejudice to the
opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously
allowed, or futility of amendment.” (citation omitted)). Therefore, dismissal is with prejudice.
4)
Promissory Fraud: The PPAs
The court previously determined that the Government had stated a claim under the False
Claims Act based on a theory of promissory fraud. Stevens-Henager suggests that the court should
reconsider this ruling and hold that ICB noncompliance is not material to the Department of
Education’s payment decisions. But Stevens-Henager misunderstands the court’s prior holding
and the promissory-fraud theory of liability.
Unlike the terms “claim” and “knowingly,” which are defined in the False Claims Act,
“false” and “fraudulent” are defined only by judicial interpretation and construction. United States
ex rel. Polukoff v. St. Mark’s Hosp., 895 F.3d 730, 740 (10th Cir. 2018). Congress has explained
that the terms “false” and “fraudulent” should be construed broadly:
[E]ach and every claim submitted under a contract, loan guarantee, or other
agreement which was originally obtained by means of false statements or other
corrupt or fraudulent conduct, or in violation of any statute or applicable regulation,
constitutes a false claim.
S. Rep. No. 99-345, at 9 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5274 (emphasis added)
(citing United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943)).
22
Consistent with this, courts have recognized that False Claims Act liability can attach to
each and every claim submitted under a PPA that was obtained through fraudulent statements.
United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 503–05 (8th Cir. 2016); United
States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th Cir. 2006); United States ex
rel. Main v. Oakland City Univ., 426 F.3d 914, 916–17 (7th Cir. 2005). Put simply, an initial
falsehood “can taint subsequent claims for payment, even if those claims are for legitimate goods
or services.” Joan H. Krause, Reflections on Certification, Interpretation, and the Quest for Fraud
that “Counts” Under the False Claims Act, 2017 U. Ill. L. Rev. 1811, 1817 (2017); see also
Hendow, 461 F.3d at 1173 (“[S]ubsequent claims are false because of an original fraud (whether
a certification or otherwise).”).
As the court previously explained, to state claim under the False Claims Act based on
promissory fraud, the Government must allege: “(1) Stevens-Henager made false statements in its
PPAs; (2) Stevens-Henager knew that its statements were false; (3) the statements were material
to Department of Education’s decision to execute the PPAs; and (4) Stevens-Henager made claims
for payment under the fraudulently induced PPAs.” Brooks, 305 F. Supp. 3d at 1299–300
(emphasis added).
The court went to great lengths to explain to the parties the proper focus for materiality
when liability is based on a theory of promissory fraud:
[T]he Government’s claims are based on promissory fraud, unlike the claim in
Escobar, which was based on implied certification. The Supreme Court, in
Escobar, discussed materiality as it relates to claims for reimbursement that are
allegedly false because they impliedly certify compliance with underlying
regulations. Here, the Government alleges that claims were false based on
promissory fraud: Stevens-Henager falsely certified that it would comply with the
ICB in its 2007 and 2010 PPAs. In other words, the “fraud” was not a failure to
disclose noncompliance with a regulation, as was the case in Escobar, but rather an
affirmative misrepresentation: a false promise to comply with the ICB. Because the
Government alleges promissory fraud, the court “examines the false statements that
23
induced the government to enter the [PPAs].” Thus, the court must determine
whether the Government has alleged sufficient facts to plausibly establish that
Stevens-Henager’s allegedly false promises to comply with the ICB in its PPAs
were material to the Department of Education’s decision to execute the PPAs.
Id. at 1301–02 (citation omitted). After explaining the relevant inquiry, the court held that “the
Government ha[d] alleged sufficient facts to plausibly establish that the Department of Education
attached importance to Stevens-Henager’s promises to comply with the ICB.” Id. at 1302.
Stevens-Henager suggests that this was error “because the same materiality requirements
apply to all [False Claims Act] claims.” True, the materiality standard does not change: “a false
statement is material under the False Claims Act ‘if either (1) a reasonable person would likely
attach importance to it or (2) the defendant knew or should have known that the government would
attach importance to it.’” Id. at 1300 (citation omitted). But, as the court made clear, the standard
applies to the false statement that forms the basis of liability, which, for the Government’s claims
based on promissory fraud, is the statement that induced the Department of Education to enter into
PPAs with Stevens-Henager.
Because Stevens-Henager has not addressed whether its allegedly false promises in its
PPAs were material to the Department of Education’s decision to enter into the PPAs, the court
declines to revisit its prior holding. Accordingly, the Government may proceed on a theory that
Stevens-Henager submitted false claims for payment based on a theory of promissory fraud.
II.
MOTION TO DISMISS THE RELATORS’ FOURTH AMENDED COMPLAINT
The relators allege three claims for relief based upon three distinct theories of liability.
First, the relators allege that the Colleges are liable under 31 U.S.C. § 3729(a)(1)(B) and its
predecessor because they fraudulently induced the Department of Education to enter into various
PPAs, thereby rendering their subsequent requests for Title IV funds “false or fraudulent.” Second,
the relators allege that the Colleges are liable under § 3729(a)(1)(A) and its predecessor because
24
their requests for Title IV funds were rendered false by virtue of their G5 certifications. Third, the
relators allege that the Colleges are liable under § 3729(a)(1)(B) and its predecessor because they
made false statements in their Required Management Assertions (RMAs).
A. The G5 Certifications
The relators, like the Government, allege that the Colleges are liable under the False Claims
Act because of their G5 certifications. (Fourth Am. Compl. ¶¶ 387–91.) This claim, however, fails
for the same reason that the Government’s G5 certification claim fails. The relators, like the
Government, have failed to allege that the Colleges were ineligible to receive Title IV funds, and
even if the relators had, they have not alleged that the Colleges knew that they were ineligible to
receive Title IV funds. The court, therefore, dismisses the relators’ second claim for relief with
prejudice.
B.
The Required Management Assertions
The Colleges submitted RMAs that expressly certified compliance with the legal
requirements that they allegedly violated. (Id. ¶ 235.) The RMAs were required as part of the
Colleges’ annual audit process. (Id. ¶ 236.) Indeed, the first step of the audit process is for a
school’s management to provide RMAs to the school’s auditor. (Id. ¶ 238.)
According to the relators, the Colleges are liable under the False Claims Act because
assertions in their RMAs were false. (Id. ¶ 394.) In the relators’ own words, the Colleges “are
liable for . . . violations of 31 U.S.C. § 3729(a)(1)(B) and its predecessor statute for falsely and
expressly certifying compliance with each of the Legal Requirements in the[ir] RMAs.” (Id.
¶ 392.) But this claim for relief fails.
Section 3729(a)(1)(B) imposes liability on any person who “knowingly makes, uses, or
causes to be made or used, a false record or statement material to a false or fraudulent claim.” A
claim for relief under § 3729(a)(1)(B) has three elements: (1) the defendant makes a false
25
statement, (2) the defendant knows that the statement is false, and (3) the false statement is material
to a false claim for payment. § 3729(a)(1)(B); Brooks, 305 F. Supp. 3d at 1293–94. “Section
3729(a)(1)(B) is ‘designed to prevent those who make false records or statements . . . to get claims
paid or approved from escaping liability solely on the ground that they did not themselves present
a claim for payment or approval.’” Brooks, 305 F. Supp. 3d at 1294 (quoting Pencheng Si v. Laogai
Research Found., 71 F. Supp. 3d 73, 87 (D.D.C. 2014)). “In other words, the primary purpose of
§ 3729(a)(1)(B) is to remove any defense that the defendant did not personally submit, or cause to
be submitted, a false claim.” Id. Indeed, many violations of § 3729(a)(1)(B) may also be
considered violations of § 3729(a)(1)(A), which imposes liability on persons who “knowingly
present[], or cause[] to be presented, a false or fraudulent claim for payment or approval.” Id.
The court has already explained the problems with relators’ theory of liability based on the
RMAs. Brooks, 305 F. Supp. 3d at 1314. To be clear, the RMAs are not “claims”—that is, they
are not requests for payment. See § 3729(b)(2); Brooks, 305 F. Supp. 3d at 1296 n.6 (pointing out
that PPAs are not “claims,” as that term is used in the statute). The RMAs are nothing more than
a set of statements, or assertions. And the False Claims Act does not impose liability on persons
who “knowingly make[] . . . a false record or statement.” Cf. § 3729(a)(1)(B). Instead, the false
record or statement must be material to a “false or fraudulent claim.” § 3729(a)(1)(B). In essence,
the relators attempt to impose liability on false statements alone, reading the “false or fraudulent
claim” requirement out of § 3729(a)(1)(B). Consequently, the relators’ third claim for relief must
be dismissed with prejudice because it is not based on a valid legal theory.
Indeed, the court is confused as to the purpose of the relators’ third claim for relief. The
purpose of § 3729(a)(1)(B) is to remove any defense that the defendant did not submit the false
claim. Brooks, 305 F. Supp. 3d at 1294. But in this case the Colleges are alleged to have submitted
26
(or at least caused to be submitted) each and every claim for payment. And the relators themselves
allege, albeit in a conclusory fashion, that “the RMAs did influence the payment of false claims.”
(Fourth Am. Compl. ¶ 395 (emphasis added).) That is, the relators allege that the Colleges’ claims
for payment, which the Colleges submitted, are false claims. If those claims are false, which they
must be for the relators to prevail under § 3729(a)(1)(B), then the relators should have proceeded
under § 3729(a)(1)(A). In other words, if the Colleges’ claims for payment were false, there is no
need to show that they also made false statements in their RMAs. See § 3729(a)(1)(A) (imposing
liability on anyone who submits a false claim for payment).
The court, therefore, dismisses with prejudice the relators’ third claim for relief based upon
the RMAs.
C.
The PPAs
The Colleges entered into a number of PPAs with the Department of Education. (See Fourth
Am. Compl. ¶ 208.) When a school enters into a PPA, it agrees that, among other things:
(4) It will establish and maintain such administrative and fiscal procedures and
records as may be necessary to ensure proper and efficient administration of funds
received from the Secretary or from students under the Title IV, HEA programs
....
(16) For a proprietary institution, the institution will derive at least 10 percent of its
revenues for each fiscal year from sources other than Title IV, HEA program funds
....
(22) It will not provide, nor contract with any entity that provides, any commission,
bonus, or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any person or entities engaged in any
student recruiting or admission activities or in making decisions regarding the
awarding of student financial assistance . . . .
(23) It will meet the requirements established pursuant to Part H of Title IV of the
HEA by . . . nationally recognized accrediting agencies; [and]
(24) It will comply with the refund provisions established in 34 CFR Part 668.22.
(Id. ¶ 212.)
27
1) The 90/10 Rule
A proprietary school, when it executes a PPA, agrees that it “will derive at least 10 percent
of its revenues for each fiscal year from sources other than Title IV [programs].” (Id.) This is the
so-called 90/10 Rule. 20 U.S.C. § 1094(a)(24). The relators allege that the Colleges took various
steps “to inflate their revenue from non-governmental sources for 90/10 Rule purposes.” (Id.
¶ 196.) But the relators have not alleged that the Colleges made false statements in their PPAs
concerning the 90/10 Rule. (See id. ¶¶ 215–24.) 5 Accordingly, the relators have not sufficiently
alleged that any of the Colleges’ claims for payment were “false or fraudulent” because they made
false statements in their PPAs concerning the 90/10 Rule. (See id.) Thus, the court dismisses the
relators’ first claim to the extent that it rests upon the 90/10 Rule.
2)
The ICB
As explained above, schools, in their PPAs agree to not pay employees “commission[s],
bonus[es], or other incentive payment[s] based directly or indirectly on [their] success in securing
enrollments.” (Id. ¶ 212.) The relators have plausibly alleged that the Colleges compensated
employees based on their success in enrolling students beginning in 2003 and ending in July 2011.
(Id. ¶¶ 34–120.) Specifically, the Colleges uniformly paid bonuses on versions of Procedure
Directive 85R during this timeframe. (Id. ¶¶ 42–65.) Each version of Procedure Directive 85R
detailed bonuses that admissions consultants could earn based “on [their] success in securing
enrollments.” (Id.)
5
The court is confused as to why the relators allege that the Colleges agreed to comply with the
90/10 Rule in their PPAs. (Fourth Am. Compl. ¶ 212.) But then the relators do not allege that any
of the Colleges ever made false statements in their PPAs as to the 90/10 Rule. (See id. ¶¶ 215-24.)
This, however, is consistent with the scattershot approach that the relators have taken with their
pleadings. See Brooks, 305 F. Supp. 3d at 1309 n.20 (discussing how the relators copied wholesale
portions of a complaint used by the Government in another case).
28
In July 2011, the Colleges “repealed their then-existing [Admissions Consultant] Bonus
Plan and FP Bonus Plan.” (Id. ¶ 120.) But according to the relators, the Colleges began violating
the ICB again in “approximately April 2014.” (Id. ¶ 121.) Specifically, the Colleges implemented
an Online Admissions Consultant Bonus Plan under which online admissions consultants earned
a base salary of $38,000 but could earn up to $60,000 if they started, or enrolled, an average of six
students per module. (Id. ¶ 122.) In short, the relators have plausibly alleged that the Colleges
compensated online admissions consultants based on their success in enrolling students beginning
around April 2014. (See id. ¶¶ 120–27.)
The relators have plausibly alleged that the Colleges knowingly misrepresented their intent
to comply with the ICB in the following PPAs: Stevens-Henager’s April 2007 PPA; StevensHenager’s January 2010 PPA; CollegeAmerica Denver’s June 2007 PPA; College America
Denver’s February 2010 PPA; CollegeAmerica Arizona’s June 2008 PPA; CollegeAmerica
Arizona’s November 2011 PPA; and California College’s August 2008 PPA. (See id. ¶¶ 215–24.) 6
When the Colleges executed these PPAs, they were paying and continued to pay bonuses based on
employees’ successes in enrolling students. (See id. ¶¶ 42–65.) This plausibly establishes that the
Colleges knowingly misrepresented their intent to comply with the ICB when they executed the
various PPAs identified above.
The relators, however, have failed to allege that CEHE knowingly misrepresented its intent
to comply with the ICB in its 2013 PPA. (Id. ¶¶ 217, 220). When CEHE executed this PPA, the
6
Notably, if the Government can prove that the Colleges made false statements concerning their
intent to comply with the ICB in these PPAs, the additional factual bases for proving that the
Colleges fraudulently induced the Department of Education to enter into these PPAs would be
irrelevant for establishing a claim under § 3729(a)(1)(A). That is, proving that a school made
multiple false statements in a PPA does not increase the number of false claims. Put simply, the
number of claims doesn’t change when there are multiple false statements in a PPA.
29
Colleges had “repealed their then-existing [Admissions Consultant] Bonus Plan and FP Bonus
Plan.” (Id. ¶ 120.) Indeed, “[admissions consultants] could earn no new bonuses after July 2011”
but “they continued to be paid under the old program until approximately early 2012.” (Id. ¶ 82
(emphasis added); see also id. ¶ 110.)
So, taking the relators’ allegations as true, the Colleges were not violating the ICB when
CEHE executed its PPAs in January 2013. (See id. ¶¶ 82, 120.) And the Colleges did not begin to
violate the ICB because of the Online Admissions Consultant Bonus Plan until “approximately
April 2014,” over a year after CEHE executed its January 2013 PPAs. (See id. ¶ 121.)
Consequently, unlike the PPAs executed between 2007 and 2011, the relators have not plausibly
alleged that CEHE knowingly misrepresented its intent to comply with the ICB in its January 2013
PPA.
In sum, the relators have plausibly alleged that the Colleges knowingly misrepresented
their intent to comply with the ICB in the PPAs executed between 2007 and 2011. But the relators
have not plausibly alleged that CEHE knowingly misrepresented its intent to comply with the ICB
in its January 2013 PPA. The court dismisses the relators’ first cause of action to the extent that it
is based upon this PPA.
3)
Refund Requirement
Schools that participate in Title IV programs must keep accurate records related to
administration of Title IV funds, including records relating to student attendance and grades. (Id.
¶ 156.) Regulations specify that all schools must keep accurate records at all times, including
records relating to a student’s eligibility to receive Title IV funding and any refunds that the school
must remit to the Department of Education based on a student’s ineligibility to receive Title IV
funds. (Id. ¶ 157 (citing 34 C.F.R. § 668.24(c)(iii)–(iv)).)
30
If a student enrolls at a school but fails to attend class, the school must refund any Title IV
funds received for that student to the Department of Education. (Id. ¶ 158 (citing 20 U.S.C.
§ 1091b; 34 C.F.R. § 668.21(a), (c)).) Similarly, if a student attends some classes but then stops
attending classes, the school must calculate the amount of unearned Title IV funds and refund that
amount to the Department of Education. (Id. ¶ 159 (citing 20 U.S.C. § 1091b; 34 C.F.R.
§ 668.22(a)(1), (4); § 668.33(b), (g)(i)).)
A school uses its attendance records to determine a student’s withdrawal date, which, in
turn, determines how much money the school must refund to the Department of Education. (Id.
¶ 160 (citing 34 C.F.R. § 668.22(a)(2)(i)(A), (b)).) Because a student’s withdrawal date is
determined based on attendance records, schools must accurately record and report student
attendance. (Id. ¶ 161.) But because schools retain more money if a student’s withdrawal date is
“postponed,” schools have a financial incentive to misreport students’ withdrawal dates. (Id.)
As noted above, when a school executes a PPA, it agrees to “comply with the refund
provisions established in 34 CFR Part 668.22.” (Id. ¶ 212.) The relators allege that three of the
Colleges made false statements concerning the refund requirement in certain PPAs:
•
Stevens-Henager falsely stated that it would comply with the refund requirement in
its January 2010 PPA. (Id. ¶ 216.)
•
CollegeAmerica Denver falsely stated that it would comply with the refund
requirement in its February 2010 PPA. (Id. ¶¶ 219.)
•
CEHE—on behalf of CollegeAmerica Denver and California College—falsely
stated that it would comply with the refund requirement in its January 2013 PPA.
(Id. ¶ 220, 224.)
i.
Stevens-Henager: January 2010 PPA
The relators have alleged five “[r]epresentative examples” of Stevens-Henager falsifying
attendance records. (Id. ¶ 168.) First, in “November 2009 and December 2009,” an instructor
reported that a student had perfect attendance for an externship before the student completed the
31
externship. (Id.) The relators do not allege whether the student did not end up with perfect
attendance. Second, in July 2010, an instructor reported that a student had perfect attendance when
the student missed a number of classes because she was pregnant and gave birth. (Id.) Third, in
June 2010, an instructor gave a student an 84 percent attendance report even though the student
missed about half of the classes. (Id.) Fourth, in August 2010, an investigation found that an
instructor was “marking students present . . . when they are not in class.” (Id.) The relators do not
allege what action, if any, Stevens-Henager took when it discovered this. Fifth, in 2013 and 2014,
several online admissions consultants called students and encouraged them to login to the online
learning program because their attendance was determined based on whether they logged in. (Id.)
These examples, four of which occurred between November 2009 and August 2010,
plausibly establish that Stevens-Henager knew that it would not comply with the refund
requirement when it executed its January 2010 PPA. See Miller, 840 F.3d at 498–99 (identifying
potential violations of the refund requirement that occurred “before and after the signing of the
PPA”).
ii.
CollegeAmerica Denver: February 2010 PPA
For CollegeAmerica Denver, the relators allege that “Joshua Allen, who was a faculty
member and an Associate Dean . . . explained that when he worked for [CollegeAmerica Denver],
he attended ‘Last Day Attended’ meetings in which [the deans] reached out to students who
weren’t showing up and encouraged them to log on to their student account so [CollegeAmerica
Denver] wouldn’t have to count them as dropped.” (Fourth Am. Compl. ¶ 168 (internal quotation
marks omitted).) According to Mr. Allen, “it was his most important duty to encourage students
to appear to be attending classes by logging into their accounts because [CollegeAmerica Denver]
‘needed the students to have attendance so [it] wouldn’t have to drop them.” (Id. (internal quotation
32
marks omitted).) Mr. Allen worked at CollegeAmerica Denver “from November 2009 to October
2013.” (Id.) This allegation does not plausibly establish that CollegeAmerica Denver falsely
certified that it intended to comply with the refund requirement in the February 2010 PPA. At
most, the allegation suggests that it was possible but not plausible that CollegeAmerica Denver
falsely certified that it would comply with the refund requirement in its February 2010 PPA.
Indeed, the allegation does not even establish that CollegeAmerica Denver improperly withheld
Title IV funds from the Department of Education. Consequently, the relators have failed to allege
that CollegeAmerica Denver falsely certified that it would comply with the refund requirement in
its February 2010 PPA. 7 The court, therefore, dismisses the first cause of action against
CollegeAmerica Denver to the extent that it is based upon the February 2010 PPA.
iii.
CEHE: January 2013 PPA
The relators allege that CEHE, acting on behalf of CollegeAmerica Denver and California
College, falsely certified that it intended to comply with the refund requirement. (Id. ¶¶ 220, 224.)
For California College, the relators allege one representative example of “instructors falsifying
attendance records.” (Id. ¶ 168.) Specifically, in “approximately 2013,” an adjunct professor
taught a “hybrid class” (i.e., a class that is partially online and partially in class). (Id.) The
Associate Dean of Medical Specialties allegedly told the adjunct professor “to deal with students
that failed to attend [the class] by ‘at least getting them to sign in on their computers to keep their
attendance active.’” (Id.) The relators do not allege whether the professor actually followed this
7
To the extent relators are aware of specific instances where a school improperly withheld Title
IV funds, they could have alleged violations of § 3729(a)(1)(D), which imposes liability on any
person who “has possession . . . of . . . money used, or to be used, by the Government and
knowingly delivers, or causes to be delivered, less than all of that money.” See Brooks, 305 F.
Supp. 3d at 1313 n.24. Indeed, it is likely far easier to allege a violation of § 3729(a)(1)(D) than it
is to allege that all of a school’s claims for payment are false or fraudulent based on a theory of
promissory fraud.
33
advice. And, most importantly, the relators do not allege that any professor at California College
engaged in such conduct. For CollegeAmerica Denver, the relators again point to Mr. Allen’s
statements about the importance of encouraging students to log on to their accounts so that they
would not be “dropped.” (Id.)
These allegations do not plausibly establish that CEHE knowingly misrepresented its intent
to comply with the refund requirement. Indeed, the allegations do not establish that CEHE
improperly withheld Title IV funds from the Department of Education. That is, the relators have
failed to identify any students whose attendance records were falsified, resulting in an
underpayment of Title IV funds. Consequently, these allegations do not plausibly establish that
CEHE knowingly misrepresented its intent to comply with the refund requirement when it signed
its January 2013 PPA, and the court dismisses the first cause of action against CEHE to the extent
that it is based upon this PPA.
4)
Accreditation Requirement
To be eligible to participate in Title IV programs, all schools must “meet the requirements
established by . . . accrediting agencies or associations.” (Id. ¶ 128 (quoting 20 U.S.C.
§ 1094(a)(21).) Indeed, when schools execute PPAs, they agree that they will “meet the
requirements established pursuant to Part H of Title IV of the HEA by . . . nationally recognized
accrediting agencies.” (Id. ¶ 212.) The Colleges accrediting agency is the Accrediting Commission
of Career Schools and Colleges (ACCSC). (Id. ¶ 130.)
The relators allege that three schools made false statements concerning the accreditation
requirement in certain PPAs:
•
Stevens-Henager falsely stated it would comply with the accreditation requirement
in its January 2010 PPA. (Id. ¶ 216.)
•
CollegeAmerica Denver falsely stated that it would comply with the accreditation
requirement in its February 2010 PPA. (Id. ¶ 219.)
34
•
CEHE—on behalf of Stevens-Henager, CollegeAmerica Denver, and California
College—falsely stated that it would comply with the accreditation requirement in
its January 2013 PPA. (Id. ¶¶ 217, 220, 224.)
i.
Stevens-Henager: January 2010 PPA
In the summer of 2010, Ms. Wride became the executive assistant to the Dean of Education
at Stevens-Henager’s Orem campus. (Id. ¶ 133.) She was asked to investigate each faculty
member’s qualifications to ensure that they met the minimum accrediting standards for the
ACCSC. (Id.)
According to the relators, Ms. Wride “discovered that many faculty members . . . did not
have the required minimum qualifications, as established by the ACCSC, to teach the courses that
[Stevens-Henager] allowed them to teach.” (Id. ¶ 134.) The relators provide two examples. (See
id. ¶¶ 135–39.) First, Ms. Wride discovered that one professor “did not have the minimum number
of years of related practical work experience that the ACCSC required him to have . . . to teach
certain courses . . . .” (Id. ¶ 135.) This professor, according to Ms. Wride, had “misrepresented the
nature of his prior work experience.” (Id. ¶ 137.) Second, Ms. Wride discovered that another
professor “did not have sufficient education and related practical work experience to meet the
ACCSC accreditation standards for faculty members.” (Id. ¶ 139.) Specifically, the professor “had
never practiced as a chiropractor and had no related practical work experience . . . .” (Id.)
Ms. Wride eventually raised these issues with the Dean of Education at Stevens-Henager’s
Orem campus. (Id. ¶ 140.) The Dean told Ms. Wride that he previously brought similar problems
to the attention of “upper management” and that he was “nearly terminated for exposing the
problems.” (Id.) Ms. Wride eventually reported the problems to the Colleges’ CEO and COO. (Id.
¶ 144.) Despite this, Stevens-Henager continued to submit the same faculty personnel reports to
the ACCSC for accreditation. (Id. ¶ 146.)
35
When the ACCSC conducted an audit of Stevens-Henager’s Orem campus, Ms. Wride was
told to “take the day off” to make sure that she had no contact with the auditors. (Id. ¶ 149.) Ms.
Wride was also dropped from Stevens-Henager’s respiratory-therapy program, the program in
which she was enrolled, as retaliation for raising concerns with faculty personnel reports. (Id.
¶ 150.) When Ms. Wride complained, she was reinstated and Stevens-Henager agreed to waive her
tuition and fees if she “just [left] things alone.” (Id. ¶ 151.)
While the relators allegations suggest that Stevens-Henager knowingly violated
accreditation requirements beginning in “summer 2010,” the allegations do not establish that
Stevens-Henager knowingly made false statements regarding its intent to comply with accrediting
standards in January 2010, months before Ms. Wride first raised concerns over faculty
qualifications. Notably, the relators have alleged only violations that occurred after StevensHenager entered into the relevant PPA. See Main, 426 F.3d at 917 (“Tripping up on a regulatory
complexity does not entail a knowingly false representation.”). Indeed, the relators have not
alleged that Stevens-Henager knew that faculty members were under-qualified when it executed
its PPA in January 2010. At most, the relators’ allegations are merely consistent with StevensHenager knowingly misrepresenting its intent to comply with accreditation requirements.
Consequently, the relators have not plausibly established that Stevens-Henager knowingly
misrepresented its intent to comply with the accreditation requirement in its January 2010 PPA,
and the court dismisses the first cause of action against Stevens-Henager to the extent that it rests
upon the accreditation requirement in this PPA.
ii.
CollegeAmerica Denver: February 2010 PPA
The relators allege four examples of CollegeAmerica Denver violating accrediting
standards. (Id. ¶ 154.) First, in approximately 2009, an instructor observed work-study students
36
and employees falsifying student files in an attempt to bring the files into compliance with ACCSC
standards. (Id.) Second, during the same time period, the same instructor falsified student files
before giving them to an ACCSC auditor. (Id.) Third, between 2011 and 2013, a career services
employee reported students as being “self-employed” with sufficient information and in violation
of ACCSC standards. (Id.) Fourth and finally, in 2012, employees were told to hide documents
and a book room from ACCSC representatives. (Id.) The documents advertised a “free” college
program used to recruit students, but ACCSC standards prohibit the use of such inducements to
enroll students. (Id.)
These allegations plausibly establish that CollegeAmerica Denver knowingly violated
accrediting standards between 2009 and 2013. Consequently, the relators’ allegations plausibly
established that CollegeAmerica Denver knowingly misrepresented its intent to comply with
accrediting standards in its 2010 PPA.
iii.
CEHE: January 2013 PPA
The relators allege that CEHE—acting on behalf of Stevens-Henager, CollegeAmerica
Denver and California College—falsely certified that it intended to comply with accrediting
standards. (Id. ¶¶ 217, 220, 224.)
For California College, the relators allege examples of when the school took action to
conceal violations of accrediting standard. (Id. ¶ 153.) But these events occurred in “February
2016,” over three years after CEHE entered into its January 2013 PPA. (Id.) For Stevens-Henager,
the relators allege that “[i]n 2013” the school reported to ACCSC that a philosophy class was being
taught by a professor with the requisite qualifications. (Id.) But in reality, a different instructor
who was not qualified taught the class. (Id.) “In 2013,” Stevens-Henager “allowed instructors
without the required years of experience to teach medical coding and billing courses.” (Id. ¶ 155.)
37
And in late 2013, Stevens-Henager “allowed an instructor without a background in the law to teach
a business law course.” (Id.) For CollegeAmerica Denver, the relators have alleged the examples
discussed above in connection with CollegeAmerica Denver’s February 2010 PPA. And the
relators also allege that in 2013, a professor was allowed to teach several accounting courses even
though “he did not have the correct degree to teach the classes.” (Id.)
These allegations plausibly establish that Stevens-Henager and CollegeAmerica Denver
violated accrediting standards both before and after CEHE executed its PPA (on their behalf) in
January 2013. Consequently, the allegations plausibly established that CEHE falsely certified that
it intended to comply with accrediting standards in its 2013 PPA.8
III.
VIABILITY OF THE RELATORS’ POST-INTERVENTION COMPLAINTS 9
The court finally turns to the question of whether the relators have a right to “maintain the
non-intervened portion of the action in the name of the United States.” Up till this point, the parties
have operated under the assumption that the relators may do so. This apparently led the relators to
publicly file amended complaints, name additional defendants, and assert additional claims for
relief. Problematically, however, nothing in the False Claims Act or the legislative history suggests
that a relator can maintain the non-intervened portion of an action. In fact, the plain language of
the statute suggests otherwise.
The statute is unambiguous. If the Government intervenes in the action, it must conduct
the action and has the “primary responsibility for prosecuting the action.” While a relator retains
8
The allegations related to California College add little, if any, support to this conclusion because
the alleged violations took place in February 2016—over three years after CEHE entered into the
January 2013 PPA.
The court also asked the parties to brief whether permitting private citizens to prosecute claims
on behalf of the Government violates the “take Care” clause found in Article II of the U.S.
Constitution. Because the court strikes the relators’ complaints, it need not address this
constitutional question.
9
38
a limited right to continue as a party to the action, that right does not allow the relator to amend
his or her complaint to add defendants and claims to the Government’s action. Those rights
necessarily belong to the party with the primary responsibility for conducting the action—in this
case, the Government. Consequently, the Government’s complaint in intervention superseded the
relators’ amended complaint, and any pleading subsequently filed by the relators lacked legal
effect.
A. The False Claims Act
“A [relator] may bring a civil action for a violation of section 3729 for the person and for
the United States Government.” 31 U.S.C. § 3730(b)(1). “The action shall be brought in the name
of the Government.” § 3730(b)(1). The Federal Rules of Civil Procedure provide that “[t]here is
one form of action—the civil action,” FED. R. CIV. P. 2, and one commences a civil action “by
filing a complaint with the court,” FED. R. CIV. P. 3. 10 In short, a relator commences a civil action
by filing a complaint with the court.
“A copy of the complaint and written disclosure of substantially all material evidence and
information the [relator] possesses shall be served on the Government . . . .” § 3730(b)(2). “The
complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be
served on the defendant until the court so orders.” § 3730(b)(2).
“The Government may elect to intervene and proceed with the action within 60 days after
it received both the complaint and the material evidence and information.” § 3730(b)(2). “The
Government may, for good cause shown, move the court for extensions of the time during which
the complaint remains under seal . . . .” § 3730(b)(3).
10
See Civil Action, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining civil action as “[a]n action
brought to enforce, redress, or protect a private or civil right; a noncriminal litigation”).
39
“Before the expiration of the 60-day period and any extensions . . . , the Government shall
(A) proceed with the action, in which case the action shall be conducted by the Government; or
(B) notify the court that it declines to take over the action, in which case the [relator] shall have
the right to conduct the action.” § 3730(b)(4) (emphasis added).
“If the Government elects not to proceed with the action, the [relator] shall have the right
to conduct the action.” § 3730(c)(3) (emphasis added). “When a [relator] proceeds with the action,
the court, without limiting the status and rights of the [relator], may nevertheless permit the
Government to intervene at a later date upon a showing of good cause.” § 3730(c)(3).
“If the Government proceeds with the action, it shall have the primary responsibility for
prosecuting the action, and shall not be bound by an act of the [relator].” § 3730(c)(1) (emphasis
added). “If the Government elects to intervene and proceed with an action . . . , the Government
may file its own complaint or amend the complaint of [the relator] to clarify or add detail to the
claims in which the Government is intervening and to add any additional claims with respect to
which the Government contends it is entitled to relief.” § 3731(c).
If the Government intervenes, the relator has “the right to continue as a party to the action,”
subject to certain limitations. § 3730(c)(1). Those limitations include “(i) limiting the number of
witnesses the [relator] may call; (ii) limiting the length of the testimony of such witnesses; (iii)
limiting the [relator’s] cross-examination of witnesses; [and] (iv) otherwise limiting the
participation by the [relator] in the litigation.” § 3730(c)(2)(C).
If the Government intervenes, the court may impose restrictions on the relator if: (1) the
Government shows that “unrestricted participation during the course of the litigation by the
[relator] would interfere with or unduly delay the Government’s prosecution of the case, or would
be repetitious, irrelevant, or for the purpose[] of harassment,” § 3730(c)(2)(C); or (2) the defendant
40
shows that “unrestricted participation during the course of the litigation by the [relator] would be
for purposes of harassment or would cause the defendant undue burden or unnecessary expense
. . . ,” § 3730(c)(2)(D).
B.
“Action” Unambiguously Means “Civil Action”
The Government contends that Congress used the word “action” to mean “cause of action,”
as opposed to “civil action.” In evaluating this contention, the court must “determine congressional
intent, using traditional tools of statutory construction.” Coffey v. Freeport McMoran Copper &
Gold, 581 F.3d 1240, 1245 (10th Cir. 2009) (citation omitted). The first step in statutory
construction is to “determine whether the language at issue has a plain and unambiguous meaning
with regard to the particular dispute in the case,” which is determined by “reference to the language
itself, the specific context in which the language is used, and the broader context of the statute as
a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 340–41 (1997). To the extent a statute is
ambiguous, a court must consider its purpose and the legislative history to determine the statute’s
meaning. McGraw v. Barnhart, 450 F.3d 493, 499 (10th Cir. 2006).
Here, the text of the statute and its structure undermine the Government’s interpretation of
the term “action.” First, § 3730(b)(1) unambiguously shows that Congress used “action” to mean
“civil action.” The first sentence provides that a relator may bring a “civil action,” and the
following sentence explains that the “action” (i.e., the civil action) shall be brought in the name of
the Government. § 3730(b)(1). The next sentences provides that “[t]he action [i.e., the civil action]
may be dismissed only if the court and the Attorney General give written consent to the dismissal
and their reasons for consenting.” § 3730(b)(1). 11
11
This sentence further undermines the Government’s position because it is unlikely that Congress
would have required that the court and the Attorney General give written consent anytime a relator
moves to dismiss a cause of action.
41
Second, other provisions show that Congress used “action” to mean something other than
“cause of action.” “The court shall dismiss an action or claim under this section, unless opposed
by the Government, if substantially the same allegations or transactions as alleged in the action or
claim were publicly disclosed.” § 3730(e)(4)(A) (emphasis added). If “action” means “cause of
action,” the words “or claim” would be superfluous. See Cause of Action, BLACK’S LAW
DICTIONARY (10th ed. 2014) (suggesting that one review the definition of “claim” for more
information on the definition of “cause of action”). That is, interpreting “action” to mean “cause
of action” runs afoul of the rule that courts must “give effect, if possible, to every clause and word
of a statute.” Inhabitants of Montclair Tp. v. Ramsdell, 107 U.S. 147, 152 (1883).
The Government contends that the so-called first-to-file bar supports its position. It
provides, “When a person brings an action under this subsection, no person other than the
Government may intervene or bring a related action based on the facts underlying the pending
action.” § 3730(b)(5). According to the Government, courts uniformly examine the bar’s
applicability to a second case on a cause-of-action by cause-of-action basis. And, as the
Government’s argument goes, this suggests that “action” means “cause of action.” Not so.
The court agrees that the phrase “related action based on the facts underlying the pending
action,” bars claims arising from events that are already the subject of existing suits. United States
ex rel. LaCorte v. SmithKline Beecham Clinical Labs., Inc., 149 F.3d 227, 232 (3d Cir. 1998). But
this is because once a court dismisses the claims that arise from events that are the subject of a
pending suit, the second action is no longer “based on the facts underlying [a] pending action.”
§ 3730(b)(5). The cause-of-action by cause-of-action approach simply lets courts excise those
42
claims that are the subject of a pending action. This makes it so that the second action is no longer
based on the facts underlying a pending action. 12
Notably, the Government’s proffered interpretation is inconsistent with actions it took in
this case. Following the Supreme Court’s decision in Escobar, the Government, by its own
admission, instructed the relators to not file a motion for reconsideration. Specifically, the
Government “asserted its authority to restrict Relators’ counsel from taking actions in the case that
the Government believed were inappropriate.”
But according to the Government’s proffered interpretation, it declined to intervene as to
the relators’ “causes of action,” so the relators should have had the right to conduct those “causes
of action.” See § 3730(c)(3). Short of seeking outright dismissal of those “causes of action,” which
would require a showing of good cause, see § 3730(c)(2)(A), it is unclear what authority the
Government had to instruct the relators to not file a motion for reconsideration. Indeed, “if the
United States declines to intervene, the relator retains ‘the right to conduct the action’” and “[t]he
United States is thereafter limited to exercising only specific rights during the proceeding,” such
as “requesting service of pleadings and deposition transcripts,” “seeking to stay discovery that
‘would interfere with the Government’s investigation or prosecution of a criminal or civil matter
arising out of the same facts,’” and “vetoing a relator’s decision to voluntarily dismiss the action”
12
The relators contend that the court’s interpretation will lead to a perverse outcome: relators will
“file separate complaints—perhaps for each defendant, each cause of action, or both.” But the
court struggles to see how relators would do so when the first-to-file bar provides that “[w]hen a
person brings an action under this subsection, no person other than the Government may . . . bring
a related action based on the facts underlying the pending action.” § 3730(b)(5) (emphasis added).
The plain language of the first-to-file bar prevents a relator from commencing a second action that
is based on the facts underlying the first. The relators also contend that “a construction that
eliminates partial intervention will simply lead the Government and relators to sever the nonintervened claims into separate actions during the seal period.” Again, the court struggles to see
how this is possible when relators cannot file a second action that is based on the underlying facts
of the first action.
43
United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 932 (2009) (emphasis added).
Nothing in the statute gives the Government the authority to instruct relators to not file certain
motions when the Government has declined to intervene. See § 3730(c)(3), (4). Instead, the
Government’s actions in this case are consistent with the court’s interpretation and the plain
language of the statute, which gives the Government the primary responsibility for prosecuting
“the action.”
In sum, the False Claims Act unambiguously uses “action” to mean “civil action.” See
Ratzlaf v. United States, 510 U.S. 135, 143 (1994) (“A term appearing in several places in a
statutory text is generally read the same way each time it appears.”). The Government’s arguments
to the contrary are unavailing and undermined by the plain language of the statute.
C.
The Government May Intervene on Some But Not All of a Relator’s Claims
The Government, in its briefing, creates a false narrative. The Government argues that the
court’s interpretation will force the Government to “choose between intervening in the case as a
whole, even including those claims and defendants that it did not wish to pursue, or declining the
entire matter and abandoning potentially meritorious causes of action.” This would be troubling if
it were true. But it is not.
“If the Government elects to intervene and proceed with an action . . . , the Government
may file its own complaint or amend the complaint of [the relator] to clarify or add detail to the
claims in which the Government is intervening and to add any additional claims with respect to
which the Government contends it is entitled to relief.” § 3731(c) (emphasis added). This
unambiguously lets the Government add claims when it intervenes—indeed, the Government did
so in this case. And it lets the Government intervene as to certain claims in the relators’ complaint.
But it says nothing about whether relators can maintain the non-intervened portion of the action,
which is the concern at issue here.
44
D.
Relators May Not Maintain the Non-Intervened Portion of an Action
The court now turns to the heart of the matter: whether a relator retains an independent
right to maintain the non-intervened portion of an action. The Government’s main argument is that
Congress’ silence as to whether a relator may prosecute the non-intervened portion of an action
suggests that the relator retains a right to do so. Specifically, the Government contends that the
language allowing it “to clarify or add detail to the claims in which [it] is intervening” means that
a relator can pursue the non-intervened claims. The court is not convinced.
Congress would not have given relators the primary responsibility for prosecuting the nonintervened claims in such a cryptic fashion. See F.D.A. v. Brown & Williamson Tobacco Corp.,
529 U.S. 120, 160 (2000) (“[W]e are confident that Congress could not have intended to delegate
a decision of such economic and political significance to an agency in so cryptic a fashion.”). There
are a number of ways in which Congress could have given relators such a right. It could have
written, “The person bringing the action has the primary responsibility for prosecuting the claims
in which the Government did not intervene.” Cf. § 3731(c). Or, “If the Government proceeds with
the action, the action shall be conducted by the Government and the person bringing the action.”
Cf. § 3730(b)(4). Or, Congress could have taken the Government’s “practical” approach, replacing
“action” with “claim for relief.” 13 But such language is noticeably absent from the statute.
Congress’ silence as to a relator’s right to prosecute the non-intervened claims leads to the
conclusion that no such right exists. In essence, the Government asks the court to read provisions
into the statute to allow the relators to maintain the non-intervened portion of the action. But this
would result “not [in] a construction of [the] statute, but, in effect, an enlargement of it by the
13
See Claim, BLACK’S LAW DICTIONARY (10th ed. 2014) (defining claim as “[a] demand for
money, property, or a legal remedy to which one asserts a right; esp., the part of a complaint in a
civil action specifying what relief the plaintiff asks for.—Also termed claim for relief”).
45
court, so that what was omitted [i.e., the relator’s right to maintain the non-intervened claims] . . .
may be included within its scope.” Lamie v. U.S. Trustee, 540 U.S. 526, 538 (2004) (first and
second alterations in original) (citation omitted). But the court need not proceed in this fashion—
indeed, there is a fundamental “difference between filling a gap left by Congress’ silence and
rewriting rules that Congress has affirmatively and specifically enacted,” which is what the
Government asks the court to do. Id. (citation omitted).
The structure of the statute further undermines the Government’s position. Indeed, if the
Government intervenes, it has “the primary responsibility for prosecuting the action, and shall not
be bound by an act of the [relator].” § 3730(c)(1) (emphasis added). Allowing relators to pursue
the non-intervened claims is in direct conflict with this provision. The Government would not have
primary responsibility for conducting the action if, after the Government files a complaint in
intervention, a relator’s complaint remained operative and the relator retained the right to amend
that complaint, adding parties and claims to the Government’s action. And it is unclear how the
Government is not “bound by an act of [a relator]” if the relator can add allegations, defendants,
and claims to the Government’s action. 14
At least three other provision of the False Claims Act suggest that relators may not maintain
the non-intervened portion of an action. First, consider the provisions that deal with awards to
relators. Section 3730(d)(1) provides that “[i]f the Government proceeds with an action brought
by a [relator] under subsection (b), such [relator] shall . . . receive at least 15 percent but not more
14
The relators argue that “[t]he Government is primarily, not solely, responsible for the claims in
which it has intervened.” And they state that they are “not in any way challenging the authority of
the Government to prosecute the intervened claims in whatever way the Government prefers, with
as little or as much help from Relators as the Government desires.” (emphasis added). This
statement is problematic. It implies that the relators think that they, not the Government, are
primarily responsible for prosecuting portions of the action, which is troubling since it is the
Government that is primarily responsible for “prosecuting the action.” § 3730(c)(1).
46
than 25 percent of the proceeds of the action or settlement of the claim.” (emphasis added). Section
3730(d)(2) provides that “[i]f the Government does not proceed with an action under this section,
the [relator] . . . shall receive . . . not less than 25 percent and not more than 30 percent of the
proceeds of the action or settlement.” (emphasis added). Put simply, a relator’s potential award
depends on whether the Government intervenes in the action, not on whether a relator prevails on
the non-intervened claims.
The legislative history confirms this:
If the Government enters the action and if the [relator] disclosed relevant evidence
or relevant information which the Government did not have at the time the action
was brought, the [relator] shall receive not less than 15% nor more than 25% of the
proceeds of the action or settlement of the claim. . . .
If the government does not enter and proceed with the action, and if the [relator]
proceeds with it to judgment or settlement, the [relator] shall receive an amount
which the court decides is reasonable. That amount shall not be less than 25% nor
more than 30% of the proceeds of the action or settlement and is to be paid out of
such proceeds.
H.R. Rep. No. 99-660, at 36–37 (1986) (emphasis added). 15 Like the statute, nothing in the
legislative history suggests that Congress intended for courts to apply the damages provision for
intervened actions to the claims that the Government prosecuted and then apply the damages
provision for non-intervened actions to the claims that the relators prosecuted.
The relators, in their fourth amended complaint, request that “to the extent that the United
States Government has not intervened in this action, [they] be awarded an amount that the Court
decides is reasonable, which is not less than 25% nor more than 30% of the proceeds of any award
15
See also S. Rep. No. 99-345, at 27 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5292
(“Subsection (d)(1) provides that when the Government has intervened, taken over the suit and
produced a recovery either through a settlement agreement or a judgment, the relators will receive
between 10 and 20 percent [sic] of the recovery. Subsection (d)(2) provides that if the relator has
litigated the false claims action successfully and the Government did not take over the suit, the
relator will be awarded between 20 and 30 percent [sic] of the judgment or settlement proceeds.”)
47
or settlement for those claims.” But the statute unambiguously provides that the relators would be
entitled to “at least 15 percent but not more than 25 percent of the proceeds of the action or
settlement of the claim” because the Government has “proceed[ed] with [the] action.”
§ 3730(d)(1); see also H.R. Rep. No. 99-660, at 36 (1986) (“If the Government enters the action
. . . the [relator] shall receive not less than 15% nor more than 25% . . . .”). Neither the statute nor
the legislative history suggests that a relator can pursue claims that are separate from the
Government’s to recover an increased award. In sum, the structure of damages provisions
undermines the idea that relators can pursue “non-intervened claims.”
Even if the court could apply the damages provisions to separate claims, the way in which
this case has been litigated would create additional problems with apportioning an award between
the Government and the relators. The Government seeks to impose liability on Stevens-Henager’s
requests for Title IV funds based on allegations that the school made false statements in certain
PPAs concerning its intent to comply with the ICB. The relators seek to impose liability on the
same exact requests for Title IV funds based on different sets of false statements. That is, the
relators’ claims against Stevens-Henager are duplicative of the Government’s in the sense that the
relators attempt to impose liability on the same claims for payment, but with a different factual
basis. Assuming that both the relators and the Government prevail on their claims, it is entirely
unclear how the court would determine the relators’ share of damages. Presumably, the
Government and the relators can come up with a “practical” solution to this problem. But such a
solution would be unmoored from the plain language of the statute. 16
16
In fact, with respect to the claims against Stevens-Henager, the relators’ interests and the
Government’s are potentially adverse. Assuming that relators are entitled to an increased award if
they prevail on their separate claims, it is in the relators’ interest to prevail on their claims against
Stevens-Henager without assisting the Government. Indeed, under the relators’ interpretation of
the statute, this would allow them to recover 25 to 30 percent of the proceeds of any award or
48
Second, consider the provisions dealing with an award of attorney fees to the defendant:
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 of
the [relator] was clearly frivolous, clearly vexatious, or brought primarily for
purposes of harassment.
§ 3730(d)(4) (emphasis added); see also H.R. Rep. No. 99-660, at 37 (1986) (“This section further
provides that that if the [relator] proceeds with the action without the Government and the
defendant prevails, the court may award reasonable attorneys fees and expenses to the defendant
. . . .”). Put simply, defendants are precluded entirely from recovering attorney fees if the
Government “proceeds with the action.” If, however, the Government declines to intervene in the
action, the relator is potentially on the hook for expenses and attorney fees.
The attorney fee provision does not contemplate a situation in which a relator prosecutes
“separate” claims after the Government intervenes in the action. And this makes sense. When the
Government intervenes, it has the primary responsibility for conducting the action, and the
Government presumably elected to intervene because the action has merit: Congress envisioned
that the Government would intervene in those cases with merit, as opposed to those without. See
settlement. But if the Government were to prevail on its claims against Stevens-Henager, the
relators would potentially be limited to recovering 15 to 25 percent of the proceeds. Surely
Congress did not intend that relators could prosecute claims in a way that makes them potentially
adverse to the Government. This would undermine the entire purpose of the statute: “to encourage
a working partnership between both Government and the [relator].” 132 Cong. Rec. H9382-03,
1986 WL 786917 (1986) (Remarks of Rep. Howard L. Berman). The Government even points out,
citing United States ex rel. Becker v. Tools & Metals, Inc., Nos. 3:05-CV-0627-L, 3:05-CV-2301L, 2009 WL 855651, at *6 (N.D. Tex. Mar. 31, 2009), that courts have dismissed “claims of relators
that overlap[] with the claims as to which the Government intervened.” So it is unclear why the
Government has not taken issue with the relators’ continued attempts to allege alternative factual
bases for liability related to the same exact claims for payment upon which the Government seeks
to impose liability. Indeed, even if the relators could pursue their own separate claims, the court
would likely need to strike the relators’ allegations that arise from alternative factual bases for
liability as to Stevens-Henager.
49
Eisenstein, 556 U.S. at 933 (“Congress expressly gave the United States discretion to intervene in
[False Claims Act] actions—a decision that requires consideration of the costs and benefits of
party status.”).
But if relators, after the Government intervenes, are allowed to add defendants and claims
to the action, the attorney fee provision is undermined because the relators’ new claims could prove
frivolous, and the defendants would nevertheless be precluded from recovering attorney fees
because the Government “proceed[ed] with the action.” In short, the attorney fee provision
envisions that the Government, when it intervenes, takes responsibility for the entire action. It does
not contemplate a situation in which a relator continues to add claims to the action. 17
Third, consider the False Claims Act’s statute of limitations:
A civil action under section 3730 may not be brought
(1) more than 6 years after the date on which the violation of section 3729 is
committed, or
(2) more than 3 years after the date when facts material to the right of action are
known or reasonably should have been known by the official of the United States
charged with responsibility to act in the circumstances, but in no event more than
10 years after the date on which the violation is committed, whichever occurs last.
§ 3731(b) (emphasis added).
The Tenth Circuit has held that paragraph (2) “was not intended to apply to private qui tam
suits.” United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702, 725
(10th Cir. 2006). So only the six-year statute of limitations in paragraph (1) “applies to actions
pursued by private qui tam relators.” United States ex rel. Told v. Interwest Constr. Co., 267 F.
17
The relators contend that the attorney fee provision can be applied to non-intervened claims
only. Of course, this conflicts with the plain language of the statute. And it is problematic because
it would shift the burden to defendants to apportion attorney fees and expenses between the
intervened and non-intervened claims. Thus, even if a defendant proves that a relator’s claims were
frivolous, the relator could, and likely would, argue that the defendant has not properly apportioned
fees between the fee-bearing and non-fee-bearing claims.
50
App’x 807, 809 (10th Cir. 2008). Put simply, the Tenth Circuit’s interpretation of § 3731(b)
suggests that either the Government or the relators conducts the action, not both. Indeed, if a relator
could pursue non-intervened claims after the Government intervenes in an action, it is unclear why
the relator could not invoke the statute of limitations found in paragraph (2). The better approach
is that the Government, when it intervenes, decides which claims are a part of the action, and the
Government decides whether to prosecute any claims that fall under paragraph (2).
In sum, there is nothing in the False Claims Act to suggest that a relator may maintain
“non-intervened portion[s] of [an] action.” Indeed, the False Claims Act is clear that the
Government either “elect[s] to intervene and proceed with the action,” § 3730(b)(2), or it “declines
to take over the action,” § 3730(b)(4)(B). 18 There is no in between. 19
When the Government intervenes in the action, the relator can “continue as a party to the
action.” § 3730(c)(1). But that right does not encompass the right to conduct the action. If Congress
intended to let relators conduct portions of the action after the Government intervened, the statute
would provide, “If the Government proceeds with the action, the action shall be conducted by the
Government and the person bringing the action.” Cf. § 3730(b)(4); see also § 3730(c)(3) (“If the
18
See also United States ex rel. Bennett v. Biotronik, Inc., 876 F.3d 1011, 1021 (9th Cir. 2017)
(“[T]he Government becomes a ‘party’ to the suit as a whole when it intervenes. It does not become
a ‘party’ to a particular claim or number of claims.”); United States ex rel. Estate of Robert Gadbois
v. PharMerica Corp., 292 F. Supp. 3d 570, 577 (D.R.I. 2017) (“The plain language of the statute
makes clear that intervention serves to make the Government a party to the entire suit, not just
certain claims or causes of action.”)
19
This is confirmed by the legislative history:
Subsection (b)(4) of section 3730 restates current law which provides that within
the initial 60-day period, or before expiration of any stays granted by the court, the
Government must indicate whether it will intervene and proceed with the action or
decline to enter. If the Government takes over the civil false claims suit, the
litigation will be conducted solely by the Government. If the Government declines,
the suit will be litigated by the individual who brought the action.
S. Rep. No. 99-345, at 23 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5290 (emphasis added).
51
Government elects not to proceed with the action, the [relator] shall have the right to conduct the
action.”). But it does not. Instead, after the Government intervenes, it conducts the action and the
relator continues as a party to the action. § 3730(c)(1); Eisenstein, 556 U.S. at 932 (“If the United
States intervenes, the relator has ‘the right to continue as a party to the action, but the United States
acquires the ‘primary responsibility for prosecuting the action.’”).
The right to continue as a party to the action is more limited than the right to conduct the
action, and it does not encompass the right to add defendants and claims to the action. Section
3730(c)(2)(C) contemplates the rights that a relator would have as a party to the action. It provides
that the court, after the Government has intervened, can limit the number of witnesses a relator
may call, limit the testimony of those witnesses, and limit the relator’s cross-examination of other
witnesses. § 3730(c)(2)(C). So, the statute contemplates that a relator, as a party to the action,
could call and cross-examine witnesses.
Section 3730(c)(2)(D) further undermines the idea that a relator, as a party to the action,
can add defendants and claims to the Government’s action. It lets a court limit a relator’s
“participation during the course of the litigation” if the defendant shows that the relators’
participation “would cause the defendant undue burden or unnecessary expense.” § 3730(c)(2)(D).
This provision makes little sense if the right to continue as a party to the action includes the right
to add defendants and claims to the action.
Assume, as is the case here, that a relator named an additional defendant after the
Government intervened. Could the defendant then argue that the relator’s “participation” causes
the defendant “undue burden” and “unnecessary expense”? § 3730(c)(2)(D). Indeed, the defendant
would not have been a party to the action but for the relator’s “participation.” If a relator had the
right to add defendants and claims to the action, courts would be put in the awkward position of
52
evaluating these types of arguments. See United States ex rel. Landis v. Tailwind Sports Corp., 51
F. Supp. 3d 9, 28–29 (D.D.C. 2014) (noting that the “similarity of the legal theories advanced by
the government and the relator” alleviates the potential burden “caused by relator’s continued
prosecution of th[e] action”).
If Congress truly intended that the right to continue as a party to the action included the
right to add defendants and claims to the action, it would not have given courts the ability to limit
a relator’s “participation” upon a showing that the defendant would suffer undue burden or
unnecessary expense. Section 3730(c)(2)(D) contemplates that the right to continue as a party to
the action is more limited (e.g., calling and cross-examining witnesses and engaging in discovery).
And it suggests that Congress did not intend to let relators maintain the non-intervened portion of
an action.
The legislative history provides further insight on what Congress intended when it gave
relators the right to continue as a party to the action. The Senate Judiciary Committee explained
that relators, under prior versions of the False Claims Act, “ha[d] virtually no guaranteed
involvement or access to information about the false claims suit.” S. Rep. No. 99-345, at 25 (1986),
reprinted in 1986 U.S.C.C.A.N. 5266, 5290. So, the proposed § 3730(c)(1) in the Senate Bill gave
relators the right to request “copies of all pleadings filed in the action and copies of all deposition
transcripts.” S. 1562, 99th Cong. (1986). It also gave relators the right to “file objections with the
court and petition for an evidentiary hearing to object to any proposed settlement or to any motion
to dismiss filed by the Government.” Id. But the court was required to grant an evidentiary hearing
only “upon a showing of substantial and particularized need.” Id. And finally, the relators could
“move the court for leave to conduct the action in the name of the United States if, after making
its election to take over the suit, the Government does not proceed with the action with reasonable
53
diligence within six months or such reasonable additional time as the court may allow after notice.”
Id. As the Senate Judiciary Committee explained, the proposed Senate Bill gave relators “increased
involvement in suits brought by the relator but litigated by the Government.” S. Rep. No. 99-345,
at 13 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5278 (emphasis added).
The House Judiciary Committee expressed similar concerns, citing an example where a
relator was “precluded from conducting his own discovery.” H.R. Rep. No. 99-660, at 29 (1986).
So, the proposed § 3730(c)(1) in the House Bill would have expanded the “role of the relator so
that when the Government enters the action . . . , the relator remains a party to the suit with the
same rights as if he had been an intervenor of right under Rule 24(a), Federal Rules of Civil
Procedure.” Id. at 30. “The Government remains the primary litigant and has control of the
litigation, but . . . the relator has access to all documents filed with the court, as well as the right
to conduct discovery.” Id. (emphasis added).
Notably, the final language passed by Congress tracked the proposed Senate Bill, which
“narrowed somewhat” a relator’s role as a party to the action by allowing courts “to limit the role
of qui tam plaintiffs in the litigation.” 132 Cong. Rec. H9382-03, 1986 WL 786917 (1986)
(remarks of Rep. Dan R. Glickman). The House Bill defined the rights of relators by express
reference to the rights of an intervenor of right under Federal Rules of Civil Procedure. See H.R.
Rep. No. 99-660, at 30 (1986). But the final language of the statute does not. This severely
undercuts the relators’ argument that the court must look to the Federal Rules of Civil Procedure
to ascertain what rights a relator has as a “party to the action.” 20
20
Moreover, the Department of Justice expressed concerns with the language in the House Bill
that gave relators the “same rights as provided by Rule 24(a).” Specifically, the Department of
Justice believed that there was a “serious potential for the [misuse] of the statute and the sweeping
rights available to a private plaintiff under the Federal Rules of Civil Procedure,” so it “strongly
object[ed]” to the provision giving relators the same rights “as provided by Rule 24(a).” H.R. Rep.
54
In sum, both the plain language of the statute and the legislative history suggest that
Congress envisioned that a relator, as a party to the action, could (1) call witnesses, (2) cross
examine witnesses, (3) request to receive pleadings and deposition transcripts, (4) object to
proposed settlements, and (5) at the most, conduct discovery. See A.C.L.U. v. Holder, 673 F.3d
245, 250 (4th Cir. 2011) (noting that a relator, as a party to the action, “may participate in
discovery, engage in motions practice, and participate at trial”). But neither the statute nor the
legislative history suggests that a relator, as a party to an action, can add defendants and claims to
the action. If Congress intended to give relators such rights, one would imagine that either the
statute or the legislative history would reflect its intent to do so. But neither does. 21
E.
The Relators’ Post-Intervention Complaints Lack Legal Effect
Here, the relators filed a complaint and later an amended complaint. The Government then
filed its complaint in intervention. See § 3731(c) (providing that the Government may file its own
complaint if it elects to intervene in an action). At that point, the Government was required to
conduct the action and had the primary responsibility for prosecuting the action. § 3730(b)(4);
§ 3730(c)(1). The Government’s complaint superseded the relators’ complaint and became the
operative pleading. Cf. United States ex rel. Serrano v. Oaks Diagnostics, Inc., 568 F. Supp. 2d
1136, 1140 (C.D. Cal. 2008) (“The intervening complaint simply alters the complaint already filed
No. 99-660, at 67 (1986) (letter from Assistant Attorney General John R. Bolton). In the
Department of Justice’s view, giving relators the same rights as a private plaintiff would
“introduce[] a major disruptive element into the careful and tactically difficult job of proving a
complex fraud case,” leading to “an unnecessary burden to the courts and to the United States.”
Id.
21
Indeed, if finding legislative history to support one’s position is “the equivalent of entering a
crowded cocktail party and looking over the heads of guests for one’s friends,” the relators and the
Government have no friends at the party. Conroy v. Aniskoff, 507 U.S. 511, 519 (1993). At most,
the Government and the relators point to general statements about the statute’s purpose. These
statements, however, do not suggest one way or the other that Congress intended to let relators
maintain the non-intervened portion of an action.
55
[by the relator].”). 22 The relators then lost the right to add defendants and claims to the action. Any
pleading filed by the relators after the Government elected to intervene lacked legal effect. At
most, the relators could have persuaded the Government to amend its complaint to include
additional claims, allegations, or defendants. 23 But the relators were unable to take the steering
wheel from the Government, adding new claims, allegations, and defendants to the Government’s
action. Accordingly, the court must strike the relators’ second, third, and fourth amended
complaints because they have no legal effect.
F.
Alternatively, Relators May Not Pursue Claims Alleged in Their Fourth Amended
Complaint Because It Was Not Filed Under Seal
The False Claims Act provides that relators must comply with certain mandatory filing
requirements. Specifically, a relator must (1) provide the Government with a copy of the complaint
and (2) file the complaint under seal for at least 60 days. § 3730(b)(2); State Farm Fire & Cas.
Co. v. United States ex rel. Rigby, 137 S. Ct. 436, 442 (2016). These requirements allow the
Government to “make an informed decision about whether to intervene in the qui tam action.”
A.C.L.U., 673 F.3d at 250.
22
Indeed, the statute is clear that the action is “brought in the name of the Government” and no
one else. § 3730(b)(1). So it is unclear why the plaintiff—the Government—can have two
operative complaints, one filed by the Government and one filed by the relators. The Federal Rules
of Civil Procedure contemplate no such thing. See FED. R. CIV. P. 2, 3, 15.
23
This would let the relators take some responsibility in prosecuting those claims, but the
Government would nevertheless be primarily responsible for prosecuting them. This is entirely
consistent with the purpose of the statute, which is “to encourage a working partnership between
both Government and the [relator].” 132 Cong. Rec. H9382-03, 1986 WL 786917 (1986) (remarks
of Rep. Howard L. Berman). The Government could delegate work to the relators’ counsel,
achieving “a coordinated effort of both the Government and the citizenry [to] decrease [fraud on
the Government].” S. Rep. No. 99-345, at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5267.
If anything, this approach would achieve a more coordinated effort between the Government and
the relators.
56
The False Claims Act, however, says nothing “about the remedy for a violation of [the
sealing requirement].” State Farm, 137 S. Ct. at 442. The structure of the statute indicates that
violating the sealing requirement “does not mandate dismissal.” Id. The sealing requirement is
meant to protect the Government, so it “make[s] little sense to adopt a rigid interpretation of the
seal provision that prejudices the Government by depriving it of needed assistance from private
parties.” Id. at 443. Thus, while dismissal may be an appropriate sanction in some cases, courts
should look to the following factors: (1) whether the Government suffered harm because of the
violation of the sealing requirement, (2) the nature of the violation, and (3) whether the violation
was willful or made in bad faith. See id. at 444 (citing United State ex rel. Lujan v. Hughes Aircraft
Co., 67 F.3d 242, 246 (9th Cir. 1995)).
Here, the relators have added new claims to both their third and fourth amended complaint
while disregarding the sealing requirement. The relators were aware of the sealing requirement. In
fact, they stated that they filed portions of their second amended complaint under seal because it
“alleged violations of the [False Claims Act] never before set forth in any prior complaint.” See
also United States ex rel. Davis v. Prince, 766 F. Supp. 2d 679, 684 (E.D. Va. 2011) (holding that
the sealing requirement applies when a relator “add[s] new claims for relief or new and
substantially different allegations of fraud”).
Most recently, the relators added allegations that CEHE fraudulently induced the
Department of Education to execute a PPA in January 2013. By including allegations concerning
the January 2013 PPA, the relators attempted to impose liability on claims for payment that were
never before at issue in this case. That is, the fourth amended complaint “allege[s] violations of
the [False Claims Act] never before set forth in any prior complaint.” But the relators did not file
it under seal.
57
The Government states that the third and fourth amended complaints merely “added detail
to the fraudulent schemes already described, and thus did not have to be filed under seal.” This is,
at best, a misstatement. As noted above, the third amended complaint added a defendant—
Weworski & Associates—to the action. And the fourth amended complaint attempts to impose
liability on requests for Title IV funds that were not covered by any prior pleading. Those
complaints undeniably allege new violations of the False Claims Act.
Because the fourth amended complaint was not filed under seal, the Government had no
opportunity to intervene as to the new claims while the fourth amended complaint remained under
seal. By not filing the complaint under seal, the relators deprived the Government of its right to
intervene as to the new claims without showing “good cause” to do so. Compare § 3730(b)(2)
(“The Government may elect to intervene and proceed with the action . . . .”), with § 3730(c)(3)
(“When a person proceeds with the action, the court, without limiting the status and rights of the
[relator], may nevertheless permit the Government to intervene at a later date upon a showing of
good cause.”).
Even if the relators had a right to pursue their own claims, the proper sanction for violating
the sealing requirement in this case is to prohibit relators from pursing the new claims alleged in
their third and fourth amended complaints. See State Farm, 137 S. Ct. at 444 (suggesting that
district courts have broad discretion to craft sanctions when the sealing requirement is violated).
Such a sanction is appropriate because it encourages compliance with the sealing requirement, but
it does not prevent the Government from pursuing the relators’ claims. See id. at 443 (stating that
the sealing requirement was meant to protect the Government’s interest).
G.
Government’s Request to Amend
The Government requests that it be given an opportunity to submit a revised complaint in
intervention if the court determines that the relators cannot pursue the non-intervened portion of
58
the action. If the Government intends to expand the scope of its allegations, it is directed to file a
motion to amend under Federal Rule of Civil Procedure 15(a)(2). Given the age of this case, the
court is inclined to deny a motion to amend unless the Government files its motion within 21 days
of this order.
CONCLUSION AND ORDER
For the reasons set forth above, it is hereby ORDERED:
1. The Colleges’ “Motion for Leave to Take Judicial Notice” (ECF No. 440) is
GRANTED.
2. Stevens-Henager’s and CEHE’s “Motion to Dismiss the Government’s Amended
Complaint in Intervention” (ECF No. 439) is GRANTED IN PART and DENIED
IN PART. The court dismisses with prejudice the Government’s claims under the
False Claims Act to the extent that they are based upon its G5 certification theory
of liability. The court denies the remainder of this motion to dismiss.
3. The Colleges’ “Motion to Dismiss Relators’ Fourth Amended Complaint” (ECF
No. 438) is GRANTED IN PART and DENIED IN PART. The court dismisses
with prejudice the relators’ second cause of action based upon the G5 certifications
and the third cause of action based upon the RMAs. As described in detail above,
the court also dismisses portions of the relators’ first cause of action based upon the
PPAs.
4. Additionally, the relators’ “Second Amended Complaint” (ECF No. 52), “Third
Amended Complaint” (ECF No. 175), and “Fourth Amended Complaint” (ECF No.
427) are STRICKEN for the reasons stated in Part III of this Order.
59
5. If it desires to expand the scope of its allegations, the Government is directed to file
a motion to amend under Federal Rule of Civil Procedure 15(a)(2) by February 4,
2019.
Signed January 14, 2019
BY THE COURT
______________________________
Jill N. Parrish
United States District Court Judge
60
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