United States ex rel. Brooks v. Stevens-Henager Coll.

305 F.Supp.3d 1279

UNITED STATES of America EX REL. Katie BROOKS and Nannette Wride, Plaintiffs,

v.STEVENS–HENAGER COLLEGE, et al., Defendants.

Case No. 2:15–cv–119–JNP–EJF

United States District Court, D. Utah.

Signed March 30, 2018

Jay D. Majors, Pro Hac Vice, John W. Black, Pro Hac Vice, U.S. Department of Justice, Commercial Litigation Branch, Civil Fraud Section, Washington, DC, John N. Zarian, Pro Hac Vice, National Commission for the Certification of Crane Operators, Sandra L. Steinvoort, U.S. Attorney's Office, Alissa M. Mellem, Pro Hac Vice, Brandon J. Mark, Pro Hac Vice, Parsons Behle & Latimer, Salt Lake City, UT, for Plaintiffs.

Alan L. Sullivan, Paul W. Shakespear, Amber M. Mettler, Snell & Wilmer, Eric G. Maxfield, Pro Hac Vice, Holland & Hart, Salt Lake City, UT, Steven M. Gombos, Pro Hac Vice, Gerald M. Ritzert, Ritzert & Leyton PC, Fairfax, VA, for Defendants.

MEMORANDUM DECISION AND ORDER

Jill N. Parrish, United States District Court Judge

I. INTRODUCTION

This is a qui tam action. Relators Katie Brooks and Nannette Wride filed this case in January 2013 seeking relief under the False Claims Act. They allege 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, or caused to be submitted, "false or fraudulent" claims for federal financial aid. In April 2014, the Government intervened with respect to certain allegations against two of the defendants: Stevens–Henager and its apparent successor in interest, CEHE.

The parties engaged in extensive motion practice, and Relators amended their complaint three times. On March 30, 2016, the court issued a memorandum decision and order (the "Prior Order"). In it, the court limited Relators and the Government (collectively, "Plaintiffs") to the legal theory that the Colleges knowingly made false statements, either express or implied, when entering into Program Participation Agreements with the Department of Education. Relators, the Government, and the Colleges have all asked the court to reconsider the Prior Order based on the Supreme Court's ruling in Universal Health Services, Inc. v. United States ex rel. Escobar , ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016).

II. LEGAL AND FACTUAL BACKGROUND

A. TITLE IV

Under Title IV of the Higher Education Act, the Government "operates a number of programs that disburse funds to help students defray the costs of higher education." Urquilla–Diaz v. Kaplan Univ. , 780 F.3d 1039, 1043 (11th Cir. 2015) (citing 20 U.S.C. §§ 1070 – 1099d ). "These programs include the Federal Pell Grant, the Federal Family Educational Loan Program, the William D. Ford Federal Direct Loan Program, and the Federal Perkins Loan." Id. (citing 20 U.S.C. §§ 1070a, 1071 – 1087, 1087a – 1087j, 1087aa – 1087ii ). Title IV funds are available only to those students who attend "eligible" institutions. Id.

To become an eligible institution, a school must enter into a Program Participation Agreement ("PPA") with the Department of Education. 20 U.S.C. § 1094(a) ; 34 C.F.R § 668.14(a)(1). Each PPA provides that "[t]he execution of this Agreement by the Institution and the Secretary is a prerequisite to the Institution's initial or continued participation in any Title IV ... program." Third Am. Compl., Ex. 1 at 1. Each PPA also provides that a school's participation in Title IV is "subject to the terms and conditions set forth in this Agreement." Id. When signing a PPA, a school promises to comply with all federal statutes applicable to Title IV and all regulations promulgated thereunder: "The Institution understands and agrees that it is subject to and will comply with the program statutes and implementing regulations for institutional eligibility as set forth in 34 CFR Part 600 and for each Title IV ... program in which it participates ...." Id. , Ex. 1 at 3.

1. The Incentive Compensation Ban

To be eligible to receive Title IV funds, a school must agree to comply with the Incentive Compensation Ban (the "ICB"). The ICB prohibits schools from "provid[ing] 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." § 1094(a)(20). Each PPA expressly 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 person or entities engaged in any student recruiting or admission activities or in making decisions regarding the awarding of student financial assistance ....

Third Am. Compl., Ex. 1 at 4–6.

2. The 90/10 Rule

Proprietary schools that execute a PPA agree to comply with what is known as the 90/10 Rule. § 1094(a)(24). Under this rule, a proprietary school must derive more than ten percent of its revenue from sources other than Title IV programs. § 1094(a)(24). A proprietary school loses eligibility for Title IV programs if it violates the 90/10 Rule for "two consecutive institutional years." § 1094(d)(2)(A) ; 34 C.F.R. § 668.28(c)(1). If a proprietary school violates the 90/10 Rule for any fiscal year, it "becomes provisionally certified ... for the two fiscal years after the fiscal year it failed to satisfy the [90/10 Rule]." § 668.28(c)(2).

3. Record Keeping Requirements

Schools that participate in Title IV programs must track and report student attendance.

In each PPA, a school agrees to "establish and maintain such administrative and fiscal procedures and records as may be necessary to ensure proper and efficient administration of funds." Third Am. Compl., Ex. 1 at 4; 20 U.S.C. § 1094(a)(3). If a student enrolls but fails to attend class, the school must return the funds received for that student to the Department of Education within a specified period of time. 20 U.S.C. § 1091b ; 34 C.F.R. § 668.21(a), (c). Similarly, if a student enrolls and attends some classes but then stops attending, the school must calculate the funds that the student earned and refund to the Department of Education any unearned funds. § 668.22(a)(1) (schools are obligated to "determine the amount of title IV grant or loan assistance that the student earned as of the student's withdrawal date"); § 668.22(a)(4) (the "difference between these amounts must be returned to the title IV programs"); see also 20 U.S.C. § 1091b ; 34 C.F.R. § 668.22(b), (g), (i).

4. Satisfactory Academic Progress

Schools that participate in Title IV programs must create and enforce reasonable standards of academic progress. Under the applicable regulations, "[a]n institution must establish a reasonable satisfactory academic progress policy for determining whether an otherwise eligible student is making satisfactory academic progress in his or her educational program and may receive assistance under the title IV ... programs." § 668.34(a); see also 20 U.S.C. § 1091(a)(2) (requiring students to make "satisfactory progress"); § 1091(c) (defining "satisfactory progress").

5. Accreditation Standards

To participate in Title IV programs, schools must "meet the requirements established by ... accrediting agencies or associations." 20 U.S.C. § 1094(a)(21). In each PPA, a school expressly agrees that it "will meet the requirements established pursuant to part H of Title IV of the HEA by ... nationally recognized accrediting agencies." Third Am. Compl., Ex. 1 at 6.

B. RELATORS' COMPLAINT

Relators' Third Amended Complaint ("Realtors' complaint") spans 160 pages and includes over 130 pages of factual allegations. In brief, Relators allege that the Colleges ran afoul of various Title IV requirements. According to Relators, the Colleges made false statements to the Department of Education in, among other things, PPAs. These false statements allegedly induced the Department of Education to make the Colleges eligible for Title IV programs. The Colleges' requests for Title IV funds were allegedly "false or fraudulent" because the Colleges fraudulently induced the Department of Education to allow the Colleges to participate in Title IV programs.

1. The Colleges and Mr. Barney

The Colleges, other than CEHE, operated for-profit postsecondary educational schools throughout the western United States. Id. ¶ 19. Mr. Barney allegedly signed PPAs on behalf of the Colleges at various times, including one in 2001 for Stevens–Henager. Id. ¶ 273. The Colleges derived a substantial portion of their revenue from Title IV programs. Id. ¶ 20. On or about December 31, 2012, the Colleges merged into CEHE, an Indiana nonprofit corporation. Id. ¶ 19. Before the merger, all of the Colleges, other than CEHE, were privately owned by Mr. Barney. Id. ¶ 21. Mr. Barney is the chairman of CEHE and the sole statutory member of CEHE. Id.

2. Relators Katie Brooks and Nanette Wride

Ms. Brooks began working at Stevens–Henager as an admissions consultant in March 2009. Id. ¶ 179. Her base salary was $38,000 per year when she started, but it was increased to $42,000 per year in September 2009. Id. ¶ 180 & n.6. Ms. Brooks allegedly received significant bonuses based on the number of students she enrolled in Stevens–Henager. Id. ¶ 180. For instance, in 2010, Ms. Brooks allegedly received bonuses (net of taxes and withholding) of approximately $31,450. Id. ¶ 190. Ms. Brooks stopped working at Stevens–Henager around March 2011. Id. ¶ 211.

Mr. Wride began working at Stevens–Henager as an admissions consultant in July 2009. Id. ¶ 212. She was paid a base salary of approximately $33,000 per year when she first started, which was later increased to $37,000 per year. Id. ¶ 228. She too was allegedly paid significant bonuses based on the...