United States ex rel. Lorona v. Infilaw Corp.

UNITED STATES OF AMERICA ex rel.PAULA C. LORONA and REID POTTER, Plaintiffs-Relators, v. INFILAW CORPORATION, et al., Defendants.

Case No. 3:15-cv-959-J-34PDB

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION

August 12, 2019

ORDER

THIS CAUSE is before the Court on two motions. On September 21, 2018, Defendant Barbri, Inc. filed a motion to dismiss Count III of the Third Amended Complaint (Doc. 36) pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure (Rule(s)). See Defendant Barbri, Inc.'s Dispositive Motion to Dismiss and Memorandum in Support (Doc. 44; Barbri Motion). In addition, on October 22, 2018, Defendants Infilaw Corporation, Arizona Summit Law School, LLC (ASLS), Florida Coastal School of Law (FCSL), and Charlotte School of Law (CSL) (collectively, Infilaw Defendants) filed a motion to dismiss this action in its entirety pursuant to Rules 12(b)(1) and 12(b)(6). See Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Omnibus Motion to Dismiss Third Amended Complaint and Supporting Memorandum of Law (Doc. 56; Infilaw Motion). Plaintiffs/Relators Paula C. Lorona and Reid Potter (Relators) filed a response to the Barbri Motion on October 12, 2018, and to the Infilaw Motion on December 17, 2018. See Plaintiffs' Response to Defendant Barbri, Inc.'s Dispositive Motion to Dismiss (Doc. 54; Response to Barbri); Relators' Response to Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Omnibus Motion to Dismiss (Doc. 65; Response to Infilaw). In addition, with leave of Court, the Infilaw Defendants filed a reply in support of their Motion on January 17, 2019. See Reply in Support of Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Motion to Dismiss the Third Amended Complaint (Doc. 71; Reply). Accordingly, this matter is ripe for review.

I. Procedural History

Plaintiff/Relator Paula C. Lorona initiated this action on August 5, 2015, by filing, under seal, a four-count complaint pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq. See Complaint of Qui Tam Plaintiff Paula C. Lorona Filed Under Seal Pursuant to 31 U.S.C. §§ 3729 et seq. (Doc. 1; Original Complaint). On August 6, 2015, the Court entered an Order (Doc. 5) striking the Original Complaint as an impermissible shotgun pleading, observing that "each subsequent count of the four counts in the Complaint incorporates by reference all of the allegations of the preceding counts." See August 6, 2015 Order at 1-2. In accordance with the Court's Order, Lorona filed an amended complaint on August 31, 2015. See First Amended Complaint of Qui Tam Plaintiff Paula C. Lorona (Doc. 8; Amended Complaint). Thereafter, on March 10, 2016, with leave of Court, Lorona filed a second amended complaint, joining the additional Plaintiff/Relator Reid Potter, and adding a fifth count. See Second Amended Complaint of Qui Tam Plaintiffs Paula C. Lorona and Reid Potter (Doc. 14; Second Amended Complaint); see also Order (Doc. 13) (granting leave to amend).

Following multiple extensions of time, on February 16, 2018, the United States filed a notice of its decision not to intervene in this action. See United States' Notice of Election to Decline Intervention (Doc. 30). Accordingly, on April 24, 2018, the Magistrate Judge entered an In Camera Order directing the Clerk of the Court to unseal the pleadings in this matter. See In Camera Order (Doc 33.). Upon review of the Second Amended Complaint, the Court found that Relators had once again employed a shotgun manner of pleading. See Order (Doc. 35) at 1-2, filed April 26, 2018 ("Given the lack of any specification, Plaintiffs appear to be invoking all factual allegations as well as all allegations of each of the proceeding counts and leaving it to the Court to sift out irrelevancies and decide for itself which facts are relevant to the particular causes of action asserted."). As such, the Court struck the Second Amended Complaint and directed Relators to file a third amended complaint. See id. at 3. The Court cautioned Relators to "carefully review the Eleventh Circuit authority on this issue and ensure that the third amended complaint is fully compliant with the letter and spirit of the shotgun pleading rule." See id. at 3 n.1. On May 18, 2018, Relators filed the Third Amended Complaint of Qui Tam Plaintiffs Paula C. Lorona and Reid Potter (Doc. 36; Third Amended Complaint),¹ the operative pleading in this action.

II. Factual Background²

A. Overview of Claims

Defendants ASLS, CSL, and FCSL (the Law Schools) are private, for-profit law schools, controlled by their parent company, Defendant Infilaw. See TAC ¶¶ 4-10.Relators allege that the Infilaw Defendants violated the False Claims Act (FCA) in connection with their receipt of federal funds from the student financial assistance programs authorized by Title IV of the Higher Education Act of 1965 (HEA). To be eligible to receive Title IV funds, institutions such as ASLS, CSL, and FCSL must enter a program participation agreement (PPA) with the Secretary of the Department of Education (DOE) which conditions "the initial and continued participation" of the institution on its compliance with certain requirements. See 34 C.F.R. § 668.14(a)(1). By entering a PPA, an institution agrees in pertinent part that:

It will comply with all statutory provisions of or applicable to Title IV of the HEA, all applicable regulatory provisions prescribed under that statutory authority, and all applicable special arrangements, agreements, and limitations entered into under the authority of statutes applicable to Title IV of the HEA, including the requirement that the institution will use funds it receives under any Title IV, HEA program and any interest or other earnings thereon, solely for the purposes specified in and in accordance with that program.

34 C.F.R. § 668.14(b)(1). Relators allege that the Law Schools executed PPAs and submitted them to the federal government "despite full knowledge" that the regulations and requirements were "regularly being violated . . . ." TAC ¶¶ 32-34. Specifically, Relators allege that the Law Schools were violating the following three DOE regulations: (1) the "90/10 Rule" set forth in § 668.14(b)(16),³ (2) the prohibition on "substantial misrepresentations" set forth in § 668.71(b),⁴ and (3) the accreditation requirement set forthin § 668.14(b)(23).⁵ In light of these violations, Relators maintain that the submission of the falsely certified PPAs "caused the federal government to distribute Title IV/HEA funds" to the Law Schools, "in violation of the False Claims Act." Id. ¶¶ 33-34. Relators also allege that the Law Schools made false statements to the American Bar Association (ABA) essential to the Law Schools' accreditation, which caused the government to pay Title IV funds to the Law Schools for which the Law Schools were ineligible. See id. ¶¶ 203-05, 212-13, 222, 224.

In the Third Amended Complaint, Relators set forth five separate claims under the False Claims Act. In Counts I, II and IV, Relators assert that the Law Schools knowingly presented false claims for payment to the federal government in violation of § 3729(a)(1)(A), and knowingly made or used false records or statements material to the false claims in violation of § 3729(a)(1)(B). See TAC ¶¶ 206-28, 239-45. In Count III, Relators allege that the Law Schools and Infilaw, conspired with Defendant Barbri, a corporation which provides "preparation courses and materials for individuals taking state bar exams," to violate the FCA. See TAC ¶¶ 12, 229-38. Last, in Count V, Relators allege that the Law Schools and Infilaw knowingly avoided their obligation to transmit money to the federal government, in violation of 31 U.S.C. § 3729(a)(1)(G), by failing to return to the federal government the "millions of dollars in payments for claims they were not entitled to." See TAC ¶¶ 247-49.

B. The Relators

Lorona enrolled at ASLS as an evening student in August 2009. Id. ¶ 136. Lorona also "decided to work at ASLS because it would help her attend law school." Id. ¶ 25. ASLS hired Lorona in November of 2009 as "an administrative assistant to the General Counsel of ASLS." See TAC ¶ 22. In 2010, she was promoted to "financial aid representative," and in 2011, she received promotions to "assistant director of financial aid," and "student accounts/accounting manager." Id. As an employee, "Lorona was given a full tuition waiver and a pro rata early tuition waiver to attend ASLS." Id. ¶ 25. "Lorona's responsibilities as an employee of ASLS included submission of requests for federal funds, through the Common Origination and Disbursement System (COD), used by the DOE to create, deliver, and report Federal Pell Grants, TEACH Grants, and Federal Direct Loans." Id. ¶ 23. Following Lorona's submission of a COD request, the DOE would disburse the Title IV funds to ASLS, and Lorona would facilitate the distribution of the funds to the students. Id. ¶ 24. According to Relators, Lorona also "observed and participated in ASLS'[s] application for accreditation from the American Bar Association and the financial inner-workings of ASLS and Infilaw, including student loan disbursement, the application for and receipt of Title IV funds, and the certification of compliance with all DOE and Title IV regulations and requirements." Id. ¶ 23. Lorona alleges that ASLS President Scott Thompson executed the PPAs, "but they were prepared by other employees within the President's Office and financial aid department," such that she had "unparalleled access to the documents and the process under which they were certified." Id. ¶ 32.⁶ However,Lorona does not describe this process or describe her role, if any, in the preparation of the PPAs.

Potter attended law school at ASLS as well....