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United States of America and State of California, Ex Rel. v. University of Phoenix

July 5, 2012

UNITED STATES OF AMERICA AND STATE OF CALIFORNIA, EX REL. DEREK HOGGETT AND TAVIS GOOD, PLAINTIFFS,
v.
UNIVERSITY OF PHOENIX, APOLLO GROUP, INC., AND DOES 1 THROUGH 100, INCLUSIVE, DEFENDANT.



The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge

MEMORANDUM AND ORDER

Through the present action, Relator Plaintiffs Derek Hoggett and Tavis Good ("Relators") sue UOPX under the False Claims Act, 31 U.S.C. § 3729, et seq. ("FCA") and its California counterpart, Government Code § 3729, et seq. ("CFCA"). Relators are former admission counselors for the University of Phoenix, a for-profit post-secondary education institution and a subsidiary of Defendant Apollo Group (hereinafter collectively referred to as "UOPX").

Relators allege that UOPX submitted false claims for federal student financial aid funds to the United States Department of Education pursuant to the Higher Education Act, Title IV ("HEA") from at least December 12, 2009 to the present.

Presently before the Court is UOPX's Motion to Dismiss. UOPX first argues that the Court lacks jurisdiction under Federal Rule of Civil Procedure 12(b)(1) because a prior lawsuit (United States ex rel. Hendow v. University of Phoenix, No. 2:03-cv-0457-GEB-DAD (E.D. Cal.) (Burrell, J.)), also against UOPX, bars the present action under the so-called "first to file" rule. According to UOPX, that lawsuit settled on or about December 11, 2009 at a total cost of some $78.5 million, and involved virtually identical allegations of misconduct. Secondly, UOPX argues that Plaintiffs cannot state a viable claim in any event, pursuant to Rule 12(b)(6), because their complaint, and the exhibits thereto, show that UOPX is entitled to a safe harbor provision from false claims act liability. Finally, UOPX contends, with respect to the CFCA claims, that they fail for several independent reasons, including a limitations bar, the fact that California law permitted enrollment based recruiter payments for much of the time period in question, and also because the Court should decline to exercise supplemental jurisdiction over the state law claims in any event if no cognizable federal claim is present.

For the reasons set forth below, UOPX's Motion to Dismiss will be denied.*fn1

BACKGROUND

Relators allege that UOPX, despite its settlement of earlier charges in 2009, in fact continues to violate HEA's prohibition against awarding incentive payments to recruiters based solely on enrollment numbers. (Second Amended Complaint ("SAC"), ECF No. 36, at 2.)*fn2 By knowingly or recklessly submitting false representations of compliance with requests for HEA or California student financial aid funds, Relators claim that UOPX violated FCA sections 3729(a)(1) and (a)(2), and CFCA § 3729. (Id.)

Relators allege that from at least December 12, 2009, UOPX has fraudulently asserted that it "had not paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments...for each year at issue." (Id. at 6.) Relators contend that although UOPX disguises its compensation practices with a "matrix" that ostensibly lists non-enrollment criteria for performance evaluation, in practice, enrollment numbers are the sole, direct factor in determining promotion, salaries, and bonuses. (Id. at 6-7.)

Relators further allege that this conduct was not deterred or altered by the Hendow settlement, and that the fraudulent activities continued with the knowledge and support of UOPX compliance officials. (Id.) Relators claim that they were told to destroy documents related to training and recruitment, and were also told that there were no plans to change the old policies. (Id. at 9-11.) Relators allege that despite the performance matrix, UOPX continues to "stack rank" counselors based on their number of enrollments, and uses that ranking to determine compensation. (Id. at 11.) Further, UOPX continues to publish separate documents showing a salary range aligned with each performance rating from the matrix, so that a counselor can determine his or her salary range based on their enrollment levels. (Id.) Finally, Relators detail numerous occasions when UOPX officials and employees told Relators directly that compensation decisions are based solely on enrollment numbers (Id. at 9.) Relators argue that these facts, and others alleged in the Second Amended Complaint, show that UOPX knowingly bases recruiter compensation on enrollment numbers, while trying to disguise this illicit behavior with a misleading performance evaluation matrix, all in violation of the FCA and CFCA.

STANDARD

In moving to dismiss for lack of subject matter jurisdiction pursuant to Rule 12 (b)(1), the challenging party may either make a "facial attack" on the allegations of jurisdiction contained in the complaint or can instead take issue with subject matter jurisdiction on a factual basis ("factual attack"). Thornhill Publishing Co. v. General Tel. & Elect. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). If the motion constitutes a facial attack, the Court must consider the factual allegations of the complaint to be true. Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir. 1981); Mortensen, 549 F.2d at 891. If the motion constitutes a factual attack, however, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Thornhill, 594 F.2d at 733 (quoting Mortensen, 549 F.2d at 891).

On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the...claim is and the grounds upon which it rests."

Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007) (internal citations and quotations omitted). Though "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65 (internal citations and quotations omitted). A plaintiff's factual allegations must be enough to raise a right to relief above the speculative level. Id. at 1965 (citing 5 C. Wright &

A. Miller, Federal Practice and Procedure ยง 1216, pp. 235-36 (3d ed. 2004) ("The pleading must contain something more...than...a statement of facts that merely creates a ...


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