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United States of America, Ex Rel. Hope Capriola, Amber Mason v. Brightstar Education Group

April 10, 2013

UNITED STATES OF AMERICA, EX REL. HOPE CAPRIOLA, AMBER MASON, NADIA YAMASHITA, SONIA MACIAS, AND AUBREY PRIEST, RELATORS,
v.
BRIGHTSTAR EDUCATION GROUP, INC., A DELAWARE CORPORATION; INSTITUTE OF TECHNOLOGY, INC., A DELAWARE CORPORATION, AND DOES 1 THROUGH 500, INCLUSIVE.
DEFENDANT.



ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (DOC. 44)

INTRODUCTION

Relators Hope Capriola, Amber Mason, Nadia Yamashita, Sonia Macias, and Aubrey Priest, (hereinafter referred to collectively as "Relators") on behalf of United States Government, bring the instant qui tam action for damages and civil penalties against defendants Brightstar Education Group Inc., (hereinafter referred to as "Brightstar") and Institute of Technology, Inc., (hereinafter referred to as "IOT") arising from an alleged violation of the False Claims Act ("FCA"). Relators allege that IOT 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 November 2004 to the present. Specifically, Relators allege a violation of 31 U.S.C. Sections 3729(a)(1-2). (Current version at 31 U.S.C. § 3729(a)(1)(A-B)).

The court is now asked to rule on Defendants‟ Motion to Dismiss pursuant to Federal Rules of Civil Procedure Rules 12(b)(6) and 9(b).

FACTUAL AND PROCEDURAL BACKGROUND

Relators are a group of persons formerly employed at the IOT Clovis campus as admissions representatives and Career Services Advisors (hereinafter referred to as "CSAs") in various periods between February 2009 and March 2011. (Second Amended Complaint ("SAC") ¶¶ 22, 27.)*fn1 On January 26, 2011, Relators initially brought suit in the court. On March 30, 2012 the United States gave notice of its election to decline intervention. Since the date of the Government‟s refusal to intervene, Relators have twice amended their complaint with leave from the court, the most recent of which was filed on August 29, 2012.

Relators allege that from at least November 2004 to the present, Defendants approved and presented false claims seeking over $38,000,000.00 annually from the Department of Education pursuant to the Higher Education Act. (Hereinafter referred to as "HEA") The two allegedly fraudulent assertions made by Defendants were contained in the Program Participation Agreement (hereinafter referred to as "PPA") which was required to be eligible for funds under the HEA. The allegedly fraudulent portions of the PPA read as follows:

a. "In the case of an institution that advertises job placement rates as a means of attracting students to enroll in the institution, it will make available to prospective students, at or before the time that those students apply for enrollment-(i)[t]he most recent available data concerning employment statistics, graduation statistics, and any other information necessary to substantiate the truthfulness of the advertisements..." HEA § 487(a)(8)(A); 20 U.S.C. § 1094(a)(8)(A); 34 C.F.R. § 668.14(b)(10)(i); and

b. "[The institution] will not provide any commission, bonus, or other incentive program based directly or indirectly upon success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of title IV, HEA program funds..." HEA § 487(a)(20); 20 U.S.C. § 1094(a)(20); 34 C.F.R § 668.14(b)(22)(i).

(SAC ¶ 2.)

Relators claim that, contrary to promises made in Defendants‟ PPA, Defendants in fact (a) provided knowingly false statistics, namely false placement rates, in support of their active -- oral and written -- advertisement, (SAC ¶ 3; see also Exhibit B) and (b) "regularly sponsore[d] competitions among enrollment counselors and financial advisors that are [/ were] based solely on the number of students these employees are able to enroll." (SAC ¶ 4.)

LEGAL STANDARD

On a motion to dismiss for failure to state a claim under Fed. Rule Civ. Proc. 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). Fed. Rule Civ. Proc. 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 § 1216, pp. 235-36 (3d ed. 2004) ("The pleading must contain something more...than...a statement of facts that merely creates a suspicion [of] a legally cognizable right of action")).

Moreover, "Rule 8(a)(2)...requires a "showing,‟ rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only "fair notice‟ of the nature of the claim, but also "grounds‟ on which the claim rests." Twombly, at 1965, n.3 (internal citations omitted). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 1960; see also Ashcroft v. Iqbal, 556 U.S. 662, 677-678 (2009). If the "plaintiffs...have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Twombly, at 1974.

Claims brought pursuant to the False Claims Act are subject to heightened pleading requirements. Fed.R.Civ.P. 9(b); Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054--55 (9th Cir. 2011). In alleging fraud or mistake, Rule 9(b) requires a party to "state with particularity the circumstances constituting fraud or mistake," including "the who, what, when, where, and how of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir.2003) (internal quotation marks omitted). In addition, ""[t]he plaintiff must set forth what is false or misleading about a statement, and why it is false.‟" Id. (quoting Decker v. GlenFed, Inc. (In re GlenFed, Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc)).

While a plaintiff need not provide "representative examples of false claims to support every allegation," he must at least allege "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Ebeid ex rel. U.S. Lungwitz, 616 F.3d 993, 998--99 (9th Cir. 2010) (quotation marks omitted); see also United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051--52 (9th Cir. 2001) (explaining that Rule 9(b) requires that a complaint be "specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong" (quotation marks omitted)).

If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. Generally, in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleading was made unless it determines that the pleading could not possibly be cured by the allegation of other facts. Enriquez v. Aurora Loan Services, LLC, 11-16864, 2013 WL 572834 (9th Cir. Feb. 15, 2013); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). In other words, dismissal without leave to amend is improper unless it is clear that the complaint could not be saved by any amendment. Muller v. Auker, 700 F.3d 1180, 1191 (9th Cir. 2012); Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

DISCUSSION

A. Standing

A qui tam plaintiff may bring suit pursuant to 31 U.S.C. § 3730(b)(1). The qui tam plaintiffs are permitted to carry the suit forward even when the government declines to intervene. 31 U.S.C. § 3730(c)(3). (see also U.S. Ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001). Here, Relators have elected to move forward with the proceeding despite the government‟s declination to intervene. Relators have standing.

B. False Claims Act Liability

Relators allege causes of action based on violations of 31 U.S.C. § 3729(a)(1)(AB). The FCA sections pled by Relators attach liability to any person who:

(A) knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval; [or]

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim ;

31 U.S.C. § 3729(a)(1)(A-B, G)

1. False Certification ...


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