Urquilla-Diaz v. Kaplan Univ.

• Decision Date: 11 March 2015
• Docket Number: No. 13–13672.,13–13672.
• Citation: 780 F.3d 1039
• Parties: Carlos URQUILLA–DIAZ, Jude Gillespie, Plaintiffs–Appellants, Ben Wilcox, Plaintiff, v. KAPLAN UNIVERSITY, a.k.a. Iowa College Acquisition Corporation, a.k.a. Kaplan College, Kaplan Higher Education Corporation, a division of Kaplan, Inc.; wholly owned subsidiary of The Washington Post Company, Kaplan, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

780 F.3d 1039

Carlos URQUILLA–DIAZ, Jude Gillespie, Plaintiffs–AppellantsBen Wilcox, Plaintiff

v.KAPLAN UNIVERSITY, a.k.a. Iowa College Acquisition Corporation, a.k.a. Kaplan College, Kaplan Higher Education Corporation, a division of Kaplan, Inc.; wholly owned subsidiary of The Washington Post Company, Kaplan, Inc., Defendants–Appellees.

No. 13–13672.

United States Court of Appeals, Eleventh Circuit.

March 11, 2015.

Jude Gillespie, a/s/d Calas Thierry, Jeremy William Alters, Justin David Grosz, Alters Law Firm, PA, Mami, FL, John Troy Andrews, John W. Andrews, Andrews Law Group, Tampa, FL, Benedict P. Morelli, David S. Ratner, Morelli Ratner, PC, New York, NY, for Plaintiff.

Julian Wing–Kai Poon, Timothy J. Hatch, Vivek Narayanadas, Jeremy S. Ochsenbein, James L. Zelenay, Jr., Gibson Dunn & Crutcher, LLP, Los Angeles, CA, Susan N. Eisenberg, Akerman, LLP, Miami, FL, Nicola T. Hanna, Gibson Dunn & Crutcher, LLP, Irvine, CA, Samuel S. Heywood, Mia Rene Martin, Sandra Jessica Millor, Akerman, LLP, Miami, FL, Marisa Maleck, Gibson Dunn & Crutcher, LLP, Washington, DC, for Defendants–Appellees.

Appeals from the United States District Court for the Southern District of Florida. D.C. Docket No. 1:09–cv–20756–PAS.

Before MARTIN and DUBINA, Circuit Judges, and RODGERS,^* District Judge.

Opinion

DUBINA, Circuit Judge:

In this consolidated qui tam action, three relators brought claims under the False Claims Act against an educational institution for falsely certifying to the government that it was in compliance with various federal statutes and regulations to receive financial-aid funds from the federal fisc. The district court ruled against the relators. After final judgment was entered, two relators appealed. Relator Carlos Urquilla–Diaz appeals from the district court's dismissal with prejudice of his claims under the False Claims Act against Defendants Kaplan University, Kaplan Higher Education Corp., and Kaplan, Inc. (Kaplan).¹ Relator Jude Gillespie appeals from the district court's grant of summary judgment to Kaplan on his claims under the False Claims Act as well as several other orders. After reviewing the record, reading the parties' briefs, and with the benefit of oral argument, we affirm the district court's judgment in part and reverse in part.

I. Legal Framework

A. Higher Education Act

Under Title IV of the Higher Education Act of 1965, the federal government operates a number of programs that disburse funds to students to help defray the costs of higher education. 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.² But these funds are only available to students who attend qualifying schools.

To be eligible to receive Title IV funds, a school must enter into a program participation agreement with the Department of Education. Id. § 1094 ; see also34 C.F.R. § 668.14(a)(1) (2010).³ In signing such an agreement, the school promises to comply with all federal statutes applicable to Title IV of the Higher Education Act and the regulations promulgated thereunder. See § 1094 ; 34 C.F.R. § 668.14(b)(1). The school must also meet a number of additional requirements. But once qualified, students who currently attend or plan to attend the school may apply to receive Title IV funds by completing the Free Application for Federal Student Aid.

Here, Diaz and Gillespie's claims relate to the following statutory, regulatory, and contractual requirements that Kaplan had to meet or comply with to be eligible to receive Title IV funds.

Accreditation. A school must be accredited. 34 C.F.R. § 600.4(a)(5)(i).⁴ This is equally true for a proprietary school⁵ like Kaplan. Id. § 600.5(a)(6). While the Department of Education does not directly accredit schools, “the Secretary of Education approves accrediting agencies for different types of educational programs, and these accrediting bodies set independent standards for accreditation.” Thomas M. Cooley Law Sch. v. Am. Bar Ass'n, 459 F.3d 705, 707 (6th Cir.2006). Both Kaplan University and Kaplan Higher Education Corp. are accredited by the Higher Learning Commission.

The 90/10 rule. A proprietary school must agree that it will “derive not less than ten percent of [its] revenues from sources other than funds provided under” Title IV of the Higher Education Act. § 1094(a)(24) ; 34 C.F.R. § 668.14(b)(16). This is known as the “90/10 rule.”

Ban on recruitment-based incentive compensation. A school must agree that it will not award recruiters “any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments.” § 1094(a)(20). In 2002, the Department of Education's implementing regulations created several safe harbors—“arrangements that an institution may carry out without violating” this statute. 34 C.F.R. § 668.14(b)(22)(ii). One such harbor shelters a school that pays “fixed compensation ... as long as that compensation is not adjusted up or down more than twice during any twelve month period, and any adjustment is not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid.” Id. § 668.14(b)(22)(ii)(A).

Satisfactory progress. When the events in the second amended complaint filed in this case allegedly occurred, the Department of Education's regulations obligated schools to review their students' academic progress at the end of each year. Id. § 668.34(d). For students “enrolled in a program of study of more than two academic years,” Title IV eligibility beyond the second year partially depended on having made “satisfactory progress.” Id. § 668.34(a). This meant they had to have “a grade point average of at least a ‘C’ or its equivalent[ ] or ha[ve] academic standing consistent with the institution's requirements for graduation” at the end of the second year. Id. § 668.34(b).

But students who failed to do so would not necessarily lose Title IV eligibility. Schools could “find that a student [wa]s making satisfactory progress” by determining the student's lackluster academic progress was the result of (1) “[t]he death of a relative,” (2) “[a]n injury or illness,” or (3) “[o]ther special circumstances.” Id. § 668.34(c). Also, students who lost Title IV eligibility at the two-year checkpoint could later be found to be making satisfactory progress if “at the end of a subsequent grading period [they came] into compliance with the institutions requirements for graduation.” Id. § 668.34(d).

Section 504 of the Rehabilitation Act. Educational institutions that receive federal funds, including under Title IV of the Higher Education Act, are prohibited from discriminating against the individuals with disabilities. 29 U.S.C. § 794(a), (b)(2)(A), (b)(3)(A). In its 2004 program participation agreement, Kaplan agreed that it would “comply with ... Section 504 of the Rehabilitation Act and the implementing regulations 34 C.F.R. Part 104 (barring discrimination on the basis of physical handicap).”

B. False Claims Act

The False Claims Act enables private citizens to recover damages on behalf of the United States by filing a qui tam action against a person who

(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government ... a false or fraudulent claim for payment or approval; [or]

(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government.

31 U.S.C. § 3729(a)(1)-(2) (2006). “Liability under the False Claims Act arises from the submission of a fraudulent claim to the government, not the disregard of government regulations or failure to maintain proper internal procedures.” Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir.2005). Simply put, the “sine qua non of a False Claims Act violation” is the submission of a false claim to the government. Id. (quoting United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir.2002) ).

Even so, an educational institution can be found liable under § 3729(a)(2) for falsely certifying to the Department of Education in its program participation agreement that it will comply with federal law and regulations. To prevail under what our sister circuits call a “false certification theory”—a theory of liability that we expressly adopt—the relator must prove “(1) a false statement or fraudulent course of conduct, (2) made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.” United States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1174 (9th Cir.2006).⁶

II. Factual and Procedural Background

A. Diaz

Diaz worked for Kaplan University from August 2004 through April 2005 as a professor of paralegal studies. In April 2007, he filed this qui tam action against Kaplan. He then amended his complaint twice. In his second amended complaint, he alleged that Kaplan had violated several provisions of the Higher Education Act and its implementing regulations. These violations in turn rendered Kaplan ineligible to receive Title IV funds. And because these violations were committed with the requisite scienter, Kaplan was liable under the False Claims Act.

Specifically, Diaz alleged that Kaplan committed the following violations:

(1) improperly paying incentive compensation to recruiters and then falsely asserting in a yearly letter that it was in compliance with the ban on recruitment-based incentive compensation;

(2) enrolling employees in its courses and paying their tuition from a company scholarship created with Title IV funds, thereby violating the 90/10 rule;

(3) inflating students' grades and then certifying that they were making satisfactory academic progress; and

(4) using falsified documents to obtain accreditation.

As a result, Diaz asserted that Kaplan violated subsections (a)(1) and (a)(2) of the False Claims Act.⁷

Kaplan moved to dismiss for failure to state...