Halasa v. ITT Educ. Servs., Inc.

• Decision Date: 14 August 2012
• Docket Number: No. 11–3305.,11–3305.
• Citation: 690 F.3d 844,34 IER Cases 193
• Parties: Jason HALASA, Plaintiff–Appellant, v. ITT EDUCATIONAL SERVICES, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

690 F.3d 844

34 IER Cases 193

Jason HALASA, Plaintiff–Appellant,

v.ITT EDUCATIONAL SERVICES, INC., Defendant–Appellee.

No. 11–3305.

United States Court of Appeals, Seventh Circuit.

Argued June 6, 2012.

Decided Aug. 14, 2012.

Timothy J. Matusheski (argued), Attorney, Law Offices of Timothy J. Matusheski, Hattiesburg, MS, for Plaintiff–Appellant.

Christina L. Fugate, Brian J. Paul, Attorneys, Ice Miller LLP, Indianapolis, IN, Marcellus McRae (argued), Attorney, Gibson, Dunn & Crutcher, Los Angeles, CA, for Defendant–Appellee.

Before EASTERBROOK, Chief Judge, and WOOD and SYKES, Circuit Judges.

WOOD, Circuit Judge.

ITT Educational Services is a for-profit corporation that runs “ITT Technical Institutes” in several locations throughout the United States, including Lathrop, California. Plaintiff Jason Halasa was the Lathrop Campus's College Director for six months in 2009. The parties provide competing accounts of the end Halasa's tenure: ITT says that Halasa was fired for exhibiting poor management skills and delivering inadequate results; Halasa alleges that he was fired in violation of the False Claims Act, 31 U.S.C. § 3730(h), after identifying and reporting several irregularities in the way ITT was handling its federally subsidized loans and grants for students. We conclude that even if Halasa did engage in protected conduct under the Act, he has not shown that he was fired because of this conduct. Thus, we affirm the decisions of the district court granting summary judgment and costs in ITT's favor.

I

ITT is a for-profit corporation that operates Technical Institutes throughout the country. Like many such for-profit institutions, nearly three-quarters of its total cash receipts come from the federal treasury by way of student loans and grants. See S. Comm. On Health, Educ., Labor and Pensions, For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,S. Prt. No. 112–37, at 30 (July 30, 2012). Students enroll in ITT's Institutes, and they often pay for those programs with federally-funded student aid. In order to qualify to receive this aid on behalf of its students, ITT must comply with certain regulatory requirements, some of which are incorporated into a Program Participation Agreement (PPA) between ITT and the U.S. Department of Education.

Drawing all inferences in Halasa's favor, as we must at this stage of the litigation, Chicago Reg'l Council of Carpenters v. Village of Schaumburg, 644 F.3d 353, 356 (7th Cir.2011), we summarize the events underlying this case. On March 9, 2009, Halasa began employment at ITT's Lathrop Campus as its College Director. According to Halasa, the campus was in disarray when he arrived. It was undergoing a large remodeling project, and several important leadership positions were vacant. Halasa contends that this had created a vacuum of leadership. In the absence of proper oversight, he said, some Lathrop employees had begun engaging in a variety of unlawful recruiting and reporting practices. Student recruiters (that is, employeesresponsible for persuading prospective students to enroll in Institute programs) were paid on an incentive basis—a scheme that is expressly prohibited by the PPA. See 20 U.S.C. § 1094(a)(20) (prohibiting “commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments”). Other ITT employees were allegedly pressured to change the entrance exam scores of prospective students, to alter the grades of students to improve their job prospects, and to misreport the employment statistics of graduates. Halasa reported all these observations to his direct supervisor, Jeff Ortega. He also reported some of them to Valory Hemphill, ITT's Regional Director of Recruitment, and Chris Carpentier, its Director of Compliance.

Meanwhile, ITT was experiencing some problems of its own with Halasa. ITT received several complaints about Halasa's behavior via its Ethics Alert Line. According to these complaints, Halasa smoked a hookah pipe with other ITT employees in the campus parking lot during a student orientation event. He also allegedly referred to himself as the “King” and his colleagues as the “Mafia.” (We have highlighted only a few such incidents here. There are others. For example, Halasa allegedly hatched an ill-advised plan to close all of the restrooms on the Lathrop Campus simultaneously. When employees needed to use those facilities, he proposed that they to go to a nearby Arby's fast-food restaurant.) Beyond these incidents, the Lathrop campus was performing below expectations. During an operational review conducted in May 2009, ITT Executive Vice President Gene Feichtner was unimpressed with the campus's development under Halasa's management. A few months later, in August 2009, the campus received a low score in an internal audit, prompting ITT CEO Kevin Modany to send an email to Halasa indicating his “disappoint[ment]” with the campus's progress.

Finally, on September 9, 2009, several vice presidents and the CEO decided to terminate Halasa's employment. The parties disagree about what prompted this. ITT asserts that it fired Halasa because it had lost “confidence in his ability to lead the college.” Halasa contends that ITT ended their relationship because he had identified and reported violations of ITT's legal obligations under the PPA. Believing that this type of retaliation violates the False Claims Act, Halasa filed suit in the U.S. District Court for the Southern District of Indiana, where ITT is headquartered. The district court granted summary judgment in favor of ITT. Halasa now appeals.

II

We review the district court's grant of summary judgment de novo. Village of Schaumburg, 644 F.3d at 356. In opposing ITT's summary judgment motion on his claim for unlawful retaliatory discharge under the Act, Halasa needed to point to evidence showing first that he engaged in protected conduct and then that he was fired “because of” that conduct. 31 U.S.C. § 3730(h)(1); Brandon v. Anesthesia & Pain Mgmt. Assocs., 277 F.3d 936, 944 (7th Cir.2002).

Section 3730(h)(1) protects two categories of conduct. The statute has long prevented employers from terminating employment for conduct that is “in furtherance of an action under this section.” In Brandon, we explained that this language reached conduct that put an employer “on notice of potential [False Claims Act] litigation.” 277 F.3d at 945. In 2009, Congress amended the statute to protect employees from being fired for undertaking “other efforts to stop” violations of the Act, such as reporting suspected misconductto internal supervisors. For the purposes of this appeal, we proceed on the assumption that Halasa's conduct falls within the scope of the statute's amended language. As we noted above, recruiters at the Lathrop Campus were allegedly compensated on the basis of their recruitment success in violation of 20 U.S.C. § 1094(a)(20), a requirement that was specifically incorporated into ITT's PPA. See id. at § 1094(a). Furthermore, some prospective students were allegedly receiving inappropriate assistance on placement exams (so-called “ability to benefit” exams) or had their scores altered post hoc so that they could qualify to receive financial aid. See id. at § 1091(d)(1). Halasa investigated these claims and reported his findings to Ortega, Hemphill, and Carpentier, presumably to ensure that ITT ended these practices and to prevent ITT from making any false certifications to the U.S. Department of Education in connection with its PPA. We are satisfied that Halasa's evidence would permit a trier of fact to find that he engaged in “efforts to stop” potential FCA violations.

Even assuming that his conduct was protected by the Act, however, Halasa faces a second hurdle. He must show that his protected conduct was connected to ITT's decision to fire him. Practically, in order to avoid summary judgment he must have evidence that would support a finding that he was fired “because of” his protected conduct. That is where his case founders. The record is undisputed that the decision to fire Halasa was made by Vice President Barry Simich and approved by Senior Vice President Nina Esbin, Executive Vice President Feichtner, and CEO Modany. Yet Halasa has no evidence that any of these decisionmakers knew of his protected conduct. Rather, the record shows that Halasa reported his findings only to Ortega, Hemphill, and Carpentier and there is no indication that any of these people passed along Halasa's findings to the decisionmakers. Halasa's best evidence is deposition testimony stating that all formal ethics complaints are required to be forwarded to Simich. But none of Halasa's False Claims Act-related reports was expressed as a formal ethics complaint, and there is no evidence either that any of these reports ever reached a decisionmaker or that any of them otherwise learned of Halasa's protected activity.

Unable to prove causation as a factual matter, Halasa argues that we should find causation as a matter of law. He suggests that we impute to ITT (and its agents) any knowledge that Ortega gained when Halasa reported potential violations. This argument seriously misunderstands the way liability rules work in the corporate setting. The broad (and unprecedented) doctrine of constructive knowledge that Halasa urges would defeat the specific statutory requirement that an employee's termination be “because of” her protected conduct. The law is clear that it is the decisionmakers' knowledge that is crucial. Apart from narrow exceptions like the one that has come to be called the “cat's paw” theory, see Staub v. Proctor Hospital, ––– U.S. ––––, 131 S.Ct. 1186, 179 L.Ed.2d 144 (2011), which does not apply here, companies are not liable under the False Claims Act for every scrap of information that someone in or outside the chain of responsibility might have.

Halasa has not shown that ITT fired him because of any...