LaMarca v. United States

• Citation: 34 F.Supp.3d 784
• Decision Date: 22 July 2014
• Docket Number: Case No. 1:12 CV 664.
• Court: U.S. District Court — Northern District of Ohio
• Parties: Marc LaMARCA, et al., Plaintiffs, v. UNITED STATES of America, Defendant.

34 F.Supp.3d 784

Marc LaMARCA, et al., Plaintiffs
v.
UNITED STATES of America, Defendant.

Case No. 1:12 CV 664.

United States District Court, N.D. Ohio, Eastern Division.

Signed July 22, 2014.

34 F.Supp.3d 785

Ann S. Vaughn, Independence, OH, Maureen Connors, Parma Heights, OH, Joan E. Pettinelli, William D. Beyer, Wuliger, Fadel & Beyer, Cleveland, OH, for Plaintiffs.

Andrew J. Lievense, Office of the U.S. Attorney, Detroit, MI, for Defendant.

OPINION AND ORDER

DAVID D. DOWD, JR., District Judge.

This case is before the Court on defendant United States' motion to dismiss

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plaintiffs' complaint seeking redress under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671 et seq., “for actions undertaken by agents and employees of the United States Government all acting within the scope of their offices and employment, under circumstances where the Defendant United States of America, if a private person, would be liable to the Plaintiffs in accordance with the laws of the State of Ohio.” ECF 1. For the reasons that follow, defendant United States of America's motion to dismiss (ECF 25) is GRANTED.

PLAINTIFFS' COMPLAINT

The plaintiffs in this case are Marc LaMarca (LaMarca), Beauty Enterprises, Inc. dba Vogue Beauty Academy (Vogue), and Charmayne, Inc. dba Charmayne Beauty Academy (Charmayne). Plaintiffs Vogue and Charmayne (collectively, the Schools) are privately owned for-profit corporations offering diplomas in basic cosmetology and cosmetology management. Plaintiff LaMarca is a 50% owner of the Schools and Senior Vice President/Chief Executive Officer of the Schools.

The Schools were classified by the United States Department of Education (DOE) as vocational trade schools and participated in the DOE's Pell Grant program pursuant to a Program Participation Agreement (PPA).¹ Numerous regulations govern both the DOE and schools participating in the DOE's Pell Grant program pursuant to Title IV of the Higher Education Act, including recording-keeping requirements and procedures for addressing problems that arise in connection with a school's participation in the Pell Grant program.²

The federal Pell Grant program provides need-based grants to students meeting the program's income requirements. Pell Grant funds for students in the program are sent directly to participating schools. In this case, when the Schools received Pell Grant funds for students participating in the Pell Grant program, the funds were credited to the students' accounts to pay for tuition and fees.

According to plaintiffs' complaint, the Schools began participating in the Pell Grant program in 1975. Plaintiffs allege that the Schools failed to receive from the DOE approximately $600,000 in Pell Grant tuition funds for the 1998–1999 and 1999–2000 academic years due to the DOE's failure to timely process student Pell Grant applications, pay Pell Grant funds for eligible students, and supply the Schools with the DOE's Individual Student Aid Report (ISAR) forms needed by the Schools to support continued eligibility of students for Pell Grant funds. Plaintiffs also claim that the DOE owed the Schools over $500,000 in Pell Grant tuition funds for the first half of the 2003–2004 academic year. Plaintiffs allege that as a consequence of the DOE's failure to pay the Pell Grant funds, the Schools experienced a cash flow problem.

Under the Pell Grant program, participating schools are required to refund Pell Grant funds paid by the DOE for students who drop out before completing their course of study or who are later determined ineligible for Pell Grant assistance. Plaintiffs allege that due to the Schools' cash flow problem caused by the DOE's

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failure to pay Pell Grant funds which plaintiffs' claim were due, refunds owed to the DOE by the Schools accumulated unpaid. The sum owed by the Schools to the DOE in Pell Grant refunds is estimated to be over $400,000, but the exact sum remains to be determined. Plaintiffs allege in their complaint that pursuant to § 490(d)(7) of the HEA, as amended in 1992, Title 20 U.S.C. § 1094(c)(7), the Schools were entitled to offset the refunds owed by the Schools against the Pell Grant funds the DOE failed to pay the Schools. ECF 1.

According to the complaint, “[i]n an effort to improve the School's cash flow concerns,” LaMarca contacted the Schools accrediting agency (the National Accreditation Commission of Cosmetology Schools (NACCAS)) a request to convert the Schools from a “clock hour program” to a “semester credit hour program.” ECF 1. As stated in plaintiffs' complaint, “[a] clock hour program requires students to record their actual hours in class in order to receive Pell Grant monies. If actual time or satisfactory progress is not logged or achieved on a timely basis ... payment is to be refunded to the USDOE. In a credit hour program, the student enrolls and does not have to show actual time in class; the only requirement is to pass the class ... A refund ramification is less likely in a credit hour program.” ECF 1, par. 42 and 43. The NACCAS approved LaMarca's request to convert the Schools to a credit hour program in June 2003.

Plaintiffs' complaint alleges that LaMarca believed that his conversion request would meet with resistance from the Region V DOE office in Chicago. Plaintiffs allege that Douglas Parrott, the DOE Region V Case Director, was personally opposed to credit hour programs for vocational trade schools and that “Parrott privately stated that he would come down hard on any Cosmetology schools attempting to convert to a credit hour school.” ECF 1, par. 44, 46 and 47. Plaintiffs claim that, “upon information and belief,” Parrot retaliated against the Schools by conspiring with Senior Institutional Reviewer and DOE Team Leader Earl Flurkey to force the Schools to close. ECF 1, par. 48.

According to plaintiffs, this retaliation took the form of a program review inspection of the Schools in June 2003 and placement of the Schools on a “reimbursement format,” which meant that Pell Grant monies were paid to the Schools after eligible students completed their coursework rather than in advance. The reason cited by Parrott in his Reimbursement Notification to the Schools was the Schools' failure to make required refunds for withdrawn students during the 2001–2002 and 2002–2003 academic years, and that the DOE had the right to set off refunds owed by the Schools to the DOE against funds owed by the DOE to the Schools. ECF 1, p. 51.

After the DOE placed the Schools on a reimbursement format, LaMarca, in his capacity as Chief Executive Officer of the Schools, began a “letter writing campaign” to President Bush, Senator Voinovich, Senator DeWine, Governor Taft, Congresswoman Stephanie Tubbs–Jones, DOE Secretary Rod Paige, and other DOE officials chronicling the Schools Pell Grant history from 1998 forward, the program review, and the placement of the Schools on a reimbursement format. LaMarca's letter claimed that Parrott was “punishing” the Schools for converting to a credit hour program. ECF 1, par. 56.

In July 2003, the Schools made their first request for reimbursement of Pell Grant funds for students who began attending classes in June 2003 for the 2003–2004 school year. The DOE denied the

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Schools' request for reimbursement of Pell Grant funds for the 2003–2004 school year until the Schools “have adequately demonstrated that they have returned all of the required Title IV refunds from July 1, 2000 to present.” ECF 1, par. 52. Plaintiffs claim that they were entitled to receive in excess of $500,000 in Pell Grant funds for June 2003 to December 2003. The Schools closed in December 2003. ECF 1, par. 53.

As part of the Schools' July 2003 reimbursement request for the 2003–2004 school year, LaMarca signed a CEO Certification Statement stating that “all Title IV refunds had been made as required by federal regulations.” ECF 1, p. 59. According to plaintiffs, LaMarca was advised by a “third party reimbursement specialist” that the certification applied only to unpaid refunds for the 2003–2004 year academic year, and that since the 2003–2004 school year had just begun, no reimbursements were due. Plaintiffs allege that the certification applied only to the academic year for which the Pell Grant fund application was made, and allege that Parrott and Flurkey were aware that LaMarca's certification applied only to the 2003–2004 year. Plaintiffs claim that Parrott and Flurkey nevertheless determined that LaMarca's certification statement was “false,” and contacted the DOE's Office of Inspector General (OIG) to begin a criminal investigation into LaMarca's handling of the School's refunds and the “false” certification. ECF 1, par. 62, 63. DOE–OIG agents Gary Pawlak and Jon Greenblatt were involved in the investigation.

On September 29, 2003, the DOE issued its Preliminary Program Review (PPR) based on the June 2003 inspection. According to the complaint, the PPR addressed the Schools' unpaid refunds, but did not address any offset of unpaid refunds against Pell Grant funds to which plaintiffs claim they are entitled. ECF 1, par. 68, 69. As stated by plaintiffs in their third amended...