U.S. ex rel. Long v. Scs Bus. & Tech. Institute, CIV. A. 92-2092 (EGS).
| Decision Date | 26 March 1998 |
| Docket Number | No. CIV. A. 92-2092 (EGS).,CIV. A. 92-2092 (EGS). |
| Court | U.S. District Court — District of Columbia |
| Parties | UNITED STATES of America ex rel. Ronald E. LONG, Plaintiff/Relator, v. SCS BUSINESS & TECHNICAL INSTITUTE, et al., Defendants. |
Stuart F. Pierson, Levine Pierson Sullivan & Koch, L.L.P., Washington, DC, for Ronald E. Long.
T. Reed Stephens, Michael F. Hertz, Civil Division, United States Department of Justice, Washington, DC, for U.S.
Melvin Paradise, Allen N. Taffet, Paradise & Alberts, L.L.P., New York, NY, for SCS Business & Technical Institute, Inc., Marguerite Alsultany, Casablanca Resorts Dev. of Anguilla, Ltd., Casablanca Resorts, Ltd., Intervest Intern. Holding Corp., Intervest Holding Corp.
N. Frank Wiggins, Venable, Baetjer, Howard & Civiletti, Washington, DC, Melvin Paradise, Allen N. Taffet, Paradise & Alberts, L.L.P., New York, NY, for Michael Alharmoosh.
N. Frank Wiggins, Venable, Baetjer, Howard & Civiletti, Washington, DC, for Sylvana Alharmoosh.
Julia R. Cohen, George Shebitz, George Shebitz & Associates, P.C., New York, NY, Melvin Paradise, Allen N. Taffet, Paradise & Alberts, L.L.P., New York, NY, for Kamal Asultany.
Howard Zwickel, Office of Attorney General, Albany, NY, Melvin Paradise, Allen N. Taffet, Paradise & Alberts, L.L.P., New York, NY, for State of New York.
Jill A. Dunn, Dreyer Boyajian, LLP, Albany, NY, for Joseph P. Frey.
Ronald E. Long ("Long" or "relator") brought this action as a relator on behalf of the United States alleging violations of the False Claims Act ("FCA" or "the Act"), 31 U.S.C. §§ 3729-3733, and on his own behalf pursuant to 42 U.S.C. § 1983. Long named as defendants SCS Business & Technical Institute, Inc. ("SCS"), Mohammed (a.k.a. Michael) Alharmoosh, President of SCS, Kamal Alsultany, principal owner and Chairman of the Board of SCS, the State of New York ("New York"), and Joseph P. Frey ("Frey"). Pursuant to the qui tam provisions of the FCA, the complaint was immediately put under seal. See 31 U.S.C. § 3730(b)(2). The government intervened in July 1995, and the Department of Justice filed a first amended complaint against SCS, Michael Alharmoosh, and Kamal Alsultany in September 1995.1 The government declined, however, to intervene against New York and Frey. Long then filed his second amended complaint in June 1996.
Pending before the Court are defendant New York's and defendant Joseph P. Frey's motions to dismiss relator Long's second amended complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted, or, in the alternative, to dismiss Counts I and II for failure to plead fraud with particularity.
Long, relator and plaintiff in this action, served as Coordinator of Investigations and Audit for the Bureau of Proprietary School Supervision ("BPSS") of the New York State Department of Education ("NYSED") from August 21, 1989 to April 8, 1992. BPSS is the state agency that regulates proprietary schools in New York. Frey was Long's supervisor at BPSS. SCS managed five proprietary schools in New York: two in Brooklyn, and one each in the Bronx, Queens, and Manhattan.
Long's second amended complaint contains three counts against New York and Frey. Count I alleges that New York, Frey, and SCS formed a conspiracy to have false claims paid by the United States in violation of 31 U.S.C. § 3729(a)(3). Count II alleges that New York and Frey caused false claims and reports to be presented to the United States for payment in violation of 31 U.S.C. § 3729(a)(1) and (2). Count II also alleges that New York and Frey were unjustly enriched as a result of the payments they received from SCS. Count III alleges that New York and Frey harassed and wrongfully discharged Long in violation of 31 U.S.C. § 3730(h) and 42 U.S.C. § 1983.
As Coordinator of Investigations for BPSS, Long directed an investigation of SCS beginning in September 1989. SCS allegedly received federal funding under a variety of federal programs for student financial assistance.2 Long has alleged that the investigation he coordinated uncovered a variety of fraudulent policies and acts by SCS that resulted in SCS receiving federal moneys. This fraud included allegedly falsifying enrollment-eligibility scores, training low-level SCS staff how to falsify records, assigning students to courses for which they were ineligible and in which they were incapable of participating, and refusing to make required refunds to students. BPSS responded to Long's investigation by instituting administrative proceedings against SCS. In February 1992, BPSS issued an "Order to Show Cause" and a "Bill of Particulars" alleging that SCS had engaged in a number of violations of New York law. BPSS and SCS reached a settlement in March 1992.
Long alleges, however, that this was a "sweetheart" settlement because the violations upon which it was based were confined to actions of low-level personnel and to a small number of violations at one school, even though, according to Long, New York officials, including Frey, knew that the fraud was occurring at more than one school and that it included actions by SCS management. Long further alleges that as a result of this settlement, New York falsely represented to the federal government that SCS was no longer engaging in fraud, and that New York was monitoring SCS.
Central to Long's claim is that BPSS allegedly received a share of the federal funding that SCS fraudulently obtained. BPSS allegedly received this share through tuition assessments and fines that SCS paid for violations of state law. Long alleges that BPSS's share of SCS's federal funding was so large that SCS was one of BPSS's major sources of funding. Further, Long alleges that as a result of BPSS's interest in SCS's continued operation, BPSS engaged in two illegal activities: it limited Long's investigation and it ignored evidence that SCS continued to present fraudulent claims.
First, Long alleges that BPSS placed limitations on Long's investigation of SCS resulting in the "sweetheart" settlement with SCS which allowed SCS to continue to fraudulently receive federal moneys. Long alleges that BPSS placed the following limitations on his investigation of SCS: reducing the number of incidents of alleged fraud he was authorized to investigate, rejecting evidence that SCS management and owners were involved in the fraud, limiting the number of schools he was authorized to investigate, and placing limitations on his documentation of evidence. Further, Long alleges that BPSS refused to investigate information Long had gathered indicating that SCS believed it was protected by its contacts in BPSS. Long also alleges that in October 1991, Frey specifically prohibited Long from investigating evidence of fraud by SCS management and owners.
After the 1992 settlement with SCS, Long alleges that BPSS ignored evidence that SCS continued to receive federal moneys on a fraudulent basis in order to allow SCS to continue receiving federal moneys. According to Long, New York officials, including Frey, falsely represented to the federal government that SCS was not engaged in fraud and that BPSS was continuing its investigation when in fact it was not. Moreover, Long alleges that New York officials, including Frey, indicated to the federal government in the 1992 settlement that there was no indication of widespread fraud nor of involvement by management, even though BPSS knew this was false.
Long asserts that he refused to follow his superiors' instructions regarding the investigation of SCS and that, as a result, in November 1991, Frey informed him that he would be demoted with a loss of pay effective April 8, 1992, if Long had not resigned by that date. Long further alleges that in December 1991, he contacted the FBI to inform them of the evidence of fraud that he had gathered, and that he felt BPSS's limitations on his investigation were a result of the agency's interest in continuing to receive a share of the federal moneys that SCS received. According to Long, the FBI then launched an investigation (the Court assumes of SCS) in which Long assisted the FBI by obtaining evidence from SCS. Long allegedly reported his cooperation with the FBI to Frey. On January 14, 1992, Frey removed Long from the investigation of SCS. Long alleges that Frey then ordered him to prepare a final report of the investigation consisting of reporting one type of violation at one school. Long alleges that he prepared this report under protest. On January 22, 1992, Long was placed on administrative leave.
Long finally alleges various acts by New York officials following his placement on administrative leave and eventual termination. The essence of Long's allegations are that New York colluded with SCS's continuing fraud, thereby allowing SCS and BPSS to continue to receive federal moneys based on false claims. Long alleges that New York officials, including Frey, ignored State Comptroller reports in April and December 1992 which indicated that there was continuing and broader fraud than had been stated in the 1992 "Order to Show Cause." Long alleges that in February 1993, BPSS investigators noticed indications of continuing fraud at SCS. Long alleges that New York officials, including Frey, refused to act on that information, and instead unreasonably ordered further investigation rather than taking steps to stop the fraud. Thus, Long alleges that, between at least March 1993 and April 1994, New York and Frey knew that SCS continued to engage in fraudulent activities, but did not act upon that information. SCS declared bankruptcy in January 1995. Long alleges that between 1988 and 1991, the United States paid SCS over $25 million per year in response to SCS's false claims, with BPSS receiving a portion of these payments.
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