U.S. & State v. Minn. Transitions Charter Sch. & MN Virtual High Sch.

• Decision Date: 29 September 2014
• Docket Number: Civil No. 12–1359 (JRT/JSM).
• Citation: 50 F.Supp.3d 1106
• Parties: UNITED STATES of America and State of Minnesota, ex rel. Jill Bachmann and Shelley Madore, Plaintiffs, v. MINNESOTA TRANSITIONS CHARTER SCHOOLS and MN Virtual High School, Defendants.
• Court: U.S. District Court — District of Minnesota

50 F.Supp.3d 1106

UNITED STATES of America and State of Minnesota, ex rel. Jill Bachmann and Shelley Madore, Plaintiffs,

v.MINNESOTA TRANSITIONS CHARTER SCHOOLS and MN Virtual High School, Defendants.

Civil No. 12–1359 (JRT/JSM).

United States District Court, D. Minnesota.

Signed Sept. 29, 2014

Motion granted. Ann M. Bildtsen and Pamela Marentette, Assistant United States Attorneys, United States Attorney's Office, Minneapolis, MN, for plaintiff, United States of America.

Kathryn M. Woodruff, Assistant Attorney General, Minnesota Attorney General's Office, St. Paul, MN, for plaintiff, State of Minnesota.

Bryce M. Miller, Schaefer Halleen LLC, Minneapolis, MN, for plaintiffs, Bachmann and Madore.

Cindy L. Lavorato, Booth & Lavorato LLC, Minnetonka, MN, for defendants.

MEMORANDUM OPINION AND ORDER ON MOTION TO DISMISS

JOHN R. TUNHEIM, District Judge.

Plaintiffs Shelley Madore and Jill Bachmann bring this action under the False Claims Act (“FCA”) and the Minnesota False Claims Act (“MFCA”) on behalf of the United States and the State of Minnesota alleging that Defendants Minnesota Transitions Charter Schools and Minnesota Virtual High School submitted fraudulent attendance and enrollment information and special education instruction reports to the State of Minnesota and to the United States Department of Education in order to receive funds to which they otherwise would not have been entitled. Defendants move to dismiss, arguing that they are entitled to immunity under the Eleventh Amendment, that they are not proper defendants under either Act, and that Plaintiffs' allegations fail to state a claim upon which relief could be granted. The Court concludes that Defendants are not entitled to Eleventh Amendment immunity and that they are proper defendants under the FCA, but not under the MFCA. The Court will thus grant Defendants' motion to dismiss with respect to Plaintiffs' claims under the MFCA. Because Plaintiffs' allegations under the FCA are inadequate in several respects, the Court will dismiss Plaintiffs' claims under that statute without prejudice.

Plaintiffs allege that, from the beginning of her employment, Madore noticed a pattern of aggressive student enrollment in the MVHS program followed by lax record keeping of attendance. ( Id. ¶ 29.) Plaintiffs assert that MVHS Principal Jim Roth and Transitions Superintendent Scallon explained to Madore that final funding was based on September ADM data. ( Id.¶¶ 9–10, 29.) Further, Plaintiffs allege that Defendants engaged in various enrollment campaigns, such as offering free laptops to each enrolling student, and loosened enrollment requirements by allowing them to submit their own academic transcripts from prior schools instead of contacting each student's former school for an official copy. ( Id. ¶¶ 29–31.)

Plaintiffs allege that in the beginning of 2010, Madore began to express concerns to Defendants about discrepancies she found between ADM data and actual attendance records. ( Id. ¶ 32.) Plaintiffs claim that Madore informed Defendants about the discrepancies, as well as concerns she had about the lack of a truancy policy for the school. ( Id.) Plaintiffs further assert that Madore expressed concerns about truancy and inaccurate attendance tracking to School Psychologist and Assistant Director Kim Mehlos, but Mehlos dismissed Madore's concern. ( Id. ¶ 35.) After reporting her concerns, Madore was relieved of her MARSS reporting duties. ( Id. ¶ 32.)

According to the allegations in the Complaint, Defendants began to pay attention to truant students in the spring of 2010 due to concerns about the negative impact non-attending students would have on the school's performance on state standardized tests. ( Id. ¶¶ 33–34.) Plaintiffs claim that Scallon ordered that students be dropped from enrollment for non-attendance shortly before state testing to prevent them from negatively impacting test results. ( Id. ¶ 34.) After testing, however, in order to meet the ADM reported in March, Plaintiffs assert that Scallon then instructed Defendants to re-enroll the truant students. ( Id.)

Plaintiffs also contend that Defendants signed paperwork giving a student access to social security benefits for being a full-time student when, in fact, the student did not attend full-time. ( Id. ¶ 27.) Specifically, Plaintiffs claim that Madore told Roth that signing the paperwork was contrary to the law, but that Roth signed it anyway. ( Id.)

Plaintiffs allege that Madore received a notice of nonrenewal of her annual contract on June 4, 2010, and notice of termination on June 14, 2010, which “accused her of violating student data privacy laws.” ( Id. ¶ 38.)

B. Special Education Records

Plaintiffs allege that “[f]ederal funding for special education is based on the number of special education students enrolled in the school, the school's total enrollment, and the school's free and reduced lunch count.” ( Id.) With regard to special education, Plaintiffs allege that Defendants submitted fraudulent information in IEPs. ( Id. ¶¶ 49–50, 54–56.) Specifically, Plaintiffs claim that in the fall of 2009, Scallon instructed Bachmann and all special education teachers to list one hour each of direct and indirect student contact per week in each student's IEP, regardless if that time was actually spent with the student. ( Id. ¶ 49.) Plaintiffs allege that Bachmann objected because the average case load per teacher made that level of contact impossible, and because most students did not need that amount of contact. ( Id. ¶ 50.) Bachmann informed Defendants that she would not list contact time on the IEPs which she had not actually done. ( Id. ¶ 52.) Plaintiffs also allege that, at one point, Bachmann observed that student IEP meetings lacked all of the required participants under the IDEA, and that she complained to school leadership about this. ( Id. ¶ 54.) According to Plaintiffs, Defendants' response was inadequate, because under the IDEA a general education teacher of the student must attend each IEP meeting, but Defendants' solution was to have an administrator with a physical education license who did not have direct contact with the students attend. ( Id. ¶¶ 55–56.) Bachmann objected to this. ( Id. ¶ 56.) On June 4, 2010, Bachmann received notice that her contract would not be renewed in August 2010, and on June 14, 2010, she received a termination notice. ( Id. ¶¶ 57–58.)

III. THIS ACTION

Plaintiffs brought this qui tam suit seeking damages for Defendants' alleged fraudulent filing of student records in order to receive state and federal funding for general and special education programming. ( Id. ¶ 3.) In their complaint, Plaintiffs allege three causes of action: (1) violation of the FCA, 31 U.S.C. § 3729(a); (2) violation of the Reverse FCA, 31 U.S.C. § 3729(a); and (3) violation of the MFCA, Minn.Stat. § 15C.01. ( Id. ¶¶ 59–73.) The United States and the State of Minnesota declined to intervene. (Notice of Election to Decline Intervention, June 10, 2013, Docket No. 14.) Defendants now move to dismiss Plaintiffs' claims.¹ Defendants raise several arguments in support of dismissing this action: first, that Defendants are entitled to sovereign immunity under the Eleventh Amendment because they are arms of the state, second that Defendants, as arms of the state, are not “persons” under the FCA or the MFCA, third, that the MFCA claim pre-dates the effective date of the amended MFCA, and fourth that Plaintiffs' allegations fail to state a claim upon which relief could be granted.

ANALYSIS

I. STANDARD OF REVIEW

Although Defendants do not clearly specify as much, the Court construes Defendants' motion as one under both Federal Rule of Civil Procedure 12(b)(1) for lack of subjective matter jurisdiction—because Eleventh Amendment immunity would deprive the Court of jurisdiction, see Seminole Tribe of Florida v. Florida, 517 U.S. 44, 64, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996)—and Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. A motion to dismiss pursuant to Rule 12(b)(1) challenges the Court's subject matter jurisdiction and requires the Court to examine whether it has authority to decide the claims. Uland v. City of Winsted, 570 F.Supp.2d 1114, 1117 (D.Minn.2008). There are two types of subject-matter-jurisdiction challenges under Rule 12(b)(1): “facial” attacks and “factual” attacks. See, e.g., Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir.1993). A facial attack challenges subject-matter jurisdiction based solely on the allegations appearing on the face of the complaint. Osborn v. United States, 918 F.2d 724, 729 n. 6 (8th Cir.1990). “In ruling on such a motion, a court must afford the non-moving party the same protections it would be entitled to under Rule 12(b)(6).” Gilmore v. Nw. Airlines, Inc., 504 F.Supp.2d 649, 653 (D.Minn.2007). “By contrast, a factual attack depends upon the resolution of facts in order to determine whether subject-matter jurisdiction exists; a court may rely upon matters outside the pleadings when considering such an attack, and the non-moving party does not receive the benefit of Rule 12(b)(6)'s safeguards.” Id. Here, Defendants do not challenge the adequacy of the facts underlying jurisdiction, but rather whether, as a matter of law, Defendant charter schools are entitled to Eleventh Amendment sovereign immunity. Thus, the Court treats this as a facial challenge to its subject matter jurisdiction and considers Plaintiffs' complaint under the rules governing pleading standards for FCA claims. Cf. Jones v. United States, 727 F.3d 844, 846 (8th Cir.2013).

II. FALSE CLAIMS ACT

The False Claims Amendments Act of 1986 included a qui tam provision to encourage whistleblowers. 31 U.S.C. § 3730. In a qui tam action, a plaintiff may bring a private civil action on behalf of himself and on behalf of the United States government against a defendant who, in violation of 31 U.S.C. § 3729, has submitted false claims to the...