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United States ex rel. Hamilton v. Yavapai Community College District

United States District Court, D. Arizona

April 1, 2015

United States ex rel. Daniel Hamilton, Plaintiff,
v.
Yavapai Community College District, et al., Defendants.

ORDER

PAUL G. ROSENBLATT, District Judge.

Relator, plaintiff Daniel Hamilton, filed this qui tam action alleging claims under the False Claims Act ("FCA"), along with other constitutional and state law claims. The Court previously dismissed certain claims in Hamilton's First Amended Complaint without prejudice and with leave to amend. (Doc. 74.) Hamilton subsequently filed a Second Amended Complaint (Doc. 77) and then a Third Amended Complaint (Doc. 82), which is the operative complaint at issue here. Defendants seek dismissal of the Third Amended Complaint ( see Doc. 94 (Motion to Dismiss Defendant Guidance Academy, LLC and Motion to Dismiss John L. Stonecipher and Amanda Stonecipher (Alsobrook)); Doc. 108 (Yavapai Community College District's Motion for Judgment on the Pleadings); and Doc. 118 (Morgan Defendants' Joinder to Yavapai Community College Districts' Motion for Judgment on the Pleadings and Guidance Defendants' Motion to Dismiss)). The Court will grant in part and deny in part the motions to dismiss.[1] The Court also will grant the motions to exceed page limits currently pending before the Court (Docs. 113, 115, 124).

Background

The Third Amended Complain ("TAC") alleges that in Fall 2009, YC and GA entered into a Memorandum of Understanding ("MOU") under which GA was to develop and offer as a joint venture with YC an Associate of Applied Science ("AAS") degree for Professional Pilot-Helicopter ("PPH"). (Doc. 82 at 7.) YC and GC operated under this MOU until June 24, 2013, when they began to operate under a new contract. (Id. )

Under the MOU, YC administered the PPH program and provided all general education, business, and ground training courses for the program; and GA provided the flight training portion of the program under YC's supervision. (Id. ) Under the MOU, it was anticipated that the PPH program would provide students with a certain number of flight hours. For example, under the MOU, 204 hours of flight training were anticipated for Fall 2011, with 74 of those total flight hours designated for the course AVT 211, Commercial Helicopter Flight. (Id. )

Under the MOU, YC was to pay GA all flight tuition and fees received for helicopter flight courses from Spring 2010 through Summer 2011, and all flight fees and half of the tuition received for helicopter flight courses from Fall 2011 forward. (Id. at 8-9.) YC received education benefits funds from the Veteran's Administration ("VA") to cover tuition and fees for qualified veterans enrolled in the PPH program for Spring 2010 through Fall 2013. It is the receipt of those funds that underlie the FCA claims in the TAC.

The MOU also provided for the establishment of a GA scholarship program. Pursuant to the MOU, beginning in Fall 2011, GA donated $1, 000 to the YC Foundation (a nonprofit group devoted to fund raising for YC) for every student who graduated from the PPH program. These funds were in turn used to provide financial support through a scholarship to students enrolled in the PPH program. In November 2011, GA representative Johnson emailed YC Director of Financial Aid Eckel and informed her that the GA scholarship funds were to be used only for those veteran students who had exhausted their VA education benefits. (Doc. 82 at 51, ¶¶ 243-44.) Further, it was the policy of an unidentified committee chaired by Hamilton to award GA scholarships only to students who were not eligible for VA education benefits to cover their tuition and fees. (Id. at ¶ 244.) Thus, the scholarships were awarded to support students who did not have other financial support, e.g., otherwise non-supported students in the PPH program. (Id. at ¶ 245.) The GA scholarships were awarded beginning in Fall 2011. (Id. )

YC and GA first offered the PPH program in Spring 2010, initially as a five-term, but later as a six-term program. YC and GA recruited the first year class or "cohort" of students for the PPH program with the anticipation that VA education funds would be obtained to support the program.

The PPH program was the first flight degree offered by YC. However, in Spring 2012, YC began to offer another flight degree, the Airplane Operations ("PPA") Degree for fixed wing airplanes, through a joint venture with NorthAire Aviation, LLC ("NorthAire"). Under an agreement between YC and NorthAire, NorthAire provided the flight training portion of the PPA program at its own facility, which is separate from both YC's campus and GA's campus. The PPA program and PPH program had different requirements and learning objectives, not the least of which was learning to fly an airplane in the PPA program as opposed to learning to fly a helicopter in the PPH program. (Id. )

In Spring 2013, YC began to phase out the PPH and PPA programs and instead began offering only one flight degree program to incoming students, the Aviation Technology ("AVT") Degree. Students could still concentrate in different fields through the AVT program, including Helicopter Operations ("AVT (Helicopter)") and Airplane Operations ("AVT (Airplane)"), among others. Like the PPH program, the AVT (Helicopter) Degree program was offered by YC in conjunction with GA; and, similarly, like the PPA program, the AVT (Airplane) Degree program was offered by YC in conjunction with NorthAire.

The TAC alleges that Defendants failed to comply with a rule known as the "85/15 Rule, " and submitted false certifications that they were in compliance. The TAC alleges that the PPH program, from the time it began in Spring 2010, was never in compliance with the 85/15 Rule, and that at least from Fall 2011 forward, Defendants knowingly included as "non-supported" in their 85/15 compliance calculations students who did not qualify as non-supported and that Defendants thereby created the false appearance of compliance with the 85/15 Rule.[2] (Id. at 12, ¶¶ 79-81, 83; id. at 45-46, ¶¶ 193-200.)

Specifically, in June 2011, a VA representative informed YC that the PPH program was not in compliance with the 85/15 ratio for Spring 2010 and Summer 2011 terms because the PPH program had "not followed the 85 percent [veteran] enrollment limitation." (Id. at ¶ 191.) In Summer 2011, YC representatives discussed with VA representative John Crawford a procedure for petitioning for a waiver of the 85/15 Rule, and in July 2011, a YC representative met with a staff member of U.S. Senator John McCain's office to seek the assistance of Senator McCain in obtaining such a waiver for the PPH program. In August 2011, YC applied to VA for a waiver of the 85/15 Rule, but the VA ultimately declined to issue a waiver for the PPH program. (Id. at 46-47, ¶¶ 202-05.) The TAC alleges that Defendants thereafter engaged in various fraudulent acts to falsely make it appear that YC then came into, and continued to stay in, compliance with the 85/15 Rule. The TAC goes into great detail regarding these and other allegations against Defendants. To the extent necessary, the Court will discuss those details below.

Motion to Dismiss Standard

In addressing a motion to dismiss a complaint, the Court must determine whether the factual allegations in the complaint, together with all reasonable inferences, state a "plausible" claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). "Where a complaint pleads facts that are merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

The FCA imposes liability for knowingly making, using, or causing to be made or used, "a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(B). The heightened pleading standard for allegations of fraud under Federal Rule of Civil Procedure 9(b) governs claims brought under the FCA. Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1054 (9th Cir. 2011). To satisfy this heightened standard, the complaint "must identify the who, what, when, where, and how of the misconduct charged, ' as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false.'" Id. at 1055.

The FCA targets falsity, not negligent misrepresentation. See United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996). Thus, "[i]nnocent mistakes, mere negligent representations and differences in interpretations are not false certifications under the Act." Id.; see Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) ("The statutory phrase known to be false' does not mean scientifically untrue; it means a lie.") (internal quotation marks and citation omitted). On the other hand, the "knowing" scienter needed for a violation of the FCA may be established not only though a showing of actual knowledge of the falsity of a claim, but also through a showing of deliberate indifference or reckless disregard of whether the claim is false. Hooper v. Lockheed Martin Corp., 688 F.3d 1017, 1050 (9th Cir. 2012). This Court must dismiss a claim brought under the FCA if it fails "to plausibly make [the] requisite allegation of knowing' scienter in the total circumstances alleged." Gonzalez v. Planned Parenthood of L.A., 759 F.3d 1112, 1115 (9th Cir. 2014).

Discussion

Defendants move to dismiss the TAC and this action with prejudice. They contend, even viewing the factual allegations of the TAC in the light most favorable to Hamilton, he has failed to plead his claims with sufficient specificity and/or failed to state a claim upon which relief may be granted. They also contend that dismissal should be with prejudice given the previous opportunities provided to Hamilton to amend his complaint to address deficiencies.

A. Count I - Violation of 31 U.S.C. § 3729(a)(1)(A) - Submission of False Claim for Payment or Approval

The False Claims Act imposes liability on anyone who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). The TAC alleges that Defendants violated this provision of the FCA in two ways: (1) by knowingly presenting or causing to be presented false or fraudulent claims for payment that failed to comply with the 85/15 Rule, and (2) by knowingly presenting or causing to be presented false or fraudulent claims for payment that charged flight fees for flight time that was not provided.

1. The 85/15 Rule

The 85/15 Rule is set forth in 38 C.F.R. § 21.4201. Under this Rule, the VA

shall not approve an enrollment in any course for an eligible veteran, not already enrolled, for any period during which more than 85 percent of the students enrolled in the course are having all or part of their tuition, fees or other charges paid for them by the educational institution or by VA....

38 C.F.R. § 21.4201(a).

The method of calculating the 85/15 ratio is set out in subsection (e) of the 85/15 Rule. See 38 C.F.R. § 21.4201(e). Relevant here is subsection (e)(2), which defines how students are to be assigned to each part of the 85/15 ratio:

(2) Assigning students to each part of the ratio. Notwithstanding the provisions of paragraph (a) of this section, the following students will be considered to be nonsupported provided VA is not furnishing them with educational assistance under title 38, U.S.C., or under title 10, U.S.C.:
(i) Students who are not veterans or reservists, and are not in receipt of institutional aid.
....
(iv) Undergraduates and non-college degree students receiving any assistance provided by an institution, if the institutional policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike.

38 C.F.R. § 21.4201(e)(2)(i), (iv).

Thus, under the 85/15 Rule, students can be counted as "non-supported" if they (1) are not having "all or part of their tuition, fees or other charges paid for them by the educational institution or by VA, " 38 C.F.R. § 21.4201(a); (2) "are not veterans or reservists, and are not in receipt of institutional aid, " 38 C.F.R. § 21.4201(e)(2)(i); or (3) are receiving institutional aid, "if the institutional policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike, " 38 C.F.R. § 21.4201(e)(2)(iv).

The TAC alleges that Defendants violated the 85/15 Rule by counting as "non-supported" various students, including (a) students enrolled for terms from the time the program was initiated in 2010; (b) students enrolled through the GA Employee Enrollment Plan; (c) students who received financial assistance through a GA Scholarship Program; (d) students who received financial assistance through an Expanded Scholarship Program; (e) students who were enrolled through the combined AVT Degree program who were not in the Helicopter concentration portion of the program; and (f) students who were admitted through the JTED program.

a. Enrollment for terms up to and including Summer 2011 term

The TAC alleges that from the beginning of the Helicopter training program in 2010, the program was in violation of the 85/15 Rule. According to the TAC, in June 2011, a VA representative informed YC that for Spring 2010 through Summer 2011 terms, the program had not complied with the 85% supported student enrollment limitation. (Doc. 82 at 45, ¶ 191(a).) Hamilton contends Defendants' efforts to seek a waiver after being informed that the PPH program was not in compliance with the 85/15 Rule "supports the inference that they knew of [VA's] interpretation and knew that they were not in compliance with the interpretation" and thus that their violation of the 85/15 Rule was, from the beginning of the program, knowing (Doc. 114 at 8). The Court disagrees. That Defendants sought and applied for a waiver can just as easily be interpreted to demonstrate merely that Defendants sought to take advantage of the waiver provision after being informed by VA that they were not in compliance with the 85/15 Rule and that there was a method for applying for a waiver of the Rule (Doc. 82 at 45, ¶ 191, and 46, ¶¶ 202-04). See Iqbal, 556 U.S. at 678 ("Where a complaint pleads facts that are merely consistent with' a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'") (quoting Twombly, 550 U.S. at 557).

The TAC does not contain factual allegations demonstrating that prior to June 2011 Defendants were aware that they were not in compliance with the 85/15 Rule, let alone that they knowingly and intentionally submitted false claims based on enrollment for the terms up to and including the Summer 2011 term. Accordingly, the Court will grant dismissal of Count I claims relating to enrollment for the terms up to and including Summer 2011 term that are based on violation of the 85/15 Rule.

b. GA Employee Enrollment Plan

Hamilton contends that students who were GA employees enrolled in the PPH program through the GA Employee Enrollment Plan did not qualify as non-supported students under the 85/15 Rule, and that GA and YC knowingly and fraudulently included these students as non-supported in the 85/15 certifications in support of their claims for payment.

According to the allegations of the TAC, within a few days of VA's June 2011 notification to YC that it had not been in compliance with the 85/15 Rule, GA representatives Stonecipher and Johnson met with YC representative Morgan with a plan to bring the PPH program into compliance with the 85/15 Rule. (Doc. 82 at 47, ¶ 208.) Under this plan, GA would enroll GA employees in the PPH program at GA's expense, and YC would in turn include those GA employees as "non-supported" for purposes of the 85/15 Rule calculations and certifications. Morgan expressed discomfort with GA's plan but agreed to go along with it for a few terms, until they could come up with another recruitment plan that would qualify for and sustain compliance with the 85/15 Rule. (Id. at 47-48, ¶ 213; id. at 50, ¶ 236.) Defendants implemented the GA Employee Enrollment Plan between July 2011 and August 2011 through GA's publishing of a policy statement that required, as a condition of GA employment or continued employment, all GA employees to either have an aviation degree or to pursue an aviation degree through YC's aviation program. (Id. at 48, ¶¶ 216-17.)

The TAC alleges that students that were enrolled through the GA Employee Enrollment Plan were improperly counted as non-supported for several reasons. First, the TAC alleges that GA's stated policy of requiring its employees to have or pursue an aviation degree was false because GA's actual policy and practice was to enroll only as many non-veteran employees as necessary to make it "appear" that YC was in compliance with the 85/15 Rule and no more. Assuming that GA did intentionally enroll only the number of employees needed each term to make sure that the 85/15 Rule was met, Hamilton does not point to any provision of the 85/15 Rule, or any other regulation or statute, and the Court has found none, that prohibits this method of complying with the 85/15 Rule.

Second, the TAC alleges that during Spring and Summer 2012, GA threatened its veteran employees that if they were to pursue a degree in YC's PPA program they could be terminated. (Id. at ¶ 218.) Assuming YC threatened veteran employees with termination if they enrolled in the PPA (Airplane) program, which was administered by NorthAire rather than GA, this is not relevant to whether GA's enrollment of employees in the PPH (Helicopter) program could be counted as non-supported enrollment under the 85/15 Rule. Further, even if this could be deemed relevant, the TAC does not provide the identity of these veteran GA employees who were allegedly threatened, the identity of the individual at GA who allegedly made these threats, or how these alleged threats were made. See Cafasso, 637 F.3d at 1055 (to satisfy the heightened pleading standard for FCA claims, the complaint "must identify the who, what, when, where, and how of the misconduct charged, ' as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false'").

Third, the TAC alleges that GA paid the tuition for non-veteran employees that enrolled in the PPH program, but did not pay the tuition for veteran employees Jason Martin (Fall 2011) and James Schneider (Spring 2013) when they enrolled in the PPH program. (Doc. 82 at 50, ¶ 231.) The TAC does not, however, allege that these veteran employees, or any other veteran employees, sought to enroll in the PPH program through the GA Employee Enrollment Plan and were denied that benefit. Thus, these facts do not demonstrate that the GA Employee Enrollment Plan discriminated against veterans. See 38 C.F.R. § 21.4201(e)(2)(iv) (students receiving institutional aid are considered non-supported "if the institutional policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike").

Fourth, the TAC alleges that Defendants had different attendance requirements for the students enrolled through the GA Employee Enrollment Plan than other PPH students because "defendants did not expect regular attendance from GA employee-enrollees but did require other students to regularly attend those same courses." (Doc. 82 at 25 ¶ 131(b).) Assuming that a difference in attendance requirements (or other differences) impacted whether the GA employees could be counted as non-supported for purposes of the 85/15 Rule, the TAC contains no factual allegations demonstrating that Defendants knew or suspected the differences would impact the 85/15 Rule calculations and, despite such knowledge or suspicion, still included the GA employees as non-supported in the 85/15 calculations.

Although the TAC alleges that Morgan expressed discomfort with the GA Employee Enrollment Plan, this allegation does not, by itself, demonstrate that Morgan knew or acted with reckless disregard in having the GA employee students included as non-supported because such discomfort could have been expressed for numerous reasons unrelated to knowledge or suspicion regarding whether such students qualified as non-supported. See Iqbal, 556 U.S. at 678; Gonzalez, 759 F.3d at 1115.

Finally, the TAC alleges that GA ended its Employee Enrollment Plan in Fall 2013, and no longer required its employees to pursue an aviation degree. These facts do not, however, indicate anything more than that GA decided to end the plan and aviation degree requirement, a decision that could have been made for a variety of entirely legitimate reasons. See Iqbal, 556 U.S. at 678.

The TAC fails to state a claim for violation of the FCA by submission of false claims based on students enrolled in the PPH program through the GA Employee Enrollment Plan. Accordingly, the claims in Count I related to ...


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