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Hamilton v. Yavapai Community College District

United States District Court, D. Arizona

April 13, 2018

Daniel Hamilton, Plaintiff,
Yavapai Community College District, et al., Defendants.


          Honorable G. Murray Snow United States District Judge

         Pending before the Court are: (1) Plaintiff Daniel Hamilton's Motion for Partial Summary Judgment as to Counts I & II and the Counterclaims, (Doc. 457); (2) Defendants Yavapai Community College District (“Yavapai”), John Morgan, and April Morgan's Joint Motion for Summary Judgment, (Doc. 476), and (3) Defendants Guidance Academy, LLC, (“Guidance”), John Stonecipher (“Stonecipher”), and Amanda Alsobrook's Motion for Summary Judgment, (Doc. 477). Also pending is Defendant Yavapai's Cross Motion for Summary Judgment, (Doc. 489) and various supplemental filings regarding the above motions. For the following reasons, Plaintiff Daniel Hamilton's Motion for Partial Summary Judgment is denied. Defendants Motions for Summary Judgment are granted in part and denied in part.


         The facts of this case are familiar to all of the parties. Plaintiff-Relator Daniel Hamilton (“Hamilton”) alleges that the Defendants engaged in a number of fraudulent schemes to obtain funding from the United States Department of Veterans Affairs (“VA”). (Doc. 82.) Defendant Stonecipher is the managing member of Guidance, and Defendant Morgan was the Dean of Career and Technical Education Campus for Defendant Yavapai. Defendant Guidance and Defendant Yavapai's enterprise was governed by a “Memorandum of Understanding” (“MOU”). Under the MOU, Guidance agreed to offer helicopter training to students enrolled at Yavapai beginning in 2011. (Doc. 454 at 2; Doc. 497 at 64-65.) In return, Yavapai was responsible for submitting certifications to the VA to obtain funding for veteran students enrolled in the helicopter training. (Doc. 454 at 2; Doc. 497 at 65.)

         Several of Hamilton's claims were dismissed in Judge Rosenblatt's prior Order. (Doc. 127.) Judge Rosenblatt's Order differentiated between those claims that were preserved and those that were dismissed. The Court dismissed:

[A]ll claims arising prior to Summer 2011 term related to the failure to comply with the 85/15 Rule, all claims related to the GA Employee Enrollment Plan, all claims related to the GA scholarship Program and the Expanded Scholarship Program and all claims against YC and Morgan related to the billing for flight hours not provided by GA. The Court will deny dismissal of Count I as to claims related to the combined AVT Degree Program and the JTED Program, and the claims against GA and Stonecipher for billing for flight hours that were not provided.”

Doc. 127 at 25. See also Doc. 127 at 42-43.

         Hamilton's claims that are the subject of these motions essentially assert the Defendants defrauded the VA by obtaining funding in violation of 38 C.F.R. § 21.4201, otherwise known as Regulation 4201 or the 85/15 Rule, and by submitting claims for inflight training not actually provided.[1] Hamilton also asserts various claims against the Defendants for interfering with his flight training at North-Aire and subsequently interfering with his ability to find new employment. In turn, Defendant Guidance filed counterclaims against Hamilton for defamation and intentional interference with contractual relations.


         I. Legal Standard

         Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When the parties file cross-motions for summary judgment, the Court “evaluate[s] each motion independently, ‘giving the nonmoving party in each instance the benefit of all reasonable inferences.'” Lenz v. Universal Music Corp., 815 F.3d 1145, 1150 (9th Cir. 2015) (quoting ACLU v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir. 2003)). Substantive law determines which facts are material and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine factual issues “‘can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.'” Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250).

         Although “[t]he evidence of [the non-moving party] is to be believed, and all justifiable inferences are to be drawn in [its] favor, ” the non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The nonmoving party cannot avoid summary judgment by relying solely on conclusory allegations unsupported by facts. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record . . . or other materials; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c). “A trial court can only consider admissible evidence in ruling on a motion for summary judgment, ” and evidence must be authenticated before it can be considered. Orr v. Bank of Am., 285 F.3d 764, 773-74 (9th Cir. 2002).

         II. Analysis

         A. The False Claim Act

         Most of the claims in this case arise under the False Claims Act, (“FCA”). The FCA imposes civil liability on “any person who . . . knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729. The FCA also imposes liability on those who conspire to violate the FCA. 31 U.S.C. § 3729(a)(1)(c). Conspiracy exists under the FCA where Defendants “had the purpose of ‘getting' the false record or statement to bring about the Government's payment of a false or fraudulent claim.” Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 672-73 (2008). The FCA also protects employees, such as Hamilton, from facing retaliation from their employers when they engage in protected activities, such as whistleblowing. 31 U.S.C. § 3730(h). Section 3730(b) of the FCA empowers individuals, such as Hamilton, to act as whistleblowers and “file suit on behalf of the United States seeking damages from persons who file false claims for government funds.”[2] Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1041 (9th Cir. 2012).

         A defendant must act knowingly to be liable under the FCA. The FCA specifies that a person acts “knowingly” with respect to information if the person:

(A)(i) has actual knowledge of the information;
(ii) acts in deliberate ignorance of the truth or falsity of the information; or
(iii) acts in reckless disregard of the truth or falsity of the information; and
(B) require no proof of specific intent to defraud;

31 U.S.C. § 3729.

         Evidence that a defendant may have obtained funding to which it was not entitled is not sufficient to illustrate that he acted knowingly, as “proof of mistakes is not evidence that one is a cheat, and . . . common failings . . . are not culpable under the Act.” Hagood v. Sonoma Cty. Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) (internal citations and quotations omitted). However, evidence that a defendant engaged in “ostrich type” behavior “where an individual has buried his head in the sand and failed to make simple inquiries which would alert him that false claims are being submitted” suggests that a defendant acted with reckless disregard. United States v. Bourseau, 531 F.3d 1159, 1168 (9th Cir. 2008). The Ninth Circuit has further held that those who seek government funds have a “duty to familiarize themselves with the legal requirements for payment.” Therefore, reckless disregard may be present where a defendant fails to familiarize himself with the legal requirements for government compensation. See United States v. Mackby, 261 F.3d 821, 828 (9th Cir. 2001). This is particularly so when a defendant relies heavily on government funding for much of his business. See Id. (“By failing to inform himself of those requirements, particularly when twenty percent of Asher Clinic's patients were Medicare beneficiaries, he acted in reckless disregard or in deliberate ignorance of those requirements, either of which was sufficient to charge him with knowledge of the falsity of the claims in question.”). Therefore, while mere negligence may be insufficient to establish reckless disregard, evidence suggesting that a defendant failed to take reasonable steps to ascertain and comply with regulatory requirements is a sufficient question of material fact for Plaintiff to defeat Defendants' summary judgment motions. See id., (upholding a district court's finding that a defendant acted knowingly where the defendant failed to educate himself on the relevant regulatory framework).

         However, “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government's payment decision in order to be actionable under the False Claims Act.” Universal Health Servs., Inc. v. United States, 136 S.Ct. 1989, 2002 (2016). This is a “demanding” standard; “[a] misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment, ” “[n]or is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant's noncompliance.” Id. at 2003. Further, materiality “cannot be found where noncompliance is minor or insubstantial.” Id. Proof that the government paid a claim, “despite its actual knowledge that certain requirements were violated, ” is “very strong” evidence that the violation was not material. Id. at 2003-04. Conversely, evidence that the government “consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement” is evidence of materiality. Id. at 2003.

         Hamilton argues that the Defendants submitted false claims in two general ways: First, by violating a significant requirement for VA funding known as the 85/15 Rule; second, by submitting false claims for air time instruction that was not provided.

         1. The 85/15 Rule

         Regulation 4201 states that the “Department of Veterans Affairs 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 the VA.” 38 C.F.R. § 21.4201. “An 85-15 percent ratio must be computed for each course of study or curriculum leading to a separately approved educational or vocational objective.” 38 C.F.R. § 21.4201(e).

         Regulation 4201 also outlines the requirements for determining which students may be considered “nonsupported.” In relevant part, students are considered nonsupported if they are: (1) not veterans or reservists, and “are not in receipt of institutional aid, ” or (2) are “undergrads 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). If the student falls outside the definition of nonsupported, then she must be considered “supported” by the institution.

         a. The AVT Program

         Yavapai began plans to sunset its separate aviation degree programs and institute a combined AVT program in late 2012. It submitted a course catalogue to the VA with an explanation of the new program in December of 2012. (Doc. 449 at 14; Doc. 497 at 28.) The combined AVT program featured four distinct concentrations, yet Yavapai calculated a single 85/15 ratio for the entire combined program rather than calculating a separate ratio for each of its concentrations. (Doc. 449 at 14; Doc. 497 at 28-29.). Yavapai began offering the combined AVT program to new students in fall of 2013. (Doc. 449 at 14.) The VA suspended the combined AVT program in spring of 2015, and ultimately determined that Yavapai needed to submitted separate 85/15 calculations for each concentration within the combined AVT program. (Doc. 494 at 20; Doc. 497 at 46-47.)

         Regardless of what Relators may have indicated to the VA or its representatives, [3]Defendants sufficiently informed the VA that they were calculating the 85/15 ratio based on the entire AVT enrollment prior to and during the program's implementation[4]

         Ms. Swafford was aware from the Fall of 2013 up through March of 2015 that YC was calculating its compliance with the 85/15 Rule using the entire enrollment in the combined AVT programs, and she believed that it was appropriate to do so. Doc. 449-2, at lines 167:24-174:9, 200:2-201:14, 208:15-209:12, 395-12-19, 399:12-400:14. Another nearby aeronautical university, Embry-Riddle, had similarly calculated its compliance with the 85/15 ratio for some time prior to the Fall of 2013. Doc. 449-2 at 395:2-396: 11. And had Ms. Swafford been asked during this time period by YC or any of the Arizona institutions for which she was the VA's ELR she would have told them that it was appropriate, in calculating the 85/15 ratio to count all students in combined programs. Doc. 449-2 at 46 pp. 398-401.

         Moreover, Ms. Swafford accepted YC's Statements of Assurance in the Spring of 2014. When she did so Ms. Swafford thought that it was reasonable for YC to rely on that acceptance in its continued use of the entire combined enrollment in calculating compliance with the 85/15 Rule.

         It is also undisputed that the VA through Education Compliance Survey Specialists (ECSS) reviewed the AVT program for compliance for the period from June 1, 2013, thought May 6 2014. Ms. Vigil also acknowledged that in the Fall of 2013 up through early 2015 she believed that schools were allowed to count all of the students in a combined AVT program whether they were enrolled in a flight or non-flight option. Doc. 449-3 pp. 126:13-127:15, 129-31. And she was aware that YC counted all persons in the combined AVT degree program in calculating the Defendants compliance with the 85/15 Rule. Ms. Vigil knew that Embry-Riddle had a similar combined program and calculated its compliance with the 85/15 Rule in this way. The VA informed YC that it was in compliance. In doing so, at least one of the ECSS's, Ms. Vigil, testified, as had Ms. Swafford, that based upon the findings of the compliance survey visit and the submission of the 85/15 calculations for fall of 2013 and Spring of 2014 it was reasonable for YC to believe that it was properly calculating and reporting its 85/15 compliance up to March 2015. Doc. 449-3 at 181-82.

         Hamilton asserts that the Defendants knowingly violated the FCA through the creation and implementation of the combined AVT program. His claims include allegations for direct liability under the FCA as well as conspiracy to violate the FCA. In their briefings, the Defendants do not argue that calculating the 85/15 ratio for the entire AVT program is proper under the 85/15 Rule; rather, the Defendants argue that Hamilton cannot demonstrate that the Defendants knowingly or materially violated the 85/15 Rule.

         i. State of Mind

         Three principle Ninth Circuit cases outline the requirements for scienter in a False Claims Act Case, when it is disputed that the regulations implementing the program are unclear. In the first, United States v. Mackby, 261 F.3d 821 (9th Cir. 2001), the Ninth Circuit delineated the obligations of a reimbursed Medicaid provider to be familiar with Medicaid regulations and what constitutes reckless disregard or deliberate indifference as to those regulations sufficient to incur liability under the FCA.

         In Mackby, the owner and managing director of Asher Physical Therapy Clinic directed the clinic's office manager to submit the clinic's Medicaid claims using the Medicaid provider identification number (PIN) that belonged to his physician father. By using his physician father's PIN, the clinic owner falsely certified that the services were provided under his father's supervision.

         The owner had received Medicare fiscal intermediary bulletins which directed that the claim form was to be filled in with the assigned PIN for the performing physician or supplier. Thus, the Ninth Circuit affirmed the District Court's determination that the claim submission was false because, even though the described physical therapy services had in fact been provided, and reimbursement for those services could have been otherwise sought, the services had not been provided under the supervision of the clinic owner's father.

         About twenty percent of the Asher Clinics' patient base was Medicare patients. Under such circumstances the Circuit held “'Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law….' Participants in the Medicare program have a duty to familiarize themselves with the legal requirements for payment.” (quoting and citing from Heckler v. Cmty. Health Servs. Of ...

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