United States District Court, D. Arizona
Honorable G. Murray Snow United States District Judge
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.
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.)
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
[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
Doc. 127 at 25. See also Doc. 127 at 42-43.
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. 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
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).
“[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).
The False Claim Act
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.” Hooper v. Lockheed Martin Corp.,
688 F.3d 1037, 1041 (9th Cir. 2012).
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
(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
31 U.S.C. § 3729.
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).
“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.
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.
The 85/15 Rule
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).
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.
The AVT Program
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
of what Relators may have indicated to the VA or its
representatives, 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
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.
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.
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.
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.
State of Mind
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.
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.
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
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 ...