Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-00320/USCOURTS-cand-4_04-cv-00320-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 31:3729 False Claims Act

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

Ex Rel. MOUNTHASONE BOTT and SUSAN

NEWMAN,

Plaintiffs,

v.

SILICON VALLEY COLLEGES, et al.,

Defendants.

 /

No. C 04-320 CW

ORDER DENYING

RELATORS' MOTION

FOR LEAVE TO FILE

MOTION FOR

RECONSIDERATION

Relators Mounthasone Bott and Susan Newman move for leave to

file a motion for reconsideration of the Court's October 5, 2005

order dismissing with prejudice their second amended complaint

(SAC). Defendants U.S. Education Corporation (USEC), Silicon

Valley Colleges and Western Career Colleges (the Colleges), and

Greg Nathanson, Ellis C. Gedney and Darryl Lindsey (collectively,

USEC Defendants) and Defendant Almich & Associates (Almich)

separately oppose the motion. Having considered all of the papers

filed by the parties, the Court denies Relators' motion. 

BACKGROUND

Relators brought this qui tam action under the False Claims

Act (FCA), 31 U.S.C. § 3729 et seq, against all Defendants on

behalf of the United States to recover all federal educational

grants, including Pell Grants, and all payments on federally

insured educational loans used to fund students at the Colleges. 

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 1 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 2

Relators alleged that Defendants knowingly and falsely stated that

they were eligible to participate in grant and loan programs as

authorized by Title IV of the Higher Education Act (HEA), 20 U.S.C.

§ 1070 et seq. 20 U.S.C. § 1094(a). The Colleges' eligibility is

conditioned upon compliance with certain requirements, among

others,

The institution will not provide any commission, bonus, or

other incentive payment based directly or indirectly on

success in securing enrollments or financial aid to any

persons or entities engaged in any student recruiting or

admission activities or in making decisions regarding the

award of student financial assistance . . . .

Id. § 1094(a)(20). The Department of Education (ED) has

promulgated "safe harbor" regulations, which clarify that

institutions may provide their admissions representatives with

fixed compensation, such as a fixed annual salary or a fixed

hourly wage, as long as that compensation is not adjusted up

or down more than twice during any twelve month period, and

any adjustment is not based solely on the number of students

recruited, admitted, enrolled, or awarded financial aid. For

this purpose, an increase in fixed compensation resulting from

a cost of living increase that is paid to all or substantially

all full-time employees is not considered an adjustment.

34 C.F.R. § 668.14(b)(22)(ii)(A). 

In their first amended complaint (FAC), Relators alleged that

Defendants violated the federal law prohibiting incentive payments

to admissions representatives by paying recruiters a "so-called

'salary' . . . that was directly tied to an enrollment quota for

that recruiter." FAC ¶ 47. Pursuant to this alleged arrangement,

recruiters who failed to enroll their minimum quota were

terminated, while those who exceeded the minimum quota were

retained and given raises. 

In its July 13, 2005 order, the Court dismissed the FAC

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 2 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to

state a claim and for failure to comply with Federal Rule of Civil

Procedure 9(b)'s requirement that the FCA allegations of fraud be

plead with particularity. The Court found that the FAC failed to

state an FCA claim because the USEC Defendants' alleged system of

recruitment quotas, in which employees who fail to meet the minimum

enrollment quotas are fired and those who exceed the minimum are

retained and given raises, fell within the safe harbor provisions

of the ED's regulations. The Court reasoned that, although pay

adjustments could not be based "solely" on the number of students

recruited, the safe harbor provision reflected the ED's

understanding that institutions could base salaries or salary

increases on merit. The Court found that, in fact,

Relators have not alleged any conduct that falls outside the

safe harbor regulations. For example, they have not alleged

that the Colleges provide more than two salary adjustments in

a year not related to cost-of-living, or adjustments based

"solely on the number of students" recruited. 

July 13 Order at 10. Because the practices alleged were protected

by the regulations, the Court concluded that Defendants could not

be held liable for fraud under the FCA, even if the ED regulations

were inconsistent with the HEA. 

In their SAC, Relators alleged generally and repeatedly that

the Colleges paid their recruiters based "solely" on their success

at enrolling students. They specifically alleged that Ms. Bott was

given a minimum enrollment quota of approximately twelve students

per month, and that she was fired after three months "solely

because she failed to meet her enrollment quota." Id. ¶ 18. 

Relators alleged that sales representative Indy De Croos received

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 3 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4

two $10,000 raises based "solely" on his continued success at

securing enrollments. They alleged that Ms. Newman was "terminated

solely for failing to meet her enrollment quota." Id. ¶ 25. In

opposing Defendants' motions to dismiss the SAC, Relators insisted

that these allegations of a compensation system related to

mandatory minimum enrollment quotas and raises for those who

exceeded quotas were sufficient to plead actionable fraud. At the

September 16, 2005 hearing on Defendants' motions to dismiss the

SAC, counsel for Relators stated that if the Court decided that

Relators still had failed to plead fraud under the FCA in their

SAC, Relators would prefer that the Court dismiss the case with

prejudice to enable Relators to pursue an appeal. 

In its October 5, 2005 order, the Court did find that the

SAC's allegations did not demonstrate conduct by Defendants falling

outside the protection of the ED's safe harbor regulations, and

thus that Relators' claims were not stated with specificity as

required by Rule 9(b). It found that other than insertion of the

word "solely," the SAC's allegations did not differ substantially

from the quota system described in the FAC, which the Court had

found fell within the safe harbor provision. It found that in

order to state their fraud claim, Relators would have to "allege

with specificity a direct relationship between the raises given and

the number of students enrolled," and that merely using the word

"solely" was not specific enough. It also found that the

allegations against the individual USEC Defendants, Nathanson,

Gedney and Lindsey were so vague and conclusory that they did not

allow each individual to know how he was alleged to have

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 4 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 5

participated in the Colleges' conduct, and that the allegations

against Almich were likewise insufficient to state with

particularity circumstances for which Almich could be held liable

for false or fraudulent statements, even if the complaint had met

Rule 9(b) requirements with respect to the USEC Defendants. The

Court entered judgment in Defendants' favor on October 5, 2005. 

LEGAL STANDARD

Relators move for leave for reconsideration pursuant to

Federal Rule of Civil Procedure 59(e), which provides that a motion

to alter or amend a judgment may be made within ten days of entry

of judgment. However, the motion was filed on October 24, 2005,

more than ten days after the October 5 entry of judgment. 

Therefore, the motion is treated as one for relief from final

judgment under Rule 60(b). See Am. Ironworks & Erectors, Inc., v.

North Am. Const. Corp., 248 F.3d 892, 898-99 (9th Cir. 2001)

(noting that a motion for reconsideration "is treated as a motion

to alter or amend judgment under Federal Rule of Civil Procedure

Rule 59(e) if it is filed within ten days of entry of judgment.

Otherwise, it is treated as a Rule 60(b) motion for relief from a

judgment or order.") (internal citation omitted).

Rule 60(b) is not merely a device to get another try; it is

not an equitable response to the request for "just one more time,

please." Rule 60(b) enumerates the grounds upon which a motion for

relief from an order or judgment may be made. It specifies the

following:

1) mistake, inadvertence, surprise or excusable neglect;

2) newly discovered evidence which by due diligence could

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 5 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6

not have been discovered before the court's decision;

3) fraud by the adverse party;

4) the judgment is void;

5) the judgment has been satisfied; or

6) any other reason justifying relief.

For the purposes of subparagraph (1), "gross carelessness" is

insufficient to warrant reconsideration; nor is it sufficient that

the party is "unhappy with the judgment." See 11 C. Wright & A.

Miller, Federal Practice and Procedure, § 2858 at 170 (1973). 

“Mistake” in subparagraph (1) includes legal error by the Court. 

Yniques v. Cabral, 985 F.2d 1031, 1034 (9th Cir. 1993)(“[A]

district court’s erroneous reading of the law is a ‘mistake’

sufficient to require reconsideration of an order.”). The terms

contained in subparagraph (1), including "excusable" are

interpreted strictly. A motion made under subparagraph (6)

requires a showing that the grounds justifying relief are

extraordinary. Again, the mere dissatisfaction with the court's

order, or belief that the court is wrong in its decision, are not

grounds for relief under subparagraph (6) or, for that matter,

under any other subparagraph of Rule 60(b).

"`[T]he major grounds that justify reconsideration involve an

intervening change of controlling law, the availability of new

evidence, or the need to correct a clear error or prevent manifest

injustice.'" Pyramid Lake Paiute Tribe of Indians v. Hodel, 882

F.2d 364, 369 n.5 (9th Cir. 1989) (quoting United States v. Desert

Gold Mining Co., 433 F.2d 713, 715 (9th Cir. 1970)). 

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 6 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1In a "notice of supplemental authorities," Relators also

bring to the Court's attention the recent decision in United States

of America ex rel. Main v. Oakland City University, 426 F.3d 914

(7th Cir. 2005), in which the Seventh Circuit held that a forprofit educational institution could be held liable under the FCA

for payment of contingent fees to recruiters (the court described

the compensation scheme at issue as one in which admissions

representatives were allegedly "paid by the head"). Had the Court

reached the question of FCA liability for violations of the HEA,

Main would have been relevant persuasive authority, but it did not

do so. 

7

 DISCUSSION

Relators move for leave to file a motion for reconsideration

of the Court's October 5 order on the grounds that the Court erred

in applying the Rule 9(b) standard too strictly, because the

additional specificity required involves information peculiarly

within Defendants' control.1

 See United States ex rel. Thompson v.

Columbia/HCA Healthcare Corp., 20 F. Supp. 2d 1017, 1049 (S.D. Tex.

1998) (allowing relators to proceed to discovery without naming

individual false claims, dates and details where relators had

alleged with specificity "basic framework, procedures, the nature

of the fraudulent scheme, and the financial arrangements and

inducements"); United States ex rel. Johnson v. Shell Oil Co., 183

F.R.D. 204 (E.D. Tex. 1998) (holding that relators need not plead

specific details of individual false claims, such as specific dates

and invoice numbers, in order to meet requirements of Rule 9(b)). 

Relators fail to show that this new legal argument, which was

not raised in their opposition to Defendants' motions to dismiss

the SAC, justifies reconsideration of the judgment against them. 

Relators claim that discovery is needed before they can plead "the

amounts of the raises paid and the exact number of enrollments

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 7 of 8
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 8

generated beyond each recruiter's enrollment quota," as such

information is within Defendants' control. Relators' purported

need for discovery misinterprets the Court's October 5 ruling. The

Court did not find that Relators failed to plead exact amounts of

raises and enrollments. Rather, the Court found that Relators

failed to plead with specificity a "direct relationship" between

raises and enrollments, such as granting recruiters a raise each

time they recruited a certain (if unspecified) number of students. 

Instead, the allegations in the SAC were consistent with a

mandatory minimum quota scheme which the Court had previously

determined fell within the safe harbor regulation. If Relators do

not possess information that would allow them to allege with

specificity conduct by Defendants that falls outside the ED's safe

harbor provisions, then Relators lack the necessary factual basis

on which to file an FCA complaint. 

CONCLUSION

For the foregoing reasons, Relators' motion for leave to file

a motion for reconsideration is DENIED (Docket No. 101). 

IT IS SO ORDERED.

Dated: 1/4/06

 

CLAUDIA WILKEN

United States District Judge

Case 4:04-cv-00320-CW Document 107 Filed 01/04/06 Page 8 of 8