Source: https://www.scribd.com/document/20718828/Response-to-Motion-to-Dismiss
Timestamp: 2017-02-22 02:37:53
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Response to Motion to Dismiss | Kaplan | Complaint
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Entered on FLSD Docket 10/06/2009
CASE NO. 09-CV-20756-SEITZ/O=SULLIVAN = UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO.: 09-20756-CIV-SEITZ/O=SULLIVAN = UNITED STATES OF AMERICA, ex rel.CARLOS URQUILLA-DIAZ, et al., Plaintiffs, v. KAPLAN UNIVERSITY et al.,
Defendants. ______________________________________/ AGREED MOTION FOR LEAVE TO FILE CORRECTED RESPONSE TO MOTION TO DISMISS Relators Jude Gillespie, Carlos Urquilla-Diaz, and Ben Wilcox, by their respective attorneys, hereby respectfully file this Agreed Motion for Leave to File Corrected Response to Motion to Dismiss Second Amended Complaint. The grounds for this motion are as follows. As ordered by the Court, Relators Gillespie, Diaz and Wilcox filed their Response to the Kaplan Defendants’ Motion to Dismiss Second Amended Complaint on October 5, 2009. Due to some type of error in the PDF file conversion, the Response filed with the Court contained symbols substituted in place of apostrophes and quotation marks that had been in the original version of the Response. Undersigned counsel did not realize this technical error had occurred in the file conversion until today when a copy of the filed Response was printed. Since the inclusion of the 1
Case 1:09-cv-20756-PAS
CASE NO. 09-CV-20756-SEITZ/O=SULLIVAN = symbols makes the Response difficult to read, the Relators seek leave of Court to file a corrected version of the Response – a copy of which is attached hereto. Counsel for the Kaplan Defendants have been contacted and advised that they have no objection to the relief requested herein. The Relators are filling this Motion because the Clerk of the Court advised undersigned that a Notice of Striking the Response filed on October 5, 2009 would have to be submitted with the corrected Response. Undersigned counsel believes that such a notice would render the corrected Response untimely in that it would be filed one day late. Accordingly, in an abundance of caution, the Relators request leave of Court to file the corrected Response and further request that the Court deem the corrected Response timely filed. WHEREFORE, Relators Jude Gillespie, Carlos Urquilla-Diaz, and Ben Wilcox, by their respective attorneys, hereby respectfully request that this Agreed Motion for Leave to File Corrected Response to Motion to Dismiss be granted.
Respectfully submitted, s/ Kimberly L. Boldt Kimberly L. Boldt, Esq. Florida Bar No. 957399 kimberly@abbrclaw.com Alters, Boldt, Brown, Rash & Culmo, P.A. 4141 Northeast 2nd Avenue, Suite 201 Miami, Florida 33137 Telephone (305) 571-8550 Facsimile (305) 571-8558
CASE NO. 09-CV-20756-SEITZ/O=SULLIVAN = UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO.: 09-20756-CIV-SEITZ/O=SULLIVAN =
UNITED STATES OF AMERICA, ex rel.CARLOS URQUILLA-DIAZ, et al., Plaintiffs, v. KAPLAN UNIVERSITY et al, Defendants. __________________________________/
CERTIFICATE OF SERVICE I hereby certify that on _____________, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being served this day on all counsel of record or pro se parties identified on the attached Service List in the manner specified, either via transmission of Notices of Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to receive electronically Notices of Electronic Filing. s/ Kimberly L. Boldt Kimberly L. Boldt, Esq. Florida Bar No. 957399 kim@abbrclaw.com
CASE NO. 09-CV-20756-SEITZ/O=SULLIVAN = SERVICE LIST UNITED STATES OF AMERICA, ex rel. CARLOS URQUILLA-DIAZ et al. v. KAPLAN UNIVERSITY et al. CASE NO.: 1:09-cv-20756-CIV-SEITZ/O=SULLIVAN = United States District Court, Southern District of Florida J. TROY ANDREWS hangfire@ix.netcom.com JOHN W. ANDREWS jwa@ix.netcom.com Andrews Law Group 3220 Henderson Boulevard Tampa, Florida 33609 Telephone (813) 877-1867 Facsimile (813) 872-9298 Attorneys for Relators SUSAN N. EISENBERG susan.eisenberg@akerman.com SAMUEL S. HEYWOOD samuel.heywood@akerman.com MIA RENE MARTIN mia.martin@akerman.com Akerman Senterfitt 1 Southeast 3rd Avenue, 25th Floor Miami, Florida 33131-1714 Telephone (305) 374-5600 Facsimile (305) 374-5095 Attorneys for the Defendants CARLOS RAURELL carlos.raurell@usdoj.gov Assistant United States Attorney 99 NE 4th Street Miami, FL 33132 Telephone: (305) 961-9243 Facsimile: (305) 530-7139 Attorneys for the United States
TIMOTHY J. HATCH thatch@gibsondunn.com NICOLA T. HANNA nhanna@gibsondunn.com JAMES L. ZELENAY, JR. jzelenay@gibsondunn.com Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, California 90071 Telephone (213) 229-7000 Facsimile (213) 229-7520 Attorneys for the Defendants G. WARE CORNELL, JR. warecornell@gmail.com Cornell & Associates, P.A. 1792 Bell Tower Lane, Suite 210 Weston, FL 33326 Telephone: (954) 524-2703
CASE NO. 09-CV-20756-SEITZ/O=SULLIVAN = Fascimile: (954) 524-2706
Document 183-2
U ITED STATES DISTRICT COURT SOUTHER DISTRICT OF FLORIDA CASE O.: 09-20756-CIV-SEITZ/O=SULLIVA = UNITED STATES OF AMERICA, ex rel.CARLOS URQUILLA-DIAZ, et al., Plaintiffs, v. KAPLAN UNIVERSITY et al., Defendants. ______________________________________/ RELATORS’ CORRECTED1 RESPO SE TO DEFE DA TS’ MOTIO TO DISMISS SECO D AME DED COMPLAI T Relators Jude Gillespie, Carlos Urquilla-Diaz, and Ben Wilcox, by their respective attorneys, hereby respond to Defendants Kaplan University, Kaplan Higher Education Corporation and Kaplan Inc.’s (“the Kaplan Defendants”) Motion to Dismiss the Second Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(1), 12(b)(6), and 9(b). The Kaplan Defendants’ Motion to Dismiss should be denied. I. A. RELATOR JUDE GILLESPIE’S RESPO SE A Determination of Gatsiopoulos’ “First-to-File” Status Cannot Be Made At This Time, and Thus Cannot Be a Basis for Dismissal The Kaplan Defendants argue that Relator Gillespie has failed to comply with 31 U.S.C. § 3730(b)(5) of the FCA — the “first-to-file” rule — because the filing date of the Pennsylvania lawsuit pre-dates the filing of the Complaint in this action. [DE 171, p. 5]. However, the Kaplan
In the PDF file conversion, symbols were inserted in the place of apostrophes and quotation marks. This corrected version cures that technical error. Relators are submitting this corrected response with agreement of opposing counsel.
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Defendants wrongly rely on the broad construction of “first to file” found in U.S. ex. rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1183 (9th Cir. 2001). [DE 171, p. 6 n.4]. The Ninth Circuit subsequently clarified and narrowed Lujan to hold that an earlier filed qui tam action dismissed on jurisdictional grounds does not bar all subsequently filed related actions. Campbell v. Redding Med. Ctr., 421 F.3d 817, 821 (9th Cir. 2005). The first-to-file rule says that “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on facts underlying the pending action.” 31 U.S.C. § 3730(b)(5) (emphasis added). As Campbell recognized, an action dismissed on jurisdictional grounds is no longer a “pending action” within the meaning of § 3730(b)(5). See Campbell, 421 F.3d at 821–22. Thus, even if Gatsiopoulos is found to be related to this action — which Relator Gillespie disputes — Relator Gillespie’s action may nonetheless continue if Gatsiopoulos is jurisdictionally flawed and subject to dismissal. In that event, Gatsiopoulos would no longer be a pending action and Relator Gillespie’s action would become the first to be filed. 1. The Gatsiopoulos Action May Still Be Dismissed for Lack of Jurisdiction If a relator does not qualify as an “original source” of the fraud alleged in her complaint, and there has been a previous public disclosure by someone else of that alleged fraud, then that relator’s complaint must be dismissed for lack of subject-matter jurisdiction. 31 U.S.C. § 3730(e)(4). Relator Gillespie made several public disclosures concerning the fraud alleged in this action and is also an “original source” of his allegations within the meaning of the FCA. If, as Relator Gillespie believes, the Gatsiopoulos Relators are unable to prove they are “original sources” of their allegations, their Complaint must be dismissed. 2
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN A public disclosure occurs when facts underlying the fraud are released in “allegations or transactions in a criminal, civil, or administrative hearing, in a Congressional, administrative, Government Accounting Office report, hearing, audit or investigation, or from the news media. . . .” 31 U.S.C. § 3730(e)(4)(A). A “civil complaint is unquestionably a public disclosure of allegations” and within the definition of § 3730(e)(4)(A)’s “civil hearing.” United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1350 (4th Cir. 1994). Additionally, Freedom of Information Act (“FOIA”) requests have been deemed public disclosures under the FCA. United States ex rel. Mistic PBT v. Housing Auth. Of Pittsburg, 186 F.3d 376, 383 (3d Cir. 1999). Relator Gillespie’s multiple public disclosures2 about the Kaplan Defendants’ fraud pre-date the Gatsiopoulos November 2, 2006 filing date. An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.” 31 U.S.C. § 3730(e)(4)(B). The Gatsiopoulos Amended Complaint fails to allege that its Relators voluntarily provided information of the claimed fraud to the government prior to filing their original Complaint. [See Case No. 09-cv-21720, DE 18]. Thus the Gatsiopoulos Relators may not be original sources, but that determination cannot be made without discovery. Therefore, if this Court were to determine that this action and the Gatsiopoulos action were related to the extent that “first to file” became a dispositive issue, it is an issue that cannot be
Relator Gillespie’s multiple public disclosures as detailed in the SAC include complaints and FIOA requests throughout 2005 and early 2006, well before the Gatsiopoulos filing date. (See SAC ¶¶ 39–45). 3
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN determined without discovery since Gatsiopoulos may be subject to dismissal for lack of subject matter jurisdiction and this action would become the first action filed under Campbell, supra. Moreover, where jurisdictional issues under the FCA are closely related to the merits of the case, the issues are “better addressed following a more thorough gathering of evidence by the parties in the form of discovery proceedings.” United States ex rel. Sanders v. E. Alabama Healthcare Auth., 953 F. Supp. 1404, 1409 (M.D. Ala. 1996) (applying Eleventh Circuit precedent to an FCA claim). 2. Gatsiopoulos May Be Dismissed for Failure to Plead with Particularity Qui tam complaints dismissed for a failure to plead with particularity pursuant to Rule 9(b) are also not “pending actions” within the meaning of the FCA. Walburn v. Lockheed-Martin Corp., 431 F.3d 966, 972 (6th Cir. 2005). Thus, a subsequent relator’s complaint on the same underlying facts is not barred by the first-to-file rule. Id. The Gatsiopoulos Amended Complaint must be dismissed if it was not pled with particularity in conformity with Rule 9(b). See Clausen, 290 F.3d at 315. Accordingly, this Court must make its determination regarding the sufficiency of the Gatsiopoulos pleadings before Relator Gillespie’s action can be dismissed under the first-to-file rule. Walburn, 431 F.2d at 972. The Kaplan Defendants have certainly argued that Gatsiopoulos fails under Rule 9(b). [See Case No. 09-cv21720, DE 47] Therefore, this Court should deny the Kaplan Defendants’ motion to dismiss
Relator Gillespie’s complaint until this Court determines whether the Gatsiopoulos action is properly pled.
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN 3. The eed to Conduct Discovery Precludes Dismissal Moreover it should be noted that there has been no discovery in this case, [see DE 67], or in the other cases consolidated into the MDL before this Court. [See Case No. 09-cv-21720 DE 60; Case No. 09-cv-21733 Docket]. The Kaplan Defendants rely on factual assertions in their response to the Relators’ Second Amended Complaint (“SAC”) that have yet to be proven or tested by discovery. For example, they assert that the Gatsiopoulos Complaint meets the “first to file” standard [DE 171, p. 5]. Yet the Judicial Panel on Multidistrict Litigation (“the Panel”) specifically rejected the Kaplan Defendants’ argument that the False Claims Act’s (“FCA”) “first to file” provision rendered an MDL unnecessary. [DE 163, p. 2]. There was not then, and there is not now, enough factual information developed to legally determine whether “first to file” will be a bar to any of the actions consolidated by the Panel. As more fully discussed below, which Relator was validly “first to file” is an issue still to be determined and it cannot be determined without discovery. B. The Distinctions Between the Gatsiopoulos and Gillespie Claims May Result in Both Actions Proceeding The Panel also recognized that while there were common issues among the actions, there were also “non-common” issues. [DE 163, p. 2]. Although the Kaplan Defendants attempt to depict each action’s claims as being substantially related in toto, only Relator Gillespie’s action maintains a claim based on the Rehabilitation Act (SAC ¶¶ 46–59). The Kaplan Defendants imply they are now compliant with the Rehabilitation Act [DE 171, p. 12], rendering the claim moot; yet again, the truth or falsity of that implication cannot be tested without discovery. The Co-Relators maintain that there are several significant distinctions among the Complaints, but certainly at least Relator Gillespie’s
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Rehabilitation Act claims are facially distinct from any other claims in the MDL, and warrant a separate action proceeding forward where Relator Gillespie is indisputably “first to file.” Relator Gillespie’s action may also be unrelated to Gatsiopoulos — thus also mooting the “first to file” issue — if it is determined that an action against one legally distinct Kaplan corporate entity is unrelated to an action against another legally distinct Kaplan entity. Each of the Kaplan entities subject to the different actions in the MDL signed separate Program Participation Agreements (“PPA”) with the Government. [See, e.g., DE 172, Exhs. K-N]. Thus, each Kaplan entity in the MDL may or may not have been in violation of its own PPA — the contract from which any fraud liability will arise — and each entity may or may not be subject to liability for fraud under that individual PPA. The Kaplan Defendants’ reliance on U.S. ex rel. Hampton v. Columbia Healthcare is misplaced because Hampton involved a relator who alleged company-wide fraud involving Medicare payments that encompassed all of the parent corporation’s various subsidiaries, thus barring a second action related to just one of those subsidiaries. See 318 F.3d 214, 218 (D.C. 2003). The Gatsiopoulos action is based on allegations at one discreet “brick and mortar” school in Pennsylvania, whereas the Gillespie action alleges fraud in the operation of the national “online” school. Again, the Kaplan Defendants in these actions executed separate PPAs from which their potential liability arises. The Kaplan Defendants would certainly cry “prejudice” or “due process” if a fraud violation in relation to one discreet PPA at one discreet school in Pennsylvania — out of the dozens of PPAs their legally distinct schools have executed — was found to be a violation of and by all of those separate contracts and discreet legal entities. Thus, the mere fact that the Gatsiopoulos and Gillespie actions are premised on separate PPAs is a legal basis to allow both claims to proceed 6
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN and defeats the Kaplan Defendants’ argument here that the Gillespie action should be dismissed because the Gatsiopoulos action was the first to be filed. As with the issues discussed in Section A, discovery is needed to answer certain key factual questions relating to the distinctions between the claims pled in Gatsiopoulos and here in Gillespie. Therefore the Kaplan Defendants’ motion to dismiss should be denied. C. Relator Gillespie Has Adequately Pled His Claims The Kaplan Defendants misconstrue Rule 9(b) when they state that “[n]one of Relators’ allegations, however, actually demonstrate that Kaplan committed any underlying violation of the law.” [DE 171, p.9 (emphasis supplied)]. Allegations of fraud in an FCA claim do not require a relator to prove the fraud. See Lusby, 570 F.3d at 855. A relator’s claims simply must sufficiently plead “facts as to time, place, and substance of the defendant's alleged fraud.” Clausen, 290 F.3d at 1310. And as the Fifth Circuit has said, “the ‘time, place, contents, and identity’ standard is not a straitjacket for Rule 9(b)” as long as “particular details of a scheme to submit false claims [are] paired with reliable indicia that lead to a strong inference that claims were actually submitted.” U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009). Relator Gillespie’s allegations are replete with more than adequate details of time, place and substance as to the fraud committed by the Kaplan Defendants to satisfy Rule 9(b). Paragraphs 47– 59 of the SAC detail exact dates and details of communications with specific Kaplan personnel related to the Kaplan Defendants’ violations of section 504 of the Rehabilitation Act of 1973. Paragraphs 61–71 also provide exact dates and details of conduct (and schemes) and communications with specific Kaplan personnel related to the Kaplan Defendants’ violations of 34 7
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN C.F.R. 668.34(b)). Relator Gillespie’s allegations are not vague and provide “the time, place and substance” of his allegations. Thus, this Court should reject the Kaplan Defendants’ bald assertion that Relator Gillespie has failed to comply with the pertinent pleading requirements of Rule 9(b). And since Relator Gillespie has met the heightened standard of Rule 9(b), he necessarily has met the more relaxed pleading requirements of Rule 12(b)(6) and, as detailed more fully below, has stated a claim upon which relief can be granted. D. The Relators’ Claim for False Certification Is a Valid Claim The Kaplan Defendants argue that only their express Acertification@ that they would comply with the statutory requirements of the PPA could lend validity to Relator Gillespie=s false certification claim, and that only the Ninth Circuit holds otherwise. They further argue that the certification must also be expressly linked as a condition of being paid by the government. The Kaplan Defendants are wrong on both points. First, a number of courts have found that express Acertification@ is not required to form a valid FCA claim. Second, an express agreement to comply with statutes in order to Aparticipate@ in Title IV programs has been held to be the equivalent of express agreement to comply in order to receive payment from the government. Thus, Relator Jude Gillespie=s claims do not fail as a matter of law, and their arguments do not serve as a valid basis to dismiss those claims. 1. The Kaplan Defendants’ Mischaracterization of the Law Should be Rejected.
First, the Kaplan Defendants broadly state that Aat least six District Courts around the country have rejected FCA false certification claims in the context of Title IV funds and the HEA. [D.E. 171, p. 13]. But in fact, just one of these cases was published, and it and three others were all 8
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Texas decisions.3 The other two cases were reversed by the Seventh and Ninth Circuits,
respectively. See U.S. ex. rel. Main v. Oakland City Univ., 426 F.3d 914 (7th Cir. 2005) (cert. denied); U.S. ex rel. Hendow v. Univ. of Phoenix, 561 F.3d 1166 (9th Cir. 2006). There is no country-wide judicial agreement with the Kaplan Defendants’ position; there only appears to be a Texas agreement. There is also no Asplit of authority@ among the Circuits on the issue, as the Kaplan Defendants assert. [D.E. 171, p. 14]. As pointed out by the government in the AStatement of Interest@ filed in this matter, the Fifth Circuit affirmations of the lower courts are not published and are therefore not precedential. [See D.E. 28, pp. 2B3]. Only the Seventh and Ninth Circuit decisions are precedential in the context of HEA-based FCA false certification claims, and they are in agreement. See Hendow, 561 F.3d at 1173B74. Thus, raising the spectre of a rogue ANinth Circuit decision@ appears to Kaplan’s attempt to divert the Court=s attention from the fact that the Fifth Circuit stands alone in agreement with the Kaplan Defendants, and even then only through unpublished opinions of no precedential value. 2. Express “Certification” Is ot Required for a Valid False Certification Claim.
The Kaplan Defendants also suggest that no matter what context the false certification claim arises in, a certification statement is always the required first step for alleging these claims. [D.E. 171, pp. 14, 16]. Although the Eleventh Circuit does not appear to have yet reached the question, many courts besides Main and Hendow have accepted an Aimplied certification@ or Aagreement to
U.S. ex rel. Graves v. ITT Educ., 284 F. Supp. 2d 487 (S.D. Tex. 2003); U.S. ex rel. Gay v. Lincoln Tech., 2003 WL 22474586 (N.D. Tex., Sept. 03, 2003); U.S. ex rel. Bowman v. Educ. America, No. H-00-3028 (S. D. Tex. Jan 8, 2004); U.S. ex rel. Payne v. Whitman Educ., No. H-033089 (S.D. Tex. June 20, 2005). 9
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN comply@ as satisfying the first step in alleging a false certification claim. See, e.g., U.S. v. Rogan, Medicare & Medicaid, 459 F. Supp. 2d 692, 718 (N.D. Ill. 2006) (a knowing submission of false claims is actionable under the FCA, even if no express certification exists); Ab-Tech Const., Inc. v. U.S., 31 Fed. Cl. 429, 434 (1994) aff’d 57 F.3d 1084 (Fed. Cir. 1995) (implied certification of compliance with regulations required for eligibility in government program supported false certification claim). What the Kaplan Defendants seemingly fail to remember is that they entered into a binding agreement with the government. And that agreement — the PPA — “shall condition the initial and continuing eligibility of an institution to participate in a program upon compliance with the following requirements . . . .” 20 U.S.C. § 1094(a) (emphasis supplied). Among those requirements are the agreement to comply with § 504 of the Rehabilitation Act and to comply with the other statutes and regulations Relators raise in their Second Amended Complaint. As has been well said by the Sixth Circuit — echoing the U.S. Supreme Court — the government should receive what it bargained for: Parties that contract with the government are held to the letter of the contract irrespective of whether the contract terms appear onerous ex post perspective, or whether the contract=s purposes could have been effectuated in some other way under the maxim that “[m]en must turn square corners when they deal with the government.” U.S. ex rel. Compton v. Midwest Specialties, Inc., 142 F.3d 296, 302 (6th Cir. 1998) (quoting Federal Crop Ins. Co. v. Merrill, 332 U.S. 380, 384 (1947)). Moreover, a treatise on the FCA notes that more and more courts are endorsing an “implied certification” theory, and that “this trend is consistent with the basic concept of a false claim under the Act C which is any effort to wrongfully
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN deprive the Government Treasury of funds.” Claire M. Sylvia, The False Claims Act: Fraud Against the Government § 4:43 (Westlaw 2009). In following this trend, the Ninth Circuit rejected what would be a boon to institutions such as Kaplan: if only false Acertifications@ carried liability, and false statements were not actionable, it “would make it all too easy for claimants to evade the law.” Hendow, 461 F.3d at 1172. The term “certification” does not even appear in the relevant parts of the FCA. Id. (citing 38 USC §§ 3729(a)(1), (2)). Thus, “the theory of liability [that] is commonly called ‘false certification’ is no indication that ‘certification’ is being used with technical precision . . . the theory could just as easily be called the ‘false statement of compliance with a government regulation that is a precursor to government funding’ theory.” Id. “So long as the statement in question is knowingly false when made, it matters not whether it is a certification, assertion, statement, or secret handshake; False Claims liability can attach.” Id. at 1172. As the Relators here have adequately alleged, the Kaplan Defendants have continually and knowingly made false statements of compliance with the PPA, and False Claims liability should attach. Any absence of a formal Acertification@ is not a bar to such liability. Finally, if a “certification” is found to be necessary, the Seventh Circuit’s Main decision is telling. Kaplan’s students are certifying in their applications to the government that they are eligible to receive funds because, for instance, they have maintained the required C average and/or attend an eligible institution, when neither may in fact be true. The students are therefore making false certifications for the Kaplan Defendants’ ultimate benefit, and liability for that may attach to the
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Kaplan Defendants because they caused a false claim to be made. See Main, 426 F.3d at 916; 31 USC § 3729(a)(2). 3. “Participation” Is the Same as “Payment” in the Context of the HEA.
The second key component of the Kaplan Defendants’ argument is that government payments must be expressly conditioned on making a certification, and no such condition exists here. [D.E. 171, p. 15]. The Kaplan Defendants state that the HEA’s “condition on participation” cannot be the same. This argument is another chimera rooted in the same Texas decisions as its first component, along with a number of decisions that do not necessarily support their position. For example, the Kaplan Defendants cite to U.S. ex rel. Siewick v. Jamiseon Sci., 214 F.3d 1372, 1376 (D.C. Cir. 2000), for the proposition that “all courts of appeals that have addressed the matter” agree with their position. Clearly, at least the Seventh and the Ninth Circuit have since disagreed. As another example, reliance on U.S. ex rel. Mikes v. Straus is misplaced. 274 F.3d 687 (2d Cir. 2001). First, the Mikes’ court recognized the validity of “implied certifications.” See id. at 699. But also, as the Hendow court pointed out, Mikes specifically confined itself to the Medicare context, which has distinctly different Acompliance@ language from the HEA. See id. at 700; Hendow, 461 F.3d at 1177. Hendow clearly articulated that in the context of the HEA, “if we held that conditions of participation were not conditions of payment, there would be no conditions of payment at all — and thus, an educational institution could flout the law at will.” 461 F.3d at 1176. “Participation” in the Title IV/HEA program means that the institution will receive funds — it is the purpose of the program, embodied in the first line of the PPA statute, that the PPA is “[r]equired for programs of assistance,” i.e. funds. See 20 U.S.C. § 1094(a) (emphasis supplied). The Hendow court pointed 12
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN out at least three other sections of the controlling law where it is clear that “participation” in the HEA means the same as being paid under the HEA and carries the same weight as an express Apayment@ condition. See Hendow, 461 F.3d at 1175-76. If an entity such as Kaplan “had not agreed to comply with@ all of the regulations it agreed to comply with in order to Aparticipate@ in Title IV funding, “it would not have gotten paid.” See id. at 1176. Thus, the Kaplan Defendants struck their bargain with the government, and were paid because of it. But systematically inflating grade averages so that more students may comply with the Asatisfactory progress@ requirement of 34 C.F.R. § 668.34, and thus more students may obtain Title IV funds is not, as the Kaplan Defendants urge, a “routine regulatory noncompliance.” [D.E. 171, p. 19]. The government did not bargain for the Kaplan Defendants to make false statements of compliance with the regulatory requirements, and this conduct is actionable under the FCA. The Kaplan Defendants argue that Hendow is dangerous precedent that opens the floodgates on FCA actions. But what is more dangerous is following the Fifth Circuit’s Texas-based decisions on HEA/Title IV funds which would actually give the Kaplan Defendants, or any institution, the unfettered ability to defraud the government in relation to those funds because they could simply claim there was no express “certification” and only a condition of “participation.” This cannot be the intent of the law. II. A. RELATORS CARLOS URQUILLA-DIAZ’S A D BE WILCOX’S RESPO SE First To File Rule Various public disclosures occurred prior to United States ex rel. Gatsiopulous v. Kaplan Career Institute, et al. (hereinafter "Gatsiopulous") . For example the amended complaint alleged 13
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN the public disclosure, including the Chronicle's Higher Education article dated March 15, 2006, entitled, "In an Online First, More than 50 Kaplan U. Professors Back Creation of a Faculty Union."4 As will be shown in discovery Carlos Diaz was the original source and contact for the report of said article.5 Additionally, a second public disclosure occurred on September 22, 2006 when Carlos Diaz hand-delivered a package to Equal Employment Opportunity Commission (EEOC) containing emails between himself and Ben Wilcox. In a email dated August 5, 2006 (included in the package) Relator Wilcox stated: ". . . I will tell all, tell the truth, and expose KU for the fraud, its lies, and
evil illegal acts against you, NLRB, HLC, EEOC, and federal law." Wilcox discusses other violations of federal law including the HLC violations. ". . . I will blow the doors of the biggest fraud in education in 50 years." This exhibit was filed in Carlos Urquilla v. Kaplan University, Charge No.: 563-2006-01581, The U.S. Equal Employment Opportunity Commission, Kansas City Area Office. (See Exhibit 1 attached). As documented in Wilcox's required pre-filing disclosures to the U.S. Government, Ben Wilcox was obviously an original source as defined under the statute (had the independent personal knowledge for same), which occurred on September 22, 2006, three months prior to the filing of Gatsiopulous. B. A Determination that Gatsiopulous is a first to file, Does ot Bar the Instant Relators from proceeding against against a Separate Entity.
(http://chronicle.com/free/2006/03/2006031501t.htm?top20) See Declaration of Diaz, Exhibit 11 attached) 14
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN This instant case is critically distinctive from Gatsiopulous (discussed below) and Court should find that under the circumstances of this case, that Gatsiopulous did not put the government on notice of fraud at other Kaplan-owned entities. Initially, USA ex.rel. Mary Hampton v. Columbia /HCA Healthcare Corp. et al, 318 F3d 214 (D.C. Cir., 2003) should not be applied to bar the instant relators claims. The Gatsiopulous complaint did not allege corporate-wide scheme of fraud; therefore there would be no notice to the government that they should investigate anything other than this one small proprietary trade school that had been purchased by Kaplan.6 The allegations in that complaint would have led the government to believe that this was an isolated event in only one of 60 ground schools that Kaplan purchased. In Hampton, the case was dismissed under the first to file rule when a second and later Relator brought suit against a subsidiary of Columbia /HCA Healthcare Corp. In Hampton, a senior manager (initial relator named Boston) in HCA's home care group filed the claim alleging corporatewide fraud, revealed through internal audits in which HCA perpetuated fraud in providing home health care services through numerous subsidiaries. The relator (Boston) further detailed examples of a huge number of illegal billings to Medicare. . . that were separately received by Columbia / HCA's home health locations (550) in 37 states. In contrast the relator in Hampton was a high level executive who had access to the documents for the entire organization, whereas Relator Gatsiopulous only had access to the one ground trade school. Moreover, in contrast to relators Wilcox/Diaz, the Gatsiopulous complaint
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN does not and cannot meet this threshold since it has not detailed out a corporate wide fraudulent scheme.7 The key fraudulent entity (ICM) in Gatsiopulous is a proprietary, brick and mortar, trade school which is independently accredited by the ACSI. In contrast the key Defendant here Kaplan University, holds itself out as an online university which gained more substantial and higher accreditation from the Higher Learning Commission of the North Central Association of Colleges and Schools. Moreover, no where in the Gatsiopulous complaint does it allege that the recruiters were receiving contingent compensation (bonuses) as the instant Relators allege (paragraph 106) Additionally, ICM (Gatsiopulous) located in Pennsylvania had a different President (Gary D. Kerber) from Kaplan University which was headquartered in Ft. Lauderdale, Florida and Chicago, Illinois with Andrew Rosen as President. Both were completely separate operations. Additionally the admission advisors/recruiters at ICM could only receive compensation for enrollees at that individual school and not any compensation for students at the instant Defendant. Similarly, the
Relators are uncertain of the exact purchase date; however, the school's name was not changed until December 4, 2006 7 Ben Wilcox was a Dean at Kaplan University who had full access to both the Ft. Lauderdale and Chicago headquarters. He was provided with daily printouts on such items as the Q-Report and projected financial budgets based on the number of recruited students. He worked with admissions advisors; he personally enforced the unlawful rule imposed by Andy Rosen to give all A's and B's as grades. He was personally familiar with the 90:10 rule scheme. He was very familiar with the contingent fee regulation under the HEA act and was fully aware that Kaplan claimed they based the contingent compensation on other false pretenses rather than compensating advisors on recruitment numbers. He was aware that the only real determining factor regarding an admissions advisor's compensation was the number of students that they recruited. Carlos Diaz was an original source in that he had independent knowledge of the facts stated as his job on behalf of the Washington Post was to work with the President of HEC (Gary Kerber) which was based in Georgia. He was responsible for the trade schools or ground schools and coordinating with Andy Rosen and David Clinefelter for Kaplan Inc. 16
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN instant defendant Kaplan University could not receive compensation from any other enrollments except for Kaplan University. The instant complaint pleads different types of fraud than those pled in Gatsiopulous. For instance, the instant complaint alleges a violation of fraud on the Higher Learning Commission, which is a violation of the False Claims Act, which is an entirely separate theory of recovery alleged in Gatsiopulous .8 Additionally the complaints in the instant case and Gatsiopulous seeks damages from different corporations and thus there would be no duplication of damages nor would the government have to pay two Relator's fees. Further reasoning for not applying Hampton is that there are no parasitic suits involved in any of the complaints against Kaplan, Kaplan Inc., or Kaplan HEC, as they were all filed under seal prior to any of the cases being unsealed. Further, even if the Court determines that Gatsiopulous v. Kaplan Career Institute was the first to file but the damages could be limited to the one school as pled, the Court can and should consolidate the cases rather than dismissing Diaz v. Kaplan. This is exactly what was done in the case cited by the Defense, United States ex rel. William St. John LaCorte v. Smithkline Beecham Clinical Laboratories, Inc. 149 F3d 227 (3d Cir. 1998).9
(See Amicus Curie Brief of U.S. Government filed in U.S. ex rel. O'Connell v. Chapman University, attached as Exhibit 12) in which the Relators claim that false statements were made to the WSC accreditors and that had truthful statements been made, it would have resulted in their decisions not to accredit the various programs.) 9 This appeal involves six suits under the qui tam provisions of the False Claims Act. Appellee Robert J. Merena filed the first of these qui tam actions against SmithKline on November 12, 1993 in the Eastern District of Pennsylvania. Appellee Glenn Grossenbacher, later joined by Charles Robinson, Jr., ('the Grossenbacher parties') filed suit in the Western District of Texas on December 15, 1993. Appellees Kevin Spear, C. Jack Dowden and Berkley Community Law Center 17
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN In summary, even if the Court finds that this is a related case, then both cases should be allowed to go forward; at least Wilcox and Diaz's case should go forward as they are original sources due to their independent knowledge and having informed the government prior to bringing suit. Discovery should be allowed in order to sort out further differences as to why both cases should proceed. C. RELATOR'S COMPLAI T STATES A CAUSE OF ACTIO WITH SUFFICIE T PARTICULARITY The instant complaint is very similar to Hendow v. Phoenix University, and Main v. Oakland,
infra in which the respective Courts held the complaint stated a cause of action.10 The complaint also describes Kaplan's contingent compensation plan which the DOE found to be fraudulent in a separate case in 2000.11
('the Spear parties') followed on February 13, 1995 with a suit in the Northern District of California. The Texas and California courts transferred the Spear and Grossenbacher actions to the Eastern District of Pennysylvania for consolidation with Merena's case. For the sake of brevity, these three actions will be referred to collectively as the 'original' lawsuits and their plaintiffs as the 'original' relators." [149 F.3d 227 (3d Cir. 1998) at pg. 230-231]. 10 Even though the U.S. government has not intervened so far in this case, they filed a very similar if not same amicus curiae brief in both the Hendow and Diaz cases and argued the Hendow case at oral argument in the 9th Circuit. In the past few days, the news media announced that Hendow v. Phoenix University is in settlement discussions. The Apollo group posted on its website its Form 8-K that it filed with the SEC on September 30, 2009; it requested a 45-day stay in order to try to reach a settlement agreement.(See Exhibit 2; Form 8-K). 11 See Kaplan's Admission Advisor Compensation Plan, Exhibit 4; Kaplan University President's and Dean's Club Qualifications and Rules; Exhibit 5. The DOE found in 2000 that the Computer Learning Center, Inc.'s contingent compensation plan, which is very similar to Kaplan's, was a material breach of the school's PPA. It further violated the statute and regulations. "As can be seen from the above facts, CLC's compensation plan plainly violates section 487(a)(20) and its implementing regulations. In practice, CLC's compensation plan calls for compensation adjustments, made on less than annual increments, that are based exclusively on success in securing enrollments. The other performance standards in its recruiter compensation plan amount to mere window dressing, designed to make it appear as if CLC were in compliance 18
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Relators have stated sufficient detail in the complaint to meet the 9(b) requirements by specifying the who, what, when and where, have given specific names of recruiters who were paid the illegal contingent fees (Complaint, ¶106). Also, attached to the complaint were the FAFSA applications that the students prepared with Kaplan's assistance and which Kaplan forwarded to obtain compensation under Title IV.12 Kaplan's argument regarding the application of F.R.C.P. 9(b) in a financial aid fraud case against a for-profit college like Kaplan was recently considered and rejected by United States District Court for the District of Arizona. U.S. ex rel. Irwin v. Significant Educ., Inc., 2009 U.S. Dist. LEXIS 13832 (February 10, 2009). In Irwin, the court denied the defendant's F.R.C.P. 9(b) motion indicating that "Irwin details more than twenty separate instances in which GCU violated the incentive compensation ban by compensating enrollment counselors directly based upon securing enrollments." Id. at *2. Contrary to Kaplan's assertion, the complaint adequately pled a fraud in the inducement claim. The instant complaint is similar to that in Main v. Oakland where the Seventh Circuit reversed the dismissal of similar complaint and recognized that fraud in the inducement was viable cause of action under these circumstances.13 Should this Court believe that the instant complaint is deficient, Relators request leave to amend the complaint accordingly.
with section 487(a)(20)'s ban on incentive compensation." The DOE demanded $187,497,434.00 (See Exhibit 3; DOE letter dated December 8, 2000). 12 See Consumer's Digest article dated April 2009 (Exhibit 8) discusses many problems with Kaplan University (and other online universities) associated with recruiting students and paying illegal compensation. 13 (See Main v. Oakland Complaint, Exhibit 6, and the 7th Cir. opinion; Exhibit 7) 19
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN Further, Defendants contend that there is no liability under the False Claims Act for presenting false documents to the Higher Learning Commission (HLC) in order to obtain accredidation. Relators oppose this contention, however in the interests of brief page limitations and judicial economy, Relators adopt and incorporate by reference the Amicus Curie Brief of U.S. Government filed in U.S. ex rel. O'Connell v. Chapman University, attached as Exhibit 12. Relators have more than stated a cause of action to the meet the particularity requirements, but in an abundance of caution, if the Court finds that more detail is needed, Relators request for leave to file an amended complaint to provide more detail. D. DIAZ'S ADEQUATELY PLEAD A RETALIATIO CLAIM Contrary to Kaplan's assertions, Diaz adequately plead the notice allegations (see Complaint ¶ 250-254). Discovery will show that Diaz provided requisite notice to Kaplan (See letter to Andy Rosen as CEO and President of Kaplan University, dated March 3, 2006; Exhibit 10). If more detail is required by this Court, Relators request leave to amend to correct any perceived deficiencies and to incorporate the above Exhibit. WHEREFORE, Relator Jude Gillespie respectfully requests that the Court deny the Kaplan Defendants’ motion to dismiss as detailed herein. Respectfully Submitted,
CASE NO. 09-CV-20756-SEITZ/O’SULLIVAN DATED: October 6, 2009
s/ Kimberly L. Boldt Kimberly L. Boldt, Esq. Florida Bar No. 957399 kimberly@abbrclaw.com Alters, Boldt, Brown, Rash & Culmo, P.A. 4141 Northeast 2nd Avenue, Suite 201 Miami, Florida 33137 Telephone (305) 571-8550 Facsimile (305) 571-8558
/s John W. Andrews John W. Andrews, Esq. FBN: 178531; SPN: 013131 J. Troy Andrews, Esq. FBN: 105635; SPN: 1842750 A DREWS LAW GROUP 3220 Henderson Blvd. Tampa, FL 33609 Ph. (813) 877-1867; Fx. (813) 872-8298 Attorney for the Relator(s)
U ITED STATES DISTRICT COURT SOUTHER DISTRICT OF FLORIDA CASE O.: 09-20756-CIV-SEITZ/O=SULLIVA =
CERTIFICATE OF SERVICE I hereby certify that on October 6, 2009, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF. I also certify that the foregoing document is being served this day on all counsel of record or pro se parties identified on the attached Service List in the manner specified, either via transmission of Notices of Electronic Filing generated by CM/ECF or in some other authorized manner for those counsel or parties who are not authorized to receive electronically Notices of Electronic Filing. s/ Beth Tyler Vogelsang Beth Tyler Vogelsang Florida Bar No. 509401 beth@abbrclaw.com
SERVICE LIST U ITED STATES OF AMERICA, ex rel. CARLOS URQUILLA-DIAZ et al. v. KAPLA U IVERSITY et al. CASE O.: 1:09-cv-20756-CIV-SEITZ/O=SULLIVA = United States District Court, Southern District of Florida J. TROY ANDREWS hangfire@ix.netcom.com JOHN W. ANDREWS jwa@ix.netcom.com Andrews Law Group 3220 Henderson Boulevard Tampa, Florida 33609 Telephone (813) 877-1867 Facsimile (813) 872-9298 Attorneys for Relators SUSAN N. EISENBERG susan.eisenberg@akerman.com SAMUEL S. HEYWOOD samuel.heywood@akerman.com MIA RENE MARTIN mia.martin@akerman.com Akerman Senterfitt 1 Southeast 3rd Avenue, 25th Floor Miami, Florida 33131-1714 Telephone (305) 374-5600 Facsimile (305) 374-5095 Attorneys for the Defendants CARLOS RAURELL carlos.raurell@usdoj.gov Assistant United States Attorney 99 NE 4th Street Miami, FL 33132 Telephone: (305) 961-9243 Facsimile: (305) 530-7139 Attorneys for the United States
TIMOTHY J. HATCH thatch@gibsondunn.com NICOLA T. HANNA nhanna@gibsondunn.com JAMES L. ZELENAY, JR. jzelenay@gibsondunn.com Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, California 90071 Telephone (213) 229-7000 Facsimile (213) 229-7520 Attorneys for the Defendants G. WARE CORNELL, JR. warecornell@gmail.com Cornell & Associates, P.A. 1792 Bell Tower Lane Suite 210 Weston, FL 33326 Telephone: (954) 524-2703
Fascimile: (954) 524-2706
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