Opinion ID: 223097
Heading Depth: 3
Heading Rank: 2

Heading: Ernst & Young LLP

Text: We now consider the Complaint's allegations as to EY. Relators allege that EY submitted false statements regarding Corinthian's compliance with the HEA via two types of reports  compliance reports (HEA Compliance Reports or Compliance Reports) and financial statement audit reports (Financial Statement Reports).
EY first argues that dismissal is warranted because it did not, as a matter of fact, perform the Compliance Reports certifying Corinthian's compliance with HEA. It asks us to take judicial notice of this fact based on a letter, sent to the Board of Directors of Corinthian from Weworski & Associates, expressing the opinion that Corinthian had complied in all material respects with the HEA for the fiscal year ending June 30, 2008. EY further asks the Court to take judicial notice of the fact that the Financial Statement Reports referenced in the Complaint do not state any opinion or give any indication as to Corinthian's compliance with the HEA. As a general rule, we may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion. Lee, 250 F.3d at 688 (internal citation and quotation marks omitted). We may, however, consider materials that are submitted with and attached to the Complaint. Id. We may also consider unattached evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the document. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir.2006); Lee, 250 F.3d at 688. Pursuant to Federal Rule of Evidence 201, we may also take judicial notice of matters of public record, Lee, 250 F.3d at 689, but not of facts that may be subject to reasonable dispute. Id. at 689. More specifically, we may not, on the basis of evidence outside of the Complaint, take judicial notice of facts favorable to Defendants that could reasonably be disputed. See id. at 689-90. Here, we can consider the existence of the reports identified by EY, since the Complaint expressly refers to and necessarily relies on them. Nonetheless, we may not, on the basis of these reports, draw inferences or take notice of facts that might reasonably be disputed. Whether EY is ultimately responsible for certifying Corinthian's compliance with HEA, and whether the Financial Reports they submitted failed accurately to reflect Corinthian's HEA-related liabilities, are open questions requiring further factual development. At the very least, they are certainly subject to reasonable dispute. Therefore, while EY's factual assertions with respect to the reports cited in Relators' Complaint may ultimately prove true, we will not decide these disputed factual matters at this stage. Instead, we focus only on the sufficiency of Relators' allegations.
In the Complaint, Relators allege that EY falsely certified that Corinthian was in compliance with the recruiter compensation prohibitions and failed to perform the legally required evaluation to determine if Corinthian's recruiter compensation practices were legal. The Complaint further states that EY issued its compliance audits and financial statement audit opinions knowing them to be false and/or in reckless disregard of the truth or falsity of the information provided to the United States. It then provides details as to the particular information that EY omitted from its financial reports. Finally, the Complaint alleges that EY fraudulently caused the United States to pay Title IV, HEA Program funds to Corinthian by such false and fraudulent compliance audit and financial statement audit options. Assuming that the Complaint is amended to sufficiently allege that a false statement was made to the United States government, we conclude that Relators have met their burden under Rule 12(b)(6) and Rule 9(b) as to EY. Relators have alleged all four elements of the FCA with respect to the company. Moreover, citing to financial accounting standards, the Complaint provides details as to what practices are being challenged, namely the omission of information related to Corinthian's compliance with the HEA, and what practices should have been used in their place. See In re Integrated Res. Real Estate Ltd. P'ships Sec. Litig., 815 F.Supp. 620, 669 (S.D.N.Y.1993). The Complaint therefore sets forth EY's alleged fraudulent act in a particularized manner. The Complaint also sufficiently alleges scienter as to EY. The Complaint expressly states that EY issued reports knowing them to be false and/or in reckless disregard of the truth or falsity of the information provided to the United States. It additionally alleges that EY had knowledge of the amount of money Corinthian received from HEA funds and the manner in which this money was spent on recruiter compensation. These facts, taken together, support a plausible inference that the company acted with fraudulent intent. Cf. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (noting that, under the heightened scienter requirements of the Private Securities Litigation Reform Act of 1995, court must consider whether all facts, considered collectively, give rise to a strong inference of scienter). Assuming that they amend their Complaint to sufficiently allege a false statement, we conclude that Relators have sufficiently pled an FCA violation as to EY.