Opinion ID: 223097
Heading Depth: 3
Heading Rank: 1

Heading: A False Statement

Text: Defendants argue that the Complaint does not allege that Corinthian made a false statement under the FCA, because, as a matter of law, the alleged Compensation Program falls within the DOE Safe Harbor Provision and therefore does not violate the HEA. As stated above, Relators allege that Corinthian falsely certified compliance with the HEA's prohibition against paying any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollment or financial aid to any persons or entities engaged in student recruiting or admissions activities.... The Complaint contains two factual allegations to support the purported violation of the HEA. First, the Complaint states that, as a matter of corporate practice, Corinthian recruiters receive a 2.5% to 10% salary increase every six months for exceeding certain enrollment quotas. [2] It also states that employees who fail to meet their enrollment quotas are disciplined, demoted, or terminated. We consider these allegations in reverse order.
Relators allege that employees were disciplined, demoted, or terminated on the basis of their recruitment numbers. This does not state a violation of the incentive compensation ban. Even as broadly construed, the HEA does not prohibit any and all employment-related decisions on the basis of recruitment numbers; it prohibits only a particular type of incentive compensation. Thus, adverse employment actions, including termination, on the basis of recruitment numbers remain permissible under the statute's terms. See U.S. ex rel. Bott v. Silicon Valley Colleges, 262 Fed.Appx. 810, 812 (9th Cir.2008) (holding that [t]he decision to fire an employee is not covered by the Act because termination is not a prohibited `commission, bonus, or other incentive payment.' (citing 20 U.S.C. § 1094(a)(20))). [3] The Complaint's allegation that Corinthian imposes adverse employment consequences on the basis of recruitment quotas does not, therefore, state a violation of the HEA incentive compensation ban, and also does not support the claim that a false statement was made.
To support an FCA false statement, the Complaint also alleges that Corinthian awards salary increases on the basis of recruitment numbers, in violation of HEA's incentive compensation ban. Defendants argue that Corinthian's recruiter compensation policy, as alleged, falls within the DOE Safe Harbor Provision and does not as a matter of law violate the HEA. As discussed above, the Safe Harbor Provision allows institutions to pay semi-annual salary increases to recruiters only if any adjustment is not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid. 34 C.F.R. § 668.14(b)(22)(ii)(A) (emphasis added). The Complaint does not expressly use the word solely in alleging that Corinthian awards promotion salary increases on the basis of recruitment numbers. Nonetheless, it does allege that the increases in salary are based on and depend on the number of students that the recruiter signs up. It then refers to the Corinthian Compensation Program, which is attached to the Complaint as Exhibit A. [4] The Program can be summarized as follows: 1. Only those employees with a rating of at least Good are eligible for promotions. 2. Assuming that an employee is eligible for a promotion, the salary increase for which the employee is eligible is determined by the greater of (1) the minimum of the salary range for the position to which they are being promoted (category 1); and (2) a percentage salary increase related to how successful that recruiter has been in the previous six-month period (category 2). 3. The category 2 increase that corresponds to a particular employee is determined by the number of net starts achieved in that six-month period, combined with his overall performance rating (Good or Excellent) for that period. At first glance, then, it appears that Corinthian's promotion and salary increase system does not rely solely on recruitment numbers, but also takes into account whether the employee receives an overall performance rating of Good or Excellent. On this basis, Corinthian argues that its method of awarding salary increases does not violate the HEA. The mere inclusion of this performance rating in Corinthian's Compensation Program, however, does not allow us to conclusively determine whether its method of awarding salary increases falls within the Safe Harbor Provision. At this stage, we have no information as to the basis on which a Good versus Excellent performance rating is assigned to a Corinthian recruiter. Without an understanding what an employee must do to achieve a rating of Good, we cannot determine whether the rating is based upon substantive requirements that are separate and distinct from recruitment numbers. [5] If, for example, recruiter performance ratings are awarded on the basis of the number of students that a recruiter enrolls, then this rating system would not in fact provide an additional basis on which compensation decisions are made. Under such a system, Corinthian would, in essence, make adjustments to recruiter salaries based solely on the number of students enrolled by that recruiter. Interpreting the Safe Harbor Provision so that it covers such a system would directly undermine the HEA express prohibition on incentive payment based directly or indirectly on success in securing enrollments, see 20 U.S.C. § 1094(a)(20). Moreover, [w]hen construing a statute or regulation, we look to the whole law, and to its object and policy, not simply to a single sentence or member of a sentence. Owner-Operator Indep. Drivers Ass'n, Inc. v. Swift Transp. Co., Inc., 632 F.3d 1111, 1115 (9th Cir.2011) (internal quotation marks and citation omitted). The plain language of a regulation ... will not control if clearly expressed administrative intent is to the contrary or if such plain meaning would lead to absurd results. Webb v. Smart Document Solutions, LLC, 499 F.3d 1078, 1085 (9th Cir. 2007) (internal quotation marks and citation omitted). If the performance rating of at least Good requires an employee merely to fulfill basic performance requirements that are expected of any employee (such as showing up on time), then construing the Safe Harbor Provision so that these ratings serve as an independent basis for compensation increases would lead to an absurd result. Under such a system, educational institutions could entirely circumvent the HEA incentive compensation ban by simply formalizing, through a performance rating system, the basic requirements expected of any employee, that is, the requirements of employment itself. [6] Allowing the Safe Harbor Provision to shield such a program from HEA's recruiter compensation requirements would render meaningless the purpose or objective of the statute. Owner-Operator Indep. Drivers Ass'n, 632 F.3d at 1115. Relators do not allege any facts regarding the meaning or basis of the Good versus Excellent performance ratings included in the Compensation Program attached to the Complaint. As a result, while it is certainly possible that Corinthian's Compensation Program falls outside the Safe Harbor Provision (thereby rendering false Corinthian's certification of HEA compliance), the Complaint falls short of stating a plausible claim for relief. This deficiency, however, can readily be cured, and Relators are therefore entitled to amend.
Although Relators did not seek leave to amend before the district court, the court expressly contemplated whether amendment was appropriate. Because the court concluded that the Compensation Program falls within the Safe Harbor Provision as a matter of law, it held that leave to amend was unwarranted. Because the issue was expressly addressed and decided by the district court, raised on appeal, and fully briefed by both parties, it is subject to review by this court. See Kimes v. Stone, 84 F.3d 1121, 1126 (9th Cir.1996) (noting that a court of appeals may consider an issue raised for the first time on appeal where it presents a purely legal question and consideration of the issue will not prejudice the opposing party); see also Balistreri v. Pacifica Police Dept., 901 F.2d 696, 701 (9th Cir.1990). The trial court's denial of leave to amend a complaint is reviewed for an abuse of discretion. See Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir.2004). When reviewing a district court's decision for abuse of discretion, `[w]e first look to whether the trial court identified and applied the correct legal rule to the relief requested. Second, we look to whether the trial court's resolution of the motion resulted from a factual finding that was illogical, implausible, or without support in inferences that may be drawn from the facts in the record.' City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440, 454 (9th Cir.2011) (quoting United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc)). The standard for granting leave to amend is generous. Balistreri, 901 F.2d at 701. The court considers five factors in assessing the propriety of leave to amend  bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the plaintiff has previously amended the complaint. Johnson, 356 F.3d at 1077. Here, there is no evidence of delay, prejudice, bad faith, or previous amendments. Therefore, leave to amend turns on whether amendment would be futile. Under futility analysis, [d]ismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment. Krainski v. Nevada ex rel. Bd. of Regents of NV. System of Higher Educ., 616 F.3d 963, 972 (9th Cir.2010) (internal citation and quotation marks omitted); see also Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (noting that a court should permit amendment unless it determines that the pleading could not possibly be cured by the allegation of other facts (internal quotation marks and citation omitted)); Balistreri, 901 F.2d at 701 (noting that leave to amend should be granted when a court can conceive of facts that would render the plaintiff's claim viable). Leave to amend is warranted if the deficiencies can be cured with additional allegations that are consistent with the challenged pleading and that do not contradict the allegations in the original complaint. Reddy v. Litton Indus., Inc., 912 F.2d 291, 296-97 (9th Cir.1990). Here, we can conceive of additional facts that could, if formally alleged, support the claim that Corinthian made false statements to the DOE. As previously discussed, Relators could allege that the Corinthian employee performance rating system is merely a proxy for employee recruitment numbers, or that the system is based merely on those basic requirements that any employee would be required to meet. In addition, Relators repeatedly insist in their briefs that, in practice, Corinthian recruiters were expected to meet enrollment quotas and understood that this was the basis on which they would receive promotional salary increases. Relators could additionally or alternatively allege that, despite the Compensation Program's purported or documented reliance on something other than recruitment numbers, these salary increases are in practice determined on the sole basis of recruitment numbers. It is Corinthian's implementation of its policy, rather than the written policy itself, that bears scrutiny under the HEA, and such allegations would require additional discovery. [7] Thus, to the extent that the Complaint insufficiently alleges a false statement, Relators could provide additional allegations that would render plausible their claims against Corinthian. Although the district court correctly identified the permissive standard for granting leave to amend, it dismissed with prejudice the Complaint without considering whether additional facts could cure any deficiencies. We conclude that the court abused its discretion and that amendment of the Complaint should have been permitted.