Court Opinion

ID: 806321
Source: CourtListenerOpinion
Date Created: 2012-08-09 15:12:25+00
Date Added: 2024-06-11T18:00:19.658809
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 11-3302
                                   No. 11-3848
                                   ___________

United States of America ex rel.                 *
Matt Onnen,                                      *
                                                 *
        Plaintiff- Appellant/                    *
        Cross Appellee,                          *
                                                 *
        v.                                       *
                                                 *
Sioux Falls Independent School                   *
District No. 49-5, a local government * Appeals from the United States
agency, et al.,                                  * District Court for the
                                                 * District of South Dakota.
                                                 *
        Defendants - Appellees/                  *
        Cross Appellants,                        *
                                                 *
------------------------------------------------ *
United States of America,                        *
                                                 *
        Amicus Curiae.                           *
                                          ___________

                            Submitted: May 15, 2012
                              Filed: August 9, 2012
                                  ___________

Before WOLLMAN, BEAM, and LOKEN, Circuit Judges.
                          ___________
LOKEN, Circuit Judge.

        Southeast Technical Institute (STI) in Sioux Falls, South Dakota, terminated
Registrar Matt Onnen in 2007 for awarding degrees to students who had not earned
them, not awarding degrees when students had earned them, and failing to verify
students for graduation. STI is a public post-secondary technical school funded by
the State through Sioux Falls School District No. 49-5 and governed by the Sioux
Falls School Board. Onnen appealed; the termination was upheld by the School
Board and, ultimately, the Supreme Court of South Dakota. Onnen v. Sioux Falls
Indep. Sch. Dist. #49-5, 801 N.W.2d 752 (S.D. 2011). Meanwhile, Onnen filed this
qui tam Complaint in federal court against the School District, its superintendent, and
the School Board members, alleging that defendants violated the False Claims Act
(FCA), 31 U.S.C. §§ 3729 et seq., by knowingly submitting false or fraudulent claims
to the federal government for student grants and guaranteed loans. Onnen did not sue
STI or any STI employee.

       The False Claims Act provides that any person who knowingly presents a false
or fraudulent claim for payment or approval by the federal government, or knowingly
makes or uses a false record or statement that is material to a false or fraudulent
claim, is liable to the United States for a civil penalty plus three times the damages
incurred because of the violation. 31 U.S.C. § 3729(a)(1). Onnen claims that STI
obtained federal grants and student loan guarantees after signing a Program
Participation Agreement (PPA) that falsely certified its compliance with mandatory
requirements of 20 U.S.C. § 1094(a), part of Title IV of the Higher Education Act of
1965, Pub. L. No. 89-329, 79 Stat. 1219, 1232, and the Department of Education’s
implementing regulations. More specifically, he alleged that STI falsified graduation
surveys, improperly claimed that a diesel technology program was certified, violated
the Family Educational Rights and Privacy Act, falsely claimed faculty qualifications,
and awarded unearned degrees. The Complaint asserted that STI’s false certifications

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of compliance caused the federal government to pay $3,618,586.00 in grants and
guaranteed student loans.

      After discovery and protracted, contentious pretrial proceedings, defendants
moved for summary judgment. In response, Onnen submitted only a conclusory
affidavit. On September 21, 2011, the district court1 granted summary judgment
because Onnen’s conclusory affidavit was insufficient evidence that STI signed the
PPA either knowing STI was not in compliance or intending not to comply:

      At the summary judgment stage Onnen must produce something more
      than speculation. He must also produce something more than a promise
      made but not performed. And he must produce something more than
      merely showing that mistakes have been made.

Alternatively, construing our recent decision in United States ex rel. Vigil v. Nelnet,
Inc., 639 F.3d 791 (8th Cir. 2011), the district court ruled that the “vast regulatory
scheme” governing STI’s accreditation and participation in these federal programs
precludes Onnen’s FCA claims. The court then denied defendants’ motion for an
award of attorney’s fees. Onnen appeals the grant of summary judgment. Defendants
cross appeal the denial of attorney’s fees. Reviewing the grant of summary judgment
in an FCA case de novo, we affirm all but the district court’s alternative ground.
United States ex rel. Golden v. Ark. Game & Fish Comm'n, 333 F.3d 867, 870 (8th
Cir. 2003) (standard of review), cert. denied, 540 U.S. 1108 (2004).

       1. On appeal, Onnen does not argue the district court erred in concluding that
his affidavit was insufficient to prove that any defendant committed a knowing

      1
       The Honorable John E. Simko, United States Magistrate Judge for the District
of South Dakota.

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violation of 31 U.S.C. § 3729(a)(1).2 Rather, he argues that defendants’ failure “to
make mandated disclosures deprived the Trial Court of sufficient opportunity to make
an appropriate decision.” This contention is based upon the timing of expert
depositions and the summary judgment proceedings in the district court. When the
summary judgment hearing was held on September 12, after the close of discovery,
the parties were aware that trial depositions of two experts, one for each side, had
been scheduled (or rescheduled) to be taken on September 16. Onnen argues the
deposition delays were attributable to defendants’ tardy discovery disclosures, and
the deposition testimony -- unavailable during the summary judgment proceedings --
“verifies the Plaintiff’s affidavit” the district court found insufficient.

      The fatal flaw in this contention is that Onnen did not present it to the district
court. He had many opportunities to do so. On or before September 12, he could
have requested that the summary judgment hearing be postponed until after the
depositions were completed. When the depositions concluded on September 16, he
could have asked the district court to defer its ruling until the deposition transcripts
were prepared and filed. After the court granted summary judgment on September
21, he could have submitted the transcripts and moved for reconsideration, arguing
the depositions supplied the evidentiary support found lacking in his affidavit. Onnen
invoked none of these obvious and readily available procedures.

      2
        The district court correctly ruled that, to avoid summary judgment, Onnen
must produce sufficient evidence that a defendant knowingly submitted a false or
fraudulent claim, or knowingly made or used a false record or statement material to
a false or fraudulent claim. “[I]nnocent mistakes and negligence are not offenses
under the Act. In short, the claim must be a lie.” United States v. Taber Extrusions,
LP, 341 F.3d 843, 845 (8th Cir. 2003) (quotation omitted). Onnen admitted he had
no evidence that any named defendant “knowingly submitted a false claim” and no
evidence any defendant was aware of the alleged ongoing misrepresentations. This
lack of evidence was fatal. See Golden, 333 F.3d at 870; Rose-Maston v. NMR
Hosps., Inc., 133 F.3d 1104, 1109 (8th Cir. 1998).

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      In reviewing the grant of summary judgment, we “consider only evidentiary
materials that were before the trial court at the time the summary judgment ruling was
made.” Barry v. Barry, 78 F.3d 375, 379 (8th Cir. 1996). Although appellate courts
have a “rarely exercised” authority to enlarge the record on appeal and remand for the
consideration of new evidence that the prevailing party’s misconduct kept from being
considered, see Dakota Industries, Inc. v. Dakota Sportswear, Inc., 988 F.2d 61, 63
(8th Cir. 1993), we decline to exercise that authority here because of Onnen’s
inexcusable neglect in failing to raise the misconduct issue to a district court that had
previously considered multiple allegations of discovery misconduct. For the same
reason, we deny Onnen’s motion to expand the record on appeal to include the
deposition transcripts and STI documents he received before the summary judgment
hearing. See Meriwether v. Caraustar Pkg. Co., 326 F.3d 990, 994 (8th Cir. 2003).

      The grant of summary judgment is affirmed.

       2. Onnen further argues the district court erred in refusing to rule on
defendants’ claim that STI is a state agency entitled to sovereign immunity.3 This
contention is frivolous. Onnen did not sue STI or its employees. He sued the Sioux
Falls school district and its officials and argued these defendants have respondeat
superior liability for STI’s FCA violations. “[M]ost local school districts do not
enjoy Eleventh Amendment immunity because they are dependent on local taxes and
controlled by local governmental entities,” whereas questions regarding the immunity
of community and technical colleges “tend to be difficult and very fact-specific.”
Hadley v. N. Ark. Community Tech. Coll., 76 F.3d 1437, 1438-39, 1442 n.9 (8th Cir.
1996), cert. denied, 519 U.S. 1148 (1997). Therefore, the district court prudently
looked first to the merits of Onnen’s claims against the School District defendants.

      3
       A state agency is not a “person” subject to FCA liability. Vt. Agency of
Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 788 (2000).

                                          -5-
Its resolution of the merits rendered moot the question whether STI would be entitled
to sovereign immunity.

       3. At the outset of this lawsuit, the United States declined to intervene and
proceed with the action. See 31 U.S.C. § 3730(b)(2). However, after the cross-
appeals were filed, we granted the government’s motions to participate as amicus
curiae, in support of neither party, and to participate in oral argument, for the purpose
of opposing the district court’s alternative ruling that FCA actions based upon
violations of Title IV of the Higher Education Act are inconsistent with, and thus
precluded by, the comprehensive administrative remedies and sanctions available to
the government under that Act. We agree with the government’s contention.

       In ruling otherwise, the district court focused on a concluding sentence to Part
III.A of our opinion in Vigil, 639 F.3d at 799, a case that raised far more complex
FCA issues than this case:

      When the [Higher Education Act] creates “a complex monitoring and
      remedial scheme that ends [program] payments only as a last resort,” it
      would “be curious to read the FCA, a statute intended to protect the
      government’s fiscal interests, to undermine the government’s own
      regulatory procedures.” United States ex rel. Conner v. Salina Reg’l
      Health Ctr., Inc., 543 F.3d 1211, 1222 (10th Cir. 2008).

The issue in this Part of the Vigil opinion was whether materially false or fraudulent
claims had been presented to the government, an issue the district court did not need
to reach in this case.

      “The FCA is not concerned with regulatory noncompliance.” Id. at 795. “The
FCA attaches liability, not to the underlying fraudulent activity, but to the claim for
payment.” Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir. 1998)
(quotation omitted). The scope of regulatory requirements and sanctions may affect

                                          -6-
the fact-intensive issue of whether a specific type of regulatory non-compliance
resulted in a materially false claim for a specific government payment. The issue is
often complex and may require inquiry into whether a regulatory requirement was a
precondition to the government payment or merely a condition of continuing
participation in a government program. See, e.g., United States ex rel. Wilkins v.
United Health Group, Inc., 659 F.3d 295, 306-11 (3d Cir. 2011); Vigil, 639 F.3d at
797-800; Conner, 543 F.3d at 1220; United States ex rel. Hendow v. Univ. of
Phoenix, 461 F.3d 1166, 1176-77 (9th Cir. 2006), cert. denied, 550 U.S. 903 (2007);
United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916-17 (7th Cir.
2005), cert. denied, 547 U.S. 1071 (2006); United States ex rel. Harrison v.
Westinghouse Savannah River Co., 352 F.3d 908, 913-17 (4th Cir. 2003); United
States ex rel. Mikes v. Straus, 274 F.3d 687, 699 (2d Cir. 2001). But none of these
cases has held that a complex regime of regulatory sanctions precludes the Attorney
General from suing under the FCA when the government has been damaged by a
materially false or fraudulent claim for payment or by use of a record or statement in
a materially false claim. We agree with the government that “Congress intended to
allow the government to choose among a variety of remedies, both statutory and
administrative, to combat fraud.” Accordingly, we reject the district court’s
alternative ground for granting defendants summary judgment in this case.

       4. Defendants cross appeal the district court’s denial of their motion for an
award of attorney’s fees, which the FCA authorizes if “the court finds that the claim
of the person bringing the action was clearly frivolous, clearly vexatious, or brought
primarily for purposes of harassment.” 31 U.S.C. § 3730(d)(4). The legislative
history suggests, quite logically, that in determining whether to award attorney’s fees
under the FCA, courts should apply the familiar standards applied under 42 U.S.C.
§ 1988. See S. Rep. No. 99-345, at 29, reprinted in 1986 U.S.C.C.A.N. 5266, 5294.
We review these determinations for abuse of discretion. See Peter v. Jax, 187 F.3d
829, 833 (8th Cir. 1999) (§ 1988 case), cert. denied, 529 U.S. 1098 (2000); Mikes,
274 F.3d at 704 (FCA case). “In reviewing the district court's denial, we are mindful,

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‘The trial court knows the case best.’” Wescott Agri-Products, Inc. v. Sterling State
Bank, Inc., 682 F.3d 1091, 1094 (8th Cir. 2012) (quotation omitted).

       Here, the district court concluded that Onnen’s lawsuit was not clearly
frivolous, vexatious, or harassing because he survived defendants’ motion to dismiss,
and discovery revealed “objective factual support for Onnen’s claim . . . that some
unqualified persons received degrees, that some teachers were not credentialed as
represented, and that at least one program was not in certification as STI represented.”
Although we would also have affirmed an award of attorney’s fees because the record
contains indications that Onnen’s unsupported claims were asserted primarily for
vengeful harassment, we conclude the district court did not abuse its substantial
discretion in denying an award of attorney’s fees. Our conclusion is influenced
somewhat by defendants’ urging of an alternative ground that prompted the Attorney
General to appear as amicus curiae to urge a proper interpretation of the relevant
federal statutes. It is appropriate that defendants pay their own attorney’s fees when
they chose, unnecessarily, to use this case in a misguided attempt to obtain blanket
immunity from FCA liability.

     We deny Onnen’s motion to supplement the record on appeal and affirm the
judgment of the district court.
                       ______________________________

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