Court Opinion

ID: 3038668
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:59:11.095467+00
Date Added: 2024-06-11T11:24:16.669112
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, ex rel.      
MARY HENDOW; JULIE ALBERTSON,                No. 04-16247
              Plaintiffs-Appellants,
                v.                            D.C. No.
                                           CV-03-00457-GEB
UNIVERSITY OF PHOENIX,                        OPINION
               Defendant-Appellee.
                                       
        Appeal from the United States District Court
           for the Eastern District of California
        Garland E. Burrell, District Judge, Presiding

                  Argued and Submitted
       February 15, 2006—San Francisco, California

                  Filed September 5, 2006

  Before: Cynthia Holcomb Hall, Barry G. Silverman, and
             Susan P. Graber, Circuit Judges.

                   Opinion by Judge Hall

                            10657
10660      UNITED STATES v. UNIVERSITY OF PHOENIX

                       COUNSEL

Nancy G. Krop, Law Offices of Nancy G. Krop, Burlingame,
California, for the plaintiffs-appellants.

Timothy J. Hatch, Gibson, Dunn & Crutcher LLP, Los Ange-
les, California, for the defendant-appellee.

Charles W. Scarborough, Department of Justice, Civil Divi-
sion, Washington, DC, for the amicus.
            UNITED STATES v. UNIVERSITY OF PHOENIX        10661
                          OPINION

HALL, Senior Circuit Judge:

   The False Claims Act makes liable anyone who “know-
ingly makes, uses, or causes to be made or used, a false record
or statement to get a false or fraudulent claim paid or
approved by the Government.” 31 U.S.C. § 3729(a)(2). In this
case, relators have raised allegations that the University of
Phoenix knowingly made false statements, and caused false
statements to be made, that resulted in the payment by the
federal Department of Education of hundreds of millions of
dollars. Despite this axiomatic fit between the operative stat-
ute and the allegations made, respondent claims that relators’
legal theory holds no water. The district court agreed, dis-
missing the suit for failure to state a claim upon which relief
can be granted. We reverse.

                               I.

   When an educational institution wishes to receive federal
subsidies under Title IV and the Higher Education Act, it
must enter into a Program Participation Agreement with the
Department of Education (DOE), in which it agrees to abide
by a panoply of statutory, regulatory, and contractual require-
ments. One of these requirements is a ban on incentive com-
pensation: a ban on the institution’s paying recruiters on a
per-student basis. The ban prohibits schools from “provid[ing]
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.” 20
U.S.C. § 1094(a)(20). This requirement is meant to curb the
risk that recruiters will “sign up poorly qualified students who
will derive little benefit from the subsidy and may be unable
or unwilling to repay federally guaranteed loans.” United
States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916
10662       UNITED STATES v. UNIVERSITY OF PHOENIX
(7th Cir. 2005), cert. denied, 126 S. Ct. 1786 (2006). The ban
was enacted based on evidence of serious program abuses.
See S. Rep. No. 102-58, at 8 (1991) (“Abuses in Federal Stu-
dent Aid Programs”) (noting testimony “that contests were
held whereby sales representatives earned incentive awards
for enrolling the highest number of student[s] for a given peri-
od”); H.R. Rep. No. 102-447, at 10, reprinted in 1992
U.S.C.C.A.N. 334, 343 (noting that the “new provisions
include prohibiting the use of commissioned sales persons and
recruiters”).

   This case involves allegations under the False Claims Act
that the University of Phoenix (the University) knowingly
made false promises to comply with the incentive compensa-
tion ban in order to become eligible to receive Title IV funds.
Appellants, Mary Hendow and Julie Albertson (relators), two
former enrollment counselors at the University, allege that the
University falsely certifies each year that it is in compliance
with the incentive compensation ban while intentionally and
knowingly violating that requirement. Relators allege that
these false representations, coupled with later claims for pay-
ment of Title IV funds, constitute false claims under 31
U.S.C. § 3729(a)(1) & (a)(2).

   First, relators allege that the University, with full knowl-
edge, flagrantly violates the incentive compensation ban.
They claim that the University “compensates enrollment
counselors . . . based directly upon enrollment activities,”
ranking counselors according to their number of enrollments
and giving the highest-ranking counselors not only higher sal-
aries but also benefits, incentives, and gifts. Relators allege
that the University also “urges enrollment counselors to enroll
students without reviewing their transcripts to determine their
academic qualifications to attend the university,” thus encour-
aging counselors to enroll students based on numbers alone.
Relator Albertson, in particular, alleges that she was given a
specific target number of students to recruit, and that upon
reaching that benchmark her salary increased by more than
            UNITED STATES v. UNIVERSITY OF PHOENIX         10663
$50,000. Relator Hendow specifically alleges that she won
trips and home electronics as a result of enrolling large num-
bers of students.

   Second, relators allege considerable fraud on the part of the
University to mask its violation of the incentive compensation
ban. They claim that the University’s head of enrollment
openly brags that “[i]t’s all about the numbers. It will always
be about the numbers. But we need to show the Department
of Education what they want to see.” To deceive the DOE,
relators allege, the University creates two separate employ-
ment files for its enrollment counselors—one “real” file con-
taining performance reviews based on improper quantitative
factors, and one “fake” file containing performance reviews
based on legitimate qualitative factors. The fake file is what
the DOE allegedly sees. Relators further allege a series of
University policy changes deliberately designed to obscure
the fact that enrollment counselors are compensated on a per-
student basis, such as altering pay scales to make it less obvi-
ous that they are adjusted based on the number of students
enrolled.

   Third and finally, relators allege that the University submits
false claims to the government. Claims for payment of Title
IV funds can be made in a number of ways, once a school
signs its Program Participation Agreement and thus becomes
eligible. For instance, in the Pell Grant context, students sub-
mit funding requests directly (or with school assistance) to the
DOE. In contrast, under the Federal Family Education Loan
Program, which includes Stafford Loans, students and schools
jointly submit an application to a private lender on behalf of
the student, and a guaranty agency makes the eventual claim
for payment to the United States only in the event of default.
Relators allege that the University submits false claims in
both of these ways. They claim that the University, with full
knowledge that it is ineligible for Pell Grant funds because of
its violation of the incentive compensation ban, submits
requests for those funds directly to the DOE, resulting in a
10664       UNITED STATES v. UNIVERSITY OF PHOENIX
direct transfer of the funds into a University account. They
further claim that the University, again with knowledge that
it has intentionally violated the incentive compensation ban,
submits requests to private lenders for government-insured
loans.

   On May 20, 2004, the district court dismissed the relators’
complaint with prejudice under Federal Rule of Civil Proce-
dure 12(b)(6) for failure to state a claim. Relators appealed on
June 15, 2004. The United States Department of Justice sub-
mitted a brief as amicus curiae supporting the reversal of the
district court. Because this case comes to us on a motion to
dismiss, we assume that the facts as alleged are true, and
examine only whether relators’ allegations support a cause of
action under the False Claims Act under either of two possible
theories. See Zimmerman v. City of Oakland, 255 F.3d 734,
737 (9th Cir. 2001) (“We review dismissals under Rule
12(b)(6) de novo, accepting as true all well-pleaded allega-
tions of fact in the complaint and construing them in the light
most favorable to the plaintiffs.”). We hold that they do, and
that either theory is viable.

                              II.

   The district court below rejected both of relators’ theories
for why they have validly alleged that the University submit-
ted false or fraudulent claims to the government in violation
of the False Claims Act. First, the court rejected relators’
claim under the “false certification” theory, as treated by this
court in United States ex rel. Hopper v. Anton, 91 F.3d 1261,
1266 (9th Cir. 1996), because the operative statute here “only
requires that [the University] enter into an agreement, and
does not require a certification.” Second, the district court
rejected relators’ claim under the “promissory fraud” theory,
because they did not “identif[y] any certification which is a
prerequisite for [the University] to receive federal funds.”
These rulings conflated the proper analysis of False Claims
             UNITED STATES v. UNIVERSITY OF PHOENIX         10665
Act liability, and so we will discuss the relevant theories in
more detail.

   [1] In an archetypal qui tam False Claims action, such as
where a private company overcharges under a government
contract, the claim for payment is itself literally false or fraud-
ulent. See Anton, 91 F.3d at 1266. The False Claims Act,
however, is not limited to such facially false or fraudulent
claims for payment. See id. Rather, the False Claims Act is
“intended to reach all types of fraud, without qualification,
that might result in financial loss to the Government.” United
States v. Neifert-White Co., 390 U.S. 228, 232 (1968). More
specifically, in amending the False Claims Act in 1986, Con-
gress emphasized that the scope of false or fraudulent claims
should be broadly construed:

     [E]ach and every claim submitted under a contract,
     loan guarantee, or other agreement which was origi-
     nally obtained by means of false statements or other
     corrupt or fraudulent conduct, or in violation of any
     statute or applicable regulation, constitutes a false
     claim.

S. Rep. No. 99-345, at 9 (1986), reprinted in 1986
U.S.C.C.A.N. 5266, 5274.

   [2] The principles embodied in this broad construction of
a “false or fraudulent claim” have given rise to two doctrines
that attach potential False Claims Act liability to claims for
payment that are not explicitly and/or independently false: (1)
false certification (either express or implied); and (2) promis-
sory fraud. See Harrison v. Westinghouse Savannah River
Co., 176 F.3d 776, 784 (4th Cir. 1999).

A.   False Certification

  Many different courts have held that a claim under the
False Claims Act can be false where a party merely falsely
10666       UNITED STATES v. UNIVERSITY OF PHOENIX
certifies compliance with a statute or regulation as a condition
to government payment. See, e.g., id. at 786; Mikes v. Straus,
274 F.3d 687, 697-700 (2d Cir. 2001); United States ex rel.
Quinn v. Omnicare Inc., 382 F.3d 432, 441 (3d Cir. 2004).
The leading case on false certification in the Ninth Circuit is
United States ex rel. Hopper v. Anton.

   In Anton, a relator-plaintiff brought a False Claims Act suit
against the Los Angeles Unified School District (LAUSD) for
allegedly submitting false claims for federal funds while in
knowing violation of an underlying statute granting funds for
special education programs (the Individuals with Disabilities
Education Act, “IDEA”). 91 F.3d at 1263. In particular, the
relator alleged that LAUSD’s method of evaluating potential
student eligibility for the program violated the IDEA. Id.
LAUSD allegedly (1) submitted forms stating the number of
eligible students in the district; (2) cashed checks that were
partially comprised of federal funds; and (3) submitted trien-
nial certifications averring that LASUD “ ‘will meet all appli-
cable requirements of state and federal law and regulations,’
including ‘general compliance’ with the IDEA.” Id. at 1265.
We held that False Claims Act liability can attach under the
theory of false certification, although the relators had not
presented sufficient evidence of fraud. Id.

   [3] In Anton, we explained the theory of false certification,
identifying two major considerations: “ ‘(1) whether the false
statement is the cause of the Government’s providing the ben-
efit; and (2) whether any relation exists between the subject
matter of the false statement and the event triggering Govern-
ment’s [sic] loss.’ ” Id. at 1266 (quoting John T. Boese, Civil
False Claims and Qui Tam Actions 1-29 to 1-30 (1995)). We
also held that “[m]ere regulatory violations do not give rise to
a viable FCA action,” but rather, “[i]t is the false certification
of compliance which creates liability when certification is a
prerequisite to obtaining a government benefit.” Id. at 1266-
67 (emphasis in original). From the principles underlying
these two statements, we created four conditions necessary to
            UNITED STATES v. UNIVERSITY OF PHOENIX        10667
succeed on the false certification theory of False Claims Act
liability.

   First, we emphasized the necessity of a false claim, rather
than a mere unintentional violation. We did not hold in Anton
that regulatory violations will go unchecked by the False
Claims Act, but we did agree with the lower court’s reasoning
that for a “breach of contract, or violation of regulations or
law, or receipt of money from the government” to give rise to
an action under the False Claims Act, “[i]t requires a false
claim.” 91 F.3d at 1265. We went on to note that the “fatal
defect” in Anton was not that the claimed infraction was a
regulatory violation, but that there was a “lack of a false
claim.” Id. at 1267. Thus, we established that to succeed on
a false certification theory, some falsity must be alleged.

   Second, we emphasized the central importance of the
scienter element to liability under the False Claims Act, hold-
ing that false claims must in fact be “false when made.” Id.
(citing United States v. Shah, 44 F.3d 285, 290 (5th Cir.
1995)). In fact, we held, “[f]or a certified statement to be
‘false’ under the Act, it must be an intentional, palpable lie.”
Id. (citing Hagood v. Sonoma County Water Agency, 81 F.3d
1465, 1478 (9th Cir. 1996)). We also noted that “some request
for payment containing falsities made with scienter (i.e., with
knowledge of the falsity and with intent to deceive) must
exist.” Id. at 1265. In short, we made clear that a palpably
false statement, known to be a lie when it is made, is required
for a party to be found liable under the False Claims Act.

   [4] We note that the University and the district court below
have taken our holdings to mean that the word “certification”
has some paramount and talismanic significance, apparently
believing that a palpably false statement does not bring with
it False Claims liability, while a palpably false certification
will. This facile distinction would make it all too easy for
claimants to evade the law. The Fourth Circuit rightly noted
that False Claims liability attaches “because of the fraud sur-
10668         UNITED STATES v. UNIVERSITY OF PHOENIX
rounding the efforts to obtain the contract or benefit status, or
the payments thereunder.” Harrison, 176 F.3d at 788 (empha-
sis added). That the theory of liability is commonly called
“false certification” is no indication that “certification” is
being used with technical precision, or as a term of art; 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, but that is not as succinct.
Furthermore, because the word “certification” does not appear
in 31 U.S.C. § 3729 (a)(1) or (a)(2), there is no sense in pars-
ing it with the close attention typically attending an exercise
in statutory interpretation. So long as the statement in ques-
tion is knowingly false when made, it matters not whether it
is a certification, assertion, statement, or secret handshake;
False Claims liability can attach.

  Third, we held that the false statement or course of conduct
must be material to the government’s decision to pay out
moneys to the claimant. This is plain from our focus on “(1)
whether the false statement is the cause of the Government’s
providing the benefit; and (2) whether any relation exists
between the subject matter of the false statement and the
event triggering Government’s [sic] loss.” Anton, 91 F.3d at
1266. We also stated that the relevant certification of compli-
ance must be both a “prerequisite to obtaining a government
benefit,” id., and a “sine qua non of receipt of [government]
funding,” id. at 1267. We further held that the government
funding must be “conditioned” upon certifications of compli-
ance. Id.

   This approach has been followed by a number of other cir-
cuits to adopt the false certification theory of false claims liabil-
ity.1 See Mikes, 274 F.3d at 699 (holding that false
  1
    Some courts, such as the Court of Federal Claims, have adopted a ver-
sion of the false certification theory whereby the certification need only
be implied, rather than express. In those cases, if a party submits a claim
for payment under a government program with requirements for participa-
              UNITED STATES v. UNIVERSITY OF PHOENIX                10669
certification theory applies when “governing federal rules . . .
are a precondition to payment”); United States ex rel. Thomp-
son v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902
(5th Cir. 1997) (holding that false claims liability attaches
only “where the government has conditioned payment of a
claim upon a claimant’s certification of compliance with . . .
a statute or regulation”); Ab-Tech Constr., Inc. v. United
States, 31 Fed. Cl. 429, 434 (Fed. Cl. 1994) (holding that false
statement of compliance must be “critical to the decision to
pay”), aff’d, 57 F.3d 1084 (Fed. Cir. 1995). Once again, we
note that there is no special significance to the term “certifica-
tion” in determining materiality; the question is merely
whether the false certification—or assertion, or statement—
was relevant to the government’s decision to confer a benefit.

   Fourth and most obviously, for a false statement or course
of action to be actionable under the false certification theory
of false claims liability, it is necessary that it involve an actual
claim, which is to say, a call on the government fisc. This is
self-evident from the statutory language, of course, which
requires a “claim paid or approved by the Government.” 31
U.S.C. § 3729(a)(2). In Anton, the case involved direct receipt
of federal funding, but we agree with the Fourth Circuit that
a claim arises whenever the government is asked to “pay out
money or to forfeit moneys due.” Harrison, 176 F.3d at 788.

B.   Promissory Fraud

   [5] Another approach to finding False Claims Act liability
in the absence of an explicitly false claim is the “promissory
fraud” or “fraud-in-the-inducement” theory. This theory,

tion, that claim is taken as an implied certification that the party was in
compliance with those program requirements. See Ab-Tech Constr., Inc.
v. United States, 31 Fed. Cl. 429, 434 (Fed. Cl. 1994). Here, we need not
address the viability of this theory, because it is beyond dispute that the
University signed the written Program Participation Agreement, thus mak-
ing an express statement of compliance.
10670       UNITED STATES v. UNIVERSITY OF PHOENIX
rather than specifically requiring a false statement of compli-
ance with government regulations, is somewhat broader. It
holds that liability will attach to each claim submitted to the
government under a contract, when the contract or extension
of government benefit was originally obtained through false
statements or fraudulent conduct. See, e.g., id., 176 F.3d at
787; United States ex rel. Marcus v. Hess, 317 U.S. 537, 542
(1943). In Hess, the Supreme Court found contractors liable
under the False Claims Act for claims submitted under gov-
ernment contracts that the defendants obtained via collusive
bidding. Id. The Court determined that “[t]his fraud did not
spend itself with the execution of the contract,” and so each
claim submitted under the contracts constituted a false or
fraudulent claim. Id. at 543. In other words, subsequent
claims are false because of an original fraud (whether a certi-
fication or otherwise).

   The Seventh Circuit recently adopted a version of the
promissory fraud theory in a case almost identical to this one,
United States ex rel. Main v. Oakland City Univ., 426 F.3d
914 (7th Cir. 2005), cert. denied, 126 S Ct. 1786 (2006).
Relators in Main alleged liability under the False Claims Act
based on an Oakland City University representation that it
would comply with the incentive compensation ban, despite
its knowledge of the ban and intent not to comply. See id. at
916. As here, the district court dismissed the case for failure
to state a claim, ruling that even willful falsehoods in a
“phase-one application” do not violate the False Claims Act,
because such an application requests a declaration of eligibil-
ity rather than an immediate payment from the treasury. See
id. The district court further ruled that the “phase two” appli-
cations for funds are not false, because they do not repeat the
assurance that the University abides by the rule against paying
contingent fees to recruiters. See id.

   [6] The Seventh Circuit reversed, analyzing the claim under
a promissory fraud theory, and holding that the relators had
stated a claim based upon allegations of fraud in the induce-
            UNITED STATES v. UNIVERSITY OF PHOENIX         10671
ment of the original Program Participation Agreement. See id.
The court did not address the false certification theory
directly, although it implicitly recognized that the district
court had rejected relator’s arguments on that ground. Pursu-
ant to the plain language of 31 U.S.C. § 3729(a)(2), the court
determined that False Claims Act liability was clear: “[t]he
University ‘uses’ its phase-one application (and the resulting
certification of eligibility) when it makes (or ‘causes’ a stu-
dent to make or use) a phase-two application for payment. No
more is required under the statute.” Id.

   [7] We find the Seventh Circuit’s reasoning in adopting the
promissory fraud theory persuasive. We also note that the
promissory fraud theory, in substance, is not so different from
the false certification theory, and even requires the same ele-
ments. For instance: first, a claim must be false and, second,
that falsity must be knowingly perpetrated. The Seventh Cir-
cuit opined eloquently on this point:

       To prevail in this suit [relator] must establish that
    the University not only knew . . . that contingent fees
    to recruiters are forbidden, but also planned to con-
    tinue paying those fees while keeping the Depart-
    ment of Education in the dark. This distinction is
    commonplace in private law: failure to honor one’s
    promise is (just) breach of contract, but making a
    promise that one intends not to keep is fraud. . . . [I]f
    the University knew about the rule and told the
    Department that it would comply, while planning to
    do otherwise, it is exposed to penalties under the
    False Claims Act.

Id. at 917 (emphasis in original) (citations omitted). We, too,
have held that for promissory fraud to be actionable under the
False Claims Act, “the promise must be false when made.”
Anton, 91 F.3d at 1267. We have also noted that “[i]nnocent
mistakes, mere negligent misrepresentations and differences
in interpretations” are not sufficient for False Claims Act lia-
10672          UNITED STATES v. UNIVERSITY OF PHOENIX
bility to attach. Id. In short, therefore, under a promissory
fraud theory, relator must allege a false or fraudulent course
of conduct, made with scienter.

   Third, as with the false certification theory, the promissory
fraud theory requires that the underlying fraud be material to
the government’s decision to pay out moneys to the claimant.
The Seventh Circuit in Main stated that the False Claims Act
requires “a causal rather than a temporal connection between
fraud and payment,” 426 F.3d at 916, and we agree. And
fourth and finally, there must exist a claim—a call on the gov-
ernment fisc. As the Seventh Circuit rightly noted, the precise
logistical details of how the claim is made—with respect to
timing, for instance, or the number of stages involved—are
immaterial: “[i]f a false statement is integral to a causal chain
leading to payment, it is irrelevant how the federal bureau-
cracy has apportioned the statements among layers of paper-
work.” Id. In other words, for there to exist a “claim” for
purposes of False Claims Act liability, it must involve merely
some sort of request for the government to pay out money or
forfeit moneys due.

                                III.

   [8] Thus, as the above analysis shows, under either the false
certification theory or the promissory fraud theory, the essen-
tial elements of False Claims Act liability remain the same:
(1) a false statement or fraudulent course of conduct, (2) made
with scienter, (3) that was material, causing (4) the govern-
ment to pay out money or forfeit moneys due. The question
remaining is whether relators in this case have alleged facts
satisfying all four of these elements.

A.   Falsity

  [9] Relators allege a false statement or course of conduct.
They allege that the University violates a statutory require-
ment, the incentive compensation ban, to which it agreed in
            UNITED STATES v. UNIVERSITY OF PHOENIX         10673
writing in the Program Participation Agreement. They allege
that the University establishes policies of violating that
requirement, and encourages its employees to violate that
requirement. They allege specific instances of violation,
where higher salaries, benefits, and incentives were given in
response to increased enrollment. And they allege that the
University did so knowingly, and with the specific intent to
deceive the government. Thus, relators properly allege a false
statement or course of conduct.

B.   Scienter

   [10] Relators allege a false statement or course of conduct
made knowingly and intentionally. They allege that Univer-
sity staff openly bragged about perpetrating a fraud, that the
University had an established infrastructure to deceive the
government, and that the University repeatedly changed its
policies to hide its fraud. In other words, relators allege that
the University provided statements to the government that
were “intentional, palpable lie[s],” made with “knowledge of
the falsity and with intent to deceive.” Anton, 91 F.3d at 1265,
1267.

   [11] The University argues that the incentive compensation
ban is nothing more than one of hundreds of boilerplate
requirements with which it promises compliance. This may be
true, but fraud is fraud, regardless of how “small.” The Uni-
versity is worried that our holding today opens it up to greater
liability for innocent regulatory violations, but that is not the
case—as we held above, innocent or unintentional violations
do not lead to False Claims Act liability. But that is no reason
to innoculate institutions of higher education from liability
when they knowingly violate a regulatory condition, with the
intent to deceive, as is alleged here. Relators properly allege
false statements or courses of conduct made with scienter.

C.   Materiality

  Most of the argument in this case centers on whether and
how much the University’s alleged fraud was material to the
10674       UNITED STATES v. UNIVERSITY OF PHOENIX
government’s decision to disburse federal funds. The parties
argue at length over, for instance, the enforcement power of
the DOE, and whether its authority to take “emergency
action”—to withhold funds or impose sanctions where it has
information that statutory requirements are being violated—
means that the statutory requirements are causally related to
its decision to pay out moneys due.

   [12] These questions of enforcement power are largely aca-
demic, because the eligibility of the University under Title IV
and the Higher Education Act of 1965—and thus, the funding
that is associated with such eligibility—is explicitly condi-
tioned, in three different ways, on compliance with the incen-
tive compensation ban. First, a federal statute states that in
order to be eligible, an institution must

    enter into a program participation agreement with
    the Secretary [of Education]. The agreement shall
    condition the initial and continuing eligibility of an
    institution to participate in a program upon compli-
    ance with the following requirements . . . [including
    the incentive compensation ban.]

20 U.S.C. § 1094(a) (emphasis added). Second, a federal reg-
ulation specifies:

    An institution may participate in any Title IV, HEA
    program . . . only if the institution enters into a writ-
    ten program participation agreement with the Secre-
    tary . . . . A program participation agreement
    conditions the initial and continued participation of
    an eligible institution in any Title IV, HEA program
    upon compliance with the provisions of this part
    [such as the incentive compensation ban.]

34 C.F.R. § 668.14(a)(1) (emphasis added). Third and finally,
the program participation agreement itself states:
            UNITED STATES v. UNIVERSITY OF PHOENIX        10675
    The execution of this Agreement [which contains a
    reference to the incentive compensation ban] by the
    Institution and the Secretary is a prerequisite to the
    Institution’s initial or continued participation in any
    Title IV, HEA program.

(emphasis added). All of the emphasized phrases in the above
passages demonstrate that compliance with the incentive com-
pensation ban is a necessary condition of continued eligibility
and participation: compliance is a “prerequisite” to funding;
funding shall occur “only if” the University complies; funding
shall be “condition[ed] . . . upon compliance.” These are not
ambiguous exhortations of an amorphous duty. The statute,
regulation, and agreement here all explicitly condition partici-
pation and payment on compliance with, among other things,
the precise requirement that relators allege that the University
knowingly disregarded.

   The University argues that the ban is merely a condition of
participation, not a condition of payment. But in this case,
that is a distinction without a difference. In the context of
Title IV and the Higher Education Act, if we held that condi-
tions of participation were not conditions of payment, there
would be no conditions of payment at all—and thus, an edu-
cational institution could flout the law at will.

   To see why this is so, one only need look at the Universi-
ty’s semantic argument, in which it claims that for a condition
of participation, an institution says it “ ‘will’ comply” with
various statutes and regulations, but for a condition of pay-
ment, an institution says that it “has complied.” This gram-
matical haggling is unmoored in the law, and it is undercut by
the Program Participation Agreement itself. In the section that
the University concedes contains conditions of payment—the
section entitled “Certifications Required From Institutions”—
the University agrees that it “will” or “shall” comply with var-
ious regulations no less than six times. Under the University’s
logic, these future-tense assertions could not be conditions of
10676       UNITED STATES v. UNIVERSITY OF PHOENIX
payment, and yet it concedes that they are. Its concession is
correct; these, and all other promises to comply with the Pro-
gram Participation Agreement, are conditions of payment.
These conditions are also “prerequisites,” and “the sine qua
non” of federal funding, for one basic reason: if the Univer-
sity had not agreed to comply with them, it would not have
gotten paid.

   Furthermore, we take the University’s argument to mean
that it believes if it had signed an agreement that stated “the
University of Phoenix certifies that it has complied with the
incentive compensation ban,” then it would have signed a
condition of payment. But the DOE and the United States
Congress, as evidenced by the statutes, regulations, and con-
tracts implementing the Title IV and Higher Education Act
requirements for funding, quite plainly care about an institu-
tion’s ongoing conduct, not only its past compliance. For pur-
poses of federal funding, the University is not permitted to
merely have a history of compliance with the applicable regu-
lations; it must also agree to comply in the future. The Pro-
gram Participation Agreement, constraining its ongoing
conduct, is the condition of payment that the federal govern-
ment requires—a promise that the University shall not break
the law, not merely an assertion that it has not broken the law
yet. If such promises were not conditions of payment, the Uni-
versity would be virtually unfettered in its ability to receive
funds from the government while flouting the law. This can-
not be what Congress and the DOE intend when they ask
institutions to sign Program Participation Agreements.

   Nor was such laissez-faire compliance what the Second
Circuit had in mind, we think, when it developed the “partici-
pation versus payment” distinction in the first place. The case
in which that distinction was first mentioned, Mikes v. Straus,
is completely distinguishable from the case before us. There,
in the Medicare context, the defendant was subject to a statu-
tory requirement that stated:
            UNITED STATES v. UNIVERSITY OF PHOENIX        10677
    “[i]t shall be the obligation” of a practitioner who
    provides a medical service “for which payment may
    be made . . . to assure” compliance with [42 U.S.C.
    § 1320c-5(a)].
274 F.3d at 701. “Compliance,” in that instance, meant main-
taining an appropriate standard of care, which was ensured by
peer review and extensive monitoring. Dereliction of that duty
would result in sanctions only where “a violation was espe-
cially gross and flagrant.” Id. at 702. Defendants were
accused of not maintaining the appropriate standard of care,
but the Second Circuit held that such a violation could not
constitute a breach of a condition of payment under the Medi-
care statute. This makes sense for two interrelated reasons.
First, the statutory duty was not to promise compliance, but
to promise assurance of compliance. The fact that defendants
did not meet the appropriate standard of care does not neces-
sarily mean that they were ignoring their duty to try their best
to comply; rather, it may have indicated merely that they were
not doing a very good job. If the allegation had been that the
defendants in Mikes were not even trying to comply—that
they were not only failing to provide the appropriate standard
of care, but also affirmatively and knowingly choosing not to
—we imagine the Mikes case would have come out differ-
ently.

   And even if it would not have, the Mikes court was dealing
with the Medicare context, to which the court specifically
confined its reasoning. Id. at 700. It imposed an additional
requirement on Medicare cases: that the underlying statute
“expressly” condition payment on compliance. An explicit
statement, however, is not necessary to make a statutory
requirement a condition of payment, and we have never held
as much.

   [13] Therefore, because relators have alleged that the Uni-
versity fraudulently violated a regulation upon which payment
is expressly conditioned in three different ways, we hold that
10678         UNITED STATES v. UNIVERSITY OF PHOENIX
they have properly alleged the University engaged in state-
ments or courses of conduct that were material to the govern-
ment’s decision with regard to funding.

D.    Claim

   [14] Finally, relators allege that the University submitted a
claim against the government fisc. Relators allege that the
University submits false claims in a number of ways—either
by submitting requests for Pell Grant funds directly to DOE,
resulting in a direct transfer of the funds into a University
account, or by submitting requests to private lenders for
government-insured loans. We agree with the Seventh Circuit
that “it is irrelevant how the federal bureaucracy has appor-
tioned the statements among layers of paperwork.” Main, 426
F.3d at 916. All that matters is whether the false statement or
course of conduct causes the government to “pay out money
or to forfeit moneys due.” Harrison, 176 F.3d at 788. Relators
have properly alleged that the University submitted a claim,
for purposes of False Claims Act liability.

                               IV.

   Accordingly, because relators in this case have properly
alleged (1) a false statement or fraudulent course of conduct,
(2) made with scienter, (3) that was material, causing (4) the
government to pay out money or forfeit moneys due, their
cause of action under the False Claims Act survives a motion
to dismiss, and the decision of the district court is

     REVERSED.