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United States v. Infilaw Corp.

United States District Court, M.D. Florida, Orlando Division

February 14, 2018




         This case comes before the Court without a hearing[1] on Defendants Infilaw Corporation and Charlotte School of Law, LLC's Motion to Stay Discovery (Doc. 60). Plaintiff Barbara Bernier opposes the motion (Doc. 61).

         Plaintiff's amended complaint alleges that Defendant Charlotte School of Law (“CSL”) is controlled by Defendant Infilaw Corporation (“Infilaw”), and that the Defendants entered into the legal education business to make a profit (Doc. 48, ¶¶ 24-25, 35, 38). Once CSL was fully accredited by the American Bar Association (“ABA”), it was eligible to participate in the United States Department of Education's (“DOE”) student loan programs under Title IV of the Higher Education Act, 20 U.S.C. § 1070 et seq. (Id., ¶ 16). CSL entered into a program participation agreement (“PPA”) with the DOE in exchange for federal financial aid under Title IV (Id.). Plaintiff, a former professor at CSL, alleges that after entering into the PPA, CSL intentionally and recklessly admitted academically underqualified students, and retained students who should have been dismissed for lack of satisfactory progress (Id., ¶¶ 2, 17). She asserts that CSL failed to maintain accreditation standards set by the ABA; engaged in practices that violated Title IV's ban on incentive compensation; awarded gift aid to students; and deliberately failed to deduct the amount of the gift aid from the financial aid CSL received from the DOE (Id., ¶¶ 5, 19, 20, 23, 35-38). Plaintiff alleges that the Dean of CSL manipulated its grading structure so that students appeared to be making satisfactory academic progress and could submit financial aid claims to the government for payment; and that CSL deleted students' grades so that they could “start over” and borrow more federal student aid money from the government (Id., ¶¶ 23, 25). Plaintiff also contends that CSL manipulated its students' bar exam passage rates and employment statistics (Id., ¶ 28). She claims that when CSL received student aid from the DOE, Infilaw used the money for its own purposes, and then returned it just-in-time for mandatory distributions to students (Id., ¶ 14). Based on these allegations, Plaintiff sues Defendants for violations of the False Claims Act (“FCA”), 31 U.S.C. § 3279, et seq. (Id.).[2]

         The FCA authorizes private persons to file civil actions against, and recover damages on behalf of the United States, from any person who knowingly presents, or causes to be presented to the government, a false or fraudulent claim for payment or approval; or knowingly 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)(1), (2). “To establish a cause of action under the False Claims Act, a relator must prove three elements: (1) a false or fraudulent claim; (2) which was presented, or caused to be presented, by the defendant to the United States for payment or approval; (3) with the knowledge that the claim was false.” United States v. R & F Properties of Lake Cty., Inc., 433 F.3d 1349, 1355 (11th Cir. 2005), cert. denied, 549 U.S. 1027 (2006).

         Because the FCA is a fraud statute, claims must be plead with the particularity required by Fed.R.Civ.P. 9(b). U.S. ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1308-09 (11th Cir. 2002). “Rule 9 is satisfied if the complaint sets forth (1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.” Id., at 1310 (quoting Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001) (quotations and citations omitted).

         Defendants have moved to dismiss Plaintiff's amended complaint on the grounds that Plaintiff lacks any personal knowledge of Defendants' alleged fraudulent conduct; her claims were previously disclosed so that she is not an original source; and she has failed to plead scienter, falsity, presentment, or proper parties to a conspiracy (Doc. 53). While the parties await a ruling on the motion to dismiss, Plaintiff propounded 68 requests for production to Defendants and served notice of her intent to subpoena a total of 168 categories of documents and things from the ABA, BARBRI, Inc., Dennis W. Archer, Esq., and Sterling Partners, (Doc. 60-2; Doc. 60-3; Doc. 60-4; Doc. 60-5; Doc.60-6). Defendants now ask the Court to stay all discovery until it finds that Plaintiff has stated a cause of action against them (Doc. 60).

         District courts have inherent power to control their dockets and manage their cases, including by staying discovery. Perez v. Miami-Dade Cty., 297 F.3d 1255, 1263 (11th Cir. 2002); The Andersons, Inc. v. Enviro Granulation, LLC, No. 8:13-cv-3004-T-33MAP, 2014 WL 4059886 at *2 (M.D. Fla. Aug. 14, 2014). The Eleventh Circuit has “emphasized the responsibility of trial courts to manage pretrial discovery properly in order to avoid a massive waste of judicial and private resources and a loss of society's confidence in the courts' ability to administer justice.” Perez, 297 F.3d at 1263 (internal quotation marks omitted). “Granting a discovery stay until an impending motion to dismiss is resolved is a proper exercise of that responsibility.” Rivas v. The Bank of New York Melon, 676 F. App'x 926, 932 (11th Cir. 2017). The party seeking the stay has the burden of showing good cause and reasonableness. Holsapple v. Strong Indus., No. 2:12-cv-355-UA-SPC, 2012 U.S. Dist. LEXIS 128009, at *2 (M.D. Fla. Sept. 10, 2012); S.D. v. St. Johns Cnty. Sch. Dist., No. 3:09-cv-250-J-20TEM, 2009 U.S. Dist. LEXIS 97835, at * 4-5 (M.D. Fla. Oct. 1, 2009) (citing to Feldman v. Flood, 176 F.R.D. 651, 652 (M.D. Fla. 1997)); McCabe v. Foley, 233 F.R.D. 683, 687 (M.D. Fla. 2006).

         In deciding whether to grant a stay the district court,

[M]ust balance the harm produced by a delay in discovery against the possibility that the motion will be granted and entirely eliminate the need for such discovery. This involves weighing the likely costs and burdens of proceeding with discovery. It may be helpful to take a preliminary peek at the merits of the allegedly dispositive motion to see if on its face there appears to be an immediate and clear possibility that it will be granted.

Simpson v. Specialty Retail Concepts, Inc., 121 F.R.D. 261, 263 (M.D. N.C. Aug. 15, 1988); see also Koock v. Sugar & Felsenthal, LLP, No. 8:09-cv-609-T-17EAJ, 2009 WL 2579307, at *2 (M.D. Fla. Aug. 19, 2009) (“In deciding whether to stay discovery pending resolution of a motion to dismiss ... the court must take a ‘preliminary peek' at the merits of the dispositive motion to see if it ‘appears to be clearly meritorious and truly case dispositive.'”) (citing McCabe, 233 F.R.D. at 685).

         Parties seeking stays of discovery pending a ruling on a motion to dismiss invariably cite Chudasama v. Mazda Corp., 123 F.3d 1353 (11th Cir. 1997), where the court said:

Facial challenges to the legal sufficiency of a claim or defense, such as a motion to dismiss based on failure to state a claim for relief, should, however, be resolved before discovery begins. Such a dispute always presents a purely legal question; there are no issues of fact because the allegations contained in the pleading are presumed to be true. Therefore, neither the parties nor the court have any need for discovery before the court rules on the motion.

Id., at 1367 (internal footnote and citation omitted).

         Chudasama stands for the “proposition that courts should not delay ruling on a likely meritorious motion to dismiss while undue discovery costs mount.” Koock, LLP, 2009 WL 2579307, at *2 (citing In re Winn Dixie Stores, Inc., No. 3:04-cv-194-J-33MCR, 2007 WL 1877887, *1 (M.D. Fla. June 28, 2007)). “Since the Eleventh Circuit handed down Chudasama, it has been analyzed on numerous occasions, and courts have consistently rejected any per se requirement to stay discovery pending resolution of a dispositive motion.” Bocciolone v. Solowsky, No. 08-20200-CIV, 2008 WL 2906719, at *1 (S.D. Fla. July 24, 2008); Reilly v. Amy's Kitchen, Inc., No. 13-21525-CIV, 2013 WL 3929709, at *1 (S.D. Fla. July 31, 2013) ([T]there is no general rule that discovery be stayed while a pending motion to dismiss is resolved."); Simpson v. Specialty Retail Concepts, Inc.,121 F.R.D. 261, 263 (M.D. N.C. 1988) (Motions to stay discovery are disfavored because they tend to delay resolution of cases.). The judges of this federal court have advised litigants that “the ...

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