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United States, ex rel. Bernier v. Infilaw Corp.

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

April 23, 2018

UNITED STATES OF AMERICA, ex rel., BARBARA BERNIER, Plaintiff,
v.
INFILAW CORPORATION; and CHARLOTTE SCHOOL OF LAW, LLC., Defendants.

          ORDER

          ROY B. DALTON JR. UNITED STATES DISTRICT JUDGE.

         What goes up must come down. This case concerns the rise and fall of Charlotte School of Law, LLC (“CSL”), a now-defunct for-profit law school owned by the private entity InfiLaw Corporation (“InfiLaw”) (collectively, “Defendants”). (Doc. 48, ¶¶ 35-36.) After flying too close to the sun, CSL was expelled from the federal student loan program and its educational license revoked. (Id. ¶ 48.) Amidst its downfall, CSL's former professor Plaintiff Barbara Bernier initiated this qui tam action against Defendants under the False Claims Act (“FCA”), 31 U.S.C. § 3729, et seq., alleging fraudulent conduct in connection with federal loan funding Defendants received from the United States Department of Education (“DOE”). (See Doc. 1.)

         After some investigation, the United States declined to intervene on Bernier's behalf (Doc. 14), [1] so the Court unsealed the complaint (Doc. 16) and Defendants moved to dismiss (Doc. 45). With leave, Plaintiff filed an amended complaint (Doc. 48 (“Amended Complaint”)), now before the Court on Defendants' motion to dismiss (Doc. 53 (“Motion”)).

         I. Background

         InfiLaw formed in 2006. (Doc. 48, ¶ 24.) Its stated mission was “to establish the benchmark of inclusive excellence in professional education for the 21st Century.” (Id. ¶ 30.) To that end, InfiLaw acquired three for-profit law schools: Florida Coastal School of Law (“Florida Coastal”), Arizona Summit School of Law (“Arizona Summit”), and CSL (“InfiLaw Schools”); and began implementing a “disruptive, ” non-traditional law school model at each school (“Model”). (See Id. ¶¶ 31, 35.) What apparently sets the Model apart is that its academic programs focus on placing “graduates into the stream of commerce, ” as opposed to “theory only programs” that lack practice competencies. (Id. ¶ 31.)

         Touting this model, InfiLaw structures its operations differently from other law schools: from its admissions practices, curriculum design, academic requirements and bar exam preparation initiatives, InfiLaw certainly has its own way of doing things. (See Id. ¶¶ 23-31, 38-40, 42.) Yet one area where InfiLaw sticks to the well-trod path is by having its schools participate in federal loan programs under Title IV of the Higher Education Act (“HEA”), 20 U.S.C. § 1070, et seq.-meaning that students can obtain federal funding to cover all of their education-related expenses. (Id. ¶¶ 9, 12, 51.) For law schools, eligibility for this money hinges on accreditation by the American Bar Association (“ABA”) and execution of a Program Participation Agreement (“PPA”) with the DOE, whereby the institution agrees, among other things, to maintain certain standards and comply with federal statutes and regulations while receiving funds. (Id. ¶¶ 10-22.) Such standards speak to admissions practices, academic progress, employment outcomes, and institutional management-not only to ensure student success and enable loan repayment, but also to stem potential program abuse and promote the integrity of Title IV. (Id. ¶¶ 13-22.) Suffice it to say that the disbursement of federal funds is highly regulated and has many strings attached. (See id.)

         According to Plaintiff, Defendants did not comply with Title IV's statutory and regulatory requirements, but took federal funds anyway. (See Id. ¶¶ 111-131.) She claims that Defendants violated the FCA by: (1) knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval; (2) knowingly making, using, or causing to be used a false record or statement material to a false or fraudulent claim; and (3) conspiracy. (See Id. ¶¶ 111-49 (alleging violations of §§ 3729(a)(1)(A)-(C)).) Claiming that Defendants' conduct netted over $285 million in federal funds (“Funds”), Plaintiff brings suit to recover a percentage of the Funds, plus interest and attorney fees. (Id. ¶¶ 128, 131, 142, 149.)

         In response, Defendants move to dismiss Plaintiff's Amended Complaint with prejudice. (Doc. 53.) Having been fully briefed (Docs. 56, 59), the matter is now ripe. Upon review, the Court finds that the Motion is due to be granted in part.

         II. Legal Standards

         Under the minimum pleading requirements of the Federal Rules of Civil Procedure, plaintiffs must provide short and plain statements of their claims with simple and direct allegations set out in numbered paragraphs and distinct counts. See Fed. R. Civ. P. 8(a), 8(d), & 10(b). If a complaint does not comport with these minimum pleading requirements, if it is plainly barred, or if it otherwise fails to set forth a plausible claim, then it is subject to dismissal under Rule 12(b)(6). See Ashcroft v. Iqbal, 556 U.S. 662, 672, 678-79 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

         Plausible claims must be founded on sufficient “factual content” to allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” See Iqbal, 556 U.S. at 678; see also Miljkovic v. Shafritz & Dinkin, P.A., 791 F.3d 1291, 1297 (11th Cir. 2015). When resolving a Rule 12(b)(6) motion to dismiss, courts must consider only the complaint, its exhibits, “documents incorporated into the complaint by reference, ” and matters that are subject to judicial notice. See Telltabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). In the FCA context, courts may take judicial notice of documents such as newspaper articles and information on publicly available websites “for the limited purpose of determining which statements the documents contain (but not for determining the truth of those statements).” See United States ex. rel. Osheroff v. Humana, Inc., 776 F.3d 805, 812 n.4 (11th Cir. 2015).

         Generally, courts should dismiss a claim if the sufficiently pled “factual content” of the complaint does not allow the court to “draw the reasonable inference that the defendant[s] [are] liable for the misconduct alleged” in the claim. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). “Liability under the [FCA] arises from the submission of a fraudulent claim to the government, not the disregard of government regulations or failure to maintain proper internal policies.” Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005). To that end, the U.S. Court of Appeals for the Eleventh Circuit requires that each element of a FCA claim meet the heightened pleading standard of Rule 9(b). See Id. at 1012 (citing Clausen, 290 F.3d at 1308-09); see also Jallali v. Sun Healthcare Grp., Sundance Rehab. Agency, Inc., 667 Fed.Appx. 745, 745-46 (11th Cir. 2016). Thus, ”[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). This means that a plaintiff “must plead . . . ‘the details of the defendants' allegedly fraudulent acts, when they occurred, and who engaged in them.'” Clausen, 290 F.3d at 1310 (quoting Cooper v. Blue Cross Blue Shield of Florida, Inc., 19 F.3d 562, 567-68 (11th Cir. 1994)). And because the “sine qua non of a [FCA] violation” is the submission of a false or fraudulent claim for payment, id. at 1311, “that submission must be pleaded with particularity and not inferred from the circumstances.” Corsello, 428 F.3d at 1013. Without this, a plaintiff fails to state a claim under the FCA. See Id. at 1013; Clausen, 290 F.3d at 1311-12.

         III. Discussion

         In support of their Motion, Defendants' raise three principal arguments: (1) Plaintiff lacks personal or firsthand knowledge of the allegedly fraudulent conduct; (2) Plaintiff's claims are foreclosed by the FCA's public disclosure bar, and Plaintiff is not an original source (“Bar Argument”); and (3) the Amended Complaint does not satisfy Rule 9(b) (“9(b) Argument”). (Id. at 12.) To support the Bar Argument, Defendants submitted voluminous exhibits. (See Docs. 53-1-53-27.) Finding the Bar Argument persuasive, the Court addresses that first, followed by the 9(b) Argument.[2]

         A. Bar Argument

         The FCA bars private qui tam suits based on publicly disclosed information (“Public Disclosure Bar”). See 31 U.S.C. § 3730(e)(4); Osheroff, 776 F.3d at 809. Under the Public Disclosure Bar:

The court shall dismiss an action or claim . . . if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed-
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information. . . .
For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) [sic] who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.

§§ 3730(e)(4)(A)-(B). In Osheroff, the Eleventh Circuit recognized three steps for the public source inquiry: (1) have the allegations made by the plaintiff been publically disclosed; (2) if so, are the plaintiff's allegations substantially the same as allegations or transactions contained in the public disclosures; and (3) if yes, is the plaintiff an “original source” of that information. See 776 F.3d at 812 (describing three-part test from Cooper, 19 F.3d at 555 n.4 and re-framing for updated version of FCA). The Court proceeds under this analysis.

         1. ...


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