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United States ex rel. Lorona v. Infilaw Corp.

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

August 12, 2019

UNITED STATES OF AMERICA ex rel. PAULA C. LORONA and REID POTTER, Plaintiffs-Relators,
v.
INFILAW CORPORATION, et al., Defendants.

          ORDER

          MARCIA MORALES HOWARD UNITED SLATES DISTRICT JUDGE,

         THIS CAUSE is before the Court on two motions. On September 21, 2018, Defendant Barbri, Inc. filed a motion to dismiss Count III of the Third Amended Complaint (Doc. 36) pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure (Rule(s)). See Defendant Barbri, Inc.'s Dispositive Motion to Dismiss and Memorandum in Support (Doc. 44; Barbri Motion). In addition, on October 22, 2018, Defendants Infilaw Corporation, Arizona Summit Law School, LLC (ASLS), Florida Coastal School of Law (FCSL), and Charlotte School of Law (CSL) (collectively, Infilaw Defendants) filed a motion to dismiss this action in its entirety pursuant to Rules 12(b)(1) and 12(b)(6). See Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Omnibus Motion to Dismiss Third Amended Complaint and Supporting Memorandum of Law (Doc. 56; Infilaw Motion). Plaintiffs/Relators Paula C. Lorona and Reid Potter (Relators) filed a response to the Barbri Motion on October 12, 2018, and to the Infilaw Motion on December 17, 2018. See Plaintiffs' Response to Defendant Barbri, Inc.'s Dispositive Motion to Dismiss (Doc. 54; Response to Barbri); Relators' Response to Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Omnibus Motion to Dismiss (Doc. 65; Response to Infilaw). In addition, with leave of Court, the Infilaw Defendants filed a reply in support of their Motion on January 17, 2019. See Reply in Support of Defendants Infilaw Corporation, Arizona Summit Law School, LLC, Florida Coastal School of Law, and Charlotte School of Law, LLC's Motion to Dismiss the Third Amended Complaint (Doc. 71; Reply). Accordingly, this matter is ripe for review.

         I. Procedural History

         Plaintiff/Relator Paula C. Lorona initiated this action on August 5, 2015, by filing, under seal, a four-count complaint pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq. See Complaint of Qui Tam Plaintiff Paula C. Lorona Filed Under Seal Pursuant to 31 U.S.C. §§ 3729 et seq. (Doc. 1; Original Complaint). On August 6, 2015, the Court entered an Order (Doc. 5) striking the Original Complaint as an impermissible shotgun pleading, observing that “each subsequent count of the four counts in the Complaint incorporates by reference all of the allegations of the preceding counts.” See August 6, 2015 Order at 1-2. In accordance with the Court's Order, Lorona filed an amended complaint on August 31, 2015. See First Amended Complaint of Qui Tam Plaintiff Paula C. Lorona (Doc. 8; Amended Complaint). Thereafter, on March 10, 2016, with leave of Court, Lorona filed a second amended complaint, joining the additional Plaintiff/Relator Reid Potter, and adding a fifth count. See Second Amended Complaint of Qui Tam Plaintiffs Paula C. Lorona and Reid Potter (Doc. 14; Second Amended Complaint); see also Order (Doc. 13) (granting leave to amend).

         Following multiple extensions of time, on February 16, 2018, the United States filed a notice of its decision not to intervene in this action. See United States' Notice of Election to Decline Intervention (Doc. 30). Accordingly, on April 24, 2018, the Magistrate Judge entered an In Camera Order directing the Clerk of the Court to unseal the pleadings in this matter. See In Camera Order (Doc 33.). Upon review of the Second Amended Complaint, the Court found that Relators had once again employed a shotgun manner of pleading. See Order (Doc. 35) at 1-2, filed April 26, 2018 (“Given the lack of any specification, Plaintiffs appear to be invoking all factual allegations as well as all allegations of each of the proceeding counts and leaving it to the Court to sift out irrelevancies and decide for itself which facts are relevant to the particular causes of action asserted.”). As such, the Court struck the Second Amended Complaint and directed Relators to file a third amended complaint. See id. at 3. The Court cautioned Relators to “carefully review the Eleventh Circuit authority on this issue and ensure that the third amended complaint is fully compliant with the letter and spirit of the shotgun pleading rule.” See id. at 3 n.1. On May 18, 2018, Relators filed the Third Amended Complaint of Qui Tam Plaintiffs Paula C. Lorona and Reid Potter (Doc. 36; Third Amended Complaint), [1] the operative pleading in this action.

         II. Factual Background[2]

         A. Overview of Claims

         Defendants ASLS, CSL, and FCSL (the Law Schools) are private, for-profit law schools, controlled by their parent company, Defendant Infilaw. See TAC ¶¶ 4-10. Relators allege that the Infilaw Defendants violated the False Claims Act (FCA) in connection with their receipt of federal funds from the student financial assistance programs authorized by Title IV of the Higher Education Act of 1965 (HEA). To be eligible to receive Title IV funds, institutions such as ASLS, CSL, and FCSL must enter a program participation agreement (PPA) with the Secretary of the Department of Education (DOE) which conditions “the initial and continued participation” of the institution on its compliance with certain requirements. See 34 C.F.R. § 668.14(a)(1). By entering a PPA, an institution agrees in pertinent part that:

It will comply with all statutory provisions of or applicable to Title IV of the HEA, all applicable regulatory provisions prescribed under that statutory authority, and all applicable special arrangements, agreements, and limitations entered into under the authority of statutes applicable to Title IV of the HEA, including the requirement that the institution will use funds it receives under any Title IV, HEA program and any interest or other earnings thereon, solely for the purposes specified in and in accordance with that program.

34 C.F.R. § 668.14(b)(1). Relators allege that the Law Schools executed PPAs and submitted them to the federal government “despite full knowledge” that the regulations and requirements were “regularly being violated . . . .” TAC ¶¶ 32-34. Specifically, Relators allege that the Law Schools were violating the following three DOE regulations: (1) the “90/10 Rule” set forth in § 668.14(b)(16), [3] (2) the prohibition on “substantial misrepresentations” set forth in § 668.71(b), [4] and (3) the accreditation requirement set forth in § 668.14(b)(23).[5] In light of these violations, Relators maintain that the submission of the falsely certified PPAs “caused the federal government to distribute Title IV/HEA funds” to the Law Schools, “in violation of the False Claims Act.” Id. ¶¶ 33-34. Relators also allege that the Law Schools made false statements to the American Bar Association (ABA) essential to the Law Schools' accreditation, which caused the government to pay Title IV funds to the Law Schools for which the Law Schools were ineligible. See id. ¶¶ 203-05, 212-13, 222, 224.

         In the Third Amended Complaint, Relators set forth five separate claims under the False Claims Act. In Counts I, II and IV, Relators assert that the Law Schools knowingly presented false claims for payment to the federal government in violation of § 3729(a)(1)(A), and knowingly made or used false records or statements material to the false claims in violation of § 3729(a)(1)(B). See TAC ¶¶ 206-28, 239-45. In Count III, Relators allege that the Law Schools and Infilaw, conspired with Defendant Barbri, a corporation which provides “preparation courses and materials for individuals taking state bar exams, ” to violate the FCA. See TAC ¶¶ 12, 229-38. Last, in Count V, Relators allege that the Law Schools and Infilaw knowingly avoided their obligation to transmit money to the federal government, in violation of 31 U.S.C. § 3729(a)(1)(G), by failing to return to the federal government the “millions of dollars in payments for claims they were not entitled to.” See TAC ¶¶ 247-49.

         B. The Relators

         Lorona enrolled at ASLS as an evening student in August 2009. Id. ¶ 136. Lorona also “decided to work at ASLS because it would help her attend law school.” Id. ¶ 25. ASLS hired Lorona in November of 2009 as “an administrative assistant to the General Counsel of ASLS.” See TAC ¶ 22. In 2010, she was promoted to “financial aid representative, ” and in 2011, she received promotions to “assistant director of financial aid, ” and “student accounts/accounting manager.” Id. As an employee, “Lorona was given a full tuition waiver and a pro rata early tuition waiver to attend ASLS.” Id. ¶ 25. “Lorona's responsibilities as an employee of ASLS included submission of requests for federal funds, through the Common Origination and Disbursement System (COD), used by the DOE to create, deliver, and report Federal Pell Grants, TEACH Grants, and Federal Direct Loans.” Id. ¶ 23. Following Lorona's submission of a COD request, the DOE would disburse the Title IV funds to ASLS, and Lorona would facilitate the distribution of the funds to the students. Id. ¶ 24. According to Relators, Lorona also “observed and participated in ASLS'[s] application for accreditation from the American Bar Association and the financial inner-workings of ASLS and Infilaw, including student loan disbursement, the application for and receipt of Title IV funds, and the certification of compliance with all DOE and Title IV regulations and requirements.” Id. ¶ 23. Lorona alleges that ASLS President Scott Thompson executed the PPAs, “but they were prepared by other employees within the President's Office and financial aid department, ” such that she had “unparalleled access to the documents and the process under which they were certified.” Id. ¶ 32.[6] However, Lorona does not describe this process or describe her role, if any, in the preparation of the PPAs.

         Potter attended law school at ASLS as well. Id. ¶ 26. Following his graduation, ASLS hired Potter in 2011, where he worked in the Academic Services department until September of 2014. Id. Potter's job at ASLS involved “guiding students through their bar exam preparation, ” as well as collecting bar exam preparation fees. Id. ¶¶ 27, 29. Potter also attended “meetings with ASLS and Infilaw officials regarding academic success programs, ” including ASLS's bar exam preparation programs, and the “use of those programs to secure and maintain federal funds . . . .” Id. ¶ 28. Potter was also involved in “discussions with representatives of Infilaw, ASLS and Barbri” regarding the check exchange program described below, and its alleged purpose as a means “to disguise funds ASLS received from federal student loan programs so that ASLS could continue to receive such funds.” Id. ¶ 29.

         C. The 90/10 Rule

         An institution's participation in most Title IV student financial assistance programs[7]is conditioned on its entry into a PPA with the Secretary of the DOE. By entering a PPA, an institution agrees to comply with numerous statutory and regulatory rules and requirements. See 34 C.F.R. § 668.14(b). One such regulation is known as the “90/10 Rule” which demands as follows: “For a proprietary institution, [8] the institution will derive at least 10 percent of its revenue for each fiscal year from sources other than Title IV, HEA program funds, as provided in § 668.28(a) and (b), or be subject to sanctions described in § 668.28(c).” See 34 C.F.R. § 668.14(b)(16). Pursuant to § 668.28(c), “[i]f an institution does not derive at least 10 percent of its revenue from sources other than Title IV, HEA program funds-(1) For two consecutive fiscal years, it loses its eligibility to participate in the Title IV, HEA programs for at least two fiscal years.”

         According to Relators, “[i]n or about early 2010, Defendants became concerned that they would not satisfy the 90/10 Rule because a large proportion of the students attending ASLS, FCSL, and CSL were receiving substantial Title IV/HEA funding through loans.” See TAC ¶ 39. Relators allege that in 2009-2010, both ASLS and FCSL reported that over 82% of their revenue came from Title IV/HEA funding. Id. ¶ 40. Public data shows that in the 2012-2013 funding year, all three Law Schools reported over 86% of their revenue from Title IV/HEA sources. Id. ¶ 41. And, for the 2013-2014 funding year, both ASLS and CSL reported revenue from Title IV/HEA sources in excess of 87%, while FCSL's reported Title IV/HEA revenue had declined to just under 85%. Id. ¶ 42. Relators allege that, to address this “90/10 Problem, ” the Law Schools manipulated their revenue streams in the following three ways: 1) offering institutional loans, 2) creating internal bar preparation programs, and 3) engaging in a “check exchange” with Barbri.

         1. Institutional Loans

         Lorona asserts that she participated in weekly meetings from 2010 through 2013, where representatives and employees of the Law Schools and Infilaw discussed “how to create the appearance that Defendants were complying with the 90/10 Rule.” See TAC ¶ 44. In 2011, Scott Thompson, the ASLS President and former Chief Financial Officer of Infilaw, proposed “the concept of offering Institutional Loans (‘ILs') to students as a solution to the 90/10 Rule.” Id. ¶ 45. According to Lorona, “Thompson stated that from Infilaw's perspective the sole reason to offer ILs was to give the appearance that the Defendant [Law] Schools were in compliance with the 90/10 Rule.” Id.

         Relators allege that Infilaw and the Law Schools began offering institutional loans for the fall 2011-spring 2012 financial aid year. Id. ¶ 48. Although the Law Schools, under Infilaw's direction, initially solicited only students with top credit scores to sign up for institutional loans, once those efforts were exhausted, the Law Schools began offering institutional loans “to almost any student without regard to creditworthiness or ability to repay, including students with bankruptcies and foreclosures.” Id. ¶¶ 48-50. By virtue of her position at ASLS, Lorona asserts that she has knowledge of the mechanics of the institutional loan program as she was “instructed to complete the financial transactions necessary to fund” institutional loans. Id. ¶ 57. As set forth in the Third Amended Complaint,

Once a student was convinced to sign up for an [institutional loan], the Defendant [Law] Schools would ‘refund' the Title IV/HEA funds previously received from DOE and replace those loan funds with [institutional loan] funds from the institution, most of which was previously received Title IV/HEA funds from other students' financial aid submissions. This allowed the Defendant [Law] Schools to transfer funds from the 90% side to the 10% side in a dollar-for-dollar manner, making it appear they were complying with the 90/10 Rule.

Id. ¶ 57. Nonetheless, Relators do not allege any particular examples of students who received such loans, the repayment terms of the loans, or the number of such loans each Law School issued.

         Significantly, DOE regulations permit institutions to count revenue generated from institutional aid as non-Title IV revenue subject to certain requirements:

(i) For loans made to students and credited in full to the students' accounts at the institution on or after July 1, 2008 and prior to July 1, 2012, include as revenue the net present value of the loans made to students during the fiscal year, as calculated under paragraph (b) of this section, if the loans-
(A) Are bona fide as evidenced by standalone repayment agreements between the students and the institution that are enforceable promissory notes;
(B) Are issued at intervals related to the institution's enrollment periods;
(C) Are subject to regular loan repayments and collections by the institution; and
(D) Are separate from the enrollment contracts signed by the students.
(ii) For loans made to students before July 1, 2008, include as revenue only the amounts of payments made on those loans that the institution received during the fiscal year.
(iii) For loans made to students on or after July 1, 2012, include as revenue only the amount of payments made on those loans that the institution received during the fiscal year.

34 C.F.R. § 668.28(a)(5). Nonetheless, Relators contend that the Law Schools could not properly count the receivables from these institutional loans as non-Title IV income because the loans were not “subject to regular loan repayments and collections by” the Law Schools as required to constitute non-Title IV revenue under the regulation. See TAC ¶¶ 46, 51-55; see also 34 C.F.R. § 668.28(a)(5)(i)(C). According to Relators, the Law Schools and Infilaw knew that the institutional loans extended to low-credit students were uncollectible and never “made any serious attempts to collect” on those loans. See TAC ¶¶ 52-54. Indeed, Relators assert that “Defendants” knew that “most of the students receiving [institutional loans] could not and would not repay the loans, ” and that “Defendants” purposefully did not attempt to collect these loans “in order to avoid calling attention to the fact that the loans were not in fact collectible . . . .” Id. ¶ 53. Based on “information and belief, ” Relators allege that “certain students” never made any payments on their institutional loans. Id. ¶ 54. Lorona maintains that Thompson “forced” her to allow these students to continue attending school so the receivables would count as non-Title IV money. Id. Based on “information and belief, ” Relators allege that the institutional loan default rate in the 2013 fiscal reporting year (presumably, at ASLS, although it is unclear) exceeded 40%. Id.[9]

         According to Relators, “[a]fter a year of funding” institutional loans to low-credit students, the Law Schools reported the “amount of the corresponding receivables” to the DOE as non-Title IV income. Id. ¶ 51. Relators do not allege the amount of the institutional loan receivables reported to the DOE or more precisely, the amount of such receivables derived from loans to low-credit students that were not actually subject to repayment and collections. Indeed, Relators do not allege any information about the Title IV and non-Title IV revenues reported to the DOE for the 2011-2012 fiscal year. Id. ¶¶ 40-42. Instead, Relators allege that Lorona viewed non-public, “internal calculations of revenue” related to the 90/10 Rule, “most of which” showed that ASLS was “consistently in violation of the 90/10 Rule.” Id. ¶ 58. The dates and details of these internal calculations are not alleged, and Relators offer only their “information and belief” that these same documents exist at CSL and FCSL. Id. In addition, an unidentified person at an unidentified time is alleged to have provided Lorona with unidentified documents “demonstrating a violation of the 90/10 Rule, ” of unspecified date and magnitude, and instructed her to “convert some Title IV/HEA loans into [institutional loans] for the sole purpose of converting revenue to create the appearance of compliance with the 90/10 Rule.” Id. ¶ 58. Whether or how Lorona accomplished this conversion is not alleged. It is unclear from the allegations whether the Law Schools' practice of providing institutional loans to low-credit students continued after the first year. Id. ¶ 60. Notably, for loans issued after July 1, 2012, only the payments actually received by the institution may be counted as revenue. See 34 C.F.R. § 668.28(a)(5)(iii). Relators do not allege any specific facts showing a violation of this provision.

         2. The myBAR Program

         On approximately September 15, 2011, the Dean of ASLS, Shirley Mays, sent an email stating that after “an insightful 90/10 meeting, ” the development of an internal bar exam preparation course “‘has bubbled to the top as a real solution for 90/10.'' TAC ¶ 61. According to Relators, Infilaw tasked the Law Schools, beginning with ASLS, “with creating and implementing their own bar exam preparation programs to compete with established programs from Barbri and other providers.” Id. ASLS then instructed the Director of the Critical Legal Skills Program (DCLSP) to implement a bar preparation program. Id. ¶ 62. The DCLSP was not receptive to the idea of creating and implementing a new program in less than three months, sufficient to prepare December 2011 graduates for a February 2012 bar exam. Id. ¶ 62. Nonetheless, Dean Mays insisted that ASLS pursue implementation of its own bar preparation course, and at some point ASLS “formalized its new program” named “myBAR, ” for “Multi-Year Bar Advanced Review.” Id. ¶¶ 63, 66. Relators allege on “information and belief” that the Law Schools “counted myBAR program fees as non-Title IV/HEA revenue toward satisfying the 90/10 Rule.” Id. ¶ 68.

         In late 2011, Dean Mays informed the DCLSP that the $50, 000 fund previously offered to students in need of financial assistance to enroll in established bar preparation courses was no longer available. Id. ¶ 64. An Infilaw employee, Penny Willrich, suggested that ASLS “force its students to take its bar preparation program, provide no bar preparation materials to the students unless they sign up for ASLS bar preparation program, and even charge students parking fees during the bar preparation program to count toward non-Title IV/HEA funds.” Id. ¶ 65. Relators do not allege when those suggestions were made, to whom they were made, whether they were ever implemented, or how much, if any, revenue they generated. However, Relators go on to allege that at an unspecified time, in unspecified amounts, ASLS began “paying students who participated in myBAR thousands of dollars as ‘bonuses' for completing mini-courses called modules, thus effectively refunding the students' myBAR fees.” Id. ¶ 67. According to Relators, this arrangement “allowed ASLS to claim tuition received from myBAR fees as non-Title IV/HEA revenue, while hiding the fact that the revenue was refunded Title IV/HEA funds.” Id.[10]

         Pursuant to 34 C.F.R. § 668.28(a)(3), institutions may only consider funds generated from certain sources as non-Title IV revenue.[11] As relevant here, § 668.28(a)(3)(iii) permits an institution to count funds “paid by a student, or on behalf of a student by a party other than the institution” for an “education or training program” that “prepares students to take an examination for an industry-recognized credential or certification issued by an independent third party . . . .” Relators contend that the Law Schools could not properly count the income from the myBAR program as non-Title IV revenue because it is not income “from school activities necessary and required for students enrolled in their programs, nor do the programs actually prepare their students properly to take an examination for an industry-recognized credential or certification issued by an independent third party.” TAC ¶ 70. Indeed, according to Relators, the myBAR program was “woefully inadequate as a bar preparation course . . . .” Id. ¶ 69. In support, Relators assert that in an email dated December 23, 2014, “ASLS admitted . . . that the anticipated bar passage rate for an ASLS student on the February 2015 bar exam was 47% compared to a state average of 70%.” Id. ¶ 69. Relators further allege that for the July 2015 Arizona bar exam the “actual pass rate for ASLS graduates” was 26.4%. Id. ¶ 75. Notably, in a separate section of the Third Amended Complaint, Relators state that 63.8% of ASLS graduates taking the bar exam in February 2012 (including repeat and first-time takers) passed the exam. Id. ¶ 159. In July of 2012, 73.1% of ASLS graduates passed the bar exam, and 72.9% of its graduates passed in February 2013. Id. While ASLS's bar passage rates do drastically decline in subsequent years, Relators provide no allegations linking this decline to the myBAR program. Indeed, there are no allegations regarding what percentage of ASLS students who enrolled in the myBAR program passed the bar exam as compared to students who utilized other programs. Moreover, Relators offer no information allowing one to assess the caliber of the internal bar exam preparation programs at CSL or FCSL.

         3. The Check Exchange

         Barbri “provides preparation courses and materials for individuals taking state bar exams, most of whom are recent law school graduates.” Id. ¶ 12. These courses “include a series of live or recorded lectures, study materials, and practice exams, ” and much of the cost is “attributable to Barbri's copyrighted bar preparation books, outlines, and practice exams, which are tailored to each state's bar exam.” Id. ¶ 77. On July 2, 2012, Infilaw and Barbri entered into an agreement whereby Infilaw paid $12 million to have Barbri provide all the materials for the Law Schools' internal bar review programs over a three-year term, from July 2, 2012, until July 31, 2015. Id. ¶ 84. Pursuant to the agreement, Barbri stopped offering its own courses at the Law Schools, and was prohibited from soliciting students, setting up recruiting tables, or offering discounts to students at the Law Schools. Id. ¶¶ 81-82. This agreement “fixed the price of the ‘live' bar preparation courses offered to . . . students, eliminated any competition by Barbri, and resulted in large payments from Infilaw to Barbri to ensure that the Defendant [Law] Schools' in-house bar review courses were the only option available to the Infilaw students.” Id. ¶ 88. According to Relators, all three Law Schools implemented internal bar preparation programs utilizing the “written materials and lectures developed by Barbri for their bar exam preparation courses.” Id. ¶ 79. Although touted as an attempt to increase bar passage rates, Relators allege that the reason Infilaw created these internal bar preparation programs was “to inflate the portion of revenue at the Law Schools that could be counted as non-Title IV or ‘10' revenue.” Id. ¶ 89.

         Significantly, Barbri typically begins soliciting students to sign up for its courses during their first year of law school. Id. ¶ 76. To enroll, students pay a deposit to Barbri to lock-in a lower price “as the cost increases each year a student waits to pay the deposit.” Id. Thus, at the time Barbri and Infilaw entered their agreement, students taking the bar review course in the summer of 2012 had “already paid or contracted directly with Barbri to take Barbri's bar review course and the Barbri course was already half over.” Id. ¶ 86. Nevertheless, Infilaw, the Law Schools and Barbri required “students who had already paid deposits and contracted with Barbri [to] switch their enrollment to the Infilaw bar preparation programs for the July 2012 through July 2013 bar exams.” Id. ¶ 90. In addition, Infilaw, the Law Schools, and Barbri devised a “check exchange” program so that Infilaw and the Law Schools could immediately recognize the full amount of these funds as non-Title IV revenue. Id. ¶¶ 90-92. Relators describe this program as follows: “Barbri agreed to refund each student's past payments by sending the checks directly to the Defendant [Law] Schools. The Defendant [Law] Schools would then distribute the checks to the students in exchange for the student writing a personal check payable to the school for the same amount.” Id. ¶ 91. Students who had already made payments to Barbri for the summer 2012 course, or submitted deposits for future courses, were required to engage in this “check exchange” program. Id. Indeed, Barbri sent refund checks to ASLS for the check exchange even for students preparing for the July 2012 bar exam, who had already paid Barbri, attended Barbri classes, and had nearly completed the Barbri program. Id. ¶ 92. As such, despite having never provided any services for the money, ASLS was able to count these funds as non-Title IV revenue. Id. ¶ 92. Specifically, Relators allege that “[f]or the summer 2012 bar review course, ASLS received checks for approximately 70 graduates representing approximately $184, 000. This was income that was owed and had already been paid to Barbri based on the students' agreements with Barbri.” Id. ¶ 110. According to Relators, ASLS “illegally counted a large and material amount of this money as non-Title IV income in its 2012 annual audit submitted to the DOE.” Id.

         According to Relators, ASLS also sought to engage in a check exchange with students after the summer 2013 bar exam, when the students had already completed the preparation course and bar exam. Id. ¶ 112. “ASLS contacted these students, attempted to make them cash a ‘refund' check from Barbri, and then immediately write a check in the same amount to ASLS for its myBAR program.” Id. If a student refused to comply, ASLS would threaten to withhold their character and fitness certification necessary for bar admission. Id. Relators allege that Barbri sent refund checks for “approximately 63 former students to ASLS and ASLS was successful in convincing many of these students to participate in the check exchange process.” Id. The Relators do not allege the amount of funds generated from these efforts but assert that the income generated was “reported by Infilaw as non-Title IV revenue on its 2013 annual audit submitted to the DOE.” Id.

         Potter asserts that he participated in “multiple conversations with representatives of CSL and FCSL, ” in which he was told that the check exchange program was designed to address “ASLS's 90/10 problem.” Id. ¶ 93. Potter also received an email from ASLS President Thompson explaining that the funds from the check exchange needed to be deposited by July 31st for the 90/10 calculation. Id. ¶ 94. In spring of 2013, Thompson sent several emails stating his concerns about the status of collections for the internal bar review program and emphasizing that these funds were a “‘very important piece of 10 money.'” See id. ¶¶ 122-125. Potter alleges that he was present “during discussions with Barbri employees where this purpose (and its potential illegality) was discussed.” Id. ¶¶ 96-97. For example, Barbri employee Mary Goza sent an email to ASLS employees on January 18, 2013 explaining the check exchange process and including instructions on how to “ensure compliance with 90/10 . . . .” Id. ¶ 108.

         Indeed, in order to ensure that the funds received for the internal bar preparation program would be counted as non-Title IV revenue, ASLS would not allow students to pay their myBAR fees prior to graduation. Id. ¶¶ 99-105. ASLS either refused to accept a deposit for the myBAR program entirely, id. ¶¶ 99-104, or accepted a deposit but refunded the money upon graduation and then required the student to pay the fee in full after graduation, id. ¶ 105. It appears ASLS also waited to engage in the check exchange process until after the targeted students had graduated. Id. ¶ 107. Relators allege that the Infilaw Defendants pressured students in a variety of ways to participate in the check exchange program. Id. ¶¶ 113-14, 119-21, 125. According to Relators, the check exchange program was an “illegal price fixing and anti-competitive arrangement, ” which operated to the detriment of the students. Id. ¶ 126.[12]

         D. Substantial Misrepresentations

         By entering into a PPA, institutions also agree to comply with the regulatory prohibition on substantial misrepresentations set forth in 34 C.F.R. § 668.71. Pursuant to this regulation, the Secretary of the DOE may initiate proceedings to fine an institution or limit, suspend or terminate the institution's participation in a Title IV, HEA program if the Secretary determines that the institution has engaged in substantial misrepresentation. See 34 C.F.R. § 668.71(a)(4). According to the regulation, “[a]n eligible institution is deemed to have engaged in a substantial misrepresentation when the institution . . . makes a substantial misrepresentation about the nature of its educational program, its financial charges, or the employability of its graduates.” Id. § 668.71(b). Such misrepresentations “are prohibited in all forms, including those made in any advertising, promotional materials, or in the marketing or sale of courses of programs of instruction offered by the institution.” Id. A misrepresentation includes statements that are false, erroneous or have “the likelihood or tendency to mislead under the circumstances.” Id. § 668.71(c). Such a statement is substantial if “the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person's detriment” on the statement. Id. Relators allege that the Law Schools “repeatedly violated this regulation by publishing materially false and misleading representations about bar passage, academic, and career prospects, and pushing unsuspecting students into loans that could not be repaid.” See TAC ¶ 127.

         1. AAMPLE

         Relators allege that ASLS advertised statistics and data regarding the caliber of its students that were materially false and misleading. Specifically, Lorona contends that ASLS failed to include the LSAT scores and GPAs of students admitted through an alternative admissions process, known as the Alternative Admissions Model for Legal Education (AAMPLE), in its advertised statistics. See TAC ¶¶ 142 -144, 154. Because “[a]dmission and enrollment through AAMPLE does not require grade point average or LSAT scores within the range of traditional admissions, ” the failure to include the admissions data from the AAMPLE students in the admissions statistics posted on the ASLS website, in Relators' view, rendered the reported information materially false and misleading. Id. ¶¶ 143, 154. Relators do not identify the specific statements that Lorona contends were misleading, nor what the statistics would have been with the AAMPLE students included. Lorona also contends that ASLS also knew but failed to disclose that the percentage of its students likely to pass the bar exam was declining due to the admission of increasing numbers of AAMPLE students. Id. ¶¶ 176-77.

         2. The Unlock Potential program

         Relators allege that in May 2014, ASLS, as well as FCSL and CSL, began paying certain students to defer or forego taking the bar exam upon graduation based upon the Law Schools' determination that these students were likely to fail the exam. Id. ¶ 182. Relators allege that this “Unlock Potential” program artificially increased bar passage percentages, thus deceiving the ABA, the DOE, and the public. Id. ¶¶ 181-83, 190-91. According to Relators, “[a]t least 39 otherwise first-time bar exam takers were paid by ASLS to defer the July 2014 bar exam.” Id. ¶ 184. Indeed, Lorona herself was approached on February 11, 2015, from a representative of “ASLS or Infilaw, ” who informed her that she was not likely to pass the February bar exam. Id. ¶ 188. The representative offered to pay Lorona $5, 000, with an additional monthly stipend, to defer the bar exam until July 2015. Id. ¶ 189. Relators allege that in later years the Dean of ASLS contacted students with an offer of $10, 000 to defer sitting for the bar exam. Id. According to Lorona, the bar coach assigned to her by ASLS told her that “ASLS is concerned that it may lose accreditation and access to Title IV/HEA funding due to drastically low performance numbers.” Id. ¶ 188. Relators conclude “upon information and belief” that ASLS counted the students who participated in the Unlock Potential program as “full-time employees for purposes of reporting to the ABA and DOE.” Id. ¶ 187.

         3. Financial Obligations

         Relators further allege that “Defendants misrepresented what incoming students should expect to pay for their education.” Id. ¶ 194. Relators assert that the ASLS website represented that the tuition and fees for the “JD program during the 2010-11 academic year was $101, 310.00, ” with an additional $2, 184.00 in costs for books and supplies. Id. According to Relators, ASLS also represented that “the median cumulative program debt for graduates between July 1, 2009 and June 30, 2010 was $93, 142.51 for federal student loan debt and $5, 000.00 for private student loan debt.” Id. Relators appear to contend that this information was misleading because ASLS's “most recent” disclosures identify the median federal student loan debt as $187, 792. Id. ¶ 195.[13] Relators allege that “[d]espite notice provided by Lorona, ASLS continued its marketing by creating deceptive documents and statistics designed to increase non-traditional enrollment and publicly stating the same.” Id. ¶ 197. Relators do not identify these documents, or the particular statements or statistics that were allegedly misleading.

         E. ABA ...


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