Opinion
No. 2:10-cv-02478-MCE-KJN
03-06-2013
UNITED STATES OF AMERICA and STATE OF CALIFORNIA, ex rel. DEREK HOGGETT and TAVIS GOOD, Plaintiffs, v. UNIVERSITY OF PHOENIX, APOLLO GROUP, INC., and DOES 1 through 100, inclusive, Defendants.
MEMORANDUM AND ORDER
Relator Plaintiffs Derek Hoggett and Tavis Good ("Relators") bring a qui tam action against University of Phoenix and Apollo Group, Inc. under the False Claims Act, 31 U.S.C. §§ 3729-3733 ("FCA") and its California counterpart, Government Code sections 12650-12656 ("CFCA"). Relators are former admission counselors for the University of Phoenix, a for-profit post-secondary education institution, and a subsidiary of Defendant Apollo Group (collectively "UOPX"). Relators allege that UOPX submitted false claims for federal student financial aid funds to the United States Department of Education pursuant to the Higher Education Act, Title IV ("HEA") from at least December 12, 2009 to the present.
A qui tam action is brought by private litigants against a person or company that has allegedly violated the law in the performance of a contract with the Government, or in violation of a governmental regulation. Qui tam suits are brought for the Government's benefit as well as for the plaintiffs. The Government may elect to intervene and proceed with the action within sixty days after it receives both the complaint and the material evidence and information, or it may decline to take over the action, in which case the person bringing the action shall have the right to conduct the action. A "relator" is the individual who relates the facts on which a qui tam action is based. See generally 31 U.S.C. § 3730.
On July 5, 2012, this Court issued its Order denying Defendants' Motion to Dismiss. (July 6, 2012, ECF No. 42.) In denying the Motion, this Court ruled on two threshold jurisdictional issues: (1) whether a previously dismissed action may nevertheless be "pending" for purposes of the first-to-file bar under 31 U.S.C. § 3730(b)(5); and (2) whether a relator that alerts the government to the alleged continuation of fraud that was already known to the government as an "original source" for the purposes of the public disclosure bar under 31 U.S.C. § 3730(e)(4). (Id.) This Court held that the Relators are not barred from bringing suit under § 3730(b)(5) because the previous suit was not pending. (See id. at 8.) This Court also held that Relators are not barred from bringing suit under § 3730(e)(4)(A) because they are "original sources" under § 3730(e)(4)(B). (See id. at 10.)
Defendants subsequently filed a Motion for Certification of Interlocutory Appealability under 28 U.S.C. § 1292(b). (Defs.' Mot. Certification Interlocutory Appealability, August 8, 2012, ECF No. 44.) That Motion, which is now before the Court, asks that the court certify for immediate appeal its decision denying dismissal on grounds that both questions ruled on by the Court in its July 5, 2012 Order "present controlling questions of law as to which there is a substantial ground for difference of opinion" and involves circumstances where "the resolution of which will materially advance the ultimate disposition of the litigation." (Id. at 2.)
BACKGROUND
Unless otherwise noted, all factual background information is taken from the factual allegations in the Second Amended Complaint. (Second Amended Complaint ("SAC"), October 22, 2011, ECF No. 36 at 2.)
Relators allege that UOPX, despite its settlement of earlier charges in 2009, in fact continues to violate HEA's prohibition against awarding incentive payments to recruiters based solely on enrollment numbers. (ECF No. 36 at 2.) By knowingly or recklessly submitting false representations of compliance with requests for HEA or California student financial aid funds, Relators claim that UOPX violated FCA §§ 3729(a)(1) and (a)(2), and CFCA sections 12561(a)(1) and 12651(a)(2). (Id.)
Relators allege that from at least December 12, 2009, UOPX has fraudulently asserted that it "had not paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments . . . for each year at issue." (Id. at 6.) Relators contend that although UOPX disguises its compensation practices with a "matrix" that lists non-enrollment criteria for performance evaluation, in practice, enrollment numbers are the sole factor in determining promotion, salaries and bonuses. (Id. at 6-7.)
Relators further allege that this conduct was not deterred or altered by the settlement in United States ex rel. Hendow v. University of Phoenix, No. 2:03-cv-0457-GEB-DAD (E.D. Cal.), and that the fraudulent activities continued with the knowledge and support of UOPX compliance officials. (See ECF No. 36 at 6-7.) Relators claim that they were told to destroy documents related to training and recruitment and were also told that there were no plans to change the old policies. (See id. at 9-11.) Relators allege that despite the performance matrix, UOPX continues to "stack rank" counselors based on their number of enrollments and use that ranking to determine compensation. (Id. at 11.) Further, according to Relators, UOPX continues to publish separate documents showing a salary range aligned with each performance rating from the matrix, so that a counselor can determine his or her salary range based on their enrollment levels. (Id.) Finally, Relators detail numerous occasions when UOPX officials and employees told Relators directly that compensation decisions are based solely on enrollment numbers. (Id. at 9.) Relators argue that these facts, and others alleged in the SAC, show that UOPX knowingly bases recruiter compensation on enrollment numbers, while trying to disguise this illicit behavior with a misleading performance evaluation matrix, all in violation of the FCA and CFCA.
STANDARD
Certification of Interlocutory Appealability requires the fulfillment of two statutory prongs. First, the order must involve a controlling question of law as to which there is substantial ground for difference of opinion. 28 U.S.C. § 1292(b). Second, granting immediate appeal from the order must materially advance the ultimate termination of the litigation. (Id.) The Ninth Circuit has stated that resort to immediate appeal under § 1292(b) should be used only in "exceptional situations in which allowing an interlocutory appeal would avoid protracted and expensive litigation." In re Cement Antitrust Litig., 673 F.2d 1020, 1026 (9th Cir. 1982). Instead, interlocutory appeal should be "applied sparingly." Id. In order to justify the appellate shortcut represented by interlocutory appeal, its proponent has the burden to show that "exceptional circumstances justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 475 (1978).
ANALYSIS
The Court does not believe that the prerequisites of § 1292 have been met in this matter. Neither question presented justifies the procedural deviation of permitting immediate appeal, particularly given the high bar the Ninth Circuit has set for certification of such an appeal before a case has otherwise been concluded. The Court now turns to the two previously determined issues upon which Defendants' request for interlocutory appeal rests.
A. First-to-File Question
The "first-to-file" rule of the FCA provides, "[w]hen a person brings [a qui tam action] under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." 31 U.S.C. § 3730(b)(5), (emphasis added).
Here, Relators' action was not precluded by any other pending litigation. The prior action against UOPX was settled on December 11, 2009, well before the instant action was instituted on September 15, 2010. At that time, Hendow was not "pending" and therefore the first-to-file bar is plainly inapplicable. (ECF No. 42 at 9.)
The Ninth Circuit has held that a preexisting but subsequently dismissed action was a pending action for purposes of the federal False Claim Act's first-to-file rule. United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1188 (9th Cir. 2001). In Lujan, a previous claim (the so-called Schumer action) had been brought in 1989 and plaintiff Lujan brought her action in 1992. The Ninth Circuit held:
Even assuming that Schumer's whole action was dismissed in 1997, five years after Lujan filed her complaint, Schumer's action should still be considered a "pending" action for purposes of § 3730(b)(5) because Schumer's action was pending when Lujan brought her claim. To hold that a later dismissed action was not a then-pending action would be contrary to the plain language of the statute and the legislative intent.Lujan, 243 F.3d at 1188 (quoting United States ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512 (9th Cir. 1995).
Thus, at the time plaintiff Lujan commenced her action, the Schumer action was still pending. Despite the fact that the Schumer action subsequently was dismissed, the Schumer action was extant at the time Lujan filed suit, and therefore the Schumer action was a pending action for purposes of the first-to-file rule. Here, in contrast, the Hendow action already had been settled at the time the instant action was commenced. Lujan does not support UOPX's argument that the Hendow action should be construed as a pending action for purposes of the first-to-file rule. The settlement of fraud claims against UOPX does not bar subsequent FCA claims against UPOX for any false claims submitted thereafter. United States ex rel. Whitten v. Cmty. Health Sys., Inc., 575 F. Supp. 2d 1367, 1385-86 (S.D. Ga. 2008).
The Court does not believe that either prong of § 1292's test justifies the procedural deviation of permitting immediate appeal of the first-to-file issue, particularly given the high bar the Ninth Circuit has set for the certification of such an appeal before a case has otherwise concluded. First, Defendants have not established that there is any controlling issue of law presented by the decision as to which there exists any substantial ground for difference of opinion. Because the Hendow action was not pending at the time the instant action was commenced, Lujan does not apply to the facts of this case. Furthermore, United States ex rel. Powell v. American InterContinental University, Inc., No. 1:08-cv-2277-RWS, 2012 WL 2885336 (N.D. Ga. July 12, 2012), which UOPX relies on, is factually distinguishable because the case dealt with identical violations. Id. at *23-24 (noting "[t]he ultimate facts at issue here and the improper conduct alleged [in the prior cases] are exactly the same."). In Powell, the prior qui tam suits had already put the Government on notice of the fraud. In the instant case, Relators allege that fraud transpired after the settlement in Hendow. (See Powell at 14-15.)
Perhaps even more significantly, the Powell case has no binding effect whatsoever on this Court. A decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case. Camreta v. Greene, 131 S. Ct. 2020, 2033 n.7 (2011) (citation omitted). As such, the Court believes that interlocutory certification is not appropriate since Ninth Circuit law as it applies to this question appears well-settled. Additionally, certification of this issue would not ultimately advance the termination of this litigation and would only serve to protract the current proceedings.
B. Public Disclosure Question
Under § 3730(e)(4)(A), qui tam litigants cannot bring a suit "if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed . . . unless . . . the person bringing the action is an original source of the information." Here, Relators allege that while UOPX has changed its procedures to comply with federal regulations, they have knowledge that UOPX has continued to perpetrate a fraud on the government even after the Hendow case. (See ECF No. 36 at 6 (stating that UOPX is in knowing violation of the HEA incentive compensation prohibition, and continually has been so for at least since December 12, 2009).) If, as Relators allege, the new procedures cover up a continuation of the previous fraud, then Relators have provided information that is independent of the information publicly disclosed during the Hendow case.
In response, UOPX claims that Relators must first disclose their action to the Government before they may file a complaint with the Court. The authority cited by UOPX does not apply to the case at hand, as the allegations made by Relators were not publicly disclosed before the filing of their complaint. Section 3730(e)(4)(A) requires a court to "dismiss an action or claim under this section . . . if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed . . . unless . . . the person bringing the action is an original source of the information." For the purposes of § 3730(e)(4)(A), an "original source" is one who either:
UOPX argues that the court's prior July 5, 2012 order did not address this argument. (ECF No. 44-1 at 8:10-13.) In fact, however, the Defendants raised the issue only in their reply filed in support of the underlying motion. Reply papers should be limited to matters raised in the opposition papers. It is therefore improper for the moving party to "shift gears" and introduce different legal arguments in the reply brief than presented in the moving papers. See Lujan v. National Wildlife Federation, 497 U.S. 871, 894-95 (1990). The district court need not consider arguments raised for the first time in a reply brief. Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007).
(i) Prior to a public disclosure under subsection (e)(4)(A), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (ii) 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.31 U.S.C. § 3730(e)(4)(B).
Relators allege that while UOPX has changed its procedures to comply with federal regulations, they have knowledge that UOPX has continued to perpetrate a fraud on the government after the Hendow case was completed. If, as Relators contend, the new procedures cover up a continuation of the previous fraud, then Relators have provided information that is independent of and materially adds to the information publicly disclosed during the Hendow case. On September 15, 2010, before making any public disclosure of these new allegations, Relators disclosed to the Government the information on which their allegations were based when they filed their complaint with the Court. (See Pls.' Comp., September 15, 2010, ECF No. 1) The complaint was filed in camera and sealed from public disclosure until May 26, 2011, while the Government decided whether to intervene in the action. (See Order, May 26, 2010, ECF No. 9 (lifting the seal and allowing the Complaint to be served upon UOPX).) Therefore, Relators qualify as the first variant of an original source under § 3730(e)(4)(B), and validly filed their in camera complaint contemporaneously with the sharing of such information with the Government.
UOPX's claim that Relators can qualify only under the second variant of the statute appears misplaced. (See ECF No. 44-1 at 12.) Despite UOPX's contentions, Relators have met the first jurisdictional requirement for qualifying as an original source. The alleged offenses could not be based upon the prior public disclosure of the offenses in Hendow, as Relators base their claim on subsequent actions by UOPX. This finding is consistent with the text of § 3730(e)(4)(B), and does not present a question of law as to which there is substantial ground for difference of opinion. Certification of the public disclosure question would therefore only serve to protract the current litigation. The Motion for Certificate of Appealability for this question is denied.
CONCLUSION
Because neither prong that must be met under 28 U.S.C. § 1292(b) justifies interlocutory appeal in this matter, and because both prerequisites must be established before certification of such an appeal should issue, the present Motion for Certificate of Appealability is hereby DENIED.
Because oral argument will not be of material assistance, the Court orders this matter submitted on the briefs. E.D. Cal. Local Rule 230(g).
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IT IS SO ORDERED.
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MORRISON C. ENGLAND, JR., CHIEF JUDGE
UNITED STATES DISTRICT JUDGE