Amicus Curiae Brief — Universal Health Servs., Inc. v. U.S. & Mass. ex rel. Escobar, 136 S. Ct. 582 (2015) (No. 15-7)

No. 15-7

IN THE

Supreme Court of the United States

UNTVERSAL HEALTH SERVICES, INC.,

Petitioner,

Vv.

UNITED STATES AND COMMONWEALTH OF

MASSACHUSETTS EX REL. JULIO ESCOBAR

AND CARMEN CORREA,

Respondents.

On Writ Of Certiorari To The

United States Court Of Appeals

For The First Circuit

BRIEF OF AMICUS CURIAE

THE ASSOCIATION OF PRIVATE SECTOR

COLLEC#S AND UNIVERSITIES

IN SUPPORT OF PETITIONER

TrmoTny J. HATCH DOUGLAS R. Cox

JAMES L. ZELENAY, JR. Counsel of Record

JEREMY S. SMITH Lucas C. TOWNSEND

GtBson, DUNN & CRUTCHER LLP Gipson, DUNN & CRUTCHER LLP

333 South Grand Avenue 1050 Connecticut Avenue, N.W.

Los Angeles, CA 90071 Washington, DC 20036

(213) 229-7000 (202) 955-8500

dcox@gibsondunn.com

Counsel for Amicus Curiae

LT A ee TT

i

QUESTIONS ADDRESSED BY AMICUS

This Court has granted certiorari to review

the following questions:

1. Whether the “implied certification” theory of

legal falsity under the False Claims Act, 31 U.S.C.

§ 3729 et seq., is viable.

2. If the “implied certification” theory is viable,

whether a government contractor’s reimbursement

claim can be legally “false” under that theory if the

provider failed to comply with a statute, regulation,

or contractual provision that does not state that it is

a condition of payment; or whether liability for a le-

gally “false” reimbursement claim requires that the

statute, regulation, or contractual provision expressly

state that it is a condition of payment.

ss

TABLE OF CONTENTS

INTEREST OF AMICUS AND SUMMARY OF

I icttaicaticnninncapdcanmncninnctstniiiaptnamiennibinivtsinianvininsiii 1

I. The Legal Fiction Of “Implied

Certification” Cannot Properly

Transform Truthful Statements Into

“Fraud” Under The FCA .............2......00cc0000008 9

A. The Implied Certification Theory

Creates Unreasonabie Outcomes

For Colleges And Universities............... 11

B. The Implied Certification Theory

Unduly Coerces Defendants To

Settle Even Meritless Cases.................. 17

C. The Implied Certification Theory

Displaces Regulations Designed To

Redress Infractions ...............2..........0000-- 21

I]. At A Minimum, The Implied

Certification Theory Should Be

Narrowly Limited To Express

Conditions Of Payment................................ 26

SEY ctniiccuniesondvesnientacietinnntnnetrenntinnianauaetnns 33

ill

TABLE OF AUTHORITIES

Cases

Allison Engine Co. v. United States ex

rel. Sanders,

553 U.S. 662 (2008)..................ccccceccceeeee.

APSCU v. Duncan,

681 F.3d 427 (D.C. Cir. 2012)...

Bell Atl. Corp. v. Twombly,

550 U.S. 544 (2007)... cece ecccceceeeeeeeeee

BMW of N. Am., Inc. v. Gore,

ee PC irnecsticensctncerennsecviuresees

United States ex rel. Bogina v. Medline

Indus., Inc.,

__._ F.3d ___, 2016 WL 25611 (7th

in a

United States ex rel. Carter v.

Bridgepoint Educ., Inc.,

No. 10-cv-01401 (S.D. Cal. Jan. 8,

en A EET SET a Ee

Chesbrough v. VPA, P.C.,

655 F.3d 461 (6th Cir. 2011) 000000000000...

United States ex rel. Christiansen v.

Everglades Coil.,

No. 12-cv-60185, 2014 WL 5139301

(S.D. Fla. Aug. 14, 2014)... cece...

United States ex rel. Clausen v. Lab.

Corp. of Am., Inc.,

290 F.3d 1301 (11th Cir. 2002)................

Page(s)

iv

TABLE OF AUTHORITIES

(continued)

United States ex rel. Conner v. Salina

Reg Health Ctr., Inc.,

543 F.3d 1211 (10th Cir. 2008)................

United States ex rel. Drakeford v.

Tuomey,

792 F.3d 364 (4th Cir. 2015)....................

Ebeid ex rel. United States v. Lungwitz,

616 F.3d 993 (9th Cir. 2010)..............000...

United States ex rel. Graves v. ITT

Educ. Servs., Inc.,

284 F. Supp. 2d 487 (S.D. Tex. 2003),

affd,111F App’x 296 (5th Cir.

Haroco, Inc. v. Am. Natl Bank & Trust

Co.,

747 F.2d 384 (7th Cir. 1984), affd,

Ce Ea Ge Ce Rrrcecnrctiinncvntzeniovericeseseies

Harrison v. Vose,

50 U.S. (9 How.) 372 (1850).....................

United States ex rel. Hendow v. Univ. of

Phoenix,

461 F.3d 1166 (9th Cir. 2006)..................

United States ex rel. Hobbs v. MedQuest

Assocs., Inc.,

711 F.3d 707 (6th Cir. 2013)............00......

Vv

TABLE OF AUTHORITIES

(continued)

Page(s)

United States ex rel. Hoffman v. Nat'l

Coll.,

No. 12-cv-237, 2013 WL 3421931

I Es eeerasoumnionis 12

Honda Motor Co. v. Oberg,

EE EE ees ee PIDs 10

United States ex rel. Lamers v. City of

Green Bay,

168 F.3d 1013 (7th Cir. 1999).....................0sseeseee 10

United States ex rel. Lee v. Corinthian

Colls.,

No. 07-cv-01984 (C.D. Cal. Mar. 15,

Mikes v. Straus,

274 F.3d 687 (2d Cir. 2001) ...............0000000... passim

United States ex rel. Miller v. Weston

Educ., Inc.,

784 F.3d 1198 (8th Cir.),

petition for cert. filed, No. 15-404

i Hs TI cecensvicnsiessnsasencsontednienanns 11, 30

United States ex rel. Munoz v. Computer

Sys. Inst., Inc.,

No. 11-CV-7899, 2013 WL 5781810

(EDD. TE, Gah, BB, BOTS) .cccccccccssccsccceccccccces 30, 31, 32

Omunicare, Inc. v. Laborers District

Council Construction Industry

Pension Fund,

135 S. Ct. 1318 (2015)........c.cccececcecececsesececeeees 10, 16

vi

TABLE OF AUTHORITIES

(continued)

Page(s)

People v. Alta Colls.,

No. 12 CH 1587 (Cir. Ct. of Cook

Cnty. Il. filed Jan. 18, 2012)..........0..0000..00ceeeee. 13

Safeco Ins. Co. v. Burr,

I seenaal 10

State Farm Mut. Auto Ins. Co. v.

Campbell,

en, I cs binctasbecsvenindbcidocmespsbeven 19

Sw. Tel. & Tel. Co. v. Danaher,

a seesinnmmncmannnialiin’ 10

United States v. Bornstein,

ey a iii inion icseccsdenandinsihiacesesoinbenne 3

United States v. Educ. Mgmt. LLC,

No. 07-cv-461, 2014 WL 1796686

(W.D. Pa. May 6, 2014) ......ccccccccceseseceseeseeseees 20, 21

United States v. Educ. Mgmt. LLC,

No. 07-cv-461 (W.D. Pa. July 23,

akin ie ahesirih inl d pale steanaaeiaseniniibondapibdniviobetions 20

United States v. Educ. Mgmt. Corp.,

871 F Supp. 2d 433 (W.D. Pa. 2012) ........ 7, 16, 20

United States v. Neifert-White Co.,

Nee case anasssiesdtisiepenebneisvecniatin 9

United States v. Rogan,

517 F.3d 449 (7th Cir. 2008)...........0...000.000000000000. 19

United States v. Sanford-Brown Ltd.,

788 F.3d 696 (7th Cir. 2015).................... 13, 16, 22

vu

TABLE OF AUTHORITIES

(continued)

Page(s)

United States v. Sci. Applications Int'l

Corp.,

626 F.3d 1257 (D.C. Cir. 2010) .0000.... occ ccccc cece 4

United States v. Triple Canopy, Inc.,

775 F.3d 628 (4th Cir.), petition for

cert. filed, No. 14-1440 (U.S. June 5,

I cereeineianiasanseddermidi iii aidatniciatiaic hist ts ide isieassemimireomeentah 32

Urquilla-Diaz v. Kaplan Univ.,

780 F.3d 1039 (11th Cir. 2015).....00.000..... 11, 28, 29

United States ex rel. Vigil v. Nelnet,

Inc.,

639 F.3d 791 (Sth Cir. 2011)....................-..0.ce...- 21

Vt. Agency of Nat. Res. v. United States

ex rel. Stevens,

I ie 17, 21

United States ex rel. Yannacopoulos v.

Gen. Dynamics,

652 F.3d 818 (7th Cir. 2011)......................cccceseee. 31

Statutes

ee I OP MII) ...cncocousnosniborandinnsennouninensmiansainnsen 2

I 2

BP Ses OP PIII viiserscccovecscccesecesoennoeneneisimieseinis 2

Be es Oe a csinissciacencvisronsinbensinmacnnnescenecines 13, 30

ae ara On eT EM TS 11

Vili

TABLE OF AUTHORITIES

(continued)

Page(s)

Be Te BIE evi ccciceniccncctiiestecencsiciemionnanenete 9

BE FE BID cceictentenecsongsesestsivotencwnmsisennens 9

es Oe I ccc ciniciiisiinintsiemiecgtecitascininnsiniihnseie i

Bipartisan Budget Act of 2015, Pub. L.

No. 114-74, § 701, 129 Stat. 584

I ai ar Liaise od selradinieaiceaniinianindndaiminianebties 17

Regulations

ee ad cncenssescuntonnonsmvecinionstienvicemnmimniies 17

Es I iiiicciensentocsnncnantabectectdaceisabearenie 31

A Oe a EE Rsiiiniotniivenetaninetedncecmeniennenenenteis 22

0 EF ee Oo TEED vce ccecnecccinsnscnccnvevnesoonets 23

I icciccccesesnnsccdncnssonimyentiawnnioniios 22

ee es i eicctiepsccccesnsmscrscpeinenisinevonnmninniis 22

BO i ee cticcccscccscercstmiersctiinnestininnmane 22

Be ee ER icic seer ccrvescsctenianersestnbsnvcestnees 30

ee i tidicvenncecincernsssensinsntevcveniagneeess 30

Be es eI Diintncevincicevessessccesinateneupesosimen 27

es SI vii riiciirnsccconitidiennniisdnesriosinniont 27

ae Geils I oesinsececincccsisesvevnsoncosscorisessevnnson 27

oi crrencsinioniinnpunidcenhiiaenminbnenveiobiinnis 12

Tek FS eran eee nner 27

BE CPR. F GIBB) nccccesccvccscsesescosesessosccscvsesevensees 27

ix

TABLE OF AUTHORITIES

(continued)

Page(s)

ID ici cnssducpnniitaciteteeunspaeasbebnetates 27

SS A es sa tice iiacniidiereepnadebebndindianencant 22

I aaeiiaacians 22

ne ME acne edaseceiaembannanenbabadasimbedagh 22

A III cunts sectinslesh sisdltedctiinbaseaciisiahnaseneibelien 22

IRIE Ane tai Ses eats Rae 22

I 22

MEESTER EE eS MP es Laer 22

SRE ERE ee Oe tar ae eae ee 12

Re Rag Se Beans eres 12

ee ED Siiicitirsiscceceninenccsiiancisnnicinenivenn 17

ek A | F ” th | Eee arene annEaEEn TD 17

Oe i sas ainetaenicuieninens 17

es Or IEE issn eeincesecctcentsanerieninencsaseinan 17

Se ee I, Th, OF Ee siccceiicsetescsasesinnnesaciionion 12

Se: Cee es Ce: a I rei cerscitersiecsscterisdoseccoinne 12

Rules

SO ns SP I sieainpeshidaapeeeamtaiaiiibadbard 32

SN Ae: ais Lincesntenpencioiainavasienatecniadiiganiniatdicinttiasadtines 1

x

TABLE OF AUTHORITIES

(continued)

Other Authorities

1 John T. Boese, Civil False Claims and

Qui Tam Actions § 2.03 (4th ed.

ional

Complaint, United States ex rel. Brazell

v. Alta Colls., Inc.,

No. 05-cv-0319-N (N.D. Tex. Apr. 7,

Fe icsdccicsasasisshnasscenstinepanlenanbetuipnistinicinsscatosands

Complaint, United States ex rel. Carter

v. Bridgepoint Educ., Inc.,

No. 10-cv-01401 (S.D. Cal. July 2,

Frequently Asked Questions,

http://www?2.ed.gov/programs/fie/faq.

htm] (last modified July 18, 2011) ..........

Harvard Law School, U.S. Dep’t of

Educ., No. 01-11-2002 (Dec. 30,

https://www.g5.gov/ext/exthelp2/toc0.ht

SSIES ERE: Se Sa PD Se

https://www.g5.gov/ext/exthelp2/tpc/fcae

1078-3cc0-4e06-902f-

2c096e0778d9/topic.html?mode=S&p

rintitname=fcae1078-3cc0-4e06-902f-

2c096e0778d9_JOBAID.doc....................

Page(s)

xi

TABLE OF AUTHORITIES

(continued)

Page(s)

Initial Brief of Relator-Appellants

Manuel Christiansen and Brian

Ashton, United States ex rel.

Christiansen v. Everglades Coll.,

No. 14-13992 (11th Cir. Dec. 23,

Memorandum, United States ex rel. Lee

v. Corinthian Colls.,

No. 07-cv-01984 (C.D. Cal. Aug. 3,

Press Release, Department of Justice,

For-Profit College Company to Pay

$95.5 Million to Settle Claims of

Illegal Recruiting, Consumer Fraud

and Other Violations (Nov. 16,

2015), http://Awww_.justice.gov/usao-

wdpa/pr/profit-college-company-pay-

955-million-settle-claims-illegal-

recruiting-consumer-fraug ...................22.-cccse0eeees

Program Participation Agreement,

United States ex rel. Nelson v. Career

Educ. Corp.,

No. 12-cv-775 (E.D. Wis. Jan. 3,

xii

TABLE OF AUTHORITIES

(continued)

Page(s)

Kenneth L. Wainstein, Investigation of

Irregular Classes in the Department

of African and Afro-American

Studies at the University of North

Carolina at Chapel Hill (Oct. 16,

2014),

http://carolinacommitment.unc.edu/r

eports-resources/investigation-of-

irregular-classes-in-the-department-

of-african-and-afro-american-

studies-at-the-university-of-north-

carolina-at-chapel-hill-2/ ......0............cceccccceeeeeeeees 14

Yale University, U.S. Dep’t of Educ.,

No. 00142600 (Apr. 19, 2013).......................eese0s. 14

1

INTEREST OF AMICUS

AND

SUMMARY OF ARGUMENT"

The Association of Private Sector Colleges and

Universities (“APSCU”) is a voluntary association of

private sector educational institutions, incorporated

as a not-for-profit organization in the District of Co-

lumbia. APSCU represents approximately 1,400 ac-

credited, private postsecondary schools, institutes,

colleges, and universities located throughout the

United States. These institutions provide nontradi-

tional students—particularly veterans, working par-

ents, and underserved populations—with §skills-

based education opportunities, ranging from cer-

tificate and diploma programs to programs leading to

associate’s, bachelor’s, master’s, and doctoral de-

grees. Students attending private sector colleges and

universities constitute approximately one-half of the

technically trained workers who enter the United

States workforce each year. Many of these students

come from diverse social and economic backgrounds,

and seek access to career-focused learning and the

* Pursuant to this Court’s Rule 37, counsel for amicus repre-

sent that they authored this brief in its entirety and that, ex-

cept as identified below, none of the parties or their counsel, nor

any other person or entity other than amicus, its members, or

its counse] made a monetary contribution intended to fund the

preparation or submission of this brief. DeVry Education

Group Inc. and Bridgepoint Education, Inc. have each made

monetary contributions intended to fund the preparation and

submission of this brief because each is a former member of

amicus with first-hand experience defending against the im-

plied certification theory of liability in the higher education con-

text, and therefore each has significant interest in the questions

presented. All parties have consented to the filing of this brief,

and letters reflecting their consent have been filed with the

Clerk.

2

job skills they need for a successful future. APSCU’s

members provide students who take different paths

to higher education with opportunities unavailable to

them at traditional colleges.

APSCU’s member institutions annually provide

educational opportunities to prepare more than three

million students for employment in over 200 occupa-

tional fields. These institutions produce graduates

at a lower cost, and often have higher graduation

rates, than traditional non-profit or public schools.

Unlike public institutions, career colleges and uni-

versities also receive no direct taxpayer subsidies.

Instead, private sector colleges and universities pay

taxes—about $1.7 billion in 2010. APSCU’s mem-

bers qualify as “institutions of higher education,” 20

U.S.C. § 1002(a)(1), (b), eligible to participate in stu-

dent-aid programs under Title IV of the Higher Edu-

cation Act, 20 U.S.C. §§ 1070-1099d.

APSCU and its member institutions have a sig-

nificant interest in the questions presented for re-

view because the “implied certification” theory of le-

gal falsity drastically expands the circumstances in

which APSCU’s members may be subjected to exces-

sive and unwarranted liability under the False

Claims Act (“FCA”). Specifically, the vast majority of

APSCU’s members participate in one or more of the

. federal student financial aid programs, including the

financial aid program established under Title IV of

the Higher Education Act. As participants in Title

IV programs, these schools agree to comply with nu-

merous statutes, regulations, and contractual re-

quirements, including, for example, employee com-

pensation restrictions, accreditation requirements,

and recordkeeping provisions. Typically, that

agreement is set forth in a Program Participation

3

Agreement (“PPA”) between the school and the De-

partment of Education documenting the school’s

agreement to comply with “all statutory provisions”

and “all applicable regulatory provisions” under Title

IV. As explained below, the “implied certification”

theory at issue in this case is frequently used by qui

tam relators to transform schools’ agreements to

comply with various ministerial requirements into a

trigger for exposing colleges and universities to un-

warranted liability, onerous statutory penalties, and

the unjustified reputational stain of being labeled a

“fraudster.”

The traditional FCA lawsuit involves a claim

that is factually false—such as a fraudulent invoice

submitted to the government for work never per-

formed. See, e.g., United States v. Bornstein, 423

U.S. 303, 307 (1976). In contrast, many FCA actions

in recent decades have advanced a novel and danger-

ous theory of legal falsity premised on a government

contractor's “false certification.” False certifications

fall into two general categories: express and implied.

An expressly false request for government payment

is, as its name suggests, a request that explicitly and

“falsely certifies compliance with a particular stat-

ute, regulation or contractual term, where compli-

ance is a prerequisite to payment.” Mikes v. Straus,

274 F.3d 687, 698 (2d Cir. 2001). An implied false

certification, on the other hand, “is based on the no-

tion that the act of submitting a claim for reim-

bursement itself implies compliance with governing

federal rules that are a precondition to payment”

from the government. Jd. at 699 (emphasis added).

Importantly, under an implied theory of false

certification, the actual request for payment is “fa-

cially truthful,” yet is “construed as false if the

4

claimant ‘violates its continuing duty to comply with

the regulations on which payment is conditioned.”

United States ex rel. Hobbs v. MedQuest Assocs., Inc.,

711 F.3d 707, 714 (6th Cir. 2013) (quoting

Chesbrough v. VPA, P.C., 655 F.3d 461, 468 (6th Cir.

2011)). The request for payment may make certain

representations about the purpose of the requested

funds, the nature of the services performed, or the

identity of the requestor—all of which are true on

their face. The implied certification theory, however,

transforms that truthful claim into one that is im-

plicitly false based on the notion that the govern-

ment contractor had “previously” and truthfully “un-

dertaken to expressly comply with a law, rule, or

regulation,” yet failed to do so. Ebeid ex rel. United

States v. Lungwitz, 616 F.3d 993, 996 (9th Cir. 2010).

Courts that have adopted this theory “infer implied

certifications from silence where certification was a

prerequisite to the government action sought.” Unit-

ed States v. Sci. Applications Intl Corp., 626 F.3d

1257, 1266 (D.C. Cir. 2010) (internal quotation

marks omitted).

The implied false certification theory has

spawned an industry of abusive and destructive FCA

litigation against institutions of higher education. In

the past decade, private parties—acting as FCA “re-

lators” purportedly representing the government’s

interests—have filed scores of lawsuits against

schools challenging their eligibility to participate in

Title IV programs and demanding billions of dollars

in FCA damages and civil penalties. See, e.g., United

States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d

1166, 1176 (9th Cir. 2006) (imposing FCA liability

based on a violation of “a necessary condition of con-

tinued eligibility and participation” in a federal pro-

gram). These lawsuits have been filed against public

5

colleges and universities,’ not-for-profit higher edu-

cation institutions,’ and even providers of education-

al content and tutoring.* Most of these lawsuits,

however, have been filed against proprietary, for-

profit educational institutions.® In all but a small

* See, e.g., U.S. ex rel. Battle v. Bd. of Regents for the State of

Ga., 468 F.3d 755 (11th Cir. 2006); U.S. ex rel. Hamilton v. Ya-

vapai Cmty. Coll. Dist., No. 12-cv-08193 (D. Ariz. 2012).

* See, e.g., U.S. ex rel. Jallali v. Nova Se. Univ., Inc., No. 11-

cev-60342 (S.D. Fla. 2011), affd, 486 F. App’x 765 (11th Cir.

2012); U.S. ex rel. Riley v. Embry-Riddle Aeronautical Univ.,

Inc., No. 08-cv-01401 (M.D. Fla. 2008); U.S. ex rel. Kalyanaram

v. N.Y. Inst. of Tech., No. 07-cv-09307 (S.D.N.Y. 2007); United

States v. Chapman Univ., 2006 WL 1562231 (C.D. Cal. May 23,

2006).

* See, e.g., U.S. ex rel. Calisesi v. HotChalk, Inc., No. 13-cv-

01150 (D. Ariz. 2013); U.S. ex rel. Caballero v. TestQuest, Inc.,

No. 12-cv-04626 (S.D.N.Y. 2012); U.S. ex rel. Jane Doe v. Educ.

Holdings 1, Inc., No. 09-cv-06876 (S.D.N.Y. 2009).

® See, e.g., U.S. ex rel. Backhus v. Corinthian Colls., No. 07-

cv-891 (M.D. Fla. 2007); U.S. ex rel. Buchanan v. S. Univ.

Online, No. 07-cv-00971 (W.D. Pa. 2007); U.S. ex rel. Cruz v. W.

Career Coll., No. 07-cv-01666 (E.D. Cal. 2007); U.S. ex rel. Ur-

quilla-Diaz v. Kaplan Univ., No. 07-cv-00669 (M.D. Fla. 2007);

U.S. ex rel. Goodstein v. Kaplan, Inc., No. 07-cv-01491 (E.D. Pa.

2007); U.S. ex rel. Lee v. Corinthian Colls., No. 07-cv-1984 (C.D.

Cal. 2007), rev'd, 655 F.3d 984 (9th Cir. 2011); U.S. ex rel.

Schultz v. DeVry, Inc., No. 07-cv-05425 (N.D. Tl. 2007); U.S. ex

rel. Torres v. Kaplan Higher Educ., No. 07-cv-05643 (N.D. II.

2007); U.S. ex rel. Washington v. Educ. Mgmt. Corp., No. 07-cv-

00461 (W.D. Pa. 2007); U.S. ex rel. Bott v. Silicon Valley Colls..,

262 F. App’x 810 (9th Cir. 2008); U.S. ex rel. Brodale v. Apollo

Grp., No. 08-cv-01399 (S.D. Cal. 2008); U.S. ex rel. Lopez v.

Strayer Educ. Inc., No. 08-cv-00589 (E.D. Va. 2008); U.S. ex rei.

Irwin v. Grand Canyon Univ., 2009 WL 322875 (D. Ariz. Feb.

10, 2009); U.S. ex rel. Aldredge v. ATI Enters., Inc., No. 09-cv-

01313-G (N.D. Tex. 2009); U.S. ex rel. Chesney-Hilil v. Career

Educ. Corp., No. 09-cv-02744 (E.D. Pa. 2009); U.S. ex rel. An-

drews v. Alta Colls., Inc., No. 10-cv-00018-B (N.D. Tex. 2010);

U.S. ex rel. Pilecki-Simko v. Chubb Inst., 2010 WL 1076228

(D.N.J. Mar. 22, 2010); U.S. ex rel. Boyce v. ED4MIL, LLC, No.

10-cv-02097 (M.D. Pa. 2010); U.S. ex rel. Carter v. Bridgepoint

Educ., Inc., No. 10-cv-01401 (S.D. Cal. 2010); U.S. ex rel. Clark

v. Am. Commercial Colls., Inc., No. 10-cv-00129-C (N.D. Tex.

2010); U.S. ex rel. Hoggett v. Univ. of Phoenix, No. 10-cv-02478

(E.D. Cal. 2010); U.S. ex rel. Palmer v. Mfrs. Tech. Inst., Inc.,

No. 10-cv-02391 (D. Kan. 2010); U.S. ex rel. Sobek v. Educ.

Mgmt., LLC, No. 10-cv-00131 (W.D. Pa. 2010); U.S. ex rel. Wal-

ters v. Educ. Mgmt. Corp., No. 10-cv-02479 (E.D. Cal. 2010);

U.S. ex rel. Jajdelski v. Kaplan, Inc., 834 F. Supp. 2d 1182 (D.

Nev. 2011), affd in part, 517 F App’x 534 (9th Cir. 2013); U.S.

ex rel. Leveski v. ITT Educ. Servs., 2011 WL 3471071 (S.D. Ind.

Aug. 8, 2011), rev'd, 719 F.3d 818 (7th Cir. 2013); U.S. ex rei.

Gatsiopoulos v. Kaplan Higher Educ., 2011 WL 3489443 (S.D.

Fla. 2011); U.S. ex rel. Andrews v. Corinthian Colls., Inc., No.

11-cv-01675 (C.D. Cal. 2011); United States v. Art Inst. Online,

Inc., No. 11-00601 (W.D. Pa. 2011); U.S. ex rel. Dong v. Distance

Educ. Training Council, No. 11-cv-00377 (D.D.C. 2011); U.S. ex

rel. Ferguson v. Bridgepoint Educ., Inc., No. 11-cv-00493 (S.D.

Cal. 2011); U.S. ex rel. Fernandez v. Fla. Nat7 Coll., Inc., No.

11-cv-22814 (S.D. Fla. 2011); U.S. ex rel. Glaser v. Educacion

Significativa, LLC, No. 11-cv-01103 (S.D. Cal. 2011); U.S. ex

rel. Hays v. Corinthian Colls., Inc., No. 11-cv-01395 (C.D. Cal.

2011); U.S. ex rel. Hinkle-Allin v. Ontario Health Educ. Co., No.

11-cv-06273 (C.D. Cal. 2011); U.S. ex rel. LaPorte v. Premier

Educ. Grp., No. 11-cv-3523 (D.N.J. 2011); U.S. ex rel. Munoz v.

Computer Sys. Inst., Inc., No. 11-cv-07899 (N.D. Ill. 2011); U.S.

ex rel. Rawles v. Universal Tech. Inst., Inc., No. 11-cv-02320 (D.

Ariz. 2011); U.S. ex rel. Coleman v. Kaplan, Inc., No. 12-cv-

00459 (W.D. Tex. 2012); U.S. ex rel. Deck v. Miami-Jacobs Bus.

Coll. Co., No. 12-cv-00063 (S.D. Ohio 2012); U_S. ex rel. Feria v.

DeVry, Inc., No. 12-cv-00843 (W.D. Tex. 2012); U.S. ex rel. Gas-

con v. Coll. of Bus. & Tech. Inc., No. 12-cv-21812 (S.D. Fla.

2012); U.S. ex rel. Hoffman v. Nat7 Coll., 2013 WL 3421931

(N.D. Ind. 2013); U.S. ex rel. Hysko v. Northcentral Univ., Inc.,

No. 12-cv-01672 (D. Ariz. 2012); U.S. ex rel. Nelson v. Career

Educ. Corp., No. 12-cv-00775 (E.D. Wis. 2012), affd, 788 F.3d

696 (7th Cir. 2015); U.S. ex rel. Pena v. FastTrain II Corp., No.

12-cv-21431 (S.D. Fla. 2012); U.S. ex rel. Rainwater v. Educ.

Mgmt. Corp., No. 12-cv-01008 (M.D. Tenn. 2012); U.S. ex rel.

7

number of cases, the Government declined to inter-

vene as a plaintiff. Many of these FCA lawsuits have

been based, at least in part, on the implied false cer-

tification theory. See, e.g., United States v. Educ.

Mgmt. Corp., 871 F. Supp. 2d 433, 451 (W.D. Pa.

2012). These lawsuits are rooted in the fiction that a

school’s entirely accurate submission requesting

payment of Title ITV funds is deemed “false” where

the school is alleged to be in noncompliance with a

statutory or regulatory requirement. Exploiting the

implied false certification theory, the plaintiffs in

these lawsuits—some of them professional relators—

often seek statutory damages for each student who

requested Title IV funds over multi-year periods, re-

sulting in multi-billion-dollar demands that the

plaintiffs then seek to treble under the FCA’s penalty

provisions.

APSCU submits this amicus curiae brief to de-

scribe the experiences of institutions of higher educa-

tion in defending against the implied certification

Capriola v. BrightStar Educ. Grp. Inc., 2013 WL 1499319 (E.D.

Cal. Apr. 11, 2013); United States v. Empire Educ. Corp., 959 F

Supp. 2d 248 (N.D.N.Y. 2013); U.S. ex rel. Gillespie v. Kaplan

Univ., 2013 WL 3762445 (S.D. Fla. July 16, 2013); U.S. ex rel.

Barrett v. Beauty Basics, Inc., No. 13-cv-1989 (N.D. Ala. 2013);

U.S. ex rel. Brooks v. Stevens-Henager Coll., Inc., No. 13-CV-

00009 (D. Idaho 2013); U.S. ex rel. Caron v. B&H Educ., Inc.,

No. 13-cv-05256 (C.D. Cal. 2013); U.S. ex rel. Rumann v. Phoe-

nix Sch. of Law, LLC, No. 13-cv-02102 (D. Ariz. 2013); U.S. ex

rel. Smith v. Va. Coll. LLC, No. 13-cv-00547 (M.D. Ala. 2013);

U.S. ex rel. Miller v. Weston Educ., Inc., 2014 WL 1292407

(W.D. Mo. Mar. 31, 2014), rev'd in part, 784 F.3d 1198 (8th Cir.

2015); U.S. ex rel. Powell v. Am. Intercontinental Univ., 2014

WL 4829206 (N.D. Ga. Sept. 29, 2014); U.S. ex rel. Brooks v.

Stevens-Henager Coll., Inc., No. 15-cv-00119 (D. Utah 2015);

U.S. ex rel. Rutledge v. Aveda, 2015 WL 2238786 (N.D. Ala.

2015).

8

theory and to provide the Court with the real-world

implications of that theory in the education sector.

The FCA lawsuits brought against schools under the

implied certification theory—and particularly the

expansive version adopted by the First Circuit be-

low—“expand the FCA well beyond its intended role

of combating ‘fraud against the Government.” Alli-

son Engine Co. v. United States ex rel. Sanders, 553

U.S. 662, 669 (2008) (citation omitted). The theory

effectively transforms the FCA from a remedy for

government-contractor fraud into a scheme for pri-

vate plaintiffs to extort settlements from colleges and

universities seeking to avoid costly discovery or una-

ble to sustain the severe risks of a trial on alleged

regulatory or contractual violations. This in turn has

led to less funding for classroom resources and stu-

dent services, and undeserved financial windfalls for

qui tam relators and their counsel. As history has

shown, these harms fall disproportionately on

APSCU’s current and former member institutions

and the students that those institutions serve.

ARGUMENT

This Court should limit the FCA to its intended

sphere—/fraud against the federal government—and

firmly reject the legal fiction of implied certification.

A truthful request for payment of federal funds is not

“false” under the FCA simply because it is later

shown that the requestor was not in compliance with

a statutory, regulatory, or contractual requirement.

Strictly limiting the FCA to remedying instances of

actual fraud is a necessary check on the FCA’s harsh

and often destructive penalties, and helps to prevent

relators from displacing the complex legal regimes

that govern highly regulated industries, such as

higher education. At a minimum, the implied certifi-

9

cation theory should be narrowly confined to statuto-

ry, regulatory, and contractual provisions with which

‘the requestor’s compliance is an express condition of

payment—not the thousands of provisions that are a

condition of participation in the government pro-

gram.

I. THE LEGAL FICTION OF “IMPLIED

CERTIFICATION” CANNOT PROPERLY

TRANSFORM TRUTHFUL STATEMENTS INTO

“FRAUD” UNDER THE FCA

In this case, petitioner Universal Health Ser-

vices, a medical care provider, faced a scenario all too

familiar to institutions of higher education: exposure

to onerous liability and penalties under the FCA for

making an entirely truthful and accurate request for

payment from the federal government, based solely

on the legal fiction of implied certification. That fic-

tion has no basis under the FCA, a statute “intended

to reach all types of fraud” against the federal gov-

ernment. United States v. Neifert-White Co., 390

U.S. 228, 232 (1968) (emphasis added).

The implied certification theory far exceeds the

outermost limits of liability authorized by the FCA,

which provides the federal government with a reme-

dy against the submission of “false or fraudulent

claim[s]” for payment. 31 U.S.C. § 3729(a)(1)A),

(a)(1)B). Actual fraud is the focus of the FCA, and

this Court has rejected theories that give rise to

“almost boundless” FCA liability. Allison Engine

Co. v. United States ex rel. Sanders, 553 U.S. 662,

669 (2008) (citation omitted). A government contrac-

tor’s legal or regulatory infractions cannot properly

transform a facially truthful request for payment in-

to knowing fraud.

10

In analogous contexts, this Court has rejected in-

ferences of fraud under federal statutes far less puni-

tive than the FCA. In Omnicare, Inc. v. Laborers

District Council Construction Industry Pension Fund,

135 S. Ct. 1318 (2015), for example, this Court unan-

imously held that a securities issuer’s statement that

“we believe we are obeying the law” did not give rise

to securities fraud liability where there was no alle-

gation that the speaker did not honestly hold that

opinion. Jd. at 1327. It is not fraud, this Court held,

to certify a good-faith belief that a company is in

compliance with the law, even if that belief later

“turned out to be wrong.” Jd. That logic applies with

even greater force under the FCA, which (unlike the

securities laws) imposes treble damages and statuto-

ry penalties for violations.

“(T]he FCA is not an appropriate vehicle for po-

licing technical compliance with administrative regu-

lations.” United States ex rel. Lamers v. City of

Green Bay, 168 F.3d 1013, 1020 (7th Cir. 1999). On-

ly knowing falsity—that is, fraud—supports liability

under the FCA. Jd. That construction is consistent

with the statutory text and long-standing principles

of due process, which does not allow for the imposi-

tion of treble damages and statutory penalties except

for intentional misconduct, see Safeco Ins. Co. v.

Burr, 551 U.S. 47, 69 (2007); Sw. Tel. & Tel. Co. v.

Danaher, 238 U.S. 482, 490-91 (1915), and only then

on a heightened evidentiary showing, see Honda Mo-

tor Co. v. Oberg, 512 U.S. 415, 433 (1994); Harrison

v. Vose, 50 U.S. (9 How.) 372, 378-79 (1850). Expos-

ing schools to punitive liability and penalties based

upon the fiction of implied false certification fails to

heed these statutory and jurisprudential limitations.

1]

A. The’ Implied _ Certification Theory

Creates Unreasonable Outcomes For

Colleges And Universities

The fiction of implied certification is frequently

deployed against institutions that operate in highly

regulated industries, such as institutions of higher

education. Like health care providers, colleges and

universities are subject to a complex regulatory envi-

ronment and make numerous submissions to the

federal government for funds. Postsecondary schools

rely almost exclusively on tuition to provide educa-

tion and services, and most students pay their tui-

tion with assistance from federal Title IV funding.

In recognition of this fact, Congress allows proprie-

tary institutions of higher education to obtain up to

90% of their revenue from Title IV funds. 20 U.S.C.

§ 1094(a)(24).

These qualities make postsecondary schools

prime targets for overreaching qui tam relators seek-

ing to cash in on allegations of minor regulatory in-

fractions. Some of these alleged infractions, moreo-

ver, bear little or no connection with Title IV fund-

ing. For example, in a case discussed in more detail

below, Kaplan University has been defending itself

against claims that certain of its policies and proce-

dures for disabled employees were not in compliance

with Section 504 of the Rehabilitation Act. See Ur-

qguilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1046-47

(11th Cir. 2015). In another case, Heritage College is

facing an upcoming FCA trial on allegations that it

failed to maintain adequate records. See United

States ex rel. Miller v. Weston Educ., Inc., 784 F.3d

1198, 1201 (8th Cir.), petition for cert. filed, No. 15-

404 (U.S. Sept. 28, 2015). In yet another case, Na-

tional College of Kentucky defended itself against a

12

claim that confidentiality and non-disparagement

agreements that school faculty signed violated ac-

creditation standards. United States ex rel. Hoffman

v. Natl Coll., No. 12-cv-237, 2013 WL 3421931, at *2

(N.D. Ind. July 8, 2013).

These FCA suits and others like them have pro-

liferated notwithstanding the fact that APSCU’s

members—colleges, universities, and trade schools

across the country—are closely regulated by multiple

federal agencies and oversight authorities. Most

prominent among these regulators is the U.S. De-

partment of Education, which administers the Title

IV funding programs and their attendant regula-

tions. APSCU v. Duncan, 681 F.3d 427, 433 (D.C.

Cir. 2012). Those regulations are extensive. The

Department’s regulations on schools’ participation in

its financial assistance programs alone fill 246 pages

of the Federal Register and regulate such wide-

ranging topics as the content and administration of

tests employed to allow non-high school graduates

access to postsecondary education and Title IV loans,

see 34 C.F.R §§ 668.146(b), 668.151, to the distribu-

tion of mail voter registration forms to students, see

id. § 668.14(d).°

Colleges and universities are also heavily regu-

lated by the states and private regulatory authori-

ties. California, for example, has adopted regula-

tions covering everything from the types of reports a

school must issue to the necessity of a library. Cal.

Code Regs. tit. 5, § 74110 (annual report require-

ment); id. § 71740 (“A degree granting institution

® In addition, the Securities and Exchange Commission, the

Consumer Financial Protection Bureau, and the Federal Trade

Commission have all asserted or attempted to assert regulatory

or enforcement authority over institutions of higher education.

13

shall make available for student use a library and

other learning resources.”). The states also frequent-

ly assert investigative and enforcement authority

within the education sector, sometimes launching

multi-year investigations in concert with other states

or filing enforcement lawsuits.’ Independent accred-

itors, such as the Accrediting Council for Independ-

ent Colleges and Schools, impose additional require-

ments on schools as a condition of maintaining ac-

creditation.

To be eligible to participate in the Title IV pro-

gram and receive Title ITV funding, schools must en-

ter into a Program Participation Agreement (“PPA”)

with the U.S. Secretary of Education. 20 U.S.C.

§ 1094(a). The PPA is a detailed agreement that sets

forth a “panoply of statutory, regulatory, and con-

tractual requirements” and then “incorporates by

reference thousands of pages of other federal laws

and regulations.” United States v. Sanford-Brown,

Ltd., 788 F.3d 69, 701, 707 (7th Cir.), petition for

cert. filed, No. 15-729 (U.S. Dec. 2, 2015). Each PPA

“shall condition the initial and continuing eligibility

of an institution to participate in a program [for Title

IV subsidies] upon compliance” with certain enumer-

ated requirements. 20 U.S.C. § 1094(a). In addition,

PPAs generally require schools to “comply with all

statutory provisions,” “all applicable regulatory pro-

visions,” and “all applicable special arrangements,

agreements, and limitations entered into” under Ti-

tle IV.°

" See, e.g., People v. Alta Colls., No. 12 CH 1587 (Cir. Ct. of

Cook Cnty. Ill. filed Jan. 18, 2012).

® Program Participation Agreement, United States ex rel.

Nelson v. Career Educ. Corp., No. 12-cv-775 (E.D. Wis. Jan. 3,

2014), ECF No. 65-1.

14

Given the complex web of laws and regulations

imposed on postsecondary schools, it is not unusual

for schools to be found noncompliant with one or

more requirements. For example, the University of

North Carolina recently disclosed that an internal

investigation had revealed that one department

within the school had falsified grades and attend-

ance.” Similarly, the Department of Education re-

cently determined that Harvard Law School and

Yale University had violated regulations for respond-

ing to and reporting sex offenses, respectively.*°

Against this regulatory backdrop, schools make

numerous submissions to the federal government,

ranging from the infrequent submission of PPAs to

the frequent and numerous requests for payment of

Title ITV funds for students. For the latter, schools

utilize the Department of Education’s online system,

which allows a school to make automated payment

requests for multiple students at a time by providing

information such as the school’s identification num-

ber, the school’s unique grant award number that

corresponds to whether the funds are Pell Grants,

° See Kenneth L. Wainstein, Investigation of Irregular Clas-

ses in the Department of African and Afro-American Studies at

the University of North Carolina at Chapel Hill at 3 (Oct. 16,

2014), http://carolinacommitment.unc.edu/reports-

resources/investigation-of-irregular-classes-in-the-department-

of-african-and-afro-american-studies-at-the-university-of-north-

carolina-at-chapel-hill-2/.

© Harvard Law School, U.S. Dep’t of Educ., No. 01-11-2002

(Dec. 30, 2014) (finding the “Law School failed to comply with

the Title [IX requirements for the prompt and equitable re-

sponse to complaints of sexual harassment and sexual assault”);

Yale University, U.S. Dep’t of Educ., No. 00142600 (Apr. 19,

2013) (imposing $165,000 fine on the university for failing to

properly report sex offenses in its required submission of annu-

al statistics).

15

Perkins Loans, or the like, and the financial deposit

information.'' A school may submit tens of thou-

sands of such requests for payment each year. In

one recent FCA case based on an implied certifica-

tion theory, for example, the relator provided evi-

dence that the defendant school had submitted more

than 200,000 requests for payment from the federal

government during the seven-year period spanning

approximately 2007 through 2013. See Initial Brief

of Relator-Appellants Manuel Christiansen and Bri-

an Ashton at 58-59 & n.56, United States ex rel.

Christiansen v. Everglades Coll., No. 14-13992 (11th

Cir. Dec. 23, 2014) (hereinafter “Christiansen Br.”).

The fiction of implied certification cannot rea-

sonably be reconciled with these realities. Consider,

for example, the specifics of electronic payment re-

quests that allegedly become the “false claims” under

the implied certification theory.” The information

provided in these requests includes the school’s iden-

tification number and grant number, bank account

information, and the amount of funds the school is

requesting for the relevant students.” The only ex-

press “certification” during the entire process is that

“the funds are being expended within three business

days of receipt for the purpose and condition of the

agreement.” See Frequently Asked Questions,

http://www?2.ed.gov/programs/fie/faq.htm1 (last modi-

fied July 18, 2011). Nothing suggests that when an

See https:/Awww.g5.gov/ext/exthelp2/toc0. html] (providing

tutorials on how to create a payment request) (last visited on

Jan. 25, 2016).

2 See https://www.g5.gov/ext/exthelp2/tpc/fcae1078-3cc0-4e06-

902f-2c096e0778d9/topic._html?mode=S&printitname=fcae 1078-

3cc0-4e06-902f-2c096e0778d9_JOBAID.doc (online tutorial)

(last visited Jan. 25, 2016).

- -

16

employee performs this ministerial submission, that

employee is certifying that the school is in perfect

compliance with every law and regulation adopted

pursuant to the Higher Education Act.

Yet, in FCA litigation against schools, that pre-

cise fiction has been adopted to hold a school liable

under the FCA. United States v. Educ. Mgmt. Corp.,

871 F Supp. 2d 433, 451 (W.D. Pa. 2012). The im-

plied certification theory therefore has the “effect of

putting words” in the school’s “mouth” that it has

complied with each and every contractual, legal, and

regulatory provision included in the PPA. 1 John T.

Boese, Civil False Claims and Qui Tam Actions

§ 2.03[G][2], at 2-207 (4th ed. Supp. 2015-2). This is

“unreasonable”: “an institution’s continued compli-

ance with the thousands of pages of federal statutes

and regulations incorporated by reference into the

PPA are [not] conditions of payment for purposes of

liability under the FCA” and a violation of any one of

them does not make every request for payment

“false.” Sanford-Brown, 788 F.3d at 711.

Nor can a school’s previous agreement with the

Department of Education in a PPA provide an ac-

tionable certification under the FCA. Schools enter

into PPAs only periodically, when school officials cer-

tify that their schools will comply with applicable

law going forward in order to maintain the schools’

eligibility to participate in Title IV programs. But an

agreement to comply with law in the future is not a

certification of past or present compliance; and a

school’s future statutory or regulatory violations

cannot reasonably render the agreement “false” or

“fraudulent” when it was entered. Cf. Omnicare, 135

S. Ct. at 1327.

17

B. The Implied _ Certification Theory

Unduly Coerces Defendants To Settle

Even Meritless Cases

In addition to resting on an untenable and un-

reasonable fiction, the implied certification theory

impermissibly extends the FCA’s harsh damages and

penalties, which are already “essentially punitive in

nature.” Vt. Agency of Nat. Res. v. United States ex

rel. Stevens, 529 U.S. 765, 784-85 (2000).

Under the FCA, defendants are subject to treble

damages and civil penalties ranging from $5,500 to

$11,000 per false claim. 31 U.S.C. § 3729%a)(1); 28

C.F.R. § 85.3(a)(9). Those penalties are set to rise

significantly this year through a one-time “catch up”

adjustment for inflation, with the exact amount to be

determined by the Department of Justice and Office

of Management and Budget through a notice and

comment rulemaking.’* The adjusted penalties could

be as high as $9,300 to $18,600 per “false” claim. In

addition to these penalties, a determination that a

school has violated the FCA could lead to debarment

or suspension—a “death sentence” for any school.

See 48 C.F.R. § 9.406-2(a)(1) (possible debarment in

the event of a “civil judgment for. . [clommission of

fraud” “in connection with (i) obtaining, (ii) attempt-

ing to obtain, or (iii) performing a public contract or

subcontract”); id. § 9.406-2(b)(1)vi) (possible debar-

ment for knowing failure to “disclose” “credible evi-

dence” of a “[v}iolation of the civil False Claims Act”):

see also, e.g., id. § 9.407-2(a)(1) (suspension); id.

§ 9.407-2(a)(8) (suspension).

‘* See Bipartisan Budget Act of 2015, Pub. L. No. 114-74,

§ 701, 129 Stat. 584, 599-600 (2015) (amending the Federal Civ-

il Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461

note).

18

Qui tam relators and the government frequently

argue in implied certification cases brought against

schools that because each request for Title IV fund-

ing is a separate “false claim,” each funding request

triggers the maximum civil penalty. For example, in

an FCA case that went to trial against Everglades

College doing business as Keiser University, the re-

lators and the government seized upon the implied

certification theory to argue that each of 234,127 re-

quests for payment by the school was a false claim.

See United States ex rel. Christiansen v. Everglades

Coll., No. 12-cv-60185, 2014 WL 5139301, at *1 (S.D.

Fla. Aug. 14, 2014) (findings of fact and law after

bench trial); Christiansen Br. 10, 58-59 & n.56. Uti-

lizing the implied certification theory, the relators

sought between $1.287 and $2.575 billion in civil

fines alone.

In addition, the relators sought to recover (with

the support of the United States) the full amount of

Title IV funds dispersed to Keiser—$1.288 billion—

and then trebled to nearly $3.9 billion. Christiansen

Br. 10, 59. Indeed, before the case was settled on

appeal, the relators had argued to the Eleventh Cir-

cuit that the value of the education the students ac-

tually received was entirely irrelevant to the damag-

es calculation. In the relators’ view, the traditional

method of calculating damages—actual loss to the

government—“does not translate neatly into the [im-

plied] false certification context because the .. .

funds are intended to benefit third parties, such as

the students in the case at hand.” Id. at 27." But

‘© Similar arguments have been successfully advanced in the

Medicare context to calculate FCA damages without discount-

ing the substantial value of services rendered. See, e.g., United

States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 386 (4th Cir.

19

such arguments ignore the complete disconnect be-

tween the relators’ measure of damages and an al-

leged regulatory infraction that has no impact on the

quality or value of the education provided. See also,

e.g., infra at 28-30 (suit seeking FCA damages for al-

leged inadequacies in school’s policies for disabled

employees).

The total recovery that the relators sought from

Keiser University under their implied certification

theory would have squarely implicated the Eighth

Amendment’s prohibition on excessive fines and the

Due Process Clause. See State Farm Mut. Auto Ins.

Co. v. Campbell, 538 U.S. 408, 418 (2003); BMW of

N. Am., Inc. v. Gore, 517 U.S. 559, 562-63 (1996).

With treble damages of $3.864 billion, and up to

$2.575 billion in civil fines, the relators were seeking

between $5.15 and $6.44 billion in damages under

the FCA. Liability of this magnitude—which is a

danger in any FCA case premised on the implied

false certification theory—would bankrupt any

school, thereby placing undue pressure on schools to

settle even unmeritorious FCA claims. Cf. Haroco,

Inc. v. Am. Natl Bank & Trust Co., 747 F.2d 384,

399 n.16 (7th Cir. 1984) (noting the “in terrorem set-

tlement value that the threat of treble damages may

add to spurious claims”), affd, 473 U.S. 606 (1985).

The case brought by the United States against

Education Management Corporation (“EDMC’”) is al-

so illustrative of the implied certification theory’s

dramatic potential for abuse. Like the Keiser case,

the relator, and later the United States, pursued an

2015) (no discount on FCA damages where false certification

under the Stark Act meant that the government owed “noth-

ing”); United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008)

(same).

20

implied certification theory (along with others), argu-

ing that “each and every request for payment by

EDMC’” was implicitly false during the time in which

the school was allegedly in violation of the ban on so-

called “incentive compensation.” Educ. Mgmt. Corp.,

871 F. Supp. 2d at 451." The district court accepted

the implied certification theory of liability based on

binding Third Circuit precedent, see id., putting into

play a theory of liability that could have easily closed

EDMC’s doors to its more than 100,000 students

across the country. Moreover, the “multi-billion dol-

lar” damages demand allowed the government to

seek correspondingly “expansive” discovery. Order

at 5, United States v. Educ. Mgmt. LLC, No. 07-cv-

00461 (W.D. Pa. July 23, 2013), ECF No. 291.

Rather than risk the demise of an entire school

system, and to put a stop to the slow bleed caused by

the cost of fulfilling its discovery obligations that

were diverting resources from education programs,

EDMC agreed to pay nearly $96 million to settle four

FCA actions against the school and an investigation

by state attorneys general.’’ Remarkably, this set-

tlement closely followed a summary judgment ruling

that, although adverse to EDMC, explained that the

United States and the relator “face a difficult burden

to succeed on their claims.” United States v. Educ.

‘© The Higher Education Act’s compensation provision prohib-

ited at the time the payment of bonuses or other incentive pay-

ments to recruiters based solely on the number of students the

recruiter enrolled. Educ. Mgmt. Corp., 871 F Supp. 2d at 440.

‘’ See Press Release, Department of Justice, For-Profit Col-

lege Company to Pay $95.5 Million to Settle Claims of Illegal

Recruiting, Consumer Fraud and Other Violations (Nov. 16,

2015), http://www justice.gov/usao-wdpa/pr/profit-college-

company-pay-955-million-settle-claims-illegal-recruiting-

consumer-fraud.

21

Mgmt. LLC, No. 07-cv-461, 2014 WL 1796686, at *5

(W.D. Pa. May 6, 2014). According to the district

court, the government would need evidence at trial of

a “top-down, corporate-wide fraud—not merely iso-

lated instances of inadequate evaluations by supervi-

sors.” Jd. Yet, so coercive was the implied certifica-

tion theory and its attendant threat of “multi-billion-

dollar” damages that EDMC was forced to settle

what may well have been an “anemic” case at trial.

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559 (2007).

These cases illustrate how the false certification

theory builds on, and extends, the FCA’s already “es-

sentially punitive” damages provisions. Stevens, 529

U.S. at 784-85. Congress never intended the FCA to

be a tool for government prosecutors—or private gui

tam relators—to threaten to drive colleges and uni-

versities into bankruptcy whenever they lose an FCA

lawsuit. This Court should reject the destructive fic-

tion of implied certification.

C. The Implied’ Certification Theory

Displaces Regulations Designed To

Redress Infractions

This enormous and undue financial pressure to

settle even anemic cases, based on the fiction that a

facially true request for payment is implicitly false,

is also entirely unnecessary. A complex regulatory

regime already exists to ensure that colleges and

universities use Title [V funds appropriately. The

implied certification theory not only expands FCA

jurisdiction far beyond its intended reach, but also

simultaneously “undermine[s] the government’s own

regulatory procedures” designed specifically to en-

force compliance. United States ex rel. Vigil uv.

Nelnet, Inc., 639 F.3d 791, 799 (8th Cir. 2011) (cita-

tion omitted).

22

The Department of Education has ample authori-

ty, without resorting to boundless FCA doctrines, “to

enforce the PPA through administrative mechanisms

. upto and including the power to terminate” a

school’s participation in the government loan pro-

grams. Sanford-Brown, 788 F.3d at 712. For exam-

ple, the Department of Education may “[t]erminate

the institution’s eligibility” for Title [TV funds “in

whole or as to a particular location” when the Secre-

tary determines that certain conditions have been

met. 34 C.F.R. § 600.41(a)(1). The Department may

also “[lJimit ... the authority of the institution to

disburse, deliver, or cause the disbursement or deliv-

ery of funds” under Title IV or take “emergency ac-

tion.” Id. § 600.41(a)(2), (3); see also id. § 600.41(b)-

(e). The agency may also suspend funding, impose

fines, and limit institutions’ ability to contract with

third parties. Jd. § 668.81(a); see also id. § 668.83

(emergency action); id. § 668.86 (“Limitation or ter-

mination proceedings”); id. § 668.87 (prehearing con-

ferences); id. § 668.88 (administrative hearings); id.

§ 668.89 (powers of hearing officer); id. § 668.90 (ad-

judicatory powers). These are just some of the ad-

ministrative powers that led the Seventh Circuit to

conclude that “[t]he FCA is simply not the proper

mechanism for government to enforce violations of

conditions of participation contained in—or incorpo-

rated by reference into—a PPA.” Sanford-Brown,

788 F.3d at 712; accord United States ex rel. Conner

v. Salina Reg Health Ctr., Inc., 543 F.3d 1211, 1220

(10th Cir. 2008); Mikes v. Straus, 274 F.3d 687, 700,

702 (2d Cir. 2001).”*

‘* Separate from these provisions, independent accreditors

also exercise immense power over schools to define the stand-

ards for academic accreditation. A school’s loss of accreditation

23

Indeed, the Department of Education recently

exercised those immense powers (and not the implied

certification theory of liability or even the FCA) to

effectively shut down Corinthian Colleges. Dissatis-

fied with the school’s production of documents and

data related to the school’s job placement claims, the

Department used its administrative powers to insti-

tute a 21-day hold on the school’s ability to receive

financial aid in June 2014. This action alone put the

school on the path toward bankruptcy, according to

its filings with the Securities and Exchange Commis-

sion. Shortly thereafter, Corinthian agreed to sell or

close the vast majority of its campuses in exchange

for the Department agreeing to release $35 million in

student financial aid. Corinthian eventually closed

its doors in April 2015 and declared bankruptcy.

To be sure, not every exercise of enforcement

power by the Department of Education results in the

loss of Title TV funding—a death knell for the educa-

tional institution. Most enforcement actions do not.

But that is precisely why such measured determina-

tions are best left to the agency, which is better situ-

ated than courts to balance the need for regulatory

oversight and the compelling interests of the institu-

tion and its students. It is also why there is no basis

to presume, as the implied certification theory does,

that every regulatory infraction causes the payment

of Title IV funds that would not otherwise have been

paid.

The resulting tension between relators acting as

“bounty hunters,”"® and official government policy

is itself a ground for enforcement action by the Department of

Education. 34 C.F.R. § 600.41(aX1\ii XC).

‘8 United States ex rel. Bogina v. Medline Indus., Inc., __ F.3d

___, 2016 WL 25611, at *2 (7th Cir. Jan. 4, 2016).

24

was exemplified by their conflicting actions with re-

spect to the compensation provision. See supra at 20

n.16. At the same time that relators filed FCA law-

suits against schools seeking a return of all Title IV

funds relying in part on the implied certification the-

ory of liability,” the policy of the United States, as

expressed in a 2002 memorandum issued by the

Deputy Secretary of the U.S. Department of Educa-

tion, was that a violation of the compensation provi-

sion did “not result{] in monetary loss to the Depart-

ment.” Memorandum, United States ex rel. Lee v.

Corinthian Colls., No. 07-cv-01984 (C.D. Cal. Aug. 3,

2009), ECF No. 37-5 at 1 (emphasis added). Indeed,

the government memorandum directly undermined

the relators’ theory that a violation made the school

ineligible, explaining that “[i}mproper recruiting does

not render a recruited student ineligible to receive

student aid funds” and recommend that the usual

sanction for a violation would be “the imposition of a

fine.” Id. Yet the expansive qui tam cases proceeded

nonetheless, often into expensive discovery.” See,

e.g., Order, U.S. ex rel. Lee v. Corinthian Colls., No.

07-cv-01984 (C.D. Cal. Mar. 15, 2013), ECF No. 224

at 1-2. That the government intervened as a plaintiff

in at least one of these cases, see supra at 19-21, only

highlights the conflict inherent in using the FCA to

displace targeted regulatory mechanisms.

The Corinthian example shows how a school’s

primary regulator can effectively exercise plenary

2 See, e.g., Complaint for Damages, with Demand for Jury

Trial, United States ex rel. Carter v. Bridgepoint Educ., Inc., No.

10-cv-1401 (S.D. Cal. July 2, 2010), ECF No. 1, 7 34 (alleging

the school is not “eligible under the Title IV program due” to

violations of the compensation provision).

21 See, e.g., Order, Carter, No. 10-cv-01401 (S.D. Cal. Jan. 8,

2014), ECF No. 41 (denying motion to dismiss).

25

regulatory power over a school’s use of Title IV

funds. The government’s exercise of that regulatory

power, moreover, is subject to Executive oversight

through the Appointments Clause and the review

mechanisms afforded by the Administrative Proce-

dure Act. There is no need for legal fictions that

have the effect of vesting similar powers in private

gui tam relators. To the contrary, the fiction of im-

plied false certification intrudes on Executive Branch

power, disrupts the complex regulatory structure

that governs institutions of higher education, and

injects harmful uncertainty into the affairs of propri-

etary institutions of higher education.

OK K

This Court should firmly reject the implied false

certification theory. That theory rests on an untena-

ble fiction that an employee’s submission of a routine

request for funding is the equivalent of an express

certificate of compliance by the institution. Moreo-

ver, in the higher education context, the implied cer-

tification fiction so grossly distorts the FCA’s penalty

and treble damages provisions that almost any find-

ing of liability threatens the school’s existence. The

theory serves no legitimate purpose, given that the

Executive Branch has ample authority and expertise

to enforce the rules and regulations that it imposes

on colleges and universities—and true frauds can be

redressed through many mechanisms. In contrast,

upholding the implied certification theory would “ex-

pand the FCA well beyond its intended role of com-

bating ‘fraud against the Government.” Allison En-

gine, 553 U.S. at 669 (citation omitted).

26

Il. AT A MINIMUM, THE IMPLIED CERTIFICATION

THEORY SHOULD BE NARROWLY LIMITED To

EXPRESS CONDITIONS OF PAYMENT

Should this Court nonetheless uphold the im-

plied certification theory of liability, the Court

should make clear that the theory applies only to vio-

lations of express conditions of payment of federal

funds, not conditions of participation in federal pro-

grams. See, e.g., United States ex rel. Graves v. ITT

Educ. Servs., Inc., 284 F Supp. 2d 487, 502 (S.D.

Tex. 2003) (dismissing an FCA suit premised on a

violation of the compensation provision because the

restriction is merely “a condition of eligibility to par-

ticipate in the program, not an express condition of

payment of specific claims”), affd, 111 F App’x 296

(5th Cir. 2004). A contractor’s participation in a fed-

eral program—that is, its eligibility for federal

funds—says nothing about the conditions under

which those funds might later be paid. The distinc-

tion between conditions of payment and conditions of

participation is critical to ensuring that the FCA

does not become “the very type of enforcement tool

that courts have repeatedly cautioned against—a

general enforcement mechanism for the entire feder-

al regulatory scheme.” 1 Boese, supra,

§ 2.03[G][1][b], at 2-203.

An express condition of payment is a law, regula-

tion, or contractual provision that sets forth a specif-

ic regulatory mandate and expressly states that the

government contractor “must comply in order to be

paid.” Mikes, 274 F.3d at 700. These are the few,

critically important, laws “where compliance is a

prerequisite to payment.” Id. at 698.

In contrast, a condition of participation, or eligi-

bility, is a rule or regulation that must be followed by

27

participants in the program, but a violation of which

will not necessarily result in a cutoff from payment.

See Mikes, 274 F.3d at 696. An example might be a

regulation providing that “[a]n institution described

in paragraph (a) of this section must annually, for

the preceding reporting year, prepare a report that

contains the following information.” 34 C.F.R.

§ 668.47(c). Such regulations, which abound in the

Code of Federal Regulations, govern the ministerial

duties of participants in federal programs but do

not—and should not—trigger FCA liability for in-

fractions.”

The rationale for the distinction rests on the

“restitutionary” purpose of the FCA—to recover “ill-

(Igotten funds.” Mikes, 274 F.3d at 697. If “the al-

leged noncompliance would not have influenced the

government’s decision to pay,” the Government has

lost no money and there are no “ill-[)gotten funds.”

Id. Imposing liability in those instances where “reg-

ulatory noncompliance” is “irrelevant to the govern-

ment’s disbursement decision” would be “anoma-

lous,” and provide the government with a windfall.

Id. Accordingly, the Second Circuit and others have

correctly held that conditions of participation cannot

2 See, e.g., 34 C.F.R § 668.14(bX30) (requiring an institution

to implement measures “to effectively combat the unauthorized

distribution of copyrighted material by users of the institution’s

network”); id. § 668.14(c\1) (requiring an institution certify

that it has “in operation a drug abuse prevention program”); id.

§ 668.14(c\(2Xi) (requiring an institution to establish a campus

security policy); id. § 668.43(aX1)iv) (requiring an institution to

publish information on estimated transportation costs for stu-

dents); id. § 668.45(a\5) (requiring an institution to publish its

graduation statistics annually by July 1); id. § 668.47(c) (requir-

ing institutions to prepare an annual report on athletic pro-

gram participation).

28

support FCA liability, whereas conditions of payment

can impose FCA liability. See id. at 698. The U.S.

Department of Education itself made this clear in its

2002 memorandum stating that the agency did not

regard a school’s violation of the compensation provi-

sion to breach a condition of payment of Title IV

funds. See supra at 23-24.

The requirement of an express condition of pay-

ment before imposing FCA liability for noncompli-

ance is critical to limiting the scope of the certifica-

tion theory of liability, an already expansive doc-

trine. Bedrock notions of due process prohibit expos-

ing defendants to treble damages and civil penalties

based on implicitly false statements. See, e.g., Har-

rison, 50 U.S. at 378-79 (“It is settled . . . that, where

penalties are to be recovered, greater fullness of evi-

dence is necessary to make out such a case as the

law contemplates,” and “one shall not incur a penalty

in cases of doubt”). Schools should not face the

alarming prospect of potentially bankrupting FCA

liability and suspension or debarment premised on

their noncompliance with regulatory or contractual

provisions that have no legitimate bearing on the

schools’ receipt of government funds.

This is not a hypothetical concern. Since 2008,

for example, Kaplan University has been defending

itself against claims by a former instructor that the

school’s policies and procedures for disabled employ-

ees were not in compliance with Section 504 of the

Rehabilitation Act. See Urquilla-Diaz, 780 F.3d at

1046-47. Specifically, the former instructor utilized

findings issued by a field office of the Department of

Education’s Office of Civil Rights (“OCR”) concerning

the school’s policies and procedures. OCR recom-

mended, for example, that the “complaint procedures

29

should be amended to require the University to noti-

fy complainants in writing of the results of investiga-

tions,” a recommendation that the relator seized up-

on to bring a false certification case under the FCA.

Id. at 1047. Indeed, the relator was able to force ex-

pensive discovery on the school, even though it was

undisputed that Kaplan cooperated with OCR and

eventually received a compliance letter from OCR

“stating that no further monitoring was necessary

because [the school] had fulfilled its obligations un-

der the resolution agreement.” Jd. at 1047

This OCR-finding-turned-FCA-action should

never have been filed, much less litigated through

summary judgment and appeal to the Eleventh Cir-

cuit as it was. Compliance with Section 504 of the

Rehabilitation Act is not a condition of payment un-

der the terms of the PPA; nor are any of the other

incorporated statutes and regulations listed in that

document. Kaplan only “agreed that it would ‘com-

ply with... Section 504 of the Rehabilitation Act

and the implementing regulations 34 C.F.R. Part 104

(barring discrimination on the basis of physical

handicap).” Urquilla-Diaz, 780 F.3d at 1045 (cita-

tion omitted). Nowhere does the Department of Edu-

cation expressly state that it will not release Title IV

funds to a school for noncompliance with Section 504

of the Rehabilitation Act. Indeed, despite OCR’s

findings, “[aJt no time did the agency revoke

Kaplan’s eligibility to receive Title ITV funds.” Jd. at

1047.

Even though Kaplan fully prevailed, it did so on-

ly after litigating for nearly seven years under the

constant threat of excessive FCA damages and pen-

alties. The relators in that case did not even allege

any harm to Kaplan’s students as a result of the

30

supposedly false implied certification. The real harm

to students, as it turned out, was in forcing Kaplan

to expend significant sums in litigation fees and ex-

penses that could have been better spent on its edu-

cational offerings.

Kaplan’s experiences are far from unique. Herit-

age College is presently seeking this Court’s review

of an Eighth Circuit decision holding that participa-

tion in Title IV is “explicitly conditioned, in three dif-

ferent ways, on compliance’ with adequate record-

keeping.” Miller, 784 F.3d at 1208 (citation omitted).

Yet, none of the identified three “ways”—20 U.S.C.

§ 1094(a), 34 C.F.R. § 668.14(a)(1), (bX 4), or the PPA

itself—states that compliance with the recordkeeping

requirement is so important to the Department that

“compliance is a prerequisite to payment.” Mikes,

274 F.3d at 698. The evidence presented on sum-

mary judgment demonstrated “that none of the iden-

tified altered records impacted Title IV disburse-

ments or refunds.” Miller, 784 F.3d at 1206 (empha-

sis added).

The cases against Kaplan and Heritage College

involved accusations that the schools violated provi-

sions identified in the PPA. Not so for Computer

Systems Institute, Inc. That school faces potential

liability under a false certification theory of FCA lia-

bility for allegedly making misrepresentations in vio-

lation of a regulation not even “specifically named in

the PPA.” United States ex rel. Munoz v. Computer

Sys. Inst., Inc., No. 11-CV-7899, 2013 WL 5781810,

at *6 (N.D. Ill. Oct. 25, 2013). According to the dis-

trict court in that case, because the “PPA contains a

general agreement to abide by all regulatory provi-

sions promulgated under statutory authority,” every

single regulation adopted under the Higher Educa-

31

tion Act qualifies as a “condition of payment” suffi-

cient to establish the element of falsity in an FCA

case. See id. (emphasis added). Discovery is current-

ly ongoing in that case.

In another case against Alta Colleges doing busi-

ness as Westwood College, the relators brought an

FCA claim based on alleged misstatements that the

school made, not to the United States, but to state

regulators. See Complaint ¥¥ 31-33, United States ex

rel. Brazell v. Alta Colls., Inc., No. 05-cv-0319-N

(N.D. Tex. filed Apr. 7, 2009), ECF No. 45. Yet the

relators and the United States (which later inter-

vened as a plaintiff) pursued their claim based on the

fiction that the alleged false statements to the state

regulators meant the school’s submissions to the fed-

eral government were also “false” because there is a

federal regulation stating that a school must be “le-

gally authorized to provide an educational program

beyond secondary education in the State in which the

institution is physically located in accordance with

§ 600.9.” 34 C.F.R. § 600.5(a)(4). A school’s state-

ments to a state regulator, however, are in no mean-

ingful sense a false claim to the federal government

or a federal condition of payment. The matter was

eventually settled.

As these examples demonstrate, the distinction

between conditions of payment and participation is

critical to ensuring that the false certification theory

of liability (whether express or implied) does not al-

low a “mere breach of contract” or a minor regulatory

infraction to “give rise to liability under the [FCA].”

See, e.g., United States ex rel. Yannacopoulos v. Gen.

Dynamics, 652 F.3d 818, 824 (7th Cir. 2011). Basic

notions of fairness dictate that a defendant must

have notice through explicit language in the statute,

32

regulation, or contractual provision, that a violation

would result in non-payment and may be considered

grounds for a claim of fraud on the United States. A

failure to honor the distinction between conditions of

participation and conditions of payment can turn the

FCA into “a blunt instrument to enforce compliance

with all ... regulations.” Mikes, 274 F.3d at 699

(emphasis added).

Courts that have declined to require an explicit

condition of participation take misguided comfort in

the assumption that “strict enforcement of the Act’s

materiality and scienter requirements” will prevent

the statute from becoming a general enforcement

mechanism for all contractual and regulatory

breaches. United States v. Triple Canopy, Inc., 775

F.3d 628, 637 (4th Cir.), petition for cert. filed, No.

14-1440 (U.S. June 5, 2015) (citation omitted); see

also, e.g., United States ex rel. Hendow v. Univ. of

Phoenix, 461 F.3d 1166, 1176 (9th Cir. 2006) (same);

Munoz, 2013 WL 5781810, at *6 (same). While those

requirements are indeed important, the argument

overlooks the realities of defending against an FCA

claim. Scienter need not be pled with particularity

under Federal Rule of Civil Procedure 9(b), and the

materiality of a regulation is often either assumed or

deemed to be a factual question inappropriate for a

decision on the pleadings. See Munoz, 2013 WL

5781810, at *4, *6. Thus, by effectively punting on

the falsity element of the FCA, these courts are sub-

jecting schools to the enormous cost of discovery.

Moreover, the longer a baseless FCA suit remains

pending, the more “needless{] harm” is inflicted on

defendant’s “goodwill and reputation” by a suit that,

“at best, [is] missing some of its core underpinnings,

and, at worst, [contains] baseless allegations used to

extract settlements.” United States ex rel. Clausen v.

33

Lab. Corp. of Am., Inc., 290 F.3d 1301, 1314 n.24

(11th Cir. 2002). These harms fall not only on the

schools, but also on their students and graduates. To

put an end to these untoward and unjustified results,

this Court should make clear that a false certifica-

tion theory is only viable if the alleged violation is of

an express condition of payment.

CONCLUSION

The decision of the court of appeals should be re-

versed. This Court should reject the implied certifi-

cation theory, or, in the alternative, limit it to viola-

tions of express conditions of payment.

Respectfully submitted.

TIMOTHY J. HATCH DOUGLAS R. Cox

JAMES L. ZELENAY, JR. Counsel of Record

JEREMY S. SMITH Lucas C. TOWNSEND

GIBSON, DUNN & CRUTCHER LLP GIBSON, DUNN & CRUTCHER LLP

333 South Grand Avenue 1050 Connecticut Avenue, N.W.

Los Angeles, CA 90071 Washington, DC 20036

(213) 229-7000 (202) 955-8500

dcox@gibsondunn.com

Counsel for Amicus Curiae

January 26, 2016