Carlos Urquilla-Diaz v. Kaplan University ( 2015 )

Case: 13-13672 Date Filed: 03/11/2015 Page: 1 of 45
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-13672
________________________
D.C. Docket No. 1:09-cv-20756-PAS
CARLOS URQUILLA-DIAZ,
JUDE GILLESPIE,
Plaintiffs–Appellants,
BEN WILCOX,
Plaintiff,
versus
KAPLAN UNIVERSITY,
a.k.a. Iowa College Acquisition Corporation,
a.k.a. Kaplan College,
KAPLAN HIGHER EDUCATION CORPORATION,
a division of Kaplan, Inc.; wholly owned subsidiary of
The Washington Post Company,
KAPLAN, INC.,
Defendants–Appellees.
Case: 13-13672 Date Filed: 03/11/2015 Page: 2 of 45
________________________
Appeals from the United States District Court
for the Southern District of Florida
________________________
(March 11, 2015)
Before MARTIN and DUBINA, Circuit Judges, and RODGERS, * District Judge.
DUBINA, Circuit Judge:
In this consolidated qui tam action, three relators brought claims under the
False Claims Act against an educational institution for falsely certifying to the
government that it was in compliance with various federal statutes and regulations
to receive financial-aid funds from the federal fisc. The district court ruled against
the relators. After final judgment was entered, two relators appealed. Relator
Carlos Urquilla-Diaz appeals from the district court’s dismissal with prejudice of
his claims under the False Claims Act against Defendants Kaplan University,
Kaplan Higher Education Corp., and Kaplan, Inc. (Kaplan).1 Relator Jude
Gillespie appeals from the district court’s grant of summary judgment to Kaplan on
his claims under the False Claims Act as well as several other orders. After
reviewing the record, reading the parties’ briefs, and with the benefit of oral
argument, we affirm the district court’s judgment in part and reverse in part.
*
Honorable Margaret C. Rodgers, Chief Judge, United States District Court for the
Northern District of Florida, sitting by designation.
1
Kaplan University operates numerous online educational enterprises across the United
States and is a wholly owned subsidiary of Kaplan Higher Education Corp., a division of Kaplan,
Inc.
2
Case: 13-13672 Date Filed: 03/11/2015 Page: 3 of 45
I. Legal Framework
A. Higher Education Act
Under Title IV of the Higher Education Act of 1965, the federal government
operates a number of programs that disburse funds to students to help defray the
costs of higher education. 20 U.S.C. §§ 1070–1099d. These programs include the
Federal Pell Grant, the Federal Family Educational Loan Program, the William D.
Ford Federal Direct Loan Program, and the Federal Perkins Loan. 2 But these
funds are only available to students who attend qualifying schools.
To be eligible to receive Title IV funds, a school must enter into a program
participation agreement with the Department of Education. Id. § 1094; see also 34
C.F.R. § 668.14(a)(1) (2010). 3 In signing such an agreement, the school promises
to comply with all federal statutes applicable to Title IV of the Higher Education
Act and the regulations promulgated thereunder. See § 1094; 34 C.F.R.
§ 668.14(b)(1). The school must also meet a number of additional requirements.
But once qualified, students who currently attend or plan to attend the school may
apply to receive Title IV funds by completing the Free Application for Federal
Student Aid.
Here, Diaz and Gillespie’s claims relate to the following statutory,
regulatory, and contractual requirements that Kaplan had to meet or comply with to
be eligible to receive Title IV funds.
2
20 U.S.C. §§ 1070a, 1071–1087, 1087a–1087j, 1087aa–1087ii.
3
Unless otherwise noted, all regulations cited are to those in effect in 2010.
3
Case: 13-13672 Date Filed: 03/11/2015 Page: 4 of 45
Accreditation. A school must be accredited. 34 C.F.R. § 600.4(a)(5)(i).4
This is equally true for a proprietary school 5 like Kaplan. Id. § 600.5(a)(6). While
the Department of Education does not directly accredit schools, “the Secretary of
Education approves accrediting agencies for different types of educational
programs, and these accrediting bodies set independent standards for
accreditation.” Thomas M. Cooley Law Sch. v. Am. Bar Ass’n, 459 F.3d 705, 707
(6th Cir. 2006). Both Kaplan University and Kaplan Higher Education Corp. are
accredited by the Higher Learning Commission.
The 90/10 rule. A proprietary school must agree that it will “derive not less
than ten percent of [its] revenues from sources other than funds provided under”
Title IV of the Higher Education Act. § 1094(a)(24); 34 C.F.R. § 668.14(b)(16).
This is known as the “90/10 rule.”
Ban on recruitment-based incentive compensation. A school must agree that
it will not award recruiters “any commission, bonus, or other incentive payment
based directly or indirectly on success in securing enrollments.” § 1094(a)(20). In
2002, the Department of Education’s implementing regulations created several safe
harbors—“arrangements that an institution may carry out without violating” this
statute. 34 C.F.R. § 668.14(b)(22)(ii). One such harbor shelters a school that pays
4
The regulations define accredited as “[t]he status of public recognition that a nationally
recognized accrediting agency grants to an institution or educational program that meets the
agency’s established requirements.” 34 C.F.R. § 600.2.
5
A “proprietary institution of higher education” is defined as an institution that, among
other things, is not “a public or other nonprofit institution.” 20 U.S.C. §§ 1001(a)(4),
1002(b)(1)(C); see also 34 C.F.R. § 600.5(a)(1).
4
Case: 13-13672 Date Filed: 03/11/2015 Page: 5 of 45
“fixed compensation . . . as long as that compensation is not adjusted up or down
more than twice during any twelve month period, and any adjustment is not based
solely on the number of students recruited, admitted, enrolled, or awarded financial
aid.” Id. § 668.14(b)(22)(ii)(A).
Satisfactory progress. When the events in the second amended complaint
filed in this case allegedly occurred, the Department of Education’s regulations
obligated schools to review their students’ academic progress at the end of each
year. Id. § 668.34(d). For students “enrolled in a program of study of more than
two academic years,” Title IV eligibility beyond the second year partially
depended on having made “satisfactory progress.” Id. § 668.34(a). This meant
they had to have “a grade point average of at least a ‘C’ or its equivalent[ ] or
ha[ve] academic standing consistent with the institution’s requirements for
graduation” at the end of the second year. Id. § 668.34(b).
But students who failed to do so would not necessarily lose Title IV
eligibility. Schools could “find that a student [wa]s making satisfactory progress”
by determining the student’s lackluster academic progress was the result of (1)
“[t]he death of a relative,” (2) “[a]n injury or illness,” or (3) “[o]ther special
circumstances.” Id. § 668.34(c). Also, students who lost Title IV eligibility at the
two-year checkpoint could later be found to be making satisfactory progress if “at
the end of a subsequent grading period [they came] into compliance with the
institutions requirements for graduation.” Id. § 668.34(d).
Section 504 of the Rehabilitation Act. Educational institutions that receive
federal funds, including under Title IV of the Higher Education Act, are prohibited
5
Case: 13-13672 Date Filed: 03/11/2015 Page: 6 of 45
from discriminating against the individuals with disabilities. 29 U.S.C. § 794(a),
(b)(2)(A), (b)(3)(A). In its 2004 program participation agreement, Kaplan agreed
that it would “comply 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).”
B. False Claims Act
The False Claims Act enables private citizens to recover damages on behalf
of the United States by filing a qui tam action against a person who
(1) knowingly presents, or causes to be presented, to an officer or
employee of the United States Government . . . a false or
fraudulent claim for payment or approval; [or]
(2) knowingly makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid or
approved by the Government.
31 U.S.C. § 3729(a)(1)–(2) (2006). “Liability under the False Claims Act arises
from the submission of a fraudulent claim to the government, not the disregard of
government regulations or failure to maintain proper internal procedures.”
Corsello v. Lincare, Inc., 428 F.3d 1008, 1012 (11th Cir. 2005). Simply put, the
“sine qua non of a False Claims Act violation” is the submission of a false claim to
the government. Id. (quoting United States ex rel. Clausen v. Lab. Corp. of Am.,
290 F.3d 1301, 1311 (11th Cir. 2002)).
Even so, an educational institution can be found liable under § 3729(a)(2)
for falsely certifying to the Department of Education in its program participation
agreement that it will comply with federal law and regulations. To prevail under
6
Case: 13-13672 Date Filed: 03/11/2015 Page: 7 of 45
what our sister circuits call a “false certification theory”—a theory of liability that
we expressly adopt—the relator must prove “(1) a false statement or fraudulent
course of conduct, (2) made with scienter, (3) that was material, causing (4) the
government to pay out money or forfeit moneys due.” United States ex rel.
Hendow v. Univ. of Phx., 461 F.3d 1166, 1174 (9th Cir. 2006).6
II. Factual and Procedural Background
A. Diaz
Diaz worked for Kaplan University from August 2004 through April 2005 as
a professor of paralegal studies. In April 2007, he filed this qui tam action against
Kaplan. He then amended his complaint twice. In his second amended complaint,
he alleged that Kaplan had violated several provisions of the Higher Education Act
and its implementing regulations. These violations in turn rendered Kaplan
ineligible to receive Title IV funds. And because these violations were committed
with the requisite scienter, Kaplan was liable under the False Claims Act.
Specifically, Diaz alleged that Kaplan committed the following violations:
(1) improperly paying incentive compensation to recruiters and
then falsely asserting in a yearly letter that it was in compliance
with the ban on recruitment-based incentive compensation;
6
Congress amended the False Claims Act via the Fraud Enforcement and Recovery Act
of 2009 (FERA), Pub. L. 111-21, 123 Stat. 1617. In doing so, Congress changed the language of
subsection (a)(2), replacing the phrase “to get a false or fraudulent claim paid or approved by the
Government” with “material to a false or fraudulent claim.” Id. § 4, 123 Stat. at 1621. We have
held that this change applies retroactively to claims pending for payment on or after June 7,
2008. Hopper v. Solvay Pharm. Inc., 588 F.3d 1318, 1327 n.3 (11th Cir. 2009). While we adopt
the false-certification theory of liability for both pre- and post-FERA claims, Hendow was
decided before FERA, and we have no occasion to consider whether FERA might alter the
Hendow elements for post-FERA claims. See infra nn. 7, 8.
7
Case: 13-13672 Date Filed: 03/11/2015 Page: 8 of 45
(2) enrolling employees in its courses and paying their tuition from
a company scholarship created with Title IV funds, thereby
violating the 90/10 rule;
(3) inflating students’ grades and then certifying that they were
making satisfactory academic progress; and
(4) using falsified documents to obtain accreditation.
As a result, Diaz asserted that Kaplan violated subsections (a)(1) and (a)(2) of the
False Claims Act. 7
Kaplan moved to dismiss for failure to state a claim. In granting its motion,
the district court found that Diaz had failed to adequately plead a False Claims Act
violation. The court thus dismissed Diaz’s claims with prejudice and declined to
decide whether his claims were also barred by the False Claims Act’s first-to-file
rule, 31 U.S.C. § 3730(b)(5).
After final judgment was entered, Diaz perfected this appeal.
B. Gillespie
1. Jude Gillespie’s Employment with Kaplan University
In April 2004, Gillespie, a licensed Florida attorney since 1992, began
working for Kaplan University as an associate professor of paralegal studies. In
August, he was promoted to department chair. Two months later, he informed
Kaplan that he had a medical disorder and requested several accommodations. His
requests were granted.
7
Although Diaz averred generally that Kaplan defrauded the government “from January
1, 1999, through the present [June 24, 2009],” he made no specific allegations in the second
amended complaint about claims that were pending on or after June 7, 2008. Thus, like the
district court, we apply the prior version of the statute. See supra n. 6.
8
Case: 13-13672 Date Filed: 03/11/2015 Page: 9 of 45
Even so, in April 2005, Gillespie complained to Karen Ross, then an
associate general counsel for Kaplan, Inc., that Kaplan’s grievance policies
violated section 504 the Rehabilitation Act and its implementing regulations. At
that time, he indicated that he planned to file an administrative complaint with the
Department of Education’s Office of Civil Rights (the OCR). The next day he did.
The following day, Kaplan fired him for job abandonment because he had refused
to perform his job duties.
2. The Office of Civil Rights Proceedings
In October 2005, after investigating Gillespie’s allegations against Kaplan,
the OCR rejected his individual claims. The agency found that Kaplan did not
discriminate or retaliate against him. It also found that Kaplan’s policies did not
prevent him from being “able to voice his grievances and to have them heard by
every person at Kaplan he contacted.”
But after reviewing the policies and procedures regarding disabled
employees in the Kaplan Higher Education Corporation Employee Handbook,
Kaplan Field Employee Handbook, and Kaplan University Faculty Handbook, the
OCR made seven additional findings:
• The University does not have a published procedure detailing how a
disabled employee can request accommodations based on his/her
disability.
• The non-harassment policy only addresses the types of harassment to
which an employee might be subjected. As all discrimination does
not necessarily rise to the level of harassment, the University needs to
provide policies and procedures that address discrimination separately
from harassment.
9
Case: 13-13672 Date Filed: 03/11/2015 Page: 10 of 45
• The discrimination/harassment complaint procedure should be
amended to provide the detailed process in which employees might
seek informal and formal resolutions to their concerns.
• The University should designate consistently to whom informal [sic]
and/or informal complaints may be addressed.
• The University’s policies and procedures should be amended so as to
provide a definite detailed manner and period of time in which prompt
investigations are to be completed (30-60 days).
• The complaint procedures should be amended to require the
University to notify complainants in writing of the results of
investigations.
• The University’s policies and procedures should provide where a
complainant and/or one who has been accused may appeal the
investigation’s findings.
• The University does not have a published procedure detailing how a
disabled employee can request accommodations based on his/her
disability.
That same month, Kaplan voluntarily entered into a resolution agreement
with the OCR to change its policies. In doing so, Kaplan did not admit to any
violation of or noncompliance with section 504 of the Rehabilitation Act or its
implementing regulations.
Over the next several months, Kaplan communicated with the OCR as it
worked to comply with the terms of the resolution agreement. In May 2007, the
agency sent Kaplan a compliance letter stating that no further monitoring was
necessary because it had fulfilled its obligations under the resolution agreement.
At no time did the agency revoke Kaplan’s eligibility to receive Title IV funds.
10
Case: 13-13672 Date Filed: 03/11/2015 Page: 11 of 45
3. Gillespie’s Complaints
In April 2007, Gillespie filed this qui tam action against Kaplan. He then
amended his complaint twice. In the second amended complaint, he alleged that
Kaplan violated the False Claims Act by knowingly (1) submitting false claims for
payment to the government, and (2) making false statements that led to false
claims for payment from the government. Specifically, he alleged that Kaplan
made false statements in its 2004 and 2007 program participation agreements when
it certified that it would “comply 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).”
In August 2011, the district court dismissed with prejudice Gillespie’s claim
that Kaplan continued to violate the Rehabilitation Act after May 2007. The court
found that Gillespie had not alleged with particularity any ongoing violations.
Indeed, the court noted that the May 2007 letter from the OCR to Kaplan—the
same letter that Gillespie says proves that Kaplan was noncompliant in the first
place—established that Kaplan complied with the terms of the resolution
agreement, thereby ending any noncompliance under the Rehabilitation Act and its
implementing regulations. 8
8
Gillespie moved for leave to file a third amended complaint to expand the temporal
reach of his claim beyond May 2007. The district court denied this request as well as his motion
for reconsideration. Once again, the court explained that Gillespie had made no specific
allegations of continuing violations. The court also noted that the public-disclosure rule barred
him from relying upon documents received through a Freedom of Information Act request
because he was not their original source.
On appeal, Gillespie mentions both the order dismissing his claim about Kaplan’s alleged
post–May 2007 violations and the order denying leave to amend. But his brief pays these orders
scant attention. At no point, does he discuss why the dismissal of his claims was error or how
11
Case: 13-13672 Date Filed: 03/11/2015 Page: 12 of 45
4. The 2004 Program Participation Agreement and Kaplan’s Compliance with
the Rehabilitation Act
The 2004 program participation agreement at the center of Gillespie’s False
Claims Act action against Kaplan was signed by Gary Kerber, the president and
chief executive officer of Kaplan Higher Education Corp. at that time. Kerber
testified that he signed this agreement in reliance upon the opinions of his
subordinates, including those charged with compliance. One such person was
Karen Ross.
Kaplan hired Ross as vice president of human resources and associate
general counsel in 2002. Two years later, she was promoted to senior vice-
president of human resources and associate general counsel. Although she was not
responsible for ensuring that Kaplan was eligible to receive Title IV funds, she
knew that someone in the general counsel’s office was. Instead, her
responsibilities included ensuring that Kaplan’s policies complied with the
Rehabilitation Act and its implementing regulations as well as providing
nondiscrimination training. Additional compliance training at Kaplan included
interactive computer programs that provided nondiscrimination training for all
the denial of leave to amend was an abuse of discretion. See Hopper v. Solvay Pharm., Inc., 588
F.3d 1318, 1324 (11th Cir. 2009) (holding that a dismissal with prejudice is reviewed de novo);
Tampa Bay Water v. HDR Eng’g, Inc., 731 F.3d 1171, 1178 (11th Cir. 2013) (holding that a
denial of leave to amend is reviewed for abuse of discretion). In any event, to the extent that he
has not waived these issues, see Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 681 (11th
Cir. 2014), we conclude from the record that the district court neither erred nor abused its
discretion.
Also, because the district court limited the temporal reach of Gillespie’s claims to May
2007—and this decision was not error—the FERA amendments are inapplicable. See supra n.6.
12
Case: 13-13672 Date Filed: 03/11/2015 Page: 13 of 45
employees, annual meetings for human-resource directors, and annual managers’
meetings.
In 2003, Ross revised Kaplan’s employee handbook, incorporating
nondiscrimination policies and grievance procedures that the Equal Employment
Opportunity Commission had approved for use by a prior employer. The revised
handbook covered nondiscrimination based on disability and included grievance
procedures. According to her testimony, she believed that the revised handbook—
that was sent to various Kaplan entities for use as a template—contained policies
that complied with all of Kaplan’s legal requirements. No one ever told her that
these policies might not comport with federal law or regulations until Gillespie did
so the day before he filed an administrative complaint with the OCR in April 2005.
5. The Privilege-Log Dispute
After the district court dismissed Gillespie’s continuing-violation claim,
discovery commenced and proceeded for the next 15 months. During that period,
Gillespie took 8 depositions, served 43 interrogatories, and made 29 requests for
production. All told, Kaplan produced more than 18,000 pages of responsive
documents.
After discovery closed, but before the parties began briefing on summary
judgment, Gillespie requested a discovery conference with the magistrate judge.
At the February 2013 hearing, Gillespie requested in camera review of about 60
documents that, in his view, gave him the “best shot” of showing that Kaplan had
improperly designated documents as privileged.
13
Case: 13-13672 Date Filed: 03/11/2015 Page: 14 of 45
On July 12, 2013, after considering the parties’ briefs on the issue, the
magistrate judge ruled that Kaplan had improperly withheld six documents (three
of which were duplicates) and ordered Kaplan to produce the four wrongly
withheld documents. Despite this ruling, Gillespie never sought review of any
other documents designated as privileged.
6. Summary Judgment Proceedings
After discovery closed and the privilege dispute had been briefed, Kaplan
and Gillespie each moved for summary judgment. Although the privilege dispute
was then unresolved, Gillespie made no mention of it in his briefs, nor did he bring
it to the district court’s attention in any other manner. Instead, he requested that
the court decide the motions on the then-current record.
On July 15, 2013, just two business days after Kaplan was ordered to
produce the four wrongly withheld documents, the district court granted summary
judgment to Kaplan. The court concluded that Gillespie had not raised a genuine
issue of material fact regarding scienter because “Kaplan had policies and
procedures in place to ensure compliance and there [wa]s no evidence that those
policies and procedures were not followed.” United States ex rel. Gillespie v.
Kaplan Univ. (Gillespie I), No. 09-20756-civ, 2013 WL 3762445, at *6 (S.D. Fla.
July 16, 2013). The court noted that Kaplan had relied on counsel, including
Karen Ross, who “made a point of staying on top of developments in the labor and
employment law fields” and had modeled Kaplan’s policies after an example
14
Case: 13-13672 Date Filed: 03/11/2015 Page: 15 of 45
previously approved by the EEOC, in creating the policies that allegedly violated
the Rehabilitation Act and its implementing regulations. Id.
Additionally, the district court rejected Gillespie’s assertion that Ross had
drafted Kaplan’s policies without considering the Rehabilitation Act, explaining
that he had taken her statements “out of context.” Id. at *8. The court emphasized
the undisputed evidence showing that Kaplan “took steps to ensure compliance.”
Id. at *7. Thus, because Gillespie had not established a jury question regarding
scienter, the court granted summary judgment to Kaplan.
7. Gillespie’s Motions to Abate and to Reconsider
Gillespie then filed a motion to abate entry of final judgment and a motion to
reconsider. In his motion to abate, he asserted that the district court had entered
summary judgment prematurely given that the privilege dispute had been resolved
only two business days earlier and the documents ordered to be produced “could
have potentially led [him] to alert the [c]ourt that further discovery may impact the
pending summary judgment briefing.” In his motion to reconsider, he contended
that the district court had made a number of errors in assessing and characterizing
the record.
The district court denied both motions. It pointed out that Gillespie had
failed to notify the court that the outstanding discovery was relevant to the parties’
pending summary-judgment motions. For this reason, his motion to abate
appeared to be “nothing more than an attempt at a second bite at the apple.”
United States ex rel. Gillespie v. Kaplan Univ. (Gillespie II), No. 09-20756-civ,
15
Case: 13-13672 Date Filed: 03/11/2015 Page: 16 of 45
2013 WL 6492830, at *1 (S.D. Fla. Dec. 10, 2013). While the court could have
denied the motion for this reason alone, it did not. After reviewing the four
documents that Kaplan was ordered to produce, the court concluded that they did
“not contain any information relevant to the scienter issue” and thus “had no effect
on the entry of summary judgment.” Id. Additionally, the court found no basis for
reconsideration because Gillespie “simply raised the same arguments he previously
made” and had “not shown that the undisputed facts are disputed.” Id. at *2.
Gillespie now appeals from the district court’s grant of summary judgment
to Kaplan and all related orders.
III. Standards of Review
Several standards of review govern this appeal. We review a dismissal with
prejudice for failure to state a claim under the False Claims Act de novo. Hopper
v. Solvay Pharm., Inc., 588 F.3d 1318, 1324 (11th Cir. 2009). In doing so, we
accept the allegations in the complaint as true and construe them along with the
reasonable inferences therefrom in the relator’s favor. United States ex rel. McNutt
v. Haleyville Med. Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).
We review the district court’s grant of summary judgment de novo,
construing the evidence and all reasonable inferences therefrom in favor of the
nonmoving party. Battle v. Bd. of Regents for Ga., 468 F.3d 755, 759 (11th Cir.
2006). Summary judgment is appropriate where the pleadings, affidavits,
depositions, admissions, and the like “show[ ] that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed.
16
Case: 13-13672 Date Filed: 03/11/2015 Page: 17 of 45
Rawle Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 322, 106 S. Ct. 2548, 2552
(1986). “An issue of fact is ‘material’ if, under the applicable substantive law, it
might affect the outcome of the case. An issue of fact is ‘genuine’ if the record
taken as a whole could lead a rational trier of fact to find for the nonmoving party.”
Harrison v. Culliver, 746 F.3d 1288, 1298 (11th Cir. 2014) (quoting Hickson Corp.
v. N. Crossarm Co., 357 F.3d 1256, 1259–60 (11th Cir.2004) (internal citations
omitted)) (internal quotation marks omitted). Thus, to survive summary judgment,
the nonmoving party must offer more than a mere scintilla of evidence for its
position; indeed, the nonmoving party must make a showing sufficient to permit
the jury to reasonably find on its behalf. Brooks v. Cnty. Comm’n of Jefferson
Cnty., Ala., 446 F.3d 1160, 1162 (11th Cir. 2006).
We review a district court’s decision to rule on a summary-judgment motion
before all discovery disputes have been resolved for abuse of discretion. See Leigh
v. Warner Bros., Inc., 212 F.3d 1210, 1219 (11th Cir. 2000). In doing so, we
consider whether the nonmoving party can show “substantial harm” from the
court’s decision, see id., and whether the nonmoving party timely informed the
district court of any outstanding discovery, see Cowan v. J.C. Penney Co., 790
F.2d 1529, 1530 (11th Cir. 1986). Moreover, the nonmoving party “must
specifically demonstrate how postponement of a ruling on the motion [would have]
enable[d] him, by discovery or other means, to rebut the movant’s showing of the
absence of a genuine issue of fact.” Reflectone, Inc. v. Farrand Optical Co., 862
F.2d 841, 843 (11th Cir. 1989) (quoting Wallace v. Brownell Pontiac–GMC Co.,
703 F.2d 525, 527 (11th Cir. 1983)) (quotation marks omitted).
17
Case: 13-13672 Date Filed: 03/11/2015 Page: 18 of 45
IV. Discussion
A. Diaz
On appeal, Diaz contends that the allegations in the second amended
complaint, when taken as true and viewed holistically, adequately state a claim for
relief under § 3729(a)(1) and (a)(2). The district court disagreed and dismissed his
claims with prejudice. Because we partially agree, the district court’s judgment
will be affirmed in part and reversed in part.
1. Pleading a Claim for Relief Under the False Claims Act
The Federal Rules of Civil Procedure require a complaint to contain “a short
and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
R. Civ. P. 8(a)(2). While the plaintiff’s allegations need not satisfy any “technical
form,” they “must be simple, concise, and direct.” Fed. R. Civ. P. 8(e)(1). Rule
8’s pleading standard “does not require ‘detailed factual allegations,’ but it
demands more than an unadorned, the-defendant-unlawfully-harmed-me
accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964 (2007)).
Where the allegations are merely “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action,” the plaintiff’s claim will not
survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6).
Twombly, 550 U.S. at 555, 127 S. Ct. at 1965. For the claim to survive, the
plaintiff’s allegations “must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678, 129 S.
18
Case: 13-13672 Date Filed: 03/11/2015 Page: 19 of 45
Ct. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S. Ct. at 1974). A claim is
facially plausible where the facts alleged permit the court to reasonably infer that
the defendant’s alleged misconduct was unlawful. Id., 129 S. Ct. at 1949. Factual
allegations that are “‘merely consistent with’ a defendant’s liability,” however, are
not facially plausible. Id., 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 557,
127 S. Ct. at 1966); see also Chaparro v. Carnival Corp., 693 F.3d 1333, 1337
(11th Cir. 2012).
In an action under the False Claims Act, Rule 8’s pleading standard is
supplemented but not supplanted by Federal Rule of Civil Procedure 9(b). See
Clausen, 290 F.3d at 1309. Rule 9(b) provides that a party alleging fraud “must
state with particularity the circumstances constituting fraud” but may allege
scienter generally. To satisfy this heightened-pleading standard in a False Claims
Act action, the relator has to allege “facts as to time, place, and substance of the
defendant’s alleged fraud,” particularly, “the details of the defendants’ allegedly
fraudulent acts, when they occurred, and who engaged in them.” Id. (quoting
Cooper, 19 F.3d at 567–68) (internal quotation marks omitted).
The mere disregard of federal regulations or improper internal practices does
not create liability under § 3729(a)(1) “unless, as a result of such acts, the
[defendant] knowingly ask[ed] the Government to pay amounts it does not owe.”
Id. at 1311. Indeed, the “central question” regarding whether a relator’s allegations
state a claim under this subsection is, did the defendant present (or caused to be
presented ) to the government a false or fraudulent claim for payment? Hopper,
588 F.3d at 1326. So to satisfy Rule 9(b)’s heightened-pleading requirements, the
19
Case: 13-13672 Date Filed: 03/11/2015 Page: 20 of 45
relator must allege the “actual presentment of a claim . . . with particularity,” id. at
1327, meaning particular facts about “the ‘who,’ ‘what,’ ‘where,’ ‘when,’ and
‘how’ of fraudulent submissions to the government,” Corsello, 428 F.3d at 1014.
In contrast, § 3729(a)(2) “does not demand proof that the defendant
presented or caused to be presented a false claim to the government or that the
defendant’s false record or statement itself was ever submitted to the government.”
Hopper, 588 F.3d at 1327. Even so, to state a claim under this subsection, we have
held “that a plaintiff must show that (1) the defendant made a false record or
statement for the purpose of getting a false claim paid or approved by the
government; and (2) the defendant’s false record or statement caused the
government to actually pay a false claim, either to the defendant itself, or to a third
party.” Id.
Additionally, our caselaw is clear: “the submission of a false claim is the
‘sine qua non of a False Claims Act violation.’” Id. at 1328 (quoting Clausen, 290
F.3d at 1311). And while § 3729(a)(2) does not require the false claim’s actual
presentment to the government for payment, it also does not “impose liability for
false statements [unless they] actually cause the government to pay amounts it does
not owe.” Id. So to prevail on a claim under this subsection, the relator must
prove that the government actually paid a false claim. Id. at 1329. For this reason,
to satisfy Rule 9(b)’s heightened-pleading requirements, the relator has to allege
with particularity that the defendant’s “false statements ultimately led the
government to pay amounts it did not owe.” Id.
20
Case: 13-13672 Date Filed: 03/11/2015 Page: 21 of 45
Here, Diaz argues that he adequately pleaded a False Claims Act violation
under a false certification theory. To do so under this theory, he had to allege facts
that, if true, would show “(1) a false statement or fraudulent course of conduct, (2)
made with scienter, (3) that was material, causing (4) the government to pay out
money or forfeit moneys due.” Hendow, 461 F.3d at 1174. After all, “[m]ere
regulatory violations do not give rise to a viable FCA action”; instead, “[i]t is the
false certification of compliance which creates liability when certification is a
prerequisite to obtaining a government benefit.” Id. at 1171 (alterations in
original) (quoting United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266–67
(9th Cir. 1996)). Thus, “the relevant certification of compliance must be both a
‘prerequisite to obtaining a government benefit,” and a ‘sine qua non of receipt of
[government] funding.’” Id. at 1172 (alteration in original) (quoting Anton, 91
F.3d at 1266, 1267) (internal citation omitted).
i. Incentive Compensation
Diaz alleged that despite its certifications of compliance with the Higher
Education Act’s ban on recruitment-based incentive compensation, Kaplan
violated this ban by paying its recruiters retention bonuses, cash bonuses, trips, or
salaries based on the number of students they enrolled. 9 See 20 U.S.C.
§ 1094(a)(20). Because Diaz alleged that factors other than recruitment were
9
Diaz stated that these violations started in 1999 and continued until 2009, but his
complaint only references employees who allegedly received recruitment-based compensation
during 2004 through 2009. For this reason, we limit our consideration of his claim that Kaplan
violated the False Claims Act by falsely certifying its compliance with the incentive-
compensation ban to these years.
21
Case: 13-13672 Date Filed: 03/11/2015 Page: 22 of 45
formally a part of Kaplan’s compensation policy but failed not only to identify
those factors but also to plead “any allegations, other than bare conclusions, to
show that the other factors that were part of the compensation plan were not
actually considered in practice,” the district court concluded that he had not stated
a claim under the False Claims Act. United States ex rel. Diaz v. Kaplan Univ.,
No. 09-20756-civ, 2011 WL 3627285, at *5 (S.D. Fla. Aug. 17, 2011). We
disagree.
We begin by noting that during the relevant period (2004 through 2009) the
Department of Education’s regulations implementing the incentive-compensation
ban included a number of safe harbors. 10 One such safe harbor sheltered schools
that paid “fixed compensation . . . as long as that compensation [wa]s not adjusted
up or down more than twice during any twelve month period, and any adjustment
[wa]s not based solely on the number of students recruited, admitted, enrolled, or
awarded financial aid.” 34 C.F.R. § 668.14(b)(22)(ii)(A) (emphasis added). In
promulgating this safe harbor, the Department of Education made clear that “the
word ‘solely’ [wa]s being used in its dictionary definition.” Federal Student Aid
Programs, 67 Fed. Reg. at 67,055.11 That is, “without another” or “to the exclusion
of all else.” Webster’s Ninth New Collegiate Dictionary 1122 (1986).
10
See Department of Education, Federal Student Aid Programs, 67 Fed. Reg. 67,048,
67,054 (Nov. 1, 2002) (“We believe that the primary purpose of the regulatory safe harbors is to
provide guidance to institutions so they may adopt compensation arrangements that do not run
afoul of the incentive compensation provision in section 487(a)(2) of the [Higher Education
Act].”).
11
This and other safe harbors were eliminated effective July 2011. Department of
Education, Program Integrity Issues, 75 Fed. Reg. 66,832, 66,832 (Oct. 29, 2010).
22
Case: 13-13672 Date Filed: 03/11/2015 Page: 23 of 45
To be sure, Diaz did not allege that Kaplan’s recruiters were paid solely on
enrollments. But he did allege that their compensation was “based primarily on the
number of students recruited.” He also alleged that while “the official
compensation plan looked like there were other factors besides the number of
enrollments, it was nothing more than a disguised plan to pay unlawful
compensation to the recruiters.” These factors included professionalism,
attendance, mentoring, participation in new initiatives, and willingness to work late
shifts.12 In short, Diaz alleged that the nonrecruitment factors only existed on
paper; the real basis on which recruiters received raises was enrollments.
12
Although Diaz’s complaint does not identify these factors, he did attach a copy of
Kaplan’s compensation plan for admissions advisors (i.e., recruiters) to his brief in opposition to
Kaplan’s motion to dismiss. See Doc. 181-4. This document identifies the other compensation
factors that were at least formally part of the compensation plan.
Typically, a Rule 12(b)(6) motion to dismiss must be decided without considering
matters outside of or unattached to the complaint. See Trustmark Ins. Co. v. ESLU, Inc., 299
F.3d 1265, 1267 (11th Cir. 2002); Homart Dev. Co. v. Sigman, 868 F.2d 1556, 1562 (11th Cir.
1989). So when the court considers an extrinsic document, it must generally convert the motion
to dismiss into one for summary judgment. Fed. R. Civ. P. 12(d); Trustmark Ins., 299 F.3d at
1267. But conversion is not always required. In ruling on a motion to dismiss, the court may
consider an extrinsic document if (1) it is central to a claim in the complaint, and (2) its
authenticity is unchallenged. Speaker v. U.S. Dep’t of Health & Human Servs. Ctrs. for Disease
Control & Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010).
Here, Kaplan’s compensation plan is central to Diaz’s claim that Kaplan violated the
incentive-compensation ban and neither side challenges its authenticity—indeed, Kaplan cites
this document as the source of its list of factors other than enrollments that were part of the
decision to increase the pay of its admissions advisors. Thus, because the district court could
have considered the contents of this document without converting Kaplan’s motion to dismiss
into one for summary judgment, we may also do so on appeal. Cf. Harris v. Ivax Corp., 182
F.3d 802 n.2 (11th Cir. 1999) (explaining that “a document central to the complaint that the
defense appends to its motion to dismiss is also properly considered, provided that its contents
are not in dispute”).
23
Case: 13-13672 Date Filed: 03/11/2015 Page: 24 of 45
On appeal, Diaz argues that the relevant question is how Kaplan
implemented its compensation policy, not the terms of its policy. And he is
correct. In response, Kaplan contends that his allegations failed to state a claim
under the False Claims Act because he offered no specific facts from which it
could be inferred that the nonrecruitment factors were merely pretextual. Based on
our review of the record, we conclude that this contention fails for two reasons.
First, contrary to Kaplan’s contention, Diaz included specific facts about
four former Kaplan employees “whose salaries were increased or decreased based
on the number of enrollments.” He alleged:
• Dave Schienberg in Florida [was employed for approximately
19 months at Kaplan, from 2006-2008]. His pay rose from
$29,000 a year to $50,000; when he was unable to meet the
higher quota that came with the higher pay, he was
terminated. . . .
• Paris Henderson was employed from approximately 2005-2008.
He is another employee who was paid based on the number of
enrollments he obtained. He was ultimately terminated for not
meeting the increased requirements.
• Justin Keyes worked for Kaplan from 2006-2008. His pay
started at $30,000 and rose to $60,000 based on the number of
enrollments he obtained. When his enrollment numbers
dropped, so did his salary, as it was reduced to $37,000. When
he was not able to increase the number of enrollments to the
higher, required levels, he was terminated.
• Mark Anthony Edwards . . . worked as a recruiter for Kaplan
for about five years, ending April 10, 2009. His starting salary
was approximately $26,000. It was increased to approximately
$60,000 based on the number of students he enrolled. His
salary was reduced back to $30,000 when he could not maintain
higher levels of new enrollments.
24
Case: 13-13672 Date Filed: 03/11/2015 Page: 25 of 45
Accepting these allegations as true and drawing all reasonable inferences
therefrom in Diaz’s favor, as we must in reviewing the ruling on Kaplan’s motion
to dismiss, McNutt, 423 F.3d at 1259, we conclude that Diaz’s failure to include
the adverb solely—a word with no talismanic power—is not enough to preclude
the inference that he pleaded a plausible violation of the False Claims Act.
Second, despite Kaplan’s contrary contention, this inference is not
foreclosed by the fact that the compensation policy in the record included
nonrecruitment factors. That is because the policy was not in place during the
entire period covered by Diaz’s allegations: 2004 to 2009. The policy is dated
“5/26/06.” So at least for the recruiters who worked for Kaplan before this date
and received raises “based on” their enrollment numbers, it is not unreasonable to
infer that these raises were based solely on enrollments. Diaz thus plausibly stated
a claim under the False Claims Act based on Kaplan’s alleged violations of the
incentive-compensation ban that relate to these recruiters. Accordingly, we reverse
the district court’s judgment dismissing Diaz’s claim insofar as it was based on
Kaplan’s alleged violation of the incentive-compensation ban.13
13
On appeal, Kaplan contends that the dismissal of Diaz’s claims could be upheld on two
additional grounds: failure to adequately plead scienter and failure to plead the submission of a
false claim. Neither ground has any merit. First, to satisfy Rule 9(b), a relator may plead
scienter generally, and Diaz did so. Second, we have said that “in the appropriate case, we may
consider whether the particularity requirements of Rule 9(b), as to the details of the alleged false
claims at issue, are more relaxed for claims under 31 U.S.C. § 3729(a)(2) than for claims under
§ 3729(a)(1).” Hopper, 588 F.3d at 1329. Here, however, we need not reach this question
because Diaz has provided specific allegations about three students who applied for and received
Title IV funds to attend classes at Kaplan—after Kaplan allegedly “knowingly” violated the
incentive-compensation ban.
25
Case: 13-13672 Date Filed: 03/11/2015 Page: 26 of 45
ii. Grade Inflation
Diaz alleged that Kaplan violated the Department of Education’s regulation
requiring students seeking Title IV funds beyond their second year of study to have
made “satisfactory progress” (as defined in 34 C.F.R. § 668.34) by engaging in a
grade-inflation scheme. Grade inflation could lead to a False Claims Act violation
where, among other things, a school certified that a student was making
satisfactory progress when he or she was not, thus causing the government to
disburse Title IV funds that were not actually owed to the student. Because Diaz
had not adequately alleged how Kaplan’s grade-inflation scheme resulted in the
school falsely certifying that students were maintaining satisfactory progress, the
district court concluded that he had failed to state a claim under the False Claims
Act. We agree.
While Diaz offered some particulars about Kaplan’s alleged grade-inflation
scheme, he failed to plead with particularity how this scheme led to students being
falsely certified as making satisfactory progress. That is, he did not make any
specific allegations of students who would not have been making satisfactory
progress without grade inflation. Nor did he allege that Kaplan’s grading policy
precluded students from failing regardless of how poorly they performed. Quite
the contrary: he alleged that some students flunked out. Additionally, because he
included no allegations about Kaplan’s graduation requirements, it is impossible to
plausibly infer that the students were not making satisfactory progress consistent
with these requirements but for Kaplan’s alleged grade-inflation scheme.
26
Case: 13-13672 Date Filed: 03/11/2015 Page: 27 of 45
In short, to state a claim under the False Claims Act, Diaz needed to allege
with particularity that some students would not have been making satisfactory
progress—and thus Kaplan’s certifications to this effect were false—but for the
school’s grade-inflation scheme. He did not. We thus conclude that the district
court did not err in dismissing his claim insofar as it was based on Kaplan’s alleged
violation of the satisfactory-progress regulation.
iii. The 90/10 Rule
Diaz averred that Kaplan violated the 90/10 rule by creating a scholarship
program for its employees with money from its students’ tuition payments, which
in turn may have come from Title IV funds. For a school to lose its eligibility to
receive Title IV funds, it must derive “less than ten percent of [its] revenues from
sources other than” Title IV funds for “two consecutive institutional fiscal years.”
20 U.S.C. § 1094(a)(24), (d)(2). Because Diaz had not adequately alleged how
Kaplan’s Gift of Knowledge scholarship violated the 90/10 rule, the district court
concluded that he failed to state a claim under the False Claims Act. Again, we
agree.
Diaz did not allege with particularity that Kaplan received more than 90
percent of its revenue from Title IV funds or that it received less than 10 percent of
its revenue from non-Title IV funds. Instead, he alleged that Kaplan endowed the
Gift of Knowledge scholarship with some unspecified amount of Title IV funds
from the tuition payments of its students. But even if true, absent allegations about
Kaplan’s total revenue, this fact alone does not make it plausible (as opposed to
27
Case: 13-13672 Date Filed: 03/11/2015 Page: 28 of 45
merely possible) that the school violated the 90/10 rule. See Chaparro, 693 F.3d at
1337.
Diaz alleged that (1) “almost 100% of Kaplan money is taken in from
federal student loans”; and (2) “Kaplan would in fact use creative accounting
techniques to indicate that Kaplan was receiving that cash [payments from the Gift
of Knowledge scholarship fund] from the students when it was not.” But these
general statements were unsupported by any specific factual allegations and thus
failed to satisfy his burden to plead a False Claims Act violation with particularity
under Rule 9(b). See Clausen, 290 F.3d at 1314 n.25 (noting that Rule 9(b)’s
pleading requirements might be relaxed only if the relator has adequately
“allege[d] at least some examples of actual false claims to lay a complete
foundation for the rest of his allegations”).
In sum, Diaz failed to allege facts that, if true, would establish that Kaplan’s
certification of compliance with the 90/10 rule was false. At most, his allegations
were merely consistent with Kaplan having violated this rule, but that is not
enough to state a claim under the False Claims Act. Thus, we conclude that the
district court did not err in dismissing his claim insofar as it was based on Kaplan’s
alleged violation of the 90/10 rule.
iv. Accreditation
Diaz alleged that Kaplan submitted backdated studies and budgets as well as
other “forged” or “false” documents to the Higher Learning Commission, the
agency that accredited “certain” of its “college degree programs.” In his view,
28
Case: 13-13672 Date Filed: 03/11/2015 Page: 29 of 45
“without the falsified documents, [Kaplan] would not [have] receive[d] the
accreditation it desired.” Making false statements to an accreditation agency could
lead to a False Claims Act violation because whether a school is accredited is
material to the government’s decision to disburse Title IV funds to the school (or
its students). Because Diaz failed to allege with particularity what false statements
were made, when they were made, or who made them, the district court concluded
that he had failed to state a claim under the False Claims Act. Here, too, we agree.
Making false statements to an accreditation agency does not expose a school
to liability under § 3729(a)(2) unless the statements were essential to the school
having received (or maintained) its accreditation. For while lying to an
accreditation agency is a reprehensible business practice, it violates the False
Claims Act only if the “false statements ultimately led the government to pay
amounts it did not owe.” Hopper, 588 F.3d at 1329. Thus, to survive the motion
to dismiss, Diaz had to plead particular facts that provide a plausible connection
between Kaplan’s allegedly false statements to the Higher Learning Commission
and the agency’s decision to accredit “certain college degree programs.” Because
he failed to do so, we conclude that the district court did not err in dismissing his
claim insofar as it was based on Kaplan’s alleged violation of the accreditation
requirement.
2. Dismissal with Prejudice
Diaz contends that the district court was wrong to dismiss his claims with
prejudice because the government is the real party in interest in a False Claims Act
29
Case: 13-13672 Date Filed: 03/11/2015 Page: 30 of 45
action. He asserts that if this judgment is left in place, Kaplan could conceivably
argue that res judicata bars the government from bringing a properly pleaded False
Claims Act action. Here, however, we need not decide whether a Rule 12(b)(6)
dismissal precludes the government (or another relator) from bringing a False
Claims Act action against a defendant, especially where the government did not
intervene at any stage in the proceedings, to affirm the dismissal with prejudice of
Diaz’s claims. Three attempts at proper pleading are enough. 14 That said, we
modify the judgment of dismissal to be without prejudice to the government. Cf.
United States ex rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 456
(5th Cir. 2005).
B. Gillespie
The district court granted summary judgment to Kaplan because Gillespie
failed to show that there was a genuine issue of material fact regarding scienter—a
necessary element of his false certification claim. See Hendow, 461 F.3d at 1174.
Specifically, the court found that nothing in the record supported his contention
that Kaplan knew or should have known that its policies violated section 504 of the
Rehabilitation Act and its implementing regulations when the 2004 program
14
Diaz does not specifically argue in his briefs that the district court abused its discretion
by failing to grant him leave to amend his complaint. Thus, to the extent that he has not waived
this argument on appeal, see Sapuppo, 739 F.3d at 681, we conclude from the record that the
district court did not. Diaz never made a motion to amend his complaint, nor did he ever suggest
how he could cure his defective complaint in a subsequent pleading. Under our precedent, the
district court’s decision was not an abuse of discretion. See United States ex rel. Atkins v.
McInteer, 470 F.3d 1350, 1362 (11th Cir. 2006) (holding that denial of leave to amend was not
an abuse of discretion where the relator “failed to include the proposed amendment or the
substance thereof” with his request).
30
Case: 13-13672 Date Filed: 03/11/2015 Page: 31 of 45
participation agreement was executed. On appeal, Gillespie contends that the
district court’s finding was erroneous for four reasons.
First, Gillespie told Karen Ross that the company’s policies did not comply
with the Rehabilitation Act and its implementing regulations in April 2005.
Second, Ross drafted Kaplan’s nondiscrimination policies and grievance
procedures to comply with the Rehabilitation Act from language that she had
used at a previous employer to comply with the EEOC’s regulations—even
though that company did not receive federal funds and thus was not subject
to the Rehabilitation Act.
Third, Gary Kerber, who signed the 2004 program participation agreement
for Kaplan, did not personally ensure that the company’s nondiscrimination
policies and grievance procedures complied with the Rehabilitation Act.
Fourth, Kaplan could not have entered into a voluntary restoration
agreement with the OCR unless it was in noncompliance with the
Rehabilitation Act.
Kaplan responds that even when viewed collectively, this evidence does not
create a jury question about whether it acted with actual knowledge or the
aggravated form of gross negligence needed to show scienter under the False
Claims Act. Because we agree, the district court’s grant of summary judgment to
Kaplan will be affirmed.
1. Scienter Under the False Claims Act
The False Claims Act’s scienter requirement is “actually quite nuanced.”
United States v. King-Vassel, 728 F.3d 707, 712 (7th Cir. 2013). For liability to
attach, the relator must show that the defendant acted “knowingly,” which the Act
defines as either “actual knowledge,” “deliberate ignorance,” or “reckless
disregard.” § 3729(b). Although proof of a “specific intent to defraud” is not
31
Case: 13-13672 Date Filed: 03/11/2015 Page: 32 of 45
required, id., the statute’s language makes plain that liability does not attach to
innocent mistakes or simple negligence, King-Vassel, 728 F.3d at 712.
Congress added the “reckless disregard” provision to the False Claims Act in
1986. United States ex rel. Williams v. Renal Care Grp., Inc., 696 F.3d 518, 530
(6th Cir. 2012). The Senate Report accompanying this change states that this
language was added to ensure that “knowingly” captured “the ‘ostrich’ type
situation where an individual has ‘buried his head in the sand’ and failed to make
simple inquiries which would alert him that false claims are being submitted.”
S. Rep. 99-345, at 21, reprinted in 1986 U.S.C.C.A.N. 5266, 5286. Liability
attaches to “[o]nly those who act in gross negligence”—those who fail “to make
such inquiry as would be reasonable and prudent to conduct under the
circumstances.” Id. at 20 (quotation marks omitted). In other words, Congress did
not intend to turn the False Claims Act, a law designed to punish and deter fraud,
see Raysdale v. Rubbermaid, Inc., 193 F.3d 1235, 1237 n.1 (11th Cir. 1999), “into
a vehicle either ‘punish[ing] honest mistakes or incorrect claims submitted through
mere negligence’’ or imposing ‘a burdensome obligation’ on government
contractors rather than a ‘limited duty to inquire,’” United States v. Sci.
Applications Int’l Corp., 626 F.3d 1257, 1274 (D.C. Cir. 2010) (quoting S. Rep.
99-345, at 6, 19).
Our sister circuits have uniformly described reckless disregard for purposes
of the False Claims Act as akin to “an extension of gross negligence” or an
“extreme version of ordinary negligence.” See, e.g., United States v. Krizek, 111
F.3d 934, 942 (D.C. Cir. 1997); United States ex rel. Farmer v. City of Houston,
32
Case: 13-13672 Date Filed: 03/11/2015 Page: 33 of 45
523 F.3d 333, 338 & n.9 (5th Cir. 2008). Indeed, as the Seventh Circuit recently
noted, this description is consistent with Black’s definition that “a person acts with
reckless disregard ‘when the actor knows or has reason to know of facts that would
lead a reasonable person to realize’ that harm is the likely result of the relevant
act.” King-Vassel, 728 F.3d at 713 (quoting Black’s Law Dictionary 540–41 (9th
ed. 2009)).15
On appeal, Gillespie contends that a jury could reasonably conclude from
the record evidence that Kaplan certified its compliance with the Rehabilitation
Act and its implementing regulations with either actual knowledge that it was not
or with reckless disregard for whether this certification was true. We disagree and
reject his contentions for the following reasons.
i. Actual Knowledge
Gillespie identifies nothing in the record that would allow a reasonable jury
to conclude that Kaplan entered into the 2004 program participation agreement
with actual knowledge that its policies violated section 504 of the Rehabilitation
Act and its implementing regulations. And his attempt to manufacture a triable
issue out of a misstatement in the district court’s summary-judgment order is
unavailing.
15
The parties do not cite, nor was our research able to find, a case discussing the meaning
of deliberate ignorance. Even so, this scienter requirement plainly demands even more
culpability than that needed to constitute reckless disregard. Because Gillespie has not adduced
evidence that raises a jury question about whether Kaplan certified its compliance with the
Rehabilitation Act and its implementing regulations with reckless disregard for the truth, it
follows a fortiori that he has not shown that a triable question remains regarding whether
Kaplan’s compliance certification was made with deliberate ignorance.
33
Case: 13-13672 Date Filed: 03/11/2015 Page: 34 of 45
Gillespie objects to the district court’s framing of this fact: “No one ever told
Ross that her policies might not comport with federal law.” Gillespie I, 2013 WL
3762445, at *3. As the court later acknowledged in its order denying his motions
to abate and reconsider, this sentence should have stated: “No one, other than
[Gillespie] just before he filed his OCR complaint, told Ross that her policies
might not comport with federal law.” Gillespie II, 2013 WL 6492830, at *2 n.3.
Even so, the district court concluded that neither abatement nor reconsideration
was warranted because “this change is immaterial to the outcome because it does
not show that Ross was aware that the policies might not comply with federal law
at the time Kaplan entered into the [program participation agreement] at issue.” Id.
On appeal, Gillespie ignores the district court’s conclusion that this change
was immaterial to whether a jury question exists about scienter. Instead, he
contends that the district court resolved its mistake by switching the misstated fact
from material to immaterial. But a fair reading of the order denying abatement and
reconsideration makes clear that nothing could be further from the truth.
More importantly, Gillespie does not explain how his April 2005 complaint
to Ross would allow a reasonable jury to conclude that Kaplan executed the 2004
program participation agreement with actual knowledge that its policies were
unlawful. Hence, we conclude that the district court did not err in finding that
Gillespie failed to show that a genuine issue of material fact remained regarding
the actual-knowledge aspect of scienter.
34
Case: 13-13672 Date Filed: 03/11/2015 Page: 35 of 45
ii. Reckless Disregard
Gillespie also fails to identify anything in the record that would allow a
reasonable jury to conclude that Kaplan executed the 2004 program participation
agreement with reckless disregard for whether its policies violated section 504 of
the Rehabilitation Act or its implementing regulations. And his effort to generate a
jury question through his personal, hypercritical assessments of Karen Ross and
Gary Kerber’s job performance—assessments untethered from any binding or
persuasive authority—fails.
a. Karen Ross
According to Gillespie, the record contains admissible evidence that calls
into question whether Karen Ross, the author of the policies at issue, was up to
date on the relevant legal issues concerning the Rehabilitation Act. Put simply, he
posits that she was not. To support this position, Gillespie leans heavily on the
following facts about Ross:
(1) She drafted Kaplan’s nondiscrimination policies and grievance
procedures in 2003 based on those of a former employer—a
retail-brokerage firm concerned with complying with the
EEOC’s regulations and that was not subject to the
Rehabilitation Act.
(2) She admitted in her deposition that she had never heard of a
program participation agreement—the document with which
Kaplan had to comply to be eligible to receive Title IV funds.
(3) She could not recall having checked with anyone about whether
the policies she drafted complied with federal law and
regulations.
(4) She could not recall whether she read the Rehabilitation Act
right before drafting Kaplan’s policies.
35
Case: 13-13672 Date Filed: 03/11/2015 Page: 36 of 45
(5) She could not recall a specific time when she had read the
Rehabilitation Act after 1983, but she testified that she would
have done so if an employee dispute had arisen.
(6) She could recall working for only one employer subject to the
Rehabilitation Act (in the late-1980s) before joining Kaplan in
2002.
(7) She did not testify that she had ever read or was even familiar
with the regulations implementing the Rehabilitation Act—
even though the district court found that she was familiar with
both the Act and its regulations.
Based on these facts, Gillespie posits that a jury could reasonably conclude that
Ross was not up to date on the Rehabilitation Act and thus did not have the skill or
experience necessary to draft Kaplan’s nondiscrimination policies and grievance
policies. In his view, the district court’s contrary conclusion was possible only by
impermissibly weighing the evidence or assessing the credibility of the evidence
and testimony. Neither theory has any merit.
To begin, Gillespie notes that Ross was unfamiliar with the requirements
that educational institutions must meet to be eligible to receive Title IV funds (e.g.,
what a program participation agreement was). But he does not explain why this
knowledge (or lack thereof) is material to whether Kaplan acted with reckless
disregard. Nor is one readily apparent. Thus, these facts are immaterial. See
Harrison, 746 F.3d at 1298.
Next, Gillespie repeatedly emphasizes three facts: first, Ross revised
Kaplan’s polices based on those of a former employer that were designed to satisfy
the EEOC’s regulations; second, Ross could not recall having specifically read the
Rehabilitation Act since 1983; and third, Ross’s deposition testimony is devoid of
36
Case: 13-13672 Date Filed: 03/11/2015 Page: 37 of 45
any indication that she had read or was familiar with the Rehabilitation Act’s
implementing regulations. Admittedly, at first blush these facts smack of
incompetence. But this is only because they have been presented without any
factual or legal context.
First, the factual context. When Ross joined Kaplan in 2002, she had been
practicing employment law for over twenty years. Her uncontroverted testimony
was that during this time she stayed current on employment-law issues by regularly
reading case summaries in the daily labor report and attending continuing-
education classes. She also testified that she had read and was familiar with the
Rehabilitation Act, though she could not recall having done so before revising
Kaplan’s policies.
Second, the legal context. From the tenor of Gillespie’s brief, one might
infer that the Department of Education’s regulations implementing section 504 of
the Rehabilitation Act are a world apart from those promulgated by the EEOC to
implement nondiscrimination legislation such as the Americans with Disability Act
of 1990. After all, what else could account for his attempt to make hay of the fact
that Ross modeled Kaplan’s policies after those designed to comply with the
EEOC’s regulations? We are left to guess, however, because Gillespie offers
neither reference nor reason to support this implicit argument.
Yet this much is clear: Congress looked to the Rehabilitation Act in enacting
the ADA. See D’Angelo v. ConAgra Foods, Inc., 422 F.3d 1220, 1237 (11th Cir.
2005). So Gillespie’s contention that a jury question about scienter exists cannot
merely rest on the fact that Ross modeled Kaplan’s policies after those that
37
Case: 13-13672 Date Filed: 03/11/2015 Page: 38 of 45
complied with the regulations implementing the ADA. Instead, he had to point to
record evidence that would enable a reasonable jury to find that under the
circumstances Ross’s conduct was either seriously unreasonable or imprudent—
akin to gross negligence—or that she knew or reasonably should have known that
relying on disability policies and procedures approved by the EEOC would likely
lead to Kaplan violating the Rehabilitation Act and its implementing regulations.
See King-Vassel, 728 F.3d at 712–13. He did neither. Thus, these facts are
immaterial. See Harrison, 746 F.3d at 1298.
Finally, Gillespie’s attempt to turn nothing (the absence of evidence that
Ross had read and was familiar with the Rehabilitation Act’s implementing
regulations) into something (evidence of Kaplan’s reckless disregard) falls flat. To
survive Kaplan’s motion for summary judgment, Gillespie had to point to record
evidence that would permit a reasonable jury to find in his favor. See Brooks, 446
F.3d at 1162. Having determined that the record evidence that he identifies is
immaterial, we cannot conclude that the district court’s grant of summary
judgment to Kaplan should be reversed based on an absence of evidence,
especially where the hole in the record exists because Gillespie did not ask Ross
about the implementing regulations during her deposition.
At bottom, even if Gillespie’s personal assessment that Ross should have
performed her job better were true, this would not establish a jury question about
whether Kaplan certified its compliance with the Rehabilitation Act and its
implementing regulations with reckless disregard for the truth. See Wang v. FMC
Corp., 975 F.2d 1412, 1420 (11th Cir. 1992) (holding relator’s own affidavit
38
Case: 13-13672 Date Filed: 03/11/2015 Page: 39 of 45
criticizing his employer’s performance was not evidence that the employer acted
with the requisite intent to be found liable under the False Claims Act).
Finally, because Gillespie emphasizes facts about Ross that are immaterial,
we conclude that his assertion that the district court impermissibly weighed the
evidence or made credibility determinations is without merit.
b. Gary Kerber
Gillespie also takes issue with the fact that Gary Kerber signed the 2004
program participation agreement without independently and specifically verifying
that Kaplan’s policies complied with the Rehabilitation Act and its implementing
regulations. Indeed, in Gillespie’s view, the district court’s finding that Kerber
was “very on board” with meeting these requirements, see Gillespie I, 2013 WL
3762445, at *3, is contradicted (or at least called into question) by Kerber’s own
testimony that he did nothing to independently verify the accuracy of Kaplan’s
representations in the 2004 program participation agreement. But like his criticism
of Ross, Gillespie’s criticism of Kerber’s job performance lacks the appropriate
context.
Context matters. Kerber testified that when he signed the 2004 program
participation agreement, he relied on the opinions of his subordinates, including
those charged with compliance, and had no reason to believe that Kaplan’s policies
violated the Rehabilitation Act or its implementing regulations. And while he did
not independently review the agreement or specifically review Kaplan’s policies
for compliance with the Rehabilitation Act, Kaplan had hired “the kind of people
39
Case: 13-13672 Date Filed: 03/11/2015 Page: 40 of 45
that had integrity, that had experience, [and] that had knowledge”; the company
also used a system where there were “experts who ran the departments,” and they
were responsible for ensuring Kaplan’s compliance. Even so, Kerber knew that
Kaplan was required to comply with the Rehabilitation Act, and he testified that
Kaplan was “very on board with meeting those requirements.” He also knew that
Kaplan’s obligation to comply with the program participation agreement was
ongoing and that failure to do so could result in the loss of eligibility to receive
Title IV funds.
In short, Kerber did not sign the 2004 program participation agreement
willy-nilly but rather in reliance upon the work of his subordinates. Gillespie has
adduced no evidence—either in the district court or on appeal—suggesting (much
less showing) that Kerber’s reliance on his subordinates was unreasonable under
the circumstances. But even if he had, summary judgment would still have been
proper unless a reasonable jury could conclude that Kerber’s reliance amounted to
gross negligence under the circumstances. See King-Vassel, 728 F.3d at 712–13.
Given Gillespie’s lack of evidence and Kaplan’s robust compliance system that
relies upon multiple employees as well as the independent advice of outside
counsel, we conclude that Gillespie’s attempt to create a jury question by cherry-
picking Kerber’s testimony is unavailing.
Here, the undisputed facts show that Kaplan took compliance with the
Rehabilitation Act and its implementing regulations seriously: it assigned Ross, an
employment lawyer with over twenty years’ experience, to revise its
nondiscrimination policies and grievance procedures in 2003; it based these
40
Case: 13-13672 Date Filed: 03/11/2015 Page: 41 of 45
revisions on policies that had been approved by the EEOC; it regularly held
compliance training for its employees; and it hired outside counsel to review its
training materials. These actions contradict Gillespie’s contention that Kaplan’s
compliance certification was made with reckless disregard for the truth. Cf. United
States ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 110 (3d Cir.
2007) (holding that the company “demonstrated” its “lack of recklessness” by
devoting considerable resources to compliance); United States v. Renal Care Grp.,
Inc., 696 F.3d 518, 531 (6th Cir. 2012) (concluding that defendants demonstrated a
lack of scienter by “consistently s[eeking] clarification on the issue” and
“follow[ing] industry practice in trying to sort through ambiguous regulations”).
Given this undisputed evidence, we conclude that the district court did not
err by granting summary judgment to Kaplan.
iii. Kaplan “Judicial Admissions” of Noncompliance
Finally, Gillespie contends that summary judgment was inappropriate
because Kaplan voluntarily entered into a restoration agreement with the OCR,
which was only possible if the company had been found to violate the regulations
that the agency enforced. But even if it were true that the seven defects listed in
the OCR’s October 2005 letter to Kaplan constituted violations of the Department
of Education’s regulations implementing section 504 of the Rehabilitation Act, see
34 C.F.R. §§ 104.7(b), 108, and that Kaplan admitted to these violations by
entering into the restoration agreement, these facts alone would not permit a
rational jury to find that Kaplan’s compliance certification in the 2004 program
41
Case: 13-13672 Date Filed: 03/11/2015 Page: 42 of 45
participation agreement was made with the requisite scienter. Accordingly, we
conclude that Gillespie’s final contention fails to show that the district court erred
in granting summary judgment to Kaplan.
2. The Timing of Summary Judgment
Gillespie offers another reason to reverse the district court’s grant of
summary judgment to Kaplan: the ruling was premature given that Kaplan had
been ordered to produce four documents wrongly withheld as privileged just two
business days before. According to Gillespie, the district court failed to appreciate
the importance of these documents because he had no opportunity to “put them
into [the] appropriate context.” This is untrue.
In his motion to abate, for example, Gillespie contended that three of the
four documents “could have potentially led [him] to alert the [c]ourt that further
discovery may impact the pending summary judgment briefing.” In response,
Kaplan attached each referenced document to its opposition brief. Yet Gillespie’s
reply brief—like his brief on appeal—provided no “context” explaining how these
documents suggest that Kaplan acted with the requisite scienter. 16 Put simply,
Gillespie had several chances to place the documents in their appropriate context;
he simply failed to avail himself of them. In addition to this shortcoming,
16
On appeal, Gillespie claims that the district court “misapprehended the law and the
facts” because one of these documents “provides unquestionable proof that Kaplan remained in
knowing, actual violation of Section 504, even as late as March 2007, to wit: a copy of Kaplan
University’s revised university handbook.” But as with many of his other arguments, he never
explains how this draft course catalogue “provides unquestionable proof” of scienter. Nor is it
obvious to us how it does.
42
Case: 13-13672 Date Filed: 03/11/2015 Page: 43 of 45
Gillespie’s contention has an even more fundamental defect: he never advised the
district court that he had asked the magistrate judge to review about 60 documents
(from Kaplan’s 124-page privilege log) to determine whether they had been
improperly designated as privileged. This dooms his contention.
We have held that “the party opposing the motion for summary judgment
bears the burden of calling to the district court’s attention any outstanding
discovery.” Snook v. Trust Co. of Ga. Bank of Savannah, N.A., 859 F.2d 865, 871
(11th Cir. 1988). “Courts cannot read minds,” so the nonmoving party must give
more than “vague assertions that additional discovery will produce needed, but
unspecified, facts.” Reflectone, Inc., 862 F.2d at 844; id. at 843 (quoting Wallace,
703 F.2d at 527) (internal quotation mark omitted). Indeed, as the party opposing
summary judgment, Gillespie had to “specifically demonstrate” how postponing
the court’s ruling would have enabled him, “by discovery or other means, to rebut
[Kaplan’s] showing of the absence of a genuine issue of fact” on scienter. Id. at
843 (Wallace, 703 F.2d at 527) (internal quotation mark omitted).
Yet Gillespie never notified the district court about the discovery dispute.
He did not submit to the court a Rule 56(d) notice, affidavit, or anything of the
kind. Nor did he reference the allegedly outstanding discovery in his opposition to
summary judgment—let alone explain to the district court how the outstanding
discovery would have enabled him to show that a jury question on scienter
remained. To justify his failure to notify the district court, Gillespie emphasizes
the time between when Kaplan was ordered to produce the wrongly withheld
documents and when the court ruled on the parties’ cross-motions for summary
43
Case: 13-13672 Date Filed: 03/11/2015 Page: 44 of 45
judgment. He says that he did not have a chance to notify the court about the
potential value of this evidence during the two business days between these
rulings. But the record belies his assertion.
Gillespie’s oral request for in camera review and full briefing on the
discovery dispute had been complete for more than two weeks when Kaplan filed
its motion for summary judgment—and for more than a month when Gillespie
filed his opposition to summary judgment. Thus, he had many opportunities to
explain to the district court the effect that the allegedly outstanding discovery
might have had on the motions for summary judgment. And there is no merit to
his contention that the district court should have waited to rule on these motions
because it was “aware” that the discovery dispute was pending on the docket.
Awareness alone is not enough, however. Gillespie needed to specifically alert the
court that he needed the then-outstanding discovery in order to properly oppose
Kaplan’s motion for summary judgment. Because it is undisputed that he did not,
we conclude that the district court did not abuse its discretion by ruling on the
parties’ cross-motions for summary judgment two business days after Kaplan was
ordered to produce four wrongly withheld documents.17
17
Gillespie also contends that his failure to direct the district court’s attention to the
outstanding discovery is “moot” because the court admitted that it had read the documents
“before granting summary judgment.” Not so. The record is clear that the district court
reviewed these documents after it granted summary judgment to Kaplan, and then only to
confirm that Gillespie’s motions for abatement and reconsideration were baseless.
44
Case: 13-13672 Date Filed: 03/11/2015 Page: 45 of 45
V. Conclusion
For the reasons stated above, we affirm the district court’s dismissal of
Diaz’s claims against Kaplan that were based on its alleged violations of the
Department of Education’s satisfactory-progress regulation, 34 C.F.R. § 668.34;
the 90/10 rule, 20 U.S.C. § 1094(a)(24), (d)(2); and the accreditation requirement,
34 C.F.R. § 600.5(a)(6). But we modify the judgment of dismissal to be without
prejudice with respect to the government. We reverse the district court’s dismissal
of Diaz’s claims against Kaplan to the extent that they were based on its alleged
violation of the incentive-compensation ban, 20 U.S.C. § 1094(a)(20); 34 C.F.R.
§ 668.14(b)(22)(ii), and remand the case for further proceedings consistent with
this opinion.
We affirm the district court’s grant of summary judgment to Kaplan on all of
Gillespie’s claims.
AFFIRMED in part, REVERSED in part, MODIFIED in part, and
REMANDED.
45