United States v. Daniels ( 2023 )

Case: 23-50423 Document: 00516963075 Page: 1 Date Filed: 11/09/2023
United States Court of Appeals
for the Fifth Circuit
____________
United States Court of Appeals
Fifth Circuit
No. 23-50423
Summary Calendar FILED
____________ November 9, 2023
Lyle W. Cayce
United States of America, Clerk
Plaintiff—Appellee,
versus
Ricky J. Daniels, Jr.,
Defendant—Appellant.
______________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 6:20-CV-986
______________________________
Before Clement, Duncan, and Douglas, Circuit Judges.
Per Curiam: *
The United States sued Ricky Daniels, Jr. under the False Claims Act
for defrauding the U.S. Department of Veterans Affairs. The district court
granted the government’s motion for summary judgment, awarding it more
than $9 million in damages and civil penalties, and denied Daniels’s cross
motion for summary judgment. We AFFIRM.
_____________________
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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No. 23-50423
I.
A.
The Post-9/11 GI Bill, 38 U.S.C. §§ 3301–27, provides financial
assistance to members of the military, veterans, and eligible dependents who
enroll in certain education programs. See also 38 U.S.C. §§ 3601–99B
(administration of veteran education benefits). Before an educational
institution can enroll students receiving such benefits, the institution must
apply to the relevant state agency that oversees compliance with federal
requirements. See 38 U.S.C. § 3676; 38 C.F.R. § 21.4254. In Texas, that state
agency is the Texas Veterans Commission. The state agency may only
approve courses offered at nonaccredited institutions if the institution and its
courses meet certain criteria. 38 U.S.C. § 3676(c).
For “a course not leading to a standard college degree” to qualify
under the Post-9/11 GI Bill, the statute requires that, among other things, the
institution offering the course has been operating for at least two years. 38
U.S.C. § 3680A(e)(1); see also 38 C.F.R. § 21.4251(b). Congress enacted this
requirement to, “prevent charlatans from grabbing [] veteran[s’] education
money.” Cleland v. Nat’l Coll. of Bus., 435 U.S. 213, 219 (1978).
These institutions must submit certifications of enrollment for eligible
veterans, which act as requests for payment of tuition and fees. In so doing,
the institutions must certify that they “ha[ve] exercised reasonable diligence
in meeting all applicable requirements of [the Post-9/11 GI Bill].” The VA
processes these certifications automatically.
B.
In 2012, Daniels began teaching a small business management class
for veterans at Cutt Master, a barber school in El Paso, Texas. He helped the
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school’s owner obtain approval to receive benefits under the Post-9/11 GI
Bill for this class. 1 For his services, Cutt Master paid one-third of the tuition
received from this class to Daniels’s unincorporated business that operated
under the name “El Paso Summer Slam.” Daniels continued to teach this
business management course at Cutt Master until 2014, when he decided to
open his own school.
On July 11, 2014, Daniels prepared and filed a certificate of formation
for the ELPSS Career Institute LLC with the Secretary of State of Texas.
The certificate lists Daniels’s mother, Carla Daniels, as the entity’s
managing member. In August 2014, Daniels applied to the Texas Workforce
Commission for approval to operate ELPSS Career Institute as a licensed
career school. Daniels leased a building in Killeen, Texas in October 2014,
which the school began occupying the following month. The Texas
Workforce Commission issued the ELPSS Career Institute a certificate to
operate in December 2014.
In June 2015, Daniels applied to the Texas Veteran Commission to
approve ELPSS Career Institute under the Post-9/11 GI Bill. At the top of
the first page of the application, Daniels checked a box certifying that his
school “HAS operated as an educational institution for the last two years.”
The application clearly stated that the Texas agency would not process a
request for approval for any school that had not been operational for two
years. Daniels also signed a statement certifying that the statements
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1
In 2021, the owner of Cutt Master agreed to pay $900,000 to settle allegations
that he violated the False Claims Act by falsely submitting claims to the VA. See Press
Release: Cutt Master Barber School Settles Allegations of False Claims Act Violations, U.S.
Dep’t of Just. (Aug. 2, 2021), https://www.justice.gov/usao-wdtx/pr/cutt-master-barber-
school-settles-allegations-false-claims-act-violations.
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contained in the application were “true and correct to the best of [his]
knowledge and belief.”
Before the Texas Veterans Commission approved Daniels’s
application, it verified the school’s compliance with the two-year rule by
reviewing student records that Daniels provided. The agency then approved
Daniels’s application in August 2015. Daniels subsequently submitted 169
claims for repayment to the VA totaling over $2.4 million.
C.
In September 2017, the VA Office of Inspector General informed the
Texas Veterans Commission that the ELPSS Career Institute was under
investigation for obtaining approval to train veterans under false pretenses,
as the school had not been operational for the statutory two-year minimum.
This investigation revealed that the student records Daniels had provided to
substantiate the school’s compliance with the two-year rule were for students
who were enrolled at Cutt Master and who had never attended the ELPSS
Career Institute. On September 12, 2017, the Texas Veterans Commission
withdrew the school’s approval and the school ceased operations two months
later.
The government filed suit against Daniels and the ELPSS Career
Institute under the False Claims Act in October 2020. At the close of
discovery, the government and Daniels (proceeding pro se) filed cross
motions for summary judgment. After excluding evidence that Daniels failed
to produce during discovery, a magistrate judge recommended granting the
government’s motion and denying Daniels’s motion. The district court
adopted the magistrate judge’s recommendations over Daniels’s objection,
granting the government’s motion for summary judgment on its False Claims
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Act claims and awarding the government $9,024,886.99 in damages. 2 The
district court denied Daniels’s motion for summary judgment, as well as
several other motions. Daniels appeals, pro se.
II.
“The standard of review on summary judgment is de novo.” Davidson
v. Fairchild Controls Corp., 882 F.3d 180, 184 (5th Cir. 2018) (citation
omitted). Summary judgment is appropriate “if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). A factual dispute is
“genuine” if a reasonable fact finder could review the evidence and find for
the nonmoving party and “material” if it could “affect the outcome of the
suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986).
We liberally construe briefs of pro se litigants and apply less stringent
standards than those applied to parties represented by counsel. Grant v.
Cuellar, 59 F.3d 523, 524 (5th Cir. 1995). But pro se parties must still brief
issues to preserve them. Mapes v. Bishop, 541 F.3d 582, 584 (5th Cir. 2008).
III.
We construe Daniels’s appeal as challenging both the district court’s
denial of his own summary judgment motion and grant of the government’s.3
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2
In accordance with the False Claims Act, this damages award equaled the
statutory minimum civil penalty for each violation plus three times the amount of damages
sustained by the government. See 31 U.S.C. § 3729(a)(1).
3
In addition, Daniels appears to argue that several government employees violated
his constitutional rights and certain ethical-conduct standards. But the government
employees are not parties to this case, nor did Daniels properly bring these affirmative
claims below. Accordingly, these constitutional claims are not properly before us.
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As an initial matter, the government argues that Daniels implicitly
challenges the district court’s evidentiary ruling by relying on evidence that
the district court excluded under Federal Rule of Civil Procedure 37(c)(1);
evidence not produced or disclosed during discovery. Indeed, Daniels’s
opening brief cites evidence that the district court excluded. We agree with
the government that Daniels has forfeited any argument that the evidence
should not have been excluded and therefore decline to consider it. See
Rollins v. Home Depot USA, 8 F.4th 393, 397 (5th Cir. 2021) (“A party forfeits
an argument . . . by failing to adequately brief the argument on appeal.”);
Mapes, 541 F.3d at 584. 4
On to the merits. A person is liable under the False Claims Act if he
or she: “(A) knowingly presents, or causes to be presented, a false or
fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or
causes to be made or used, a false record or statement material to a false or
fraudulent claim.” 31 U.S.C. § 3729(a)(1). To determine liability, we ask “(1)
whether there was a false statement or fraudulent course of conduct; (2)
made or carried out with the requisite scienter; (3) that was material; and (4)
that caused the government to pay out money or to forfeit moneys due (i.e.,
that involved a claim).” United States ex rel. Harman v. Trinity Indus. Inc., 872
F.3d 645, 653–54 (5th Cir. 2017) (quotation marks and citation omitted).
First, we ask if the government has shown that Daniels submitted a
false claim. We agree with the district court that it has. In his application for
approval to train veterans, Daniels falsely certified that the ELPSS Career
Institute had “operated as an educational institution for the last two years.”
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4
In his reply, Daniels contends that the evidence was elsewhere in the record and
therefore he can properly rely on it. If nothing else, this argument, too, is forfeited. See Sec.
& Exch. Comm’n v. Hallam, 42 F.4th 316, 327 (5th Cir. 2022) (“Any issue not raised in an
appellant’s opening brief is forfeited.”) (citation omitted) (alteration adopted).
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Daniels submitted ELPSS Career Institute’s application to the Texas
Veterans Commission in June 2015, but the public records from the Texas
Secretary of State and Texas Workforce Commission show that the ELPSS
Career Institute was not formed until July 2014 and was not authorized to
operate until December 2014.
Daniels argues, essentially, that there was no false claim because
ELPSS Career Institute is one and the same as the other entities he used to
conduct his teaching activities since 2013, including El Paso Summer Slam.
But the record shows otherwise. ELPSS Career Institute is a limited liability
company owned and managed, not by Ricky Daniels, but by his mother, Carla
Daniels. It was this LLC that sought and obtained approval to operate as a
career school in 2014. And it was this LLC that sought VA and Texas
Veterans Commission approval to train veterans in 2015. Accordingly,
Daniels’s argument that there was no false claim fails. 5
Second, we consider scienter. To prove scienter, the government
must show that “the defendant[] had (1) actual knowledge of falsity, (2) acted
with deliberate ignorance of the truth or falsity of the information provided,
or (3) acted with reckless disregard of the truth or falsity of the information
provided.” United States v. Hodge, 933 F.3d 468, 473 (5th Cir. 2019)
(alteration adopted) (citation omitted); see also 31 U.S.C. § 3729(b)(1)(A).
The government is not required to show intent to defraud. 31 U.S.C. §
3729(b)(1)(B). “[T]he term ‘reckless disregard’ [] captures defendants who
are conscious of a substantial and unjustifiable risk that their claims are false,
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5
And even if Daniels were correct (which he is not) that ELPSS Career Institute
had operated for two years by way of Daniels’s work in El Paso, the Killeen location had not
operated for a least two years prior to its application and was therefore still ineligible to
receive funds. 38 U.S.C. § 3680A(e)(2); see also 38 C.F.R. § 21.4251(b)(2).
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but submit the claims anyway.” United States ex rel. Schutte v. SuperValu Inc.,
598 U.S. 739, 751 (2023) (citations omitted).
Here, Daniels knew (or at least recklessly disregarded) that the ELPSS
Career Institute had not been operating for two years when he submitted the
June 2015 application. Daniels prepared and filed the ELPSS Career
Institute’s certificate of formation in July 2014, sought approval from the
Texas Workforce Commission for ELPSS Career Institute to operate as a
career school in August 2014, and leased a building in Killeen to house the
ELPSS Career Institute in October 2014. Moreover, Daniels knew that the
ELPSS Career Institute would not have been approved if he accurately
identified the school’s start date, as the two-year requirement is the very first
requirement listed on the Texas Veterans Commission application, and the
form explicitly states that a request for approval cannot be processed if the
rule is not met.
Daniels, in essence, doubles down on his argument that the ELPSS
Career Institute had been operating for two years in an effort to show that he
lacked knowledge of any false claims. We interpret this as an assertion that
Daniels himself thought that the school had been operational for two years
when he made the requisite certification and submitted records of students
enrolled in Cutt Master in support thereof. But it defies credulity for Daniels
to claim that he legitimately believed he could use records concerning
students who took classes at an entirely different school to satisfy the two-
year requirement at his new institution. See United States ex rel. Longhi v.
Lithium Power Techs., Inc., 575 F.3d 458, 471 (5th Cir. 2009) (rejecting as
“patently absurd” a False Claims Act defendant’s argument that it lacked
scienter when it certified that it had a formal partnership with a university for
purposes of receiving a research grant when, in fact, the university’s labs
were simply open to the public).
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Third, we ask if the false claim was material. The term “material”
“means having a natural tendency to influence, or be capable of influencing,
the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). The
two-year rule is an express requirement mandated by the statute. 38 U.S.C.
§ 3680A(e)(1). If a school has not been operational for two years, it is
ineligible to receive VA funds. As such, Daniels’s false statement is material.
See United States v. Davis, 53 F.4th 833, 841 (5th Cir. 2022) (affirming wire
fraud conviction where defendant falsely certified that his school had been in
operation for two years).
Finally, we agree that the false claim caused the United States to pay
out money. Daniels does not dispute this element nor the district court’s
calculation of damages. Daniels’s false statement induced the VA to allow
the ELPSS Career Institute to enroll veterans who received Post-9/11 GI Bill
benefits, and his subsequent certifications of enrollment caused the VA to
pay those benefits.
IV.
No reasonable fact finder could find in favor of Daniels on any element
of the government’s False Claims Act claim. We AFFIRM.
9