Getting Schooled: the United States Court of Appeals for the Eleventh Circuit Holds That the Federal Government Need Not Show "good Cause" Before Settling and Dismissing a Pending Qui Tam Action Against College

• Publication year: 2018

Getting Schooled: The United States Court of Appeals for the Eleventh Circuit Holds that the Federal Government Need Not Show "Good Cause" Before Settling and Dismissing a Pending Qui Tam Action Against College

Laura Leigh Fox

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Getting Schooled: The United States Court of Appeals for the Eleventh Circuit Holds that the Federal Government Need Not Show "Good Cause" Before Settling and Dismissing a Pending Qui Tam Action Against College^*

I. Introduction

In United States v. Everglades College, Inc.,¹ a case of first impression in the United States Court of Appeals for the Eleventh Circuit, the court interpreted the good cause intervention requirement of § 3730(c)(3) of Title 31 of the United States Code (U.S.C.).² The court was asked to

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determine whether the United States needed to show "good cause" for intervening in a qui tam action brought by two private individuals under the False Claims Act (FCA).³ The government, after originally declining to proceed with the FCA action itself, eventually decided to "intervene" while the action was pending on the appellate docket simply for the purposes of settling with the defendant college and having the case dismissed.⁴ Relying on 31 U.S.C. § 3730(c)(3)'s plain language and similar decisions from sibling circuits, the Eleventh Circuit held that the United States did not need to show "good cause" for intervening when its only purposes were to settle with the defendant college and terminate the litigation.⁵ The court also approved the proposed settlement terms.⁶ In doing so, the court recognized the differing statutory requirements and standards guiding government actions in qui tam cases depending on whether the United States intervenes to proceed with the action itself, dismiss the action overall, or settle with the defendant.⁷ Noting these differences, the Eleventh Circuit declined to import the good cause intervention requirement from § 3730(c)(3) to the other sections of the statute.⁸ The Eleventh Circuit's decision increases the government's discretion in settling qui tam cases and, as a result, decreases incentives for individuals to bring qui tam cases alleging fraudulent behavior.

II. Factual Background

In United States v. Everglades College, Inc., two former private university employees accused the university of knowingly submitting false claims to the United States Department of Education. Under the Higher Education Act of 1965,⁹ specifically Title IV¹⁰ of the act, undergraduate and graduate students attending eligible institutions are

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able to receive federally sponsored financial aid.¹¹ To receive Title IV funds, institutions of higher education must enter into "program participation agreements"¹² with the United States Department of Education. These agreements condition eligibility for financial aid funds based on compliance with various requirements.¹³ One requirement, known as the Incentive Compensation Ban (ICB),¹⁴ prohibits institutions from paying incentives to recruiters and admissions personnel based on the number of students they enroll.¹⁵

Manuel Christiansen and Brian Ashton (Relators), two former admissions department employees for Keiser University, brought a qui tam action pursuant to 31 U.S.C. § 3729¹⁶ against Everglades College, Inc.,¹⁷ d.b.a. Keiser University (Everglades).¹⁸ The Relators alleged that Everglades, a participant in federal student financial aid programs, falsely certified compliance with the required program participation agreements. Specifically, the Relators claimed Everglades knowingly violated the ICB because admissions personnel received incentive payments based on their successes in securing student enrollments.

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Because Everglades did not properly comply with its program participation agreements, the Relators maintained that more than 230,000 claims, amounting to an estimated total of $1.2 billion in federally funded financial aid, were illegally submitted to the Department of Education. Consequently, the Relators contended the university's behavior caused its students to unknowingly submit claims for federal financial aid, also violating the ICB. Therefore, according to the Relators, Everglades was liable for both its own express false certifications of compliance and the enormous volume of student-submitted claims.¹⁹

When the Relators initiated their action against Everglades pursuant to 31 U.S.C. § 3730,²⁰ the United States initially declined to intervene and take over the case.²¹ Thus, exercising their statutory rights under § 3730(b)(1)²² and (b)(4)(B),²³ the Relators pursued the case on behalf of the United States. At the conclusion of a bench trial, the United States District Court for the Southern District of Florida found that Everglades violated the ICB.²⁴ However, the district court severely limited the monetary benefits of this finding to the Relators in three ways. First, the district court rejected the Relators' theory that each student-submitted financial aid claim was an actionable FCA claim because Everglades could not control the content, number, or submission of student-submitted financial aid claims. Second, the district court found that Everglades' top policymakers did not become aware of the ICB violation scheme until November 20, 2009. After this date, Everglades knowingly submitted two falsified certifications of compliance to the Department of Education. Therefore, Everglades was liable only for those two false claims, compared to the alleged amount of approximately 230,000 claims, and the district court awarded the Relators the minimum statutory penalty of $5,500 per violation. Lastly, the district court rejected the Relators' argument that the federal government's damages were equal to the value of all educational assistance paid to Everglades during the period covered by the false certifications. The district court reasoned the Department of Education would not have demanded reimbursement for the already-paid Title IV funds even if Everglades had disclosed its ICB

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violations.²⁵ Thus, the Relators were entitled to only $11,000 in penalties against Everglades and no damages.²⁶

Disappointed in the district court's limited award,²⁷ the Relators appealed the decision to the Eleventh Circuit. While the appeal was pending on the Eleventh Circuit's docket, and after the Relators' opening brief was filed, the United States commenced settlement negotiations with Everglades.²⁸ Then, before the United States moved to formally intervene in the Relators' qui tam action, the United States reached a tentative settlement with Everglades. It provided that the university would pay the United States $335,000 in exchange for being released from any further administrative or civil claims concerning the Relators' qui tam action. Additionally, the agreement provided that the United States would refrain from suspending or terminating Everglades' eligibility for any future Title IV funds based on the Relators' action.²⁹

Although the Relators' appeal was pending when the tentative settlement was struck, the United States moved the district court for an indicative ruling. In doing so, the United States asked the district court to permit its intervention and approve the tentative settlement once the district court reacquired jurisdiction on remand from the Eleventh Circuit. The district court issued the requested indicative order, reasoning the United States could intervene and the $335,000 settlement

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was fair and reasonable since it far exceeded the $11,000 won by the Relators. Because of the indicative ruling, the Eleventh Circuit remanded the case back to the district court. The district court then formally granted the United States' motion to intervene, which was made for the purposes of obtaining court approval of the tentative settlement and dismissing the qui tam action.³⁰ As statutorily required under § 3730(c)(2)(B),³¹ the district court scheduled a hearing to confirm whether the United States' proposed settlement with the defendant university was fair, reasonable, and adequate. After the fairness hearing, the district court approved the settlement and dismissed the Relators' qui tam action with prejudice.³²

III. Legal Background

A. The Higher Education Act of 1965

President Lyndon B. Johnson signed the Higher Education Act of 1965 (HEA) into law on November 8, 1965 in the gymnasium at Southwest Texas State College, his alma mater. Symbolically, President Johnson signed the bill sitting at the same desk he used while a student working as a secretary to the university's president. During his time in college, President Johnson also worked as a janitor on campus to supplement the loan he obtained to finance his tuition. With his penurious collegiate background in mind, President Johnson hoped the HEA would remove any financial barriers for academically qualified students.³³

The HEA was one of the most important pieces of President Johnson's Great Society legislation. It aimed to broaden educational opportunities for all Americans, leading to higher incomes for families, decreased poverty rates, and a prosperous country with a steady supply of educated individuals. One of the most significant components of the HEA was the creation of federal student aid programs under Title IV.³⁴ The purpose of Title IV, as originally stated in § 401(a),³⁵ was to provide "educational opportunity grants to assist in making available the benefits of higher education to qualified high school graduates of exceptional financial need, who for lack of financial means of their own or of their families

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would be unable to obtain such benefits without such aid."³⁶ The HEA established a federal role in providing post-secondary students with need-based grants, work-study opportunities, and loans to students willing to invest in themselves.³⁷

To be considered an eligible institution for the purposes of its students receiving federal financial aid under...