Carlos Urquilla-Diaz v. Kaplan University, 780 F.3d 1039

Background

Two consolidated qui tam suits against Kaplan University alleging False Claims Act (FCA) liability for false certifications to obtain Title IV federal student-aid funds. Relators: Carlos Urquilla-Diaz (Diaz) and Jude Gillespie (Gillespie).
Key Title IV compliance areas at issue: accreditation, the 90/10 revenue rule, ban on recruitment-based incentive compensation (and its regulatory safe harbors), satisfactory academic progress, and Section 504 (Rehabilitation Act) nondiscrimination requirements.
Diaz (former professor) alleged multiple schemes: unlawful incentive pay to recruiters, an employee scholarship funded with tuition (90/10), grade inflation to preserve Title IV eligibility, and falsified accreditation materials; district court dismissed his complaint with prejudice for failure to plead FCA violations with required particularity.
Gillespie (former Kaplan employee who complained to OCR) alleged Kaplan falsely certified Section 504 compliance in its program participation agreements; OCR found policy deficiencies and Kaplan entered a voluntary resolution agreement, later cleared in compliance by OCR; district court granted summary judgment for Kaplan, finding no genuine scienter issue and that outstanding discovery would not change the result.
Eleventh Circuit: affirmed in part, reversed in part — reversed dismissal as to Diaz’s incentive-compensation-based FCA claim and remanded; affirmed dismissal for Diaz’s other theories (grade inflation, 90/10, accreditation); affirmed summary judgment for Kaplan on Gillespie’s claims.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Diaz pleaded an FCA violation based on Kaplan's alleged incentive-based recruiter compensation	Diaz: recruiters were paid "based primarily" on enrollments; alleged specific employees whose pay rose/fell with enrollments, showing nonrecruitment factors were pretextual	Kaplan: compensation plan listed nonrecruitment factors; Diaz failed to plead that those factors were not actually considered	Reversed dismissal as to incentive-compensation claim; pleadings sufficiently alleged plausible false-certification theory for pre-5/26/2006 period and named employees supported inference of unlawful practice
Whether Diaz pleaded FCA claims based on grade inflation (satisfactory-progress rule)	Diaz: grade inflation led to false certifications of students' satisfactory progress, causing improper Title IV disbursements	Kaplan: Diaz failed to identify specific students who would have failed progress requirements absent inflation or to link grading to graduation requirements	Affirmed dismissal — Diaz did not plead with particularity the causal link between grade inflation and false claims
Whether Diaz pleaded FCA claim based on 90/10 rule via employee scholarship funded from tuition	Diaz: Gift of Knowledge scholarship funded with Title IV-derived tuition reduced non-Title IV revenues below 10%	Kaplan: Diaz alleged no facts about total revenues or that Kaplan actually fell below 10% from non-Title IV sources	Affirmed dismissal — allegations insufficiently particular to plausibly show statutory violation
Whether Gillespie created a genuine issue of FCA scienter for false-certification of Section 504 compliance	Gillespie: told HR counsel Ross in Apr 2005 that policies were noncompliant; Ross drafted policies from EEOC language, had gaps in recollection; Kerber signed agreement without independent verification; OCR resolution shows noncompliance	Kaplan: had experienced compliance staff, outside counsel review, training, and relied reasonably on Ross; OCR resolution and later compliance letter do not establish scienter for 2004 certification	Affirmed summary judgment — no evidence of actual knowledge or reckless disregard; district court did not abuse discretion in ruling despite late privilege production

Key Cases Cited

Thomas M. Cooley Law Sch. v. Am. Bar Ass'n, 459 F.3d 705 (6th Cir.) (accreditation and accrediting agency role)
Corsello v. Lincare, Inc., 428 F.3d 1008 (11th Cir.) (FCA liability arises from submission of a fraudulent claim, not mere regulatory noncompliance)
United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301 (11th Cir.) (Rule 9(b) particularity in FCA claims; submission requirement)
United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166 (9th Cir.) (false-certification theory elements)
Hopper v. Solvay Pharm., Inc., 588 F.3d 1318 (11th Cir.) (pleading standards for FCA; distinctions between §3729(a)(1) and (a)(2))
Celotex Corp. v. Catrett, 477 U.S. 322 (Supreme Court) (summary judgment standard)
Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court) (plausibility standard for pleadings)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Supreme Court) (plausibility pleading standard)
United States v. King-Vassel, 728 F.3d 707 (7th Cir.) (FCA scienter nuance; reckless disregard as extension of gross negligence)
United States v. Renal Care Grp., Inc., 696 F.3d 518 (6th Cir.) (reckless disregard and compliance efforts bearing on scienter)
United States ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103 (3d Cir.) (compliance measures rebut inference of recklessness)
Brooks v. County Commission of Jefferson County, Ala., 446 F.3d 1160 (11th Cir.) (nonmoving party must present evidence to avoid summary judgment)