871 F. Supp. 2d 433
W.D. Pa.2012Background
- EDMC is a large post-secondary educator accused of paying incentive compensation to recruiters (ADAs) in violation of the HEA Incentive Compensation Ban and its Program Participation Agreements.
- Plaintiffs allege EDMC’s written compensation plan was designed to maximize enrollment and thereby secure government student aid funds, claiming billions in improper federal and state funding.
- Plaintiffs plead two FCA theories: (i) the plan as written violates the Ban, and (ii) the plan as implemented constitutes a sham to disguise unlawful compensation based on enrollment.
- The Department of Education provided Safe Harbor regulations allowing fixed compensation with limited adjustments, and EDMC defended its plan as within that Safe Harbor.
- Multiple complaints were filed (federal and state FCA counts and common-law claims) with the United States intervening; DC and Minnesota/Indiana/others also intervened or filed complaints.
- The court granted in part and denied in part EDMC’s motions, dismissing the plan as written at the pleading stage but allowing the as-implemented theory to proceed, and dismissing the DC complaint on timeliness grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the written plan violates the Incentive Ban | Relators argue as written plan breaches Ban and is not saved by Safe Harbor. | EDMC maintains plan complies with Safe Harbor and is facially lawful. | Plan as written dismissed |
| Whether the as-implemented theory survives pleading | Plan was used as a pretext to pay based on enrollment alone. | No, implementation details not pled; Safe Harbor interpretation may prevail. | As-implemented theory survives at pleading stage |
| Falsity, scienter, and causation standards for FCA claims | Pleading meets falsity and scienter under implied/ fraudulent-inducement theories. | Pleadings lack particularity and do not show scienter; plan complies with law. | scienter and falsity adequately pled to survive dismissal |
| State FCA claims viability | States’ FCA claims mirror federal ones and are actionable. | Some state claims may be limited by state law and timing; must be separately analyzed. | State claims cognizable but addressed with limits in order |
| District of Columbia complaint timeliness | DC claims timely relate to ongoing case and are properly pled. | DC claims untimely and should be dismissed. | DC complaint dismissed |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Supreme Court 2007) (plausibility standard for pleading claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court 2009) (two-step plausibility pleading standard)
- United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006) (incentive ban claims cognizable under FCA when implemented)
- United States ex rel. Main v. Oakland City Univ., 426 F.3d 914 (7th Cir. 2005) (compliance and enforcement context for FCA theories)
- Corinthian Colleges, Inc. v. Department of Education, 655 F.3d 984 (9th Cir. 2011) (limits and analysis of Safe Harbor implementations)
- United States ex rel. Wilkins v. United Health Group, 659 F.3d 295 (3d Cir. 2011) (implied false certification theory; limitations of FCA liability)
- United States ex rel. Chubb Institute v. United States, 443 Fed.Appx. 754 (3d Cir. 2011) (context for pleading scienter under Safe Harbor)