United States Ex Rel. Whatley v. Eastwick College
657 F. App'x 89
| 3rd Cir. | 2016Background
- Eastwick Education (owner Thomas Eastwick) operates for‑profit Eastwick College and Hohokus Schools; Whatley attended their nursing programs (LPN, BLPN, MA) and withdrew after medical leave.
- Whatley alleged systemic misconduct: recruiters paid incentives, misleading recruitment (transferability promises, graduation/job placement rates), inflated "frontloaded" fees (books, labs, “other fees”), arbitrary grade manipulation, and improper draws of federal financial aid.
- Whatley filed a qui tam suit under the False Claims Act (FCA) and state law claims (including NJ Consumer Fraud Act); the United States declined to intervene.
- The District Court dismissed the First Amended Complaint (FAC) for failure to state FCA and state claims (Rule 12(b)(6) and Rule 9(b) heightened pleading), denied leave to file a Supplemental Amended Complaint (SAC), and declined supplemental jurisdiction over state claims; CAFA jurisdiction prompted review of SAC state claims which were also dismissed.
- On appeal, the Third Circuit affirmed: FCA counts were insufficiently pleaded as factually or legally false claims and failed Rule 9(b); proposed amendments were futile and the motion to amend was properly denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FAC alleges FCA liability (factually or legally false claims) | Whatley: Schools submitted false claims by drawing down federal aid for inflated/frontloaded fees, double‑charging transfers, altered attendance to claim funds, and incentive‑driven recruitment | Schools: Complaint lacks specific false certifications or misrepresentations to the government and fails to identify statutes/regulations violated or the who/what/when/where/how | Held: Dismissed — Whatley failed to plead either factually or legally false claims with required particularity |
| Whether pleadings satisfy Rule 9(b) for fraud‑based FCA and NJCFA claims | Whatley: Allegations (including some on information and belief) suffice to show a pattern of deceptive practices | Schools: Allegations are conclusory, lack specifics (who altered records, which students/semesters, specific misstatements), and fail Rule 9(b) particularity | Held: Dismissed — allegations are boilerplate/speculative and not particularized |
| Whether denial of leave to amend was an abuse of discretion / whether amendment would be futile | Whatley: SAC would cure defects, added plaintiffs and more detail; repleaded state claims as class action under CAFA | Schools: SAC still fails to plead essential facts, and prior briefing put Whatley on notice of deficiencies | Held: Denial affirmed — amendment would be futile and district court did not abuse discretion |
| Whether district court properly evaluated state law claims under CAFA/supplemental jurisdiction | Whatley: State claims restated with additional detail in SAC (NJCFA, breach, unjust enrichment, torts) | Schools: State claims lack required contract identification or duty elements and are insufficiently pleaded | Held: Dismissed — state claims under SAC deficient; district court correctly dismissed and declined supplemental jurisdiction as applicable |
Key Cases Cited
- Pearson v. Secretary, Department of Corrections, 775 F.3d 598 (3d Cir.) (pleading standard / Rule 12(b)(6) review)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for complaints)
- U.S. ex rel. Wilkins v. United Health Group, Inc., 659 F.3d 295 (3d Cir.) (two—factually and legally—categories of false claims under FCA)
- Universal Health Services, Inc. v. United States, 136 S. Ct. 1989 (2016) (implied‑false‑certification/half‑truth theory)
- U.S. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d 837 (3d Cir.) (qui tam principles and leave‑to‑amend guidance)
- In re Rockefeller Center Properties, 311 F.3d 198 (3d Cir.) (Rule 9(b) pleading on information and belief)
- Burlington Coat Factory Securities Litigation, 114 F.3d 1410 (3d Cir.) (fraud pleading standards)
- U.S. ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir.) (sufficient particularity where specific incentive compensation violations alleged)
- Foglia v. Renal Ventures Management, LLC, 754 F.3d 153 (3d Cir.) (example of satisfying Rule 9(b) with documentary specifics)
- Krantz v. Prudential Investment Fund Management LLC, 305 F.3d 140 (3d Cir.) (denial of leave to amend where deficiencies were previously pointed out)