United States v. Corinthian Colleges
2011 U.S. App. LEXIS 16618
| 9th Cir. | 2011Background
- Relators allege Corinthian falsified HEA compliance to obtain Title IV funds; EY allegedly certified false compliance.
- HEA ban on incentive compensation and the Safe Harbor provision are central to alleged FCA liability.
- Complaint alleges recruitment-based salary increases and quotas as incentive payments; compensation policy attached as Exhibit A.
- District court dismissed under Rule 12(b)(6), finding Safe Harbor applicability and lack of scienter.
- Appellate court reverses: material facts may render Safe Harbor inapplicable and allows leave to amend.
- Court remands to permit Relators to amend to cure deficiencies and potentially state FCA claims against Corinthian, individual Defendants, and EY.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Complaint plead a false statement under the FCA? | Lee argues Corinthian falsely certified HEA compliance. | Corinthian's program falls within Safe Harbor. | Yes, but needs amendment to cure deficiencies. |
| Is scienter adequately pled against Corinthian? | Relators allege knowledge or reckless disregard. | Reliance on Safe Harbor negates scienter. | Not clearly pled; amendment can cure. |
| Should Relators be allowed to amend the Complaint? | Amendment could show true basis for HEA violation. | If Safe Harbor applies, amendment futile. | Abuse of discretion; leave to amend warranted. |
| Are EY’s alleged FCA violations sufficiently pled? | EY certified falsities and omitted HEA-related info. | Need more specificity and evidence. | Sufficient under Rule 12(b)(6) and 9(b) if amended. |
| Can claims against the Individual Defendants survive? | Individual Defendants monitored/approved practices. | Lack of specific role; Rule 9(b) deficiency. | Amendment might render plausible participation. |
Key Cases Cited
- Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006) (FCA elements; false certification theory; materiality)
- Ashcroft v. Iqbal, 556 U.S. 662 (S. Ct. 2009) ( pleading must be plausible; threadbare recitals insufficient)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (S. Ct. 2007) (plaintiff must plead facts giving strong inference of scienter)
- Swartz v. KPMG LLP, 476 F.3d 756 (9th Cir. 2007) (Rule 9(b) requires defendant-specific allegations in fraud suits)
- U.S. ex rel. Bott v. Silicon Valley Colleges, 262 Fed.Appx. 810 (9th Cir. 2008) (unpublished; persuasive authority on scienter/SAFE HARBOR)