United States v. Sanford-Brown, Limited
788 F.3d 696
| 7th Cir. | 2015Background
- Relator Brent Nelson sued Sanford‑Brown College (SBC), Sanford‑Brown, Ltd. (SBL), and parent Career Education Corporation (CEC) under the False Claims Act (FCA), alleging recruitment/retention practices caused false Title IV claims; the United States declined to intervene.
- Nelson worked as SBC Director of Education from June 2008–January 2009 and alleged widespread Title IV‑related compliance failures since 2006; he filed a sealed qui tam complaint in 2012 and amended in 2013.
- The district court dismissed many claims under the FCA public‑disclosure bar (31 U.S.C. § 3730(e)(4)) and held Nelson was an original source only for claims covering his employment period (2008–2009).
- The district court dismissed CEC from the amended complaint for failure to plead fraud with particularity under Fed. R. Civ. P. 9(b); Nelson moved too late to re‑plead CEC and the court denied leave to file a second amended complaint.
- On summary judgment the district court rejected Nelson’s theories of liability, including implied false certification (that post‑PPA noncompliance triggers FCA liability); the Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject‑matter jurisdiction / public‑disclosure bar (original‑source) | Nelson contended his allegations were original or not barred; he later said some public disclosure was conceded for efficiency. | Defendants argued public disclosures barred claims outside Nelson’s independent knowledge; first‑to‑file and public‑disclosure bars apply. | Court held Nelson’s unqualified concession that allegations were publicly disclosed and his admission he lacked independent knowledge meant he is an original source only for claims while employed (June 2008–Jan 2009). |
| Sufficiency under Rule 9(b) as to CEC | Nelson argued corporate group allegations sufficed given related corporate structure and later discovery could link CEC. | Defendants argued the complaint lumped "Defendants" without specifying CEC’s role; Rule 9(b) requires particularity to notify each defendant. | Court affirmed dismissal of CEC: pleading treated defendants collectively failed to allege specific facts tying CEC to the fraudulent scheme. |
| Denial of leave to file second amended complaint | Nelson argued he timely moved on the scheduling deadline and should be allowed one chance to cure 9(b) defects. | Defendants argued late motion (42 days after dismissal), undue prejudice, and discovery had proceeded without CEC. | Court affirmed denial as within district court discretion: undue delay and prejudice to defendants justified refusal. |
| Merits — whether post‑PPA noncompliance creates FCA liability (implied false certification) | Nelson (and U.S. amicus) argued PPA certifications to comply with Title IV regulations make subsequent claims false if an institution violates those conditions — compliance is a condition of payment. | Defendants argued PPA conditions are conditions of participation, not payment; without fraudulent induction into the PPA, later noncompliance is breach/administrative issue, not an FCA violation. | Court held FCA liability requires proof that the institution fraudulently obtained initial Title IV eligibility; good‑faith entry into a PPA followed by later noncompliance does not trigger FCA liability (rejecting broad implied false certification here). |
Key Cases Cited
- U.S. ex rel. Yannacopoulos v. General Dynamics, 652 F.3d 818 (7th Cir. 2011) (elements and mens rea for FCA § 3729(a)(1)(B) false‑record claims)
- United States ex rel. Main v. Oakland City Univ., 426 F.3d 914 (7th Cir. 2005) (PPA fraud theory; false promise at signing can support FCA liability if institution intended fraud when obtaining eligibility)
- U.S. ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791 (8th Cir. 2011) (post‑PPA noncompliance does not trigger FCA liability absent fraudulent inducement at entry)
- U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699 (7th Cir. 2014) (public‑disclosure bar and treating it as jurisdictional; caution against expansive implied‑certification theories)
- Baxter Int’l, Inc. v. Abbott Labs., 297 F.3d 544 (7th Cir. 2002) (heightened requirements for motions to seal; presumption of public access to appellate record)