UNITED STATES OF AMERICA, ex rel. HITROST, LLC, Plaintiff, v. STUDY ACROSS THE POND, LLC, and JOHN BORHAUG, Defendants.
Civil Action No. 21-cv-10274-ADB
UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS
March 19, 2025
BURROUGHS, D.J.
BURROUGHS, D.J.
The United States of America (“Plaintiff,” “the United States,” or “the Government”) alleges that Study Across the Pond, LLC (“SATP”),1 an organization that recruits American students to attend schools of higher education in the United Kingdom (“U.K.”), and its Chief Executive Officer and Co-Founder John Borhaug (“Borhaug”) (collectively, “the Defendants” or “Defendants”), violated the False Claims Act (“FCA”) by causing U.K. schools that participate in federal student aid programs to submit false claims to the Department of Education (“the Department”). Before the Court is Defendants’ motion to dismiss the Government‘s Complaint in Partial Intervention. [ECF No. 52]. For the reasons set forth below, the motion is DENIED in part and GRANTED in part.
The following facts are taken from Plaintiff‘s Complaint in Partial Intervention, [ECF No. 38 (“Complaint” or “Compl.”)], the factual allegations of which are assumed to be true when considering a motion to dismiss, see Ruivo v. Wells Fargo Bank, N.A., 766 F.3d 87, 90 (1st Cir. 2014). As it may on a motion to dismiss, the Court has also considered “documents incorporated by reference in [the Complaint], matters of public record, and other matters susceptible to judicial notice.” Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir. 2008) (alteration in original) (quoting In re Colonial Mortg. Bankers Corp., 324 F.3d 12, 20 (1st Cir. 2003)).
A. The Relevant Statutory Scheme: The Higher Education Act and the Incentive Compensation Ban
In order to foster access to higher education, Congress enacted Title IV of the Higher Education Act (“the HEA” or “the Act”), which established several loan and grant programs to help students pay the tuition for their postsecondary education.2
not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.
Any college or university, including foreign institutions, deemed eligible to receive federal funds3 is required to enter into a Program Participation Agreement (“PPA”) with the Department. By signing a PPA, a postsecondary institution agrees to comply with the ICB as well as all other statutory provisions and requirements of Title IV, including performing and submitting compliance audits and reporting the results to the Department.
1. The March 17, 2011 “Dear Colleague Letter”
The Department publishes guidance and updates in the form of “Dear Colleague” letters to assist schools with ICB compliance and the other rules governing Title IV programs. On March 17, 2011, after making a series of amendments to the regulations of Title IV,4 the Department issued such a letter on the topic of incentive compensation. Calisesi, 2015 WL 1966463, at *9. Specifically, the letter discussed the practice of “tuition sharing,” in which third parties “charge schools a percentage of [recruited students‘] tuition as a way of assuming the business risk associated with student recruitment,” and clarified under what circumstances such a practice is not considered a “direct or indirect payment of incentive compensation.” [ECF No. 53-1 (the “Dear Colleague Letter”) at 8–14]. In relevant part, the Dear Colleague Letter stated:
“Tuition sharing:” The Department has been informed that some third parties charge institutions a percentage of tuition as a way of assuming the business risk associated with student recruitment.
Further, such third parties have typically combined student recruitment services with other services not covered by the incentive compensation prohibition, such as advertising, marketing, counseling, and support services to admitted students, and verification of student aid application information.
Section 487(a)(20) of the HEA mandates that the “institution will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities or in making decisions regarding the award of student financial assistance.” The Department generally views the payment based on the amount of tuition generated as an indirect payment of compensation based on success in recruitment and therefore a prohibited basis upon which to measure the value of the services provided. This is true regardless of the manner in which the entity compensates its employees.
However . . . the Department does not consider payment based on the amount of tuition generated by an institution to violate the incentive compensation ban if that payment compensates an unaffiliated third party that provides a set of services that may include recruitment services. The independence of the third party (both as a corporate matter and as a decision maker) from the institution that provides the actual teaching and educational services is a significant safeguard against the abuses the Department has seen heretofore. When the institution determines the number of enrollments and hires an unaffiliated third party to provide bundled services that include recruitment, payment based on the amount of tuition generated does not incentivize the recruiting as it does when the recruiter is determining the enrollment numbers and there is essentially no limitation on enrollment.
. . .
Example 2-B: A third party that is not affiliated with the institution it serves and is not affiliated with any other institution that provides educational services, provides bundled services to the institution including marketing, enrollment application assistance, recruitment services, course support for online delivery of courses, the provision of technology, placement services for internships, and student career counseling. The institution may pay the entity an amount based on tuition generated for the institution by the entity‘s activities for all bundled services that are offered and provided collectively, as long as the entity does not make prohibited compensation payments to its employees, and the institution does not pay the entity separately for student recruitment services provided by the entity.
In all of these examples, the institution receiving title IV funds remains responsible for the actions of any entity that performs functions and tasks on the institution‘s behalf. These responsibilities include ensuring that employees are not paid for services that would convert these payments into prohibited incentive compensation because of the activity the employees engage in.
[Id. at 12–13 (emphases added)]. Thus, the Dear Colleague Letter, as relevant for present purposes, clarified that if a third party offers a bundle of services such as marketing, enrollment application assistance, or course support for the online delivery of courses (“Bundled Services Provider”), and not just recruitment services, a tuition sharing agreement does not violate the ICB as long as the third party (a) “does not make prohibited compensation payments to its employees” and (b) “the institution does not pay [the third party] separately for student recruitment services.” [Id. at 13]; see also [Compl. ¶ 21 (“The Department of Education refers to these third parties as Bundled Services Providers.”)].
B. Factual Background
SATP provided recruitment, marketing, and other services to numerous colleges and universities in the U.K. [Compl. ¶¶ 11, 67–69]. A subset of these colleges and universities (“the Defendants’ Clients” or “the Clients”) participated in federal student aid programs under Title IV of the HEA, and since 2015, each of these Clients presented at least one claim for payment from those programs to the Department.5 [Id. ¶¶ 11–14]. The Clients, by signing the PPA, “had to
For its services, SATP was paid a percentage of the tuition as a commission for each student who enrolled at one of the Clients’ schools. [Compl. ¶ 53]. In addition to base commissions, some of the Defendants’ Clients also paid so-called “progression commissions,” which allowed the Defendants to receive a percentage of the tuition paid by recruited students who attended the school for a second year or enrolled in a second degree program with the Client. [Id. ¶ 54]. Starting on January 25, 2021, for example, the University of Liverpool, one of the Defendants’ Clients, agreed to pay commissions based on student recruitment as follows: (i) 10% of fees paid by a recruited student for pre-sessional English Language courses, study abroad programs, or fee-paying postgraduate research programs; (ii) for the first thirty students recruited during the cycle, 12.5% of each student‘s first year tuition fees for programs lasting at least one year; and (iii) for any additional recruited students, 15% of each student‘s first year tuition fees for programs lasting at least one academic year. [Id. ¶ 55].
Defendants charged the Clients for a range of services. [Compl. ¶¶ 67–75]. Plaintiff alleges that SATP “charged separate, one-time fees . . . for running digital marketing campaigns and travel expenses for promoting foreign schools . . . at college fairs or recruitment events.” [Id. ¶¶ 69–70]. SATP, “at the direction and with the assent of . . . Borhaug, invoiced its Clients for [such] services separately from the recruitment services, and its Clients
| INVOICE NUMBER | INVOICE DATE | DESCRIPTION | AMOUNT (USD) | AMOUNT (GBP) |
|---|---|---|---|---|
| 14423 | Feb. 26, 2018 | Commission 2017-2018 | $22,075.98 | £16,086.85 |
| 14473 | June 5, 2018 | Annual Representation Fee - USA | $1,978.20 | £1,500.00 |
| Annual Representation Fee - Canada | $989.10 | £750.00 | ||
| Annual Representation Fee - CLFA | $3,956.40 | £3,000.00 | ||
| 14474 | July 5, 2018 | Annual Representation Fee - Latin America | $1,618.75 | £1,250.00 |
| 14486 | July 5, 2018 | Digital Marketing | $3,956.40 | £3,000.00 |
| 14490 | July 9, 2019 | Participation in 2018 Canada Law from Abroad Week | $787.38 | £600.87 |
[Id. ¶ 72]. While Invoices 14473, 14474, 14486, and 14490 each billed a flat fee for generalized, annual marketing benefits, including a one-time digital marketing campaign and travel expenses associated with a recruitment event, Invoice 14423 reflected billing for a commission equal to a percentage of the tuition paid by the students Defendants recruited to the University. [Id. ¶¶ 73–74].
SATP paid their student-facing employees and contractors, called “Student Advisors,” who helped students in the United States apply to U.K. schools, a base salary plus commission or bonus payments. [Compl. ¶¶ 59, 61]. Specifically, an “applicant commission” was based on the number of students who applied to a foreign school with the Student Advisors’ assistance, and a “conversion commission” was based on the number of those students who ultimately enrolled in a U.K. school. [Id. ¶ 61]. In order to be eligible for that commission, a Student Advisor first had to meet a quota of a number of students applying to foreign schools. [Id. ¶¶ 63–64]. By way of example, for the year beginning September 1, 2020, a Student Advisor was offered an applicant commission of $50 per student for each student after the fiftieth that the advisor assisted in
In 2013, the University of Exeter asked an SATP employee whether it was “illegal for [them] to pay commission on any U.S. student in receipt of a U.S. federal loan.” [Compl. ¶ 85]. The SATP employee, copying Borhaug, responded that the rule did not apply to SATP. [Id. ¶ 86]. The SATP employee further offered to make changes to how payments were classified, including introducing a flat fee based on marketing and promotional services that would be the “equivalent of what [the] commission would have been.” [Id. ¶ 86]; [ECF No. 53-3 at 4]. Borhaug also responded to the University of Exeter, confirming, among other things, that SATP is open to making changes to the contract. [Compl. ¶ 86]; [ECF No. 53-3 at 2].
Further, in January 2021, the University of Southampton, another Client, emailed SATP and included a link to a recently revised foreign schools audit guide published by the Inspector General of the Department and directed SATP‘s employee to an updated section on commissions. [Compl. ¶ 91]; [ECF No. 53-4 at 4]. The SATP employee then forwarded the email to Borhaug, asking whether SATP should seek legal advice. [Compl. ¶ 93]; [ECF No. 53-4 at 3]. The SATP employee wrote that “in terms of risk assessment this hasn‘t been as big a thing as it might . . . but it certainly has potential to ‘explode’ if someone did end up getting pulled up for their relationship with us.” [Compl. ¶ 93]; [ECF No. 53-4 at 2]. Borhaug responded there was not “anything really new” in the guidance. [Compl. ¶ 94]; [ECF No. 53-4 at
[I]f [the University of Southampton] [were] audited and we [came] up, if somebody WANTS to make a problem, it [would] be a problem (but still ought to be fine), if they aren‘t looking to make one, it [wouldn‘t] be. At the end of the day, they have the list/document of what is permitted right there in the text — if they are concerned, put that wording in the contract, and then why wouldn‘t it be fine?
[Compl. ¶ 94]; [ECF No. 53-4 at 2].
The United States alleges that “[a]t the direction and with the assent of . . . Borhaug, [SATP] also provided foreign schools, including some of the Defendants’ Clients, with templates to help them draft sham contracts.” [Compl. ¶ 95]. For example, SATP entered into a five-year contract with the University of Southampton, beginning on February 15, 2016, in which the school agreed to pay SATP “a fee which amount should be determined on an annual basis . . . regardless of the number of students who enroll at [the university] as a result of [SATP‘s] services.” [Id. ¶ 98]. Borhaug instructed an employee involved in the negotiations with the University of Southampton “to clarify that they understand and agree . . . we are going to work to a 2000 GBP student measure for this year, but that this would have to increase by 150 pounds each year, or increase by an equivalent sum to tuition increases each time tuition fees are increased.” [Id. ¶ 99]. He further wrote that “this doesn‘t get put in writing, it is just understood/agreed verbally.” [Id.]
C. Procedural History
On February 17, 2021, Relator Hitrost LLC filed a complaint under seal against Defendants, various affiliates, and Defendants’ Clients. [ECF No. 2]. On January 26, 2024, the United States moved for partial intervention against Defendants, [ECF No. 36], filing its Complaint on April 26, 2024, [ECF No. 38]. Defendants moved to dismiss the Complaint on August 5, 2024, [ECF No. 52], and the United States opposed on August 19, 2024, [ECF No. 54].
II. LEGAL STANDARD
On a motion to dismiss for failure to state a claim pursuant to
Because the United States brings its claims under the FCA, it must also plead them “with plausibility and particularity under
The First Circuit has made a distinction between actions where the defendant is alleged to have made false claims to the government and those where the defendant is alleged to have
III. DISCUSSION
A. False Claims Act: Count I (False Claims) and Count II (False Statements)
Plaintiff alleges that Defendants engaged in a scheme to induce their Clients to compensate SATP for recruitment services, even though Defendants did not qualify as a Bundled Services Provider, and disguised these arrangements in sham contracts, which described these services as marketing or other non-recruitment efforts. In compensating Defendants based on the success of student enrollment, the Clients violated the ICB, and Defendants therefore caused the Clients to submit false claims to the Government in violation of the FCA. [ECF No. 54 at 1-2]. Specifically, Plaintiff alleges that Defendants violated the FCA under the statute‘s presentment clause (Count I),
1. Whether Claims or Statements Were Made.
For an FCA violation, the first element requires the Court to assess whether claims or statements were made. The FCA defines a claim as “any request or demand . . . for money or property . . . that . . . is presented to an officer, employee, or agent of the United States.”
2. Whether Claims or Statements Were False.
As to the second element — falsity — Defendants assert that because SATP is a Bundled Services Provider and as such may be compensated for recruitment services, Defendants’ Clients did not violate the ICB and therefore did not submit false claims to the Government. [ECF No. 53 at 11–13]. Defendants first contend that Plaintiff only asserts in conclusory terms that SATP is not a Bundled Services Provider. [Id. at 11–12]. They further assert that Plaintiff focuses too narrowly on a single permissible business model as described in the Dear Colleague Letter, Example 2-B, and wrongly roots its argument that SATP violates the ICB in SATP‘s alleged failure to comply with two exceptions in that example. [Id. at 12, 20–21]. Plaintiff replies that the Dear Colleague Letter plainly states that tuition sharing is a prohibited form of incentive compensation unless the third party offers “bundles of services” and does not make prohibited compensation payments to its employees. [ECF No. 54 at 6–8].
As a threshold issue, the Court addresses Defendants’ void for vagueness argument regarding the Dear Colleague Letter. Specifically, Defendants claim that Plaintiff bases its argument that SATP runs afoul of the ICB solely on an example of a permissible business model in the Dear Colleague Letter, Example 2-B,7 which “does not clearly identify any prohibited
The void for vagueness doctrine typically applies to criminal statutes,8 though it has also been applied to civil statutes in limited circumstances. See, e.g., Sessions v. Dimaya, 584 U.S. 148, 150 (2018) (applying the void-for-vagueness doctrine in the context of deportation statutes). It generally requires that criminal statutes define with sufficient definiteness what conduct is prohibited. Id. at 156–57; see Grayned v. City of Rockford, 408 U.S. 104, 108 (1972) (“It is a
A third party that is not affiliated with the institution it serves and is not affiliated with any other institution that provides educational services, provides bundled services to the institution including marketing, enrollment application assistance, recruitment services, course support for online delivery of courses, the provision of technology, placement services for internships, and student career counseling. The institution may pay the entity an amount based on tuition generated for the institution by the entity‘s activities for all bundled services that are offered and provided collectively, as long as the entity does not make prohibited compensation payments to its employees, and the institution does not pay the entity separately for student recruitment services provided by the entity.
[Dear Colleague Letter at 13].
Further, to the extent that Defendants argue that the Dear Colleague Letter is vague, the Court disagrees. The Letter is clear that tuition sharing as a measure of compensation falls within the ICB when it is “based on a formula that relates to the amount payable to the entity [such as SATP] to the number of students enrolled as a result of the activity of the entity.” [Dear Colleague Letter at 11]. In contrast, “[t]uition as a source of revenue from which compensation is paid to an unrelated third party [such as SATP] for a variety of bundled services” does not constitute “direct or indirect payment of incentive compensation.” [Id. at 11]. In sum, the Court not only considers Defendants’ reliance on the vagueness doctrine misplaced but also finds that the Dear Colleague Letter does not lack clarity.
As to whether Plaintiff has adequately pled that SATP does not qualify as a Bundled Services Provider, the Court finds that Plaintiff has carried its burden at this stage of the litigation. Although SATP offers more than just recruitment services, Plaintiff has offered more than conclusory allegations and instead stated facts indicating that at least one Client, the
3. Whether Defendants’ Actions Caused False Claims to be Submitted or Caused False Statements to be Made.
Defendants next argue that “[e]ven if the [Clients] presented false claims or made false statements by certifying compliance with the ICB in their PPAs, the Government has failed to allege that the Defendants caused these claims to be made or caused the [Clients] to make false statements/records.” [ECF No. 53 at 13]. Defendants argue that Plaintiff relies on conclusory allegations that SATP entered into “sham contracts” to hide tuition sharing agreements without explaining the “who, what, when, where, and how of the alleged fraud,” as required by
As an initial matter, the Court observes that “[w]hen the defendant in an FCA action is a non-submitting entity, the question is whether that entity knowingly caused the submission of either [] false or fraudulent claim[s] or false records or statements to get such a claim paid.” Blackstone Med., Inc., 647 F.3d at 389; id. at 378–81 (observing that “the Supreme Court has long held that a non-submitting entity may be liable under the FCA for knowingly causing a submitting entity to submit a false or fraudulent claim, and it has not conditioned this liability on whether the submitting entity knew or should have known about the non-submitting entity‘s unlawful conduct”).
The Court is satisfied that Plaintiff has sufficiently alleged that Defendants caused their Clients to submit and make false statements. Plaintiff states that when Clients, such as the Universities of Exeter or Southampton, reached out to SATP seeking confirmation that they were in compliance with the ICB, SATP and Borhaug seemingly offered assurances that they were. See, e.g., [Compl. ¶¶ 84–100]. SATP also offered to make changes to “how payments are classified and handled,” [ECF No. 53-3 at 4], including converting a contract into a flat fee that would be “the equivalent of what commission would have been,” [Compl. ¶ 86]. For example, in response to Southampton‘s query, an SATP employee suggested that the university “play it safe and have a general marketing and promotional arrangement and an annual fee instead of commission [contract] . . . and the annual fee happens to be the equivalent of ‘commission’ on any students on the lists who actually enrolled.” [Id. ¶ 92 (alteration in original)]. The SATP employee concluded that “[i]n practical terms as long as we (university and [SATP]) understand how the annual amount is calculated then that‘s all that matters, since it won‘t be written into a
4. Whether Scienter is Sufficiently Alleged.
Defendants argue that Plaintiff fails to show the requisite scienter because Defendants (i) believed they were in compliance with the ICB and (ii) did not know which universities received Title IV funding. [ECF No. 53 at 17–19]. Plaintiff replies that it need not allege that each of the Clients received Title IV funding and that the specific email exchanges between Defendants and its Clients, together “with allegations as to the broader scheme and active concealment,” adequately meet the statute‘s scienter requirement. [ECF No. 54 at 11–12].
Plaintiff has identified two specific instances where universities reached out to SATP voicing concerns regarding their compliance with the ICB. [Compl. ¶¶ 84–100]. The internal email discussions that followed these queries suggest that SATP and Borhaug knew that they were walking a fine line between what is and what is not permissible under the ICB. Borhaug, for instance, wrote that “[f]undamentally we sit right in the borderline . . . where you could make an argument that we fall on either side of it if your [sic] really wanted to make the case for that side.” [ECF No. 53-4 at 2]. Defendants then offered to reword contracts to comply with the ICB requirements without actually changing the compensation arrangements. [Compl. ¶¶ 84–100,
5. Whether Materiality is Adequately Alleged.
Defendants argue that Plaintiff has failed to allege materiality because the Department continued to disburse Title IV funds to Clients after being notified that they were violating the ICB. [ECF No. 53 at 19–20]. Plaintiff responds that materiality ought to be assessed holistically and that the Government‘s decision to continue disbursing funds to Clients is not dispositive. [ECF No. 54 at 13–15 (citing Escobar II, 579 U.S. at 190)]. The Court agrees.
The FCA‘s materiality requirement “defines ‘material’ to mean ‘having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.’” Escobar II, 579 U.S. at 182 (quoting
Here, the first prong of the test is satisfied. The Department of Education “includes within its PPAs an explicit reference to the Compensation Ban.” Grand Canyon Educ., 626 F. Supp. 3d at 449. That is, “[h]ad Defendant[s] not certified in its [PPAs] that it complied with the [Compensation Ban], it could not have been paid because Congress required as much.” Id. (first,
As to the second prong, the centrality requirement, the Court similarly finds that it is met: “[c]ompensation [b]an compliance is an unambiguous condition of receiving Title IV funds and Department of Education regulations.” Grand Canyon Educ., 626 F. Supp. 3d at 449 (first citing
Finally, with regard to the third prong, the Department‘s decision to continue disbursing Title IV funds after being “notified of [the Clients] violations,” [ECF No. 53 at 20], is not dispositive. There is, for one, no evidence that the Department had actual knowledge of the purported violations, but even so, the First Circuit has found that actual knowledge is not dispositive. Escobar III, 842 F.3d at 110; see also Grand Canyon Educ., 626 F. Supp. 3d at 451 (“[T]here are many reasons why the Government may refuse to withdraw Title IV funding even in light of Compensation Ban non-compliance.”). Accordingly, Plaintiff has sufficiently pled materiality.
B. Unjust Enrichment: Count III
In Count III, Plaintiff alleges that Defendants were unjustly enriched to the detriment of the Government. Defendants claim that (i) Count III amounts to nothing more “than a restatement of the Government‘s FCA claims and must fail for the same reasons” and (ii) Plaintiff has failed to plead facts to support an inference that payments were made to the Government‘s unjust detriment. [ECF No. 53 at 21-22].
Unjust enrichment is an equitable remedy, which exist[s] to supplement those available at law and not to contradict the judgments embodied in the statutes and the common law. Thus, a party with an adequate remedy at law cannot claim unjust enrichment.
IV. CONCLUSION
For the reasons set forth above, Defendants’ motion, [ECF No. 52], is DENIED in part and GRANTED in part.
SO ORDERED.
March 19, 2025
/s/ Allison D. Burroughs
ALLISON D. BURROUGHS
U.S. DISTRICT JUDGE