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United States ex rel. Headen v. Adams & Associates, Inc.

United States District Court, N.D. Alabama, Middle Division

December 5, 2017

UNITED STATES ex rel. STEPHEN HEADEN, Plaintiff,
v.
ADAMS AND ASSOCIATES, INC., d/b/a THE GADSDEN JOBS CORPS CENTER; LORRAINE LANE; and SHAILEEN VIERA, Defendants.

          MEMORANDUM OPINION

          VIRGINIA EMERSON HOPKINS, United States District Judge

         I. INTRODUCTION

         On July 14, 2016, the Plaintiff-Relator, Stephen Headen, filed this action against Adams and Associates, Inc. d/b/a the Gadsden Jobs Corps Center (“Adams”), Lorraine Lane, Juvenel Levros, and Shaileen Viera to recover, on behalf of the United States, damages and civil penalties arising from false statements and claims allegedly made by the Defendants in violation of the Federal Civil False Claims Act, 31 U.S.C. §§ 3729-3733, as amended (“the Act” or the “FCA”). (Doc. 1). On November 18, 2016, the government filed its notice of non-intervention. (Doc. 9). Thereafter, Levros was terminated as a defendant when the Relator filed an Amended Complaint which made no claims against Levros. (Doc. 41).

         The Amended Complaint, which is now the operative pleading, alleges that all Defendants are liable for: “Substantive Violations of the False Claims Act” (Count One); “Implied False Certification in Violation of the False Claims Act” (Count Two); and conspiracy to violate the False Claims Act (Count Three).[1] The case comes before the Court on the Defendants' Motion to Dismiss (the “Motion”). (Doc. 45). For the reasons stated herein, the Motion will be GRANTED.

         II. LEGAL PRINCIPLES

         The Defendants state that their motion is brought “pursuant to Federal Rules of Civil Procedure 8, 9(b), and 12(b)(6).” (Doc. 45 at 1). The Eleventh Circuit Court of Appeals has stated:

Rule 9(b) applies in FCA cases. United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1308-09 (11th Cir.2002). An FCA complaint must therefore “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “The particularity rule serves an important purpose in fraud actions by alerting defendants to the precise misconduct with which they are charged and protecting defendants against spurious charges of immoral and fraudulent behavior.” United States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1359 (11th Cir.2006) (quotation marks omitted). An FCA complaint “satisfies Rule 9(b) if it sets forth facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of the defendants' allegedly fraudulent acts, when they occurred, and who engaged in them.” Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1324 (11th Cir.2009) (quotation marks omitted).
Because the submission of an actual claim to the government for payment is “the sine qua non ” of an FCA violation, Clausen, 290 F.3d at 1311, a plaintiff-relator must “plead the submission of a false claim with particularity, ” United States ex rel. Matheny v. Medco Health Solutions Inc., 671 F.3d 1217, 1225 (11th Cir.2012). To do so, “a relator must identify the particular document and statement alleged to be false, who made or used it, when the statement was made, how the statement was false, and what the defendants obtained as a result.” Id.
Rule 9(b) “does not permit a False Claims Act plaintiff merely to describe a private scheme in detail but then to allege simply and without any stated reason for his belief that claims requesting illegal payments must have been submitted, were likely submitted or should have been submitted to the Government.” Clausen, 290 F.3d at 1311 (emphasis added). Instead, “some indicia of reliability must be given in the complaint to support the allegation of an actual false claim for payment being made to the Government.” Id.
This Court evaluates “whether the allegations of a complaint contain sufficient indicia of reliability to satisfy Rule 9(b) on a case-by-case basis.” Atkins, 470 F.3d at 1358. Providing exact billing data-name, date, amount, and services rendered-or attaching a representative sample claim is one way a complaint can establish the necessary indicia of reliability that a false claim was actually submitted. See, e.g., Hopper, 588 F.3d at 1326; Atkins, 470 F.3d at 1358. However, there is no per se rule that an FCA complaint must provide exact billing data or attach a representative sample claim. See Clausen, 290 F.3d at 1312 & n. 21 (listing some of the types of information that might help a plaintiff plead the submission of a claim with particularity but cautioning that Rule 9(b) “does not mandate all of this information for any of the alleged claims”); see also Durham v. Bus. Mgmt. Assocs., 847 F.2d 1505, 1512 (11th Cir.1988) (“Allegations of date, time or place satisfy the Rule 9(b) requirement that the circumstances of the alleged fraud must be pleaded with particularity, but alternative means are also available to satisfy the rule.”).
Under this Court's nuanced, case-by-case approach, other means are available to present the required indicia of reliability that a false claim was actually submitted. Although there are no bright-line rules, our case law has indicated that a relator with direct, first-hand knowledge of the defendants' submission of false claims gained through her employment with the defendants may have a sufficient basis for asserting that the defendants actually submitted false claims. See U.S. ex rel. Walker v. R & F Properties of Lake County, Inc., 433 F.3d 1349, 1360 (11th Cir.2005) (holding that Rule 9(b) was satisfied where the relator was a nurse practitioner in the defendant's employ whose conversations about the defendant's billing practices with the defendant's office manager formed the basis for the relator's belief that claims were actually submitted to the government).
By contrast, a plaintiff-relator without first-hand knowledge of the defendants' billing practices is unlikely to have a sufficient basis for such an allegation. See Atkins, 470 F.3d at 1359 (holding that Rule 9(b) was not satisfied where the relator was a doctor who did not allege first-hand knowledge of the hospital's submission of false claims). Additionally, a corporate outsider likely does not have the required access to learn enough about the defendants' billing practices. See Clausen, 290 F.3d at 1314 (noting that a corporate outsider's lack of information about the defendants' billing practices makes it more difficult to gather the factual specifics necessary to meet Rule 9(b)'s requirements).
At a minimum, a plaintiff-relator must explain the basis fo r her assertion that fraudulent claims were actually submitted. See Corsello v. Lincare, Inc., 428 F.3d 1008, 1013-14 (11th Cir.2005) (finding insufficient indicia of reliability after noting that the relator “did not explain why he believes fraudulent claims were ultimately submitted”). It is not enough for the plaintiff-relator to state baldly that he was aware of the defendants' billing practices, see Id. at 1014, to base his knowledge on rumors, see Atkins, 470 F.3d at 1359, or to offer only conjecture about the source of his knowledge, see United States ex. rel. Sanchez v. Lymphatx, Inc., 596 F.3d 1300, 1303 n. 4 (11th Cir.2010).

U.S. ex rel. Mastej v. Health Mgmt. Assocs., Inc., 591 Fed.Appx. 693, 703-05 (11th Cir. 2014).

         III. ALLEGATIONS IN THE AMENDED COMPLAINT

         The Amended Complaint, in pertinent part, alleges:

11. Defendant Adams and Associates, Inc. (“Adams”) operates and does business as the Gadsden Job Corps Center (the “center”) in Gadsden, Alabama. Defendant Adams also operates at least fourteen (14) other, similar facilities in several states. The Gadsden Job Corps Center advertises space for approximately two hundred fifty-six (256) enrolled residential student[s] as well as approximately thirty (30) enrolled non-residential students.
12. Under the auspices of the Gadsden Job Corps Center, [Adams] offers a GED program, a high school diploma through Etowah County Public Schools, career technical training in six (6) vocational areas, and collegiate classes at Gadsden State Community College for certain students. Defendant Adams advertises that the center provides “a full range of services to our students including residential dorms, medical and dental care, career and social counseling, academic and vocational training, transportation and a living allowance.”
13. Defendant Adams advertises that the Gadsden Job Corps Center offers Career Technical Training, Academic Opportunities (High School Diploma or GED), Room and Board, Medical and Dental Care, Recreational Activities, Field Trips, Spending Money, Real World Work Experience, Graduation Bonus, and Job Placement Assistance. Defendant Adams advertises that the Gadsden Job Corps Center Offers technical training programs in Advanced Human Services, Carpentry, Culinary Arts, Nurse Assistant/Home Health Aide, Office Administration, and Security & Protective Services. Adams advertises that the Gadsden Job Corps Center offers academic programs in Math & Reading, Mentoring, General Education Diploma (GED), High School Diploma, Community College for Qualified & Motivated Students, English Language Learner (ELL), Tutoring, Study Groups, Counseling, Leadership, and Driver's Education.
14. Defendant Lorraine Lane is the former Center Director and an agent of defendant Adams and Associates. Defendant Lane was the highest ranking official at the Gadsden Job Corps Center during a portion of the relevant time period. Defendant Lane was the official in charge of all aspects of the Gadsden Job Corps Center including enforcement of the statutory “zero tolerance” policy prohibiting drug use and violence described herein.
15. Defendant Viera is the CSIO[2] Supervisor and an agent of defendant Adams and Associates. Defendant Viera was the official in charge of discipline of student enrollees including enforcement of the statutory “zero tolerance” policy prohibiting drug use and violence described herein.
16. Defendant Adams is an “operator and service provider” who has entered into an agreement with the U.S. Department of Labor pursuant to 29 U.S.C. §3197 and receives approximately $27, 000 per enrollee annually. Defendant Adams is paid based upon anticipated enrollment and has to return or take a credit against future payments for each slot for each enrolled student which is not filled by an enrolled student or which is vacated when an accepted enrolled student leaves the center for any reason. In order to qualify, defendant Adams was required to submit certify [sic] that it provided the services required by the Job Corps Act[3] and to further certify that it complied with the material provisions of the act. In particular, Section 3197 requires an “[assurance the entity will comply with basic health and safety codes, which shall include the disciplinary measures described in section 3202(b) of this title.]”[4]
17. 29 U.S.C. § 3202(a) requires the Secretary and directors of Job Corps to “stringently enforce standards of conduct within the centers . . . [which] shall include provisions forbidding” acts of violence and the use, sale, or possession of a controlled substance or alcohol.[5]
18. Section 3202(b) requires the director to dismiss an enrollee from the Job Corps, inter alia, if the director determines retention jeopardizes the enforcement of standards and specifically establishes a “zero tolerance” policy for the certain infractions, including “an act of violence, for use, sale, or possession of a controlled substance, for abuse of alcohol, or for other illegal or disruptive activity.” Section 3202(b)(2)(ii) states “‘zero tolerance' means a policy under which an enrollee shall be automatically dismissed from the Job Corps after a determination by the director that the enrollee has carried out an action” which specifically includes, (1) an act of violence, (2) the use, sale or possession of a controlled substance, or (3) abuse of alcohol.[6]
19. 29 U.S.C. § 3195 requires the Secretary to establish specific standards and procedures, which “at a minimum . . . [include] informing enrollees that drug tests will be administered to the enrollees and the results received within 45 days after the enrollees enroll in the Job Corps.”[7]
20. The center is therefore required to administer drug tests to new enrollees upon enrollment and is required by statute to expel any enrolled student who tests positive for the use of a controlled substance after 45 days.[8] The center is also required by statute to expel any enrolle d student if the enrolled student is found to use, sell or possess any controlled substance at any time after enrollment.
21. Section 3202 prohibits the use of controlled substances. Section 3195 requires the center to administer drug tests at enrollment and again within 45 days in order to enforce a zero tolerance policy against continued drug use by enrolled students.[9] The U.S. Department of Labor Office of Job Corps Policy and Requirements Handbook requires that each student be tested for controlled substances at the time of admission and then re-tested at an interval between and 40 days after an initial positive test.[10] The handbook also requires that an enrolled student must be tested on suspicion of use of a controlled substance at any time.
22. Section 3202 prohibit[s] acts of violence. This section states the standards of conduct shall include “zero tolerance” for acts of violence and requires the director to dismiss any enrollee from the Job Corps who commits and [sic] act of violence.
23. The plaintiff/relator was employed by defendant Adams from approximately March 3, 2014[, ] until approximately August 26, 2015.[11] During his employment, Mr. Headen was aware that defendant Adams did not follow the statute and failed to administer drug tests as required. Mr. Headen was also aware that defendant Adams ignored drug use including failing to administer tests as required or by ignoring positive drug tests in violation of federal statute.
24. All of the funds Defendant Adams received for all of the students in the program came from the federal government through the Department of Labor. There were no state, county or local funds which paid for the students to attend or participate in the program. There were no charitable funds which paid for the students to attend or participate in the program. Defendant Adams d id not offer scholarships or tuition waivers since the students were not required to pay any tuition, which was paid by the federal government.
25. Funding and enrollment levels were openly discussed at Adams, including by defendant Lane, who emphasized the need to keep numbers up as close as possible to the maximum of 290. The students enrolled were listed on a roster which was distributed every day. The plaintiff/relator and other employees conducted several head counts daily which were used to produce the roster. Students who were on sick leave continued to be listed on the roster, which meant Adams was being paid by the federal government as if they were enrolled. Adams would list students who were commuters on the roster as if they were enrolled from time to time, depending upon where the actual number of on campus students happened to be.
26. The plaintiff/relator had specific personal knowledge that defendant Adams, by and through its agents Lane, Viera and others, intentionally ignored the statutory “zero tolerance” policy against acts of violence, drug use and alcohol abuse.
27. The plaintiff/relator had specific personal knowledge that defendant Adams, by and through its agents Lane and others, claimed that enrolled students who had left the program were actually present and attending programs after these students had actually left the program. The plaintiff/relator had specific personal knowledge that defendant Adams claimed enrolled students were using residential facilities after they had moved out and were no longer enrolled or residents.
28. Defendant Adams, through Lane and Viera, had a policy and practice of failing to drug test, ignoring positive drug tests, and/or ignoring obvious drug use throughout the relevant time period. Nicholas Johnson and NeQuia Underwood were two students who were obviously using drugs and/or abusing alcohol during their enrollment, but that drug use and alcohol abuse was ignored by defendant Lane. When issues with Nicholas came up, Lane would instruct staff not to file a case not because that would create a paper record of the issue. Nicholas Johnson was allowed to remain enrolled until May or June 2015, when he was finally expelled from the program after multiple instances of fighting.
29. Defendant Adams, through Lane and Viera, had a policy and practice of ignoring and failing to document acts of violence throughout the relevant time period. Students Rashawn Lockley, Jamal Morgan, Brian James, KenDarius Birmingham, Jessie Rollins, James Spearman, Daryl Page, Johnny Ward, Quentin Slaughter and Nicholas Johnson had multiple instances of fighting during their enrollment. These issues were not documented based on direct instruction from defendant Lane. Lane instructed the staff to alert her about any instances of fighting before filing a written case note. When staff alerted her to instances of fighting, including instances involving these specific students, Lane instructed staff not to create a case note about the incidents. Daryl Page and Johnny Ward were still enrolled as students when Headen was terminated. Quentin Slaughter was eventually expelled but was allowed to remain because, according to defendant Lane, the student numbers were low at the time. Nicholas Johnson was eventually expelled in May or June 2015, but only after multiple instances of violence.
30. Defendant Adams, through Lane, had a policy and practice of claiming that enrolled students who had left the program were actually present and attending programs after these students had actually left the program. Headen and other employees were routinely sent on trips across the state to pick up students who did not return to the campus after the weekend. Often, these students had informed Lane, or her assistant Epiphany Cherry, that they did not intend to return. Headen and other employees were sent in an Adams vehicle to contact the students and at times to convince them to return to the campus. Many times, Headen and other employees, such as Ross Arrington, were told to offer these students paying jobs if they would come back. However, some students refused to return at all and were then listed as being on sick leave while still on the roster. Students who refused to return were carried for seven (7) days, and at times even longer, on the roster which meant that Adams was being paid by the federal government as if they were present.
One student, Timothy Bradham, who was from the Troy, Alabama area, informed Adams, and Cherry, that he was leaving the center. Mr. Headen and another employee were sent to attempt to convince Bradham to return. Bradham refused to return, and told Mr. Headen. Mr. Headen in turn told Cherry and Lane that Bradham refused to return. Despite Bradham's refusal to return, Bradham was listed on the roster for the following week as if her [sic] were on sick leave. Bradham was eventually dropped from the roster after seven (7) days, when a new group of students would arrive.
31. Defendant Adams, through defendant Lane, terminated Mr. Headen on or about August 26, 2015. Defendant terminated Mr. Headen, supposedly for using inappropriate and unprofessional language in a text message he sent to NeQuia Underwood, who was his wife's cousin, from his cell phone to her cell phone during hours when he was not at work and she was not on campus.
32. Mr. Headen had several conversations with NeQuia Underwood, his wife's cousin and an enrollee in the Gadsden Job Corps program. Upon information and belief, Ms. Underwood tested positive for controlled substances when she enrolled in the Gadsden Job Corps program. Ms. Underwood continued to abuse alcohol and to use controlled substances while she was enrolled. Defendant Adams, through Lane, Viera and other agents, ignored Ms. Underwood's repeated alcohol abuse and continued drug use, failed to drug test Ms. Underwood, and/or, in the alternative, ignored positive drug tests. Mr. Headen learned that Ms. Underwood had been using drugs and continued to use drugs while enrolled in the Job Corps program.
33. Upon information and belief, defendant Adams continues to operate in the same manner under current Center Director Levros. Former Director Lane was promoted to a position of greater authority and now supervises the Gadsden Job Corps Center as well as other Job Corps centers owned and operated by defendant Adams.

(Doc. 41 at 5-15, ¶¶11-33).

         IV. ANALYSIS

         A. Count One

         Count One alleges that the Defendants are liable for violation of 31 U.S.C. §§3729(a)(1)(A), (a)(1)(B), and (a)(1)(G). Those sections impose liability on “any person who[:] . . . (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; . . . (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [and] . . . (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government[.]” 31 U.S.C. §§3729(a)(1)(A), (a)(1)(B), and (a)(1)(G). The court will address each subsection in turn.

         1.The Realtor Fails To Allege with Sufficient Particularity that the Defendants Knowingly Presented, or Caused To Be Presented, a False or Fraudulent Claim for Payment or Approval [31 U.S.C. §3729(a)(1)(A)]

         The Amended Complaint alleges two separate violations of this subsection of the FCA: 1) the continued enrollment of students who violated the “zero tolerance” policy; ...


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