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United State ex rel. Gilbert v. Virginia College LLC

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

March 29, 2018




         Megan Gilbert filed this qui tam action under the False Claims Act against Virginia College, LLC alleging that, in order to maintain eligibility for receiving federal funds, the College falsified its reports, including attendance and grade records. After the Government declined to intervene, doc. 17, and the court unsealed the complaint, doc. 18, the College moved to dismiss, doc. 24. In its motion, as to Counts I and II, which allege violations of 31 U.S.C. § 3729(a)(1)(A) and (a)(1)(B), respectively, the College argues that Gilbert's claims are barred by the “public disclosure bar” and res judicata and that the complaint fails to state a claim upon which relief can be granted. Id. The motion is fully briefed, see docs. 24, 25, & 28, and ripe for adjudication. After reading the briefs, reviewing the case law, and with the benefit of oral argument, except for the retaliation claims (Counts III and IV), the court concludes that the motion is due to be granted.


         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This pleading standard “does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The allegations “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id.

         A claim is facially plausible when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint must establish “more than a sheer possibility that a defendant has acted unlawfully.” Id. Ultimately, this inquiry is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.


         Virginia College is a for-profit, post-secondary school headquartered in Birmingham, Alabama with over two dozen campuses in eleven states, including four in Alabama. Docs. 1 at 3; 24 at 2. Gilbert worked as an adjunct cosmetology instructor at the Birmingham campus from February 2013 to June 2014 and filed this lawsuit after she purportedly discovered that the College falsified certain reports in order to continue receiving Title IV funding.[1] Docs. 1 at 3; 24 at 2.

         Allegedly, to avoid a domino effect whereby the students who “fail to make satisfactory academic progress” lose their eligibility for Title IV funds and withdraw from school, “negatively affect[ing] [the College's] student retention rate” and jeopardizing its accreditation, the College inflated its students' attendance records and grades. Doc. 1 at 7-8. As part of this alleged scheme, the director of the cosmetology program told Gilbert to “mark students as present for an entire class even if they were late to class or left class early, ” a practice that resulted in the College purportedly giving credit to several students for classes that they missed and never made up. Id. at 8-10.

         The College also allegedly engaged in widespread grade manipulation. Id. at 12. For example, “one student [who] failed 13 tests and had very poor attendance, ” “nonetheless received a B in the class, ” despite Gilbert entering a failing grade for the student. Id. Gilbert also alleges that although she caught a student cheating, the president of the Birmingham campus instructed her “to disregard the cheating and grade the student's assignment as if the student had not cheated.” Id.

         Finally, Gilbert alleges that, in order to receive Pell Grants and Title IV funds, the College used these inflated grades and attendance records in its reports to its accreditation agency, the state licensing board, and the federal government.[2]Id. at 13-16. She also alleges that, during a visit by one of the accreditation agency staff members, the director of the cosmetology program presented “a binder that represented that the cosmetology department had conducted several field trips and other activities that had never actually occurred, ” as well as “future activities that were never actually organized.” Id.

         III. ANALYSIS

         Relevant here, in Counts I and II, Gilbert pleads violations of 31 U.S.C. §§ 3729(a)(1)(A) and (a)(1)(B). The College offers three arguments in support of its motion to dismiss these claims. For purposes of this opinion, the court focuses only on the first-i.e., that the public disclosure bar of § 3730(e)(4)(A) requires dismissal and that Gilbert does not qualify for the provision's “original source” exception.[3]

         The False Claims Act was “enacted in 1863 with the principal goal of ‘stopping the massive frauds perpetrated by large [private] contractors during the Civil War.'” Vermont Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 781 (2000) (quoting United States v. Bornstein, 423 U.S. 303, 309 (1976)). Originally, the FCA required no firsthand knowledge of false claims, resulting in “some enterprising individuals fil[ing] FCA actions based not on their own independent knowledge of a fraud but on information revealed in the government's criminal indictments.” U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 297-98 (3d Cir. 2016). In response, Congress created a jurisdictional bar to any FCA suit that was “based upon evidence or information in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought.” 31 U.S.C. § 232(C) (1946).

         Congress again amended the FCA in 1986, realizing that barring any suit based on information that the government is aware of “did not just eradicate the parasitic lawsuits, ” but in fact “eliminated most FCA lawsuits, for courts strictly interpreted § 232(C) as barring FCA actions even when the government knew of the fraud only because the relator had reported it.” Majestic Blue Fisheries, 812 F.3d at 297-98. The 1986 amendments “replac[ed] the government knowledge defense with the less restrictive public disclosure bar, ” which “precluded a relator from bringing an action that was based on allegations or transactions of fraud that had been publicly disclosed in certain enumerated sources, but included an exception where the relator was an ‘original source' of the information underlying the action.” Id. (quoting 31 U.S.C. § 3730(e)(4)(A) (2006)). The 1986 version read as follows:

         No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in

(i) a criminal, civil, or administrative hearing,
(ii) in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or
(iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

31 U.S.C. § 3730(e)(4)(A) (2006). The 1986 version of the public disclosure bar was jurisdictional, so courts were obligated to dismiss a case when it applied. See, e.g., Cooper v. Blue Cross & Blue Shield of ...

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