Court Dismisses Qui Tam Complaint Against Third-Party Hired by Defendant After Dates of Alleged Fraud; United States District Court for the District of Maryland No. DKC 17-3525, U.S. ex rel Christopher James Kelly-Creekbaum v. L’Academie de Cuisine Inc., et al.

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The district court granted one defendant’s motion to dismiss a qui tam complaint alleging fraud on federal student financial assistance programs. The relator argued that a third-party financial aid servicer helped his former employer conceal an obligation to refund certain Title IV funds to the government. However, the court found that the defendant was hired by its co-defendant after the dates of the alleged misconduct. To the extent the relator claimed the scheme was ongoing, the court found his allegations conclusory and that the relator failed to identify a single claim submitted to the government. Because the relator could not support his reverse false claims allegation, his conspiracy claim naturally fell.

Defendant FA Solutions LLC moved to dismiss a qui tam complaint alleging fraud on federal student financial assistance programs.

Relator Christopher James Kelly-Creekbaum alleged that his former employer, L’Academie de Cuisine Inc. and FAS, a third-party financial aid servicer, improperly handled, over-awarded, and under-refunded Title IV funds and then hired FAS to conceal this from the government. The relator named FAS in three of his six claims against his former employer, including the submission of false records, concealment of an obligation to pay money to the United States, and conspiracy to violate the FCA.

The court granted FAS’s earlier motion to dismiss the claims against it, but gave the relator an opportunity to amend his complaint. The relator filed an amended complaint, reasserting three counts against FAS. The relator conceded that he added no new facts to the allegation of the submission of false records, and therefore the court dismissed this count.

The court then considered the latter counts of concealment of an obligation to the United States and conspiracy.

The relator alleged the defendants knowingly falsified L’Academie’s disbursement records and/or communicated to the United States and the Department of Education knowingly false information regarding L’Academie’s disbursement dates and amounts of federal Title IV funds, dating back to July 2016.

In its motion to dismiss, FAS argued that: 1) a reverse false claims theory cannot be asserted where the alleged obligation to repay arose from an actionable false claim. FAS also argued that the funds in contention do not amount to an obligation within the meaning of 31 U.S.C. § 3729(a)(1)(G).

In response, the relator argued that he identified the individuals who committed the fraud and provided examples of specific ways in which they committed the fraud. He also argued that the retention of an overpayment constituted an obligation and that his claims against FAS were not premised on claims submitted prior to the hiring of FAS, nor did they arise from the actionable false claims.

The court granted the motion to dismiss, finding the relator had not cured the deficiencies in his earlier complaint. The court explained that § 3729(a)(1)(G) cannot be used to remedy deficiencies in claims under § 3729(a)(1)(B). The court found the relator failed to allege FAS created a record material to a false claim for payment that was submitted by L’Academie to the Department of Education between 2012 and July 2017 because FAS was not hired until July 2017. To the extent the relator alleged L’Academie submitted claims for payment since July 2017, the court found he had alleged only a general fraud scheme and failed to identify specific false claims that were presented to the government. Because the relator failed to allege FAS concealed a financial obligation to the government, the court found the conspiracy count also failed.