Failure to Meet Academic Accreditation Guidelines Not Automatically Material to Government’s Grant Funding; United States District Court for the District of New Jersey Civ. No. 16-1817 (RMB/KMW), U.S. ex rel. Sharon Lampkin v. Pioneer Education LLC, et al.

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The district court dismissed a qui tam complaint alleging the defendants violated the FCA in relation to Department of Education grant funds, finding the relator failed to demonstrate that the alleged violations of the program agreement were material to the government’s decision to remit the grant funds. The court also found the relator failed to connect her termination to any protected activity or show that her employers knew that her concerns about regulatory violations suggested a false claims case.

Relator Sharon Lampkin filed a qui tam against alleging that Pioneer Education LLC, Pioneer Education Manager Inc., Jolie Health & Beauty Academy, and Joseph Visconti violated the FCA by falsifying student attendance records, falsifying the satisfactory academic progress of students, falsifying student eligibility, and illegally terminating her for voicing concerns about the alleged violations.

The relator was a former employee of Jolie Health and Beauty Academy, a post-secondary educational institution offering training in occupations such as cosmetology and barbering, which is operated by the other three defendants. Until her termination, Lampkin was employed as an instructor. Lampkin alleged she was terminated as a direct result of her decision to voice concerns about student attendance, conduct code infractions, and lack of satisfactory academic progress. The relator argued that FCA liability attached to her claims because the defendants received funding under Title IV of the Higher Education Act.

In their motion to dismiss, the defendants argued that Lampkin failed to allege materiality with sufficient plausibility and particularity; (2) failed to adequately state a claim for retaliatory discharge; and (3) did not attribute any specific wrongdoing to defendant Visconti.

First, the defendants argued that the relator’s claims appeared premised on an implied false certification theory, but failed to demonstrate materiality at the required standard. In response, the relator argued that her claim could be advanced under both factually false and legally false theories of liability and that the Escobar materiality standard need not apply to factually false claims.

The court agreed that the complaint appeared to proceed with an implied false certification theory alone. Despite the relator’s assertions, the court could not discern any allegation that the defendants directly misrepresented a good or service that they provided to the government. Rather, the relator appeared to argue that the submission of false certifications amounted to “misleading half-truths,” because many enrolled students were not successfully completing their programs.

Specifically, the relator alleged that the defendants received funding under Title IV of the Higher Education Act, which required them to enter into a program participation agreement. That agreement requires such institutions to conform to the requirements of an accrediting agency, which for the Academy was the National Accrediting Commission of Career Arts and Sciences. The NACCAS requires that the institution complies with applicable, federal (including Title IV Federal Financial Aid), state, and local statutes and regulations governing the operations of the institution including the NACCAS Rules of Practice and Procedure. Therefore, according to the plaintiff, violations of a relevant state, local, or federal statute or regulation would constitute a violation of the FCA due to a failure to conform with the PPA.

The relator argued the alleged PPA violations have a presumption of materiality because they violate Title IV regulations that are express conditions of payment. However, the court disagreed, explaining that not every undisclosed violation of an express condition of payment automatically triggers liability. The court found the claims devoid of any substantive allegation to support a finding of materiality. Importantly, the complaint did not specify whether the Department of Education would have ceased payment of Title IV funds if it learned about any, or all, of the alleged falsifications of student records (Count I), falsifications of SAP (Count II), and enrollment of ineligible students (Count III). While the relator alleged the government would not have paid, the complaint lacked any allegation in support. Further, the court found no support in case law for the relator’s argument that the alleged violations were entitled to a presumption of materiality.

Next, the court considered the retaliation claim, which is also dismissed. The court found the complaint devoid of any allegations demonstrating that the relator’s termination was causally related to any engagement in protected conduct. The relator alleged she was terminated within three months of raising the concerns outlined in the complaint. However, the court found the complaint did not allege that the relator’s employer had any awareness that her concerns had anything to do with, or raised the possibility of, a contemplated FCA suit, which are predicate requirements to establish protected activity.

Further, the court found the relator failed to show she was terminated because she engaged in protected activity, but simply stated she raised concerns and was fired three months later, without drawing any connections. On the contrary, the relator seemed to admit that her termination was prompted by a student complaint that resulted in disciplinary action. Once she learned of the disciplinary action, the relator confronted the student, an action the court viewed as a reasonable alternative explanation for the relator’s termination.

Finally, the court agreed that the complaint failed to allege that defendant Visconti—the president and CEO of the Academy—had engaged in any of the wrongdoing. While the relator alleged that Visconti is ultimately responsible for ensuring the Academy’s compliance with the terms of the PPA, the court found no allegation of an actual FCA violation on his part. The court dismissed these claims with prejudice.

The court permitted the relator to file a motion for leave to amend regarding the other claims.