Eleventh Circuit Adopts False Certification Theory of FCA Claims

On March 11, 2015, the U.S. Court of Appeals for the Eleventh Circuit adopted the Ninth Circuit’s plaintiff-friendly approach to false certifications under the False Claims Act, preserving a former employee’s claim against a company that received funds under Title IV of the Higher Education Act.

Plaintiff Carlos Urquilla-Diaz alleged that Kaplan University, a for-profit education company, paid student recruiters based on the number of students they signed up. Urquilla-Diaz alleged that Kaplan falsely claimed to comply with the Higher Education Act, which forbids volume-based compensation of the sort it allegedly paid to recruiters. Urquilla-Diaz and co-plaintiff Jude Gillespie also named Kaplan Higher Education Corp. and Kaplan Inc. as co-defendants in the suit.

The district court dismissed all of the plaintiffs’ claims. On appeal, the Eleventh Circuit upheld the bulk of the district court ruling, including the dismissal of all of Gillespie’s claims on the grounds that he failed to establish the elements of an FCA claim. The three-judge panel also upheld the dismissal of all but one of Urquilla-Diaz’s claims for failure to plead with sufficient particularity The case is Urquilla-Diaz v. Kaplan University, case number 13-13672.

A typical FCA claim involves an entity submitting to the government a claim for payment that is false on its face. For instance, if an education company billed the government for teaching students who did not actually exist, its invoices would be false claims under the act.

But many U.S. Courts of Appeals, to varying degrees, have recognized a less direct theory of liability based on false certifications. Under this theory, a defendant can be liable for claims submitted to the government for work that was actually done, but which was performed in violation of some statutory, regulatory, or contractual provision. Under this theory, the claims are “false” because the company has falsely certified its compliance with all applicable provisions and the government would not have paid for the services without the false certification.

Urquilla-Diaz alleges that Kaplan violated the program participation agreement that it signed with the Department of Education to be eligible to receive Title IV funds. In conjunction with the agreement, Kaplan promised to abide by all statutes and regulations related to Title IV of the Higher Education Act. One such provision prohibits participants from paying recruiters “any commission, bonus, or other inventive payment based directly or indirectly on success in securing enrollments.”

Urquilla-Diaz’s false certification claim rests on the idea that the government would not have paid Title IV funds to Kaplan had it known that the company was violating its program participation agreement. Specifically, Diaz alleged that Kaplan increased and decreased recruiters’ salaries based on the number of students they signed up. The Eleventh Circuit determined that Urquilla-Diaz had plausibly stated a claim under the FCA, in part because he included specifics about former Kaplan employees whose salaries were modified based on their recruiting success.

The Eleventh Circuit’s embrace of the Ninth Circuit’s false certification standard will make it easier for relators to bring similar cases in the future.

Tagged: False Claims Act (FCA), Whistleblower Laws (Federal)