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United States ex rel. Kelly-Creekbaum v. L'Academie De Cuisine, Inc.

United States District Court, D. Maryland

August 14, 2019




         Presently pending and ready for resolution in this qui tam action under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., is the motion to dismiss filed by Defendant FA Solutions, LLC (“FAS”). (ECF No. 16). The issues have been fully briefed and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted.

         I. Factual Background[1]

         Relator Christopher James Kelly-Creekbaum (“Relator”) brings this qui tam action against his former employer, L'Academie De Cuisine, Inc. (“L'Academie”), and FAS, a third-party financial aid servicer hired by L'Academie, alleging violations of the FCA regarding education funds.

         1. L'Academie and Title IV

         Defendant L'Academie is an educational institution that participates in certain federal student financial assistance programs established under Title IV of the Higher Education Act of 1965 (“Title IV”), 20 U.S.C. §§ 1070-1099. (ECF No. 1 ¶ 2). To become an eligible Title IV institution, L'Academie entered into a Program Participation Agreement (“PPA”) with the United States Secretary of Education. (Id.); 20 U.S.C. § 1094(a); 34 C.F.R. § 668.14(a)(1). As a Title IV institution, L'Academie agreed to disburse Federal Pell Grant funds on behalf of the United States Department of Education (“DOE”). (ECF No. 1 ¶ 2). Additionally, L'Academie agreed to originate federal loans and disburse federal loan funds through the William D. Ford Federal Direct Loan Program. (Id.). As a participant in these federal programs, L'Academie was tasked with: (1) determining students' eligibility for financial aid, including the amount of funds they were eligible to receive; (2) accepting funds from the federal government in order to disburse Federal Pell Grant and federal loan funds to its students; (3) disbursing those funds to each eligible student; and (4) calculating and returning to the DOE funds awarded that were not earned by students. (Id. ¶ 3).

         2. Title IV Funding

         Under the Federal Pell Grant and Direct Loan programs, federal funds are advanced to participating institutions prior to the start of their respective payment periods. (Id. ¶ 23). To receive funds under both programs, participating institutions must provide information regarding students and their eligibility to the DOE through its Common Origination and Disbursement (“COD”) system. (Id. ¶ 24). Based on the amount requested by the institution, the DOE deposits a lump sum sufficient to cover all eligible students under both programs in the participating institution's bank account (“G5 Account”). (Id.). After the DOE deposits the lump sum, the participating institution can withdraw funds from its G5 Account to disburse funds to qualifying students who accept awards. (Id.). Because funds are distributed to participating institutions ex ante, participating institutions are tasked with calculating and refunding all unearned amounts to the DOE. (Id. ¶¶ 31 & 37).

         3. Title IV Refund Requirements

         To prevent fraud, in each PPA the institution agrees to “establish and maintain such administrative and fiscal procedures and records as may be necessary to ensure proper and efficient administration of funds[.]” 20 U.S.C. § 1094(a)(3); (ECF No. 1 ¶ 46) (citing 34 C.F.R. § 668.16). If a student enrolls but fails to attend class, the institution must return the funds received for that student to the DOE within a specified period of time. 34 C.F.R. §§ 668.21(a)-(c). Similarly, if a student enrolls and attends some classes but then ceases attending, the institution must calculate the funds that the student earned and refund to the DOE any unearned funds. § 668.22(a)(1) (schools are required to “determine the amount of [T]itle IV grant or loan assistance that the student earned as of the student's withdrawal date”); § 668.22(a)(4) (the “difference between these amounts must be returned to the [T]itle IV programs”). When the institution withdraws funds from its G5 Account, it must disburse funds within three days. (ECF No. 1 ¶ 31) (citing 34 C.F.R. § 668.162(b)(3)). Funds that are held beyond three days constitute “excess cash, ” and institutions are required to refund that “excess cash” to the DOE within seven days. (Id.) (citing 34 C.F.R. § 668.166(b)).

         4. L'Academie's Alleged Fraud

         Relator contends that L'Academie did not adequately train personnel responsible for managing financial aid under Title IV, including determining student eligibility, accepting federal funds, disbursing federal funds, and refunding excess funds to the DOE. (Id. ¶ 26). Moreover, Relator asserts that from 2012 through July 2017, L'Academie: (1) overstated the length of its academic program, thereby overestimating the amount of federal grant and loan funds it needed to pay eligible students (id. ¶¶ 27-28); (2) double awarded Federal Pell Grants even though eligible students are entitled to receive only one per award year (id. ¶¶ 29-30); (3) prematurely requested and disbursed funds for students (id. ¶¶ 31-36); and (4) under-refunded federal funds to the DOE, retaining excess federal funds beyond the time period Title IV permits (id. ¶¶ 31; 37-40).

         To support his basis of knowledge, Relator indicates that he was hired by L'Academie as an Enrollment Coordinator in February 2017 but was terminated on November 27, 2017 after raising concerns about the school's alleged fraudulent conduct. (ECF No. 1 ¶ 10). Relator states that, although he was an Enrollment Coordinator, L'Academie tasked him with administering federal financial aid despite having no training or experience in that area. (Id.). Relator contends that he was a witness to L'Academie's intentional concealment of its potential financial liability and was directed to participate in L'Academie's falsification of records at the direction of his supervisor, Anne Connors - Director of Admissions and Campus Director. (Id.).

         5. Hiring FAS

         Relator alleges that by July 2017, L'Academie, through its senior management, became fully aware that L'Academie defrauded the federal government and that it perpetuated this fraud through the use of knowingly false information. (Id. ¶ 41). Relator alleges that, instead of disclosing this revelation to the DOE, L'Academie hired FAS to assist in the concealment of its fraudulent practices between July 1, 2016 and July 20, 2017. (Id. ¶ 42). Relator avers that he witnessed Defendants falsify L'Academie's internal records along with records in the COD system to conceal L'Academie's premature withdrawals from its G5 Account and its delayed disbursement of federal funds during that period. (Id. ¶ 43). FAS changed the dates of withdrawal and disbursement in the COD system to dates that would have been in compliance with Title IV, and L'Academie changed the dates in its internal records to match the dates in the COD system. (Id.). Relator asserts that the objective of this scheme was to make it appear as though L'Academie withdrew and disbursed funds between July 1, 2016, and July 20, 2017, in compliance with Title IV regulations so as to (1) withstand scrutiny during L'Academie's Title IV recertification review in December 2017; (2) circumvent paying DOE fines, costs, and refunds associated with its misconduct; and (3) avoid a more detailed review of its records and practices dating back to 2012, compelling L'Academie to refund Title IV funds that it had over-awarded and under-refunded, along with associated fines and costs. (Id. ¶ 44). In support of this assertion, Relator indicates that before a Title IV recertification meeting with L'Academie's DOE representative in August 2017, he was instructed by his supervisor not to discuss that Defendants were falsifying L'Academie's records in the COD system. (Id. ¶ 45).

         Finally, Relator contends that “[s]ince July 2017, FAS has assumed the responsibility for loan processing and awarding Direct Loan funds.” (Id. ΒΆ 54). In this role, FAS has awarded and disbursed funds based on ...

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