United States District Court, D. Maryland
UNITED STATES OF AMERICA ex rel. CHRISTOPHER JAMES KELLY-CREEKBAUM
L'ACADEMIE DE CUISINE, INC., et al.
DEBORAH K. CHASANOW UNITED STATES DISTRICT JUDGE
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.
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.
L'Academie and Title IV
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).
Title IV Funding
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).
Title IV Refund Requirements
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. §
L'Academie's Alleged Fraud
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;
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.
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.
Relator contends that “[s]ince July 2017, FAS has
assumed the responsibility for loan processing and awarding
Direct Loan funds.” (Id. ¶ 54). In this
role, FAS has awarded and disbursed funds based on