Third Circuit Affirms Dismissal of Relators' FCA Action Against Educational Institution and Awards Attorneys' Fees Against Relator for Filing a Frivolous Appeal
Relators, Mary Beth Pilecki-Simko and Tom Giunta, sued The Chubb Institute (“TCI”) and TCI’s corporate parents, The Chubb Corporation (“TCC”) and High-Tech Institute, Inc., alleging that TCI made misrepresentations to the Department of Education to obtain student financial aid in the form of loans and grants from the federal government. The District Court dismissed the case with prejudice because relators failed to plead their claims with particularity as required by Rule 9(b) and denied relators’ motion for reconsideration. The Third Circuit affirmed, holding that conclusory allegations of scienter fail to even satisfy the more lenient standard of Fed R. Civ. P. 8(a). Additionally, the Third Circuit ordered relators to pay TCC attorneys’ fees and costs because relators included TCC as a party to the appeal but failed to challenge any of the District Court’s rulings regarding the sufficiency of the veil-piercing and successor liability allegations directed at TCC. See United States ex rel. Pilecki-Simko v. The Chubb Institute, Case No. 10-3907, 2011 WL 3890975 (3rd Cir. Sept. 6, 2011).
Relators based their theory of liability against TCI on an implied false certification theory. TCI allegedly falsely certified compliance with the Program Participation Agreement that educational institutions are required to enter into to receive federal subsidies under Title IV of the Higher Education Act. Among the requirements in the Agreement, TCI certified that it did not provide incentive compensation based on success in securing enrollments.
Relators argued that Rule 9(b) did not apply to their claims, an argument which the Third Circuit found “implausible.” Nonetheless, the Third Circuit never needed to decide this issue because it held the complaint failed to satisfy even the basic pleading standards of Rule 8(a). Under Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009), relators were required to plead a “plausible” claim. As the Third Circuit explained:
A complaint satisfies the plausibility standard when the factual pleadings “allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” This standard requires that plaintiff allege “more than a sheer possibility that a defendant has acted unlawfully.” “[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” (internal citations to Iqbal and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) omitted).
The relators' allegations that TCI acted “knowingly” were merely “conclusory allegations” stating that TCI knew the claims were false because the students were not eligible for financial aid due to TCI’s incentive compensation. Relators failed to allege any facts to indicate that TCI “knowingly” submitted false claims, such as whether TCI documented or was aware of any violations of the Program Participation Agreement.