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United States Ex Rel. Sobek v. Education Management, LLC

United States District Court, Third Circuit

May 31, 2013

UNITED STATES OF AMERICA ex rel. JASON SOBEK, Plaintiff,
v.
EDUCATION MANAGEMENT, LLC SOUTH UNIVERSITY, LLC, doing business as SOUTH UNIVERSITY ONLINE ARGOSY EDUCATION GROUP, INC., doing business as ARGOSY UNIVERSITY ONLINE, THE ART INSTITUTES INTERNATIONAL, LLC doing business as THE ART INSTITUTES ONLINE and EDUCATION MANAGEMENT CORPORATION, Defendants.

MEMORANDUM OPINION AND ORDER OF COURT

TERRENCE F. McVERRY, District Judge.

Now pending before the Court are DEFENDANTS' OBJECTIONS TO THE OCTOBER 22, 2012 REPORT AND RECOMMENDATION ("R & R") (ECF No. 89). Defendants (collectively "EDMC") filed a brief in support, Plaintiff filed a response in opposition, and Defendants filed a reply brief. The Court heard oral argument on May 13, 2013 and the motion is ripe for disposition.

Factual and Procedural History

This qui tam False Claims Act ("FCA") case is related to United States ex rel Washington v. EDMC, Civil Action No. 07-461 (" Washington "), although the United States has decided to not intervene in this case. Plaintiff-Relator Jason Sobek was employed by EDMC from June 2008 through November 2010 as a Project Associate Director of Admissions ("ADA"). He alleges that EDMC made false certifications of compliance regarding its eligibility to receive federal student loan funding. Sobek has filed a 43-page, six-count Second Amended Complaint which alleges that EDMC made false statements in order to participate in federal student financial assistance programs as to:

Count I: Accreditation of nursing programs;
Count II: Job Placement statistics;
Count III: Costs of educational programs;
Count IV: Satisfactory Academic Progress (SAP) statistics;
Count V: Incentive Compensation ban; and
Count VI: Reverse False Claims Act - failing to report students who should have been dropped from school rolls.

EDMC filed a motion to dismiss the entire case with prejudice (ECF No. 48). On October 22, 2012 Magistrate Judge Cynthia Eddy issued a 39-page R & R which recommended that: the motion to dismiss be DENIED as to Counts I, II and IV; and the motion to dismiss be GRANTED as to Counts III, V and VI. The parties agree that Count V should be dismissed under the "first-filed rule" due to the Washington case, Civil Action No. 07-461. Sobek concedes that Counts III, V and VI should be dismissed. Accordingly, the Court will address Counts I, II and IV.

Discussion

EDMC presents several overarching lines of reasoning in support of dismissal: (1) that the job placement and SAP regulations[1] are analogous to the Medicare marketing regulations at issue in United States ex rel Wilkins v. United Health Group, 659 F.3d 295, 301 n.9 (3d Cir. 2011) (" Wilkins" ), which the Court of Appeals for the Third Circuit held cannot support an FCA claim; (2) Plaintiff fails to allege fraud with the specificity required by Fed.R.Civ.P. 9(b); and (3) that the regulations at issue do not provide a sufficiently specific and objective standard, such that an alleged failure to comply cannot constitute fraud. EDMC also argues that this Court lacks subject-matter jurisdiction pursuant the "public disclosure" bar. In response, Plaintiff contends that: (1) the violations by EDMC alleged in this case are not analogous to the Medicare marketing regulations at issue in Wilkins; (2) the complaint pleads fraud with sufficient specificity; and (3) the regulations impose standards which Plaintiff has alleged that ...


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