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United States ex rel. Brooks v. Stevens-Henager College, Inc.

United States District Court, D. Utah, Central Division

January 4, 2018

UNITED STATES OF AMERICA ex rel. KATIE BROOKS and NANNETTE WRIDE, Plaintiffs
v.
STEVENS-HENAGER COLLEGE, INC., a Utah Corporation; CALIFORNIA COLLEGE SAN DIEGO, INC., a Utah Corporation; COLLEGEAMERICA DENVER, INC., a Colorado Corporation; COLLEGEAMERICA ARIZONA, INC., a Colorado Corporation; CENTER FOR EXCELLENCE IN HIGHER EDUCATION, INC., an Indiana Corporation; CARL BARNEY, an individual; and DOES 1-500, Inclusive, Defendants.

          JILL N. PARRISH JUDGE

          MEMORANDUM DECISION AND ORDER ON MOTION REGARDING SCOPE OF DISCOVERABLE INFORMATION (ECF NO. 356) AND MOTION TO COMPEL DOCUMENTS RELATING TO DEFENDANTS' TRANSACTIONS (ECF NO. 347)

          EVELYN J. FURSE UNITED STATES MAGISTRATE JUDGE

         On September 22, 2017, after oral argument, the Court took under advisement Katie Brooks and Nannette Wride's (“Brooks and Wride”) (1) Motion Regarding Scope of Discoverable Information (ECF No. 356) and (2) Motion to Compel Documents Relating to Defendants' Transactions (“Motion to Compel”) (ECF No. 347).

         I. Motion Regarding Scope of Discoverable Information (ECF No. 356)

         With respect to the motion regarding the scope of discovery, the parties filed ten page briefs setting forth their arguments on the proper scope of temporal discovery in this case. (ECF Nos. 345 & 349.) Brooks and Wride argue that certain discovery before 2007 and after 2011 is relevant and that Stevens-Henager College, Inc., California College San Diego, Inc., Collegeamerica Denver, Inc., Collegeamerica Arizona, Inc., Center For Excellence In Higher Education, Inc., and Carl Barney (the “Stevens-Henager Defendants”) should produce it. (ECF No. 345.) Specifically, Brooks and Wride claim that pre-2007 discovery is relevant because, while the applicable statute of limitations period begins January 3, 2007, the Program Participation Agreements (“PPA”) that cover the period from January 3, 2007 through June 30, 2007 date from 2001. (Id. at 7-9.) Brooks and Wride contend that under the applicable law, each claim for payment under the 2001 PPAs made from January 3, 2007 through June 30, 2007 remain actionable. (Id.) Brooks and Wride further assert that to prove their claims relating to the January 3, 2007 to June 30, 2007 period, they must show fraudulent inducement of the PPAs executed in 2001, which requires the discovery of documents and information prior to 2007. (Id.) Further, Brooks and Wride assert that violations subsequent to the execution of those pre-2007 PPAs provide circumstantial proof of the Stevens-Henager Defendants' intent when they entered into the later PPAs. (Id.)

         The Stevens-Henager Defendants counter that the limitations period defines the scope of discovery. (ECF No. 349 at 7-9.) Specifically, the Stevens-Henager Defendants assert the relevant limitations period cuts off Brooks and Wride's claims prior to PPAs fraudulently induced during and after 2007. (Id.) The Stevens-Henager Defendants, therefore, assert that the Court should prohibit discovery regarding actions prior to January 1, 2006, which allows Brooks and Wride substantial opportunity to discover information relevant to the Stevens-Henager Defendants' intent entering into the 2007 and later PPAs. (Id.)

         As to discovery after 2011, Brooks and Wride argue that they should receive post-2011 documents and information because their operative Third Amended Complaint (“Complaint”) contains allegations concerning events and violations occurring after 2011. (ECF No. 345 at 9-11.) Brooks and Wride acknowledge that the Court's March 30, 2016 Order on the Stevens-Henager Defendants' motion to dismiss found that evidence of false certifications and violations did not provide an independent basis for its False Claims Act (“FCA”) claims. (Id.) However, Brooks and Wride assert such evidence remains relevant and discoverable because the Court found false certifications and violations after entry into the PPAs may provide “circumstantial proof” that the Stevens-Henager Defendants entered into the PPAs to become eligible for Title IV funding with no intention of following through on their promises to comply with program requirements. (Id.)

         Brooks and Wride's brief states that the Stevens-Henager Defendants had not committed to produce documents and information through December 2012. (ECF No. 345 at 5 n.1.) The Stevens-Henager Defendants, however, concede the relevance of documents and information from 2012 in their brief and “ask the Court to limit the scope of discovery on Relators' FCA claims to December 31, 2012.” (ECF No. 349 at 7.) Therefore, the parties do not dispute the relevance of discovery from 2007 through December 31, 2012. The Stevens-Henager Defendants do contend that the Court's March 30, 2016 Order found Brooks and Wride had not alleged FCA violations after 2011, and that Brooks and Wride, therefore, should not receive discovery after December 31, 2012, the date by which all actionable PPAs expired. (Id. at 4-7.)

         Brooks and Wride ask the Court to “not artificially or mechanically limit Brooks and Wride's discovery of information to any specific period of time” and instead “evaluate the relevancy and proportionality of Brooks and Wride's discovery requests on a case-by-case basis.” (ECF No. 345 at 11.) The Stevens-Henager Defendants, on the other hand, ask the Court to “enter an order limiting the scope of discovery for Relators' FCA claims to January 1, 2006, to December 31, 2012.” (ECF No. 349 at 10.)

         For the reasons addressed below, the Court declines to limit discovery in this case to a specific period. Certain pre-2007 discovery relates to Brooks and Wride's claims concerning the period between January 3, 2007 and June 30, 2007. In addition, certain post-2011 discovery is relevant because Brooks and Wride's Complaint includes allegations after that period, and subsequent false certifications and violations provide circumstantial proof supporting the fraudulent inducement claims. The Court's discussion below provides a framework for the parties to negotiate the production of documents responsive to particular requests in Brooks and Wride's Sixth Set of Discovery Requests and other discovery requests. However, if the parties reach an impasse on any specific issues or document requests, they may file Short Form Discovery Motions consistent with DUCivR 37-1.

         A. March 30, 2016 Order

         One of the primary disputes between the parties concerning the temporal scope of discovery centers on their differing interpretations of the Court's March 30, 2016 Order on the Stevens-Henager Defendants' motion to dismiss. The parties disagree on whether the Court's Order limits Brooks and Wride's claims to 2011 and earlier. The Stevens-Henager Defendants interpret the Order as affirmatively determining that Brooks and Wride have not alleged FCA violations after 2011 in their Complaint, and therefore, cannot pursue claims beyond this time. (ECF No. 349 at 3-7.) Brooks and Wride disagree and point to various allegations in their Complaint relating to events and violations occurring after 2011. (ECF No. 345 at 3-5.)

         In the March 30, 2016 Order, the Court, for purposes of deciding the Stevens-Henager Defendants' motion to dismiss, interpreted the Complaint as alleging FCA violations from 2002 to 2011. (March 30, 2016 Order, ECF No. 245 at 2, 3, 4-5 n.3, & 11 n.6.) However, the Stevens-Henager Defendants did not move to dismiss any claims after 2011 (see ECF No. 198), despite the presence of allegations in the Complaint relating to post-2011 events. (See Compl., ECF No. 175 ¶¶ 310, 315, 317, 327, 348, 387.) Rather they simply sought dismissal of the entire Complaint. (See ECF No. 198.) The Court did not have in front of it the dispute raised in this Motion regarding the propriety of claims after 2011. Thus the Court's Order made no specific determination as to whether Brooks and Wride could maintain claims after 2011 and simply discussed the claims at issue, which it describes as occurring prior to the 2011 PPA amendments. This Court declines to limit Brooks and Wride's claims to 2011 or earlier through a ruling on the scope of discovery when the District Court has not squarely ruled on the issue, and the Complaint includes claims after that date.

         B. Pre-2007 Discovery

         1. 2001 PPA

         The parties agree that the statute of limitations period in this case began to run January 3, 2007, (August 28, 2017 Order, ECF No. 346), but disagree as to the effect of the statute of limitations on Brooks and Wride's claims. Brooks and Wride argue they can recover under the 2001 PPAs for each claim for payment made from January 3, 2007 to June 30, 2007, when the 2001 PPAs were still in effect. (ECF No. 345 at 7-9.) Brooks and Wride, therefore, assert the relevance of discovery relating to PPA-entry in 2001 because they must show that the Stevens-Henager Defendants induced the original contract, i.e., the 2001 PPA, through fraud. (Id.) The Stevens-Henager Defendants argue, however, that the statute of limitations prevents Brooks and Wride from recovering under the PPAs entered prior to January 3, 2007. (ECF No. 349 at 7-9.) Brooks and Wride make the better argument.

         The parties agree Brooks and Wride may pursue their FCA claims under a fraudulent inducement theory. Under this theory, Brooks and Wride must prove the existence of initial false statements or fraudulent conduct that induced the government to enter into the contracts at issue. See, e.g., In re Baycol Prods. Litig., 732 F.3d 869, 876 (8th Cir. 2013) (“a claim alleging fraud in the inducement of a government contract does focus on the false or fraudulent statements which induced the government to enter into the contract at the outset.”). However, under this theory, “FCA liability attaches to ‘each claim submitted to the government under a contract so long as the original contract was obtained through false statements or fraudulent conduct.'” United States ex rel. Miller v. Weston Educ., Inc., 840 F.3d 494, 499 (8th Cir. 2016) (quoting Baycol, 732 F.3d at 876); see United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1173 (9th Cir. 2006) (noting FCA “liability will attach to each claim submitted to the government under a contract, when the contract or extension of government benefit was originally obtained through false statements or fraudulent conduct”); United States ex rel. Longhi v. United States, 575 F.3d 458, 468 (5th Cir. 2009) (“Under a fraudulent inducement theory, although the Defendants' ‘subsequent claims for payment made under the contract were not literally false, [because] they derived from the original fraudulent misrepresentation, they, too, became actionable false claims.'”) (alteration in original) (quoting United States ex rel. Laird v. Lockheed Martin Eng'g & Science Servs. Co., 491 F.3d 254, 259 (5th Cir. 2007)); Harrison ...


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