The United States Court of Appeals for the Eighth Circuit overturned a district court's grant of summary judgment in favor of a for-profit college in United States ex rel. Miller v. Weston Educational, Inc. on April 29. The court revived the case despite the relator's inability to connect an amount paid by the government to any false statement by the college.
The case involved the so-called "fraudulent inducement" theory of False Claims Act (FCA) liability. The defendant, Heritage College, was alleged by the relators to have manipulated the grade and attendance records of some students so that the students would remain eligible for federal loans, scholarships and grants under Title IV. As a result of this falsification of records, the relators alleged, the college had impermissibly received and retained federal funds. The relators alleged fraudulent inducement under the FCA on the basis that Heritage's Program Participation Agreement (PPA) with the Department of Education (DOE) and associated regulations required it to "establish and maintain such administrative and fiscal procedures and records as may be necessary to ensure proper and efficient administration of funds."
Heritage claimed that the PPA did not specifically require maintenance of the specific grading and attendance records at issue. The Eighth Circuit's opinion essentially sidestepped that question and moved to the issued of intent, focusing on what the college understood the provision to mean. The court held that "it is not enough to show that Heritage did not comply with the PPA; Relators must show Heritage, when signing the PPA, knew accurate grade and attendance records were required, and that Heritage intended not to maintain those records." The court held that there was a genuine issue of material fact concerning the college's intent when it signed the PPA, pointing to evidence including the alleged practice of altering records. The court noted that "none of the identified altered records impacted Title IV disbursements or refunds undermines Relators' evidence of intent" and that "most of Relators' examples of altered records come after the signing of the PPA." However, it concluded that the evidence was sufficient to survive summary judgment.
Despite its statement regarding a lack of connection between allegedly altered records and government payments, the court held that this had no impact on materiality—an issue the court subsequently addressed. The court held that the lack of connection did not warrant summary judgment on materiality, concluding that Heritage could not have executed the PPA without promising to maintain adequate records. According to the court, Title IV itself, applicable regulations and the PPA all conditioned the college's ability to enter into the PPA on Heritage's promise to maintain adequate records. This prerequisite to receiving federal funds, supplied the "causal link" that made the alleged false representation material. Heritage argued that the court's approach would make any regulatory violation actionable under the FCA, but the court rejoined that relators must still prove an intentional false representation, stating "fraud requires more than breach of promise: fraud entails making a false representation." Further, "if Heritage intended to deceive the DOE to access Title IV funding, it did more than commit a regulatory violation: It committed fraud."
The court's determination of materiality avoids answering the question. In essence, the court appears to hold that if a relator presents evidence indicating that a defendant intended not to comply with any contractual provision or regulation at the time it entered into a payment relationship with the government, that is enough for fraudulent inducement purposes. Moreover, this is the case even if there is no link between the allegedly fraudulent conduct and the receipt of federal money. This relegates, at least at summary judgment, the question of materiality to an empty standard that is indistinct from knowledge, despite the fact that these are unquestionably two separate elements of an FCA claim. We will watch how other courts apply these elements in future "fraudulent inducement" cases under the FCA.
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