In the
United States Court of Appeals
For the Seventh Circuit
No. 14‐2506
UNITED STATES OF AMERICA,
Plaintiff,
v.
SANFORD‐BROWN, LIMITED, et al.,
Defendants‐Appellees.
APPEAL OF: BRENT M. NELSON
Appeal from the United States District Court for the
Eastern District of Wisconsin
No. 12‐cv‐00775— J. P. Stadtmueller, Judge.
ARGUED JANUARY 8, 2015 — DECIDED JUNE 8, 2015
Before BAUER, MANION, and ROVNER, Circuit Judges.
MANION, Circuit Judge. Brent Nelson spent six months as
the Director of Education at Sanford‐Brown College, a for‐
profit educational institution located in Milwaukee, Wisconsin.
After he resigned, Nelson initiated this suit under the False
Claims Act. Based on its receipt of federal subsidies from the
2 No. 14‐2506
U.S. Department of Education, Nelson alleges that the college’s
recruiting and retention practices resulted in the transmission
of thousands of false claims to the government, potentially
subjecting the college and its corporate parent to hundreds of
millions of dollars in liability. After the United States declined
to intervene, discovery commenced and the district court pared
down Nelson’s claims in a series of orders that concluded with
a grant of summary judgment in favor of Sanford‐Brown.
On appeal, and with support from the United States as
amicus curiae, Nelson challenges the district court’s application
of the False Claim Act’s subject matter jurisdictional bar;
dismissal of defendant Career Education Corporation for
failure to comply with Fed. R. Civ. P. 9(b); denial of Nelson’s
motion for leave to file a second amended complaint; and grant
of summary judgment in favor of Sanford‐Brown on the
merits, including its rejection of the theory of implied false
certification. Sanford‐Brown has also filed a motion to seal and
return in this court. We affirm the judgment of the district
court and grant Sanford‐Brown’s motion to seal and return.
I. Background
The False Claims Act (FCA) is “the primary vehicle by the
Government for recouping losses suffered through fraud.” 31
U.S.C. § 3729 et seq. The Attorney General may bring actions
under the FCA directly in the name of the United States. 31
U.S.C. § 3730(a). Alternatively, a private person known as a
“relator” may bring a qui tam action “in the name of the
Government.” 31 U.S.C. § 3730(b)(1). If the qui tam action
results in the recovery of money for the government, the
relator shares in the award. See 31 U.S.C. § 3730(d).
No. 14‐2506 3
As relevant here, the FCA imposes civil liability on any
person who “knowingly presents, or causes to be presented”
to the United States or its representatives “a false or fraudulent
claim for payment or approval,” 31 U.S.C. § 3729(a)(1)
(2006–2015), or “knowingly makes, uses, or causes to be made
or used, a false record or statement material to a false or
fraudulent claim,” 31 U.S.C. § 3729(a)(1)(B) (2010–15).1
“Although the FCA uses the seemingly straightforward word
‘knowingly,’ the statute’s state of mind element is actually
quite nuanced.” U.S. v. King‐Vassel, 728 F.3d 707, 712 (7th Cir.
2013). To establish liability under the FCA, the defendant must
have acted with “actual knowledge,” or with “deliberate
ignorance” or “reckless disregard”to the possibility that the
submitted claim was false. 31 U.S.C. § 3729(a)(1)(A), (b).
Because any of these three states of mind will suffice, the FCA
does not require proof of specific intent to defraud. 31 U.S.C.
§ 3729(a)(1)(B). The FCA imposes civil penalties and treble
1
In 2009, Congress amended and reorganized several provisions of the
False Claims Act. Pub. L. 111–21, § 4(a)(1). The allegations in this case range
from “2006–present,” so for the purpose of our jurisdictional analysis, count
I of Nelson’s first amended complaint is based upon both 31 U.S.C.
§ 3729(a)(1) (for the time period from 2006 through May 19, 2009) and 31
U.S.C. § 3729(a)(1)(A) (for the time period from May 20, 2009 through the
present). Although the 2009 amendments only applied on a prospective
basis, Congress specified that § 3729(a)(1)(B) applied to all FCA claims
pending on or after June 7, 2008. See United States ex rel. Yannacopoulos v.
General Dynamics, 652 F.3d 818, 822 n.2 (7th Cir. 2011). Because this action
was filed well after June 7, 2008, count II of Nelson’s first amended
complaint is based exclusively on 31 U.S.C. § 3729(a)(1)(B) (the successor to
§ 3729(a)(2)). Id.
4 No. 14‐2506
damages as remedies for each violation. 31 U.S.C.
§ 3729(a)(1)(G).
A. The Higher Education Act
In order to receive federal education subsidies under Title
IV of the Higher Education Act (HEA), an institution must
enter into a Program Participation Agreement (PPA) with the
U.S. Secretary of Education. 20 U.S.C. § 1094(a). Federal law
provides that each PPA “shall condition the initial and continu‐
ing eligibility of an institution to participate in a program [for
Title IV subsidies] upon compliance with [certain] require‐
ments.” 20 U.S.C. § 1094(a)(1)–(29). These requirements include
the obligation to abide by a panoply of statutory, regulatory,
and contractual requirements. In sum, the PPA includes
certifications of existing facts and forward‐looking promises
that the institution will abide by certain statutes and regula‐
tions attendant to Title IV. We refer to these requirements as
“Title IV Restrictions.”
B. The parties
One of the many beneficiaries of the HEA’s subsidies,
student loan, and grant programs was Career Education
Corporation (CEC), the parent company of a nationwide
network of for‐profit colleges and universities, including
Sanford‐Brown, Limited (formerly known as Ultrasound
Technical Services, Inc.) (SBL), which owned and operated
Sanford‐Brown College in Milwaukee, Wisconsin (SBC) at all
times material to this proceeding.
From June 2008 through January 2009, Brent Nelson was
the Director of Education at SBC. Nelson’s responsibilities
No. 14‐2506 5
included maintaining accreditation compliance related to
academic progress and attendance; developing and imple‐
menting retention policies and practices; maintaining a student
management database and generating appropriate reports; and
completing “Green Files,” which report faculty qualifications
and graduate and placement rates to accreditors.
Nelson’s tenure at SBC was brief but—according to
Nelson—it was not uneventful. During his period of employ‐
ment at SBC, Nelson concluded that staff, professors, adminis‐
tration, and ownership had engaged in many instances of
fraudulent conduct in connection with the admission and
retention of students for the purpose of maintaining Title IV
HEA funding.
In July 2012, Nelson filed a complaint under seal against the
defendants specifically alleging that since 2006, the three
defendants (CEC, SBL and SBC) had violated—and were
continuing to violate—federal regulations. Specifically, Nelson
alleged that these entities violated provisions that: i) prohibited
them from paying incentive compensation to certain types of
employees involved in admissions and recruiting; ii) required
them to maintain accreditation; iii) required them to refund to
the U.S. Department of Education portions of Title IV funds for
certain students who failed to complete at least 60% of a term;
iv) prohibited them from harassing students to attend class; v)
required students who received Title IV funds to maintain a
minimum GPA or other adequate progress towards gradua‐
tion; and vi) prevented them from admitting students with
remedial needs into accelerated programs (collectively, the
“disputed Title IV Restrictions”). In February 2013, the
6 No. 14‐2506
government filed its decision not to intervene and the seal was
lifted. In April 2013, Nelson filed his first amended complaint.
C. Proceedings in the district court
Substantial motion practice ensued. On June 11, 2013, the
defendants filed a joint motion to dismiss. On June 13, 2013, the
district court entered its scheduling order, setting the cut‐off
date for dispositive motions at January 3, 2014, and set trial for
April 14, 2014. On November 22, 2013, the district court grant‐
ed in part and denied in part the defendants’ motion to
dismiss. U.S. v. Career Educ. Corp., 2013 WL 6162673 (E.D. Wis.,
Nov. 22, 2013). The district court granted the motion to dismiss
on the harassment and premature admission claims and
dismissed co‐defendant CEC pursuant to Fed R. Civ. P. 9(b). Id.
at *6–9. On November 27, 2013, defendants filed a second
motion to dismiss—this time for lack of subject matter jurisdic‐
tion.
But before the district court had a chance to rule on defen‐
dants’ motion to dismiss for lack of subject matter jurisdiction,
Nelson filed a motion for leave to file a second amended
complaint to bring CEC back into the case based on “recent
discovery.” Nelson filed this motion on the court‐prescribed
deadline for dispositive motions, and defendants objected
based on the timing (the motion was filed forty‐two days after
the court’s order dismissing CEC) and on grounds that it
would be unduly prejudicial to reel a defendant back in after
the parties had proceeded through the end of discovery and
the dispositive motion deadline with the understanding that
CEC was no longer a defendant in the case. On January 17,
No. 14‐2506 7
2014, the district court denied Nelson’s motion for leave to file
a second amended complaint.
The court then turned to the motion to dismiss for lack of
subject matter jurisdiction. On March 17, 2014, the district court
entered an order concluding that it lacked subject matter
jurisdiction over most of Nelson’s allegations because they
were either based upon publically disclosed allegations (and he
lacked independent knowledge of the information on which
his allegations were based, rendering him ineligible for the
“original source” exception to the prior public disclosure bar),
or were barred by the FCA’s first‐to‐file rule. U.S. v. Sanford‐
Brown, Ltd., 27 F.Supp.3d 940 (E.D. Wis. 2014). After referring
to this case as “a shadow of its former self,” the district court
held that its subject matter jurisdiction would be limited to
Nelson’s allegations from the start of the 2008 academic school
year at SBC until the date he resigned his position in January
2009. Id. at 948.
On March 27, 2014, the district court entered an order
reiterating that it retained jurisdiction because Nelson qualified
as an original source for some claims, and confirmed that it
would proceed to rule on the pending summary judgment
motion directed at the merits of those remaining claims. U.S.
v. Sanford‐Brown, Ltd., 2014 WL 1272098 (E.D. Wis., March 27,
2014). On June 13, 2014, the district court granted the defen‐
dants’ motion for summary judgment. U.S. v. Sanford‐Brown,
Ltd., 30 F.Supp.3d 806 (E.D. Wis., June 13, 2014). Nelson
appeals, supported by the United States as amicus curiae.
8 No. 14‐2506
II. Subject matter jurisdiction
Before we address the substance of Nelson’s qui tam
allegations, we must first address his contention that the
district court erroneously held that it lacked the subject matter
jurisdiction over all claims except those arising during the
period of his employment from 2008–09. U.S. ex rel. Absher v.
Momence Meadows Nursing Ctr., Inc., 764 F.3d 699, 706 (7th Cir.
2014) (“[The Supreme Court’s decision in] Rockwell compels us
to address whether § 3730(e)(4) bars the relators’ qui tam claims
before addressing the merits of those claims.”). In other words,
the public disclosure bar is a limitation on subject matter
jurisdiction. Momence, 764 F.3d at 706.
Nelson filed this action in 2012, but it potentially covers
claims that have accrued since 2006—and two different
versions of § 3730(e)(4) have operated as law throughout the
time period covered by Nelson’s suit. No matter. The 2010
version of § 3730(e)(4) is not retroactive and it controls here.
U.S. ex rel. Heath v. Wisconsin Bell, Inc., 760 F.3d 688, 690 n.1
(7th Cir. 2014). Under the 2010 version of 31 U.S.C.
§ 3730(e)(4)(A), a claim must be dismissed if the information
was publically disclosed, unless the relator is the original
source of the disclosure. We review de novo challenges to the
FCA’s jurisdictional bars. Leveski v. ITT Educ. Servs., Inc., 719
F.3d 818, 828 (7th Cir. 2013). We review findings of jurisdic‐
tional facts only for clear error. Momence, 764 F.3d at 707.
In this case, the district court held that the allegations
underlying Nelson’s suit (other than those covering the period
of his employment from 2008–09) were publicly disclosed
because of the “extraordinarily consequential concession,”
No. 14‐2506 9
Sanford‐Brown, Ltd., 27 F.Supp.3d at 944, he made in his
opposition to the defendants’ motion to dismiss for lack of
subject matter jurisdiction: “For purposes of this motion only,
Nelson concedes that his allegations have been ‘publically
disclosed’ pursuant to 31 U.S.C. 3730(e)(4).” Id. (quoting
Relator’s Memorandum of Law in Opposition to Defendants’ Motion
to Dismiss for Lack of Subject Matter Jurisdiction, Doc. 56 at 6).
Nelson attempts to overcome this concession by claiming
that “[f]or the sake of judiciary economy, [he] acknowledged
that some of the information in his complaint was publically
disclosed.” Appellant Br. 41. But the text of Nelson’s statement
does not say that some of his allegations have been “publically
disclosed.” He said “his allegations”—and a party is bound by
what it states in its pleadings. Help At Home Inc. v. Medical
Capital, L.L.C., 260 F.3d 748, 753 (7th Cir. 2001).
Alternatively, Nelson argues that even if he did concede
that his allegations were publically disclosed, he did not
concede that he based his suit upon knowledge of the prior
public disclosure. However, in the wake of Nelson’s unquali‐
fied concession that his allegations were publically disclosed
(step one), we need not conduct a step two “based upon”
analysis because once information becomes public, only the
Attorney General or a relator who is an original source of the
information may represent the United States. Glaser v. Wound
Care Consultants, Inc., 570 F.3d 907, 913 (7th Cir. 2009) (quota‐
tions and citations omitted). Accordingly, the district court’s
conclusion rests on solid footing, and these claims survive only
if Nelson is the original source.
10 No. 14‐2506
The question then is whether Nelson was the “original
source” of publically disclosed information. An original source
is someone who: (1) prior to public disclosure has voluntarily
disclosed to the government the information on which a claim
is based; or who (2) has independent knowledge of the
information on which his allegations are based—and that
knowledge is material. 31 U.S.C. § 3730(e)(4)(B) (2010–2015).
The district court concluded that Nelson was not an original
source of false claims allegations about alleged misconduct that
occurred before (pre‐June 2008) and after (post‐January 2009)
his employment at SBC.
Nelson argues that the district court prematurely dismissed
these claims because allegations filed upon information and
belief may ultimately satisfy the original source requirement if
he had independent knowledge of fraudulent conduct before
the allegations of fraud were publicly disclosed. Appellant Br.
56. Yet we need not decide whether Nelson failed to qualify as
an original source of claims from 2006–present (excluding
2008–2009) because he pleaded those allegations “upon
information and belief.” Rather, Nelson failed to qualify as an
original source of those claims because he conceded that he
lacked the “independent knowledge”of fraudulent conduct
alleged to have occurred throughout that period. Here, Nel‐
son’s response to the defendants’ motion to dismiss for lack of
subject matter jurisdiction again proves fatal. It stated:
Defendants also argue that relator is not an original
source to the allegations pled upon “information
and belief.” Relator concedes that he does not have
direct and independent knowledge of the allegations
plead [sic] upon information and belief.
No. 14‐2506 11
Relator’s Memorandum of Law in Opposition to Defendants’ Motion
to Dismiss for Lack of Subject Matter Jurisdiction, Doc. 56 at 25
n.33). For the second time, Nelson “has fallen victim to the
well‐settled rule that a party is bound by what it states in its
pleadings.” Soo Line R. Co. v. St. Louis Southwestern Ry. Co., 125
F.3d 481, 483 (7th Cir. 1997). Because a litigant is the master of
its pleadings, we will not rewrite them “to controvert what it
has already unequivocally told a court by the most formal and
considered means possible.” Id. We thus affirm the district
court’s jurisdictional ruling that Nelson qualifies as an original
source only for claims from the period of his employment at
SBC (June 2008–January 2009).2
III. Nelson’s First Amended Complaint
A. The district court’s dismissal of CEC
The district court concluded that the allegations in Nelson’s
first amended complaint failed to plead sufficient factual
details to implicate CEC as a signatory to the PPAs, so the
court dismissed it pursuant to Fed. R. Civ. P. 9(b). Career Educ.
Corp., 2013 WL 6162673 at *8. Nelson contends that CEC’s
dismissal was error.
We review de novo a district court’s decision to dismiss a
complaint or amended complaint for failing to satisfy the
particularity requirement of Rule 9(b); we take the plaintiff’s
2
For the sake of completeness, we note that even the cases Nelson cites in
support of his argument require him to possess independent knowledge in
order to qualify as an original source. U.S. ex rel. Smith v. Yale Univ., 415 F.
Supp.2d 58, 79 (D. Conn. 2006); United States ex rel. DeCarlo v. Kiewit/AFC
Enters., 937 F.Supp. 1039, 1049 (S.D.N.Y. 1996).
12 No. 14‐2506
allegations as true and draw all reasonable inference in the
plaintiff’s favor. Tricontinental Indus., Ltd. v. Pricewaterhouse‐
Coopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007). When “alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be
alleged generally.” Fed. R. Civ. P. 9(b). “The reference to
‘circumstances’ in the rule requires the plaintiff to state the
identity of the person who made the misrepresentation, the
time, place and content of the misrepresentation, and the
method by which the misrepresentation was communicated to
the plaintiff” in order to satisfy Rule 9(b)’s heightened pleading
standard. Vicom, Inc. v. Harbridge Merchant Services, Inc., 20 F.3d
771, 777 (7th Cir. 1994) (internal quotations omitted). “The
purpose [] of the heightened pleading requirement in fraud
cases is to force the plaintiff to do more than the usual investi‐
gation before filing his compliant.” Ackersman v. Northwestern
Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999). To comply
with Rule 9(b) in a multiple‐defendant case like this one, the
plaintiff must “plead sufficient facts to notify each defendant
of his alleged participation in the scheme.” Goren v. New Vision
Int’l., Inc.,156 F.3d 721, 726 (7th Cir. 1998).
We turn to Nelson’s first amended complaint. Nelson
identified three defendants in the caption of his first amended
complaint: CEC, Sanford‐Brown, Limited, and Ultrasound
Technical Services, Inc. Nelson refers to CEC, Sanford‐Brown,
Limited, and Ultrasound Technical Services, Inc., collectively,
as “Defendants.” 1st Am. Compl. ¶ 1. Nelson alleges that “CEC
operates a chain of for‐profit colleges, schools and universities
nationwide” including “roughly 40 Sanford‐Brown schools.”
No. 14‐2506 13
1st Am. Compl. ¶ 18. Further, he alleges that “Sanford‐Brown,
Limited is a subsidiary of CEC” and that “[o]n information and
belief, Sanford‐Brown, Limited co‐operates Sanford‐Brown
College, Milwaukee.”1st Am. Compl. ¶ 19.
With this outline of the defendants’ corporate hierarchy in
mind, we return to the central allegation of the first amended
complaint, which reads as follows:
As a condition to allowing their students to
receive federal funding under Title IV/HEA,
Defendants were required to sign a Program
Participation Agreement (“PPA”), whereby they
agreed to comply with certain statutory, regula‐
tory and contractual requirements detailed in 20
U.S.C. § 1094 and supporting regulations, in‐
cluding 34 C.F.R. § 668.14.
1st Am. Compl. ¶ 24. We must decide whether the amended
complaint’s collective reference to “Defendants” and its
contention that they were required to sign a PPA pleads
sufficient facts to notify CEC of its alleged participation in the
scheme. Goren, 156 F.3d at 726; Vicom, 20 F.3d at 777.
Each party argues that Jepson, Inc. v. Makita Corp., 34 F.3d
1321 (7th Cir. 1994), supports its position. In Jepson, we
affirmed the dismissal of an amended complaint alleging civil
RICO violations against three corporations (two of which were
subsidiaries of the third corporation) where the allegations did
not adequately detail the predicate acts of mail and wire fraud
to survive under Rule 9(b). Id. at 1331. The defendants argue
that Jepson requires Nelson’s allegations to be dismissed
because they are lodged against “Defendants” generally and
14 No. 14‐2506
do not specify which conduct was undertaken by each particu‐
lar corporate defendant. Nelson counters that allegations need
not be so specific when the corporate defendants “are related
corporations that can most likely sort out their involvement
without significant difficulty.” Id. at 1329.
Nelson reads the phrase in question completely out of
context. Jepson held the plaintiffs’ mail and wire fraud
allegations were insufficiently pleaded, so it was unnecessary
for us to provide any further extraneous detail in the opinion
about which corporate defendant was targeted by the insuffi‐
cient allegations. Id. at 1331. We said on three separate occa‐
sions within Jepson that we were referring to the multiple
corporate defendants collectively throughout the opinion for
the sake of readability.3 The phrase Nelson quotes has nothing
whatsoever to do with pleading requirements.
Jepson stressed that under Rule 9(b), defendants “are
entitled to be apprised of the roles they each played in the
alleged scheme, and that absent a compelling reason, the
plaintiff is normally not entitled to treat multiple corporate
defendants as one entity.” Id. at 1329 (citing cases). Here, the
problem with Nelson’s first amended complaint is this: Nelson
references “Defendants” dozens of times in his amended
3
Jepson, 34 F.3d at 1324 (“We shall refer to the Makita defendants collec‐
tively as ‘Makita.’”); id. at 1328 (“For the sake of convenience in our
discussion, we have lumped all three defendants under the single name
‘Makita.’”); id. at 1329 (“We will assume for the purposes of our discussion
that ... given that the three corporate defendants in this case are related
corporations that can most likely sort out their involvement without
significant difficulty.”).
No. 14‐2506 15
complaint, yet not once does he distinguish CEC’s conduct
from the conduct of either of the other two co‐defendants. By
failing to allege specific facts beyond the single allegation that
CEC entered into a PPA, the first amended complaint fails to
plead sufficient facts to notify CEC of the circumstances of its
alleged participation in the scheme. Goren, 156 F.3d at 726;
Vicom, 20 F.3d at 777. Accordingly, we reject Nelson’s sweep‐
ing contention that his allegations against all “Defendants”
should be treated as specific allegations against one defendant,
CEC.
B. The district court’s denial of Nelson’s motion for
leave to file a second amended complaint
After the district court dismissed CEC and following
additional discovery directed at the issue of CEC’s connection
to the PPAs, Nelson moved for leave to file a second amended
complaint to cure the Rule 9(b) defects based on “recent
discovery.” Defendants objected, and the district court denied
Nelson’s motion. On appeal, Nelson raises two related chal‐
lenges to the district court’s denial of leave to file a second
amended complaint. First, he argues that the district court
should have granted him leave to file a second amended
complaint because he filed his motion on the last day the
parties agreed upon for any amendments. Second, he argues
that justice requires that he be afforded at least one opportu‐
nity to cure the Rule 9(b) defects. We review the district court’s
decision under the highly deferential abuse of discretion
standard. Soltys v. Costello, 520 F.3d 737, 743 (7th Cir. 2005).
While the parties’ stipulated scheduling order agreed that
amendments must be made by January 3, 2014, such an
16 No. 14‐2506
agreement does not impact the district court’s discretion to
grant or deny the motion. The well‐settled rule is that a party
may amend its complaint once as a matter of right, twice or
more only at the district court’s discretion. See Hukic v. Aurora
Loan Services, 588 F.3d 420, 432 (7th Cir. 2009) (denying leave to
file a second amended complaint); Fed. R. Civ. P. 15(a).
Further, while leave to amend should be freely given “when
justice so requires,”Alioto v. Town of Lisbon, 651 F.3d 715, 719
(7th Cir. 2011); Fed. R. Civ. P. 15(a)(2), a district court has
“broad discretion to deny leave to amend where there is undue
delay, bad faith, dilatory motive, repeated failure to cure
deficiencies, undue prejudice to the defendants, or where the
amendment would be futile.” Arreola v. Godinez, 546 F.3d 788,
796 (7th Cir. 2008).
Here, the district court’s order dismissing CEC was entered
on November 22, 2013. Instead of moving for reconsideration,
Nelson waited forty‐two days before moving for leave to bring
CEC back into the case. Like the district court, we find no good
reason for this delay in the record. Had the district court
granted a second motion for leave to amend, it would have
returned a dismissed party, CEC, back into litigation when
discovery had proceeded for weeks and SBC had proceeded
under the assumption that CEC was no longer involved. CEC’s
return to the litigation was obviously substantially prejudicial
to CEC, and was also prejudicial to SBC because it had pro‐
ceeded through discovery under the reasonable assumption
that CEC would remain dismissed. In these respects, this
situation is strikingly similar to Hukic, where we affirmed the
denial of a motion for leave to file a second amended com‐
plaint when it was filed near the close of discovery because
No. 14‐2506 17
discovery had already taken place with the initial claims and
defendants in mind. 588 F.3d at 432. As in Hukic, the district
court did not abuse its discretion by failing to grant Nelson
leave to file a second amended complaint.
IV. Analysis
A. SBC’s Program Participation Agreements
We now turn to the merits. In September 2005, SBL’s
campus in Fenton, Missouri, entered into a PPA with the U.S.
Secretary of Education (2005 PPA). In bold lettering on the first
page of the fifteen‐page agreement reads the following:
The execution of this Agreement by the Institu‐
tion and the Secretary is a prerequisite to the
Institution’s initial or continued participation in
any Title IV, HEA Program.
Appellees’ App. 92 at ¶ 1. The 2005 PPA also provides, in
relevant part, that “[t]he Institution understands and agrees
that it is subject to and will comply with the program statutes
and implementing regulations for institutional eligibility ... .”4
4
The 2005 PPA asserts that upon entry, the signatory certifies compliance
with—to name just a few—Title VI of the Civil Rights Act of 1964, as
amended, and the implementing regulations, 34 C.F.R. Parts 100 and 101
(barring discrimination on the basis of race, color or national origin); Title
IX of the Education Amendments of 1972 and the implementing regula‐
tions, 34 C.F.R. Part 106 (barring discrimination on the basis of sex); The
Family Rights and Privacy Act of 1974 and the implementing regulations,
34 C.F.R. Part 99; Section 504 of the Rehabilitation Act of 1973 and the
implementing regulations, 34 C.F.R. Part 104 (barring discrimination on the
basis of physical handicap); and the Age Discrimination Act of 1975 and the
(continued...)
18 No. 14‐2506
By our estimation, the executed 2005 PPA incorporates by
reference thousands of pages of other federal laws and
regulations.
When the 2005 PPA was executed by John M. Larson,
President and Chief Executive Officer of Sanford‐Brown
College, and the U.S. Department of Education’s designated
representative, the signatories: (i) intended that the campuses
covered by the 2005 PPA would operate in compliance with
the conditions specified in the 2005 PPA, including institu‐
tional eligibility requirements; and (ii) believed that all
certifications and statements of fact contained in the 2005 PPA
were true and accurate. See Larson Decl. at ¶¶ 5, 6. In 2006,
SBC was added to the 2005 PPA.
In December 2007, Sanford‐Brown’s campus in Jacksonville,
Florida, entered into a PPA with the U.S. Department of
Education (2007 PPA). The identical, bolded requirement that
the Agreement be executed for initial or continued participa‐
tion in any Title IV, HEA Program appears on the first page of
the 2007 PPA, as does the same statement about compliance for
the purpose of institutional eligibility. The panoply of federal
statutes and regulations that appeared in the 2005 PPA also
remained—in fact, more were added—and the same represen‐
tations about the truthfulness and accuracy of the statements
of fact contained in the 2005 PPA were made with respect to
the 2007 PPA. See McCullough Decl. at ¶¶ 7, 8. In May 2008,
with the Education Department’s approval, SBC was removed
4
(...continued)
implementing regulations, 34 C.F.R. Part 110.
No. 14‐2506 19
from the 2005 PPA and added as an additional campus
covered under the 2007 PPA.
B. Theories of Qui Tam liability
Regarding Nelson’s claims from the period of his employ‐
ment at SBC (June 2008–January 2009), the district court
granted summary judgment in favor of the defendants
principally because it found “no clear manifestation of congres‐
sional or regulatory intent to condition payment of Title IV
federal subsidies on compliance with the disputed Title IV
Restrictions.” Sanford‐Brown, Ltd., 30 F.Supp.3d at 814. In FCA
cases, we review a district court’s grant of summary judgment
in favor of the defendant de novo, construing all facts in favor
of the nonmoving party. U.S. ex rel. Feingold v. AdminaStar
Federal, Inc., 324 F.3d 492, 494 (7th Cir. 2003).
1. Nelson’s § 3729(a)(1)(B) False Record Theory
The FCA imposes liability where any party “knowingly
makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim.” 31 U.S.C.
§ 3729(a)(1)(B). To establish liability under this provision, a
relator must prove that: (1) the defendant made a statement or
record in order to receive money from the government; (2) the
statement or record was false; and (3) the defendant knew it
was false. U.S. ex rel. Yannacopoulos v. General Dynamics, 652
F.3d 818, 822 (7th Cir. 2011).
Nelson and the government, as amicus curiae, argue that
because the defendants agreed to comply with all Title IV
regulations by entering into the PPA, they fraudulently used
it when they made—or caused students to make or
20 No. 14‐2506
use—applications for federal subsidies with knowledge that
they were not in compliance with the Title IV Restrictions. See
Appellant Br. 18 (“By and through the PPAs and Title IV
Services Agreement, CEC and Sanford Brown agreed and
promised to comply with all Title IV regulations.”). SBC
counters that to satisfy the “knowingly” component of the
statute, Nelson must offer proof that the institution entered
into the PPA with the intent to defraud the government out of
subsidies.
These dueling views stem from the parties’ differing
interpretations of our decision in United States ex rel. Main v.
Oakland City Univ., 426 F.3d 914 (7th Cir. 2005). In Main, we
considered whether a PPA entered into by an institution
qualified as a false record under the FCA where the promises
of future compliance it contained were false when the parties
entered into the agreement. 426 F.3d at 916. We concluded that
it was and reversed the district court’s order dismissing the
case, concluding that “[i]f a false statement is integral to a
causal chain leading to payment, it is irrelevant how the
federal bureaucracy has apportioned the paperwork.” Id.
The outcome in Main was dependent on the defendants’
mindset when it entered into the PPA. The relator’s complaint
alleged that university ownership intended to defraud the
government out of subsidies from the outset; consequently, we
held that the institution’s PPA with the Secretary and all
subsequent claims for payment submitted incident to it were
poisoned by the institution’s underlying bad faith. 426 F.3d at
917 (“To prevail in this suit Main must establish that the
University not only knew, when it signed the [PPA], that
contingent fees to recruiters are forbidden, but also planned to
No. 14‐2506 21
continue paying those fees while keeping the Department of
Education in the dark.”); accord, U.S. ex rel. Miller v. Weston
Educ., Inc., 784 F.3d 1198, 1204 (8th Cir. 2015) (“To demonstrate
this promise was false, it is not enough to show that [the
institution] did not comply with the PPA; relators must show
that [the institution], when signing the PPA, knew accurate
grade and attendance records were required, and that [the
institution] intended not to maintain those records.”).
To establish that the defendants knowingly used a false
record under Main, the relator must establish the defendants’
mindset at the time of entry into the PPA. The third prong of
Yannacopoulos reaffirms this mens rea requirement. In other
words, Nelson needed to prove that SBC knowingly entered
into the PPA to defraud the government (thereby creating a “false
record”) and then planned to “use” the PPA thereafter to
submit poisoned (and therefore, false) claims for payment.
U.S.C § 3729(a)(1)(B) (“knowingly ... uses”). Main underscores
this conclusion through its elaboration on the definition of
fraud that promises of future performance do not become false
due to subsequent non‐compliance. 426 F.3d at 916. Proof of
“fraud requires more than breach of promise: fraud entails
making a false representation, such as a statement that the
speaker will do something it plans not to do.” Id. at 917 (empha‐
sis added).
In this case, Nelson did not prove that SBC entered the PPA
in bad faith. He did not depose the individuals who signed the
PPAs, nor did he present any documentary evidence concern‐
ing SBC’s execution of the PPAs. He elicited no evidence in
discovery of defendants’ fraudulent mindset when SBC was
added as an additional campus covered under the PPA, or at
22 No. 14‐2506
any other time throughout its operation. The only record
evidence of the defendants’ mindsets are the declarations filed
by Larson and McCullough. Not only do these declarations fail
to support Nelson’s contention that these individuals intended
to defraud the Education Department out of subsidies—they
explicitly assert the opposite. See Larson Decl. at ¶¶ 5, 6;
McCullough Decl. at ¶¶ 7, 8. Under these facts, SBC is not
liable under Nelson’s False Record theory.
2. Nelson’s 31 U.S.C § 3729(a)(1)(A) False Presentment
Theory
The FCA also imposes liability where any party “know‐
ingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval.” 31 U.S.C § 3729(a)(1)(A). To
establish liability under this theory, a relator must prove the
existence of: (1) a false or fraudulent claim; (2) which was
presented for payment, or caused to be presented for payment,
by the defendant; (3) with knowledge the claim was false. U.S.
ex rel. Fowler v. Caremark RX, L.L.C., 496 F.3d 730, 741 (7th Cir.
2007), overruled in part on other grounds by Glaser, 570 F.3d at
920.
Nelson and the government argue that SBC’s certification
upon entry into the PPA that it would abide by the Title IV
Restrictions causes SBC to present false or fraudulent claims
for payment or approval to the government if it violates any of
the PPA’s conditions because adherence to those IV Restric‐
tions are “conditions of payment.” Based on this theory, an
institution must remain in compliance with all of the PPA’s
conditions in order to remain lawfully eligible to continue
receiving federal subsidies. Thus, Nelson and the government
No. 14‐2506 23
argue that compliance with the PPA is not merely a condition
of participation, but a condition of payment. See Appellant Br.
29 (“[U]nder the FCA, payment and participation are one and
the same, as a claimant is not entitled to payment unless
eligible to participate.”). According to this theory, the PPA
serves as a trigger poised to impose FCA liability at some
indefinite point in the future, because continued lawful receipt
of the federal subsidies depends on continued compliance with
the PPA. In support of their argument that continuing ongoing
eligibility is a statutory requirement of participation in receipt
of Title IV funding, Nelson and the government rely on United
States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166 (9th Cir.
2006), Main, and the PPA’s implementing regulation, which
states that “[a] participation agreement conditions the initial
and continued participation of an eligible institution ... upon
compliance with ... [the Title IV Restrictions.]” 34 C.F.R.
§ 668.14(a)(1) (emphasis added). See Appellant Br. 27.
Under the logic of Main, 426 F.3d at 917, and Yannacopoulos,
652 F.3d at 824, SBC argues that so long as the institution enters
into the PPA in good faith, the Title IV Restrictions it promises
to adhere to are not a trigger set to impose liability if violated
in the future, because those restrictions are merely conditions
of initial participation that must be true at the time the PPA
was entered into, not conditions that are prerequisites to
payment for the purpose of liability under the FCA. Main
recognizes that promises of future performance do not become
“false” due to subsequent non‐compliance. 426 F.3d at 917.
And Main goes on to suggest that a violation of Title IV
Restrictions after signing a PPA in good faith is not an action‐
able false claim: “[a] university that accepts federal funds that
24 No. 14‐2506
are contingent on following a regulation, which it then violates,
has broken a contract.” Id. This distinction between fraud at the
outset and breach of contract after entry into a PPA is signifi‐
cant “because a mere breach of contract does not give rise to
liability under the False Claims Act.” Yannacopoulos, 652 F.3d
at 824.
Despite Main’s signals, only one circuit decision has
squarely addressed whether violations of Title IV Restrictions
after good‐faith entry into Title IV trigger FCA liability. See
U.S. ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 797 (8th Cir. 2011).
In concluding that they do not, Vigil drew its reasoning from
Main and Hendow, where the complaints that had been dis‐
missed were reinstated because the relator alleged that each
institution submitted fraudulent applications to establish their
initial Title IV eligibility. See Main, 426 F.3d at 916 (assuming
that the institution “lied to the Department of Education in
order to obtain a certification of eligibility that it could not
have obtained had it revealed the truth”); Hendow, 461 F.3d at
1169 (relator alleges fraud occurred “in order to become
eligible to receive Title IV funds”).
We agree with Vigil’s conclusion because it is the logical
extension of Main and our other FCA authorities. Good‐faith
entry into the PPA is the condition of payment necessary to be
eligible for subsidies under the U.S. Department of Education’s
subsidies program. Absent evidence of fraud before entry, non‐
performance after entry into an agreement for government
subsidies does not impose liability under the FCA. Our earlier
decisions in Yannacopoulos, Main, and U.S. ex rel. Gross v. AIDS
Research Alliance‐Chi., 415 F.3d 601, 604 (7th Cir. 2005) (pre‐
dating Main and holding that FCA liability requires an initial
No. 14‐2506 25
fraudulent certification of compliance with applicable authori‐
ties to be a condition of or prerequisite to government pay‐
ment), compel this result because here, as in Vigil, the relator
has not alleged—nor has he proven—that SBC fraudulently
secured its initial Title IV eligibility, so no false certification of
compliance is attributable to SBC. Accordingly, we join the
Eighth Circuit and hold that FCA liability is not triggered by
an institution’s failure to comply with Title IV Restrictions
subsequent to its entry into a PPA, unless the relator proves
that the institution’s application to establish initial Title IV
eligibility was fraudulent.5
Distilled to its core, Nelson and the government’s theory of
liability lacks a discerning limiting principle. They argue that
compliance with all the contents of the PPA are conditions of
payment, while candidly acknowledging that certain violations
of the PPA do not impose FCA liability. These positions are at
odds with each other. If we adopt Nelson and the govern‐
ment’s argument and ignore the significant differences in effect
that good‐faith entrance and fraudulent inducement into a
PPA have on subsequent violations, then any of the conditions
in the PPA that are not met by the institution would have the
potential to impose strict liability on it under the FCA. That
proposition is untenable. See Momence, 764 F.3d at 712.
5
Our decisions in Yannacopoulos, Main, and Gross, as well as the Eighth
Circuit’s decision in Vigil, part ways with the Ninth Circuit’s decision in
Hendow on the FCA consequences of a violation of Title IV Restrictions that
occurs after good‐faith entry into a PPA. To the extent that is the case, we
respectfully disagree with the Ninth Circuit.
26 No. 14‐2506
Just last term, in Momence, we cautioned against the
adoption of a similarly groundbreaking and blanket theory of
FCA liability when we acknowledged that
under the relators’ theory, even a single regulatory
violation would be a condition of any and all pay‐
ments subsequently received by the facility inas‐
much as the regulators could terminate the facility
for practically any deficiency.
Id. (emphasis in original). There we rejected as “absurd” the
relators’ argument that compliance with regulations were
conditions of payment in the Medicare and Medicaid context.
Id.
Consistent with Momence’s foreshadowing, we conclude
that it would be equally unreasonable for us to hold that an
institution’s continued compliance with the thousands of pages
of federal statutes and regulations incorporated by reference
into the PPA are conditions of payment for purposes of liability
under the FCA.6 Although a number of other circuits have
6
Although Nelson asserts that these concerns are hyberbole because
“minor technical violations ... do not give rise to an FCA claim,” see U.S. ex
rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999),
“material[ity]” speaks only to the nature of the violation. § 3729(a)(1)(B)
(“material to a false or fraudulent claim”). Whether a violation is material or
not has no impact on whether we characterize compliance or noncompli‐
ance with the Title IV Restrictions incident to the PPA as a condition of
participation or as a condition of payment. If compliance with the PPA is a
condition of payment, the consequence of that determination would (in
addition to importing boundless FCA jurisdiction on any recipient of
government subsidies) simultaneously undermine its existing administra‐
(continued...)
No. 14‐2506 27
adopted this so‐called doctrine of implied false certification, id.
at 711 n.13 (citing cases),7 we decline to join them and instead
join the Fifth Circuit. See U.S. ex rel. Steury v. Cardinal Health,
Inc., 625 F.3d 262, 270 (5th Cir. 2010).
The FCA is simply not the proper mechanism for govern‐
ment to enforce violations of conditions of participation
contained in—or incorporated by reference into—a PPA. Mikes
v. Straus, 274 F.3d 687, 699 (2d Cir. 2001) (“The False Claims
Act was not designed for use as a blunt instrument to enforce
compliance with all [] regulations.”). Rather, under the FCA,
evidence that an entity has violated conditions of participation
after good‐faith entry into its agreement with the agency is for
the agency—not a court—to evaluate and adjudicate. See, e.g.,
id. at 700, 702; U.S. ex rel. Conner v. Salina Reg’l Health Ctr., Inc.,
543 F.3d 1211, 1220 (10th Cir. 2008) (conditions of participation
“are enforced through administrative mechanisms”).
6
(...continued)
tive enforcement powers in exchange for this newfound and robust theory
of FCA liability. The Eighth Circuit has observed that, under these
circumstances, “[i]t would be curious to read the FCA, a statute intended to
protect the government’s fiscal interests, to undermine the government’s
own regulatory procedures.” Vigil, 639 F.3d at 799. We agree.
7
The FCA doctrine of implied false certification “treats a bill submitted to
the government as an implicit assurance that the bill is a lawful claim for
payment, an assurance that’s false if the firm submitting the bill knows that
it’s not entitled to payment.” U.S. ex. rel. Grenadyor v. Ukrainian Village
Pharmacy, Inc., 772 F.3d 1102, 1106 (7th Cir. 2014). As Grenadyor notes, before
today this doctrine was “unsettled” in this circuit. Id. (citing Momence, 764
F.3d at 711 and n.13).
28 No. 14‐2506
Lest there be any doubt about the U.S. Department of
Education’s ability to enforce the PPA through administrative
mechanisms here, its regulations are clear that at all times it
possessed the authority up to and including the power to
terminate SBC from its subsidy program. See 34 C.F.R.
§§ 600.41(a)(1); 668.86; Conner, 543 F.3d at 1220 (observing that
“the ultimate sanction for violation of such conditions is
removal from the government program”). However, in this
case, the subsidizing agency—as well as other federal
agencies—have already examined SBC multiple times over and
concluded that neither administrative penalties nor termina‐
tion was warranted. See Appellees’ Br. 9.
In sum, “PPA” is an abbreviation for Program Participation
Agreement—not Program Payment Agreement. When entered
in good faith, a PPA memorializes conditions of participation
(not conditions of payment) in connection with the U.S.
Department of Education’s subsidies program. In this case, the
agency’s regulations have at all times provided—and continue
to provide—a governmental enforcement mechanism in the
form of an administrative proceeding before the subsidizing
agency, whereby any evidence of violations of conditions of
participation may be considered and adjudicated. Accordingly,
we reject Nelson’s False Presentment theory.
V. SBC’s Motion to Seal and Return
Finally, we must address SBC’s outstanding motion before
this court to seal and return to the district court several
documents in the appellate record. Material in the appellate
record is presumptively public. See Baxter Int’l, Inc. v. Abbott
Labs., 297 F.3d 544, 545–46 (7th Cir. 2002). We recognize only
No. 14‐2506 29
three classes of material subject to seal: trade secrets, informa‐
tion covered by a recognized privilege, and information
required by statute to be maintained in confidence. Id. at 546.
If the material in question falls into one of these three catego‐
ries, then the two competing interests to be weighed by the
court are the moving party’s interest in privacy and the
public’s interest in transparency. Goesel v. Boley Intern. (H.K.)
Ltd., 738 F.3d 831, 833 (7th Cir. 2013). Our reasoning in Baxter
and Goesel (and the general principles underlying qui tam
policy) inform the conclusion that the public’s interest in the
judicial record is especially acute where—as here—the govern‐
ment has subsidized the good or service underlying the
litigation from the public fisc. Notwithstanding other applica‐
ble laws, a party that is subsidized by the public fisc and that
seeks to seal portions of the record must satisfy a higher
burden than a party that receives no government subsidy must
satisfy in order to achieve the same result. Either way, the
presumption in favor of disclosure can be rebutted. Goesel, 738
F.3d at 833.
The parties agree that SBC’s motion is based on a claim of
trade secrets—they disagree over whether SBC has provided
sufficient detail about its claims to warrant continued relief.
SBC asserts that Doc. 66 contains one exhibit, consisting of an
internal memorandum setting forth and explaining changes to
SBC’s internal grading policy; that Doc. 67 contains four
exhibits, including copies of SBC’s annual bonus plans and
other bonus‐related documents; and that Doc. 82 contains
twenty‐five exhibits related to the internal operations of SBC.
In short, SBC argues that because these documents discuss the
reasons and strategies behind its decision to alter the grading
30 No. 14‐2506
scale, its decision‐making process relating to how it compen‐
sates its employees, and addresses other aspects of internal
operations, then this information constitutes trade secrets in
the field of for‐profit higher education, and therefore is entitled
to be sealed.
Nelson grounds his counterargument in a single
authority—Baxter—for the proposition that SBC has not
provided enough detail to support its claim that the documents
are protected as trade secrets to overcome the presumption of
openness. 297 F.3d at 547. So we must now decide whether
SBC has described the documents it wishes to remain under
seal in sufficient detail to pass muster under Baxter.
In Baxter, a motions panel rejected a joint motion to seal
commercial documents due to the motion’s perfunctory nature.
297 F.3d at 546. The parties then filed a renewed joint motion
alleging that the parties’ agreement justified sealing the
documents. Id. We rejected it, too, explaining that we would
not seal documents in the appellate record simply because the
parties had agreed to do so among themselves because that
practice deprives the public of material information about the
judicial process. Id. at 547–48. We recently reaffirmed this
rationale in Goesel, 738 F.3d at 835 (confidentiality agreement
alone was insufficient to grant parties’ motion to seal settle‐
ment agreement). Notwithstanding the pre‐Baxter confusion
surrounding motions to seal, it concludes with clear instruc‐
tions:
the court will, in the future deny outright any
motion under Operating Procedure 10 that does
not analyze in detail, document by document,
No. 14‐2506 31
the propriety of secrecy, providing reasons and
citations. Motions that represent serious efforts
to apply the governing rules will be entertained
favorably...[while m]otions that simply assert a
conclusion without the required
reasoning...[will] have no prospect of success.
Baxter, 297 F.3d at 548.
SBC’s motion concerning the four exhibits associated with
Documents 66 and 67 sets forth the specific contents of the
documents associated with each, explains why those docu‐
ments entail proprietary trade secrets, and provides justifica‐
tion for why they should remain sealed. Accordingly, SBC has
satisfied its high burden, and we order that those documents
remain sealed.
However, we need not decide whether Baxter requires us to
unseal the twenty‐five exhibits connected to Doc. 82 because
these documents were sealed in the district court as the
consequence of a motion for leave to file under seal filed by
Nelson. See Doc. 78. That Nelson now seeks to unseal docu‐
ments that the district court sealed on his motion is noteworthy
because “[b]y asking for the very condition the court subse‐
quently imposed, [Nelson] waived any argument against it.”
United States v. Cary, 775 F.3d 919, 927 (7th Cir. 2015) (applying
waiver where defendant sought mental health treatment in the
district court and then contested the imposition of that request
on appeal).
SBC’s motion also seeks to return to the district court, or, in
the alternative, to seal, district court docket entries 58, 105, and
106, which consist of confidential settlement reports that the
32 No. 14‐2506
district court required the parties to file so it could monitor the
progress of the parties’ settlement negotiations. Nelson asserts
in his response that he does not oppose SBC’s request. We have
in the past ordered documents returned to the district court in
order to prevent unwarranted disclosure of commercially
sensitive information. Baxter, 297 F.3d at 548. None of the
district court’s orders that are the subject of this appeal makes
mention of, let alone relies on, any of the documents at issue in
SBC’s motion, and “returning documents to the district court
is appropriate when they are not among the materials that
formed the basis of the parties’ dispute and the district court’s
resolution.” KM Enters., Inc., v. Global Traffic Techs., Inc., 725
F.3d 718, 734 (7th Cir. 2013) (citation omitted). Because SBC’s
request is reasonable, narrow, specific, and justified, we will
grant it. The clerk is directed to return the documents compris‐
ing district court docket entries 58, 105, and 106 to the cham‐
bers of Judge Stadtmueller.
VI. Conclusion
The district court did not err by holding that its subject
matter jurisdiction was limited to the period of time when
Nelson was employed by SBC. Nor did the district court err by
dismissing Nelson’s first amended complaint against CEC for
failure to comply with Fed R. Civ. P. 9(b). Because Nelson did
not file his motion for leave to file a second amended com‐
plaint in a diligent manner, the district court did not abuse its
discretion by denying it. On the merits, FCA liability is not
triggered by an institution’s failure to comply with Title IV
Restrictions subsequent to its entry into a PPA, unless the
relator proves that the institution’s application to establish
initial Title IV eligibility was fraudulent. Under the FCA,
No. 14‐2506 33
evidence that an institution has violated conditions of partici‐
pation after good‐faith entry into a PPA is for agencies, not
courts, to evaluate and adjudicate. For these reasons, the
district court’s grant of summary judgment in favor of the
defendants is AFFIRMED. The clerk is directed to keep the
documents comprised of district court docket entries 58, 105,
and 106 sealed, and to return them to the chambers of Judge
Stadtmueller.