NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 10-3907
_____________
UNITED STATES OF AMERICA, ex rel.
MARY BETH PILECKI-SIMKO and TOM GIUNTA,
Appellants
v.
THE CHUBB INSTITUTE; THE CHUBB CORPORATION; CHUBB AMERICA
SERVICE CORPORATION and HIGH-TECH INSTITUTE, INC.
______________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civ. Action No. 2-06-CV-03562)
District Judge: Honorable Garrett E. Brown, Jr.
______________
Argued June 21, 2011
Before: CHAGARES, JORDAN, and GREENAWAY, JR., Circuit Judges
(Opinion Filed: September 6, 2011)
______________
Timothy J. Matusheski, Esq. (Argued)
Gary S. Graifman, Esq.
Kantrowitz, Goldhamer & Graifman, P.C.
747 Chestnut Ridge Road, Suite 200
Chestnut Ridge, NY 10977
Michael S. Green, Esq.
Green & Associates, LLC
522 Route 18
P.O. Box 428
East Brunswick, NJ 08816
Attorneys for Appellants
Thomas Hylden, Esq. (Argued)
Larry S. Gondelman, Esq.
Powers, Pyles, Sutter & Verville, P.C.
1501 M Street, N.W.
Seventh Floor
Washington, DC 20005
Eric A. Savage, Esq.
Littler Mendelson, Esq.
One Gateway Center
Eighth Floor
Newark, NJ 07102
Attorneys for Appellees The Chubb Institute and High-Tech Institute
Michael R. McDonald, Esq. (Argued)
Christine A. Amalfe, Esq.
Megan Frese Porio, Esq.
Gibbons P.C.
One Gateway Center
Newark, NJ 07102
Attorneys for Appellee The Chubb Corporation
______________
OPINION
______________
GREENAWAY, JR., Circuit Judge
Plaintiffs Mary Beth Pilecki-Simko and Tom Guinta (“Appellants”) filed a qui tam
action against The Chubb Institute (“TCI”), The Chubb Corporation (“TCC”), Chubb
2
America Service Corp.,1 and High-Tech Institute, Inc. (“HTI”), pursuant to the False
Claims Act (“FCA”),2 31 U.S.C. § 3729 et seq.3 Appellants alleged that TCI knowingly
caused false claims to be presented to the Government and made or used false statements
to get false claims paid by the Government. These claims are rooted in Appellants‟
allegation that TCI made misrepresentations to the Department of Education (“DOE”)
that wrongfully enabled it to secure student financial aid in the form of loans and grants
from the federal government. They also sought liability for this conduct against TCI‟s
relevant corporate parents, HTI and TCC, on the basis of their alleged control of TCI‟s
actions.
Appellants appeal the District Court‟s denial of their Motion for Reconsideration
of the Court‟s denial of leave to amend their complaint and the order dismissing, with
prejudice, their second amended complaint (“SAC”). For the reasons discussed below,
we will affirm the orders of the District Court. Additionally, we will grant Appellee
1
Chubb America Service Corporation was listed as a defendant in the case below. It
does not appear that the entity was ever served below or that counsel entered an
appearance for that entity. No appearance was entered on behalf of that entity on this
appeal.
2
“The FCA allows a private citizen, called a relator, to bring an action in the name of the
United States, and the government may intervene if it so chooses. . . . The FCA permits
the relator to bring the action in the absence of the government‟s intervention.” U.S. ex
rel. Quinn v. Omnicare Inc., 382 F.3d 432, 436 n.7 (3d Cir. 2004). As in Quinn, the
government declined to intervene in this case.
3
The FCA reaches “all fraudulent attempts to cause the Government to pay out sums of
money.” Quinn, 382 F.3d at 438 (internal quotation marks omitted) (quoting Harrison v.
Westinghouse Savannah River, 176 F.3d 776, 788 (4th Cir. 1999)).
3
TCC‟s Motion for Damages and Costs, pursuant to Federal Rule of Appellate Procedure
38.
I. BACKGROUND
We write primarily for the parties and recount only the essential facts.
This matter is a qui tam action brought by Appellants against their former
employer, TCI. The FCA prohibits, in relevant part: 4
(1) knowingly present[ing], or caus[ing] to be presented, to an officer or
employee of the United States Government . . . a false or fraudulent claim
for payment or approval;
(2) knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false
record or statement to get a false or fraudulent claim paid or approved by
the Government;
31 U.S.C. § 3729(a)(1)-(2). (West 2003 & Supp. 2008). In their claim, Appellants allege
that Appellees, with knowledge of their falsity, presented or caused to be presented to the
United States Government claims, and caused payments for the claims to be made by the
4
The Fraud Enforcement and Recovery Act of 2009 (“FERA”), Pub. L. No. 111-21, § 4,
123 Stat. 1616 (2009) modified the FCA; it now imposes liability on
[A]ny person who—
(A) knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval;
(B) 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). Neither party suggests that the revisions apply to this
case, nor would it appear to materially affect our analysis. For those reasons, we
have cited the pre-amendment subsections, § 3729(a)(1)-(2).
4
Government, pursuant to § 3729(a)(1); and knowingly made, used or caused to be made
or used false records or statements to get a false or fraudulent claim paid by the
Government, pursuant to § 3729(a)(2).5 Appellants allege that TCI knowingly caused
false claims to be filed by making misrepresentations to the DOE, its accrediting
agencies, and students that wrongfully enabled TCI to secure student financial aid
pursuant to Title IV of the Higher Education Act (“HEA”).
“When an educational institution wishes to receive federal subsidies under Title
IV and the [HEA], it must enter into a Program Participation Agreement with the [DOE],
in which it agrees to abide by a panoply of statutory, regulatory, and contractual
requirements.” U.S. ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1168 (9th Cir.
2006). Appellants claim that TCI knowingly violated Title IV requirements by falsely
certifying compliance with the Program Participation Agreement (PPA)6 and knowingly
continuing to submit students‟ applications for financial aid, which included certifications
that the students were eligible for Title IV financial aid, although TCI was allegedly in
5
Appellants also alleged a) that Appellees were liable for conspiring to defraud the
government under § 3729(a)(3); b) that TCC, Chubb America Services Corporation, and
HTI were liable under a corporate veil-piercing theory; and c) that HTI was liable under a
successor liability theory. Because Appellants do not raise these issues on appeal, the
issues are waived.
6
Specifically, in their SAC, Appellants claims that one of the “terms and conditions” of
the PPA that Chubb submits to the DOE in order to be eligible to receive Title IV funds is
the incentive compensation ban. In the PPA, the educational institution certifies that “it
will not provide . . . any commission, bonus or other incentive payment based directly or
indirectly on success in securing enrollments . . .” (App. at 107, SAC ¶76.)
5
violation of the incentive compensation ban contained within the PPA.7
Appellees moved to dismiss Appellants‟ SAC for failure to state a claim, pursuant
to Federal Rule of Civil Procedure 12(b)(6) and failure to satisfy the pleading
requirements of Federal Rule of Civil Procedure 9(b). The District Court granted the
motions. The District Court analyzed Appellants‟ claims under the implied false
certification theory, which is premised “on the notion that the act of submitting a claim
for reimbursement itself implies compliance with governing federal rules that are a
precondition to payment.” U.S. ex rel. Willis v. United Health Grp., Inc., No. 10-2747, --
-F.3d ----, 2011 WL 2573380, at *7 (3d Cir. June 30, 2011) (citation and internal
quotation marks omitted).8 The District Court found that Appellants‟ allegations of
Appellees‟ misconduct failed to plead a FCA claim with particularity under Rule 9(b),
which governs pleading for special matters, including fraud. Alternatively, the District
7
Appellants alleged other violations on TCI‟s part including permitting ineligible
students to apply for Title IV financial aid, false certification of satisfactory progress of
students, and misrepresentations regarding employment placement. These violations
were not raised on appeal; we need not address them now.
8
Since the District Court‟s ruling, our Court has recognized the application of the
implied false certification theory of an FCA claim in the Medicare context. See Willis, --
-F.3d ----, 2011 WL 2573380, at *7. In that case, we also clarified that under the express
false certification theory, “an entity is liable under the FCA for falsely certifying that it is
in compliance with regulations which are prerequisites to Government payment in
connection with the claim for payment of federal funds,” and under an implied false
certification theory, liability attaches “when a claimant seeks and makes a claim for
payment from the Government without disclosing that it violated regulations that affected
its eligibility for payment.” Id.
6
Court also found that TCI‟s salary compensation policy fell within the FCA‟s safe
harbor; thus, saving TCI from liability.
Additionally, the Court found insufficient support in Appellants‟ pleading for their
corporate liability and veil-piercing claims against TCC and HTI. The District Court
dismissed the SAC, without prejudice, and permitted Appellants to explain why they
should be given a third opportunity to amend, ordering Appellants to show cause why the
SAC should not be dismissed with prejudice.
Appellants responded to the Order to Show Cause with two allegations--that TCI
(1) falsely certified compliance with the incentive compensation ban imposed by Title
IV‟s incentive compensation ban and (2) misrepresented employment placement
statistics. The District Court found that Appellants‟ submissions did not cure their
previous pleading deficiencies and determined that further amendment would be futile.
The Court dismissed the SAC with prejudice.9
Appellants then moved for reconsideration of the District Court‟s dismissal with
prejudice to the extent that it dismissed Appellants‟ claim that TCI falsely certified
compliance with Title IV‟s incentive compensation ban. For the first time, Appellants
argued that (1) the safeharbor is an affirmative defense not appropriately raised in a
motion to dismiss; (2) the safeharbor regulation had only been in effect since 2003 and
9
The District Court‟s May 17 Order conditioned dismissal of the SAC upon the
Government‟s consent, pursuant to 31 U.S.C. § 3730. The Government filed a
supplemental statement of interest on June 14, 2010 stating that its consent is not required
for that type of involuntary dismissal. This is not an issue on appeal.
7
therefore did not apply to allegations about TCI‟s conduct prior to that time; and (3) the
safe harbor did not cover appropriations such as gifts and offers of trips to its top
admissions officers.
The District Court denied Appellants‟ Motion for Reconsideration, finding that it
was procedurally improper and Appellants had not demonstrated a clear error of law
resulting in manifest injustice. Appellants timely appealed and now challenge the
District Court‟s dismissal of their claims and its denial of the request for leave to
amend.10 Also before us is TCC‟s Motion for Costs and Fees, filed pursuant to Federal
Rule of Appellate Procedure 38.11
II. ANALYSIS
A. Motion to Dismiss
Appellants initially claim that the District Court erred because it applied the
heightened pleadings standard of Rule 9(b), reserved for claims of fraud, to their
10
Appellants‟ Notice of Appeal states that they appeal the District Court‟s Order denying
their Motion for Reconsideration. Federal Rule of Appellate Procedure 3(c) provides that
a notice of appeal must “designate the judgment, order or part thereof being appealed.”
FED. R. APP. P. 3(c)(1)(B). We liberally construe Rule 3(c)‟s requirements. See Pacitti v.
Macy‟s, 193 F.3d 766, 776 (3d Cir. 1999); Drinkwater v. Union Carbide Corp., 904 F.2d
853, 858 (3d Cir. 1990). We have reviewed orders not specified in the notice of appeal
where: “(1) there is a connection between the specified and unspecified order, (2) the
intention to appeal the unspecified order is apparent, and (3) the opposing party is not
prejudiced and has a full opportunity to brief the issues.” Pacitti, 193 F.3d at 777 (citing
Polonski v. Trump Taj Mahal Assocs., 137 F.3d 139, 144 (3d Cir. 1998)). Therefore, we
will consider the District Court‟s dismissal with prejudice of Appellants‟ SAC.
11
The District Court had subject matter jurisdiction, pursuant to 31 U.S.C. § 3732(a) and
28 U.S.C. § 1331. We have jurisdiction, pursuant to 28 U.S.C. § 1291.
8
complaint, which they assert does not make allegations of fraud or mistake. Even if their
complaint did not make such allegations, which is itself an implausible argument,
Appellants failed to raise this argument before the District Court and offer no explanation
for that failure. Therefore, it is waived and we will not address it. See In re DVI, Inc.
Sec. Litig., 639 F.3d 623, 643 n.30 (3d Cir. 2011) (citing Srein v. Frankford Trust Co.,
323 F.3d 214, 224 n.8 (3d Cir. 2003) (“we will not consider issues that are raised for the
first time on appeal absent compelling reasons”) (internal quotation marks omitted)).12
Appellants next argue that even if Rule 9(b) applies to their FCA claim, the
District Court misapplied the rule because it required Appellants to plead knowledge at a
level reserved for private securities fraud cases, requiring Appellants to allege more facts
about Appellees‟ scienter than it should have. 13
We exercise plenary review of the District Court‟s grant of a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which
12
We also noted in Willis that we have previously held that plaintiffs must plead FCA
claims with particularity in accordance with Rule 9(b). ---F.3d ----, 2011 WL 2573380,
at *10 n.9 (citing U.S. ex rel. LaCorte v. SmithKline Beecham Clinical Labs., 149 F.3d
227, 234 (3d Cir. 1998)).
13
In their Motion for Reconsideration, and on appeal, Appellants only raise the claim of
TCI‟s alleged violation of the incentive compensation plan. Thus, arguments relating to
other grounds for liability in their SAC are waived.
9
relief can be granted. See Santiago v. Warminster Twp., 629 F.3d 121, 128 (3d Cir.
2010).14
We have held that a prima facie claim under the FCA requires a plaintiff to show
that “(1) the defendant presented or caused to be presented to an agent of the United
States a claim for payment; (2) the claim was false or fraudulent; and (3) the defendant
knew the claim was false or fraudulent.” Willis, ---F.3d ----, 2011 WL 2573380, at *6
(quoting U.S. ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 242 (3d Cir. 2004)).
The FCA states that the terms “knowing” and “knowingly” --
(A) mean that a person, with respect to information--
(i) has actual knowledge of the information;
(ii) acts in deliberate ignorance of the truth or falsity of the information; or
(iii) acts in reckless disregard of the truth or falsity of the information; and
(B) require no proof of specific intent to defraud;
31 U.S.C. § 3729(b)(1).
Our Court has not yet analyzed the knowledge pleading requirement under Rule
9(b) for an FCA claim of this nature; however, we need not resolve the question of
whether Appellants sufficiently pled an FCA claim under Rule 9(b) because Appellants
fail to state a plausible claim for relief under the more lenient standards of Rule 8. See
Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (“To survive a motion to dismiss, a
14
This is the same standard of review pertaining to a dismissal under Rule 9(b) for failure
to satisfy the pleading with particularity requirement. Frederico v. Home Depot, 507
F.3d 188 (3d Cir. 2007).
10
complaint must contain sufficient factual matter, accepted as true, to state a claim to relief
that is plausible on its face.” (quotation and citation omitted)). “Rule 9 does not give [a
plaintiff] license to evade the less rigid-though still operative-strictures of Rule 8 . . .
[a]nd Rule 8 does not empower respondent to plead the bare elements of his cause of
action, affix the label „general allegation,‟ and expect his complaint to survive a motion
to dismiss.” Id. at 1954; see also Cafasso ex rel. v. Gen. Dynamics C4 Sys., Inc., 637
F.3d 1047, 1055 (9th Cir. 2011) (explicitly recognizing that Iqbal‟s plausibility
requirement applies to FCA claims subject to Rule 9(b) because they must comply with
Rule 8(a), which requires the pleading of a plausible claim under Iqbal).
When reviewing a motion to dismiss, we construe the complaint “in the light most
favorable to the plaintiff.” In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d
Cir. 2010) (internal quotation marks omitted) (quoting Gelman v. State Farm Mut. Auto.
Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009). A motion to dismiss, pursuant to the
plausibility standard, should be granted if the plaintiff is unable to plead “enough facts to
state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007).15 A complaint satisfies the plausibility standard when the factual
pleadings “allow[] the court to draw the reasonable inference that the defendant is liable
15
In their January 27, 2011 appellate brief, Appellants cite to the rule articulated prior to
Iqbal and Twombly: that “the [c]ourt should not dismiss a complaint under Rule 12(b)(6)
unless it appears beyond doubt that plaintiff can prove no set of facts in support of his
claims which would entitle him to relief.” (Appellant‟s Br. at 16 (quoting Schmidt, 386
F.3d at 240).) The Supreme Court rejected this standard. See Twombly, 550 U.S. at 561-
63.
11
for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556).
This standard requires that plaintiff allege “more than a sheer possibility that a defendant
has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556.) “[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.”
Twombly, 550 U.S. at 555 (citation omitted) (alteration in Twombly).
To determine the sufficiency of a complaint under Twombly and Iqbal, we must
“tak[e] note of the elements a plaintiff must plead to state a claim,” identify allegations
that, “because they are no more than conclusions, are not entitled to the assumption of
truth,” and finally, “where there are well-pleaded factual allegations, a court should
assume their veracity and then determine whether they plausibly give rise to an
entitlement for relief.” Santiago, 629 F.3d at 130 (citing Iqbal, 129 S.Ct. at 1947, 1950)
(internal quotation marks omitted); see also Great Western Mining & Min. Co. v. Fox
Rothschild LLP, 615 F.3d 159, 177 (3d Cir. 2010).16
In this case, Appellants claim that they sufficiently pled knowledge for FCA
liability because they alleged that TCI (1) violated the incentive compensation ban; and
16
Iqbal describes the process as a “two-pronged approach” but the Supreme Court took
note of the elements a plaintiff must plead to state a claim before proceeding to its two-
step approach. In Santiago, this Circuit deemed the process a three-step approach. 629
F.3d at 130.
12
(2) signed the PPA stating compliance with the ban.17 Appellants claimed at oral
argument that paragraphs 73-79 of their SAC contained their allegations of facts
supporting Appellees‟ knowledge. These paragraphs include a description of “Chubb‟s”
alleged violation of the incentive compensation ban through its “Admission
Compensation Plan” and ranking of counselors based on their enrollment numbers (¶ 73);
that Admission Representatives are graded with “scorecards” earning points for their
percentage of enrollments (¶ 74); that the top ranking counselors are among the highest
paid, receiving the highest salary as well as trips, awards, and gifts based on their
enrollment numbers (¶ 75); a description of the PPA conditions (¶ 76); and a description
of the student applications submitted by Chubb containing certification of eligibility
under Title IV. (¶ 78.)
However, the facts alleged therein, or anywhere else in the SAC, do not state a
plausible claim to relief that TCI knew that its claims were false or fraudulent, an element
17
Appellants contend that under Rule 9(b), they were permitted to plead knowledge
“generally.” Rule 9(b) states that “[i]n 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). “‟[G]enerally‟,” as stated in Rule 9(b), “is a relative term.” Iqbal, 129 S.Ct.
1937, 1954 (2009). In that context, “[generally] is to be compared to the particularity
requirement applicable to fraud or mistake.” Subsequently, “Rule 9 merely excuses a
party from pleading discriminatory intent under an elevated pleading standard. It does
not give him license to evade the less rigid-though still operative-strictures of Rule 8.”
Id.
13
of Appellants‟ FCA claims. 18 Instead, they contain conclusory allegations that “Chubb
knows that this claim . . . is false because Chubb knows its students are not eligible under
the Title IV program due to Chubb‟s violations of the HEA incentive compensation ban”
and is “ineligible for those funds because of its intentional violations of the HEA funding
statute.” It adds that “Chubb also knowingly uses the false records or statements
provided to the [DOE]” in their PPA that certifies compliance. (App. at 108, ¶¶ 78-79.)
These are not sufficient facts to state a plausible claim to relief as they do not
allow us to “draw the reasonable inference” that TCI was liable for the misconduct
alleged, which required knowledge that the claims were false. See Iqbal, 129 S.Ct. at
1949. Further, Appellants‟ submissions in their response to the Court‟s Order to Show
Cause, which failed to include a proposed third amended complaint (an omission that we
18
The Ninth Circuit‟s decision in Hendow, which reviewed an allegation of a false
certification claim under the FCA through violation of the Title IV incentive
compensation ban, also suggests that Appellants‟ knowledge pleading is deficient. There,
although that court reversed the district court‟s 12(b)(6) dismissal of the relators‟
complaint and articulated the essential elements of a FCA claim under a false
certification theory slightly differently than we have—(1) a false statement or fraudulent
course of conduct, (2) made with scienter, (3) that was material, causing (4) the
government to pay out money or forfeit moneys due—it found that relators properly
alleged scienter.
The relators there “allege[d] that University staff openly bragged about
perpetrating a fraud, that the University had an established infrastructure to deceive the
government, and that the University repeatedly changed its policies to hide its fraud.”
Hendow, 461 F.3d at 1175. They further “allege[d] that the University provided
statements to the government that were intentional, palpable lie[s], made with knowledge
of the falsity and with intent to deceive.” Id. (internal citations and quotation marks
omitted). In allaying relators‟ concerns about broadening liability for regulatory
violations, the court noted that “innocent or unintentional violations do not lead to False
Claims Act liability.” Id.
14
have held “is fatal to a request for leave to amend,” Fletcher-Harlee Corp. v. Pote
Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir. 2007)), did not remedy this
obvious pleading deficiency. The submissions relevant to Appellants‟ arguments on
appeal include declarations from Appellants explaining the nature of TCI‟s incentive
compensation plan, rather than asserting facts which allow an inference that their
knowledge pleading is plausible.
Appellants‟ SAC does not state facts supporting a reasonable inference that TCI
knew, acted in reckless disregard, or deliberately ignored that its submissions were false
due to their alleged violation of the incentive compensation ban, and therefore did not
survive Appellees‟ motion to dismiss under Rule 12(b)(6). Cf. U.S. ex rel. Lemmon v.
Envirocare of Utah, Inc., 614 F.3d 1163, 1169 (10th Cir. 2010) (finding that relators‟
complaint contained sufficient factual allegations to support their implied false
certification claims where they documented, among other things, the alleged violations
and how defendant government contractor was aware of the violations, “listing specific
instances in which Plaintiffs documented and/or informed their superiors of the
violations.”)
Here, Appellants do not allege similar facts, such as how Appellees documented,
or were aware or informed of the violations, that would support a plausible claim that
they knowingly submitted false claims. Because we resolve the dismissal on this ground,
15
we need not make a determination with respect to the District Court‟s allegedly
heightened knowledge standard.19
B. Denial of Leave to Amend and Motion to Reconsider
“We review a denial of a motion for reconsideration for abuse of discretion, but
we review the District Court‟s underlying legal determinations de novo and factual
determinations for clear error.” Howard Hess Dental Labs. Inc. v. Dentsply Intern., Inc.,
602 F.3d 237, 245 (3d Cir. 2010) (citing Max‟s Seafood Café v. Quinteros, 176 F.3d 669,
673 (3d Cir. 1999)) (internal quotation marks omitted).20
The purpose of such a motion is to correct a clear error of law or to prevent a
manifest injustice in the District Court‟s original ruling. Id. at 677. Such motions “are
19
Appellants also claim that the District Court erred in ruling that only the implied
certification theory applied to Appellants‟ claims against “Chubb” under the FCA, and
that, in fact, under § 3729(a)(2), “Chubb caused [false statements] to be made by the
Chubb institutions to the government and accrediting agencies that Chubb did not employ
a compensation scheme wherein it compensated employees based directly or indirectly
upon those employees‟ success in securing enrollments at a Chubb institution.”
(Appellant‟s Br. at 21.)
Presumably, Appellants reference to “Chubb” causing claims to be filed is to TCC
or HTI. They claim that the District Court committed “reversible error” by ruling that
only the implied certification theory applied to Appellants‟ claims against Chubb under
the FCA, or just under § 3729(a) subsection one of the FCA, instead of recognizing that §
3729 (a) subsection two also applied under the express certification theory. (Id.)
Although they cite no Third Circuit or other authority for this argument, we need not
consider this argument as (1) it appears to have been raised for the first time on appeal;
and (2) Appellants still would not state a claim under either § 3729(a)(1) or (2), as both
require knowledge on the part of the party accused of fraud.
20
We also review a denial of leave to amend for abuse of discretion. See Travelers
Indem. Co. v. Dammann & Co., 594 F.3d 238, 243 n.3 (3d Cir. 2010).
16
granted for compelling reasons, such as a change in the law which reveals that an earlier
ruling was erroneous, not for addressing arguments that a party should have raised
earlier.” United States v. Dupree, 617 F.3d 724, 732 (3d Cir. 2010) (citation and internal
quotation marks omitted).
Appellants moved the District Court to reconsider its denial of leave to amend
their SAC. However, the only specific arguments Appellants raise in their appeal, which
does not discuss the standard of review for denial of leave to amend or denial of
reconsideration, are unavailing, either because they were waived or otherwise have no
impact on our alternate ground for dismissal.21
Appellants have not shown that the District Court abused its discretion in denying
their Motion to Reconsider. The District Court, in its discretion, rejected Appellants‟
arguments about the safeharbor provision because they were untimely and Appellants
21
Appellants‟ motion focused on the District Court‟s alternate ground for dismissal—that
Appellees‟ incentive compensation plan was saved by the safe harbor within Title IV, and
therefore, they could not have the requisite intent to violate the ban. Specifically,
Appellants argued that: (1) the safeharbor is an affirmative defense not appropriately
raised in a motion to dismiss; (2) the safeharbor regulation has only been in effect since
2003 and therefore did not encompass TCI‟s conduct before that date; and (3)
appropriations such as gifts and “President‟s Club” trips to its top admissions
representatives were not subject to the safeharbor.
The District Court rejected Appellants‟ arguments, finding first that the motion
was procedurally improper for seeking to reargue matters previously argued before the
Court and raising new arguments not presented in response to either the original motion
to dismiss or Order to Show Cause. “These defects, alone, warrant denial of Relators‟
motion.” (App. at 53.) Furthermore, none of Appellants‟ arguments about the safe
harbor, repeated on appeal, cure their pleading deficiency to survive a Rule 12(b)(6)
motion to dismiss. Lastly, they do not offer any explanation for their delay in raising
their arguments about the safe harbor.
17
offered no explanation for this delay.
C. TCC‟s Rule 38 Motion for Attorney‟s Fees and Costs
In its dismissal of Appellants‟ SAC, the District Court determined that Appellants
failed to sufficiently plead veil-piercing or successor liability, as alleged against TCC and
HTI. In their appeal, Appellants do not raise the issue of the District Court‟s dismissal of
their claims for imposition of liability on TCC and HTI, nor did they raise this issue
before the District Court in either their attempt to amend their SAC or their Motion for
Reconsideration. However, both of these parties were included in this appeal. Based on
its belief that its inclusion in the appeal was frivolous, TCC moved for attorney‟s fees and
costs. Appellants responded to this motion on April 11, 2011.
“This court employs an objective standard to determine whether or not an appeal
is frivolous” which “focuses on the merits of the appeal regardless of good or bad faith.”
Kerchner v. Obama, 612 F.3d 204, 209 (3d Cir. 2010) (citation and internal quotation
marks omitted). In this case, the appeal—specifically against TCC—is frivolous. Even if
we reversed the District Court‟s decision on any of the arguments that Appellants have
made on appeal regarding the application of Rule 9(b), the sufficiency of Appellants‟
pleading under Rule 9(b), or the application of the safeharbor provision of Title IV, there
is no possibility of reversal on the corporate liability claims. Appellants make no
argument on appeal as to why their corporate liability claims were improperly dismissed.
Further, no argument is advanced about the District Court‟s dismissal of these claims in
their subsequent motions and pleadings before the District Court, including in their
18
Motion for Reconsideration. Additionally, Appellants‟ proposed Third Amended
Complaint, attached to their Motion for Reconsideration, did not name TCC as a
defendant. (App. at 547-67.)
Thus, the appeal against TCC is frivolous and, as TCC argues, “th[e] appeal never
had any possibility of resulting in a reversal of the dismissal of The Chubb Corporation,”
(Appellee TCC‟s Br. at 2). See, e.g., Nagle v. Alspach, 8 F.3d 141, 145 (3d Cir. 1993)
(finding appeal frivolous where appeal “never had any possibility of resulting in a
reversal” because appellants challenged only two of the four conclusions asserted by the
district court to support its summary judgment for defendants and so, even if the court
held for appellants on both asserted allegations of error, two unchallenged bases would
remain and the district court‟s judgment would still be affirmed).
Appellants‟ response to the motion is unavailing. Without addressing the District
Court‟s corporate liability findings, Appellants assert, without any support, that the
standard for a motion for reconsideration “does not necessitate that every claim
previously claimed be appealed in order to obtain a favorable outcome.” (Appellant‟s
Resp. Br. at 7.) In this case, their only claims against TCC were not raised on appeal, and
are therefore waived. See Graden v. Conexant Sys., Inc., 496 F.3d 291, 296 n.7 (3d Cir.
2007) (“Absent compelling circumstances not present here, failing to raise an argument
in one‟s opening brief waives it.”) They have not presented any explanation, let alone a
compelling explanation, for why their claim against TCC is not waived.
Appellants‟ assertion at oral argument that their reference to “Chubb” includes
19
“all the Chubbs,” and they therefore raised these issues in the appeal, is not persuasive, as
they do not actually make any argument about their successor liability or corporate veil
piercing claims that the District Court dismissed in its very first dismissal without
prejudice.22
Appellants also argue that TCC‟s motion is premature since frivolousness of the
appeal had not been decided. Rule 38 provides that “„[i]f a court of appeals determines
that an appeal is frivolous, it may, after a separately filed motion or notice from the court
and reasonable opportunity to respond, award just damages and single or double costs to
the appellee.‟” Kerchner, 612 F.3d at 209 (quoting FED. R. CIV. P. 38). We have
determined that the appeal against TCC was frivolous, TCC filed a separate motion, and
Appellants were given the opportunity to—and did—respond to TCC‟s Motion, as is
required. Appellants present no authority supporting their argument that TCC‟s Motion
was too early.
“The purpose of an award of attorneys‟ fees under Rule 38 is to compensate
appellees who are forced to defend judgments awarded them in the trial court from
appeals that are wholly without merit, and to preserve the appellate court calendar for
cases worthy of consideration.” Huck v. Dawson, 106 F.3d 45, 52 (3d Cir. 1997)
22
Also telling is the District Court‟s statement in its opinion denying reconsideration that
the Court “dismissed Relators‟ veil-piercing and successor liability claims without
prejudice on March 22, 2010, and Relators did not seek leave to amend th[ose] claims in
response to the Court‟s accompanying Order to Show Cause. Accordingly, the Court
dismissed th[ose] claims with prejudice on May 17, 2010.” U.S. ex rel. Pilecki-Simko v.
Chubb Inst., No. 06-3562, 2010 WL 3463307, *1 n.1 ((D.N.J. Aug. 27, 2010) Appellants
offer no meaningful response to this statement or the Court‟s conclusions therein.
20
(citation and internal quotation marks omitted). “Damages [under Rule 38] are awarded
by the court in its discretion . . . as a matter of justice to the appellee.” Beam v. Bauer,
383 F.3d 106, 108 (3d Cir. 2004) (citation and internal quotation marks omitted). An
“important purpose [of a damages award] is to discourage litigants from unnecessarily
wasting their opponents‟ time and resources.” Nagle, 8 F.3d at 145. Because the appeal
against TCC is frivolous and Appellants have not shown cause why just damages and
costs should not be imposed, pursuant to Fed. R. App. P. 38, we will award to TCC, as a
matter of justice, its requested damages and costs.
IV. CONCLUSION
For the foregoing reasons, we will affirm the District Court‟s order denying
reconsideration of its denial of leave to amend Appellants‟ SAC, as well as its dismissal
of Appellants‟ SAC. Additionally, we will grant Appellee TCC‟s Rule 38 Motion for
Damages and Costs. TCC is directed to provide an itemized list of damages, including
attorneys‟ fees associated with responding to this appeal, and a bill of costs, pursuant to
Federal Rules of Appellate Procedure 38 and 39, within 14 days after the entry of the
accompanying judgment in this case.
21