United States District Court, N.D. Georgia, Atlanta Division
UNITED STATES OF AMERICA ex rel. MELISSA SIMMS POWELL, et al., Plaintiffs,
AMERICAN INTERCONTINENTAL UNIVERSITY, INC., et al., Defendants.
RICHARD W. STORY, District Judge.
This case comes before the Court on Defendant American Intercontinental University, Inc.'s Motion for Summary Judgment , Defendant Career Education Corp.'s Motion for Summary Judgment , Relators' Motion for Leave to File Sur-Reply , Defendants' Motion to Exclude Expert Opinions of Daniel Madzelan , Defendants' Motion to Exclude the Opinions and Testimony of Martin Gonzalez , Defendants' Motion to Strike Relators' Disclosure of Non-Retained Experts , and Defendants' Motion to Strike Declarations of Martin Gonzalez and Daniel Madzelan . After reviewing the record, the Court enters the following Order.
This qui tam action under the False Claims Act ("FCA") arises out of Defendants Career Education Corp. ("CEC") and American InterContinental University's ("AIU") alleged false certification to the Government that AIU was properly accredited, which enabled AIU to receive hundreds of millions of dollars in federal funds through student financial aid programs. Relators are former employees of AIU.
I. Overview of Title IV of the Higher Education Act
Congress created federal financial aid programs through Title IV of the Higher Education Act ("HEA") to broaden access to higher education. See Ass'n of Private Sector Colls. & Univs. v. Duncan , 681 F.3d 427, 435 (D.C. Cir. 2012) (providing an overview of Title IV). Every year these programs provide over $150 billion in aid to fourteen million post-secondary students at private for-profit institutions, public institutions, and private nonprofit institutions. Id . To prevent schools from abusing this system, "[w]hen an educational institution wishes to receive federal subsidies under Title IV and the Higher Education Act, it must enter into a Program Participation Agreement with the Department of Education ("DOE"), in which it agrees to abide by a panoply of statutory, regulatory, and contractual requirements." United States ex rel. Hendow v. Univ. of Phoenix , 461 F.3d 1166, 1168 (9th Cir. 2006).
One such requirement is the incentive-compensation ban, under which an institution agrees it "will not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting or admission activities." 20 U.S.C. § 1094(a)(20). "Congress adopted this provision in 1992 based on its concern that schools were creating incentives for recruiters to enroll students who could not graduate or could not find employment after graduating." Ass'n of Private Sector Colls. & Univs. , 681 F.3d at 436.
Additionally, institutions of higher education are required to be accredited in order to qualify for funds under Title IV programs. 20 U.S.C. § 1099c(a); see also id. § 1099b (describing criteria accrediting associations must meet "to be a reliable authority" on accreditation). Therefore, the institution must agree in the program participation agreement that it "will meet the requirements established by the Secretary and accrediting agencies or associations." Id . § 1094(a)(21). The accrediting association that evaluated AIU was the Southern Association of Colleges and Schools ("SACS"), and its requirements are detailed in SACS's Principles of Accreditation. (See generally Principles, Dkt. [340-5].) According to the Principles, "[t]he process for initial and continued accreditation involves a collective analysis and judgment by the institution's internal constituencies, an informed review by peers external to the institution, and a reasoned decision by the elected members of the Commission on Colleges." ( Id. at 7.) To that end, the SACS Commission on Colleges evaluates and makes accreditation decisions based on an institution's compliance with four categories of standards: (1) the "Principle of Integrity, " (2) core requirements, (3) comprehensive standards, and (4) federal requirements. (See id.)
First, the Principle of Integrity reflects SACS's expectation that institutions "make reasonable and responsible decisions consistent with the spirit of integrity in all matters." ( Id. at 10.) Thus, SACS considers conduct such as withholding information, failing to provide timely and accurate information to the Commission, or failing to conduct a candid review of an institution's own compliance with the Principles to evidence "lack of a full commitment to integrity." (Id.) Failure to adhere to this principle may result in losing accreditation. (Id.)
Second, SACS promulgates core requirements, which "are basic, broad-based, foundational requirements that an institution must meet to be accredited with the Commission on Colleges." ( Id. at 11.) The core requirements state, for example, that an accredited institution must have authority to grant degrees; have "a clearly defined, comprehensive, and published mission statement"; have an adequate number of full-time faculty members; and have adequate physical resources to support its mission and its programs. (See id. at 11-13.)
Third, the comprehensive standards include more detailed requirements in the areas of "(1) institutional mission, governance, and effectiveness; (2) programs; (3) resources; and (4) institutional responsibility for Commission policies." ( Id. at 14.) And finally, the fourth section of the Principles states that "institutions are required to document compliance with [DOE statutes and regulations, ] and the Commission is obligated to consider such compliance when the institution is reviewed for initial membership or continued accreditation." ( Id. at 21.)
II. SACS's Investigation of AIU
In December 2004, SACS authorized a Special Committee to investigate various suspected violations of SACS Principles. (See 2005 Action Letter, Dkt. [336-2].) After reviewing AIU's practices, in 2005 the Special Committee issued a comprehensive Report addressing numerous areas where AIU was failing to meet SACS standards. The Committee grouped the violations into ten "functional areas of concern" ranging from admissions and marking to curriculum and grading practices. (2005 Report, Dkt. [336-5] at 3.) One finding was that "admissions personnel [were] pushing aggressively to quickly enroll students, " and while AIU informed the Special Committee that its "admissions staff were not sales people, " the Committee found that "promotions and advancement within the organization for admissions staff were apparently contingent upon meeting or exceeding student recruitment goals." ( Id. at 7-9.) The 2005 Report included four recommendations regarding admissions practices, including "that the University demonstrate that it has established and continuously implemented appropriate quality control policies, standards and practices for its marketing, recruitment, admissions, enrollment, financial aid, and refund processes." ( Id. at 10-11.) Moreover, the 2005 Report expressed concerns "about possible breaches in integrity associated with the handling of grades and changes related thereto, as well as the handling of recruiting and admissions practices." ( Id. at 30.)
Following the December 2005 meeting of the SACS Commission on Colleges, SACS sent AIU an Action Letter informing the school that it was being placed on probation. (2006 Action Letter, Dkt. [337-1] at 8.) The Action Letter explained:
Please note that Federal regulations and Commission policy stipulate that an institution must remedy deficiencies within two years following the Commission's initial action on the institution. At the end of that two-year period, if the institution is not in compliance with the Principles of Accreditation, representatives from the institution may be required to appear before the Commission, or one of its standing committees, to answer questions as to why the institution should not be removed from membership. Please note that an institution's accreditation cannot be extended if it has been on Probation for two successive years. If the institution is not in compliance at the end of two years of Probation, removal from membership is mandatory.
(Id. at 8.)
Relators argue that AIU then falsely represented to SACS in its September 2006 First Monitoring Report that it was taking steps to "demonstrate a significant shift from the aggressive sales-driven admissions and marketing culture that existed at the time of the Special Committee visit in July 2005." (First Monitoring Report, Dkt. [333-1] at 7.) Relators assert that AIU greatly misrepresented its efforts to improve its sales-driven admissions department and instead continued to focus on meeting quotas. (See Relators' Resp., Dkt.  at 22-31.) For example, Relators contend that "AIU lied to SACS regarding its implementation of its most critical change' to its admissions function-the evaluation of admissions advisors. Although AIU purported to implement new advisor scorecards, ' touted to SACS as evidence that AIU was focusing less on enrollments and more on retention of students, in reality, admissions advisors advanced or were fired solely by sales metrics-enrollments and starts." ( Id. at 26.) Relators also cite evidence that AIU hid white boards tracking student enrollments and starts during SACS visits. ( Id. at 28.)
The Special Committee issued another Report in 2006 but again found that AIU was not yet in compliance with many SACS Principles. (See generally 2006 Report, Dkt. [337-5].) Relators allege that AIU continued to hide its sales culture, even removing information about admissions advisors' sales backgrounds from resumes and personnel files. (See Relators' Resp., Dkt.  at 34-35.) Relators additionally point to evidence that throughout 2007 AIU stepped up noncompliant behavior, such as holding competitions among admissions advisors, yet told SACS it had abandoned these practices. (See id. at 40-41.)
In response to being placed on probation, AIU also told SACS that it was implementing questionnaires to gauge prospective students' interest, desire, and motivation ("IDM") in attending AIU. (See First Monitoring Report, Dkt. [333-1] at 56.) The IDM tool was designed to move away from sales-oriented admissions to practices more consistent with students' academic interests. According to testimony of former AIU employees, however, AIU abandoned this practice after SACS's 2007 visit and instead instructed admissions advisors to assume a student's interest while it promoted a false sense of urgency in completing admissions packets. (See Relators' Resp., Dkt.  at 43-45.)
Another key area of noncompliance Relators identify is AIU's disregard for maintaining an adequate number of faculty with terminal degrees in their fields. Specifically, Relators contend that AIU failed to ensure that at least 25% of its faculty had terminal degrees. ( Id. at 46.) The 2005 Special Committee Report identified certain AIU campuses that lacked enough full-time faculty and then recommended that AIU "demonstrate that it has an adequate number of full-time faculty to support the mission of AIU-Los Angeles and AIU-Buckhead campuses, " and "employ competent faculty members qualified to accomplish the mission and goals of the institution on its AIU-Buckhead campus." (2005 Report, Dkt. [336-5] at 17-18.) The following year, the Special Committee similarly addressed the continued need for full-time faculty at the AIU-Los Angeles Campus. (See 2006 Report, Dkt. [337-5] at 28-29.) The two reports did not specifically address the issue of terminal degrees, although the Principles list a set of guidelines concerning faculty credentials in its comprehensive standards section. One guideline reads: "At least 25 percent of the discipline course hours in each undergraduate major are taught by faculty members holding the terminal degree-usually the earned doctorate-in the discipline." ( Principles § 3.7.1(d), Dkt. [333-4] at 30.)
In any event, Relators argue that "AIU played fast and loose with the rules" by "renting [a terminally degreed faculty member] until SACS is done." (Relators' Resp., Dkt.  at 46-47.) However, Relators provide no information about who this faculty member was or what he taught. Relators also point to an e-mail from a faculty member at AIU-Dunwoody to AIU Deans informing them that the faculty roster and course schedule contained "numerous discrepancies, " and so "all our data on [the terminal-degree requirement] is also wrong. This will have to be redone immediately." (Gadberry E-mail, Dkt. [375-6] at 3.) The e-mail also listed the faculty members whose teaching assignments were inconsistent with the course schedule.
Aside from the above alleged violations of SACS's Principles, Relators argue that AIU's conduct also violated SACS's Principle of Integrity. Further, Relators note that by 2007, AIU had been on probation for two years, and so SACS would have revoked AIU's accreditation if SACS had determined it was still not complying with the Principles. Thus, as the 2006 Action Letter warned, failure to comply after two years of probation would automatically result in accreditation being revoked. Relators cite several expert witnesses in arguing that integrity violations would likely have led to AIU's loss of accreditation. (Relators' Resp., Dkt.  at 49.) As Relators argue, "SACS did not know AIU defrauded it, and therefore did not remove AIU's accreditation." (Id.) SACS lifted AIU's probation in December 2007. (2008 Action Letter, Dkt. [340-1].)
Meanwhile, on March 2, 2007, Robert E. Dowdell, the CEO of AIU's parent company, CEC, submitted AIU's Program Participation Agreement ("PPA") to the DOE representing that AIU was in compliance with all DOE and SACS requirements. (See PPA, Dkt. [333-12] at 17.) Consequently, AIU remained eligible to receive funds under Title IV, which Relators contend resulted in fraudulent payments of hundred of millions of dollars from the United States to AIU.
III. Procedural History
Based on the above allegations, Relators brought this qui tam action against AIU and CEC on July 14, 2008, under the False Claims Act. Relators alleged that AIU submitted false claims to the Government because it represented to the DOE that it was complying with Title IV and was accredited, yet in truth it was violating the incentive-compensation ban, failed to verify students' proof of graduation ("POG"), and lied to SACS to falsely retain its accreditation.
On July 12, 2012, the Court granted Defendants' motion to dismiss for lack of subject matter jurisdiction. (See Dkt. ; United States ex rel. Powell v. Am. InterCont'l Univ., Inc., No. 1:08-CV-2277-RWS, 2012 WL 2885356 (N.D.Ga. July 12, 2012).) As discussed more extensively in the Discussion, infra Part II.B.2, the Court found that Relators' claims pertaining to the incentive-compensation ban and POG requirements were barred by the first-to-file rule because they were related to claims raised in previous qui tam suits. Still, the Court permitted Relators to proceed on their SACS accreditation claim. Defendants now move for summary judgment on that claim. Before turning to the merits of the case, the Court addresses Defendants' motions to exclude the opinions of Relators' experts.
I. Motions to Exclude Expert Opinions
A. Legal Standard
Federal Rule of Evidence 702 governs the admissibility of proposed expert evidence:
If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.
The trial court, as the gate-keeper, must determine that the testimony is "sufficiently tied to the facts of the case that it will aid the jury in resolving a factual dispute." Daubert v. Merrell Dow Pharm. , 509 U.S. 579, 591 (1993) (quoting United States v. Downing , 753 F.2d 1224, 1242 (3d Cir. 1985)). The trial court must also "make certain that an expert... employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho Tire Co. Ltd. v. Carmichel , 526 U.S. 137, 152 (1999). The Eleventh Circuit has synthesized the existing rules into a three-part inquiry, instructing courts to consider whether: (1) the expert is qualified to testify competently regarding the matters he intends to address; (2) the methodology by which the expert reaches his conclusions is sufficiently reliable as determined by the sort of inquiry mandated in Daubert; and (3) the testimony assists the trier of fact, through the application of scientific, technical, or specialized expertise, to understand the evidence or to determine a fact in issue. City of Tuscaloosa v. Harcros Chemicals, Inc. , 158 F.3d 548, 562 (11th Cir. 1998), reh'g and reh'g en banc denied, 172 F.3d 884 (1999). It is important to note that "expert testimony that does not meet all or most of the Daubert factors may sometimes be admissible." U.S. v. Brown , 415 F.3d 1257, 1268 (11th Cir. 2005). "For nonscientific expert testimony, the trial judge must have considerable leeway in deciding in a particular case how to go about determining whether particular expert testimony is reliable.' A district court may decide that nonscientific expert testimony is reliable based upon personal knowledge or experience.'" Am. Gen. Life Ins. Co. v. Schoenthal Family, LLC , 555 F.3d 1331, 1338 (11th Cir. 2009) (quoting Kumho Tire Co. , 526 U.S. at 150, 152).
B. Defendants' Motions to Exclude Expert Opinions of Daniel Madzelan and Martin Gonzalez, and Motion to Strike Declarations of Martin Gonzalez and Daniel Madzelan
Defendants challenge Relators' experts on numerous grounds, including that neither expert is qualified under the principles set forth in Daubert, and that the opinions are otherwise inadmissible under Federal Rules of Evidence 403, 702, and 703. First, as a general matter, the Court finds that Dr. Gonzalez and Mr. Madzelan are qualified experts under Daubert. To determine if an expert can testify competently on the matters he intends to address, the Court is required "to examine the credentials of the proposed expert in light of the subject matter of the proposed testimony." Jack v. Glaxo Wellcome, Inc. , 239 F.Supp.2d 1308, 1314 (N.D.Ga. 2002).
Dr. Martin Gonzalez intends to testify about SACS standards, including specific requirements in the Principles. He also opines that AIU was in violation of the Principles, and that if SACS had known the extent of AIU's violations, SACS would have revoked AIU's accreditation. (See generally Gonzalez Report, Dkt. [397-1].) Dr. Gonzalez has held various academic administrative positions, including as a department head, dean, campus provost, and vice president of academic affairs. While serving as vice president of academic affairs at Pensacola State College ("PSC"), a college with over 30, 000 students, 200 full-time faculty, 600 adjunct faculty, and four campuses, Dr. Gonzalez was responsible for ensuring that PSC met all of SACS's accreditation requirements. ( Id. at 18.) In doing so, he chaired PSC's College Accreditation Committee, which met every other month and was responsible for reviewing new SACS requirements and ensuring that PSC complied with new and existing SACS rules. (Id.) Also, for the past thirty-eight years, Dr. Gonzalez has volunteered to serve on various SACS committees, including approximately twenty-five On-Site Reaffirmation Committees and ten Compliance and Review Committees ("C&R Committees"). (Id.) Through his service on On-Site Reaffirmation Committees, Dr. Gonzalez and other members evaluated institutional compliance with SACS standards and submitted reports on their findings to the C&R Committees. ( Id. at 19.) And when Dr. Gonzalez served on C&R Committees, he evaluated reaffirmation reports, compliance reports, and special committee reports, and made recommendations to the Executive Committee of SACS's Commission on Colleges for further action based on these findings. (Id.) In light of his extensive experience with SACS, Dr. Gonzalez is qualified to offer opinions on SACS accreditation standards. Defendants' objections to specific shortcomings in his experience, such as his experience with two-year schools versus four-year schools, go to the weight of his opinions and are more appropriate for cross-examination.
Daniel T. Madzelan offers opinions related to the Department of Education's recognition of accrediting bodies like SACS; the requirements academic institutions must meet to be eligible for Title IV funding; and the amount of funding AIU received. (See generally Madzelan Report, Dkt. [393-1].) Mr. Madzelan has decades of experience at the Department of Education, including service as Acting Assistant Secretary of Postsecondary Education from 2009-2010. ( Id. at 9.) In that position, he was the principal advisor to the Secretary of Education on higher education policy and had policy and program budget responsibility for Title IV student financial aid programs providing nearly $130 billion in grant, loan, and work-study assistance to over fourteen million postsecondary students. (Id.) In other positions at the DOE, Mr. Madzelan worked on policy related to Title IV financial aid programs. (Id.) He also worked on the reauthorization of the Higher Education Act and even provided drafting assistance to congressional staff. ( Id. at 10.) Mr. Madzelan is thus sufficiently qualified to offer opinions on the DOE's administration of Title IV programs, the standards for accrediting bodies, and the standards institutions must meet to receive financial aid funds. Although Mr. ...