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United States v. Everglades College, Inc.

United States Court of Appeals, Eleventh Circuit

May 3, 2017

EVERGLADES COLLEGE, INC., d.b.a. KEISER UNIVERSITY, Defendant-Appellee. STATE OF FLORIDA, et al., Plaintiffs, MANUEL CHRISTIANSEN, ex. Rel., BRIAN ASHTON, Plaintiffs-Appellants, UNITED STATES OF AMERICA, et al., Plaintiffs, MANUEL CHRISTIANSEN, ex. Rel. BRIAN ASHTON, Plaintiffs-Appellants,

         Appeals from the United States District Court for the Southern District of Florida D.C. No. 0:12-cv-60185-WPD

          Before, HULL, MARTIN, and EBEL, [*] Circuit Judges.

          EBEL, Circuit Judge:

          Manuel Christiansen and Brian Ashton (Relators) brought a qui tam lawsuit against Everglades College, Inc., d.b.a. Keiser University (Keiser University) under the federal False Claims Act (FCA). They alleged that Keiser University, a participant in federal student financial-aid programs, falsely certified compliance with a federal law banning incentive payments to university admissions counselors. When the United States initially declined to intervene and take over the case, Relators pursued the action and won only a limited trial victory-no damages and only $11, 000 in penalties-so they appealed to this Court. During the pendency of that appeal, however, the United States stepped in and settled the case with Keiser, securing a much larger monetary recovery than Relators procured at trial.

         Confident that they could have prevailed on appeal, Relators believed the rug had been pulled out from under them. They argued the United States had no right to intervene so late in the proceedings, they challenged the underlying fairness of the settlement, and they asked for an evidentiary hearing and discovery into the government's settlement deliberations in search of a nefarious motive. The district court rejected these arguments and allowed the United States to intervene, approved the settlement, and denied Relators' requests for an evidentiary hearing and discovery pertaining to the government's decision to intervene and settle the case. Relators now appeal those rulings. Appeal No. 16-10849.

          Relators also appeal from the district court's subsequent award of reduced attorneys' fees and costs. Appeal No. 16-11839. In light of the paltry outcome secured at trial and Relators' opposition to the eventual settlement, which had resulted in a significantly greater monetary recovery, the district court trimmed Relators' fees and costs to a small fraction of the requested award.

         Recognizing that the settlement and the attorneys' fees are inextricably linked, we consolidated these appeals. Exercising jurisdiction under 28 U.S.C. § 1291, we AFFIRM in both Appeals Nos. 16-10849 and 16-11839.

          I. BACKGROUND

          A. The Alleged FCA Violations

         Keiser University is a non-profit college offering undergraduate and graduate programs across more than a dozen campuses. Many of Keiser's students receive federally sponsored financial aid under Title IV of the Higher Education Act of 1965, 20 U.S.C. §§ 1070-1099d. In order to receive Title IV funds, schools must enter into "program participation agreements" with the Department of Education that condition eligibility for financial aid funds on the institution's compliance with various enumerated requirements. 20 U.S.C. § 1094(a). One of those requirements is known as the Incentive Compensation Ban (ICB), which prohibits a school from paying incentives to recruiters and admissions personnel based on the number of students they enroll. Id. § 1094(a)(20); see also 34 C.F.R. § 668.14(b)(22).

         Relators, two former employees who worked in Keiser's admissions department, alleged that Keiser submitted more than 230, 000 claims for a total of $1.2 billion in federal financial aid, all the while falsely certifying to the United States that Keiser was complying with the ICB. According to Relators, Keiser knew that its admissions personnel received incentive payments based on their success in securing enrollments. Even with that knowledge, Keiser expressly certified compliance with the ICB on multiple occasions and-more important to Relators' theory of the case-Keiser caused its students to submit claims for financial aid to the government, all the while knowing that it was violating the ICB. Relying on the "implied false certification" theory, [1] Relators asserted that Keiser was liable not only for its own express certifications, but also for the enormous volume of student-submitted claims.

          B. The District Court's Merits Decision

         When Relators initially brought the FCA action, the United States declined to take over the case, which is the government's prerogative under 31 U.S.C. § 3730(b)(2). Relators thus exercised their statutory right to pursue the case on behalf of the United States. Id. § 3730(b)(4)(B). After a bench trial, the district court handed Relators a victory that fell far short of their expectations. At the outset, the court agreed that Keiser was in violation of the ICB during the relevant period. But the court made three conclusions that severely limited Relators' monetary victory.

         First, the court rejected Relators' theory that each student-submitted application for financial aid was an actionable FCA claim, reasoning that Keiser could not control the content, number, and submission of student financial-aid requests. Second, turning to the certifications that Keiser itself actually sent to the government, the court found that Keiser's top policymakers did not become aware of the improper compensation scheme until November 20, 2009, after which it knowingly submitted only two certifications of compliance to the government.[2]Keiser was thus liable for only those two false claims, for which the district court awarded the minimum statutory penalty of $5, 500 each-a total of $11, 000. Third, the court rejected Relators' argument that the government's damages were equal to the value of all educational assistance paid to Keiser during the period covered by the false certifications. It reasoned that the Department of Education would not have demanded reimbursement for the already-paid Title IV funds even if Keiser had disclosed its ICB violations. Thus the government, according to the district court, suffered no financial damages at all. Instead, the government was entitled only to the nominal statutory penalties for the two express certifications sent by Keiser.

          C. The United States Intervenes to Settle the Case

         Relators appealed the district court's decision to our Court. The United States, however, believed an appeal was risky because there was a chance the Eleventh Circuit would affirm the district court's narrow interpretation of FCA liability, thereby impairing FCA enforcement efforts throughout the circuit. Thus, after Relators' opening brief was filed in this Court, but before the United States moved to intervene in the qui tam action, the United States struck a tentative deal with Keiser. The tentative settlement agreement provided that Keiser would pay the United States $335, 000-more than thirty times the amount recovered by Relators at trial-and the United States would in turn release Keiser from any further administrative or civil claims, and even more importantly, would also refrain from suspending or terminating Keiser's eligibility for future Title IV funds based on Keiser's challenged conduct in this case.

         Relators' merits appeal was still pending on this Court's docket at the time, so the district court did not have jurisdiction to enter any orders. Thus, after reaching a tentative settlement with Keiser, the United States moved the district court for an indicative ruling stating that, if the district court reacquired jurisdiction on remand from this Court, the district court would permit the United States' intervention and approve the proposed settlement as fair and reasonable. The district court agreed and issued an indicative order to that effect, reasoning that the United States could intervene as the real party in interest and that the settlement was fair and reasonable because it resulted in a recovery far exceeding the amount obtained by Relators at trial. In light of that indicative ruling, this Court then remanded the case back to the district court, whereupon the district court granted the government's intervention motion.

         In that same order, the district court also affirmed a magistrate judge's determination that Relators were not entitled to discovery or a full-blown evidentiary hearing to probe the settlement deliberations and the government's rationale for ending the case. Finally, the district court scheduled a statutorily mandated hearing to confirm that the proposed settlement was fair and reasonable. After the fairness hearing, the district court approved the settlement, and dismissed the case with prejudice.

          D. Attorneys' Fees and Costs

          While these developments were unfolding, Relators also sought an award for attorneys' fees and costs. After the bench trial, but before the settlement, Relators asked for over $1 million in attorneys' fees and almost $76, 000 in litigation costs. In light of Relators' limited success at trial, the district court reduced the fee award to $60, 000 for their efforts at trial, and trimmed the award of costs to $27, 000. After the eventual settlement, which Relators claimed was brought about by their appeal, they sought enhanced fees and costs based on the larger settlement figure that the United States had been able to procure with Keiser, as well as the additional fees and costs they incurred for their efforts on appeal. The district court denied that request on the ground that Relators objected to the settlement at every stage of the proceedings and should not reap the benefits of an outcome they so vigorously sought to prevent.

         Relators now appeal all of these issues.

          II. DISCUSSION

         We resolve four principal issues on appeal: (1) whether the government was required to satisfy the FCA's good-cause intervention requirement as set forth in 31 U.S.C. § 3730(c)(3) when it intervened for the sole purpose of settling the dispute; (2) whether the proposed settlement was "fair, adequate, and reasonable" under § 3730(c)(2)(B); (3) whether Relators were entitled to an evidentiary hearing and discovery to probe the government's reasons for settling the case; and (4) whether the district court abused its discretion in awarding substantially reduced attorneys' fees based on Relators' limited success at trial and subsequent opposition to the settlement. On all issues, we affirm the district court.

          A. The Good-Cause ...

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