Argued January 17, 2013
Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:07-cv-00867-TWP-MJD—Tanya Walton Pratt, Judge.
Before Manion and Tinder, Circuit Judges, and Lee, District Judge. [*]
Tinder, Circuit Judge.
Debra Leveski brings this lawsuit against ITT Educational Services, Inc. on behalf of the United States, pursuant to the qui tam provision of the False Claims Act (FCA), 31 U.S.C. § 3730(b). ITT is a for-profit institution with over 140 locations across the United States that offers post-secondary educational training, including associate's, bachelor's, and master's degrees. Leveski, who worked at the ITT campus in Troy, Michigan, for more than a decade, alleges that ITT knowingly submitted false claims to the Department of Education in order to receive funding from federal student financial assistance programs.
Four years after Leveski filed this lawsuit, the district court dismissed it for want of jurisdiction, finding that Leveski's allegations had already been publicly disclosed and that Leveski was not the original source of her allegations. In addition, the district court granted sanctions in the amount of $394, 998.33 against all three law firms representing Leveski and against one of Leveski's attorneys individually. Accusing Leveski's attorneys of "pluck[ing] a plaintiff out of thin air and tr[ying] to manufacture a lucrative case, " the district court found Leveski's allegations wholly "frivolous."
Contrary to the district court, we believe that Leveski's allegations merit further development, and more importantly, we believe they are sufficiently distinct from prior public disclosures to give the federal district court jurisdiction over Leveski's lawsuit. Consequently, we reverse both the dismissal and the sanctions, and we remand the case back to the district court for further proceedings.
Leveski's FCA allegations turn on the restrictions placed on schools that receive funding from federal student financial assistance programs by the Higher Education Act (HEA), 20 U.S.C. § 1001 et seq. Therefore, before turning to the specifics of Leveski's allegations, we first review the specifics of the relevant HEA restrictions. The HEA was originally passed in 1965 "[t]o strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary and higher education." Pub. L. No. 89-329, 79 Stat. 1219. At issue in this case is Title IV of the HEA, "Grants to Students in Attendance at Institutions of Higher Education, " codified at 20 U.S.C. § 1070 et seq. In passing Title IV, Congress had the best of intentions:
to provide, through institutions of higher education, educational opportunity grants to assist in making available the benefits of higher education to qualified high school graduates of exceptional financial need, who for lack of financial means of their own or of their families would be unable to obtain such benefits without such aid.
Pub. L. No. 89-329, 79 Stat. 1219, § 401(a). Today, Title IV governs the administration of over $150 billion in annual federal financial assistance awards for higher education. U.S. Dept. of Educ., Federal Student Aid: About Us, http://studentaid.ed.gov/about (last visited July 1, 2013).
Notwithstanding Congress's good intentions in passing Title IV, the colossal sums of money now administered under Title IV have led to abuses. Specifically, Congress became concerned in 1992 that "recruiters [of students for institutions of higher education] paid by the head are tempted to sign up poorly qualified students who will derive little benefit . . . and may be unable or unwilling to repay federal guaranteed loans." United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir. 2005). As a result, Congress amended Title IV to prohibit institutions receiving federal financial assistance funding from "provid[ing] 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 or in making decisions regarding the award of student financial assistance." 20 U.S.C. § 1094(a)(20).
In 2002, the Department of Education issued regulations that softened the blow of the 1992 amendments for institutions of higher education by declaring certain types of activities and compensation schemes compliant with 20 U.S.C. § 1094(a)(20). Known as "safe harbors, " these twelve provisions allowed, among other things, institutions receiving federal financial assistance award money to pay student recruiters and financial aid officers "fixed compensation, . . . as long as that compensation is not adjusted up or down more than twice during any twelve month period, and any adjustment is not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid." 34 C.F.R. § 668.14(b)(22)(ii)(A) (2002). These safe harbors remained in effect for almost a decade, until the Department of Education became concerned that they had failed to curtail abusive recruiting practices. See, e.g., Department of Education, Program Integrity Issues: Incentive Compensation, 46-52, http://www2.ed.gov/policy/highered/ reg/hearulemaking/2009/integrity-session3-issues.pdf (last visited July 1, 2013) (detailing common abuses and recommending that "the elimination of all of the regulatory 'safe harbors' would best serve to effectuate congressional intent"). Thus, the Department of Education eliminated the safe harbor provisions from its regulations in 2011, and its current regulations now flatly prohibit institutions receiving federal award money from adjusting the salaries of student recruiters and financial aid officers "based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid." 34 C.F.R. § 668.14(b)(22)(ii)(A) (2013). Institutions of higher education must continually certify their compliance with the current Department of Education regulations through program participation agreements (PPAs) in order to receive federal financial assistance award money. 20 U.S.C. § 1094(a).
With this brief history of HEA regulations in mind, we turn back to the allegations in the case at hand. Leveski's decade-long employment with ITT began on January 8, 1996, meaning that the 2002 safe harbor provisions were in effect during the latter half of her employment. ITT initially hired Leveski as an Inside Recruitment Representative (RR) for the Troy campus. (Dkt. 75, 2.) As an Inside RR, Leveski was responsible for "contact[ing] consumers via telephone through leads provided . . . by ITT's directors of recruitment at the Troy campus, . . . persuad[ing] them to visit the Troy campus[, and] . . . persuad[ing] them to enroll and start classes at ITT." (Dkt. 49-1, 1-2.) (Inside RRs did their recruiting inside the ITT campus. Outside RRs, in contrast, visited high schools to recruit students.) (Dkt. 141-6, 101.)
From the beginning of Leveski's employment as an Inside RR, ITT made the importance of her "numbers" very clear. (Dkt. 75, 11.) According to Leveski, both Inside and Outside RRs were directed to increase "applications, enrollments, and starts" at every group meeting. (Dkt. 75, 10.) A prospective student who had filled out an ITT application and paid a $100 fee (before ITT waived the fee in 2001) was counted as an "application" for Leveski. A prospective student who had additionally passed an entrance exam and completed the financial aid process—basically, anyone who had "done everything but sat in class"—counted as an "enrollment" for Leveski. A prospective student who actually attended a class counted as a "start" for Leveski. (Dkt. 141-6, 53-54.) By all appearances, these applications, enrollments, and starts had real ramifications for Leveski and the other RRs; RRs were constantly reminded by the Troy campus director "that if they wanted an increase in pay, they must increase applications, enrollments, and starts." (Dkt. 75, 10.) To further incentivize them, ITT published each RR's sales goals in a quarterly memorandum distributed throughout the corporate district (Dkt. 75, 10.)
Although ITT's sole focus appeared to be on "numbers, " it claimed to evaluate employees like Leveski on a multitude of criteria, including professional development, the attrition rate of enrolled students, "being a team player, " appearance, and attitude. (Dkt. 141-6, 106-07.) But according to Leveski, these other criteria—which were specifically listed on the employee's annual evaluation form—did not matter to ITT. Over time, Leveski came to realize that her success in attaining applications, enrollments, and starts directly correlated with her alleged success in ITT's other job evaluation criteria. In other words, when Leveski had a good numbers year, she also had a good team player, appearance, and attitude year. When Leveski had a bad numbers year, she had similarly bad scores all around.
Of course, correlation does not prove causation, and it is certainly plausible that Leveski had good years and bad years all around. But Leveski offers evidence suggesting that the direct correlation between her "numbers" evaluation and her other job criteria evaluations was no coincidence. Rather, Leveski suggests that the other job criteria listed on the employee evaluations were simply a sham to cover up the only thing that truly mattered to ITT: the number of applications, enrollments, and starts. In an affidavit, Leveski described the many incidents that led her to believe that the other job criteria were a sham:
ITT corporate employees and Troy campus directors continually reminded sales representatives to meet sales targets to obtain raises and stay employed, but never discussed tactics to meet other non-sales targets that were included in our yearly review as sales representatives such as assisting the school in meeting its attrition budget, being a team player, appearance and attitude.
(Dkt. 49-1, 12.)
During the review process as a sales representative, I questioned Steve Sorensen, Patricia Hyman and Bob Martin regarding how my success in helping ITT Troy Campus to obtain the attrition rate set by ITT corporate was evaluated during the review. I also asked them how ITT defined attrition rate and calculated it. I was never given a clear explanation of what attrition rate meant or how it was calculated, nor how my rating for appearance, attitude, and team player was evaluated. In fact, to my knowledge, ITT did not keep track of any non-recruitment criteria during each academic quarter.
(Dkt. 49-1, 12-13.)
[D]uring my reviews . . . when I did not significantly exceed my sales targets—the non-recruitment criteria on my reviews dropped from the top performance level of "Very Exceptional Results" to "Results at Standard." I asked my supervisor who conducted the review why my non-sales criteria decreased in unison with my sales criteria. I was reassured that the score I received in my review—the results of which determine the percentage of my pay raise—were solely based upon my sales targets.
(Dkt. 49-1, 13.) Similarly, when asked at her deposition how she came to believe that ITT only considered the number of applications, enrollments, and starts in evaluating RRs, Leveski provided the following examples:
My first year there, 1996, I received a 1 [overall evaluation score, which was the highest possible score]. I did an exceptional job; I got a 1 in my appearance. I wore the same suits the first day I started to work at ITT and the last day I left ITT. I didn't get a 1 again in appearance. It doesn't make any sense. And when I questioned managers about this, [they answered, ] because, Debbie, they don't care. All they want you to do is make your numbers. They want you to start students. It is a number game.
(Dkt. 141-6, 88.)
You received your raises based on the students that started. It didn't matter how you dressed, it didn't matter what college courses you took. You didn't end up getting a raise because you got a master's degree in education. You didn't get a 1 for doing that. I didn't know what the criteria was [sic]. . . . Look at [my professional development evaluation.] What more did I have to do to get a 1 in that category? Go for a Ph.D.? I mean, we . . . had representatives at that time taking religious classes, because ITT didn't define what professional development was. So Joie Bowman [another ITT employee] went and took something at her church.
(Dkt. 141-6, 87.)
Q. Who told you you get paid based on your starts?
A. [ITT managers] Patricia Hyman, Dave McDaniel, Steve Sorensen, Bob Martin, [and] representatives. If you want me to name them, I will name them.
Q. Yes, what representatives also told you that?
A. Joie Bowman, Dave McKinnon . . . I can't think of any others.
Q. What specifically did Ms. Hyman tell you?
A. You know it's a numbers game; you're going to get paid on the number of students you start. (Dkt. 141-6, 73-74.)
Despite her concerns over how she was being evaluated, for the most part, the evaluations turned out well for Leveski. For four out of the six years that she was employed as an RR, Leveski met or exceeded her starts goal number, and for five out the six years she received at least the median rating for overall performance. Moreover, Leveski received a salary increase after every evaluation (although this increase was much higher in years that she exceeded her numbers ...