Marrullier v. Bisk Education, Inc. et al

Middle District of Florida, flmd-8:2017-cv-01635

COMPLAINT against Bisk Education, Inc., Bisk Family Foundation, Inc., Florida Institute of Technology, Jacksonville University with Jury Demand Filing fee $ 400.00, receipt number tpa 44550 filed by Adrian Marrullier.

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1 PageID 1 FILED UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION 2017 JUL -7 AM 9:44 UNITED STATES OF AMERICA ex rel. ADRIAN MARRULLIER Plaintiff-Relator CLERK, US DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA.FLORIDA 8:12cv 1635 | 30 AED Case No. FILED UNDER SEAL PURSUANT TO 31 U.S.C. $ 3730(b)(2) DO NOT PUT IN PRESS BOX OR INTO PACER SYSTEM BISK EDUCATION, INC., BISK FAMILY FOUNDATION, INC., FLORIDA INSTITUTE OF TECHNOLOGY, and JACKSONVILLE UNIVERSITY Defendants FALSE CLAIMS ACT COMPLAINT AND DEMAND FOR JURY TRIAL INTRODUCTION 1. Relator Adrian Marrullier ("Relator") brings this action on behalf of the United States against Bisk Education, Inc., Bisk Family Foundation, Inc., Florida Institute of Technology, and Jacksonville University for treble damages and civil penalties for the Defendants' violations of the False Claims Act, 31 U.S.C. § 3729 et seq. 2. Prior to filing this Complaint, pursuant to 31 U.S.C. § 3730(b)(2) and $ 3730(e)(4)(B), Relator has provided to the Attorney General of the United States and to the United States Attorney for the Middle District of Florida a written disclosure of substantially all material evidence and information he possesses. Because this disclosure statement includes attorney-client communications and work product of Relator's attorney prepared in anticipation of litigation, and QA - \{{sso $200 1 PageID 2 is submitted to the Attorney General and the United States Attorney in their capacity as potential co-counsel in this litigation, Relator understands this disclosure to be confidential. 3. Relator is an "original source" under 31 U.S.C. § 3730(e)(4)(B) because his allegations are based on his personal experiences as an employee of Bisk Education, Inc. and his personal dealings with the other defendants. JURISDICTION AND VENUE 4. This action arises under the False Claims Act, 31 U.S.C. § 3729 et seq. This Court has jurisdiction over this case pursuant to 31 U.S.C. $ 3732(a) and § 3730(b), as well as 28 U.S.C. § 1345 and $ 1331. 5. Venue is proper in this district pursuant to 31 U.S.C. § 3732(a) because the acts proscribed by 31 U.S.C. § 3729 et seq. and complained of herein took place in this district, and is also proper pursuant to 28 U.S.C. $ 1391(b) and (c) because at all relevant times Defendants transacted business in this district. THE PARTIES 6. Bisk Education, Inc. is a Florida for-profit corporation located at 9417 Princess Palm Avenue, Tampa, Florida 33619. Bisk's web site describes its mission as "partner[ing] with non-profit universities to help finance, develop and support the world's best on-line programs." 7. Bisk Family Foundation, Inc. is a Florida not-for-profit corporation located at 9417 Princess Palm Avenue, Tampa, Florida 33619. As described below, the Bisk Family Foundation was used to make certain donations to Florida Tech University and Jacksonville University which made those universities related and affiliated university partners to Bisk Education, Inc. 8. Florida Institute of Technology and Jacksonville University are universities in the 1 PageID 11 ANALYSIS 1. Bisk Qualifies As A Third Party Servicer 29. Bisk qualifies as a third-party servicer under 34 C.F.R. § 668.2 because (1) it "receive[s] ... Title IV, HEA program funds" for both tuition and books;' and (2) "process[es] student financial aid applications" by talking applicants through the process of completing the FAFSA financial aid application. In GEN-16-15 (Exhibit 2), the Department of Education defined "pre-FAFSA services" as being included within the definition of "processing student financial aid applications." In addition, Bisk operated the type of call center described in GEN-16-15 which "assist[ed] students through the financial aid processes to award and disburse Title IV funds." 2. Bisk Engages In Activities That Are Subject To The Incentive Compensation Ban 30. Bisk is subject to the incentive compensation ban because it "secure[d] enrollments or the award of financial aid" under 34 C.F.R. $ 668.14(b)(22)(iii)(b) by engaging in activities for the purpose of the admission of students or the award of financial aid to students such as (1) contact with prospective on-line students, including for preadmission and advising activities, and (2) involvement in prospective students' financial aid applications. 31. Specifically, Bisk "targeted information dissemination to individuals", which was identified in GEN-11-05 as one of the activities that "are ALWAYS subject to the ban on incentive compensation." GEN-11-05 at 8 (Exhibit 1). Bisk provided the entire sales pitch to prospective on-line students and attempted to convince students that the school or program they were investigating was the right one for them. Bisk developed the websites for the on-line programs of Bisk booked total tuition revenue as income and the tuition revenue percentage paid to its university partners as an expense. Bisk therefore recognized tuition revenues primarily derived from federal financial aid as income. That is an admission by Bisk that Bisk was handling federal financial aid funds on behalf of its university partners. 11 1 Pageld 12 its university partners and disseminated pdf information and brochures to all prospective student leads. 32. Bisk also "contact[ed] potential enrollment applicants" and "aid[ed] students in filling out enrollment application[s]"?, which GEN-11-05 identified as other activities that "are ALWAYS subject to the ban on incentive compensation." Id. Bisk reached out to all prospective student leads by telephone, mail, email and text messages. Bisk controlled the technology which students used to apply to their school/program and Bisk enrollment agents were able to talk prospective student leads through the application form. Bisk also had student applicants sign a Bisk document known as an Acknowledgement of Enrollment through which the student agreed to the tuition rate, courses to be taken, and book fees; committed to the particular university and program; and committed to paying Bisk. 33. Bisk enrollment team members then send the student a link to the FAFSA form and talk the student through various fields on the FAFSA form. Bisk accounting team members track which students have filled out the FAFSA form; remind students who want financial aid that they have to complete the FAFSA before they can be admitted or receive financial aid; help students collect tax returns and other documents needed to complete the FAFSA form; and inform students of award levels and balances. 34. When all of Bisk's activities are considered together, it is clear that Bisk was and is engaged in numerous activities that make Bisk subject to the Incentive Compensation Ban. 2 For example, one Bisk student services representative listed her job functions as "review and explain student's financial aid as well as review and obtain needed documents," while another student services representative described his job as including "review and explain student's financial aid, including review and submission of needed documents." 12 1 PageID 13 3. Bisk Routinely And As A Pattern And Practice Violated And Continues To Violate The Incentive Compensation Ban 35. Bisk violates, has violated, and has caused its university partners to violate the Incentive Compensation Ban in at least two different ways. First, Bisk is paid by affiliated university partners under long-term tuition sharing contracts which constitute "direct or indirect payment of incentive compensation" under GEN-11-05. 36. Second, Bisk is paid by affiliated and unaffiliated university partners while Bisk is making prohibited compensation payments to its employees, described below, despite those payments violating 20 U.S.C. S 1094(a), 34 C.F.R. $ 668.14(b)(22)(i), and GEN-11-05. 37. Bisk has admitted in a publicly-filed court pleading that "universities ... enter into long term agreements (10+ years) with Bisk which they typically assume the full responsibility to finance, develop, deliver and manage exclusively, specific university online programs" in return to Bisk "retain[ing] a direct share of the tuition revenues."3 Bisk retained 60-70+ percent of tuition revenues, with its university partners getting the rest. According to GEN-11-05, this type of "tuition sharing" constitutes a prohibited direct or indirect payment of incentive compensation barred by the incentive compensation ban. GEN-11-05 at 10 (Exhibit 1 at 10). 38. Bisk may claim that it is entitled to be paid under tuition sharing contracts because it provides "bundled services" which include more than recruitment and financial aid services. This argument fails for several reasons. 39. First, GEN-11-05 makes clear that the "bundled services" exception applies only "[w]hen the institution determines the number of enrollments ...." Exhibit 1 at 11. This is because the Department of Education believes that "[w]hen the institution determined the number of 3 First Amended Complaint at 4, Bisk Education, Inc. v Adrian Marrullier and Sextant Marketing, LLC, Case No. 15-CA-11209 (Hillsborough County Circuit Court), attached as Exhibit 3. 4 Bisk's share of tuition revenue from some certificate programs was between 80-90 percent. 13 1 Pageld 14 enrollments and hires an unaffiliated third party to provide bundled services that include recruitment, payment based on the amount of tuition generated does not incentivize the recruiting as it does when the recruiter is determining the enrollment numbers and there is essentially no limitation on enrollment." Id. But in this case it is Bisk, NOT the institution, which in fact determines the number of enrollments. 40. The development of enrollment targets is initiated by Bisk as part of Bisk's internal budgeting process and not by Bisk's university partners. For example, Bisk convinced Florida Institute of Technology to launch more than 50 new degree offerings in a single year which FIT had not previously considered offering. Many of these offerings were not taught on the FIT campus and had not received approval from FIT's regional accrediting organization. Bisk's annual budgeting process has until recently been based on financial growth targets, including revenue and profit that was set by the company's chairman Nathan Bisk or his son and CEO, Michael Bisk. Bisk's annual revenue and enrollment targets have consistently increased year over year even when new degree offerings were not being added or when programs had reached maturity in the market. Significantly, ALL of Bisk's university partners knew that Bisk in practice and in fact actually determined the number of enrollments for on-line programs. 41. Since Bisk controls all marketing activities for the online programs, Bisk has the sole ability to determine how much money and effort is spent on student recruiting. Since enrollment is a function of leads generated and the number of leads is a function of the amount of money spent on marketing and the number of enrollment advisers employed by Bisk, Bisk effectively controls online enrollments. 42. Second, under GEN-11-05, the "bundled services" exception applies only when 14 1 PagelD 15 tuition sharing revenue "is paid to an unrelated third party" or "an unaffiliated third party." Exhibit 1 at 10-11. However, at least some of Bisk's university partners, specifically Florida Tech and Jacksonville University, were not in fact "unrelated" or "unaffiliated." Bisk had a 20-year agreement with Florida Tech to develop various online degree programs and to market and recruit students for those programs."" Bisk advanced the program's start-up costs of $1.528 million, but Nathan Bisk then pledged to forgive the start-up cost liability over a period of five years beginning with the year ended April 30, 2011. As of April 30, 2015, all start-up costs had been forgiven." This transaction is discussed in FIT's consolidated financial statements under the "Related Party Transactions" section. In addition, Nathan Bisk donated $5 million to Florida Tech's business school to support its expansion. Nathan Bisk served as a member of FIT's Board of Trustees since 2009 and CEO Michael Bisk was appointed to the FIT board in May 2017 after Nathan Bisk died. Bisk cannot be an "unaffiliated third party" as to Florida Tech when Nathan Bisk had a fiduciary role as a trustee for Florida Tech at the same time that he had a personal financial interest exceeding $50 million per year in revenues from a tuition sharing arrangement that relied almost entirely on Title IV financial aid. 43. Nathan Bisk similarly made a $2.5 million gift to Jacksonville University through the Bisk Family Foundation for the naming of the Nathan M. Bisk Center for Online Learning. 10 This donation was called "the largest single investment in dedicated online learning in JU's history."ll Jacksonville University President Tim Cost referred to Nathan Bisk as one of "our Florida Institute of Technology Notes to Consolidated Financial Statements Years Ended April 30, 2013 and 2012, at 24 (attached as Exhibit 4). 6 Id. 7 Florida Institute of Technology Notes to Consolidated Financial Statements Years Ended April 30, 2015 and 2014, at 26 (attached as Exhibit 5). & Id. 9 April 23, 2016 Florida Today article (attached as Exhibit 6). 10 December 21, 2015 The Wave article (attached as Exhibit 7). 11 Id. 15 1 Pageld 16 distinguished major partners" in his press release concerning this gift.2 Bisk is not an "unaffiliated third party" as to Jacksonville University given Nathan Bisk's $2.5 million donation at the same time that he had a personal financial interest exceeding $30 million per year in revenues from a tuition sharing arrangement that relied almost entirely on Title IV financial aid. 44. Third, under GEN-11-05, the "bundled services" exception applies only "as long as the entity (Bisk] does not make prohibited compensation payments to its employees ...." Id. at 12. But, in fact, Bisk did make prohibited compensation payments to its employees. 45. For example, the following Bisk employees who had direct contact with students and engaged in discussions with Biskºs university partners about enrollment and financial aid decisions also received payments in violation of the incentive compensation ban:!3 Tracy Mitchell (Bisk's Director of Enrollment Coordination): Has direct contact with students and engages in discussions with university partners regarding their enrollment and financial aid decisions; received incentive payments. Allison Arnold (Bisk's Associate Vice President of Accounting): Has direct contact with students and engages in discussions with university partners for the purpose of gaining students' acceptance and the award of financial aid; received incentive payments including salary adjustments, bonuses, and profit-sharing payments including discretionary stock option grants. Bill Geary (Bisk's Chief Financial Officer): Has direct knowledge of individual student information regarding their enrollment and financial aid which he discussed with Tracy Mitchell and Allison Arnold, as well as with university partners for the purpose of gaining applicants' acceptance and award of financial aid; received incentive payments including bonuses and profit-sharing payments including discretionary stock option grants. 12 Id. 13 Relator Marrullier has personal knowledge of these incentive payments. 16 1 PageID 17 George Strashnov (Bisk's Chief Strategy Officer): Has direct knowledge of individual student information related to their enrollment and financial aid which he discussed directly with Mary Bonhomme, Provost of Florida Institute of Technology, for the purpose of gaining their acceptance to FIT and award of financial aid; received incentive payments such as bonuses and profit-sharing payments including discretionary stock option grants. Shawn Daugherty, Lisa Hemmen, Maddy McNaughton and Chelsea Yockey (Employees in Bisk's Marketing Department): Discussed students denied admission by university partners with those partners for the purpose of gaining their acceptance into these universities and award of financial aid; received incentive payments such as bonuses and profit-sharing payments including discretionary stock option grants. Xiomora Kerce and Rebecca Sepulveda (Senior Managers in Bisk's Enrollment Services Department): Regularly have direct contact with students and engage in discussions with university partners for the purpose of gaining acceptance for those students and award of financial aid; received incentive payments such as salary adjustments, bonuses and profit-sharing payments including discretionary stock option payments. 46. Consequently, Bisk's reliance on the "bundled services" exception to the tuition- sharing ban is misplaced and Bisk either knew that or reasonably should have known that. Bisk knew that its business model was based on long-term tuition sharing contracts under which it retained the vast bulk of student tuition payments; knew that it effectively determined the number of enrollments, not its university partners; knew that it made prohibited compensation payments to its employees; and knew that at least some of its university partners, such as Florida Tech, were not "unrelated" or "unaffiliated." Based on all these facts which Bisk either knew or reasonably 1 Pageld 18 should have known that its tuition-sharing contracts with its university partners violated the incentive compensation ban and were in no way saved by the "bundled services" exception. 47. Furthermore, ALL of Bisk's university partners knew (1) that Bisk was providing recruitment services which made Bisk subject to the incentive compensation ban; (2) that Bisk was paid under long-term tuition sharing contracts with each of its university partners; and (3) that Bisk and its university partners were not protected by the "bundled services" exception because Bisk, not its university partners, effectively determined the number of enrollments. Consequently, ALL of Bisk's university partners knew that Bisk was and is violating the incentive compensation ban. Therefore, ALL of Bisk's university partners knew that Bisk's violations of the incentive compensation ban in its role as their third-party servicer made each university partner in violation of each partner's program participation agreement and therefore ineligible for federal financial aid. Consequently, ALL of Bisk's university partners knew that they were and are violating the False Claims Act by causing federal financial aid to be paid for students enrolled for Bisk on-line programs. SCOPE OF DAMAGES UNDER THE FALSE CLAIMS ACT 48. Damages to the Government under the False Claims Act should include all Title IV loan payments disbursed by the Department of Education to Bisk and its university partners for students enrolled in Bisk on-line programs within the FCA's statute of limitations period. Bisk caused all its university partners to violate and falsify their program participation agreements, which were necessary for those institutions to be eligible to receive federal financial aid. 1 PageID 19 COUNT I PRESENTING AND CAUSING TO BE PRESENTED FALSE AND FRAUDULENT CLAIMS IN VIOLATION OF 31 U.S.C. S 3729(a)(1)(A) 49. Relator realleges and incorporates by reference paragraphs 1 through 48. 50. For at least the past ten years, and continuing on an ongoing basis, Defendants knowingly presented, and caused to be presented, claims to the United States Department of Education in the form of applications for federal student aid which were false and fraudulent because they were made pursuant to university program participation agreements which falsely certified that such universities and their third party servicer Bisk Education, Inc. complied with the incentive compensation ban. COUNT II MAKING AND USING AND CAUSING TO BE MADE AND USED FALSE RECORDS AND STATEMENTS MATERIAL TO FALSE AND FRAUDULENT CLAIMS IN VIOLATION OF 31 U.S.C. § 3729(a)(1)(B) 51. Relator realleges and incorporates by reference paragraphs 1 through 48. 52. For at least the past ten years, and continuing on an ongoing basis, Defendants knowingly made and used, and caused to be made and used, false records and statements material to false and fraudulent claims, specifically program participation agreements that falsely certified compliance with the incentive compensation ban. COUNT III CONSPIRING TO PRESENT AND CAUSE TO BE PRESENTED FALSE AND FRAUDULENT CLAIMS AND TO MAKE, USE AND CAUSE TO BE MADE AND USED FALSE RECORDS AND STATEMENTS MATERIAL TO FALSE AND FRAUDULENT CLAIMS IN VIOLATION OF 31 U.S.C. $ 3729(a)(1)(C) 53. Relator realleges and incorporates by reference paragraphs 1 through 48. 1 Pageld 20 54. For at least the past ten years, and continuing on an ongoing basis, Defendants knowingly conspired and agreed together to (1) knowingly present, and cause to be presented, claims to the United States Department of Education in the form of applications for federal student aid which were false and fraudulent because they were made pursuant to university program participation agreements which falsely certified that such universities and their third party servicer Bisk Education, Inc. complied with the incentive compensation ban; and (2) knowingly make and use, and cause to be made and used, false records and statements material to false and fraudulent claims, specifically program participation agreements that falsely certified compliance with the incentive compensation ban. PRAYER FOR RELIEF Wherefore, Relator respectfully requests this Court enter judgment against Defendants and order: (a) That the United States be awarded damages in the amount of three times the damages sustained because of the false and fraudulent claims alleged within this Complaint, as the False Claims Act provides; (b) That maximum civil penalties be imposed for each and every false and fraudulent claim that the Defendants have presented and caused to be presented; (c) That pre and post-judgment interest be awarded, along with reasonable attorneys' fees, costs and expenses which Relator necessarily incurred in bringing and pressing this action; (d) That the Court grant permanent injunctive relief to prevent any recurrence of the False Claims Act violations for which redress is sought in this Complaint; 20 1 PageID 21 (e) That Relator be awarded the maximum relator share allowed pursuant to the False Claims Act; and (f) That the Court award such other and further relief as it deem proper. DEMAND FOR JURY TRIAL Relator, on behalf of himself and the United States, demands a jury trial on all claims alleged herein. Respectfully submitted, In de Din Kevin J. Darken Florida Bar No. 0090956 kdarken@tampalawfirm.com THE BARRY A. COHEN LEGAL TEAM 201 East Kennedy Boulevard, Ste. 1950 Tampa, Florida 33602 Telephone: (813) 225-1655 Facsimile: (813) 225-1921 Counsel for Qui Tam Relator CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing False Claims Act Complaint and Demand for Jury Trial has been furnished by certified mail return receipt requested to: Acting United States Attorney W. Steven Muldrow, United States Attorney's Office, 400 N. Tampa Street, Ste. 3200, Tampa, FL 33602; and to Attorney General Jeff Sessions, Dept. of Justice, 950 Pennsylvania Ave., N.W., Washington, D.C. 20530 on this 7th day of July 2017. /s/Kevin J. Darken Kevin J. Darken 1 Pageld 3 Middle District of Florida which pay Bisk Education to recruit students to their on-line programs pursuant to long-term tuition-sharing contracts. Most such students pay their tuition with federal financial aid. Florida Institute of Technology is located in Melbourne, Florida and Jacksonville University is located in Jacksonville, Florida. 9. Adrian Marrullier was Executive Vice President of Enrollment and Chief Marketing Officer for Bisk. He was employed by Bisk from May 2003 until late January 2015. HEA BACKGROUND AND THE INCENTIVE COMPENSATION BAN 10. "Under Title IV of the Higher Education Act of 1965, the federal government operates a number of programs that disburse funds to students to help defray the costs of higher education. 20 U.S.C. § 1070-1099d. These programs include the Federal Pell Grant, the Federal Family Educational Loan Program, the William D. Ford Federal Direct Loan Program, and the Federal Perkins Loan. But these funds are only available to students who attend qualifying schools." Urquilla-Diaz v. Kaplan University, 780 F.3d 1039, 1043 (11th Cir. 2015). 11. "To be eligible to receive Title IV funds, a school must enter into a program participation agreement with the Department of Education. Id. 20 U.S.C. § 1094; see also 34 C.F.R. $ 668.14(a)(1)(2010). In signing such an agreement, the school promises to comply with all federal statutes applicable to Title IV of the Higher Education Act (HEA) and the regulations promulgated thereunder. See 34 C.F.R. $ 668.14(b)(1)." Urquilla-Diaz, 780 F.3d at 1043-44. As stated in 34 C.F.R. 9 668.14(a)(1), "[a] program participation agreement conditions the initial and continued participation of an eligible institution in any Title IV, HEA program upon compliance with the provisions of this part, the individual program regulations, and any additional conditions specified in the program participation agreement that the Secretary requires the institution to meet. 1 PageID 4 12. 20 U.S.C. § 1094(a) provides that the required program participation agreement (PPA) "shall condition the initial and continuing eligibility of an institution to participate in a program upon compliance with the following requirements: ... (20) The institution 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 or in making decisions regarding the award of student financial assistance 13. 34 C.F.R. $ 668.14(b)(22)(i) provides that "[b]y entering into a program participation agreement, an institution agrees that- ... [i]t will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the award of title IV, HEA program funds." 14. The term "securing enrollments or the award of financial aid" is defined in 668.14(b)(22)(iii)(B) as "mean[ing] activities that a person or entity engages in at any point in time through completion of an educational program for the purpose of the admission or matriculation of students for any period of time or the award of financial aid to students." "These activities include contact in any form with a prospective student", including "contract through preadmission or advising activities" and "involvement in a prospective student's signing of an enrollment agreement or financial aid application." 34 C.F.R. $ 668.14(b)(22)(iii)(B)(1). 15. Department of Education "Dear Colleague" letter GEN-11-05, dated March 17, 2011 and attached as Exhibit 1, lists the following as "activities that are ALWAYS subject to the ban on incentive compensation": 1 Pageld 5 "Recruitment activities, including: Targeted information dissemination to individuals; Solicitations to individuals; Contacting potential enrollment applicants; aiding students in filling out enrollment application. Services related to securing financial aid, including: Completing financial aid applications on behalf of prospective applicants." GEN-11-05 at 8-9. 16. In GEN-11-05, the Department of Education stated that it "considers payments to persons or entities that undertake or have responsibility for recruitment and decisions related to securing financial aid as subject to the incentive compensation ban even if their work also includes other activities." GEN-11-05 at 8. 17. "Commission, bonus, or other incentive payment" is defined in 34 C.F.R. Ş 668.14(b)(22)(iii) as "mean[ing] a sum of money or something of value, other than a fixed salary or wages, paid or given to a person or an entity for services rendered." 18. 34 C.F.R. $ 668.14(b)(22)(ii)(B) provides that "eligible institutions" and "organizations that are contractors to eligible institutions" may make "(A) [m]erit-based adjustments to employee compensation provided that such adjustments are not based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid; and (B) [p]rofit-sharing payments so long as such payments are not provided to any person or entity engaged in student recruitment or admission activity or in making decisions regarding the award of title IV, HEA program funds." 19. 34 C.F.R. $ 668.14(b)(22)(iii)(C) defines "entity or person engaged in any student 1 PageID 6 recruitment or admission activity or in making decisions about the award of financial aid" as "any institution or organization that undertakes the recruiting or the admitting of students or that makes decisions about and awards title IV, HEA program funds", as well as "any employee who undertakes recruiting or admitting of students or who makes decisions about and awards title IV, HEA program funds, and any higher level employee with responsibility for recruitment or admission of students, or making decisions about awarding title IV, HEA program funds." 20. The Department of Education published "Dear Colleague" letter GEN-11-05, to "provide[] additional guidance" on the incentive compensation ban. GEN-11-05 provides examples of "[t]ypes of payments that are direct or indirect payment of incentive compensation." These examples include: 1. "Tuition sharing as a measure of compensation when based on a formula that relates the amount payable to the entity to the number of students enrolled as a result of the activity of the entity." 2. "Salary adjustments that take the form of incentive payments based directly or indirectly on success in securing enrollments or financial aid." GEN-11-05 at 10. 21. GEN-11-05 also states that "[t]uition as a source of revenue from which compensation is paid to an unrelated third party for a variety of bundled services" is a type of payment that is not a direct or indirect payment of incentive compensation. Id. The letter explains that "the Department does not consider payment based on the amount of tuition generated by an institution to violate the incentive compensation ban if that payment compensates an unaffiliated third party that provides a set of services that may include recruitment services." Id. at 11. DOE reasoned that "[w]hen the institution determines the number of enrollments and hires an 1 Pageld 7 unaffiliated third party to provide bundled services that include recruitment, payment based on the amount of tuition generated does not incentivize the recruiting as it does when the recruiter is determining the enrollment numbers and there is essentially no limitation on enrollment." Id. at 11. In these circumstances, "[t]he institution may pay the entity an amount based on tuition generated for the institution by the entity's activities for all bundled services that are offered and provided collectively, as long as the entity does not make prohibited compensation payments to its employees ...." Id. at 12. THIRD PARTY SERVICERS 22. 20 U.S.C. $ 1088(c)(1) defines a "third party servicer" as any individual or organization "which enters into a contract with ... any eligible institution of higher education to administer ... any aspect of such institution's student assistance programs under this subchapter ...." Pursuant to 34 C.F.R. $ 668.2, the Department of Education "considers administration of participation in a Title IV, HEA program" to include "(A) Processing student financial aid applications" and "(F) Receiving, disbursing, or delivering Title IV, HEA program funds, excluding lock-box processing of loan payments and normal bank electronic fund transfers." 23. 34 C.F.R. $ 668.1(a) requires that "[t]o the extent that an institution contracts with a third-party servicer to administer any aspect of the institution's participation in any Title IV, HEA program, the applicable rules in this part also apply to that servicer." Similarly, 34 C.F.R. § 668.25(c) provides that "[i]n a contract with an institution, a third-party servicer shall agree to— (1) [c]omply with all statutory provisions of or applicable to Title IV of the HEA, all regulatory provisions prescribed under that statutory authority, and all special arrangements, agreements, limitations, suspensions, and terminations entered into under the authority of statutes applicable to 1 PageID 8 Title IV of the HEA ....." Both of these provisions mean that Bisk is governed by the incentive compensation ban required by 20 U.S.C. $ 1094(a)(20) and 34 C.F.R. § 668.14(b)(22). 24. 34 C.F.R. $ 668.82(a) provides that "a third-party servicer that contracts with [a participating] institution acts in the nature of a fiduciary in the administration of the Title IV, HEA programs." 25. Department of Education "Dear Colleague" letter GEN-16-15 dated August 18, 2016 and attached as Exhibit 2, provides examples of "functions or services performed by third- party servicers." These examples include: 1. "Processing student financial aid applications, including FAFSA and pre-FAFSA services." "Performing interactive financial aid counseling in person, over the phone, and/or by electronic means", including "operation of call centers to assist students through the financial aid processes necessary to award and disburse Title IV funds." "Cash management functions, including, but not limited to: collecting student credit balance disbursement preferences; providing terms and conditions and/or disclosure statements relative to the disbursement preference options available to a student or parent; collecting the financial account information necessary to initiate an electronic funds transfer or ACH of Title IV funds to a financial account designated by the student or parent for the receipt of those funds; notifying students of the disbursement of Title IV funds and/or the delivery of credit balance refunds; receiving and processing of electronic files (disbursement file, payment instructions, fund wire) to print and mail credit balance refund checks and/or deliver Title IV credit balance refunds to students or parents via ACH, debit card, or other 1 PageID 9 electronic means. Also includes monitoring of undeliverable and/or unnegotiated checks or rejected ACH or EFT transactions." "Collecting, reviewing, and/or maintaining supporting documentation necessary in person, by mail, or by electronic means to determine or support student eligibility determinations and/or to disburse or deliver Title IV funds to a student or borrower. This includes information necessary to validate information reported on a student's FAFSA and/or to resolve conflicting information, as well as collecting disbursement preference information for the delivery of Title IV credit balance refunds." GEN-16-15 at 3-6. 26. GEN-16-15 also answers the question "Are third-party servicers subject to the ban on incentive compensation?" as follows: "Yes. Third-party servicers are subject to the same incentive compensation prohibitions as institutions. Neither persons nor entities may receive direct or indirect payments of incentive compensation for securing enrollment (recruitment) or securing financial aid for students." Id. at 8. APPLICATION OF HEA REQUIREMENTS TO THE FALSE CLAIMS ACT 27. The Eleventh Circuit has held that "an educational institution", and accordingly also a third party servicer, "can be found liable under [31 U.S.C.] $ 3729(a)(2) for falsely certifying to the Department of Education in its program participation agreement that it will comply with federal law and regulations." Urquilla-Diaz v. Kaplan University, 780 F.3d 1039, 1045 (11th Cir. 2015). Under this "false certification" theory, which the Eleventh Circuit "expressly adopt[ed)" in Urquilla-Diaz, "the relator must prove (1) a false statement or fraudulent course of conduct, (2) 1 PageID 10 made with scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due." Id. 28. "[T]here is a cause of action under the False Claims Act when an institution executes a PPA (program participation agreement], whereby, in order to be eligible for Title IV funds, it agrees to comply with certain statutory and regulatory requirements, including a ban on incentive compensation for student recruiters, and submits requests for funds when the institution is not in compliance with the statutory or regulatory requirements." United States ex rel. Gatsiopoulos v. Kaplan Career Institute, 2010 WL 5392668, *3 (S.D. Fla., December 22, 2010), citing United States ex rel. McNutt v. Haleyville Medical Supplies, 423 F.3d 1256, 1259 (11th Cir. 2005) (holding that "[w]hen a violator of government regulations is ineligible to participate in a government program and that violator persists in presenting claims for payment that the violator know the government does not owe [because compliance with the regulation is required for payment], that violator is liable, under the Act for its submission of those false claims"). See also United States ex rel. Christianson et al. v. Everglades College, 2013 WL 11976904, *3-4 (S.D. Fla., May 10, 2013) (declining to dismiss counts I, II and IV where "Plaintiffs have pleaded in detail that Keiser has violated the Incentive Compensation Ban, has knowingly and falsely certified in PPAs and Management Assertion Letters that it is in compliance with the Incentive Compensation Ban, and has submitted those documents to the DOE and VA for the purpose of obtaining federal funds").