Hamilton v. Yavapai Community College District: District of Arizona Addresses FCA’s State of Mind Requirement
Participants in federal programs take note: the government’s specific representations that a program is compliant may help insulate you from False Claims Act liability. But, be wary of general guidance, which may not offer you the same protection.
Background: A Community College’s Compliance Efforts
Defendant Yavapai Community College (“Yavapai”) offered a flight training program, among other programs. When military veterans enrolled in the flight program, the Department of Veterans Affairs reimbursed Yavapai for the costs of the veterans’ coursework.
To obtain payment from the VA, Yavapai was required to comply with the VA’s “85/15 Rule.” The 85/15 Rule requires at least 15 percent of enrolled students to be tuition-paying nonveterans (“nonsupported” students). The 85/15 Rule’s requirement that programs attract paying students is designed to prevent institutional abuse of the GI Bill.
After a 2012 finding by the VA that Yavapai’s program was in violation of the 85/15 Rule, the school restructured to count flight students together with other students. The VA Compliance Officer overseeing the program was aware of this new counting approach and later testified she thought it permissible.
Yavapai also counted as nonsupported part-time students and dual-enrolled students from local high schools. The dual-enrolled students did not pay the same tuition as other nonsupported students – rather, they were part of a special reimbursement arrangement with the local high schools. The VA Compliance Officer made no specific findings about the counting of the part-time and dual-enrolled students.
In March 2015, the VA notified Yavapai that each concentration in the restructured program required a separate calculation for 85/15 compliance. Because 94 percent of the flight training program consisted of VA-assisted students, Yavapai was in violation of the 85/15 Rule and could no longer request reimbursement from the VA.
Qui Tam Proceedings
Plaintiff-Relator Daniel Hamilton was both enrolled as a student at Yavapai and employed as its Director of Aviation Programs. In 2015, Hamilton brought a qui tam claim in the District of Arizona against Yavapai, its associated program partners, and individual school administrators. Hamilton claimed that the Yavapai’s method of counting for 85/15 Rule compliance, and subsequent reporting to the VA, constituted submissions of false claims. The parties filed cross-motions for summary judgment. The Court granted partial summary judgment to Yavapai and its dean on the issue, finding that they lacked the required state of mind to support an FCA claim.
Analysis of State of Mind Requirement
In analyzing whether Yavapai and its dean had the required state of mind to support an FCA claim, the Court noted that Yavapai repeatedly sought guidance from the VA’s Compliance Officer on whether the combined program complied with the 85/15 Rule. In response, the VA’s Compliance Officer repeatedly found that the combined program complied with the 85/15 Rule. The Court also noted a peer aviation school ran a similar program that counted different concentrations together and was found to comply with the 85/15 Rule.
While Yavapi had misapplied the plain text of the 85/15 regulations, the Court found that simply misinterpreting the text of the rule was not sufficient for a finding that Yavapai lacked good faith. Coupled with Yavapi’s repeated communications with the VA on the combined program counting issue, there was not proof that Yavapai or its dean had the requisite state of mind to violate the FCA by basing its 85/15 count on the combined program.
On the other hand, the Court found sufficient evidence to raise a material fact as to Yavapai’s knowledge of wrongdoing in its counting of high-schoolers and part-time students. There, the Court noted that Yavapai did not make even a “simple inquiry” as to whether its counting methods were permissible and, therefore, was not shielded by the VA’s compliance guidance.
Takeaways for Participants in Government Programs
In taking steps to avoid an FCA claim, do not simply assume that lack of pushback from regulators equals a finding of compliance. Consider posing simple, specific questions to regulators regarding your organization’s compliance methodology. If the regulator responds with only general, rather than specific, guidance or guidance as to only one aspect of your program, do not assume this is tacit assurance that your entire program is complaint.
Organizations should also take heed of what peers are doing to comply with federal regulations – but should not take for granted that these organizations are themselves compliant.