US Ex Rel. Nyoka Lee v. Corinthian Colleges , 652 F. App'x 503 ( 2016 )

FILED
NOT FOR PUBLICATION
JUN 09 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA ex rel. No. 13-55700
NYOKA LEE, AKA Seal 2; TALALA
MSHUJA, AKA Seal 3, D.C. No. 2:07-cv-01984-PSG-
MAN
Plaintiffs - Appellants,
v. MEMORANDUM*
CORINTHIAN COLLEGES, AKA Seal
A; ERNST & YOUNG LLP, AKA Seal B;
DAVID MOORE, AKA Seal C; JACK D.
MASSIMINO, AKA Seal D,
Defendants - Appellees.
UNITED STATES OF AMERICA, ex rel., No. 13-56121
Plaintiff, D.C. No. 2:07-cv-01984-PSG-
MAN
And
SCOTT D. LEVY; SCOTT D. LEVY &
ASSOCIATES, P.C.,
Plaintiffs - Appellants,
v.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
CORINTHIAN COLLEGES, AKA Seal
A; ERNST & YOUNG LLP, AKA Seal B;
DAVID MOORE, AKA Seal C; JACK D.
MASSIMINO, AKA Seal D,
Defendants - Appellees.
Appeal from the United States District Court
for the Central District of California
Philip S. Gutierrez, District Judge, Presiding
Argued and Submitted May 3, 2016
Pasadena, California
Before: KOZINSKI, W. FLETCHER, and GOULD, Circuit Judges.
In case number 13-55700, Nyoka Lee and Talala Mshuja (“Relators”) appeal
the district court’s dismissal of their amended complaint alleging violations of the
False Claims Act (“FCA”) by Corinthian Colleges, Inc. (“Corinthian”), its former
officers David Moore and Jack D. Massimino, and Ernst & Young, LLP (“EY”)
(collectively, “Defendants”). In case number 13-56121, Relators’ attorney Scott D.
Levy and his law firm appeal the district court’s imposition of sanctions in the
amount of Defendants’ attorney’s fees. We previously consolidated the cases for
purposes of appeal. We affirm the district court’s dismissal in no. 13-55700, but
reverse the award of sanctions in no. 13-56121.
1. The district court concluded that it lacked jurisdiction over Relators’
action because of the FCA’s public disclosure bar. See 31 U.S.C. § 3730(e)(4)(A)
(2010). Relators alleged in their First Amended Complaint (“FAC”) that
Corinthian had falsely certified its compliance with the Higher Education Act
while making unlawful incentive payments to recruiters. See 20 U.S.C. §
1094(a)(20). But a class action securities lawsuit filed in 2005 had previously made
a substantially similar allegation of fraud against Corinthian. Once the allegations
against Corinthian were public, the government had ready access to documents
identifying EY as Corinthian’s auditor, so the allegations against EY were also
subject to the public disclosure bar. See United States ex rel. Harshman v. Alcan
Elec. & Eng’g, Inc., 197 F.3d 1014, 1019 (9th Cir. 1999). Further, Relators were
not an “original source” of the information in their First Amended Complaint
(“FAC”) because they had no direct knowledge of whether Corinthian’s decisions
on compensation and raises were based solely on enrollment numbers. See 31
U.S.C. § 3730(e)(4)(B) (2010). The Relators’ possession of reports comparing the
“lead-to-conversion” ratios of each recruiter did not make them an original source.
Because Relators’ allegations were previously publicly disclosed and they
were not an “original source” of the information underlying their allegations, the
district court correctly dismissed the case for lack of jurisdiction. 31 U.S.C. §
3730(e)(4)(A). Accordingly, we need not reach Relators’ argument that the district
court erroneously found some of their claims barred by the statute of limitations.
2. Relators’ arguments contesting the district court’s evidentiary and
discovery rulings are also without merit. The district court did not abuse its
discretion in striking an affidavit submitted by Lee after her deposition as a “sham
affidavit” because it clearly contradicted her testimony. See Yeager v. Bowlin, 693
F.3d 1076, 1081 (9th Cir. 2012). Relators cannot show that any of the district
court’s other discovery rulings should be overturned, because they have not
identified any evidence they would have sought or presented that would have a
“reasonable probability” of changing the outcome in this case. See Laub v. U.S.
Dep’t of the Interior, 342 F.3d 1080, 1093 (9th Cir. 2003).
3. Although the district court was correct to dismiss the case, it abused its
discretion in imposing nearly $1.5 million in sanctions against Levy and his law
firm. Under 28 U.S.C. § 1927, a district court may sanction an attorney for
“multipl[ying] the proceedings . . . unreasonably and vexatiously,” including
recklessly filing frivolous suits. 28 U.S.C. § 1927; B.K.B. v. Maui Police Dept.,
276 F.3d 1091, 1107 (9th Cir. 2002). Relators’ case was not frivolous. In their first
appeal to this court, we specifically held that Relators could amend their complaint
to state a claim against Defendants, and we remanded to allow them to do so. See
United States ex rel. Lee v. Corinthian Colls., 655 F.3d 984, 996–97, 999–1000
(9th Cir. 2011). Upon amendment, Relators made a plausible argument that newly
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alleged information regarding “lead-to-conversion” ratios was material and not
based on prior public disclosures. Though this argument was ultimately
unconvincing, it was not frivolous. See United States ex rel. Mateski v. Raytheon
Co., 816 F.3d 565, 579 (9th Cir. 2016) (holding that suits alleging “genuinely new
and material information of fraud” can surmount the public disclosure bar).
Further, the district court’s finding that several of Levy’s motions and filings were
“vexatious” was without support in the record; there is nothing to suggest that
Levy acted with intent to increase expenses or delay. See New Alaska Dev. Corp. v.
Guetschow, 869 F.2d 1298, 1306 (9th Cir. 1989).
4. The district court also issued sanctions under its inherent powers because
Levy pursued the litigation for the “improper purpose” of extracting settlement.
But the district court cited no evidence that Levy had any improper purpose, and
the record reveals none. Because there is no support for the conclusion that Levy
acted in “bad faith,” this ground for sanctions also fails. See Haeger v. Goodyear
Tire & Rubber Co., 813 F.3d 1233, 1244 (9th Cir. 2016).
***
For the reasons explained above, we AFFIRM the district court’s dismissal
of Relators’ FAC in no. 13-55700, but we REVERSE its order of sanctions against
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Levy and his firm in no. 13-56121. We address Relators’ motion to unseal in a
separate order. Each party shall bear its own costs on appeal.
AFFIRMED in 13-55700, REVERSED in 13-56121.
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