United States District Court, D. Minnesota
UNITED STATES OF AMERICA and STATE OF MINNESOTA, ex rel. JILL BACHMANN and SHELLEY MADORE, Plaintiffs,
MINNESOTA TRANSITIONS CHARTER SCHOOLS and MN VIRTUAL HIGH SCHOOL, Defendants
For United States of America, Plaintiff: Ann M. Bildtsen and Pamela Marentette, Assistant United States Attorneys, UNITED STATES ATTORNEY'S OFFICE, Minneapolis, MN.
For State of Minnesota, Plaintiff: Kathryn M. Woodruff, Assistant Attorney General, MINNESOTA ATTORNEY GENERAL'S OFFICE, St. Paul, MN.
For Bachmann and Madore, Plaintiffs: Bryce M. Miller, SCHAEFER HALLEEN LLC, Minneapolis, MN.
For defendants: Cindy L. Lavorato, BOOTH & LAVORATO LLC, Minnetonka, MN.
MEMORANDUM OPINION AND ORDER ON MOTION TO DISMISS
JOHN R. TUNHEIM, United States District Judge.
Plaintiffs Shelley Madore and Jill Bachmann bring this action under the False Claims Act (" FCA" ) and the Minnesota False Claims Act (" MFCA" ) on behalf of the United States and the State of Minnesota alleging that Defendants Minnesota Transitions Charter Schools and Minnesota Virtual High School submitted fraudulent attendance and enrollment information and special education instruction reports to the State of Minnesota and to the United States Department of Education in order to receive funds to which they otherwise would not have been entitled. Defendants move to dismiss, arguing that they are entitled to immunity under the Eleventh Amendment, that they are not proper defendants under either Act, and that Plaintiffs' allegations fail to state a claim upon which relief could be granted. The Court concludes that Defendants are not entitled to Eleventh Amendment immunity and that they are proper defendants under the FCA, but not under the MFCA. The Court will thus grant Defendants' motion to dismiss with respect to Plaintiffs' claims under the MFCA. Because Plaintiffs' allegations under the FCA are inadequate in several respects, the Court will dismiss Plaintiffs' claims under that statute without prejudice.
Defendant Minnesota Transitions Charter Schools (" Transitions" ) operates ten charter schools in Minnesota, including Defendant Minnesota Virtual High School (" MVHS" ), which is an online high school offering full-time education to students in grades six through twelve. (Compl. ¶ ¶ 10, 12, June 6, 2012, Docket No. 1.)
Relator Shelley Madore worked for MVHS as an administrative coordinator for the special education program from January 19, 2009 to June 14, 2010. ( Id. ¶ 9.) In this position, Madore had access to student enrollment and attendance data, also known as Average Daily Membership (" ADM" ), and reports about this data that Defendants generated to secure state and federal funding. ( Id.) This included data submitted via the Minnesota Automated Reporting Student System (" MARSS" ). ( Id.) During her employment, Madore served as an " administrative liaison" between MVHS and its principal, Jim Roth, and Transitions and its superintendent, Tony Scallon. ( Id. ¶ 9.)
Relator Jill Bachmann worked for Defendants as a special education teacher from August 23, 2007 to June 14, 2010. ( Id. ¶ 8.) Bachmann provided services to special education students online and created Individual Education Plans (" IEPs" ). ( Id. ¶ ¶ 41, 46.) IEPs are written annually and establish a plan for student achievement that consists of measurable goals and objectives, accommodations and modifications, and instruction and services provided through direct and indirect teacher contact. ( Id. ¶ 42.) Plaintiffs allege that a
majority of the students enrolled at MVHS are special education students, and that each special education teacher, including Bachmann, managed an average of 37 to 39 student cases. ( Id. ¶ ¶ 20, 50.) As required by the Individuals with Disabilities Education Act (" IDEA" ), a committee of general and special education teachers, school and district representatives, parents, and the student, as appropriate, meets annually to draft a student's IEP. ( Id. ¶ ¶ 42, 55.)
Plaintiffs allege that Defendants submitted knowingly false documents and records in order to receive and seek funding to which they were not entitled from both the United States and the State of Minnesota. ( See id. ¶ 1, 3.) Plaintiffs base this claim on two theories: first, that Defendants manipulated attendance and enrollment reports submitted to the state so as to receive funding for students without being held accountable for those students' performance on standardized tests; and second, that Defendants overstated the services provided to special education students in order to receive more federal special education funds. ( See id. ¶ 3.)
A. Attendance and Enrollment
According to Plaintiffs, charter school funding comes from two main sources: state general fund revenues given to the school district, and reimbursement for special education services. ( Id. ¶ 1.) In order to receive general education funding, charter schools must submit certain certifications and reports, some of which include exam participation reports, ADM, and MARSS data. ( Id. ¶ ¶ 9, 16.) Plaintiffs explain this system as follows:
August and September MARSS files are used to compute the ADM used for the September 30 and October 30 entitlements, respectively. For FY 2012, charter schools' final aid entitlements using MARSS data is computed for October 30 only and it uses the September MARSS data. These actual ADM and the aid to which the district or school is entitled are compared to the aid paid to the district or charter school during the school year based on the district's or charter school's ADM estimates provided earlier in the year.
Id. ¶ 16.) Plaintiffs allege that, based on these reports, Defendants received both general and special education state funds in bi-weekly installments. ( Id. ¶ 17.)
Plaintiffs allege that, from the beginning of her employment, Madore noticed a pattern of aggressive student enrollment in the MVHS program followed by lax record keeping of attendance. ( Id. ¶ 29.) Plaintiffs assert that MVHS Principal Jim Roth and Transitions Superintendent Scallon explained to Madore that final funding was based on September ADM data. ( Id. ¶ ¶ 9-10, 29.) Further, Plaintiffs allege that Defendants engaged in various enrollment campaigns, such as offering free laptops to each enrolling student, and loosened enrollment requirements by allowing them to submit their own academic transcripts from prior schools instead of contacting each student's former school for an official copy. ( Id. ¶ ¶ 29-31.)
Plaintiffs allege that in the beginning of 2010, Madore began to express concerns to Defendants about discrepancies she found between ADM data and actual attendance records. ( Id. ¶ 32.) Plaintiffs claim that Madore informed Defendants about the discrepancies, as well as concerns she had about the lack of a truancy policy for the school. ( Id.) Plaintiffs further assert that Madore expressed concerns about truancy and inaccurate attendance tracking to School Psychologist and Assistant Director Kim Mehlos, but Mehlos dismissed Madore's
concern. ( Id. ¶ 35.) After reporting her concerns, Madore was relieved of her MARSS reporting duties. ( Id. ¶ 32.)
According to the allegations in the Complaint, Defendants began to pay attention to truant students in the spring of 2010 due to concerns about the negative impact non-attending students would have on the school's performance on state standardized tests. ( Id. ¶ ¶ 33-34.) Plaintiffs claim that Scallon ordered that students be dropped from enrollment for non-attendance shortly before state testing to prevent them from negatively impacting test results. ( Id. ¶ 34.) After testing, however, in order to meet the ADM reported in March, Plaintiffs assert that Scallon then instructed Defendants to re-enroll the truant students. ( Id.)
Plaintiffs also contend that Defendants signed paperwork giving a student access to social security benefits for being a full-time student when, in fact, the student did not attend full-time. ( Id. ¶ 27.) Specifically, Plaintiffs claim that Madore told Roth that signing the paperwork was contrary to the law, but that Roth signed it anyway. ( Id.)
Plaintiffs allege that Madore received a notice of nonrenewal of her annual contract on June 4, 2010, and notice of termination on June 14, 2010, which " accused her of violating student data privacy laws." ( Id. ¶ 38.)
B. Special Education Records
Plaintiffs allege that " [f]ederal funding for special education is based on the number of special education students enrolled in the school, the school's total enrollment, and the school's free and reduced lunch count." ( Id.) With regard to special education, Plaintiffs allege that Defendants submitted fraudulent information in IEPs. ( Id. ¶ ¶ 49-50, 54-56.) Specifically, Plaintiffs claim that in the fall of 2009, Scallon instructed Bachmann and all special education teachers to list one hour each of direct and indirect student contact per week in each student's IEP, regardless if that time was actually spent with the student. ( Id. ¶ 49.) Plaintiffs allege that Bachmann objected because the average case load per teacher made that level of contact impossible, and because most students did not need that amount of contact. ( Id. ¶ 50.) Bachmann informed Defendants that she would not list contact time on the IEPs which she had not actually done. ( Id. ¶ 52.) Plaintiffs also allege that, at one point, Bachmann observed that student IEP meetings lacked all of the required participants under the IDEA, and that she complained to school leadership about this. ( Id. ¶ 54.) According to Plaintiffs, Defendants' response was inadequate, because under the IDEA a general education teacher of the student must attend each IEP meeting, but Defendants' solution was to have an ...