Relator, plaintiff Daniel Hamilton, filed this qui tam action under the False Claims Act (“FCA”) alleging violations of the FCA, wrongful termination under the FCA's whistleblower protection provisions and state law, intentional interference with contract, intentional interference with business relations, and denial of liberty interest. The alleged violations of the FCA relate to the administration of a helicopter flight training program by YC, and funds received by YC for that program from the United States Department of Veterans Affairs (“VA”).

In addressing a motion to dismiss a complaint, the Court must determine whether the factual allegations in the complaint, together with all reasonable inferences, state a “plausible” claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.’ ” Id. (quoting Twombly, 550 U.S. at 557).

The FCA imposes liability for knowingly making, using, or causing to be made or used, “a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B). The heightened pleading standard for allegations of fraud under Federal Rule of Civil Procedure 9(b) governs claims brought under the FCA. Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1054 (9th Cir. 2011). To satisfy this heightened standard, the complaint “must identify the ‘who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’ ” Id. at 1055.

The FCA targets falsity, not negligent misrepresentation. See United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996) (“Innocent mistakes, mere negligent representations and differences in interpretations are not false certifications under the Act.”); Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) (“The statutory phrase ‘known to be false’ does not mean scientifically untrue; it means a lie.”) (internal quotation marks and citation omitted). Thus, the Court must dismiss a claim brought under the Act if it fails “to plausibly make [the] requisite allegation of ‘knowing’ scienter in the total circumstances alleged.” Gonzalez v. Planned Parenthood of L.A., ___ F.3d ____, 2014 WL 3583514 (9th Cir. 2014).

*2 In the fall of 2009, defendant YC entered into a Memorandum of Understanding (“MOU”) with defendant Guidance Academy (“Guidance”)[2] to develop and offer an associate degree for Professional Pilot-Helicopter (PPH). (FAC ¶ 28.) Under the MOU, YC administered the PPH degree program and provided academic courses, and Guidance provided the flight course component of the program under YC's supervision. (FAC ¶ 29.) The MOU provided for the establishment of a scholarship by Guidance under which, beginning in the fall of 2011, Guidance was to donate $1,000 to the Yavapi Community College Foundation (YC Foundation) (a nonprofit group devoted to fund raising for YC) for every student who graduated from the PPH program. (FAC ¶ 62.)

YC and Guidance anticipated that its program would be eligible as a helicopter pilot flight training/degree program under the VA's GI Bill, which would allow eligible veterans who enrolled in the PPH program to be reimbursed by the VA for some or all of the costs of attending the program. (FAC ¶¶ 21-23.)

One of the regulations that governs the enrollment of veterans who are seeking reimbursement under the GI Bill is 38 C.F.R. § 21.4201, which is commonly referred to as the “85/15 Rule.” The 85/15 Rule requires, with some exceptions, that the VA

38 C.F.R. § 21.4201(a).

YC and Guidance first offered the PPH program in Spring 2010 semester. (FAC ¶ 30.) YC representative Sandra Aldrich prepared and submitted YC's calculations for the 85/15 Rule within thirty days of the beginning of each Spring and Fall semester. (FAC ¶ 31.) VA paid YC the costs of enrollment (tuition, fees, etc.) for each VA-supported student within approximately six weeks of receiving YC's submission of the calculations on the 85/15 Rule. (FAC ¶ 35.) Guidance, in turn, invoiced YC for each student's flight school costs and YC paid the Guidance invoices once it had received payment from VA. (FAC ¶ 36.)

The first year cohort of the PPH program consisted of fifteen degree candidates; all but one of the students (Wyatt Fox) were supported by either VA funding or by YC. (FAC ¶¶ 32-34.) In October 2010, VA informed Defendants that their PPH program did not comply with the 85/15 Rule because the veteran enrollment exceeded 85% of the total enrollment. (FAC ¶ 44.) In late 2010, YC representatives met with a VA representative who informed YC that the VA had a procedure for petitioning for a waiver of the 85/15 Rule. (FAC ¶ 45.) In the spring of 2011, YC applied with VA for a waiver; in May 2011, the VA denied the requested waiver. (FAC ¶¶ 46-47.) VA again informed Defendants that the PPH program was not in compliance with the 85/15 Rule and that YC would have to certify compliance to receive any further VA support. (FAC ¶ 92.)

Within three days of VA's denial of the 85/15 Rule waiver, Guidance approached YC with a plan regarding how to come into compliance with the 85/15 Rule. (FAC ¶ 49.) Under this plan, Guidance employees would be able to enroll in the PPH program for approximately $200 per employee per semester, and Guidance would implement a policy requiring all employees who did not have an aviation degree to pursue one through the PPH program as a condition of employment or continued employment. (FAC ¶¶ 50-54.) YC was uneasy with the Guidance plan, but decided to go along with it “for a few semesters” until the Defendants could come up with a different plan for complying with the 85/15 Rule. (FAC ¶¶ 60-61.)

*3 Pursuant to the plan, Guidance implemented a policy requiring its employees to have an aviation degree, and requiring those employees who did not have an aviation degree to pursue that degree by enrolling in the PPH program at Guidance expense. (FAC ¶ 54.) Approximately nine non-veteran Guidance employees enrolled in the PPH program for the Fall 2011 cohort, and six Guidance employees enrolled for the Spring 2012 cohort, with Guidance paying all of these employees' tuition, fees, and other program charges. (FAC ¶¶ 55-57.) Guidance employees also enrolled in the PPH program for Summer 2012 semester, again with Guidance paying its employees' cost of enrollment. (FAC ¶¶ 77.)

To further increase non-veteran enrollment in the PPH program, Guidance began to hire civilians without a degree, such as Maci Sammeli, so that the new employees could be enrolled into the PPH program. (FAC ¶ 80.) Guidance even sought out civilian former employees and/or civilian former students who did not have a PPH degree, such as Cody Cooper, in an attempt to get the former employees/former students to enroll/re-enroll in the program at Guidance's expense. (Id.)

Pursuant to the Guidance scholarship program established under the MOU, beginning in the fall of 2011, Guidance donated $1,000 to the YC Foundation for every student who graduated from the PPH program. (FAC ¶ 62.) The first Guidance donation to the scholarship was in August 2011 for $11,000, which was awarded for Fall 2011 semester to otherwise nonsupported students in the PPH program. (Id.) Guidance made a second donation to the scholarship in December 2011 in the amount of $15,000, which was awarded for Spring 2012 semester to otherwise nonsupported civilian students in the PPH program. (FAC ¶ 63.) Guidance made a third donation to the scholarship in June 2012 for $10,000, which was awarded for Fall 2012 semester to otherwise nonsupported civilian students in the PPH program. (FAC ¶ 64.)

In the fall of 2011, Guidance representatives J.J. Johnson and defendant John Stonecipher approached defendant John Morgan, Dean of Career and Technical Education for YC, and Plaintiff Hamilton with a proposed scholarship idea that would “significantly impact 85/15” by making the PPH program more attractive and accessible to non-veterans. (FAC ¶ 65.) Guidance's proposal, as relayed to Morgan and Hamilton by Johnson and Stonecipher, was to increase flight fees by 10-15% and apply the increased revenue generated to civilian scholarships, which would allow full funding for civilians and “satisfy” the 85/15 Rule. (FAC ¶¶ 66-67.) Stonecipher and Johnson explained that this plan would not only solve the 85/15 problem, but would also not cost them anything out of their pocket because VA money received from increased flight fees would be used to fund the scholarships for otherwise non-VA supported students. (FAC ¶ 68.) Plaintiff Hamilton told Johnson and Stonecipher that their proposal would not be ethical or legal because YC and Guidance would be indirectly having VA cover 100% of the costs of everyone in the program, including civilians, and it would be very obvious to the VA what YC and Guidance were doing. Johnson and Stonecipher allegedly responded to Hamilton that the VA would only know about it if YC told them. (FAC ¶ 70.) Hamilton told Stonecipher and Johnson that even if YC did not tell the VA, the veterans in the program would see the 15% increase in prices and notice that all of their civilian cohorts were receiving 100% scholarships and it would not take anyone very long to figure out what was happening. (FAC ¶ 71.) The Complaint does not allege that this new proposed scholarship program was ever implemented.

*4 In March 2012, Hamilton told Dr. Greg Gillespie, YC Vice President of Instruction and Student Services, that 75% of the PPH students that were being claimed as civilians were fraudulent because those students were being supported by Guidance. (FAC ¶ 75.) Despite this conversation, and over Hamilton's objections, Gillespie allowed Guidance to enroll fourteen new veterans in the PPH program for Summer 2012. (FAC ¶ 76.)

The last week of May 2012, defendant Morgan told Hamilton that he (Morgan) had been in a meeting with YC leadership (defendant Stonecipher, Gillespie, and YC President, Dr. Penny Wills), and that during that meeting they discussed the possibility of a joint scholarship between Guidance and YC in an attempt to satisfy the 85/15 Rule. (FAC ¶ 72.) Hamilton told Morgan that such a scheme would also be illegal and against VA regulations. (FAC ¶ 73.) Morgan did not respond. (Id.)

From at least Summer 2011, Guidance implemented a policy under which a student who had failed and was retaking the AVT211 course (Commercial Pilot Helicopter Flight course) was offered only half the total flight hours offered to a student who was taking the course for the first time. (FAC ¶ 83.) However, Guidance charged VA supported students the same amount for course flight time whether the student was taking the course for the first time or was retaking the course and thus only receiving one half the amount of flight time. (¶ 83.)

In Spring 2012, Hamilton reported to YC representatives Morgan and Gillespie that the PPH program was not providing the number of flight hours for which Defendants were charging students and for which YC was billing VA; that YC would be liable to VA to refund amounts paid for flight hours that were not provided; that YC would be liable for Guidance's fraud on VA; and that YC should terminate its relationship with Guidance. (FAC ¶¶ 84-85.)

In response, Gillespie instructed YC's director of financial aid, Terry Eckle, to report to the VA that Guidance was not providing the flight hours as charged, and Eckle made the report to the VA. (FAC ¶ 87.) Neither Guidance nor YC refunded to VA or to the students who were retaking the course any of the fees paid for flight hours. (Id.)

The Complaint alleges that Defendants repeatedly represented to VA that the PPH program was in compliance with the 85/15 Rule. (FAC ¶ 88.) Each time Defendants reported their calculations supporting their compliance, YC representative Aldrich would calculate the ratio of veterans to total enrollment without taking into account whether the total enrollment included institution-supported students. (FAC ¶ 89.)

In Spring 2010 semester, Wyatt Fox was the only nonsupported student in a cohort of fifteen. (FAC ¶ 90.) Between Spring 2010 and Fall 2012, Defendants knowingly enrolled and counted as nonsupported the following students who had their tuition paid in whole or in part by Guidance: Alex Clark, Cody Cooper, Josh Coplan, Dylen Long, Billy Ringer, Maci Sammeli, Logan Schuck, Kyle Shuffler, Matthew Olsen, Ken Wilson, Matthew Cavanaugh, Felix Rutigliano, Timothy Duke, Hunter Richard Hill, Christopher Horton, and Robert Short. (FAC ¶¶ 94-95.) Further, between Spring 2010 and Fall 2012, Defendants knowingly enrolled and counted as nonsupported civilian students, such as Jesse Kirkwood, whose tuition was paid in whole or in part through scholarships funded by Defendants from moneys received from VA. (FAC ¶ 96.)

*5 In Spring 2010, Fall 1010, Spring 2011, Fall 2011, Spring 2012, Fall 2012, and Spring 2013 semesters, YC certified to VA compliance with the 85/15 Rule by counting as nonsupported students who were employees of Guidance and for whom Guidance paid tuition. (FAC ¶¶ 93, 97.) When each of the certifications was made, YC knew that the certifications were false because it knew that Guidance employee enrollments were paid for by Guidance, and that some civilian students were being supported by YC and Guidance scholarships that were funded using VA money. (FAC ¶¶ 98-99.)

As early as Summer 2011 and continuing at least until May 2012, Guidance provided invoice statements to YC for students, including VA supported students, who were retaking the AVT211 course based on Guidance providing the students seventy-four hours of flight time when Guidance only provided approximately one-half that many hours to those students (FAC ¶ 100.)

The False Claims Act imposes liability on anyone who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(B). The First Amended Complaint (the “Complaint” or “FAC”) alleges that Guidance violated the FCA in two ways.[3]

The Complaint alleges that Guidance violated the FCA by “knowingly caus[ing] YC to use false records or statements including false certifications of compliance with VA enrollment ratios and funding requirements in order to get a false or fraudulent claim paid or approved by the government.” (FAC at 16.)

The ratios and funding requirements Hamilton relies on in support of this allegation are set forth in the 85/15 Rule, 38 C.F.R. § 21.4201. Under this Rule, the VA

38 C.F.R. § 21.4201(a).

The method of calculating the 85/15 ratio is set out in subsection (e) of the 85/15 Rule. See 38 C.F.R. § 21.4201(e). Relevant here is subsection (e)(2), which defines how students are to be assigned to each part of the 85/15 ratio:

38 C.F.R. § 21.4201(e)(2)(i), (iv).

The Complaint alleges that Defendants violated the 85/15 Rule by counting as “nonsupported” those students enrolled in the course through the Guidance employee enrollment plan and those students enrolled in the course receiving support through the Guidance scholarship program. As discussed below, the Court concludes that the allegations of the FAC in relation to the 85/15 Rule are insufficient to show that Guidance violated the FCA.

*6 The Complaint alleges that Guidance employees enrolled in the PPH program through the employee enrollment plan were “wrongly” included in the 85/15 calculation as nonsupported students. (FAC ¶¶ 49-61.) However, the Complaint also alleges that Guidance's policy required all employees to have an aviation degree; that, as a condition of employment or continued employment, those employees who did not have an aviation degree were required to enroll in the PPH program; and that Guidance paid the employees' cost of enrolling in the PPH program. (FAC ¶¶ 53-58.) Thus, based on the allegations in the Complaint, the Guidance employee enrollment plan, and the aid provided under the plan, was open to all employees without distinguishing between veterans and nonveterans, meaning that the “policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike.” 38 C.F.R. § 21.4201(c)(2)(iv). Thus, under the 85/15 Rule, the students enrolled through the Guidance employee enrollment plan were to be considered “nonsupported.” See id.

Further, contrary to Hamilton's contention, subsection (e)(2)(iv) is not merely a “defense” to the application of the 85/15 Rule, but is instead essential for determining how to assign students in calculating the ratio of “supported” versus “nonsupported” students. Accordingly, the Complaint must allege facts necessary for determining whether a student is “supported” or “nonsupported.” Because the Complaint fails to allege those facts, it fails to state a claim as to the employee enrollment plan.

The Complaint also fails to sufficiently allege scienter. The Complaint alleges that the “stated purpose of Guidance's new [employee enrollment] policy was to conceal the PPH program's [non]compliance with the 85/15 Rule.” (FAC ¶ 58) This allegation is not, however, supported by specific facts, such as where such purpose was stated, when it was stated, by whom it was stated, and how it was stated. See Fed. R. Civ. P. 9(b); Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (“Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.”). The allegation is therefore insufficient to make the necessary showing that the employee enrollment program was implemented, and the students enrolled through the program were counted as nonsupported, with the intent by Guardian of submitting or causing to be submitted false or fraudulent certifications to the government. See Hagood, 929 F.2d at 1421 (explaining that violation of the False Claims Act requires knowing presentation of a claim that is either “false” or “fraudulent”).

The Complaint alleges that Guidance presented a “scheme to YC to make the program falsely appear to be in compliance with the 85/15” through the employee enrollment plan, and that Guidance used the scheme “to defraud VA” out of millions of dollars in tuition. (FAC ¶¶ 49-52.) The Complaint does not, however, allege what representative(s) of Guidance allegedly came up with and implemented this “scheme,” nor does the Complaint allege specific facts to show that the “scheme” or “program” was implemented for the purpose of misleading or defrauding the VA or for the purpose of causing YC to submit a false record or statement to the VA. See Kearns, 567 F.3d at 1124. In other words, the Complaint does not allege facts plausibly showing that the employee enrollment plan was anything more than an attempt by Guidance to bring the PPH program into compliance with the 85/15 Rule. See Gonzalez, ___ F.3d ____, 2014 WL 3583514 at *2 (requiring dismissal if the complaint fails “to plausibly make [the] requisite allegation of ‘knowing’ scienter in the total circumstances alleged”).

Hamilton contends that even if the Guidance employee enrollment plan was lawful, it does not affect violations of the 85/15 Rule that predate the implementation of that plan. The Complaint does not, however, allege that Guidance, before implementing its employee enrollment plan, possessed the intent to submit or cause to be submitted false or fraudulent certifications to the government. See Hagood, 929 F.2d at 1421. To the contrary, the Complaint's allegations for the period prior to the Fall 2011 implementation of the plan indicate that Guidance and YC were attempting to either comply with the 85/15 Rule or get the Rule waived. (See FAC ¶¶ 44-57; see also FAC ¶ 48 (“Defendant YC then sought the assistance of Arizona Senator, John McCain, to get VA to lift the 85/15 Rule. These efforts also failed.”).)

*7 The Court concludes that the Complaint fails to state a claim for relief in relation to the inclusion of students enrolled under Guidance's employee enrollment plan as “nonsupported” in the 85/15 calculation, and also fails to state a claim for relief in relation to the period that predated the implementation of the Guidance employee enrollment plan.

The Complaint alleges that students supported by Guidance scholarships were wrongfully included in the 85/15 calculation as “nonsupported.” The Complaint does not, however, allege that Guidance's policy in awarding such scholarships treated veteran and nonveteran students unequally. Thus, based on the allegations in the Complaint, the “policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike” and the students receiving the aid were accordingly properly considered “nonsupported.” 38 C.F.R. § 21.4201(e)(2)(iv).

The Complaint's allegation that the scholarships were actually awarded only to civilian students is insufficient to defeat the motion to dismiss because the 85/15 Rule does not require that an institution's financial assistance actually be awarded to veterans and nonveterans equally. To the contrary, the Rule requires only that the “institutional policy for determining the recipients of such aid is equal with respect to veterans and nonveterans alike.” 38 C.F.R. § 21.4201(e)(2)(iv).

As to the alleged “scheme to expand” the scholarship program through funds generated by increased flight fees, the Complaint does not allege facts showing that this “scheme” was ever implemented.

The Court concludes that the Complaint fails to state a claim for relief for a violation of the False Claims Act in relation to the inclusion in the 85/15 calculation as “nonsupported” those students who received support through Guidance's scholarship program.

Subsection (c)(4) of the 85/15 Rule provides an exception under which the 85/15 ratio is generally not applied to a course where the total number of students receiving GI Bill assistance is 35 percent of less of the total student enrollment at the educational institution. 38 C.F.R. § 21.4201(c)(4). Guidance contends that it is “common knowledge” that the veteran student population at YC is less than 35 percent of the total student enrollment and, accordingly, that YC is exempt from application of the 85/15 Rule.

The Court does not find YC's veteran student enrollment versus total enrollment to be “common knowledge” and therefore declines to address this argument at this stage of the proceedings. Further, Guidance's contention appears to be inconsistent with allegations in the Complaint that the VA rejected YC's application for a waiver of the 85/15 Rule, found YC to be subject to the 85/15 Rule and, on two different occasions, informed YC that it was not in compliance with the Rule. (See FAC ¶¶ 44, 46-47, 92.)

The Complaint alleges that, from at least Summer 2011, and continuing at least until May 2012, students retaking the AVT211 course were offered only half of the flight hours required by the course, but that Guidance billed YC for the full number of hours for these students and thus “knowingly caused YC to use false records or statements including false written invoices for payment of flight hours that were not provided.” (FAC at 16; see FAC ¶¶ 83, 100.)

*8 Guidance's contention that this claim should be dismissed based on government knowledge of the alleged overbilling is unavailing. After the 1986 amendments to the FCA, government knowledge is not a sufficient basis on which to grant a motion to dismiss. See Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1051 (9th Cir, 2012) (“the government's ‘knowledge of the underlying facts is not automatically a complete defense when that knowledge appears only as an allegation on the face of a complaint under the FCA’ ” (citation omitted)). Although there is a possibility that “at the summary judgment stage or after trial, the extent and the nature of government knowledge may show that the defendant did not ‘knowingly’ submit a false claim and so did not have the intent required by the post–1986 FCA,” id. (citations omitted), such a determination cannot be made at this stage of the proceedings on a motion to dismiss.

Dismissal of this overbilling claim is, however, appropriate because the Complaint does not sufficiently allege facts showing that Guidance submitted the alleged overbilling to YC knowing the billing to be false and for the purpose of causing YC to submit a false or fraudulent claim to the VA. See 31 U.S.C. § 3729(a)(1)(B) (imposing liability for knowingly making, using, or causing to be made or used, “a false record or statement material to a false or fraudulent claim”); Gonzalez, ___ F.3d ____, 2014 WL 3583514 at *2 (requiring dismiss if the complaint fails “to plausibly make [the] requisite allegation of ‘knowing’ scienter in the total circumstances alleged”); United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1267 (9th Cir. 1996) (“Innocent mistakes, mere negligent representations and differences in interpretations are not false certifications under the Act.”); Hagood, 81 F.3d at 1478 (“The statutory phrase ‘known to be false’ does not mean scientifically untrue; it means a lie.”) (internal quotation marks and citation omitted).

In Count II, Hamilton alleges that Guidance violated the False Claims Act by conspiring with YC to commit the violations alleged under Count I, and conspiring to expand the scope of the scheme to bring high school students into the PPH program and count those students as nonsupported for purposes of the 85/15 Rule. (FAC ¶¶ 114-120.)

As already discussed, Count I of the Complaint fails to state a claim in relation to the 85/15 Rule and to the Flight Hours and thus, Count II fails to state a claim for relief to the extent it relies on that portion of Count I.

Count II also fails to state a claim to the extent it relies on the alleged expansion of the funding programs to high school students because the Complaint does not include sufficient factual allegations to demonstrate that any misconduct has occurred, let alone that any alleged misconduct was “knowing” as required under the FCA. Accordingly, Count II fails to state a claim for relief.

To state a claim for intentional interference with contract against Guidance, the Complaint must allege facts demonstrating (1) the existence of a valid contractual relationship, (2) Guidance's knowledge of the relationship, (3) Guidance's intentional interference inducing or causing a breach, (4) resulting injury to Hamilton, and (5) that Guidance acted improperly. See Safeway Ins. Co., Inc. v. Guerrero, 106 P.3d 1020, 2015 (Ariz. 2005).

In Count V, the Complaint alleges that Hamilton had a valid contractual employment relationship with YC; that Guidance knew about that contractual relationship; that Guidance pressured YC to terminate Hamilton; that as a result of this pressure, YC terminated Hamilton; and that Guidance acted with an improper motive and/or means because the purpose and intent of this pressure by Guidance was to allow Guidance and YC “to continue their fraudulent scheme of covering up their violations of VA regulations and to retaliate against [Hamilton] for his opposition to Guidance's schemes to defraud the government.” (FAC ¶¶ 130-143.) As to the wrongfulness of Guidance's actions, the Complaint alleges that Guidance “pressured” YC to terminate Hamilton to allow Guidance and YC to continue to engage in their fraudulent conduct, and that YC terminated Hamilton as a result.

*9 Because the claim as set forth in the Complaint sounds in fraud, the Complaint must meet the heightened pleading standards of Rule 9(b) as to this claim. See In re Daou Sys., Inc., 411 F.3d 1006, 1027 (9th Cir. 2005). The Complaint fails to meet this heightened standard because it does not demonstrate the “who, what, when, where, and how” of Guidance's alleged wrongful conduct. See Kearns, 567 F.3d at 1124 (fraud averments “must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged”).

Hamilton's reliance on Arizona's criminal blacklisting statute is unavailing because the Complaint does not contain a blacklisting claim and, moreover, the conduct alleged in the Complaint does not fall within the meaning of “blacklisting.”

“Blacklist” is defined as an “understanding or agreement whereby the names of any person ... shall be spoken, written, printed or implied for the purpose of being communicated or transmitted between two or more employers of labor,” “whereby the laborer is prevented or prohibited from engaging in a useful occupation.” A.R.S. § 23-1361(A). In other words, blacklisting is a process that occurs between two or more employers. The alleged pressure placed by Guidance (a non-employer) on YC (an employer) to get rid of Hamilton (an employee) does not, without more, fall within the meaning of blacklisting.

The Complaint's allegations specifically against Stonecipher in his personal capacity relate only to the alleged scheme to expand the Guardian scholarship program using funds generated through increased flight fees in order to address YC's failure to comply with the 85/15 Rule. (See FAC ¶¶ 65-72.) For the reasons discussed above in relation to Guidance, the Court concludes that the Complaint fails to state a claim for relief against Stonecipher in his personal capacity for the inclusion as “nonsupported” those students who received support through Guidance's scholarship program. Further, because the claims against Alsobrook derive exclusively out of the marital community, the Court concludes that the Complaint also fails to state a claim for relief against her.

The Court will grant the Motion to Dismiss and will dismiss Counts I, II, and V as to Guidance, and will dismiss all claims against Stonecipher in his personal capacity, as well as all claims against Alsobrook. Because it is unclear whether Hamilton will be able to cure the defects in the Complaint, dismissal will be without prejudice.

Plaintiff Hamilton seeks judgment on the pleadings or, alternatively, seeks to have this Court strike the affirmative defenses pled in the Amended Answer filed by defendants John Morgan and April Morgan (“Morgan Answer”). The basis of both motions is Hamilton's contention that the Morgan Answer does not sufficiently plead affirmative defenses and that some of the affirmative defenses pled in the Morgan Answer are not proper affirmative defenses.

The Court will deny Hamilton's Motion for Judgment on the Pleadings. The Motion does not take into account the Morgans' First Supplemental Objections and Answers to Relator's First Set of Interrogatories, which were filed on the same date as the Motion to Dismiss. Further, although Hamilton's motion sets out the standard for granting a motion on the pleadings, it does not provide any specific argument in support of judgment on the pleadings.[4]

*10 The Court will deny in part and grant in part the motion to strike. The Court will order stricken the affirmative defense of reserving the right to amend the answer contained in ¶ 75 of the First Amended Answer (Doc. 27). The Court will otherwise deny the motion to strike.

Procedurally, the following events led up to the filing of this motion: After Hamilton filed the First Amended Complaint, the Morgans filed an answer, then an amended answer (the “First Amended Answer” or the “Morgan Answer”). On October 21, 2013, Hamilton's counsel wrote to the Morgans' counsel and asserted that the affirmative defenses contained in the Morgan Answer were legally deficient because they did not provide “fair notice” of the defense asserted and that the Morgans were required to amend their answers or be subject to having them stricken. (See Doc. 40-1 at 1.) The Morgans' counsel responded on October 24, 2013, and informed Hamilton's counsel that investigation into and review of Hamilton's complaint had led the Morgans to believe that certain affirmative defenses were justified; and further, that the Court's order required the parties to set forth the factual and legal bases of their respective claims and defenses in detail in the Joint Case Management Report, and that there was thus no need at that point to file an amended answer. The Morgans' counsel also noted that the investigation and review of the case was ongoing and that further assessment of the viability of all claims and defenses would continue as discovery progressed. (See Doc. 44-1 at 3.)

The next day, on October 25, 2013, Hamilton's counsel contacted Morgans' counsel via email, expressing concern with waiting for the Joint Case Management Report because under Federal Rule of Civil Procedure 12(f), a motion to strike has to be filed within 21 days of the date the answer was filed. (See Doc. 44-1 at 6-7.) Hamilton's counsel asked if the Morgans would be willing to stipulate to an extension of the Rule 12(f) deadline until 21 days after the date the parties file the Joint Case Management Report “with the detail you have promised ....” (Id.) The Morgans' counsel agreed to stipulate to an extension of “twenty-one days from the date the Joint Case Management Report is filed.” (Id.)

Despite this agreed-upon process, Hamilton served interrogatories upon the Morgans on November 26, 2013, seeking more detailed information about the Morgans' affirmative defenses, and the Morgans served their initial responses on December 30, 2014, stating in those responses that they “are in the process of gathering the information to respond to this interrogatory, and will supplement this answer as soon as that process is completed.” (Doc. 40-2 at 2-7.)

On January 7, 2014, Plaintiff's counsel and Morgans' counsel conferred by telephone regarding the Morgans' first interrogatory answers. According to the Morgans, during that conference, their counsel informed Plaintiff's counsel that they would serve supplemental detailed interrogatory answers no later than January 10, 2014. (Morgan Def. Opp. Pl. Mtn. for Judg. at 3-4.) Hamilton does not deny that the Morgans' counsel told him on January 7, 2014, that the supplemental detailed interrogatory answers would be filed no later than January 10, 2014. (Pl. Reply in Supp. Mtn. for Judg. at 2-4.)

*11 On January 10, 2014 – the very date by which the Morgans' counsel had stated the Morgans' supplemental detailed interrogatory answers would be, and indeed were, served on Hamilton – Hamilton chose to file this Motion to Dismiss and Alternative Motion to Strike. Thus, Hamilton chose to file this motion, which may have been rendered entirely moot by the Morgans' forthcoming supplemental detailed interrogatory answers, rather than review those answers and determine whether those answers, combined with other pleadings and discovery received, provided Hamilton with fair notice of the affirmative defenses asserted in the Morgan Answer.

This failure to wait and review the forthcoming answers is even more troubling given the agreement by the parties, which was explicitly requested by Hamilton, to give Hamilton until twenty-one days after the date the Joint Case Management Report is filed to file a motion to strike. (See Doc. 44-1 at 6-8.)

“The key to determining the sufficiency of pleading an affirmative defense is whether it gives plaintiff fair notice of the defense.”[5] Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979). Further, although Federal Rule of Civil Procedure 8(c) requires affirmative defenses to be included in responsive pleadings, “absent prejudice to the plaintiff, the district court has discretion to allow a defendant to plead an affirmative defense in a subsequent motion.” Simmons v. Navajo County, 609 F.3d 1011, 1023 (9th Cir. 2010). Similarly, this Court has discretion to review both a defendant's answer and any discovery responses provided by the defendant in determining whether the defendant has provided plaintiff with fair notice of the defense and therefore has sufficiently pled the defense.

As the district court explained E.E.O.C. v. Joe Ryan Enterps., Inc., 281 F.R.D. 660 (M.D. Ala. 2012), motions to strike are disfavored and the “Court is hesitant to create precedent whereby it is obligated to pick through a defendant's affirmative defenses at this stage of the litigation. The parties control the discovery process, and [the Plaintiff], as a sophisticated party, should be able to hone in on those affirmative defenses of [the defendant] that may actually become relevant in a dispositive motion or at trial.” Id. at 664.

Here, although the Morgan Answer does not contain factual allegations to support the affirmative defenses pled therein, Hamilton has, through the discovery process, sought out and been provided with the factual bases for those defenses. Specifically, a review of the Morgan Answer combined with the Morgans' First Supplemental Objections and Answers to Relator's First Set of Interrogatories (Supplemental Interrogatory Answers) demonstrates that Hamilton has been provided with fair notice of the Morgans' affirmative defenses.

The Morgans allege that the Complaint “fails in whole or in part to state a claim upon which relief can be granted.” (Morgan Answer ¶ 68.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their failure to state a claim defense. (See Doc. 44-1 at 7-9.)

The defense of failure to state a claim is commonly included in complaints and, indeed, this Court has allowed amendment of an answer that proposed to include such a defense. See Gandy v. Shaklan-Brown, 2008 WL 4446708 (D. Ariz. 2008). This Court has also stricken a defense of failure to state a claim, noting it is not a “proper” affirmative defense, where the answer did not provide any further explanation because “[t]here is no fair notice of how Plaintiff has failed to state a claim.” See J&J Sports Prod., Inc. v. Moqueda, 2013 WL 951366 (D. Ariz. 2013) (Judge D. Campbell).

*12 There is a split in the district courts as to whether the failure to state a claim is properly brought in the complaint as a defense. District Courts in California have repeatedly stricken such a defense, stating that the failure to state a claim is not a proper affirmative defense but is, instead, an assertion of a defect in the plaintiff's prima facie case that is more properly brought as a motion. See, e.g., Powell v. Union Pac. R.R. Co., 864 F. Supp. 2d 949, 962 (E.D. Cal. 2012); Barnes v. AT&T Pension Benefit Plan, 718 F. Supp. 2d 1167, 1174 (N.D. Cal. 2010); Vogel v. Huntington Oaks Del. Partners, LLC, 291 F.R.D. 438, 442 (C.D. Cal. 2013); cf. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002) (“A defense which demonstrates that plaintiff has not met its burden of proof is not an affirmative defense.”).

Other courts have refused to strike the failure to state a claim defense, noting that although it is not technically an “affirmative” defense, the inclusion of such a defense in the pleadings does not prejudice the plaintiff. See, e.g.,Collura v. Ford, ___ F. Supp. 2d ____, 2014 WL 3437733, at *28 (E.D. Pa. 2014); Miller v. S&S Hay Co., 2013 WL 4679647 (E.D. Cal. 2013); Valley Community Bank v. Progressive Cas. Ins. Co., 2011 WL 1833116 (N.D. Cal. 2011). Further, as the Collura and Valley Community Bank courts pointed out, allowing a defendant to include the failure to state a claim as a defense is consistent with the Federal Rules of Civil Procedure. See Collura, 2014 WL 3437733, at *28; Valley Community Bank, 2011 WL 1833116, at *3. Specifically, Rule 12(h)(2) of the Federal Rules of Civil Procedure allows the defense of failure to state a claim to be raised “(A) in any pleading allowed or ordered under Rule 7(a); (B) by a motion under Rule 12(c); or (C) at trial.” Fed. R. Civ. P. 12(h)(2). An answer to a complaint is a “pleading,” Fed. R. Civ. P. 7(a), and thus a defense of failure to state a claim can be raised in an answer.

The Court concludes that the defense of failure to state a claim is properly included in the Morgan Answer, and that the Morgans have provided Hamilton with fair notice of the basis for the defense through their Interrogatory Answers. The Court will therefore deny the motion to strike this defense.

The Morgan Complaint alleges “that the applicable statutes of limitations bar the plaintiff's amended complaint in whole or in part.” (Morgan Answer ¶ 69.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their statute of limitations defense. (See Doc. 44-1 at 9-10, 13-14.) The Court will therefore deny the motion to strike this affirmative defense.

The Morgans allege “that the plaintiff's failure to join a party under rule 19 bars his amended complaint in whole or in part.” (Morgan Answer ¶ 70.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their Rule 19 defense. (See Doc. 44-1 at 10.) The Court will therefore deny the motion to strike this affirmative defense.

The Morgans allege “that the plaintiff's failure to comply with Arizona's notice of claim statute, A.R.S. § 12, 821.01(A), bars his amended complaint in whole or in part.” (Morgan Answer ¶ 71.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their notice of claim defense. (See Doc. 44-1 at 10-12.) The Court will therefore deny the motion to strike this affirmative defense.

*13 The Morgans allege “that the Arizona Employment Protection Act bars the plaintiff's amended complaint in whole or in part.” (Morgan Answer ¶ 72.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their Arizona Employment Protection Act defense. (See Doc. 44-1 at 12-13.) The Court will therefore deny the motion to strike this affirmative defense.

The Morgans alleged “that the plaintiff has failed to make reasonable and diligent efforts to mitigate his claimed damages.” (Morgan Answer ¶ 73.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their failure to mitigate damages defense. (See Doc. 44-1 at 14.) The Court will therefore deny the motion to strike this affirmative defense.

The Morgans allege “that plaintiff's claims are barred in whole or in part based on the doctrine of after acquired evidence.” (Morgan Answer ¶ 74.) In their Interrogatory Answers, the Morgans provide a detailed explanation of the basis for their after acquired evidence defense. (See Doc. 44-1 at 15-16.) The Court will therefore deny the motion to strike this affirmative defense.

The Morgans allege that they “reserve the right to amend their answer to include such affirmative defenses as may arise during the course of discovery in this matter.” (Morgan Answer ¶ 75.) This is not a proper affirmative defense, and the Morgans have stipulated to the striking of this allegation. The Court will therefore order that this allegation, paragraph 75 of the Morgan Answer (Doc. 27), be stricken.

The Court will deny the Motion for Judgment on the Pleadings, but will grant in part and deny in part the Alternative Motion to Strike Affirmative Defenses from Morgans' Amended Answer (Doc. 40). The Motion to Strike will be granted only to the extent that paragraph 75 of the First Amended Answer of Defendants John Morgan and April Morgan is stricken. The Motion to Strike will otherwise be denied.

At issue in this Motion to Compel is the form that is required to be used when producing electronically stored information (ESI). Specifically, the dispute is whether YC is required to produce ESI in either the form in which it is ordinarily maintained by YC or in “converted” PDF format, which Hamilton contends is necessary to preserve the integrity/searchability of the ESI, rather than in “scanned” PDF format that has been processed to be text searchable using an Optical Character Recognition (OCR) program, which is the form used by YC.

The Court has reviewed the parties' arguments and will decline at this time to decide this motion. Given the vast disparity between counsels' representations in the level and accuracy of the searchability of the produced documents, the Court will require the parties to take additional steps in an attempt to resolve this dispute informally. The parties will be directed to meet and confer both with each other and with technology experts to determine whether the disparity in searchability represented by counsel is merely a technical issue that can be resolved. If, after meeting and conferring with technology experts, the searchability issue has not been resolved, and the parties still cannot otherwise resolve the dispute, the parties should then contact chambers to see if this dispute can be resolved informally with the assistance of the Court.

*14 In this Motion to Compel, Hamilton seeks to compel YC “to fully answer” his interrogatories. The Court finds that Hamilton's counsel failed to comply with the meet and confer requirement prior to filing this motion. See Fed. R. Civ. P. 37(a)(1); LRCiv 7.2(j). The Court will therefore deny the motion without prejudice to renewal after counsel has made a good faith and sincere effort to meet and confer in an attempt to resolve this dispute.

The evidence submitted by the parties demonstrates the following series of events leading up to the filing of this motion to compel:

Thus, Hamilton's counsel filed the motion to compel one week after initially contacting YC's counsel requesting to meet and confer, and only one business day after he actually provided YC's counsel with details about the issues he had with YC's answers to the interrogatories (a business day on which YC's counsel was out of the office). Further, the motion was filed on the same day that YC's counsel had informed Hamilton's counsel that she was available to meet and confer on the following Monday or Tuesday, which would have been a lapse of only five to six business days from the date that Hamilton's counsel provided details to YC's counsel about the issues he had with YC's answers to the interrogatories. Also, the Court notes that Hamilton's counsel had already advised YC's counsel that he was not available on that Thursday or Friday, May 1-2, which lends even more support to the reasonableness of YC's counsel's offer to meet on the following Monday or Tuesday, May 5 or May 6.

The Court finds that there has not been a good faith and sincere effort on the part of Hamilton's counsel to personally confer regarding this discovery dispute and will therefore deny the Motion to Compel without prejudice. The Court will also direct the parties to contact the Court prior to filing any further motions to compel so that the Court can assist the parties in hopefully resolving any further disputes informally.

Hamilton moves the Court to seal Exhibit 2 to Hamilton's Reply in Support of Motion to Compel regarding the ESI. The Reply is docketed at Doc. 62, and Exhibit 2 is docketed at Doc. 64. Exhibit 2 contains excerpts of several documents, some of which have been designated as “Confidential” by YC pursuant to the terms of the Court's Protective Order. The Motion to Seal is unopposed. (See Doc. 65.) The Court finds good cause exists in support of the motion and will therefore grant the motion.

Hamilton moves to seal Exhibits A, B, D, E, G, and I to his Reply in Support of Motion to Compel YC regarding Interrogatories. The Reply is docketed at Doc. 69, and Exhibits A, B, D, E, G, and I are docketed at Doc. 71. Each of these exhibits has been designated as “Confidential” by YC pursuant to the terms of the Court's Protective Order. No opposition to the motion has been filed. The Court finds good cause exists in support of the motion and will therefore grant the motion.

*16 The Court will grant the Motion to Dismiss (Doc. 23). Counts I, II, and V of the First Amended Complaint will be dismissed as to Guidance; all counts against defendant John Stonecipher in his individual capacity will be dismissed; and all counts against Amanda Alsobrook will be dismissed. Because it is unclear whether Hamilton will be able to cure the defects in the Complaint, dismissal will be without prejudice and with leave to file by September 30, 2014, an amended complaint seeking to cure the defects in the Complaint.

The Court will deny the Motion for Judgment on the Pleadings, and deny in part and grant in part the Alternative Motion to Strike Affirmative Defenses from Morgans' Amended Answer (Doc. 40). The Motion to Strike will be granted only to the extent that paragraph 75 of the First Amended Answer of Defendants John Morgan and April Morgan (Doc. 27) will be stricken. The Motion to Strike will otherwise be denied.

The Court will defer ruling on the Motion to Compel YC regarding Production of Electronically Stored Information (Doc. 57). The Court will direct the parties to meet and confer both with each other and with technology experts to determine whether the searchability disparity represented by counsel is merely a technical issue that can be resolved. The court will further direct the parties that if, after meeting and conferring with technology experts, the searchability issue has not been resolved, the parties should then contact the Court's chambers to see if the dispute can be resolved informally with the assistance of the Court.

The Court will deny without prejudice the Motion to Compel YC regarding Interrogatories (Doc. 58) based on the Court's finding that there has not been a good faith and sincere effort on the part of Hamilton's counsel to meet and confer regarding this discovery dispute. The Court will also direct the parties to contact the Court's chambers prior to filing any further motions to compel so that the Court can assist the parties in hopefully resolving any further disputes informally.

The Court will grant the unopposed Motion to Seal (Doc. 63) Exhibit 2 to Hamilton's Reply in Support of Motion to Compel regarding the ESI. Exhibit 2 is docketed at Doc. 64 and will be ordered sealed by the Court.

The Court will grant the unopposed Motion to Seal (Doc. 70) Exhibits A, B, D, E, G, and I to Hamilton's Reply in Support of Motion to Compel YC re Interrogatories. Exhibits A, B, D, E, G, and I are docketed at Doc. 71 and will be ordered sealed by the Court.

IT IS ORDERED that the Motion to Dismiss (Doc. 23) is Granted. Counts I, II, and V of the First Amended Complaint are dismissed without prejudice as to defendants Guidance Academy, LLC; Guidance Helicopters, Inc.; and Guidance Management Group, LLC. All counts against defendant John Stonecipher in his individual capacity are dismissed without prejudice. All counts against Amanda Alsobrook are dismissed without prejudice.

IT IS FURTHER ORDERED that Plaintiff is granted leave to file by October 3, 2014, an amended complaint. If Plaintiff declines to file an amended complaint, Plaintiff shall so notify the Court by filing an appropriate notice by October 3, 2014.

IT IS FURTHER ORDERED that the Motion for Judgment on the Pleadings or Alternative Motion to Strike Affirmative Defenses from Defendant Morgan's Amended Answer (Doc. 40) is Granted in part and Denied in part. The Motion for Judgment on the Pleadings is Denied. The Alternative Motion to Strike Affirmative Defenses from Defendant Morgan's Amended Answer is Granted only to the extent that paragraph 75 of the First Amended Answer of Defendants John Morgan and April Morgan (Doc. 27) is ordered stricken. The Alternative Motion to Strike Affirmative Defenses is otherwise Denied.

*17 IT IS FURTHER ORDERED that the Motion to Compel YC regarding Production of Electronically Stored Information (Doc. 57) is deferred pending further action by the parties. The parties are directed to meet and confer both with each other and with technology experts to determine whether the searchability disparity as represented by counsel is merely a technical issue that can be resolved. If, after meeting and conferring with each other and with technology experts, the parties are still unable to resolve the searchability dispute, the parties are directed to contact the Court's chambers for assistance in attempting to informally resolve the dispute.

IT IS FURTHER ORDERED that the Motion to Compel YC regarding Interrogatories (Doc. 58) is Denied without prejudice. The parties are directed to fully and in good faith comply with the meet and confer requirements prior to filing any further motions to compel. The parties are further directed to contact the Court's chambers prior to filing any further motions to compel for assistance in attempting to resolve any further disputes informally.

IT IS FURTHER ORDERED that the unopposed Motion to Seal (Doc. 63) is Granted. Exhibit 2 (Doc. 64) to Hamilton's Reply in Support of Motion to Compel regarding the ESI is ordered Sealed.

IT IS FURTHER ORDERED that the unopposed Motion to Seal (Doc. 70) is Granted. Exhibits A, B, D, E, G, and I (Doc. 71) to Hamilton's Reply in Support of Motion to Compel YC re Interrogatories as ordered Sealed.

IT IS FURTHER ORDERED that the Scheduling Conference is reset for Monday, December 8, 2014, at 11:00 a.m., in Courtroom 601 of the Sandra Day O'Connor United States Courthouse, 401 W. Washington Street, Phoenix, Arizona 85003. With this modification of date, all other terms and conditions of the Order Setting Scheduling Conference (Doc. 22) remain in full force and effect.

Dated this 9th day of September, 2014.

The Court finds that oral argument would not assist in resolving these matters and accordingly finds the pending motions suitable for decision without oral argument. See LRCiv 7.2(f); Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

The First Amended Complaint collectively refers to Guidance Academy, LLC; Guidance Helicopters, Inc.; and Guidance Management Group, LLC as “Guidance,” and throughout the Complaint, alleges conduct by “Guidance,” without designating to which of the entities it is referring. The Court will therefore assume that the Complaint's use of the term “Guidance” refers to all of the Guidance entities collectively. The Court will further assume that the term “Guidance” is not meant to refer to John Stonecipher in his individual capacity.

The Court declines to address Guidance's materiality argument raised for the first time in its reply brief. See Lane v. Dept. of Interior, 523 F.3d 1128, 1140 (9th Cir. 2008) (a district court can, in its discretion, decline to consider arguments raised for the first time in a reply brief).

The Court declines to consider arguments raised for the first time in Hamilton's reply brief. See Lane v. Dept. of Interior, 523 F.3d 1128, 1140 (9th Cir. 2008) (a district court can, in its discretion, decline to consider arguments raised for the first time in a reply brief).

The Court finds it unnecessary to determine whether the heightened pleading standard set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), applies to the pleading of affirmative defenses because, even if it does, the Morgan Answer meets that standard.