                           In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 05-2016
UNITED STATES OF AMERICA ex rel. Jeffrey E. Main,
                                           Plaintiff-Appellant,
                               v.


OAKLAND CITY UNIVERSITY,
                                           Defendant-Appellee.
                        ____________
       Appeal from the United States District Court for the
        Southern District of Indiana, Evansville Division.
      No. 3:03-cv-71 RLY-WGH—Richard L. Young, Judge.
                        ____________
 ARGUED SEPTEMBER 12, 2005—DECIDED OCTOBER 20, 2005
                   ____________


  Before COFFEY, EASTERBROOK, and EVANS, Circuit Judges.
  EASTERBROOK, Circuit Judge. Many federal subsidies
under the Higher Education Act require multiple layers
of paperwork. First the college or university submits an
application to establish the institution’s eligibility. If this
application, which we call phase one, is granted, the
institution and its students submit additional (“phase two”)
applications for specific grants, loans, or scholarships. Both
a statute, 20 U.S.C. §1094, and a regulation, 34 C.F.R.
§668.14(b)(22)(i), condition institutional eligibility on a
commitment to refrain from paying recruiters contingent
fees for enrolling students. The concern is that recruiters
2                                                 No. 05-2016

paid by the head are tempted to sign up poorly qualified
students who will derive little benefit from the subsidy and
may be unable or unwilling to repay federally guaranteed
loans. Oakland City University assured the Department of
Education on its phase-one application that it complies with
the rule against contingent fees.
  Jeffrey Main, the relator in this qui tam action under the
False Claims Act, 31 U.S.C. §§ 3729-33, contends that the
University’s representation was fraudulent. According to
the complaint, Main himself received contingent fees as a
recruiter and later as the University’s Director of Admis-
sions. Initially Main thought the compensation system
proper, but when he learned of the federal statute and rule
he filed this suit. The district court dismissed it on the
pleadings, see Fed. R. Civ. P. 12(b)(6), ruling that even
wilful falsehoods in phase-one applications do not violate
the Act, because the phase-one application requests a
declaration of eligibility rather than an immediate payment
from the Treasury. The phase-two applications for grants,
loans, and scholarships are covered by the Act, the judge
ruled, but are not false, because they do not repeat the
assurance that the University abides by the rule against
paying contingent fees to recruiters.
  Given the posture of the litigation, we must assume
(as the complaint alleges) that the University (a) knew of
the prohibition against paying contingent fees to recruiters,
and (b) lied to the Department of Education in order to
obtain a certification of eligibility that it could not have
obtained had it revealed the truth. These facts imply that
the phase-two applications would not have been granted
had the truth been told earlier, for all disbursements
depended on the phase-one finding that the University
was an eligible institution.
  Although no published appellate decision to date has
addressed the question whether a multi-stage process
forecloses liability for fraud in the first stage, the answer is
No. 05-2016                                                 3

straightforward. The False Claims Act covers anyone who
“knowingly makes, uses, or causes to be made or used, a
false record or statement to get a false or fraudulent claim
paid or approved by the Government”. 31 U.S.C.
§3729(a)(2). The University “uses” its phase-one application
(and the resulting certification of eligibility) when it makes
(or “causes” a student to make or use) a phase-two applica-
tion for payment. No more is required under the statute.
The phase-two application is itself false because it repre-
sents that the student is enrolled in an eligible institution,
which isn’t true. (Likely the student does not know this,
however, so the phase-two application is not fraudulent.)
The statute requires a causal rather than a temporal
connection between fraud and payment. See generally
United States ex rel. Lamers v. Green Bay, 168 F.3d 1013,
1018 (7th Cir. 1999). If a false statement is integral to a
causal chain leading to payment, it is irrelevant how the
federal bureaucracy has apportioned the statements among
layers of paperwork.
  The University protests that this approach would treat
any violation of federal regulations in a funding program as
actionable fraud, but that’s wrong. A university that accepts
federal funds that are contingent on following a regulation,
which it then violates, has broken a contract. See Gonzaga
University v. Doe, 536 U.S. 273 (2002). But fraud requires
more than breach of promise: fraud entails making a false
representation, such as a statement that the speaker will do
something it plans not to do. Tripping up on a regulatory
complexity does not entail a knowingly false representation.
  To prevail in this suit Main must establish that the
University not only knew, when it signed the phase-one
application, that contingent fees to recruiters are forbidden,
but also planned to continue paying those fees while
keeping the Department of Education in the dark. This
distinction is commonplace in private law: failure to
honor one’s promise is (just) breach of contract, but making
4                                                No. 05-2016

a promise that one intends not to keep is fraud. See, e.g.,
Perlman v. Zell, 185 F.3d 850 (7th Cir. 1999); Bower v.
Jones, 978 F.2d 1004, 1012 (7th Cir. 1992). So if, as a
district judge supposed in United States ex rel. Graves v.
ITT Educational Services, 284 F. Supp. 2d 487 (S.D. Tex.
2003), educational institutions do not certify to the Depart-
ment of Education at the phase-one stage that they know
about and comply with the rule against paying capitation
fees for recruiting students, then the University will win
this suit whether or not it has violated that rule. But if the
University knew about the rule and told the Department
that it would comply, while planning to do otherwise, it is
exposed to penalties under the False Claims Act.
   Oakland City University relies heavily on a memorandum
that the Deputy Secretary of Education circulated
to subordinates in 2002. Such a memorandum has no legal
effect; it was not published for notice and comment and does
not authoritatively construe any regulation. The Depart-
ment of Justice, though it elected not to take over the
litigation, see 31 U.S.C. §3730(b)(2), has filed a brief
as amicus curiae in this court contending that the allega-
tions of the complaint, if true, demonstrate a right to
recover under the False Claims Act. That view, and not one
implied by a back-office memo, represents the position of
the United States. Not that the memo offers the University
much assistance even on its own terms. It states that a
violation of the rule against incentive compensation usually
does not lead to financial loss to the United States—for any
given student may well have enrolled, and been eligible,
anyway. The University argues from this that a fraudulent
certification does not violate the False Claims Act. That’s a
non-sequitur. The statute provides for penalties even if
(indeed, especially if) actual loss is hard to quantify, and at
the margin contingent payments will lead to some unwar-
ranted enrollments (and thus some unjustified federal
disbursements). That is, after all, why contingent payments
No. 05-2016                                            5

are forbidden.
  The judgment of the district court is reversed, and the
case is remanded for further proceedings consistent with
this opinion.

A true Copy:
      Teste:

                      ________________________________
                      Clerk of the United States Court of
                        Appeals for the Seventh Circuit




                 USCA-02-C-0072—10-20-05
