U.S. Ex Rel. Rudy Vigil v. Nelnet Inc., 10–1784.

• Decision Date: 24 June 2011
• Docket Number: No. 10–1784.,10–1784.
• Citation: 639 F.3d 791
• Parties: UNITED STATES of America ex rel. Rudy VIGIL, Plaintiff Relator–Appellant,v.NELNET, INC.; JP Morgan Chase & Co.; Citigroup, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

639 F.3d 791

UNITED STATES of America ex rel. Rudy VIGIL, Plaintiff Relator–Appellant,

v.NELNET, INC.; JP Morgan Chase & Co.; Citigroup, Inc., Defendants–Appellees.

No. 10–1784.

United States Court of Appeals, Eighth Circuit.

Submitted: Dec. 14, 2010.Filed: May 5, 2011.Rehearing and Rehearing En Banc Denied June 24, 2011.*

James Clifton Johnson, argued, Jackson, MS, Scott H. Peters, Council Bluffs, IA, Tracy D. Rezvani and Rosalee Connell, Washington, DC, Timothy J. Matusheski, Hattiesburg, MS, J. Bradley Piggot, Jackson, MS, Rosemary M. Rivas, San Francisco, CA, on the brief, for appellant.Daniel F. Kaplan, argued, Lincoln, NE, for appellee Nelnet.Thomas J. Kenny, argued, Edward G. Warin, Paulk R. Gwilt, and Angela K. Wilson, on the brief, Omaha, NE, for appellee JP Morgan Chase & Co.James R. McGuire, argued, San Francisco, CA, Dan Marmalefsky and Christina Chen, Los Angeles, CA, James P. Fitzgerald, Omaha, NE, on the brief, for appellee Citigroup, Inc.Before LOKEN, ARNOLD, and BYE, Circuit Judges.LOKEN, Circuit Judge.

The Federal Family Education Loan Program (“FFELP”), established under Part B of the Higher Education Act of 1965, 20 U.S.C. § 1071 et seq., consists of four programs administered by the U.S. Department of Education (DOEd) to provide various types of financial assistance that are paid to private lenders whose loans enable students to afford higher education—the Stafford Loan Program, the Supplemental Loans for Students Program, the PLUS Loan Program, and the Consolidation Loan Program. See 34 C.F.R. Pt. 682. Nelnet, Inc., JPMorgan Chase & Co., and Citigroup Inc. are private Lenders participating in these programs. In this qui-tam action, Rudy Vigil, a former Nelnet loan advisor, alleges that certain Nelnet marketing practices were continuing violations of the FFELP statutes and regulations that render Nelnet liable under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a), for three times the amounts paid on all claims submitted by Nelnet over a five-year period for interest rate subsidies, special allowances, and reimbursement of loan defaults. Vigil joined Chase and Citigroup as defendants, alleging they were knowing participants in a conspiracy to submit false claims. Vigil appeals the district court's ¹ dismissal of his third amended complaint (the “Complaint”) for failure to plead fraud with sufficient particularity and for failure to state a claim. See Fed.R.Civ.P. (9)(b), 12(b)(6). Reviewing the district court's grant of defendants' motion to dismiss de novo, and drawing all reasonable factual inferences in favor of Vigil, the nonmoving party, we affirm. See United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 555 (8th Cir.) (standard of review), cert. denied, 549 U.S. 881, 127 S.Ct. 189, 166 L.Ed.2d 142 (2006).

I.

Under the FFELP, DOEd pays claims submitted by eligible private lenders for interest-rate subsidies and special allowances granted on behalf of student borrowers. See 20 U.S.C. §§ 1078(a)(1), 1087–1; 34 C.F.R. § 682.300, .302.² DOEd also reduces private lenders' risk of loan defaults by entering into guaranty agreements with Guaranty Agencies who, in turn, insure Lenders against their potential default losses on student loans. See 20 U.S.C. §§ 1078(b)- (c), 1080; 34 C.F.R. § 682.100(b)(1). Nelnet participates in the FFELP both as a Lender and a Servicer of student loans. As Servicer for other lenders, including Chase and Citigroup, Nelnet performs collection services and presents claims to DOEd and Guaranty Agencies for interest subsidies, special allowances, and insurance payments on defaulted loans.

The practices of private Lenders and Servicers are heavily regulated, and their participation in the FFELP is conditioned on compliance with detailed DOEd regulations. See, e.g., 20 U.S.C. § 1085(d); 34 C.F.R. §§ 682.206–.208, .406, .413, .700–.713. In the event of noncompliance with FFELP requirements, the Secretary of Education may suspend or terminate a Lender's or Servicer's right to participate in the program, and may require the repayment of interest subsidies, special allowances, and insurance payments improperly received, after notice and an administrative hearing. See 34 C.F.R. §§ 682.413(a), (e)(1)(i), .706–.707, .709(b). However, with limited exceptions, “termination proceedings by the Secretary do not affect a lender's responsibilities or rights to benefits and claim payments that are based on the lender's prior participation in the program.” § 682.702(a).

One subsection of the FFELP statutes provides that the term “eligible lender” does not include any lender that the Secretary determines, after notice and opportunity for a hearing, offers improper inducements, conducts unsolicited mailings, performs functions that an educational institution must perform, or engages in fraudulent or misleading advertising for the purpose of securing student-loan applications. 20 U.S.C. § 1085(d)(5). Vigil's Complaint alleges that Nelnet violated § 1085(d)(5) and its implementing regulations (i) by offering Vigil and other loan advisors prohibited bonuses and commissions based on the number of borrowers they persuaded to complete consolidation-loan applications; ³ (ii) by providing “exit-counseling” software to universities for the purpose of “steering” prospective student borrowers to Nelnet; and (iii) by directing fraudulent advertising at prospective student borrowers through its exit-counseling software and website. The Complaint asserts that Nelnet, Chase, and Citigroup are jointly and severally liable to repay all interest rate subsidies, special allowances, and defaulted loan reimbursements “from at least when Vigil began working for Nelnet” in 2003 until the filing of the Complaint. The Complaint estimates that Nelnet received total payments well in excess of two billion dollars in the years 2003–2006.

II.

The FCA is not concerned with regulatory noncompliance. Rather, it serves a more specific function, protecting the federal fisc by imposing severe penalties on those whose false or fraudulent claims cause the government to pay money. The FCA's core provisions impose treble-damage liability on a defendant who “(1) ‘knowingly presents, or causes to be presented, [to a federal official] a false or fraudulent claim for payment or approval,’ or (2) ‘knowingly makes ... a false record or statement to get a false or fraudulent claim paid or approved.’ ” United States ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 822 (8th Cir.2009), quoting 31 U.S.C. § 3729(a)(1)-(2).⁴

Without sufficient allegations of materially false claims, an FCA complaint fails to state a claim on which relief may be granted. See Mikes v. Straus, 274 F.3d 687, 697 (2d Cir.2001) (the FCA “does not encompass those instances of regulatory noncompliance that are irrelevant to the government's disbursement decisions”); United States ex rel. Costner v. URS Consultants, Inc., 317 F.3d 883, 886 (8th Cir.) (“[T]he falsehood in the claim must be material to the payment decision.”), cert. denied, 540 U.S. 875, 124 S.Ct. 225, 157 L.Ed.2d 137 (2003); United States ex rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1311 (11th Cir.2002), cert. denied, 537 U.S. 1105, 123 S.Ct. 870, 154 L.Ed.2d 774 (2003). Because the FCA is an anti-fraud statute, the Complaint's false-claim allegations must comply with Rule 9(b)—“a party must state with particularity the circumstances constituting fraud.” Joshi, 441 F.3d at 556. In addition, of course, the Complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quotation omitted).

III.

Vigil's Complaint first attempts to link its detailed allegations of FFELP regulatory violations to its FCA claims of fraud by alleging that every Nelnet claim for interest rate subsidies, special allowances, and default reimbursements falsely represented or certified that Nelnet was an eligible FFELP Lender or Servicer, when in fact its “offering of prohibited inducements and acts of misleading consumers” made it ineligible for FFELP payments. The district court concluded that these allegations failed to state an FCA claim as a matter of law because the statute and regulations provide that, once eligible, a Lender or Servicer retains its FFELP “eligibility” until the Secretary terminates its participation after a formal administrative proceeding. See 20 U.S.C. § 1085(d)(5); 34 C.F.R. § 682.200(b)( “Lender”)(5). “Absent an allegation that Nelnet was stripped of its status as an eligible lender,” the court explained, “Nelnet's certification that it was an eligible lender was not false or fraudulent.” United States ex rel. Vigil v. Nelnet, Inc., No. 8:07–cv–266, slip op. at 12 (D.Neb. Apr. 1, 2010). We agree with this ruling, which Vigil does not challenge on appeal (except, improperly, in his Reply Brief). The Complaint does not allege that Nelnet submitted a fraudulent application to establish its initial eligibility as FFELP Lender and Servicer, which distinguishes this case from United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 916–17 (7th Cir.2005), and United States ex rel. Hendow v. Univ. of Phx., 461 F.3d 1166, 1176–77 (9th Cir.2006).

On appeal, Vigil focuses instead on his allegations that Nelnet's claims for interest subsidies, special allowances, and default reimbursements included materially false certifications of compliance with FFELP regulations that were “conditions of payment” for those claims. The Complaint does not allege that any specific claim was in fact paid or even submitted for payment. Rather, blank claim forms are attached as exhibits to the Complaint, without any context other than conclusory allegations as to what was being certified.

Claims for interest subsidies and special allowances are paid directly by DOEd. To obtain such payments, the Complaint alleges, Nelnet...