U.S. ex rel. Batiste v. SLM Corp.

• Decision Date: 24 September 2010
• Docket Number: Civil Case No. 08-425 (RJL)
• Citation: 740 F.Supp.2d 98
• Parties: UNITED STATES of America ex rel. Sheldon BATISTE, Plaintiff, v. SLM CORPORATION, Defendant.
• Court: U.S. District Court — District of Columbia

740 F.Supp.2d 98

UNITED STATES of America ex rel. Sheldon BATISTE, Plaintiff,

v.SLM CORPORATION, Defendant.

Civil Case No. 08-425 (RJL).

United States District Court, District of Columbia.

Sept. 24, 2010.

Tracy D. Rezvani, Finkelstein, Thompson LLP, Washington, DC, Timothy J. Matusheski, Law Offices of Timothy J. Matusheski PLLC, Hattiesburg, MS, for Plaintiff.

James W. Cooper, Ralph Andrew Price, Jr., Arnold & Porter LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

RICHARD J. LEON, District Judge.

Plaintiff Sheldon Batiste brings this suit on behalf of the United States pursuant tothe qui tam provisions of the False Claims Act ("FCA"), 31 U.S.C. §§ 3129-3732 (2006). He alleges that the defendant SLM Corporation, a company known as "Sallie Mae" that administers federally-guaranteed student loans, defrauded the United States by accepting payments from the federal government that were predicated on certifications of compliance with federal law that the defendant knew to be false.¹ The defendant has now moved to dismiss the case. Among the grounds given for dismissal is that the Court lacks subject matter jurisdiction over the plaintiff's action because his is not the first to raise these particular allegations of fraud. The defendant asserts that another plaintiff, acting on behalf of the United States in a qui tam action, filed a nearly identical complaint against it in the United States District Court for the Central District of California. As a consequence, the defendant contends that this Court is without jurisdiction to hear the recycled claims. Because the Court is persuaded that it lacks jurisdiction in this case, the defendant's Motion to Dismiss is GRANTED.

BACKGROUND

The plaintiff is a former senior loan associate for Sallie Mae who claims to have direct and independent knowledge of the facts on which he bases his allegations. (Am. Compl. ¶ 5). On March 12, 2008, the plaintiff filed his initial Complaint [# 1] against the defendant followed on June 13, 2008 by his First Amended Complaint [# 5]. Just over a year later, on July 7, 2009, the United States announced its decision not to intervene in the case. (Notice of Election to Decline Intervention, July 8, 2009 [# 16] ). Given that announcement, the Court unsealed the First Amended Complaint, (Order, July 15, 2009 [# 17] ), and the plaintiff promptly served it on the defendant.

At the core of the plaintiff's lawsuit is the allegation that the defendant, in the course of administering federally-guaranteed student loans, systematically granted unwarranted forbearances to borrowers in blatant violation of federal regulations. (Am. Compl. ¶ 16). Specifically, the plaintiff accuses the defendant of regularly giving forbearances to borrowers regardless of their intention to repay the loan and regardless of the reasons given for their inability to make payments. ( Id.). The plaintiff asserts that the defendant would often grant forbearances even when there was no basis documented in the borrower's file that justified forbearance. ( Id. ¶¶ 16, 20). The plaintiff further alleges that the defendant would extend forbearances to delinquent borrowers who were not entitled to forbearance as an inducement for those borrowers to make their outstanding payments. ( Id. ¶ 21). Indeed, to promote this systematic misuse of forbearances, the defendant implemented a system of quotas and bonuses that, according to the plaintiff, incentivized the defendant's employees to extend forbearances to borrowers who were not legally entitled to them. ( Id. ¶¶ 22-24).

The plaintiff contends that the fraud perpetrated against the United States, which is the basis for his FCA claims, occurred when the defendant falsely certified to the Department of Education and affiliated guaranty agencies that it had complied with the laws and regulations governing federally-guaranteed student loans. To be eligible for obtaining subsidiesfrom the government, the defendant must enter into agreements with the Department of Education and with various guaranty agencies in which it promises to comply with all relevant laws and regulations, including regulations that govern the granting of forbearances. ( Id. ¶¶ 27, 31). When the time comes to request a payment from the government, the defendant must submit a claim with the Department of Education, and sometimes with the relevant guaranty agency, certifying that it has indeed complied with those laws and regulations. ( Id. ¶¶ 28-30, 32-33). Because of the defendant's systematic practice of extending forbearances unlawfully to borrowers who were not entitled to them, the plaintiff alleges that all of the certifications of compliance made by the defendant were false statements. ( Id. ¶ 35). To the extent those false certifications served as the basis for obtaining payments from the government, the plaintiff contends in his 11-count Complaint that the defendant repeatedly violated the FCA. ( Id. at 19-33). Due to these violations, the plaintiff seeks treble damages, civil penalties, and costs. ( Id. at 33-34).

In its Motion to Dismiss, the defendant raises three arguments. First, it contends that the Court lacks subject matter jurisdiction over the plaintiff's qui tam suit because it is not the first suit filed in relation to the underlying factual allegations. (Def's Mot. to Dismiss at 5-19). The defendant claims that, at the time the plaintiff commenced this suit, a nearly identical suit had long before been brought against it by a qui tam plaintiff in the Central District of California. ( Id. at 7-10). The defendant also asserts that the Court is without jurisdiction because the plaintiff is not the original source of the factual allegations in the First Amended Complaint. ( Id. at 18-19). The defendant claims that those facts were readily accessible in the public domain before the plaintiff even filed his initial complaint. ( Id. at 12-16). Second, the defendant contends that the case should be dismissed, if not for lack of jurisdiction, then for failure to state a claim because the plaintiff failed to allege sufficient facts to raise an inference of fraud. ( Id. at 20-26). Third, the defendant contends that the plaintiff lacks standing because he sued the wrong company. ( Id. at 26-29). The defendant represents that it is merely a passive holding company that has no role to play in granting forbearances on federally-guaranteed student loans and that the real party in interest, "Sallie Mae," is merely a wholly-owned subsidiary. ( Id. at 28).

DISCUSSION

Because the Court's power to decide this case is a prerequisite to further judicial review, I must first address the defendant's claim, raised pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, that the Court lacks jurisdiction because the plaintiff has failed to satisfy the FCA's threshold requirements for bringing an action on behalf of the United States. "A qui tam relator's qualification to proceed is an issue of subject matter jurisdiction." United States ex rel. Ervin & Assocs., Inc. v. Hamilton Sec. Grp., Inc., 332 F.Supp.2d 1, 4 (D.D.C.2003). Thus, a relator's failure to clear the necessary statutory hurdles deprives the court of its power to hear the relator's claims. Under Rule 12(b)(1), "the plaintiff bears the burden of establishing that the court has jurisdiction," Fowler v. District of Columbia, 122 F.Supp.2d 37, 39-40 (D.D.C.2000) (internal citation omitted), and the Court may consider material outside of the pleadings to determine whether the plaintiff has met its burden, Ervin & Assocs., 332 F.Supp.2d at 5.

To decide this case, I need to look no further than the FCA's so-called "first-to-file" rule. That rule, as set forth at 31 U.S.C. § 3730(b)(5), provides as follows: "When a person brings an action under [the qui tam ] subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action." This provision is, of course, jurisdictional. Thus, "[i]f an action 'based on the facts underlying' a pending case comes before a court, it must dismiss the later-filed case for lack of jurisdiction." United States ex rel. Ortega v. Columbia Healthcare, Inc., 240 F.Supp.2d 8, 11 (D.D.C.2003) (internal citation omitted). The facts underlying the two cases need not be identical. Rather, it is the law of our Circuit that Section 3730(b)(5) "bars any action incorporating the same material elements of fraud as an action filed earlier." United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., 318 F.3d 214, 217 (D.C.Cir.2003) (emphasis added).

What exactly that standard means when applied to actual cases and controversies, however, remains open to some interpretation. Of course, the plain language of the provision makes clear its overarching purpose: "The first-filed claim provides the government notice of the essential facts of an alleged fraud, while the first-to-file bar stops repetitive claims." United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir.2001). As our Circuit Court has explained, Congress crafted the FCA to strike a balance "between encouraging whistle-blowing and discouraging opportunistic behavior." Hampton, 318 F.3d at 217 (internal quotation marks omitted). To that end, the "first-to-file" rule awards the spoils to those vigilant enough to blow the whistle first, not to every whistle-blower. Once the government has been put on notice of "the essential facts of a fraudulent scheme," duplicative claims serve no purpose since the government "has enough information to discover related frauds" on its own. Ortega, 240 F.Supp.2d at 13 (internal quotation marks omitted). Given these principles, the most sensible test for determining whether two actions allege the same material elements of fraud is the one adopted in Ortega: "A later-filed qui tam complaint is barred unless (1) it alleges a different type of wrongdoing, based on different material facts than those alleged in the...