U.S. v. Slm Corp..

• Citation: 659 F.3d 1204
• Decision Date: 04 November 2011
• Docket Number: No. 10–7140.,10–7140.
• Parties: UNITED STATES of America, ex rel. Sheldon BATISTE, Appellantv.SLM CORPORATION, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

659 F.3d 1204

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

v.SLM CORPORATION, Appellee.

No. 10–7140.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 16, 2011.Decided Nov. 4, 2011.

Appeal from the United States District Court for the District of Columbia, (No. 1:08–cv–00425).Catherine Y. Hancock, Attorney, U.S. Department of Justice, argued the cause as amicus curiae United States of America in support of appellant. With her on the brief were Tony West, Assistant Attorney General, Ronald C. Machen, Jr., United States Attorney, and Thomas M. Bondy, Attorney.Timothy J. Matusheski argued the cause for appellant. With him on the briefs was Tracy D. Rezvani.Lisa S. Blatt argued the cause for appellee. With her on the brief was R. Reeves Anderson.Before: SENTELLE, Chief Judge, ROGERS and BROWN, Circuit Judges.Opinion for the Court filed by Chief Judge SENTELLE.SENTELLE, Chief Judge:

Relator Sheldon Batiste, on behalf of the United States, appeals the district court's dismissal of his qui tam complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The district court held that an earlier-filed complaint barred its consideration of Batiste's complaint under the first-to-file rule of the federal False Claims Act (“FCA”), 31 U.S.C. § 3730(b)(5). The case raises a question of first impression in this Circuit-whether Section 3730(b)(5) requires the first-filed complaint to meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b) for alleging fraud in order to bar a later-filed complaint.

We affirm the district court. We hold that the earlier-filed complaint alleges the same material elements of a fraudulent scheme as Batiste's complaint, and that the earlier-filed complaint need not meet the heightened pleading standards of Rule 9(b) to allege facts sufficient to prompt a government investigation, and, thus, to bar later-filed complaints under FCA Section 3730(b)(5). Finally, we hold that Batiste waived his argument that the case should not have been dismissed with prejudice.

I. Background

A. Batiste Complaint

On June 13, 2008, Sheldon Batiste filed a complaint on behalf of the United States government against SLM Corporation (“SLM,” commonly called “Sallie Mae”) under the qui tam provisions of the FCA, 31 U.S.C. §§ 3729–3732. Batiste First Amended Complaint (“Batiste Complaint”) ¶ 1. The FCA allows a private person (a “relator”) to bring an action in the Government's name, 31 U.S.C. § 3730(b), and to recover a portion of the proceeds of the action, id. § 3730(d), subject to the requirements of the statute.

According to the allegations in his complaint, from September 27, 2004, until April 28, 2006, Batiste worked as a senior loan associate at SLM Financial Corporation, a subsidiary of SLM, in Mount Laurel, New Jersey. Batiste Complaint ¶ 18.

He alleges he has personal knowledge that SLM defrauded the U.S. government through its administration of student loans under the Federal Family Education Loan Program (“FFELP”). Id. ¶¶ 5–6. Batiste alleges that from October 5, 2004, to the time of filing, SLM defrauded the government by presenting claims for funds to the government, each of which included false certifications that the data SLM submitted with the claims were correct and conformed to federal law. Id. ¶¶ 9, 16, 26, 27, 33, 35.

He further alleges that SLM accomplished this fraud by unlawfully putting student loans into forbearance—that is, allowing borrowers to cease payments temporarily, make payments over an extended period of time, or make smaller payments than previously scheduled—in violation of the Higher Education Act's (Pub.L. No. 89–329, codified at 20 U.S.C. § 1001 et seq.) forbearance regulations (codified at 34 C.F.R. § 682.211). Id. ¶¶ 14–16. Batiste posits SLM did this because interest continues to accrue and the Department of Education continues to pay special allowances to SLM while loans are in forbearance, thereby increasing SLM's return on each loan. He further alleges that the longer a loan stayed in forbearance, the longer SLM would postpone default, thereby artificially keeping SLM's default ratio low and helping SLM maintain its status as an eligible lender under Department of Education guidelines. Id. ¶ 17.

Batiste alleges that SLM regularly granted forbearances to borrowers who paid SLM to bring their accounts current, in violation of regulations that mandate SLM only put loans into forbearance when borrowers intend, but cannot afford, to pay their loans. Id. Batiste alleges SLM systematically encouraged employees to grant forbearances unlawfully. Managers told loan officers to “forget” their formal training and to grant forbearances to “anyone who is delinquent regardless of excuse or whether the borrower had any intention of ever repaying the loan.” Id. ¶¶ 19–21. Batiste further alleges that SLM incentivized loan officers to grant unlawful forbearances by giving bonuses to individuals who reduced delinquencies by a certain amount, whether by bringing borrowers current on their loans or granting them forbearances. Id. ¶ 22–24.

B. Zahara Complaint

On November 9, 2005, over two years before Batiste filed his complaint, Michael Zahara filed a qui tam case against, inter alia, SLM and his employer, Student Assistance Corporation (“SAC”), a wholly-owned SLM subsidiary. Complaint, United States ex rel. Zahara v. SLM Corp., No. 2:05–cv–8020 (C.D.Cal. Nov. 9, 2005) (later transferred to the Southern District of Indiana) (“Zahara Complaint”). From November 29, 2004, until August 16, 2005, Zahara worked as a Default Prevention Specialist for SAC, a division of SLM's Debt Management Operations department, in Las Vegas, Nevada. Zahara Complaint ¶¶ 18, 31, 162.

Zahara alleged that throughout his employment, SLM “knowingly allowed their employees and agents to falsify loan records pertaining to delinquent FFELP loans held by Sallie Mae.” Id. ¶ 3. Specifically, he focused his complaint on employees falsifying forbearance records, alleging that SLM employees would represent that borrowers orally agreed to forbearances when, in fact, the SAC employees had never actually spoken with the borrowers. Id. ¶¶ 3 –4. He alleged that SLM and SAC encouraged such fabrications by imposing a delinquency quota system and a bonus system under which employees would receive bonuses based on team performance in bringing loans current. Id. ¶¶ 24–27. Zahara alleged SLM did this to increase its revenue, meet its performance goals, and maintain its “Exceptional Performer” designation, id. ¶ 30, a now-repealed status that allowed SLM to receive higher-guarantee payments than other lenders on its defaulted loans under the Higher Education Act. See 20 U.S.C. § 1078–79 (repealed 2007).

Zahara also alleged SLM defrauded the government through other practices, including failing to conduct minimal due diligence on federal loans it originated, Zahara Complaint ¶¶ 144–146; improperly consolidating loans, id. ¶ ¶ 147–152; failing to bill borrowers in a timely manner, id. ¶¶ 153–154; improperly crediting borrowers' payments, id. ¶¶ 155–156; and concealing defaulted loans, id. ¶¶ 157–159.

The Southern District of Indiana dismissed Zahara's complaint without prejudice after he was unable to obtain counsel by a set deadline. Entry Dismissing Action at 1, United States ex rel. Zahara v. SLM Corp., No. 1:06–cv–088 (S.D.Ind. Mar. 12, 2009), ECF No. 42.

C. Procedural History

The district court dismissed Batiste's complaint with prejudice on September 24, 2010, for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). United States ex rel. Batiste v. SLM Corp., 740 F.Supp.2d 98, 101–02 (D.D.C.2010). The court held that under the FCA's first-to-file rule, the Zahara Complaint barred the court's consideration of the Batiste Complaint. The first-to-file rule provides, “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.” 31 U.S.C. § 3730(b)(5). The district court found that the Batiste Complaint alleged the “same material elements” of fraud as the Zahara Complaint, and thus was barred by the earlier-filed complaint. Batiste, 740 F.Supp.2d at 102. The district court rejected Batiste's argument that the Zahara case was not a “pending action” for first-to-file purposes because the Zahara Complaint did not meet heightened pleading standards for fraud allegations under Federal Rule of Civil Procedure 9(b). Id. at 104. This appeal followed.

II. Analysis

Batiste raises three arguments on appeal: (A) the district court improperly dismissed the Batiste Complaint under the FCA's first-to-file bar because the Batiste Complaint and Zahara Complaint allege different fraudulent schemes; (B) the district court improperly concluded that the FCA's first-to-file bar does not require a first-filed complaint to meet the pleading standards for fraud; and (C) the district court improperly dismissed Batiste's complaint with prejudice.

We agree with the district court that the complaints allege the same material elements of the same fraud and that the FCA's first-to-file bar does not require a first-filed complaint to meet heightened pleading standards, and we determine Batiste waived his argument regarding the district court's dismissal with prejudice.

A. Same Material Elements of Fraud

Appellate courts review de novo the dismissal of a complaint for lack of jurisdiction. United States ex rel. Findley v. FPC–Boron Emps.' Club, 105 F.3d 675, 681 (D.C.Cir.1997). Applying that standard in this case, we reason as follows:

The FCA's first-to-file rule provides that “[w]hen a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This furthers the...