United States ex rel. Oberg v. Pa. Higher Educ. Assistance Agency

• Decision Date: 13 March 2014
• Docket Number: No. 12–2513.,12–2513.
• Parties: UNITED STATES ex rel. Jon H. OBERG, Plaintiff–Appellant, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; Vermont Student Assistance Corporation; Arkansas Student Loan Authority, Defendants–Appellees, and Nelnet, Inc.; SLM Corporation; Panhandle Plains Higher Education Authority; Brazos Group; Education Loans Inc/SD; Southwest Student Services Corporation; Brazos Higher Education Service Corporation; Brazos Higher Education Authority, Inc.; Nelnet Education Loan Funding, Inc.; Panhandle–Plains Management and Servicing Corporation; Student Loan Finance Corporation, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

745 F.3d 131

UNITED STATES ex rel. Jon H. OBERG, Plaintiff–Appellant,

v.PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; Vermont Student Assistance Corporation; Arkansas Student Loan Authority, Defendants–Appellees,andNelnet, Inc.; SLM Corporation; Panhandle Plains Higher Education Authority; Brazos Group; Education Loans Inc/SD; Southwest Student Services Corporation; Brazos Higher Education Service Corporation; Brazos Higher Education Authority, Inc.; Nelnet Education Loan Funding, Inc.; Panhandle–Plains Management and Servicing Corporation; Student Loan Finance Corporation, Defendants.

No. 12–2513.

United States Court of Appeals,Fourth Circuit.

Argued: Sept. 19, 2013.

Decided: March 13, 2014.

ARGUED:Bert Walter Rein, Wiley Rein, LLP, Washington, D.C., for Appellant. Daniel B. Huyett, Stevens & Lee, Reading, Pennsylvania; John Stone West, Troutman Sanders, LLP, Richmond, Virginia; N. Thomas Connally, III, Hogan Lovells U.S. LLP, McLean, Virginia, for Appellees. ON BRIEF:Michael L. Sturm, Christopher M. Mills, Brendan J. Morrissey, Wiley Rein, LLP, Washington, D.C., for Appellant. Thomas L. Appler, Wilson Elser Moskowitz Edelman & Dicker LLP, McLean, Virginia, for Appellee Kentucky Higher Education Student Loan Corporation. Megan C. Rahman, Troutman Sanders LLP, Richmond, Virginia, for Appellee Vermont Student Assistance Corporation. Thomas M. Trucksess, Hogan Lovells U.S. LLP, McLean, Virginia; Dustin McDaniel, Arkansas Attorney General, Dennis R. Hansen, Deputy Attorney General, Mark N. Ohrenberger, Assistant Attorney General, Office of the Arkansas Attorney General, Little Rock, Arkansas, for Appellee Arkansas Student Loan Authority. Neil C. Schur, Stevens & Lee, P.C., Philadelphia, Pennsylvania; Jill M. DeGraffenreid, McLean, Virginia, Joseph P. Esposito, Hunton & Williams LLP, Washington, D.C., for Appellee Pennsylvania Higher Education Assistance Agency.

Before TRAXLER, Chief Judge, and MOTZ and KEENAN, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge MOTZ wrote the opinion, in which Judge KEENAN joined. Chief Judge TRAXLER wrote a separate opinion concurring in the judgment in part and dissenting in part.

DIANA GRIBBON MOTZ, Circuit Judge:

This appeal returns to us after remand to the district court. Dr. Jon Oberg, as relator for the United States, brought this action against certain student loan corporations, alleging that they defrauded the Department of Education and so violated the False Claims Act (“FCA” or “the Act”), 31 U.S.C. §§ 3729 et seq. (2006). The district court initially dismissed the complaint in its entirety. When Dr. Oberg appealed, we held that the court had not employed the proper legal framework—the arm-of-the-state analysis—in reaching its conclusion and thus vacated its judgment and remanded the case. See U.S. ex rel. Oberg v. Ky. Higher Educ. Student Loan Corp., 681 F.3d 575, 579–81 (4th Cir.2012) (“Oberg I ”). After applying the arm-of-the-state analysis on remand, the district court again concluded that all of the student loan corporations constituted state agencies not subject to suit under the Act and so again granted their motions to dismiss. For the reasons that follow, we affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.

I.

On behalf of the United States, Dr. Oberg brought this action against the Pennsylvania Higher Education Assistance Agency, the Vermont Student Assistance Corporation, and the Arkansas Student Loan Authority (collectively “appellees”). Appellees are corporate entities established by their respective states to improve access to higher education by originating, financing, and guaranteeing student loans.¹

Dr. Oberg alleges that appellees defrauded the Department of Education by submitting false claims for Special Allowance Payments (“SAP”), a generous federal student loan interest subsidy. According to Dr. Oberg, appellees engaged in noneconomic sham transactions to inflate their loan portfolios eligible for SAP, and the Department of Education overpaid hundreds of millions of dollars to appellees as a result of the scheme. Dr. Oberg alleges that appellees violated the FCA when they knowingly submitted these false SAP claims.

The FCA provides a cause of action against “any person” who engages in certain fraudulent conduct, including “knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval” to an officer, employee, or agent of the United States. 31 U.S.C. § 3729(a)(1)(A). The Act does not define the term “person.” In Vermont Agency of Natural Resources v. United States, ex rel. Stevens, 529 U.S. 765, 787–88, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000), the Supreme Court held that a state or state agency does not constitute a “person” subject to liability under the Act. But the Court also noted that corporations, by contrast, are “presumptively covered by the term ‘person.’ ” Id. at 782, 120 S.Ct. 1858 (emphasis in original). And three years later, the Court applied the latter presumption and held that municipal corporations like counties are ‘persons' subject to suit under the FCA. See Cook Cnty. v. U.S. ex rel. Chandler, 538 U.S. 119, 122, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003).

Accordingly, a court must walk a careful line between two competing presumptions to determine if a state-created corporation is “truly subject to sufficient state control to render [it] a part of the state, and not a ‘person,’ for FCA purposes.” Oberg I, 681 F.3d at 579.² In the prior appeal, we held that the appropriate legal framework for this delicate inquiry is the arm-of-the-state analysis used in the Eleventh Amendment context. Id. at 579–80. Because the district court had not undertaken this analysis, we vacated its judgment and remanded the case to the district court for application of the proper legal framework. Id. at 581.

On remand, after applying the arm-of-the-state analysis, the district court concludedthat each appellee is part of its respective state and thus not a “person” under the Act, and so again granted appellees' motions to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Dr. Oberg then timely noted this appeal.

On review of a Rule 12(b)(6) dismissal, we consider a case de novo. See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir.2011). We evaluate only whether the complaint states “a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In doing so, we construe “facts in the light most favorable to the plaintiff,” Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.2009), and “draw all reasonable inferences in [his] favor” Kolon Indus., 637 F.3d at 440. Yet “we need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Kloth v. Microsoft Corp., 444 F.3d 312, 319 (4th Cir.2006). Nor do we credit allegations that offer only “naked assertions devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotations marks, alteration, and citation omitted).

Moreover, in reviewing a Rule 12(b)(6) dismissal, we are not confined to the four corners of the complaint. It is well established that “we may properly take judicial notice of matters of public record,” including statutes. Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir.2009). We may also consider “documents incorporated into the complaint by reference,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), “as well as those attached to the motion to dismiss, so long as they are integral to the complaint and authentic,” Philips, 572 F.3d at 180. Thus, before us, the parties properly cite to and rely on state statutes and exhibits integral to the complaint.

Finally, we note that although arm-of-the-state status may well constitute an affirmative defense in the related Eleventh Amendment context, this is not so in an FCA case. To succeed in an FCA case, a relator must demonstrate that a defendant is a “person” within the meaning of the Act. As the dissent recognizes, this is “a statutory question.” Dissent. Op. at 147. That is, personhood is an element of the statutory FCA claim, not an immunity providing a defense from suit as in the Eleventh Amendment context. See, e.g., U.S. ex rel. Adrian v. Regents of Univ. of Cal., 363 F.3d 398, 401–02 (5th Cir.2004) (dismissing FCA action on 12(b)(6) motion because “the FCA does not provide a cause of action against state agencies”).³

II.

In applying the arm-of-the-state analysis, we consider four nonexclusive factors to determine whether an entity is “truly subject to sufficient state control to render [it] a part of the state.” Oberg I, 681 F.3d at 579.

First, when (as here), an entity is a defendant, we ask “whether any judgment against the entity as defendant will be paid by the State.” Oberg I, 681 F.3d at 580 (quoting S.C. Dep't Disabilities & Special Needs v. Hoover Universal, Inc., 535 F.3d 300, 303 (4th Cir.2008)).⁴ The Supreme Court has instructed that in assessing this factor, an entity's “potential legal liability” is key. Regents, 519 U.S. at 431, 117 S.Ct. 900;see also Parker v. Franklin Cnty. Cmty. Sch. Corp., 667 F.3d 910, 927–28 (7th Cir.2012) (focusing on legal liability for payment of a judgment in the wake of Regents); Cooper v. Se. Penn. Transp. Auth., 548 F.3d 296, 303 (3d Cir.2008)(same); U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 718 (10th Cir.2006) (same). Thus, we consider whether state law “provides that obligations of [the entity] shall not be binding on [the] State.” Lake Country Estates, Inc. v. Tahoe Reg'l Planning Agency, 440 U.S. 391, 402, 99 S.Ct. 1171, 59 L.Ed.2d 401 (1979) (emphasis in original). In doing so, we look to whether “State law indicates that a...