United States ex rel. Oberg v. Kentucky Higher Educ. Student Loan Corp.

• Citation: 681 F.3d 575
• Decision Date: 18 June 2012
• Docket Number: No. 10–2320.,10–2320.
• Parties: UNITED STATES of America ex rel. Jon H. OBERG, Plaintiff–Appellant, v. KENTUCKY HIGHER EDUCATION STUDENT LOAN CORPORATION; 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; 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; Brazos Group, Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

681 F.3d 575

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

v. KENTUCKY HIGHER EDUCATION STUDENT LOAN CORPORATION; Pennsylvania Higher Education Assistance Agency; Vermont Student Assistance Corporation; Arkansas Student Loan Authority, Defendants–Appellees,andNelnet, Inc.; SLM Corporation; Panhandle Plains Higher Education Authority; 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; Brazos Group, Defendants.

No. 10–2320.

United States Court of Appeals,Fourth Circuit.

Argued: May 17, 2012.

Decided: June 18, 2012.

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

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

Vacated and remanded by published opinion. Judge MOTZ wrote the opinion, in which Chief Judge TRAXLER and Judge KEENAN joined.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

In this False Claims Act case, relator Dr. Jon Oberg, on behalf of the United States, brought a qui tam action alleging that appellees—corporations organized by four states, Kentucky, Pennsylvania, Vermont, and Arkansas—defrauded the United States Department of Education. The district court granted appellees' motions to dismiss on the ground that they were “state agencies” and therefore not subject to suit under the False Claims Act as interpreted 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). For the reasons that follow, we vacate and remand for further proceedings consistent with this opinion.

I.

On behalf of the United States, Dr. Oberg sued the Kentucky Higher Education Student Loan Corporation, Pennsylvania Higher Education Assistance Agency, Vermont Student Assistance Corporation, and Arkansas Student Loan Authority (collectively “appellees”), as well as other defendants not parties to this appeal, under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq. Appellees are corporate entities created by their respective states to improve the availability of higher educational opportunities by financing,making, and/or guaranteeing student loans. Each appellee operates with varying degrees of control by and support from its respective sponsoring state.

In his complaint, Dr. Oberg asserts that appellees knowingly made fraudulent claims to the United States Department of Education by engaging in various non-economic transactions to inflate their loan portfolios eligible for Special Allowance Payments (“SAP”), a federal student loan interest subsidy. As a result, according to Dr. Oberg, the Department of Education overpaid millions of dollars of SAP to appellees.

Each appellee moved to dismiss Dr. Oberg's complaint contending that it was a “state agency” and thus, under Stevens, 529 U.S. at 787–88, 120 S.Ct. 1858, was not a “person” that could be sued under the FCA. The district court agreed and dismissed Dr. Oberg's complaint with regard to all four appellees. In so holding, the court did not apply any stated legal test. Instead, the court primarily looked to state statutory provisions, which, in its view, demonstrated each entity's status as a “state agency.”

Dr. Oberg noted a timely appeal. We review de novo a dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222 (4th Cir.2009).

II.

This appeal presents the question of whether each of the appellees—various state-created corporate entities intended to facilitate the issuance of student loans—constitutes a “person” subject to liability under the FCA. The FCA provides a cause of action against “any person” who undertakes certain fraudulent behavior, 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 relevant provisions of the FCA do not define the term “person.” The Supreme Court, however, has provided helpful guidance on this question.

In Stevens, the Court held that “the False Claims Act does not subject a State (or state agency) to liability.” 529 U.S. at 787–88, 120 S.Ct. 1858. To arrive at this conclusion, the Court applied the “longstanding interpretive presumption that ‘person’ does not include the sovereign.” Id. at 780, 120 S.Ct. 1858. The Court reasoned that the “various features of the FCA ... far from providing the requisite affirmative indications that the term ‘person’ included States for purposes of qui tam liability, indicate quite the contrary.” Id. at 787, 120 S.Ct. 1858. Accordingly, the Court concluded that the Vermont Agency of Natural Resources, a state agency, could not be sued under the FCA.

In explaining its holding, the Stevens Court also noted that “the presumption with regard to corporations is just the opposite of the one governing here,” i.e., corporations “are presumptively covered by the term ‘person.’ ” Id. at 782, 120 S.Ct. 1858. Three years later, in Cook County v. United States ex rel. Chandler, the Court applied this presumption to a municipal corporation. 538 U.S. 119, 123 S.Ct. 1239, 155 L.Ed.2d 247 (2003). There, the Court expressly held that, unlike states and state agencies, municipal corporations are “persons” subject to qui tam suits under the FCA. Id. at 125, 123 S.Ct. 1239. The Chandler Court noted, as it had in Stevens, that the term “person” historically extended to municipal and private corporations. Id. at 125–26, 123 S.Ct. 1239. The Court explained that, at the time of the FCA's enactment, “municipal corporations and private ones were simply two species of ‘body politic and corporate,’ treated alike in terms of their legal status as persons capable of suing and being sued.” Id. at 126, 123 S.Ct. 1239. As a result, the Court held that Cook County, as a municipal corporation, was a “person” subject to suit under the FCA.

From these two cases, the parties arrive at very different conclusions about how to determine whether each appellee is a proper FCA defendant. Relying heavily on Chandler, Dr. Oberg initially argues that any corporation, regardless of its association with a state, is “a legal personality independent of ‘the State’ ” and so presumptively a “person” for purposes of the FCA. Appellant's Br. at 24–25. Because each appellee is a corporation, Dr. Oberg maintains that each is a proper FCA defendant. Such a broad rule—rendering every corporation, no matter how close its relationship to a state, a “person” for FCA purposes—appears inconsistent with Stevens' express holding that the term “person” in the FCA does not include any state or state agency. 529 U.S. at 787–88, 120 S.Ct. 1858.

For their part, appellees contend that, under Stevens, they are not proper FCA defendants because they are state agencies, treated as such by their respective state legislative and judicial branches. Appellees maintain that Chandler “concluded only that local governments, unlike States and State agencies, are persons under the FCA” and because they are not local government entities, Chandler does not apply to them. Appellees' Br. at 7. But nothing in Stevens suggests that the fact that a state legislature or a state court labels a corporation a state agency immunizes that corporation from suit under the FCA. Nor is Chandler as narrow as appellees suggest. Although a municipal corporation was sued there, the Court's discussion of the personhood of corporations makes clear the historical significance of corporate status. See Chandler, 538 U.S. at 125–26, 123 S.Ct. 1239.

Thus, at least initially, each side attempts to over-simplify the question at hand. To determine if appellees are subject to suit under the FCA, the critical inquiry is neither whether they are corporations with “independent legal personalities” (a phrase that appears nowhere in Stevens or Chandler ), as Dr. Oberg maintains, nor whether they have been denominated “state agencies” by legislatures or courts, as appellees appear to contend. Rather the critical inquiry is whether appellees are truly subject to sufficient state control to render them a part of the state, and not a “person,” for FCA purposes. Accordingly, we turn to that inquiry.

III.

Several of our sister circuits have recognized that the arm-of-the-state analysis used in the Eleventh Amendment context provides the appropriate legal...