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No Qui Tam Suit Against Student Loan Agencies

In determining whether student loan corporations formed by four different states may be sued in a qui tam action alleging they defrauded the U.S. Department of Education, an Alexandria U.S. District Court applies an “arm of the state” analysis and finds that state education loan agencies for Pennsylvania, Kentucky, Vermont and Arkansas are not “persons” who can be sued under the False Claims Act.

This case is back on remand from the 4th Circuit [VLW 012-2-132], which vacated dismissal of the suit and remanded for application of an “arm of the state” analysis. The 4th Circuit determined this is the appropriate legal standard in deciding whether an entity is a “person” subject to suit under the False Claims Act, as there is a virtual coincidence of scope between the statutory inquiry under the FCA and the 11th Amendment sovereign immunity inquiry.

In a fourth amended complaint, plaintiff alleges defendants submitted fraudulent claims under the Family Education Loan Program in violation of the FCA, in order to obtain 9.5 percent special allowance payments (SAP). More specifically, that defendants used pre-October 1, 1993 tax-exempt bond proceeds to unlawfully make or buy additional loans that were guaranteed the minimum 9.5 percent yield. Plaintiff alleges such activity was prohibited by the repeal of the 9.5 percent SAP in 1993, and Department of Education regulations put in place for the purpose of phasing out the 9.5 percent SAPs.

Under the appropriate analysis, the court finds that each defendant is an arm of each of their respective stats. Accordingly, each defendant is not a person who may be sued by a qui tam relator, plaintiff in this action, under the False Claims Act. Plaintiff has therefore not stated a claim upon which relief can be granted against any of the defendants and their motion to dismiss should be granted.

U.S. ex rel. Jon H. Oberg v. Pa. Higher Educ. Authority (Hilton) No. 01:07-960, Dec. 5, 2012; USDC at Alexandria, Va. VLW 012-3-607, 22 pp.


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