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Student Loan Agencies Face FCA Claims

In a relator’s suit alleging defendants filed false claims for federal student loan interest subsidies, the 4th Circuit says the district court was too hasty in dismissing the False Claims Act suits against two out of three state-created corporations that finance student loans, and remands the cases against two defendants for further discovery to determine whether defendants are arms of the state.

The defendants in this False Claims Act suit are corporate entities established by their respective states to improve access to higher education by originating, financing and guaranteeing student loans. The relator alleges defendants defrauded the federal Department of Education by submitting false claims for Special Allowance Payments (SAPs), a generous federal student loan interest subsidy.

In a prior appeal of this case, we remanded for the district court to perform an arm-of-the-state analysis used in the 11th Amendment context to determine whether these state-created corporations can be liable under the FCA. The district court again concluded all of the student loan corporations constituted state agencies not subject to suit, and dismissed the complaints.

In applying the arm-of-the-state analysis, we consider four factors to determine whether an entity is part of the state: 1) whether any judgment against the entity will be paid by the state; 2) the degree of autonomy exercised by the entity; 3) whether the entity is involved with state concerns as distinct from non-state concerns; and 4) how the entity is treated under state law.

With regard to the first defendant, the Pennsylvania Higher Education Assistance Agency, we conclude the relator has alleged sufficient facts that PHEAA is not an arm of the state, but rather a “person” for FCA purposes. The state treasury is neither legally nor functionally liable for any judgment against the PHEAA, and state law instructs that PHEAA would pay any judgment in this case with its own moneys from its segregated fund. Further, PHEAA’s source of funding, control over its revenues and corporate powers strongly suggest that PHEAA is not an arm of the state. We vacate the district court judgment as to the PHEAA and remand to permit limited discovery on the question whether PHEAA is truly subject to sufficient state control to render it a part of the state.

Turning to the Vermont Student Assistance Corporation, the relator’s allegations are again sufficient to survive a motion to dismiss. The question of who would pay a judgment in this case is unclear, as state law provides no definite guidance. VSAC’s degree of autonomy is a close question. Construing the facts in the light most favorable to plaintiff, we vacate dismissal of the claim and remand for limited discovery.

Finally, we consider the Arkansas Student Loan Authority. In contrast to PHEAA and VSAC, all four factors weigh in favor of holding that ALSA is an arm of the state and not susceptible to suit here.

We affirm the judgment with respect to ASLA and vacate the judgment with respect to the other two defendants and remand for further proceedings.

Dissent

Traxler, C.J., concurring and dissenting: In my view, the complaint plausibly alleges that all of the defendant student-loan corporations are “persons” against whom an action under the False Claims Act can be maintained. Whether the loan companies qualify as arms of their creating states is an affirmative defense that need not be anticipated or negated by the allegations of the complaint, and is a question that cannot be finally resolved here without discovery and fact-finding by the district court.

I concur in that portion of the judgment vacating the dismissal of the FCA claims against the PHEAA and the VSAC, but I dissent from the dismissal of the claims asserted against the ASLA.

U.S. ex rel. Jon H. Oberg v. Pennsylvania Higher Educ. Assistance Agency (Motz) No. 12-2513, March 13, 2014; USDC at Alexandria, Va. (Hilton) Bert W. Rein for appellant; Daniel B. Huyett, John S. West, N. Thomas Connally III for appellees. VLW 014-2-059, 60 pp.

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