Decided: March 13, 2014
The Fourth Circuit held that Dr. Jon H. Oberg (Dr. Oberg), a relator for the United States, sufficiently alleged that the Pennsylvania Higher Education Assistance Agency (PHEAA) is a person for purposes of the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq.; that Dr. Oberg sufficiently alleged that the Vermont Student Assistance Corporation (VSAC) is a person under the FCA; and that the Arkansas Student Loan Authority (ASLA) is an arm of the state and therefore not subject to FCA suits. The Fourth Circuit therefore affirmed the judgment of the United States District Court for the Eastern District of Virginia in part, vacated it in part, and remanded the case.
According to Dr. Oberg, the PHEAA, the VSAC, and the ASLA (collectively, the appellees) “defrauded the Department of Education by submitting false claims for Special Allowance Payments” (SAPs), a federal subsidy for the interest on student loans. Dr. Oberg contented that the actions of the appellees constituted violations of the FCA, under which “any person” who, inter alia, “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to certain government officials may be held liable. 31 U.S.C. § 3729(a)(1)(A). While the FCA does not define person, the Supreme Court held in a 2000 opinion that, while states and state agencies are not persons under the FCA, the FCA presumptively covers corporations. Vermont Agency of Natural Resources v. United States, ex rel. Stevens, 529 U.S. 765. In a previous appeal by Dr. Oberg, the Fourth Circuit held that, with regard to state-created corporations, courts should apply the Eleventh Amendment arm of the state analysis to determine whether such corporations may be held liable under the FCA. United States ex rel. Oberg v. Kentucky Higher Education Student Loan Corporation, 681 F. 3d 575. Because the district court dismissed Dr. Oberg’s complaint without conducting the arm of the state analysis, the Fourth Circuit vacated the judgment of the district court and remanded the case. On remand, the district court found that the appellees were arms of their respective states. The district court therefore granted the appellees’ motions to dismiss, and Dr. Oberg appealed.
The Fourth Circuit noted that, in the FCA context, the arm of the state analysis involves a statutory question rather than an affirmative defense. The Fourth Circuit then applied a nonexclusive four-factor test to determine whether each corporation is an arm of the state. Under this test, the Fourth Circuit considered whether judgments against the corporations would be paid by the state; the level of autonomy the corporations exercise; whether the corporations are primarily involved with state or non-state concerns, such as local or out-of-state operations; and the treatment of the corporations under the laws of their respective states. With regard to the PHEAA, the Fourth Circuit found that Pennsylvania is not liable for judgments against the PHEAA from either a legal or a functional perspective; that, when considering “all reasonable inferences in favor of the plaintiff,” the autonomy factor also weighed against arm of the state status; that the PHEAA’s focus on the “legitimate state concern” of providing financial aid services weighed toward arm of the state status; and that the PHEAA’s treatment under Pennsylvania law also weighed in favor of arm of the state status. The Fourth Circuit concluded that, despite the indications to the contrary, Dr. Oberg sufficiently alleged that the PHEAA is a person.
With regard to the VSAC, the Fourth Circuit found that Vermont’s liability for judgments against the VSAC is unclear—but that, construing the facts “in the light most favorable to the plaintiff,” the liability factor counseled against arm of the state status; that the VSAC’s level of autonomy “also present[ed] a close question”—but that, “draw[ing] all reasonable inferences in favor of the plaintiff,” the autonomy factor weighed against arm of the state status; that the VSAC’s financial statements indicated a focus on state educational concerns; and that Vermont law provides that, inter alia, the VSAC “shall be an instrumentality of the state,” Vt. Stat. Ann. tit. 16, § 2823(a). The Fourth Circuit concluded that, despite the indications to the contrary, Dr. Oberg sufficiently alleged that the VSAC is a person.
With regard to the ASLA, the Fourth Circuit found that Arkansas would pay for judgments against the ASLA under state law; that the ASLA “operates with little autonomy from Arkansas despite its corporate powers”; that Dr. Oberg did not allege any facts “indicating that ASLA is not primarily involved with the state concern of helping to finance higher education for Arkansas residents”; and that the ASLA is an arm of the state under Arkansas law. The Fourth Circuit therefore concluded that the ASLA is an arm of the state.