Filed: Mar. 13, 2014
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2513 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
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2513 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 ..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2513
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.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:07-cv-00960-CMH-JFA)
Argued: September 19, 2013 Decided: March 13, 2014
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.
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 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. 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 US 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.
2
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
3
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.
1
Dr. Oberg also sued other defendants not parties to this
appeal. Among those defendants was another student loan
corporation, the Kentucky Higher Education Student Loan
Corporation, which reached a settlement with Dr. Oberg shortly
before the most recent appeal.
4
Stevens, 529 U.S. 765, 787-88 (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 (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 (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
2
Dr. Oberg insists that only one presumption applies: that
all corporate entities -- regardless of their affiliation with a
state -- must overcome a “presumption of ‘personhood.’”
Appellant’s Br. 15. The dissent seems to agree. See Dissent.
Op. at 34. But this assertion ignores the Supreme Court’s clear
instruction that in the context of corporations created by and
sponsored by a state, competing presumptions are at play. See
Stevens, 529 U.S. at 782 (observing that “the presumption with
regard to corporations is just the opposite of the one governing
[state entities]”).
5
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 concluded that 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 (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 (2009) (internal quotations marks, alteration, and
citation omitted).
6
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 (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 36.
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
7
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
3
The dissent’s suggestion to the contrary thus misses the
mark. Tellingly, it offers only Eleventh Amendment cases in
support of its contention that arm-of-the-state status is an
affirmative defense. See Dissent. Op. at 35-36. But the
Supreme Court has made clear that the statutory FCA question is
distinct from the Eleventh Amendment inquiry. See Stevens, 529
U.S. at 779-80 (explaining that the Court initially considers
whether “the [FCA] itself permits the cause of action it creates
to be asserted against States” before reaching the Eleventh
Amendment sovereign immunity question).
4
When an entity is a plaintiff, this factor requires us to
determine “whether any recovery by the entity as plaintiff will
inure to the benefit of the State.” Hoover Universal, 535 F.3d
at 303. We previously regarded the first factor as “the most
important consideration,” Ram Ditta v. Md. Nat’l Capital Park &
Planning Comm’n,
822 F.2d 456, 457 (4th Cir. 1987), and the
dissent seems to regard it as dispositive, see Dissent. Op. at
41. But as we noted in Oberg
I, 681 F.3d at 580 n.3, more
(Continued)
8
instructed that in assessing this factor, an entity’s “potential
legal liability” is key. Regents, 519 U.S. at 431; 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 (1979) (emphasis in
original). In doing so, we look to whether “State law indicates
that a judgment against [the entity] can be enforced against the
State.” Cash v. Granville Cnty. Bd. of Educ.,
242 F.3d 219, 224
(4th Cir. 2001).
An entity may also constitute an arm of the state “where
the state is functionally liable, even if not legally liable.”
Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d 1116, 1122
(9th Cir. 2007) (emphasis added); see also Hess v. Port Auth.
Trans-Hudson Corp.,
513 U.S. 30, 50 (1994) (“Where an agency is
recent Supreme Court precedent suggests that although this
factor remains of “considerable importance,” Regents of the
Univ. of Cal. v. Doe,
519 U.S. 425, 430 (1997), it does not
deserve dispositive preeminence, see Fed. Maritime Comm’n v.
S.C. State Ports Auth.,
535 U.S. 743, 765 (2002).
9
so structured that, as a practical matter, if the agency is to
survive, a judgment must expend itself against state treasuries,
common sense and the rationale of the eleventh amendment require
that sovereign immunity attach to the agency.”) (internal
quotation marks and alteration omitted).
Second, we assess “the degree of autonomy exercised by the
entity, including such circumstances as who appoints the
entity’s directors or officers, who funds the entity, and
whether the State retains a veto over the entity’s actions.”
Oberg I, 681 F.3d at 580 (quoting Hoover
Universal, 535 F.3d at
303). Also relevant to the autonomy inquiry is the
determination whether an entity has the ability to contract, sue
and be sued, and purchase and sell property, see
Cash, 242 F.3d
at 225; Ram
Ditta, 822 F.2d at 458, and whether it is
represented in legal matters by the state attorney general, see,
e.g., Md. Stadium Auth. v. Ellerbe Becket, Inc.,
407 F.3d 255,
264 (4th Cir. 2005).
Third, we consider “whether the entity is involved with
state concerns as distinct from non-state concerns, including
local concerns.” Oberg I, 681 F.3d at 580 (quoting Hoover
Universal, 535 F.3d at 303). “Non-state concerns,” however, do
not mean only “local” concerns, but rather also encompass other
non-state interests like out-of-state operations. See Hoover
Universal, 535 F.3d at 307 (characterizing this factor as
10
“whether the entity is involved with statewide, as opposed to
local or other non-state concerns”) (emphasis added).
Fourth, we look to “how the entity is treated under state
law, such as whether the entity’s relationship with the State is
sufficiently close to make the entity an arm of the State.”
Oberg I, 681 F.3d at 580 (quoting Hoover
Universal, 535 F.3d at
303). Whether an entity is an arm of the state is ultimately a
question of federal law, “[b]ut that federal question can be
answered only after considering the provisions of state law that
define the agency’s character.”
Regents, 519 U.S. at 429 n.5.
“In addressing this factor, a court may consider both the
relevant state statutes, regulations, and constitutional
provisions which characterize the entity, and the holdings of
state courts on the question.” Md. Stadium
Auth., 407 F.3d at
265 (internal quotation marks omitted).
With these principles in mind, we now apply arm-of-the-
state analysis to each of the appellees.
III.
We initially consider the Pennsylvania Higher Education
Assistance Agency (“PHEAA”). In 1963, the Pennsylvania General
Assembly created PHEAA, which, according to PHEAA itself, now
constitutes one of the nation’s largest providers of student
financial aid services. Although PHEAA continues to administer
11
state-funded student aid programs in Pennsylvania, it
acknowledges that it also operates nationally under the names
American Education Services and FedLoan Servicing.
The first factor in the arm-of-the-state analysis, whether
Pennsylvania would pay a judgment against PHEAA in this case,
weighs decidedly against holding that PHEAA is an arm of the
state. For “instead of the state treasury being directly
responsible for judgments against [PHEAA], [state law] expressly
provides that obligations of [PHEAA] shall not be binding on
[the] State.” Lake Country Estates, 440 U.S. at 402 (emphasis
in original). Pennsylvania explicitly disavows liability for
all of PHEAA’s debts. See 24 Pa. Cons. Stat. § 5104(3)(2012)
(“no obligation of the agency shall be a debt of the State”).
In addition, state law emphasizes that PHEAA’s debts are not
“payable out of any moneys except those of the corporation.”
Id. Aside from state appropriations that go directly to
students in the form of education grants, moreover, PHEAA’s
substantial “moneys” derive exclusively from its own operations.
The Pennsylvania treasury is thus neither legally nor
functionally liable for any judgment against PHEAA. See
Stoner,
502 F.3d at 1122.
Nevertheless, PHEAA contends that the important first
factor weighs in favor of concluding that it is an arm of the
state because state statutes require that its funds be deposited
12
into the state treasury and that “no money” be paid from the
treasury without approval from the state treasurer. See 24 Pa.
Cons. Stat. § 5104(3); 72 Pa. Cons. Stat. § 307 (2013). This
argument, however, ignores “a commonplace of statutory
construction that the specific governs the general.” Morales v.
Trans World Airlines, 504 U.S. 374, 384 (1992). The statutory
provisions specifically outlining PHEAA’s “powers and duties”
clearly indicate that PHEAA’s board of directors -– not the
state treasurer -– controls PHEAA’s funds. Those statutes
provide that PHEAA’s funds “shall be available to the agency”
and “may be utilized at the discretion of the board of directors
for carrying out any of the corporate purposes of the agency.”
24 Pa. Cons. Stat. § 5104(3). Further, the state treasurer may
use PHEAA’s funds only for purposes “consistent with guidelines
approved by the board of directors.”
Id.
Moreover, PHEAA’s funds are held in a segregated account
apart from general state funds.
Id. § 5105.10. Our sister
circuits have recognized that such an arrangement counsels
against establishing arm-of-the-state status under this factor.
The First Circuit, for instance, held that the University of
Rhode Island is not an arm of its state in part because its
funds are not “merged with[] the general fund, but are kept in
segregated accounts [in the state treasury] pending
discretionary disbursement by the [University’s] Board.” Univ.
13
of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1210 (1st Cir.
1993). Similarly, the Third Circuit, in assessing whether the
Public School Employees’ Retirement Board of Pennsylvania was an
arm of the state, remanded the case for further consideration in
part because -– like PHEEA’s account -- the entity’s fund was
“set apart in the state treasury from general state funds and []
administered by the State Treasurer at the discretion of the
Board.” Blake v. Kline,
612 F.2d 718, 723 (3d. Cir. 1979)
(footnote and citations omitted). In sum, because state law
instructs that PHEAA would pay any judgment in this case with
its own moneys from its segregated fund, see 24 Pa. Cons. Stat.
§ 5104(3)(2012), the first factor weighs heavily against holding
that PHEAA is an arm of the state.
The second factor, the degree of autonomy exercised by the
entity, presents a closer question. PHEAA’s board of directors
is composed of gubernatorial appointees and state legislators or
officials. See 24 Pa. Cons. Stat. § 5103 (repealed July 2010,
but effective during the period when PHEAA allegedly violated
the FCA). Such an arrangement frequently indicates state
control. See Md. Stadium Auth., 407 F.3d at 264. Further,
state officials exercise some degree of veto power over PHEAA’s
operations. For example, the Auditor General may review PHEAA’s
activities, 24 Pa. Cons. Stat. § 5108, and PHEAA must seek the
approval of the Governor in order to issue notes and bonds,
id.
14
§ 5104(3). These factors may mean, as PHEAA contends, that it
is simply a tool of the state.
But other indicia relevant to the autonomy analysis --
PHEAA’s source of funding, control over its revenues, and
corporate powers –- strongly suggest that PHEAA is not an arm of
the state. Most critically, PHEAA is financially independent.
According to its annual reports, which were attached to the
amended complaint, PHEAA receives no operational funding from
Pennsylvania. See also Appellees’ Br. 53 (conceding the point).
Pennsylvania law, moreover, expressly instructs that PHEAA’s
funds “shall be available to the agency,” and that PHEAA’s board
may use those funds in any manner that furthers the agency’s
corporate purposes. 24 Pa. Cons. Stat. § 5104(3). Meanwhile,
the state treasurer’s use of PHEAA’s funds must adhere to
“guidelines approved by the board” of PHEAA. Id. Finally,
PHEAA has the power to enter into contracts, sue and be sued,
and purchase and sell property in its own name, all of which
suggest operational autonomy. See
Cash, 242 F.3d at 225; Ram
Ditta, 822 F.2d at 458. Although the facts relevant to this
second factor cut both ways, when we consider “all reasonable
inferences in favor of the plaintiff” as we must at this stage,
Kolon
Indus., 637 F.3d at 440, we conclude that this factor also
counsels against holding that PHEAA is an arm of the state.
15
The third factor is whether PHEAA “is involved with
statewide, as opposed to local or other non-state concerns.”
Hoover Universal, 535 F.3d at 307. Dr. Oberg poses two
arguments relevant to this factor.
Initially, he contends that due to PHEAA’s commercial
focus, its operations do not involve an area of legitimate state
concern. See Appellant’s Br. 43; Reply Br. 25-26. This
argument fails. Pennsylvania created PHEAA to finance, make,
and guarantee loans for higher education, and “[h]igher
education is an area of quintessential state concern and a
traditional state government function.” Md. Stadium Auth., 407
F.3d at 265. PHEAA does not provide higher education directly,
but it nonetheless facilitates the attainment of education by
supplying student financial aid services. This work is clearly
of legitimate state concern.
Dr. Oberg’s remaining argument as to the third factor is
that PHEAA’s operations from 2002 to 2006 -- during the time in
which PHEAA allegedly conducted fraudulent transactions in
violation of the FCA -- were so focused out of state that PHEAA
was not involved primarily with state concerns. 5 See Ram Ditta,
5
PHEAA counters that out-of-state operations are irrelevant
because this factor is concerned only with whether an entity’s
focus is statewide as opposed to local. The argument is
misguided. Rather, this factor looks to “whether the entity is
(Continued)
16
822 F.2d at 459; cf. Hoover
Universal, 535 F.3d at 307. To this
end, Dr. Oberg alleges that “PHEAA conducts substantial
operations outside of Pennsylvania,” and that as early as 2005,
“one-third of PHEAA’s earnings c[a]me from outside the
[C]ommonwealth,” after which it further “expanded its
operations.” PHEAA’s financial reports, cited throughout Dr.
Oberg’s complaint, tend to corroborate these claims, so there is
little doubt that during the period in question PHEAA’s
operations extended well beyond the borders of Pennsylvania.
Even so, if only one-third of PHEAA’s earnings came from outside
Pennsylvania in 2005, it does not seem plausible that by 2006 --
the last year encompassed by Dr. Oberg’s allegations -– PHEAA’s
operations focused primarily out of state. See Ram
Ditta, 822
F.2d at 459; see also
Iqbal, 556 U.S. at 678 (explaining that
“[w]here a complaint pleads facts that are merely consistent
with a defendant’s liability, it stops short of the line between
possibility and plausibility of entitlement to relief”)
(internal quotation marks and citation omitted). Therefore, we
believe this factor weighs in favor of arm-of-the-state status
for PHEAA.
involved with statewide, as opposed to local or other non-state
concerns.” Hoover
Universal, 535 F.3d at 307 (emphasis added).
17
The final factor, how PHEAA is treated under state law,
also supports PHEAA’s contention that it is an arm of
Pennsylvania. A state statute provides that “the creation of
the agency [was] in all respects for the benefit of the
people . . . and the agency [performs] an essential governmental
function.” 24 Pa. Cons. Stat. § 5105.6. PHEAA’s enabling
legislation was made effective by “amendment to the Constitution
of Pennsylvania authorizing grants or loans for higher
education,” id. § 5112, and Pennsylvania state courts have
concluded that PHEAA is a state agency for jurisdictional
purposes, see, e.g., Richmond v. Penn. Higher Educ. Assistance
Agency,
297 A.2d 544, 546 (1972); Penn. Higher Educ. Assistance
Agency v. Barksdale,
449 A.2d 688, 689-90 (1982).
In sum, although the third and fourth factors suggest that
PHEAA is an arm of the state, the first (strongly) and second
(albeit less strongly) point in the opposite direction. At this
early stage, construing the facts in the light most favorable to
the plaintiff, Nemet Chevrolet, 591 F.3d at 255, we must
conclude that Dr. Oberg has alleged sufficient facts that PHEAA
is not an arm of the state, but rather a “person” for FCA
purposes. We therefore vacate the judgment of the district
court as to PHEAA and remand to permit limited discovery on the
question whether PHEAA is “truly subject to sufficient state
18
control to render [it] a part of the state.” Oberg I, 681 F.3d
at 579.
IV.
We next consider whether Dr. Oberg’s complaint states a
plausible claim that the Vermont Student Assistance Corporation
(“VSAC”) is a “person” subject to suit under the FCA. The
Vermont legislature created VSAC in 1965 to provide Vermont
residents with opportunities to attend college by awarding
education grants and financing student loans. Vt. Stat. Ann.
tit. 16, § 2821(a) (2013). According to VSAC’s financial
statements -– referenced repeatedly in Dr. Oberg’s complaint --
the agency currently administers a state grant program and a
higher education investment plan; originates, services, and
guarantees student loans; and provides higher education
information and counseling services.
The upshot of the first arm-of-the-state factor -- who
would pay a judgment in this case -– is unclear. State law
provides no definite guidance. On one hand, Dr. Oberg alleges
that Vermont would not pay a judgment because the state
disclaims legal liability for VSAC’s debts. Yet, in contrast to
Pennsylvania, which disavows liability for any and all of
PHEAA’s obligations, see 24 Pa. Cons. Stat. § 5104(3), Vermont
does so only with respect to VSAC’s debt obligations issued to
19
finance loans for higher education, see Vt. Stat. Ann. tit. 16,
§ 2823(f); id at § 2868(i). Dr. Oberg has identified no state
law indicating that a judgment obligation could not be enforced
against the state, and we have found none. See Lake Country
Estates, 440 U.S. at 402 (finding relevant whether state law
“provides that obligations of [the entity] shall not be binding
on [the] State”).
On the other hand, VSAC’s contention that Vermont would pay
a judgment rests on the state’s duty to “support and maintain”
VSAC. Vt. Stat. Ann. tit. 16, § 2823(a). But an obligation
stated in such general terms is not conclusive. Moreover,
although state appropriations compose nearly twenty percent of
VSAC’s revenues, such funding goes entirely to students in the
form of need-based grants. Thus, whether Vermont would be
legally or functionally liable for a judgment here is unclear.
At this stage, however, we must construe all facts in the light
most favorable to the plaintiff, Nemet Chevrolet, 591 F.3d at
255, so we assume that this critical (albeit not dispositive)
first factor weighs against arm-of-the-state status for VSAC.
The second factor, VSAC’s degree of autonomy from the
state, also presents a close question. Vermont law provides
that eight members of VSAC’s eleven-member board of directors
are either state officials or gubernatorial appointees, and that
the board elects the remaining three members. Vt. Stat. Ann.
20
tit. 16, § 2831. Moreover, Vermont retains important oversight
authority over VSAC. The state “reserves the right at any time
to alter, amend, repeal or otherwise change the structure,
organization, programs, or activities” of VSAC, id. § 2821(b),
and state law provides that VSAC may issue no debt obligation
“without the approval in writing of the governor,”
id.
§ 2823(f).
Other autonomy indicators, however, counsel against holding
that VSAC is an arm of the state. VSAC not only exercises
corporate powers including the capacity to contract and sue and
be sued, see Cash, 242 F.3d at 225, it is also, like PHEAA,
financially independent. VSAC’s financial statements, cited
throughout the complaint, indicate that VSAC uses state
appropriations only for need-based educational grants; no state
funds finance its operations. In addition, VSAC’s board is
broadly empowered to adopt policies and regulations governing
its lending activities, Vt. Stat. Ann. tit. 16, § 2834, and “to
do any and all acts and things as may be necessary” to secure
its debt obligations,
id. § 2868(d). Thus, although we
recognize that certain facts relevant to the autonomy analysis
suggest that VSAC is an arm of the state, others weigh decidedly
against that conclusion. Once again “draw[ing] all reasonable
inferences in favor of the plaintiff,” Kolon
Indus., 637 F.3d at
21
440, we believe this factor also counsels against holding as a
matter of law that VSAC is an arm of the state.
As to the third factor, whether VSAC is involved with
statewide concerns, Dr. Oberg alleges that this factor weighs
against holding that VSAC is an arm of the state because
“Vermont law allows VSAC to conduct business in other States”
and the agency has “contracted with borrowers and companies
outside Vermont.” But these assertions do not equate to an
allegation that VSAC’s operations centered primarily outside
Vermont at any point in time. See Ram Ditta, 822 F.2d at 459.
Indeed, Dr. Oberg’s allegations here fall short even of those he
offers as to PHEAA’s extra-state operations, which we have held
do not rise to the level of establishing a plausible claim of
arm-of-the-state status under this factor. See
Iqbal, 556 U.S.
at 678. Rather, VSAC’s financial statements indicate that
during the period in question the agency was focused on the
statewide concern of facilitating postsecondary educational
opportunities for residents of Vermont.
With respect to the fourth factor, how state law treats the
entity, Dr. Oberg alleges that Vermont does not treat VSAC as it
treats “true agencies of the state.” But in fact Vermont law
expressly provides that VSAC “shall be an instrumentality of the
state,” Vt. Stat. Ann. tit. 16, § 2823(a), exempts VSAC from all
taxation, id. § 2825, and “designate[s] [VSAC] as the state
22
agency to receive federal funds assigned to the state of Vermont
for student financial aid programs,” id. § 2823(c).
In sum, although the first and second factors present close
questions, we must conclude in compliance with Rule 12(b)(6)
that both weigh against holding VSAC an arm of the state.
Accordingly, while the third and fourth factors suggest
otherwise, we must also hold that Dr. Oberg’s allegations as to
VSAC are sufficient to survive a motion to dismiss. This is so
particularly given the first factor’s enduring importance. See
supra at 8 n.4. We recognize that some of Dr. Oberg’s
allegations test the outer bounds of the plausibility standard,
but at this juncture, we must construe all facts in the light
most favorable to the plaintiff. We therefore vacate the
judgment of the district court with respect to VSAC and remand
to permit limited discovery on this question.
V.
Finally, we consider whether the Arkansas Student Loan
Authority (“ASLA”) is an arm of the state of Arkansas. The
state legislature created ASLA in 1977 to help Arkansas provide
higher educational opportunities for its residents. Ark. Code
Ann. § 6-81-102 (2013). ASLA currently originates and disburses
student loans at postsecondary schools throughout the state. It
23
also sponsors outreach services to increase awareness about
financial aid in higher education.
In contrast to PHEAA and VSAC, all four factors weigh in
favor of holding that ASLA is an arm of the state. First,
although § 6-81-113 of the Arkansas Code disavows liability for
debt obligations issued to finance student loans, it says
nothing about liability for other debts like a judgment
obligation. Critically, Arkansas statutes elsewhere indicate
that state revenues would be used to satisfy a judgment against
ASLA. State law instructs that “[a]ll moneys received by
[ASLA]” from its lending operations are “specifically declared
to be cash funds,” and further, that “cash funds” are “revenues
of the state.” Id. at §§ 6-81-118(a)(1), 19-6-103.
Accordingly, because ASLA’s income derives overwhelmingly from
its lending activities, and because such income statutorily
belongs to Arkansas, it follows that the state would foot the
bulk of any judgment against ASLA. Dr. Oberg’s allegations to
the contrary establish only a dubious possibility that ASLA
could procure some “other income” with which to satisfy a
judgment. See Reply Br. at 14. More is required to survive a
motion to dismiss. See
Iqbal, 556 U.S. at 678.
The dissent misses the mark in contending that Arkansas’s
statutory scheme is “similar in many ways to that in
Pennsylvania,” Dissent. Op. at 50 n.4, and that state funds
24
would not be used to satisfy a judgment against ASLA because,
“in reality,” Arkansas “claims” only ASLA’s “surplus revenues,”
Dissent. Op. at 51. Arkansas does not, “in reality,” “claim”
only ASLA’s “surplus revenues” as revenues of the state.
Arkansas law expressly provides that “all moneys” received by
ASLA in connection with its lending activities are revenues of
the state. Ark. Code Ann. §§ 6-81-118(a)(1), 19-6-103. And
Arkansas law carefully cabins ASLA’s use of those state revenues
to certain lending costs, id. § 6-81-118(b)-(c), an arrangement
far removed from the Pennsylvania scheme granting PHEAA
“discretion[ary]” authority to use its funds for any corporate
purpose, see 24 Pa. Cons. Stat. § 5104(3).
The dissent also misses the mark in suggesting that our
analysis here is “directly contrary” to that in Hess v. Port
Authority Trans-Hudson Corp., 513 U.S. 30 (1994), for this
contention ignores crucial differences between the two cases.
While ASLA is a corporation created by a single state to further
educational opportunities in that state, the Port Authority in
Hess is a bistate “Compact Clause entity” with “diffuse”
political accountability.
Id. at 42. Because Congress must
authorize the creation of such bistate entities, see U.S. Const.
art. 1, § 10, cl. 3, they “owe their existence to [both] state
and federal sovereigns” and so “lack the tight tie to the people
of one State that an instrument of single State has,” Hess,
513
25
U.S. at 42. For this reason, the Supreme Court recognizes a
“general approach” for Compact Clause entities, like the Port
Authority, under which a court will “presume” that they are not
arms of the state.
Id. at 43. (Of course, the Court has
established no similar “general approach” for state-created
corporations like ASLA.)
Notwithstanding this presumption, and even though no state
appropriated funds to the Port Authority or claimed the
Authority’s income as its revenue, the Authority argued that it
was an arm of a state because it dedicated some of its surplus
to “public projects which the States themselves might otherwise
finance.” Id. at 50. The Supreme Court had little difficulty
rejecting that argument, noting that because the Authority was a
profitable Compact Clause entity that retained and controlled
its income, the associated states would not pay a judgment
against it.
Id. at 51. ASLA, by contrast, is “an instrument of
a single [s]tate,”
id. at 43, and state law expressly provides
that all of its lending income belongs to that state. Thus,
state funds necessarily would be used to pay a judgment against
ASLA. In sum, Hess does not in any way undermine our holding
26
that this first factor indicates that ASLA is an arm of the
state. 6
As to the second arm-of-the-state factor, ASLA operates
with little autonomy from Arkansas despite its corporate powers.
State legislative records establish that, unlike Pennsylvania
and Vermont, Arkansas provides its student loan corporation
substantial funding. 7 Moreover, the Arkansas Attorney General
6
The dissent disputes this conclusion for two additional
reasons. Relying on the principle that the “specific governs
the general,” Morales, 504 U.S. at 384, the dissent notes that
only general statutory provisions –- not those “exclusively
applicable to ASLA” -– define “cash funds” as “revenues of the
state.” See Dissent. Op. at 48-49. But the principle of
statutory construction on which the dissent relies applies only
where general and specific statutory provisions conflict, or
where a general provision would render a more specific one
superfluous. See RadLAX Gateway Hotel, LLC v. Amalgamated Bank,
132 S. Ct. 2065, 2071 (2012). The principle finds no footing
where, as here, specific and general statutory provisions do not
conflict, but rather go hand in hand. That is, the specific
provision defining ASLA’s revenues as “cash funds” is entirely
consistent with the general provision declaring that “cash
funds” are revenues of the state.
The dissent also posits that “the fact that ASLA’s funds
are held in a segregated fund outside the state treasury
counsels against arm-of-state status.” Dissent. Op. at 49. As
a general rule, we agree that such an arrangement would weigh
against holding that an entity is an arm of its state. But
Arkansas is an exception to this general rule, because state law
expressly declares agency income deposited outside the state
treasury to be revenue of the state. Ark. Code Ann. § 19-6-103.
In contrast to the dissent’s suggestion, see Dissent. Op. at 50
n.4, ASLA’s statutory scheme thus operates nothing like that
governing PHEAA.
7
The dissent unconvincingly suggests that this funding is
irrelevant to the autonomy inquiry because it derives from
ASLA’s own cash funds. Dissent. Op. at 51, 55. But the source
(Continued)
27
represents ASLA in litigation, including the case at hand, and
state law limits ASLA’s powers in several significant ways. For
example, Arkansas subjects ASLA’s use of cash funds to approval
by the General Assembly, Ark. Code Ann. § 19-4-802, and prevents
its sale of bonds “until the bond issue has the written approval
of the Governor after he or she has received the approval of the
State Board of Finance,” id. § 6-81-108.
Critically, the Governor of Arkansas also appoints every
member of ASLA’s board of directors. See id. § 6-81-102(d).
“The fact that all of [an entity’s] decisionmakers are appointed
by the Governor,” we have recognized, “is a key indicator of
state control.” Md. Stadium
Auth., 407 F.3d at 264; see also,
Hoover, 353 F.3d at 307;
Kitchen, 286 F.3d at 185;
Cash, 242
F.3d at 225. The dissent all but ignores this fact, claiming
instead that ASLA is autonomous because its board members serve
fixed terms and may not be removed at will. Dissent. Op. at 56.
This argument fails. Even where board members serve fixed
terms, state authority to appoint all of an entity’s
of state funds used to support ASLA’s operations matters not.
What matters is whether an entity’s funds belong to the state.
See supra at 25-26. In this case, state law expressly provides
that they do. Every dollar ASLA earns through its lending
activities becomes a dollar of state revenue “to be used as
required and to be expended only for such purposes and in such
manner as determined by law.” Ark. Code Ann. § 19-6-103. That
Arkansas, in its discretion, returns some of this money to ASLA
to finance its operations does not change that fact.
28
decisionmakers remains powerful evidence of state control. See
Md. Stadium Auth., 407 F.3d at 258, 264 (stressing importance of
power to appoint although board members “serve five year
terms”). Arkansas law, moreover, is equivocal with respect to
the governor’s removal power. Indeed, it suggests that the
governor may remove board members simply by selecting new ones,
as appointments to ASLA’s board are for four-year terms “or
until a successor is appointed.” Ark. Code Ann. § 6-81-102(e).
Third, with respect to whether ASLA is focused on state
concerns, Dr. Oberg merely alleges that Arkansas law “allows
ASLA to lend to any qualified borrower nationwide” and that ASLA
“can and has entered into contracts with institutions outside
Arkansas.” The operative question, however, is whether ASLA is
primarily involved with state concerns. See Ram Ditta, 822 F.2d
at 459. And Dr. Oberg has alleged no facts indicating that ASLA
is not primarily involved with the state concern of helping to
finance higher education for Arkansas residents. The dissent,
while conceding that student-loan financing facilitates the
important state goal of educating youth, maintains that ASLA is
also engaged in non-state concerns like “the servicing of
federal student loans.” Dissent. Op. at 55. But ASLA’s
federal-loan servicing work did not begin until 2012, so is
irrelevant to the question whether ASLA was a “person” within
29
the meaning of the FCA from 2002 to 2006 when it allegedly
violated the Act.
Fourth, as the dissent agrees, Arkansas law plainly treats
ASLA as an arm of the state. ASLA was established by state law
as “the instrumentality of the state charged with a portion of
the responsibility of the state to provide educational
opportunities.” Ark. Code Ann. § 6-81-102(c). Its lending
revenues are statutorily defined as “revenues of the state,” id.
§§ 6-81-118, 19-6-103, and the Supreme Court of Arkansas has
described ASLA as “a state agency created by . . . the 1977 Acts
of Arkansas,” Turner v. Woodruff,
689 S.W.2d 527, 528 (Ark.
1985).
In short, we conclude that each of the four factors
counsels in favor of holding that ASLA is an arm of the state.
To be sure, as the dissent points out, arm-of-the-state analysis
is a fact-intensive inquiry often ill suited to judgment on the
pleadings. See Dissent. Op. at 58-59. But where, as with ASLA,
the relevant facts are clear, Rule 12(b)(6) mandates dismissal.
See, e.g., Stoner, 502 F.3d at 1121-23 (dismissing FCA action on
12(b)(6) motion);
Adrian, 363 F.3d at 401-02 (same). We
therefore hold that ASLA is an arm of Arkansas and so not
subject to suit under the FCA.
30
VI.
We affirm the judgment of the district court with respect
to ASLA. We vacate that portion of the district court’s
judgment dismissing Dr. Oberg’s FCA claims against PHEAA and
VSAC and remand for further proceedings consistent with this
opinion.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
31
TRAXLER, Chief Judge, concurring in the judgment in part and
dissenting in part:
This is an appeal from the granting of a Rule 12(b)(6)
motion to dismiss, a motion that tests the plausibility of the
plaintiff’s allegations rather than the plaintiff’s ability to
ultimately prove his allegations or the defendant’s ability to
establish a defense. In my view, plaintiff Jon Oberg’s Fourth
Amended Complaint plausibly alleges that all of the defendant
student-loan corporations (together, the “Loan Companies”) are
“persons” against whom an action under the False Claims Act (the
“FCA”) 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, see Goodman v. Praxair, Inc., 494 F.3d 458, 466 (4th
Cir. 2007) (en banc), and is a question that cannot be finally
resolved here without discovery and fact-finding by the district
court.
Accordingly, I concur in that portion of the judgment
vacating the dismissal of Oberg’s False Claims Act claims
asserted against the Pennsylvania Higher Education Assistance
Agency (“PHEAA”) and the Vermont Student Assistance Corporation
(“VSAC”), but I dissent from the dismissal of the claims
asserted against the Arkansas Student Loan Authority (“ASLA”).
32
I.
“The purpose of a Rule 12(b)(6) motion is to test the
sufficiency of a complaint”; the motion “does not resolve
contests surrounding the facts, the merits of a claim, or the
applicability of defenses.” Butler v. United States, 702 F.3d
749, 752 (4th Cir. 2012) (internal quotation marks omitted),
cert. denied,
133 S. Ct. 2398 (2014).
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff
must allege facts plausibly establishing the elements of his
asserted cause of action. See Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009); Walters v. McMahen,
684 F.3d 435, 439 (4th Cir.
2012), cert. denied, 133 S. Ct. 1493 (2013). While the
plaintiff is not required to “forecast evidence sufficient to
prove the elements of the claim,” he “must allege sufficient
facts to establish those elements” and “advance [his] claim
across the line from conceivable to plausible.”
Walters, 684
F.3d at 439 (internal quotation marks omitted). When
considering a motion to dismiss, we give no deference to legal
conclusions asserted in the complaint, but we must accept all
factual allegations as true. See
id.
II.
Broadly speaking, the False Claims Act imposes liability on
a “person” who knowingly presents a false or fraudulent claim
33
for payment or knowingly makes or uses a false record or
statement material to a false claim. See 31 U.S.C.
§ 3729(a)(1)(A) & (B). In order to survive the motion to
dismiss, Oberg was therefore obliged to plead facts plausibly
establishing that the named defendants are “persons” within the
meaning of the FCA.
While states are not “persons” subject to qui tam actions
under the FCA, see Vt. Agency of Natural Res. v. United States
ex rel. Stevens, 529 U.S. 765, 787-88 (2000), corporations,
including municipal corporations like cities and counties, are
“persons” under the Act, see Cook Cnty. v. United States ex rel.
Chandler,
538 U.S. 119, 134 (2003); see also 1 U.S.C. § 1 (“In
determining the meaning of any Act of Congress, unless the
context indicates otherwise[,] . . . the word[] ‘person’ . . .
include[s] corporations . . . .”). There is no dispute that
each of the Loan Companies is a corporation, and Oberg alleged
the corporate status of each Loan Company in his complaint.
Because corporations are presumed to be “persons” under the FCA,
Chandler, 538 U.S. at 126, Oberg’s allegations of corporate
status plausibly established that the Loan Companies are
“persons” within the meaning of the FCA, see Bell Atl. Corp. v.
Twombly,
550 U.S. 544, 555 (2007) (“Factual allegations must be
enough to raise a right to relief above the speculative
level.”).
34
The Loan Companies, however, all contend that they are
alter-egos or arms of their creating states. The Companies
therefore argue that they, like the states themselves, do not
qualify as “persons” under the FCA. Arm-of-state status is an
Eleventh-Amendment-based inquiry focused on determining whether
a state-created entity is so closely related to the state that
it should be permitted to share in the state’s sovereign
immunity. See United States ex rel. Oberg v. Ky. Higher Educ.
Student Loan Corp., 681 F.3d 575, 580 (4th Cir. 2012) (“Oberg
I”). Although this court has not addressed the issue, the
circuits that have considered similar assertions of arm-of-state
status have uniformly concluded that it is an affirmative
defense to be raised and established by the entity claiming to
be an arm of the state. See Sung Park v. Ind. Univ. Sch. of
Dentistry,
692 F.3d 828, 830 (7th Cir. 2012) (“[S]overeign
immunity is a waivable affirmative defense.”); Aholelei v. Dep’t
of Pub. Safety,
488 F.3d 1144, 1147 (9th Cir. 2007) (“Eleventh
Amendment immunity is an affirmative defense . . . .” (internal
quotation marks omitted)); Woods v. Rondout Valley Cent. Sch.
Dist. Bd. of Educ.,
466 F.3d 232, 237-39 (2d Cir. 2006)
(treating Eleventh Amendment immunity “as akin to an affirmative
defense”); see also Gragg v. Ky. Cabinet for Workforce Dev.,
289
F.3d 958, 963 (6th Cir. 2002) (“[T]he entity asserting Eleventh
Amendment immunity has the burden to show that it is entitled to
35
immunity, i.e., that it is an arm of the state.”); Skelton v.
Camp, 234 F.3d 292, 297 (5th Cir. 2000) (holding that the party
seeking immunity “bear[s] the burden of proof in demonstrating
that [it] is an arm of the state entitled to Eleventh Amendment
immunity”); Christy v. Pa. Turnpike Comm’n,
54 F.3d 1140, 1144
(3d Cir. 1995) (“[T]he party asserting Eleventh Amendment
immunity (and standing to benefit from its acceptance) bears the
burden of proving its applicability.”). I believe these
decisions were correctly decided and that the arm-of-state issue
raised by the Loan Companies is an affirmative defense. 1
Preliminarily, although a plaintiff must plead facts
establishing that the court has jurisdiction over his claim,
see, e.g., Pinkley, Inc. v. City of Frederick, 191 F.3d 394, 399
(4th Cir. 1999), the arm-of-state issue here is not
jurisdictional. Instead, as the Supreme Court made clear in
Stevens, it is a statutory question of whether the defendants
named by Oberg qualify as “persons” under the FCA. See
Stevens,
529 U.S. at 779 (distinguishing the question whether the FCA
1
In our first opinion, we concluded that the district court
had not applied the arm-of-state analysis, and we remanded the
case for the district court to apply that analysis in the first
instance. See United States ex rel. Oberg v. Ky. Higher Educ.
Student Loan Corp., 681 F.3d 575, 581 (4th Cir. 2012). While we
noted that the ultimate question of whether the Loan Companies
were subject to suit under the FCA did not turn solely on their
corporate status, see
id. at 579, we did not consider the
sufficiency of Oberg’s allegations or address whether arm-of-
state status was an affirmative defense.
36
permits actions against states from whether the Eleventh
Amendment would prohibit such an action and electing to resolve
the case on statutory grounds).
Moreover, the arm-of-state claim operates like other
affirmative defenses, in that the claim would preclude liability
even if all of Oberg’s allegations of wrongdoing are true. See
Emergency One, Inc. v. Am. Fire Eagle Engine Co., 332 F.3d 264,
271 (4th Cir. 2003) (“[A]ffirmative defenses share the common
characteristic of a bar to the right of recovery even if the
general complaint were more or less admitted to.” (internal
quotation marks and alteration omitted)); Black’s Law Dictionary
(9th ed. 2009) (defining “affirmative defense” as “[a]
defendant’s assertion of facts and arguments that, if true, will
defeat the plaintiff’s or prosecution’s claim, even if all the
allegations in the complaint are true.”). In my view, then, the
arm-of-state status asserted by the Loan Companies must be
treated as an affirmative defense. And once the arm-of-state
issue in this case is recognized as an affirmative defense, the
error in dismissing Oberg’s claims on the pleadings becomes
apparent.
As noted above, a Rule 12(b)(6) motion “test[s] the
sufficiency of a complaint” but “does not resolve contests . . .
[about] the merits of a claim or the applicability of defenses.”
Butler, 702 F.3d at 752 (internal quotation marks omitted). A
37
plaintiff therefore has no “obligation to anticipate” an
affirmative defense by pleading facts that would refute the as-
yet unasserted defense. Gomez v. Toledo, 446 U.S. 635, 640
(1980); see McMillan v. Jarvis,
332 F.3d 244, 248 (4th Cir.
2003); Guy v. E.I. DuPont de Nemours & Co.,
792 F.2d 457, 460
(4th Cir. 1986); accord de Csepel v. Republic of Hungary,
714
F.3d 591, 607-08 (D.C. Cir. 2013) (“[A]lthough it is certainly
true that plaintiffs must plead the elements of their claims
with specificity, they are not required to negate an affirmative
defense in their complaint . . . .” (internal quotation marks
and alteration omitted)).
As our en banc court explained in Goodman, an affirmative
defense may provide the basis for a Rule 12(b)(6) dismissal only
“in the relatively rare circumstances . . . [where] all facts
necessary to the affirmative defense clearly appear on the face
of the complaint.” Goodman, 494 F.3d at 464 (internal quotation
marks and alteration omitted); see also Xechem, Inc. v. Bristol–
Myers Squibb Co.,
372 F.3d 899, 901 (7th Cir. 2004) (“Only when
the plaintiff pleads itself out of court--that is, admits all
the ingredients of an impenetrable defense--may a complaint that
otherwise states a claim be dismissed under Rule 12(b)(6).”).
Application of these principles to this case requires Oberg
to plausibly allege that the Loan Companies are “persons” within
the meaning of the FCA. Oberg did just that by alleging that
38
the Companies are corporations operating independently of their
creating states. The Loan Companies’ contrary claim that they
are alter-egos of their creating states is an affirmative
defense which they bear the burden of pleading and proving.
Because Oberg had no obligation to anticipate that defense by
alleging facts establishing that the multi-factored, factually
intensive arm-of-state inquiry should be resolved in his favor,
the dismissal of his claims at this stage of the proceedings is
improper. See Butler, 702 F.3d at 752;
Goodman, 494 F.3d at
464, 466. 2
2
The majority’s apparent view that arm-of-state status is
an affirmative defense in the Eleventh Amendment context but not
in this case is puzzling. Although the arm-of-state inquiry
here presents a statutory rather than constitutional question,
the principles at stake are the same as in any case raising
Eleventh Amendment issues. If arm-of-state status is a waivable
affirmative defense when the Eleventh Amendment is directly
implicated, so too should it be a waivable affirmative defense
when the Eleventh Amendment is indirectly implicated. While
“personhood” is clearly an element of a plaintiff’s claim under
the FCA, Oberg, as previously discussed, carried his burden of
demonstrating the Loan Companies’ personhood by alleging their
independent corporate status. The burden should then fall to
the defendants to plead and prove that they are not persons but
rather are arms of their creating state. United States ex rel.
Adrian v. Regents of University of California, 363 F.3d 398 (5th
Cir. 2004), the case relied on by the majority, does not suggest
otherwise. In that case, the plaintiff brought an FCA action
against an entity – the Regents of the University of California
– that courts had repeatedly found to be an arm of the state.
See
id. at 401-02. The Fifth Circuit did not address the
affirmative-defense issue, but its affirmance of a Rule 12(b)(6)
dismissal of the claims against an entity previously found to be
an arm of the state is consistent with the rule recognized by
this court in Goodman that an affirmative defense may be
(Continued)
39
III.
Even if Oberg were somehow required to allege that the Loan
Companies are not arms of their states, I believe the
allegations of the complaint are still more than sufficient to
withstand the motion to dismiss.
As to PHEAA and VSAC, the majority concludes that Oberg’s
allegations plausibly establish that the companies are not
alter-egos of their creating states. Although I agree with the
majority’s ultimate conclusion as to these defendants, I do not
agree with the majority’s application of the Rule 12(b)(6)
standard to the arm-of-state state factors. The sufficiency of
the complaint as to PHEAA and VSAC is not a close question in my
view, and I therefore concur only in the judgment vacating the
dismissal of Oberg’s claims against PHEAA and VSAC. While the
question is perhaps a bit closer as to the claims against ASLA,
I nonetheless believe the Oberg has plausibly alleged facts
establishing that ASLA is not an arm of the state of Arkansas.
Accordingly, for the reasons set out below, I dissent from the
majority’s affirmance of the Rule 12(b)(6) dismissal of Oberg’s
claims against ASLA.
resolved on a Rule 12(b)(6) motion when the facts necessary to
the defense appear on the face of the complaint. See Goodman v.
Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en banc).
40
When determining whether an entity qualifies as an arm of
the state, we consider four non-exclusive factors:
(1) whether any judgment against the entity as
defendant will be paid by the State or whether any
recovery by the entity as plaintiff will inure to the
benefit of the State;
(2) the degree of autonomy exercised by the
entity, including such circumstances as who appoints
the entity’s directors or officers, who funds the
entity, and whether the State retains a veto over the
entity’s actions;
(3) whether the entity is involved with state
concerns as distinct from non-state concerns,
including local concerns; and
(4) how the entity is treated under state law,
such as whether the entity’s relationship with the
State is sufficiently close to make the entity an arm
of the State.
Oberg I, 681 F.3d at 580 (quoting Dep’t of Disabilities &
Special Needs v. Hoover Universal, Inc.,
535 F.3d 300, 303 (4th
Cir. 2008)).
While the focus of the first factor is whether the “primary
legal liability” for a judgment will fall on the state, Regents
of Univ. of Ca. v. Doe, 519 U.S. 425, 428 (1997), we must also
consider the practical effect of a judgment against the entity,
see Hess v. Port Auth. Trans-Hudson Corp.,
513 U.S. 30, 51
(1994). “[I]f the State treasury will be called upon to pay a
judgment against a governmental entity, then Eleventh Amendment
immunity applies to that entity, and consideration of any other
factor becomes unnecessary.” Cash v. Granville Cnty. Bd. of
Educ.,
242 F.3d 219, 223 (4th Cir. 2001). “[S]peculative,
41
indirect, and ancillary impact[s] on the State treasury,”
however, are insufficient to trigger immunity. Id. at 225.
If the state would not be liable for a judgment rendered
against the entity, we must then consider the remaining factors,
which serve to determine whether the entity “is so connected to
the State that the legal action against the entity would,
despite the fact that the judgment will not be paid from the
State treasury, amount to the indignity of subjecting a State to
the coercive process of judicial tribunals at the instance of
private parties.” Id. at 224 (internal quotation marks
omitted); see Fed. Mar. Comm’n v. S.C. State Ports Auth.,
535
U.S. 743, 760 (2002) (“The preeminent purpose of state sovereign
immunity is to accord States the dignity that is consistent with
their status as sovereign entities.”). In my view, Oberg’s
complaint contains factually detailed, specific allegations
addressing the treasury factor and the dignity factors so as to
preclude the granting of the motion to dismiss.
A.
The complaint alleges that ASLA, not its creating state,
would be liable for any judgment rendered against it. See J.A.
116-18. While that assertion is arguably a legal conclusion not
entitled to be treated as true, see, e.g., Iqbal, 556 U.S. at
678, the assertion is supported by specific factual allegations
that are supported by statutes, financial reports, and other
42
information specifically referenced in the complaint and
properly considered in the context of a motion to dismiss. See
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007); Philips v. Pitt Cnty. Mem’l Hosp.,
572 F.3d 176, 180
(4th Cir. 2009). These allegations and information establish
the following:
● ASLA is a corporation entitled to enter into
contracts, own property, and sue and be sued in its own
name. See Ark. Code Ann. § 6-81-102(c) (establishing ASLA
as a “public body politic and corporate, with corporate
succession”).
● Arkansas has specifically disclaimed liability
for ASLA’s obligations. See Ark. Code Ann. § 6-81-
113(a)(3).
● Arkansas law authorizes ASLA to pay expenses
associated with its lending activities from the revenues
earned from those activities. See Ark. Code Ann. §§ 6-81-
118(c)(3), 6-81-124(c)(1).
● ASLA generates substantial income streams and
relies on those income streams, rather than state
appropriations, to support its business operations, and
ASLA has substantial assets from which a judgment could be
paid. See J.A 781-827 (ASLA financial statements).
● ASLA has a line of credit provided by Arkansas.
ASLA borrowed $50,000,000 under the line of credit in 2008
and repaid the note in full by September 2010. See J.A.
802. ASLA has also borrowed money from a private lender to
improve its liquidity, with student loan revenues providing
the source of repayment. See J.A. 802.
● ASLA has commercial insurance to protect itself
from losses arising out of torts and its errors and
omissions. See J.A. 805.
In my view, these allegations are more than sufficient to make
plausible Oberg’s assertion that the Arkansas state treasury
43
would not be liable for a judgment rendered against ASLA. See
Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278, 288 (4th
Cir. 2012) (“Plausibility requires that the factual allegations
be enough to raise a right to relief above the speculative level
on the assumption that all the allegations in the complaint are
true.” (internal quotation marks and alteration omitted)).
Although the majority considers ASLA’s status as a
corporation only when analyzing the state-dignity factors, that
fact is clearly relevant to the state-treasury factor as well.
See Cash, 242 F.3d at 224 (considering entity’s corporate form
when analyzing state-treasury factor). The fact that Arkansas
elected to structure ASLA as a corporation makes it plausible
that the state will not be liable for any judgments in this
case, since insulating others from liability for corporate debt
is one of the signal attributes of the corporate form. See,
e.g., Musikiwamba v. ESSI, Inc.,
760 F.2d 740, 753 (7th Cir.
1985) (“General corporation law is clear that personal liability
for a corporation’s debts cannot be imposed on a person merely
because he is an officer, shareholder, and incorporator of that
corporation.”). That Arkansas has specifically disclaimed
liability for ASLA’s obligations further establishes
plausibility, particularly given the absence of any statute
requiring Arkansas to pay a judgment against ASLA. See
Cash,
242 F.3d at 224-25 (noting the absence of statute authorizing
44
recovery from state coffers when concluding that judgment
against entity would not affect state treasury); Gray v. Laws 51
F.3d 426, 436 (4th Cir. 1995) (noting the absence of statute
requiring payment by state).
Moreover, the allegations of the complaint and the
financial documents referenced in the complaint show that ASLA
generates significant revenue streams through its lending and
other business activities. ASLA uses those revenues, as
required by state law, to pay the expenses of its business
activities. In light of these revenue streams, ASLA’s ability
to raise revenues through other sources, see J.A. 802 (line of
credit and private lending available to ASLA), and its insurance
protection, it is entirely plausible a judgment in this case
will have no legal or practical effect on the Arkansas state
treasury. See Burrus v. State Lottery Comm’n, 546 F.3d 417, 420
(7th Cir. 2008) (concluding that state lottery commission was
not an arm of the state, in part because the lottery “has no
need for recourse to the state treasury” given the “large stream
of revenue” it generates).
B.
The allegations of Oberg’s complaint likewise plausibly
demonstrate that ASLA has significant autonomy and independence
from its creating state. The allegations of the complaint and
the documents referenced therein establish the following:
45
● ASLA is a corporation entitled to enter into
contracts, own property, and sue and be sued in its own
name. See Ark. Code Ann. § 6-81-102(l).
● ASLA is governed by a board of directors, none of
whom are state officials, who serve fixed terms and are not
removable by the governor. See id. § 6-81-102(d) & (e).
● ASLA has authority to structure and operate its
business activities as it deems proper, including the
authority to issue general obligation bonds secured by its
revenues and to create subsidiary corporations. See id.
§§ 6-81-102(k), 6-81-102(l)(8)-(10) & (25).
● ASLA is supported by the revenues it earns from
its business activities, not by the state. Although ASLA
receives appropriations from the state earmarked for
salaries and certain operating expenses, the funds so
appropriated are “cash funds” earned by ASLA through its
business activities. See Ark. Code Ann. § 6-18-118; J.A.
412.
● ASLA’s revenues are not deposited into the state
treasury, but are deposited into various accounts
controlled by ASLA. See Ark. Stat. § 6-81-118(a) & (f).
● ASLA’s business activities extend outside the
state of Arkansas and include the buying and selling of
loan pools on the secondary market and the servicing of
loans made directly by the federal government.
● ASLA has borrowed and repaid money from the state
of Arkansas, executing a promissory in favor of the state
and using its revenues to repay the loan. See J.A. 802.
These allegations are not naked factual assertions that
need not be accepted as true, nor are they mere legal
conclusions that can be disregarded. See Iqbal, 556 U.S. at
678. Instead, they are specific, detailed factual allegations
that paint a plausible picture of an autonomous corporation
operating in the commercial sphere largely free of state
46
oversight or interference, such that it would not be an affront
to the dignity of Arkansas to permit this action to proceed.
Accordingly, given the operational independence established
by these allegations, and the financial independence established
by the state-treasury allegations discussed above, I believe it
is at least plausible that ASLA is a “person” within the meaning
of the FCA, not an arm of the state of Arkansas. See id. (“A
claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.”).
IV.
ASLA, however, makes various arguments about how a judgment
could affect the state treasury and points to various statutes
indicating that the state has more control over it than Oberg’s
allegations suggest. In my view, these arguments do not provide
a basis for granting the motion to dismiss. Even after Twombly
and Iqbal, we still must view the properly alleged facts in the
plaintiff’s favor and must give the plaintiff the benefit of all
reasonable inferences that can be drawn from those facts. See
E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d
435, 440 (4th Cir. 2011); see also Sepulveda–Villarini v. Dep’t.
of Educ. of P.R.,
628 F.3d 25, 30 (1st Cir. 2010) (Souter, J.)
(“A plausible but inconclusive inference from pleaded facts will
47
survive a motion to dismiss . . . .”). While ASLA’s arguments
are not frivolous, they are not so conclusive as to render
Oberg’s allegations implausible for purposes of Rule 12(b)(6).
See Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)
(“Plaintiff’s complaint may be dismissed only when defendant’s
plausible alternative explanation is so convincing that
plaintiff’s explanation is implausible.”); Watson Carpet & Floor
Covering, Inc. v. Mohawk Indus., Inc.,
648 F.3d 452, 458 (6th
Cir. 2011) (“[T]he plausibility of [the defendants’ theory] does
not render all other reasons implausible.”).
A.
ASLA argues that a judgment against it would affect the
state treasury. Arkansas law requires the revenues from ASLA’s
business activities to be deposited into accounts outside the
state treasury. See Ark. Code Ann. § 6-81-118(a), (b) & (f).
Under provisions of Arkansas law not exclusively applicable to
ASLA, all funds required to be deposited somewhere other than
the state treasury are “‘cash funds’” that are “declared to be
revenues of the state to be used as required and to be expended
only for such purposes and in such manner as determined by law.”
Ark. Code Ann. § 19-6-103. Such cash funds must be “budgeted
and proposed expenditures approved by enactments of the General
Assembly.” Id. § 19-4-802(a). Relying on these statutes, ASLA
contends that a judgment against it is, as a practical matter, a
48
judgment against Arkansas, since all of ASLA’s money is really
the state’s money under § 19-6-103.
ASLA’s argument overlooks several important points. First
of all, as the majority noted in its discussion of PHEAA’s arm-
of-state assertion, the fact that ASLA’s funds are held in a
segregated fund outside the state treasury counsels against arm-
of-state status. See Majority Op. at 13-14; see also Burrus,
546 F.3d at 420; Univ. of R.I. v. A.W. Chesterton Co.,
2 F.3d
1200, 1210 (1st Cir. 1993). Moreover, unlike the generally
applicable § 19-6-103, the statute specifically addressing
ASLA’s funds does not declare ASLA’s cash funds to be revenues
of the state, see Ark. Code Ann. § 6-18-118, and nothing in § 6-
18-118 appears to subject ASLA’s use of the funds to wholesale
control by the General Assembly. 3 Instead, § 6-18-118 simply
requires ASLA’s segregated cash funds to be “used as provided in
this subchapter” – subchapter 1 of Chapter 81 governing student
loans.
Id. § 6-18-118(b) (emphasis added). Subchapter 1, in
turn, gives ASLA -- not the state legislature -- nearly complete
authority over the use of its funds, including the authority to
pay expenses arising from its lending activities. See Ark. Code
3
As the majority recognized when considering PHEAA’s claim,
the terms of the statute specifically governing ASLA should be
given priority over the generally applicable § 19-6-103. See
Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992)
(“[I]t is a commonplace of statutory construction that the
specific governs the general . . . .”).
49
Ann. § 6-81-118(c)(3) & (4) (giving ASLA authority to “use the
proceeds of any bond issues, together with any other available
funds” for “[p]aying incidental expenses in connection with
loans” and “[p]aying expenses of authorizing and issuing
bonds”); id. § 6-81-118(f) (“The revenues not deposited into the
State Treasury shall be deposited into an account or accounts
specified by resolution of the authority and used for carrying
out the provisions of any resolution, indenture securing bonds
of the authority, or other agreement of the authority under this
subchapter.”);
id. § 6-81-124(a) (requiring “[a]ll proceeds
derived from a particular obligation” to be deposited into a
“proceeds fund” to be “expended only on approval of [ASLA]”);
id. § 6-81-124(c)(1) (authorizing funds contained in proceeds
fund to be used for “payment of the necessary expenses,
including, without limitation, the costs of issuing the
authority’s obligations, incurred by the authority in carrying
out its responsibilities under this subchapter”). 4
4
Arkansas’ statutory arrangement thus is similar in many
ways to that in Pennsylvania. Like Arkansas, Pennsylvania law
appears to treat the Loan Company’s funds as state funds, see 24
Pa. Cons. Stat. § 5104(3) (requiring PHEAA’s funds to be
deposited into state treasury), and to require state approval of
any expenditure of those funds, see 72 Pa. Cons. Stat. § 307,
but the statute specifically governing PHEAA’s operation gives
control of those funds to the company, see 24 Pa. Cons. Stat.
§ 5104(3); see Majority Op. at 11-13 (describing operation of
Pennsylvania statutes governing PHEAA). After considering
Pennsylvania’s statutory structure, the majority concluded that
(Continued)
50
More importantly, however, the fact that Arkansas declares
all of ASLA’s cash funds to be state funds does not conclusively
establish that the Arkansas state treasury would be affected by
a judgment against ASLA in this case. As shown by the relevant
statutes and other information in the record, the cash funds
“claimed” by the state consist entirely of revenues generated by
ASLA’s lending and other business activities. And because the
expenses of those business activities must be paid from the cash
funds, the funds so claimed by the state in reality consist only
of ASLA’s surplus revenues.
As the Supreme Court has explained, however, the state-
treasury factor focuses “not on the use of profits or surplus,
but rather . . . on losses and debts.” Hess, 513 U.S. at 51
(emphasis added)). “If the expenditures of the enterprise
exceed receipts, is the State in fact obligated to bear and pay
the resulting indebtedness of the enterprise? When the answer
is ‘No’ -- both legally and practically -- then the Eleventh
Amendment’s core concern is not implicated.”
Id.
The majority’s assertion that the source of the cash funds
claimed by Arkansas does not matter because Arkansas claims all
the state-treasury factor “weighs heavily against holding that
PHEAA is an arm of the state.” Majority Op. at 14. In my view,
Arkansas’ similar statutory scheme also weighs against arm-of-
state status.
51
of the cash funds as its own, see Majority Op. at 27-28 n.7,
thus seems directly contrary to the Supreme Court’s analysis in
Hess. Under the majority’s view, a self-supporting entity –
that is, an entity that supports itself not through state
appropriations but through the revenues earned from its own
commercial activities – is dependent on the state as a matter of
law because a state statute arguably declares the entity’s
profits to be revenues of the state. The Supreme Court raised a
suspicious eyebrow at such an argument in Hess, see 513 U.S. at
51 n.21 (observing that “[i]t would indeed heighten a mystery of
legal evolution were we to spread an Eleventh Amendment cover
over an agency that consumes no state revenues but contributes
to the State’s wealth” (internal quotation marks and alteration
omitted)), and the argument is no more persuasive here.
Oberg’s allegations of a self-supporting, commercially
insured corporation with tens of millions of dollars in annual
revenue and access to a $50 million line of credit and other
private loans provide a non-speculative basis for concluding
that ASLA would not need Arkansas’s help to pay a judgment
rendered against it. 5 Nothing more need be established at this
point in the proceedings. See Twombly, 550 U.S. at 555
5
Indeed, the financial statements referenced in the
pleadings show that ASLA absorbed an operational loss in 2011
without any financial assistance from the state. See J.A. 790.
52
(“Factual allegations must be enough to raise a right to relief
above the speculative level.”); Walters, 684 F.3d at 439
(plaintiff’s allegations must be sufficient to “advance [his]
claim across the line from conceivable to plausible”).
B.
The state-dignity factors of the arm-of-state inquiry
include (1) “the degree of autonomy exercised by the entity”;
(2) “whether the entity is involved with state concerns as
distinct from non-state concerns, including local concerns”; and
(3) “how the entity is treated under state law.” Oberg I, 681
F.3d at 580. As previously discussed, I believe that Oberg’s
allegations of a corporate entity that is answerable to boards
of directors rather than elected state officials and that
operates largely free of state interference plausibly establish
that ASLA is not “so connected to the State that the legal
action against the entity would, despite the fact that the
judgment will not be paid from the State treasury, amount to the
indignity of subjecting a State to the coercive process of
judicial tribunals at the instance of private parties.”
Cash,
242 F.3d at 224 (internal quotation marks omitted).
I recognize, however, that other inferences can reasonably
be drawn from the information alleged in the complaint and
contained in the record. Nonetheless, the question at this
stage of the proceedings is not whether the defendant’s view of
53
the issues is reasonable, but whether the plaintiff has
plausibly alleged an entitlement to relief. See, e.g., Butler
702 F.3d at 752 (motion to dismiss “test[s] the sufficiency of a
complaint” but “does not resolve contests surrounding the facts,
the merits of a claim, or the applicability of defenses”
(internal quotation marks omitted)). And in my view, the state-
dignity factors do not conclusively establish that the Loan
Companies are arms of their creating states, notwithstanding the
fact that some of the factors might reasonably support that
conclusion.
For example, Arkansas appears to treat ASLA as a state
agency. See Ark. Code Ann. § 6-81-102(c) (describing ASLA an
“an instrumentality of the state”); Turner v. Woodruff, 689
S.W.2d 527, 528 (Ark. 1985) (describing ASLA as a “state
agency”). While this factor thus points toward a finding of
arm-of-state status, whether an entity qualifies as an arm of
its creating state is a matter of federal law, see
Regents, 519
U.S. at 429 n.5, and this single factor is not dispositive of
the inquiry.
In addition, there can be no dispute that ASLA is involved,
at least in part, in matters of statewide concern. “[E]ducating
the youth” of a state and providing higher education is “clearly
an area of statewide concern,” Md. Stadium Auth. v. Ellerbe
Becket Inc., 407 F.3d 255, 265 (4th Cir. 2005), and making loans
54
available to students certainly facilitates that goal. However,
ASLA is also engaged in other, more commercial activities, such
as the buying and selling of loan pools on the secondary market
and the servicing of federal student loans, that arguably are
more appropriately characterized as “non-state concerns.” See
Hoover Universal, 535 F.3d at 307 (considering “whether the
entity is involved with statewide, as opposed to local or other
non-state concerns” (emphasis added)); cf. Fresenius Med. Care
Cardiovascular Res., Inc. v. Puerto Rico,
322 F.3d 56, 64 (1st
Cir. 2003) (“Not all entities created by states are meant to
share state sovereignty. . . . Some entities may be meant to be
commercial enterprises, viable and competitive in the
marketplace in which they operate.”).
As to the question of autonomy, the fact that ASLA
generates its own revenues and is not dependent on state
appropriations is a strong indication of the Loan Companies’
operational independence from the states. While ASLA receives
an appropriation earmarked for salaries and certain other
expenses, it is an appropriation of ASLA’s own “cash funds,”
J.A. 412, which, as previously discussed, are funds generated by
ASLA through its business activities. That kind of
appropriation does not make ASLA dependent on the state. See
Burrus, 546 F.3d at 422 (appropriation of funds generated by
entity claiming arm-of-state status “is of a different kind than
55
the appropriations we have found to be the mark of a state
agency, namely, those appropriations that come directly from the
state.” (internal quotation marks omitted)). 6
Other facts, however, suggest that ASLA is not entirely
autonomous. For example, all members of ASLA’s board of
directors are appointed by the governor, see Ark. Stat. Ann.
§ 6-81-102(d), a fact that clearly provides some indication of
state control. See Md. Stadium Auth., 407 F.3d at 264.
Arkansas law, however, provides that the board members serve
fixed terms, see Ark. Stat. Ann. § 6-81-102(e), with no
suggestion that they may be removed by the governor at will. 7
See Edmond v. United States,
520 U.S. 651, 664 (1997) (“The
power to remove officers, we have recognized, is a powerful tool
6
In any event, even if ASLA did receive some money from the
state, that fact alone would not conclusively establish that
ASLA is dependent on the state. See, e.g., Kitchen v. Upshaw,
286 F.3d 179, 184-85 (4th Cir. 2002) (finding that an entity
that received some state funding was not an arm of the state);
Cash, 242 F.3d at 224, 226 (same).
7
According to the majority, the fact that ASLA board
members serve for four years “or until a successor is
appointed,” Ark. Code § 6-81-102(e), “suggests that the governor
may remove board members simply by selecting new ones.”
Majority Op. at 29 (emphasis added). It seems highly unlikely
that the Arkansas legislature would hide removal-at-will
authority in a clause that more reasonably seems to authorize
terms of more than four years in cases where an appointment is
not timely made. In any event, an ambiguous statutory scheme is
far from sufficient to establish for purposes of a Rule 12(b)(6)
motion that ASLA’s board is subject to the direct control of the
governor.
56
for control.”); Auer v. Robbins, 519 U.S. 452, 456 n.1 (1997)
(concluding that Board of Police Commissioners was not an arm of
the state because the state was not responsible for the Board’s
financial liabilities and the only form of state control was the
governor’s power to appoint four of five Board members); P.R.
Ports Auth. v. Fed. Mar. Comm’n,
531 F.3d 868, 877 (D.C. Cir.
2008) (“The Governor’s power to remove a majority of the Board
at will allows him to directly supervise and control PRPA’s
ongoing operations.”); Takle v. Univ. of Wisc. Hosp. & Clinics
Auth.,
402 F.3d 768, 770 (7th Cir. 2005) (“[T]he power to
appoint is not the power to control.”). 8
In addition, all bonds issued by ASLA must be approved by
the governor, a fact the majority finds significant. See
Majority Op. at 27-28 (including gubernatorial approval
requirement among the facts establishing that ASLA “operates
with little autonomy”). The approval requirement, however, is a
function of federal law, which places a ceiling on the volume of
8
Contrary to the majority’s characterization of my views, I
do not contend that ASLA “is autonomous” because of the manner
in which its board is appointed, Majority op. at 28 (emphasis
added), only that Oberg has alleged specific facts relevant to
ASLA’s autonomy sufficient to survive a Rule 12(b)(6) motion.
As I have previously discussed, the fact that other inferences
can be drawn from the information in the record does not render
Oberg’s allegations implausible. See Sepulveda–Villarini v.
Dep’t. of Educ. of P.R., 628 F.3d 25, 30 (1st Cir. 2010)
(Souter, J.) (“A plausible but inconclusive inference from
pleaded facts will survive a motion to dismiss . . . .”).
57
certain tax-exempt “private activity” bonds (including student
loan bonds) that can be issued within a state and vests with the
state governor the authority to change the allocation of the
state ceiling among issuers, and which requires state approval
of such bond issues. See 26 U.S.C. § 141(e)(1)(E); id.
§ 144(b); id. § 146(a)-(e); id. § 147(f); see generally Steele
v. Indus. Dev. Bd. of Metro. Gov’t Nashville,
301 F.3d 401, 404
(6th Cir. 2002); Congressional Research Service, Tax-Exempt
Bonds: A Description of State & Local Government Debt at 9-11
(June 19, 2012). Under these circumstances, the gubernatorial-
approval requirement is less indicative of a lack of autonomy
than it might otherwise be. In any event, the gubernatorial-
approval requirement does not conclusively establish that ASLA
lacks autonomy.
Thus, on the record before us, the facts relevant to the
state-dignity factors cut both ways, with some supporting
Oberg’s claim that ASLA is not an arm of the state, and others
supporting ASLA’s contrary claim. But because Oberg’s
allegations on this point more than satisfy the Iqbal-Twombly
plausibility requirement, ASLA’s arguments provide no basis for
affirming the dismissal of Oberg’s claims.
58
V.
As is apparent from the arm-of-state test itself and the
nature of the considerations it entails, whether a state-created
entity is so closely connected to its creating state that it
should be permitted to share in the state’s immunity from suit
generally is a fact-intensive inquiry dependent on an
understanding of the actual operations of the entity and the
actual relationship between the entity and the state. See,
e.g., Hess, 513 U.S. at 49 (considering the entity’s
“anticipated and actual financial independence (emphasis
added));
Hoover, 535 F.3d at 303 (“The line separating a State-
created entity functioning independently of the State from a
State-created entity functioning as an arm of the State or its
alter ego is determined by the particular legal and factual
circumstances of the entity itself.” (emphasis added));
Gray, 51
F.3d at 434 (remanding case to the district court because it was
“in the best position to address in the first instance the
competing questions of fact and state law necessary to resolve
the eleventh amendment issue” (internal quotation marks
omitted)). While there certainly have been and will continue to
be cases where the arm-of-state issue can be resolved on the
pleadings, multi-factored balancing tests “do[] not easily lend
[themselves] to dismissal on a Rule 12(b)(6) motion.” Decotiis
v. Whittemore,
635 F.3d 22, 35 n.15 (1st Cir. 2011). In my
59
view, this case is one of the typical cases that cannot be
resolved on the pleadings. Indeed, the inconclusive nature of
most of the state-dignity factors highlights this very problem.
We have no information about the actual operations of the Loan
Companies or the actual amount of control and oversight
exercised by the states and thus cannot determine the actual
nature of the relationship between the Loan Companies and their
creating states.
Nonetheless, the facts as alleged by Oberg plausibly
establish that the state treasuries will not be affected by a
judgment against the Loan Companies and that the Loan Companies
are sufficiently independent from their creating states that
permitting this action to proceed would not be an affront to the
dignity of the states. To require anything more at this stage
of the proceedings is to ignore the purpose and scope of a
motion to dismiss, which is to test the facial sufficiency of
the complaint, not resolve contests about the merits or
applicable defenses. See Butler, 702 F.3d at 752;
Goodman, 494
F.3d at 464.
Accordingly, while I concur in the judgment insofar as it
vacates the dismissal of the claims against PHEAA and VSAC, I
dissent from the opinion and judgment affirming the dismissal of
the claims against ASLA.
60
