Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-07140/USCOURTS-caDC-10-07140-0/pdf.json

Parties Involved:
Sheldon Batiste
Appellant
SLM Corporation
Appellee
SLM Financial Corporation
Appellee
United States of America

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 16, 2011 Decided November 4, 2011

No. 10-7140

UNITED STATES OF AMERICA, EX REL. SHELDON BATISTE,

APPELLANT

v.

SLM CORPORATION,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:08-cv-00425)

Catherine Y. Hancock, Attorney, U.S. Department of

Justice, argued the cause as amicus curiae United States of

America in support of appellant. With her on the brief were

Tony West, Assistant Attorney General, Ronald C. Machen, Jr.,

United States Attorney, and Thomas M. Bondy, Attorney.

Timothy J. Matusheski argued the cause for appellant. With

him on the briefs was Tracy D. Rezvani. 

Lisa S. Blatt argued the cause for appellee. With her on the

brief was R. Reeves Anderson.

USCA Case #10-7140 Document #1339992 Filed: 11/04/2011 Page 1 of 13
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Before: SENTELLE, Chief Judge, ROGERS and BROWN,

Circuit Judges.

Opinion for the Court filed by Chief Judge SENTELLE. 

SENTELLE, Chief Judge: Relator Sheldon Batiste, on behalf

of the United States, appeals the district court’s dismissal of his

qui tam complaint for lack of subject matter jurisdiction under

Federal Rule of Civil Procedure 12(b)(1). The district court held

that an earlier-filed complaint barred its consideration of

Batiste’s complaint under the first-to-file rule of the federal

False Claims Act (“FCA”), 31 U.S.C. § 3730(b)(5). The case

raises a question of first impression in this Circuit—whether

Section 3730(b)(5) requires the first-filed complaint to meet the

heightened pleading standards of Federal Rule of Civil

Procedure 9(b) for alleging fraud in order to bar a later-filed

complaint. 

We affirm the district court. We hold that the earlier-filed

complaint alleges the same material elements of a fraudulent

scheme as Batiste’s complaint, and that the earlier-filed

complaint need not meet the heightened pleading standards of

Rule 9(b) to allege facts sufficient to prompt a government

investigation, and, thus, to bar later-filed complaints under FCA

Section 3730(b)(5). Finally, we hold that Batiste waived his

argument that the case should not have been dismissed with

prejudice.

I. Background

A. Batiste Complaint

On June 13, 2008, Sheldon Batiste filed a complaint on

behalf of the United States government against SLM

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Corporation (“SLM,” commonly called “Sallie Mae”) under the

qui tam provisions of the FCA, 31 U.S.C. §§ 3729-3732. Batiste

First Amended Complaint (“Batiste Complaint”) ¶ 1. The FCA

allows a private person (a “relator”) to bring an action in the

Government’s name, 31 U.S.C. § 3730(b), and to recover a

portion of the proceeds of the action, id. § 3730(d), subject to

the requirements of the statute.

According to the allegations in his complaint, from

September 27, 2004, until April 28, 2006, Batiste worked as a

senior loan associate at SLM Financial Corporation, a subsidiary

of SLM, in Mount Laurel, New Jersey. Batiste Complaint ¶ 18. 

He alleges he has personal knowledge that SLM

defrauded the U.S. government through its administration of

student loans under the Federal Family Education Loan Program

(“FFELP”). Id. ¶¶ 5-6. Batiste alleges that from October 5,

2004, to the time of filing, SLM defrauded the government by

presenting claims for funds to the government, each of which

included false certifications that the data SLM submitted with

the claims were correct and conformed to federal law. Id. ¶¶ 9,

16, 26, 27, 33, 35. 

He further alleges that SLM accomplished this fraud by

unlawfully putting student loans into forbearance—that is,

allowing borrowers to cease payments temporarily, make

payments over an extended period of time, or make smaller

payments than previously scheduled—in violation of the Higher

Education Act’s (Pub. L. No. 89-329, codified at 20 U.S.C. §

1001 et seq.) forbearance regulations (codified at 34 C.F.R.

§ 682.211). Id. ¶¶ 14-16. Batiste posits SLM did this because

interest continues to accrue and the Department of Education

continues to pay special allowances to SLM while loans are in

forbearance, thereby increasing SLM’s return on each loan. He

further alleges that the longer a loan stayed in forbearance, the

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longer SLM would postpone default, thereby artificially keeping

SLM’s default ratio low and helping SLM maintain its status as

an eligible lender under Department of Education guidelines. 

Id. ¶ 17. 

Batiste alleges that SLM regularly granted forbearances to

borrowers who paid SLM to bring their accounts current, in

violation of regulations that mandate SLM only put loans into

forbearance when borrowers intend, but cannot afford, to pay

their loans. Id. Batiste alleges SLM systematically encouraged

employees to grant forbearances unlawfully. Managers told loan

officers to “forget” their formal training and to grant forbearances

to “anyone who is delinquent regardless of excuse or whether the

borrower had any intention of ever repaying the loan.” Id. ¶¶ 19-

21. Batiste further alleges that SLM incentivized loan officers to

grant unlawful forbearances by giving bonuses to individuals who

reduced delinquencies by a certain amount, whether by bringing

borrowers current on their loans or granting them forbearances. 

Id. ¶ 22-24. 

B. Zahara Complaint

On November 9, 2005, over two years before Batiste filed his

complaint, Michael Zahara filed a qui tam case against, inter alia,

SLM and his employer, Student Assistance Corporation (“SAC”),

a wholly-owned SLM subsidiary. Complaint, United States ex

rel. Zahara v. SLM Corp., No. 2:05-cv-8020 (C.D. Cal. Nov. 9,

2005) (later transferred to the Southern District of Indiana)

(“Zahara Complaint”). From November 29, 2004, until August

16, 2005, Zahara worked as a Default Prevention Specialist for

SAC, a division of SLM’s Debt Management Operations

department, in Las Vegas, Nevada. Zahara Complaint ¶¶ 18, 31,

162. 

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Zahara alleged that throughout his employment, SLM

“knowingly allowed their employees and agents to falsify loan

records pertaining to delinquent FFELP loans held by Sallie

Mae.” Id. ¶ 3. Specifically, he focused his complaint on

employees falsifying forbearance records, alleging that SLM

employees would represent that borrowers orally agreed to

forbearances when, in fact, the SAC employees had never

actually spoken with the borrowers. Id. ¶¶ 3-4. He alleged that

SLM and SAC encouraged such fabrications by imposing a

delinquency quota system and a bonus system under which

employees would receive bonuses based on team performance in

bringing loans current. Id. ¶¶ 24-27. Zahara alleged SLM did

this to increase its revenue, meet its performance goals, and

maintain its “Exceptional Performer” designation, id. ¶ 30, a

now-repealed status that allowed SLM to receive higherguarantee payments than other lenders on its defaulted loans

under the Higher Education Act. See 20 U.S.C. § 1078-79

(repealed 2007). 

Zahara also alleged SLM defrauded the government through

other practices, including failing to conduct minimal due

diligence on federal loans it originated, Zahara Complaint ¶¶ 144-

146; improperly consolidating loans, id. ¶¶ 147-152; failing to

bill borrowers in a timely manner, id. ¶¶ 153-154; improperly

crediting borrowers’ payments, id. ¶¶ 155-156; and concealing

defaulted loans, id. ¶¶ 157-159. 

The Southern District of Indiana dismissed Zahara’s

complaint without prejudice after he was unable to obtain counsel

by a set deadline. Entry Dismissing Action at 1, United States ex

rel. Zahara v. SLM Corp., No. 1:06-cv-088 (S.D. Ind. Mar. 12,

2009), ECF No. 42.

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C. Procedural History

The district court dismissed Batiste’s complaint with

prejudice on September 24, 2010, for lack of subject matter

jurisdiction under Federal Rule of Civil Procedure 12(b)(1). 

United States ex rel. Batiste v. SLM Corp., 740 F. Supp. 2d 98,

101-02 (D.D.C. 2010). The court held that under the FCA’s firstto-file rule, the Zahara Complaint barred the court’s consideration

of the Batiste Complaint. The first-to-file rule provides, “When

a person brings an action under [the qui tam] subsection, no

person other than the Government may intervene or bring a

related action based on the facts underlying the pending action.”

31 U.S.C. § 3730(b)(5). The district court found that the Batiste

Complaint alleged the “same material elements” of fraud as the

Zahara Complaint, and thus was barred by the earlier-filed

complaint. Batiste, 740 F. Supp. 2d. at 102. The district court

rejected Batiste’s argument that the Zahara case was not a

“pending action” for first-to-file purposes because the Zahara

Complaint did not meet heightened pleading standards for fraud

allegations under Federal Rule of Civil Procedure 9(b). Id. at

104. This appeal followed.

II. Analysis

Batiste raises three arguments on appeal: (A) the district

court improperly dismissed the Batiste Complaint under the

FCA’s first-to-file bar because the Batiste Complaint and Zahara

Complaint allege different fraudulent schemes; (B) the district

court improperly concluded that the FCA’s first-to-file bar does

not require a first-filed complaint to meet the pleading standards

for fraud; and (C) the district court improperly dismissed

Batiste’s complaint with prejudice. 

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We agree with the district court that the complaints allege the

same material elements of the same fraud and that the FCA’s

first-to-file bar does not require a first-filed complaint to meet

heightened pleading standards, and we determine Batiste waived

his argument regarding the district court’s dismissal with

prejudice.

A. Same Material Elements of Fraud

Appellate courts review de novo the dismissal of a complaint

for lack of jurisdiction. United States ex rel. Findley v. FPCBoron Emps.’ Club, 105 F.3d 675, 681 (D.C. Cir. 1997). 

Applying that standard in this case, we reason as follows: 

The FCA’s first-to-file rule provides that “[w]hen a person

brings an action under this subsection, no person other than the

Government may intervene or bring a related action based on the

facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). 

This furthers the statute’s “twin goals of rejecting suits which the

government is capable of pursuing itself, while promoting those

which the government is not equipped to bring on its own.” 

United States ex rel. Hampton v. Columbia/HCA Healthcare

Corp., 318 F.3d 214, 217 (D.C. Cir. 2003) (quoting United States

ex rel. Springfield Terminal Ry. v. Quinn, 14 F.3d 645, 651 (D.C.

Cir. 1994)). Therefore, the rule “bar[s] ‘actions alleging the same

material elements of fraud’ as an earlier suit, even if the

allegations ‘incorporate somewhat different details.’” Id.(quoting

United States ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d

1181, 1189 (9th Cir. 2001)). Under this standard, two complaints

need not allege identical facts for the first-filed complaint to bar

the later-filed complaint. Id. at 218. 

As a preliminary matter, Batiste urges this Court to interpret

the statute to mean a later-filed complaint must be both “a related

action” to and “based on the facts” underlying the first-filed

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complaint. He argues the district court incorrectly read the

statute disjunctively to mean a later-filed complaint may be either

a related action or based on the same facts. The plain language

of the statute, however, is neither conjunctive nor disjunctive. It

is clear that “based on the facts underlying the pending action”

merely clarifies “related action.” See United States ex rel.

Chovanec v. Apria Healthcare Group, Inc., 606 F.3d 361, 363-65

(7th Cir. 2010). The district court did not misinterpret this

straightforward language. Moreover, Batiste fails to explain how

his complaint is unrelated to the Zahara Complaint. He relies on

the argument that his complaint is not based on the facts

underlying the Zahara Complaint, a contention we find

unavailing, as discussed below.

Reviewing the Zahara and Batiste complaints de novo, we

must consider whether they allege the “same material elements of

fraud.” In other words, we must determine whether the Batiste

Complaint alleges a fraudulent scheme the government already

would be equipped to investigate based on the Zahara Complaint. 

A side-by-side comparison has persuaded us that, although the

complaints allege somewhat different facts, Zahara’s complaint

suffices to put the U.S. government on notice of allegedly

fraudulent forbearance practices at SLM and its subsidiaries, and

Batiste’s complaint alleges the same material elements of the

same fraud. 

Both Zahara and Batiste name the parent company, SLM, as

the lead defendant. Zahara discusses activities at an SLM

subsidiary office in Nevada, but alleges a nationwide scheme

attributable not only to the subsidiary, but also to SLM. Zahara

Complaint ¶¶ 32, 35, 36. Batiste focuses on activities at an SLM

office in New Jersey where he worked, but he also alleges a

nationwide scheme. See Batiste Complaint ¶¶ 18-25 (discussion

of SLM practices in Batiste’s office); id. ¶¶ 2 (alleging that

“policies and procedures yielding the violations complained of

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herein” originated at Sallie Mae headquarters in the District of

Columbia). 

Both Zahara and Batiste allege the fraud began in late 2004. 

Zahara Complaint ¶¶ 18, 31; Batiste Complaint ¶ 16. Zahara

alleges the fraud ended at his subsidiary in June 2005. Zahara

Complaint ¶ 29. Batiste alleges the fraud was still continuing at

his subsidiary at the time of the complaint. Batiste Complaint

¶ 16. Putting aside how Batiste might know the fraud continued

through the date he filed his complaint, given that he had not

worked at SLM for two years at that point, these temporal

differences are immaterial, especially since both complaints

allege almost exactly the same starting date. See United States ex

rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 378

(5th Cir. 2009) (“[A] relator cannot avoid § 3730(b)(5)’s

first-to-file bar by simply adding factual details or geographic

locations to the essential or material elements of a fraud claim

against the same defendant described in a prior complaint.”). If

the government investigated the facts alleged in Zahara’s

complaint on a nationwide basis, it would discover continuing

fraud in the New Jersey offices, as well as the completed fraud in

the Nevada offices, if such fraud existed.

Finally, Zahara and Batiste broadly allege that the same

fraudulent activities occurred at each of their offices, for the same

reasons, and that similar SLM corporate policies promoted the

fraudulent behavior. They both allege SLM fraudulently

increased its profits and promoted its standing with the

Department of Education by falsifying forbearances. Zahara

Complaint ¶ 30; Batiste Complaint ¶ 17. And both allege that

SLM’s corporate culture promoted increasing the dispensation of

forbearances through quotas and a team bonus system. Zahara

Complaint ¶¶ 24-27; Batiste Complaint ¶¶ 22-25. Though Zahara

focused on the fabrication of oral forbearance requests, Zahara

Complaint ¶¶ 3-8, 30, and Batiste focused on the offering of

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forbearances to unqualified borrowers, Batiste Complaint ¶¶ 17-

21, the allegations of the first complaint give the government

grounds to investigate all that is in the second. 

Under the Hampton material facts test, these complaints

allege essentially the same corporation-wide scheme. The Zahara

Complaint would suffice to equip the government to investigate

SLM’s allegedly fraudulent forbearance practices nationwide. 

Batiste’s additional details would not give rise to a different

investigation or recovery. See United States ex rel. Ortega v.

Columbia Healthcare, 240 F. Supp. 2d 8, 13 (D.D.C. 2003)

(“[A]n examination of possible recovery . . . aids in the

determination of whether the later-filed complaint alleges a

different type of wrongdoing on new and different material

facts.”). The district court properly dismissed Batiste’s complaint

under the FCA’s first-to-file bar. 

B. Federal Rule of Civil Procedure 9(b)

Federal Rule of Civil Procedure 9(b) provides that “[i]n

alleging fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake.” Batiste raises a

question of first impression in this Court—namely, whether a

complaint must allege fraud with particularity sufficient to meet

that heightened pleading standard in order to bar later-filed

complaints under the FCA’s first-to-file rule. We hold that firstfiled complaints need not meet the heightened standard of Rule

9(b) to bar later complaints; they must provide only sufficient

notice for the government to initiate an investigation into the

allegedly fraudulent practices, should it choose to do so.

Batiste, supported by the United States as amicus curiae,

argues that the court should impose a heightened pleading

requirement on complaints for first-to-file purposes, relying on 

Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir.

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2005). Such an interpretation, they argue, would strike the

appropriate balance between the first-to-file rule’s twin

purposes—to encourage whistleblowers to come forward with

allegations of fraud and to prevent copycat actions that do not

provide additional material information to the government. 

Requiring a complaint to meet the Rule 9(b) standards, they

contend, would ensure the complaint provides the government

sufficient information to pursue an investigation, as well as

prevent an overly-broad complaint from barring a more detailed,

later-filed complaint.

We are unconvinced. Nothing in the language of Section

3730(b)(5) incorporates the particularity requirement of Rule 9(b),

which militates against reading such a requirement into the statute. 

The statutory text imposes a bar on complaints related to earlierfiled, “pending” actions. The command is simple: as long as a

first-filed complaint remains pending, no related complaint may be

filed. Further, Rule 9(b) is designed to protect defendants in fraud

cases from frivolous accusations and allow them to prepare an

appropriate response. Section 3730(b) is designed to allow

recovery when a qui tam relator puts the government on notice of

potential fraud being worked against the government, but to bar

copycat actions that provide no additional material information. 

As the district court found, a complaint may provide the

government sufficient information to launch an investigation of a

fraudulent scheme even if the complaint does not meet the

particularity standards of Rule 9(b). Batiste, 740 F. Supp.2d at

104. Imposing the heightened pleading standard, moreover, would

create a strange judicial dynamic, potentially requiring one district

court to determine the sufficiency of a complaint filed in another

district court, and possibly creating a situation in which the two

district courts disagree on a complaint’s sufficiency. 

Finally, Batiste and the government’s analysis of the

incentives such a requirement would create are unpersuasive. 

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Like the Sixth Circuit, they suggest that according preclusive

effect to an overly broad first-filed complaint would encourage

would-be qui tam relators to file non-specific suits to block other

potential relators from sharing in their bounty. See Walburn, 431

F.3d at 973. This reasoning, however, does not make sense. Even

without grafting a Rule 9(b) requirement onto the first-to-file rule,

the first plaintiff's complaint is still subject to the Rule 9(b)

pleading requirements in order for a court to hear the case. If the

first relator did not plead fraud with particularity, his complaint

would be dismissed and he would lose his own shot at monetary

reward. The threat of a second application of Rule 9(b) is

unnecessary. As observed in United States ex rel. Folliard v.

Synnex Corp., No. 07-cv-719, slip op. at 9-10 (D.D.C. July 19,

2011), imposing such a requirement “would not minimize

duplicative claims, would encourage opportunistic behavior, and

would have a negligible impact on desirable whistle-blowing.” 

We therefore reject Batiste’s argument that first-filed qui tam

complaints must meet a heightened pleading standard under Rule

9(b) in order to bar later-filed complaints.

C. Dismissal with Prejudice

Batiste argues that because Zahara’s complaint was dismissed

before Batiste’s complaint was dismissed, his complaint should

not have been dismissed with prejudice (implying that Batiste

would like the opportunity to amend his complaint and bring this

case again). Batiste, however, waived this argument. Zahara was

dismissed eighteen months prior to the Batiste dismissal. During

that time, Batiste never asked for leave to amend his complaint in

the district court; thus, he has waived his opportunity to file a new

suit on these same grounds now. See Confederate Mem’l Ass’n v.

Hines, 995 F.2d 295, 299 (D.C. Cir. 1993) (recognizing that

although leave to amend generally should be freely granted, that

decision is left to the district court’s discretion, and, as in the

present case, not only was there no abuse of discretion, “it appears

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that appellants never properly requested an opportunity to amend

in the District Court”). 

III. Conclusion

For the reasons set forth above, we affirm the district court’s

dismissal of the complaint.

So ordered.

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