PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA ex rel. 

JON H. OBERG,

Plaintiff-Appellant,

v.

KENTUCKY HIGHER EDUCATION

STUDENT LOAN CORPORATION;

PENNSYLVANIA HIGHER EDUCATION

ASSISTANCE AGENCY; VERMONT

STUDENT ASSISTANCE CORPORATION;

ARKANSAS STUDENT LOAN

AUTHORITY,

Defendants-Appellees,

and  No. 10-2320 NELNET, INC.; SLM CORPORATION;

PANHANDLE PLAINS HIGHER

EDUCATION AUTHORITY; 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; BRAZOS

GROUP,

Defendants. 
Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

John F. Anderson, Magistrate Judge.

(1:07-cv-00960-JFA)

Argued: May 17, 2012

Decided: June 18, 2012

Before TRAXLER, Chief Judge, and MOTZ and KEENAN,

Circuit Judges.

Vacated and remanded by published opinion. Judge Motz

wrote the opinion, in which Chief Judge Traxler and Judge

Keenan joined.

COUNSEL

ARGUED: Bert Walter Rein, WILEY REIN, LLP, Washington, D.C., for Appellant. Daniel B. Huyett, STEVENS &

LEE, Reading, Pennsylvania; Thomas Leo Appler, WILSON,

ELSER, MOSKOWITZ, EDELMAN & DICKER, LLP,

McLean, Virginia; 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. Rocklan W. King III, WILSON, ELSER,

MOSKOWITZ, EDELMAN & DICKER, LLP, McLean, Virginia, for Appellee Kentucky Higher Education Student Loan

Corporation; Mark E. Nagle, TROUTMAN SANDERS LLP,

Washington, D.C., Megan C. Rahman, TROUTMAN SANDERS, LLP, Richmond, Virginia, for Appellee Vermont Student Assistance Corporation; Thomas M. Trucksess, HOGAN

2 UNITED STATES v. KENTUCKY HIGHER EDUCATION
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 ATTORNEY GENERAL, Little Rock,

Arkansas, for Appellee Arkansas Student Loan Authority;

Craig A. Hirneisen, STEVENS & LEE, Reading, Pennsylvania, Neil C. Schur, STEVENS & LEE, PC, Philadelphia,

Pennsylvania, Jill M. Dennis, HUNTON & WILLIAMS LLP,

McLean, Virginia, Joseph P. Esposito, HUNTON & WILLIAMS LLP, Washington, D.C., Jason L. Swartley, PENNSYLVANIA HIGHER EDUCATION ASSISTANCE

AGENCY, Harrisburg, Pennsylvania, for Appellee Pennsylvania Higher Education Assistance Agency.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

In this False Claims Act case, relator Dr. Jon Oberg, on

behalf of the United States, brought a qui tam action alleging

that appellees—corporations organized by four states, Kentucky, Pennsylvania, Vermont, and Arkansas—defrauded the

United States Department of Education. The district court

granted appellees’ motions to dismiss on the ground that they

were "state agencies" and therefore not subject to suit under

the False Claims Act as interpreted in Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765,

787-88 (2000). For the reasons that follow, we vacate and

remand for further proceedings consistent with this opinion.

I.

On behalf of the United States, Dr. Oberg sued the Kentucky Higher Education Student Loan Corporation, Pennsylvania Higher Education Assistance Agency, Vermont Student

Assistance Corporation, and Arkansas Student Loan AuthorUNITED STATES v. KENTUCKY HIGHER EDUCATION 3
ity (collectively "appellees"), as well as other defendants not

parties to this appeal, under the False Claims Act ("FCA"), 31

U.S.C. §§ 3729 et seq. Appellees are corporate entities created by their respective states to improve the availability of

higher educational opportunities by financing, making, and/or

guaranteeing student loans. Each appellee operates with varying degrees of control by and support from its respective

sponsoring state.

In his complaint, Dr. Oberg asserts that appellees knowingly made fraudulent claims to the United States Department

of Education by engaging in various non-economic transactions to inflate their loan portfolios eligible for Special Allowance Payments ("SAP"), a federal student loan interest

subsidy. As a result, according to Dr. Oberg, the Department

of Education overpaid millions of dollars of SAP to appellees.

Each appellee moved to dismiss Dr. Oberg’s complaint

contending that it was a "state agency" and thus, under Stevens, 529 U.S. at 787-88, was not a "person" that could be

sued under the FCA. The district court agreed and dismissed

Dr. Oberg’s complaint with regard to all four appellees. In so

holding, the court did not apply any stated legal test. Instead,

the court primarily looked to state statutory provisions, which,

in its view, demonstrated each entity’s status as a "state

agency."

Dr. Oberg noted a timely appeal. We review de novo a dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6).

Robinson v. Am. Honda Motor Co., 551 F.3d 218, 222 (4th

Cir. 2009).

II.

This appeal presents the question of whether each of the

appellees—various state-created corporate entities intended to

facilitate the issuance of student loans—constitutes a "person"

subject to liability under the FCA. The FCA provides a cause

4 UNITED STATES v. KENTUCKY HIGHER EDUCATION
of action against "any person" who undertakes certain fraudulent behavior, 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 relevant provisions of

the FCA do not define the term "person." The Supreme Court,

however, has provided helpful guidance on this question.

In Stevens, the Court held that "the False Claims Act does

not subject a State (or state agency) to liability." 529 U.S. at

787-88. To arrive at this conclusion, the Court applied the

"longstanding interpretive presumption that ‘person’ does not

include the sovereign." Id. at 780. The Court reasoned that the

"various features of the FCA . . . far from providing the requisite affirmative indications that the term ‘person’ included

States for purposes of qui tam liability, indicate quite the contrary." Id. at 787. Accordingly, the Court concluded that the

Vermont Agency of Natural Resources, a state agency, could

not be sued under the FCA.

In explaining its holding, the Stevens Court also noted that

"the presumption with regard to corporations is just the opposite of the one governing here," i.e., corporations "are presumptively covered by the term ‘person.’" Id. at 782. Three

years later, in Cook County v. United States ex rel. Chandler,

the Court applied this presumption to a municipal corporation.

538 U.S. 119 (2003). There, the Court expressly held that,

unlike states and state agencies, municipal corporations are

"persons" subject to qui tam suits under the FCA. Id. at 125.

The Chandler Court noted, as it had in Stevens, that the term

"person" historically extended to municipal and private corporations. Id. at 125-26. The Court explained that, at the time of

the FCA’s enactment, "municipal corporations and private

ones were simply two species of ‘body politic and corporate,’

treated alike in terms of their legal status as persons capable

of suing and being sued." Id. at 126. As a result, the Court

held that Cook County, as a municipal corporation, was a

"person" subject to suit under the FCA.

UNITED STATES v. KENTUCKY HIGHER EDUCATION 5
From these two cases, the parties arrive at very different

conclusions about how to determine whether each appellee is

a proper FCA defendant. Relying heavily on Chandler, Dr.

Oberg initially argues that any corporation, regardless of its

association with a state, is "a legal personality independent of

‘the State’" and so presumptively a "person" for purposes of

the FCA. Appellant’s Br. at 24-25. Because each appellee is

a corporation, Dr. Oberg maintains that each is a proper FCA

defendant. Such a broad rule—rendering every corporation,

no matter how close its relationship to a state, a "person" for

FCA purposes—appears inconsistent with Stevens‘ express

holding that the term "person" in the FCA does not include

any state or state agency. 529 U.S. at 787-88.

For their part, appellees contend that, under Stevens, they

are not proper FCA defendants because they are state agencies, treated as such by their respective state legislative and

judicial branches. Appellees maintain that Chandler "concluded only that local governments, unlike States and State

agencies, are persons under the FCA" and because they are

not local government entities, Chandler does not apply to

them. Appellees’ Br. at 7. But nothing in Stevens suggests that

the fact that a state legislature or a state court labels a corporation a state agency immunizes that corporation from suit

under the FCA. Nor is Chandler as narrow as appellees suggest. Although a municipal corporation was sued there, the

Court’s discussion of the personhood of corporations makes

clear the historical significance of corporate status. See Chandler, 538 U.S. at 125-26.

Thus, at least initially, each side attempts to over-simplify

the question at hand. To determine if appellees are subject to

suit under the FCA, the critical inquiry is neither whether they

are corporations with "independent legal personalities" (a

phrase that appears nowhere in Stevens or Chandler), as Dr.

Oberg maintains, nor whether they have been denominated

"state agencies" by legislatures or courts, as appellees appear

to contend. Rather the critical inquiry is whether appellees are

6 UNITED STATES v. KENTUCKY HIGHER EDUCATION
truly subject to sufficient state control to render them a part

of the state, and not a "person," for FCA purposes. Accordingly, we turn to that inquiry.

III.

Several of our sister circuits have recognized that the armof-the-state analysis used in the Eleventh Amendment context

provides the appropriate legal framework for this inquiry. See,

e.g., Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d

1116, 1121-22 (9th Cir. 2007); United States ex rel. Sikkenga

v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 718

(10th Cir. 2006); United States ex rel. Adrian v. Regents of

Univ. of Cal., 363 F.3d 398, 401-02 (5th Cir. 2004).1

This is so because, although the question of whether an

entity is a proper FCA defendant is one of statutory rather

than constitutional interpretation, there is a "virtual coincidence of scope" between the statutory inquiry under the FCA

and the Eleventh Amendment sovereign immunity inquiry.

Stevens, 529 U.S. at 780; see also Stoner, 502 F.3d at 1121

(recognizing that the Stevens analysis "was driven by canons

of statutory construction relating to protection of the state’s

sovereign immunity"). Indeed, "Stevens teaches that. . . Eleventh Amendment case law should guide our determination of

whether an entity is a state agency and thus not a ‘person’ for

purposes of [the FCA]." Stoner, 502 F.3d at 1121. Hence, a

court should employ the Eleventh Amendment arm-of-thestate analysis in determining if an entity is properly regarded

1We have used the arm-of-the-state analysis in other contexts, like

diversity cases, see, e.g., S.C. Dep’t of Disabilities & Special Needs v.

Hoover Universal, Inc., 535 F.3d 300 (4th Cir. 2008), but have not previously had occasion to consider whether it is appropriate in the FCA context. Accordingly, that the district court did not use this analysis in its

consideration of the parties’ arguments is unsurprising. 

UNITED STATES v. KENTUCKY HIGHER EDUCATION 7
as the state or an agency of the state and so not subject to suit

under the FCA.2

In applying the arm-of-the-state analysis, we consider four

nonexclusive 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.

Hoover Universal, 535 F.3d at 303 (internal quotation marks

2Each party makes an alternative argument that, if the arm-of-the-state

analysis applies, it prevails. Appellees, however, also suggest that the

application of this analysis might produce results incompatible with the

Chandler holding that local governments are "persons" under the FCA,

citing district court cases holding local government units entitled to sovereign immunity. Appellees’ Br. at 36. We think this concern is unfounded.

We have confidence in the ability of the district courts to apply Chandler

appropriately to local governments, especially given that the Eleventh

Amendment itself also distinguishes between states and municipal corporations. See, e.g., Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429

U.S. 274, 280 (1977). 

8 UNITED STATES v. KENTUCKY HIGHER EDUCATION
and alterations omitted); see Cash v. Granville Cnty. Bd. of

Educ., 242 F.3d 219, 224 (4th Cir. 2001); Ram Ditta v. Md

Nat’l Capital Park & Planning Comm’n, 822 F.2d 456, 457-

59 (4th Cir. 1987).3 These factors endeavor to draw the line

between "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." Hoover Universal, 535 F.3d at 303.

The same questions must be considered here in order to

determine if any of the appellees is properly subject to liability under the FCA. If an appellee functions as an arm of the

state, Stevens dictates that it is not a "person" under the FCA

and, therefore, not subject to FCA liability. If, on the other

hand, an appellee functions independently of the state, it is

subject to suit under the FCA.4

Because the district court did not employ this arm-of-thestate analysis in determining whether each of the appellees is

a state agency subject to suit under the FCA, we vacate its

judgment and remand the case for the court to apply this analysis in the first instance.

VACATED AND REMANDED

3We note that although in the past we have referred to the first factor

as "the most important consideration," Ram Ditta, 822 F.2d at 457, more

recent Supreme Court precedent suggests that the first factor does not

deserve such preeminence, see, e.g., Fed. Maritime Comm’n v. S.C. Ports

Auth., 535 U.S. 743, 765 (2002). 

4We leave it to the discretion of the district court to determine whether

some discovery is necessary to resolve this question with respect to one

or more of the appellees. 

UNITED STATES v. KENTUCKY HIGHER EDUCATION 9