US ex rel. Jon H. Oberg v. Pennsylvania Higher Education

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 1:07-cv-00960-CMH-JFA. [999682812]. [15-1093]

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 1 of 72

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1093

UNITED STATES ex rel. JON H. OBERG,
Plaintiff - Appellant,
v.
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY,
Defendant – Appellee,
and
NELNET, INC.; KENTUCKY HIGHER EDUCATION STUDENT LOAN CORP.;
SLM
CORPORATION;
PANHANDLE
PLAINS
HIGHER
EDUCATION
AUTHORITY; BRAZOS GROUP; ARKANSAS STUDENT LOAN 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;
EDUCATION
LOANS
INC.;
VERMONT
STUDENT
ASSISTANCE
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:

May 12, 2015

Decided:

October 21, 2015

Before TRAXLER, Chief Judge, and GREGORY and KEENAN, Circuit
Judges.

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 2 of 72

Vacated and remanded by published opinion. Chief Judge Traxler
wrote the opinion, in which Judge Gregory and Judge Keenan
concurred.

ARGUED: Bert Walter Rein, WILEY REIN LLP, Washington, D.C., for
Appellant.
Paul D. Clement, BANCROFT PLLC, Washington, D.C.,
for Appellee. ON BRIEF: Michael L. Sturm, Brendan J. Morrissey,
Stephen J. Obermeier, WILEY REIN LLP, Washington, D.C., for
Appellant.
John S. West, Megan C. Rahman, Richmond, Virginia,
Christopher G. Browning, Jr., TROUTMAN SANDERS LLP, Raleigh,
North
Carolina,
for
Appellee
Vermont
Student
Assistance
Corporation; George W. Hicks, Jr., Raymond P. Tolentino,
BANCROFT PLLC, Washington, D.C., Joseph P. Esposito, Jill M.
deGraffenreid, HUNTON & WILLIAMS LLP, Washington, D.C., Daniel
B. Huyett, Neil C. Scur, STEVENS & LEE P.C., Reading,
Pennsylvania,
for
Appellee
Pennsylvania
Higher
Education
Assistance Agency.

2

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 3 of 72

TRAXLER, Chief Judge:
The

Pennsylvania

Higher

Education

Assistance

Agency

(“PHEAA”), was established by the Commonwealth of Pennsylvania
in 1963 “to improve access to higher education by originating,
financing, and guaranteeing student loans.”

United States ex

rel. Oberg v. Pa. Higher Educ. Assistance Agency (“Oberg II”),
745 F.3d 131, 135 (4th Cir. 2014).

In addition to administering

state-funded grant and scholarship programs on behalf of the
Commonwealth, PHEAA conducts nationwide lending, servicing, and
guaranteeing

activities,

and

it

“now

constitutes

one

of

the

nation’s largest providers of student financial aid services.”
Id. at 138.
Dr.

Jon

H.

Oberg

brought

this

action

against

PHEAA

and

other private and state-created student-loan entities under the
False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, alleging that
from

2002

hundreds

through
of

2006,

millions

the

of

defendants

dollars

in

fraudulently
federal

claimed

student-loan

interest-subsidy payments to which they were not entitled.
Oberg II, 745 F.3d at 135.

See

As this case has proceeded up and

down the appeals ladder, 1 the other defendants have settled or

1

See United States ex rel. Oberg v. Ky. Higher Educ.
Student Loan Corp. (“Oberg I”), 681 F.3d 575 (4th Cir. 2012);
United States ex rel. Oberg v. Pa. Higher Educ. Assistance
Agency (“Oberg II”), 745 F.3d 131 (4th Cir. 2014).
3

Appeal: 15-1093

were

Doc: 64

Filed: 10/21/2015

dismissed

from

the

Pg: 4 of 72

case,

and

PHEAA

is

now

the

sole

remaining defendant.
The only issue in this appeal is whether PHEAA qualifies as
an “arm of the state” or “alter ego” of Pennsylvania such that
it cannot be sued under the FCA.

See Vermont Agency of Nat.

Res. v. United States ex rel. Stevens, 529 U.S. 765, 787-88
(2000).

We conclude that PHEAA is not an arm of Pennsylvania,

and we therefore reverse the district court’s order granting
summary

judgment

in

favor

of

PHEAA

and

remand

for

further

proceedings on the merits of Oberg’s FCA claims against PHEAA.
I.
The FCA imposes civil liability on “any person” who makes
or presents a false claim for payment to the federal government.
31

U.S.C.

§

3729(a)(1).

Corporations,

including

municipal

corporations like cities and counties, are “persons” under the
FCA, see Cook County v. United States ex rel. Chandler, 538 U.S.
119, 126-27, 134 (2003), but states and state agencies are not,
see

Vermont

determine

Agency

whether

of

PHEAA

Nat.
falls

Res.,
into

529

U.S.

at

the

former

787-88.
or

the

To

latter

category, we apply “the arm-of-the-state analysis used in the
Eleventh Amendment context.”

Oberg II, 745 F.3d at 135.

If

PHEAA qualifies as an “arm” or “alter ego” of Pennsylvania, then
it is not a “person” subject to liability under the FCA.

See

United States ex rel. Oberg v. Ky. Higher Educ. Student Loan
4

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 5 of 72

Corp. (“Oberg I”), 681 F.3d 575, 580 (4th Cir. 2012) (internal
quotation marks omitted).
We
whether

evaluate
a

four

non-exclusive

state-created

entity

factors

functions

when

as

an

considering
arm

of

its

creating state:
(1) whether any judgment against the entity as
defendant will be paid by 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.
Id.

(quoting

S.C.

Dep’t

of

Disabilities

&

Special

Needs

v.

Hoover Universal, Inc., 535 F.3d 300, 303 (4th Cir. 2008)).
Although

the

focus

of

the

first

factor

is

whether

the

“primary legal liability” for a judgment will fall on the state,
Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 428 (1997)
(emphasis added), the practical effect on the state treasury of
a judgment against the entity must also be considered.

“Where

an agency is so structured that, as a practical matter, if the
agency

is

to

survive,

a

judgment

must

expend

itself

against

state treasuries,” Hess v. Port Auth. Trans–Hudson Corp., 513
5

Appeal: 15-1093

U.S.

Doc: 64

30,

50

Filed: 10/21/2015

(1994)

Pg: 6 of 72

(alteration

omitted),

the

agency

will

be

found to be an arm of the state, see Oberg II, 745 F.3d at 137;
Cash v. Granville Cnty. Bd. of Educ., 242 F.3d 219, 223 (4th
Cir. 2001).
“[I]f

the

State

treasury

will

be

called

upon

to

pay

a

judgment against a governmental entity, the [entity is an arm of
its

creating

state],

becomes unnecessary.”

and

consideration

of

any

Cash, 242 F.3d at 223.

other

factor

If the state

treasury will not be liable for a judgment rendered against the
entity, we must consider the remaining factors, which focus on
the nature of the relationship between the state and the entity
it

created.

See

id.

at

224;

accord

Lee-Thomas

v.

Prince

George’s Cty. Pub. Sch., 666 F.3d 244, 248 n.5 (4th Cir. 2012).
The purpose of the arm-of-state inquiry is to distinguish
arms

or

alter

egos

of

the

state

from

“mere

political

subdivisions of [the] State such as counties or municipalities,”
which, though created by the state, operate independently and do
not share the state’s immunity.

Kitchen v. Upshaw, 286 F.3d

179, 184 (4th Cir. 2002); see Mt. Healthy Bd. of Educ. v. Doyle,
429 U.S. 274, 280 (1977) (“The issue here thus turns on whether
the Mt. Healthy Board of Education is to be treated as an arm of
the State partaking of the State’s Eleventh Amendment immunity,
or is instead to be treated as a municipal corporation or other
political subdivision to which the Eleventh Amendment does not
6

Appeal: 15-1093

Doc: 64

extend.”).

Filed: 10/21/2015

Pg: 7 of 72

Although we must consider “the provisions of state

law that define the agency’s character,” Regents, 519 U.S. at
429 n.5, “[u]ltimately . . . , the question whether a particular
state agency has the same kind of independent status as a county
or is instead an arm of the State, and therefore one of the
United States within the meaning of the Eleventh Amendment, is a
question

of

federal

law,”

id.

(internal

quotation

marks

omitted).
In

our

first

opinion

in

this

case,

we

held

that

the

district court erred by concluding that PHEAA was a state agency
and dismissing Oberg’s complaint without applying the arm-ofstate analysis.
district

court

See Oberg I, 681 F.3d at 581.
applied

the

arm-of-state

On remand, the

analysis

and

again

granted the motion to dismiss, concluding that PHEAA was not a
person within the meaning of the FCA.
Oberg again appealed, and we again held that the district
court erred by dismissing the claims against PHEAA.
II, 745 F.3d at 140-41.

See Oberg

Considering the arm-of-state issue in

light of the statutes governing PHEAA’s operation and the facts
alleged in Oberg’s complaint, we held in Oberg II that Oberg had
plausibly alleged that PHEAA was not an arm of the state but was
instead a “person” subject to suit under the FCA.

See id.

We first concluded that Pennsylvania was “neither legally
nor functionally liable for any judgment against PHEAA.”
7

Id. at

Appeal: 15-1093

138.

Doc: 64

Filed: 10/21/2015

Pg: 8 of 72

PHEAA was not legally liable because “state law expressly

provides that obligations of PHEAA shall not be binding on the
State,” id. (internal alterations omitted), and requires PHEAA’s
debts to be paid from “‘moneys . . . of the corporation,’” id.
(quoting 24 Pa. Stat. § 5104(3)).
liability,
liable

PHEAA

for

statutes

a

argued

that

judgment

require

PHEAA

As to practical or functional
Pennsylvania

against
to

PHEAA

deposit

its

was

functionally

because

Pennsylvania

commercially

generated

revenues with the state Treasury and require the Treasurer’s
approval of any payment from state Treasury funds.

We rejected

that argument, however, given that the statute requiring the
deposit
PHEAA,

also
not

segregated
Because

explicitly
the

Treasurer,

account

PHEAA

granted

had

within

and

the

control

control
the

over

funds

Treasury.

over

those

were

See

“substantial

funds

held

id.

at

‘moneys’

in

to
a

138-39.
[that]

derive exclusively from its own operations,” id. at 138, “any
judgment in this case [would be paid] with [PHEAA’s] own moneys
from

its

segregated

fund,”

id.

at

139,

and

we

therefore

concluded that Pennsylvania would not be functionally liable for
any judgment against PHEAA.

And because there was no functional

or legal liability, we held that the first arm-of-state factor
weighed “heavily against holding that PHEAA is an arm of the
state.”

Id.

8

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 9 of 72

As to the second arm-of-state factor, we noted that the
indicia of autonomy reflected in the statutory framework and the
facts alleged in the complaint pointed in both directions.

The

composition of PHEAA’s board (gubernatorial appointees and state
legislators) weighed in favor of arm-of-state status, as did the
statutory requirement that the Governor approve any PHEAA bond
issues

and

the

fact

that

PHEAA’s

activities

audit by the Commonwealth Auditor General.

were

subject

to

See id. at 139.

Nonetheless, other facts “strongly suggest[ed] that PHEAA is not
an arm of the state,” including PHEAA’s financial independence,
its control over its revenues deposited with the state Treasury,
and its corporate powers “to enter into contracts, sue and be
sued, and purchase and sell property in its own name.”

Id.

Drawing all inferences from these facts in Oberg’s favor, as
required given the procedural posture of the case, we concluded
that the autonomy factor “counsels against holding that PHEAA is
an arm of the state.”

Id.

As to the third arm-of-state factor, we held it weighed in
favor

of

arm-of-state

status

because

PHEAA

was

focused

on

improving access to higher education, a matter of “legitimate
state concern.”

Id. at 140.

We rejected Oberg’s

argument that

PHEAA was not primarily focused on state concerns, given PHEAA’s
extensive

out-of-state

commercial

activities.

Noting

the

allegation in Oberg’s complaint that one third of PHEAA’s 2005
9

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 10 of 72

earnings came from out-of-state activities, we held that “it
does

not

encompassed

seem
by

plausible
Dr.

that

Oberg’s

by

2006

allegations

focused primarily out of state.”

--

--

Id.

the

PHEAA’s

last

year

operations

And as to the fourth

factor, we concluded that state law treated PHEAA as a state
agency, which also weighed in favor of treating PHEAA as an arm
of the state.

See id.

Considering the factors together, we held that the district
court erred by dismissing Oberg’s complaint:
[A]lthough 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, 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.
Id. (internal quotation marks omitted).

We vacated the district

court’s order dismissing Oberg’s complaint, and we instructed
the district court on remand “to permit limited discovery on the
question whether PHEAA [was] truly subject to sufficient state
control

to

render

it

a

part

of

the

state.”

Id.

at

140-41

and

PHEAA

(internal quotation marks omitted).
On

remand,

the

parties

engaged

in

discovery,

filed a motion for summary judgment on the arm-of-state issue.
The district court granted the motion, holding that all four
factors weighed in favor of arm-of-state status.

10

See United

Appeal: 15-1093

Doc: 64

States

ex

rel.

Filed: 10/21/2015

Oberg

v.

Pa.

Pg: 11 of 72

Higher

Educ.

Assistance

(“Oberg III”), 77 F. Supp. 3d 493 (E.D. Va. 2015).

Agency
In the

district court’s view, this court’s contrary conclusion could
not

be

sustained

in

light

development” of the case.

of

the

post-remand

Id. at 497.

“factual

The district court

therefore held that because PHEAA was an arm of Pennsylvania, it
was not subject to suit under the FCA, and the court granted
summary judgment in favor of PHEAA.
II.
Oberg

again

appeals,

arguing

that

the

district

court’s

analysis of the arm-of-state factors is inconsistent with our
opinion in Oberg II and that its ultimate conclusions as to
those factors are not supported by the record.

In Oberg’s view,

the Pennsylvania statutes governing PHEAA’s operation and the
factual information developed through discovery establish that
PHEAA is not an arm of Pennsylvania.

Oberg thus contends that

the district court erred by granting summary judgment in favor
of PHEAA and dismissing his action.
“We review a grant of summary judgment de novo, applying
the same standard as the trial court and without deference to
the trial court.”

Dash v. Mayweather, 731 F.3d 303, 310 (4th

Cir.

denied,

2013),

cert.

134

S.

Ct.

1761

(2014).

Summary

judgment is appropriate only if “there is no genuine dispute as

11

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 12 of 72

to any material fact and the movant is entitled to a judgment as
a matter of law.”

Fed. R. Civ. P. 56(a).

In this case, we see no material dispute about the relevant
facts

detailing

Pennsylvania.

PHEAA’s

operations

and

relationship

with

Instead, the dispute is over the legal effect of

the materially undisputed facts -- whether the relevant statutes
and the facts developed during discovery establish that PHEAA is
the alter ego of Pennsylvania. 2

See Greene v. Barrett, 174 F.3d

1136, 1139-40 (10th Cir. 1999) (“If there is no genuine issue of
material
court

fact

in

correctly

dispute,
applied

we

the

determine
substantive

whether

the

law.”).

question is a pure question of law reviewed de novo.

district
And

that

See United

States ex rel. Lesinski v. S. Fla. Water Mgmt. Dist., 739 F.3d
598, 602 (11th Cir.) (“[W]hether an entity constitutes an arm of
the state [and therefore not a “person” under the FCA] . . . is
a question of law subject to de novo review.”), cert. denied,

2

While Oberg argues that the evidence establishes that
PHEAA is not an arm of Pennsylvania, he also suggests that armof-state status is a question of fact to be resolved by a jury.
We disagree.
Although we held in Oberg II that whether a
defendant is a “person” is an element of an FCA plaintiff’s
case, see Oberg II, 745 F.3d at 136, we nonetheless agree with
PHEAA that personhood and arm-of-state status nonetheless remain
legal issues to be resolved by the court.
Cf. Farwell v. Un,
902 F.2d 282, 288 (4th Cir. 1990) (although negligence plaintiff
“must prove that defendant owed plaintiff a duty, breached that
duty, and that the breach proximately caused the claimed
injury[,] . . . . whether and in what form any legal duty exists
is a question of law for the courts”).
12

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 13 of 72

134 S. Ct. 2312 (2014); cf. Hutto v. South Carolina Ret. Sys.,
773 F.3d 536, 542 (4th Cir. 2014) (“Whether an action is barred
by the Eleventh Amendment is a question of law that we review de
novo.”).
PHEAA’s

We will summarize the statutes and evidence governing
authority

and

operations

before

turning

to

Oberg’s

and

politic

challenges to the district court’s decision.
III.
PHEAA

was

constituting

created
a

instrumentality.”

as

“a

public

body

corporate

corporation

24 Pa. Stat. § 5101.

and

government

PHEAA has the power to

sue and be sued; enter into contracts; and own, encumber, and
dispose of real and personal property.
II, 745 F.3d at 139.

See id. § 5104(3); Oberg

During the time period relevant to this

appeal, PHEAA was governed by a twenty-member board of directors
composed

of

appointees;
Senate’s

the
eight

Secretary

of

Education;

members

of

the

president;

and

eight

Senate

members

three

gubernatorial

appointed
of

the

official who appointed them.

the

House

Representatives appointed by the Speaker of the House.
Pa. Stat. § 5103(a) (2006). 3

by

of

See 24

Board members may be removed by the
See Pa. Const. art. VI, § 7

(“All

civil officers shall hold their offices on the condition that
3

In 2010, 24 Pa. Stat. § 5103 was repealed and a revised
version of it was recodified at 71 Pa. Stat. § 111.2.
The
changes to the composition of PHEAA’s board are not relevant to
the disposition of this appeal.
13

Appeal: 15-1093

they

Doc: 64

behave

removed

on

Filed: 10/21/2015

themselves
conviction

infamous crime.

well
of

Pg: 14 of 72

while

in

office,

misbehavior

in

and

office

shall

or

of

be
any

Appointed civil officers, other than judges of

the courts of record, may be removed at the pleasure of the
power

by

which

they

shall

have

been

appointed.”);

Burger

v.

School Bd., 923 A.2d 1155, 1162 (Pa. 2007) (“[A]rticle VI, § 7
of]

the

Constitution

does

not

unfettered discretion to remove.

vest

in

the

appointing

power

Instead, valid removal depends

upon the officer behaving in a manner not befitting the trust
placed in him by the appointing authority.”).
PHEAA’s

purpose

opportunities

of

is

“to

improve

[Pennsylvania]

the

residents

higher
.

.

educational
.

who

are

attending approved institutions of higher education . . . by
assisting them in meeting their expenses of higher education.”
24 Pa. Stat. § 5102.

To further its statutory purpose, PHEAA is

authorized to issue, purchase, service, and guarantee student
loans.

See 24 Pa. Stat. § 5104.

PHEAA is statutorily authorized to “borrow moneys by making
and issuing notes, bonds and other evidences of indebtedness of
the agency . . . for the purposes of purchasing, making or
guaranteeing loans.”

Id. § 5104(3).

The Governor must approve

all debt issuances, see id., and the General Assembly has capped
the total amount of debt that PHEAA may incur, see 24 Pa. Stat.
§ 5105.1(a.1).

Under state law, PHEAA bears sole responsibility
14

Appeal: 15-1093

for

Doc: 64

its

Filed: 10/21/2015

bonds

and

other

Pg: 15 of 72

debts.

See

id.

§

5104(3)

(“[N]o

obligation of [PHEAA] shall be a debt of the State and [PHEAA]
shall have no power to pledge the credit or taxing power of the
State nor to make its debts payable out of any moneys except
those of the corporation.”).

Because the Pennsylvania General

Assembly has determined that PHEAA is performing an “essential
governmental
taxation.
As

function,”

PHEAA

bonds

are

generally

free

from

24 Pa. Stat. § 5105.6.
noted,

PHEAA

is

now

“one

of

the

nation’s

providers of student financial aid services.”
F.3d at 138.

largest

Oberg II, 745

During the time period relevant to this case,

PHEAA’s commercial activity -- much of it conducted under the
trade

names

“American

Education

Services”

and

“FedLoan

Servicing” -- included issuing loans to Pennsylvania students,
servicing loans for non-Pennsylvania students, and guaranteeing
loans

issued

Virginia.

to

students

PHEAA’s

2014

in

Delaware,

financial

Georgia,

statements

and

show

West

revenues

exceeding $600 million, net revenues of more than $220 million,
and unrestricted net assets of more than $700 million.
3147-48.
operations

The
have

earnings
made

from

PHEAA

PHEAA’s

“financially

extensive

See J.A.
commercial

independent”

of

the

Commonwealth, Oberg II, 745 F.3d at 139, and PHEAA has received
no appropriations to support its operations since 1988.

15

Appeal: 15-1093

Doc: 64

PHEAA

Filed: 10/21/2015

administers

Pg: 16 of 72

Pennsylvania’s

State

Grant

Program,

distributing appropriated funds as grants and scholarships to
qualifying students.

PHEAA absorbs the costs of administering

the program, however, and disburses 100% of the appropriated
funds to students.

In 2005, PHEAA contributed $25 million of

its earnings to supplement the State Grant Program, and it has
made contributions ranging from $45 – 75 million in many, but
not all, of the years since.
During the time period relevant to this case, PHEAA issued
revenue
bonds

bonds

with

purpose

to

fund

the

loan-repayment

entities

loans

it

revenues. 4

incorporated

under

originated,
PHEAA
Delaware

repaying

the

created

special-

law

formally

to

issue the bonds and hold the student-loan receivables as assets.
These revenues are held in trust in accounts outside of the
Pennsylvania Treasury until the bonds are repaid or the release
provisions of the underlying documents are otherwise satisfied.
These trust accounts represent the bulk of PHEAA’s corporate
wealth -- more than $6 billion of $8.6 billion total long term
assets.

See J.A. 3148.

4

PHEAA stopped originating federally guaranteed student
loans in 2008, “due to the global fiscal crisis.”
J.A. 327.
See J.A. 2440. As of July 1, 2010, the federal government took
over as the originator of all federal student loans. See Health
Care & Educ. Reconciliation Act of 2010, Pub. L. No. 111-152, §§
2201-2213, 124 Stat. 1029, 1074-81.
16

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 17 of 72

As to the other revenues generated by PHEAA’s commercial
activities, however, state law requires them to be deposited in
the

Pennsylvania

Treasury,

see

24

Pa.

Stat.

§

5104(3),

a

requirement similar to that applicable to other state agencies.
PHEAA’s revenues on deposit with the state Treasury are held in
a

segregated

Fund.”

fund

known

as

the

24 Pa. Stat. § 5105.10.

“Educational

Loan

Assistance

Although the revenues are in

the custody of the state Treasurer, state law expressly vests
control over the revenues in PHEAA.

See 24 Pa. Stat. § 5104(3)

(requiring revenues earned through financial-services activities
to be “deposited in the State Treasury,” but providing that the
revenues “shall be available" to PHEAA and “may be utilized at
the discretion of the board of directors for carrying out any of
the corporate purposes of the agency”); id. § 5105.10 (“[A]ll
appropriations

and

payments

made

into

the

[Educational

Loan

Assistance Fund] are hereby appropriated to the board and may be
applied and reapplied as the board shall direct and shall not be
subject to lapsing.”).
Much like funds invested in a mutual fund, PHEAA’s funds,
though separately accounted for, are commingled with the funds
of other Commonwealth agencies for investment purposes.

See 72

Pa. Stat. § 301.1 (generally authorizing Treasurer to invest
funds held in state depositories); see also J.A. 2474 (PHEAA
treasurer’s description of investment process: “It works kind of
17

Appeal: 15-1093

like

Doc: 64

a

Filed: 10/21/2015

mutual

fund

.

.

Pg: 18 of 72

.

taking

money

from

[separate

Commonwealth agencies] and keeping track of what each of us has,
but putting it together and putting it into investment funds.”).
The

Treasury

Department

devises

and

strategy for the commingled funds.

executes

the

investment

See 72 Pa. Stat. § 301.2;

see also J.A. 2796.
State law prohibits payment “from any of the funds of the
State Treasury” without approval of the Treasurer.
§ 307.
of

72 Pa. Stat.

To obtain approval for payment of funds in the custody

the

Treasurer,

PHEAA

must

requisitions for payment.
requisitions

by

present

the

Treasurer

with

The Treasury Department audits the

reviewing

“backup

documentation

such

as

invoices, contracts, [and] purchase orders” and “confirming the
authority for the payment (e.g., a valid supporting contract),
and

a

match

between

payment request.”
be

lawful

payment.”
Department

and

amount

J.A 673-74.

correct,

J.A.

673.

transfers

PHEAA a check.

the

the
If

funds

due

on

the

invoice

and

the

“If the requisitions appear to

Treasurer
payment
to

issues

is

PHEAA

his

approved,

warrant
the

for

Treasury

electronically

or

sends

The checks are payable to the vendor and are

drawn on the state Treasury account and signed by the Treasurer.
For purposes of the “Commonwealth Attorneys Act,” 71 Pa.
Stat.

§§

includes

732-101

–

732-506,

“independent”

and

the

term

“executive”
18

“Commonwealth
agencies;

agency”

PHEAA

is

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 19 of 72

classified as an independent agency, see id. § 732-102.
the

case

with

other

Commonwealth

agencies,

if

the

As is

Attorney

General provides PHEAA with a legal opinion, PHEAA must follow
the advice set out in the opinion.

See id. § 702-204(a)(1).

While PHEAA has the authority to enter into contracts, it
must,

like

other

Commonwealth

agencies,

submit

contracts

involving more than $20,000 for a “form and legality” review by
the Attorney General.

71 Pa. Stat. § 732-204(f).

The review

involves determining “whether the contract has all of the legal
terms

that

the

Commonwealth

requires

and

no

terms

that

are

prohibited”; whether “PHEAA has the authority to enter into the
contract”; and whether “the contract is constitutional under the
State and Federal constitutions.”

J.A. 713; see 71 Pa. Stat. §

732-204(f) (requiring Attorney General to determine whether a
“contract is in improper form, not statutorily authorized or
unconstitutional”).

If an agency seeks to enter into a contract

with a party who owes money to the Commonwealth, the Attorney
General will not review the contract until the debt has been
satisfied.
PHEAA

See J.A. 2856.

actions

authorized

independently,

Commonwealth
General

is

to

Attorneys
represent

see

to

pursue

24

Act
PHEAA

Pa.

student-loan

Stat.

otherwise
in

civil

§

collection

5104.3,

requires

but

the

litigation

Attorney
absent

delegation of authority, see 71 Pa. Stat. § 732-204(c).
19

the

a

PHEAA’s

Appeal: 15-1093

Doc: 64

standard

Filed: 10/21/2015

practice

is

to

seek

Pg: 20 of 72

such

delegations

in

all

non-

collection actions; PHEAA’s general counsel could not recall a
request ever being denied.
to

PHEAA’s

board.

The

A private law firm serves as counsel
Attorney

General’s

office

would

have

conducted the form-and-legality review of the contract engaging
the law firm, but the decision to engage counsel did not require
a delegation from or other review by the Attorney General. 5
Pennsylvania law treats PHEAA as a typical state agency in
other respects.
regulations,

PHEAA is authorized to promulgate and enact

but

the

regulations

must

be

Pennsylvania’s Regulatory Review Commission.
§§ 745.3, 745.5.

approved

by

See 71 Pa. Stat.

PHEAA must report its year-end condition to

the Governor and the legislature.

See 24 Pa. Stat. § 5108.

It

is subject to examination by the Commonwealth’s Auditor General,
see id., and was in fact the subject of a “special performance
audit” in 2008.

J.A. 2312.

Its property and income are exempt

from state taxation, see 24 Pa. Stat. § 5107, and all of its
properties revert to the Commonwealth upon dissolution, see id.
§ 5109.
PHEAA’s
receive

employees

healthcare

are

paid

benefits

through

through

the

the

state

Commonwealth,

participate in the Commonwealth’s retirement system.
5

Treasury,
and

PHEAA’s

In 2013, PHEAA paid outside counsel a total of more than
$7 million.
20

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 21 of 72

board members and executives are subject to state ethics laws.
See 65 Pa. Cons. Stat. §§ 1102-03.

PHEAA executives, however,

are not paid in accordance with state pay scales.
until

2007,

PHEAA’s

top

executives

were

At least

compensated

under

a

“unique” and very generous pay scale created by the PHEAA board.
J.A. 2342.
For accounting purposes, the Commonwealth treats PHEAA as a
“component unit” of the “primary government,” J.A. 595, and it
includes

PHEAA’s

financial

information

in

the

Commonwealth’s

Comprehensive Annual Financial Report.

The Report defines the

“primary

Commonwealth

government”

Commonwealth

to

departments,

include

the

agencies,

that are not legally separate.”

boards,

J.A. 595.

and

and

“all

organizations

“Component units”

are defined as “all legally separate organizations for which the
[primary

government]

is

financially

accountable,

and

other

organizations for which the nature and significance of their
relationship
exclusion

[of

with

the

their

[primary

financial

government]
information]

are
would

financial statements to be misleading or incomplete.”

such
cause

that
the

Id.

IV.
We turn now to Oberg’s specific challenges to the district
court’s analysis of the arm-of-state issue.
A.

State Treasury

21

Appeal: 15-1093

Doc: 64

The

first

Filed: 10/21/2015

arm-of-state

Pg: 22 of 72

factor

focuses

on

“whether

any

judgment against the entity as defendant will be paid by the
State,”

Oberg

omitted),

an

I,

681

F.3d

inquiry

that

at

580

(internal

includes

liability, see Oberg II, 745 F.3d at 137.

legal

quotation
or

marks

functional

We held in Oberg II

that Pennsylvania was not legally liable, see id. at 138, and
that conclusion remains controlling in this appeal, see Everett
v. Pitt Cty. Bd. of Educ., 788 F.3d 132, 142 (4th Cir. 2015)
(explaining that under the “law of the case” doctrine, rulings
by an appellate court on questions of law generally “must be
followed in all subsequent proceedings in the same case in the
trial

court

omitted)). 6

or

on

a

later

appeal”

(internal

quotation

marks

Our analysis in this appeal, therefore, will focus

on functional liability.

6

The law-of-the-case doctrine does not apply if “the prior
decision
was
clearly
erroneous
and
would
work
manifest
injustice.” TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th Cir.
2009) (internal quotation marks omitted).
Although PHEAA
suggests, almost in passing, that we erred by rejecting legal
liability in Oberg II, see Brief of Respondent at 22 n.6, “[a]
prior decision does not qualify for this . . . exception by
being just maybe or probably wrong; it must strike us as wrong
with the force of a five-week-old, unrefrigerated dead fish.”
TFWS, 572 F.3d at 194 (internal quotation marks and alteration
omitted).
Given the previously discussed statutory provisions
disclaiming liability for PHEAA’s obligations and requiring
PHEAA’s debts to be paid from moneys of the corporation, Oberg
II’s no-legal-liability holding doesn’t strike us as wrong at
all, much less dead-fish wrong.
22

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 23 of 72

The functional-liability analysis looks to whether, as a
practical matter, a judgment against a state-created entity puts
state funds at risk, despite the fact that the state is not
legally liable for the judgment.

Thus, functional liability

will be found “[w]here an agency is so structured that, as a
practical matter, if the agency is to survive, a judgment must
expend itself against state treasuries.”

Hess, 513 U.S. at 50,

cited in Oberg II, 745 F.3d at 137; Ristow v. South Carolina
Ports Auth., 58 F.3d 1051, 1054 (4th Cir. 1995) (finding Ports
Authority to be an arm of the state despite absence of legal
liability because the state “provides whatever economic support
is necessary over and above the Port Authority’s net revenues to
insure its continued vitality” and “takes back any portion of
the

Authority’s

judgment,

is

Authority’s

net

not

revenues,

necessary

operation”).

A

which,

or
state

in

its

desirable

for

may

also

be

legislative
the

Ports

functionally

liable if the funds available to pay any judgment effectively
belong to the state rather than the agency.
Applying these principles in Oberg II, we concluded that
Pennsylvania

was

not

functionally

liable

because

PHEAA

was

statutorily vested with control over the significant revenues
generated by its extensive commercial activities, such that the
judgment

would

Pennsylvania.

be

paid

with

funds

belonging

to

PHEAA,

not

See Oberg II, 745 F.3d at 139 (“[B]ecause state
23

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 24 of 72

law instructs that PHEAA would pay any judgment in this case
with its own moneys from its segregated fund, the first factor
weighs

heavily

against

holding

that

PHEAA

is

an

arm

of

the

state.” (citation omitted)); id. at 138 (noting that “PHEAA’s
substantial

‘moneys’

derive

exclusively

from

its

own

operations”).
The

district

however.

court

Believing

rejected

that

this

that

court’s

conclusion
analysis

on

remand,

could

not

be

sustained in light of the post-remand “factual development” in
the case, Oberg III, 77 F. Supp. 3d at 497, the district court
held

that

Pennsylvania

would

be

judgment entered against PHEAA.
the

fact

that

PHEAA’s

earnings

functionally

liable

for

any

In the district court’s view,
are

deposited

in

the

state

Treasury, where they are commingled with other state funds and
cannot be spent without approval of the Treasurer, showed that
“the

Commonwealth

PHEAA’s

assets

and

retains

[such]

generated

significant

revenue”

control

that

speaking, PHEAA’s money becomes State money.”

over

“[p]ractically
Id.

We agree

with Oberg that the district court’s analysis on this point is
largely inconsistent with our decision in Oberg II.
Notwithstanding the district court’s “factual development”
reference, its analysis did not depend on the evidence developed
during discovery, but instead turned on its understanding of the
general statutory framework governing PHEAA’s operation.
24

As we

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 25 of 72

have already explained, however, this court in Oberg II rejected
the all-funds-are-state-funds argument.

Instead, we held that

because PHEAA was statutorily vested with control over the funds
on deposit with the state Treasury, PHEAA’s revenues remained
“moneys

.

.

.

of

the

corporation”

despite

provisions relied on by the district court.

the

statutory

Oberg II, 745 F.3d

at 138 (internal quotation marks omitted).
Given

that

we

were

reviewing

the

granting

of

a

Rule

12(b)(6) motion to dismiss in Oberg II, our holding was based on
an assumption that the control statutorily vested in PHEAA was
in fact exercised by PHEAA.

Nonetheless, because we held that

Oberg had plausibly alleged that PHEAA was not an arm of the
state,

we

governing

necessarily
PHEAA’s

concluded

operations

that

did

the

not,

statutory
in

and

of

framework
itself,

establish a level of control sufficient to make PHEAA an arm of
Pennsylvania.

If the relevant statutory facts focused on by the

district court -- that PHEAA’s revenues are held in the state
Treasury and cannot be used for payment without approval of the
Treasurer -- were enough to establish functional liability even
in the face of the PHEAA’s statutorily granted power over those
revenues, then we would have affirmed, not vacated, the district
court’s arm-of-state conclusion in Oberg II.
In finding Pennsylvania functionally liable, the district
court thus ignored the statutory facts that we found critical to
25

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 26 of 72

the issue -- PHEAA’s control over its significant independent
funds -- and gave the other relevant statutory facts a legal
effect that we rejected in Oberg II.

We therefore agree with

Oberg that the district court erred by analyzing the functional
liability question in an manner inconsistent with the approach
dictated by Oberg II.
This court, however, “review[s] judgments, not opinions.”
Catawba Indian Tribe of S.C. v. City of Rock Hill, 501 F.3d 368,
372 n.4 (4th Cir. 2007) (per curiam).
district

court’s

erroneous,

analysis

reversal

would

of

the

not

be

Thus, even though the

state-treasury
required

if

factor
the

was

evidence

developed through discovery shows a level of control actually
exercised by the Commonwealth that changes the Oberg II calculus
and establishes that Pennsylvania is functionally liable for a
judgment

against

PHEAA.

See

Oberg

II,

745

F.3d

at

140-41

(remanding for “limited discovery on the question whether PHEAA
is truly subject to sufficient state control to render it a part
of

the

state”

(emphasis

alterations omitted)).

added;

internal

quotation

marks

and

We turn to that question now.
1.

Discovery

produced

substantial

evidence

of

PHEAA’s

financial strength and independence.
PHEAA’s financial success, which has never really been in
dispute, is clearly established in the record.
26

For 2006, when

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 27 of 72

the last of the conduct alleged in Oberg’s complaint took place,
PHEAA’s

financial

statements

show

gross

revenues

of

$416

million, net revenues of $156 million, and total net assets of
$498 million.

J.A 2573-74.

PHEAA’s 2014 financial statements

show impressive growth – gross revenues of $640 million, net
revenues of $222 million, with total net assets of $1 billion
and unrestricted net assets of $709 million. 7

See J.A. 3147-48.

The

has

evidence

thus

establishes

that

PHEAA

moneys,” as we assumed to be true in Oberg II.

“substantial

745 F.3d at 138

(internal quotation marks omitted).
PHEAA is statutorily vested with control over its funds on
deposit with the Treasury Department, and discovery confirmed
that

PHEAA

is

in

fact

exercising

control

over

its

funds.

PHEAA’s control over fiscal matters is established, first and
foremost, by PHEAA’s own officials.

Timothy Guenther, PHEAA’s

treasurer, repeatedly testified in his deposition that financial
decisions were made by PHEAA’s Board of Directors.
testified

that

based

revenue

on

PHEAA’s
and

board

approves

expenses

PHEAA’s

estimates

Guenther

annual

developed

by

budget
PHEAA

staff; decides each year what portion (if any) of its earnings

7

As noted, PHEAA stopped originating student loans in 2008.
Despite the loss of that line of business, PHEAA’s revenues have
increased dramatically. That increase is primarily attributable
to a contract with the federal government to service federally
issued student loans.
27

Appeal: 15-1093

Doc: 64

will

be

Filed: 10/21/2015

used

to

supplement

Pg: 28 of 72

the

State

Grant

Program;

establishes PHEAA’s corporate investment policy.
annual

report

financial

of

its

condition

major

that

financial

PHEAA

is

And as to the

decisions

required

and

to

and
make

overall
to

the

Governor and General Assembly, Guenther acknowledged that the
financial

decisions

PHEAA’s board.

reflected

in

that

report

were

made

by

See J.A. 2469.

The declaration of PHEAA’s chairman of the board likewise
shows

that

PHEAA,

not

the

operations and its funds.

Commonwealth,

controls

PHEAA’s

See J.A. 246 (“PHEAA’s Board makes

sure that as much excess revenue, in light of PHEAA’s long-term
operational
programs

and

and

financial
financial

requirements,
assistance

is

for

contributed

the

benefit

to
of

Pennsylvania students” (emphasis added)); J.A. 249 (“The Board
oversees PHEAA, makes the policy decisions for the direction of
[the] agency, and tasks PHEAA’s executives and managers with
implementing
basis.”);

id.

those

decisions

(“PHEAA’s

Board

and

directions

reviews,

on

analyzes

a

day-to-day

and

approves

PHEAA’s internal budget, which is proposed by management and
presented to the Board.”); see also J.A. 2406 (“Briefing Book”
preparing PHEAA CEO for appearance before legislative committee
stating that “[t]he board is responsible for how we spend our
money”).

28

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Specific

incidents

and

Pg: 29 of 72

events

described

provide further evidence of PHEAA’s control.
Commonwealth

revenues

fall

short

of

in

the

record

For example, when

expectations,

it

is

not

unusual for the Governor to ask state agencies to cut spending
and return a portion of their budget to the General Assembly.
The record contains two gubernatorial letters requesting PHEAA’s
assistance, and these letters distinguish PHEAA from other state
agencies

and

make

it

clear

that

PHEAA

budget that other agencies do not.

has

control

over

its

See J.A. 3118 (letter from

Gov. Corbett stating that he had “directed agencies under [his]
jurisdiction to freeze . . . spending” but was “ask[ing] that
[PHEAA]

make

the

jurisdiction”

same

(emphasis

sacrifice
added));

as

the

J.A.

agencies

3120

under

(letter

[his]

from

Gov.

Rendell noting that he had “directed commonwealth agencies to
place

1.9%

reserve”

of

but

their

discretionary

“ask[ing]

[PHEAA]

to

budgets
make

into

the

same

budgetary
spending

reductions that our commonwealth agencies are making” (emphasis
added)).
In

addition,

in

2007,

PHEAA

settled

a

dispute

with

the

Department of Education related to the interest-subsidy issue
raised in Oberg’s complaint for $11.3 million.

According to

PHEAA’s treasurer, PHEAA paid the Department of Education with
loan-repayment

funds

Pennsylvania Treasury.

held

in

trust

in

accounts

outside

the

PHEAA also settled a dispute with the
29

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 30 of 72

IRS for $12.3 million, and a portion of the IRS settlement was
also paid
Attorney

from

assets

General

held

would

have

in

trust.

See

conducted

J.A.

2480.

The

the

form-and-legality

review of the settlements, but it otherwise had no involvement
in

the

substantive

decision

to

settle

negotiation of the settlement terms.
The

General

Assembly

was

not

the

disputes

or

the

See J.A. 2845, 2847-48.

required

to

approve

the

settlements, and it did not appropriate funds to replace those
spent by PHEAA.

In our view, PHEAA’s actions in settling the

disputes demonstrates PHEAA’s control over its funds and its
financial independence from the Commonwealth.

And the fact that

the settlements were paid with a portion of the $6 billion held
in trust outside the state Treasury is additional evidence of
PHEAA’s ability to fund a judgment without the use of state
funds.
PHEAA’s

creation

and

support

of

the

Pennsylvania

Higher

Education Foundation (“PHEF”) also provides compelling evidence
of PHEAA’s financial independence and control. 8

Although PHEAA

itself is authorized to solicit and receive private donations,
see 24 Pa. Stat. § 5104(3) & (8); id. § 5106, PHEAA officials
believed

that

“‘many

private

donors

are

reluctant

to

donate

funds to a government agency,’” 2008 Auditor General’s Report at
8

PHEF has been inactive since 2009.

30

Appeal: 15-1093

74,

Doc: 64

Exhibit

Filed: 10/21/2015

1

to

Oberg’s

Pg: 31 of 72

Opposition

to

PHEAA’s

Summary Judgment (“2008 Auditor General’s Report”). 9
created

PHEF,

a

one-employee, 10

tax-exempt

Motion

for

PHEAA thus
charitable

organization, for the purpose of soliciting private corporate
donations.

PHEAA provided the funds and administrative services

necessary for PHEF’s operation.

From 2001 through 2007, PHEAA

provided PHEF with more than $86 million in cash and donated
services.

Over that same period, PHEF collected $11.1 million

in private donations.

See 2008 Auditor General’s Report at 75.

While PHEAA has the general authority “[t]o perform such . . .
acts as may be necessary or appropriate to carry out effectively
the objects and purposes of the agency,” 24 Pa. Stat. § 5104(7),
PHEAA

had

no

specific

statutory

authority

to

create

or

make

donations to a charitable organization, see J.A. 2410 (“Briefing
Book”

preparing

committee

PHEAA

stating

that

CEO

for

there

appearance
was

“[n]o

before

legislative

express

legislative

authority” for PHEAA’s funding of PHEF).
In our view, the evidence outlined above establishes the
critical facts assumed in Oberg II when we rejected the claim of

9

The parties included only a portion of this report in the
Joint Appendix.
10

PHEF’s single employee is its president and CEO.
From
PHEF’s inception through at least August 2008, PHEF’s president
and CEO was a former president and CEO of PHEAA itself.
See
2008 Auditor General’s Report at 75.
31

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

functional liability:
generated

revenues

Treasury,

and

that PHEAA has substantial, commercially

held

that

417,

revenue

420

on

operations,

(7th

its
and

inside

and

exercises

its

outside

the

statutory

state

right

to

See Burrus v. State Lottery Comm’n, 546

Cir.

own
does

both

PHEAA

control those revenues.
F.3d

Pg: 32 of 72

2008)

(“Because

account,
not

the

Lottery

controls

expose

and

funds

state

coffers

raises

its

when

own

monetary

judgments are rendered against it, we conclude that it is an
entity financially independent from the state.”).

As we discuss

below, state law does impose some restrictions on PHEAA’s use of
its funds, but those restrictions do not divest PHEAA of control
over its funds or otherwise establish that the Commonwealth is
functionally liable for a judgment against PHEAA.
2.
The

primary

way

the

Commonwealth

exercises

some

control

over PHEAA’s funds is through the statutory requirements that
PHEAA deposit its commercial revenues in the Treasury Department
and the Treasurer approve any payment of funds held by Treasury.
To the extent that PHEAA continues to assert that these
statutory
deposit

provisions
in

the

establish

state

that

Treasury

32

all

of

effectively

PHEAA’s
belong

funds
to

on
the

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 33 of 72

Commonwealth, 11 that argument is foreclosed by Oberg II, which
necessarily concluded that these statutory requirements do not,
in and of themselves, transform PHEAA funds into Commonwealth
funds.

See Oberg II, 745 F.3d at 138; cf. Fitchik v. New Jersey

Transit Rail Operations, Inc., 873 F.2d 655, 661 (3d Cir. 1989)
(en banc) (“The [statutory] designation of the money as ‘public’
simply does not answer the question of who has dominion over the
money

in

[state-created

entity’s]

accounts.”).

Indeed,

Pennsylvania law expressly recognizes that not all funds held by
the Treasurer actually belong to the Commonwealth.
Stat.

§

accounts

301

(requiring

“all

moneys

of

Treasurer
the

to

deposit

Commonwealth

See 72 Pa.
in

specified

received

by

it,

including moneys not belonging to the Commonwealth but of which
the Treasury Department or the State Treasurer is custodian”
(emphasis added)).
PHEAA
approval

also

contends,

process,

as

however,

that

established

the

actual

through

payment-

discovery,

“significantly constrain[s]” its spending and signifies a level
11

In support of this argument, PHEAA points to the
testimony of PHEAA treasurer Timothy Guenther, who stated in his
deposition that “[a]ll PHEAA funds held in the Treasury are
funds of the Commonwealth.” J.A. 2447. To the extent Guenther
asserts that the funds are Commonwealth funds simply because
they are deposited in the state Treasury, that argument is
foreclosed by Oberg II. Moreover, whether PHEAA funds belong to
the Commonwealth for purposes of the arm-of-state analysis is
ultimately a question of federal law that cannot be established
by a witness’s conclusory assertion of the ultimate legal issue.
33

Appeal: 15-1093

of

Doc: 64

control

Filed: 10/21/2015

that

makes

the

Brief of Respondent at 18.

Pg: 34 of 72

Commonwealth

functionally

liable.

We disagree.

The Treasury Department’s review-and-approval process, as
described by the evidence in the record, is not particularly
complicated.

PHEAA prepares and submits a payment request; the

Treasury Department reviews the payment request and its “backup
documentation
purchase

such

orders,”

as
to

invoices,
confirm

receipts,

the

contracts,

existence

of

a

[and]

contract

authorizing payment and an invoice matching the payment request.
J.A 673.
the

If the review raises questions, the Department rejects

request

issues.

and

returns

it

to

PHEAA

for

resolution

of

the

If the review shows the payment request “to be lawful

and correct, the Treasurer issues his warrant for payment.”

Id.

When a check is required, the vendor is paid with a check drawn
on the state Treasury and signed by the Treasurer.
The

approval

Commonwealth

process

control

over

clearly
PHEAA,

as

reflects
it

some

effectively

level

of

requires

PHEAA to adopt certain book-keeping procedures if it wants its
vendors to be paid.

The Treasury Department’s review, however,

is not a substantive review.

The Department does not evaluate

the wisdom of the underlying contract or the reasonableness of
the agreed-upon price, but instead simply confirms that a valid
contract authorizes payment and that the payment amount sought
matches the amount agreed to in the contract.
34

The approval

Appeal: 15-1093

Doc: 64

process

thus

Filed: 10/21/2015

does

not

Pg: 35 of 72

constrain

or

otherwise

interfere

with

PHEAA’s statutory authority to make the substantive decisions
controlling the use of its revenues.

See 24 Pa. Stat. § 5104(3)

(PHEAA revenues held in the state Treasury “shall be available”
to

PHEAA

and

“utilized

at

the

discretion

of

the

board

of

directors for carrying out any of the corporate purposes of the
agency”); id. § 5105.10 (deposits into PHEAA’s segregated state
Treasury account “are hereby appropriated to the board and may
be applied and reapplied as the board shall direct”).
the

approval

process

doesn’t

even

commence

until

Indeed,

PHEAA

has

exercised its discretion to enter into a contract or otherwise
take action that requires a payment to be made.
PHEAA,
examples

however,

of

argues

requisition

discovery

clearly

stamp.”

Brief

approval

process

show,

of

“[a]s

questions

and

Treasury’s

Respondent

“is

that,

not

at

ministerial

thousands

of

produced

in

denials

review
19.

the

In
in

is

no

mere

PHEAA’s
nature”

rubber

view,
because

the
it

“involves a comprehensive, multi-step process involving several
levels

of

submission,

substantive

review,

and

authorization.”

Brief of Respondent at 19 (internal quotation marks omitted).
We disagree.
Whether

the

review-and-approval

process

is

ministerial

depends on the nature of the review, not on the frequency with
which the review identifies problems.
35

And here, the undisputed

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 36 of 72

evidence shows that Treasury Department officials simply check,
cross-check, and confirm the information contained in contracts,
purchase

orders,

and

invoices.

Complicated

contracts

may

sometimes lead to lengthy email exchanges trying to unravel the
agreed-upon pricing terms, but even then, the Department’s role
is

simply

to

confirm

that

a

valid

contract

authorizes

the

payment being sought in the amount being sought. 12
We recognize, of course, that by dictating the steps to be
followed for payment to be made to a PHEAA vendor, the approval
requirement
manner

in

payment
spending

places
which

some

PHEAA

procedures,
policy

Department’s

not-insignificant
pays

its

however,

is

and

bills.

Dictating

not

same

priorities.

ministerial,

constraints

the

Because

checklist-focused

on

the

specific

as

dictating

the

Treasury

approval

process

does not substantively constrain PHEAA’s fiscal discretion, the
approval

requirement

does

not,

12

in

and

of

itself,

give

When
arguing
that
the
approval
process
is
not
ministerial, PHEAA notes that “after receiving a $63 invoice
from PHEAA’s outside counsel seeking reimbursement for a meal,
Treasury demanded an itemized receipt from PHEAA and inquired
whether the meal included alcohol.”
Brief of Respondent at 19
n.5.
Given that Pennsylvania’s reimbursement policy precludes
reimbursement for alcoholic beverages and requires “[c]omplete
justification” for reimbursement requests, see Commonwealth
Travel Procedures Manual §§ 4.1, 7.1 (Nov. 1, 2011) (PDF file
saved as ECF opinion attachment), the Treasury Department simply
asked PHEAA to provide the information necessary to show that
payment was authorized.
We see no relevant difference between
that request and a request for PHEAA to provide the contract
underlying a given invoice.
36

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 37 of 72

Pennsylvania a level of control over PHEAA funds sufficient to
transform

PHEAA’s

independently

earned

revenues

into

money

belonging to the Commonwealth.
PHEAA also argues that Pennsylvania is functionally liable
because PHEAA’s funds on deposit in the Treasury are commingled
with state funds and invested by the Treasurer.

We disagree.

That PHEAA’s revenues were commingled with state revenues and
invested by the Treasurer were statutory facts before the court
in Oberg II but were insufficient, standing alone, to establish
functional

liability.

While

discovery

has

added

to

those

statutory facts and establishes that the Treasurer makes the
decisions

about

investing

these

commingled

believe that adds much to the analysis.

funds,

we

do

not

The commingling and

investing -- a process that PHEAA’s own treasurer compared to an
ordinary mutual fund -- may reflect the Treasurer’s custodial
control over the funds on deposit, but it does not establish a
lack

of

substantive

control

by

PHEAA.

That

is,

PHEAA

is

statutorily vested with the power to control its commercially
generated revenues on deposit in the Treasury.

The Treasurer’s

concurrent authority to use those funds to generate interest
does

not

somehow

divest

PHEAA

of

control

over

its

funds

or

otherwise interfere with PHEAA’s exercise of substantive control
over

its

“moneys,”

funds.
generated

Accordingly,
through

we

PHEAA’s
37

conclude

that

commercial

PHEAA’s

own

activities

and

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 38 of 72

held in a segregated account, are not transformed into “moneys”
of

the

Commonwealth

simply

because

they

are

commingled

with

other state funds for investment purposes.
PHEAA also contends that it is “fiscally dependent” on the
Commonwealth,

and

the

Commonwealth

is

therefore

functionally

liable, because it must submit annual budget requests to obtain
appropriations from the General Assembly, the legislature has
capped

the

total

amount

of

debt

PHEAA

Governor must approve all debt issuances.
at 19.

can

incur,

and

the

Brief of Respondent

Again, we disagree.

As the record establishes, PHEAA submits budget requests
only to receive the appropriated funds to be distributed under
the State Grant Program.

PHEAA is not required to submit budget

requests to gain access to its independently generated revenues,
and the General Assembly does not take PHEAA’s revenues to fill
holes in the Commonwealth’s budget.

PHEAA’s participation in

the state budgeting process in its capacity as administrator of
the State Grant Program thus does not cast doubt on PHEAA’s
power to control its extensive, independent funds, nor does it
otherwise make PHEAA fiscally dependent on Pennsylvania.
As to the statutory limit on PHEAA’s total debt and the
gubernatorial-approval

requirement,

make

dependent

PHEAA

accounting

fiscally
purposes.

See

these

on

Pennsylvania

Commonwealth’s
38

provisions

may

well

for

state

Comprehensive

Annual

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 39 of 72

Financial Report, J.A. 595-96 (treating PHEAA as a “component
unit” of the Commonwealth’s “primary government” because “PHEAA
is fiscally dependent, as the Governor must approve the issuance
of

its

debt”).

For

purposes

of

the

arm-of-state

inquiry,

however, we do not believe these restrictions suffice to make
Pennsylvania functionally liable for a judgment against PHEAA.
Preliminarily,

we

note

that

while

the

debt-limit

and

gubernatorial-approval provisions do place some constraints on
PHEAA’s business activities, nothing in the statutes directly
addresses PHEAA’s control over its revenues, which is the key to
the functional liability question in this case.
statutory

requirements

obviously

have

not

Moreover, these

been

obstacles

to

PHEAA’s financial success, and there is no basis in the record
for us to conclude that Pennsylvania in the future would use
these

powers

to

shrink

PHEAA’s

operations

and

revenues

point where it could not withstand a judgment against it.

to

a

See

Hess, 513 U.S. at 50.
In any event, while these statutory provisions do restrict
PHEAA’s

financial

independence

to

some

degree,

Pennsylvania

municipalities--which are subject to liability under the FCA-also face similar requirements. 13

13

These statutes thus provide

See Pa. Const. art. IX, § 10 (“[T]he General Assembly
shall prescribe the debt limits of all units of local government
including municipalities and school districts.”); 53 Pa. Cons.
(Continued)
39

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

little

help

in

“draw[ing]

entity

functioning

Pg: 40 of 72

the

line

independently

of

between
the

State

a

State-created
from

a

State-

created entity functioning as an arm of the State or its alter
ego.”

Oberg

omitted).

I,

681

F.3d

at

580

(internal

quotation

marks

The debt-limit and gubernatorial-approval provisions

were among the statutory facts that we considered in Oberg II
and found insufficient, in and of themselves, to compel arm-ofstate status, and there is nothing in this record establishing
that these statutory facts should be given more weight than we
gave them in Oberg II.
3.
Under these facts, the district court erred in concluding
that Pennsylvania was functionally liable for a judgment against
PHEAA.

As

we

have

explained,

PHEAA’s

“substantial,”

independently generated corporate wealth, Oberg II, 745 F.3d at
138, and PHEAA’s control over that wealth, were key to Oberg
II’s

functional-liability

analysis.

The

evidence

discussed

above confirmed the existence of these facts.

Stat.
§
8022(a)
(placing
limitations
on
the
amount
of
nonelectoral debt incurred by local government units); 53 Pa.
Cons. Stat. § 8110(a) (requiring local governments to submit a
“debt statement” to the Department of Community and Economic
Development of the Commonwealth before issuing bonds); 53 Pa.
Cons. Stat. § 8111 (Department must approve local government’s
application before local government may issue bonds).
40

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 41 of 72

Far from being a thinly capitalized agency, see Hess, 513
U.S. at 50, PHEAA earns hundreds of millions of dollars a year
through its commercial financial services operations and holds
more

than

$1

billion

in

net

assets.

While

its

commercial

earnings are deposited in the Pennsylvania Treasury, PHEAA is
statutorily vested with control over those revenues.
Stat. § 5104(3); id. § 5105.10.

See 24 Pa.

And as outlined above, the

evidence produced through discovery confirms that PHEAA is in
fact exercising the control granted to it by statute and that
substantive decisions about the use of its substantial revenues
are made by PHEAA, not the Governor or the General Assembly.
This point is exemplified by PHEAA’s creation of PHEF and its
donation to PHEF of $86 million in cash and services goods, all
without specific statutory authority.
Of

course,

PHEAA

is

subject

to

some

measure

of

state

control over its finances, including the gubernatorial-approval
requirement, the legislative cap on total debt, and the Treasury
payment-approval requirement.

Oberg II held that those facts

did

PHEAA

not

outweigh

the

control

had

over

its

independent

funds, however, and the record contains no evidence that causes
us to reach a different conclusion.
requirement

and

legislative

cap

The gubernatorial-approval
may

theoretically

place

a

ceiling on PHEAA’s earning capacity at some as-yet unestablished
level, but an income ceiling does not affect PHEAA’s right or
41

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 42 of 72

ability to control the revenues it actually earns.

The Treasury

payment-approval process, though not an entirely inconsequential
burden, is nonetheless a purely ministerial process that does
not in any way restrict PHEAA’s authority to set policy and make
all substantive decisions about where and how its funds are best
directed.
or

None of these facts, whether considered individually

collectively,

materially

diminish

or

constrain

PHEAA’s

substantive control (vested by law and exercised in fact) over
its funds and financial decisions.
PHEAA, however, objects to any consideration of the extent
of

its

corporate

wealth

and

its

ability

to

fund

a

judgment

through its own resources, insisting that arm-of-state status
cannot depend on whether the state-created entity happens to be
“flush at a particular juncture.”

Brief of Respondent at 25.

PHEAA argues that for the first two decades of its existence, it
depended on state appropriations to fund its operations.

PHEAA

contends that in those early years, “the Commonwealth would have
been

on

the

hook

to

pay

a

judgment

against

PHEAA,”

and

it

contends that “[t]here is no principled basis for rescinding
PHEAA’s status as an arm of the Commonwealth simply because it
now

enjoys

mission.”

financial

success

by

Brief of Respondent at 26.

discharging

its

statutory

We disagree.

First, Oberg II requires us to consider PHEAA’s wealth and
its ability to use its funds to pay a judgment.
42

Those facts, as

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 43 of 72

previously discussed, were the critical facts on which Oberg
II’s functional-liability decision was grounded.
established

that

PHEAA’s

access

to

its

Oberg II thus

substantial

corporate

wealth was relevant to the functional-liability question, and
that determination is a legal ruling that remains applicable in
this appeal.

See TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th

Cir. 2009) (“The law of the case doctrine posits that when a
court decides upon a rule of law, that decision should continue
to

govern

the

same

issues

in

subsequent

stages

in

the

same

case.” (internal quotation marks omitted)).
Moreover, even were we to ignore Oberg II’s focus on these
facts,

case

law

would

still

require

their

consideration.

Specifically, the Supreme Court’s decision in Hess establishes
that an agency’s access to independent funds is relevant to the
functional-liability question.
In Hess, the Court explained that, “[w]here an agency is 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.”
at 50 (internal quotation marks omitted).

Hess, 513 U.S.

“There is no such

requirement where the agency is structured . . . to be self-

43

Appeal: 15-1093

Doc: 64

sustaining.”

Filed: 10/21/2015

Id. 14

Pg: 44 of 72

When determining whether the state-created

entity was “structured” to be “self-sustaining,” the Hess Court
considered the entity’s financial statements, which showed that
the entity “had over $2.8 billion in net assets and $534 million
in its General Reserve Fund,” id. at 36 n.6, as well as the
entity’s independent source of revenues, which “account[ed] for
the Authority’s secure financial position,” id. at 36.
the

creating

states

otherwise

exercised

a

Although

not-insignificant

amount of control over the entity, see id. at 36-37, the Court
held in Hess that the entity was not entitled to share in the
states’

Eleventh

Amendment

immunity

given

the

entity’s

“anticipated and actual financial independence,” id. at 49; see
also

id.

at

52

(“[T]he

Port

Authority

is

financially

self-

sufficient; it generates its own revenues, and it pays its own
debts.

Requiring the Port Authority to answer in federal court

. . . does not touch the concerns -- the States’ solvency and
dignity -- that underpin the Eleventh Amendment.”).
In our view, the Court’s approach in Hess forecloses any
argument that an entity’s independent financial resources and
its ability to fund any judgments against it are not relevant to
the functional-liability inquiry.
14

PHEAA suggests, however, that

Although Hess involved an entity created by two states,
we have held that “the same general principles identified in
[Hess] must also apply in the single state context.”
Gray v.
Laws, 51 F.3d 426, 432 (4th Cir. 1995).
44

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 45 of 72

Hess’s focus on the financial circumstances of the state-created
entity was subsequently rejected by the Supreme Court in Regents
of the University of California v. Doe, 519 U.S. 425 (1997),
which PHEAA contends held that the state’s “potential” liability
was the key factor in the arm-of-state inquiry.
In

Regents,

the
an

question

arm

of

was

the

whether

state

for

We disagree.

the

University

Eleventh

of

California

was

Amendment

purposes.

Although there was no dispute that California was

legally liable for the University’s debts, see id. at 428, the
Ninth Circuit nonetheless concluded that the University was not
an

arm

of

agreement

California
with

the

because

federal

a

contractual

government

would

indemnification
have

relieved

California of the financial consequences of a judgment in that
case,
notion

see

id.

that

The
the

Supreme

presence

Court
or

reversed.

absence

of

Rejecting
a

third

“the

party’s

undertaking to indemnify the agency should determine whether it
is the kind of entity that should be treated as an arm of the
State,” id. at 431, the Supreme Court held that “with respect to
the underlying Eleventh Amendment question, it is the entity’s
potential legal liability, rather than its ability or inability
to require a third party to reimburse it, or to discharge the
liability

in

the

first

instance,

(emphasis added).

45

that

is

relevant,”

id.

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 46 of 72

The Regents Court thus held that if the state is legally
liable

for

a

judgment

against

the

state-created

entity,

the

entity is entitled to Eleventh Amendment immunity and does not
lose

that

immunity

by

virtue

of

an

indemnity

agreement

ultimately shifts the state’s loss to a third party.

that

See id. at

430-31; see also Cash, 242 F.3d at 221-22 n.1 (“[I]n Regents,
the Court held that the fact that a judgment against the State
would be covered by the voluntary indemnification agreement of a
third party did not strip away the State’s Eleventh Amendment
immunity

because

the

State

still

bore

the

legal

risk

adverse judgment.” (internal quotation marks omitted)).
Regents
reaching

addressed
its

own

Hess

and

ruling,

built

see

on

Hess’s

Regents,

519

of

Because

analysis

U.S.

at

an

when

430-31,

Regents’ focus on legal liability cannot somehow be understood
as

a

silent

rejection

of

the

heart

of

Hess’s

analysis

of

functional liability. 15

15

This court has concluded that Regents’ use of “potential”
liability, Regents, 519 U.S. at 431, requires us to consider the
effect of a “hypothetical” judgment that exceeds the entity’s
revenues.
See Hutto v. S.C. Ret. Sys., 773 F.3d 536, 545 (4th
Cir. 2014) (“[T]he proper inquiry is not whether the state
treasury
would
be
liable
in
this
case,
but
whether,
hypothetically speaking, the state treasury would be subject to
potential legal liability if the [state-created entity] did not
have the money to cover the judgment.” (internal quotation marks
omitted)).
We have already held that the Commonwealth is not
legally liable for a judgment against PHEAA. See Oberg II, 745
F.3d at 138. And for the reasons previously discussed, PHEAA’s
control over significant cash reserves means there is little
(Continued)
46

Appeal: 15-1093

Doc: 64

In

sum,

Filed: 10/21/2015

PHEAA

is

Pg: 47 of 72

engaged

in

nationwide,

commercial

financial-aid activities that bring in hundreds of millions of
dollars

in

accumulate

net
more

revenues

every

than

billion

one

year

and

dollars

have
in

allowed
net

it

assets,

PHEAA has substantive control over those independent funds.

to
and
A

judgment in this case would thus be paid with PHEAA funds, not
funds belonging to the Commonwealth.

And given PHEAA’s control

over its sizeable corporate wealth, there is little likelihood
that a judgment against PHEAA, even one that exceeds its current
revenues, would imperil its survival such that the Commonwealth
would

effectively

support. 16

be

Accordingly,

required
in

light

to
of

swoop

in

PHEAA’s

with

financial

“anticipated

and

likelihood that the Commonwealth’s help would be required to
satisfy the hypothetical judgment.
To the extent that PHEAA
suggests that Hutto’s “hypothetical” inquiry requires us to
imagine not only a judgment that exceeds PHEAA’s revenues, but
also that PHEAA’s accumulated cash and other assets have
vanished, that proposition is not only an over-reading of Hutto,
but also inconsistent with Hess, which considered real, not
imaginary, financial information when rejecting arm-of-state
status. See Hess, 513 U.S. at 36.
16

Although PHEAA’s chairman stated in his declaration that
the Commonwealth “would have no choice but to appropriate money”
for PHEAA if a “significant judgment” were entered against it,
J.A. 248, the chairman did not identify any facts supporting his
opinion.
Cf. Williams v. Giant Food, Inc., 370 F.3d 423, 433
(4th Cir. 2004) (explaining that a “mere[] . . . self-serving
opinion . . . cannot, absent objective corroboration, defeat
summary judgment”).
Moreover, the record evidence that shines
light on this issue points to the opposite conclusion, given
that the Commonwealth did not replenish PHEAA’s coffers after it
(Continued)
47

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 48 of 72

financial

independence,”

Hess,

actual

513

U.S.

at

49,

the

district court erred in finding the Commonwealth of Pennsylvania
functionally liable for a judgment against PHEAA.

And because

Pennsylvania

liable,

is

neither

legally

nor

functionally

the

state-treasury factor therefore “weighs heavily against holding
that PHEAA is an arm of the state.”

Oberg II, 745 F.3d at 139;

see Cash, 242 F.3d at 225 (explaining that if the state treasury
will not be affected by a judgment, that fact weighs against
arm-of-state status).
B.
The

second

Autonomy

arm-of-state

factor

requires

us

to

determine

“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.”
(internal

quotation

marks

omitted).

Oberg I, 681 F.3d at 580
“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

paid millions of dollars to settle the disputes with the
Department of Education and the IRS, nor did the Commonwealth
provide extra funds when PHEAA had a $27-million operating loss
in 2008.
Under these circumstances, the chairman’s unsupported
opinion about actions the Commonwealth might take cannot
establish functional liability.
Cf. Cash, 242 F.3d at 225
(speculative effect on state treasury insufficient to establish
functional liability).
48

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 49 of 72

property, and whether it is represented in legal matters by the
state attorney general.”

Oberg II, 745 F.3d at 137 (citations

omitted).
1.
In Oberg II, we held that while the composition of PHEAA’s
board, the gubernatorial-approval requirement for bond issuances
and the Auditor General’s oversight over PHEAA pointed towards
arm-of-state status, other relevant factors, including PHEAA’s
financial

independence

and

its

corporate

powers

suggest[ed] that PHEAA is not an arm of the state.”

“strongly
Id. at 139.

Giving Oberg the benefits of all reasonable inferences, we held
that the autonomy factor “counsels against holding that PHEAA is
an arm of the state.”
On

remand,

developed

the

through

Id.
district

discovery

made

PHEAA . . . quite clear.”
The

district

board

--

court

concluded

that

“Pennsylvania’s

the

facts

control

over

Oberg III, 77 F. Supp. 3d at 498.

believed

gubernatorial

court

that

the

appointees

composition

and

state

of

PHEAA’s

legislators

or

officials -- “gives the Commonwealth significant control over
the

direction

of

PHEAA.”

Id.

The

court

also

noted

that

“Pennsylvania retains several forms of veto power over PHEAA’s
actions.

The Treasurer must, as with all agencies, approve all

expenditures,
issuances,

the

and

Governor

the

must

Attorney

approve

General
49

all

must

of

PHEAA’s

approve

all

debt
PHEAA

Appeal: 15-1093

Doc: 64

contracts

Filed: 10/21/2015

in

excess

of

Pg: 50 of 72

$20,000.”

Id.

The

district

court

explained that, “[a]lthough PHEAA’s funding and partial fiscal
autonomy weighs against a finding that PHEAA is a state agency,
most of the evidence shows substantial Commonwealth control and
supports finding PHEAA to be an arm of Pennsylvania.”

Id.

Oberg argues on appeal that the district court’s analysis
of

the

Oberg

autonomy
II.

factor

In

is

Oberg’s

inconsistent

view,

the

with

evidence

our

analysis

produced

in

through

discovery demonstrates that PHEAA in fact operates autonomously,
without significant oversight or control by the Commonwealth.
We agree with Oberg that the statutory scheme governing PHEAA’s
operation

and

the

evidence

operational autonomy.
the

ultimate

question

sufficient

state

(emphasis

added;

in

the

record

establish

PHEAA’s

See Oberg II, 745 F.3d at 141 (describing
as

control

whether
to

internal

“PHEAA

render

it

quotation

a

is

truly

part

marks

of

subject
the

and

to

state”

alteration

omitted)).
2.
The record contains substantial evidence showing that PHEAA
operates autonomously, largely free from state interference in
its substantive decisions.
The

“[m]ost

critical[]”

evidence

of

PHEAA’s

evidence of its “financial[] independen[ce].”
discussed,

the

evidence

developed
50

through

autonomy

Id.

discovery

is

As already
confirmed

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 51 of 72

the financial independence we assumed in Oberg II.

PHEAA is not

dependent on state money for its survival and has not received
appropriated funds for operational support since 1988.
supports

itself

activities,

through

through

which

its
it

commercial
earns

PHEAA

financial-services

hundreds

of

millions

of

dollars annually and has accumulated more than $1 billion in net
assets.

PHEAA is statutorily vested with control over those

funds, see 24 Pa. Stat. §§ 5104(3), 5105.10, and the evidence
from

PHEAA’s

own

officials

establishes

that

PHEAA

in

fact

exercises that statutory control, see, e.g., J.A. 2469 (PHEAA
treasurer

acknowledging

that

PHEAA

board

makes

the

financial

decisions reflected in PHEAA’s annual report to Governor and
General Assembly); J.A. 249 (“PHEAA’s Board reviews, analyzes
and

approves

PHEAA’s

internal

budget,

which

management and presented to the Board.”).
its

substantial,

independently

is

proposed

by

PHEAA’s control over

generated

revenues

thus

establishes PHEAA’s financial independence, which is a critical
component of operational autonomy.

See Oberg II, 745 F.3d at

139.
Testimony from PHEAA board members also shows the lack of
involvement
affairs.

by

the

General

Assembly

in

PHEAA’s

operational

When asked whether the General Assembly “submit[ted]

policy or business recommendations” to PHEAA, one of the nonlegislative members of the board responded,
51

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 52 of 72

The Legislature created PHEAA. . . . [I]t told them
what they have to do, give them the business operation
to take care of the students of Pennsylvania.
That was the Legislature’s role.
That’s their
only role at this point. They change their mind, they
can create a statute to change it.
J.A. 3353.
oversight

The absence of significant legislative control or
is

also

reflected

in

the

testimony

of

PHEAA’s

chairman, who stated that “[i]f the Speaker of the House or any
member of the General Assembly would ask me a question regarding
PHEAA, I certainly would meet with them and discuss whatever the
matter is with them.
General Assembly.”
Chairman

of

the

But I do not report back to anyone in the
J.A. 2696; see also Declaration of PHEAA

Board,

J.A.

249

(“The

Board

oversees

PHEAA,

makes the policy decisions for the direction of [the] agency,
and

tasks

PHEAA’s

executives

and

managers

with

implementing

those decisions and directions on a day-to-day basis.”). 17

17

In his declaration in support of PHEAA’s motion for
summary judgment, PHEAA’s chairman stated that “I know from my
tenure on the Board and as its Chairman that by virtue of the
composition of PHEAA’s Board with members of the legislative and
executive branches, the Commonwealth exercises absolute control
over PHEAA.”
J.A. 248 (emphasis added).
Oberg II, of course,
forecloses any argument that the composition of the board
establishes absolute control.
Moreover, as we have previously
indicated, a witness’s conclusory assertion of the answer to a
legal question is not controlling.
Cf. Doren v. Battle Creek
Health Sys., 187 F.3d 595, 598-599 (6th Cir. 1999) (explaining
that conclusory affidavits “restating the requirements of the
law” but containing no “specific facts” do not “create a genuine
issue of material fact sufficient to defeat summary judgment”).
52

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 53 of 72

The broad range of powers statutorily granted to PHEAA is
also important evidence of PHEAA’s operational autonomy.

“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.”
granting

PHEAA

control

Oberg II, 745 F.3d at 139.
over

its

funds

on

The statutes

deposit

with

the

Treasury similarly are evidence of PHEAA’s operational autonomy.
See 24 Pa. Stat. §§ 5104(3), 5105.10,
PHEAA’s creation and support of PHEF also provides powerful
evidence of PHEAA’s autonomy.
authorized

to

solicit

and

Even though PHEAA is statutorily
accept

charitable

donations,

it

created PHEF and gave PHEF more than $10 million a year to do
that job. 18
authority

And it did so in the absence of express statutory
to

create

and

support

a

dependent

charitable

organization, and without any involvement of the Governor or
General

Assembly

beyond

the

routine

review-and-approval

processes of the Treasury Department and the Attorney General.
PHEF thus provides a telling example of PHEAA exercising the
financial and operational autonomy granted to it by statute.
Another

telling

example

of

PHEAA’s

financial

and

operational autonomy involves an unsolicited, $1-billion buy-out
18

From all that appears in the record, PHEF did its job
quite
poorly.
PHEF
collected
$11
million
in
private
contributions over a six-year period in which PHEAA provided
PHEF with more than $86 million in cash and donated services.
53

Appeal: 15-1093

offer

Doc: 64

made

Sallie

Filed: 10/21/2015

in

Mae.

2005

by

PHEAA’s

the
board

Pg: 54 of 72

SLM

Corporation,

rejected

the

better

offer

on

known
its

as

own,

without direction from the Governor or General Assembly.
PHEAA’s response to a dispute about billing calculations
with

the

programs

agency

administering

provides

another

Commonwealth

concrete

independence from the Commonwealth.

employee-benefit

example

of

PHEAA’s

After the billing dispute

arose, PHEAA’s board first explored the possibility of providing
health

benefits

“outside”

the

Commonwealth.

J.A.

2880.

Eventually, the board unilaterally reduced the amount it paid
the agency for its employees’ health benefits.

See J.A. 2881.

In our view, these actions show autonomy on the part of PHEAA,
not domination by the Commonwealth.
Moreover,
strength

and

PHEAA
its

itself

routinely

independence

from

asserts
the

its

financial

Commonwealth.

For

example, PHEAA has described itself as an “independent public
corporation,” J.A. 3407, and as “a self-funded organization with
operations

similar

to

a

not-for-profit

business,”

J.A.

3408.

See also J.A. 3020 (letter from a PHEAA vice-president to a
Pennsylvania

newspaper

defending

PHEAA’s

salaries

and

bonuses

and distinguishing PHEAA from a “typical state agency”).
Similarly,

the

Commonwealth

has

indicated,

through

both

formal and less-formal channels, its lack of control over PHEAA.
On

the

formal

side,

the

Commonwealth’s
54

Comprehensive

Annual

Appeal: 15-1093

Doc: 64

Financial

Filed: 10/21/2015

Reports

state

Pg: 55 of 72

that

the

Commonwealth

significantly impose its will on the PHEAA.”

“does

J.A. 596.

not
Less

formally, after PHEAA rejected the Sallie Mae offer, a spokesman
for then-Governor Edward Rendell stated, “We have no influence
over PHEAA’s decision-making.”
When

this

evidence

J.A. 3364.

is

considered

along

with

PHEAA’s

statutory corporate powers and its statutory control over its
funds on deposit with the Treasury, we believe it convincingly
establishes

that

PHEAA

operates

independently,

significant interference from the Commonwealth.

without

See, e.g., Vogt

v. Board of Commissioners, 294 F.3d 684, 694-95 (5th Cir. 2002)
(finding

levee

district

to

be

autonomous

for

arm-of-state

purposes because district “has considerable management authority
.

.

.

[and]

no

branch

of

government

exercises

supervisory

control over the day-to-day operations of the levee district”
(internal quotation marks omitted)).
3.
While

there

is

evidence

showing

a

certain

level

of

Commonwealth control over PHEAA, it does not change our view of
PHEAA’s autonomy.
The

most

significant

evidence

involving the Attorney General.
submit

contracts

over

$20,000

of

state

control

is

that

As described above, PHEAA must
to

the

Attorney

General

for

a

“form and legality” review determining whether the “contract is
55

Appeal: 15-1093

in

Doc: 64

Filed: 10/21/2015

improper

form,

unconstitutional.”

Pg: 56 of 72

not

71

Pa.

statutorily
Stat.

§

authorized

732-204(f)).

A

or

Deputy

Attorney General explained the review process:
Our standard under the statute is form and
legality, and what that includes is . . . the form of
the contract. . . . Does it comply with the contract
law, also does it include terms that are required of a
Commonwealth contract, and does it not include terms
that would be prohibited in a Commonwealth contract.
Then we look to authority. Does the agency as a
public agency have the statutory authority to engage
in this type of transaction, are there any other
statutes or court decisions that would allow or
preclude the contract. And then, thirdly, we look at
the constitutionality.
As a public agency, is this
type of thing constitutional in the state or federal
constitution.
If all that is all right, we approve it. We do
not look to business judgment.
We do not look to
financial issues. We do not look to political issues.
J.A.

3055;

see

also

J.A.

3058

(agreeing

that

“the

Attorney

General’s Office is not getting involved in business matters,”
only

“legal

formalities

to

ensure

that

it

complies

with

Pennsylvania law”; J.A. 3095 (“I don’t look at the business.
don’t look [at whether it] is . . . a good idea.

I don’t look

[at whether it] is . . . what I would do in their place.
to legal issues.”).

I

I look

Thus, much like the Treasury Department’s

payment-approval process, the Attorney General’s review process
is

a

checklist-driven,

essentially

process.

56

non-substantive

review

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 57 of 72

Although the review process is largely ministerial, there
is no doubt that it amounts to an exercise of state control that
restricts PHEAA’s autonomy to some degree.

The other aspects of

the Attorney General’s involvement in PHEAA’s affairs, such as
the requirement that the Attorney General represent PHEAA in
litigation

absent

a

delegation

of

authority

and

the

binding

nature of any legal opinions issued by the Attorney General,
likewise must be understood as restrictions on PHEAA’s autonomy.
Other indications of PHEAA’s lack of autonomy relied upon
by PHEAA derive from the general statutory provisions governing
PHEAA’s

finances

and

operations:

PHEAA

was

created

by

the

Commonwealth, can exercise only those powers granted to it by
the

Commonwealth,

and

can

be

dissolved

by

the

Commonwealth.

Under the statute in force during the time relevant to Oberg’s
complaint, PHEAA’s 20-member board was composed of gubernatorial
appointees and state officials, which suggests some level of
state control.
PHEAA

must

Treasury,

See Oberg II, 745 F.3d at 139.

deposit

and

those funds.

the

its

commercial

Treasurer

must

revenues

approve

In addition,
in

the

payments

made

state
from

The Governor must approve PHEAA’s debt issuances,

and the General Assembly has capped the total amount of debt
PHEAA can incur.

PHEAA is required to report its financial

condition annually to the Governor and General Assembly, and it
is

subject

to

audit

by

the

Commonwealth’s
57

Auditor

General.

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 58 of 72

PHEAA is also subject to the Commonwealth’s Sunshine Act, see 65
Pa. Cons. Stat. § 701, and its Right-To-Know Law, see 65 Pa.
Cons. Stat. § 67.102. 19

All of these statutory facts were

considered by the court in Oberg II but were insufficient in the
face of PHEAA’s statutory control over its funds to tip the
autonomy factor to PHEAA’s favor.

Our review of the record

gives us no basis for striking a different balance.
Of

the

various

statutory

strings

that

tie

Commonwealth, some are more important than others.

PHEAA

to

the

For example,

the requirement that PHEAA annually report to the Governor and
General Assembly, and the applicability to PHEAA of the openmeetings and right-to-know laws, are “minor strings,” Takle v.
Univ. of Wis. Hosp. & Clinics Auth., 402 F.3d 768, 771 (7th Cir.
2005), that have little practical effect on PHEAA’s independence
and are not dissimilar from requirements imposed by the state on
other political subdivisions. 20

While they are relevant to the

19

Certain of PHEAA’s contracts are exempt from the RightTo-Know Law. See 24 Pa. Stat. § 5104(1.1)(iii).
20

See 65 Pa. Cons. Stat. § 703 (Sunshine Act applies to
“any political subdivision of the Commonwealth,” which is
defined to include “[a]ny county [or] city”); 65 Pa. Cons. Stat.
§ 67.102 (Right-To-Know Law applies to a “local agency,” which
is defined as “[a]ny political subdivision, intermediate unit,
charter school, cyber charter school or public trade or
vocational
school,”
and
“[a]ny
local,
intergovernmental,
regional
or
municipal
agency,
authority,
council,
board,
commission or similar governmental entity.”); 53 Pa. Cons. Stat.
§ 8110 (requiring local governments to submit a “debt statement”
(Continued)
58

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 59 of 72

arm-of-state analysis, these minor strings ultimately do little
work

in

distinguishing

political subdivisions.

arms

of

the

state

from

independent

See Regents, 519 U.S. at 429, n.5 (arm-

of-state inquiry seeks to determine whether “a particular state
agency has the same kind of independent status as a county or is
instead an arm of the State”).

Accordingly, while we conclude

that these minor strings do point towards arm-of-state status,
they do not carry much weight in the final analysis.
There is no doubt, however, that some of the more important
statutory strings tying PHEAA to the state, such as the paymentapproval process of the Treasury Department and the oversight
exercised by the Attorney General, operate to restrict PHEAA’s
autonomy

to

a

certain

degree.

The

arm-of-state

inquiry,

however, does not turn on whether the entity is subject to any
amount of state regulation at all, or whether it is subject to
more regulation than a private business, but whether the entity
functions

independently

of

the

regulation to which it is subject.

state

despite

the

state

See Oberg I, 681 F.3d at 580

(explaining that the arm-of-state 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

to the Department of Community and Economic Development of the
Commonwealth before issuing bonds).
59

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 60 of 72

the State or its alter ego” (internal quotation marks omitted));
Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1205 (1st
Cir. 1993) (“[The arm-of-state factors] are designed to disclose
the extent to which state law endows the incorporated Staterelated entity with the operational authority, discretion, and
proprietary resources with which to function independently of
the State.”).
In this case, the relevant state statutes simply do not
amount to “pervasive control over PHEAA,” as PHEAA contends.
Brief of Respondent at 27.
predominantly

at

the

These statutory restrictions operate

administrative

edges

discretionary heart of PHEAA’s authority.

rather

than

the

They may dictate the

manner in which PHEAA pays its bills, or require the inclusion
or exclusion of a few contract clauses, but they do not intrude
on PHEAA’s exercise of its substantive discretion. 21
question

is

whether

a

state

exercises

such

control

When the
over

an

entity that the entity “is simply a tool of the state,” Oberg
II, 745 F.3d at 139, control over matters of substance is what

21

In 2007, a firestorm of criticism erupted after PHEAA
spent more than $80,000 on tickets to Hershey Park for employees
and
their
guests
as
part
of
PHEAA’s
annual
“Employee
Appreciation Day” at the park.
J.A. 3019.
The contracts and
payments associated with the event were routinely processed
through and approved by the Attorney General’s office and the
Treasury Department.
See J.A. 2478, 2840.
Had these review
processes been substantive, as PHEAA insists they are, the road
to approval of these expenses would likely have been bumpier.
60

Appeal: 15-1093

Doc: 64

matters.

Filed: 10/21/2015

See

United

Pg: 61 of 72

States

ex

rel.

Sikkenga

v.

Regence

BlueCross BlueShield of Utah, 472 F.3d 702, 720 (10th Cir. 2006)
(state-created entity autonomous under arm-of-state test because
entity’s

board

of

directors

“sets

policies

and

operational

objectives” and entity’s “day-to-day operations are independent”
(internal quotation marks omitted)); cf. Lebron v. Nat’l R.R.
Passenger Corp., 513 U.S. 374, 385, 399 (1995) (finding Amtrak
to be a governmental entity against whom a First Amendment claim
could be brought, notwithstanding statutory directive that it
“be operated and managed as a for profit corporation,” because
the

federal

government

policymaker”

(emphasis

exerts
added;

control

over

internal

Amtrak

“as

quotation

a

marks

omitted)).
As discussed above, the record establishes that PHEAA, not
the

Commonwealth,

controls

PHEAA’s

funds

and

makes

the

substantive decisions governing the focus and direction of the
company and its day-to-day operations. 22

22

We therefore conclude

According to PHEAA, it does not matter whether the
Commonwealth actually exercises control over PHEAA; “[i]t is the
Commonwealth’s indisputable authority to veto PHEAA’s legal
decisions that is relevant.”
Brief of Respondent at 34, n.16.
In making this argument, PHEAA again ignores Oberg II, which
vacated and remanded for discovery “on the question whether
PHEAA is truly subject to sufficient state control to render it
a part of the state.”
Oberg II, 745 F.3d at 141 (internal
quotation marks and alteration omitted). If the mere existence
of authority flowing from the statutes relied upon by PHEAA were
sufficient to resolve the autonomy question, discovery would not
(Continued)
61

Appeal: 15-1093

that

Doc: 64

the

Filed: 10/21/2015

autonomy

factor

Pg: 62 of 72

weighs

heavily

against

arm-of-state

status.
C.
The

third

State Concerns

arm-of-state

factor

requires

us

to

consider

“whether the entity is involved with state concerns as distinct
from non-state concerns, including local concerns.”
681 F.3d at 580 (internal quotation marks omitted).
concerns,’
rather

also

however,

do

encompass

state operations.”

not
other

mean

only

non-state

‘local’
interests

Oberg I,
“‘Non-state

concerns,
like

but

out-of-

Oberg II, 745 F.3d at 137.

In Oberg II, we found this factor weighed in favor of armof-state status because PHEAA’s focus on improving access to
higher education was a matter of “legitimate state concern.”
Oberg II, 745 F.3d at 140.

In the course of this ruling, we

rejected Oberg’s argument that “due to PHEAA’s commercial focus,
its

operations

do

not

involve

an

area

of

legitimate

state

concern,” id. at 139-40, as well as his argument that PHEAA’s
extensive out-of-state commercial activities showed that PHEAA
was not primarily focused on state concerns, see id. at 140.

have been required.
Moreover, given the based-on-the-pleadings
conclusion in Oberg II that the autonomy factor weighed against
arm-of-state status, see Oberg II, 745 F.3d at 139, the Oberg II
court necessarily concluded that the level of state control
reflected in the governing statutes was outweighed by PHEAA’s
statutorily vested control over its funds.
62

Appeal: 15-1093

Doc: 64

The

Filed: 10/21/2015

district

notwithstanding

court

PHEAA’s

Pg: 63 of 72

on

remand

substantial

concluded

out-of-state

that,

activity

and

income, PHEAA’s activities primarily involve state, rather than
“non-state concerns.”

See Oberg III, 77 F. Supp. 3d at 499.

In

the court’s view, “[t]he fact that PHEAA purchases, services,
and guarantees loans to borrowers throughout the country does
not

constitute

non-state

concerns

because

this

was

done

to

generate earnings to return to Pennsylvania students and defray
their costs.”

Id.

On appeal, Oberg argues that after discovery, the stateconcerns

factor

weighs

against

arm-of-state

status.

As

a

sanction for PHEAA's discovery violations, the magistrate judge
ordered that “it shall be taken as established . . . that from
2002

to

income
Oberg

[October
was

derived

contends

percentage

2014],

of

from

that

the

majority

of

out-of-state

our

analysis

out-of-state

in

earnings

PHEAA’s

revenue

activity.”
Oberg

J.A.

II

and
172.

makes

determinative

the

of

this

factor.

Accordingly, because it is now established that the

majority

of

activities,

PHEAA’s
Oberg

revenues

argues

are

that

63

the

generated
district

by

out-of-state

court

erred

in

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 64 of 72

concluding that the state-concern factor weighed in favor of
arm-of-state status. 23
Although Oberg II clearly makes the amount of out-of-state
activity relevant, see Oberg II, 745 F.3d at 137, we do not
believe

it

argues.

makes

out-of-state

activity

dispositive,

as

Oberg

Addressing Oberg’s argument in the prior appeal that

PHEAA’s operations “were so focused out of state that PHEAA was
not involved primarily with state concerns,” we noted that the
complaint alleged that in 2005, “one-third of PHEAA’s earnings
came from outside the Commonwealth.”

Oberg II, 745 F.3d at 140

(internal quotation marks and alterations omitted).
explained

that

if

“one-third

of

PHEAA’s

earnings

We then
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.”

Id.

Oberg II’s observation that the complaint did not plausibly
allege that the majority of PHEAA’s revenues were earned outside
the

state

cannot

be

understood

23

as

an

acceptance

of

Oberg’s

PHEAA makes various arguments about why Oberg’s focus on
the out-of-state percentage is irrelevant or unwise. See Brief
of Respondent at 37-39. In making these arguments, however,
PHEAA fails to acknowledge that Oberg II explicitly held that
out-of-state operations are relevant to the state-concerns
factor.
See Oberg II, 745 F.3d at 137 (“‘Non-state concerns,’
however, do not mean only ‘local’ concerns, but rather also
encompass
other
non-state
interests
like
out-of-state
operations.” (second emphasis added)).
64

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 65 of 72

argument that an entity cannot be primarily involved in state
concerns if the entity earns more than half of its revenues from
out of state.

After all, Oberg II’s analysis of the state-

concerns factor considered facts beyond the in- versus out-ofstate source of PHEAA’s earnings, see id. at 140, and there is
no reason to think those facts would suddenly become irrelevant
the

moment

Accordingly,

out-of-state
while

we

earnings

find

it

cross

highly

the

halfway

relevant

to

point.

the

state-

concerns factor that “the majority of PHEAA’s revenue and income
was derived from out-of-state activity,” J.A. 172, we do not
believe that fact to be dispositive.
Instead, when evaluating this factor, we must continue to
give weight to the fact that PHEAA’s work -- “facilitat[ing] the
attainment

of

services,”

Oberg

Pennsylvania

education

by

II,

745

believes

to

supplying
F.3d
be

student

at
an

140

--

“essential

financial
involves

aid
what

governmental

function,” 24 Pa. Stat. § 5105.6, and what we have concluded
“is clearly of legitimate state concern,” Oberg II, 745 F.3d at
140.

We must also consider the fact that PHEAA does provide

significant services to the citizens of Pennsylvania.

See Ram

Ditta v. Md. Nat’l Capital Park & Planning Comm’n, 822 F.2d 456,
459 (4th Cir. 1987) (considering whether the services provided
by the entity inured primarily to the benefit of local residents
rather than state citizens in general).
65

PHEAA administers the

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 66 of 72

State Grant Program and distributes every penny of its state
appropriations to qualifying students, and it has on several
occasions made significant contributions of its own earnings to
the state program.

Thus, to the extent that PHEAA’s business

activities inure to the benefit of anyone other than itself and
its

employees,

they

inure

to

the

benefit

these

facts

of

Pennsylvania

citizens.
After

considering

all

of

and

the

relevant

statutory provisions, we conclude that PHEAA’s case for arm-ofstate status under this factor has been weakened by discovery.
The extent of PHEAA’s out-of-state earnings is relevant to the
state-concern

factor,

see

Oberg

II,

745

F.3d

at

137,

and

discovery has established those earnings at a level Oberg II
believed “implausible,” id. at 140.

Nonetheless, in light of

the other relevant facts noted above, we believe this factor
still points towards arm-of-state status, but just barely.
D. Treatment under State Law
The final arm-of-state factor requires us to consider how
the

entity

is

treated

under

state

law.

“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.”
Id. at 138 (internal quotation marks omitted). Noting that PHEAA
was created to perform an “essential government function” for
66

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 67 of 72

the benefit of the state’s citizens and that Pennsylvania courts
treat PHEAA as a state agency, this court in Oberg II concluded
that

the

status.

state-law

factor

weighed

in

favor

of

arm-of-state

Oberg II, 745 F.3d at 140.

The district court reached the same conclusion on remand.
The

district

General

court

Assembly,

observed

that

that

PHEAA

of

PHEAA’s

“[a]ll

was

created

limited

by

the

powers

and

authority come from the General Assembly by statute,” Oberg III,
77 F. Supp. 3d at 499, that it is exempt from state taxation,
that it is subject to Pennsylvania open-meeting and right-toknow laws, and that its employees are treated as Commonwealth
employees.

The district court thus concluded that “Pennsylvania

law clearly regards PHEAA as a state agency,” id. at 499, a
conclusion that “weighs heavily in favor of finding PHEAA to be
an arm of the state,” id. at 500 (emphasis added).
We agree with the district court that PHEAA is generally
treated as a state agency under state law.

We see nothing in

the record, however, to support the heavy weight the district
court assigned to this factor.
discovery

established

that

As the district court noted,

PHEAA

employees

are

treated

as

Commonwealth employees for purposes of payroll, retirement, and
health-care benefits, which perhaps shows that the state treats
PHEAA as it does traditional state agencies.

But discovery also

yielded evidence showing the state treats PHEAA differently than
67

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 68 of 72

it does traditional agencies -- for example, PHEAA management
employees

are

not

paid

in

accordance

with

Commonwealth

pay

scales; governors ask PHEAA to return appropriated funds when
times are tight but direct other agencies to do so; and the
Commonwealth acknowledges in its financial reports that it does
not impose its will on PHEAA.

While the statutes and state-

court decisions relied on in Oberg II remain sufficient to tip
this factor towards arm-of-state status, see Oberg II, 745 F.3d
at 140, the factual information learned through discovery falls
fairly evenly on both sides of the scale.

Accordingly, although

this factor weighs in favor of arm-of-state status, we cannot
conclude that it weighs heavily in favor.
V.
Our analysis of the arm-of-state factors thus brings us to
this

point.

determination
judgment

As
that

against

to

the

state-treasury

Pennsylvania
PHEAA

remains

is

not

factor,

legally

controlling.

Oberg

liable
And

II’s
for

as

a
to

functional liability, the keys facts assumed by the court in
Oberg II -- PHEAA’s control over its significant, independent
corporate

wealth

foreclose

a

--

finding

were
of

confirmed

functional

through

liability.

discovery

and

Because

the

Commonwealth of Pennsylvania is neither legally nor functionally
liable for a judgment against PHEAA, the state Treasury is not

68

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 69 of 72

implicated in this case, and the first factor weighs heavily
against arm-of-state status.
As

to

the

autonomy

factor,

the

statutes

and

evidence

described above establish that PHEAA exercises control over its
revenues,

makes

otherwise

manages

without
areas

the

significant

in

which

primarily
PHEAA’s

policy

state

over

its

own

activities
from

the

exercises

ministerial

control

sets

day-to-day

interference

the

involve

decisions,

substantive

of

the

amount

and

do

of

not

matters.

and

company

Commonwealth.

some

matters

budget,

The

control
diminish

Because

the

Commonwealth vests PHEAA with a significant amount of autonomy,
this factor also weighs heavily against arm-of-state status.
As to the state-concerns factor and the state-law factor,
both weigh in favor of arm-of-state status.
established

for

purposes

of

during

the

PHEAA’s

revenues

through

out-of-state

this

case

relevant

activities,

Since it has been

that

the

period

however,

majority

were

the

of

generated

state-concerns

factor only weakly points to arm-of-state status.
If we simply did the math, so to speak, the factors would
add

up

to

“political

Pennsylvania.”

subdivision,”

not

“alter

ego

of

Arm-of-state status, however, is a question of

balance, not math.

In cases like this one, where the arm-of-

state “indicators point in different directions, the Eleventh
Amendment’s

twin

reasons

for

being
69

remain

our

prime

guide.”

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Hess, 513 U.S. at 47.

Pg: 70 of 72

In our view, these twin reasons -- “the

protection of state treasuries and respect for the sovereign
dignity of the states,” Gray v. Laws, 51 F.3d 426, 432 (4th Cir.
1995) -- guide us to the same conclusion:

For purposes of

federal law, PHEAA is a political subdivision, not an arm or
alter ego of Pennsylvania.
PHEAA is a very wealthy corporation engaging in nationwide
commercial

student-loan

financial-services

activities.

It

is

statutorily vested with substantive control over its commercial
revenues, and it in fact exercises control over those revenues.
Its

commercial

revenues

have

made

PHEAA

entirely

self-

sufficient, and the Commonwealth has not appropriated funds for
PHEAA’s operational support since 1988.

The Commonwealth does

not assert ownership of PHEAA’s commercial revenues, and it is
neither legally nor functionally liable for a judgment against
PHEAA.

Permitting this action to proceed against PHEAA thus

does not place the Pennsylvania treasury at risk.
Permitting the action to proceed likewise does not offend
the

sovereign

dignity

of

Pennsylvania.

Although

the

Commonwealth has imposed some not-insignificant restrictions on
PHEAA’s

operations,

the

Commonwealth

has

nonetheless

vested

PHEAA with broad power over its finances and operations.

PHEAA,

not the Governor or the General Assembly, sets policy for the
corporation

and

makes

the

substantive
70

fiscal

and

operational

Appeal: 15-1093

Doc: 64

decisions.

Filed: 10/21/2015

Indeed,

the

Pg: 71 of 72

Commonwealth

admits

in

its

public

financial statements that it cannot impose its will on PHEAA.
Thus, the Commonwealth has structured PHEAA to be financially
and

operationally

independent,

and

PHEAA

in

fact

operates

independently, without significant Commonwealth interference or
substantive

supervision.

In

light

of

PHEAA’s

intended

and

actual independence from the Commonwealth, we cannot conclude
that it would be an affront to Pennsylvania’s sovereign dignity
to permit this action to proceed against PHEAA.
U.S.

at

52

(“[T]he

Port

Authority

is

See Hess, 513

financially

self-

sufficient; it generates its own revenues, and it pays its own
debts.

Requiring the Port Authority to answer in federal court

. . . does not touch the concerns -- the States’ solvency and
dignity -- that underpin the Eleventh Amendment.”).
We

therefore

conclude

that

PHEAA

is

an

independent

political subdivision, not an arm of the Commonwealth, and that
PHEAA is therefore a “person” subject to liability under the
False Claims Act.
.

heighten

a

In our view, any other conclusion “would . .

mystery

of

legal

evolution”

by

“spread[ing]

an

Eleventh Amendment cover over an agency that consumes no state
revenues but contributes to the State’s wealth.”

Hess, 513 U.S.

at 51, n.21 (internal quotation marks omitted).

Accordingly, we

hereby vacate the district court’s grant of summary judgment in

71

Appeal: 15-1093

Doc: 64

Filed: 10/21/2015

Pg: 72 of 72

favor of PHEAA, and we remand for further proceedings on the
merits of Oberg’s FCA claims against PHEAA.
VACATED AND REMANDED

72