United States of America et al v. University Of North Texas et al
Filing
115
ORDER ADOPTING REPORT AND RECOMMENDATIONS for 42 Amended Motion to Dismiss filed by Nelnet Inc. Relator's claims against Nelnet are dismissed with prejudice. Signed by Judge Amos L. Mazzant, III on 2/1/2016. (pad, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
UNITED STATES OF AMERICA, EX REL.
ROLAND WADE JACKSON
v.
UNIVERSITY OF NORTH TEXAS, ET AL.
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CASE NO. 4:13-CV-734
(Judge Mazzant/Judge Nowak)
MEMORANDUM ADOPTING REPORT AND
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Came on for consideration the report of the United States Magistrate Judge in this action,
this matter having been heretofore referred to the Magistrate Judge pursuant to 28 U.S.C. § 636.
On November 25, 2015, the report of the Magistrate Judge (Dkt. #97) was entered containing
proposed findings of fact and recommendations that Defendant Nelnet, Inc.’s (“Nelnet”)
Amended Rule 12(b)(6) Motion to Dismiss (Dkt. #42) be granted.
The Magistrate Judge
recommended Relator’s claims against Nelnet be dismissed because Relator’s claims are barred
by res judicata and the statute of limitations, and further found that Relator’s False Claims Act
(“FCA”) claims should be dismissed for failure to state a claim (Dkt. #97 at 19). Having
received the report of the Magistrate Judge (Dkt. #97), having considered Relator’s timely filed
objections (Dkt. #104) and Nelnet’s response to such objections (Dkt. #110), and having
conducted a de novo review, the Court is of the opinion that the findings and conclusions of the
Magistrate Judge are correct, and the Court hereby adopts the Magistrate Judge’s report (Dkt.
#97) as the findings and conclusions of the Court.
BACKGROUND
The Magistrate Judge previously set forth the procedural and factual history of this
litigation in detail, and such facts need not be restated fully herein (see Dkt. #97). This litigation
arises out of Relator’s applications for, and alleged failure to receive, student loan funds during
his attendance at University of North Texas (“UNT”) (1992-1996), and the garnishment of
certain federal payments owed to him thereafter (Dkt. #10 at 8-9). In the alternative, Relator also
asserts state law claims for conspiracy and unjust enrichment. Id. at 34. Generally, Relator
contends that he attended UNT on athletic scholarship from 1992 through 1996. Id. at 8. While
attending UNT, Relator applied for two student loans relating to his claims against Nelnet: (1) a
$5,500.00 unsubsidized Federal Family Education Loan Program (“FFELP”) loan for the 19941995 school year from an entity alleged to be “Bank One” (which Relator contends is now
JPMorgan Chase Bank N.A. (“Chase”)) (the “1994 Loan”); and (2) a $5,500.00 unsubsidized
FFELP loan for the 1995-1996 school year from Chase (the “1995 Loan”) (collectively with the
1994 Loan, the “Loans”). Id. at 12-13. Relator argues that the estimated financial assistance
amount submitted in connection with the Loans was too low because it did not include his
athletic scholarship award amount. Id. Inclusion of Relator’s scholarship amount would have
allegedly limited Relator’s eligibility for additional aid and would have resulted in Relator not
qualifying for this financial assistance. Id. at 15. Relator argues that Chase approved the
“falsely certified” Loans even though Relator was ineligible to receive them. Id. Relator asserts
that UNT eventually realized its error in omitting the athletic scholarship amount, and ultimately
denied the Loans to Relator because it “did not want to violate NCAA Rules by physically
disbursing” the Loans to Relator. Id. at 13. Notwithstanding UNT’s decision not to disburse the
funds, Relator contends that UNT received the full amount of the loan funds from Nelnet, a
third-party servicer, and issued checks to Relator as evidence that he received the funds, but in
actual fact never disbursed those funds. Id. at 14-15. Relator graduated from UNT in May 1996,
triggering Relator’s repayment obligations on the Loans. Id. at 7-8.
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According to Relator, the failure of Nelnet – as well as UNT, Chase, SLM Corporation
(“SLM”), and Texas Guaranteed Student Loan Corporation (“TG”) – to verify the details of his
loan obligations caused the submission of false claims to the government for payment and the
garnishment of Relator’s wages to repay the loan obligation. Id. at 24, 28. Specifically, Relator
contends that Nelnet was the original servicer of the Loans from September 1994 until June 1,
2000 (when SLM allegedly began servicing the Loans). Id. at 25-26. On this note, Relator
contends that Nelnet issued checks for the Loans made payable to both Relator and UNT, but
that Nelnet – notwithstanding requests – has never been able to provide copies of the disbursed
loan checks to Relator. Id. at 25. Moreover, Relator asserts that, in any event, the loan checks
issued by Nelnet lack Relator’s authorized endorsement (and thus should never have been
cashed); and further, that “Nelnet lacks trustworthiness due to servicing [the] falsely certified
promissory notes.” Id. It is undisputed that Nelnet has had no involvement with the Loans since
June 1, 2000, when SLM began servicing the Loans. Id. Indeed, SLM (not Nelnet) allegedly
submitted the claims to TG on July 26, 2005, for payment. Id. Accordingly, while Relator
identifies no specific date for Nelnet’s allegedly wrongful conduct, the last possible date of
Nelnet’s involvement with any of the allegedly falsely certified Loans was June 1, 2000 – over
fifteen (15) years ago. Id. In 2011, Realtor brought suit in the United States District Court for
the Eastern District of Texas for similar claims based on the same factual allegations
(Dkt. #42 at 3). See Jackson v. Nelnet, No. 4:11-CV-205 (E.D. Tex. Dec. 30, 2011) (“Jackson
I”). In Jackson I, Relator alleged that (1) Chase made the Loans, (2) Nelnet serviced the same
Loans for a period of time, (3) Chase received payment for the guarantee claim from the
guaranty agency, (4) the Loans were not valid, (5) a portion of the Loan proceeds were not
disbursed to Relator, and (6) the Department of Education attempted to collect on the defaulted
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loans by offsetting government payments to Relator (Dkt. #97 at 9). A final judgment on the
merits was entered by the Court, and the case was dismissed. Id. at 8.
Relator filed this action under seal on December 11, 2013, asserting claims arising under
the FCA against Defendants UNT, Chase, Nelnet, TG, and SLM (Dkt. #1). Relator also asserts
state law claims for conspiracy and unjust enrichment. Id. The United States declined to
intervene, and filed its notice indicating such on October 17, 2014 (Dkt. #8).
On November 14, 2014, the Court acknowledged the United States’ election to decline to
intervene, and ordered the Complaint unsealed and served upon Defendants by Relator (Dkt. #9).
On November 21, 2014, Relator filed an Amended Complaint, which is the live pleading in this
case (Dkt. #10). Thereafter, Relator served Defendants, including Nelnet, and such service was
returned executed on January 12, 2015 (Dkt. #27). On February 11, 2015, Nelnet filed its
Amended Motion to Dismiss (Dkt. #42). On March 2, 2015, Relator filed a Response (Dkt.
#50). On March 31, 2015, Nelnet filed a Reply (Dkt. #63); and, on April 29, 2015, Relator filed
a Sur-Reply to the Motion to Dismiss (Dkt. #75). On June 2, 2015, Nelnet filed an Amended
Motion for Leave of Court to Amend and [Supplement] Its Motion to Dismiss and Reply in
Support of Its Motion to Dismiss with New Authority (Dkt. #85), which the Court granted on
November 23, 2015 (Dkt. #96).
On November 20, 2015, the Magistrate Judge entered a report and recommendation
containing proposed findings of fact and recommendations that Nelnet’s Motion to Dismiss
(Dkt. #42) be granted, and Relator’s claims against Nelnet be dismissed in their entirety with
prejudice (Dkt. #97).
The Magistrate Judge found that Relator’s claims are barred by res
judicata, and recommended Relator’s claims be dismissed. Id. The Magistrate Judge further
found that even if Relator’s claims were not barred by res judicata, that Relator’s FCA and state
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law claims are barred by the statute of limitations, and that Relator’s FCA claims should also be
dismissed for failure to state a claim. Id. The Magistrate Judge recommended that Relator’s
claims be dismissed in their entirety. Id.
On December 8, 2015, Relator filed his objections to the report and recommendation of
the Magistrate Judge (Dkt. #104). On December 21, 2015, Nelnet filed a response to Relator’s
objections (Dkt. #110).
The Court has reviewed Relator’s objections to the report and
recommendation of the Magistrate Judge, and considers each herein.
ANALYSIS
Relator objects to the Magistrate Judge’s finding that: (1) Relator’s claims are barred by
res judicata; (2) Relator’s claims are barred by the statute of limitations; (3) Relator failed to
state a claim; and also (4) for denial of Relator’s request for leave to amend his complaint
(Dkt. #104). The Court addresses each objection in turn.
I.
Res Judicata
Relator objects to the finding of the Magistrate Judge that his claims are barred by res
judicata (Dkt. #104 at 2-5). More specifically, Relator contends that Jackson I did not arise from
the same operative facts as this litigation, because Relator pursued only claims under the Federal
Debt Collection Practices Act (“FDCPA”). Id. at 2. Relator also argues that the judgment
entered in the previous case did not address whether Nelnet committed fraud in submitting the
false claims. Id. at 3. Because of this, Relator contends that res judicata does not apply to the
present litigation. Id. In response, Nelnet contends that Relator’s arguments are misplaced (Dkt.
#110 at 1), and focus solely on the fourth element of the res judicata test applied by the
Magistrate Judge (and thus fails to consider the full breadth of the Magistrate Judge’s ruling). Id.
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The Court finds that Relator’s argument that res judicata does not apply to the present
litigation is misplaced. “Under res judicata, a final judgment on the merits of an action precludes
the parties or their privies from relitigating issues that were or could have been raised in that
action.” Oreck Direct, LLC v. Dyson, Inc., 560 F.3d 398, 401 (5th Cir. 2009) (citing Allen v.
McCurry, 449 U.S. 90, 94 (1980)). In this way, res judicata “insures the finality of judgments
and thereby conserves judicial resources and protects litigants from multiple lawsuits.” Id.
(citation omitted). In order for a claim to be barred by res judicata, four elements must be met:
“(1) the parties must be identical in the two actions; (2) the prior judgment must have been
rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits;
and (4) the same claim or cause of action must be involved in both cases.” Id. (citing In re ArkLa-Tex Timber Co., 482 F.3d 319, 330 (5th Cir. 2007)). Again, Relator objects to the Magistrate
Judge’s finding that Relator’s claims in the present case arose out of the same nucleus of
operative facts as the claims by Relator against Nelnet in Jackson I. Relator’s argument that
Jackson I involved only claims asserted under the FDCPA ignores that Relator’s claims in the
instant litigation were “demonstrably premised on the same set of factual allegations as those
asserted previously,” and for that reason, the Magistrate Judge concluded that Relator’s claims
arose out of the “same nucleus of operative facts” (Dkt. #97 at 9). See United States v.
Davenport, 484 F.3d 321, 326 (5th Cir. 2007). The Court agrees with the Magistrate Judge that
the type of claim asserted by Relator in Jackson I is not the focus of the inquiry, but rather the
nucleus of operative facts must guide the Court. To that end, the Court further agrees that res
judicata can bar claims that either were or could have been raised in the earlier litigation. Id.; see
United States v. Shaunbaum, 10 F.3d 305, 310 (5th Cir. 1994) (res judicata “prohibits either
party from raising any claim or defense in the later action that was or could have been raised in
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support of or in opposition to the cause of action asserted in the prior action.”). Relator’s claims
in Jackson I share the same nucleus of operative facts. For these reasons, the Court finds the
findings and conclusions of the Magistrate Judge are correct, and Relator’s first objection is
overruled.
II.
Statute of Limitations
A.
FCA Claims
Relator objects to the Magistrate Judge’s conclusion that Relator’s claims arising under
the FCA should be dismissed because they are barred by the applicable statute of limitations
(Dkt. #104 at 5-7). More specifically, Relator persists in his argument that the limitations period
should be tolled under 31 U.S.C. § 3731(b)(2), which provides that a claim must be brought
within three years “after the date when facts material to the right of action are known or
reasonably should have been known by the official of the United States charged with
responsibility to act in the circumstances, but in no event more than 10 years after the date on
which the violation is committed.” Relator argues that this action was filed in December 2013,
which was within three (3) years of the date when facts material to the right of action were
known (December 2, 2011, according to Relator), and less than ten (10) years from the date on
which the violation occurred.
Id.
Nelnet contends that Relator’s argument is merely a
restatement of his prior argument, which the Magistrate Judge already considered and rejected
(Dkt. #110 at 2-3).
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The text of the FCA’s limitations provision states an FCA lawsuit may not be brought:
(1) more than 6 years after the date on which the violation of [the FCA] is
committed, or
(2) more than 3 years after the date when facts material to the right of
action are known or reasonably should have been known by the
official of the United States charged with the responsibility to act in
the circumstances, but in no event more than 10 years after the date on
which the violation is committed,
whichever occurs last.
31 U.S.C. § 3731(b). Relator does not dispute that the six-year limitations period ran before he
filed this litigation (Dkt. #104). In keeping with the rulings of other courts that have considered
this issue, and in particular the Fifth Circuit, the Magistrate Judge found that Relator could not
rely on the ten-year statute of limitations period because the United States declined to intervene
(Dkt. #97 at 10-12 (citing United States ex rel. Foster v. Bristol-Myers Squibb Co., 587 F. Supp.
2d 805, 814 (E.D. Tex. 2008)); United States ex rel. Erskine v. Baker, No. 99-50034, 2000 WL
554644 (5th Cir. Apr. 13, 2000); United States ex rel. King v. Solvay S.A., 823 F. Supp. 2d 472,
535-36 (S.D. Tex. 2011), vacated in part on other grounds by 2012 WL 1067228 (S.D. Tex.
Mar. 28, 2012); United States ex rel. Gonzalez v. Fresenius Med. Care N. Am., No. EP-07-CV247-PRM, 2010 WL 1645969, at *3-8 (W.D. Tex. Jan. 21, 2010)). Specifically, the Magistrate
Judge concluded that Relator’s claims are subject to the six-year limitations period, and found
that Relator’s claims were filed more than two (2) years after the expiration of this period.
Id. at 12. Other than reurging his previous argument, Relator cites no additional or new case law
and offers no reason why the Court should ignore the case law in the Fifth Circuit and reach a
contrary result in this case. Accordingly, the Court finds that Relator’s second objection is also
overruled; the Court agrees that Relator’s FCA claims are subject to the six-year limitations
period.
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B.
State Law Claims
Relator next objects to the finding of the Magistrate Judge that Relator’s state law claims
are similarly barred by the statute of limitations (Dkt. #110 at 16-17). Relator asserts that the
limitations period should not have started running on his individual state law claims until all
administrative attempts to resolve Relator’s complaints had run their course.
Id.
More
specifically, Relator contends that as late as March of 2012, Relator was led to believe that the
Department would resolve his complaints after a hearing on the matter. Id. Relator asserts that
he filed this litigation within two years of his belief that an administrative proceeding was still
available to him. Id. Nelnet contends that this is the first time Relator has made this argument,
and that there is no case law and/or authority to support the proposition that administrative
remedies must be exhausted before the statute of limitations begins to run (Dkt. #110). The
Court agrees.
Relator makes no attempt to show that he was required to exhaust his
administrative remedies at the Department, nor that he did actually exhaust his remedies prior to
filing common law claims against Nelnet. Accordingly, the Court finds Relator’s state law
claims are time-barred, and Relator’s objection is overruled.
III.
Failure to State a Claim
Relator also objects to the finding of the Magistrate Judge that Relator failed to allege a
claim under 31 U.S.C. § 3729 (Dkt. #104 at 7-8). More specifically, Relator argues that he
asserted in his Amended Complaint that Nelnet serviced the falsely certified Loans, fraudulently
filed documents stating that two Loans were disbursed to Relator, and conspired to maximize
loan amounts based on Nelnet’s fraud. Id. Relator contends that it was Nelnet’s obligation to
verify the accuracy of the information submitted to the Department. Id. at 8. Relator also raises
for the first time in his objections the argument that Nelnet allegedly failed to comply with
certain FFELP regulations. Id. In response, Nelnet contends that Relator’s new allegations are
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immaterial to Relator’s FCA claims because “[t]he FCA is not concerned with regulatory
noncompliance” (Dkt. #110 at 3 (citing United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791,
795 (8th Cir. 2011))).
The Magistrate Judge found that Relator’s factual allegations against Nelnet are found in
only a single paragraph of the Complaint and assert simply that “[f]rom September 1994 to June
2000, Nelnet serviced the falsely certified unsubsidized Chase loan[s]” and that “Nelnet has not
been able to provide the approved disbursed loan checks to [Relator]” (Dkt. #97 at 13-14; Dkt.
#10 at 25). After considering Relator’s limited allegations against Nelnet, the Magistrate Judge
concluded that Relator failed to allege that Nelnet submitted and/or presented a claim to the
government for payment, and failed to complain of or apprise Nelnet of any further acts Nelnet
has committed (Dkt. #97 at 14). For example, the Magistrate Judge noted that Relator failed to
plead that any statements were made by Nelnet, much less that such statements were material to
the alleged false claims, or that any false records or statements were made by Nelnet to the
government. The Court agrees that Relator has failed to state a claim under the FCA against
Nelnet because of Relator’s lack of specificity regarding any such claims. Moreover, Relator’s
new theory that Nelnet failed to comply with certain regulations in servicing Relator’s Loans
cannot form the basis of an FCA claim. Vigil, 639 F.3d at 795. The Magistrate Judge found, and
the Court agrees, that Relator failed to allege any claims made by Nelnet to the government and
failed to apprise Nelnet of any further acts Nelnet has committed.
Relator’s objection is
overruled.
IV.
Relator’s Motion for Leave to Amend
Relator lastly objects to the Magistrate Judge’s denial of his request for leave to amend
his Complaint (Dkt. #104 at 9). The Magistrate Judge found that any amended complaint would
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be futile since Relator cannot plead facts sufficient to overcome the statute of limitations bar.
See Rio Grande Royalty Co., Inc. v. Energy Transfer Partners, L.P., 620 F.3d 465, 468 (5th Cir.
2010) (a district court may deny leave to amend a complaint if amendment would be futile).
The Court agrees with the Magistrate Judge that Relator cannot overcome the statute of
limitations bar, and that amendment of Relator’s Complaint would be futile. Accordingly,
Relator’s objection is overruled.
CONCLUSION
Having received the report of the United States Magistrate Judge, having considered each
of Relator’s timely filed objections (Dkt. #104) and Nelnet’s response (Dkt. #110), and having
conducted a de novo review, the Court is of the opinion that the findings and conclusions of the
Magistrate Judge are correct and adopts the Magistrate Judge’s report (Dkt. #97) as the findings
and conclusions of the Court.
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It is, therefore, ORDERED that Defendant Nelnet, Inc.’s Amended Rule 12(b)(6)
Motion to Dismiss (Dkt. #42) is GRANTED, and Relator’s claims against Nelnet are
DISMISSED with prejudice.
IT IS SO ORDERED.
SIGNED this 1st day of February, 2016.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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