United States of America et al v. University Of North Texas et al
ORDER ADOPTING REPORT AND RECOMMENDATIONS for 46 Motion to Dismiss for Lack of Subject-Matter Jurisdiction and for Failure to State a Claim filed by University Of North Texas. Relator's claims against UNT are dismissed with prejudice. All relief not previously granted is hereby DENIED. The Clerk is directed to CLOSE this civil action. Signed by Judge Amos L. Mazzant, III on 2/1/2016. (pad, )
United States District Court
EASTERN DISTRICT OF TEXAS
UNITED STATES OF AMERICA, EX REL.
ROLAND WADE JACKSON
UNIVERSITY OF NORTH TEXAS, ET AL.
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 December 4, 2015, the report of the Magistrate Judge (Dkt. #103) was entered containing
proposed findings of fact and recommendations that Defendant University of North Texas’s
(“UNT”) Motion to Dismiss for Lack of Subject-Matter Jurisdiction and for Failure to State a
Claim (Dkt. #46) be granted. The Magistrate Judge recommended Relator’s Federal Claims Act
(“FCA”) claims be dismissed because UNT is not a “person” as defined by the FCA statute (Dkt.
#103 at 18). The Magistrate Judge further recommended Relator’s claims be dismissed because
the Eleventh Amendment provides immunity to UNT for such claims, and also because Relator’s
claims are barred by the statute of limitations. Id. Having received the report of the Magistrate
Judge (Dkt. #103), having considered Relator’s timely filed objections (Dkt. #107) and UNT’s
response to such objections (Dkt. #111), 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. #103) as the findings and conclusions of the
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. #103). This
litigation arises out of Relator’s applications for, and alleged failure to receive, student loan
funds during his attendance at 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 UNT: (1) a $5,500.00
unsubsidized FFELP loan for the 1994-1995 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, Inc. (“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 1415. It is Relator’s contention that UNT has a practice of falsely certifying loans by not including
the correct estimated financial assistance amounts, obtaining the falsely certified amounts from
the lenders, and then failing to disburse the loan funds to the borrowers. Id. at 10-11. Relator
asserts that UNT’s conduct is intentional and deliberate, and the eventual result is that borrowers
must pay for amounts never disbursed to them by UNT. Id. Relator graduated from UNT in
May 1996, triggering Relator’s repayment obligations on the Loans. Id. at 7-8.
Relator filed this action under seal on December 11, 2013, asserting claims arising under
the FCA against Defendants UNT, Chase, Nelnet, Texas Guaranteed Student Loan Corporation,
and SLM Corporation (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 UNT, and
such service was returned executed on January 12, 2015 (Dkt. #31). On February 26, 2015,
UNT filed its Motion to Dismiss (Dkt. #46). On March 12, 2015, Relator filed a Response (Dkt.
#54). On March 23, 2015, UNT filed a Reply (Dkt. #59).
On December 4, 2015, the Magistrate Judge entered a report and recommendation
containing proposed findings of fact and recommendations that UNT’s Motion to Dismiss
(Dkt. #46) be granted, and Relator’s claims against UNT be dismissed in their entirety with
prejudice (Dkt. #103).
The Magistrate Judge found that Relator’s FCA claims are barred
because UNT is not a “person” as defined by the FCA statute; however, even if Relator’s FCA
claims are permissible under the statute, the Eleventh Amendment provides immunity to UNT
for such claims, and Relator’s claims are barred by the statute of limitations. Id. Moreover, the
Magistrate Judge found that Relator’s state law claims are similarly barred by Eleventh
Amendment immunity, and the Magistrate Judge declined to exercise its supplemental
jurisdiction over such state law claims.
For these reasons, the Magistrate Judge
recommended that Relator’s claims be dismissed in their entirety. Id.
On December 18, 2015, Relator filed his objections to the report and recommendation of
the Magistrate Judge (Dkt. #107). On December 29, 2015, UNT filed a response to Relator’s
objections (Dkt. #111). The Court has reviewed Relator’s objections to the report and
recommendation of the Magistrate Judge, and considers each herein.
Relator objects to the Magistrate Judge’s finding that: (1) UNT is not a person as defined
by the FCA; (2) Relator’s claims are barred by Eleventh Amendment immunity; (3) Relator’s
claims are barred by the statute of limitations; and (4) Relator’s state law claims should be
dismissed for failure to state a claim (Dkt. #107). The Court addresses each objection in turn.
UNT is Not a Person
Relator objects to the Magistrate Judge’s finding that UNT is not a “person” as defined
by the FCA (Dkt. #107 at 2). More specifically, Relator seemingly makes two arguments in
support of his objection to the Magistrate Judge’s ruling. First, Relator argues that UNT cannot
be an arm of the state because the source of UNT’s funds is private (and not state) funds. Id.
Second, Relator makes what amounts to a public policy argument - that UNT should not be
entitled to Eleventh Amendment immunity because of its allegedly wrongful conduct under the
FCA. The Court considers each argument below.
Source of Funds
Relator argues that UNT cannot be an arm of the state because UNT has local autonomy
over its individual business practices, and particularly, UNT has control over how it administers
federal aid and its compliance with the attendant federal regulations. Id. at 3. Relator first
argues that “UNT has retained Chase loan dollars, which are not state funds, in its account since
Fall 1994.” Id. at 4 (emphasis in original).
To determine whether UNT was considered an arm of the state for purposes of immunity,
the Magistrate Judge applied the Fifth Circuit’s six-factor test, as follows:
Whether the state statutes and case law view the agency as an arm of the
The source of funds for the entity;
The degree of local autonomy the entity enjoys;
Whether the entity is concerned primarily with local, as opposed to
Whether the entity has the authority to sue and be sued in its own name;
Whether the entity has the right to hold and use property.
(Dkt. #103 at 7 (citing Clark v. Tarrant County, Texas, 798 F.2d 736, 744-45 (5th Cir. 1986)));
United States ex rel. King v. Univ. of Tex. Health Sci. Ctr. – Houston, 544 F. App’x 490, 495
(5th Cir. 2013)). The Magistrate Judge noted that Relator failed to address factors one (1), three
(3), four (4), five (5), and six (6), and thus the Magistrate Judge assumed that Relator did not
oppose and/or otherwise dispute that UNT meets these factors (Dkt. #103 at 7). Relator still does
not dispute that UNT meets these factors, and continues only in his assertion that UNT failed to
demonstrate that its funds were state funds under the second factor. The Magistrate Judge found
the “key [for factor 2 analysis] is not the ability to identify segregated funds, but the larger
concept of jurisdiction over state sovereignty.” King, 544 F. App’x at 497. Relator cannot, and
does not, dispute that at least certain of UNT’s funds are appropriated from the state treasury,
restricted as to use, and/or subject to state budgetary and accounting requirements (Dkt. #103 at
9-10; Dkt. #107). See TEX. GOV’T CODE § 2101.011(b) (2008); TEX. EDUC. CODE §§ 51.001-.009
The Court agrees with the Magistrate Judge – in accordance with Fifth Circuit precedent
– that use of UNT’s funds to pay a judgment would interfere with Texas’ fiscal autonomy. See
King, 544 F. App’x at 497 (dismissing FCA claim against University of Texas Health Science
Center where the state provided substantial funding to the entity); United Carolina Bank v. Bd.
Of Regents of Stephen F. Austin State Univ., 665 F.2d 553, 560 (5th Cir. 1982) (dismissing
lawsuit against Stephen F. Austin State University where, among other factors, some of the
entity’s funds were held in the state treasury and were restricted as to use, even if the university
had other sources of unappropriated funds). Relator cannot overcome this finding, and asserts
(without any evidence, authority, and/or case law) that UNT has local autonomy over its fiscal
decisions. Even if Relator’s conclusory assertion is true, it is not relevant to the Court’s analysis;
the Court need not identify and/or separate segregated funds, but rather must consider the effect
on any state appropriated funds. The Court agrees that any judgment against UNT would
potentially be satisfied, at least in part, with state funds. Accordingly, the second factor is met.
Relator alternatively argues that UNT is not an arm of the state, and qualifies as a person
in this case, because of its wrongful conduct (Dkt. #107 at 3). Relator asserts that UNT should
not be permitted to profit from its illegal actions, and for this reason, contends UNT should be
considered a person under the FCA. Id.
Relator contends that “in this specific situation,
wherein an arm of the State has failed to follow federal regulations, UNT should be accountable
as a person under the FCA.” Id. Relator asserts that federal law holds institutions like UNT
liable for adhering to the regulations because of their contractual obligations to the Department.
Id. Relator specifically argues that UNT (1) knew about the regulations and told the Department
it would comply upon entering into an agreement; (2) did not comply with the regulations when
it “intentionally omitted” Relator’s athletic scholarship award from the promissory notes; (3)
knew of the athletic scholarship award because it approved his full tuition/fees, books, and
room/board award; (3) failed to include Relator’s on-campus housing expenses after approving
Relator’s scholarship award; and (4) failed to inform the Department that Relator was ineligible
to receive the funds because of his athletic scholarship. Id. at 4. Relator asserts that, because of
these actions, UNT “put itself at risk to face penalties under the FCA.” Id.
Relator cites United States ex rel. Main v. Oakland City University, a Seventh Circuit
case, in support of his argument; however, the Seventh Circuit’s holding in Main does not apply
here. 426 F.3d 914, 916 (7th Cir. 2005). In Main, the Seventh Circuit was confronted, not with
the issue of Eleventh Amendment immunity, but only with whether the relator sufficiently stated
a claim under Federal Rule of Civil Procedure 12(b)(6). Id. In finding that the relator’s claims
were sufficient to state a plausible claim, the Seventh Circuit stated that “if the University knew
about the rule and told the Department that it would comply, while planning to do otherwise, it is
exposed to penalties under the [FCA].” Id. Relator uses this quote in support of his policy
argument that UNT should be held liable under the FCA because it engaged in certain
inequitable conduct (Dkt. #107 at 4). However, the Seventh Circuit’s opinion in Main is
inapplicable to the Court’s findings and conclusions here. As previously stated, the issue this
Court is confronted with is Eleventh Amendment immunity – specifically, whether or not such
immunity applies. Immunity requires a different analysis than the resolution of a Rule 12(b)(6)
motion, which necessitates only that a plaintiff have pleaded plausible allegations in support of
his claims. FED. R. CIV. P. 12(b)(6). Thus, Main cannot be applied here, and Relator has
proffered no other authority to support his argument that UNT’s allegedly wrongful conduct
should subject it to liability under the FCA for policy reasons.
Moreover, even if Relator’s factual assertions regarding UNT’s alleged wrongful conduct
were true, Relator misses the mark. First, any alleged wrongful conduct on the part of UNT has
no bearing on whether it may be fairly considered an “arm of the state.” See generally Clark,
798 F.2d at 744-45; King, 544 F. App’x at 495. The Fifth Circuit’s comprehensive, six-factor
test does not take into account the nature of the wrongful conduct being alleged against an entity
for purposes of determining whether it is, in fact, an “arm of the state.” Id. Relator has not
challenged the finding of the Magistrate Judge that all six factors weigh in favor of finding UNT
an “arm of the state,” with the exception of the public source of funds factor discussed supra
(Dkt. #107). Thus, Relator’s argument that UNT’s alleged wrongful conduct should preclude
UNT from its status as an “arm of the state” is unpersuasive.
Furthermore, the Magistrate Judge held, and the Court agrees, that the Eleventh
Amendment requires dismissal of a suit brought by a private citizen against a state and/or state
entity in which the United States has chosen not to intervene (Dkt. #103 at 12 (citing United
States ex rel. Foulds v. Tex. Tech Univ., 171 F.3d 279, 293-94 (5th Cir. 1999))). The text of the
Eleventh Amendment states:
The Judicial power of the United States shall not be construed to extend to any
suit in law or equity, commenced or prosecuted against one of the United States
by Citizens of another State, or by Citizens or Subjects of any Foreign State.
U.S. CONST. amend. XI. The Supreme Court has interpreted this amendment to bar citizens from
suing their own states, as well as other states. Hans v. Louisiana, 134 U.S. 1 (1890). Thus,
when a private citizen brings a qui tam suit against a state entity, and the United States declines
to intervene, Eleventh Amendment immunity bars qui tam plaintiffs from bringing the suit.
Foulds, 171 F.3d at 294.1 Indeed, the Eleventh Amendment “serves as an essential component
of our constitutional structure,” and “implicates the fundamental constitutional balance between
the Federal Government and the States.” Pace v. Bogalusa City Sch. Bd., 403 F.3d 272, 277 (5th
Cir. 2005). Thus, the policy behind the preservation of Eleventh Amendment immunity for the
states and/or state entities is an important principle of federalism that cannot be easily overcome,
and Relator has failed to sufficiently persuade the Court to turn this principle of sovereign
immunity on its head. Certainly, Eleventh Amendment immunity is not absolute; however, such
immunity applies unless (1) Congress clearly and unequivocally abrogates such immunity; or (2)
a state consents to suit in federal court. Pace, 403 F.3d at 277. Undisputedly, neither of these
principles is applicable here. Relator’s claims are, therefore, barred despite Relator’s public
policy argument to the contrary. Accordingly, Relator’s objection is overruled.
Statute of Limitations
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. #107 at 4-5). 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
Moreover, the “United States cannot delegate to non-designated, private individuals its sovereign ability to evade
the prohibitions of the Eleventh Amendment.” Id.
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
which the violation occurred. Id.
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
(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. #107). 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. #103 at 13-15 (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 15. 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 objection is overruled;
the Court agrees that Relator’s FCA claims are subject to the six-year limitations period.
Failure to State a Claim
Relator also objects to the finding of the Magistrate Judge that Relator’s state law claims
should be dismissed for failure to state a claim (Dkt. #107 at 7-8). Contrary to Relator’s
objection, the Magistrate Judge did not recommend dismissal of Relator’s claims for failure to
state a claim (Dkt. #103). Instead, the Magistrate Judge found that Relator’s state law claims
were barred by Eleventh Amendment immunity, and accordingly, the exercise of supplemental
jurisdiction over such claims was not appropriate (Dkt. #103 at 16-17). Relator does not dispute
either of these findings, which are independent grounds for dismissal of Relator’s state law
claims. Accordingly, the Court agrees that Relator’s state law claims should be dismissed as
barred by Eleventh Amendment immunity and lack of subject matter jurisdiction. Relator’s
objection is overruled.
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. #107 at 6). The Magistrate Judge found that any amended complaint would
be futile since Relator cannot plead facts sufficient to overcome Eleventh Amendment immunity
and 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 Eleventh Amendment immunity and/or the statute of limitations bar, and that
amendment of Relator’s Complaint would be futile.
Accordingly, Relator’s objection is
Having received the report of the United States Magistrate Judge, having considered each
of Relator’s timely filed objections (Dkt. #107) and UNT’s response (Dkt. #111), 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. #103) as the findings
and conclusions of the Court.
It is, therefore, ORDERED that Defendant University of North Texas’s (“UNT”) Motion
to Dismiss for Lack of Subject-Matter Jurisdiction and for Failure to State a Claim (Dkt. #46) is
GRANTED, and Relator’s claims against UNT are DISMISSED with prejudice.
All relief not previously granted is hereby DENIED.
The Clerk is directed to CLOSE this civil action.
IT IS SO ORDERED.
SIGNED this 1st day of February, 2016.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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