Pele v. Pennsylvania Higher Educationn Assistance Agency
Filing
18
MEMORANDUM OPINION. Signed by District Judge James C. Cacheris on 4/2/14. (gwalk, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
LEE PELE,
Plaintiff,
v.
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY d/b/a
American Education services,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
1:13cv1531 (JCC/TRJ)
M E M O R A N D U M
O P I N I O N
This matter is before the Court on Defendant
Pennsylvania Higher Education Assistance Agency’s (“Defendant”
or “PHEAA”) Motion to Dismiss based on Eleventh Amendment.
[Dkt. 12.]
For the following reasons the Court will deny
Defendant’s Motion to Dismiss.
I.
Background
This case arises out of alleged violations of the Fair
Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq.
A.
Factual Background
Plaintiff Lee Pele (“Plaintiff” or “Pele”) is a
resident and citizen of the Commonwealth of Virginia.
Compl. ¶ 2.)
(Am.
Defendant PHEAA is a student loan servicing
1
company that furnishes information to consumer reporting
agencies as contemplated by the FCRA, 15 U.S.C. § 1681-s-2(a-b).
(Am. Compl. ¶¶ 1, 3.)
Pele alleges that he received federal student loans
issued under the Federal Family Education Loan Program
(“FFELP”), 20 U.S.C. §§ 1071-1087.4.
(Am. Compl. ¶¶ 1, 5, 6.)
Pele is a “person” and “consumer” as defined by the FCRA at 15
U.S.C. § 1681a(b) and (c).
(Am. Compl. ¶ 2.)
Pele alleges that
PHEAA acted as the loan servicer for his student loans.
Pele alleges that PHEAA placed on his credit file
defaulted student loans that “he never authorized, initiated,
received the proceeds or guaranteed.”
(Am. Compl. ¶¶ 5, 6.)
In
February 2013, Pele began receiving collection calls from a debt
collector called Windham Professionals (“Windham”) seeking to
collect over $137,000.00 in defaulted student loans.
Compl. ¶ 7.)
(Am.
According to Windham’s collector, Pele had been a
co-signer on the loans at issue.
(Am. Compl. ¶ 8.)
Pele did
not initiate, guaranty or receive any benefit from these loans.
(Am. Compl. ¶ 7.)
On March 19, 2013, Pele sent credit dispute letters to
the credit reporting agencies TransUnion, Equifax and Experian.
(Am. Compl. ¶ 14.)
As a result of these letters, four Automated
Credit Dispute Verifications (“ACDV”) were sent to PHEAA by the
credit reporting agencies.
(Am. Compl. ¶ 21.)
2
On April 5,
2012, PHEAA responded to all four ACDVs “by modifying, but not
deleting, the information” from Plaintiff’s credit file.
Compl. ¶ 24.)
(Am.
Plaintiff alleges that PHEAA “continued to
attribute the debts to Mr. Pele to the credit reporting
agencies.”
(Id.)
Plaintiff alleges that Defendant has both negligently
and willfully violated the FCRA in its response to the ACDVs.
(Am. Compl. ¶ 25.)
First, Plaintiff alleges that PHEAA has no
procedure in place to investigate a consumer’s claim of identity
theft.
(Id.)
Second, Plaintiff alleges that PHEAA did not
properly train its employees on investigating identity theft
disputes or with FCRA compliance.
(Id.)
According to the Amended Complaint, the Commonwealth
of Pennsylvania established PHEAA in order to aid in the
establishment of student loans for its residents.
40.)
(Am. Compl. ¶
PHEAA’s enabling statute, 24 Pa. Cons. Stat. § 5104, sets
out the power of PHEAA’s board of directors.
(Am. Compl. ¶ 41.)
PHEAA also operates under the trade names American Education
Services (“AES”) and Fed. Loan Servicing (“FLS”).
42.)
(Am Compl. ¶
AES and FLS compete nationally for work servicing and
collecting on student loans made in states other than
Pennsylvania, and by the federal government for residents of
states other than Pennsylvania.
(Id.)
3
PHEAA entered into contracts with the credit reporting
agencies (“CRA”) Experian, TransUnion and Equifax.
According to
Plaintiff, in order to submit credit-reporting data to the
reporting agencies, PHEAA was obligated to agree that it would
abide by the FCRA and the rules and regulations of the CRAs.
(Am. Compl. ¶ 43.)
B.
Procedural Background
On December 13, 2013, Plaintiff filed his Complaint
against PHEAA, alleging violations of the FCRA.
[Dkt. 1.]
On
January 13, 2014, Defendant filed its Motion to Dismiss Based on
Eleventh Amendment and accompanying memorandum.
[Dkts. 4-5.]
On February 2, 2014, Plaintiff filed his Amended Complaint.
[Dkt. 8.]
In light of the Amended Complaint, on February 6,
2014, the Court denied as moot Defendant’s Motion to Dismiss.
[Dkt. 9.]
On February 21, 2014, Defendant filed its Motion to
Dismiss the Amended Complaint and accompanying memorandum.
[Dkts. 12-13.]
[Dkt. 15.]
Plaintiff filed his opposition on March 7, 2014.
Defendant filed its response on March 13, 2014.
[Dkt. 16.]
Defendant’s Motion to Dismiss is before the Court.
II.
Standard of Review
Defendant filed its Motion to Dismiss Based on
Eleventh Amendment Immunity pursuant to Federal Rules of Civil
4
Procedure 12(b)(1) and 12(b)(6).
The United States Court of
Appeals for the Fourth Circuit has not resolved “whether a
dismissal on Eleventh Amendment immunity grounds is a dismissal
for failure to state a claim under Rule 12(b)(6) or a dismissal
for lack of subject matter jurisdiction under Rule 12(b)(1).
Andrews v. Daw, 201 F.3d 521, 525 n.2 (4th Cir. 2000).
“The
recent trend, however, appears to treat Eleventh Amendment
immunity motions under Rule 12(b)(1).”
Skaggs v. W. Reg’l Jail,
No. CIV. A. 3:13-3293, 2014 WL 66645, at *4 (S.D. W. Va. Jan. 8,
2014) (citations omitted).
To the extent that Eleventh Amendment immunity sounds
in subject matter jurisdiction, this would suggest that the
burden at this stage falls on the plaintiff because “it is
generally a plaintiff’s burden to demonstrate subject matter
jurisdiction.”
Woods v. Rondout Valley Cent. Sch. Dist. Bd. of
Educ., 466 F.3d 232, 237 (2nd Cir. 2006); see also Adams v.
Bain, 697 F.2d 1213, 1219 (4th Cir. 1982); Johnson v. Portfolio
Recovery Assocs., 682 F. Supp. 2d 560, 566 (E.D. Va. 2009).
“To
the extent, however, that Eleventh Amendment immunity is viewed
as akin to an affirmative defense that a state may assert or
waive at its discretion, the burden would appear to fall on the
defendant.”
Woods, 466 F.3d at 237.
The Fourth Circuit has not specifically ruled on this
question.
In United States ex rel. Oberg v. Pa. Higher Educ.
5
Assistance Agency, No. 12-2513 (4th Cir. Mar. 13, 2014) (“Oberg
II”), however, the court noted that “arm-of-the-state status may
well constitute an affirmative defense in the . . . Eleventh
Amendment context . . . .”
Oberg II, slip op. at 7.
In his
opinion concurring in the judgment in part and dissenting in
part in Oberg II, Judge Traxler stated, “[a]lthough this court
has not addressed the issue, circuits that have considered
similar assertions of arm-of-state status have uniformly
concluded that it is an affirmative defense to be raised and
established by the entity claiming to be an arm of the state.”
Oberg II, slip op. at 35 (citing Sung Park v. Ind. Univ. Sch. of
Dentistry, 692 F.3d 828, 830 (7th Cir. 2012) (“[S]overeign
immunity is a waivable affirmative defense.”); Aholelei v. Dep't
of Pub. Safety, 488 F.3d 1144, 1147 (9th Cir. 2007) (“Eleventh
Amendment immunity is an affirmative defense . . . .” (internal
quotation marks omitted)); Woods, 466 F.3d at 237–39 (treating
Eleventh Amendment immunity “as akin to an affirmative
defense”); Gragg v. Ky. Cabinet for Workforce Dev., 289 F.3d
958, 963 (6th Cir. 2002) (“[T]he entity asserting Eleventh
Amendment immunity has the burden to show that it is entitled to
immunity, i.e., that it is an arm of the state.”); Skelton v.
Camp, 234 F.3d 292, 297 (5th Cir. 2000) (holding that the party
seeking immunity “bear[s] the burden of proof in demonstrating
that [it] is an arm of the state entitled to Eleventh Amendment
6
immunity”); Christy v. Pa. Turnpike Comm'n, 54 F.3d 1140, 1144
(3d Cir. 1995) (“[T]he party asserting Eleventh Amendment
immunity (and standing to benefit from its acceptance) bears the
burden of proving its applicability.”)).
In light of Oberg II and the authority from every
other circuit to have considered the issue, the Court concludes
that PHEAA bears the burden of demonstrating that it is an arm
of the state of Pennsylvania.
See also Cash v. United States,
Civil No. WDQ-12-0563, 2012 WL 6201123, at *3 (D. Md. Dec. 11,
2012) (placing the burden of proving Eleventh Amendment immunity
on the government entity claiming it); Hutto v. S.C. Ret. Sys.,
899 F. Supp. 2d 457, 466 (D.S.C. 2012) (“the burden of
persuasion lies with the party asserting the immunity”).
III.
Analysis
Defendant argues that Plaintiff’s claim must be
dismissed because PHEAA has not waived Eleventh Amendment
immunity and consented to this lawsuit.
The Eleventh Amendment
provides: “[t]he 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 of any Foreign State.”
Const. amend. XI.
U.S.
By virtue of the Eleventh Amendment, a state
is subject to suit in federal court only if (1) the state
consents to that suit; or (2) Congress, acting under powers
7
granted to it in section five of the Fourteenth Amendment, has
clearly abrogated the state’s immunity.
See Seminole Tribe of
Fla. v. Florida, 517 U.S. 44, 54-55 (1996).
A state may consent
to be sued in a federal court; however, such consent must be
unambiguous.
See Edelman v. Jordan, 415 U.S. 651, 673 (1973).
“Even though the language of the Eleventh Amendment preserves
sovereign immunity only of the States of the Union, it is well
settled that this protection extends also to ‘state agents and
state instrumentalities’ . . . or stated otherwise to ‘arm[s] of
the State.’”
Cash v. Granville Cnty. Bd. of Educ., 242 F.3d
219, 222 (4th Cir. 2001) (citations omitted).
As an initial matter, the Court notes that Plaintiff
does not contend that PHEAA has waived sovereign immunity or
that Congress has abrogated the state’s immunity. 1
Instead,
Plaintiff argues that PHEAA is not an arm-of-the-state such that
it can assert any immunity.
(Pl. Opp’n at 2.)
The Court
therefore turns to the question of whether PHEAA is an arm of
the state of Pennsylvania.
The Fourth Circuit applies a nonexclusive four-factor
test to determine whether a governmental entity is an “arm of
the state” under the Eleventh Amendment.
Md. Stadium Auth. v.
1
Plaintiff in his Amended Complaint claims that PHEAA waived its sovereign
immunity by entering into contracts with the reporting agencies. (Am. Compl.
¶ 45.) In his memorandum in opposition to Defendant’s motion, however,
Plaintiff clarifies that his argument is not that PHEAA waived sovereign
immunity, but that it cannot assert sovereign immunity in the first instance.
(Pl. Opp’n at 23.)
8
Ellerbe Becket Inc., 407 F.3d 255, 261 (4th Cir. 2005) (citing
Ram Ditta v. Md. Nat’l Capital Park & Planning Comm’n, 822 F.2d
456 (4th Cir. 1987)).
First, the court must consider “whether
any judgment against the entity as defendant will be paid by the
State.”
United States ex rel. Oberg v. Ky. Higher Educ. Student
Loan Corp., 681 F.3d 575, 579 (4th Cir. 2012) (“Oberg I”)
(quoting S.C. Dep’t of Disabilities & Special Needs v. Hoover
Universal, Inc., 535 F.3d 300, 303 (4th Cir. 2008)).
Second,
the court considers “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.”
Id.
Third, the court assesses “whether the entity is involved
with state concerns, as distinct from non-state concerns,
including local concerns.”
Id.
Fourth, the court looks to “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.
The precise issue of PHEAA’s status as an arm of
Pennsylvania has recently come before this Court and the Fourth
Circuit.
In United States ex rel. Oberg v. Pa. Higher Educ.
Assistance Agency, No. 01:07-cv-960, 2012 WL 6099086 (E.D. Va.
Dec. 5, 2012), Judge Hilton found that PHEAA is an arm of the
state of Pennsylvania.
On March 13, 2014, the Fourth Circuit
9
reversed Oberg.
See Oberg II.
The Fourth Circuit found that
the Oberg plaintiff had alleged sufficient facts that PHEAA is
not an arm of the state for purposes of surviving a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
The Fourth Circuit remanded for limited discovery on the
question of whether PHEAA is “truly subject to sufficient state
control to render [it] a part of the state.”
Oberg II, slip op.
at 18-19 (quoting Oberg I, 681 F.3d at 579).
A.
State Treasury
The first arm-of-the state factor is whether the state
treasury will be responsible for paying any judgment that might
be awarded.
Ram Ditta, 822 F.2d at 457.
In Oberg II, the
Fourth Circuit found that this factor weighed strongly against
finding PHEAA to be a state agency.
Oberg II, slip op. at 18.
For purposes of this motion, PHEAA concedes this factor,
stating: “[d]espite its disagreement with this conclusion, PHEAA
sees no reason to re-litigate the treasury factor on this
motion, given that it need not ‘satisfy’ all four factors in
order to be considered a state agency.”
(Def. Reply at 3); see
Oberg I, 681 F.3d at 580 n.3 (“We note that although in the past
we have referred to the first factor as ‘the most important
consideration,’ Ram Ditta, 822 F.2d at 457, more recent Supreme
Court precedent suggests that the first factor does not deserve
such preeminence, see, e.g. Fed. Maritime Comm’n v. S.C. Ports
10
Auth., 535 U.S. 743, 122 S. Ct. 1864, 152 L. Ed. 2d 962
(2002).”).
The Fourth Circuit noted that the Pennsylvania
treasury is “neither legally nor functionally liable for any
judgment against PHEAA.”
Oberg II, slip op. at 12.
Pennsylvania law provides that “no obligation of [PHEAA] shall
be a debt of the State.”
24 Pa. Cons. Stat. § 5104(3).
PHEAA’s
funds are held in a “segregated account apart from general state
funds.”
Id. at 13 (citing 24 Pa. Cons. Stat. § 5105.10).
PHEAA
would pay a judgment against it from its own “moneys from its
segregated fund.”
5104(3) (2012)).
Id. at 14 (citing 24 Pa. Cons. Stat. §
Likewise, Plaintiff argues that PHEAA would
pay a judgment in this case out of its operating account, and
not the state treasury. 2
(Pl. Opp’n at 6, 11.)
Because PHEAA does not dispute these findings for
present purposes, the Court will adopt the Fourth Circuit’s
conclusion that the first factor points strongly in the
direction of finding that PHEAA is not an arm of the state.
Indeed, historically the first factor was regarded as “the most
important consideration.”
Ram Ditta, 822 F.2d at 457.
While
the state treasury factor no longer deserves “dispositive
2
Specifically, Plaintiff alleges that PHEAA maintains a regular deposit
account with M&T Bank. (Am. Compl. ¶¶ 48, 49.)
11
preeminence,” this factor “remains of considerable importance.”
Oberg II, slip op. at 8 n.4 (citations omitted).
B.
Degree of Autonomy
Second, the court must consider “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.”
Oberg II, slip op. at 10 (quoting Oberg I,
681 F.3d at 580).
The Court also considers whether the entity
“has the ability to contract, sue and be sued, and purchase and
sell property . . . and whether it is represented in legal
matters by the state attorney general.”
Oberg II, slip op. at
10 (citations omitted).
In Oberg II, the Fourth Circuit found that in the
context of a motion to dismiss under 12(b)(6), this second
factor “counsels against holding that PHEAA is an arm of the
state” although the relevant facts cut both ways.
slip op. at 15.
Oberg II,
The court noted that under state law, state
officials have “some degree of veto power over PHEAA’s
operations.”
Id. at 14.
The Auditor General may review PHEAA’s
activities, and PHEAA must seek approval of the Governor to
issue notes and bonds.
24 Pa. Cons. Stat. §§ 5108, 5104(3).
On
the other hand, PHEAA is financially independent, and “has the
power to enter into contracts, sue and be sued, and purchase and
12
sell property in its own name, all of which suggest operational
autonomy.”
Oberg II, slip op. at 15.
PHEAA urges the Court to find that on the facts
presented here, PHEAA has minimal autonomy.
PHEAA argues that
Plaintiff has alleged facts beyond those considered by the
Fourth Circuit such that this Court can conclude that PHEAA
exercises little autonomy.
(Def. Reply at 6.)
First, PHEAA
points to Plaintiff’s allegation that Pennsylvania’s Attorney
General needed to approve the terms of PHEAA’s settlement of
prior FCRA cases.
(Am. Compl. ¶ 46.)
Second, PHEAA notes that
Pennsylvania’s Attorney General approved its contracts with
credit reporting agencies in writing.
Ex. D.)
(Def. Mem. Ex. B, Ex. C,
Third, PHEAA points to its testimony before the
Appropriations Committee of the Pennsylvania legislature, as
evidence of state control over PHEAA.
(Pl. Opp’n Ex. A, Ex. B.)
The additional facts presented by PHEAA are not
sufficient for PHEAA to carry its burden.
In Oberg II, the
Fourth Circuit focused heavily upon PHEAA’s financial
independence, noting that it receives no operational funding
from the state.
contrary.
PHEAA has not provided any evidence to the
Indeed, PHEAA has stated that its “success as a
student loan servicer and guarantor” allows the agency to selffund its operations and service to Pennsylvania.
A.)
(Pl. Opp’n Ex.
On February 20, 2013, PHEAA reported that in the 2012-2013
13
fiscal year, PHEAA provided Pennsylvania with $75 million to
supplement its student aid program.
(Pl. Opp’n Ex. A.)
In the
current fiscal year PHEAA has provided Pennsylvania with a $90
million supplement to the student aid program.
B.)
(Pl. Opp’n Ex.
Moreover, under Pennsylvania law PHEAA has significant
discretion in its use of funds.
PHEAA’s funds may be used at
the direction of its board of directors “for carrying out any of
the corporate purposes of the agency.”
24 Pa. Cons. Stat. §
5104(3).
PHEAA’s argument that the Pennsylvania Attorney
General approved its settlements and contracts, while certainly
relevant, does not appear to indicate a true lack of operational
independence.
Under Pennsylvania law, the Attorney General
represents all commonwealth agencies in civil litigation; the
Attorney General, may, however, authorize “the General Counsel
or the counsel for an independent agency to initiate, conduct,
or defend any particular litigation or category of litigation in
his stead.”
71 P.S. § 732-204(c).
Based on PHEAA’s
representation in the instant litigation, the Court is not
convinced that Pennsylvania retains operational control over the
agency’s legal affairs.
In Maryland Stadium Authority, for
example, the court noted that the University of Maryland was
represented by the state Attorney General, as evidence of state
control.
Md. Stadium Auth., 407 F.3d at 264; see also Cash, 242
14
F.3d at 225 (noting that the school board at issue was
represented by “its private counsel, and not by the Attorney
General” as evidence of agency autonomy).
Here, PHEAA is
represented by its private counsel – not the Attorney General.
PHEAA’s argument that the makeup of its board of
directors is evidence of state control is stronger.
PHEAA
states that sixteen members of its board are members of the
Pennsylvania General Assembly or legislative appointees, “one is
the Secretary of Education, who is appointed by the Governor;
and three are also gubernatorial appointees.”
n.6.)
(Def. Reply at 5
As the Fourth Circuit noted in Oberg II, “such an
arrangement frequently indicates state control.”
Oberg II, slip
op. at 14 (citing Md. Stadium Auth., 407 F.3d at 624.)
PHEAA
argues, therefore, that state officials control the board and
exercise a de facto veto, as in Hoover.
See Hoover, 535 F.3d at
307 (noting that “all of the Budget and Control Board’s members
are state officials” as evidence that the State retains
“ultimate veto power”) (emphasis in original).
However, Pennsylvania law has changed from that
considered in Oberg II.
Pursuant to a 2010 amendment, four
seats on PHEAA’s board will come to be filled by “nonlegislative
individual[s] that [have] relevant experience in a field related
to finance, banking, investment, information technology, higher
education or higher education finance.”
15
71 P.S. § 111.2.
On
the record before the Court, it is not clear how many, if any,
of PHEAA’s current board members are nonlegislative individuals.
Nevertheless, this statutory change suggests that state control
over PHEAA is more removed than in Hoover, where the board
members were, by statute, the “Governor, the State Treasurer,
the Comptroller General, the Chairman of the Senate Finance
Committee, and the Chairman of the House Ways and Means
Committee.”
Hoover, 535 F.3d at 307.
Taken all together, the second arm-of-the-state factor
does not weigh strongly either in favor of, or against PHEAA.
PHEAA’s financial independence strongly suggests that it is not
an arm of the state.
Pennsylvania’s appointment of PHEAA’s
board members and the Attorney General’s involvement in its
operations points in the other direction, although perhaps not
as strongly as during the time period considered by Oberg, given
the intervening statutory change.
C.
Local Versus Statewide Concerns
Third, the court must consider “whether the entity is
involved with state concerns as distinct from non-state
concerns, including local concerns.”
Oberg II, slip op. at 10.
“Non-state concerns, however, do not mean only local concerns,
but rather also encompass other non-state interests like out-ofstate operations.”
Id. (internal quotation marks omitted)
(emphasis in original).
Pennsylvania created PHEAA to “improve
16
the higher educational opportunities” for the residents of the
State.
24 Pa. Cons. Stat. § 5102.
“Higher education is an area
of quintessential state concern and a traditional state
governmental function.”
Md. Stadium Auth., 407 F.3d at 266.
As
the Fourth Circuit noted, while PHEAA does not directly provide
higher education, “it nonetheless facilitates the attainment of
education by supplying student financial aid services.
work is clearly of legitimate state concern.”
This
Oberg II, slip
op. at 16.
Plaintiff argues, however, that PHEAA is engaged in
“debt servicing activities outside the state that have
absolutely no connection with Pennsylvania.”
(Pl. Opp’n at 10.)
Plaintiff contends that PHEAA’s loan servicing arm works on a
variety of loans, the majority of which do not involve
Pennsylvania residents.
(Pl. Opp’n at 12-13.)
Moreover,
Plaintiff argues, “servicing payments on current loans,
collecting on defaulted loans and credit reporting” are not
state functions.
(Pl. Opp’n at 13.)
In Oberg II, the court considered a similar argument –
that PHEAA’s activities were “so focused out of state that PHEAA
was not involved primarily with state concerns.”
Oberg II, slip
op. at 16 (emphasis in original); see Ram Ditta, 822 F.2d at 459
(“A third factor given weight in this equation is whether a
political entity is involved primarily with local or state-wide
17
concerns.”).
The court looked at PHEAA’s operations in 2005,
noting that because only one-third of PHEAA’s earnings came from
out of state, it did not seem plausible that by 2006 – the last
year covered by the relator’s allegations – PHEAA’s operations
would be focused primarily out of state.
Oberg II, slip op. at
17.
Here, by contrast, Plaintiff’s allegations arise out
of PHEAA’s conduct in 2013.
On the record before the Court, it
is not clear that PHEAA’s 2013 loan servicing activities were
focused primary within the state.
PHEAA is engaged in business
nationwide as a federal guarantor and commercial servicer of
federal student loans.
(Pl. Opp’n Ex. B.)
At present, PHEAA
manages student loans for more than 12 million borrowers
throughout the country.
(Id.)
Notably, PHEAA recently won
transfer of $717 million in loans and 82,400 borrowers from the
Georgia Higher Education Assistance Corporation.
A.)
(Pl. Opp’n Ex.
Moreover, in Oberg II, the majority noted the possibility
of a distinction between student-loan financing and the
servicing of federal student loans, but found that it was not
relevant to the agency in question.
Oberg II, slip op. at 29
(discussing the Arkansas Student Loan Authority (“ASLA”)). 3
3
Indeed, in his opinion concurring in the judgment in part and dissenting in
part in Oberg II, Judge Traxler noted “ASLA is also engaged in other, more
commercial activities, such as the buying and selling of loan pools on the
secondary market and the servicing of federal student loans, that are
arguably more appropriately characterized as “non-state concerns.” Oberg II,
18
Given the distinction between student loan financing, and
servicing federal student loans nationwide, the Court cannot
conclude that PHEAA has met its burden on this factor.
PHEAA
has not provided sufficient evidence for the Court to conclude
that its 2013 operations were focused “primarily” in
Pennsylvania.
Oberg II, slip op. at 16.
Moreover, contrary to
PHEAA’s assertions, the fact that its income is used to support
higher education in Pennsylvania is not dispositive of this
factor. 4
(Def. Reply at 8.)
In Oberg II, the Fourth Circuit
gave significant consideration to where a state agency’s
operations “centered,” Oberg II, slip op. at 22; the court did
not suggest that the use of funds for in-state residents is
entirely determinative.
slip. op. at 55 (citing Fresenius Med. Care Cardiovascular Res., Inc. v.
Puerto Rico, 322 F.3d 56, 64 (1st Cir. 2003) (“Not all entities created by
states are meant to share state sovereignty . . . . Some entities may be
meant to be commercial enterprises, viable and competitive in the marketplace
in which they operate.”)); see also United States ex rel. Sikkenga v. Regence
Bluecross Blueshield of Utah, 472 F.3d 702, 720 (10th Cir. 2006) (“When a
state forms an ordinary corporation, with anticipated and actual financial
independence, to enter the private sector and compete as a commercial entity,
even though the income may be devoted to support some public function or use,
that entity is not an arm-of-the-state.”)
4
PHEAA cites to College Savings Bank in support of the proposition that its
interstate commercial activities do not affect its Eleventh Amendment rights.
See Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd., 527 U.S.
666, 671 (1999). In College Savings Bank, the Court stated: “[n]or do we
think that the constitutionally grounded principle of state sovereign
immunity is any less robust where, as here, the asserted basis for
constructive waiver is conduct that the State realistically could choose to
abandon, that is undertaken for profit, that is traditionally performed by
private citizens and corporations, and that otherwise resembles the behavior
of ‘market participants.’” Id. at 684. In College Savings Bank, however,
the question of whether the Florida Prepaid Postsecondary Education Expense
Board was an arm of the state was not at issue; the case concerned
constructive waiver of sovereign immunity.
19
D.
State Law
Fourth, the court must consider how the entity is
treated under state law.
“Although the question of whether an
entity is an alter ego of the state is a question of federal,
not state, law, the manner in which state law addresses the
entity remains important, and potentially controlling.”
Stadium Auth., 407 F.3d at 264 (citations omitted).
Md.
In this
analysis, 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.
This factor weighs clearly in support of PHEAA’s
contention that it is an arm of the state.
Pennsylvania law
provides that the “creation of the agency [PHEAA] is in all
respects for the benefit of the people of the Commonwealth, for
the improvement of their health and welfare, and for the
promotion of the economy, and . . . such purposes are public
purposes and the agency will be performing an essential
government function.”
24 Pa. Cons. Stat. § 5105.6.
As the
Fourth Circuit noted in Oberg II, “PHEAA’s enabling legislation
was made effective by ‘amendment to the Constitution of
Pennsylvania authorizing grants or loans for higher education,’
id. § 5112, and Pennsylvania state courts have concluded that
PHEAA is a state agency for jurisdictional purposes . . . .”
20
Oberg II, slip op. at 18.
Moreover, Pennsylvania’s Commonwealth
Court, which has original jurisdiction over cases to which
Pennsylvania or its officers are party, has found that PHEAA is
an agency of the Commonwealth.
See Richmond v. PHEAA, 297 A.2d
544, 546 (Pa. Commw. Ct. 1972).
Accordingly, it is clear that
under Pennsylvania law, PHEAA is treated as a state agency.
In sum, while the first and fourth factors are clear
on the record before the Court – and point in opposite
directions - the second and third factors are not.
Weighing
these factors all together, PHEAA has not met its burden of
showing that it is entitled to Eleventh Amendment immunity at
this stage.
The Court will deny PHEAA’s motion.
IV.
Conclusion
For the foregoing reasons, the Court will deny
Defendant’s Motion to Dismiss.
An appropriate Order will issue.
April 2, 2014
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
21
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?