EDUCATION CREDITOR TRUST v. United States

In the United States Court of Federal Claims

No. 24-775

(Filed: February 27, 2025)

*********************

EDUCATION CREDITOR TRUST and

U.S. BANK TRUST COMPANY, et al.,

Plaintiffs,

v.

THE UNITED STATES,

Defendant.

**********************

James A. Newton, New York, NY, for plaintiff, Education Creditor

Trust.

Lawrence S. Sher, Washington, D.C., with whom were T. Reed

Stephens, for plaintiff, U.S. Bank Trust Company, National Association.

Carey D. Schreiber, of counsel.

Margaret J. Jantzen, Senior Trial Attorney, United States Department

of Justice, Civil Division, with whom were Brian M. Boynton, Principal

Deputy Assistant Attorney General, Patricia M. McCarthy, Director, and

Steven J. Gillingham, Assistant Director, for defendant.

OPINION

BRUGGINK, Senior Judge.

On April 17, 2024, plaintiffs, Education Creditor Trust (“ECT”) and

U.S. Bank Trust Company, National Association (“U.S. Bank”), filed this

action against the United States for breach of an express or implied contract

and/or an unlawful taking of plaintiffs’ property in violation of the Fifth

Amendment to the United States Constitution. Plaintiffs allege that the

United States Department of Education (“DOE”) breached an agreement

with a group of post-secondary educational institutions (collectively,

“EDMC”) by drawing on a letter of credit for unauthorized purposes. The

plaintiffs, lenders to EDMC under the relevant letter of credit, seek to recover

up to $92 million in letter of credit proceeds they assert were improperly held

or utilized by DOE. The complaint asserts three counts: breach of an express

contract; breach of an implied-in-fact contract; and an unlawful Fifth

Amendment taking. Pending is defendant’s August 30, 2024 motion to

dismiss under Rule 12(b)(6) of the Rules of the Court of Federal Claims

(“RCFC”) for failure to state a claim, or alternatively, under Rule 12(b)(1)

for lack of subject matter jurisdiction. Defendant’s position is that there is no

privity of contract between it and the plaintiffs and that no compensable

taking occurred because plaintiffs hold no property interest in the letter of

credit proceeds.

Oral argument was held on January 28, 2025. Because plaintiffs

plausibly allege that a binding contract arose between EDMC and DOE,

encompassing both the PPAs and letter of credit terms, and because plaintiffs

plausibly allege that EDMC’s rights under that contract passed to them, we

deny defendant’s 12(b)(1) and 12(b)(6) motions to dismiss plaintiffs’ counts

1 and 2 breach of contract claims. We grant, however, defendant’s motion

to dismiss plaintiffs’ count 3 takings claim.

BACKGROUND 1

I. EDMC’s Participation in Title IV Funding Programs

For more than fifty years, EDMC operated for-profit post-secondary

educational institutions across the United States. Pls.’ Compl. ¶ 22. These

institutions included Argosy University, the Art Institutes, Brown Mackie

College, South University, and the Western State University College of Law.

Id. A significant portion of EDMC’s revenue was comprised of federal

financial aid originating in Title IV of the Higher Education Act (“HEA”).

Id. ¶ 23. Pursuant to the HEA, 2 federal funding to post-secondary institutions,

1

The facts are drawn from the complaint and assumed to be true for purposes

of ruling on the motion.

2

To be an eligible institution to receive federal funds, the institution must

“enter into a program participation agreement with the Secretary [of

Education].” 20 U.S.C. § 1094(a) (2021). The PPA would “condition the

2

including EDMC, is governed by program participation agreements

(“PPAs”) between each educational institution and DOE. Id. ¶ 1. Defendant

does not question that the PPAs are contractual instruments.

One of the HEA’s and PPAs’ conditions for participation in the

funding program is financial responsibility. 20 U.S.C.A. § 1099c; Pls.’

Compl. Ex. 1, at 2. 3 Because EDMC’s institutions were not deemed

financially responsible, the PPAs required each school annually to “post

surety in the form of an irrevocable letter of credit” to the benefit of DOE in

an amount equal to a percentage of funds received. Pls.’ Compl. Ex. 1, at 3. 4

Per the PPA, the applicable letter of credit was required to “us[e] the format

provided by the Secretary [of Education].” Id. If a school was found

financially unstable and/or shut down operations, DOE could draw funds

from the letter of credit, in whole or in part, to pay for liabilities associated

with the schools. Pls.’ Compl. ¶ 5. Each letter of credit was to be renewed

yearly “not less than 10 days prior to its expiration date.” Id. If any of EMC’s

institutions received federal funds without securing an appropriate letter of

credit, they were subject to administrative action. Id. ¶ 24.

II. The BNP Letter of Credit and EDMC Credit Agreement

The letter of credit in dispute here initially was issued with respect to

EDMC’s institutions on October 12, 2006, by BNP Paribas New York

Branch (“BNP Paribas”) in the amount of $87,900,000. Id. ¶ 1; Pls.’ Compl.

initial and continuing eligibility of an institution to participate in a [student

aid] program . . . .” Id.

3

To participate in Title IV programs, “an institution must demonstrate to the

Secretary [of Education] that it is financially responsible” under DOE’s

standards of financial responsibility. 34 C.F.R. § 668.171(a)–(b). According

to the PPA for Brown Mackie College, which plaintiffs assert is

representative of all of EDMC’s other PPAs, “[t]he institution does not meet

the standards of financial responsibility as set forth in 34 CFR § 668.171.”

Pls.’ Compl. Ex. 1, at 3.

4

Under § 668.171(g), “[t]he Secretary [of Education] may permit an

institution that is not financially responsible . . . to participate in the title IV,

HEA programs” if, among other things, “[t]he institution submits to the

Secretary [of Education] an irrevocable letter of credit . . . that is not less than

10 percent of the title IV, HEA program funds received by the institution

during its most recently completed fiscal year.” 34 C.F.R. § 668.171(g)(iii).

3

Ex. 3, at 1. Consistent with DOE’s requirements, the BNP Letter of Credit

allowed DOE to make a protective draw on the letter of credit proceeds if

EDMC’s institutions failed to renew or replace the BNP Letter of Credit

within 10 days of its expiration date. Pls.’ Compl. Ex.3, at 2. The BNP Letter

of Credit also specified three permissible uses for which DOE could spend

withdrawn funds:

1) To pay refunds of institutional or non-institutional charges

owed to or on behalf of current or former students of the

institution, whether the institution(s) remains open or has

closed.

2) To provide for the “teach-out” of students enrolled at the time

of the closure of the institution(s).

3) To pay any liabilities owing to the Secretary arising from acts

or omissions by the institution(s), on or before the expiration

of the letter of credit, in violation of requirements set forth in

the Higher Education Act of 1965, as amended (“HEA”),

including the violation of any agreement entered into by the

institution(s) with the Secretary regarding the administration of

programs under Title IV of the HEA.

Id. at 1–2. The BNP Letter of Credit terms were renewed and modified

multiple times between 2006 and 2017. The final amended BNP Letter of

Credit, executed on April 3, 2017, reflected an amount of $102,168,215 and

an expiration date of May 31, 2018. Pls’ Compl. Ex. 3, at 14, 19. Between

October 2006 and April 2017, each amended version of the BNP Letter of

Credit was sent to DOE in accordance with the PPAs, and, in turn, EDMC’s

schools continued to receive federal funds. Id. at 1–19.

On January 5, 2015, a Credit and Guaranty Agreement (“Credit

Agreement”) was executed between EDMC, various lenders (“Lenders”),

including ECT, and U.S. Bank (solely as Administrative Agent and

Collateral Agent for the Lenders). See generally Pls.’ Compl. Ex. 2. DOE

was not a signatory to the Credit Agreement. It permitted EDMC to request

or maintain letters of credit from issuing banks, including BNP Paribas, and

provided that EDMC would be given loans to cover any amount withdrawn

by DOE. Pls.’ Compl. ¶¶ 25–26; Pls.’ Compl. Ex. 2, at 22, 42–44. The

arrangement created by the Credit Agreement was that once DOE submitted

a draw request on a letter of credit from an issuing bank, and the bank

4

honored that request, EDMC was required to “reimburse [the] Issuing Bank

on or before the Business Day immediately following the date on which such

drawing is honored . . . in an amount . . . equal to the amount of such honored

drawing.” Pls.’ Compl. Ex. 2, at 43. If the issuing bank was not timely

reimbursed by EDMC, the Lenders were then required to make loans to

EDMC, “the proceeds of which shall be applied directly . . . to reimburse

[the] Issuing Bank for the amount of such honored drawing.” Id. at 44. If the

Lenders failed to reimburse fully the issuing bank, the Lenders, along with

EDMC, were legally liable for the unpaid amount. Id.

III. The Dream Center Sale and Modification to the BNP Letter of Credit

In the mid-2010s, EDMC encountered financial difficulties, and on

October 17, 2017, sold Argosy University, South University, Western State

University College of Law, and 11 Art Institutes to Dream Center Education

Holdings (“Dream Center”), a nonprofit organization. Pls.’ Compl. ¶¶ 34–

35. The actual transfer of four of the 11 Art Institutes—the Art Institute of

Colorado, the Illinois Institute of Art, the Art Institute of Philadelphia, and

the Art Institute of Pittsburgh—did not take place until January 19, 2018. Id.

¶ 35.

Dream Center was not immediately able to secure its own letter of

credit for the schools purchased, as required by 34 C.F.R § 668.171. As a

result, plaintiffs allege that, with the consent of the Lenders, EDMC and DOE

agreed in a series of emails and letters that the existing BNP Letter of Credit,

along with one other letter of credit not at issue in this case, 5 would support

financial obligations associated with the schools transferred to Dream

Center, as well as the schools remaining with EDMC. Pls.’ Compl. ¶¶ 39–

40. In an October 15, 2017 letter from Joseph Smith, Compliance Manager

for DOE, to Brent Richardson, the Chief Executive Officer of Dream Center,

DOE agreed to hold $92,624,329 of the letters of credit on behalf of the

transferred institutions to Dream Center and $14,884,804 on behalf of the

institutions remaining with EDMC. Pls.’ Compl. Ex. 4, at 2. DOE, however,

required both EDMC and Dream Center to “acknowledge[] that the entire

amount of the LOCs on file can be used to cover any liabilities for all

institutions currently covered under the [BNP Letter of Credit] regardless of

5

In addition to the BNP Letter of Credit of $102,168,215, the transferred

schools were also supported by a second letter of credit of $5,340,918 from

Bank of America. Altogether, the letters of credit for the schools transferred

to Dream Center totaled $107,509,133.

5

ownership.” Id. at 2–3. In response, on October 17, 2017, Mark McEachen,

chairman of EDMC, sent DOE a letter, providing “confirmation and

acknowledgment,” but clarifying that, aside from modifying the BNP Letter

of Credit to also cover liabilities of the institutions transferred to Dream

Center, the letter of credit otherwise remained “unmodified as to amount,

maturity or otherwise until replaced/amended on or prior to May 1, 2018.”

Pls.’ Compl. Ex. 5, at 1. In November 2017, DOE and Dream Center’s

institutions, executed temporary PPAs that stated:

By agreement among DOE, [Dream Center], and EMC, DOE

will continue to hold the EDMC [letters of credit] in the

amount of $92,624,329 on behalf of the [Dream Center]

Institutions . . . . Additionally, DOE will continue to hold

$14,884,804 of the EDMC [letters of credit] on behalf of the

EDMC institutions that were not conveyed to [Dream Center]

. . . . Pursuant to the agreement of DOE, EDMC and [Dream

Center], the entire amount of the EDMC [letters of credit]

(totaling $107,509,133) can be used to cover any liabilities for

any of the [Dream Center] Institutions and [Non-Dream

Center] Institutions, regardless of ownership.

Pls.’ Compl. Ex. 6, at 2. Under the temporary PPAs, Dream Center was

required to secure a new letter of credit of its own no later than May 1, 2018,

or extend the current letters of credit for its institutions until at least March

31, 2019. Id.

IV. DOE’s Protective Draw, EDMC’s Foreclosure, and the Use of the

BNP Letter of Credit

Neither EDMC nor Dream Center were able to secure replacement

letters of credit or extend the existing letters of credit by May 2018. As a

result, on May 18, 2018, DOE made a protective draw on the BNP Letter of

Credit in the full amount of $102,168,215. Id. DOE’s draw request,

submitted by an “authorized representative of the Secretary [of Education]”

to BNP Paribas, certified that the funds would only be used for one or more

of the three permissible uses outlined in the BNP Letter of Credit terms. Id.

¶ 44; Pls’ Compl. Ex. 8, at 1–2. Pursuant to the EDMC Credit Agreement,

the Lenders then fully reimbursed BNP Paribas for the amount drawn,

thereby each obtaining a pro rata share in the repayment of the loan, including

any funds returned by DOE. Out of the $14,884,804 set aside for EDMC

institutions that were not sold to Dream Center, DOE returned $14,500,000

6

to the Lenders, and $384,804 was retained to satisfy liabilities owed by these

schools, leaving $87,668,215 in DOE’s control to be used as necessary. Pls.’

Compl. ¶ 47.

On June 25, 2018, EDMC and the Lenders executed a foreclosure

agreement, pursuant to which U.S. Bank, in its capacity as Administrative

and Collateral Agent for the Lenders, foreclosed on some of EDMC’s

remaining assets to partially satisfy EDMC’s obligations to the Lenders

under the EDMC Credit Agreement. Pls.’ Compl. ¶ 19. Under the foreclosure

agreement, EDMC conveyed all of its interests in the “Surrendered

Collateral” to the Lenders, including “EDMC’s right, title, and interest in all

(a) payment intangibles; (b) residual interests in any assets held by third

parties as security, in trust, as collateral, or as surety; (c) commercial tort

claims; and (d) all proceeds of the foregoing.” Id. According to plaintiffs,

this necessarily included “EDMC’s rights to recover funds under the PPAs

its schools entered into with DOE and any reversionary rights previously

possessed by EDMC under, and EDMC’s interests in, the BNP Letter of

Credit.” Id.

Subsequently, on June 26, 2018, EDMC filed a chapter 7 bankruptcy

petition in the United States Bankruptcy Court for the District of Delaware.

In those proceedings, the foreclosure agreement appropriating EDMC’s

remaining assets was stipulated to in reaching a court-approved settlement

agreement with the Lenders. Pls.’ Compl. ¶ 20. The stipulation

“acknowledge[d] the validity and enforceability of the [foreclosure

agreement]” and confirmed that EDMC was “obliged to turn over all

Collateral (including Surrendered Collateral) or proceeds thereof to [U.S.

Bank].” Def.’s Reply Ex. 1, at App. 11–12. The court ruled that the

stipulation was “binding on the Parties” and “effective immediately.” Id. at

App. 2.

Dream Center soon began to experience financial difficulties as well.

Between August and December 2018, DOE released $39,586,989 of the

letter of credit to fund administrative and operating expenses which Dream

Center had incurred while operating its schools—an action which plaintiffs

allege was not in line with the permissible uses of the BNP Letter of Credit.

Dream Center subsequently closed a number of Argosy University and Art

Institute campuses in December 2018, and, on January 7, 2019, transferred

South University and three Art Institutes to the Education Principle

7

Foundation (“EPF”), another nonprofit organization. Id. ¶¶ 49–50. In

connection with the transfer to EPF, DOE permitted $28.5 million of the

BNP Letter of Credit proceeds to be used to satisfy liabilities arising on or

before January 7, 2019, with respect to the transferred schools. Id. ¶ 50.

Specifically, $22 million of the $28.5 million was allocated for liabilities

associated with South University campuses, and the remaining $6.5 million

was allocated for liabilities associated with the three Art Institutes. Id. ¶ 51.

Plaintiffs do not dispute that the $28.5 million allocated for those expenses,

arising on or before January 7, 2019, complies with the list of permissible

uses for the BNP Letter of Credit. Id. ¶¶ 53–54. By March 2019, aside from

one Argosy University location, one Art Institute location, and the Western

State University College of Law, all of Dream Center’s remaining schools

were closed. Id. ¶ 52.

V. Inspector General’s Report and Subsequent Dispute

On June 29, 2021, the DOE Office of Inspector General (“OIG”)

published a report containing information regarding DOE’s use of BNP

Letter of Credit proceeds. The OIG report confirmed that when DOE was

assessing whether to use letter of credit proceeds to cover the operating costs

of Dream Center’s closing schools:

[Federal Student Aid] employees and [Office of General

Counsel] attorneys acknowledged that the terms of Education

Management Corporation’s letters of credit required the

proceeds to be used only to pay institutional charges owed to

or on behalf of former students, to provide for the teach-out of

students enrolled at the time of the schools’ closures, or to pay

any liabilities owed to the Federal government arising from

schools’ actions on or before the expiration of the letters of

credit.

Pls.’ Compl. Ex. 9, at 86. According to the report, despite this

acknowledgement by DOE, the agency authorized $39,586,989 to fund

operating expenses for 27 closing Dream Center school locations. Id. at 50.

The report also notes that DOE had never previously used letter of credit

proceeds to fund operating expenses of this kind, and “neither [DOE] nor

[Federal Student Aid] had policies or procedures for such a situation.” Id. at

46. As a result, the OIG recognized that “[DOE] provided Dream Center with

8

about $39.6 million more than the closing school locations normally would

have received to continue teaching the students who were already enrolled.”

Id. at 50.

In July 2022, after reviewing the OIG report, ECT sent a letter to

DOE, requesting a detailed accounting of DOE’s use of letter of credit

proceeds. In September 2022, ECT sent a follow-up letter, reminding DOE

of the limited permissible uses and allocations of the letters of credit. In a

December 2022 response letter to ECT, DOE denied that its use of letter of

credit proceeds to fund the operating expenses of Dream Center’s closing

schools was improper. In a subsequent September 12, 2023 letter, Michael

Frola, Division Chief of the Multi-Regional and Foreign Schools

Participation Division of DOE, informed ECT that DOE still held

$48,594,113.27 of the letter of credit proceeds in escrow, but claimed the

charges against the BNP Letter of Credit “far exceed” that amount. Pls.’

Compl. Ex. 12, at 5.

After failed attempts to negotiate with the DOE for the return of any

BNP Letter of Credit proceeds not used in accordance with the BNP Letter

of Credit terms, plaintiffs filed their complaint here, claiming that the alleged

misuse of the letter of credit proceeds constituted a breach of contract,

express or implied-in-fact, or an unlawful taking under the Fifth Amendment.

In response, defendant filed this motion to dismiss under 12(b)(6) for failure

to state a claim, asserting that plaintiffs cannot establish privity of contract

between plaintiffs and defendant, and that plaintiffs have not alleged a valid

takings claim because they hold no property interest in the letter of credit

proceeds. In its reply brief, defendant raised a lack of subject matter

jurisdiction defense, asserting that, because plaintiffs cannot establish privity

with the government, this court must dismiss plaintiffs breach of contract

claims as outside of the Tucker Act’s purview. 6

6

On January 23, 2024, plaintiffs filed a motion for leave to file a sur-reply

to address the government’s two new arguments in its reply brief: (1) that the

court lacks subject matter jurisdiction under 12(b)(1); and (2) plaintiffs do

not meet the “operation of law” standard under the Anti-Assignment Act,

which we discuss later in this opinion. Because the government did not raise

its 12(b)(1) challenge until its reply brief, and because its second argument

9

DISCUSSION

I. 12(b)(1) and 12(b)(6) Standards of Review

When considering a motion to dismiss for lack of subject matter

jurisdiction under 12(b)(1), the question “is not whether a plaintiff will

ultimately prevail but whether the claimant is entitled to offer evidence to

support the claims.” Patton v. United States, 64 Fed. Cl. 768, 773 (2005)

(quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). Though “the plaintiff

bears the burden of establishing subject matter jurisdiction by a

preponderance of the evidence and by presenting competent proof,” we

“must presume all undisputed factual allegations to be true and construe all

reasonable inferences in favor of the plaintiff.” Pucciariello v. United States,

116 Fed. Cl. 390, 400 (2014).

Similarly, when considering a motion to dismiss under 12(b)(6) for

failure to state a claim, the complaint must “allege facts that show the

plaintiff is entitled to the legal remedy sought.” Steffen v. United States, 995

F.3d 1377, 1379 (Fed. Cir. 2021). All factual allegations made by the

nonmoving party are accepted as true, and the court may draw all reasonable

inferences in the nonmoving party’s favor. Fishermen's Finest, Inc. v. United

States, 59 F.4th 1269, 1274 (Fed. Cir. 2023).

Here, defendant does not dispute the factual components of plaintiffs’

argument in support of a contractual basis for liability—all are based on

documents. Rather, the parties disagree about the legal implications of those

facts. For purposes of considering the government’s motion to dismiss under

both 12(b)(1) and 12(b)(6), therefore, we have an uncontested documentary

record and will permit inferences in plaintiffs’ favor. 7

II. Breach of Contract Claim

also pertains to the court’s subject matter jurisdiction, we grant plaintiffs

motion for leave to file their sur-reply.

7

We also find it proper to consider the attached documents in the 12(b)(6)

context, because they are integral to the factual allegations made in the

complaint. Pls.’ Compl. Exs. 1–12; Def.’s Reply Ex. 1.

10

The Tucker Act grants this court jurisdiction over certain claims for

money damages against the United States founded upon the United States

Constitution, federal statutes, executive regulations, or contracts. 28 U.S.C.

§ 1491(a)(1); United States v. Mitchell, 463 U.S. 206, 215–18 (1983). To

maintain a cause of action under the Tucker Act for breach of contract, “there

must be privity of contract between the plaintiff and the United States.”

Cienega Gardens v. United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998).

We may also hear a contractual claim against the government if the plaintiff

is a valid successor-in-interest to a party who is in privity of contract with

the government, e.g., Oxy USA Inc. v. United States, 163 Fed. Cl. 75, 88

(2023), or if a plaintiff is a subrogee of a party in privity with the government.

Nat’l Am. Ins. Co. v. United States, 498 F.3d 1301, 1304 (Fed. Cir. 2007).

Here, plaintiffs allege they are both successors-in-interest to EDMC’s

contractual rights under the PPAs and subrogees of EDMC.

Plaintiffs thus ultimately have a double burden. First, they must

establish that there was a contractual relationship between EDMC and DOE

which arguably was breached; then, they must establish they are either

successors in interest or subrogees of EDMC.

a) EDMC’s Contract and DOE’s Breach

In order to establish jurisdiction, or state a claim for relief, plaintiffs

must plead a plausible contractual relationship with the United States. If they

can do so, plaintiffs must then assert a plausible breach of that contract.

Defendant’s argument on these issues is straightforward: it was in privity

only with EDMC with respect to the PPAs—not the BNP Letter of Credit.

Thus, even if plaintiffs succeeded to the interests of EDMC, plaintiffs still

lack privity and cannot sue with respect to the letter of credit; in other words,

the government cannot be sued for breach of terms to which it is not a party.

The contract claim therefore must be dismissed either for lack of jurisdiction

or for failure to state a claim, per defendant.

i. Contract Formation

The lynchpin of plaintiffs’ theory is that DOE agreed to be bound by

the terms (the listed permissible uses for the funds) in the BNP Letter of

Credit, whether that be expressly by incorporation of the letter of credit into

11

the PPAs or by implication from the whole of the parties’ dealings. In reply,

defendant avers that “the Letter of Credit was issued by BNP Paribas bank

to EDMC” and that “nothing in the PPAs ‘explicitly incorporated’ the BNP

Letter of Credit.” Def.’s Reply, at 5, 8. We address each point below.

The elements of contract formation for both express and implied-in-

fact contracts with the government are identical. Threshold Techs., Inc. v.

United States, 117 Fed. Cl. 681, 696 (2014). A party alleging either must

show “a mutual intent to contract including an offer, and acceptance, and

consideration,” and “that the Government representative who entered or

ratified the agreement had actual authority to bind the United States.”

Trauma Serv. Grp. v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997).

At least for purposes of this motion, defendant has not questioned the

authority of any government actors to bind the agency.

In determining whether there is mutual intent to contract, we look at

the surrounding circumstances, including “direct representations between the

parties, oral or written, that convey promissory intent.” Mine Detection &

Dog Ctr. v. United States, 170 Fed. Cl. 378, 386 (2024); see also Cal. Fed.

Bank, FSB v. United States, 245 F.3d 1342, 1346 (Fed. Cir. 2001). A contract

“may arise as a result of the confluence of multiple documents” so long as

there remains “a clear indication of intent to contract and the other

requirements for concluding that a contract was formed” are met. D & N

Bank v. United States, 331 F.3d 1374, 1378 (Fed. Cir. 2003). For example,

in Cal. Fed. Bank, FSB, in various mergers involving the plaintiff bank, the

bank entered into an acquisition agreement with the government, allowing

the plaintiff to amortize the resulting goodwill. Id. at 1345. The government

sent two subsequent forbearance letters to the plaintiff, confirming the

plaintiff’s ability to amortize the goodwill over 40 years. Id. Later, legislation

was adopted forcing the amortization of goodwill over a reduced period. Id.

at 1345–46. Though the government argued that no contract existed

regarding amortization because there was no assistance agreement explicitly

incorporating the forbearance letters into the overall agreement, the court

recognized that it need not “rely exclusively on the assistance agreements to

find a contract” and that it could consider “contemporaneous documents and

surrounding circumstances that included forbearance letters like those

present here.” Id. at 1346. In determining that the 40-year amortization

period was part of an express contractual obligation, the Federal Circuit

12

considered the forbearance letters, as well as “documents such as

correspondence, memoranda, and . . . resolutions.” Id. at 1347–48. It also

considered the circumstances surrounding the parties’ negotiations. Id. at

1347; see also Winstar Corp. v. United States, 64 F.3d 1531, 1542 (Fed. Cir.

1995) (“If the parties did not intend to use supervisory goodwill for

regulatory capital purposes there would simply be no reason for the extensive

negotiations and the conditions regarding its use.”), aff’d and remanded, 518

U.S. 839, 865–86 (1996) (“[W]e do not doubt the soundness of the Federal

Circuit’s finding that the overall ‘documentation in the . . . transaction

establishes an express agreement.’”).

Here, to establish a plausible express contract theory, plaintiffs will

need to show, through the documentation and surrounding circumstances,

that at the time of contract formation, EDMC and DOE mutually intended to

enter into an express agreement encompassing both the PPAs and BNP Letter

of Credit terms. 8 Plaintiffs first point to the relevant documents to support

their contract claim. Beginning with the PPAs, executed between EDMC’s

educational institutions and DOE, each institution was required annually to

“post surety in the form of an irrevocable letter of credit” to receive federal

student aid funds. Pls.’ Compl. at ¶ 24. Upon EDMC’s request, BNP Parabis

sent the BNP Letter of Credit, using a DOE-prescribed format, to DOE for

approval. The BNP Letter of Credit restricted DOE’s ability to use letter of

credit proceeds to certain uses. Plaintiffs argue that, in response to execution

of the Letter of Credit, DOE allowed EDMC’s, and later Dream Center’s,

institutions to receive hundreds of millions in federal student aid funds for

over a decade. When DOE made its protective draw of the BNP Letter of

Credit, it was exercising its rights under the PPAs and expressly certified, in

writing, that the withdrawn funds would be used for “Permitted Uses”

identical to the permissible uses outlined in the BNP Letter of Credit terms.

Pls.’ Compl. ¶ 33; Pls.’ Compl. Ex. 8, at 1–2.

Plaintiffs argue that the letter of credit was an integral part of the

agreement between the EDMC institutions and DOE. It is, in fact, required

by the PPA, and its precise format was also to be supplied by DOE, per the

PPA. Although it is unknown at this stage who supplied the specific terms of

8

At this stage, we recognize that the timeline connecting the BNP Letter of

Credit terms with the PPAs is unclear from the filings.

13

the letter of credit, and more importantly, the limitations on use, a plausible

read of the circumstances is that DOE knew that the letter of credit would

contain these limitations on its use of any funds drawn on the letter of credit

and that it intended to be bound by those terms.

DOE’s draw certification further supports the inference that “[DOE]

at all times understood that its ability to draw down on the BNP Letter of

Credit was governed by the terms and conditions set forth in the BNP Letter

of Credit.” Pls.’ Compl. ¶ 67. Similarly, the amendments to the BNP Letter

of Credit support this conclusion. Each time the amended BNP Letter of

Credit terms were sent to DOE, the terms consistently clarified that “all other

terms and conditions remain unchanged.” Pls.’ Compl. Ex. 3, at 1–2, 4–7, 9–

10, 12–15, 17–19. Additionally, the modification to include educational

institutions transferred to Dream Center was finalized after email and letter

correspondence between EDMC and DOE in which EDMC clarified that the

BNP Letter of Credit remained “unmodified as to amount, maturity or

otherwise until replaced/amended on or prior to May 1, 2018.” Pls.’ Compl.

Ex. 5, at 1. These communications regarding the BNP Letter of Credit terms

and their subsequent amendments once again supports the inference that

DOE was aware it was bound by the terms of the BNP Letter of Credit.

These alleged facts reasonably permit, at the pleading stage, an

inference of an offer, acceptance, and consideration, where “[DOE] and

[EDMC] had a mutual understanding that the terms of the PPAs are

supplemented by the terms set forth in, among other things, the content of

the BNP Letter of Credit.” Pls.’ Compl. ¶ 66. EDMC promised to secure

financial security through a letter of credit for those institutions deemed not

financially responsible. DOE, in exchange, promised to make student aid

funds available to EDMC’s institutions and, according to plaintiffs, to abide

by the terms of the letter of credit if it exercised its rights under that letter of

credit.

While plaintiffs have been coy about identifying the precise catalytic

moment of contract formation, they have stated a plausible scenario in which

EDMC and DOE mutually agreed that the BNP Letter of Credit terms were

part of a single express obligation along with the PPAs. Alternatively, the

facts and circumstances alleged support a plausible scenario that DOE

manifested its intent to be bound by the terms of the letter as an implied-in-

14

fact agreement. Under either reading of the facts, plaintiffs’ complaint

survives a motion to dismiss on the privity issue, assuming they can also

plausibly show that they inherited EDMC’s contractual rights.

ii. Contract Breach

Having found plaintiffs’ express contract argument plausible, we also

find support for plaintiffs’ contractual breach claim. The BNP Letter of

Credit terms outline specific limitations for use of the letter of credit

proceeds: (1) to pay refunds charged to students; (2) fund “teach out”

expenses; and (3) to pay liabilities owed to DOE. Pls.’ Compl. Ex. 3, at 1–2.

Secondary support is also found in the OIG report, in which the agency

acknowledged that the letter of credit proceeds could only be used for the

permissible purposes outlined in the BNP Letter of Credit and that the

agency’s use of the withdrawn funds was unprecedented and not covered by

regulation.

Drawing all reasonable inferences in plaintiffs’ favor, plaintiffs

reasonably claim that, at the very least, DOE’s use of $39,586,989 of the

letter of credit proceeds to fund Dream Center’s administrative and operating

expenses does not comply with the BNP Letter of Credit’s list of permissible

uses. Thus, plaintiffs plausibly claim EDMC is entitled to recover funds not

used in accordance with the BNP Letter of Credit under an express or implied

contract theory.

b) Transfer of EDMC’s Contractual Interest to Plaintiffs

We now turn to whether plaintiffs plausibly allege that they can

enforce EDMC’s contractual interest through either successorship or

subrogation.

i. Successorship

Under the Anti-Assignment Act, “[t]he party to whom the [f]ederal

[g]overnment gives a contract or order may not transfer the contract or order,

or any interest in the contract or order, to another party.” 41 U.S.C. § 6305;

see also Fireman’s Fund Ins. Co. v. England, 313 F.3d 1344, 1349 (Fed. Cir.

2002) (stating the Anti-Assignment Act “broadly prohibit[s] . . . transfers of

15

contracts involving the United States or interests therein, and assignment of

claims against the United States.”). This court has, however, recognized two

exceptions to this general rule: (1) where the government has voluntarily

waived the Anti-Assignment Act for a specific assignment; and (2) where an

assignment is exempt from the Anti-Assignment Act “by operation of law.”

DDS Holdings, Inc. v. United States, 158 Fed. Cl. 431, 437 (2022). Because

there is no indication the government has waived the Anti-Assignment Act

in this case, we focus on whether the transfer is exempt by operation of law.

“In enacting anti-assignment legislation, Congress was interested in

keeping the government from having to deal with multiple claimants.”

Westinghouse Elec. Co. v. United States, 56 Fed. Cl. 564, 570 (2003), aff’d

sub nom. Westinghouse Elec. Co., LLC v. United States, 97 F. App’x 931

(Fed. Cir. 2004). The Anti-Assignment Act “enable[s] the United States to

deal exclusively with the original claimant,” thereby “eliminat[ing] the

‘confusion of conflicting demands for payment and the chances of multiple

liability.’” Johnson Controls World Servs., Inc. v. United States, 44 Fed. Cl.

334, 343 (1999) (quoting Tuftco Corp. v. United States, 614 F.2d 740, 744

(Ct. Cl. 1980)). In light of that purpose, courts have recognized that “the Act

does not restrict assignments where there is no probability that the United

States could suffer injury”—namely, liability to multiple claimants. L-3

Commc’ns Integrated Sys., L.P. v. United States, 84 Fed. Cl. 768, 778 (2008).

Permissible assignments include those “by operation of law,” in which the

assignment is pursuant to a “corporate merger, consolidation, or

reorganization.” DDS Holdings, Inc., 158 Fed. Cl. at 437. As the Supreme

Court noted:

We cannot believe that Congress intended to discourage,

hinder or obstruct the orderly merger or consolidation of

corporations as the various states might authorize for the public

interest. There is no probability that the United States could

suffer injury in respect of outstanding claims from such union

of interests and certainly the result would not be more

deleterious than would follow their passing to heirs, devisees,

assignees in bankruptcy, or receivers, all of which changes of

ownership have been declared without the ambit of the statute.

Seaboard Air Line Ry. v. United States, 256 U.S. 655, 657 (1921).

16

In other words, “[t]here is a distinction between a voluntary transfer

of contract rights . . . and one in which the transfer is forced by law, like

corporate succession through purchase or merger, or by the operation of law,

such as bankruptcy.” Am. Gov’t Properties v. United States, 118 Fed. Cl. 61,

67 (2014). “The obvious reason [for] this is that there can be no purpose in

such cases to harass the government by multiplying the number of persons

with whom it has to deal.” Goodman v. Niblack, 102 U.S. 556, 560 (1880).

However, even if the assignment is voluntary, the assignment may still be

exempt from the Act if it was made to satisfy a debt owed to creditors. United

States v. Shannon, 342 U.S. 288, 292 (1952) (recognizing that “general

assignments for the benefit of creditors” is an “exception[] to the broad sweep

of the statute”). This is because “the exception for voluntary assignments for

the benefit of creditors has been justified by analogy to assignments in

bankruptcy.” Id. The Supreme Court in Goodman expounded on this narrow

exception when addressing the Act to Prevent Frauds to the Treasury of the

United States, a predecessor to the Anti-Assignment Act, stating:

In what respect does the voluntary assignment for the benefit

of his creditors, which is made by an insolvent debtor of all his

effects, which must, if it be honest, include a claim against the

government, differ from the assignment which is made in

bankruptcy? There can here be no intent to bring improper

means to bear in establishing the claim, and it is not perceived

how the government can be embarrassed by such an

assignment. The claim is not specifically mentioned, and is

obviously included only for the just and proper purpose of

appropriating the whole of his effects to the payment of all his

debts. We cannot believe that such a meritorious act as this

comes within the evil which Congress sought to suppress by

the act of 1853.

Goodman, 102 U.S. at 560–61.

Picking up on Goodman, this court has further emphasized that, for

this exception to apply, the debtor must transfer “all his effects.” Westfed

Holdings, Inc. v. United States, 52 Fed. Cl. 135, 144 (2002). Thus, if pursuant

to insolvency, an entity fully forecloses its assets to satisfy a debt owed to a

17

creditor, and that foreclosure necessarily includes a voluntary assignment of

its contractual claims against the government, that voluntary assignment is

akin to assignments in bankruptcy and is exempt from the restrictions of the

Anti-Assignment Act. Goodman, 102 U.S. at 560–61.

Here, plaintiffs assert that, because EDMC’s contractual interest was

transferred to plaintiffs through a foreclosure agreement that was

subsequently confirmed in a bankruptcy proceeding, the transfer is “by

operation of law,” and is therefore exempt from the Anti-Assignment Act.

We believe this is a viable assertion under the facts alleged.

EDMC became an insolvent debtor when it faced financial

difficulties, forcing it to sell many of its schools. To satisfy EDMC’s

obligations to plaintiffs under the EDMC Credit Agreement, EDMC

surrendered “certain” assets to plaintiffs, as creditors, under the foreclosure

agreement, including general intangibles. Pls.’ Compl. ¶ 19, 43. Almost

immediately thereafter, EDMC “commenced a proceeding pursuant to

chapter 7 of the United States Bankruptcy Code, to liquidate its remaining

assets” to plaintiffs. Id. ¶ 43 (emphasis added). The Bankruptcy Court

approved a settlement, whereby the parties “acknowledge[d] the validity and

enforceability of the [foreclosure agreement].” Def.’s Reply Ex. 1, at App.

12. As a result, EDMC was “obliged to turn over all Collateral (including

Surrendered Collateral) to [U.S. Bank].” Def.’s Reply Ex. 1 at Appx 11.

Taking plaintiffs’ undisputed factual statements as true, the Partial Strict

Foreclosure Agreement and the bankruptcy settlement together transferred

all of EDMC’s effects to plaintiffs to satisfy EDMC’s debt, making it

arguably exempt from the Anti-Assignment Act. This application of the

“operation by law” exception comports with its purpose, as there is little

reason to believe the government would be subject to multiple claimants in

this scenario. All of EDMC’s contractual rights were fully transferred to

plaintiffs pursuant to its complete insolvency, and there is no reason to

believe EDMC can still pursue contractual claims against DOE. As a result,

though plaintiffs do not share privity of contract with the government,

18

plaintiffs reasonably argue that EDMC’s contractual rights were validly

assigned to plaintiffs as successors. 9

III. Fifth Amendment Takings Claim

Lastly, we address plaintiffs’ Fifth Amendment takings claim.

Usually, “[w]hen a plaintiff possesses enforceable rights under a contract

with the government, ‘interference with such contractual rights generally

gives rise to a breach claim not a taking[s] claim.’” Century Expl. New

Orleans, Inc. v. United States, 103 Fed. Cl. 70, 77 (2012) (quoting Sun Oil

Co. v. United States, 572 F.2d 786, 818 (Ct. Cl. 1978)). Though, in limited

circumstances, a contractual claim may also constitute a takings claim, those

limited circumstances do not apply where the plaintiff has failed to

demonstrate a property interest other than their alleged rights in contract. Id.

77–78. While this circuit has long recognized that “one cannot possess a

cognizable property interest in money generally, one’s property interest in a

specific fund of money . . . is cognizable under the Takings Clause.” Elec.

Welfare Tr. Fund v. United States, 166 Fed. Cl. 709, 717 (2003)

reconsideration denied, 167 Fed. Cl. 174 (2023) (emphasis added);

Commonwealth Edison Co. v. United States, 271 F.3d 1327, 1340 (Fed. Cir.

2001). This is because the plaintiff’s cognizable property interest is in the

fund itself versus an abstract sum of money. Elec. Welfare Tr. Fund, 166 Fed.

Cl. at 717; Adams v. United States, 391 F.3d 1212, 1225 (Fed. Cir. 2004). As

a result, a takings violation of one’s property interest in a specific sum of

money is only implicated where the government has appropriated the fund in

toto. Elec. Welfare Tr. Fund, 166 Fed. Cl. at 717. Necessarily, “[f]inding a

property interest in a specific fund . . . when only a portion of the fund was

appropriated would require recognizing a property interest in money alone,

which no court may do.” Id.

Though DOE initially drew the entire amount of the BNP Letter of

Credit, totaling $102,168,215, plaintiffs only seek compensation for “an

amount of approximately $92 million”—a portion of the entire letter of credit

9

It is therefore unnecessary to evaluate plaintiffs’ alternative argument based

on subrogation; although, we note there does not appear to be the required

three-party relationship between the government, EDMC, and plaintiffs.

19

proceeds. Pls.’ Compl. ¶ 86. Additionally, according to plaintiffs’ complaint,

DOE returned $14,500,000 of the letter of credit proceeds to plaintiffs, and

plaintiffs concede that, at least up to $28.5 million of the letter of credit

proceeds used to pay for liabilities arising on or before January 7, 2019 were

“permitted” and within the category of “Permissible Uses.” Id. ¶¶ 53–54.

Thus, because plaintiffs only seek compensation for a portion of the entire

letter of credit proceeds, the amount sought by plaintiffs does not constitute

a specific and particular pot of money in its entirety, but rather an abstract

sum. Because we cannot recognize a property interest in money alone,

plaintiffs Takings Clause claim is dismissed under 12(b)(6).

CONCLUSION

In sum, plaintiffs plausibly allege that the PPAs and BNP Letter of

Credit terms together formed an express contract between EDMC and DOE,

and because plaintiffs arguably are successors in interest to EDMC’s

contractual rights through a valid assignment, plaintiffs assert a plausible

contractual breach claim. Because plaintiffs plausibly claim their contractual

rights, and because plaintiffs cannot hold a property interest in money alone,

plaintiffs cannot maintain their takings claim. Accordingly, the government’s

motion to dismiss under 12(b)(1) and 12(b)(6) is denied regarding plaintiffs’

contractual breach claim and granted regarding plaintiffs’ takings claim.

Defendant is directed to answer the complaint on or before March 28, 2025.

s/Eric G. Bruggink

ERIC G. BRUGGINK

Senior Judge

20