United States Ex Rel. Oberg v. Pennsylvania Higher Education Assistance Agency

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 12-2513

UNITED STATES ex rel. JON H. OBERG,

Plaintiff - Appellant,

v.

PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; VERMONT

STUDENT ASSISTANCE CORPORATION; ARKANSAS STUDENT LOAN

AUTHORITY,

Defendants - Appellees,

and

NELNET, INC.; SLM CORPORATION; PANHANDLE PLAINS HIGHER

EDUCATION AUTHORITY; BRAZOS GROUP; EDUCATION LOANS INC/SD;

SOUTHWEST STUDENT SERVICES CORPORATION; BRAZOS HIGHER

EDUCATION SERVICE CORPORATION; BRAZOS HIGHER EDUCATION

AUTHORITY, INC.; NELNET EDUCATION LOAN FUNDING, INC.;

PANHANDLE-PLAINS MANAGEMENT AND SERVICING CORPORATION;

STUDENT LOAN FINANCE CORPORATION,

Defendants.

Appeal from the United States District Court for the Eastern

District of Virginia, at Alexandria. Claude M. Hilton, Senior

District Judge. (1:07-cv-00960-CMH-JFA)

Argued: September 19, 2013 Decided: March 13, 2014

Before TRAXLER, Chief Judge, and MOTZ and KEENAN, Circuit

Judges.

Affirmed in part, vacated in part, and remanded by published

opinion. Judge Motz wrote the opinion, in which Judge Keenan

joined. Chief Judge Traxler wrote a separate opinion concurring

in the judgment in part and dissenting in part.

ARGUED: Bert Walter Rein, WILEY REIN, LLP, Washington, D.C., for

Appellant. Daniel B. Huyett, STEVENS & LEE, Reading,

Pennsylvania; John Stone West, TROUTMAN SANDERS, LLP, Richmond,

Virginia; N. Thomas Connally, III, HOGAN LOVELLS US LLP, McLean,

Virginia, for Appellees. ON BRIEF: Michael L. Sturm,

Christopher M. Mills, Brendan J. Morrissey, WILEY REIN, LLP,

Washington, D.C., for Appellant. Thomas L. Appler, WILSON ELSER

MOSKOWITZ EDELMAN & DICKER LLP, McLean, Virginia, for Appellee

Kentucky Higher Education Student Loan Corporation. Megan C.

Rahman, TROUTMAN SANDERS LLP, Richmond, Virginia, for Appellee

Vermont Student Assistance Corporation. Thomas M. Trucksess,

HOGAN LOVELLS US LLP, McLean, Virginia; Dustin McDaniel,

Arkansas Attorney General, Dennis R. Hansen, Deputy Attorney

General, Mark N. Ohrenberger, Assistant Attorney General, OFFICE

OF THE ARKANSAS ATTORNEY GENERAL, Little Rock, Arkansas, for

Appellee Arkansas Student Loan Authority. Neil C. Schur,

STEVENS & LEE, P.C., Philadelphia, Pennsylvania; Jill M.

DeGraffenreid, McLean, Virginia, Joseph P. Esposito, HUNTON &

WILLIAMS LLP, Washington, D.C., for Appellee Pennsylvania Higher

Education Assistance Agency.

2

DIANA GRIBBON MOTZ, Circuit Judge:

This appeal returns to us after remand to the district

court. Dr. Jon Oberg, as relator for the United States, brought

this action against certain student loan corporations, alleging

that they defrauded the Department of Education and so violated

the False Claims Act (“FCA” or “the Act”), 31 U.S.C. §§ 3729 et

seq. (2006). The district court initially dismissed the

complaint in its entirety. When Dr. Oberg appealed, we held

that the court had not employed the proper legal framework --

the arm-of-the-state analysis -- in reaching its conclusion and

thus vacated its judgment and remanded the case. See U.S. ex

rel. Oberg v. Ky. Higher Educ. Student Loan Corp., 681 F.3d 575,

579-81 (4th Cir. 2012) (“Oberg I”). After applying the arm-of-

the-state analysis on remand, the district court again concluded

that all of the student loan corporations constituted state

agencies not subject to suit under the Act and so again granted

their motions to dismiss. For the reasons that follow, we

affirm in part, vacate in part, and remand for further

proceedings consistent with this opinion.

I.

On behalf of the United States, Dr. Oberg brought this

action against the Pennsylvania Higher Education Assistance

Agency, the Vermont Student Assistance Corporation, and the

3

Arkansas Student Loan Authority (collectively “appellees”).

Appellees are corporate entities established by their respective

states to improve access to higher education by originating,

financing, and guaranteeing student loans. 1

Dr. Oberg alleges that appellees defrauded the Department

of Education by submitting false claims for Special Allowance

Payments (“SAP”), a generous federal student loan interest

subsidy. According to Dr. Oberg, appellees engaged in

noneconomic sham transactions to inflate their loan portfolios

eligible for SAP, and the Department of Education overpaid

hundreds of millions of dollars to appellees as a result of the

scheme. Dr. Oberg alleges that appellees violated the FCA when

they knowingly submitted these false SAP claims.

The FCA provides a cause of action against “any person” who

engages in certain fraudulent conduct, including “knowingly

present[ing], or caus[ing] to be presented, a false or

fraudulent claim for payment or approval” to an officer,

employee, or agent of the United States. 31 U.S.C.

§ 3729(a)(1)(A). The Act does not define the term “person.” In

Vermont Agency of Natural Resources v. United States, ex rel.

1

Dr. Oberg also sued other defendants not parties to this

appeal. Among those defendants was another student loan

corporation, the Kentucky Higher Education Student Loan

Corporation, which reached a settlement with Dr. Oberg shortly

before the most recent appeal.

4

Stevens, 529 U.S. 765, 787-88 (2000), the Supreme Court held

that a state or state agency does not constitute a “person”

subject to liability under the Act. But the Court also noted

that corporations, by contrast, are “presumptively covered by

the term ‘person.’” Id. at 782 (emphasis in original). And

three years later, the Court applied the latter presumption and

held that municipal corporations like counties are ‘persons’

subject to suit under the FCA. See Cook Cnty. v. U.S. ex rel.

Chandler, 538 U.S. 119, 122 (2003).

Accordingly, a court must walk a careful line between two

competing presumptions to determine if a state-created

corporation is “truly subject to sufficient state control to

render [it] a part of the state, and not a ‘person,’ for FCA

purposes.” Oberg I, 681 F.3d at 579. 2 In the prior appeal, we

held that the appropriate legal framework for this delicate

inquiry is the arm-of-the-state analysis used in the Eleventh

Amendment context. Id. at 579-80. Because the district court

had not undertaken this analysis, we vacated its judgment and

2

Dr. Oberg insists that only one presumption applies: that

all corporate entities -- regardless of their affiliation with a

state -- must overcome a “presumption of ‘personhood.’”

Appellant’s Br. 15. The dissent seems to agree. See Dissent.

Op. at 34. But this assertion ignores the Supreme Court’s clear

instruction that in the context of corporations created by and

sponsored by a state, competing presumptions are at play. See

Stevens, 529 U.S. at 782 (observing that “the presumption with

regard to corporations is just the opposite of the one governing

[state entities]”).

5

remanded the case to the district court for application of the

proper legal framework. Id. at 581.

On remand, after applying the arm-of-the-state analysis,

the district court concluded that each appellee is part of its

respective state and thus not a “person” under the Act, and so

again granted appellees’ motions to dismiss pursuant to Fed. R.

Civ. P. 12(b)(6). Dr. Oberg then timely noted this appeal.

On review of a Rule 12(b)(6) dismissal, we consider a case

de novo. See E.I. du Pont de Nemours & Co. v. Kolon Indus.,

Inc., 637 F.3d 435, 440 (4th Cir. 2011). We evaluate only

whether the complaint states “a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 547 (2007). In doing so, we construe “facts in the light

most favorable to the plaintiff,” Nemet Chevrolet, Ltd. v.

Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009),

and “draw all reasonable inferences in [his] favor” Kolon

Indus., 637 F.3d at 440. Yet “we need not accept as true

unwarranted inferences, unreasonable conclusions, or arguments.”

Kloth v. Microsoft Corp., 444 F.3d 312, 319 (4th Cir. 2006).

Nor do we credit allegations that offer only “naked assertions

devoid of further factual enhancement.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (internal quotations marks, alteration, and

citation omitted).

6

Moreover, in reviewing a Rule 12(b)(6) dismissal, we are

not confined to the four corners of the complaint. It is well

established that “we may properly take judicial notice of

matters of public record,” including statutes. Philips v. Pitt

Cnty. Mem’l Hosp., 572 F.3d 176, 180 (4th Cir. 2009). We may

also consider “documents incorporated into the complaint by

reference,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

U.S. 308, 322 (2007), “as well as those attached to the motion

to dismiss, so long as they are integral to the complaint and

authentic,” Philips, 572 F.3d at 180. Thus, before us, the

parties properly cite to and rely on state statutes and exhibits

integral to the complaint.

Finally, we note that although arm-of-the-state status may

well constitute an affirmative defense in the related Eleventh

Amendment context, this is not so in an FCA case. To succeed in

an FCA case, a relator must demonstrate that a defendant is a

“person” within the meaning of the Act. As the dissent

recognizes, this is “a statutory question.” Dissent. Op. at 36.

That is, personhood is an element of the statutory FCA claim,

not an immunity providing a defense from suit as in the Eleventh

Amendment context. See, e.g., U.S. ex rel. Adrian v. Regents of

Univ. of Cal., 363 F.3d 398, 401-02 (5th Cir. 2004) (dismissing

7

FCA action on 12(b)(6) motion because “the FCA does not provide

a cause of action against state agencies”). 3

II.

In applying the arm-of-the-state analysis, we consider four

nonexclusive factors to determine whether an entity is “truly

subject to sufficient state control to render [it] a part of the

state.” Oberg I, 681 F.3d at 579.

First, when (as here), an entity is a defendant, we ask

“whether any judgment against the entity as defendant will be

paid by the State.” Oberg I, 681 F.3d at 580 (quoting S.C.

Dep’t Disabilities & Special Needs v. Hoover Universal, Inc.,

535 F.3d 300, 303 (4th Cir. 2008)). 4 The Supreme Court has

3

The dissent’s suggestion to the contrary thus misses the

mark. Tellingly, it offers only Eleventh Amendment cases in

support of its contention that arm-of-the-state status is an

affirmative defense. See Dissent. Op. at 35-36. But the

Supreme Court has made clear that the statutory FCA question is

distinct from the Eleventh Amendment inquiry. See Stevens, 529

U.S. at 779-80 (explaining that the Court initially considers

whether “the [FCA] itself permits the cause of action it creates

to be asserted against States” before reaching the Eleventh

Amendment sovereign immunity question).

4

When an entity is a plaintiff, this factor requires us to

determine “whether any recovery by the entity as plaintiff will

inure to the benefit of the State.” Hoover Universal, 535 F.3d

at 303. We previously regarded the first factor as “the most

important consideration,” Ram Ditta v. Md. Nat’l Capital Park &

Planning Comm’n, 822 F.2d 456, 457 (4th Cir. 1987), and the

dissent seems to regard it as dispositive, see Dissent. Op. at

41. But as we noted in Oberg I, 681 F.3d at 580 n.3, more

(Continued)

8

instructed that in assessing this factor, an entity’s “potential

legal liability” is key. Regents, 519 U.S. at 431; see also

Parker v. Franklin Cnty. Cmty. Sch. Corp., 667 F.3d 910, 927-28

(7th Cir. 2012) (focusing on legal liability for payment of a

judgment in the wake of Regents); Cooper v. Se. Penn. Transp.

Auth., 548 F.3d 296, 303 (3d Cir. 2008)(same); U.S. ex rel.

Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702,

718 (10th Cir. 2006) (same). Thus, we consider whether state

law “provides that obligations of [the entity] shall not be

binding on [the] State.” Lake Country Estates, Inc. v. Tahoe

Reg’l Planning Agency, 440 U.S. 391, 402 (1979) (emphasis in

original). In doing so, we look to whether “State law indicates

that a judgment against [the entity] can be enforced against the

State.” Cash v. Granville Cnty. Bd. of Educ., 242 F.3d 219, 224

(4th Cir. 2001).

An entity may also constitute an arm of the state “where

the state is functionally liable, even if not legally liable.”

Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d 1116, 1122

(9th Cir. 2007) (emphasis added); see also Hess v. Port Auth.

Trans-Hudson Corp., 513 U.S. 30, 50 (1994) (“Where an agency is

recent Supreme Court precedent suggests that although this

factor remains of “considerable importance,” Regents of the

Univ. of Cal. v. Doe, 519 U.S. 425, 430 (1997), it does not

deserve dispositive preeminence, see Fed. Maritime Comm’n v.

S.C. State Ports Auth., 535 U.S. 743, 765 (2002).

9

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

survive, a judgment must expend itself against state treasuries,

common sense and the rationale of the eleventh amendment require

that sovereign immunity attach to the agency.”) (internal

quotation marks and alteration omitted).

Second, we assess “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 I, 681 F.3d at 580 (quoting Hoover Universal, 535 F.3d at

303). Also relevant to the autonomy inquiry is the

determination whether an entity has the ability to contract, sue

and be sued, and purchase and sell property, see Cash, 242 F.3d

at 225; Ram Ditta, 822 F.2d at 458, and whether it is

represented in legal matters by the state attorney general, see,

e.g., Md. Stadium Auth. v. Ellerbe Becket, Inc., 407 F.3d 255,

264 (4th Cir. 2005).

Third, we consider “whether the entity is involved with

state concerns as distinct from non-state concerns, including

local concerns.” Oberg I, 681 F.3d at 580 (quoting Hoover

Universal, 535 F.3d at 303). “Non-state concerns,” however, do

not mean only “local” concerns, but rather also encompass other

non-state interests like out-of-state operations. See Hoover

Universal, 535 F.3d at 307 (characterizing this factor as

10

“whether the entity is involved with statewide, as opposed to

local or other non-state concerns”) (emphasis added).

Fourth, we look 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.”

Oberg I, 681 F.3d at 580 (quoting Hoover Universal, 535 F.3d at

303). Whether an entity is an arm of the state is ultimately a

question of federal law, “[b]ut that federal question can be

answered only after considering the provisions of state law that

define the agency’s character.” Regents, 519 U.S. at 429 n.5.

“In addressing this factor, a court may consider both the

relevant state statutes, regulations, and constitutional

provisions which characterize the entity, and the holdings of

state courts on the question.” Md. Stadium Auth., 407 F.3d at

265 (internal quotation marks omitted).

With these principles in mind, we now apply arm-of-the-

state analysis to each of the appellees.

III.

We initially consider the Pennsylvania Higher Education

Assistance Agency (“PHEAA”). In 1963, the Pennsylvania General

Assembly created PHEAA, which, according to PHEAA itself, now

constitutes one of the nation’s largest providers of student

financial aid services. Although PHEAA continues to administer

11

state-funded student aid programs in Pennsylvania, it

acknowledges that it also operates nationally under the names

American Education Services and FedLoan Servicing.

The first factor in the arm-of-the-state analysis, whether

Pennsylvania would pay a judgment against PHEAA in this case,

weighs decidedly against holding that PHEAA is an arm of the

state. For “instead of the state treasury being directly

responsible for judgments against [PHEAA], [state law] expressly

provides that obligations of [PHEAA] shall not be binding on

[the] State.” Lake Country Estates, 440 U.S. at 402 (emphasis

in original). Pennsylvania explicitly disavows liability for

all of PHEAA’s debts. See 24 Pa. Cons. Stat. § 5104(3)(2012)

(“no obligation of the agency shall be a debt of the State”).

In addition, state law emphasizes that PHEAA’s debts are not

“payable out of any moneys except those of the corporation.”

Id. Aside from state appropriations that go directly to

students in the form of education grants, moreover, PHEAA’s

substantial “moneys” derive exclusively from its own operations.

The Pennsylvania treasury is thus neither legally nor

functionally liable for any judgment against PHEAA. See Stoner,

502 F.3d at 1122.

Nevertheless, PHEAA contends that the important first

factor weighs in favor of concluding that it is an arm of the

state because state statutes require that its funds be deposited

12

into the state treasury and that “no money” be paid from the

treasury without approval from the state treasurer. See 24 Pa.

Cons. Stat. § 5104(3); 72 Pa. Cons. Stat. § 307 (2013). This

argument, however, ignores “a commonplace of statutory

construction that the specific governs the general.” Morales v.

Trans World Airlines, 504 U.S. 374, 384 (1992). The statutory

provisions specifically outlining PHEAA’s “powers and duties”

clearly indicate that PHEAA’s board of directors -– not the

state treasurer -– controls PHEAA’s funds. Those statutes

provide that PHEAA’s funds “shall be available to the agency”

and “may be utilized at the discretion of the board of directors

for carrying out any of the corporate purposes of the agency.”

24 Pa. Cons. Stat. § 5104(3). Further, the state treasurer may

use PHEAA’s funds only for purposes “consistent with guidelines

approved by the board of directors.” Id.

Moreover, PHEAA’s funds are held in a segregated account

apart from general state funds. Id. § 5105.10. Our sister

circuits have recognized that such an arrangement counsels

against establishing arm-of-the-state status under this factor.

The First Circuit, for instance, held that the University of

Rhode Island is not an arm of its state in part because its

funds are not “merged with[] the general fund, but are kept in

segregated accounts [in the state treasury] pending

discretionary disbursement by the [University’s] Board.” Univ.

13

of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1210 (1st Cir.

1993). Similarly, the Third Circuit, in assessing whether the

Public School Employees’ Retirement Board of Pennsylvania was an

arm of the state, remanded the case for further consideration in

part because -– like PHEEA’s account -- the entity’s fund was

“set apart in the state treasury from general state funds and []

administered by the State Treasurer at the discretion of the

Board.” Blake v. Kline, 612 F.2d 718, 723 (3d. Cir. 1979)

(footnote and citations omitted). In sum, because state law

instructs that PHEAA would pay any judgment in this case with

its own moneys from its segregated fund, see 24 Pa. Cons. Stat.

§ 5104(3)(2012), the first factor weighs heavily against holding

that PHEAA is an arm of the state.

The second factor, the degree of autonomy exercised by the

entity, presents a closer question. PHEAA’s board of directors

is composed of gubernatorial appointees and state legislators or

officials. See 24 Pa. Cons. Stat. § 5103 (repealed July 2010,

but effective during the period when PHEAA allegedly violated

the FCA). Such an arrangement frequently indicates state

control. See Md. Stadium Auth., 407 F.3d at 264. Further,

state officials exercise some degree of veto power over PHEAA’s

operations. For example, the Auditor General may review PHEAA’s

activities, 24 Pa. Cons. Stat. § 5108, and PHEAA must seek the

approval of the Governor in order to issue notes and bonds, id.

14

§ 5104(3). These factors may mean, as PHEAA contends, that it

is simply a tool of the state.

But other indicia relevant to the autonomy analysis --

PHEAA’s source of funding, control over its revenues, and

corporate powers –- strongly suggest that PHEAA is not an arm of

the state. Most critically, PHEAA is financially independent.

According to its annual reports, which were attached to the

amended complaint, PHEAA receives no operational funding from

Pennsylvania. See also Appellees’ Br. 53 (conceding the point).

Pennsylvania law, moreover, expressly instructs that PHEAA’s

funds “shall be available to the agency,” and that PHEAA’s board

may use those funds in any manner that furthers the agency’s

corporate purposes. 24 Pa. Cons. Stat. § 5104(3). Meanwhile,

the state treasurer’s use of PHEAA’s funds must adhere to

“guidelines approved by the board” of PHEAA. Id. Finally,

PHEAA has the power to enter into contracts, sue and be sued,

and purchase and sell property in its own name, all of which

suggest operational autonomy. See Cash, 242 F.3d at 225; Ram

Ditta, 822 F.2d at 458. Although the facts relevant to this

second factor cut both ways, when we consider “all reasonable

inferences in favor of the plaintiff” as we must at this stage,

Kolon Indus., 637 F.3d at 440, we conclude that this factor also

counsels against holding that PHEAA is an arm of the state.

15

The third factor is whether PHEAA “is involved with

statewide, as opposed to local or other non-state concerns.”

Hoover Universal, 535 F.3d at 307. Dr. Oberg poses two

arguments relevant to this factor.

Initially, he contends that due to PHEAA’s commercial

focus, its operations do not involve an area of legitimate state

concern. See Appellant’s Br. 43; Reply Br. 25-26. This

argument fails. Pennsylvania created PHEAA to finance, make,

and guarantee loans for higher education, and “[h]igher

education is an area of quintessential state concern and a

traditional state government function.” Md. Stadium Auth., 407

F.3d at 265. PHEAA does not provide higher education directly,

but it nonetheless facilitates the attainment of education by

supplying student financial aid services. This work is clearly

of legitimate state concern.

Dr. Oberg’s remaining argument as to the third factor is

that PHEAA’s operations from 2002 to 2006 -- during the time in

which PHEAA allegedly conducted fraudulent transactions in

violation of the FCA -- were so focused out of state that PHEAA

was not involved primarily with state concerns. 5 See Ram Ditta,

5

PHEAA counters that out-of-state operations are irrelevant

because this factor is concerned only with whether an entity’s

focus is statewide as opposed to local. The argument is

misguided. Rather, this factor looks to “whether the entity is

(Continued)

16

822 F.2d at 459; cf. Hoover Universal, 535 F.3d at 307. To this

end, Dr. Oberg alleges that “PHEAA conducts substantial

operations outside of Pennsylvania,” and that as early as 2005,

“one-third of PHEAA’s earnings c[a]me from outside the

[C]ommonwealth,” after which it further “expanded its

operations.” PHEAA’s financial reports, cited throughout Dr.

Oberg’s complaint, tend to corroborate these claims, so there is

little doubt that during the period in question PHEAA’s

operations extended well beyond the borders of Pennsylvania.

Even so, if only one-third of PHEAA’s earnings came from outside

Pennsylvania in 2005, it does not seem plausible that by 2006 --

the last year encompassed by Dr. Oberg’s allegations -– PHEAA’s

operations focused primarily out of state. See Ram Ditta, 822

F.2d at 459; see also Iqbal, 556 U.S. at 678 (explaining that

“[w]here a complaint pleads facts that are merely consistent

with a defendant’s liability, it stops short of the line between

possibility and plausibility of entitlement to relief”)

(internal quotation marks and citation omitted). Therefore, we

believe this factor weighs in favor of arm-of-the-state status

for PHEAA.

involved with statewide, as opposed to local or other non-state

concerns.” Hoover Universal, 535 F.3d at 307 (emphasis added).

17

The final factor, how PHEAA is treated under state law,

also supports PHEAA’s contention that it is an arm of

Pennsylvania. A state statute provides that “the creation of

the agency [was] in all respects for the benefit of the

people . . . and the agency [performs] an essential governmental

function.” 24 Pa. Cons. Stat. § 5105.6. 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, see, e.g., Richmond v. Penn. Higher Educ. Assistance

Agency, 297 A.2d 544, 546 (1972); Penn. Higher Educ. Assistance

Agency v. Barksdale, 449 A.2d 688, 689-90 (1982).

In sum, although the third and fourth factors suggest that

PHEAA is an arm of the state, the first (strongly) and second

(albeit less strongly) point in the opposite direction. At this

early stage, construing the facts in the light most favorable to

the plaintiff, Nemet Chevrolet, 591 F.3d at 255, we must

conclude that Dr. Oberg has alleged sufficient facts that PHEAA

is not an arm of the state, but rather a “person” for FCA

purposes. We therefore vacate the judgment of the district

court as to PHEAA and remand to permit limited discovery on the

question whether PHEAA is “truly subject to sufficient state

18

control to render [it] a part of the state.” Oberg I, 681 F.3d

at 579.

IV.

We next consider whether Dr. Oberg’s complaint states a

plausible claim that the Vermont Student Assistance Corporation

(“VSAC”) is a “person” subject to suit under the FCA. The

Vermont legislature created VSAC in 1965 to provide Vermont

residents with opportunities to attend college by awarding

education grants and financing student loans. Vt. Stat. Ann.

tit. 16, § 2821(a) (2013). According to VSAC’s financial

statements -– referenced repeatedly in Dr. Oberg’s complaint --

the agency currently administers a state grant program and a

higher education investment plan; originates, services, and

guarantees student loans; and provides higher education

information and counseling services.

The upshot of the first arm-of-the-state factor -- who

would pay a judgment in this case -– is unclear. State law

provides no definite guidance. On one hand, Dr. Oberg alleges

that Vermont would not pay a judgment because the state

disclaims legal liability for VSAC’s debts. Yet, in contrast to

Pennsylvania, which disavows liability for any and all of

PHEAA’s obligations, see 24 Pa. Cons. Stat. § 5104(3), Vermont

does so only with respect to VSAC’s debt obligations issued to

19

finance loans for higher education, see Vt. Stat. Ann. tit. 16,

§ 2823(f); id at § 2868(i). Dr. Oberg has identified no state

law indicating that a judgment obligation could not be enforced

against the state, and we have found none. See Lake Country

Estates, 440 U.S. at 402 (finding relevant whether state law

“provides that obligations of [the entity] shall not be binding

on [the] State”).

On the other hand, VSAC’s contention that Vermont would pay

a judgment rests on the state’s duty to “support and maintain”

VSAC. Vt. Stat. Ann. tit. 16, § 2823(a). But an obligation

stated in such general terms is not conclusive. Moreover,

although state appropriations compose nearly twenty percent of

VSAC’s revenues, such funding goes entirely to students in the

form of need-based grants. Thus, whether Vermont would be

legally or functionally liable for a judgment here is unclear.

At this stage, however, we must construe all facts in the light

most favorable to the plaintiff, Nemet Chevrolet, 591 F.3d at

255, so we assume that this critical (albeit not dispositive)

first factor weighs against arm-of-the-state status for VSAC.

The second factor, VSAC’s degree of autonomy from the

state, also presents a close question. Vermont law provides

that eight members of VSAC’s eleven-member board of directors

are either state officials or gubernatorial appointees, and that

the board elects the remaining three members. Vt. Stat. Ann.

20

tit. 16, § 2831. Moreover, Vermont retains important oversight

authority over VSAC. The state “reserves the right at any time

to alter, amend, repeal or otherwise change the structure,

organization, programs, or activities” of VSAC, id. § 2821(b),

and state law provides that VSAC may issue no debt obligation

“without the approval in writing of the governor,” id.

§ 2823(f).

Other autonomy indicators, however, counsel against holding

that VSAC is an arm of the state. VSAC not only exercises

corporate powers including the capacity to contract and sue and

be sued, see Cash, 242 F.3d at 225, it is also, like PHEAA,

financially independent. VSAC’s financial statements, cited

throughout the complaint, indicate that VSAC uses state

appropriations only for need-based educational grants; no state

funds finance its operations. In addition, VSAC’s board is

broadly empowered to adopt policies and regulations governing

its lending activities, Vt. Stat. Ann. tit. 16, § 2834, and “to

do any and all acts and things as may be necessary” to secure

its debt obligations, id. § 2868(d). Thus, although we

recognize that certain facts relevant to the autonomy analysis

suggest that VSAC is an arm of the state, others weigh decidedly

against that conclusion. Once again “draw[ing] all reasonable

inferences in favor of the plaintiff,” Kolon Indus., 637 F.3d at

21

440, we believe this factor also counsels against holding as a

matter of law that VSAC is an arm of the state.

As to the third factor, whether VSAC is involved with

statewide concerns, Dr. Oberg alleges that this factor weighs

against holding that VSAC is an arm of the state because

“Vermont law allows VSAC to conduct business in other States”

and the agency has “contracted with borrowers and companies

outside Vermont.” But these assertions do not equate to an

allegation that VSAC’s operations centered primarily outside

Vermont at any point in time. See Ram Ditta, 822 F.2d at 459.

Indeed, Dr. Oberg’s allegations here fall short even of those he

offers as to PHEAA’s extra-state operations, which we have held

do not rise to the level of establishing a plausible claim of

arm-of-the-state status under this factor. See Iqbal, 556 U.S.

at 678. Rather, VSAC’s financial statements indicate that

during the period in question the agency was focused on the

statewide concern of facilitating postsecondary educational

opportunities for residents of Vermont.

With respect to the fourth factor, how state law treats the

entity, Dr. Oberg alleges that Vermont does not treat VSAC as it

treats “true agencies of the state.” But in fact Vermont law

expressly provides that VSAC “shall be an instrumentality of the

state,” Vt. Stat. Ann. tit. 16, § 2823(a), exempts VSAC from all

taxation, id. § 2825, and “designate[s] [VSAC] as the state

22

agency to receive federal funds assigned to the state of Vermont

for student financial aid programs,” id. § 2823(c).

In sum, although the first and second factors present close

questions, we must conclude in compliance with Rule 12(b)(6)

that both weigh against holding VSAC an arm of the state.

Accordingly, while the third and fourth factors suggest

otherwise, we must also hold that Dr. Oberg’s allegations as to

VSAC are sufficient to survive a motion to dismiss. This is so

particularly given the first factor’s enduring importance. See

supra at 8 n.4. We recognize that some of Dr. Oberg’s

allegations test the outer bounds of the plausibility standard,

but at this juncture, we must construe all facts in the light

most favorable to the plaintiff. We therefore vacate the

judgment of the district court with respect to VSAC and remand

to permit limited discovery on this question.

V.

Finally, we consider whether the Arkansas Student Loan

Authority (“ASLA”) is an arm of the state of Arkansas. The

state legislature created ASLA in 1977 to help Arkansas provide

higher educational opportunities for its residents. Ark. Code

Ann. § 6-81-102 (2013). ASLA currently originates and disburses

student loans at postsecondary schools throughout the state. It

23

also sponsors outreach services to increase awareness about

financial aid in higher education.

In contrast to PHEAA and VSAC, all four factors weigh in

favor of holding that ASLA is an arm of the state. First,

although § 6-81-113 of the Arkansas Code disavows liability for

debt obligations issued to finance student loans, it says

nothing about liability for other debts like a judgment

obligation. Critically, Arkansas statutes elsewhere indicate

that state revenues would be used to satisfy a judgment against

ASLA. State law instructs that “[a]ll moneys received by

[ASLA]” from its lending operations are “specifically declared

to be cash funds,” and further, that “cash funds” are “revenues

of the state.” Id. at §§ 6-81-118(a)(1), 19-6-103.

Accordingly, because ASLA’s income derives overwhelmingly from

its lending activities, and because such income statutorily

belongs to Arkansas, it follows that the state would foot the

bulk of any judgment against ASLA. Dr. Oberg’s allegations to

the contrary establish only a dubious possibility that ASLA

could procure some “other income” with which to satisfy a

judgment. See Reply Br. at 14. More is required to survive a

motion to dismiss. See Iqbal, 556 U.S. at 678.

The dissent misses the mark in contending that Arkansas’s

statutory scheme is “similar in many ways to that in

Pennsylvania,” Dissent. Op. at 50 n.4, and that state funds

24

would not be used to satisfy a judgment against ASLA because,

“in reality,” Arkansas “claims” only ASLA’s “surplus revenues,”

Dissent. Op. at 51. Arkansas does not, “in reality,” “claim”

only ASLA’s “surplus revenues” as revenues of the state.

Arkansas law expressly provides that “all moneys” received by

ASLA in connection with its lending activities are revenues of

the state. Ark. Code Ann. §§ 6-81-118(a)(1), 19-6-103. And

Arkansas law carefully cabins ASLA’s use of those state revenues

to certain lending costs, id. § 6-81-118(b)-(c), an arrangement

far removed from the Pennsylvania scheme granting PHEAA

“discretion[ary]” authority to use its funds for any corporate

purpose, see 24 Pa. Cons. Stat. § 5104(3).

The dissent also misses the mark in suggesting that our

analysis here is “directly contrary” to that in Hess v. Port

Authority Trans-Hudson Corp., 513 U.S. 30 (1994), for this

contention ignores crucial differences between the two cases.

While ASLA is a corporation created by a single state to further

educational opportunities in that state, the Port Authority in

Hess is a bistate “Compact Clause entity” with “diffuse”

political accountability. Id. at 42. Because Congress must

authorize the creation of such bistate entities, see U.S. Const.

art. 1, § 10, cl. 3, they “owe their existence to [both] state

and federal sovereigns” and so “lack the tight tie to the people

of one State that an instrument of single State has,” Hess, 513

25

U.S. at 42. For this reason, the Supreme Court recognizes a

“general approach” for Compact Clause entities, like the Port

Authority, under which a court will “presume” that they are not

arms of the state. Id. at 43. (Of course, the Court has

established no similar “general approach” for state-created

corporations like ASLA.)

Notwithstanding this presumption, and even though no state

appropriated funds to the Port Authority or claimed the

Authority’s income as its revenue, the Authority argued that it

was an arm of a state because it dedicated some of its surplus

to “public projects which the States themselves might otherwise

finance.” Id. at 50. The Supreme Court had little difficulty

rejecting that argument, noting that because the Authority was a

profitable Compact Clause entity that retained and controlled

its income, the associated states would not pay a judgment

against it. Id. at 51. ASLA, by contrast, is “an instrument of

a single [s]tate,” id. at 43, and state law expressly provides

that all of its lending income belongs to that state. Thus,

state funds necessarily would be used to pay a judgment against

ASLA. In sum, Hess does not in any way undermine our holding

26

that this first factor indicates that ASLA is an arm of the

state. 6

As to the second arm-of-the-state factor, ASLA operates

with little autonomy from Arkansas despite its corporate powers.

State legislative records establish that, unlike Pennsylvania

and Vermont, Arkansas provides its student loan corporation

substantial funding. 7 Moreover, the Arkansas Attorney General

6

The dissent disputes this conclusion for two additional

reasons. Relying on the principle that the “specific governs

the general,” Morales, 504 U.S. at 384, the dissent notes that

only general statutory provisions –- not those “exclusively

applicable to ASLA” -– define “cash funds” as “revenues of the

state.” See Dissent. Op. at 48-49. But the principle of

statutory construction on which the dissent relies applies only

where general and specific statutory provisions conflict, or

where a general provision would render a more specific one

superfluous. See RadLAX Gateway Hotel, LLC v. Amalgamated Bank,

132 S. Ct. 2065, 2071 (2012). The principle finds no footing

where, as here, specific and general statutory provisions do not

conflict, but rather go hand in hand. That is, the specific

provision defining ASLA’s revenues as “cash funds” is entirely

consistent with the general provision declaring that “cash

funds” are revenues of the state.

The dissent also posits that “the fact that ASLA’s funds

are held in a segregated fund outside the state treasury

counsels against arm-of-state status.” Dissent. Op. at 49. As

a general rule, we agree that such an arrangement would weigh

against holding that an entity is an arm of its state. But

Arkansas is an exception to this general rule, because state law

expressly declares agency income deposited outside the state

treasury to be revenue of the state. Ark. Code Ann. § 19-6-103.

In contrast to the dissent’s suggestion, see Dissent. Op. at 50

n.4, ASLA’s statutory scheme thus operates nothing like that

governing PHEAA.

7

The dissent unconvincingly suggests that this funding is

irrelevant to the autonomy inquiry because it derives from

ASLA’s own cash funds. Dissent. Op. at 51, 55. But the source

(Continued)

27

represents ASLA in litigation, including the case at hand, and

state law limits ASLA’s powers in several significant ways. For

example, Arkansas subjects ASLA’s use of cash funds to approval

by the General Assembly, Ark. Code Ann. § 19-4-802, and prevents

its sale of bonds “until the bond issue has the written approval

of the Governor after he or she has received the approval of the

State Board of Finance,” id. § 6-81-108.

Critically, the Governor of Arkansas also appoints every

member of ASLA’s board of directors. See id. § 6-81-102(d).

“The fact that all of [an entity’s] decisionmakers are appointed

by the Governor,” we have recognized, “is a key indicator of

state control.” Md. Stadium Auth., 407 F.3d at 264; see also,

Hoover, 353 F.3d at 307; Kitchen, 286 F.3d at 185; Cash, 242

F.3d at 225. The dissent all but ignores this fact, claiming

instead that ASLA is autonomous because its board members serve

fixed terms and may not be removed at will. Dissent. Op. at 56.

This argument fails. Even where board members serve fixed

terms, state authority to appoint all of an entity’s

of state funds used to support ASLA’s operations matters not.

What matters is whether an entity’s funds belong to the state.

See supra at 25-26. In this case, state law expressly provides

that they do. Every dollar ASLA earns through its lending

activities becomes a dollar of state revenue “to be used as

required and to be expended only for such purposes and in such

manner as determined by law.” Ark. Code Ann. § 19-6-103. That

Arkansas, in its discretion, returns some of this money to ASLA

to finance its operations does not change that fact.

28

decisionmakers remains powerful evidence of state control. See

Md. Stadium Auth., 407 F.3d at 258, 264 (stressing importance of

power to appoint although board members “serve five year

terms”). Arkansas law, moreover, is equivocal with respect to

the governor’s removal power. Indeed, it suggests that the

governor may remove board members simply by selecting new ones,

as appointments to ASLA’s board are for four-year terms “or

until a successor is appointed.” Ark. Code Ann. § 6-81-102(e).

Third, with respect to whether ASLA is focused on state

concerns, Dr. Oberg merely alleges that Arkansas law “allows

ASLA to lend to any qualified borrower nationwide” and that ASLA

“can and has entered into contracts with institutions outside

Arkansas.” The operative question, however, is whether ASLA is

primarily involved with state concerns. See Ram Ditta, 822 F.2d

at 459. And Dr. Oberg has alleged no facts indicating that ASLA

is not primarily involved with the state concern of helping to

finance higher education for Arkansas residents. The dissent,

while conceding that student-loan financing facilitates the

important state goal of educating youth, maintains that ASLA is

also engaged in non-state concerns like “the servicing of

federal student loans.” Dissent. Op. at 55. But ASLA’s

federal-loan servicing work did not begin until 2012, so is

irrelevant to the question whether ASLA was a “person” within

29

the meaning of the FCA from 2002 to 2006 when it allegedly

violated the Act.

Fourth, as the dissent agrees, Arkansas law plainly treats

ASLA as an arm of the state. ASLA was established by state law

as “the instrumentality of the state charged with a portion of

the responsibility of the state to provide educational

opportunities.” Ark. Code Ann. § 6-81-102(c). Its lending

revenues are statutorily defined as “revenues of the state,” id.

§§ 6-81-118, 19-6-103, and the Supreme Court of Arkansas has

described ASLA as “a state agency created by . . . the 1977 Acts

of Arkansas,” Turner v. Woodruff, 689 S.W.2d 527, 528 (Ark.

1985).

In short, we conclude that each of the four factors

counsels in favor of holding that ASLA is an arm of the state.

To be sure, as the dissent points out, arm-of-the-state analysis

is a fact-intensive inquiry often ill suited to judgment on the

pleadings. See Dissent. Op. at 58-59. But where, as with ASLA,

the relevant facts are clear, Rule 12(b)(6) mandates dismissal.

See, e.g., Stoner, 502 F.3d at 1121-23 (dismissing FCA action on

12(b)(6) motion); Adrian, 363 F.3d at 401-02 (same). We

therefore hold that ASLA is an arm of Arkansas and so not

subject to suit under the FCA.

30

VI.

We affirm the judgment of the district court with respect

to ASLA. We vacate that portion of the district court’s

judgment dismissing Dr. Oberg’s FCA claims against PHEAA and

VSAC and remand for further proceedings consistent with this

opinion.

AFFIRMED IN PART,

VACATED IN PART,

AND REMANDED

31

TRAXLER, Chief Judge, concurring in the judgment in part and

dissenting in part:

This is an appeal from the granting of a Rule 12(b)(6)

motion to dismiss, a motion that tests the plausibility of the

plaintiff’s allegations rather than the plaintiff’s ability to

ultimately prove his allegations or the defendant’s ability to

establish a defense. In my view, plaintiff Jon Oberg’s Fourth

Amended Complaint plausibly alleges that all of the defendant

student-loan corporations (together, the “Loan Companies”) are

“persons” against whom an action under the False Claims Act (the

“FCA”) can be maintained. Whether the Loan Companies qualify as

arms of their creating states is an affirmative defense that

need not be anticipated or negated by the allegations of the

complaint, see Goodman v. Praxair, Inc., 494 F.3d 458, 466 (4th

Cir. 2007) (en banc), and is a question that cannot be finally

resolved here without discovery and fact-finding by the district

court.

Accordingly, I concur in that portion of the judgment

vacating the dismissal of Oberg’s False Claims Act claims

asserted against the Pennsylvania Higher Education Assistance

Agency (“PHEAA”) and the Vermont Student Assistance Corporation

(“VSAC”), but I dissent from the dismissal of the claims

asserted against the Arkansas Student Loan Authority (“ASLA”).

32

I.

“The purpose of a Rule 12(b)(6) motion is to test the

sufficiency of a complaint”; the motion “does not resolve

contests surrounding the facts, the merits of a claim, or the

applicability of defenses.” Butler v. United States, 702 F.3d

749, 752 (4th Cir. 2012) (internal quotation marks omitted),

cert. denied, 133 S. Ct. 2398 (2014).

To survive a Rule 12(b)(6) motion to dismiss, a plaintiff

must allege facts plausibly establishing the elements of his

asserted cause of action. See Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009); Walters v. McMahen, 684 F.3d 435, 439 (4th Cir.

2012), cert. denied, 133 S. Ct. 1493 (2013). While the

plaintiff is not required to “forecast evidence sufficient to

prove the elements of the claim,” he “must allege sufficient

facts to establish those elements” and “advance [his] claim

across the line from conceivable to plausible.” Walters, 684

F.3d at 439 (internal quotation marks omitted). When

considering a motion to dismiss, we give no deference to legal

conclusions asserted in the complaint, but we must accept all

factual allegations as true. See id.

II.

Broadly speaking, the False Claims Act imposes liability on

a “person” who knowingly presents a false or fraudulent claim

33

for payment or knowingly makes or uses a false record or

statement material to a false claim. See 31 U.S.C.

§ 3729(a)(1)(A) & (B). In order to survive the motion to

dismiss, Oberg was therefore obliged to plead facts plausibly

establishing that the named defendants are “persons” within the

meaning of the FCA.

While states are not “persons” subject to qui tam actions

under the FCA, see Vt. Agency of Natural Res. v. United States

ex rel. Stevens, 529 U.S. 765, 787-88 (2000), corporations,

including municipal corporations like cities and counties, are

“persons” under the Act, see Cook Cnty. v. United States ex rel.

Chandler, 538 U.S. 119, 134 (2003); see also 1 U.S.C. § 1 (“In

determining the meaning of any Act of Congress, unless the

context indicates otherwise[,] . . . the word[] ‘person’ . . .

include[s] corporations . . . .”). There is no dispute that

each of the Loan Companies is a corporation, and Oberg alleged

the corporate status of each Loan Company in his complaint.

Because corporations are presumed to be “persons” under the FCA,

Chandler, 538 U.S. at 126, Oberg’s allegations of corporate

status plausibly established that the Loan Companies are

“persons” within the meaning of the FCA, see Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007) (“Factual allegations must be

enough to raise a right to relief above the speculative

level.”).

34

The Loan Companies, however, all contend that they are

alter-egos or arms of their creating states. The Companies

therefore argue that they, like the states themselves, do not

qualify as “persons” under the FCA. Arm-of-state status is an

Eleventh-Amendment-based inquiry focused on determining whether

a state-created entity is so closely related to the state that

it should be permitted to share in the state’s sovereign

immunity. See United States ex rel. Oberg v. Ky. Higher Educ.

Student Loan Corp., 681 F.3d 575, 580 (4th Cir. 2012) (“Oberg

I”). Although this court has not addressed the issue, the

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. See 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 v. Rondout Valley Cent. Sch.

Dist. Bd. of Educ., 466 F.3d 232, 237-39 (2d Cir. 2006)

(treating Eleventh Amendment immunity “as akin to an affirmative

defense”); see also 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

35

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

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.”). I believe these

decisions were correctly decided and that the arm-of-state issue

raised by the Loan Companies is an affirmative defense. 1

Preliminarily, although a plaintiff must plead facts

establishing that the court has jurisdiction over his claim,

see, e.g., Pinkley, Inc. v. City of Frederick, 191 F.3d 394, 399

(4th Cir. 1999), the arm-of-state issue here is not

jurisdictional. Instead, as the Supreme Court made clear in

Stevens, it is a statutory question of whether the defendants

named by Oberg qualify as “persons” under the FCA. See Stevens,

529 U.S. at 779 (distinguishing the question whether the FCA

1

In our first opinion, we concluded that the district court

had not applied the arm-of-state analysis, and we remanded the

case for the district court to apply that analysis in the first

instance. See United States ex rel. Oberg v. Ky. Higher Educ.

Student Loan Corp., 681 F.3d 575, 581 (4th Cir. 2012). While we

noted that the ultimate question of whether the Loan Companies

were subject to suit under the FCA did not turn solely on their

corporate status, see id. at 579, we did not consider the

sufficiency of Oberg’s allegations or address whether arm-of-

state status was an affirmative defense.

36

permits actions against states from whether the Eleventh

Amendment would prohibit such an action and electing to resolve

the case on statutory grounds).

Moreover, the arm-of-state claim operates like other

affirmative defenses, in that the claim would preclude liability

even if all of Oberg’s allegations of wrongdoing are true. See

Emergency One, Inc. v. Am. Fire Eagle Engine Co., 332 F.3d 264,

271 (4th Cir. 2003) (“[A]ffirmative defenses share the common

characteristic of a bar to the right of recovery even if the

general complaint were more or less admitted to.” (internal

quotation marks and alteration omitted)); Black’s Law Dictionary

(9th ed. 2009) (defining “affirmative defense” as “[a]

defendant’s assertion of facts and arguments that, if true, will

defeat the plaintiff’s or prosecution’s claim, even if all the

allegations in the complaint are true.”). In my view, then, the

arm-of-state status asserted by the Loan Companies must be

treated as an affirmative defense. And once the arm-of-state

issue in this case is recognized as an affirmative defense, the

error in dismissing Oberg’s claims on the pleadings becomes

apparent.

As noted above, a Rule 12(b)(6) motion “test[s] the

sufficiency of a complaint” but “does not resolve contests . . .

[about] the merits of a claim or the applicability of defenses.”

Butler, 702 F.3d at 752 (internal quotation marks omitted). A

37

plaintiff therefore has no “obligation to anticipate” an

affirmative defense by pleading facts that would refute the as-

yet unasserted defense. Gomez v. Toledo, 446 U.S. 635, 640

(1980); see McMillan v. Jarvis, 332 F.3d 244, 248 (4th Cir.

2003); Guy v. E.I. DuPont de Nemours & Co., 792 F.2d 457, 460

(4th Cir. 1986); accord de Csepel v. Republic of Hungary, 714

F.3d 591, 607-08 (D.C. Cir. 2013) (“[A]lthough it is certainly

true that plaintiffs must plead the elements of their claims

with specificity, they are not required to negate an affirmative

defense in their complaint . . . .” (internal quotation marks

and alteration omitted)).

As our en banc court explained in Goodman, an affirmative

defense may provide the basis for a Rule 12(b)(6) dismissal only

“in the relatively rare circumstances . . . [where] all facts

necessary to the affirmative defense clearly appear on the face

of the complaint.” Goodman, 494 F.3d at 464 (internal quotation

marks and alteration omitted); see also Xechem, Inc. v. Bristol–

Myers Squibb Co., 372 F.3d 899, 901 (7th Cir. 2004) (“Only when

the plaintiff pleads itself out of court--that is, admits all

the ingredients of an impenetrable defense--may a complaint that

otherwise states a claim be dismissed under Rule 12(b)(6).”).

Application of these principles to this case requires Oberg

to plausibly allege that the Loan Companies are “persons” within

the meaning of the FCA. Oberg did just that by alleging that

38

the Companies are corporations operating independently of their

creating states. The Loan Companies’ contrary claim that they

are alter-egos of their creating states is an affirmative

defense which they bear the burden of pleading and proving.

Because Oberg had no obligation to anticipate that defense by

alleging facts establishing that the multi-factored, factually

intensive arm-of-state inquiry should be resolved in his favor,

the dismissal of his claims at this stage of the proceedings is

improper. See Butler, 702 F.3d at 752; Goodman, 494 F.3d at

464, 466. 2

2

The majority’s apparent view that arm-of-state status is

an affirmative defense in the Eleventh Amendment context but not

in this case is puzzling. Although the arm-of-state inquiry

here presents a statutory rather than constitutional question,

the principles at stake are the same as in any case raising

Eleventh Amendment issues. If arm-of-state status is a waivable

affirmative defense when the Eleventh Amendment is directly

implicated, so too should it be a waivable affirmative defense

when the Eleventh Amendment is indirectly implicated. While

“personhood” is clearly an element of a plaintiff’s claim under

the FCA, Oberg, as previously discussed, carried his burden of

demonstrating the Loan Companies’ personhood by alleging their

independent corporate status. The burden should then fall to

the defendants to plead and prove that they are not persons but

rather are arms of their creating state. United States ex rel.

Adrian v. Regents of University of California, 363 F.3d 398 (5th

Cir. 2004), the case relied on by the majority, does not suggest

otherwise. In that case, the plaintiff brought an FCA action

against an entity – the Regents of the University of California

– that courts had repeatedly found to be an arm of the state.

See id. at 401-02. The Fifth Circuit did not address the

affirmative-defense issue, but its affirmance of a Rule 12(b)(6)

dismissal of the claims against an entity previously found to be

an arm of the state is consistent with the rule recognized by

this court in Goodman that an affirmative defense may be

(Continued)

39

III.

Even if Oberg were somehow required to allege that the Loan

Companies are not arms of their states, I believe the

allegations of the complaint are still more than sufficient to

withstand the motion to dismiss.

As to PHEAA and VSAC, the majority concludes that Oberg’s

allegations plausibly establish that the companies are not

alter-egos of their creating states. Although I agree with the

majority’s ultimate conclusion as to these defendants, I do not

agree with the majority’s application of the Rule 12(b)(6)

standard to the arm-of-state state factors. The sufficiency of

the complaint as to PHEAA and VSAC is not a close question in my

view, and I therefore concur only in the judgment vacating the

dismissal of Oberg’s claims against PHEAA and VSAC. While the

question is perhaps a bit closer as to the claims against ASLA,

I nonetheless believe the Oberg has plausibly alleged facts

establishing that ASLA is not an arm of the state of Arkansas.

Accordingly, for the reasons set out below, I dissent from the

majority’s affirmance of the Rule 12(b)(6) dismissal of Oberg’s

claims against ASLA.

resolved on a Rule 12(b)(6) motion when the facts necessary to

the defense appear on the face of the complaint. See Goodman v.

Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en banc).

40

When determining whether an entity qualifies as an arm of

the state, we consider four non-exclusive factors:

(1) whether any judgment against the entity as

defendant will be paid by the State or whether any

recovery by the entity as plaintiff will inure to the

benefit of the State;

(2) the degree of autonomy exercised by the

entity, including such circumstances as who appoints

the entity’s directors or officers, who funds the

entity, and whether the State retains a veto over the

entity’s actions;

(3) whether the entity is involved with state

concerns as distinct from non-state concerns,

including local concerns; and

(4) how the entity is treated under state law,

such as whether the entity’s relationship with the

State is sufficiently close to make the entity an arm

of the State.

Oberg I, 681 F.3d at 580 (quoting Dep’t of Disabilities &

Special Needs v. Hoover Universal, Inc., 535 F.3d 300, 303 (4th

Cir. 2008)).

While the focus of the first factor is whether the “primary

legal liability” for a judgment will fall on the state, Regents

of Univ. of Ca. v. Doe, 519 U.S. 425, 428 (1997), we must also

consider the practical effect of a judgment against the entity,

see Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 51

(1994). “[I]f the State treasury will be called upon to pay a

judgment against a governmental entity, then Eleventh Amendment

immunity applies to that entity, and consideration of any other

factor becomes unnecessary.” Cash v. Granville Cnty. Bd. of

Educ., 242 F.3d 219, 223 (4th Cir. 2001). “[S]peculative,

41

indirect, and ancillary impact[s] on the State treasury,”

however, are insufficient to trigger immunity. Id. at 225.

If the state would not be liable for a judgment rendered

against the entity, we must then consider the remaining factors,

which serve to determine whether the entity “is so connected to

the State that the legal action against the entity would,

despite the fact that the judgment will not be paid from the

State treasury, amount to the indignity of subjecting a State to

the coercive process of judicial tribunals at the instance of

private parties.” Id. at 224 (internal quotation marks

omitted); see Fed. Mar. Comm’n v. S.C. State Ports Auth., 535

U.S. 743, 760 (2002) (“The preeminent purpose of state sovereign

immunity is to accord States the dignity that is consistent with

their status as sovereign entities.”). In my view, Oberg’s

complaint contains factually detailed, specific allegations

addressing the treasury factor and the dignity factors so as to

preclude the granting of the motion to dismiss.

A.

The complaint alleges that ASLA, not its creating state,

would be liable for any judgment rendered against it. See J.A.

116-18. While that assertion is arguably a legal conclusion not

entitled to be treated as true, see, e.g., Iqbal, 556 U.S. at

678, the assertion is supported by specific factual allegations

that are supported by statutes, financial reports, and other

42

information specifically referenced in the complaint and

properly considered in the context of a motion to dismiss. See

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322

(2007); Philips v. Pitt Cnty. Mem’l Hosp., 572 F.3d 176, 180

(4th Cir. 2009). These allegations and information establish

the following:

● ASLA is a corporation entitled to enter into

contracts, own property, and sue and be sued in its own

name. See Ark. Code Ann. § 6-81-102(c) (establishing ASLA

as a “public body politic and corporate, with corporate

succession”).

● Arkansas has specifically disclaimed liability

for ASLA’s obligations. See Ark. Code Ann. § 6-81-

113(a)(3).

● Arkansas law authorizes ASLA to pay expenses

associated with its lending activities from the revenues

earned from those activities. See Ark. Code Ann. §§ 6-81-

118(c)(3), 6-81-124(c)(1).

● ASLA generates substantial income streams and

relies on those income streams, rather than state

appropriations, to support its business operations, and

ASLA has substantial assets from which a judgment could be

paid. See J.A 781-827 (ASLA financial statements).

● ASLA has a line of credit provided by Arkansas.

ASLA borrowed $50,000,000 under the line of credit in 2008

and repaid the note in full by September 2010. See J.A.

802. ASLA has also borrowed money from a private lender to

improve its liquidity, with student loan revenues providing

the source of repayment. See J.A. 802.

● ASLA has commercial insurance to protect itself

from losses arising out of torts and its errors and

omissions. See J.A. 805.

In my view, these allegations are more than sufficient to make

plausible Oberg’s assertion that the Arkansas state treasury

43

would not be liable for a judgment rendered against ASLA. See

Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278, 288 (4th

Cir. 2012) (“Plausibility requires that the factual allegations

be enough to raise a right to relief above the speculative level

on the assumption that all the allegations in the complaint are

true.” (internal quotation marks and alteration omitted)).

Although the majority considers ASLA’s status as a

corporation only when analyzing the state-dignity factors, that

fact is clearly relevant to the state-treasury factor as well.

See Cash, 242 F.3d at 224 (considering entity’s corporate form

when analyzing state-treasury factor). The fact that Arkansas

elected to structure ASLA as a corporation makes it plausible

that the state will not be liable for any judgments in this

case, since insulating others from liability for corporate debt

is one of the signal attributes of the corporate form. See,

e.g., Musikiwamba v. ESSI, Inc., 760 F.2d 740, 753 (7th Cir.

1985) (“General corporation law is clear that personal liability

for a corporation’s debts cannot be imposed on a person merely

because he is an officer, shareholder, and incorporator of that

corporation.”). That Arkansas has specifically disclaimed

liability for ASLA’s obligations further establishes

plausibility, particularly given the absence of any statute

requiring Arkansas to pay a judgment against ASLA. See Cash,

242 F.3d at 224-25 (noting the absence of statute authorizing

44

recovery from state coffers when concluding that judgment

against entity would not affect state treasury); Gray v. Laws 51

F.3d 426, 436 (4th Cir. 1995) (noting the absence of statute

requiring payment by state).

Moreover, the allegations of the complaint and the

financial documents referenced in the complaint show that ASLA

generates significant revenue streams through its lending and

other business activities. ASLA uses those revenues, as

required by state law, to pay the expenses of its business

activities. In light of these revenue streams, ASLA’s ability

to raise revenues through other sources, see J.A. 802 (line of

credit and private lending available to ASLA), and its insurance

protection, it is entirely plausible a judgment in this case

will have no legal or practical effect on the Arkansas state

treasury. See Burrus v. State Lottery Comm’n, 546 F.3d 417, 420

(7th Cir. 2008) (concluding that state lottery commission was

not an arm of the state, in part because the lottery “has no

need for recourse to the state treasury” given the “large stream

of revenue” it generates).

B.

The allegations of Oberg’s complaint likewise plausibly

demonstrate that ASLA has significant autonomy and independence

from its creating state. The allegations of the complaint and

the documents referenced therein establish the following:

45

● ASLA is a corporation entitled to enter into

contracts, own property, and sue and be sued in its own

name. See Ark. Code Ann. § 6-81-102(l).

● ASLA is governed by a board of directors, none of

whom are state officials, who serve fixed terms and are not

removable by the governor. See id. § 6-81-102(d) & (e).

● ASLA has authority to structure and operate its

business activities as it deems proper, including the

authority to issue general obligation bonds secured by its

revenues and to create subsidiary corporations. See id.

§§ 6-81-102(k), 6-81-102(l)(8)-(10) & (25).

● ASLA is supported by the revenues it earns from

its business activities, not by the state. Although ASLA

receives appropriations from the state earmarked for

salaries and certain operating expenses, the funds so

appropriated are “cash funds” earned by ASLA through its

business activities. See Ark. Code Ann. § 6-18-118; J.A.

412.

● ASLA’s revenues are not deposited into the state

treasury, but are deposited into various accounts

controlled by ASLA. See Ark. Stat. § 6-81-118(a) & (f).

● ASLA’s business activities extend outside the

state of Arkansas and include the buying and selling of

loan pools on the secondary market and the servicing of

loans made directly by the federal government.

● ASLA has borrowed and repaid money from the state

of Arkansas, executing a promissory in favor of the state

and using its revenues to repay the loan. See J.A. 802.

These allegations are not naked factual assertions that

need not be accepted as true, nor are they mere legal

conclusions that can be disregarded. See Iqbal, 556 U.S. at

678. Instead, they are specific, detailed factual allegations

that paint a plausible picture of an autonomous corporation

operating in the commercial sphere largely free of state

46

oversight or interference, such that it would not be an affront

to the dignity of Arkansas to permit this action to proceed.

Accordingly, given the operational independence established

by these allegations, and the financial independence established

by the state-treasury allegations discussed above, I believe it

is at least plausible that ASLA is a “person” within the meaning

of the FCA, not an arm of the state of Arkansas. See id. (“A

claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.”).

IV.

ASLA, however, makes various arguments about how a judgment

could affect the state treasury and points to various statutes

indicating that the state has more control over it than Oberg’s

allegations suggest. In my view, these arguments do not provide

a basis for granting the motion to dismiss. Even after Twombly

and Iqbal, we still must view the properly alleged facts in the

plaintiff’s favor and must give the plaintiff the benefit of all

reasonable inferences that can be drawn from those facts. See

E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d

435, 440 (4th Cir. 2011); see also Sepulveda–Villarini v. Dep’t.

of Educ. of P.R., 628 F.3d 25, 30 (1st Cir. 2010) (Souter, J.)

(“A plausible but inconclusive inference from pleaded facts will

47

survive a motion to dismiss . . . .”). While ASLA’s arguments

are not frivolous, they are not so conclusive as to render

Oberg’s allegations implausible for purposes of Rule 12(b)(6).

See Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)

(“Plaintiff’s complaint may be dismissed only when defendant’s

plausible alternative explanation is so convincing that

plaintiff’s explanation is implausible.”); Watson Carpet & Floor

Covering, Inc. v. Mohawk Indus., Inc., 648 F.3d 452, 458 (6th

Cir. 2011) (“[T]he plausibility of [the defendants’ theory] does

not render all other reasons implausible.”).

A.

ASLA argues that a judgment against it would affect the

state treasury. Arkansas law requires the revenues from ASLA’s

business activities to be deposited into accounts outside the

state treasury. See Ark. Code Ann. § 6-81-118(a), (b) & (f).

Under provisions of Arkansas law not exclusively applicable to

ASLA, all funds required to be deposited somewhere other than

the state treasury are “‘cash funds’” that are “declared to be

revenues of the state to be used as required and to be expended

only for such purposes and in such manner as determined by law.”

Ark. Code Ann. § 19-6-103. Such cash funds must be “budgeted

and proposed expenditures approved by enactments of the General

Assembly.” Id. § 19-4-802(a). Relying on these statutes, ASLA

contends that a judgment against it is, as a practical matter, a

48

judgment against Arkansas, since all of ASLA’s money is really

the state’s money under § 19-6-103.

ASLA’s argument overlooks several important points. First

of all, as the majority noted in its discussion of PHEAA’s arm-

of-state assertion, the fact that ASLA’s funds are held in a

segregated fund outside the state treasury counsels against arm-

of-state status. See Majority Op. at 13-14; see also Burrus,

546 F.3d at 420; Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d

1200, 1210 (1st Cir. 1993). Moreover, unlike the generally

applicable § 19-6-103, the statute specifically addressing

ASLA’s funds does not declare ASLA’s cash funds to be revenues

of the state, see Ark. Code Ann. § 6-18-118, and nothing in § 6-

18-118 appears to subject ASLA’s use of the funds to wholesale

control by the General Assembly. 3 Instead, § 6-18-118 simply

requires ASLA’s segregated cash funds to be “used as provided in

this subchapter” – subchapter 1 of Chapter 81 governing student

loans. Id. § 6-18-118(b) (emphasis added). Subchapter 1, in

turn, gives ASLA -- not the state legislature -- nearly complete

authority over the use of its funds, including the authority to

pay expenses arising from its lending activities. See Ark. Code

3

As the majority recognized when considering PHEAA’s claim,

the terms of the statute specifically governing ASLA should be

given priority over the generally applicable § 19-6-103. See

Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992)

(“[I]t is a commonplace of statutory construction that the

specific governs the general . . . .”).

49

Ann. § 6-81-118(c)(3) & (4) (giving ASLA authority to “use the

proceeds of any bond issues, together with any other available

funds” for “[p]aying incidental expenses in connection with

loans” and “[p]aying expenses of authorizing and issuing

bonds”); id. § 6-81-118(f) (“The revenues not deposited into the

State Treasury shall be deposited into an account or accounts

specified by resolution of the authority and used for carrying

out the provisions of any resolution, indenture securing bonds

of the authority, or other agreement of the authority under this

subchapter.”); id. § 6-81-124(a) (requiring “[a]ll proceeds

derived from a particular obligation” to be deposited into a

“proceeds fund” to be “expended only on approval of [ASLA]”);

id. § 6-81-124(c)(1) (authorizing funds contained in proceeds

fund to be used for “payment of the necessary expenses,

including, without limitation, the costs of issuing the

authority’s obligations, incurred by the authority in carrying

out its responsibilities under this subchapter”). 4

4

Arkansas’ statutory arrangement thus is similar in many

ways to that in Pennsylvania. Like Arkansas, Pennsylvania law

appears to treat the Loan Company’s funds as state funds, see 24

Pa. Cons. Stat. § 5104(3) (requiring PHEAA’s funds to be

deposited into state treasury), and to require state approval of

any expenditure of those funds, see 72 Pa. Cons. Stat. § 307,

but the statute specifically governing PHEAA’s operation gives

control of those funds to the company, see 24 Pa. Cons. Stat.

§ 5104(3); see Majority Op. at 11-13 (describing operation of

Pennsylvania statutes governing PHEAA). After considering

Pennsylvania’s statutory structure, the majority concluded that

(Continued)

50

More importantly, however, the fact that Arkansas declares

all of ASLA’s cash funds to be state funds does not conclusively

establish that the Arkansas state treasury would be affected by

a judgment against ASLA in this case. As shown by the relevant

statutes and other information in the record, the cash funds

“claimed” by the state consist entirely of revenues generated by

ASLA’s lending and other business activities. And because the

expenses of those business activities must be paid from the cash

funds, the funds so claimed by the state in reality consist only

of ASLA’s surplus revenues.

As the Supreme Court has explained, however, the state-

treasury factor focuses “not on the use of profits or surplus,

but rather . . . on losses and debts.” Hess, 513 U.S. at 51

(emphasis added)). “If the expenditures of the enterprise

exceed receipts, is the State in fact obligated to bear and pay

the resulting indebtedness of the enterprise? When the answer

is ‘No’ -- both legally and practically -- then the Eleventh

Amendment’s core concern is not implicated.” Id.

The majority’s assertion that the source of the cash funds

claimed by Arkansas does not matter because Arkansas claims all

the state-treasury factor “weighs heavily against holding that

PHEAA is an arm of the state.” Majority Op. at 14. In my view,

Arkansas’ similar statutory scheme also weighs against arm-of-

state status.

51

of the cash funds as its own, see Majority Op. at 27-28 n.7,

thus seems directly contrary to the Supreme Court’s analysis in

Hess. Under the majority’s view, a self-supporting entity –

that is, an entity that supports itself not through state

appropriations but through the revenues earned from its own

commercial activities – is dependent on the state as a matter of

law because a state statute arguably declares the entity’s

profits to be revenues of the state. The Supreme Court raised a

suspicious eyebrow at such an argument in Hess, see 513 U.S. at

51 n.21 (observing that “[i]t would indeed heighten a mystery of

legal evolution were we to spread an Eleventh Amendment cover

over an agency that consumes no state revenues but contributes

to the State’s wealth” (internal quotation marks and alteration

omitted)), and the argument is no more persuasive here.

Oberg’s allegations of a self-supporting, commercially

insured corporation with tens of millions of dollars in annual

revenue and access to a $50 million line of credit and other

private loans provide a non-speculative basis for concluding

that ASLA would not need Arkansas’s help to pay a judgment

rendered against it. 5 Nothing more need be established at this

point in the proceedings. See Twombly, 550 U.S. at 555

5

Indeed, the financial statements referenced in the

pleadings show that ASLA absorbed an operational loss in 2011

without any financial assistance from the state. See J.A. 790.

52

(“Factual allegations must be enough to raise a right to relief

above the speculative level.”); Walters, 684 F.3d at 439

(plaintiff’s allegations must be sufficient to “advance [his]

claim across the line from conceivable to plausible”).

B.

The state-dignity factors of the arm-of-state inquiry

include (1) “the degree of autonomy exercised by the entity”;

(2) “whether the entity is involved with state concerns as

distinct from non-state concerns, including local concerns”; and

(3) “how the entity is treated under state law.” Oberg I, 681

F.3d at 580. As previously discussed, I believe that Oberg’s

allegations of a corporate entity that is answerable to boards

of directors rather than elected state officials and that

operates largely free of state interference plausibly establish

that ASLA is not “so connected to the State that the legal

action against the entity would, despite the fact that the

judgment will not be paid from the State treasury, amount to the

indignity of subjecting a State to the coercive process of

judicial tribunals at the instance of private parties.” Cash,

242 F.3d at 224 (internal quotation marks omitted).

I recognize, however, that other inferences can reasonably

be drawn from the information alleged in the complaint and

contained in the record. Nonetheless, the question at this

stage of the proceedings is not whether the defendant’s view of

53

the issues is reasonable, but whether the plaintiff has

plausibly alleged an entitlement to relief. See, e.g., Butler

702 F.3d at 752 (motion to dismiss “test[s] the sufficiency of a

complaint” but “does not resolve contests surrounding the facts,

the merits of a claim, or the applicability of defenses”

(internal quotation marks omitted)). And in my view, the state-

dignity factors do not conclusively establish that the Loan

Companies are arms of their creating states, notwithstanding the

fact that some of the factors might reasonably support that

conclusion.

For example, Arkansas appears to treat ASLA as a state

agency. See Ark. Code Ann. § 6-81-102(c) (describing ASLA an

“an instrumentality of the state”); Turner v. Woodruff, 689

S.W.2d 527, 528 (Ark. 1985) (describing ASLA as a “state

agency”). While this factor thus points toward a finding of

arm-of-state status, whether an entity qualifies as an arm of

its creating state is a matter of federal law, see Regents, 519

U.S. at 429 n.5, and this single factor is not dispositive of

the inquiry.

In addition, there can be no dispute that ASLA is involved,

at least in part, in matters of statewide concern. “[E]ducating

the youth” of a state and providing higher education is “clearly

an area of statewide concern,” Md. Stadium Auth. v. Ellerbe

Becket Inc., 407 F.3d 255, 265 (4th Cir. 2005), and making loans

54

available to students certainly facilitates that goal. However,

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 arguably are

more appropriately characterized as “non-state concerns.” See

Hoover Universal, 535 F.3d at 307 (considering “whether the

entity is involved with statewide, as opposed to local or other

non-state concerns” (emphasis added)); cf. 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.”).

As to the question of autonomy, the fact that ASLA

generates its own revenues and is not dependent on state

appropriations is a strong indication of the Loan Companies’

operational independence from the states. While ASLA receives

an appropriation earmarked for salaries and certain other

expenses, it is an appropriation of ASLA’s own “cash funds,”

J.A. 412, which, as previously discussed, are funds generated by

ASLA through its business activities. That kind of

appropriation does not make ASLA dependent on the state. See

Burrus, 546 F.3d at 422 (appropriation of funds generated by

entity claiming arm-of-state status “is of a different kind than

55

the appropriations we have found to be the mark of a state

agency, namely, those appropriations that come directly from the

state.” (internal quotation marks omitted)). 6

Other facts, however, suggest that ASLA is not entirely

autonomous. For example, all members of ASLA’s board of

directors are appointed by the governor, see Ark. Stat. Ann.

§ 6-81-102(d), a fact that clearly provides some indication of

state control. See Md. Stadium Auth., 407 F.3d at 264.

Arkansas law, however, provides that the board members serve

fixed terms, see Ark. Stat. Ann. § 6-81-102(e), with no

suggestion that they may be removed by the governor at will. 7

See Edmond v. United States, 520 U.S. 651, 664 (1997) (“The

power to remove officers, we have recognized, is a powerful tool

6

In any event, even if ASLA did receive some money from the

state, that fact alone would not conclusively establish that

ASLA is dependent on the state. See, e.g., Kitchen v. Upshaw,

286 F.3d 179, 184-85 (4th Cir. 2002) (finding that an entity

that received some state funding was not an arm of the state);

Cash, 242 F.3d at 224, 226 (same).

7

According to the majority, the fact that ASLA board

members serve for four years “or until a successor is

appointed,” Ark. Code § 6-81-102(e), “suggests that the governor

may remove board members simply by selecting new ones.”

Majority Op. at 29 (emphasis added). It seems highly unlikely

that the Arkansas legislature would hide removal-at-will

authority in a clause that more reasonably seems to authorize

terms of more than four years in cases where an appointment is

not timely made. In any event, an ambiguous statutory scheme is

far from sufficient to establish for purposes of a Rule 12(b)(6)

motion that ASLA’s board is subject to the direct control of the

governor.

56

for control.”); Auer v. Robbins, 519 U.S. 452, 456 n.1 (1997)

(concluding that Board of Police Commissioners was not an arm of

the state because the state was not responsible for the Board’s

financial liabilities and the only form of state control was the

governor’s power to appoint four of five Board members); P.R.

Ports Auth. v. Fed. Mar. Comm’n, 531 F.3d 868, 877 (D.C. Cir.

2008) (“The Governor’s power to remove a majority of the Board

at will allows him to directly supervise and control PRPA’s

ongoing operations.”); Takle v. Univ. of Wisc. Hosp. & Clinics

Auth., 402 F.3d 768, 770 (7th Cir. 2005) (“[T]he power to

appoint is not the power to control.”). 8

In addition, all bonds issued by ASLA must be approved by

the governor, a fact the majority finds significant. See

Majority Op. at 27-28 (including gubernatorial approval

requirement among the facts establishing that ASLA “operates

with little autonomy”). The approval requirement, however, is a

function of federal law, which places a ceiling on the volume of

8

Contrary to the majority’s characterization of my views, I

do not contend that ASLA “is autonomous” because of the manner

in which its board is appointed, Majority op. at 28 (emphasis

added), only that Oberg has alleged specific facts relevant to

ASLA’s autonomy sufficient to survive a Rule 12(b)(6) motion.

As I have previously discussed, the fact that other inferences

can be drawn from the information in the record does not render

Oberg’s allegations implausible. See Sepulveda–Villarini v.

Dep’t. of Educ. of P.R., 628 F.3d 25, 30 (1st Cir. 2010)

(Souter, J.) (“A plausible but inconclusive inference from

pleaded facts will survive a motion to dismiss . . . .”).

57

certain tax-exempt “private activity” bonds (including student

loan bonds) that can be issued within a state and vests with the

state governor the authority to change the allocation of the

state ceiling among issuers, and which requires state approval

of such bond issues. See 26 U.S.C. § 141(e)(1)(E); id.

§ 144(b); id. § 146(a)-(e); id. § 147(f); see generally Steele

v. Indus. Dev. Bd. of Metro. Gov’t Nashville, 301 F.3d 401, 404

(6th Cir. 2002); Congressional Research Service, Tax-Exempt

Bonds: A Description of State & Local Government Debt at 9-11

(June 19, 2012). Under these circumstances, the gubernatorial-

approval requirement is less indicative of a lack of autonomy

than it might otherwise be. In any event, the gubernatorial-

approval requirement does not conclusively establish that ASLA

lacks autonomy.

Thus, on the record before us, the facts relevant to the

state-dignity factors cut both ways, with some supporting

Oberg’s claim that ASLA is not an arm of the state, and others

supporting ASLA’s contrary claim. But because Oberg’s

allegations on this point more than satisfy the Iqbal-Twombly

plausibility requirement, ASLA’s arguments provide no basis for

affirming the dismissal of Oberg’s claims.

58

V.

As is apparent from the arm-of-state test itself and the

nature of the considerations it entails, whether a state-created

entity is so closely connected to its creating state that it

should be permitted to share in the state’s immunity from suit

generally is a fact-intensive inquiry dependent on an

understanding of the actual operations of the entity and the

actual relationship between the entity and the state. See,

e.g., Hess, 513 U.S. at 49 (considering the entity’s

“anticipated and actual financial independence (emphasis

added)); Hoover, 535 F.3d at 303 (“The line separating a State-

created entity functioning independently of the State from a

State-created entity functioning as an arm of the State or its

alter ego is determined by the particular legal and factual

circumstances of the entity itself.” (emphasis added)); Gray, 51

F.3d at 434 (remanding case to the district court because it was

“in the best position to address in the first instance the

competing questions of fact and state law necessary to resolve

the eleventh amendment issue” (internal quotation marks

omitted)). While there certainly have been and will continue to

be cases where the arm-of-state issue can be resolved on the

pleadings, multi-factored balancing tests “do[] not easily lend

[themselves] to dismissal on a Rule 12(b)(6) motion.” Decotiis

v. Whittemore, 635 F.3d 22, 35 n.15 (1st Cir. 2011). In my

59

view, this case is one of the typical cases that cannot be

resolved on the pleadings. Indeed, the inconclusive nature of

most of the state-dignity factors highlights this very problem.

We have no information about the actual operations of the Loan

Companies or the actual amount of control and oversight

exercised by the states and thus cannot determine the actual

nature of the relationship between the Loan Companies and their

creating states.

Nonetheless, the facts as alleged by Oberg plausibly

establish that the state treasuries will not be affected by a

judgment against the Loan Companies and that the Loan Companies

are sufficiently independent from their creating states that

permitting this action to proceed would not be an affront to the

dignity of the states. To require anything more at this stage

of the proceedings is to ignore the purpose and scope of a

motion to dismiss, which is to test the facial sufficiency of

the complaint, not resolve contests about the merits or

applicable defenses. See Butler, 702 F.3d at 752; Goodman, 494

F.3d at 464.

Accordingly, while I concur in the judgment insofar as it

vacates the dismissal of the claims against PHEAA and VSAC, I

dissent from the opinion and judgment affirming the dismissal of

the claims against ASLA.

60