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

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 15-1093

UNITED STATES ex rel. JON H. OBERG,

Plaintiff - Appellant,

v.

PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY,

Defendant – Appellee,

and

NELNET, INC.; KENTUCKY HIGHER EDUCATION STUDENT LOAN CORP.;

SLM CORPORATION; PANHANDLE PLAINS HIGHER EDUCATION

AUTHORITY; BRAZOS GROUP; ARKANSAS STUDENT LOAN AUTHORITY;

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;

EDUCATION LOANS INC.; VERMONT STUDENT ASSISTANCE

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: May 12, 2015 Decided: October 21, 2015

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

Judges.

Vacated and remanded by published opinion. Chief Judge Traxler

wrote the opinion, in which Judge Gregory and Judge Keenan

concurred.

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

Appellant. Paul D. Clement, BANCROFT PLLC, Washington, D.C.,

for Appellee. ON BRIEF: Michael L. Sturm, Brendan J. Morrissey,

Stephen J. Obermeier, WILEY REIN LLP, Washington, D.C., for

Appellant. John S. West, Megan C. Rahman, Richmond, Virginia,

Christopher G. Browning, Jr., TROUTMAN SANDERS LLP, Raleigh,

North Carolina, for Appellee Vermont Student Assistance

Corporation; George W. Hicks, Jr., Raymond P. Tolentino,

BANCROFT PLLC, Washington, D.C., Joseph P. Esposito, Jill M.

deGraffenreid, HUNTON & WILLIAMS LLP, Washington, D.C., Daniel

B. Huyett, Neil C. Scur, STEVENS & LEE P.C., Reading,

Pennsylvania, for Appellee Pennsylvania Higher Education

Assistance Agency.

2

TRAXLER, Chief Judge:

The Pennsylvania Higher Education Assistance Agency

(“PHEAA”), was established by the Commonwealth of Pennsylvania

in 1963 “to improve access to higher education by originating,

financing, and guaranteeing student loans.” United States ex

rel. Oberg v. Pa. Higher Educ. Assistance Agency (“Oberg II”),

745 F.3d 131, 135 (4th Cir. 2014). In addition to administering

state-funded grant and scholarship programs on behalf of the

Commonwealth, PHEAA conducts nationwide lending, servicing, and

guaranteeing activities, and it “now constitutes one of the

nation’s largest providers of student financial aid services.”

Id. at 138.

Dr. Jon H. Oberg brought this action against PHEAA and

other private and state-created student-loan entities under the

False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, alleging that

from 2002 through 2006, the defendants fraudulently claimed

hundreds of millions of dollars in federal student-loan

interest-subsidy payments to which they were not entitled. See

Oberg II, 745 F.3d at 135. As this case has proceeded up and

down the appeals ladder, 1 the other defendants have settled or

1

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

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

United States ex rel. Oberg v. Pa. Higher Educ. Assistance

Agency (“Oberg II”), 745 F.3d 131 (4th Cir. 2014).

3

were dismissed from the case, and PHEAA is now the sole

remaining defendant.

The only issue in this appeal is whether PHEAA qualifies as

an “arm of the state” or “alter ego” of Pennsylvania such that

it cannot be sued under the FCA. See Vermont Agency of Nat.

Res. v. United States ex rel. Stevens, 529 U.S. 765, 787-88

(2000). We conclude that PHEAA is not an arm of Pennsylvania,

and we therefore reverse the district court’s order granting

summary judgment in favor of PHEAA and remand for further

proceedings on the merits of Oberg’s FCA claims against PHEAA.

I.

The FCA imposes civil liability on “any person” who makes

or presents a false claim for payment to the federal government.

31 U.S.C. § 3729(a)(1). Corporations, including municipal

corporations like cities and counties, are “persons” under the

FCA, see Cook County v. United States ex rel. Chandler, 538 U.S.

119, 126-27, 134 (2003), but states and state agencies are not,

see Vermont Agency of Nat. Res., 529 U.S. at 787-88. To

determine whether PHEAA falls into the former or the latter

category, we apply “the arm-of-the-state analysis used in the

Eleventh Amendment context.” Oberg II, 745 F.3d at 135. If

PHEAA qualifies as an “arm” or “alter ego” of Pennsylvania, then

it is not a “person” subject to liability under the FCA. See

United States ex rel. Oberg v. Ky. Higher Educ. Student Loan

4

Corp. (“Oberg I”), 681 F.3d 575, 580 (4th Cir. 2012) (internal

quotation marks omitted).

We evaluate four non-exclusive factors when considering

whether a state-created entity functions as an arm of its

creating state:

(1) whether any judgment against the entity as

defendant will be paid by 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.

Id. (quoting S.C. Dep’t of Disabilities & Special Needs v.

Hoover Universal, Inc., 535 F.3d 300, 303 (4th Cir. 2008)).

Although the focus of the first factor is whether the

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

Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 428 (1997)

(emphasis added), the practical effect on the state treasury of

a judgment against the entity must also be considered. “Where

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

agency is to survive, a judgment must expend itself against

state treasuries,” Hess v. Port Auth. Trans–Hudson Corp., 513

5

U.S. 30, 50 (1994) (alteration omitted), the agency will be

found to be an arm of the state, see Oberg II, 745 F.3d at 137;

Cash v. Granville Cnty. Bd. of Educ., 242 F.3d 219, 223 (4th

Cir. 2001).

“[I]f the State treasury will be called upon to pay a

judgment against a governmental entity, the [entity is an arm of

its creating state], and consideration of any other factor

becomes unnecessary.” Cash, 242 F.3d at 223. If the state

treasury will not be liable for a judgment rendered against the

entity, we must consider the remaining factors, which focus on

the nature of the relationship between the state and the entity

it created. See id. at 224; accord Lee-Thomas v. Prince

George’s Cty. Pub. Sch., 666 F.3d 244, 248 n.5 (4th Cir. 2012).

The purpose of the arm-of-state inquiry is to distinguish

arms or alter egos of the state from “mere political

subdivisions of [the] State such as counties or municipalities,”

which, though created by the state, operate independently and do

not share the state’s immunity. Kitchen v. Upshaw, 286 F.3d

179, 184 (4th Cir. 2002); see Mt. Healthy Bd. of Educ. v. Doyle,

429 U.S. 274, 280 (1977) (“The issue here thus turns on whether

the Mt. Healthy Board of Education is to be treated as an arm of

the State partaking of the State’s Eleventh Amendment immunity,

or is instead to be treated as a municipal corporation or other

political subdivision to which the Eleventh Amendment does not

6

extend.”). Although we must consider “the provisions of state

law that define the agency’s character,” Regents, 519 U.S. at

429 n.5, “[u]ltimately . . . , the question whether a particular

state agency has the same kind of independent status as a county

or is instead an arm of the State, and therefore one of the

United States within the meaning of the Eleventh Amendment, is a

question of federal law,” id. (internal quotation marks

omitted).

In our first opinion in this case, we held that the

district court erred by concluding that PHEAA was a state agency

and dismissing Oberg’s complaint without applying the arm-of-

state analysis. See Oberg I, 681 F.3d at 581. On remand, the

district court applied the arm-of-state analysis and again

granted the motion to dismiss, concluding that PHEAA was not a

person within the meaning of the FCA.

Oberg again appealed, and we again held that the district

court erred by dismissing the claims against PHEAA. See Oberg

II, 745 F.3d at 140-41. Considering the arm-of-state issue in

light of the statutes governing PHEAA’s operation and the facts

alleged in Oberg’s complaint, we held in Oberg II that Oberg had

plausibly alleged that PHEAA was not an arm of the state but was

instead a “person” subject to suit under the FCA. See id.

We first concluded that Pennsylvania was “neither legally

nor functionally liable for any judgment against PHEAA.” Id. at

7

138. PHEAA was not legally liable because “state law expressly

provides that obligations of PHEAA shall not be binding on the

State,” id. (internal alterations omitted), and requires PHEAA’s

debts to be paid from “‘moneys . . . of the corporation,’” id.

(quoting 24 Pa. Stat. § 5104(3)). As to practical or functional

liability, PHEAA argued that Pennsylvania was functionally

liable for a judgment against PHEAA because Pennsylvania

statutes require PHEAA to deposit its commercially generated

revenues with the state Treasury and require the Treasurer’s

approval of any payment from state Treasury funds. We rejected

that argument, however, given that the statute requiring the

deposit also explicitly granted control over those funds to

PHEAA, not the Treasurer, and the funds were held in a

segregated account within the Treasury. See id. at 138-39.

Because PHEAA had control over “substantial ‘moneys’ [that]

derive exclusively from its own operations,” id. at 138, “any

judgment in this case [would be paid] with [PHEAA’s] own moneys

from its segregated fund,” id. at 139, and we therefore

concluded that Pennsylvania would not be functionally liable for

any judgment against PHEAA. And because there was no functional

or legal liability, we held that the first arm-of-state factor

weighed “heavily against holding that PHEAA is an arm of the

state.” Id.

8

As to the second arm-of-state factor, we noted that the

indicia of autonomy reflected in the statutory framework and the

facts alleged in the complaint pointed in both directions. The

composition of PHEAA’s board (gubernatorial appointees and state

legislators) weighed in favor of arm-of-state status, as did the

statutory requirement that the Governor approve any PHEAA bond

issues and the fact that PHEAA’s activities were subject to

audit by the Commonwealth Auditor General. See id. at 139.

Nonetheless, other facts “strongly suggest[ed] that PHEAA is not

an arm of the state,” including PHEAA’s financial independence,

its control over its revenues deposited with the state Treasury,

and its corporate powers “to enter into contracts, sue and be

sued, and purchase and sell property in its own name.” Id.

Drawing all inferences from these facts in Oberg’s favor, as

required given the procedural posture of the case, we concluded

that the autonomy factor “counsels against holding that PHEAA is

an arm of the state.” Id.

As to the third arm-of-state factor, we held it weighed in

favor of arm-of-state status because PHEAA was focused on

improving access to higher education, a matter of “legitimate

state concern.” Id. at 140. We rejected Oberg’s argument that

PHEAA was not primarily focused on state concerns, given PHEAA’s

extensive out-of-state commercial activities. Noting the

allegation in Oberg’s complaint that one third of PHEAA’s 2005

9

earnings came from out-of-state activities, we held that “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.” Id. And as to the fourth

factor, we concluded that state law treated PHEAA as a state

agency, which also weighed in favor of treating PHEAA as an arm

of the state. See id.

Considering the factors together, we held that the district

court erred by dismissing Oberg’s complaint:

[A]lthough 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, 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.

Id. (internal quotation marks omitted). We vacated the district

court’s order dismissing Oberg’s complaint, and we instructed

the district court on remand “to permit limited discovery on the

question whether PHEAA [was] truly subject to sufficient state

control to render it a part of the state.” Id. at 140-41

(internal quotation marks omitted).

On remand, the parties engaged in discovery, and PHEAA

filed a motion for summary judgment on the arm-of-state issue.

The district court granted the motion, holding that all four

factors weighed in favor of arm-of-state status. See United

10

States ex rel. Oberg v. Pa. Higher Educ. Assistance Agency

(“Oberg III”), 77 F. Supp. 3d 493 (E.D. Va. 2015). In the

district court’s view, this court’s contrary conclusion could

not be sustained in light of the post-remand “factual

development” of the case. Id. at 497. The district court

therefore held that because PHEAA was an arm of Pennsylvania, it

was not subject to suit under the FCA, and the court granted

summary judgment in favor of PHEAA.

II.

Oberg again appeals, arguing that the district court’s

analysis of the arm-of-state factors is inconsistent with our

opinion in Oberg II and that its ultimate conclusions as to

those factors are not supported by the record. In Oberg’s view,

the Pennsylvania statutes governing PHEAA’s operation and the

factual information developed through discovery establish that

PHEAA is not an arm of Pennsylvania. Oberg thus contends that

the district court erred by granting summary judgment in favor

of PHEAA and dismissing his action.

“We review a grant of summary judgment de novo, applying

the same standard as the trial court and without deference to

the trial court.” Dash v. Mayweather, 731 F.3d 303, 310 (4th

Cir. 2013), cert. denied, 134 S. Ct. 1761 (2014). Summary

judgment is appropriate only if “there is no genuine dispute as

11

to any material fact and the movant is entitled to a judgment as

a matter of law.” Fed. R. Civ. P. 56(a).

In this case, we see no material dispute about the relevant

facts detailing PHEAA’s operations and relationship with

Pennsylvania. Instead, the dispute is over the legal effect of

the materially undisputed facts -- whether the relevant statutes

and the facts developed during discovery establish that PHEAA is

the alter ego of Pennsylvania. 2 See Greene v. Barrett, 174 F.3d

1136, 1139-40 (10th Cir. 1999) (“If there is no genuine issue of

material fact in dispute, we determine whether the district

court correctly applied the substantive law.”). And that

question is a pure question of law reviewed de novo. See United

States ex rel. Lesinski v. S. Fla. Water Mgmt. Dist., 739 F.3d

598, 602 (11th Cir.) (“[W]hether an entity constitutes an arm of

the state [and therefore not a “person” under the FCA] . . . is

a question of law subject to de novo review.”), cert. denied,

2 While Oberg argues that the evidence establishes that

PHEAA is not an arm of Pennsylvania, he also suggests that arm-

of-state status is a question of fact to be resolved by a jury.

We disagree. Although we held in Oberg II that whether a

defendant is a “person” is an element of an FCA plaintiff’s

case, see Oberg II, 745 F.3d at 136, we nonetheless agree with

PHEAA that personhood and arm-of-state status nonetheless remain

legal issues to be resolved by the court. Cf. Farwell v. Un,

902 F.2d 282, 288 (4th Cir. 1990) (although negligence plaintiff

“must prove that defendant owed plaintiff a duty, breached that

duty, and that the breach proximately caused the claimed

injury[,] . . . . whether and in what form any legal duty exists

is a question of law for the courts”).

12

134 S. Ct. 2312 (2014); cf. Hutto v. South Carolina Ret. Sys.,

773 F.3d 536, 542 (4th Cir. 2014) (“Whether an action is barred

by the Eleventh Amendment is a question of law that we review de

novo.”). We will summarize the statutes and evidence governing

PHEAA’s authority and operations before turning to Oberg’s

challenges to the district court’s decision.

III.

PHEAA was created as “a body corporate and politic

constituting a public corporation and government

instrumentality.” 24 Pa. Stat. § 5101. PHEAA has the power to

sue and be sued; enter into contracts; and own, encumber, and

dispose of real and personal property. See id. § 5104(3); Oberg

II, 745 F.3d at 139. During the time period relevant to this

appeal, PHEAA was governed by a twenty-member board of directors

composed of the Secretary of Education; three gubernatorial

appointees; eight members of the Senate appointed by the

Senate’s president; and eight members of the House of

Representatives appointed by the Speaker of the House. See 24

Pa. Stat. § 5103(a) (2006). 3 Board members may be removed by the

official who appointed them. See Pa. Const. art. VI, § 7 (“All

civil officers shall hold their offices on the condition that

3 In 2010, 24 Pa. Stat. § 5103 was repealed and a revised

version of it was recodified at 71 Pa. Stat. § 111.2. The

changes to the composition of PHEAA’s board are not relevant to

the disposition of this appeal.

13

they behave themselves well while in office, and shall be

removed on conviction of misbehavior in office or of any

infamous crime. Appointed civil officers, other than judges of

the courts of record, may be removed at the pleasure of the

power by which they shall have been appointed.”); Burger v.

School Bd., 923 A.2d 1155, 1162 (Pa. 2007) (“[A]rticle VI, § 7

of] the Constitution does not vest in the appointing power

unfettered discretion to remove. Instead, valid removal depends

upon the officer behaving in a manner not befitting the trust

placed in him by the appointing authority.”).

PHEAA’s purpose is “to improve the higher educational

opportunities of [Pennsylvania] residents . . . who are

attending approved institutions of higher education . . . by

assisting them in meeting their expenses of higher education.”

24 Pa. Stat. § 5102. To further its statutory purpose, PHEAA is

authorized to issue, purchase, service, and guarantee student

loans. See 24 Pa. Stat. § 5104.

PHEAA is statutorily authorized to “borrow moneys by making

and issuing notes, bonds and other evidences of indebtedness of

the agency . . . for the purposes of purchasing, making or

guaranteeing loans.” Id. § 5104(3). The Governor must approve

all debt issuances, see id., and the General Assembly has capped

the total amount of debt that PHEAA may incur, see 24 Pa. Stat.

§ 5105.1(a.1). Under state law, PHEAA bears sole responsibility

14

for its bonds and other debts. See id. § 5104(3) (“[N]o

obligation of [PHEAA] shall be a debt of the State and [PHEAA]

shall have no power to pledge the credit or taxing power of the

State nor to make its debts payable out of any moneys except

those of the corporation.”). Because the Pennsylvania General

Assembly has determined that PHEAA is performing an “essential

governmental function,” PHEAA bonds are generally free from

taxation. 24 Pa. Stat. § 5105.6.

As noted, PHEAA is now “one of the nation’s largest

providers of student financial aid services.” Oberg II, 745

F.3d at 138. During the time period relevant to this case,

PHEAA’s commercial activity -- much of it conducted under the

trade names “American Education Services” and “FedLoan

Servicing” -- included issuing loans to Pennsylvania students,

servicing loans for non-Pennsylvania students, and guaranteeing

loans issued to students in Delaware, Georgia, and West

Virginia. PHEAA’s 2014 financial statements show revenues

exceeding $600 million, net revenues of more than $220 million,

and unrestricted net assets of more than $700 million. See J.A.

3147-48. The earnings from PHEAA’s extensive commercial

operations have made PHEAA “financially independent” of the

Commonwealth, Oberg II, 745 F.3d at 139, and PHEAA has received

no appropriations to support its operations since 1988.

15

PHEAA administers Pennsylvania’s State Grant Program,

distributing appropriated funds as grants and scholarships to

qualifying students. PHEAA absorbs the costs of administering

the program, however, and disburses 100% of the appropriated

funds to students. In 2005, PHEAA contributed $25 million of

its earnings to supplement the State Grant Program, and it has

made contributions ranging from $45 – 75 million in many, but

not all, of the years since.

During the time period relevant to this case, PHEAA issued

revenue bonds to fund the loans it originated, repaying the

bonds with loan-repayment revenues. 4 PHEAA created special-

purpose entities incorporated under Delaware law to formally

issue the bonds and hold the student-loan receivables as assets.

These revenues are held in trust in accounts outside of the

Pennsylvania Treasury until the bonds are repaid or the release

provisions of the underlying documents are otherwise satisfied.

These trust accounts represent the bulk of PHEAA’s corporate

wealth -- more than $6 billion of $8.6 billion total long term

assets. See J.A. 3148.

4 PHEAA stopped originating federally guaranteed student

loans in 2008, “due to the global fiscal crisis.” J.A. 327.

See J.A. 2440. As of July 1, 2010, the federal government took

over as the originator of all federal student loans. See Health

Care & Educ. Reconciliation Act of 2010, Pub. L. No. 111-152, §§

2201-2213, 124 Stat. 1029, 1074-81.

16

As to the other revenues generated by PHEAA’s commercial

activities, however, state law requires them to be deposited in

the Pennsylvania Treasury, see 24 Pa. Stat. § 5104(3), a

requirement similar to that applicable to other state agencies.

PHEAA’s revenues on deposit with the state Treasury are held in

a segregated fund known as the “Educational Loan Assistance

Fund.” 24 Pa. Stat. § 5105.10. Although the revenues are in

the custody of the state Treasurer, state law expressly vests

control over the revenues in PHEAA. See 24 Pa. Stat. § 5104(3)

(requiring revenues earned through financial-services activities

to be “deposited in the State Treasury,” but providing that the

revenues “shall be available" to PHEAA and “may be utilized at

the discretion of the board of directors for carrying out any of

the corporate purposes of the agency”); id. § 5105.10 (“[A]ll

appropriations and payments made into the [Educational Loan

Assistance Fund] are hereby appropriated to the board and may be

applied and reapplied as the board shall direct and shall not be

subject to lapsing.”).

Much like funds invested in a mutual fund, PHEAA’s funds,

though separately accounted for, are commingled with the funds

of other Commonwealth agencies for investment purposes. See 72

Pa. Stat. § 301.1 (generally authorizing Treasurer to invest

funds held in state depositories); see also J.A. 2474 (PHEAA

treasurer’s description of investment process: “It works kind of

17

like a mutual fund . . . taking money from [separate

Commonwealth agencies] and keeping track of what each of us has,

but putting it together and putting it into investment funds.”).

The Treasury Department devises and executes the investment

strategy for the commingled funds. See 72 Pa. Stat. § 301.2;

see also J.A. 2796.

State law prohibits payment “from any of the funds of the

State Treasury” without approval of the Treasurer. 72 Pa. Stat.

§ 307. To obtain approval for payment of funds in the custody

of the Treasurer, PHEAA must present the Treasurer with

requisitions for payment. The Treasury Department audits the

requisitions by reviewing “backup documentation such as

invoices, contracts, [and] purchase orders” and “confirming the

authority for the payment (e.g., a valid supporting contract),

and a match between the amount due on the invoice and the

payment request.” J.A 673-74. “If the requisitions appear to

be lawful and correct, the Treasurer issues his warrant for

payment.” J.A. 673. If payment is approved, the Treasury

Department transfers funds to PHEAA electronically or sends

PHEAA a check. The checks are payable to the vendor and are

drawn on the state Treasury account and signed by the Treasurer.

For purposes of the “Commonwealth Attorneys Act,” 71 Pa.

Stat. §§ 732-101 – 732-506, the term “Commonwealth agency”

includes “independent” and “executive” agencies; PHEAA is

18

classified as an independent agency, see id. § 732-102. As is

the case with other Commonwealth agencies, if the Attorney

General provides PHEAA with a legal opinion, PHEAA must follow

the advice set out in the opinion. See id. § 702-204(a)(1).

While PHEAA has the authority to enter into contracts, it

must, like other Commonwealth agencies, submit contracts

involving more than $20,000 for a “form and legality” review by

the Attorney General. 71 Pa. Stat. § 732-204(f). The review

involves determining “whether the contract has all of the legal

terms that the Commonwealth requires and no terms that are

prohibited”; whether “PHEAA has the authority to enter into the

contract”; and whether “the contract is constitutional under the

State and Federal constitutions.” J.A. 713; see 71 Pa. Stat. §

732-204(f) (requiring Attorney General to determine whether a

“contract is in improper form, not statutorily authorized or

unconstitutional”). If an agency seeks to enter into a contract

with a party who owes money to the Commonwealth, the Attorney

General will not review the contract until the debt has been

satisfied. See J.A. 2856.

PHEAA is authorized to pursue student-loan collection

actions independently, see 24 Pa. Stat. § 5104.3, but the

Commonwealth Attorneys Act otherwise requires the Attorney

General to represent PHEAA in civil litigation absent a

delegation of authority, see 71 Pa. Stat. § 732-204(c). PHEAA’s

19

standard practice is to seek such delegations in all non-

collection actions; PHEAA’s general counsel could not recall a

request ever being denied. A private law firm serves as counsel

to PHEAA’s board. The Attorney General’s office would have

conducted the form-and-legality review of the contract engaging

the law firm, but the decision to engage counsel did not require

a delegation from or other review by the Attorney General. 5

Pennsylvania law treats PHEAA as a typical state agency in

other respects. PHEAA is authorized to promulgate and enact

regulations, but the regulations must be approved by

Pennsylvania’s Regulatory Review Commission. See 71 Pa. Stat.

§§ 745.3, 745.5. PHEAA must report its year-end condition to

the Governor and the legislature. See 24 Pa. Stat. § 5108. It

is subject to examination by the Commonwealth’s Auditor General,

see id., and was in fact the subject of a “special performance

audit” in 2008. J.A. 2312. Its property and income are exempt

from state taxation, see 24 Pa. Stat. § 5107, and all of its

properties revert to the Commonwealth upon dissolution, see id.

§ 5109.

PHEAA’s employees are paid through the state Treasury,

receive healthcare benefits through the Commonwealth, and

participate in the Commonwealth’s retirement system. PHEAA’s

5In 2013, PHEAA paid outside counsel a total of more than

$7 million.

20

board members and executives are subject to state ethics laws.

See 65 Pa. Cons. Stat. §§ 1102-03. PHEAA executives, however,

are not paid in accordance with state pay scales. At least

until 2007, PHEAA’s top executives were compensated under a

“unique” and very generous pay scale created by the PHEAA board.

J.A. 2342.

For accounting purposes, the Commonwealth treats PHEAA as a

“component unit” of the “primary government,” J.A. 595, and it

includes PHEAA’s financial information in the Commonwealth’s

Comprehensive Annual Financial Report. The Report defines the

“primary government” to include the Commonwealth and “all

Commonwealth departments, agencies, boards, and organizations

that are not legally separate.” J.A. 595. “Component units”

are defined as “all legally separate organizations for which the

[primary government] is financially accountable, and other

organizations for which the nature and significance of their

relationship with the [primary government] are such that

exclusion [of their financial information] would cause the

financial statements to be misleading or incomplete.” Id.

IV.

We turn now to Oberg’s specific challenges to the district

court’s analysis of the arm-of-state issue.

A. State Treasury

21

The first arm-of-state factor focuses on “whether any

judgment against the entity as defendant will be paid by the

State,” Oberg I, 681 F.3d at 580 (internal quotation marks

omitted), an inquiry that includes legal or functional

liability, see Oberg II, 745 F.3d at 137. We held in Oberg II

that Pennsylvania was not legally liable, see id. at 138, and

that conclusion remains controlling in this appeal, see Everett

v. Pitt Cty. Bd. of Educ., 788 F.3d 132, 142 (4th Cir. 2015)

(explaining that under the “law of the case” doctrine, rulings

by an appellate court on questions of law generally “must be

followed in all subsequent proceedings in the same case in the

trial court or on a later appeal” (internal quotation marks

omitted)). 6 Our analysis in this appeal, therefore, will focus

on functional liability.

6 The law-of-the-case doctrine does not apply if “the prior

decision was clearly erroneous and would work manifest

injustice.” TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th Cir.

2009) (internal quotation marks omitted). Although PHEAA

suggests, almost in passing, that we erred by rejecting legal

liability in Oberg II, see Brief of Respondent at 22 n.6, “[a]

prior decision does not qualify for this . . . exception by

being just maybe or probably wrong; it must strike us as wrong

with the force of a five-week-old, unrefrigerated dead fish.”

TFWS, 572 F.3d at 194 (internal quotation marks and alteration

omitted). Given the previously discussed statutory provisions

disclaiming liability for PHEAA’s obligations and requiring

PHEAA’s debts to be paid from moneys of the corporation, Oberg

II’s no-legal-liability holding doesn’t strike us as wrong at

all, much less dead-fish wrong.

22

The functional-liability analysis looks to whether, as a

practical matter, a judgment against a state-created entity puts

state funds at risk, despite the fact that the state is not

legally liable for the judgment. Thus, functional liability

will be found “[w]here an agency is so structured that, as a

practical matter, if the agency is to survive, a judgment must

expend itself against state treasuries.” Hess, 513 U.S. at 50,

cited in Oberg II, 745 F.3d at 137; Ristow v. South Carolina

Ports Auth., 58 F.3d 1051, 1054 (4th Cir. 1995) (finding Ports

Authority to be an arm of the state despite absence of legal

liability because the state “provides whatever economic support

is necessary over and above the Port Authority’s net revenues to

insure its continued vitality” and “takes back any portion of

the Authority’s net revenues, which, in its legislative

judgment, is not necessary or desirable for the Ports

Authority’s operation”). A state may also be functionally

liable if the funds available to pay any judgment effectively

belong to the state rather than the agency.

Applying these principles in Oberg II, we concluded that

Pennsylvania was not functionally liable because PHEAA was

statutorily vested with control over the significant revenues

generated by its extensive commercial activities, such that the

judgment would be paid with funds belonging to PHEAA, not

Pennsylvania. See Oberg II, 745 F.3d at 139 (“[B]ecause state

23

law instructs that PHEAA would pay any judgment in this case

with its own moneys from its segregated fund, the first factor

weighs heavily against holding that PHEAA is an arm of the

state.” (citation omitted)); id. at 138 (noting that “PHEAA’s

substantial ‘moneys’ derive exclusively from its own

operations”).

The district court rejected that conclusion on remand,

however. Believing that this court’s analysis could not be

sustained in light of the post-remand “factual development” in

the case, Oberg III, 77 F. Supp. 3d at 497, the district court

held that Pennsylvania would be functionally liable for any

judgment entered against PHEAA. In the district court’s view,

the fact that PHEAA’s earnings are deposited in the state

Treasury, where they are commingled with other state funds and

cannot be spent without approval of the Treasurer, showed that

“the Commonwealth retains [such] significant control over

PHEAA’s assets and generated revenue” that “[p]ractically

speaking, PHEAA’s money becomes State money.” Id. We agree

with Oberg that the district court’s analysis on this point is

largely inconsistent with our decision in Oberg II.

Notwithstanding the district court’s “factual development”

reference, its analysis did not depend on the evidence developed

during discovery, but instead turned on its understanding of the

general statutory framework governing PHEAA’s operation. As we

24

have already explained, however, this court in Oberg II rejected

the all-funds-are-state-funds argument. Instead, we held that

because PHEAA was statutorily vested with control over the funds

on deposit with the state Treasury, PHEAA’s revenues remained

“moneys . . . of the corporation” despite the statutory

provisions relied on by the district court. Oberg II, 745 F.3d

at 138 (internal quotation marks omitted).

Given that we were reviewing the granting of a Rule

12(b)(6) motion to dismiss in Oberg II, our holding was based on

an assumption that the control statutorily vested in PHEAA was

in fact exercised by PHEAA. Nonetheless, because we held that

Oberg had plausibly alleged that PHEAA was not an arm of the

state, we necessarily concluded that the statutory framework

governing PHEAA’s operations did not, in and of itself,

establish a level of control sufficient to make PHEAA an arm of

Pennsylvania. If the relevant statutory facts focused on by the

district court -- that PHEAA’s revenues are held in the state

Treasury and cannot be used for payment without approval of the

Treasurer -- were enough to establish functional liability even

in the face of the PHEAA’s statutorily granted power over those

revenues, then we would have affirmed, not vacated, the district

court’s arm-of-state conclusion in Oberg II.

In finding Pennsylvania functionally liable, the district

court thus ignored the statutory facts that we found critical to

25

the issue -- PHEAA’s control over its significant independent

funds -- and gave the other relevant statutory facts a legal

effect that we rejected in Oberg II. We therefore agree with

Oberg that the district court erred by analyzing the functional

liability question in an manner inconsistent with the approach

dictated by Oberg II.

This court, however, “review[s] judgments, not opinions.”

Catawba Indian Tribe of S.C. v. City of Rock Hill, 501 F.3d 368,

372 n.4 (4th Cir. 2007) (per curiam). Thus, even though the

district court’s analysis of the state-treasury factor was

erroneous, reversal would not be required if the evidence

developed through discovery shows a level of control actually

exercised by the Commonwealth that changes the Oberg II calculus

and establishes that Pennsylvania is functionally liable for a

judgment against PHEAA. See Oberg II, 745 F.3d at 140-41

(remanding for “limited discovery on the question whether PHEAA

is truly subject to sufficient state control to render it a part

of the state” (emphasis added; internal quotation marks and

alterations omitted)). We turn to that question now.

1.

Discovery produced substantial evidence of PHEAA’s

financial strength and independence.

PHEAA’s financial success, which has never really been in

dispute, is clearly established in the record. For 2006, when

26

the last of the conduct alleged in Oberg’s complaint took place,

PHEAA’s financial statements show gross revenues of $416

million, net revenues of $156 million, and total net assets of

$498 million. J.A 2573-74. PHEAA’s 2014 financial statements

show impressive growth – gross revenues of $640 million, net

revenues of $222 million, with total net assets of $1 billion

and unrestricted net assets of $709 million. 7 See J.A. 3147-48.

The evidence thus establishes that PHEAA has “substantial

moneys,” as we assumed to be true in Oberg II. 745 F.3d at 138

(internal quotation marks omitted).

PHEAA is statutorily vested with control over its funds on

deposit with the Treasury Department, and discovery confirmed

that PHEAA is in fact exercising control over its funds.

PHEAA’s control over fiscal matters is established, first and

foremost, by PHEAA’s own officials. Timothy Guenther, PHEAA’s

treasurer, repeatedly testified in his deposition that financial

decisions were made by PHEAA’s Board of Directors. Guenther

testified that PHEAA’s board approves PHEAA’s annual budget

based on revenue and expenses estimates developed by PHEAA

staff; decides each year what portion (if any) of its earnings

7

As noted, PHEAA stopped originating student loans in 2008.

Despite the loss of that line of business, PHEAA’s revenues have

increased dramatically. That increase is primarily attributable

to a contract with the federal government to service federally

issued student loans.

27

will be used to supplement the State Grant Program; and

establishes PHEAA’s corporate investment policy. And as to the

annual report of its major financial decisions and overall

financial condition that PHEAA is required to make to the

Governor and General Assembly, Guenther acknowledged that the

financial decisions reflected in that report were made by

PHEAA’s board. See J.A. 2469.

The declaration of PHEAA’s chairman of the board likewise

shows that PHEAA, not the Commonwealth, controls PHEAA’s

operations and its funds. See J.A. 246 (“PHEAA’s Board makes

sure that as much excess revenue, in light of PHEAA’s long-term

operational and financial requirements, is contributed to

programs and financial assistance for the benefit of

Pennsylvania students” (emphasis added)); J.A. 249 (“The Board

oversees PHEAA, makes the policy decisions for the direction of

[the] agency, and tasks PHEAA’s executives and managers with

implementing those decisions and directions on a day-to-day

basis.”); id. (“PHEAA’s Board reviews, analyzes and approves

PHEAA’s internal budget, which is proposed by management and

presented to the Board.”); see also J.A. 2406 (“Briefing Book”

preparing PHEAA CEO for appearance before legislative committee

stating that “[t]he board is responsible for how we spend our

money”).

28

Specific incidents and events described in the record

provide further evidence of PHEAA’s control. For example, when

Commonwealth revenues fall short of expectations, it is not

unusual for the Governor to ask state agencies to cut spending

and return a portion of their budget to the General Assembly.

The record contains two gubernatorial letters requesting PHEAA’s

assistance, and these letters distinguish PHEAA from other state

agencies and make it clear that PHEAA has control over its

budget that other agencies do not. See J.A. 3118 (letter from

Gov. Corbett stating that he had “directed agencies under [his]

jurisdiction to freeze . . . spending” but was “ask[ing] that

[PHEAA] make the same sacrifice as the agencies under [his]

jurisdiction” (emphasis added)); J.A. 3120 (letter from Gov.

Rendell noting that he had “directed commonwealth agencies to

place 1.9% of their discretionary budgets into budgetary

reserve” but “ask[ing] [PHEAA] to make the same spending

reductions that our commonwealth agencies are making” (emphasis

added)).

In addition, in 2007, PHEAA settled a dispute with the

Department of Education related to the interest-subsidy issue

raised in Oberg’s complaint for $11.3 million. According to

PHEAA’s treasurer, PHEAA paid the Department of Education with

loan-repayment funds held in trust in accounts outside the

Pennsylvania Treasury. PHEAA also settled a dispute with the

29

IRS for $12.3 million, and a portion of the IRS settlement was

also paid from assets held in trust. See J.A. 2480. The

Attorney General would have conducted the form-and-legality

review of the settlements, but it otherwise had no involvement

in the substantive decision to settle the disputes or the

negotiation of the settlement terms. See J.A. 2845, 2847-48.

The General Assembly was not required to approve the

settlements, and it did not appropriate funds to replace those

spent by PHEAA. In our view, PHEAA’s actions in settling the

disputes demonstrates PHEAA’s control over its funds and its

financial independence from the Commonwealth. And the fact that

the settlements were paid with a portion of the $6 billion held

in trust outside the state Treasury is additional evidence of

PHEAA’s ability to fund a judgment without the use of state

funds.

PHEAA’s creation and support of the Pennsylvania Higher

Education Foundation (“PHEF”) also provides compelling evidence

of PHEAA’s financial independence and control. 8 Although PHEAA

itself is authorized to solicit and receive private donations,

see 24 Pa. Stat. § 5104(3) & (8); id. § 5106, PHEAA officials

believed that “‘many private donors are reluctant to donate

funds to a government agency,’” 2008 Auditor General’s Report at

8 PHEF has been inactive since 2009.

30

74, Exhibit 1 to Oberg’s Opposition to PHEAA’s Motion for

Summary Judgment (“2008 Auditor General’s Report”). 9 PHEAA thus

created PHEF, a one-employee, 10 tax-exempt charitable

organization, for the purpose of soliciting private corporate

donations. PHEAA provided the funds and administrative services

necessary for PHEF’s operation. From 2001 through 2007, PHEAA

provided PHEF with more than $86 million in cash and donated

services. Over that same period, PHEF collected $11.1 million

in private donations. See 2008 Auditor General’s Report at 75.

While PHEAA has the general authority “[t]o perform such . . .

acts as may be necessary or appropriate to carry out effectively

the objects and purposes of the agency,” 24 Pa. Stat. § 5104(7),

PHEAA had no specific statutory authority to create or make

donations to a charitable organization, see J.A. 2410 (“Briefing

Book” preparing PHEAA CEO for appearance before legislative

committee stating that there was “[n]o express legislative

authority” for PHEAA’s funding of PHEF).

In our view, the evidence outlined above establishes the

critical facts assumed in Oberg II when we rejected the claim of

9The parties included only a portion of this report in the

Joint Appendix.

10PHEF’s single employee is its president and CEO. From

PHEF’s inception through at least August 2008, PHEF’s president

and CEO was a former president and CEO of PHEAA itself. See

2008 Auditor General’s Report at 75.

31

functional liability: that PHEAA has substantial, commercially

generated revenues held both inside and outside the state

Treasury, and that PHEAA exercises its statutory right to

control those revenues. See Burrus v. State Lottery Comm’n, 546

F.3d 417, 420 (7th Cir. 2008) (“Because the Lottery raises

revenue on its own account, controls and funds its own

operations, and does not expose state coffers when monetary

judgments are rendered against it, we conclude that it is an

entity financially independent from the state.”). As we discuss

below, state law does impose some restrictions on PHEAA’s use of

its funds, but those restrictions do not divest PHEAA of control

over its funds or otherwise establish that the Commonwealth is

functionally liable for a judgment against PHEAA.

2.

The primary way the Commonwealth exercises some control

over PHEAA’s funds is through the statutory requirements that

PHEAA deposit its commercial revenues in the Treasury Department

and the Treasurer approve any payment of funds held by Treasury.

To the extent that PHEAA continues to assert that these

statutory provisions establish that all of PHEAA’s funds on

deposit in the state Treasury effectively belong to the

32

Commonwealth, 11 that argument is foreclosed by Oberg II, which

necessarily concluded that these statutory requirements do not,

in and of themselves, transform PHEAA funds into Commonwealth

funds. See Oberg II, 745 F.3d at 138; cf. Fitchik v. New Jersey

Transit Rail Operations, Inc., 873 F.2d 655, 661 (3d Cir. 1989)

(en banc) (“The [statutory] designation of the money as ‘public’

simply does not answer the question of who has dominion over the

money in [state-created entity’s] accounts.”). Indeed,

Pennsylvania law expressly recognizes that not all funds held by

the Treasurer actually belong to the Commonwealth. See 72 Pa.

Stat. § 301 (requiring Treasurer to deposit in specified

accounts “all moneys of the Commonwealth received by it,

including moneys not belonging to the Commonwealth but of which

the Treasury Department or the State Treasurer is custodian”

(emphasis added)).

PHEAA also contends, however, that the actual payment-

approval process, as established through discovery,

“significantly constrain[s]” its spending and signifies a level

11 In support of this argument, PHEAA points to the

testimony of PHEAA treasurer Timothy Guenther, who stated in his

deposition that “[a]ll PHEAA funds held in the Treasury are

funds of the Commonwealth.” J.A. 2447. To the extent Guenther

asserts that the funds are Commonwealth funds simply because

they are deposited in the state Treasury, that argument is

foreclosed by Oberg II. Moreover, whether PHEAA funds belong to

the Commonwealth for purposes of the arm-of-state analysis is

ultimately a question of federal law that cannot be established

by a witness’s conclusory assertion of the ultimate legal issue.

33

of control that makes the Commonwealth functionally liable.

Brief of Respondent at 18. We disagree.

The Treasury Department’s review-and-approval process, as

described by the evidence in the record, is not particularly

complicated. PHEAA prepares and submits a payment request; the

Treasury Department reviews the payment request and its “backup

documentation such as invoices, receipts, contracts, [and]

purchase orders,” to confirm the existence of a contract

authorizing payment and an invoice matching the payment request.

J.A 673. If the review raises questions, the Department rejects

the request and returns it to PHEAA for resolution of the

issues. If the review shows the payment request “to be lawful

and correct, the Treasurer issues his warrant for payment.” Id.

When a check is required, the vendor is paid with a check drawn

on the state Treasury and signed by the Treasurer.

The approval process clearly reflects some level of

Commonwealth control over PHEAA, as it effectively requires

PHEAA to adopt certain book-keeping procedures if it wants its

vendors to be paid. The Treasury Department’s review, however,

is not a substantive review. The Department does not evaluate

the wisdom of the underlying contract or the reasonableness of

the agreed-upon price, but instead simply confirms that a valid

contract authorizes payment and that the payment amount sought

matches the amount agreed to in the contract. The approval

34

process thus does not constrain or otherwise interfere with

PHEAA’s statutory authority to make the substantive decisions

controlling the use of its revenues. See 24 Pa. Stat. § 5104(3)

(PHEAA revenues held in the state Treasury “shall be available”

to PHEAA and “utilized at the discretion of the board of

directors for carrying out any of the corporate purposes of the

agency”); id. § 5105.10 (deposits into PHEAA’s segregated state

Treasury account “are hereby appropriated to the board and may

be applied and reapplied as the board shall direct”). Indeed,

the approval process doesn’t even commence until PHEAA has

exercised its discretion to enter into a contract or otherwise

take action that requires a payment to be made.

PHEAA, however, argues that, “[a]s the thousands of

examples of requisition questions and denials produced in

discovery clearly show, Treasury’s review is no mere rubber

stamp.” Brief of Respondent at 19. In PHEAA’s view, the

approval process “is not ministerial in nature” because it

“involves a comprehensive, multi-step process involving several

levels of submission, substantive review, and authorization.”

Brief of Respondent at 19 (internal quotation marks omitted).

We disagree.

Whether the review-and-approval process is ministerial

depends on the nature of the review, not on the frequency with

which the review identifies problems. And here, the undisputed

35

evidence shows that Treasury Department officials simply check,

cross-check, and confirm the information contained in contracts,

purchase orders, and invoices. Complicated contracts may

sometimes lead to lengthy email exchanges trying to unravel the

agreed-upon pricing terms, but even then, the Department’s role

is simply to confirm that a valid contract authorizes the

payment being sought in the amount being sought. 12

We recognize, of course, that by dictating the steps to be

followed for payment to be made to a PHEAA vendor, the approval

requirement places some not-insignificant constraints on the

manner in which PHEAA pays its bills. Dictating specific

payment procedures, however, is not the same as dictating

spending policy and priorities. Because the Treasury

Department’s ministerial, checklist-focused approval process

does not substantively constrain PHEAA’s fiscal discretion, the

approval requirement does not, in and of itself, give

12 When arguing that the approval process is not

ministerial, PHEAA notes that “after receiving a $63 invoice

from PHEAA’s outside counsel seeking reimbursement for a meal,

Treasury demanded an itemized receipt from PHEAA and inquired

whether the meal included alcohol.” Brief of Respondent at 19

n.5. Given that Pennsylvania’s reimbursement policy precludes

reimbursement for alcoholic beverages and requires “[c]omplete

justification” for reimbursement requests, see Commonwealth

Travel Procedures Manual §§ 4.1, 7.1 (Nov. 1, 2011) (PDF file

saved as ECF opinion attachment), the Treasury Department simply

asked PHEAA to provide the information necessary to show that

payment was authorized. We see no relevant difference between

that request and a request for PHEAA to provide the contract

underlying a given invoice.

36

Pennsylvania a level of control over PHEAA funds sufficient to

transform PHEAA’s independently earned revenues into money

belonging to the Commonwealth.

PHEAA also argues that Pennsylvania is functionally liable

because PHEAA’s funds on deposit in the Treasury are commingled

with state funds and invested by the Treasurer. We disagree.

That PHEAA’s revenues were commingled with state revenues and

invested by the Treasurer were statutory facts before the court

in Oberg II but were insufficient, standing alone, to establish

functional liability. While discovery has added to those

statutory facts and establishes that the Treasurer makes the

decisions about investing these commingled funds, we do not

believe that adds much to the analysis. The commingling and

investing -- a process that PHEAA’s own treasurer compared to an

ordinary mutual fund -- may reflect the Treasurer’s custodial

control over the funds on deposit, but it does not establish a

lack of substantive control by PHEAA. That is, PHEAA is

statutorily vested with the power to control its commercially

generated revenues on deposit in the Treasury. The Treasurer’s

concurrent authority to use those funds to generate interest

does not somehow divest PHEAA of control over its funds or

otherwise interfere with PHEAA’s exercise of substantive control

over its funds. Accordingly, we conclude that PHEAA’s own

“moneys,” generated through PHEAA’s commercial activities and

37

held in a segregated account, are not transformed into “moneys”

of the Commonwealth simply because they are commingled with

other state funds for investment purposes.

PHEAA also contends that it is “fiscally dependent” on the

Commonwealth, and the Commonwealth is therefore functionally

liable, because it must submit annual budget requests to obtain

appropriations from the General Assembly, the legislature has

capped the total amount of debt PHEAA can incur, and the

Governor must approve all debt issuances. Brief of Respondent

at 19. Again, we disagree.

As the record establishes, PHEAA submits budget requests

only to receive the appropriated funds to be distributed under

the State Grant Program. PHEAA is not required to submit budget

requests to gain access to its independently generated revenues,

and the General Assembly does not take PHEAA’s revenues to fill

holes in the Commonwealth’s budget. PHEAA’s participation in

the state budgeting process in its capacity as administrator of

the State Grant Program thus does not cast doubt on PHEAA’s

power to control its extensive, independent funds, nor does it

otherwise make PHEAA fiscally dependent on Pennsylvania.

As to the statutory limit on PHEAA’s total debt and the

gubernatorial-approval requirement, these provisions may well

make PHEAA fiscally dependent on Pennsylvania for state

accounting purposes. See Commonwealth’s Comprehensive Annual

38

Financial Report, J.A. 595-96 (treating PHEAA as a “component

unit” of the Commonwealth’s “primary government” because “PHEAA

is fiscally dependent, as the Governor must approve the issuance

of its debt”). For purposes of the arm-of-state inquiry,

however, we do not believe these restrictions suffice to make

Pennsylvania functionally liable for a judgment against PHEAA.

Preliminarily, we note that while the debt-limit and

gubernatorial-approval provisions do place some constraints on

PHEAA’s business activities, nothing in the statutes directly

addresses PHEAA’s control over its revenues, which is the key to

the functional liability question in this case. Moreover, these

statutory requirements obviously have not been obstacles to

PHEAA’s financial success, and there is no basis in the record

for us to conclude that Pennsylvania in the future would use

these powers to shrink PHEAA’s operations and revenues to a

point where it could not withstand a judgment against it. See

Hess, 513 U.S. at 50.

In any event, while these statutory provisions do restrict

PHEAA’s financial independence to some degree, Pennsylvania

municipalities--which are subject to liability under the FCA--

also face similar requirements. 13 These statutes thus provide

13See Pa. Const. art. IX, § 10 (“[T]he General Assembly

shall prescribe the debt limits of all units of local government

including municipalities and school districts.”); 53 Pa. Cons.

(Continued)

39

little help in “draw[ing] the line between 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.” Oberg I, 681 F.3d at 580 (internal quotation marks

omitted). The debt-limit and gubernatorial-approval provisions

were among the statutory facts that we considered in Oberg II

and found insufficient, in and of themselves, to compel arm-of-

state status, and there is nothing in this record establishing

that these statutory facts should be given more weight than we

gave them in Oberg II.

3.

Under these facts, the district court erred in concluding

that Pennsylvania was functionally liable for a judgment against

PHEAA. As we have explained, PHEAA’s “substantial,”

independently generated corporate wealth, Oberg II, 745 F.3d at

138, and PHEAA’s control over that wealth, were key to Oberg

II’s functional-liability analysis. The evidence discussed

above confirmed the existence of these facts.

Stat. § 8022(a) (placing limitations on the amount of

nonelectoral debt incurred by local government units); 53 Pa.

Cons. Stat. § 8110(a) (requiring local governments to submit a

“debt statement” to the Department of Community and Economic

Development of the Commonwealth before issuing bonds); 53 Pa.

Cons. Stat. § 8111 (Department must approve local government’s

application before local government may issue bonds).

40

Far from being a thinly capitalized agency, see Hess, 513

U.S. at 50, PHEAA earns hundreds of millions of dollars a year

through its commercial financial services operations and holds

more than $1 billion in net assets. While its commercial

earnings are deposited in the Pennsylvania Treasury, PHEAA is

statutorily vested with control over those revenues. See 24 Pa.

Stat. § 5104(3); id. § 5105.10. And as outlined above, the

evidence produced through discovery confirms that PHEAA is in

fact exercising the control granted to it by statute and that

substantive decisions about the use of its substantial revenues

are made by PHEAA, not the Governor or the General Assembly.

This point is exemplified by PHEAA’s creation of PHEF and its

donation to PHEF of $86 million in cash and services goods, all

without specific statutory authority.

Of course, PHEAA is subject to some measure of state

control over its finances, including the gubernatorial-approval

requirement, the legislative cap on total debt, and the Treasury

payment-approval requirement. Oberg II held that those facts

did not outweigh the control PHEAA had over its independent

funds, however, and the record contains no evidence that causes

us to reach a different conclusion. The gubernatorial-approval

requirement and legislative cap may theoretically place a

ceiling on PHEAA’s earning capacity at some as-yet unestablished

level, but an income ceiling does not affect PHEAA’s right or

41

ability to control the revenues it actually earns. The Treasury

payment-approval process, though not an entirely inconsequential

burden, is nonetheless a purely ministerial process that does

not in any way restrict PHEAA’s authority to set policy and make

all substantive decisions about where and how its funds are best

directed. None of these facts, whether considered individually

or collectively, materially diminish or constrain PHEAA’s

substantive control (vested by law and exercised in fact) over

its funds and financial decisions.

PHEAA, however, objects to any consideration of the extent

of its corporate wealth and its ability to fund a judgment

through its own resources, insisting that arm-of-state status

cannot depend on whether the state-created entity happens to be

“flush at a particular juncture.” Brief of Respondent at 25.

PHEAA argues that for the first two decades of its existence, it

depended on state appropriations to fund its operations. PHEAA

contends that in those early years, “the Commonwealth would have

been on the hook to pay a judgment against PHEAA,” and it

contends that “[t]here is no principled basis for rescinding

PHEAA’s status as an arm of the Commonwealth simply because it

now enjoys financial success by discharging its statutory

mission.” Brief of Respondent at 26. We disagree.

First, Oberg II requires us to consider PHEAA’s wealth and

its ability to use its funds to pay a judgment. Those facts, as

42

previously discussed, were the critical facts on which Oberg

II’s functional-liability decision was grounded. Oberg II thus

established that PHEAA’s access to its substantial corporate

wealth was relevant to the functional-liability question, and

that determination is a legal ruling that remains applicable in

this appeal. See TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th

Cir. 2009) (“The law of the case doctrine posits that when a

court decides upon a rule of law, that decision should continue

to govern the same issues in subsequent stages in the same

case.” (internal quotation marks omitted)).

Moreover, even were we to ignore Oberg II’s focus on these

facts, case law would still require their consideration.

Specifically, the Supreme Court’s decision in Hess establishes

that an agency’s access to independent funds is relevant to the

functional-liability question.

In Hess, the Court explained that, “[w]here an agency is 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.” Hess, 513 U.S.

at 50 (internal quotation marks omitted). “There is no such

requirement where the agency is structured . . . to be self-

43

sustaining.” Id. 14 When determining whether the state-created

entity was “structured” to be “self-sustaining,” the Hess Court

considered the entity’s financial statements, which showed that

the entity “had over $2.8 billion in net assets and $534 million

in its General Reserve Fund,” id. at 36 n.6, as well as the

entity’s independent source of revenues, which “account[ed] for

the Authority’s secure financial position,” id. at 36. Although

the creating states otherwise exercised a not-insignificant

amount of control over the entity, see id. at 36-37, the Court

held in Hess that the entity was not entitled to share in the

states’ Eleventh Amendment immunity given the entity’s

“anticipated and actual financial independence,” id. at 49; see

also id. at 52 (“[T]he Port Authority is financially self-

sufficient; it generates its own revenues, and it pays its own

debts. Requiring the Port Authority to answer in federal court

. . . does not touch the concerns -- the States’ solvency and

dignity -- that underpin the Eleventh Amendment.”).

In our view, the Court’s approach in Hess forecloses any

argument that an entity’s independent financial resources and

its ability to fund any judgments against it are not relevant to

the functional-liability inquiry. PHEAA suggests, however, that

14

Although Hess involved an entity created by two states,

we have held that “the same general principles identified in

[Hess] must also apply in the single state context.” Gray v.

Laws, 51 F.3d 426, 432 (4th Cir. 1995).

44

Hess’s focus on the financial circumstances of the state-created

entity was subsequently rejected by the Supreme Court in Regents

of the University of California v. Doe, 519 U.S. 425 (1997),

which PHEAA contends held that the state’s “potential” liability

was the key factor in the arm-of-state inquiry. We disagree.

In Regents, the question was whether the University of

California was an arm of the state for Eleventh Amendment

purposes. Although there was no dispute that California was

legally liable for the University’s debts, see id. at 428, the

Ninth Circuit nonetheless concluded that the University was not

an arm of California because a contractual indemnification

agreement with the federal government would have relieved

California of the financial consequences of a judgment in that

case, see id. The Supreme Court reversed. Rejecting “the

notion that the presence or absence of a third party’s

undertaking to indemnify the agency should determine whether it

is the kind of entity that should be treated as an arm of the

State,” id. at 431, the Supreme Court held that “with respect to

the underlying Eleventh Amendment question, it is the entity’s

potential legal liability, rather than its ability or inability

to require a third party to reimburse it, or to discharge the

liability in the first instance, that is relevant,” id.

(emphasis added).

45

The Regents Court thus held that if the state is legally

liable for a judgment against the state-created entity, the

entity is entitled to Eleventh Amendment immunity and does not

lose that immunity by virtue of an indemnity agreement that

ultimately shifts the state’s loss to a third party. See id. at

430-31; see also Cash, 242 F.3d at 221-22 n.1 (“[I]n Regents,

the Court held that the fact that a judgment against the State

would be covered by the voluntary indemnification agreement of a

third party did not strip away the State’s Eleventh Amendment

immunity because the State still bore the legal risk of an

adverse judgment.” (internal quotation marks omitted)). Because

Regents addressed Hess and built on Hess’s analysis when

reaching its own ruling, see Regents, 519 U.S. at 430-31,

Regents’ focus on legal liability cannot somehow be understood

as a silent rejection of the heart of Hess’s analysis of

functional liability. 15

15

This court has concluded that Regents’ use of “potential”

liability, Regents, 519 U.S. at 431, requires us to consider the

effect of a “hypothetical” judgment that exceeds the entity’s

revenues. See Hutto v. S.C. Ret. Sys., 773 F.3d 536, 545 (4th

Cir. 2014) (“[T]he proper inquiry is not whether the state

treasury would be liable in this case, but whether,

hypothetically speaking, the state treasury would be subject to

potential legal liability if the [state-created entity] did not

have the money to cover the judgment.” (internal quotation marks

omitted)). We have already held that the Commonwealth is not

legally liable for a judgment against PHEAA. See Oberg II, 745

F.3d at 138. And for the reasons previously discussed, PHEAA’s

control over significant cash reserves means there is little

(Continued)

46

In sum, PHEAA is engaged in nationwide, commercial

financial-aid activities that bring in hundreds of millions of

dollars in net revenues every year and have allowed it to

accumulate more than one billion dollars in net assets, and

PHEAA has substantive control over those independent funds. A

judgment in this case would thus be paid with PHEAA funds, not

funds belonging to the Commonwealth. And given PHEAA’s control

over its sizeable corporate wealth, there is little likelihood

that a judgment against PHEAA, even one that exceeds its current

revenues, would imperil its survival such that the Commonwealth

would effectively be required to swoop in with financial

support. 16 Accordingly, in light of PHEAA’s “anticipated and

likelihood that the Commonwealth’s help would be required to

satisfy the hypothetical judgment. To the extent that PHEAA

suggests that Hutto’s “hypothetical” inquiry requires us to

imagine not only a judgment that exceeds PHEAA’s revenues, but

also that PHEAA’s accumulated cash and other assets have

vanished, that proposition is not only an over-reading of Hutto,

but also inconsistent with Hess, which considered real, not

imaginary, financial information when rejecting arm-of-state

status. See Hess, 513 U.S. at 36.

16 Although PHEAA’s chairman stated in his declaration that

the Commonwealth “would have no choice but to appropriate money”

for PHEAA if a “significant judgment” were entered against it,

J.A. 248, the chairman did not identify any facts supporting his

opinion. Cf. Williams v. Giant Food, Inc., 370 F.3d 423, 433

(4th Cir. 2004) (explaining that a “mere[] . . . self-serving

opinion . . . cannot, absent objective corroboration, defeat

summary judgment”). Moreover, the record evidence that shines

light on this issue points to the opposite conclusion, given

that the Commonwealth did not replenish PHEAA’s coffers after it

(Continued)

47

actual financial independence,” Hess, 513 U.S. at 49, the

district court erred in finding the Commonwealth of Pennsylvania

functionally liable for a judgment against PHEAA. And because

Pennsylvania is neither legally nor functionally liable, the

state-treasury factor therefore “weighs heavily against holding

that PHEAA is an arm of the state.” Oberg II, 745 F.3d at 139;

see Cash, 242 F.3d at 225 (explaining that if the state treasury

will not be affected by a judgment, that fact weighs against

arm-of-state status).

B. Autonomy

The second arm-of-state factor requires us to determine

“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

(internal quotation marks omitted). “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

paid millions of dollars to settle the disputes with the

Department of Education and the IRS, nor did the Commonwealth

provide extra funds when PHEAA had a $27-million operating loss

in 2008. Under these circumstances, the chairman’s unsupported

opinion about actions the Commonwealth might take cannot

establish functional liability. Cf. Cash, 242 F.3d at 225

(speculative effect on state treasury insufficient to establish

functional liability).

48

property, and whether it is represented in legal matters by the

state attorney general.” Oberg II, 745 F.3d at 137 (citations

omitted).

1.

In Oberg II, we held that while the composition of PHEAA’s

board, the gubernatorial-approval requirement for bond issuances

and the Auditor General’s oversight over PHEAA pointed towards

arm-of-state status, other relevant factors, including PHEAA’s

financial independence and its corporate powers “strongly

suggest[ed] that PHEAA is not an arm of the state.” Id. at 139.

Giving Oberg the benefits of all reasonable inferences, we held

that the autonomy factor “counsels against holding that PHEAA is

an arm of the state.” Id.

On remand, the district court concluded that the facts

developed through discovery made “Pennsylvania’s control over

PHEAA . . . quite clear.” Oberg III, 77 F. Supp. 3d at 498.

The district court believed that the composition of PHEAA’s

board -- gubernatorial appointees and state legislators or

officials -- “gives the Commonwealth significant control over

the direction of PHEAA.” Id. The court also noted that

“Pennsylvania retains several forms of veto power over PHEAA’s

actions. The Treasurer must, as with all agencies, approve all

expenditures, the Governor must approve all of PHEAA’s debt

issuances, and the Attorney General must approve all PHEAA

49

contracts in excess of $20,000.” Id. The district court

explained that, “[a]lthough PHEAA’s funding and partial fiscal

autonomy weighs against a finding that PHEAA is a state agency,

most of the evidence shows substantial Commonwealth control and

supports finding PHEAA to be an arm of Pennsylvania.” Id.

Oberg argues on appeal that the district court’s analysis

of the autonomy factor is inconsistent with our analysis in

Oberg II. In Oberg’s view, the evidence produced through

discovery demonstrates that PHEAA in fact operates autonomously,

without significant oversight or control by the Commonwealth.

We agree with Oberg that the statutory scheme governing PHEAA’s

operation and the evidence in the record establish PHEAA’s

operational autonomy. See Oberg II, 745 F.3d at 141 (describing

the ultimate question as whether “PHEAA is truly subject to

sufficient state control to render it a part of the state”

(emphasis added; internal quotation marks and alteration

omitted)).

2.

The record contains substantial evidence showing that PHEAA

operates autonomously, largely free from state interference in

its substantive decisions.

The “[m]ost critical[]” evidence of PHEAA’s autonomy is

evidence of its “financial[] independen[ce].” Id. As already

discussed, the evidence developed through discovery confirmed

50

the financial independence we assumed in Oberg II. PHEAA is not

dependent on state money for its survival and has not received

appropriated funds for operational support since 1988. PHEAA

supports itself through its commercial financial-services

activities, through which it earns hundreds of millions of

dollars annually and has accumulated more than $1 billion in net

assets. PHEAA is statutorily vested with control over those

funds, see 24 Pa. Stat. §§ 5104(3), 5105.10, and the evidence

from PHEAA’s own officials establishes that PHEAA in fact

exercises that statutory control, see, e.g., J.A. 2469 (PHEAA

treasurer acknowledging that PHEAA board makes the financial

decisions reflected in PHEAA’s annual report to Governor and

General Assembly); J.A. 249 (“PHEAA’s Board reviews, analyzes

and approves PHEAA’s internal budget, which is proposed by

management and presented to the Board.”). PHEAA’s control over

its substantial, independently generated revenues thus

establishes PHEAA’s financial independence, which is a critical

component of operational autonomy. See Oberg II, 745 F.3d at

139.

Testimony from PHEAA board members also shows the lack of

involvement by the General Assembly in PHEAA’s operational

affairs. When asked whether the General Assembly “submit[ted]

policy or business recommendations” to PHEAA, one of the non-

legislative members of the board responded,

51

The Legislature created PHEAA. . . . [I]t told them

what they have to do, give them the business operation

to take care of the students of Pennsylvania.

That was the Legislature’s role. That’s their

only role at this point. They change their mind, they

can create a statute to change it.

J.A. 3353. The absence of significant legislative control or

oversight is also reflected in the testimony of PHEAA’s

chairman, who stated that “[i]f the Speaker of the House or any

member of the General Assembly would ask me a question regarding

PHEAA, I certainly would meet with them and discuss whatever the

matter is with them. But I do not report back to anyone in the

General Assembly.” J.A. 2696; see also Declaration of PHEAA

Chairman of the Board, J.A. 249 (“The Board oversees PHEAA,

makes the policy decisions for the direction of [the] agency,

and tasks PHEAA’s executives and managers with implementing

those decisions and directions on a day-to-day basis.”). 17

17In his declaration in support of PHEAA’s motion for

summary judgment, PHEAA’s chairman stated that “I know from my

tenure on the Board and as its Chairman that by virtue of the

composition of PHEAA’s Board with members of the legislative and

executive branches, the Commonwealth exercises absolute control

over PHEAA.” J.A. 248 (emphasis added). Oberg II, of course,

forecloses any argument that the composition of the board

establishes absolute control. Moreover, as we have previously

indicated, a witness’s conclusory assertion of the answer to a

legal question is not controlling. Cf. Doren v. Battle Creek

Health Sys., 187 F.3d 595, 598-599 (6th Cir. 1999) (explaining

that conclusory affidavits “restating the requirements of the

law” but containing no “specific facts” do not “create a genuine

issue of material fact sufficient to defeat summary judgment”).

52

The broad range of powers statutorily granted to PHEAA is

also important evidence of PHEAA’s operational autonomy. “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.” Oberg II, 745 F.3d at 139. The statutes

granting PHEAA control over its funds on deposit with the

Treasury similarly are evidence of PHEAA’s operational autonomy.

See 24 Pa. Stat. §§ 5104(3), 5105.10,

PHEAA’s creation and support of PHEF also provides powerful

evidence of PHEAA’s autonomy. Even though PHEAA is statutorily

authorized to solicit and accept charitable donations, it

created PHEF and gave PHEF more than $10 million a year to do

that job. 18 And it did so in the absence of express statutory

authority to create and support a dependent charitable

organization, and without any involvement of the Governor or

General Assembly beyond the routine review-and-approval

processes of the Treasury Department and the Attorney General.

PHEF thus provides a telling example of PHEAA exercising the

financial and operational autonomy granted to it by statute.

Another telling example of PHEAA’s financial and

operational autonomy involves an unsolicited, $1-billion buy-out

18 From all that appears in the record, PHEF did its job

quite poorly. PHEF collected $11 million in private

contributions over a six-year period in which PHEAA provided

PHEF with more than $86 million in cash and donated services.

53

offer made in 2005 by the SLM Corporation, better known as

Sallie Mae. PHEAA’s board rejected the offer on its own,

without direction from the Governor or General Assembly.

PHEAA’s response to a dispute about billing calculations

with the agency administering Commonwealth employee-benefit

programs provides another concrete example of PHEAA’s

independence from the Commonwealth. After the billing dispute

arose, PHEAA’s board first explored the possibility of providing

health benefits “outside” the Commonwealth. J.A. 2880.

Eventually, the board unilaterally reduced the amount it paid

the agency for its employees’ health benefits. See J.A. 2881.

In our view, these actions show autonomy on the part of PHEAA,

not domination by the Commonwealth.

Moreover, PHEAA itself routinely asserts its financial

strength and its independence from the Commonwealth. For

example, PHEAA has described itself as an “independent public

corporation,” J.A. 3407, and as “a self-funded organization with

operations similar to a not-for-profit business,” J.A. 3408.

See also J.A. 3020 (letter from a PHEAA vice-president to a

Pennsylvania newspaper defending PHEAA’s salaries and bonuses

and distinguishing PHEAA from a “typical state agency”).

Similarly, the Commonwealth has indicated, through both

formal and less-formal channels, its lack of control over PHEAA.

On the formal side, the Commonwealth’s Comprehensive Annual

54

Financial Reports state that the Commonwealth “does not

significantly impose its will on the PHEAA.” J.A. 596. Less

formally, after PHEAA rejected the Sallie Mae offer, a spokesman

for then-Governor Edward Rendell stated, “We have no influence

over PHEAA’s decision-making.” J.A. 3364.

When this evidence is considered along with PHEAA’s

statutory corporate powers and its statutory control over its

funds on deposit with the Treasury, we believe it convincingly

establishes that PHEAA operates independently, without

significant interference from the Commonwealth. See, e.g., Vogt

v. Board of Commissioners, 294 F.3d 684, 694-95 (5th Cir. 2002)

(finding levee district to be autonomous for arm-of-state

purposes because district “has considerable management authority

. . . [and] no branch of government exercises supervisory

control over the day-to-day operations of the levee district”

(internal quotation marks omitted)).

3.

While there is evidence showing a certain level of

Commonwealth control over PHEAA, it does not change our view of

PHEAA’s autonomy.

The most significant evidence of state control is that

involving the Attorney General. As described above, PHEAA must

submit contracts over $20,000 to the Attorney General for a

“form and legality” review determining whether the “contract is

55

in improper form, not statutorily authorized or

unconstitutional.” 71 Pa. Stat. § 732-204(f)). A Deputy

Attorney General explained the review process:

Our standard under the statute is form and

legality, and what that includes is . . . the form of

the contract. . . . Does it comply with the contract

law, also does it include terms that are required of a

Commonwealth contract, and does it not include terms

that would be prohibited in a Commonwealth contract.

Then we look to authority. Does the agency as a

public agency have the statutory authority to engage

in this type of transaction, are there any other

statutes or court decisions that would allow or

preclude the contract. And then, thirdly, we look at

the constitutionality. As a public agency, is this

type of thing constitutional in the state or federal

constitution.

If all that is all right, we approve it. We do

not look to business judgment. We do not look to

financial issues. We do not look to political issues.

J.A. 3055; see also J.A. 3058 (agreeing that “the Attorney

General’s Office is not getting involved in business matters,”

only “legal formalities to ensure that it complies with

Pennsylvania law”; J.A. 3095 (“I don’t look at the business. I

don’t look [at whether it] is . . . a good idea. I don’t look

[at whether it] is . . . what I would do in their place. I look

to legal issues.”). Thus, much like the Treasury Department’s

payment-approval process, the Attorney General’s review process

is a checklist-driven, essentially non-substantive review

process.

56

Although the review process is largely ministerial, there

is no doubt that it amounts to an exercise of state control that

restricts PHEAA’s autonomy to some degree. The other aspects of

the Attorney General’s involvement in PHEAA’s affairs, such as

the requirement that the Attorney General represent PHEAA in

litigation absent a delegation of authority and the binding

nature of any legal opinions issued by the Attorney General,

likewise must be understood as restrictions on PHEAA’s autonomy.

Other indications of PHEAA’s lack of autonomy relied upon

by PHEAA derive from the general statutory provisions governing

PHEAA’s finances and operations: PHEAA was created by the

Commonwealth, can exercise only those powers granted to it by

the Commonwealth, and can be dissolved by the Commonwealth.

Under the statute in force during the time relevant to Oberg’s

complaint, PHEAA’s 20-member board was composed of gubernatorial

appointees and state officials, which suggests some level of

state control. See Oberg II, 745 F.3d at 139. In addition,

PHEAA must deposit its commercial revenues in the state

Treasury, and the Treasurer must approve payments made from

those funds. The Governor must approve PHEAA’s debt issuances,

and the General Assembly has capped the total amount of debt

PHEAA can incur. PHEAA is required to report its financial

condition annually to the Governor and General Assembly, and it

is subject to audit by the Commonwealth’s Auditor General.

57

PHEAA is also subject to the Commonwealth’s Sunshine Act, see 65

Pa. Cons. Stat. § 701, and its Right-To-Know Law, see 65 Pa.

Cons. Stat. § 67.102. 19 All of these statutory facts were

considered by the court in Oberg II but were insufficient in the

face of PHEAA’s statutory control over its funds to tip the

autonomy factor to PHEAA’s favor. Our review of the record

gives us no basis for striking a different balance.

Of the various statutory strings that tie PHEAA to the

Commonwealth, some are more important than others. For example,

the requirement that PHEAA annually report to the Governor and

General Assembly, and the applicability to PHEAA of the open-

meetings and right-to-know laws, are “minor strings,” Takle v.

Univ. of Wis. Hosp. & Clinics Auth., 402 F.3d 768, 771 (7th Cir.

2005), that have little practical effect on PHEAA’s independence

and are not dissimilar from requirements imposed by the state on

other political subdivisions. 20 While they are relevant to the

19 Certain of PHEAA’s contracts are exempt from the Right-

To-Know Law. See 24 Pa. Stat. § 5104(1.1)(iii).

20 See 65 Pa. Cons. Stat. § 703 (Sunshine Act applies to

“any political subdivision of the Commonwealth,” which is

defined to include “[a]ny county [or] city”); 65 Pa. Cons. Stat.

§ 67.102 (Right-To-Know Law applies to a “local agency,” which

is defined as “[a]ny political subdivision, intermediate unit,

charter school, cyber charter school or public trade or

vocational school,” and “[a]ny local, intergovernmental,

regional or municipal agency, authority, council, board,

commission or similar governmental entity.”); 53 Pa. Cons. Stat.

§ 8110 (requiring local governments to submit a “debt statement”

(Continued)

58

arm-of-state analysis, these minor strings ultimately do little

work in distinguishing arms of the state from independent

political subdivisions. See Regents, 519 U.S. at 429, n.5 (arm-

of-state inquiry seeks to determine whether “a particular state

agency has the same kind of independent status as a county or is

instead an arm of the State”). Accordingly, while we conclude

that these minor strings do point towards arm-of-state status,

they do not carry much weight in the final analysis.

There is no doubt, however, that some of the more important

statutory strings tying PHEAA to the state, such as the payment-

approval process of the Treasury Department and the oversight

exercised by the Attorney General, operate to restrict PHEAA’s

autonomy to a certain degree. The arm-of-state inquiry,

however, does not turn on whether the entity is subject to any

amount of state regulation at all, or whether it is subject to

more regulation than a private business, but whether the entity

functions independently of the state despite the state

regulation to which it is subject. See Oberg I, 681 F.3d at 580

(explaining that the arm-of-state factors “endeavor to draw the

line between a State-created entity functioning independently of

the State from a State-created entity functioning as an arm of

to the Department of Community and Economic Development of the

Commonwealth before issuing bonds).

59

the State or its alter ego” (internal quotation marks omitted));

Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1205 (1st

Cir. 1993) (“[The arm-of-state factors] are designed to disclose

the extent to which state law endows the incorporated State-

related entity with the operational authority, discretion, and

proprietary resources with which to function independently of

the State.”).

In this case, the relevant state statutes simply do not

amount to “pervasive control over PHEAA,” as PHEAA contends.

Brief of Respondent at 27. These statutory restrictions operate

predominantly at the administrative edges rather than the

discretionary heart of PHEAA’s authority. They may dictate the

manner in which PHEAA pays its bills, or require the inclusion

or exclusion of a few contract clauses, but they do not intrude

on PHEAA’s exercise of its substantive discretion. 21 When the

question is whether a state exercises such control over an

entity that the entity “is simply a tool of the state,” Oberg

II, 745 F.3d at 139, control over matters of substance is what

21 In 2007, a firestorm of criticism erupted after PHEAA

spent more than $80,000 on tickets to Hershey Park for employees

and their guests as part of PHEAA’s annual “Employee

Appreciation Day” at the park. J.A. 3019. The contracts and

payments associated with the event were routinely processed

through and approved by the Attorney General’s office and the

Treasury Department. See J.A. 2478, 2840. Had these review

processes been substantive, as PHEAA insists they are, the road

to approval of these expenses would likely have been bumpier.

60

matters. See United States ex rel. Sikkenga v. Regence

BlueCross BlueShield of Utah, 472 F.3d 702, 720 (10th Cir. 2006)

(state-created entity autonomous under arm-of-state test because

entity’s board of directors “sets policies and operational

objectives” and entity’s “day-to-day operations are independent”

(internal quotation marks omitted)); cf. Lebron v. Nat’l R.R.

Passenger Corp., 513 U.S. 374, 385, 399 (1995) (finding Amtrak

to be a governmental entity against whom a First Amendment claim

could be brought, notwithstanding statutory directive that it

“be operated and managed as a for profit corporation,” because

the federal government exerts control over Amtrak “as a

policymaker” (emphasis added; internal quotation marks

omitted)).

As discussed above, the record establishes that PHEAA, not

the Commonwealth, controls PHEAA’s funds and makes the

substantive decisions governing the focus and direction of the

company and its day-to-day operations. 22 We therefore conclude

22According to PHEAA, it does not matter whether the

Commonwealth actually exercises control over PHEAA; “[i]t is the

Commonwealth’s indisputable authority to veto PHEAA’s legal

decisions that is relevant.” Brief of Respondent at 34, n.16.

In making this argument, PHEAA again ignores Oberg II, which

vacated and remanded for discovery “on the question whether

PHEAA is truly subject to sufficient state control to render it

a part of the state.” Oberg II, 745 F.3d at 141 (internal

quotation marks and alteration omitted). If the mere existence

of authority flowing from the statutes relied upon by PHEAA were

sufficient to resolve the autonomy question, discovery would not

(Continued)

61

that the autonomy factor weighs heavily against arm-of-state

status.

C. State Concerns

The third arm-of-state factor requires us to 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 (internal quotation marks omitted). “‘Non-state

concerns,’ however, do not mean only ‘local’ concerns, but

rather also encompass other non-state interests like out-of-

state operations.” Oberg II, 745 F.3d at 137.

In Oberg II, we found this factor weighed in favor of arm-

of-state status because PHEAA’s focus on improving access to

higher education was a matter of “legitimate state concern.”

Oberg II, 745 F.3d at 140. In the course of this ruling, we

rejected Oberg’s argument that “due to PHEAA’s commercial focus,

its operations do not involve an area of legitimate state

concern,” id. at 139-40, as well as his argument that PHEAA’s

extensive out-of-state commercial activities showed that PHEAA

was not primarily focused on state concerns, see id. at 140.

have been required. Moreover, given the based-on-the-pleadings

conclusion in Oberg II that the autonomy factor weighed against

arm-of-state status, see Oberg II, 745 F.3d at 139, the Oberg II

court necessarily concluded that the level of state control

reflected in the governing statutes was outweighed by PHEAA’s

statutorily vested control over its funds.

62

The district court on remand concluded that,

notwithstanding PHEAA’s substantial out-of-state activity and

income, PHEAA’s activities primarily involve state, rather than

“non-state concerns.” See Oberg III, 77 F. Supp. 3d at 499. In

the court’s view, “[t]he fact that PHEAA purchases, services,

and guarantees loans to borrowers throughout the country does

not constitute non-state concerns because this was done to

generate earnings to return to Pennsylvania students and defray

their costs.” Id.

On appeal, Oberg argues that after discovery, the state-

concerns factor weighs against arm-of-state status. As a

sanction for PHEAA's discovery violations, the magistrate judge

ordered that “it shall be taken as established . . . that from

2002 to [October 2014], the majority of PHEAA’s revenue and

income was derived from out-of-state activity.” J.A. 172.

Oberg contends that our analysis in Oberg II makes the

percentage of out-of-state earnings determinative of this

factor. Accordingly, because it is now established that the

majority of PHEAA’s revenues are generated by out-of-state

activities, Oberg argues that the district court erred in

63

concluding that the state-concern factor weighed in favor of

arm-of-state status. 23

Although Oberg II clearly makes the amount of out-of-state

activity relevant, see Oberg II, 745 F.3d at 137, we do not

believe it makes out-of-state activity dispositive, as Oberg

argues. Addressing Oberg’s argument in the prior appeal that

PHEAA’s operations “were so focused out of state that PHEAA was

not involved primarily with state concerns,” we noted that the

complaint alleged that in 2005, “one-third of PHEAA’s earnings

came from outside the Commonwealth.” Oberg II, 745 F.3d at 140

(internal quotation marks and alterations omitted). We then

explained that if “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.” Id.

Oberg II’s observation that the complaint did not plausibly

allege that the majority of PHEAA’s revenues were earned outside

the state cannot be understood as an acceptance of Oberg’s

23PHEAA makes various arguments about why Oberg’s focus on

the out-of-state percentage is irrelevant or unwise. See Brief

of Respondent at 37-39. In making these arguments, however,

PHEAA fails to acknowledge that Oberg II explicitly held that

out-of-state operations are relevant to the state-concerns

factor. See Oberg II, 745 F.3d at 137 (“‘Non-state concerns,’

however, do not mean only ‘local’ concerns, but rather also

encompass other non-state interests like out-of-state

operations.” (second emphasis added)).

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argument that an entity cannot be primarily involved in state

concerns if the entity earns more than half of its revenues from

out of state. After all, Oberg II’s analysis of the state-

concerns factor considered facts beyond the in- versus out-of-

state source of PHEAA’s earnings, see id. at 140, and there is

no reason to think those facts would suddenly become irrelevant

the moment out-of-state earnings cross the halfway point.

Accordingly, while we find it highly relevant to the state-

concerns factor that “the majority of PHEAA’s revenue and income

was derived from out-of-state activity,” J.A. 172, we do not

believe that fact to be dispositive.

Instead, when evaluating this factor, we must continue to

give weight to the fact that PHEAA’s work -- “facilitat[ing] the

attainment of education by supplying student financial aid

services,” Oberg II, 745 F.3d at 140 -- involves what

Pennsylvania believes to be an “essential governmental

function,” 24 Pa. Stat. § 5105.6, and what we have concluded

“is clearly of legitimate state concern,” Oberg II, 745 F.3d at

140. We must also consider the fact that PHEAA does provide

significant services to the citizens of Pennsylvania. See Ram

Ditta v. Md. Nat’l Capital Park & Planning Comm’n, 822 F.2d 456,

459 (4th Cir. 1987) (considering whether the services provided

by the entity inured primarily to the benefit of local residents

rather than state citizens in general). PHEAA administers the

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State Grant Program and distributes every penny of its state

appropriations to qualifying students, and it has on several

occasions made significant contributions of its own earnings to

the state program. Thus, to the extent that PHEAA’s business

activities inure to the benefit of anyone other than itself and

its employees, they inure to the benefit of Pennsylvania

citizens.

After considering all of these facts and the relevant

statutory provisions, we conclude that PHEAA’s case for arm-of-

state status under this factor has been weakened by discovery.

The extent of PHEAA’s out-of-state earnings is relevant to the

state-concern factor, see Oberg II, 745 F.3d at 137, and

discovery has established those earnings at a level Oberg II

believed “implausible,” id. at 140. Nonetheless, in light of

the other relevant facts noted above, we believe this factor

still points towards arm-of-state status, but just barely.

D. Treatment under State Law

The final arm-of-state factor requires us to consider how

the entity is treated under state law. “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.”

Id. at 138 (internal quotation marks omitted). Noting that PHEAA

was created to perform an “essential government function” for

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the benefit of the state’s citizens and that Pennsylvania courts

treat PHEAA as a state agency, this court in Oberg II concluded

that the state-law factor weighed in favor of arm-of-state

status. Oberg II, 745 F.3d at 140.

The district court reached the same conclusion on remand.

The district court observed that PHEAA was created by the

General Assembly, that “[a]ll of PHEAA’s limited powers and

authority come from the General Assembly by statute,” Oberg III,

77 F. Supp. 3d at 499, that it is exempt from state taxation,

that it is subject to Pennsylvania open-meeting and right-to-

know laws, and that its employees are treated as Commonwealth

employees. The district court thus concluded that “Pennsylvania

law clearly regards PHEAA as a state agency,” id. at 499, a

conclusion that “weighs heavily in favor of finding PHEAA to be

an arm of the state,” id. at 500 (emphasis added).

We agree with the district court that PHEAA is generally

treated as a state agency under state law. We see nothing in

the record, however, to support the heavy weight the district

court assigned to this factor. As the district court noted,

discovery established that PHEAA employees are treated as

Commonwealth employees for purposes of payroll, retirement, and

health-care benefits, which perhaps shows that the state treats

PHEAA as it does traditional state agencies. But discovery also

yielded evidence showing the state treats PHEAA differently than

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it does traditional agencies -- for example, PHEAA management

employees are not paid in accordance with Commonwealth pay

scales; governors ask PHEAA to return appropriated funds when

times are tight but direct other agencies to do so; and the

Commonwealth acknowledges in its financial reports that it does

not impose its will on PHEAA. While the statutes and state-

court decisions relied on in Oberg II remain sufficient to tip

this factor towards arm-of-state status, see Oberg II, 745 F.3d

at 140, the factual information learned through discovery falls

fairly evenly on both sides of the scale. Accordingly, although

this factor weighs in favor of arm-of-state status, we cannot

conclude that it weighs heavily in favor.

V.

Our analysis of the arm-of-state factors thus brings us to

this point. As to the state-treasury factor, Oberg II’s

determination that Pennsylvania is not legally liable for a

judgment against PHEAA remains controlling. And as to

functional liability, the keys facts assumed by the court in

Oberg II -- PHEAA’s control over its significant, independent

corporate wealth -- were confirmed through discovery and

foreclose a finding of functional liability. Because the

Commonwealth of Pennsylvania is neither legally nor functionally

liable for a judgment against PHEAA, the state Treasury is not

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implicated in this case, and the first factor weighs heavily

against arm-of-state status.

As to the autonomy factor, the statutes and evidence

described above establish that PHEAA exercises control over its

revenues, makes policy decisions, sets its own budget, and

otherwise manages the day-to-day activities of the company

without significant interference from the Commonwealth. The

areas in which the state exercises some amount of control

primarily involve ministerial matters and do not diminish

PHEAA’s control over substantive matters. Because the

Commonwealth vests PHEAA with a significant amount of autonomy,

this factor also weighs heavily against arm-of-state status.

As to the state-concerns factor and the state-law factor,

both weigh in favor of arm-of-state status. Since it has been

established for purposes of this case that the majority of

PHEAA’s revenues during the relevant period were generated

through out-of-state activities, however, the state-concerns

factor only weakly points to arm-of-state status.

If we simply did the math, so to speak, the factors would

add up to “political subdivision,” not “alter ego of

Pennsylvania.” Arm-of-state status, however, is a question of

balance, not math. In cases like this one, where the arm-of-

state “indicators point in different directions, the Eleventh

Amendment’s twin reasons for being remain our prime guide.”

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Hess, 513 U.S. at 47. In our view, these twin reasons -- “the

protection of state treasuries and respect for the sovereign

dignity of the states,” Gray v. Laws, 51 F.3d 426, 432 (4th Cir.

1995) -- guide us to the same conclusion: For purposes of

federal law, PHEAA is a political subdivision, not an arm or

alter ego of Pennsylvania.

PHEAA is a very wealthy corporation engaging in nationwide

commercial student-loan financial-services activities. It is

statutorily vested with substantive control over its commercial

revenues, and it in fact exercises control over those revenues.

Its commercial revenues have made PHEAA entirely self-

sufficient, and the Commonwealth has not appropriated funds for

PHEAA’s operational support since 1988. The Commonwealth does

not assert ownership of PHEAA’s commercial revenues, and it is

neither legally nor functionally liable for a judgment against

PHEAA. Permitting this action to proceed against PHEAA thus

does not place the Pennsylvania treasury at risk.

Permitting the action to proceed likewise does not offend

the sovereign dignity of Pennsylvania. Although the

Commonwealth has imposed some not-insignificant restrictions on

PHEAA’s operations, the Commonwealth has nonetheless vested

PHEAA with broad power over its finances and operations. PHEAA,

not the Governor or the General Assembly, sets policy for the

corporation and makes the substantive fiscal and operational

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decisions. Indeed, the Commonwealth admits in its public

financial statements that it cannot impose its will on PHEAA.

Thus, the Commonwealth has structured PHEAA to be financially

and operationally independent, and PHEAA in fact operates

independently, without significant Commonwealth interference or

substantive supervision. In light of PHEAA’s intended and

actual independence from the Commonwealth, we cannot conclude

that it would be an affront to Pennsylvania’s sovereign dignity

to permit this action to proceed against PHEAA. See Hess, 513

U.S. at 52 (“[T]he Port Authority is financially self-

sufficient; it generates its own revenues, and it pays its own

debts. Requiring the Port Authority to answer in federal court

. . . does not touch the concerns -- the States’ solvency and

dignity -- that underpin the Eleventh Amendment.”).

We therefore conclude that PHEAA is an independent

political subdivision, not an arm of the Commonwealth, and that

PHEAA is therefore a “person” subject to liability under the

False Claims Act. In our view, any other conclusion “would . .

. heighten a mystery of legal evolution” by “spread[ing] an

Eleventh Amendment cover over an agency that consumes no state

revenues but contributes to the State’s wealth.” Hess, 513 U.S.

at 51, n.21 (internal quotation marks omitted). Accordingly, we

hereby vacate the district court’s grant of summary judgment in

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favor of PHEAA, and we remand for further proceedings on the

merits of Oberg’s FCA claims against PHEAA.

VACATED AND REMANDED

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