United States Ex Rel. Oberg v. Pa. Higher Educ. Assistance Agency

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-1028
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: October 31, 2018 Decided: January 8, 2019
Before MOTZ, KEENAN, and HARRIS, Circuit Judges.
Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Keenan
and Judge Harris joined.
ARGUED: Eric Kenneth Bachman, ZUCKERMAN LAW, Chevy Chase, Maryland, for
Appellant. George W. Hicks, Jr., KIRKLAND & ELLIS LLP, Washington, D.C., for
Appellee. ON BRIEF: Jason M. Zuckerman, Washington, D.C., Dallas I. Hammer,
ZUCKERMAN LAW, Tysons Corner, Virginia, for Appellant. Matthew T. Regan,
Chicago, Illinois, Michael A. Glick, Tracie L. Bryant, Michael D. Lieberman,
KIRKLAND & ELLIS LLP, Washington, D.C.; Daniel B. Huyett, STEVENS & LEE,
P.C., Reading, Pennsylvania, for Appellee.
2
DIANA GRIBBON MOTZ, Circuit Judge:
This case returns to us again, this time on appeal from an adverse jury verdict.
Dr. Jon Oberg, as relator for the United States, brought this qui tam action against four
student loan corporations, including the Pennsylvania Higher Education Assistance
Agency (“PHEAA”). He alleged that the corporations had defrauded the Department of
Education and so violated the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.
Over the course of several appeals, we affirmed the dismissal of one defendant and
two of the other defendants settled. See United States ex rel. Oberg v. Pa. Higher Educ.
Assistance Agency, 804 F.3d 646, 650 (4th Cir. 2015); United States ex rel. Oberg v. Pa.
Higher Educ. Assistance Agency, 745 F.3d 131, 145 (4th Cir. 2014); United States ex rel.
Oberg v. Ky. Higher Educ. Student Loan Corp., 681 F.3d 575, 579–81 (4th Cir. 2012).
The case proceeded to trial only against PHEAA. Oberg now appeals the jury’s
unanimous verdict in favor of PHEAA. For the reasons that follow, we affirm.
I.
Oberg’s claim concerns a Department of Education subsidy program meant to
encourage the issuance of low-interest federal student loans. It did so by offering Special
Allowance Payments (“SAPs”) to certain qualifying lenders. 20 U.S.C. § 1087-1. For
one particular category of loans — those financed through tax-exempt bonds — Congress
guaranteed lenders a 9.5 percent return. Id. § 1087-1(b)(2)(B). In the low-interest
environment of the mid-2000s, this guaranteed rate made tax-exempt bonds a particularly
attractive investment vehicle.
3
To take advantage of the favorable return offered by the program, Oberg claims
that between 2002 and 2006, PHEAA submitted false claims for SAP subsidies by
improperly transferring student loans from non-tax-exempt bonds into tax-exempt bonds.
In doing so, PHEAA converted lower-interest floating-rate loans into loans that
guaranteed a 9.5 percent return. This translated into millions of dollars in additional
revenue for PHEAA.
During a five-day trial, the court admitted more than 100 exhibits and the jury
heard testimony from more than a dozen witnesses. After deliberating for less than three
hours, the jury returned a unanimous verdict in favor of PHEAA.
Oberg timely noted this appeal, asking that we vacate the judgment and remand
for a new trial. He maintains that the district court substantially impeded his ability to
prove his claims by improperly excluding critical evidence and rejecting Oberg’s
proposed jury instructions.
II.
Oberg first contends that the district court erred by excluding certain evidence at
trial. We review a district court’s evidentiary rulings for abuse of discretion. SAS Inst.,
Inc. v. World Programming Ltd., 874 F.3d 370, 384 (4th Cir. 2017). “A district court
abuses its discretion if it relies on an error of law or a clearly erroneous factual finding.”
EEOC v. Freeman, 778 F.3d 463, 466 (4th Cir. 2015).
At trial, Oberg sought admission of a 2004–2007 Performance Audit of PHEAA
performed by the Pennsylvania Auditor General. The Audit “evaluate[d] PHEAA’s
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performance in improving access to higher education for Pennsylvania residents” and
concluded that PHEAA had largely “failed its mission.” The Audit found that PHEAA
paid excessive salaries and bonuses to its executives and managers. The Audit also
catalogued and strongly criticized PHEAA’s lavish spending on employee benefits and
“extravagant” expenditures on other unnecessary expenses. It “concluded that PHEAA
was governed and managed within a culture that sometimes allowed self-reward to
supersede fiscal prudence.” The district court excluded the Audit as irrelevant under
Federal Rule of Evidence 401.
Oberg contends that the Audit was relevant for several reasons. First, he argues
that the Audit’s critical findings tended to establish scienter — i.e., that desire for
personal gain motivated PHEAA officers to submit false claims. This argument fails
because unlike the securities fraud cases on which Oberg relies, 1 FCA claims require a
relator to show only that the defendant had knowledge of the illegality of its actions,
rather than specific intent to defraud. See, e.g., United States ex rel. Harrison v.
Westinghouse Savannah River Co., 352 F.3d 908, 921 (4th Cir. 2003) (“In establishing
liability under the FCA, a plaintiff need not prove the defendant had a financial motive to
make a false statement relating to a claim seeking government funds.”); United States ex
rel. K & R Ltd. P’ship v. Mass. Hous. Fin. Agency, 530 F.3d 980, 984 (D.C. Cir. 2008)
(finding evidence of defendant’s “motive to submit false claims — the need to bail itself
1
Cases requiring proof of specific intent often turn on evidence of motive to prove
scienter. See, e.g., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319, 325
(2007) (finding motive “a relevant consideration” in measuring a defendant’s intent to
“deceive, manipulate, or defraud” (internal quotation marks omitted)).
5
out of financial trouble — could not . . . support a finding of knowledge, be it actual,
deliberate ignorance, or reckless disregard”). As the district court correctly explained:
“It doesn’t really make any difference whether they were operating well or not well or
whatever. The only issue in this case is: Did they commit fraud and file a false claim?”
Oberg next maintains that the Audit would have allowed him to rebut PHEAA’s
own improper argument that its management acted with the “benevolent motive” to
benefit borrowers in carrying out its scheme. Oberg lodged little objection to this
evidence at trial. Indeed, Oberg himself elicited most of the “benevolent motive”
testimony through his questions to PHEAA’s management. In any event, whether
PHEAA’s management had benevolent motive was a collateral issue of limited relevance,
making any error harmless. See Smith v. Balt. City Police Dep’t, 840 F.3d 193, 200–01
(4th Cir. 2016).
Finally, Oberg contends that the Audit would have helped him attack the
credibility of PHEAA’s executives. He argues that because witness credibility is “always
at issue,” any “evidence concerning a witness’s credibility is always relevant.” United
States v. Green, 617 F.3d 233, 251 (3d Cir. 2010). This argument also fails, for Oberg
questioned PHEAA’s executives on the company’s compensation practices and elicited
much of the same information contained in the Audit. Moreover, because nothing in the
Audit contradicted the trial testimony of PHEAA executives, its admission would hardly
have aided Oberg in impeaching the executives’ credibility.
6
In sum, the district court did not abuse its discretion in excluding the Audit as
irrelevant. 2
III.
Oberg’s remaining claims center on the district court’s refusal to give several of
his proposed jury instructions.
A.
Before we consider the merit of his claims, we must first determine our standard
of review.
PHEAA contends that because Oberg did not object to the jury instructions before
the district court, he has failed to preserve his challenge to them and so we can review
only for plain error. Oberg counters that the district court rejected his properly requested
instructions in a “definitive ruling on the record,” and so we must instead review for
abuse of discretion. Fed. R. Civ. P. 51(d)(1)(B); see also BMG Rights Mgmt. (US) LLC
v. Cox Commc’ns, Inc., 881 F.3d 293, 305 (4th Cir. 2018).
To resolve this question, we turn to the language of Federal Rule of Civil
Procedure 51(d)(1)(B), which provides:
A party may assign as error . . . a failure to give an instruction, if that party
properly requested it and — unless the court rejected the request in a
definitive ruling on the record — also properly objected.
2
The parties also quarrel over whether the Audit was more prejudicial than
probative under Federal Rule of Evidence 403. Because we hold that the district court
did not err in excluding the Audit on relevance grounds, we need not address this issue.
7
Fed. R. Civ. P. 51(d)(1) (emphasis added).
This provision was added to Rule 51 in 2003. See Fed. R. Civ. P. 51 advisory
committee’s note to 2003 amendment (hereinafter, 2003 Advisory Committee Note).
The Advisory Committee explained that the change was motivated by concern over the
majority view “that a proper request for a jury instruction [was] not alone enough to
preserve the right to appeal failure to give [an] instruction.” Id. The Committee
concluded that this rule was “appropriate when the court [had not] sufficiently focused on
the request” or “believe[d] that the request ha[d] been granted in substance although in
different words.” Id. But in other circumstances, the doctrine created “a trap for the
unwary who fail[ed] to add an objection after the court . . . made it clear that the request
[had] been considered and rejected on the merits.” Id. To correct this, the drafters added
the ruling-on-the-record language to “establish[] authority to review the failure to grant a
timely request, despite a failure to add an objection, when the court has made a definitive
ruling on the record rejecting the request.” Id.Notwithstanding the 2003 Amendment, some courts have seemed to continue to
follow a more stringent preservation rule than Rule 51(d)(1)(B) now appears to
command. See EEOC v. New Breed Logistics, 783 F.3d 1057, 1075 (6th Cir. 2015); C.B.
v. City of Sonora, 769 F.3d 1005, 1032 (9th Cir. 2014); Consumer Prod. Research &
Design, Inc. v. Jensen, 572 F.3d 436, 439 (7th Cir. 2009); Colon-Millin v. Sears Roebuck
De P.R., Inc., 455 F.3d 30, 41 (1st Cir. 2006); Collins v. Alco Parking Corp., 448 F.3d
652, 656 (3d Cir. 2006).
8
In our view, the Rule’s text and the Advisory Committee’s direction compel a
different approach. For a court’s rejection of a proposed instruction to constitute “a
definitive ruling on the record,” the record must simply provide a reviewing court with a
sufficient basis from which to determine the district court’s rejection was “on the merits”
— in other words, that the court rejected the substance of the proposed instruction, not
merely the litigant’s choice of words. And, to be “definitive,” this rejection must be final
rather than tentative.
It remains true, of course, that “the mere tendering of a proposed instruction will
not preserve error for appeal.” Bunn v. Oldendorff Carriers GmbH & Co. KG, 723 F.3d
454, 469 (4th Cir. 2013) (internal quotation marks omitted). But where a litigant
proposes an instruction and the district court’s final ruling on the record demonstrates
that the court rejected it on the merits, the claim of error is preserved. This approach
hews closely to the language and purpose of Rule 51(d)(1)(B) while remaining cognizant
of the important interests embodied in requiring parties to raise objections in the district
court. See Booker v. Mass. Dep’t of Pub. Health, 612 F.3d 34, 41 (1st Cir. 2010).
Applied here, we must conclude that Oberg did not preserve his challenge to the
failure to give his proposed jury instructions. At the charge conference, the district court
outlined its proposed jury instructions in broad terms, explaining that it would give
standard instructions on issues like the burden of proof and reasonable doubt, and would
also instruct the jury on the essential elements of an FCA claim. PHEAA raised several
clarifying questions. Oberg sought only to ensure that the instructions contained a
provision not at issue on appeal, i.e., that proof of reckless disregard sufficed to establish
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an FCA claim. When the court called for any final comments, PHEAA asked whether
the court would read any of the instructions Oberg had submitted before the charge
conference. The court responded that it was “not reading anybody’s instruction[s]” and it
had “the areas” it was “going to instruct on.” Oberg did not object. After instructing the
jury, the court once again asked whether the parties had any objections to the instructions.
PHEAA raised two; Oberg responded: “[n]o objection from the relator.”
Oberg argues that the district court’s statement that it would “not read anybody’s
instruction[s]” constitutes a “definitive ruling on the record” rejecting his instructions on
the merits. Fed. R. Civ. P. 51(d)(1)(B). This argument falls far short. Even assuming
that the court’s asserted “denial” — a brief response to a question by PHEAA, not Oberg
— constituted a final ruling that foreclosed further discussion of the issue, we cannot
discern from the record whether the court considered Oberg’s proposed instructions and
rejected them for their substance, or simply believed that its own instructions were an
adequate substitute. To preserve the issue, Oberg could have sought clarification as to
the court’s basis for rejecting his instructions, or he could have timely objected. Because
he did neither, we review only for plain error. 3
3
Oberg’s reliance on dicta from Justice Scalia’s concurring opinion in Connick v.
Thompson, 563 U.S. 51, 72 (2011), cannot aid him. In Connick, Justice Scalia found that
a trial court’s response, “No, I’m not giving that,” to an appellant’s request for a jury
instruction was sufficient to “preserve a claim of error.” Id. at 75 (citing Fed. Rule Civ.
P. 51(d)(1)(B)). The trial court in that case, however, had already ruled on the matter in a
motion for summary judgment — perhaps the quintessential example of a definitive
ruling on the merits.
10
We note that the Tenth Circuit also recently addressed the 2003 amendment to
Rule 51. There, appellants claimed to have preserved their challenge to jury instructions
by submitting proposed instructions and receiving a responsive email from the district
court with the court’s tentative instructions, which did not incorporate their proposals.
First Am. Title Ins. Co. v. Nw. Title Ins. Agency, 906 F.3d 884, 894–95 (10th Cir. 2018).
The Tenth Circuit observed that the district court did not suggest the email included its
final instructions and that counsel had ample opportunity to discuss its proposed
instructions. Id. at 895. It thus held that the email did not constitute a “definitive”
rejection as contemplated by Rule 51(d)(1)(B). Id. 4 Our holding here does not conflict
with the Tenth Circuit’s opinion, but that case does not provide as clear a parallel as
PHEAA suggests. The district court’s statement that it would not read any party’s
instruction was arguably more final than that considered by the Tenth Circuit, but we
cannot conclude that it was “on the merits,” and so it fails to satisfy the Rule for that
reason.
B.
Because Oberg failed to preserve his objections to the jury instructions, we review
only for plain error. Oberg must show that in refusing to give his proposed instructions
(1) the district court erred; “(2) the error is plain; (3) the error affects substantial rights;
4
The Tenth Circuit went further to state that for a rejection to be definitive, “the
district court must expressly reject that specific argument.” Id. (emphasis added). In
light of the Advisory Committee’s guidance, we doubt that Rule 51(d)(1)(B) requires
such specificity when a court’s ruling is otherwise final and on the merits. We need not
decide this question, however, because we cannot determine that the court’s rejection
here was on the merits.
11
and (4) . . . the error seriously affects the fairness, integrity or public reputation of judicial
proceedings.” Gregg v. Ham, 678 F.3d 333, 338 (4th Cir. 2012) (internal quotation
marks omitted). Even if his claim had been properly preserved, Oberg “faces a heavy
burden, for we accord the district court much discretion to fashion the charge.” United
States v. Raza, 876 F.3d 604, 614 (4th Cir. 2017) (internal quotation marks omitted).
Oberg first argues that the district court erred by failing to inform the jury that he
did not need to prove PHEAA had a “specific intent to defraud” the government for his
FCA claim to succeed. Oberg’s proposed instruction did accurately restate a statutory
element of the FCA, 31 U.S.C. § 3729(b)(1)(B), but the instructions given by the district
court “substantially covered” this issue. United States ex rel. Drakeford v. Tuomey, 792
F.3d 364, 382 (4th Cir. 2015). The court’s instructions correctly listed the three ways in
which the jury could find that PHEAA acted with the requisite knowledge, none of which
required Oberg to show specific intent to defraud. The court did not err, much less
plainly err, in declining to provide any additional instruction. See Noel v. Artson, 641
F.3d 580, 590 (4th Cir. 2011) (“We have always left the choice between generality versus
specificity in the charge to the sound discretion of the trial courts.” (internal quotation
marks and alteration omitted)).
Next, Oberg argues that the district court should have included an instruction
stating that “benevolent motivation . . . is not a defense” to an FCA claim. Much like
Oberg’s previous objection, the instructions given by the court substantially covered this
instruction. Moreover, Oberg’s proposed instruction addresses only a collateral issue —
attempting to “cure” any improper introduction of benevolent motive evidence — that
12
would not have affected the outcome in the district court. See Gregg, 678 F.3d at 338(requiring that proposed instruction must affect substantial rights to establish plain error).
Finally, Oberg contends that the court erred by refusing to instruct the jury on how
it could find PHEAA’s claims fraudulent. He asserts that because the court did not
provide the jury with the specific statutory language defining whether PHEAA’s claims
were eligible for the 9.5 percent SAP payments, the jury lacked the necessary tools to
decide an element of his FCA claim. Had the district court erred in its charge on this
issue, it would have committed the type of error that would usually require reversal, even
on plain error review. See United States v. Jennings, 160 F.3d 1006, 1019 (4th Cir. 1998)
(noting that “failure to instruct the jury on any essential element of an offense constitutes
plain error”).
But yet again, the district court’s instructions substantially covered the substance
of Oberg’s proposal. Contrary to Oberg’s assertions, the court’s instructions sufficiently
explained that the jury had to consider whether PHEAA’s claims were “false or
fraudulent,” and that the crux of Oberg’s argument was that PHEAA “was not entitled to
the 9.5 percent floor SAP on the claimed loans.” Although the district court did not detail
the precise steps the jury should follow to determine the eligibility of PHEAA’s SAP
claims, “where, as here, the instructions accurately covered all the issues in the case, the
failure to reference specific aspects of a party’s contentions cannot serve as a basis for a
finding of error.” Noel, 641 F.3d at 590 (internal quotation marks and alterations
omitted).
13
In contrast, Oberg’s proposed instruction provided a misleading framework that
presumed his interpretation of the relevant statute and DOE’s regulations was correct,
essentially requiring the jury to find PHEAA’s claims ineligible. See id. (“[W]e cannot
fault the district court for declining to give a wink and a nod to the jury.”).
Armed with extensive testimony and numerous exhibits, it was up to the jury to
determine whether PHEAA’s claims were eligible and, if they were not, whether PHEAA
knew so when it submitted its claims. This is precisely what the district court’s jury
instructions asked of them.
IV.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
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