On January 9, 2017, the Supreme Court denied certiorari in three cases concerning the issue of whether state student loan agencies and universities are protected by government immunity from False Claims Act (“FCA”) suits. In denying certiorari, the Supreme Court opted not to create a unified test for government affiliation for purposes of the FCA.
One case in which the Supreme Court denied an appeal was Kreipke v. Wayne State University, 807 F.3d 768 (6th Cir. 2015). In Kreipke, Dr. Christian Kreipke, a former assistant professor, alleged that the university engaged in a fraudulent scheme to inflate the amount of funding that it received from the federal government for research grants. He also alleged that the university discharged him in retaliation for complaining about the scheme to university officials and refusing to participate in it. Kreipke filed a qui tam action against the university, bringing claims for violation of the FCA, retaliatory discharge, and defamation. The district court dismissed Kreipke’s complaint and he appealed.
In reviewing the dismissal of Kreipke’s claims, the Sixth Circuit had to determine whether the district court applied the proper test to determine if the university was subject to liability under the FCA. The FCA imposes liability on “any person” who violates its provisions, but does not define the term “person” for all purposes under the Act. However, the Supreme Court has ruled that states or state agencies are not “persons” subject to FCA liability.
The Sixth Circuit adopted the “arm of the state” analysis under the Eleventh Amendment to determine whether an entity is a state agency excluded from liability under the FCA. To determine whether an entity is an “arm of the state,” the Sixth Circuit considers the following factors: (1) the State’s potential liability for a judgment against the entity; (2) the language by which state statutes and state courts refer to the entity and the degree of state control and veto power over the entity’s actions; (3) whether state or local officials appoint the board members of the entity; and (4) whether the entity’s functions fall within the traditional purview of state or local government. In ruling that the university was in fact a state agency, the Sixth Circuit cited the fact that the State of Michigan would be potentially liable for any judgment against the university, state control over the university, and state appointment of its board of governors. The Sixth Circuit affirmed the dismissal of Kreipke’s claims.
While some other Circuits have also adopted the “arm of the state” analysis under the Eleventh Amendment for purposes of the FCA, they also consider different factors. For instance, the Fourth Circuit considers the following factors in their “arm of the state” analysis: (1) whether any judgment against the entity will be paid by the State; (2) the degree of autonomy exercised by the entity; (3) whether the entity is involved with state concerns as distinct from non-state concerns; and (4) how the entity is treated under state law.
Since the Supreme Court has declined to resolve the split in which each circuit has crafted its own test for how to identify arms of the state, state actors need to be aware of the governing law in their jurisdiction.