Legal Case Summary

. He opposed the 12b6 motion and stood on his complaint and he is entitled to the assumption that the well pleaded facts are true and the inferences therefrom. Certainly in the district court's opinion, there's no indication that the district court was doing other than trying to make a free-wheeling determination of what he thought the entities were without regard to the bounds of the pleadings. I think that's a flaw which we've pointed out. But this court is certainly free of this time to look at the complaint, to look at the facts pleaded therein, and to see how they would, in the court's judgment, fall out under the four non-exclusive Hoover factors. So I would like if the court will indulge me to talk about each of those factors, what is said about those operations in the complaint and the conclusion we think they should lead to? And I'll just put it in context, these factors are not determinative in and of themselves. They are factors that are looked to to answer two fundamental questions, which the Supreme Court has said are the pillar of arm of the state. One is what's the impact of any judgment, likely to be on the state treasury, on the ability of the state to conduct its ordinary business. And second, how is the dignity of the state affected by having these entities brought before a federal court, and made answerable for false claims against the federal government? Those are the two base questions since the Supreme Court has said the various factors are used to answer those two fundamental inquiries. And I think what we've established is there is no potential impact on the state treasuries as such, and I'll explain why, and that given the way the states have set up these entities and allowed them to conduct nationwide business under the supervision of their boards of directors with the state holding only indirect and shareholder type powers, the dignity of the states is not involved in this case. It is not an insult to their dignity to make these entities accountable for their business actions. So I think is it possible as I understood your introduction, you are going to go factor by factor. We have three states here, and for my own purposes it might be more useful to go state by state. If you can't do that though, I understand that you prepared your argument. No, I'm not sure what you want to do. I'm happy to do it. I mean, and of course I just want to be clear, we're not talking about the states, we're talking about the end. I understand, but I was shorthand manner talking about the entities from three different states. Correct. There you go. But there are certain things that are in common. So when we turn to the treasury factor, and we can say one by one, is there any obligation imposed on the states by state law to fund these entities and importantly to meet their obligations and losses? Because in that factor, the court has to take account of the Supreme Court's decision in Hess. In Hess, Justice Ginsburg was applying armistice test to path, which is an entity created under in a compact. But she did analyze the arm of the state factors. And in addressing the treasury factor, she said you don't focus on profits and surpluses. That is the investment benefit to the state that might accrue from a successful operation. You focus on debts and losses and ask, is the state going to be accountable for debts and losses? Now in each of these cases, the states have sealed themselves off intentionally saying we are not responsible, not responsible for paying their bonds, we're not responsible for paying their debts. We are not putting forth a statement of responsibility. There is no record in any of the three states that I'm talking about the state level now that they have provided continuing financial support for the operations, the dominant lending operations and acquisition of loan operation conducted by these entities. So you can't show it on a statutory basis. You can't show it on a historical basis. And when we look at the realist's risk assessment, do these entities have the resources to meet any judgment that might be entered in the case, you come to the same conclusion

. So if you're trying to determine, can there be an impact on the functioning of the state government through its treasury, no matter which of the three entities, whether it's via or V-Sat or Asla? There is no commitment by the states. No one can point to one. You can speculate about what they might do, but speculation isn't the same as demonstration. And there's no history of the states as, let's say in Risto, where the state was responsible, responsible for the payment of interest and principal on loans, where the state had historically pumped money into the port's authority in order to create a better port system for the state. There's nothing that's happened over the history of these entities that shows that there's any commitment by the state to pay. So I think on that factor, and again, it's not determinative because spring courts says you've got to look at them all. On that factor, there's no real basis to determine that the states are put at risk as the 11th Amendment contemplated for their essential operation. Because the 11th Amendment, after all, is intended to say you cannot use the full courts to jeopardize the continuing viability and function of the states. So I don't think on that factor is any difference between these entities. Now they do have, and they have made arguments, which are largely circular, and they say, well, if the state says that you have to put your money in the state treasury, now it's state money, and therefore that's the end of the argument, because it'll always be paid with state money. But those are assumptions of conclusion. The fact that the state acts as their depository, put your money here, even though you control it, we can't use it for other state purposes. It's yours. Well, it's not accurate, though, in every case that the authorities absolutely control the expenditures. I mean, I can Pennsylvania, doesn't the governor have to approve bond issues? He has to approve bond issues. There's a statutory limit on how much debt can be incurred. So it's not quite as black and white as you're saying, is it? Well, I think that the question here is, you know, who's going to meet the obligations? What does the governor have? In terms of what doesn't autonomy have to be considered as well? I mean, you're looking at the one treasury factor, but it seems to me that, you know, the case law is pretty clear that that isn't a single predominant factor that you have to look at the others. And I've said that, and we agree with that. And let me address autonomy, because autonomy has several subfactors, case law, which is some degree of control. How do these, and particularly historically, how have they controlled these activities? I mean, these entities have broad scope of authority. Their directors have pretty much going to any business they like that's within the general. Their geographers are in almost every case appointed by the governor or some other state official. And as I read the case, is that would count against you in with respect to autonomy? Well, I think it's clear that if they were appointed locally, it would be a different case. And what we've recognized that, but the real question is, is that a means of exercising control? Are those directors carrying out the will of the state, or are they simply qualified persons who are protecting the entity and acting in a fiduciary capacity? And I think if we looked at the record of how these entities have operated, they're really the second. And one important part of the autonomy factor is, where does your money come from? Are you self-sustaining? And certainly in hasts, that was a very important consideration for Justice Ginsburg. She said, this is an operating entity. You generate your own funds, even though part of its overhead was directly furnished by the states. And it so says, but you made it a major consideration that they could sell fund, because if you pay the piper, you call the tune. But if the entity is- But if they generate their funds with approval from the governor, is that right? Not entirely, because there are two kinds of operations. They do servicing operations. And right now, that's a very important part of their function

. They don't need any approval to go into servicing businesses. They do need approval to issue bonds, but they can also make loans that are not in the form of bonds, as we showed in the case of Arkansas. And they don't need approval. And the real question is, is that approval a serious consideration by the state, or is it a pro forma exercise really not protecting the function of the entity, but looking at the overall financial picture in the state in certain federal restrictions, particularly on loans that are issued on a tax-free basis? So I think that again, that's something that could be tested in reality. What is the real world limitation on these enterprises? They are able to grow, triple their activity with no record or no interference by the state in very short order. And so, in the real world, they have tremendous real world latitude. And I think the cases say, you can't just look at this abstractly. You have to look at whether they are operating as arms of the state in the real world. And so, in all of these cases, as the facts pleaded show, they radically changed the composition of their activities in order to take advantage of this federal benefit. There is no indication that the states were asked or approved or even considered it. The states are investors, and they are certainly interested in making money with these enterprises. But that state investment does not transform an entity into a state agency. And so, that if we, you know, the fourth factor, which is how are they treated under state law? A couple of things that really kind of stick out in that regard. They are given this broad latitude. They are given enormous power to conduct any enterprise they want. So they are not treated as a closely controlled agency. They don't have state officials as such directly managing them. Because even in Port Authority, the governors had veto power actions of the path. There was a direct reporting responsibility. The governors appointed all of the directors. So that can't be determinative in and of itself. And what the states did here was to empower them very broadly. And the states permitted them, in particular, in the case of the... And one of the things that the courts have looked at under this factor is how the state court treats the entity. And the state court treats each of these entities as a state agency. Well, now you may not agree with those decisions. And there have been certain courts that haven't agreed with that. But I don't.

.. I haven't found a court that has said that that doesn't weigh favor of saying that they're treated under state law as a state agency. Now, if you have a case that says that doesn't matter, I'll be delighted to hear about it. Well, I'm not going to tell you that it doesn't matter that it's not one of the many things you take into account. The only thing we're looking at now is the... Even though you told us you were going to do it... I thought you said to me, you were going to do it state by state. You haven't done that. And so you argue that all these states are exactly the same. You know, all gods, children are the same. And I actually don't think they are all the same. But that's your choice to argue the case where the way you want to. But with respect to how they're treated under state law, they are all the same. Because state courts, maybe the decision was a long time ago. But the state courts have treated all of these agencies at one time or another as state agents. I think if we differentiate that agency by agency, that FIA has a track record of being treated for certain purposes by state courts as state agencies. As you know from Ram Ditta and the same is true and has, that is a factor and has to be considered. It is not determined at it. None of these things are determined. Absolutely. It'd be good as a Supreme Court decide what was determined. Now nothing is. But then if you look at Asla, Arkansas's entity, it's slightly different. They have some Dicta, but they don't have a direct holding by a state court. And in the case of Vermont, there is no state court treatment. There is nothing to rely upon except speculation as to what a state court might say. The Pennsylvania is really strong, isn't it, in terms of its appellate decisions? I mean, it's called, it's the SISPIA is the commonwealth

. I mean, the case is uniformly the court is not only saying it referring to FIA as an agency, but it describes it as the commonwealth. It just, and then describes it as, as akin to a department, department administrative board and commission and other agencies of this commonwealth is such an agency. I mean, there, it's just uniform in Pennsylvania. There doesn't seem to be any ambiguity in how the courts treat it. So, isn't this something we have to pay attention to. And I said, it's certainly a factor. I don't think, as I said in the beginning, you have two paramount questions. What's the impact on Treasury? How's the dignity of the state involved? And this is, I don't think we're not disputing that you can take it into account. I do think. Why isn't it a strong consideration in terms of the Pennsylvania appellate decision? I think that what you see in Ram Ditta, there was a direct holding by the Maryland courts, the Parks and Planning Commission, was a state agency. There was a direct holding. And the court said, yes, it is, but this is ultimately a question of federal law. So, you look at the whole network of treatment. The state courts may, for the purposes of the lawsuits in front of them, say, yes, we're going to treat this as the commonwealth of the state agency and the management of personnel. That's what they've said. But that is not in and of itself a determinative character factor. And just as we, I think we would say, in our opponents would say, a pressure effect. Do you remember which case is this? The state court cases holding this is a state agency under state law in Pennsylvania. I think some of them are quite old. I think they are old. And I think your argument probably would be that this agency has changed in its identity function, et cetera, since that time. Well, it's radical. You haven't made that argument. So, go where I will have it. Well, I think I'd certainly accept it through my arms around it. Now, they are old cases. I think they're premised on the formalism of ownership. Well, some of them are from the 80s, though. I don't know about you, but I remember the 80s. What about the has changed in your understanding to make those cases no longer applicable? Starting in the 80s, these entities went from being primary lenders to being financial players. The advent of asset-backed securities radically changed the nature of their operations

. They were set up, and if you look back, they're more often set up in the 70s. The idea was you'd raise money and lend money directly to students in your state, or who were graduating and moving on to other states. When they got into asset-backed securities, which gave them the ability to go in the secondary market, and by loans as financial assets, without regard to whose loan it was, where it originated, where it was going to be paid, that changed expanded just completely. If you want to put it modern terms, morphed the nature of the operations. They're different creatures than the world. And certainly, if you look at their financial history, they're radically different. That is something this court has to take into account, because the question is, what were they at the time that the alleged offense was committed, because that's in the words of the act. A person has to commit the fraud. So the question is, when you did the act, where you were a person. So I see I'm running into my time, and I'll assist. Here from the other side. Thank you. Custom time remaining. Underplug. Thank you. Happily. May I please the court. It's an honor to be here again. My name is Dan Hew and I represent the Pennsylvania Higher Education Assistance Agency. With me today is Barc DeLone. Mr. DeLone is a senior deputy attorney general from the Commonwealth of Pennsylvania. The guiding principle in this case was articulated by the court in the Oberg decision as follows. The critical inquiry is whether the entity at issue is truly subject to state control to render it a part of the state. Deciding this critical inquiry using the words subject to means that this critical inquiry can be accomplished by looking at the state's laws alone. That our state's laws alone are enough to decide this critical inquiry that FIA is in arm of the state is one of the holdings of the Regions of California and Doe Supreme Court decision. Where the Doe court said, and I'm paraphrasing, the question whether a particular state agency is an arm of the state is a question of federal law. But that federal law can be answered only after considering the provisions of law that define the agency's character. So the Supreme Court has instructed that in determining the arm of the state you look to the state laws to determine the agency's character. This is not a new approach for this court. This is precisely the approach that the court used in Hoover and used in Maryland State and Authority when the court determined that both of those entities were arms of the state

. Now, Mr. Oberg's new allegations in his Fourth Amendment do not alter this approach at all. They do not alter the approach that in deciding the critical inquiry the court should look to the state's laws alone. This case has never been about the the Scythesian Mr. Oberg's pleading a person, but it can't be because the date's laws alone are what determine whether or not FIA is a state agency. This case is far too important to depend on Mr. Oberg's creative pleading where he simply extracts arguments from his briefs and imports them into as amended complaint. Nevertheless, how do you respond to the argument that leaving the statute aside and the requirement for the governor's approval and statutory limits on spending and things like that that the Pennsylvania cases are old cases and we're talking about an agency that has changed so much that we can't really accord much weight to those cases. Well, the cases are not that old. I think as your Honor pointed out, but there's a recent case in fact it's a 2013 case. It's an Eastern District of Pennsylvania federal case called Lang and then Lang the issue was under state law whether FIA was qualified to be qualified for the state's sovereign immunity statute and in making that determination the Lang Court held this year that FIA was a state agency. Now, with regard to the change, I'm sorry, is that case studied in your papers? Yes, it is your honor. With regard to FIA's change, there's been no change here. Every activity that FIA... Well, the amount according to your own reports, the amount of money that you are controlling has changed enormously. I can't even... I can't believe it was a straight face. You're denying that. I don't deny it with financial statements hold, but let me finish. Well, don't they reveal just exactly what I said? Well, Your Honor, they reveal that FIA has made money over the years. But if you look at... No, no, no, not made money. I mean, I should make so much money in the way that they have made money. They are a national player as you put it now where they weren't if they're outside. Isn't that true? The answer is yes and no

. No. Yes, the answer is that do they conduct activities outside the state of Pennsylvania? Yes. Does any state university do that? Does the University of Maryland do that? Of course they do. Well, what did you say in your report about how much of your business was outside the state? I don't think there's a breakdown of how much there is outside the state. But that is the report about two years ago that what, more than 25 percent was outside the state? Your Honor, I don't know if that's the report said I certainly have no reason to disagree with that. But let me point your Honor to the simple fact that the state's statutes authorize FIA to do business out of state. So the state... Yeah, something wrong with doing business out of state. But this isn't a small bank, Pennsylvania bank. I think what's important to recognize is what does FIA do with the revenue that it has earned? Yes, does it's revenue exceed expenses? Yes. But what does it do with that? It used that money to fulfill its statutorily imposed mission to provide greater access to Pennsylvania students and their family to higher education. That's what that money is used for, for example, Your Honor. Well, what do we do about the provision in Pennsylvania law that I don't see a similar provision in Vermont or Arkansas? That's all law that said that the state's evows any liability. Well, that's not precisely what the statute says. And let me answer that question very directly. Okay, let's go to the statute. The statutes that provide that... Go ahead. I'm very sorry. I'm with you. The statutes that provide that the Commonwealth will not be responsible for a debt of FIA relate to its voluntary indebtedness. That is that when FIA takes on bonded indebtedness, and this is not unusual when a state allows a state agency to issue revenue bonds... Well, it's not in either the other states. Fair enough. But of these three, it's sitting right so

. Well, there's an entity in Pennsylvania called the state higher education system, which administers the state universities, which has a very same pressure. But it has been held in the skiing case that it is normal state, nevertheless. But the statutes that we're talking about, Your Honor, relate to voluntary debtedness, principally bonded debtedness. And it's not unusual... No obligation of the agency should be a debt of the state. And it shall have no power to pledge the credit for taxing power of the state, nor to make its debts payable out of any money except those of the corporation. Yes, Your Honor. And if I could point your honor to the sentence that the... Remember, it has the conjunction but. So the phrase that precedes that is absolutely applicable to voluntary indebtedness that FIA incurs. It says that when FIA incurs voluntary indebtedness, such as at a revenue bond, it does not allow the agency to pledge the full-fay credit of the Commonwealth. And that's typical in these kinds of financings. And that's because the bond holders look to the assets that secure the revenue bond. They do not look to the full-fay think credit of the Commonwealth of Pennsylvania. There is no statute, and Mr. Oberg has cited no statute, that says that in the event that there is an involuntary debt, that is... What do you mean by an involuntary debt? I was just going to explain that, Your Honor. Excellent. An involuntary debt would be, for example, if Mr. Oberg were to secure a judgment in this case. That's obviously not a debt that FIA has agreed to take on. It is a debt bet. It is a judgment that occurs as it was all of litigation. There is not a statute that Mr. Oberg is pointing to because there is none that says that in that instance, the Commonwealth will not pay the judgment

. No obligation of the agency. She'll be a debt. I don't understand how that means what you say to me. Your Honor, I would ask the court to put that in context in which it is stated in that view. That sentence begins, the Board may, with the approval of the governor, borrow money by making and issuing notes and bonds. And then it goes on to say, but no obligation of the agency shall be a debt of the state. It's clear to me that that but is a conditions, the preceding phrase, that... That's a judgment that will be a debt of the state. Exactly. That does not apply to a judgment that's obtained through litigation. But let me... Even said that if this was not separable from the rest of the statute, it was so important. And then it goes down further and says, all accrued and future earnings from the funds, maybe utilized at the discretion of the Board of Directors for carrying out any corporate purposes of the agency. Any basements of such funds by then, to take treasure in depository, shall be consistent with guidelines approved by the Board of Directors. Correct. And the... It sounds like the Board of Directors are controlling things. No, Your Honor, the purpose of the agency that are articulated in 5102, the purpose of the agency, which is the corporate purpose, is to improve the higher education opportunities of persons who are residents of the state. And the... the discretion, of course, by the Board of Directors is tempered, by the very tight controls, the very tight fiscal oversight that this treasure has. All of the his money must be deposited in the state treasury. And by the way, Your Honor, in Maryland State and authority and Hoover, that was really enough to show that that... The fact that just exactly the opposite situation that we have here since the agency was the plaintiff in that case, and the agency is the defendant here. And the Supreme Court, not only the R-Court, but the Supreme Court has made that distinction, which you say is not important in your brief, but maybe you made to make new law on the Supreme Court. Well, Your Honor, we hope not to make new law on the Supreme Court. That's for sure. But let me just finish it here. I'll give you about one... just before you sit down, one case that is... you mentioned in a footnote only in your brief, which is from the first circuit. And it seemed to me that it was the case that was closest on the facts to this case. Do you know what I'm talking about? I don't have a recollection of that as I stand here today, Your Honor. Okay. Well, maybe I can help you find it then. If you look at your brief... And I see that you acknowledge that it is close because the way in which you distinguish it is pretty minor. Shall I say? It's on page 49 of your brief, I believe. And you say your lack of ownership and control distinguish the first circuit case where the state treasury engaged in only limited monitoring of board revenues and expenditures and no state law permitted state intervention in the university's income stream. But in fact, in that case, as in this case, you had money coming in from the pursuit of the entity, University of Rhode Island there, and going into the state treasury, but being earmarked only for Rhode Island, the University of Rhode Island's activities. And the first circuit held that even notwithstanding that University of Rhode Island was in the arm of the state. That seems to me exactly like your situation. Well, I think what I think what you think for a circuit is wrong. Well, I think what's critical about our situation, Your Honor, is how that money is controlled by the state. I mean, if you look at the other three factors, which we know that I understand your argument about the other, the other three factors, I think I guess that. But with respect to this factor, the first factor is on all four. Well, I think that when you look at the test as was established by Maryland State of the authority and Hoover, the test was twofold to meet this first requirement

.. The fact that just exactly the opposite situation that we have here since the agency was the plaintiff in that case, and the agency is the defendant here. And the Supreme Court, not only the R-Court, but the Supreme Court has made that distinction, which you say is not important in your brief, but maybe you made to make new law on the Supreme Court. Well, Your Honor, we hope not to make new law on the Supreme Court. That's for sure. But let me just finish it here. I'll give you about one... just before you sit down, one case that is... you mentioned in a footnote only in your brief, which is from the first circuit. And it seemed to me that it was the case that was closest on the facts to this case. Do you know what I'm talking about? I don't have a recollection of that as I stand here today, Your Honor. Okay. Well, maybe I can help you find it then. If you look at your brief... And I see that you acknowledge that it is close because the way in which you distinguish it is pretty minor. Shall I say? It's on page 49 of your brief, I believe. And you say your lack of ownership and control distinguish the first circuit case where the state treasury engaged in only limited monitoring of board revenues and expenditures and no state law permitted state intervention in the university's income stream. But in fact, in that case, as in this case, you had money coming in from the pursuit of the entity, University of Rhode Island there, and going into the state treasury, but being earmarked only for Rhode Island, the University of Rhode Island's activities. And the first circuit held that even notwithstanding that University of Rhode Island was in the arm of the state. That seems to me exactly like your situation. Well, I think what I think what you think for a circuit is wrong. Well, I think what's critical about our situation, Your Honor, is how that money is controlled by the state. I mean, if you look at the other three factors, which we know that I understand your argument about the other, the other three factors, I think I guess that. But with respect to this factor, the first factor is on all four. Well, I think that when you look at the test as was established by Maryland State of the authority and Hoover, the test was twofold to meet this first requirement. And that is, was the money deposited in the state treasury. That's what Maryland State and the authority have held. That's because it was enduring to the benefit of the state because the state, the entity there was the plaintiff and the entity. There is the defendant. So you're looking at whether the state is going to be hurt in this situation, not whether this is enduring to its benefit, because it certainly isn't. Well, I disagree, Your Honor. I think that the critical factor here is the critical inquirer that that's the court framed. Okay. Is it subject to the state control and where is the state revenue that fear deposits in the state treasury, subject to strict oversight and control by the state? And it quite clearly is. Oh, that means. Thank you very much. I've kept you longer than your time. Thank you, Mr. Huey. Thank you, Mr. Huey. I'll see you from Mr. West. Good morning, Your Honors. May I please the court. I am John West. I'm here on behalf of the Vermont student assistance corporation. The district court correctly concluded under the arm of the state test that V-SAC was under sufficient state control to render it a part of the state. And I want to walk through each of the four factors that are a part of this analysis. And as to the treasury factor, it is important to focus on the state statute that Vermont, as a state, shall support and maintain V-SAC. And to that end, Vermont has made annual appropriations to V-SAC and provide it funding each year of its existence. And in many of those years, there have been state funds that have been available to V-SAC for its operations. Now, there were years when the operations and the revenue that V-SAC was generating did not require that it use state appropriated funds for its operations. But in recent years, the last four years, there have been the need for that. And the state legislature has actually made, as a part of its legislative grant of those funds, it is set aside that a certain percentage of those annual appropriations could be used for the operations and therefore are unrestricted funds. And the import of that is the first of all that there are state appropriated funds that are unrestricted and held by V-SAC

. And that is, was the money deposited in the state treasury. That's what Maryland State and the authority have held. That's because it was enduring to the benefit of the state because the state, the entity there was the plaintiff and the entity. There is the defendant. So you're looking at whether the state is going to be hurt in this situation, not whether this is enduring to its benefit, because it certainly isn't. Well, I disagree, Your Honor. I think that the critical factor here is the critical inquirer that that's the court framed. Okay. Is it subject to the state control and where is the state revenue that fear deposits in the state treasury, subject to strict oversight and control by the state? And it quite clearly is. Oh, that means. Thank you very much. I've kept you longer than your time. Thank you, Mr. Huey. Thank you, Mr. Huey. I'll see you from Mr. West. Good morning, Your Honors. May I please the court. I am John West. I'm here on behalf of the Vermont student assistance corporation. The district court correctly concluded under the arm of the state test that V-SAC was under sufficient state control to render it a part of the state. And I want to walk through each of the four factors that are a part of this analysis. And as to the treasury factor, it is important to focus on the state statute that Vermont, as a state, shall support and maintain V-SAC. And to that end, Vermont has made annual appropriations to V-SAC and provide it funding each year of its existence. And in many of those years, there have been state funds that have been available to V-SAC for its operations. Now, there were years when the operations and the revenue that V-SAC was generating did not require that it use state appropriated funds for its operations. But in recent years, the last four years, there have been the need for that. And the state legislature has actually made, as a part of its legislative grant of those funds, it is set aside that a certain percentage of those annual appropriations could be used for the operations and therefore are unrestricted funds. And the import of that is the first of all that there are state appropriated funds that are unrestricted and held by V-SAC. That would be subject to a judgment if one was obtained by Mr. Oberg. In addition, it does demonstrate that over the course of V-SAC's history, the state has had a relationship providing funds to the entity. And on particular years, those have been available to support and maintain the entity. Finally, the state does provide, or the state statutes do provide, that all of the net earnings of V-SAC incur only to the benefit of the state. And the importance of this is that the assets and the money that V-SAC holds at this time is ultimately the state's money. And so when addressing the critical question that this court must have on the Treasury factor, we submit that there would be a detrimental impact to the state Treasury of a judgment rendered against V-SAC. Now, the second factor is the degree of autonomy, which the court has focused on, and there are several key indicators of the state's control over V-SAC. V-SAC's primary function is to issue debt to support its lending and its grant activities. And V-SAC does not have the authority to issue any of that debt application without first receiving the approval in writing of the governor. There's also the indicia of control, as has already been noted that the state controls V-SAC's board. And out of the 11-member board, eight members of which are either current elected, or not officials, or appointees of the governor. And the chair of that board can only be appointed with an advice and consent of the governor. Other indicia control, or that V-SAC must file biennial reports to the legislature. It must file annual reports to the legislative's educational committees. Its books and accounts are audited on an annual basis. And finally, the state has maintained ultimate control over this entity. And by statute, it has the authority to alter, amend, or otherwise change the structure, the organization, the programs, or activities of this entity, including the power to terminate the entity itself. And this demonstrates significant control that the state not only has maintained. There's the third factor that deals with whether Vermont focuses on state concerns. And yes, V-SAC does do business outside of the state, but it is clear that its core function has not changed. And that core function is to provide both lending services, but also educational opportunities for Vermont residents and others coming to school in Vermont. Do we know from the record here, from the public records, I guess, they're cited how much of the resources are used in Vermont? Your Honor, I do not know whether that is broken out. I think my people in Pennsylvania, they had some reports, annual reports that they file. So we know something there. I'm not sure whether that is broken out in the record here. I'm not aware of whether that's in the record. Well, you would know, right? Yes, Your Honor, I understand that. So I'm not able to cite that to you, but it is important to recognize that V-SAC's lending program is available not only to all Vermont residents, regardless of where they go to school, even if they go to school out of state, but they also make loans to students from outside of the state who come to school in Vermont. And as a result, when those students go to an Finnish school, V-SAC continues to service those loans regardless of where those individuals reside. And therefore, there are activities outside of the state, but those are a part of and support the core function that V-SAC has, which we submit is clearly a state concern

. That would be subject to a judgment if one was obtained by Mr. Oberg. In addition, it does demonstrate that over the course of V-SAC's history, the state has had a relationship providing funds to the entity. And on particular years, those have been available to support and maintain the entity. Finally, the state does provide, or the state statutes do provide, that all of the net earnings of V-SAC incur only to the benefit of the state. And the importance of this is that the assets and the money that V-SAC holds at this time is ultimately the state's money. And so when addressing the critical question that this court must have on the Treasury factor, we submit that there would be a detrimental impact to the state Treasury of a judgment rendered against V-SAC. Now, the second factor is the degree of autonomy, which the court has focused on, and there are several key indicators of the state's control over V-SAC. V-SAC's primary function is to issue debt to support its lending and its grant activities. And V-SAC does not have the authority to issue any of that debt application without first receiving the approval in writing of the governor. There's also the indicia of control, as has already been noted that the state controls V-SAC's board. And out of the 11-member board, eight members of which are either current elected, or not officials, or appointees of the governor. And the chair of that board can only be appointed with an advice and consent of the governor. Other indicia control, or that V-SAC must file biennial reports to the legislature. It must file annual reports to the legislative's educational committees. Its books and accounts are audited on an annual basis. And finally, the state has maintained ultimate control over this entity. And by statute, it has the authority to alter, amend, or otherwise change the structure, the organization, the programs, or activities of this entity, including the power to terminate the entity itself. And this demonstrates significant control that the state not only has maintained. There's the third factor that deals with whether Vermont focuses on state concerns. And yes, V-SAC does do business outside of the state, but it is clear that its core function has not changed. And that core function is to provide both lending services, but also educational opportunities for Vermont residents and others coming to school in Vermont. Do we know from the record here, from the public records, I guess, they're cited how much of the resources are used in Vermont? Your Honor, I do not know whether that is broken out. I think my people in Pennsylvania, they had some reports, annual reports that they file. So we know something there. I'm not sure whether that is broken out in the record here. I'm not aware of whether that's in the record. Well, you would know, right? Yes, Your Honor, I understand that. So I'm not able to cite that to you, but it is important to recognize that V-SAC's lending program is available not only to all Vermont residents, regardless of where they go to school, even if they go to school out of state, but they also make loans to students from outside of the state who come to school in Vermont. And as a result, when those students go to an Finnish school, V-SAC continues to service those loans regardless of where those individuals reside. And therefore, there are activities outside of the state, but those are a part of and support the core function that V-SAC has, which we submit is clearly a state concern. And finally, I thought I had read in the papers that you were making a distinction between out of state and local. And you said that when we're talking about state concerns, we only look to see whether they are local concerns or state concerns, but you're not espousing that in front of us. No, Your Honor, it is the case. If you had all of your or 90% of your activity was centered out of state, that would show us that that factor did not weigh in your favor. Your Honor, that would... Even if it wasn't a local. Correct, yeah. We are not making the distinction of local versus state, although that has historically been something that courts have focused on because of the internet. I just want to be sure that you understand my question. I have thought that you were making this distinction insane. To be a state concern, all you look at was whether it's local or state, not whether it's state or out of state. No, Your Honor, we are not making that already. Okay. So finally, the fourth factor addresses whether the state treats V-SAC as an entity. And Mr. Oberg has argued that V-SAC is not a true state agency within Vermont, despite the fact that that is not a defined term within Vermont state government. And V-SAC does have a different structure from certain agencies within Vermont. Example is the Vermont Agency of Natural Resources, which was subject to the case in Stevens. But V-SAC was established as a state agency in fact four years before any cabinet level agencies were created in Vermont. There are other agencies, the Vermont Department of Education, similar to V-SAC, which are not designated as cabinet level agencies and are in fact governed by a board like V-SAC. These differences do not make V-SAC any less of a state agency, but they merely been straight that the legislature of Vermont has made a decision to establish its varied agencies in different ways. The state includes V-SAC on its ornizational chart listing agencies of the state. It requires that V-SACs, renews and financial activities be included in the state's annual financial report. And all personal and real property of V-SAC is exempt from taxation. These activities demonstrate that the state in fact does reflect that it treats V-SACs. You'll read, like, been on for about five minutes. You're out of time. I'm sorry to cut you off, but I apologize. Mr

. And finally, I thought I had read in the papers that you were making a distinction between out of state and local. And you said that when we're talking about state concerns, we only look to see whether they are local concerns or state concerns, but you're not espousing that in front of us. No, Your Honor, it is the case. If you had all of your or 90% of your activity was centered out of state, that would show us that that factor did not weigh in your favor. Your Honor, that would... Even if it wasn't a local. Correct, yeah. We are not making the distinction of local versus state, although that has historically been something that courts have focused on because of the internet. I just want to be sure that you understand my question. I have thought that you were making this distinction insane. To be a state concern, all you look at was whether it's local or state, not whether it's state or out of state. No, Your Honor, we are not making that already. Okay. So finally, the fourth factor addresses whether the state treats V-SAC as an entity. And Mr. Oberg has argued that V-SAC is not a true state agency within Vermont, despite the fact that that is not a defined term within Vermont state government. And V-SAC does have a different structure from certain agencies within Vermont. Example is the Vermont Agency of Natural Resources, which was subject to the case in Stevens. But V-SAC was established as a state agency in fact four years before any cabinet level agencies were created in Vermont. There are other agencies, the Vermont Department of Education, similar to V-SAC, which are not designated as cabinet level agencies and are in fact governed by a board like V-SAC. These differences do not make V-SAC any less of a state agency, but they merely been straight that the legislature of Vermont has made a decision to establish its varied agencies in different ways. The state includes V-SAC on its ornizational chart listing agencies of the state. It requires that V-SACs, renews and financial activities be included in the state's annual financial report. And all personal and real property of V-SAC is exempt from taxation. These activities demonstrate that the state in fact does reflect that it treats V-SACs. You'll read, like, been on for about five minutes. You're out of time. I'm sorry to cut you off, but I apologize. Mr. Connolly. Thank you, Eric. Good morning, Tom Connolly. On behalf of the Arkansas Student Loan Authority with me is Mark Warren-Bergent, Assistant Attorney General of the State of Arkansas. In its first opinion, the court noted that the critical inquiry is state control. And applying the arm of the state test, the Arkansas Student Loan Authority is unquestionably controlled by and part of the State of Arkansas. Let's look at the first factor whether the judgment would be paid by the state. Now, the funds, Asla holds are all cash funds, which is a defined term in the Arkansas code referring to funds held by state agencies outside the state treasury. So, Asla's funds are definition by definition state funds. Those cash funds are subject to strict statutory control under Arkansas law. Asla cannot spend any of its cash funds without an appropriation or other statutory authorization. And Asla's 2009-2010 appropriations bill is in the joint appendix at 411 to 14. It makes clear that Asla's use of cash funds and its own accounts is subject to appropriation along with a host of restricting of other state statutes restricting spending, including the State procurement law, the accounting and regulatory procedures law, the state stabilization act, the regular salary and procedures and restrictions act, and other fiscal laws of the state. There's no question that the state clearly exercises direct control and dominion and that Asla's money is subject to appropriation, restriction, audit, and budget planning and meets the requirements of Hoover and Maryland State Immunity. Let me address the question that Judge Mott's asked in the first hearing and one that will later argues here, will later tries to argue that there's no state law clearly making the state responsible judgment against Asla. That's because Asla as a state agency is generally immune, at least in court as part of the sovereign. And it's only in its contracts like its state approved bond indentures where sovereign immunity is waived by statute that As can be sued in court. Under Arkansas law claims against Asla, like claims against other state agencies in the state itself, are referred to the State claims commission, and any award of the state claims commission over $12,500 is sent to the legislature for appropriation. So any federal judgment against Asla would be sent to the claims commission and then to the legislature for appropriation. There is no other mechanism under state law for a judgment to be enforced against Asla. And I note that claims against municipalities, counties, and local school boards do not go to the claims commission. So claims against Asla are handled exactly the same way as claims against the state, and to be paid they go to the state legislature for appropriation. I think that's dispositive. Let's talk about the second factor. Asla's creation and every significant fact that you indicated in your papers that the Attorney General represented. Correct, Your Honor. And that that was, are you an assistant attorney general? No, Mr. Orrenberger is my co-counsel. Yes. Yes, the Attorney General, the elected Attorney General of the State of Arkansas, Dustin McDaniel is on the paper. So the only way you can represent is the Attorney General, Hireshoe, is that it? The Attorney General? I mean, it mustn't be the case

. Connolly. Thank you, Eric. Good morning, Tom Connolly. On behalf of the Arkansas Student Loan Authority with me is Mark Warren-Bergent, Assistant Attorney General of the State of Arkansas. In its first opinion, the court noted that the critical inquiry is state control. And applying the arm of the state test, the Arkansas Student Loan Authority is unquestionably controlled by and part of the State of Arkansas. Let's look at the first factor whether the judgment would be paid by the state. Now, the funds, Asla holds are all cash funds, which is a defined term in the Arkansas code referring to funds held by state agencies outside the state treasury. So, Asla's funds are definition by definition state funds. Those cash funds are subject to strict statutory control under Arkansas law. Asla cannot spend any of its cash funds without an appropriation or other statutory authorization. And Asla's 2009-2010 appropriations bill is in the joint appendix at 411 to 14. It makes clear that Asla's use of cash funds and its own accounts is subject to appropriation along with a host of restricting of other state statutes restricting spending, including the State procurement law, the accounting and regulatory procedures law, the state stabilization act, the regular salary and procedures and restrictions act, and other fiscal laws of the state. There's no question that the state clearly exercises direct control and dominion and that Asla's money is subject to appropriation, restriction, audit, and budget planning and meets the requirements of Hoover and Maryland State Immunity. Let me address the question that Judge Mott's asked in the first hearing and one that will later argues here, will later tries to argue that there's no state law clearly making the state responsible judgment against Asla. That's because Asla as a state agency is generally immune, at least in court as part of the sovereign. And it's only in its contracts like its state approved bond indentures where sovereign immunity is waived by statute that As can be sued in court. Under Arkansas law claims against Asla, like claims against other state agencies in the state itself, are referred to the State claims commission, and any award of the state claims commission over $12,500 is sent to the legislature for appropriation. So any federal judgment against Asla would be sent to the claims commission and then to the legislature for appropriation. There is no other mechanism under state law for a judgment to be enforced against Asla. And I note that claims against municipalities, counties, and local school boards do not go to the claims commission. So claims against Asla are handled exactly the same way as claims against the state, and to be paid they go to the state legislature for appropriation. I think that's dispositive. Let's talk about the second factor. Asla's creation and every significant fact that you indicated in your papers that the Attorney General represented. Correct, Your Honor. And that that was, are you an assistant attorney general? No, Mr. Orrenberger is my co-counsel. Yes. Yes, the Attorney General, the elected Attorney General of the State of Arkansas, Dustin McDaniel is on the paper. So the only way you can represent is the Attorney General, Hireshoe, is that it? The Attorney General? I mean, it mustn't be the case. The Attorney General did authorize our approval, did authorize our hiring, and indeed in the appropriate... That's the only way that an outside lawyer could represent. That is in fact the only way an outside lawyer that's in the appropriations bill in the appendix. Asla cannot hire outside counsel without approval of the State Attorney General. Asla has no taxing authority, it can either raise funds nor spend them without express order of the state. It's board of, it's board of seven is all appointed by the governor. They serve without compensation. There's no other level of state government that authorizes, that governs Asla's activities. Every time Asla issues a bond indenture, that bond indenture has to be approved by the State Board of Finance, made entirely up to state officials, the treasurer, the auditor, the director of finance, the bank commissioner, the governor. That must be then signed by the governor, who is in turn advised by the legislative counsel, made up entirely of sitting legislators. So indeed, Asla's actions are subject to direct review and approval whenever the Asla sells bonds, spends money, enters into contracts, sets its operating budgets, and sets out. On the third factor, I think, you know, in making arm of the state determinations, the court has recognized that higher education has an area of quintessential state concern. And Asla was established in the code as quote, the instrumentality of the state charged with a portion of the responsibility of the state to provide educational opportunities. That's the Arkansas code. And looking at the last factor, you have extensive sites in the Arkansas code, a gubernatorial proclamation, a decision of the Arkansas Supreme Court, and my counsel, the elected attorney general of Arkansas, all telling the court unequivocally that Asla's a state agency. Now against that backdrop, the court can only conclude that Asla is exactly what the Arkansas code, what the Arkansas Supreme Court, what the governor, what the attorney general, and most importantly, what the arm of the state test says. As a state agent, as to Asla, this question is not even close. And for all the reasons that forth in our papers, the decision of the district court should be affirmed unless the court has any other questions. Thank you. Thank you. Brian. Thank you, honored. I'll be brief. I don't want to test the court's patience. I think that the question was raised about the age of the decisions in Pennsylvania and the. Thank you. I think that. That what you have here, a bunch of recent. Pretty recent federal decisions

. The Attorney General did authorize our approval, did authorize our hiring, and indeed in the appropriate... That's the only way that an outside lawyer could represent. That is in fact the only way an outside lawyer that's in the appropriations bill in the appendix. Asla cannot hire outside counsel without approval of the State Attorney General. Asla has no taxing authority, it can either raise funds nor spend them without express order of the state. It's board of, it's board of seven is all appointed by the governor. They serve without compensation. There's no other level of state government that authorizes, that governs Asla's activities. Every time Asla issues a bond indenture, that bond indenture has to be approved by the State Board of Finance, made entirely up to state officials, the treasurer, the auditor, the director of finance, the bank commissioner, the governor. That must be then signed by the governor, who is in turn advised by the legislative counsel, made up entirely of sitting legislators. So indeed, Asla's actions are subject to direct review and approval whenever the Asla sells bonds, spends money, enters into contracts, sets its operating budgets, and sets out. On the third factor, I think, you know, in making arm of the state determinations, the court has recognized that higher education has an area of quintessential state concern. And Asla was established in the code as quote, the instrumentality of the state charged with a portion of the responsibility of the state to provide educational opportunities. That's the Arkansas code. And looking at the last factor, you have extensive sites in the Arkansas code, a gubernatorial proclamation, a decision of the Arkansas Supreme Court, and my counsel, the elected attorney general of Arkansas, all telling the court unequivocally that Asla's a state agency. Now against that backdrop, the court can only conclude that Asla is exactly what the Arkansas code, what the Arkansas Supreme Court, what the governor, what the attorney general, and most importantly, what the arm of the state test says. As a state agent, as to Asla, this question is not even close. And for all the reasons that forth in our papers, the decision of the district court should be affirmed unless the court has any other questions. Thank you. Thank you. Brian. Thank you, honored. I'll be brief. I don't want to test the court's patience. I think that the question was raised about the age of the decisions in Pennsylvania and the. Thank you. I think that. That what you have here, a bunch of recent. Pretty recent federal decisions. That some of the most of them are unpublished, but they go the other way. So if your case rises and falls on how the state court treats. Your clot in the other side, then I think you would. We would have to say it is an arm of the state. I don't know if you want to spend a lot of time on that because that seems to me. I was just trying to you asked me a specific question when was the case decided that the foundation. I can read that. I have any argument on the other three facts. Yes, and let me say it. You know, as I said to you before, we're not saying that any single fact is determined. If the court did not make these factors are non-exclusive, I think we've got that. All right. And so then we're down to the two base questions. Is there going to be an impact on the state treasury and you've heard fear say, well, there's nothing that says you. The other side have not proven that the state will walk away. The burden is really different. Do these statutes say the state will pay you look at the statutes governing fear. The state disavows that responsibility expressly and you pointed to that language. The control of the funds and the treasury is exclusively with the board of directors. And they can be expended at the discretion of the board. And that's how they've done it. That's what the statute says. If you look at Vermont, Vsack, and that relationship, there's nothing and they've pointed to nothing that says the state will pay. They say, well, there's a general obligation to support. But no one knows what that means. That's entirely discretionary. So you cannot say on the statutes alone, the state will be placed at risk for a judgment. And then when you get to Arkansas, they have the remarkable argument that we're not going to pay. So if they're not going to be, why are they here? You know, what is the risk to Arkansas if absent a discretionary decision by the legislature, they're not going to pay anything. What do you have to say with respect to the second factor, the autonomy factor with regard to Pennsylvania? Well, everybody on the board is appointed by the governor. Right

. That some of the most of them are unpublished, but they go the other way. So if your case rises and falls on how the state court treats. Your clot in the other side, then I think you would. We would have to say it is an arm of the state. I don't know if you want to spend a lot of time on that because that seems to me. I was just trying to you asked me a specific question when was the case decided that the foundation. I can read that. I have any argument on the other three facts. Yes, and let me say it. You know, as I said to you before, we're not saying that any single fact is determined. If the court did not make these factors are non-exclusive, I think we've got that. All right. And so then we're down to the two base questions. Is there going to be an impact on the state treasury and you've heard fear say, well, there's nothing that says you. The other side have not proven that the state will walk away. The burden is really different. Do these statutes say the state will pay you look at the statutes governing fear. The state disavows that responsibility expressly and you pointed to that language. The control of the funds and the treasury is exclusively with the board of directors. And they can be expended at the discretion of the board. And that's how they've done it. That's what the statute says. If you look at Vermont, Vsack, and that relationship, there's nothing and they've pointed to nothing that says the state will pay. They say, well, there's a general obligation to support. But no one knows what that means. That's entirely discretionary. So you cannot say on the statutes alone, the state will be placed at risk for a judgment. And then when you get to Arkansas, they have the remarkable argument that we're not going to pay. So if they're not going to be, why are they here? You know, what is the risk to Arkansas if absent a discretionary decision by the legislature, they're not going to pay anything. What do you have to say with respect to the second factor, the autonomy factor with regard to Pennsylvania? Well, everybody on the board is appointed by the governor. Right. And that has been true in other cases and certainly enhanced the Supreme Court-faced situation where all of the directors were gubernatorial. I understand that. And I think. Giving up on the autonomy factor. No. Is there any fact with respect to the autonomy factor? It's the self-sufficiency, which has always been a key to the autonomy factor. Are these, you know, because as you say that one part has always been the question, do you have taxing authority? But taxing authority is just a measure of being able to raise your own funds. All of these entities are self-funded. They don't need the financial support of the state. In the case of V-SAC, what they're talking about is a specific state grant program. It's an earmarked fund that they administer. And they were doing the state the favor of saying, well, administer it free. But from time to time, they've said no. The administration of that program has to be charged just the way a contractor would charge it for the overheads of that program. But all these major plans, which are their dominant activities, have no state funding involvement whatsoever. They're self-funded, highly profitable. Let me ask you again about the appointment of power here in terms of the board members in Pennsylvania. Do they automatically lose their positions still? It used to be the case. I know they automatically lost their position when they no longer held public office. Is that still the case? Well, they, you know, again, we have that. Here in college. That's still the state. There are now appointees who are private persons, so they're not even in state office. Right. But all the state of appointees. We haven't seen anything that changes that appointment. They are, in the sense, ex officio. The legislators. Now, whether the governor's appointments would lose their status, I think, is much more amorphous under that statute. But the legislative representatives are sitting in effect ex officio, but they're a minority. Can you talk to me about the third factor with respect to Pennsylvania? Well, certainly Pennsylvania has shifted its activities, so its dominant activities are outside Pennsylvania and are indifferent as to who is being supported by that activity

. And that has been true in other cases and certainly enhanced the Supreme Court-faced situation where all of the directors were gubernatorial. I understand that. And I think. Giving up on the autonomy factor. No. Is there any fact with respect to the autonomy factor? It's the self-sufficiency, which has always been a key to the autonomy factor. Are these, you know, because as you say that one part has always been the question, do you have taxing authority? But taxing authority is just a measure of being able to raise your own funds. All of these entities are self-funded. They don't need the financial support of the state. In the case of V-SAC, what they're talking about is a specific state grant program. It's an earmarked fund that they administer. And they were doing the state the favor of saying, well, administer it free. But from time to time, they've said no. The administration of that program has to be charged just the way a contractor would charge it for the overheads of that program. But all these major plans, which are their dominant activities, have no state funding involvement whatsoever. They're self-funded, highly profitable. Let me ask you again about the appointment of power here in terms of the board members in Pennsylvania. Do they automatically lose their positions still? It used to be the case. I know they automatically lost their position when they no longer held public office. Is that still the case? Well, they, you know, again, we have that. Here in college. That's still the state. There are now appointees who are private persons, so they're not even in state office. Right. But all the state of appointees. We haven't seen anything that changes that appointment. They are, in the sense, ex officio. The legislators. Now, whether the governor's appointments would lose their status, I think, is much more amorphous under that statute. But the legislative representatives are sitting in effect ex officio, but they're a minority. Can you talk to me about the third factor with respect to Pennsylvania? Well, certainly Pennsylvania has shifted its activities, so its dominant activities are outside Pennsylvania and are indifferent as to who is being supported by that activity. Because, as we said, when they change the nature of their business and they went into the ABS. What is the, is there a 2005 report? What are the statistics in that report? Well, it's 30% or more of their revenue comes outside. At the end of the FFEL program, for example, where they're no longer making FFEL loans, almost all their revenue today is generated by their servicing the federal government supervision of its own loans. But don't we look at the fact as they were when you filed your complaint? And that's why we pointed to you. You agree we do. I think that, yes, because we have to prove that the fraud was committed by a person. But what we showed was... I agree. I mean, this case doesn't, even if you should win, this case doesn't necessarily go trial. I certainly agree with you. What I'm saying is, I think there's a difference here. Ultimately, we bear the burden of showing person. That's why the question is said, we plausibly alleged person status to go through the motion period at the, they are free to contest ultimately, whether we can prove that element by a preponderance. We're not walking away from that responsibility. But then we would have discovery. And I think what we've seen on the record is that they went into this enormous out of state in different asset purchasing activity. During the period in question, that's how they did it. And I think that, you know, what we pointed out in the case of FIA is they tripled their base activity. They tripled their loan portfolio. So you now have two-thirds of that portfolio held without regard to what it is supporting. It's an asset. You look at it in terms of what's its maturity. How is it going to feed and support the bond issues which are tied to it? You no longer ask the question, who's loan is it? It can be a loan anywhere. It can be a loan in a why it was student attending university in Oregon. It has nothing to do with Pennsylvania, but it's a good asset. So when you change your business and you start looking for good assets, and the state certainly has no limitation on their ability to do that, but that's a very different situation. And each of them at least doubled, and in the case of FIA, tripled their portfolio. So they just radically revised the nature of the business. They had latitude to do it under state law, and they did

. So I think that to say that the dignity of- I'm only asking the clerk to check to see if that red light can be seen from the other side. I think unfortunately- We're going to come down in Greek cash