A lawyer for the student loan company Sallie Mae urged a federal appeals court in Washington today to uphold the dismissal of a whistleblower suit that alleged fraud over the granting of forbearances.
The attorney, Lisa Blatt, who leads Arnold & Porter's appellate and U.S. Supreme Court practice, said the complaint against SLM Corp. was properly dismissed because it too closely resembled an earlier suit in another federal district court.
The U.S. Court of Appeals for the D.C. Circuit was asked to decide whether the earlier suit blocked the case in Washington federal district court from proceeding. The question is whether the first-to-file rule of the False Claims Act requires an earlier complaint to meet a heightened pleading standard of the rules of civil procedure.
In Washington, U.S. District Judge Richard Leon last year dismissed the whistleblower’s suit with prejudice, citing its similarity to a case that was dismissed in Indiana federal district court. The first-to-file rule of false claims cases rewards the first person to allege wrongdoing and blocks copycat complaints based on the same core allegations.
The U.S. Justice Department is supporting the plaintiff, Sheldon Batiste, a former Sallie Mae loan official, in the D.C. Circuit. DOJ lawyer Catherine Hancock today in court tried to convince the panel—Chief Judge David Sentelle and judges Judith Rogers and Janice Rogers Brown—to reverse Leon and let Batiste’s suit move forward. DOJ did not intervene in the trial court.
At issue is whether Leon should have assessed whether the earlier suit in Indianapolis federal district court met a heightened pleading standard of a rule of federal civil procedure that requires a claim to be presented with particularities. DOJ did not take a position on the merits of Batiste’s allegations but said the suit should not have been barred because the first complaint, rejected in 2009, did not pass legal muster.
The DOJ’s position, Sentelle said, raises the danger of inconsistent decisions in which one judge finds that a suit meets sufficiency standards and another judge does not. Hancock tried to allay the judge’s fear, saying that while such a situation is possible, it’s not likely to come up often.
In a hypothetical scenario, Rogers explored the extent to which a suit against a company’s subsidiary gives sufficient notice to the government to begin an investigation of the company’s parent. Blatt said the Justice Department would surely not restrict a fraud investigation to a subsidiary without exploring the highest-possible reaches of the claims.
Blatt argued the earlier filed whistleblower suit in Indiana did, in fact, name Sallie Mae as a defendant. Batiste’s lawyer, Timothy Matusheski, a solo practitioner in Mississippi, said the earlier case, first filed in 2005, and Batiste’s suit are substantially different in time, place and the nature of the allegations.
Batiste’s suit alleged Sallie Mae defrauded the government in claiming the company was playing by the rules with forbearances. Batiste alleged he was told to grant forbearances without reviewing whether the borrower planned to repay the loan. The plaintiff in the other suit worked for a Sallie Mae subsidiary and in a different state.
The appeals court did not immediately rule on the dispute.