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Pennsylvania Higher Education Assistance Agency v. NC Owners, LLC

United States District Court, M.D. Pennsylvania

June 9, 2017

PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, Plaintiff
v.
NC OWNERS, LLC; NC RESIDUALS OWNERS TRUST; VCG SECURITIES, LLC; ODYSSEY EDUCATION RESOURCES, INC.; BOSTON PORTFOLIO ADVISORS, INC.; and COOK & SADORF, Defendants

          MEMORANDUM

          Christopher C. Conner, Chief Judge

         Plaintiff Pennsylvania Higher Education Assistance Agency ("PHEAA") commenced this action against the collective defendants in the Commonwealth Court of Pennsylvania. Before the court is PHEAA's motion (Doc. 22) to remand pursuant to 28 U.S.C. § 1447(c). PHEAA maintains that it is an "arm of the state" rather than a citizen thereof, divesting this court of diversity jurisdiction. For the reasons that follow, the court will deny PHEAA's motion.

         I. Factual Background & Procedural History

         PHEAA is a servicer of student loans established by and organized under the laws of the Commonwealth. See 24 Pa. Stat. & Cons. Stat. Ann. § 5101 et seq.; (see also Doc. 1 ¶ 4). On August 2, 2016, PHEAA filed a complaint in the Commonwealth Court of Pennsylvania. (Doc. 1 ¶ 1; Doc. 1-2 at 3-25). Therein, PHEAA advances state law claims for breach of contract, tortious interference with contract, and fraudulent inducement against the collective defendants.[1] (Doc. 1 ¶ 2; see also Doc. 1-2 at 3-25). Defendants removed the case to this court pursuant to 28 U.S.C. § 1441 on September 2, 2016. (Doc. 1). Defendants assert that the parties are citizens of different states and that the amount in controversy exceeds $75, 000, satisfying the desiderata for diversity jurisdiction under 28 U.S.C. § 1332(a). (Id. ¶¶ 4-16).

         PHEAA timely moved to remand. (Doc. 22). PHEAA submits that it is not a "citizen" of Pennsylvania as contemplated by the diversity jurisdiction statute but rather "an arm ... of the Commonwealth, " such that the court must remand for lack of jurisdiction. (Id. ¶¶ 11-14). PHEAA requests attorney fees and costs in connection with its motion pursuant to 28 U.S.C. § 1447(c). (Id. ¶¶ 15-16). The motion is fully briefed and ripe for disposition.

         II. Legal Standard

         Under 28 U.S.C. § 1441, a defendant may remove an action brought in state court to federal district court when the claims fall within the federal court's original jurisdiction. See 28 U.S.C. § 1441(a). A plaintiff may challenge removal for lack of jurisdiction by moving to remand the matter to state court. See id. § 1447(c). Such motions may be filed at any time before final judgment is entered. Id. If the district court indeed lacks subject matter jurisdiction, it must remand to the state court from which the action was removed. Id. Statutes permitting removal "are to be strictly construed against removal and all doubts should be resolved in favor of remand." Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006, 1010 (3d Cir. 1987)).

         As the party asserting jurisdiction, defendants bear the burden of proving that the matter is properly before the federal court. See Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 2007) (citations omitted); Steel Valley Auth, 809 F.2d at 1010 (citing Abels v. State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985)). In order to invoke diversity jurisdiction, defendants must establish that the matter is between citizens of different states and that the amount in controversy, exclusive of interest and costs, exceeds $75, 000. See 28 U.S.C. § 1332(a).

         III. Discussion

         The law is well-settled that an agency which is "a mere arm of the State" is not a "citizen" of that state for diversity jurisdiction purposes. See Moor v. Cty. of Alameda, 411 U.S. 693, 717-19 (1973). PHEAA attempts to invoke this principle in its instant motion to remand. (See Doc. 22). PHEAA contends that it is an arm of the Commonwealth of Pennsylvania and, ipso jure, cannot qualify as a "citizen" of the state. (Id. ¶¶ 11-12; Doc. 26 at 3-21).

         Defendants rejoin that the doctrine of collateral estoppel, also known as issue preclusion, forestalls PHEAA's argument. (Doc. 30 at 4-14). Defendants aver that PHEAA has previously litigated and lost the arm-of-the-state argument raised sub judice. (Id.) This averment is correct. Federal courts have thrice rebuffed PHEAA's theory. First, in United States ex rel. Oberg v. PHEAA ("Oberg III"), the Fourth Circuit Court of Appeals applied its Eleventh Amendment arm-of-the-state jurisprudence to assess PHEAA's status as an agent of the state under the False Claims Act, 31 U.S.C. § 3729. See Oberg III, 804 F.3d 646, 650-77 (4th Cir. 2015), cert, denied, 137 S.Ct. 617 (2017). Following exhaustive review of a massive factual record, the court held that PHEAA is an independent political subdivision, not an arm of the Commonwealth. Id. at 677. Second, in Pele v. PHEAA, the Fourth Circuit determined that Oberg III applies with equal force to the agency's claim to Eleventh Amendment immunity under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. Pele, 628 F.App'x 870, 872 (4th Cir. 2015) (per curiam). And third, in Lang v. PHEAA, our colleague, Judge John E. Jones III, concluded that Oberg III collaterally estops PHEAA from raising an arm-of-the-state immunity defense under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. See Lang, 201 F.Supp.3d 613, 620-28 (M.D. Pa. 2016).[2]

         Defendants contend that this jurisprudential triptych precludes PHEAA's present argument in two ways. Defendants first assert that Lang estops this court from revisiting the preclusive effect of Oberg III. (See Doc. 30 at 7-8). Defendants alternatively assert that Oberg III independently precludes PHEAA's jurisdictional challenge.[3] (See id. at 9-14). Assuming arguendo that the court declines to apply collateral estoppel, defendants separately maintain that PHEAA cannot establish itself as an arm of the Commonwealth. (See id. at 14-24). We begin by considering the preclusive effect of Lang itself.

         The Third Circuit Court of Appeals applies the Restatement (Second) of Judgments to determine the preclusive effect of prior federal rulings. See Nat'l R.R. Passenger Corp. v. Pa. Pub. Util. Comm'n, 288 F.3d 519, 525 (3d Cir. 2002) (quoting Restatement (Second) OF Judgments § 27 (Am. Law Inst. 1980)). Per the Restatement: "When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." RESTATEMENT (SECOND) OF JUDGMENTS § 27.

         Four factors are prerequisite to application of collateral estoppel: (1) the issue subjudice must be "the same" as that involved in the antecedent action; (2) the issue must have been "actually litigated" in that action; (3) the issue must have been resolved by a "valid and final judgment"; and (4) the issue must have been "essential" to that judgment. Nat'l R.R. Passenger Corp., 288 F.3d at 525 (quoting Burlington N. R.R. Co. v. Hyundai Merchant Marine, 63 F.3d 1227, 1231-32 (3d Cir. 1995)). These factors, in combination, ensure that the party against whom estoppel is wielded has had a "full and fair" opportunity to litigate the issue. See Peloro v. United States, 488 F.3d 163, 175 (3d Cir. 2007) (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 332, ...


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