Is MOHELA the State?

In the case challenging Biden’s student debt forgiveness plan, the Missouri Attorney General (MO AG) is suing on behalf of the Missouri Higher Education Loan Authority (MOHELA). Insofar as most people believe that Biden’s plan is vulnerable on the legal merits, everyone is pinning their hopes on getting the case dismissed on the basis that the MO AG does not have standing to sue on behalf of MOHELA.

For some bizarre reason, student debt advocates have decided to respond to this situation by giving quotes and writing pieces where they mislead people about why the MO AG claims it has standing in the case (New York Times, Mother Jones, Jacobin, Twitter).

According to this emerging line, the MO AG’s argument for standing is simply that it has a financial relationship with MOHELA, which is an independent third-party debt servicer:

The problem, however, is that the entities they are referring to, like MOHELA, have chosen not to participate in the lawsuit. This left Missouri to argue that it can pursue this argument on MOHELA’s behalf because the state and the debt servicer have a financial relationship: the state receives some of MOHELA’s revenues to fund its public education system.

But this is not true. MO AG’s argument for standing is, first and foremost, that MOHELA is not a third party but in fact part of the Missouri state. This argument is stated over and over again in the briefs for the case.

First, MOHELA is a state agency, so financial harms to it are harms to Missouri. MOHELA and Missouri are organizationally and politically intertwined. MOHELA is “a public instrumentality” of Missouri that performs “essential public function[s].” Mo. Rev. Stat. §173.360. It is part of the Missouri Department of Higher Education and Workforce Development. §173.445. Its board members are state officials appointed by the State with the advice and consent of the legislature. §173.360; see also §173.005.2 (coordinating board); §173.007 (commissioner of higher education). And State law establishes MOHELA’s powers. §173.385

Missouri has standing because MOHELA is a public instrumentality of the State. “Government-created and -controlled corporations are” often “part of the Government itself.” Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374, 397 (1995). Such corporations exist when the Government (1) “creates [the] corporation by special law,” (2) “for the furtherance of governmental objectives,” and (3) “retains for itself permanent authority to appoint a majority of the directors.” Id. at 399. It matters not if those entities lack “sovereign immunity,” id. at 392, or possess “the authority to-sue-and-be-sued,” Keifer & Keifer v. Reconstruction Fin. Corp., 306 U.S. 381, 390 (1939). “[T]he practical reality of [government] control and supervision prevails” over corporate labels. Dep’t of Transp. v. Ass’n of Am. Railroads, 575 U.S. 43, 55 (2015).

Applying those factors, MOHELA is part of Missouri’s government. First, the legislature created MOHELA by special law. Mo. Rev. Stat. §173.360. Second, Missouri declares that “the exercise by [MOHELA] of the powers conferred” on it, which include ensuring access to loans for Missouri students, is “the performance of an essential public function.” Ibid. Third, the governor appoints five of MOHELA’s seven members; the remaining two are officials of other state entities; and all seven are “remov[able] by the governor” for cause. Ibid.

Other considerations underscore Missouri’s control over MOHELA. The State established MOHELA’s powers, see id. §173.385, and in doing so controls MOHELA by limiting it to only those powers. Missouri also “assigned” MOHELA to its Department of Higher Education and Workforce Development and requires annual reports of MOHELA’s finances. Id. §173.445. Additionally, the State preserved its authority “over assets of” MOHELA, id. §173.420, and may “abolish” MOHELA at its pleasure, see Cas. Reciprocal Exch. v. Missouri Emps. Mut. Ins. Co., 956 S.W.2d 249, 255 (Mo. 1997) (en banc). And though not essential, MOHELA qualifies as a “public entity” entitled to sovereign immunity from tort claims under state law. See id. at 254 (discussing sovereign-immunity factors); Todd v. Curators of Univ. of Missouri, 147 S.W.2d 1063, 1064 (Mo. 1941) (immunity for entity that “may sue and be sued”).

Because MOHELA is a Missouri-created and -controlled entity, the State may sue in its name to vindicate harms to MOHELA. Indeed, Missouri law authorizes its Attorney General to sue “in the name and on the behalf of the state . . . to protect the rights and interests of the state.” Mo. Rev. Stat. §27.060.

Getting sucked into taking positions on legal technicalities such at “what makes an entity part of the state?” as part of an outcome-motivated policy desire is a fool’s game. But even more foolish than that is misrepresenting the standing argument over and over again in sympathetic publications.

There are scenarios where lying about things is politically useful, but this is very clearly not such a case. You can trick every liberal publication in the country and all of your followers into thinking that the MO AG’s sole argument for standing is about a financial relationship even though it’s not, but that won’t affect the outcome of the case. It won’t trick the judges. It’ll just make everyone, and especially those sympathetic to your views, less knowledgeable about what is going on in the government.

As to the question of whether MOHELA is part of the state or not, obviously this is the kind of line-drawing policy question that has no deep-down metaphysical answer. But the answer actually has a lot of wide-ranging consequences that are not just about being able to sue in this case.

If MOHELA is part of the state, then it has sovereign immunity from lawsuits (MOHELA has consistently won lawsuits by arguing it is an arm of the state with sovereign immunity). If MOHELA is part of the state, its employees labor rights are determined by state public sector bargaining laws rather than the NLRA and it cannot retaliate against its employees for their off-work speech (such retaliation would be unconstitutional government infringement of the first amendment). If MOHELA is part of the state, its employees are covered by a wide range of state public employee laws in Missouri, including state public pension plans (MOHELA employees do receive benefits through the MO public employee retirement system).

In these other scenarios, I’m sure many of the activists involved would take the opposite view about the metaphysical nature of MOHELA (I, for one, am glad that MOHELA’s workers are eligible for the state pension and are protected from retaliation by the first amendment), which is just another reason why playing this game is so dumb.