For whistleblowers, the race to be first in the door at the courthouse to allege wrongdoing is potentially worth millions of dollars.

Sheldon Batiste, a former loan officer at SLM Corp., the financial services company that specializes in education loans, thought he beat out others in the suit he filed in Washington in 2008 alleging that his employer defrauded the government in a scheme that involved forbearances.

But lawyers for SLM — better known as Sallie Mae — successfully convinced a Wash­ington federal district judge to dismiss Batiste’s suit last September because it too closely resembled the allegations in an earlier complaint against the company filed in California and ultimately dismissed.

Sallie Mae’s attorneys at Arnold & Porter, including Lisa Blatt, who leads the firm’s appellate and Supreme Court practice, now want the U.S. Court of Appeals for the D.C. Circuit to keep in place U.S. District Judge Richard Leon’s ruling that blocked Batiste’s complaint from going forward.

The case tests the scope of the False Claims Act’s “first-to-file” bar, which rewards the first whistleblower to file suit and successfully prosecute it and blocks subsequent complaints. Chief Judge David Sentelle and judges Judith Rogers and Janice Rogers Brown are expected to hear the case on Sept. 16.

“Nothing in the text of the first-to-file bar requires that the earlier-filed complaint be impervious to legal challenge from its inception,” Blatt said in a brief in the D.C. Circuit. “When the fraud alleged in the two complaints shares the same material elements of wrongdoing, the first complaint necessarily notified the government of the fraud alleged in the second complaint.”

The U.S. Department of Justice jumped into the dispute in May on appeal, taking sides with Batiste even though the government declined to intervene and back him in trial court proceedings. DOJ said the outcome of Batiste’s case is highly consequential for whistleblowers at large.

Justice Department lawyers said in a friend-of-the-court brief that the government has a “substantial interest” in the proper interpretation and application of the False Claims Act, one of the government’s most powerful tools in the fight against fraud and abuse. DOJ said it has recovered more than $7.5 billion through the False Claims Act since January 2009.

Batiste alleged in his complaint that Sallie Mae improperly doled out forbearances while collecting subsidy payments from the government. Sallie Mae, according to the suit, falsely certified to the government that the company was complying with federal regulations that govern forbearances.

Sallie Mae’s attorneys said the earlier suit, filed in California in 2005 and later transferred to Indiana, alleged similar fraudulent conduct.

In the D.C. Circuit, the question for the court is whether Leon should have assessed the extent to which the earlier suit against Sallie Mae met the federal rule of civil procedure that requires a complaint to state the circumstances of the fraud with particularity. An Indianapolis federal trial judge in March 2009 dismissed the complaint.

‘SAME FRAUDULENT SCHEME’

In dismissing Batiste’s suit, Leon said the facts of the two cases don’t need to be identical. Rather, the law in the D.C. Circuit is whether the two suits present the same material elements. Leon said he focused not only on the facts but also on the type of wrongdoing alleged.

“In so doing, the test prevents the less vigilant whistle-blower from using insignificant factual variations to allege what is essentially the same fraudulent scheme already made known to the government by an earlier whistle-blower,” Leon wrote in the opinion dismissing the suit in September 2010.

An attorney for Batiste, Timothy Matu­sheski, a solo practitioner in Hattiesburg, Miss., who specializes in whistleblower cases, contends that the earlier suit against Sallie Mae was “factually, legally, temporally and substantively different.” Federal law, Batiste’s attorneys said, forbids a second suit only if it is a related action and based on the same essential facts.

Batiste worked in Sallie Mae’s Mount Laurel, N.J., office as a debt collector from 2004 until April 2006. He alleged that he was directed to grant forbearances without evaluating whether the borrower had any intention of repaying the loan.

The plaintiff in the other suit, Michael Zahara, worked in the Nevada office of Student Assistance Corp., whose parent company is Sallie Mae.

“If Batiste and Zahara allege different conduct that occurred in different offices within different companies over 1,000 miles from one another, how can it be that both complaints are based on the same essential facts?” said Batiste’s attorneys, who also include Tracy Rezvani, a partner at Washington’s Finkelstein Thompson.

DOJ Civil Division lawyer Catherine Hancock, who plans to argue for the government, said in court papers that the D.C. Circuit should follow an earlier appeals court decision to find that Batiste’s suit should be allowed to continue. (DOJ took no position on the merits of Batiste’s complaint.)

The 6th Circuit held in 2005 that a whistleblower complaint must satisfy the rule of civil procedure that requires a person to state with particularity the circumstances constituting the alleged fraud. Allowing a deficient complaint to block a later-filed suit, DOJ lawyers said, would discourage other whistleblowers from pitching their claims about potential fraud.

Robert Vogel of Washington’s Vogel, Slade & Goldstein, a specialist in the False Claims Act, said Sallie Mae is “arguing for a free pass for all time on the basis the first complaint did not have enough detail, and that is wrong.”

Vogel, who is not involved in Batiste’s case, said a D.C. Circuit decision upholding Leon’s ruling could reduce the number of whistleblower suits. “Why would I tell my client to jeopardize his career to bring a complaint that will be barred?” Vogel said.

Mike Scarcella can be contacted at mscarcella@alm.com.