SCOTUS Revives Qui Tam Actions

Until this decision I had assumed that Qui Tam actions were essentially dead in relation to the mortgage meltdown. Now I don’t think so.

The question presented is whether actions brought by a private person acting as a relator on behalf of a government entity can bring claims for damages under the False Claims Act. Such actions are barred by the statute of limitations, which requires a violation to be brought within six years of the violation or three years “after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances.”[3] 

In a unanimous decision the Court held that the tolling period applies to private relator actions. This does not by any stretch of the imagination create a slam dunk. Relators must have special knowledge of the false claim and the damage caused to the government. It will still be necessary to argue in an uphill battle that the true facts of the securitization scheme are only now unfolding as more evidence appears that the parties claiming foreclosure are neither seeking nor receiving the benefit of sale proceeds on foreclosed property.

Some claims might relate back to the origination of mortgages and some relate to the trading of paper creating the illusion of ownership of loans. Still others may relate to the effect on local and State government (as long as the Federal government was involved in covering their expenses) in the bailout presumably for losses incurred as a result of default on mortgage loans in which there was no loss to the party who received the bailout, nor did such bailout proceeds ever find the investors who actually funded the origination or acquisition of loans.

And remember that a relator needs to prove special knowledge that is arguably unique. The statute was meant to cover whistleblowers from within an agency or commercial enterprise but is broader than that. The courts tend to restrict the use of Qui Tam actions when brought by a relator who is not an “insider.”

See https://www.natlawreview.com/article/supreme-court-recognizes-longer-statute-limitations-qui-tam-plaintiffs-false-claims

See Review of False Claims Act 18-315_1b8e

See Cochise Consultancy, Inc. v. United States ex rel. Hunt

I also find some relevance in the decision penned by J. Thomas writing for the court as it applies to TILA Rescission, FDCPA claims, RESPA claims and other claims based upon statute:

Because a single use of a statutory phrase generally must have a fixed meaning, see Ratzlaf v. United States, 510 U. S. 135, 143, interpretations that would “attribute different meanings to the same phrase” should be avoided, Reno v. Bossier Parish School Bd., 528 U. S. 320, 329. Here, the clear text of the statute controls. Cochise’s reliance on Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 545 U. S. 409, is misplaced. Nothing in Graham County supports giving the phrase “civil action under section 3730” in §3731(b) two different meanings depending on whether the Government intervenes. While the Graham County Court sought “a construction that avoids . . . counterintuitive results,” there the text “admit of two plausible interpretations.” Id., at 421, 419, n. 2. Here, Cochise points to no other plausible interpretation of the text, so the “ ‘judicial inquiry is complete.’ ” Barnhart v. Sigmon Coal Co., 534 U. S. 438, 462. Pp. 4–8. (e.s.)

Point of reference:

I still believe that local governments are using up their time or might be time barred on a legitimate claim that was never pursued — that the trading of loans and certificates were transactions relating to property interests within the State or County and that income or revenue was due to the government and was never paid. A levy of the amount due followed by a lien and then followed by a foreclosure on the mortgages would likely result in either revenue to the government or government ownership of the mortgages which could be subject to negotiations with the homeowners wherein the principal balance is vastly reduced and the government receives all of the revenue to which it is entitled. This produces both a fiscal stimulus to the State economy and much needed revenue to the state at a cost of virtually zero.

In Arizona, where this strategy was first explored it was determined by state finance officials in coordination with the relevant chairpersons of select committees in the State House and Senate and the governor’s office that the entire state deficit of $3 Billion could have been covered. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy.

I alone developed the idea and introduced it a the request of the then chairman of the House Judiciary committee. We worked hard on it for 6 months. Intervention by political figures who answered to the banks intervened and thus prevented the deployment of this strategy. It still might work.

See also

http://www.mondaq.com/unitedstates/x/809786/White+Collar+Crime+Fraud/False+Claims+Act+Statute+of+Limitations+Relators+Now+Get+Up+to+10+Years+to+File+Suit

The Court also held that the relator’s knowledge does not trigger the limitations period. The statute refers to knowledge of “the official of the United States charged with responsibility to act in the circumstances[.]” Had the Court interpreted this provision to include relators, fears of protracted tolling by relators would largely dissipate because the qui tam action would have to be filed within three years of the relator’s knowledge or six-years of the violation, whichever is later. The Court rejected this approach, finding the express reference to “the” government official excludes private citizen relators. The Court held it is the government’s knowledge that triggers the limitations period.

The Court, however, left unanswered the question of which government official’s knowledge triggers the limitations period. The government argued in its briefs and at oral argument that such official is the Attorney General or delegate. As we have noted in prior posts (see Holland & Knight’s Government Contracts Blog, “ Self-Disclosure and the FCA Statute of Limitations: Cochise Consultancy, Inc. v. United States v. ex. rel. Billy Joe Hunt,” March 27, 2019), there is a broader question as to whether knowledge by governmental actors outside of DOJ, including knowledge trigged by self-disclosure, should start the limitations period. The Court did not rule on this question, though its decision hints at an interpretation that includes only the Attorney General. If true, DOJ becomes the sole repository for disclosures that trigger the limitations period. That is, unless defendants can argue that DOJ “should have known” of the violation when investigative bodies such as the Office of Inspector General or the FBI have actual knowledge of the violation … more on this latter issue is sure to come.

CHASE FALSE CLAIMS COMPLAINT REVEALED IN INVESTOR LAWSUIT

This lawsuit reveals a reason for Chase slipping in a new servicer into the chain. Having already discharged or released a loan, the “accounts” were nonetheless transferred or sold in derogation of the rights of investors who had already purchased them from Chase.

Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified).

Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified)

numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”).

UNITED STATES OF AMERICA, THE
STATES OF CALIFORNIA,
DELAWARE, FLORIDA, GEORGIA,
HAWAII, ILLINOIS, INDIANA, IOWA,
MASSACHUSETTS, MINNESOTA,
MONTANA, NEVADA, NEW
HAMPSHIRE, NEW JERSEY, NEW
MEXICO, NEW YORK, NORTH
CAROLINA, RHODE ISLAND,
TENNESSEE, VIRGINIA, AND THE
DISTRICT OF COLUMBIA.,

Plaintiffs,

Ex rel. LAURENCE SCHNEIDER,
Plaintiff-Relator,

v.

J.P. MORGAN CHASE BANK,
NATIONAL ASSOCIATION, J.P.
MORGAN CHASE & COMPANY; AND
CHASE HOME FINANCE LLC,
Defendants.

Case. No. 1:14-cv-01047-RMC

Judge Rosemary M. Collyer

SECOND AMENDED COMPLAINT

<excerpt>

I. INTRODUCTION

A. Defendant’s Fraud

3. Defendant Chase’s fraud arises out of its response to efforts by the United States Government (“Government” or “Federal Government”) and the States (the “States”)1 to remedy the misconduct of Chase and other financial institutions whose actions significantly contributed
to the consumer housing crisis.

4. Defendant’s misconduct resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members’ and other homeowners’ rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds.

Each of the allegations regarding Defendant contained herein applies to instances in which one or more, and in some cases all, of the defendants engaged in the conduct alleged.

5. In March 2012, after a lengthy investigation (in part due to other qui tam
plaintiffs) under the Federal False Claims Act, the Government, along with the States, filed a complaint against Chase and the other banks responsible for the fraudulent and unfair mortgage practices that cost consumers, the Federal Government, and the States tens of billions of dollars. Specifically, the Government alleged that Chase, as well as other financial institutions, engaged in improper practices related to mortgage origination, mortgage servicing, and foreclosures, including, but not limited to, irresponsible and inadequate oversight of the banks’ quality control standards.

6. These improper practices had previously been the focus of several administrative enforcement actions by various government agencies, including but not limited to, the Office of the Controller of the Currency, the Federal Reserve Bank and others. Those enforcement actions
resulted in various other Consent Orders that are still in full force and effect.

7. In April 2012, the United States District Court for the District of Columbia approved a settlement between the Federal Government, the States, the Defendant and four other banks, which resulted in the NMSA. The operative document of this agreement was the Consent Judgment (“Consent Judgment” or “Agreement”). The Consent Judgment contains, among other things, Consumer Relief provisions. The Consumer Relief provisions required Chase to provide over $4 billion in consumer relief to their borrowers. This relief was to be in the form of, among other things, loan forgiveness and refinancing. Under the Consent Judgment, Chase received “credits” towards its Consumer Relief obligations by forgiving or modifying loans it maintained as a result of complying with the procedures and requirements contained in Exhibits D and D-1 of the Consent Judgment.

8. The Consent Judgment also contains Servicing Standards in Exhibit A that were intended to be used as a basis for granting Consumer Relief. The Servicing Standards were tested through various established “Metrics” and were designed to improve upon the lack of quality control and communication with borrowers. Compliance was overseen by an
independent Monitor.

9. The operational framework for the Servicing Standards and Consumer Relief requirements of the NMSA was based on a series of Treasury Directives that were themselves designed as part of the Making Home Affordable (MHA) program. The MHA program was a critical part of the Government’s broad strategy to help homeowners avoid foreclosure, stabilize the country’s housing market, and improve the nation’s economy by setting uniform and industry-wide default servicing protocols, policies and procedures for the distribution of federal and proprietary loan modification programs.

10. Before the Consent Judgment was entered into, Chase sold a significant amount of its mortgage obligations to individual investors. Between 2006 and 2010, the Relator bought the rights to thousands of mortgages owned and serviced by Chase. Unbeknownst to the Relator, these mortgages were saturated with violations of past and present regulations, statutes and other governmental requirements for first and second federally related home mortgage loans.

11. After both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 2nd lien mortgages had been sold by Chase to the Relator, received debt-forgiveness letters from Chase that were purportedly sent pursuant to the Consent Judgment.

12. Relator, through his contacts at Chase, was made aware that 33,456 letters were sent by Chase on September 13, 2012 to second-lien borrowers. On December 13, 2012 another approximately 10,000 letters were sent, and on January 31, 2013 another approximately 8,000 letters were sent, for a total of over 50,000 debt-forgiveness letters. These letters represented to the recipient borrowers that, pursuant to the terms of the NMSA, the borrowers were discharged from their obligations to make further payments on their mortgages, which Chase stated, it had
forgiven as a “result of a recent mortgage servicing settlement reached with the states and federal government.” None of these borrowers made an application for a loan modification as required by the Consent Judgment. These letters were not individually reviewed by Chase to ensure that Chase actually owned the mortgages or to ensure the accuracy and integrity of the borrower’s information but instead were “robo-signed”; each of the letters sent out was signed by “Patrick
Boyle” who identified himself as a Vice President at Chase.

13. Relator’s experience with Chase’s baseless debt-forgiveness letters was not unique. Several other investors were also affected by Chase choosing to mass mail the “robo-signed” debt-forgiveness letters to thousands of consumers from its system of records in order to earn credits under the terms of the Consent Judgment and to avoid detection of its illegal and
discriminatory loan servicing policies and procedures.

14. In addition to the debt forgiveness letters sent, and after both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

15. Relator, through his third party servicer, which was handling normal and customary default mortgage servicing activities, was made aware that several lien releases were filed in the public records on mortgage loans that were owned by Relator in the fall of 2013. Through Relator’s subsequent investigation of the property records for 1st mortgage loans that Chase had previously sold to Relator, scores of additional lien releases were also discovered.

16. During the course of Relator’s investigation of Chase’s servicing practices, he discovered that Chase maintains a large set of loans outside of its primary System of Records (“SOR”), which is known as the Recovery One population (“RCV1” or “RCV1 SOR”). RCV1 was described to the Monitor by Chase as an “application” for loans that had been charged off
but still part of its main SOR. However, once loans had been charged off by Chase, the accuracy and integrity of the information pertaining to the borrowers’ accounts whose loans became part of the RCV1 population was and is fatally and irreparably flawed. Furthermore, the loans in the
RCV1 were not serviced according to the requirements of Federal law, the Consent Judgment, the MHA programs or any of the other consent orders or settlements reached by Chase with any government agency prior to the NMSA.2

17. Chase’s practice of sending unsolicited debt-forgiveness letters to intentionally pre-selected borrowers of valueless loans did not meet the Servicing Standards set out in the Consent Judgment to establish eligibility for credits toward its Consumer Relief obligations. This practice enabled Chase to reduce its cost of complying with the Consent Judgment and MHA program, while at the same time enhancing its own profits through unearned Consumer Relief credits and MHA incentives. Chase sought to take credit for valueless charged-off and third-party owned loans instead of applying the Consumer Relief under the NMSA and MHA2 By letter dated September 16, 2015 to Schneider’s counsel, in reference to Relator’s claim that “Chase concealed from the Monitor and MHA-C both the existence of the RCV1 charged-off and the way those loans were treated for purposes of HAMP solicitations and NMS metrics
testing”, Chase’s counsel stated that “Those allegations are wholly incorrect. Chase repeatedly disclosed the relevant facts to both the Monitor and MHA-C.”

Schneider’s counsel requested that Chase provide all documents demonstrating the “relevant facts” to support Chase’s statement. Chase has refused to provide said documents, citing Chase‘s concerns with providing documents that it had previously provided to the U.S.
Government. While Chase has offered to allow Chase’s counsel to read such documents “verbatim” to Schneider’s counsel, Schneider knows of no supportable reason why documents previously disclosed to the U.S. Government should not be shared with Schneider in his capacity
as a Relator under the FCA. No privilege exists for such a claim and therefore Schneider has rejected this limitation. Such documents, if they in fact exist, should be produced before such a defense can be raised, particularly because Chase’s counsel has raised the issue of Rule 11
responsibilities.

18. The Servicing Standards and the Consumer Relief Requirements of the Consent Judgment are set forth in Exhibits A and D of that document. The Consent Judgment is governed by the underlying Servicer Participation Agreements of the MHA program, which required mandatory compliance with the Treasury Directives under the MHA Handbook (“Handbook”). Chase is required to demonstrate compliance with the Handbook’s guidelines in the form of periodic certifications to the government. Chase ignored the requirements of Exhibits A and D of the Consent Judgment, especially with respect to the RCV1 population of loans. Therefore, Chase has been unable to service with any accuracy the charged-off loans it
owns and to segregate those loans that it no longer owns. As such, any certifications of compliance with the Consent Judgment or the Services Participation Agreement (“SPA”) are false claims.

19. Relator conducted his own investigations and found that the Defendants sent loan forgiveness letters to consumers for mortgages that Chase no longer owns or that were not eligible for forgiveness credit. Further, Chase continues to fail to meet its obligations to service
loans and to prevent blight as required by both the Consent Judgment and SPA. Chase’s intentional failure to monitor, report and/or service these loans, and its issuance of invalid loan forgiveness letters and lien releases, evidence an attempt to thwart the goal of the Consent Judgment and the MHA program. The purpose of this scheme was to quickly satisfy the
Defendant’s Consumer Relief obligations as cheaply as possible, without actually providing the relief that Chase promised in exchange for the settlement that Chase reached with the Federal Government and the States. In addition, Chase applied for and received MHA incentive
payments without complying with the MHA mandatory requirements. In short, Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

20. The mere existence of RCV1 makes all claims by Chase that it complied with the Servicing Standards and the Consumer Relief Requirements of the Consent Judgment false. Likewise, the existence of RCV1 makes all claims by Chase that it complied with the SPA of the MHA program false.

B. Damages to the Government Related to the NMSA

21. Exhibit E of the Consent Judgment provides for penalties of up to $5 million for failure to meet a prescribed Metric of the Servicing Standards. Exhibit E, ¶ J.3(b) at E15.

22. Exhibit D of the Consent Judgment provides:

If Servicer fails to meet the commitment set forth in these Consumer Relief Requirements within three years of the Servicer’s Start Date, Servicer shall pay an amount equal to 125% of the unmet commitment amount, except that if Servicer fails to meet the two year commitment noted above, and then fails to meet the three year commitment, the Servicer shall pay an amount equal to 140% of the unmet three-year Commitment amount.

Exhibit D, ¶10.d. at D-11.

23. The required payment set out in Exhibit D, ¶10.d is made either to the United States or the States that are parties to the Consent Judgment. Fifty percent of any payment is distributed to the United States. Consent Judgment, Exhibit E, ¶ J.c.(3)c. at E-16.

24. As explained in more detail below, Chase was required to certify that it was in compliance with the Servicing Standards and the Consumer Relief Requirements. Many, if not all, of the loans that Chase identified for credits against the $4 billion Consumer Relief provisions were not eligible for the credit, because Chase did not comply with the Servicing
Standards or the Consumer Relief Requirements. Specifically, all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified). Due to this omission none of the loan modification programs qualified for Consumer Relief Credit. Thus,
Chase did not and does not qualify for any of the Consumer Relief Credit for which it applied.

25. For these reasons, each of Chase’s certifications to the Federal Government of compliance represents a “reverse” false claim to avoid paying money to the Government.

26. Under the FCA a person is liable for penalties and damages who: [k]nowingly makes, uses, or causes to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(1)(G).

27. Under the FCA, “the term ‘obligation’ means an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3).

28. Thus, under the FCA, Chase is liable for its false claims whether or not the government fixed the amount of the obligation owed by Chase.

29. Under the FCA, “the term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” U.S.C. § 3729(b)(3).

30. Under the “natural tendency” test Chase is liable for its false statements so long as they reasonably could have influenced the government’s payment or collection of money. A statement is false if it is capable of influencing the government’s funding decision, not whether it
actually influenced the government.

31. Each of Chase’s false certifications is actionable under 31 U.S.C. §
3729(a)(1)(G), because they represent a false record or statement that concealed, avoided or decreased an obligation to transmit money to the Government.

32. The Federal Government and the States agreed to the NMSA with Chase, with the understanding that Chase would meet its obligations under the Consent Judgment.

33. As set out in the Consumer Relief Requirements, the measure of the Federal and State Governments’ damages is up to 140 percent of the credits that Chase falsely claimed met the requirements of the Consent Judgment and up to $5 million for each Metric the Chase failed
to meet.

34. These damages are recoverable under the Federal Civil False Claims Act, 31 U.S.C. § 3729 et seq. (the “FCA”), and similar provisions of the State False Claims Acts of the States of California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina,
Rhode Island, Tennessee, the Commonwealths of Massachusetts and Virginia, and the District of Columbia.

35. The Federal Government and the States are now harmed because they are not receiving the benefit of the bargain for which they negotiated with Chase due to the false claims for credit that have been made by the Defendant.

C. Damages to the Government Related to the HAMP

36. The Amended and Restated Commitment to Purchase Financial Instrument and Servicer Participation Agreement between the United States Government and Chase provided for the implementation of loan modification and foreclosure prevention services (“HAMP
Services”).

37. The value of Chase’s SPA was limited to $4,532,750,000 (“Program Participation Cap”).

38. The value of EMC Mortgage Corporation’s (“EMC”) SPA (Chase is successor in interest) was limited to $1,237,510,000.

39. As explained in more detail below, Chase must certify that it is in compliance with the SPA and the MHA program and must strictly adhere to the guidelines and procedures issued by the Treasury with respect to the programs outlined in the Service Schedules (“Program Guidelines”). The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”). None of the loans that Chase and EMC identified and submitted for payment against their respective Participation Caps were eligible for the incentive payment, because neither Chase nor EMC complied with the SPA and Handbook guidelines. Specifically, all loan modification programs must be made available to all borrowers, who must then apply to determine eligibility. Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified). Due to the omission of the RCV1 population for any loss mitigation options, none of the modifications that Chase provided qualified for HAMP incentives. Thus, Chase does not qualify for any of the
HAMP incentives for which it applied and received funds.
40. Therefore, Chase’s certifications of compliance and its creation of records to support those certifications represent both the knowing presentation of false or fraudulent claims for a payment and the knowing use of false records material to false or fraudulent claims.

41. Under the FCA, a person is liable for penalties and damages who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; 31 U.S.C. § 3729(a)(1)(A)
and
(B) knowingly makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim. 31 U.S.C. § 3729(a)(1)(G).

42. Each of Chase’s false certifications is actionable under either 31 U.S.C. §3729(a)(1)(A) and (B), because they represent a false or fraudulent claim for payment or approval of a false record or statement material to a false or fraudulent claim.
43. Under HAMP, the Federal Government entered into the Commitment with Chase, with the understanding that Chase would meet its obligations under the SPA and related Treasury directives. The Federal Government is now harmed because it is not receiving the benefit of the bargain for which it negotiated with Chase due to the false claims for payment that have been made by the Defendant.

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