Recent Qui Tam/FCA Articles from Around the Web

Dear Readers:

I apologize for my absence the last few weeks. I am happy to be back writing articles. I have recently come across several blogs and bloggers who have written about a number of interesting qui tam and False Claims Act ("FCA") cases:

• Generic drug maker filing a qui tam against a competitor in part based on the competitor’s fraudulent patent drug application.

Berger & Montague’s blog, “Latest Court Ruling Allows Groundbreaking Qui Tam Lawsuit Between Pharmaceutical Rivals to Proceed,” highlights an interesting qui tam filed by the generic drug manufacturer Amphastar against its competitor, Aventis Pharma. The qui tam alleges that Aventis fraudulently procured a patent on its drug, Lovenox, and that as a result of the false patent, Aventis overcharged Medicare and Medicaid for that drug. The Court has recently denied Aventis' Motion to Dismiss Amphastar’s Amended Complaint. See Pharmaceuticals v. Aventis Pharma, U.S.District Court, C.D. CA., EDCV-09-0023 MJG.

• In an insurance coverage dispute over a qui tam settlement, the billing practices of a medical management services organization were not subject to coverage because they were not professional services covered by the professional liability policy.

Wiley Rein recently wrote about an interesting case, MSO Washington, Inc. v. RSUI Group, Inc., 2013 WL 1914482 (W.D. Wash.), which addressed insurance coverage for a qui tam settlement: “False Claims Act Qui Tam Action Over Billing Practices Does Not Involve Professional Services; Claim Is Barred by Fraud Exclusion.” In this case, the Court granted summary judgment against the insured, a medical management services organization, who sought coverage and a finding of bad faith against its insurer for failing to reimburse it for the qui tam settlement that it paid that related to the billing practices. The Court did not find coverage because “billing claims under the [False Claims Act] does not qualify as a professional service.” Additionally, the Court found that claims arising under the False Claims Act did not fall within the scope of the policy’s coverage for a “negligent act, error or omission” because a FCA claim must involve a “knowing presentation of what is known to be false.” The article includes a link to the Court’s decision.

• Court dismisses False Claims Act Suit Related to Alleged Mortgage Fraud by Bank of America and Countrywide Financial.

Vinson & Elkins ("V&E") has a interesting article, "Court Forecloses Government’s Attempt to Use False Claims Act to Combat Mortgage Fraud," discussing the ruling by U.S. District Court Judge Jed Rakoff dismissing the False Claims Act claims brought in a qui tam in which the U.S. Attorney for the Southern District of New York has intervened. The case is U.S. ex rel O’Donnell v. Bank of America Corporation successor to Countrywide Financial Corp., 12-cv-1422, U.S. District Court, Southern District of New York. In this case, the government alleged that Countrywide used a “streamlined” loan origination model to increase the speed in which it originated and sold loans and that the use of that model resulted in “rampant instances of fraud and other serious loan defects.”  Many of those fraudulent loans, the government claims, were sold to Freddie Mac and Fannie Mae. As V&E points out, the government’s FCA claims were a stretch because the provision of the FCA under which it was proceeding was passed in 2009, after most of the loans at issue.  At the same time, the Court permitted the government to pursue its claims brought pursuant to the Financial Institutions Reform Recovery Enforcement Act (“FIRREA”). The Court has informed the parties that it will soon issue a detailed opinion in support of its ruling.

A. Brian Albritton
May 27, 2013 

Wells Fargo Strikes Out: Court Denies Motion to Enforce Consent Judgment to Stop SDNY False Claims Act Case

In November 2012, I wrote about the False Clams Act suit brought by the U.S Attorney for the Southern District of New York (SDNY) against Wells Fargo Bank, N.A. The SDNY case alleged that while participating in the Federal Housing Administration (FHA) Direct Endorsement Lender Program, Wells Fargo falsely certified thousands of loans to be eligible for FHA insurance and that as a result of Wells Fargo’s false certifications, the FHA paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.  U.S. v. Wells Fargo Bank N.A.,12-cv-7527, U.S. District Court, Southern District of New York

In April 2012 Wells Fargo previously settled with the U.S. Department of Justice (DOJ) and 49 states who together had sued Wells Fargo and other banks in D.C. District Court alleging that these banks engaged in abusive foreclosure practices. In settling that matter, Wells Fargo paid $5 billion and obtained a broad written release as part of a Consent judgement. When the SDNY filed suit against Wells Fargo in November 2012, the Company moved to enforce the Consent Judgment and release contained therein to "preclude" the SDNY from bringing its False Claims Act suit against Wells Fargo.

Yesterday, the D.C. District Court denied Wells Fargo's motion in an opinion found here:
United States et al., v. Wells Fargo et al., Civ. No. 12-361 (D.C. 2/12/13). While it brushed aside the DOJ's arguments that the Court lacked jurisdiction or that the abstention doctrine barred any injunction sought by Wells Fargo, the Court found that by its very terms the release did not stop the SDNY suit. Essentially, the Court found that the Consent Judgement released False Claims Act and FIRREA claims where the "sole basis" for such claims is that [Wells Fargo] submitted to HUD-FHA a false or fraudulent annual certification that the mortgagee had conformed to all HUD-FHA regulations necessary to maintain its HUD-FHA approval. Annual certifications, the Court observed, dealt with Wells Fargo's "company wide compliance." The Consent Judgment release also covered false individual loan certifications by Wells Fargo for HUD mortgage insurance but only if the individual loan did not contain a material violation of HUD-FHA requirements.  In short, the release precluded the DOJ from seeking to bring False Claims Act claims against Wells Fargo for claims based solely on false or fraudulent annual certifications --for individual loans, however, that was another matter and the release did not cover this retail type fraud.

Having interpreted the scope of the release, the Court refused to preclude or enjoin the SDNY case but it left open the question of whether the release could still be applied to portions of the SDNY case, observing that it "leaves the interpretation of the SDNY Amended Complaint to the court that has jurisdiction over it."

A. Brian Albritton
February 13, 2013

Wells Fargo Seeks to Enforce Forclosure Settlement and Stop Government False Claims Act Suit

In October of this year, the U.S. Attorney for the Southern District of New York (SDNY) sued Wells Fargo Bank, N.A. pursuant to the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the suit, the government alleged that for 10 years while participating in the Federal Housing Administration (“FHA”) Direct Endorsement Lender Program, Wells Fargo falsely certified thousands of loans to be eligible for FHA insurance and that as a result of Wells Fargo’s false certifications, “FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.” Specifically, the suit alleges that “between May 2001 and October 2005 . . . . . although Wells Fargo certified to Housing and Urban Development (HUD) that its retail FHA loans met HUD’s requirements for proper origination and underwriting, and were therefore eligible for FHA insurance, the bank knew that a very substantial percentage of those loans – nearly half in certain months – had not been properly underwritten, contained unacceptable risk, did not meet HUD’s requirements, and were ineligible for FHA insurance.  . . . . . The extremely poor quality of Wells Fargo loans was a function of management’s nearly singular focus on increasing the volume of FHA originations – and the bank’s profits – rather than on the quality of the loans being originated." According to the Complaint, the bank further compounded its misconduct by failing to comply with HUD self reporting requirements and reporting only 300 of the 6,558 “seriously deficient loans that it was required to report.” The case is U.S. v. Wells Fargo Bank N.A.,12-cv-7527, U.S. District Court, Southern District of New York, and a copy of the complaint is found here.

In an interesting twist just last week, Wells Fargo sought to forestall the SDNY’s False Claims Act case by filing a Motion to Enforce Consent Judgment in a case previously brought by the Department of Justice and 49 attorneys general against Wells Fargo and other banks alleging abusive foreclosure practices. That case was settled in April of this year, and Wells Fargo reported that it “committed over $5 billion and, in exchange, obtained a broad written release which the court entered as part of its Consent Judgment. According to Wells Fargo, the release provided, among other things, that the government “cannot bring a claim against Wells Fargo based on conduct covered by Wells Fargo’s annual certifications to HUD regarding its FHA program participation, such as conduct related to Wells Fargo’s quality control (including self-reporting), underwriting, and due diligence programs,” which would include the conduct at issue in the New York case. The Motion argues that the government violated the terms of its settlement by filing the False Claims Act suit against it. Wells Fargo filed its Motion in U.S. v. Bank of America Corp., et al., 12- cv-00361 (U.S. District Court, District of Columbia). A copy of the motion and memorandum authored in part by Douglas Baruch of Fried, Frank are found here and here.

 

A. Brian Albritton

November 13, 2012

Largest False Claims Act Settlement Relating to Mortgage Fraud: Bank of America

The $25 billion settlement reached announced today between the federal government and state attorneys general with the five largest mortgage service companies (Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC)) also included a $1 billion False Claims Act settlement.  Specifically, Bank of America and various Counrywide entities agreed to pay $1 billion to resolve a separate investigation relating to the whether these entities "knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers" which, in turn, caused the FHA to incur "hundreds of millions of dollars in damages as a result of this conduct."   Additionally, the False Claims Act investigation also encompassed "allegations that the bank and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals."   That investigation was conducted by the U.S. Attorney’s Office for the Eastern District of New York, with the Civil Division’s Commercial Litigation Branch of the Department of Justice, HUD and HUD-OIG. The U.S. Attorney for the Eastern District of New York, Loretta Lynch, announced that it was "the largest ever False Claims Act settlement relating to mortgage fraud."

US Attorney Intervenes in Whistleblower Suit Against Allied Home Mortgage

Ever since the financial meltdown and the crash of real estate, the U.S. Department of Justice (DOJ) has been looking to bring big mortgage fraud cases, both civil and criminal, against banks and other lending institutions. Assistant Attorneys General Breuer of the Criminal Division and West of the Civil Division identified mortgage fraud as a top priority.

There have been lots of mortgage fraud prosecutions:  a few big ones such as against the mortgage firm Taylor Bean & Whitaker, and lots of smaller ones against individuals and small companies such as in the Middle District of Florida's Mortgage Fraud Surge.  But, I have not heard of a large civil fraud case against a big lender until now.  This week the U.S. Attorney for the Southern District of New York filed an amended complaint against Allied Home Mortgage and two of its executives:  US ex rel Belli v. Allied Home Mortgage Capital Corp. The government alleges that the defendants' fraudulent mortgage lending practices led to huge default rates and over $800 million in losses that the FHA, the government insurer of the loans, had to cover.

I bring the matter up here because the case against Allied started as a qui tam brought by an Allied branch manager from Massachusetts, Peter Belli, who filed the initial case under seal. See ProPublica article.  The case involves claims pursuant to the False Claims Act and also provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (codified in Title 12 and 15 and better known as "FIRREA").

FIRREA contains a whistleblower provision, 12 U.S.C. §§ 4201-4212, though few people seem to know about it --which is understandable as it is hard to find and almost never cited.  The Act was codified over two different statutory titles and almost all the cites I have seen to it reference only the public law citation and not the United States Code.  I did find it . . . on another blog of course.  The Whistleblower Qui Tam Law Blog has a short section explaining the provisions of the FIRREA whistleblower provisions and the rewards that relators can obtain under that Act.