Schneider v. Jp Morgan Chase Bank, National Association

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
__________________________________
)
United States of America, et al., )
ex rel. LAURENCE SCHNEIDER, )
)
Plaintiffs, )
)
v. ) Civil Action No. 14-1047 (RMC)
)
J.P. MORGAN CHASE BANK, N.A., )
)
Defendant. )
_________________________________ )
OPINION
Pursuant to the Federal False Claims Act and similar State laws, Relator Laurence
Schneider asserts that J.P. Morgan Chase Bank, N.A. (Chase) submitted false claims relating to
the National Mortgage Settlement and false claims relating to the Home Affordable Modification
Program (HAMP) to decrease its liability to the Federal Government. However, the National
Mortgage Settlement claims are barred because Mr. Schneider failed to engage in the alternative
dispute resolution process mandated by the Settlement on which the claims are based. Mr.
Schneider also fails to state a claim that Defendant falsely certified HAMP compliance because
he does not allege, with factual allegations in support, that the certifications were materially
false. The Complaint will be dismissed.
I. FACTS
A. Background
Following the burst of the housing bubble in 2008, the Federal Government began
to institute measures designed to stabilize the housing and credit markets. Those measures
included the Troubled Asset Relief Program (TARP) and the Making Home Affordable Program,
both programs in the Department of the Treasury. See U.S. Department of the Treasury, TARP
1
Programs (Nov. 15, 2016), https://www.treasury.gov/initiatives/financial-stability/TARP-
Programs/Pages/default.aspx; U.S. Department of the Treasury, Making Home Affordable (July
22, 2012), https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/
mha/Pages/hamp.aspx. The Making Home Affordable Program included the Home Affordable
Modification Program (HAMP), which used funds from TARP as incentives for banks to modify
first-lien mortgages so that homeowners could lower their mortgage payments. HAMP
continues to this day; its goal is to encourage modification of loans that are at risk of default and
make them more affordable.
In March 2012, the Federal Government, 49 States, and the District of Columbia
filed complaint in the United States District Court for the District of Columbia against
“numerous banks and loan servicing companies, including Chase, for misconduct related to their
origination and servicing of single family residential mortgages.”1 Second Am. Compl. [Dkt.
102] (SAC) ¶ 56. Other defendant banks included Bank of America Corporation; Countrywide
Bank, FSB; Citibank, N.A.; and Wells Fargo Bank, N.A. Prior to filing the National Mortgage
Complaint, its parties had negotiated a national settlement of its allegations, i.e., the National
Mortgage Settlement. On April 4, 2012, this Court entered consent judgments approving the
National Mortgage Settlement. See e.g., Consent Judgments, United States v. Bank of America
Corp., No. 12-361 (RMC) [Dkts. 10, 11, 12, 13, 14].
The National Mortgage Settlement was intended “to provide immediate relief to
enable struggling homeowners to avoid foreclosure; to bring badly needed reform to the
mortgage servicing industry; to ensure that foreclosures are lawfully conducted; and to penalize
1
The March 2012 complaint will be referenced herein as the “National Mortgage Complaint”
and the resulting settlement as the “National Mortgage Settlement.”
2
the banks for robo-signing misconduct.” SAC ¶ 63. The Court appointed Joseph A. Smith to
serve as Monitor of the Settlement and thereby to oversee implementation of the reforms of
mortgage loan servicing and evaluate compliance by the signatory banks. Exhibit A to the
National Mortgage Settlement was a list of Servicing Standards, which included the following
kinds of standards:
1. Standards for documents used in foreclosure and bankruptcy
proceedings;
2. Standards for qualifications, training and supervision of
employees;
3. Requirements for accuracy and verification of borrower’s
account information;
4. Standards to ensure documentation of note, holder status and
chain of assignment;
5. Loss mitigation requirements;
6. Requirements for an easily accessible and reliable single point
of contact for potentially-eligible first lien mortgage borrowers;
and
7. Restrictions on servicing fees.
See Consent Judgment, Ex. A, United States v. Bank of America Corp., et al., No. 12-361 (RMC)
[Dkt. 10-1]; see also SAC ¶ 74. The Servicing Standards were implemented through a work plan
for each signatory bank. Compliance was ascertained by the Monitor using “29 Metrics to test
the application and performance of the required Servicing Standards.” SAC ¶ 88. “[T]he
Monitor, through the chain of process, relied on the IRG’s [Internal Review Group’s] testing of
the metrics pursuant to the terms of the Consent Judgment to determine the Defendant’s
compliance with the Consent Judgment.” Id. ¶ 96. At the end of each quarter, Monitor Smith
submitted a report to the Court indicating “(i) the Metrics for that Quarter; (ii) Servicer’s
progress toward meeting its payment obligations under th[e] Consent Judgment; [and] (iii)
3
general statistical data on Servicer’s overall servicing performance.” Consent Judgment, Ex. E,
United States v. Bank of America Corp., et al., No. 12-361 (RMC) [Dkt. 10-1] at E-9.2
In addition to the Servicing Standards, the National Mortgage Settlement required
each Defendant to provide a specific dollar amount in consumer relief, which totaled about $25
billion overall. Chase was required “to provide over $4 billion in consumer relief in the form of
loan forgiveness and refinancing.” SAC ¶ 97. Specifically, Chase was required to provide
“$3,675,400,000 of relief to consumers who me[t] the eligibility requirements in paragraphs 1-8
of Exhibit D” to the National Mortgage Settlement and “$537,000,000 of refinancing relief to
consumers who me[t] the requirements of paragraph 9 of Exhibit D.” Id. ¶ 101. Chase received
credits toward its consumer relief amount when it:
 Allowed borrowers to make First Lien and Second Lien
Modifications;
 Allowed borrowers to make Second Lien Portfolio
Modifications;
 Provided borrowers Enhanced Transitional Funds;
 Facilitated Short Sales for borrowers;
 Provided borrowers Deficiency Waivers;
 Provided Forbearance for Unemployed Borrowers; and
 Assisted in Anti-Blight efforts.
2
The participating state and federal agencies also “designate[d] an Administration and
Monitoring Committee,” which “serve[d] as the representative of the participating state and
federal agencies in the administration of all aspects of . . . [the] Consent Judgment and the
monitoring of compliance.” Consent Judgment, United States v. Bank of America Corp., et al.,
No. 12-361 (RMC) [Dkt. 10] ¶ 8. The responsibilities and authorities of Monitor Smith and the
Monitoring Committee were detailed in Exhibit E to the Consent Judgment. See Consent
Judgment, Ex. E.
4
See Consent Judgment, Ex. D, United States v. Bank of America Corp., et al., No. 12-361 (RMC)
[Dkt. 10-1] at D1-D7.
B. Relevant Terms of the National Mortgage Settlement
The National Mortgage Settlement also provided a process for notice and cure in
the event a bank failed to satisfy a Servicing Standard. If Monitor Smith determined that a bank
had exceeded the “negotiated threshold error rate assigned to [any] Metric,” he would notify that
bank and trigger a corrective procedure. United States v. Bank of America, 78 F. Supp. 3d 520,
528 (D.D.C. 2015); see also Consent Judgment, Ex. E at E-11-E-12. “The [bank] ha[d] a right to
cure a Potential Violation within a set cure period.” Id. If the bank cured the errors then “no
Party to the Consent Judgment can sue on the Potential Violation.” Id.
Parties and the Monitoring Committee were only permitted to “sue to enforce (a)
uncured Potential Violations of Servicing Standards covered by a Metric and (b) Servicing
Standards that are outside the Metric testing/Potential Violation process.” Id. at 532. Prior to
commencing any enforcement action arising out of the Consent Judgment a party was required to
“provide notice to the Monitoring Committee of its intent to bring an action” and allow the
Monitoring Committee 21 days to consider bringing the action itself. Consent Judgment, Ex. E
at E-15. If the Monitoring Committee declined to bring an enforcement action, the party was
obligated to wait an additional 21 days before filing suit. See id.
C. Home Affordable Modification Program (HAMP)
HAMP is a federally-funded foreclosure relief program operated by the
Department of the Treasury, which provides incentive payments to mortgage servicers3 in
3
A mortgage servicer receives mortgage payments from homeowners, maintains all records, and
enforces the obligations to pay, then forecloses on the home if need be. Mortgage servicers can
5
exchange for modifying eligible mortgage loans. Eligibility for modification is determined
through an application process, subject to some exceptions. Mortgage servicers participate in
HAMP through a Servicer Participation Agreement with the Federal National Mortgage
Association (Fannie Mae), Treasury’s designated financial agent for HAMP. Treasury also
provided guidance regarding HAMP through the Making Home Affordable Handbook (MHA
Handbook), which requires Servicers to solicit eligible borrowers for HAMP loan modification.
See MHA Handbook at 75-76 (version 5.1 May 26, 2016), available at
https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook
_51.pdf. The MHA Handbook provides exceptions to the solicitation requirement, including
when “the servicer has released the borrower from liability for the debt and provided a copy of
such release to the borrower,” id. at 69, or in active bankruptcy cases. See id. at 73.
Freddie Mac monitors compliance with HAMP through annual compliance
certificates from the Servicers. In the compliance certificates, each Servicer must report any
instances of noncompliance that had “a material effect on its ability to comply with . . . program
requirements.” Id. at 39.
D. Chase Bank’s Performance under the National Mortgage Settlement and
HAMP
Chase generally maintains records of the mortgage loans it services through an
electronic “System of Records.” However, loans considered uncollectable (usually because the
value of the property was much less than the outstanding loan) are put in the “Recovery One
population” (RCV1) and those records are maintained outside the primary System of Records.
RCV1 loans are those that Chase deems “valueless based on General Acceptable Accounting
include the originating bank which loaned the money and held the lien or the papers could be
sold to other banks or servicers.
6
Principles (GAAP) and other internal methods of bookkeeping.” SAC ¶ 174. When Chase
determines that a loan is valueless, it “charges off” the loan, i.e., enters it as a loss on the bank’s
books, and then transfers the loan from its System of Records to RCV1. Chase does not
foreclose on RCV1 loans because it would make no financial sense to foreclose on a valueless
loan; the cost to Chase of attempting foreclosure could never be regained since, by definition, the
residence is worth less than the loan. Both first and second lien mortgages may be transferred to
RCV1, as well as “mortgages that are subject to bankruptcies and post-foreclosure deficiencies.”
Id. ¶ 172. Once a loan is transferred to RCV1, its documentation often becomes “corrupted,
ignored or allowed to fall into disarray,” because it has no business value to Chase. Id.
Monitoring for compliance with the National Mortgage Settlement continued for
three years for the initial signatories. At that point, Monitor Smith determined that Chase had
provided $4.463 billion in consumer relief, thereby “satisf[ying] the minimum requirements and
obligations . . . imposed upon it under . . . the [National Mortgage Settlement] to provide
Consumer Relief.” Monitor’s Final Consumer Relief Report Regarding Defendant J.P. Morgan
Chase Bank, N.A., United States v. Bank of America Corp., et al., No. 12-361 (RMC) (March 18,
2014) [Dkt. 143] at 20-22, 25.
E. Relator’s Interest
Relator’s allegations arise from certain non-performing mortgage loans that were
serviced by Chase. Over 3,000 loans from Chase’s RCV1 files were sold to companies owned
by or affiliated with the Relator, including S&A Capital Partners, Inc., 1st Fidelity Loan
Servicing, LLC, and Mortgage Resolution Servicing, LLC. Chase later “charged off” or
canceled the amount owed on numerous loans owned by Relator’s entities. In return, Chase
received credit against the National Mortgage Settlement consumer relief amount it was required
to provide because it had released the borrower from liability for the debt.
7
II. LEGAL STANDARD
A. Motion to Dismiss
A motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6) challenges the adequacy of a complaint on its face. See Fed. R. Civ. P.
12(b)(6). To survive a motion to dismiss, a complaint must contain sufficient factual
information, accepted as true, to “state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
A court must assume the truth of all well-pleaded factual allegations and construe reasonable
inferences from those allegations in favor of the plaintiff. See Sissel v. Dep’t of Health &
Human Servs., 760 F.3d 1, 4 (D.C. Cir. 2014). A court need not accept inferences drawn by a
plaintiff if such inferences are not supported by the facts set out in the complaint. See Kowal v.
MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Further, a court does not need to
accept as true legal conclusions set forth in a complaint. See Iqbal, 556 U.S. at 678. In deciding
a motion under Rule 12(b)(6), a court may consider the facts alleged in the complaint, documents
attached to the complaint as exhibits or incorporated by reference, and matters about which the
court may take judicial notice. See Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C.
Cir. 2007). A court may take judicial notice of public records from other proceedings. See id. at
1059; Covad Commc’ns Co. v. Bell Atlantic Co., 407 F.3d 1220, 1222 (D.C. Cir. 2005)
(permitting judicial notice of facts contained in public records of other proceedings); Mintz v.
FDIC, 729 F. Supp. 2d 276, 277 (D.D.C. 2010) (judicial notice of statement contained in an SEC
filing).
B. False Claims Act (FCA), 31 U.S.C. § 3729 et seq.
The False Claims Act’s “chief purpose . . . is to prevent the commission of fraud
against the federal government and to provide for the restitution of money that was taken from
8
the federal government by fraudulent means.” United States ex rel. Purcell v. MWI Corp., 824 F.
Supp. 2d 12, 15-16 (D.D.C. 2011). The FCA imposes civil penalties for the submission of false
claims to the United States government. Private parties, called relators, can sue for violations of
the FCA in the name of the United States. See 31 U.S.C. § 3730(b)(1). Special procedures apply
in such cases, which are called qui tam actions—“short for the Latin phrase qui tam pro domino
rege quam pro se ipso in hac parte sequitur, which means ‘who pursues this action on our Lord
the King’s behalf as well as his own.’” Vt. Agency of Nat’l Res. v. United States ex rel. Stevens,
529 U.S. 765, 768 n.1 (2000). When a plaintiff-relator files an initial complaint, it is not
immediately served on the defendant, but is instead served on the United States along with
“written disclosure of substantially all material evidence and information the [plaintiff]
possesses.” 31 U.S.C. § 3730(b)(2). Thereafter, the case is stayed for a minimum of sixty days,
plus any extensions, while the United States determines whether it will intervene—that is,
whether it will “proceed with the action, in which case the action shall be conducted by the
Government; or . . . decline[ ] to take over the action, in which case the person bringing the
action shall have the right to conduct the action.” Id. § 3730(b)(4). If the government declines
to intervene, as happened here, the complaint is unsealed, and the plaintiff-relator may proceed
with the case. Even in cases in which the government has declined to intervene, the government
retains special rights atypical in traditional civil actions, such as the right to receive all pleadings,
intervene at any time for good cause, id. § 3730(c)(3), and petition the Court for a stay of
discovery, id. § 3730(c)(4).
C. Heightened Pleading Requirement for Fraud
Federal Rule of Civil Procedure 8 requires that every complaint include “a short
and plain statement of the claim showing that the pleader is entitled to relief” and that “[e]ach
9
allegation . . . be simple, concise, and direct.” Fed. R. Civ. P. 8(a)(2), (d)(1). “[B]ecause the
False Claims Act is self-evidently an anti-fraud statute, complaints brought under it must [also]
comply with Rule 9(b).” United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52
(D.C. Cir. 2002) (noting uniform approach of circuit courts to this issue). Rule 9(b) provides a
heightened pleading standard for a party alleging fraud or mistake, requiring any such party to
“state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P.
9(b).
The D.C. Circuit has noted that Rules 8 and 9(b) are not contrary and should be
read in conjunction:
[T]his means that the pleader must state the time, place and content
of the false misrepresentations, the fact misrepresented and what
was obtained or given up as a consequence of the fraud. The rule
serves to discourage the initiation of suits brought solely for their
nuisance value, and safeguards potential defendants from frivolous
accusations of moral turpitude. . . . And because “fraud”
encompasses a wide variety of activities, the requirements of Rule
9(b) guarantee all defendants sufficient information to allow for
preparation of a response.
United States ex rel. Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981) (internal quotation
marks and citations omitted); see also United States ex rel. Williams v. Martin-Baker Aircraft
Co., 389 F.3d 1251, 1256 (D.C. Cir. 2004); McQueen v. Woodstream Corp., 248 F.R.D. 73, 77
(D.D.C. 2008) (“Rule 9(b) simply requires the pleader to provide a higher degree of notice by
adequately alleging all of the requisite elements for the cause of action invoked.”). Rule 9(b) is
satisfied when the pleader “provide[s] the ‘who, what, when, where, and how’ with respect to the
circumstances of the fraud.” Anderson v. USAA Cas. Ins. Co., 221 F.R.D. 250, 253 (D.D.C.
2004).
10
Pleading on “information and belief” for claims subject to the strictures of Rule
9(b) is permitted when essential information lies uniquely within another party’s control. Kowal,
16 F.3d at 1279 n.3 (citing Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 646 (3d Cir. 1989)).
To plead on information and belief, however, the plaintiff must allege “that the necessary
information lies within the defendant’s control” and include “a statement of the facts upon which
the allegations are based.” Id.; see also Anderson, 221 F.R.D. at 253.
D. Procedural History
On May 6, 2013, Mr. Schneider filed his initial Complaint as Relator under the
False Claims Act, see 31 U.S.C. § 3730(b)(1), in the United States District Court for the District
of South Carolina. See Compl. [Dkt. 1]. The Federal Government declined to intervene on
January 13, 2014. See Notice [Dkt. 24]. The case was transferred to this Court on June 19,
2014. See Transfer Order [Dkt. 58]. Relator filed his First Amended Complaint on November
17, 2014. See FAC [Dkt. 80]. On August 31, 2015, the Federal Government again declined to
intervene. See FAC Notice [Dkt. 96]. Relator filed a Second Amended Complaint on October 2,
2015. See SAC [Dkt. 102]. Defendant moved to dismiss on November 12, 2015. See Mot.
[Dkt. 105]. Relator opposed, see Opp’n [Dkt. 110], and Defendant replied, see Reply [Dkt.
112].4
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and 31
U.S.C. § 3730(a). The Court also has supplemental jurisdiction over the State-law counts under
the State False Claims Acts pursuant to 28 U.S.C. § 1367.5 This Court is the proper venue
4
Relator filed a Notice of Supplemental Authority, see Notice of Supp. Auth. [Dkt. 116], to
which Defendant responded, see Response [Dkt. 117].
5
Section 1367 provides for supplemental jurisdiction “over all other claims that are so related to
claims in the action within such original jurisdiction that they form part of the same case or
controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367(a). The
11
because the underlying National Mortgage Settlement was approved by this Court and Defendant
conducts business in the District of Columbia. See 31 U.S.C. § 3732(a).
III. ANALYSIS
Relator alleges that Chase violated the False Claims Act by falsely claiming (1)
that it met Servicing Standards and complied with the consumer relief requirements of the
National Mortgage Settlement and (2) that it met the servicing standards specified in HAMP and,
as required, provided loan modifications to sufficient numbers of eligible borrowers.6
A. National Mortgage Settlement Claims
Relator alleges that Chase’s false claims regarding its compliance with the
National Mortgage Settlement provided Chase with the benefit of credit for consumer relief that
it otherwise should not have received. Chase moves to dismiss for procedural failures and failure
to state a claim upon which relief may be granted.
Chase cites two issues that it contends preclude Relator’s suit concerning the
National Mortgage Settlement: (1) Relator failed to exhaust the dispute resolution procedures
required by the National Mortgage Settlement before filing suit; and (2) Relator improperly
attacks the Monitor’s determinations that Chase complied with the National Mortgage
Settlement. Indeed, the National Mortgage Settlement provided specific procedures before suit
State-law claims are State False Claims Act claims based on the same facts as the Federal False
Claims Act claims, specifically false claims regarding compliance with the National Mortgage
Settlement.
6
Relator’s State law claims rest on the same factual allegations as Count I, the federal False
Claims Act claim based on alleged false statements regarding compliance with the National
Mortgage Settlement. Relator provides no additional facts to support the State law claims and
does not argue that any of the State laws would provide for liability in the absence of liability
under the Federal False Claims Act. Therefore, each of the State-law counts will be dismissed
for the same reasons as Count I.
12
or challenge to determinations made by the Monitor. Because Relator stands in the position of
the Federal Government in this case, he is required to have exhausted all remedies the Federal
Government would have been required to exhaust prior to suit. See United States ex rel. Morgan
v. Sci. Applications Int’l Co., 604 F. Supp. 2d 245, 249 (D.D.C. 2009) (finding relator “stands in
the shoes of the federal government as a plaintiff”). Under the National Mortgage Settlement, a
party wishing to dispute compliance by a signatory bank was required to follow explicit steps:
(1) give notice to the allegedly noncompliant bank, the Monitor, and the Monitoring Committee;
and (2) “engage in good faith efforts to reach agreement on the proper resolution of any dispute.”
Consent Judgment, Ex. E at E-14; see also id. at E-15. If the aggrieved party were not assuaged,
it could then notify the Monitoring Committee of its intent to file an enforcement action. The
Monitoring Committee was afforded 21 days to consider whether it would sue before any other
enforcement action could be filed and if the Committee decided not to sue, the moving party was
required to wait another 21 days before commencing litigation. See id. at E-15.
Chase argues that because Relator failed to follow these mandatory pre-litigation
steps, which would have constrained the United States, any claims of noncompliance with the
Settlement must be dismissed. Relator responds that the dispute resolution procedures in the
National Mortgage Settlement are not applicable to his FCA allegations because the National
Mortgage Settlement must be read in a manner consistent with the Servicer Participation
Agreement between Fannie Mae and Treasury under HAMP.7 The Servicer Participation
Agreement specifically provides that violations of its terms are subject to the FCA and states:
7
The National Mortgage Settlement indicates that:
The provision of consumer relief by the Servicer in accordance with
this Agreement in connection with any residential mortgage loan is
expressly subject to, and shall be interpreted in accordance with, as
applicable, the terms and provisions of the Servicer Participation
13
Servicer acknowledges that the provision of false or misleading
information to Fannie Mae or Freddie Mac in connection with any
of the Programs or pursuant to the Agreement may constitute a
violation of: (a) Federal criminal law involving fraud, conflict of
interest, bribery, or gratuity violations found in Title 18 of the
United States Code; or (b) the civil False Claims Act (3 I U.S.C.
§§ 3729-3733).
Opp’n, Ex. 1 [Dkt. 110-1] (Amended and Restated Commitment to Purchase Financial
Instrument and Servicer Participation Agreement) at B-4. Relator’s confusion between the
National Mortgage Settlement and HAMP pervades his arguments.
Agreements, like statutes, should be read to avoid surplusage where possible. See
Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034, 2043 (2012) (“[T]he canon against surplusage
merely favors that interpretation which avoids surplusage.”). While Relator would like the Court
to read the National Mortgage Settlement’s alternative dispute resolution process as inconsistent
with the remedies under the HAMP Servicer Participation Agreement, the Court finds they can
readily be reconciled. The National Mortgage Settlement is sui generis and the United States is a
signatory. Relator, who acts on behalf of the United States, is simply bound to its terms in any
complaint of noncompliance. Had Relator first completed the alternative dispute procedure in
the National Mortgage Settlement, he then might have sued. Not having completed the former,
he cannot begin the later.
Agreement with the U.S. Department of Treasury, . . . provided,
however, that the inability of a Servicer to offer a type, form or
feature of the consumer relief payments by virtue of an Applicable
Requirement shall not relieve the Servicer of its aggregate consumer
relief obligations imposed by this Agreement.
Consent Judgment, Ex. D at D-12.
14
B. HAMP Claim
Relator argues that Chase violated the FCA by knowingly submitting false or
fraudulent annual certifications that it had complied with HAMP, even though the certifications
“failed to disclose that Chase did not solicit RCV1 borrowers to apply for HAMP loan
modifications.” Opp’n at 31. Chase responds that Relator’s HAMP claims fail as a matter of
law because he “does not adequately allege that Chase’s non-solicitation of RCV1 borrowers
constituted ‘material’ violation of HAMP’s requirements” and “material compliance” is all that
is required under HAMP. Id. (emphasis in original). Chase adds that Relator has failed to allege
that any statements in the Chase HAMP compliance reports were false. Chase also argues that
Relator failed to allege that any false statements were made knowingly because the Federal
Government knew that Chase had not solicited RCV1 borrowers before it wrote off their debts.
Chase identifies three reasons that its claims, even if “false,” were not “material.”
First, Chase argues Relator fails to allege that a substantial number of borrowers was affected
because RCV1 borrowers might not have qualified for HAMP at all, in that Chase wrote off
second-lien mortgages and forgave others. Chase also argues that Relator does not allege that
“non-solicitation of RCV1 borrowers resulted in injury to those borrowers or interfered with the
goals of the HAMP program,” the fundamental purpose of which “is to avoid unnecessary
foreclosures.” Mot. at 33. Because Chase forgave many RCV1 loans, they were not foreclosed
upon and HAMP was not implicated. Finally, Chase argues Relator failed to allege that Treasury
was unaware of the non-solicitation of RCV1 loans.
Relator focuses on the definition of “material” in the FCA, which it defines as
“having a natural tendency to influence, or be capable of influencing, the payment or receipt of
money or property.” 31 U.S.C. § 3729(b)(4). Relator argues that his Second Amended
15
Complaint infers that a substantial number of borrowers was impacted due to his allegations
concerning the number of loans in the RCV1 system and the Monitor’s final report concerning
Chase’s loans reported eligible for modification under the National Mortgage Settlement.8
Relator urges the Court to assume that HAMP compliance personnel had no notice of Chase’s
policies and procedures related to RCV1 loans. His argument starts with his allegations that
“Chase underreported to the Monitor” and concludes that Chase must also have underreported to
HAMP. Finally, Relator argues that the materiality of the violations can be presumed because
the United States Trustee Program found that Chase violated a separate 2011 Consent Judgment
with the Office of the Comptroller of the Currency (OCC).
The False Claims Act imposes liability on any person who “knowingly presents,
or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C.
§ 3729(a)(1)(A).9 There are three elements to FCA presentment under § 3729(a)(1)(A): (1) the
defendant presented a claim for payment or approval to the Federal Government; (2) the claim
was “false or fraudulent”; and (3) the defendant acted knowing that the claim was false or
fraudulent when he submitted it. United States ex rel. Schwedt v. Planning Research Corp., 59
F.3d 196, 198-99 (D.C. Cir. 1995). A “claim,” as relevant here, is “any request or demand,
whether under a contract or otherwise, for money or property and whether or not the United
States has title to the money or property, that (i) is presented to an officer, employee, or agent of
8
Relator does not respond to Chase’s argument concerning HAMP’s materiality requirement,
focusing instead on the Monitor’s reports of compliance with the National Mortgage Settlement;
he, thus, waives the argument. See Jones v. Air Line Pilots Ass’n, 713 F. Supp. 2d 29, 39
(D.D.C. 2010).
9
31 U.S.C. § 3729 was amended in May 2009, see Pub. L. 111-21, § 4(a), 123 Stat. 1621 (May
20, 2009), and § 3730 was amended in July 2010, see Pub. L. 111-203, Title X, § 1079 A(c), 124
Stat. 2079 (July 21, 2010). The post-amendment versions apply to the allegations here, all of
which took place in September 2010 or later. See SAC ¶¶ 297-304.
16
the United States.” 31 U.S.C. § 3729(b)(2)(A). The term “knowing” means that a person either
“(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or
falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the
information,” but it does not require “proof of specific intent to defraud.” Id. § 3729(b)(1)(A),
(B).
The FCA also provides a cause of action against any person who “knowingly
makes, uses, or causes to be made or used, a false record or statement material to a false or
fraudulent claim.” Id. § 3729(a)(1)(B). “Material” is defined as “having a natural tendency to
influence, or be capable of influencing, the payment or receipt of money or property.” Id.
§ 3729(b)(4). Thus, under the law, a plaintiff must allege that (1) the defendant made or used a
“record or statement”; (2) the record or statement was false; (3) the defendant knew it was false;
and (4) the record or statement was “material” to a false or fraudulent claim. Id. § 3729(a)(1)(B).
Because Rule 9(b) applies, “the pleader must state the time, place and content of the false
misrepresentations [and] the fact misrepresented.” Joseph, 642 F.2d at 1385 (interpreting prior
section (a)(2)).
A plaintiff’s task is to “plead factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged,” United States ex rel.
Westrick v. Second Chance Body Armor, Inc., 685 F. Supp. 2d 129, 133 (D.D.C. 2010), because
“[w]hile . . . Rule 9(b) requires more particularity than Rule 8 . . . Rule 9(b) does not completely
vitiate the liberality of Rule 8.” United States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am.,
Inc., 238 F. Supp. 2d 258, 269 (D.D.C. 2002).10 Chase contends that its HAMP disclosures to
10
Rule 8 requires that every complaint include “a short and plain statement of the claim showing
that the pleader is entitled to relief” and that “[e]ach allegation . . . be simple, concise, and
direct.” Fed. R. Civ. P. 8(a)(2), (d)(1).
17
Fannie Mae were not materially false because HAMP imposes a distinct disclosure requirement
of “instances of noncompliance that [the servicer] believes have a material effect on its ability to
comply with MHA program requirements.” MHA Handbook at 38 (emphasis added). In light of
the terms set by Treasury, noncompliance with HAMP would be shown only if Chase’s non-
solicitation of RCV1 loans for HAMP modification had a material effect on Chase’s “ability to
comply” with the Making Home Affordable program requirements. Relator makes no such
allegations. His arguments concerning RCV1 loans eligible for modification focus on their
eligibility under the National Mortgage Settlement, not HAMP. Although this is an FCA
lawsuit, a violation of the certification prong of FCA can be found only if a party makes a “false
representation of compliance with an applicable federal statute, federal regulation, or contractual
term.” SAIC, 626 F.3d at 1266. Such has not been alleged.
Federal Rule of Civil Procedure 9(b) requires Mr. Schneider to allege “the time,
place and content of the false misrepresentations [and] the fact misrepresented.” Joseph, 642
F.2d at 1385. Section VI of Mr. Schneider’s Second Amended Complaint identifies the
“Documentation Containing False Claims” and notes the date of each document. SAC at 66.
The Court identifies two instances of alleged false claims relevant to HAMP in the Complaint:
On September 10, 2010, Chase filed a Certification of compliance
with its “Commitment to Purchase Financial Instrument and
Servicer Participation Agreement.” This certification contained
False Claims.
On September 10, 2010, Chase’s subsidiary, EMC, filed a
Certification of compliance with its “Commitment to Purchase
Financial Instrument and Servicer Participation Agreement.” This
Certification contained False Claims.
18
SAC ¶¶ 303-04.11 Both of these instances of alleged false claims occurred in 2010, before the
National Mortgage Settlement in 2012 and, therefore, any data about RCV1 loans discharged and
reported to the Monitor as a result of the National Mortgage Settlement in 2012 or later are
irrelevant to the falsity of the alleged claims made under HAMP in 2010. Relator’s Complaint
focuses on actions during the 3-year compliance period of the National Mortgage Settlement
period and provides no allegations identifying the “fact misrepresented” to the HAMP
compliance monitor in 2010.
Relator’s argument that the 2011 Consent Judgment with the OCC also
demonstrates material false statements by Chase fares no better. Relator does not allege that the
OCC Consent Judgment includes a determination that Chase violated HAMP or failed to comply
with the notice requirements of HAMP. Additionally, Relator fails to allege that any part of the
OCC Consent Judgment was substantially similar to requirements under HAMP and could,
therefore, demonstrate material misrepresentations by Chase under HAMP. Relator is
effectively asking the Court to assume that Chase’s admission of wrongdoing in an unrelated
Consent Judgment is evidence that Chase made false statements to Fannie Mae regarding its
HAMP compliance. Without facts specific to HAMP and allegations regarding the materiality of
any misrepresentations concerning Chase’s HAMP-specific compliance obligations, Relator’s
FCA claims under HAMP must be dismissed.
C. State Claims
Counts III through XXIII raise the following State law claims:
Count III: California False Claims Act, Cal. Gov’t Code
§ 12651(a)(7)
11
All other paragraphs in Section VI of the Second Amended Complaint specify notices or
reports submitted by Chase to Monitor Smith under the National Mortgage Settlement.
19
Count IV: Delaware False Claims Act, Del. Code Ann. tit. 6,
§ 1201(a)(7)
Count V: District of Columbia False Claims Act, D.C. Code § 2-
308.14(a)(7)12
Count VI: Florida False Claims Act, Fla. Stat. § 68.082(2)(g)
Count VII: Georgia False Claims Act, Ga. Code Ann. § 23-3-
121(a)(7)
Count VIII: Hawaii False Claims Act, Haw. Rev. Stat. § 661-
21(a)(6)
Count IX: Illinois Whistleblower Reward and Protection Act, 740
Ill. Comp. Stat. § 175/3(a)(1)(G)
Count X: Indiana False Claims and Whistleblower Protection Act,
Ind. Code § 5-11-5.5-2(b)(6)
Count XI: Iowa False Claims Act, Iowa Code § 685.2(1)(g)
Count XII: Massachusetts False Claims Act, Mass. Gen. Laws ch.
12, § 5B(a)(9)
Count XIII: Minnesota False Claims Act, Minn. Stat.
§ 15C.02(a)(7)
Count XIV: Montana False Claims Act, Mont. Code Ann. § 17-8-
403(1)(g)
Count XV: Nevada False Claims Act, Nev. Rev. Stat.
§ 357.040(1)(g)
Count XVI: New Hampshire False Claims Act, N.H. Rev. Stat.
Ann. § 167:61-b(I)(e)
Count XVII: New Jersey False Claims Act, N.J. Stat. Ann.
§ 2A:32C-3(g)
12
The District of Columbia False Claims Act has been recodified at D.C. Code Ann. § 2-381-02.
20
Count XVIII: New Mexico Fraud Against Taxpayers Act, N.M.
Stat. Ann. § 44-9-3(A)(8)13
Count XIX: New York False Claims Act, N.Y. State Fin. Law
§ 189(1)(g)
Count XX: North Carolina False Claims Act, N.C. Gen. Stat. § 1-
607(a)(7)
Count XXI: Rhode Island False Claims Act, 9 R.I. Gen. Laws § 9-
1.1-3(a)(7)
Count XXII: Tennessee Fraud Against Taxpayers Act, Tenn. Code
Ann. § 4-18-103(a)(7)
Count XXIII: Virginia Fraud Against Taxpayers Act, Va. Code
Ann. § 8.01-216.3(A)(7)
Each State law count includes the same claim based on the National Mortgage Settlement, to
which each of the States and the District of Columbia was a party and signatory. Relator alleges:
Chase knowingly, or acting in deliberate ignorance and/or reckless
disregard of the truth, made, used, or caused to be made or used,
false records and/or statements material to an obligation to pay or
transmit money or property to the State of California, and/or
knowingly, or acting in deliberate ignorance and/or with reckless
disregard of the truth, made, used, or caused to be made or used false
records and/or statements to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the State of
California. These false statements and false records include various
reports to the Monitor and the IRG Assertions containing
certifications that Chase had complied with the Servicing Standards
and Consumer Relief Requirements of the Consent Judgment.
E.g., SAC ¶ 317 (Count III). Because Relator’s State law claims rest on the same allegedly false
allegations as the Federal FCA claim, dismissed above, the State law claims will also be
dismissed.
13
The Complaint cites to the New Mexico Medicaid False Claims Act, N.M. Stat. Ann. § 27-14-
5; but the Court interprets the Complaint as intending to reference the New Mexico Fraud
Against Taxpayers Act.
21
D. Leave to Amend
In Opposition, Relator asks for leave to file a third amended complaint should the
Court find merit in the Motion to Dismiss. “[T]he D.C. Circuit has cautioned that ‘failure to
plead fraud with particularity . . . does not support a dismissal with prejudice; to the contrary,
leave to amend is almost always allowed to cure deficiencies in pleading fraud.’” Pencheng Si v.
Laogai Research Found., No. 09-2388, 2013 WL 4478953, at *2 (D.D.C. Aug. 21, 2013)
(quoting Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996)). Relator has already filed
two amended complaints. He intimates no facts that could rescue his FCA allegations relating to
the National Mortgage Settlement and the undisputed facts show that an amendment would be
futile. The Court will dismiss Relator’s claims of Chase noncompliance with the National
Mortgage Settlement with prejudice and his claims of Chase noncompliance with HAMP without
prejudice.
IV. CONCLUSION
For the reasons set forth above, Defendant’s Motion to Dismiss, Dkt. 105, will be
granted. Counts I and III through XXIII will be dismissed with prejudice. Count II will be
dismissed without prejudice. A memorializing Order accompanies this Opinion.
Date: December 22, 2016 /s/
ROSEMARY M. COLLYER
United States District Judge
22