Fed. Deposit Ins. Corp. v. Fifth Third Bank
| Decision Date | 19 January 2023 |
| Docket Number | 14 Civ. 6003 (GBD) |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for Broadway Bank ex rel. LEE MONCHO, Plaintiff, v. FIFTH THIRD BANK, NA., as successor-in-interest to MB FINANCIAL BANK, N.A., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff-Relator Lee Moncho filed this qui tam action against Defendant Fifth Third Bank on behalf of the Federal Deposit Insurance Corporation (“FDIC”), asserting three causes of action under the False Claims Act (“FCA”), 31 U.S.C. §§ 3729, et seq. Moncho alleges that Defendant's successor-in-interest, MB Financial Bank (“MB Financial”), made false claims for payment to the FDIC under a 2010 shared-loss agreement. On March 11,2022 Defendant moved to dismiss. (ECF No. 66.) Defendant's motion to dismiss is GRANTED.
Broadway Bank (“Broadway”) was a Chicago-based FDIC-insured bank in the business of providing construction and other loans secured by real property. (Second Amended Complaint (“SAC”), ECF No. 65 ¶¶ 43-44.) After a series of bad loans left the bank heavily undercapitalized, the Illinois Department of Financial and Professional Regulation closed Broadway in April 2010 and appointed the FDIC as receiver. (Id. ¶¶ 45-49.) In anticipation of placing the bank into receivership, the FDIC began soliciting bids on Broadway's loans in March 2010. (Id. ¶ 50.) Ultimately, the FDIC accepted MB Financial's proposal, which included a 19.6% discount for Broadway assets. (Id. ¶ 51.) Moncho alleges that the FDIC entered into a shared-loss agreement (“SLA”) with MB Financial pursuant to which the FDIC agreed to assume 80% of future losses MB Financial incurred on Broadway's loans and MB Financial agreed to pay 80% of recoveries. (Id. ¶¶ 52, 54, 58.)
Moncho filed his initial complaint under seal on August 1, 2014, alleging that MB Financial had engaged in a “scheme to defraud the FDIC” by making false claims for payment on several Broadway loans.[1] (See generally ECF No. 1.) After investigating his claims, the Government declined intervention. (ECF No. 23.) In his operative Second Amended Complaint, Moncho claims that MB Financial submitted claims for payment for loans that MB Financial knew were (a) “paid in full;” (b) previously “sold to third parties;” (c) made by other banks or financial institutions; (d) unsecured real estate investment loans; (e) lines of credit that were not drawn down; (f) participations misrepresented as direct loans; and (g) loans that were included by the filing of false and misleading reports. (SAC ¶ 14.) In total, Moncho alleges that MB Financial submitted $400 million in false claims under the SLA. (Id. ¶ 27.)
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, 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, 570 (2007)). The plaintiff must demonstrate “more than a sheer possibility that a defendant has acted unlawfully”; stating a facially plausible claim requires the plaintiff to plead facts that enable the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). The factual allegations pled must therefore “be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation omitted).
A district court must first review a plaintiffs complaint to identify allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 679. The court then considers whether the plaintiffs remaining well-pleaded factual allegations, assumed to be true, “plausibly give rise to an entitlement to relief. ” Id. In deciding a 12(b)(6) motion, the court must also draw all reasonable inferences in the non-moving party's favor. N.J. Carpenters Health Fund v. Royal Bank of Scot. Grp., PLC, 709 F.3d 109, 119-20 (2d Cir. 2013).
The False Claims Act imposes liability on any person who knowingly presents a false or fraudulent claim for payment or approval to an officer or employee of the United States. Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 575 U.S. 650, 653 (2015) (citation omitted). The FCA “may be enforced not just through litigation brought by the Government itself, but also through civil qui tam actions that are filed by private parties, called relators, in the name of the Government.” United States ex rel. Chorches v. Am. Med. Response, Inc., 865 F.3d 71,81 (2d Cir. 2017) (citing Kellogg Brown, 575 U.S. at 653).
The FCA imposes several restrictions on qui tam actions. Relevant here, claims under the FCA are subject to a public disclosure bar that prohibits a relator from bringing a claim for conduct that has already been made public. 31 U.S.C. § 3730(e)(4)(A). The public disclosure bar is intended to discourage “opportunistic plaintiffs who have no significant information to contribute of their own.” Graham Cty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 294 (2010); see also U.S. ex rel. Doe v. John Doe Corp., 960 F.2d 318, 319 (2d Cir. 1992) (). Pursuant to the bar, a qui tam action must be dismissed “if substantially the same allegations or transactions as alleged in the action ... were publicly disclosed ... [unless] the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A). Courts analyzing the applicability of the public disclosure bar thus apply a two-step approach. At the first step, courts look to whether the substance of a relator's claim had been disclosed prior to the filing of his suit. See e.g., U.S. ex rel. Kester v. Novartis Pharm. Corp., 43 F.Supp.3d 332, 346 (S.D.N.Y. 2014). At the second step, courts look to whether, if such disclosures had been made, the relator can be considered an “original source.” Id. If so, the relator may proceed with his complaint.
Defendant argues that the public disclosure rule bars Moncho's claims because “substantially the same allegations or transactions” have already been publicly disclosed and Moncho fails to qualify for the original source exception because he lacks “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” (Def.'s Mem. of Law in Supp. of Mot. for Summ. J. (“MS J”), ECF No. 67, at 20.) This Court agrees.
Public disclosures may be found “in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party”; “in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation”; or “from the news media.” 31 U.S.C. § 3730(e)(4)(A). The Supreme Court has applied a broad view of the public disclosure bar. See Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401, 408 (2011) ( ) (citation omitted). Following suit, the Second Circuit requires only that earlier disclosures have been “sufficient to set the government squarely upon the trail of the alleged fraud” for the bar to apply. Ping Chen ex rel. U.S. v. EMSL Analytical, Inc., 966 F.Supp.2d 282, 298 (S.D.N.Y. 2013).
A review of the SAC leaves little doubt that the documents and information forming the basis of this action were publicly disclosed. As explained in the SAC, Moncho's “investigation” began after MB Financial foreclosed on a loan for certain real property that Moncho owned in Manhattan in July 2010. (SAC ¶ 31.) In the fall of 2010, an aggrieved Moncho came to learn of lawsuits regarding other Broadway loans, including one action involving 22 Renwick, the principal of another Broadway borrower, (Id. ¶ 32), and a lawsuit filed by the FDIC against Broadway Bank directors, (Id. ¶ 36). The legal documents made public in these lawsuits identified several additional Broadway loans, and Moncho began investigating those loans by “tracking down and speaking with various persons with first hand or other knowledge of these transactions.” (Id.) Moncho also used the public Automated City Register Information System (“ACRIS”) to identify other loans and borrowers, whom he also later interviewed. (Id. ¶ 33.) As an initial matter, there is no dispute that documents filed in other litigation and information pulled from a public database qualify as public disclosures.
Moncho's complaint then goes on to provide certain “representative examples” of MB Financial's alleged misconduct. As set forth in Defendant's motion the disputes and relevant facts surrounding each of Moncho's example transactions were all either covered extensively by the media or disclosed in prior litigation. (Compare SAC ¶¶ 64-71 (describing Avadamma dispute) with Def.' s App'x. 823 and 825 (news media on same) and App'x. 827 (); compare SAC ¶¶ 72-92 (discussing 261 East 78 Street loan) with Def.'s App'x. 830 () and Def.'s App'x. 888; compare SAC ¶¶...
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