U.S. ex rel. S. Prawer & Co. v. Verrill & Dana, Civil No. 95-321-P-H.

• Decision Date: 08 November 1996
• Docket Number: Civil No. 95-321-P-H.
• Citation: 946 F.Supp. 87
• Parties: UNITED STATES of America, ex rel. S. PRAWER & COMPANY, Gilbert Prawer and Harvey Prawer, Plaintiffs/Relators, v. VERRILL & DANA, P. Benjamin Zuckerman, Anne M. Dufour and Amy Bierbaum, Defendants.
• Court: U.S. District Court — District of Maine

946 F.Supp. 87

UNITED STATES of America, ex rel. S. PRAWER & COMPANY, Gilbert Prawer and Harvey Prawer, Plaintiffs/Relators, v. VERRILL & DANA, P. Benjamin Zuckerman, Anne M. Dufour and Amy Bierbaum, Defendants.

Civil No. 95-321-P-H.

United States District Court, D. Maine.

November 8, 1996.

David R. Collins, Asst. U.S. Atty., Portland, ME, John A. Kolar, U.S. Department of Justice, Civil Division, Washington, D.C., for U.S.

Daniel G. Lilley, Daniel G. Lilley Law Offices, P.A., Portland, ME, Jeffrey Bennett, Melinda J. Caterine, Herbert H. Bennett & Associates, P.A., Portland, ME, for Plaintiff S. Prawer & Company.

Roger A. Putnam, Verrill & Dana, Portland, ME, Thomas N. O'Connor, Hale & Dorr, Boston, ME, James E. Kaplan, Julianne Cloutier, Jensen, Baird, Gardner & Henry, Portland, ME, for Defendants.

ORDER ON ALL PENDING MOTIONS

HORNBY, Chief Judge.

On June 13, 1996, I ruled on a variety of pending motions in this case. At the same time, I expressed concern about the viability of one of the private relators' reverse false claims and invited written argument before proceeding. I have now received and studied the legal memoranda of the parties as well as the Government's amicus curiae filing.

FACTS

I repeat the summary of material facts set forth in my June 13, 1996 Order:

The private relators had a $2 million line of credit relationship with Maine National Bank when it was declared insolvent in early 1991. On July 12, 1991, Fleet Bank of Maine ("Fleet") agreed with the Federal Deposit Insurance Corporation ("FDIC") to take over the failed bank's operations and assume various assets and loans. A lengthy document entitled "Assistance Agreement" governed the relationship among the various corporate entities that were party to this complex transaction. See Donson Decl., Ex. 8 ("Assistance Agreement"). Under the Assistance Agreement, Fleet could require the FDIC to repurchase a non-performing "loan" — defined in Article I of the Assistance Agreement as including lines of credit — provided that it met certain conditions. See Assistance Agreement § 10.2. Such a transaction is called a "put" by the parties. Fleet "put" the private relators' [loan] to the FDIC on May 6, 1992. At the time, the outstanding amount drawn on the line of credit pursuant to various notes was $1.6 million.¹ The private relators maintain that Fleet made material fraudulent statements to the FDIC so that it could make the put. The FDIC accepted the put by sending Fleet a written concurrence.

The FDIC hired the defendant Verrill & Dana in late October of 1992 to be its legal counsel in a lawsuit against the private relators seeking to collect on the loan. The defendants Benjamin Zuckerman and Anne Dufour were two of the lawyers from Verrill & Dana who worked on the case. In December of 1992, the FDIC assigned a staff lawyer, the defendant Amy Bierbaum, to supervise and monitor the Verrill & Dana law firm. According to the private relators, the Verrill & Dana defendants and Bierbaum learned at some point that the original Fleet put had been improper, but nevertheless proceeded to conceal and cover up that impropriety and failed to disclose it to the FDIC. They also allegedly transferred and endorsed other private relator notes to the FDIC when they realized that some of the notes in the May 1992 put had been paid earlier or had expired....

Initially the private relators filed their qui tam action against Fleet, Recoll Management Corp. ("Recoll"),² Verrill & Dana, Zuckerman, Dufour and Bierbaum. Ultimately the United States elected to pursue the lawsuit against Fleet and Recoll but not the other defendants (whom I will call the "lawyer defendants").... On September 15, 1995, I ruled, over the objection of the lawyer defendants, that the private relators could file a separate action against them. The private relators then filed and served an amended complaint naming as defendants Verrill & Dana, Zuckerman, Dufour and Bierbaum....

Order of June 13, 1996, at 2-4. The second lawsuit is the matter currently before me. I have permitted the government to file a legal memorandum supposedly as amicus curiae but in reality in support of the private relators. (Although it is not a party to the second lawsuit, the government has a substantial economic interest under the False Claims Act. See 31 U.S.C. § 3729(a) (1994).)

DISCUSSION

The reverse false claim provision of the False Claims Act assigns liability to anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government...." Id. § 3729(a)(7). To recover on a reverse false claim, as I said in my June 13 Order, the private relators must first show such an "obligation" that the lawyer defendants allegedly tried to conceal. I observed in that Order that the private relators' reverse false claim seemingly was premised on what they saw as lawyer concealment of Fleet Bank's ("Fleet") contractual obligation under section 10.2(g) of the Assistance Agreement to repay the Federal Deposit Insurance Corporation ("FDIC") for an improper put. In response to my Order, the private relators assert that their argument previously had addressed only that premise because that was the focus of the defendants' arguments to which they were responding. They now broaden the basis of their reverse false claim to include lawyer concealment of Fleet obligations to repay the FDIC that, they argue, derive from (1) a general common law contractual obligation to repay because of fraud; (2) a False Claims Act obligation to repay because of fraud; (3) a common law tort obligation to repay because of fraud; and/or (4) an obligation to repay pursuant to an implied covenant of good faith and fair dealing. I accept the assertion of the more varied premises and proceed to consider them all.

First, however, I reject the private relators' intimations that it is somehow improper for the court to proceed in this fashion because the defendants did not initially raise the precise arguments on which I invited briefing. So long as I give the parties proper notice of my concerns (which I did here by an extensive written Order that invited further briefing) and do not rule on disputed facts, I have the discretion, if not the obligation, to narrow the issues to move the case forward efficiently and expeditiously. Consider, for example, the provisions of Fed.R.Civ.P. 16(c)(1), (14), and (16), concerning actions the court may take at a pretrial conference.³ See also National Expositions, Inc. v. Crowley Maritime Corp., 824 F.2d 131, 133-34 (1st Cir.1987) (approving a sua sponte summary judgment against a moving party even though it was not requested).

REVERSE FALSE CLAIM AGAINST LAWYER DEFENDANTS BASED UPON FDIC CLAIMS UNDER SPECIFIC CONTRACTUAL PROVISIONS OF THE ASSISTANCE AGREEMENT

I conclude that the provisions of the Assistance Agreement did not create a specific contractual "obligation to pay or transmit money" on Fleet's part that survived the FDIC's concurrence in Fleet's put of the Prawer loan. The private relators' premise for arguing that such an obligation existed is section 10.2(g) of the Assistance Agreement. Section 10.2(g) provides:

In the event that the [FDIC] purchases an Asset that it is not required to purchase pursuant to this Section 10.2, [Fleet] shall repurchase such Asset from the [FDIC] at the Transfer Value that the [FDIC] paid [Fleet], plus (v) interest at the rate of the Cost of Carry plus 50 basis points, (w) advances made while the Asset was in the Pool, and (x) expenses incurred on the Asset while it was in the Pool, but less (y) Related Liabilities, and (z) Collections. [Fleet] shall also reassume Related [L]iabilities related to such Asset, if any, previously assumed by the [FDIC].

The private relators maintain that, in paying for Fleet's May 1992 put, the FDIC purchased an asset that it was "not required to purchase" under section 10.2 because of certain defects in the put. As a result, they say, under section 10.2(g), a Fleet obligation to repurchase and repay automatically sprang into existence and never lapsed, and the lawyers concealed it.

The private relators' reading of section 10.2(g) ignores section 10.2(e). Section 10.2(e) provides the framework for final decisions on whether a put is proper under section 10.2 and, thus, whether it can be said that it was an "asset" that, in section 10.2(g)'s terms, the FDIC was "not required to purchase pursuant to this section 10.2."⁴ The way a "put" works under section 10.2 is as follows. Section 10.2(c) permits Fleet initially to make a put by sending the FDIC a "subsequent bank notice" and, to back up the put, requires Fleet to send a "loan information package" (the contents of which are defined in the Assistance Agreement and one of its exhibits, see Assistance Agreement at 17 & Ex. 11). The FDIC is then entitled, if it so chooses, to demand extensive further backup material: "copies of [Fleet's] Credit Files, records generated by computer or other electronic data processing records, journals of transaction history and such additional information relating to the subject matter of the Subsequent Bank Notice as the [FDIC] may request in writing" as well as "full access to all other relevant books and records." Section 10.2(c) (referred to as "Supporting Documentation"). In other words, the Assistance Agreement gives the FDIC access to whatever information it believes is necessary to evaluate Fleet's put. The FDIC then must evaluate this information and send Fleet a written "concurrence" or "non-concurrence" as to the put within 60 days after the FDIC receives the supporting documentation. Section 10.2(e). Under section 10.2(f)(2), however, the FDIC is required to pay the value of the put asset or loan (calculated under a separate provision) within 60 days of the subsequent bank notice, regardless of the date of receipt of the...