United States ex rel. Advocates for Basic Legal Equal., Inc. v. U.S. Bank, N.A.

• Decision Date: 14 March 2016
• Docket Number: No. 15–3654.,15–3654.
• Citation: 816 F.3d 428
• Parties: UNITED STATES of America ex rel. ADVOCATES FOR BASIC LEGAL EQUALITY, INC., Relator–Appellant, v. U.S. BANK, N.A., Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

816 F.3d 428

UNITED STATES of America ex rel. ADVOCATES FOR BASIC LEGAL EQUALITY, INC., Relator–Appellant,

v.U.S. BANK, N.A., Defendant–Appellee.

No. 15–3654.

United States Court of Appeals, Sixth Circuit.

Argued: March 9, 2016.

Decided and Filed: March 14, 2016.

ARGUED:Daniel Aguilar, United States Department of Justice, Washington, D.C., for Amicus Curiae. Sasha Samberg–Champion, Relman, Dane & Colfax PLLC, Washington, D.C., for Appellant. Andrew W. Schilling, Buckleysandler LLP, New York, New York, for Appellee. ON BRIEF:Sasha Samberg–Champion, Stephen M. Dane, Michael G. Allen, Relman, Dane & Colfax PLLC, Washington, D.C., Aneel L. Chablani, George A. Thomas, Advocates for Basic Legal Equality, Inc., Toledo, Ohio, for Appellant. Andrew W. Schilling, John B. Williams III, Matthew E. Newman, Buckleysandler LLP, New York, New York, for Appellee. Michael S. Raab, Joshua Waldman, United States Department of Justice, Washington, D.C., for Amicus Curiae.

Before: MERRITT, GIBBONS, and SUTTON, Circuit Judges.

OPINION

SUTTON

, Circuit Judge.

Suing on behalf of the United States, Advocates for Basic Legal Equality ("ABLE" for short) contends that U.S. Bank violated the False Claims Act when it requested federally backed insurance payments after several borrowers defaulted on their loans. To state a qui tam claim, a plaintiff must show that it uncovered the claim—that the factual basis of the claim was not publicly disclosed before the plaintiff sued. Otherwise, only the government can vindicate the claim in a lawsuit in its own name. Because ABLE did not satisfy this requirement, we affirm the district court's decision to reject this claim as a matter of law.

U.S. Bank participates in a mortgage insurance program, backed by the Federal Housing Administration, that encourages banks to lend money to high-risk borrowers. The insurance covers losses caused by a borrower who defaults on a loan. To participate in the program, U.S. Bank had to certify that it would meet certain requirements, and each time it requested an insurance payment U.S. Bank had to certify that it had followed the requirements. See 24 C.F.R. § 203.500

. The key requirement for our purposes is that U.S. Bank would engage in "loss mitigation" measures, such as attempting to arrange a face-to-face meeting with the defaulting borrower, before foreclosing. See id. §§ 203.604–.606.

According to ABLE, an Ohio non-profit organization that advances the interests of low-income individuals, U.S. Bank did not satisfy the loss mitigation requirement. It contends that U.S. Bank promised that it would engage in loss mitigation, failed to do so, then lied about the failure. ABLE points to three foreclosures where this happened and claims that they demonstrate a pattern—indeed a widespread pattern, one that purportedly shows that U.S. Bank wrongfully foreclosed on 22,000 homes and wrongfully collected $2.3 billion in federal insurance benefits. ABLE filed this lawsuit on behalf of itself and the United States claiming that U.S. Bank violated the False Claims Act. See 31 U.S.C. § 3729

. The Department of Justice declined to intervene. See id. § 3730(b)(2), (4).

In handling this case, the district court issued two relevant decisions on the pleadings. It decided that two of ABLE's claims stated a cognizable violation of the False Claims Act. United States v. U.S. Bank, N.A., No. 3:13 CV 704, 2015 WL 2238660, at *4–7 (N.D.Ohio May 12, 2015)

. And it decided that ABLE premised its case on information that had already been publicly disclosed, precluding it from bringing the lawsuit as a qui tam plaintiff. Id. at *8–11.

On appeal, the parties join debate over each holding. Because we agree with the district court's second holding—the public disclosure holding—we need not consider its first. That may be for the best, as the Supreme Court recently granted certiorari in a similar case under the False Claims Act, the resolution of which may affect our precedents governing ABLE's ability to state a claim. See Universal Health Servs., Inc. v. United States, ––– U.S. ––––, 136 S.Ct. 582, 193 L.Ed.2d 465 (2015)

(mem.).

A claimant may establish eligibility to bring a qui tam lawsuit on one of two grounds: (1) that the factual premise of its claim was not publicly disclosed before it filed the lawsuit, or (2) even if it was, that the claimant was the original source of the information. 31 U.S.C. § 3730(e)(4)

. Here's how the statute defines a prior public disclosure: "if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed ... (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media." Id. § 3730(e)(4)(A). Here's how the statute in relevant part defines someone who is an original source: one "who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions." Id. § 3730(e)(4)(B).

These formulations of "public disclosure" and "original source," it's worth adding, reflect current law. The Patient Protection and Affordable Care Act became law on March 23, 2010. In addition to its better-known provisions, the Act amended the False Claims Act. Compare Pub.L. No. 111–148, § 10104, 124 Stat. 119

, 901–02 (2010), with Pub.L. No. 99–562, § 3, 100 Stat. 3153, 3157 (1986). The 2010 amendments made two pertinent changes. They prevented federal courts from considering state court actions when determining whether there has been a public disclosure, and they introduced "materially adds" to the original source definition.

The new amendments, it is true, are not retroactive. See Graham Cty. Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 559 U.S. 280, 283 n. 1, 130 S.Ct. 1396, 176 L.Ed.2d 225 (2010)

. In this instance, some of the allegedly fraudulent acts occurred before the 2010 amendments, some happened after, and ABLE did not file this lawsuit until 2013. ABLE urges us to apply the new, more lenient requirements for filing a complaint under the False Claims Act to all of its claims. Because ABLE's claims fail even under the new requirements, we see no problem in doing so.

This leaves us with two pertinent questions: Were U.S. Bank's alleged false claims publicly disclosed before ABLE filed this lawsuit? And, if so, was ABLE an original source? Because the answers to these questions are yes and no (respectively), we affirm.

Public disclosure. "[T]he public disclosure bar provides a broa[d] sweep," the Supreme Court has told us, in part because "[t]he phrase ‘allegations or transactions' ... [has] a broad meaning." Schindler Elevator Corp. v. U.S. ex rel. Kirk, 563 U.S. 401, 408, 131 S.Ct. 1885, 179 L.Ed.2d 825 (2011)

(quotation omitted). Unfortunately for ABLE, the "allegations or transactions" on which it premises this claim were publicly disclosed before it filed this lawsuit. ABLE's case rests on two factual allegations: that U.S. Bank (1) failed to take required loss mitigation measures before foreclosing and (2) committed fraud by falsely certifying, on various forms, that it would and did engage in those loss mitigation measures.

At least two sources publicly disclosed the first allegation. One was a 2011 consent order between U.S. Bank and the federal government, which qualifies as "a Federal criminal, civil, or administrative hearing in which the Government ... [was] a party." 31 U.S.C. § 3730(e)(4)(A)(i)

. That consent order required U.S. Bank to implement a wide variety of reforms, including measures "to ensure [that] reasonable and good faith efforts, consistent with applicable Legal Requirements, are engaged in Loss Mitigation and foreclosure prevention for delinquent loans." In re U.S. Bank Nat'l Ass'n, AA–EC–11–18, Consent Order (OCC Apr. 13, 2011), at 19 (emphasis added), available at http://www.occ.gov/news–issuances/news–releases/2011/nr–occ–2011–47j.pdf; see also id. at 5–9, 16, 18–22. The other was a 2011 foreclosure practices review from three federal agencies (also a public disclosure, see 31 U.S.C. § 3730(e)(4)(A)(ii) ), which noted that various banks, including U.S. Bank, had failed to take a variety of loss mitigation measures. The report emphasized the need to require banks to make "reasonable and good faith efforts, consistent with applicable law and contracts, to engage in loss mitigation and foreclosure prevention for delinquent loans where appropriate." R. 25–3 at 17. It also promised to push industry-wide reforms to "ensure borrowers are offered appropriate loss-mitigation options." Id. at 19. The consent judgment and report amply disclose the allegation that U.S. Bank failed to engage in appropriate loss mitigation measures—the first premise of ABLE's claim.

The second premise—that U.S. Bank committed fraud when it made false certifications about whether it had engaged in loss mitigation—also was publicly disclosed. If the disclosure "puts the government on notice of the ‘possibility of fraud’ surrounding the ... transaction, the prior disclosure is sufficient." U.S. ex rel. Gilligan v. Medtronic, Inc., 403 F.3d 386, 390–91 (6th Cir.2005)

(quotation omitted). The consent order did just that. It required U.S. Bank to implement a compliance program, including "processes to review and approve standardized affidavits and declarations for each jurisdiction ... to ensure compliance with applicable laws, rules and court procedures." In re U.S. Bank, supra, at 7. This language put the government (and everyone else) on notice that U.S. Bank allegedly had filed non-compliant documents—documents that could supply the foundation for a fraud claim. A 2011 news article discussing the consent order explained that U.S. Bank "engaged in a pattern of misconduct and negligence." R. 25–2 at 36 (quotation omitted). And the publicly available 2011 foreclosure practices review found that a majority of the...