United States ex rel. Hendrickson v. Bank of Am., N.A., CIVIL ACTION NO. 3:16-CV-0292-S

CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Citation343 F.Supp.3d 610
Parties UNITED STATES of America EX REL. Edward HENDRICKSON v. BANK OF AMERICA, N.A., et al.
Docket NumberCIVIL ACTION NO. 3:16-CV-0292-S
Decision Date26 October 2018

343 F.Supp.3d 610



United States District Court, N.D. Texas, Dallas Division.

Signed October 26, 2018

343 F.Supp.3d 616

K. Lawson Pedigo, Miller Keffer & Pedigo, Dallas, TX, Brett Nathaniel Garrett, Pro Hac Vice, James B. Helmer, Jr., Julie Popham, Robert M. Rice, Helmer Martins Rice & Popham Co. LPA, Cincinnati, OH, Peter Safirstein, Safirstein Metcalf LLP, New York, NY, Roger D. Sanders, Sanders O'Hanlon Motley & Young PLLC, Sherman, TX, Clayton Ray Mahaffey, U.S. Attorney's Office, Fort Worth, TX, for United States of America ex rel. Edward Hendrickson.

Thomas B. Walsh, IV, Basheer Y. Ghorayeb, John Thomas Sullivan, Thomas M. Melsheimer, Winston & Strawn LLP, Justin R. Opitz, McGuireWoods LLP, Bradley James Purcell, Keith Miles Aurzada, Bryan Cave Leighton Paisner LLP, David W. Klaudt, Greenberg Traurig LLP, Jason M. Hopkins, DLA Piper, Daniel P. Callahan, Kessler Collins, Tony Campiti, Thompson & Knight, Ronald W. Breaux, Haynes & Boone LLP, Alisa Scher Richman, Law Office of Alisa S. Richman, Brian J. Hurst, Nicholas O. Kennedy, Baker & McKenzie LLP, Dallas, TX, Nicholas James Giles, Pro Hac Vice, Jeremy Stephen Byrum, McGuireWoods LLP, Richmond, VA, Lucia Nale, Thomas V. Panoff, Mayer Brown LLP, Chicago, IL, Matthew J. Cannon, Pro Hac Vice, Greenberg Traurig, Craig C. Martin, Pro Hac Vice, Michele Slachetka, Pro Hac Vice, Jenner & Block LLP, Chicago, IL, Kenneth E. Broughton, Jr., Michael Halley Bernick, Reed Smith LLP, William P. Huttenbach, Joseph R. Anderson, Hirsch & Westheimer PC, Houston, TX, Roy William Arnold, Pro Hac Vice, Reed Smith LLP, Pittsburgh, PA, William Scott Turnbull, Pro Hac Vice, Crary Buchanan PA, Stuart, FL, Laurie Alanna Witek, Pro Hac Vice, Michael James Bronson, Dinsmore & Shohl LLP, Cincinnati, OH, Chad Berry, Stacy Brent Loftin, Adams, Lynch & Loftin, P.C., Grapevine, TX, Joseph B. VanFleet, Pro Hac Vice, Timothy D. Gronewold, Pro Hac Vice, Howard & Howard Attorneys PLLC, Peoria, IL, Michael S. Smiley, Underwood Wilson Barry Stein & Johnson, Christopher Jason Fenton, Underwood Law Firm, Amarillo, TX, Cara Doak Kennemer, Underwood Law Firm, P.C., Fort Worth, TX, for Bank of America, N.A., et al.



This Order addresses Defendants'1 Motion to Dismiss [ECF No. 92]. For the reasons below, the Motion is granted in part and denied in part.

343 F.Supp.3d 617


A. The Federal Benefit Payment System

This qui tam action arises out of alleged violations of the False Claims Act ("FCA") by sixteen banks that process benefit payments for the recipients of federal benefits. Certain federal entitlement programs contemplate lifetime benefit payments, Am. Compl. ¶ 15. These include programs administered by the Social Security Administration ("SSA"), the Office of Personnel Management ("OPM"), the Railroad Retirement Board ("RRB"), and the Department of Veterans Affairs ("VA"). Id. The recurring benefit payments from these agencies are intended to cease once the person receiving the payments (the "Recipient")2 dies. Id. Relator Edward Hendrickson ("Relator") alleges that, due to fraud by Defendants, the payments often continue long after the Recipient has died and that a large percentage of the overpayments are never returned to the Government.

The process by which federal agencies make recurring benefit payments entails several steps. First, the agencies transmit the funds to the Automated Clearing House ("ACH") network. Am. Compl. ¶ 19. The bank where the Recipient has an account receives the funds from the ACH network and then deposits the payment into the Recipient's account. Id. ¶ 20. The banks participating in the ACH network are referred to as "Receiving Depository Financial Institutions" ("RDFI"). Id. ¶ 23. All of the banks named as defendants in the instant case are RDFIs. When an RDFI accepts a benefit payment, it agrees to be bound by applicable Department of Treasury ("Treasury") rules and regulations. Id. ¶ 21. The main sources of such regulations are 31 C.F.R. Part 210 ("Part 210") and the "instructions and procedures" issued under Part 210, including the Treasury Financial Manual and the Green Book. 31 C.F.R. § 210.3(c) ; see also Am. Compl. ¶ 27. Every time a bank accepts a deposit, it renews its contractual promise to abide by Treasury rules and regulations. See BUREAU OF THE FISCAL SERV. , GREEN BOOK 5-3 (2016), https://www.fiscal.treasury.gov/fsreports/ref/greenBook/downloads.htm. [hereinafter Green Book]; Am. Compl. ¶ 28. According to Relator, RDFIs are intended to act as "gatekeepers" and ensure that the payments they receive are authorized. Am. Compl. ¶ 29.

Relator posits that RDFIs typically learn of Recipients' deaths when they receive Death Notification Entries ("DNEs"). Id. ¶ 32. A DNE informs an RDFI that a Recipient has died. Id. ¶ 33. Only federal agencies can originate DNEs. Id. ¶ 32 (quoting Green Book 4-2). The SSA, OPM, and RRB all issue DNEs. Id. ¶ 34. In Relator's view, pursuant to the Green Book, RDFIs are obligated to stop accepting benefit payments and are "encouraged" to "flag" the deceased Recipient's account once they receive a DNE. Id. ¶¶ 36-37 (citing and quoting Green Book 5-8, 4-2). Pursuant to 31 C.F.R. § 210.10(a), "An RDFI shall be liable to the Federal Government for the total amount of all benefit payments received after the death ... of a [R]ecipient ... unless the RDFI has the right to limit its liability under [ 31 C.F.R. § 210.11 ]."

When the Government finds out that a payment was made to a deceased Recipient,

343 F.Supp.3d 618

it can issue a Notice of Reclamation ("NOR") to the appropriate RDFI. Am. Compl. ¶ 55. Upon receiving the NOR, the RDFI can limit its liability by certifying, on the NOR, the date it learned of the Recipient's death. Id. ¶ 56. The RDFI is only required to return payments received after it became aware of the death. Id. ¶ 58.

B. Relator's Allegations

Relator alleges that Defendants routinely violated the FCA by ignoring DNEs and falsely certifying on NORs that they had learned of Recipients' deaths after receiving DNEs. Id. ¶ 59. Relator learned of this alleged fraud while working as an investigator in the Office of the Inspector General ("OIG") for the VA from 1996 to 2016. Id. ¶ 60. In this role, Relator was responsible for investigating and attempting to recoup recurring benefit payments made by the VA after Recipients had died. Id. Relator alleges that, in the course of performing this investigatory function, he requested and reviewed NORs submitted by Defendants. Id. ¶ 64. While performing this review, Relator contends that he uncovered "numerous instances" of Defendants falsely certifying the date on which they learned of Recipients' deaths. Id. This alleged misconduct harmed federal agencies by depriving them of taxpayer money to which they were entitled and by forcing them to incur the costs associated with attempting to recover unauthorized payments from third parties who withdrew funds from deceased Recipients' accounts. Id. ¶ 65.

Relator filed this case under the qui tam provisions of the FCA on February 2, 2016. On March 30, 2017, the United States notified the Court that it declined to intervene in the case. See Notice of Declination [ECF No. 11]. Relator filed his Amended Complaint on July 20, 2017. The Amended Complaint contains two causes of action. In Count I, Relator alleges a violation of 31 U.S.C. § 3729(a)(1)(B), the false record provision of the FCA. In Count II, Relator alleges a violation of 31 U.S.C. § 3729(a)(1)(G), the reverse false claims provision of the FCA.3 On October 30, 2017, Defendants moved to dismiss the Amended Complaint in its entirety.4 The Court heard oral argument on the Motion to Dismiss on May 10, 2018. With permission from the Court, the parties completed supplemental briefing on June 29, 2018.

C. The Reverse False Claims Act

A reverse false claim consists of "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceal[ing] or knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government." 31 U.S.C. § 3729(a)(1)(G). "In a reverse false claims suit, the defendant's action does not result in improper payment by the government to the defendant, but instead results in no payment to the government when a payment is obligated." United States ex rel. Bain v. Ga. Gulf Corp. , 386 F.3d 648, 653 (5th Cir. 2004).


A. Standing

Under the Constitution, a federal court may decide only actual cases or controversies. U.S. CONST. art. III, § 2. A

343 F.Supp.3d 619

court properly dismisses a case where it lacks the constitutional power to decide it. See Home Builders Ass'n of Miss., Inc. v. City of Madison , 143 F.3d 1006, 1010 (5th Cir. 1998). Dismissal for lack of...

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