United States ex rel. Bibby v. Wells Fargo Bank, N.A.

• Decision Date: 19 November 2012
• Docket Number: Civil Action No. 1:06–CV–0547–AT.
• Citation: 906 F.Supp.2d 1288
• Parties: UNITED STATES of America ex rel., Victor E. BIBBY and Brian J. Donnelly, Relators/Plaintiffs, v. WELLS FARGO BANK, N.A., individually and as s/b/m with Wells Fargo Home Mortgage, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

906 F.Supp.2d 1288

UNITED STATES of America ex rel., Victor E. BIBBY and Brian J. Donnelly, Relators/Plaintiffs,

v.WELLS FARGO BANK, N.A., individually and as s/b/m with Wells Fargo Home Mortgage, Inc., et al., Defendants.

Civil Action No. 1:06–CV–0547–AT.

United States District Court,

N.D. Georgia,

Atlanta Division.

Nov. 19, 2012.

Amy L. Berne, Daniel A. Caldwell, III, Laura Kennedy Bonander, Office of United States Attorney; James Edward Butler, Jr., Brandon L. Peak, Leigh M. May, Samantha DiPolito, Butler, Wooten & Fryhofer, LLP; Marlan Bradley Wilbanks, Tyrone M. Bridges, Wilbanks & Bridges, LLP; Mary Louise Cohen, Timothy P. McCormack, Phillips & Cohen, for Plaintiff.

William Vance Custer, IV, Bryan Cave, LLP; Amy Pritchard Williams, Robert J. Sherry, K & L Gates; Charles T. Huddleston, Linda Ann Klein, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC; David Lewis Balser, King & Spaulding, LLP, for Defendants.

ORDER

AMY TOTENBERG, District Judge.

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                ¦Summary                                 ¦1291¦
                +----------------------------------------+----¦
                ¦Standard for Motions to Dismiss         ¦1292¦
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                ¦Factual Background                      ¦1292¦
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                ¦Discussion                              ¦1294¦
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                ¦Applicability of FERA Amendments        ¦1294¦
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                ¦Rule 9(b) Pleading Standard             ¦1295¦
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                ¦Materiality                             ¦1302¦
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                ¦Donnelly Bankruptcy                     ¦1304¦
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                ¦Conclusion                              ¦1306¦
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I. Summary

This matter is before the Court on Defendant Wells Fargo Bank, N.A.'s (“Wells Fargo”) Motion to Dismiss [Doc. 168]. Relators allege that Defendant has engaged in a fraudulent scheme to overcharge veterans on closing costs during the origination of loans under a United States Department of Veterans Affairs (“VA”) loan refinancing program. Relators allege that Defendant created false documents and made false demands for payment under void VA loan guarantees in violation of the False Claims Act.

For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendant Wells Fargo's Motion to Dismiss Relators' Second Amended Complaint (“Second Amended Complaint” or “SAC”).

II. Standard for Motions to DismissA. Standard Under Rule 12(b)(6 )

Defendant has moved to dismiss Relators' Second Amended Complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A pleading fails to state a claim if it does not contain allegations that support recovery under any recognizable legal theory. 5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1216 (3d ed. 2002); see also Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In considering a Rule 12(b)(6) motion, the court construes the pleading in the non-movant's favor and accepts the allegations of facts therein as true. See Duke v. Cleland, 5 F.3d 1399, 1402 (11th Cir.1993). The pleader need not have provided “detailed factual allegations” to survive dismissal, but the “obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In essence, the pleading “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).

III. Factual Background¹

Relators Victor E. Bibby and Brian J. Donnelly are licensed mortgage brokers. Through their company, U.S. Financial Services, Inc., d/b/a Veteran's Mortgage, they specialize in the brokering and origination of VA loans, including through the VA Interest Rate Reduction Refinancing Loan (“IRRRL”) program. (2d Am. Compl. ¶ 54.) Since 2001, Relators' company has brokered thousands of VA IRRRL loans across seven states. ( Id.) As brokers, Relators work directly with veterans to take their applications, gather necessary documents, and connect them with a lender who actually originates the loan. ( Id. ¶ 52.) The broker acts as an intermediary between lender and borrower, and the lender must approve the loan application and ensure compliance with VA regulations prior to the loan closing. ( Id. ¶¶ 52, 55.)

Retired and active duty veterans who have a VA mortgage on the home they currently own are eligible to apply for an IRRRL loan. ( Id. ¶ 30.) The program allows these veterans to refinance their existing mortgages to take advantage of lower interest rates or shorter repayment terms. ( Id.) Because the VA designed the IRRRL program with the goal of lowering veterans' mortgage payments through refinancing, and because the resulting mortgage loans are guaranteed by the United States government, the VA strictly limits the closing costs a lender may charge on an IRRRL loan. ( Id. ¶ 31.) In addition to certain enumerated fees which lenders may charge the veteran, such as recording fees, credit report fees, and fees for title examination and title insurance, the VA authorizes a flat charge not to exceed one percent of the loan amount. ( Id. ¶ 34.) The permissible fees a lender may charge to a veteran for an IRRRL refinance do not include attorney's fees for closing the loan. ( Id.) Rather, the lender must pay any closing attorney's fees from its own funds or as part of the 1% origination fee it is permitted to assess the veteran. ( Id. ¶ 36.) Lenders are required to affirmatively certify to the VA that they have complied with the VA rules and regulations for each IRRRL loan. ( Id. ¶ 37.) This written certification is a condition precedent to the VA's issuance of a loan guaranty. ( Id.)

Through their work brokering IRRRL loans, Relators learned that Defendants were routinely violating the VA rules and regulations and falsely certifying to their compliance with these rules. ( Id. ¶ 61.) Relators' practice was to inform prospective IRRRL borrowers of the expected attorney's fee charge (along with other anticipated closing costs for the loan) on the “Good Faith Estimate,” a form that brokers and lenders provide to a loan applicant early in the application process. ( Id. ¶ 56.) The lender was then responsible for listing all finalized charges on the HUD form provided to the borrower at the loan closing. ( Id.) However, Relators observed that the lender was altering the HUD forms in order to avoid showing a charge for attorney's fees, and instead lumping that charge in with title examination or title search fees. ( Id.) Eventually, the lender began instructing Relators not to show a charge for attorney's fees in the Good Faith Estimate, but instead to add the attorney's fees into the title examination fee. ( Id. ¶ 57.) When Relators contacted the VA for guidance regarding this issue, the VA referred them to the VA Lender Handbook. ( Id. ¶ 58.) Relators learned from reviewing the VA Lender Handbook that attorney's fees may not be charged to a veteran and must come out of the lender's 1% flat charge per the VA regulations. ( Id. ¶ 60.) Although title search and examination charges may be assessed to the veteran, VA regulations prohibit charging more than the reasonable and customary amount for this work. ( Id. ¶ 61.) Relators allege that Defendant lender has routinely inflated the amounts charged for title examination and title search “for the purpose of hiding that they were charging veterans for unallowable attorneys [sic] fees and other fees.” ( Id.)

Relators provide a specific example loan originated by Defendant to demonstrate how the bank concealed unauthorized attorney's fees by adding them to title search and examination fees and falsely certified to the VA full compliance with program rules, thereby obtaining an unauthorized VA guaranty. ( Id. ¶¶ 97–110.) Relators aver based on their extensive experience originating IRRRL loans in seven states that the reasonable and customary charge for title search and examination fees ranges from $125 to $200. ( Id. ¶ 63.) In the example loans pled, Defendant charged veterans padded title search and examination fees of $450, $745, and even $950. ( Id. ¶¶ 98, 99, 101.)

Based on their experience brokering IRRRL loans with Defendant, Relators allege that Defendant fraudulently submitted multiple false certifications to the VA in connection with each loan containing improper closing costs. Relators allege that when requesting the loan guaranty Defendant submitted VA Form 26–8923, the “Interest Rate Reduction Refinancing Loan Worksheet,” to the VA. ( Id. ¶ 90.) On line 8 of this worksheet, Defendant was required to list the “allowable closing costs” for the loan. ( Id.) Defendant committed fraud by hiding unallowable attorney's fees within other permissible charges and then expressly certifying that the information provided on the form was “true, accurate and complete.” ( Id.) Defendant falsely certified to the VA that the HUD form for each noncompliant loan signed at the closing was a “true and accurate account of the transaction.” ( Id. ¶ 91.) Defendant also submitted Form 26–1820 to the VA for each IRRRL loan. ( Id. ¶ 92.) On this form, Defendant expressly certified that it “[had] not imposed and will not impose any charges or fees against the veteran borrower in excess of those permissible under the schedule as set forth in paragraph (d) of 38 C.F.R. 36.4312.” ( Id.) For loans where Defenda...