US Office of the Solicitor General files Amicus Brief in Investor False Claims Suit re: Schneider v JP Morgan Chase

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

UNITED STATES OF AMERICA, EX REL. LAURENCE SCHNEIDER, ET AL., Plaintiffs, LAURENCE SCHNEIDER, Plaintiff-Appellant, v. JPMORGAN CHASE BANK, NATIONAL ASSOCIATION; JPMORGAN CHASE & CO.; CHASE HOME FINANCE, LLC, Defendants-Appellees. On Appeal from the United States District Court for the District of Columbia <excerpt> STATEMENT OF THE CASE I. False Claims Act The False Claims Act, 31 U.S.C. § 3729 et seq., is used broadly “in defending the Federal treasury,” and it is a “powerful tool in deterring fraud.” S. Rep. No. 345, 99th Cong., 2d Sess. 4 (1986). Congress enacted the FCA in 1863 “with the principal goal of stopping the massive frauds perpetrated by large private contractors during the Civil War.” Vermont Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765, 781 (2000) (brackets and internal quotation marks omitted). But the Act was intended to “reach all types of fraud, without qualification, that might result in financial loss to the Government.” United States v. Neifert-White Co., 390 U.S. 228, 232 (1968). Many of the Act’s “prohibitions can be enforced through both criminal and civil actions by the federal government.” United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 116 (D.C. Cir. 2015).1 “In addition, the Act authorizes private individuals— known as relators—to bring a qui tam civil action ‘in the name of the Government,’ and to share in any damages recovered.” Ibid. (citation omitted); 31 U.S.C. § 3730(b)(1), (d); see generally Vermont Agency, 529 U.S. at 781. A civil suit may be brought either by the Attorney General or a relator seeking civil penalties plus three times the amount of the government’s damages. 31 U.S.C. § 3729(a), (b)(1). The FCA imposes civil liability for a variety of deceptive practices involving government funds and property. Among other things, the Act renders liable any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1)(A); any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” id. § 3729(a)(1)(B); any person who “knowingly makes, uses, or causes 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 conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,” id. § 3729(a)(1)(G); and any person who “conspires” to engage in such acts, id. § 3729(a)(1)(C); see id. § 3729(b)(1) (defining “knowingly”). II. Factual Background and Prior Proceedings A. National Mortgage Settlement In March 2012, the United States, forty-nine states, and the District of Columbia filed a complaint and proposed consent judgment in the United States District Court for the District of Columbia against several mortgage servicers, including JPMorgan Chase. JA2; United States v. Bank of Am. Corp., 753 F.3d 1335, 1336 (D.C. Cir. 2014) (per curiam). 2 The complaint alleged a variety of misconduct in the servicers’ home mortgage practices, and the proposed consent judgment implemented a negotiated settlement. Ibid.; see Dkt. Nos. 10-14, United States v. Bank of Am., No. 12-cv-361 (D.D.C.). Under that consent judgment, Chase agreed to pay a penalty; to provide approximately $3.675 billion in various forms of consumer relief, such as loan forgiveness; and to comply with certain business practice requirements called “Servicing Standards.” Consent Judgment, No. 12-cv-361 ¶¶ 3, 5 (D.D.C. Apr. 4, 2012) (Consent J.); Consent J. Ex. D. The United States released a number of claims but did not release “[a]ny liability based upon obligations created by th[e] Consent Judgment.” Consent J. Ex. F, § (11)(n). The consent judgment also contains provisions for monitoring the banks’ compliance. The agreement established a Monitoring Committee, Consent J. Ex. E, § B; an Independent Monitor to assess compliance, Consent J. ¶ 7; Consent J. Ex. E §§ C(1), (5), D; creation of metrics for evaluating compliance with certain servicing standards, Consent J. Ex. E § C(12), (23) & Sch. E-1; and rules governing enforcement actions by the parties or Monitoring Committee, id. § J. The parties agreed that if Chase fails to meet its consumer relief obligations, Chase would “pay an amount equal to 125% of the unmet commitment,” or 140% in specific circumstances. Consent J. Ex. D(10)(d).3 With respect to servicing standards for which there are established metrics, if the Monitor concludes that Chase is exceeding the allowable error rate, the Monitor notifies Chase of a “Potential Violation,” and Chase has a right to cure within a set time frame. Consent J. Ex. E, §§ D(3), (5), E(1)-(6). If Chase cures, there is no other “remedy under th[e] Consent Judgment . . . with respect to such Potential Violation.” Id. § E(6). If Chase does not timely cure such a “Potential Violation,” “[i]n the event of an action to enforce [Chase’s] obligations,” the court can order “non-monetary equitable relief, including injunctive relief, directing specific performance under the terms of th[e] Consent Judgment, or other non-monetary corrective action,” and the court “may award” agreed-to “civil penalties.”4 Id. § J(3)(a), (b). With respect to other alleged noncompliance—such as violation of servicing standards not subject to a metric or other obligations—the court may order only non-monetary injunctive relief. Id. § J(3), (a); see United States v. Bank of Am., 78 F. Supp. 3d 520, 530 (D.D.C. 2015). The “Enforcement Terms” also state that Chase’s “obligations under this Consent Judgment shall be enforceable solely in the U.S. District Court for the District of Columbia” and that “[a]n enforcement action under th[e] Consent Judgment may be brought by any Party to this Consent Judgment or the Monitoring Committee.” Consent J. Ex. E, § J(2). Ordinarily “prior to commencing any enforcement action, a Party must provide notice to the Monitoring Committee of its intent to bring an action to enforce th[e] Consent Judgment.” Ibid. The committee then has “21 days to determine whether to bring an enforcement action.” Ibid. If the committee declines to do so, “the Party must wait 21 additional days . . . before commencing an enforcement action.” Ibid. The United States has not invoked the consent judgment’s procedures or otherwise asked the district court to enforce the terms of the judgment against Chase. Based on the information currently available to it, including the reports filed by the Monitor, the United States is unaware of any violation of the agreed-to terms. B. Factual Background and Procedural History 1. The plaintiff in this case is a relator who filed a qui tam suit against JPMorgan Chase under the False Claims Act and similar state laws. JA27, JA39, JA94-JA116 (Second Am. Compl.). As relevant here, relator alleges that Chase violated the so-called “reverse” provision of the False Claims Act when Chase claimed to have complied with various aspects of the National Mortgage Settlement, thereby avoiding additional payments and penalties required under the consent judgment. JA27, JA35, JA70-JA75, JA80-JA95. That FCA provision imposes liability on any person who, among other things, “knowingly makes, uses, or causes 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 who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(l)(G).5 2. The district court granted Chase’s motion to dismiss. JA1-JA22 (opinion); JA23 (order). As relevant here, the court held that relator could not sue because he “failed to exhaust the dispute resolution procedures required by the National Mortgage Settlement before filing suit.” JA12-JA14. The court reasoned that in a False Claims Act suit, “Relator stands in the position of the Federal Government,” and the federal government could not sue Chase before following the consent judgment’s “mandatory pre-litigation steps.” JA13. In the court’s view, these included “notice to the allegedly noncompliant bank, the Monitor, and the Monitoring Committee,” “good faith efforts to reach agreement,” notification of the Monitoring Committee of intent to file an enforcement action, waiting twenty-one days for the Monitoring Committee to consider whether it would sue, and then waiting an additional twenty-one days. Ibid [...]