Opinion
100271/2015
08-30-2019
STATE of New York, EX REL. RAW DATA ANALYTICS LLC, Relators, v. JP MORGAN CHASE & CO., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LLC, Defendants.
Attorneys for Plaintiff-Relator: Randall M. Fox, Esq., Kirby McInerney LLP, 825 Third Avenue, 16th Floor, New York, New York 10022, Phone: (212) 371-600 Facsimile: (212) 751-2540, rfox@kmllp.com Attorneys for Defendants JP Morgan Chase & Co., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LLC: Brian A. Herman, Esq., Kelly A. Moore, Esq., David G. Braun, Esq., Morgan, Lewis & Bockius LLP, 101 Park Avenue New York, New York 10178-0600, Phone: (212) 309-6909 Facsimile: (212) 309-6001, brian.herman@morganlewis.com, kelly.moore@morganlewis.com, david.braun@morganlewis.com and Ezra D. Church, Esq. (pro hac vice) 1701 Market Street Philadelphia, Pennsylvania 19103, Phone: (215) 963-5710 Facsimile: (215) 963-5001, ezra.church@morganlewis.com
Attorneys for Plaintiff-Relator: Randall M. Fox, Esq., Kirby McInerney LLP, 825 Third Avenue, 16th Floor, New York, New York 10022, Phone: (212) 371-600 Facsimile: (212) 751-2540, rfox@kmllp.com
Attorneys for Defendants JP Morgan Chase & Co., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LLC: Brian A. Herman, Esq., Kelly A. Moore, Esq., David G. Braun, Esq., Morgan, Lewis & Bockius LLP, 101 Park Avenue New York, New York 10178-0600, Phone: (212) 309-6909 Facsimile: (212) 309-6001, brian.herman@morganlewis.com, kelly.moore@morganlewis.com, david.braun@morganlewis.com and Ezra D. Church, Esq. (pro hac vice) 1701 Market Street Philadelphia, Pennsylvania 19103, Phone: (215) 963-5710 Facsimile: (215) 963-5001, ezra.church@morganlewis.com
James E. d'Auguste, J. On February 19, 2015, Raw Data Analytics LLC ("relator") commenced the instant qui tam action on behalf of the State of New York (the State) pursuant to the New York State False Claims Act (FCA) (Fin L §§ 187—94) concerning defendants' alleged failure to pay interest to the Office of the State Comptroller (OSC) under the New York Abandoned Property Law (APL) when there is a late escheatment of abandoned property to the OSC. Defendants' motion to dismiss, converted by the Court to a motion for summary judgment, is decided herein.
Under the New York False Claims Act § 190 (2) (a) any person may bring a qui tam civil action for a violation of section one hundred eighty-nine of this article on behalf of the person and the People of the State of New York or a local government.
In a notice dated March 4, 2016, the Office of the New York State Attorney General (OAG) declined to intervene.
In the amended complaint, relator alleges that defendants underpaid or failed to pay the State interest that they were required to pay on abandoned properties that they escheated late to the OSC. Relator alleges that since at least 2005, the defendants "have been late in escheating thousands of abandoned properties to the OSC" (amended complaint at ¶ 3). According to the allegations, defendants submitted reports, called "holder reports," as required under the APL, to the OSC to report on abandoned properties that they had held. As for these reports, relator alleges that the report required defendants to state their obligation to pay interest on the late escheated abandoned properties, and each year defendants' reports contained false statements that they owed less interest than was due, or no interest at all, and they nevertheless verified the statements as true and accurate (id. at ¶¶ 51-55, 58). Relator also alleges that defendants falsely represented the last date of contact on the holder reports (id. at ¶¶ 60-63).
A final report of escheated abandoned property to the OSC (holder report) must include: "(a) a completed Verification and Checklist on OSC Form AC 2709; (b) a report detail on CD, File Transfer Protocol (FTP), or paper, on OSC Form AC 2686; and (c) a remittance to the OSC of the escheated property" (amended complaint at ¶ 11, citing OSC "Handbook for Reporters of Unclaimed Funds" [Handbook] at 17).
Further, in the amended complaint, relator offers several examples of defendants' alleged failure to pay interest due and owing on abandoned properties that they escheated late to the OSC. One such example concerned property under identification number 051526417-042463136, which was for cash dividends. These monies were paid to New York State by defendant-holder JP Morgan Chase & Co. on or about November 10, 2013. The property was owned by Richard L. Guiterman who died on or about July 2, 2001. The holder report reflects that its last contact with the account owner was on or about November 9, 2007. The dormancy period for this type of property was three years. According to relator, even using the 2007 date as the last date of contact, would mean that the dormancy period ended on or about November 9, 2010 and the defendant should have transferred the abandoned property to New York State by November 10, 2011.
A second example, alleged in the complaint, describes a savings account paid to the OSC on or about November 10, 2012 by defendant-holder JP Morgan Chase Bank NA. The property was owned by Roger Smith, and the holder reports that its last contact with the holder was on or about January 8, 2004. The dormancy period for this type of property is five years. Thus, the payment should have been made to the OSC by November 20, 2009.
The amended complaint alleges three causes of action under § 189 of the Finance Law: (1) in the first cause of action, relator alleges a violation of Finance Law § 189 (1) (d), as defendants did not pay all the interest to the State on the property escheated late; (2) in the second cause of action, relator alleges a violation of Finance Law § 189 (1) (g), as defendants made or used false records or statements with respect to their obligations to transmit money or property to the State related to interest on escheated properties; and (3) in the third cause of action, relator alleges a violation of the Finance Law § 189 (1) (h), as defendants knowingly concealed or improperly avoided their obligations to pay money or property to the State.
The APL governs what happens to lost or unclaimed money or other forms of property. The law requires holders of unclaimed property to escheat this property to the State:
"It is hereby declared to be the policy of the state, while protecting the interest of
the owners thereof, to utilize escheated lands and unclaimed property for the benefit of all the people of the state, and this chapter shall be liberally construed to accomplish such purpose" ( APL § 102 ).
Section 303 of the APL requires a bank to file a report describing the property subject to the escheatment. The annual escheatment is to be accompanied by a report "setting forth such information as the State Comptroller may require relative to such abandoned property" ( APL § 303 [2 ] ).
Section 1412 (2) of the APL addresses the payment of interest on late escheatments:
"In addition to the penalty prescribed in subdivision one of this section for failure to report, any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller by this chapter or any law relating to abandoned property shall pay to the people of the state interest on the amount or value of such property. Such interest shall be at the rate of ten per centum per annum computed for a period to commence upon the date such payment or delivery was required by this chapter and to terminate upon
the date of full compliance therewith, except that the state comptroller may waive the payment of all or part of such interest whenever in his opinion the circumstances warrant such waiver."
Section 1412 (1) is a separate penalty provision of the APL. The penalty provision applies to the willful failure to escheat abandoned property or to submit the required holder reports. For property to be considered abandoned under the APL, a dormancy period must have passed. Dormancy periods vary and are listed in charts set by the State, indicating the length of the dormancy period for each property type.
The relevant provision of the OSC Handbook states the following:
"Interest Charges for Late Payment or Delivery of Abandoned Property If you arelate delivering abandoned property, New York State can charge you late filing interest. Interest is 10% per year from the date payment or delivery was due to the date you make payment or delivery" (Handbook [Herman aff, ex 2] at 10).
In the amended complaint, relator identifies instances in which defendants, pursuant to the APL, reported and paid abandoned property late to the OSC without paying the interest, and in the requisite reports under the APL, defendants set forth false statements. Accordingly, relator alleges defendants violated the FCA in failing to pay statutory interest to the State.
Defendants filed a motion to dismiss in this action on August 12, 2016. By a July 6, 2017 Order, the Court posed this question to the OSC: "With regard to the period January 1, 2005 to February 19, 2015, what was the Comptroller's interpretation of Abandoned Property Law Section 1412 relating to any obligation of banks to self-calculate and pay interest when they escheated abandoned property late?"
In a December 22, 2017 letter, the OSC responded to the Court's question by citing APL §§ 1412 (1) and (2), and stated, in relevant part that "direction provided by the Office of the State Comptroller's Office of Unclaimed Funds (OUF) during the relevant time period noted the potential imposition of interest at the discretion of the Comptroller" (Herman aff, ex 5 [OSC Letter] ). The letter goes on to cite the portion of the Handbook that "[i]f you are late delivering abandoned property, New York State can charge you late filing interest. Interest is 10% per year from the date payment or delivery was due to the date you make payment or delivery ..." (id. , quoting Handbook [internal quotations omitted] ). The letter continued:
"With regard to the reporting of unclaimed funds by JP Morgan Chase Bank during the relevant period, we note that in 2013 OUF audit staff examined the Bank's reporting in the areas of deposit accounts, credit card operations, electronic card services, home finance group and auto finance group for report years 2008 through 2012. The OUF's examination disclosed additional abandoned property due the State in the amount of $32,160,127.22 (consisting primarily of demand deposit accounts, savings accounts, and time accounts). The OUF determined that the circumstances warranted the waiver of late filing interest and the Bank remitted all the funds identified by the audit to the OUF" (id. ).
After this letter was issued, the Court, by order dated January 22, 2018, sua sponte converted the motion to dismiss into a motion for summary judgment, directed further briefing and scheduled oral argument on May 15, 2018.
The Parties' Contentions
Defendants argue that the duty to pay interest is a contingent obligation, imposed by an exercise of discretion by the OSC, and therefore not actionable under the FCA. In support of the motion, defendants submit, inter alia, the OSC Letter, Handbook and Website. Defendants point to the language in the OSC Letter indicating that the OSC "can charge" interest, and noting "the potential imposition of interest at the discretion of the Comptroller." They rely on the language in the Handbook and Website that states that "[i]nterest charges may also apply for late payment or delivery of abandoned property." They claim that nothing in the statute explicitly requires holders to "self-calculate and pay" interest for late escheated property; rather, the evidence submitted shows that the duty to pay interest relies upon a discretionary act and is therefore contingent.
Defendants also argue that the failure to report or pay interest is not "material." In this regard, defendants cite to Universal Health Services, Inc. v. U.S., ––– U.S. ––––, 136 S. Ct. 1989, 1996, 195 L.Ed.2d 348 [2016] [hereinafter Escobar ] for the proposition that the element purportedly focuses on the government's "likely or actual behavior" and argue that, because the OSC Letter clearly states that interest was waived during a prior audit, the OSC Letter is "strong evidence" that any violation of the statute is not material.
In opposition, relator argues that the obligation to pay interest arises as soon as the holder is late in paying or delivering property to the OSC and, therefore, the duty is not contingent. Relator further uses principles of statutory interpretation to demonstrate that the intent of the Legislature in enacting the interest provision was not meant to be dependent upon any discretionary act of the OSC, but rather the duty was automatic. Further, while penalties may, in some cases, be considered contingent obligations, the issue here concerns interest, which is distinctly different from a penalty. With respect to materiality, relator argues that the reliance on Escobar is misplaced, and all that is required is that the defendants' actions (or inactions) have "a natural tendency to influence, or be capable of influencing the payment or receipt of money or property" (Fin L § 188[5] ). Relator claims that the failure to pay interest, and/or accurately file holder reports, clearly meets this "natural tendency" test.
The OAG submitted a letter dated May 14, 2018 with respect to the arguments made in the motion papers (NYSCEF Doc. No. 61). In the letter, the OAG stated that the defendants "incorrectly characterize the interest obligation under Abandoned Property Law § 1412 as discretionary and contingent. Second, defendants are incorrect in concluding that the alleged violation was not material" (id. ). In a letter dated May 21, 2018, defendants responded to the arguments asserted by the OAG in its correspondence (NYSCEF Doc. No. 62).
Applicable Law
An award of summary judgment is appropriate when no issues of fact exist (see CPLR 3212 [b]; Andre v. Pomeroy , 35 N.Y.2d 361, 362 N.Y.S.2d 131, 320 N.E.2d 853 [1974] ; Sun Yau Ko v. Lincoln Sav. Bank , 99 A.D.2d 943, 473 N.Y.S.2d 397 [1st Dept. 1984], affd 62 N.Y.2d 938, 479 N.Y.S.2d 213, 468 N.E.2d 51 [1984] ). In order to prevail on a motion for summary judgment, the proponent must make a prima facie showing of entitlement to judgment as a matter of law by providing sufficient evidence to eliminate any material issues of fact ( Winegrad v. New York Univ. Med. Ctr. , 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 [1985] ; Alvarez v. Prospect Hosp. , 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ). Indeed, the moving party has the burden to present evidentiary facts to establish his or her cause sufficiently to entitle the movant to judgment as a matter of law ( Friends of Animals, Inc. v. Associated Fur Mfrs., Inc. , 46 N.Y.2d 1065, 416 N.Y.S.2d 790, 390 N.E.2d 298 [1979] ). "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers" ( Winegrad , 64 N.Y.2d at 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 ).
In deciding the motion, the court views the evidence in the light most favorable to the nonmoving party and gives that party the benefit of all reasonable inferences that can be drawn from the evidence (see Negri v. Stop & Shop, Inc. , 65 N.Y.2d 625, 626, 491 N.Y.S.2d 151, 480 N.E.2d 740 [1985] ). While the moving party has the initial burden of proving entitlement to summary judgment ( Winegrad , 64 N.Y.2d at 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 ), once such proof has been offered, in order to defend the summary judgment motion, the opposing party must "show facts sufficient to require a trial of any issue of fact" ( CPLR 3212 [b]; see Zuckerman v. City of New York , 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 [1980] ).
The New York State False Claims Act was initially enacted in 2007 as part of legislation to combat Medicaid fraud. "It is not restricted to Medicaid fraud, however, but applies to any sort of looting of the public purse" ( State of New York ex rel. Seiden v. Utica First Ins. Co. , 96 A.D.3d 67, 71, 943 N.Y.S.2d 36 [1st Dept. 2012] ). It was amended in 2010 to strengthen the laws and mirror the amendments made under the federal False Claims Act to make it "at least as effective as the federal Act" (Sponsor's Mem, Bill Jacket, L 2010, ch 379). " ‘The Supreme Court has given the statute an expansive reading,’ observing that it ‘covers all fraudulent attempts to cause the Government to pay out sums of money" ( U.S. ex rel. Bahrani v. Conagra, Inc. , 465 F.3d 1189, 1194 [10th Cir. 2006] [citations omitted] ). Therefore, the FCA should, too, be read expansively to cover all fraud concerning money paid or owed to the government.
"The NYFCA follows the federal False Claims Act (31 USC § 3729 et seq. ) and therefore it is appropriate to look toward federal law when interpreting the New York act" (Seiden , 96 A.D.3d at 71, 943 N.Y.S.2d 36 ).
Defendants' motion seeks to dismiss relator's claims asserted under Finance Law § 189 (1) (g) and (h). These two sections are known as the "reverse false claim provisions," which "occurs when someone uses a false record to avoid an obligation to pay the government" ( Seiden , 96 A.D.3d at 71, 943 N.Y.S.2d 36, citing United States v. Q Intl. Courier, Inc. , 131 F.3d 770, 773 [8th Cir. 1997] ).
As defendants' papers do not address the claim for liability under Finance Law § 189 (1)(d), the Court only addresses the "obligation" element applicable to both § 189 (1)(g) and (h) and "materiality" applicable only to § 189 (1)(g).
Liability under § 189 (1) (g) is found where one "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 state or a local government" (see Seiden , 96 A.D.3d at 71-72, 943 N.Y.S.2d 36 ; see also People v. Sprint Nextel Corp. , 26 N.Y.3d 98, 106-107, 21 N.Y.S.3d 158, 42 N.E.3d 655 [2015] ; Anonymous v. Anonymous , 165 A.D.3d 19, 83 N.Y.S.3d 472 [1st Dept. 2018] ). Finance Law § 189 (1) (h) provides liability for "any person who ... knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the state or a local government ..." (see United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co. , 839 F.3d 242, 254-55 [3d Cir. 2016] [where company failed to mark its product, making product subject to a government tariff, and then failed to pay the tariff, a reverse false claim was stated]; see also Kane ex rel. U.S. v. Healthfirst, Inc. , 120 F. Supp. 3d 370, 388 [S.D.N.Y. 2015] ).
"Obligation"
The term "obligation" is found in both subdivisions (g) and (h) of § 189 (1). As relevant here, it is defined in the statute as meaning "an established duty, whether or not fixed, arising ... from statute or regulation ..." (Fin L § 188 [4] ).
An "obligation" refers to "one existing at the time of the improper conduct to pay the Government funds, the amount of which may not be fixed at the time of the improper conduct" ( United States ex rel. Petras v. Simparel, Inc. , 857 F.3d 497, 506 [3d Cir. 2017] ). Any duty to pay under a False Claims Act claim "must be formally ‘established’ before liability can arise" ( United States ex rel. Grubea v. Rosicki, Rosicki & Assocs. P.C. , 318 F. Supp. 3d 680, 703 [S.D. N.Y. 2018] [internal citations and quotations omitted] ). "[T]he reverse false claims act does not extend to ... potential or contingent obligations to pay the government ...." ( United States ex rel. Bain v. Ga. Gulf Corp. , 386 F.3d 648, 657-68 [5th Cir. 2004] [emphasis omitted] ). Further the term obligation "does not include a duty that is dependent on a future discretionary act" ( Petras , 857 F.3d at 505 ; see United States ex rel. Simoneaux v. E.I. duPont de Nemours & Co. , 843 F.3d 1033, 1040 [5th Cir. 2016] ).
The statutory text giving rise to the obligation at issue here states as follows:
"In addition to the penalty prescribed in subdivision one of this section for failure to report, any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller by this chapter or any law relating to abandoned property shall pay to the people of the state interest on the amount or value of such property. Such interest shall be at the rate of ten per centum per annum computed for a period to commence upon the date such payment or delivery was required by this chapter and to terminate upon the date of full compliance therewith, except that the state comptroller may waive the payment of all or part of such interest whenever in his opinion the circumstances warrant such waiver" ( APL § 1412 [2 ] ).
"When presented with a question of statutory interpretation, our primary consideration is to ascertain and give effect to the intention of the Legislature." People v. Andujar , 30 N.Y.3d 160, 166, 66 N.Y.S.3d 151, 88 N.E.3d 309 [2017], quoting Matter of DaimlerChrysler Corp. v. Spitzer , 7 N.Y.3d 653, 660, 827 N.Y.S.2d 88, 860 N.E.2d 705 [2006] ). "While ‘the words of the statute are the best evidence of the Legislature's intent,’ legislative history may also be relevant as an aid to construction of the meaning of words" ( Andujar , 30 N.Y.3d at 166, 66 N.Y.S.3d 151, 88 N.E.3d 309 ; quoting Riley v. County of Broome , 95 N.Y.2d 455, 463, 719 N.Y.S.2d 623, 742 N.E.2d 98 [2000] ).
Defendants ask this Court to note the absence of any language indicating that holders are to "self-calculate," pay, and then request a waiver of interest after-the-fact. Defendants also argue that the words "shall pay" are not dispositive in determining whether the duty is contingent (see Simoneaux , 843 F.3d 1033 ), and further ask the Court to focus on the "except[ion]" phrase to find that the duty may only be imposed upon a discretionary act by the government. In support, as noted above, the defendants rely on the language in the OSC Letter, Handbook and Website to argue that the OSC must first exercise its discretion to impose the interest.
The Court finds that the language of the APL is abundantly clear: it states that any person who fails to pay or delivery property to the state "shall pay ... interest"; it describes the amount of interest, and for what period it must be paid. Accordingly, no further assessment needs to be made. While the words "shall pay" or "shall be liable" may not automatically trigger an actionable "obligation" in every instance, it is not necessarily about whether the word "shall" is used — rather the inquiry is on whether there is some sort of step in between the statutory violation and a defendant's duty to pay; and, notably, whether that step involves some sort of discretionary act from the government (cf. defendants mem at 11 [where "the Fifth Circuit rejected the reverse FCA claim" "[n]oting that § 2614(a) ‘grants the EPA discretion whether a penalty should be assessed’ including the ability to assess no penalty at all"], quoting Simoneaux , 843 F.3d at 1040 ). There is no intermediary step here, as there may have been in Simoneaux .
Simoneaux is also distinguishable on the grounds that " ‘interest is not a penalty ...’ " ( J. D'Addario & Co., Inc. v. Embassy Indus., Inc. , 20 N.Y.3d 113, 117-118, 957 N.Y.S.2d 275, 980 N.E.2d 940 [2012] [citations omitted]; see id. ["The breaching party is required to pay interest despite lacking possession or enjoyment of the property in order ‘to make [the] aggrieved party whole’ "] ). Indeed, the statute almost seems quasi-contractual in nature, in which case, it is precisely the type of obligation envisioned under the FCA (see Bahrani , 465 F.3d at 1196 [discussing the differences between cognizable obligations and contingent obligations such as fines or penalties, and noting that an FCA "obligation" may arise " ‘at least where the statute or regulation imposes an obligation essentially contractual in nature’ "], quoting Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc. , 190 F.3d 729, 737-738 [6th Cir. 1999] ).
A plain reading of the statute also demonstrates to the Court that the "except[ion]" language, concerning the OSC's discretionary ability to waive interest, is just that — the exception and not the rule. As the relator and the OAG both point out, the statute's language contemplates that, upon failure or late payment of abandoned properties to the State, the obligation to pay interest automatically arises. However, it also contemplates that the State, in its discretion, may waive the payment of such interest. In other words, the obligation to pay is qualified only by a separate discretionary waiver; the statute does not provide for a discretionary waiver or other act in the first instance (see Condor Funding, LLC v. 176 Broadway Owners Corp. , 147 A.D.3d 409, 411, 46 N.Y.S.3d 99 [1st Dept. 2017] ["Waiver is an intentional relinquishment of a known right ..."], quoting Gilbert Frank Corp. v. Federal Ins. Co. , 70 N.Y.2d 966, 968, 525 N.Y.S.2d 793, 520 N.E.2d 512 [1988] ). As the OAG aptly stated in its letter, "[b]y granting the Comptroller the power to waive interest payments, the Legislature recognized that he first had a right to receive those payments" (NYSCEF Doc. No. 61). Further, to put the discretionary waiver first before finding an obligation to pay would essentially swallow the whole provision and render what came before it meaningless; such a construction is impermissible (see Matter of Avella v. City of New York , 29 N.Y.3d 425, 434, 58 N.Y.S.3d 236, 80 N.E.3d 982 [2017], quoting Rocovich v. Consolidated Edison Co. , 78 N.Y.2d 509, 515, 577 N.Y.S.2d 219, 583 N.E.2d 932 [1991] ; McCluskey v. Cromwell , 11 N.Y. 593, 601-02 [1854] ["Statutes and contracts should be read and understood according to the natural and most obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending their operation"] ).
Because the Court finds that the statutory language is "free from ambiguity and doubt, and express plainly, clearly and distinctly, the sense of the framers of the instrument, there is no occasion to resort to other means of interpretation" ( McCluskey , 11 N.Y. at 601-603 ). Thus, defendants' suggestions that the OSC Letter, Handbook, and Website should be afforded weight to infer otherwise is unavailing.
Moreover, even if such outside evidence were to be examined in determining the duty arising from the statute, the OSC Letter and Handbook could be read as consistent with the interpretation advanced by relator and the OAG (see Valentin v. Parisio , 119 A.D.3d 854, 855, 989 N.Y.S.2d 621 [2d Dept. 2014] [evidence should be viewed in favor of nonmovants, and all inferences drawn in their favor]; Melendez v. Dorville , 93 A.D.3d 528, 940 N.Y.S.2d 259 [1st Dept. 2012] ). The specific language on which the defendants focus ("can charge you late filing interest" and the "potential " for the "imposition of interest at the discretion of the Comptroller ") arguably does nothing more than simply re-stating the statute; in sum — that interest applies unless the Comptroller decides otherwise, and, as a result, some reporters will not have to pay the interest. Such discretionary acts, when actually exercised or performed, may have some bearing on the ultimate collection of interest; but importantly does not take relator's claims outside the type of straight-forward statutory "obligation" that is actionable under the FCA (see Bahrani , 465 F.3d at 1203-1204 ).
Although defendants infer that Bahrani should not be followed since the federal FCA was amended since the case was decided (defendants reply mem at 11), the Senate Judiciary Committee report on the bill to amend the federal FCA specifically "endorsed [Bahrani ] for its interpretation of an FCA ‘obligation’ " (Kane , 120 F. Supp. 3d at 388 ).
Further, to the extent that the Court need to look elsewhere in interpreting the statute, the Court finds that the legislative history supports the fact that the obligation to pay arises as soon as the holder is late in payment or delivery of the property (see relator mem at 11). The Comptroller's May 25, 1971 report to the governor in the Bill Jacket of the legislation adding the subject interest provision stated that the bill was "designed to fill" a "vacuum" for late delivery, and that "[f]rom a fiscal standpoint the new provision relating to interest is certain to produce substantial financial receipts for the General Fund" (relator mem at 14, quoting Fox aff, ex 3). Further, with the legislative amendment (L 1971, ch 669) came the specific line for holders to report late filing interest on the Form AC 2709 — implying that the burden to determine the interest and pay it was upon the holders. In other words, there would be no need for a specific line, for the holder to fill out, if further action from the OSC was required before imposing interest.
Essentially, since the APL itself states that its sections are meant to be "liberally construed" ( APL § 102 ), coupled with the idea that the FCA is meant to be given an expansive reading (see Bahrani , 465 F.3d at 1194 ; Kane , 120 F. Supp. 3d at 379 ), this Court would be hard-pressed to find that there was no "obligation" here.
Accordingly, defendants are unable to meet their prima facie burden to establish that there was no obligation to pay late filing interest, or to accurately report information related to the same.
"Material"
The NYFCA defines "material" as "having a natural tendency to influence, or be capable of influencing the payment or receipt of money or property" (Fin L § 188[5] ). The materiality element "inquiry ‘focuses on the potential effect of the false statement when it is made, not [necessarily] on the actual effect of the false statement when it is discovered’ " ( Bahrani , 465 F.3d at 1204, quoting United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc. , 400 F.3d 428, 445 [6th Cir. 2005] ). Thus, "[t]he fact that a government official may subsequently waive an established fee does not negate the ‘potential effect’ of a false record or statement" ( Bahrani , 465 F.3d at 1204 ). However, as the Supreme Court more recently held, "in assessing materiality, we ‘look to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation’ " ( Grabcheski v. Am. Intl. Group, Inc. , 687 Fed. Appx. 84, 87 [2d Cir. 2017], quoting Escobar , 136 S. Ct. at 2002 ). Thus, likely or actual effects on the government's behavior may be considered as evidence of materiality but is not necessarily dispositive one way or the other (see Escobar , 136 S. Ct. at 2002-2004 ). Further, materiality "cannot be found where noncompliance is minor or insubstantial" ( id. at 2003 ).
This is the same definition of materiality as set forth in the federal False Claims Act (31 USC § 3729 [b] [4] ).
Defendants rely on the OSC Letter to infer that, because an audit was conducted and the Office of Unclaimed Funds at the OSC determined, in that instance, "that the circumstances warranted the waiver of late filing interest," that this is "strong evidence" that the violation of the statute is not material. Defendants further note that, even though the OSC can see that property was escheated late, the OSC still decided not to impose interest and therefore demonstrates a lack of materiality.
Initially, the Court notes that defendants' arguments are premised upon the inaccurate presumption that a decision to impose interest needed to have been made by the OSC in the first place (i.e., their argument above on the contingent obligation) — this was rejected as set forth above.
Even if the Court were to accept the premise, the argument appears to be applicable only to the allegations regarding the failure to pay the interest and does not seem to apply to the allegations regarding falsification of the property information on the reports. For example, it might be one thing for the OSC to clearly see that property was escheated late according to the information given, take note that no interest was paid, and waive it. It is quite another thing if the information was falsified such that the OSC did not even know the true length of time the property had been dormant — in which case, defendants provide no explanation or evidence on the OSC's "likely or actual behavior" to render such action immaterial to the OSC's receipt of money.
Defendants rely heavily on a few words of Escobar . However, the Supreme Court's overall guidance (see Escobar , 136 S. Ct. at 2003-2004 ) does not translate with such equal force in this instance where the issue is the government's passive receipt of money — which involves no decision-making step to pay money (see id. at 2004 [discussing whether a certification regarding a statutory violation is material if the defendant knows it would "entitle [the government] to refuse payment were it aware of the violation," and holding that that is not the sole standard to affirmatively find "materiality"] ). The Court finds that the OSC Letter (and the weight and meaning that defendants afford it) would not be dispositive even under Escobar's standards. In other words, the OSC Letter is insufficient evidence to support the contention that the one-time waiver itself demonstrates, prima facie, that the defendants' statutory violations were not material to the government's receipt of money. As relator noted, there may have been many other factors guiding the OSC's decision to waive interest in that instance. Accordingly, while the OSC Letter might be relevant evidence, it cannot be said, as a matter of law, that the inferred fact of waiver dispositively negates the materiality element as it applies to all allegations in this action. A resolution of the materiality issue must therefore await further factual development.
At this juncture, the entire time period of 2008 through 2012 is still actionable against the defendant covered by the OSC letter given that there is no evidence barring such action under the statute (see Fin L § 190 [prohibiting certain claims where the NYFCA violator reached a settlement agreement with the government, "and such agreement has been approved in writing by the attorney general, or by the applicable local government attorney"] ). Additionally, neither party raised the possibility of granting partial summary judgment on this basis.
Based upon the foregoing, it is ordered that defendants' motion (motion sequence 002) is denied.
This constitutes the decision and order of this Court.