United States of America, ex rel Michael J. Fisher v. JPMorgan Chase Bank, N.A.

RESPONSE to Motion re MOTION for Leave to File Sixth Amended Complaint

E.D. Tex.February 13, 2019

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION UNITED STATES OF AMERICA Ex rels. Michael J. Fisher, Keith Franklin, Chezza Hartfield and Reginald McPhaul, Plaintiffs-Relators, v. JPMORGAN CHASE BANK, N.A., Defendant. Civil Action No. 4:16-CV-395 JUDGE AMOS L. MAZZANT DEFENDANT’S RESPONSE TO RELATORS’ MOTION FOR LEAVE TO AMEND Defendant JPMorgan Chase Bank, N.A. (“Chase”) submits this response to Relators’ January 30, 2019 motion for leave to file a Sixth Amended Complaint (“Motion to Amend”) (Dkt. No. 114). Relators seek in their Motion to Amend to file yet another version of the complaint that would add, they say, only a “clarifying” footnote that their allegations regarding HAMP modifications include HAMP modifications of FHA-insured loans. Chase understands that the case as currently pleaded encompasses FHA-HAMP modified loans, and does not oppose the motion to the extent Relators feel it necessary to confirm that in a Sixth Amended Complaint. Chase opposes the motion, however, if and to the extent that Relators intend this footnote to expand the claims by capturing (i) Federal Housing Administration (“FHA”) loans that did not receive FHA-HAMP modifications or (ii) any allegations that Chase violated FHA rules and regulations outside of those specific to FHA-HAMP modifications. Relators made the decision two years ago to drop those FHA-loan allegations, and should not be allowed to re-inject them in the case now by way of a conclusory footnote. Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 1 of 7 PageID #: 2128 2 BACKGROUND This case is about Chase’s certifications under HAMP, a loan modification program established under Treasury’s Making Home Affordable (“MHA”) Program.1 To participate in HAMP, loan-servicers like Chase must annually certify to Treasury that they have materially complied with applicable laws and regulations.2 Relators allege that Chase falsely certified its compliance with HAMP program guidelines and applicable laws, and thus fraudulently obtained HAMP incentive payments from Treasury for modifying home loans. FHA-HAMP is a program administered under the MHA Program that allows borrowers with FHA-insured mortgages to participate in the HAMP program and reduce monthly mortgage payments.3 FHA-HAMP is incorporated into the same annual servicer certifications as HAMP, and Treasury pays the incentives on FHA-HAMP and HAMP.4 FHA provides mortgage insurance for single-family housing loans to approved servicers to protect them against losses resulting from defaulting borrowers.5 To maintain FHA approval and qualify as an FHA-insured lender, servicers must annually certify their compliance with all FHA and Department of Housing and Urban Development (“HUD”) regulations and requirements.6 Unlike the annual HAMP certifications at issue in this case, the annual FHA 1 MHA Handbook v. 5.1 at 1–3, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_51.pdf. 2 Id. at 36. 3 Id. at 212. 4 Id. at 2; MHA Supplemental Directive 10-06 at 2–3, available at https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/sd1006.pdf. 5 12 U.S.C. § 1709; 24 C.F.R. § 203. 6 24 C.F.R. § 202.5. Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 2 of 7 PageID #: 2129 3 certifications are not made to Treasury. Rather, they are made to an entirely different government entity, HUD. Relators included in their September 2, 2014 Second and November 3, 2015 Third Amended Complaints allegations concerning the servicing of FHA-insured loans outside the FHA-HAMP context. They alleged that Chase (i) falsely certified its compliance with applicable laws and regulations in its annual FHA certifications to HUD, (ii) failed to “meet the fundamental requirements related to the servicing of delinquent FHA loans under the mandated loss mitigation program,” and (iii) violated FHA appraisal requirements.7 Those allegations were absent, however, beginning with the Fourth Amended Complaint, filed on October 21, 2016, following the Government’s investigation of the Second and Third Amended Complaints. Relators acknowledge that they removed those allegations in the Fourth and Fifth Amended Complaints.8 On January 30, 2019—the last day for moving to amend the complaint under the Court’s January 22, 2019 scheduling order—Relators moved to file a Sixth Amended Complaint to add the following footnote: There are several versions of the HAMP program, including loans that are insured by the Federal Housing Administration (“FHA”). HAMP modifications of such loans are sometimes denominated “FHA-HAMP” modifications. References to Chase’s conduct as to HAMP modifications in this complaint include its modifications of FHA-insured loans. Earlier complaints in this action encompassed FHA-insured loans, but Relators add this footnote out of an abundance of caution. Both Mr. Franklin and Mr. McPhaul worked with both conventional and FHA-insured loans.9 7 Second Am. Compl. ¶¶ 5–6, 45–59; Third Am. Compl. ¶¶ 2, 37–54, 80. 8 Mot. to Amend at 1. 9 Proposed Sixth Amended Complaint ¶ 1 n.1 (Dkt. No. 114-1). Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 3 of 7 PageID #: 2130 4 Relators portray the Sixth Amended Complaint as a “minor amendment” made “out of an abundance of caution” to “clarify the universe of loans covered.”10 While Relators admit that they previously removed “loan servicing allegations specific to FHA requirements” in their Fourth Amended Complaint, they contend that they “in no way withdrew FHA loans from the case entirely,” and that the “remaining” allegations in the Fourth and Fifth Amended Complaints pertain to both conventional HAMP and FHA-HAMP loans. (Id.) ARGUMENT Although Rule 15(a) provides that leave to amend should be “freely” given “when justice so requires,”11 it “is not automatic.”12 Whether to allow amendment “lies within the sound discretion of the district court.”13 A district court reviewing a motion to amend pleadings under Rule 15(a) may consider “whether there has been ‘undue delay, bad faith or dilatory motive, . . . undue prejudice to the opposing party, and futility of amendment.’”14 Notably, this would be the seventh version of Relators’ claims. In the Second and Third Amended Complaints, Relators alleged that Chase falsely certified its compliance with FHA rules by “failing to meet the basic and fundamental requirements related to the servicing of delinquent FHA loans under the mandated loss mitigation program,” and violating specific FHA regulations, including appraisal requirements.15 10 Mot. to Amend at 2. 11 Fed. R. Civ. P. 15(a). 12 Transplace Texas LP v. Alioto, No. 4:16-CV-00647, 2017 WL 823597, at *1 (E.D. Tex. Mar. 2, 2017) (internal quotation marks and citation omitted). 13 Little v. Liquid Air Corp., 952 F.2d 841, 845–46 (5th Cir. 1992). 14 Jacobsen v. Osborne, 133 F.3d 315, 318 (5th Cir. 1998) (quoting In re Southmark Corp., 88 F.3d 311, 314–15 (5th Cir. 1996)). 15 Second Am. Compl. ¶¶ 5–6, 45–59; Third Am. Compl. ¶¶ 2, 37–54, 80. Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 4 of 7 PageID #: 2131 5 But Relators admittedly abandoned those allegations more than two years ago by omitting them from the Fourth Amended Complaint.16 Relators presumably recognized that they could not meet either or both their Rule 9(b) pleading burden or Rule 11 certification obligations as to those allegations. This motion should be denied, therefore, if and to the extent Relators seek to revive those long-abandoned allegations.17 Permitting Relators to enlarge the litigation’s scope by reinstating those FHA-rule- violation allegations, unrelated to HAMP, would prejudice Chase by substantially increasing its discovery burden. Chase has been working diligently to identify and collect documents regarding the current complaint’s HAMP and FHA-HAMP related issues, so that it can timely produce documents “relevant to the claim or defense of any party,” as this Court’s January 22, 2019 scheduling order requires.18 Those documents, however, do not concern FHA loans or rules, FHA certifications, or HUD. Chase would be prejudiced by now having to bear the additional burden and expense of collecting and producing potentially voluminous documents concerning a different government program, run by a different government agency, pertaining to an entirely different set of loans, governed by a different set of rules and regulations. This prejudice would be further compounded by the need for testimony, both fact and expert, concerning the FHA program, which the current complaint would not require. 16 See Mot. to Amend at 1 (Relators admit that they previously removed “loan servicing allegations specific to FHA requirements” in their Fourth Amended Complaint); January 30, 2019 E-Mail from Stephen L. Shackelford to Elizabeth L. McKeen (Relators “did remove certain FHA-specific allegations from the complaint in earlier iterations,” but “never removed FHA- HAMP allegations in their entirety”). 17 See, e.g., State of La. v. Litton Mortg. Co., 50 F.3d 1298, 1304 (5th Cir. 1995) (affirming district court’s denial of motion to amend where plaintiff attempted to resurrect an abandoned RICO claim after multiple amendments and finding the proposed amendment to be “indicative of possible bad faith and dilatory motive at the worst, and weak attempts at artful pleading at best”). 18 Scheduling Order at 4 (Dkt. No. 113). Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 5 of 7 PageID #: 2132 6 Any attempt to resurrect allegations pertaining to FHA rule violations outside of FHA- HAMP would also result in delay.19 The deadlines in the parties’ January 2, 2019 Joint 26(f) Report that the Court incorporated into its January 22, 2019 Scheduling Order were based on the litigation’s current focus on the HAMP and FHA-HAMP programs. But broadening the litigation’s scope to include FHA regulations and a program other than FHA-HAMP likely would require extending the current deadlines to allow the parties to complete the necessary additional discovery. CONCLUSION Chase does not oppose Relators’ proposed amendment if and to the extent the only purpose of the amendment is indeed to “clarify” that Relators’ claims apply to loans that received FHA-HAMP modifications in addition to loans that received conventional HAMP loan modifications. The Court should deny Relators’ Motion to Amend, however, if and to the extent Relators seek to re-insert their abandoned FHA-specific claims outside of FHA-HAMP. 19 “[W]here an amendment would likely result in the burdens of additional discovery and delay to the proceedings, a court usually does not abuse its discretion in denying leave to amend.” Dietgoal Innovations, LLC v. Arby’s Rest. Grp., Inc., No. 2:11CV418, 2012 WL 12904105, at *1 (E.D. Tex. May 24, 2012) (quoting Popp Telcom v. American Sharecom, Inc., 210 F.3d 928, 943 (8th Cir. 2000)); see also Prevmed, Inc. v. MNM-1997, Inc., No. CV H-15-2856, 2016 WL 3773399, at *9 (S.D. Tex. July 8, 2016) (denying motion to amend to add new claims over a year and a half after original complaint was filed that would “undoubtedly delay the discovery process and prejudice” the non-movant by requiring it to investigate and defend against the new claims). Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 6 of 7 PageID #: 2133 7 Respectfully submitted this 13th day of February, 2019. Richard A. Sayles Texas State Bar No. 17697500 dsayles@bradley.com Mark D. Strachan Texas State Bar No. 19351500 mstrachan@bradley.com Bradley Arant Boult Cummings LLP 4400 Renaissance Tower 1201 Elm Street Dallas, Texas 75270 Telephone: (214) 939-8700 Facsimile: (214) 939-8787 Elizabeth Lemond McKeen California State Bar No. 216690 O’Melveny & Myers LLP 610 Newport Center Drive Newport Beach, California 92660 Telephone: (949) 823-6900 Facsimile: (949) 823-6994 /s/ Jonathan Rosenberg Jonathan Rosenberg New York State Bar No. 1992890 Anton Metlitsky New York State Bar No. 4383527 Asher L. Rivner New York State Bar No. 4283438 O’Melveny & Myers LLP Seven Times Square New York, New York 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061 Counsel for JPMorgan Chase Bank, N.A. CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Defendants’ Response to Relators’ Motion to Amend was served upon all counsel of record, via the court’s CM/ECF system, this 13th day of February, 2019. /s/ Jonathan Rosenberg Jonathan Rosenberg Case 4:16-cv-00395-ALM Document 119 Filed 02/13/19 Page 7 of 7 PageID #: 2134