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

RESPONSE in Opposition re MOTION for Summary Judgment / Defendant's Motion for Summary Judgment Under Public Disclosure Bar

E.D. Tex.March 8, 2019

1 6413354v1/015317 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, v. JPMORGAN CHASE BANK, N.A., Defendant. Civil Action No. 4:16-CV-395 JUDGE AMOS L. MAZZANT Relators’ Sur-Reply in Further Opposition to Defendant’s Motion for Summary Judgment Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 1 of 11 PageID #: 2168 2 6413354v1/015317 Table of Contents Page(s) Introduction ……………………………………………………………………………. 1 Argument ……………………………………………………………………………… 2 1. A “Claim” is a Theory or Type of Fraudulent Conduct ………………………. 2 2. Relators Are Original Sources ………………………………………………… 5 Conclusion ……………………………………………………………………………... 6 Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 2 of 11 PageID #: 2169 3 6413354v1/015317 TABLE OF AUTHORITIES Page(s) Cases U.S. ex. rel. Boothe v. Sun Healthcare Grp., Inc., 496 F.3d 1169 (10th Cir. 2007) .............................................................................................3, 4 U.S. ex rel. Branch Consultants, LLC v. Allstate Ins. Co., 782 F. Supp. 2d 248 (E.D.La. 2011) ..........................................................................................6 U.S. ex rel. Fisher v. Ocwen Loan Serv., L.L.C., No. 12-543, 2016 WL 3031713 (E.D. Tex. May 25, 2016)...................................................4, 6 U.S. ex rel. Merena v. SmithKline Beecham Corp., 205 F.3d 97 (3d Cir. 2000)........................................................................................................ 4 Rockwell Int’l Corp. v. U.S., 549 U.S. 457 (2007) ...........................................................................................................1, 2, 3 Statutes False Claims Act ..........................................................................................................................1, 6 Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 3 of 11 PageID #: 2170 1 6413354v1/015317 Relators respectfully submit this sur-reply in further opposition to defendant’s motion for summary judgment under the public disclosure bar. Introduction Chase’s opening brief hinges on the contention that, under the public disclosure bar, prior knowledge of any misconduct connected to its HAMP program insulates it from all future false claims actions related to the program—even if the future claim details a fraudulent scheme distinct from the already-discovered misconduct. Indeed, rather than pointing to even a single public disclosure of Relator’s core allegations (there is none), Chase takes the far-fetched and legally unsupported position that because Relators’ allegations of multiple, discrete fraudulent schemes are all linked to Chase’s false HAMP certifications, Relators assert only a single “claim” under the False Claims Act. Not so. The U.S. Supreme Court has made clear that when assessing whether the public disclosure bar applies, a “claim” is a theory or type of fraudulent conduct. See, e.g., Rockwell Int’l Corp. v. U.S., 549 U.S. 457 (2007). And the facts are clear that (1) Relators allege four unique, independent theories of fraud and (2) Chase has not cited a single public disclosure of two of those theories, i.e., that Chase double counted unpaid principle and capitalized anticipated escrow shortages when calculating borrowers’ HAMP modifications. Those claims, therefore, are not based on a public disclosure. Chase also seeks to undermine Relators’ original source status based on a misunderstanding of the law. Relying again on its faulty single-claim premise, Chase argues that the three non-Fisher Relators cannot be original sources because they did not add any new claims to Fisher’s suit and were therefore required to disclose their allegations to the government before Fisher filed the original complaint. Chase is wrong. Because the relevant amended complaints Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 4 of 11 PageID #: 2171 2 6413354v1/015317 added theories or types of fraudulent conduct, the critical inquiry is whether Relators disclosed their allegations to the government before filing the amended complaints containing those allegations. They did, a fact Chase does not dispute. Chase also claims that Fisher is not an original source because his allegations do not materially add to the public disclosure. But Chase has yet to point to any public disclosure revealing Chase’s failure to inform borrowers of massive balloon payments in violation of TILA, which is a relevant allegation based on Fisher’s direct, first-hand knowledge. Argument 1. A “Claim” is a Theory or Type of Fraudulent Conduct Chase’s reply doubles down on its faulty argument that Relators assert only one claim— that Chase falsely certified its compliance with HAMP and other laws in order to receive payments from the government. Reply at 3. Yet, Chase still cannot offer any legal support for this argument. There is none. The case law demonstrates that a court should view each discrete theory of fraudulent conduct as a separate claim and assess each claim individually. For example, in Rockwell Int’l Corp. v. U.S., the relator, James Stone, alleged that Rockwell falsely certified its compliance with various laws and regulations in order to receive payments from the government. 549 U.S. at 462–64. Similar to Relators here, Stone alleged several different theories of fraud—e.g., a “pondcrete claim” and a “spray-irrigation claim”—all tied to the same certifications made in connection with the same government contract that resulted in the same payments to Rockwell. Id. at 464–65. Stone won on the pondcrete claims but lost on the other claims. Id. at 466. Following the verdict, Rockwell moved to dismiss Stone’s claims, arguing that they were based on publicly disclosed allegations. Id. Stone argued that even though the pondcrete claims were based on publicly disclosed allegations, his original Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 5 of 11 PageID #: 2172 3 6413354v1/015317 source status as to the spray-irrigation claims provided jurisdiction for all of his claims. Id. at 476. The Court rejected this argument, concluding “that § 3730(e)(4) does not permit such claim smuggling.” Id. The Court recognized that because the “pondcrete claim” and the “spray– irrigation claim” were discrete theories of fraudulent conduct, it must analyze them individually. It made no difference that both claims were based on theories of fraud connected to certifications under the same contract; they were separate claims. The same is true here. That Chase’s multiple fraudulent schemes all funnel through the same certifications does not mean that they are not separate claims. The Court similarly should reject Chase’s “claim smuggling” attempt here. Chase’s interpretation of “claim” was also rejected squarely in U.S. ex. rel. Boothe v. Sun Healthcare Grp., Inc., 496 F.3d 1169, 1170 (10th Cir. 2007). There the relator claimed that the defendant overbilled the United States through ten discrete and independent fraudulent schemes. Id. For example, Boothe alleged that, as one of its schemes, Sun overcharged Medicare for pharmacy charges. Id. at 1171. She alleged that, in another scheme, Sun manipulated patient discharges at a particular hospital in order to impose improper costs on Medicare. Id. The defendant argued that because three of the schemes Boothe alleged were based on public disclosures, the entire complaint should be dismissed. Id. at 1175-76. The Tenth Circuit disagreed and, relying on Rockwell, held that “district courts should assess jurisdiction on a claim-by-claim basis, asking whether the public disclosure bar applies to each reasonably discrete claim of fraud.” Id. at 1176 (emphasis added). The court saw each of Boothe’s ten theories of Medicare fraud as a separate claim of fraud and found that each had to be analyzed separately and on its own terms. Id. at 1177. The same holds true here. Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 6 of 11 PageID #: 2173 4 6413354v1/015317 The rationale behind assessing each discrete theory of fraudulent conduct independently is explained in U.S. ex rel. Merena v. SmithKline Beecham Corp.: The plaintiff’s decision to join all of his or her claims in a single lawsuit should not rescue claims that would have been doomed by section (e)(4) if they had been asserted in a separate action. And likewise, this joinder should not result in the dismissal of claims that would have otherwise survived. 205 F.3d 97, 102 (3d Cir. 2000) (Alito, J.) (emphasis added) (viewing the various fraudulent Medicare schemes the relator alleged as separate claims). Here, treating Relators’ allegations of multiple, distinct, fraudulent schemes as a single claim would wrongly “result in the dismissal of claims that would have otherwise survived.” Chase failed, in both its opening brief and its reply, to point to a single public disclosure of Relators’ claims that Chase stole money from borrowers by capitalizing (1) the principal portion of their missed payments and (2) anticipated escrow shortages. Chase’s only hope is to hitch those claims—which were undisclosed before Relators brought them to light—to allegations of different fraudulent misconduct. But Relators’ double-capitalization claims are “reasonably discrete claim[s] of fraud,” Boothe, 496 F.3d at 1176, distinct from and independent of Relators’ claims that Chase engaged in dual tracking and failed to run a compliant HAMP program. Even if Relators failed to prove that Chase was dual tracking loans, that would have no impact on Relators’ claim that Chase was double counting principal. Likewise, if Relators could not prove that Chase improperly capitalized escrow charges, they could still demonstrate that Chase failed to run a compliant HAMP program. That is because each of Relators’ claims is based on different, specific practices, and each of the four claims stands on its own. Chase argues that this Court’s decision in U.S. ex rel. Fisher v. Ocwen Loan Serv., L.L.C., No. 12-543, 2016 WL 3031713 (E.D. Tex. May 25, 2016) supports its interpretation of “claim.” But as Relators explained on pages 10 and 11 in their opening brief, this Court in that Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 7 of 11 PageID #: 2174 5 6413354v1/015317 case did not need to closely analyze each of the many claims relators asserted to determine which were based on public disclosure because it was clear that all of the relators’ allegations were based on their independent observations, entitling them to original source status as to all of their claims. Accepting Chase’s argument that Relators’ discrete, independent theories can be collapsed into a single claim would mean that public disclosure of a government contractor’s prior contract-related misconduct precludes any future false claims action related to that contract, regardless of whether the future action alleges novel theories or different factual predicates of misconduct. This would lead to absurd results. 2. Relators Are Original Sources Chase claims on page 6 of its Reply that, as a matter of law, Relators Franklin, Hartfield, and McPhaul cannot be original sources because they did not disclose their allegations to the government before Mr. Fisher filed the original complaint. This argument also rests on the faulty premise that Relators assert only a single claim. But because Relators assert four separate, distinct claims, the Court must analyze original source status as to each of those claims, evaluating whether a claim was disclosed to the government before Relators filed the complaint (original or amended) containing that particular claim. To hold otherwise would mean that if a relator files a false claims action and later amends the suit to add new claims that are based on publicly disclosed facts, he or she is not an original source as to those newly added claims unless he or she disclosed the facts underlying the newly added claim to the government before filing the original complaint. But if the relator disclosed the facts underlying those new claims to the government before filing a separate action, then he could claim original source status. This makes no sense. Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 8 of 11 PageID #: 2175 6 6413354v1/015317 Nor does it make sense to suggest, as Chase does, that an individual who has direct and independent knowledge of information that materially adds to public disclosures cannot join an existing qui tam action and qualify as an original source if he did not disclose his allegations to the government before the original complaint was filed. This would cut against the False Claims Act’s primary goal of “encourag[ing] private citizens to expose frauds against the government.” U.S. ex rel. Branch Consultants, LLC v. Allstate Ins. Co., 782 F. Supp. 2d 248, 257 (E.D.La. 2011). If Chase’s argument had any merit, then the relators in Ocwen, 2016 WL 3031713, at *1, could not have successfully claimed original source status. Fisher filed the original complaints in Ocwen in 2012. Id. at *1–2. Bullock did not join the suit until 2014. Id. The defendants argued that Fisher and Bullock were not original sources as a matter of law because neither of them provided the government with the information supporting their amended complaints until 2014. Id. at *7. This Court rejected that argument, ultimately finding that both Fisher and Bullock were original sources. Id. at *8. The same holds true with the Relators here. Chase also claims on page 10 of its Reply that Fisher is not an original source in this case because his allegations do not materially add to already disclosed information. Fisher alleges that, when performing HAMP modifications, Chase knowingly and repeatedly concealed massive balloon payments from borrowers. These allegations are based on Fisher’s “direct, first- hand knowledge,” Ocwen, 2016 WL 3031713, at *7; they are relevant and significant; and they are nowhere to be found in the public disclosures Chase says preclude this false claims action. Conclusion The Court should deny Chase’s motion for summary judgment under the public disclosure bar. Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 9 of 11 PageID #: 2176 7 6413354v1/015317 Dated: March 8, 2019 By: /s/ Stephen Shackelford, Jr. SUSMAN GODFREY L.L.P. Stephen Shackelford, Jr. (Bar No. 24062998) sshackelford@susmangodfrey.com 1301 Avenue of the Americas, 32nd Floor New York, New York 10019 212-336-8330 Telephone 212-336-8340 Facsimile Geoffrey L. Harrison (Bar No. 00785947) gharrison@susmangodfrey.com Shawn L. Raymond (Bar No. 24009236) sraymond@susmangodfrey.com Laranda Moffett Walker (Bar No. 24089943) lwalker@susmangodfrey.com 1000 Louisiana Street, Suite 5100 Houston, Texas 77002 713-651-9366 Telephone 713-654-6666 Facsimile SANDERS, MOTLEY, YOUNG & GALLARDO, PLLC Roger D. Sanders (Bar No. 17604700) roger.sanders@somlaw.net J. Michael Young (Bar No. 00786465) michael.young@somlaw.net 111 S. Travis Street Sherman, Texas 75090 903-892-9133 Telephone 903-892-4300 Facsimile LIEFF CABRASER HEIMANN & BERNSTEIN, LLP Jonathan D. Selbin jselbin@lchb.com Jason L. Lichtman jlichtman@lchb.com 250 Hudson Street, 8th Floor New York, NY 10013-1413 212-355-9500 Telephone 212-355-9592 Facsimile Nimish R. Desai ndesai@lchb.com 275 Battery Street, 29th Floor San Francisco, CA 94111-3339 415-956-1000 Telephone 415-956-1008 Facsimile Andrew R. Kaufman akaufman@lchb.com John T. Spragens jspragens@lchb.com 222 2nd Avenue South Suite 1640 Nashville, TN 37201 615-313-9000 Telephone 615-313-9965 Facsimile Counsel for Relators Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 10 of 11 PageID #: 2177 8 6413354v1/015317 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served on March 8, 2019 to all counsel of record who are deemed to have consented to electronic service via the Court’s CM/ECF system per Local Rule CV-5(a)(3). /s/ Stephen Shackelford, Jr. Case 4:16-cv-00395-ALM Document 126 Filed 03/08/19 Page 11 of 11 PageID #: 2178