United States: In Win For Financial Services Industry, Second Circuit Limits Use Of FCA To Enforce Banking Regulations

In United States ex rel. Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016), the Second Circuit rejected an attempt to use the False Claims Act ("FCA") as an enforcement mechanism for banking regulations in the lead-up to the 2008 financial crisis. Expressing deference to the federal government's role in maintaining the stability of financial markets, the Second Circuit declined to hold that the defendant banks' broad representations of regulatory compliance gave rise to FCA liability. The case represents a victory for the financial services sector.


In Bishop, relators brought FCA claims against Wells Fargo, alleging fraud by executives at two banks Wells Fargo had acquired – Wachovia and World Savings Bank. The relators alleged that Wachovia executives had used improper accounting practices to hide toxic assets and conceal the fact that the bank was undercapitalized. They also asserted that World Savings Bank had failed to implement required internal controls and had made loans that were prohibited by applicable laws and regulations.

These alleged activities alone, however, did not involve claims for payment from the government, an essential element under the FCA.. To bridge that gap, relators argued that Wachovia, and later Wells Fargo, made false statements to the Federal Reserve System (the "Fed") by concealing this conduct when they borrowed money from the Fed's "discount window."

In particular, relators pointed to three representations in the Fed's Operating Circular No. 10 (the "Lending Agreement"), which they claim the banks could not have made truthfully when applying for those loans: Section 9.1(b), attesting that the borrower is not in violation of any laws or regulations relevant to the Lending Agreement; Section 9.1(g), attesting that the borrower has made no false statements in any documents furnished to the Fed; and Section 9.1(i), attesting that no event of default has occurred.

Relators argued that the banks had violated the FCA by making express false certifications under Sections 9.1(b), (g), and (i); making implied false certifications under Section 9.1(b); fraudulently inducing the Fed to lend them money; and conspiring to submit false claims.

The Southern District of New York granted the defendants' motion to dismiss with prejudice, and relators appealed.

Second Circuit Majority Opinion Affirms Dismissal

In an opinion by Chief Judge Katzmann, the Second Circuit affirmed the dismissal.

The court began by providing a detailed background on the operation and policy goals of the Fed's discount window. As the court explained, the discount window allows banks to borrow funds to meet their federally-mandated reserve requirements. Banks had originally been reluctant to avail themselves of this mechanism, for fear that doing so would give the impression that they were financially unsound. This reluctance, in turn, hampered the Fed's ability to maintain the stability of the U.S. financial system by cushioning shocks to the market. To remedy this, the Fed revised its regulations in 2003 to allow banks in "generally sound financial condition" to borrow at the primary credit rate (a rate set above the target Federal Funds Rate) with very minimal requirements. 12 C.F.R. § 201.4(a).

During the 2008 financial crisis, the Fed created another tool to manage liquidity: the Term Auction Facility ("TAF"). Under TAF, banks could bid on the amount of money they wanted to borrow and the interest rate they wanted to borrow at, and the Fed awarded loans based on the bids it received. Just as with the primary credit program, the TAF was available to banks in "generally sound financial condition."

The court in Bishop emphasized that the Fed's regulations required very little of institutions seeking to borrow under the primary credit program or TAF. Those regulations impose "minimal administrative burden," and they provide the Fed with discretion to lend even where an institution does not actually qualify for the primary credit rate. 823 F.3d at 40. In the vast majority of cases, the borrower must submit no more than the amount and term of the loan being sought.

Express False Certification

Turning to relators' express certification claims, the court first addressed the Section 9.1(b) certification in the Lending Agreement, under which defendants affirmed that they were not in violation of any laws or regulations relating to the contract. The Second Circuit agreed with the district court that this certification was too vague to support a false certification theory. In doing so, the court rejected relators' attempt to draw a parallel to the Tenth Circuit's decision in United States ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1171 (10th Cir. 2010). There, the Tenth Circuit had held that a certification of compliance with all the terms in a contract was sufficiently specific to give rise to an FCA claim if the defendant violated one of those terms. In contrast, the certification here was hopelessly broad, implicating "thousands of laws and regulations that could plausibly affect . . . the terms of the Lending Agreement." 823 F.3d at 45. Nor was the court convinced that industry practice required that these certifications be read as narrow, enforceable representations. The Fed, it noted, is not a commercial bank, and providing such sweeping enforcement authority to relators under the FCA could undermine the Fed's goals of market stabilization.

The court similarly affirmed dismissal of the express false certification claims under Section 9.1(g), which requires borrowers to certify that they have not provided any false documents or made any false statements to the Fed in connection with borrowing funds. As the court explained, the minimal documentation submitted by discount-window borrowers did not contain any of the detailed financial information that relators claimed had been falsified.

Finally, the court affirmed dismissal of the claims under Section 9.1(i), which required certification that no event of default had occurred. Because these claims relied on the same conduct as the other two express false certification theories, they failed for the same reasons.

Implied False Certification

In addition to advancing an express false certification theory under Section 9.1(b), relators argued that the fraudulent conduct they had alleged also resulted in an implied false certification under that provision. Relying on its earlier decision in United States ex rel. Mikes v. Strauss, 274 F.3d 687 (2d Cir. 2001), the court rejected this theory as well.

The court disagreed with relators that its analysis should focus on whether the regulations at issue lay "at the heart of" the banks' agreements with the Fed. 823 F.3d at 48. Instead, it pointed to its holding in Mikes that the relevant regulations must expressly state that they are conditions of payment in order to give rise to an implied certification claim. That was simply not the case here.

Notably, in reaching this decision, the court also clarified that Mikes applied beyond the healthcare fraud context that had been at issue in that case. As the court explained, Mikes' deference to existing regulatory mechanisms, designed to facilitate the functioning of a complex, and publically significant industry, applied just as strongly here.

Fraudulent Inducement and Conspiracy

The court dealt with the remaining fraudulent inducement and conspiracy claims in summary fashion. Because these claims were derivative of their other theories, they failed for the same reasons.


The Second Circuit's decision in Bishop stakes out an important limitation on complaints that premise FCA liability on broad certifications of compliance with laws and regulations. The decision is particularly relevant for the financial services industry, where an endorsement of relators' theory could have subjected banks to treble damages under the FCA for an extraordinarily wide range of regulatory violations. Especially in the wake of the 2008 financial crisis, which has seen a proliferation of suits against banks and mortgage lenders, the case is a victory for financial institutions.

The decision may also provide a useful precedent for defendants in other industries who face FCA claims based on broad certifications of laws and regulations. Boilerplate certifications of general legal compliance are common in a number of areas, and the court's reiteration that such certifications may not be used as "a blunt instrument to enforce compliance with all . . . regulations," Mikes, 274 F.3d 699, is significant.

Bishop, however, pre-dates the recent Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016). In Escobar, the Supreme Court recognized that nondisclosure of noncompliance with a specific legal requirement could provide a basis for FCA liability where, as a result of the nondisclosure, defendant knowingly made a statement in a claim for payment that was materially false. In evaluating materiality under this standard, the Court disagreed with one aspect of Mikes, stating that it was relevant but not dispositive that a regulation may expressly state that it is a condition of payment. As a result, the contours of the Second Circuit's post-Escobar implied certification standard will require further development. We will continue to monitor decisions as they issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.