United States: Sixth Circuit Affirms that Broad Public Disclosure of Misconduct May Bar More Specific Allegations of Fraud Under False Claims Act's Public Disclosure Bar

In U.S. ex rel. Advocates for Basic Legal Equality, Inc. v. U.S. Bank, 816 F.3d 428 (2016), the Sixth Circuit affirmed the dismissal of a False Claims Act ("FCA") suit against U.S. Bank based on the FCA's public disclosure bar. In reaching its decision, the Sixth Circuit held that the bar applied to a subset of broader misconduct than had previously been publicly disclosed, and that the few specific examples of alleged misconduct offered by Relator to qualify as an original source did not "materially add to" the prior public disclosures, and thus did not suffice to save the complaint from dismissal. Relator subsequently filed a petition for a writ of certiorari to the United States Supreme Court challenging the public disclosures that the Sixth Circuit held triggered the bar as insufficiently tailored to the fraud alleged in the complaint for the bar to apply. That petition remains pending.

Background

U.S. Bank participated in a mortgage insurance program, backed by the Federal Housing Administration ("FHA"), that encouraged banks to lend money to high-risk borrowers. To participate in the program, U.S. Bank had to certify that it would meet certain requirements, and each time it requested an insurance payment, U.S. Bank had to certify that it had satisfied those requirements. One such requirement mandated that U.S. Bank would engage in loss mitigation measures, such as attempting to arrange a face-to-face meeting with the defaulting borrower, before foreclosing.

Relator alleged that U.S. Bank engaged in a practice of initiating foreclosure proceedings on FHA-insured mortgages without complying with the servicing and loss mitigation regulations of the Department of Housing and Urban Development ("HUD"), although it submitted annual certifications to HUD containing a general statement that it was compliant with all HUD-FHA regulations. The relator alleged that this conduct resulted in $2.3 billion in false claims for FHA insurance benefits.

Sixth Circuit's Holding

The FCA's public disclosure bar directs courts to dismiss qui tam actions where "substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed" unless the qui tam plaintiff is an original source of the allegations. 31 U.S.C. § 3730(e)(4)(A). Only certain types of disclosures trigger this bar, namely, disclosures "in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party," "in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation," or "from the news media." Id.

Here, the Sixth Circuit held that Relator's claims were barred because the conduct it alleged had already been publicly disclosed. The sources that the court cited as prior public disclosures included (i) a 2011 consent order between U.S. Bank and the OCC requiring U.S. Bank to implement a wide variety of reforms, including loss mitigation and foreclosure prevention efforts for delinquent loans; (ii) a 2011 foreclosure practices review by three federal agencies, which noted that various banks, including U.S. Bank, had failed to take a variety of loss mitigation measures; and (iii) a 2011 news article discussing the consent order, which explained that U.S. Bank had engaged in a pattern of misconduct and negligence.

The court found that these disclosures were sufficient to trigger the public disclosure bar because they put the government on notice of the possibility of fraud. They disclosed the allegation that U.S. Bank had failed to engage in appropriate loss mitigation measures and that it committed fraud when it made false certifications about those efforts. The court also rejected the argument that, because neither the consent order nor the foreclosure practices review dealt with loss mitigation related specifically to federally insured mortgages, there was no prior public disclosure. Those prior disclosures broadly applied to any type of mortgage, thus encompassing federally insured mortgages. Otherwise, the court reasoned, "one could always—or at least nearly always—evade the public disclosure required by focusing the allegations in a second action on sub-classes of potential claims covered by the initial action." Advocates for Basic Legal Equality, Inc., 816 F.3d at 432. In short, the court held that the broader disclosure encompassed Relator's narrower allegations.

Having concluded that Relator's allegations were publicly disclosed, the court then addressed Relator's claim that it was an original source of the allegations. To qualify as an original source, a relator must have information that "materially adds to" the public disclosure. 31 U.S.C. § 3730(e)(4)(B). Materiality, here, "requires the claimant to show it had information 'of such a nature that knowledge of the item would affect a person's decision-making,' is 'significant,' or is 'essential.'" Advocates for Basic Legal Equality, Inc., 816 F.3d at 431. Relator argued that it met this standard for three foreclosures that purportedly demonstrated that U.S. Bank failed to engage in appropriate loss mitigation measures. The court rejected this, concluding that these incidents did not add to the thousands of prior problematic foreclosures already disclosed in the public record. Moreover, Relator failed to show that these three incidents in any way affected the government's decision-making as to U.S. Bank, as the government had already tried to remedy U.S. Bank's foreclosure practices in the 2011 consent decree.

In the process of reaching its decision, the Sixth Circuit joined at least five other circuits in concluding that the post-2010 version of the public disclosure bar "is no longer jurisdictional."

Implications of the Court's Ruling

This decision represents a principled application of the post-2010 public disclosure bar that will be useful to FCA defendants in challenging relators' efforts to bring claims based on conduct that has already been made public.

Relator filed a certiorari petition in July 2016 seeking to overturn the Sixth Circuit's decision. The petition asks the Supreme Court to address the specificity at which a court should assess whether a prior public disclosure states substantially the same fraud that is alleged in a complaint. In October 2016, the Court invited the Acting Solicitor General to file a brief in the case expressing the views of the United States. The petition remains pending.

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.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions