Sixth Circuit Affirms Dismissal of $2.3 Billion FCA Case Due to Prior Public Disclosure

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Sixth Circuit Affirms Dismissal of $2.3 Billion FCA Case Due to Prior Public DisclosureLast week, in U.S. ex rel. Advocates for Basic Legal Equality, Inc. (ABLE) v. U.S. Bank, the Sixth Circuit affirmed the dismissal of a False Claims Act (FCA) suit against U.S. Bank because the conduct alleged by the qui tam relator had previously been publicly disclosed in a consent order with the Office of the Comptroller of the Currency (OCC) and in an interagency report by the Federal Reserve, OCC, and Office of Thrift Supervision.

The relator’s suit alleged that U.S. Bank had a practice of initiating foreclosure proceedings on FHA-insured mortgages without complying with 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.

While the FCA allows private individuals, known as relators, to bring qui tam actions and enforce the FCA on the government’s behalf, there are some statutory restrictions on what claims may be brought. Unless opposed by the government, the statute directs courts to dismiss FCA actions where “substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed.” 31 U.S.C. § 3730(e)(4)(A). However, 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 court held that ABLE’s claims were barred because the conduct it alleged had violated the FCA had already been publicly disclosed when ABLE filed suit in 2013. The two sources that the court cited for such public knowledge were:

  1. 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; and
  2. a 2011 foreclosure practices review from three federal agencies, which stated that a number of banks, including U.S. Bank, had failed to engage in loss mitigation and foreclosure prevention for delinquent loans.

The court found that these documents were sufficient to trigger the public disclosure bar in the FCA because they “put the government on notice of the possibility of fraud.”

U.S. Bank also challenged the district court’s holding that ABLE’s allegations constituted a cognizable violation of the FCA under an implied false certification theory, although the Sixth Circuit declined to rule on the issue. The implied false certification theory is based on the notion that the act of submitting a claim for payment implies compliance with governing federal rules that are a precondition to payment. Under this theory, the submitter of the claim may not have made any actual false statement or certification, but some courts interpret the act of submitting the claim to imply such a certification. The issue of the viability and scope of the implied certification theory is currently before the Supreme Court of the United States in U.S. ex rel. Escobar v. Universal Health Services, Inc., which has been set for oral argument on April 19. Here, given its holding on public disclosure, the Sixth Circuit declined to rule on the implied certification argument, noting that the Escobar opinion “may affect our precedents governing ABLE’s ability to state a claim.”

Overall, this opinion will be useful to institutions facing suits by opportunistic FCA whistleblowers alleging conduct that has already been made public in the process of oversight by federal agencies.