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United Statesr ex rel. Fisher v. JPMorgan Chase Bank, N.A.

United States District Court, E.D. Texas, Sherman Division

September 9, 2019

UNITED STATES OF AMERICA, ex rel., MICHAEL J. FISHER, KEITH FRANKLIN, CHEZZA HARTFIELD, and REGINA MCPHAUL
v.
JPMORGAN CHASE BANK N.A.

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Defendant JP Morgan Chase Bank N.A.'s Motion for Summary Judgment Under the Public Disclosure Bar (Dkt. #106). Having considered the motion and the relevant pleadings, the Court finds that the motion should be denied.

         BACKGROUND

         In 2008, the United States faced a housing crisis caused, in part, by mortgage fraud and predatory lending. The crisis caused home prices to plummet and foreclosures to skyrocket, leaving homeowners with negative equity in their homes. Distressed homeowners were unable to sell or refinance their homes to meet their mortgage obligations. In response to this crisis, the Government enacted the Emergency Economic Stabilization Act of 2008 (“EESA”). Fannie Mae entered a Financial Agency Agreement for a Homeownership Preservation under the EESA with the U.S. Department of Treasury (“Treasury”), whereby the Treasury authorized Fannie Mae to act as a financial agent of the United States for EESA programs.

         The Home Affordable Modification Program (“HAMP”), administered by the Treasury Department, was a voluntary program under EESA designed to prevent avoidable foreclosures by providing homeowners with affordable mortgage-loan modifications and other alternatives to eligible buyers. HAMP's primary goal was to relieve the burden on homeowners by lowering their mortgage payments to 31% or less of their gross monthly income. Investors would receive payments and a guarantee that no modification would result in a mortgage worth less than the net-present value of the property. In return, mortgage servicers, in addition to their annual servicing fees, received HAMP incentive payments to complete the modifications. Each successful modification entitled the servicer from $1, 200-2, 000 depending on how long the mortgage was delinquent. From the program's start in 2009 through the second quarter of 2016, HAMP generated more than 1.6 million permanent modifications.

         In 2009, Defendant-one of the country's largest mortgage servicers by volume-enrolled in HAMP. On July 31, 2009, Defendant expressly certified its compliance with HAMP guidelines and applicable federal laws in signing the initial Servicer Participation Agreement (“SPA”). The SPA names Defendant as the servicer and “Fannie Mae, solely as Financial Agent of the United States, ” as the administrator. The SPA also names Freddie Mac as a compliance agent. The parties signed a Financial Instrument on the same day, which details the representations, warranties, and covenants that Defendant is obligated to make in connection with its participation in HAMP. The Financial Instrument was fully incorporated into the SPA. On March 24, 2010, Defendant signed an Amended SPA. Defendant also signed annual certifications, a prerequisite to receiving HAMP payments.

         Defendant expressly represented in the SPAs and annual certifications that: (1) it was in compliance with the terms and guidelines of HAMP; (2) it was in compliance with all applicable laws and requirements; (3) it created and maintained an effective HAMP program and committed the resources needed to employ enough trained, experienced personnel with the tools and technology necessary to provide quality service to homeowners; and (4) it had adequately documented and monitored its compliance and immediately reported to the Government any credible evidence of material violations of these certifications.

         On February 8, 2012, Defendant and the Department of Justice, Department of Housing and Urban Development, and 49 state attorneys general entered into a $25 billion settlement agreement to address allegations of loan-servicing deficiencies, including HAMP violations. The Government brought suit, and the parties submitted a consent order that United States District Judge Rosemary M. Collyer of the United States District Court for the District of Columbia entered in April 2012. The consent order released Defendant from liability arising out of “Covered Servicing Conduct, ” including HAMP participation and implementation, occurring on or before February 8, 2012.

         On September 27, 2013, relator Michael J. Fisher filed a complaint against Defendant in the Southern District of New York on behalf of the United States, alleging multiple violations of the False Claims Act, 31 U.S.C. §§ 3729-3732 (“FCA”). On November 3, 2015, Keith Franklin, Reginald McPhaul, and Chezza Hartfield joined Michael J. Fisher as relators (collectively, “Relators”). On June 2, 2016, the Southern District of New York transferred the case to this Court.

         On January 30, 2019, Relators filed their operative complaint-Qui Tam Plaintiffs/Relators' Sixth Amended Complaint (Dkt. #115)-alleging that after February 8, 2012, Defendant systematically violated HAMP guidelines and knowingly presented false or fraudulent claims to the Government in order to obtain more than $430 million in HAMP payments. On December 13, 2018, Defendant filed its Motion for Summary Judgment Under the Public Disclosure Bar (Dkt. #106). Relators filed a response in opposition to Defendant's motion on February 6, 2019 (Dkt. #117). Defendant filed a reply in support of the motion on February 22, 2019, and Relators filed a sur-reply to the motion on March 8, 2019 (Dkt. #122; Dkt. #126).

         LEGAL STANDARD

         The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Summary judgment is proper under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute about a material fact is genuine when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court “must resolve all reasonable doubts in favor of the party opposing the motion for summary judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).

         The party seeking summary judgment bears the initial burden of informing the Court of its motion and identifying “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden of proof on a claim or defense for which it is moving for summary judgment, it must come forward with evidence that establishes “beyond peradventure all of the essential elements of the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986) (emphasis in original). Where the nonmovant bears the burden of proof, the movant may discharge the burden by showing that there is an absence of evidence to support the nonmovant's case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000).

         Once the movant has carried its burden, the nonmovant must “respond to the motion for summary judgment by setting forth particular facts indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at 248-49). A nonmovant must present affirmative evidence to defeat a properly supported motion for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir. 1982) (quoting Ferguson v. Nat'l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The Court must consider all of the evidence but “refrain from making any credibility determinations or weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).

         ANALYSIS

         Relators bring this qui tam action pursuant to the False Claims Act. 31 U.S.C. § 3729(a)(1)(A)-(B). Defendant moves the Court to enter summary judgment against Relators under the FCA's public-disclosure bar. The public-disclosure bar “applies ‘whenever qui tam relators bring a suit based on publically available information.'” United States ex rel. Colquitt v. Abbott Labs., 858 F.3d 365, 373 (5th Cir. 2017) (quoting United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 327 (5th Cir. 2011)). There is an exception to the public-disclosure bar if the relator is the original source of the information. Id. (citing 31 U.S.C. § 3730(e)(4)(A)).[1] The Fifth Circuit has explained the purpose of the public-disclosure bar and the original-source exception:

Together, the public disclosure bar and its original source exception calibrate the incentives for individuals to bring qui tam suits under the False Claims Act. When the facts showing fraud are veiled, relators who discover them should receive a reward for bringing claims. Even when the facts are publicly disclosed, a relator who is an original source may still bring something of value to the table and thus deserves to benefit. In other cases, the government-for whom the public disclosure bar is not an impediment to suit-either has notice of the wrongdoing or gains nothing from a relator with indirect knowledge of the same facts. Allowing private individuals to sue in those situations would provide an unnecessary windfall.

Id. (citing United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir. 2009); United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649-51 (D.C. Cir. 1994)).

         Courts in the Fifth Circuit ask three questions to determine whether the public-disclosure bar applies: “(1) whether there has been a ‘public disclosure' of allegations or transactions, (2) whether the qui tam action is ‘based upon' such publicly disclosed allegations, and (3) if so, whether the relator is the ‘original source' of the information.” United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg'l Healthcare Sys., 384 F.3d 168, 173 (5th Cir. 2004) (quotation omitted). The Court is not required to rigidly follow the three steps. Jamison, 649 F.3d at 327 (“[C]ombining the first two steps can be useful, because it allows the scope of the relators' action in step two to define the ‘allegations or transactions' that must be publicly disclosed in step one.”); see United States ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008). When determining if an action is barred by the public-disclosure provision, the defendant bears the burden to point to documents or transactions on which the relator's complaint is based. See Id. “[O]nce the opposing party has identified public documents that could plausibly contain allegations or transactions upon which the relator's action is based, the relator bears the burden of demonstrating that they do not.” Id.

         Defendant argues that the public-disclosure bar applies because: (1) the allegations in the complaint are based on public disclosures; and (2) none of the relators are original sources (Dkt. #106). Relators disagree with Defendant on both points (Dkt. #117). Because the Court finds that all Relators are original sources, the Court need only address Defendant's second argument.[2]

         I. All Relators Are Original Sources

         All Relators fall under the original-source exception to the public-disclosure bar for their separate allegations of fraud against Defendant. “Original source” is defined by statute:

For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who ...

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