Suppressed v. Suppressed

Filing 50

MEMORANDUM Opinion and Order Signed by the Honorable Sharon Johnson Coleman on 3/12/2019. Mailed notice. (ym, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
ex rel, DeVontae Brooks,
Appearing QUI TAM,
Plaintiff/Relator,
v.
WELLS FARGO BANK N.A,
Defendant.

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Case No. 17-cv-1237
Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER
Plaintiff/relator DeVontae Brooks brings this qui tam action under the False Claims Act
(“FCA”) against defendant Wells Fargo Bank N.A. Specifically, Brooks alleges that Wells Fargo
submitted fraudulent claims, gave false statements, and committed unlawful retaliation in violation
of 31 U.S.C. § 3729(a)(1)(A)-(B) and 31 U.S.C. § 3730(h). Currently before the Court is Wells
Fargo’s motion to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure
12(b)(6). For the reasons explained below, the motion to dismiss is granted.
Background
The following facts are summarized from the amended complaint and are taken as true for
the purpose of this motion. Wells Fargo is a national bank with its home office in Sioux Falls, South
Dakota. Fannie Mae and Freddie Mac are government sponsored enterprises who buy mortgage
loans and mortgage-related securities originated by, among others, Wells Fargo. The Federal
Housing Administration (“FHA”) is a government agency who provides approved lenders with
protection against losses when homeowners default on their loans.

Brooks worked for Wells Fargo from 2010 until 2016. In June 2014, Brooks was Associate
Vice President/Lending Manager for the National Decision Support Division. In this position,
Brooks supervised several underwriters with the responsibility for evaluating high-risk loan requests.
In July 2016, Brooks denied a self-employed applicant for a loan (“Yalif Loan”) because,
according to Brooks, the application did not support the ability to repay. After the loan was denied,
a loan officer escalated the application to Wells Fargo’s National Escalation Team where it was again
denied. Next, several executives within the Loan Department were called in an attempt to have the
loan approved. Brooks states that he continued to warn his superiors that the Yalif Loan application
failed to meet Fannie Mae’s standards. Brooks asserts that after the loan was denied a third time,
“the sales team” provided a dictated letter that was signed by the borrower which “allowed an
alleged third party to review the file and make a final determination.” Dkt. 15 at 8. The loan was
approved in August 2016.
That same month, Brooks denied another loan application (“Fay Loan”). The borrower
applied for a commercial loan after needing to make an imminent balloon payment he could not
afford. While reviewing the application, Brooks noticed inconsistencies on the applicant’s tax
returns. According to Brooks, Elena Golubstov, a Wells Fargo lending officer, informed Brooks that
the application would be approved if the applicant knew how much income was needed to qualify.
After informing his superiors that this would be illegal and unethical, Brooks was “cut-off” from
communication about the application. Brooks states that the loan request was approved in
September 2016 after Wells Fargo told the applicant how much income was needed on his
application.
Brooks alleges that Wells Fargo provided false information to Fannie Mae and Freddie Mac
for repayment stating that the applications met all underwriting standards and were free from fraud
and material misrepresentation. In Count I, Brooks alleges Wells Fargo submitted fraudulent claims
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for payment to the United States government. In Count II, Brooks asserts that Wells Fargo used
false statements in connection with selling mortgage loans to Fannie Mae and Freddie Mac. In
Count III, Brooks alleges that his termination was unlawful retaliation after notifying his superiors
about the false statements to Fannie Mae, Freddie Mac, and the FHA.
Wells Fargo argues that Brooks’ amended complaint should be dismissed for failure to state a
claim under Rule 12(b)(6) and Rule 9(b). Specifically, Wells Fargo asserts that the amended complaint
fails to sufficiently plead a claim to the United States government, does not adequately allege
materiality, and fails to sufficiently allege a nationwide scheme. Additionally, Wells Fargo argues that
Brooks’ FCA retaliation claim should be dismissed.
Legal Standard
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of the complaint, not the merits of the allegations. To overcome a motion to dismiss, a
complaint must contain sufficient factual allegations to state a claim for relief that is plausible on its
face, Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009), and raises the right
to relief above a speculative level, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L.
Ed. 2d 929 (2007). When ruling on a motion to dismiss, the Court must accept all well-pleaded factual
allegations in the complaint as true and draw all reasonable inferences in the plaintiff’s favor. Park v.
Ind. Univ. Sch. of Dentistry, 692 F.3d 828, 830 (7th Cir. 2012).
Discussion
Under 31 U.S.C. § 3729(a)(1)(A), a person violates the False Claims Act if he “‘knowingly
presents, or causes to be presented, a false or fraudulent claim for payment or approval by the
government.’” United States ex rel. Grenadyor v. Ukrainian Village Pharmacy, Inc., 772 F.3d 1102, 1105 (7th
Cir. 2014) (internal citation omitted). When alleging an FCA violation, the complaint must satisfy the
heightened pleading requirements of Federal Rule of Civil Procedure 9(b). United States ex rel. Gross v.
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AIDS Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005). Under Rule 9(b), a plaintiff must
“state with particularity the circumstances constituting fraud. . . .” Fed. R. Civ. 9(b). In other words,
Brooks must provide the “who, what, when, where, and how” of the circumstances surrounding the
complaint. See Borsellino v. Goldman Sachs Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) (internal citation
omitted); see also United States ex rel. Lusby v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009).
1. Submission of a False Claim
Wells Fargo argues that Brooks fails to plead the actual submission of a false claim with the
particularity required by Rule 9(b). The essential condition of an FCA violation is the actual submission
of a false or fraudulent claim. Mason v. Medline Industries, Inc., 731 F. Supp. 2d 730, 736 (N.D. Ill. 2010)
(Conlon, J.) In asserting an FCA violation, a relator cannot simply “‘describe a private scheme in detail
but then . . . allege simply and without any stated reason for his belief that claims requesting illegal
payments must have been submitted, were likely submitted or should have been submitted to the
government.’” United States ex rel. Dolan v. Long Grove Manor, Inc., No. 10-cv-368, 2014 WL 3583980 at
*3 (N.D. Ill. July 18, 2014) (Bucklo, J.) (quoting United States ex rel. Clausen v. Labortaroy Corp. of America,
Inc., 290 F.3d 1301, 1311 (11th Cir. 2002)). Put differently, to satisfy Rule 9(b), the complaint must
have “some indicia of reliability” that an actual false claim was submitted to the government for
payment. Dolan, 2014 WL 3583980 at *5 (citing Clausen, 290 F.3d at 1311).
As a preliminary matter, Brooks makes no factual allegations regarding the FHA. Brooks does
not assert that the applications were for FHA loans nor does he allege that Wells Fargo submitted any
claims to the FHA. Accordingly, the Court will only discuss the claims related to Fannie Mae and
Freddie Mac.
In the amended complaint, Brooks alleges that after he and several other underwriters denied
the Yalif Application, an “alleged independent third party” reviewed the file and made the final
determination. Dkt. 15 at 8. Further, Brooks states that “a three-year average of declining income was
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used to mask the true debt to income ratios under agency requirements.” Id. Thus, Brooks asserts,
Wells Fargo “knowingly provided false statements to Fannie Mae and Freddie Mac on which these
[government sponsored enterprises] relied in regard[] to the health of the loan.” Id.
The Court finds that Brooks fails to sufficiently plead that Wells Fargo submitted an actual
false claim. As it relates to the Yalif Application, Brooks states that he and other underwriters denied
the loan before it was escalated and eventually approved. However, Brooks does not state whether
the applicant even applied for a Fannie Mae or Freddie Mac loan through Wells Fargo. Furthermore,
while Brooks alleges that Wells Fargo took steps to deceive Fannie Mae, he then claims that Wells
Fargo provided false statements to both Fannie Mae and Freddie Mac “in regards to the health of the
loan.” Dkt. 15 at 8. As Wells Fargo asserts, “it is axiomatic that Wells Fargo could not sell a loan to
both Fannie Mae and Freddie Mac.” Dkt. 42 at 4. The Court agrees. The lack of specificity as to who
Wells Fargo sent the alleged false claim to renders it inadequate under Rule 9(b). As such, Brooks fails
to plead “with some indicia of reliability” that Wells Fargo submitted an actual false claim. See Clausen,
290 F.3d at 1311.
The Fay Application fares no better. Brooks alleges that Wells Fargo employees informed the
borrower of how much income was needed for approval. Brooks then asserts that employees colluded
to “transfer a potential risk of loss from Wells Fargo’s portfolio to Fannie Mae or Freddie Mac” when
they knowingly provided false information to meet [Fannie Mae or Freddie Mac] underwriting
requirements.” Dkt .15 at 10. Rule 9(b) calls for greater specificity as to who the alleged false claim
was given to. Again, Brooks does not allege that a claim was submitted to Fannie Mae or Freddie Mac.
This would be difficult considering that Brooks alleges he was “cut off” from all communication
regarding the loan after he voiced his concerns. As such, this omission is fatal to Brooks’ claim.
To be clear, Brooks is not required to provide “specific invoices” of claims made to the
government at the pleading stage. See Lusby, 570 F.3d at 854. But Brooks does not allege whether
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Fannie Mae (or Freddie Mac) “actually bought” the loan supposedly sold by Wells Fargo. For all one
knows, Brooks could be alleging that certain underwriters defrauded Wells Fargo. Nevertheless,
Brooks’ amended complaint fails to allege specific facts that link Wells Fargo’s fraudulent conduct to
a claim submitted to the government. See Clausen, 290 F.3d at 1313. Accordingly, Brooks’ claim of an
FCA violation fails under Rule 12(b)(6).
2. Submission of the Claim to the Government
Wells Fargo also argues that Brooks fails to adequately allege, as set forth above, that a claim
for payment was submitted to the United States government. As mentioned previously, the FCA
attaches liability when a person makes a false claim to the government if the requested money (1) is
to be spent on the government’s behalf or to advance a government interest and (2) the United States
government provides any portion of the money requested. See 31 U.S.C. § 3729(b)(2)(A)(ii); see also
United States ex rel. Frawley v. McMahon, No. 11-cv-4620, 2015 WL 115763 at *9 (N.D. Ill. Jan. 5, 2015)
(Dow, J.). “The FCA does not apply to fraud against any federal grantee; it requires that the specific
money or property claimed must be intended to ‘be spent or used on the Government’s behalf or to
advance a Government interest and the government provide at least a portion of the money
requested.’” Garg v. Covanta Holding Corp., 478 Fed. Appx. 736, 741 (3rd Cir. 2012) (emphasis in
original) (quoting 31 U.S.C. § 3729(b)(2)(A)(ii)). Accordingly, when alleging an FCA violation, the
pleadings must contain specific facts that assert the government’s money was spent as a result of the
fraudulent claim. See United States ex rel. Heath v. Wisconsin Bell, Inc., 111 F. Supp. 3d 923, 927, (E.D.
Wis. 2015) (citing United States ex rel. Yesudian v. Howard University, 153 F.3d 731, 738 (D.C. Cir. 1998)).
In the amended complaint, Brooks states that “[a]s a result of Defendant’s actions, Fannie
Mae and Freddie Mac have been placed into receivership, and the United States of America[] has had
to pay in excess of [180] billion dollars to the Entities.” Dkt. 15 at 12. In his brief in response to the
motion to dismiss, Brooks contends that he does not need to plead a specific connection between
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federal funds and the alleged fraudulent claim because it is “public knowledge” that “payment of
fraudulent claims is directly tied to governmental losses.” Dkt. 36 at 16.
The Court disagrees. Under Rule 9(b), Brooks’ allegations do not sufficiently link the
fraudulent claim with actual government spending. The fact that the government has provided funding
to Fannie Mae and Freddie Mac does not relieve Brooks of the obligation to tie the fraud to specific
government payments. See Heath, 111 F.Supp. 3d at 927. “The FCA requires more than fraud against
anyone who happens to receive money from the federal government. Were that the case, the scope of
the FCA would be enormous.” Garg, 478 Fed. Appx. at 741. The Seventh Circuit has made clear that
Fannie Mae and Freddie Mac are private corporations. Federal National Mortgage Association v. City of
Chicago, 874 F.3d 959, 960 (7th Cir. 2017). Brooks does not claim that Fannie Mae and Freddie Mac
are only funded by the government. Nor could he. Although Freddie Mac and Fannie Mae rely on
federal government money at times, they “still generate revenue pursuant to [their] operation within
the secondary mortgage market.” United States ex rel. Todd v. Fidelity National Financial, Inc., No. 12-cv666, 2014 WL 4636394 at * 11 (D. Colo. Sept. 16, 2014). Therefore, a payment by Freddie Mac and
Fannie Mae does not automatically result in spending by the United States government. 1
Consequently, Brooks’ failure to connect the alleged fraud with specific money spent by the
federal government renders his allegations inadequate under Rule 12(b)(6) and especially Rule 9(b).
Even if Brooks adequately alleged the submission of a claim under the FCA, which, as explained
above, he did not, Brooks’ amended complaint separately and independently fails for inadequately
pleading that the alleged false claim led to government spending.

The Court notes that the United States, while taking no position in the overall merits of Wells Fargo’s motion to
dismiss, submitted a Statement of Interest asserting that Todd, 2014 WL 4636394 was wrongly decided, and the unique
position of the Fannie Mac and Freddie Mae relinquishes the need for a plaintiff to link a claim made to the government
sponsored enterprises with money spent by the United States Government. Dkt. 41 at 12 n.9. The Court disagrees as the
United States does not address this element as it pertains to Rule 9(b)’s requirement for heightened specificity.
Nevertheless, the determination of this argument is not dispositive because Brooks, as stated earlier, failed to adequately
allege that a claim was submitted and, as discussed below, is barred by public disclosure.
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3. Public Disclosure Bar
Wells Fargo argues that the public disclosure bar warrants dismissal of Brooks’ claims. Courts
must dismiss qui tam actions when the claims are:
based upon the public disclosure of allegations or transactions in a criminal, civil,
or administrative hearing, in a congressional, administrative, or Government [sic]
Accounting Office report, hearing, audit, or investigation, or from the news media,
unless the action is brought by the Attorney General or the person bringing the
action is an original source of the information.
31 U.S.C. § 3730(e)(4)(A); Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 912-13 (7th Cir. 2009).
Courts are to conduct a three-step analysis when determining whether the public disclosure bar
applies. See Glaser, 570 F.3d at 913.
First, it examines whether the relator’s allegations have been “publicly disclosed.”
If so, it next asks whether the lawsuit is “based upon” those publicly disclosed
allegations. If it is, the court determines whether the relator is an “original source”
of the information upon which his lawsuit is based.
Id. (internal citation omitted).
3.1 Publicly Disclosed Allegations
Wells Fargo contends that Brooks’ allegations have been publicly disclosed. Public disclosure
occurs when “‘the critical elements exposing the transaction as fraudulent are placed in the public
domain.’” Id. (citing United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th Cir.
2003)). When the allegations have been publicly disclosed, the claim is barred because authorities are
already in the position to vindicate the public’s interests and thus, the qui tam action would serve no
purpose. See id. (citing Feingold, 324 F.3d at 495).
Here, this element is easily satisfied as Brooks’ assertions have been the subject of national
press as well prior litigation. For example, in United States v. Wells Fargo Bank, N.A., the Government
sought civil damages under the False Claims Act against Wells Fargo alleging “that the Bank engaged
in misconduct in originating and underwriting government-insured home mortgage loans.” 972 F.
Supp. 2d 593, 598 (S.D.N.Y 2013). The claims included FCA violations for falsely inducing the
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Housing Urban Development government agency to “insure loans that were ineligible for such
insurance,” id. at 623-24, as well as failing to report underwriting violations as required by the FHA,
id. at 624.
Additionally, the United States Department of Justice published a press release stating that
Wells Fargo Bank agreed to settle fraud claims and admitted to falsely certifying that certain
mortgages were eligible for FHA insurance. Wells Fargo Bank Agrees to Pay 1.2 Billion for Improper
Mortgage Lending Practices, Justice News (April 8, 2016), https://www.justice.gov/opa/pr/wells-fargobank-agrees-pay-12-billion-improper-mortgage-lending-practices (last visited March 11, 2019).
Brooks’ allegations of FCA violations based on fraudulent mortgage practices have been publicly
disclosed.
Similarly, Brooks’ allegations are based upon publicly disclosed information. A claim is
“based upon” disclosed allegations “when the relator’s allegations and the publicly disclosed
allegations are substantially similar.” See Glaser, 770 F.3d at 915; see also United States ex rel. Heath v.
Wisconsin Bell, Inc., 760 F.3d 688, 691 (7th Cir. 2014). Here, the similarity between Brooks’ claims of
FCA violations based on mortgage related fraud and the claims contained in prior litigation
demonstrate that Brooks’ allegations are based upon publicly disclosed information. See Wells Fargo
Bank, N.A., 972 F. Supp. 2d at 598.
3.2 Original Source
Brooks can avoid the public disclosure bar if he can demonstrate that he is an “original
source” of the information upon which the allegations in his complaint were based. See Bellevue v.
Universal Health Services of Hartgrove, Incorporated, 867 F.3d 712, 720 (7th Cir. 2017). To do so, Brooks
needs to establish that he has knowledge of wrongdoing that is (1) independent of the publicly
disclosed allegations, (2) materially adds to those allegations, and (3) voluntarily provided this
information to the Government before filing his case. 31 U.S.C. § 3730(e)(4)(B); see id.
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The parties do not dispute that Brooks voluntarily provided information concerning his
allegations to the Government before filing his complaint, nor is there dispute that Brooks’ claims
stem from personal observation and thus independent of any publicly disclosed allegations.
However, the parties dispute whether Brooks allegations “materially adds” to those allegations
already publicly disclosed.
Brooks argues that his claims materially add to the publicly disclosed allegations because
“there is no information in the public domain that Wells Fargo has continued to violate all GSE
guidelines, certifications, and sales contracts, nor the FGA’s guidelines, certifications, and sales
contracts.” Dkt. 36 at 21. This argument fails. Brooks’ claims cannot proceed independently by
merely “adding details” of conduct that was previously known. See United States ex rel. Bogina v.
Medline Industries, Inc., 809 F.3d 365, 370 (7th Cir. 2016). Furthermore, allegations that are
“substantially similar” to those already in the public do not “materially add” to the public disclosure.
See Bellevue, 867 F.3d at 720; see also Cause of Action v. Chicago Transit Authority, 815 F.3d 267, 282 (7th
Cir. 2016). Brooks does not argue how his claims substantively differ from the publicly disclosed
allegations. Indeed, Brooks’ failure to sufficiently allege that a claim was actually submitted further
undermines his argument that his allegations materially add to the public disclosures. As such, the
Court finds that Brooks is not an original source of the publicly disclosed allegations because his
complaint does not materially add to the allegations already in the public domain. See United States ex
rel. Conroy v. Select Medical Corporation, 211 F. Supp. 3d 1132, 1146 (S.D. Ind. 2016) (finding that
relators were not “original sources” because (1) their allegations were similar to the those made in
prior lawsuits and (2) the past allegations were documented in a newspaper).
Because Brooks amended complaint fails for these reasons, the Court need not address
Wells Fargo’s arguments that Brooks failed to allege materiality and nationwide scheme. Wells
Fargo’s motion to dismiss is granted.
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4. FCA Retaliation Claim
Wells Fargo argues that Brooks’ retaliation claim should be dismissed. To survive a motion to
dismiss, an FCA retaliation claim must contain facts that, if proven, establish that “(1) the plaintiff
was acting in furtherance of an FCA enforcement action or other efforts to stop violations of the
FCA, (2) the employer knew the plaintiff was engaged in protected conduct, and (3) the employer was
motivated to take an adverse employment action against the plaintiff because of the protected conduct.
See Singer v. Progressive Care, SC, 202 F.Supp.3d 815, 828 (N.D. Ill. 2016) (Wood, J.) (citing Fanslow v.
Chi. Mfg. Ctr., Inc., 384 F.3d 469, 479 (7th Cir. 2004)).
Nevertheless, district courts within the Seventh Circuit have dismissed FCA retaliation claims
when the plaintiff’s FCA claim is dismissed under Rule 12(b)(6). Id; United States ex rel. McGinnis v. OSF
Healthcare Sys., No. 11-cv-1392, 2014 WL 378644 at * 8 (C.D. Ill. Jan. 31, 2014) (“Without finding that
the Plaintiff has sufficiently pled the claims for reimbursement were fraudulent or ever presented to
the government, the Court cannot conclude that the allegations support a finding that Plaintiff was
acting in furtherance of the FCA enforcement action or other efforts to stop violations of the FCA.”)
As the Court finds the FCA claim fails under Rule 12(b)(6), Brooks’ FCA retaliation claim is dismissed.
Wells Fargo’s motion to dismiss Brooks’ retaliation claim is granted.
Conclusion
For the foregoing reasons, Wells Fargo’s motion to dismiss [24] is granted, with prejudice.
IT IS SO ORDERED.
Date: 3/12/2019
Entered: _____________________________
SHARON JOHNSON COLEMAN
United States District Judge

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