Moore v. Cardinal Financial Company, L.P. et al
MEMORANDUM. Signed by Chief Judge Catherine C. Blake on 3/28/2017. (jnls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
UNITED STATES OF AMERICA
ex rel. Charles E. Moore,
CARDINAL FINANCIAL CO., L.P., et al.
Civil No. CCB-12-1824
Charles E. Moore, a former mortgage broker, originally brought this claim against
Cardinal Financial Company, L.P. (“Cardinal”) and others as a qui tam relator on behalf of the
United States under the federal False Claims Act. Moore’s former attorney, Jason Rheinstein,
claims to have obtained all rights, title, and interest in the lawsuit and has continued to prosecute
this qui tam action as a “successor in interest.”1 Seven of the ten named defendants have filed
motions to dismiss, while three have not filed responsive pleadings. For the reasons explained
below, the defendants’ motions to dismiss will be granted.
The federal False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., generally makes liable
to the United States “any person who . . . knowingly presents, or causes to be presented, a false
or fraudulent claim for payment or approval” to the government. Id. § 3729(a). Private persons
may act as relators and bring a civil action on behalf of the United States. Id. § 3730(b). The
relator must first file suit under seal, giving the U.S. government time to investigate the claim
To avoid confusion, this memorandum refers to “Rheinstein” when discussing actions taken by Jason Rheinstein,
and “Moore” or “the relator” when referring to actions taken by Charles E. Moore.
and choose to either intervene in the action or allow the relator to proceed on his own. Id. The
action is then unsealed and notice is provided to the defendant. If the action is successful, the
relator receives a percentage of any proceeds. Id. § 3730(d).
This FCA case centers on an alleged scheme in which ten named defendants, acting in
concert, fraudulently procured mortgage insurance from the Federal Housing Administration
(“FHA”) in 27 separate mortgage transactions (“subject transactions”). The loans in the subject
transactions were originated between July 2009 and November 2010, and the fraudulent scheme
allegedly could cost the government $2.6 million. (Am. Compl. ¶¶ 3, 8, ECF No. 21).
A. FHA Mortgage Insurance
FHA mortgage insurance protects commercial lenders against defaults on mortgage
payments and thus encourages these lenders to make loans to borrowers who might not meet
conventional underwriting requirements. (Am. Compl. ¶¶ 15, 35). At the same time, FHA only
accepts a fixed level of risk, and a mortgage must meet certain requirements in order to qualify
for mortgage insurance. These requirements relate to, inter alia, the borrower’s income and
creditworthiness and the valuation of the property subject to the mortgage. (Id. ¶¶ 15, 36).
In order to expand the number of homeowners (and lenders) that the FHA insurance
program can benefit, the program is implemented through the Direct Endorsement Lender
(“DEL”) Program. (Id. ¶ 16). Under this program, the federal government “does not itself
conduct a detailed review of applications for mortgage insurance before an FHA-insured
mortgage closes.” (Id. ¶ 37). Instead, government-approved commercial lenders – known as
direct endorsement lenders (“DELs”) – are tasked with determining if a potential borrower
qualifies for FHA insurance. If so, the DEL closes the loan with the borrower and submits
documents to the government certifying that the mortgage qualifies for FHA insurance. FHA
then endorses the loan based on the DEL’s certification. Accordingly, DELs obligate the
government without independent government review. (Id. ¶¶ 37–39).
If a borrower defaults on an FHA-insured mortgage, the holder of the mortgage – which
could be the DEL or a third party – may submit a claim to the government for the costs
associated with the defaulted mortgage, and the government covers those costs. (Id. ¶ 40).
B. Alleged Fraudulent Scheme
The relator -- and now Rheinstein, acting as a purported successor-in-interest – claim the
defendants exploited the FHA insurance program by arranging sales of residential properties in
Baltimore City, Maryland, to straw purchasers at inflated prices and fraudulently obtaining FHA
mortgage insurance in connection with these sales. (Am. Compl. ¶¶ 50–75).
The alleged scheme had three elements. First, certain defendants owned residential
properties in Baltimore City. (Id. ¶¶ 53–55). These defendants, acting in concert with others,
recruited and paid straw purchasers to act as named borrowers for FHA-insured mortgages that
were originated by DELs. (Id. ¶¶ 55, 62). These straw purchasers should not have qualified for
FHA mortgage insurance, partly because they had neither the capability nor the intention of
repaying their mortgage loans. However, they qualified because defendants provided the DELs
with “false information and phony documents” on behalf of the straw purchasers. (Id. ¶¶ 57–61).
With mortgage insurance in hand, the straw purchasers qualified for substantial loans, which
they used to purchase the properties at inflated prices. (Id. ¶ 53). The straw purchasers soon
defaulted on their mortgage payments, and the properties entered foreclosure proceedings. But
because the government had agreed to insure these mortgages, all losses associated with
foreclosure proceedings were borne by the federal government. (Id. ¶¶ 64–72).
The ten defendants allegedly played different roles in this fraudulent scheme. Three
entities – E&W Realty, LLC (“EWR”), National Homes, LLC (“National Homes”), and KMJ
Realty, LLC (“KMJ”) – owned and sold all but one of the properties at issue here. These three
entities were allegedly under the sole ownership and control of a fourth defendant, Kathryn
Jewell; collectively, these four defendants are referred to as “the Jewell defendants.” (Id. ¶¶ 26–
29). Defendant Boomerang Properties, LLC (“Boomerang”) was the seller in one of the
suspected fraudulent transactions. (Id. ¶ 32). Defendant Robert S. Svehlak is allegedly one of two
individuals who owns and controls a real estate and lending enterprise comprised of Boomerang
and several other companies. (Id. ¶ 33). Defendants Ronald Miles and Jonathan Lee Miles both
worked for Transatlantic Mortgage, LLC – a now-defunct company that allegedly served as the
broker or originator for all the subject transactions. (Id. ¶¶ 30–31). Cardinal Financial Company,
L.P. (“Cardinal”) served as a DEL and as the original mortgage lender for loans in the subject
transactions. (Id. ¶ 24). Most subject transactions originated by Cardinal were then assigned to
defendant Wells Fargo Bank, N.A. (“Wells Fargo”). (Id. ¶ 25).
The amended complaint details how this scheme operated with respect to one particular
transaction involving the sale of a property located at 2138 Hollins Street in Baltimore, which the
amended complaint refers to Case No. 19 of the 27 subject transactions. Moore formerly owned
this property but conveyed it to Boomerang, a defendant here, in 2009. (Id. ¶ 78 n.7). Boomerang
then allegedly sold this property to a straw purchaser for $122,000. (Id. ¶ 93). The proof that this
transaction was fraudulent, according to the amended complaint, centers on a form known as a
HUD-1 settlement statement.2 This statement must be prepared at the closing of every real estate
HUD refers to the U.S. Department of Housing and Development. The FHA is an agency within HUD.
sale transaction involving an FHA-insured mortgage, and it must itemize all charges imposed on
the buyer and seller in connection with the transaction. “For any given legitimate transaction,”
the relator stresses, “there can only be one version of a HUD-1 settlement statement because
there can only be one true and accurate accounting of the funds which are received and paid out
in connection with that specific real estate transaction.” (Id. ¶¶ 95–97). The HUD-1 settlement
statement is one of the documents that a DEL must submit to the federal government in order to
attain final approval for the FHA-mortgage insurance. (Id. ¶ 97).
With respect to the sale of the Hollins Street property, and perhaps others, the amended
complaint claims two versions of the HUD-1 settlement statement were produced “in order to
deceive HUD about the true disposition of the mortgage loan proceeds that financed the
transaction.” (Id. ¶ 98). With respect to the Hollins Street property, the “accurate” version of the
form allegedly reveals that Boomerang gave $68,740 of the sale proceeds to defendant EWR.
(Id. ¶ 100). Especially because the property only sold for $122,000, the relator claims this is far
too high for a brokerage fee and that the $68,740 payment instead reflects the fact that EWR had
identified and recruited a straw purchaser pursuant to the alleged scheme. (Id. ¶ 107). The second
version of the form, also attached to the complaint, simply omits this $68,740 payment. The
existence of the two forms – only one of which contains an “exorbitant” consulting fee paid to
EWR – “would have made it blatantly obvious to anyone that the transaction was not legitimate,”
according to the amended complaint. (Id. ¶ 112). The amended complaint further claims that
Cardinal received both versions of the form and chose to submit to the government only the
version omitting the $68,740 payment. (Id. ¶ 111 ).3 According to the amended complaint, the
The amended complaint also claims Wells Fargo received both versions of the HUD-1 settlement form and
essentially blessed the inclusion of only one version of that form when Cardinal submitted the final paperwork to the
federal government. (Id. ¶¶ 153–59).
mortgage transaction for the Hollins Street property closed on April 29, 2010. Roughly two
weeks later – on or about May 10, 2010 – Cardinal submitted the final paperwork (including the
“false” HUD-1 settlement statement) to the federal government and then assigned its security
interest in the property to Wells Fargo. (Id. ¶¶ 146, 155). After the straw purchaser defaulted,
Wells Fargo initiated foreclosure proceedings in October 2011, and subsequently made a claim
on the FHA insurance in or around September 2014, and the federal government indemnified
Wells Fargo for any losses in or about September 2014. (Id. ¶¶ 157–60).
The amended complaint alleges the remaining 26 mortgage transactions “followed the
same pattern” as the sale of the Hollins Street property, but provides less detail. (Id. ¶¶ 162–89).
The present litigation concerns various alleged violations of the FCA. The amended
complaint claims various defendants violated § 31 U.S.C. 3729(a)(1)(A), which provides for
liability for any person who “knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval”; § 3729(a)(1)(B), which provides for liability for any person who
“knowingly makes, uses, or causes to be made or used, a false record or statement material to a
false or fraudulent claim”; § 3729(a)(1)(G), which provides for liability for any person who
“knowingly makes, uses, or causes to be made or used, a false record or statement material to an
obligation to pay or transmit money or property to the Government, or knowingly conceals or
knowingly and improperly avoids or decreases an obligation to pay or transmit money or
property to the Government”; and § 3729(a)(1)(C), which imposes liability on any person who
conspires to commit a violation of the FCA. (Id. ¶¶ 210–97).
C. Procedural History
The court will briefly summarize related litigation in state court before detailing the
procedural history of the present qui tam lawsuit.
The current qui tam litigation has its origin in a prior state court proceeding, Imagine
Capital, Inc. v. Charles E. Moore et al., Case No. 24-C-09-003634 (Balt. City Cir. Ct.)
(“Confessed Judgment Action”). That dispute centered on a construction loan provided by
Imagine Capital – which is owned by Robert Svehlak, a defendant here – to Moore. After Moore
defaulted on his loan repayments, a confessed judgment was entered against him in state court in
June 2009. (Pl.’s Resp. in Opp’n to Mot. to Vacate, Confessed Judgment Case, Am. Complaint
Ex. 7, ECF No. 21-8, 2–3). In light of his debt to Imagine Capital, Moore agreed to convey a
property he owned – the 2138 Hollins Street property – to Boomerang, a company owned and
controlled by Svehlak, on September 23, 2009. (Id. 3–4; Def.’s Mot. to Vacate, Confessed
Judgment Case, Boomerang Mot. to Dismiss, Ex. A, ECF No. 29-4, 7–8). But the two sides then
disagreed as to whether the conveyance of the 2138 Hollins Street property fully satisfied
Moore’s debt. (Pl’s Resp. in Opp’n to Mot. to Vacate, Confessed Judgment Case 4; Defendant’s
Mot. to Vacate, Confessed Judgment Case 8–9). In light of that disagreement, Moore attempted
to vacate the confessed judgment against him, and Rheinstein served as his counsel. (See
Defendant’s Mot. to Vacate, Confessed Judgment Case). Moore and Rheinstein first became
aware of the alleged fraudulent scheme at issue in the current qui tam lawsuit in the fall of 2011
in the context of this Confessed Judgment Action in state court. In particular, they claim that
Svehlak submitted a “suspicious exhibit” in the Confessed Judgment Action that tipped them off
to the fact that Boomerang and others were engaged in mortgage fraud. (Am. Compl. ¶ 23).
Moore, as relator, filed the current qui tam lawsuit on June 20, 2012, with Rheinstein
once again serving as counsel. (Compl., ECF No. 1).4 On February 20, 2013, however, Moore
and his wife filed a joint voluntary petition for bankruptcy under Chapter 7 of the United States
Bankruptcy Code. (Am. Compl. ¶ 23 n.2). As of February 20, 2013, then, it is alleged that all
rights, title, and interest previously held by the relator in this qui tam lawsuit passed to the estate,
and separate counsel (not Rheinstein) was appointed trustee. (Id.). While the trustee held the
rights to the qui tam lawsuit, the federal government noticed its decision not to intervene in the
lawsuit on November 10, 2014. (First Intervention Decision, ECF No. 15). On November 17,
2014, the court ordered that the complaint be unsealed and served upon the defendant, although
it did not specify a time for doing so. (First Order Unsealing Compl., ECF No. 16). On March
17, 2015, Rheinstein – who was no longer counsel in this qui tam action but who claimed he was
executing the wishes of the trustee, who now held the rights to the lawsuit – moved to extend the
time for service through September 12, 2015. (First Mot. to Extend, ECF No. 17, ¶¶ 15–19). The
motion to extend was granted on March 18, 2015. (Order Granting First Extension, ECF No. 18).
After Mr. Rheinstein helped to secure that first extension on behalf of the trustee, all
rights, title, and interest in the present qui tam lawsuit purportedly were transferred from the
trustee to him on June 15, 2015. (Am. Compl. ¶ 23 n.2; Second Rheinstein Affidavit, Ex. 3,
Notice of Assignment, ECF No. 39-5). Rheinstein had asserted a claim against Moore (and his
wife) in the bankruptcy proceedings, and the transfer of rights in the qui tam case was meant to
partially settle his claim. For that reason, Rheinstein now purports to continue the qui tam
On July 13, 2012, Moore filed a second qui tam lawsuit in federal court, with Rheinstein again serving as counsel.
That lawsuit – U.S. ex rel. Moore v. Svehlak et al., 1:12-cv-2093-CCB, also alleges a variety of mortgage fraud and
lists as defendants several of the same defendants involved here. This second qui tam lawsuit is still in the initial
phases. The deadline for completing service of the complaint was extended through and including March 12, 2017.
On March 12, 2017, Rheinstein requested a further extension.
litigation “as the successor in interest to the Relator and the Estate.” (Am. Compl. ¶ 23 n.2). On
September 12, 2015, Rheinstein – now as successor-in-interest – requested another extension,
this time up to and including December 12, 2015. (Second Mot. to Extend, ECF No. 19), which
was granted, (Order Granting Second Extension, ECF No. 20). Rheinstein did not serve the
defendants by that date. Instead, he filed an amended complaint on December 12, 2015 – the
same day service of the original complaint was due. (Am. Compl.). The next day – after the
deadline for service – he filed a “Motion to File Amended Complaint In Camera and Maintain
Records Under Seal.” (Mot. to File Am. Compl., ECF No. 22). In that motion, Rheinstein asked
the court to enter an order 1) permitting the amended complaint to be filed and docketed in
camera and remain under seal, and 2) providing that the defendants “shall not be served until the
Government has noticed its intervention decision.” (Id. 4). That motion was granted on
December 15, 2015. (Order Granting Mot. to File Am. Compl., ECF No. 23).
Meanwhile, the U.S. government had filed criminal proceedings against three individuals
– Kevin C. Campbell, Jonathan Miles, and Alberic Okou Agodio – “in connection with the
scheme that resulted in the fraudulent mortgage transactions at issue” in the qui tam litigation.
The government filed a case against Campbell on November 29, 2012 – about five months after
the relator had filed his original qui tam complaint. The government then filed cases against
Miles and Agodio on July 2, 2014, and February 18, 2015, respectively. (Am. Compl. ¶ 190).
The government entered three separate plea deals with these defendants on November 15, 2012,
June 26, 2014, and June 29, 2015. (Am. Compl. ¶¶ 192, 199, 204 & Exs. 18, 19, 20, ECF Nos.
21-18, 21-19, 21-20). These plea deals were entered after Moore filed the original complaint but
before Rheinstein filed the amended complaint in December 2015.
On February 16, 2016, the government declined to intervene with respect to the amended
complaint. (Second Intervention Decision, ECF No. 26). Rheinstein then served the defendants
with the amended complaint in the ensuing months.5 Defendants Boomerang, Svehlak, Wells
Fargo, Cardinal, Ronald Miles, Jonathan Miles, and Kathryn Jewell filed motions to dismiss on a
variety of grounds. The remaining defendants – E&W Realty, KMJ Realty, and National Homes
– have not filed responsive pleadings. Rheinstein has filed responses to most of the motions to
dismiss, and the parties also have disputed other procedural matters related to these filings.
In particular, Boomerang and Svehlak filed a motion to dismiss or, in the alternative, for
summary judgment on May 2, 2016. (Boomerang Mot. to Dismiss, ECF No. 29). An initial
response was filed on June 1, 2016, (Resp. in Opp’n to Boomerang Mot. to Dismiss, ECF No.
41), and an amended response was filed on June 3, 2016, (Amended Resp. in Opp’n to
Boomerang Mot. to Dismiss, ECF No. 45). Boomerang and Svehlak replied on June 21, 2016.
(Reply, Boomerang Mot. to Dismiss, ECF No. 52).
Wells Fargo filed a motion to dismiss on July 15, 2016. (Wells Fargo Mot. to Dismiss,
ECF No. 54). Rheinstein filed a response on September 26, 2016, (Resp. in Opp’n to Wells
Fargo Mot. to Dismiss, ECF No. 109), and Wells Fargo replied on October 21, 2016. (Reply,
Wells Fargo Mot. to Dismiss, ECF No. 115).
Cardinal filed a motion to dismiss on July 15, 2016. (Cardinal Mot. to Dismiss, ECF No.
56). A response was filed on September 16, 2016 (Resp. in Opp’n, Cardinal Mot. to Dismiss,
ECF No. 93), and then a corrected response was filed on September 25, 2016, (Amended Resp.
in Opp’n, Cardinal Mot. to Dismiss, ECF No. 102). Cardinal moved to strike the amended
response on September 27, 2016, (Cardinal Mot. to Strike, ECF No. 107), which Rheinstein
This case and a related case were transferred to me on October 7, 2016.
opposed, (Resp. in Opp’n, Mot. to Strike, ECF No. 108). Cardinal then filed a reply on its motion
to dismiss on October 11, 2016. (Reply, Cardinal Mot. to Dismiss, ECF No. 112).
Ronald Miles filed a motion to dismiss on September 8, 2016. (Ronald Miles Mot. to
Dismiss, ECF No. 79), and a response was filed on October 17, 2016, (Resp. in Opp’n, Ronald
Miles Mot. to Dismiss, ECF No. 114). Jonathan Lee Miles filed a motion to dismiss on
December 15, 2016, (Jonathan Lee Miles Mot. to Dismiss, ECF No. 123), and a response was
filed on February 6, 2016 (Resp. in Opp’n, Jonathan Lee Miles Mot. to Dismiss, ECF No. 127).
Kathryn Jewell filed a motion to dismiss on October 5, 2016, (Jewell Mot. to Dismiss,
ECF No. 111), and then filed a motion to amend her pleading to incorporate defenses raised by
other defendants on October 17, 2016, (Jewell Mot. to Amend, ECF No. 113). A response to
both the motion to dismiss and the motion to amend was filed on November 21, 2016. (Resp. in
Opp’n, Jewell Mot. to Dismiss, ECF No. 122).
Insufficient Service of Process6
The defendants raise a host of procedural and substantive issues in their motions to
dismiss, some of which overlap and some of which relate to their specific alleged roles. But
defendants generally agree that the court should dismiss this action pursuant to Fed. R. Civ. P.
12(b)(5) for insufficient service of process.7
A court must generally consider questions regarding jurisdictional issues before addressing the merits of the case.
See, e.g., Sucampo Pharmaceuticals, Inc. v. Astellas Pharma. Inc., 471 F.3d 544, 548 (4th Cir. 2006) (“[D]ismissal
of a case on an issue relating to the merits of the dispute, such as failure to state a claim, is improper without
resolving threshold issues of jurisdiction, including personal jurisdiction.”
Six defendants who filed responsive pleadings either raised this issue or incorporated it by reference from other
defendants’ pleadings. Jewell originally did not move to dismiss on these grounds, (Jewell Mot. to Dismiss),
although she subsequently moved to amend her pleading to incorporate this argument. (Jewell Mot. to Amend.).
Rule 12(b)(5) provides that a motion to dismiss may be based on “insufficiency of service
of process.” The requirements for service of process are set forth in Fed. R. Civ. P. 4(c)(1),
which states, “A summons must be served with a copy of the complaint. The plaintiff is
responsible for having the summons and complaint served within the time allowed by Rule 4(m)
. . . .” Rule 4(m), in turn, provides, in relevant part:
If a defendant is not served within 90 days after the complaint is
filed, the court—on motion or on its own after notice to the
plaintiff—must dismiss the action without prejudice against that
defendant or order that service be made within a specified time.
But if the plaintiff shows good cause for the failure, the court must
extend the time for service for an appropriate period.
Rule 4(m) applies to FCA cases as well, see Am. Civil Liberties Union v. Holder, 673
F.3d 245, 251 (4th Cir. 2011). Because FCA cases initially are filed under seal, however, the 90day clock does not start until the court unseals the complaint and orders service. See 31 U.S.C. §
3730(b)(3) (“The defendant shall not be required to respond to any complaint filed under this
section until 20 days after the complaint is unsealed and served upon the defendant pursuant to
Rule 4 of the Federal Rules of Civil Procedure.”). Here, the court unsealed the complaint and
ordered service on November 17, 2014. But the court extended that deadline twice; the second
extension mandated service by December 12, 2015. The parties agree that Rheinstein was
obliged to effect service by that date, or else face whatever consequences may result under Rule
4(m). They disagree, however, on how Rule 4(m) should be interpreted. According to the
defendants, the court must dismiss this action for insufficient service of process because
Rheinstein failed to effect service by December 12. (See, e.g., Boomerang Mot. to Dismiss Mem.
Law, ECF No. 29-1, 15). Rheinstein claims dismissal is discretionary and, in any event, would
be improper. (Amended Resp. in Opp’n to Boomerang Mot. to Dismiss 23–32).
Courts in this circuit have long debated whether they have discretion under Rule 4(m) to
extend deadlines for service absent a showing of “good cause.” In Mendez v. Elliot, 45 F.3d 75,
78 (4th Cir.1995), the Fourth Circuit interpreted Rule 4(m) as mandating dismissal if service is
not effected by the applicable deadline and the plaintiff fails to show “good cause.” That holding
was subsequently put in doubt by other circuit courts and, in dicta, the Supreme Court.
Henderson v. United States, 517 U.S. 654, 658 n.5 (1996). Especially in light of Henderson, I
concluded more than 15 years ago that Mendez was not good law and that, “given the
opportunity, the Fourth Circuit perforce would adopt the interpretation of Rule 4(m) held by the
Supreme Court and the other circuit courts.” Hammad v. Tate Access Floors, Inc., 31 F. Supp. 2d
524, 527–28 (D. Md. 1999).
The Fourth Circuit has not clarified the matter in a published opinion since Mendez. In
unpublished opinions since Mendez, it has endorsed both sides of the debate. Compare GiacomoTano v. Levine, 199 F.3d 1327, at *1 (4th Cir. 1999) (“Even if a plaintiff does not establish good
cause, the district court may in its discretion grant an extension of time for service”), with
Martinez v. United States, 578 F. App’x 192, 193–94 (4th Cir. 2014) (“A plaintiff may escape
dismissal for failure to timely serve process only if she demonstrates ‘good cause’ for the
delay.”).8 The more recent Fourth Circuit opinions, however, indicate Mendez is still good law.
See Martinez, 578 F. App’x. at 193–94; Chen v. Mayor & City Council of Baltimore, 546 F.
App’x 187, 188 (4th Cir. Nov. 12, 2013) (per curiam) (affirming dismissal for failure to effect
service “for the reasons stated by the district court,” where the district court held it had no
discretion under Mendez to extend the Rule 4(m) deadline absent good cause, and the plaintiff
failed to show good cause); cf. Scott v. Maryland State Dep’t of Labor, 2016 WL 7378091, at *5
Unpublished opinions are cited for the soundness of their reasoning; they are not binding precedent.
(4th Cir. Dec. 20, 2016) (citing Mendez approvingly).9 Especially since Chen, members of this
bench have concluded Mendez is good law. See Gbane v. Capital One, NA, 2016 WL 3541281,
at *2 (D. Md. June 29, 2016) (listing District of Maryland cases).
If Mendez is still good law, the defendants’ motions to dismiss must be granted, unless
Rheinstein can show “good cause” for failing to meet the December 12 deadline.10 Good cause
“requires a showing that the plaintiff ‘made reasonable and diligent efforts to effect service prior
to the 120-day limit,”11 Chen, 292 F.R.D. at 293 (quoting Quann v. Whitegate-Edgewater, 112
F.R.D. 649, 661 (D. Md. 1986)), but was thwarted by circumstances beyond his control, see
Hoffman v. Baltimore Police Dep’t, 379 F. Supp. 2d 778, 786 (D. Md. 2005). Other relevant
factors may include whether the defendant will be prejudiced and whether the plaintiff asked for
an extension. See Scott, 2016 WL 7378091, at *5 (outlining factors); Quann, 112 F.R.D. at 661
(failure to request extension evidences lack of diligence). Inadvertence or neglect of counsel is
not “good cause.” Braithwaite v. Johns Hopkins Hosp., 160 F.R.D. 75, 77 (D. Md. 1995).
Here, Rheinstein offers no evidence that might show he “made reasonable and diligent
efforts to effect service” before the December 12, 2015, deadline. In fact, he offers no
explanation at all for why he failed to act before filing an amended complaint on the day service
was due. Nonetheless, Rheinstein contends that “good cause” exists in this case in light of events
This court is unaware of any Fourth Circuit opinion after 2010 that endorses the position that a district court has
discretion to extend the deadline absent a showing of “good cause.” See Hansan v. Fairfax Cnty. Sch. Bd., 405 F.
App’x 793, 793–94 (4th Cir. 2010) (“[T]he district court has discretion to extend the [120-day] period” even absent
a showing of “good cause.”). And even Hansan noted that discretion is not unfettered – the district court may only
exercise this discretion “if the plaintiff can show excusable neglect for his failure to serve.” Id. As the Fourth Circuit
recently has explained, a plaintiff that fails to meet the deadline for service, and then requests an extension of that
deadline after it has passed, must show “excusable neglect” for the failure to obtain an extension. Martinez, 578 F.
App’x at 194. “Excusable neglect is not easily demonstrated” and requires a showing that the party acted with
diligence in attempting to meet the deadline for service. Id. (quoting Thompson v. E.I. DuPont de Nemours & Co.,
Inc., 76 F.3d 530, 533 (4th Cir. 1996)).
The plaintiff bears the burden of proving “good cause.” See Scott, 2016 WL 7378091, at *3 (“The plaintiff bears
the burden of proving adequate service once a motion to dismiss for insufficient service of process has been filed
under Rule 12(b)(5).”).
Rule 4(m) subsequently was amended to reduce the initial time period for service to 90 days.
that took place after that deadline. In particular, he notes that the December 15th court order
granted his request to file an amended complaint and provided that service on the defendants
“shall not be completed” until the amended complaint is unsealed. Rheinstein relied on that
December 15 order “in good faith,” providing him “good cause” to wait until the subsequent
unsealing of the amended complaint in February 2016 before effecting service, he suggests.
(Amended Resp. in Opp’n to Boomerang Mot. to Dismiss, 31–32).12 This argument fails,
because the “good cause” inquiry focuses on pre-deadline events, not post-deadline events. See
Fed. R. Civ. P. 4(m) (court must extend the time for service if plaintiff shows “good cause for the
failure” to effect service by the deadline); Chen, 292 F.R.D. at 293 (good cause “requires a
showing that the plaintiff made reasonable and diligent efforts to effect service prior to the 120day limit”) (emphasis added); Giacomo-Tano, 199 F.3d at *2 (“Generally speaking, in
determining whether to dismiss the complaint for a violation of Rule 4(m), the primary focus is
on the plaintiff’s reasons for not complying with the time limit in the first place.”).
Rheinstein also suggests “good cause” exists in light of the consequences of dismissing
this case for insufficient service of process. In particular, he claims the defendants were not
prejudiced by the delay in service, whereas dismissal would be “extremely prejudicial” to him
because the FCA statute of limitations may now bar his claims. (See Amended Resp. in Opp’n to
Boomerang Mot. to Dismiss 31). But “good cause” does not turn on the implications of granting
a motion to dismiss. See, e.g., Chen, 292 F.R.D. at 295 (“The good cause inquiry . . . implicates
the reason for failure to effect service, not the severity of the consequences. Accordingly, it is of
no moment that the statute of limitations may pose a barrier to a new complaint.”) (citations and
Boomerang urges the court to strike ECF No. 45, which is a “supplemented and corrected” response to
Boomerang’s motion to dismiss. (Reply, Boomerang Mot. to Dismiss, ECF No. 52, 6). Because it does not affect the
outcome, the court will consider the “supplemented and corrected” response submitted by Rheinstein.
quotation marks omitted); Knott v. Atl. Bingo Supply, Inc., 2005 WL 3593743, at *2 (D. Md.
Dec. 22, 2005) (good cause inquiry does not turn on the “possibility that Plaintiff’s claims will
be time-barred if dismissed without prejudice”); Defreitas v. Montgomery Cnty, 2014 WL 31885,
at *4 (D. Md. Jan. 3, 2014) (“[T]he running of the statute of limitations has no bearing on the
good cause inquiry”); cf. Mendez, 45 F.3d at 78 (dismissal without prejudice pursuant to Rule
4(m) “does not . . . give the [plaintiff] a right to refile without the consequence of time defenses,
such as the statute of limitations”). And even if the defendants here were not prejudiced by the
delay, that fact alone would not suffice to establish good cause. See Chen, 292 F.R.D. at 293
(“good cause” requires “reasonable and diligent efforts” to effect service before the deadline);
see also Scott, 2016 WL 7378091, at *5 (listing prejudice to defendant as one of six factors that
may be relevant in the context of “good cause” inquiry).13
Finally, Rheinstein claims Mendez is no longer good law and that the court is not required
to dismiss this case even if “good cause” is absent. (Resp. in Opp’n to Wells Fargo Mot. to
Dismiss Mem. Law, ECF No. 109-1, 27 n.23). But even assuming Rheinstein is correct on this
point, it is well established that the court “would still need to have some reasoned basis to
exercise its discretion and excuse the untimely service: the Court must give some import to the
rule.” Hoffman, 379 F. Supp. 2d at 786; see also Lehner v. CVS Pharmacy, 2010 WL 610755, at
*3 (D. Md. Feb. 17, 2010) (even if Mendez is not good law, “this Court will not make a mockery
of the time requirements” under Rule 4(m)). Here, there is no such “reasoned basis” to exercise
any discretion the court may have, because Rheinstein offers no explanation for his failure. See
id. (no “reasoned basis” exists where plaintiff “made no effort” to effect service by deadline).
In Scott, the Fourth Circuit found that relevant factors include whether “1) the delay in service was outside the
plaintiff’s control; 2) the defendant was evasive, 3) the plaintiff acted diligently or made reasonable efforts, 4) the
plaintiff is pro se or in forma pauperis, 5) the defendant will be prejudiced, or 6) the plaintiff asked for an extension
for time under Rule 6(b)(1)(A).” 2016 WL 7378091, at *5.
Setting aside “good cause” and “reasoned basis,” Rheinstein makes four alternative
arguments for why dismissal pursuant to Rule 12(b)(5) is inappropriate.
First, Rheinstein claims the December 12, 2015, deadline was rendered meaningless once
he filed the amended complaint. At that point, service was not required until after the court
unsealed the amended complaint and ordered service, he claims. (Amended Resp. in Opp’n to
Boomerang Mot. to Dismiss 25). This argument is unpersuasive. In general, filing an amended
complaint does not reset the Rule 4(m) service period except as to those defendants newly listed
in the amended complaint. See Lee v. Airgas Mid-S., Inc., 793 F.3d 894, 898 (8th Cir. 2015)
(“[F]iling an amended complaint in itself does not toll the service period or reset the 120-day
clock.”) (internal quotation marks omitted); Bolden v. City of Topeka, Kan., 441 F.3d 1129, 1148
(10th Cir. 2006) (“[T]he 120–day period provided by Rule 4(m) is not restarted by the filing of
an amended complaint except as to those defendants newly added in the amended complaint.”);
Convergence Techs. (USA), LLC v. Microloops Corp., 711 F. Supp. 2d 626, 631 n.4 (E.D. Va.
2010) (same); Jackson v. Alleghany Cty., 2008 WL 3992351, at *16 n.7 (W.D. Va. Aug. 28,
To support his claim that an amended complaint resets the service deadline, Rheinstein
relies on U.S. ex rel. Budike v. PECO Energy, 897 F. Supp. 2d 300 (E.D. Pa. 2012). There, a
relator faced a deadline for service in March 2011. But prior to expiration of that deadline, on
November 17, 2010, the court entered an order stating, “Relator’s period in which to conclude its
investigative work and to further advise the Court of its decision to proceed in this civil action
shall be EXTENDED to April 3, 2011 or further order of this Court.” Budike, 897 F. Supp. 2d at
311–12. The relator took no action until April 8, 2011, when the relator filed an amended
complaint – five days after the April 3, 2011, deadline. The court subsequently ordered unsealing
and service of the amended complaint on May 4, 2011, and the relator effected service within
120 days of that May 4, 2011, order. Faced with a motion to dismiss for insufficient service of
process, the court rejected the notion that the relator was required to effect service by April 3,
2011. Instead, it concluded the 120-day timeframe started anew on May 4, 2011, in light of the
amended complaint. Id. 314 & n.17. The relevance of Budike here is limited by its unique facts.
That decision rested heavily on the fact that the November court order extended the deadline
until April 8, 2011, “or further Order of this Court.” The Budike court then concluded that the
May 4, 2011, order establishing a new deadline for service was such a “further Order” of the
court. Id. The court did not hold, as Mr. Rheinstein now suggests, that an amended complaint
automatically resets the service deadline. Especially because the court order at issue here did not
contain similar language to the order in Budike, the court finds this argument unpersuasive.14
Relatedly, Mr. Rheinstein claims the amended complaint “tolled” the deadline for
effecting service that would have otherwise applied. He claims “the time for completion of
service . . . is tolled when there exists a statutory or rule-based prerequisite to service, for a
particular type of complaint, that requires the occurrence of an event beyond the plaintiff’s
control.” (Amended Resp. in Opp’n to Boomerang Mot. to Dismiss 28). Under this theory,
Rheinstein appears to suggest that, but for FCA requirements stipulating that a complaint cannot
be served until the court so orders, Rheinstein would have both filed the amended complaint and
served that complaint on all defendants on December 12, 2015. (See id. 29). To support this
argument, Mr. Rheinstein relies on Robinson v. Clipse, 602 F.3d 605 (4th Cir. 2010). There, the
Fourth Circuit noted that in forma pauperis plaintiffs cannot serve complaints until the district
The court also notes that in Budike, it appears that the court never unsealed and ordered service of the original
court screens the complaint and authorizes service. Because these court processes are beyond the
control of an in forma pauperis plaintiff, the Fourth Circuit concluded the time during which this
initial screen takes places does not count against the Rule 4(m) deadline for service. Id. at 608–
09. This holding in Robinson has never been extended to FCA cases, and the court sees no
reason to do so here. Prior to the December 12, 2015, deadline, Mr. Rheinstein had ample time to
serve his complaint, and his failure to take any actions prior to the day of the deadline was not
caused by circumstances beyond his control.
Finally, Rheinstein claims dismissal is inappropriate simply because any failing that
might otherwise have resulted in dismissal was obviated by the December 15, 2015, court order.
The defendants’ motions, he claims, are “predicated on the notion that a prior order of the court
extending the service period was improvident or in error,” and Rheinstein suggests he “had a
right to rely upon” the December 2015 order or, relatedly, that the December 15, 2015 order
“superseded any earlier orders.” (Amended Resp. in Opp’n to Boomerang Mot. to Dismiss 27,
31). This argument also fails. The December 2015 order was granted before the court had the
benefit of adversarial briefing. And the court may grant a meritorious motion to dismiss even if it
means vacating a prior court order. See Chen, 292 F.R.D. at 295 (granting defendants’ motion to
vacate a prior court order extending the Rule 4(m) deadline because there was no “good cause”
for the extension); see also Mendez, 45 F.3d at 79 (suggesting courts may vacate prior orders
extending deadline for service if no “good cause” for the extension); Smith v. Ocwen-Loan
Servicing LLC, 2015 WL 4092452, at *2 (D. Md. July 6, 2015) (suggesting that, when plaintiffs
fail to meet Rule 4(m) deadlines, courts should provisionally extend the deadline for service but
then allow the parties to brief the issue of whether dismissal for insufficient service of process is
warranted).15 Indeed, I have done so before in the context of disputes over the application of
Rule 4(m). See Huber v. Maxim Healthcare Servs., Inc., 2006 WL 533573, at *1 (D. Md. Mar. 3,
2006) (dismissing case for insufficient process – even though a prior court order had extended
the deadline for service – after a motion by defendant showing absence of “good cause”).16
Public Disclosure Bar
The FCA contains a public disclosure bar, 31 U.S.C. § 3730(e)(4), “to prevent ‘parasitic’
qui tam actions in which relators, rather than bringing to light independently-discovered
information of fraud, simply feed off of previous disclosures of government fraud.” U.S. v ex
rel. Siller v. Becton Dickenson & Co., 21 F.3d 1339, 1347 (4th Cir. 1994). The public disclosure
bar requires a complaint to be dismissed where there is a qualifying public disclosure that predates the complaint and the relator is not the “original source” of the information. 31 U.S.C. §
3730(e)(4). In large part, this case is a paradigmatic example of a “parasitic” suit, as illustrated
by the procedural history set forth above and a comparison of the initial and amended complaint.
In the initial complaint, filed June 20, 2012, Moore conceded that his first knowledge of
the alleged scheme originated from publicly-filed documents in state court litigation related to
the 2138 Hollins Street property. (Compl. ¶ 20). He then identified, largely on “information and
Relatedly, Rheinstein claims his amended complaint was an “implicit motion” to extend the December 12, 2015,
deadline for service and that the court granted this “implicit motion” in its December 15, 2012, order. (Amended
Resp. in Opp’n to Boomerang Mot. to Dismiss 30 n.21). The court disagrees. Rheinstein also suggests the motion he
filed on December 13, 2015, may be viewed as a motion to extend the deadline, and that this motion was timely:
because December 12, 2015, was a Saturday, he claims, Fed. R. Civ. P. 6(a) “would have arguably operated to
extend any deadlines for action until Monday, December 14, 2015. (Id. 27 n.19, 30 n.21). This argument is
meritless. See Gaines v. MKKM Inc., 2015 WL 3917160, at *4 (D.S.C. June 25, 2015) (quoting Fed. R. Civ. P. 6
advisory committee’s notes). Even construing the December 13 filing as a motion for extension, it was untimely
and, as such, Rheinstein would have to prove both “good cause” and “excusable neglect” in order for the court to
grant it, which he has failed to do. Martinez, 578 F. App’x at 193–94.
The court notes that Rheinstein has displayed a pattern of not meeting deadlines throughout this litigation. For
instance, with respect to the motion to dismiss filed by Cardinal, Rheinstein was granted multiple extensions for
filing his response and, when he filed a response on September 16, 2016, it was subsequently revised about a week
later. (See Amended Resp. in Opp’n, Cardinal Mot. to Dismiss).
belief,” a total of 27 properties involved in the alleged scheme, for which Cardinal was alleged to
be the mortgage lender, and he also claimed that Cardinal certified 25 of the transactions to HUD
for FHA mortgage insurance and assigned nearly all of the mortgages to Wells Fargo. In the
amended complaint, filed December 12, 2015, Rheinstein identified in more detail his October
2011 discovery of the supposedly fraudulent HUD-1 statement in connection with the state court
litigation. (See Am. Compl. ¶¶ 95–105). He also added more factual detail about the 2138
Hollins Street property and again relied on “information and belief” to assert that the other 26
transactions also were fraudulent. The amended complaint also described the criminal cases
pursued by the U.S. Attorney’s Office in this court, acknowledging that the plea agreement for
Alberic Agodio covered all the transactions in this case.
The FCA’s public disclosure bar was amended effective March 23, 2010. Because the
amendment was not retroactive, the pre-amendment bar applies to conduct that occurred before
March 23, 2010, and the post-amendment bar applies to conduct after that date. May v. Perdue,
737 F.3d 908, 914 (4th Cir. 2013). If a complaint alleges a continuing course of fraud occurring
both before and after March 23, 2010, the pre-amendment version governs conduct occurring
before that date, and the post-amendment version governs conducts occurring thereafter. See
United States v. Premier Educ. Grp., L.P., 2016 WL 2747195, at *7 (D. N.J. May 11, 2016).
In this case, the pre-amendment bar appears to apply to Case Nos. 1–16 alleged in the
amended complaint, which involve real estate transactions that were certified for FHA insurance
before March 23, 2010, and the post-amendment bar appears to apply to Case Nos. 17–27, which
were certified after that date.17 The pre-amendment version of the bar was jurisdictional, and
[n]o court shall have jurisdiction over an action under this section
based upon the public disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a congressional,
administrative ... report, hearing, audit, or investigation ... 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. 3734(e)(4)(A) (2006). The pre-amendment version of the public disclosure bar thus
requires the court “to answer three questions: Was there a public disclosure? If there was a public
disclosure, was the qui tam action based on the public disclosure? If the action was based on the
public disclosure, was the qui tam plaintiff an original source?” U.S. ex rel. Wilson v. Graham
Cty. Soil & Water Conservation Dist., 528 F.3d 292, 299 (4th Cir. 2008), rev’d on other grounds
by 559 U.S. 280 (2010). “A relator bears the burden of proving that the public disclosure bar
does not preclude his FCA action.” May, 811 F.3d at 640.
The post-amendment version of the bar “is a grounds for dismissal – effectively, an
affirmative defense – rather than a jurisdictional bar.” United States ex rel. Beauchamp v.
Academi Training Ctr., LLC, 816 F.3d 37, 40 (4th Cir. 2016). It provides:
The court shall dismiss an action or claim under this section, unless
opposed by the Government, if substantially the same allegations
or transactions as alleged in the action or claim were publicly
disclosed— (i) in a Federal criminal, civil, or administrative
hearing in which the Government or its agent is a party; (ii) in a
congressional, Government Accountability Office, or other Federal
The court recognizes that any manner of determining which specific portions of the alleged fraudulent scheme
occurred before March 23, 2010, and which occurred after that date, is necessarily inexact because the amended
complaint contains few specific dates. However, the FAC does provide exact closing dates for the subject
transactions. The closing date is not a perfect stand-in for wrongful conduct allegedly committed in connection with
that transaction: for instance, the mortgage transaction in Case No. 19 closed on April 29, 2010, but Cardinal did not
submit the final documentation to the federal government until May 10, 2010. (Am. Compl. 35). Nonetheless, the
court adopts the closing dates as the best available option for roughly determining which fraud occurred before
March 23, 2010, and which occurred after that date, such that the court can apply the two distinct public disclosure
report, hearing, audit, or investigation; or (iii) 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.
With respect to Case Nos. 1–16 – which are analyzed under the pre-amendment version
of the public disclosure bar – documents disclosed in state-court litigation qualify as “public
disclosures,” Siller, 21 F.3d at 1348, 1350, and Rheinstein admits his claims are “based upon”
documents obtained through public state court filings. (See Compl. ¶ 20). Rheinstein’s affidavits
(as well as the amended complaint) also suggest that the public filings, specifically the two
different HUD-1s, constitute the disclosure of “allegations or transactions” – as opposed to mere
“information” – because the two different forms establish the “x + y = z” implication of fraud.
See U.S. ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 653–55 (D.C. Cir.
1994) (a “transaction” reflecting fraud occurs when two documents are disclosed from which
readers could infer fraud has been committed). Under Fourth Circuit precedent, this established
both prongs of the public disclosure bar. That is, Moore or Rheinstein also do not qualify as an
“original source” because their knowledge of fraud is based on public disclosures in state court.
See Grayson v. Advanced Mgmt. Tech., Inc., 221 F.3d 580, 582–83 (4th Cir. 2000). Accordingly,
to the extent the initial complaint adequately stated a claim against any defendant, claims based
on conduct prior to March 23, 2010 are barred.18
The court concedes some ambiguity in the record with respect to whether both versions of the HUD-1 forms, or
only the allegedly “accurate” version, were disclosed in state court. On the one hand, Moore and Rheinstein appear
to concede their knowledge of fraud was derived from disclosure of documents in state court. (See Rheinstein
Affidavit ¶ 10, ECF No. 34) (“The Qui Tam Cases were based upon information we discovered in the course of
other litigation.”); (Am. Compl. ¶ 78 n.7) (“The Relator discovered the transactions at issue in this case in the course
of litigation” in state court.). When Cardinal asserted in its motions papers that both versions were disclosed in state
court, Rheinstein did not object. Then, in a footnote in a brief filed in response to Jewell’s motion to dismiss,
Rheinstein claims the “false” version of the HUD-1 form was not publicly disclosed in state court litigation, but
rather was “produced privately and promptly shared with the Government.” According to Rheinstein, this second
document was thus not publicly disclosed. (Resp. in Opp’n, Jewell Mot. to Dismiss 19 n.20). Regardless, Rheinstein
bears the burden of proving the public disclosure bar does not apply, and he has not met that burden here.
With respect to claims based on conduct after March 23, 2010, the court applies the postamendment version of the public disclosure bar. Here, the bar applies if “substantially the same
allegations or transactions as alleged in the action or claim were publicly disclosed” before the
filing of a qui tam action in a federal criminal hearing, unless the person bringing the action is an
“original source.” And an “original source” is an individual who either “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 “who has knowledge
that is independent of and materially adds to the publicly disclosed allegations or transactions,
and who has voluntarily provided the information to the Government before filing an action
under this section.” 31 U.S.C. § 3730(e)(4).
First, the amended complaint controls here when deciding whether a public disclosure
has occurred prior to the filing of a qui tam lawsuit. The original complaint did not particularly
allege the relevant fraud – rather, it made vague allegations upon “information and belief.” See
Beauchamp, 816 F.3d at 46. Second, publicly filed federal criminal documents, particularly the
plea agreements in the Campbell, Miles, and Agodio cases, are qualifying “public disclosures”
that occurred before Rheinstein filed his amended complaint in December 2015. Third, many of
the specifics in the amended complaint are provided by reference to these plea agreements in the
criminal cases involving defendants Campbell, Miles, and Agodio. (See Am. Compl. ¶¶ 190–208
& Exs. 18, 19, 20). Put differently, the same “allegations or transactions” at issue in the criminal
cases were then included in this qui tam action. Finally, Rheinstein and Moore are not “original
sources” under the post-amendment bar. Moore and Rheinstein have proffered no knowledge
that is “independent of and materially adds to” the information contained in the plea agreements,
nor have they specifically alleged that they provided the relevant information to the government
prior to filing the amended complaint.19
Accordingly, to the extent the specifics required by the FCA are contained only in the
amended complaint, all claims would fall under the public disclosure bar. Beauchamp, 816 F.3d
at 45–46. And because the original complaint contains no specifics, but rather makes allegations
based on information or belief, the court finds the public disclosure bar applies to all claims.
Because the application of the public disclosure bar with respect to Case Nos. 17–27 is not
jurisdictional, however, the court will now examine other issues raised by the defendants.
Estoppel as to Cardinal and Wells Fargo
As discussed more fully below, Rheinstein continues to support his claims against
Cardinal and Wells Fargo primarily on the grounds of “information and belief,” though his
obligation is to allege specific facts establishing the necessary scienter for a violation of the
FCA. Rheinstein also, however, has attached to the amended complaint the statement of facts
agreed to between the U.S. Attorney’s Office and Alberic Agodio, who pled guilty before Judge
James K. Bredar in United States v. Agodio, 1:15-cr-0061-JKB.20 (Am. Compl. Ex. 20, Agodio
Plea Agreement, Attachment A, Agodio Statement of Facts, ECF No. 21-20). Rheinstein
acknowledges that the 27 transactions involved in this case are a “subset” of the 35 transactions
included in the Agodio plea deal. (Am. Compl. ¶ 206). And the plea deal clarifies that the United
The amended complaint alleges only that Moore and Rheinstein “first reported information about the fraudulent
scheme at issue” in the qui tam action “to the Government beginning on or about November 1, 2011,” (Am. Compl.
¶ 51), and that the relator “reported the matter extensively to the U.S. Department of Housing and Urban
Development (HUD) and the U.S. Attorney’s Office in Baltimore beginning on or about November 1, 2011,” (id. ¶
23 n.3). However, Moore and Rheinstein provide no specifics as to the nature of those conversations.
He also has included information related to the criminal cases against Kevin Campbell and Jonathan Miles, which
are 1:12-cr-0618-JKB-1 and 1:14-cr-0325-JKB-1, respectively.
States identified Cardinal as a victim, along with the secondary lenders and the FHA. The
Statement of Facts explains that:
Beginning in approximately June 2009 and continuing thereafter
until approximately November 2010, defendant Alberic Okou
Agodio, together with Kevin Campbell, and others, engaged in a
conspiracy and scheme to defraud a mortgage lending business
known as Cardinal Financial Company, Ltd. Partnership (Cardinal)
…. These actions caused Cardinal, which received the completed
loan packages from Transatlantic, to extend financing on these
transactions when it would not have done so had it known the true
facts. Agodio’s actions likewise caused the FHA to issue mortgage
insurance on these properties and the secondary lenders to
purchase the loans from Cardinal following the closings, thereby
exposing Cardinal, the secondary lenders, and the FHA to levels of
financial risk that were far higher than they had reason to expect.
(Agodio Statement of Facts 1–5). Rheinstein stands in the government’s shoes and has no claim
other than that on behalf of the government. U.S. ex rel Barajas v. Northrop Corp., 147 F.3d
905, 910 (9th Cir. 1998). Where the government has acknowledged Cardinal and the secondary
lenders as innocent victims in a public filing before this court, for the purpose of persuading the
court to accept a guilty plea, it could not now reverse course and claim that Cardinal and Wells
Fargo had perpetrated the fraud scheme against the FHA.21 Nor can Rheinstein do so on the
Failure to Satisfy Rule 9(b) as to Cardinal and Wells Fargo
To withstand a motion to dismiss with respect to an FCA claim, the plaintiff must plead
facts with sufficient specificity to satisfy Rule 9(b) of the Federal Rules of Civil Procedure. See
U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455–56 (4th Cir. 2013); U.S. ex
rel. Palmieri v. Alpharma, Inc., 928 F. Supp. 2d 840, 854–57 (D. Md. 2013). Most of the
The agreed-upon statement of facts also would not support an inference that Cardinal or Wells Fargo acted with
deliberate ignorance or reckless indifference to the truth as required under the FCA. U.S. ex rel. Owens v. First
Kuwaiti Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir. 2010).
allegations against Cardinal and Wells Fargo in the FAC are supported only on “information and
belief,” which is not sufficient. Essentially, Rheinstein simply asserts that Cardinal must have
known that statements allegedly made by others involved in the transactions were false, and that
Cardinal was acting on behalf of Wells Fargo, and that fraudulent claims must have been
submitted to the FHA. He has largely failed to provide any of the essential time, place, or date
specifics as to these defendants. U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d
370, 379 (4th Cir. 2008). Further, facts sufficient to establish that Cardinal was an “agent” of
Wells Fargo have not been pled.22
For the reasons stated herein, the court will dismiss Rheinstein’s amended complaint.
First, the court concludes that the defendants were not properly served, which is grounds for
dismissal without prejudice. In addition, or in the alternative if the ruling as to service is not
correct, the court will dismiss with prejudice all claims against all defendants that are based on
the first sixteen subject transactions (Case Nos. 1–16): the court lacks subject matter jurisdiction
over these claims under the pre-amendment version of the public disclosure bar. The postamendment version of the public disclosure bar also bars all claims based on the remaining
subject transactions (Case Nos. 17–27), and they also will be dismissed with prejudice. With
respect to Cardinal and Wells Fargo, the court will additionally dismiss all claims with prejudice,
because Rheinstein is estopped from bringing those claims. Separately, the court also finds that
In his opposition to Wells Fargo’s motion to dismiss, Rheinstein claims Cardinal was an “agent” of Wells Fargo.
(Resp. in Opp’n to Wells Fargo Mot. to Dismiss 11). Rheinstein cannot amend his pleadings through his opposition
to the Wells Fargo motion to dismiss. See Mylan Labs., Inc. v. Akzo, N.V., 770 F. Supp. 1053, 1068 (D. Md. 1991).
Rheinstein also suggests that “any pleading deficiencies” could be corrected through a further amendment to his
amended complaint. (See Resp. in Opp’n to Wells Fargo Mot. to Dismiss 24 n. 21). But Rheinstein has not formally
asked the court for leave to amend nor submitted a proposed amended complaint. In any event, based on the record,
the court sees no likelihood that the complaint could be amended so as to state a claim against Cardinal or Wells
Rheinstein has failed to plead facts with sufficient particularity with respect to Cardinal and
Accordingly, the court will grant the motions to dismiss filed by Boomerang, Svehlak,
Wells Fargo, Cardinal, Ronald Miles, Jonathan Lee Miles, and Kathryn Jewell. It will deny
Cardinal’s motion to strike the amended response filed by Rheinstein as moot. It will
retroactively grant the motion by Rheinstein for an extension of time to respond to the motion to
dismiss by Jonathan Lee Miles. And it will grant Jewell’s motion to amend her pleading to
incorporate defenses raised by other defendants.
A separate order follows.23
March 28, 2017
Catherine C. Blake
United States District Judge
Several defendants have urged the court to award them their fees and expenses pursuant to 31 U.S.C. § 3730(g).
(See, e.g., Boomerang Mot. to Dismiss Mem. Law 27). Rheinstein has not responded in substance to these claims for
fees. (See, e.g., Amended Resp. in Opp’n, Cardinal Mot. to Dismiss Mem. Law 61, ECF No. 102-1). In any event,
the court makes no decision on this issue at this time, because further briefing would be required.
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