USA et al v. American Home Mortgage Servicing Inc et al
ORDER dismissing, against all Defendants and with prejudice, allegations related to any false claim submitted to the United States, or one of the States, prior to March 23, 2010. Signed by Honorable Joseph F. Anderson, Jr. on 05/12/2014. (bshr, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
ROCK HILL DIVISION
United States Of America,
ex rel. Lynn E. Szymoniak,
C/A No. 0:10-cv-01465-JFA
American Home Mortgage Servicing, Inc.;
Saxon Mortgage Services, Inc.; Lender
Processing Services, Inc.; DocX, LLC;
CitiMortgage, Inc., f/k/a Citi Residential
Lending, Inc., f/k/a AMC Mortgage Services,
Inc.; Wells Fargo Home Mortgage d/b/a
America’s Servicing Company, Bank of
America Corporation, as successor-in-interest
to LaSalle Bank; Bank Of New York Mellon
Corporation; Citibank National Association;
Deutsche Bank National Trust Company;
Deutsche Bank Trust Company Americas;
HSBC USA National Association;
J.P. Morgan Chase Bank National Association;
U.S. Bank National Association; and Wells
Fargo Bank National Association,
This matter comes before the court upon the Defendants’ joint1 motion to dismiss the
complaint2 pursuant to FRCP 12(b)(1) in this qui tam action. The grounds for the motion are that
the complaint is based upon public disclosures, and that Relator did not have direct and
independent knowledge of the information in the complaint. For the reasons that follow, the
court dismisses, with prejudice, allegations related to any false claim submitted to the United
States, or one of the states, prior to March 23, 2010.
See ECF No. 334, n. 1.
All references to the complaint in this order refer to the third amended complaint filed at ECF No. 271.
The conduct alleged in the complaint straddles the effective date of an amendment to the
statute relevant to the public disclosure bar at issue. See 31 U.S.C. 3730(e)(4). The statute in
effect at the time the underlying conduct occurred is controlling. Kaiser Aluminum & Chem.
Corp. v. Bonjorno, 494 U.S. 827, 855 (1990) (Scalia, J., concurring) (“The principle that the
legal effect of conduct should ordinarily be assessed under the law that existed when the conduct
took place has timeless and universal human appeal.”). The relevant amendment took effect on
March 23, 2010, and under the amended statute, the United States may oppose the dismissal of a
complaint pursuant to the public disclosure bar. See 31 U.S.C. 3730(e)(4). The United States
filed its notice of opposition to dismissal on public disclosure grounds in this case the Saturday
before a Monday hearing on the present motion.3 ECF No. 348. Therefore, to the best of the
court’s knowledge, 4 the court cannot dismiss, on public disclosure grounds, any allegations
related to false claims submitted after March 22, 2010. Those claims will be the subject of an
upcoming motion to dismiss pursuant to Rule 12(b)(6), or perhaps other challenges.
At the April 28, 2014 hearing, Relator’s counsel alternated between conceding, not
opposing, and voluntarily dismissing all false claims submitted prior to March 23, 2010 on the
basis of the public disclosure bar. Accordingly, the court heard little to no oral argument on
whether the public disclosure bar applied to claims prior to March 23, 2010. Relator did,
however, ably and thoroughly brief the issue. See ECF No. 321. Ultimately, the court granted
Defendants’ Rule 12(b)(1) motion on public disclosure grounds, related to claims submitted to
the United States prior to March 23, 2010, without opposition, and on the merits. “If the merits
Although the United States objects to the dismissal of allegations relating to claims for payment submitted after
March 23, 2010, the court construes the United States’ objection to mean on or after March 23, 2010.
The court invited any motion or additional briefing challenging the validity of the Government’s notice, but no
such filing has been made.
are at issue, the mere fact that a motion to dismiss is unopposed does not relieve the district court
of the obligation to examine the complaint itself.” Vega-Encarnacion v. Babilonia, 344 F.3d 37,
41 (1st Cir. 2003). The court, therefore, offers its reasoning for dismissing all false claims
submitted prior to March 23, 2010.
In considering a motion to dismiss made pursuant to Fed. R. Civ. P. 12(b)(1), which
attacks the viability of jurisdictionally significant allegations, the Court may probe into the
record and is not required to accept all jurisdictional allegations by the nonmoving party as true,
as it would in a motion made under Rule 12(b)(6) or a “facial” attack to jurisdiction under
12(b)(1). See Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982). Relator has the burden of
establishing jurisdiction. Id.; see also U.S. ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 348 (4th
Cir.2009) (31 U.S.C. § 3730(e)(4) offers the “jurisdictional facts” which a relator has the burden
of proving by a preponderance of the evidence to survive Defendants' Rule 12(b)(1) motion). In
this case, this means that Relator bears “the burden of proving that the allegations underpinning
[her] FCA claims were not ‘based upon’ [a public disclosure].” Vuyyuru, 555 F.3d at 348.
In 2006, Relator refinanced the mortgage on her home, originally purchased in 1998, with
a loan from Option One. Eventually, the mortgage was transferred to Soundview Home Loan
Trust 2006-OPT2, a trust for which defendant Deutsche Bank National Trust Company served as
trustee. Two years later, in July 2008, Relator defaulted on her loan and foreclosure proceedings
were commenced against her. In the course of her defense of the foreclosure action, Relator
investigated the documents that purported to transfer her mortgage to the Soundview Trust and
came to believe that the mortgage assignment was a forgery. Relator contends that, after she
discovered that the assignment documentation related to her foreclosure was false, she reviewed
public documents in other foreclosures that revealed a “widespread pattern and practice of
ECF No. 271, ¶ 82.
According to Relator, in December 2009, she
contacted an assistant U.S. attorney in Jacksonville, Florida, and also “began reporting her
findings of widespread fabricated mortgage assignments” to government entities. Id. ¶¶ 99, 100.
On June 4, 2010, Relator filed this qui tam action on behalf of the United States. In the
complaint, Relator names defendants who were the trustees or servicers of mortgage-backed
securities (“MBS”) trusts in which the United States had invested.
According to Relator,
Defendants had defrauded and harmed the United States because the MBS trusts, which held
pools of residential mortgages, were missing assignments or included forged assignments.
Relator alleges that the missing or forged assignments led to the submission of false claims in
three ways: (1) Defendants used the falsified documents to recover FHA mortgage insurance; (2)
Defendants charged the Government for the creation and filing of the falsified documents in
FHA-insured foreclosures; and (3) Defendants submitted false claims to the investors of MBS
Trusts, including the Government Plaintiffs, for services that were never rendered and for
services and expenses related to the falsified documents used in foreclosures.
Because the United States has opposed dismissal on public disclosure grounds for claims
submitted after March 22, 2010, the only issue currently before the court with regard to the
public disclosure bar is if allegedly false claims submitted to the United States prior to March 23,
2010, should be dismissed. The controlling statute—as it existed prior to March 23, 2010—
reads as follows:
(4)(A) No 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, or Government
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.
(B) For purposes of this paragraph, “original source” means an individual who
has direct and independent knowledge of the information on which the allegations
are based and has voluntarily provided the information to the Government before
filing an action under this section which is based on the information.
31 U.S.C. § 3730(e)(4) (2009). Therefore, the court is to determine if the Relator’s knowledge in
this action is based upon public disclosures, and, if so, whether the Relator possessed direct and
independent knowledge of the information in the complaint, entitling the Relator to “original
Relator’s Complaint is Based Upon Qualifying Public Disclosures
Under the relevant statute, the court looks for a public disclosure: “in a criminal, civil, or
administrative hearing, in a congressional, administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the news media.” 31 U.S.C. § 3730(e)(4) (2009).
“Under the [relevant] version of the statute, disclosures in federal and state trials and hearings
qualify as public disclosures.” U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 917 (4th
Cir. 2013) (emphasis in original); see also 31 U.S.C. § 3730(e)(4) (2010) (Amended statute
limits disclosures in trials and hearings to federal trials and hearings, creating the inference that
the previous statute included state and federal trials and hearings.). “Section 3730(e)(4)(A)'s
public disclosure jurisdictional bar encompasses actions even partly based upon prior public
disclosures.” Vuyyuru, 555 F.3d at 351 (emphasis added). It is an unavoidable conclusion that
the allegations in this lawsuit, first filed on June 4, 2010, are at least partly based upon, if not
entirely based upon, qualifying public disclosures. The court will not provide an exhaustive list
of each qualifying public disclosure, but will highlight a few of what it views as the most
important public disclosures.5
First, there is Judge Schack’s opinion suspecting “fraud … or at least malfeasance,”
related to one signatory of a mortgage assignment acting as both assignor and assignee.
Deutsche Bank Nat. Trust Co. v. Maraj, 18 Misc. 3d 1123(A), 856 N.Y.S.2d 497 (N.Y. Sup. Ct.
January 31, 2008). Similarly, Judge Schack continued to reject foreclosure actions on the basis
of faulty assignment documentation throughout 2008 and 2009. See, e.g., Indymac Bank, FSB v.
Bethley, No. 089615, 2009 WL 279304 (N.Y. Sup. Ct. Feb. 6, 2009); HSBC Bank USA, Nat’l
Ass’n v. Antrobus, No. 07-43299, 2008 WL 2928553 (N.Y. Sup. Ct. July 31, 2008); Wells Fargo
Bank, N.A. v. Farmer, No. 07-27296, 2008 WL 2309006 (N.Y. Sup. Ct. June
Deutsche Bank Nat. Trust Co. v. Castellanos, 18 Misc. 3d 1115(A), 856 N.Y.S.2d 497 (N.Y.
Sup. Ct. 2008).
Next are the disclosures of widespread faulty mortgage assignment documentation by
major national media outlets. On April 24, 2009, The New York Times published an article about
the recreation of documents used to foreclose on properties, and about how certain individuals
showed several, different job titles on those documents. Mike McIntire, Murky Middleman, N.Y.
Times, Apr. 24, 2009, at B1. On July 26, 2008, The Wall Street Journal published an article
about judges rejecting foreclosures on the basis of flaws in assignment documentation. Amir
Efrati, Some Judges Stiffen Foreclosure Standards, Wall St. J., Jul. 26, 2008, at A3. On May 3,
2009, The St. Petersburg Times published an article about a company whose employees signed
documents as bank officers in “an assembly-line process designed to … [show that the new loan
holders] owned the loan and had the right to foreclose.” Susan Taylor Martin, So, Who Owns
Your Home Loan?, St. Petersburg Times, May 3, 2009, at 1D.
For a more complete list of other relevant public disclosures, see ECF No. 294-1.
This qui tam is based upon the same activity just described in Judge Schack’s opinions
and the news media: missing mortgage assignments and widespread forgery of documents
needed to foreclose. Finding these disclosures alone to be ample evidence that the allegations of
the complaint are based upon—and certainly partly based upon—qualifying public disclosures,
the court turns to whether or not Relator qualifies as an original source.
Relator does not have Direct and Independent Knowledge of the Information in
Under the relevant statute, a person qualifies as an original source if: (1) she has direct
and independent knowledge of the information on which the allegations are based; and (2) has
voluntarily provided the information to the Government before filing an action which is based on
the information. 31 U.S.C. § 3730(e)(4) (2009). Here, Relator likely voluntarily provided the
information to the United States prior to filing her complaint on June 4, 2010 when she contacted
the U.S. Attorney’s office in December 2009. However, the court finds that Relator does not
have direct and independent knowledge of the information on which the allegations of this action
are based, and, therefore, is not an original source.
It is clear that Relator’s knowledge of the widespread, systematic problem of missing
assignments and fabricated assignments came from the public domain, even if it is true that
Relator discovered fraudulent documentation related to her own foreclosure. Relator did not
work for any entity involved in the recreation of mortgage assignment documentation. She can
point to no other relationship, fiduciary, or otherwise, to show that she is the type of insider or
whistleblower that the False Claims Act is intended to reward. The knowledge she gained in her
investigation is based almost entirely on public disclosures: court filings, SEC filings, and media
coverage. Relator’s knowledge of widespread fraud related to mortgage assignments—“the
information on which the allegations are based”—is best described as indirect and dependent on
publicly available information.
Relator’s actual contribution is a legal theory of how false claims were submitted to the
government, due to Defendants’ questionable conduct. As Relator describes in her brief in
opposition to this motion:
While it is true that Relator’s Complaint alleges that Defendants falsified
documents in a number of ways to unlawfully foreclose on mortgages, the
gravamen of her Complaint is that the Defendants then used the falsified
documents to recover FHA mortgage insurance to which they were not entitled,
charged the Government for the creation and filing of the falsified documents in
FHA-insured foreclosures, and submitted false claims to the investors of MBS
Trusts, including the Government Plaintiffs, for services that were never rendered
and for services and expenses related to the falsified documents used in
foreclosures. It is these allegations and transactions – the very connecting the dots
demonstrating injury to the Government – that Relator has brought to the table.
ECF No. 321, p. 32. The court finds that legal theories—“the very connecting the dots”—are not
“knowledge of the information on which the allegations are based.” An individual is considered
an original source if she has direct and independent knowledge of the underlying facts that give
rise to the complaint. A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1245 (9th Cir.
2000) (“That the disclosed transactions themselves may not have pointed directly to any
wrongdoing is simply of no moment.”); United States ex rel. Stinson, Lyons, Gerlin &
Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir. 1991) (“[T]he relator must
possess substantive information about the particular fraud, rather than merely background
information which enables a putative relator to understand the significance of a publicly
disclosed transaction or allegation.”); U.S. ex rel. Findley v. FPC-Boron Employees' Club, 105
F.3d 675, 688 (D.C. Cir. 1997) rev’d on other grounds by U.S. ex rel. Davis v. D.C., 679 F.3d
832, 835 (D.C. Cir. 2012) (“A relator's ability to recognize the legal consequences of a publicly
disclosed fraudulent transaction does not alter the fact that the material elements of the violation
already have been publicly disclosed.”); U.S. ex rel. Barber v. Paychex, Inc., 09-20990-CIV,
2010 WL 2836333 (S.D. Fla. July 15, 2010) (“Settled law squarely holds that where, as here, the
factual information underlying the claims is already available in the public domain, [relator’s
own legal interpretations and conclusions] make no difference to the application of the Public
Disclosure Bar.”). Indeed, the court believes it to generally be the province of lawyers and
courts to create legal theories from a certain set of facts, not the province of qui tam relators.
Accordingly, the court finds that, as to false claims submitted prior to March 23, 2010,
Relator’s suit is barred because her knowledge of the underlying facts is based upon public
disclosures and she is not an original source of the information.
For the reasons given, the court dismisses, against all Defendants and with prejudice,
allegations related to any false claim submitted to the United States, or one of the States,6 prior to
March 23, 2010.
IT IS SO ORDERED.
May 12, 2014
Columbia, South Carolina
Joseph F. Anderson, Jr.
United States District Judge
Having dismissed all federal claims related to false claims submitted prior to March 23, 2010, the court declines to
exercise supplemental jurisdiction over the remaining state claims related to false claims submitted prior to March
23, 2010. See 28 U.S.C. § 1367.
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