Mitchell v. CIT Bank, N.A., et al
Filing
200
MEMORANDUM OPINION AND ORDER. It is ORDERED that CIT Bank, N.A. d/b/a OneWest Bank, and CIT Group, Inc.'s Motion to Dismiss (Dkt. # 157 ) is hereby DENIED. Signed by District Judge Amos L. Mazzant, III on 8/17/2021. (mcg)
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United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
UNITED STATES OF AMERICA ex rel.
and ANDREW MITCHELL, and ANDREW
MITCHELL, Individually
Plaintiffs,
v.
CIT Bank, N.A. d/b/a One West Bank, and
CIT Group, Inc.,
Defendants.
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Civil Action No. 4:14-CV-00833
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court is CIT Bank, N.A. d/b/a OneWest Bank, and CIT Group, Inc.’s
Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(1) for Lack of Subject Matter
Jurisdiction (Dkt. #157). Having considered the motion and the relevant pleadings, the Court finds
that the Motion should be DENIED.
BACKGROUND
In 2008, the United States faced a housing crisis caused, in part, by mortgage fraud and
predatory lending. The crisis caused home prices to plummet and foreclosures to skyrocket,
leaving homeowners with negative equity in their homes. Distressed homeowners were unable to
sell or refinance their homes to meet their mortgage obligations. In response to this crisis, the
Government enacted the Emergency Economic Stabilization Act of 2008 (“EESA”).
The Home Affordable Modification Program (“HAMP”), administered by the Treasury
Department, was a voluntary program under EESA designed to prevent avoidable foreclosures by
providing homeowners with affordable mortgage-loan modifications and other alternatives to
eligible buyers. HAMP’s primary goal was to relieve the burden on homeowners by lowering their
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mortgage payments to 31% or less of their gross monthly income. Investors would receive
payments and a guarantee that no modification would result in a mortgage worth less than the netpresent value of the property. In return, mortgage servicers, in addition to their annual servicing
fees, received HAMP incentive payments to complete the modifications.
Each successful
modification entitled the servicer from $1,200–2,000 depending on how long the mortgage was
delinquent. From the program’s start in 2009 through the second quarter of 2016, HAMP
generated more than 1.6 million permanent modifications. In addition to HAMP, the Fair Housing
Administration’s (“FHA”) and Veterans Administration (“VA”) each had companion HAMP
programs: “FHA-HAMP” and “VA-Hamp,” respectively.
In 2009, OneWest Bank (“OWB”) enrolled in the HAMP, FHA-HAMP, and VA-HAMP
programs. On August 18, 2009, OWB Executive Vice President and Chief Operating Officer Tony
Ebers expressly certified OWB’s compliance with HAMP guidelines and applicable federal laws
in signing the initial Servicer Participation Agreement (“SPA”). The SPA named OWB as the
servicer and Fannie Mae as Financial Agent of the United States. The SPA required OWB to
provide annual certifications of compliance with the specified terms and conditions.
Defendant expressly represented in the SPAs and annual certifications that: (1) it was in
compliance with the terms and guidelines of HAMP; (2) it was in compliance with all applicable
laws and requirements; (3) it created and maintained an effective HAMP program and committed
the resources needed to employ enough trained, experienced personnel with the tools and
technology necessary to provide quality service to homeowners; and (4) it had adequately
documented and monitored its compliance and immediately reported to the Government any
credible evidence of material violations of these certifications. Each annual certification included
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an express statement certifying that OWB continued to meet the terms and conditions of the SPA,
including the representation of compliance with applicable laws.
On April 13, 2011, the Office of Thrift Supervision (“OTS”) entered into a consent order
with OWB (“2011 Consent Order”). Pursuant to the consent order, “a monitor was tasked to work
with [OWB] to identify and remedy all deficiencies with its mortgage servicing and lending
modification programs” (Dkt. #60). The terms of the 2011 Consent Order were reaffirmed by a
consent order entered on March 11, 2014 (“2014 Consent Order”). On July 14, 2015, the Office
of the Comptroller of the Currency terminated the 2011 and 2014 Consent Orders after finding
that the Consent Orders were no longer required for the “protection of the depositors, other
customers, and shareholders of the Bank, as well as its safe and sound operation” (Dkt. #60,
Exhibit 8).
On December 23, 2014, Relator Michael J. Fisher (“Fisher”) and Relator Andrew Mitchell
(“Mitchell” or “Relator”) filed their Original Complaint under seal (Dkt. #1). On October 21,
2016, Fisher and Mitchell filed an Amended Complaint under seal (Dkt. #24). On September 13,
2019, Fisher withdrew as a Relator (Dkt. #50; Dkt. #51). Subsequently, Mitchell filed Relator’s
Second Amended Complaint (“SAC”) on October 11, 2019 (Dkt. #52).
Defendants were
subsequently served on October 15, 2019 (Dkt. #53; Dkt. #54).
In Mitchell’s Second Amended Complaint, Mitchell, a former employee of OWB from
2009-2011, alleges that OWB made false claims to the United States in relation to its obligations
under HAMP, FHA-HAMP, and VA-HAMP. More specifically, Mitchell alleges that OWB
falsely certified that it was in compliance with the requirements of those programs by: (1) not
having a loss mitigation program; (2) running a sham loss mitigation program that had insufficient
resources, caused unnecessary foreclosures due to untimely mortgage evaluations, and used
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incorrect evaluation tools to evaluate delinquent mortgages; (3) engaging in dual-trafficking; (4)
offering inappropriate options to mortgagors under HAMP; and (5) improperly capitalizing
principal and unaccrued escrow payments.
On February 12, 2021, Defendants this Motion to Dismiss (Dkt. #157) asserting for the
first time that Relator does not have standing to pursue his claims because he purportedly signed
a release prior to filing the instant qui tam action, which Defendants claim encompass his qui tam
claims. On March 12, 2021, Relator filed his Response (Dkt. #164). Defendants replied on March
23, 2021 (Dkt. #165), and Relator filed a Sur-Reply on March 30, 2021 (Dkt. #166). Subsequently,
Relator filed supplemental authority on May 5, 2021 (Dkt. #168), to which Defendants responded
on May 7, 2021 (Dkt. #169). Relator then replied to Defendants’ response on May 10, 2021
(Dkt. #170).
LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a case for lack of subject
matter jurisdiction when the district court lacks statutory and constitutional power to adjudicate
the case. Home Builders Ass’n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir.
1998). The issue of standing is one of of subject matter jurisdiction and is properly raised by a
motion to dismiss under Rule12(b)(1). See Cobb v. Cent. States, 461 F.3d 632, 635 (5th Cir. 2006).
Motions under 12(b)(1) can come in two different ways: either a facial or a factual attack
on jurisdiction. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981); see also 5B
CHARLES ALAN WRIGHT
ET AL.,
FEDERAL PRACTICE
AND
PROCEDURE § 1350 (3d ed.);
O’CONNOR’S FEDERAL RULES * CIVIL TRIALS Ch. 3-C § 5.1 (2021 ed.). “A ‘facial attack’ on the
complaint requires the court merely to look and see if plaintiff has sufficiently alleged a basis of
subject matter jurisdiction, and the allegations in his complaint are taken as true for the purposes
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of the motion.” Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980) (citing
Mortensen v. First Federal Savings & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)). “A ‘factual
attack,’ however, challenges the existence of subject matter jurisdiction in fact, irrespective of the
pleadings, and matters outside the pleadings, such as testimony and affidavits, are considered.” Id.
When a defendant mounts a factual attack, the presumption of truthfulness does not attach to the
plaintiff’s allegations. Williamson v. Tucker, 645 F.2d 404, 412–13 (5th Cir. 1981). To prevail in
showing the Court has jurisdiction, “the plaintiff must ‘prove the existence of subject-matter
jurisdiction by a preponderance of the evidence.’” Irwin v. Veterans Admin., 874 F.2d 1092, 1096
(5th Cir. 1989) (citing Middle South Energy, Inc. v. City of New Orleans, 800 F.2d 488, 490 (5th
Cir. 1986)).
ANALYSIS
Mitchell brings this qui tam action pursuant to the False Claims Act (“FCA”). 31 U.S.C.
§ 3729(a)(1)(A)–(B). “The [FCA] is designed to allow suits ‘by private parties on behalf of the
United States against anyone submitting a false claim to the government.’” United States ex rel.
Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 441 (5th Cir. 2008) (quoting Hughes Aircraft Co. v.
United States ex rel. Schumer, 520 U.S. 939, 941 (1997)). The FCA “promot[es] private citizen
involvement in exposing fraud against the government,” while “prevent[ing] parasitic suits by
opportunistic late-comers who add nothing to the exposure of fraud.” Id. (quoting Reagan, 384
F.3d at 174).
Defendants move the Court to dismiss this action alleging the Court does not have subject
matter jurisdiction. In bringing their argument, Defendants claim Relator lacks standing because
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“he released any claims he has that relate to, arise out of, or are based on his employment by
OneWest, which includes the claims he asserts in this qui tam action.” (Dkt. #157 at p. 19).
Relator responds by arguing (1) the Court should allow additional discovery before
considering the motion; (2) this motion is an indirect attack on the merits of Relator’s claims; (3)
the release is unenforceable because it contravenes public policy interests; (4) even if the release
is enforceable, Relator has constitutional standing to sue on behalf of the government; and (5)
Defendants cannot enforce other provisions of the consulting agreement against Mitchell because
the statute of limitations expired long ago. See (Dkt. #164 at pp. 19–35).
The Court agrees that the Release is not enforceable on public policy grounds and,
therefore, does not address Relator’s other arguments. See United States ex rel. Green v. Northrop
Corp., 59 F.3d 953, 957 (9th Cir. 1995) (“We assume for the purposes of analysis that . . . the
Release encompassed both Green’s right to bring a qui tam action as well as any recovery that
might flow from the action. Nonetheless, we hold that this aspect of the Release is unenforceable
because its enforcement would impair impermissibly a substantial public policy.”); see also United
States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 23 (2nd Cir. 2016) (“Assuming that Ladas’s release
was sufficiently broad to encompass his qui tam claims, we hold that the release is unenforceable
as a matter of public policy.”).
I. Standing
Defendants claim that Relator lacks standing because he allegedly executed an agreement
releasing his qui tam claims. On February 10, 2012, Relator entered into an agreement titled
“Individual Consulting Agreement” (“Consulting Agreement”) (Dkt. #157, Exhibit 12 at p. 5).
The Consulting Agreement provides that Relator “desires voluntarily to terminate his employment
relationship with OneWest;” and that “OneWest desires to continue to have access to Mitchell’s
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services for purposes of completing it investigation of the issues . . .” relating to OneWest’s loss
mitigation in connection with the servicing of certain government-insured mortgages (Dkt. #157,
Exhibit 12 at p. 5).
Defendants claim that Relator released all of his claims after the United States Department
of Housing and Urban Development (“HUD”)—the United States Government entity Relator
alleges was defrauded—became aware of and had an opportunity to investigated OneWest’s
alleged violations of HUD’s rules for servicing FHA insured loans that form the basis for Relator’s
claims (Dkt. #157 at p. 4).
Defendants assert that HUD had already identified the issues with the OneWest’s loan
servicing policies, procedures, and practices for FHA-insured loans when the HUD conducted its
January 2010 audit of OneWest (Dkt. #157 at p. 5). Further, Defendants claim HUD understood
OneWest had violated various FHA loss-mitigation rules, and, thus, the government was aware of
the violations underlying Relator’s complaint (Dkt. #157 at p. 6). Defendants believe that as part
of the Consulting Agreement and for more than $150,000, Relator released his claims—including
his qui tam claim. The relevant release provisions (the “Release”) from Consulting Agreement
read as follows:
Except for the rights and obligations created by this Agreement, Mitchell, on behalf of
Mitchell’s agents, representatives, attorneys, assignees, heirs, executors, administrators and
successors in interest, hereby releases and forever discharges the OneWest Companies, including,
but not limited to OneWest Resources LLC, OneWest Bank, FSB, and all of their past, present and
future owners, parents, subsidiaries, divisions, affiliates, related entities, joint venturers, partners
and members, as well as each of their respective directors, officers, shareholders, agents,
associates, representatives, employees, attorneys, predecessors, successors, and assigns, and any
and all of them (collectively, the “Released Parties”), from any and all liability, actions, causes of
action, claims, charges, complaints, demands, grievances, obligations, losses, damages, injuries
and legal responsibilities, of any type whatsoever, whether known or unknown, unforeseen,
unanticipated, unsuspected or dormant, that are based upon, relate to or arise out of Mitchell’s
employment with OneWest and/or the OneWest Companies, and/or the discontinuation of said
employment (collectively, “Claims”), except claims that the law does not permit Mitchell to waive
by signing this Agreement. The term “OneWest Companies” refers to OneWest, OneWest Bank,
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FSB, its parent company, subsidiaries, affiliates and related companies. The Claims defined in the
first sentence of this Section and released herein by Mitchell as to OneWest and the Released
Parties include, without limitation, all Claims in law, equity, contract, and tort, and/or all Claims
under the Dodd Frank Wall Street Reform and Consumer Protection Act, the Fair Labor Standards
Act, the Equal Pay Act, National Labor Relations Act, Labor Management Relations Act,
Employee Retirement Income Security Act, Title VII of the Civil Rights Act of 1964, as amended,
Civil Rights Act of 1991, Americans with Disabilities Act, as amended, Age Discrimination in
Employment Act, as amended by the Older Workers Benefit Protection Act of 1990, the
Rehabilitation Act, Executive Order 11246, Family and Medical Leave Act, Sarbanes-Oxley Act
of 2002, Worker Adjustment and Retraining Notification Act, the Consolidated Omnibus Budget
Reconciliation Act, the Code of Federal Regulations, the California and Texas Constitutions,
California Civil Code, the Texas Civil Practices & Remedies Code, the Texas Administrative
Code, the California and Texas Labor Codes and any other applicable state wage and hour statutes
or wage orders, California Code of Regulations, the California and Texas Government Codes,
California Business & Professions Code, the Texas Business and Commerce, California Fair
Employment and Housing Act, the Texas Commission on Human Rights Act, California Family
Rights Act, the California Workers’ Compensation Act, any other applicable state employmentdiscrimination statutes, any similar provisions of Texas law and the law in any other jurisdiction,
and/or all Claims under any other federal, state, municipal or other governmental statute,
regulation, ordinance or order.
(Dkt. #157, Exhibit 12 at p. 11) (emphasis added).
Mitchell represents that Mitchell either does not have or will immediately dismiss (unless
expressly prohibited by law) any lawsuit, claim, charge, grievance or complaint against any of the
OneWest Companies in any forum, including without limitation any local, state or federal agency
or court, based upon events occurring prior to the Effective Date. Mitchell also promises not to
voluntarily encourage, counsel or assist (directly or indirectly) any current or former employee or
third party in the preparation or prosecution of any civil dispute, difference, grievance, claim,
charge or complaint against any of the OneWest Companies and/or any Released Parties unless
compelled to do so by valid legal process.
(Dkt. #157, Exhibit 12 at p. 12–13).
Mitchell agrees to notify OneWest’s General Counsel if he receives a request to participate or join
in any way in any litigation or administrative proceeding before any federal or state agency, against
any of the OneWest Companies or provide information, documents or assistance within three
business days of Mitchell receiving the request. Nothing in this Agreement prohibits Mitchell from
filing a charge or participating in any investigation or proceeding conducted by the Equal
Employment Opportunity Commission or a comparable state or local agency. However, by signing
this Agreement, Mitchell has waived the right to recover monetary damages in any charge,
complaint, or lawsuit filed by Mitchell, or anyone else on Mitchell’s behalf against any of the
OneWest Companies asserting any c1aims released by this Agreement, and Mitchell has waived
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the right to file an individual lawsuit against any of the OneWest Companies asserting any claims
released by this Agreement.
(Dkt. #157, Exhibit 12 at p. 13).
Relator does not contest that he signed the release; rather, he contends the release only
covered his personal claims and that he “never imagined, nor was it ever discussed with him, that
he was supposedly waiving his right to assert claims belonging to the government, such as claims
against OneWest for fraud against the government.” (Dkt. #164 at pp. 15–16). Further, Relator
argues the Release should not be enforced due to public policy concerns (Dkt. #164 at p. 23).
Assuming arguendo that the release covers Relator’s qui tam claims, the Court finds the
release should not be enforced on public policy grounds.
A. Enforceability of Prefiling Release
Under the FCA, a relator may not unilaterally enter into an enforceable settlement
agreement or release after filing an FCA action. See 31 U.S.C. § 3730(b)(1) (“The action may be
dismissed only if the court and the Attorney General give written consent to the dismissal and their
reasons for consenting.”); United States ex rel. Longhi, 575 F.3d 458, 474–75 (5th Cir. 2009)
(affirming district court’s refusal to enforce a postfiling release and indemnification on the grounds
that the plain language of the FCA prohibits dismissal without the court’s and Attorney General’s
consent and the interest in enforcing the release and indemnification were outweighed by public
policy concerns). However, the Fifth Circuit has not directly considered the enforceability of a
prefiling release in a qui tam action, but other circuits have considered the issue and applied the
test from the Ninth Circuit developed in United States ex rel. Green v. Northrop Corp., 59 F.3d
953 (9th Cir. 1995), and United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230
(9th Cir. 1997). United States ex rel. Ritchie v. Lockheed Martin Corp., 558 F.3d 1161 (10th Cir.
2009); United States ex rel. Radcliffe v. Purdue Pharma L.P., 600 F.3d 319 (4th Cir. 2010); Ladas,
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824 F.3d 16 (2nd Cir. 2016). This Court has also previously applied the balancing test in United
States ex rel. Jackson v. University of North Texas. 4:13-CV-734, 2016 WL 369693, at *4 (E.D.
Tex. Feb. 1, 2016). The Court will again apply the Green and Hall balancing test to this case
as well.
In Green, the Court addressed “whether the release of a qui tam claim, when entered into
without the United States’ knowledge or consent, and prior to filing of an action based on that
claim, is enforceable.” Green, 59 F.3d at 956. The Ninth Circuit looked to the Supreme Court’s
decision in Town of Newton v. Rumery, 480 U.S. 386 (1987), to establish its balancing test. Green,
59 F.3d at 958. “Under the balancing test, the Ninth Circuit analyzed whether the interest in
enforcing the release was outweighed in the circumstances by a public policy harmed by enforcing
the release.” United States ex rel. Haight v. RRSA (Commercial Div.), LLC, 3:16-CV-1975-S, 2021
WL 1721585, at *4 (N.D. Tex. Apr. 30, 2021) (citing Green, 59 F.3d at 962). Ultimately, the Ninth
Circuit concluded that enforcing the release would “impair a substantial public interest” because
enforcing the release “would threaten to nullify the incentives Congress intended to create” with
the FCA. Green, 59 F.3d at 963. “It is commonly recognized that the central purpose of the qui
tam provisions of the FCA is to set up incentives to supplement government enforcement of the
Act by encouraging insiders privy to a fraud on the government to blow the whistle on the crime[.]”
Id. (cleaned up).
In Green, the Ninth Circuit found it critical “that the government only learned of the
allegations of fraud and conducted its investigation because of the filing of the qui tam complaint.”
Id. at 966. Further, the Ninth Circuit opined that given the fact that a successful relator will receive
at most thirty percent of the recovery for a successful qui tam suit, if a prefiling release were
enforceable, “a rational relator would be willing to accept a substantially smaller amount to settle
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the claim immediately than to preserve the right to eventually file a qui tam action in which the
government would retain the lion’s share of the proceeds.” Id. at 965–66. Consequently, potential
relators would be incentivized to settle before filing the qui tam action, thus inhibiting the
government’s ability to learn about instances of fraud and undermining the incentives created by
the qui tam provisions of the FCA. See id. (“Accordingly, when we consider, as we do here, a
release of a claim in the prefiling period, it is clear that our focus must be on what impact the
release will have on the incentive effect Congress intended to create and the importance of that
incentive effect in achieving the FCA’s goals of detecting and deterring fraud on the
government.”). Having conducted its public policy analysis, the Ninth Circuit held that it would
not enforce the prefile release to bar a subsequent qui tam claim when the release was entered into
without the government’s knowledge or consent. Id. at 969.
In contrast, in Hall, the Ninth Circuit held that a prefiling release was enforceable when
the government had full knowledge of the relator’s claims and had investigated the claims before
the parties executed the release. 104 F.3d at 231. Hall—the relator—voiced concerns to his
employer about issues with the nuclear manufacturing process, and his employer informed the
Nuclear Regulatory Commission of Hall’s concerns. Id. Hall also filed his own complaint with the
Nuclear Regulatory Commission. Id. After Hall voiced his concerns, his employer terminated him
leading to Hall filing a state court action for retaliation. Id. at 232. The parties settled, and Hall
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signed a broadly worded release, but neither party informed the federal government of the state
action or the release. Id.1
Following the state action, Hall filed a qui tam case. Id. In the qui tam case, the Ninth
Circuit found that the circumstances present in Green were not present in Hall. Id. at 232–33.
Because the government was aware of Hall’s allegations regarding the false certifications, “the
public interest in having information brought forward that the government could not otherwise
obtain is not implicated.” Id. at 233.
To summarize, “the consent of the government is not a necessary condition precedent to
enforcement of an otherwise valid release where such a release is executed prior to filing a qui
tam action.” Radcliffe, 600 F.3d at 328; see also, e.g., Ritchie, 558 F.3d at 1168; United States ex
rel. Gebert v. Transp. Admin. Servs., 260 F.3d 909, 915 (8th Cir. 2001); Green, 59 F.3d at 960.
And, “courts generally enforce a pre-filing release of a relator’s right to bring a qui tam action so
long as the relator’s allegations of fraud were sufficiently disclosed to the government prior to the
release, and the government had opportunity to fully investigate the allegations.” Jackson, 2016
WL 369693, at *3 (first citing Radcliffe, 600 F.3d at 332; and then citing United States ex rel.
Longhi v. Lithium Power Techs., Inc., 481 F. Supp. 2d 815, 820-21 (S.D. Tex. 2007), aff’d 575
F.3d 458 (5th Cir. 2009) (refusing to uphold a release after concluding that allegations were
insufficiently disclosed to the government prior to the release)).
Some courts frame the issue in terms of the public’s issue:
When the government is unaware of potential FCA claims the public interest
favoring the use of qui tam suits to supplement federal enforcement weighs against
enforcing prefiling releases. But when the government is aware of the claims, prior
The release stated that it “includes, but is not limited to, all claims which were, or could have been, brought as claims
or counterclaims in the above-referenced action. This Mutual Release of Claims also includes, but is not limited to,
any other claims or complaints which could have been brought in any other type of action or proceeding.” Id.
1
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to suit having been filed, public policies supporting the private settlement of suits
heavily favor enforcement of a prefiling release.
Radcliffe, 600 F.3d at 332 (emphasis added) (omitting internal citations) (finding prefiling release
was enforceable when the government had already been investigating the relator’s allegations prior
to the relator signing the release and filing the qui tam suit); see also Ritchie, 558 F.3d at
1170; Gebert, 260 F.3d at 915; Green, 59 F.3d at 960. Thus, the Courts inquiry focuses on whether
the allegations of fraud were sufficiently disclosed to the government before Relator signed
the Release.
Defendants argue the government was aware of the noncompliance before Relator signed
the Release (Dkt. #157 at p. 23). Specifically, Defendants assert that the core of Relator’s
allegations are a failure to follow FHA’s loss-mitigation rules and that HUD knew of the failures
as evidenced in HUD’s April 5, 2010 Letter and OneWest’s follow up in its June 7, 2010 Letter to
HUD (Dkt. #157 at p. 24). Further, Defendants claim that “[s]enior HUD employees clearly knew
there were issues with OneWest’s FHA loss mitigation in 2010—years before [Relator’s] February
2012 release—and had full opportunity to investigate them[]” and that “[i]t does not matter
whether HUD had ‘full knowledge’ of all the violations Mitchell claims to have observed.”
(Dkt. #157 at p. 26).
Relator argues that there were many deficiencies and acts of fraud that were never disclosed
to the government and that the government did not have knowledge of the full scope of Relator’s
allegations at the time he signed the release (Dkt. #164 at p. 25). Specifically, Relator asserts that
“[t]he government had no idea that OneWest had intentionally concealed the fact
that OneWest’s loss-mitigation failures extended to non-FHA loans, including VA
loans, for which OneWest did not even have a functional, much less compliant,
loss-mitigation program, or that OneWest had been dual-tracking loans, or that
OneWest did not have a working FHA-HAMP modification product, or that
OneWest’s non-compliance extended much further than the LoanCare issues of
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which the government was aware at the time [Relator] signed his employmentrelated release.”
(Dkt. #165 at p. 25).
Relator compares the June 7, 2010 Letter to HUD (Dkt. #157, Exhibit 3) to what is alleged
in the Second Amended Complaint and in Relator’s interrogatory responses (Dkt. #164 at pp. 25–
26) (citing Dkt. #157, Exhibit 27). Relator notes that—contrary to what Defendants said in the
June 7, 2010 Letter to HUD—Relator “observed OneWest’s failure to establish an FHA-compliant
loss mitigation program,” “told management that OneWest was egregiously failing to engage in
loss mitigation per HUD guidelines,” “observed that OneWest failed to employ a properly trained
and qualified loss mitigation staff,” and “observed OneWest servicing FHA loans without
providing employees formal training, manuals, job aides, or reference materials” (Dkt. #164 at p.
26) (citing Dkt. #157, Exhibit 27 at 9–10).
The Court is persuaded that, at the very least, the government was not aware of all of the
acts of fraud and deficiencies and that the government certainly was not aware of the depth and
breadth of the fraud. Defendants cite the Court to its prior opinion in Jackson to support its position
that the Release should be enforced (Dkt. #157 at p. 27). Jackson, however, is distinguishable.
In Jackson, Jackson—the relator—filed an action asserting FCA claims against the
JPMorgan Chase Bank, N.A., regarding his applications for, and alleged failure to receive, student
loan funds while he was a student at the University of North Texas. 2016 WL 369693, at *1. Prior
to filing the suit alleging FCA claims, Jackson filed suit against Chase asserting other claims
against Chase Bank on the same facts. United States ex rel. Jackson v. Univ. of N. Tex., 4:13-CV734-ALM-CAN, 2015 WL 13744213, at *5 (E.D. Tex. Nov. 18, 2015). On March 8, 2012, Jackson
released Chase Bank from all claims asserted in the first lawsuit, and Jackson also released Chase
Bank “from any liability in the event the subject loans are not forgiven or discharged (in whole or
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in part).” Id. After the first suit was dismissed, Jackson filed the second suit bringing the FCA
claims. Id. at *1.
The Court dismissed the second case finding that the release Jackson entered into on March
8, 2012, covered his FCA claim and that the release was enforceable. Jackson, 2016 WL 369693,
at *4. There, Jackson argued the government could not have had sufficient information to
investigate his claims because it lacked specific documents that Jackson had. Id. The Court found
that the government was indeed aware of his claims and that the disclosures Jackson made to the
government were more than enough information to investigate. Id. The Court stated “there is no
doubt that [Jackson’s] allegations were sufficient to allow the [government] to investigate, since
the [government] was aware of the specific allegations and had opportunity to uncover and/or
investigate any fraud. At most, [Jackson’s] additional documents merely corroborate the
allegations he had already made to the Department.” Id.
Jackson is distinguishable from the facts here. To begin, Jackson did “not dispute that the
[government] was well aware of Relator’s allegations prior to March 8, 2012 [(the date Jackson
entered the settlement and release for his first suit)] . . . .” Id. at *3. Here, there is a dispute as to
whether the government was well aware of his allegations. The Court recognizes that HUD had
already audited Defendants and noted their violations of FHA rules, but this audit does not cover
the extent of the fraud that Relator describes in this suit. Additionally, here, it is undisputed that
the government did not know of all of the fraud for all of the loans.
Relator alleges Defendants committed fraud related to VA loans. In their reply, Defendants
state, “[e]ven if [Relator was] correct that there were VA-loan violations of which the government
was unaware, the release would still be enforceable to FHA loans (because HUD was aware of
these alleged violations) and non-governmental loans (of which [Relator] has no knowledge).”
15
Case 4:14-cv-00833-ALM Document 200 Filed 08/17/21 Page 16 of 16 PageID #: 6874
(Dkt. #165 at p. 12). Notably, Defendants state that “[t]he Court should grant OneWest’s motion
as to FHA and non-governmental loans, while leaving [Relator’s] meritless VA-related claims to
be dismissed at summary judgment or rejected at trial.” (Dkt. #165 at p. 12). Defendants do not
point to any documentation indicating the government was aware of fraud related to VA loans,
and the Court will not impute such knowledge onto the government.
Accordingly, because the Court finds that the public interest in permitting this case to go
forward outweighs the interest in enforcing the Release, the Court will not enforce the Release.
See Ladas, 824 F.3d at 24 (holding the prefiling release was unenforceable as a matter of public
policy because the government did not have sufficient knowledge of the fraud allegations at the
time the release was executed). The Court, therefore, finds that Relator has standing to bring this
.
qui tam suit and denies the Motion to Dismiss on this basis.
CONCLUSION
It is therefore ORDERED that CIT Bank, N.A. d/b/a OneWest Bank, and CIT Group,
Inc.’s Motion to Dismiss (Dkt. #157) is hereby DENIED.
SIGNED this 17th day of August, 2021.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
16
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