Mitchell v. CIT Bank, N.A., et al
Filing
271
MEMORANDUM OPINION AND ORDER. It is ORDERED that Defendants' Motion for Summary Judgment Under Federal Rule of Civil Procedure 56 (Dkt. # 178 ) is hereby DENIED. Signed by District Judge Amos L. Mazzant, III on 3/16/2022. (mcg)
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
UNITED STATES OF AMERICA ex rel.
ANDREW MITCHELL, AND ANDREW
MITCHELL, Individually,
Plaintiffs/Relators,
v.
CIT BANK, N.A., d/b/a ONEWEST 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 Defendants’ Motion for Summary Judgment Under Federal
Rule of Civil Procedure 56 (Dkt. #178). Having considered the motion and the relevant pleadings,
the Court finds that the motion should be DENIED.
BACKGROUND
I.
Factual Background
In the wake of the 2008 financial crisis, the Treasury Department created the Home
Affordable Modification Program (“HAMP”) to incentivize mortgage servicers (i.e., entities like
OneWest Bank (“OWB”))1 to initiate mortgage modifications to prevent avoidable foreclosures
(Dkt. #265 ¶ 1). HAMP sought to create a partnership between the Government and loan investors
and loan servicers to reduce the monthly mortgage payments of at-risk homeowners (Dkt. #178 at
p. 11).
In addition to “Treasury” HAMP, the Government created HAMP equivalents for the
1
OWB refers collectively to Defendants CIT Bank, N.A. d/b/a OneWest Bank and CIT Group, Inc., unless otherwise
specified.
Department of Housing and Urban Development (“HUD”)’s Federal Housing Administration
(“FHA”) mortgage insurance program and the Department of Veterans Affairs (“VA”)’s mortgage
insurance program, known respectively as FHA-HAMP and VA-HAMP (Dkt. #265 ¶ 1). The
FHA mortgage-insurance program was designed to expand home ownership by incentivizing
lenders to lend to borrowers who otherwise would not qualify for loans (Dkt. #178 at p. 12). FHAHAMP was added as an additional step in the loss mitigation process to provide further assistance
to homeowners with FHA-insured loans who were unable to meet their mortgage payments ((Dkt.
#265 ¶ 35). Similar to FHA-HAMP, VA-HAMP was implemented in 2010 to stem the tide of
foreclosures among veterans who purchased homes guaranteed through the VA Home Loan
program (Dkt. #265 ¶ 84). The addition of FHA-HAMP and VA-HAMP was essential because
many FHA and VA homeowners are first-time and low-credit homebuyers and are among the most
vulnerable homeowners (Dkt. #265 ¶ 2).
Treasury HAMP, FHA-HAMP, and VA-HAMP were designed to be a win for all parties
(Dkt. #265 ¶ 4). Distressed homeowners who qualified for loan modifications could stay in their
homes for a lower monthly payment and, in some cases, received assistance from the Government
in making their payments (Dkt. #265 ¶ 4). Investors received payments and a guarantee that no
modification would result in a mortgage less than the net present value of their property (Dkt. #265
¶ 4). And mortgage servicers like OWB, in addition to payments received from the investor,
received HAMP incentive payments from the Government for successful modifications (Dkt. #265
¶ 4). Additionally, in the case of FHA loans, servicers also retained the right to submit insurance
claims to the Government for their losses when homeowners defaulted (Dkt. #265 ¶ 4).
In 2009, OWB enrolled in the Treasury HAMP, FHA-HAMP, and VA-HAMP programs
(Dkt. #265 ¶ 5). Like all other servicers in the program, OWB was required to execute a Service
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Participation Agreement (“SPA”) to participate in HAMP (Dkt. #178 at p. 13). The SPA also
required OWB to provide annual certifications of compliance (Dkt. #178 at p. 14). OWB 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; 2 (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 (Dkt. #265 ¶ 73). Each annual certification included an express
statement certifying that OWB continued to meet the terms and conditions of the SPA, including
the representation of compliance with applicable laws (Dkt. #265 ¶ 75).
As with the Treasury HAMP program, OWB was required to submit annual certifications
to participate in the FHA insurance program (Dkt. #178 at p. 20). The certifications require
program participants to represent their compliance with a broad range of HUD regulations, which
include certain loss mitigation measures (Dkt. #187 at p. 20). For example, HUD expects servicers
to review borrowers for loss mitigation within ninety days of delinquency and initiate foreclosures
within six months of default unless the borrower qualifies for loss mitigation (Dkt. #178 at p. 21).
Further, HUD’s loss-mitigation program requires servicers to consider delinquent borrowers for
loss mitigation in a specific priority order (Dkt. #178 at p. 21).
Like Treasury HAMP and FHA-HAMP, servicers participating in VA-HAMP were
required to evaluate defaulted mortgages for traditional loss mitigation actions before evaluating
At some point, the annual certifications were amended to add the word “material,” i.e., OWB expressly re-certified
that it was “in material compliance with, and . . . all Services have been materially performed in compliance with”
those same laws (Dkt. #265 ¶ 76).
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them for VA-HAMP relief (Dkt. #265 ¶ 86). The VA also requires servicers to report certain loan
servicing events through an electronic web-based system called VALERI (Dkt. #265 ¶ 91). When
making manual submissions of loan-related events through VALERI, the servicer is required to
certify that “the information provided . . . is accurate to the best of your knowledge and is
substantiated by the accompanying documentation and proper justification” (Dkt. #265 ¶ 91).
Despite OWB certifying that it was in compliance with the terms of these programs, Relator
Andrew Mitchell (“Mitchell”), a former loss-mitigation specialist at OWB from 2009–2011,
alleges that OWB knew it was not in legal compliance (Dkt. #265 ¶ 91). Thus, according to
Mitchell, OWB’s allegedly false certifications caused the Government to make hundreds of
millions of dollars in federal insurance claims and incentive payments to OWB that it would not
otherwise have made (Dkt. #265 ¶ 6).
For example, as to Treasury HAMP, Mitchell alleges that OWB engaged in widespread
dual tracking, continuously moving homeowners’ mortgages into and through the foreclosure
process even as OWB was supposed to be evaluating the mortgages for loss mitigation options and
HAMP (Dkt. #265 ¶ 147). According to Mitchell, OWB’s dual tracking led many homeowners to
lose their homes in foreclosure when foreclosure should have been suspended during the resolution
of modification and other workout processes (Dkt. #265 ¶ 152). Mitchell further alleges that OWB
knowingly lacked adequate HAMP systems, processes, staffing, and training (Dkt. #265 ¶ 154).
Though OWB’s programmatic failures were known within the company, Mitchell claims that
OWB executives declined to fix the problems, leading many wrongful HAMP denials and
wrongful foreclosures to occur (Dkt. #265 ¶¶ 154–162).
As to FHA-HAMP, Mitchell alleges that OWB knowingly failed to implement any loss
mitigation evaluation system whatsoever and failed to evaluate homeowners for the program itself,
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despite its affirmative obligation to do so (Dkt. #265 ¶ 7). More specifically, Mitchell alleges that
OWB’s subservicer, LoanCare, failed to contact or respond to delinquent homeowners about their
potential modifications and engaged in impermissible modifications (Dkt. #265 ¶¶ 97–100). And,
after being alerted to the violations, Mitchell alleges OWB hid them from HUD officials rather
than disclosing and resolving the issues (Dkt. #265 ¶ 102). Along the same lines, after a HUD
audit identified specific instances of noncompliance with HUD’s rules, OWB was required to
remedy the identified noncompliance. Mitchell alleges, however, that OWB lied to HUD auditors
to give the appearance of progress, though it knew it was still not performing loss mitigation (Dkt.
#265 ¶¶ 106–110). Further, according to Mitchell, because OWB’s FHA loan portfolio accounted
for a small percentage of its mortgage servicing business, OWB management knowingly deprived
the FHA portfolio of the time, attention, and resources needed to run a compliant servicing
operation (Dkt. #265 ¶¶ 112). According to Mitchell, these deficiencies resulted in loans not being
evaluated on time (if at all) as well as improper modifications on the rare occasions where a
modification was completed (Dkt. #265 ¶ 120).
Finally, as to VA-HAMP, Mitchell alleges that OWB ignored its VA mortgage portfolio
unless homeowners called to complain, allowing veteran homeowners to languish for up to three
years without receiving a proper modification and forcing many into foreclosure (Dkt. #265 ¶ 138).
And, prior to 2011, OWB had no loss mitigation program in place for VA loans (Dkt. #265 ¶ 139).
Instead, on the rare few occasions that OWB purported to perform loss mitigation evaluations on
VA loans, Mitchell claims OWB evaluated the loans under more stringent FHA-HAMP standards,
rather than the VA-HAMP standards.
This led to veteran homeowners receiving fewer
modifications and suffering more foreclosures (Dkt. #265 ¶ 140).
In contrast to Mitchell’s allegations, OWB paints a far different story as to its efforts and
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compliance with these programs. According to OWB, notwithstanding industrywide difficulties,
publicly available service assessments and third-party reviews show that OWB was one of the
highest-rated servicers participating in HAMP (Dkt. #178 at p. 18). Further, though Treasury had
the power to withhold incentives for HAMP non-compliance, Treasury never did so and
consistently paid HAMP incentive payments to OWB until the program expired (Dkt. #178 at p.
19). Regarding FHA-HAMP, while OWB acknowledges that 2010 and 2015 HUD audits revealed
instances of noncompliance, it notes that HUD continued to pay insurance and incentive claims to
OWB (Dkt. #178 at pp. 23–26).
II.
Procedural Background
In December 2012, Relator Michael Fisher (“Fisher”) filed suit in the Southern District of
New York (“SDNY”), alleging that OWB made false certifications in connection with its
participation in Treasury HAMP (Dkt. #60, Exhibit 7). On July 25, 2014, Fisher filed an amended
complaint adding allegations concerning OWB’s FHA-HAMP and VA-HAMP programs (Dkt.
#178, Exhibit 72). Fisher attributed the new allegations to Mitchell but did not add Mitchell as a
relator (Dkt. #178, Exhibit 72 at ¶ 3 n.4). On December 22, 2014, with the consent of the
Government, Fisher’s counsel filed a notice seeking to voluntarily dismiss the SDNY action (Dkt.
#188 at p. 2). The New York district court dismissed the action without prejudice on January 9,
2015 (Dkt. #178, Exhibit 73).
On December 23, 2014, the day after Fisher’s counsel filed a notice of voluntary dismissal
in the SDNY action, Fisher and Mitchell filed their original complaint in this Court under seal
(Dkt. #1). Their complaint included the same basic allegations as Fisher’s amended complaint in
the SDNY action, i.e., that OWB violated the FCA with respect to its Treasury HAMP, FHAHAMP, and VA-HAMP programs (Dkt. #178, Exhibit 77). On March 14, 2016, the Government
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filed its notice of election to decline intervention (Dkt. #10). On October 21, 2016, Fisher and
Mitchell filed an amended complaint under seal (Dkt. #24). On February 26, 2018, again, the
Government declined to intervene, explaining that it had made the “decision not to intervene in
this action for cause based on its investigation of the allegations in Relator’s Amended Complaint”
(Dkt. #43 at p. 1). In fall 2019, Fisher withdrew as a Relator (Dkt. #51). On October 11, 2019,
Mitchell filed his second amended complaint, which added factual allegations related to OWB’s
improper dual tracking of loans and a new cause of action under 31 U.S.C. § 3729(a)(1)(G)
(Dkt. #52).
On June 24, 2021, OWB filed the present motion (Dkt. #178). On July 15, 2021, Mitchell
filed his response (Dkt. #187). One day later, on July 16, 2021, Mitchell filed a Rule 56(d) motion,
seeking to defer the Court’s ruling on the present motion (Dkt. #192). While Mitchell’s motion to
defer remained pending, the briefing on the current motion was completed—on August 10, 2021,
OWB filed its reply, (Dkt. #197), and, on August 24, 2021, Mitchell filed his sur-reply (Dkt. #205).
On October 25, 2021, this Court granted Mitchell’s Rule 56(d) motion, thereby postponing
ruling on the present motion until additional discovery was conducted (Dkt. #222). Further,
because the briefing on the present motion had been completed, the Court gave Mitchell until
November 30, 2021 to file supplemental briefing (Dkt. #222). On November 29, 2021, Mitchell
filed a motion for leave to amend, requesting that the Court permit him to file a third amended
complaint to add allegations concerning OWB’s implied false certifications to the VA (Dkt. #242).
One day later, on November 30, 2021, Mitchell filed a supplemental response to the present motion
(Dkt. #243). On December 10, 2021, OWB filed a response to Mitchell’s supplemental response
(Dkt. #249), and, on December 23, 2021, Mitchell filed a reply to OWB’s supplemental response
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(Dkt. #254). On January 24, 2022, the Court granted Mitchell’s motion for leave, and Mitchell’s
Third Amended Complaint (“TAC”)3 was filed on the same day (Dkt. #264; Dkt. #265).
LEGAL STANDARD
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
“must resolve all reasonable doubts in favor of the party opposing the motion for summary
judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
The party seeking summary judgment bears the initial burden of informing the court of its
motion and identifying “depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
material fact. FED. R. CIV. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
of proof on a claim or defense for which it is moving for summary judgment, it must come forward
with evidence that establishes “beyond peradventure all of the essential elements of the claim or
defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
bears the burden of proof, the movant may discharge the burden by showing that there is an absence
Though Mitchell’s TAC was filed after the briefing on this motion was completed, the Court uses it to summarize
the events leading up to the lawsuit and Mitchell’s allegations. While Mitchell’s original complaint alleged that OWB
made express certifications to the VA, the TAC adds allegations that OWB also made implied certifications to the VA
(see Dkt. #265).
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of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
News, Inc., 209 F.3d 419, 424 (5th Cir. 2000).
Once the movant has carried its burden, the nonmovant must “respond to the motion for
summary judgment by setting forth particular facts indicating there is a genuine issue for trial.”
Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at 248–49). A nonmovant must present
affirmative evidence to defeat a properly supported motion for summary judgment. Anderson, 477
U.S. at 257. Mere denials of material facts, unsworn allegations, or arguments and assertions in
briefs or legal memoranda will not suffice to carry this burden. Rather, the Court requires
“significant probative evidence” from the nonmovant to dismiss a request for summary judgment.
In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440 (5th Cir. 1982) (quoting Ferguson
v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The Court must consider all the evidence
but “refrain from making any credibility determinations or weighing the evidence.” Turner v.
Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).
ANALYSIS
Mitchell contends that OWB violated the FCA by making false certifications of compliance
to obtain payment under three different Government programs—Treasury HAMP, FHA-HAMP,
and VA-HAMP. Thus, Mitchell effectively asserts three different FCA claims. To prevail on a
claim for a violation of the FCA, Mitchell must prove: (1) there was a false statement or fraudulent
course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and
(4) that caused the Government to pay out money or to forfeit moneys due (i.e., that involved a
claim). U.S. ex rel. Longhi v. United States, 575 F.3d 458, 467 (5th Cir. 2009).
OWB argues that summary judgment is warranted on Mitchell’s FCA claims for several
reasons (Dkt. #178 at p. 7). First, OWB argues that the Court lacks jurisdiction to consider any of
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Mitchell’s claims under the FCA’s first-to-file bar (Dkt. #178 at p. 7). Second, OWB argues that
Mitchell’s claims fail because he cannot establish one or more of the required elements as to each
claim (Dkt. #178 at p. 29). For example, Mitchell asserts that Mitchell’s Treasury HAMP and
FHA-HAMP claims fail because he cannot satisfy the scienter and materiality elements (Dkt. #178
at pp. 8–9). Lastly, OWB contends that Mitchell’s VA claim fails because Mitchell cannot adduce
any evidence of a certification by OWB to the VA, and thus cannot demonstrate a false statement
or fraudulent conduct (Dkt. #178 at p. 9). The Court examines these arguments in turn.
I.
Whether Mitchell’s Claims Are Barred by the First-to-File Bar
OWB contends that Mitchell’s claims must be dismissed under the first-to-file bar because
his original complaint in this Court was filed while Fisher’s SDNY complaint remained pending
(Dkt. #178 at p. 29). In response, Mitchell offers four arguments as to why his action is not barred
by the first-to-file rule. First, Mitchell asserts that the first-to-file rule is inapplicable because this
case was filed by the same plaintiff as the SDNY action (Dkt. #187 at p. 9). Second, Mitchell
argues that the filing of his amended complaint after the dismissal of the SDNY action cured any
defect under the first-to-file bar (Dkt. #187 at p. 11). Third, Mitchell contends a disputed issue of
material fact over whether the SDNY action was already subject to dismissal at the time this
lawsuit was filed precludes summary judgment (Dkt. #187 at p. 14). Fourth, Mitchell states that
the first-to-file rule does not apply because the first-filed case was subject to challenge under the
public disclosure bar (Dkt. #187 at p. 15). Because the Court finds Mitchell’s first argument to be
successful, the Court does not address Mitchell’s remaining arguments on this matter.4
The FCA, which authorizes suits against those suspected of defrauding the Government,
4
Throughout the briefing, the parties also dispute whether the first-to-file bar is jurisdictional or whether it bears on
the merits of whether a plaintiff has stated a claim. Because the Court finds the first-to-file bar inapplicable, the Court
also does not address these arguments.
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allows private individuals—qui tam relators—to sue on behalf of the Government. 31 U.S.C.
§§ 3729–30. “[S]eek[ing] to discourage opportunistic plaintiffs from filing parasitic lawsuits that
merely feed off previous disclosures of fraud,” Congress created several restrictions on qui tam
suits. U.S. ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir. 2009). One
such restriction is the-first-to-file bar, which provides that “[w]hen a person brings an action under
this subsection, no person other than the Government may intervene or bring a related action based
on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The rule is designed to
“address[] the problems that would result if many relators could file an action based on the same
fraud” and “encourages prompt filing from relators desiring to be first to the courthouse.” United
States v. Albertsons LLC, No. SA-15-CV-957-XR, 2018 WL 6609571, at *2 (W.D. Tex. Dec. 17,
2018). As such, “if the later-filed complaint alleges the same material or essential elements of
fraud described in a pending qui tam action,” the first-to-file rule bars the latter action. U.S. ex rel.
Fisher v. Ocwen Loan Servicing, LLC, No. 4:12-cv-543, 2015 WL 4039929, at *5 (E.D. Tex. July
1, 2015). Thus, the rule seems simple: a later-action based on facts underlying a first-filed suit
cannot be brought while the first-filed action is pending. But application of the rule is not so
simple.
The Fifth Circuit and this Court have held that the first-to-file rule is not applicable in
certain situations. See Bailey v. Shell W. E&P, Inc. 609 F.3d 710, 720 (5th Cir. 2010); Ocwen,
2015 WL 4039929, at *5; U.S. ex rel. Fisher v. Homeward Residential, Inc. No. 4:12-cv-461, 2015
WL 3776478, at *4–*5 (E.D. Tex. June 17, 2015). Notably, in Bailey, the Fifth Circuit held the
first-to-file bar was inapplicable when “the same plaintiff, for whatever reason, files the same
[FCA] claim in a different jurisdiction . . . .” 609 F.3d at 720 (internal quotation marks omitted).
Rather, the Court held that the first-to-file rule only applies “if an FCA claim ‘ha[s] already been
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filed by another. . . .’” Id. Similarly, in Homeward, this Court found that the first-to-file rule does
not apply to a second relator voluntarily added to an existing complaint in the later-filed suit. 2015
WL 3776478, at *3–*5; see also Ocwen, 2015 WL 4039929, at *5 (same).
From these decisions and the text § 3730(b)(5), the Court can delineate some principles
that apply to the first-to-file bar. But, before turning to these principles, the Court finds it helpful
to summarize the unique procedural history of this case—facts that make the application of the
first-to-file bar even more difficult. In December 2012, Fisher filed the SDNY action, alleging
that OWB made false certifications in connection with its participation in Treasury HAMP (Dkt.
#60, Exhibit 7). On July 25, 2014, Fisher filed an amended complaint in the SDNY action, adding
allegations concerning OWB’s FHA and VA violations (Dkt. #178, Exhibit 72). Fisher attributed
the FHA- and VA-related allegations to Mitchell in a footnote but did not add Mitchell as a relator
at the time (Dkt. #178, Exhibit 72). On December 22, 2014, with the express consent of the
Government, Fisher filed a notice of voluntarily dismissal in the SDNY action (Dkt. #188 at p. 2).
The New York district court, however, did not dismiss the action until January 9, 2015 (Dkt. #178,
Exhibit 73).
On December 23, 2014, Fisher, along with Mitchell, filed the original complaint in this
action under seal (Dkt. #1). The original complaint included the same basic allegations as the
amended complaint of the SDNY action, including that OWB violated the FCA with respect to
Treasury HAMP, the FHA insurance program, and the VA mortgage insurance program (Dkt.
#178, Exhibit 77). In the fall of 2019, Fisher withdrew as a relator, leaving Mitchell as the sole
relator in this action (Dkt. #51). Mitchell subsequently amended his complaint twice.
Turning back to the text of § 3730(b)(5) and prior decisions interpreting the bar, several
things are clear. First, under the text of the statute, it is clear that if only Mitchell, as opposed to
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Mitchell and Fisher, had brought the original action in this Court while Fisher’s SDNY action was
pending, it would be barred under the first-to-file rule. See 31 U.S.C. § 3730(b)(5) (“When a person
brings an action under this subsection, no person other than the Government may intervene or
bring a related action based on the facts underlying the pending action.”). Second, under Bailey,
it is clear that if Fisher was the only relator in both actions, the first-to-file bar would not apply.
See 609 F.3d at 720 (holding the first-to-file to be inapplicable when the same plaintiff files the
same FCA claim in a different jurisdiction). Third, under Homeward, it is also clear that if Fisher
had added Mitchell as a co-relator when he amended his complaint to add Mitchell’s new
allegations in the SDNY action, the first-to-file rule would not have applied. See 2015 WL
3776478, at *5 (holding the first-to-file rule does not bar a voluntarily added relator in an existing
case). But what is not clear is the consequence of Fisher and Mitchell bringing this action together,
specifically, whether Bailey and Homeward apply or whether Mitchell joining Fisher in filing this
action constitutes an impermissible attempt to “bring a related action based on facts underlying
the pending action.” See 31 U.S.C. § 3730(b)(5).
On the one hand, this determination presents a question of statutory interpretation. As such,
the Court must start its analysis with the text of the statute. United States v. Lauderdale Cnty., 914
F.3d 960, 961 (5th Cir. 2019). Turning to the statute, § 3730(b)(5) provides: “[w]hen a person
brings an action under this subsection, no person other than the Government may intervene or
bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5).
Thus, the plain language of §3730(b)(5) is clear—“no person other than the Government” may
bring a related action. Accordingly, the unequivocal language appears to apply equally to the
original relator as any other person. Indeed, the original relator is undeniably a “person other than
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the Government.” As such, the plain language of §3730(b)(5) seems to bar all later-filed related
actions that are not brought by the Government—even actions filed by the same relator.
On the other hand, this Court is obliged to follow the decisions of the Fifth Circuit. See
Texas v. Alabama Coushatta Tribe of Tex., 298 F. Supp. 3d 909, 924 (E.D. Tex. 2018) (noting the
court is bound by the Fifth Circuit precedent). And, in Bailey, the Fifth Circuit examined the firstto-file bar and held that it “does not apply when the same plaintiff, for whatever reason, files the
same claim in a different jurisdiction.” 609 F.3d at 720 (internal quotations and citations omitted).
In Bailey, the issue before the Court was whether the first-to-file rule bars the same relator from
making the same FCA claim in a different jurisdiction—the question now before the Court. In
answering the question, the Court made clear that the first-to-file bar does not apply when the same
relator files the same claim in different jurisdictions because the bar only prohibits subsequent
actions filed by another. 609 F.3d at 720 (emphasis in Bailey). Further, the Court explicitly stated
that it “agree[d] with the reasoning of the District of Colorado court,” Id., which had found that
“[i]t would be reasonable to read the [first-to-file bar] as prohibiting the same claim being made
by a different party rather than the same party” because “[w]ith such an interpretation, the first-tofile rule would attach and eliminate duplicative proceedings while still serving the purposes of the
False Claims Act.” United States v. Kinder Morgan Co2 Co., No. 04-cv-00716, 2005 WL 3157998,
at *2 (D. Colo. Nov. 21, 2005).
Thus, the Fifth Circuit’s interpretation of the first-to-file bar is clear. Accordingly, the
Court must adhere to the Court’s decision in Bailey as the proper interpretation of § 3730(b)(5).
See Concerned Citizens for Equality v. McDonald, 863 F. Supp. 393, 404 n.22 (E.D. Tex. 1994)
(citation omitted) (discussing the vertical component of the stare decisis doctrine which
“commands trial courts to adhere to its jurisdiction's appellate court precedents and ultimately,
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those of the United States Supreme Court.”). In Bailey, the Court squarely held that the first-tofile bar “does not apply when the same plaintiff, for whatever reason, files the same claim in a
different jurisdiction . . . .” Bailey, 609 F.3d at 720 (internal quotations omitted). This unequivocal
holding has not been overruled, and therefore, this Court is bound by the principle of stare decisis
to follow this holding.
Admittedly, the Court acknowledges that Bailey does not address the precise issue here—
the effect of the first-to-file bar when the same relator files the same claim in a different
jurisdiction, yet the second suit also includes an additional relator. However, the Court finds that
the addition of Mitchell as a co-relator in this action does not change the outcome under Bailey.
First, as Mitchell notes, Bailey found the first-to-file rule inapplicable despite the fact that—like
here—there was not complete identity of relators in the first-filed and second-filed lawsuits. See
id. For example, in Bailey, two relators brought FCA claims in the District of Colorado, but,
subsequently, just one of the two relators asserted the FCA claims as counterclaims in a Texas
lawsuit. Id. Notwithstanding the change, the Fifth Circuit concluded that the first-to-file rule was
inapplicable because both actions involved the same plaintiff and the same claims in different
jurisdictions. Id. at 721. Similarly, here, both the SDNY action and the current action were filed
by Fisher and involve the same claims—adding Mitchell does not transform application of the
first-to-file rule. Second, barring the action in this case would contravene the Court’s holding in
Bailey. Indeed, the Court would effectively be barring an action filed by the same plaintiff bringing
the same claim in a different jurisdiction. Simply put, either the first-to-file bar applies to suits
asserting the same FCA claims filed by the same relator, or it does not. The Fifth Circuit has
unequivocally held that it does not. And this Court must faithfully follow this precedent.
That the first-to-file rule is inapplicable here becomes more evident when looking at both
15
Bailey and Homeward. See Bailey, 609 F.3d at 720; Homeward, 2015 WL 3776478, at *4. In
Bailey, the Court held that the first-to-file bar is inapplicable when the same plaintiff files the same
claim in a different jurisdiction. 609 F.3d at 720. And, in Homeward, this Court held that the
first-to-file rule does not apply to a second relator who is voluntarily added to an existing qui tam
complaint. 2015 WL 3776478, at *4–*5.5 Thus, under Bailey and Homeward, the first-to-file rule
would bar neither Fisher from bringing this action, nor the subsequent addition of Mitchell. See
Bailey, 609 F.3d at 720; Homeward, 2015 WL 3776478, at *4. Therefore, precedent guides the
Court’s conclusion that the first-to-file bar does not apply in this instance.
In reaching this conclusion, the Court does not ignore the plain meaning of the statute, but
merely adheres to the Fifth Circuit’s interpretation of the statute.
Indeed, in Bailey, after
considering the text and policy goals of the statute, the Court construed § 3730(b)(5) to be
inapplicable to a plaintiff who files the same claim in a different jurisdiction. And, here, the
original relator, Fisher, along with Mitchell, filed the same FCA claim in a different jurisdiction.
Consequently, barring the action because Mitchell brought it with Fisher would not comport with
Bailey and its interpretation of the statute, which expressly allows a relator to file the same claim
in a different jurisdiction. Id. Further, barring this action because Mitchell was added as a corelator “would not advance the purpose of the fist-to-file bar.” Homeward, 2015 WL 3776478, at
*5. As this Court has previously recognized, barring the addition of a second relator “could have
5
In Homeward, this Court relied on a Tenth Circuit decision that held that a voluntarily added second relator would
not be barred because the addition of the party would not be “an intervention” within the meaning of Rule 24. 2015
WL 3776478, at *4 (quoting Precision Co v. Koch. Indus., Inc.., 31 F.3d 1015, 1017 (10th Cir. 1994)). However, the
Court also rejected other decisions applying the first-to-file bar because the relator “made new allegations within the
amended complaint.” Homeward, 2015 WL 3776478, at *4. Thus, it is unclear how much weight this Court put on
the fact that the relator had made new allegations within the amended complaint. Nevertheless, the Court also notes
that the Third Circuit recently held that the first-to-file bar does not bar voluntarily adding parties to an existing suit—
whether or not the new party adds allegations to the complaint. See In re Plavix Mktg., Sales Pracs. & Prod. Liab.
Litig. (No. II), 974 F.3d 228, 233 (3d Cir. 2020).
16
a negative consequence of discouraging voluntary agreements between relators with information
concerning related claims against a single defendant and decrease judicial efficiency.” Id.
For the reasons above, the Court finds the first-to-file rule inapplicable. Accordingly, the
Court turns to OWB’s arguments regarding whether Mitchell has established the required elements
as to this FCA claims. Because OWB asserts that Mitchell’s Treasury HAMP and FHA-HAMP
claims fail for the same reasons—that he cannot establish the scienter and materiality elements—
the Court examines Mitchell’s Treasury HAMP and FHA-HAMP claims together, beginning with
the materiality requirement and then turning to the scienter requirement. Then the Court turns to
OWB’s arguments regarding Mitchell’s VA claim.
II.
Whether Mitchell’s Treasury HAMP and FHA-HAMP Allegations Meet the
Materiality Requirement
A. Applicability of Materiality Requirement
Mitchell brings his claims under 31 U.S.C. §§ 3729(a)(1)(A), (B), and (G).6 As noted, to
prevail on a claim under the FCA, Mitchell must prove: (1) there was a false statement or
fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was
material; and (4) that caused the Government to pay out money or to forfeit moneys due (i.e., that
involved a claim).” Longhi, 575 F.3d at 467. OWB argues that summary judgment is warranted
as to Mitchell’s Treasury HAMP and FHA-HAMP claims because Mitchell fails to satisfy the
FCA’s materiality requirement. In response, Mitchell argues his express false claims under §
3729(a)(1)(A) do not require a showing of materiality (Dkt. #187 at p. 16). Thus, he argues the
Subsection (A) creates liability for anyone who “knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A). Subsection (B) creates liability for anyone who
“knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent
claim.” Id. at § 3729(a)(1)(B). Subsection (G), sometimes referred to as the reverse false claims section, creates
liability for anyone 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.” Id.
at § 3729(a)(1)(G).
6
17
Court should not grant summary judgment on the basis of materiality because it is not a
requirement for claims under § 3729(a)(1)(A) (Dkt. #187 at p. 16). Accordingly, the Court first
considers whether a showing of materiality is required for express claims under § 3729(a)(1)(A).
Mitchell contends that materiality is not a requirement for express false claims brought
under 31 U.S.C. § 3729(a)(1)(A) because neither the text of the statute nor the common law impose
the requirement (Dkt. #187 at pp. 16–17). First, Mitchell argues that unlike other FCA provisions
such as 31 U.S.C. §§ 3279(a)(1)(B) and (G), which explicitly require a showing of materiality in
the text of the statute, the plain language of § 3279(a)(1)(A) does not require a showing of
materiality (Dkt. #187 at p. 16). Second, Mitchell contends that the common law also does not
support a materiality requirement, pointing out that the Supreme Court has rejected the notion that
“at common law the term ‘false statement’ acquired any implication of materiality” (Dkt. #187 at
p. 17 (quoting United States v. Wells, 519 U.S. 482, 491 (1997)). While Mitchell acknowledges
that the Supreme Court’s decision in Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 579
U.S. 176 (2016) imposed a materiality requirement for claims under § 3729(a)(1)(A), he argues
Escobar only established a materiality requirement for “implied” false claims (Dkt. #187 at p. 16).
The Court finds Mitchell’s argument to be without merit. Although Escobar, which itself
was a § 3729(a)(1)(A) case, involved an implied false certification claim, “nothing in the opinion
suggests that its materiality requirement was intended to be limited to that specific theory of
liability.” U.S. ex rel. Foreman v. AECOM, 19 F.4th 85, 105 (2d Cir. 2021) (discussing Escobar,
579 U.S. at 191). To the contrary, the Court examined the language of § 3729(a)(1)(A) generally
and concluded that it incorporates a common-law materiality requirement. Id. Simply put, the
Supreme Court broadly held that “[a] misrepresentation about compliance with a statutory,
regulatory, or contractual requirement must be material to the Government’s payment decision in
18
order to be actionable under the False Claims Act.” Escobar, 579 U.S. at 181.
Further, as OWB notes, post-Escobar, the Fifth Circuit has routinely applied the materiality
requirement to express misrepresentation claims under the FCA. See, e.g., United States v. Hodge,
933 F.3d 468, 473 (5th Cir. 2019); U.S. ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645, 647,
654 (5th Cir. 2017); Abbott v. BP Expl. & Prod., Inc., 851 F.3d 384, 387 (5th Cir. 2017).
Moreover, other circuits have also concluded that Escobar imposes a materiality requirement on
all claims under § 3729(a)(1)(A). See U.S. ex rel. Mamalakis v. Anesthetix Mgmt. LLC, 20 F.4th
295, 300, 301 n.1 (7th Cir. 2021); Foreman, 19 F.4th at 105; U.S. ex rel. Janssen v. Lawrence
Mem’l Hosp., 949 F.3d 533, 539 n.8 (10th Cir. 2020). Accordingly, the Court finds that materiality
is a required element for express false claims under § 3729(a)(1)(A). Since all of Mitchell’s claims
require a showing of materiality, the Court now turns to whether Mitchell’s Treasury HAMP and
FHA-HAMP claims satisfy this requirement.
B. Materiality Analysis
In Escobar, the Supreme Court clarified how courts should interpret the materiality
requirement. 579 U.S. at 192. The unanimous Supreme Court explained that the materiality
standard “is demanding,” as it serves to protect the FCA from being transformed into “a vehicle
for punishing garden-variety breaches of contract or regulatory violations.” Id. at 194. Further,
the Supreme Court noted that the FCA itself defines “material” as “having a natural tendency to
influence, or be capable of influencing, the payment or receipt of money or property.” Id. at 192–
93. Thus, “materiality looks to the effect on the likely or actual behavior of the recipient of the
alleged misrepresentation.” Id. at 193 (internal citations and quotations omitted). It asks whether
“a reasonable person would attach importance to” the misrepresented fact in making his or her
payment decision. Id. at 193 n.5 (quoting Williston on Contracts, § 69:12).
19
The Supreme Court further explained some of the evidence relevant to the materiality issue:
(1) “the Government’s decision to expressly identify a provision as a condition of payment[,]” (2)
“evidence that the defendant knows that the Government consistently refuses to pay claims in the
mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual
requirement’” and (3) whether “noncompliance is minor or insubstantial.” Id. at 194–95.
Importantly for this case, the Supreme Court expounded further:
[I]f the Government pays a particular claim in full despite its actual knowledge that
certain requirements were violated, that is very strong evidence that those
requirements are not material. Or, if the Government regularly pays a particular
type of claim in full despite actual knowledge that certain requirements were
violated, and has signaled no change in position, that is strong evidence that the
requirements are not material.
Id. at 195. Since Escobar, the Fifth Circuit has reiterated that “[t]he materiality test under the
FCA is demanding.” U.S. ex rel. Lemon v. Nurses to Go, Inc., 924 F.3d 155, 161 (5th Cir. 2019).
Further, the Fifth Circuit has confirmed that “[n]o one factor is dispositive, and [the] inquiry is
holistic.” Id.
OWB asserts that Mitchell cannot meet Escobar’s demanding standard (Dkt. #178 at
p. 33). According to OWB, because the Government continued to pay Treasury HAMP incentives
and FHA claims even after it became aware of OWB’s non-compliance, the allegedly false
certifications were immaterial to the Government’s payment decision (Dkt. #178 at pp. 33, 37).
Mitchell responds that OWB’s argument is flawed for several reasons (Dkt. #187 at p. 19). First,
Mitchell points out that “the [G]overnment’s continued payment is only relevant when [the
Government] has actual knowledge of a defendant’s noncompliance” (Dkt. #187 at p. 19)
(emphasis in original). Second, Mitchell argues that the Government’s continued payment is not
dispositive of materiality, and other factors that are equally relevant weigh in favor of materiality
(Dkt. #187 at p. 24). The Court addresses these arguments in turn.
20
1. The Government’s Continued Payments
Accordingly, the main dispute between the parties’ centers on the significance of the
Government’s continued payment to OWB. Here, it is undisputed that Treasury consistently paid
HAMP incentives to OWB until HAMP expired in 2020, and HUD continued to pay insurance
and incentive claims to OWB until 2018, at which point OWB’s remaining loans were transferred
to a sub-servicer. But what is highly disputed is the Government’s knowledge of the purported
violations and how much weight this should be given in the materiality determination.
As the Fifth Circuit has explained, “though not dispositive, continued payment by the
federal [G]overnment after it learns of the alleged fraud substantially increases the burden on the
relator in establishing materiality.” Harman, 872 F.3d at 663; see also Escobar, 579 U.S. at 195
(“[I]f the Government pays a particular claim in full despite its actual knowledge that certain
requirements were violated, that is very strong evidence that those requirements are not material.”).
However, the Government’s continued payment after discovery of fraud does not necessarily
preclude a finding of materiality. Harman, 872 F.3d at 663 (recognizing that continued payment
by the federal government is not dispositive). What is more, as this Court has previously held,
“[i]t is the Government’s actual knowledge of the fraud—not mere awareness of it—that is
particularly relevant to the Government’s payment decision.” U.S. ex rel. Fisher v. JPMorgan
Chase Bank N.A., No. 4:16-cv-00395, 2020 WL 3265060, at *8 (E.D. Tex. June 17, 2020).
OWB points to two pieces of evidence to show that the Government was aware of OWB’s
alleged non-compliance.
First, OWB contends that “Mitchell’s lawsuit, together with the
[G]overnment’s subsequent investigation of his complaint, provided the [G]overnment” with
knowledge of OWB’s alleged Treasury HAMP and FHA violations (Dkt. #197 at p. 10). Second,
for the alleged FHA violations, OWB asserts the Government likewise had knowledge of them
21
“because the extensive audits HUD completed in 2010 and 2015 revealed all of the major
violations Mitchell claims to have uncovered” (Dkt. #197 at p. 11). The Court examines these
arguments in turn.
i.
The Filing of Mitchell’s Complaint
Government’s Subsequent Investigation
and
the
As noted, OWB argues that Mitchell’s lawsuit and the Government’s subsequent
investigation show the Government was aware of the purported Treasury HAMP and FHA-HAMP
violations (Dkt. #197 at p. 10). While OWB recognizes this Court has previously “drawn a
distinction between ‘mere awareness’ of allegations and ‘actual knowledge of the fraud,’” OWB
argues the Government was more than “merely aware” of Mitchell’s allegations in this case (Dkt.
#178 at p. 33). Here, according to OWB, “the [G]overnment made clear in this case that it has
investigated the allegations in this complaint, explaining in a February 26, 2018 filing in this Court
that it declined to intervene ‘for cause based on its investigation of the allegations in the Relators’
Amended Complaint’” (Dkt. #178 at pp. 33–34). Thus, because the Government itself affirmed
that it investigated the allegations, and yet continued to make payments, “[t]hat is overwhelmingly
strong evidence of immateriality” (Dkt. #197 at p. 10). In response, Mitchell contends that “the
Government’s investigation into Relator’s allegations does not somehow transform those
allegations into actual knowledge of the fraud” (Dkt. #205 at p. 12).
Here, the Court finds that the Government’s decision and explanation to deny intervention
based on its investigation is probative of materiality, but not dispositive on the issue. See U.S. ex
rel. Montcrieff v. Peripheral Vascular Assocs., P.A., 507 F. Supp. 3d 734, 767 (W.D. Tex. Dec.
14, 2020) (“That the Government conducted an investigation is certainly probative of materiality,
but without evidence of actual knowledge, the Court cannot apply the strong presumption of
immateriality highlighted by Escobar.”). First, as noted previously, “[i]t is the Government’s
22
actual knowledge of the fraud—not mere awareness of it—that is particularly relevant to the
Government’s payment decisions.” JPMorgan Chase Bank N.A., 2020 WL 3265060 at *8; see
also Harman, 872 F. 3d at 661 (“Unlike in the case we decide today, the [First Circuit] found no
evidence that the relevant Government agency had actual knowledge of any violations when it
decided to pay the claims.”) (emphasis added) (citing United States ex rel. Escobar v. Universal
Health Servs., Inc. (Escobar II), 842 F.3d 103, 110 (1st Cir. 2016)).
Thus, contrary to OWB’s argument, the Government’s investigation into Mitchell’s
allegations followed by its continued payment does not indicate the Government had actual
knowledge of OWB’s noncompliance. See Montcrieff, 507 F. Supp. 3d. at 766–67 (finding that
the Government’s investigation into plaintiff’s allegations and declination to intervene did not
warrant the conclusion that the Government was aware of the fraud itself); U.S. ex rel. Campbell
v. KIC Dev., LLC, No. EP-18-CV-193-KC, 2019 WL 6884485, at *11 (W.D. Tex. Dec. 10, 2019)
(“[T]he Government’s actual knowledge that it has been defrauded is not necessarily imputed from
its awareness that allegations of fraud have been brought by a relator.”). Further, the Court’s
conclusion is reinforced by the fact that there is no evidence that Treasury and HUD—the entities
who continued to pay OWB—had knowledge of significant violations alleged in Mitchell’s
complaint, including OWB’s improper dual tracking and OWB’s failure to implement an FHAHAMP modification option (Dkt. #187 at pp. 21–23).
Moreover, other courts agree that the Government’s decision to decline intervention is
insufficient to establish a lack of materiality. See Janssen, 949 F.3d at 542 n.12 (declining to put
much weight on the fact that DOJ was aware of the allegations and declined intervention); U.S. ex
rel. Prather v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822, 836 (6th Cir. 2018) (rejecting
argument that Government’s declination to intervene is relevant to materiality); Campbell, 2019
23
WL 6884485, at *12 (“[T]he Government did not necessarily have actual knowledge of the alleged
fraud simply because the relator filed this action.”); see also U.S. ex rel. Williams v. Bell Helicopter
Textron Inc., 417 F.3d 450, 455 (5th Cir. 2005) (finding the district court’s speculation as to the
motives of the Government’s actions in not joining an FCA action to be unreasonable).
While OWB attempts to distinguish this case from others based on the Government’s
specific language in its notice, the Court finds this argument unconvincing. According to OWB,
because the Government’s notice stated that it declined to intervene “for cause based on the
investigation of the allegations in the Relators’ Amended Complaint,” this shows the Government
“was more than merely aware of allegations” (Dkt. #197 at p. 10). Though OWB appears to put
great weight on this difference, the Court declines to do so. If the Government’s notice of
declination and the language in it were dispositive, then this would make the Government’s
intervention decision conclusive of materiality. But that would “undermine the purposes of the
FCA, which is explicitly designed to permit private persons to litigate suits in lieu of the
Government.” Janssen, 949 F.3d at 542 n.12. Thus, OWB’s attempt at distinguishing this case
from others falls short—the Government’s notice of declination of intervention is insufficient to
establish lack of materiality. Without more evidence concerning the Government’s knowledge of
the alleged fraud, the Court finds that Mitchell’s lawsuit and the Government’s subsequent
investigation coupled with the Government’s continued payments does not preclude a finding of
materiality.
The Court now turns to OWB’s argument that the HUD audits in 2010 and 2015 show that
the Government had actual knowledge of the alleged FHA violations.
24
ii.
The HUD 2010 and 2015 Audits
OWB also argues that the Government had actual knowledge of the alleged FHA violations
“because the extensive audits HUD completed in 2010 and 2015 revealed all of the major
violations Mitchell claims to have uncovered” (Dkt. #197 at p. 11). In fact, OWB contends its
correspondence with HUD regarding the 2010 audit leaves no doubt that HUD “understood the
specific alleged violations that the complaint attributed to Mitchell [] and [] amply investigated
those violations to draw its own conclusions about the extent of any violation” (Dkt. #178 at p.
38). Further, OWB contends the 2015 audit uncovered other areas of noncompliance, including
concerns about the training of OWB’s loss-mitigation personnel (Dkt. #178 at p. 38). But, despite
knowledge of the violations alleged in Mitchell’s complaint, HUD never once denied payment
(Dkt. #178 at p. 38). Yet HUD took other remedial measures, like requiring OWB to refund HUD
for claims made on one loan and seeking indemnification on three other claims (Dkt. #178 at p.
39). Thus, “the fact that the Government took remedial action other than withholding payment
only underscores the lack of materiality” (Dkt. #178 at p. 40).
In response, Mitchell contends that the evidence shows “the HUD audits did not uncover
major violations by [OWB], including [OWB]’s widespread dual tracking and the fact that [OWB]
did not even have an FHA-HAMP modification option at the time that [OWB] misrepresented to
the Government agencies that it was in the process of curing the deficiencies found by HUD
. . .” (Dkt. #205 at p. 13). Further, according to Mitchell’s expert, Nelson Locke, OWB concealed
from the Government (1) that OWB (and not LoanCare) was directly responsible for financial
analysis calculation errors; (2) that OWB made automatic “robo-calls” instead of qualifying
collection attempts; (3) that OWB had improperly modified certain loans to a term of 40 years;
and (4) that OWB made false assurances to HUD that OWB was already in the process of curing
25
certain deficiencies (Dkt. #191, Exhibit 1 at 93–94). According to Mitchell, testimony from Mollie
Schiffman, another former employee of OWB, also confirms that many of the representations
OWB made to HUD auditors in 2010 were false (Dkt. #187 at p. 23). Further, while conceding
that the 2015 audit revealed additional concerns about the training and knowledge of OWB’s lossmitigation personnel, Mitchell claims OWB still “did not disclose to HUD the true extent of its
liability for [OWB’s] FHA portfolios” (Dkt. #187 at p. 23).
Accordingly, the parties vigorously dispute the extent of the information the Government
gleaned from the 2010 and 2015 audits. Thus, OWB’s argument on this point suffers the same
fate as its previous argument—there are genuine disputes of material fact concerning whether the
Government had actual knowledge of OWB’s noncompliance as a result of the audits. While the
audits certainly uncovered some violations, Mitchell has also presented evidence that OWB
concealed major violations from the Government. Specifically, Locke’s Report, as well as
testimony by Mitchell and Schiffman, indicate that OWB misrepresented and concealed significant
violations from the Government, as well as the true extent of OWB’s liability. Further, that HUD
addressed OWB’s violations through remedies other than nonpayment does not foreclose
Mitchell’s FHA-HAMP claims. See United States v. Ocwen Loan Serving, LLC, No. 4:12-CV461, 2016 WL 2992229, at *6 (E.D. Tex. May 24, 2016) (“[T]he Court finds that the alternative
remedies do not foreclose an FCA claim.”).
In sum, while OWB argues Mitchell’s complaint and the Government’s subsequent
investigation as well as the HUD audits show the Government had actual knowledge of OWB’s
noncompliance with Treasury HAMP and FHA-HAMP, there are factual disputes concerning what
the Government knew and when. See Ocwen, 2016 WL 299229, at *7 n. 3 (“Defendants have also
not demonstrated that [the Government] had full knowledge of the alleged violations or the extent
26
to which Defendants were allegedly falsely certified within the SPA and annual certifications.
Therefore, the Court finds that this issue is not appropriate for summary judgment
determination.”).
Accordingly, the Government’s continued payments in this case is not
dispositive of materiality. Nonetheless, the Court finds summary judgment is not appropriate for
an additional reason—other factors weigh in favor of materiality.
2. Other Evidence of Materiality
The Government’s continued payments despite actual knowledge of a defendant’s
violations is only one factor in the materiality analysis and thus not dispositive. See Lemon, 924
F.3d at 161 (“No one factor is dispositive, and [the] inquiry is holistic.”). While OWB contends
that “Mitchell cites no contrary evidence that could outweigh” the Government’s continued
payments (Dkt. #197 at p. 10), the Court disagrees—Mitchell has offered evidence of other factors
laid out in Escobar that weigh in favor of materiality.
For example, one factor Escobar identifies as relevant to materiality is whether the
Government “expressly identif[ied] a provision as a condition of payment.” 579 U.S. at 194.
Mitchell provides evidence, which OWB does not dispute, that OWB’s compliance with the laws,
regulations, and guidance was an express condition of payment under HAMP (Dkt. #187 at p. 25
(citing Dkt. #191, Exhibit 1)). Indeed, “[a]s a ‘condition precedent to payment,’ [OWB] was
required to certify annually that its performance conformed to the rigid program requirements and
to identify known areas of non-compliance” (Dkt. #187 at pp. 25–26 (citing Dkt. #191, Exhibit
1)).
Escobar’s materiality analysis also looks at whether “noncompliance is minor or
insubstantial.” 579 U.S. at 194. Here, Mitchell offers evidence that OWB’s noncompliance was
“not minor or insubstantial,” but went to the “essence of the bargain.” Id. at 193 n.5, 194.
27
Mitchell’s damages expert, David Fuller, estimates that OWB received more than $490 million in
payments from the Government in connection with its HAMP programs through the end of 2015
(Dkt. #187 at p. 28) (citing Dkt. #191, Exhibit 4 ¶ 27). And, excluding amounts that were paid for
OWB to pass on to investors and borrowers, Fuller estimates OWB was paid over $167 million
for providing materially non-compliant loan servicers (Dkt. #191, Exhibit 4 ¶ 28). Undoubtedly,
the Government would attach importance to such a large sum of money. Further, Mitchell also
offers evidence “that the Government has consistently refused to pay claims when it has
knowledge of similar violations” (Dkt. #187 at p. 26 (citing Dkt. #191, Exhibit 1 at p. 112)). In
particular, Mitchell points to Treasury’s withholding of incentive payments to Bank of America,
J.P. Morgan Chase, and Wells Fargo until their performance was substantially improved in HAMP
after they failed to prevent foreclosures (Dkt. #187 at pp. 26–27).
Mitchell also argues that OWB “knew that the [G]overnment refuses to pay claims for
similar violations because, pursuant to HUD instructions, [OWB] issued refunds to HUD
whenever HUD correctly identified deficiencies in [OWB]’s loss mitigation programs” (Dkt. #187
at p. 27). Mitchell further points to the existence of statutory penalties for a mortgagee’s failure
to engage in loss mitigation activities under FHA-HAMP as an indication that the Government
attaches importance to the underlying violations (Dkt. #187 at p. 27). And Mitchell argues that
improperly snapped-back spreadsheets that “reflect [OWB]’s analysis of the scope of its
‘exposure,’” “show[] that OWB knew HUD would not have paid OWB . . . had HUD known that
[OWB] improperly modified loans to 40-year terms or that [OWB] failed to even attempt workouts
for many loans” (Dkt. #243 at pp. 4–5).
In response to Mitchell’s evidence supporting other materiality factors, OWB rehashes its
argument that the Government’s continued payment “is definitive evidence of non-materiality”
28
and is not outweighed by Mitchell’s other evidence (Dkt. #197 at pp. 12–13). The Fifth Circuit,
however, has made clear that no one factor is dispositive. See Lemon, 924 F.3d at 161 (“No one
factor is dispositive, and [the] inquiry is holistic.”); Abbott, 851 F.3d at 388 (noting the
government’s continued approval after substantial investigation into plaintiffs’ allegations
represented “strong evidence” that had not been rebutted by any evidence proffered by the
plaintiffs). Here, given that certain evidence weighs in favor of materiality, summary judgment is
inappropriate.
In sum, the Court finds that disputed issues of material fact preclude summary judgment
on materiality. First, there are factual disputes concerning the extent of the Government’s
knowledge. Indeed, the parties highly dispute what exactly the Government knew and when.
Second, even if the Government had actual knowledge of OWB’s noncompliance, other factors
weigh in favor of materiality. Thus, the cases cited by OWB are distinguishable. For example, in
Harman, unlike this case, the evidence at trial demonstrated that the government agency had actual
knowledge of the violations, thoroughly investigated them, expressly approved the traffic guardrail
system despite the violations, and approved reimbursement. 872 F.3d at 647, 663–64. Further, in
many of the other cases, the relators failed to identify evidence supporting a finding of materiality.
By contrast, Mitchell has pointed to evidence showing that Treasury and FHA were unaware of
significant violations and identified other evidence supporting a finding of materiality. Thus,
summary judgment is inappropriate. To be sure, Mitchell and OWB have each provided evidence
that could reasonably be construed to favor their materiality arguments. However, the Fifth Circuit
commands the Court not to weigh this evidence. See Deville v. Marcantel, 567 F.3d 156, 164 (5th
Cir. 2009).
29
III.
Whether Mitchell’s Treasury HAMP and FHA-HAMP Allegations Meet the
Scienter Requirement
Having considered whether Mitchell’s Treasury HAMP and FHA claims meet the
materiality element, the Court must next address whether Mitchell’s Treasury HAMP and FHAHAMP claims satisfy the scienter requirement. To prove that the false statements were made with
the requisite level of scienter, Mitchell must show that OWB had either “(1) actual knowledge of
falsity, (2) acted with deliberate ignorance of the truth or falsity of the information provided, or
(3) acted with reckless disregard of the truth or falsity of the information provided” to the
Government. Longhi, 575 F.3d at 468. While no proof of specific intent to defraud is required,
mere negligence or even gross negligence does not satisfy the scienter requirement. Id. Further,
like materiality, the scienter requirement is “rigorous” and must be “strict[ly] enforce[d].”
Escobar, 579 U.S. at 192. However, when “state of mind is an essential element,” “it is less
fashionable to grant summary judgment because a party’s state of mind is inherently a question of
fact which turns on credibility.” Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1265 (5th Cir.
1991). But the “presence of an intent issue does not automatically preclude summary judgment;
the case must be evaluated like any other to determine whether a genuine issue of material fact
exists.” Guillory v. Domtar Indus., Inc., 95 F.3d 1320, 1326 (5th Cir. 1996).
OWB makes several arguments for why Mitchell falls short of satisfying the scienter
requirement. First, with respect to Mitchell’s Treasury HAMP allegations, OWB contends that its
extensive policies, procedures, and controls to ensure compliance foreclose a finding of the
necessary scienter (Dkt. #178 at p. 35). Relatedly, OWB claims that the record evidence that
“OWB repeatedly sought and received guidance from Treasury to ensure its compliance” indicates
that OWB did not act with the requisite scienter (Dkt. #178 at p. 36). Further, according to OWB,
given the numerous external audits and investigations and “consistent feedback that [OWB]’s
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performance was outstanding and that it was in compliance, no reasonable juror could conclude
that OWB actually knew (or was in reckless disregard) that it was in fact in material violation of
HAMP rules” (Dkt. #178 at p. 37).
Second, as to Mitchell’s FHA claims, OWB asserts similar arguments for why Mitchell
cannot make the requisite showing of scienter—relying significantly on the correspondence
between HUD and OWB as a result of the audits (Dkt. #178 at p. 40). For example, OWB asserts
the so-called “government knowledge defense,” claiming that “[t]he extensive correspondence
between [OWB] and HUD regarding HUD’s audit findings, including [OWB]’s acknowledgement
of numerous violations and its cataloging of ongoing efforts to come into compliance, negate any
possibility that Mitchell will be able to show the necessary scienter” (Dkt. #187 at p. 40).
In response, Mitchell argues that there are at least disputed issues of material fact regarding
these issues (Dkt. #187 at p. 31). For example, with respect to Mitchell’s Treasury HAMP
allegations, Mitchell points to Locke’s Report and internal emails from OWB as evidence that
OWB knew it was engaging in systematic dual tracking (Dkt. #187 at pp. 31–32). Additionally,
according to Mitchell, OWB’s “scrubbing” of many of its loan files suggests an attempt to conceal
its misconduct from later discovery (Dkt. #187 at p. 33).
Further, Mitchell contends that his
declaration and Schiffman’s testimony confirm that OWB knowingly engaged in dual tracking
(Dkt. #187 at p. 33; Dkt. #205 at p. 14). With respect to Mitchell’s FHA-HAMP allegations,
Mitchell contends that his declaration and Schiffman’s testimony show that OWB knowingly
failed to report and intentionally concealed FHA-HAMP violations from HUD (Dkt. #205 at
p. 15). Moreover, Mitchell contends the improperly snapped-back spreadsheets show that OWB
knew it had improperly modified FHA loans to 40-year terms in material violation of FHA-HAMP
(Dkt. #243 at p. 5). And finally, with respect to OWB’s assertion of the government-knowledge
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defense, Mitchell argues it is not applicable because there are fact issues “concerning whether the
Government had actual knowledge of OWB’s noncompliance . . .” (Dkt. #187 at p. 34).
Here, the Court finds that there are genuine factual disputes over whether OWB had the
requisite scienter. Mitchell’s evidence, including his declaration, Schiffman’s testimony, Locke’s
Report, internal emails, and the improperly snapped-back spreadsheets, demonstrate there is a
disputed material fact concerning whether OWB had the requisite scienter. Further, OWB’s
argument to the contrary are unconvincing. While OWB asserts that “Fifth Circuit precedent
makes clear that evidence of violations is not evidence of the requisite scienter,” (Dkt. #197 at p.
14), Mitchell’s evidence goes beyond showing that OWB simply engaged in violations like dual
tracking—it indicates OWB had actual knowledge of these violations.
Indeed, Mitchell’s
declaration and Schiffman’s testimony are especially probative on this point (Dkt. #164, Exhibit
2; Dkt. #189; Dkt. #206, Exhibit 30). Further, contrary to OWB’s suggestion, Schiffman’s
testimony as to the dual tracking is relevant—Mitchell’s expert states that Treasury prohibited dual
tracking as early as 2009 and Schiffman testified that she observed instances of dual tracking “that
were actually a violation of a law or regulation” (Dkt. #205 at p. 14). And while it is true that
OWB had extensive procedures in place to ensure compliance and that external audits revealed
that OWB was among the best servicers in the Treasury HAMP program, there is also evidence
that OWB knew its systems failed to stop certain violations, yet OWB concealed this from the
Government.
Lastly, contrary to OWB’s argument, OWB’s dialogue with Treasury concerning
compliance with HAMP and extensive correspondence with HUD regarding HUD’s audit findings
do not negate any possibility that Mitchell can show the necessary scienter. First, as Mitchell
notes, the so-called “government knowledge defense” “serves simply as a factor weighing against
32
the defendant’s knowledge, as opposed to a complete negation of the knowledge element.” United
States v. Bollinger Shipyards, Inc., 775 F.3d 255, 264 (5th Cir. 2014). Second, the “government
knowledge defense” applies only if “the claimant knew that the [G]overnment knew of the falsity
of the statement and was willing to pay anyway.” Id. at 263 (internal quotations omitted). Here,
as noted, there are disputed issues of material fact concerning what the Government knew and
when. Thus, though the HUD audits revealed areas of non-compliance and indicate that OWB and
the Government were working together to fix these issues, other evidence indicates that OWB
knowingly concealed significant issues from the Government (see Dkt. #164, Exhibit 2 ¶¶ 8–9;
Dkt. #189; Dkt. #206, Exhibit 30). Accordingly, while OWB’s dialogue with the Government is
relevant, it is not dispositive—especially when the evidence indicates that there are genuine issues
of material fact concerning the extent of the Government’s knowledge.
In short, given the several disputed facts with respect to scienter, summary judgment is
inappropriate. While OWB presents persuasive evidence demonstrating that Mitchell cannot
satisfy the scienter requirement, Mitchell also presents compelling evidence to the opposite effect.
See United States v. Hangar One, Inc., 563 F.2d 1155, 1157 (5th Cir. 1977) (finding that affidavits
from employees stating that they had personally engaged in acts of fraud created a genuine issue
of material fact). It is not the Court’s duty at this stage to make credibility assessments or weigh
the evidence. Deville, 567 F.3d at 164. Thus, the Court finds that OWB is not entitled to summary
judgment on Mitchell’s Treasury HAMP and FHA-HAMP allegations for lack of scienter.
IV.
Whether Summary Judgment is Appropriate for Mitchell’s VA Allegations
After considering OWB’s arguments at to Mitchell’s Treasury HAMP and FHA claims,
the Court now turns to OWB’s argument concerning Mitchell’s VA allegations. OWB’s primary
argument alleges that Mitchell’s VA claim fails because “he does not and cannot adduce any
33
evidence of a VA certification” and thus cannot demonstrate a false statement or fraudulent
conduct (Dkt. #197 at p. 15). In response, Mitchell contends that OWB must have made express
false certifications to the VA when it reported VA claims through the VALERI portal and signed
VALERI certifications confirming that “[t]he information provided
. . . is accurate to the best
of your knowledge and is substantiated by the accompanying documentation and proper
justification” (Dkt. #187 at p. 36). Consequently, the parties’ briefing focused on whether OWB’s
VALERI submissions constituted express certifications of compliance. However, after the parties
completed both their initial and supplemental briefing on the underlying motion, the Court granted
Mitchell’s motion for leave to amend his complaint. Mitchell’s TAC now includes allegations that
OWB made “implied false certifications” to the VA concerning OWB’s “compliance with the
laws, regulations, and guidance governing VA-HAMP, while knowing that it did not have a
functional VA-HAMP program” (Dkt. #265 ¶¶ 172–73). Thus, the absence of any evidence of an
express certification will not preclude Mitchell’s VA claim. Further, in light of Mitchell’s TAC,
OWB filed another motion for partial summary judgment, contending that Mitchell cannot prove
either materiality or scienter on his VA-related FCA claims (Dkt. #268).
Here, summary judgment is not appropriate if there is a genuine issue of material fact as to
whether OWB made false certifications to the VA—whether express or implied. Courts have held
that a claim may be false or fraudulent under the FCA if it includes a false certification of
compliance with a federal statute, regulation, or contract that is a prerequisite to obtaining the
Government benefit. U.S. ex rel. Graves v. ITT Educ. Servs., Inc., 284 F. Supp. 2d 487, 497
(S.D.Tex. 2003), aff’d, 111 Fed. App’x. 296 (5th Cir. 2004); see also U.S. ex rel. Ruscher v.
Omnicare, Inc., 663 Fed.App’x. 368, 373 (5th Cir. 2016) (per curiam) (“A claim is legally false
when ‘a claimant . . . falsely certifies compliance with [a] statute or regulation.’”). Legal falsity
34
can take two forms. Ocwen, 2016 WL 2992229, at *5. It can be express, where the party
affirmatively certifies compliance with a statute, regulation, or contract requirement that is a
material condition of payment. Id. Alternatively, it can be implied, where a party submits a claim
to the Government and fails to disclose a violation of relevant statutes, regulations, or contract
requirements that are material conditions of payment. Id.
The Court finds there are genuine issues of material fact as to whether OWB made false
certifications to the VA. As noted, the parties vigorously dispute the significance and meaning of
OWB’s certifications through the VALERI portal. OWB maintains that its representations in the
VALERI portal merely indicate that the information reported was accurate, not that OWB was
complying was the VA’s loss-mitigation rules (Dkt. #197 at p. 15). Mitchell asserts otherwise—
that the certifications in VALERI represent an express certification of compliance with VA
requirements (Dkt. #205 at p. 17). Here, after looking at the language of the certifications in
VALERI, the Court finds that they are not express certifications of compliance. Compare United
States v. Dental Health Programs, Inc., No. 3:18-cv-463, 2021 WL 3213709, at *5 (N.D. Tex.
July 29, 2021) (stating an express certification of compliance is made “when a party affirmatively
certifies compliance with a statute, regulation, or contract requirement that is material condition
of payment”) (internal quotations omitted), with, (Dkt. #187 at p. 35) (arguing OWB made an
express certification of compliance when it submitted that “[t]he information provided . . . is
accurate to the best of your knowledge and is substantiated by the accompanying documentation
and proper justification.”).
In short, Mitchell’s interpretation is too broad—the language in VALERI does not indicate
that OWB was certifying that it was in compliance with the terms of the VA regulations. See U.S.
ex rel. Barko v. Halliburton Co., 241 F. Supp. 3d 37, 58–59 (D.D.C. 2017), aff'd, 709 Fed. App’x
35
23 (D.C. Cir. 2017) (finding that relator failed to demonstrate the existence of an express false
certification where certification did not expressly include certification of compliance with law,
regulation, or contract).
Further, the Court’s interpretation is reinforced by comparing the
language at issue with the language in OWB’s express certifications of compliance under Treasury
HAMP and FHA-HAMP (See Dkt. #265 ¶ 74 (“By executing the Amended SPA, OneWest
expressly certified that ‘Servicer is in compliance with, and covenants that all Servicers will be
performed in compliance with, all applicable Federal, state and local laws, regulations . . . .”)). In
contrast to the express language in OWB’s certifications under Treasury HAMP and FHA-HAMP,
the language at issue here does not expressly indicate that OWB was certifying its compliance with
VA laws and regulations.
However, in light of Mitchell’s amended complaint, summary judgment is inappropriate.
There is a genuine issue of material fact as to whether OWB made implied certifications to the
VA. Further, though OWB raised a materiality argument in its sur-reply brief for this motion, it
briefed the issue more fully in its recent motion for partial summary judgment. Therefore, the
Court will address OWB’s remaining arguments as to Mitchell’s VA allegations when it addresses
the most recent motion for summary judgment.
.
CONCLUSION
It is therefore ORDERED that Defendants’ Motion for Summary Judgment Under Federal
Rule of Civil Procedure 56 (Dkt. #178) is hereby DENIED.
IT IS SO ORDERED.
SIGNED this 16th day of March, 2022.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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