CINCINNATI (Legal Newsline) – The U.S. Court of Appeals for the Sixth Circuit has affirmed the dismissal of a False Claims Act lawsuit against U.S. Bank because the conduct alleged had previously been publicly disclosed.
In the case Advocates for Basic Legal Equality, Inc. (ABLE) v. U.S. Bank, which was decided March 14 by the Sixth Circuit, ABLE contends that U.S. Bank violated the False Claims Act when it requested federally backed insurance payments after several borrowers defaulted on their loans.
According to ABLE, U.S. Bank promised to engage in loss mitigation, failed to do so, then lied about the failure. ABLE points to three foreclosures in which this took place, claiming that it demonstrated a widespread pattern. The plaintiff claimed U.S. Bank wrongfully foreclosed on 22,000 homes and wrongfully collected $2.3 billion in federal insurance benefits.
“The False Claims Act allows for private individuals known as 'relators' to bring action and enforce the statute on the government’s behalf, but there are restrictions on the claims that relators may bring,” said Brad Robertson, a partner in the Alabama firm Bradley Arant Boult Cummings.
“To avoid opportunistic lawsuits, the statute restricts claims based on matters that have already been publicly disclosed.”
If a matter has been publicly disclosed, it is presumed that the government is already on notice of the possibility of fraudulent activity. As a consequence, the Sixth Circuit dismissed ABLE's case because the government was aware of the alleged conduct through several different disclosures before ABLE filed suit in 2013, including a settlement with the Office of the Comptroller of the Currency.
According to ABLE, there was no prior public disclosure before the lawsuit was filed. However, in order to pursue the case, ABLE attempted to proceed with the FCA claim by stating that it was an “original source” of the information.
One way to be an “original source” is to have information that “materially adds to” the publicly disclosed information, Robertson said.
“The relator here attempted to be an original source by providing information about three specific instances of alleged compliance failures, but the court did not agree that the specific examples added anything to the general information that had already been publicly disclosed,” he said.
“The Sixth Circuit’s opinion implicitly acknowledges that these efforts in transparency should not provide fodder for plaintiffs to bring False Claims Act lawsuits against them for treble damages and statutory penalties."