The Greatest Theft: Ocwen PHH Mortgage Premeditated Long-Term Scheme to Steal Citizens Homes

UNITED STATES’ MOTION TO INTERVENE IN PART AND TO DISMISS IN PART PURSUANT TO 31 U.S.C. § 3730(c)(2)(A)

The United States moves to intervene in part and dismiss in part pursuant to 31 U.S.C. § 3730(c)(2)(A) of the False Claims Act (FCA).

As discussed in more detail below, the United States has good cause to intervene in part and is entitled to dismissal of certain FCA claims in Relator’s Amended Complaint [Dkt. No. 114] under United States ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419 (2023), and the applicable standard of Fed. R. Civ. P. 41(a)(2).

Specifically, the United States seeks dismissal of the Amended Complaint to the extent that it asserts claims against any Defendant for violations of the FCA that accrued on or before February 17, 2017.

This dismissal will prevent Relators from continuing to pursue in this litigation conduct that was dismissed with prejudice to the United States by this Court’s May 19, 2017,

Order in United States ex rel. Fisher, et al. v. Ocwen Loan Servicing, LLC, No. 4:12-CV-00543-ALM, Dkt. No. 593 (the “Fisher Dismissal Order,” attached hereto as Exhibit 1).

The United States’ dismissal is not intended to prevent Relators from pursuing in this action alleged FCA violations of any named Defendant that accrued after February 17, 2017.

BACKGROUND

I.            FCA Overview

The FCA, 31 U.S.C. §§ 3729-3733, imposes civil penalties and treble damages on any person or entity that

(1) “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” in violation of 31 U.S.C. § 3729(a)(1)(A);

(2) “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” in violation of § 3729(a)(1)(B);

or

(3) “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,” in violation of § 3729(a)(1)(G).

Civil suits to enforce the FCA may be brought either by the Attorney General, id. § 3730(a), or by a private person who files suit “for the person and for the United States Government” in the name of the United States, id. § 3730(b)(1).

The private person is known as a “relator” and the suit is called a qui tam action. Id.

After a relator has filed a qui tam action, “[t]he Attorney General diligently shall investigate” to determine whether there has, in fact, been an FCA violation. Id. § 3730(a).

Following an investigation, the United States may intervene in the qui tam action.

Where the United States intervenes, although the relator remains a nominal party, the Government assumes “the primary responsibility for prosecuting the action” and is not bound by any act of the relator. Id. § 3730(c)(1).

As the party with primary responsibility over the action, the United States may proceed with the action, settle the case over the relator’s objection, id. at § 3730(c)(2)(B), or dismiss the case over the relator’s objection, id. § 3730(c)(2)(A).

If the United States elects to decline to intervene, “the person bringing the action shall have the right to conduct the action.” Id. § 3730(b)(4).

But even after declining to intervene, the United States may still intervene “upon a showing of good cause,” id. § 3730(b)(3).

Regardless of whether the United States intervenes or declines to intervene in a qui tam action, the United States remains the “real party in interest,” United States ex rel. Eisenstein v. City of New York, 556 U.S. 928, 930 (2009), and is entitled to the damages and penalties recovered in the action minus a share that is paid to the qui tam relator, id. § 3730(d).

II.            Relators’ Qui Tam Allegations

Relators Jean-Marc Eichner and Brandon Loyd (“Relators”) filed this qui tam action on July 15, 2019.

This action concerns the Department of Treasury’s Home Affordable Mortgage Program (HAMP), which provided monetary incentives to encourage mortgage servicers and investors to modify the terms of residential mortgages to reduce distressed borrowers’ monthly mortgage payments and help them avoid default, as well as an equivalent program established by the Federal Housing Administration (FHA) that provided incentives for modifying FHA-insured mortgages (“FHA-HAMP”).

Generally, Relators allege that, from 2009 to 2019, Defendants Ocwen Loan Servicing, LLC, and Ocwen Financial Corporation (collectively, “Defendant Ocwen”), a residential mortgage servicer, violated the FCA

by falsely certifying compliance with myriad laws and regulations governing servicing in order to participate in, and receive incentive payments as part of, the HAMP and FHA-HAMP programs.

In addition, Relators allege that additional defendants — hundreds of identified residential mortgage-backed securities (“RMBS”) trusts comprised of mortgages serviced by Ocwen, and the entities (U.S. Bank, N.A., Deutcsche Bank National Trust Company, The Bank of New York Mellon, and Wells Fargo Bank, N.A.) that acted as trustees to those RMBS trusts (collectively, the “RMBS Trust Defendants”)

— are vicariously liable for Ocwen’s alleged FCA violations on the theory that Ocwen acted as the RMBS Trust Defendants’ agent when it serviced the loans.

III.            Procedural History of this Qui Tam Action

The United States declined to intervene in this qui tam on December 10, 2021. Dkt. No. 16.

Defendant Ocwen and the RMBS Trust Defendants moved to dismiss the Relators’ Complaint [Dkt. Nos. 40 and 48], and on February 13, 2023, this Court denied both motions in full. Dkt. No. 70.

All Defendants filed answers to the Relators’ original Complaint on March 6, 2023 [Dkt. Nos. 75-79]. On October 23, 2023, Relators moved for leave to amend their Complaint [Dkt. No. 113]. On June 10, 2024, the Court granted Relators’ motion [Dkt. No. 151],

making the Relators’ Amended Complaint [Dkt. No. 114] the operative one.

Defendants filed answers to the Amended Complaint on June 24, 2024.

[Dkt. Nos. 152, 153, 154, 155, and 156].

On September 11, 2024, the RMBS Trust Defendants filed a Motion for Partial Summary Judgment Based on Res Judicata for Conduct Through February 17, 2017. Dkt. No. 161.

IV.            The Litigation and Dismissal with Prejudice to the United States in United States ex rel. Fisher, et al. v. Ocwen Loan Servicing, LLC.

This Court has previously adjudicated and dismissed with prejudice to the United States the very same allegations Relators make here -— that Defendant Ocwen violated the FCA in connection with its participation in the HAMP and FHA-HAMP program from 2009 to February 17, 2017, in the earlier qui tam action,

United States ex rel. Fisher, et al. v. Ocwen, 4:12-CV-543-ALM (E.D. Tex.) (the “Fisher Case”), brought by different relators than the Relators here.

In the Fisher Case, the United States declined to intervene, and ultimately Defendant Ocwen and the Fisher relators reached a settlement (the “Fisher Settlement,” attached hereto as Exhibit 2) on February 17, 2017, resolving Ocwen’s potential FCA liability for $15 million.

The United States did not sign that settlement. Id.

But, in accordance with FCA, 31 U.S.C. § 3730(b)(1), which prohibits a relator from dismissing a qui tam action without the United States’ written consent, the United States filed with the Court its consent to dismissal.

See Fisher Case, Dkt. No. 584 (“Fisher U.S. Consent to Dismissal,” attached hereto as Exhibit 3).

In that filing, the United States consented to dismissal with prejudice to the United States of the “Covered Conduct,” as defined in the February 17, 2017, Fisher Settlement, stating that such dismissal was “in the interest of the United States.” Id.

Consistent with the United States’ filing, this Court “dismissed with prejudice as to the United States of America with respect to any claims asserted in this action [under the FCA] for the Covered Conduct, as that term is defined in the [Fisher Settlement]” on May 19, 2017.

See Fisher Dismissal Order.

The Fisher Case and this case involve identical allegations about Defendant Ocwen’s conduct from 2009 through February 17, 2017.

Relators here expand upon those allegations in two ways.

First, the RMBS Trust Defendants named here were not parties in the Fisher Case, which did not assert vicarious liability claims against any party based on Defendant Ocwen’s alleged FCA violations.

Second, this case alleges misconduct by Defendant Ocwen after February 17, 2017, and asserts vicarious liability claims against the RMBS Trust Defendants for those claims.

As discussed in more detail below, this Motion seeks the dismissal of Relators’ claims against all defendants — Defendant Ocwen and the RMBS Trust Defendants — for the time period (2009 through February 17, 2017) of the claims against Ocwen that this Court dismissed with prejudice to the United States in the Fisher Case.

ARGUMENT

I.            The United States Has Good Cause to Intervene for the Purpose of Dismissal

The Supreme Court held in Polansky that if the United States wishes to dismiss a qui tam suit pursuant to § 3730(c)(2)(A), it must first intervene and become a party. Polansky, 599 U.S. at 430-31.

The FCA provides that the United States may intervene in a qui tam suit after declining upon a showing of “good cause.” 31 U.S.C. § 3730(c)(3).

In its decision that the Supreme Court affirmed “across the board,” the Third Circuit explained that “showing ‘good cause’ is neither a burdensome nor unfamiliar obligation,” but instead “a uniquely flexible and capacious concept, meaning simply a legally sufficient reason.”

United States ex rel. Polansky v. Executive Health Resources, Inc., 17 F.4th 376, 387 (3d Cir. 2021), aff’d 599 U.S. 419 (2023).

This flexible standard for evaluating “good cause” applies even at a later stage in a qui tam litigation.

Polansky, 17 F.4th at 381–82

(noting that “the parties and the District Court invested considerable time and resources in the case.”).

In ultimately upholding dismissal in Polansky, the Supreme Court recognized that “the Government’s interest in the suit is the same [at any stage] — and is the predominant one.”

Polansky, 599 U.S. at 434.

Qui tam suits are “brought in the name of the Government” and “the injury they assert is exclusively to the Government.”

Id. at 424–25 (citing § 3730(b)(1)).

In this case, the United States has good cause to intervene because it seeks to dismiss in part Relators’ Amended Complaint.

As the Third Circuit concluded in Polansky, the Government’s request to dismiss the suit “itself establishes good cause to intervene.”

Polansky, 599 U.S. at 429 n.2; see United States ex rel. Jackson v. Ventavia Rsch. Grp., LLC, — F. Supp. 3d —-, No. 1:21-CV-00008, 2024 WL 3812294, at *6 (E.D. Tex. Aug. 9, 2024)

(“the Government’s desire to dismiss the case . . . constitutes good cause to intervene”);

Brutus Trading, LLC v. Standard Chartered Bank, No. 20-2578, 2023 WL 5344973, at *2 (2d Cir. Aug. 21, 2023) (government’s (c)(2)(A) motion amounted to a motion to intervene as well);

United States ex rel. Carver v. Physicians Pain Specialists of Alabama, P.C., 2023 WL 4853328, at *6 n.4 (11th Cir. July 31, 2023)

(ruling that “the same grounds that support dismissal also provide good cause to intervene”).

II.               Legal Standard for the United States’ Motion to Dismiss in Part Relator’s FCA Claims

Once the United States intervenes in a qui tam action, the FCA authorizes it to dismiss such an action, even if the relator objects:

“The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A).

The Supreme Court’s 2023 decision in Polansky held that district courts should apply the standard of Rule 41(a) when evaluating a motion to dismiss under § 3730(c)(2)(A). 599 U.S. at 424.

(“We . . . hold that in handling such a motion, district courts should apply the rule generally governing voluntary dismissal of suits: Federal Rule of Civil Procedure 41(a)”).

If the United States moves to dismiss before the defendants have served an answer or a motion for summary judgment, then dismissal may be accomplished merely by the filing of a “notice of dismissal.”

Fed. R. Civ. P. 41(a)(1).

However, where, as here, the United States moves to dismiss after the defendant has served an answer, then Rule 41(a)(2) controls, Polansky, 599 U.S. at 424, and the Court may dismiss the action “on terms that the court considers proper.”

Fed. R. Civ. P. 41(a)(2).

In Polansky, the Supreme Court held that “(2)(A) motions will satisfy Rule 41 in all but the most exceptional cases.” 599 U.S. at 437.

When considering the government’s (c)(2)(A) motion, “the Government’s views are entitled to substantial deference” because “[a] qui tam suit . . . is on behalf of the and in the name of the Government . . . [and] alleges injury to the Government alone.” Id. The Supreme Court indicated that the “proper terms” assessment of Rule 41(a)(2) is met so long as the United States “[has given] good grounds for thinking that this suit would not do what all qui tam actions are supposed to do: vindicate the Government’s interests.

Absent some extraordinary circumstance, that sort of showing is all that is needed for the Government to prevail on a (2)(A) motion to dismiss.” Id. at 438.

Notably, the United States need only articulate a defensible reason for dismissal, because as the Court explained, a relator’s “competing assessment” of the merits or value of the case “could not outweigh the Government’s reasonable view of the suit’s costs and benefits.” Id.

The “minimal showing” requirement makes sense because a qui tam claim “belongs to the United States, and the statute expressly says that the Government may dismiss it ‘notwithstanding’ the relator’s objection.”

Order, U.S. ex rel. Vanderlan¸ No. 3:15-cv-00767-DPJ, Dkt. No. 192, at p. 5 (S.D. Miss. Apr. 12, 2024) (hereinafter, “Vanderlan Order,” attached hereto as Exhibit 4).

There is no requirement that the Government prove conclusively that a relator’s case lacks merit, nor is dismissal under (2)(A) the same thing as a ruling on the merits.

United States ex rel. Doe v. Credit Suisse AG, No. 22-1054, 2024 WL 3974986, at *5 (4th Cir. Aug. 29, 2024) (affirming dismissal without considering the merits of the relator’s case, stating:

“The government does not need to disprove the validity of an FCA claim in order to dismiss it since the government has discretion to control litigation brought on its behalf and in its name.”).

In Polansky, relator alleged that his employer was defrauding the government by charging inpatient rates for what should have been outpatient services. 599 U.S. at 428.

The government declined to intervene, and relator proceeded with the case, which spent years in discovery. Id. The government later reconsidered its assessment as to whether the case should go forward and, after deciding “that the varied burdens of the suit outweighed its potential value,” moved to dismiss relator’s claims. Id.

In moving to dismiss, the government cited, inter alia, the costs of future litigation and the low likelihood of success on the merits.

Although the relator disagreed with the government’s assessment of the case and maintained that the government was “leaving billions of dollars of potential recovery on the table,” the district court granted the government’s motion and the Supreme Court ultimately affirmed, explaining it was not even a “close call.”

Id. at 438.

II. The United States Is Entitled to Dismiss the FCA Claims that Accrued Before February 17, 2017.

Here, as in Polansky, the government has good grounds to dismiss the FCA qui tam claims in this action for conduct prior to February 17, 2017. The United

States has evaluated the probability that these previously settled, pre-2017 claims will succeed against the burdens to the United States of Relators’ continued pursuit of the pre-2017 claims and concluded that dismissal of those claims under § 3730(c)(2)(A) and Polansky is in the interest of the United States.

The United States has also considered that the pre-2017 claims were publicly and extensively litigated in the Fisher Case before Relators initiated this lawsuit.

The United States respectfully submits that together these considerations meet the highly deferential standard for dismissal under Rule 41(a)(2).

As to the first consideration, Relators’ pre-2017 claims against the RMBS Trust Defendants and Defendant Ocwen re-assert claims that have already been publicly and extensively litigated and resolved through settlement in the United States’ favor in the Fisher Case.

Relators’ pre-2017 claims against the RMBS Trust Defendants are premised solely on the conduct Defendant Ocwen previously settled for $15 million.

See Fisher Settlement, p. 3, ¶ 1.

Information about that conduct is in the public domain, and Relators do not bring additional knowledge to the pre- 2017 portion of their case against Defendant Ocwen or the RMBS Trust Defendants, just the allegation that the RMBS Trust Defendants are legally responsible.

The copy-cat nature of Relators’ pre-2017 claims supports dismissal, particularly when considered alongside the low probability that those claims will succeed and the burdens this case has created, and will continue to create for the United States.

As to the second consideration, Relators’ probability of success, all Defendants have argued that the affirmative defense of res judicata applies.

See Memorandum and Order, Dkt. No. 70, pp. 4-5.1

This Court declined to address res judicata in response to the Defendants’ motions to dismiss.

The RMBS Trust Defendants’ pending motion for partial summary judgment once again argues that res judicata applies to Relators’ pre-2017 claims against them.

See Dkt. No. 161.

Relators do not deny that they are precluded from re-litigating the pre-2017 claims against Defendant Ocwen by the Fisher Dismissal, and Relators admit that their only claims against the RMBS Trust Defendants for the pre-2017 period are vicarious liability claims based on Defendant Ocwen’s conduct.

To succeed against the RMBS Trust Defendants’ res judicata defense, Relators would, among other hurdles, have to address whether res judicata bars vicarious liability claims based on previously litigated conduct and why a consent judgment like the Fisher Dismissal Order is not entitled to full res judicata effect.

As to the third consideration, the United States’ burdens associated with Relators’ pursuit of the pre-2017 claims have been unusually high and may continue to grow.

This case, and Relators’ early claims in particular, have generated requests for extensive discovery to numerous federal agencies, including the Department of

1 Each Defendant has also re-asserted res judicata as an affirmative defense in its answer to the Amended Complaint. See Dkt No. 152, p. 49; Dkt No. 153, p. 49; Dkt. No. 154, p. 49; Dkt. No. 155, p. 49; Dkt. No. 156, p. 46.

Justice, which have been and will continue to be burdensome.

In addition, as this case moves past discovery and into summary judgment and trial, the numerous complex FCA legal issues implicated by the claims and defenses in this case will be burdensome for the United States to monitor and to address, as needed, by filing statements of interest.

The government has determined that these burdens outweigh any benefit of the continued litigation of the pre-2017 claims.

IV.    No In-Person Hearing is Necessary

In Polansky, the Court did not specify what procedures would satisfy the requirement of a “hearing” under Section 3730(c)(2)(A) and did not require an in- person hearing in all matters.

One Circuit Court has already ruled post-Polansky that a “hearing” encompasses a hearing on written papers.

Brutus Trading, 2023 WL 5344973, at 2-*3 (rejecting relator’s argument that an in-person hearing is required by Section 3730(c)(2)(A), stating that “the district court met the hearing requirement by carefully considering the parties’ written submissions”).

Moreover, as the court in Vanderlan recently held, dismissal does not require that the Government “present evidence or that an evidentiary hearing is required,” nor does it create a right to discovery.

See Vanderlan Order, Exhibit 4, at pp. 7-8; see also Ventavia, 2024 WL 3812294, at *9 (“an evidentiary hearing is not required by 31 U.S.C. § 3730 (c)(2)(A)”); Credit Suisse AG, 2024 WL 3974986, at *4 (“a live, in-person court hearing is not required to satisfy the ‘hearing’ requirement of Section 3730(c)(2)”).

Moreover, an in-person hearing would not aid the Court in adjudicating the Government’s motion to dismiss in this case.

In Polansky, the Supreme Court suggested that a hearing might establish a constitutional floor, inquiring into any credible allegations that dismissal might “violate the relator’s rights to due process or equal protection,” but did not elaborate on what would constitute such a violation.

Polansky, 599 U.S. at 436 n.4.

Those types of constitutional concerns clearly are not present in this case.

Accordingly, no hearing is required in this matter.

Id.; see Brutus Trading, LLC, 2023 WL 5344973, at *3; Order, U.S. ex. rel. Guglielmo v. Leidos, Inc., et al., No. 19-1576, Dkt. No. 22 (D.D.C. Feb. 20, 2024), attached hereto as Exhibit 5 (granting the United States’ motion to dismiss without an in-person hearing).

CONCLUSION

For the foregoing reasons, the United States respectfully requests that, finding the United States had good cause to intervene in part, the Relators’ claims against any Defendant claims for violations of the FCA that accrued on or before February 17, 2017, are dismissed pursuant to 31 U.S.C. § 3730(c)(2)(A).

Dated: September 16, 2024                 Respectfully submitted,

BRIAN M. BOYNTON

Principal Deputy Assistant Attorney General

DAMIEN M. DIGGS

United States Attorney Eastern District of Texas

By:    /s/ Kelly E. Phipps
JAMIE ANN YAVELBERG SARA McLEAN

KELLY E. PHIPPS (DC Bar No. 1000687)
U.S. Department of Justice, Civil Division 175 N St., NE
Washington, DC 20002
(202) 353-1284
kelly.e.phipps@usdoj.gov

JAMES GILLINGHAM
Assistant U.S. Attorney Eastern District of Texas
110 N. College Street; Suite 700
Tyler, Texas 75702
(903) 590-1400

James.Gillingham@usdoj.gov
Texas State Bar # 2406529

Attorneys for the United States

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing was served electronically via CM/ECF to all parties, on this 16th day of September, 2024.

/s/ Kelly E. Phipps Kelly E. Phipps Trial Attorney

Extract from complaint (p.66)

Aside from engaging in tactical delays designed to force delinquent borrowers into foreclosure, Ocwen Loan Servicing (OLS) from at least as early as 2011, and on information and belief from as early as April 16, 2009 regularly engaged in the following harmful and unlawful behavior, violating their obligations to the Treasury and loss mitigation standards:

a) Inadequate staffing to accomplish goals of the loss mitigation programs, compounded by the staff’s lack of training, education, experience and skills needed to perform the services for which the staff was hired. OLS’s failure to adequately train and supervise personnel and facilitate the development of such skills and understanding was a major cause of pervasive unlawful underwriting;

b) Failure to evaluate delinquent loans for all loss mitigation options within 30 days;

c) Failure to evaluate delinquent FHA loans for loss mitigation options prior to the loan becoming four monthly payments past due or within 90 days of delinquency;

d) Improper performance of modification underwriting;

e) Inadequate establishment of loan modification procedures;

f) Misplacing and failing to properly store loan modification documents;

g) Wrongful, fraudulent denial of modification applications;

h) Providing false/misleading information to borrowers;

i) Not responding timely to borrower inquiries;

j) Improper calculations of borrowers’ eligibility for loan modifications;

k) Continuing to unlawfully assess late fees when borrowers were in review for loss mitigation options;

l) Improper processing of modification applications, leading to denial;

and

m) Off-shore loan underwriting and reviews resulting in wrongful denials due to misunderstanding, confusion, lack of experience, education, training and cultural misunderstandings.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court are Ocwen Loan Servicing, LLC’s and Ocwen Financial Corporation’s Motion to Dismiss Relator’s Complaint (Dkt. #40), Defendants U.S. Bank National Association’s, Deutsche Bank National Trust Company’s, Wells Fargo Bank, N.A.’s, The Bank of New York Mellon Trust Company, N.A. F/K/A The Bank of New York Trust Company, National Association’s, The Bank of New York Mellon F/K/A The Bank of New York’s, and The Bank Of New York Mellon Corporation F/K/A The Bank of New York Company’s

Motion to Dismiss on Behalf of Certain Trust Defendants (Dkt. #48),

Loan Servicing, LLC’s and Ocwen Financial Corporation’s Motion to Strike the Boyd and Sanders Declarations Submitted by Relators in Response to Motions to Dismiss (Dkt. #60),

and

Defendants’ Joint Motion Requesting an Oral Hearing (Dkt. #66).

Having considered the motions and the relevant pleadings, the Court finds that the motions to dismiss should be DENIED, the motion for a hearing should be DENIED as MOOT, and the motion to strike should be DENIED as MOOT.

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 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 net-present 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.

Defendants Ocwen Financial Corporation (“OFC”) and its subsidiary and alter ego Ocwen Loan Servicing (“OLS”) (collectively, “Ocwen” or “Ocwen Defendants”) were and/or are mortgage loan servicing agents for hundreds of trusts, for which Defendants

U.S. Bank, National Association, Trustee (“U.S. Bank”);

Deutsche Bank National Trust Company, Trustee (“Deutsche”);

Wells Fargo Bank, N.A. Trustee (“Wells”);

The Bank of New York Mellon Trust Company, N.A. f/k/a The Bank of New York Trust Company, National Association,

The Bank  of New York Mellon f/k/a The Bank of New York,

and

The Bank of New York Mellon Corporation f/k/a The Bank of New York Company, Inc., Successor-Trustees (“BONY”) to J.P. Morgan Chase Bank, N.A., (collectively, the “Trust Defendants”)

served as Trustees.

In 2009, Ocwen enrolled in the HAMP program.

On April 16, 2009, Ocwen expressly certified its compliance with HAMP guidelines and applicable federal laws in signing the initial Servicer Participation Agreement (“SPA”).

The SPA named Ocwen as the servicer and Fannie Mae, solely as Financial Agent of the United States, as the administrator.

The parties signed a Financial Instrument on the same day, which details the representations, warranties, and covenants that Ocwen is obligated to make in connection with participation in HAMP.

The Financial Instrument was fully incorporated into the SPA.

On February 10, 2010, Ocwen signed an Amended SPA. Ocwen also made annual certifications, a prerequisite to receiving HAMP payments.

Ocwen 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 an express statement certifying that Ocwen continued to meet the terms and conditions of the SPA, including the representation of compliance with applicable laws.

On July 15, 2019, Relator Jean-Marc Eichner (“Eichner”) and Relator Brandon Loyd (“Loyd”) (collectively, “Relators”) filed their Original Complaint under seal (Dkt. #1),

alleging causes of action for presenting false or fraudulent claims to the government,

making express and/or implied false certifications to the government,

making or using false records or statements material to false or fraudulent claims,

fraudulent inducement, and reverse false claims under 31 U.S.C. §§ 3729(a)(1)(A), (a)(1)(B), and (a)(1)(G)

(Dkt. #1 ¶¶ 221-28).

More specifically, Relators allege various instances of misconduct that resulted in the Ocwen Defendants

violating the Federal Housing Administration (“FHA”),

the Dodd-Frank Act,

the Real Estate Settlement Procedures Act (“RESPA”),

the Unfair, Deceptive, or Abusive Acts or Practice Laws (“UDAAP” or “UDAP”),

the Truth in Lending Act (“TILA”),

Regulation Z,

and

Texas state law

(see generally Dkt. #1).

Furthermore, Relators allege that the Ocwen Defendants made false representations to the government regarding HAMP, which induced the government to enter SPAs

(see generally Dkt. #1).

Additionally, Relators accuse the Trust Defendants as being vicariously liable for the actions of the Ocwen Defendants

(Dkt. #1 at ¶ 2).

On December 10, 2021, the government opted to not intervene in the case.

And, on December 14, 2021, the Court unsealed the case.

On May 6, 2022, Ocwen filed a motion to dismiss, arguing that the lawsuit should be dismissed because

(1) Eichner lacks standing because he signed a Separation Agreement and release after disclosing “substantially all information” to the government and before filing this lawsuit;

(2) of settlement, release, and res judicata based on the conclusion of the Fisher Action;

(3) of the public disclosure bar because of the Fisher Action, the Consumer Finance Protection Bureau’s (“CFPB”) lawsuit and investigation, and the Special Inspector General for the Troubled Asset Relief Program;

(4) of the government action bar because of the CFPB lawsuit;

(5) Relators fail to state a claim under Rule 12(b)(6) and Rule 9(b); (6) the statute of limitations;

(7) Relators fail to state a viable reverse false claims violation;

and

(8) Relators fail to state any claims in their individual capacity (Dkt. #40).

Ocwen’s motion also includes a motion for summary judgment because “the allegations in this case have been publicly disclosed, yet relators have not and cannot meet their burden to qualify as original sources for issues properly before the Court”

(Dkt. #40 at pp. 27-28).

Additionally, on May 6, 2022, the Trust Defendants also filed a motion to dismiss, arguing largely the same points as Ocwen

(Dkt. #48).

Specifically, the Trust Defendants argue that the lawsuit should be dismissed because of

(1) res judicata,

(2) the public disclosure bar,

(3) the government action bar,

(4) the first-to-file rule,

(5) the statute of limitations,

and

(6) Relators fail to plead trust liability as required by Rules 8(a) and 9(b)

(Dkt. #48).

On June 24, 2022, Relators filed responses to both motions (Dkt. #53; Dkt. #54). On July 29, 2022, the Ocwen Defendants and the Trust Defendants filed replies (Dkt. #59; Dkt. #61). And, on August 19, 2022, Relators filed sur-replies to both responses (Dkt. #64; Dkt. #65).

LEGAL STANDARD

I. 12(b)(1) 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).

If a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the Court will consider the jurisdictional attack under Rule 12(b)(1) before addressing any attack on the legal merits.

Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).

In deciding the motion, the Court may consider

“(1) the complaint alone;

(2) the complaint supplemented by the undisputed facts evidenced in the record;

or

(3) the complaint supplemented by undisputed facts plus the [C]ourt’s resolution of disputed facts.”

Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008)

(quoting Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)).

The Court will accept as true all well-pleaded allegations set forth in the complaint and construe those allegations in the light most favorable to the plaintiff.

Truman v. United States, 26 F.3d 592, 594 (5th Cir. 1994).

Once a defendant files a motion to dismiss under Rule 12(b)(1) and challenges jurisdiction, the party invoking jurisdiction has the burden to establish subject matter jurisdiction.

See Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980).

The Court will grant a motion to dismiss for lack of subject matter jurisdiction only if it appears certain that the claimant cannot prove a plausible set of facts to support a claim that would entitle it to relief. Lane, 529 F.3d at 557.

II. 12(b)(6) Standard

The Federal Rules of Civil Procedure require that each claim in a complaint include a “short and plain statement . . . showing that the pleader is entitled to relief.”

Fed.R.Civ.P. 8(a)(2).

Each claim must include enough factual allegations “to raise a right to relief above the speculative level.”

BellAtl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

A Rule 12(b)(6) motion allows a party to move for dismissal of an action when the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6).

When considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded facts in the plaintiff’s complaint and view those facts in the light most favorable to the plaintiff.

Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012).

The Court may consider “the complaint, any documents attached to the complaint, and any documents attached  to the motion to dismiss that are central to the claim and referenced by the complaint.”

Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).

The Court must then determine whether the complaint states a claim for relief that is plausible on its face.

“A claim has facial plausibility when the plaintiff pleads factual content that allows the [C]ourt to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

“But where the well-pleaded facts do not permit the [C]ourt to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-‘that the pleader is entitled to relief.’”

Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

In Iqbal, the Supreme Court established a two-step approach for assessing the sufficiency of a complaint in the context of a Rule 12(b)(6) motion.

First, the Court should identify and disregard conclusory allegations, for they are “not entitled to the assumption of truth.”

Iqbal, 556 U.S. at 664.

Second, the Court “consider[s] the factual allegations in [the complaint] to determine if they plausibly suggest an entitlement to relief.”

Id.

“This standard ‘simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary claims or elements.’”

Morgan v. Hubert, 335 Fed.Appx. 466, 470 (5th Cir. 2009) (citation omitted).

This evaluation will “be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”

Iqbal, 556 U.S. at 679.

Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.”‘

Id. at 678 (quoting Twombly, 550 U.S. at 570).

III. 9(b) Standard

Rule 9(b) states, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”

FED. R. CIV. P. 9(b).

Rule 9(b)’s particularity requirement generally means that the pleader must set forth the “who, what, when, where, and how” of the fraud alleged.

United States ex rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir. 2005).

A plaintiff pleading fraud must “specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.”

Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 564-65 (5th Cir. 2002).

The goals of Rule 9(b) are to “provide[] defendants with fair notice of the plaintiffs’ claims, protect[] defendants from harm to their reputation and goodwill, reduce[] the number of strike suits, and prevent[] plaintiffs from filing baseless claims.”

U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)

(citing Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir. 1994)).

Courts are to read Rule 9(b)’s heightened pleading requirement in conjunction with Rule 8(a)’s insistence on simple, concise, and direct allegations.

Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir. 1997).

However, this requirement “does not ‘reflect a subscription to fact pleading.’”

Grubbs, 565 F.3d at 186.

“Claims alleging violations of the Texas Insurance Code and the DTPA and those asserting fraud, fraudulent inducement, fraudulent concealment, and negligent misrepresentation are subject to the requirements of Rule 9(b).”

Frith v. Guardian Life Ins. Co. of Am., 9 F.Supp.2d 734, 742 (S.D. Tex. 1998);

see Berry v. Indianapolis Life Ins. Co., No. 3:08-CV-0248-B, 2010 WL 3422873, at *14 (N.D. Tex. Aug. 26, 2010)

(“‘[W]hen the parties have not urged a separate focus on the negligent misrepresentation claims,’ the Fifth Circuit has  found negligent misrepresentation claims subject to Rule 9(b) in the same manner as fraud claims.”).

Failure to comply with Rule 9(b)’s requirements authorizes the Court to dismiss the pleadings as it would for failure to state a claim under Rule 12(b)(6).

United States ex rel. Williams v. McKesson Corp., No. 3:12-CV-0371-B, 2014 WL 3353247, at *3 (N.D. Tex. July 9, 2014)

(citing Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996)).

ANALYSIS

Relators bring this qui tam action pursuant to the False Claims Act (“FCA”). 31 U.S.C. § 3729(a)(1).

“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 collectively argue that there are ten reasons the Court should dismiss this case:

1. Eichner released his FCA claims in a separation agreement;

2. Relators’ FCA claims are barred by settlement, release, and res judicata;

3. Relators’ claims are subject to the public disclosure bar;

4. Relators’ claims are subject to the government action bar;

5. Relators’ post-Fisher claims do not state a viable claim under 12(b)(6) or 9(b);

6. Relators’ claims for earlier time periods are barred by statute of limitations;

7. Relators’ fail to plead a viable reverse false claims violation;

8. Relators’ do not have any viable individual claims;

9. Relators’ complaint does not plead trust liability as required by 9(b);

and

10. Relators’ fail to state a claim against BNYM Corp.

(Dkt. #40; Dkt. #48).

Because of the substantial overlap between Defendants’ motions to dismiss and Relators’ responses, the Court has considered all the briefing together.

The Court believes that several of Defendants’ arguments, although valid concerns, are best dealt with after the parties have had an opportunity to conduct discovery, develop the facts, and fully brief the issues under the requisite standard.

Issues best left for a later date include whether Eichner released his FCA claims pursuant to a separation agreement and whether some or all of Relators’ claims are barred by res judicata, the public disclosure bar, the government action bar, or the relevant statute of limitations.

The Court acknowledges that the Ocwen Defendants requested that the Court convert their motion to dismiss into a motion for summary judgment and that the Ocwen Defendants briefed their motion to dismiss, at least partially, under a summary judgment standard.

The Court also acknowledges that all parties in this case submitted evidence outside of the pleadings for the Court’s consideration.

However, the Court believes that allowing parties the benefit of discovery and an opportunity to fully brief each issue under a summary judgment standard is appropriate and, therefore, the Court did not consider any evidence outside the pleadings and will not treat either motion as one for summary judgment.

Defendants argue that the Court should dismiss Eichner’s claims under 12(b)(1) because Eichner allegedly lacks standing to bring this case.

This is a jurisdictional issue.

Relators, though, posit that discovery is necessary to determine whether Eichner sufficiently disclosed his allegations of fraud to the government at the time he signed the separation agreement, the scope of the separation agreement, and whether Eichner was actually permitted to have a lawyer review the separation agreement.

The Court can, and in this case will, permit parties to conduct discovery and be heard on the factual matters underlying jurisdiction before considering the jurisdictional question.

See Freeman v. United States, 556 F.3d 326, 341-42 (5th Cir. 2009).

The party seeking discovery must show its necessity of discovery by alleging the specific facts which demonstrate a need for discovery.

Id.

Here, Relators have articulated a discrete discovery request that might cure the jurisdictional deficiency.

Accordingly, the question of whether Eichner has standing to sue is best dealt with after discovery on these issues has been conducted.

After such discovery, Defendants may re-raise the issue with the Court.

As to Defendants’ arguments that are appropriately dealt with in these motions to dismiss, after reviewing the current complaint and the arguments presented in briefing, the Court concludes that dismissal is not warranted.

Relators have stated plausible claims for relief against Defendants under both the 12(b)(6) and 9(b) standards.

CONCLUSION

It is therefore ORDERED that Defendants U.S. Bank National Association’s, Deutsche Bank National Trust Company’s, Wells Fargo Bank, N.A.’s, The Bank of New York Mellon Trust Company, N.A. F/K/A The Bank of New York Trust Company, National Association’s, The Bank of New York Mellon F/K/A The Bank of New York’s, and The Bank Of New York Mellon Corporation F/K/A The Bank of New York Company’s Motion to Dismiss on Behalf of Certain Trust Defendants (Dkt. #48) is hereby DENIED, and Ocwen Loan Servicing, LLC’s and Ocwen Financial Corporation’s Motion to Dismiss Relator’s Complaint (Dkt. #40) is hereby DENIED.

It is further ORDERED that Ocwen Loan Servicing, LLC’s and Ocwen Financial Corporation’s Motion to Strike the Boyd and Sanders Declarations Submitted by Relators in Response to Motions to Dismiss (Dkt. #60) is hereby DENIED as MOOT.

It is further ORDERED that Defendants’ Joint Motion Requesting an Oral Hearing (Dkt. #66) is hereby DENIED as MOOT.

IT IS SO ORDERED.