The district court dismissed a qui tam complaint alleging fraud on federal mortgage programs, finding the claims barred under the statute of limitations and public disclosure bar. The relator conceded that the majority of her claims were time-barred but argued that the court should decide any limitations issues based on the government’s ongoing investigation into the conduct. However, the court found no reason why enforcing the statute of limitations would impede a federal investigation, nor any authority for overriding the statutory limitations period in order to protect such an investigation. The court dismissed the remainder of the claims under the public disclosure bar, agreeing that the allegations had been disclosed through reports in the news. While the relator did qualify as an independent source of the allegations by dint of her employment with the defendants, the court found her information did not materially add to the already disclosed allegations of misconduct and therefore she did not qualify as an original source.
Citigroup and its affiliated co-defendants moved to dismiss a qui tam complaint alleging fraud on federal programs designed to stabilize the housing market by helping homeowners refinance defaulted mortgage loans.
Citigroup Inc., Citibank N.A. Inc., and CitiMortgage Inc. participated in the program, which provided incentives to mortgage servicers to work with homeowners rather than resort to foreclosures. In order to take advantage of the program’s incentives, mortgage servicers entered into contracts with government agencies, through which they were required to follow certain loan modification protocols.
Relator Karen Memhardt worked for the defendants in their loss mitigation and collections departments. She alleged that throughout the course of her employment, she witnessed numerous violations of her employers’ obligations under the loan modification program contracts, which resulted in the submission of false claims to the government.
In 2012, the federal government and 49 states and the District of Columbia sued several mortgage servicers, including the defendants, for virtually the same conduct the relator alleged in her complaint, after the alleged misconduct was reported publicly. That lawsuit was eventually settled.
In 2014, the relator filed a complaint, raising the same allegations as she raises here. That suit was dismissed without prejudice and the relator filed this suit in 2015.
The defendants moved to dismiss on multiple grounds, including the statute of limitations and public disclosure bar. Because those two grounds were dispositive, the court limited its consideration to those.
First, the defendants argued that the bulk of the relator’s allegations were barred by the FCA’s statute of limitations. They argued the relator first became aware of the relevant facts of her complaint when she filed her first suit in 2014. Therefore, the deadline for filing her claims under the three-year limitations period passed in 2017. In response, the relator argued that at least some of the violations occurred shortly before her employment was terminated in February 2013. The court noted this would mean the statute of limitations expired in 2019.
The court held that under the six-year statute of limitations, any claims for violations occurring before June 2, 2012, were barred as untimely, based on the June 2, 2018, filing date of the complaint. This resulted in the dismissal of most of the claims.
The relator did not dispute the conclusion that violations that occurred before June 2, 2012, were untimely. Instead, she explained that the federal government is actively investigating the defendants for violating the loan modification requirements and encouraged the court to decide any limitations issues in a manner that would allow the court to continue its investigation.
However, the court found no reason why enforcing the statute of limitations on a qui tam case would impede a federal investigation. Further, the court found no authority for overriding the statutory limitations period in order to protect a federal investigation.
Next, the defendants argued the remaining claims should be dismissed under the public disclosure bar. According to the defendants, the fundamental allegations in the complaint had already been disclosed though the news media, a federal lawsuit, and federal reports.
In response, the relator argued she qualified for the original source exception to the bar. The relator asserted she had first-hand knowledge of non-disclosed examples of wrongdoing. She also distinguished the cases cited by the defendants, arguing that those cases involved relators who were not employed by the defendants and therefore had not gained independent knowledge of the allegations.
However, the court found that while the relator asserted that her knowledge was independent of the public disclosures, she did not argue that her information materially added to those disclosures. Because the relator had not shown that her complaint materially added to the publicly disclosed information cited by the defendants, the court dismissed the remainder of the claims.
