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Date: 09-11-2017

Case Style:

United States v. Wells Fargo & Co.

Second Circuit Court of Appeals - New York, New York

Case Number: 15-2449

Judge: Per Curiam

Court: United States Court of Appeals for the Second Circuit

Plaintiff's Attorney: Thomas C. Goldstein and Rachel Grier

Defendant's Attorney: Amy Pritchard Willaims and Sara S. Ash for Defendants‐Appellees.



Chad A. Readler, Acting Assistant Attorney General; Bridget M.
Rohde, Acting United States Attorney; Michael S. Raab,
Charles W. Scarborough, and Benjamin M. Schultz, Attorneys;
United States Department of Justice, Washington, DC, filed a
brief for Amicus Curiae the United States, supporting Neither Party.


Kate Comerford Todd & Steven P. Lehotsky, United States Chamber
Litigation Center, Inc., Washington, DC; John P. Elwood &
Ralph C. Mayrell, Vinson & Elkins LLP, Washington, DC, filed
a brief for Amici Curiae Chamber of Commerce of the United States
of America and the Clearing House Association, in support of
Defendants‐Appellees.

Description: This False Claims Act (“FCA”) case returns to us on remand from the
United States Supreme Court. The Supreme Court vacated and remanded our
earlier opinion, Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016), in light of
the Supreme Court’s decision in Universal Health Services, Inc. v. United States ex
rel. Escobar, 136 S. Ct. 1989 (2016). See Bishop v. Wells Fargo & Co., 137 S. Ct. 1067
(2017). Because Escobar set out a materiality standard for FCA claims that has not
4
been applied in the present case, we vacate and remand for further proceedings
consistent with this opinion and Escobar.
The present case began in 2011, when Robert Kraus and Paul Bishop
(together, “the relators”) brought a qui tam action under the FCA on behalf of the
United States against Wells Fargo & Company and Wells Fargo Bank, N.A.
(together, “Wells Fargo”). The relators claimed that Wells Fargo, along with
Wachovia Bank and World Savings Bank, which later merged into Wells Fargo,
falsely certified their compliance with banking laws in order to borrow money at
favorable rates from the Federal Reserve System. The government declined to
intervene, and the district court (Cogan, J.) dismissed the relators’ complaint in its
entirety. See United States ex rel. Kraus v. Wells Fargo & Co., 117 F. Supp. 3d 215
(E.D.N.Y. 2015). We affirmed. Bishop, 823 F.3d at 50.
When evaluating the relators’ claims, our decision and that of the district
court relied on Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001), for two points in
particular. First, we relied on Mikes’s holding that “implied false certification is
appropriately applied only when the underlying statute or regulation upon which
the plaintiff relies expressly states the provider must comply in order to be paid.”
5
Mikes, 274 F.3d at 700. We refer to this as Mikes’s express‐designation
requirement. Second, we relied on Mikes’s holding that “[a]n expressly false claim
is . . . a claim that falsely certifies compliance with a particular statute, regulation
or contractual term, where compliance is a prerequisite to payment.” Id. at 698
(emphasis added). We refer to this as Mikes’s particularity requirement.
These two Mikes requirements—the express‐designation requirement for
implied false certification claims and the particularity requirement for express
false certification claims—did not survive Escobar. First, the Escobar Court directly
abrogated Mikes’s express‐designation requirement, holding that “[a] statement
that misleadingly omits critical facts is a misrepresentation irrespective of
whether the other party has expressly signaled the importance of the qualifying
information.” 136 S. Ct. at 2001; see id. at 1999 (citing Mikes as limiting the implied
false certification theory through an express‐designation requirement).
Second, although Escobar was an implied false certification case, it also
abrogated Mikes’s particularity requirement for express false certification claims.
See Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372, 378 (2d Cir. 2016) (explaining
that a panel of this Court may overrule a precedent when “an intervening
6
Supreme Court decision casts doubt on the prior ruling”). The Escobar Court
indicated that limitations on liability under the FCA must be grounded in the text
of the FCA, including the “well‐settled meaning[s] of common‐law terms [the
FCA] uses” but does not expressly define. Escobar, 136 S. Ct. at 1999. We detect no
textual support in the FCA for Mikes’s particularity requirement. See 31 U.S.C. §§
3729–33. In addition, the common law does not limit fraud claims in a way that
would support Mikes’s particularity requirement. See Restatement (Second) of
Torts § 525 cmt. b, p. 56 (1977) (defining “misrepresentation” to include “not only
words spoken or written but also any other conduct that amounts to an assertion
not in accordance with the truth,” without any particularity requirement).1 The
Escobar Court also explained that the FCA addresses the concerns animating
Mikes’s particularity requirement in other ways: “Instead of adopting a
circumscribed view of what it means for a claim to be false or fraudulent,
concerns about fair notice and open‐ended liability can be effectively addressed
through strict enforcement of the [FCA]’s materiality and scienter requirements.”
1 Mikes’s particularity requirement also cannot be derived from Escobar’s
materiality standard. As the Escobar Court explained, “materiality cannot rest on
‘a single fact or occurrence as always determinative.’” 136 S. Ct. at 2001 (quoting
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39 (2011)).
7
136 S. Ct. at 2002 (brackets and internal quotation marks omitted). In light of these
statements from the Supreme Court, Mikes’s particularity requirement cannot
stand.
In place of Mikes’s requirements, the Escobar Court set out a “familiar and
rigorous” materiality standard. Id. at 2004 n.6. “[A] misrepresentation about
compliance with a statutory, regulatory, or contractual requirement must be
material to the Government’s payment decision in order to be actionable under
the [FCA].” Id. at 2002. In general, “materiality looks to the effect on the likely or
actual behavior of the recipient of the alleged misrepresentation.” Id. (brackets
and internal quotation marks omitted). Specifically in the FCA context,
proof of materiality can include, but is not necessarily limited to,
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. Conversely, if 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.
Id. at 2003–04. The Escobar Court admonished that “[m]ateriality . . . cannot be
found where noncompliance is minor or insubstantial.” Id. at 2003.
8
The materiality standard set out in Escobar has not been applied in the
present case. We remand for the district court to determine, in the first instance,
whether the relators have adequately alleged the materiality of the defendants’
alleged misrepresentations.

Outcome: For the foregoing reasons, we VACATE the district court’s dismissal of the
relators’ complaint and REMAND to the district court for further proceedings
consistent with this opinion.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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