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United States

October 2, 2007

UNITED STATES OF AMERICA, EX REL. ANNE M. FAGO, RELATOR,
BRINGING THIS ACTION ON BEHALF OF THE UNITED STATES OF AMERICA, PLAINTIFF,
v.
M & T MORTGAGE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Gladys Kessler United States District Judge

MEMORANDUM OPINION

Plaintiff Anne M. Fago brings this qui tam suit under the False Claims Act, 31 U.S.C. §§ 3729 et seq., on behalf of the United States against Defendant M & T Mortgage Corporation ("MTMC"). This matter is before the Court on the following motions: (1) Defendant's Motion for Summary Judgment [Dkt. No. 51]; (2) Defendant's Supplemental Motion for Summary Judgment [Dkt. No. 104]; and (3) Plaintiff's Motion to Strike Declarations and Interrogatory Answers Submitted with Defendant MTMC's Supplemental Motion for Summary Judgment [Dkt. No. 107]. Upon consideration of the Motions, Oppositions, Replies, Surreply, and the entire record herein, and for the reasons stated below, Defendant's Motion for Summary Judgment is granted in part and denied in part; Plaintiff's Motion to Strike is granted; and Defendant's Supplemental Motion for Summary Judgment is granted in part and denied in part.

I. BACKGROUND

A. Facts*fn1

MTMC is a subsidiary of M & T Bank and is engaged in the home mortgage lending business. Plaintiff Ann Fago went to work for MTMC's Post Closing Department in Buffalo, New York in July 2001. One function of the Post Closing Department is to audit mortgage loan files or "binders" for completeness when they are received following mortgage loan closings. In the normal course of business, once a mortgage loan binder is complete and in order, it would be submitted by MTMC to the United States Department of Housing and Urban Development ("HUD") to be insured or "endorsed" by the Government. Once HUD approves a loan for endorsement, MTMC may obtain reimbursement from HUD should a borrower default and MTMC suffers a loss or is required to pursue foreclosure.

Plaintiff alleges that the mortgage loan binders often included missing, incomplete, or unsigned documents. HUD required loan binders to be submitted within sixty days of closing to avoid a more burdensome administrative process for seeking HUD insurance. Due to the sixty-day requirement, and the increased volume of loan applications in 2002 flowing from historically low interest rates, Plaintiff alleges that she and others in the Post Closing Department forged signatures on certain documents found in the loan binders prior to their submission to HUD. Plaintiff alleges that her supervisor, Camille Bettcker, and a co-worker, Suzanne Palmer,*fn2 also engaged in forging signatures. Palmer, and another MTMC employee, Christine Meier, have subsequently admitted that they falsified signatures on certain documents in the loan binders.

The Plaintiff's expert forensic handwriting analyst, John Hargett, has determined that a total of fifty-three loan binders submitted to HUD contain "non-genuine" signatures.*fn3 MTMC contends that many of these signatures were on documents that were not considered critical under HUD guidelines and could not have had an impact on HUD's decision to insure those loans. There is conflicting evidence in the record regarding what impact these "non-genuine" signatures on "non-critical" documents in the loan binder would have had on HUD's decision to endorse the loan.

When submitting an application for insurance, HUD requires a lender to certify to the best of its knowledge that all required documents are in the loan binder and that they have all been properly prepared. The parties disagree about whether HUD could choose to deny an application for insurance if it knew that this certification was false.

B. Procedural History

Plaintiff filed her Amended Complaint on May 14, 2004.*fn4 Count I of the Amended Complaint alleges violations of the False Claims Act ("FCA") in that (1) MTMC knowingly presented false claims for payment to the Government in violation of 31 U.S.C. § 3729(a)(1); (2) MTMC knowingly made or used false records or statements so the Government would pay false claims in violation of 31 U.S.C. § 3729(a)(2); and (3) MTMC engaged in a conspiracy to defraud the Government by having false claims paid in violation of 31 U.S.C. § 3729(a)(3). Count II seeks a declaratory judgment that MTMC's alleged forgery of documents violated 31 U.S.C. § 3729(a)(2). Count III seeks appropriate injunctive relief.

On August 22, 2005, Plaintiff filed a Motion to Compel the production of documents and other information regarding loan binders that MTMC had submitted to HUD, but that had not been produced in discovery. [Dkt. No. 37]. Magistrate Judge John M. Facciola granted the Motion to Compel in part on March 31, 2006. United States ex rel. Fago v. M & T Mortgage Corp., 235 F.R.D. 11 (D.D.C. 2006). On July 31, 2006, the Court ordered additional discovery about the new loan binders that were subject to Magistrate Judge Facciola's Order. [Dkt. No. 71]. Plaintiff's expert John Hargett had initially identified fifteen loan binders that contained allegedly "non-genuine" signatures. After MTMC produced these additional loan binders in compliance with Magistrate Judge Facciola's Order, Mr. Hargett identified an additional thirty-eight loan files containing documents with "non-genuine" signatures. Thus, the number of loan files Plaintiff was alleging to contain "non-genuine" signatures totaled fifty-three.

On December 30, 2005, MTMC filed its Motion for Summary Judgment [Dkt. No. 51] regarding the initial fifteen loan files that Mr. Hargett believed to contain "non-genuine" signatures. On March 2, 2006, Plaintiff filed a Motion to Strike [Dkt. No. 56] four declarations submitted by MTMC with its Reply in support of its Motion for Summary Judgment. Plaintiff argued that three of the declarations were written by witnesses who had not been disclosed by MTMC as required by Fed. R. Civ. P. (26)(a)(1). She also argued that a declaration submitted by Gerald Richards, MTMC's handwriting expert, expressed opinions he had formed after the close of discovery and the submission of Fed. R. Civ. P. 26 statements.

On April 11, 2006, the Court granted in part and denied in part Plaintiff's Motion to Strike, and struck the four declarations submitted by MTMC pursuant to Fed. R. Civ. P. 26 and 37. United States ex rel. Fago v. M & T Mortgage Corp., 2006 WL 949899 (D.D.C. Apr. 11, 2006).

That same day, MTMC filed its Supplemental Motion for Summary Judgment [Dkt. No. 104] regarding the thirty-eight newly identified loan files. On May 2, 2007, Plaintiff filed a Motion to Strike [Dkt. No. 107] declarations and interrogatory answers submitted by MTMC in support of its Supplemental Motion for Summary Judgment.

II. STANDARD OF REVIEW

Summary judgment will be granted when the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits or declarations, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). A fact is "material" if it might affect the outcome of the action under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). The party seeking summary judgment bears the initial burden of demonstrating an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

Once the moving party makes its initial showing, however, the nonmoving party must demonstrate "specific facts showing that there is a genuine issue for trial." Celotex, 477 U.S. at 324. Accordingly, the nonmoving party must provide evidence that would permit a reasonable jury to find in his or her favor. Liberty Lobby, 477 U.S. at 255-56. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249-50 (citations omitted).

In reviewing the evidence, "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).

III. ANALYSIS

A. Plaintiff's Motion to Strike

As an initial matter, the Court turns to Plaintiff's Motion to Strike declarations and supplemental interrogatory responses that MTMC relies on in support of its Supplemental Motion for Summary Judgment. Plaintiff raises a number of arguments as to why these materials should be struck.

1. Mayhill, Daly, and Gerace Declarations

First, Plaintiff argues that the declarations of fact witnesses Sheri Mayhill, Jan Daly, and Louis Gerace should be struck. The three declarations are from title company records custodians and attach documents purportedly showing that loan documents containing allegedly non-genuine signatures had not been altered after they had been sent by the title companies to MTMC. Plaintiff argues that, despite extensive discovery in this case, the three witnesses were never identified by MTMC pursuant to Fed. R. Civ. P. 26(a)(1). Therefore, Plaintiff was not afforded an opportunity to depose these witnesses.

MTMC responds that there was no obligation to disclose information pursuant to Rule 26(a)(1) in this case. MTMC also argues that Mayhill, Daly, and Gerace are rebuttal witnesses to Plaintiff's allegations that certain loan documents included forged signatures and that there is no obligation to disclose the identity of rebuttal witnesses. MTMC also argues that it produced to Plaintiff the documents that underlie the Mayhill, Daly, and Gerace declarations before discovery closed.

MTMC's contention that there was no obligation to disclose witnesses in this case pursuant to Rule 26(a)(1) is absolutely and totally without foundation. The Court's March 14, 2005 Amended Scheduling Order required the disclosure of all Rule 26(a) information no later than April 29, 2005. [Dkt. No. 28]. The Court can only wonder whether MTMC intentionally and purposefully misrepresented that there was no Rule 26(a) disclosure obligation in this case. This suspicion is intensified given the Court's April 11, 2006 Order, which also clearly ruled that Rule 26(a) disclosures were required in this case, and that MTMC had failed to properly make such disclosures. United States ex rel. Fago, 2006 WL 949899, at *1.

As this Court noted, "Rule 26(a)(1) requires disclosure of any individuals 'likely to have discoverable information that the disclosing party may use to support its claims or defenses, unless solely for impeachment.'" Id. (quoting Fed. R. Civ. P. 26(a)(1)). Litigants are under a continuing duty to supplement or correct their Rule 26(a)(1) disclosures. Fed. R. Civ. P. 26(e). Moreover, the Court noted in its Memorandum Opinion granting Plaintiff's first Motion to Strike that there was no "rebuttal" exception to the Rule. United States ex rel. Fago, 2006 WL 949899, at *1, n.1.

"A party that without substantial justification fails to disclose information required by Rule 26(a) or 26(e)(1)...is not, unless such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed." Fed. R. Civ. P. 37(c)(1). MTMC's failure to disclose the identity of these witnesses is not harmless. Whether MTMC forged signatures on documents in the loan binders is a central issue in this case and Plaintiff has been prejudiced because she has not been afforded an opportunity to depose or otherwise challenge the declarations of these witnesses. Moreover, once MTMC learned of the existence of these additional witnesses, it had an affirmative and continuing obligation to supplement its Rule 26(a) disclosures. Fed. R. Civ. P. 26(e)(1). Nevertheless, MTMC did not do so. The Mayhill, Daly, and Gerace declarations are therefore struck.*fn5

2. Richards Declaration

In support of its Reply for its Motion for Summary Judgment, MTMC submitted a declaration by its handwriting expert, Gerald Richards, stating that Mr. Richards had compared the allegedly non- genuine signatures in the original fifteen loan files with the known signatures of five MTMC employees, namely the Plaintiff, Camille Bettcker, Christine Meier, Suzanne Palmer, and Andrea Brandt. Mr. Richards opined that, in his analysis, nothing suggested that the MTMC employees were responsible for the allegedly non-genuine signatures. MTMC submitted the very same declaration again in support of its Supplemental Motion for Summary Judgment.

The Court previously struck the declaration, on April 11, 2006, because it contained a previously undisclosed expert opinion. United States ex rel. Fago, 2006 WL 949899, at *1. MTMC filed a Motion for Reconsideration [Dkt. No. 64], which was denied in a Minute Order on December 19, 2006.

Plaintiff argues that the Court previously struck the declaration as a sanction for MTMC's earlier discovery abuses, and that the Court had rejected the argument MTMC made in its Motion for Reconsideration of the Court's April 11, 2006 Order that the initial rationale for striking Richards' declaration no longer applied.

Plaintiff also claims that she was entitled to rely on the language of the Court's April 11, 2006 Order. In a declaration submitted in support of her Motion to Strike, Cyril Smith, counsel for Plaintiff declared:

When I took Mr. Richards' deposition on the subject of the 38 loans in February 2007, I assumed that the Order remained valid and continued to bind the parties -- and that his declaration remained stricken as a sanction for M&T's earlier failure to disclose Mr. Richards' opinion. As a result, I did not examine Mr. Richards on the subjects addressed in his declaration.

Declaration of Cyril V. Smith, ¶¶ 6-7.

MTMC argues that the Richards Declaration should now be allowed because the initial rationale for striking it no longer applies. It argues that the declaration was initially struck because discovery had closed and there was no opportunity for Plaintiff to depose Mr. Richards regarding his newly expressed expert opinions. Since that time, however, discovery has reopened and Plaintiff has been afforded an opportunity to re-depose Mr. Richards. At that deposition, Plaintiff chose not to question Mr. Richards regarding the opinions he expressed in his declaration.

Plaintiff is correct that the Richards Declaration was initially struck as a discovery sanction because of its untimeliness. United States ex rel. Fago, 2006 WL 949899, at *1.

It is also true that by denying the Motion for Reconsideration, the Court rejected MTMC's argument that the reopening of discovery gave Plaintiff an opportunity to re-depose Mr. Richards and therefore the rationale for striking the Richards Declaration no longer applied.

The Motion for Reconsideration was denied because MTMC's argument is fundamentally flawed. Discovery was not reopened for all purposes. Instead, it was reopened for the limited purpose of allowing discovery relating to the additional thirty-eight loan binders subject to Magistrate Judge Facciola's March 31, 2006 Order, not the original fifteen. See July 31, 2006 Order [Dkt. No. 71]. The Richards Declaration was submitted prior to the March 31, 2006 Order and does not relate to the additional thirty-eight loan binders subject to ...


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