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United States v. Bank of America

United States District Court, District of Columbia

February 12, 2013

UNITED STATES, et al., Plaintiffs,
v.
BANK OF AMERICA, et al., Defendants.

Page 2

John Warshawsky, U.S. Department of Justice, Keith V. Morgan, U.S. Attorney's Office, Washington, DC, J. Matt Bledsoe, Office of Attorney General, Montgomery, AL, Cynthia Clapp Drinkwater, Alaska Attorney General's Office, Anchorage, AK, Carolyn Ratti Matthews, Arizona Attorney General, Phoenix, AZ, James Bryant Depriest, Arkansas Attorney General, Little Rock, AR, Benjamin G. Diehl, Frances Train Grunder, California Department of Justice, Los Angeles, CA, Nicholas George Campins, Michael Anthony Troncoso, California Department of Justice, San Francisco, CA, Andrew Partick McCallin, Colorado Attorney General's Office, Denver, CO, Matthew J. Budzik, Office of the Connecticut Attorney General, Hartford, CT, Ian Robert McConnel, Delaware Department of Justice, Wilmington, DE, Victoria Ann Butler, Office of the Attorney General, Tampa, FL, Jeffrey W. Stump, Georgia Department of Law, Atlanta, GA, David Mark Louie, State of Hawaii Department of the Attorney General, Honolulu, HI, Brett Talmage Delange, Office of the Idaho Attorney General, Boise, ID, Deborah Anne Hagan, Illinois Attorney General's Office, Springfield, IL, Abigail L. Kuzman, Office of the Indiana Attorney General, Indianapolis, IN, Thomas J. Miller, Iowa Department of Justice, Des Moines, IA, Meghan Elizabeth Stoppel, Office of the Kansas Attorney General, Topeka, KS, John William Conway, Kentucky Attorney General, Frankfort, KY, Sanettria Glasper Pleasant, Department of Justice for Louisiana, Baton Rouge, LA, William Joseph Schneider, Attorney General's Office, Augusta, MA, Katherine Winfree, Office of the Attorney General of Maryland, Baltimore, MD, Amber Anderson Villa, Massachusetts Office of the Attorney Office, Boston, MA, D.J. Pascoe, Michigan Department of Attorney General, Lansing, MI, Nathan Allan Brennaman, Minnesota Attorney General's Office, St. Paul, MN, Bridgette Williams Wiggins, Mississippi Attorney General's Office, Jackson, MS, Ryan Scott Asbridge, Office of the Missouri Attorney General, Jefferson City, MO, James Patrick Molloy, Montana Attorney General Office, Helena, MT, Abigail Marie Stempson, Office of the Nebraska Attorney General, Lincoln, NE, Charles W. Howle, Office of the Attorney General, Carson City, NV, Michael A. Delaney, New Hampshire Attorney General's Office, Concord, NH, Lorraine Karen Rak, State of New Jersey Office of the Attorney General, Newark, NJ, Rebecca Claire Branch, Office of the New Mexico Attorney General, Albuquerque, NM, Jeffrey Kenneth Powell, Office of the New York Attorney General, New York, NY, Philip A. Lehman, Attorney General State of North Carolina, Raleigh, NC,

Page 3

Parrell D. Grossman, Office of the Attorney General, Bismarck, ND, Matthew James Lampke, Susan Ann Choe, Ohio Attorney General, Columbus, OH, Simon Chongmin Whang, Oregon Department of Justice, Portland, OR, John M. Abel, Pennsylvania Office of Attorney General, Harrisburg, PA, Gerald J. Coyne, Office of the Attorney General, Providence, RI, Alan Mccrory Wilson, Office of the South Carolina Attorney General, Columbia, SC, Marty Jacob Jackley, Office of Attorney General, Pierre, SD, for Plaintiffs.

Jennifer M. O'Connor, Wilmer Cutler Pickering Hale & Dorr, Washington, DC, for Defendants.

OPINION

ROSEMARY M. COLLYER, District Judge.

The United States and numerous state attorneys general sued Wells Fargo & Company and Wells Fargo Bank N.A. (collectively, Wells Fargo), and other major mortgagees, alleging misconduct in their home mortgage practices. All parties agreed to a settlement, resulting in multiple consent judgments. In its consent judgment, Wells Fargo agreed to pay over $5 billion, without admitting fault, in exchange for a release of certain liabilities. Thereafter, the U.S. Attorney for the Southern District of New York filed a civil complaint against Wells Fargo alleging, inter alia, fraud under the False Claims Act. Wells Fargo contends that the New York suit is barred by the terms of the release, and seeks an order enforcing the consent judgment. As explained below, the motion to enforce the consent judgment will be denied.

I. FACTS

On March 12, 2012, the Department of Justice, forty-nine state attorneys general,[1] and the attorney general for the District of Columbia filed this case alleging that Wells Fargo and other banks (the Banks) [2] engaged in misconduct in making Federal Housing Administration (FHA) insured mortgage loans. See Compl. [Dkt. 1].

FHA provides mortgage insurance on loans made by approved lenders throughout the United States, including mortgages on single family housing. Id. ¶ 15. FHA mortgage insurance provides lenders with protection against losses when mortgagors default. Id. ¶ 16. FHA approved lenders, known as Direct Endorsement Lenders, are required to ensure that loans meet strict underwriting criteria in order to be eligible for insurance, including income verification, credit analysis, and property appraisal. Id. ¶¶ 17, 69. By reducing risk to lenders, the FHA insurance program stimulates lenders to make home loans. Id. ¶ 19.

Direct Endorsement Lenders are required to comply with pertinent FHA Handbooks and Mortgagee Letters, including handbooks issued by the Department of Housing and Urban Development (HUD Handbooks). Id. ¶ 72. Further, Direct Endorsement Lenders must maintain a functioning quality control program that complies with FHA standards. Id. ¶ 76.

Page 4

Direct Endorsement Lenders and their underwriters are required to certify to FHA that each loan complies with FHA requirements in order to obtain FHA mortgage insurance. Id. ¶ 68.

The United States and state attorneys general complained that certain of the Banks' activities that related to loan " servicing conduct," loan " origination conduct," and " certifications" as defined below, violated a host of federal laws. See id. ¶¶ 47-64 (alleging servicing misconduct); id. ¶¶ 65-89 (alleging origination misconduct). Among these allegations, the plaintiffs alleged that the Banks had submitted false annual certifications that they had complied with all applicable FHA and HUD regulations and policies and that they had the required quality control programs in place. Id. ¶¶ 68-89. FHA paid enormous amounts for insurance claims on FHA-insured mortgages in default, insurance that was based on the Banks' allegedly false certifications. Id. The Complaint set forth the following eight counts:

Count I— unfair and deceptive consumer practices with respect to loan servicing;
Count II— unfair and deceptive consumer practices with respect to foreclosure processing;
Count III— unfair and deceptive consumer practices with respect to origination;
Count IV— violation of the False Claims Act (or FCA), 31 U.S.C. §§ 3729(a)(1)(A)-(C) & (G) and 31 U.S.C. §§ 3729(a)(1)-(3) & (7);
Count V— violation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1833a;
Count VI— violation of the Servicemembers Civil Relief Act, 50 U.S.C. § App. 501, et seq.;
Count VII— declaratory judgment under 28 U.S.C. §§ 2201, 2202; and
Count VIII— abuse of the bankruptcy process under common law.

Compl. ¶¶ 102-137. The Complaint sought injunctive relief, disgorgement of unlawful gains, restitution, civil penalties, damages, attorney fees and costs. Compl., Prayer for Relief at 47-48.

On April 4, 2012, all parties agreed to a settlement and entered into five separate consent judgments, together valued at $25 billion. One of these consent judgments relates to Wells Fargo. See Consent J. [Dkt. 14]. By the terms of its Consent Judgment, Wells Fargo agreed to pay $5 billion and to take various actions beneficial to homeowners, including setting up programs to assist mortgagors at risk of foreclosure. Id. In ...


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