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Media Alerts - United States v. Wells Fargo & Co. - Second Circuit
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September 8, 2017
  United States v. Wells Fargo & Co. - Second Circuit
Headline: Second Circuit Remands Case to District Court to ApplyLess Stringent Requirement for False Claims Act Lawsuits Based Upon Recent United States Supreme Court Decision

Area of Law: False Claims Act, Fraud

Issue(s) Presented: Whether the requirements for claims under the False Claims Act have changed in the wake of a recent United States Supreme Court decision.

Brief Summary: The United States District Court for the Eastern District of New York dismissed a False Claims Act lawsuit in 2015, which claimed that Wells Fargo had falsely certified compliance with federal banking laws in order to obtain more favorable borrowing rates from the Federal Reserve. The United States Supreme Court subsequently vacated and remanded this decision in light of its 2016 Supreme Court decision in Universal Health Services, Inc. v. United States ex Escobar, which abolished created a new standard for evaluating the adequacy of FCA claims. On remand, the Second Circuit analyzed Escobar's materiality discussion and remanded the case back to the District Court for evaluation of the case under this new standard. To read the full opinion, please visit: United States v. Wells Fargo & Co.

Significance, if Any: Case changes the requirements for pleading a claim under the False Claims Act

Extended Summary:
In 2011, Robert Kraus and Paul Bishop ("the complainants") brought a lawsuit on behalf of the federal government against Wells Fargo. The complainants claimed that Wells Fargo had violated the False Claims Act ("FCA") by falsely certifying their compliance with federal banking laws in order to obtain more favorable borrowing rates from the Federal Reserve. The United States District Court for the Eastern District of New York dismissed the lawsuit in 2015, and the Second Circuit affirmed this dismissal, relying on the failure of the complainants to meet two requirements laid out in a 2001 Second Circuit case, Mikes v. Straus. The first requirement laid out in Mikes, known as the express-designation requirement, dictated that false certification only be implied when the statute in question expressly states that payment is contingent on compliance with the statute. The second requirement, known as the particularity requirement, dictated that the sued party must have falsely certified compliance with a particular statute, regulation, or contractual term to satisfy an express false certification claim.

The United States Supreme Court vacated and remanded this case in light of a 2016 United States Supreme Court decision in Universal Health Services, Inc. v. United States ex Escobar. Escobar was also a false certification case, and as the Second Circuit points out in its opinion, the Escobar decision abrogated the two requirements set out in Mikes. With respect to the express-designation requirement, the Supreme Court held that misleadingly omitting critical facts is sufficient on its own, regardless of whether accurate information is expressly made a prerequisite in the statute. Furthermore, the Supreme Court held that liability under the FCA must simply be grounded within its text, "including the 'well-settled meaning[s] of common law terms'" used, even if not defined, to achieve the goals of the particularity requirement.

Accordingly, the Second Circuit held in this per curiam decision that the express-designation and particularity requirements were no longer the appropriate materiality standards to be applied in FCA cases. Instead, the Second Circuit found the materiality standard set out by the Supreme Court in Escobar is that an FCA claim is valid where the alleged misrepresentation is material to the Government's decision to make a payment. Because this standard was not applied by the district court in the Wells Fargo case, the Second Circuit remanded the case back to the district court to apply the materiality standard for determining whether the complainants adequately alleged an FCA claim.

Given this relaxation of requirements for FCA claims, and the new materiality standard, the Supreme Court and Second Circuit's opinions could affect how FCA lawsuits are brought going forward. To read the full opinion, please visit: United States v. Wells Fargo & Co.

Panel: Chief Judge Katzmann and Circuit Judges Sack and Lohier

Argument Date: 03/01/2016

Date of Issued Opinion: 09/07/2017

Docket Number: 15-2449

Decided: Vacated and Remanded

Case Alert Author: Alexandra Dobles

Counsel: Thomas C. Goldstein & Tejinder Singh, Goldstein & Russell, P.C. and Rachel Grier, Berg & Androphy for Plaintiffs-Appellants; Amy Pritchard Williams, Sara S. Ash, & Stephen G. Rinehart, Troutman Sanders LLP for Defendants-Appellees

Author of Opinion: Per Curiam

Case Alert Circuit Supervisor: Elyse Diamond

    Posted By: Elyse Diamond @ 09/08/2017 07:59 AM     2nd Circuit  

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