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United States v. Countrywide Financial Corp.

United States District Court, S.D. New York

August 19, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
COUNTRYWIDE FINANCIAL CORPORATION; COUNTRYWIDE HOME LOANS, INC.; COUNTRYWIDE BANK, FSB; BANK OF AMERICA CORPORATION; BANK OF AMERICA, NA.; and REBECCA MAIRONE, Defendants

Decided: August 16, 2013.

Page 599

For United States of America, Plaintiff: Carina Hyatt Schoenberger, Ellen Melissa London, Jaimie Leeser Nawaday, Joseph Nicholas Cordaro, Shane Patrick Cargo, U.S. Attorney's Office, SDNY, New York, NY; Jeannette Anne Vargas, U.S. Attorney's Office, SDNY (86 Chambers St.), New York, NY; Pierre G. Armand, United States Attorney Office, SDNY, New York, NY.

For United States of America ex rel. Edward O'Donnell, Plaintiff: David Gerard Wasinger, The Wasinger Law Group, P.C., St. Louis, MO.

For Bank of America Corporation, successor to Countrywide Financial Corporation, Countrywide Home Loans, Inc., and Full Spectrum Lending, Defendant: Brendan V.. Sullivan, Jr., LEAD ATTORNEY, PRO HAC VICE, Williams & Connolly, Washington, DC; Adam Joshua Podoll, Amy Mason Saharia, Catherine Saudek Duval, Enu A. Mainigi, Eric G. Blankenstein, Jennifer L. Gibbons, Jennifer Nicole Wimsatt Pusateri, Katherine Carney Hayes, Kenneth Charles Smurzynski, Matthew Blumenstein, Ryan T. Scarborough, Stephen L. Urbanczyk, Stewart Hill Ackerly, PRO HAC VICE, Williams & Connolly LLP, Washington, DC; Kannon K. Shanmugam, Lauren Kristina Collogan, Malachi Brown Jones, Jr., Steven M. Cady, Williams & Connolly LLP, Washington, DC.

For Countrywide Bank, FSB, Defendant: Derek M Adams, PRO HAC VICE, Goodwin Procter, LLP (DC), Washington, DC; Gus P. Coldebella, Kelly E Phipps, Ryan P Lirette, Tamara H Schulman, Goodwin, Proctor, LLP (DC), Washington, DC; Meghan K. Spillane, Goodwin Procter LLP, New York, NY.

For Rebecca Mairone, Defendant: Daniel Seth Meyers, Konstantin Chelney, Marc Lee Mukasey, Marvin Robert Lange, Michael C. Hefter, Ryan Michael Philp, Seth Michael Cohen, LEAD ATTORNEYS, David Lawton, Bracewell & Giuliani, LLP, New York, NY.

For Countrywide Home Loans, Inc., Countrywide Financial Corporation, Intervenor Defendants: Derek M Adams, PRO HAC VICE, Goodwin Procter, LLP (DC), Washington, DC; Gus P. Coldebella, Tamara H Schulman, Goodwin, Proctor, LLP (DC), Washington, DC; Kelly E Phipps, Ryan P Lirette, PRO HAC VICE, Goodwin, Proctor, LLP (DC), Washington, DC; Meghan K. Spillane, Goodwin Procter LLP, New York, NY; William Joseph Harrington, Goodwin Procter, LLP(NYC), New York, NY.

For Bank of America, N.A., Intervenor Defendant: Brendan V. Sullivan, Jr., LEAD ATTORNEY, PRO HAC VICE, Williams & Connolly, Washington, DC; Adam Joshua Podoll, Enu A. Mainigi, Jennifer Nicole Wimsatt Pusateri, Katherine Carney Hayes, Kenneth Charles Smurzynski, Malachi Brown Jones, Jr., Matthew Blumenstein, Ryan T. Scarborough, Stephen L. Urbanczyk, Stewart Hill Ackerly, PRO HAC VICE, Williams & Connolly LLP, Washington, DC; Jennifer L. Gibbons, Kannon K. Shanmugam, Lauren Kristina Collogan, Steven M. Cady, Williams & Connolly LLP, Washington, DC.

For United States of America, Intervenor Plaintiff: Carina Hyatt Schoenberger, Jaimie Leeser Nawaday, Joseph Nicholas Cordaro, Pierre G. Armand, U.S. Attorney's Office, SDNY, New York, NY.

OPINION

Page 600

JED S. RAKOFF, U.S.D.J.

The Government, having intervened in what began as a " qui tam" case, brings

Page 601

this civil fraud action against defendants Countrywide Financial Corporation, Countrywide Home Loans, Inc., and Countrywide Bank, FSB (collectively, " Countrywide" ), Bank of America Corporation, and Bank of America, NA (collectively, " BofA" ), and individual defendant Rebecca Mairone, the Chief Operating Officer of Countrywide's Full Spectrum Lending division during the period relevant to this case. The Government alleges that the defendants engaged in fraud and made false representations in connection with the sale of loans by Countrywide and BofA to the Government-sponsored entities Federal National Mortgage Association (" Fannie Mae" ) and Federal Home Loan Mortgage Corporation (" Freddie Mac" ), all in violation of the False Claims Act, 31 U.S.C. § § 3729(a)(1)(A) & (B), and the Financial Institutions Reform, Recovery, and Enforcement Act (" FIRREA" ), 12 U.S.C. § 1833a(c)(2). The FIRREA violations, in turn, are predicated on civil violations of the mail fraud and wire fraud criminal statutes, 18 U.S.C. § § 1341 and 1343. See Amended Complaint (" Am. Compl." ) ¶ ¶ 218-27.

On December 21, 2013, the defendants moved to dismiss the Government's then-operative complaint on three grounds: first, that the complaint failed to state a claim under FIRREA because the sale of loans to Fannie Mae and Freddie Mac did not directly " affect" a federally insured financial institution as required by the statute; second, that the complaint also failed to state a claim under FIRREA because the predicate mail and wire fraud violations were premised on statements that did not, as a matter of law, constitute fraudulent misrepresentations; and third, that the complaint failed to state a cause of action under the False Claims Act for false claims made after May 20, 2009, the date on which liability under the False Claims Act was broadened to reach false claims made to entities like Fannie Mae and Freddie Mac.[1] In addition, individual defendant Mairone moved to dismiss the FIRREA counts against her on the ground that the complaint failed to adequately plead facts that would support an inference that she acted with the requisite intent.

In response to defendants' motion, the Government, with leave of Court, amended its complaint on January 11, 2013, after which the Court permitted the defendants to renew their motions and to supplement their moving papers. There followed additional briefing by both parties, after which the Court heard oral argument on April 29, 2013. On May 8, 2013, the Court issued a " bottom-line" Order granting the defendants' motions to dismiss the False Claims Act counts but denying their motions to dismiss the FIRREA counts. This Opinion explains those rulings.

On a motion to dismiss under Federal Rule of Procedure 12(b)(6), the Court takes all well-pleaded allegations as true. Since, however, the claims here sound in fraud, the circumstances constituting fraud must be pleaded with particularity. See Fed.R.Civ.P. 9(b). For purposes of the instant motions, the well-pleaded factual allegations include the following:

Government-sponsored entities such as Fannie Mae and Freddie Mac purchase single-family mortgages from lenders like the defendants based on the lenders' representations and warranties that the loans comply with the standards outlined in ...


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