United States District Court, S.D. New York
UNITED STATES OF AMERICA ex rel. PETER D. GRUBEA, Plaintiff,
ROSICKI, ROSICKI & ASSOCIATES, P.C., PARAMOUNT LAND, INC., THRESHOLD LAND INC., ENTERPRISE PROCESS SERVICE, INC., MCCABE, WEISBERG, & CONWAY, P.C., ATTORNEY OUTSOURCING SUPPORT SERVICES, INC., REO AMERICA ABSTRACT, INC., CENLAR FSB, CITIGROUP, INC., CITIBANK, N.A., CITIMORTGAGE, INC., DITECH FINANCIAL LLC, EVERHOME MORTGAGE COMPANY, EVERBANK FSB, FLAGSTAR BANK, FSB, GREEN TREE CREDIT, JAMES B. NUTTER & CO., METLIFE BANK, N.A., NATIONSTAR MORTGAGE LLC, ONEWEST BANK FSB, PHH MORTGAGE CORPORATION, PNC BANK, FSB, SUNTRUST MORTGAGE, INC., U.S. BANK, N.A., and WELLS FARGO & CO., Defendants. UNITED STATES OF AMERICA, Plaintiff-Intervenor,
ROSICKI, ROSICKI & ASSOCIATES, P.C., ENTERPRISE PROCESS SERVICE, INC., PARAMOUNT LAND, INC., Defendants. UNITED STATES OF AMERICA ex rel. PETER D. GRUBEA, Plaintiff,
BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., J.P. MORGAN CHASE & CO., and JPMORGAN CHASE BANK, N .A., Defendants.
OPINION AND ORDER
RAKOFF, U.S. D.J.
September 24, 2012, Peter D. Grubea ("Relator")
filed a "qui tarn" action on behalf of the United
States of America (the "Government") against
Rosicki, Rosicki & Associates ("Rosicki"),
Enterprise Process Service, Inc. ("Enterprise"),
Paramount Land, Inc. ("Paramount"), Threshold Land,
Inc. ("Threshold") (collectively, the "Rosicki
Defendants") and various mortgage servicers (the
"First Suit"). See Complaint, Dkt. 25. On February
28, 2013, Grubea filed a First Amended Complaint naming as
additional defendants McCabe, Weisberg & Conway, P.C.
("McCabe"), Attorney Outsourcing Support Services,
Inc. ("AOSS"), REO America Abstract, Inc.
("REO") (collectively, the "McCabe
Defendants"), and certain additional mortgage services.
See Dkt. 27.
March 5, 2013, Grubea filed suit against four mortgage
servicers: HSBC Bank USA, N.A., HSBC Finance Corporation,
HSBC Mortgage Corporation (USA), HSBC Mortgage Services, Inc.
(collectively, "HSBC") (the "Second
Suit"). See Complaint, Dkt. 22, No. 13 Civ. 1467.
Thereafter, in 2014, HSBC admitted to liability and the Court
entered judgment in the amount of $10 million. See
Stipulation and Order of Settlement and Dismissal, Dkt.
27, 2014, Grubea filed a Second Amended Complaint in the
First Suit adding still more servicers as defendants. See
Dkt. 28. On July 8, 2014, Grubea filed a First Amended
Complaint in the Second Suit naming Bank of America
Corporation, Bank of America, N.A. (collectively, "Bank
of America"), and J. P. Morgan Chase & Co, and
JPMorgan Chase Bank, N.A. (collectively, "JPMorgan
Chase") as defendants. See Dkt. 23, No. 13 Civ. 1467.
this remained under seal while the Government undertook its
own inquiry in order to determine whether to intervene.
However, in January of 2018, both suits were reassigned to
this Judge, see Dkt. 19; Dkt. 20, No. 13 Civ. 1467, and the
Court required the Government to make its election without
further delay. On February 13, 2018, the Government elected
to intervene in part and to decline intervention in part in
the First Suit, see Government's Notice of Election to
Intervene in Part and Decline Intervention in Part, Dkt. 33,
and to decline any intervention in the Second Suit, see
Notice of Election to Decline Intervention, Dkt. 31, No. 13
on March 27, 2018, the Government filed a three-count
complaint against the Rosicki Defendants for violations of
the False Claims Act ("FCA"). See
Complaint-in-Intervention ("CII"), Dkt. 22. On
April 3, Relator filed a five-count Third Amended Complaint
("TAC") in the First Suit against the Rosicki
Defendants, the McCabe Defendants, and all of the Servicer
Defendants except for JPMorgan Chase and Bank of
America, see Dkt. 29, and a five-count Second Amended
Complaint ("SAC") in the Second Suit against the
remaining Servicer Defendants, JPMorgan Chase and Bank of
America, see Dkt. 28, No. 13. Civ. 1467.
Servicer Defendants, the Rosicki Defendants, McCabe, and the
McCabe Affiliates now move to dismiss the three operative
complaints. See Dkts. 123, 132, 135, and 137; Dkt. 56, No. 13
Civ. 1467; Memorandum of Law in Support of the Servicer
Defendants' Motion to Dismiss the Complaint
("Servicer Mem."), Dkt. 124; Memorandum of Law in
Support of the Rosicki Defendants' Motion to Dismiss
("Rosicki Mem."), Dkt. 134; Memorandum of Law in
Support of Motion to Dismiss the Third Amended Complaint by
Defendant, McCabe, Weisberg & Conway, P.C. ("McCabe
Mem."), Dkt. 138; Memorandum of Law in Support of
Attorney Outsourcing Support Services, Inc.'s and REO
America Abstract, Inc.'s Motion to Dismiss Third Amended
Complaint ("AOSS Mem."), Dkt. 136; Reply Memorandum
of Law in Further Support of the Servicer Defendants'
Motion to Dismiss the Complaint ("Servicer Reply"),
Dkt. 158; Reply Memorandum of Law in Further Support of the
Rosicki Defendants' Motion to Dismiss ("Rosicki
Reply"), Dkt. 157; Reply in Support of Motion to Dismiss
the Third Amended Complaint by Defendant, McCabe, Weisberg
& Conway, P.C. ("McCabe Reply"), Dkt. 163;
Reply Memorandum of Law in Support of Attorney Outsourcing
Support Services, Inc.'s and REO America Abstract,
Inc.'s Motion to Dismiss Third Amended Complaint
("AOSS Reply"), Dkt. 162.
and the Government oppose. See Memorandum of Law of
Plaintiff-Intervenor United States of America in Opposition
to the Rosicki Defendants' Motion to Dismiss
("Gov't Mem."), Dkt. 149; Memorandum of Law in
Opposition to Defendants' Motions to Dismiss
("Relator Mem."), Dkt. 150; Sur-Reply Memorandum of
Law of Plaintiff-Intervenor United States of America in
Further Opposition to the Rosicki Defendants' Motion to
Dismiss ("Gov't Reply"), Dkt. 167;
Relator's Sur-Reply ("Relator Reply"), Dkt.
this extensive briefing, the Court heard oral argument on May
25, 2018. See Transcript dated May 25, 2018
("Tr."), Dkt. 176. Now, after careful
consideration, the Court hereby dismisses with prejudice the
claims against the Servicer Defendants; dismisses the claims
against McCabe and the McCabe Affiliates without prejudice to
Relator amending his complaint to detail further specific
examples of McCabe and its Affiliates' allegedly
fraudulent conduct; and otherwise denies the motions (in
particular, denying the motion to dismiss of the Rosicki
pertinent allegations, as set forth in the operative
complaints,  are as follows:
is an experienced consumer bankruptcy attorney residing in
Erie County, New York. See TAC ¶ 18. Rosicki is a New
York professional corporation specializing in mortgage law,
with offices in Plainview, Batavia, and Fishkill, New York.
Id. ¶ 19. Threshold is a New York business
corporation, incorporated on May 30, 2003, and dissolved on
July 11, 2011, with its principal office in Plainview, New
York. Id. ¶ 21. Paramount is the
successor-in-interest to Threshold and a New York business
corporation, with its principal office in Plainview, New
York. Id. ¶¶ 20-21. Enterprise is a New
York business corporation, with its principal office in
Plainview, New York. Id. ¶ 22.
is a New York professional corporation with locations in New
York and Pennsylvania. Id. ¶ 23. AOSS is a
Pennsylvania corporation with its principal office in
Philadelphia, Pennsylvania. Id. ¶ 24. REO is a
Pennsylvania corporation with its principal office in
Philadelphia, Pennsylvania. Id. ¶ 25.
FSB ("Cenlar") is a federal savings bank, with its
principal office in Trenton, New Jersey. Id. ¶
26. Citigroup, Inc. is a Delaware corporation, with its
principal office in New York; Citibank, N.A. is a subsidiary
of Citigroup; and CitiMortgage, Inc. is a New York
corporation and a subsidiary of Citigroup (collectively,
"Citi"). Id. ¶ 27. EverHome Mortgage
Company is a Florida corporation, with its principal office
in Jacksonville, Florida and EverBank FSB is a federal
savings bank, with its principal office in Jacksonville,
Florida. Id. ¶ 28. Flagstar Bank, FSB
("Flagstar") is a federal savings bank, with its
principal office in Troy, Michigan. Id. ¶ 29.
Green Tree Credit ("Green Tree") is a Delaware
limited liability company, with its principal office in St.
Paul, Minnesota. Id. ¶ 30. James B. Nutter
& Co. ("Nutter") is a Missouri corporation,
with its principal office in Kansas City, Missouri. IcL
¶ 31. MetLife Bank, N.A. ("MetLife") is a
national banking association, with its principal office in
Morristown, New Jersey. Id. ¶ 32. Nationstar
Mortgage LLC ("Nationstar") is a Delaware limited
liability company, with its principal office in Dallas,
Texas. Id. ¶ 33. OneWest Bank FSB
("OneWest") is a federal savings bank, with its
principal office in Pasadena, California. Id. ¶
34. PHH Mortgage Corporation ("PHH") is a New
Jersey business corporation, with its principal office in
Mount Laurel, New Jersey. Id. ¶ 35. PNC Bank,
FSB ("PNC") is a federal savings bank, with its
principal office in Pittsburgh, Pennsylvania. Id.
¶ 36. SunTrust Mortgage, Inc. ("SunTrust") is
a Virginia business corporation, with its principal office in
Richmond, Virginia. Id. ¶ 37. U.S. Bank, N.A.,
("U.S. Bank") is a national banking association,
with its principal office in Minneapolis, Minnesota.
Id. ¶ 38. Wells Fargo & Co. ("Wells
Fargo") is a Delaware corporation, with its principal
office in San Francisco, California. Id. ¶ 39.
America Corporation is a Delaware corporation headquartered
in Charlotte, North Carolina; Bank of America, N.A. is a
national banking association and subsidiary of Bank of
America Corporation, with a principal place of business in
Charlotte, North Carolina. See SAC ¶ 20. J.P. Morgan
Chase & Co. is a Delaware corporation headquartered in
New York, New York, and JPMorgan Chase Bank, N.A. is a
national banking association with a principal place of
business in Columbus, Ohio (collectively, "JPMorgan
Chase") . Id. ¶ 22.
Federal Housing Administration ("FHA") is a
division of the United States Department of Housing and Urban
Development ("HUD") that insures approved lenders
against losses on mortgage loans, including losses incurred
in foreclosure proceedings. See TAC ¶¶ 1, 5. The
Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac") are government-sponsored
enterprises ("GSEs"), chartered by Congress to help
lenders originate single-family mortgages by purchasing and
guaranteeing mortgage loans and by issuing mortgage debt
securities, Id. ¶¶ 44, 72. Since 2008, the
GSEs have been under U.S. Government conservatorship. CII
¶¶ 13-14. Between 2008 and 2012, the GSEs received
nearly $200 billion in federal funding. See TAC ¶ 1.
During that time, the GSEs paid quarterly dividends to the
U.S. Treasury equal to 10% of the total amount of federal
funds received. Thereafter, the GSEs paid the U.S. Treasury
quarterly amounts equal to their net worth less a $3 billion
capital reserve. See Id. ¶¶ 50, 76.
ordinary course of conducting their affairs, FHA and the GSEs
pay financial institutions called "servicers" to
"service" mortgages they own or insure by, for
example, collecting payments from borrowers, pursuing
delinquent loans, and prosecuting foreclosures. Id.
¶ 4. In their contracts with servicers, the GSEs and FHA
agree to reimburse various costs and expenses related to
foreclosure actions. The servicers, in turn, typically
contract with law firms to prosecute these actions.
Id. ¶ 6. The GSEs and FHA agree to pay these
attorneys a flat fee for their legal work. Separately, the
GSEs and FHA reimburse so-called "default-related legal
expenses," which typically include title searches,
service of process, and publication and posting costs.
Id. Any overhead related to these activities,
however, must be included in legal fees and not as expenses.
the GSEs permit reimbursement only of those default-related
legal expenses that are actual, reasonable, and necessary.
The FHA, for example, requires that its servicers certify
that "with the submission of each loan for insurance or
request for insurance benefits, the applicant has and will
comply with the requirements of the Secretary of Housing and
Urban Development ["HUD"], which include, but are
not limited to . . . HUD's regulations, FHA handbooks,
mortgagee letters, and Title I letters and policies."
Id. ¶ 98 (quotations omitted). To maintain FHA
approval, a servicer must submit an annual certification that
states, inter alia, "I know or am in the position to
know, whether the operations of the above named mortgagee to
conform to HUD-FHA regulations, handbook, and policies,"
and certifies to conformance with the same. Id.
¶ 99. Among other things, HUD and the FHA require
servicers to have in place a quality control plan, see
id. ¶¶ 101-103, to review all claims for
insurance benefits, Id. ¶ 104, and to ensure
that unallowable foreclosure processing fees are not included
in insurance claims, Id. ¶ 105.
must further ensure that their "contractors" and
"agents" complied with certain specific FHA
requirements. Id. ¶ 106 (quoting HUD Handbook
4060.1, 7-3). Among these is the requirement that, in the
event a borrower defaults on an FHA-insured mortgage and the
servicer prosecutes a foreclosure on the mortgage, "fees
and costs that exceed reasonable and customary-fees for the
area" are not to be submitted for reimbursement.
Id. ¶ 110. Also unallowable are costs "not
necessarily incurred or required because of dilatory
service," and costs that are "overhead items such
as postage, telephone, or duplicating or collection services,
all of which should be included in the attorney's or
trustee's fees." Id. HUD rules expressly
prohibit banks from listing any unallowable costs on any
application for insurance benefits as either fees or costs.
Id. ¶ 111. HUD rules further require banks to
"promptly reimburse HUD for any amount overpaid [by HUD]
because of incorrect, unsupported or inappropriate
information" provided by the servicers or their agents.
Id. ¶ 112 (quoting HUD Handbook 4330.4, 1-28).
Mae likewise requires its servicers to retain competent,
diligent legal counsel and to "make every effort to
reduce default-related foreclosure expenses."
Id. ¶ 62 (quoting Fannie Mae Servicing Guide
E5-07 (Dec. 13, 2017)). Among other things, Fannie Mae
servicers "must attempt to minimize the costs incurred
from vendors utilized by law firms - such as auctioneers,
process servers, title companies, posting companies, and
newspapers or other publications - by ensuring that all costs
are actual, reasonable, and necessary." Id.;
see also Id. ¶ 64 ("Fannie Mae will
reimburse the servicer [for out-of-pocket costs that it pays
to third-party vendors of the courts], as long as the costs
are actual, reasonable and necessary"). Further, Fannie
Mae servicers and law firms must "regularly examine the
pricing offered by alternative vendors and negotiate for the
best value from the vendor and other qualified service
providers." Id. ¶ 62. Where attorneys have
an economic interest in other companies involved in the
foreclosure process, Fannie Mae requires that such
relationships be disclosed and that "any fees or
expenses for such services" not "exceed the
customary and reasonable fees for comparable services
in" the jurisdiction. Id. ¶ 63 (quoting
the Fannie Mae Servicing Guide, Part VIII, § 106.03
(Mar. 14, 2012)). Fannie Mae further prohibits reimbursement
of costs that are unnecessary or costs that are not
reasonable, see Id. ¶¶ 65-66, and requires
that servicers monitor fees and expenses and reimburse Fannie
Mae for "any unreasonable or excessive fees or
costs," Id. ¶ 63; id. ¶ 71.
Mac imposes requirements akin to those just discussed. For
example, Freddie Mac requires that its servicers submit
annual eligibility certifications attesting to compliance
with Freddie Mac requirements, Id. ¶ 88,
including the requirement that servicers manage the
foreclosure process "in a cost-effective, expeditious,
and efficient manner," Id. ¶ 89,
"create and implement a quality control program" to
ensure the same, Id. ¶ 90, and impose
"policies and procedures reasonably designed to ensure
that firms handling Freddie Mac Default Matters are in
compliance with  tile applicable provisions of the Guide,
and applicable law," Id. ¶ 93. Freddie Mac
also requires that servicers require law firms to
"disclose the identity of, and relationship with any
entities the firm relies upon to provide third-party support
functions performed on the Servicer's behalf, including,
but not limited to, title searches, title insurance, posting,
publication, and process services." Id. ¶
92. Servicers must also require firms to disclose whether
they have "a process to select and regularly review
costs and performance of vendors of related sources to ensure
competitive pricing and high quality." Id.
Freddie Mac permits reimbursement only of those costs that
are "reasonable and comparable to those customarily
charged in the area where the property is located."
Id. ¶ 94; see also Id.
("Servicers must ensure that attorney fees and costs
incurred are reasonable and comparable to those charged in
the area where the property is located.") (quoting
Freddie Mac Single-Family Seller/Servicer Guide Bulletin No.
2013-6 (Apr. 15, 2013)).
this background, Cenlar, Citi, Everbank, Flagstar, Green
Tree, Nutter, MetLife, Nationstar, OneWest, PHH, PNC,
SunTrust, U.S. Bank, Wells Fargo, Bank of America, and
JPMorgan Chase overcharged Fannie Mae, Freddie Mac, and the
FHA hundreds of millions of dollars. See TAC ¶¶
1-3, 11. Specifically, these servicers submitted claims for
reimbursement of foreclosure expenses without regard to how
unnecessary or unreasonable the expenses were.
and McCabe are law firms. To handle title searches, service
of process, and the arrangement of publication of legal
notices, Rosicki created Threshold, Paramount, and Enterprise
and McCabe created AOSS and REO. Id. ¶¶
114, 122, 139. These affiliates, it is alleged, were designed
to generate invoices for unnecessary services and charge
excessive rates. See Id. The affiliates passed these
costs on to the law firms, the law firms passed them on to
the servicers, and, upon information and belief, the
servicers passed them on to the Government. Id.
for example, controls Enterprise - a service-of-process
affiliate. See CII ¶ 54. Rather than actually serve
process, however, Enterprise allegedly hired third-party
vendors to serve process. Id. ¶ 70. These
vendors charged Enterprise approximately $15-25 for each
individual served. Id. ¶ 71. Enterprise then
generated invoices for service of process charging between
$75 and $125. Id. ¶ 72. These invoices exceeded
competitive market rates. Id. ¶ 73. Enterprise
charged these amounts to Rosicki, which charged them to the
Servicers. Enterprise also regularly billed for unnecessary
expenses including service upon the New York State Department
of Taxation and Finance despite the absence of any tax lien;
service upon judgment debtors with names similar to the
foreclosure defendant even though the relevant names were
irreconcilable; ineffective and worthless service upon
"John Doe" defendants; and services that were part
of law firm overhead expenses such as court filings. See TAC
¶ 124. Similarly, Rosicki used Paramount to conduct
title searches. Rather than do the work itself, however,
Paramount engaged third-party abstractors at market rates to
provide title documents and marked up their bills
substantially (e.g. to $495 where market rates were between
$100 and $250) before submitting them to Rosicki and the
Servicers. See Id. ¶ 131; CII ¶¶
also used affiliates - AOSS and REO - to conduct title
searches and serve process. See TAC ¶¶ 139-40. AOSS
and REO billed McCabe and ultimately the FHA and the GSEs at
excessive rates including at more than $450 for title
searches despite market rates between $100 and $250, and for
personal service at more than $200 despite market rates of
approximately $20 to $40. Id. ¶ 141. Like
Paramount and Enterprise, AOSS and REO often contracted with
other entities to conduct the actual work and marked up the
bills before seeking reimbursement from McCabe and thereafter
from the Servicers. Although McCabe could have contracted
with these entities directly, McCabe chose instead to
contract with its affiliates in order to mark up the bills
and generate profits. Id. ¶ 145.
information and belief, the Servicer Defendants submitted
these false claims to the GSEs and FHA in order to save
resources that they would otherwise have had to expend on
compliance, quality control, and efforts to negotiate better
prices. Id. ¶ 11. If the Servicers had
monitored and refused to pay unreasonable and unnecessary
fees, Relator posits, neither Rosicki's affiliates,
McCabe's affiliates, or the other vendors mentioned in
the complaints would have been able to continue billing for
unnecessary and unreasonable foreclosure expenses.
Id. ¶ 118. The Servicers Defendants perpetuated
this scheme over many years by falsely certifying to the GSEs
and to the FHA that their claims were accurate and that they
were in compliance with their contractual commitments to
monitor foreclosure costs. Id. ¶ 120. To this
day, upon information and belief, the Servicer Defendants
have improperly retained the overpayments. Id.
¶¶ 3, 12. And they have done so despite contractual
obligations to refund the GSEs and FHA and despite red flags
including knowledge that the Justice Department was
investigating the overpayments. Id. ¶ 486.
operative complaints include over sixty specific examples of
foreclosure actions in which Rosicki, McCabe, and other law
firms charged unreasonable or unnecessary expenses, which the
Servicer Defendants, upon information and belief, submitted
for reimbursement to FHA, Fannie Mae, and Freddie Mac. See
Id. ¶¶ 170-474; SAC ¶¶ 163-332;
CII ¶¶ 87-123. In one instance, Rosicki foreclosed
on a property on Lake Street in Angola, New York.
Id. ¶ 87. Rosicki contracted with Enterprise to
effect service of process on the two named foreclosure
defendants. Id. ¶ 88. Enterprise, however, did
not serve the process; instead it contracted with a
third-party to do so. Id. The third-party process
server charged $20 for one of the named defendants, $10 for
the other, and $33.50 for four Doe defendants. Id.
¶ 89. Enterprise then charged Rosicki $50 for attempted
service on each named defendant, $125 for service on each
named defendant, and $300 for the four Doe defendants.
Id. ¶ 90. Thus, while service of process
actually cost $63.50, Fannie Mae ultimately paid $650.
Id. ¶¶ 89-90. Rosicki also contracted with
Paramount to perform a title search for the Lake Street
property. Rather than do the work itself, Paramount engaged a
third-party vendor. Thereafter, Paramount submitted a bill
for $275, the maximum amount allowed by Fannie Mae, as well
as a $35 document retrieval fee. Id. ¶ 91.
another instance, Flagstar foreclosed on a Fannie Mae
mortgage secured by a property on East 45th Street
in Brooklyn, New York. See TAC ¶ 206. Flagstar engaged
Rosicki to handle the legal proceedings. Id. ¶
207. Rosicki contracted with Enterprise to bill for service
of process. Id. ¶ 208. Enterprise invoiced
Rosicki approximately $125 per defendant for each of the
defendants at the property, well above market rates of
$20-$40 per person, which, upon information and belief,
Enterprise itself paid to a third-party process server who
actually performed the work. Id. ¶ 209.
Similarly, Paramount billed $495 for title searches related
to that property, well above the market rate of between $100
and $250, which, upon information and belief, is what
Paramount paid to the third-party company that actually
conducted the title search. Id. ¶ 211.
discovered defendants' fraudulent scheme in the course of
his bankruptcy practice when he noticed a pattern of
foreclosure-related proofs-of-claims presenting unreasonable
costs. Id. ¶ 489. Frequently, when he
challenged servicers on these costs in his clients'
bankruptcy proceedings, the servicers or their agents, the
law firms, reduced the claim amounts. Id.
Thereafter, Grubea conducted additional market research, id.,
and obtained direct and independent knowledge of the schemes
through communications with lawyers from foreclosure law
firms, Id. ¶ 490, including a partner at Steven
J. Baum, P.C., formerly the largest foreclosure firm in New
York, lawyers at Rosicki, and lawyers at other firms around
the country that use affiliate vendors, Id. ¶
491. Among other things, Grubea learned that the Servicer
Defendants paid these inflated and unnecessary foreclosure
expenses without making any real effort to obtain the best
value or to exercise quality control over fees and costs.
Id. ¶ 492. Prior to Grubea's disclosures to
the Government, see Id. ¶ 493, no one had
previously identified these mass overbillings, Id.
connection with these allegations, Relator asserts that the
McCabe Defendants and the Servicer Defendants submitted false
claims to Fannie Mae, Freddie Mac, and FHA in violation of 31
U.S.C. § 3729(a)(1)(A) ("False Claims"), made
false statements to Fannie Mae, Freddie Mac, and FHA in
violation of 31 U.S.C. § 3729(a)(1)(B) ("False
Statements"), and submitted false claims to Fannie Mae
and Freddie Mac, which caused Fannie Mae and Freddie Mac to
pay the United States less than what the United States would
have otherwise been entitled to receive in violation of 31
U.S.C. § 3729(a) (1) (G) ("Reverse False
Claims") . See TAC ¶¶ 495-502, 511-513; SAC
¶¶ 353-360, 364-366. Relator also asserts that the
McCabe Defendants conspired to submit false claims and make
false statements to Fannie Mae, Freddie Mac, and FHA in
violation of 31 U.S.C. § 3729(a)(1)(C) ("False
Claims Conspiracy"), see TAC ¶¶ 503-507, and
that the Servicer Defendants used or caused to be made false
records or statements material to an obligation to pay or
transmit money to the United States or knowingly concealed,
avoided, or decreased an obligation to pay or transmit money
to the United States in violation of 31 U.S.C. §
3729(a)(1)(G) ("Reverse False Claims"), see
Id. ¶¶ 508-510; SAC ¶¶ 361-363.
Government, intervening in part, asserts that the Rosicki
Defendants submitted: (1) false claims to Fannie Mae in
violation of 31 U.S.C. § 3729(a) (1) (A) ("False
Claims"), (2) false statements to Fannie Mae in
violation of 31 U.S.C. § 3729(a)(1)(B) ("False
Statements"), and (3) false claims to Fannie Mae, which
caused Fannie Mae to pay the United States less than what the
United States would have otherwise been entitled to receive
in violation of 31 U.S.C. § 3729(a)(1)(G) ("Reverse
False Claims"). See CII ¶¶ 128-146. Relator
also asserts False Claims, False Statements, Reverse False
Claims, and False Claims Conspiracy counts against the
Rosicki Defendants with respect to Freddie Mac and FHA.
mentioned, defendants move, pursuant to Rule 12(b)(6) and
Rule 9(b), to dismiss the above-mentioned claims. To survive
a Rule 12(b)(6) motion, a complaint must contain "enough
facts to state a claim to relief that is plausible on its
face." Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007) . A claim is plausible if it is supported by
"factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged." Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). In analyzing a
complaint, the court "accept[s] all factual allegations
as true and draw[s] all reasonable inferences in favor of the
plaintiff." Trs. of Upstate N.Y. Eng'rs Pension
Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2d Cir.
FCA is an antifraud statute, FCA claims must also satisfy
Rule 9(b) of the Federal Rules of Civil Procedure. See
U.S. ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 26
(2d Cir. 2017) . Rule 9(b) requires a plaintiff to
"state with particularity the circumstances constituting
fraud or mistake." Fed.R.Civ.P. 9(b). "[T]he
adequacy of particularized allegations under Rule 9(b) is
case- and context-specific." U.S. ex rel. Chorches
v. Am. Med. Response, 865 F.3d 71, 81 (2d Cir.
2017). "Ultimately, whether a complaint
satisfies Rule 9(b) depends upon the nature of the case, the
complexity or simplicity of the transaction or occurrence,
the relationship of the parties and the determination of how
much circumstantial detail is necessary to give notice to the
adverse party and enable him to prepare a responsive
pleading." United States v. TEVA Pharms. USA,
Inc., 13-CV-3702, 2016 WL 750720, at *15 (S.D.N.Y. Feb.
Servicer Defendants argue that Grubea's claims fail
because, inter alia, the operative complaints do not
adequately allege scienter. See Servicer Mem. at 26-28,
state a False Claims or False Statements claim under the FCA,
Grubea must plausibly allege, inter alia, that the Servicer
Defendants "knowingly" presented or caused to be
presented false or fraudulent claims. 31 U.S.C. §
3729(a) . To state a Reverse False Claims claim under the
FCA, Grubea must plausibly allege, inter alia, that the
Servicer Defendants "knowingly" concealed or
"knowingly" and improperly avoided or decreased an
obligation to reimburse the Government. Id. §
defines "knowingly" to include a person who acts
recklessly. See Id. § 3729(b)(1)(A).
Recklessness entails conduct that is "highly
unreasonable and which represents an extreme departure from
the standards of ordinary care." Chill v. Gen. Elec.
Co., 101 F.3d 263, 269 (2d Cir. 1996). See also S. Rep.
No. 96-615, at 5 (1980) (recklessness "encompass[es] the
person who seeks payment from the Government without regard
to his eligibility and with indifference to its
FCA's scienter requirement is "rigorous,"
Universal Health Servs., Inc. v. United States
("Escobar"), 136 S.Ct. 1989, 2002 (2016),
because, "under Rule 9(b), the proponent of an FCA claim
must allege facts that give rise to a strong inference of
fraudulent intent," United States ex rel. Tessler v.
City of New York, 14-cv-6455, 2016 WL 7335654,
at *5 (S.D.N.Y. Dec. 16, 2016), aff'd, 712 Fed.Appx. 27
(2d Cir. 2017); see also O'Brien v. Nat'l Prop.
Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991).
Conclusory allegations that defendants "'knew or
were reckless in not knowing' ... do not satisfy the
requirements of Rule 9(b)." Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994).
Grubea alleges "upon information and belief" that
the Servicer Defendants: "failed to 'make every
effort' to reduce default-related legal expenses" as
required by Fannie Mae, TAC ¶ 149; "did not
exercise quality control over foreclosure expenses,"
Id. ¶ 151; and "submitted false claims
without undertaking any process to assess whether foreclosure
expenses were reasonable or necessary," Id.
¶ 153. But when at oral argument on the instant
motions, the Court inquired into the "information"
that supported these "beliefs," Grubea's
counsel specified only that Grubea had had conversations with
people at various law firms. See Tr. at 41 (Buchdahl)
("the information primarily is that our Relator heard
and saw directly evidence of inflated charges of these
various foreclosure expenses" and had conversations with
"people at the law firms involved in these
foreclosures"). Although counsel also alleged at oral
argument that Grubea had raised the issue of inflated charges
with more than one Servicer Defendant, his counsel failed to
name even one or to provide the particulars of any such
conversation. See Id. at 43. Moreover, these alleged
conversations seem to have ...