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False Claims Act Statistics, News & Analysis

False Claims Act Cert. Monitor: Relators Seek GVR from High Court in Light of Escobar

At the end of October, relators petitioned the Supreme Court for a “GVR” of the Second Circuit’s decision in Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016). That is, relators asked not that the Court hear their case on the merits, but rather that it grant the petition for certiorarivacate the decision below, and remand the case for further proceedings in light of the Court’s intervening decision in Escobar.

Relators allege that the defendant, a bank, used deceptive accounting practices to hide that it was (allegedly) undercapitalized as a result of holding certain assets before the 2008 recession. Relators alleged that the defendant violated the FCA by certifying that it was “not in violation of federal banking regulations in any respect which could have any adverse effect whatsoever upon the validity, performance or enforceability of any of the terms of the Lending Agreement,” and by certifying (in relators’ view, falsely) that supporting documentation it supplied was true, in order to borrow from the Federal Reserve discount window at a lower interest rate. Relators alleged that the Federal Reserve would not have lent the defendant money if it had known of the (alleged) undercapitalization and accounting issues.

The district court dismissed the case, and the Second Circuit affirmed, relying in part on pre-Escobar circuit precedent, Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001). The Bishop relators had advanced both express and implied certification theories of FCA liability. Both the district court and the Second Circuit rejected the alleged express certification theory, concluding that, under Mikes, an express certification of compliance with federal banking regulations, writ large, was too general to be considered an express certification of a specific statute. The Second Circuit also rejected relators’ implied certification theory by applying the Mikes rule limiting that theory to cases where the relevant regulation expressly states that compliance is a precondition to payment. The Second Circuit found that the relevant regulations here contained no such express requirement. The Supreme Court decided Escobar roughly a month after the Second Circuit panel decision.

Relators have now asked the Supreme Court to GVR, arguing that Escobar might have altered the application of Mikes to both the express and implied certification theories of liability. Relators assert that Escobar abrogated Mikes' holding that the implied certification theory of FCA liability can only apply where compliance is an express precondition to payment. The Second Circuit nonetheless denied relators’ request for panel and en banc rehearing based on Escobar. While the Second Circuit’s short order denying rehearing did not provide a rationale, it appears the Court concluded Escobar did not change the outcome, or that the case otherwise did not meet the high standard for rehearing. Even if the Supreme Court were to GVR the case in light of Escobar, relators would nonetheless have to satisfy Escobar’s “demanding” materiality requirement, which stressed that compliance with the relevant regulation must be actually material to payment. We will continue to monitor this case as it develops.

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Jeremy C. Marwell

Jeremy C. Marwell Partner