2nd Circuit Affirms Dismissal of $400 Million False Claims Act Lawsuit

The Second Circuit recently affirmed a district court’s decision to dismiss a relator’s False Claims Act (FCA) claims, which were filed in connection with a bank’s purchase of a portfolio of loans from the FDIC, acting as receiver for another bank.  While the district court had dismissed the case under the public disclosure bar, the Second Circuit upheld the dismissal on the basis that the relator failed to state a claim for relief under the FCA.   

As part of that purchase of the portfolio of loans, the bank and the FDIC had entered into a Purchase and Assumption Agreement and a Commercial Shared-Loss Agreement (the Agreements).  The relator alleged that the bank violated the FCA 1) when it failed to minimize the FDIC’s losses and maximize the FDIC’s recovery related to the loans covered by the Agreements; and 2) when it submitted claims to the FDIC for loans that were ineligible for reimbursement.  The district court dismissed the action, applying the FCA’s public disclosure bar. 

On appeal, the Second Circuit did not address the public disclosure bar, holding that the relator had failed to state a claim under the FCA.  Under the FCA, the relator must show 1) a false statement or fraudulent course of conduct; 2) made with scienter; 3) that was material; and 4) that caused the FDIC to pay.  The Second Circuit found that the relator had failed to allege any expressly false statement or representation omitting critically important information.  The court also found that the relator had failed to plead scienter because the allegations of the bank’s knowledge were conclusory, and were not supported by facts demonstrating the requisite showing of “actual knowledge,” “deliberate ignorance,” or “reckless disregard.”  Similarly, the court found that the relator had failed to allege sufficient facts to plead materiality because the relator had not identified any contract provision that expressly conditioned the FDIC’s payment on the bank’s alleged obligation to minimize losses and maximize recovery.  In addition, the Second Circuit found that the seven examples of purported misconduct that the relator had alleged did not go to the heart of the bank and the FDIC’s bargain.

The case is FDIC ex rel. Moncho v. Fifth Third Bank, N.A., No. 23-209-cv (2d Cir. Oct. 30, 2023).