NY Federal Judge Refuses to Reconsider Dismissal of Relator’s FCA Claims

On August 15, 2018, a federal judge in the Southern District of New York denied a relator’s motion for reconsideration and permission to replead in his dismissed attempt to bring seven mortgage servicers back into his False Claims Act suit, explaining that dismissal with prejudice is proper when a relator has had ample opportunities to amend the pleadings but has failed to plead scienter in each instance.

As background, the relator petitioned the court, requesting to amend his pleadings to include additional particularized allegations against 7 of the 16 large mortgage servicers that he alleged had participated in overbilling and “false statements” made by law firms that were retained in connection with the servicers’ claims for reimbursement of foreclosure expenses to Fannie Mae, Freddie Mac, and FHA.  The claims against all 16 servicers were dismissed with prejudice under Federal Rule of Civil Procedure 9(b), which requires the proponent of an FCA claim to allege facts that, among other things, “give rise to a strong inference of fraudulent intent.”  The court found that relator’s allegations of intent were “based on little more than conjecture” and that he had failed to plead “every possible factual basis for scienter,” despite having had ample opportunities to do so.  Before filing his motion for reconsideration and permission to replead, the relator had already amended his claims against the servicers three times, and had even brought a second action against additional servicers and amended those claims once, as well.

The relator filed his motion for reconsideration and permission to replead, arguing that complaints dismissed under Rule 9(b) are almost always dismissed with leave to amend in the Second Circuit.  The district court denied the relator’s motion, restating the rule that FCA cases can be dismissed with prejudice when a relator has failed to meet 9(b)’s requirements, despite previous opportunities for amendment.  The judge wrote that the court “worked well within its discretion in finding that relator’s failure to plead scienter suggested an inability to do so,” and was so justified in dismissing the FCA claims with prejudice.

Further, the court emphasized that (1) the relator failed to brief any opposition to dismissal with prejudice or request leave to amend despite their ample notification that the servicers sought such dismissal, and (2) it is within a district court’s discretion to order a case closed when leave to amend has not been sought.  The relator’s motion for reconsideration also “lack[ed] merit, because it was simply a renewal of a request for discovery” that the court had already denied.  Finally, the court rejected the relator’s argument that he was entitled to use government information to amend his complaint.  The court explained that relators are not entitled to discovery to cure Rule 9(b)’s pleading deficiencies.

The motion for reconsideration was denied.

The case is U.S. ex rel. Grubea v. Rosicki, Southern District of New York.