Bishop v. Wells Fargo & Co.
2016 U.S. App. LEXIS 8366
| 2d Cir. | 2016Background
- Relators Robert Kraus and Paul Bishop (former Wachovia/World Savings employees) filed a qui tam FCA suit alleging massive pre-2007 fraud that left Wachovia (and later Wells Fargo after mergers) undercapitalized, and that the banks nonetheless obtained favorable loans from the Federal Reserve’s discount window and TAF by certifying regulatory compliance.
- The relators allege the banks made false representations in the Fed’s Lending Agreement (Sections 9.1(b), (g), and (i)) each time they borrowed, and thus submitted false claims to the government under the FCA from 2007–2011.
- The government declined to intervene. The district court dismissed the third amended complaint for failure to state an FCA claim and for lack of particularity under Rule 9(b), and denied leave to amend; relators appealed.
- Key regulatory context: the Fed’s primary credit/TAF programs are discretionary, designed to be low-burden and rely on regulators’ reporting and examinations rather than borrower-submitted financial statements; Regulation A governs the Fed’s lending authority but does not impose explicit borrower-side reporting requirements for discount-window access.
- The district court and this Court rejected relators’ theory that broad certifications of compliance in the Lending Agreement converted the banks’ borrowing requests into FCA false claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 9.1(b)’s general certification (not in violation of any laws/regulations that could affect the Lending Agreement) can be an express false certification under the FCA | Kraus & Bishop: Section 9.1(b) is a certification of legal compliance; underlying fraud means certifications were false when borrowing | Wells Fargo: Section 9.1(b) is overbroad/vague and not a condition precedent to Fed payment; FCA not meant to police general regulatory noncompliance | Court: Section 9.1(b) is too broad to support an express FCA claim; dismissal affirmed |
| Whether defendants submitted falsified documents or made false statements “in connection with” borrowing to support Section 9.1(g) claims | Relators: Fed relied on financial statements and documents that were misleading, so certifications were false | Wells Fargo: Lending Agreement’s required application documents do not include financial statements; Fed uses regulator reports; no direct false submissions “in connection with” loans | Court: Relators failed to plead any false documents submitted in connection with discount-window loans; claim dismissed |
| Whether Section 9.1(i) (no Event of Default) was falsely certified because other representations were inaccurate | Relators: 9.1(i) is derivative — if other certifications false, (i) is false | Wells Fargo: (i) depends on other express certifications which were not plausibly alleged | Court: (i) claim fails for same reasons as (b) and (g); dismissed |
| Whether an implied certification theory (claiming eligibility conditions were implicitly certified) applies where statutes/regulations do not expressly make compliance a condition of payment | Relators: Implied certification applies because compliance was material to Fed’s decision; Mikes shouldn’t bar non-healthcare cases | Wells Fargo: Mikes prohibits expansive implied-certification reach; Regulation A governs Fed lending authority and does not impose borrower-side eligibility preconditions | Court: Implied-certification theory rejected under Mikes; relators did not identify any statute/regulation making eligibility an express precondition to Fed payment |
Key Cases Cited
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (FCA does not cover all regulatory noncompliance; express or implied certification must be tied to an eligibility prerequisite for payment)
- United States v. McNinch, 356 U.S. 595 (U.S. 1958) (False Claims Act not designed to reach every kind of fraud on the government)
- United States ex rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010) (applies Mikes outside healthcare context)
- United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262 (5th Cir. 2010) (rejects broad false-certification claims where compliance is not a payment condition)
- United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211 (10th Cir. 2008) (general compliance certifications insufficient for FCA liability)
- United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015) (FCA is not the proper mechanism to enforce post-entry conditions of participation; agency enforcement is appropriate)