Bishop v. Wells Fargo & Co.
2017 U.S. App. LEXIS 17339
| 2d Cir. | 2017Background
- Relators Robert Kraus and Paul Bishop filed a qui tam FCA suit in 2011 alleging Wells Fargo (and predecessor banks) submitted false certifications of compliance with banking laws to obtain favorable funding from the Federal Reserve.
- The government declined to intervene. The district court dismissed the complaint in full. The Second Circuit affirmed in Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016).
- The Supreme Court vacated and remanded the Second Circuit decision in light of its decision in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), which clarified materiality for FCA claims.
- The Second Circuit panel had relied on Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001), applying (1) an express-designation requirement for implied false certification claims and (2) a particularity requirement for express false certification claims.
- The panel concluded Escobar abrogated both Mikes requirements: Escobar rejects an express-designation limitation and substitutes a rigorous materiality inquiry (focusing on effect on government payment decisions) and directs enforcement of materiality and scienter to guard against open-ended liability.
- Because Escobar’s materiality standard was not applied below, the Second Circuit vacated the dismissal and remanded for the district court to determine materiality in the first instance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether implied false certification requires the underlying law to expressly designate compliance as a condition of payment | Mikes rule: implied false certification applies only when the statute/regulation expressly conditions payment on compliance | Mikes-based defense: relief barred absent express designation | Rejected — Escobar abrogates the express-designation requirement; materiality governs instead |
| Whether express false-certification claims require particularized showing that compliance is a prerequisite to payment | Mikes: express false claims must falsely certify compliance where compliance is a prerequisite | Defendant: maintain Mikes particularity limits liability | Rejected — no textual or common-law basis for Mikes’ particularity; Escobar calls for materiality/scienter focus |
| Proper standard for FCA liability when misrepresentation concerns compliance with statutory/regulatory/contractual requirements | Relators: Mikes framework supports dismissal or liability depending on express-designation and particularity | Wells Fargo: relied on Mikes-based limits to defeat relators’ claims | Held: Apply Escobar’s rigorous materiality standard (effect on government payment decisions), not Mikes’ tests |
| Whether dismissal was appropriate without applying Escobar materiality standard | Relators: materiality not previously evaluated; remand required | Defendants: prior affirmance under Mikes should stand | Held: Vacated dismissal and remanded for district court to assess materiality under Escobar |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (sets rigorous materiality standard for FCA claims and rejects Mikes’ express-designation limitation)
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (earlier Second Circuit test requiring express designation for implied false certification and particularity for express false certification)
- Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016) (Second Circuit’s prior opinion vacated and remanded by the Supreme Court)
- United States ex rel. Kraus v. Wells Fargo & Co., 117 F. Supp. 3d 215 (E.D.N.Y. 2015) (district court opinion dismissing the relators’ complaint)
- Doscher v. Sea Port Grp. Sec., LLC, 832 F.3d 372 (2d Cir. 2016) (panel explained that an intervening Supreme Court decision may cast doubt on prior circuit precedent)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (quoted by Escobar to explain that materiality cannot rest on a single fact)