319 F. Supp. 3d 747
S.D. Ill.2018Background
- Relator Peter D. Grubea brought qui tam False Claims Act (FCA) suits against multiple mortgage servicers, alleging they submitted improper foreclosure-cost reimbursement claims to Fannie Mae, Freddie Mac, and the FHA and made false statements to those agencies.
- Claims included violations of 31 U.S.C. §§ 3729(a)(1)(A), (B), and (C) (false claims, false statements, and reverse false claims/conspiracy).
- Servicer Defendants moved to dismiss under Rule 9(b) for failure to plead scienter with particularity.
- On June 23, 2018 the Court dismissed Relator’s claims against all servicer defendants with prejudice for failure to plead a strong inference of fraudulent intent after multiple amendments and an opportunity to replead.
- Relator sought reconsideration and permission to replead as to seven servicers, arguing (inter alia) that dismissal with prejudice conflicted with precedent and that limited government discovery could supply the needed specificity.
- The Court denied reconsideration, finding Relator had had multiple chances to plead scienter, offered no new or unavailable evidence, and was not entitled to discovery to cure Rule 9(b) defects; dismissal with prejudice was not an abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Relator alleged scienter with Rule 9(b) particularity | Grubea contends scienter can be inferred from alleged systemic overbilling and industry practices | Servicers argue allegations are conclusory and lack specific facts tying defendants to knowing misconduct | Court: scienter inadequately pleaded; inferences were conjectural and insufficient |
| Whether dismissal should be without leave to amend (with prejudice) | Grubea argued courts usually allow amendment and the Court indicated likelihood of permitting repleading | Servicers sought dismissal with prejudice as further amendment would be futile after repeated chances | Court: denial of leave was within its discretion because Relator had multiple amendments and declined offered opportunity to replead |
| Whether reconsideration standard is met (Local Civ. R. 6.3) | Relator claimed conflict with controlling precedent and that dismissal-with-prejudice was not briefed | Servicers and Court asserted no controlling law was overlooked and Relator failed to seek leave earlier | Court: motion denied — no intervening controlling decision, no clear error, and reconsideration is exceptional |
| Whether Relator is entitled to limited government discovery to cure Rule 9(b) defects | Grubea argued government-held information could permit repleading with specificity | Servicers argued discovery to cure pleading defects is improper and Relator had not shown discovery would cure deficiencies | Court: discovery to cure Rule 9(b) deficiencies is not warranted; relator not entitled to discovery to plead scienter; denial affirmed |
Key Cases Cited
- Shrader v. CSX Transp., 70 F.3d 255 (2d Cir.) (motion for reconsideration standard)
- Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36 (2d Cir.) (reconsideration not a vehicle to relitigate or get a second bite)
- Acito v. IMCERA Grp., 47 F.3d 47 (2d Cir.) (leave to amend is discretionary; futility is a ground to deny)
- Official Publ’ns, Inc. v. Kable News Co., 884 F.2d 664 (2d Cir.) (leave to amend usually afforded for Rule 9(b) deficiencies but is discretionary)
- Wight v. BankAmerica Corp., 219 F.3d 79 (2d Cir.) (reversal of dismissal with prejudice where facts supported scienter)
- Olsen v. Pratt & Whitney Aircraft, 136 F.3d 273 (2d Cir.) (leave to amend warranted where deficiencies obscure ability to plead fraud)
- Wood ex rel. U.S. v. Applied Research Assocs., Inc., 328 F. App’x 744 (2d Cir.) (relator not entitled to discovery to cure Rule 9(b) pleading failure)
- Campo v. Sears Holdings Corp., 371 F. App’x 212 (2d Cir.) (affirming dismissal with prejudice where plaintiff did not seek leave to amend)