United States ex rel. Kolchinsky v. Moody's Corp.
238 F. Supp. 3d 550
S.D.N.Y.2017Background
- Relator Ilya Kolchinsky, a former Moody’s Managing Director, brought a qui tam False Claims Act (FCA) suit alleging Moody’s issued inaccurate credit ratings and that some ratings were provided to government subscribers for payment. The government declined to intervene.
- The Court previously dismissed four of five claim categories, permitting repleading only on the “Ratings Delivery Service” theory (claims that Moody’s sold ratings directly to governmental subscribers) and limited claims to those accruing after May 27, 2009 due to the FCA statute of limitations.
- Kolchinsky filed a sprawling Second Amended Complaint (SAC) that did not identify particular false claims, agencies, or post‑May 27, 2009 ratings; he appended a downloaded spreadsheet of government contracts showing Moody’s had some government customers.
- Moody’s moved to dismiss the SAC for failure to plead a specific false claim to the Government, for failure to plead actionable legal or factual falsity, and for timeliness; Kolchinsky argued procedural waiver and relied on continuing inaccuracies.
- The Court held Kolchinsky’s theory was one of implied legal falsity (not factual non‑delivery), but found the public and government were on notice of Moody’s rating problems before May 27, 2009 and that continued government payment despite knowledge negated materiality under Universal Health.
- The SAC also failed Rule 9(b) particularity: it did not identify which ratings were false, which agencies received them after the cutoff, or facts supporting a scheme to submit false claims. The Court dismissed the SAC with prejudice and denied Kolchinsky’s claim to proceeds from a separate FIRREA settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Moody’s 12(b)(6) motion was procedurally barred by prior motions | Kolchinsky: Moody’s should have raised falsity and statute‑of‑limitations arguments earlier; Rule 12 bars successive motions | Moody’s: failure‑to‑state‑a‑claim defenses are not waived and can be renewed; prior motion raised timeliness | Court: Rule 12(g) does not bar renewed 12(b)(6) arguments; Moody’s motion not procedurally barred |
| Whether the SAC pleaded a false claim to the Government with particularity under Rule 9(b) | Kolchinsky: Ratings were false and government subscribers received them; spreadsheet shows government contracts after 2007 | Moody’s: Complaint lacks specific claims, recipient agencies, dates, or which ratings were false; a fishing expedition | Court: SAC fails Rule 9(b); does not identify specific post‑May 27, 2009 false claims or provide reliable indicia that such claims were submitted |
| Whether alleged misrepresentations are factually or legally false under the FCA | Kolchinsky: Ratings were inaccurate (presented as valid) — implicating falsity | Moody’s: Ratings were provided (not non‑delivery); dispute is regulatory/quality, not an FCA fraud claim | Court: Theory is implied legal falsity, not factual non‑delivery; plaintiff relies on quality/accuracy allegations rather than non‑delivery |
| Whether noncompliance (inaccurate ratings) was material under Universal Health | Kolchinsky: Government subscribers paid for ratings and therefore were harmed; continued contracts imply materiality | Moody’s: Government and public knew of rating problems pre‑2009; government continued to pay, showing non‑materiality | Court: Under Universal Health, public/government knowledge and continued payment are strong evidence of non‑materiality; materiality not pleaded |
Key Cases Cited
- Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989 (2016) (establishes two‑part test for implied certification and explains materiality inquiry for FCA claims)
- Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016) (explains limits of FCA for regulatory noncompliance and required connection to government’s payment decision)
- Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) (distinguishes factual falsity from legal falsity and outlines FCA elements)
- United States ex rel. Kester v. Novartis Pharms. Corp., 23 F. Supp. 3d 242 (S.D.N.Y. 2014) (discusses Rule 9(b) particularity requirements for FCA complaints)