United States v. Countrywide Financial Corp.
961 F. Supp. 2d 598
S.D.N.Y.2013Background
- Government (intervening in a qui tam) sued Countrywide, Bank of America (BofA), and Countrywide executive Rebecca Mairone under FIRREA (12 U.S.C. §1833a) and the False Claims Act (FCA), alleging fraudulent sale of defective mortgage loans to Fannie Mae and Freddie Mac.
- Countrywide implemented a "High Speed Swim Lane" (HSSL) beginning Aug. 2007 that reduced underwriting oversight, removed quality-control "toll gates," expanded to riskier loans, and changed compensation and quotas to favor volume over quality.
- Internal reports showed very high defect rates in HSSL loans (e.g., ~57% overall; ~70% for stated-income loans); management allegedly concealed those reports and pressured employees to hide or alter findings.
- Government pleads seven detailed representative loans processed through HSSL (2007–2008) that were sold as investment-quality but contained obvious defects and later defaulted; alleges massive losses to Fannie/Freddie and ripple losses to federally insured banks holding preferred stock.
- Defendants moved to dismiss: (1) FIRREA claims because sales to Fannie/Freddie did not "affect" federally insured institutions; (2) FIRREA predicate mail/wire fraud allegedly indistinguishable from mere contract breaches; and (3) FCA claims for post‑May 20, 2009 submissions (after FERA broadened FCA) failed Rule 9(b) particularity. Mairone separately challenged adequacy of intent pleading against her.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants' fraud "affected a federally insured financial institution" under FIRREA | Fraud affected BofA (a federally insured bank) and also caused derivative losses to other FDIC‑insured banks via Fannie/Freddie collapse | "Affecting" should not reach self‑harm to a bank or attenuated/derivative harms absent more explicit statutory language | Court: "affecting" includes impact on BofA (self‑affecting theory) — plain language controls; did not decide derivative theory because self‑effect sufficed |
| Whether mail/wire‑fraud predicates adequately pleaded and whether representations were mere contract breaches | Alleges scheme via HSSL, concealment, quotas, incentive changes, and seven particular loans; pleaded with Rule 9(b) particularity | Claims were at most breaches of contractual reps/warranties and thus not fraud | Court: mail/wire fraud not limited by common‑law contract/fraud distinction (Durland); pleadings sufficiently particular to survive dismissal |
| Whether Amended Complaint sufficiently alleges Mairone's intent to defraud | Mairone designed/expanded HSSL, concealed reports, removed oversight, and pressured staff — circumstantial evidence of intent | Mairone: allegations lump her with others, no direct misrepresentations to Fannie/Freddie, no showing she concealed from purchasers | Court: Allegations give rise to a strong inference of intent — denial of Mairone's motion to dismiss FIRREA counts against her |
| Whether FCA claims survive for alleged false claims after May 20, 2009 (post‑FERA) | BofA submitted post‑FERA loans tainted by HSSL; Exhibit A lists loans funded in 2008–2009 | FCA claims fail for pre‑FERA submissions and post‑FERA claims lack particularized facts tying BofA to HSSL‑tainted post‑May 20, 2009 loans | Court: Dismissed FCA counts as to BofA for failure to meet Rule 9(b) particularity as to post‑May 20, 2009 loans; FCA claims against other defendants abandoned; FCA dismissed with prejudice |
Key Cases Cited
- Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885 (2011) (statutory interpretation begins with plain meaning)
- Collazos v. United States, 368 F.3d 190 (2d Cir. 2004) (plain‑meaning rule in statutory construction)
- United States v. Shellef, 507 F.3d 82 (2d Cir. 2007) (elements of mail/wire fraud)
- Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir. 1993) (Rule 9(b) particularity for fraud complaints)
- Durland v. United States, 161 U.S. 306 (1896) (mail fraud statute not confined by common‑law contract/fraud distinctions)
- McNally v. United States, 483 U.S. 350 (1987) (history of mail fraud statute amendments)
- Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir. 1996) (common‑law rule barring fraud claims duplicative of breaches of contract)
- United States v. Autuori, 212 F.3d 105 (2d Cir. 2000) (circumstantial evidence may support strong inference of fraudulent intent)
- United States v. Guadagna, 183 F.3d 122 (2d Cir. 1999) (same on intent and circumstantial proof)