United States v. Wells Fargo, 943 F.3d 588

Background

Relators Paul Bishop and Robert Kraus allege Wachovia (later Wells Fargo) submitted materially false loan applications to one or more regional Federal Reserve Banks (FRBs) to obtain billions from the Fed’s emergency facilities (Discount Window and Term Auction Facility) during 2008–09.
The loans at favorable rates depended on borrowers’ claimed financial soundness; relators allege Wachovia/Wells Fargo were not eligible and made false certifications to obtain the credit.
The FRBs are separately incorporated regional banks operating under the Board of Governors; they create reserve balances and Federal Reserve notes when extending credit and remit excess earnings to the U.S. Treasury.
District court dismissed the relators’ amended FCA complaint, holding (1) FRB personnel are not U.S. officers or employees and (2) the United States did not “provide” the funds requested; the Second Circuit previously reviewed earlier dismissals and the Supreme Court remanded in light of Escobar.
The Second Circuit (Katzmann, C.J.) reverses in part: while FRB personnel are not U.S. officers/employees, the FRBs act as agents of the United States for emergency lending and the money lent is ‘‘provided’’ by the United States within the meaning of the False Claims Act (FCA); the case is vacated and remanded.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether FRB personnel are “officer[s]” or “employee[s] of the United States” under 31 U.S.C. § 3729(b)(2)(A)(i)	FRB lending is governmental function; personnel should count as federal officers/employees for FCA purposes	FRBs are private corporations created by statute and not part of the executive branch; personnel are not federal officers/employees	FRB personnel are NOT officers/employees of the United States under the FCA
Whether FRBs are “agents of the United States” when operating emergency lending facilities	FRBs operate the lending programs on behalf of the United States and under statutory delegation; thus loans presented to FRBs are claims to the U.S.	FRBs exercise independent discretion and act under their own statutory authority, not as U.S. agents	In the narrow context of emergency lending, FRBs ARE agents of the United States for FCA purposes
Whether the money requested through FRB loans is “provided” by the United States under 31 U.S.C. § 3729(b)(2)(A)(ii)	Loans create reserve balances and Federal Reserve notes under congressional authority; the Board/FRBs make money available—thus the U.S. provides the funds	No Treasury appropriations or direct Treasury funds were used; funding originated with FRBs, not the Treasury, so the U.S. did not “provide” the money	The United States ‘‘provides’’ the money: FRBs create reserves/notes under congressional authority and the lending advances U.S. monetary power and the public fisc; FCA subsection (ii) can apply

Key Cases Cited

Rainwater v. United States, 356 U.S. 590 (Sup. Ct.) (establishing broad congressional objective of FCA to protect public funds)
United States v. McNinch, 356 U.S. 595 (Sup. Ct.) (FCA’s historical purpose to guard the public treasury)
Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (Sup. Ct.) (materiality standard under the FCA prompted remand considerations)
Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (Sup. Ct.) (limits on FCA scope where fraud targets private entities incidentally receiving government funds)
Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374 (Sup. Ct.) (Congress may define an entity’s governmental status for statutory purposes)
Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys., 601 F.3d 158 (2d Cir.) (Fed administrative-structure context for document control; distinguished here)
Starr Int’l Co. v. Fed. Reserve Bank of N.Y., 742 F.3d 37 (2d Cir.) (FRBs as instrumentalities and operating arms of the central bank)
Am. Bank & Tr. Co. v. Fed. Reserve Bank of Atlanta, 256 U.S. 350 (Sup. Ct.) (recognition that Federal Reserve Banks act in furtherance of U.S. policy)