TAMIKA MILLER, INDIVIDUALLY, Plaintiff-Appellant, - against - UNITED STATES OF AMERICA EX REL. TAMIKA MILLER, Plaintiff-Appellee, CITIBANK, N.A., Defendant-Appellee.*
Docket No. 22-1615-cv
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August 6, 2024
August Term 2023 (Argued: September 18, 2023 Decided: August 6, 2024)
Appeal from a judgment of the United States District Court for the Southern District of New York (Cote, J.), granting defendant-appellee‘s motion to dismiss the complaint in this False Claims Act case for failure to state a claim and denying plaintiff-appellant relator‘s motion for a share of a monetary award obtained by the government in administrative proceedings. The district court concluded that the relator failed to state a “reverse false claim” because she failed to allege an “obligation” to pay the government, as required by the False Claims Act, and alsо because her complaint failed to meet the particularity requirement of
AFFIRMED.
CLEVELAND LAWRENCE III (Richard E. Condit, C. Ezra Bronstein), Mehri & Skalet, PLLC, Washington, D.C., and Robert J. Valli, Jr., Valli Kane & Vagnini LLP, Garden City, NY, for Plaintiff-Appellant.
NICOLE A. SAHARSKY (Lucia Nale, Debra Bogo-Ernst, Hans J. Germann), Mayer Brown LLP, Washington, D.C., and Chicago, IL, for Defendant-Appellee.
REBECCA S. TINIO, Assistant United States Attorney (Benjamin H. Torrance, Assistant United States Attorney, on the brief), for Damian Williams, United States Attorney for the Southern District of New York, New York, NY, for the United States.
CHIN, Circuit Judge:
In 2019, plaintiff-appellant Tamika Miller filed this qui tam action under the False Claims Act (the “FCA“),
On June 22, 2022, the district court (Cote, J.) addressed both motions. As to Miller‘s motion for a share of the $400 million civil penalty, the court noted that “the $400 million award of which the Relator seeks a share does not appear to be an ‘alternate remedy’ for the qui tam claim asserted in the complaint.” United States ex rel. Miller v. Citigroup Inc., No. 19-cv-10970 (DLC), 2022 WL 2237619, at *2 (S.D.N.Y. June 22, 2022) (quoting
BACKGROUND
As we must when reviewing a district court‘s grant of a motion to dismiss, “we accept the material facts alleged in the complaint as true and draw all reasonable inferences in favor of the plaintiff” -- here, Miller. In re: Nine W. LBO Sec. Litig., 87 F.4th 130, 140 (2d Cir. 2023).
I. The Facts
The following facts are drawn primarily from Miller‘s complaint, with the addition of certain undisputed facts.
A. The Parties
Citibank is a global bank that is the world‘s largest issuer of credit cards. It uses third-party vendors to provide services to its credit card customers. To monitor these third-party vendors and ensure compliance with applicable laws, regulations, and consent orders, Citibank created a third-party risk management department. Citibank‘s operations are subject to regulation by various federal agencies, including the OCC and the Consumer Financial Protection Bureau (the “CFPB“).
Miller is a vice president at Citibank who has worked in the bank‘s third-party risk management department since 2014. She audits third-party vendors and suppliers that service Citibank‘s credit card division. Miller conveys the results of her audits -- as well as her observations and findings -- to senior managers through a type of report called an external executive summary report.
B. The 2015 Consent Orders
In July 2015, Citibank entered into one consent order with the CFPB and one consent order with the OCC. Citibank‘s consent order with the CFPB (the “2015 CFPB Order“) addressed the bank‘s alleged deceptive acts or practices related to its credit-card business, including marketing, membership retention, and debt collection. Citibank‘s consent order with the OCC (the “2015 OCC Order” and, together with the CFPB Order, the “2015 Consent Orders“) addressed the bank‘s billing practices tied to its identity protection products and marketing and sales practices linked to its debt cancellation products. The OCC terminated the 2015 OCC Order in 2018 after concluding it was no longer necessary.2
C. The Purported Violations
In January 2016, Citibank created an auditing procedure for third-party vendors and suppliers called TPORT -- housed within its third-party risk management department -- to comply with federal regulations and consent orders. Miller and her colleagues implemented TPORT. During the course of her work, however, Miller noticed that TPORT‘s questions and scoring criteria had been altered to downplay compliance violations -- permitting the violations to evade mandatory reporting to the government. Her superiors discovered how to bypass TPORT‘s internal controls and hide issues that should have resulted in failed audits of third-party suppliers and vendors.
In 2018, Miller “witnessed, firsthand, her audit reports regarding violations with the [2015 Consent Orders] and agency guidelines, being altered” to show more favorable results. J.A. at 26. She observed “senior Citibank management suppressing
In July 2019, Miller reported her concerns about Citibank to the OCC, using its whistleblower website, and discussed her concerns with OCC representatives.
D. The 2020 Consent Order
On October 2, 2020, some two years after the termination of the 2015 OCC Consent Order, Citibank entered into a new consent order with the OCC (the “2020 OCC Consent Order“) “for deficiencies in its data governance, risk management, and internal controls that constitute unsafe or unsound practices” and was required to pay a $400 million fine (the “2020 OCC Penalty“). J.A. at 171. The factual findings underpinning the consent order did not mention risk management for third parties or refer to third-party suppliers or vendors -- the subject of Miller‘s complaint in this case.3
II. Procedural History
On November 26, 2019, Miller filed this qui tam action alleging violations of the 2015 Consent Orders and applicable laws. The qui tam complaint asserted three claims under the FCA and one claim under the Financial Institutions Recovery, Reform and Enforcement Act. Miller alleges that Citibank hid third-party compliance failures that violated the 2015 Consent Orders and the “Government‘s guidance” by altering her reports, implementing a reporting structurе rife with conflicts of interest, and tampering with TPORT, the internal audit procedure. J.A. at 25-27. Citibank‘s actions, she claims, permitted the bank to avoid paying the government at least $150 million in fines or penalties.
In June 2020, the government declined to intervene in the instant action, and the complaint was unsealed and served on Citibank.
On January 31, 2022, Miller moved in this case for an order directing the United States to award her a share of the 2020 OCC Penalty under the FCA‘s alternate remedy provision on the theory that the information she provided to the OCC was “instrumental” to securing the 2020 OCC Penalty. J.A. at 78. The government opposed the motion.
On March 25, 2022, before responding to Miller‘s motion for a share of the 2020 OCC Penalty, Citibank moved to dismiss the qui tam complaint. On May 13, 2022, in her memorandum of law in opposition to Citibank‘s motion to dismiss, Miller voluntarily dismissed three of the four claims in her complaint, leaving only her reverse false claim under
On June 22, 2022, the district court granted Citibank‘s motion to dismiss and denied Miller‘s motion for a portion of the penalty. The district court observed that, “[a]s an initial matter,” the $400 million of which Miller sought a share did “not appear to be an ‘alternate remedy’ for the qui tam claim asserted in the complaint.” Citigroup, 2022 WL 2237619, at *2 (quoting
The district court determined, however, that Miller‘s request for a share of 2020 OCC Penalty “must be dеnied regardless, . . . because she has failed to state a claim.” Id. Specifically, the district court concluded Miller‘s complaint failed to state a reverse false claim because (1) it did not allege that Citibank had any “obligation” to pay the government within the meaning of the FCA and (2) it failed to satisfy the particularity requirement of
This appeal followed.
DISCUSSION
Miller contends that she adequately alleged an obligation to pay by stating that Citibank violated the 2015 Consent Orders, which therefore subjected Citibank to a mandatory penalty, and she met the particularity requirement of
I. Standard of Review
We review de novo a district court‘s grant of a motion to dismiss for failure to state a claim under
We review de novo a district court‘s denial of a relator‘s motion for a share of the recovery arising from the government‘s pursuit of an alternate remedy under
Finally, we review for abuse of discretion a district court‘s denial of a motion for reconsideration. Cho v. Blackberry Ltd., 991 F.3d 155, 162 (2d Cir. 2021).
II. Applicable Law
The resolution of Miller‘s claim involves provisions of the FCA, the penalty structure of the Federal Deposit Insurance Act, and the heightened pleading standard for
A. The FCA
1. Overview
Miller alleges that Citibank engaged in fraudulent practices that violate the FCA. The FCA “imposes significant penalties on those who defraud the Government.” Universal Health Servs., Inc. v. United States, 579 U.S. 176, 180 (2016). Both the government and private parties may enforce the FCA. Private parties, called relators, do so by filing civil qui tam actions “in the name of the Government.” United States ex rel. Chorches for Bankr. Est. of Fabula v. Am. Med. Response, Inc., 865 F.3d 71, 81 (2d Cir. 2017) (quoting Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 575 U.S. 650, 653 (2015)).
“[T]he relator is no ordinary civil plaintiff” and, accordingly, “is immediately subject to special restrictions.” United States, ex rel. Polansky v. Exec. Health Res., Inc., 599 U.S. 419, 425 (2023). For example, when the relator commences a qui tam action, the relator must file the complaint under seal and serve it on the government. Id.;
Under either scenario, in successful qui tam actions, the statute generally provides the relator with a portion of the amount recovered from the defendants “[t]o incentivize private persons to uncover, report, and prosecute FCA claims for the benefit of the United States.” L-3 Commc‘ns, 921 F.3d at 14. The relator‘s share of any recovery varies, depending in part on the government‘s role in the prosecution. See
2. The Alternate Remedy Provision
Yet another option is available to the government in response to a relator‘s filing of a qui tam lawsuit: it may decline to intervene and still “elect to pursue its claim through any alternate remedy available” to it.
Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money рenalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.
This Court has previously concluded that the alternate remedy provision “entitles
3. The Reverse False Claim Provision
Miller brought this qui tam action under the FCA‘s reverse false claim provision, which “covers claims of money owed to the government, rather than payments made by the government.” Foreman, 19 F.4th at 119 (emphasis in original) (quoting United States ex rel. Kester v. Novartis Pharms. Corp., 43 F. Supp. 3d 332, 368 (S.D.N.Y. 2014)); see also
knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government . . . .
Congress amended the reverse false claim provision in 2009, adding the phrase “or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” United States ex rel. Customs Fraud Investigations, LLC. v. Victaulic Co., 839 F.3d 242, 253 (3d Cir. 2016) (quoting
Not all three theories require an affirmative misrepresentation. See id. (imposing liability on any person who “knowingly and improperly avoids or decreases an obligation to pay . . . the Government“); Customs Fraud Investigations, 839 F.3d at 255 (noting that “[a] false statement is no longer a required element” of a reverse false claim after the 2009 amendments). Under any theory of a reverse false claim, however, the relator must allege an “obligation” to pay money or property to the government.
The reverse false claim provision defines an “obligation” as “an established
B. Penalties Under the Federal Deposit Insurance Act
Miller claims that Citibank has a duty to pay under the Federal Deposit Insurance Act (the “FDIA“),
The OCC also has the authority to impose civil money penalties for violations of its cease-and-desist orders.
C. Rule 9(b)‘s Heightened Pleading Standard
Finally, Miller‘s FCA claim implicates the heightened pleading standard for fraud claims contained in
To satisfy
ex rel. Sibley v. Univ. of Chicago Med. Ctr., 44 F.4th 646, 655 (7th Cir. 2022) (“[T]he relators must describe the ‘who, what, when, where, and how’ of the fraud -- ‘the first paragraph of any newspaper story.‘” (quoting United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th Cir. 2018))).
III. Application
We conclude that the district court did not err by dismissing Miller‘s complaint for failure to state a claim and that, therefore, the district court properly denied Miller‘s request for a share of the 2020 OCC Penalty. The district court also did not err by denying Miller leave to amend her complaint.
A. Failure to State a Reverse False Claim under the FCA
Miller failed to state a reverse false claim for two independent reasons: (1) she failed to allege that Citibank had an obligation to pay the government and (2) she failed to plead with the particularity required by
1. Obligation
As discussed above, a qui tam plaintiff does not state a reverse false claim if the defendant does not hаve an obligation -- that is, an established duty -- to pay the government. See
We have not previously considered when a duty is “established.” But other circuit courts have concluded that a duty is not established when it “is dependent on a future discretionary act.” United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497, 505 (3d Cir. 2017). Such a future discretionary act exists when, for example, a statute gives an agency the ability to decide whether to impose a civil penalty for a violation of the law. See Kasowitz Benson Torres, 929 F.3d at 725-26 (“Because the [agency] can remit a civil penalty -- that is, ‘pardon or forgive’ it, . . . -- [the statute] does not create an obligation to pay a civil
In other words, our sister circuits have concluded that potential or contingent exposure to penalties does not create an “established” duty to pay and, accordingly, an obligation does not exist by the mere fact of a violation.5
We agree.
An examination of the FCA‘s text -- the first step in any statutory interpretation inquiry -- supports this conclusion. See Soliman v. Subway Franchisee Advert. Fund Tr., Ltd., 101 F.4th 176, 181 (2d Cir. 2024). Under the reverse false claim provision, a rеlator must plead the existence of an “obligation,”
“Where, as here, there is no statutory definition of a term, we consider ‘the ordinary, common-sense meaning of the words.‘” United States v. Rowland, 826 F.3d 100, 108 (2d Cir. 2016) (quoting United States v. Dauray, 215 F.3d 257, 260 (2d Cir. 2000)). The prevailing dictionary definition of “establish” at the time of the 2009 amendments was “[t]o make secure or firm.” Establish (def. 1), Webster‘s New College Dictionary (3d ed. 2008); see also Establish (def. 1), Black‘s Law Dictionary (9th ed. 2009) (“To settle, make . . .“). Here, “established” modifies “duty,” and these definitions show that an “established duty” is one that is already secured or settled. And as the word “obligation” appears in the phrase “obligation to pay or transmit money or property to the Government,” the “established duty” in question is a duty “tо pay or transmit money or property to the Government.”
Accordingly, a duty to pay is not established just because a violation of the law occurs when the decision to impose a fine is a matter of discretion. See Simoneaux, 843 F.3d at 1039 (“If . . . reverse-FCA liability could attach from the violation of any federal statute or regulation that imposes penalties[, then] [f]unctionally that means the FCA permits blanket trebling of all federal penalties, so long as the violator knowingly conceals his violation of the regulation.“). We hold that a duty to pay is “established” only when it triggers an immediate and self-executing duty to pay. In contrast, a duty to pay is not established -- and there is no cognizable “obligation” under the reverse false claim provision -- when the imposition of penalties depends on government discretion. See, e.g., Petras, 857 F.3d at 505. There is no obligation to pay unless and until the
The existence of an obligation is crucial. As the Supreme Court has observed, the FCA is not “a vehicle for punishing garden-variety . . . regulatory violations.” Universal Health Servs., 579 U.S. at 194. Accordingly, “[w]here a complaint ‘makes no mention of any financial obligation that the [defendants] owed to the government,’ . . . a court should dismiss the reverse false claim.” Foreman, 19 F.4th at 119 (quoting Wood ex rel. United States v. Applied Rsch. Assocs., Inc., 328 F. App‘x 744, 748 (2d Cir. 2009) (summary order)).
On appeal, Miller argues that she sufficiently alleged that Citibank had an obligation, or established duty, to pay because Citibank‘s conduct violated the 2015 Consent Orders, triggering “mandatory payment provisions” or “immediate liability” under the FDIA. Appellant‘s Br. at 9-10. Her argument hinges on the statutory language that a bank that violates a final order “shall forfeit and pay a civil penalty.”
While the FDIA‘s “shall forfeit and pay” language, by itself, could arguably be read to require immediate and mandatory penalties, see Maine Cmty. Health Options v. United States, 590 U.S. 296, 310 (2020) (describing “shall” as mandatory language); but see De Martinez v. Lamagno, 515 U.S. 417, 432 n.9 (1995) (observing that “legal writers sometimes use . . . ‘shall’ to mean ‘should,’ ‘will,’ or even ‘may‘“), we do not read the words in a particular section of a statute in isolation. Instead, as the Supreme Court instructed in Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997), “[t]he plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whоle.” See also Saks v. Franklin Covey Co., 316 F.3d 337, 345 (2d Cir. 2003) (“The text‘s plain meaning can best be understood by looking to the statutory scheme as a whole and placing the particular provision within the context of that statute.“).
Here, the statutory context makes clear that these penalties are not mandatory, but discretionary. First, other subsections of
Second, the statute explicitly gives the OCC the authority to “compromise, modify, or remit any penalty” that the OCC “may assess or had already assessed under subparagraph (A), (B), or (C).”
Miller cites the Supreme Court‘s interpretation of a criminal forfeiture statute to support her argument. That statute provides that “[a]ny person convicted of a violation of this subchapter or subchapter II punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law,” different types of property.
2. Rule 9(b)
A qui tam plaintiff also does not state a reverse false claim if the allegations
Miller raises two arguments on appeal. First, she contends that she adequately alleged a reverse false claim because the FCA does not require her to allege a false statement. Miller is correct that alleging a reverse false claim does not require an affirmative misrepresentation in the form of a false statement. See
While her complaint purports to allege a theory of liability based on concealing and/or improperly avoiding and decreasing an obligation to pay the government, the gravamen of Miller‘s complaint is that Citibank altered third-party compliance reports, including her own, turning them into false statements or reports. See, e.g., J.A. at 13 (Citibank was “manipulating audit reports and . . . fraudulently submitting documentation to assert that they were in compliance” with various consent orders); id. at 25 (Citibank was “ignoring its agreements with OCC and CFPB by altering her audit and external executive summary reports to avoid red flagging third party compliance failures which were in violation of the Government‘s guidance and consent orders“); id. at 26 (“Miller witnessed, firsthand, her audit reports regarding violations with the CFPB and OCC Consent Orders and agency guidelines, being altered to provide the reader with the impression that the Third-party Supplier was not in violation regarding critical functions.“); id. at 27 (“Miller has observed senior Citibank management suppressing Audit findings, altering reviews and minimizing audit observations to ensure that Citi is not subject to mandated fines and penalties.“). Miller was, accordingly, required to allege the false statements at issue with particularity.
Miller next argues, alternatively, that “she alleged particulars of Citibank‘s false statements as well.” Appellant‘s Br. at 21. But, as the district court observed, Miller fails to identify any specific statements or reports that Citibank altered. See Citigroup, 2022 WL 2237619, at *4. Instead, she merely refers to general categories of reports, like audit reports and external executive summary reports. Such a failure to identify a specific fraudulent statement or report, when the claim relies on one, is fatal to her reverse false claim. See Foreman, 19 F.4th at 119 (dismissal appropriate where reverse false claim complaint “does not specifically reference any false records or statements.” (quoting Wood, 328 F. App‘x at 748)); cf. Ladas v. Exelis, Inc., 824 F.3d 16, 27 (2d Cir. 2016) (affirming dismissal of qui tam complaint on 9(b) grounds based in part on district court‘s conclusion that relator‘s
More broadly, Miller‘s complaint fails to “state[] with particularity the circumstances constituting fraud.”
Here, in contrast, Miller‘s complaint is premised on her allegation that Citibank hid third-party compliance failures from the government but fails to identify or describe any of the alleged third-party compliance failures or any specific statements masking the failures. The complaint is bereft of the details needed to provide Citibank with “fair notice” of her claim, O‘Brien, 936 F.2d at 676, and instead resembles an attempt to use the litigation process to discover hypothetical wrongdoing, Madonna, 878 F.2d at 66. Miller‘s complaint thus fails to satisfy the particularity required by
B. Share of the 2020 OCC Penalty
Miller argues next that the district court erred by denying her request for a share of the 2020 OCC Penalty. We disagree. Where the government elects to pursue its claim through an alternate remedy, the question arises as to whether the relator must have pleaded a valid FCA claim in the qui tam action before being eligible for a share of the government‘s recovery from the alternate remedy. While we have not had occasion to consider the issue, other circuit courts have concluded that the relator must have pleaded a valid cause of action.10 District courts in our circuit have
We see no reason to stray from the approach of our sister circuits and district courts in our circuit. The FCA‘s incentives for relators “to uncover, report, and prosecute FCA claims for the benefit of the United States” should remain attractive, even though enforcement under the FCA can proceed in multiple ways. See L-3 Commc‘ns, 921 F.3d at 14. The alternate remedy provision seeks to preserve the statute‘s incentives. It does so by granting the relator a share of a financial recovery secured by the government when it chooses to pursue an alternate remedy, like an administrative action, instead of intervening in the relator‘s qui tam action. But the relator has no right to a portion of a financial recovery if she failed to allege a valid FCA claim in the first place; if a valid FCA claim is lacking, there would be no recovery of which to take a share. See Donald, 329 F.3d at 1043 n.5 (“[W]e [have] held that a ‘relator has a right to recover a share of the proceeds of the “alternate remedy” to the same degree that he or she would have been entitled to a share of the proceeds of an FCA action.‘” (emphasis in original) (quoting United States ex rel. Barajas v. United States, 258 F.3d 1004, 1010 (9th Cir. 2001))); see also Hefner, 495 F.3d at 112 (“The statute evinces no intent to compensate relators who bring unfounded § 3729 claims . . . .“). We therefore hold that a relator must plead a valid FCA claim to be eligible to seek a share of the government‘s recovery under the FCA‘s alternate remedy provision.
Because Miller has failed to state a reverse false claim, she cannot avail herself of the FCA‘s alternate remedy clause. We affirm the district court‘s denial of her request for a share of the 2020 OCC Penalty.12
C. Leave to Amend
Miller also appeals the district court‘s denial of her request for leave to amend her complaint. Although
Moreover, Miller failed to submit proposed amendments with her initial motion. See TechnoMarine, 758 F.3d at 505 (“A plaintiff need not be given leave to amend
CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.