UNITED STATES ex rel. Brian HASTINGS, Plaintiff-Appellant, v. WELLS FARGO BANK, NA, INC., et al., Defendants-Appellees.
No. 14-56314
United States Court of Appeals, Ninth Circuit.
July 27, 2016
Argued and Submitted July 8, 2016 Pasadena, California
We therefore reject Sentry‘s interpretation of the exclusion. Construing the ambiguity in favor of Berns, we conclude that the “intentional” acts exclusion applies only to intentionally wrongful acts; in other words, the exclusion applies only if the insured acted with a specific intent to wrongfully inflict injury. As applied to this case, there is evidence suggesting that Porter misappropriated company files, in which case Berns would have been justified in scolding and terminating her. Because Berns may not have acted with the requisite intent to come within the exclusion, Sentry had a duty to defend. See Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc., 78 Cal.App.4th 847, 93 Cal.Rptr.2d 364, 387 (2000) (noting that an insurer has a duty to defend any lawsuit that potentially falls within the coverage of the policy). We reverse the district court‘s order granting summary judgment to Sentry and remand for further proceedings consistent with this decision.
REVERSED and REMANDED.
Scott Frank Roybal, Esquire, Attorney, Christopher Earl Hale, Esquire, Sheppard Mullin Richter & Hampton LLP, Los Angeles, CA, Karin Dougan Vogel, Esquire, Attorney, Sheppard Mullin Richter & Hampton LLP, San Diego, CA, for Defendant-Appellee Wells Fargo Bank, NA
Michael Lawrence Brown, Allison S. Thompson, Attorney, Alston & Bird LLP, Atlanta, GA, for Defendant-Appellee Suntrust Mortgage, Inc.
William M. Jay, Sabrina Marie Rose-Smith, Esquire, Attorney, Goodwin Procter LLP, Washington, DC, Brooks Russell Brown, Attorney, Goodwin Procter LLP, Los Angeles, CA, David J. Zimmer, Goodwin Procter LLP, San Francisco, CA, for Defendant-Appellee First Tennessee Bank National Association, Inc.
Fredrick S. Levin, Attorney, Buckley-Sandler LLP, Santa Monica, CA, Matthew P. Previn, BuckleySandler LLP, New York, NY, Ann DeSear Wiles, Attorney, BuckleySandler LLP, Washington, DC, for Defendant-Appellee J.P. Morgan Chase Bank, N.A.
Before: VANASKIE,* MURGUIA, and WATFORD, Circuit Judges.
MEMORANDUM**
Relator Brian Hastings appeals from the district court‘s dismissal of his qui tam suit under the False Claims Act (FCA),
1. Under the 1986 version of the FCA, an original source is someone who has “direct and independent knowledge of the information on which the allegations are based.”
Hastings’ 1997 letters to HUD consisted of speculation rather than knowledge. “[T]he purpose of the FCA is to encourage individuals with true ‘knowledge’ of alleged wrongdoing to come forward,” so “the purposes of the Act would not be served by allowing a relator to maintain a qui tam suit based on pure speculation or conjecture.” United States ex rel. Aflatooni v. Kitsap Physicians Servs., 163 F.3d 516, 526 (9th Cir. 1999). The 1997 letters described the Nehemiah program in general
Hastings’ 2012 letter to HUD also fails to establish him as an original source under the 1986 FCA. While that letter did reflect Hastings’ knowledge of alleged fraud, his knowledge was not “direct” within the meaning of the statute. Relators lack direct knowledge when they “did not see the fraud with their own eyes or obtain their knowledge of it through their own labor unmediated by anything else.” United States ex rel. Devlin v. California, 84 F.3d 358, 361 (9th Cir. 1996). Hastings’ set of real estate postings by brokers, collection of internal lending guidelines, and list of allegedly fraudulent FHA insurance claims—assembled from information available to all members of the Multiple State Listing Service—is not sufficient to establish that he had direct knowledge of a scheme to submit false claims. See United States v. Alcan Elec. & Eng‘g, Inc., 197 F.3d 1014, 1020-21 (9th Cir. 1999) (a relator does not have direct knowledge when he “learned of the alleged fraud due to his status as a member of the union“).
2. Under the 2010 version of the FCA, an original source is someone who (1) “prior to a public disclosure ... has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based,” or (2) “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”
Assuming Hastings’ 1997 letters to HUD preceded a public disclosure, they fail to establish him as an original source under the first prong because they did not provide the government with “information.” His letters warned that an increase in the claims rate could threaten seller-funded programs, advocated for his seller-funded program as a way to avoid an increase in default rates, and urged HUD to protect the FHA-insurance program. These letters lack essential facts underlying the alleged fraud. They did not state whether Nehemiah would continue to use a structure that he alleged was in violation of HUD requirements (in fact, one of the letters indicates that Nehemiah had already revised its program at HUD‘s request), or whether banks would certify that loans using Nehemiah‘s program were compliant with HUD regulations. Without these key facts, Hastings’ letters do not contain the “information” required by the statute to be an original source.
Hastings’ letters also fail to show that he had “knowledge,” as required under the second prong, because they stated only that “sellers will resist participation” in the FHA-insurance eligible housing market, and that use of the Nehemiah program could result in an “unexpected and intolerable default rate.” The 2010 FCA amendments require knowledge, but, as explained above, Hastings’ 1997 letters provide only speculation.
Hastings’ 2012 letter to HUD also fails to establish him as an original source under the second prong of the 2010 definition because it does not materially add to what HUD already knew about seller-funded down payment assistance programs. Allegations do not materially add
3. Hastings also alleges that the district court abused its discretion in denying his motion to file a second amended complaint to include additional dates. Because the inclusion of those dates would not establish Hastings as an original source, he failed to show that the denial of leave to amend constituted an abuse of discretion. See Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 738 (9th Cir. 1987).
AFFIRMED.