Court Opinion

ID: 2677708
Source: CourtListenerOpinion
Date Created: 2014-06-10 14:30:41.820514+00
Date Added: 2024-06-11T09:35:48.058709
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 13, 2014                   Decided June 10, 2014

                       No. 13-5112

           UNITED STATES OF AMERICA, ET AL.,
                     APPELLEES

                             v.

         BANK OF AMERICA CORPORATION, ET AL.,
                    DEFENDANTS

                WELLS FARGO BANK, N.A.,
                      APPELLANT

        Appeal from the United States District Court
                for the District of Columbia
                    (No. 1:12-cv-00361)

    Douglas W. Baruch argued the cause for appellant. With
him on the briefs were William F. Johnson and Jennifer M.
Wollenberg.

    Lindsey Powell, Attorney, U.S. Department of Justice,
argued the cause for appellees. With her on the brief were
Stuart F. Delery, Assistant Attorney General, Ronald C.
Machen Jr., U.S. Attorney, and Michael S. Raab, Attorney.
                               2
    Before: BROWN, GRIFFITH and MILLETT, Circuit Judges.

    Opinion for the Court filed PER CURIAM.

    PER CURIAM:      Wells Fargo Bank, N.A., appeals from
an order denying its motion to enforce a consent judgment.
We affirm.

                               I

     In March 2012, the United States, forty-nine states, and
the District of Columbia filed suit in the United States District
Court for the District of Columbia against several mortgage
servicers, including appellant Wells Fargo. That complaint
asserted claims under the False Claims Act, 31 U.S.C.
§§ 3729 et seq., and the Financial Institutions Reform,
Recovery, and Enforcement Act (FIRREA), 12 U.S.C.
§ 1833a, based on Wells Fargo’s alleged misconduct in
issuing home mortgage loans insured by the Federal Housing
Administration (FHA), a division of the United States
Department of Housing and Urban Development (HUD).

     The next month, the parties agreed on a settlement that
the district court entered as a consent judgment. In exchange
for roughly $5 billion in consideration from Wells Fargo, the
United States agreed to release certain claims, including
claims “under FIRREA, the False Claims Act, and the
Program Fraud Civil Remedies Act[, 31 U.S.C. §§ 3801 et
seq.,] where the sole basis for such claim or claims is that
[Wells Fargo] submitted to HUD-FHA * * * a false or
fraudulent annual certification” that it had complied with “all
HUD-FHA regulations necessary to maintain HUD-FHA
approval[.]” Release ¶ 3(b) at F-17; see generally United
States Dep’t of Housing & Urban Dev., FHA Title II
Mortgagee Approval Handbook, 4060.1 REV-2 § 4-2 (2006)
                               3
(“Annually, each mortgagee must complete and return to the
Department a Title II Yearly Verification Report[.]”).

    Underscoring that “sole basis” language, Paragraph 3(b)
continued:

         For avoidance of doubt, this Paragraph means that
    the United States is barred from asserting that a false
    annual certification renders [Wells Fargo] liable under
    the False Claims Act and the other laws cited above for
    loans endorsed by [Wells Fargo] for FHA insurance
    during the period of time applicable to the annual
    certification without regard to whether any such loans
    contain      material   violations    of    HUD-FHA
    requirements, or that a false individual loan
    certification * * * renders [Wells Fargo] liable under
    the False Claims Act for any individual loan that does
    not contain a material violation of HUD-FHA
    requirements.

Release ¶ 3(b) at F-17 to F-18.

    In the consent judgment, the district court retained
exclusive jurisdiction to enforce its terms and to resolve “any
dispute arising out of matters” within the Release’s scope.
Release ¶ 20 at F-43; Consent J. ¶ 13.

    Six months after entry of the consent judgment, the
United States filed a wide-ranging complaint against Wells
Fargo in the United States District Court for the Southern
District of New York. The complaint again pleaded claims
under the False Claims Act and FIRREA in connection with
Wells Fargo’s origination and underwriting of thousands of
individual, federally insured mortgages. Believing that such
claims were precluded by the Release, Wells Fargo moved the
                              4
United States District Court for the District of Columbia for
an injunction enforcing the consent judgment by barring all of
the United States’ claims in the New York litigation. In Wells
Fargo’s view, “Paragraph 3(b) release[d] Wells Fargo from
liability for company-wide conduct that was the subject of
[its] annual certifications,” United States v. Bank of America,
922 F. Supp. 2d 1, 9 (D.D.C. 2013), and the New York suit
based its claims on such conduct.

     The district court denied Wells Fargo’s motion. The
court ruled that the unambiguous language of Paragraph 3(b)
released Wells Fargo only from claims “the sole basis” of
which is the submission of a false or fraudulent annual
certification. Id. (internal quotation marks omitted; emphasis
added). That limitation, the court explained, expressly
preserved the United States’ ability to pursue other legal
claims based on the independent loan origination and
servicing conduct that underlay those certifications. Id.
Wells Fargo timely appealed the district court’s judgment.

                              II

     Reviewing the Release de novo under standard principles
of contract law, see Segar v. Mukasey, 508 F.3d 16, 22 (D.C.
Cir. 2007), the Release’s plain text forecloses Wells Fargo’s
interpretation. First, the “sole basis” sentence expressly
confines the release of claims to those for which liability is
predicated on the specific conduct of filing a false annual
certification. Release ¶ 3(b) at F-17.

     Second, the Release’s “for avoidance of doubt” language,
as advertised, eliminates any further doubt by confining the
release to (i) claims “based on a false individual loan
certification where the individual loan did not contain a
material violation of HUD-FHA requirements,” Bank of
                                 5
America, 922 F. Supp. 2d at 9 & n.8; and (ii) potentially
sweeping liability for every single one of the thousands of
loans made while Wells Fargo was operating under a false
annual certification, regardless of whether each loan
independently violated the governing federal regulations.
Release ¶ 3(b) at F-17 to F-18; cf. United States ex rel. Main
v. Oakland City Univ., 426 F.3d 914, 916 (7th Cir. 2005)
(holding that a university’s initial certification of eligibility to
participate in a federal subsidy program for college students
renders a subsequent application for payment under the
program “false because it [falsely] represents that the student
is enrolled in an eligible institution”); S. Rep. No. 345, 99th
Cong., 2d Sess. 9 (1986) (claim for Medicare reimbursement
“may be false even though the services are provided as
claimed if, for example, the claimant is ineligible to
participate in the program”).

     The third textual strike against Wells Fargo is that the
Release expressly preserved the United States’ right to pursue
claims “for conduct with respect to the insurance of
residential mortgage loans that violates any laws, regulations
or other HUD-FHA requirements applicable to the insurance
of residential mortgage loans by HUD.” Release ¶ 3(b) at F-
18. That same provision further allows the United States to
introduce evidence of Wells Fargo’s “failure to comply with
applicable HUD-FHA requirements”—including failures to
comply with HUD-FHA requirements that underlie annual
certifications—“in any way” as long as it is “in connection
with any claim that there was a material violation(s) of
applicable HUD-FHA requirements with respect to an
individual loan or loans[.]” Release ¶ 3(b) at F-18.

     Wells Fargo’s efforts to escape those contractual
limitations fail. Wells Fargo argues at length that Paragraph
3(b) released it from liability for any company-wide conduct
                              6
that allegedly rendered the annual certification false. The
short answer is that is not what Paragraph 3(b) says. It
releases only the far narrower category of Wells Fargo’s
liability for all of the individual loans made pursuant to the
false annual certification that did not themselves transgress
any regulatory directives. Release ¶ 3(b) at F-16 to F-19. By
contrast, if the same conduct that gave rise to a false annual
certification also resulted in individual loans that materially
transgressed HUD or FHA requirements, then the claim was
not released because the falsity of the annual certification
would not be the “sole” basis for the claim. Instead, the
distinct loan-level regulatory violation would provide an
independent basis for liability.

     On top of that, Wells Fargo’s insistence that the release
encompassed “conduct” begs the question of precisely which
“conduct” was released and which was preserved—a question
that the “for avoidance of doubt” clause conclusively answers.
Notably, when the settlement agreement meant to release
categories of origination and servicing conduct, it did so
expressly. See Release at F-2 to F-3, F-6 to F-9, F-12 to F-15
(defining and then releasing, for other purposes, “Covered
Servicing Conduct” and “Covered Origination Conduct”).

     Wells Fargo points to a parenthetical phrase in Paragraph
3(b) that describes the release in conduct-based terms as
“(including, but not limited to, the requirement that the
mortgagee implement and maintain a quality control program
that conforms to HUD-FHA requirements).” Release ¶ 3(b)
at F-17. Read in context, however, the parenthetical just
illustrates one type of the false or fraudulent annual
certifications concerning general compliance with HUD-FHA
regulations to which the Release applies—i.e., one falsely
certifying compliance with the requirement of maintaining a
quality-control program. Id. That is because the “use of
                                  7
parentheses,” when “prefaced with the word ‘including,’ ”
simply “emphasizes the fact that that which is within is meant
simply to be illustrative, hence redundant.” Chickasaw
Nation v. United States, 534 U.S. 84, 89 (2001). The
parenthetical, in other words, cannot sweep any further than
the “sole basis” language it illuminates.

     Finally, it is this court’s task to construe and enforce the
Release. Release ¶ 20 at F-43; Consent J. ¶ 13. But it is the
Southern District of New York’s job to construe the United
States’ complaint and to ensure that the claims are litigated in
a manner that comports with the Release’s limitations, as
determined by this court. Wells Fargo is correct that some
portions of the New York complaint tread on the verge of the
released claims, referencing false annual certifications
explicitly. See First Amended Compl. of the United States of
America ¶¶ 160, 165, United States v. Wells Fargo Bank,
N.A., No. 12-civ-7527 (JMF) (S.D.N.Y. Dec. 21, 2012).

     Counsel for the United States, however, repeatedly
conceded at oral argument that, to comport the New York
litigation with the Release’s terms, “material violations do
need to be demonstrated with respect to individual loans.”
Oral Arg. Tr. 25, lines 23–24; see also id. at 26, lines 14–16
(“[C]laims do depend in each instance on material violations
with respect to each loan, so they do not rely on that threshold
certification.”). Should the government’s prosecution of its
claims depart from that concession, Wells Fargo may seek
appropriate relief. 1
1
  Relying on the D.C. district court’s interpretation of the Release in
this case, the District Court for the Southern District of New York
denied Wells Fargo’s motion to dismiss, concluding that the
operative complaint in New York does not involve claims based
“solely” on Wells Fargo’s submission of false or fraudulent annual
certifications. United States v. Wells Fargo Bank, N.A., 972 F.
8

     Accordingly, the judgment of the district court is
affirmed.

                                               So ordered.

Supp. 2d 593, 604–605 (S.D.N.Y. 2013). That decision is not
before us.