Earlier this month, we reported that the U.S. Attorney in the Southern District of New York filed a billion dollar False Claims Act lawsuit against Deutsche Bank and its subsidiary MortgageIT for alleged mortgage fraud during last decade’s housing bubble. (Click here for the prior post.) It appears that a number of state attorneys general may begin to file lawsuits as well. Yesterday, the California Attorney General announced the creation of mortgage fraud strike force, and the Illinois Attorney General expanded her investigation into alleged practices used by banks and other mortgage institutions, including “robosigning.” (Click here for the California AG press release and here for the Illinois AG press release). Last week, the New York Attorney General opened an investigation into mortgage securitization practices. (Click here for the story reported on the WSJ blog.) Illinois, California, and New York all have state false claims acts and the increased attention given by the attorneys general may encourage private litigants to bring qui tam cases.
On January 11, 2011, in State of California ex rel. Joseph McCann et al. v. Bank of America, N.A. et al, a California Court of Appeal affirmed a trial court’s dismissal of an action under the California False Claims Act based on Bank of America’s alleged failure to return to the State credits resulting from processing errors in Bank of America’s check clearing operations located in San Francisco and Los Angeles. The relators, former employees of Bank of America, claimed that Bank of America collected these credits, held them for a short period of time, and then appropriated the credits as income. Relators claimed that such credits qualified as unclaimed property under the California Unclaimed Property law and that failure to turn over the unclaimed property to the State amounted to a reverse false claim under the California False Claims Act. The Court of Appeal rejected this argument, holding that relators had failed to plead their claims with specificity, the unclaimed credits were not unclaimed property under the California Unclaimed Property Law, and there was no false claim because even if there was an obligation to the State of California, that obligation was not liquidated and certain.