SDNY Grants DOJ’s Request To Add Bank Executive To Pending FCA/FIRREA Litigation


On December 12, the U.S. District Court for the Southern District of New York granted the DOJ’s motion to add a bank executive to a civil fraud suit it filed over a year earlier against a mortgage lender alleged to have falsely certified loans under the FHA’s Direct Endorsement Lender Program. U.S. v. Wells Fargo Bank, N.A., No. 12-7527, slip op. (S.D.N.Y. Dec. 12, 2013). The government alleges that the bank’s vice president in charge of quality control purposefully failed to self-report bad loans to HUD, despite having knowledge of HUD’s reporting requirements, and that he signed annual certifications misrepresenting to HUD that the bank complied with those reporting requirements. The court agreed with the government’s contentions that amending the complaint to add the individual defendant was permissible because (i) the bank would not be unduly prejudiced because the allegations were already at issue in the pending suit and the parties had yet to begin discovery; (ii) the claims that the government would assert were not futile, as the court had already ruled on the validity of the government’s theories of liability under the FCA and FIRREA, and the new defendant would have the opportunity to seek dismissal on other grounds; (iii) there had been no undue delay, because the government had not received authority to add the executive until after the bank’s motion to dismiss was fully submitted, and had not made a final determination to bring the proposed action against the executive until the day it informed the bank of its intention to do so; and (iv) the interests of judicial economy supported joinder insofar as a separate suit against the executive for conduct already at issue here would have been inefficient. The court did not address the bank’s argument that the government knew sooner of its authority to add the executive, ultimately and improperly electing to do so because the bank suspended settlement negotiations.

Topics:  Banks, Compliance, DOJ, Enforcement Actions, FCA, FIRREA, Wells Fargo

Published In: Civil Procedure Updates, Civil Remedies Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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