Rosenberg v. JPMorgan Chase & Co.

487 Mass. 403

169 N.E.3d 445

Johan ROSENBERG¹

v.JPMORGAN CHASE & CO. & others.²

SJC-12973

Supreme Judicial Court of Massachusetts.

Argued January 6, 2021.

Decided May 11, 2021.

The following submitted briefs for amici curiae:

Tejinder Singh, of Maryland, for the plaintiff.

Robert N. Hochman, of Illinois (David G. Jorgensen & Holly A. Harrison, of Illinois, Susanna Buergel, of New York, Matthew D. Benedetto, of California, Paul J. Murphy, Carol A. Starkey, Megan E. Barriger, & Kathryn L. Alessi also present), for the defendants.

Ben Robbins & Martin J. Newhouse, for New England Legal Foundation.

Ian D. Roffman, Thomas J. Carey, Jr., & David K. Bastian, for Greater Boston Chamber of Commerce.

Sheri Littlefield, of New York, Patrick T. Egan, Justin N. Saif, & Corey W. Silva, for CFA Institute.

Jacklyn DeMar, of the District of Columbia, & Sonya A. Rao, for Taxpayers Against Fraud Education.

Present: Budd, C.J., Gaziano, Lowy, Cypher, Wendlandt, & Georges, JJ.

WENDLANDT, J.

The Massachusetts False Claims Act, G. L. c. 12, §§ 5A - 5O (MFCA), authorizes a private party to bring an action alleging that a person has committed a fraud on the Commonwealth in connection with a claim for payment under a government program. Such an action may be a valuable tool to shine a light on fraudulent behavior that otherwise might remain undiscovered. In return, the private party (known as a "relator") is rewarded a portion of the recovery from the misfeasors. Where the essential features of an individual's purported chicanery already have been illuminated, by contrast, affording a private party an incentive to bring suit is unwarranted, as it would add nothing to the Commonwealth's knowledge; in such circumstances, the MFCA prohibits such suits unless the Commonwealth intervenes. Specifically, the MFCA contains a public disclosure bar that generally requires dismissal of an action "if substantially the same allegations or transactions as alleged in the action ... [previously have been] publicly disclosed" through certain enumerated sources. G. L. c. 12, § 5G (c ).

Applying this public disclosure bar to the complaint at issue here, a Superior Court judge dismissed the complaint. Because the complaint rested on information that already had been exposed to the light of day, we affirm.³

1. Background. We recite the facts as set forth in the complaint, viewing all of the allegations as true and drawing all reasonable inferences in the plaintiff relator's favor. See Magliacane v. Gardner, 483 Mass. 842, 844, 138 N.E.3d 347 (2020), citing Revere v. Massachusetts Gaming Comm'n, 476 Mass. 591, 595, 71 N.E.3d 457 (2017).

a. Relator's claims. The relator, Johan Rosenberg, commenced this action on behalf of the Commonwealth against the defendants -- certain financial institutions and their subsidiaries, see note 2, supra -- alleging that the defendants collectively engaged in and conspired to engage in fraud in connection with resetting interest rates for certain municipal bonds, referred to as variable rate demand obligations (VRDOs). VRDOs are long-term, tax-exempt, variable rate bonds. The Commonwealth and its subdivisions⁴ issue VRDOs to finance long-term public projects or infrastructure, such as airports, ports, roads and bridges, and affordable housing. Because interest rates on the bonds are reset on a periodic basis, often weekly, by the remarketing agent, the bonds allow issuers, like the Commonwealth, to borrow money for long periods of time while paying short-term interest rates. The Commonwealth retained the defendants as remarketing agents to perform the requisite periodic resetting of the VRDO interest rates. According to the complaint, the contracts between the Commonwealth and the defendants required that the defendants "actively and individually market and price these bonds at the lowest possible interest rates" that would permit the sale of the VRDOs on a given rate determination date.⁵

The relator maintains that the defendants did not perform these services as promised; instead, the defendants engaged in a rate setting scheme, which he refers to as "robo-resetting," whereby the defendants "mechanically set the rates en masse without any consideration of the individual characteristics of the bonds, the associated market conditions[,] or investor demand." The relator, who states that he has over twenty years of experience in advising municipalities on issuing securities, asserts that he confirmed his suspicions of this "bucket" rate-setting scheme through a forensic analysis of published interest rate data for these types of bonds. The interest rates for VRDOs are published daily on a publicly available website, Electronic Municipal Market Access (EMMA).⁶ The relator's analysis revealed that, for certain groups of VRDOs,⁷ the interest rates moved in lock step; the relator labels these groups "buckets"⁸ of VRDOs. This collective interest rate setting, he maintains, had no business justification, and demonstrates a lack of individualized judgment as to the lowest interest rate that would permit the sale of a given VRDO at the time the interest rate was reset. He argues that this collective rate setting thereby resulted in "artificially high interest rates on Massachusetts VRDOs," and violated the defendants’ obligations to the Commonwealth to market the VRDOs at the lowest interest rate that would permit sale on a given rate determination date. Thus, the relator contends, the defendants fraudulently collected fees for services as remarketing agents that they did not perform.

The relator argues that the defendants also benefited in another manner from their approach to resetting interest rates. Specifically, the artificially high interest rates resulting from the defendants’ scheme caused VRDO investors to hold the bonds rather than to exercise their "put" options. A put option allows an investor in a VRDO to redeem the VRDO at face value plus interest earned. When a put option is exercised, a remarketing agent becomes responsible for reselling the redeemed securities to new investors. If a remarketing agent is unable to find another investor, a liquidity provider must step in and purchase the VRDO from the redeeming investor. For this reason, VRDOs are backed by liquidity agreements, often letters of credit, to finance redemptions where no new investor is found. The same financial institution (here, the defendants) may serve as both the remarketing agent and the issuer of the letter of credit for a particular VRDO. According to the complaint, the defendants were paid fees by the Commonwealth to provide letter of credit services. By setting the interest rates for VRDOs artificially high, the defendants assured that the holders of the bonds would not exercise their put options and the defendants would not have to find other investors to purchase the bonds or to buy the bonds themselves.

As a result of these actions, the relator contends, the defendants collected millions of dollars in fees from the Commonwealth for remarketing services that they did not provide. He maintains that the defendants also extracted millions of dollars in fees as liquidity providers even though the chance of needing to draw on the letters of credit services was very low ("rarely, if ever, called upon") because bond holders were unlikely to exercise their put options in view of the artificially high interest rates. Because the interest rates were artificially high, the relator asserts, the Commonwealth paid extra interest on its VRDOs (some of which were owned by the defendants).⁹

b. Procedural history. The relator filed his initial complaint in 2014; the Commonwealth declined to intervene.¹⁰ In 2017, the relator filed an amended complaint, and, in 2019, he filed a second amended complaint, now at issue before us.

The defendants filed a joint motion to dismiss, which the Commonwealth did not oppose. The judge allowed the motion,¹¹ and the relator appealed. We then transferred the appeal to this court on our own motion.

2. Discussion. a. Standard of review. We review the allowance of a motion to dismiss de novo. Goodwin v. Lee Pub. Sch., 475 Mass. 280, 284, 56 N.E.3d 777 (2016), citing Curtis v. Herb Chambers I-95, Inc., 458 Mass. 674, 676, 940 N.E.2d 413 (2011). We "accept as true the factual allegations in the complaint and the attached exhibits, draw all reasonable inferences in the [relator's] favor, and determine whether the allegations ‘plausibly suggest’ that the [relator] is entitled to relief on that legal claim." Buffalo-Water 1, LLC v. Fidelity Real Estate Co., 481 Mass. 13, 17, 111 N.E.3d 266 (2018). See Revere, 476 Mass. at 595, 71 N.E.3d 457. "[M]atters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account" (quotation and citation omitted). Iannacchino v. Ford Motor Co., 451 Mass. 623, 631 n.14, 888 N.E.2d 879 (2008). See Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 224, 950 N.E.2d 853 (2011), S.C., 466 Mass. 156, 993 N.E.2d 684 (2013), quoting Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 45 n.4, 809 N.E.2d 1017 (2004) ("Where ... the [relator] had notice of [the extrinsic] documents and relied on them in framing the complaint, the attachment of such documents to a motion to dismiss does not convert the motion to one for summary judgment ...").

In their motion to dismiss, the defendants argued that dismissal was required pursuant to the public disclosure bar of the MFCA because the transactions at issue previously had been disclosed to the public through news media and the relator was not an original source of the information concerning the fraud. This motion requires construction of the public disclosure bar, a matter of statutory interpretation that we review de novo. See Ortiz v. Examworks, Inc., 470 Mass. 784, 788, 26 N.E.3d 165 (2015), citing Commerce Ins. Co. v. Commissioner of Ins., 447 Mass. 478, 481, 852 N.E.2d 1061 (2006).

b. Statutory...