United States ex rel. Brown v. BankUnited Trust 2005-1

235 F.Supp.3d 1343

UNITED STATES of America, et al., EX REL. Susan BROWN and David Stone, Plaintiffs–Relators,

v.BANKUNITED TRUST 2005–1, et al., Defendants.

Case No. 14–cv–22855–GAYLES

United States District Court, S.D. Florida.

Signed January 30, 2017

William J. Sanchez-Calderon, James Alan Weinkle, United States Attorney's Office, Miami, FL, for Plaintiffs

Harold Edward Patricoff, Jr., Eliot Pedrosa, Shutts & Bowen, Miami, FL, Diane L. McGimsey, John D. Echeverria, Michael P. Murtagh, Robert A. Sacks, Sullivan & Cromwel, LLP, Losa Angeles, CA, Alexander Julian Hall, Kendall Brindley Coffey, Kevin Crow Kaplan, Miami, FL, Ronald Henry Trybus, Kass Shuler, P.A., Tampa, FL, Gerald Edward Greenberg, Jarred Lee Reiling, Gelber Schachter & Greenberg, P.A., Miami, FL, Michael Martinez, Michelle J. Annunziata, Mayer Brown LLP, New York, NY, Dori Katrine Stibolt, Amy S. Rubin, Fox Rothschild LLP, West Palm Beach, FL, Dennis A. Nowak, Caitlin Marie Trowbridge, Rumberger Kirk & Caldwell, P.A., Miami, FL, Antony L. Ryan, Thomas G. Rafferty, Cravath Swaine & Moore LLP, New York, NY, Ramon A. Abadin, Abadin Jaramillo Cook et al, Miami, FL, Andrew I. Silfen, Arent Fox, LLP, New York, NY, D. Jacques Smith, Jackson D. Toof, Jeffrey N. Rothleder, Arent Fox, LLP, Washington, DC, Leyza Florin Blanco, GrayRobinson, P.A., Miami, FL, Kobi K. Brinson, Winston & Strawn, LLP, Charlotte, NC, Robbin S. Rahman, Todd C. Meyers, Kilpatrick Townsend & Stockton, LLP, Atlanta, GA, Corali Lopez–Castro, Kozyak Tropin & Throckmorton, Coral Gables, FL, David Paul Ginzer, Winston & Strawn LLP, Charlotte, NC, for Defendants

ORDER

DARRIN P. GAYLES, UNITED STATES DISTRICT JUDGE

THIS CAUSE comes before the Court on Defendants' Motion to Dismiss Relators' Second Amended Complaint [ECF No. 228] (the "Joint Motion"), filed by Defendants BankUnited Financial Corporation ("BUFC"); BankUnited, N.A. ("BankUnited"); PricewaterhouseCoopers LLP ("PwC");¹ Wells Fargo Bank, N.A. ("Wells Fargo");² Wells Fargo Delaware Trust Company, N.A. ("Wells Fargo Delaware");³ U.S. Bank, N.A. ("U.S. Bank");⁴ Bank of New York Mellon Corporation ("BNY Mellon");⁵ Wilmington Trust Company;⁶ Carrington Mortgage Services, LLC ("Carringon"); JPMorgan Chase & Co. ("JPMorgan"); EMC Mortgage LLC f/k/a EMC Mortgage Corporation ("EMC");⁷ Structured Asset Mortgage Investments II Inc. ("SAMI II");⁸ Humberto L. Lopez; Ramiro A. Ortiz; and Alfred R. Camner, as well as on supplemental motions to dismiss and supplemental memoranda in support of motions to dismiss filed by various Defendants individually.⁹ The Court has reviewed the operative Complaint and exhibits attached thereto, the parties' briefs, and the applicable law and is otherwise fully advised in the premises.

The Relators in this case, Susan Brown and David Stone (the "Relators"), bring this qui tam action claiming violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729 –33, and several state and local false claims acts, arising from alleged fraud and false claims orchestrated by BUFC, its affiliated companies, and the other Defendants. The Defendants have moved to dismiss, arguing, inter alia , that the Court lacks subject matter jurisdiction over the federal False Claims Act claims, as they are barred by that Act's public disclosure bar. Because the Court agrees with the Defendants, the Joint Motion to Dismiss shall be granted. Moreover, because the Court declines to exercise supplemental jurisdiction over the state and local false claims act claims, the action shall be dismissed in its entirety.

I. BACKGROUND

A. Factual History

1. The Failure of BankUnited FSB

BankUnited FSB ("BUFSB") was a Miami-based savings and loan that was originally established as a state-chartered de novo institution (under the name United Savings Association) in 1984. Compl. Ex. A¹⁰ at 40 (Office of Inspector General, Dep't of Treasury, Safety and Soundness : Material Loss Review of Bank United, FSB (2010)) ("OIG Report"). In 2000, the Federal Reserve Bank decided to reduce interest rates for member banks to borrow funds to near-zero percent. Second Am. Compl. ¶ 17. Following the Fed's decision, the banking industry "began to zealously and feverishly originate, securitize, and sell" option adjustable rate mortgage loans ("option ARM"). Id. ¶ 18; OIG Report at 40. An option ARM is an adjustable rate mortgage with several possible payment options; these options usually include (1) paying an amount that covers both principal and interest, (2) paying an amount that covers only interest, or (3) paying a minimum amount that does not even cover interest. What Is an Option or Payment–Option ARM? , Consumer Fin. Prot. Bureau, http://www.consumerfinance.gov/askcfpb/102/what-is-an-option-or-payment-option-arm.html (last visited Jan. 6, 2017). In the third option, the unpaid interest is added to the principal loan balance—a process otherwise known as negative amortization.

Beginning in 2004, BUFSB heavily increased its emphasis on option ARMs. See OIG Report at 40. In 2003, option ARMs had totaled only five percent of BUFSB's assets. Id. at 41. By March 2008, option ARMS totaled fifty-one percent of its assets ($7.3 billion). Id. at 42. At their peak, ninety-one percent of BUFSB's option ARMs were negatively amortized—in other words, ninety-one percent of BUFSB's borrowers had elected to make payments that were less than the monthly interest accruing on their loans. Id.

As with many banks in the United States during this period of time, these lending practices soon became unsustainable for BUFSB. In December 2007, the federal Office of Thrift Supervision ("OTS"), following an examination of BUFSB, concluded that the level of problem residential loans in BUFSB's portfolio was continuing to increase rapidly, with no indication that it would begin to subside. Id. at 41.¹¹

BUFSB discontinued producing option ARMs in May 2008. Id. at 42. Two months later, the OTS expressed concern to BUFC—BUFSB's holding company—about BUFC's ability to continue to service its significant accumulated debt and to successfully access capital markets in light of its significant asset quality issues. Id. On July 24, 2008, the OTS issued a memorandum of understanding to BUFC, requiring it to raise a minimum of $400 million. Id. at 40, 42. That same day, the OTS also issued a memorandum of understanding to BUFSB requiring it to, inter alia , terminate its negative-amortization and reduced-documentation lending programs. Id. at 42. The OTS determined that BUFSB was in an unsafe and unsound condition due to the deterioration in its portfolio of nontraditional mortgage loans, the concentration of risk associated with the portfolio, and the resultant need for significant additional capital. Id.

On August 4, 2008, OTS officials held a conference call to discuss BUFSB's status and the appropriate supervisory and enforcement response. Id. at 42–43. The officials also discussed the willingness of BUFSB's management to infuse capital from BUFC to offset a loss for the quarter ending June 30, 2008. The OTS senior deputy director instructed that the infusion of capital should be backdated to June 30, 2008, and that BUFSB should amend its thrift financial report accordingly. Id. at 43. So, on August 11, 2008, BUFC filed Form 8–K with the Securities and Exchange Commission ("SEC"), which included a press release and examination for the quarter ending June 30, 2008. Id. The 8–K announced that BUFC "strengthened [BUFSB]'s capital ‘through an $80 million capital contribution’ "—in essence, reflecting the backdated capital contribution that had been directed by the OTS senior deputy director. Id. On August 25, 2008, BUFC filed a Form 10–Q with the SEC for the quarter ending June 30, 2008, which also reflected the backdated capital contribution, stating that, effective June 30, 2008, BUFC had contributed $80 million in additional capital to BUFSB. Id. at 44.

BUFSB's decline continued rapidly. While in July 2008, BUFSB had met the regulatory standard for a well-capitalized designation (the highest capital classification), by January 30, 2009, when BUFSB filed its thrift financial report for the quarter ending December 31, 2008, it met the standard of "critically undercapitalized"—the lowest capital classification.¹² The OTS sent a prompt corrective action notice regarding BUFSB's critically undercapitalized status to the board of BUFSB on February 10th, requiring that the institution submit a capital restoration plan. Id. at 46. That capital restoration plan, submitted February 25th, included an injection of $1 billion in equity capital by March 31, 2009, and was contingent on a loss-sharing agreement with the Federal Deposit Insurance Corporation ("FDIC") or other government agency and the development of an appropriate deal structure. Id. The OTS rejected the plan because it relied on a government-assisted open bank transaction. Id.

On March 12, 2009, BUFSB notified the Federal National Mortgage Association ("Fannie Mae") that it would voluntarily terminate the mortgage selling and servicing contract between it and Fannie Mae, effective April 1st of that year. Id. Fannie Mae withdrew its entire mortgage portfolio from BUFSB, alleged to be in excess of $6 billion in originated book value. Second Am. Compl. ¶ 52.

On April 14, 2009, the OTS issued a directive that included the consent of BUFSB's board to the appointment of a conservator or receiver. OIG Report at 46. On May 21, 2009, the OTS closed BUFSB and appointed the FDIC as receiver. Id.

2. The Relators' Allegations

According to the allegations in the Second Amended Complaint, this action has its genesis in foreclosure proceedings brought against the Relators by BUFSB. In mid–2003, the Relators refinanced the first mortgage on their personal residence, located 3207 Barton Road in Pompano Beach, Florida—a house they originally built with the intent to sell—with First Union Bank (a bank that was purchased by Wachovia Bank, which itself was later purchased by Wells Fargo...