Federal Judge Rejects Expansive Interpretation of False Claims Act

An Ohio federal judge dismissed a False Claims Act lawsuit brought against U.S. Bank that could have expanded liability under the statute. The plaintiff, a legal aid group, claimed that U.S. Bank was defrauding the federal government through its mortgage practices. But as the New York Times reports, the judge rejected the lawsuit as based on publicly-known information.

A federal judge this week dismissed an innovative lawsuit that had threatened to open a new front in the legal assault on the foreclosure practices of large banks.

In the case, a legal aid group had taken the inventive step of assuming the role of a whistle-blower revealing abuses in the handling of a popular type of government-backed mortgage.

But Judge Jack Zouhary of Federal District Court for the Northern District of Ohio ruled on Tuesday that the group, Advocates for Basic Legal Equality, did not act as a whistle-blower in the way envisioned by the False Claims Act, the legislation that was the basis for the group’s action.

The lawsuit was filed against U.S. Bank, a unit of U.S. Bancorp, one of the nation’s largest financial firms. A spokesman for the bank declined to comment on Judge Zouhary’s decision.

George Thomas, a staff lawyer at Advocates for Basic Legal Equality, said that the group was weighing whether to appeal. “We feel strongly that ABLE is appropriate as a whistle-blower,” he said.

The case focuses on mortgages guaranteed by the Federal Housing Administration, which is part of the Department of Housing and Urban Development. When a borrower defaults on such mortgages, the government makes payments to the bank that made the loan to make it whole. The F.H.A.’s rules require banks to work with defaulting borrowers to find ways to become current on their loans.

But the legal aid group claimed that U.S. Bank did not follow those rules in many cases ...

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