3:13-cv-01223-JFA Date Filed 07/12/13 Entry Number 14 Page 1 of 7

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION

United States of America, The States of ) CA No. 3:13-cv-1223-JFA

California, Delaware, Florida, Georgia, )
Hawaii, Illinois, Indiana, Iowa, )
Massachusetts, Minnesota, Montana, )
Nevada, New Jersey, New Mexico, )
New York, North Carolina, Rhode )
Island, Tennessee, Virginia, and the )
District of Columbia, ex rel. Laurence )
Schneider, )
)
Plaintiffs/Relator, ) FILED EX PARTE AND
) UNDER SEAL
v. )
)
J.P. Morgan Chase Bank, National )
Association, J.P. Morgan Chase & )
Company, and Chase Home Finance, )
L.L.C., )
)
Defendants. )

UNITED STATES' FIRST MOTION TO EXTEND THE SEAL PERIOD

This case is a qui tam law suit against J.P. Morgan Chase Bank, National

Association, J.P. Morgan Chase & Company, and Chase Home Finance, LLC (“Chase”)

alleging violations of the False Claims Act (“FCA”). Pursuant to the FCA, as amended,

31 U.S.C. ' 3730(b)(3), the United States of America, respectfully makes this Ex Parte

Application for a nine (9) month extension of time up to and including April 14, 2014 1, in

1 Nine months falls on Saturday, April 12, 2014. As a result, the government requests that the
new seal expiration fall on the next business day, which is Monday, April 14, 2014.
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which to notify the Court of its decision whether to intervene in the above-captioned

False Claims Act case. This is the first extension request that the United States has made.

Counsel for the relator, responding states named as plaintiffs2, and the District of

Columbia consent to these requests. As this case is still under seal, the defendants are

unaware of the lawsuit and their consent was not sought.

UNITED STATES' MEMORANDUM IN

SUPPORT OF ITS MOTION TO EXTEND THE SEAL PERIOD

PROCEDURAL HISTORY

This is an action under the qui tam provisions of the False Claims Act, 31 U.S.C.

' 3730(b), as amended (the AFCA@), brought by Laurence Schneider (the ARelator@), on

behalf of the United States. The FCA provides that a qui tam Complaint shall be filed in

camera and remain under seal for 60-days and during any extensions of that time granted

by the Court while the government investigates the allegations and determines whether to

intervene and prosecute the action. The 60-day seal period commences from the date of

service of a copy of the Complaint and statement of material information upon both the

2 The District of Columbia and the states of California, Delaware, Florida, Georgia, Hawaii,
Illinois, Indiana, Iowa, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New Mexico,
New York, North Carolina, Rhode Island, Tennessee, and Virginia are also plaintiffs in this qui
tam. The State of New York’s Attorney General’s office is serving as the contact state in this
matter. Randall M. Fox, Bureau Chief, Taxpayer Protection Bureau, Office of the New York
Attorney General has contacted all of the plaintiff states and requested their position on this
motion. The following states responded and consent to the extension of the seal: California,
Delaware, District of Columbia, Florida, Hawaii, Illinois, Minnesota, New Jersey, New Mexico,
New York and North Carolina. The following states have not responded: Georgia, Indiana,
Iowa, Montana, Massachusetts, Nevada, Rhode Island, Tennessee and Virginia.

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Attorney General and the United States Attorney, whichever is later. See 31 U.S.C. '

3730(b)(2). This action was filed on May 6, 2013. The United States Attorney and

Attorney General were served on May 8, 2013 and May 13, 2013, respectively.

Accordingly, the United States has at least until July 12, 2013 to decide whether or not to

intervene in this action.

FACTUAL BACKGROUND

On March 12, 2012, the United States and 49 states and the District of Columbia

filed a complaint against numerous banks and loan servicing companies, including Chase,

for misconduct relating to the origination and servicing of single family residential

mortgages. The Complaint alleged that the defendants’ misconduct resulted in the

issuance of improper mortgages, premature and unauthorized foreclosures, taxpayer

abuse, and violations of service members and other homeowners rights and protections.

On April 4, 2012, the United States District Court for the District of Columbia entered a

Consent Judgment approving settlement between the nation’s five largest mortgage

servicers, including Chase, the United States, and 49 states. The financial terms of the

Consent Judgment require Chase to pay $1,121,188,661 and provide over $4 billion in

monetary relief to eligible customers. See Consent Judgment at p.3, ¶ 3. In-turn Chase

receives credit when the servicer (1) allows borrowers to make first lien modifications;

(2) allows borrowers to make second lien portfolio modifications; (3) provides borrowers

enhanced transitional funds; (4) facilitates short sales for borrowers; (5) provides

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borrowers deficiency waivers; (6) provides forbearance for unemployed borrowers; and

(7) assists in anti-blight efforts. See Consent Judgment at pp. D1 to D7.

The Consent Judgment also requires servicers such as Chase to implement policies

and procedures including, but not limited to:

• Requirements concerning the accuracy and verification of a borrowers’

account information (Consent Judgment at A-4, I.B.1);

• Notification requirements by servicers to provide to borrowers (Consent

Judgment at A-6, I.B.6-10);

• Information concerning chain of assignment procedures (Consent Judgment at

A-8, I. C.1); and

• Quality Assurance requirements of documents filed on behalf of servicers

(Consent Judgment at A-11, I.E.1)

• Oversight over third-party providers including due diligence (Consent

Judgment at A-12, II.A);

• General loss mitigation requirements including adequate staffing, caseload

limits and documentation requirements (Consent Judgment at A-28-29, II.H.1-

3,7); and

• Servicer Duties and Prohibitions – measures to deter blight (Consent

Judgment at A-40, VIII.A.1-4).

Chase is also required to provide the Federal Government quarterly compliance

reviews and provide the States with a report.

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Relator alleges that defendants’ actions were in violation terms of the Consent

Judgment and the FCA. 31 U.S.C. ' 3729. Specifically, the relator alleges that the

defendants defrauded the government by forgiving loans it did not own, canceling loans it

did not own, distributing baseless forgiveness letters, forgiving mortgages that defendants

were not eligible to receive credit for, and violating servicing standards provisions of the

Consent Judgment. As a result, Chase has made misrepresentations to the government

and failed to provide the States and Federal Government with the full benefit of the

settlement reached in April 2012. The United States and plaintiff States have been

damaged.

DISCUSSION

A. Good Cause Exists for an Extension of Time

The legislative history of the False Claims Act's qui tam provisions makes it clear

that a qui tam complaint is kept under seal to allow the government to pursue its inquiries

into the relator's allegations, "fully evaluate" the evidence, and determine whether or not

to intervene:

Keeping the qui tam complaint under seal . . . is intended to

allow the Government an adequate opportunity to fully evaluate
the private enforcement suit and determine both if that suit
involves matters the Government is already investigating and
whether it is in the Government's interest to intervene and take
over the civil action.

S. Rep. No. 99-345, 99th Cong. 2nd Sess. 24 (1986), reprinted in 1986 U.S. Code Cong.

& Admin. News 5266, 5289. The legislative history also notes that the qui tam seal

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allows the government "an opportunity to study and evaluate" fraud allegations. Id. See

also U.S. ex rel. Pilon v. Martin Marietta Corp., 60 F.3d 995, 998-99 (2d Cir. 1995) (seal

may protect defendant).

In order to adequately investigate and evaluate the fraud allegations contained in a

qui tam complaint and to be able to reach an informed decision about whether to take

over the prosecution of the case, the FCA permit the United States to apply for extensions

of the seal period for "good cause" shown. See 31 U.S.C. '' 3730(b)(2) & (b)(3). The

United States requires an additional nine months in order to fully evaluate the Relator=s

allegations and make an informed determination about intervening in the case. It has

reviewed the complaint and disclosure statement and is currently in the process of

scheduling an interview with the relator. Among other things, the United States may

need to obtain mortgage files and other documentation from the defendants which will

need to be reviewed. Based on similar cases and past experiences, the United States

believes the time required to investigate the allegations of this case will be time

consuming and require many man-hours to review related mortgage documents.

Therefore, good cause exists for the requested extension of time.

B. The States and District of Columbia

The states and the District of Columbia named as plaintiffs in the qui tam each

have individual statutes setting out a qui tam cause of action. Each of the statutes has its

own seal period. In the interest of judicial economy, the United States requests, with the

consent of the responding states listed above, that the various state seals be joined with
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the federal seal and that any extension of time, partial lift or other ruling affecting the

federal seal apply equally to each state seal until such time as an individual state moves

this court for an order providing otherwise.

CONCLUSION

For the foregoing reasons, the United States respectfully requests that its Ex Parte

Motion for a nine month extension of time to consider election to intervene be granted.

The United States also requests that the seals applicable under the various state

laws be extended to run concurrently with the federal seal unless and until an individual

state plaintiff requests otherwise.

A proposed order is submitted for the Court’s consideration.

Respectfully submitted,

WILLIAM N. NETTLES
United States Attorney

By: s/ Fran Trapp

FRANCES C. TRAPP (#6376)
ELIZABETH C. WARREN (#11360)
Assistant United States Attorneys
1441 Main Street, Suite 500
Columbia, South Carolina 29201
Telephone (803) 929-3058

July 12, 2013