[00:00:02] Speaker 00:
Case number 17-7003, State of California, X-Rail, Lars Schneider at L, and Lars Schneider, Appellate, versus JP Morgan Chase Bank, National Association at L. Mr. Black for the Appellate, Mr. Jed for Amicus Karai, and Mr. Wick for the Appellees.

[00:00:22] Speaker 04:
Good morning, Your Honor.

[00:00:23] Speaker 04:
Good morning.

[00:00:24] Speaker 04:
May it please the Court, I am Joseph Black.

[00:00:27] Speaker 04:
I represent the Relator in this false claim action against JPMorgan Chase.

[00:00:32] Speaker 04:
I reserve two minutes of my time for rebuttal.

[00:00:36] Speaker 04:
The District Court in this case made a clear error when it dismissed the case because the Relator failed to exhaust pre-litigation remedies contained in a contract to which he was not a party.

[00:00:52] Speaker 04:
The district court dismissed the allegations with prejudice holding that Mr. Snyder, standing in the position of the government, failed to exhaust pre-litigation remedy procedures.

[00:01:07] Speaker 05:
Your argument, of course, is you couldn't have done that before you filed suit anyway.

[00:01:12] Speaker 05:
That's the principle.

[00:01:14] Speaker 05:
Let's assume you're correct about that.

[00:01:18] Speaker 05:
For the moment, the alternative arguments seem to me more troubling.

[00:01:22] Speaker 05:
In your case, is there any part of your case that doesn't depend on the proposition that Chase violated the consent decree?

[00:01:37] Speaker 05:
Aren't you piggybacking on that?

[00:01:39] Speaker 04:
No, no.

[00:01:40] Speaker 04:
What we're saying is that Chase committed false claims.

[00:01:47] Speaker 05:
Is there any part of your case that isn't dependent on the notion

[00:01:52] Speaker 05:
that Chase violated the consent decree.

[00:01:56] Speaker 04:
Our case is based on the fact that Chase submitted false claims in its performance of the consent decree.

[00:02:03] Speaker 05:
Let me try to ask the same question again.

[00:02:05] Speaker 05:
Is there any part of your case that isn't dependent on the notion that Chase violated the consent decree?

[00:02:13] Speaker 04:
I guess I have to concede that the chase, in fact, did violate the consent decree.

[00:02:21] Speaker 05:
Your case is dependent on that proposition.

[00:02:28] Speaker 05:
Yes.

[00:02:29] Speaker 05:
So your case is basically a collateral attack on the notion that the chase violated the consent decree.

[00:02:42] Speaker 04:
I don't know how you define collateral.

[00:02:48] Speaker 05:
That's a fair point.

[00:02:49] Speaker 05:
Let me go to the penalty question.

[00:02:52] Speaker 05:
You said the penalty is not fixed, but it's an obligation because

[00:02:59] Speaker 05:
You look at E of the exhibit.

[00:03:02] Speaker 05:
That's correct.

[00:03:03] Speaker 05:
Do you disagree with what Chase described in its brief as the number of contingencies that have to take place before any penalty is imposed?

[00:03:12] Speaker 04:
Those contingencies only apply to a portion of our case.

[00:03:17] Speaker 04:
We have a servicing part of the case and a crediting part of the case.

[00:03:21] Speaker 04:
The crediting penalties do not depend on any action that the monitor would take.

[00:03:30] Speaker 04:
The crediting penalties, if you will, are described as obligations in the consent judgment itself.

[00:03:38] Speaker 05:
Tell me about how the crediting penalties would apply.

[00:03:41] Speaker 05:
What are the steps that have to take place?

[00:03:44] Speaker 05:
Well, Chase submitted... No counsel for the penalties.

[00:03:48] Speaker 05:
How do the crediting penalties, how do they take place?

[00:03:53] Speaker 04:
Chase claimed that it provided... No, no.

[00:03:58] Speaker 05:
You're going to the merits.

[00:03:58] Speaker 05:
I'm just asking how are the penalties imposed?

[00:04:02] Speaker 05:
What is the steps that have to be taken?

[00:04:05] Speaker 04:
The steps that have to be taken would be that Chase failed to provide the credits following... Who imposes the penalty?

[00:04:15] Speaker 04:
There's no provision within the consent judgment for Chase for the imposition of those penalties.

[00:04:22] Speaker 04:
It has to be a finding of some kind by somebody that Chase did not follow the procedures of the consent judgment to take those credits.

[00:04:34] Speaker 05:
Wait a minute, counsel, I'm confused.

[00:04:35] Speaker 05:
Who imposes the penalty?

[00:04:39] Speaker 05:
It has to be the court, right?

[00:04:45] Speaker 05:
It would have to be the court, yes.

[00:04:46] Speaker 05:
And it's totally discretionary on the part of the court, right?

[00:04:48] Speaker 05:
No.

[00:04:49] Speaker 05:
Why?

[00:04:50] Speaker 04:
Because, well, it would be a finding that Trace did not.

[00:04:55] Speaker 05:
But like any penalty, well, like most penalties, it's totally discretionary on the part of the district judge, right?

[00:05:04] Speaker 05:
District judge could say equitable relief is adequate, right?

[00:05:10] Speaker 04:
Not for these provisions.

[00:05:11] Speaker 04:
Why?

[00:05:13] Speaker 04:
As I recall, exhibit 3, the equitable provisions apply to the servicing.

[00:05:20] Speaker 05:
But why would the district judge?

[00:05:23] Speaker 05:
You just pointed out, it's totally discretion on the district judge.

[00:05:28] Speaker 04:
It's not, it's only,

[00:05:33] Speaker 04:
You know, a district judge has discretion to make a number of decisions, because he or she is a district court judge.

[00:05:43] Speaker 04:
But the obligations are clearly defined in the consent judgment, and those have to be imposed.

[00:05:48] Speaker 07:
The obligations are what?

[00:05:51] Speaker 04:
The obligations are to collect at least a minimum of 120% of the

[00:05:59] Speaker 04:
of the crediting that Chase did not give or grant following the requirements of the consent judgment.

[00:06:12] Speaker 07:
But those aren't obligations that qualify as statutory obligations for the False Claims Act purposes under our holy case or under the Third Circuit and Fifth Circuit decisions?

[00:06:23] Speaker 04:
Well, yes, but there are obligations on the contract.

[00:06:27] Speaker 07:
True, but our Hoyt case suggested that that kind of obligation is not itself good enough to qualify.

[00:06:38] Speaker 04:
Your Honor, I believe there are numerous cases that say that contract obligations are obligations under the Reverse False Claims Act.

[00:06:47] Speaker 05:
There's no case.

[00:06:49] Speaker 05:
Is there any case where it provides that a penalty is an obligation, a potential penalty is an obligation?

[00:06:59] Speaker 04:
You know, it's a question of how you describe the penalties.

[00:07:07] Speaker 04:
The requirements, the crediting provision payments that are described as payments, they're not described as penalties.

[00:07:20] Speaker 04:
And it is required that Chase make payments to the government if it fails to provide the correct

[00:07:30] Speaker 04:
of crediting under the following the correct procedures.

[00:07:33] Speaker 05:
Did you see the 28-J letter that the government filed just a day or so ago?

[00:07:37] Speaker 04:
Yes.

[00:07:39] Speaker 05:
Did that not defenestrate you?

[00:07:42] Speaker 04:
No.

[00:07:45] Speaker 05:
Specifically disavow your penalty theory?

[00:07:50] Speaker 04:
What it said was that we did in fact, no it did not.

[00:07:55] Speaker 04:
The penalty provisions are within

[00:07:59] Speaker 04:
related to servicing have two components.

[00:08:03] Speaker 04:
One of those is for penalties imposed for failure to meet the servicing criteria.

[00:08:16] Speaker 04:
And the other, there is no credit.

[00:08:18] Speaker 03:
What was the other?

[00:08:19] Speaker 03:
Just finish, please.

[00:08:21] Speaker 03:
I'm trying to sort these out.

[00:08:22] Speaker 03:
I'm confused about which is which and where the penalties flow from.

[00:08:26] Speaker 03:
So could you just finish?

[00:08:29] Speaker 04:
I'm sorry, Maria.

[00:08:31] Speaker 04:
Your Honor, there are factors in which the monitor looked at to determine whether or not

[00:08:41] Speaker 04:
the Chase was compliant with the servicing requirements.

[00:08:46] Speaker 04:
If Chase failed to meet those requirements, monitor could impose penalties.

[00:08:54] Speaker 04:
There were other servicing factors that were similar, but they were not monitored by a... And what about the consumer relief obligations?

[00:09:01] Speaker 04:
The consumer relief obligation, the monitor only accepted Chase's word that

[00:09:07] Speaker 04:
It had given crediting following the requirements of the... Incidentally, going to the merits there, what did you think was wrong with what Chase did?

[00:09:20] Speaker 04:
Well, they just didn't follow those requirements.

[00:09:22] Speaker 04:
They did not...

[00:09:24] Speaker 04:
You know, there were diversities.

[00:09:25] Speaker 05:
Specifically, specifically.

[00:09:26] Speaker 04:
They were first required to determine whether or not the house was occupied.

[00:09:31] Speaker 04:
They didn't do that properly.

[00:09:32] Speaker 05:
They were required to... Are you talking about the valueless loans?

[00:09:40] Speaker 04:
Yes, primarily.

[00:09:42] Speaker 05:
These were the loans that were... Were written off as valueless, right?

[00:09:46] Speaker 05:
That's right.

[00:09:47] Speaker 05:
What is it you thought Chase did not do that they were obliged to do?

[00:09:51] Speaker 04:
Chase didn't have the ability to... Okay, counsel, just answer the question.

[00:09:56] Speaker 05:
What did Chase not do that they were obliged to do?

[00:09:58] Speaker 04:
They didn't follow the requirements of the student fees.

[00:10:01] Speaker 05:
Specifically, please, don't talk generally.

[00:10:03] Speaker 05:
What specifically are you referring to?

[00:10:04] Speaker 04:
Well, they didn't make any inquiries.

[00:10:08] Speaker 04:
They didn't...

[00:10:10] Speaker 04:
They didn't ask any questions of the borrower, determining whether or not the borrower qualified for the credit.

[00:10:15] Speaker 05:
But if it's a valueless loan and they cross it off?

[00:10:21] Speaker 04:
Well, that may be, but the loan had to qualify for credits.

[00:10:27] Speaker 05:
Now, the monitor did not, this was perfectly disclosed to the monitor, right?

[00:10:33] Speaker 05:
No.

[00:10:34] Speaker 05:
It was not?

[00:10:35] Speaker 05:
No.

[00:10:36] Speaker 05:
I'll explain why.

[00:10:37] Speaker 04:
Well, Chase maintains that the RBC loans were in the practices we described to the monitor.

[00:10:43] Speaker 04:
But we know now that the earliest that Chase explained this may have been in October of 2013, over 18 months after the case, after the consent judgment was in place and after the Chase made a number of false certifications of compliance.

[00:11:07] Speaker 04:
And the email that Chase identifies, they tried to insert into the record in January, indicates that it may have been at that time that the monitor was fully aware of

[00:11:25] Speaker 04:
of the RBC-1 loan.

[00:11:28] Speaker 04:
And we learned, and we're trying to supplement the record with additional information.

[00:11:32] Speaker 04:
We know that the monitor never knew that the RBC-1 loans were not serviced.

[00:11:41] Speaker 04:
Servicing is a requirement for modification.

[00:11:47] Speaker 04:
And Chase was incapable of modifying the RBC-1 loans.

[00:11:53] Speaker 05:
Why would you modify a loan you're writing off?

[00:11:55] Speaker 05:
Well, there was a requirement of the consent judgment.

[00:11:59] Speaker 05:
But if they write, well, wasn't it perfectly known to the monitor that Chase, if it wrote off the loan, wasn't doing any further, anything further?

[00:12:09] Speaker 04:
No.

[00:12:10] Speaker 05:
The monitor was unaware of that.

[00:12:12] Speaker 05:
And that's what you think is the false claim?

[00:12:14] Speaker 04:
Well, that's part of the false claim.

[00:12:20] Speaker 04:
I mean, there were a number of false claims involved, but, you know.

[00:12:23] Speaker 07:
Yes, can I go back to the law and the contingent penalties?

[00:12:27] Speaker 07:
I read the case law, our case in Hoyt and other circuits post-2009, to say a contingent exposure to penalty liability does not constitute an obligation under the False Claims Act.

[00:12:44] Speaker 07:
Why is that wrong?

[00:12:45] Speaker 04:
I believe that's, you know, I believe the 2009 amendments to the false claims act say that the obligation need not be fixed.

[00:12:58] Speaker 05:
There's a difference between fixed and contingent.

[00:13:01] Speaker 05:
In other words, Congress said you don't have to have a fixed

[00:13:07] Speaker 05:
But Congress never said you can get a false claim based on the continued liability.

[00:13:12] Speaker 04:
Well, if this is not a proper Reverse False Claims Act case, I don't know what is.

[00:13:19] Speaker 04:
Would there ever be a proper Reverse False Claims Act case if this is not one of them?

[00:13:27] Speaker 07:
The Third and Fifth Circuits, though, looked at this, looked at the legislative history in detail of the 2009 amendments.

[00:13:35] Speaker 07:
and talked about Senator Kyle's amendment to that, to those proposals and said it was supposed to cover situations where the amount wasn't necessarily fixed, but it wasn't supposed to loop in or swoop in to cover contingent obligations.

[00:13:58] Speaker 04:
Well, this is not a contingent obligation.

[00:14:00] Speaker 04:
It's specified in the contract.

[00:14:02] Speaker 04:
How much in the agreement?

[00:14:03] Speaker 07:
Contingent penalties.

[00:14:04] Speaker 07:
Contingent penalties, I show you.

[00:14:06] Speaker 04:
And again, these are described as payments, not penalties.

[00:14:12] Speaker 04:
I'm talking about the crediting.

[00:14:13] Speaker 07:
They're contingent penalties for violation of some standards set forth in the agreement, right?

[00:14:20] Speaker 07:
I mean, they're payments for some violation or some failure to live up to some standards.

[00:14:24] Speaker 04:
The contingency is Chase's failure to comply with the requirements.

[00:14:29] Speaker 04:
Right.

[00:14:29] Speaker 04:
It's not contingent on somebody else making the decision.

[00:14:32] Speaker 05:
Council, where do you see a dollar amount?

[00:14:38] Speaker 05:
that is a set penalty.

[00:14:41] Speaker 04:
I believe it's in... Exhibit A, E?

[00:14:46] Speaker 04:
It's in E and it's C of that section.

[00:14:50] Speaker 05:
It looks to me like the district judge would have authority to set equitable relief.

[00:15:02] Speaker 04:
I believe, Your Honor,

[00:15:04] Speaker 04:
that applies to the first requirement related to... So there's no provision whatsoever for a specific penalty for the crediting, right?

[00:15:18] Speaker 05:
There is.

[00:15:19] Speaker 05:
What?

[00:15:20] Speaker 04:
It's the value of the credit that they took plus 120%, times 120%.

[00:15:24] Speaker 04:
Wait, is that required?

[00:15:32] Speaker 04:
As I read this requirement, as I read the consent judgment, it is.

[00:15:36] Speaker 04:
I didn't see that.

[00:15:41] Speaker 04:
Excuse me, Your Honor.

[00:16:47] Speaker 05:
I'm sorry, but I may ask another question.

[00:16:50] Speaker 05:
Why?

[00:16:51] Speaker 05:
Perhaps you can find it while you're before you come back on the bottle.

[00:16:55] Speaker 05:
What about the hand?

[00:16:57] Speaker 05:
It was dismissed without prejudice, right?

[00:16:59] Speaker 05:
That's correct.

[00:16:59] Speaker 05:
Why don't you just amend your complaint?

[00:17:02] Speaker 04:
We would have amended our complaint, but the court told us that we could follow an immediate appeal.

[00:17:10] Speaker 05:
You haven't answered my question.

[00:17:11] Speaker 05:
Why don't you just have another complaint?

[00:17:14] Speaker 05:
Is it because you couldn't find a material violation?

[00:17:18] Speaker 04:
Well, no, we could.

[00:17:19] Speaker 05:
And as a matter of fact, we identified the fact that our complaint... Suppose we concluded your complaint was inadequate as a matter of presence.

[00:17:31] Speaker 05:
Suppose we concluded that as a matter of law, your complaint was inadequate.

[00:17:39] Speaker 04:
We could, if we were permitted to amend, we could add facts that would demonstrate that indeed Chase was violating the half.

[00:17:47] Speaker 05:
Chase argues, of course, that under no circumstances it was material because you haven't alleged that any of the consumers, the mortgage lawyers,

[00:17:58] Speaker 05:
would have been injured?

[00:18:00] Speaker 04:
It wasn't.

[00:18:02] Speaker 04:
It was the agreement with the government.

[00:18:04] Speaker 04:
The government in the United States would be injured.

[00:18:07] Speaker 04:
It's not so much... Why?

[00:18:09] Speaker 04:
Because this was a program intended to stimulate the economy.

[00:18:13] Speaker 04:
If nobody was hurt, why would there be... The government and the economy as a whole would have been hurt because it was part of a stimulus package.

[00:18:25] Speaker 04:
That was, as the government said in other times, that was... Yeah, but the purpose was to help homeowners.

[00:18:32] Speaker 04:
It was to help homeowners to become credit-worthy again and to start spending money.

[00:18:38] Speaker 04:
It was as part of the stimulus package.

[00:18:42] Speaker 04:
I mean, you know, the credit problems was, you know...

[00:18:49] Speaker 04:
The recession was a balance sheet recession because people's individual balance sheets were so far down they stopped spending money.

[00:19:01] Speaker 04:
The design was to get people safe in their house and start spending money again.

[00:19:07] Speaker 04:
So to help simulate the economy was a small effort.

[00:19:11] Speaker 04:
It was part of a much larger package.

[00:19:17] Speaker 07:
I do.

[00:19:17] Speaker 07:
One more question.

[00:19:18] Speaker 07:
I'm still stuck on the case law.

[00:19:21] Speaker 07:
The Fifth Circuit, for example, said that the overwhelming weight of authority before the 2009 Act held that contingent penalties are not obligations under the FCA.

[00:19:34] Speaker 07:
And then it looks at all the legislative history and concludes

[00:19:38] Speaker 07:
that the new legislation confirmed the accepted holding that contingent penalties are not obligations under the FCA, which also is what our Hoyt case had held.

[00:19:51] Speaker 07:
You disagree with that?

[00:19:52] Speaker 04:
I disagree with that.

[00:19:53] Speaker 04:
I believe that the Hoyt case was based on the ATM case.

[00:20:01] Speaker 04:
in the ATMI case was specifically rejected by the Senate report.

[00:20:07] Speaker 07:
Okay.

[00:20:08] Speaker 07:
Thank you.

[00:20:09] Speaker 05:
Counsel, the 28-J letter does seem to indicate that the government has chases view with respect to the penalty and the view that expressed by both my colleague Judge Kavanaugh and me.

[00:20:25] Speaker 04:
Well, what the letter says is that the judge says that this issue is immaterial to the issues.

[00:20:37] Speaker 04:
The letter also says that this issue is immaterial to the issues before this court.

[00:20:43] Speaker 04:
And it also points out that there was, in fact, non-compliance.

[00:20:49] Speaker 05:
But Judge Cavanaugh and I have been focusing on the penalty question.

[00:20:55] Speaker 05:
And it looks as if the government has disavowed your position with respect to penalties.

[00:21:00] Speaker 04:
With respect to the penalties that we're talking about are the servicing penalties.

[00:21:04] Speaker 05:
No, the government is broader than that, isn't it?

[00:21:06] Speaker 04:
No, I don't believe it is.

[00:21:07] Speaker 04:
It's very narrow, actually.

[00:21:09] Speaker 04:
It only refers to the servicing penalties that are due to failure to meet certain metrics.

[00:21:17] Speaker 05:
And the other penalties are strictly up in the air up to the district judge, right?

[00:21:23] Speaker 04:
To the extent

[00:21:26] Speaker 04:
The district judge would have to impose them.

[00:21:28] Speaker 04:
Total discretion.

[00:21:31] Speaker 04:
That discretion is circumscribed by the consent judgment.

[00:21:54] Speaker 06:
Good morning, Your Honors, Adam Jed for the United States.

[00:21:58] Speaker 06:
The United States is participating on a narrow legal question, the correct interpretation of the National Mortgage Judgment's exhaustion provision, which concerns enforcement actions under the consent judgment.

[00:22:08] Speaker 06:
As the Court is aware, we are not taking position on any of the other legal issues that are before the panel today, but we are concerned that the District Court's interpretation of that specific exhaustion provision was mistaken.

[00:22:20] Speaker 06:
And we're here to ensure that there's not spillover as to either another case that may concern this specific consent judgment.

[00:22:27] Speaker 05:
What about the 28-J letter with respect to penalties?

[00:22:30] Speaker 06:
Judge Silverman, you know, I apologize if we were unclear on the 28-J letter.

[00:22:34] Speaker 06:
We were clarifying our factual position that, of course, the United States has not intervened in this case.

[00:22:40] Speaker 06:
We're not a party to this case.

[00:22:41] Speaker 06:
But we are clarifying the factual position that, based on the information currently available to them.

[00:22:46] Speaker 05:
No, but what about the last paragraph about the penalty?

[00:22:48] Speaker 06:
Your honor, what we were saying in the last paragraph was a factual point.

[00:22:52] Speaker 06:
It was not the legal obligation question that I understand Chase to have raised as an alternate ground for ferments.

[00:22:58] Speaker 06:
And if I understood correctly, Judge Silberman, it sounded like you and Judge Kavanaugh were both asking my friend about that legal question.

[00:23:04] Speaker 06:
We have not taken a position on that.

[00:23:06] Speaker 06:
All that we were doing was simply clarifying our earlier representation, which is that, again, based on the facts currently available to them, that doesn't mean that they have fully investigated all that could exist, but based on the facts currently available to them, we're informed by the relevant entities who monitor these things.

[00:23:22] Speaker 05:
So you're taking no position on the question of whether or not a contingent penalty is an obligation under the false claims act?

[00:23:30] Speaker 06:
The answer is yes, but let me just sort of put a footnote on that answer, which is certainly for the purposes of this case, we've not taken a position on that.

[00:23:37] Speaker 06:
That was not an issue addressed by the district court.

[00:23:39] Speaker 06:
In fact, when we filed our brief, it was not an issue that had been addressed by any brief in this case.

[00:23:43] Speaker 06:
And of course, as your honor is aware, it's the ordinary practice of this court not to address an alternate ground that was not addressed below, especially where it's essentially just being raised in one principal brief and one reply brief.

[00:23:55] Speaker 06:
What I will say is if you've done that,

[00:23:57] Speaker 07:
We do that sometimes.

[00:23:59] Speaker 06:
It happens sometimes.

[00:24:01] Speaker 06:
By no means mean to suggest that that's universal.

[00:24:03] Speaker 06:
It's certainly an unusual practice, especially when it's something like a question of first impression, which it would be for this court.

[00:24:10] Speaker 07:
Is it really a question of first impression?

[00:24:12] Speaker 07:
I guess the question, Hoy resolved the question.

[00:24:15] Speaker 07:
The question is whether the 2009 Act changes that, which other courts have said no to that.

[00:24:22] Speaker 06:
Yeah, I mean, insofar as we're not participating on that question, I don't want to get pulled too far into that other than to say, obviously, point did predate the 2009 amendments.

[00:24:29] Speaker 06:
If the court were interested in addressing that legal question and were interested in the government's position, Judge Kavanaugh in the Seminoe and the Victoria decisions that you cited,

[00:24:39] Speaker 06:
The United States did file, I believe, they were amicus briefs in both cases.

[00:24:43] Speaker 06:
Obviously, those lay out the government's general position about what constitutes an obligation and of course does not get into what may be some of the slightly distinct questions about how to understand what would be an obligation in connection with this consent judgment.

[00:24:55] Speaker 06:
But if the court were interested in our position, we would certainly invite the court

[00:24:58] Speaker 06:
to read our briefs in those cases.

[00:25:00] Speaker 06:
And as I said, it's unusual for the court to address these kinds of legal questions without full briefing when they weren't passed on below.

[00:25:07] Speaker 06:
But potentially, if the court were interested, it could also invite the views of the United States, and we could consult with the Solicitor General on whether the government would be interested in filing a further supplemental amicus brief.

[00:25:18] Speaker 06:
Um, unless the court is interested in discussing that question that the government did participate on.

[00:25:23] Speaker 06:
Do you have any questions?

[00:25:24] Speaker 03:
No.

[00:25:25] Speaker 03:
I don't have.

[00:25:25] Speaker 03:
Do you?

[00:25:26] Speaker 03:
Okay.

[00:25:26] Speaker 03:
No.

[00:25:27] Speaker 03:
Thank you.

[00:25:27] Speaker 03:
Thank you.

[00:25:28] Speaker 03:
Thank you for your brief.

[00:25:29] Speaker 03:
Yeah.

[00:25:30] Speaker 03:
Okay.

[00:25:37] Speaker 02:
May it please the court, I'm Robert Wick for the Chase Defendants.

[00:25:40] Speaker 02:
And if it's acceptable to the court, I'll begin where Judge Silverman began with the question of whether the action below is a collateral attack on the monitor's determinations that Chase complied with all of its settlement obligations.

[00:25:54] Speaker 02:
that Judge Silverman is correct and opposing counsel ultimately conceded that the indispensable proposition at the heart of the complaint is that Chase violated the consent judgment.

[00:26:05] Speaker 02:
If Chase didn't violate the consent judgment, then it made no false claim of compliance and there is no false statement that could serve as the basis for False Claims Act liability.

[00:26:15] Speaker 02:
And the trouble with the core allegation that Chase didn't comply with its settlement obligations is that the Monitor duly determined that Chase did comply with its settlement obligations.

[00:26:25] Speaker 02:
And for the terms of the settlement, that determination decides the question of whether Chase did or did not comply with its settlement obligations.

[00:26:34] Speaker 02:
How do we know that?

[00:26:35] Speaker 02:
We know that because the settlement says so.

[00:26:37] Speaker 05:
In Exhibit E of the... Well, any of the parties could have challenged the Monitor's determination.

[00:26:42] Speaker 02:
Correct.

[00:26:43] Speaker 02:
There was a process available within the consent judgment action for petitioning Judge Collier to set aside the findings of the monitor.

[00:26:50] Speaker 02:
That process wasn't followed.

[00:26:52] Speaker 02:
And to file a brand new action from outside the consent judgment proceeding to collaterally attack that determination, there's no provision for that.

[00:26:59] Speaker 02:
That would be a violation of the terms of the contract.

[00:27:02] Speaker 02:
The terms of the settlement would say that the monitor decides the question of whether Chase complied.

[00:27:07] Speaker 02:
It would also be a violation of the principles of finality.

[00:27:10] Speaker 03:
Unless a false claims act is not an action under the settlement, right?

[00:27:15] Speaker 03:
That's the government's position.

[00:27:17] Speaker 02:
But that seems to me to reinforce the fact that it would be a collateral attack on the monitor's determination.

[00:27:22] Speaker 03:
The government says... Isn't the allegation that the monitor's determination rested on fraudulent submissions by the bank?

[00:27:28] Speaker 02:
There is a suggestion in the Schneider brief that why should we defer to the monitor's determinations because the monitor's determinations were procured by fraud on the monitor.

[00:27:44] Speaker 02:
If there were a well-planned allegation of fraud on the monitor here, the right procedure would be to make an application to the monitor to reopen his determinations on grounds of fraud.

[00:27:54] Speaker 03:
That's if a false claims act is a case under the settlement.

[00:27:57] Speaker 03:
I beg your pardon?

[00:28:08] Speaker 03:
that it's not brought under the settlement.

[00:28:10] Speaker 02:
There are two different questions here, Your Honor.

[00:28:12] Speaker 02:
The first question is, does the government have to go, or Schneider have to go, through the pre-litigation process?

[00:28:18] Speaker 02:
That question turns on whether this action is or is not an attempt to enforce case and settlement obligation.

[00:28:23] Speaker 03:
I'm sorry, enforcement action under the decree.

[00:28:24] Speaker 03:
That's the language, right?

[00:28:26] Speaker 03:
The government's position is this is not a, quote, enforcement action under the decree.

[00:28:30] Speaker 02:
Right, and I'm arguing an entirely separate point now, Your Honor, the one that Judge Silverman started with.

[00:28:36] Speaker 02:
Whether or not the False Claims Act action is an attempt to enforce Chase's settlement obligations, the fact remains there was a fact-finding process set up under the settlement for determining whether Chase complied.

[00:28:49] Speaker 03:
But the allegation is that that fact-finding was based on fraud.

[00:28:52] Speaker 02:
Right.

[00:28:53] Speaker 02:
And if there were a well-planned allegation that the monitor's determination had been procured by fraud, the right remedy would be to apply to the monitor to reopen his finding on grounds of fraud.

[00:29:04] Speaker 02:
Why would he do both?

[00:29:05] Speaker 06:
Sorry.

[00:29:07] Speaker 02:
Go ahead.

[00:29:07] Speaker 02:
Because doing anything but following the procedure set out in the settlement would be a violation of the terms of the settlement.

[00:29:13] Speaker 02:
But he's not bound by the settlement.

[00:29:15] Speaker 03:
He's not a party to the settlement.

[00:29:16] Speaker 02:
Well, he stands in the shoes of the United States.

[00:29:20] Speaker 02:
Right.

[00:29:20] Speaker 02:
And the Supreme Court said in the Stevens case that a relator sues as an assignee and an agent of the United States.

[00:29:28] Speaker 02:
And as an assignee and agent of the United States, he can have no greater right to litigate this case than the United States would have if the United States were litigating the case on his own behalf.

[00:29:37] Speaker 02:
As to the question of fraud, I don't think I've gotten this answer out there yet, Your Honor.

[00:29:43] Speaker 02:
If Schneider were saying that Chase had procured a district court judgment by defrauding the district court, it wouldn't be open to him to file a brand new district court case and ask the court in the second action to overturn the judge in the first action on grounds of fraud.

[00:29:57] Speaker 02:
He would have to make a Rule 60B application to the judge in the original action to reopen the judgment on grounds of fraud.

[00:30:04] Speaker 02:
Same thing here.

[00:30:05] Speaker 02:
You don't set aside the monitor's determinations on grounds of fraud by bringing a brand new separate collateral action.

[00:30:12] Speaker 02:
You go to the monitor, you ask the monitor, were you defrauding?

[00:30:16] Speaker 02:
If that happened here, we're confident the monitor would say that's all nonsense.

[00:30:20] Speaker 07:
I wasn't defrauding.

[00:30:21] Speaker 07:
So the settlement agreement bars all false claims act?

[00:30:28] Speaker 07:
claims implicitly, correct?

[00:30:30] Speaker 02:
That's your theory?

[00:30:31] Speaker 02:
That's not our position, Your Honor.

[00:30:33] Speaker 07:
Okay, what is your position then?

[00:30:36] Speaker 02:
Well, we have two different positions.

[00:30:38] Speaker 02:
One is that Schneider cannot use a separate proceeding to collaterally attack a determination made in the consent judgment proceeding.

[00:30:45] Speaker 03:
Well, listen, so then it sounds to me like your answer to Judge Cavanaugh should be yes.

[00:30:50] Speaker 03:
It does bar all false claims in that case.

[00:30:52] Speaker 02:
It doesn't.

[00:30:52] Speaker 02:
Our first

[00:30:53] Speaker 05:
Give us a hypothetical of a false claim act case.

[00:30:57] Speaker 05:
Wouldn't people?

[00:30:57] Speaker 05:
Yes.

[00:30:58] Speaker 02:
If the monitor duly determines that Chase has complied, then it would not be open to a false claims act relater to collaterally attack that determination in a separate action.

[00:31:08] Speaker 02:
But if the monitor had found that Chase didn't comply, then you would be free to bring a false claims act case.

[00:31:16] Speaker 05:
then you're saying there cannot be a false claim act if the monitor concludes that Chase complied.

[00:31:24] Speaker 02:
If the basis of the false claim- Did you hear what I said?

[00:31:27] Speaker 05:
You're saying there cannot be a false claim act if the monitor concludes that Chase complied.

[00:31:33] Speaker 02:
Yes, if the basis of the false claim is a claim of noncompliance.

[00:31:36] Speaker 05:
We don't have to go that far to sustain your position in this case.

[00:31:42] Speaker 02:
Correct.

[00:31:42] Speaker 05:
If the basis of- Then why don't you think about

[00:31:45] Speaker 05:
what would be a false, what could be a false claim that would be independent of the consent decree?

[00:31:51] Speaker 02:
If the False Claims Act proceeding weren't, if the sole basis of the false claim weren't a false claim of compliance.

[00:31:58] Speaker 05:
Yes, that's the question.

[00:32:00] Speaker 02:
Then he would be able to bring some sort of a false claimed act.

[00:32:03] Speaker 02:
The only false claim alleged here is a false claim of compliance.

[00:32:07] Speaker 02:
The monitor gets to decide the question of compliance.

[00:32:09] Speaker 03:
What other would there, what other claim would there be?

[00:32:12] Speaker 03:
I mean, I don't understand.

[00:32:14] Speaker 03:
The monitor is in charge of deciding compliance issues with the consent decree.

[00:32:21] Speaker 03:
Is there any issue that wouldn't go to the monitor?

[00:32:24] Speaker 02:
There are two situations in which a false claim act can proceed that I can think of.

[00:32:28] Speaker 02:
One is if, in the first instance, the monitor found Chase didn't comply.

[00:32:32] Speaker 02:
If the monitor said, Chase says it complied, but I disagree.

[00:32:35] Speaker 02:
And in fact, I think that's the case.

[00:32:37] Speaker 05:
Well, if it didn't comply, why would anybody pray for it?

[00:32:40] Speaker 02:
That doesn't answer the question.

[00:32:41] Speaker 02:
What is the second?

[00:32:44] Speaker 02:
The second situation would be if after the fact somebody made an application to the monitor to set aside his original findings on grounds of fraud and he agreed with that.

[00:32:54] Speaker 03:
But then why would you need to file a false claim in that case?

[00:32:56] Speaker 02:
To get travel damages and to get penalties.

[00:32:59] Speaker 07:
More money.

[00:33:06] Speaker 07:
Could the settlement agreement have precluded this kind of

[00:33:10] Speaker 07:
uh... claim in other words you're saying that this kind of claim is inconsistent with the settlement agreement but there's nothing explicit in the settlement agreement that bars this kind of

[00:33:23] Speaker 02:
I think that the settlement bars this kind of collateral attack in two ways.

[00:33:27] Speaker 05:
First... Suppose there was evidence, excuse me, I answer to Judge Conlon's question.

[00:33:33] Speaker 02:
Okay.

[00:33:33] Speaker 02:
So the two ways in which the settlement bars this kind of a collateral attack is exhibit E, section C5 and C16 through 18 says the monitor is the one who determines whether Chase did or did not comply with the settlement.

[00:33:46] Speaker 02:
The plain meaning of the word determine as defined in a series of dictionaries and a series of court definitions

[00:33:52] Speaker 07:
I got that one.

[00:33:52] Speaker 07:
And then the second one.

[00:33:53] Speaker 02:
And the second one is that the elaborate fact-finding process set up in the settlement tells you it was meant to be the exclusive process for the terminated.

[00:34:01] Speaker 02:
It could have said.

[00:34:03] Speaker 07:
My only point, and this doesn't mean you lose on this argument, but my point is it could have been more explicit.

[00:34:09] Speaker 07:
And that's my only point.

[00:34:11] Speaker 07:
Judge Silliman had a question.

[00:34:13] Speaker 05:
What is your view about the penalty?

[00:34:16] Speaker 05:
We think that that is the- The counsel says your brief refers only to part

[00:34:22] Speaker 05:
of his claim.

[00:34:24] Speaker 05:
Your brief in which you set forth the various steps before a penalty could be imposed, all of which are contingent on various steps, the last being the discretion of the district judge, which can include an equitable response.

[00:34:39] Speaker 05:
But he points out that refers to the servicing, but not the crediting.

[00:34:44] Speaker 02:
It is true that the settlement uses different language with respect to the servicing metrics and with respect to the consumer relief provisions.

[00:34:51] Speaker 02:
As to the servicing metrics, the Hoyt decision is conclusive and the Semino decision of the Fifth Circuit.

[00:34:57] Speaker 03:
What about the consumer relief?

[00:35:00] Speaker 02:
As to the consumer relief provisions, we think we can win on that ground as well.

[00:35:04] Speaker 02:
But the different theory, right?

[00:35:07] Speaker 03:
Well, you go ahead and tell me.

[00:35:09] Speaker 02:
Yeah.

[00:35:09] Speaker 03:
Yes.

[00:35:10] Speaker 02:
So on the first theory, on the Hoyt theory, Section J3 of Exhibit E of the settlement makes clear that penalties under the servicing metrics are dependent on a discretionary decision by the government to seek them.

[00:35:24] Speaker 02:
I was asking you about the consumer.

[00:35:26] Speaker 02:
On the consumer relief question, those penalty obligations or those payment obligations are not self-executing.

[00:35:33] Speaker 02:
There has to be a monitor spining that Chase fell short, and then the government has the option of either voiding the release or insisting on payment of the money.

[00:35:43] Speaker 03:
Just curious, did you make this argument in your brief?

[00:35:46] Speaker 02:
No, we focused on the servicing metrics argument in our brief.

[00:35:49] Speaker 03:
But not this?

[00:35:51] Speaker 03:
Correct.

[00:35:53] Speaker 03:
Well, how do we know?

[00:35:55] Speaker 03:
Suppose I want to learn independently of your brief then as to why the consumer relief obligations fail for the same reason.

[00:36:02] Speaker 03:
Where do I find that?

[00:36:03] Speaker 03:
That is, that the penalties are contingent.

[00:36:08] Speaker 02:
The settlement does not say that Chase's obligation to pay money is self-executing or mandatory.

[00:36:16] Speaker 02:
What it says is in Exhibit F, page F12, is if the monitor finds that Chase fell short, the government can then give Chase 30 days notice to either pay, or if it doesn't pay, the government may void the release.

[00:36:30] Speaker 07:
Can I, just to make sure I'm clear, because Judge Tatel's question is important,

[00:36:34] Speaker 07:
So on page 48 and 49 and 50 of your brief, you say, I think, why the servicing standards allegations don't qualify as obligations under the False Claims Act, the Hoyt theory.

[00:36:50] Speaker 07:
And then on page 50, you turn to the consumer relief.

[00:36:54] Speaker 07:
And I guess I couldn't tell from the brief whether this was an additional issue

[00:37:02] Speaker 07:
why the consumer relief would go out, or the Hoyt theory carried over to the consumer relief as well.

[00:37:07] Speaker 07:
And I think that's related to Judge Tatel's question.

[00:37:10] Speaker 03:
In our brief, our Hoyt argument... You already answered my question.

[00:37:14] Speaker 03:
You didn't raise this argument.

[00:37:15] Speaker 02:
Right.

[00:37:16] Speaker 02:
Our Hoyt argument was focused on the servicing standards.

[00:37:19] Speaker 02:
It could apply to the consumer relief.

[00:37:21] Speaker 02:
But you didn't make that argument.

[00:37:22] Speaker 07:
Correct.

[00:37:22] Speaker 07:
Okay.

[00:37:23] Speaker 07:
So the consumer relief, though, you have a separate argument for why those would go out.

[00:37:27] Speaker 02:
Correct.

[00:37:28] Speaker 02:
As to consumer relief provisions, the only well-pled argument in the complaint of how Chase violated the consumer relief provisions is that Chase didn't use an application process to dole out consumer relief.

[00:37:41] Speaker 02:
Schneider alleges over and over again you can only earn consumer relief if you use an application process.

[00:37:46] Speaker 02:
But there is no such thing as an application process for consumer relief.

[00:37:50] Speaker 02:
The requirements for consumer relief are set out in Exhibit D to this element.

[00:37:54] Speaker 02:
You can read that from top to bottom.

[00:37:56] Speaker 02:
You won't find any requirement to use an application process.

[00:38:00] Speaker 07:
Can I, just on road mapping this so I have this straight, on your initial collateral attack argument, if we agree with that,

[00:38:09] Speaker 07:
everything that we don't get to these issues that we just discussed.

[00:38:11] Speaker 07:
If we disagree with that, then we do have to go through the servicing standards and consumer relief.

[00:38:20] Speaker 07:
And as to servicing standards, you have Hoyt as a consumer relief, you have what you just said.

[00:38:24] Speaker 07:
Is that correct?

[00:38:25] Speaker 07:
And then we've got the HAMF.

[00:38:26] Speaker 03:
That's very helpful.

[00:38:27] Speaker 03:
Okay, but can I just, I understood

[00:38:31] Speaker 03:
I understood your argument, just to follow up with Judge Kavanaugh's helpful cataloging of these, assuming the Hoyt argument isn't applicable to the consumer relief section.

[00:38:43] Speaker 03:
I understood your argument to be that certifications here couldn't be false because the monitor later ratified.

[00:38:54] Speaker 03:
Is that not right?

[00:38:56] Speaker 02:
Can I hear that question again?

[00:38:59] Speaker 03:
I thought your argument that these couldn't be false because the monitor had later ratified them, right?

[00:39:06] Speaker 02:
Correct.

[00:39:06] Speaker 02:
The monitor is the one who decides the way a judge or arbiter would decide whether Chase complied or not.

[00:39:12] Speaker 02:
So it can't be false.

[00:39:18] Speaker 05:
Why did you not make the argument that the penalty on the crediting was contingent two?

[00:39:25] Speaker 02:
It is clearest with respect to the servicing standards, and we think the same argument could be made as to consumer relief.

[00:39:30] Speaker 05:
Why do you not?

[00:39:33] Speaker 02:
There's a difference in language between the two.

[00:39:35] Speaker 05:
We think the argument could be made, but we thought that the clearest... What is the grounds on which a penalty could be imposed?

[00:39:42] Speaker 05:
What is the standard?

[00:39:43] Speaker 05:
Who makes the determination whether a penalty should be imposed as to the accrediting?

[00:39:50] Speaker 02:
I assume the district court judge would make that determination.

[00:39:53] Speaker 03:
But after what?

[00:39:54] Speaker 03:
What's the process?

[00:39:56] Speaker 02:
The process is the monitor finds that Chase falls short on its consumer relief obligations, and then exhibit half page F12, if the monitor finds that Chase has fallen short, the government has the right to send a letter to Chase saying, you better pay up or else we can void the release.

[00:40:13] Speaker 02:
And then if Chase doesn't pay up, the government has the option of voiding the release of claims that were given in the settlement.

[00:40:18] Speaker 07:
On the consumer relief, I thought your main point, and I might be repeating what you've said, but I just want to make sure, is that the terms of the settlement do not require an application.

[00:40:30] Speaker 02:
That's exactly what I said.

[00:40:32] Speaker 02:
There is no hint of an application process requirement in the consumer relief provisions.

[00:40:36] Speaker 02:
There are a few other stray allegations in the complaint of various bad acts that Chase allegedly committed on its Recovery I loans.

[00:40:44] Speaker 02:
Those allegations fail for three reasons, if I could just have a couple seconds.

[00:40:48] Speaker 02:
Number one, they are not well-developed, either in the complaint or in the brief of appellants.

[00:40:54] Speaker 02:
They are not tied to any allegation of a specific false claim that avoided the government of money.

[00:41:01] Speaker 02:
So his main argument is that Chase didn't earn any consumer relief credit because it didn't use an application process.

[00:41:09] Speaker 02:
There are some scattershot allegations of other problems.

[00:41:12] Speaker 02:
Those scattershot allegations fail because they're not well developed, they're not well pled, and they are not tied to a specific false statement that avoided the payment of money.

[00:41:21] Speaker 02:
Secondly, there's no allegation that they exceeded the $250 million buffer that Chase has under the consumer relief provisions.

[00:41:28] Speaker 02:
The monitor found that Chase overshot by more than $250 million how much consumer relief it had to earn.

[00:41:36] Speaker 02:
There's no allegation that any of the stray alleged misconduct added up to more than $250 million.

[00:41:41] Speaker 02:
And third, those allegations ignore the question of which loans were actually submitted for credit as opposed to which loans were eligible for credit.

[00:41:50] Speaker 02:
As you pointed out, Judge Silverman, if all you're going to do is cross off the debt, there's no need to be in communication with a homeowner.

[00:41:57] Speaker 02:
And one of the ways Chase can earn consumer relief, Section D5, is by simply crossing off the debt.

[00:42:04] Speaker 02:
Thank you.

[00:42:05] Speaker 07:
Oh, yes.

[00:42:07] Speaker 07:
Okay, still on road mapping.

[00:42:09] Speaker 07:
These are going to be two different questions.

[00:42:10] Speaker 07:
Okay, so first question.

[00:42:12] Speaker 07:
If we agreed with you on the collateral attack argument, what's left of the HAMP claims?

[00:42:16] Speaker 02:
The ham claims are independent, and I haven't addressed those, and I would be happy to.

[00:42:20] Speaker 02:
I was going to ask the same question.

[00:42:22] Speaker 07:
Just road mapping for now, okay, so we will get to the substance of the ham claims.

[00:42:26] Speaker 07:
But if we disagree with you on the collateral attack, but agree with you on the alternative grounds on the servicing standards and the consumer relief, and you have different alternative grounds for those two, as we've just discussed,

[00:42:38] Speaker 07:
what's left of the ham claims.

[00:42:40] Speaker 07:
Still, they're still left as well, right?

[00:42:41] Speaker 02:
The ham claims have nothing to do with the Solomon claims.

[00:42:44] Speaker 07:
They're still left.

[00:42:45] Speaker 07:
That's what I'm just triple checking.

[00:42:47] Speaker 07:
Okay, now let's talk about the ham claims.

[00:42:50] Speaker 02:
Yes, Your Honor.

[00:42:50] Speaker 02:
There are two grounds on which the district court's order on the HAMP claims should be affirmed.

[00:42:55] Speaker 02:
The first is that Schneider hasn't pled any material noncompliance with HAMP.

[00:42:59] Speaker 02:
He says that the false claims relating to HAMP consist of two false certificates of compliance that Chase delivered in September of 2010.

[00:43:09] Speaker 02:
But HAMP certificates of compliance don't certify perfect compliance with HAMP.

[00:43:13] Speaker 02:
They certify material compliance with HAMP.

[00:43:16] Speaker 02:
Now, Schneider says that the noncompliance here is that Chase did not solicit certain borrowers whose loans had charged off and moved from the main system of record to the Recovery 1 system of record after the loans charged off.

[00:43:32] Speaker 02:
But he never alleges that Chase didn't solicit those borrowers for Hanff loan modifications before their loans charged off and moved from the main system of record to the Recovery 1 system of record.

[00:43:43] Speaker 05:
Oh, I finally saw.

[00:43:44] Speaker 05:
I didn't understand your brief on that point.

[00:43:46] Speaker 05:
Now I see it.

[00:43:46] Speaker 02:
Yeah, and paragraph 198 of the complaint actually appears to acknowledge that Chase did solicit those borrowers for hemp loan modifications before the loans charged off.

[00:43:56] Speaker 02:
He says in the main system of record, people are solicited, and then it's only after they charge off that there's no more solicitation.

[00:44:05] Speaker 05:
The second point is that there are no allegations of any actual... Your position is it would make absolutely no sense to solicit anything once the loan is charged off.

[00:44:14] Speaker 02:
Exactly, because once the loan is charged off, by definition, there will be no foreclosure.

[00:44:19] Speaker 02:
A loan only charges off after Chase has made the determination it's not worth it to foreclose on this loan.

[00:44:25] Speaker 02:
It would cost more to foreclose than we would realize at the foreclosure sale.

[00:44:29] Speaker 02:
That's what Judge Collier said at JA5 through 7.

[00:44:33] Speaker 02:
Third and finally, there are no allegations that the Treasury Department or its agents, Fannie Mae and Freddie Mac, were unaware of exactly how Chase was treating the charged-off loans for purposes of the hemp program.

[00:44:46] Speaker 02:
Schneider originally made that argument in his original complaint.

[00:44:49] Speaker 02:
He then deleted all such allegations out of his complaint when he amended it.

[00:44:53] Speaker 02:
And you can see the disappearance of those allegations at JA 32, note 2, JA 149, and JA 187.

[00:45:01] Speaker 02:
JA 149 and 187 are red lines, where you see Schneider redlining out, deleting out all allegations that the Treasury was unaware.

[00:45:10] Speaker 05:
I saw that in your brief.

[00:45:11] Speaker 05:
What's your third point?

[00:45:13] Speaker 02:
That was my third point.

[00:45:14] Speaker 02:
The Treasury knew what was happening.

[00:45:15] Speaker 02:
There's no allegation that it didn't.

[00:45:18] Speaker 02:
For those reasons, Your Honors, we would respectfully ask you to affirm.

[00:45:22] Speaker 03:
Okay, thank you.

[00:45:24] Speaker 03:
Council had no more time left, right?

[00:45:27] Speaker 03:
Okay, you could take a minute, Mr. Black.

[00:45:30] Speaker 03:
And I think you had an answer for Judge Silverman also.

[00:45:33] Speaker 04:
Yes, I had an answer for Judge Silverman.

[00:45:35] Speaker 04:
The requirement to pay the payments for failure to do crediting is found on page D11 of the consent judgment that's exhibit

[00:45:47] Speaker 04:
D11, and it's 10D.

[00:45:50] Speaker 04:
And it says, if the servicer fails to meet the commitment set forth in the consumer relief requirements within three years of the services start date, services shall pay an amount equal.

[00:46:02] Speaker 04:
Shall pay an amount equal to 125% of the unmet commitment amount.

[00:46:08] Speaker 04:
It doesn't say how that's collected.

[00:46:09] Speaker 04:
It just says he shall pay.

[00:46:11] Speaker 04:
There's no discretion if he fails to do it.

[00:46:16] Speaker 04:
I see.

[00:46:16] Speaker ?:
OK.

[00:46:18] Speaker 04:
And so it's an obligation.

[00:46:22] Speaker 04:
The requirements to solicit information from the borrower comes from the HAMP, which governs the consent judgment, which governs exhibit D, the crediting requirements under the HAMP.

[00:46:34] Speaker 04:
So you go back to the HAMP, there's a whole series of- Well, I thought your argument in the HAMP was wholly independent.

[00:46:39] Speaker 04:
No, no, no, no, no.

[00:46:40] Speaker 04:
I'm sorry.

[00:46:41] Speaker 04:
It's the HAMP handbook.

[00:46:43] Speaker 05:
Let me rephrase my question.

[00:46:47] Speaker 05:
My understanding is your argument on hemp was wholly independent of the consent judgment.

[00:46:52] Speaker 04:
The consumer relief under the consent judgment is dictated by

[00:46:58] Speaker 04:
Exhibit D sets out certain consumer relief provisions.

[00:47:02] Speaker 04:
But those consumer relief provisions are governed by the service participation agreement, which incorporates the HAMP requirements and the HAMP handbook.

[00:47:16] Speaker 04:
And there's a whole host of requirements that

[00:47:19] Speaker 03:
The consumer relief requirements of the consent decree incorporate the HAMP handbook?

[00:47:30] Speaker 04:
It incorporates the service of participation agreement, which incorporates the HAMP.

[00:47:39] Speaker 05:
So this consent judgment is... Wait a minute, does that mean that the monitor's responsibility was with respect to the HAMP too?

[00:47:49] Speaker 04:
Not with respect to the HAMP that we allege in the complaint, but the requirements under the HAMP and under the HAMP handbook, yes, those were some of the guiding principles that he had to follow and which Chase had to follow, which they ignored.

[00:48:08] Speaker 03:
Could you just tell me in two simple sentences why your allegations regarding the consumer relief challenge survives?

[00:48:20] Speaker 03:
Can you just explain that to me?

[00:48:22] Speaker 04:
I say that it's an obligation established by the contract.

[00:48:26] Speaker 04:
And there is no provision within the contract that says there is discretion to be given.

[00:48:32] Speaker 03:
No, I understand that part of it.

[00:48:34] Speaker 03:
Suppose we agree with you about that.

[00:48:35] Speaker 03:
His argument is that there's no requirement.

[00:48:38] Speaker 03:
Your allegation is they didn't use an application process, and there's no requirement in the decree that they do that.

[00:48:44] Speaker 04:
Well, we were.

[00:48:49] Speaker 04:
There is an application requirement that's contained in the SPA, in the handbook, which governs the consent judgment, which governs exhibit D. So you have to... For what?

[00:49:07] Speaker 04:
Consent judgment does not exist in a vacuum.

[00:49:10] Speaker 04:
It doesn't come out of Polk Hall.

[00:49:13] Speaker 04:
It is specifically in the last, we identified it in the last paragraphs of Exhibit D. It says it's governed by the SBA.

[00:49:23] Speaker 04:
And the SBA, if you look at the SBA, provides for False Claims Act Enforcement.

[00:49:27] Speaker 04:
It provides for a number of different practices necessary to be followed to give consumer relief, to modify loans.

[00:49:40] Speaker 04:
And yes,

[00:49:41] Speaker 04:
charged off loans still had to be modified and they had to meet the requirements.

[00:49:48] Speaker 04:
The government was looking for a benefit out of this, not just the homeowner.

[00:49:52] Speaker 04:
The homeowner was a third-party beneficiary, if you will, of the consent judgment.

[00:49:58] Speaker 04:
But there was a benefit to the government in terms of

[00:50:03] Speaker 04:
righting the wrongs that happened.

[00:50:05] Speaker 05:
Explain how that works.

[00:50:08] Speaker 05:
I'm still trying to figure that out.

[00:50:10] Speaker 05:
Why is this a benefit to the government if the homeowner is relieved completely of any obligation?

[00:50:16] Speaker 04:
Because the homeowner has more money to spend, and he can help stimulate the economy.

[00:50:21] Speaker 05:
Explain how that works.

[00:50:24] Speaker 05:
How does the homeowner spend more money?

[00:50:27] Speaker 04:
Well, if he has less debt.

[00:50:29] Speaker 05:
If the bank writes off the loan, he has zero debt and he has more money, right?

[00:50:37] Speaker 04:
But in this case, many times Chase didn't inform the homeowner that they had written off the debt.

[00:50:42] Speaker 04:
He didn't know that.

[00:50:43] Speaker 05:
That's the key to your case, that the homeowner did not know it was written off.

[00:50:48] Speaker 04:
Well, it's not the key, but it's part of it.

[00:50:50] Speaker 05:
Well, what else is there?

[00:50:52] Speaker 05:
Well, what else is there is that the homeowner is relieved entirely of the debt.

[00:50:57] Speaker 05:
Why does that not benefit society as a whole and as well as the homeowner?

[00:51:01] Speaker 05:
I'm mystified.

[00:51:05] Speaker 04:
Your Honor, if the homeowner is not aware of the fact that his debt has been written off, he still has that obligation outstanding, and he has to consider that in his budget.

[00:51:18] Speaker 04:
And he can't possibly spend money.

[00:51:20] Speaker 04:
He has to deal with that issue.

[00:51:23] Speaker 04:
His credit rating, he has to worry about his credit rating.

[00:51:25] Speaker 04:
He can't spend money.

[00:51:27] Speaker 04:
You can't spend money to stimulate the economy.

[00:51:32] Speaker 07:
Can I ask you one other question?

[00:51:34] Speaker 07:
I'm going to read from the red brief and ask for your comment, which is it says there, none of the mortgage servicers that entered into national mortgage settlements used an application process in dispensing consumer relief.

[00:51:48] Speaker 07:
goes on to say the monitor nonetheless found that each settling service successfully earned consumer relief credit.

[00:51:56] Speaker 07:
Schneider is therefore suggesting that all the parties to the national mortgage settlements have completely misunderstood their own settlements and that none of the servicers that entered into those settlements have ever earned a penny of consumer credit relief.

[00:52:09] Speaker 07:
Can you respond to that?

[00:52:10] Speaker 04:
I can respond to that by saying that the servicer had to have information

[00:52:15] Speaker 04:
from the borrower to determine whether or not the loans that he had given to the borrower qualified for loan modifications and thus for Chase or the other services to receive credits.

[00:52:32] Speaker 04:
If all the other services follow the same practices chase, they would have committed the same fraud.

[00:52:41] Speaker 04:
We do not know that the monitor knew exactly what they were doing.

[00:52:46] Speaker 04:
You'll see in our briefly quote part of the monitor's reports, and he talks in terms of loans qualifying for modification

[00:52:57] Speaker 04:
and thus for crediting, you can't qualify for a modification unless you have some information from the borrower to determine whether or not those loans qualify.

[00:53:09] Speaker 04:
I don't care if it's an application process.

[00:53:11] Speaker 05:
The answer is, if they're right about that, so be it.

[00:53:14] Speaker 05:
Everybody else in violation.

[00:53:16] Speaker 05:
That's right.

[00:53:18] Speaker 05:
And I suspect that's true.

[00:53:20] Speaker 05:
May I ask one more question?

[00:53:33] Speaker 05:
What about his argument that the homeowner was injured if you didn't tell the homeowner you'd written off the law?

[00:53:44] Speaker 02:
I don't think that there are well-planned allegations that Chase didn't tell the homeowners when it wrote off the loans for purposes of obtaining credit.

[00:53:53] Speaker 02:
There's some generalized allegations that some of the loans in Recovery 1 would not have qualified for credit, but there are no allegations that those are the loans that were ultimately submitted to the monitor with a claim of credit, and no allegations that on loans that were in fact submitted for credit, the homeowner wasn't appropriately notified.

[00:54:13] Speaker 07:
And the government?

[00:54:19] Speaker 07:
On the collateral attack argument, which is distinct from the exhaustion argument, as I understand it, does the government have a position?

[00:54:29] Speaker 03:
We do not, Your Honor.

[00:54:33] Speaker 03:
If they were right, if Chase were correct about the collateral attack argument, would that eviscerate your argument about that a false claims act claim is separate?

[00:54:45] Speaker 06:
I'm sorry, I didn't quite catch the end of your question.

[00:54:47] Speaker 03:
In other words, I'm not sure how you can not have an answer to that, because as I understand it, if he's correct about that, that this is a collateral attack, then it doesn't make any difference whether a false claims act is technically not an enforcement action under the decree.

[00:55:04] Speaker 06:
I mean, certainly the only issue that we're participating on is the interpretation of that exhaustion provision.

[00:55:08] Speaker 06:
I don't understand Chase to have made any argument that for some structural reason, the fact of the monitor's role and some further rule against collateral attack would somehow be determinative of how you would interpret the exhaustion provision.

[00:55:25] Speaker 07:
Right, but it's subsumed, I think, as Judge Tatel's point.

[00:55:29] Speaker 07:
There wouldn't be an exhaustion.

[00:55:31] Speaker 05:
Right, there wouldn't be anything left.

[00:55:33] Speaker 07:
There wouldn't be anything left to exhaust.

[00:55:34] Speaker 05:
If there was, to put it another way, if the collateral tax argument was correct, then the exhaustion argument was unnecessary.

[00:55:46] Speaker 06:
I don't want to take a bottom line view on other ways to dispose of the case.

[00:55:51] Speaker 06:
I don't understand, at least based on how they framed their collateral attack argument, I don't understand it to disprove our point, which is just that.

[00:55:59] Speaker 05:
Absolutely.

[00:56:00] Speaker 05:
Your argument was limited to the exhaustion.

[00:56:03] Speaker 06:
That's exactly right.

[00:56:04] Speaker 07:
It doesn't disprove it, but it moots it, potentially.

[00:56:06] Speaker 07:
You don't have to say yes to that.

[00:56:09] Speaker 03:
Thank you, Judge Kavanaugh.

[00:56:10] Speaker 03:
Thank you all.

[00:56:10] Speaker 03:
Case is submitted.