UNITED STATES COURT OF APPEALS

1 FOR THE DISTRICT OF COLUMBIA CIRCUIT

2
- - - - - - - - - - - - - - - X
3 :
STATE OF CALIFORNIA, EX REL. :
4
LAURENCE SCHNEIDER, ET AL., :
5 AND LAURENCE SCHNEIDER, :
:
6 Appellant, :
:
7 v. : No. 17-7003
:
8 J.P. MORGAN CHASE BANK, :
NATIONAL ASSOCIATION, ET AL., :
9 :
Appellees. :
10 :
- - - - - - - - - - - - - - - X
11
Monday, November 13, 2017
12 Washington, D.C.

13
The above-entitled matter came on for oral
14 argument pursuant to notice.

15 BEFORE:

16 CIRCUIT JUDGES TATEL AND KAVANAUGH, AND

SENIOR CIRCUIT JUDGE SILBERMAN
17
APPEARANCES:
18
ON BEHALF OF THE APPELLANT:
19
JOSEPH BLACK, ESQ.
20
ON BEHALF OF THE APPELLEES:
21 ROBERT WICK, ESQ.

22 ON BEHALF OF THE AMICUS CURIAE:

ADAM C. JED (DOJ), ESQ.
23

24

25
Deposition Services, Inc.
12321 Middlebrook Road, Suite 210
Germantown, MD 20874
Tel: (301) 881-3344 Fax: (301) 881-3338
info@DepositionServices.com www.DepositionServices.com
 C O N T E N T S

ORAL ARGUMENT OF: PAGE

Joseph Black, Esq.

On Behalf of the Appellant 3; 45

Adam C. Jed (DOJ), Esq.

On Behalf of the Amicus Curiae 20

Robert Wick, Esq.

On Behalf of the Appellees 24
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1 P R O C E E D I N G S

2 THE CLERK: Case number 17-7003, State of

3 California, ex rel. Laurence Schneider, et al., and Laurence

4 Schneider, Appellant v. J.P. Morgan Chase Bank, National

5 Association, et al. Mr. Black for the Appellant; Mr. Jed

6 for Amicus Curiae; and Mr. Wick for the Appellees.

7 ORAL ARGUMENT OF JOSEPH BLACK, ESQ.

8 ON BEHALF OF THE APPELLANT

9 MR. BLACK: Good morning, Your Honors.

10 JUDGE TATEL: Good morning.

11 MR. BLACK: May it please the Court. I am Joseph

12 Black, I represent the Relator in this False Claims Act

13 action against J.P. Morgan Chase. I reserve two minutes of

14 my time for rebuttal.

15 The District Court in this case committed clear

16 error when it dismissed the case because the Relator failed

17 to exhaust pre-litigation remedies contained in a contract

18 to which he was not a party. The District Court dismissed

19 the allegations with prejudice holding that Mr. Schneider

20 standing in the position of the Government failed to exhaust

21 pre-litigation procedures required --

22 JUDGE SILBERMAN: Your argument, of course, is you

23 couldn't have done that without, before you filed suit

24 anyway.

25 MR. BLACK: That's the principle --

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1 JUDGE SILBERMAN: Yes.

2 MR. BLACK: That is, that --

3 JUDGE SILBERMAN: Let's assume you're correct

4 about that, the alternative arguments seem to me more

5 troubling. In your case is there any part of your case that

6 doesn't depend on the proposition that Chase violated the

7 consent decree?

8 MR. BLACK: Is --

9 JUDGE SILBERMAN: Aren't you piggybacking on

10 that --

11 MR. BLACK: No. No. We're saying is that Chase

12 committed false claims, the issue -- submitted false claims

13 because --

14 JUDGE SILBERMAN: But is there any part of your

15 case that isn't dependent on the notion that Chase filed any

16 of the consent decree?

17 MR. BLACK: Our case is based on the fact that

18 Chase submitted false claims in its performance of the --

19 JUDGE SILBERMAN: Counsel, let me try it again --

20 MR. BLACK: -- the consent decree.

21 JUDGE SILBERMAN: -- let me try and ask the same

22 question again. Is there any part of your case that isn't

23 dependent on the notion that Chase violated the consent

24 decree?

25 MR. BLACK: I guess I have to concede that they,

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1 Chase in fact did violate the consent decree, and --

2 JUDGE SILBERMAN: No, your case is dependent on

3 that proposition.

4 MR. BLACK: YEs.

5 JUDGE SILBERMAN: So, it's a collateral, your, so

6 your case is basically a collateral attack on the notion

7 that Chase violated the consent decree?

8 MR. BLACK: Well, I don't know if it's, how you

9 define collateral, we have filed a false claim --

10 JUDGE SILBERMAN: That's a fair --

11 MR. BLACK: -- we have filed a false --

12 JUDGE SILBERMAN: No, no, that's a fair point.

13 Let me go to the penalty question. You said the penalty is

14 not fixed, but it's an obligation because you look at E of

15 the exhibit.

16 MR. BLACK: That's correct.

17 JUDGE SILBERMAN: Do you disagree with what Chase

18 described in its brief as the number of contingencies that

19 have to take place before any penalty is imposed?

20 MR. BLACK: Those contingencies only apply to a

21 portion of our case that we have, a servicing part of the

22 case, and a crediting part of the case, the crediting

23 penalties do not depend on any action that the Monitor would

24 take, those, the crediting penalties, if you will, are

25 described as obligations, in the consent judgment itself.

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1 JUDGE SILBERMAN: Well, tell me about how the

2 crediting penalties would apply.

3 MR. BLACK: The credit --

4 JUDGE SILBERMAN: What are the steps that have to

5 take place?

6 MR. BLACK: Well, Chase submitted --

7 JUDGE SILBERMAN: No, Counsel, for the penalties,

8 how do, the crediting penalties how do they take place?

9 MR. BLACK: Chase claimed that it provided --

10 JUDGE SILBERMAN: No, no. Now you're going to the

11 merits. I'm just asking you how are the penalties imposed?

12 What is the steps that have to be taken?

13 MR. BLACK: The steps that have to be taken would

14 be that Chase failed to provide the credits following --

15 JUDGE SILBERMAN: Who imposes the penalty?

16 MR. BLACK: there's no provision within the

17 consent judgment for Chase, for the imposition of those

18 penalties. It has to be a finding of some kind by somebody

19 that Chase did not follow the procedures of the consent

20 judgment to take those credits.

21 JUDGE SILBERMAN: Well, no, wait a minute,

22 Counsel, I'm confused, who imposes the penalty?

23 MR. BLACK: I guess --

24 JUDGE SILBERMAN: Because it has to be --

25 MR. BLACK: -- you know --

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1 JUDGE SILBERMAN: -- the Court, right?

2 MR. BLACK: It would have to be the Court, yes.

3 JUDGE SILBERMAN: And it's totally discretionary

4 on the part of the Court, right?

5 MR. BLACK: No.

6 JUDGE SILBERMAN: Why?

7 MR. BLACK: Because, well, it would be a finding

8 that Chase did not --

9 JUDGE SILBERMAN: But like any penalty, well, not,

10 like most penalties it's totally discretionary on the part

11 of the District Judge, right?

12 MR. BLACK: I --

13 JUDGE SILBERMAN: A District Judge couldn't say

14 equitable relief is adequate, right?

15 MR. BLACK: Not for these provisions.

16 JUDGE SILBERMAN: Why?

17 MR. BLACK: As I recall, Exhibit 3, the equitable

18 provisions apply to the servicing standards.

19 JUDGE SILBERMAN: But why could the District

20 Judge, you just pointed out it's total discretion on the

21 District Judge.

22 MR. BLACK: It's not -- it's only -- you know, a

23 District Judge has discretion to make a number of decisions

24 because he or she is a District Court Judge, but the

25 obligations are clearly defined in the consent judgment, and

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1 those have to be imposed.

2 JUDGE KAVANAUGH: The obligations are what?

3 MR. BLACK: The obligations are to collect at

4 least a minimum of 120 percent of the crediting that Chase

5 did not give or grant following the requirements of the

6 consent judgment.

7 JUDGE KAVANAUGH: But those aren't obligations

8 that qualify as statutory obligations for the False Claims

9 Act purposes under our --

10 MR. BLACK: Well, none of the -- no --

11 JUDGE KAVANAUGH: -- under our Hoyte case, or

12 under the Third Circuit and Fifth Circuit decisions.

13 MR. BLACK: Well, yes, but it's their obligations

14 under contract.

15 JUDGE KAVANAUGH: True, but the --

16 MR. BLACK: You don't --

17 JUDGE KAVANAUGH: Our Hoyte case suggested that

18 that kind of obligation is not itself good enough to

19 qualify --

20 MR. BLACK: Your Honor, I believe there are

21 numerous cases that say that contract obligations are

22 obligations under the False Claims Act.

23 JUDGE SILBERMAN: There's no case -- is there any

24 case where there provides that a penalty is an obligation, a

25 potential penalty is an obligation?

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1 MR. BLACK: You know, it's a question of how you

2 describe a penalty. The requirements -- the crediting

3 provision payments that are described as payments, they're

4 not described as penalties, and it is required that Chase

5 make payments to the Government if it fails to provide the

6 correct crediting under the, following the correct

7 procedures.

8 JUDGE SILBERMAN: Did you see the 28(j) letter

9 that the Government filed just a day or so ago?

10 MR. BLACK: Yes.

11 JUDGE SILBERMAN: Did that not defenestrate you?

12 MR. BLACK: No. The --

13 JUDGE SILBERMAN: They specifically disavowed the,

14 your penalty theory.

15 MR. BLACK: What it said was, is that we did in

16 fact -- no, it did not. It did not. The penalty provisions

17 are within, related to servicing, has two components, one of

18 those is for penalties imposed for failure to make the --

19 excuse me -- meet the servicing criteria, and the other,

20 well, there is no credit --

21 JUDGE TATEL: No, what was the other? Just

22 finish, please. I'm trying --

23 MR. BLACK: I'm sorry.

24 JUDGE TATEL: -- to sort these out. I'm confused

25 about which is which, and where the penalties flow from, so

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1 could you just finish?

2 MR. BLACK: I'm sorry, my -- Your Honor, there are

3 factors in which the Monitor looked at to determine whether

4 or not the, Chase was compliant with the servicing

5 requirement. If Chase failed to meet those requirements

6 Monitor could impose penalties. There were other servicing

7 factors that were similar, but they were not monitored by

8 the --

9 JUDGE TATEL: And what about the consumer relief

10 obligations?

11 MR. BLACK: The consumer relief obligations the

12 Monitor only accepted Chase's word that it had given

13 crediting following the requirements of the --

14 JUDGE SILBERMAN: Incidentally, what did you --

15 MR. BLACK: -- of their consent judgment.

16 JUDGE SILBERMAN: Going to the merits there, what

17 did you think was wrong with what Chase did?

18 MR. BLACK: Well, they just didn't follow those

19 requirements, they did not, you know, they (indiscernible).

20 JUDGE SILBERMAN: Specifically. Specifically.

21 MR. BLACK: The were first required to determine

22 whether or not the house was occupied, they didn't do that

23 properly. They were required to --

24 JUDGE SILBERMAN: Are you talking about --

25 MR. BLACK: -- meet the required --

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1 JUDGE SILBERMAN: Are you talking about the

2 valueless loans?

3 MR. BLACK: Yes, primarily, these were loans that

4 were --

5 JUDGE SILBERMAN: Well, they're written off as

6 valueless, right?

7 MR. BLACK: That's right.

8 JUDGE SILBERMAN: What is it you thought Chase did

9 not do that they were obliged to do?

10 MR. BLACK: Chase didn't have the ability to

11 give --

12 JUDGE SILBERMAN: Counsel, just answer the

13 question, what did Chase not do that they were obliged to

14 do?

15 MR. BLACK: They didn't follow the requirements of

16 Exhibit B.

17 JUDGE SILBERMAN: Well, specifically, please,

18 don't talk generally. What specifically are you referring?

19 MR. BLACK: Well, they didn't make any inquiries,

20 they didn't, they didn't ask any questions of the borrower

21 to determine whether or not the borrower qualified for the

22 credit.

23 JUDGE SILBERMAN: But if it's a valueless loan and

24 they cross it off --

25 MR. BLACK: Well, that may be, but the loan had to
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1 qualify for credits.

2 JUDGE SILBERMAN: Now, the Monitor did not, was,

3 this was perfectly disclosed to the Monitor, right?

4 MR. BLACK: No.

5 JUDGE SILBERMAN: It was not?

6 MR. BLACK: No.

7 JUDGE SILBERMAN: Explain why.

8 MR. BLACK: Well, Chase maintains that obviously

9 the loans were, and the practices were described to the

10 Monitor, but we don't know the earliest that Chase explained

11 this may have been in October of 2013 over, what, 18 months

12 after the case, after the consent judgment was in place, and

13 after Chase made a number of false certifications of

14 compliance. And the e-mail that Chase identifies they tried

15 to insert into the record in January indicates that it may

16 have only been at that time that the Monitor was fully aware

17 of the RCV1 loan, and we learned, and we try and supplement

18 the record with additional information, we know that the

19 Monitor never knew that the RCV1 loans were not serviced,

20 servicing is a requirement for modification, and Chase was

21 incapable of modifying the RCV1 loans,

22 JUDGE SILBERMAN: Why would you modify a loan

23 you're writing off?

24 MR. BLACK: Well, it was a requirement of the

25 consent judgment.
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1 JUDGE SILBERMAN: But if they write -- well,

2 wasn't it perfectly known to the Monitor that Chase wrote

3 off the loan, wasn't doing anything further?

4 MR. BLACK: No, the Monitor was not aware of that.

5 JUDGE SILBERMAN: And that's what you think is the

6 false claim --

7 MR. BLACK: Well, that's part --

8 JUDGE SILBERMAN: -- that Chase --

9 MR. BLACK: -- that's part of the false claim. I

10 mean, there were a number of false claims involved, but, you

11 know --

12 JUDGE KAVANAUGH: Can I -- yes. Can I go back to

13 the law on the contingent penalties? I read the case law,

14 our case in Hoyte and other Circuits post-2009 to say a

15 contingent exposure to penalty liability does not constitute

16 an obligation under the False Claims Act, why is that wrong?

17 MR. BLACK: I believe that's, you know, I believe

18 the 2009 amendments to the False Claims Act say that the --

19 JUDGE SILBERMAN: There's a difference --

20 MR. BLACK: -- obligation need not be fixed.

21 JUDGE SILBERMAN: Counsel, there's a difference

22 between fixed and contingent. In other words, Congress said

23 you don't have to have a fixed liability, but Congress never

24 said you can get a false claim based on a contingent

25 liability.
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1 MR. BLACK: Well, if this is not a reversed,

2 proper reversed False Claims Act case I don't know what is.

3 Would there ever be a proper reversed False Claims Act case

4 if this is not one of them?

5 JUDGE KAVANAUGH: The Third and Fifth Circuits,

6 though, looked at this, looked at the legislative history in

7 detail of the 2009 amendments and talked about Senator

8 Kyle's amendment to that, to those proposals, and said it

9 was supposed to cover situations where the amount wasn't

10 necessarily fixed, but it wasn't supposed to loop in, or

11 swoop in to cover contingent obligations.

12 MR. BLACK: Well, this is not a contingent

13 obligation, it's specified in the contract how much, I mean,

14 in the agreement how much --

15 JUDGE KAVANAUGH: Contingent penalties.

16 Contingent penalties I should have said.

17 MR. BLACK: And again, these are described as

18 payments, not penalties. I'm talking about the crediting

19 payments.

20 JUDGE KAVANAUGH: They're contingent penalties for

21 violation of some standard set forth in the agreement,

22 right? I mean, they're --

23 MR. BLACK: They're --

24 JUDGE KAVANAUGH: -- payments for some violation,

25 or some failure to live up to some standard set forth.

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1 MR. BLACK: The contingency is Chase's failure to

2 comply with the requirements.

3 JUDGE KAVANAUGH: Right.

4 MR. BLACK: It's not contingent on somebody else

5 making a decision.

6 JUDGE SILBERMAN: Counsel, where do you see a

7 dollar amount that is a set penalty?

8 MR. BLACK: I believe it's in, it's --

9 JUDGE SILBERMAN: Exhibit 8E?

10 MR. BLACK: It's in E, and it's C of that section.

11 JUDGE SILBERMAN: It looks to me like the District

12 Judge would have authority to set equitable relief.

13 MR. BLACK: I believe, Your Honor, that that

14 applies to the first requirement related to --

15 JUDGE SILBERMAN: So, there's no provision

16 whatsoever for a specific penalty for the crediting, right?

17 MR. BLACK: There is.

18 JUDGE SILBERMAN: Why?

19 MR. BLACK: It's --

20 JUDGE SILBERMAN: Why?

21 MR. BLACK: -- the value of the credit that they

22 took plus 120 percent, times 120 percent.

23 JUDGE SILBERMAN: Is that required?

24 MR. BLACK: As I read this, as I read the consent

25 judgment it is.
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1 JUDGE SILBERMAN: I didn't see that.

2 MR. BLACK: Excuse me, Your Honor, if I -- I'm

3 sorry, may I --

4 JUDGE SILBERMAN: May I ask you another question,

5 perhaps you can find it while you, before you come back on

6 rebuttal? What about the HAMP, it was dismissed without

7 prejudice, right?

8 MR. BLACK: That's correct.

9 JUDGE SILBERMAN: Why didn't you just amend your

10 complaint?

11 MR. BLACK: We would have amended our complaint,

12 but the Court told us that we could file an immediate

13 appeal.

14 JUDGE SILBERMAN: No, but you haven't answered my

15 question. Why didn't you just amend the complaint? Is it

16 because you couldn't find a material violation?

17 MR. BLACK: No, we could, and just as a matter of

18 fact, we identified the fact that our complaint --

19 JUDGE SILBERMAN: Suppose we concluded your

20 complaint was inadequate as a matter of prejudice? Suppose

21 we concluded that as a matter of law your complaint was

22 inadequate?

23 MR. BLACK: We could -- if we were permitted to

24 amend we could add facts that would demonstrate that indeed

25 Chase is violating the HAMP.

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1 JUDGE SILBERMAN: Chase argues, of course, that

2 under no circumstances it was material because you haven't

3 alleged that any of the consumers, the mortgagors, would

4 have been injured.

5 MR. BLACK: It wasn't the -- it was the agreement

6 with the Government. The Government and the United States

7 would be injured, it's not so much --

8 JUDGE SILBERMAN: Why?

9 MR. BLACK: Because this was a program intended to

10 stimulate the economy --

11 JUDGE SILBERMAN: Yes, but if nobody was hurt why

12 would there be a --

13 MR. BLACK: Well, the economy, the Government and

14 the economy as a whole would have been hurt because it was

15 part of a stimulus package that was, as the Government said

16 in other times said it was --

17 JUDGE SILBERMAN: Yes, but the purpose was to help

18 homeowners.

19 MR. BLACK: It was to help homeowners to become

20 credit worthy again, and to start spending money. It was as

21 part of a stimulus package. I mean, you know, the credit

22 problems, as, you know, the recession was a balance sheet

23 recession because people's, you know, individual balance

24 sheets were so far down they stopped spending money, the

25 design was to get people safe in their house and start

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1 spending money again. So, to help stimulate the economy it

2 was a small effort, it was part of a much larger package.

3 JUDGE KAVANAUGH: I do have one more question.

4 I'm still stuck on the case law, you know, the Fifth

5 Circuit, for example, said that the overwhelming weight of

6 authority before the 2009 Act held that contingent penalties

7 are not obligations under the FCA, and then it looks at all

8 the legislative history and concludes that the legislative,

9 the new legislation confirmed the accepted holding that

10 contingent penalties are not obligations under the FCA,

11 which also is what our Hoyte case had held, you disagree

12 with that?

13 MR. BLACK: I disagree with that. I believe that

14 the, that the Hoyte case was based on the ATMI case, and the

15 ATMI case was specifically rejected by the Senate report.

16 JUDGE KAVANAUGH: Okay. Thank you.

17 JUDGE SILBERMAN: Counsel, the 28(j) letter does

18 seem to indicate that the Government has Chase's view with

19 respect to the penalty, and the view expressed by both my

20 colleague, Judge Kavanaugh, and me.

21 MR. BLACK: Well, what the letter says is that --

22 JUDGE SILBERMAN: The last paragraph of the

23 letter.

24 MR. BLACK: Yes, but the Judge says that this

25 issue is immaterial to the issues of this --

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1 JUDGE SILBERMAN: Sorry.

2 MR. BLACK: The letter also says that this issue

3 is immaterial to the issues before this Court, and it also

4 points out that there was in fact non-compliance, and that

5 it was --

6 JUDGE SILBERMAN: But Counsel --

7 MR. BLACK: --- addressed.

8 JUDGE SILBERMAN: But Judge Kavanaugh and I have

9 been focusing on the penalty question, and it looks as if

10 the Government has disavowed your position with respect to

11 penalty.

12 MR. BLACK: With respect -- the penalties that

13 we're talking about are the servicing penalties.

14 JUDGE SILBERMAN: No, the Government is broader

15 than that, isn't it?

16 MR. BLACK: No, I don't believe it is.

17 JUDGE SILBERMAN: Okay.

18 MR. BLACK: It's very narrow, actually. It only

19 refers to the servicing penalties that are due to failure to

20 meet certain metrics. It's -- yes, and that --

21 JUDGE SILBERMAN: And the other penalties are

22 strictly up in the air, up to the District Judge, right?

23 MR. BLACK: To the extent the District Judges have

24 to impose them, that would --

25 JUDGE SILBERMAN: Total discretion.

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1 MR. BLACK: That discretion is circumscribed by

2 the consent judgment.

3 JUDGE KAVANAUGH: Okay.

4 JUDGE TATEL: Okay.

5 JUDGE KAVANAUGH: Okay.

6 JUDGE TATEL: All right. Thank you. We'll hear

7 from the Government. Yes.

8 ORAL ARGUMENT OF ADAM C. JED, ESQ.

9 ON BEHALF OF THE AMICUS CURIAE

10 MR. JED: Good morning, Your Honors, Adam Jed for

11 the United States. The United States is participating on a

12 narrow legal question, the correct interpretation of the

13 national mortgage judgments exhaustion provision, which

14 concerns enforcement actions under the consent judgment. As

15 the Court is aware, we are not taking a position on any of

16 the other legal issues that are before the Panel today, but

17 we are concerned that the District Court's interpretation of

18 that specific exhaustion provision was mistaken, and we're

19 here to ensure that there's not spillover as to either

20 another case that may concern the specific consent

21 judgment --

22 JUDGE SILBERMAN: What about the 28(j) letter with

23 respect to penalties?

24 MR. JED: Just Silberman, you know, I apologize if

25 we were unclear on the 28(j) letter. We were clarifying our

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1 factual position that, of course, the United States has not

2 intervened in this case, we're not a party to this case, but

3 we are clarifying the factual position that based on the

4 information currently available to them --

5 JUDGE SILBERMAN: No, but what about the last

6 paragraph about the penalty?

7 MR. JED: Your Honor, what we were saying in the

8 last paragraph was a factual point, it was not the legal

9 obligation question that I understand Chase to have raised

10 as an alternative ground for affirmance. And if I

11 understood correctly, Judge Silberman, it sounded like you

12 and Judge Kavanaugh were both asking my friend about that

13 legal question, we have not taken a position on that.

14 JUDGE SILBERMAN: I see.

15 MR. JED: All that we were doing was simply

16 clarifying our earlier representation, which is that, again,

17 based on the facts currently available to them that doesn't

18 mean that they have fully investigated all, you know, that

19 could exist, but based on the facts currently available to

20 them were informed by the relevant entities who monitor

21 these things that --

22 JUDGE SILBERMAN: So, you're taking no position on

23 the question of whether or not a contingent penalty is an

24 obligation under the False Claims Act?

25 MR. JED: The answer is yes, but let me just sort

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1 of put a footnote on that answer, which is certainly for the

2 purposes of this case we have not taken a position on that,

3 that was not an issue addressed by the District Court, in

4 fact, when we filed our brief it was not an issue that had

5 been addressed by any brief in this case. And, of course,

6 as Your Honor is aware, you know, it's the ordinary practice

7 of this Court not to address an alternate ground that was

8 not addressed below, especially where it's essentially just

9 being raised in one principle brief and one reply brief.

10 What I will say is if your --

11 JUDGE KAVANAUGH: We've done that, we do that

12 sometimes.

13 MR. JED: It happens sometimes, I by no means mean

14 to suggest that that's universal.

15 JUDGE KAVANAUGH: Yes.

16 MR. JED: It's certainly an unusual practice,

17 especially when it's something like a question of first

18 impression, which it would be for this Court.

19 JUDGE KAVANAUGH: Is it really a question of first

20 impression? I guess the question, Hoyte resolved the

21 question, the question is whether the 2009 Act changes that,

22 which other --

23 MR. JED: Yes, I mean, you know --

24 JUDGE KAVANAUGH: -- courts have said no to that.

25 MR. JED: Yes. I mean, insofar as we're not

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1 participating on that question I don't want to get pulled

2 too far into that, other than to say, obviously, Hoyte did

3 predate the 2009 amendments. If the Court were interested

4 in addressing that legal question, and were interested in

5 the Government's position, Judge Kavanaugh, in the Simoneaux

6 and the Victaulic decisions that you cited the United States

7 did file, I believe they were Amicus briefs in both cases.

8 Obviously, those lay out the Government's general position

9 about what constitutes an obligation, and of course does not

10 get into what may be some of the slightly distinct questions

11 about how to understand what would be an obligation in

12 connection with this consent judgment. But if the Court

13 were interested in our position we would certainly invite

14 the Court to read our briefs in those cases. And, you know,

15 as I said, it's unusual for the Court to address these kinds

16 of legal questions without full briefing when they weren't

17 passed on below, but potentially if the Court were

18 interested it could also invite the views of the United

19 States, and we could consult with the Solicitor General on

20 whether the Government would be interested in filing a

21 further supplemental Amicus brief.

22 Unless the Court is interested in discussing the

23 question that the Government did participate on.

24 JUDGE TATEL: Do you have any questions?

25 JUDGE KAVANAUGH: No.

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1 JUDGE TATEL: I don't either. Do you?

2 JUDGE SILBERMAN: No.

3 JUDGE TATEL: okay.

4 JUDGE SILBERMAN: No.

5 JUDGE TATEL: Thank you.

6 MR. JED: Thank you.

7 JUDGE TATEL: Thank you for your brief. Yes.

8 Okay.

9 ORAL ARGUMENT OF ROBERT WICK, ESQ.

10 ON BEHALF OF THE APPELLEES

11 MR. WICK: May it please the Court, I am Robert

12 Wick for the Chase Defendants, and if it's acceptable to the

13 Court I'll begin where Judge Silberman began with the

14 question of whether the action below is a collateral attack

15 on the Monitor's determinations that Chase complied with all

16 of its settlement obligations.

17 Judge Silberman is correct, and Opposing Counsel

18 ultimately conceded that the indispensible proposition at

19 the heart of the complaint is that Chase violated the

20 consent judgment. If Chase didn't violate the consent

21 judgment the it made no false claim of compliance, and there

22 is no false statement that could serve as the basis for a

23 False Claims Act liability. And the trouble with the core

24 allegation that Chase didn't comply with its settlement

25 obligations is that the Monitor duly determined that Chase

PLU
25

1 did comply with its settlement obligations, and per the

2 terms of the settlement that determination decides the

3 question of whether Chase did or did not comply with its

4 settlement obligations. How do we know that? We know that

5 because the settlement says so. In Exhibit E of the --

6 JUDGE SILBERMAN: Well, any of the parties could

7 have challenged the Monitor's determination.

8 MR. WICK: Correct. There was a process available

9 within the consent judgment action for petitioning Judge

10 Collyer to set aside the findings of the Monitor, that

11 process wasn't followed, and to file a brand new action from

12 outside the consent judgment proceeding to collaterally

13 attack that determination there's no provision for that,

14 that would be a violation of the terms of the contract, the

15 terms of the settlement would say that the Monitor decides

16 the question of whether Chase complied. It would also be a

17 violation of the principles of --

18 JUDGE TATEL: Unless a --

19 MR. WICK: -- finality.

20 JUDGE TATEL: -- false, unless a False Claims Act

21 is not an action under the settlement, right? That's the

22 Government's position.

23 MR. WICK: But that seems to me to reinforce the

24 fact that it would be a collateral attack on the Monitor's

25 determination. The Government says --

PLU
26

1 JUDGE TATEL: But isn't the allegation that the

2 Monitor's determination rested on fraudulent submissions by

3 the Bank?

4 MR. WICK: There is a suggestion in --

5 JUDGE TATEL: Well, that's what they allege,

6 that's a False Claims Act case.

7 MR. WICK: There is a suggestion in the Schneider

8 brief that why should we defer to the Monitor's

9 determinations because the Monitor's determinations were

10 procured --

11 JUDGE TATEL: Right.

12 MR. WICK: -- by fraud on the Monitor. If there

13 were a well pled allegation of fraud on the Monitor here the

14 right procedure would be to make an application to the

15 Monitor to reopen his determinations on grounds of fraud.

16 JUDGE TATEL: That's if a False Claims Act is a

17 case under the settlement, but --

18 MR. WICK: I beg your --

19 JUDGE TATEL: -- not if it doesn't qualify as a,

20 that it's not brought under the settlement.

21 MR. WICK: There are two different questions here,

22 Your Honor, the first question is does the Government have

23 to go, or Schneider have to go --

24 JUDGE TATEL: Yes.

25 MR. WICK: -- through the pre-litigation process?

PLU
27

1 That question turns on whether this action is or is not an

2 attempt to enforce --

3 JUDGE TATEL: I'm sorry, enforcement --

4 MR. WICK: -- Chase's settlement obligations.

5 JUDGE TATEL: -- action under the decree, that's

6 the language, right? The Government's position is this is

7 not a, quote, enforcement action under the decree.

8 MR. WICK: Right. And I have, and I am arguing an

9 entirely separate point now, Your Honor, the one that Judge

10 Silberman started with. Whether or not the False Claims Act

11 action is an attempt to enforce Chase's settlement

12 obligations, the fact remains there was a fact-finding

13 process set up under this settlement for determining whether

14 Chase complied --

15 JUDGE TATEL: Right, but the allegation --

16 MR. WICK: -- the outcome of that --

17 JUDGE TATEL: -- is that that fact-finding was

18 based on fraud.

19 MR. WICK: Right. And if there were a well pled

20 allegation that the Monitor's determination had been

21 procured by fraud the right remedy would be to apply to the

22 Monitor to reopen his finding on grounds of fraud if --

23 JUDGE TATEL: Why would a False Claim --

24 JUDGE KAVANAUGH: Why can't you do both? Sorry.

25 JUDGE TATEL: Go ahead.

PLU
28

1 MR. WICK: Because doing anything but following

2 the procedures set out in a settlement would be a violation

3 of the terms of the settlement, it would be a violation of

4 principles of --

5 JUDGE TATEL: But he's not bound by the

6 settlement. He's not a party to the settlement.

7 MR. WICK: Well, he stands in the shoes of the

8 United States.

9 JUDGE TATEL: He's just a False Claims Act case.

10 MR. WICK: Right, and the Supreme Court said in

11 the Stevens case that a Relator sues as an assignee and an

12 agent of the United States, and as an assignee and agent of

13 the United States he can have no greater right to litigate

14 this case than the United States would have if the United

15 States were litigating the case on its own behalf.

16 As to the question of fraud, I don't think I've

17 gotten this answer out there yet, Your Honor, if Schneider

18 were saying that Chase had procured a District Court

19 judgment by defrauding the District Court it wouldn't be

20 open to him to file a brand new District Court case and ask

21 the Court in the second action to overturn the Judge in the

22 first action on grounds of fraud, he would have to make a

23 Rule 60(b) application to the Judge in the original action

24 to reopen the judgment on grounds of fraud. Same thing

25 here, you don't set aside the Monitor's determinations on

PLU
29

1 grounds of fraud by bringing a brand new separate collateral

2 action, you go to the Monitor, you ask the Monitor were you

3 defrauded? If that happened here we're confident the

4 Monitor would say that's all nonsense, I wasn't defrauded.

5 JUDGE KAVANAUGH: So, the settlement agreement

6 bars all False Claims Act claims implicitly, correct?

7 That's your theory?

8 MR. WICK: That's not our position, Your Honor.

9 JUDGE KAVANAUGH: Okay. What is your position,

10 then?

11 MR. WICK: Well, we have two different positions,

12 one is that Schneider cannot use a separate proceeding to

13 collaterally attack a determination made in the consent

14 judgment proceeding.

15 JUDGE TATEL: Well, isn't -- so, that sounds to me

16 like your answer to Judge Kavanaugh should be yes, it does

17 bar all False Claim Act cases.

18 MR. WICK: It doesn't. Our first --

19 JUDGE TATEL: What wouldn't be barred?

20 JUDGE SILBERMAN: Give us a hypothetical of a

21 False Claims Act case --

22 JUDGE TATEL: Yes, that wouldn't be barred.

23 JUDGE SILBERMAN: Yes. Because that's --

24 MR. WICK: If the Monitor duly determines that

25 Chase has complied then it would not be open to a False

PLU
30

1 Claims Act Relator to collaterally attack that determination

2 in a separate action. But if the Monitor had found that

3 Chase didn't comply then you would be free to bring a False

4 Claims Act case.

5 JUDGE SILBERMAN: No, no, then you're saying --

6 no, no. Then you're saying that it cannot be a False Claims

7 Act if the Monitor concludes that Chase complied?

8 MR. WICK: If the basis of the false claim --

9 JUDGE SILBERMAN: Did you hear what I said?

10 You're saying there cannot be a False Claim Act if the

11 Monitor concludes that Chase complied.

12 MR. WICK: Yes, if the basis of the false claim is

13 a claim of non-compliance.

14 JUDGE SILBERMAN: We don't have to go that far to

15 sustain this, your position in this case.

16 MR. WICK: Correct. If the basis of --

17 JUDGE SILBERMAN: Then why don't you think about

18 what could be a false claim that would be independent of a

19 consent decree.

20 MR. WICK: If the False Claims Act proceeding

21 weren't, if the sole basis of the false claim weren't a

22 false claim of compliance --

23 JUDGE SILBERMAN: Yes, that's the question.

24 MR. WICK: -- then he would be able to bring some

25 sort of a False Claims Act. The only false claim alleged

PLU
31

1 here is a false claim of compliance, the Monitor gets to

2 decide the question of compliance.

3 JUDGE TATEL: What other claim would there be? I

4 mean, I don't understand, the Monitor is in charge of

5 deciding compliance issues with the consent decree, is there

6 any issue that wouldn't go to the Monitor?

7 MR. WICK: There are two situations in which a

8 False Claims Act can proceed that I can think of, one is if

9 in the first instance the Monitor found Chase didn't comply,

10 if the Monitor said Chase says it complied but I disagree,

11 and in fact I think Chase --

12 JUDGE SILBERMAN: Yes, but that --

13 JUDGE TATEL: Well, if it didn't comply --

14 JUDGE SILBERMAN: -- please don't make that

15 point --

16 JUDGE TATEL: -- why would anybody bring a

17 false --

18 JUDGE SILBERMAN: -- because we all --

19 JUDGE TATEL: Right.

20 MR. WICK: You all get that one.

21 JUDGE SILBERMAN: That doesn't answer the

22 question.

23 JUDGE TATEL: Yes. Right.

24 MR. WICK: Or if --

25 JUDGE SILBERMAN: What is the second?

PLU
32

1 MR. WICK: The second situation would be if after

2 the fact somebody made an application to the Monitor to set

3 aside his original findings on grounds of fraud and he

4 agreed with that.

5 JUDGE TATEL: But then why would you need to file

6 a False Claims Act case?

7 MR. WICK: To get treble damages, and to get

8 penalties.

9 JUDGE TATEL: I see. I see.

10 JUDGE KAVANAUGH: More money. Yes. Okay.

11 MR. WICK: The --

12 JUDGE KAVANAUGH: Could the settlement agreement

13 have precluded this kind of claim? In other words, you're

14 saying that this kind of claim is inconsistent with the

15 settlement agreement, but there's nothing explicit in the

16 settlement agreement that bars this kind of --

17 MR. WICK: I think that, I think that the --

18 JUDGE KAVANAUGH: -- claim.

19 MR. WICK: -- settlement bars this kind of

20 collateral attack in two ways, first --

21 JUDGE SILBERMAN: Suppose there was evidence --

22 excuse me, I -- answer Judge Kavanaugh's question first.

23 MR. WICK: Okay. So, the two ways in which the

24 settlement bars this kind of a collateral attack is Exhibit

25 E, Section C5 and C16 through 18, says the Monitor is the

PLU
33

1 one who determines whether Chase did or did not comply with

2 the settlement. The plain meaning of the word determine as

3 defined in a series of dictionaries and a series of court

4 definitions --

5 JUDGE KAVANAUGH: Okay. I got that one. And then

6 the second one?

7 MR. WICK: And the second one is that the

8 elaborate fact-finding process set up in the settlement

9 tells you it was meant to be the exclusive process for

10 determining --

11 JUDGE KAVANAUGH: And it could have said -- my

12 only point, and this doesn't mean you lose on this argument,

13 but my point is it could have been more explicit and that's

14 my only point. Judge Silberman had a question.

15 JUDGE SILBERMAN: What is your view about the

16 penalty?

17 MR. WICK: We think that that is --

18 JUDGE SILBERMAN: Counsel says your brief refers

19 only to part of his claim, your brief and once you set forth

20 the various steps for, before a penalty could be duly

21 imposed, all of which are contingent on various steps, the

22 last being the discretion of the District Judge, which can

23 include an equitable response, but he points out that

24 doesn't, that refers to the servicing but not the crediting.

25 MR. WICK: It is true that the settlement uses

PLU
34

1 different language with respect to the servicing metrics and

2 with respect to the consumer elite provisions. As to the

3 servicing metrics, the Hoyte decision is conclusive, and the

4 Simoneaux decision of the Fifth Circuit. And by the way --

5 JUDGE TATEL: What about the consumer relief

6 (indiscernible)?

7 MR. WICK: As to the consumer relief provisions we

8 think we can win on that ground, as well. Section J3 --

9 JUDGE TATEL: But it's a different theory, right?

10 Well, you go ahead and tell me. Sorry.

11 MR. WICK: Yes.

12 JUDGE TATEL: Yes.

13 MR. WICK: So, on the first theory, on the Hoyte

14 theory Section J3 of Exhibit E of the settlement makes clear

15 that penalties under the servicing metrics are dependent on

16 the discretionary decision by the Government to seek --

17 JUDGE KAVANAUGH: Okay.

18 JUDGE TATEL: And I was asking you --

19 JUDGE KAVANAUGH: No, the other one.

20 JUDGE TATEL: -- I was asking you about the

21 consumer.

22 JUDGE SILBERMAN: Counsel, you should answer the

23 question --

24 MR. WICK: Yes.

25 JUDGE SILBERMAN: -- put to you.

PLU
35

1 JUDGE TATEL: Right.

2 MR. WICK: On the consumer relief question --

3 JUDGE TATEL: Yes.

4 MR. WICK: -- those penalty obligations, or those

5 payment obligations are not self-executing, there has to be

6 a Monitor's finding that Chase fell short, and then the

7 Government has the option of either voiding the release, or

8 insisting on payment of the money.

9 JUDGE TATEL: Do you make this argument in your

10 brief? Just curious, do you make this argument in your

11 brief, about the --

12 MR. WICK: No, we focused on the servicing metrics

13 argument in our brief.

14 JUDGE TATEL: But not this?

15 JUDGE KAVANAUGH: So --

16 JUDGE TATEL: Not --

17 MR. WICK: Correct.

18 JUDGE KAVANAUGH: -- on --

19 JUDGE TATEL: Well, how do we know, suppose I want

20 to learn independently of your brief, then, as to why the

21 consumer relief obligations fail for the same reason, where

22 do I find that? That is that the penalties are contingent?

23 MR. WICK: The settlement does not say that the,

24 that Chase's obligation to pay money is self-executing or

25 mandatory, what it says is in Exhibit F, page F12 is if the

PLU
36

1 Monitor finds that Chase fell short the Government can then

2 give Chase 30 days notice to either pay, or if it doesn't

3 pay the Government may void the release.

4 JUDGE KAVANAUGH: Can I, just to make sure I'm

5 clear because Judge Tatel's question is important, so, on

6 page 48 and 49 and 50 of your brief you say I think, what, a

7 servicing standard allegations don't qualify as obligations

8 under the False Claims Act, the Hoyte theory. And then on

9 page 50 you turn to the consumer relief --

10 JUDGE TATEL: Right.

11 JUDGE KAVANAUGH: -- and I guess I couldn't tell

12 from the brief whether this was an additional issue, why the

13 consumer relief would go out, or the Hoyte theory carried

14 over to the consumer relief, as well. And I think that's

15 related to Judge Tatel's --

16 JUDGE TATEL: Right.

17 JUDGE KAVANAUGH: -- question.

18 MR. WICK: In our brief our Hoyte argument --

19 JUDGE TATEL: Well, you already answered, you

20 already answered my question that you didn't raise this

21 argument in your brief.

22 MR. WICK: Right. Our Hoyte --

23 JUDGE TATEL: Right?

24 MR. WICK: -- argument was focused on the

25 servicing standards, it could apply to the consumer relief.

PLU
37

1 JUDGE TATEL: But you didn't make that argument --

2 MR. WICK: Correct.

3 JUDGE TATEL: -- in the brief?

4 JUDGE KAVANAUGH: Okay.

5 JUDGE TATEL: Okay.

6 JUDGE KAVANAUGH: So, the consumer relief --

7 JUDGE TATEL: Right.

8 JUDGE KAVANAUGH: -- though you have a separate

9 argument --

10 JUDGE TATEL: Yes.

11 JUDGE KAVANAUGH: -- for why those would go out.

12 JUDGE TATEL: Yes, and --

13 MR. WICK: Correct.

14 JUDGE TATEL: -- and --

15 MR. WICK: As to consumer relief --

16 JUDGE TATEL: Yes.

17 MR. WICK: -- provisions, the only well pled

18 argument in the complaint of how Chase violated the consumer

19 relief provisions is that Chase didn't use an application

20 process to dole out consumer relief, Schneider alleges over

21 and over again you can only earn consumer relief if you use

22 an application process. But there is no such thing as an

23 application process for consumer relief. The requirements

24 for consumer relief are set out in Exhibit D to the

25 settlement, you can read that from top to bottom, you won't
PLU
38

1 find any requirement to use an application process.

2 JUDGE KAVANAUGH: Can I, just I'm road mapping

3 this so I have this straight, on your initial collateral

4 attack argument, if we agreed with that everything, we don't

5 get to these issues that we just --

6 MR. WICK: Right.

7 JUDGE KAVANAUGH: -- discussed. If we --

8 MR. WICK: Case is over.

9 JUDGE KAVANAUGH: If we disagree with that then we

10 do have to go through the servicing standards and consumer

11 relief, and as to servicing standards you have Hoyte, as to

12 consumer relief you have what you just said --

13 MR. WICK: Yes.

14 JUDGE KAVANAUGH: -- is that correct?

15 MR. WICK: Yes.

16 JUDGE KAVANAUGH: And then we got the HAMP.

17 JUDGE TATEL: That's very helpful.

18 JUDGE KAVANAUGH: Yes.

19 JUDGE TATEL: Okay. But can I just -- I

20 understood your argument, just to follow up with Judge

21 Kavanaugh's helpful cataloging of these, assuming the Hoyte

22 argument isn't applicable to the consumer relief section, I

23 understood your argument to be that they, certifications

24 here couldn't be false because the Monitor later ratified

25 them, is that not right?

PLU
39

1 MR. WICK: Can I hear --

2 JUDGE TATEL: Is that not your argument?

3 MR. WICK: -- that question again?

4 JUDGE TATEL: I thought your argument that these

5 couldn't be false because the Monitor later ratified them,

6 right?

7 MR. WICK: Correct. The Monitor is the one who

8 decides the way a judge or arbiter would decide --

9 JUDGE TATEL: Right.

10 MR. WICK: -- whether Chase complied or not, so it

11 can't be false.

12 JUDGE TATEL: Yes. Okay.

13 JUDGE KAVANAUGH: You also --

14 JUDGE SILBERMAN: Why did you not make the

15 argument that the penalty on the crediting was contingent,

16 too?

17 MR. WICK: It is clearest with respect to the

18 servicing standards, and we think the same argument could be

19 made as to consumer relief.

20 JUDGE SILBERMAN: Why did you not?

21 MR. WICK: There's a difference in language

22 between the two. We think the argument could be made, but

23 we thought that the clearest --

24 JUDGE SILBERMAN: What is the grounds on which

25 your penalty could be imposed, what is the standard? Who

PLU
40

1 makes the determination whether a penalty should be imposed

2 as to the crediting?

3 MR. WICK: I assume the District Court Judge would

4 make that determination.

5 JUDGE TATEL: But after what? What's the --

6 JUDGE SILBERMAN: Yes.

7 JUDGE TATEL: -- process?

8 MR. WICK: The process is the Monitor --

9 JUDGE TATEL: We under the process for the --

10 MR. WICK: -- finds that Chase falls short on its

11 consumer relief obligations, and then Exhibit F, page F12,

12 if the Monitor finds that Chase has fallen short the

13 Government has the right to send a letter to Chase saying

14 you better pay up or else we can void the release, and then

15 if Chase doesn't pay up the Government has the option of

16 voiding the release of claims that were given in the

17 settlement.

18 JUDGE KAVANAUGH: On the consumer relief I thought

19 your main point, and I might be repeating what you said, but

20 I just want to make sure, is that the terms of the

21 settlement do not require an application.

22 MR. WICK: That's exactly what I said. There

23 is --

24 JUDGE KAVANAUGH: Okay.

25 MR. WICK: -- no hint of an application process

PLU
41

1 requirement in the consumer relief provisions. There are a

2 few other stray allegations in the complaint of various bad

3 acts that Chase allegedly committed on its Recovery One

4 loans, those allegations fail for three reasons, if I could

5 just have a couple of seconds, number one, they are not well

6 developed either in the complaint or in the brief of

7 Appellants, they are not tied to any allegation of a

8 specific false claim that avoided the Government of money --

9 JUDGE SILBERMAN: They, what are you referring to

10 as they?

11 MR. WICK: So, his main argument is that Chase

12 didn't earn any consumer relief credit --

13 JUDGE SILBERMAN: Right.

14 MR. WICK: -- because it didn't use an application

15 process.

16 JUDGE SILBERMAN: Right.

17 JUDGE KAVANAUGH: Yes.

18 MR. WICK: There are some scattershot allegations

19 of other problems, those scattershot allegations fail

20 because they're not well developed, they're not well pled,

21 and they are not tied to a specific false statement that

22 avoided the payment of money. Secondly, there's no

23 allegation that they exceeded the $250 million buffer that

24 Chase has under the consumer relief provisions. The Monitor

25 found that Chase overshot by more than $250 million how much
PLU
42

1 consumer relief it had to earn. There's no allegation that

2 any of the stray alleged misconduct added up to more than

3 $250 million. And third, those allegations ignore the

4 question of which loans were actually submitted for credit,

5 as opposed to which loans were eligible for credit. As you

6 pointed out, Judge Silberman, if all you're going to do is

7 cross off the debt there's no need to be in communication

8 with a homeowner, and one of the ways Chase can earn

9 consumer relief, Section D5, is by simply crossing off the

10 debt. Thank you, Your Honor.

11 JUDGE KAVANAUGH: Whoa.

12 MR. WICK: Yes?

13 JUDGE KAVANAUGH: Okay. Still on road mapping,

14 and these are going to be two different questions. Okay.

15 So, first question, if we agreed with you on the collateral

16 attack argument what's left of the HAMP claims?

17 MR. WICK: The HAMP claims are independent, and I

18 haven't addressed --

19 JUDGE KAVANAUGH: Okay.

20 MR. WICK: -- those, and I would be happy to.

21 JUDGE KAVANAUGH: Okay.

22 JUDGE SILBERMAN: Yes, I wish you --

23 JUDGE KAVANAUGH: Then just --

24 JUDGE SILBERMAN: I was going to ask the same

25 question.
PLU
43

1 JUDGE KAVANAUGH: Just road mapping for now.

2 Okay. So, we will get to the substance of the HAMP claims.

3 But if we disagree with you on the collateral attack, but

4 agree with you on the alternative grounds, on the servicing

5 standards and the consumer relief, and you have different

6 alternative grounds for those two as we just discussed,

7 what's left of the HAMP claim? Still, they're still left,

8 as well, right?

9 MR. WICK: The HAMP claims have nothing to do with

10 the settlement claims.

11 JUDGE KAVANAUGH: That's what I'm --

12 MR. WICK: They're still left.

13 JUDGE KAVANAUGH: That's what I'm just triple

14 checking. Okay. Now, let's talk about the HAMP claims.

15 MR. WICK: Yes, Your Honor. There are two grounds

16 on which the District Court's order on the HAMP claim should

17 be affirmed, the first is that Schneider hasn't pled any

18 material non-compliance with HAMP. He says that the false

19 claims relating to HAMP consist of two false certificates of

20 compliance that Chase delivered in September of 2010, but

21 HAMP certificates of compliance don't certify perfect

22 compliance with HAMP, they certify material compliance with

23 HAMP. Now, Schneider says that the non-compliance here is

24 that Chase did not solicit certain borrowers whose loans had

25 charged off and moved from the main system of record to the
PLU
44

1 Recovery One system of record after the loans charged off,

2 but he never alleges that Chase didn't solicit those

3 borrowers for HAMP loan modifications before their loans

4 charged off and moved from the main system of record to the

5 Recovery One system of record.

6 JUDGE SILBERMAN: I finally saw, I didn't

7 understand your brief on that point. Now I see it.

8 MR. WICK: Yes. And paragraph 198 of the

9 complaint actually appears to acknowledge that Chase did

10 solicit those borrowers for HAMP loan modifications before

11 the loans charged off. He says in the main system of record

12 people are solicited, and then it's only after they charge

13 off that there's no more solicitation.

14 The second point is that there are no allegations

15 of any actual --

16 JUDGE SILBERMAN: Then your position is it would

17 make absolutely no sense to solicit anything once the loan

18 is charged off.

19 MR. WICK: Exactly, because once the loan is

20 charged off by definition there will be no foreclosure, a

21 loan only charges off after Chase has made the determination

22 it's not worth it to foreclose on this loan, it would cost

23 more to foreclose than we would realize at the foreclosure

24 sale, that's what Judge Collyer said at J.A. five through

25 seven.
PLU
45

1 Third and finally, there are no allegations that

2 the Treasury Department of its agents, Fannie Mae and

3 Freddie Mac, were unaware of exactly how Chase was treating

4 the charged off loans for purposes of the HAMP program.

5 Schneider originally made that argument in his original

6 complaint, he then deleted all such allegations out of his

7 complaint when he amended it, and you see the disappearance

8 of those allegations at J.A. 32, note two, J.A. 149, and

9 J.A. 187. J.A. 149 and 187 are redlines where you see

10 Schneider redlining out, deleting out all allegations that

11 the Treasury was unaware --

12 JUDGE SILBERMAN: I saw that your brief. What's

13 your third point?

14 MR. WICK: That was my third point, that Treasury

15 knew what was happening, there's no allegation that it

16 didn't. For those reasons, Your Honors, we would

17 respectfully ask you to affirm.

18 JUDGE TATEL: Okay. Thank you. Counsel had no

19 more time left, right?

20 THE CLERK: Mr. Black (indiscernible 11:01:24).

21 JUDGE TATEL: Okay. You can take a minute, Mr.

22 Black. And I think you had an answer for Judge Silberman,

23 also?

24 ORAL REBUTTAL OF JOSEPH BLACK, ESQ.

25 ON BEHALF OF THE APPELLANT

PLU
46

1 MR. BLACK: Yes, I have an answer for Judge --

2 JUDGE TATEL: Okay.

3 MR. BLACK: -- Silberman. A requirement to pay

4 the payments for failure to do crediting is found on page

5 D11 of the consent judgment, that's Exhibit D11, and it's

6 10D, and it says if the servicer fails to meet the

7 commitment set forth in the consumer relief requirements

8 within three years of the service's start date, servicer

9 shall pay an amount equal, shall pay an amount equal to 125

10 percent of the unmet commitment amount. It doesn't say how

11 that's collected, it just says he shall pay, there's no

12 discretion if he fails to do it.

13 JUDGE SILBERMAN: I see.

14 JUDGE TATEL: Okay.

15 MR. BLACK: And so, it's an obligation. The

16 requirements to solicit information from the borrower comes

17 from the HAMP, which governs the consent judgment, which

18 governs Exhibit D, the crediting requirements under the

19 HAMP. So, you go back to the HAMP, there's a whole series

20 of --

21 JUDGE SILBERMAN: Well, no, I thought your

22 argument on the HAMP was wholly independent of the --

23 MR. BLACK: No, no, no, no. I'm sorry. It's the

24 HAMP handbook. There's a document --

25 JUDGE SILBERMAN: Counsel, let me rephrase my

PLU
47

1 question. My understanding is your argument on HAMP was

2 wholly independent of the consent decree.

3 MR. BLACK: The consumer relief under the consent

4 judgment is dictated by Exhibit D, it sets out certain

5 consumer relief provisions, but those consumer relief

6 provisions are governed by the service and participation

7 agreement which incorporates the HAMP requirements, and the

8 HAMP handbook, and there's a whole host of requirements that

9 Chase must go through --

10 JUDGE TATEL: Wait, I'm sorry, the consumer --

11 hold on.

12 MR. BLACK: -- in order to give consumer relief.

13 JUDGE TATEL: Just hold on. The consumer relief

14 requirements of the consent decree incorporate the HAMP --

15 JUDGE KAVANAUGH: Yes.

16 JUDGE TATEL: -- handbook?

17 MR. BLACK: It incorporates the service and

18 participation agreement which incorporates the HAMP. So,

19 this consent judgment is not --

20 JUDGE SILBERMAN: Wait a minute, does that mean

21 that a Monitor's responsibility was with respect to the

22 HAMP, too?

23 MR. BLACK: Not with respect to the HAMP that we

24 allege in the complaint, but the requirements under the HAMP

25 and under the HAMP handbook, yes, those were some of the
PLU
48

1 guiding principles that he had to follow, and which Chase

2 had to follow, which they ignored.

3 JUDGE TATEL: Could you just tell me in like two

4 simple sentences why your allegations regarding the consumer

5 relief challenge survives? Can you just explain that to me?

6 MR. BLACK: I say that it's an obligation

7 established by the contract, and there is no provision

8 within the contract that says there is discretion to be

9 given if they failed --

10 JUDGE TATEL: No, I understand that part of it.

11 Suppose we agree with you about that, his argument is that

12 there's no requirement, if your allegation is they didn't

13 use an application process then there's no requirement in

14 the decree that they do that.

15 MR. BLACK: Well, there isn't an application

16 requirement --

17 JUDGE TATEL: Is that your argument?

18 MR. BLACK: -- that's contained in the SPA in the

19 HAMP handbook, which govern the consent judgment, which

20 governs Exhibit D.

21 JUDGE TATEL: Okay.

22 MR. BLACK: So, you have to --

23 JUDGE TATEL: Therefore, what?

24 MR. BLACK: You know, this consent judgment does

25 not exist in a vacuum, it didn't come out of whole cloth, it

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1 is specifically in the last, we identified it in the last

2 paragraphs of Exhibit D, it says it's governed by the SPA,

3 and the SPA, if you look at the SPA, it provides for False

4 Claims Act enforcement, and provides for a number of

5 different practices necessary to be filed to give consumer

6 relief to modify loans. And yes, charge off loans still had

7 to be modified and they had to meet the requirements. These

8 were -- the Government was looking for a benefit out of

9 this, not just the homeowner, the homeowner was a third

10 party beneficiary, if you will, of the consent judgment.

11 But there was a benefit to the Government in terms of

12 righting the wrongs that happened.

13 JUDGE SILBERMAN: Explain, why, what is the -- how

14 that works? I'm still trying to figure that out.

15 MR. BLACK: Well --

16 JUDGE SILBERMAN: Why is this a benefit to the

17 Government if the --

18 MR. BLACK: Well --

19 JUDGE SILBERMAN: -- homeowner is relieved

20 completely of any obligation.

21 MR. BLACK: Because the homeowner has more money

22 to spend, and he can help stimulate the economy.

23 JUDGE SILBERMAN: Will you explain why, how that

24 works? How does the homeowner spend more money?

25 MR. BLACK: Well, if he has less debt, he has more

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1 money in his pocket that he can spend.

2 JUDGE SILBERMAN: Then if the bank writes off the

3 loan he has zero debt, then he has more money, right?

4 MR. BLACK: But in this case many times Chase

5 didn't inform the homeowner that they had written off the

6 debt, they didn't know that.

7 JUDGE SILBERMAN: That's the key to your case,

8 that the homeowner did not know it was written off.

9 MR. BLACK: Well, it's not the key, but it's part

10 of it.

11 JUDGE SILBERMAN: Well, what else is there?

12 MR. BLACK: Well, what else is there is that

13 Chase --

14 JUDGE SILBERMAN: The homeowner is relieved

15 entirely of the debt, why does that not benefit society as a

16 whole, and as well as the homeowner? I'm mystified.

17 MR. BLACK: Well, Your Honor, if the homeowner is

18 not aware of the fact that his debt has been written off he

19 still has that obligation outstanding, and he has to

20 consider that in his budget, and he can't possibly spend

21 money that -- and he has to deal with that issue, his credit

22 rating, he has to worry about his credit rating, he can't

23 spend money, you know, he can't spend money to stimulate the

24 economy.

25 JUDGE KAVANAUGH: Can I ask you one other

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1 question? I'm going to read from the red brief and ask for

2 your comment, which is it says there none of the mortgage

3 servicers that entered into national mortgage settlements

4 used an application process in dispensing consumer relief.

5 It goes on to say the Monitor nonetheless found that each

6 settling service, or successfully earned consumer relief

7 credit, Schneider is therefore suggesting that all the

8 parties to the national mortgage settlements have completely

9 misunderstand their own settlements, and that none of the

10 servicers that entered into those settlements have ever

11 earned a penny of consumer credit relief, can you respond to

12 that?

13 MR. BLACK: I can respond to that by saying that

14 the servicer had to have information from the borrower to

15 determine whether or not the loans that he had given to the

16 borrower qualified for loan modifications, and thus for

17 Chase, or the other servicers to receive credits. If all

18 the other servicers followed the same practice as Chase they

19 would have committed the same fraud. We do not know that

20 the Monitor knew exactly what they were doing. You'll see

21 in your brief, we quote part of the Monitor's reports, and

22 he talks in terms of loans qualifying for modification, and

23 thus for crediting, you can't qualify for a modification

24 unless you have some information from the borrower to

25 determine whether or not those loans qualify.

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1 JUDGE KAVANAUGH: Okay, I --

2 MR. BLACK: I don't care if it's an application

3 process --

4 JUDGE SILBERMAN: Your answer is that if they're

5 right about that, so be it, everybody else --

6 JUDGE TATEL: Right.

7 JUDGE SILBERMAN: -- is in violation --

8 JUDGE KAVANAUGH: Right.

9 JUDGE TATEL: Okay.

10 JUDGE SILBERMAN: -- too.

11 JUDGE KAVANAUGH: That's true.

12 MR. BLACK: That's right.

13 JUDGE TATEL: Okay.

14 MR. BLACK: And I suspect that's true.

15 JUDGE SILBERMAN: Might I ask one more question?

16 JUDGE TATEL: Yes, of course. Yes.

17 JUDGE SILBERMAN: You, too?

18 JUDGE TATEL: No, you go ahead.

19 JUDGE KAVANAUGH: I was going to ask the

20 Government --

21 JUDGE TATEL: We're going to --

22 JUDGE KAVANAUGH: -- one more question.

23 JUDGE TATEL: -- Judge Kavanaugh has a question

24 for the Government.

25 JUDGE SILBERMAN: I want to ask the Chase one more

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1 question.

2 JUDGE TATEL: Go ahead. Go ahead.

3 JUDGE SILBERMAN: If I could?

4 JUDGE TATEL: Go ahead. You've got the floor.

5 JUDGE KAVANAUGH: Okay. Chase is back up.

6 JUDGE SILBERMAN: What about his argument that the

7 homeowner was injured if you didn't tell the homeowner you

8 had written off the loan.

9 MR. WICK: I don't think that there are well pled

10 allegations that Chase didn't tell the homeowners when it

11 wrote off the loans for purposes of obtaining credit. There

12 are some generalized allegations that some of the loans in

13 Recovery One would not have qualified for credit, but there

14 are no allegations that those are the loans that were

15 ultimately submitted to the Monitor with a claim of credit,

16 and no allegations that on loans that were in fact submitted

17 for credit the homeowner wasn't appropriately notified.

18 JUDGE KAVANAUGH: Okay.

19 JUDGE TATEL: Okay.

20 JUDGE KAVANAUGH: And the Government.

21 JUDGE TATEL: Mr. Jed?

22 JUDGE KAVANAUGH: Mr. Jed.

23 JUDGE TATEL: Go ahead. Do you have a question

24 for him?

25 JUDGE KAVANAUGH: Yes.

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1 JUDGE TATEL: Yes, go ahead.

2 JUDGE KAVANAUGH: On the collateral attack

3 argument, which is distinct from the exhaustion argument, if

4 I understand it, does the Government have a position?

5 MR. JED: We do not, Your Honor.

6 JUDGE KAVANAUGH: Okay. That's it.

7 JUDGE TATEL: But if they were right, if Chase

8 were correct about the collateral attack argument would that

9 eviscerate your argument about that, that a False Claims Act

10 claim is separate?

11 MR. JED: I'm sorry, Your Honor, I didn't quite

12 catch the end of your question.

13 JUDGE TATEL: In other words, I'm not sure how you

14 cannot have an answer to that, because as I understand it if

15 he's correct about that, that is that this is a collateral

16 attack, then it doesn't make any difference whether a False

17 Claims Act is technically not an enforcement action under

18 the decree.

19 MR. JED: I mean, certainly the only issue that

20 we're participating on is the interpretation of that

21 exhaustion provision. I don't understand Chase to have made

22 any argument that for some structural reason the fact of the

23 Monitor's role and some further rule against collateral

24 attack would somehow be determinative of how you would

25 interpret the exhaustion provision.

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1 JUDGE KAVANAUGH: Right, but it's subsumed, I

2 think --

3 JUDGE TATEL: Yes.

4 JUDGE KAVANAUGH: -- is Judge Tatel's point.

5 JUDGE TATEL: Right.

6 JUDGE KAVANAUGH: There wouldn't be an

7 exhaustion --

8 JUDGE TATEL: Right. There wouldn't be anything

9 left.

10 JUDGE KAVANAUGH: There wouldn't be anything left

11 to exhaust.

12 MR. JED: I mean, certainly, I mean --

13 JUDGE SILBERMAN: If there was a, to put it

14 another way, if the collateral attack argument was --

15 JUDGE TATEL: Right.

16 JUDGE SILBERMAN: -- correct, then the exhaustion

17 argument was unnecessary.

18 JUDGE TATEL: Yes. Right.

19 MR. JED: You know, I don't want to take a bottom

20 line view on kind of --

21 JUDGE SILBERMAN: You don't want to take a

22 position on the collateral attack.

23 MR. JED: -- on other ways to dispose of the case.

24 I don't understand, at least based on how they framed their

25 collateral attack argument, I don't understand it to

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1 disprove our point, which is just that --

2 JUDGE SILBERMAN: Absolutely. Your argument was

3 limited to the exhaustion question.

4 JUDGE TATEL: Yes.

5 MR. JED: That's exactly right, Judge Silberman.

6 JUDGE KAVANAUGH: Doesn't disprove it --

7 JUDGE TATEL: Okay.

8 JUDGE KAVANAUGH: -- but it moots it. Because

9 actually -- you don't have to say yes to that.

10 JUDGE TATEL: All right.

11 MR. JED: Thank you, Judge Kavanaugh.

12 JUDGE TATEL: Okay. Thank you, all. The case is

13 submitted.

14 MR. JED: Thank you.

15 (Whereupon, at 11:12 a.m., the proceedings were

16 concluded.)

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DIGITALLY SIGNED CERTIFICATE

I certify that the foregoing is a correct

transcription of the electronic sound recording of the

proceedings in the above-entitled matter.

__________________________ March 5, 2019

Paula Underwood Date
DEPOSITION SERVICES, INC.