(1687650) Appelant's Reply Brief, Appeal U.S. Ex Rel Schneider V JPMorgan Chase

USCA Case #17-7003 Document #1687650 Filed: 08/07/2017 Page 1 of 36
[ORAL ARGUMENT NOT YET SCHEDULED]
Case No. 17-7003
UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA
UNITED STATES et al.,

ex rel. LAURENCE SCHNEIDER
Appellant, Relator,
vs.
J.P. MORGAN CHASE BANK, N.A., et al.
Appellees.
On Appeal from a Final Order of the

U.S. District Court for the District of Columbia
(U.S. District Judge Rosemary M. Collyer)
Civil Action No. 14-1047 (RMC)
APPELLANT’S REPLY BRIEF
Joseph A. Black
Robert L. Di Marco Daniel E. Cohen
WALKER & DI MARCO, P.C. THE CULLEN LAW FIRM, PLLC
350 Main Street, First Floor 1101 30th Street NW, Suite 300
Malden, MA 02148 Washington, D.C. 20007
Tel: (781) 322-3700 Tel: (202) 944-8600
Fax: (781) 322-3757 Fax: (202 944-8611
August 7, 2017 Counsel for Appellant

TABLE OF CONTENTS
TABLE OF CONTENTS………………………………………………………….. .i
TABLE OF AUTHORITIES……………………………………………………... iii
GLOSSARY OF ABBREVIATIONS…………………………………..……… ..... v
INTRODUCTION……………………………………………… ............................. 1
SUMMARY OF ARGUMENT…………………………………………………..... 4
ARGUMENT…………………………………………………………………… .... 7
I. SCHNEIDER WAS NOT REQUIRED TO EXHAUST THE PRE-

LITIGATION REMEDIES CONTAINED IN THE CONSENT
JUDGMENT...............................................................................................7
A. The Consent Judgment Does Not Operate to Supplant the FCA When
Fraud is Alleged ....................................................................................7
B. Schneider Is Not Judicially Estopped from Arguing That Violations of

the Consent Judgment Are Subject to the FCA ..................................13
C. Chase’s Arguments Would Prevent Any Relator From Bringing a

False Claims Act Action Against Chase for Fraud in its Performance
Under the Consent Judgment ..............................................................15
II. CHASE’S ALTERNATIVE GROUNDS DO NOT PROVIDE A BASIS

FOR AFFIRMING THE DISTRICT COURT’S DISMISSAL OF
SCHNEIDER’S FCA ACTION ...............................................................17
A. Contractual Penalties Form a Basis For FCA Liability ......................17
B. Chase Does Not Have Absolute Discretion to Grant Consumer Relief

Under the Consent Judgment ..............................................................22
III. THE DISTRICT COURT’S DISMISSAL OF SCHNEIDER’S HAMP

ALLEGATIONS SHOULD BE REVERSED .........................................24
i
A. Schneider Alleged Material Violations of the HAMP Occuring Before

2010 .................................................................................................... 24
B. Chase Waived the Release of the HAMP Claims by Failing to Raise

the Issue Before the District Court ..................................................... 26
CONCLUSION ....................................................................................................... 27
ii
TABLE OF AUTHORITIES
Cases
Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc.,

190 F.3d 729 (6th Cir.1999) .................................................................................18
Ben-Kotel v. Howard Univ.,

319 F.3d 532 (D.C. Cir. 2003) ..............................................................................26
Browing v. Clinton,
292 F.3d 235 (D.C. Cir. 2002) ................................................................................2
Comcast Corp. v. F.C.C.,

600 F.3d 642 (D.C. Cir. 2010) ..............................................................................14
DeValk Lincoln Mercury, Inc. v. Ford Motor Co.,

811 F.2d 326 (7th Cir. 1987) ..................................................................................8
District of Columbia v. Air Florida, Inc.,

750 F.2d 1077 (D.C. Cir. 1984) ............................................................................26
Hoyte v. Am. Nat’l Red Cross,

439 F. Supp. 2d 38 (D.D.C. 2006) ................................................................. 18, 19
New Hampshire v. Maine,

532 U.S. 742 (2001) ..............................................................................................14
Ruscher v. Omnicare Inc.,

No. 4:08-CV-3396, 2014 WL 4388726 (S.D. Tex. Sept. 5, 2014).......................21
Stockwell v. U.S.,
80 U.S. 531, 1871 WL 14778 (1871) ...................................................................20
United States ex rel. Boise v. Cephalon, Inc.,

No. 08-287, 2015 WL 4461793 (E.D. Pa July 21, 2015) .....................................21
United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co.,

839 F.3d 242 (3th Cir. 2016) ................................................................................20
iii
United States ex rel. Petras v. Simparel, Inc.,

857 F.3d 497 (3d Cir. 2017) .................................................................................20
United States ex rel. Roby v. Boeing Co.,

73 F. Supp. 2d 897 (S.D. Ohio 1999) .................................................................8, 9
United States ex rel. Simoneaux v. E.J. DuPont de Nemours & Co.,

843 F.3d 1033 (5th Cir. 2016) ..............................................................................20
United States v. Bank of Am.,

922 F. Supp. 2d 1 (D.D.C. 2013) ..........................................................................21
United States v. Bank of Am.,

78 F. Supp. 3d 520 (D.D.C. 2015) ........................................................................18
United States v. Bankers Ins. Co.,

245 F.3d 315 (4th Cir. 2001) ..................................................................................8
United States v. Q Int’l Courier, Inc.,

131 F.3d 770 (8th Cir.1997) .................................................................................19
United States v. Woodbury,

359 F.2d 370 (9th Cir. 1966) ............................................................................9, 13
Statutes
28 U.S.C. § 1404(a) .................................................................................................13
31 U.S.C. § 3729(a)(1)(G) ...................................................................................5, 17
31 U.S.C. § 3730(c)(5) ...............................................................................................7
31 U.S.C. § 3729(a)(1) .............................................................................................10
31 U.S.C. § 3729(a)(7) .............................................................................................19
31 U.S.C. § 3729(b)(3).............................................................................................19
iv
GLOSSARY OF ABBREVIATIONS
FCA False Claims Act

FERA Fraud Enforcement and Recovery Act of
2009
HAMP Home Affordable Modification Program
RCV1 Recovery One Population
v
INTRODUCTION
In this appeal of the district court’s motion to dismiss, Appellant/Relator
Laurence Schneider raises two distinct errors committed by the court in his False
Claims Action (“FCA”) against Appellee J.P. Morgan Chase (“Chase”). First, the
district court dismissed with prejudice Schneider’s allegations of false claims made
by Chase related to its performance under the National Mortgage Settlement
Agreement (Consent Judgment) after finding that Schneider, “standing in the
shoes” of the government, failed to exhaust the pre-enforcement procedures
required by the Consent Judgment for governmental parties before filing an
enforcement action.
Second, the district court dismissed without prejudice Schneider’s
allegations that Chase submitted two false certifications of compliance with the
Home Affordable Modification Program (“HAMP”). The court erroneously
concluded that Schneider had not made any material allegations of fraud prior to
Chase’s submissions of its false certifications in September 2009. This was a clear
error when Schneider alleged that those violations began as early as 2000.
Apparently realizing that the district court’s dismissal of Schneider’s
Consent Judgment allegations on the grounds that he did not exhaust certain pre-
litigation remedies–contained in a settlement to which he was not a party–was not
sustainable, Chase embarked on a path that calls into dispute the well pled
1
allegations contained in Schneider’s complaint. This, of course, is not permissible
at the motion to dismiss stage. Browing v. Clinton, 292 F.3d 235, 242 (D.C. Cir.
2002) (“Reviewing de novo, we accept the plaintiff’s factual allegations as true and
construe the complaint ‘liberally,’ ‘grant[ing] plaintiff[] the benefit of all
inferences that can be derived from the facts alleged.’”) (citations omitted).
Particularly egregious is Chase’s attempt to introduce evidence to show that
Schneider’s allegations are without merit. It argues that “it is undisputed that the
Monitor knew about and agreed with Chase’s position that its charged-off loans
need not be tested under the servicing standards.” Chase Br. at 11 (citing JA 32 ¶
16 n.2; & sealed document JA 239). Chase’s charged-off loans were housed in its
Recovery One (“RCV1”) population of loans. However, neither the footnote in the
complaint nor the documents support Chase’s claim. The footnote merely contains
a counter-assertion by Chase, and since the email is redacted, there is no indication
of who sent and received the email. Moreover, since the email is dated January 31,
2014, it does not show that the Monitor knew about Chase’s RCV1 servicing
practices when Schneider filed his original complaint in May 2013 or when Chase
filed its first certification of compliance on November 14, 2012. 2nd Am. Compl.
¶ 298, JA 93.1
1
Schneider was personally affected by Chase’s fraud against the
government. 2nd Amend. Compl. ¶¶ 12-16, JA 30-32. As a result, Schneider filed
2
Chase’s brief contains too many mischaracterizations of the record to
address within the page limitations of a reply brief. Moreover, these
mischaracterizations are irrelevant to the issues upon which the district court based
its dismissal of this action; i.e. whether Schneider was required to exhaust the
Consent Judgment’s pre-litigation requirements before filing his action and
whether he pled material violations of the HAMP occurring before 2010.
Accordingly, for the reasons set forth in Schneider’s opening brief, and in this
reply brief, the judgment should be reversed.
a separate action in the U.S. District Court for the Southern District of New York,
Mortgage Resolution Servicing, LLC, et al. v. JPMorgan Chase Bank, N.A., et al.
1:15-cv-00293-LTS (SDNY Dec. 24, 2014). Discovery in Schneider’s SDNY case
against Chase is well advanced and the parties have agreed that discovery used in
that case may be used in this case. See Amended Pre-Trial Scheduling Order, ECF
#113-1 ¶ 12 at 5. Much of that discovery supports Schneider’s allegations in this
action. One of the documents produced in that discovery is an un-redacted version
of JA 239. Additionally, the Monitor has been deposed in that action. Schneider
will move to supplement the record with the un-redacted version of JA 239, an
internal Chase document, and relevant portions of the Monitor’s testimony. Either
those documents do not support or they rebut Chase’s argument that the Monitor
knew of Chase’s servicing practices regarding RCV1 when Chase filed its
certificates of compliance with the Consent Judgment.
3
SUMMARY OF THE ARGUMENT
The district court dismissed Schneider’s Consent Judgment allegations,
holding that he failed to exhaust the pre-litigation remedies required of
governmental parties to the agreement. The court held that this requirement was
imposed on Schneider because he “stands in the shoes of the government” in FCA
cases. The court failed to explain how it was even possible for a private citizen to
initiate an action under the Consent Judgment. Chase largely ignores this practical
problem and focuses on the government’s arguments that, because this action was
filed under the FCA, neither the government nor Schneider was required to exhaust
the Consent Judgment’s pre-litigation remedies.
The majority of the cases addressing this issue hold that when an FCA case
is filed to remedy contract fraud, that case may proceed under the requirements of
the FCA and not under any procedures for enforcement set out in the contract. All
of Chase’s arguments regarding the primacy of the contract fail for this reason.
Chase does not realistically address the practical problem of how a private
citizen could possibly exhaust the remedies under the Consent Judgment. It also
does not effectively address the language in the Servicer Participation Agreement,
which governs the Consent Judgment, permitting the use of the FCA to enforce
related agreements. Chase attempts to introduce facts that it asserts are not
disputed to justify dismissal. Since those facts are disputed, they cannot form a
4
basis for dismissal even if this action were converted to a motion for summary
judgment.
Chase offers two alternative grounds for affirmance. First, Chase argues that
Schneider’s servicing claims should be dismissed because they do not represent an
“obligation” to pay money to the government under 31 U.S.C. § 3729(a)(1)(G).
As noted below, this argument only applies to part of Schneider’s servicing
allegations and not at all to his allegations that Chase committed fraud when
seeking credits for loan modifications. Moreover, the obligations in the form of
penalties are set out in Exhibit E of the Consent Judgment at ¶ J(3)(c). Since the
amount of the penalty can be reduced to a certainty, it is an actionable obligation
under the FCA.
Chase also argues that it has absolute discretion to determine to whom it
may grant consumer relief under the Consent Judgment. This argument cannot be
squared by reference to Exhibit D of the Consent Judgment which sets out
“guidelines” for loan modifications that are eligible for credits. Add. 2. Also, the
Monitor, in his reports to the court, clearly indicated that his office was performing
tests to determine if the loans were eligible for credits. Therefore, there is no
question that Chase’s discretion to grant consumer relief and receive credits was
circumscribed by the “guidelines” set out in Exhibit D.
5
Chase argues that the district court’s dismissal of Schneider’s HAMP claims
should be affirmed because Schneider did not make any “material” allegations of
false claims occurring before 2010. The court found that the complaint did not
contain any factual allegations that Chase was in violation of the HAMP before
2010. In fact, however, Schneider alleged that the RCV1 servicing practices were
corrupted since its inception in 2000. If the allegations of defective servicing
practices after 2010 were material, those same allegations should have been
sufficient for the earlier period.
Finally, Chase raises a new argument that the Consent Judgment released
any claims of HAMP violations occurring before March 2012. Under this Court’s
strict rule for not considering new arguments on appeal, this argument should be
rejected. Also, this release is not absolute. First, it does not apply to violations
occurring after March 1, 2012. Second, the release is conditioned on Chase
making the Consumer Relief Payments required under the Consent Judgment.
Since, as alleged, Chase did not make the required payments, any decision on
whether the release of the HAMP claims is valid should be held in abeyance until
Schneider’s Consent Judgment claims are resolved.
6
ARGUMENT
I. SCHNEIDER WAS NOT REQUIRED TO EXHAUST THE PRE-

LITIGATION REMEDIES CONTAINED IN THE CONSENT
JUDGMENT.
Contrary to Chase’s assertions, government contracts do not void the
procedures of the FCA. For this reason, the district court’s decision requiring that
Schneider exhaust the pre-litigation remedies in the Consent Judgment must be
reversed. Almost all of Chase’s arguments are based on the supposed primacy of
the Consent Judgment over the FCA. As demonstrated below, since the Consent
Judgment is subject to the FCA, all of those arguments fail.
A. The Consent Judgment Does Not Operate to Supplant the FCA

When Fraud Is Alleged.
Chase argues that the government has only one vehicle for remedying
violations of the Consent Judgment, and that is through the procedures set out in
Ex. E of the Consent Judgment. This is obviously incorrect, because the
government normally has multiple avenues for addressing fraud. Indeed, this is
recognized by the FCA’s “alternative remedy” provision, which specifically
permits the government to pursue its claim through other means. 31 U.S.C. §
3730(c)(5). Chase understandably prefers the remedy of the Consent Judgment
and the procedures for enforcement that it negotiated with the Monitor in the
creation of the Work Plan. See, e.g. Chase Br. at 27-28 (describing “meticulously
7
applying the agreed-upon procedures”). Chase prefers this remedy because it is
less intrusive than the remedies available to the government under the FCA.
With the exception of one case that Chase cites, which is clearly
distinguishable, all cases touching on the issue of whether a contract can void the
FCA find that the FCA takes primacy over any contract. Chase’s one case, United
States v. Bankers Ins. Co., 245 F.3d 315 (4th Cir. 2001), involved FCA allegations
where the underlying contract contained a mandatory arbitration clause.2 The
majority in that case made it very clear that they were requiring the government to
go through arbitration only because “‘due regard must be given to the federal
policy favoring arbitration, and ambiguities as to the scope of the arbitration clause
itself resolved in favor of arbitration.’” Id. at 319 (citation omitted). This
arbitration clause and the federal preference for honoring those clauses is a clearly
distinguishing feature that sets Bankers Ins. apart from other cases addressing this
issue.
The dissent disagreed with the majority, pointing out that “[t]he FCA claim
does not arise pursuant to the [contract] and consequently is not subject to the
arbitration provision at issue.” Id. at 235 (Seymour, J., concurring in part and
dissenting in part). The dissent cited United States ex rel. Roby v. Boeing Co., 73
2
Chase also cites DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326
(7th Cir. 1987). But DeValk involves neither a federal contract nor the FCA, so its
relevance to this case is doubtful.
8
F. Supp. 2d 897 (S.D. Ohio 1999), aff’d 302 F.3d 637 (6th Cir. 2002), in which the
defendant argued that the only remedy the government had was under the High-
Valued Items Clause, which is contained in federal procurement regulations and
incorporated into many military procurement contracts. The clause provides a
means of addressing contract violations. The court found that the clause provided
no defense to claims against a contractor for violations of the FCA, concluding that
the high-value items clause was applicable only to contractual remedies, and
claims under the FCA were not contractual remedies. Id. at 909-12. The court
specifically noted:
There are three central elements of a FCA action: (1) a claim that is
presented to the government; (2) that is false or fraudulent; and (3)
that claim is presented to the government by a “knowing” defendant,
[and that] the terms and provisions of the contract, or the “contract”
itself, is not an element of a FCA violation.
Id. at 910 n.32.
Similarly, in United States v. Woodbury, 359 F.2d 370 (9th Cir. 1966), the
court found that the government was not limited to contract damages when a false
claim was involved. The legal basis for the action was not a breach of contract, but
rather the FCA, whose remedies “are in addition to, and separate from, any claims
that the government might have for breach of contract.” Id. at 377.
The Roby and Woodbury cases directly support the government’s argument
that an FCA action is distinct from a breach of contract action. See U.S. Br. at 17-
9
20. Moreover, these cases defeat the following arguments based on Chase’s theory
of the supremacy of contract:
1. The Consent Judgment’s pre-litigation dispute resolution

requirements bar Schneider’s claims. Chase Br. at 25.
Chase argues that the Consent Judgment was intended to end litigation over
Chase’s servicing practices. This is true for its servicing practices occurring before
March 2012, but Schneider’s allegations of fraud regarding Chase’s performance
under the Consent Judgment involve activities occurring after that date. The
Consent Judgment does not purport to give Chase a free pass to commit fraud in
the future. As explained above, the FCA provides remedies separate and apart
from the pre-litigation remedies of the Consent Judgment.
Chase also complains that if Schneider prevails in this action that it will be
forced to pay the same sums that it would have been forced to pay under the
Consent Judgment. This is not completely true; if this case goes to judgment,
Chase would be liable for three times the amount that it would have paid for a
mere contract violation under the Consent Judgment, plus penalties. 31 U.S.C.
§3729(a)(1). Nonetheless, that would be a function of the FCA owing to Chase’s
fraud in the performance under the Consent Judgment. Therefore, it is not a basis
for avoiding FCA liability.
10
2. The Monitor’s unchallenged determinations that Chase

complied with the Consent Judgment bar Schneider’s claims.
Chase Br. at 25.
Chase makes much of the fact that the Monitor’s determinations were not
challenged and argues that those determinations are conclusive. Chase argues that
because the Monitor’s findings have never been challenged under the Consent
Judgment, they cannot be re-litigated through the FCA. The obvious response to
this argument is that Chase submitted false statements to the Monitor, and
therefore, there was no basis for parties to the Consent Judgment to challenge those
defective findings.
Chase also faults Schneider for not challenging those determinations under
the Consent Judgment. However, Chase does not explain how Schneider, who was
not a party to the agreement, could effectively challenge those determinations.
Chase argues that the “carefully-crafted” procedures of the Work Plan are the only
means of determining compliance with the Consent Judgment and that therefore
the Monitor’s determinations cannot be challenged. However, Chase ignores the
fact that other federal agencies, reviewing the same servicing practices, concluded
that Chase was committing fraud while the Monitor was giving Chase a clean bill
of health. Clearly, those “carefully-crafted” procedures were defective. As noted
in Schneider’s opening brief, two independent investigations by the U.S. Trustee
Program (“USTP”) and the Office of the Comptroller of the Currency (“OCC”)
11
confirmed that Chase made false claims related to its performance under the
Consent Judgment and the HAMP. Schneider Br. at 14-15.
Chase further argues that that a lay jury would find it difficult to “make vast
and complex set of compliance determinations that the [Consent Judgment]
entrusted to expert professionals.” Chase Br. at 29. This argument is specious,
because juries are often requested to analyze complex facts. Moreover, the
evidence of fraud in this case will be reasonably easy to understand, and therefore,
a jury should not be overburdened.
3. Schneider’s claims fail at the outset because he would be

prohibited from introducing into evidence the alleged “false
claims” at the heart of his complaint. Chase Br. at 31.
Chase argues that the Consent Judgment prevents Schneider from
introducing evidence except in an action to enforce the Consent Judgment. This
argument demonstrates Chase’s fundamental error in failing to recognize that the
procedures of the FCA stand apart from those of the Consent Judgment. This is
also a reason why it is necessary to use the FCA to prosecute Chase’s fraud.
4. Schneider cannot prevail unless he overturns the Monitor’s

determination that Chase complied with the Consent Judgment.
Chase Br. at 32.
This repeats the argument that the only means of addressing Chase’s fraud is
through the Consent Judgment. As demonstrated, the FCA is the appropriate
vehicle for addressing that fraud.
12
5. This action seeks enforcement of Chase’s Consent Judgment

obligations. Chase Br. at 32.
Chase is wrong in asserting that Schneider is seeking enforcement of
Chase’s obligations under the Consent Judgment. Schneider is seeking the
imposition of damages and penalties for the fraud that Chase committed in
asserting compliance with the Consent Judgment. Time has passed and it is
unlikely that Chase can ever rectify the harm that it caused in failing to meet the
conditions of the Consent Judgment.
B. Schneider Is Not Judicially Estopped from Arguing That

Violations of the Consent Judgment Are Subject to the FCA.
Chase contends that Schneider “expressly endorsed th[e] conclusion [that
this is an enforcement action under the Consent Judgment] in the proceedings
below.” Chase Br. at 24. According to Chase, Schneider “sought and obtained
judicial relief on the grounds that this action seeks enforcement of the Settlement,
[so] Schneider is judicially estopped from taking a different position in this Court.”
Id. This argument is factually and legally meritless.
Schneider’s Motion to Transfer Venue was premised on 28 U.S.C. §
1404(a), “for the convenience of parties and witnesses.” Schneider never
contended that he, as Relator, was required to seek an enforcement action—indeed,
Schneider did not argue that jurisdiction was proper only in this Court. See Motion
to Transfer Venue at 7. ECF #57 (“Relator does not concede that [the District
13
Court for the District of South Carolina]” is without subject matter jurisdiction . . .
.”). Rather, Schneider contended that “[t]his action would more conveniently
proceed and the interests of justice would be better served by transfer to the
District of Columbia.” Id. at 4.
Chase misconstrues the doctrine of judicial estoppel, which applies only
where “‘a party's later position [is] ‘clearly inconsistent’ with its earlier position.’”
Comcast Corp. v. F.C.C., 600 F.3d 642, 647 (D.C. Cir. 2010) (quoting New
Hampshire v. Maine, 532 U.S. 742, 750 (2001)). Moreover, “‘[d]oubts about
inconsistency often should be resolved by assuming there is no disabling
inconsistency, so that the second matter may be resolved on the merits.’” Id.
(quoting 18B Charles Alan Wright et al., Federal Practice and Procedure § 4477, at
594 (2d ed.2002)).
In Schneider’s Motion to Transfer Venue, he espoused one position:
transferring the instant case from South Carolina to the District Court for the
District of Columbia was the best course of action. 3 He did not adopt, nor has he
ever adopted, the position that this action seeks enforcement of the Consent
Judgment. Schneider’s position has consistently been that he could not and was
not required to exhaust any contractual or administrative remedies before filing his
3
And, indeed, a course of action to which Chase did not object. See Order
Granting Motion, Case 1:14-cv-01047-RMC, June 19, 2014, ECF #58.
14
FCA action. To the extent that Chase has attempted to misread Schneider’s
Motion to Transfer Venue in order to inject doubt into that consistent position, any
such doubts must be resolved in Schneider’s favor.
C. Chase’s Arguments Would Prevent Any Relator from Bringing a

False Claims Act Action against Chase for Fraud in Its
Performance under the Consent Judgment.
Chase fails to acknowledge that all of its arguments would prevent any
relator from filing an FCA action alleging fraud in the performance of the Consent
Judgment. It is true that finding that Schneider did not stand in the shoes of the
government prior to filing his initial complaint would not answer the question of
whether the government had to exhaust the pre-litigation remedies of the Consent
Judgment before filing an FCA action. However, that does not mean that
Schneider is seeking greater rights than the government. It only means that the
Court may rule for Schneider without reaching the broader issue.
Chase suggests that Schneider could have asked the government to exhaust
the pre-litigation requirements on his behalf. However, as the government points
out, this “would undermine the role that the FCA assigns to relators and could
perhaps deter relators who fear the United States might bring the FCA suit
instead.” U.S. Br. at 23.
In his opening brief, Schneider pointed out that the servicing and crediting
provisions of the Consent Judgment are “expressly subject to, and shall be
15
interpreted in accordance with, as applicable, the terms and provisions of the
Servicer Participation Agreement with the U.S. Department of Treasury.”
Schneider Br. at 11. Chase argues that this language only provides an exception to
its credit obligations under certain circumstances. However, that is just a limited
exception to the “expressly subject to” clause. It is undeniable that the Servicer
Participation Agreement states that it is subject to FCA enforcement. Therefore,
since the Consent Judgment is subject to the Servicer Participation Agreement, and
that agreement states that it can be enforced by the FCA, then, necessarily, the
Consent Judgment can be enforced by the FCA.
Schneider’s opening brief points out that he effectively gave the pre-
litigation notice required by the Consent Judgment through the operation of the
required FCA procedures. Chase argues that he cannot make this argument on
appeal, because he did not raise it before the district court. When Chase raised the
exhaustion issue below, Schneider responded with several arguments, including
that the governing Servicer Participation Agreement specifically permitted FCA
actions. Schneider believed that these arguments were conclusive. The district
court’s decision went beyond what Chase argued–Schneider stands in the shoes of
the government–so this argument is a proper response to that decision. The fact
that the FCA procedures do not mirror the pre-litigation procedures exactly does
16
not mean that the monitoring committee did not get effective notice of Schneider’s
claim before active litigation began.
Chase also tries to argue with the facts of Schneider’s Second Amended
Complaint by citing evidence that it introduced as an attachment to its motion to
dismiss. This, of course, is inappropriate at the motion to dismiss stage. Chase
attempts to argue that the Monitor approved Chase’s practices regarding RCV1.
All that the document proves is that there was some discussion about RCV1 in
January 2014, well after Schneider filed his complaint in May 2013 and Chase
filed its initial certification of compliance on November 14, 2012. 2nd Am.
Compl. ¶ 298, JA 93. As discussed supra at 2, it does not prove that the Monitor
was aware of Chase’s practices when the false statements were made.
II. CHASE’S ALTERNATIVE GROUNDS DO NOT PROVIDE A BASIS

FOR AFFIRMING THE DISTRICT COURT’S DISMISSAL OF
SCHNEIDER’S FCA ACTION.
A. Contractual Penalties Form a Basis for FCA Liability.
Chase argues that Schneider’s servicing claims fail because “any penalties
that Chase might owe for its purported violations of the servicing standards are
[too] contingent and uncertain” to constitute an obligation to pay money to the
government within the meaning of 31 U.S.C. § 3729(a)(1)(G). Chase Br. at 47-48.
The servicing penalties at issue are those set out in, Ex. E § J(3)(b) to the Consent
17
Judgment, which provide for civil penalties of not more than $1 million per
uncured potential violation and up to $5 million under certain circumstances. 4
Chase argues that a number of procedural steps would have to occur before
it could be assessed a penalty. Chase Br. at 47-48. However, this argument ignores
that all of these steps would never occur because of Chase’s false claims of
compliance with its obligations under the Consent Judgment and the Monitor’s
failure to detect the violations of the servicing requirements. Essentially, Chase
argues that an actionable reverse false claim cannot exist if it is contingent on
getting caught.
Chase relies heavily on Hoyte v. Am. Nat’l Red Cross, 439 F. Supp. 2d 38
(D.D.C. 2006), aff’d , 518 F.3d 61 (D.C. Cir. 2008), which in turn relies on cases
such as United States ex rel. Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc., 190
F.3d 729, 736 (6th Cir.1999) (hereinafter ATMI)(customs duties and penalties)
(“[A] reverse false claim action cannot proceed without proof that the defendant
made a false record or statement at a time that the defendant owed to the
4
Chase’s argument only addresses Schneider’s allegations regarding Chase’s
servicing violations. It does not apply to Schneider’s allegations of crediting
violations. Moreover, the argument at I.B.1. regarding the definition of
“obligation” under the FCA is further limited to violations of those servicing
metrics tested by the Monitor that involve an uncured potential violation and where
the Consent Judgment sets out procedures for imposing penalties. It does not
address untested serving metrics for which there are no procedures set out in the
Consent Judgment to impose penalties. See United States v. Bank of America, 78 F.
Supp. 3d 520 at 531 (D.D.C. 2015).
18
government an obligation sufficiently certain to give rise to an action of debt at
common law”) and United States v. Q Int’l Courier, Inc., 131 F.3d 770, 774 (8th
Cir.1997) (“A potential penalty, on its own, does not create a common-law debt. A
debt, and thus an obligation under the meaning of the False Claims Act, must be
for a fixed sum that is immediately due.”). See Hoyte, 439 F. Supp. at 43.
Subsequent to those cases, Congress passed the Fraud Enforcement and Recovery
Act of 2009 (“FERA”). As noted in the Senate Report to the FERA:
[T]his legislation addresses current confusion among courts that have

developed conflicting definitions of the term ‘‘obligation’’ in Section
3729(a)(7) [specifically referencing ATMI]. The term ‘‘obligation’’ is
now defined under new Section 3729(b)(3) and includes fixed and
contingent duties owed to the Government—including fixed liquidated
obligations such as judgments, and fixed, unliquidated obligations such
as tariffs on imported goods. It is also noteworthy to restate that while
the new definition of ‘‘obligation’’ expressly includes contingent, non-
fixed obligations, the Committee supports the position of the
Department of Justice that current section 3729(a)(7) ‘‘speaks of an
‘obligation,’ not a ‘fixed obligation.’ By including contingent
obligations such as, ‘‘implied contractual, quasi-contractual, grantor-
grantee, licensor-licensee, fee-based, or similar relationship,’’ this new
section reflects the Committee’s view, held since the passage of the
1986 Amendments, that an ‘‘obligation’’ arises across the spectrum of
possibilities from the fixed amount debt obligation where all particulars
are defined to the instance where there is a relationship between the
Government and a person that ‘‘results in a duty to pay the Government
money, whether or not the amount owed is yet fixed.’’
S. Rep. 111-10 (2009) at 14 (footnotes omitted).
“In effect, the FERA expressly rejected ATMI’s narrow interpretation of the
FCA’s reverse false claims provision in favor of a more broadly inclusive
19
definition.” United States ex rel. Customs Fraud Investigations, LLC v. Victaulic
Co., 839 F.3d 242, 253-54 (3th Cir. 2016). Thus, courts that unquestionably rely
on ATMI since the passage of the FERA are committing error. Chase cites another
Third Circuit case, United States ex rel. Petras v. Simparel, Inc., 857 F.3d 497 (3d
Cir. 2017), holding that the failure to pay dividends to the Small Business
Administration did not constitute a reverse false claim because the two events that
could trigger the obligation–the board’s determination to pay dividends or the
company’s liquidation–had not occurred. This is very different than the matter at
hand, where Schneider has alleged the conditions calling for the penalties–the
failure to meet the servicing requirements of the Consent Judgment.
Chase also cites United States ex rel. Simoneaux v. E.J. DuPont de Nemours
& Co., 843 F.3d 1033 (5th Cir. 2016). The issue in Simoneaux was whether the
failure to report certain environmental violations of regulations where those
violations might result in penalties. Relying on pre-FERA cases such as ATMI, the
court found that the failure to report did not represent an actionable false claim. Id.
at 1037.
It should also be noted that ATMI was wrong on its own terms, because
customs duties and penalties were subject to an action for common law debt. See
Stockwell v. U.S., 80 U.S. 531, 532, 1871 WL 14778, at *1 (1871)(“Debt lies
whenever a sum certain is due to the plaintiff, or a sum which can readily be
20
reduced to a certainty—a sum requiring no future valuation to settle its amount. . . .
Accordingly, it has frequently been ruled that debt will lie, at the suit of the United
States, to recover the penalties and forfeitures imposed by statutes.”) Here, the
debt “readily can be reduced to a certainty” – the amount of the penalty set out in
the Exhibit E to the Consent Judgment.
The district court has determined that the Consent Judgment must be
“construed according to the principles of contract interpretation.” United States v.
Bank of Am., 922 F. Supp. 2d 1, 6 (D.D.C. 2013). More directly on point is the
decision in United States ex rel. Boise v. Cephalon, Inc., No. 08-287, 2015 WL
4461793 (E.D. Pa July 21, 2015), which held that a violation of a corporate
integrity agreement (CIA) with the federal government could be a basis for a
reverse false claim under the 2009 amendments. See also Ruscher v. Omnicare
Inc., No. 4:08-CV-3396, 2014 WL 4388726 (S.D. Tex. Sept. 5, 2014); contra
United States ex rel. Booker v. Pfizer, Inc. No. 10-11166, 2010 WL 1271766 (D.
Mass. Mar. 26, 2014). As quoted by the Cephalon court, the CIA provided that:
“as a contractual remedy, Cephalon and the OIG hereby agree that
failure to comply with certain obligations as set forth in this CIA may
lead to the imposition of . . . monetary penalties.” The OIG may
“exercise its contractual right to demand payment” of the penalties by
“demand letter” after “finding that Cephalon has failed to comply with
any of the obligations described in Section X.A and after determining
that Stipulated Penalties are appropriate.”
Cephalon, 2015 WL 461793, at 1 (citations to docket omitted).
21
The CIA in Cephalon is directly analogous to the Consent Judgment in that
they were implemented to correct past fraudulent practices and provide for
penalties that the government may impose in the event that the offending party
failed to correct its behavior. The fact that the penalties were contingent on the
government’s discretion not to impose those penalties did not change the nature of
the obligation. Similarly, Chase and the government “have already negotiated and
contracted for the remedies that arise upon a breach” of the Consent Judgment. In
this regard, more telling is the description of one of the claims not released by the
Consent Judgment: “‘[a]ny liability based upon obligations created by th[e]
Consent Judgment.’” Exhibit F at F-36. Add. 23. Since the liabilities are
described as “obligations” in the Consent Judgment, they can be fairly described as
obligations for the purposes of the FCA. Therefore, there should be no question
that a violation of the Consent Judgment by Chase calls forth an obligation to pay
contractual damages.
B. Chase Does Not Have Absolute Discretion to Grant Consumer

Relief Under the Consent Judgment.
Chase argues that it is not required to use “‘an application process’ to select
the loans that it forgave in exchange for consumer relief credit. . . . [and that] the
[Consent Judgment] nowhere bars Chase from using a discretionary process.”
Chase Br. at 50-51.
22
Again, Exhibit D clearly states that consumer relief and crediting is
governed by the Servicer Participation Agreement. Ex. D ¶ 11 at D-12. Add. 12.
The Servicer Participation Agreement requires that Chase follow the procedures
outlined in the HAMP, which requires an application process before granting
consumer relief. Chase can point to no language that exempts it from the HAMP
requirements in giving consumer relief; therefore, this argument must be rejected.
Chase argues–without evidence–that none of the parties to the agreement,
including the Monitor, understood that there was an “application process” and that
none used such a process. Regardless of whether the work plan required an
“application,” Exhibit D required Chase to obtain information from the borrower to
determine whether the loan was eligible for modification. The complaint alleged
that Chase failed to do this. Chase now implicitly admits this by arguing that it had
complete discretion in granting Consumer Relief.
That Chase had purported complete discretion to determine consumer relief
is belied by the Monitor. This conclusion is confirmed by the Monitor’s
description of the testing to determine whether loans qualified for crediting:
Approach to Testing Loans. On a quarterly basis, for each of the loans

in the samples drawn from the four Testing Populations, the IRG
conducted an independent review to determine whether the loan was
eligible for credit and the amount of credit reported by Servicer was
calculated correctly. The IRG executed this review pursuant to and in
accordance with the Testing Definition Templates and related test plans
for each of the four Testing Populations by accessing from Servicer’s
System of Record the various data inputs required to undertake the
23
eligibility determination and credit calculation for each loan.

Additionally, the IRG captured and saved in its Work Papers available
screenshots from the SOR evidencing the relevant data. For each loan
in a sample, the IRG determined whether it was eligible for credit based
upon the assembled data for that loan, again following the appropriate
Testing Definition Template and related test plans. If a loan was
determined to be ineligible for credit, the IRG would conclude that
Servicer should receive no credit for that loan. For each loan it
determined to be eligible for credit, the IRG would recalculate the credit
amount.
Monitor’s Interim Consumer Relief Report Regarding Defendant J.P. Morgan
Chase Bank, N.A, 1:12-cv-00361-RMC, ECF #106 at 17 (emphasis added).
Obviously, the Monitor thought that Chase was obtaining information from
the borrower to determine if the loan was eligible for modification and credit.
Chase now admits that it was not. This paragraph suggests that there was a fraud
on the Monitor, because without some information gathering process, there would
have been no way for the IRG to validly test crediting compliance.
II. THE DISTRICT COURT’S DISMISSAL OF SCHNEIDER’S HAMP

ALLEGATIONS SHOULD BE REVERSED.
A. Schneider Alleged Material Violations of the HAMP

Occurring before 2010.
Ignoring the reason why the district court dismissed Schneider’s allegations,
Chase focuses on the word “material” in the court’s rationale for its decision. The
district court’s decision contains the following discussion:
In light of the terms set by Treasury, noncompliance with HAMP

would be shown only if Chase’s nonsolicitation of RCV1 loans for
HAMP modification had a material effect on Chase’s “ability to
24
comply” with the Making Home Affordable program requirements.

Relator makes no such allegations. His arguments concerning RCV1
loans eligible for modification focus on their eligibility under the
National Mortgage Settlement, not HAMP.
* * *
Both of these instances of alleged false claims occurred in 2010, before
the National Mortgage Settlement in 2012 and, therefore, any data
about RCV1 loans discharged and reported to the Monitor as a result of
the National Mortgage Settlement in 2012 or later are irrelevant to the
falsity of the alleged claims made under HAMP in 2010. Relator’s
Complaint focuses on actions during the 3-year compliance period of
the National Mortgage Settlement period and provides no allegations
identifying the “fact misrepresented” to the HAMP compliance monitor
in 2010.
JA 18-19.
As explained in Schneider’s opening brief, there are a number of paragraphs
in the Second Amended Complaint alleging that violations of the HAMP occured
before 2010. Those violations were based on the same conduct regarding the
RCV1 population of loans that occurred after 2010. The district court did not
express a concern that the later conduct was not material; therefore, the same
conduct occurring before 2010 should also be considered to be a material violation
of the banking regulations that would give rise to a violation of the HAMP.
Therefore, since the complaint alleged that the same practices began as early as
2000, Schneider alleged that Chase made material violations of the HAMP prior to
2010. Therefore, Chase’s arguments regarding the materiality of those allegations
should be rejected.
25
B. Chase Waived the Release of the HAMP Claims by Failing to

Raise the Issue before the District Court.
For the first time during this litigation, Chase asserts that it was released
from any violations of the HAMP through February 2012. Chase Br. at 56. Chase
did not make this argument before the district court although it had ample
opportunity to do so. Therefore, under this Court’s strict rule concerning
arguments made on appeal for the first time, this argument should be rejected.
District of Columbia v. Air Florida, Inc., 750 F.2d 1077 (D.C. Cir. 1984)
(“Decisions in this Circuit have consistently followed a practice of [rejecting
arguments] not asserted in the trial court.”). This strict rule might be avoided if
Chase had suggested mitigating circumstances for its failure to raise this argument
previously. Having failed to do so, it cannot expect relief from its imposition.
Ben-Kotel v. Howard Univ., 319 F.3d 532, 535 (D.C. Cir. 2003) (“Although we
can entertain a newly-raised issue ‘where injustice might otherwise result,’
[plaintiff] has not proffered any reason for our doing so in this case.”) (citation
omitted).
If the Court chooses to consider Chase’s argument that violations of the
HAMP were released by the Consent Judgment, it should note that the release is
not absolute. First, it only covers the period prior to March 2012, and not after that
time when Schneider alleges that Chase was still violating the HAMP. Second, the
release states that “[t]he United States may declare this Release to be null and void
26
with respect to the United States if [Chase does] not make the Consumer Relief
Payments required under this Consent Judgment. . . .” Exhibit F at F-12. Add. 15.
Based on the allegations in Schneider’s complaint, it is clear that the government
could nullify this release because Chase has not made the consumer relief
payments required by the Consent Judgment. Therefore, Chase should not be
allowed to assert the release as a defense to its violations of the HAMP. If
subsequently, through trial or other disposition, it is determined that Chase did not
violate the consumer relief requirements of the Consent Judgment, then the waiver
might be partially effective. But at this stage of the litigation, Schneider’s
allegations regarding the HAMP should be allowed to proceed.
CONCLUSION
For the foregoing reasons, Appellant Laurence Schneider respectfully
requests that the Court provide the relief requested in the Conclusion of his
opening brief.
Dated: August 7, 2017 Respectfully submitted,
/s/ Joseph A. Black

JOSEPH A. BLACK
DANIEL E. COHEN
The Cullen Law Firm, PLLC
1101 30th Street NW, Suite 300
Washington, DC 20007
Tel: (202) 944-8600
Fax: (202) 944-8611
27
ROBERT L. DI MARCO
WALKER & DI MARCO, P.C.
350 Main Street, First Floor
Malden, MA 02148
Tel: (781) 322-3700
Fax: (781) 322-3757
Counsel for Appellant
28
CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME

LIMITATION
This brief complies with the type-volume limitation of Fed. R. App. P.
32(a)(7)(C) and Cir. R. 32 (1) in that the brief contains 6,441 words excluding
those parts exempted by Fed. R. App. P. 32(a)(7)(B)(iii).
Dated: August 7, 2017 /s/ Joseph A. Black

Joseph A. Black
CERTIFICATE OF SERVICE
I hereby certify that on this 7th day of August, 2017 an electronic copy
of Appellant’s Reply Brief, was served via CM/ECF system to all parties of record.
Dated: August 7, 2017 /s/ Joseph A. Black

JOSEPH A. BLACK
The Cullen Law Firm, PLLC
1101 30th Street NW, Suite 300
Washington, DC 20007
Tel: (202) 944-8600
Fax: (202) 944-8611

(1687650) Appelant's Reply Brief, Appeal U.S. Ex Rel Schneider V JPMorgan Chase

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(1687650) Appelant's Reply Brief, Appeal U.S. Ex Rel Schneider V JPMorgan Chase

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USCA Case #17-7003 Document #1687650 Filed: 08/07/2017 Page 1 of 36

[ORAL ARGUMENT NOT YET SCHEDULED]

Case No. 17-7003

UNITED STATES COURT OF APPEALS

UNITED STATES et al.,

J.P. MORGAN CHASE BANK, N.A., et al.

On Appeal from a Final Order of the

Civil Action No. 14-1047 (RMC)

APPELLANT’S REPLY BRIEF

August 7, 2017 Counsel for Appellant

TABLE OF AUTHORITIES……………………………………………………... iii

GLOSSARY OF ABBREVIATIONS…………………………………..……… ..... v

I. SCHNEIDER WAS NOT REQUIRED TO EXHAUST THE PRE-

B. Schneider Is Not Judicially Estopped from Arguing That Violations of

C. Chase’s Arguments Would Prevent Any Relator From Bringing a

II. CHASE’S ALTERNATIVE GROUNDS DO NOT PROVIDE A BASIS

A. Contractual Penalties Form a Basis For FCA Liability ......................17

B. Chase Does Not Have Absolute Discretion to Grant Consumer Relief

III. THE DISTRICT COURT’S DISMISSAL OF SCHNEIDER’S HAMP

A. Schneider Alleged Material Violations of the HAMP Occuring Before

B. Chase Waived the Release of the HAMP Claims by Failing to Raise

Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc.,

Ben-Kotel v. Howard Univ.,

Comcast Corp. v. F.C.C.,

DeValk Lincoln Mercury, Inc. v. Ford Motor Co.,

District of Columbia v. Air Florida, Inc.,

Hoyte v. Am. Nat’l Red Cross,

New Hampshire v. Maine,

Ruscher v. Omnicare Inc.,

United States ex rel. Boise v. Cephalon, Inc.,

United States ex rel. Customs Fraud Investigations, LLC v. Victaulic Co.,

United States ex rel. Petras v. Simparel, Inc.,

United States ex rel. Roby v. Boeing Co.,

United States ex rel. Simoneaux v. E.J. DuPont de Nemours & Co.,

United States v. Bank of Am.,

United States v. Bank of Am.,

United States v. Bankers Ins. Co.,

United States v. Q Int’l Courier, Inc.,

United States v. Woodbury,

28 U.S.C. § 1404(a) .................................................................................................13

31 U.S.C. § 3729(a)(1)(G) ...................................................................................5, 17

31 U.S.C. § 3730(c)(5) ...............................................................................................7

31 U.S.C. § 3729(a)(1) .............................................................................................10

31 U.S.C. § 3729(a)(7) .............................................................................................19

FCA False Claims Act

HAMP Home Affordable Modification Program

RCV1 Recovery One Population

In this appeal of the district court’s motion to dismiss, Appellant/Relator

by Chase related to its performance under the National Mortgage Settlement

Agreement (Consent Judgment) after finding that Schneider, “standing in the

shoes” of the government, failed to exhaust the pre-enforcement procedures

required by the Consent Judgment for governmental parties before filing an

Second, the district court dismissed without prejudice Schneider’s

Home Affordable Modification Program (“HAMP”). The court erroneously

Apparently realizing that the district court’s dismissal of Schneider’s

litigation remedies–contained in a settlement to which he was not a party–was not

allegations contained in Schneider’s complaint. This, of course, is not permissible

construe the complaint ‘liberally,’ ‘grant[ing] plaintiff[] the benefit of all

Particularly egregious is Chase’s attempt to introduce evidence to show that

a counter-assertion by Chase, and since the email is redacted, there is no indication

Chase’s brief contains too many mischaracterizations of the record to

address within the page limitations of a reply brief. Moreover, these

Consent Judgment’s pre-litigation requirements before filing his action and