Appeal 19-7025-Addendum, Transcript Motion Hearing (7-35) 2019.06.21

USCA Case #19-7025 Document #1793945 Filed: 06/21/2019 Page 1 of 151
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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
LAURENCE SCHNEIDER, :
:
Plaintiff, : Docket No. CA 14-1047
:
: Washington, D.C.
vs. : Wednesday, February 27, 2019
: 2:05 p.m.
JP MORGAN CHASE BANK, :
NATIONAL ASSOCIATION ET AL :
:
Defendants. :
---------------------------x
TRANSCRIPT OF MOTION HEARING

BEFORE THE HONORABLE ROSEMARY M. COLLYER
UNITED STATES DISTRICT SENIOR JUDGE
APPEARANCES:
For the Plaintiff: JOSEPH A. BLACK, Esquire

DANIEL E. COHEN, Esquire
The Cullen Law Firm, P.L.L.C.
1101 30th Street, NW
Suite 300
Washington, DC 20007
ROBERTO L. DI MARCO, Esquire

Walker & Di Marco, P.C.
350 Main Street
First Floor
Malden, MA 02148
For the Movant: BRIAN P. HUDAK, Esquire

Assistant United States Attorney
555 Fourth Street, NW
Washington, DC 20530
ADD 007
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1 Appearances continued:
2 For Defendants: ROBERT D. WICK, Esquire

Covington & Burling LLP
3 850 Tenth Street, NW
One City Center
4 Washington, DC 20001
5 Court Reporter: CRYSTAL M. PILGRIM, RPR, FCRR

Official Court Reporter
6 United States District Court
District of Columbia
7 333 Constitution Avenue, NW
Room 4700-F
8 Washington, DC 20001
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ADD 008
3
1 P-R-O-C-E-E-D-I-N-G-S
2 THE DEPUTY CLERK: Your Honor, we have civil action
3 14-1047, Laurence Schneider versus JP Morgan Chase Bank,
4 National Association, et al.
5 I'll ask that counsel please approach the lectern and
6 identify yourselves for the record starting with this side of
7 the room, please.
8 MR. BLACK: Joseph Black representing relator
9 Laurence Schneider.
10 THE COURT: Thank you, sir.
11 MR. DI MARCO: Good afternoon, Your Honor, Roberto Di
12 Marco for the relator Laurence Schneider.
14 MR. COHEN: Good afternoon, Your Honor, Daniel Cohen
15 on behalf of the relator.
16 THE COURT: All right, thank you.
17 MR. HUDAK: Good afternoon, Your Honor, Brian Hudak
18 from the U.S. Attorneys office on behalf of the United States.
19 THE COURT: Brian Hudak?
20 MR. HUDAK: Yes, ma'am.
21 THE COURT: Well, I certainly know your name,
22 Mr. Hudak, but it's not on my sheet here. Have you just
23 stepped in? So sorry, you are on my sheet.
24 MR. HUDAK: No worries. Given that we usually appear
25 at the bottom of the Qui Tam docket.
ADD 009
4
1 THE COURT: No, yes, that's where I was looking at
2 the bottom. Excuse me, so sorry.
3 MR. HUDAK: Thank you, Your Honor.
4 THE COURT: You're right here.
5 Yes, sir.
6 MR. WICK: Good afternoon, Your Honor, Robert Wick
7 from Covington & Burling for the Chase defendants, JP Morgan
8 Chase defendants.
10 This is an interesting procedure because the government
11 has indicated its intention to move to dismiss this long
12 running case and Mr. Schneider and counsel disagree with that
13 plan on behalf of the government.
14 As I understand the law, in the end the government gets to
15 decide what it wants to litigate on behalf of the United States
16 and so the situation now is that Mr. Schneider's counsel,
17 Mr. Black, Mr. Cohen and Mr. Di Marco need to persuade Mr.
18 Hudak, I presume, over Mr. Wick's objections, not to dismiss
19 the case. So come away and persuade.
20 MR. BLACK: Thank you, Your Honor. Joseph Black
21 again for Mr. Schneider.
22 I am going to speak on the legal issues associated with
23 the government's motion and Mr. Di Marco is going to discuss
24 the evidence that we have. That will hopefully convince the
25 government to withdraw its motion.
ADD 010
5
1 Failing that we believe that our legal issues and the law
2 is so great, facts are so great that under the Swift decision
3 which says that the government's motion to dismiss must be
4 denied if it can be shown to be arbitrary and capricious.
5 We believe that we have strong facts that should compel
6 the government to let us go forward. Failing that we believe
7 that you should dismiss their motion because in fact it is
8 arbitrary and capricious and we can show that.
9 THE COURT: All right.
10 MR. BLACK: The government has two justifications for
11 dismissal. First, that Mr. Schneider's action is without
12 merit.
13 And secondly, that the cost to the government is so high
14 relative to the potential recovery that the case should be
15 dismissed. We believe that both of those justifications do not
16 withstand scrutiny.
17 Schneider's case presents a relatively simple case of
18 false certification where the certification is a condition of
19 payment or all the payments that Chase received under the HAMP.
20 Plaintiff's complaint is based on the proposition that Chase
21 certification of compliance with the HAMP were false and
22 therefore Chase is not entitled to any of the payments under
23 the HAMP.
24 This is a case of fraudulent inducement; that is, all the
25 fraud flows from the original false certification, the false
ADD 011
6
1 certification compliance with the underlying servicing
2 requirements.
3 In discussing the fraudulent inducement notion, the Fifth
4 Circuit in Longhi stated even if the subsequent claims of
5 payment made under the contract were not literally false
6 because they were derived from the original fraudulent
7 representation, they are also actionable false claims. The
8 certification --
9 THE COURT: I'm sorry, what is the cite for that
10 court?
11 MR. BLACK: That is Longhi, U.S. ex rel Longhi v.
12 Lithium Power Technologies, 545 F.3d 458.
13 THE COURT: Thank you.
14 MR. BLACK: The independent cite is 468, that's Fifth
15 Circuit, 2009.
17 MR. BLACK: Again, certification of compliance with
18 requirements of the HAMP was a condition precedent to receive
19 any payment under the HAMP. Therefore, the individual claims
20 made for payment were loan modifications with false claims
21 because of the initial certification, the initial certification
22 that was false.
23 Let me state right now that based on the evidence this
24 data has obtained in his related Seventh District of New York
25 case. You've probably seen references to that case in our
ADD 012
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1 various pleadings. Mr. Di Marco is going to discuss some of
2 that evidence. He could file summary judgment on liability
3 under the fraudulent inducement theory without further
4 discovery.
5 The government gives two not well thought out reasons why
6 Schneider's case lacks merit. It states notably relator does
7 not allege that Chase received HAMP incentive payments on loans
8 mitigated into Recovery One.
9 And then additionally, relator concedes that Chase
10 released liens on loans in Recovery One which eliminated the
11 chance of Chase foreclosing on defrauding home mortgage -- I'm
12 sorry -- foreclosing on a defrauding homeowner because the
13 mortgage was no longer secured by the property.
14 The government does not explain how these factors underlie
15 Schneider's case. Both of them are irrelevant to the
16 underlying issue to whether Chase was in compliance with the
17 HAMP servicing requirements and whether the certification for
18 compliance were false.
19 Notably, Chase does not make this argument in its motion
20 to dismiss or its opposition to the filing of the third amended
21 complaint.
22 And moreover, Schneider does have evidence that Chase
23 received over 65 million in HAMP payments after February 2012
24 through the end of the program for second lien modifications.
25 This was evidence found in the New York discovery.
ADD 013
8
1 In private discussions with Schneider's counsel the
2 government has presented several reasons why this case lacks
3 merit. First, they stated that the alleged false
4 certifications in our case represented conditions of payment
5 and not -- I'm sorry, conditions of participation and not
6 conditions of payment.
7 We pointed out that the Service of Participation
8 Agreement, the SPA, contained two specific statements that
9 stated that the certifications were conditions precedent to
10 payment. We also pointed out that the Court in Escobar, the
11 Supreme Court in Escobar eliminated the distinction between
12 conditions of payment and conditions of certification -- I'm
13 sorry -- conditions of participation and conditions of payment.
14 And we also demonstrated why those certifications were
15 false based on Chase's internal documents. When we identified
16 the 65 million dollars in HAMP payments Chase received for
17 second liens taken from our CD One the government was still not
18 satisfied.
19 Apparently, this did not satisfy the government because we
20 did not identify specific loans that did not qualify for
21 payment. But as noted that is not the requirement in a false
22 certification case where the fraud flows from the initial false
23 certification.
24 As regard to the cost to the government, the cost to the
25 government of moderating this case is really minor compared to
ADD 014
9
1 the potential return. Payments made to Chase under the HAMP
2 equaled 550 million dollars. Over 80 percent of this payment
3 was paid after February 8th, 2012, the date set out in the
4 National Mortgage settlement agreement to limit Chase's
5 liability under the HAMP.
6 Therefore, single damages equals over 440 million dollars.
7 Even if the single damages were limited to the 65 million that
8 Chase received under the HAMP, and that we have knowledge of,
9 this is the minimum number that we know of, the amount that
10 would more than justify the government's efforts in monitoring
11 this case.
12 Mr. Di Marco is going to get up and talk about the
13 evidence. But we really do believe that this is a strong case
14 going forward and the government should not seek to dismiss the
15 case in that based on the facts and evidence it truly is
16 arbitrary and capricious to suggest that we do not have a good
17 case.
18 THE COURT: I need to go back to the original concept
19 that you were addressing; that is fraud in the inducement and
20 if there's fraud in the inducement, then as I understood you to
21 say then every claim made thereafter is also false or
22 fraudulent.
23 MR. BLACK: Yes.
24 THE COURT: Okay, and that was the case out of the
25 Fifth Circuit. Has anybody else followed that case, do you
ADD 015
10
1 know?
2 MR. BLACK: Oh, yes, the Rogan case out of Seventh
3 Circuit. There's a case of Hooper v. Lockheed Martin in the
4 Ninth Circuit and I believe we cited another case in one of our
5 pleadings and it escapes me at the moment, but there are a
6 number of Circuits that have followed that.
7 THE COURT: Okay, I can look it up. It's not that I
8 don't have good help. Even I know how to do that sometimes. I
9 just was asking for the moment.
10 All right, I think I understand what your argument is. I
11 appreciate it.
12 MR. BLACK: Okay.
13 THE COURT: Thank you.
14 It's Mr. Di Marco, right?
15 MR. DI MARCO: Yes, ma'am.
17 MR. DI MARCO: Your Honor, thank you very much for
18 your time today.
19 As Mr. Black has pointed out the standards for payment in
20 this matter are contained within the Longhi case that you were
21 just discussing with him. In short as a condition precedent to
22 the payment of the performance of the obligations by Chase,
23 they needed to perform fully.
24 The SPA goes into great lengths on that particular issue
25 under Sections 2, Sections 3, Sections 4(C), and Section 4(G)
ADD 016
11
1 of it. The SPA constantly reiterates the issue of condition
2 precedent.
3 The government is protected for any of the payments if the
4 participant does not participate fully. There is no obligation
5 to pay. This is a voluntary contract. The SPA deals with
6 billions of dollars of taxpayer monies. Monies that were
7 funded from the TARP.
8 We have demonstrated to the government time and time again
9 that SPA's conditions were not followed by Chase. They filed
10 demonstratively false certifications. Their own internal
11 audits from 2010 to 2015 admit that internal controls were
12 insufficient to comply with bank policies, law and regulations.
13 Their internal emails admit that they never actually checked to
14 see whether these properties were actually occupied.
15 The HAMP cite by the treasury lays this out that it was
16 meant to protect the homeowners. To help people in need. They
17 don't know whether or not they were helping people who actually
18 occupied homes.
19 They also released those, never released the debts related
20 to these lien releases. As part of the HAMP handbook, it
21 states that in order to comply with HAMP when you release the
22 lien you must release the debt. They didn't do that. They
23 continued with collection action. All of this has become clear
24 under the New York case.
25 They have also admitted that they did not engage an
ADD 017
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1 application process. Part of the SPA was collecting
2 information from the applicants. Chase didn't do that.
3 Now under Longhi any of these individual issues would be
4 sufficient to overturn the SPA payments and activate a
5 requirement that Chase return the funds. This is a voluntary
6 contract. It's something that is overlooked several times
7 throughout this process. Chase didn't have to enter into this
8 agreement. These are not obligations by Chase to get involved
9 with HAMP. It was voluntary.
10 But when they volunteered to do this, when they entered
11 into this contract, they took on a heightened responsibility.
12 They took TARP funds and they stated that they would not only
13 self-regulate an audit but they would also self-report when
14 they violated the agreement.
15 This created a fiduciary relationship with the American
16 taxpayer. These were our funds. They were entrusted with the
17 safeguarding of our monies and were to use them to help the
18 most damaged of our society, those most in need. The
19 homeowners who were going to lose their homes. They agreed as
20 one of the largest financial institutions in the country to
21 undertake that responsibility.
22 The HAMP website actually states that this was a balancing
23 act between protecting the taxpayer and helping banks help
24 homeowners. That's the balancing that we need to be engaged in
25 here.
ADD 018
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1 They failed. Then they hid the act of failure. They took
2 our money. They took taxpayer money. Obviously they helped
3 some people but then they really profited from those funds. We
4 have demonstrated that.
5 We have shown breaches of the trust. Their behavior that
6 were engaged in and are the sort that must be brought to light.
7 How many homeowners has Chase even to this day prosecuted in
8 courts of foreclosure, in courts of bankruptcy stating that a
9 contract is a contract and they must abide by its exact terms.
10 They do it all the time.
11 Yet here we are arguing about whether or not they should
12 be allowed to avoid the exact terms of what amounts to less
13 than a ten page contract. They didn't do it.
14 So now the government wishes to stop us and after five
15 years they want to sweep it all away. Our client Mr. Schneider
16 has as we've stated the private right action in New York. He
17 brought a case for breaches and frauds in New York. But before
18 that action he brought this action. He brought this action and
19 he begged the government to follow up.
20 When he brought his private action, discovery proceeded
21 there first and through that discovery millions of pages,
22 hundreds of thousands of documents have demonstrated that
23 Mr. Schneider's allegations are correct. They did what they
24 did without regard to the homeowners.
25 We showed this to the government. We shared it with them.
ADD 019
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1 We demonstrated how Chase had acted. We applied the legal
2 standard the Government has for itself in terms of the Longhi
3 case and then they pushed back and insisted upon a different
4 standard. That's what it sounded like to us.
5 They asked us to show if any money is coming from the
6 loans within the RCV One. So the RCV One was their recovery
7 system, it's a cesspool of corrupted loans. The government
8 said, tell us that money was given to them for loans contained
9 within our RCV One. Loans which Chase doesn't even always know
10 where the borrower is from. They don't know the exact amount
11 owed in principal balance. Tell us whether or not there is
12 money paid there. That's where the 65 million comes from.
13 It's monies directly connected to the RCV One.
14 This was all without formal discovery in the case you have
15 here before you, Your Honor. When we showed them that, they
16 moved the goal post again. We tried to get them to consider if
17 we could get loan level detail through discovery the exact
18 loans but instead, they responded by wanting to dismiss us.
19 So now we're in a position that I find to be unfathomable.
20 As a taxpayer, as an attorney I don't understand where we are
21 here. Chase entered into a voluntary agreement to use tax
22 dollars. They breached it and now the government has stated
23 that they don't want to enforce that contract pursuant to the
24 standards set forth.
25 Why should Chase be allowed to keep these monies? I don't
ADD 020
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1 get it personally. But Mr. Schneider has claimed in his New
2 York case, Your Honor, and I'm sure that the government will
3 bring this up, that he's seeking disgorgement because of the
4 breaches, because they used his companies as scape goats to try
5 and get these monies from the government.
6 We've made the disgorgement claim, but we've also told the
7 government that in order to avoid any type of conflict we would
8 waive that claim so long as they continued to pursue those
9 monies on behalf of the American people, but here we are being
10 dismissed.
11 So we'll continue if we are dismissed. If the government
12 doesn't change its mind, we'll continue to seek disgorgement
13 because Chase should not be allowed to keep taxpayer dollars
14 when they did not perform according to the specs set forth.
15 As a voluntary agreement if they didn't want it to be
16 specific, a condition precedent, they should have, as one of
17 the richest companies in this country, they should have
18 negotiated different terms but they wanted the money. So they
19 got the money but didn't perform.
20 This is really very easy for the government. They should
21 be allowing us to continue. We have invited the government to
22 allow us to continue the case. We have told them that we
23 intend to fight and continue to fight on this case. They have
24 not intervened.
25 We have a mediation scheduled in two weeks with Chase on a
ADD 021
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1 private right action. We've even told the government that they
2 could participate as far as we were concerned. We got no
3 response.
4 It is beyond me why the government wouldn't seek to get
5 monies back for the American people. All they have been doing
6 is supervising this case. So their expense argument sorry, but
7 it doesn't hold water.
8 What I believe this Court can do, if the government is not
9 willing to change its mind, is to see that this decision at
10 this time is arbitrary. That it is simply put, a way for them
11 to hit some quotas and get rid of some cases.
12 What I think this Court can do, what I strongly believe it
13 can do is to state that it's arbitrary and give us six months.
14 That's it, Your Honor. Six months and we will file the motion
15 for summary judgment that my brother has laid out. Six months
16 in this Court can test whether or not we are telling the truth.
17 The government will stand up and they will deny this is
18 the case. Chase will stand up and say that we are full of it,
19 I'm sure, but at the end of the day this Court can decide that.
20 Your Honor can look at all of the evidence. Your Honor can
21 check out whether or not the Longhi case applies and then Your
22 Honor can issue a decision on the liability.
23 If at the end of the day we find that it's a zero but they
24 did breach for some reason they were able to prove their
25 monitary damages were zero, then the government has done
ADD 022
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1 nothing except spend some review time. We have asked them for
2 nothing.
3 But we owe the American people the chance to go after
4 this. The law says it. We've proven it. And I believe that
5 it would be highly in-just for us to do anything else at this
6 time.
7 So what I'd like to see, Your Honor, is a decision that
8 says right now it's arbitrary, let's revisit this in six months
9 when we all have -- the discovery is ongoing. We just last
10 week had expert discovery and deposed experts in the other
11 case. We're going through millions of pages and we found what
12 we found already with them. And we've constantly updated the
13 government as we find more information. They just need to give
14 us the time to continue.
15 Thank you for the Court's time.
17 Did you wish to respond?
18 MR. HUDAK: Your Honor, really my response is going
19 to be directed at what standard the Court, what standard is
20 governing here.
21 The relators are incorrect, this matter of controlling
22 D.C. Circuit precedent, that the standard is arbitrary and
23 capricious, that's the standard of a APA review.
24 The D.C. Circuit has made clear that in circumstances such
25 as this the test is government has unfettered discretion unless
ADD 023
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1 it's one small, the door is barely closed except for one small
2 exceptional circumstance is where they can prove that the
3 government is somehow operating a fraud on the Court. Which is
4 despite the rhetoric and the personal insults lodged at me
5 about fulfilling quotas which, Your Honor, that is not the case
6 here. That is not a showing that they are even trying to make.
7 Swift was clarified by Hoyte, case in 2008. Judge
8 Henderson writing for the unanimous panel of the D.C. Circuit
9 concluded and characterized Swift as saying in Swift however we
10 flatly rejected the relator's suggestion that we routinely
11 review the government's decision to dismiss the Qui Tam action,
12 instead holding the door only barely ajar for review in an
13 exceptional circumstance in particular where there is fraud on
14 the Court.
15 It is clear from Swift that any exception to Section 3730
16 (c)2(a) if there are any must be like fraud on the Court.
17 Your Honor, that's not arbitrary and capricious review.
18 This is not the standard of the APA in Chevron. This is the
19 government as the prosecutor on behalf of the United States.
20 Under the oaths we took to uphold and defend the constitution
21 and walls of the United States whether we believe it's prudent
22 to allow a lawsuit in the name of the United States to proceed.
23 And in this case we've considered all of relator's
24 evidence. They have not presented anything new here today. In
25 the duration of this case we have considered all of their
ADD 024
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1 arguments. We have weighed their arguments. We in fact
2 allowed them an attempt to convince this Court that their
3 claims were meritorious on their first complaint.
4 Instead, they created potentially adverse decisions for
5 the United States requiring substantial involvement by the
6 Department of Justice at the D.C. Circuit to weigh in and
7 ensure that the holding is not overly enshrined in controlling
8 precedent in an overly expansive matter such that it will
9 effect meritorious cases moving forward.
10 Your Honor, they have had their attempts to convince us,
11 had their attempts here today to convince us. Your Honor, I am
12 not persuaded.
13 I have the authority of the U.S. Attorney to seek the
14 dismissal of this case and we ask that the Court dismiss it.
16 MR. HUDAK: Thank you.
17 THE COURT: Did you wish to speak, sir?
18 MR. WICK: May I briefly?
19 THE COURT: Please.
20 MR. WICK: Your Honor, I'm aware of the procedural
21 standard.
22 First, let me just make two preliminary observations. The
23 first is that it's our view that the use of the documents from
24 the private litigation in this case is a violation of the
25 protective order in that action.
ADD 025
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1 I don't ask for any relief from this Court for what we
2 regard as that protective order of violation. If we are going
3 to seek relief, we'll seek it in the Southern District of New
4 York, the Court that issued the protective order that we think
5 is being violated. I just don't want anyone to be under the
6 mistaken impression that we consent to or waive objection to
7 what we regard as the improper use of evidence in discovery
8 from that action to this action.
9 Let me also say that I object and am very surprised to
10 hear that opposing counsel is talking about a private mediation
11 and attempt to settle that action in this action in that they
12 went so far as to invite the government to that mediation even
13 though that mediation is not about this case, that's improper.
14 On the merits of this case, Your Honor, let me just say
15 the Hoyte and Swift cases couldn't be clearer that the standard
16 is not arbitrary and capricious. The Swift case specifically
17 addresses the question of whether the standard of review is
18 arbitrary and capricious and what the D.C. Circuit for Judge
19 Randolph said there was no, we're not going to follow this
20 other California District Court case that used an arbitrary and
21 capricious standard.
22 The standard of review is that the government has
23 virtually unfettered discretion to dismiss a case if it so
24 chooses. They left open the question of whether if the
25 government were committing a fraud on the Court that might be
ADD 026
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1 reviewable.
2 So for example, if there were an accusation that I had
3 bribed Mr. Hudak or something, that might be a situation in
4 which the Court could intervene. Absent that, the Swift
5 decision is clear that the Court cannot intervene.
6 Finally, recognizing that Mr. Hudak has already indicated
7 he's not persuaded, I'll be very brief about this. But let me
8 just point out two fundamental misunderstandings in the
9 plaintiff's argument.
10 In the first place, they are, they are speaking as if the
11 HAMP program which relates to first liens and the 2 MP programs
12 which relates to second liens are one in the same program and
13 that the same standards apply to both. That is fundamentally
14 incorrect.
15 They're two distinct foreclosure relief programs that were
16 created by the Treasury Department Make Home Affordable
17 Program. There are more than two but the two at issue are
18 HAMP. HAMP relates to first lien mortgage loans. Now Recovery
19 One didn't do first lien mortgage loans because it's incapable
20 of doing it. Instead of doing first lien mortgage loans
21 ultimately what happened with the Recovery One loans is that
22 the liens were released which meant that the homeowners were
23 not exposed to the risk of foreclosure and there was no risk of
24 frustration of the fundamental program objective of avoiding
25 unnecessary foreclosures.
ADD 027
22
1 The release of the first liens also meant that the loans
2 were no longer mortgage loans. At that point they were
3 unsecured loans akin to credit card debt. They're not mortgage
4 loans and hence they are not eligible for participation in
5 HAMP.
6 There's a different program, 2 MP for second lien mortgage
7 loans. Under 2 MP you don't have to modify the loan which is
8 something Recovery One can't do. Under 2 MP you are also
9 permitted to extinguish, get rid of the loan, get rid of all of
10 the debt, write it off entirely. When you get rid of the lien
11 and the loan entirely in the 2 MP extinguishment there's
12 nothing to service. The loan has gone, the debt is gone.
13 Recovery One was capable of doing that, did do that and it
14 earned the 2 MP program incentives that it claimed.
15 Your Honor, on reflection and in the interest of
16 conserving everyone's time, I will stop there unless the Court
17 or Mr. Hudak have any further questions for me.
18 THE COURT: Well, in the context in which we're now,
19 I'm now sitting, I do not have questions for you. If this goes
20 forward, then I'm going to ask you to come back.
21 MR. WICK: Understood, Your Honor.
22 THE COURT: It was actually very helpful to have you
23 here for six and a half minutes, so assure your client that I
24 found it helpful for the six and a half minutes, okay.
25 MR. WICK: Yes, Your Honor.
ADD 028
23
1 THE COURT: Yes, sir, Mr. Di Marco, go ahead.
2 MR. DI MARCO: Very, very briefly. This is why I
3 stated about the summary judgment issue because we have
4 significant issues of fact.
5 Very briefly, Mr. Wick has stated that RCV One did not do
6 first liens. It's an interesting statement since the New York
7 case involves quite a bit of first liens that were part of the
8 RCV One.
9 Next, I have been told that I was improper in bringing up
10 the mediation. There was no confidentiality issue that was
11 brought forward on that. It was in the interest of bringing
12 this thing to a close and there was no improper action that I
13 sought.
14 And third, any of the documents which have been shared
15 with this Court that were not sought under seal are documents
16 that were not subject to the specifics. Covington and Chase
17 itself has filed enumerable documents which they stated
18 originally were to be kept out of the public view without
19 regard to any seal.
20 If my brother were to look I'm sure he'd find those
21 documents among other filings that were done by his office. So
22 those are directed at me and so I just wish to respond and I
23 appreciate the Court's time.
24 As to Mr. Hudak I have all of the respect in the world for
25 the U.S. Attorney and there was no direct attack to him
ADD 029
24
1 personally that was intended. It is simply that I understand
2 the pressures that he and his office are under.
3 I appreciate the Court's time, Your Honor. Thank you very
4 much.
5 MR. HUDAK: Your Honor, may I be heard one second?
6 THE COURT: Yes.
7 MR. HUDAK: Your Honor, in just one follow up and I
8 omitted it from my remarks.
9 If the Court agrees with the United States that the
10 standard of Swift and Hoyte is what we have said it to be, we
11 urge the Court to make no further rulings.
12 THE COURT: No, no.
13 MR. HUDAK: On Longhi, the scope of Longhi, because I
14 actually may agree one hundred percent with them on what Longhi
15 stands for, in the theory of the implied, the theory of
16 fraudulent inducement under the False Claims Act, we may be in
17 complete accord on that.
18 So what I would not want is to have part of the reason
19 that we are moving to dismiss this case is to not have further
20 adverse law through the United States. So we haven't briefed
21 the issue of Longhi how it would apply. We have not briefed
22 the issue of whether or not Chase's conduct would violate the
23 Service Participation Agreement.
24 We don't condone breaches of agreement that cause harm to
25 the United States. That's not what we're about. So we would
ADD 030
25
1 ask the Court if it believes our interpretation of Swift and
2 Hoyte is correct that it decided on that limited basis as
3 opposed to addressing the merits of the presentation related
4 here today.
5 THE COURT: Okay, I understand exactly what you're
6 saying and why I'm not quite sure because I have to give
7 consideration to their argument, but I do understand the
8 emphasis you put on Swift and Hoyte and that's what I would do
9 were I you too; they happen to be here in this Circuit.
10 MR. HUDAK: Thank you, Your Honor.
12 MR. HUDAK: Thank you.
13 THE COURT: Did you want to add anything?
14 MR. WICK: Two seconds, Your Honor.
15 Mr. Di Marco he did say that I said Recovery One doesn't
16 do first liens. I hope I didn't say that.
17 What I meant to say and what I hope I did say and will now
18 clarify is Recovery One does not do loan modification. It
19 doesn't take a performing mortgage loan and modify it into a
20 different performing mortgage loan.
21 Recovery One does do complete and total extinguishment of
22 loans and liens. It does not do loan modification. I hope
23 that's what I said. If not, I've clarified it now.
24 THE COURT: Okay. Yes, sir.
25 MR. BLACK: If I may.
ADD 031
26
1 THE COURT: You should be able to get the last word
2 because you got the first word.
3 MR. BLACK: Thank you very much.
4 THE COURT: You're welcome.
5 MR. BLACK: I just want to make one comment on the
6 Swift decision. The Swift decision did consider whether or not
7 the judge's action was arbitrary and capricious and it found
8 that it was not. It found that the relator in that case didn't
9 know everything to suggest that.
10 What I am saying is that we have presented evidence to say
11 that it is arbitrary and capricious. If you read the decisions
12 carefully you realize that the Court went beyond just mere
13 fraud on the Court, fraudulent action on behalf of the
14 government. We're not suggesting that, but we are suggesting
15 that if you look at the facts and the law in this case, you
16 will see that we have a well founded case and that it should go
17 forward.
18 The government's explanation as to why it should not go
19 forward is not given to the Court. It just says we are the
20 government, we don't want this case to go forward. And end of
21 story.
22 THE COURT: Well, what they said was that this case
23 has already made bad law and they don't want any more. I think
24 that's what they really say.
25 MR. BLACK: Well, the bad law was, it has not made
ADD 032
27
1 bad law. We think it was correct at the District Court -- I
2 mean at the Court of Appeals. So we don't have that problem.
3 I don't believe.
4 THE COURT: I'm glad you said that the Court of
5 Appeals because that makes me feel slightly better. If I made
6 bad law for you, that's my bad.
7 MR. HUDAK: There's no bad law, Your Honor, it
8 depends on whose eyes is viewing.
9 THE COURT: Believe me, I know bad law when I see it
10 or at least when they're my cases and somebody sues them up on
11 appeal and makes bad law and I can tell.
12 MR. HUDAK: I just want to note that we did state one
13 of the requirements of the statute to just concisely state the
14 reasons for the United States dismissing a case. We did that
15 on page 5 of our notice.
16 We believe that the claims lack substantial merit,
17 litigation of them would require further unnecessary
18 expenditures of scarce governmental resources including, if
19 this case were to proceed, large amounts of discovery from the
20 Department of the Treasury because materiality would be at play
21 and what treasury knew and when they knew it would be a
22 centralized question in any false claims act case especially
23 under the Supreme Court's test in Escobar.
24 Again, we do believe that we are enforced to having cases
25 proceed that may produce adverse decisions to the United States
ADD 033
28
1 that we have to distinguish and further meritorious cases at
2 the axiom of bad cases make bad law and something that we're
3 always concerned about. And when we exercise our discretion to
4 seek the dismissal of a case, we do so, that's one of the
5 considerations among many that go into the process, Your Honor.
7 I think everybody has had at least two chances to speak.
8 So I can consider myself blessed to have had such good
9 lawyering.
10 And I will take this all under advisement and go back and
11 read very carefully and come up with a decision as quickly as I
12 can, okay.
13 Thank you everybody.
14 (Proceedings adjourned at 2:46 p.m.)
15 -oOo-
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ADD 034
29
1 CERTIFICATE
2 I certify that the foregoing is a true and correct
3 transcript, to the best of my ability, of the above pages, of
4 the stenographic notes provided to me by the United States
5 District Court, of the proceedings taken on the date and time
6 previously stated in the above matter.
7 I further certify that I am neither counsel for, related
8 to, nor employed by any of the parties to the action in which
9 this hearing was taken, and further that I am not financially
10 nor otherwise interested in the outcome of the action.
11
12 ________________________________ _____________________
/s/Crystal M. Pilgrim, RPR, FCRR Date: March 7, 2019
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ADD 035

Appeal 19-7025-Addendum, Transcript Motion Hearing (7-35) 2019.06.21

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Appeal 19-7025-Addendum, Transcript Motion Hearing (7-35) 2019.06.21

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USCA Case #19-7025 Document #1793945 Filed: 06/21/2019 Page 1 of 151

UNITED STATES COURT OF APPEALS

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TRANSCRIPT OF MOTION HEARING

For the Plaintiff: JOSEPH A. BLACK, Esquire

ROBERTO L. DI MARCO, Esquire

For the Movant: BRIAN P. HUDAK, Esquire

2 For Defendants: ROBERT D. WICK, Esquire

5 Court Reporter: CRYSTAL M. PILGRIM, RPR, FCRR

2 THE DEPUTY CLERK: Your Honor, we have civil action

3 14-1047, Laurence Schneider versus JP Morgan Chase Bank,

4 National Association, et al.

5 I'll ask that counsel please approach the lectern and

6 identify yourselves for the record starting with this side of

7 the room, please.

8 MR. BLACK: Joseph Black representing relator

10 THE COURT: Thank you, sir.

11 MR. DI MARCO: Good afternoon, Your Honor, Roberto Di

12 Marco for the relator Laurence Schneider.

13 THE COURT: Thank you, sir.

14 MR. COHEN: Good afternoon, Your Honor, Daniel Cohen

15 on behalf of the relator.

16 THE COURT: All right, thank you.

17 MR. HUDAK: Good afternoon, Your Honor, Brian Hudak

18 from the U.S. Attorneys office on behalf of the United States.

19 THE COURT: Brian Hudak?

20 MR. HUDAK: Yes, ma'am.

21 THE COURT: Well, I certainly know your name,

23 stepped in? So sorry, you are on my sheet.

24 MR. HUDAK: No worries. Given that we usually appear

25 at the bottom of the Qui Tam docket.

2 the bottom. Excuse me, so sorry.

3 MR. HUDAK: Thank you, Your Honor.

4 THE COURT: You're right here.

6 MR. WICK: Good afternoon, Your Honor, Robert Wick

7 from Covington & Burling for the Chase defendants, JP Morgan

9 THE COURT: Thank you, sir.

10 This is an interesting procedure because the government

11 has indicated its intention to move to dismiss this long

13 plan on behalf of the government.

14 As I understand the law, in the end the government gets to

15 decide what it wants to litigate on behalf of the United States

16 and so the situation now is that Mr. Schneider's counsel,

18 Hudak, I presume, over Mr. Wick's objections, not to dismiss

19 the case. So come away and persuade.

20 MR. BLACK: Thank you, Your Honor. Joseph Black

21 again for Mr. Schneider.

22 I am going to speak on the legal issues associated with

23 the government's motion and Mr. Di Marco is going to discuss

24 the evidence that we have. That will hopefully convince the

25 government to withdraw its motion.

2 is so great, facts are so great that under the Swift decision

3 which says that the government's motion to dismiss must be

4 denied if it can be shown to be arbitrary and capricious.

5 We believe that we have strong facts that should compel

6 the government to let us go forward. Failing that we believe

7 that you should dismiss their motion because in fact it is

8 arbitrary and capricious and we can show that.

9 THE COURT: All right.

10 MR. BLACK: The government has two justifications for

11 dismissal. First, that Mr. Schneider's action is without

13 And secondly, that the cost to the government is so high

14 relative to the potential recovery that the case should be

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