A federal judge’s ruling requiring Bank of America Corp. to pay more than $1 billion in penalties over agency loans originated by Countrywide Financial Corp. in its “Hustle” program has been reversed on appeal.
In July 2014, U.S. District Court Judge Jed S. Rakoff ruled that BofA must pay $1.267 billion in penalties in a lawsuit that was filed in February 2012 under the whistleblower provision of the False Claims Act.
The case
revolved around allegedly sub-par home loans that were originated by Countrywide through its “High Speed Swim Lane” — or “Hustle” — program and sold to Fannie Mae and Freddie Mac.
The lawsuit was filed as a qui tam action by
former Countrywide vice president Edward O’Donnell, and the Department of Justice subsequently intervened.
The jury in the district court case found BofA liable under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 for mail or wire fraud affecting a federally insured financial institution.
BofA filed an appeal with the U.S. Court of Appeals for the Second Circuit, arguing that the proof at trial was insufficient under the mail and wire fraud statutes as a matter of law.
The appeals court agreed with BofA.
“In sum, the government has never argued — much less proved at trial — that the contractual representations at issue were executed with contemporaneous intent never to perform, and the trial record contains no evidence that the three key individuals — or anyone else — had such fraudulent intent in the contract negotiation or execution,” the Second Circuit decision states. “Instead, the government’s proof shows only post-contractual intentional breach of the representations.
“Accordingly, the jury had no legally sufficient basis on which to conclude that the misrepresentations alleged were made with contemporaneous fraudulent intent.”
The district court’s judgment was reverse and the case was remanded.
