United States ex rel. O’Donnell v. Countrywide Home Loans, Inc., No. 15-496 (2d Cir. 2016)
This is an incredible decision. Essentially the judge was saying that Bank of America cannot be held accountable for Countrywide frauds. They claim this is because the admittedly reckless and contemptuously misrepresented sales of fraudulent loans, the appeals court claims, somehow weren't proof of fraud! Somehow they weren't reckless and contemptuous enough. In my opinion this court's decision was reckless and contemptuous of the 7th amendment and rule of law. I'm no lawyer and I'd love it if some lawyer could justify this decision. I'm sure some can. I hope this gets appealed to the SCOTUS and that we have a less corrupt SCOTUS to hear the appeal. It just sounds really, really wrong.
Seventh Amendment What's that?
Appeals courts aren't even supposed to over-rule jury decisions findings of fact according to the 7th amendment and it's interpretation over the years. As a reminder this is the text of the 7th amendment:
"In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law."
Which is why the Judges make their claims based on lip service to common law:
"When can a breach of contract also support a claim for fraud? This question—long an issue in common-law courts—comes before us..."
The Courts decision seems to be based on their claim that the lower court used the wrong definition of fraud in it's jury instructions and that the Countrywide folks didn't meet that definition. And thus the Jury's findings are somehow invalid and the defendant's behavior was not in fact fraudulent.
False and Reckless misrepresentations?
The Judges of the appeals case substitute this definition:
"a representation is fraudulent only if made with the contemporaneous intent to defraud—i.e., the statement was knowingly or recklessly false and made with the intent to induce harmful reliance."
But here is what the Government had proved to the Jury:
"And now that all the evidence has come in, this case still comes down to a few simple facts. First, the Hustle loans were bad. Second, the defendants knew the Hustle loans were bad. And third, the defendants passed the Hustle loans off as good loans anyway to cheat Fannie and Freddie out of money."
Isn't passing off bad loans as good loans "knowingly and recklessly False?
The Jury sure thought so:
"the jury was charged as to the elements of federal mail and wire fraud. In particular, the jury was instructed that it had to find a scheme to defraud, which was defined as “a plan or design to obtain money or property by means of one or more false or misleading statements of a material fact.” J.A. 5219. The District Court defined a false statement as “an outright lie” and a misleading statement as “true as far as it goes but creat[ing] a false impression by omitting information necessary to correct the false impression.”
You'd think that would be enough. After all the effort to obtain money by lies is ordinarily seen as "reckless" and the government proved that the hucksters were selling loans that were faulty. You would think that would be enough! The Jury didn't need to prove reckless intent. It was obvious to all concerned, including the defendants making this stone faced appeal.
However, When the Courts say it's not Reckless, it's not Reckless to them.
The Appeals court writes:
"the Government alleged that Defendants violated the federal mail and wire fraud statutes by selling poor-quality mortgages to government-sponsored entities."
And they proved all the elements of their case. Including that "reckless bit." But I guess they weren't explicit enough about that "reckless bit."
Because the defendants appealed and argue:
"Defendants argue that the evidence at trial shows at most an intentional breach of contract"
-- which ought to be enough to support the Government's claim that they intended to defraud people. But this court?.... And the billions of dollars of fraudulent loans that they originated and that nearly brought down the economy ought to prove the claim of "reckless" even if the Government never said a word about it. But htis court! This court makes the astounding assertion that selling
"mortgages that they knew were not of the quality promised in their contracts"
— is somehow "insufficient as a matter of law to find fraud." So when is fraud not fraud?!!!!
And even crazier, the court ruled:
"We agree, concluding that the trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises."
Here is what is crazy. The defendants appeal rests on the claim that merely selling inadequate mortgages that they knew were inadequate, SOMEHOW is not proof that they knew they were defrauding their clients??? That there was nothing "reckless and contemptuous" about that??!! And the court didn't laugh that out of their chambers? Talk about reckless!
This was a reckless decision. I suppose the loan originators intended only to house the poor, clothe the naked and save widows from freezing to death. No "reckless behavior" here!
And they admit:
"Our interpretation of the federal statutes in question is de novo."
Astounding is more like it. It certainly is de novo when they recklessly disregard the jury's judgment this way.
Essentially they threw out the conclusions of the Jury for their own mangled argument that somehow those selling those loans, knowing they were not as advertized wasn't creating a false impression or an outright lie. Which the Jury had determined. And that it wasn't "reckless" or contemptuous to defraud so many people and then to turn around and try to defraud the Government?! Either this court is corrupt or they are smoking something. Maybe they eally really not able to understand simple English.
The Widget Argument!
Then they use an even more specious "widget" argument to try to decouple breach of contract lying from outright fraud. They attempt to show that if a company starts delivering substandard widgets halfway through a run of widgets that were perfectly adequate, that that is mere breach of contract. In their minds there is some distinction between breach of contract within a contract execution and fraud related to that breach of contract. They claim that there is some distinction between an intentional breach of contract (in which the contractually obligated person is required to deliver some product) and an intentional fraud. If they are selling and delivering widgets that they full well know are substandard that is both fraud and a breach of contract in any layman's view. They then claim that Countrywide's behavior didn't meet this standard because it was like delivering widgets. The widgets started out okay but then went bad. The loans somehow started out okay but then became a fraud? The entire case history of these loans is that they were fraudulent from the start, and contemptuously so. If a law student made an argument like this, I'd hope his teacher would give him an F.
Overruling the Jury and the 7th amendment
- Bank of America wins reversal of $1.27 billion penalty in U.S. mortgage case
- Case Text >United States ex rel. O’Donnell v. Countrywide Home Loans, Inc., No. 15-496 (2d Cir. 2016)
I experienced a case once (I was a witness) where the judge started talking with the winning lawyer before the case was decided, about his upcoming golf game. I heard years later that the lawyers in that court would make bets and deliberately lose them. So far nobodies been caught (who would prosecute them?) I wonder????