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Financial Services Law Insights and Observations


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  • 2nd Circuit affirms dismissal of FCA claims following government motion to dismiss


    On August 21, the U.S. Court of Appeals for the Second Circuit upheld the dismissal of a whistleblower False Claims Act (FCA) case, holding that FCA qui tam relator complaints may be dismissed upon the government’s motion without a hearing, provided the district court consider the parties’ arguments. The plaintiff qui tam here alleged that a bank (defendant) failed to pay penalties to the government for violating economic sanctions. Plaintiff’s complaint specifically alleged that defendant facilitated illegal transactions violating economic sanctions and defrauded the government by concealing the extent of its illegal activities during negotiation of a deferred prosecution agreement. In a summary order without precedential effect, the 2nd Circuit upheld the dismissal of plaintiff’s complaint.

    Plaintiff’s complaint was initially dismissed by the district court following a motion to dismiss by the government, which intervened in the action to argue that the complaint should be dismissed because it lacked merit and would waste government resources. Consideration of plaintiff’s appeal of the dismissal was delayed until after the Supreme Court issued a decision in Polansky v. Executive Health Resources, Inc., a different FCA case raising applicable issues regarding when the government has the authority to force the dismissal of an FCA case brought by a whistleblower.

    Following the Supreme Court’s ruling in Polansky, the 2nd Circuit upheld the dismissal of plaintiff’s complaint, reasoning that district court properly dismissed the qui tam relator claim after the government’s intervention seeking dismissal, since the defendant bank had not yet answered the complaint or moved for summary judgment. The 2nd Circuit held that “the district met the hearing requirement” established by Polansky for dismissing qui tam relator cases through its careful consideration of the briefs and materials submitted by the parties. In reaching this conclusion, the 2nd Circuit noted that Polansky does “not mandate universal requirements” for an FCA hearing in every case. The 2nd Circuit also rejected plaintiff’s due process arguments, plaintiff’s claim that the court failed to evaluate defendant’s settlement with the government resolving related criminal and administrative violations, and plaintiff’s claim that the district court erred in denying its motion for an indicative ruling, based on new evidence published while the appeal was pending.

    Courts Federal Issues Appellate Second Circuit Supreme Court FCA Qui Tam Action

  • CFPB files reply brief supporting its constitutional structure


    On August 3, the CFPB filed a Reply Brief in support of its request to overturn the Fifth Circuit’s decision in Community Financial Services Association of America v. Consumer Financial Protection Bureau, in which the 5th Circuit found that the CFPB’s funding structure violated the Constitution’s Appropriations Clause (covered by InfoBytes here, here, and here, and in a firm article here).

    In its Reply Brief, the CFPB argues that Congress did not violate the Appropriations Clause by failing to specify a specific dollar amount to fund the CFPB because “the Appropriations Clause contains no dollar-amount requirement.” In support of that argument, the CFPB points to the Founders’ appropriation of funds for the Post Office and the National Mint where they did not decide the specific amounts of annual funding, the funding structure for the OCC and the Federal Reserve Board, and to current federal appropriations for Social Security payments and unemployment assistance.

    The Bureau then argues that even if there was a specific dollar amount requirement, that requirement is nonetheless satisfied because “Congress fixed the CFPB’s maximum annual funding.” According to the Bureau, the fact that it has the discretion to ask for less than the maximum authorized is commonplace and “[t]o this day, Congress routinely appropriates sums ‘not to exceed’ a particular amount;’ that phrase appears more than 400 times in the Consolidated Appropriations Act, 2022.”

    The Bureau then aims to refute plaintiff’s arguments that the Appropriations Clause requires time-limited funding laws and imposes special rules for law enforcement agencies. The Bureau argues that the fact that the Constitution includes a specific restriction limiting Congress from funding the army for more than two years dictates that by negative implication there is no such prohibition of a standing appropriation for a different appropriation.

    Finally, the Bureau argues that its combination of features is not as unique as CFSA contends, and that even if the Supreme Court ultimately finds the funding structure unconstitutional vacating the Payday Lending Rule is an inappropriate remedy because the 5th Circuit failed “to consider whether the defect it perceived could be cured by severing portions of Section 5497.”

    Courts CFPB Constitution Supreme Court Funding Structure Fifth Circuit Appellate Payday Rule

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