In United States ex rel. Adams v. Aurora Loan Servs., Inc., 2016 WL 697771, — F.3d —- (9th Cir. Feb. 22, 2016), the Ninth Circuit found that Fannie Mae and Freddie Mac were not government entities for purposes of the False Claims Act.  In so holding, the Ninth Circuit provided further clarity to the distinction between claims under 31 U.S.C. § 3729(b)(2)(A)(i) (claims presented to an officer, employee, or agent of the government) and claims under 31 U.S.C. § 3729(b)(2)(A)(ii) (claims presented to entities that contract with the government and the government’s funds are used to advance a government program).

In Adams, the relator alleged that various lenders and loan servicers violated the FCA by making false certifications to Fannie Mae and Freddie Mac that certain loans were free and clear of liens and charges.  The relator pursued its FCA claims under 31 U.S.C. § 3729(b)(2)(A)(i), contending that Fannie Mae and Freddie Mac should be considered government officers, employees or agents.   The relator focused solely on 31 U.S.C. § 3729(b)(2)(A)(i), arguing that Fannie Mae and Freddie Mac were government agents because: (1) the Ninth Circuit had previously determined that these entities were federal instrumentalities for state/city tax purposes; and (2) these entities were subject to the Federal Housing Finance Agency (“FHFA”) conservatorship.   The relator—for reasons unexplainable to the Ninth Circuit—did not bring claims under 31 U.S.C. § 3729(b)(2)(A)(ii) or otherwise allege that Fannie Mae and Freddie Mac received and used money from the government to advance a government program.

In rejecting the relator’s arguments, the Ninth Circuit explained that although Fannie Mae and Freddie Mac are chartered by the federal government, they are still private companies. The Ninth Circuit reasoned further that “just because an entity is considered a federal instrumentality for one purpose does not mean that the same entity is a federal instrumentality for another purpose.”  The Court also found that the relator’s conservatorship argument was faulty, explaining that the conservatorship did not provide the FHFA with the authority to control Fannie Mae and Freddie Mac, it simply gave the FHFA the same rights and duties as these entities.

The Ninth Circuit declined to express an opinion on whether the relator could have stated a claim under 31 U.S.C. § 3729(b)(2)(A)(ii); however, it did note that the trial court “was mistaken” in ruling that claims made to Freddie Mac and Fannie Mae could never constitute claims under the FCA, stating that “[a] properly pled claim under § 3729(b)(2)(A)(ii) could give rise to FCA liability” if pled properly.  Adams serves to benefit the FCA defense bar as it provides a strong explanation of the distinction between claims under 31 U.S.C. § 3729(b)(2)(A)(i) and claims under 31 U.S.C. § 3729(b)(2)(A)(ii) and underscores the importance of properly establishing the government’s relationship to the purportedly fraudulent activity.