Liability under the False Claims Act (FCA) is premised on the submission of a claim for money or property either to a federal government “officer, employee, or agent” or, under certain circumstances, to a nongovernmental “contractor, grantee, or other recipient” of government funds. In a decision affirming the dismissal of a whistleblower’s FCA action, the Ninth Circuit Court of Appeals recently held that Fannie Mae and Freddie Mac do not fit into the first category—federal government officers, employees, or agents—for the purposes of the FCA.

In United States ex rel. Adams v. Aurora Loan Services, Inc., et al., qui tam relators filed an FCA action against various lenders and loan servicers for allegedly certifying that loans purchased by Fannie Mae and Freddie Mac were free and clear of homeowner association charges, when they allegedly were not. According to the relators, these false certifications were made to Fannie Mae and Freddie Mac as “instrumentalities” of the federal government and rendered subsequent claims to be in violation of the FCA.

Although the Ninth Circuit had previously found Fannie Mae to be a federal instrumentality for state/city tax purposes, the Court was not swayed by its prior ruling in reaching its opinion for purposes of the FCA.

The Court emphasized 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. Fannie Mae’s federal instrumentality status for state tax purposes doesn’t answer whether Fannie Mae and Freddie Mac are also government entities for False Claims Act purposes.” 

Notably, the Court explicitly stated that it expressed no opinion about whether the relators could have stated a cause of action under the second category of claims under the FCA—claims to nongovernmental contractors, grantees, or other recipients of government funds. The relators did not argue that Fannie Mae and Freddie Mac fit into this category, although the possibility was addressed in an amicus brief filed by the Department of Justice in the action.