Yesterday, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York denied Bank of America‘s motion to dismiss claims brought by the United States under the Financial Institutions Reform Recovery Enforcement Act (“FIRREA”). We previously reported on the lawsuit when it was filed back in October.
FIRREA was enacted in 1989 in response to the savings and loan crisis and to “reform, recapitalize, and consolidate the Federal deposit insurance system, to enhance the regulatory and enforcement powers of Federal financial institutions regulatory agencies, and for other purposes.” The statute allows the government to bring a civil action and seek substantial penalties based on violations of certain criminal statutes when those violations are ones ”affecting a federally insured financial institution”.
In recent months, the government has relied on FIRREA to bring cases against banks alleged to have been engaged in fraudulent conduct, primarily in the context of the mortgage crisis. FIRREA likely appeals to the government for a number of reasons. It allows the imposition of civil penalties of up to $1 million for a one-time violation and up to $5 million for continuing violations. Furthermore, FIRREA provides a generous statute of limitations of ten years in which the government has to file a lawsuit.
Judge Rakoff had previously expressed being “troubled” by the government’s use of FIRREA in the Bank of America case, but his order allowed the government’s claims to proceed under FIRREA while dismissing claims under another statute, the False Claims Act. He stated that he reached this decision “[a]fter careful consideration” and would issue a formal opinion shortly. His decision follows a similar decision by Judge Lewis Kaplan on April 24th which allowed the government’s FIRREA claims against Bank of New York Mellon to proceed.
For additional information, see Bank of America Faces Narrow Claims in U.S. Lawsuit Over Mortgages and U.S. Can Pursue Case Against Bank of America Over Mortgages.