Saturday, May 6, 2017

FYI: Ill App (3rd Dist) Upholds Dismissal of Qui Tam Action Against MERS

The Appellate Court of Illinois, Third District, recently affirmed a trial court's dismissal of a qui tam action brought by a private attorney under the Illinois False Claims Act against Mortgage Electronic Registration Systems, Inc. ("MERS"), holding that the State can file a motion to dismiss at any time during the case even if the State declined to take over the action.


A copy of the opinion is available at:  Link to Opinion


The plaintiff the State ex rel. by a private attorney (Relator), filed a qui tam action against MERS and unnamed defendants, including entities that originated and/or serviced home loans, alleging defendants violated section 740 ILCS 175/3(a)(1)(G) of the Illinois False Claims Act by knowingly making false statements in certain mortgage documents to avoid paying millions of dollars in mortgage assignment fees to the State's counties.


As you may recall, a qui tam action "is an action brought by an informer, under a statute which establishes a penalty for the commission or omission of a certain act, and provides that the same shall be recoverable in a civil action, part of the penalty to go to any person who will bring such action and the remainder to the state or some other institution." Black's Law Dictionary 1251 (6th ed. 1990).


The State, via the Attorney General, declined to take over the Relator's action.  Subsequently, at the Relator's request, the trial court ordered the State to produce its investigative file concerning MERS's business practices for an in camera inspection.  In response, the State filed a motion for a protective order, a motion to reconsider the order compelling the State to produce records, and a motion to dismiss.


The Relator filed a motion to disqualify the Attorney General alleging that potential defendant banks sponsored an award dinner in honor of the Attorney General.  The Relator maintained that this created a conflict of interest that precluded the Attorney General from intervening in the case.


The trial court denied the Relator's motion, granted the motion to dismiss, and ruled that the State's remaining motions were moot.  This appeal followed.


Initially, the Appellate Court observed that a motion to dismiss a qui tam action pursuant to section 4(c)(2)(A) of the Illinois False Claims Act (740 ILCS 175/4(c)(2)(A) ("IFCA") is similar to a motion to dismiss an action pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619) because the motion asserts an affirmative defense that defeats the claim.  Thus, the Appellate Court reviews a dismissal pursuant to section 4(c)(2)(A) de novo.


The Appellate Court next noted that Section 3(a)(1)(G) of the IFCA creates liability for anyone who "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the State, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the State." 740 ILCS 175/3(a)(1)(G).


In addition, the IFCA authorizes private persons to file civil actions on the State's behalf for violations of section 3. 740 ILCS 175/4(b).  The State then has 60 days from when the private person files the complaint to intervene and prosecute the action or to inform "the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action." 740 ILCS 175/4(b)(4)(A),(B).


Section 4 of the IFCA, in relevant part, gives the State the following options:


"(c) Rights of the parties to Qui Tam actions.


          (1) If the State proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).


          (2)(A) The State may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the State of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.


          (3) If the State elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the State so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the State's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the State to intervene at a later date upon a showing of good cause."


740 ILCS 175/4(c).


The Relator argued that the State can only file a motion to dismiss under section 4(c) if it elects to proceed with the action. The Appellate Court disagreed.


The Appellate Court reasoned that the State is the real party in interest in qui tam actions and therefore qui tam plaintiffs, acting as the State's statutorily designated agents, may only proceed only with the Attorney General's consent. Scachitti v. UBS Financial Services, 215 Ill. 2d 484, 515 (2005).  Further, qui tam plaintiffs are always subordinate to the Attorney General. Id.


Thus, "the Attorney General possesses the authority to control the qui tam action at every stage." Id. at 510-11. The Appellate Court concluded that the trial court did not err when it granted the State's motion to dismiss because "it is clear from section 4(c) and our supreme court's interpretation in Scachitti that the State can file a motion to dismiss at any time during the life of the action, even if the State has elected not to take over the action."


Finally, the Appellate Court rejected the Relator's argument that the trial court should have disqualified the Attorney General because of the alleged conflict of interest.


Specifically, the Court held, the Attorney General only has a conflict of interest in a case in two situations: (1) where the Attorney General is interested in the case as a private person; and (2) where the Attorney General is a party to the action. Environmental Protection Agency v. Pollution Control Board, 69 Ill. 2d 394, 400-01 (1977).  The Court held that neither situation existed here, and that the trial court properly denied the Relator's motion to disqualify the Attorney General.


Accordingly, the Appellate Court affirmed the trial court's dismissal order.




Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
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Mobile:  (312) 493-0874


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