A published panel ruling says a public PPP database and a company website did not, on this record, bar a qui tam suit accusing CalCon of misrepresenting its loan eligibility.
What happened
The Ninth Circuit revived Relator LLC's False Claims Act qui tam suit accusing CalCon Mutual Mortgage LLC and its founder and CEO, Joshua K. Erskine, of making false statements in a Paycheck Protection Program loan application, reversing a California federal court's dismissal and sending the case back for further proceedings.
The published panel ruling turns on the FCA's public disclosure bar, which can block suits based on substantially the same allegations or transactions already disclosed through specified public channels. The panel said the information on PandemicOversight.gov, including CalCon's PPP loan information and NAICS code, did not show the alleged fraud in the way the district court had found.
Relator alleges CalCon was an ineligible mortgage lender, misused PPP certifications tied to that eligibility, falsely certified that the loan was necessary, inflated its employee count and separately certified that its application contained no false statements. The United States declined to intervene, and the district court dismissed after finding the public disclosure bar applied and that the employee-headcount theory was implausible.
The Ninth Circuit disagreed with the public-disclosure ruling as to CalCon's eligibility theory. Although the NAICS code identified CalCon as a real-estate-secured lending company, the panel said that did not resolve whether PPP eligibility exceptions for certain mortgage-servicing businesses could apply: "Standing alone, the NAICS code does not conclusively demonstrate CalCon’s ineligibility given the existence of these exceptions."
The panel also rejected, at least on the current record, CalCon and Erskine's argument that allegations drawn from CalCon's website were publicly disclosed through the news media. The court said CalCon's website appeared directed to borrowers and business purposes, not to disseminating news about recent events or curating third-party information in the way news media typically do.
CalCon and Erskine did win one important point: the panel agreed Relator's employee-headcount theory was speculative as pleaded. Relator had inferred that CalCon could not employ 432 people from the square footage of one headquarters office, but the panel said that theory relied on unsupported assumptions about CalCon's 10 other offices and any remote employees.
Even so, the panel held the district court abused its discretion by denying leave to amend. Because Relator had amended once as a matter of course before the district court identified the pleading defects, the panel said the lower court should have given Relator another opportunity to address those concerns.
On remand, the district court must revisit issues it did not reach, including whether Relator's other alleged misrepresentation theories are subject to the public disclosure bar. The Ninth Circuit also expressly left open whether public disclosure of one alleged fraudulent transaction can bar an entire FCA claim that rests on multiple alleged fraudulent transactions.