New front in MBS litigation: Pension funds claim Ocwen breached ERISA duty

(Reuters) – If there is any silver lining to the lingering black cloud of the mortgage crisis, it’s the incredibly creative legal theories devised by investors who lost hundreds of billions of dollars in overhyped mortgage-backed securities. In a decade of MBS litigation, investors figured out how to hold banks, mortgage issuers and even credit rating agencies accountable for misrepresenting the quality of the mortgages underlying the complex instruments they were peddling. It took ingenuity and persistence, but MBS investors, including hedge funds betting on the eventual success of the litigation, managed to get past contractual and procedural obstacles to recover tens of billions of dollars.

. . .

On Monday, the trustees of a union pension fund that invested in MBS filed a prospective class action against the mortgage servicer Ocwen and related defendants, accusing them of breaching their duties to ERISA beneficiaries. And according to Brad Miller of Guttman Buschner & Brooks – a crusading former North Carolina congressman who is a leading architect of the new suit – mortgage servicers’ exposure to ERISA claims could be vast. The Ocwen suit is apparently the first of its kind, Miller told me in an email, but he is hoping it won’t be the last.

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According to the complaint, Ocwen and the other defendants were obligated, as MBS mortgage servicers, to work with homeowners to modify their mortgages rather than hurting investors by allowing homes to go into foreclosure. But the ERISA plan trustees claim Ocwen and the other defendants put their own interests ahead of the interests of MBS investors. The mortgage servicers, according to the complaint, “profited more from mortgages in default or foreclosure than from performing mortgages,” so they allegedly “sabotaged mortgage modifications and otherwise pushed struggling homeowners into needless default.”

. . .

Miller, the ex-congressman, said he expects the defendants to contest the assertion that they have ERISA duties to pension funds that invested in mortgage-backed securities. “I can’t imagine that Ocwen and other servicers won’t contest that they have a fiduciary duty, because the stakes are too high — there’s no way to square their conduct with a fiduciary duty,” he said in an email. But he said he’s confident the fund’s reading will hold up because of the authority mortgage servicers wielded in managing the pooled investments.

“Servicers have a world of discretion over mortgages,” he said. “The governing documents give them the authority to do ‘anything and everything’ they see fit. And the statutory definition is functional – not what power the person had contractually, but what power the person exercised.”

. . . .

Read the full article here.

A Practitioner’s View Of Institutional Corruption Through The Lens Of The Health Care System: An Essay

These interdisciplinary invaders have come to dominate the faculties of the elite law schools and to influence a great many of the other law schools. The interdisciplinarians are valuable additions to law faculties, but they should not be allowed to displace faculty who bring to the teaching of and research into law a rich background of legal practice in lieu of expertise in a scholarly field or fields outside of law.

—Richard A. Posner, The Federal Judiciary Strengths and Weaknesses, Harvard University Press 2017


Think about this: some of the largest drug companies in the world—the one’s that we rely on for life saving treatments—are convicted criminals.1 Hospital chains and large entities that distribute drugs to the elderly have been charged with defrauding the government and have paid fines, or entered guilty pleas to resolve allegations of conduct that have placed patients at risk. Healthcare fraud is so rampant that each year the government has recovered billions of dollars under the False Claims Act from companies whose television advertising attempts to portray a different image; an image of a benevolent and caring corporate citizen.

Yet, with so many employees inside the company, how do these entities do what they do for so many years before their wrongful conduct is exposed, perhaps by a whistleblower who wakes up one day and questions what others have never thought about questioning? The answer to this question involves an analysis of how people behave when they are part of an institution—or in this case, a large corporation.


A Practitioner’s View Of Institutional Corruption – Reuben Guttman.

American Constitution Society, 2018 Student Convention

The 2018 ACS Student Convention will be hosted by the Northwestern University Pritzker School of Law in Chicago March 9-10, 2018. Plan to join us for two days of networking and dynamic discussions with leading scholars, advocates, and policymakers, including keynote remarks by Lisa Madigan, Illinois Attorney General, Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights, and Jason Kander, president of Let America Vote and Missouri’s 39th Secretary of State. For a list of confirmed speakers and more information, click here.

The Shadow Government: The Government’s Multi-Billion-Dollar Giveaway of its Decision-Making Powers to Private Management Consultants, “Experts,” and Think Tanks

A book by GBB Legal’s Dan Guttman, Available Amazon Here

The Shadow Government book_Dan GuttmanIn the past two decades the federal budget has tripled. However, popular wisdom to the contrary, the number of full-time civil servants has remained relatively constant. How does the government manage? In keeping with the American ethos that private is better than public, a large part of the business of government has been contracted out to accounting firms, think tanks, management consultants, and industrial corporations like McKinsey and Co., Peat, Marwick, Mitchell, and Co., the Stanford Research Institute, the RAND Corporation, Booz, Allen, and Hamilton, Westinghouse, and the Brookings Institution, among many others. The contractors do not merely build hardware and carry out a myriad of mundane tasks. They increasingly perform the functions of government itself, albeit in the guise of private efficiency and disinterested expertise, without accountability to the public. They make and implement policy recommendations, staff and restructure government agencies, reorganize railroads and hospitals, and produce the findings that allocate the spending of the federal budget dollar.

What is their track record? How well is the public interest served by the burgeoning and costly private bureaucracy which government contracting has spawned? Is it proper to delegate public affairs to a shadow government of private, corporate, and governmental constituents? These are the questions at the core of this important study, which was prepared for Ralph Nader’s Center for Study of Responsive Law.

Available Amazon Here

Mass. Hospital Double-Booked Surgeries, Whistleblower Says

By Dani Kass

Law360, New York (October 20, 2017, 7:50 PM EDT) — A former Massachusetts General Hospital anesthesiologist on Thursday told a federal judge that she’s sufficiently shown in her qui tam suit that the hospital violated the False Claims Act when double-booking surgeries, even though she hasn’t been able to provide a specific bill charging the government for those patients.

Dr. Lisa Wollman, who first filed her suit in 2015, alleges that patients were treated by residents and fellows without teaching doctors supervising, in violation of Medicare rules, and then left under anesthesia unnecessarily long to wait for doctors busy with other surgeries. She urged the court to reject MGH’s motion to dismiss, saying the examples of patient surgeries are more than sufficient to prove fraud at this stage of the litigation.

“The locus of wrongdoing in this case was not the claims processing department,” Wollman said. “Here, the fraud occurred in MGH operating rooms sealed off from regular traffic. MGH’s billing personnel, who have access to all patients’ insurance information and all claims submitted to Medicare and Medicaid, are not privy to the fraudulent conduct alleged by relator. By the same token, Dr. Wollman … has no more access to the actual claims for payment than a pharmaceutical sales representative has to the claim submissions of the physicians he or she has bribed by payment of kickbacks.”

Wollman said that during her years as an anesthesiologist at the Boston hospital, procedures with the same surgeon would regularly be booked at least two at a time, leaving residents and fellows operating unsupervised, and making patients have to get extra anesthesia if they had to wait for surgeons when needed. That extra anesthesia, which is charged in 15-minute increments, constitutes unnecessary, excessive and dangerous prescribing, Wollman said.

It would be “highly implausible” that none of the thousands of patients involved in these surgeries were covered by Medicare and the state Medicaid program, MassHealth, she said.

Under Medicare regulations, fellows and residents may handle parts of a surgery alone but the surgeon must be there for “key and critical parts.” Wollman said she witnessed several surgeries where no licensed surgeon took part at any point, meaning that they couldn’t be there for those parts.

But the hospital’s motion to dismiss said that the rule is vague, allowing surgeons to decide what parts of surgeries are critical or key and therefore what they need to be in the room for and what they do not need to be present for.

The motion goes on to claim that Wollman doesn’t allege that actual claims were billed to Medicare or MassHealth. It also said that she doesn’t name a specific surgery where a physician wasn’t present for part of the surgery they defined as key or critical, and that such a claim then followed, or name an instance where two surgeries overlapped and the key or critical parts overlapped as well.

The hospital’s motion also said that Wollman’s suit fails to show that Medicare and MassHealth would have denied paying MGH if they knew about the overlapping surgeries, meaning it doesn’t meet the materiality bar set in the U.S. Supreme Court’s landmark Escobar decision.

The anesthesiologist’s opposition to the motion argues that the omissions were material, as MGH allegedly violated regulations that were conditions of payment. Wollman adds that the First Circuit has expanded on Escobar, making it clear that dismissal before discovery isn’t okay if there’s evidence that the alleged violations were material.

The government in February had said that it wouldn’t intervene in Wollman’s suit.

Representatives for Wollman and MGH didn’t immediately respond to requests for comment Friday.

Wollman is represented by Laura R. Studen of Burns & Levinson LLP and Reuben A. Guttman, Traci L. Buschner, Justin S. Brooks and Elizabeth H. Shofner of Guttman Buschner & Brooks PLLC.

MGH is represented by Martin F. Murphy, Neil Austin and Julia G. Amrhein of Foley Hoag LLP.

The case is United States of America et al v. Massachusetts General Hospital Inc. et al, case number 1:15-cv-11890, in the U.S. District Court for the District of Massachusetts.

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