The following fact pattern is entirely fictional and was created specifically for the 2020–2021 Harlan Fiske Stone Moot Court Competition at Columbia Law School:
Defendant Confluence Bank, N.A. (“Confluence Bank” or “the Bank”) is an FDIC-insured investment banking and financial services company, founded in 1962 by Glen R. Woods Sr. and Ray K. Daniels, and currently run by Wood’s grandson, J. Landen Woods, who serves as CEO. Organized in Delaware and headquartered in Dallas, Confluence Bank has physical branches throughout the South and Southwest, and provides personal, business, and commercial banking to its customers. Confluence Bank is also a subsidiary of co-defendant River Confluence Group, an American multinational financial holding company headquartered in Salt Lake City. Both Confluence Bank and River Confluence Group are the defendants in this case (collectively, “Confluence”).
In January 2019,1 Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $2.2 trillion dollars in fully forgivable federal aid. The CARES Act also created the Paycheck Protection Program (PPP) implemented by the U.S. Small Business Administration (SBA) with support from the U.S. Department of the Treasury. Under the PPP, businesses could receive a maximum of $10 million per business entity provided that they qualified as a “small business concern” as defined in Section 3 of the Small Business Act, 15 U.S.C. § 632; had 500 or fewer employees and whose principal place of residence is in the United States; or met the SBA and North American Industry Classification System (NAICS) size standard for the industry in which it operates.
The CARES Act also provided that all federally insured depository institutions, federally insured credit unions, and Farm Credit System institutions were eligible to participate in the PPP as lenders. All existing SBA-certified lenders were given authority to process PPP loans, and lenders were required to confirm that borrowers met the eligibility requirements before approving PPP loans. These lenders were then compensated in fees paid by the SBA for their role in processing PPP loans.
Relator Tanya Moore began working as a commercial loan officer for Confluence Bank in 2016, first in the Bank’s De Soto branch office, and then in the Bank’s headquarters in Dallas. She graduated from the University of Texas at Austin, cum laude, with a degree in accounting in 2010 and then worked in commercial lending, new business development, and loan underwriting at various banks before joining the Confluence team.
Over the course of 2019, Moore noticed several instances where potentially ineligible businesses submitted applications for PPP loans and were approved by other employees at the Bank, including, inter alia, a Dallas-based hotel chain; a minority-owned barbershop; and a local, family-operated board game store owned by a multimillion-dollar board game company, retailer, and web platform. Moore flagged these to her supervisor multiple times, but nothing was done. Instead, a complaint was filed against Moore by one of her co-workers, a peer loan officer was assigned to review her work, her relationship with her supervisor worsened, and according to Moore, the average PPP loan amounts seemed to increase. Moreover, by June 2019—only six months after the implementation of the PPP—Confluence’s ranking in the “Top PPP Lenders” list rose from 12 to eight based on an increase of approximately $5 billion in approved PPP loans between March and June 2019.
On May 29, 2020, Moore filed a qui tam suit in the U.S. District Court for the Northern District of Texas, alleging that Confluence Bank and River Confluence Group violated the False Claims Act, 31 U.S.C. §§ 3729 et seq. Moore also served the complaint on the U.S. attorney for the Northern District of Texas. After a few months of investigation, the government intervened and filed a motion to dismiss, arguing that (1) the government had an “unfettered right” to dismiss under Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003) and (2) the relator’s claims failed to meet the basic pleading requirements under the FCA.
In response, Moore argued that the government was not entitled to dismissal because the government did not satisfy the two-step test set out in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp, 151 F.3d 1139, 1145 (9th Cir. 1998) that the dismissal be “rationally related to a valid government purpose.” The district court heard arguments and granted the government’s motion to dismiss, holding that (1) the government was entitled to dismissal under either standard (Swift and Sequoia Orange); (2) that applying the Sequoia Orange standard, relator still failed to show that Confluence had sufficient scienter under the False Claims Act; (3) that the relator had not established that Defendants “knowingly” submitted false claims to the government; and (4) that the relator has not sufficiently pleaded that the alleged fraud was material to the government’s payments to loan borrowers. Moore then appealed to the 5th Circuit, challenging both the standard of review used to dismiss the case as well as the district court’s rulings on scienter and materiality.
1 The CARES Act statute was backdated to 2019 in order to fit the timeline for litigation. Under the revised statute, the CARES Act Paycheck Protection Program (PPP) permits eligible businesses to receive PPP loans to cover expenses such as: payroll, mortgage interest, rent, utilities, operations expenses, property damage, and supplier costs, as well as worker protection costs. These types of expenses would then be eligible for loan forgiveness provided that they were incurred during the “covered period,” which was changed to begin February 15, 2019, and end June 30, 2020.