State of New York, ex rel. Raw Data Analytics LLC v JP Morgan Chase & Co.

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[*1] State of New York, ex rel. Raw Data Analytics LLC v JP Morgan Chase & Co. 2019 NY Slip Op 29267 Decided on August 30, 2019 Supreme Court, New York County d'Auguste, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on August 30, 2019
Supreme Court, New York County

State of New York, ex rel. Raw Data Analytics LLC, Relators,




Appearances of Counsel:

Attorneys for Plaintiff-Relator:

Randall M. Fox, Esq.

Kirby McInerney LLP

825 Third Avenue, 16th Floor

New York, New York 10022

Phone: (212) 371-600 Facsimile: (212) 751-2540

Attorneys for Defendants JP Morgan Chase & Co., JPMorgan Chase Bank NA, Chase Bank USA NA, Chase Auto Finance Corp., and J.P. Morgan Securities LL" target="_blank">State of New York ex rel. Seiden v Utica First Ins. Co., 96 AD3d 67, 71 [1st Dept 2012]). It was amended in 2010 to strengthen the laws and mirror the amendments made under the federal False Claims Act to make it "at least as effective as the federal Act" (Sponsor's Mem, Bill Jacket, L 2010, ch 379). "'The Supreme Court has given the statute an expansive reading,' observing that it 'covers all fraudulent attempts to cause the Government to pay out sums of money" (U.S. ex rel. Bahrani v Conagra, Inc., 465 F3d 1189, 1194 [10th Cir 2006] [citations omitted]).[FN3] Therefore, the FCA should, too, be read expansively to cover all fraud concerning money paid or owed to the government.

Defendants' motion seeks to dismiss relator's claims asserted under Finance Law § 189 (1) (g) and (h).[FN4] These two sections are known as the "reverse false claim provisions," which "occurs when someone uses a false record to avoid an obligation to pay the government" (Seiden, 96 AD3d at 71, citing United States v Q Intl. Courier, Inc., 131 F3d 770, 773 [8th Cir 1997]).

Liability under § 189 (1) (g) is found where one "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 a local government" (see Seiden, 96 AD3d at 71-72; see also People v Sprint Nextel Corp., 26 NY3d 98, 106-107 [2015]; Anonymous v Anonymous, 165 AD3d 19 [1st Dept 2018]). Finance Law § 189 (1) (h) provides liability for "any person who . . . knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the state or a local government . . ." (see United States ex rel. Customs Fraud Investigations, LLC v Victaulic Co., 839 F3d 242, 254-55 [3d Cir 2016] [where company failed to mark its product, making product subject to a government tariff, and then failed to pay the tariff, a reverse false claim was stated]; see also Kane ex rel. U.S. v Healthfirst, Inc., 120 F Supp 3d 370, 388 [SDNY 2015]).


The term "obligation" is found in both subdivisions (g) and (h) of § 189 (1). As relevant here, it is defined in the statute as meaning "an established duty, whether or not fixed, arising . . . from statute or regulation . . . " (Fin L § 188 [4]).

An "obligation" refers to "one existing at the time of the improper conduct to pay the Government funds, the amount of which may not be fixed at the time of the improper conduct" (United States ex rel. Petras v Simparel, Inc., 857 F3d 497, 506 [3d Cir 2017]). Any duty to pay under a False Claims Act claim "must be formally 'established' before liability can arise" (United States ex rel. Grubea v Rosicki, Rosicki & Assocs. P.C., 318 F Supp 3d 680, 703 [SD NY 2018] [internal citations and quotations omitted]). "[T]he reverse false claims act does not extend to . . . potential or contingent obligations to pay the government . . . ." (United States ex rel. Bain v Ga. Gulf Corp., 386 F3d 648, 657-68 [5th Cir 2004] [emphasis omitted]). Further the term obligation "does not include a duty that is dependent on a future discretionary act" (Petras, 857 F3d at 505; see United States ex rel. Simoneaux v E.I. dupont de Nemours & Co., 843 F3d 1033, 1040 [5th Cir 2016]).

The statutory text giving rise to the obligation at issue here states as follows:

"In addition to the penalty prescribed in subdivision one of this section for failure to report, any person failing to pay any sum or to deliver any property required to be paid or delivered to the state comptroller by this chapter or any law relating to abandoned property shall pay to the people of the state interest on the amount or value of such property. Such interest shall be at the rate of ten per centum per annum computed for a period to commence upon the date such payment or delivery was required by this chapter and to terminate upon the date of full compliance therewith, except that the state comptroller may waive the payment of all or part of such interest whenever in his opinion the circumstances warrant such waiver" (APL § 1412 [2]).

"When presented with a question of statutory interpretation, our primary consideration is to ascertain and give effect to the intention of the Legislature." People v Andujar, 30 NY3d 160, 166 [2017], quoting Matter of DaimlerChrysler Corp. v Spitzer, 7 NY3d 653, 660 [2006]). "While 'the words of the statute are the best evidence of the Legislature's intent,' legislative history may also be relevant as an aid to construction of the meaning of words" (Andujar, 30 NY3d at 166; quoting Riley v County of Broome, 95 NY2d 455, 463 [2000]).

Defendants ask this Court to note the absence of any language indicating that holders are to "self-calculate," pay, and then request a waiver of interest after-the-fact. Defendants also argue that the words "shall pay" are not dispositive in determining whether the duty is contingent (see Simoneaux, 843 F3d 1033), and further ask the Court to focus on the "except[ion]" phrase to find that the duty may only be imposed upon a discretionary act by the government. In support, as noted above, the defendants rely on the language in the OSC Letter, Handbook and Website to argue that the OSC must first exercise its discretion to impose the interest.

The Court finds that the language of the APL is abundantly clear: it states that any person who fails to pay or delivery property to the state "shall pay . . . interest"; it describes the amount of interest, and for what period it must be paid. Accordingly, no further assessment needs to be made. While the words "shall pay" or "shall be liable" may not automatically trigger an actionable "obligation" in every instance, it is not necessarily about whether the word "shall" is used — rather the inquiry is on whether there is some sort of step in between the statutory violation and a defendant's duty to pay; and, notably, whether that step involves some sort of discretionary act from the government (cf. defendants mem at 11 [where "the Fifth Circuit rejected the reverse FCA claim" "[n]oting that § 2614(a) 'grants the EPA discretion whether a penalty should be assessed' including the ability to assess no penalty at all"], quoting Simoneaux, 843 F3d at 1040). There is no intermediary step here, as there may have been in Simoneaux.

Simoneaux is also distinguishable on the grounds that "'interest is not a penalty . . .'" (J. D'Addario & Co., Inc. v Embassy Indus., Inc., 20 NY3d 113, 117-118 [2012] [citations omitted]; see id. ["The breaching party is required to pay interest despite lacking possession or enjoyment of the property in order 'to make [the] aggrieved party whole'"]). Indeed, the statute almost seems quasi-contractual in nature, in which case, it is precisely the type of obligation envisioned under the FCA (see Bahrani, 465 F3d at 1196 [discussing the differences between cognizable obligations and contingent obligations such as fines or penalties, and noting that an FCA "obligation" may arise "'at least where the statute or regulation imposes an obligation essentially contractual in nature'"], quoting Am. Textile Mfrs. Inst., Inc. v The Limited, Inc., 190 F3d 729, 737-738 [6th Cir 1999]).

A plain reading of the statute also demonstrates to the Court that the "except[ion]" language, concerning the OSC's discretionary ability to waive interest, is just that — the exception and not the rule. As the relator and the OAG both point out, the statute's language contemplates that, upon failure or late payment of abandoned properties to the State, the obligation to pay interest automatically arises. However, it also contemplates that the State, in its discretion, may waive the payment of such interest. In other words, the obligation to pay is qualified only by a separate discretionary waiver; the statute does not provide for a discretionary waiver or other act in the first instance (see Condor Funding, LLC v 176 Broadway Owners Corp., 147 AD3d 409, 411 [1st Dept 2017] ["Waiver is an intentional relinquishment of a known right . . ."], quoting Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 968 [1988]). As the OAG aptly stated in its letter, "[b]y granting the Comptroller the power to waive interest [*5]payments, the Legislature recognized that he first had a right to receive those payments" (NYSCEF Doc. No. 61). Further, to put the discretionary waiver first before finding an obligation to pay would essentially swallow the whole provision and render what came before it meaningless; such a construction is impermissible (see Matter of Avella v City of New York, 29 NY3d 425, 434 [2017], quoting Rocovich v Consolidated Edison Co., 78 NY2d 509, 515 [1991]; McCluskey v Cromwell, 11 NY 593, 601-02 [1854] ["Statutes and contracts should be read and understood according to the natural and most obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending their operation"]).

Because the Court finds that the statutory language is "free from ambiguity and doubt, and express plainly, clearly and distinctly, the sense of the framers of the instrument, there is no occasion to resort to other means of interpretation" (McCluskey, 11 NY at 601-603). Thus, defendants' suggestions that the OSC Letter, Handbook, and Website should be afforded weight to infer otherwise is unavailing.

Moreover, even if such outside evidence were to be examined in determining the duty arising from the statute, the OSC Letter and Handbook could be read as consistent with the interpretation advanced by relator and the OAG (see Valentin v Parisio, 119 AD3d 854, 855 [2d Dept 2014] [evidence should be viewed in favor of nonmovants, and all inferences drawn in their favor]; Melendez v Dorville, 93 AD3d 528 [1st Dept 2012]). The specific language on which the defendants focus ("can charge you late filing interest" and the "potential" for the "imposition of interest at the discretion of the Comptroller") arguably does nothing more than simply re-stating the statute; in sum — that interest applies unless the Comptroller decides otherwise, and, as a result, some reporters will not have to pay the interest. Such discretionary acts, when actually exercised or performed, may have some bearing on the ultimate collection of interest; but importantly does not take relator's claims outside the type of straight-forward statutory "obligation" that is actionable under the FCA (see Bahrani, 465 F3d at 1203-1204).[FN5]

Further, to the extent that the Court need to look elsewhere in interpreting the statute, the Court finds that the legislative history supports the fact that the obligation to pay arises as soon as the holder is late in payment or delivery of the property (see relator mem at 11). The Comptroller's May 25, 1971 report to the governor in the Bill Jacket of the legislation adding the subject interest provision stated that the bill was "designed to fill" a "vacuum" for late delivery, and that "[f]rom a fiscal standpoint the new provision relating to interest is certain to produce substantial financial receipts for the General Fund" (relator mem at 14, quoting Fox aff, ex 3). Further, with the legislative amendment (L 1971, ch 669) came the specific line for holders to report late filing interest on the Form AC 2709 — implying that the burden to determine the interest and pay it was upon the holders. In other words, there would be no need for a specific line, for the holder to fill out, if further action from the OSC was required before imposing interest.

Essentially, since the APL itself states that its sections are meant to be "liberally [*6]construed" (APL § 102), coupled with the idea that the FCA is meant to be given an expansive reading (see Bahrani, 465 F3d at 1194; Kane, 120 F Supp 3d at 379), this Court would be hard-pressed to find that there was no "obligation" here.

Accordingly, defendants are unable to meet their prima facie burden to establish that there was no obligation to pay late filing interest, or to accurately report information related to the same.


The NYFCA defines "material" as "having a natural tendency to influence, or be capable of influencing the payment or receipt of money or property" (Fin L § 188[5]).[FN6] The materiality element "inquiry 'focuses on the potential effect of the false statement when it is made, not [necessarily] on the actual effect of the false statement when it is discovered'" (Bahrani, 465 F3d at 1204, quoting United States ex rel. A+ Homecare, Inc. v Medshares Mgmt. Group, Inc., 400 F.3d 428, 445 [6th Cir 2005]). Thus, "[t]he fact that a government official may subsequently waive an established fee does not negate the 'potential effect' of a false record or statement" (Bahrani, 465 F3d at 1204). However, as the Supreme Court more recently held, "in assessing materiality, we 'look to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation'" (Grabcheski v Am. Intl. Group, Inc., 687 Fed Appx 84, 87 [2d Cir 2017], quoting Escobar, 136 S Ct at 2002). Thus, likely or actual effects on the government's behavior may be considered as evidence of materiality but is not necessarily dispositive one way or the other (see Escobar, 136 S Ct at 2002-2004). Further, materiality "cannot be found where noncompliance is minor or insubstantial" (id. at 2003).

Defendants rely on the OSC Letter to infer that, because an audit was conducted and the Office of Unclaimed Funds at the OSC determined, in that instance, "that the circumstances warranted the waiver of late filing interest," that this is "strong evidence" that the violation of the statute is not material. Defendants further note that, even though the OSC can see that property was escheated late, the OSC still decided not to impose interest and therefore demonstrates a lack of materiality.

Initially, the Court notes that defendants' arguments are premised upon the inaccurate presumption that a decision to impose interest needed to have been made by the OSC in the first place (i.e., their argument above on the contingent obligation) — this was rejected as set forth above.

Even if the Court were to accept the premise, the argument appears to be applicable only to the allegations regarding the failure to pay the interest and does not seem to apply to the allegations regarding falsification of the property information on the reports. For example, it might be one thing for the OSC to clearly see that property was escheated late according to the information given, take note that no interest was paid, and waive it. It is quite another thing if the information was falsified such that the OSC did not even know the true length of time the property had been dormant — in which case, defendants provide no explanation or evidence on the OSC's "likely or actual behavior" to render such action immaterial to the OSC's receipt of money.

Defendants rely heavily on a few words of Escobar. However, the Supreme Court's [*7]overall guidance (see Escobar, 136 S Ct at 2003-2004) does not translate with such equal force in this instance where the issue is the government's passive receipt of money — which involves no decision-making step to pay money (see id. at 2004 [discussing whether a certification regarding a statutory violation is material if the defendant knows it would "entitle [the government] to refuse payment were it aware of the violation," and holding that that is not the sole standard to affirmatively find "materiality"]). The Court finds that the OSC Letter (and the weight and meaning that defendants afford it) would not be dispositive even under Escobar's standards. In other words, the OSC Letter is insufficient evidence to support the contention that the one-time waiver itself demonstrates, prima facie, that the defendants' statutory violations were not material to the government's receipt of money. As relator noted, there may have been many other factors guiding the OSC's decision to waive interest in that instance. Accordingly, while the OSC Letter might be relevant evidence,[FN7] it cannot be said, as a matter of law, that the inferred fact of waiver dispositively negates the materiality element as it applies to all allegations in this action. A resolution of the materiality issue must therefore await further factual development.

Based upon the foregoing, it is ordered that defendants' motion (motion sequence 002) is denied.

This constitutes the decision and order of this Court.

Dated: August 30, 2019




(Index No. 100271/2015) Footnotes

Footnote 1: Under the New York False Claims Act § 190 (2) (a) any person may bring a qui tam civil action for a violation of section one hundred eighty-nine of this article on behalf of the person and the People of the State of New York or a local government.

Footnote 2:In a notice dated March 4, 2016, the Office of the New York State Attorney General (OAG) declined to intervene.

Footnote 3:"The NYFCA follows the federal False Claims Act (31 USC § 3729 et seq.) and therefore it is appropriate to look toward federal law when interpreting the New York act" (Seiden, 96 AD3d at 71).

Footnote 4:As defendants' papers do not address the claim for liability under Finance Law § 189 (1)(d), the Court only addresses the "obligation" element applicable to both § 189 (1)(g) and (h) and "materiality" applicable only to § 189 (1)(g).

Footnote 5: Although defendants infer that Bahrani should not be followed since the federal FCA was amended since the case was decided (defendants reply mem at 11), the Senate Judiciary Committee report on the bill to amend the federal FCA specifically "endorsed [Bahrani] for its interpretation of an FCA 'obligation'" (Kane, 120 F Supp 3d at 388).

Footnote 6:This is the same definition of materiality as set forth in the federal False Claims Act (31 USC § 3729 [b] [4]).

Footnote 7:At this juncture, the entire time period of 2008 through 2012 is still actionable against the defendant covered by the OSC letter given that there is no evidence barring such action under the statute (see Fin L § 190 [prohibiting certain claims where the NYFCA violator reached a settlement agreement with the government, "and such agreement has been approved in writing by the attorney general, or by the applicable local government attorney"]). Additionally, neither party raised the possibility of granting partial summary judgment on this basis.

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