Lawyers for Wells Fargo Bank claimed on November 1 that the U.S. Justice Department violated the terms of a mortgage fraud settlement, reached earlier this year, when the government filed a new lawsuit in October in New York federal district court.

Lawyers for Wells Fargo said in a court filing in Washington that the bank’s earlier $5 billion settlement over alleged discriminatory practices in the mortgage loan market “wiped the slate clean” on any further liability except for in “carefully crafted, narrow circumstances.” The bank’s attorneys asked a trial judge to declare that the government breached the settlement terms.

Prosecutors in New York filed a new mortgage-based civil case against Wells Fargo on October 9 that seeks “hundreds of millions of dollars” in damages for alleged mortgage fraud violations under the False Claims Act. Lawyers for Wells Fargo argue in the new court papers that the latest suit is based substantially on the same allegations in the first case.

The bank’s attorneys, including Douglas Baruch, contend, “without any doubt that the United States is attempting to impose additional liability for the same conduct for which Wells Fargo obtained permanent peace through the very large settlement.”

Baruch of the Washington office of Fried, Frank, Harris, Shriver & Jacobson, which represents Wells Fargo along with K&L Gates, said the government’s action in New York is barred under the terms of the settlement reached earlier this year. U.S. District Judge Rosemary Collyer of Washington federal district court signed the consent judgment in April.

‘TRIFECTA’ OF ALLEGED PRACTICES

In the New York case, U.S. Attorney Preet Bharara said in a prepared statement that Wells Fargo, the largest originator of home mortgages in the country, “engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance.”

The civil suit alleges more than a decade of misconduct in connection with the bank’s participation in the Federal Housing Administration direct loan program. The housing agency, according to prosecutors, paid “hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.”

Wells Fargo’s attorneys said in the November 1 court filing that prosecutors used “strained wording and theories” in the New York suit to circumvent the constraints imposed by the settlement in the Washington suit.

The bank did not admit liability in the Washington case because it said it wanted to avoid a protracted, contested litigation with the government. Wells Fargo disputes the merits of the latest case, filed in U.S. District Court for the Southern District of New York.

“Wells Fargo rejects the allegations in the N.Y. Complaint and can demonstrate the fallacy of the United States’ accusations and theories,” Baruch said in court papers. “But Wells Fargo should not be required to do so because it has already resolved all such potential liability.”

Baruch also said, “the burden and expense of forcing Wells Fargo to litigate a case alleging hundreds of millions of dollars in damages based on conduct spanning a decade or more is extreme and unwarranted.”

Ellen Davis, a spokeswoman for Bharara’s office, declined to comment on the evening the suit was filed.

Mike Scarcella can be contacted at mscarcella@alm.com.