Wells Fargo.
Wells Fargo. (Photo: RiverNorthPhotography/iStockphoto.com)

Wells Fargo Bank struck out in an attempt to avoid liability in a pending federal mortgage fraud suit, failing to convince an appeals court that a prior settlement with the feds got the bank off the hook.

The U.S. Court of Appeals for the D.C. Circuit on Tuesday rebuffed the bank’s request to bar all claims against it in a suit brought by the U.S. Attorney’s Office for the Southern District of New York in October 2012. The complaint is based on the bank’s origination and underwriting of thousands of federally insured mortgages.

That suit came just six months after Wells Fargo shelled out $5 billion to settle similar claims in a suit brought by the United States, 49 states and the District of Columbia for alleged misconduct in issuing home mortgages insured by the feds.

“The United States broke its promise to Wells Fargo when it filed its new lawsuit,” Douglas Baruch, a partner at Fried, Frank, Harris, Shriver & Jacobson, wrote in a D.C. Circuit brief in September. He called the government’s action a “brazen attempt to impose massive fraud liability on Wells Fargo only six months after expressly promising that it would not do so.”

The bank asked the court to bar all of the United States’ claims in the New York litigation.

The D.C. Circuit in an unsigned order declined to do so, upholding a February 2013 decision by U.S. District Judge Rosemary Collyer of the District of Columbia.

The appellate panel—judges Janice Rogers Brown, Thomas Griffith and Patricia Millett—focused on a paragraph in the settlement that stated Wells Fargo was only released from claims where the “sole basis” was the bank’s submission of a false or fraudulent annual certification.

“The ‘sole basis’ sentence expressly confines the release of claims to those for which liability is predicated on the specific conduct of filing false annual certification,” the court wrote.

Also, a follow-up paragraph “eliminates any further doubt,” by reiterating that the release only applies to claims based on false certification where the individual loan did not also violate other requirements. Further, the release “expressly preserved” the right of the government to go after Wells Fargo for other mortgage violations.

“Wells Fargo’s efforts to escape those contractual limitations fail,” the appeals court wrote. However, the court did acknowledge that “some portions of the New York complaint tread on the verge of the released claims.”

If the government oversteps going forward, the court said, “Wells Fargo may seek appropriate relief.”

Contact Jenna Greene at jgreene@alm.com or on Twitter @JGreenJenna.