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United States v. Americus Mortgage Corp.

United States District Court, S.D. Texas, Houston Division

September 14, 2017




         This case arises from the operation of mortgage lending businesses by Allied.[1] At the conclusion of a five-week trial, the jury found Allied liable for multiple violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1833a. See Dkt. 435. The Court subsequently denied Allied's renewed motion for judgment as a matter of law (Dkt. 539) and motion for new trial (Dkt. 540).

         Now pending before the Court is The United States of America's Post-Trial Motion for Treble Damages and Entry of the Judgment (Dkt. 479); and associated responsive pleadings.[2] Based on the motion, responses, replies, and various supplemental briefings; the applicable law; and the arguments of counsel, the Court finds Allied liable for treble damages and civil penalties under the FCA, as well as for civil penalties under FIRREA. For the reasons set forth in detail below, the Court enters judgment in favor of the United States of America ("United States").


         I. Treble Damages and Civil Penalties for FCA Violations

         A defendant who violates the FCA is liable to the United States for civil penalties of "not less than $5, 000 and not more than $10, 000, plus 3 times the amount of damages which the Government sustains because of the act of that person." 31 U.S.C. § 3729(a)(1). The jury found that Allied Capital and Jim Hodge submitted or caused to be submitted 103 insurance claims, in violation of 31 U.S.C. § 3729(a)(1)(B), and that the Federal Housing Administration (FHA) thereby sustained damages of $7, 370, 132 because Allied Capital and Jim Hodge falsely represented that their branches were registered by HUD. The jury further found that Allied Corporation submitted or caused to be submitted 1, 192 insurance claims in violation of 31 U.S.C. § 3729(a)(1)(A) and (B), and that the FHA thereby sustained damages of $256, 837, 929 because Allied Corporation recklessly underwrote loan applications. Pursuant to the FCA, the United States now asks the Court to award treble damages as well as civil penalties against Allied.

         A. FCA Treble Damages

         Treble damages are mandatory under the FCA. See 31 U.S.C. § 3729(a)(1)(G). However, Allied argues that there are no damages to treble because the United States failed to prove that the FCA violations were the proximate cause of the losses that it suffered. Allied also argues that the United States improperly seeks to treble "gross"- rather than "net"-damages. Dkt. 492, p. 1.

         i. Causation

         First, Allied argues that the United States cannot recover treble damages because it failed to prove that Allied's FCA violations proximately caused the damages it suffered. According to Allied, the United States relied solely upon a "but for" theory of actual causation throughout the case, and "made no attempt to prove that any loan loss was proximately caused by either 'reckless underwriting' or because a loan was 'originated' from a branch office not registered with HUD." Dkt. 492, p. 5 (emphasis added). In support of the argument, Allied asserts that the United States' experts' conceded that "they were not instructed to analyze or otherwise determine or opine upon causation." The Court finds that this argument is without merit.

         Allied's arguments ignore both the definition of proximate cause that was submitted to the jury and the evidence that was presented at trial. To recover damages, the United States must show that a defendant's false statement or fraudulent course of conduct "caused the government to pay out money or to forfeit money due (i.e., that involved a claim)." United States ex rel. Longhi v. United States, 575 F.3d 458, 467 (5th Cir. 2009) (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir. 2008)); see also United States v. Miller, 645 F.2d 473, 476 (5th Cir. 1981). While the Fifth Circuit has not articulated a specific causation standard applicable to FCA claims, the parties agree that the proximate cause standard applies to the claims asserted by the United States in this case. Dkt. 492, p. 5; Dkt. 537. See e.g., United States v. Abbott Labs, No. 3:06-CV-1769-M, 2016 WL 80000, at *6 (N.D. Tex. Jan. 7, 2016).

         Proximate causation carries a more stringent standard of proof than does actual (i.e., "but for") causation. However, it is not so stringent as to require elimination of all alternative possible causes. See United States v. Spicer, 57 F.3d 1152, 1159 (D.C. Cir. 1995) ("It is undoubtedly true that in each case other factors also 'caused' the buyer's default, but that is of no moment, for as long as Spicer's misrepresentations were a material and proximate cause, they need not have been the sole factor causing HUD's losses."). "Proximate cause is often explicated in terms of foreseeability." Paroline v. United States, ___U.S. ___, 134 S.Ct. 1710, 1719-20, 188 L.Ed.2d 714 (2014). Thus, as courts have held, "Defendants' conduct may be found to have caused [the FCA violation] if the conduct was (1) a substantial factor in inducing providers to submit claims ... and (2) if the submission of claims ... was reasonably foreseeable or anticipated as a natural consequence of Defendants' conduct." Abbott Labs, 2016 WL 80000 at *6.

         Here, the Court gave the following jury instructions requiring the United States to establish proximate causation to recover damages in this action:

In order for the United States to recover damages in a lawsuit under the False Claims Act, the allegedly false or fraudulent claim must have caused the United States to have suffered damages it otherwise would not have suffered. The United States has the burden to prove the damages it suffered. This means that the United States must show by a preponderance of the evidence that Allied's conduct was a substantial factor causing the United States to suffer damages, and that the amount of damages suffered by the United States was a foreseeable consequence of the allegedly false statements, false claims, or fraudulent course of conduct.

Dkt. 482, pp. 6-7, 18 (emphasis added).[3] Even a cursory review of the trial record reflects that the United States presented significant and credible evidence from multiple sources from which the jury could conclude that Allied's conduct of recklessly underwriting and originating loans from unregistered branch offices was a substantial factor in the submission of claims. See, e.g., Dkt. 401, pp. 21-23 (transcript, testimony of HUD representative Julie Shaffer). There was also significant and credible evidence presented through exhibits and both fact and expert witness testimony that the damages suffered by the United States were the foreseeable consequence of Allied's misconduct. Accordingly, the Court finds that the jury properly found damages upon which it can base an award of treble damages.

         ii. Gross v. Net Damages

         Next, Allied argues that the United States is seeking to improperly treble "gross"-rather than "net"-damages. Allied argues that only net damages-the difference between the amount the United States paid on the claims and any payment back to the United States as a result of those claims-should be trebled under the FCA. The Court disagrees. It is well established in this circuit that the damages awarded by the jury are to be tripled before any subtractions to the award are made for compensatory payments previously received by the Government from any source. See Longhi, 575 F.3d, at 473 (specifically rejecting the argument that, when calculating damages under the FCA, the trial court must first subtract value of benefit that defendants conferred on Government from amount Government paid to defendants and then treble this "actual-damages" figure).[4] Accordingly, the Court finds that the jury's FCA damages award must be trebled as follows:

Allied Capital and Jim Hodge violated 31 U.S.C. § 3729(a)(1)(B), causing the government to sustain damages in the amount of $7, 370, 132. Pursuant to 31 U.S.C. § 3729(a)(1)(G), Allied Capital and Hodge are therefore jointly and severally liable to the United States for $22, 110, 396.
Allied Corporation violated 31 U.S.C. § 3729(a)(1)(A) and (B), causing the government to sustain damages in the amount of $85, 612, 643. Pursuant to 31 U.S.C. § 3729(a)(1)(G), Allied Corporation is therefore liable to the United States for $256, 837, 929.

         B. FCA Civil Penalty

         In addition to the mandatory trebling of damages, the Court may at its discretion assess civil penalties of between $5, 000 and $11, 000 per FCA violation. 31 U.S.C. § 3729(a)(1)(G). In enacting the FCA, Congress "afforded the federal trial courts considerable discretion in calculating damages and ascertaining the amount of the civil penalty component, within the statutory range." U.S. ex rel. Rigsby v. State Farm Fire & Cas. Co., No. 1:06CV433-HSO-RHW, 2014 WL 691500, at *6 (S.D.Miss. Feb. 21, 2014). Under the FCA, "[e]ach individual false claim or statement triggers the statute's civil penalty." United States ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995). FCA civil penalties exist-at least partly-to combat and deter fraud. Hudson v. United States, 522 U.S. 93, 102 (1997).

         The FCA provides no specific formula or list of factors to consider when determining a civil penalty. Accordingly, in determining an appropriate civil penalty, courts consider the "totality of the circumstances" which necessarily encompasses the various considerations employed by other courts and recommended by the parties. See, e.g., United States v. Saavedra, 661 F.App'x 37, 46 (2d Cir. 2016) (unpublished) (considering defendant's willingness to accept responsibility); United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 389 (4th Cir. 2015) (considering whether violations were isolated or recurrent); U.S. ex rel. Miller v. Bill Herbert Intern. Const., Inc., 501 F.Supp.2d 51, 56 (D.D.C. 2007) (including seriousness of misconduct, scienter, amount of damages suffered in totality of circumstances approach).

         After carefully considering the trial record, the Court finds that penalties toward the high end of the spectrum are warranted in this case. The evidence presented at trial showed that this conduct resulted in a large number of claims submitted and considerable resulting damage to the United States. See Drakeford, 792 F.3d, at 389 ("[W]hile the penalty is certainly severe, it is meant to reflect the sheer breadth of the fraud ... perpetrated upon the federal government."). Rather than making an isolated or occasional mistake, Allied engaged in a prolonged, consistent enterprise of defrauding the United States.

         i. 103 'Unregistered Branches' Violations

         The jury found that Allied Capital and Jim Hodge violated the False Claims Act by knowingly representing to HUD that certain FHA-insured loans were originated from HUD-approved Allied Capital branches, and were therefore eligible for FHA insurance, when in fact they were not. Dkt. 435, p. 2. These ...

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