United States District Court, S.D. Texas, Houston Division
MEMORANDUM OPINION AND ORDER
C. HANKS, JR. UNITED STATES DISTRICT JUDGE
case arises from the operation of mortgage lending businesses
by Allied. 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).
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
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").
Treble Damages and Civil Penalties for FCA
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.
FCA Treble Damages
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.
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.
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,
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.
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). 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.
Gross v. Net Damages
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). 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,
FCA Civil Penalty
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).
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).
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.
103 'Unregistered Branches' Violations
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