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United States v. Americus Mortgage Corp.

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

September 14, 2017




         Before the Court are the Allied Defendants'[1] Motion for Judgment as a Matter of Law (Dkt. 390); and [Renewed] Motion for Judgment as a Matter of Law (Dkt. 508); as well as associated memoranda, appendices, and responsive pleadings.

         Allied's original motion for judgment as a matter of law has been superseded by its post-trial renewed motion. Allied's original motion (Dkt. 350) is therefore DENIED as moot. Based on the motions, response, reply, and various supplemental briefings; the applicable law; and the arguments of counsel, the Allied Defendant's renewed motion for judgment as a matter of law (Dkt. 508) is DENIED. The reasons for the ruling are explained below.


         A motion for judgment as a matter of law challenges "the legal sufficiency of the evidence supporting a jury's verdict." Ford v. Cimarron Ins. Co., 230 F.3d 828, 830 (5th Cir. 2000) (quoting Jones v. Kerrville State Hosp., 142 F.3d 263, 265 (5th Cir. 1998)). A movant may file a renewed motion for judgment ("RJMOL") as a matter of law if its original motion was not ruled upon during a jury trial. Fed.R.Civ.P. § 50(b). "The motion must specify the judgment sought and the law and facts that entitle the movant to the judgment." Fed.R.Civ.P. § 50(a)(2).

         A court should only grant a JMOL if "a reasonable jury would not have a legally sufficient evidentiary basis to find for the party" on the raised issue. Fed.R.Civ.P. § 50(a)(1). "It goes without saying that the evidence must be viewed in the light most favorable to the nonmovant." Montano v. Orange County, Texas, 842 F.3d 865, 873-74 (5th Cir. 2016). It is not within the province of the trial court to weigh the evidence or the credibility of the witnesses. Id. at 874. These matters are reserved solely for the jury. Id. On the other hand, a jury's factual findings must be supported by "substantial evidence." American Home Assurance Co. v. United Space All, LLC, 378 F.3d 482, 487 (5th Cir. 2004). A trial court should grant judgment "only if the evidence points so strongly and so overwhelmingly in favor of the []moving party that no reasonable juror could return a contrary verdict." Porter v. Epps, 659 F.3d 440, 445 (5th Cir. 2011) (internal quotation marks and citation omitted).

         Allied argues that the United States failed to: 1) establish the required elements of an FCA claim; 2) prove that Allied proximately caused the defaults; and 3) failed to prove its FIRREA claims. As the moving party, Allied faces a rigorous task in establishing that the jury's verdict should be overturned.

         I. Whether the United States Established Essential Elements of an FCA Claim

         Under the FCA,

[A]ny person who (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; [or] (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim . . . (G) is liable to the United States Government for a civil penalty of not less than [$5, 500] and not more than [$11, 000][2], plus 3 times the amount of damages which the Government sustains because of the act of that person.

31 U.S.C. § 3729(a). Under Fifth Circuit precedent, the United States was thus required to prove the following elements: 1) a false statement or false conduct; 2) made with the requisite scienter; 3) that was material; and 4) that caused the loss to the government. 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)). Allied does not dispute that false statements were made. Rather, it argues that the United States failed to introduce evidence of scienter (here, "recklessness") or materiality.

         A. Recklessness

         The United States introduced evidence that Allied was aware of HUD regulations prohibiting unregistered branches from originating loans, Dkt. 457, p. 112; that Allied continued originating loans from unregistered branches after learning of the HUD rule, id. at 113-14; that Allied nevertheless certified on each loan that it complied with all HUD requirements, Dkt. 516, p. 358; that some unregistered branches provided the FHA identification numbers of its registered branches to skirt the HUD prohibition, Dkt. 458, pp. 109-111; and that Allied forged its branch managers' signatures, Dkt. 472, pp. 25, 65. Here, the jury received substantial evidence that warranted its finding that Allied's false statements were the result of its reckless disregard for the truth. Based on this same evidence, Allied's related argument that the United States failed to connect the false statements with the required scienter is also without merit.

         B. Materiality

         A recent decision by the Supreme Court of the United States clarified the FCA's materiality requirement. The FCA provides the following definition of materiality: "[T]he term 'material' means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). Justice Thomas's unanimous opinion in Escobar recently clarified "how the [FCA's] rigorous materiality requirement should be enforced." Universal Health Servs., Inc. v. United States ex rel. Escobar, ___U.S. ___, 136 S.Ct. 1989, 1996, 195 L.Ed.2d 348 (2016).

         Under Escobar, "evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement" constitutes proof of materiality. Id. at 2003. Conversely, Escobar notes two situations creating "very strong evidence that those requirements are not material": (1) "if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated"; and (2) "if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position ...." Id. at 2003-04.

         The United States produced evidence showing the importance that HUD officials placed upon Allied's false certifications in deciding whether to pay. Dkts 401, 458, 469. For example, the government introduced a HUD addendum to the Uniform Residential Loan Application ("92900-A"). Plaintiffs Ex. 196. Through the testimony of fourteen-year HUD employee Scott Bice, the Government examined the 92900-A, discussing the importance of the various required entries. Dkt. 469. Under Blocks 13 and 15, the originating branch was required to enter its HUD-approved lender ID and address. Id. According to Bice, this information is necessary for HUD to track, inter alia, the branch office's claim-to-default ratio. Id. HUD does not allow non-registered branches to originate loans for insurance. Id. HUD will not approve an application without this information. Id. Under Lender Certification, Part B, the lender was required to certify that "[t]he information contained in [this Application] was obtained directly from the borrower by an employee of the undersigned lender or its duly authorized agent and is true to the best of the lender's knowledge and belief." Id.

         The trial transcripts are replete with detailed analyses of various HUD-requirements, the importance of those requirements, and why these requirements were necessary for HUD to make an informed decision. See, e.g., Dkt. 469, pp. 115-16, 122- 23, 131-35, 181. The Court finds that the United States presented sufficient evidence of materiality.

         II. Whether the United States Proved Proximate Causation

         Allied argues that the United States failed to prove that Allied's malfeasance proximately caused any loss. According to Allied: 1) there was no evidence showing that the defaults occurred because of the FCA violations; 2) there was no basis for the United States' determination of damages through extrapolation; 3) the margin of error for the Allied eligibility rates for its claim and non-claim loans ...

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