United States ex rel. Maldonado v. Ball Homes, LLC, Civil Action No. 5: 17-379-DCR

• Court: United States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky
• Writing for the Court: Danny C. Reeves United States District Judge
• Parties: UNITED STATES OF AMERICA, ex rel. Ramon Maldonado, Plaintiffs, v. BALL HOMES, LLC, et al., Defendants.
• Docket Number: Civil Action No. 5: 17-379-DCR
• Decision Date: 29 June 2018

UNITED STATES OF AMERICA, ex rel. Ramon Maldonado, Plaintiffs,
v.
BALL HOMES, LLC, et al., Defendants.

Civil Action No. 5: 17-379-DCR

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION (at Lexington)

June 29, 2018

MEMORANDUM OPINION AND ORDER

*** *** *** ***

Relator Ramon Maldonado filed a qui tam action under the False Claims Act against Defendants Ball Homes, LLC, ("Ball Homes"), Walden Mortgage Group, LLC, ("Walden"), American Mortgage Service Company, ("American Mortgage") and John Does 1-10, on September 19, 2017. [Record No. 1] Maldonado alleges that the defendants took part in a fraudulent scheme which involved submitting falsified documents to obtain loans insured by the Federal Housing Administration ("FHA").

The United States filed a notice of its election to decline intervention on February 15, 2018. [Record No. 8] The Complaint was unsealed and the Relator was permitted to serve the Complaint upon the defendants. After Maldonado served the defendants, the United States and the defendants filed separate motions to dismiss. [Record Nos. 23, 20, 26]. The Court scheduled the matter for oral argument and Maldonado subsequently moved for an evidentiary hearing. [Record No. 38] The Court heard the parties' arguments on June 29, 2018.

Page 2

For the reasons that follow, Maldonado's motion for an evidentiary hearing will be denied, the United States' motion to dismiss will be granted, and the defendants' motions to dismiss will be denied, as moot.

I.

The United States Department of Housing and Urban Development ("HUD") administers a home-loan program through the FHA. Under this program, the FHA insures mortgage loans made by private lenders that have been approved by the FHA.¹ [Record No. 1, ¶ 10] If a homeowner defaults on his FHA-insured loan and the lender forecloses, HUD pays the lender the balance of the loan and assumes ownership and possession of the property. Id. at ¶ 11. The program requires the lender to make a determination that the property and borrower are eligible for mortgage insurance according to HUD's requirements. Id. ¶ 18.

HUD Form 92541, "Builder's Certification of Plans, Specifications, & Site" is at issue in this case. It includes various questions pertaining to whether the property in question meets minimum standards required for FHA insurability. See 24 C.F.R. § 200.926. This form is submitted to the lender, as well as an appraiser, and must be completed before a borrower may be approved for an FHA loan. [Record No. 1, ¶ 22]

Maldonado alleges that he purchased a new-construction home from Defendant Ball Homes in March 2013. The home is located at 4736 Foxglove Point in Lexington, Kentucky, and is part of the "Chilesburg development." [Record No. 1, ¶ 44] The contract between

Page 3

Maldonado and Ball Homes made the purchase contingent upon Maldonado obtaining an FHA-insured loan. Id. at ¶ 47. Maldonado alleges that Ball Homes' closing agent, Kay Conley, completed HUD Form 92541 (the "Form"), and certified that that the home met the requirements of "24 C.F.R. 200.936(d)." Id. at ¶ 51.

Maldonado contends that portions of the certification were false, including part 1(f), which certified that the home site "did not have any earth fill." Id. at ¶ 52. Maldonado also claims that Conley falsely certified that she had personally reviewed the "plans, specifications, and site information," when, in fact, she lacked the personal information necessary to complete the Form. Id. at ¶ 54.

Maldonado alleges that Ball Homes submitted the falsified Form to Walden, a third-party originator for FHA loans, knowing that Walden would submit the Form to a loan underwriter to secure an FHA loan. Id. at ¶ 57-58. Indeed, American Mortgage underwrote the loan and, according to Maldonado, collected underwriting fees, as well as principal and interest payments.² Id. at ¶ 60. He further contends that Walden collected a closing fee in excess of $4,000.00, with knowledge of the falsified Form. Maldonado claims that, "on information and belief," Walden had knowledge of falsified HUD 92541 forms for other homes in the Chilesburg development. Id. at ¶ 63.

Maldonado contends that numerous people acted in reliance on the allegedly falsified Form. First, he claims that he was forced to rely on the false builder's certification to be able purchase the home. Id. at ¶ 63. He further contends that the FHA appraiser relied on the Form

Page 4

to complete the required appraisal of the home. Id. at ¶ 65. Finally, he alleges that the FHA relied on the falsified Form, submitted by Walden, on behalf of American Mortgage, when it approved the home for FHA mortgage insurance. Id. at ¶ 66.

Maldonado claims that his home is defective for a variety of reasons, including "settling soils, water problems, and other construction related issues." Id. at ¶ 67. He alleges that, "based on information and belief," Ball Homes and Walden have utilized "this same scheme" to obtain FHA-insured loans throughout Lexington, Kentucky, and perhaps in other states. Id. at ¶ 68. He contends that the FHA has paid approximately $11,715,000.00 based on 132 home foreclosures for new construction homes built by Ball Homes and believed to be financed through Walden Mortgage. Id. at ¶ 69.

Maldonado alleges that Ball Homes and Walden violated the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., by knowingly submitting falsified 92541 forms for FHA insurance.³ He further claims that American Mortgage and John Does 1 through 10 violated the FCA by failing to properly monitor Walden, "as required by the HUD Single Family Handbook." Id. at ¶¶ 107, 109. Maldonado voluntarily dismisses Count 5 ("Violation 18 U.S.C. §§ 1001, 1010, 1012; 31 U.S.C. §§ 3729, 3802 as provided on HUD Form 92541") and Count 6 ("Violation of Executive Order 11988 and HUD Environmental Regulations (24 C.F.R. Part 51)") of the Complaint.

Page 5

II.

The False Claims Act forbids presenting false or fraudulent claims, or using false statements that are material to false or fraudulent claims, that are submitted to the federal government for payment. 31 U.S.C. § 3729(a)(1)(A), (B). The FCA permits a person to bring a civil action for a violation of § 3729(a)(1) for the person and for the United States government. 31 U.S.C. § 3730(b)(1). If the government declines to intervene in the action (as it did in this case), the person bringing the action has the right to conduct it. Id. § 3730(b)(4). However, the government still has the authority to make certain decisions, which include dismissing the case over the relator's objection. Id. § 3730(c)(2)(A).

The courts have developed two differing standards for evaluating government requests to dismiss qui tam actions. Compare United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (holding that the government must identify a valid government purpose that is rationally related to dismissal) with Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003) (holding that the government has an...