United States v. Luce, 11 C 05158

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
PartiesUNITED STATES OF AMERICA, Plaintiff, v. ROBERT S. LUCE Defendant.
Docket NumberNo. 11 C 05158,11 C 05158
Decision Date30 September 2015

ROBERT S. LUCE Defendant.

No. 11 C 05158


September 30, 2015

Judge John J. Tharp, Jr.


The United States of America brought suit against Robert S. Luce, alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729, et seq. and the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"), 12 U.S.C. § 1833a, for statements made in relation to loan applications submitted to the U.S. Department of Housing and Urban Development ("HUD") and the Federal Housing Administration ("FHA"). The statements were made on 92900-A forms submitted by MDR Mortgage Corporation ("MDR") (the company Luce founded and presided over) and on MDR's annual verification forms, "V-forms." The government moves for partial summary judgment as to liability on all counts. See U.S. Mem. in Supp., Dkt. 86. Luce moves for partial summary judgment for the statements made on all of the 92900-A forms and for the statements made on the V-forms prior to January 30, 2007 and after February 25, 2008. See Luce Mem. in Supp. at 9, Dkt. 94. For the following reasons, both motions are granted in part and denied in part.

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Robert Luce is an attorney; he obtained a law degree from Loyola University in 1972. USSOF ¶ 1. Following law school, Luce first worked with the Securities and Exchange Commission as an attorney in the enforcement division. USSOF ¶ 1. After working with the SEC for four years, Luce held an in-house counsel job with a pharmaceutical company and then went into private practice with various Chicago law firms for approximately 14 years before he started his own firm in 1990, where he continues to practice.2 USSOF ¶ 2. Luce was also an investor with a number of companies in the mortgage industry and eventually started his own mortgage company, MDR, of which he served as president from its founding in 1993 through its closure in 2008. USSOF ¶ 3.

Between 1993 and 2008, MDR was a mortgage broker and a loan correspondent for HUD/FHA. USSOF ¶ 4. As a loan correspondent, MDR could originate loans by sending loan applications to a HUD-approved direct endorsement sponsor mortgagee for underwriting approval prior to loan closing. USSOF ¶ 4. Depending on the type of loan, a loan correspondent mortgagee, such as MDR, took such actions as verifying the borrower-applicant's employment information, earnings, and assets. USSOF ¶ 4. More than 90% of the loans MDR processed were loans insured by the FHA, and about 95% of the FHA loans MDR processed were "stream line"

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loans, which means the borrowers were refinancing existing FHA loans into lower rate FHA loans. USSOF ¶ 4.

The procedure for processing a loan at MDR was as follows: loan officers would first talk to potential borrowers to find out what kind of rate they wanted and to learn about the property they wanted to finance. USSOF ¶ 18. The loan officer would let the potential borrower know the rate that MDR received daily from lenders and set up an appointment with the borrower to get their W2s, pay stubs, home insurance, lender statement, and other necessary documents to process the loan application. USSOF ¶ 18. The loan officer would then complete a loan application, which included a 92900-A form, and when the packet was complete, the loan officer would give it to the loan processing department at MDR. USSOF ¶ 18. The processing department would review the package to make sure all of the correct documents were included, and if something was missing, like a signature, the processer would notify the loan officer to complete the paperwork before sending the loan application to a lender for underwriting. USSOF ¶ 19.

The HUD handbook instructs that loan correspondents, like MDR, "must complete the Mortgagee Certification part of Form [92900-A]."3 Form 92900-A contains the following certification:

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[T]he undersigned lender makes the following Certifications to induce . . . the Department of Housing and Urban Development-Federal Housing Commissioner to issue a firm commitment for mortgage insurance or a Mortgage Insurance Certificate under the National Housing Act . . . .
To the best of my knowledge and belief, I and my firm and its principals: . . . are not presently indicted or otherwise criminally or civilly charged by a governmental entity (Federal, State or local) with commission of any of the offenses enumerated in paragraph G(2) of this certification [the offenses enumerated in paragraph G(2) include the offense of making false statements] . . .

USSOF ¶ 26. MDR loan officers understood that if they did not sign the 92900-A form, the loan would not get processed. USSOF ¶ 25.

Luce employed James Passi, his son-in-law, as the office manager and Vice President of Operations of MDR until December 2006. USSOF ¶ 12; LSOF ¶ 16. Luce's law practice was located in the same building as MDR, and he often stopped by the MDR office to talk with the employees about the business and other general matters. L Resp. ¶¶ 7, 9-10. Luce was also involved in annual training and continuing education classes at MDR and "handle[d] administrative matters such as loan officer compliance and compliance with state and federal regulations." L Resp. ¶ 11; U.S. Ex. 2 at 1. Luce states that he was not involved in any training regarding form 92900-A, and none of the loan officers recalled Luce ever instructing them on 92900-A form.4 L Resp. ¶¶ 13-14. Neither Julia Shaffer, former director of HUD's Quality

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Assurance Division, nor Brad Geary, HUD assistant special agent, ever saw a 92900-A form that Luce had signed. LSOF ¶ 48.

Pursuant to HUD regulations, mortgagees are ineligible to participate in the HUD/FHA mortgage insurance program if any of their officers, partners, directors, principals, managers, or supervisors are "indicted for, or convicted of, an offense that reflects adversely upon the integrity, competency, or fitness to meet the responsibilities of the lender or mortgagee to participate in the Title I or Title II programs." USSOF ¶ 34. To comply with 24 C.F.R. §§ 202.3(b) and 202.5(m), HUD requires mortgagees to provide a Yearly Verification Report, the V-form, as part of the lender's annual recertification, which states:

I certify that none of the principals, owners, officers, directors and/or employees of the [loan correspondent] are currently involved in a proceeding and/or investigation that could result, or has resulted in a criminal conviction, debarment, limited denial of participation, suspension, or civil monetary penalty by a federal state or local government.5

USSOF ¶ 35; 24 C.F.R. § 202.8(a)(2).

Luce personally signed V-forms that were submitted on January 29, 2007 and February 4, 2008. These forms included a designation near the top for "FISCAL YEAR END:"; the form submitted in January 2007 stated "FISCAL YEAR END: December, 2006" and the form submitted in February 2008 stated "FISCAL YEAR END: December, 2007." L Resp. ¶ 35; Luce Ex. X. Luce argues that the V-forms apply to the year in which they were submitted—i.e. to 2007 and 2008, respectively. L Resp. ¶ 35. The United States contends that the V-forms apply to

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the prior fiscal year—i.e. to 2006 and 2007, respectively. USSOF ¶ 35. HUD has not produced a paper copy of a V-form submitted in 2006 (for "fiscal year end" 2005) but has a record of the corresponding certification payment that MDR made that year, which would have accompanied the V-form. U.S. Resp. ¶ 69.

On April 7, 2005, Luce was indicted for wire fraud, mail fraud, making false statements, and obstruction of justice in connection with SEC violations that were unrelated to the operation of MDR. USSOF ¶ 15. Although Luce informed Passi of the indictment in 2005, Luce did not instruct Passi to tell the MDR loan officers not to sign the 92900-A certifications. USSOF ¶¶ 16, 29; U.S. Resp. ¶ 18. Luce states that he never told anyone to not sign the 92900-A forms because he was not aware of the 92900-A forms (and the certification on those forms) until this lawsuit was filed.6 USSOF ¶ 30.

Luce and former Vice President and son-in-law Passi apparently had a falling out because, over a year after Passi left MDR, in early 2008, Passi contacted HUD to inform the agency of the pending charges against Luce. LSOF ¶ 27. In response to Passi's information, Brad Geary, assistant special agent in HUD's Office of Inspector General ("OIG"), spent approximately one week investigating Luce in February 2008 and then referred the matter to the HUD Departmental Enforcement Center for possible suspension and/or debarment. U.S. Resp. ¶¶ 27-29. HUD issued a notice of proposed debarment of Luce on May 20, 2008. U.S. Resp. ¶ 35. In a June 26, 2008 letter requesting reconsideration or withdrawal of the proposed debarment, Luce explained that his "interpretation of those questions [on the certification form

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was] that they were directed at possible charges relating to the mortgage industry." U.S. Ex. 2 at 8. Luce pled guilty to obstruction of justice in July 2008, after which he held a meeting at MDR to explain that he had criminal troubles and that MDR had lost its mortgage license and would cease doing...

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