United States v. Mortg. Investors Corp., 19-12736
| Decision Date | 15 January 2021 |
| Docket Number | No. 19-12736,19-12736 |
| Citation | 985 F.3d 825 |
| Parties | UNITED STATES of America ex rel., Plaintiff, Victor E. Bibby, Brian J. Donnelly, Plaintiffs-Appellants Cross-Appellees, v. MORTGAGE INVESTORS CORPORATION, William L. Edwards, "Bill", Defendants-Appellees Cross-Appellants, William L. Edwards, as Trustee of William L. Edwards Revocable Trust, Defendant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
James Edward Butler, Jr., Joseph Colwell, Brandon Lee Peak, Ramsey B. Prather, Joel Orba Wooten, Jr., Butler Wooten & Peak, LLP, COLUMBUS, GA, Robert Henry Snyder, Jr., Butler Wooten & Peak, LLP, ATLANTA, GA, for Plaintiffs-Appellants Cross-Appellees.
Lesli Christine Esposito, Brian J. Boyle, Ben Fabens-Lassen, DLA Piper LLP (US), PHILADELPHIA, PA, Raanon Gal, Matthew Robert Rosenkoff, Taylor English Duma, LLP, ATLANTA, GA, John D. Huh, DLA Piper LLP (US), PHILADELPHIA, PA, John Kenneth Lisman, Hoegen & Associates, PC, WILKES-BARRE, PA, for Defendant-Appellee Cross-Appellant Mortgage Investors Corporation.
Michael James King, Jeffrey Michael Smith, Greenberg Traurig, LLP, ATLANTA, GA, for Defendant-Appellee Cross-Appellant William L. Edwards.
Matthew Robert Rosenkoff, Taylor English Duma, LLP, ATLANTA, GA, for Defendant - Appellee William L. Edwards, as Trustee of William L. Edwards Revocable Trust.
Charles W. Scarborough, Michael Raab, U.S. Attorney General's Office, WASHINGTON, DC, for Amicus Curiae.
Before WILSON, NEWSOM, and ED CARNES, Circuit Judges.
More than 14 years ago, Appellants Victor Bibby and Brian Donnelly (Relators) brought this qui tam action against Mortgage Investors Corporation (MIC) under the False Claims Act (FCA).
The FCA imposes liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval," or "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(A)–(B). As an enforcement mechanism, the FCA includes a qui tam provision under which private individuals, known as relators, can sue "in the name of the [United States] Government" to recover money obtained in violation of § 3729. Id. § 3730(b)(1).1 If the relators prevail, they are entitled to retain a percentage of any proceeds as a reward for their efforts. Id. § 3730(d).
The Relators in this case are mortgage brokers. For years, they specialized in originating United States Department of Veterans Affairs (VA) mortgage loans, particularly Interest Rate Reduction Refinance Loans (IRRRL). Relators learned through their work with IRRRLs that lenders often charged veterans fees that were prohibited by VA regulations, while falsely certifying to the VA that they were charging only permissible fees. In doing so, these lenders allegedly induced the VA to insure the IRRRLs, thereby reducing the lenders’ risk of loss in the event a borrower defaults.
On March 3, 2006, Relators filed this qui tam action under the FCA against MIC to recover the money the VA had paid when borrowers defaulted on MIC-originated loans.2 Relators later amended their complaint to add a state law fraudulent transfer claim against MIC executive William L. Edwards. The district court granted Edwards's motion to dismiss the fraudulent transfer claim for lack of standing. And it granted MIC's motion for summary judgment on the FCA claim, holding that no reasonable jury could find MIC's alleged fraud was material. Relators now appeal. In a conditional cross appeal, MIC argues that if we reverse the district court's ruling on materiality, the FCA claim is nonetheless barred by previous public disclosure.
We conclude that summary judgment was improper on Relators’ FCA claim because genuine issues of material fact remain as to whether MIC's alleged false certifications were material. Further, we agree with the district court that Relators’ claim is not barred by previous public disclosure. Finally, we hold that Relators lack standing on the fraudulent transfer claim because their pre-judgment interest in preventing a fraudulent transfer is a mere byproduct of their FCA claim and cannot give rise to an Article III injury in fact.
An overview of the IRRRL program is necessary to understand Relators’ claims on appeal. The program seeks to help veterans stay in their homes by allowing them to refinance existing VA-backed mortgages at more favorable terms. In keeping with the program's goal of helping veterans, VA regulations restrict the fees and charges that participating lenders can collect from veterans. 38 C.F.R. § 36.4313(a). And to hold lenders accountable, the regulations require lenders to certify their compliance as a prerequisite to obtaining a VA loan guaranty. Id. Specifically, § 36.4313(a) permits lenders to collect only those fees and charges that are "expressly permitted under paragraph (d) or (e) of this section ...." Id. Relevant to this appeal, paragraph (d) allows veterans to pay "reasonable and customary" charges for "[t]itle examination and title insurance," as well as various other itemized fees. Id. § 36.4313(d)(1).3 Attorney fees are not among the permitted fees and charges. Id. § 36.4313(d).
The mechanics of the loan certification process work like this. Once a lender has approved an IRRRL, it "gives closing instructions to the attorney or title company handling the closing for the lender."4 The lender or its agent then prepares a statement, known as a HUD-1, listing all the closing costs and fees. The HUD-1 requires lenders to break out the costs they incurred and the amounts they are collecting for various charges and fees, such as title search and title examination. Before closing, the lender is to review the HUD-1 for accuracy. Then, after the lender's agent closes the loan, the lender sends the HUD-1 to the VA along with a certification that it has not imposed impermissible fees on the veteran borrower. Only upon this certification does the VA issue a guaranty to the lender.
Complicating matters, once lenders such as MIC obtain VA loan guaranties on IRRRLs, they sell those loans on the secondary market to holders in due course. This is an important wrinkle because when a holder in due course holds the IRRRLs, the VA is required by statute and regulation to honor the guaranties corresponding to those loans. See 38 U.S.C. § 3721 (the Incontestability Statute) ("Any evidence of guaranty or insurance issued by the Secretary shall be conclusive evidence of the eligibility of the loan for guaranty or insurance under the provisions of this chapter and of the amount of such guaranty or insurance."); 38 C.F.R. § 36.4328(a)(1) (). In other words, the guaranties are incontestable vis-à-vis holders in due course. The VA must turn to the originating lender to seek a remedy for that lender's fraud or material misrepresentation—it cannot simply refuse to honor the guaranties. See id.
Relators filed suit under the FCA's qui tam provision in 2006, alleging the following facts. MIC charged veterans impermissible closing fees and attempted to cover its tracks by "bundling" the unallowable charges with allowable charges, listing them together as one line-item on HUD-1 forms. For example, MIC would collect prohibited attorney fees from veterans and bundle those fees with allowable title examination and title insurance fees, so that the attorney fees were concealed. By doing so, and by falsely certifying its compliance with VA regulations, MIC induced the VA to guaranty IRRRLs and to ultimately honor those guaranties when borrowers defaulted. MIC countered, in relevant part, that the FCA claim is barred because a 2002 court filing had already publicly disclosed Relators’ allegations.
In late 2011, as Relators’ case against MIC proceeded, MIC began to distribute assets to its shareholders—in large part to Edwards, MIC's majority shareholder and chairman of its Board of Directors. This trend escalated in 2012 and 2013. During that two-year period, MIC allegedly transferred a whopping $242,006,838 to Edwards and MSP (Edwards's wholly-owned entity), leaving MIC insolvent. According to Relators, MIC then shut down its operation to prevent Relators from collecting any judgment they might obtain in this FCA action. MIC initially insisted that it remained solvent and was "here for the long haul." But by May 2015, when the district court inquired about MIC's continued solvency, counsel for MIC responded that "it's not a secret that my client stopped making loans some time ago, but that's it." And in June 2015, MIC's counsel could not "make any representation about the financial state of the company." Relators amended their complaint in January 2016 to add a state law fraudulent transfer claim against Edwards.
In a series of orders, the district court first dismissed Relators’ fraudulent transfer claim for lack of standing. It then found that Relators’ FCA claim was not barred by public disclosure but ultimately granted MIC summary judgment on the ground that Relators provided insufficient evidence to create a genuine issue of material fact on the element of materiality.
We review de novo the district court's grant of summary judgment on the FCA claim, applying the same standard applied by the district court. Urquilla-Diaz v. Kaplan Univ. , 780 F.3d 1039, 1050 (11th Cir. 2015). Under this standard, summary judgment is appropriate only if the record shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Even self-serving and uncorroborated statements can create an issue of material fact. United States v. Stein , 881 F.3d 853, 856 (11th Cir. 2018) (en banc). And all reasonable inferences from the evidence are to be drawn in favor...
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United States ex rel. Bibby v. Mortg. Investors Corp., 19-12736
...States of America.Before WILSON, NEWSOM, and ED CARNES, Circuit Judges. WILSON, Circuit Judge:We vacate our previous opinion published at 985 F.3d 825 and replace it with the following opinion.More than 14 years ago, Appellants Victor Bibby and Brian Donnelly (Relators) brought this qui tam......
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