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False Claims Act Statistics, News & Analysis

  • 11
  • April
  • 2017

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The Quicken Origin Story:  Michigan Federal Court Addresses False Claims Act

Last week we wrote about the opinion in United States v. Quicken Loans Inc., specifically discussing its ruling on causation of damages under the FCA. No. 16-CV-14050, 2017 WL 930039 (E.D. Mich. Mar. 9, 2017). As we noted, Quicken touches on other important FCA issues, including knowledge and materiality. But since liability necessarily precedes damages, let’s go back now to discuss certain of the court’s rulings on knowing violations of ambiguous rules under Safeco and on materiality after Escobar.

The court rejected Quicken’s bid to rely on Safecowhich we have written about previously—to argue it could not have knowingly violated a purportedly ambiguous rule regarding its practice of allowing employees to appeal appraisers’ valuations of properties. As a reminder, though not itself a FCA case, in Safeco the Supreme Court held that a lender could not be held liable for a willful violation of a provision of the Fair Credit Reporting Act where its view of the statute was objectively reasonable. In Quicken, however, the court noted that unlike the defendant in Safeco, Quicken was on notice of legal “guidance” about the proper interpretation of the underwriting rules because it received a government handbook and three letters that suggested that its interpretation of the relevant rules was not reasonable. But the court did grant Quicken some relief, implicitly applying Safeco to conclude that the government had failed to allege Quicken knowingly manipulated underwriting data where the government could point to no specific rule governing the specific types of data Quicken allegedly manipulated.

The court also rejected Quicken’s argument that its certifications of compliance with FHA underwriting rules were not material. The court followed the First Circuit’s decision on remand in Escobar to conclude that materiality could be plead simply by asserting that the rules, and their violation, go to the “essence of the bargain” with the agency. The court was not troubled by the government’s inability to plead with particularity its treatment of similar violations in the run of cases or the government’s knowledge (or lack thereof) of the violations at the time it accepted or paid the loans. Some comfort to FCA defendants is that the court did separately analyze Quicken’s knowledge of the materiality of its claims—an approach not yet frequently adopted by courts—relying on allegations of internal Quicken e-mails that specifically discussed the materiality of Quicken’s violations. While the result was not defendant-friendly, the approach is a step in the right direction.

Quicken’s ruling under Safeco is relatively unsurprising, but does serve a warning to defendants to pay close attention to informal regulatory guidance and opinion letters, which could be sufficient to put a defendant on notice that it cannot rely on its preferred interpretation of an ambiguous rule. The decision does offer some hope to defendants, however, that courts will rigorously evaluate whether rules that are meant to put defendants on notice of potential violations specifically cover the alleged conduct. More concerning is Quicken’s focus on the “essence of the bargain” standard of materiality, at least on the pleadings. That should concern FCA defendants because it is, in effect, a return to the pre-Escobar condition of payment standard of materiality, and neglects the myriad other signposts the Supreme Court in Escobar considered highly relevant.



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Author

Daniel T. Wallmuth

Daniel T. Wallmuth Associate