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United States Ex Rel. Friddle v. Taylor, Bean & Whitaker Mortgage Corporation

United States District Court, N.D. Georgia, Atlanta Division

March 11, 2015

UNITED STATES OF AMERICA ex rel. COMFORT FRIDDLE and STEPHANIE KENNEDY, Relators,
v.
TAYLOR, BEAN & WHITAKER MORTGAGE CORPORATION, et al., Defendants.

ORDER

RICHARD W. STORY, District Judge.

This case comes before the Court on Relators' Motion for Summary Judgment Against Greg Hicks [213] and Defendants Greg Hicks and Carl Wright's Motion for Summary Judgment [214]. After reviewing the record, the Court enters the following Order.

Background

Relators bring this action under the False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., alleging that Defendants engaged in a scheme to induce the United States government to insure bad mortgage loans, resulting in around $131, 000, 000 in damages to the United States. Defendants in this case originally included two corporations: Home America Mortgage, Inc. ("Home America"), which originated mortgage loans, and Taylor, Bean & Whitaker Mortgage Corp. ("TBW"), which was Home America's alleged co-conspirator and the underwriter for the mortgage loans Home America originated.[1] (Relators' Statement of Material Facts ("SMF"), Dkt. [213-2] ¶¶ 1-2, 6.) The remaining individual Defendants are Greg Hicks, who owned 90% of Home America and was Home America's principal operator from 2001 to 2009 (id. ¶ 5; Hicks Aff., Dkt. [214-3] ¶ 2), and Carl Wright, who was an Atlanta-area attorney who closed real estate transactions financed by Home America (Defs.' SMF, Dkt. [214-2] ¶ 12).

Hicks headed up the "Hicks Team, " a group within Home America made up of loan officers Hicks chose. (Relators' SMF, Dkt. [213-2] ¶ 7.) Relators assert that those loan officers originated Home America loans as a third-party originator ("TPO") for TBW, a Federal Housing Administration ("FHA")-approved sponsoring mortgagee known as a Direct Endorsement Lender ("DE Lender"). (Id. ¶ 91.) Home America admits it knew these loans would be insured by the government and that the information on the loan applications would be submitted to the government. (Id. ¶ 96.) After closing the loans, Home America sold them to TBW within seven days. (Id. ¶ 97.) In the meantime, Home America funded its loans through a warehouse line of credit. (Id.) TBW was the underwriter for the loans and, after purchasing them, submitted the application for federal mortgage insurance to the U.S. Department of Housing and Urban Development ("HUD"). (Relators' Br., Dkt. [213-1] at 7.)

In order to qualify for a HUD guarantee, a borrower must meet certain criteria established by individual government programs. (Relators' SMF, Dkt. [213-2] ¶ 9.) Relators contend that Home America employees input borrower and property information into an application engine to verify whether the loan was low-risk enough to qualify for a given program. (Id. ¶ 10.) The application engine evaluated the loan based on factors including credit score, debt-to-asset ratio, and income stream. (Id. ¶ 11.) After entering all the information, the program either approved the application or provided a list of approval conditions that had to be met, such as obtaining evidence to support the assets claimed by the borrower or to verify employment. (Id. ¶¶ 13-14.) On higher-risk loans, the application engine returned a designation of "Refer risk class, " meaning that the engine rejected the loan because it identified weaknesses in the borrower's credit or ability to repay the loan. (Id. ¶ 16.) Sometimes, loan applications were rejected because they lacked enough data. For example, a cash-buyer without a bank account or someone without credit history might be rejected. (Id. ¶ 17.) But in rare circumstances, the safeguards could be manually overridden in accordance with very strict guidelines by having an FHA DE underwriter analyze the entire loan application to determine if the mortgage qualified under HUD guidelines. (Id.)

Relators contend that employees of Home America committed fraud in four ways: (1) they entered false information into the application engine; (2) they ignored conditions that were required to be met for approval; (3) they altered or fabricated required documentation; and (4) they overrode the safeguards on rejected loan applications. (See Relators' Br., Dkt. [213-1] at 5-6.) In these ways, Relators argue Defendants originated bad loans for TBW to underwrite and for the government to insure. (Id. at 8-9.) Furthermore, Relators stress that Hicks is personally liable for this fraud because he (1) personally participated in or directed employees to commit fraud, and (2) abused Home America's corporate form for his own ends.

Based on these allegations, Relators brought this qui tam action under the FCA on December 12, 2006. On August 3, 2009, the Federal Bureau of Investigation raided the corporate headquarters of TBW in Ocala, Florida. (Relators' SMF, Dkt. [213-2] ¶ 26.) On August 24, 2009, TBW declared bankruptcy, followed by Home America on November 25. (Id. ¶¶ 27-28.) The federal government then filed a $178 million proof of claim against TBW and a $131 million proof of claim against Home America based on the loans at issue in this case. (Id. ¶ 29.)

The remaining claims include FCA violations against Hicks and Wright and a breach of contract claim against Hicks. Both sides move for summary judgment.

Discussion

I. Summary Judgment Legal Standard

Federal Rule of Civil Procedure 56 requires that summary judgment be granted "if the movant 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). "The moving party bears the initial responsibility of informing the... court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.'" Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259 (11th Cir. 2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotations omitted)). Where the moving party makes such a showing, the burden shifts to the non-movant, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).

The applicable substantive law identifies which facts are material. Id. at 248. A fact is not material if a dispute over that fact will not affect the outcome of the suit under the governing law. Id . An issue is genuine when the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. at 249-50.

In resolving a motion for summary judgment, the court must view all evidence and draw all reasonable inferences in the light most favorable to the non-moving party. Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1296 (11th Cir. 2002). But, the court is bound only to draw those inferences which are reasonable. "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (internal citations omitted); see also Matsushita, 475 U.S. at 586 (once the moving party has met its burden under Rule 56(a), the nonmoving party "must do more than simply show there is some metaphysical doubt as to the material facts").

Finally, the filing of cross-motions for summary judgment does not give rise to any presumption that no genuine issues of material fact exist. Rather, "[c]ross-motions must be considered separately, as each movant bears the burden of establishing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of ...


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