Victor E. Bibby v. Mortgage Investors Corporation ( 2021 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-12736
________________________
D.C. Docket No. 1:12-cv-04020-AT
UNITED STATES OF AMERICA EX REL,
Plaintiff,
VICTOR E. BIBBY,
BRIAN J. DONNELLY,
Plaintiffs-Appellants
Cross-Appellees,
versus
MORTGAGE INVESTORS CORPORATION,
WILLIAM L. EDWARDS,
“Bill”,
Defendants-Appellees
Cross-Appellants,
WILLIAM L. EDWARDS, AS TRUSTEE OF WILLIAM
L. EDWARDS REVOCABLE TRUST,
Defendant.
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________________________
Appeals from the United States District Court
for the Northern District of Georgia
________________________
(January 15, 2021)
Before WILSON, NEWSOM, and ED CARNES, Circuit Judges.
WILSON, Circuit Judge:
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
1
The government has the option to intervene in the action, either within 60 days after receiving
the complaint or upon a later showing of good cause. 31 U.S.C. § 3730(b)(2), (b)(4), (c)(3). In
this case, the government communicated with Relators about their allegations but eventually
decided not to intervene.
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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
2
Relators originally filed suit against 27 other mortgage lenders, but MIC is the only remaining
defendant.
3
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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.
I. BACKGROUND
A. IRRRL Program Background
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
4
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. . . .” 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.
3
Paragraph (d) further provides that “[a] lender may charge . . . a flat charge not exceeding 1
percent of the amount of the loan, provided that such flat charge shall be in lieu of all other
charges relating to costs of origination not expressly specified and allowed in this schedule.” 38
C.F.R. § 36.4313(d)(2).
4
In outlining the loan certification process, we rely in part on allegations in Relators’ Fourth
Amended Complaint that MIC does not appear to contest.
5
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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) (providing that misrepresentation or fraud by the lender
shall not constitute a defense against liability as to a holder in due course). 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.B. Procedural Background
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
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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
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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.
II. STANDARD OF REVIEW
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 of the non-moving party; the court may not resolve factual disputes
by weighing conflicting evidence. Ryder Int’l Corp. v. First Am. Nat. Bank, 943
F.2d 1521, 1523 (11th Cir. 1991).
We also review de novo the district court’s dismissal of Relators’ fraudulent
transfer claim for lack of standing. Ga. State Conf. of NAACP Branches v. Cox,
183 F.3d 1259, 1262 (11th Cir. 1999).
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III. DISCUSSION
First, we address the district court’s grant of summary judgment on Relators’
FCA claim. After careful review, we reverse the district court because it
impermissibly resolved factual disputes by weighing conflicting evidence, a task
that should have been left to the factfinder. Because genuine issues of material fact
remain on the element of materiality, MIC is not entitled to summary judgment.5
Second, we affirm the district court’s finding that Relators’ FCA claim is not
barred by previous public disclosure. The previous court filings at issue did not
disclose the allegations on which Relators’ claim is based.
Third, we affirm the district court’s finding that Relators lack standing to
bring the fraudulent transfer claim. Relators have standing to pursue an FCA
action only through the government’s assignment of its damages claim. And
because the FCA does not assign the right to bring additional causes of action
related to the FCA claim, Relators lack Article III standing to assert this claim.
A. The FCA’s Materiality Standard
To prevail on their FCA claim, Relators must prove: “(1) a false statement or
fraudulent course of conduct, (2) made with scienter, (3) that was material, causing
(4) the government to pay out money or forfeit moneys due.” Urquilla-Diaz, 780
5
MIC also asserts that it is entitled to summary judgment because Relators failed to establish
causation. Because the district court has not yet addressed that issue, we remand to give the
district court an opportunity do so.
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F.3d at 1045. In a comprehensive 83-page order, the district court granted MIC
summary judgment, finding that Relators failed to provide sufficient evidence to
create a genuine issue of material fact on the third element—materiality.
The Supreme Court recently addressed materiality under the FCA in a
landmark decision. Universal Health Servs., Inc. v. United States ex rel. Escobar,
136 S. Ct. 1989 (2016). In Escobar, the Court emphasized that the FCA’s
“materiality standard is demanding.” Id. at 2003. The FCA is not “an all-purpose
antifraud statute,” nor is it “a vehicle for punishing garden-variety breaches of
contract or regulatory violations.” Id. Therefore, “noncompliance [that] is minor
or insubstantial” will not satisfy the FCA’s materiality requirement. Id.Materiality is defined as “having a natural tendency to influence, or be
capable of influencing, the payment or receipt of money or property.” Id. at 2002.
And while several factors can be relevant to the analysis, “materiality cannot rest
on a ‘single fact or occurrence as always determinative.’” Id. at 2001 (quoting
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 39 (2011)). Accordingly,
several of our sister circuits have described the test as “holistic.” United States ex
rel. Escobar v. Universal Health Servs., Inc., 842 F.3d 103, 109 (1st Cir. 2016)
(Escobar II); United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645, 661
(5th Cir. 2017); United States v. Brookdale Senior Living Cmtys., Inc., 892 F.3d
822, 831 (6th Cir. 2018), cert. denied sub nom. Brookdale Senior Living Cmtys.,
10
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Inc. v. United States ex rel. Prather, 139 S. Ct. 1323 (2019); United States ex rel.
Janssen v. Lawrence Mem’l Hosp., 949 F.3d 533, 541 (10th Cir. 2020), cert.
denied sub nom. United States, ex rel. Janssen v. Lawrence Mem’l Hosp., No. 20-
286, 2020 WL 5883407 (U.S. Oct. 5, 2020).
While no single factor is dispositive, some factors that are relevant to the
materiality analysis include: (1) whether the requirement is a condition of the
government’s payment, (2) whether the misrepresentations went to the essence of
the bargain with the government, and (3) to the extent the government had actual
knowledge of the misrepresentations, the effect on the government’s behavior. 6
Escobar, 136 S. Ct. at 2003 & n.5, 2004. We address these factors in turn.
1. Condition of Payment
“[T]he Government’s decision to expressly identify a provision as a
condition of payment is relevant, but not automatically dispositive” to the
materiality analysis. Id. at 2003. Here, we agree with the district court’s
conclusion that a lender’s truthful certification that it charged only permissible fees
was a condition of the government’s payment on IRRRL guaranties. The relevant
VA regulation clearly designates that requirement a condition to payment: “no loan
shall be guaranteed or insured unless the lender certifies . . . that it has not imposed
6
While Escobar does not impose a rigid three-part test or an exhaustive list of factors, it gives
guidance on factors that can be relevant to the materiality inquiry.
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and will not impose any [impermissible] charges or fees . . . .” 38 C.F.R. §
36.4313(a). Therefore, this factor weighs in favor of materiality.
2. Essence of the Bargain
We also consider the extent to which the requirement that was violated is
central to, or goes “to the very essence of[,] the bargain.” Escobar, 136 S. Ct. at
2003 n.5; see also Escobar II, 842 F.3d at 110 (considering “the centrality of the
. . . requirements” in the context of the regulatory program); John T. Boese, Civil
False Claims and Qui Tam Actions 2-268–69 (5th ed. 2020) (explaining that it is
Escobar’s “basic requirement” to show that the “misrepresentation [went] to the
very essence of the bargain”) (internal quotation mark omitted).
When viewing the evidence in the light most favorable to Relators, a
reasonable factfinder could conclude that the VA’s fee regulations were essential
to the bargain with IRRRL lenders. The central aim of the IRRRL program was to
help veterans stay in their homes, and fee regulations contributed to that goal. VA
Pamphlet 26-7 draws this connection neatly, summarizing the purpose of the
IRRRL program as follows: “The VA home loan program involves a veteran’s
benefit. VA policy has evolved around the objective of helping the veteran to use
his or her home loan benefit. Therefore, VA regulations limit the fees that the
veteran can pay to obtain a loan.” The Pamphlet further provides:
The limitations imposed upon the types of charges and
fees which can be paid by veteran borrowers and the
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concomitant certification by the lender as to its
compliance with this requirement furthers the purpose of
“limit[ing] the fees that the veteran can pay to obtain a
loan” which, in turn, ensures that a veteran borrower can
effectively “use his or her home loan benefit.”
These excerpts suggest that fee compliance was essential to the bargain,
rather than an ancillary requirement that the government labeled a condition of
payment. Therefore, a reasonable factfinder could conclude that the requirement
went to the essence of the bargain.
3. Effect on the VA’s Behavior
The government’s reaction to the defendant’s violations is also a factor in
the materiality inquiry. Escobar, 136 S. Ct. at 2003–04. Escobar discusses three
ways the government might behave upon learning of noncompliance and instructs
us on how that behavior factors into the materiality analysis.
First, the government might refuse to pay claims. Id. at 2003. If “the
defendant knows that the Government consistently refuses to pay claims in the
mine run of cases based on noncompliance,” that is evidence of materiality. Id.
Second, and “[c]onversely, if the Government pays a particular claim in full
despite its actual knowledge that certain requirements were violated, that is very
strong evidence that those requirements are not material.” Id. (emphasis added).
And third is a middle possibility: “if the Government regularly pays a particular
type of claim in full despite actual knowledge that certain requirements were
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violated, and has signaled no change in position, that is strong evidence that the
requirements are not material.” Id. at 2003–04 (emphases added).
Because these three possibilities each hinge on the government discovering
the defendant’s violations, the logical first step in this analysis is to determine what
the government actually knew.
a. The VA’s Actual Knowledge
Assessing the government’s actual knowledge requires that we drill down to
when that knowledge was acquired, and what exactly the government learned. See
Harman, 872 F.3d at 668 (finding no materiality as a matter of law only after
determining that there was “no question about ‘what the government knew and
when’”). Here, the district court determined that the VA had gained “the requisite
knowledge of the alleged fraud” by 2009, largely through communication with
Relators about their allegations and through the VA’s own investigatory audits.
As to the first of these two sources, Relators’ counsel discussed Relators’
allegations with the government in February 2006, shortly before filing the initial
complaint. Then, after filing the complaint, Relators’ counsel engaged in
discussions with the Department of Justice, the United States Attorney’s Office,
and the VA Office of Inspector General. And for the next several years, Relators
continued to correspond with the government. Therefore, the VA was aware of
Relators’ allegations since 2006.
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MIC argues that this knowledge of Relators’ allegations is sufficient to
establish the VA’s actual knowledge of noncompliance during the relevant
timeframe. We have not previously addressed whether the government’s
knowledge of allegations is tantamount to knowledge of violations for purposes of
the materiality analysis. And decisions by our sister circuits have varied in their
treatment of this issue. Compare Escobar II, 842 F.3d at 112 (“[M]ere awareness
of allegations concerning noncompliance with regulations is different from
knowledge of actual noncompliance.”); with United States ex rel. Nargol v. DePuy
Orthopaedics, Inc., 865 F.3d 29, 34 (1st Cir. 2017) (holding that government
inaction “in the wake of Relators’ allegations . . . renders a claim of materiality
implausible”).
Yet we need not answer this question here because, in any event, the VA had
actual knowledge of MIC’s noncompliance through another source—the VA audit
findings. VA investigatory audits came in two varieties: (1) ongoing spot audits of
loan samples by the VA’s Regional Loan Centers (RLC Audits); and (2) periodic
onsite audits by the Loan Guarantee Service Monitoring Unit (LGSMU Audits).
The RLC Audits, which reviewed ten percent of all IRRRLs, revealed instances of
MIC and other lenders violating fee regulations. In fact, according to VA
representative Jeffrey London, lenders collecting impermissible fees and charges
was “one of the most common loan deficiencies” identified in the RLC Audits. As
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a result, the VA sent MIC post-audit deficiency letters between 2009 and 2011,
indicating that MIC had charged veteran borrowers unallowable fees and that those
fees should be refunded. Likewise, the LGSMU Audits in both 2010 and 2012
identified noncompliant fees and charges by MIC. The VA subsequently directed
MIC to “review the VA Lender’s Handbook and make the necessary adjustments
to ensure future compliance.” Based on these audit findings, it is undisputed that
the VA was aware of MIC’s violation of fee regulations.
Relators contend, however, that the VA believed that any noncompliance
was the result of inadvertent, good faith mistakes. Relators urge us to draw a
distinction between the VA’s knowledge of inadvertent violations based on audit
findings and its knowledge of actual fraud. Specifically, Relators point to the
testimony of London and former VA employee William White that the VA would
have investigated further if it had been aware of IRRRL lenders intentionally
bundling fees and knowingly submitting false certifications of compliance.
Relators argue that the district court erred when it discounted that testimony as
“speculative and seemingly self-serving.”
We agree that to the extent the testimony was self-serving, it must
nevertheless be credited as true at this stage. See Stein, 881 F.3d at 856. But even
taking that testimony as true, Escobar does not distinguish between inadvertent
mistakes and intentional violations. What matters is simply whether the
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government knew “that certain requirements were violated.” Escobar, 136 S. Ct.
at 2003–04. For this reason, our sister circuits have declined to explain away the
government’s actual knowledge of violations based on post hoc rationalizations
that the government might have done more if it had investigated further. See
United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1034 (D.C. Cir.
2017) (explaining that the analysis should remain focused on “what actually
occurred” rather than on testimony that hypothesizes what might have occurred).
Here, regardless of whether the VA assumed MIC’s noncompliance was
inadvertent, it is undisputed that VA audits had revealed MIC’s violations of
IRRRL fee requirements by 2009. Therefore, the VA had actual knowledge of
MIC’s noncompliance during the relevant time frame.
b. The VA’s Reaction
Having considered the VA’s actual knowledge of MIC’s violations, we now
consider the VA’s reaction in the wake of discovering those violations. Escobar,
136 S. Ct. at 2003–04. But before proceeding, we must address a threshold
question: Which government action is relevant to the materiality inquiry in this
case? MIC argues that what matters is the government’s decision to continue
paying claims, despite knowledge of noncompliance. In support of its position,
MIC points to language in Escobar that appears to link materiality to the
government’s payment decision. Id.; see also id. at 2002 (looking to whether
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noncompliance has a “natural tendency to influence, or be capable of influencing,
the payment or receipt of money or property”). Relators, along with the
government as amicus curiae, contend that the VA’s continued payment merits
little weight because the payments were required by law, regardless of any fraud
by the originating lender.
While we agree with MIC that, under Escobar, the government action
relevant to the materiality inquiry is typically the payment decision, the
significance of continued payment may vary depending on the circumstances. See
United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890, 906 (9th Cir.
2017) (cautioning that “to read too much into the FDA’s continued approval—and
its effect on the government’s payment decision—would be a mistake” where there
were other reasons for that approval). Here, there was a reason for the VA’s
continued payment of IRRRLs other than violations of fee regulations being
immaterial. Once the VA issues guaranties, it is required by law to honor those
guaranties and to pay holders in due course in possession of the IRRRLs,
regardless of any fraud by the original lender. 38 U.S.C. § 3721. Given this
constraint, we disagree with the district court that much can be drawn from
Relators’ failure to submit “any evidence that . . . noncompliance would have a
palpable and concrete effect on the VA’s decision to honor the loan guarantees
. . . .” (emphasis added). The VA was bound to honor the guaranties.
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Consequently, the facts of this case require that we cast our materiality inquiry
more broadly to consider “the full array of tools” at the VA’s disposal “for
detecting, deterring, and punishing false statements,” and which of those it
employed. See Nargol, 865 F.3d at 34 (internal quotation mark omitted).
With that in mind, we return to the framework Escobar provides. In order to
find “very strong evidence” that MIC’s conduct was not material, we would need
to find that the VA paid particular claims—or as relevant here, took comparable
action—despite its actual knowledge of violations. Escobar, 136 S. Ct. at 2003.
That is, while the Incontestability Statute rendered the VA’s payment decision less
probative, MIC might have established “very strong evidence” of materiality by
showing, for example, that the VA agreed to guaranty a particular loan despite
actual knowledge that MIC had falsely certified fee compliance on that loan. 7 But
on the quite voluminous record before us, MIC has not pointed to a single such
instance. See Oral Argument Recording at 32:43–33:15 (Oct. 21, 2020).
Next, in order to find even “strong evidence” that the requirements were not
material, we would need to find that the VA paid a particular type of claim—or
took comparable action—despite its “actual knowledge” of violations. Escobar,
7
We find support for looking to the government’s guaranty decision in a post-Escobar FCA case
from the Fifth Circuit. United States v. Hodge, 933 F.3d 468 (5th Cir. 2019). In Hodge, lenders
were accused of “fraudulently obtaining FHA insurance for loans that later defaulted.” Id. at
472. The Fifth Circuit said that the “gist of this [materiality] inquiry is whether false
representations . . . induced HUD to issue insurance.” Id. at 474 (emphasis added).
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136 S. Ct. at 2003–04. Here, MIC fares better if we consider the VA’s issuance of
a guaranty to be the relevant government action. Although the VA never issued a
guaranty with knowledge that improper fees were collected on that particular loan,
it did issue loan guaranties related to a “particular type of claim,” despite its
knowledge of audit findings that MIC imposed impermissible fees on a certain
percentage of its loans. 8 Id.
But once we divorce our analysis from a strict focus on the government’s
payment decision, we see no reason to limit our view only to the VA’s issuance of
guaranties. Looking at the VA’s behavior holistically, the record shows that the
VA took a number of actions to address noncompliance with fee regulations. First,
the VA released Circular 26-10-01 on January 7, 2010, reminding lenders of the
applicable fee regulations and warning of the consequences of noncompliance.
Citing VA regulations, the Circular reminded lenders that they are to charge only
the “reasonable and customary amount for certain itemized fees,” and that “[t]he
lender may NOT charge the veteran for attorney’s fees associated with settlement.”
The Circular further stated: “Lenders must comply with these policies when
making VA loans. Any lender who does not comply with these policies is subject
8
London testified that, based on the VA’s audit findings, the VA “infer[red] that there were fee
issues with other loans” that had not been audited.
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to removal from the program, fines by the VA, government-wide debarment, and
other civil and criminal penalties that may be applicable.”
Second, after learning of Relators’ allegations, the VA implemented more
frequent and more rigorous audits in 2010 and 2011 to root out improper fees and
charges. The change in audit methodology incorporated data from a website,
Bankrate.com, that surveys lenders and provides information on average fees and
charges in the mortgage industry. By comparing actual fees and charges imposed
by IRRRL lenders with industry averages, the VA hoped to identify fraudulent fee
bundling more effectively. Although the change in methodology apparently
proved ineffective, it is nonetheless evidence of the VA attempting to use tools at
its disposal to detect and address false statements.
Third, the VA consistently required lenders to refund any improperly
charged fees that they discovered. Both London and White offered testimony to
that effect in their depositions.
MIC argues that the VA could have pursued more severe remedies such as
recoupment, debarment, or suspension from the IRRRL program. Certainly,
imposing such remedies would have been evidence of materiality. See United
States v. Luce, 873 F.3d 999, 1007 (7th Cir. 2017) (finding materiality as a matter
of law where the government debarred the defendant from the relevant government
program upon discovering its noncompliance). But these were not the only tools in
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the VA’s toolbox. The bottom line is that, because the Incontestability Statute
precludes us from focusing narrowly on the VA’s payment decision, we must
broaden our view to consider the VA’s pattern of behavior as a whole. And while
the VA did not take the strongest possible action against MIC, it did take some
enforcement actions.
To recap, we have thus far considered the following indicators of
materiality: (1) whether the requirement is a condition of payment, (2) whether the
misrepresentation was essential to the bargain, and (3) the VA’s relevant actions
based on its actual knowledge of violations. On the first point, the VA’s fee
requirements are a condition of payment. That is indicative of materiality but does
not, by itself, “automatically” establish materiality. Escobar, 136 S. Ct. at 2003.
The Escobar Court drove home that the government cannot take “insignificant
regulatory or contractual violations” and imbue them with materiality simply by
labeling them as such. Id. at 2004.
But here, the requirement’s centrality within the regulatory scheme also
points toward materiality. As the district court found, “the [VA’s] charges and fees
regulation is . . . more than an insignificant regulatory requirement.” The
requirement promoted the IRRRL program’s central purpose, and a reasonable
factfinder could have found that it was essential to the bargain between the VA and
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MIC. So both the requirement’s designation as a condition of payment and its
centrality to the government program favor materiality.
The district court, however, weighed this evidence against countervailing
evidence of the VA’s knowledge and its reaction to noncompliance. This
countervailing evidence, the court found, “significantly belie[d] the notion that the
VA characterized the alleged noncompliance in this case as material.” The court
thus held that the “sheer weight” of the evidence militated against materiality.
To resolve the issue by weighing conflicting evidence was error. See Ryder,
943 F.2d at 1523. The materiality test is holistic, with no single element—
including the government’s knowledge and its enforcement action—being
dispositive. To be sure, the materiality standard is “demanding,” and courts may
dismiss FCA cases at summary judgment where relators fail to create a genuine
issue of material fact on that element. Escobar, 136 S. Ct. at 2003, 2004 n.6. That
is particularly true where “‘very strong evidence’ . . . of . . . continued payment
remains unrebutted.” See Harman, 872 F.3d at 665. But here, we do not have
“very strong evidence” of immateriality. Escobar, 136 S. Ct. at 2003. And even if
we viewed the VA’s continued issuance of guaranties as “strong evidence” of
immateriality, that evidence is not unrebutted. Id. at 2004. A factfinder would still
have to weigh that factor against others, including, as relevant here, the fee and
charges requirement being a condition to payment and essential to the IRRRL
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program. Because there is sufficient evidence to support a finding of materiality,
we must leave that determination to the factfinder. We therefore reverse the
district court’s grant of summary judgment.
B. The FCA’s Public Disclosure Bar
Next, because we reverse the district court’s grant of summary judgment on
the issue of materiality, we must address MIC’s conditional cross-appeal arguing
that Relators’ FCA claim is barred by previous public disclosure. An FCA action
cannot be based on allegations that are already publicly disclosed. 31 U.S.C. §
3730 (2006).9 The relevant provision of the FCA provides that:
No court shall have jurisdiction over an action under this
section based upon the public disclosure of allegations or
transactions in a criminal, civil, or administrative hearing,
in a congressional, administrative, or Government
Accounting Office report, hearing, audit, or investigation,
or from the news media, unless the action is brought by the
Attorney General or the person bringing the action is an
original source of the information.
Id. § 3730(e)(4)(A).
The reason for the public disclosure bar is fairly obvious. Without it,
opportunistic relators—with nothing new to contribute—could exploit the FCA’s
9
Congress amended this section in 2010. The pre-2010 version categorized documents as
“public” if they were filed on the publicly available docket. In the post-2010 version, Congress
significantly narrowed the scope of a public disclosure, making it easier for relators to clear the
public disclosure hurdle. While the facts of our case straddle the pre- and post-amendment
timeframes, the district court reasoned that it need not determine which version applied because
there was no public disclosure even under the broader pre-2010 version. Our analysis follows
the same trajectory.
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qui tam provisions for their personal benefit. See United States ex rel. Springfield
Terminal Ry. Co. v. Quinn, 14 F.3d 645, 649 (D.C. Cir. 1994) (recalling the
“notorious plaintiff who copied the information on which his qui tam suit was
based from the government’s own criminal indictment”). Here, MIC argues that
Relators’ allegations had already been publicly disclosed in a 2002 South Carolina
consumer protection case, Cox v. Mortgage Investors Corp. d/b/a Amerigroup
Mortgage Corp., in which a solitary MIC HUD-1 (the Cox HUD-1) was filed on
the docket—first in state court and later in federal court. Case No. 2:02-cv-3883-
DCN (D.S.C. Nov. 15, 2002). At his deposition, Relator Donnelly admitted that
the Cox HUD-1 appears to reflect fee bundling. MIC argues that if fee bundling is
apparent on the face of the Cox HUD-1—based on inflated fees listed on a
particular line-item—then the filing of that form in 2002 was a previous public
disclosure of Relators’ allegations.
We have framed the public disclosure inquiry as a three-part test: “(1) have
the allegations made by the plaintiff been publically disclosed; (2) if so, is the
disclosed information the basis of the plaintiff’s suit; (3) if yes, is the plaintiff an
‘original source’ of that information.” Cooper v. Blue Cross & Blue Shield of Fla.,
Inc., 19 F.3d 562, 565 n.4 (11th Cir. 1994) (per curiam). So, under the Cooper
framework, the first prong becomes dispositive where the plaintiff’s allegations
have not been publicly disclosed.
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Here, on the first Cooper prong, we must determine whether the Cox HUD-1
publicly disclosed the “allegations” on which Relators’ claim is based. Id.Because the Cooper test does not further define “allegations,” we have found
instructive the D.C. Circuit’s Springfield formula. Under that formula, “one
generally must present a submitted statement or claim (X) and the true set of facts
(Y), which shows that X is untrue. These two things together allow the conclusion
(Z) that fraud has occurred.” United States ex rel. Saldivar v. Fresenius Med. Care
Holdings, Inc., 841 F.3d 927, 935 (11th Cir. 2016) (citing Springfield, 14 F.3d at
654). There is no allegation of fraud under this formula unless each variable is
present. “[W]here only one element of the fraudulent transaction is in the public
domain (e.g., X), the qui tam plaintiff may mount a case by coming forward with
either the additional elements necessary to state a case of fraud (e.g., Y) or
allegations of fraud itself (e.g., Z).” Springfield, 14 F.3d at 655.
The Cox HUD-1 is not an “allegation” under the Springfield test. Even if we
were to view the form as presenting the “statement or claim” that MIC did not
impose excess fees and charges on veterans, it would set forth only the (X)
variable. Id. at 654. To be an allegation of fraud, the Cox HUD-1 would also have
to reveal the true set of facts (Y): that MIC actually collected impermissible fees
and bundled those fees on the same line-item as permissible fees.
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As the district court found, the Cox HUD-1, standing alone, does not do so.
True, Donnelly was able to combine his industry knowledge with the information
presented on the Cox HUD-1 to surmise that the form reflected bundled fees. But
putting aside Donnelly’s knowledge about fee bundling in the IRRRL industry, the
information on the face of the HUD-1 alone does not disclose that MIC concealed
impermissible fees. To the contrary, the form purports to show that MIC collected
only permissible fees. As such, Relators were not barred from using their industry
knowledge to “mount a case by coming forward” with allegations that MIC
fraudulently bundled fees on HUD-1s to conceal violations of VA regulations. Id.
at 655.
So, in conclusion, the Cox HUD-1 is not an allegation of fraud under the
Springfield formula, and, accordingly, it fails the first prong of the Cooper test.
Therefore, we affirm the district court’s finding on MIC’s conditional cross appeal
that Relators’ FCA claim is not barred by previous public disclosure.
C. Fraudulent Transfer
Having addressed the FCA claim, we now turn to the second issue Relators
appeal: whether the district court correctly held that Relators lack Article III
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standing to pursue a state law claim against Edwards under Georgia’s Uniform
Voidable Transfers Act (UVTA). After careful review, we affirm. 10
It is well-established that a plaintiff must satisfy three requirements to
establish Article III standing. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560
(1992). First, there must be an “injury in fact” that is both “concrete and
particularized,” as well as “actual or imminent, not conjectural or hypothetical.”
Id. (internal quotation marks omitted). “Second, there must be a causal connection
between the injury and the conduct complained of—the injury has to be fairly . . .
trace[able] to the challenged action of the defendant.” Id. (alteration in original)
(internal quotation mark omitted). “Third, it must be likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision.” Id. at 561(internal quotation marks omitted).
The Supreme Court has addressed the first of those requirements—injury in
fact—in the context of relators bringing qui tam actions under the FCA. See Vt.
Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000). There,
the Court explained that a relator does not have standing to pursue a qui tam action
based on his own injury in fact. Id. at 772–73. Before obtaining a judgment, a
relator’s interest is comparable to that of a person “who has placed a wager upon
10
Because Relators lack standing to bring this claim against Edwards, we need not address
Edwards’s conditional cross appeal contesting personal jurisdiction.
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the outcome” of a case. Id. at 772. So how, then, do relators have standing to
bring qui tam actions? The answer, Stevens tells us, is found in the common law
doctrine of assignment: an assignee has standing to vindicate the rights of an
assignor. Id. at 773. As the doctrine of assignment applies in this context, the
FCA’s qui tam provision “effect[s] a partial assignment” of the government’s
claim to the relator. Id. And only as an assignee does the relator have standing to
pursue the qui tam action. Id.But because the assignment to relators is “partial” rather than total, relators
are not assigned all of the government’s rights associated with a particular action.
Id. The FCA assigns the narrow right to “bring a civil action for a violation of
section 3729 for the person and for the United States Government.” 31 U.S.C. §
3730(b)(1). It does not assign relators the right to pursue additional claims that
arise from, or are related to, the qui tam action. Indeed, Stevens states that “an
interest that is merely a ‘byproduct’ of the [FCA] suit itself cannot give rise to a
cognizable injury in fact for Article III standing purposes.” 529 U.S. at 773. As
Relators conceded at oral argument, that is what we have here. See Oral Argument
Recording at 22:52–23:11 (Oct. 21, 2020). Therefore, the FCA itself does not
confer standing on Relators to pursue the fraudulent transfer claim.
Relators argue, however, that they can show an injury in fact,
notwithstanding Stevens, because they base their fraudulent transfer claim on their
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own injury in fact suffered as creditors under Georgia’s UVTA. See O.C.G.A. §
18-2-70, et seq. That statute gives creditors the right to avoid fraudulent transfers
and to obtain an injunction against the debtor to prevent further disposition of
property. Id. § 18-2-77(a). And because the UVTA applies pre-judgment,
Relators argue that they have standing under that statute as pre-judgment creditors
of Edwards. See id. § 18-2-71(3) (“‘Claim’ means a right to payment, whether or
not the right is reduced to judgment . . . .”).
At oral argument in this case, Relators argued that the Stevens Court
envisioned this scenario when it noted that Congress could “define new legal
rights, which in turn will confer standing to vindicate an injury caused to the
claimant.” 529 U.S. at 773. Picking up on that language, Relators argue that,
through the UVTA, the Georgia legislature conferred a new legal right to assert a
pre-judgment claim that is contingent upon the underlying FCA claim.
It is true that Congress can take “concrete, de facto injuries that were
previously inadequate in law” and “elevat[e] [them] to the status of legally
cognizable injuries.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016) (citing
Lujan, 504 U.S. at 578) (first alteration in original). We can assume for purposes
of our decision (without deciding) that a state legislature can do the same. And
when courts analyze what “constitutes injury in fact,” legislative judgment can
play an “important role[]” in that determination. Id. at 1547–48. But legislatures
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cannot simply create an injury in fact where there is no concrete injury. “Injury in
fact is a constitutional requirement, and ‘it is settled that Congress cannot erase
Article III’s standing requirements by statutorily granting the right to sue to a
plaintiff who would not otherwise have standing.’” Id. (internal citation and
brackets omitted).
This means (on our assumption) that the Georgia legislature could give
relators the right to pursue a fraudulent transfer claim only if relators have a
concrete interest in a claim that is a byproduct of the underlying suit. Stevens
makes clear that they do not.11 529 U.S. at 773. Consequently, it would be
inconsistent with Spokeo to hold that the UVTA can create a concrete injury where
none existed. To do so would be to “erase Article III’s standing requirements” by
finding that the Georgia legislature “statutorily grant[ed] the right to sue to a
plaintiff who would not otherwise have standing.” Spokeo, 136 S. Ct. at 1547–48.
Accordingly, Relators cannot establish standing under Georgia’s UVTA.
Therefore, we affirm the district court’s holding that Relators lack standing to
assert a fraudulent transfer claim against Edwards.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
11
This is not to say, of course, that pre-judgment creditors cannot establish Article III standing
based on their own damages claim. For example, in Enterprise Financial Group, Inc. v.
Podhorn, 930 F.3d 946 (8th Cir. 2019), cited by Relators, a pre-judgment creditor had Article III
standing based on its own damages claim, rather than a damages claim that the government had
partially assigned to it.
31