Jury Verdict Expands to $298 Million in False Claims Act/FIRREA Case as Court Assesses Treble Damages and Penalties

by Bradley Arant Boult Cummings LLP

A federal court in Texas recently entered a massive judgment against a mortgage originator for financial crisis conduct, transforming an already severe $93 million jury verdict into a $298 million punishment, and issuing one of the first judicial opinions regarding how to assess penalties under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).

The suit began in 2011 as a whistleblower action, in which the government quickly intervened, alleging the submission of false Federal Housing Administration (“FHA”) insurance claims by Americus Mortgage Corporation (formerly known as Allied Home Mortgage Capital Corporation), one of its affiliates, and its CEO (collectively, “Allied”) between 2001 and 2011. The matter eventually proceeded to a five-week jury trial, where Allied was found liable for multiple violations of the False Claims Act (“FCA”) and FIRREA. The conduct proven at trial involved:

  • Submission of 1,192 FHA insurance claims for loans that were recklessly underwritten and ineligible for FHA insurance;
  • Submission of 103 FHA insurance claims for loans originated in branches without proper HUD registration, using registration numbers of other, registered branches;
  • Submission of nine false annual certifications to HUD relating to compliance with quality control requirements; and
  • Submission of an email from Allied to a HUD employee in 2009 containing 18 falsified quality control reports.

The dramatic increase from the $93 million jury verdict resulted from mandatory trebling of the government’s damages under the FCA as well as the court’s imposition of civil penalties.

In an attempt to lessen the blow of mandatory FCA trebling, Allied argued that “net” damages, rather than “gross” damages are the proper sum to treble. A “net” damages calculation would allow deduction of any payment the government had received back on the claims from the amount of loss prior to trebling. The court rejected this argument and Allied’s supporting case law from the Seventh Circuit, noting that Fifth Circuit precedent expressly prohibits such deductions. With trebling, the United States’ “gross” damages increased from $92,982,775 to $278,948,325 for the claims related to unregistered branches and underwriting failures.

The FCA also mandated penalties of $5,500 to $11,000 per claim for Allied’s conduct, in addition to treble damages. (This amount could have been higher had the conduct occurred more recently, as FCA penalties since 2015 have begun increasing each year with the inflation rate. The current range is $10,957 to $21,916.) Here, the court assessed $10,000 penalties, finding Allied’s conduct worthy of penalties at “the high end of the spectrum” for pre-2015 conduct, because of the many years across which the fraud occurred, the intentionality and severity of the conduct, the large amount of actual damages incurred by the government, and Allied’s failure to come clean when confronted by HUD during a routine audit years prior. The court assessed a penalty for each of the 103 claims submitted by unregistered branches and the 1,192 claims with underwriting failures—for a total of $12,950,000 in FCA penalties.

The court then turned to assessing FIRREA penalties, for which it has broad discretion and a dearth of case law to provide guidance. The statute allows for the assessment of penalties up to $1,100,000 per violation, up to $5,500,000 for a continuing violation, or the amount of the pecuniary gain or loss resulting from the violation. Although FIRREA has been on the books since 1989, there is little authority available for defendants to gauge where their conduct falls on the penalty spectrum when considering whether to settle with the government or take the risk of trial. The court in this matter appears to be only the third court in the country to address the calculation in an opinion, and to date, assessed the most severe FIRREA penalties. See United States v. Luce, No. 11 C 05158, 2016 WL 6892857, at *5 (N.D. Ill. Nov. 23, 2016) ($0 penalty) and United States v. Menendez, No. CV 11-06313 MMM JCGX, 2013 WL 828926, at *10 (C.D. Cal. Mar. 6, 2013) ($40,000 penalty). As a result, the court’s method of assessing FIRREA civil penalties in this case is worth careful study by financial institutions.

The court adopted a “totality of the circumstances” inquiry and considered the following factors:

  1. the good or bad faith of the defendant and the degree of his scienter;
  2. the injury to the public, and whether the defendant’s conduct created a substantial loss or the risk of substantial loss to other persons;
  3. the egregiousness of the violation;
  4. the isolated or repeated nature of the violation; and
  5. the defendant’s financial condition and ability to pay.

The court also rejected Allied’s argument that it would be unconstitutional to assess both FCA and FIRREA penalties for the same conduct, finding instead that the false certifications and quality control reports were different conduct than the problematic FHA insurance claims.

Testimony of former executives seemed to damn Allied in the court’s eyes, as one executive admitted that she and other officers knew that Allied was not in compliance with quality control rules and yet signed the certifications nonetheless. The court found that the conduct had continued for years and reflected a “high level of scienter and egregiousness” but that the defendants’ financial situation “weigh[ed] slightly in favor of a less than maximum allowable” penalty. The court assessed separate FIRREA penalties against the Company, its affiliate, and its CEO of $1,100,000 for the false certifications and $1,100,000 for the falsified quality control reports. The FIRREA penalties alone thus totaled $6,600,000.

Although the damages and penalties imposed in this case are shocking, there is a silver lining for financial institutions. The Allied ruling has now provided some guidance as to the ceiling for FIRREA penalties where no such guidance previously existed. Moreover, although the penalties seem harsh, the court actually declined to penalize Allied to the fullest extent requested by the government—which sought imposition of $9,900,000 in FIRREA penalties across the three defendants. Where defendants can demonstrate that conduct is more akin to “an isolated or occasional mistake,” rather than “a prolonged, consistent enterprise of defrauding,” they may successfully lessen the impact of civil penalties under FCA or FIRREA. We will continue to provide you updates as this area of the law develops.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

Written by:

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.