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United States v. Anchor Mortgage Corp.

May 10, 2010

UNITED STATES OF AMERICA, PLAINTIFF,
v.
ANCHOR MORTGAGE CORP. AND JOHN MUNSON, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

The United States has sued Anchor Mortgage Corp. and John Munson, its former president, under the False Claims Act. It alleges that Anchor fraudulently procured HUD-insured mortgages on thirteen properties. Eleven of them went into default, leading to foreclosure, transfer of title to HUD, and submission of insurance claims. The insured lender on the other two properties allowed the defaulting borrowers to sell the properties for less than the amount due, and insurance claims were presented to HUD for the difference.

Alfredo Busano, an employee of Anchor and the manager of its Elgin, Illinois branch office, entered a guilty plea to a charge of mail fraud. In his plea agreement, Busano admitted that he processed mortgage loan applications that he knew included material false information regarding the source of funds the purchasers were using for their down payments. Busano also admitted that he and Anchor received fees and commissions for processing the loans. He identified fourteen properties in Poplar Grove, Illinois on which fraudulently-obtained mortgage loans had been made. See Pl. Ex. C.

Prior Rulings

The Court begins by recounting its recent unpublished ruling that vacated certain earlier rulings in the case.

This case, which was filed in January 2006, was originally assigned to Judge James Moran. In 2007, the government moved for judgment on the pleadings, seeking a judgment in the amount of approximately $2 million. The government argued that Busano's guilty plea estopped Anchor from denying liability, by operation of a provision of the False Claims Act, 31 U.S.C. § 3731(e). Section 3731(e) reads as follows:

Notwithstanding any other provision of law, the Federal Rules of Criminal Procedure, or the Federal Rules of Evidence, a final judgment rendered in favor of the United States in any criminal proceeding charging fraud or false statements, whether upon a verdict after trial or upon a plea of guilty or nolo contendere, shall estop the defendant from denying the essential elements of the offense in any action which involves the same transaction as in the criminal proceeding and which is brought under subsection (a) or (b) of section 3730. 18 U.S.C. § 3731(e). Anchor argued that the government was misreading section 3731(e). The dispute largely concerned the meaning of the term "the defendant" in the statute. The government argued that it referred to the defendant in the civil False Claims Act case, even if this was a different person or entity from the defendant found guilty in the related criminal case. Anchor argued that the term referred only to the defendant in the criminal case.

In June 2007, Judge Moran issued a brief decision in which he noted the near-absence of any prior decisions addressing the point and then concluded, for reasons he described, that the statute meant what the government argued. He concluded that "Anchor cannot . . . deny the essential elements of the criminal offense and those elements impose liability upon Anchor," even though Anchor had not been a party to Busano's criminal case. United States v. Anchor Mtg. Corp., 503 F. Supp. 2d 959, 960-61 (N.D. Ill. 2007). Judge Moran declined to enter judgment, however, because Anchor had raised a statute of limitations defense. Id. at 961. The defendants moved for reconsideration, but Judge Moran denied that motion in September 2007. United States v. Anchor Mtg. Corp., No. 06 C 210, 2007 WL 4919561 (N.D. Ill. Sept. 4, 2007).

Discovery ensued, as well as a period during which Judge Moran was seriously ill and his day-to-day court call was being supervised by other judges. In January 2009, Judge Robert Dow issued a decision in a different case in which he reached the opposite conclusion from Judge Moran regarding the construction of section 3731(e). See United States v. Dolphin Mtg. Corp., No. 06 C 499, 2009 WL 153190 (N.D. Ill. Jan. 22, 2009). Defendants in the present case then asked Judge Moran to certify the question he had decided back in 2007 for interlocutory appeal under 28 U.S.C. § 1292(b). Judge Moran denied that motion in April 2009, just before his unfortunate death. United States v. Anchor Mtg. Corp., No. 06 C 210, 2009 WL 1034562 (N.D. Ill. Apr. 14, 2009). The case was reassigned to the undersigned judge's call a little over a week later, on April 23, 2009.

In early September 2009, the United States moved for entry of summary judgment on the issue of damages. It argued, essentially, that as a result of the earlier ruling by Judge Moran regarding liability, the defendants were liable for civil penalties of $71,500 plus damages of $3,265,237, consisting of the "actual damages" from the mortgage loans that had been the subject of the motion for judgment on the pleadings, plus trebling under the False Claims Act, less offsets for money paid and recovered. In response to the motion, defendants argued, among other things, that Judge Moran's June 2007 order was erroneous and violated their due process right to be heard because they had no opportunity to contest matters purportedly determined in Busano's criminal case.

The Court vacated Judge Moran's liability ruling. The Court noted that it was "cognizant of the prudential limitations imposed on a judge who inherits a case in which another judge has made a substantive ruling." Order of Feb. 16, 2010 (citing Gilbert v. Ill. State Bd. of Educ., 591 F.3d 896, 902 (7th Cir. 2010)). Specifically, "[t]he successor judge should depart from the transferor judge's decision only if he has a conviction at once strong and reasonable that the earlier ruling was wrong, and if rescinding it would not cause undue harm to the party that had benefitted from it." Gilbert, 591 F.3d at 902 (internal quotation marks and citation omitted). This Court stated that it had carefully considered the matter and concluded that it "does, in fact, have a strong conviction, which it believes is reasonable, that Judge Dow's analysis of section 3731(d) [sic] is correct, and that the June 2007 ruling in the present case is erroneous." Order of Feb. 16, 2010. The Court stated that it did not believe that rescinding that ruling would cause undue harm to the government. Rescinding the ruling would, to be sure, require further discovery and proceedings in this case, but the Court can perceive no unfair or undue harm. On the other side of the ledger, were the Court to proceed ahead based on a ruling that it is convinced is incorrect, it would essentially be foisting the matter onto the Court of Appeals, which if it agreed with this Court would remand the case for still more proceedings. The Court believes that the better course is to correct the error now and conclude the case based on what it perceives to be a correct view of the law.

Id.

As it turned out, the Court's order did not engender further discovery; both sides reported to the Court that they were prepared to move ahead on the record as it stood. The ...


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