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United States v. Luce

United States District Court, N.D. Illinois, Eastern Division

July 10, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
ROBERT S. LUCE, Defendant.

          MEMORANDUM OPINION AND ORDER

          JOHN J. THARP, JR. UNITED STATES DISTRICT JUDGE

         The United States brought this action against Robert S. Luce, alleging violations of the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., and the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”), 12 U.S.C. § 1833a. This lawsuit stems primarily from false statements made by Luce on annual verification forms submitted to the U.S. Department of Housing and Urban Development (“HUD”) and the Federal Housing Administration (“FHA”). In two previous opinions, this Court first granted summary judgment in the government's favor as to Luce's liability under the FCA and FIRREA for the false certifications on the forms for 2006, 2007, and 2008, and then awarded $10, 357, 497.69 in damages and $16, 500 in penalties for the FCA violations. On appeal, the Seventh Circuit reversed in part and remanded, and in the process it changed the standard for causation that applies to FCA claims. The parties have since conducted a supplemental round of briefing concerning the effect of the Seventh Circuit's decision. Now before the Court are the parties' cross-motions for summary judgment, as well as the government's motion to strike several of Luce's filings from this latest round of briefing. For the reasons that follow, all three motions are granted in part and denied in part.

         BACKGROUND

         Given the various prior opinions by this Court and the Seventh Circuit in this matter, the Court assumes familiarity with the underlying facts and recounts only the central facts here. See generally Mem. Op. and Order (“Liability Op.”), ECF No. 113; Mem. Op. and Order (“Damages Op.”), ECF No. 142; United States v. Luce, 873 F.3d 999 (7th Cir. 2017). To summarize, Luce is an attorney who previously worked in the enforcement division of the Securities and Exchange Commission (“SEC”). He later started his own mortgage company, MDR Mortgage Corporation (“MDR”), and served as president of that company from its founding in 1993 until its closing in 2008.

         During that time, MDR was a mortgage broker and loan correspondent for HUD and the FHA. As a loan correspondent, MDR could originate loans by sending loan applications to a HUD-approved direct endorsement sponsor mortgagee for underwriting approval prior to loan closing. The majority of loans that MDR processed were already insured by the FHA and were being refinanced into lower-rate loans, although roughly 5 percent of MDR's business involved originating new FHA-insured loans.

         According to HUD regulations, mortgagees are ineligible to participate in the HUD/FHA mortgage insurance program if any of their officers, partners, directors, principals, managers, or supervisors are “indicted for, or convicted of, an offense that reflects adversely upon the integrity, competency, or fitness to meet the responsibilities of the lender or mortgagee to participate in the Title I or Title II programs.” United States' Rule 56.1 Statement of Material Facts ¶ 34, ECF No. 87. To help ensure compliance with this rule, HUD requires mortgagees to provide a Yearly Verification Report (known as the “V-form”) as part of their annual recertification. In that form, signatories must certify that “none of the principals, owners, officers, directors and/or employees of the [loan correspondent] are currently involved in a proceeding and/or investigation that could result, or has resulted in a criminal conviction, debarment, limited denial of participation, suspension, or civil monetary penalty by a federal state or local government.” Id. ¶ 35.

         In April 2005, Luce was indicted for wire fraud, mail fraud, making false statements, and obstruction of justice. The violations at issue in that case were unconnected to the operation of MDR. Despite the fact of this indictment, Luce signed V-forms containing the certification quoted above on behalf of MDR in 2006, 2007, and 2008. The government brought this complaint against Luce in July 2011, alleging that in signing these forms, Luce had violated both the FCA and FIRREA.[1]

         In September 2015, this Court granted summary judgment in the government's favor as to liability for the V-forms for 2006 to 2008, under both the FCA and FIRREA. The government subsequently moved for summary judgment on the issue of damages. This Court again granted summary judgment in the government's favor. This decision relied on this circuit's then-governing precedent, which at the time held that FCA violations required only a showing of “but-for” causation rather than proximate causation. See Damages Op. 5-6; United States v. First Nat'l Bank of Cicero, 957 F.2d 1362 (7th Cir. 1992), overruled by Luce, 873 F.3d 999. The Court awarded $10, 357, 497.69 in damages and $16, 500 in penalties for the FCA violations. With respect to FIRREA, the government calculated a civil penalty due of $3, 452, 499.23, but requested that the award be reduced to zero based on Luce's inability to pay that penalty. Luce concurred in this request, and so the Court assessed no penalty for the FIRREA violations.

         On appeal, Luce raised two primary arguments. First, he contended that his false V-form certifications were not material under the Supreme Court's decision in Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989 (2016). Second, he urged the Seventh Circuit to overrule Cicero and hold that FCA claims are to be addressed under proximate cause rather than but-for causation. The Seventh Circuit rejected Luce's first argument and approved of this Court's determination that Luce's false V-form certifications were material as a matter of law; however, it agreed with Luce on his second challenge. Accepting Escobar “as a catalyst, ” the court reconsidered its prior precedent and decided to “overrule Cicero and adopt the proximate cause standard for FCA cases.” Luce, 873 F.3d at 1001, 1014. The court determined that the issue of whether the government could establish that Luce's falsehood was the proximate cause of the government's harm had not been adequately developed by the parties. Accordingly, it wrote that the “proper course” was “to remand this action to allow the district court to evaluate the evidence according to the new prevailing standard of proximate causation.” Id. at 1014.

         On remand, at a status hearing on February 8, 2018, the Court and the parties discussed how to proceed in light of the Seventh Circuit's decision. The Court's minute entry from that hearing stated: “The Government is to file a supplemental briefing on the issue of causation by 3/27/18. Defendant's response to that brief is due by 4/24/18; the government's reply is due by 5/15/18.” Min. Entry 1, ECF No. 169. After the government filed its supplemental brief, Luce responded by filing a cross-motion for summary judgment, along with a combined brief in response to the government's supplemental brief and in support of his own cross-motion for summary judgment. Luce also filed a Local Rule 56.1 statement of facts, along with a series of exhibits. The government then filed a motion to strike, asking the Court to strike several of Luce's filings, on the grounds that the Court had not granted leave for either party to file new motions or present new evidence to the Court.

         DISCUSSION

         I. Motion to Strike

         At the status hearing on February 8, 2018, the Court stated that “we need to have supplemental briefing on the issue of causation predicated on the Seventh Circuit's ruling changing the applicable standard.” Feb. 8, 2018 Hr'g Tr. 2:24-3:1, ECF No. 185. The Court added that “we're dealing with the summary judgment record already as it exists, ” and that “we have to revisit the legal argument of causation predicated on that, ” a point on which the attorneys for both parties agreed. Id. at 3:7-12. In light of the fact that the government had filed the initial motion for summary judgment that had been granted prior to the Seventh Circuit's ruling, the Court concluded that it was “appropriate” for the government “to open the briefing on the causation issue predicated on the new standard and then for the defendant to respond to that.” Id. at 3:16-21. The minute entry from that hearing read as follows: “The Government is to file a supplemental briefing on the issue of causation by 3/27/18. Defendant's response to that brief is due by 4/24/18; the government's reply is due by 5/15/18.” Min. Entry 1.

         Each party objects to how the other side handled the briefing that followed. Luce argues that the government has violated both the Federal Rules of Civil Procedure and this district's Local Rules. The reason for this, Luce says, is that the government did not file either a motion for summary judgment or a Local Rule 56.1 statement in support of such a motion in this round of briefing. See Def.'s Combined Mem. in Resp. to the Government's Suppl. Summ. J. Brief and in Supp. of Def.'s Cross-Mot. for Summ. J. (“Def.'s Combined Mem.”) 2, ECF No. 180. This is incorrect. What the Court called for in the February 8, 2018, status hearing was “supplemental briefing, ” based on “the summary judgment record already as it exists.” Feb. 8, 2018 Hr'g Tr. 2:24-3:8. The government was not required to file a new motion for summary judgment-and not only was it not required to file a new Local Rule 56.1 statement, but it was specifically directed not to do so. In other words, the Court understands the government's motion for summary judgment from the previous round of briefing to still be before this Court. The supplemental brief filed by the government simply provides new arguments for why that motion should be granted, based on the law as articulated in the Seventh Circuit's opinion.

         Having parried Luce's argument that it did not do enough, the government objects in turn that Luce did too much. It contends that this Court “did not grant leave for either party to file additional fact statements, conduct further discovery, submit new evidence, or file a new motion for summary judgment.” United States' Mot. to Strike Def. Robert Luce's Mot. for Summ. J. and His Supporting Statement of Facts and New Evid. ¶ 4, ECF No. 188. Rather, the briefing schedule set by the Court provided for only three briefs: the government's initial filing, Luce's response, and the government's reply. Id. Instead of a single response, however, Luce filed a motion for summary judgment, a combined memorandum in response to the government's brief and supporting his own motion for summary judgment, a statement of facts, and a series of exhibits. The government has filed a motion asking the Court to strike these filings. Federal Rule of Civil Procedure 12(f) provides that a court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” It is within a district court's discretion to strike a party's unauthorized filing. Cleveland v. Porca Co., 38 F.3d 289, 297 (7th Cir. 1994).

         The Court declines to strike Luce's motion for summary judgment and the portions of his combined memorandum in support of that motion. It is true that Luce was not expressly authorized to file such a motion-but neither was he forbidden from doing so. Luce was instructed to file a response to the government's supplemental brief. Nothing in the Court's instructions prohibited Luce from asking for affirmative relief in that response. The Seventh Circuit's decision created new law that applies to the instant case. Luce takes the position that given the facts as previously developed and the law as clarified by the Seventh Circuit's opinion, he is entitled to summary judgment on the question whether he can be liable for any damages on the government's FCA claim. Luce is within his rights to make this argument. As he correctly points out, it would be a waste of judicial resources to require supplemental briefing on the issues of causation and damages but prevent Luce from asking for affirmative relief in the process. See Resp. in Opp'n to the Government's Mot. To Strike 2, ECF No. 194.

         Luce's other filings, however, are another matter. The Court was crystal clear in the status hearing that “we're dealing with the summary judgment record already as it exists.” Feb. 8, 2018 Hr'g Tr. 3:7-8. This should have been understood to prohibit either party from attempting to add to the factual record by placing new facts before this Court. In one of his filings, see ECF No. 176, Luce disregarded that instruction. That filing had two components. One of them consisted of a series of “additional facts” supporting Luce's cross-motion for summary judgment and denial of the government's motion for summary judgment. The other contained a series of “responses” to some of the government's statements, on the grounds that he had not had the opportunity to respond to those assertions in the previous round of briefing. Luce also included a series of exhibits, see ECF No. 176-1, in support of his cross-motion for summary judgment and his statements of facts. He states that all of these exhibits have previously been submitted to the Court, with one exception. That exception is a new declaration from Luce regarding the current state of his financial affairs, which is relevant to the issue of what penalties might be assessed against him.

         Whatever the reasons for the new filings, Luce violated this Court's instructions. To the extent that Luce believed that there were factual assertions that he needed the opportunity to respond to, the “proper response” would have been to seek leave from the Court to supplement the factual record. See Cleveland, 38 F.3d at 297. Luce did not do so. “One who decides to follow a schedule of his own devising, for reasons of his own invention, has no legitimate complaint when the tribunal adheres to the rules.” White v. Bentsen, 31 F.3d 474, 476 (7th Cir. 1994).

         Accordingly, the Court grants in part and denies in part the government's motion to strike. The Court denies the motion with respect to Luce's motion for summary judgment and his combined memorandum in response to the government's supplemental brief and in support of his own motion for summary judgment. It grants the motion, however, with respect to Luce's fact statements and supporting exhibits. Those filings will not be considered in evaluating the parties' cross-motions for summary judgment.

         II. The Scope of the Remand

         As discussed earlier, prior to the Seventh Circuit's decision in this case, this Court granted summary judgment in the government's favor as to liability for the V-forms for 2006 to 2008, under both the FCA and FIRREA. In its opinion on damages, the Court subsequently awarded $10, 357, 497.69 in damages and $16, 500 in penalties for the FCA violations. As for FIRREA, the government requested a civil penalty of $3, 452, 499.23, but that the award be reduced to zero based on ...


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