830 F. Supp. 2d 223
S.D. Tex.2011Background
- Plaintiffs Allied Home Mortgage Corporation and Hodge seek a temporary restraining order and expedited preliminary injunction to enjoin HUD suspensions affecting Allied’s FHA origination/underwriting authority and Hodge’s participation, effective November 1, 2011.
- The government intervened in a NYqui tam action against Capital and, as successor to Capital, against Allied entities; the suspensions are tied to the NY case.
- HUD’s notices allege long‑standing violations by Capital; HUD treated Capital and Allied as a continuous entity, alleging branch, QC, and reporting failures.
- Corp. acquired most Capital’s assets in 2010 under an Asset Purchase Agreement that purportedly excludes liabilities; Texas law generally does not recognize successor liability absent express assumption.
- Court must assess APA review standards, including whether HUD’s actions were arbitrary and capricious, and whether injury to Allied and Hodge is irreparable and outweighed by public interest.
- The Court finds that, for purposes of this injunction, Corp. and Hodge are distinct from Capital; the APA review and Texas law analysis support issuing a preliminary injunction to preserve Corp.’s business and jobs during NY litigation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HUD’s suspensions were arbitrary and capricious under the APA. | Corp./Hodge argue successor theory misapplied; suspensions based on Capital conduct. | Government contends ongoing, interrelated violations by Capital and Allied justify suspensions. | Yes, to extent based on Texas successor‑liability issues, but injunction granted to preserve Corp./Hodge. |
| Whether Corp. and Hodge demonstrate irreparable harm justifying a preliminary injunction. | Suspensions would destroy Corp./Hodge’s business and jobs, with inadequate legal remedies. | Harm could be remedied post‑litigation; conventional lending can continue. | Yes; irreparable harm shown by potential business destruction and public policy interests. |
| Whether Texas law negates successor liability to support HUD’s action. | Asset Purchase Agreement excludes liabilities; not a successor. | Connections between Capital and Corp. justify liability transfer. | Texas law does not recognize successor liability absent explicit assumption; supports injunction disposition. |
| Whether procedural due process and notice were adequate to support suspensions. | Notified with vague, conclusory charges; hard to prepare a defense. | Notices and Board procedures complied with regulatory framework. | Preliminary injunction granted notwithstanding; due process concerns weighed in favor of preserving status quo. |
Key Cases Cited
- Sun Towers, Inc. v. Schweiker, 694 F.2d 1036 (5th Cir.1983) (APA review standard of arbitrary and capricious agency action)
- Janvey v. Alguire, 647 F.3d 585 (5th Cir.2011) (prima facie substantial likelihood of success and irreparable injury)
- Callaway, 489 F.2d 567 (5th Cir.1974) (purpose of preliminary injunction to prevent irreparable injury)
- Bennett v. Spear, 520 U.S. 154 (1997) (finality and exhaustion principles under APA)
- Tex. Oil & Gas Ass’n v. U.S. E.P.A., 161 F.3d 923 (5th Cir.1998) (agency action review under arbitrary and capricious standard)
- Homes v. Heckler, 707 F.2d 162 (5th Cir.1983) (definition of substantial evidence)