70 F.4th 968
7th Cir.2023Background
- Calderon, a former Carrington Direct Endorsement underwriter, sued under the False Claims Act (FCA), alleging Carrington falsely certified FHA-underwriting compliance when seeking HUD insurance on loans.
- HUD’s process: lenders underwrite and certify loans; HUD does a pre-endorsement check (mainly document presence) and selects ~5% of loans for post-endorsement technical review that can trigger indemnification agreements for "serious and material" origination violations.
- Calderon re-underwrote a sample of 349 Carrington loans that later defaulted and identified deficiencies (overstated income, omitted debt, inadequate documentation, improper compensating factors).
- The district court excluded large parts of Calderon’s expert testimony under Rule 702 and granted summary judgment to Carrington, finding Calderon failed to prove materiality and causation.
- On appeal the Seventh Circuit held Calderon had enough evidence to raise a genuine dispute as to materiality but failed to produce admissible evidence linking the alleged false certifications to HUD’s losses (proximate causation), so summary judgment was affirmed on that ground.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Calderon's expert testimony under Rule 702 | Calderon: her underwriting experience qualifies her to opine on HUD materiality, causation, and Carrington QC | Carrington: Calderon lacks relevant QC experience and her methods are speculative | Court: excluded opinions beyond Calderon’s direct experience (no abuse of discretion); allowed limited experience-based testimony |
| Materiality of false certifications under Escobar | Calderon: regulations and HUD letters showing indemnification requests, plus her re-underwrite, show the alleged defects were material | Carrington: HUD’s reviews and mitigation history show HUD knew of or tolerated defects, undermining materiality | Court: reversed district court on materiality — evidence (regulations, HUD letters, re-underwrites) sufficed to create a jury question |
| Causation (proximate cause of HUD’s losses) | Calderon: causation can be shown statistically (elevated default rate) or loan-by-loan using the 349 re-underwrites | Carrington: Calderon failed both; no loan-level causal link and no reliable statistics limited to FHA-insured loans | Court: affirmed dismissal — Calderon produced no admissible evidence tying the alleged misstatements to the defaults (proximate cause not shown) |
Key Cases Cited
- Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176 (2016) (sets FCA materiality standard and warns government payment despite knowledge undermines materiality)
- United States v. Luce, 873 F.3d 999 (7th Cir. 2017) (FCA recovery requires both actual and proximate cause)
- United States v. Miller, 645 F.2d 473 (5th Cir. 1981) (in FHA cases, must show false statements caused subsequent defaults)
- United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977) (loss to government is from default; plaintiff must connect false certifications to default)
- United States v. Hodge, 933 F.3d 468 (5th Cir. 2019) (approving statistical proof of a culture of reckless underwriting tied to elevated default rates)
- United States v. Spicer, 57 F.3d 1152 (D.C. Cir. 1995) (intentional misstatements about down payments foreseeably cause HUD losses when loans later default)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (expertise may be developed in varied, nontraditional ways)