United States v. Robert S. Luce
873 F.3d 999
7th Cir.2017Background
- MDR Mortgage (loan correspondent) submitted annual HUD V-forms certifying that its principals were not subject to criminal proceedings; Robert Luce, MDR’s owner and signatory on multiple V-forms, had been indicted for federal crimes in April 2005 and later pled guilty to obstruction in 2008.
- HUD requires V-form certifications as an eligibility condition for participation in FHA mortgage insurance; HUD investigated after a tip in 2008, initiated debarment, and ultimately debarred Luce and MDR.
- The United States sued Luce under the False Claims Act (FCA) and FIRREA alleging false certifications on V-forms caused HUD losses when insured loans defaulted; district court granted summary judgment for the Government on liability and later awarded treble damages.
- The district court applied the Seventh Circuit’s prior "but-for" causation rule (United States v. First Nat’l Bank of Cicero) and, after the Supreme Court’s Escobar decision, found Luce’s false V-form certifications material as a matter of law.
- On appeal Luce challenged materiality under Escobar and argued Escobar’s adoption of common-law fraud principles requires replacing Cicero’s but-for causation with proximate causation.
- The Seventh Circuit affirmed materiality but overruled Cicero, holding that proximate causation (not pure but-for) applies to FCA damages, and remanded for the district court to apply the proximate-cause standard to damages.
Issues
| Issue | Plaintiff's Argument (United States) | Defendant's Argument (Luce) | Held |
|---|---|---|---|
| Materiality of V-form false certifications under Escobar | V-form lies were material because HUD’s rules bar indicted principals and HUD acted (debarment) when it learned of the indictment. | V-forms were not material: HUD approved loans after learning, accepted operations without forms, and V-forms weren’t tied to individual loan decisions. | Held: V-form misstatements are material as a matter of law under Escobar; district court did not err. |
| Appropriate causation standard for FCA damages (but-for vs proximate) | Government relied on Seventh Circuit’s Cicero (but-for causation): losses would not have occurred but for the false certifications. | Cicero’s but-for rule is inconsistent with common-law fraud principles invoked by Escobar; proximate causation should apply. | Held: Overrule Cicero; proximate causation (foreseeability/legal causation) governs FCA damages; remanded to apply proximate-cause analysis. |
| Sufficiency of scienter finding on summary judgment | Evidence (Luce’s awareness of indictment and continued certification) establishes knowledge/deliberate ignorance; summary judgment appropriate. | Luce argued he believed himself innocent and district court made improper credibility findings. | Held: Scienter established (deliberate ignorance/reckless disregard), summary judgment on scienter sustained. |
| Damages allocation and remand scope | Government computed trebled net loss based on numerous defaulted loans. | Luce challenged foreseeability and contended many later endorsements occurred after HUD knew—reducing recoverable loans. | Held: Because proximate-cause analysis was not developed below under new standard, case remanded for district court to re-evaluate which losses were proximately caused by Luce’s misrepresentations. |
Key Cases Cited
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA implied-certification theory; materiality means having a natural tendency to influence the Government’s payment decision and requires rigorous inquiry)
- United States v. First Nat'l Bank of Cicero, 957 F.2d 1362 (7th Cir. 1992) (prior Seventh Circuit precedent applying but-for causation under the FCA; overruled by this opinion)
- United States v. Hibbs, 568 F.2d 347 (3d Cir. 1977) (adopted proximate-cause requirement; held a causal connection between fraud and loss is required)
- United States v. Miller, 645 F.2d 473 (5th Cir. 1981) (endorsed proximate causation over a broad but-for rule for FCA liability)
- United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702 (10th Cir. 2006) (approved proximate-cause approach and common-law causation principles in FCA context)