all right our third case for day is united states against robert loose mr shapiro and thank you judge and may please the court michael shapiro on behalf of the appellant robert luce although we raise a number of issues in our brief there are two primary i would like to address today causation and materiality starting first with the causation issue the facts of this case illustrate in a very real way how the choice of a causation standard can affect the outcome in a false claims that case this case was based on to any will forms in the insured one context the district court itself concluded that those forms did not result in any loans defaulting despite well but that i guess i want to just tweak what you said a little bit because as i understand it what the district court said was at the threshold program eligibility level mr lew says failure in the two thousand and six form to indicate that he had been indicted in two thousand and five for various types of fraud  certainly affected his ability to have his company m g r continue in this program because hud would have looked at the criminal information and the language is quite clear at the next level down you know did did his failure to reveal this you know mean that somebody didn't lose their job and the fault in their mortgage mess up it wasn't connected so so the job for us is to decide whether this is one of these you know whether we should look at the threshold and say but for luce's failure to disclose as he should have done we wouldn't have had this company in the market at all we don't know if these borrowers would have gone to somebody else whether they would have skipped the idea of purchase all together we just don't know but we do know that this is what was necessary for the first step yes judge and i think something you just said touches on why the choice of of the test yes and that was the test set by this court in first national bank of cicero i think now is an appropriate time to revisit that decision for several important reasons the first is looking at the instructions from the supreme court just last year in the you say that about escobar but i you know i went back and looked at escobar a couple of times and it is certainly true supreme court a couple of times almost in passing says you know well we should look at you know for example over here it's page around page one nine ninety nine congress intends to corporate well seanie well settled meaning of common law terms but that escobar isn't about the causation standard about materiality i agree that the causation is not directly addressed and i got a really addressed at all what other other than this offhand reference to the common law i wouldn't call it a common an offhand reference to the common law i would  would look at what the supreme court said there and it wasn't just oh we acknowledge that there are common law fraud standards out there when you look at the language and escobar believe it says we presume common law standards apply unless they are not consistent with the statutory text of the f c a they say we presume it's a presumption and i think that's a pretty powerful statement by the supreme court because we're starting in a place where the presumption is that the common law elements of common law fraud are going to apply unless they are not consistent with the statute but you are implying that this court's standard looking at that threshold of eligibility is actually inconsistent with  can't find anything in there and i don't think it answers the question what was congress concerned about with the false claims act surely an agency is entitled to have to have upfront screening about who's able to get money from it's programs i have no disagreement with that statement judge would i think there you what you're looking at here is when does a regulatory violation cross the line into conduct that can rise to the level of a false claims act violation you can obviously have both a regulatory violation and a false claims act violation based on the same facts in any given case and there could be many regulatory violations that would not you know if you used the the wrong version of the form or if you you know forgot your most recent address or something like that i mean i've filled out my share of giant government forms and many of them it seems you know are details you try to get right that would not be regarded as material by somebody if you got them wrong but this is the centerpiece i mean this as as the government points out this is a program under which the united states underwrites these are you know our backs up these mortgages and so we have a real moral hazard problem from law and economics point of view and we need to address that by these upfront disclosures and there's no question that the government was entitle to have those sorts of upfront disclosures there's two questions that it didn't get them in it lost a lot of money and underwrote a lot of mortgages that it wouldn't have underwritten well i think you have to also remember the fact that over ninety five percent of the loans at this case were reassuring from one government insured loan or refinancing i'm sorry from one government insured loan to another so in over ninety five percent of the loans at issue here the government was already on the proceedings strong evidence that the certification was material well i think you have to look at what kind of action the government took it did move to debar mr luce but the government  deposition by hud executive julie schaefer stated that the government could have declined to ensure loans were belief fraud was involved the government took no such action there the government had immediate regulatory action to take against both m t r and mr l instead what the government did was for six months or approve insurance on hundreds of new loans from that point forward so you a reasonable jury could ask how important was this representation to the government when it loud itself to be on the hook as an insurer for hundreds of new loans following full disclosure of the facts about mr loses the forms and his unrelated criminal case mr shapiro as they understand it there is  i don't believe there's any dispute in this case that common law fraud principles require the application of proximate cause ation and to recover knowledge of how proximate cause you should play you know in your cubes with this so how it would play out here judge is you would have to you have to look at whether the damages the government claims and those are the payments it made as a result of loan defaults and the insurance on them whether those payments were the reasonably foreseeable consequence of mr looses representation on the b forms specifically looking at the character and the nature of that representation and there is nothing in the representation about mr loose as unrelated criminal proceedings that made alone more likely to  where i think it's appropriate even though these cases did not at directly address whether proximate cause ation should apply when you look at the facts in cases like anger mortgage and dolphin mortgage there you have representations in order to it obtain the government insured loans that were hang the tenth circuit stated that it was a school expressly adopting proximate cause ation to narrow rather than enlarge the field of actions for which f c a liability may be imposed the tenth circuit went on to emphasize that proximate cause ation strikes the proper analytical balance because we have a static here in the f c a that's punitive at least partially punitive in nature based on the mandatory troubling of damages and thus a strict construction of the statute and was expressly provided otherwise in the statutory text is necessary to protect against open ended liability and why do we privilege the narrowing construction seems to me escobar charts a middle course  rejects the idea that this implied full certification notion is always wrong at same time it makes sure that there's a rigorous materiality requirement it's it's a little bit of both but it strikes me as kind of a middle ground so so why do you automatically jump to the narrowest possible doesn't congress want to collect money when people make false claims to the us i don't believe that it i don't believe it ask i don't believe i am charging deterring the narrowest ground here only with what you just said that's what the tenth circuit's rationale was a sponsor judge ripples question and so you i thought maybe i misunderstood you thought you were saying that we too should look for the very narrow to rule that we could find what i would say that the guidance from escobar that this court should take away is that escobar expanded when it recognised implied certification liability and things that have been rejected in some circuits before that the realm of activity think that can fall within the false claims act is a bit broader but once you're going to that so that's a kind of a threshold what has to happen in order for a claim to be made under the f c a but you need to take a narrower approach before you're going to impose liability in this case the tune in excess of ten million dollars based on a form that nobody considered with respect to a particular loan and by the district court's on it conclusion there was no negligence or malfeasance here the loans that w client crimes while they were unrelated to the to the industry maybe they do fall within the the scope and possibility of the form and that was reason to take a regulatory action against him for sure but to take the next step and to say that those forms can result in a liability in excess of ten million dollars you have to have proximate cause ation you have to look at whether the any harm the action the government resulted was a reasonably foreseeable consequence based on the nature of the thousand and six what we presume we did not present affidavit is the evidence that we presented is that government witnesses were looking for the v forms they were asked about them and after going through the record and investigating this they i think that makes the absence of zero five and zero six all the more conspicuous and we didn't mention the zero three and zero four forms in our brief but they can be found on the in the appendix at pages four fifty seven to four fifty eight i see how important you know you can save your last minute and forms as you've already discussed that are basically the first step of even getting into the program because he lied to to get into the program but it does seem at least worth discussion that the measure of damages that the government sought was measured by the mortgages that defaulted and how much had wound up having to pay as a result of these guarantees trebled of course and i can see there's a big difference between sixteen thousand five hundred dollars and ten million you know if you've got the the penalties that are so small and it's of some concern whenever we're an outlier circuit so so why shouldn't there need to be a closer connection between his lies on the deforms and and the measure of damages that you're looking for well first with regard to being out later circuit and we think you're nearly the outlier circuit that has been characterized previously in itself there were two circuits the third in the fifth circuit that had adopted a proximate cause standard in the loan guarantee context and that's really it's sort of in that context that these principles really are short you need to analyze them because the w should you know disagree with the other circuits and there was no call to do that so in one thousand night into the court made a decision in part because it recognised that cases like him had adopted an unduly restrictive standard here again this is i consistent with false claims of principles direct and i guess it is most consistent with the i mean the notion of promissory fraud and if that's the case or a principle that appears in cases like the main case that you cited in our brief and there the court was very clear when you use your phase one false statements to gain entry and maintain your eligibility to be in the program to get government subsidies of some sort in that case it was department education federal student loan funds when you use a do a false statement there is the false statement of promises of compliance with something called the incentive compensation plan this very important to the government just to recap no problem with saying those false statements or integral to a causal chain leading to payment and the payment again at the back end was in a variety of ways you would either pay out you know student grants funds to straight up payments being made or sometimes you would be called upon as in this case to make up the difference when defaulted student loan and so the causation is firmly embedded in the false claims act and i think that that you know this court again addressed it in cicero she said would you recognize that escobar has nothing to say about causation all it does is drop a footnote that sort of mentions the well established principle that you know we construe the false claims act against well established common law principles and it cites two in one thousand nine hundred nine case neater so it's not a new principle there's nothing new there's no cause to be reevaluating  cicero the two other cases that i think counsel was referring to that sort of trying to characterize this as an outlier circuit are not loan guarantee cases as ken does about a case about medicare fraud state laboratory you know sending bills and actually the proximate cause ation discussion is very complicated it actually rejects the defendant's more restrictive causation standard in favor of approximate calls standard it really it has no bearing on sort of the loan guarantee context in which there are many different causes and again that this court thought about all this in cicero insists rowe you know the district court had held that well the real cause here wasn't that you had lied you know on various forms to get s b a the small business administration to get them to your loans the real cause was a spy or that burned down the car dealership and this court said no like that's often going to be the case in a loan guarantees that you i take it though from the way you're presenting this argument that you would agree that this is maybe the pivotal question that if we were to adopt a proximate cause standard after the appropriate procedures and a rule forty yr whatever else he might have to do the government can't prove probably not i don't i don't  it's said it found that an experienced lawyer like mr lewis who has extensive background would know that somewhere it is would default and the government would turn to the principal response befalls applying the company's certification when mortgages it originated defaulted this all goes to the concept this is all reasonably foreseeable in fact the intended result of you know getting into this program is to have yourself covered by the government and of course they're going to be mortgage defaults but that that would imply that you don't need to know which mortgages are going to default you just have to know that out of the pool of the thousand mortgages you know one hundred who will default or something like that what i don't actually think you need to know a specific number that has to fall but again that's consistent with the fraud which is well imbedded in the false claims act in other words when you secure a contract through fraud you to take a supreme court case u s sexual markets versus hess from the one nine hundred forty s it's sort of a seminal false claims that case bidding to get a contract that you should otherwise have you are actually liable for all the claims that the government has to pay out there the same principle is at work here and i think that the court you know understood all that insists roe that the false claims act has other limitations built into it that sort of restrict you know runaway liability that you might be worried about with the but for causation standard most prominently the fact that you at the end of the day you need to have a claim you need to have the government be asked to pay default here so we're not talking about limitless liability and again i go back to the notion that there is normally a court when it calls for on bach reconsideration of a decision that's been around for twenty five years there's some cause for doing that there there is no c put limits on various types of white collar misbehavior whether it's the arthur andersen case or whether it's skilling case or whether it's escobar you know with taking the materiality requirement seriously the court is i think rightly concerned about these very open ended laws that that without some careful limitations found within the laws perhaps because of their common law background or for whatever reason may be in the criminal area the principle of lenity the court saying you know don't just run with these things and so from that point of view maybe there is a reason to reconsider cicero but that's a very high level of generalit the courts most recent thinking about the false claims act and i mean that validated the implied certification theory right it was a huge win for the government it was a it was an important case an important theory the notion that if there's anything false on the face of  was getting to is that what the supreme court said in adopting what the defendant said was going to be a catastrophic lead broad theory this implied certification theory defense have been arguing that for the past decade it was no there are limiting principles again built into the false claims act the key ones being the knowledge element and the materiality element and so the second half of escobar is about materiality and about how you determine the two reality didn't change the standard but it pointed to the fact the materiality is a limiting principle to as you know to prevent you being held liable for trouble damages for things that don't actually matter to the government but this is not such a case this is something where it is front and center that it matters to the government to throw in or i'm sorry the the forms  that they applied for the person for the proceeding to school here would that be evidence that the certification was not material to the decisions to make the loans for new year and to allow n p r to process them because the certification came only at the end of the year well your honor i think it's important understand these are annual certifications so you're just basically trying to make sure that you're dealing with a loan correspondent that has the proper integrity to be sort of your outward facing agent you know collecting the proper material from the borrowers and getting accurate material to the lenders there was as you know the district court spent considerable time thinking about whether it's a backward facing yet you know certification or a forward facing ultimately decided that it was a certification that was prospect of we don't think that's entirely right but it had the net effect the district court had the net effect limiting compressing those the liability for the defendant i mean the district court did a lot of things that in some respects limited the liability was very careful for instance you know to say that they couldn't give a summary judgment on the loan specific forms the  amplifying the notion this is something that matters to the government it's essential to the government scarboro precisely what is the legal liability of someone in this to use his position if there's t that makes him liable for a defaulted loan initiated through his organization made a misunderstanding in that it's a general provision of the false claims like using a false statement material to a false or fraudulent claim and it's well established that we think that success textbook case of what has happened here it's otherwise it can also be referred to as the promissory fraud theory you try to you obtain entry into a program that you are not otherwise eligible for because you have disqualifying criminal you know indictment soon it all hinge on there's a false or fraudulent claim the government pays on that claim yes and if the person on the capital b part heads made a false statement  material to that claim that's where the liability gets gesture on them and that that's so maybe i was over complicating my response but it is it is the fault of you know the literal provision to the false claims act that makes them liable  and that's a again that's a relatively common thing this court is recognizing lots and lots of cases the main case in particular uses the language integral to a causal chain leading to payment that's this precise language from maine the rogan case again it deals with a violation of the express condition of payment to ship a ship which is the government doesn't pay for kickback tainted claims you don't ask sort of you know it is each of these take claims tainted by kickbacks you say well certification of the certification payment that m t r made that year which would have a company the form from which a jury could infer th form was filed you know with the same as her presentation a couldn't ensure also choose not you know not to draw that inference is that i guess what i'm getting at is is that determination really appropriate for summary judgment we have struck because it's not just the the research occasion evidence that you refer to that we have in the record it's also the have the forms both before and after that are signed by mr luce there is no there's just no plausible evidentiary basis from which a jury could decide oh you know despite the long stream of mr lew signing these reforms you know he didn't do it in two thousand and six and again the district was very careful about not overreaching on summary judgment this court didn't give a summary judgment on the one thousand nine hundred eighty four hours because it found that there was a jury question about knowledge i mean we think that if we you know we were to go back to be able to prove knowledge in it's awfully close to two thousand and five i'm sorry i get testifying that he didn't file a two thousand and six form the just report looked at this issue carefully and we do think there's enough to support the you know finding that there was a two thousand and six form on file and liability so we've asked of the discourse judgment be informed in to draw between the first national bank of cicero involving you know an insured loan context and the secant a case involving medicare really isn't relevant to the question the pure question of law of what causation standard applies under the false claims ac under either of those situations it's what does the statute provide in following escobar what does the supreme court have to say about common law principles applying but there's not a different causation standard based on different underlying conduct for the false claims act so what about the government's backup theory that they knew out of i'm just going to make these numbers up out of every thousand loans you know some percentage maybe ten percent would default so if you're going to be participating in the program you're going to be going to the when you're looking at proximate cause in the in the fraudulent in the fraud context as applied by the common law historically it's not just that losses were reasonably foreseeable it's that losses were recently so foreseeable based on the specific character or nature of the representation  issue here here again why can't you meet that standard here you know the representation is you know i'm clean as a whistle you know let me be in the program and as soon as you're in the program some number of the loans you present to the government will default well as we point out over ninety five percent of the loans to government was already on the hook for as an insurer before the refinancing that and the ours did as a company affiliated with mr loose but more than that he said also didn't you that the interest rates always went down that these were refinances that the monthly payments always had to go down when there was a refinance and i think everybody would agree even the government that if a monthly payment is lowered the risk of default is lower as well and thus the risk that