Court Opinion

ID: 3054039
Source: CourtListenerOpinion
Date Created: 2015-10-13 23:52:09.069525+00
Date Added: 2024-06-11T09:50:46.912727
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA,                
                Plaintiff-Appellee,             No. 07-55372
               v.
                                                 D.C. No.
                                              CV-06-01091-JFW
MORTEZA EGHBAL; MARILYN SYLVIA
TRUJILLO,                                        OPINION
           Defendants-Appellants.
                                         
        Appeal from the United States District Court
           for the Central District of California
         John F. Walter, District Judge, Presiding

                    Argued and Submitted
              June 4, 2008—Pasadena, California

                    Filed December 5, 2008

       Before: William C. Canby, Jr. and Jay S. Bybee,
           Circuit Judges; Justin L. Quackenbush,
                   Senior District Judge.*

                Opinion by Judge Quackenbush

  *The Honorable Justin L. Quackenbush, Senior District Judge for the
Eastern District of Washington, sitting by designation.

                               16053
16056                 UNITED STATES v. EGHBAL
                             COUNSEL

Lawrence C. Ecoff, Esq., Beverly Hills, California, and
Michael D. Nasatir, Esq., Santa Monica, California, for the
appellants.

Steve Frank, Douglas N. Letter, and Brian R. Young, Attor-
neys, U.S. Department of Justice, Washington, D.C., for the
appellee.

                              OPINION

QUACKENBUSH, Senior District Court Judge:

   This is civil action brought under the False Claims Act
(FCA), 31 U.S.C. § 3729, et seq., against Morteza Eghbal and
Marilyn Trujillo to recover treble damages and civil penalties
for making false statements to procure home mortgage insur-
ance from the Department of Housing and Urban Develop-
ment (HUD). Defendants Eghbal and Trujillo appeal from the
February 23, 2007 order of the District Court of the Central
District of California granting the United States’ motion for
summary judgment.

   The district court had jurisdiction pursuant to 28 U.S.C.
§ 1345 and 31 U.S.C. § 3730(a) and this court has jurisdiction
under 28 U.S.C. § 1291. Reviewing the district court’s grant
of summary judgment de novo, United States v. Johnson Con-
trols Inc., 457 F.3d 1009, 1012-13 (9th Cir. 2006), we affirm.

                       I.   BACKGROUND

  Throughout the 1990s, Eghbal and Trujillo purchased
HUD-foreclosed homes and resold them for profit to buyers
with mortgage secured loans insured by HUD.1 Eghbal and
  1
   The district court noted some confusion in the record over whether the
loans were actually insured by “FHA,” which meant either the “Federal
                       UNITED STATES v. EGHBAL                      16057
Trujillo sold to buyers who lacked sufficient assets to cover
the down payment on the properties, and provided the down
payment for the buyers by depositing their own personal
funds into escrow via cashiers’ checks.

   HUD would not insure a loan for a home for which the
down payment was paid by the seller. To that end, HUD
required a seller of a home to sign a document called an
Addendum to the HUD-1 Settlement Statement (Addendum).
By signing the Addendum, the seller certified that he had not,
and would not, pay the buyer for any part of the down pay-
ment, nor did the seller have knowledge of any loans made to
the buyer for purposes of financing the transaction other than
those described in the sales contract. HUD would also not
insure a loan without a validly signed Addendum. For each
instance in which they provided the down payment via cash-
ier’s check, Eghbal and Trujillo fraudulently signed the
Addendum, falsely stating that they provided no funds
towards the down payment.

   In total, Eghbal and Trujillo sold 200 properties, at least 62
of which defaulted on their HUD insured mortgages. The pair
were criminally charged with making false statements con-
cerning these 62 properties, to which they pled guilty via writ-
ten plea agreements. A smaller subset of 27 properties were
the subject of the FCA action. HUD paid out about $2.8 mil-
lion, representing the balances owing on the 27 defaulted
mortgages.

                II.   PROCEDURAL HISTORY

   The Government moved for summary judgment on its
claims under the FCA, submitting as evidence of liability the

Housing Association” or “Federal Housing Administration,” and which
was either a division of HUD or a precursor to the agency. The district
court, and this opinion, refer simply to “HUD” as the insurer of the loans.
16058              UNITED STATES v. EGHBAL
admissions made in the plea agreements. The Government
presented evidence that it paid out approximately $2.8 million
in claims from mortgage holders and other expenses related
to reselling the foreclosed properties and asked for treble
damages. The Government also requested that civil penalties
be imposed.

   The district court granted the Government’s motion, find-
ing that there were no triable issues of fact as to whether Egh-
bal and Trujillo were liable for violations of the FCA because
of the uncontroverted evidence that, absent the false state-
ments on the Addendum, HUD would not have insured the
mortgage loans. The district court relied on statements in Egh-
bal’s and Trujillo’s plea agreements that “HUD and FHA
would not insure a loan if the down payment was paid by the
seller, and the Addendum to the HUD-1 was not signed.”

   The district court further found there were no triable issues
of fact regarding the amount of the Government’s damages.
The court awarded $5,702,664.38 in damages plus the mini-
mum statutory penalty sought, $148,000. The court found that
HUD had paid $2.6 million to the lenders of the 27 HUD-
insured defaulted mortgages and with HUD’s taxes, mainte-
nance, and expenses totaling about $200,000, the total single
damages amounted to $2.8 million. That amount was trebled
by the court to a total $8.4 million. The court subtracted the
$2.7 million received from resale of the properties, indemnifi-
cation, and restitution made by Eghbal and Trujillo, resulting
in a judgment of $5,702,664 plus the civil penalty of
$148,000.

                     III.   DISCUSSION

                              A.

   [1] Eghbal and Trujillo contest the district court’s finding
that they were liable under the FCA for making false claims.
Eghbal and Trujillo contend that the Government failed to
                    UNITED STATES v. EGHBAL                16059
show that their false statements set into motion a false claim,
because they sought only to fraudulently induce HUD to
insure the mortgage, not to have the buyers default or cause
the mortgage holders to make claims on HUD. It is true that
Eghbal and Trujillo were not parties to the actual claims pre-
sented to HUD, made after the buyers defaulted, which
resulted in monetary payments by the Government. However,
liability under the FCA nevertheless attaches, because the
false statements were “relevant to the government’s decision
to confer a benefit.” United States ex rel. Hendow v. Univ. of
Phoenix, 461 F.3d 1166, 1173 (9th Cir. 2006). The plain lan-
guage of the FCA contemplates liability not only for fraudu-
lently causing the Government to pay a claim, but also for
causing the Government to approve a claim. 31 U.S.C.
§ 3729(a)(1).

   [2] The Supreme Court’s recent decision in Allison Engine
Co., Inc. v. United States ex rel. Sanders, 128 S. Ct. 2123
(2008), confirms this reading of the FCA. The Court held that
FCA liability attaches to a false statement that has a “material
effect” on the Government’s eventual decision to pay a claim.
Id. at 2130-2131. The district court’s finding that use of fraud-
ulent information to induce the Government to provide a loan
guarantee constitutes a false claim under the FCA is also con-
sonant with holdings in our sister circuits. See United States
v. Miller, 645 F.2d 473, 476 (5th Cir. 1981) (holding allega-
tions of defendant’s false representation of amount of buyers’
down payment in applications for FHA-insured loans is a
false claim under the FCA); United States v. Veneziale, 268
F.2d 504, 505 (3d Cir. 1959) (holding defendant liable under
the FCA where he caused buyers to make a fraudulent appli-
cation for an FHA-insured loan that defaulted).

   Relying on United States v. McNinch, 356 U.S. 595, 599
(1958), Eghbal and Trujillo argue that false statements sup-
porting the loan applications are not, by themselves, a “claim”
for which FCA liability attaches. McNinch is easily distin-
guished. There, the Supreme Court held that an application
16060              UNITED STATES v. EGHBAL
for credit insurance containing false information did not con-
stitute a claim against the government, because the mere
agreement to insure a loan never required the disbursement of
funds. Id. However, the Supreme Court specifically declined
to answer in McNinch the question presented here, noting that

    Since there has been no default here, we need
    express no view as to whether a lending institution’s
    demand for reimbursement on a defaulted loan origi-
    nally procured by a fraudulent application would be
    a ‘claim’ covered by the False Claims Act.

Id. at 599 n.6; see also United States v. Rivera, 55 F.3d 703,
707 (1st Cir. 1995); Veneziale, 268 F.2d at 505.

                              B.

   The parties disagree about the requisite causation the Gov-
ernment must prove in order to establish FCA liability — a
narrower proximate causation versus a “but for” standard —
but the district court found that the undisputed evidence
would satisfy either standard. This court agrees. Utilizing the
narrower approach, in United States v. Hibbs, 568 F.2d 347
(3d Cir. 1977), the court held that the “but for” causation ele-
ment would not be applied, but rather a causal connection
should be utilized where the Defendant misrepresented the
condition of real property to obtain mortgage insurance. How-
ever, the Hibbs court, at 352, found the less stringent view of
causation to be properly applied where “the false information
furnished to the government bore upon the likelihood of the
applicants meeting mortgage payments, and thus the misrep-
resentation had a causal connection with the subsequent
defaults.” Id. at 352 (citing United States v. Ekelman & Asso-
ciates, 532 F. 2d 545 (6th Cir. 1976)). The Third Circuit sub-
sequently held in United States ex rel. Cantekin v. Univ. of
Pittsburgh, 192 F. 3d 402, 417 (3d Cir. 1999) that false state-
ments in applying for a Government grant are sufficient to
establish causation. Other courts that have agreed with the
                    UNITED STATES v. EGHBAL                16061
more narrow causation approach have still found that false
statements regarding the credit worthiness of purchasers to
afford housing establish the required causal connection. See
e.g., United States v. Miller, 645 F. 2d at 475. The Seventh
Circuit is in accord with this view, holding in United States
v. First Nat’l Bank of Cicero, 957 F. 2d 1362, 1374 (7th Cir.
1992) that “[i]f the government would not have made a finan-
cial commitment absent the claimant’s false statement, and
the government is nevertheless required to pay a mortgage
insurance claim or loan guaranty, the government has suffered
damage ‘because of’ the false statement, as required by the
Act.”

   [3] We agree with the district court that the false statements
at issue here bore directly upon the likelihood that the buyers
would be unable to make their mortgage payments, and thus
the misrepresentations had a causal connection to the subse-
quent defaults sufficient to support FCA liability. “[T]he very
concern targeted by the prohibition against direct seller subsi-
dies — that buyers who could not meet the 3% down payment
requirement would have an inadequate incentive to avoid
default — was exactly what eventuated.” United States v.
Peterson, 538 F.3d 1064, 1077 (9th Cir. 2008) (holding that
fraudulent statements to HUD regarding origin of down pay-
ment directly and proximately caused HUD’s losses and were
therefore compensable under the Mandatory Victims Restitu-
tion Act); see also Veneziale, 268 F.2d at 505 (“[T]he fraudu-
lent statement in the loan application as to the purpose of the
borrowing was an essential inducement to the Federal Hous-
ing Administration guaranty upon which the government has
now had to pay. Thus the wrong of the defendant was an
important, even an essential factor in subjecting the govern-
ment to an enforceable demand for money.”). Further, to the
extent that any showing of reliance by the Government might
be required, the district court correctly held that it had been
proven by Eghbal’s and Trujillo’s admissions that HUD
would not have insured the mortgages if it had known they
16062               UNITED STATES v. EGHBAL
had paid the down payments or that they had falsely signed
the Addendum.

                               C.

   [4] The FCA provides for damages of “3 times the amount
of damages which the Government sustains” and civil penal-
ties of $5,000 to $10,000 per claim. 31 U.S.C. § 3729(a), 28
U.S.C. § 2461. The Supreme Court has observed that the FCA
speaks of multiplying damages, not “ ‘net damages’ ” or
“ ‘uncompensated damages.’ ” United States v. Bornstein, 423
U.S. 303, 314 n.10 (1976). In computing the treble damages,
the Court specifically directed that “the Government’s actual
damages are to be [multiplied] before any subtractions are
made for compensatory payments previously received by the
Government from any source.” Id. at 316.

   [5] Eghbal and Trujillo concede the amount of the judg-
ment against them was correctly calculated pursuant to Born-
stein. Their contention that this correctly-calculated award
violated the Eighth Amendment’s prohibition on excessive
fines has no merit. The district court made specific findings
according to the factors outlined in United States v. 3814 NW
Thurman Street, 164 F.3d 1191, 1197-98 (9th Cir. 1999), to
analyze whether the amount of damages was grossly dispro-
portional to the gravity of the offense. The district court noted
that the 27 false claims were related to other illegal activities,
additional and greater penalties could have been (but were
not) imposed, and the harm caused by the scheme was far-
reaching. We agree that the amount of the forfeiture was not
so grossly disproportionate to the gravity of the offense as to
violate the Eighth Amendment, especially because a system-
atic and ongoing scheme like Eghbal’s and Trujillo’s under-
mines the integrity of the programs and erodes the public
confidence in the Government’s ability to manage and fund
such programs.
                UNITED STATES v. EGHBAL   16063
                    CONCLUSION

The judgment of the district court is

AFFIRMED.