Allied Home Mortgage Corp., et al v. HUD, et al

Filing

UNPUBLISHED OPINION FILED. [14-20523 Vacated and Remanded] Judge: EGJ , Judge: JLD , Judge: NGR. Mandate pull date is 09/14/2015 [14-20523]

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Date Filed: 07/22/2015

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 14-20523

July 22, 2015
Lyle W. Cayce
Clerk

ALLIED HOME MORTGAGE CORPORATION; JAMES C. HODGE,
Plaintiffs - Appellants
v.
UNITED STATES DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT; JULIAN CASTRO, in his official capacity as Secretary of
Housing and Urban Development,
Defendants - Appellees

Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:11-CV-3864
Before JOLLY and DENNIS, Circuit Judges, and RAMOS, District Judge. ∗
PER CURIAM:**
James C. Hodge and his company, Allied Home Mortgage Corporation,
(collectively, “the appellants”) petition the court to determine whether the
Department of Housing and Urban Development (“HUD”) acted unlawfully in
temporarily suspending them from business with the government. During the

∗

District Judge of the Southern District of Texas, sitting by designation.

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
**

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pendency of the case, HUD withdrew the suspensions. We now hold that the
case is moot and we therefore dismiss it. 1
I.
Under title II of the National Housing Act of 1934, HUD is authorized to
insure participating mortgage lenders against loss on loans made to
homebuyers. See 12 U.S.C. § 1709. If the borrower of a mortgage insured
under title II defaults, HUD reimburses the lender for the amount still owed
on the loan. Thus, under the title II insurance program, it is the government,
not the lender, that bears the risk of default. The program is intended to
promote mortgage lending and homeownership. During the period relevant to
this case, the appellants participated in the title II program as lenders of
government-insured mortgages.
At some point, the record is unclear when, the Department of Justice
(“DOJ”) opened an investigation into the appellants.

Following the

investigation, DOJ concluded that the appellants were responsible for serious,
widespread and long-running violations of HUD rules and regulations. DOJ
prepared a lawsuit and, before filing, communicated its findings to HUD.
(Currently, the DOJ case is pending as United States v. Allied Home Mortg.
Corp., No. 4:12-CV-2676 (S.D. Tex.).) On November 1, 2011, HUD suspended
the appellants from further business with it, effective immediately. 2 The
suspensions were to be temporary, to last until the conclusion of the DOJ

In addition to Allied Home Mortgage Corporation, Hodge also owned the similarlynamed Allied Home Mortgage Capital Corporation. That company, however, is not a party
to this litigation and, under our resolution of this appeal, is unnecessary to discuss further.
We also note that, following the commencement of this case, Allied Home Mortgage
Corporation changed its name to AllQuest Home Mortgage Corporation, and Allied Home
Mortgage Capital Corporation changed its name to Americus Mortgage Corporation.
1

We need not describe the misconduct DOJ found and HUD cited for the suspensions,
as it is irrelevant to the mootness inquiry on which our decision is based.
2

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lawsuit and debarment proceedings (used to bar a person from government
business for a specified period). 3
The following day, November 2, the appellants brought this lawsuit
against HUD, seeking a declaration under the Administrative Procedure Act
that the suspensions were unlawful and an injunction against enforcement of
them. On November 15, the district court granted the appellants a preliminary
injunction and ordered HUD to refrain from enforcing the suspensions pending
final decision in the case. Allied Home Mortg. Corp. v. Donovan, 830 F. Supp.
2d 223 (S.D. Tex. 2011).
In May 2012, with the case still pending, HUD withdrew the original
suspensions and issued two new notices to the appellants. With respect to
Allied Home Mortgage Corporation, HUD stated that it was “considering
taking an administrative action” against it for specified reasons, and the
company was invited to respond. With respect to Hodge, HUD stated that it
was proposing his debarment for a period of five years, to be imposed after
further proceedings, and he, too, was invited to respond.

Neither notice

imposed a suspension pending further proceedings. HUD then moved the
district court to dismiss the case as moot because the appellants were no longer
suspended. The court declined. Allied Home Mortg. Corp. v. Donovan, No.
4:11-CV-3864, 2012 WL 3276978 (S.D. Tex. Aug. 8, 2012). 4
On August 5, 2014, the district court reached its final decision and,
contrary to the prior preliminary injunction, upheld the suspensions. Allied

For HUD’s debarment authority, see 42 U.S.C. § 3535(d) (“The Secretary . . . may
make such rules and regulations as may be necessary to carry out his functions, powers, and
duties.”), 2 C.F.R. § 2424.10 (“HUD adopts, as HUD policies, procedures, and requirements
for nonprocurement debarment and suspension, the OMB guidance in subparts A through I
of 2 CFR part 180, as supplemented by this part.”), and the regulatory provisions referenced
therein.
3

4

The court did, however, vacate the preliminary injunction. Id. at *6.

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Home Mortg. Corp. v. Donovan, No. 4:11-CV-3864, 2014 WL 3843561 (S.D. Tex.
Aug. 5, 2014).
This appeal followed.
II.
A.
Article III of the Constitution authorizes the federal courts to adjudicate
“Cases” and “Controversies.” U.S. Const. art. III, § 2, cl. 1. “A case becomes
moot—and therefore no longer a ‘Case’ or ‘Controversy’ for purposes of Article
III—‘when the issues presented are no longer “live” or the parties lack a legally
cognizable interest in the outcome.’ ” Already, LLC v. Nike, Inc., 133 S. Ct.
721, 726-27 (2013) (quoting Murphy v. Hunt, 455 U.S. 478, 481 (1982) (per
curiam)). “No matter how vehemently the parties continue to dispute the
lawfulness of the conduct that precipitated the lawsuit, the case is moot if the
dispute ‘is no longer embedded in any actual controversy about the plaintiffs’
particular legal rights.’ ” Id. at 727 (quoting Alvarez v. Smith, 558 U.S. 87, 93
(2009)).
Here, the appellants seek a declaration that HUD’s suspensions of them
were unlawful and invalid. But the suspensions have been withdrawn, and
the appellants are no longer suspended from business with HUD. 5 The dispute
in this case is therefore no longer embedded in an actual controversy about the
appellants’ legal rights. Absent an exception to the mootness doctrine, the case
is moot and must be dismissed. See Alejandrino v. Quezon, 271 U.S. 528, 532
(1926) (challenge to suspension from government office moot after suspension
concluded); ITT Rayonier Inc. v. United States, 651 F.2d 343 (5th Cir. Unit B
The appellants take issue with HUD’s description of the suspensions as having been
“formally withdrawn.” Their objection, however, is unclear. For their part, the appellants
describe the suspensions as having been “effectively withdrawn” or simply “withdrawn.” We
see no meaningful distinction in the adverb choice. It is undisputed that the suspensions are
not in effect.
5

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1981)

(same,

suspension

of

eligibility

for

government

contracting);

Westmoreland v. Nat’l Transp. Safety Bd., 833 F.2d 1461, 1463 (11th Cir. 1987)
(same, license suspension); Fed. Sav. & Loan Ins. Corp. v. Hykel, 468 F.2d
1386, 1388 (3d Cir. 1972) (same, administrative suspension).
B.
The appellants contend that the case is not moot under the voluntarycessation doctrine. That rule holds that “a defendant cannot automatically
moot a case simply by ending its unlawful conduct once sued.” Already, LLC,
133 S. Ct. at 727; see also Friends of the Earth, Inc. v. Laidlaw Envtl. Servs.
(TOC), Inc., 528 U.S. 167, 189 (2000); City of Mesquite v. Aladdin’s Castle, Inc.,
455 U.S. 283, 289 (1982). “Otherwise, a defendant could engage in unlawful
conduct, stop when sued to have the case declared moot, then pick up where
he left off, repeating this cycle until he achieves all his unlawful ends.”
Already, LLC, 133 S. Ct. at 727. Given that concern, once the defendant has
ceased its challenged conduct, the plaintiff’s challenge to such conduct is moot
only if the defendant “bears the formidable burden of showing that it is
absolutely clear the allegedly wrongful behavior could not reasonably be
expected to recur.” Id. (quoting Friends of the Earth, Inc., 528 U.S. at 190).
When the defendant is the government, however, its burden is lighter. We
treat the government’s cessation of allegedly wrongful conduct “with some
solicitude” given that the government, unlike private litigants, is presumed to
act in good faith. Sossamon v. Texas, 560 F.3d 316, 325 (5th Cir. 2009); accord
Marcavage v. Nat’l Park Serv., 666 F.3d 856, 861 (3d Cir. 2012); Ragsdale v.
Turnock, 841 F.2d 1358, 1365 (7th Cir. 1988).
Here, HUD has represented that it will not reinstate the rescinded
suspensions, and based on the circumstances of this case we believe it. The
appellants have represented to the court that, as a result of the government’s
actions against them, their lines of credit dried up and their business was
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“destroyed” and is now without employees or assets. The appellants claim that
this is all the result of the temporary suspensions alone. That is doubtful,
though. The suspensions aside, the DOJ’s lawsuit is proceeding, as are HUD’s
additional administrative proceedings, and all charge the appellants with the
same, or at least substantially similar, misconduct as the suspensions did. The
suspensions were enjoined between November 15, 2011 and August 8, 2012,
and credit did not return to the appellants during that period. (At least, the
appellants have not stated or shown otherwise.) The reasonable inference,
then, is that so long as HUD is charging the appellants with serious
misconduct and a final determination is pending, the appellants will be in no
position to resume mortgage lending, whether suspended as a legal matter or
not. In such circumstances, HUD has nothing to gain by reinstating temporary
suspensions pending final determination.

And, of course, once final

determination is reached, the issue will be settled, and there will be no
possibility of HUD reinstating the preliminary suspensions.

In these

circumstances, we find it absolutely clear that there is no reasonable
probability that the withdrawn suspensions will be reinstated. 6
Even so, the appellants appear to argue that HUD may engage in
unspecified subsequent administrative actions different than the suspensions
at issue here.

This argument misses the mark.

The voluntary-cessation

inquiry focuses on the potential for recurrence of the conduct challenged in the
case or at least “sufficiently similar” conduct. Ne. Fla. Chapter of Associated

The fact that HUD withdrew the suspensions only after the district court
preliminarily enjoined them cuts against HUD’s claim of permanent cessation. Cf. Sossamon,
560 F.3d at 325 (“The good faith nature of Texas’s cessation is buttressed by the fact that
Sossamon did not obtain relief below. Had the trial court granted the injunction, we might
view any attempt to force a vacatur of such a determination (particularly in favor of a pro se
prisoner) with a jaundiced eye.”). Even so, we conclude based on the totality of the
circumstances that there is no reasonable probability that the suspensions will be reinstated.
6

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Gen. Contractors of Am. v. City of Jacksonville, 508 U.S. 656, 662 & n.3 (1993).
The potential for a future dispute of another nature, presenting other issues,
is immaterial. Should such a subsequent dispute arise, it is a matter for
another lawsuit, not a reason to keep this one alive. See Texas Office of Pub.
Util. Counsel v. F.C.C., 183 F.3d 393, 414 (5th Cir. 1999) (“We cannot assume
jurisdiction to decide a case on the ground that it is the same case as one
presented to us, when it is admitted that it is not and when it presents different
issues.”) (citation omitted). To the extent that the appellants seek to use this
case, which until now has focused on the suspensions, as a vehicle to challenge
HUD’s debarment proceedings against Hodge and anticipated proceedings
against Allied Home Mortgage Corporation, it is obvious that the issues are
unripe. We do not yet know what, if any, action HUD will take against the
appellants following such proceedings, and it is impossible to anticipate upon
what administrative record such action would be based and what justifications
would be offered. See Hooker Chem. Co., Ruco Div. v. E.P.A., 642 F.2d 48 (3d
Cir. 1981) (after agency withdrew challenged orders and reserved the right to
take other enforcement action, case was unripe); cf. Gulf Oil Corp. v. Simon,
502 F.2d 1154 (Temp. Emer. Ct. App. 1974) (per curiam) (after challenged
regulations superseded with new ones, case was moot, and challenge to new
regulations should be brought in new case).
C.
Next, the appellants invoke the collateral-consequences doctrine. Under
that rule, when the plaintiff’s primary injury (here, the suspensions) has
ceased, the case is not moot if the challenged conduct continues to cause other
harm (i.e., “collateral consequences”) that the court is capable of preventing.
Dailey v. Vought Aircraft Co., 141 F.3d 224, 227 (5th Cir. 1998) (citing Sibron
v. New York, 392 U.S. 40, 53-59 (1968)). The question is whether there is a
continuing collateral consequence that provides the plaintiff with a “concrete
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interest” in the case and for which “effective relief” is available. Id. (citing
Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 571 (1984)).
Here, the appellants appear to contend that the suspensions harmed
their reputations, the harm was not remedied after the suspensions were
withdrawn, and such continuing reputational harm is itself a collateral
consequence that sustains the case as a live controversy. It is true, as the
appellants note, that this court has denied mootness based on reputational
harm before. Connell v. Shoemaker, 555 F.2d 483 (5th Cir. 1977). We will not
do so here, however. Assuming without deciding that Connell remains good
law, cf. Spencer v. Kemna, 523 U.S. 1, 16 n.8 (1998), and accepting the
appellants’ claims that the withdrawn suspensions continue to harm their
reputations, we nevertheless do not think that this court could remedy the
harm. As described above, the suspensions aside, the appellants are charged
with the same or substantially similar misconduct in other HUD
administrative proceedings and the DOJ lawsuit. If the suspensions harmed
the appellants’ reputations, it is clear that the pending other proceedings do
the same. To declare the withdrawn suspensions invalid, then, would not fix
the harm; the other public and unresolved allegations of misconduct would
continue to sustain the same reputational injury. Therefore, assuming that
the withdrawn suspensions continue to cause reputational harm that provides
the appellants with a concrete interest in the outcome of this case, we
nevertheless conclude that effective relief is not available. Accord Lebron v.
Rumsfeld, 670 F.3d 540, 562 (4th Cir. 2012) (because plaintiff had been
convicted of terrorism crimes, designation as an “enemy combatant” did not
cause sufficient additional stigmatic harm to suffice as an injury for standing).
Additionally, the appellants contend that two regulations, 2 C.F.R.
§ 180.860(c) and 24 C.F.R. § 202.5(j)(3) create collateral consequences that keep
this case a live controversy.

The former provides that in debarment
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proceedings, the debarring official may consider “a pattern or prior history of
wrongdoing.” The latter provides that mortgage lenders are ineligible for
approval as HUD-insured lenders if they are “subject to unresolved findings as
a result of HUD or other governmental audit, investigation, or review.” We
disagree that either provision creates collateral consequences that keep this
case a live controversy, for the reasons that follow.
2 C.F.R. § 180.860(c) addresses “wrongdoing.”

Apparently, the

appellants fear that HUD will sometime in the future deem the withdrawn
suspensions at issue in this case as evidence of the appellants’ “wrongdoing.”
We, however, think this fear is speculative.

Importantly, the appellants’

historic conduct is at issue in the pending DOJ lawsuit and administrative
proceedings, and in those proceedings, the appellants may or may not disprove
the charge that their conduct was wrongful. The result of those proceedings,
therefore, may or may not create a collateral consequence under § 180.860(c);
but we see no basis for the withdrawn suspensions to have any bearing on the
issue. The appellants have pointed to no precedent, and we have found none,
for deeming withdrawn suspensions as evidence of “wrongdoing” under
§ 180.860(c).

Because we conclude that the possibility of such is too

speculative, we reject the argument that § 180.860(c) creates a collateral
consequence that keeps this case a live controversy.

See generally ITT

Rayonier Inc., 651 F.2d at 345 (the speculative potential for collateral
consequences is insufficient to overcome mootness); Bailey v. Southerland, 821
F.2d 277 (5th Cir. 1987) (per curiam) (same).
24 C.F.R. § 202.5(j)(3) addresses “unresolved findings as a result of HUD
or other governmental audit, investigation, or review.”

The appellants

apparently fear that if we do not adjudicate the lawfulness of the withdrawn
suspensions, then HUD’s findings underlying those suspensions will be
“unresolved,” which will, under § 202.5(j)(3), preclude the appellants from
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future approval for HUD-insured lending. This, too, we find speculative. The
appellants have pointed to no precedent, and we have found none, for HUD
rendering a case moot through its unilateral withdrawal of a lender’s
temporary suspension and then deeming the lender ineligible for insured
lending on the basis of the resultant “unresolved findings.” Because this, too,
is speculative, we reject the argument that § 202.5(j)(3) creates a collateral
consequence that keeps this case a live controversy. Moreover, we note that if
HUD will ever point to the withdrawn suspensions at issue in this case as a
basis for withholding approval of the appellants for HUD-insured lending, then
the appellants can seek judicial review of that decision. But for now, the issue
is unripe.
D.
The appellants make one final argument that warrants response. They
claim that the case is not moot because HUD has not “reversed or repaired the
economic harm experienced by them over the past several years.”

The

argument is without merit. That plaintiffs be “made whole” is not an element
of mootness. Of course, if the case involved a claim for money damages, the
case would not be moot until recompense was had, absent unusual
circumstances. See, e.g., Liberles v. Cook Cnty., 709 F.2d 1122, 1127 (7th Cir.
1983) (case not moot where plaintiffs sought and had not yet received backpay).
But the appellants here do not seek money damages, nor can they under the
statute that provides their cause of action.

See 5 U.S.C. § 702 (waiving

sovereign immunity for claims “seeking relief other than money damages”).
Even if we proceeded to the merits of the case and awarded the appellants all
relief they seek, that would not “reverse or repair” their economic losses.
Absent a legal claim for economic compensation, the desire for such does not
constitute a concrete interest that keeps the case alive. See Ashcroft v. Mattis,
431 U.S. 171 (1977) (after plaintiff abandoned claim for damages, no longer a
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live case or controversy for court to decide constitutionality of challenged
statute).
III.
The appellants have a live controversy with the government as to the
pending administrative actions and lawsuit against them. Their challenge to
the withdrawn temporary suspensions, however, is moot, and neither the
voluntary-cessation doctrine, the collateral-consequences doctrine, nor any
other argument presented in this appeal provides otherwise. The district
court’s judgment on the merits is VACATED, the case is REMANDED, and the
district court is DIRECTED to dismiss it.

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