KARTOZIA et al v. SERVICE 1ST MORTGAGE INC et al

Filing 150

ORDER granting 99 Motion to Dismiss for Failure to State a Claim; denying 101 Motion to Dismiss for Failure to State a Claim; granting 102 Motion to Dismiss for Failure to State a Claim; granting 103 Motion to Dismiss for Failure to State a Claim; granting 104 Motion to Dismiss for Failure to State a Claim; denying 105 Motion to Dismiss for Failure to State a Claim; denying 106 Motion to Dismiss for Failure to State a Claim; granting 107 Motion to Dismiss for Failure to State a Claim; terminating 141 Motion to Strike. Ordered by US DISTRICT JUDGE CLAY D LAND on 10/08/2021 (CCL)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
UNITED STATES OF AMERICA, ex
rel. GEORGE KARTOZIA,

*
*

Plaintiffs,

*

vs.

CASE NO. 4:18-CV-194 (CDL)

*

FREEDOM MORTGAGE CORPORATION,
et al.,
Defendants.

*
*

O R D E R
Relator George Kartozia brought this qui tam action against
Defendants under the False Claims Act (“FCA”), which imposes
liability on any person who “knowingly presents, or causes to be
presented, a false or fraudulent claim for payment or approval,”
or “knowingly makes, uses, or causes to be made or used, a false
record or statement material to a false or fraudulent claim.”
31 U.S.C. § 3729(a)(1)(A)–(B).
the

FCA

includes

a

qui

tam

“As an enforcement mechanism,
provision

under

which

private

individuals, known as relators, can sue ‘in the name of the
[United

States]

Government’

violation of § 3729.”

to

recover

money

obtained

in

United States ex rel. Bibby v. Mortg.

Invs. Corp., 987 F.3d 1340, 1343 (11th Cir. 2021) (alteration in
original) (emphasis added) (quoting 31 U.S.C. § 3730(b)(1)).

If

a relator prevails, he is entitled to retain a percentage of any
proceeds as a reward for his efforts.

Id. § 3730(d).

Relator is a licensed mortgage loan originator who worked
for Defendant Service 1st Mortgage, Inc. for a combined total of
ten months during 2016 and 2017.
Defendant

Robert

Cole

Service 1st, which is owned by

(collectively,

“Service

1st”),

is

a

mortgage brokerage firm that refers United States Department of
Veterans Affairs (“VA”) mortgage refinance loans called Interest
Rate

Reduction

lenders

Refinance

included

Loans

Defendants

(“IRRRL”)
Freedom

to

lenders.

Mortgage

Those

Corp.,

RMK

Financial Corp., Mortgage Solutions of Colorado, LLC, Sun West
Mortgage Co., and Loandepot.com, LLC (collectively, the “Lender
Defendants”).

Relator alleges that he learned through his work

on IRRRLs at Service 1st that the Lender Defendants, working
together

with

Service

veterans

fees

that

falsely

certified

permissible fees.

1st

were
to

and

two

prohibited

the

VA

that

title
by

companies,

VA

they

charged

regulations,

were

charging

then
only

Relator also contends that the VA was induced

to guarantee 25% of the amount of each IRRRL (up to a cap),
which

reduced

the

lenders’

default by a borrower.

risk

of

loss

in

the

event

of

a

And, Relator asserts that some IRRRL

borrowers who paid prohibited fees defaulted on their loans.
Each Defendant filed a motion to dismiss.
considerable

time

carefully

reviewing

The Court spent

Relator’s

520-paragraph

second amended complaint and the parties’ more than 450 pages of
briefing.

As discussed in more detail below, Relator’s claims

2

against Freedom Mortgage Corp., Mortgage Solutions of Colorado,
LLC, Sun West Mortgage Co., Loandepot.com, LLC, and Certified
Title

Corp.

fail

because

Relator

did

not

plead

with

particularity the submission of any actual false claims related
to

those

Defendants.

Accordingly,

the

Court

grants

those

Defendants’ motions to dismiss (ECF Nos. 99, 102, 103, 104,
107).

Relator

does,

however,

adequately

allege

FCA

claims

against RMK Financial Corp., Armour Settlement Services, LLC,
and

Service

1st.

The

Court

thus

denies

those

motions to dismiss (ECF Nos. 101, 105, 106).

Defendants’

Relator’s motion

to strike Defendants’ notice of supplemental authority (ECF No.
141) is terminated as moot.
FACTUAL BACKGROUND
To understand the claims asserted in Relator’s complaint,
the Court must first explain the IRRRL program.
this

program,

the

Court

relies

in

part

on

In outlining
allegations

in

Relator’s second amended complaint (ECF No. 95).
The IRRRL program seeks to help veterans by allowing them
to

refinance

terms.

existing

VA-backed

mortgages

on

more

favorable

In keeping with this goal, VA regulations limit the fees

and charges that lenders may collect from veterans participating
in the IRRRL program.

38 C.F.R. § 36.4313(a).

Lenders are not

allowed to charge borrowers a “brokerage or service charge or
their equivalent” except as permitted by the regulations.

3

Id.

§ 36.4313(b).
customary

Lenders

amounts”

may

for

collect

“[t]itle

only

“reasonable

examination

and

and

title

insurance,” as well as other enumerated fees and charges.
§ 36.4313(d)(1).

Id.

The VA regulations do authorize lenders to

charge “a flat charge not exceeding 1 percent of the amount of
the loan, provided that such flat charge shall be in lieu of all
other charges relating to costs of origination not expressly
specified and allowed in this schedule.”
If

a

closing

fee

is

not

in

the

list

Id. § 36.4313(d)(2).
of

approved

fees

in

§ 36.4313(d)(1), then it can only be charged as part of the one
percent flat fee permitted by § 36.4313(d)(2).
IRRRL loans to veterans are guaranteed by the VA if certain
requirements are met.

See generally 38 U.S.C. § 3710; 38 C.F.R.

§ 36.4301 (defining guaranty as an obligation of the United
States

“to

default

repay

of

the

guaranteed

or

Secretary

that

charges

or

a

specified

primary

percentage

debtor”).

insured

unless

it

not

fees

has

against

a

lender

closes

and

borrower

an

a

“no

lender

imposed

permissible under” the regulations.
When

But

the

the

of

loan

upon

loan

shall

certifies

will
in

the
be

to

the

not

impose

any

excess

of

those

38 C.F.R. § 36.4313(a).

IRRRL,

it

prepares

a

closing

disclosure statement listing all the closing costs and fees.
All costs charged in an IRRRL closing must be set forth in the
closing

disclosure.

After

the

4

loan

is

closed,

the

lender

submits

a

closing

package

to

the

VA,

which

includes

a

certification that the lender has not imposed impermissible fees
on the veteran borrower.

2d Am. Compl. ¶¶ 141-142.

Based on

this certification, the VA automatically issues a guaranty to
the lender.
Lender’s

Id. ¶¶ 40-41.

certification

of

The VA “expressly relies on the

compliance

with

the

limitations

on

closing costs” and does not review the closing package for each
IRRRL.

Id. ¶ 53.

reviewed
would

each

find

guaranty.

According to Relator, if the VA individually

IRRRL

any

closing

prohibited

disclosure
costs

prior

and

to

refuse

closing,

it

issue

the

to

Id. ¶ 54; accord id. ¶¶ 151-152, 177.

Without the

lender certification, the VA would not issue the guaranty on an
IRRRL.

Id. ¶¶ 146, 151-152, 177, 209.

Once a lender obtains VA loan guaranties on IRRRLs, the
loans are usually sold on the secondary market to holders in due
course.

According

to

Relator,

there

would

be

no

market for the IRRRLs without the VA guaranties.
When

“a

required

holder
by

in

due

statute

and

course

holds

regulation

the
to

IRRRLs,

honor

the

secondary
Id. ¶ 86.
the

VA

is

guaranties

corresponding to those loans,” and fraud by the lender is not a
defense against liability as to a holder in due course.

Bibby,

987

C.F.R.

F.3d

at

1345

§ 36.4328(a)(1)).

(citing

38

U.S.C.

§

3721

and

38

Thus, “the guaranties are incontestable vis-

à-vis holders in due course,” and the “VA must turn to the

5

originating lender to seek a remedy for that lender’s fraud or
material misrepresentation—it cannot simply refuse to honor the
guaranties.”
Relator

Id.
filed

this

action

under

the

FCA’s

qui

tam

provision, alleging the following general facts in his second
amended complaint.

Relator worked for Service 1st as a loan

officer from May 2016 to August 2016 and as a branch manager
from May 2017 to October 2017.

He asserts that each of the

Defendant Lenders charged veterans impermissible fees on IRRRLs
that were brokered by Service 1st and closed by either Armour
Settlement

Service,

(“Certified”)

LLC

(“Armour”)

(collectively

or

“Title

Certified

Title

Defendants”).

Corp.

For

each

IRRRL, the Lender Defendant prepared closing disclosures that
contained

at

regulations.

least

one

charge

not

permitted

by

the

VA

These impermissible charges included broker fees

that exceeded the one percent origination fee permitted by 38
C.F.R.
points;

§

36.4313(d)(2)

duplicative,

and

false,

were
and

falsely

listed

unreasonable

as

title

discount
fees;

and

fees

from

inflated recording fees and taxes.
Relator

alleges

that

by

collecting

prohibited

veterans and concealing them on the closing disclosures, and by
falsely

certifying

their

compliance

with

VA

regulations,

the

Lender Defendants induced the VA to issue guaranties for the
IRRRLs.

The VA would not have issued a guaranty on any IRRRL

6

that

contained

unallowable

discount points.

fees,

inflated

charges,

or

fake

If an IRRRL borrower defaults on the loan, the

holder of the loan may submit a claim on the VA guaranty.
In addition to the general allegations regarding how the
Lender Defendants and Title Defendants worked with Service 1st
to

generate

and

close

IRRRLs,

the

second

amended

complaint

contains examples of at least one IRRRL by each Lender Defendant
that was brokered by Service 1st and closed by one of the Title
Defendants.

These

examples

include

eight

loans

made

by

Defendant RMK Financial Corp. (“Majestic”), seven of which were
closed by Armour and one of which was closed by Certified.
Am. Compl. ¶¶ 225, 246, 269, 291, 313, 405, 427, 450.
borrowers

on

defaulted.
include

one

(“Freedom”),

three

of

those

loans

(all

closed

Id. ¶¶ 334-336, 425-426, 446-448.
loan

each

for

Loandepot.com,

Defendants
LLC

The

Armour)

The examples also

Freedom

(“Loan

by

2d

Mortgage

Depot”),

Corp.

Mortgage

Solutions of Colorado, LLC (“Mortgage Solutions”), and Sun West
Mortgage Company, Inc. (“Sun West”).
382.

Id. ¶¶ 167-173, 337, 358,

There is no allegation that any of the borrowers for these

four loans defaulted.
Relator’s complaint contains three counts.

First, Relator

contends that Defendants violated 31 U.S.C. § 3729(a)(1)(A)—the
Lender

Defendants

by

knowingly

presenting

false

guaranty

applications to the VA and the Title Defendants and Service 1st

7

by knowingly causing these false guaranty applications to be
presented to the VA.

2d Am. Compl. ¶ 501.

Second, Relator

alleges that Defendants violated 31 U.S.C. § 3729(a)(1)(B) by
knowingly

preparing

or

helping

to

prepare

false

closing

disclosures that were submitted to the VA with IRRRL guaranty
applications.

Id.

¶¶ 507-508.

Third,

Relator

asserts

that

Defendants violated 31 U.S.C. § 3729(a)(1)(C) by conspiring to
present

false

claims

supported

by

false

closing

disclosures.

Id. ¶¶ 515-517.
DISCUSSION
The

FCA

imposes

liability

on

any

person

who

“knowingly

presents, or causes to be presented, a false or fraudulent claim
for payment or approval,” or “knowingly makes, uses, or causes
to be made or used, a false record or statement material to a
false or fraudulent claim.” 31 U.S.C. § 3729(a)(1)(A)–(B).
Act

“is

imposing

designed
civil

to

protect

liability

and

the

Government

penalties

federal funds under false pretenses.”

upon

from
those

The

fraud
who

by

seek

Ruckh v. Salus Rehab.,

LLC, 963 F.3d 1089, 1103 (11th Cir. 2020) (quoting United States
ex rel. Lesinski v. S. Fla. Water Mgmt. Dist., 739 F.3d 598, 600
(11th Cir. 2014)).

“Liability under the [FCA] arises from the

submission of a fraudulent claim to the government, not the
disregard
proper

of

government

internal

regulations

procedures.”

Id.

8

or

failure

(quoting

to

maintain

Urquilla-Diaz

v.

Kaplan Univ., 780 F.3d 1039, 1045 (11th Cir. 2015)).

Defendants

make dozens of arguments in support of their motions to dismiss.
The starting point, of course, is whether Relator adequately
alleged a false claim under the pleading rules.
I.

Pleading Standards for False Claims Act Cases
The Federal Rules of Civil Procedure require a complaint to

contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
“To survive a motion to dismiss” under Federal Rule of Civil
Procedure 12(b)(6), “a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
permit

“A claim is facially plausible where the facts alleged
the

court

to

reasonably

infer

alleged misconduct was unlawful.”
1051.

that

the

defendant’s

Urquilla-Diaz, 780 F.3d at

“Factual allegations that are ‘merely consistent with a

defendant’s liability,’ however, are not facially plausible.”
Id. (quoting Iqbal, 556 U.S. at 678).
“In an action under the False Claims Act, Rule 8’s pleading
standard is supplemented but not supplanted by Federal Rule of
Civil Procedure 9(b).”
9(b)

requires

a

Urquilla-Diaz, 780 F.3d at 1051.

party

alleging

fraud

to

“state

particularity the circumstances constituting fraud.”

9

Rule
with

Fed. R.

Civ. P. 9(b).

“To satisfy this heightened-pleading standard in

a False Claims Act action, the relator has to allege ‘facts as
to time, place, and substance of the defendant’s alleged fraud,’
particularly,

‘the

details

of

the

defendants’

allegedly

fraudulent acts, when they occurred, and who engaged in them.’”
Urquilla-Diaz, 780 F.3d at 1052 (quoting United States ex rel.
Clausen v. Lab’y Corp. of Am., 290 F.3d 1301, 1308 (11th Cir.
2002)).
“The complaint also must offer “some indicia of reliability
. . . to support the allegation of an actual false claim for
payment

being

made

to

the

[g]overnment.”

Carrel

v.

AIDS

Healthcare Found., Inc., 898 F.3d 1267, 1275 (11th Cir. 2018)
(alterations in original) (quoting Clausen, 290 F.3d at 1311).
The relator cannot merely describe “a private scheme in detail”
and allege generally “and without any stated reason . . . his
belief that claims requesting illegal payments must have been
submitted,
submitted.”

were

likely

submitted[,]

or

should

have

been

Id. (alterations in original) (quoting Clausen, 290

F.3d at 1311).

“Nor may he point to ‘improper practices of the

defendant[]’ to support ‘the inference that fraudulent claims
were

submitted’”

because

submission

of

a

claim

for

payment

cannot be “inferred from the circumstances.” Id. (alterations in
original) (quoting Corsello v. Lincare, Inc., 428 F.3d 1008,
1013 (11th Cir. 2005)).

Rule 9(b)’s particularity requirement

10

“guards against ‘guilt by association.’”

Clausen, 290 F.3d at

1308 (quoting Cooper v. Blue Cross & Blue Shield of Fla., Inc.,
19

F.3d

562,

567

(11th

Cir.

1994)).

The

particularity

requirement “is a nullity” if a relator “gets a ticket to the
discovery process without identifying a single claim.”

United

States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1359 (11th
Cir. 2006) (quoting United States v. Lab. Corp. of Am., No.
1:97CV2200TWT, 2001 WL 1867721, at *1 (N.D. Ga. May 16, 2001)).
In

summary,

a

relator

“must

allege

‘specific

details’

about

false claims to establish ‘the indicia of reliability necessary
under Rule 9(b).’”

Carrel, 898 F.3d at 1276 (alterations in

original) (quoting United States ex rel. Sanchez v. Lymphatx,
Inc., 596 F.3d 1300, 1302 (11th Cir. 2010) (per curiam)).
II.

Relator’s Claims Against Freedom,
Solutions, Sun West, and Certified

Loan

Depot,

Mortgage

Relator’s complaint contains examples of one IRRRL each for
Freedom,

Loan

Certified.

Depot,

2d

Am.

Mortgage

Compl.

Solutions,

¶¶ 167-173,

337,

Sun

West,

358,

and

382,

450.

Relator does not allege that he was personally involved in any
of

these

defaulted,

loans,
or

that

that

the

the
VA

borrowers

on

incurred

any

defaults for these borrowers.
his

complaint

provides

any

of

expenses

these
to

loans

resolve

Relator nonetheless argues that

enough

specific

details

about

false

claims by these companies to establish the required indicia of
reliability.

As discussed below, it does not.
11

A.

“Presentment” Claims

Relator’s

claims

under

31

U.S.C.

§

3729(a)(1)(A)—his

“presentment” claims—are based on his allegations that (1) the
Lender Defendants submitted false claims to the VA when they
applied for loan guaranties certifying that they were charging
only

permissible

Defendants
applications

and
to

fees

when

Service
be

they

1st

submitted

were

caused
to

the

not

and

these
VA.

(2)
false

the

Title

guaranty

Liability

for

a

presentment claim only arises from “submission of a false claim
to the government.”1

Ruckh, 963 F.3d at 1103 (quoting Urquilla-

Diaz, 780 F.3d at 1045).

In a false certification case like

this one, the relator “must prove ‘(1) a false statement or
fraudulent course of conduct, (2) made with scienter, (3) that
was material, causing (4) the government to pay out money or
forfeit moneys due.’” Id. (quoting Urquilla-Diaz, 780 F.3d at
1045).
The

Eleventh

Circuit

has

repeatedly

emphasized

that

the

submission of an actual claim to the government for payment is
the “sine qua non” of an FCA violation.

Ruckh, 963 F.3d at 1103

(quoting Urquilla-Diaz, 780 F.3d at 1045); United States ex rel.
Mastej v. Health Mgmt. Assocs., Inc., 591 F. App’x 693, 703
(11th Cir. 2014) (quoting Clausen, 290 F.3d at 1311).

“Without

This rule applies whether the claim is that an entity itself
presented a false claim or that the entity caused a false claim to be
presented. See Ruckh, 963 F.3d at 1107 (explaining causation standard
for “cause to be presented” claims).

1

12

the

presentment

damage.”

of

a

claim,

there

is

simply

not

actionable

United States ex rel. Atkins v. McInteer, 470 F.3d

1350, 1353 (11th Cir. 2006) (cleaned up) (quoting Clausen, 290
F.3d at 1311).

The FCA “does not create liability merely for

[an entity’s] disregard of Government regulations or improper
internal policies unless, as a result of such acts, the [entity]
knowingly asks the Government to pay amounts it does not owe” or
forfeit money that it is due.

Id. (quoting Clausen, 290 F.3d at

1311); Urquilla-Diaz, 780 F.3d at 1052.
Here, Relator argues that an IRRRL lender’s application for
a loan guaranty is an actionable claim because each guaranty is
incontestable vis-à-vis a holder in due course.

But Relator did

not point the Court to any binding precedent allowing an FCA
presentment

claim

in

the

absence

of

a

sufficiently

reliable

allegation that the Government was actually induced to pay money
or forfeit money due.
request

or

presented

demand

to

an

The FCA itself defines “claim” as “any

. . .

officer,

for

money

employee,

or
or

property”
agent

of

that
the

“is

United

States” or made to another recipient “if the money or property
is to be spent or used on the Government’s behalf or to advance
a

Government

Government”

program

provides

U.S.C. § 3729(b)(2).
the

cases

Relator

or
or

interest,

and

if

the

reimburses

the

money

United

States

requested.

31

Moreover, the relevant caselaw—including

relies

upon—establishes

13

that

in

the

loan

guaranty context, there is no actionable FCA presentment claim
until the borrower defaults and the Government is faced with a
demand for money.
The Supreme Court made it clear that an application for
credit insurance under a federal program is not a “claim” within
the meaning of the FCA.
599 (1958).2
Government
immediate

Why?

In agreeing to provide credit insurance, the

“disburses
financial

United States v. McNinch, 356 U.S. 595,

no

funds

nor

detriment.”

does

Id.

at

it

otherwise

599.

suffer

Instead,

it

contracted “to reimburse the lending institution in the event of
future default, [if] any.”

Id.

In McNinch, there had been no

default, so there was no “claim.”

Id. at 598.

The Supreme

Court expressed no view “as to whether a lending institution’s
demand for reimbursement on a defaulted loan originally procured
by a fraudulent application would be a ‘claim’ covered by the
False Claims Act.”

Id. at 599 n.6.

The Supreme Court later

explained, though, that an actionable presentment claim exists
in a case involving “a false statement made with the purpose and
effect

of

inducing

money”

because

the

the

Government

purpose

of

the

immediately
FCA

is

to

to

part

protect

Government’s funds and property from fraudulent claims.

with
the

United

The version of the FCA applicable in McNinch was worded differently
than it is today, but it still prohibited presentment of “any claim”
for payment of approval “upon or against the Government of the United
States.” Rainwater v. United States, 356 U.S. 590, 591 n.1 (1958)
(citing R.S. § 5438 (1878), now codified as amended in 31 U.S.C. §
3729)); accord McNinch, 356 U.S. at 596 n.1.

2

14

States

v.

(emphasis

Neifert-White
added).

Co.,

So,

390

U.S.

submission

228,

of

a

232-33

(1968)

fraudulent

loan

application to the Government is actionable when the Government
approves the loan and disburses the funds.
Relying primarily on Niefert-White and two out-of-circuit
cases,

Relator

incontestable

contends

guaranty

is

that
a

the

request

application
for

payment

for

an

within

the

meaning of the FCA, even in the absence of a default on the
guaranteed loan.

The Court disagrees.

In Niefert-White, the

fraudulent loan application was a “claim” because it immediately
induced the Government to part with funds.

390 U.S. at 233.

In

United States v. Van Oosterhout, 96 F.3d 1491 (D.C. Cir. 1996),
the United States brought a claim for monies paid out under
Small Business Administration loan guaranties when the borrower
defaulted on its obligation.

Similarly, in United States v.

Rivera, 55 F.3d 703 (1st Cir. 1995), the United States brought a
claim

for

Department

mortgage
of

loan

Housing

borrower’s default.

insurance

and

benefits

Urban

Development

paid

by

following

the
a

Nothing in these cases suggests that simply

obtaining a loan guaranty by fraudulent means is an actionable
claim within the meaning of the FCA.

Instead, it is clear that

a

until

claim

does

not

become

actionable

the

Government

is

induced to suffer immediate financial harm, not some possible
future harm.

Cf. Bibby, 987 F.3d at 1344 (addressing FCA claim

15

against IRRRL brokers “to recover the money the VA had paid when
borrowers defaulted on [defendant]-originated loans”).
Here,

Relator

alleges

that

he

“reviewed

thousands

of

closing packages of IRRRLs brokered by Defendant Service 1st
that contained examples of closing disclosures created by each
Defendant Lender” and closed by one of the Title Defendants.
Am. Compl. ¶ 6.

2d

He claims that he “saw hundreds of examples of

IRRRLs . . . originated by Defendant Lenders and closed with
falsely inflated, prohibited closing costs.”

Id.

Despite this

extensive review, Relator provided examples of only one IRRRL
each for Freedom, Loan Depot, Mortgage Solutions, Sun West, and
Certified.

2d

Am.

Compl.

¶¶ 167-173,

337,

358,

382,

450.

Again, Relator does not allege that he was personally involved
in any of these loans, that the borrowers on any of these loans
defaulted,

or

that

the

VA

incurred

defaults for these borrowers.

any

expenses

to

resolve

Rather, Relator makes general

allegations regarding the total VA loan guaranty payments for
all types of VA loans, the average loan guaranty amount for all
IRRRLs, the market share held by each Defendant Lender for VA
mortgage loans, and the default rate for all VA loans between
2013 and 2019.

Id. ¶¶ 183-186, 189.

Extrapolating from those

general numbers, Relator estimates that a percentage of each
Lender Defendant’s IRRRLs “have or will go into default” and

16

that the VA may have to pay claims on guaranties for those
IRRRLs.

E.g., Id. ¶¶ 186, 189.

The problem with Relator’s approach is that it does not
allege with particularity or the required indicia of reliability
that a specific fraudulent claim was in fact submitted to the
Government
Freedom,

for

Loan

any
Depot,

IRRRLs

closed

Mortgage

by

Certified

Solutions,

and

or

Sun

made
West.

by
A

relator cannot “rely on mathematical probability to conclude”
that an actual false claim must have been submitted at some
point.

Carrel, 898 F.3d at 1277.

“It is not enough to point to

improper practices of the defendant to support the inference
that fraudulent claims were submitted because submission cannot
be inferred from the circumstances.” Est. of Helmly v. Bethany
Hospice & Palliative Care of Coastal Ga., LLC, 853 F. App’x 496,
501 (11th Cir. 2021) (per curiam) (cleaned up) (quoting Carrel,
898

F.3d

at

1275).

Relator’s

broad

allegations

that

each

Defendant Lender fraudulently obtained guarantees on every IRRRL
that was brokered by Service 1st between October 2015 and June
2020 does not establish that the Government had to pay amounts
it did not owe or that there was “actionable damage to the
public fisc as required under the” FCA.

Carrel, 898 F.3d at

1278.
Relator nonetheless contends that he is not required to
allege an actual sample fraudulent claim because he has personal

17

knowledge

of

Defendants’

fraudulent

conduct.

A

sample

fraudulent claim is not required if the relator alleges personal
knowledge of or participation in the fraudulent conduct that
gave rise to a false claim.
Circuit

concluded

knowledge

of

that

conduct

In Ruckh, for example, the Eleventh

the

that

relator
led

to

had

sufficient

false

claims

personal

because

she

personally witnessed it, was transferred after complaining about
it, and found more than a hundred examples in an audit.
F.3d at 1105.

963

Here, in contrast, Relator does not allege any

personal knowledge or level of participation giving rise to an
indicia of reliability for his bald assertion that false claims
must have been submitted to the VA in connection with IRRRLs
closed by Certified or made by Freedom, Loan Depot, Mortgage
Solutions,

and

Sun

West.

Moreover,

there

is

simply

no

allegation that any of these loans went into default or that the
VA has otherwise paid anything in reliance upon the alleged
false certifications.
for

FCA

purposes

In this context, “submission of a claim”
requires

the

occurrence

of

a

default

accompanied by the presentation to the VA of a claim under its
guaranty, which claim causes the VA to make some payment related
to

the

claim.

Thus,

Relator’s

presentment

claims

against

Freedom, Loan Depot, Mortgage Solutions, Sun West, and Certified
must be dismissed for failure to allege an actionable claim.3

3

The

Court

understands

that

sometimes

18

a

plaintiff

faces

an

B.

“Make-or-Use” Claims

Relator argues that even if his presentment claims against
Freedom, Loan Depot, Mortgage Solutions, Sun West, and Certified
fail because he did not adequately allege that these Defendants
submitted an actual false claim to the VA, he still states a
claim under 31 U.S.C. § 3729(a)(1)(B), which imposes liability
on a defendant who makes or uses “a false record or statement
material to a false or fraudulent claim.”

Relator correctly

points out that § 3729(a)(1)(B) does not require the defendant
to present a claim to the Government.
actual

claim

is

required

at

all

to

Relator suggests that no
impose

liability

under

§ 3729(a)(1)(B).
It

is

clear

that

for

“make-or-use”

claims

that

accrued

before Congress enacted the Fraud Enforcement and Recovery Act
of 2009 (“FERA”), Pub. L. No. 111-21, 123 Stat. 1617, a relator
was required to allege “that a specific fraudulent claim was in
insurmountable burden when the specific evidence upon which the claim
is based is within the exclusive control of the defendant, and thus
the plaintiff’s ability to allege specific facts may be restricted.
In that situation, the Court must determine whether the plaintiff has
alleged enough such that it is plausible that discovery will yield
evidence in support of the claim.
But here, there is no allegation
that any particular loan from these Defendants is in default or that
the VA has made any payment pursuant to its guarantees. Furthermore,
the Court observes that the real party in interest in this action is
the Government, which presumably could have discovered during its
investigation whether particular VA loans defaulted.
Yet after that
investigation, it chose not to intervene, and no credible explanation
has been provided as to why Relator could not have alleged specific
defaults in his complaint.
The Court must conclude that no such
defaults occurred regarding these Defendants’ loans, which explains
why Relator argues that default is legally unnecessary. But as
explained, he is wrong on this point.

19

fact submitted to the government” and that “the government in
fact paid a false claim.”

Hopper v. Solvay Pharms., Inc., 588

F.3d 1318, 1328-29 (11th Cir. 2009).

That is because the pre-

FERA FCA proscribed false statements made “to get a false or
fraudulent claim paid or approved by the Government.”
1327 (citing 31 U.S.C. § 3729(a)(2) (2003)).

Id. at

The false claims

alleged in Hopper occurred before FERA went into effect, so the
Eleventh Circuit did not consider whether payment of the actual
claim was required for post-FERA conduct.

Id. at 1329 n.4.

But

the Eleventh Circuit did note that if the Government “has not
paid funds it does not owe, it has suffered no loss.
liability

in

such

a

case

would

do

nothing

to

To impose

protect

the

government from loss due to fraud, and it would extend liability
beyond the ‘natural, ordinary and reasonable consequences’ of a
defendant’s conduct.”

Id. at 1328-29.

With FERA, Congress changed the requirements for a “makeor-use” claim to forbid false statements or records “material to
a false or fraudulent claim.”
(codified

at

31

U.S.C.

§

FERA § 4(a)(1), 123 Stat. at 1621

3729(a)(1)(B)).

Congress

added

a

definition of “claim”: “any request or demand . . . for money or
property” that “is presented to an officer, employee, or agent
of the United States” or made to another recipient “if the money
or property is to be spent or used on the Government’s behalf or
to advance a Government program or interest, and if the United

20

States Government” provides or reimburses the money requested.
Id.

§ 4(a)(2),

123

§ 3729(b)(2)).
“having

a

Stat.

at

1622-23

(codified

at

31

U.S.C.

Congress also added a definition of “material”:

natural

tendency

to

influence,

or

be

capable

influencing, the payment or receipt of money or property.”
§ 4(a)(2),

123

Stat.

at

1623

(codified

at

31

of
Id.

U.S.C.

§ 3729(b)(4)).
The purpose of these changes was “to clarify and correct
erroneous

interpretations

of

the

law”

that

required

the

Government (or a relator) to prove that the defendant intended
the Government itself pay the claim for there to be a violation.
S. Rep. NO. 111-10, at 10 (2009), 2009 U.S.C.C.A.N. 430, 438.
Under

that

certain

interpretation,

in

Id.

According

this

claim

liability

directly to the Government but to a contractor.
Report,

false

no

submitted

Senate

the

be

not

the

where

would

was

to

contexts

there

interpretation

was

“contrary

to

Congress’s original intent in passing the law and create[d] a
new

element

subcontractor

in

a

that

FCA

claim

[was]

Report

suggests

a

inconsistent

language of the statute.”
Senate

and

Id.

that

new

defense

for

any

with

the

purpose

and

Neither FERA itself nor the

FERA

erased

the

actual

claim

requirement for make-or-use claims.
While
squarely

there

is

addressing

no

published

whether

a

21

Eleventh
relator

Circuit

must

opinion

plead

with

particularity
establish
Eleventh

an

actual

liability
Circuit

claim

under

recently

paid

by

the

§ 3729(a)(1)(B),
concluded

that

Government

a

a

panel

make-or-use

requires an actual false claim for payment.
App’x at 503.

of

to
the

claim

Helmly, 853 F.

Based on that decision, along with the Eleventh

Circuit’s admonition that FCA liability does not extend to cases
where the Government has not paid funds it does not owe and thus
suffered no actionable loss, the Court finds that a make-or-use
claim under § 3729(a)(1)(B) requires an actual false claim for
payment.

As discussed above in § II.A, Relator failed to plead

with particularity and the required indicia of reliability that
any

such

false

connection
Solutions,

with
Sun

make-or-use

claim

was

IRRRLs
West,

claims

by

and

submitted
Freedom,

Certified.

against

Freedom,

to

the

Loan

Government

in

Depot,

Mortgage

Accordingly,

Relator’s

Loan

Depot,

Mortgage

Solutions, Sun West, and Certified must be dismissed.
C.
In

Conspiracy Claims
addition

to

his

presentment

and

make-or-use

claims,

Relator asserts conspiracy claims against all Defendants.

The

FCA imposes liability on any person who “conspires to commit a
violation of” § 3729(a)(1)(A) and § 3729(a)(1)(B).
§ 3729(a)(1)(C).
payment

is

As discussed above, an actual false claim for

required

§ 3729(a)(1)(A)

31 U.S.C.

and

to

establish

§ 3729(a)(1)(B),

22

a
and

claim

under

Relator

has

both
not

adequately alleged an actual false claim against Freedom, Loan
Depot,

Mortgage

Solutions,

Sun

West,

and

Certified.

conspiracy claim against these Defendants fails.

His

See Corsello,

428 F.3d at 1014 (noting that an element of a conspiracy claim
is damage to the Government due to a false claim).
III. Relator’s Claims Against Majestic, Service 1st, and Armour
In

contrast

Defendants,

to

Relator

his

does

allegations

allege

that

against

the

the

borrowers

other

on

three

loans brokered by Service 1st, made by Majestic, and closed by
Armour defaulted.

Relator also alleges with specificity that

the VA expended funds in connection with two of these IRRRLs
because
sale.

the

VA

purchased

both

homes

following

a

foreclosure

2d Am. Compl. ¶¶ 425-426, 446-447; 2d Am. Compl. Ex. 16,

Trustee’s Deed (Apr. 10, 2018), ECF No. 95-16; 2d Am. Compl. Ex.
18, Trustee’s Deed (Jan. 19, 2018), ECF No. 95-18.
Majestic,

and

Armour

(collectively,

“Defendants”)

Service 1st,
argue

that

these representative examples are still not enough to survive a
motion to dismiss.
First, Defendants argue that Relator did not allege that
Defendants knowingly made any false statement or caused one to
be

made.

disclosure

But
for

he
both

did.
loans

Relator

alleges

contained

that

inflated

and

the

closing

duplicative

title fees and recording fees that far exceeded the reasonable
and

customary

rates

and

thus

23

were

not

allowed

under

the

applicable
accord

regulations.

id.

¶ 122.

2d

Am.

Relator

Compl.

further

¶¶ 412-415,

alleges

434-436;

that

Majestic

submitted guaranty application forms to the VA which falsely
certified Majestic had complied with the limited charges rules
even though it knew it had not.
he

alleges

that

Majestic,

Id. ¶¶ 416-418, 437-439.

Service

1st,

and

Armour

And

formed

a

symbiotic relationship to charge impermissible fees to veterans
but falsely certify to the VA that no such impermissible fees
had been charged.
As an employee and branch manager of Service 1st, Relator
had firsthand knowledge of the scheme.

As alleged, Majestic

used

borrowers

Service

IRRRLs

to

1st

them.

to

identify

Id.

¶ 92.

potential
Service

company to perform each IRRRL closing.

1st

and

nominated

Id. ¶ 121.

market
a

title

Robert Cole

of Service 1st mandated that Service 1st’s brokers use one of
three title companies—including Armour—because those companies
would pay for direct mail advertising for the broker in exchange
for

settlement

companies,

service

including

referrals.

Armour,

Id.

knowingly

¶ 123.

The

title

overcharged

for

title

fees and paid for Service 1st’s marketing costs, which resulted
in a higher volume of IRRRLs for lenders like Majestic.
¶¶ 123-125, 130.

Id.

Naftali Raphaely of Armour told Relator that

the key to success was to build a close relationship with a
title company that was willing to pay the marketing costs that

24

could lead to more loans.

Id. ¶ 127.

Robert Cole instructed

Relator to look the other way on the inflated and false title
fees, telling him that “no one was going to stop the gravy train
to

complain

fees.”

Id.

about

a

few

¶¶ 125-126.

hundred

dollars

Relator

of

worked

misplaced

primarily

title

with

an

account executive named Jason Kim from Majestic, and Relator
learned from him that Majestic knew that the title fees charged
by Armour on IRRRLs were falsely inflated.

Id. ¶¶ 114, 122.

Majestic included those false and inflated title fees on its
closing

disclosures

applications

to

anyway

the

VA

and

falsely

then

submitted

certifying

that

guaranty

it

had

not

charged any impermissible fees.

Armour and Service 1st knew

that

fees

these

false

and

inflated

would

be

included

in

Majestic’s closing disclosures that were submitted to the VA in
connection with a guaranty application.
these

allegations,

the

Court

finds

Id. ¶ 100.

that

Relator

Based on
adequately

alleged that Majestic knowingly presented a false certification
to the VA, that Armour and Service 1st knowingly caused a false
certification

to

be

presented

to

the

VA,

that

all

three

Defendants knowingly made or used (or caused to be made or used)
a false record or statement material to a false claim, that
these Defendants knew that the VA would issue a guaranty of the
loans in reliance upon the false certification, and that these

25

Defendants knew that if the loans defaulted the VA would have to
make some payment pursuant to the loan guaranty.
The Court understands that the causation standard for a
“cause to be presented” claim is whether there is a sufficient
nexus between the defendant’s conduct and the submission of a
false claim.

See Ruckh, 963 F.3d at 1107.

A “defendant’s

conduct may be found to have caused the submission of a claim”
if the conduct was a substantial factor in inducing the claimant
to submit claims for payment and the submission of claims for
payment was reasonably foreseeable or anticipated as a natural
consequence

of

defendants'

conduct.”

Id.

The

Court

also

understands that this causation standard has only been examined
in slightly different contexts, like the context of a management
company that knowingly caused a doctor to submit false Medicare
claims

for

reimbursement.

And,

the

Court

understands

that

Armour and Service 1st argue that they cannot be liable on a
“cause to be presented” claim or a “cause to use a false record”
claim

because

they

did

not

actually

complete

any

forms

or

documents that were submitted to the VA, because the forms that
were submitted to the VA only contained a certification by the
lender,

and

unallowable

because
fees.

(according
But,

as

to

them)

discussed

there

above,

were

taking

no
the

allegations as true and drawing all reasonable inferences in
Relator’s favor, Relator adequately alleges that (1) Service 1st

26

recruited Armour to close the loans because it knew Armour would
charge unallowable fees and provide free marketing for Service
1st,

(2)

Armour

did

charge

unallowable

fees,

(3)

Majestic

included those unallowable fees on the closing disclosures as
intended by Service 1st and Armour because Majestic knew that
doing so would incentivize Service 1st and Armour to generate
more

loans

for

Majestic,

(4)

Majestic

submitted

a

guaranty

application and closing disclosure for each IRRRL despite its
knowledge of Armour’s unallowable fees, (5) Majestic knew that
the VA would guarantee the loan and become liable in the event
of a borrower default, (6) Armour and Service 1st knew that
Majestic

would

submit

guaranty

applications

and

closing

disclosures to the VA to induce the VA to issue guaranties, and
(7)

at

least

two

borrowers

defaulted

and

caused

the

VA

as

guarantor to make payments it would not have owed absent the
guaranty that was induced by fraudulent means.

Reading all of

these allegations together, the Court is satisfied that Relator
plausibly alleges “cause to be presented” and “cause to make or
use documents material to a claim” claims against Armour and
Service 1st.
Defendants argue that even if Relator adequately alleged a
false
allege

statement

made

materiality.

with
He

scienter,
did.

In

he

did

Bibby,

not
a

qui

sufficiently
tam

action

regarding IRRRL loan guaranty applications like the ones here,

27

the

Eleventh

Circuit

analyzed

whether

the

relators

presented

enough evidence of materiality to survive summary judgment and
concluded that they had.

Bibby, 987 F.3d at 1347-52.

In the

Court’s view, Bibby is indistinguishable binding precedent that
mandates the conclusion that Relator in this action adequately
alleged materiality.
Material “means having a natural tendency to influence, or
be capable of influencing, the payment or receipt of money or
property.”

31 U.S.C.A. § 3729(b)(4); accord Bibby, 987 F.3d at

1347 (quoting Universal Health Servs., Inc. v. United States ex
rel. Escobar, 136 S. Ct. 1989, 1996 (2016)).

The “factors that

are relevant to the materiality analysis include: (1) whether
the requirement is a condition of the government's payment, (2)
whether

the

misrepresentations

bargain

with

the

government,

went
and

to

the

essence

of

the

(3)

to

the

extent

the

government had actual knowledge of the misrepresentations, the
effect on the government’s behavior.”

Bibby, 987 F.3d at 1347.

The Eleventh Circuit concluded that in the IRRRL context,
the first factor “weighs in favor of materiality.”
“lender’s

truthful

certification

that

it

Id.

charged

A
only

permissible fees was a condition of” the VA’s issuance of the
loan guaranties and thus the Government’s expenditure of funds
following a borrower’s default, such as the “payment on IRRRL
guaranties.”

Id.

That is because the “relevant VA regulation

28

clearly designates that requirement as a condition to payment:
‘no

loan

shall

certifies

that

be
it

guaranteed
has

not

or

insured

imposed

and

unless

will

the

not

lender

impose

any

impermissible charges or fees.” Id. (cleaned up) (quoting 38
C.F.R. § 36.4313(a)).
The

Eleventh

Circuit

found

that

the

second

factor

also

weighs in favor of materiality because “a reasonable factfinder
could conclude that the VA's fee regulations were essential to
the bargain with IRRRL lenders.”

Id. at 1348.

Here, Relator’s

allegations track the evidence presented by the Bibby relators:
he

alleges

that

the

aim

of

the

IRRRL

program

was

to

help

veterans stay in their homes, and he cites the same VA Pamphlet
26-7

that

provides

the
that

Bibby
the

relators

limits

relied

on

charges

upon.
and

That
fees

Pamphlet
“and

the

concomitant certification by the lender as to its compliance
with this requirement furthers the purpose” of limiting the fees
a

veteran

must

pay

to

obtain

a

loan

and

ensures

that

veteran borrower can effectively use the home loan benefit.

each
Id.

(citing VA Pamphlet 26-7).
The third factor is the effect on the VA’s behavior.

The

basic rule is that if the Government regularly refuses to pay
claims based on noncompliance, that is evidence of materiality;
if the Government regularly pays claims despite actual knowledge
that

the

claimant

violated

its

29

requirements,

then

the

requirements are not material.
actual

knowledge

requirements,

the

Id.

that

a

lender

next

question

So, if the Government had
violated

is

its

whether

certification

the

Government’s

reaction demonstrates that the false certification was material.
Id. at 1350.
VA

knew

In Bibby, for example, there was evidence that the

from

audits

that

the

lender

had

violated

IRRRL

requirements for a percentage of loans and that the VA issued
loan guaranties despite its knowledge of the audit findings.
Id. at 1350-51.

But the relators in Bibby pointed to evidence

that the VA “took a number of actions to address noncompliance
with fee regulations”—including reminders regarding applicable
policies, more frequent and more rigorous audits, and requiring
refund of any improperly charged fees that the VA discovered.
Id. 1351-52.

Based on this evidence, the Eleventh Circuit found

a genuine fact dispute on materiality.

Id. at 1352.

Here, there is no allegation that the Government had actual
knowledge that Majestic was charging veterans impermissible fees
while

certifying

that

it

had

not

done

so,

and

there

is

no

allegation that the Government had actual knowledge that Service
1st and Armour participated in the scheme.

Thus, on the record

before the Court at this stage in the litigation, the third
factor does not weigh against a finding of materiality.4

In

If discovery reveals that the VA had actual knowledge of violations
by Majestic, Service 1st, and Armour, the Court would have to consider

4

30

summary, Relator’s complaint does not contain any allegations
that would defeat materiality.
Finally, Defendants assert that even if Relator adequately
alleged materiality, his claims still fail because the VA did
not pay a guaranty claim in connection with either defaulted
loan referenced in the complaint.
the

VA,

as

guarantor

of

the

following foreclosure sales.

Instead, Relator alleges that
loans,

purchased

both

homes

The Court is not convinced that

this distinction makes a difference.

The Eleventh Circuit in

Bibby noted that the relators’ action was “to recover the money
the VA had paid when borrowers defaulted on” loans originated by
the defendant.

Id. at 1344.

And here, Relator clearly alleges

that the Defendants’ false certifications and fraudulent course
of conduct caused the Government to pay out money it would not
otherwise have paid.

The Court finds that these payments based

on the VA guarantees which were induced by Defendants’ false
statements are sufficient to satisfy this element of Relator’s
claim.
For all these reasons, the Court concludes that Relator
plausibly stated FCA presentment and make-or-use claims against
Majestic, Service 1st, and Armour.

The Court also finds that

Relator’s

conspiracy

these

complaint

three

states

Defendants

an

FCA

because

Relator

evidence
regarding
any
action
taken
by
noncompliance. See Bibby, 987 F.3d at 1351-52.

31

the

claims
alleges
VA

to

against
with
address

particularity the scheme the three companies and Robert Cole
employed to commit their presentment and make-or-use violations,
he alleges specific actions that each Defendant took to further
the object of the conspiracy, and he alleges that the United
States suffered damages as a result of Defendants’ false claims.
CONCLUSION
The Court grants the motions to dismiss filed by Freedom,
Loan Depot, Mortgage Solutions, Sun West, and Certified (ECF
Nos. 99, 102, 103, 104, 107), and denies the motions to dismiss
filed by Majestic, Armour, and Service 1st (ECF Nos. 101, 105,
106).5
IT IS SO ORDERED, this 8th day of October, 2021.
S/Clay D. Land
CLAY D. LAND
U.S. DISTRICT COURT JUDGE
MIDDLE DISTRICT OF GEORGIA

As to Relator’s general request in his briefing that he be allowed to
amend his Complaint if the Court finds that all or part of it fails to
state a claim, the Court is in no position to grant such a request
when the substance of the proposed amended complaint has not been
presented for the Court’s consideration. See Atkins, 470 F.3d at 1362.

5

32