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

Filing 185

ORDER granting 184 Motion for Reconsideration re 183 Order on Motion for Leave to File, VACATING 183 Order filed 1/5/2022 and replacing that order with this one granting 156 Motion for Leave to File. Ordered by US DISTRICT JUDGE CLAY D LAND on 1/7/2022 (esl)

Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 1 of 7

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)

*
RMK FINANCIAL CORPORATION, et
al.,
Defendants.

*
*

O R D E R
The Court grants Relator’s motion for reconsideration (ECF
No. 184), vacates its order dated January 5, 2022 (ECF No. 183),
and replaces that order with this one.1
Relator George Kartozia brought this qui tam action against
Defendants under the False Claims Act (“FCA”).
certain
brokerage

mortgage
firm

lenders,

and

a

title

working

together

company,

made

He claims that
with

a

mortgage

mortgage
refinance

loans called Interest Rate Reduction Refinance Loans (“IRRRL”)
to veterans but charged the veterans fees that were prohibited
by

U.S.

Department

of

Veterans

Affairs

(“VA”)

regulations.

Relator further claims that the lenders falsely certified to the
VA that they were charging only permissible fees, thus inducing
The Court inadvertently overlooked Relator’s notice of corrected
exhibit, in large part because Relator did not attach the exhibit to a
brief, highlight the corrected exhibit in a brief, or clearly and
succinctly explain the impact of the corrected exhibit in his
briefing.
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Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 2 of 7

the VA to guarantee 25% of the amount of each IRRRL, and that
some of the IRRRL borrowers who paid prohibited fees defaulted
on their loans.

Each Defendant filed a motion to dismiss.

On

October 8, 2021, the Court granted the motions to dismiss filed
by

Defendants

Freedom

Mortgage

Corp.,

Loandepot.com,

LLC,

Mortgage Solutions of Colorado, LLC, Sun West Mortgage Company,
Inc.,

and

Certified

Title

Corp.

because

Relator

did

not

adequately allege the “submission of a claim” in connection with
IRRRLs

involving

these

Defendants.

United

States

ex

rel.

Kartozia v. Freedom Mortg. Corp., No. 4:18-CV-194 (CDL), 2021 WL
4721066, at *6, *8 (M.D. Ga. Oct. 8, 2021).

The Court found,

though, that Relator sufficiently alleged FCA claims against RMK
Financial

Corp.

d/b/a

Majestic

Home

Loan,

Armour

Settlement

Services, LLC, Service 1st Mortgage, Inc., and Robert Cole, and
it denied their motions to dismiss.

Id. at *8-*10.

Now, Relator wants to amend his complaint to add additional
factual allegations regarding IRRRLs made by Loandepot.com, LLC
(“Loan Depot”) and Freedom Mortgage Corp. (“Freedom”).

Relator

contends that these additional factual allegations will cure the
deficiencies

in

his

second

amended

complaint.

As

discussed

below, Relator’s motion for leave to amend (ECF No. 156) is
granted.

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Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 3 of 7

DISCUSSION
Federal Rule of Civil Procedure 15(a)(2) provides that “a
party

may

amend

its

pleading

only

with

the

opposing

party’s

written consent or the court’s leave” and that the “court should
freely give leave when justice so requires.”
15(a)(2).

Fed. R. Civ. P.

A court may refuse to grant leave to amend if the

amendment would be futile.

L.S. ex rel. Hernandez v. Peterson,

982 F.3d 1323, 1332 (11th Cir. 2020).

“Leave to amend would be

futile if an amended complaint would still fail the motion to
dismiss . . . stage.”

Id.

In its prior order, the Court concluded that Relator’s FCA
claims required an actual false claim for payment, which in turn
required

“the

occurrence

of

a

default

accompanied

by

the

presentation to the VA of a claim under its guaranty, which
claim

cause[d]

claim.”
Relator’s

the

VA

to

make

some

payment

Kartozia, 2021 WL 4721066, at *6, *8.
second

amended

complaint,

at

least

related

to

the

The problem with
for

the

claims

against Freedom and Loan Depot, was that Relator did not allege
with particularity and the required indicia of reliability that
any IRRRLs made by Freedom or Loan Depot “went into default or
that the VA ha[d] otherwise paid anything in reliance upon the
alleged false certifications.”
*6.

Kartozia, 2021 WL 4721066, at

In contrast, Relator did adequately allege an actual false

claim by another lender because Relator alleged that the lender

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Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 4 of 7

falsely certified that it only charged the borrowers permissible
IRRRL

fees,

that

the

lender

knew that

the

VA would

issue

a

guaranty of the loans in reliance upon the false certification,
that the borrowers defaulted, and that the VA, as guarantor of
the

loans,

expended

foreclosure sales.

money

to

purchase

both

homes

following

Id. at *10.

In his motion for leave to amend, Relator asserts that his
new

allegations

in

the

proposed

third

amended

complaint

are

nearly identical to the allegations regarding the lender that
survived the motion to dismiss.

Relator alleges that Loan Depot

and Freedom charged impermissible fees to IRRRL borrowers L.W.
and J.S., that Loan Depot and Freedom falsely certified that
they only charged permissible fees to these two borrowers, that
the VA issued a guaranty of the loans in reliance on the false
certifications,

and

that

the

borrowers

defaulted.

Mot.

for

Leave to Am. Ex. 1, Proposed 3d Am. Compl. ¶¶ 182, 188, 430-473,
ECF No. 156-1.
Relator also alleged with specificity that the VA expended
money

in

reliance

certifications.
expended
Relator

funds

public

deed

auction

Freedom

and

Loan

Depot’s

false

First, Relator sufficiently alleges that the VA
in

attached

trustee’s

on

connection
to

which
to

the

Proposed

states

the

with

that

highest

4

J.S.’s
Third
J.S.’s

bidder,

loan

from

Amended
home
that

was

Freedom.

Complaint
offered

Freedom

was

a
at

the

Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 5 of 7

highest bidder, that Freedom as high bidder assigned its bid to
the Secretary of Veterans Affairs, c/o Loan Guaranty Service,
and

Freedom

had

the

property

deeded

directly

to

the

VA.

Proposed 3d Am. Compl. Ex. 23, Trustee’s Deed (Dec. 31, 2019),
ECF No. 156-1 at 507-511.

Thus, Relator alleges that the VA

purchased J.S.’s home following foreclosure.

Second, Relator

sufficiently alleges that the VA expended funds in connection
with L.W.’s loan from Loan Depot.

Relator submitted a corrected

exhibit demonstrating that L.W.’s home was offered for sale to
the highest bidder, that Loan Depot was the highest bidder, and
that Loan Depot immediately deeded the property to the Secretary
of

Veterans

Affairs,

c/o

Loan

Guaranty

Service.

Notice

Corrected Ex. No. 20, Deeds (Oct. 2, 2018), ECF No. 179-1.
Relator

alleges

that

foreclosure.

As

the
the

VA

purchased

Court

L.W.’s

previously

home

of
So,

following

concluded,

these

allegations, taken as true and drawing all reasonable inferences
in Relator’s favor, suggest that Loan Depot and Freedom’s “false
certifications

and

fraudulent

course

of

conduct

caused

the

Government to pay out money it would not otherwise have paid.”
Kartozia, 2021 WL 4721066, at *10.
Freedom

and

Loan

Depot

argue

that

even

if

the

Proposed

Third Amended Complaint adequately alleges an FCA claim against
them,

Relator

Relator

should

repeatedly

still

failed

be
to

denied
cure

5

leave

to

amend

deficiencies.

because

The

Court

Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 6 of 7

recognizes that leave to amend is not required “where there has
been

undue

delay,

bad

faith,

dilatory

motive,

or

repeated

failure to cure deficiencies by amendments previously allowed.”
Corsello, 428 F.3d at 1014 (quoting Bryant v. Dupree, 252 F.3d
1161, 1163 (11th Cir. 2001)).
relator

sought

months

after

dismissed

and

to

file

his

a

claims

after

being

In Corsello, for example, the

fourth
against
warned

amended

complaint

several
by

the

eighteen

defendants
court

“from

were
the

beginning that he must plead fraud with particularity.”

Id.

Here, Relator has not repeatedly failed to cure deficiencies by
previously allowed amendments. 2

Relator sought leave to amend

almost immediately after the Court issued its October 8, 2021
order.

And, neither Freedom nor Loan Depot has demonstrated any

undue prejudice.

For all these reasons, the Court finds that

Relator should be permitted to amend his complaint to add the
proposed factual allegations regarding Freedom and Loan Depot.

Relator filed his original complaint under seal and did not serve it
on any Defendants. Relator filed an amended complaint shortly before
the Government declined intervention, and he served the amended
complaint on Defendants.
Defendants filed motions to dismiss the
amended complaint.
In response, Relator filed his second amended
complaint. The Clerk issued an error notice stating that leave of the
Court was required even though Relator had never served the original
complaint on Defendants and he filed the second amended complaint
within 21 days after service of Defendants’ 12(b) motions. Based on
the error notice, Relator filed a motion for leave to file the second
amended complaint, which the Court granted in a text order without
examining the substance of the second amended complaint or pointing
out deficiencies. Text Order (Aug. 17, 2020), ECF No. 97.
2

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Case 4:18-cv-00194-CDL Document 185 Filed 01/07/22 Page 7 of 7

CONCLUSION
For the reasons set forth above, the Court grants Relator’s
motion

for

allegations.

leave

to

amend

Relator shall

(ECF

No.

file his

156)

to

add

factual

Third Amended Complaint

within five days of the date of this order.

After Relator files

his Third Amended Complaint, the Court will issue an amendment
to its previous order in light of today’s ruling.

At that time,

the Court will rule on the pending motions for certification for
immediate appeal (ECF Nos. 154 & 157).
IT IS SO ORDERED, this 7th day of January, 2022.
S/Clay D. Land
CLAY D. LAND
U.S. DISTRICT COURT JUDGE
MIDDLE DISTRICT OF GEORGIA

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