United States of America v. Academy Mortgage Corporation

Background

This qui tam False Claims Act case concerns Academy Mortgage Corporation’s participation in the U.S. Department of Housing and Urban Development’s Direct Endorsement Lender Program. Under that program, lenders underwrite government-insured mortgage loans and certify compliance with HUD requirements. Gwen Thrower, the relator, alleges that Academy did not exercise required due diligence from 2010 through the filing of the amended complaint in 2017 and issued loans that did not comply with HUD regulations.

Academy asserted nine affirmative defenses. An affirmative defense raises additional facts or legal arguments that could defeat a claim even if the complaint’s allegations are true. Thrower moved under Federal Rule of Civil Procedure 12(f) to strike eight defenses, leaving the statute-of-limitations defense unchallenged in this motion.

Pleading standard

The court held that affirmative defenses must satisfy the heightened pleading approach associated with Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal. In practical terms, Academy had to provide more than labels, conclusions, or a formulaic statement of a defense, but it did not need to provide extensive factual allegations. The court rejected Academy’s argument that Ninth Circuit precedent required only a description of defenses in general terms.

Rulings on the defenses

The court granted the motion to strike Academy’s waiver and estoppel defenses because Academy had not pleaded facts showing, among other things, when the United States knew or should have known about the alleged false certifications. Academy’s counsel clarified that the defense labeled “waiver, acquiescence, and abandonment” was intended to assert only waiver. The court granted leave to amend both waiver and estoppel.

The court granted the motion to strike the failure-to-state-a-claim defense. It explained that failure to state a claim is not an affirmative defense, while noting that Academy was not barred from bringing an otherwise valid motion under Rule 12(b)(6).

The court granted the motion to strike the lack-of-standing defense. It ruled that standing is a jurisdictional requirement and that lack of standing is not an affirmative defense. The court stated that Academy’s ability to assert lack of standing was not waived merely because Academy had not included it as an affirmative defense.

The court granted the motion to strike the due-process defense. Academy’s argument—that the False Claims Act claims could not proceed based on annual certifications without proof concerning each allegedly false loan—went to how Thrower could prove her claim, rather than operating as an affirmative defense. The court stated that Academy could raise the due-process argument later in the litigation.

The court granted the motion to strike the excessive-fines defense. It ruled that Academy’s argument that civil penalties or treble damages could be grossly disproportionate would limit damages rather than defeat Thrower’s claims. The court stated that Academy was not barred from raising the constitutional argument later.

The court denied the motion to strike the failure-to-mitigate defense. Although that defense concerns reducing damages rather than eliminating liability, the court treated it as an affirmative defense. Academy’s allegation that the United States failed to take reasonable steps to recover the fair-market value of properties provided sufficient notice at this stage. The court said Academy would need to provide a more detailed description when appropriate later in the case.

The court also denied the motion to strike the recoupment and setoff defenses. Academy gave fair notice that it sought to reduce any damages by amounts the United States had already recovered from liquidating collateral securing the insured loans. Academy also alleged that the United States had collected insurance premiums on loans that Thrower claimed were ineligible for insurance.

Disposition

The court granted in part and denied in part Thrower’s motion to strike. Academy had 30 days from the order’s filing to amend its waiver and estoppel defenses. The order disposed of Docket No. 137.