7th Circuit Affirms Dismissal of FCA Case for Failure to Show Causation

A three-judge panel for the U.S. Court of Appeals for the Seventh Circuit recently upheld the summary judgment dismissal of a relator’s False Claims Act (FCA) case involving the FHA mortgage insurance program, based on the relator’s failure to demonstrate causation.

The relator, a former employee of a lender participating in HUD’s Direct Endorsement Lender program for FHA insurance, alleged that the lender violated the FCA by falsely certifying loans as complying with HUD’s minimum underwriting guidelines.  The district court granted the lender’s motion for summary judgment, finding that the relator had not met her burden of proof as to either materiality or causation. 

On appeal, a Seventh Circuit panel affirmed the district court’s decision, concluding that the relator had met her burden with regard to materiality, but that the relator had not met her burden as to causation.  As to materiality, the Seventh Circuit panel determined that the identified deficiencies sufficiently mirrored examples listed in the HUD regulation defining “serious and material violations,” such that a reasonable jury could conclude that HUD considers them to be “material.”    

As to causation, however, the Seventh Circuit panel found that the relator failed to put forward evidence showing proximate causation—that the identified defaults were not sufficiently demonstrated to have been foreseeably caused by the purportedly false certifications.  The Seventh Circuit panel did not resolve whether the relator’s methodology of extrapolating causation from a generalized statistical analysis of the lender’s insured loans was sufficient, or whether, as the lender argued, the relator was required to make a loan-by-loan showing of causation; the relator did not make the requisite showing under either method.