False Claims ActPublications

Eleventh Circuit Panel Revives FCA Mortgage Fraud Case, Reversing Materiality-Based Summary Judgment Dismissal

January 29, 2021Insight

This article was revised on February 23, 2021 in light of the Eleventh Circuit’s issuance of a new opinion in the case.[1]

An Eleventh Circuit panel has breathed new life into a long-running, $248 million False Claims Act (FCA) qui tam case, United States ex rel. Bibby v. Mortgage Investors Corp., reversing the district court’s grant of summary judgment for the defendants.[2]

Materiality lay at the heart of the case, which involved allegations that the defendant finance companies misled the U.S. Department of Veterans Affairs (VA) into issuing guaranties on refinance loans to veterans when the companies certified they would not charge veterans unallowable fees. The panel concluded that the district court had improperly weighed conflicting evidence, whose existence rendered summary judgment inappropriate.


The litigation stretches back nearly 15 years to March 2006, when the original complaint was filed in the Northern District of Georgia. The relators—the FCA term for qui tam plaintiffs, also known as whistleblowers—were formerly mortgage brokers with defendant Mortgage Investors Corp. (MIC).[3] The relators alleged the defendant committed mortgage fraud by charging veterans unallowable fees[4] when issuing Veterans Administration (VA)-guaranteed refinancing loans under the Interest Rate Reduction Refinancing Loan (IRRRL) program. To conceal the unallowable charges from the VA and obtain the loan guaranties, the defendants allegedly bundled fees, while “falsely certif[ying] to the VA, in writing, that they were not charging unallowable fees.”[5]

District Court’s Grant of Summary Judgment

The defendant moved for summary judgment, which the district court granted in July 2019 in an exhaustive 101-page order.[6] The district court noted that the case was “rife with disputed issues of fact” as to every element of the FCA, a circumstance that ordinarily would doom a summary judgment motion.[7] However, the court found that the facts relevant to materiality, even with all inferences tilted towards the relators, could not meet the exacting materiality standard set by Universal Health Services v. United States ex rel. Escobar.[8]

The FCA imposes liability, in relevant part, for “knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim.”[9] Materiality is established under the statute where information has a “natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”[10]

To assess the materiality of the defendant’s certification regarding fees, the district court cited the Escobar framework, under which the government’s designation of “compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment” is relevant but not dispositive. Rather, courts must look “to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”[11] Proof of materiality can include “evidence that the defendant knows that the [g]overnment consistently refuses to pay claims in the mine run of cases based on noncompliance” with the requirement at issue.[12] Conversely, government payment in full of a particular claim “despite its actual knowledge that certain requirements were violated . . . is very strong evidence that those requirements are not material.”[13]

The court’s materiality analysis focused on the VA’s actions in light of its knowledge both of specific instances of improperly charged fees, and of the relators’ broader allegations. While acknowledging that the fee requirement was not only a condition for obtaining a loan guaranty from the VA,[14] but an “important” regulatory requirement,[15] the court found the agency treated the defendant’s noncompliance as a mere “administrative error subject to [the] facile correction” of refunding the improper fees to borrowers.[16] Moreover, the VA’s failure—once it became aware of the relators’ allegations—to meet the alleged fraud with any “heightened response,”[17] such as a “modicum of serious investigative action” or “even a stern written warning,”[18] meant in the court’s view that the defendants were not put on notice that the VA viewed the noncompliance as material.[19] Though noting evidence tending to support materiality,[20] the district court underscored the “sheer weight of the countervailing facts”[21] and concluded the relators failed to offer “sufficient evidence” to survive summary judgment on that element.[22]

Appeal to Eleventh Circuit

The relators appealed to the Eleventh Circuit,[23] where they were joined by the government as amicus curiae. The parties did not dispute that the defendant had charged veterans unallowable fees. The relators’ claims hinged, rather, on whether the defendant’s certification that it would not charge such improper fees (along with its failure to disclose that it did so) was material under the FCA.

Oral argument was dominated by the materiality issue and, relatedly, by whether the district court improperly engaged in weighing the evidence at summary judgment.[24] The relators and government argued that, in granting summary judgment to the defendant, the district court ignored multiple indicia of materiality. The government framed the materiality question around whether the defendants’ express false certification of compliance with the VA’s fee restrictions “ha[d] a natural tendency or could have influenced the VA’s decision to make the loan guaranty.”[25] The government and relators also argued the VA never had actual knowledge of systematic mortgage fraud by the defendant, and, to the extent the relators’ allegations put the VA on notice of possible fraud, the VA acted appropriately.

The defendant, in contrast, urged a focus on VA payments, not the agency’s issuance of loan guaranties: “There is very strong evidence that non-compliance with the at-issue regulation was not material” because the VA, “acting with full knowledge of [the] relators’ fraud allegations, audited [the defendant’s] loans at issue, identified unallowable fees, and continued to honor the guaranties anyway.”[26]

The panel’s materiality inquiry addressed, first, the fee restriction as a condition of payment; second, whether the restriction was the essence of the bargain between the VA and lenders; and, third, the effect of knowledge of the defendant’s noncompliance on the VA’s conduct. The court found the evidence as to the first two points favored a finding of materiality: first, the VA explicitly identified the fee restriction as a condition of payment, thus favoring a finding of materiality,[27] and second, restrictions on fees lenders could charge veterans on home loans were central, not ancillary, to the IRRRL program’s policy aim of keeping veterans in their homes.[28]

The issue of the VA’s knowledge and its effect on the VA’s behavior presented a more complicated picture, in the panel’s view. After a summary of Escobar’s treatment of government conduct upon learning of noncompliance,[29] this portion of the inquiry began with an analysis of the VA’s actual knowledge of the defendant’s alleged violation of the fee restrictions. The panel found it undisputed that, in addition to the VA’s knowledge of the relators’ allegations by 2006, the VA had actual knowledge of the defendant’s violations by 2009 as a result of agency audits of loans.[30]

Turning to the VA’s conduct in reaction to its knowledge of violations, the panel addressed the threshold question of which government action was relevant to materiality. Though the government’s payment decisions are typically central to the Escobar inquiry, the panel noted that in this case VA payments made pursuant to its loan guaranties did not evidence immateriality because the loans were held by holders in due course, and the VA was statutorily obligated to honor the guaranties.[31]

Shifting its focus accordingly from VA payment decisions to the VA’s decision to issue loan guaranties, the panel found the defendant failed to point to a single case where a loan guaranty issued despite VA knowledge of false certification of fee compliance on that particular loan.[32] Thus the defendant could not, on that basis, establish “very strong evidence” of immateriality.[33] The defendant “fared better,” however, on the basis of evidence that the VA “did issue loan guaranties related to a ‘particular type of claim,’ despite its knowledge of audit findings” of improper fees charged in a certain percentage of the defendant’s loans.[34] Issuance of those guaranties, under Escobar, counted as “strong evidence” of immateriality.[35]

Further widening the lens to a more “holistic[]” view of the VA’s conduct, the panel noted the agency’s release of a circular to all lenders in the program, underscoring the fee regulations and warning of consequences for noncompliance; implementation of more frequent and more rigorous audits to uncover improper charges; and a consistent demand for refunding of improper fees.[36] These government measures, together with the centrality of the fee restrictions to the VA’s regulatory scheme, impressed the court as significant evidence of materiality.[37] Where the district court had found that evidence overshadowed by the “sheer weight” of the countervailing evidence, the panel found that “weighing conflicting evidence” at summary judgment was error—such assessments being properly the task of the factfinder.[38]

Bibby, while setting no new direction in FCA materiality jurisprudence, will likely serve as a cautionary reminder to district courts regarding improperly weighing evidence at summary judgment. That a moving party may have more evidence in its favor, does not signify the absence of a genuine issue of material fact.


[1] This article was revised on February 23, 2021 to take into account the Eleventh Circuit’s entry of a new opinion in the case, vacating and replacing the original opinion. See United States ex rel. Bibby v. Mortg. Inv’rs Corp., No. 19-12736, 2021 U.S. App. LEXIS 4499 (11th Cir. Feb. 17, 2021), vacating 2021 U.S. App. LEXIS 1094 (11th Cir. Jan. 15, 2021). In comparison with the vacated opinion, the revised opinion differed only in that it addressed the district court’s ruling that Mortgage Investors Corp. chairman William L. “Bill” Edwards (“Edwards”) is subject to personal jurisdiction in Georgia, under a corporate veil-piercing theory. The panel affirmed. Bibby, 2021 U.S. App. 4499, at *30–36. The revised opinion made no change to the panel’s prior holding with regard to the district court’s grant of summary judgment on the relators’ FCA claim.

[2] See id. at *9–26; see also United States ex rel. Bibby v. Mortg. Invs. Corp., No. 1:12-CV-4020-AT, 2019 U.S. Dist. LEXIS 232351, at *2 (N.D. Ga. July 1, 2019).

[3] Multiple other companies, including JPMorgan Chase and Wells Fargo, were also originally named as defendants; the relators previously reached settlements with those companies. See id. at *2 n.1. In addition, MIC chairman Edwards is a named defendant. For simplicity, this article refers to MIC in the singular as “the defendant.”

[4] For instance, where the defendant was obligated to pay a $500 closing fee and the veteran was supposed to pay a $150 title search fee, the defendant allegedly wound up paying only $50 towards the closing fee, while passing the remaining $450 on to the veteran who was then charged $600. Bibby, Oral Argument (11th Cir., Oct. 21, 2020) (hereinafter “OA”), at 15:20. The audio recording of oral argument can be accessed by entering the case number at https://www.ca11.uscourts.gov/oral-argument-recordings, or directly at https://tinyurl.com/11th-Cir-19-12736.

[5] 2019 U.S. Dist. LEXIS 232351, at *3 (alteration added).

[6] 2019 U.S. Dist. LEXIS 232351. The Eleventh Circuit panel expressed admiration for the district court’s handling of the complex factual record in its order. See, e.g., OA at 30:03 (Judge Carnes stating that he was “in awe of how thorough and well-written the opinion is” while expressing concern at the treatment of evidence at the summary judgment stage).

[7] Bibby, 2019 U.S. Dist. LEXIS 232351, at *4.

[8] Id. at *5 (alterations added) (citing Escobar, 136 S. Ct. 1989, 2003 (2016)). In striking language, the district court concluded that the Escobar standard “choke[d] the life out of [the] [r]elators’ case” and mandated dismissal of all charges. Id.

[9] 31 U.S.C. § 3729(a)(1)(B) (emphasis and alterations added).

[10] 31 U.S.C. § 3729(b)(4).

[11] Bibby, 2019 U.S. Dist. LEXIS 232351, at *32 (citing Escobar, 136 S. Ct. at 2002).

[12] Id. (citing Escobar, 136 S. Ct. at 2002) (alteration added).

[13] Id. at *33 (quoting Escobar, 136 S. Ct. at 2003) (emphasis added). Similarly, Escobar went on to state, “if the [g]overnment regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Id. (quoting Escobar, 136 S. Ct. at 2004) (emphasis and alteration added). In addition, the court reviewed a number of appellate cases turning on an Escobar-influenced materiality determination, in nearly all of which summary judgment was granted to defendants. See id. at *33–42 (discussing, inter alia, United States v. Sanford-Brown, Ltd., 840 F.3d 445, 447 (7th Cir. 2016); United States ex rel. McBride v. Halliburton Co., 848 F.3d 1027, 1029 (D.C. Cir. 2017); United States ex rel. Kelly v. Serco, Inc., 846 F.3d 325, 328 (9th Cir. 2017)). The court also cited United States v. Luce, 873 F.3d 999 (7th Cir. 2017), finding material the defendant’s false assertion of no criminal history when applying to a federal insurance program, to show the materiality hurdle is “not insurmountable.” See id. at *41–42.

[14] Id. at *80.

[15] Id. at *80 (citing 38 C.F.R. § 36.4313(a) (emphasis added).

[16] Id. at *79, 81, 89–90.

[17] Id. at *79.

[18] Id. at *89.

[19] Id. at *82 (citing Escobar, 136 S. Ct. at 2003) (“[A]lthough MIC may have had full knowledge of its ongoing gaming of established VA fee requirements, it was not placed on notice that the VA would view such fee practices as material and grounds for sanctions beyond [a] mere refund requirement.”) (alterations added).

[20] Id. at *42–48, 57–60. Although dismissing the relators’ FCA claims, the district court characterized the defendant’s alleged conduct as “highly disturbing.” Id. at *82. In extended dicta, the court also expressed serious concerns that Escobar’s materiality burden might “ultimately eviscerate” the FCA whistleblower’s statutory role, terming the burden on relators as “effectively . . . insurmountable” and likening it to scaling “Mount Everest in a winter storm.” Id. at *92; but see id. at *40–41 (citing United States v. Luce, 873 F.3d 999, 1000 (7th Cir. 2017)) (describing Escobar’s materiality standard as “rigorous” but “not insurmountable”).

[21] Id. at *81.

[22] Id. at *81–82. The district court’s language oscillated between characterizing the evidence for materiality as inadequate, see, e.g., id. at *81 (“[T]he Court does not find that Relators have offered sufficient evidence from which a reasonable trier of fact could find in their favor as to [the materiality] element.”) (emphasis added), and as absent, see, e.g., id. at *82 (“Relators have not pointed to any evidence that the VA regarded the disputed practices as material (i.e. central as opposed to collateral) such that noncompliance would have a palpable and concrete effect on the VA’s decision to honor the loan guaranties as concerns MIC.”) (emphasis added).

[23] United States ex rel. Bibby v. Mortg. Inv’rs Corp., No. 19-12736, 2021 U.S. App. LEXIS 4499 (11th Cir. Feb. 17, 2021). The panel hearing the appeal was composed of U.S. Circuit Judges Charles R. Wilson (presiding), Ed Carnes, and Kevin Newsom.

[24] The defendant raised causation as an alternative basis for affirmance; however, the panel declined to take that issue up as it was not addressed by the district court, and remanded to allow the district court to do so. See id. at *9 n.5. The panel did affirm the district court’s finding on the defendant’s conditional cross appeal that the relators’ FCA claim was not barred by previous public disclosure. See id. at *26–30. Finally, unrelated to the relators’ FCA claims, the panel held that the relators had no standing to assert a claim against Edwards under Georgia’s Uniform Fraudulent Transfer Act for fraudulent transfer of assets. See id. at *36–40.

[25] See, e.g., OA at 3:05.

[26] OA at 25:16.

[27] Bibby, 2021 U.S. App. LEXIS 4499, at *12 (citing 38 C.F.R. § 36.4313(a)).

[28] Id. at *12–14.

[29] Id. at *14–15.

[30] Id. at *15–19.

[31] Id. at *6, 20 (citing 38 U.S.C. § 3721).

[32] Id. at *21 (citing OA at 32:43).

[33] Id.

[34] Id. at *21–22.

[35] Id. at *21 (citing Escobar, 136 S. Ct. at 2003–04).

[36] Id. at *22–23.

[37] Id. at *24–25.

[38] Id. at *9, 25–26 (citing Ryder Int’l Corp. v. First Am. Nat’l Bank, 943 F.2d 1521, 1523 (11th Cir. 1991)).