Nat wins
law office alston and birdThe man who defended Nutt in the case. Partial summary judgment was obtained in favor of the company. It seeks to deny the Department of Justice “the recovery of damages, including treble damages, under the law.” [FCA]”, according to an announcement from the company.
“The Court’s decision is significant because, contrary to the Department of Justice’s arguments, the Court concluded that proximate cause is required to determine damages under the False Claims Act,” the announcement reads.
Proximate cause is a method of determining the most proximate cause of an injury or violation. For example, if a car swerves to avoid a jaywalking pedestrian and hits a parked car, the direct cause of the hit to the parked car is the driver’s steering, regardless of the pedestrian’s actions.
Defense attorneys said the Justice Department failed to establish any evidence linking direct causation to the underlying issues in the case.
“The Department of Justice alleges in the civil lawsuit that from 2008 to 2010, Nutt failed to comply with U.S. Department of Housing and Urban Development (HUD) Coverage requirements associated with approximately 1,500 coverages [HECMs],” they explained. “Further, the Department of Justice alleges that Nutt’s conduct caused HUD to insure these loans when they were ineligible for coverage. [FHA]”.
But having failed to find evidence of causation, the Justice Department is now limited to seeking civil penalties against Nutt.
development significance
Chief defense lawyer in the case Edward Kang was interviewed house lineThe Reverse Mortgage Daily (RMD) has information on this development and next steps. While the partial verdict does not mean a complete dismissal of the case – which is currently scheduled to go to trial on September 9 – the defense is encouraged by the development.
“The main takeaway from our side is that the court significantly narrowed the range of damages and penalties the government can seek in this case,” Kang told RMD.
Kang said the court held that the government could not recover any damages under the FCA, so it was unlikely that the Justice Department would seek treble damages.
“The court concluded that the government failed to provide any evidence that even if the alleged misconduct occurred (which the court did not weigh), it failed to demonstrate whether any harm or loss was caused to HUD,” he said. “That’s important because the financial hammer that comes under the False Claims Act in any case is the treble damages provision, but that’s no longer on the table.”
Nutt’s defense team was positive about that part of the outcome. “Having the damages portion of the case dismissed is a really big victory for us,” Kang said.
The trial is about to begin
The case will proceed with civil penalties under the FCA, but the court also narrowed the number of loans the DOJ can seek penalties from 1,571 to 569.
While many other motions are likely to come between now and the upcoming trial date in September, Kang said the focus now is on trying to defend the company once the trial begins.
“These allegations are significant and we look forward to going to trial and proving that the company did not engage in the conduct alleged in the complaint,” he said. “Our goal is to prove that these allegations are completely false and completely inconsistent with the way the company has operated for more than 70 years. The company does have a compliance culture throughout its history, and the allegations in the complaint are completely inconsistent with that culture.
As for the government’s position, the ruling found that certain signatures on HUD forms related to obtaining FHA insurance were untrue, which the court deemed to be “actionable misrepresentations.” Nutt also tried to overturn the testimony of a handwriting expert brought by the government, but this was blocked by the trial judge.
Reverse Mortgage Pioneer
In late 2022, Nutter closed the door on ongoing litigation while maintaining his innocence. According to local media reports at the time, the bank stopped mortgage loan origination activities in October of that year.
Nutter Home Loans is considered a pioneer in the reverse mortgage industry because of its rapid adoption of the HECM program, which began after the passage of the Housing and Community Development Act of 1987. HECM issued to Marjorie Mason of Fairway, Kansas, designed by James B. Nutter Co.
In its heyday, Nutter serviced about $7 billion in mortgages annually, but that number had dropped to just over $100 million in 2022 before it closed. By then, only a small portion of the company’s business was in reverse mortgages.
