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United States v. Movtady

United States District Court, S.D. New York

April 7, 2014

UNITED STATES OF AMERICA, Plaintiff,
v.
DAVID MOVTADY et al., Defendants

Page 326

For United States of America, Plaintiff: Lara K. Eshkenazi, Lawrence Heath Fogelman, U.S. Attorney's Office, SDNY (86 Chambers St.), New York, NY.

For David Movtady, Defendant: Kevin James Keating, Kevin J. Keating, Esq, Garden City, NY.

OPINION

Page 327

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge.

The United States (the " Government" ) sues Golden First Mortgage Corporation (" Golden First" ) and its owner and operator, David Movtady, alleging violations of the False Claims Act, 31 U.S.C. § 3729(a), and common-law claims of gross negligence, negligence, and breach of fiduciary duty. (Am. Compl. (Docket No. 16) ¶ ¶ 121-53). The gravamen of the Government's case is that Defendants falsely affirmed their compliance with the requirements of certain government-insured home mortgage programs and that, when loans insured by the Government went into default, the Government lost millions of dollars. (Am. Compl. ¶ ¶ 113-20). Defendants now move, pursuant to Rules 9(b) and 12(b) of the Federal Rules of Civil Procedure, to dismiss the Amended Complaint in its entirety. (Def.'s Mot. To Dismiss Am. Compl. (Docket No. 19); Def.'s Mem. Supp. Mot. To Dismiss Am. Compl. (Docket No. 20) (" Defs.' Mem." ) 4-15). The Government opposes the motion only with respect to the False Claims Act claims, and expressly consents to dismissal of the common-law claims. (Mem. Law Opp'n Defs.' Mot. To Dismiss (Docket No. 23) (" Gov't's Mem." ) 2 n.1). Accordingly, the motion to dismiss is granted with respect to the common-law claims, and those claims are dismissed. For the reasons stated below, however, the motion is otherwise denied.

BACKGROUND

The following facts, which are taken from the Complaint unless otherwise noted, are assumed to be true for purposes of this motion. See, e.g., Gonzalez v. Hasty, 651 F.3d 318, 321 (2d Cir. 2011).

A. The Direct Endorsement Lender Program

The United States Department of Housing and Urban Development (" HUD" ), through the Federal Housing Administration (" FHA" ), insures approved lenders against losses on certain home mortgage loans. (Am. Compl. ¶ ¶ 1, 13). If a homeowner whose mortgage is FHA-insured defaults, HUD will pay the lender the balance of the loan and assume ownership of the property. (Am. Compl. ¶ 13). This insurance system makes FHA-backed mortgages more readily salable on the secondary market, because the risk of loss is limited by FHA's promise to repay, which in turn is guaranteed by the full faith and credit of the United States. ( Id.). In that manner, FHA insurance encourages lenders to make home loans to creditworthy borrowers to whom the lenders might not otherwise offer a mortgage. ( Id.). Put simply, FHA insurance turns mortgages that are otherwise risky investments into safer investments with its agreement to step in if the homeowner cannot pay.

Page 328

Plainly, therefore, it is in the Government's interest to establish safeguards to ensure that relatively few FHA-insured mortgages enter default.

One program through which FHA insures home mortgages is the Direct Endorsement Lender (" DEL" ) program, and it does indeed include such safeguards. (Am. Compl. ¶ 14). Under the DEL program, approved lenders are authorized to underwrite mortgages, assess the creditworthiness of the loans, and certify loans as compliant with FHA's mortgage guidelines. (Id.). Relying on the expertise and good faith of approved DEL lenders, FHA will approve loans for mortgage insurance only if a DEL participant has certified the loan's compliance with FHA requirements regarding a borrower's financial status (including income, credit history, and the mortgaged property's asset value). (Am. Compl. ¶ ¶ 14-15, 20-22). Among other things, for example, DEL participants are required to " evaluate [each] mortgagor's credit ...


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