On December 31, 2015, the United States District Court for the Eastern District of Michigan dismissed what many (including the Court) referred to as a Complaint by Quicken Loans against FHA and HUD (hereinafter “HUD”) to secure a favorable forum.[Quicken’s lawsuit has been discussed previously in this blog.] The Court’s order held that Quicken failed to state a claim under either the Administrative Procedures Act (“APA”) or the Due Process Clause of the U.S. Constitution when it challenged actions HUD had taken in connection with a False Claims Act investigation against the mortgage lender. The Court also refused to consider Quicken’s request for a declaration stating that sampling methodology used by HUD was improper, and that Quicken’s loans were properly underwritten.

Quicken had alleged HUD violated the APA by using an improper method of statistical sampling to determine that a number of Quicken’s loans were defectively originated. See Order, Quicken v. United States, 2:15-cv-11408-MAG-RSW (E.D. Mich. Dec. 31, 2015). Consequently, HUD removed Quicken’s loan level mandate, which provided Quicken with authority to evaluate the credit risk of potential borrowers, underwrite loans, and certify the loans for FHA mortgage insurance without requiring HUD’s review or approval. 

The Court determined that Quicken did not meet its burden to demonstrate entitlement to judicial review as to the APA violations. The Court noted that judicial review pursuant to 5 U.S.C. § 551(13) is limited to the definition of an “agency action.” Quicken’s Complaint generally lacked the requisite specificity to show that any of the actions taken by HUD amounted to agency actions under the statute. The Court discussed two specific allegations Quicken labeled as agency actions: (i) a HUD letter suspending Quicken’s loan level mandate; and (ii) HUD’s filing a lawsuit in the District of Columbia alleging Quicken violated the False Claims Act. The Court determined that neither action could amount to agency action because neither qualified as “final decisions.” Neither the letter not the filing of the lawsuit forced Quicken to either perform or abstain from any conduct, and neither of HUD’s actions created a legal consequence for Quicken. In addition, Quicken was provided with an adequate remedy at law through the False Claims Act lawsuit filed by HUD in the United States District Court for the District of Columbia. As such, the Court held that neither of HUD’s actions warranted judicial review in the Eastern District of Michigan.   

The Court took note that Quicken implied HUD’s use of sampling was an agency action, but found these allegations unpersuasive. HUD’s letter did not discuss the sampling methodology used by HUD and, in any event, the sampling methodology was not the type of agency action contemplated by statute. The Court also noted that neither HUD’s filing a complaint nor demand for settlement amounted to agency actions. Finally, the Court held agency discretion gave HUD the broad authority to monitor and enforce its FHA program.

The Court additionally ruled that Quicken’s due process claim must fail because Quicken failed to show how it was deprived of its interest in “contractual insurance coverage,” as Quicken did not allege that HUD denied a claim for insurance on of the federally-backed loans. The Court also held that Quicken failed to allege that it was actually deprived of funds when Quicken pled that HUD could use its sampling methodology to require Quicken to indemnify HUD, thereby depriving Quicken of a property interest in the money expended to do so. 

Having held that Quicken failed to state a claim under the APA or Due Process Clause, the Court declined Quicken’s request for a declaration seeking to prevent HUD from using its sampling methodology, and determining that Quicken did not breach any insurance contract because Quicken’s loans were properly underwritten. In doing so, the Court noted the issues raised by Quicken could be resolved successfully by HUD’s False Claims Act lawsuit pending in the District of Columbia. 

Many doubted Quicken’s aggressive strategy to file suit before HUD in hopes of influencing the outcome of any potential litigation filed by HUD against the lender. Based upon the Court’s ruling, the preemptive litigation strategy did not work in this instance.