United States District Court, E.D. Michigan, Southern Division
Quicken Loans Incorporated, Plaintiff: Thomas M. Hefferon,
Goodwin Proctor LLP, Washington, DC; Jeffrey B. Morganroth,
Morganroth & Morganroth, Birmingham, MI.
United States of America, United States Department of Housing
and Urban Development, United States Department of Housing
and Urban Development, Secretary of, United States Department
of Housing and Urban Devlopment Office of Inspector General,
United States Department of Housing and Urban Development,
Inspector General of, United States Department of Justice,
United States Department of Justice, Attorney General of,
Defendants: Arjun Garg, U.S. Department of Justice,
AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS (Dkt.
MARK A. GOLDSMITH, United States District Judge.
matter is before the Court on Defendants' motion to
dismiss or, in the alternative, to transfer this case to the
U.S. District Court for the District of Columbia (Dkt. 15).
For the reasons explained fully below, the Court grants
Defendants' motion to dismiss, because Plaintiff Quicken
Loans Inc. has failed to state a claim either under the
Administrative Procedures Act or the Constitution. With no
remaining independent basis to exercise jurisdiction, the
Court, in its discretion, further declines to entertain
Quicken's count for declaratory relief.
Federal Housing Administration (" FHA" ) is an
entity within the United States Department of Housing and
Urban Development (" HUD" ), which insures
mortgages and administers several mortgage default insurance
programs. Compl. ¶ ¶ 3, 30, 43 (Dkt. 1); W. &
S. Life Ins. Co. v. Smith, 859 F.2d 407, 408 (6th Cir.
1988). As a mortgage insurer, the FHA agrees to protect
mortgage lenders against the risk of loss caused by
borrowers' non-payment, as authorized by the National
Housing Act of 1934, 12 U.S.C. § 1701 et seq. See Compl.
¶ ¶ 43, 45.
the programs through which FHA insures home mortgages is the
Direct Endorsement Lender (" DEL" ) program.
Through the DEL program, the FHA authorizes certain lenders
to evaluate the credit risk of potential borrowers,
underwrite mortgage loans, and certify those loans for FHA
mortgage insurance without prior HUD review or approval. See
12 U.S.C. § 1715z-21; Compl. ¶ ¶ 44, 47. In
underwriting the mortgage loan, the lender must determine
whether both the borrower and the mortgage loan meet
HUD's requirements for FHA insurance and whether "
the proposed mortgage is eligible for insurance under the
applicable program regulations." 24 C.F.R. §
monitor a lender's compliance with program requirements,
the Secretary of HUD " may review all documents"
required for a mortgage's insurance endorsement under the
DEL program. 24 C.F.R. § 203.255(e). Quicken refers to
this review as the Post-Endorsement Technical Review ("
PETR" ). Compl. ¶ 48. If this after-the-fact review
reveals that the mortgage does not satisfy the requirements
of the DEL program, " the Secretary may place the
mortgagee on Direct Endorsement probation, or terminate the
authority of the mortgagee to participate in the [DEL]
program pursuant to § 203.3(d), or refer the matter to
the Mortgagee Review Board for action pursuant to part 25 of
this title." 24 C.F.R. § 203.255(e). In addition,
by certifying the mortgage for FHA insurance, the mortgage
lender agrees to indemnify HUD for claims paid out to the
lender in certain circumstances. 24 C.F.R. §
203.255(g)(1). A demand for indemnification may come
from either the Secretary of HUD or the Mortgagee Review
Board. Id. § 203.255(g)(5).
April 2012, the Department of Justice (" DOJ" ) and
the HUD Office of Inspector General (" HUD-OIG" )
began investigating Quicken -- an FHA-approved lender for
nearly 27 years -- under the False Claims Act ("
FCA" ), 31 U.S.C. § 3729 et seq. See Compl. ¶
¶ 8, 55. The scope of the investigation encompassed
approximately 246,000 FHA loans that Quicken had originated
from mid-2007 through December 31, 2011, which Quicken
collectively refers to as the " Subject Loans."
Id. ¶ ¶ 2, 14-15, 55-56.
of the FCA investigation, the DOJ and HUD-OIG assessed a
sampling of 116 loans and determined that 55 of those loans
did not comply with FHA lending guidelines and were
improperly underwritten. Id. ¶ ¶ 6, 15,
18, 73, 77. To determine the magnitude of FHA violations, the
DOJ and HUD-OIG extrapolated those " supposed defects on
the same percentage basis across the entire loan
population" -- a methodology that Quicken calls "
Conjectural Extrapolation Sampling." Id. ¶
¶ 15, 73.
states that the DOJ and HUD-OIG's use of a sampling and
extrapolation methodology constituted a " retroactive
change of process for evaluating loans," as "
HUD's practice for evaluating loan quality ha[d] long
been to assess on an individual basis whether a loan was
properly underwritten or in compliance with program
rules." Id. ¶ 13; see also id. ¶ 20
(stating that HUD has a " long-standing approach of
evaluating loan compliance on an individualized basis"
). Quicken refers to this alleged prior practice as the
" Loan-Level Mandate." Id. ¶ ¶
59, 61. According to Quicken, under the Loan-Level Mandate
regime, HUD would review loans on an individualized basis
and, if HUD determined that a loan was improperly originated,
it would notify the lender of its finding and allow the
lender to file a response. If the parties were unable to
resolve the problem, HUD would then seek indemnification for
its actual losses. Id. ¶ ¶ 13, 20, 49. In
a letter dated June 24, 2013, HUD informed Quicken that,
because of the DOJ and HUD-OIG's investigation, HUD
" would no longer evaluate individual loan
liability" under the PETR process for loans Quicken
originated between 2007 and 2011. Id. ¶ ¶
effort to resolve the alleged FCA violations, the DOJ and
HUD-OIG's settlement demands sought both a financial
penalty and a public statement of wrongdoing from Quicken.
Id. ¶ 19. At the same time, Quicken was aware
that the filing of an FCA enforcement action was likely if
the parties were unable to reach a resolution. See id. ¶
¶ 6, 23, 75.
the parties failed to reach a settlement, and " in the
face of the DOJ and HUD-OIG's repeated threats" of
an FCA action, Quicken claims that it " had no other
option than to file this lawsuit" challenging "
HUD's abandonment of its normal and well-established
processes." Id. ¶ ¶ 12, 23. In its
complaint, Quicken asserts claims under the Administrative
Procedures Act (" APA" ), 5 U.S.C. § 551 et
seq., and the Due Process Clause of the Fifth Amendment; it
also seeks declaratory and injunctive relief regarding its
contention that it has not breached its contracts with
HUD. Summarizing its claims, Quicken says
it seeks two basic rulings from the Court:
(a) that Defendants cannot determine the quality and
compliance of loans through their newly fabricated
Conjectural Extrapolation Sampling rather than through the
loan-by-loan approach that was applicable at the time the
loans were originated and upon which Quicken Loans relied;
and (b) that the loans Quicken Loans made between 2007-2011
in fact were originated properly by Quicken Loans in
accordance with the applicable FHA guidelines and program
requirements, and pose no undue risk to the FHA insurance
Compl. ¶ 25.
than one week after Quicken filed this action, the United
States filed an FCA enforcement action in the U.S. District
Court for the District of Columbia, alleging that certain
" loans underwritten and approved by Quicken and
endorsed for [FHA] insurance between September 1, 2007 and
December 31, 2011 . . . violated FHA rules," and that
Quicken " falsely certif[ied] compliance with those
rules," in violation of the FCA. United States v.
Quicken Loans Inc., No. 15-613, Compl. ¶ ¶ 1-2
(Dkt. 1) (D.D.C.). Quicken filed a motion to transfer that
case to this Court. The District of Columbia district court
has not ruled on that motion; instead, it stayed further
proceedings in the FCA case, pending a decision of the
current motion in the instant case.
STANDARD OF DECISION
evaluating a motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6), " [c]ourts must construe the
complaint in the light most favorable to plaintiff, accept
all well-pled factual allegations as true, and determine
whether the complaint states a plausible claim for
relief." Albrecht v. Treon, 617 F.3d 890, 893
(6th Cir. 2010). To survive a motion to dismiss, a complaint
must plead specific factual allegations, and not just legal
conclusions, in support of each claim. Ashcroft v.
Iqbal, 556 U.S. 662, 678-679, 129 S.Ct. 1937, 173
L.Ed.2d 868 (2009). A complaint will be dismissed unless it
states a " plausible claim for relief."
Id. at 679.
Administrative Procedures Act
complaint, Quicken alleges that Defendants violated the APA
in several ways. Counts I, II, and III assert that Defendants
acted arbitrarily and not in accordance with the law by: (i)
retroactively abandoning the Loan-Level Mandate; (ii) using
statistical sampling; and (iii) concluding that a substantial
fraction of the Subject Loans were " defective."
Compl. ¶ ¶ 89, 97, 103, 105; Pl. Resp. at 27-28
of federal administrative agencies' conduct is governed
by the APA. See Am. Civil Liberties Union v. Nat'l
Sec. Agency, 493 F.3d 644, 677 (6th Cir. 2007). The APA
provides that " [a] person suffering legal wrong because
of agency action, or adversely affected or aggrieved by
agency action within the meaning of a relevant statute, is
entitled to judicial review thereof." Stew Farm,
Ltd. v. Natural Res. Conservation Serv., 767 F.3d 554,
559 (6th Cir. 2014) (quoting 5 U.S.C. § 702).
the right to judicial review is limited in significant ways.
The agency activity for which review is sought must fit
within the statutory definition of " agency
action." 5 U.S.C. § 551(13). Unless a statute
expressly provides for judicial review of a particular agency
action, the subject action must also be " final,"
and one for which there is no adequate remedy in court.
Id. § 704; see also Bennett v. Spear,
520 U.S. 154, 175, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997).
Further, final agency action may be shielded from judicial
review if it is one committed to " agency
discretion." 5 U.S.C. § 701(a)(2). These
limitations serve " to protect agencies from undue
judicial interference with their lawful discretion, and to
avoid judicial entanglement in abstract policy disagreements
which courts lack both expertise and information to
resolve." Norton v. S. Utah Wilderness
Alliance, 542 U.S. 55, 66, 124 S.Ct. 2373, 159 L.Ed.2d
137 (2004). As discussed below, Quicken's APA claims run
afoul of one or more of these limitations.
Court must first identify the specific " agency
action" Quicken now challenges. Quicken's complaint
is replete with broad and conclusory characterizations of
agency activities, but short on specificity. For example, the
complaint challenges Defendants' " conduct" in
abandoning the Loan-Level Mandate, Compl. ¶ 92, their
" conclusion" that a significant number of loans
were non-compliant, id. ¶ 94, their "
adoption" of the sampling technique, id. ¶ 98, and
their " application" of the technique to a set of
loans, id. ¶ 105. But these opaque terms do not meet the
statutory definition of " agency action."
defines " agency action" as " the whole or
part of an agency rule, order, license, sanction, relief, or
the equivalent or denial thereof, or failure to act." 5
U.S.C. § 551(13). The statute further defines these
specific categories of agency action in a way that denotes
" circumscribed, discrete agency actions." Norton,
542 U.S. at 62. The categories and their definitions are as
o Rule -- " an agency statement of general or particular
applicability and future effect deigned to implement,
interpret, or prescribe law or policy"
o Order -- " a final disposition . . . in a matter other
than rule making"
o License -- " an agency permit . . . or other form of
o Sanction -- " a prohibition . . . or taking of other
compulsory or restrictive action"
o Relief -- " a grant of money, assistance, license,
authority, . . . [or] recognition of a claim, right,
immunity, . . . or taking of other action on the application
or petition of, and beneficial to, a person"
5 U.S.C. § § 551(4), (6), (8), (10), (11). Further,
the phrase " the equivalent or denial thereof" must
also be a discrete action or " denial of a discrete
listed action." Norton, 542 U.S. at 62.
under Rule 12(b)(6) is " appropriate where the
plaintiff's pleadings fail to identify a discrete,
circumscribed agency action subject to review under the
APA." Banner Health v. Sebelius, 797 F.Supp.2d
97, 113 n.17 (D.D.C. 2011). In Banner, the court dismissed
" vague and non-specific" allegations attacking how
the Secretary of Health and Human Services (" HHS"
) had implemented various aspects of the Medicare program;
but the court refused to dismiss allegations challenging the
Secretary's promulgation of specific regulations and