Last week, the United States District Court for the Northern District of Illinois issued its opinion and order in United States v. Luce, after the case had been remanded by the United States Court of Appeals for the Seventh Circuit. The decision touches on two important issues relevant to civil enforcement actions by the Department of Justice: (1) the standard of causation, and the application of that standard, under the False Claims Act; and (2) penalties under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).
The case was returned to the district court after the Seventh Circuit reversed prior Seventh Circuit precedent that had applied a “but-for” standard of causation for damages under the False Claims Act. The new Seventh Circuit standard, that of “proximate causation,” aligns with four other circuits to have considered the issue, all concluding that proximate causation (a more stringent standard than but-for causation) should apply to False Claims Act cases.
On remand, the district court concluded that, while the defendant’s statements were the but-for cause of the government’s loss, they were not the proximate cause of the loss because his statements lacked a sufficient nexus to the loan defaults that actually caused the loss. This is a helpful decision for defendants in False Claims Act cases that stem from allegedly false statements not tied directly to the government’s loss.
The court next turned to the issue of penalties under FIRREA, becoming only the fourth court to rule on FIRREA penalties, and the first to do so without any accompanying proximate loss. While the maximum penalty available was $3.3 million, the court did not consider Luce to be “within the worst class of FIRREA violators,” and therefore awarded a penalty of $500,000.
For a detailed analysis of the Luce decision, and its impact on False Claims Act and FIRREA jurisprudence, please see our article that was published in Law360.
Derek Adams, a former Trial Attorney with the Department of Justice, Civil Fraud Section, is a partner in the firm’s Litigation and Government Investigations practice group. Derek has extensive experience with False Claims Act and FIRREA matters, and can be reached at firstname.lastname@example.org or (202) 466-8960 if you have any questions.