Quicken Loans chairman Dan Gilbert won the first skirmish in a back-and-forth legal battle between his company and the Obama administration today, with a federal judge declining to move on the government’s case until a colleague of his in U.S. District Court in Detroit rules in the lender’s lawsuit against federal regulators.
After a brief hearing in Washington, U.S. District Judge Reggie Walton delayed further action in the government’s case against Quicken, the nation’s second-largest direct-to-consumer mortgage lender, saying he first wants to see how U.S. District Judge Mark Goldsmith rules on a motion in Quicken’s case in Detroit, which was filed first.
U.S. Justice Department lawyers had asked Goldsmith to dismiss the Detroit case or move it to Washington, where they filed claims against Quicken. Since Goldsmith is not expected to rule until early October, Walton’s ruling effectively gives Quicken the stay it wanted until the issue of where the legal battle will be waged can be sorted out.
“All of the factors overwhelmingly favor (filing the case) in Detroit,” said Birmingham lawyer Jeffrey Morganroth, who represented Quicken at this morning’s hearing before Walton and disputed claims that the case was properly situated in Washington and that the Detroit case was filed to improperly preempt the government’s charges.
Late last month, the Justice Department sued Quicken, alleging that the Detroit-based lender had knowingly submitted or caused the submission of hundreds of improperly underwritten loans insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).
By causing home values to be exaggerated or not making sure borrowers could afford to pay their mortgages, Quicken cost HUD — and ultimately the taxpayers — millions of dollars in payouts under the guaranteed loans, the government said.
But just days before those charges were filed in the nation’s capital, Gilbert and Quicken filed the case against the government in Detroit, saying Justice and HUD were trying to strong-arm the lender into agreeing to a pricey settlement.
In that lawsuit, Quicken argued that the agencies had “cherry-picked” 55 loans out of nearly 250,000 originated between 2007 and 2011. Not only were its loans done properly, the lender said, but the method the government used in sampling loans was flawed and violated agreements with the lender under the FHA program.
At today’s hearing Walton was asked to decide whether the government’s case should be stayed until the issue of jurisdiction could be decided or moved outright to Detroit at Quicken’s request and over the government’s objection.
While he didn’t rule specifically on that motion, his decision to wait for Goldsmith’s ruling had the effect of granting the stay and cleared a path for Goldsmith to determine where the case would be litigated, by either dismissing the Quicken case, sending it to Washington or keeping it in Detroit — where both could be consolidated.
Assistant U.S. Attorney Brian Hudak argued against the judge delaying the government’s case against Quicken until Goldsmith rules, saying it would encourage other companies the Justice Department sues to file preemptive lawsuits in an attempt to stall proceedings.
“It’s clearly a preemptive suit,” said Hudak, who went on to call the lender’s lawsuit, “patently unmeritorious on its face.”
But Walton — without making any decisions on the merits of either case — said it was a waste of judicial resources to move forward with a hearing on Quicken’s request to move the Washington case when Goldsmith’s decision could have a bearing on the resolution.
“I don’t think staying the case is going to cause any more delay,” Walton said, explaining that Goldsmith’s decision could influence his. He later added, “Obviously the case should not be litigated in two different districts.”
Quicken has argued for the government’s case to be transferred to Detroit, saying all of the relevant witnesses and documents — for both it and the government — are there, not in Washington. But the government’s lawyers say the program under which the charges were brought is situated in the nation’s capital and the case rightly belongs there.