In a summary judgment favoring the Kansas City-based mortgage firm, also known as James B. Nutter & Co., the court prevented the U.S. Department of Justice from recovering potential damages under the False Claims Act, limiting it to seeking civil penalties. 

In 2020, the DOJ filed its complaint, which alleged Nutter's underwriting of over 1,500 government-guaranteed reverse mortgages, or HECMs, one decade earlier ran afoul of U.S. Department of Housing and Urban Development regulations. In the allegation, the Justice Department claimed Nutter used unqualified underwriters, leading HUD to insure loans that were not eligible and later went into default. The complaint also said some signatures of certified underwriters had been forged.

The biggest takeaway from the ruling was "the government has developed no evidence to show that any of those alleged underwriting deficiencies caused any harm to HUD," said Edward "Ted" Kang, partner at Alston & Bird, who represented the lender in court. 

The Justice Department's failure to prove causation means it will be limited to seeking civil penalties against Nutter. In addition, the judge removed approximately 1,000 of the loans cited by the government..  

While an underwriting error or misconduct might play a factor in any future problems with the loan, the judge said there was no proof of proximate cause or "sufficient connection between the conduct and the harm," according to Kang. 

The decision made no judgment on the veracity of DOJ's claims of Nutter's alleged misconduct. The lender had previously paid penalties to both HUD and state regulators for infractions in its reverse-mortgage operations. 

Nutter Home Loans ceased operations in late 2022 after being in business for over 70 years, citing its DOJ battle as one of the reasons behind its closure. Its shutdown also came in the middle of a prolonged period of business contraction, leading several other companies to consolidate, close or reduce staff. 

In its 2020 filing, the Department of Justice also claimed Nutter's actions had violated the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The summary judgment would not affect DOJ's efforts to potentially pursue damages related to those allegations.

The judge's findings come just weeks after pivotal Supreme Court rulings, including in the case known as the Chevron deference, appear to point to a number of legal opinions that may diminish powers of enforcement federal agencies have.  

"It's significant because the government said that it was harmed in this way, the court didn't necessarily just rubber stamp that," Kang said regarding the Nutter decision. 

The judge "exercised independent review of the cases and the evidence and came to a very well reasoned, in our view, decision." 

A request for comment from the DOJ has not been returned by press time.