The district court denied most of a motion to dismiss FCA claims connected to HUD public housing contracts. The relator alleged her landlord failed to maintain its apartment complex to HUD housing standards, in accordance with its contract under Section 8 of the U.S. Housing Act. The defendants argued the complaint failed to state a claim, but the court found the contract incorporated the housing standards, required that they be met, and conditioned rent payments on compliance. That was sufficient to state a claim under the FCA. The defendants argued that they were not the owners of the building and did not receive any government payments, but the court noted the complaint identified the defendants as the managers of the building and alleged they were responsible for its upkeep. Because the defendants were responsible for building maintenance, were aware of multiple failed inspections, and failed to make adequate repairs, the court reasoned they could be held liable for causing the submission of claims for rent payments that falsely certified compliance with HUD housing standards.
Relator Barbara Jenkins filed a qui tam case alleging that her landlords defrauded the government in relation to Section 8 housing assistance grants. The defendants moved to dismiss.
Defendants Sanford Capital LLC and its principal, Aubrey Carter Nowell, co-own and operate the Wayne Place Apartment complex in Washington, D.C. The defendants receive funds from the government through Section 8 of the U.S. Housing Act via the Housing Choice Voucher Program administered by the District of Columbia Housing Authority. Relator Barbara Jenkins is a resident of the complex.
In 2008, DCHA inspected Jenkins’ apartment and found it was not in compliance with HUD regulations. While the deficiencies were the responsibility of the owner to repair, Jenkins alleged they made cosmetic corrections without addressing the underlying problems. Other units that failed inspections were given similarly superficial work. The building was found to be unsafe and unsanitary, and failed inspection again in 2010. Again, the defendants completed projects that gave the appearance of repair when no actual repairs were made.
The complaint outlined multiple deficiencies in the condition of the complex that would have resulted in a failed inspection. Units in the complex failed inspections in 2011 and 2013. The relator attached to her complaint a copy of the standard contract the owners and HUD would have entered into, noting that the issues relevant to this complaint were non-negotiable. Most importantly, the contract states that Sanford must maintain the premises in accordance with housing quality standards and that the government will not make any housing payments if a unit fails an inspection and adequate repairs are not completed. The complaint also outlined the relevant housing quality standards set by HUD regulations.
The defendants moved to dismiss. As an initial matter, the court held that the contract provided by relator was sufficient to support the complaint, even though it was a sample contract and not the exact contract signed by the defendants and the government. Given that the relator would not have access to the original contract and given that the form contract states that relevant wording may not be altered, the court did not hesitate to take judicial notice of the document and consider it as part of the motion to dismiss. Further, because the contract is also available on HUD’s website, the court would have been able to consider it even if it had not been attached.
In the motion to dismiss, the defendants argued Jenkins had not alleged enough facts to make her claim or whether Nowell may be held liable. First, the court found that the relator had laid out a legally viable theory of FCA liability. Jenkins alleged that when a landlord receives housing subsidy payments from the federal government despite noncompliance with a HAP contract, the landlord violates the FCA. Assuming the alleged facts as true, the court found this complaint presented a proper FCA claim. Jenkins alleged the submission of a claim for payment and alleged that the defendants’ representations—made to receive those payments—were false. The court found the complaint fit an implied certification theory of liability.
While the defendants did not challenge the complaint on particularity, the court found that Jenkins alleged the rough dates of certain failed inspections and alleged that the repairs made after each inspection were consciously inadequate. The fact that Jenkins continued to live in the unit raises the implication that claims were submitted for Section 8 funds because her rent must have been paid from somewhere, and she did not pay it. The defendants did not dispute that claims for payment were submitted and the court did not determine it.
The court also found that Jenkins adequately presented a second claim that Nowell can be held individually liable for corporate conduct.
The defendants argued that Jenkins failed to articulate a sufficient connection between Nowell or Sanford Capital and the Wayne Place Apartments. Nowell also argued there was no basis to pierce the corporate veil to impose liability on him personally.
First, the defendants argued that Sanford Capital does not own the Wayne Place Apartments and that payments for Jenkins’ unit went to Wayne Place LLC, not to Sanford. Because Nowell had a connection only to Sanford, he alleged the complaint failed to connect him personally to the alleged fraud.
However, the court disagreed, finding the complaint did allege that Sanford owns the complex and that Newell is the principal and founder of Sanford. The court found this to be a fairly straight line from the property to Newell. The defendants suggested that the complaint is wrong on the ownership issue and provided a deed and letter from DCHA indicating that Wayne Place, LLC owned the Wayne Place Apartments and was the entity receiving funding in connection with Jenkins’s unit.
However, even assuming that the deed was a public record of which the court could take judicial notice, the court found Newell’s argument failed because it overlooked the basis for FCA liability alleged in the amended complaint.
Taken as true, the complaint alleged sufficient facts to make Sanford Capital liable for causing the submission of false claims, even if it did not own the complex. The complaint alleges that Sanford operates Wayne Place Apartments. Therefore, even if Sanford does not own the complex, it would be responsible for the conditions of the apartments, for the shame repairs, and for the submission of false claims for rent payments. The court held the relator could allege the defendants caused the submission of false claims, without requiring the relator to demonstrate ownership. That the defendants are not the owners of the building was immaterial because their alleged deception was plausibly a substantial factor leading to the submission of false claims.
Second, Nowell argued the complaint failed to show he should be held personally liable. The court agreed, finding the complaint did not allege sufficient details to allow for a piercing of the corporate veil. The court found the complaint relied on threadbare and conclusory statements to make the connection between Nowell and the relevant conduct. For example, the complaint identifies Newell as the principal and founder of Sanford and states the parties have unified interests, but without sufficient supporting detail. For example, the court explained the relator could have described Newell’s role and control over Sanford, explained how and why Sanford is undercapitalized, or provided details about assets Newell transferred to himself.
While the court dismissed the complaint with regard to the veil-piercing liability theory, the court did not believe this bought much for Newell, as the complaint alleged that both defendants undertook the deception acts that gave rise to the fraud. If the relator succeeds on its claims, the court noted there might not be a need to pierce the corporate veil to hold Newell liable. The dismissal of the veil-piercing theory will only make a difference if Sanford Capital is proven to have engaged in FCA violations but Nowell is not.
