United States ex rel. Mei Ling v. City of L. A.
389 F. Supp. 3d 744
C.D. Cal.2019Background
- HUD allocates annual formula "Entitlement Funds" (CDBG, HOME, HOPWA, including NSP) to entitlement communities like Los Angeles; from 2001–2012 LA routed some funds through CRA/LA. The Government alleges LA/CRA/LA certified compliance with federal accessibility laws but failed to provide accessible multifamily units and programmatic accessibility.
- HUD’s 2011 review found systemic accessibility deficiencies at multiple HUD‑assisted projects; HUD reached a VCA with CRA/LA in 2014 but has not finalized one with the City; negotiations and DOJ referral occurred thereafter.
- Relators filed a qui tam FCA action; the Government intervened and filed a Complaint‑in‑Intervention and later a First Amended Complaint‑in‑Intervention (FACI) asserting FCA claims (false claims; false records) and common law claims (negligent misrepresentation, unjust enrichment, payment by mistake) based on alleged false certifications in grant applications and compliance documents.
- The district court previously dismissed for failure to plead materiality but allowed amendment; the FACI added extensive factual detail about HUD’s procedures, negotiations, denials of discretionary grants (~$33M), and VCAs in other jurisdictions.
- The City moved to dismiss again; the court evaluated materiality under Escobar’s demanding standard and the Escobar‑enumerated factors (condition of payment, essence of bargain, significance of violation, government actions) and denied the motion in full.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether materiality for FCA is plausibly pleaded | Alleged express certification conditions, program purpose includes accessible housing, systemic violations, HUD denied discretionary grants citing noncompliance, HUD pursued VCAs and has procedural hurdles before cutting formula funds — together plausibly rebut HUD’s continued funding as proving immateriality | Continued HUD funding after learning of violations is "very strong evidence" of immateriality; competitive denials are not the same as withheld formula funds; long negotiations show HUD won’t cut funding | Materiality adequately pleaded: FACI’s added facts (denials of discretionary grants, HUD procedures, ongoing VCA negotiations, VCAs elsewhere) plausibly explain why HUD continued payments while still treating compliance as material and pursuing remedies |
| Whether falsity and Rule 9(b) particularity satisfied | FACI identifies specific programs, applications, certifications, and concrete accessibility failures at projects; signatures and exact certifying individuals are discoverable | FACI lacks specific dates, signatories, and exact certification language required by Rule 9(b) | Falsity pleaded with requisite particularity for pleading stage; failure to name every signatory not fatal where submissions and targets are identified |
| Whether scienter is adequately pleaded | FACI alleges systemic, longstanding noncompliance and collective knowledge sufficient to infer deliberate or reckless disregard for truth of certifications | City argues collective scienter insufficient; need individualized allegations | Court accepts collective scienter allegations as adequate at pleading stage (consistent with prior order and Ninth Circuit practice) |
| Viability of related common‑law claims (negligent misrepresentation, unjust enrichment, payment by mistake) | Materiality standard same as FCA; restitution theories viable because funds characterized as claims for payment and even if a contract existed restitution remains available if procured by fraud; fungibility supports benefit retention | City argues existence of grant agreements and passage of funds to developers defeats restitution and shows no retained benefit | Court holds common‑law claims adequately pleaded: materiality met; unjust enrichment plausible given fungibility; payment‑by‑mistake and negligent misrepresentation survive pleadings |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must plausibly suggest liability)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading test for complaints)
- Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) (FCA materiality is demanding; government payment despite knowledge is very strong evidence of immateriality)
- Hooper v. Lockheed Martin Corp., 688 F.3d 1037 (9th Cir. 2012) (elements of an FCA claim)
- United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012 (9th Cir. 2018) (post‑Escobar materiality analysis and relevant factors)
- United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018) (absence of past government denials does not require dismissal; Escobar factors are non‑dispositive)
- United States v. Southland Management Corp., 326 F.3d 669 (5th Cir. 2003) (holding on remedies/administrative alternatives in HUD context; treated as an outlier in this opinion)
- United States ex rel. Campie v. Gilead Scis. Inc., 862 F.3d 890 (9th Cir. 2017) (government’s continued payment can be explained by alternative reasons; context matters)