UNITED STATES of America, Plaintiff-Appellant, v. SOUTHLAND MANAGEMENT CORPORATION; et al., Defendants, W. Thad McLaurin; Charles C. Taylor, Jr.; Arthur W. Doty, Defendants-Appellees.
No. 00-60267.
United States Court of Appeals, Fifth Circuit.
April 11, 2002.
288 F.3d 665
The Government concedes that the district court erroneously included two points in Henry‘s criminal-history calculation for a prior sentence that was imposed upon an adjudication of guilt for conduct that was part of the offense of conviction. The Government further urges this Court to remand Henry‘s case for re-sentencing. We agree. The district court committed plain error by including two points in Henry‘s criminal-history calculation. Henry‘s state conviction for criminal trespass and federal conviction for possession of a firearm while under a restraining order clearly resulted from the same conduct on November 14, 1998. Accordingly, we vacate and remand Henry‘s sentence for further proceedings.
D. CONCLUSION
For the above reasons, we AFFIRM the district court‘s judgment of conviction and VACATE and REMAND Henry‘s sentence for re-sentencing.
Alan W. Perry (argued), Roland M. Slover, Forman, Perry, Watkins, Krutz & Tardy, Jackson, MS, for Defendants-Appellees.
Before KING, Chief Judge, and REAVLEY and JONES, Circuit Judges.
KING, Chief Judge:
Plaintiff-Appellant the United States of America (“the Government“) brought the instant action against Defendants-Appellees W. Thad McLaurin, Charles C. Taylor, Jr., and Arthur W. Doty (“the Defendants“) under the civil False Claims Act (“the FCA“). The Government alleges that the Defendants, as owners of the Jackson Apartments in Jackson, Mississippi, repeatedly certified falsely to the Department of Housing and Urban Development (“HUD“) that these apartments complied with the “decent, safe, and sanitary” standard established in the Defendants’ contract with HUD. The district court granted summary judgment to the Defendants, finding that, under the undisputed material facts of the case, the Government could not establish the materiality element of a cause of action under the civil FCA: namely, that the false claims in question “had a natural tendency to influence” or were “capable of influencing” the decision of the governmental body to which they were addressed. The district court also found that, because HUD remitted funds to the Defendants knowing that their certifications were false, the Defendants could not have “knowingly” submitted false claims to HUD. The Government now appeals the district court‘s summary judgment, alleging that materiality is not a required element of a cause of action under the civil FCA and that genuine issues of material fact exist regarding whether the Defendants “knowingly” submitted false claims.
We hold that, under the law of this circuit, materiality is a required element of a cause of action under the civil FCA. However, we find that summary judgment was nonetheless inappropriate in the instant case because this court‘s precedents also dictate that the Defendants’ false certifications of compliance with the “decent, safe, and sanitary” standard were material as a matter of law. Using the definition of materiality employed by the Supreme Court in Kungys v. United States, 485 U.S. 759, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988), which is the definition employed by the district court, we find that the Defendants’ certifications had a “natural tendency to influence, or were capable of influencing” HUD‘s decision whether to honor their claims because receipt of these certifications was a prerequisite to HUD‘s remittance of funds. We also hold, in accordance with the conclusion of our sister circuits, that government payment of a false claim with knowledge of its falsity does not provide an automatic defense to liability under the FCA. Finally, we agree with the Government that there are genu-
I. FACTUAL AND PROCEDURAL BACKGROUND
Beginning in 1980, the Defendants participated in a federally-funded program to provide housing to low-income individuals at the Jackson Apartments (“the Complex“) under the oversight of HUD. During subsequent years, conditions at the Complex deteriorated. While HUD attempted to work with the Defendants over a period of approximately two years to remedy these problems, these informal remedial efforts met with increasing resistance and ultimately proved unsuccessful in improving the habitability of the Complex. In 1997 the Defendants stopped making payments on the building‘s mortgage debt, and HUD foreclosed on the Complex. The Government subsequently sued the Defendants, alleging that during a nineteen month period (beginning after the two-year remedial efforts had substantially deteriorated, but prior to HUD‘s ultimate foreclosure) the Defendants violated
A. HUD‘s Housing Program
1. The National Housing Act and Regulatory Agreements
In enacting the National Housing Act,
When the accelerated depreciation period was over and the shelter had (in the vernacular) “burned out,” if the partnership defaulted on the mortgage (because of inadequate cash flow or any other reason), HUD (as guarantor) was compelled to institute proceedings to foreclose on the property. This default did not put the investors’ personal assets at risk, as the mortgage was non-recourse debt. See generally Arthur R. Hessel, Heard from HUD, 6 SUM J. Affordable Housing & Community Dev. L. 268, 270 (1997) (describing the tax incentives for private investors to participate in construction and rehabilitation of low-income housing); Daryl S. Alterwitz, Low Income Housing Under the New Conservatism: Trickle Down or Dry Up?, 26 Santa Clara L.Rev. 461, 461 & nn. 5, 6, 23 & 93-96 (1986) (same).
Such tax shelters were particularly financially advantageous prior to the Tax Reform Act of 1986, which restricted the extent to which investors could use deductions and credits derived from tax shelters to offset earned income. These reforms also repealed some of the specific tax incentives applicable to low-income housing projects. See generally Janet Stearns, The Low-Income Housing Tax Credit: A Poor Solution to the Housing Crisis, 6 Yale L. & Pol‘y Rev. 203, 208-10 (1988) (describing the effects of the Tax Reform Act of 1986).
2. Section 8 and “HAPs”
In 1937, Congress enacted the United States Housing Act,
Pursuant to Section 8 and as required by the regulations governing the substantial rehabilitation program, see
If a property does not meet the required specifications, HUD‘s usual practice is to require the owner to submit a detailed plan indicating how the owner will remedy the defects and to allow the owner a limited time period to fix the problems pursuant to this plan. However, under the HAP contract, if the owner fails to cooperate with HUD and correct the violations within the prescribed time, HUD may exercise any of its rights or remedies under the HAP contract, including abatement of the HAPs.
B. The Facts of the Present Suit
The Defendants were general partners of Jackson Apartments, Ltd. (the “Partnership“), a limited partnership created for the purpose of purchasing the Complex. In 1980, HUD advertised for bid proposals for properties to participate in its Section 8 “substantial rehabilitation” program. The Partnership purchased the Complex and submitted a proposal to HUD, which HUD selected. The Partnership then renovated the Complex, and the Complex opened to low-income tenants in 1981.
To fund the renovation of the Complex, the Defendants expended approximately $190,000 of their own funds, and the Partnership executed a $2.4 million note secured by a HUD-insured non-recourse mortgage. To enjoy the benefits of the low-interest, non-recourse mortgage, the Partnership entered into a regulatory agreement with HUD. The Partnership and HUD also executed a HAP contract so that the Partnership could receive HAPs.
Shortly after the inception of the project, in December 1983, the Partnership contracted with Southland Management Company (“Southland“) to manage the Complex. During the time period relevant to this litigation (i.e., July 1995 to January 1997) Southland submitted, on behalf of the Partnership, the monthly HAP vouchers to HUD. As noted above, each of these HAP vouchers contained a certification that the property was in decent, safe, and sanitary condition. An employee of Southland, as an agent of the Partnership, would sign the monthly certification.
Beginning at least as early as August 1993, physical inspections conducted by HUD revealed many maintenance problems and structural defects at the Complex. The physical inspection reports contained in the record demonstrate that the Complex suffered from, inter alia, roach and rodent infestation, deteriorated siding, drainage problems, doors and windows that would not close or lacked functioning locks, inadequate maintenance of fire extinguishers, inoperable smoke alarms, rusted medicine cabinets, and leaking faucets and toilets.4 These deficiencies were reflected in the overall ratings of “below average” or “unsatisfactory” given to the Complex from August 31, 1993 to November 12, 1996. Furthermore, a December 20, 1996 HUD Management Review Report rated the complex as “unsatisfactory,” the lowest rating provided for in the management review and physical inspection reports.5
The Defendants received prompt written notice of each of these unsatisfactory inspection reports. As per its standard
Despite the significant health and safety problems at the Complex and the inadequacy of the Defendants’ recalcitrant repair and improvement efforts, the Defendants continued to submit their monthly HAP vouchers certifying that the property was in “decent, safe, and sanitary condition,” and HUD continued to disburse HAPs to the Defendants. On August 5, 1997, however, the Defendants informed HUD that they would make no more payments on the mortgage. HUD consequently foreclosed, and the Complex was sold in late July 1998. On August 5, 1998, the Government filed the instant action under
Specifically, the Government argues that during this time period the Defendants submitted nineteen HAP vouchers falsely certifying that the Complex was decent, safe, and sanitary. The Government contends that each of these voucher submissions constitutes a false claim8 under the Act and that the certifications therein indicating that the property was in decent, safe, and sanitary condition were false statements made to secure HUD‘s payment of the HAP vouchers. The Government seeks civil penalties of $10,000 for each certification that was filed, plus treble damages of $2,595,069.9
On September 7, 1999, the Defendants moved for summary judgment, arguing
The Government timely appeals the district court‘s summary judgment in favor of the Defendants. The Government asserts two primary claims of error: (1) that the materiality of the falsehood to HUD‘s decision is not relevant in determining whether the Defendants violated
II. STANDARD OF REVIEW
We review the district court‘s grant of summary judgment de novo, applying the same standard as the district court. See Rivers v. Cent. & R.W. Corp., 186 F.3d 681, 683 (5th Cir.1999). “Summary judgment is proper only ‘if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.‘” Turner v. Houma Mun. Fire & Police Civil Serv. Bd., 229 F.3d 478, 482 (5th Cir.2000) (quoting
“Courts of Appeals consider the evidence in the light most favorable to the nonmovant, yet the nonmovant may not rely on mere allegations in the pleadings; rather, the nonmovant must respond to the motion for summary judgment by setting forth particular facts indicating that there is a genuine issue for trial.” Spivey v. Robertson, 197 F.3d 772, 774-75 (5th Cir.1999) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). After the non-movant has been given an opportunity to raise a genuine factual issue, if no reasonable factfinder could find for the nonmovant, summary judgment is appropriate. See
III. IS “MATERIALITY” AN ELEMENT OF A CAUSE OF ACTION UNDER THE CIVIL FALSE CLAIMS ACT?
The civil False Claims Act imposes liability on any person who knowingly submits, or causes the submission of, a false or fraudulent claim for money to the government. The current Act originated in the 1863 False Claims Act, which provided both civil and criminal sanctions for “false, fictitious, or fraudulent” claims submitted to the United States Government. See
Congress recodified the civil False Claims Act in 1982. See
In its current form, the Act provides, in pertinent part:
Any person who—
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; [or]
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government
...
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person[.]
Although the statute contains no express reference to materiality, many courts, including this court, have found that there is a fourth, “materiality” element required to maintain a cause of action under the Act. See United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir.1997) (“[T]he FCA ‘interdicts material misrepresentations made to qualify for government privileges or services.’ “) (quoting United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456, 461 (5th Cir.1977)); see also Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732 (7th Cir.1999); United States ex rel. Berge v. Bd. of Trs. of the Univ. of Ala., 104 F.3d 1453, 1459 (4th Cir.1997); United States v. Intervest Corp., 67 F.Supp.2d 637, 646 (S.D.Miss.1999). But
The district court concluded that the civil False Claims Act contains an outcome materiality requirement. United States v. Southland Mgmt. Corp., 95 F.Supp.2d 629, 637 (S.D.Miss.2000). The district court then determined that “undisputed evidence” demonstrated that the Defendants’ certifications in the HAP vouchers, if false, were not material to HUD‘s decision to disburse HAPs to the Defendants. The court thus granted summary judgment in favor of the Defendants on this ground. See id. at 643.14
On appeal, the Government contends that the civil False Claims Act does not contain the type of “outcome materiality” element espoused by the district court, requiring a plaintiff to demonstrate that the misstatement influenced the government‘s (i.e., HUD‘s) ultimate decision whether to remit funds to a defendant. The Government argues that the Supreme Court‘s recent decisions in Wells and Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999), counsel
efit in question. Id. at 624. The actual impact of the falsehood on the government‘s subsequent decisionmaking process did not play any role in the Wilkins court‘s analysis. Indeed, the Wilkins court specifically rejected the suggestion (made by the government in that case) that the FCA‘s implicit materiality requirement should turn on whether the government would have approved the claim in question but for the alleged falsehood. Id. at 636. The fact that the government would not have ultimately approved the contract in question but for the alleged false statements was not dispositive to the Wilkins court.
We need not decide today what the nature of the FCA‘s materiality requirement might be. We find that, even under the stricter “outcome materiality” definition applied to the civil FCA by the district court and the courts in Berge and Luckey (as opposed to the “claim materiality” definition urged by the Government and adopted by the court in Wilkins), the Defendants’ signed certifications in the HAP vouchers were material to HUD‘s decision to disburse HAPs to the Defendants. If false, these certifications render the HAP vouchers “false claims” as a matter of law under the law of this circuit.
It is undisputed that the Defendants’ legal entitlement to HAP payments is dependant upon the condition of the Complex. The HAP contract contains a covenant requiring the Defendants to maintain the property as decent, safe, and sanitary housing, under penalty of loss of their HAP payments. Moreover, the HAP contract specifically requires the Defendants to certify their compliance with this standard in each monthly HAP voucher.
The Defendants concede that they would not have received the monthly HAP payments if they had not signed these certifications. Indeed, the record contains uncontroverted testimony indi-
cating that HUD will not remit funds to a claimant if the claimant‘s HAP voucher does not contain a signed certification that the property is in decent, safe, and sanitary condition. Thus, the certification of the property‘s condition was unquestionably “material” in the sense that it had the potential to influence HUD‘s ultimate decision whether to remit funds to the Defendant. Both this court and the Ninth Circuit have recognized that, when the government conditions payment of a claim upon a claimant‘s certification of compliance with a statutory or regulatory condition, a claimant submits a false claim as a matter of law when he or she falsely certifies compliance with that condition. In Thompson, this court considered the question whether a claim for services rendered in violation of the Medicare anti-kickback statutes necessarily constitutes a false claim. While we noted that a claim is not necessarily “false” simply because it involves a statutory violation, we indicated that a claim is necessarily false when it involves a knowingly false certification of compliance with a statute or regulation and that certification is a prerequisite to payment of the asserted claim. See Thompson, 125 F.3d at 902 (“[W]here the government has conditioned payment of a claim upon a claimant‘s certification of compliance with, for example, a statute or regulation, a claimant submits a false or fraudulent claim when he or she falsely certifies compliance with that statute or regulation.“); see also United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir.1996)
Thompson governs our disposition of the instant case. We recognize today that when the government has conditioned payment of a claim upon a claimant‘s certification of compliance with a provision of a contract entered into pursuant to a regulation, a claimant submits a false claim as a matter of law when he or she falsely certifies compliance with that provision. In the instant case, the government has conditioned HAP payments upon an owner‘s certification of compliance with the “decent, safe, and sanitary” standard established in the HAP contract mandated by
influence or was capable of influencing the decision of the governmental entity to which the statement was addressed. This definition does not suggest that the misrepresentation must have actually influenced the relevant governmental entity to be deemed “material.” Indeed, as three members of the Court in Kungys pointed out, a materiality requirement is not the equivalent of a but-for causation requirement:
485 U.S. at 776-77 (opinion of Scalia, J., joined by Rehnquist, C.J., and Brennan, J.). This analysis suggests that “materiality” and “but-for causation” are distinct (and, indeed, inconsistent) requirements.We do not agree with petitioner‘s contention that [the Immigration and Nationality Act‘s language sanctioning individuals whose naturalization was “procured by” concealment of a “material” fact] requires the Government to establish that naturalization would not have been granted if the misrepresentations or concealments had not occurred. If such a “but for” causation requirement existed in [the “procured by” language] it is most unlikely that a materiality requirement would have been added as well—requiring, in addition to distortion of a decision, a natural tendency to distort the decision. Moreover, the difficulty of establishing “but for” causality ... many years after the fact, is so great that we cannot conceive that Congress intended such a burden to be met before a material misrepresentation could be sanctioned.
Finally, as the above passage indicates, there are problems of proof that arise when the government is required to demonstrate that a claimant‘s misrepresentation actually motivated its decision to approve a claim. Imposing such an evidentiary burden risks excessively constraining the government‘s ability to sanction claimants who make false representations to the government. As we share Justice Scalia‘s concerns in this regard, we reject the dissent‘s suggestion that “but-for causation” is the appropriate test of materiality in the instant case.
submitting a false claim if that certification of compliance is known by the claimant to be false.
The Defendants nonetheless contend that their certification could not have constituted a “false claim” because the government had knowledge of the falsity of the certification when it remitted payment.19 While we acknowledge that gov-
The premise underlying this argument reveals the true nature of the Defendants’ position. In arguing that a claimant‘s submission is not truly “false” if the government knows it to be untrue, the Defendants are actually arguing that when the government remits payment on a claim knowing that a certification contained therein is false, the government waives its right to pursue a cause of action under the civil FCA. We find this position untenable for a number of reasons.
Initially, we note that the falsity of a claim is determined at the time of submission. If a claimant has submitted a claim (i.e., a request or demand for money or property) to the government and the claimant knows that he or she is not actually entitled to the funds or property in question, the claimant has asserted a false claim. Fortuities in the government‘s subsequent decisionmaking process have no effect on the objective truth or falsity of the claimant‘s asserted entitlement, and
far less compelling in the context of an FCA claim brought by the government. Accordingly, we are not persuaded that the reasoning of Lamers obligates us to depart from Thompson‘s clear holding that “false certifications of compliance create liability under the FCA when certification is a prerequisite to obtaining a government benefit.” Thompson, 125 F.3d at 902 (adopting the reasoning of Anton, 91 F.3d at 1266).
should thus have no effect on the claimant‘s potential liability under the Act. Cf United States v. Krizek, 111 F.3d 934, 939-40 (D.C.Cir.1997) (finding that the question of what constitutes a claim under the False Claims Act “turns[] not on how the government chooses to process the claim, but on how many times the defendants made a ‘request or demand’ because the “gravamen of these cases is that the focus is on the conduct of the defendant“). This reading of the Act is consistent with this court‘s analysis of analogous provisions in the criminal False Claims Act and related statutes. See United States v. Milton, 602 F.2d 231, 233 (9th Cir.1979) (holding, in the context of the criminal False Claims Act, that “[t]o prove Falsity, the government only had to prove that the statement was known to be untrue at the time [the defendant] made it“) (emphasis added); see also United States v. Leahy, 82 F.3d 624, 633 n. 11 (5th Cir.1996) (holding that the defendant contractor violated
In addition, the Defendants’ position is problematic because they are effectively invoking estoppel against the government.20 The Defendants contend that
We decline to depart from this longstanding presumption in the instant case. Initially, we observe that even the traditional, more lenient requirements to invoke estoppel against a private party are not present in this case. The four traditional requirements are: “(1) that the party to be estopped was aware of the facts
ingly, what the Defendants must be contending is that once the government accepts and remits payment on a claim knowing that claim to be false, the government cannot argue that the claim was false in a court of law.
and (2) intended his act or omission to be acted upon; (3) that the party asserting estoppel did not have knowledge of the facts[] and (4) reasonably relied on the conduct of the other to his injury.” Linkous, 142 F.3d at 278 (citing United States v. Bloom, 112 F.3d 200, 205 (5th Cir.1997)) (alterations in original). The Defendants’ estoppel-type argument fails because they cannot satisfy the third requirement. The Defendants had knowledge of the relevant facts (i.e., the condition of the Complex and the falsity of the certification that the Complex was in decent, safe, and sanitary condition). Thus, the traditional requirements for invoking estoppel are not met.
Moreover, even if all four traditional requirements for private-party estoppel were satisfied, estoppel against the government would still be inappropriate under the circumstances of this case. The Court in Richmond expressly held that “judicial use of the equitable doctrine of estoppel cannot grant [a claimant] a money remedy that Congress has not authorized.” 496 U.S. at 426-27, 110 S.Ct. 2465 (noting further that “not a single case has upheld an estoppel claim against the Government for the payment of money“). The Court‘s asserted rationale for this holding was to prevent fraud against the government via collusion between government officials and private claimants and, more generally, to ensure that public funds are spent “according to the letter of the difficult judgments reached by Congress as to the common good and not according to the individual
Finally, from a practical perspective, we note that acceptance of the Defendants’ position in this litigation would place HUD in an extremely difficult position. The ar-
gument that payment by the government of a false claim with knowledge of its falsity forecloses any future false claims action assumes that, upon receiving a HAP voucher for a property that is not decent, safe, and sanitary, HUD must either immediately cease HAP payments (which, in most cases, would effectively put the claimant out of business and the tenants on the street) or forfeit the right to pursue a false claims action against the claimant in the future. Put differently, if HUD elects to work with the claimant to improve the condition of the property rather than to cut off payments immediately, HUD waives the government‘s right to pursue a cause of action under the FCA. Such an “election of remedies” requirement is not contemplated by the statutory, regulatory, or contractual regime governing this Section 8 program. The Government‘s rights under the regulatory contract and under the False Claims Act are not mutually exclusive.
The Defendants suggest that if there is no de facto “election of remedies” requirement, the Government can use the threat of FCA liability “as an in terrorem device to force the Partners and other owners ... to invest their own money to make up the shortfall in funds for maintenance.” Relying on Christopher Village, the Defendants argue that an owner is not required “to absorb or subsidize operating and maintenance deficiencies” if HUD has not established rental rates adequate to cover a property‘s expenses. 190 F.3d at 316. However, the question of whether HUD properly considered the Defendants’ requests for rent increases is not presented
It is clear that the position taken by both the Defendants and the dissent is motivated by an underlying concern that the Government has somehow treated the Defendants “unfairly” by pursuing an action under the FCA after HUD initially chose to work with the Defendants cooperatively to remedy the problems at the Complex. We cannot similarly conclude that the Defendants have been ill-used. As noted above, the fact that HUD, upon discovering maintenance and safety problems at the Complex, chose to provide the Defendants with an opportunity to cure the defects rather than immediately cutting off the Defendants’ HAP payments in no way implicates the Government‘s ability to maintain a cause of action under the FCA. Further, even if it would be problematic for the Government to pursue a civil FCA action against an owner for false claims made while the owner was making a good faith attempt to work with HUD and remedy the problems at a project, this was not the situation in the instant case. The Government did not initiate any action under the FCA until well after the informal cooperative process had broken down and the Defendants had, in fact, indicated their intent to abandon the project entirely. Moreover, we emphasize that the Government has not attempted to hold the Defendants liable for false claims made while the Defendants were participating in good faith in the cooperative remedial process. The instant action is based only on claims made during the time period after the Defendants effectively ceased cooperating with the requirements of HUD‘s informal remedial process. Under these circumstances, we cannot conclude that the government has acted deceptively in pursuing its contractual remedies by initiating a false claims action.
In light of the above analysis, we conclude that the district court erred in granting summary judgment to the Defendants on the ground that they did not, as a matter of law, submit a “false claim.” Maintaining a property in decent, safe, and sanitary condition is a prerequisite to the Defendants’ entitlement to HUD funds in the instant case. Accordingly, a false certification of compliance with the decent, safe, and sanitary standard is material and renders the claim false as a matter of law.
Because there is a genuine issue of material fact regarding whether the submission was indeed false (i.e., whether the property was actually in decent, safe, and sanitary condition during the time period in question), we cannot hold as a matter of law that the Defendants submitted a false claim. However, in the same vein, the substantial evidence in the record indicating that the property was unsafe and unsanitary during the time period in question—suggesting that the claim was
indeed false—certainly precludes summary judgment in favor of the Defendants on these grounds.
IV. DID THE DEFENDANTS “KNOWINGLY” SUBMIT A FALSE CLAIM?
We turn now to the mens rea element of a cause of action under the Act, i.e., the requirement that a defendant must “knowingly” submit false or fraudulent claims, or false or fraudulent statements in support of those claims, to the government. See
We disagree with the district court‘s conclusion. While we agree that, in certain situations, evidence that the defendant knew that the government was aware of the falsity of a claim when it was submitted may be relevant in determining whether the defendant knowingly submitted a false claim, we hold that such knowledge on the part of the defendant is not an automatic defense to liability. We further conclude that the district court erred in finding, as a matter of law, that HUD‘s knowledge of the condition of the Complex negated the Defendants’ mens rea in this case.
The mens rea required for a person to be held liable under the civil False Claims Act has always been the submission of a claim “knowing” it to be false. See
We find it difficult to justify the proposition that an individual who submits a false claim to the government with knowledge of its falsity should necessarily be excused from liability under the Act merely because the government was also aware that the claim was false when it was submitted. Several of our sister circuits have recognized that, while evidence that the government was aware of the facts and circumstances rendering a claim false at the time of submission may be relevant to a defendant‘s state of mind in submitting a false claim, such knowledge does not provide an automatic bar to suit. See, e.g., United States ex rel. Kreindler & Kreindler v. United Technologies Corp., 985 F.2d 1148, 1156-57 (2d Cir. 1993); Hagood, 929 F.2d at 1421. These courts explain that, while government knowledge may, in some circumstances, provide evidence that a defendant did not submit a claim with actual knowledge of its falsity or in deliberate ignorance or reckless disregard for the truth, see Kreindler & Kreindler, 985 F.2d at 1156; Hagood, 929 F.2d at 1421, a defendant alleged to have violated the civil False Claims Act “is not automatically exonerated by any overlapping knowledge by government officials,” Kreindler & Kreindler, 985 F.2d at 1156.
We agree with the Kreindler and Hagood courts that a defendant‘s knowledge that the government is aware of the falsity of a claim can, under certain circumstances, be relevant to mens rea. However, in the context of a claim brought by the government (as opposed to a qui tam action), the circumstances in which such knowledge is relevant are quite limited. In the context of government-initiated FCA actions, we would permit a “government knowledge defense” primarily in the rare situation where the falsity of a claim is unclear and the evidence suggests that the defendant actually believed his claim was not false because the government approved and paid the claim with full knowledge of the relevant facts.
In contending that a “government knowledge” defense should apply in the instant case, the Defendants rely on qui tam cases such as Lamers and Wang v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992). The courts in these qui tam cases have acknowledged that there are potential problems with allowing private relators to bring qui tam actions while the government is in the process of trying to work informally with a defendant to achieve compliance with particular statutory or regulatory provisions. See, e.g., Lamers, 168 F.3d at 1020 (“Lamers, it seems, wants to use the FCA to preempt the FTA‘s discretionary decision not to pursue regulatory penalties against the City.”). While these might be valid concerns in the qui tam context, we find these potential problems far less compelling in the context of an FCA action brought by the federal government, particularly when the action is brought after any informal negotiation process has proved unsuccessful, as in the instant case. Thus, the qui tam cases cited by the Defendants and the dissent do not provide a compelling reason why the Defendants should be excused from liability based on a “government knowledge defense” under the circumstances of this case.24
With these principles in mind, we now turn to the question whether the dis
After our review of the record, we conclude that a factfinder could determine on this record that the Defendants knowingly submitted false claims to the government. Thus, there is a genuine issue of material fact regarding the Defendants’ knowledge, and the district court erred in granting summary judgment in favor of the Defendants on this issue.
V. IS THE PHRASE “DECENT, SAFE, AND SANITARY” SUFFICIENTLY CONCRETE TO SUPPORT A FINDING OF LIABILITY UNDER THE ACT?
The Defendants contend that an allegedly false certification that a property is in “decent, safe, and sanitary” condition cannot provide the basis for civil False Claims Act liability. Noting that the phrase “decent, safe, and sanitary” is not defined in the HAP contract, they argue that any evaluation of a property pursuant to this standard is inherently subjective. According to the Defendants, because a jury cannot determine whether a certification of compliance with the “decent, safe, and sanitary” standard is objectively “true” or “false,” such a certification cannot support a false claims action under the FCA.
The Government responds that the “decent, safe, and sanitary” standard is meaningful and susceptible to objective analysis. The Government points to the 1995 version of
The district court did not rule on this issue, but did suggest that the Defendants’ position had “arguable merit.” See Southland Mgmt. Corp., 95 F.Supp.2d at 635 n.7. The court correctly noted that, during
As this issue was not the basis of the district court‘s summary judgment in favor of the Defendants, we assume that the Defendants raise this argument on appeal in order to invite this court to affirm the district court‘s judgment on these alternate grounds.26 We decline this invitation.
The question presented by the Defendants is one of first impression for this court: Whether a certification that a property is in “decent, safe, and sanitary” condition is sufficiently concrete that a jury could determine if the certification is true or false? While the normal procedure where the lower court has not considered a pertinent issue is to remand the case, considerations of judicial economy can dictate otherwise in circumstances such as these, where the issue is a purely legal question subject to plenary review by this court. See Mitchell v. Forsyth, 472 U.S. 511, 530 (1985); see also Hudson United Bank v. LiTenda Mortgage Corp., 142 F.3d 151, 159 (3d Cir. 1998). Accordingly, we can appropriately reach this question despite the fact that the district court‘s summary judgment was not based on this issue.
In contending that the phrase “decent, safe, and sanitary” is too subjective to support FCA liability, the Defendants rely on a number of cases holding that this phrase is too indefinite to create any legally cognizable rights for the tenants of programs funded under the housing statutes. See, e.g., Perry v. Hous. Auth. of Charleston, 664 F.2d 1210, 1217 (4th Cir. 1981). This court has recently indicated support for this proposition as well. See Banks v. Dallas Hous. Auth., 271 F.3d 605, 610 (5th Cir. 2001). However, these decisions are inapposite. As the Government correctly points out, none of these cases is an FCA case, and the question whether language is too indefinite to create a legally cognizable statutory right is entirely separate from whether that language can form the basis of a “false claim” action under the FCA.27
We find that the phrase “decent, safe, and sanitary,” as applied in the context of assessing housing conditions, has a commonsense “core of meaning” such that it is capable, without additional definition, of being understood by a factfinder called upon to evaluate whether a certification of compliance with this standard is objectively true or false. Certainly, different members of the general public might provide different specific definitions of this term or
Our conclusion that the concept of “decent, safe, and sanitary” housing has a commonly-understood ordinary meaning is bolstered by the history of the parties’ interactions pursuant to the HAP contract. Initially, we note that the HAP contract signed by the Defendants contains a covenant requiring the owner to agree to maintain the facilities “so as to provide Decent, Safe, and Sanitary housing.” The Defendants willingly agreed to this covenant without indicating any uncertainty about the meaning of the standard. Similarly, more than one hundred times during the course of the project‘s history, the Defendants certified under penalty of fine or imprisonment that the Complex was in decent, safe, and sanitary condition. The record contains no indication that the Defendants even once inquired as to the meaning of this term prior to signing these certifications. The Defendants’ repeated certifications in the HAP vouchers, combined with the complete lack of prior dispute about the meaning of the standard, provide strong indication that the Defendants and HUD had a mutual, common understanding of the meaning of the phrase “decent, safe and sanitary.”
It is also significant that the “decent, safe, and sanitary” language has been part of the statutory scheme governing public housing since the inception of the current federal housing program in the 1930s. During the almost seventy years since the program‘s enactment, there are no reported cases challenging this terminology on the ground that it provides inadequate notice of the standard governing public housing conditions.28 This notable lack of legal debate further supports our conclusion that the concept of “decent, safe, and sanitary” housing has a sufficiently concrete, commonsense meaning that is neither inherently subjective nor impermissibly vague. A factfinder in a civil action is perfectly capable of applying this standard and determining whether a certification
The Defendants also appear to argue that, even if the phrase “decent, safe, and sanitary” has an objective and ascertainable meaning, they still cannot be held liable for a false claim based on this provision. They point to a number of decisions from other circuits suggesting that errors attributable to differences in the interpretation of disputed legal questions cannot form the basis of a false claims action under the FCA. See, e.g., Lamers, 168 F.3d at 1018; Hagood, 81 F.3d at 1478-79. Relying on these authorities, the Defendants suggest that they cannot be held liable under the Act if their submission was grounded in a legitimate dispute about the correct legal interpretation of the phrase “decent, safe, and sanitary.”
The Defendants’ briefs do not indicate the exact nature of their disagreement about the meaning of the standard. However, in the portions of their testimony contained in the record, two of the Defendants offer alternate definitions of the phrase “decent, safe, and sanitary” that would purportedly render their certifications correct. Defendant Doty initially grants in his testimony that the term “decent, safe, and sanitary” should be evaluated based on common and ordinary understanding of the terms. Doty then suggests that under this common understanding, the term “decent, safe, and sanitary” housing refers to housing that “where you walk in, you wouldn‘t fall in through the floor.” Defendant McLaurin similarly suggests that “decent, safe, and sanitary” housing is housing that “[keeps] the weather out” and “[does not] have things falling on you.”
Even if this testimony does indicate that the Defendants were operating pursuant to a bona fide dispute about the meaning of the “decent, safe, and sanitary” standard, we note that the Defendants can still be held liable under the FCA for submitting false claims if their interpretation of the disputed regulatory or contractual language was unreasonable. A number of courts have recognized that, while a legitimate dispute regarding the meaning of a regulatory or statutory provision might preclude FCA liability, the government can nonetheless prove the falsity of a claim by establishing the unreasonableness of the defendant‘s interpretation of the regulation or contractual provision. See, e.g., Commercial Contractors, Inc. v. United States, 154 F.3d 1357 (Fed. Cir. 1998); United States v. Krizek, 859 F.Supp. 5, 11-12 (D.D.C. 1994), aff‘d, 111 F.3d 934 (D.C. Cir. 1997).
This issue was not addressed by the district court and is not sufficiently developed in this record or in the briefs for us to express any view upon it other than to set out the applicable law. We leave it to the district court on remand.
In sum, we decline to uphold the district court‘s summary judgment on the alternate grounds suggested by the Defendants.
VI. CONCLUSION
For the foregoing reasons, the district court‘s grant of summary judgment in favor of the Defendants is REVERSED and the case is REMANDED for further proceedings consistent with this opinion. Costs shall be borne by the Defendants.
EDITH H. JONES, Circuit Judge, dissenting:
This is a complex case legally but not factually. The legal difficulties, and my disagreements with the panel majority, will be stated shortly. Factually, the case concerns the government‘s effort to inflict severe penalties on HUD-subsidized low-income apartment owners because there
According to the majority opinion, however, the owners may be liable under the False Claims Act despite the vagueness of the contractual standard and the government‘s ongoing knowledge of the condition of the apartments. Moreover, the majority hold that a false claim exists as a matter of law if the defendants’ certifications of compliance with the regulatory standard were false—irrespective of the government‘s knowledge of noncompliance and its failure to rely on the certifications. Given the facts of this case, the majority‘s conclusion constitute a significant and unnecessary extension of the FCA. The statute was originally passed to prevent “all types of fraud” against the United States government that might result in financial loss. United States v. Neifert-White Co., 390 U.S. 228, 232 (1968). But “[s]ince the Act is restitutionary and aimed at retrieving ill-begotten funds, it would be anomalous to find liability when the alleged noncompliance would not have influenced the government‘s decision to pay.” United States ex rel. Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001). By imposing materiality as a matter of law based solely on a formalistic certification, and by constricting the defense of government knowledge of the contractor‘s actions, the majority threatens to transform the FCA into a weapon against mere breaches of contract. The majority of courts recognize, however, that
... the FCA is not an appropriate vehicle for policing technical compliance with administrative regulations. The FCA is a fraud prevention statute; violations of [agency] regulations are not fraud unless the violator knowingly lies to the government about them.
United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999). The costs of government contracts are already inflated by complex rules unknown to private business transactions. This opinion will generate additional costly premiums to offset the increased risk posed by its expansion of FCA liability. Indeed, the fear of having to defend an FCA claim for non-material misstatements or problems known by the government will discourage many businesses from bidding for government contracts.
I respectfully dissent.
I. The payment vouchers were not material to HUD‘s decision making.
The majority hold that when certification of statutory or regulatory compliance is an express prerequisite to receiving a benefit from the government, a false certification is material and renders the claim false as a matter of law. I disagree with this excessively broad conclusion and with the majority‘s dalliance, in dicta, with an “outcome materiality”/“claim materiality” dichotomy advocated by the government. I would hold that no genuine issue of fact exists concerning the materiality of these defendants’ monthly certifications to HUD
No ambiguity exists in this court‘s recent reaffirmation that the civil FCA “interdicts material misrepresentations made to qualify for government privileges or services.” United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 902 (5th Cir. 1997) (quoting United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456, 461 (5th Cir. 1977)). Weinberger‘s 25-year-old requirement of materiality is just as straightforward as is Thompson‘s holding.1 Moreover, other circuits have continued to state that materiality is required in a civil FCA claim. See, e.g., Luckey v. Baxter Healthcare Corp., 183 F.3d 730, 732 (7th Cir. 1999); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 785, 788 (4th Cir. 1999). A recent district court decision, after conducting the most extensive survey to date of the history, legislative background and caselaw interpreting the FCA, concluded that materiality remains an element of a civil FCA claim. See United States ex rel. Wilkins v. North Am. Const. Corp., 173 F.Supp.2d 601, 618-30 (S.D. Tex. 2001).2
According to the majority opinion, however, the precise definition of materiality remains open to question in this court based on a government theory never before accepted by a federal court.3 The majority‘s mischievous dicta demand a brief response. The majority suggest that “materiality” has two plausible meanings. The accepted definition at common law and in false statement statutes similar to the civil FCA equates materiality with “ha[ving] a natural tendency to influence, or [being] capable of influencing, the decision of the decisionmaking body to which it was addressed.” United States v. Wells, 519 U.S. 482, 489 (1997) (brackets in original) (internal quotation marks omitted) (quoting Kungys v. United States, 485 U.S. 759, 770 (1988)). The district court relied on this definition, which the government and the majority dub “outcome materiality.” This understanding of materiality is implicit in Thompson and explicit in Weinberger.
The government and the majority discern another FCA-specific phenomenon known as “claim materiality,” whereby a falsehood that “bears upon” the claimant‘s entitlement to receive money or property is material—irrespective of the statement‘s capability of influencing, or actual influence on, the government‘s decision. The government‘s briefing, like the majority opinion, offers no legislative history, logic, caselaw or grammatical argument in support of “claim materiality.” The government‘s definition waters down materiality to a subjective or self-fulfilling concept: a representation becomes “claim material” if the government says so, since the government defines the representations made when filing a claim. No showing of government reliance or that the false statement had the capability of influencing the government‘s decision is necessary.
The government‘s advocacy of claim materiality flies in the face of the Supreme Court‘s seminal case on the definition of materiality. In Kungys, the Court imported into a statute revoking citizenship the definition of materiality, quoted above, that had been uniformly adopted by lower federal courts in criminal false statement prosecutions. Kungys, 485 U.S. at 769-70. As to revocations of citizenship, the Court noted that
Neither the evident objective sought to be achieved by the materiality requirement, nor the gravity of the consequences that follow from its being met, is so different as to justify adoption of a different standard. “Where Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.”
Id. (citations omitted). Later, the Court restates the materiality test as asking “whether the misrepresentation or concealment was predictably capable of affecting, i.e., had a natural tendency to affect, the official decision [to grant citizenship].” Id. at 773. In sum, the government‘s proffered test of “claim materiality” is ingenious but wrong. There is even less reason for courts to adopt a variant standard of materiality in the context of the punitive civil FCA4 than there might have been in regard to immigration violations. Fortunately, the majority‘s discussion, as dicta, cannot detract from the force of our prior cases.
After toying with the concept of claim materiality, the majority conclude that the owners’ signed certifications on the HAP vouchers were material as a matter of law. In other words, when the appellees certified the Jackson Square apartments as, inter alia, decent, safe and sanitary each month on their voucher for HUD reimbursement, their certifications, if false, constitute false claims because the certifications are prerequisites to payment under the pertinent Section 8 program. See Thompson, 125 F.3d at 902. I find this conclusion insupportable on several counts.
First, even the government acknowledges that “if there is a traditional ‘materiality’ requirement, the district court erred in granting summary judgment on this point.” Traditional materiality is a mixed question of law and fact. The government grudgingly understands, if the majority does not, that the facts must be considered.
Second, I am troubled by the superficiality of equating false certifications with materiality as a matter of law. In Thompson, this court stated that to create liability under the FCA, a false certification of compliance must be a “prerequisite” to obtaining a government benefit.5 Unlike the majority, I interpret this language as requiring more than a formalistic connection to the payment decision.6 I would agree that in many instances, certifications required by the government along with payment vouchers should be presumed to be material to the government‘s decision to pay a contractor. But what if the facts show that the certifications were not actually a “prerequisite” to the payment and had no tendency to influence the decision-maker? None of the previous cases that analyzed the connection between FCA civil liability and false certifications involved facts like those before us.7 On the other hand, courts in several cases have rejected civil FCA liability where defendant contractors arguably submitted “false” certifications but were engaged in cooperative or supervised undertakings with the government that rendered the certifications irrelevant to ongoing payment decisions.8 Similarly, Kungys rejected the lower court‘s attempt to formulate a distinct standard of materiality for immigration cases, in part because “the judgment in question does not lend itself to mechanical resolution.” 485 U.S. at 771.
There are probably thousands, if not tens of thousands, of government certification requirements in connection with payment and reimbursement vouchers of every sort. We paint with entirely too broad a brush to generalize that
... once a claimant has made a certification of compliance with a statutory or regulatory provision or a provision of a contract mandated by statute or regulation, the claimant is subject to liability under the Act for submitting a false claim if that certification of compliance is known by the claimant to be false.
Majority Opinion at 680 (emphasis in original). Even more disturbing, the majority‘s rule seems to jeopardize its recognition that “not all statutory, regulatory or contractual violations necessarily give rise to FCA liability.”9 The government need only incorporate boiler-plate “certifications of compliance” with “all” statutes and regulations to put in play punitive FCA sanctions for most government contractors or beneficiaries.
Third, based on the facts well articulated by the district court, I agree with its conclusion that the appellees’ certifications of compliance with the decent, safe and sanitary standard on their monthly HUD vouchers were in no way a “prerequisite” to receiving reimbursement and did not in fact influence the agency‘s decision to pay. The majority has wisely refused to rely on the only factual evidence supporting the government‘s materiality position, the deposition of Quentin Lewis. Lewis, a HUD employee responsible for reviewing and approving the defendants’ and hundreds of other payment vouchers, testified only that he would not have approved the vouchers if the certifications had not been signed by the defendants or their agent. Lewis also testified that he had not read the certification in any depth and had never heard of the phrase “decent, safe and sanitary” until the date of his deposition. As the district court observed, “there is nothing in the record to show that Lewis, or anyone else with HUD, took into account the actual substance of the certifications in deciding whether to approve the vouchers.” 95 F.Supp.2d at 638-39 (emphasis added). If Lewis had testified that he or some other governmental official took the truth or falsity of the defendants’ certifications into account in deciding whether to approve the vouchers, it would be a different matter. Thus, without the majority‘s helpful declaration of materiality as a matter of law, the government has no evidence to support its position.
In contrast, the district court found, “amply supported” by “undisputed evidence,” that HUD‘s decision to pay appellees’ HAP vouchers “was not linked to their certification as to the condition of the apartments.” United States v. Southland Mgmt. Corp., Inc., 95 F.Supp.2d 629, 637 (S.D. Miss. 2000). The court‘s assessment of the undisputed evidence is worth quoting at length:
It is clear from the evidence that HUD, in accordance with the terms of its standard HAP contract, may elect to discontinue housing assistance payments if an owner, after notice by HUD that the property is not “decent, safe, and sanitary,” fails to implement a corrective action plan acceptable to HUD. However, it is equally clear not only that that discontinuance of payments is not required but also that even when HUD considers that a property is not “decent, safe, and sanitary,” it is HUD‘s normal practice, in keeping with the parties’ respective rights and obligations under the HAP contract, to allow owners to continue to receive subsidies while working to correct deficiencies that HUD has identified. Indeed, it is evident from the proof that HUD makes housing assistance payments with the expectation that the owner/recipients will use those payments to bring their property up to standard. Further, as the Government points out in its own submission, in view of the practical realities of Section 8 housing programs, HUD often elects to continue payments for a particular property despite knowledge that the property, contrary to the owners’ HAP voucher certification, does not meet HUD‘s “decent, safe, and sanitary” standard since the alternative—discontinuance of payments—may work to the detriment of tenants. The point, of course, is that because the evidence reflects that HUD, as a matter of policy and practice, admittedly routinely makes Section 8 housing assistance payments to owners of Section 8 property irrespective of whether the property is in a “decent, safe, and sanitary” condition, then the owners’ certification as to the condition of the property would not be “material” to HUD‘s decision to pay.
...
On this issue, the evidence positively demonstrates beyond reasonable question that at the time of defendants’ submission of the challenged vouchers and HUD‘s approval of those vouchers, HUD, based on its own annual inspections of the property, knew full well of the very conditions of the property which it now claims made the property not “decent, safe, and sanitary.” HUD, through its contract inspector, Management Solutions of America, Inc., conducted annual inspections of the Jackson Apartments for each of the years defendants’ HAP Contract was in effect; and for each of the years from August 1993 to May 1997, based on conditions found to exist at the property by HUD‘s inspector, the apartments received “below average” or “unsatisfactory” physical inspection reports from HUD. HUD‘s inspector furnished to HUD‘s project manager responsible for the apartments a copy of his inspection report in which he detailed his specific findings and indicated repairs which needed to be made in order that the property would satisfy HUD‘s minimum housing quality standards. Vicki Gross, the project manager for the time period at issue, in turn, furnished the inspection report to her superiors who, in turn, forwarded the inspection reports to defendants or their managing agent, and advised defendants and/or their agent of those repairs which were required to be made and requested that defendants and/or their agent inform HUD of the actions that would be taken,
along with a timetable, to correct the deficiencies which HUD had identified. At her deposition, Vicki Gross, who testified as HUD‘s representative, explained that properties receiving “below average” and “unsatisfactory” physical condition ratings in inspection reports are not “decent, safe, and sanitary.” And indeed, the conditions upon which the Government makes its affirmative allegation that the Jackson Apartments were not in a “decent, safe, and sanitary” condition are those same specific deficiencies which HUD‘s inspector identified and which led him to assign the apartments the “below average” and “unsatisfactory” ratings. From this evidence, there can be no question but that HUD was fully aware of the conditions of the apartments, and specifically, of those deficiencies which it asserts made the apartments not “decent, safe, and sanitary.” And yet HUD, which was aware that defendants continued to submit HAP vouchers and receive payments throughout this time, allowed those payments to continue. HUD‘s knowledge of the true conditions utterly belies HUD‘s contention that the certifications were material, confirms HUD‘s policy and practice of allowing housing assistance payments on properties that it knows are not decent, safe and sanitary, and dooms its claim against defendants.
95 F.Supp.2d at 637-40 (footnotes omitted) (second and third emphases added). HUD followed its usual procedures, paid the subsidies year after year, acquiesced in the owners’ plowing the entire rent subsidy into the property, and now claims to be defrauded! As a sister court of appeals put it, this claim is “absurd.” Lamers, 168 F.3d at 1020. Simply, there can be no finding of materiality, much less materiality as a matter of law, on this record.
II. The defendants did not “knowingly” present false claims for payment.
A defendant may be liable for a civil false claim by “knowingly” presenting such a claim,
The majority and I differ over the scope of the government knowledge defense rather than its existence. Citing no authority, the majority arbitrarily cabins this defense, excluding from the Act‘s coverage in a claim brought by the government (as opposed to a qui tam action)
primarily ... the rare situation where the falsity of a claim is unclear and the evidence suggests that the defendant actually believed his claim was not false because the government approved and paid the claim with full knowledge of the relevant facts.
Majority Opinion at 686 (emphasis in original). As I read the cases, however, the impact of government knowledge is (a) fact-specific, (b) not susceptible to a tidy formula, and (c) based on the understanding that the FCA reaches only the “knowing presentation of what is known to be false.” Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1478 (9th Cir. 1996) (citation and internal quotation marks omitted). There is no statutory or caselaw basis for distinguishing, as the majority do, between government-initiated and qui tam FCA cases. And there is no basis for limiting the defense as the majority has done. The majority‘s reticence cannot be squared with caselaw. It is plain that government knowledge can defeat an FCA claim at the summary judgment stage.
Contrary to the majority‘s finding of a material fact issue on whether the defendants acted “knowingly”, there is no doubt that the government was aware that this apartment house was deteriorating for several years preceding its foreclosure. HUD inspectors repeatedly rated the property as “below average” or “unsatisfactory.” HUD‘s inspector found the management employees cooperative, however, and the record reflects that when the management was advised to make certain improvements and repairs, it often did so to the extent money was available. The types of problems now emphasized by the government as creating substandard living conditions were not hidden defects—photographs of the property taken by the mortgagee inspectors are in the record, and HUD reviewed the mortgagee inspections. Nevertheless, HUD continued to subsidize the operation of these apartments. Evidence of foot-dragging by the apartment management may exist, but that is not the same as concealment. The yearly inspection reports show that repairs were being made regularly, and HUD knew this, as it also knew that its rent subsidies were insufficient to allay the deterioration.
In finding a fact issue as to government knowledge, the majority reason that HUD knew something about the apartments’ condition, but that the owners knew more. This is unpersuasive. The district court correctly parried the government‘s similar contention by pointing out that HUD now relies on exactly the deficiencies stated in its annual inspection reports to condemn the owners’ certifications of compliance with the “decent, safe and sanitary” standard.11 HUD may not have known as much about the property, but because its knowledge was sufficient to undergird this civil FCA case—and it still subsidized the
III. Are the owners’ defenses based on estoppel against the government?
The majority opinion sets up, only to pommel, what it describes as the owners’ “effective” contention that the government has waived or is estopped to rely on remedies under the civil FCA. Not only does estoppel not lie against the government, according to the majority, but the government‘s enforcement alternatives would be seriously constrained by disallowing its opportunity to recover treble damages and penalties against the owners.
Unfortunately, this discussion rests on a complete mischaracterization of the owners’ position. While the owners vigorously dispute that the elements of a civil FCA claim lie against them and the impact of the government‘s acquiescence and knowledge of the apartments’ condition, nowhere do they assert a waiver or estoppel argument. The majority‘s position is untenable.12
Even if relevant, however, the majority‘s estoppel argument proves too much. In this case, the government is suing the owners on a theory of wrongful conduct in excess of mere breach of contract, and the owners are arguing, not that the government is estopped from holding them liable on this theory, but that they are not liable as a matter of law. In other words, the owners do not raise estoppel as a defense to the government‘s cause of action; they contend that in light of the government‘s knowledge and its course of dealing, the government has failed to establish the necessary elements of that cause of action, namely, the “knowing” submission of “material” “false claims.” The owners’ position is thus entirely distinguishable from the cases cited in the majority opinion. All but one of those cases deal with private persons who invoked estoppel in an attempt to recover money from the government.13 In the other case, the issue (equally distinguishable from the issue in this case) was whether the government was estopped from enforcing a contract by collecting on a debt. The court held, not that estoppel was unavailable, but merely
Certainly, in a conventional fraud action initiated by the government against a private party, it would make no sense to conclude that estoppel considerations require a court to disregard the government‘s knowledge or conduct in considering whether the government had actually been defrauded. But that seems to be what the majority is asserting in this case. The majority‘s reasoning reinforces the theme permeating the opinion that government knowledge and repeated approval of a private person‘s requests for reimbursement, unaccompanied by any illegal collusion, does not bar the United States from pursuing treble damages and penalties for facts of which the government was perfectly aware when the government approved the requests.
Even if the majority‘s broad estoppel rationale should apply to cases in which the government seeks money against private persons, this rationale should not apply to a civil FCA action, which involves the possibility of treble damages liability. Thus, this case is not merely one in which “the government seeks to recover funds spent contrary to the will of Congress.” Majority Opinion at 683 (emphasis in original). Instead, the government in this case seeks punitive damages from private persons in excess of any recovery of its funds. The majority concede that government knowledge is relevant to and may defeat the defendant‘s “knowing” presentation of a false claim. It is inconsistent also to assert, as the estoppel argument does, that government knowledge cannot in some circumstances deprive the government of a civil FCA remedy.
Finally, the majority assert that making government knowledge a bar to FCA liability would put HUD to an election of remedies that nothing in the Section 8 subsidized housing regime—statute, regulations, or contract—necessitates. This argument simply begs the antecedent question whether a civil FCA cause of action, and thus the basis for an FCA remedy, exists in the first place when the government knew of the owners’ alleged false claims. This argument also fails to address the owners’ contention that the majority‘s reading of the FCA essentially condones government threats of FCA liability to force investors in federally subsidized housing projects to contribute their own money to make up shortfalls in maintenance funds. Compare Christopher Village Limited Partnership v. Retsinas, 190 F.3d 310, 316 (5th Cir. 1999).14
The majority repeatedly engage in appellate factfinding by asserting, without any foundation in the record, that the Government sought a civil FCA remedy only after the “cooperative process” between HUD and the owners had “broken down”. It is true that the owners eventually ceased making mortgage payments, but HUD continued to use their management services for several months after it had foreclosed. HUD must not have consid
IV. What is “decent, safe and sanitary” housing?
While refusing to rule on the dispositive issue, not decided by the district court, whether the governing HUD regulations are so imprecise concerning “decent, safe and sanitary housing” that they cannot provide the basis for an FCA claim,15 the majority here offers at least a ray of hope to the owners. The majority posits that while this housing standard is subject to differing interpretations, the owners escape civil FCA violations if their interpretation of the standard was not unreasonable. Further, the majority do not preclude the possibility of a grant of summary judgment on this issue on remand.
My difference with the majority opinion is narrow. In assessing the meaning of the “decent, safe and sanitary” standard, I would not focus on the number of times the owners certified the apartments as, and HUD paid their vouchers for, “decent, safe and sanitary” housing; such evidence is tautological. Instead, the inspection records and HUD‘s failure ever to inform the owners that they violated the “decent, safe and sanitary” standard seem far more probative. HUD‘s periodic housing inspection reports rated the apartments as merely “below average” rather than “unsatisfactory” throughout the period covered by this suit until November 1996. Further, the mortgagee‘s reports found the apartments “satisfactory” until April 1997, given the high-crime neighborhood in which they were located and “the lack of funds.” HUD did not place the apartments on its list of “troubled” properties until November 1997. If the crux of this issue is whether the appellees’ interpretation of the standard is reasonable, how can a fact issue exist when HUD never told the owners during the period for which HUD now sues that the apartments violated the standard? While I concede that wholly unreasonable and self-serving interpretations of regulatory or contract provisions might run afoul of the civil FCA, private parties should not be exposed to liability when the minimum standard consists of adjectives whose meaning is fairly debatable. Lamers, 168 F.3d at 1018 (“imprecise statements or differences in interpretation growing out of a disputed legal question are ... not false under the FCA”) (citing Hagood, 81 F.3d at 1477-78).
V. Conclusion.
For the reasons stated above, I would affirm the summary judgment granted by the district court. The majority decision is unfortunate for the owners, although I be
I respectfully DISSENT.
EMILIO M. GARZA, Circuit Judge:
The court having been polled at the request of one of the members of the court and a majority of the judges who are in regular active service not having voted in favor (
DENNIS, Circuit Judge, joined by WIENER, DeMOSS and PARKER, Circuit Judges, dissenting from the denial of the Petition for Rehearing En Banc:
Before the court is a panel opinion holding that a full and fair hearing in state court is not a prerequisite to the application of
The parties present a habeas court with opposing views or beliefs concerning the underlying facts and procedural process that resulted in a criminal conviction. But the only way for the habeas court to know what went on at trial is to read the transcript. Review of the record is particularly important when the habeas judge did not preside over the criminal trial. The state habeas judge in Alberto Valdez‘s case was not the trial judge, and he admitted, in cavalier fashion, that he was not familiar with the record: “I have never read the record of the trial and I don‘t intend to. I
Notes
This court said in Weinberger that to prove liability—that is, to establish that Equifax committed fraud in this manner,” 557 F.2d at 461 (emphasis added)—“Weinberger first must demonstrate that the government was misled by Equifax‘s application for the reporting business.” Id. (emphasis added).
See Valdez v. Cockrell, 274 F.3d 941, 950-51 (5th Cir. 2001).
(a) The improvement of a property to decent, safe and sanitary condition in accordance with the standards of this part from a condition below those standards. Substantial rehabilitation may vary in degree from gutting and extensive reconstruction to the cure of substantial accumulation of deferred maintenance. Cosmetic improvements alone do not qualify as substantial rehabilitation under this definition.
(b) Substantial rehabilitation may also include renovation, alteration or remodeling for the conversion or adaptation of structurally sound property to the design and condition required for use under this part or the repair or replacement of major building systems or components in danger of failure.
Id. § 881.201 .
The only circuit court language contrary to a materiality rule exists in the Third Circuit‘s passing observation that “perhaps Neder argues against a materiality requirement.” United States ex rel. Cantekin v. University of Pittsburgh, 192 F.3d 402, 415 (3d Cir. 1999). In two cases, the Supreme Court, ruling on whether materiality was an element under certain federal criminal false statement statutes, discussed the concept of materiality in ways that may ultimately be held relevant to the civil FCA. See Neder v. United States, 527 U.S. 1, 20-25 (1999); United States v. Wells, 519 U.S. 482, 489-99 (1997). A footnote in Neder is particularly provocative on this score. 527 U.S. at 24 n.7. Further, federal case law under the criminal FCA holds that there is no materiality requirement for a violation. See, e.g., United States v. Upton, 91 F.3d 677, 685 (5th Cir. 1996). Until the Supreme Court instructs otherwise, however, materiality remains an element of civil FCA claims.
In my view, Wilkins, supra, is misinterpreted by the majority, and no other court authority exists for the “claim materiality” theory. While Wilkins‘s historical discussion of the materiality requirement is exhaustive, the opinion nowhere mentions, much less adopts, a “claim materiality” standard. And as a district court opinion, Wilkins does not bind this court.
Crime at the Complex was alarmingly high as well. Drug related crimes were particularly prevalent. In 1995 alone, the Jackson Police Department received 43 calls reporting narcotics violations at the Complex and the police made arrests at the Complex on at least 17 different occasions for narcotics violations. Non-drug-related crimes were also common at the Complex. In one two-year interval during the time period relevant to this litigation, the Jackson Police Department‘s records indicate 57 cases of aggravated or simple assault, 12 auto burglaries, 26 house burglaries, 9 auto thefts, 1 armed robbery, 17 cases of vandalism, 1 murder, 14 larcenies, and 2 rapes at the Complex.
Civil FCA actions for treble damages and penalties are “punitive.” Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 784-85 (2000); United States ex rel. Garibaldi v. Orleans Parish School Board, 244 F.3d 486, 491 & n. 5 (5th Cir. 2001).
In Thompson, the district court dismissed the plaintiff relator‘s complaint for failure to state a claim under
Thompson alleged that, as a condition of their participation in the Medicare program, defendants were required to certify in annual cost reports that the services identified therein were provided in compliance with the laws and regulations regarding the provision of healthcare services. He further alleged that defendants falsely certified that the services identified in their annual cost reports were provided in compliance with such laws and regulations. Thus, Thompson fairly alleged that the government‘s payment of Medicare claims is conditioned upon certification of compliance with the laws and regulations regarding the provision of healthcare services ..., and that defendants submitted false claims by falsely certifying that the services identified in their annual cost reports were rendered in compliance with such laws and regulations.
Id. Instead of simply holding that the defendants’ Rule 12(b)(6) motion should have been denied, this court then noted that the parties disputed whether “the certifications of compliance contained in annual cost reports are ... a prerequisite to payment of Medicare claims.” Id. The defendants in Thompson argued that the certifications were not a prerequisite to payment because “Medicare claims are submitted for payment shortly after services have been rendered and well before annual cost reports are filed.” Id. The plaintiff argued “that such certifications are indeed a prerequisite to payment because the retention of any payment received prior to the submission of an annual cost report is conditioned on the certification of compliance contained therein.” Id. Because this court was “unable to determine from the record before us whether, or to what extent, payment for services identified in defendants’ annual cost reports was conditioned on defendants’ certifications of compliance,” this court elected to “deny defendants’ 12(b)(6) motions as they relate to this issue and remand to the district court for further factual development ... [to] determine whether the government‘s payment of defendants’ Medicare claims was conditioned on defendants’ certifications of compliance in their annual cost reports.” Id. at 902-03 (emphasis added). If the mere certifications had sufficed to establish liability, this remand would have been unnecessary.
The Ninth Circuit requires a causal link between the false certification and the agency‘s decision to pay. United States ex rel. Hopper v. Anton, 91 F.3d 1261, 1266 (9th Cir. 1996).
See, e.g., United States ex rel. Siewick v. Jamieson Sci. and Eng‘g, 214 F.3d 1372 (D.C. Cir. 2000); United States ex rel. Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001); Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 (4th Cir. 1999); United States ex rel. Hopper v. Anton, 91 F.3d 1261 (9th Cir. 1996).
See United States ex rel. Durcholz v. F.K.W., Inc., 189 F.3d 542, 545 (7th Cir. 1999); Wang ex rel. United States v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992); United States ex rel. Butler v. Hughes Helicopters, Inc., 71 F.3d 321 (9th Cir. 1995); United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 (7th Cir. 1999).
The majority emphasizes the uncompromising nature of its rule by adding in a footnote, “The materiality of the certified statement is not dependent upon how large a role the truth or falsity of the certification plays in the government‘s ultimate decision whether to remit payment.” Majority Opinion at 679 n. 17. Suppose a government contractor miscertified his payment address for reasons having nothing to do with the contract. He could be subjected to FCA liability under the majority‘s theory. The majority‘s reasoning has done away with materiality, at least in certification cases, while purporting to apply it!
As a matter of pure logic, the government‘s knowledge affects not only the question whether the defendant “knowingly” presented a false claim, but also the question whether the claim was false. The Seventh Circuit may have captured the relationship when it observed that one cannot meaningfully discuss falsity without implicating the knowledge requirement. Lamers, 168 F.3d at 1018. The court went on to hold that government knowledge precluded an actionable false claim.
Indeed, the U.S. Attorney threatened in March 1996 to sue the owners for FCA penalties based on their false certifications, but HUD subsidies continued until the property was foreclosed in July 1998. And after that, HUD had the owners manage the apartments for another three months.
Moreover, interpreting the Wilkins opinion to espouse an “outcome materiality” requirement would be inconsistent with the underlying rationale of that opinion. The Wilkins court determined that despite the absence of any statutory reference to materiality—the civil FCA contains an implicit materiality requirement. This determination was based on the court‘s conclusion that materiality is inherent in the concept of a “false claim.” Id. at 623-24. According to the Wilkins court, a false claim is distinguishable from a false statement because the former requires that the “claim itself must be false or fraudulent.” Id. at 623. The defining characteristic of a “false claim” is that the claimant is not actually entitled to the money or property claimed. Thus, the Wilkins court concluded that a false or misleading statement renders a claim “false” only if that falsehood implicates the claimant‘s entitlement or right to the ben-
In a dubious rhetorical flourish, the majority also mischaracterizes the appellees’ position as suggesting that the government‘s awareness that a claimant‘s submission was false might affect the truth or falsity of the claim. The majority tartly add: “A lie does not become the truth simply because the person hearing it knows that it is a lie.” The majority confuse the vernacular “truth” or “falsity” of a claim with an actionable FCA false claim, whose components also include materiality and “knowing” falsehood. While the owners do not concede the vernacular falsity of their vouchers, they have disputed the existence of actionable civil FCA claims.
See Office of Pers. Mgmt. v. Richmond, 496 U.S. 414, 426 (1990) (denying recovery of disability benefit funds by retiree who received erroneous information from federal agency that led him to lose six months of benefits) (“judicial use of the equitable doctrine of estoppel cannot grant respondent a money remedy that Congress has not authorized”); Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 382, 386 (1947) (denying recovery by farmers of funds from federal crop insurance program where farmers bought insurance after Government falsely assured them that their entire crop was insurable); Linkous v. United States, 142 F.3d 271, 277 (5th Cir. 1998) (rejecting plaintiff‘s argument, in Federal Tort Claims Act action, that United States should be equitably estopped from denying doctor‘s status as United States employee where doctor was in fact an independent contractor; dismissing FTCA action for lack of subject matter jurisdiction on ground that FTCA‘s waiver of sovereign immunity extends only to suits for acts committed by Government employees within scope of their employment).
Cf. John T. Boese, Civil False Claims and Qui Tam Actions, § 2.03 [F] [3] (“Government Knowledge of False Claims Act Allegations”), at 2-108–2-109 (2nd ed. 2001 Supp.) (“[T]he strongest case for government knowledge precluding liability is one where an agency insists on continued performance while independent investigators believe this continued performance involves continued false claims, so that the contractor seems forced to choose between further False Claims Act liability [and] breach of contract.... [P]rosecution should not be permitted where a contractor is not free to terminate a contract or otherwise cease making false claims.”).
There is no applicable regulatory definition of decent, safe and sanitary housing. The government has cited a regulation pertaining to a different HUD program, see Southland Mgmt. Corp., 95 F.Supp.2d at 635 n. 7 (citing, inter alia,
Secondly, this interpretation appears inconsistent with the “outcome materiality” requirement espoused by the dissent. Kungys defines a material misrepresentation as a misrepresentation that “has a natural tendency to
Initially, we note that it is unclear from Lamers whether the Seventh Circuit refused to impose liability because the government‘s knowledge undermined the falsity of the claim or because the Seventh Circuit accepted that government knowledge was a viable defense to FCA liability under the circumstances of that case. Moreover, as discussed infra at Part IV, the rationale provided by the Seventh Circuit for its refusal to impose FCA liability in Lamers is specific to qui tam cases and is
Prior to the 1982 Amendments, the text of the Act did indicate that private plaintiffs could not pursue qui tam actions under the Act if the government was aware of the information forming the basis of the complaint. See
We emphasize that we need not, and do not, address today the availability of a “government knowledge” defense in qui tam actions. Qui tam actions are governed by substantively different rules than government-initiated FCA actions in many respects. Government knowledge of the facts and circumstances underlying a claim has historically played a different role in qui tam actions than in FCA actions brought by the government. See supra note 23. Indeed, under certain circumstances relators are still jurisdictionally barred from bringing qui tam actions under the FCA if the government had knowledge of the facts and circumstances that form the basis of the relator‘s claim. See
The Defendants contend that this regulatory guidance is insufficient to give meaning to the phrase “decent, safe, and sanitary” because there is no implication that housing is decent, safe, and sanitary only if it is maintained in this manner. We agree that this language suggests an affirmative defense rather than an exclusive definition of “decent, safe and sanitary.”
We note that we have the ability to affirm on these alternate grounds. See Manning v. Warden, La. State Penitentiary, 786 F.2d 710, 711 (5th Cir. 1986) (affirming on other grounds); see also Bickford v. Int‘l Speedway Corp., 654 F.2d 1028, 1031 (5th Cir. 1981) (stating that “reversal is inappropriate if the ruling of the district court can be affirmed on any grounds”).
One particularly relevant distinguishing feature between these two inquiries is that while courts do not consider regulatory guidance in determining whether statutory language creates a legally cognizable right, see Banks, 271 F.3d at 610 n.4, it is appropriate to consider regulatory clarification in the instant case.
Indeed, there are cases that successfully apply this standard to determine whether owners are in compliance with their contractual obligations regarding the condition of housing projects. These cases do not elaborate on the meaning of the phrase “decent, safe, and sanitary” or suggest in any way that the standard lacks a concrete meaning. See, e.g., Marshall v. Cuomo, 192 F.3d 473, 479-80 (4th Cir. 1999) (determining that a corporation was appropriately debarred from further participation in Section 8 programs because its properties were not maintained in “decent, safe, and sanitary” condition).