Sears et al v. Livingston Management Inc.

Filing 36

RULING denying 18 Motion to Dismiss for Failure to State a Claim. Signed by Judge Frank J. Polozola on 5/9/2012. (LSM)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

THE UNITED STATES OF AMERICA,
ex rel., ALDONA MANUEL, TAISHA
SEARS AND NEOTHA GIBSON

CIVIL ACTION
NUMBER 09-45-FJP-CN

VERSUS
LIVINGSTON MANAGEMENT, INC.

RULING
Defendant Livingston Management, Inc. has moved to dismiss
plaintiffs’ complaint under Rule 12(b)(6) of the Federal Rules of
Civil Procedure.1
motion.2

For

The Plaintiffs (or “Relators”) have opposed the
reasons

which

follow,

the

Court

finds

that

defendant’s motion should be denied.
I.

Factual Background & Complaint Allegations
The United States Department of Agriculture (USDA) oversees

the Rural Development Program (RDP) to provide loans to construct
or rehabilitate rental housing in rural communities.

The Rural

Housing Service is a credit agency under the USDA whose mission is
to increase the availability of affordable housing for rural
residents.

Residents of multi-family housing units may apply for

the Rental Assistance Program, whereby certain residents may have

1

Rec. Doc. No. 18.

2

Rec. Doc. No. 22.

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a portion of their rent subsidized.
Plaintiffs’ Complaint alleges that the Rural Development
Program property managers, such as the defendant LMI, are required
to provide documentation to the United States to ensure that the
property is operated in compliance with the program’s federal
requirements and guidelines.

Relators allege that a significant

number of tenants that occupied multi-family housing units managed
by LMI received federal rental housing assistance through the
USDA’s Rental Assistance Program. LMI was required to sign “Tenant
Income Certifications” to ensure that the tenants complied with the
program requirements.
On June 23, 2009, the relators filed this False Claims Act
Complaint under seal.

In their complaint, relators set forth

details regarding an alleged scheme by the defendant to present
false claims to the Government.

Relators allege the following

three counts: Count 1, False Certifications and Verifications;
Count 2, Conspiracy to Submit False Claims; and Count 3, Conspiracy
to Defraud and Kickbacks.3

The defendant has now moved to dismiss

the complaint under Rules 9(b) and 12(b)(6)4 of the Federal Rules

3

Rec. Doc. No. 1.

4

When a Rule 12(b)(6) motion is filed, the Court must treat
the allegations in the complaint as true. If a party submits
evidence outside of the pleadings which the Court relies on to
rule on the motion, the Court must treat the motion to dismiss as
a motion for summary judgment under Rule 56 of the Federal Rules
of Civil Procedure.
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of Civil Procedure for failure to state a claim upon which relief
may be granted.5

A.

Count I

Count I of the Complaint alleges that LMI employees Connie
Widner, Janet Molinario, Shelia Dupre, and others, “routinely and
falsely under reported tenants’ income and misrepresented that said
applicants

met

requirements.”6

the
The

Rural

Development

complaint

further

Program’s
alleges

income

that

these

employees routinely forged tenants’ and managers’ signatures to
Tenant Income Certifications to ensure the rent would continue to
be paid to LMI under the program.

Relators also allege LMI used

the forged Tenant Income Certifications to obtain federal income
tax credits under the federal Low Income Housing Tax Credit
program.
As

part

of

this

alleged

scheme,

Relators

contend

they

themselves were routinely required to copy old Tenant Certification
forms

previously

signed

and

change

the

dates

on

the

old

certifications to make it appear that a new certification had been
completed by the tenants as required by the program’s guidelines.
The identified employees then attested knowledge that the Tenant
Certification

forms

were

complete

5

Rec. Doc. No. 18.

6

Rec. Doc. No. 1, p.7, ¶ 21.

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and

accurate,

subsequently

submitting the knowingly altered certifications electronically to
the Rural Development Program.
Livingston Management contends relators fail to allege a
plausible FCA certification claim other than a “vague reference”
that the named employees submitted forged certifications to the
Rural Development Program.7

Defendant contends that count I lacks

any allegations concerning how the certifications relate to any
payments from the government.

Defendant further argues there are

no allegations that the allegedly false information resulted in LMI
receiving any money other than what it was already entitled to
under the program. Defendant further contends that plaintiffs have
failed to allege that any payments from the government were
conditioned

upon

certification

of

compliance

with

the

income

requirements, which is a prerequisite in the Fifth Circuit to
establish FCA liability.
B.

Count II

Count

II,

entitled

“Conspiracy

to

Submit

False

Claims,”

alleges that LMI, through its employees, leased apartments to
persons who had applied for Rural Development Program Rental
Housing Assistance, but never moved into the federally subsidized
apartments.

Count II further alleges that LMI rented apartments

previously allocated to qualified disabled persons to non-disabled
tenants, thereby increasing the amount of rental income paid by the
7

Rec. Doc. No. 18-1, p. 6.

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Government.
Defendant moves to dismiss this count, arguing that plaintiffs
have failed to allege a conspiracy, i.e., that two or more persons
formed a conspiracy.

Defendant also contends count II lacks any

allegations regarding a false representation or that a false
representation was even made.

Defendant further argues plaintiffs

fail in count II to allege the requisite state of mind to support
an FCA claim, and also fail to allege any facts showing that the
conduct

alleged

decisions.

had

Finally,

the

potential

defendant

to

contends

influence
count

II

government
does

not

adequately allege that the false claims caused the government to
pay any money.
C.

Count III

Count III, entitled “Conspiracy to Defraud and Kickbacks,”
alleges that LMI employees received “kickbacks” or had an ownership
interest in Interstate Builders, a Louisiana company paid for
repairs allegedly made to LMI-managed properties.

Count III also

alleges that LMI apartment managers were routinely required to
assign repair jobs to Interstate Builders who would then bill and
be paid for work not performed.

Relators allege the fraudulent

billing by Interstate Builders resulted in LMI receiving more money
from the apartment complexes than that to which it was legally
entitled under the fixed management fee agreement.
Defendant argues that count III is likewise deficient for the

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5

same reasons given above, and further that plaintiffs fail to make
a connection between the activities alleged in count III and any
government payment or claim.
The Court now turns to a discussion of the relevant law to be
applied under the facts of this case.

II.

Law & Analysis
A.

The False Claims Act (“FCA”)

The False Claims Act prohibits: “1)the presentment of a false
claim to the Government, 2) the use of a false record or statement
to get a false claim paid, and 3) conspiracies to get a false claim
paid.8 Liability for violation includes a liquidated civil penalty
and damages, which need not be shown to state a claim but which if
shown will be doubled and may be trebled.”
A complaint filed under the False Claims Act “must meet the
heightened pleading standard of Rule 9(b), which provides: ‘In
alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake.’

Rule 9(b) is an

exception to Rule 8(a)’s simplified pleading that calls for a
‘short and plain statement of the claim.’”9
In cases alleging fraud, “Rule 9(b) has long played that

8

United States, ex rel. Grubbs v. Kanneganti, 565 F.3d 180,
183 (5th Cir. 2009)(citing 31 U.S.C. § 3729(a)(1-3)).
9

Id. at 185 (internal citations omitted).

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screening function, standing as a gatekeeper to discovery, a tool
to week out meritless fraud claims sooner than later.”10

“The

frequently stated, judicially-created standard for a sufficient
fraud complaint, the applicability of which to the False Claims Act
we will consider later, instructs a plaintiff to plead ‘the time,
place and contents of the false representation [], as well as the
identity of the person making the misrepresentation and what that
person obtained thereby.’”11
In United States, ex rel. Grubbs v. Kanneganti, the Fifth
Circuit relied on the earlier opinion by the Eleventh Circuit in
United States ex re. Clausen v. Laboratory Corporation of America,
Inc.,12 when it held that “presentment of a false claim is the sin
qua non of a False Claims Act violation without which ‘there is
simply no actionable damage to the public fisc.’”13

Of note, the

court held that “it is insufficient for a plaintiff ‘merely to
describe a private scheme in detail’ without offering ‘some indicia
of reliability’ that an actual false claim for payment was made to
the Government.”14

10

“The Clausen court made plain its position that

Id.

11

Id. at 186, quoting United States ex rel. Russell v. Epic
Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999).
12

290 F.3d 1301 (11th Cir. 2002).

13

Grubbs, 565 F.3d at 186, quoting Clausen, 290 F.3d at

14

Id., quoting Clausen, 290 F.2d at 1311.

1311.

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to plead a presentment claim, the minimum indicia of reliability
required to satisfy the particularity standard are the specific
contents of actually submitted claims, such as billing numbers,
dates, and amounts.”15
The Grubbs court further stated:
We have traditionally required that a fraud complaint
include “the time, place and contents of a false
representation [], as well as the identity of the person
making the misrepresentation and what that person
obtained thereby.”16 However, we have acknowledged that,
“Rule 9(b)’s ultimate meaning is context-specific,”17 and
thus there is no single construction of Rule 9(b) that
applies in all contexts.
Depending on the claim, a
plaintiff may sufficiently “state with particularity the
circumstances constituting fraud or mistake” without
including all the details of any single court-articulated
standard - it depends on the elements of the claim at
hand.18
However, the Grubbs court continued:
In sum, the “time, place, contents, and identity”
standard is not a straightjacket for Rule 9(b). Rather,
the rule is context specific and flexible and must remain
so to achieve the remedial purpose of the False Claims
Act. We reach for a workable construction of Rule 9(b)
with complaints under the False Claims Act; that is, one
that effectuates Rule 9(b) without stymieing legitimate
efforts to expose fraud.
We hold that to plead with
particularity the circumstances constituting fraud for a
False Claims Act § 3729(a)(1) claim, a relator’s
complaint, if it cannot allege the details of an actually

15

Id.

16

Id. at 188, quoting United States ex rel. Russell v. Epic
Healthcare Mgmt. Group, 193 F.3d 304, 308 (5th Cir. 1999).
17

Id., quoting Williams v. WMX Techs., Inc. 112 F.3d 175 (5th
Cir. 1997).
18

Id.

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submitted false claim, may nevertheless survive by
alleging particular details of a scheme to submit false
claims paired with reliable indicia that lead to a strong
inference that claims were actually submitted.19
With

respect

to

Section

3729(a)(2),

which

imposes

civil

liability on any person who “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,”20 the Grubbs
court stated: “As the Supreme Court recently settled: ‘[T]he
concept of presentment is not mentioned in § 3729(a)(2).

The

inclusion of an express presentment requirement in subsection
(a)(1), combined with the absence of anything similar in subsection
(a)(2),

suggests

that

Congress

did

not

intend

to

include

a

presentment requirement in subsection (a)(2).’”21 The court noted
that:
What § 3729(a)(2) requires is that the defendant made a
false record or statement for the purpose of getting a
false or fraudulent claim paid by the Government. For
this section, the recording of a false record, when it is
made with the requisite intent, is enough to satisfy the
statute; we need not make the step of inferring that the
record actually caused a claim to be presented to the
Government.22
Section 3729(a)(3) of the False Claims Act subjects to civil

19

Id. at 190.

20

31 U.S.C. § 3729(a)(2).

21

Grubbs, 565 F.3d at 192-93, quoting Allison Engine Co. v.
United States ex rel. Sanders, 553 U.S. 662, 128 S.Ct. 2123,
2129, 170 L.Ed.2d 1030 (2008).
22

Id. at 193.

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liability any person who “conspires to defraud the Government by
getting a false or fraudulent claim allowed or paid.”

The Fifth

Circuit has held that to prove a False Claims Act conspiracy, “a
relator must show: ‘(1) the existence of an unlawful agreement
between defendants to get a false or fraudulent claim allowed or
paid by [the Government] and (2) at least one act performed in
furtherance of that agreement.’23

The particularity requirements

of rule 9(b) apply to the False Claims Act’s conspiracy provision
with equal force as to its ‘presentment’ and ‘record’ provisions.
As the D.C. Circuit has stated, a plaintiff alleging a conspiracy
to commit fraud must ‘plead with particularity the conspiracy as
well

as

the

over

acts

...

taken

in

furtherance

of

the

conspiracy.’”24
B.

Application

In analyzing the three counts alleged in relator’s complaint,
the Court must apply the standards set forth in Grubbs.
finds

that

the

relators

have

sufficiently

set

The Court

forth

details

regarding the alleged scheme of the defendant to present false
claims to the federal government through its employees: Connie
Wilder, Janet Molinario, Sheila Dupre, Ryan Whittington, and Robert
Whittington.

Relators have alleged that these specific employees

23

Id., quoting United States ex rel. Farmer v. City of
Houston, 523 F.3d 333, 343 (5th Cir. 2008).
24

Id., quoting FC Inv. Group LC v. IFX Markets, Ltd., 529
F.3d 1087, 1097 (D.C. Cir. 2008).
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have under-reported the income of tenants, failed to properly and
annually certify tenant income, forged signatures, altered dates,
and

improperly

attested

Certifications.

to

the

veracity

of

Tenant

Income

The time period alleged is the duration of

relators’ employment by the defendant.
submission

of

these

Tenant

Income

It is alleged that by the
Certifications,

defendant

submitted false claims to the federal government.
The fact that the government may or may not have paid on the
claims is irrelevant, as the Grubbs court explained: “A person that
presented fraudulent claims that were never paid remains liable for
the Act’s civil penalty.

It is adequate to allege that a false

claim was knowingly presented regardless of its exact amount; the
contents of the bill are less significant because a complaint need
not allege that the Government relied on or was damaged by the
false claim.”25
The time of the false claims was the duration of relators’
employment with defendant. The place of the false claims is in the
Tenant Income Certifications and Verifications submitted by the
defendant
question.

to

the

government,

not

the

specific

addresses

in

The contents are clearly discussed in the paragraph

above, and the employees alleged to have submitted the false claims
are clearly identified.

Relators have therefore satisfied the

“time, place, contents, and identity” standard. At the very least,

25

Id. at 189.

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the Court finds that plaintiffs have alleged “particular details of
a scheme to submit false claims paired with reliable indicia that
lead to a strong inference that claims were actually submitted.”26
The Court also finds that relators have set forth a claim
under Section 3729 (a)(2). Relators have specifically alleged that
Widner, Molinario, and Dupre knowingly and intentionally attested
to

possessing

the

requirement

documentation

to

support

the

information contained in the Tenant Certification and Tenant Income
Certification was complete and accurate.

It is further alleged

that those actors knowingly and intentionally submitted forged,
altered, and/or manipulated certifications to the Rural Development
Program, and that LMI’s Vice Presidents knowingly ratified such
false certifications.
Considering the conspiracy allegations, the defendant contends
no actual conspiracy has been alleged in relators’ complaint.
However, the substance of the count alleges the defendant leased
apartments to individuals who applied for assistance but never
actually moved in; failed to lease apartments to qualified disabled
persons but rather leased those apartment to non-disabled tenants;
and engaged in a kickback scheme for “repairs” with Interstate
Builders.

Relators have argued, and the Court agrees, that the

conspiracy claims have the same time, place, and identity as those
set forth in the previous claims; however, the contents in this

26

Id. at 190.

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count allege the submission by defendants of false information
relating to potential residents that never occupied defendant’s
multi-family housing complexes.
The claim of Relators regarding defendant’s relationship with
Interstate Builders contains the same time and identities, but in
this instance, the “place” of the fraud is the improper bills from
Interstate Builders submitted to the federal government by the
defendant

for

work

Relators

allege

knew

was

never

actually

performed.
Furthermore,

Relators

have

alleged

the

requisite

mental

element required by the law in Paragraphs 34 and 35 of the
Complaint for all of the alleged counts.
The Court notes that it is in no way finding that plaintiffs
will be successful in proving the claims in their Complaint;
rather, the Court is following the dictates of Grubbs in holding
that plaintiffs have set forth claims under the False Claims Act in
accordance with jurisprudence and Rule 9(b) of the Federal Rules of
Civil Procedure.

The Court has applied the requirements of Rule

12(b)(6) of the Federal Rules of Civil Procedure and finds that the
defendant’s motion to dismiss must be denied under the law and
facts of this case.
Therefore:

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Defendant’s motion to dismiss27 is DENIED.28
IT IS SO ORDERED.
Baton Rouge, Louisiana, May 9, 2012.

S
FRANK J. POLOZOLA

MIDDLE DISTRICT OF LOUISIANA

27

Rec. Doc. No. 18.

28

The Court has considered all of the arguments of parties
whether or not specifically addressed herein.
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