United States ex rel. Jenkins v. Sanford Capital, LLC

UNITED STATES OF AMERICA, ex rel. BARBARA JENKINS, Plaintiff, v. SANFORD CAPITAL, LLC and AUBREY CARTER NOWELL, Defendants.

Civil Action No.: 17-239

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

September 10, 2020

Re Document No.: 26

MEMORANDUM OPINION

GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

This is a case under the False Claims Act ("FCA") brought by a recipient of Section 8 housing assistance, on behalf of the United States, against her landlords. The FCA allows a private person (a "relator") to bring an action in the Government's name, 31 U.S.C. § 3730(b), and to recover a portion of the proceeds of the action, id. § 3730(d). Among other things, the FCA provides liability for an individual who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval" to the federal government. Id. § 3729(a)(1)(A). Here the relator, Barbara Jenkins, alleges that Defendants violated this provision by taking deceptive measures aimed at misleading administrators of federal housing funds into believing that Jenkins's apartment, and others in her apartment complex, were compliant with federal regulations when, in fact, they knew the apartment was not compliant. This, Jenkins alleges, violated the terms of a contract between the owners of the property and the housing administrators. Defendant Aubrey Carter Nowell has moved to dismiss Jenkins's Amended Complaint.¹ The Court grants the motion in part because the Amended Complaint fails to allege sufficient facts to establish liability under one particular theory of liability, but also denies it in part because Jenkins has otherwise laid out a valid claim under the FCA.

I. BACKGROUND

A. Factual Background²

Defendants in this case are Sanford Capital, LLC and Aubrey Carter Nowell, the principal and founder of Sanford Capital. Am. Compl. ¶¶ 6, 8, ECF No. 12. According to the Amended Complaint, Sanford Capital, along with S&R Management Co.,³ owns and operates the Wayne Place Apartment complex in Southeast Washington, D.C. Id. ¶ 15. Defendants collect funds from the federal government through Section 8 of the United States Housing Act, and specifically through the Housing Choice Voucher Program administered by the District of Columbia Housing Authority ("DCHA"). Id. ¶¶ 18-19. Plaintiff Barbara Jenkins is a resident of the Wayne Place Apartments and alleges that Defendants have violated the False Claims Act by causing false claims to be submitted to the federal government in connection with the Section 8 voucher funds they receive. See Am. Compl. ¶¶ 41-52, 55.

The Housing Choice Voucher Program, also commonly referred to as "Section 8" or the "HCVP," was created by Congress with "the purpose of aiding low-income families in obtaininga decent place to live and of promoting economically mixed housing" by providing low-income families with assistance payments, or subsidies, to enable them to rent units in the private rental housing market. 42 U.S.C. § 1437f(a). The program is financed by the federal government, regulated by the U.S. Department of Housing and Urban Development ("HUD"), and administered by state and local public housing agencies ("PHAs"). See 42 U.S.C. § 1437f; Simmons v. Drew, 716 F.2d 1160, 1161 (7th Cir. 1983). Through the Program, HUD distributes federal funds to PHAs, and the PHAs, in turn, distribute the funds by contracting with property owners to subsidize a portion of a Program participant's rent. See 42 U.S.C. § 1437f; Simmons, 716 F.2d at 1161. DCHA, an agency of the District of Columbia government, is the PHA responsible for administering the Program in the District of Columbia. See D.C. Code § 6-202; D.C. Mun. Regs. tit. 14, § 4900. Under Section 8, PHAs enter into Housing Assistance Payment contracts ("HAP contracts") with owners of existing housing units. See 42 U.S.C. § 1437f(d)(1).

Jenkins has lived in the Wayne Place Apartments for over twelve years. Am. Compl. ¶ 10. She has qualified for Section 8 assistance payments based on her annual income, and the federal government has covered "up to 100%" of her monthly rent by paying Defendants "in excess of $950.00 per month." Id. ¶ 14. According to Jenkins, all the units in the Wayne Place Apartments and "numerous other units" in eight or more other apartment complexes owned and operated by Sanford Capital participate in the HCVP as administered by DCHA. Id. ¶¶ 17-19.

The alleged deceptions at the heart of Jenkins's claims began in 2008 when DCHA inspected her unit and determined it was not in compliance with regulations issued by HUD. Id. ¶¶ 22-23. The deficiencies with the unit were the landlord's responsibility to address, but the defendants only "made insignificant adjustments to the unit to give the appearance of repair," without truly addressing the problems. Id. ¶ 24. Other units similarly failed inspection but weregiven only superficial treatments. Id. ¶ 25. In addition, the foundation of Jenkins's building was, by 2008, "in an unsafe, indecent, and unsanitary state." Id. ¶ 26. In 2010, Jenkins's unit again failed inspection and Defendants again "undertook efforts to give the appearance of repair when no repair was actually performed." Id. ¶ 27.

By 2011, Jenkins could see visible mold growing in her apartment, which she surmises was the result of water leaking throughout the building's walls. Id. ¶ 28. Light fixtures and electrical outlets were also filling with water. Id. Jenkins arranged and paid for a mold inspection of her unit and the crawl space underneath it, which confirmed there was mold throughout the "living and other portions of the unit" including the first floor and crawl space levels. Id. ¶¶ 29-30. According to the inspection, there was "active seepage" contributing to the "fungal growth." Id. ¶ 29. Defendants again "undertook efforts . . . to give the appearance" that they were fixing the problem, but did not actually make meaningful repairs. Id. ¶ 31. Jenkins's unit, and others at Wayne Place Apartments, failed inspection again in 2011, and Jenkins's unit was "noted to have evidence of infestation," but again Defendants only sought to make it appear that they were remedying these defects. Id. ¶¶ 32-34. The pattern repeated in 2013 when Jenkins's unit "failed a special inspection by the DCHA which found landlord deficiencies in water damage, mold, rodent infestation, exposed wiring, decaying material and other deficiencies" and when "Defendants again undertook fraudulent measures to give the appearance of remediation and correction." Id. ¶¶ 35-36. Taking matters into her own hands again in 2016, Jenkins hired a "certified industrial hygienist" who reported that her "residence does not present a safe and healthful living environment." Id. ¶ 37. Jenkins alleges that every building in the Wayne Place complex had the same or similar conditions. Id. ¶ 38.

Jenkins has attached to her Complaint a form version of a HAP contract of the kind that DCHA would have entered into with the owners of Wayne Place Apartments. Compl. Ex. 2 ("HAP contract")⁴, ECF No. 1 at 18-29; see id. at 1 ("The HAP contract is an agreement between the PHA and the owner of a unit occupied by an assisted family."). According to the form, the language of the HAP contract is non-negotiable, at least in those respects that would matter in this case. See id. at 1 ("Modification of the HAP contract is not permitted[.]"). The body of the contract provides that the HAP contract "is entered to provide assistance for the [resident] family under the Section 8 voucher program" and that "the PHA will pay housing assistance payments to the owner in accordance with the HAP contract." Id. at 4. The HAP contract requires the owner to enter into a lease with the family that includes certain provisions laid out by HUD, and that the lease be "consistent with state and local law." Id. Further, and most importantly here, the HAP requires that "[t]he owner must maintain the contract unit and premises in accordance with the housing quality standards (HQS)" and provides that "[t]he PHA shall not make any housing assistance payments if the contract unit does not meet the HQS, unless the owner corrects the defect within the period specified by the PHA and the PHA verifies the correction." Id.

Housing quality standards are set by HUD regulations. See id. (citing 24 C.F.R. § 982). Among other things these require that "[c]eilings, walls, and floors must not have any serious defects such as severe bulging or leaning, large holes, loose surface materials, severe buckling, missing parts, or other serious damage," that "[t]he dwelling unit and its equipment must be in sanitary condition," and that "[t]he dwelling unit and its equipment must be free of vermin androdent infestation." 24 C.F.R. § 982.401(g)(2), (m)(1), (m)(2). Section 8 housing is also covered by 24 C.F.R. § 5.703, which Jenkins cites in her complaint. See Am. Compl. ¶ 46 (citing 24 C.F.R. § 5.703); see also 24 C.F.R. § 5.701 ("This subpart applies to housing assisted under the HUD programs listed in 24 CFR 200.853(a)."); 24 C.F.R. 200.853(a) (listing programs including Section 8). This section requires that "[a]ll areas and components of the housing must be free of health and safety hazards," and that "[t]he housing must have no evidence of infestation by rats, mice, or other vermin" or "of electrical hazards, natural hazards, or fire hazards" and "must have proper ventilation and be free of mold, odor . . . or other observable deficiencies." 24 C.F.R. § 5.703(f).

B. False Claims Act

Section 3729(a), under which Jenkins has sued, creates liability for "any person who ... knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). Claims under this FCA provision are known as "presentment" claims. See United States ex rel. Tran v. Computer Scis. Corp., 53 F. Supp. 3d 104, 117 (D.D.C. 2014). The elements of a presentment claim are that: "(1) the...