U.S. ex rel. Shackelford v. American Management

• Decision Date: 19 April 2007
• Docket Number: No. 02-73314.,02-73314.
• Citation: 484 F.Supp.2d 669
• Parties: UNITED STATES of America ex rel., Zivan SHACKELFORD, Plaintiff-Relator, v. AMERICAN MANAGEMENT, INC., an Oklahoma corporation, Robert Johnson, Charles Johnson, Barbara Gill, Cliff's United Development, Inc., a Michigan corporation, Clifford Scott, and William Heard, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

484 F.Supp.2d 669

UNITED STATES of America ex rel., Zivan SHACKELFORD, Plaintiff-Relator, v. AMERICAN MANAGEMENT, INC., an Oklahoma corporation, Robert Johnson, Charles Johnson, Barbara Gill, Cliff's United Development, Inc., a Michigan corporation, Clifford Scott, and William Heard, Defendants.

No. 02-73314.

United States District Court, E.D. Michigan, Southern Division.

April 19, 2007.

Carolyn Bell Harbin, U.S. Attorney's Office, Detroit, MI, Justin C. Ravitz, Patricia A. Stamler, Sommers, Schwartz, Southfield, MI, for Plaintiff-Relator.

Harold Z. Gurewitz, Gurewitz & Raben, Detroit, MI, C. Frederick Robinson, Flint, MI, for Defendants.

William Heard, Detroit, MI, pro se.

MEMORANDUM AND ORDER GRANTING THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT AND DENYING AMERICAN MANAGEMENT'S MOTION FOR SUMMARY JUDGMENT

COHN, District Judge.

I. Introduction

This is a case under the False Claims Act, 21 U.S.C. § 3729 generally asserting a scheme by defendants to defraud the Department of Housing and Urban Development (HUD). The case was originally filed by Zivan Shackelford as a qui tam action. The complaint was filed in camera and under seal. The government later filed its Notice of Election to Intervene under 31 U.S.C. § 3730(b)(2) (4). The defendants are: American Management, Inc. (AMI), Robert Johnson, Charles Johnson, Barbara Gill, Cliff's United Development, Inc., Clifford Scott, and William Heard.

Before the Court are cross motions for summary judgment by the government and AMI. The motions present a single legal question-whether AMI is liable under the FCA for the acts of its former employees. The motions were the subject of a hearing, after which the parties filed supplemental papers. The matter is now ready for decision. For the reasons that follow, the government's motion is GRANTED and AMI's motion is DENIED.

II. Background

The material facts are undisputed and the only issue which divides the parties is a question of law. The parties filed a Stipulation as to Facts Not in Dispute which details the scheme to defraud HUD. A brief recitation of the facts follows:

HUD hired AMI to manage the daily operations of HUD-owned properties in Michigan, Ohio, and other states. AMI had employees on staff who performed services under its contracts with HUD; it was also allowed to subcontract out certain jobs by issuing purchase orders to outside contractors. After AMI certified to HUD that the outside contractors performed the work in question, HUD paid the subcontractors directly. AMI issued purchase orders to Clifford Scott, owner of Cliffs United Development, Inc. (Cliff s) and William Heard, owner of Heard's Home Repair (Heard's) for cleanup and repair services at several of the HUD-owned properties managed by AMI.

Barbara Gill was the District Manager for AMI, Charles Johnson was the Area Property Manager for AMI, and Robert Johnson was the Maintenance Supervisor for AMI. The scheme is described in stipulated fact no. 11 as follows:

Barbara Gill, Charles Johnson, and Robert Johnson entered into a scheme to defraud the United States, or its agency, HUD, by awarding subcontracts for repairs and services at HUD-owned projects managed by AMI. The scheme called for Gill, Charles Johnson and Robert Johnson to facilitate the issuance of purchase orders for work that had been or would be performed by AMI employees whose payroll costs were already being paid for by HUD. Gill, Charles Johnson and Robert Johnson would locate subcontractors willing to participate in the scheme in exchange for a portion of the payments fraudulent obtained from HUD. Next, Charles Johnson and Gill would request AMI procurement personnel to approve the issuance of purchase orders for work which was supposedly going to be performed by the subcontractors in question. Thereafter, even though the subcontractors had not performed the work specified in the subcontractors, and even though AMI employees whose salaries were already being reimbursed by HUD actually performed some or all of the specified work, Johnson would certify completion of the work so that HUD would pay the subcontractors directly for performing the work. Then, after the participating subcontractors received payment from HUD, they would split the funds with the AMI employees who had orchestrated the scheme.

Cliff's and Heard were two such subcontractors who are alleged to have participated in the scheme. In total, the government identified nine bogus purchase orders issued by AMI for work to be performed by Cliffs or Heard, totaling $133,634.92.¹

B.

As noted above, a qui tam complaint was filed under seal on August 14, 2002. It was not until almost three years later, on July 22, 2005, that the government notified its intent to intervene and the seal order was lifted. On October 24, 2005, the government filed a complaint against defendants. Thereafter, the government attempted service on all of the defendants. Clifford Scott and Cliff's were served and retained counsel, who filed an answer on their behalf on December 5, 2005. Heard was also served, is proceeding pro se, and filed an answer on November 18, 2005. AMI was served and retained counsel, who filed an answer on February 6, 2006. Summons for Gill, Charles Johnson and Robert Johnson were returned as unexecuted. The government thereafter obtained default judgments against them in the amount of $490,904.76, which represents three times the government's actual damages, plus $10,000 in civil penalties for each of the nine false claims (purchase orders) at issue.

Thereafter, AMI and the government filed cross motions for summary judgment.

III. Legal Standard

Summary judgment will be granted when the moving party demonstrates that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). There is no genuine issue of material fact when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The nonmoving party may not rest upon his pleadings; rather, the nonmoving party's response "must set forth specific facts showing that there is a genuine issue for trial." FED. R. CIV. P. 56(e). Showing that there is some metaphysical doubt as to the material facts is not enough; "the mere existence of a scintilla of evidence" in support of the nonmoving party is not sufficient to show a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Rather, the nonmoving party must present "significant probative evidence" in support of its opposition to the motion for summary judgment in order to defeat the motion. See Moore v. Philip Morris Co., 8 F.3d 335, 340 (6th Cir.1993); see also Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505. Additionally, and significantly, "affidavits containing mere conclusions have no probative value" in summary judgment proceedings. Bsharah v. Eltra Corp., 394 F.2d 502, 503 (6th Cir.1968).

The Court must decide "whether the evidence presents a sufficient disagreement to require submission to a [trier of fact] or whether it is so one-sided that one party must prevail as a matter of law." In re Dollar Corp., 25 F.3d 1320, 1323 (6th Cir.1994) (quoting Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505). The Court "must view the evidence in the light most favorable to the non-moving party." Employers Ins. of Wausau v. Petroleum Specialties, Inc., 69 F.3d 98, 101 (6th Cir.1995). Determining credibility, weighing evidence, and drawing reasonable inferences are left to the trier of fact. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505. Only where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law may summary judgment be granted. Thompson v. Ashe, 250 F.3d 399, 405 (6th Cir.2001).

IV. Analysis

A. In General

The parties do not dispute that AMI employees presented false claims to the government in the form of the purchase orders for work allegedly performed by subcontractors but in reality performed by AMI employees. The parties also do not dispute that AMI did not directly benefit from the actions of its employees. The parties do, however, dispute whether AMI is liable for the acts of its employees. This raises the question of vicarious liability under the FCA. As noted at the hearing, there is no clear precedent from the Sixth Circuit and as such, the Court is proceeding in "uncharted waters."

The FCA creates liability for any person who "(1) knowingly presents, or causes to be presented, to [the Government] ... a false or fraudulent claim for payment or approval; (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; [or] (3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid." 31 U.S.C. § 3729(a). The FCA also provides that any person who causes a false claim to be submitted to the government is liable for a civil penalty of between $5,000 and $10,000 per claim plus three times the amount of actual damages. See id. Importantly, section § 3729(b) provides:

(b) Knowing and knowingly defined. — For purposes of this section, the terms "knowing" and "knowingly" mean that a person, with respect to information —

(1) has actual knowledge of the information;

(2) acts in deliberate ignorance of the truth or falsity of the information; or

(3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.

Although the government stresses that "no specific intent to defraud" is required, it is clear from a review of the statutory language that there is some degree of scienter required beyond mere negligence to trigger liability. The question is therefore whether...