U.S. ex rel. Ervin and Assoc. v. Hamilton Sec., CIV.A.96-CV-1258 LFO.
| Court | United States District Courts. United States District Court (Columbia) |
| Writing for the Court | Oberdorfer |
| Citation | 370 F.Supp.2d 18 |
| Parties | UNITED STATES of America ex rel., ERVIN AND ASSOCIATES, INC., Plaintiff, v. THE HAMILTON SECURITIES GROUP, INC., et al., Defendants. |
| Docket Number | No. CIV.A.99-CV-1698-LFO.,No. CIV.A.96-CV-1258 LFO.,CIV.A.96-CV-1258 LFO.,CIV.A.99-CV-1698-LFO. |
| Decision Date | 25 January 2005 |
v.
THE HAMILTON SECURITIES GROUP, INC., et al., Defendants.
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Aaron L. Handleman, Eccleston & Wolf, Washington, DC, Joseph P. Hornyak, Sonnenschein Nath & Rosenthal, Washington, DC, Michael Philip Freije, Eccleston & Wolf, Washington, DC, Renee Catherine Macri, Sonnenschein Nath & Rosenthal, Washington, DC, for Ervin and Associates, Inc.
Brian Arthur Coleman, Kenneth E. Ryan, Michael J. McManus, Drinker, Biddle & Reath, Washington, DC, for Hamilton Securities Group, Inc., Hamilton Securities Advisory Services, Inc.
Wayne Gormly Travel, Leach Travel, Vienna, VA, for Daniel M. Hawke.
Pamela Anne Bresnahan, Vorys, Sater, Seymour & Pease, Washington, DC, for Neil V. Getnick, Getnick and Getnick.
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Kevin T. Baine, Williams & Connolly LLP, Washington, DC, for Lorraine Adams.
Laura Rose Handman, Davis Wright Tremaine LLP, Washington, DC, for Carl Johnston, Timothy M. Ito, Edward T. Pound.
Allen Vern Farber, James Aston Barker, Gardner, Carton & Douglas, WashingtoN, DC, for George Archibald.
OBERDORFER, District Judge.
The instant qui tam action was filed on June 6, 1996, on behalf of the United States by plaintiffs John Ervin and Ervin Associates, Inc. (collectively, "Ervin") against several entities, including Hamilton Securities Group, Inc. ("Hamilton"). Over the course of four days of trial in October 2003, Ervin submitted testimony and documentary evidence against Hamilton and rested. Thereupon, Hamilton moved for Judgment on Partial Findings under Federal Rule of Civil Procedure 52. A January 7, 2004 Order granted the motion with respect to Count VII of the Second Amended Complaint, related to the West of Mississippi note sale. [Dkt. No. 198]. The Order also granted the motion with respect to Counts I, III, IV, V, VI, and VIII of the Second Amended Complaint on the grounds that Ervin failed to identify or introduce evidence, in either its pretrial statement or at trial, in support of the allegations contained in these Counts. Id. The Order denied Hamilton's motion with respect to Count IX (related to the North and Central note sale), Count II (related to the Single Family Offering), Counts XIII and XIV (related to the Williams, Adley 8(a) contract), and Counts XV and XVI (related to the crosscutting contract). Id.
Over three trial days in July 2004, Hamilton presented its trial defense. Ervin did not put on a rebuttal. Following the completion of the trial, the parties submitted modified proposed findings of fact and conclusions of law. An August 16, 2004 Order and Partial Judgment ruled that (1) Ervin is entitled to Judgment on Count IX of the Second Amended Complaint — related to the North Central Sale, (2) the amount of damages caused to the United States by Hamilton's False Claim on the North-Central sale was $1,511,244.00, and (3) Hamilton is entitled to Judgment on the counts related to the three remaining issues: Count II, related to the Single Family Offering, Counts XIII and XIV, related to the Williams 8(a) contract, and Counts XV and XVI, related to the crosscutting contract. [Dkt. No. 452]. The Court's Order and Partial Judgment also ordered supplemental briefing "addressing (1) the proper penalty to be assessed under 31 U.S.C. § 3729; and (2) the proper division of payment as between Ervin and the United States." Id. The parties and the United States filed briefs in response. See Hamilton's Mem. Regarding Proper Penalty, filed Aug. 27, 2004 [Dkt. No. 454]; Joint Suppl. Brief of the United States and Ervin, dated Aug. 16, 2004, filed Aug. 26, 2004 [Dkt. No. 455]; Suppl. Report by United States, filed Oct. 13, 2004 [Dkt. No. 460]. Having considered the trial testimony and documents offered by both parties, and having reviewed the above-recited pleadings, the Court enters the following Memorandum and accompanying Order, granting judgment for plaintiffs John Ervin and Ervin Associates, Inc. on Count IX of the Second Amended Complaint and granting judgment for defendant Hamilton Securities Group, Inc. on Counts II, XIII and XIV of the Second Amended Complaint. The amount of damages assessed against Hamilton is $4,533,732.00 plus a $5,000.00 penalty, for a total damage
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award of $4,538,732.00. This Memorandum supersedes the Court's Memorandum filed on August 16, 2004. [Dkt. No. 452].
A. Background
Throughout the 1970s and 1980s, the United States Department of Housing and Urban Development ("HUD"), as part of an effort to promote broad home ownership, insured the mortgages of certain individuals and entities for whom private financing was not feasible. United States ex rel. Ervin & Assoc., Inc. v. Hamilton Sec. Group, 298 F.Supp.2d 91, 93 (D.D.C.2004) [hereinafter, "Jan. 7, 2004 Mem."]. HUD often assumed control of and responsibility for the mortgages if the insured individuals and entities failed to make the mortgage payments. Id. In so doing, HUD accumulated a portfolio of over $408 billion dollars by September 1993. Id. This massive real estate management responsibility interfered with HUD's ability to discharge its various other responsibilities. Id. In 1993, in order to allow HUD to "better fulfill its mission," HUD initiated a program to restructure its portfolio. Hamilton Ex. 7 at HUD/EE 817. HUD sought to sell its inventory of single family and multifamily HUD-held mortgages and HUD-held properties. See id. Because HUD had never before engaged in a massive sell-off of mortgage assets and did not have the in-house expertise to manage such a project, HUD decided to contract the note sale operations to the private sector. See id. Fair Housing Authority's Commissioner, Nicolas Retsinas, assigned Helen Dunlap, HUD's Deputy Assistant Secretary for Multifamily Housing, to oversee the design of the loan sales program. Tr. 7/20/2004 AM at 120, ln. 17-19.
Subsequently, on September 30, 1993, HUD awarded the "first financial advisor contract" to Hamilton. See Hamilton Ex. 8. Under the contract, Hamilton designed and developed the blueprint for selling HUD-held mortgage notes through public auctions. See Hamilton Ex. 8; Tr. 11/3/2003 AM at 259, ln. 2-14; id. at 331, ln. 22 — 332, ln. 3; Tr. 7/20/2004 AM at 122, ln. 16-22. Additionally, Hamilton's responsibilities in its role as financial advisor to HUD included "all aspects of running asset sales and getting supportive services to assist in doing that such as conducting analyses, strategizing approaches to sales, [and] due diligence." Tr. 10/29/03 PM at 13, ln. 5-16. Hamilton, in turn, employed Bell Labs (now Lucent Technologies) as a subcontractor to develop and run an optimization model to assist in the mortgage note sales. Tr. 10/30/03 PM at 114, ln. 11-15. The optimization model was a computer-operated algorithm designed to select as winners that combination of bids which, if accepted, would produce the maximum potential revenue to HUD. Jan. 7, 2004 Mem. at 5. Hamilton also retained Coopers & Lybrand to manage security and bid processing for the auctions. Id. at 6.
B. Williams, Adley 8(a) Contract
1. Small Business Administration Section 8(a) Program
In 1994, HUD decided to procure due diligence services for its loan sales program from a minority-owned contractor through the Small Business Administration Section 8(a) program. The purpose of the Section 8(a) program is to assist small and socially disadvantaged businesses. Tr. 10/29/2003 PM at 8, ln. 18-22. To this end, the Section 8(a) program waives many of the competitive requirements in traditional government procurement regulations. Tr. 10/30/2003 AM at 115, ln. 22 — 116, ln. 4. Thus, the Section 8(a) program permitted HUD to procure services from a single
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contractor without competitive bidding. Id.
2. Williams, Adley Vies for HUD Due Diligence Contract
In the fall of 1994, HUD contacted Williams, Adley & Company ("William, Adley"), a certified Section 8(a) contractor, and requested an in-person presentation of Williams, Adley's due diligence capabilities. Tr. 7/19/2004 at 86, ln. 19-22. At the time, Williams, Adley was a certified public accounting firm that provided a variety of accounting services, including due diligence to government agencies. Id. at 83, ln. 21-25. Williams Adley had previously provided due diligence and financial advisory services to HUD. Id. at 84, ln. 19 — 85, ln. 2. Contemporaneously, HUD solicited presentations from at least two other due diligence contractors. Tr. 7/20/2004 at 139, ln. 11-14; id. at 140, ln. 15-18. On October 7, 1994, HUD selected Williams, Adley as the "8(a) firm of choice" and provided a Request for Proposal. Tr. 7/19/2004 at 89, ln. 17-19; Williams, Adley Ex. 20. According to Helen Dunlap, HUD's Deputy Assistant Secretary, HUD selected Williams, Adley because "they were the most experienced of the [sic], at the kinds of things we were looking for of the firms, and they also had the most and we perceived it [sic] had capacity and they had good recommendations...." Tr. 7/20/2004 at 140, ln. 1-5. Hamilton did not recommend Williams, Adley to HUD, or otherwise participate in the Section 8(a) contractor selection process. Id. at ln. 19-24. On October 26, 1994, Williams, Adley responded to HUD's Request for Proposal, submitting both technical and cost proposals. Tr. 7/19/2004 at 90, ln. 22 — 91, ln. 10; Williams, Adley Exs 23, 24. Hamilton was not named as a potential subcontractor under the Section 8(a) contract in Williams, Adley's technical proposal. Williams, Adley Ex. 24.
3. Williams, Adley Vies for HUD's Financial Advisory Services Contract
HUD subsequently asked Williams, Adley about its capabilities to perform financial advisory...
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