Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-07-07014/USCOURTS-caDC-07-07014-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 8, 2008 Decided July 8, 2008 

No. 07-7014 

UNITED STATES EX REL. K & R LIMITED PARTNERSHIP, 

APPELLANT

v. 

MASSACHUSETTS HOUSING FINANCE AGENCY, 

APPELLEE

Appeal from the United States District Court 

for the District of Columbia 

(No. 99cv01343) 

Carl A.S. Coan, Jr. argued the case for appellant. With 

him on the briefs was Carl A.S. Coan III. 

Michael J. Tuteur argued the cause for appellee. With 

him on the brief were Lawrence M. Kraus and Stuart M. Gerson. 

Before: TATEL, BROWN, and KAVANAUGH, Circuit 

Judges. 

Opinion for the Court filed by Circuit Judge Brown. 

BROWN, Circuit Judge: Forty years ago Jimi Hendrix 

trilled his plaintive query: “Is this love, baby, or is it ... [just] 

confusion?” JIMI HENDRIX, Love or Confusion, on ARE YOU 

USCA Case #07-7014 Document #1126067 Filed: 07/08/2008 Page 1 of 8
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EXPERIENCED (Reprise Records 1967). In this False Claims 

Act case, we face a similar question involving a mortgage 

subsidy program initiated in that era: Is this fraud, or is it ... 

just confusion? K & R Limited Partnership says it is the former, alleging that during the last 15 years, MassHousing1

 has 

knowingly submitted excessive claims for subsidy payments 

to the federal government. The district court granted summary judgment for MassHousing, United States ex rel. K & R 

Ltd. P’ship v. Mass. Hous. Fin. Agency, 456 F. Supp. 2d 46 

(D.D.C. 2006), and we affirm because there is no genuine issue as to whether MassHousing knew its claims were false. 

Under § 236 of the National Housing Act, the U.S. Department of Housing and Urban Development (HUD), subsidizes mortgage payments for owners of low-income rental 

housing. 12 U.S.C. § 1715z-1(a). The owner makes monthly 

payments to its lender as if the yearly interest rate was 1%, 

and the lender applies to HUD for the difference. Id. § 1715z1(c). MassHousing, which is such a lender, sells tax-exempt 

bonds to investors and uses the proceeds to finance housing 

projects as part of its public mission to support affordable 

housing for low- and moderate-income Massachusetts residents. 

In 1993, MassHousing used proceeds from new bonds to 

“refund” (i.e. redeem or retire) mostly higher interest bonds it 

used to finance loans, including loans for which MassHousing 

received interest reduction payments from HUD under § 236. 

Although MassHousing reaped substantial savings on its debt 

service, it did not pass along those savings to HUD by reducing its claims for payments. That is the nub of this case. 

In relevant part, the False Claims Act (FCA), 31 U.S.C. 

§§ 3729–3731, imposes liability on “[a]ny person who” 

 1

 Its formal name is Massachusetts Housing Financing 

Agency. 

USCA Case #07-7014 Document #1126067 Filed: 07/08/2008 Page 2 of 8
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“knowingly presents” “a false or fraudulent claim for payment 

or approval” “to an officer or employee of the United States 

Government,” id. § 3729(a)(1). MassHousing concedes it is a 

“person who” presented “claim[s] for payment” to HUD employees. It denies those claims were “false or fraudulent,” but 

agrees that depends on the correct interpretation of the mortgage notes for the loans at issue. On each claim, MassHousing’s representative “certifie[d] to the best of his knowledge 

and belief” that “each interest reduction payment ... ha[d] 

been calculated in accordance with” the applicable agreement. 

J.A. 122. Such agreements required that the “interest reduction payments” reflect the owners’ interest rates on their permanent loans—rates the mortgage notes established. Thus, if 

the mortgage notes varied the interest rate with MassHousing’s debt service, then MassHousing has been over-billing 

HUD on those loans since 1993. K & R’s 2003 estimate of 

the running total was $28 million, making MassHousing’s 

potential liability around an eye-popping $100 million, see 31 

U.S.C. §§ 3729(a), 3730(d) (authorizing civil fines, treble 

damages and, for qui tam plaintiffs, expenses including attorneys’ fees). 

Over the years, MassHousing used several types of notes 

when financing § 236 housing projects. Each type phrased 

the payment calculation differently and somewhat awkwardly. 

Thus, the parties and the district court have spilt much ink in 

explaining the meaning of these notes, each parsing different 

language supporting its own “unambiguous” interpretation. K 

& R insists the notes clearly vary the interest rate, while 

MassHousing, with which the district court agreed, maintains 

that the notes plainly fixed the interest rate once MassHousing 

financed the loans with long-term bonds. The district court 

also found that even if unclear, other evidence of the intended 

meaning is so one-sided no reasonable person could conclude 

otherwise. 

USCA Case #07-7014 Document #1126067 Filed: 07/08/2008 Page 3 of 8
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We disagree with the parties and the district court that the 

mortgage notes are unambiguous. Notes from the ‘70s calculate mortgage payments using “the net interest cost which 

[MassHousing] is required to pay from time to time on bonds 

to fund or refund the loan.” E.g., J.A. 253 (emphasis added). 

Those notes also provide “if the rate of interest ... shall 

change from time to time as provided above, the amount of 

such monthly payments shall be adjusted upward or downward, as the case may be.” E.g., J.A. 200.2

 While the parties 

agree the trigger for changing the interest rate is when MassHousing “refund[s] the loan,” they are at a stalemate over the 

meaning of this phrase. 

K & R claims the 1993 bond refund was a loan refund 

that lowered MassHousing’s “net interest costs,” requiring 

MassHousing to reduce mortgage payments. But in MassHousing’s view, a bond refund is different from a loan refund. 

A loan refund supposedly occurs not when MassHousing redeems bonds it used to finance the loans, but when it designates bonds to “refund the loan” and recalculates the owner’s 

payments accordingly. Here, MassHousing did not designate 

the 1993 bonds to refund any of the loans at issue, nor did it 

recalculate any mortgage payments. 

K & R questions the distinction because during a project’s construction MassHousing temporarily “fund[ed] and 

refund[ed] the loan[s]” with short-term bonds it paid periodically with the proceeds from new short-term bonds. In that 

way, the new bonds “refund[ed] the loan[s].” Similarly, using 

proceeds from the 1993 bonds, MassHousing redeemed the 

long-term bonds with which it “fund[ed] ... the loans.” K & 

R concludes the 1993 bonds must “refund the loan” like the 

short-term bonds. But the similarity of these transactions 

 2

 The most recent mortgage notes merely state the monthly 

mortgage payments or calculate payments using a specific interest 

rate. K & R’s claims do not rely on these mortgage notes. 

USCA Case #07-7014 Document #1126067 Filed: 07/08/2008 Page 4 of 8
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does not undermine the distinction since MassHousing designated which short-term bonds refunded the loans, and did not 

so designate the 1993 bonds. 

Next, K & R argues that MassHousing’s interpretation 

makes nonsense of the payment calculation. Because MassHousing refunded the bonds it used to finance the loans, those 

bonds no longer exist. Therefore, MassHousing’s “net interest cost” on them is zero, resulting in payments with no interest component. That can’t be correct, says K & R, so MassHousing’s interpretation must be wrong. However, MassHousing claims to have “fund[ed] ... the loan[s]” only once 

and so the payment calculation applied one time only. MassHousing takes the same position on mortgage notes from the 

‘80s and ‘90s, which calculate payments using the “interest 

cost incurred by [MassHousing] on the Funding Bonds”—

“bonds issued by [MassHousing] and designated by it to 

fund” a loan. J.A. 247–48 (emphasis added). 

Last, K & R says its interpretation is correct because 

MassHousing added the phrase “from time to time” so MassHousing could change the mortgage interest rate after a bond 

refund. We find K & R’s evidence on this point unclear. It 

offers a mortgage note that does not use the phrase, and which 

predates the resolution authorizing the bonds MassHousing 

used to finance the loans at issue. The resolution allowed 

MassHousing to refund the bonds, but required MassHousing 

to ensure existing mortgage payments were sufficient to pay 

the new bonds it issued. According to K & R, the phrase 

“from time to time” allowed MassHousing to meet this requirement by changing the mortgage interest rates. However, 

MassHousing claims it would only undertake a bond refund in 

circumstances when mortgage payments would always be sufficient, i.e. when market interest rates are lower than its current debt service. Thus, MassHousing says it did not add the 

phrase to meet the requirement. 

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On the evidence here, both MassHousing’s and K & R’s 

interpretations are plausible. We need not decide which has 

the better reading, however, because the FCA requires that 

defendants make false claims “knowingly” by (1) having actual knowledge, (2) acting in deliberate ignorance, or (3) acting in reckless disregard. See 31 U.S.C. § 3729(b). To successfully oppose summary judgment, K & R must show that a 

reasonable factfinder, drawing all “justifiable inferences” 

from the evidence in K & R’s favor, Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 255 (1986), could find MassHousing at least recklessly disregarded the falsity of its claims. See 

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (“after 

adequate time for discovery and upon motion,” courts must 

enter summary judgment “against a party who fails to make a 

showing sufficient to establish ... an element essential to that 

party’s case, and on which that party will bear the burden of 

proof at trial”). After our de novo review of the record, see 

Wilson v. CARCO Group, Inc., 518 F.3d 40, 41 (D.C. Cir. 

2008), we conclude K & R did not make this minimum showing. 

Reckless disregard under the FCA is “an extreme version 

of ordinary negligence.” United States v. Krizek, 111 F.3d 

934, 942 (D.C. Cir. 1997). To show MassHousing was reckless as to the falsity of its claims, K & R points initially to 

MassHousing’s disregard of the “plain language” of the mortgage notes. However, as we discussed, these notes are not 

“plain,” especially the key phrase, “refund the loan.” K & R 

never explains why MassHousing’s interpretation of the 

mortgage notes was unreasonable, much less why its interpretation constituted reckless disregard. While the unreasonableness of MassHousing’s interpretation is merely evidence, 

the absence of which does not preclude a finding of knowledge, see United States ex rel. Oliver v. Parsons Co., 195 

F.3d 457, 464 (9th Cir. 1999) (amended opinion), K & R 

points to nothing else “that might have warned [MassHousUSCA Case #07-7014 Document #1126067 Filed: 07/08/2008 Page 6 of 8
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ing] away from the view it took,” Safeco Ins. Co. of Am. v. 

Burr, 127 S. Ct. 2201, 2216 (2007). 

Thus, contrary to K & R’s assertion, MassHousing’s failure to obtain a legal opinion or prior HUD approval cannot 

support a finding of recklessness without evidence of anything that might have given it reasons to do so. In fact, the 

evidence suggests there were no reasons. MassHousing made 

no secret of the 1993 bond refund and during a HUD audit the 

next year, MassHousing specifically brought the 1993 refund 

to HUD’s attention, albeit for a somewhat different issue. Cf. 

United States ex rel. Totten v. Bombardier Corp., 380 F.3d 

488, 496 (D.C. Cir. 2004) (“if the claimant has told the [government official] pertinent facts that would, in the absence of 

such disclosure, make a claim fraudulent, it seems that the 

claimant has not ‘knowingly’ presented a false claim”). There 

is no evidence HUD expressed any concerns and, in fact, 

HUD continued (and continues) to pay MassHousing even 

after K & R filed this lawsuit. Although the fact the government continues to pay claims might not preclude a finding of 

knowledge, here that fact at least suggests MassHousing did 

not act with reckless disregard. 

Against all this, K & R merely urges its different reading 

of the notes, which here falls far short of showing a genuine 

issue as to whether MassHousing knew its claims were false. 

 Finally, K & R’s evidence of MassHousing’s motive to 

submit false claims—the need to bail itself out of financial 

trouble—could not in this case support a finding of knowledge, be it actual, deliberate ignorance, or reckless disregard. 

For its part, MassHousing freely admits it undertook the 1993 

bond refund to lower its debt service and receive the same 

amount of HUD payments. But its eagerness to do so does 

not mean MassHousing knew it did so unlawfully. 

 At bottom, K & R and MassHousing simply disagree 

about how to interpret ambiguous contract language. Given 

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that and K & R’s inability to point to anything “that might 

have warned [MassHousing] away from the view it took,” 

Safeco, 127 S. Ct. at 2216, there is no genuine issue as to 

whether MassHousing knowingly presented false claims to 

HUD. We therefore affirm the judgment of the district court.3

So ordered. 

 3

 We also affirm portions of two discovery orders from which 

K & R appeals, and we dismiss MassHousing’s motion to supplement the appendix. The district court did not abuse its discretion in 

denying K & R’s discovery requests. See Diamond Ventures, LLC 

v. Barreto, 452 F.3d 892, 898 (D.C. Cir. 2006). In addition, we did 

not need the materials MassHousing proposed to add to the appendix; therefore, its motion to supplement is moot. 

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