Court Opinion

ID: 9842444
Source: CourtListenerOpinion
Date Created: 2023-09-23 00:01:04.688778+00
Date Added: 2024-06-11T09:15:09.236194
License: Public Domain

Case: 21-20435        Document: 00516905516             Page: 1      Date Filed: 09/22/2023

             United States Court of Appeals
                  for the Fifth Circuit
                                                                                 United States Court of Appeals
                                                                                          Fifth Circuit

                                                                                        FILED
                                                                               September 22, 2023
                                        No. 21-20435                                 Lyle W. Cayce
                                                                                          Clerk

   United States of America, ex rel., Karen Miniex,

                                                                    Plaintiff—Appellant,

                                            versus

   Houston Housing Authority; City of Houston; J. Allen
   Management Company, Incorporated; Allied Orion
   Group, LLC; Orion Real Estate Services Texas, LLC;
   The Lynd Company; Tarantino Properties,
   Incorporated,

                                                                 Defendants—Appellees.

                     Appeal from the United States District Court
                         for the Southern District of Texas
                              USDC No. 4:18-cv-01609

   Before Jolly, Dennis, and Higginson, Circuit Judges.
   Per Curiam:*
         This appeal arises from a dismissal of a False Claims Act case brought
   by Karen Miniex. She is the former Vice President, General Counsel, and
   Director of Procurement for the Houston Housing Authority (“HHA”). She

         *
             This opinion is not designated for publication. See 5th Cir. R. 47.5.
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                                      No. 21-20435

   contends that HHA, the City of Houston (“the City”), and six property
   management companies (“PMCs”) skirted federal housing regulations and
   thus violated 31 U.S.C. § 3729(a)(1)(A), (a)(1)(B), and (a)(1)(G).
          The district court dismissed Miniex’s case under Fed. R. Civ. P.
   9(b) and 12(b)(6).1 The district court also denied Miniex’s motion for leave
   to amend her third amended complaint (“TAC”). Miniex appeals both
   orders. For the following reasons, we AFFIRM IN PART, REVERSE
   IN PART, and REMAND.
                                           I.
          HHA is a public body that provides housing and housing assistance to
   low-income residents of Houston. Every year, in order to receive funding
   from HUD, HHA certifies to the United States that it will comply with
   various statutes and regulations. These regulations include procurement
   regulations—that is, regulations governing the hiring and management of
   contractors and services for HHA properties.
         From at least 2012 to 2016, HHA handled the procurements for its
   properties. But in March 2016, HHA decided to outsource some of its
   procurement responsibilities to a handful of PMCs—namely, J. Allen, Allied,
   Orion, Lynd, and Tarantino. In their respective contracts with HHA, the
   PMCs certified that they would also follow certain statutes and regulations.
          In December 2016, HUD’s Office of Inspector General (“OIG”)
   released a public audit of HHA, focusing specifically on HHA’s procurement
   practices from 2012–2014. In relevant part, the report concluded that HHA
   repeatedly had failed to conduct federally-required cost estimates before
   procuring contractors and services.

          1
              Because this case involves numerous entities, we apply the following
   abbreviations: Houston Housing Authority (“HHA”); U.S. Department of Housing and
   Urban Development (“HUD”); Office of Inspector General (“OIG”); the City of
   Houston (“the City”); property management companies (“PMCs”); Third Amended
   Complaint (“TAC”); J. Allen Management Company, Inc. (“J. Allen”); Allied Orion
   Group, LLC (“Allied”); Orion Real Estate Services Texas, LLC (“Orion”); The Lynd
   Company (“Lynd”); and Tarantino Properties, Incorporated. (“Tarantino”).

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          Those events set the table for this dispute. In 2018, Miniex filed this
   qui tam FCA suit. She alleged that HHA had submitted false claims to
   HUD, i.e., that HHA had requested funding from HUD, promised to follow
   certain procurement regulations, and later violated those regulations; that
   HHA made false statements related to those claims; and that HHA concealed
   a monetary obligation to the United States. She further alleged that the City
   was vicariously liable for HHA’s fraudulent conduct. Miniex then amended
   her complaint three times—twice under seal, and once more after the case
   was unsealed.2 In her last amendment, she added the PMCs as defendants
   and alleged that they also had submitted false claims to HHA, made false
   statements related to those claims, and concealed a monetary obligation to
   the United States.
           HHA, the City, and the PMCs each moved to dismiss the case. The
   district court was persuaded and entered judgment, dismissing the entire
   case with prejudice under Fed. R. Civ. P. 9(b) and 12(b)(6), that is, for
   failure to plead fraud with particularity and for failure to state a claim. Miniex
   then moved for reconsideration and for leave to amend her complaint a fourth
   time. The district court denied these motions without explanation. Miniex
   appeals.
                                                II.
          Dismissals under Fed. R. Civ. P. 9(b) and 12(b)(6) are reviewed de
   novo. Carroll v. Fort James Corp., 470 F.3d 1171, 1173 (5th Cir. 2006). When
   reviewing issues under Fed. R. Civ. P. 12(b)(6), we accept the TAC’s
   well-pled facts as true and construe all reasonable inferences in the light most
   favorable to the plaintiff. White v. U.S. Corrs., L.L.C., 996 F.3d 302, 306–07
   (5th Cir. 2021). “But we do not accept as true conclusory allegations,
   unwarranted factual inferences, or legal conclusions.” Id. at 307 (quoting
   Heinze v. Tesco Corp., 971 F.3d 475, 479 (5th Cir. 2020)).
          We turn now to work our way through the issues party by party.

          2
              The United States declined to intervene in this suit.

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                                                  III.
          First, we consider the claims against HHA. As recounted above,
   Miniex contends that HHA violated the FCA by certifying that it would
   follow certain procurement regulations in order to receive federal funding,
   but that HHA subsequently did not comply with those regulations.
   Specifically, Miniex alleges that HHA certified that it would follow
   regulations requiring it to perform cost estimates of procurements before
   engaging any services, but that HHA repeatedly failed to perform those
   estimates.
           The district court dismissed Miniex’s HHA claims on three grounds:
   under the government action bar (31 U.S.C. § 3730(e)(3));3 under Fed. R.
   Civ. P. 9(b); and under Fed. R. Civ. P. 12(b)(6).4 Miniex argues that the
   district court erred on all three grounds in dismissing.

           3
               “In no event may a person bring an action under subsection (b) which is based
   upon allegations or transactions which are the subject of a civil suit or an administrative
   civil money penalty proceeding in which the Government is already a party.” 31
   U.S.C. § 3730(e)(3).
           4
               In addition to the reasons cited by the district court, HHA further argues that
   Miniex’s claims are precluded by the public disclosure bar, 31 U.S.C. § 3730(e)(4), an FCA
   affirmative defense that provides that “[t]he court shall dismiss an action or claim under
   this section, unless opposed by the Government, if substantially the same allegations or
   transactions as alleged in the action or claim were publicly disclosed” in, inter alia, a
   “Federal report, hearing, audit, or investigation.” Id. This defense was raised by HHA in
   the district court but, as noted, the court did not address the issue. We believe, that in view
   of our decision to remand, the question will still be before the district court and would be
   better addressed by the district court, if necessary, in the first instance, given the fact-
   intensive complexities presented by the defense and its exceptions. U.S. ex rel. Riley v. St.
   Luke’s Episcopal Hosp., 355 F.3d 370, 380 (5th Cir. 2004) (quotation omitted); see U.S. ex
   rel. Lam v. Tenet Healthcare Corp., 287 F. App’x 396, 400 (5th Cir. 2008) (noting, when
   reviewing a pre-amendment version of the FCA, that the exception the parties dispute in
   this case relies on a fact-by-fact inquiry).

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          We agree with Miniex that the district court erred in dismissing the
   HHA.
           First, the government action bar provides that an action may not be
   brought if it is “based upon allegations or transactions which are the subject
   of a civil suit or an administrative civil money penalty proceeding in which
   the Government is already a party.” 31 U.S.C. § 3730(e)(3). The district
   court believed that the OIG audit qualified as a requisite government action.
   But the OIG audit is plainly not a civil action or a “administrative civil money
   penalty proceeding.” Thus, the government action bar does not apply and
   the district court was incorrect to dismiss the HHA claims based on that
   exception.
           Second, under Fed. R. Civ. P. 9(b), plaintiffs must state “with
   particularity the circumstances constituting fraud or mistake.” United States
   v. Bollinger Shipyards, Inc., 775 F.3d 255, 260 (5th Cir. 2014) (quoting Fed.
   R. Civ. P. 9(b)) (“The particularity standard of Rule 9(b) generally requires
   the plaintiff to plead the time, place, and contents of the false representation
   and the identity of the person making the representation.”). Here, the TAC
   outlines HHA’s repeated requests for federal funding and the certifications
   it made to receive that funding, along with specific details regarding HHA’s
   fraud via their alleged failure to conduct cost-estimates. For example, Miniex
   alleged over twenty-five specific transactions that rendered HHA’s
   certification of compliance false. Because she outlined the “time, place, and
   contents” of those transactions, who was responsible for them, and what was
   gained out of it, Miniex has satisfied Rule 9(b) and the district court therefore
   erred in dismissing the HHA claims based on that rule.
           Third, under Fed. R. Civ. P. 12(b)(6), plaintiffs of course are
   required to state a claim for relief. To state a claim under the FCA, Miniex
   must plead that (1) there was a false statement or fraudulent course of
   conduct; (2) made or carried out with the requisite scienter; (3) that was
   material; and (4) that caused the government to pay out money or to forfeit
   moneys due. United States ex rel Lemon v. Nurses To Go, Inc., 924 F.3d 155,
   159 (5th Cir. 2019). And here, Miniex checked each of those boxes. The
   TAC states FCA claims against HHA based on a certification theory—that
   is, the TAC alleges that HHA was submitting false claims by certifying future
   compliance with various statutes and regulations, which HHA later violated,

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   thus rendering its prior certifications false. Contrary to HHA’s arguments,
   Miniex did allege false statements per that theory. And furthermore, despite
   HHA’s arguments otherwise, Miniex pled facts showing materiality. The
   existence of the OIG audit—which was attached to the complaint and which
   showed that HUD sought repayment for services that did not comply with
   the cost-estimate regulations—satisfies that requirement. Id. at 162–63.
   Given those allegations, Miniex has stated a claim that avoids dismissal under
   Rule 12(b)(6).
          In sum, Miniex alleged enough facts to proceed against HHA, and we
   therefore REVERSE the district court’s dismissal of the HHA claims and
   REMAND for further consideration.
                                                IV.
           Next, we turn our attention to Miniex’s claims against the City. The
   district court did not cite any authority in dismissing these claims. Instead,
   it ruled that Miniex “pleaded no facts that the City controls [HHA’s]
   activities” and that the other allegations were “clearly insufficient under the
   heightened particularity standard.” Thus, it appears that the district court
   dismissed the claims against the City under both Fed. R. Civ. P. 12(b)(6)
   for failure to allege vicarious liability and under Fed. R. Civ. P. 9(b)5 for
   the failure to plead fraud with particularity.
            Miniex argues on appeal that she has sufficiently alleged vicarious
   liability under an agency theory.6 She notes that her TAC alleged that the

           5
               Fed. R. Civ. P. 9(b) reads: “In alleging fraud or mistake, a party must state
   with particularity the circumstances constituting fraud or mistake.           Malice, intent,
   knowledge, and other conditions of a person's mind may be alleged generally.”
           6
               The City argues that Miniex did not raise an agency theory in the district court,
   thereby abandoning any reliance on agency law. To be sure, Miniex argued to the district
   court that the City was vicariously liable because the City and HHA were “so inextricably
   intertwined that for purposes of this suit, they should be considered as a single entity at law
   and equity.” She never appealed to agency law as her basis for vicarious liability. That
   said, since she presented a claim of vicarious liability below and since she argued that the

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   Houston City Council created HHA and that the Mayor of Houston appoints
   people to HHA’s Board of Commissioners, who in turn manage HHA’s
   affairs. Based on these allegations, Miniex asserts that she has plausibly
   alleged either an actual agency relationship or that HHA acted with apparent
   authority.
          But there are two problems with Miniex’s arguments. For one, her
   briefing does not address the Rule 9(b) basis for dismissing the claims against
   the City. Thus, she has abandoned any argument against that basis for
   dismissal. Davis v. Maggio, 706 F.2d 568, 571 (5th Cir.1983) (“Claims not
   pressed on appeal are deemed abandoned.”).
           Furthermore, we agree with the district court that Miniex has not
   sufficiently alleged vicarious liability. We take her agency arguments below
   one-by-one.
                                                  A.
            The Restatement of Agency guides our analysis guides here. See U.S.
   ex rel. Vavra v. Kellogg Brown & Root, Inc., 727 F.3d 343, 349 (5th Cir. 2013)
   (looking to the Restatement to see if a party alleged vicarious liability under
   a federal civil liability provision); U.S. ex rel. Bias v. Tangipahoa Par. Sch. Bd.,
   816 F.3d 315, 326 (5th Cir. 2016) (same regarding False Claims Act
   retaliation). Indeed, as Miniex correctly notes, a principal is subject to
   liability for the torts of its agent if the agent commits the torts while acting
   with actual authority; or if the agent commits the tort “when acting with
   apparent authority in dealing with a third party on or purportedly on behalf
   of the principal.” Restatement (Third) of Agency § 7.03(1)(a),
   (2)(b) (Am. L. Inst. 2006).7

   City controlled HHA to the district court, we believe that Miniex has sufficiently, if
   inartfully, preserved the agency arguments that she makes.
           7
               Both parties use the term “vicarious liability” to refer to the doctrine of imputing
   liability from an agent to the principal when the agent commits a tort while acting with
   actual authority. That is a slight misstatement—the Restatement (Third) of Agency states
   that principals are subject to direct liability, not vicarious liability, when an agent acts with

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          The City argues that no such facts are pled establishing a scope of
   HHA’s alleged agency authority, thus we cannot determine that HHA was
   acting within its actual authority. Miniex argues that she pled the scope of
   actual authority by alleging that “HHA primarily administers two types of
   programs: public housing and housing vouchers.”
           Even assuming for the sake of argument that an agency relationship
   exists here, Miniex has failed to plead facts to make it plausible that HHA
   was acting with actual authority when violating the FCA. Here, the limited
   facts in the TAC do not allege the parameters of HHA’s actual authority, as
   there are no allegations showing manifestations from the City to HHA, much
   less manifestations that the City wished for HHA to commit illegal acts.
   Restatement (Third) of Agency § 2.01 (Am. L. Inst. 2006)
   (defining actual authority). The single sentence Miniex cites above does not
   persuade us otherwise. The fact that HHA administers certain programs
   does not lead to the reasonable inference that HHA “reasonably believe[d],
   based on a manifestation of [the City]” that the City wished for HHA to take
   actions violating the FCA. Restatement (Third) of Agency § 7.03
   cmt. b (Am. L. Inst. 2006). Without knowing the supposed scope of actual
   authority, this court cannot say that there is a plausible case that HHA acted
   within that scope.
          In conclusion, we agree with the City that Miniex failed to plead facts
   showing that HHA acted within its scope of authority. For these reasons,
   Miniex has failed to plead facts showing that the City is liable for HHA’s
   actions under an actual agency relationship theory.
                                          B.
          Having concluded that there is no liability via actual authority, we turn
   to Miniex’s alternative argument: that the City is vicariously liable for HHA
   because HHA acted with apparent authority of the City. To plead a claim of
   apparent authority, Miniex must plead facts showing “(1) that the acting
   party subjectively believed that the agent had authority to act for the principal
   and (2) that the subjective belief in the agent’s authority was objectively

   actual authority. Restatement (Third) of Agency § 7.03(1)(a) (Am. L. Inst.
   2006).

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   reasonable.” Poly-America, Inc. v. N.L.R.B., 260 F.3d 465, 480 (5th Cir.
   2001). The word “believes” is key here: there must be a subjective belief
   that the party had authority. Id. Furthermore, the subjective belief must be
   traceable to the manifestations of the alleged principal. Restatement
   (Third) of Agency § 3.03.
          Miniex repeats the same arguments here as noted above. The City
   argues in response that Miniex had to show that she was induced to act in
   good faith upon representations made by the City. We agree with the City:
   Miniex has failed to plead any facts showing that she or anyone else had a
   subjective belief that HHA was acting an agent of the City, or that such a
   belief was traceable to the manifestations of the City. For that reason, the
   TAC fails to plausibly allege apparent authority.
           For these reasons, the district court correctly found that Miniex failed
   plausibly to plead vicarious liability against the City. Thus, we AFFIRM the
   district court’s dismissal of the claims against the City.
                                         V.
          Finally, we turn to the last group of defendants: the property
   management companies (“PMCs”). According to Miniex, the PMCs signed
   agreements with HHA promising to comply with various statutes and
   regulations related to procurements. Miniex argues that despite these
   promises, the PMCs ignored those laws; but, nevertheless, submitted claims
   to HHA for reimbursement. In its brief attention to the matter, the district
   court appears to have dismissed the claims against the PMCs under Fed. R.
   Civ. P. 9(b) and 12(b)(6). We will take the parties’ arguments in the most
   orderly way to resolve this appeal.
           First, we examine Miniex’s claims against Tarantino, Lynd, and
   Orion, against whom the allegations are bare. When a plaintiff, as here,
   alleges an FCA case, Fed. R. Civ. P. 9(b) requires plaintiffs to state “with
   particularity the circumstances constituting fraud or mistake.” Bollinger
   Shipyards, 775 F.3d at 260 (quoting Fed. R. Civ. P. 9(b)). But Miniex’s
   claims against Tarantino, Lynd, and Orion fail under this standard. Her
   allegations against these entities are entirely summary, never specifying the
   properties, contractors, or services procured by these entities. Indeed, the
   allegations do not even detail when the false claims were submitted or when

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   any particular conduct by these entities occurred. Stated in general terms,
   the TAC here fails to allege “the ‘who, what, when, where, and how’ of the
   alleged fraud.” U.S. ex rel. Spicer v. Westbrook, 751 F.3d 354, 365 (5th Cir.
   2014) (quoting United States ex rel. Steury v. Cardinal Health, Inc., 625 F.3d
   262, 266 (5th Cir. 2010)).
           Miniex, however, asserts that she alternatively satisfies the
   particularity standard articulated in United States ex rel. Grubbs v. Kanneganti,
   565 F.3d 180, 190 (5th Cir. 2009). There, we held that Rule 9(b)’s “time,
   place, contents, and identity” standard was “not a straitjacket,” and that
   even if a relator could not meet that standard and could not “allege the details
   of an actually submitted false claim, [a complaint] 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.” Id. at 190. Miniex contends that the TAC at the very least meets
   this standard.
          We disagree. As explained above, the TAC does not plead any
   “particular details of a scheme to submit false claims,” id. (emphasis added).8
   For these reasons, the claims against Tarantino, Orion, Lynd were properly
   dismissed.
           We now turn to the two remaining PMCs—J. Allen and Allied.
   Although Miniex’s claims against J. Allen and Allied are factually identical to
   her other PMC claims, the TAC’s attachments do, however, offer more
   details. But even if these claims satisfy Fed. R. Civ. P. 9(b)’s particularity
   requirement, these claims nevertheless fail under Fed. R. Civ. P. 12(b)(6)
   for the failure to allege scienter. Bollinger Shipyards, 775 F.3d at 259.
         The requisite scienter under the relevant FCA provisions is that the
   defendant acted “knowingly.” 31 U.S.C. § 3729(a)(1)(A), (a)(1)(B),

           8
               See also United States ex rel. Nunnally v. W. Calcasieu Cameron Hosp., 519 F. App’x
   890, 894 (5th Cir. 2013) (per curiam) (finding that allegations of a healthcare-fraud scheme
   lacked particularity where the complaint did not outline the identity of the physicians
   working with defendants or the contents of the agreements between defendants and
   physicians).

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   (a)(1)(G). “Knowingly” under the FCA means that “the [d]efendants had
   (1) actual knowledge of falsity, (2) acted with deliberate ignorance of the truth
   or falsity of the information provided, or (3) acted with reckless disregard of
   the truth or falsity of the information provided.” United States v. Hodge, 933
   F.3d 468, 473 (5th Cir. 2019) (quoting United States ex rel. Longhi v. United
   States, 575 F.3d 458, 468 (5th Cir. 2009)); see also 31 U.S.C. § 3729(b)(1)(A).
   Negligence and gross negligence are insufficient. Longhi, 575 F.3d at 468
   (quoting United States ex rel. Farmer v. City of Houston, 523 F.3d 333, 338 (5th
   Cir. 2008)).
           Here, the TAC pleads that J. Allen and Allied engaged in wrongful
   conduct, but the TAC says nothing suggesting scienter. There are no factual
   allegations leading to the reasonable inference that J. Allen and Allied, in
   breaching contractual promises, knew that they were breaking their
   commitment, or even that these entities acted with reckless indifference to
   the truth or falsity of their prior certifications. To be sure, the TAC alleges
   the opposite: it alleges that the PMCs did not understand their obligations and
   that the PMCs had no experience in following these regulations. Because
   there are no allegations here providing scienter, the TAC fails to state an
   FCA claim against J. Allen and Allied, and the district court was correct to
   dismiss the claims against them.
                                         VI.
          The final issue to be addressed concerns Miniex’s motion for leave to
   amend her TAC. After the grant of the motion to dismiss, Miniex asked the
   court for leave to amend her TAC, contending that she could resolve the
   deficiencies that prompted dismissal. The district court denied her request
   without explanation. A district court’s denial of leave to amend is reviewed
   for abuse of discretion. Mayeaux v. La. Health Serv. & Indem. Co., 376 F.3d
   420, 425 (5th Cir. 2004).
          Miniex correctly notes that the district court failed to explain its
   decision. See Rhodes v. Amarillo Hosp. Dist., 654 F.2d 1148, 1153 (5th Cir.
   Unit A Sept. 1981). Nevertheless, “[t]he strong preference for explicit
   reasons yields to the presence here of ample and obvious grounds for denying
   leave to amend.” Id. at 1154. Miniex has amended her TAC three times. See
   Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 566–67 (5th Cir.
   2002) (affirming a district court’s denial of leave to amend after two amended

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   complaints). Importantly, she has failed to show how she could amend her
   TAC to get around its various deficiencies. Marucci Sports, L.L.C. v. Nat’l
   Collegiate Athletic Ass’n, 751 F.3d 368, 378–79 (5th Cir. 2014) (holding that
   futility is a substantial reason to deny leave to amend). Although the district
   court’s decision could have been more thoroughly explained, it was not an
   abuse of discretion to deny a fourth amendment to the complaint.
                                        VII.
          In conclusion: We REVERSE the dismissal of Miniex’s claims
   against HHA and REMAND the case for further proceedings not
   inconsistent with this opinion. We AFFIRM the dismissal of the claims
   against the City because of inadequate briefing. We AFFIRM the dismissal
   of Miniex’s claims against the PMCs because the TAC fails under Fed. R.
   Civ. P. 9(b) and 12(b)(6). And finally, we AFFIRM the district court’s
   decision to deny Miniex’s motion for leave to amend the TAC. In sum, the
   judgment of the district court dismissing the TAC is
                   AFFIRMED IN PART, REVERSED IN PART, and
                                               REMANDED.

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