Miniex v. Houston Housing Authority ( 2023 )

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.
Case: 21-20435 Document: 00516905516 Page: 2 Date Filed: 09/22/2023
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”).
2
Case: 21-20435 Document: 00516905516 Page: 3 Date Filed: 09/22/2023
No. 21-20435
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.
3
Case: 21-20435 Document: 00516905516 Page: 4 Date Filed: 09/22/2023
No. 21-20435
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).
4
Case: 21-20435 Document: 00516905516 Page: 5 Date Filed: 09/22/2023
No. 21-20435
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,
5
Case: 21-20435 Document: 00516905516 Page: 6 Date Filed: 09/22/2023
No. 21-20435
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
6
Case: 21-20435 Document: 00516905516 Page: 7 Date Filed: 09/22/2023
No. 21-20435
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
7
Case: 21-20435 Document: 00516905516 Page: 8 Date Filed: 09/22/2023
No. 21-20435
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).
8
Case: 21-20435 Document: 00516905516 Page: 9 Date Filed: 09/22/2023
No. 21-20435
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
9
Case: 21-20435 Document: 00516905516 Page: 10 Date Filed: 09/22/2023
No. 21-20435
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).
10
Case: 21-20435 Document: 00516905516 Page: 11 Date Filed: 09/22/2023
No. 21-20435
(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
11
Case: 21-20435 Document: 00516905516 Page: 12 Date Filed: 09/22/2023
No. 21-20435
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.
12