United States District Court, E.D. California
UNITED STATES OF AMERICA, ex rel. DENIKA TERRY and ROY HUSKEY III, and each of them for themselves individually, and for all other persons similarly situated and on behalf of the UNITED STATES OF AMERICA, Plaintiffs/Relators,
WASATCH ADVANTAGE GROUP, LLC, WASATCH PROPERTY MANAGEMENT, INC., WASATCH POOL HOLDINGS, LLC, CHESAPEAKE COMMONS HOLDINGS, LLC, LOGAN PARK APARTMENTS, LLC; LOGAN PARK APARTMENTS, LP, Defendants.
False Claims Act action, plaintiffs are tenants who receive
rental assistance through the federally subsidized Housing
Choice Voucher Program commonly known as “Section
8.” They claim defendant lessors improperly charged
plaintiffs, as well as the putative class members they seek
to represent, for washer and dryer rentals, renter's
insurance, and covered parking. Plaintiffs argue these
services constitute impermissible rent under the Section 8
contracts and regulations, and defendants therefore violated
the Section 8 contracts and submitted false claims for
reimbursement under the federal program. Defendants move to
dismiss the complaint on the grounds that these services and
appliances cannot constitute rent. For the reasons explained
below, the court GRANTS defendants' motion in part and
DENIES it in part.
filed their qui tam complaint on April 14, 2015. Compl., ECF
No. 1. After two extensions of the election period, ECF Nos.
6, 10, the United States declined to intervene in June 2016.
ECF No. 14. Plaintiffs filed their first amended complaint by
stipulation on August 31, 2016. First Am. Compl.
(“FAC”), ECF No. 25.
September 14, 2016, defendants moved to dismiss
plaintiffs' first amended complaint. Mot., ECF No. 26.
Plaintiffs oppose the motion, Opp'n, ECF No. 30, and
defendants filed a reply, Reply, ECF No. 32. The court held a
hearing on December 2, 2016, at which Joseph Salazar and Yoon
Nam appeared for defendants; and Chris Beatty appeared for
plaintiffs, with Centro Legal de la Raza Litigation Director
Jesse Newmark present with plaintiffs' counsel. Hr'g
Mins., ECF No. 38. Vincente Tennerelli appeared for the
United States, although the United States did not take a
position on the instant motion. Id..
seek to represent a class of past, present and prospective
tenants of residential apartments owned, rented, and managed
by defendants. FAC ¶¶ 1-2. Defendants'
properties include four apartment communities in the
Sacramento area (the “Subject Properties”).
Id. ¶ 3. And plaintiffs Denika Terry and Roy
Huskey III live at two of them. Id. ¶¶ 4
(“Terry Residence”), 5 (“Huskey
Residence”). Defendants rent numerous apartments to
tenants who receive rental assistance through the federally
subsidized Housing Choice Voucher Program, commonly known as
“Section 8.” Id. ¶ 6. The Section 8
program provides that participating tenants pay between
thirty percent and forty percent of their adjusted monthly
income toward rent and utility costs and the federal
government and local housing agencies pay the balance of rent
directly to the property owner. Id. Across the
Subject Properties, there are at least 167 Section 8 tenants.
Id. ¶ 7. Defendants were parties to Housing
Assistance Payment Contracts (“HAP Contracts”)
with plaintiffs and the Sacramento County Housing and
Development Agency as part of the Section 8 program.
Id. ¶ 8. As part of their usual course of
business, defendants demanded additional monthly rental
payments from plaintiffs and other Section 8 tenants, in
excess of the tenants' portion of the rent due under the
HAP Contracts. Id. ¶ 9. These additional
payment demands covered rental charges for washers and
dryers, renters' insurance and covered parking.
claims rely on the characterization of these additional
payments as rent. The HAP Contracts, which are agreements
between and among the tenant family, the landlord and the
local housing authority, establish the initial lease term and
the total amount of monthly rent due from the tenant.
Id. ¶¶ 28-31. The sum of the housing
assistance payment by the public housing agency and the
tenant's share of rent under the HAP Contract is known as
the contract rent, which is subject to change in limited
circumstances and only after notice is given. Id.
¶¶ 34- 35. The regulations governing rent under a
HAP Contract, found at 24 C.F.R. § 982.451, provide in
pertinent part, “[t]he owner may not demand or accept
any rent payment from the tenant in excess of the maximum and
must immediately return any excess rent to the tenant.”
Id. ¶ 36 (citing 24 C.F.R. §
982.451(b)(4)(ii)). Similarly, Part C of the Tenancy Addendum
to the standard HAP Contract provides: “The owner may
not charge or accept, from the family or from any other
source, any payment for rent of the unit in addition to the
rent to owner.” Id. ¶ 37.
allege defendants repeatedly demanded payment of additional
rent payments, or “side payments, ” all in
violation of the HAP Contracts and without authorization of
the local housing agency or HUD. Id. ¶¶
47, 66-70, 85-89. Defendants' demand for “side
payments” included payment for washer and dryer
rentals, renter's insurance, and covered parking.
Id. ¶¶ 66, 85. As an example,
defendants' Resident Ledger for the Terry Residence for
the month of January 2012 reflects a monthly charge of $40
for “Washer/Dryer Rental, ” $17.91 for
“Renter's Insurance” and $10 for
“Covered Parking Charges.” Id. Ex. B.
Similarly, defendants' Resident Ledger for the Huskey
Residence for the month of January 2012 reflects a monthly
charge of $50 for “Washer/Dryer Rental” and
$17.91 for “Renter's Insurance.” Id.
Ex. F. Plaintiffs periodically entered into several
Residential Rental Agreements, each of which included an
Additional Services Agreement that addressed these additional
charges. Id. ¶ 110; id. Exs. G, H, I
(Terry Agreements); id. Exs. J, K (Huskey
Agreements). In order to enforce additional rent payment
requirements, defendants threatened Terry and Huskey each
with eviction for nonpayment of the “side
payments.” FAC ¶¶ 71, 90. Defendants
ultimately filed an eviction action against Terry for not
making the unlawfully demanded “side payments.”
Id. ¶ 72.
basis of these allegations, plaintiffs bring four claims
against all defendants: (1) violation of the Federal False
Claims Act, 31 U.S.C. § 3729(a), for “knowingly
present[ing] a false or fraudulent claim for payment or
approval” to the United States, id.
¶¶ 112- 26; (2) Breach of Contract, Cal. Civ. Code
§§ 3300 et seq., for breaching the terms
of the HAP Contracts that prohibit the charging of additional
rent payments, id. ¶¶ 127-33; (3)
violation of the Consumer Legal Remedies Act, Cal. Civ. Code
§ 1750, for engaging in deceptive practices in
connection with the conduct of a business providing services,
id. ¶¶ 134-45; and (4) Unfair Business
Practices, Cal. Bus. & Prof. Code §§ 17200
et seq., for engaging in “unfair competition,
” including any “unlawful, unfair, or fraudulent
business act or practice, ” id. ¶¶
146- 60. Plaintiffs seek damages, injunctive and other
equitable relief. Id. ¶¶ 39, 162.
argue plaintiffs improperly characterize charges for washer
and dryer rentals, renter's insurance and covered parking
as “side payments.” Mot. 2. Defendants insist
that plaintiffs repeatedly bargained for, and separately
agreed to, these amenities and services. Id. at 5.
As a result, they say, each of plaintiffs' claims must
fail: the charges are not fraudulent (Claim 1); are
consistent with the underlying HAP contracts (Claim 2); lead
to no cognizable injury under the Consumer Legal Remedies Act
(Claim 3); and cannot constitute an “unlawful, unfair,
or fraudulent” business practice under state law (Claim
4). Id. at 6-8. The class allegations, which rely on
the same underlying claims, must also necessarily fail.
Id. at 7.
response, plaintiffs argue that the pleadings are sufficient,
both as a matter of fact and as a matter of law, to
characterize the additional payments as rent. See
generally Opp'n. Specifically, plaintiffs argue the
additional charges were mandatory and not optional service
charges, pointing to their allegations that the charges were
recorded by defendants in their rent ledgers and, when
unpaid, were used as a basis for eviction. Id. at 2.
As a matter of law, plaintiffs argue, the additional charges
constitute illegal rent, regardless of whether the services
were optional, because the additional charges were part of
the total expense for tenants' use of the rented
premises; the charges were for appliances not listed in the
Section 8 contracts; defendants threatened plaintiffs and
other Section 8 tenants with eviction if they failed to pay
these charges; and he charges were for items customarily
included in rent in the surrounding locality. Id.