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Johnson v. District of Columbia

Court of Appeals of Columbia District

August 11, 2016

Darrell Johnson, et al., Appellants,
v.
District of Columbia, Appellee.

          Argued February 17, 2016

         Appeal from the Superior Court of the District of Columbia Civil Division (CAB-4227-13) (Hon. Maurice A. Ross, Trial Judge)

          Juan C. Estevez, of the bar of the State of Virginia, pro hac vice, by special leave of court, with whom Kyle L. Epting was on the brief, for appellants.

          Carl J. Schifferle, Assistant Attorney General, with whom Karl A. Racine, Attorney General for the District of Columbia, Todd S. Kim, Solicitor General, and Loren L. AliKhan, Deputy Solicitor General, were on the brief, for appellee.

          Before Fisher and Beckwith, Associate Judges, and Ferren, Senior Judge.

         JUDGMENT

         This case came to be heard on the transcript of record and the briefs filed, and was argued by counsel. On consideration whereof, and as set forth in the opinion filed this date, it is now hereby

         ORDERED and ADJUDGED that the summary judgment for appellee's claim as to appellants' liability under the False Claims Act is affirmed, but the case is remanded for further findings and a legal ruling to determine the appropriate amount of treble damages consistent with this opinion. The trial court's order as to unjust enrichment is vacated.

          Ferren, Senior Judge

         On June 21, 2013, the District of Columbia filed a "false claims" action against the Washington East of the River Academy of Entrepreneurship, Arts, Life Skills, Technology and Health for "Youth on the Rise" (WEALTHY), a nonprofit corporation. Also named as defendants were WEALTHY's principals, Diana Robinson, Darrell Johnson, and Johnson's company, National Tax Pro, LLC (National Tax Pro). The complaint claimed (1) violations of the District of Columbia False Claims Act, D.C. Code § 2-381.02 (a)(2) (2013), and (2) unjust enrichment - both derived from allegedly paying excess compensation to Robinson and Johnson (including his company) from a $400, 000 grant by the District to WEALTHY for provision of youth services during fiscal year 2009.

         The District moved for summary judgment, which was granted on June 30, 2014, against, Robinson, Johnson, and National Tax Pro, followed by a final judgment entered on August 12. Without elaboration, the trial court held them liable, jointly and severally, for treble damages of $931, 200 for violations of the False Claims Act. The court also found Robinson liable for $91, 100, and Johnson and National Tax Pro liable for $31, 973, for unjust enrichment. The District then moved for a default judgment against WEALTHY, which was granted on December 18, 2014, holding WEALTHY liable, jointly and severally with the other defendants, for $931, 200 under the False Claims Act while adding that "the District may collect no more than a total of $931, 200 from all the Defendants in this action."

         Only Johnson and National Tax Pro have filed an appeal. We affirm the False Claims Act judgment but remand the case for recalculation of treble damages. We vacate the duplicative judgment for unjust enrichment.

         I. The Grant Agreement

         Diana Robinson was the executive director of WEALTHY and the president of its three-member board of directors. Darrell Johnson served as the treasurer and a non-voting member of the board. Johnson was also WEALTHY's accountant, doing business as National Tax Pro.[1] WEALTHY's "Work Plan" provided the following description of the summer youth program to be administered under the grant:

"[WEALTHY] is a Rites of Passage program of substance abuse prevention, teen pregnancy prevention, juvenile crime prevention and HIV/AIDS prevention education. This program of prevention and education will concentrate on Ward Eight youth between the ages of 14 and 18 [sic: 21], using evidence-based best practices of a developed curriculum by which this population will be recruited and trained in a continuum of care that reduces the number of Ward Eight youth and adolescents entering into the juvenile justice system. Activities included in the program include a 200 voice mass choir, a 50 member marching percussion band, a 50 member step team, a 50 member dance troupe, a drama ensemble, classes in martial arts, computer technology, visual, graphic and media arts, a Parenting Academy, and, a Young Executive Leadership Institute."

         The Council's $400, 000 grant was actually given to the Children and Youth Investment Trust Corporation (the Trust), a non-profit organization governed by a board appointed by the Mayor and the Council, [2] for distribution to WEALTHY. In order to obtain the grant, WEALTHY was required to submit to the Trust a detailed budget setting forth how the funds would be spent. Johnson and Robinson created a budget and "budget narrative, " which the Trust approved, for $388, 000. (The Trust withheld 3% or $12, 000 of the $400, 000 grant for administrative costs.) The budget and its narrative envisioned compensation for personnel (with fringe benefits) totaling $289, 764 for twelve salaried individuals plus a financial "consultant, " collectively amounting to six working full time, plus additional "consultants" to direct children's activities. For all these positions, the following amounts were budgeted for "Salaries & Wages" and "Consultants & Professional Fees":

Salaries &Wages

Management

$90, 400

1) Project director: 60% time for 12 mos. @ $84, 000 = $50, 400

2) Project manager: 100% time for 12 mos. @ $40, 000 = $40, 000

Teacher/Instructors

$50, 000

3 & 4) Two educators 50% time for 12 mos. @ $25, 000each

Professionals

$25, 000

5 & 6) Two instructor/counselors 50% time for 12 mos. @ $12, 500 each

Aides/Assistants

$25, 000

7, 8, 9 & 10) Four aides 25% time for 12 mos. @ $6, 250 each

Clerical

$15, 000

11 & 12) Two administrative aides 50% time for 12 mos. @ $7, 500

SUBTOTAL

$205, 400

Fringe Benefits @ 16% of total salaries

$32, 864

Consultants & Professional Fees

Services to children: choral, music, dance instruction

$10, 000

Services to children: life skills, intervention lectures/activities

$17, 500

Financial Mgmt, payroll services and reporting @ $3, 000 per mo.[3]

$24, 000

SUBTOTAL

$51, 500

TOTAL

$289, 764

         The grant agreement between the Trust and WEALTHY, entered on November 19, 2008, covered the twelve-month period from October 1, 2008, to September 30, 2009.[4] Pursuant to that agreement, WEALTHY was to provide specified programming. Any modification of the resulting Work Plan required submission to the Trust, and its approval. Moreover, WEALTHY could "only use the Grant Amount as described in the budget approved by the Trust. . . . Any deviation from budget line-items in excess of 10% or $2, 000, whichever is greater, " had to be "submitted in writing to the Trust for approval." The agreement further required WEALTHY to submit monthly expenditure reports on a specified form listing "all expenditures for the calendar month, " including costs incurred even if WEALTHY had not yet made payment.

         II. The Issue

         The question presented is whether appellants violated the District's False Claims Act by knowingly making or using false and material records or statements (WEALTHY's monthly expenditure reports) to claim and take excessive compensation from WEALTHY, a grantee of District funds intended to benefit District youth and adolescents.

         III. The False Claims Act

         We begin with the statute. The District of Columbia False Claims Act imposes liability "for 3 times the amount of damages which the District sustains because of the act of [a] person" who "[k]nowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."[5]

         A "claim" is "[a]ny request or demand, whether under a contract or otherwise, for money or property . . . that . . . [i]s presented to . . . the District[] or [i]s made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the District's behalf or to advance a District program or interest, and if the District . . . has provided any portion of the money or property requested or demanded."[6] As elaborated below, under the case law a claim can be "factually false" or "impliedly false."[7]

         The word "knowingly" in the statute means that the person "[h]as actual knowledge of the information; [a]cts in deliberate ignorance of the truth or falsity of the information; or [a]cts in reckless disregard of the truth or falsity of the information."[8] Thus, "knowingly" does "not require proof of specific intent to defraud."[9] Finally, a false record or statement is "material" if it has "a natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or property, "[10] an issue commonly of determinative importance.

         IV. Standard of Review

         "The question whether summary judgment was properly granted is one of law, and we review de novo. For a party to be entitled to summary judgment, that party must demonstrate that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Independently assessing the record, we view it in the light most favorable to the party opposing the motion."[11] "Once the moving party makes the requisite initial showing, the burden shifts to the non-moving party to come forward with specific evidence showing, to the contrary, that genuine issues of material fact do exist."[12] The non-moving party "may not rest upon the mere allegations or denials of [its] pleading, " but must submit, by affidavits or other evidence, "specific facts showing that there is a genuine issue for trial."[13] "While [the court] examine[s] the evidence in the light most favorable to the party opposing the motion, conclusory allegations by the nonmoving party are insufficient to establish a genuine issue of material fact or to defeat the entry of summary judgment."[14]

         V. The Grant Agreement As Administered

         A. Distortion of the Work Plan

         It would appear from the grant agreement that WEALTHY itself was to develop and administer the Work Plan. It did not do so. Appellants do not dispute the District's "Statement of Material Undisputed Facts, " ¶ 127-28, which stresses that "WEALTHY's actual activities were limited to an 8-week summer program in 2009[, ] . . . assisting in summer camps offered by three other non-profit organizations: HICKS [Helping Inner City Kids Succeed], Wingate Towers & Garden [Apartments], . . . and Training Grounds, " plus, according to Robinson on deposition, "maybe a little bit of money in something else." When asked on deposition whether all three organizations were financed for the purpose of assisting with the D.C. Department of Education's Summer Youth Employment Program (SYEP) - a program not included in the Work Plan - Robinson replied, "That's exactly right." And Johnson confirmed that Training Grounds, for example, had received $25, 000 from WEALTHY for use, according to Robinson, in a basketball and computer program for "older youth" - an activity not included in the Work Plan. HICKS received another $15, 000, presumably for SYEP and for funding portions of the HICKS' summer camp. At Wingate, rather than pay a lump sum, WEALTHY paid directly for classes in cooking, jewelry-making, and music and art instruction, as well as bus transportation for field trips - all for children aged 6-12 (younger than the children and youth, aged 14-21, to be served in the Work Plan).

         Robinson confirmed during her deposition that WEALTHY never modified the Work Plan as the grant agreement required for deviations. Johnson's deposition does show, however, that although he "might have requested" a modification of WEALTHY's budget, the July 2009 deadline had passed and the Trust in any event had refused. Accordingly, WEALTHY functioned in fiscal 2009 with a disconnect: an informally modified Work Plan financed by the original, unmodified budget - a disconnect that, as we shall see, facilitated the false claims alleged here.

         B. The Monthly Reports

         We begin by noting that the alleged falsity is derived from (1) WEALTHY's monthly expenditure reports to the Trust and (2) WEALTHY's corresponding year-to-date compilations of monthly invoices submitted to the Trust, when compared with (3) WEALTHY's General Ledger and (4) payroll checks, both detailing the actual payments made. The first two sets of documents report monthly, and cumulatively, the expenses charged against line items in the various categories of WEALTHY's budget. The second two sets identify the individual payees of funds expended under the budget line items.

         The District argues that Johnson had sole responsibility for creating and maintaining WEALTHY's financial records, and that he prepared monthly expenditure reports which falsely claimed authorized compensation for Robinson and himself. He allegedly did so by underreporting compensations in the monthly line-items for "Management" and "Professional Services" ("Accounting" and "Audit")[15] - understood, without dispute, to cover Robinson and Johnson, respectively - while hiding the excess in each instance as another type of expenditure, thereby understating their total compensations while overstating other expenditures in WEALTHY's budget.

         Appellants, on the other hand, allege a flaw in the government's premise that Robinson and Johnson were compensated (excessively so) only for management and accounting. To the contrary, say appellants, amounts that the government calls excessive compensation were properly chargeable to accounts for other areas of WEALTHY's operations, because Robinson and Johnson worked in diverse activities for WEALTHY, not just in the management and accounting roles identified by the government.

         We address this controversy, first, by showing the line items of the monthly reports at issue: "Management" for Robinson and "Professional Services" for Johnson, as well as the actual payments each received month by month.

Month

Robinson

(actual payments)

Reported for "Management"

Johnson

(actual payments)

Reported for "Professional Services"

Oct-08

$0

$7, 000

$2, 000

$0

Nov-08

$0

$7, 000

$0

$0

Dec-08

$30, 000

$7, 000

$11, 000

$0

Jan-09

$0

$7, 000

$0

$0

Feb-09

$0

$4, 100

$0

$1, 500

Mar-09

$0

$4, 100

$0

$3, 725

Apr-09

$0

$0

$0

$0

May-09

$30, 000

$30, 000

$9, 000

$17, 000

Jun-09

$0

$10, 000

$5, 000

$11, 000

Jul-09

$0

$8, 000

$10, 150

$0

Aug-09

$61, 500

$6, 200

$7, 548

$0

Sep-09

$20, 000

(no report)

$3, 000

(no report)

Oct-09

(no report)

$2, 500

(no report)

Jan-10

(no report)

$10, 000

(no report)

May-10

(no report)

$1, 000

(no report)

Jul-10

(no report)

$4, 000

(no report)

TOTAL

[16]$141, 500

$90, 400

[17]$65, 198

$33, 225

         Johnson submitted eleven monthly reports with twenty-two entries from October 2008 through August 2009, detailing WEALTHY's expenditures to implement the Work Plan. Each report reflecting compensation for Robinson listed her payments under "Management" (a line item in the report under "Salaries & Wages"). Each report reflecting compensation for Johnson (National Tax Pro) listed payments under "Professional Services" (a line item of the report under "Consultants/Professional fees"). Each of these entries for Johnson and his company, however, was derived from subordinate line items, representing narrower financial categories, in WEALTHY's General Ledger. These line items were for "Professional Fees" of three kinds: "Accounting, "[18] "Audit, " and a single, unspecified entry of $2, 000 for "Other." In sum, all funds (except $2, 000 reported monthly for Johnson) were allocable solely to financial work.

         As demonstrated in the table above, WEALTHY's actual payments to Robinson and Johnson - as taken from WEALTHY's General Ledger (and, as to Johnson, confirmed by copies of paychecks) - were different from the payments reported in seventeen of the twenty-two entries in the monthly reports (the boxes in gray indicate the five consistent statements). Because of accrual accounting, however - including, perhaps, "advance payments" authorized by the grant agreement - these differences are not necessarily meaningful. But whatever numbers (including "0") may be accurate, general accounting theory does not excuse the filing of a report altogether, and the table here shows that one payment was made to Robinson and five were made to Johnson without the required reports (a failure, as we shall see, that adds heft to the District's argument).

         Neither the monthly reports nor WEALTHY's year-to-date compilations of monthly invoices indicate particular activities underlying Robinson's and Johnson's compensation ($141, 500 and $65, 198, respectively), but those reports and compilations can be expected to make clear all distinctive budgetary categories for that compensation (management, financial, teaching, clerical, etc.). Appellants argue that not all the sources of Robinson's and Johnson's compensation must be discernible from the line items reported each month because, they stress, the "[l]ine items in the Budget reflect amounts allocated for types of services rather than [for] specific individuals or entities, " and that Robinson and Johnson legitimately performed services outside the line items for management and accounting admittedly allocable to them. As we shall see, the record does not support appellants' contention.

         C. Robinson

         As to Robinson, WEALTHY's monthly reports over the period from October 2008 through August 2009 indicated that exactly $90, 400, the correct amount budgeted for 1.6 full-time jobs, had been reported for "Management, " a budget line item obviously intended for Robinson.[19] In August 2009, however, Robinson actually received $61, 500 - $55, 300 more than the $6, 200 reported for that month. And in September, the last month of fiscal 2009, she received another $20, 000 unsupported by any monthly report, for a grand total of $141, 500 - $51, 100 more than the $90, 400 budgeted and reported for "Management."

         As the source for Robinson's additional income, Johnson, in response to plaintiff's interrogatories, cited "Teacher/Instructors, " a line item of the budget under "Salaries & Wages" (calling for two half-time employees). That entry would add $50, 000 to her "Management" salary of $90, 400 and bring her close to the $141, 500 she received. In the General Ledger, however, "Teacher/Instructor" shows nothing for Robinson; her entire $141, 000 (including her "Management" salary) can be found in the nondescript category "Compensation - Other."[20] The record makes clear, moreover, that Robinson's contribution to WEALTHY was almost exclusively managerial; it was no more than de minimis educational. Her teaching did not extend beyond a one-time, half-day class in kite-making at Wingate. Robinson's overall compensation, therefore - $141, 500 - equaled slightly more than the budget for 2.6 full-time jobs, without the required evidentiary support.

         D. Johnson

         We turn to Johnson. For the period October 2008 through May 2009, the monthly reports show $22, 225 for "Professional Services, " traceable in the General Ledger to "Professional Fees" for "Accounting" and "Audit, "[21] with actual payments totaling $22, 000 to Johnson (including National Tax Pro). By the end of June 2009, however, Johnson had exceeded the overage allowed for the $24, 000 budget for "Financial Management" fees (the greater of 10% or $2, 000); he had cumulatively received $27, 000 in actual payments based on monthly reports showing that he had received even more: $33, 225 (see table above). Two months later, by the end of August 2009, he had received an additional $17, 698 without the backing of monthly reports, and at the end of July 2010, Johnson had received for fiscal 2009 a total of $65, 198 without further documentation by monthly reports.[22]

         Johnson's claimed sources of $41, 198 in compensation beyond $24, 000 are obscure. First, appellants allege "some evidence" that Johnson and his company undertook compensable services in addition to accounting, citing "computer-related services, " "tax return preparation, " "audit support, " and maintenance of WEALTHY's "financial records, " as well as Johnson's service "as WEALTHY's treasurer and non-voting member of [its] [B]oard of [Directors." Other than service as an officer and board member, however, for which no time commitment or dollar value has been proffered, these activities are unquestionably embraced by, and thus limited to, the $24, 000 budget category for "Financial Management, " as the General Ledger confirms.[23] We see no sound basis for concluding that, in the absence of a budget modification, Johnson and his company were entitled to additional compensation for these financial activities.

         Second, appellants argue more vigorously that Johnson and his company were not limited to compensation for financial work, because the budget contains "a whole host of other categories" from which their compensation could have been drawn, "including 'Clerical' and 'Aides/Assistants'" and, presumably, "Professionals"[24] - all budget subcategories under "Salaries & Wages" (not under "Consultants & Professionals, " which covers Johnson's "Financial Mgmt" role). This argument is unconvincing. When put together with the first argument, appellants are either saying that (1) if their financial work beyond "accounting" was not covered by the $24, 000 budget for Financial Management, that financial work could have been compensated from funds for other, non-financial budget categories; or they are arguing - contrary to the first contention - that (2) Johnson actually was doing compensable non-financial work worth $41, 198 beyond the $24, 000 financial service he provided.

         The first contention is plainly wrong; according to the grant agreement, funds budgeted for one function cannot (aside from the $2, 000 or 10% overage factor) be applied to another function, absent Work Plan and budget modifications. The second contention, abandoning appellants' first factual premise, presupposes some kind of reliable documentation that Johnson and his company actually were involved in program activities - contrary to Johnson's deposition testimony that he "had no direct involvement"[25] in WEALTHY's youth activities.

         The contention that Johnson may have been engaged in compensable non-financial program activities is conclusively refuted by the General Ledger entries documenting that, but for a $2, 000 budget item designated "Other, " all of Johnson's (and National Tax Pro's) $65, 198 compensation was for financial services: "Accounting" and "Audit, " two subcategories of "Professional Fees."[26] More specifically, WEALTHY's General Ledger shows no compensation in fiscal 2009 for Johnson or his company in any of the non-financial line items corresponding to appellants' proffers: "Aides, assistants, and interns, " or "Clerical and Other Stipends, " or "Other Professionals."[27] Nor have we been able to find Johnson's additional compensation in any other non-financial line item in the General Ledger. Accordingly, Johnson's financial work was his only contribution to WEALTHY (aside from responsibilities as a Board member).

         If Johnson's financial work required more than the $24, 000 budgeted for it, we expect that Johnson would have timely sought a budget modification, as required under the grant agreement. Not having done so, however, Johnson is left to argue (as noted above) that his additional $41, 198 came from the $65, 000 budgeted for "Aides/Assistants" ($25, 000), "Clerical" ($15, 000), and "Professionals" ($25, 000).[28] Depending on the sources for the $41, 198, this means that Johnson himself would have handled his own part-time (40%) financial work for $24, 000, and also taken funds otherwise required to pay four to six part-time workers employed to cover as many as two full-time positions ($25, 000 plus $15, 000) - with total compensation equal to 2.4 full-time staff members.

         In sum, when Johnson's compensation of $65, 198 is added to Robinson's $141, 500, representing 2.4 and 2.6 full time staff members, respectively, we find that these two individuals have taken compensation allocable to five of the six full-time budgeted staff positions, leaving open no more than two or four part-time employee positions (depending on how Johnson's $41, 198 was allocated between "Professionals" and "Aides/Assistants").[29]

         E. Demise of the Budgeted Work Plan

         Self-evidently, appellants' proffered explanation of Robinson's and Johnson's total compensation distorted any promise that the Work Plan could have been accomplished as intended. Indeed, the record reveals the virtual demise of WEALTHY's Work Plan, which specified ten activities with hundreds of participants. As acknowledged by Johnson on deposition, the plan presupposed that activities would occur simultaneously at different locations, and thus would require several categories of personnel working at the same time - without doubt more than Robinson and Johnson could have provided with a substantially reduced cadre of part-time employees and consultants.[30] This evidence, therefore - substitution of enhanced compensation for Robinson and Johnson in lieu of hiring personnel essential to the Work Plan - substantially demonstrates why, for the 2009 fiscal year, Robinson and Johnson funded three other non-profit organizations rather than attempt to implement fully the Work Plan prescribed by the grant agreement that WEALTHY had submitted to the Trust.

         Still other evidence demonstrates that neither Robinson nor Johnson implemented the youth programs described in WEALTHY's Work Plan. While it is true that Robinson had minor involvement with the non-profit organizations WEALTHY funded in lieu of the intended plan, Robinson's deposition reveals that she "did not personally . . . teach" any class for youth at HICKS; she was "like a program manager" at Training Grounds and Wingate; and although she taught a one-time half-day Kites for Peace class at Wingate, she only observed the art and music classes there. Thus, her visits to Wingate, described by its Director of Resident Services as "roughly three times each week" for "a few minutes to four hours, " were in a managerial, not educational, capacity. For his part, Johnson testified on deposition: "generally speaking I don't get involved - I'm not a part of the organizations that I operate as an accountant."

         Based on all the evidence, therefore, we confront the question whether Robinson and Johnson, in lieu of implementing WEALTHY's Work Plan as required under the grant agreement, submitted "false claims" in violation of District law, in order to take for themselves substantial funds which had ...


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