Petition — Ehrlich v. United States

Office-Supreme Court, U.S.

riLED

Bl-joR| we14108

ALEXANDER L. ST VAS,

CLERK Beare!

NO

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1981

RICHARD K. EHRLICH and LURLINE

GARDENS LIMITED DIVIDEND HOUSING

PARTNERSHIF,

Petitioners,

v.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GOLDIN & GORDON

LEON GOLDIN

LAURA GOLDIN

3600 Wilshire Blvd., Suite 2200

Los Angeles, California 90010

(213) 380-1900

SANFORD DEMAIN

14414 Hamlin Street

Van Nuys, California 91401

(213) 902-1661

Attorneys for Petitioners

NO.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1981

RICHARD K. EHRLICH and LURLINE

GARDENS LIMITED DIVIDEND HOUSING

PARTNERSHIP,

Petitioners,

Vv.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GOLDIN & GORDON

LEON GOLDIN

LAURA GOLDIN

3600 Wilshire Blvd., Suite 2200

Los Angeles, California 90010

(213) 380-1900

SANFORD DEMAIN

14414 Hamlin Street

Van Nuys, California 91401

(213) 902-1661

Attorneys for Petitioners

QUESTIONS PRESENTED FOR REVIEW

A. Whether the False Claims Act, 31 U.S.C. §231,

et. seq, mandates the assessment of seventy-six forfei-

tures against a mortgagor who submitted one certificate

containing false data to the Department of Housing and

Urban Development ("HUD") which data was used by

HUD in creating an amortization schedule for the mort-

gagee.

1. Whether statements duplicating HUD's

amortization schedule filed monthly with HUD by the

mortgagee, pursuant to the National Housing Act, 12

U.S.C. §1715, are claims within the meaning of the False

Claims Act.

2. Whether, under United States v. Bornstein,

if the "vouchers" are false claims, is the mortgagor

liable for one forfeiture for each statement filed by the

mortgagee.

B. Whether the False Claims Act requires the

government to act promptly to seek damages under the

Act or may the United States collect damages for the

amounts paid after it knew of its claim.

C. Whether, F.R.Civ.P., Rule 56 permits granting

l.

of summary judgment when there are disputed material

factual issues and the facts are complex, confusing and

inconclusive.

2.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW

TABLE OF CONTENTS

TABLE OF AUTHORITIES

OPINION BELOW

JURISDICTIONAL STATEMENT

CONSTITUTIONAL PROVISIONS AND RULES

INVOLVED

STATEMENT OF THE CASE

REASONS FOR GRANTING THE WRIT

CONCLUSION

APPENDIX "A" - Opinion of the Ninth Circuit

Court of Appeals

APPENDIX "B" - Findings of Fact and Conclu-

sions of Law of the United States District

for the Central District of California

APPENDIX "C" - Constitutional Provisions and

Rules Involved

3.

ee

25

TABLE OF AUTHORITIES

Cases

Cox v. American Fidelity and

Gas Company

249 F.2d 207 (9th Cir., 1957)

Eby v. Reb Realty, Inc.

495 F.2d 646 (9th Cir., 1974)

Kennedy v. Silas Mason Company

334 U.S. 249, 68 S.Ct. 1031,

92 L.Ed. 1347 (1948)

Miller v. United States

550 F.2d 17 (Ct.Cl., 1977)

Radobenko v. Automated

Equip. Corp.

520 F.2d 540 (9th Cir., 1979)

United States ex rel.

Marcus v. Hess

317 U.S. 537, 63 S.Ct. 379,

87 L.Ed. 443 (1943)

United States v. Bornstein

423 U.S. 303, 96 S.Ct. 523,

46 L.Ed. 2d 514 (1976)

United States v. Cohn

270 U.S. 339, 46 S.Ct. 251,

70 L.Ed. 616 (1926)

United States v. McNinch

356 U.S. 595, 78 S.Ct. 950,

2 L.Ed.2d 1001 (1958)

United States v. Mead

426 F.2d 118 (9th Cir., 1970)

4.

Page

23

24

24

24

23

17

13, 14, 17,

18, 19

15

15

24

United States v. National Wholesalers 17

236 F.2d 944 (9th Cir., 1956)

United States v. Neidorf 21

522 F.2d 916 (9th Cir., 1975)

United States v. Woodbury 17, 20

359 F.2d 370 (9th Cir., 1966)

Statutes

Federal Rules of Civil Procedure, 6, 22, 23,

Rule 56 25

12 U.S.C. §1715 6, 7, 13

12 U.S.C. §1715z-1 6, 7

18 U.S.C. §1001 9

28 U.S.C. §1254(1) 6

31 U.S.C. §231 6, 13, 20

31 U.S.C. §233 6, 20

Revised Statutes §3490 6, 20

Revised Statutes §5438 6, 17, 20

Regulations

24 C.F.R. §236.510 6, 15

24 C.F.R. §236.510(b\(2) 6, 16

5.

OPINION BELOW

The opinion below is published at 643 F.2d 634. A

copy of the opinion is attached to this petition as

Appendix "A". Written Findings of Fact and Conclusions

of Law were filed by the United States District Court

for the Central District of California. No opinion of the

United States District Court for the Central District of

California was published. A copy of the Findings of Fact

and Conclusions of Law is attached as Appendix "B".

JURISDICTIONAL STATEMENT

The judgment and order of the United States Court

of Appeals for the Ninth Circuit is dated and was filed

on April 23, 1981. Jurisdiction of this Court is invoked

pursuant to 28 U.S.C. §1254(1).

CONSTITUTIONAL PROVISIONS AND RULES INVOLVED

The relevant statutes and rules, 31 U.S.C. §231

(Revised Statutes §§3490 and 5480), 31 U.S.C. §233, 12

U.S.C. §§17151, 1715r, 1715z-1, Federal Rules of Civil

Procedure, Rule 56, and 24 C.F.R. §§236.510(a)(2) and

(b(2), are set forth in Appendix "C",

STATEMENT OF THE CASE

Pursuant to §236 of the National Housing Act, 12

U.S.C. §1715z-1, petitioner, Lurline Gardens Limited

Housing Partnership ("Partnership") sponsored the con-

struction and operation of a low income multi-unit

housing development, Lurline Gardens Housing Project

("Project"). Section 1715 authorizes the Department of

Housing and Urban Development ("HUD") to insure a

mortgage for such a development and to subsidize a

sponsor's mortgage interest cost by making interest

reduction payments to the mortgagee of a qualified

mortgagor.

In June, 1971, an application for an insured loan on

the project, including insured advances during construc-

tion, was made on behalf of the Partnership through its

sole general partner, petitioner, Richard K. Ehrlich

("Ehrlich") to HUD and the Weyerhauser Mortgage

Company ("Weyerhauser"). A mortgage loan, in a maxi-

mum amount of $3,235,000.00, including advances, was

approved by HUD and an agreement was executed by

HUD, Weyerhauser and the Partnership in August, 1971.

The $3,235,000.00 mortgage loan amount represented 90

7.

percent of the estimated replacement cost of the pro-

ject. The agreement provided that the maximum mort-

gage would become subject to a reduction if, based upon

the actual cost of the completed project, the authorized

mortgage amount exceeded the amount ieuatiid by the

National Housing Act and the Regulations promulgated

thereunder.

On about August 10, 1972, Ehrlich delivered to HUD

a certificate of actual cost, indicating that the com-

pleted cost of the project, exclusive of land, was

$3,096,553.45. Based on that sum, HUD confirmed the

maximum mortgage loan at the original, $3,235,000.00

figure. In accordance with the provisions of §236, in

July, 1972, HUD had commenced interest reduction

payments to the mortgagee of the project, Weyerhauser.

In February 1973, Weyerhauser assigned the mortgage to

the Federal National Mortgage Association ("FNMA").

The original certificate of actual cost contained

amounts shown as outstanding debts to various subcon-

tractors. On about May 24, 1973, Ehrlich submitted a

supplemental cost certificate to HUD, setting forth

those amounts which had actually been paid to the

s

various subcontractors in final payment of the outstand-

ing debts. According to respondent, United States of

America ("U.S.A."), the certificates showed as costs paid

or to be paid to subcontractors, inflated sums of money.

Furthermore, in respondent's view, in the certificates,

Ehrlich and the Partnership knowingly failed to disclose

that Ehrlich had an identity of interest with one of the

subcontractors, Topaz Supply Corporation ("Topaz").

Based on the statements made by way of the certifi-

cates, Ehrlich was indicted for submitting false claims to

a government agency in violation of 18 U.S.C §1001. On

July 14, 1975, he pleaded guilty to two counts of the

indictment.

On May 12, 1978, respondent filed this civil action.

Count I of the complaint sought specific performance of

an agreement by which the petitioners had agreed with

the mortgagee to reduce the mortgage on the project by

any amounts which exceeded those allowed by the

National Housing Act. Count II sought double damages

and forfeitures under the False Claims Act, 31 U.S.C.

§§231-235. Both counts alleged that petitioner Ehrlich

had inflated the costs of the project, caused HUD to

insure a mortgage in a greater amount than it would

otherwise have done, and caused HUD to make greater

interest reduction payments than it would otherwise

have been required to make. Specific performance was

sought to compel petitioners to pay back to FNMA the

alleged excess over the allowable mortgage. Additional-

ly, under the False Claims Act, the complaint sought

damages in double the amount of the difference between

the supposedly correct and the purportedly excessive

interest reduction payments made by HUD to FNMA, as

well as a $2,000.00 forfeiture for each monthly state-

ment (the allegedly false "claim") filed by FNMA with

HUD.

On respondent's motion for summary judgment, peti-

tioners disputed HUD's allegation that petitioners had

made seventy-six false claims. Petitioners contended

that FNMA's statements were not false claims and that

petitioners were not liable for any forfeitures based on

FNMA's submitting the statements. HUD alleged that

each of FNMA's seventy-six statements was a false

claim for which petitioners were liable. The monthly

statements which were presented to HUD by FNMA

10.

merely incorporate HUD's calculations of the monthly

interest payments due on petitioner's and hundreds of

other mortgages. The certificates were provided to

HUD by FNMA to verify that the listed mortgages were

not in default.

Additionally, petitioners disputed HUD's calcula-

tions of the maximum insurable mortgage. The basis for

petitioners' contention was, among other things:

1. HUD's calculations included construction costs,

sponsor's allowance, land value and "other costs." No-

where were the “other costs" explained or defined.

Petitioners could not refute these costs and contended

that the court could not determine their accuracy.

2. HUD's disallowance of Topaz's mark-up.

Topaz was utilized by the partnership as a general

purchasing agent for the Project. Topaz was a Cali-

fornia corporation, owned by Ehrlich. It dealt with

various projects, including the one here in question.

Although Topaz was one of the suppliers on the Project,

and Ehrlich had an identity of interest in Topaz, the

certificate of actual costs did not list Topaz as an entity

with which either the Partnership or Ehrlich had an

ll.

identity of interest. Respondent claimed this omission

was intentional and fraudulent; warranted disallowing

Topaz's profit allowance as an actual cost; and was part

of the false claim for interest reduction payments.

Petitioners denied both the facts and theory of these

allegations.

Respondent's motion for summary judgment on both

counts was successful. Judgment was entered, as to

Count I, for specific performance of the contract, re-

quiring Ehrlich and the Partnership to pay to FNMA

$227,700.00 to reduce the outstanding mortgage. As to

Count Il, Ehrlich and the Partnership were ordered to

pay to HUD $140,137.44, an amount double the amount

of damages plaintiff allegedly incurred as a result of

excess interest reduction payments. Additionally peti-

tioners were ordered to pay damages in the amount of

$152,000.00, representing seventy-six $2,000.00 forfei-

tures for each of the statements sent to the government

by FNMA.

On appeal to the United States Court of Appeal for

the Ninth Circuit, in a 2-1 decision, the District Court's

judgment was affirmed. Judge Canby, concurring and

12.

dissenting, said that the court's finding of seventy-six

false claims was erroneous, that petitioners had, at

most, committed two acts which amounted to false

claims and, consistent with United States v. Bornstein,

petitioners were only liable for their own acts, not the

statements of others.

REASONS FOR GRANTING THE WRIT

A

This case raises significant questions regarding in-

terpretation of the False Claims Act, 31 U.S.C. §231, et.

seq. and its application to a situation where, pursuant to

§236 of the National Housing Act, 12 U.S.C. §1715, a

mortgagor receives, from HUD, approval and insurance

of a maximum loan amount and, HUD agrees to make

interest reduction payments to the mortgagee. To

induce HUD's actions, the mortgagor prepares a certifi-

cate containing inflated costs. Based upon that certifi-

cate, HUD prepares a schedule of interest reduction

payments and gives it to the mortgagee. The mortgagee

monthly submits a statement certifying that the mort-

gage is not in default and repeating HUD's interest

13.

reduction calculations.* The questions presented include

a request that this Court determine whether such state-

ments are claims for payment within the meaning of the

False Claims Act and, if they are, whether, consistent

with United States v. Bornstein, 423 U.S. 303, 96 S.Ct.

523, 46 L.Ed.2d 514 (1¢76), the mortgagor is liable for

forfeitures for each of the statements submitted by the

mortgagee.

1. Petitioners argue that the statements are not

false claims within the meaning of the False Claims Act.

The statements were merely certificates from FNMA to

HUD stating that a group of mortgagors were current in

their obligations. On each statement FNMA asked for a

total payment and listed, at least with reference to

petitioners, a duplication of an amortization schedule

prepared by HUD at the time HUD agreed to make

payments. Each statement was merely a means of

keeping accounts in order and reflected amounts then

*In petitioners case, for convenience, both on

motion for summary judgment and in the Ninth Circuit,

these statements were denominated "vouchers." Here,

they will be referred to as "statements."

14,

due from HUD to FNMA, based on HUD's own calcula-

tions.

This Court has never answered the question whether

such statements are claims within the meaning of the

False Claims Act. In United States v. Cohn, 270 U.S.

339, 46 S.Ct. 251, 70 L.Ed. 616 (1926), in a different

context, a claim was defined as " 'a demand of some

matter as of right made by one person upon

another .. .'" (270 U.S. at 345). Cohn held that, under

the False Claims Act a claim against the government is

a claim for money or property against the government.

In United States v. McNinch, 356 U.S. 595, 78 S.Ct.

950, 2 L.Ed.2d 1001 (1958) this Court made it clear that

the "False Claims Act was not designed to reach every

kind of fraud practiced on the Government" (356 U.S. at

599) and found the Cohn definition of a claim still

relevant.

Petitioners' position is that the statements submit-

ted by the mortgagee were not claims as defined by this

Court in Cohn and MecNinch. Pursuant to 24 CFR

§236.510, interest reduction payments commence on the

date on which the Commissioner endorses the note for

15.

insurance and terminate upon "the Commissioner's re-

ceipt of the mortgagee's notice of intention to file an

insurance claim and to acquire and convey title... ."

24 CFR §236.510(b)(2). Thus, here, payments were due

from HUD to FNMA as long as FNMA did not say the

project was in default. The statements in this case were

merely certificates from FNMA certifying that peti-

tioners' project, along with hundreds of other projects,

was not in default. The statements were not claims for

payment. They did not demand payment from the

government. They did not constitute a claim for money

against the U.S.A. The statements represented FNMA's

ministerial act of verifying HUD's amortization sched-

ule,

Surely, Congress did not intend the False Claims

Act to reach clerical acts or acts which do not make the

government liable for payment of monies or property.

Yet, that is precisely the reach of the Act under the

Ninth Circuit's interpretation in this case.

2. If the statements are false claims, petitioners

assert that they are not liable for forfeitures based on

the number of statements presented to HUD by FNMA.

16.

The Ninth Circuit held that each submission of a

statement by FNMA to HUD was a false claim attribut-

able to petitioners. Such a holding appears to be

contrary to the intent of the False Claims Act to

penalize a person only for his own false acts and not the

acts of others.

Petitioners recognize that in the case of claims for

payments submitted directly by a wrongdoer to the

government, each claim incorporating false data is a

separate claim within the meaning of Rev. Stat. §5438.

See, e.g., United States v. Woodbury, 359 F.2d 370 (9th

Cir., 1966); United States v. National Wholesalers, 236

F.2d 944 (9th Cir., 1956). Cf. United States ex. rel.

Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443

(1943). However, in a situation where the wrongdoer

only does the fraudulent act which sets in motion an

innocent person's submission of claims incorporating the

false information, this Court has interpreted the statute

as requiring the trial court to look only to the acts of the

wrongdoer, not to those of the innocent party. United

States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46

L.Ed.2d 514 (1976).

17.

Bornstein, a False Claims case, held that the fraud-

ulent acts committed by the offending party are the

determining factors in calculating the number of forfei-

tures. "A correct application of the statutory language

requires ...that the focus in each case be upon the

specific conduct of the person from whom the Govern-

ment seeks to collect the statutory forfeitures." (423

U.S. at 313).

Applying the Court's Bornstein reasoning to the

facts of this case renders a completely different out-

come than the Ninth Circuit's result. Here, petitioners

prepared one certificate which contained false data.

Relying on that data, HUD prepared for FNMA an

amortization schedule, FNMA resubmitted that amorti-

zation schedule to HUD with the monthly statements

certifying the mortgages as not in default. Petitioners

had nothing to do with the monthly statements. They did

not prepare them. They did not submit them. They do

not receive payments from them. The statements were

between HUD and FNMA.

Contrary to Bornstein, the Ninth Circuit's decision

says that petitioners are to be held accountable for each

18.

of FNMA's acts. The decision totally disregards peti-

tioners' acts. It does not follow the express instruction

of Bornstein to focus upon "the specific conduct" of the

person being penalized. The opinion below focuses on

FNMA's conduct and penalizes petitioners for that con-

duct.

The lesson of Bornstein is that a person may be

penalized only for his own conduct. Here, petitioners

prepared one certificate which contained false data.

Therefore, petitioners should have been charged with

only one forfeiture.

B

Petitioners contend that the False Claims Act re-

quires the U.S.A. to act with due diligence and not to

delay seeking damages under the Act once a false claim

or claims are discovered. Petitioners contend further

that damages sustained by reason of the government's

failure to act are not damages within the meaning of the

Act and a false claimant cannot be held responsible for

such damages.

This Court has not addressed the question of

damages assessable under the False Claims Act when the

19,

government has made excessive payments with full

knowledge that overpayments were being made. The

question is squarely presented here.

The False Claims Act defines damages as that

damage which the government sustains by reason of the

false claimant's conduct. Rev. Stat. §3490. See, United

States v. Woodbury, 359 F.2d 370, 379 (9th Cir. 1966).

Double damages and a $2,000 forfeiture may be imposed

for doing an act prohibited by Rev. Stat §5438.

The critical language is "by reason of." Although

that language is not defined, Congress did not intend to

allow a governmental agency to sit idly by, knowing a

fraud was being committed, and do nothing by it. 31

U.S.C. §233 requires the United States to be diligent in

its prosecutions, pursuant to 31 U.S.C. §231.

Here, the government knew it was overpaying at

least as early as July, 1975, when petitioner, Ehrlich,

pleaded guilty to two counts of a related criminal

indictment. Respondent had begun an investigation into

possible fraud in connection with the project as early as

December, 1972. Ehrlich's guilty plea conclusively

established that the government had some cause of

20.

action under the False Claims Act. Yet, from July,

1975, until May, 1978, the government continued making

monthly interest reduction payments and did nothing to

reduce its damages.

It is submitted that the government's inexcusable

delay in moving to protect itself from the continued

disbursement of excess interest reduction monies ren-

dered its payments "voluntary" and not damages sustain-

ed "by reason of" petitioners' act. As of July, 1975,

respondent knew conclusively that it was _ being

"damaged" by improper excess interest payments and, if

successful in its civil action, it would be entitled to

double the excess, as damages. Rather than take action,

the government allowed the excess payments to continue

unabated, and did absolutely nothing to mitigate its

damages.

As Judge Chambers suggested (in another context)

in his concurring and dissenting opinion in United States

v. Neidorf, 522 F.2d 916, 921 (9th Cir., 1975), to define

the U.S.A.'s continued payments after the time it had

knowledge as "voluntary" "would achieve a closer ap-

proximation of the Congressional intent. It would inspire

21.

the Government to move a little faster in the future

than it did in this case."

That reasoning should be adopted by this Court. It

contravenes the intent of Congress to permit the govern-

ment to collect double damages for overpayments know-

ingly made by HUD.

Cc

The decision below allows the granting of a motion

for summary judgment (F.R.Civ.P., Rule 56) despite the

existence of complicated, confusing and unsettled

factual questions as well as an unresolved duspute on the

question of fraudulent intent.

Petitioners contend that three substantial factual

issues should not have been determined by summary

judgment:

1. The question of petitioner Ehrlich's fraudulent

intent in failing to disclose his relationship with Topaz, a

California corporation owned by Ehrlich. Petitioners

denied any fraudulent intent and presented affidavit's

disputing the government's position.

2. The question of the amount of the inflated costs.

Respondent used complex calculations in figuring the

actual costs of construction. Petitioners opposed these

calculations, pointing out that the formulas used were

unexplained, This material omission of fact left a

substantial gap in the determination of a critical issue.

3. The question of petitioners’ entitlement to

certain credits before damages could properly be

assessed. Respondents provided no information indi-

cating whether, or to what extent, the credits had been

applied.

It is the well-settled rule that a summary proceed-

ing may not be substituted for a trial. The full question

before the court on a motion for summary judgment is

the existence of a material issue of fact, not its resolu-

tion. On motion for summary judgment, "the trial judge

must determine if there are any material factual issues

which must be resolved before the trier of fact. It is not

the trial judge's function, under Rule 56, to resolve those

issues or weigh the evidence." Cox v. American Fidelity

and Gas Company, 249 F.2d 207, 210 (9th Cir., 1957).

See also, Radobencko v. Automated Equip. Corp., 520

F.2d 540 (9th Cir., 1979). Summary judgment is only

23.

proper when there are no disputed factual issues and only

questions of law remain to be decided. In some in-

stances, summary judgment may be improper because

"the legal issue is so complex, difficult, or insufficiently

highlighted that further factual elucidation is essential

for its prudently considered resolution." Eby v. Reb

Realty, Inc., 495 F.2d 646, 649 (9th Cir., 1974). See also,

Kennedy v. Silas Mason Co., 334 U.S. 249, 68 S.Ct. 1031,

92 L.Ed. 1347 (1948).

The question presented to this Court is whether

summary judgment was proper here, in light of the

complex issues raised and the unresolved factual issue of

petitioner's alleged fraudulent intent. It was not for the

District Court to make a factual determination on the

issue of credits. Nor should the court have assessed

damages based on respondent's calculations. The issue

was too complex and required further elucidation, Eby

v. Reb, supra. And, a trial on the contested issue of

fraudulent intent was the proper resolution of that

question. United States v. Mead, 426 F.2d 118 (9th Cir.,

1970). See also, Miller v. United States, 550 F.2d 17

(Ct.Cl., 1977).

24.

The summary disposition of this matter was con-

trary to the purpose of F.R.Civ.P., Rule 56, which is to

resolve matters where no factual disputes remain. The

disposition denied petitioners their right to a trial on the

disputed questions and prohibited them from responding

to the government's allegations,

CONCLUSION

For the foregoing reasons, the Petition for Writ of

Certiorari should be granted.

Respectfully submitted,

GOLDIN and GORDON

LEON GOLDIN

LAURA GOLDIN

SANFORD R. DEMAIN

LEON GOLDIN

Attorneys for Petitioners

Filed in the Court of Appeals,

Ninth Circuit

April 23, 1981

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA

Plaintiff-Appellee,

v.

LURLINE GARDENS LIMITED

DIVIDEND HOUSING PARTNERSHIP.

)

)

)

)

RICHARD K. EHRLICH and

}

Defendants-Appellants.

from the United States District Court

for the Central District of California

Before: WRIGHT and CANBY, Circuit Judges, and

MURPHY, Senior District Judge.*

EUGENE A. WRIGHT, Circuit Judge:

lL, FACTS

Section 236 of the National Housing Act, 12 U.S.C.

§1715z-1 (1976), authorizes the Secretary of Housing and

*Of the Southern District of New York.

Appendix "A"

Urban Development to insure mortgages and subsidize

interest payments on behalf of the sponsors of low

income housing projects. This case involves a project

sponsored by Lurline Gardens, a limited partnership.

Richard Ehrlich was Lurline's sole general partner, and

was the general contractor for the project.

An insurable mortgage is limited, in a case such as

this, to 90% of the replacement costs of the project.

Replacement costs include construction costs.

The interest subsidy reduces the sponsor's interest

payments to one percent of the amount of the mortgage

and the larger the mortgage, the larger the subsidy.

HUD initially estimates the construction and other

costs of a project to determine the maximum insurable

mortgage. Upon completion of the project, the sponsor

must submit a statement of actual costs to HUD. If the

costs are less than estimated, the insurable mortgage is

reduced, and the sponsor must repay a portion of the

principal to the mortgagee.

Interest subsidies are paid directly to the mortgagee

who submits a monthly voucher to HUD. It lists all

mortgages held by him for which HUD has agreed to

A-2

provide interest subsidies, and certifies that none is in

default.

HUD, Lurline Gardens, and a mortgagee entered

into an "Agreement and Certification" in August, 1971.

Ehrlich signed the agreement on behalf of the partner-

ship. HUD agreed to insure the mortgage and provide

interest subsidies, The partnership

agree[d) that if it receives from the Mort-

gagee monies in excess of that permitted

under the National Housing Act and the Regu-

lations promulgated pursuant thereto, it will

pay upon demand forthwith to the Mortgagee

any such excess for application to the reduc-

tion of the then outstanding principal balance

of the mortgage.

The Agreement recites that, other than Ehrlich's

role as general contractor, there was no identity of

interest between the partnership, the general contractor,

and the subcontractors. The partnership agreed to notify

HUD of any identity of interest that was created. In

that event, the Agreement provided:

For purposes of determining actual cost no

profit or general overhead may be included in

the subcontract unless [HUD] has in advance

granted approval in writing of the subcontract

and has approved a specific dollar amount or a

specific percentage for profit and/or general

overhead,

A-3

In August, 1972, the partnership submitted a Mort-

gagor's Certificate of Actual Cost, and a Contractor's

Certificate of Actual Cost, both prepared by Ehrlich.

The certificates overstated construction costs so that

the partnership would not have to repay a portion of the

principal. HUD was then insuring a larger mortgage and

providing larger interest subsidies than were authorized

under the Act,

Ehrlich also certified falsely that there was no

identity of interest with any subcontractor on the pro-

ject. He was the sole owner of one subcontractor, Topaz

Supply Corporation.

In 1975, Ehrlich pleaded guilty to two counts of an

indictment, based on these events, charging him with

submitting false statements to a government agency. He

admitted knowingly and intentionally inflating the costs

of construction.

In April, 1978, HUD demanded that the partnership

pay the excess principal to the mortgagee pursuant to

the Agreement. The partnership did not comply.

HUD then initiated this action and obtained a sum-

mary judgment. The district court ordered specific

A-4

performance of the Agreement, directed the partnership

to reduce the principal on the mortgage, and assessed 76

forfeitures and double damages under the False Claims

Act, Rev.Stat. §§ 3490, 3494 & 5438.

We affirm.

Il, SPECIFIC PERFORMANCE

The district court directed the partnership to reduce

the principal by $227,700. Ehrlich argues that summary

judgment was inappropriate because there is a dispute as

to the actual cost of the project, which is used to

calculate the amount of the reduction. He also argues

that HUD lacks standing and its action is barred by a

statute of limitations.

The district court relied on an affidavit by William

Willits, a HUD official, which set forth in detail HUD's

calculation of the actual cost of the project.

In his brief, Ehrlich objects to two aspects of this

calculation. First, no markup was allowed on materials

purchased from Topaz Supply Corporation. At oral

agrument, however, his counsel conceded that Ehrlich's

failure to disclose his identity of interest and obtain

advance approval of the markup permitted HUD, under

A-5

the express terms of the Agreement, to exclude it from

actual costs.

Second, Ehrlich claims that a group of items identi-

fied as "Other Costs" is understated. He submitted an

affidavit alleging that when the mortgage was first

issued, "Other Costs" were $70,000 more than the figure

Willits used. He did not specify any items that were

omitted or understated, but simply alleged he did not

understand the calculation.

This does not defeat a motion for summary judg-

ment. An exhibit to Willits’ affidavit set forth the

specifie items included in "Other Costs." Ehrlich did not

seek a continuance or use discovery procedures for

additional information regarding the calculation. "Con-

clusory allegations, unsupported by factual data, do not

create a triable issue of fact." California ex rel.

Department of Transportation v. United States ex rel.

Department of Transportation, Federal Highway Admin-

istration, 561 F.2d 731, 733 n.4 (9th Cir. 1977) (citations

omitted).

We see no merit to the argument that HUD lacked

standing to enforce the partnership's obligation to reduce

A-6

the principal. HUD was a party to the Agreement, and

the provision requiring reduction of the mortgage was

for its benefit.

Nor is there merit to the argument that relief was

barred by the statute of limitations. Ehrlich claims 28

U.S.C. §2415(b) (1976) is applicable. It imposes a three-

year limit on tort actions. Here, the substance of the

claim sounds in contract, and if any limitations period

applies,_/ it is six-years, 28 U.S.C. §2415(a) (1976). See

United States v. Limbs, 524 F.2d 799, 801 (9th Cir.

1975). The action was timely brought.

Il. FALSE CLAIMS ACT

A person who "present[s}] or cause[s} to be pre-

sented" a claim against the United States, "knowing such

claim to be false, fictitious, or fraudulent," is subject to

civil liability under the False Claims Act. Rev.Stat. §§

3490, 3494 & 5438. See United States v. Bornstein, 423

U.S. 303, 305 n.1, 96 S.Ct. 523, 526 n.1, 46 L.Ed.2d 514

1/98 U.S.C. $2415(a) (1976) applies to an action by

the United States for money damages. Because the

action was filed within the six-year period, we need not

decide whether the statute applies to an action for

specific performance.

A-7

(1976). The district court held that Ehrlich caused false

claims to be presented.

The monthly vouchers of the mortgagee were false

claims within the meaning of the Act. The concept of a

claim against the government includes a demand for

money. Id. at 309 n.4, 96 S.Ct. at 528 n.4. Due to

Ehrlich's false certifications, the interest subsidies de-

manded and paid each month were falsely inflated.

Individual demands for payment pursuant to one overall

contract constitute individual false claims. United

States v. Woodbury, 359 F.2d 370, 377-78 (9th Cir. 1966);

United States v. Collyer Insulated Wire Co., 94 F.Supp.

493, 496 (D.R.I. 1950).

Two civil penalties may be assessed under the Act.

Any person who "shall do or commit any of the acts

prohibited. .. shall forfeit and pay to the United States

the sum of two thousand dollars .. ." Rev.Stat. §3490. In

addition, the person is liable for double the damages

sustained by the United States "by reason of" such acts.

Id.

A. Forfeitures

The district court assessed 76 forfeitures, one for

A-8

each monthly voucher. Ehrlich argues the number of

forfeitures should be limited to the number of acts he

committed which caused false claims to be filed. As-

serting that he did but one act, inflating construction

costs, that caused false claims to be filed, he concludes

that he is liable only for one forfeiture.

HUD argues the number of false claims was the

proper measure of the number of forfeitures. It empha-

sizes that Ehrlich knew false claims would be filed each

month, and that he could have prevented additional false

claims from being filed by reducing the principal on the

mortgage. By not doing so, he reaped a continuing

benefit at the government's expense.

In Bornstein, the Court considered a similar ques-

tion. A subcontractor sent, in three separately invoiced

shipments, falsely labelled components to a prime con-

tractor. The prime contractor shipped the final product

to the government in 35 separately invoiced shipments.

Each invoice was a false claim within the meaning of the

Act.

The Court held that the subcontractor was liable for

three forfeitures. "A correct application of the statu-

A-9

tory language requires... that the focus in each case be

upon the specific conduct of the person from whom the

Government seeks to collect the statutory forfeitures."

423 U.S. at 313, 96 S.Ct. at 529. Had the subcontractor

committed one act which caused false claims to be filed,

it would have been liable only for one forfeiture, regard-

less of the number of claims filed. Id. at 312, 96 S.Ct.

at 529.

The Court noted, however, that the number of false

claims submitted by the prime contractor was unrelated

to the subcontractor's conduct. "The fact that [the

prime contractor] chose to submit 35 false claims in-

stead of some other number was, so far as [the subcon-

tractor] was concerned, wholly irrelevant—completely

fortuitous and beyone [its] knowledge or control." Id. at

312, 96S.Ct. at 529.

This strongly suggests that, if a person knowingly

causes a specific number of false claims to be filed, he is

liable for an equal number of forfeitures. In the absence

of such knowledge, using the number of claims to deter-

mine the number of forfeitures would be arbitrary.

Where such knowledge is present, however, it is consis-

A-10

tent with the purposes of the Act to impose forfeitures

based on the number of claims.

The Act's sponsor said it was aimed at "bands of

conspirators" who were defrauding the government.

Cong.Globe, 37th Cong., 3d Sess., 995 (remarks of Sen.

Howard), It would defeat the purposes of the Act to

impose multiple forfeitures on a person submitting false

claims, but limit the liability of coconspirators who

caused the claims to be submitted.

This case is analogous. Ehrlich knew a false claim

would be submitted each month. He could have pre-

vented the filing of additional false claims. Instead, he

did nothing and gained a continuing benefit from the

inflated interest subsidies. Had he submitted the claims

himself, he would be liabile for 76 forfeitures. As in the

case of conspirators, it would defeat the purposes of the

Act, given Ehrlich's knowledge and control of the situa-

tion, to limit his liability to one forfeiture.

The district court correctly held him liable for 76

forfeitures,

B. Double Damages

Ehrlich argues that the district court erred in grant-

A-1l

ing summary judgment of double damages under the

False Claims Act. The damage award is based on the

excess interest subsidies paid by HUD. |

The excess payments resulted from the falsification

of construction costs. The damage calculation begins,

therefore, with a determination of the amount by which

Ehrlich falsely overstated those costs. Ehrlich argues

that it is improper to include the "Topaz markup" in the

amount of the overstatement, since he lacked fraudulent

intent when he included it in the statement of actual

costs.

The government's burden was to prove that Ehrlich

caused false claims to be filed with knowledge that the

claims were false. United States v. Mead, 426 F.2d 118,

123 (9th Cir. 1970). It had to show that Ehrlich knew the

Topaz markup could not be included in actual costs.

On three occasions Ehrlich disclaimed in writing any

identity of interest between the prime and subcontrac-

tor. He has admitted he knew these disclaimers were

false. He cannot now deny such knowledge. F.R.Civ.P.

36(b).

The Agreement expressly excludes profit or general

A-12

overhead from actual cost where there is an identity of

interest, absent prior approval by HUD. Ehrlich signed

the Agreement and is fairly charged with knowledge of

its provisions. Coupled with his admission that he was

aware of the identity of interest, this is sufficient to

establish that he knew the markup could not be included

in actual costs,

Ehrlich's affidavit stated he did not refuse to de-

clare his interest in Topaz. He did not allege that he

was unaware of this provision, however, or that he was

unaware of the identity of interest. His affidavit does

not establish a material dispute regarding his knowledge

that the markup could not be included in actual costs.

Ehrlich also argues that "early on" HUD was aware

that the cost figures had been falsely inflated. He

claims that from that time forward no damages were

sustained "by reason of" his acts.

HUD demanded that the partnership reduce the

principal in 1978. It refused. Had HUD acted unilateral-

ly and terminated the excess interest subsidies, it would

have risked contractual liability to the mortgagee, and

the possibility of a default on the mortgage. In that

A-13

event, as an insurer, it would have been liable for the

outstanding balance.

Under the circumatances, we cannot conclude that

HUD's knowledge that Ehrlich had overstated costs broke

the chain of causation. It continued to incur losses "by

reason of" Ehrlich's fraudulent acts.2/

Finally, Ehrlich argues that he paid HUD excess

rental charges, and that some of these payments were

used by HUD for its interest subsidy payments. He

would have the damages suffered by reason of the excess

interest subsidies reduced by the amount of these excess

rental payments.

Ehrlich was required by statute to make these

payments. 12 U.S.C. §1715z-1(g) (1976). Compliance

with a statutory duty is no basis to reduce the damages.

AFFIRMED

CANBY, Circuit Judge, concurring in part and dis-

2/Cf. United States v. Hibbs, 568 F.2d 347 (3d Cir.

1977) (defendant not liable under False Claims Act

because loss attributable to the wrong doing of a third

party); United States v. Fox Lake State Bank, 366 F.2d

962 (7th Cir. 1966) (defendant not liable because govern-

ment invited claim as a means of adjudicating its

merits).

A-14

senting in part.

I concur in all of the opinion of Judge Wright except

part Ill, subdivision A. With that portion uf the opinion,

which affirms the imposition of 76 forfeitures, I respect-

fully dissent. My reading of United States v. Bornstein,

423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976),

compels me to conclude that appellant is liable for no

more than two forfeitures under Rev.Stat. S§ 5438 and

3490.

It is true, as the majority opinion points out, that in

Bornstein the subcontractor that caused the prime con-

tractor to submit 35 false claims had no knowledge or

control over the number of separate claims the prime

contractor chose to submit. In my view, however, this

point is not the essential part of Bornstein. The central

point is found in Bornstein's rejection of the Govern-

ment's argument that the subcontractor should be held

liable for 35 forfeitures:

The difficulty with this position is that it fails

to distinguish between the acts committed by

Model [the subcontractor] and the acts com-

mitted by United [the prime contractor]. The

distinction is a critical one, because the

statute imposes liability only for the commis-

sion of acts which cause false claims to be

A-15

presented.

423 U.S. at 312, 96 S.Ct. at 529 (emphasis supplied). The

Supreme Court's position is made even more clear by the

language immediately following:

If United had committed one act which caused

Model to file a false claim, it would clearly be

liable for a single forfeiture. If, as a result of

the same act by United, Model had filed three

false claims, United would still have commit-

ted only one act that caused the filing of false

claims and thus, under the language of the

statute, would again be liable for only one

forfeiture. If, on the other hand, United had

committed three separate such causative acts,

United would be liable for three forfeitures,

even if Model had filed only one false claim.

The Act, in short, penalizes a person for his

own acts, not for the acts of someone else.

Id. (Emphasis supplied).

In my view, the majority here deviates from the

teaching of Bornstein by subjecting the appellant to

forfeitures based not upon his own causative acts, but

upon the 76 submissions by the mortgagees. Indeed, the

majority's analogy to the law of conspiracy indicates

that appellant is being charged with responsibility for

the mortgagee's filings. This is what the quoted lan-

guage of Bornstein instructs us not to do.

It appears from the findings and conclusions of the

A-16

district court that appellant submitted two-documents

that falsely inflated the cost of construction: the

Mortgagor's Certificate of Cost prepared by appellant on

behalf of his partnership, and the Contractor's Certifi-

cate of Cost prepared by him as general contractor. I

would accordingly hold appellant liable for two forfei-

tures,

A-17

Filed January 16, 1979

Entered January 18, 1979

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA

) No. CV 78-1836-R

Plaintiff, )

) FINDINGS OF

v. ) FACT AND

) CONCLUSIONS

RICHARD K. EHRLICH and ) OF LAW

LURLINE GARDENS LIMITED )

DIVIDEND HOUSING PARTNER- )

SHIP,

Defendants.

Pursuant to the motion of plaintiff, United States of

America, for a summary judgment in accordance with

Fed. R. Civ. P. 56, this Court makes the following:

FINDINGS OF FACT

1. This cause of action is brought pursuant to the

common law remedy of specific performance and the

statutory remedy under the False Claims Act, 31 U.S.C.

§§23 1-235.

2. This Court has jurisdiction over the subject mat-

ter of this case pursuant to 28 U.S.C. §1345 and 31

Appendix B

U.S.C. §232 and over the parties.

3. Lurline Gardens Limited Dividend Housing Part-

nership, hereafter the Partnership, is a limited partner-

ship, with Richard K. Ehrlich as its sole general partner.

The Partnership is the sponsor of Lurline Gardens, a

multi-family housing project the mortgage of which is

insured under Section 236 of the National Housing Act,

12 U.S.C. §1715z-1, by the Department of Housing and

Urban Development (HUD), an agency and instrumen-

tality of plaintiff, United States.

4. Defendant Ehrlich was the general contractor for

the construction of Lurline Gardens.

5. On July 22, 1971, HUD issued a Firm Commit-

ment to the Partnership to insure the Lurline Gardens

mortgage in the amount of $3,235,000, which amount

was subject only to reduction pursuant to the terms of

the Firm Commitment.

6. On August 1, 1971, the Partnership, Weyerhauser

Mortgage Company, and HUD entered into a contract

entitled "Agreement and Certification" in which for good

and valuable consideration the partnership agreed to pay

upon demand to the mortgagee of Lurline Gardens any

B-2

monies the Partnership received in excess of that per-

mitted by the National Housing Act.

7. The National Housing Act requires that the

mortgagor of a Section 236 project pay to the mortgagee

that amount of the proceeds of the mortgage that the

mortgagor received in excess of the approved percentage

of the actual cost.

8. The approved percentage of the actual cost for

the Lurline Gardens project was 90%.

9. On August 10, 1972 the Partnerhsip submitted to

HUD FHA Form 2330, Mortgagor's Certificate of Cost

prepared by Ehrlich on behalf of the Partnership, and

FHA Form 2330-A, Contractor's Certificate of Actual

Cost prepared by Ehrlich as general contractor, to

induce HUD to endorse the Lurline Gardens mortgage for

insurance,

10. Ehrlich knowingly and intentionally inflated and

misrepresented the costs of construction on the Con-

tractor's Certificate of Cost by $201,405.79.

ll. The Partnership received $3,235,000 from

Weyerhauser Mortgage Company, which amount was

equal to the insured mortgage.

B-3

12. Had HUD known the true costs of construction

for Lurline Gardens, HUD would have endorsed for

insurance a mortgage in the amount of only $3,007,000.

or 90% of the actual cost of construction, the amount

the Partnership was entitled to receive under the

National Housing Act. The Partnership, therefore, re-

ceived $227,700. in excess of that permitted by the

National Housing Act.

13. Plaintiff has demanded, pursuant to the terms

of the Agreement and Certification, that defendants pay

the excess of the mortgage proceeds to the mortgagee of

Lurline Gardens in order to reduce the mortgage, but

defendants have refused to do so.

14, In the Firm Commitment, HUD also agreed to

make interest reduction payments on behalf of the

Partnership to the mortgagee of Lurline Gardens.

15. At the time defendants submitted the certifi-

cations of cost to HUD, Ehrlich knew that HUD would be

making monthly interest reduction payments on behalf of

the Partnership to the mortgagee of Lurline Gardens and

that the amount of such payments is determined by the

amount of the mortgage.

B-4

16. Since July 18, 1972, the mortgagees of Lurline

Gardens have presented to HUD for payment seventy-six

vouchers for interest reduction payments on behalf of

the Partnership.//

17.. Based on the current mortgage amount of

$3,235,000, HUD has from July 18, 1972 to December 1,

1978, paid to the mortgagees of Lurline Gardens

$995,264.22 based on these vouchers.

18. Had HUD endorsed a mortgage in the amount of

$3,007,000, HUD would have paid the mortgagees only

$925,195.50 in interest reduction payments on behalf of

Lurline Gardens, or $70,068.72 less than the amount

paid.

19. HUD receives one voucher for an interest re-

duction payment each month from the current mort-

gagees of Lurline Gardens.

20. HUD has a continuing obligation, for the forty-

year life of the mortgage, to make monthly interest

LY During ‘oral argument, the Court stated the

number of forfeitures to which plaintiff is entitled to be

72. From a review of the record, it is apparent that the

correct number should be 76. See, e.g., Affidavit of

Alton Thompson, para. 4; Defendants' Memorandum in

Opposition to Plaintiff's Motion, p. 22, lines 1-5.

B-5

reduction payments to the mortgagee of Lurline

Gardens.

21. The current mortgagee of Lurline Gardens is

the Federal National Mortgage Association (FNMA).

CONCLUSIONS OF LAW

There is no issue of material fact contained in

either of the two Counts of the complaint herein and

plaintiff is entitled to judgment as a matter of law on

both counts.

COUNT 1 Defendants Lurline Gardens Limited

Dividend Housing Partnership and Richard Ehrlich, as

general partner, have a contractual obligation to plain-

tiff, United States, to pay to the mortgagee of Lurline

Gardens the excess amount the Partnership received in

violation of the National Housing Act, which amount is

$227,700. Plaintiff has made demand upon defendants

pursuant to the terms of the contract. Defendants have

failed to meet that demand and have thereby breached

the contract. Plaintiff is without an adequate remedy at

law, since plaintiff is under a continuing obligation to

make interest reduction payments to the mortgagee of

Lurline Gardens based on the amount of the existing

B-6

mortgage. Plaintiff is, therefore, entitled to specific

performance of the contract. Plaintiff is entitled to

have defendants pay to FNMA, the current mortgagee of

Lurline Gardens, $227,700. to reduce the outstanding

mortgage and thereby reduce the amount of future

interest reduction payments.

COUNT II Defendants have knowingly and inten-

tionally caused the submission of false claims to the

Government by submitting to HUD false statements,

namely the Contractor's Certificate of Cost and the

Mortgagor's Certificate of Cost. In reliance upon these

certifications which were fraudulently inflated, HUD

was induced to endorse the Lurline Gardens mortgage for

insurance in an excessive amount and to make interest

reduction payments based on that mortgage in an exces-

sive amount. Each month the mortgagee of Lurline

Gardens submits a voucher to HUD for an interest

reduction payment. Each of these vouchers is a false

claim within the meaning of the False Claims Act, supra,

since each is based on the false statements contained in

the cost certifications and each is a claim for money

upon the Government. Plaintiff is entitled to recover

B-7

$140,137.44 which is double the amount of damages

plaintiff has incurred as a result of excess interest

reduction payments, and $152,000.00 representing a

$2,000 forfeiture for each of the seventy-six false claims

made upon the Government in the form of vouchers for

interest reduction payments.

Dated: January 16, 1979 .

MANUEL L, REAL

UNITED STATES DISTRICT JUDGE

CONSTITUTIONAL PROVISIONS AND RULES INVOLVED

The False Claims Act, 31 U.S.C. §231 has not been

enacted into positive law. Revised Statutes, §§ 3490 and

5438 provide the text currently in force:

Revised Statutes §3490 provides, in pertinent part:

Any person .. . who shall do or commit any

of the acts prohibited... shall forfeit and pay

to the United States the sum of $2,000.00, and,

in addition, double the amount of damages

which the United States may have sustained by

reason of the doing or committing such

act....

Revised Statutes §5438 provides, in pertinent part:

Every person who makes or causes to be

made, or presents or causes to be presented, for

payment or approval, to... the United States,

any claim on or against the Government

. ». knowing such claim to be false, fictitious,

or fraudulent, or who, for the purpose of

obtaining or aiding to obtain the payment or

approval of such claim, makes, uses, or causes

to be made or used, any false bill, receipt,

voucher, roll, account, claim, certificate, affi-

davit, or deposition, knowing the same to con-

tain any fraudulent or fictitious statement or

Appendix "C"

entry....

31 U.S.C. §233 provides, in pertinent part:

It shall be the duty of the several United

States attorneys... to be diligent in inquiring

into any violation of the provisions of section

231 of this title by persons liable to such

suit...and to cause them to be proceeded

against in due form of law for the recovery of

such forfeiture and damages...

National Housing Act, 12 U.S.C. §17151:

(a) This section is designed to assist private

industry in providing housing for low and

moderate income families and _ displaced

families.

**e# *& *

(d) To be eligible for insurance under this

section, a mortgage shall —

**s * *

(3)

**# & *

(iii) not exceed (1) in the case of new

construction, the amount which the Secretary

estimates will be the replacement cost of the

property or project when the proposed improve-

ments are completed (the replacement cost

C-2

may include the land, the proposed physical

improvements, utilities within the boundaries of

the land, architect's fees, taxes, interest during

construction, and other miscellaneous charges

incident to construction and approved by the

Secretary), * * * * Provided further, that in

the case of any mortgagor other than a non-

profit corporation or association, cooperative

(including an investor-sponsor), or public body,

or a mortgagor meeting the special require-

ments of subsection (e)(1) of this section, the

amount of the mortgage shall not exceed 90 per

centum of the amount otherwise authorized

under this section...

National Housing Act, 12 U.S.C. §1715r provides, in

pertinent part:

[No mortgage covering new construction

. +. Shall be insured...unless the mortgagor

has agreed (a) to certify, upon completion of

the physical improvements on the mortgaged

property or project and prior to final endorse-

ment of the mortgage, either (i) that the ap-

proved percentage of actual cost .. . equaled or

exceeded the proceeds of the mortgage loan or

(ii) the amount by which the proceeds of the

mortgage loan exceeded such approved percent-

C-3

age of actual cost, as the case may be, and (b)

to pay forthwith to the mortgagee, for applica-

tion to the reduction of the principal obligation

of such mertgage, the amount, if any, certified

to be in excess of such approved percentage of

actual cost. * * * *

(b) The term "approved percentage" means

the percentage figure which... the Secretary

is authorized to apply to his estimate of value,

cost, or replacement cost, as the case may be,

of the property or project in determining the

actual insurable mortgage amount * * * *

(ce) The term "actual cost" has the follow-

ing meaning: (i) in case the mortgage is to

assist the financing of new construction, the

term means the actual cost to the mortgagor of

such construction, including amounts paid for

labor, materials, construction contracts, off-

site public utilities, streets, organizational and

legal expenses, such allocations of general

overhead items as are acceptable to the Secre-

tary, and other times of expense approved by

the Secretary, plus (1) a reasonable allowance

for builder's profit ... and (2) an amount equal

to the Secretary's estimate of the fair market

value of any land... but excluding the amount

of any kickbacks, rebates or trade discounts

received in connection with the construction of

the improvements....

C-4

National Housing Act §236, 12 U.S.C. §1715z-1:

(a) For the purpose of reducing rentals for

lower income families, the Secretary is author-

ized to make, and to contract to make, periodic

interest reduction payments on behalf of the

owner of a rental housing project designed for

occupancy by lower income families, which

shall be accomplished through payments to

mortgagees holding mortgages meeting the

special requirements specified in this section.

**s *¢ *

(c) The interest reduction payments to a

mortgagee by the Secretary on behalf of a

project owner shall be in an amount not exceed-

ing the difference between the monthly pay-

ment for principal, interest, and mortgage in-

surance premium which the project owner as a

mortgagor is obligated to pay under the mort-

gage and the monthly payment for principal and

interest such project owner would be obligated

to pay if the mortgage were to bear interest at

the rate of 1 per centum per annum.

se *& *

(g) The project owner shall, as required by

the Secretary, accumulate, safeguard, and peri-

odically pay to the Secretary all rental charges

collected in excess of the basic rental charges.

Such excess charges shall be credited to a

C-5

reserve fund to be used by the Secretary to

make additional assistance payments as pro-

vided in paragraph (3) of subsection (f) of this

section.

Federal Rules of Civil Procedure, Rule 56 provides:

** * *

(c)....The judgment sought shall be

rendered forthwith if the pleadings, depositions,

answers to interrogatories, and admissions on

file, together with the affidavits, if any, show

that there is no genuine issue as to any material

fact and that the moving party is entitled to a

judgment as a matter of law. A summary

judgment, interlocutory in character, may be

rendered on the issue of liability alone although

there is a genuine issue as to the amount of

damages,

** * *

(e) Form of Affidavits; Further Testimony;

Defense Required. Supporting and opposing

affidavits shall be made on personal knowledge,

shall set forth such facts as would be admissible

in evidence, and shall show affirmatively that

the affiant is competent to testify to the

matters stated herein. Sworn or certified

copies of all papers or parts thereof referred to

in an affidavit shall be attached thereto or

C-6

served therewith. The court may permit affi-

davits to be supplemented or opposed by depo-

sitions, answers to interrogatories, or further

affidavits. When a motion for summary judg-

ment is made and supported as provided in this

rule, an adverse party may not rest upon the

mere allegations or denials of his pleading, but

his response, by affidavits or as otherwise pro-

vided in this rule, must set forth specific facts

showing that there is a genuine issue for trial.

If he does not so respond, summary judgment, if

appropriate, shall be entered against him.

(f) When Affidavits are Unavailable.

Should it appear from the affidavits of a party

opposing the motion that he cannot for reasons

stated present oy affidavit facts essential to

justify his opposition, the court may refuse the

application for judgment or may order a con-

tinuance to permit affidavits to be obtained or

depositions to be take or discovery to be had or

may make such other order as is just.

Housing and Urban Development Regulations, 24

C.F.R. §236.510(a)(2) provides:

(a) The term for which interest reduction

payments shall be made shall begin on the

following dates:

** ¢

C-7

(2) With respect to a mortgage insured

upon completion, the date on which the Com-

missioner endorses the mortgage note for issu-

ance,

Housing and Urban Development Regulations, 24

C.F.R. §236.510(b)(2) provides in pertinent part:

(b) The term of the interest reduction pay-

ment shall end upon the occurrence of one of

the following events:

*~_* * *

(2) The Commissioner's receipt of the

mortgagee's notice of intention to file an insur-

ance claim and to acquire and convey title...

CERTIFICATE OF SERVICE

I, the undersigned, certify as follows:

lam a member of the bar of this Court.

On July, 1981, I served the foregoing Petition for

Writ of Certiorari on the respondents in this proceeding

by depositing a true copy thereof, enclosed in a sealed

envelope with postage thereon fully prepaid in the

United States mail at Los Angeles, California, addressed

to the attorneys of record for said respondents, as

follows:

William S. Freeman

Attorney, Civil Division

Department of Justice

Ben Franklin Station

Post Office Box 261

Washington, D.C. 20044

Solicitor General

Department of Justice

Washington, D.C. 20530

All parties required to be served have been served.

LAURA GOLDIN