United States of America v. 1850 Bryant Land LLC

Background

Leiasa Beckham, the qui tam relator, alleged that 1850 Bryant Land LLC, managed by Christopher Paul Foley and Douglas Ross, Kaslofsky & Associates LLC, Thurston Kaslofsky, the City and County of San Francisco, the San Francisco Community Investment Fund, and Naomi Kelly participated in a plan involving property at 1850 Bryant Street in San Francisco. According to the First Amended Complaint, the defendants allegedly presented the project as a nonprofit multi-tenant center to obtain community and Planning Commission approval, while intending ultimately to lease the property to the City.

Beckham alleged that the defendants induced nonprofits, including Mission Neighborhood Centers, Goodwill, and the San Francisco Conservation Corps, to apply for federal and state grants based on that allegedly false description. She sued under the federal False Claims Act and the California False Claims Act. The United States and California declined to intervene. The complaint asserted theories involving false or fraudulent claims, false records or statements, obligations to pay the governments, and conspiracy.

Motions to Dismiss

The court applied Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim, and Rule 9(b), which requires fraud allegations to identify the circumstances of the alleged fraud with particularity. The court explained that a False Claims Act or California False Claims Act claim requires a false statement or fraudulent conduct, knowledge, materiality, and government payment or an obligation to pay.

The court concluded that Beckham’s theory could be legally viable in the abstract, even though the defendants allegedly induced nonprofits to seek grants rather than directly submitting false claims for government funds. But the First Amended Complaint did not plead the theory with the required specificity. It did not identify who within the defendant organizations discussed carrying out the alleged scheme, when the alleged secret agreement was formed, what statements appeared in the grant applications, when the applications were submitted, how much they sought, or when the nonprofit-center plan was halted. The court also found that the complaint frequently conflated the defendants’ roles.

The court granted the motions to dismiss, with leave to amend. The order did not resolve whether the alleged fraud occurred or whether the defendants were ultimately liable under either statute.

Motion for Sanctions

1850 Bryant moved for sanctions under Rule 11, arguing that Beckham’s claims were objectively baseless and that her counsel had not reasonably investigated the allegations. Declarations from officers of three nonprofits generally contradicted allegations that the nonprofits received government funding related to the project.

The court denied the sanctions motion without prejudice. It stated that the materials seriously undermined Beckham’s allegations but that sanctions were not appropriate at that stage because she might be able to provide additional facts satisfying Rule 9(b). The court also noted that the absence of actual government funding did not by itself address the conduct prohibited by the False Claims Act and California False Claims Act.

Disposition

The motions to dismiss were granted, with leave to amend. Any amended complaint had to be filed within 21 days after entry of the order. The motion for sanctions was denied, without prejudice.