United States of America v. 1850 Bryant Land LLC

Background

Relator Leiasa Beckham filed a qui tam action, meaning a case brought by a private person alleging fraud against the government. The operative pleading was her Third Amended Complaint. She alleged that defendants created a secret agreement involving the proposed development of property at 1850 Bryant Street in San Francisco.

According to the allegations, defendants promoted a “Nonprofit Multi-Tenant Center” where local nonprofits could provide services and seek federal and state grants to purchase business condominiums. Beckham alleged that the defendants’ actual objective was instead to develop a single-use city facility for the San Francisco Police Department and UCSF. She claimed that the nonprofit-center proposal was used to obtain community and Planning Commission support, after which defendants intended to pursue a different development through an administrative variance.

The defendants included 1850 Bryant Land LLC; its managers, Christopher Paul Foley and Douglas Ross; Kaslofsky & Associates LLC and Thurston Kaslofsky; and the City and County of San Francisco, the San Francisco Community Investment Fund, and Naomi Kelly, whom the opinion collectively calls “the City.” Beckham alleged that nonprofits applied for and received government grants based on representations that the money would support the nonprofit center. The opinion identified, among other examples, a $95,871 federal Department of Labor grant received by Goodwill and more than $3 million in operating grants received by the San Francisco Conservation Corps from CalRecycle.

A prior version of the complaint was dismissed because it described the alleged fraud with insufficient detail under Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particularity. The court allowed amendment. Beckham then filed the Third Amended Complaint, which added allegations about particular participants, communications, dates, grant applications, and actions allegedly supporting the scheme.

Motion and legal standards

Defendants jointly moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. They argued that the Third Amended Complaint failed to identify a false claim, failed to plead that defendants knew the statements were false, failed to show that the alleged misrepresentations were material to government funding decisions, lacked sufficient detail about the scheme, and failed to adequately allege a conspiracy.

The court explained that claims under the federal False Claims Act (FCA) and the California False Claims Act (CFCA) generally require allegations of a false statement or fraudulent course of conduct, knowledge or reckless disregard of the falsity, materiality, and government payment or loss. Because these claims involve fraud, Rule 9(b) requires enough detail to identify the “who, what, when, where, and how” of the alleged misconduct. The court applied the same analysis to the FCA and CFCA claims because the relevant provisions are substantially similar.

Court’s analysis

False statements and claims. The court rejected defendants’ argument that the complaint had to include the exact wording of each false statement or the actual grant applications. The complaint identified particular grants, their sources, dates, and amounts, and alleged that the applications represented that the funds would support the nonprofit-center project even though that project was allegedly not the defendants’ genuine objective. Those allegations provided reasonable indications that false claims were submitted and that defendants induced them.

Knowledge. The court found that the complaint’s specific factual allegations supported an inference that defendants knew the statements were false. The court pointed to allegations that Foley told Beckham he would do his “real deal” with Kaslofsky and that Kaslofsky printed a spreadsheet showing the property was to be developed as the city facility rather than as the nonprofit center. Although some allegations that defendants “knew” the statements were false were conclusory, the court held that the additional facts made the alleged knowledge sufficiently supported at the pleading stage.

Materiality. Materiality asks whether a misrepresentation had a natural tendency to influence the government’s decision to pay money. The court described this as a demanding requirement but held that the complaint plausibly alleged it because the grants were allegedly applied for and distributed with the understanding that they would support the nonprofit center. The court noted that later evidence might show that the grants were not directly tied to the project, especially if the nonprofits could keep the money after the nonprofit-center plan collapsed. At this stage, however, the court treated that issue as a matter of proof rather than a reason to dismiss.

Details of the scheme and conspiracy. The court concluded that the amended allegations sufficiently identified participants and described their alleged conduct. The complaint named specific City employees who allegedly approached Foley and Ross, identified other participants in calls with nonprofits, described actions by particular defendants, and alleged a quid pro quo: 1850 Bryant would promote the nonprofit-center project in exchange for the opportunity to purchase another City-owned property on favorable terms. The complaint also provided a sufficient timeframe, including meetings in February 2016 and dates for the grant applications.

The court separately addressed an argument that Kelly was not a proper CFCA defendant because she acted in her official capacity. Taking the allegations as true at this stage, the court held that the claim did not fail on that basis because Beckham alleged that Kelly also served as a board member of the San Francisco Community Investment Fund. The court stated that defendants could renew the argument on a more developed record.

Disposition

The court held that the Third Amended Complaint remedied the deficiencies previously identified in the First Amended Complaint and contained sufficient detail to allege a fraudulent scheme under the FCA and CFCA. It therefore denied the motion to dismiss. The order did not decide whether Beckham will ultimately prove the claims.