IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 01-10562
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
RETIREMENT SERVICES GROUP;
JOHNNIE BENSON, Individually;
JUDY CORBEILLE, Individually;
JACQUELINE BENSON UNGERLEIDER,
Individually; RETIREMENT VILLAGES
MANAGEMENT INC., doing business
as Heritage Village, doing business
as Colonial Southwest Inc;
COLONIAL SOUTHWEST INC;
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of Texas
August 15, 2002
Before GARWOOD, JOLLY and DAVIS, Circuit Judges.
GARWOOD, Circuit Judge:
Defendants-Appellants Retirement Services Group (RSG), Johnnie
Benson (Benson), Judy Corbeille (Corbeille), Jacqueline Benson
Ungerleider (Ungerleider), Retirement Villages Management, Inc.
(Retirement Villages), and Colonial Southwest, Inc. (Colonial)
(collectively the appellants) appeal the district court’s entry of
summary judgment in favor of Plaintiff-Appellee United States
Department of Housing and Urban Development (HUD). We reverse and
render judgment in part and vacate and remand in part.
Facts and Proceedings Below
RSG, a Texas general partnership, owned Heritage Village, a
retirement community in Fort Worth. The Heritage Village project
had been financed with a $6.5 million mortgage loan insured by
HUD. Benson owned seventy-six percent of RSG. According to the
stipulated facts, the remaining twenty-four percent of RSG was
owned by a trust; the trust and Benson were the only partners of
RSG. Benson was the sole trustee of the trust; Corbeille and
Ungerleider, Benson’s adult daughters, and Delvoris Davis were
the named beneficiaries of the trust. Benson acted as general
manager of RSG. Retirement Villages, doing business as Colonial,
was the project manager.
The $6.5 million loan was issued from Carnegie Evans
Corporation, a private lender. As a guarantee for the mortgage
obligation, Carnegie Evans Corporation secured co-insurance from
HUD on or about February 9, 1988, pursuant to Sections 244 and
233(f) of the National Housing Act as amended (12 U.S.C. §§
1715z-9, 1715n(f)). HUD would provide the lender with insurance
coverage for losses up to approximately eighty percent of unpaid
2
principal and interest if the borrower should default, subject to
various conditions and limitations. On February 9, 1988, RSG
executed a deed of trust note and a deed of trust in favor of the
lender. Also on February 9, 1988, RSG entered into a Regulatory
Agreement with HUD in consideration of HUD’s agreement to co-
insure the mortgage loan. The Regulatory Agreement was signed by
Benson in her capacity as general manager of the partnership.
Heritage Village was not profitable and, on April 1, 1990,
the mortgage went into default. On or about March 19, 1991, the
beneficial interest under the note and the deed of trust lien
were assigned to the Secretary of HUD. On or about September 30,
1993, HUD foreclosed on the mortgage.
Under HUD regulations then in effect, a mortgagor generally
was permitted to expend project funds only for payment of
mortgage obligations and payment of reasonable expenses necessary
to the proper operation and maintenance of the project. 24
C.F.R. § 255.704(b) (1989). The project owner could make
distributions of surplus cash only when all mortgage payments are
current and the owner is in compliance with all other conditions.
24 C.F.R. § 255.705(a) (1989). Owners were also required to
maintain books and records in reasonable condition for proper
audit and in compliance with HUD requirements. 24 C.F.R. §
255.706(e)-(g) (1989). Owners were required to provide monthly
accounting reports and year-end financial statements audited by
3
an independent certified public accountant. 24 C.F.R. §
255.706(g) (1989). If the owner makes unauthorized distributions
of project funds, HUD can recover double the value of the assets
and income of the project that have been used in violations of
the regulations or the regulatory agreement, plus costs. 12
U.S.C. § 1715z-4a(c).
In 1991, HUD contracted with Ervin and Associates (Ervin) to
monitor the Heritage Village project’s finances and report back
to HUD. Holly Larisch was the asset manager for Ervin with the
primary responsibility for monitoring Heritage Village and
reporting back to HUD. In a quarterly update dated September 27,
1991, Larisch included a reference to equity skimming, noting
that “receivables are due from affiliates of the general partner
and manager.” In an update dated December 31, 1991, Larisch
stated that reports received for the period from the date of the
default through November 1991 “show a significant amount of
equity skimming.” In a memorandum dated January 6, 1992, Larisch
indicated that she had talked about equity skimming with Ray
Carson, the director of HUD’s Fort Worth Multifamily Program
Center. There appears in the record a draft letter from Larisch
to Marshall Day, Benson’s attorney, dated April 20, 1992, in
which Larisch explicitly accuses Benson of equity skimming. The
draft letter is attached to a fax cover page, which indicates
that the draft letter was faxed from Larisch to Carson on April
4
21, 1992. A handwritten notation on the cover page solicits
Carson’s comments on the letter. Another notation on the page,
in what appears to be different handwriting, states “Don’t think
this was sent.” (“This” appears to refer to the draft letter to
Day rather than the fax to Carson. The machine-printed header of
the cover page indicates that the fax was transmitted from Ervin
on April 21, 1992.)
Throughout 1991 and 1992, Ervin and HUD made repeated
requests for RSG to submit properly prepared audited financial
statements and monthly accounting reports. On August 3, 1992,
HUD sent a letter to RSG requesting additional documentation and
explanation of questionable project expenditures. Because RSG
failed to respond properly, on August 11, 1992, HUD requested the
HUD Office of Inspector General for Audit (the HUD OIG) to
perform an audit of the project because HUD suspected that equity
skimming had occurred before and after the mortgage went into
default. In December 1992, HUD conferred with Benson and,
according to HUD in a confirming letter dated December 23, RSG
agreed to respond to HUD’s August 3 letter and to reimburse the
project for all monies used that were not for reasonable and
necessary operating expenses of the project. RSG’s response was
supposed to include invoices and other supporting information.
RSG never responded except by providing the same annual financial
statements that HUD had previously deemed unacceptable.
5
On December 9, 1992, the HUD OIG authorized an audit. The
HUD OIG began the audit in January 1993. A draft audit was
prepared and forwarded to HUD on or about June 17, 1993.1 A
final audit report was dated August 13, 1993. The audit
concluded that Benson used $841,106 of project funds for
unauthorized disbursements to herself, her partners, and for
other improper or unsupported costs. The final audit report’s
footnote 1 explains that the actual amount of unauthorized costs
was $864,521 and that this figure was adjusted by $23,417 because
Benson had reimbursed Heritage Village up to that amount. The
figures included in the final audit report were apparently
unchanged from those in the draft audit report.2
The audit covered transactions related to the Heritage
Village project for the period February 9, 1988 through December
1
As we will explain, this “or about” becomes important to our
holding.
2
The parties seem to agree that there was no alteration in the
total unauthorized cost amount between the August 13, 1993 final audit
report and the June 1993 draft audit report. The June 1993 draft audit
report is not in the record. However, the record does contain evidence
in the form of affidavits from E. Ross Burton, the Director of Housing
Loan Management in HUD’s Fort Worth Regional Office, and Jerry Thompson,
the Assistant District Inspector General for Audit for the Southwest
Region of the HUD OIG, both of which state that the draft audit report
identified $841,106 in unauthorized distributions. The record also
contains an internal memorandum from HUD’s files dated May 14, 1993.
The computer-printed header of this document includes the phrases
“External Audit” and “Heritage Village.” The body of the one-page
document includes handwritten notations stating that the purpose of the
document was to “Display Results of Audit” and “owner disbursed
$864,521.82 on quest. costs.” This document does not indicate its
author or any recipients.
6
31, 1992. The audit report states that the field work for the
audit was completed during December 1992 through April 30, 1993.
HUD filed suit against the appellants on June 17, 1999 in
the United States District Court for the Northern District of
Texas, seeking double damages for misused assets pursuant to 12
U.S.C. § 1715z-4a or, alternatively, relief for alleged
violations of 31 U.S.C. § 3713 (pertaining to priority of
government claims). On January 31, 2000, the appellants filed a
motion for summary judgment alleging that HUD’s case was barred
by the applicable six year statute of limitations contained in 14
U.S.C. § 1715z-4a(d). The district court denied this motion on
March 24, 2000. In December 2000, HUD filed a motion for summary
judgment and the appellants filed a second motion asserting the
limitations defense, this time relying on newly obtained
documents. On February 26, 2001, the district court denied the
appellants’ second motion for summary judgment and granted HUD’s
motion for summary judgment. The district court held that the
limitations period did not begin to accrue until August 17, 1993,
the date the final audit report was submitted.3 Final judgment
was entered in favor of HUD on February 26, 2001, ordering the
appellants to pay $1,682,212 plus interest. (Pursuant to 12
U.S.C. § 1715z-4a(c), the total of $841,106 in improper
3
The final audit report appears in the record and is actually dated
August 13, 1993.
7
expenditures indicated by the audit was doubled to arrive at the
final judgment figure of $1,682,212.) The district court held
that all the appellants, including Corbeille and Ungerleider,
were jointly and severally liable for the entire amount of the
judgment.
On appeal, the appellants assign as error the district
court’s holding on the statute of limitations issue. The
appellants argue that HUD discovered the equity skimming prior to
June 17, 1993, six years before HUD filed suit. Before this
court, HUD concedes that it discovered improper expenditures no
later than the date of the draft audit report, rather than the
date of the final audit report as the district court held. HUD
also concedes that the draft audit report was prepared no later
than June 17, 1993. The appellants also argue, in the
alternative, that Corbeille and Ungerleider should not be held
liable for the entire amount of the judgment because they were
not general partners in RSG.
Discussion
1. Standard of Review
This court reviews a district court's grant of summary
judgment de novo. Guillory v. Domtar Indus., Inc., 95 F.3d 1320,
1326 (5th Cir. 1996). Summary judgment is proper if, after
adequate opportunity for discovery, the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
8
any affidavits filed in support of the motion, show that there is
no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law. See Fed. R.
Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 106 S.Ct. 2505,
2511 (1986). The moving party bears the burden of identifying an
absence of evidence to support the nonmoving party's case.
Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2554 (1986). Summary
judgment is properly granted if the record does not contain
appropriate summary judgment evidence which would sustain a
finding in the nonmovant's favor on any issue as to which the
nonmovant would bear the burden of proof at trial. Id. at 2552-
53.
2. The Limitations Issue
12 U.S.C. § 1715z-4a(d) provides:
“(d) Time limitation. Notwithstanding any other statute of
limitations, the Secretary may request the Attorney General
to bring an action under this section at any time up to and
including 6 years after the latest date that the Secretary
discovers any use of project assets and income in violation
of the regulatory agreement, or such other form of
regulatory control as may be imposed by the Secretary, or
any applicable regulation.”
The interpretation of this limitations provision is an issue
of first impression in this circuit. The appellants argue that
the limitations period began to run before June 17, 1993, because
HUD suspected equity skimming long before that date. HUD urges
an interpretation that would start the limitations period running
on the day that HUD confirmed the existence of equity skimming by
9
means of an audit. HUD concedes that the date of the draft audit
report was the latest date that the limitations period could
begin to accrue, even under HUD’s interpretation. Therefore, if
the draft audit report was actually completed before June 17,
1993, HUD’s suit would clearly be time-barred.
A statute of limitations defense is an affirmative defense,
Fed. R. Civ. P. 8(c), and thus the burden was on the appellants
to create a genuine issue of material fact regarding when HUD had
sufficient knowledge to start the limitations period running. We
hold that the appellants have met this burden and that a genuine
issue of material fact exists as to when HUD discovered the
equity skimming.
Before this court, HUD has consistently asserted that the
draft audit report was issued on June 17, 1993. The record,
however, is inconsistent on this crucial point. The record
reveals that there was a stipulation, agreed to by all parties
and approved by the district court, to the effect that the draft
audit report was issued on June 13, 1993.4 If the stipulated
date is correct, then HUD’s action is time-barred since HUD
concedes that it discovered the equity skimming no later than the
day the draft audit report was issued. “The trial court may
4
The stipulation is contained in a statement of stipulated facts
in the Amended and Corrected Joint Pretrial Order entered by the
district court on December 12, 2000. This order was signed by counsel
for each party and by the district judge.
10
disregard stipulations between parties only if accepting them
would be manifestly unjust or if the evidence contrary to the
stipulation was substantial.” Hymel v. Commissioner, 794 F.2d
939, 940 (5th Cir. 1986) (per curiam) (internal quotation marks
omitted). There is some evidence in the record that contradicts
the stipulated date. Burton’s affidavit, dated March 1, 2000,
states that the draft report was issued “on June 17, 1993.”
Thompson’s affidavit, dated December 21, 2000, states that the
draft report was issued “on or about June 17, 1993” (emphasis
added).5
Comparing the clear language of the stipulation with the
clear language of Burton’s affidavit and the equivocal language
of Thompson’s affidavit creates a genuine issue of fact as to
whether the draft audit report was issued on June 17, 1993 or
before that date. This fact issue is material because a finding
that the report issued prior to June 17, 1993 – as the stipulated
facts indicate it was – would establish that HUD’s suit was time-
barred. Burton’s affidavit supports HUD’s concession that the
date the draft audit report issued was the latest possible date
on which the limitations period began to accrue. Burton, the
Director of Housing Loan Management for HUD’s Fort Worth Regional
Office, stated in his affidavit “[P]rior to the HUD OIG Audit
5
We also take judicial notice of the fact that June 13, 1993 was
a Sunday.
11
Report, we did not have sufficient information to draw
conclusions about the propriety of the questioned disbursements.”
Burton continued, “It was not until the HUD OIG issued its draft
audit report . . . to both the owner and HUD that it was
confirmed to me that the previously questioned project
disbursements were in fact not reasonable expenses necessary for
the operation of the project. The Audit Report informed me of
the following: The owner used project funds of $841,106 for
unauthorized distributions . . . .” Id.
Because we find that the limitations period began to run no
later than the date of the draft audit report and because there
is a genuine issue of material fact as to what that date was, we
vacate the district court’s summary judgment holding that the
limitations period began to run on August 17, 1993 and remand
this case for further proceedings. If it is established that the
draft audit report was issued before June 17, 1993, then judgment
should be entered in favor of the appellants. If, however, it is
established that the draft audit report was issued on June 17,
1993, there will likely be issues of material fact remaining.
For example, it seems highly likely to us that, if the draft
audit report was issued on June 17, that someone at the HUD OIG
was most probably aware of the contents of the report by June 16.
Whether someone did in fact have such knowledge on June 16, who
that someone was, and whether his position was sufficiently
12
senior that his knowledge could be attributed to the Secretary
would all be material issues of fact.
Our research has disclosed no circuit court cases
interpreting the limitations provision in Section 1715z-4a(d).
There are at least four published opinions in which district
courts have analyzed Section 1715z-4a(d). Their reasoning
provides useful guidance for our analysis. We summarize their
relevant holdings briefly. United States v. Flake, 783 F. Supp.
762 (E.D.N.Y. 1992) addressed the question of who must have
knowledge in order to attribute a discovery to “the Secretary” of
HUD.6 Relying in part on this court’s application of agency
principles in United States v. Currency Totalling $48,318.08, 609
F.2d 210, 214 - 15 (5th Cir. 1980), Flake held that the
limitations period began to run when “a senior administrator
learns of a transfer of HUD funds to another entity and has a
duty to share this knowledge with his superior.” Flake, 783 F.
Supp. at 767. In United States v. Harvey, 68 F. Supp. 2d 1001
(S.D. Ind. 1997), HUD asserted that it was unaware that certain
payments were improper until after an audit had been performed.
Summary judgment was precluded because there was a genuine issue
of material fact as to whether HUD needed to perform the audit
6
We note that none of the parties to the instant case have argued
that the individual holding the cabinet position of HUD Secretary must
have personal knowledge in order to start the statute of limitations
running.
13
before it could become aware that the payments were improper.
Id. at 1008. After a bench trial, the court made the factual
finding that HUD was unable to determine that these payments were
improper until after it received the audit. United States v.
Harvey, 68 F. Supp. 2d 1010, 1013 (S.D. Ind. 1998). In United
States v. Schlesinger, 88 F. Supp. 2d 431 (D. Md. 2000), the
court held that, on the facts of that case, HUD did not discover
the unauthorized expenditures before it began auditing the
project, id. at 439.7 United States v. Envicon Dev. Corp., 153
F. Supp. 2d 114 (D. Conn. 2001), held that HUD must have actual
knowledge, rather than merely constructive knowledge, of improper
expenditures before the limitations period began to run. Id. at
122-23. This interpretation accords with the well-established
principle that “[s]tatutes of limitation sought to be applied to
bar rights of the Government, must receive a strict construction
in favor of the Government.” Badaracco v. Commissioner, 104
S.Ct. 756, 761 (1984); see also Davidson v. FDIC, 44 F.3d 246,
249 (5th Cir. 1995) (same); but see Franconia Assocs. v. United
States, 122 S.Ct. 1993 (2002) (“[L]imitations principles should
generally apply to the Government in the same way that they apply
7
The Schlesinger court did not adopt a per se rule with respect to
audits. In that case, the only evidence of prior discovery proffered
by the defendant clearly did not support an inference that HUD was aware
of the improper transactions before it began the audit. See id. at 439.
14
8
to private parties.” (internal quotation marks omitted)).
“Discovers,” as used in Section 1715z-4a(d), must mean
something more than to suspect but something less than to confirm
with absolute certainty as to all the possibly material details.
In Mahar v. Strachan Shipping Co., 68 F.3d 951 (5th Cir. 1995),
we interpreted an ERISA limitations provision that started the
limitations period running when the plaintiff “had actual
knowledge of the breach or violation,” id. at 952 (quoting 29
U.S.C. § 1113(2)(A)). We explained that actual knowledge
“requires a showing that plaintiffs actually knew not only of the
events that occurred which constitute the breach or violation but
also that those events supported a claim . . . .” Id. at 954
(quoting Int’l Union v. Murata Erie North America, 980 F.2d 899,
8
The Envicon court also commented on the meaning of “latest date”:
“The court takes the ‘latest date’ to mean the date the
Secretary receives documentation or other information or
notice revealing the ‘any use of project assets and income in
violation of the regulatory agreement.’ An interpretation of
‘latest date’ that allowed the Secretary to effectively push
back the date for filing each time HUD discovered additional
evidence of the same violation would frustrate the purpose of
having a statute of limitations.” Envicon, 153 F. Supp. 2d at
121.
In the instant case, HUD has raised arguments relying on the “latest
date” language. Our disposition of this case does not require us either
to accept or reject the interpretation of this language developed in
Envicon. It is clear from the evidence and HUD’s admissions that the
absolute “latest date” HUD could have discovered any improper use of
assets was the date on which the draft audit report was issued, whether
that was June 17, 1993 or before. All of the improper expenditures that
HUD alleges in this suit were included in the final audit report which,
apparently, did not include any such expenditures that were not included
in the draft audit report.
15
900 (3d Cir. 1992)). “To charge the Secretary [of Labor] with
actual knowledge of an ERISA violation, it is not enough that he
had notice that something was awry; he must have had specific
knowledge of the actual breach of duty upon which he sues.”
Brock v. Nellis, 809 F.2d 753, 755 (11th Cir. 1987); Mahar, 68
F.3d at 955 (quoting Brock with approval). Of course, the
language of the ERISA limitations provision differs significantly
from the limitations provision we interpret here. But we find
these precedents instructive in a general way for informing our
understanding of Section 1715z-4a(d), since a strict construction
in favor of the government requires us to understand “discovers”
to require some degree of actual knowledge. Cf. Shellmar
Products Co. v. Allen-Qualley Co., 87 F.2d 104, 108 (7th Cir.
1937) (defining “discover” as “to get knowledge of what has
existed but has not theretofore been known to the discoverer.”).
HUD concedes that it had the requisite actual knowledge – both of
the events that occurred and that they supported HUD’s claim of a
violation – no later than the issuance of the draft audit report.
The district court erred by holding that HUD did not have the
requisite knowledge until the August 1993 date of the final audit
report. Our disposition of this case does not require us
to go any further in interpreting Section 1715z-4a(d) at this
time. Based on the evidence in the record, it is possible that
the draft audit report was issued before June 17, 1993. It is
16
perhaps probable, even if the draft audit report was not issued
until June 17, 1993, that a senior HUD administrator with a duty
to report had actual knowledge of the violations reflected in the
draft audit report prior to June 17, 1993. The appellants will
have the burden of proving one of these possibilities on remand.
We make no prediction as to whether the appellants will
ultimately succeed in meeting this burden.9 But the appellants
have succeeded in raising a genuine issue of material fact that
precludes summary judgment on the limitations issue.
3. The Liability Issue
The appellants have also succeeded in raising what are at
least genuine issues of material fact relating to the liability
of defendants Corbeille and Ungerleider.
12 U.S.C. § 1715z-4a(a) describes what parties may be held
liable for the types of violations that HUD alleged in the
instant case. In pertinent part, Section 1715z-4a(a) provides:
“The Secretary . . . may request the Attorney General
to bring an action in a United States district court to
recover any assets or income used by any person in
violation of (A) a regulatory agreement that applies to
a multi-family project whose mortgage is insured or
held by the Secretary under Title II of the National
Housing Act . . . or (D) any applicable regulation. . .
. (2) For purposes of a mortgage insured or held by the
Secretary under Title II of the National Housing Act .
. . the term "any person" shall mean any person or
9
We note that if appellants make an appropriate preliminary
showing, HUD may arguably have some burden to come forward with evidence
as to matters particularly within its own knowledge and control. See,
e.g., McCormick on Evidence (West; 3rd Ed. 1984) § 337 at 950.
17
entity which owns a project, as identified in the
regulatory agreement, including but not limited to any
stockholder holding 25 percent or more interest of a
corporation that owns the project; any beneficial owner
under any business or trust; any officer, director, or
partner of an entity owning the project; and any heir,
assignee, successor in interest, or agent of any
owner.”
It is undisputed that RSG, an entity and a Texas general
partnership, was the sole owner of the Heritage Village project
and the Regulatory Agreement identifies RSG as such. It is also
undisputed that defendant Benson was a general partner of RSG.
On appeal, the appellants challenge only the potential liability
of Corbeille and Ungerleider, not that of Benson or any of the
other defendants (RSG, Retirement Villages, and Colonial).10
HUD argues that Corbeille and Ungerleider may be held liable
on either of two primary theories – that they were general
partners of RSG or that they were beneficial owners of a trust
that was a partner of RSG.11 The application of Section 1715z-
10
Of course, if the appellants’ statute of limitations defense
succeeds it would establish that none of the defendants can be held
liable as the entire suit is time-barred. The appellants concede that
the evidence supports HUD’s claim that the equity skimming actually
occurred. Thus, if the limitations defense fails, the remaining
question would be which of the defendants can be held liable for the
judgment.
11
HUD also asserts, without citing evidence in the record, that
Corbeille and Ungerleider would also be liable as “officers of the
project’s identity of interest management agent, Colonial Southwest.”
Corbeille testified in her deposition that she served as secretary of
Colonial and, in their brief to this court, the appellants accept the
characterization that she was an officer of Colonial. The analysis for
the officer theory of liability is the same as that for the beneficial
owner theory, so we need not discuss it separately.
18
4a(a) to the instant case presents issues of first impression in
this circuit. We will discuss the statute’s application to each
of the theories of liability.
If RSG is found to have misused assets or income in the
manner specified by Section 1715z-4a(a), the plain language of
the statute authorizes a judgment against RSG. RSG is an “entity
which owns a project” and falls within the definition of “any
person” that may be held liable. Id. Because RSG is a Texas
general partnership, any general partner of RSG, subject to
certain exceptions, will be jointly and severally liable for the
judgment by application of the general principles of Texas
partnership law. See Tex. Rev. Civ. Stat. Ann. art. 6132b-304
(Vernon 2002).12 If it were established that Corbeille and
Ungerleider were general partners of RSG, that finding would
settle this issue in favor of HUD.
In the Amended and Corrected Joint Pretrial Order, the parties
made the following stipulation:
“The Defendants Judy Corbeille and Jacqueline Ungerleider
were two of the three beneficiaries of the Trust that
owned 24 percent of Retirement Services Group at the time
of the execution of the Deed of Trust and Regulatory
Agreement. Defendant Johnnie Benson was the Trustee of
this Trust and owned 76 percent of Retirement Services
12
We are aware that the definition of “any person” in Section
1715z-4a(a)(2) includes “any . . . partner of an entity owning the
project.” As applied to the instant case, this part of the definition
would include the trust. No judgment was entered against the trust, or
against Benson as trustee, and indeed neither the trust nor Benson as
trustee was a party to the case.
19
Group.” (emphasis added).
According to this stipulation, RSG had only two partners – who
together owned 100 percent of the partnership – Benson and the
trust. (A trust is a “person” that can be a partner. See Tex.
Rev. Civ. Stat. Ann. art. 6132b-101(14), 6132b-2.02(c) (Vernon
2002).) “The trial court may disregard stipulations between
parties only if accepting them would be manifestly unjust or if
the evidence contrary to the stipulation was substantial.” Hymel,
794 F.2d at 940 (internal quotation marks omitted).
In their depositions, Corbeille and Ungerleider testified
that they never owned an equity interest in RSG or any of the
entities named as defendants. However, in their original answer
to HUD’s complaint, the appellants admitted that Corbeille and
Ungerleider were general partners of RSG. HUD’s complaint
contains the following allegations: “7. Defendant Judy Corbeille,
individually, is for all relevant times a general partner of
Retirement Services Group. 8. Defendant Jacqueline Benson
Ungerleider, individually is for all relevant times a general
partner of Retirement Services Group.” The appellants made the
following answer to these paragraphs: “7. Defendants admit the
allegations contained in paragraph 7 of the Complaint. 8.
Defendants admit the allegations contained in paragraph 8 of the
complaint.”
But the record contains a document entitled “Amendment to
20
Partnership Agreement,” dated May 1, 1985, which describes the
ownership of the partnership interest as follows: “a. Johnnie
Benson – 76% b. Johnnie M. Benson, Trustee for Jacqueline Benson
Ungerleider, Judy Benson Corbeille, and Delvoris D. Davis – 24%.”
The deposition testimony of both Corbeille and Ungerleider is
consistent with this description of the partnership.13 The
admissions are the only evidence offered by HUD to contradict the
stipulation. In light of the evidence that corroborates the
stipulation, the admissions are not substantial enough to
overcome the presumption in favor of accepting the stipulated
facts. Without substantial evidence contradicting the
stipulation or a showing of manifest injustice (which HUD has not
argued), Corbeille and Ungerleider cannot be held personally
liable as general partners. The judgment against those
defendants cannot stand on that basis.
As far as the record reflects, the appellants have never
denied that Corbeille and Ungerleider were two of the three
beneficiaries of the trust that, per the stipulation, is a
general partner of RSG. Indeed, on appeal, the appellants urge
that Corbeille and Ungerleider be characterized as beneficiaries
of the trust, rather than as general partners of RSG. Section
13
In particular, Corbeille testified that she, Ungerleider and
Davis, were beneficiaries of the trust, which owned 24 percent of RSG
and that she understood this to mean that the three beneficiaries were
not partners but were “part of a trust that together had eight, eight
and eight for a total of 24 percent.”
21
1715z-4a(a)(2) includes in its definition of “any person” who may
be sued “any beneficial owner under any business or trust.” HUD
argues that Corbeille and Ungerleider, as beneficial owners of
the trust, would thus be strictly liable for the judgment against
RSG even if they were not general partners of RSG. The
appellants assert that Corbeille and Ungerleider, as beneficial
owners, may only be held liable if there is a showing of
wrongdoing by them as individuals. Some interpretation of
Section 1715z-4a(a)(2) is necessary to clarify what facts are
material.
HUD’s contention is essentially that the statute’s plain
language – by including a beneficial owner in the definition of
“any person” – establishes that Corbeille and Ungerleider were
properly held liable. This court will follow the literal, plain
language of a statute unless doing so would lead to an absurd
result. E.g., Johnson v. Sawyer, 120 F.3d 1307, 1319 (5th Cir.
1997). Applying this well-established principle, we observe
first that the plain language of Section 1715z-4a(a), taken with
absolute literalness, is not entirely clear. To begin with,
Section 1715z-4a(a)(1) authorizes the Attorney General “to bring
an action . . . to recover any assets or income used by any
person.” Taken literally, the section does not specify against
whom such an action may be brought or from whom HUD can recover.
It would clearly be an absurd result if the statute permitted a
22
person with no connection whatsoever to the project in question
to be named as a defendant. The determination of who may be sued
must be informed by the rest of the statute, especially the
phrase “used by any person” and the definition of “any person.”
See United States v. Cofield, 215 F.3d 164, 168 (1st Cir. 2000)
(interpreting definition of “any person” to determine whether
defendant was a person who could be sued).
Section 1715z-4a(a)(2)’s definition of “any person” narrows
the sphere of possible defendants to “any person or entity which
owns a project, as identified in the regulatory agreement,” which
includes “any beneficial owner under any business or trust.” To
again avoid an absurd result, we must regard “any business or
trust” as encompassing only a business or trust with a connection
to the project in question. Cf. Cofield, 215 F.3d at 168
(interpreting “agent of any owner,” as used in Section 1715z-
4a(a), as referring to an agent with some responsibility
connected to the project). So, the beneficial owner of a trust
that owns the project is a person from whom HUD can recover in an
action by the attorney general. The statute’s wording requires
us to take one further step to determine what HUD may recover.
The statute authorizes a legal action “to recover any assets or
income used by any person in violation of . . . .” 12 U.S.C. §
23
1715z-4a(a)(1) (emphasis added).14 For a “person,” as defined by
the statute, to be liable it must be shown that the person “used”
(indeed, that the person misused) the assets or income. See
Cofield, 215 F.3d at 168 (offering examples of an agent’s
wrongdoing that might subject him to liability). If the person
happens to be a general partner of an entity against which
judgment is entered, then the general liability principles of
partnership law would normally subject that person to personal
liability. If the person has a relationship to the owning entity
such that, under normal principles, does not give rise to the
person being vicariously liable for what the owning entity is
liable for, then Section 1715z-4a requires some degree of
culpability to impose liability on that person. Cf. Cofield, 215
F.3d at 168 (“[T]here must be some limits based on fault and
causation on the notion of agent liability--surely, the
purchasing agent cannot be held liable, although an agent of the
project, if unbeknownst to him an officer walks off with project
rents . . . .”).
As applied to the instant case, HUD points to no evidence,
and we have found none in the record, that Ungerleider ever
received any funds from the project, that she ever had control
over any entity involved with the project, or that she was aware
14
The statute further authorizes the district court to grant
judgment in an amount doubling the value of the assets and income that
were misused. 12 U.S.C. § 1715z-4a(c).
24
of any improper disbursements. Ungerleider cannot be held
personally liable for any amount absent evidence of personal
culpability. HUD, which would have the burden of proof at trial,
had the summary judgment burden of putting forth some evidence
that Ungerleider misused or received project funds. HUD has not
met this burden. We render judgment with respect to defendant
Ungerleider and hold that she may not be held personally liable
for any part of the judgment because HUD has not produced any
evidence that Ungerleider misused any funds.
With regard to Corbeille, the appellants admit that
Corbeille received a total of $24,406.12 from project funds. The
appellants assert that $22,500 of this sum was salary for 199215
and that $1,906.16 was for reimbursement of expenses. The final
audit report found that “[t]he owner [i.e., Benson] paid herself
and two partners $367,500 in unauthorized salaries” and that
Benson “disbursed $424,024 for owner-related loans, legal fees,
and other owner-related or unnecessary expenses in violation of
the Regulatory Agreement and other HUD requirements.” There is a
genuine issue of material fact as to whether any or all of the
$24,406.12 that Corbeille received was an improper use of project
funds. Based on our understanding of Section 1715z-4a, we give
15
In her deposition, Corbeille testified that she was employed
full-time at Heritage Village as activities director at a salary of
slightly over $2,000 per month. The audit report indicates that the
$22,500 was disbursed to Corbeille in five installments of $4,500 each
between April 8, 1992 and December 15, 1992.
25
the following direction to the district court: The highest amount
for which Corbeille is potentially personally liable is
$48,812.24 (that is, double $24,406.12, the maximum amount of
assets and income that Corbeille could have misused). Corbeille
can only face liability based on funds that she misused (as
misuse of funds is described in Section 1715z-4a). Thus,
Corbeille’s liability may ultimately be premised on the entire
$24,406.12, a portion of it, or there may be no personal
liability at all if there is no showing that the funds were used
improperly. Of course, if HUD’s suit was time-barred, there
could be no personal liability.
Conclusion
We REVERSE and RENDER judgment with respect to defendant-
appellant Ungerleider with respect to her individual liability.
HUD was required to produce evidence that Ungerleider misused or
received project funds and no such evidence was produced. No
substantial evidence contradicts the stipulation establishing
that Ungerleider was not a general partner of RSG and she cannot
be held personally liable on that basis.
We VACATE the judgment with respect to each of the
defendants-appellants other than Ungerleider and REMAND that
portion of the case for further proceedings not inconsistent with
this opinion. Genuine issues of material fact remain as to
whether the draft audit report was issued on June 17, 1993 or
26
before that date and whether HUD had sufficient knowledge to
start the limitations period running even before the draft audit
report was issued. Genuine issues of material fact also remain
as to whether defendant-appellant Corbeille made any misuse of
project funds that would render her personally liable.
REVERSED and RENDERED in part;
VACATED and REMANDED in part.
27