United States v. Retmnt Svcs Grp

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