United States v. Cofield

United States Court of Appeals
For the First Circuit

No. 99-1122
No. 99-1123
No. 99-1268
No. 99-1335

UNITED STATES OF AMERICA,

Plaintiff, Appellee/Cross-Appellant,

v.

JAMES E. COFIELD, JR., HENRY F. OWENS, III,
OWENS & ASSOCIATES, and ROXSE HOMES, INC.,

Defendants, Appellants/Cross-Appellees.
____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]
____________________

Before

Selya, Circuit Judge,

Bownes, Senior Circuit Judge,

and Boudin, Circuit Judge.

Lawrence P. Murray with whom Lane Altman & Owens, LLP was
on brief for Henry F. Owens III and Owens & Associates.
James E. Cofield, Jr. pro se.
Sara M. Bloom, Assistant United States Attorney, with whom
Donald K. Stern, United States Attorney, Michael J. Pineault,
Assistant United States Attorney, and Thomas W. Rodick, U.S.
Department of Housing and Urban Development, were on brief for
the United States.
 June 19, 2000

BOUDIN, Circuit Judge. Roxse Homes housing project is

a 364-unit housing development for low- to moderate-income

tenants in Boston, Massachusetts. The project was built in 1969

subject to a mortgage insured by the Department of Housing and

Urban Development ("HUD"); and it was owned and operated by a

non-profit corporation, Roxse Homes, Inc. ("Roxse Homes"), until

HUD took over the project in 1992. James E. Cofield, Jr., was

the chairman of the board of Roxse Homes from 1971 until 1992

and Henry F. Owens, III, was an attorney who represented Roxse

Homes in various matters starting in the early 1970s.

In securing HUD insurance for the mortgage, Roxse Homes

signed a regulatory agreement with HUD imposing various

restrictions on the company. Pertinently, the agreement

provided that

! Assets of the project may be used only for
reasonable operating expenses and
necessary repairs of the project;

! All rents and receipts of the project must
be deposited in project accounts; and

! Documents, records, and other related
papers of the project must be maintained
in a reasonable condition for proper
audit.

-2-
 From the outset Roxse Homes was unable to make any

principal payments on the mortgage, and in 1975 HUD paid the

mortgagee $9.5 million and took over the mortgage. In December

1992, HUD secured a court order to replace the management of the

project (and HUD later foreclosed on the property). Doubtless

prompted by this debacle, government investigators examined the

records and transactions of Roxse Homes and ultimately uncovered

the two transactions that prompted this litigation.

First, in July and August 1991, Owens received on

behalf of Roxse Homes payment of $145,000 in settlement of the

project's legal claims against contractors for defective roofing

work. Owens first deposited the funds in the Owens & Associates

client trust account, and then Owens wrote a check on the trust

account for $50,000 payable to the Owens & Associates operating

account, with the words "Roxse Retainer" written on the memo

line. After audit, the government took the position that Owens

had previously been paid in full by Roxse Homes for all of his

work on the roofing case and that the $50,000 was not a

justified expenditure.

Second, the government's audit revealed that in June

1991, Roxse Homes had paid Owens's firm $13,870.50 out of

project funds for legal services on four specific matters. HUD

concluded that these amounts, which the project admittedly paid,

-3-
were for legal services that benefitted others but not the

project. For example, $2,705 was spent on litigation involving

the Roxse Homes Limited Partnership and $1,582.50 was spent in

opposing subpoenas issued by HUD.

HUD, and ultimately the U.S. Attorney's office, made

demands on Cofield and Owens for adequate explanations and/or

for the return of the disputed amounts ($50,000 and $13,870.50).

More than two years passed with repeated requests by the

government, followed by what it regarded as inadequate or

inconsistent explanations by Cofield and Owens. In October

1995, the United States filed this suit against Cofield, Owens,

Owens & Associates, and Roxse Homes to recover $63,870.50 plus

interest, double damages, and costs including attorney's fees.

12 U.S.C. § 1715z-4a (1994).1 Throughout, we cite and quote the

statute as it is listed without amendments made in 1997 which,

in any event, do not bear on this case.

This statutory provision empowers the Attorney General

to sue in the district court "to recover any assets or income

used by any person in violation of . . . a regulatory agreement"

1
In addition to its statutory claim, the United States made
claims of conversion, breach of fiduciary duty and unjust
enrichment against the defendants. The district court did not
pass on the merits of these common law claims, treating them as
superseded by the judgment in favor of the government on the
statutory claim.

-4-
covering a HUD-insured mortgage or "any applicable regulation."

12 U.S.C. § 1715z-4a(1). The statute further provides:

For purposes of this section, a use of
assets or income in violation of the
regulatory agreement or any applicable
regulation shall include any use for which
the documentation in the books and accounts
does not establish that the use was made for
a reasonable operating expense or necessary
repair of the project and has not been
maintained in accordance with the
requirements of the Secretary and in
reasonable condition for proper audit.

Id. § 1715z-4a(a)(1).

The district court conducted a bench trial on the

statutory claim and decided it in a memorandum and order dated

November 20, 1998. As to the $50,000 payment, the court found

that it was not a payment for previously unpaid work in the

roofing litigation, that no such unpaid work had been documented

by Cofield or Owens, and that the payment was at best an

impermissible "retainer" for unspecified work which was

reflected in the project's records in a reasonable condition for

a proper audit. The court also found that the $13,870.50 paid

by Roxse Homes to Owens & Associates out of project funds were

not reasonable operating expenses of the project; further detail

as to the four transactions is unnecessary because the

defendants do not now contest this finding.

-5-
 Accordingly, the court entered judgment against all

defendants for the total amount of $63,870.50 plus $56,180.49 in

pre-judgment interest. The court rejected the government's

request for double damages and attorney's fees: the court noted

Cofield's uncompensated years of service to the project and

Owens's past recovery in litigation of large sums for the

benefit of the project, the absence of fraud charges, and the

government's refusal shortly before trial to accept a settlement

offer from the defendants for $63,000. Owens and Cofield have

appealed to this court, and the United States has cross-

appealed.

Owens makes only a single argument in his brief,

although he joins by cross-reference in each of the arguments

made by Cofield. Owens's position is that he does not fit into

the category of persons who may be sued under section 1715z-4a.

The statute, as already noted, provides that suit can be brought

"to recover any assets or income used by any person" in

violation of a regulatory agreement or an applicable regulation;

and for mortgages like that covering the Roxse housing project,

the statute provides:

[T]he term "any person" shall mean any
person or entity which owns a project . . .
; any beneficial owner under any business or
trust; any officer, director, or partner of
an entity owning the project; and any heir,

-6-
 assignee, successor in interest, or agent of
any owner.

12 U.S.C. § 1715z-4a(a)(2) (emphasis added).

Owens concedes that he was the attorney for the project

in various matters, and therefore its "agent" in a conventional

sense. See Kay v. Ehrler, 499 U.S. 432, 435-36 & n.6 (1991).

But Owens says that, in context and under the canon ejusdem

generis, the term "agent" in this statute is best read as

referring to a "managing agent," that is to say, someone who has

general responsibility for managing a project; and Cofield urges

that the penal character of the statute (notably, provision for

double damages) supports a restrictive reading.

While the term "agent" could in context be limited to

managing agents, the statute is not so restricted by its terms,

and it is easy to think of situations in which agents with

narrow responsibility could wrongfully appropriate project

funds. Imagine, for example, a purchasing agent who is supposed

to acquire supplies for a project but pockets most of the funds

for himself. Recovery in such a case seems as easily justified

as in the case of an officer or director who takes project

property and is perhaps more easily justified than the suit

against an owner or director who gained nothing but was simply

careless in failing to prevent the theft.

-7-
 Here, the expenditures that the district court found

to be improper were payments to Owens or his law firm by the

project, so Owens's agency responsibilities are clearly

implicated. In somewhat similar circumstances, this court

treated an attorney as the "agent" of a bank under 18 U.S.C. §

656. United States v. Doane, 975 F.2d 8, 12 (1st Cir. 1992).

Of course, there 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--but these concerns are not urged on this appeal.

We turn now to Cofield's arguments which he presents

pro se. His first argument is a charge that this suit reflects

deliberate racial discrimination on the part of the government.

Pointing out that both he and Owens are black, he says that the

government would not, and has not in the past, asserted similar

claims against white directors or agents. According to Cofield,

the present suit is selective enforcement in violation of the

Equal Protection Clause, Yick Wo v. Hopkins, 118 U.S. 356

(1886), as incorporated in the Fifth Amendment.

In the district court, Cofield asserted a counterclaim

against HUD for unlawful discrimination based on selective

enforcement. The government says that the counterclaim was

-8-
barred by sovereign immunity (it was dismissed by the district

court) and that Cofield never properly asserted discrimination

as a "defense" to the government's statutory claim. This may

ask a good deal of a pro se defendant, Haines v. Kerner, 404

U.S. 519, 520-21 (1972) (per curiam); Prou v. United States, 199

F.3d 37, 42 (1st Cir. 1999). In any event, the court permitted

Cofield to offer evidence on the issue at trial and rejected it

on the merits, so we treat the claim as preserved.

On the merits, the district court found that the

alleged discrepancies in treatment claimed by Cofield were

explained by other factors: in particular, as to the $50,000,

that no other law firm had been paid without submitting a bill

evidencing the services in question. Cofield has not shown this

finding to be clearly erroneous. As for the $13,870.50,

Cofield's brief contains only general assertions of discrepant

treatment and undeveloped references to transcript and document

exhibits from which we cannot construct a coherent argument; on

the contrary, some of the referenced material helps the

government.

It does appear from the transcript that the government

acknowledged at trial that at least one other law firm, which

worked for the project for approximately 20 years, also billed

the project for ineligible expenses and yet was never sued for

-9-
recovery of that money. However, the government explained that

the amount of ineligible expenses was less than for those billed

by Owens and, again, that the other firm was not paid any money

without submitting a bill. Moreover, the government submitted

evidence at trial that in the bankruptcy court it did oppose fee

applications by at least two other law firms. In sum, Cofield

has failed to make even a prima facie showing of selective

prosecution. See United States v. Graham, 146 F.3d 6, 9 (1st

Cir. 1998).

Cofield's second argument concerns the district court's

ruling that the $50,000 was not adequately documented in the

project records. The crux of the argument is Cofield's claim

that "[i]t is implicit in the statute that HUD has to make a

request on the project owner for such books, records, and other

documents [and] Roxse had no opportunity to make such books,

records and other documents available for audit when it was not

asked." Cofield's argument might have some merit if he meant

that the books and records were properly maintained, and did

properly document the $50,000, but were not found because HUD

did not ask for them.

The district court found that in fact "the books and

records of Roxse Homes do not reflect that Owens & Associates

was owed $50,000"; and nothing in Cofield's brief shows this

-10-
finding to be clear error. Cumpiano v. Banco Santander Puerto

Rico, 902 F.2d 148, 152 (1st Cir. 1990). While a set of project

minutes contains a summary reference by Cofield to the supposed

$50,000 debt for past services, there is no bill from the law

firm and apparently no documentation in the books and records of

the services allegedly performed. As for the suggestion that a

pre-audit request should have been made, it appears that the

government repeatedly sought documentation but never got it.2

Cofield's last argument is that the district court

erred in finding that Owens had already been paid in full for

his work on the roofing case before he obtained the $50,000.

The district court traced in detail the chronology of bills and

payments relating to the roofing case, and it found that all of

Owens's bills on that case had been paid. Further, an earlier

affidavit by Cofield said that the $50,000 was a retainer, as

did Owens's check memo. Finally, there was no credible evidence

from Owens that any specific piece of uncompensated work had

been done on the roofing case.

2Since there is no indication that Owens was responsible for
the project books and records, Owens's liability for the $50,000
rests more securely on the district court's finding that he had
already been compensated for his work on the litigation. As for
the $13,870.50, the district court did not rest on a lack of
records but rather on the conclusion that Cofield approved, and
Owens received, payment for inappropriate expenditures.

-11-
 Cofield says that the district court conceded that

there was "a lot of evidence" that Owens provided legal services

for his $50,000 payment; but the only evidence specifically

mentioned by the court was the minutes that summarily mentioned

the supposed $50,000 debt and a memorandum by Cofield

preliminary to the meeting--neither of which gave any detail as

to services. In sum, the district court provided a plausible

explanation for its conclusion, and again Owens has not shown

that the finding was clear error.

This discussion disposes of Owens's and Cofield's

direct challenges of the judgment entered against them, but that

does not end the matter. Section 1715z-4a(c) provides that:

In any judgment favorable to the United
States entered under this section [section
1715z-4a], the Attorney General may recover
double the value of the assets and income of
the project that the court determines to
have been used in violation of the
regulatory agreement or any applicable
regulation, plus all costs relating to the
action, including but not limited to
reasonable attorney and auditing fees.

The government has cross-appealed from the district court's

refusal to grant it double damages or attorney's fees.

Starting with attorney's fees, the statutory language

is not very informative: it does not say that attorney's fees

"must" or "shall" be awarded but, contrariwise, it does not make

an award of attorney's fees explicitly subject to the court's

-12-
discretion. Compare 42 U.S.C.A. § 1988(b) (Supp. 2000) ("the

court, in its discretion, may allow the prevailing party . . .

a reasonable attorney's fee as part of the costs"). Nor is

there any pertinent legislative history or circuit court

precedent that helps us in glossing section 1715z-4a(c) as

applied to attorney's fees.

However, the Supreme Court has interpreted the language

of section 1988 to require attorney's fees "save for rare cases

in which 'special circumstances' would render an award unjust."

Stanton v. Southern Berkshire Reg'l Sch. Dist., 197 F.3d 574,

576 (1st Cir. 1999). The wording of section 1715z-4a(c) is even

more favorable to recovery of attorney's fees than the language

of section 1988(b). Although many of the statutes to which the

special circumstances test has been applied are civil rights

statutes, the courts have applied the test in other contexts as

well. 1 Derfner & Wolf, Court Awarded Attorney Fees § 10.02, at

10-11 n.10 (1999). The key decisions are Blanchard v. Bergeron,

489 U.S. 87, 89 n.1 (1989), Hensley v. Eckerhart, 461 U.S. 424,

429 (1983), and Newman v. Piggie Park Enterprises, Inc., 390

U.S. 400, 402 (1968).

The Supreme Court's rationale for the special

circumstances test is that Congress meant to encourage such

lawsuits, because of their public purpose. See generally Piggie

-13-
Park, 390 U.S. at 401-03. It is similarly clear, from the

legislative history of the amendment to section 1715z-4a

providing for double damages and attorney's fees, that Congress

meant to encourage more enforcement by federal authorities, H.R.

Rep. No. 100-122(I), at 66 (1987), reprinted in 1987

U.S.C.C.A.N. 3317, 3382. And incentives aside, in all cases the

award of attorney's fees tends more completely to make the

injured party whole.

Accordingly, we think that the "special circumstances"

test is the proper standard in this case. It effectively

creates a strong presumption in favor of awarding attorney's

fees. See Posada v. Lamb Cty., Texas, 716 F.2d 1066, 1075 (5th

Cir. 1983). The burden is on the defendant to show that unusual

conditions would make an award unjust or inappropriate. See

Herrington v. County of Sonoma, 883 F.2d 739, 744 (9th Cir.

1989). Here, in explaining its denial of attorney's fees, the

district court said only this:

Before trial began, the defendants offered
to settle this case for $63,000, the stated
amount in the government's Complaint.
Rather than accept this offer, the
government embarked on a nine-day trial to
recover the interest on the money. No
private litigant would spend nine days in
trial solely to recover interest. The Court
sees no reason to reward such tactics, which
are only possible because of the
government's unlimited resources.

-14-
 We do not think that the government's refusal to

settle, standing alone, constitutes "special circumstances."

See Coutin v. Young & Rubicam Puerto Rico, 124 F.3d 331, 341

(1st Cir. 1997). There was nothing whatever unreasonable or

unfair in the government's decision to reject the defendants'

offer, which was made only on the eve of trial and after the

government had invested in trial preparation. Since the

defendants' offer did not include pre-judgment interest or

double damages, the defendants were belatedly offering to settle

for only about one-third of what the government might hope to

collect.

The district court's denial of double damages raises

a different set of issues. Again, the statute does not say that

double damages must or shall be provided. Compare 15 U.S.C. §

15a ("[T]he United States . . . shall recover threefold the

damages by it sustained and the cost of the suit."). Further,

double damages are not required to make a plaintiff whole nor,

where the government can collect its full costs including

attorney's fees, are double damages likely to be a critical

incentive for bringing suit. Rather, as the legislative history

confirms, the double damages provision was adopted simply to

provide a greater "deterrent" to violations. H.R. Rep. No. 100-

122(I), at 66 (1987), reprinted in 1987 U.S.C.C.A.N. 3317, 3382.

-15-
 The violations that give rise to liability under

section 1715z-4a are broadly defined, and perhaps ill-defined,

by cross-reference to a "regulatory agreement" or "any

applicable regulation." If the present Roxse Homes agreement is

typical, such agreements include phrases like "reasonable

operating expenses" and books and records kept in "reasonable

condition for proper audit," which give rise to further

uncertainty in their application to particular circumstances.

An added problem is the lack of clarity in the statute as to

what level of scienter, if any, is required for a violation and

what causal connection must be shown between the violation and

any claimed loss.

These concerns encourage us to leave to the informed

judgment of the district court the decision whether the award of

double damages is just in the particular circumstances.

Imagine, for example, that Owens had in fact performed services

and properly billed for the $50,000, but in a retrospective

evaluation the payment was found by a close margin to be an

"unreasonable" operating expense of the project; or suppose that

payment of a plausible bill was authorized by Cofield in good

faith but the documentation was later found not quite

sufficient. Recovery of loss and costs is one thing; a double

damages penalty is quite another.

-16-
 Double damages for the government on a deterrence

rationale make sense primarily where the defendant is guilty of

substantial or repeated fault. Cf. Ocean Spray Cranberries,

Inc. v. Pepsico, Inc., 160 F.3d 58, 62 n.3 (1st Cir. 1998)

(discussing Mass. Gen. Laws ch. 93A). There is obviously a

spectrum, with fraudulent intent or recklessness at one end and

a lost record or close-call judgments at the other. The

district court may have felt that the defendants, after many

years of service, were no worse than careless in the

transactions in question. If so, we would regard this as an

adequate basis for the court to exercise its discretion to deny

double damages--although we do not suggest that seriously

negligent acts could never justify double damages.

Nevertheless, we think that the government is entitled,

under the law as we have clarified it, to an opportunity to

persuade the district court that the conduct of the defendants

reflects sufficient fault to warrant double damages despite the

defendants' past services. The district court is entitled to

limit the inquiry: double damages is a remedial measure and not

the occasion for a second trial. Relatedly, defendants can

dispute the award of attorney's fees on new grounds if they

choose, but at present no basis for refusing to impose them is

apparent to us.

-17-
 The judgment is affirmed as to the recovery by the

government of $63,870.50 plus interest from the defendants.

Insofar as it denied double damages and costs including

attorney's fees, the judgment is vacated and the matter remanded

for further proceedings consistent with this opinion.

It is so ordered.

-18-