Mark S. Smith v. United States Department of Housing and Urban Development

1 2 3 IN THE DISTRICT COURT OF GUAM 4 MARK S. SMITH, Case No. 1:25-cv-00016 5 Petitioner, DECISION AND ORDER GRANTING IN PART HUD’S 6 v. CROSS MOTION FOR SUMMARY JUDGMENT; AND GRANTING 7 UNITED STATES DEPARTMENT OF SMITH’S MOTION FOR HOUSING AND URBAN DEVELOPMENT, SUMMARY JUDGMENT 8 VACATING ADMINISTRATIVE Respondent. ORDERS 9 10 I. INTRODUCTION 11 This civil action arises under the Program Fraud Civil Remedies Act (“PFCRA”) and is 12 brought by Petitioner Mark Smith seeking judicial review of administrative orders issued by an 13 Administrative Law Judge (“ALJ”) with the United States Department of Housing and Urban 14 Development (“HUD”) Office of Hearings and Appeals (“OHA”), which were affirmed by the 15 HUD Office of the Secretary, imposing civil penalties and assessments totaling $735,372 16 pursuant to the PFCRA for twenty-five (25) false or fraudulent claims submitted to HUD 17 involving the Guam Housing and Urban Renewal Authority’s (“GHURA”) administration of the 18 Section 8 Program. (See generally Pet., ECF No. 1; ALJ Dec., ECF No. 14-3; Sec. Rev. Order, 19 ECF No. 14-2.) HUD established the Housing Choice Voucher Program, also known as the 20 Section 8 Program, to provide public housing agencies (“PHAs”) with federal funds to make 21 housing assistance payments (“HAP payments”) on behalf of tenants so they may rent “safe, 22 decent, and sanitary housing.” (ALJ Dec. 4 (citing 24 C.F.R. § 982.1(a)(1), 982.2, 982.201(a)– 23 (b)).). GHURA is Guam’s PHA—a “[s]tate, county, municipality, or other governmental entity 24 or public body . . . which is authorized to engage in or assist in the development or operation of 1 public housing . . . .” 42 U.S.C. § 1437(a)(b)(6). Petitioner Mark Smith owned multiple rental 2 properties and participated as a landlord in HUD’s Section 8 Program before, during, and after 3 his employment as legal counsel for GHURA. 4 Before the Court are Petitioner Mark Smith’s motion for summary judgment and 5 Respondent HUD’s cross-motion for summary judgment, fully briefed.1 Smith argues that the 6 administrative orders were issued without jurisdiction because they exceeded the jurisdictional 7 cap set out in the statute. (Pet. 2; Smith’s MSJ 5, ECF No. 14; see also 31 U.S.C. § 3803(c) 8 (2024).2) Smith also argues that the penalties and assessments imposed by the administrative 9 order violated the Excessive Fines Clause of the Eighth Amendment, the Due Process Clause of 10 the Fifth Amendment, and exceeded the maximum penalties established in the statute and 11 regulation. (Pet. 2; Smith’s MSJ 19–23.) Finally, Smith states the agency misinterpreted the 12 regulation’s conflict-of-interest language. (Smith’s MSJ 5). In his Supplemental brief, he cites 13 to the recent Supreme Court opinion in Securities and Exchange Comm’n v. Jarkesy, 603 U.S. 14 109 (2024), to support his claim “the administrative penalties imposed in this case violated [his] 15 rights under the Seventh Amendment.” (Suppl. 1, ECF No. 15.) In addition, Smith states that 16 HUD “is attempting to enforce duplicative penalties against” him in the pending qui tam civil 17 action in No. 1:15-cv-00040. (Id.) Accordingly, Smith seeks judicial review of the administrative 18 19 20 1 Smith filed his motion for summary judgment (Smith’s MSJ, ECF No. 14) and a Supplement to his 21 Motion to Grant Petition for Review and for Summary Judgment (Suppl., ECF No. 15); HUD filed its response in opposition and cross-motion for summary judgment (HUD’s MSJ, ECF No. 16), to which 22 Smith replied both to the opposition and cross-motion (Smith’s Reply, ECF No. 17). HUD timely filed its cross-reply (HUD’s Reply, ECF No. 25). 23 2 At the time the conduct occurred, between 2011 and 2014, and up until December 2024, the jurisdictional cap was $150,000. (Smith’s MSJ 9–10.) On December 23, 2024, the limit was increased to 24 $1,000,000, but such an amendment does not apply retroactively. (Id. at 10; 31 U.S.C. § 3803(c)(1); 1 orders and, ultimately, vacatur of the orders in full or a reduction of the penalties imposed. (Pet. 2 3; Smith’s MSJ 23.) 3 HUD, in its cross-motion, argues that this Court has no jurisdiction to review any 4 objection Smith made in his motion or petition that he did not raise before the ALJ. (HUD’s MSJ 5 7–8, ECF No. 16 (citing 31 U.S.C. § 3805(d)).) Further, HUD argues that the jurisdictional cap 6 was not exceeded, that the agency’s interpretation of the regulation was proper and correct, and 7 that the penalties and assessments imposed are proper considering Smith’s conduct. (See 8 generally id.) In response to Smith’s Supplement, HUD argues Smith filed his brief in violation 9 of the local rules and therefore should not be considered, and Smith’s failure to raise Jarkesy 10 before HUD despite ample opportunities to do so strips this Court of jurisdiction to consider this 11 argument under § 3805(d). HUD seeks a dismissal of Smith’s petition for review. (Id. at 31.) 12 After considering the parties’ briefs, exhibits, oral argument, and the applicable law, the 13 Court now grants the Petition for review, grants HUD’s cross-motion in part, and grants 14 Petitioner Smith’s motion based on Jarkesy. As a result, the Court will vacate the administrative 15 orders against Smith in full for the following reasons. 16 II. PROCEDURAL BACKGROUND 17 The United States has pursued civil, criminal, and administrative proceedings based on 18 Smith’s conduct. The only unresolved matter is the instant administrative case. A brief review 19 of the various proceedings places much of the information in context. 20 On November 6, 2015, Relator Ray Sanchez Topasna—former Executive Director of 21 GHURA—initiated a qui tam civil action under the False Claims Act (“FCA”) against Mark S. 22 Smith, GHURA, and its Board of Directors. (“Qui Tam Action,” ECF No. 1 in No. 1:15-cv- 23 00040.) The United States filed its Complaint in Intervention against Smith and Glenn D. Wong 24 only on September 19, 2019. (ECF No. 55 in No. 1:15-cv-00040.) Eventually, both the United 1 States and Smith moved for summary judgment, which this Court recently decided in the United 2 States’ favor in part, awarding it $1.4 million for treble damages and civil penalties, and in 3 Smith’s favor in part, denying the United States’ claim for the recovery of legal fees paid to 4 Smith.3 (ECF No. 148, in No. 1:15-cv-00040.) 5 On March 14, 2017, the United States filed federal criminal charges against Smith and 6 co-defendant Wong. (ECF No. 1 in No. 1:17-cr-00020.) On December 21, 2022, this Court 7 acquitted Smith of his jury convictions on all counts. (ECF No. 686 in No. 1:17-cr-00020.) 8 While both the Qui Tam Action and the criminal case were pending, HUD initiated an 9 administrative case on July 17, 2017,4 when HUD filed its first complaint against Smith in Case 10 No. HUDOHA 17-JM-0135-PF-004, and subsequently an amended complaint, alleging Smith 11 violated the PFCRA when he submitted five false claims through the Section 8 Program between 12 September and December 2011. (ALJ Dec. 2; Sec. Rev. Order 7; 2017 HUD Amended Compl., 13 ECF No. 14-4.) On February 28, 2018, HUD filed its Motion for Summary Judgment (HUD’s 14 MSJ), to which Smith responded (Respondent’s Opp. in 17-JM-0135-PF-004), where he was 15 represented by David Lujan. (Sec. Rev. Order 7.) On June 28, 2018, HUD filed its second 16 complaint against Smith, as well as Glenn Wong, and his mother Rosita Owen in Case No. 17 HUDOHA 18-JM-0208-PF-010, alleging additional violations of the PFCRA against them for 18 20 false claims submitted between August 2012 and May 2014. (Id.; ALJ Dec. 2–3.) These two 19 actions were stayed during the criminal proceeding. (ALJ Dec. 2; Sec. Rev. Order 7.) After the 20 21 22 3 Smith’s argument about duplicative enforcement of penalties is well taken. In fact, the United States agreed to “offset any amount paid under the PFCRA judgment” against any award amount entered in the 23 Qui Tam Action. (US’ Opp’n 16 n.16, ECF No. 130 in No. 1:15-cv-00040.) 4 Both the ALJ’s Decision and Secretarial Review Order misstate the date of the complaint’s submission 24 as July 17, 2017. (ALJ Dec. 2; Sec. Rev. Order 7.) However, the complaint itself is dated July 21, 2017. 1 criminal action concluded, Administrative Law Judge J. Jeremiah Mahoney on November 15, 2 2024, entered a consolidated order as to both HUD’s 2017 and 2018 complaints, finding Smith 3 submitted 25 false and fraudulent claims and imposing assessments totaling $532,872 and civil 4 penalties totaling $202,500, for a total penalty of $735,372 pursuant to the PFCRA. (ALJ Dec. 5 19.) On or about February 11, 2025, Secretarial Designee Andrew Hughes issued a final Order 6 on Secretarial Review denying the appeal and affirming the ALJ’s decision. (Sec. Rev. Order.) 7 Smith submitted his petition for judicial review in the instant case on April 10, 2025. (Pet.) 8 III. FACTUAL BACKGROUND 9 The facts below are derived from the ALJ’s findings of fact which are undisputed, based 10 on the parties’ motions for summary judgment before the ALJ (ALJ Dec. 4–9; see also Sec. Rev. 11 Order 3–7 (finding that the same facts were “not in dispute and not challenged by [Smith] in his 12 Appeal”); Gov. MSJ 8–60, ECF No. 14-6 (submitted by Smith)), which are based on numerous 13 declarations and exhibits submitted in the administrative proceeding (ECF No. 8).5 Moreover, 14 with respect to questions of fact, the agency’s “decisions, findings, and determinations [are] final 15 and conclusive, and shall not be set aside unless . . . unsupported by substantial evidence.” 31 16 U.S.C. § 3805(c). 17 A. Background on Section 8 Program and HAP contracts 18 Section 8 property owners, such as Smith, enter into lease agreements with a tenant under 19 the Housing Choice Voucher (“HCV”) Program (see, e.g., HAP Contract 12, GOV #004). The 20 property owners also enter into Housing Assistance Payment (“HAP”) contracts with GHURA 21 to receive HAP payments made by GHURA on behalf of tenants. (See, e.g., id. at 1–10.) HAP 22 23 5 The Clerk’s Notice of Receipt of Administrative Record contains the link to the administrative record provided by HUD. (ECF No. 8.) For ease and clarity, the Court cites to the cross index of exhibit numbers 24 (“CS Ex.”) or Bates stamp ID on each record as applicable and as provided in the related case United 1 contracts contain a specific conflict of interest provision prohibiting “covered individuals” from 2 having “any direct or indirect interest in the HAP contract or in any benefits or payments under 3 the contract (including the interest of an immediate family member of such covered individual) 4 while such a person is a covered individual or during one year thereafter.” (ALJ Dec. 5; Gov. 5 MSJ ¶ 2; HAP Contract 6 ¶ 13.) As relevant to this case, a covered individual is defined as “a 6 person or entity who is . . . [a]ny employee of the PHA, or any contractor, sub-contractor or agent 7 of the PHA, who formulates policy or who influences decisions with respect to the program[.]” 8 (ALJ Dec. 5; Gov. MSJ ¶ 3; see, e.g., HAP Contract 6 ¶ 13.a.) If a person is a covered individual, 9 they are not eligible to become a Section 8 landlord, nor are they eligible to receive housing 10 assistance payments under the HAP contract. (Gov. MSJ ¶ 4; HAP Contract 4 ¶ 7.b. (“Unless 11 the owner has complied with all provisions of the HAP contract, the owner does not have a right 12 to receive housing assistance payments under the HAP contract” (emphasis added)).) HUD 13 regulations contain the same prohibition against covered individuals from entering into a contract 14 in connection with the HCV program. (ALJ Dec. 4; Sec. Rev. Order 3; 24 C.F.R. § 982.161.) 15 HAP contracts require owners to promptly and fully disclose any prohibited interests, should 16 they occur, to both the PHA (here, GHURA) and HUD. (ALJ Dec. 4; Sec. Rev. Order 3; HAP 17 Contract 6 ¶ 13.e.) The HAP contracts and HUD regulations contain waiver provisions: “[t]he 18 conflict of interest prohibition under this section may be waived by the HUD field office for 19 good cause.” (HAP Contract 6 ¶ 13.f.; ALJ Dec. 4; Sec. Rev. Order 3; 24 C.F.R. § 982.161(c).) 20 B. Smith’s employment with GHURA and HAP contracts 21 1. Smith becomes a Section 8 landlord in 2004 and GHURA legal counsel in April 2011. 22 From approximately May 2000 until May 2002, Smith served as principal legal counsel 23 to GHURA. (Sec. Rev. Order 3; Gov. MSJ ¶ 26.) At that time, he was not a Section 8 landlord. 24 1 In March of 2011, GHURA issued a “Request for Proposal Legal Services” (“RFP”), 2 soliciting proposals for legal services to replace Lujan’s firm, then serving as GHURA’s legal 3 counsel. (ALJ Dec. 5; Sec. Rev. Order 3.) The RFP contained multiple sections describing 4 conflicts of interest. (Sec. Rev. Order 3.) On March 11, 2011, Smith submitted an application, 5 stating he “served as previous legal counsel for GHURA[,]” would “prioritize GHURA over all 6 matters[,]” and “will be directly responsible for all matters involving GHURA.” (Gov. MSJ ¶¶ 7 41–46.) As part of his application, Smith hand-delivered a letter to GHURA, certifying that 8 “there is no conflict of interest with regard to [him] providing legal services to GHURA.” (Id. at 9 ¶ 49; ALJ Dec. 5; Sec. Rev. Order 3; COI Letter, GE 25.) Smith neither disclosed that he was a 10 Section 8 landlord in his application nor notified any of those who interviewed him of this fact. 11 (ALJ Dec. 5; Sec. Rev. Order 4.) 12 Later in March 2011, Smith and GHURA entered into a legal services contract, which 13 described the duties Smith would perform for GHURA, including acting as counsel; preparing 14 opinions, resolutions and reports “at the request of any member of the Board of Commissioners 15 (BOC) or Executive Director or its designee”; undertaking legal research as “requested by the 16 BOC of Executive Director or its designee”; advising the Board and Executive Director “of all 17 legal matters to which [GHURA] is a party or in which [GHURA] is legally interested”; 18 representing GHURA in litigation; reviewing and preparing contracts, leases, bid invitations, 19 and other documents; providing “legal assistance and advice during any negotiations with 20 [GHURA’s] tenants and contractors”; and attending all Board meetings. (ALJ Dec. 5–6; Legal 21 Services Contract 1–2, GE 28; Gov. MSJ ¶ 52.) GHURA’s representative signed the fee 22 agreement on March 18, 2011. (Legal Services Contract 4.) On April 28, 2011, GHURA’s BOC 23 approved Smith as GHURA counsel. (ALJ Dec. 6.) At around the same time that GHURA hired 24 Smith, it also “contracted with a separate law firm as ‘conflicts counsel,’ but did not intend for 1 its conflicts counsel to handle Section 8 matters or to be used to screen [Smith] from any 2 particular Section 8 matters.” (Sec. Rev. Order 4.) 3 2. GHURA management discovers its legal counsel, Smith, is a Section 8 landlord 4 On July 14, 2011, GHURA’s Section 8 Administrator informed GHURA’s executive 5 management that Smith was a landlord under the Section 8 Program. (ALJ Dec. 6; Gov. MSJ ¶ 6 70–71.) The same day, GHURA’s Section 8 Administrator sent an email to management titled 7 “Conflict of Interest” stating: 8 I need to let you know that our new attorney, Mark Smith is a landlord under the 9 Section 8 program, which is a direct conflict of interest. Mr. Smith must disclose his interest. Please be advise[d] that we would have to terminate any existing 10 contracts with Mr. Smith unless his participation is approved by HUD. 11 (Gov. MSJ ¶ 72.) This email was forwarded to Smith for review. (Id. at ¶ 74; ALJ Dec. 6.) The 12 Executive Director also spoke to Smith about the conflict and told him to review HUD’s actions 13 regarding David Lujan’s request for a conflict waiver. (ALJ Dec. 6; Gov. MSJ ¶ 75; Sec. Rev. 14 Order 4.) During this conversation with the Executive Director, Smith did not indicate he 15 believed a conflict did not exist or that the Executive Director was wrong; rather, Smith informed 16 GHURA he would transfer his ownership interests in the property. (ALJ Dec. 6.; Gov. MSJ ¶ 17 77.) 18 Between September 1, 2011, and December 1, 2011, as an owner of thirteen properties 19 in the Section 8 Program administered by GHURA, and while serving as GHURA’s legal 20 counsel, Smith received five HAP payments totaling $48,140 from GHURA. (ALJ Dec. 7; Sec. 21 Rev. Order 5.) 22 3. Smith’s work as GHURA’s legal counsel. 23 As GHURA’s legal counsel, Smith, among other things, provided legal opinions to 24 GHURA’s BOC and executive management, reviewed and analyzed GHURA’s Section 8 1 Administrative Plan, and billed GHURA for work regarding the Section 8 Program. (ALJ Dec. 2 6; Gov. MSJ ¶¶ 59–69; Sec. Rev. Order 4.) During the time period when he was directly 3 receiving HAP payments into his personal account—between September and December 2011— 4 Smith billed GHURA for research, analysis, and drafting of a memorandum regarding the 5 Section 8 Program. (See ALJ Dec. 6; Gov. MSJ ¶ 64; Smith’s Billing Records 1, GE 97.) 6 Further, Smith proposed revisions to GHURA’s conflict-of-interest disclosure form, 7 revisions which were ultimately accepted by the BOC. In January 2012, GHURA’s BOC 8 Chairman asked Smith to review the conflict-of-interest disclosure form, which was used by 9 GHURA to disclose all conflicts of interest, including those relevant to the Section 8 Program. 10 (ALJ Dec. 6; Gov. MSJ ¶ 66.) At a BOC meeting on February 12, 2012, Smith discussed his 11 proposed changes, noting the language was broad enough to cover both direct and indirect 12 interests and that step- and half-sibling relationships would be covered. (Gov. MSJ ¶ 6; BOC 13 Transcript Feb. 21, 2012 2–5, GE 26b2.) The Board approved the new conflict-of-interest 14 disclosure form, as revised by Smith. (ALJ Dec. 6; Gov. MSJ ¶ 67.) On April 12, 2012, Smith 15 himself signed a copy of this very form, wherein he indicated no disclosure was required and 16 that he had no conflict. (ALJ Dec. 8; Gov. MSJ ¶ 115; Smith’s COI Discl. 3, GE 86.) 17 C. Smith’s transfer of title to Glenn Wong and deposit of HAP payments into Wong’s account 18 1. Smith transfers title of his Section 8 rental properties to Glenn Wong in 19 November 2011 but retains interests in the properties and Wong’s bank account. 20 In November 2011, Smith transferred titular ownership of his Section 8 rental properties 21 to Glenn Wong via quitclaim deed. (ALJ Dec. 7; Gov. MSJ ¶¶ 97–98; Prop. Transfer Chart, GE 22 240; Quitclaim Deeds, GE 1, GE 2, GE 41.) Smith submitted the quitclaim deeds to GHURA, 23 but he submitted no other property transfer documents. (ALJ Dec. 7; Gov. MSJ ¶ 98.) However, 24 1 transfer agreements, including a purchase agreement (Purchase Agreement 2011, GE 198), 2 mortgage (Mortgage 2011, GE 200), and promissory note (Promissory Note 2011, GE 199), 3 which gave Smith a security interest in the properties. (Gov. MSJ ¶ 102; ALJ Dec. 7l Sec. Rev. 4 Order 5.) Smith and Wong did not disclose Smith’s ongoing security interests received through 5 these additional documents. (ALJ Dec. 7; Gov. MSJ ¶ 102.) Under the terms of the purchase 6 agreement and promissory note, Wong was obligated to pay Smith a $10,000 deposit (Purchase 7 Agreement 2011 2) and make $10,000 monthly payments by check (Promissory Note 2011 1). 8 As part of their agreement, Wong executed a reverse quitclaim deed that transferred Wong’s 9 interests in the rental properties back to Smith. (Purchase Agreement 3.) 10 Section 8 staff later came to understand that Wong was the informally adopted child of 11 Rosita Owen, Smith’s mother. (ALJ Dec. 7 n.4; Gov. MSJ ¶ 100.) On November 14, 2011, Wong 12 executed a Special Power of Attorney (“POA”) giving Owen authority to operate and manage 13 the rental properties on Wong’s behalf. (ALJ Dec. 7; Gov. MSJ at ¶ 101; Special Power of Atty, 14 GE 42.) Wong eventually executed amendments to the relevant HAP contracts to make himself 15 the new landlord, not Smith. (Gov. MSJ ¶ 106; HAP Contracts, GE 100–18.) Wong’s physical 16 address as a landlord in GHURA’s system was the address for Smith’s law office, and his email 17 address in GHURA’s system was the email address of Smith’s legal secretary, who received 18 GHURA-issued landlord statements for Wong. (ALJ Dec. 7; Sec. Rev. Order 5; Gov. MSJ ¶ 19 107–08.) 20 On February 14, 2012, Smith’s legal secretary sent GHURA direct deposit information 21 for a First Hawaiian Bank (“FHB”) account (ending in -1317) that Wong wanted to use to receive 22 HAP fund deposits for the units to which Wong was identified as the landlord. (ALJ Dec. 7; 23 Gov. MSJ ¶ 109; Sec. Rev. Order 5; GHURA Emails re FHB Acct. -1317.) GHURA rejected the 24 account after it obtained an account certification that showed Smith as a joint account owner. 1 (ALJ Dec. 7; Sec. Rev. Order 5; GHURA Emails re FHB Acct. -1317 1, 4.) About one month 2 later, on March 8, 2012, Smith’s legal secretary submitted a new FHB account (ending in -8369) 3 for which Wong was the sole owner. (ALJ Dec. 7; HUD’s MSJ ¶ 110; GHURA Emails re FHB 4 Acct. -8369, GE 46.) 5 Shortly thereafter, on March 26, 2012, Wong executed a debit authorization on the 6 second FHB account (ending in -8369) for Smith, which Smith used to withdraw HAP funds on 7 multiple occasions. (ALJ Dec. 7; Sec. Rev. Order 5; Gov. MSJ ¶ 111; Debit Auth., GE 131b; see 8 generally FHB Receipts, GE 131f.) Wong did not revoke this debit authorization until April 13, 9 2013, about a month before Smith resigned from GHURA. (Gov. MSJ ¶ 111.) Neither Smith nor 10 Wong ever disclosed the existence of this debit authorization to GHURA or HUD. (Id.; ALJ 11 Dec. 7; Sec. Rev. Order 5.) 12 2. Smith maintains he has no conflict of interest but discloses his ownership interests at the April 12, 2012 BOC Meeting. 13 On March 28, 2012, GHURA’s BOC Chairman again directed Smith to the Lujan matter. 14 (ALJ Dec. 8; Gov. MSJ ¶ 114; GHURA Emails re Lujan, GE 50.) Smith responded, “I do not 15 own the units. I transferred upon request of [GHURA’s Executive Director].” (ALJ Dec. 8; 16 GHURA Emails re Lujan 1.) 17 On April 12, 2012, Smith signed a copy of the GHURA conflict-of-interest form which 18 he had helped to draft, certifying that he was in compliance with GHURA and HUD’s conflict- 19 of-interest policy and stating he had “no direct or indirect interest.” (ALJ Dec. 8; Sec. Rev. Order 20 6; Gov. MSJ ¶ 115; Smith’s COI Discl. 3.) That same day, at a GHURA BOC meeting, Smith 21 argued that he did not decide policy or make decisions with respect to the Section 8 units at issue 22 and, accordingly, should not be considered to have a conflict. (ALJ Dec. 8; Sec. Rev. Order 6; 23 BOC Meeting Tr. Apr. 12, 2012 1–2, GE 26d2.) He noted that he had other apartments, such as 24 1 but did not want to have to “circumvent the whole ownership process or anything of that sort[,]” 2 even though he said the restrictions were “easy to get around” and noted that if HUD “want[s] 3 to be legal, we can be legal . . . .” (Gov. MSJ ¶ 116; BOC Meeting Tr. Apr. 12, 2012 7–8.) Smith 4 argued that GHURA could use the contracted conflicts counsel for any conflicted matters and 5 screen Smith from them. (ALJ Dec. 8.) GHURA’s BOC Vice Chairman brought up Lujan’s 6 conflict matter, noting HUD’s conclusion that Lujan had a conflict even though he had 7 transferred his interests to his wife and a local attorney had submitted a contrary legal opinion to 8 the agency. (Id.; Gov. MSJ ¶ 116.) 9 At the same meeting, GHURA’s BOC Chairman directed Smith to prepare a letter to 10 HUD, for the Chairman’s review and signature, describing Smith’s interests. (ALJ Dec. 8; Sec. 11 Rev. Order 6; Gov. MSJ ¶ 119; BOC Meeting Tr. Apr. 12, 2012 5–8.) The Chairman stated it 12 would be “prudent” to “present the case very clearly to HUD.” (BOC Meeting Tr. Apr. 12, 2012 13 8.) Smith never submitted a letter describing all his interests in HAP contracts. (ALJ Dec. 8; Sec. 14 Rev. Order 6.) 15 On May 3, 2012, GHURA’s Executive Director Ray Topasna issued an email, followed 16 by a separate memorandum on May 29, 2012 to Section 8 staff, claiming the BOC’s “position” 17 was that Smith was not a covered individual because he did not formulate policy or influence 18 decisions with respect to the Section 8 Program. (ALJ Dec. 8; Sec. Rev. Order 6; Gov. MSJ ¶ 19 122; Topasna Email May 3, 2012, GE 55.) Topasna’s representations were not accurate as the 20 BOC had not reached any decision on Smith; the BOC still expected Smith and Topasna to 21 prepare the letter to HUD regarding Smith’s interests in HAP contracts. (ALJ Dec. 8; Sec. Rev. 22 Order 6.) On May 24, 2012, the Executive Director directed Section 8 staff to release all 23 suspended payments “relative to our legal counsel” pending the issuance of a legal opinion from 24 GHURA’s conflicts counsel on the issue. (Gov. MSJ ¶ 123; Topasna Email May 24, 2012, GE 1 57.) No legal opinion was issued by conflicts counsel until April 2013, a month before Smith 2 resigned from GHURA. (See Perez Legal Op., GE 85.) 3 3. Smith transfers title of another Section 8 property to Wong in August 2012, but Smith manages the properties and maintains interests in the HAP 4 payments. 5 In August 2012, Smith executed another quitclaim deed to Wong transferring his interests 6 in a separate property, the Lauren Rose Apartments in the village of Agat. (Gov. MSJ ¶ 124; 7 Quitclaim Deed, GE 3; Quitclaim Affidavit, GE 4.) They recorded only the quitclaim deed on 8 October 9, 2012. (Quitclaim Deed; Quitclaim Affidavit.) Smith and Wong did not record or 9 provide to either GHURA or HUD the purchase agreement (Purchase Agreement 2012, GE 201), 10 promissory note (Promissory Note 2012, GE 202), or mortgage (Mortgage 2012, GE 203) they 11 executed as a part of this 2012 transaction. (Gov. MSJ ¶ 126.) Wong agreed to pay a $10,000 12 deposit and, thereafter, to make $10,000 monthly payments by check. (Id.; Purchase Agreement 13 2012 1; Promissory Note 2012 1.) Wong again provided a “reverse” quitclaim deed as collateral 14 for Smith, as he did for the 2011 transaction. (Gov. MSJ ¶ 127; Purchase Agreement 1; Rev. 15 Quitclaim, GE 207.) Smith and Wong leased units at this property to Section 8 tenants and 16 received HAP payments for them. 17 Smith and his legal secretaries managed Wong’s rental properties but did not charge 18 Wong for this work. (Gov. MSJ ¶ 165.) Among other tasks, Smith’s legal secretaries acted as 19 Wong’s power of attorney, collected tenant payments, and even conducted a property inspection. 20 (Id. ¶ 166.) Smith fired one of his secretaries for failing to follow through with one of Wong’s 21 tenants. (Id. ¶ 168.) Smith’s secretaries did not observe Wong performing any tasks in relation 22 to the rental properties, and had only heard from Smith that Wong cleaned an air-conditioning 23 unit on one occasion and cut the grass on another. (Id. ¶¶ 170–71.) Tenants did not interact with 24 Wong as their landlord. (Id. ¶ 171.) The 2011 and 2012 purchase agreements provided that all 1 utility accounts would be transferred from Smith to Wong within one year of the purchase dates, 2 but none were. (Id. ¶¶ 173–75; see Purchase Agreement 2011 5; Purchase Agreement 2012 4.) 3 During the entire period of Smith’s alleged conflict of interest, only two of the utility accounts 4 were transferred into Wong’s name but all payments were made either with a credit card 5 attributed to Smith or, less frequently, with a credit card of unknown ownership. (Gov. MSJ ¶¶ 6 176–88.) No payments were attributed to Wong. (Id.) 7 Between August 2012 and May 2014, GHURA deposited over twenty (20) HAP 8 payments, totaling $218,296, to Wong’s FHB account (ending in -8369). (ALJ Dec. 7; Sec. Rev. 9 Order 6; Gov. MSJ ¶¶ 189–209.) All of those funds ultimately were paid directly to Smith, other 10 accounts on Smith’s behalf, or otherwise for Smith’s benefit. (ALJ Dec. 7; Sec. Rev. Order 6.) 11 4. HUD discovers Smith’s potential conflict in September 2012 but GHURA continues to make payments on Wong’s HAP contracts while GHURA seeks 12 HUD’s waiver on behalf of Smith. 13 On September 9, 2012, HUD learned that Smith might have a conflict of interest. (ALJ 14 Dec. 8; Sec. Rev. Order 6; Gov. MSJ ¶ 212.) HUD believed David Lujan to be GHURA’s legal 15 counsel but GHURA’s Section 8 Administrator informed HUD that Smith was actually current 16 legal counsel, and that she believed a conflict existed. (Kaoholokula Email Sept. 19, 2012, GE 17 60.) On September 20, 2012, HUD reminded GHURA that the GHURA BOC “is not empowered 18 to waive the conflict of interest provisions,” that any conflicts “must stop immediately[,]” and 19 demanded that GHURA submit an accounting of relevant HAP contracts and payments within 20 fourteen (14) days. (ALJ Dec. 8; Gov. MSJ ¶ 213; Flores Email Sept. 20, 2012, GE 59.) GHURA 21 suspended payments to Wong that same day, at the direction of Executive Director Topasna. 22 (ALJ Dec. 8; Gov. MSJ ¶ 214; Topasna Memo, GE 63; Topasna Letter 42, GE 67.) At the 23 September 27, 2012 BOC meeting, Topasna notified the BOC of HUD’s conflict-of-interest 24 investigation but did not name any individual. (Gov. MSJ ¶ 216; BOC Meeting Tr. Sept. 27, 1 2012 1–3, GE 26f2.) Further, Millie Taitano noted that, despite the BOC Chairman’s earlier 2 directive to Smith in April 2012 to prepare a letter describing his interests in the rental properties 3 transferred to Wong, Smith never prepared the letter. (Gov. MSJ ¶¶ 216–17; BOC Meeting 4 Minutes Sept. 27, 2012 14–16, GE 66.) 5 At a BOC meeting on October 25, 2012, while discussing HUD’s conflict-of-interest 6 investigation and the necessity of hiring additional legal counsel to submit a legal opinion to 7 HUD about compliance with local law, Smith stated he has no conflict and does not “own any 8 property here in GHURA.” (BOC Meeting Tr. Oct. 25, 2012 1–4, GE 26g2; BOC Meeting 9 Minutes Oct. 25, 2012 9–13, GE 69; see Gov. MSJ ¶ 218.) Smith did not disclose his relationship 10 with Wong or his ongoing interests in the rental properties and HAP payments. (Gov. MSJ ¶ 11 218.) 12 At a BOC meeting on November 8, 2012, the Board was informed it received notice from 13 HUD about the conflicts of interest brought to HUD’s attention. (BOC Nov. 8, 2012 Mins. 2–6, 14 GE 73.) GHURA’s Executive Management identified six employees that may have conflicts per 15 the regulations, in addition to the Governor and GHURA’s conflicts counsel—Cabot Mantanona 16 LLP. (Id. at 2) Management sought Board approval to proceed with the request for waivers from 17 HUD for all these individuals. (Id.) Executive Director Topasna then informed the Board that 18 Cabot Mantanona LLP resigned as GHURA’s conflicts counsel the day before the BOC meeting. 19 (Id. at 3.) During the discussion of the conflict of interest issue and the need for waivers to be 20 submitted to HUD, Smith made a statement that HUD could still waive these conflicts. (Id. at 21 5.) For their next meeting, the BOC directed GHURA Management to report on how many 22 contracts are affected by the waivers, and the amounts in dollar terms. (Id. at 6.) On December 23 10, 2012, GHURA’s new Executive Director, Mike Duenas, instructed staff to release HAP 24 1 payments to two landlords, including Wong, while the waiver request was prepared. (Gov. MSJ 2 ¶ 222.) 3 On December 28, 2012, HUD’s Honolulu Field Office emailed Executive Director 4 Duenas, relaying the concerns of HUD’s Regional Administrator that Wong’s “contracts 5 continue to receive money without this matter coming to a head.” (Id. at ¶ 223; Flores Email 6 Dec. 28, 2012, GE 76.) GHURA forwarded HUD’s email to Rick Bordallo, a local attorney, 7 asking for a waiver request from Smith to be submitted to HUD no later than December 31, 8 2012. (Flores Email Dec. 28, 2012 1.) Bordallo responded that he would “confirm with Mark” 9 about his “recommendations on how to proceed.” (Id.) Smith himself never submitted a waiver 10 request. 11 5. GHURA submits a waiver request on behalf of Smith to HUD in April 2013. 12 On April 23, 2013, acting independently from Smith, GHURA’s Executive Director 13 Duenas submitted a waiver request for Smith to HUD, dated April 15, 2013. (ALJ Dec. 9; Sec. 14 Rev. Order 6; Gov. MSJ ¶¶ 229, 237.) Attached to the waiver request was a legal opinion that 15 Smith was not a covered individual, drafted by GHURA’s conflicts counsel Anthony Perez from 16 the Law Office of Anthony Perez. (Gov. MSJ ¶¶ 231–37; Perez Legal Op.) Mr. Perez’s legal 17 opinion asserts: 18 Attorney Smith has deeded ownership of his Section 8 units to Mr. Wong via quitclaim deed. . . . Through execution of the quitclaim deed, Attorney Smith has 19 transferred all his interests in these properties to Mr. Wong, and thus has no ownership interest left. . . . Furthermore, there is no evidence that Attorney Smith 20 receives any payments or benefits under Mr. Wong’s HAP contracts. Mr. Wong has a personal bank account that directly receives Section 8 payments of which 21 Attorney Smith is not an account holder. 22 (Perez Legal Op. 4–5.) 23 HUD’s Honolulu Field Office forwarded the waiver request to HUD headquarters, 24 recommending that the request be denied because “[n]either [Mr. Perez] nor Mr. Smith has 1 provided satisfactory evidence that the conflict of interest has been resolved . . . .” (Gov. MSJ ¶ 2 237.) The Field Office concluded Smith was a covered individual because “he is a subcontractor 3 under a legal services contract with GHURA, and is involved in providing legal counsel and 4 interpretation and advice to GHURA regarding program regulations, rules, process