Bailes v. United States Memorandum for the United States

    No. 91-1075

3fn t\)t Supreme Court of tijr llm trb States;
October Term, 1991

George Lewis Bailes, J r., petitioner

United States of America

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 

FOR THE ELEVENTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

Kenneth W. Starr 
Solicitor General

Stuart M. Gerson 
Assistant Attorney General

Robert S. Greenspan 
Howard S. Scher 

Attorneys
Department o f Justice 
Washington, D.C. 20530 
(202) 51^-2217



In  tfje Supreme Court of t!)f ®rateb States
October Term, 1991

No. 91-1075

George Lewis Bailes, J r., petitioner

v.

United States of America

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 

FOR THE ELEVENTH CIRCUIT

MEMORANDUM FOR THE UNITED STATES

OPINIONS BELOW
The opinion of the court of appeals, Pet. App. AII- 

AXIX, is reported at 942 F.2d 1555. The pertinent opin­
ion, Pet. App. CXXV-CXXIX, and order of the district 
court, Pet. App. CXXIII-CXXIV, are unreported.

JURISDICTION
The judgment of the court of appeals was entered on 

September 30, 1991. A petition for rehearing was denied 
on December 6, 1991. Pet. App. BXX-BXXII. The peti­
tion for a writ of certiorari was filed on December 26, 
1991.* The jurisdiction of this Court is invoked under 28 
U.S.C. 1254(1).

* The caption was subsequently corrected. The Solicitor 
General received notice of the correction on January 9, 1992.

(1)



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STATEMENT
1. Peppertree Apartments, City Court II Apartments, 

Rainbow Apartments, and College Manor Apartments 
are multifamily housing projects located in Alabama. 
Each project was built with a loan insured against 
default by the Department of Housing and Urban Devel­
opment (HUD) under 12 U.S.C. 1715Z(b) (1988). Peti­
tioner George Bailes is a managing or general partner in 
each of the entities that own the projects. At all relevant 
times, Bailes Realty Company, of which petitioner is the 
sole owner, was the managing agent for each of the 
projects. Pet. App. AIII-AIV.

In consideration for HUD’s mortgage insurance, each 
of the housing projects entered into a regulatory agree­
ment with HUD. Each of the agreements is identical. In 
part, the agreements prohibit project owners from using 
project income or other assets for any purpose other 
than “reasonable operating expenses and necessary 
repairs” without HUD’s prior written approval. The 
agreements provide that in case of violations of the 
agreement HUD may sue in state or federal court to 
enforce the agreement or for other relief. Pet. App. AIV- 
AV.

After determining that petitioner had made expendi­
tures in violation of the regulatory agreements, HUD 
sought petitioner’s debarment from participation in 
HUD programs for a five-year period. Pet. App. AV. A 
hearing was conducted by an administrative judge of 
HUD’s Board of Contract Appeals. The administrative 
judge found that petitioner had diverted project assets to 
his money market accounts in the amount of $1,519,711; 
that, after an audit by HUD’s Office of Inspector Gen­
eral, petitioner had returned $1,414,800; and that after 
the administrative proceeding petitioner returned an ad­
ditional $14,600. Pet. App. CXXVII & n.l. The



administrative judge further found that petitioner had 
made improper distributions of $90,311 in project funds to 
his money market accounts, and that petitioner did not 
replace this amount despite knowing that the distribu­
tions violated the regulatory agreements. Pet. App. 
CXXVII. Accordingly, petitioner was debarred from 
participation in HUD programs for five years. Pet. App. 
AV-AVI.

Petitioner was also subject to other sanctions. Origi­
nally, when petitioner had engaged in the conduct for 
which he was debarred, the Secretary was authorized to 
seek fines up to $5000 for each “willful” violation and up 
to three years imprisonment, or both. See 12 U.S.C. 
1715z-4(b) (1982). In addition, as petitioner conceded 
below, Pet. C.A. Opening Br. 34, the Secretary could 
have supplemented the statutory remedies with a suit for 
compensatory damages for breach of the regulatory 
agreement. In 1988, however, three years after peti­
tioner’s violations of the regulatory agreement, 
Congress substituted a liquidated damages remedy for 
the criminal sanctions allowable under the prior statute. 
In place of the latter, Congress provided for recovery of 
“double damages” calculated on the basis of a specific 
formula consisting of “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 certain specified costs. 12 
U.S.C. 1715z-4a(e) (1988).

2. In 1989, the United States filed suit in the district 
court, seeking to recover the statutory damages under 
the 1987 law—i.e., twice $90,311, or $180,622. The district 
court granted the government’s motion for summary 
judgment and awarded the government the statutory 
damages and costs as requested. Petitioner sought re­
consideration of the statutory award, arguing that, 
because Section 1715z-4a(c) had been enacted after



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petitioner’s conduct had occurred, the statutory damages 
remedy should not be applied retroactively. Pet. App 
DXXI-DXXXII.

The district court rejected petitioner’s argument, Pet. 
App. DXXXI-DXXXIV, and the court of appeals af­
firmed, Pet. App. AII-AXIX. Applying the retroactivity 
analysis set forth in Bradley v. School Board, 416 U.S. 
696 (1974), the court held that it would not be a “manifest 
injustice” to apply Section 1715z-4a(c) to petitioner’s 
case. Pet. App. AXV-AXIX.

DISCUSSION
The United States has determined not to pursue its 

claim for relief for “double damages” under the new 
statute. Instead, the government will seek compensatory 
damages under a contract theory based on the regulatory 
agreement signed by the petitioner and the government 
before the new statute was signed into law. Because the 
government is no longer seeking relief under the new 
statute, that claim for relief—which is the sole basis for 
the petition for a writ of certiorari—is moot. See, e.g., 
Webster v. Reproductive Health Services, 492 U.S. 490, 
512-513 (1989); Frank v. Minnesota Newspaper Ass’n, 
490 U.S. 225, 227 (1989). Accordingly, this Court should 
grant the petition for a writ of certiorari, vacate the 
judgment of the court of appeals, and remand the case to 
the court of appeals, directing the court of appeals to 
remand the case to the district court with directions (i) 
to vacate with prejudice only that aspect of the district 
court’s award that represents the “doubling” of damages 
and (ii) to allow the government to seek additional 
recovery pursuant to its other claims for relief. See 
Webster, 492 U.S. at 512-513; Frayik, 490 U.S. at 227.



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CONCLUSION
The petition for a writ of certiorari should be granted, 

the judgment of the court of appeals should be vacated, 
and the case should be remanded for further proceedings 
as set forth above.

Respectfully submitted.

April  1992

Kenneth  W. Starr 
Solicitor General

Stuart m . Gerson 
Assistant Attorney General

Robert S. Green span  
H oward S. Scher 

Attorney