IN THE SUPERIOR COURT OF THE DISTRICT OF COLUMBIA Civil Division ‘THE DISTRICT OF COLUMBIA, a municipal corporation, 441 4" Street, N.W. Washington, D.C. 20001, Plaintiff, JURY TRIAL DEMANDED 50085 . Civit Action Wo 085.43~10 2100 MARTIN LUTHER KING ASSOCIATES LIMITED PARTNERSHIP 550 Biltmore Way, #970 Coral Gables, Florida 33134, Defendant. NOV 09 2010 : Super oun a the iit of Cobain Leibner & Potkin 4725 Wisco Avenue, N.W., #250 Washington, D.C. 20016-4609 SS) COMPLA! ‘The District of Columbia (“District”), by and through its Office of the Attorney General, hereby brings suit against 2100 Martin Luther King Associates Limited Partnership (“MLK Associates”) pursuant to D.C. Official Code § 2-308.14(a) and common law, and alleges as follows: Jurisdiction 1. This Court has subject matter jurisdiction pursuant to D.C. Official Code §§ 11-921 and 2-308.15 (2001). ‘This Court has personal jurisdiction over the Defendant pursuant to D.C. Official Code §§ 13-422 and 13-423 (2001),The Parties 2. The District is a municipal corporation created by an Act of Congress, capable of suing and being sued, and is the local government for the district constituting the seat of government of the United States. 3. Defendant MLK Associates is a limited partnership that was registered in the District of Columbia on December 11, 1987. District Of Columbia False Claims Act 4. The District of Columbia Procurement Reform Amendment Act (the “DC se Claims Act”) provides that: (a) Any person who commits any of the following acts shall be liable to the District for 3 times the amount of damages which the District sustains because of the act of that person. A person who commits any of the following acts shall also be liable to the District for the costs of a civil action brought to recover penalties or damages, and may be liable to the District for a civil penalty of not less than $5,000, and not more than $10,000, for cach false claim for which the person: (1) Knowingly presents, or causes to be presented, to an officer or employee of the District a false claim for payment or approval; (9) Is the beneficiary of an inadvertent payment or overpayment by the District of monies not due and knowingly fails to repay the inadvertent payment or overpayment to the District, D.C. Official Code § 2-308.14(a). 5. Section 2-308.13(3) of the DC False Claims Act defines “knowing” or “knowingly” to mean: (A)... . that a person, with respect to information, does any of the following: (i) Has actual knowledge of the falsity of the information;(ii) Acts in deliberate ignorance of the truth or falsity of the information; or information. (B) Proof of specific intent to defraud is not required for an act to be knowing. The Lea 6 Onorabout April 15, 1988, the District and MLK Associates entered into a twenty-year lease from October 1, 1989 to September 30, 2009 (the “Lease”). Pursuant to the Lease, the District rented office space consisting of approximately 66,800 square feet (the “demised premises” or the “premises”) in a building located at 2100 Martin Luther King, Jr. Avenue, S.E., Washington, D.C. (the “Building”). ‘The District agreed to pay rent, rent escalations, and monthly estimated operating expenses against the Landlord’s anticipated actual operating expenses. ‘The payment of estimated operating expenses was in addition to, and not part of, the monthly rent payment. 7. Pursuant to the Lease, the District must pay its proportionate share of MLK Associates’ actual operating expenses or common area maintenance charges that are the costs of routine maintenance and repairs to the Building and the common areas of the Building. Addendum H of the Lease, entitled “Operation Expense — Escalations,” defines the term “Operation Expense” as meaning “any and all expenses incurred by the Landlord in connection with the operation, management, maintenance and repair of the Building and Land and all easements, rights and appurtenances thereto.” “Management Fees” are included as an Operating Expense in Addendum H, but are capped at “[ulp to three percent (3%) of net rent payable hereunder.”8. The District’s share of the operating expenses for the Building is 91.76%, which is based on the percentage of rented square footage. 9, For calendar years 2000 to 2009, the District paid monthly estimated operating expenses in the amount of $30,698.81. 10. Pursuant to the Lease, at the “end of each Lease Year, Landlord shall determine the amount, if any, by which the Operating Expenses for such Lease Year actually exceeded the Operation Expenses paid by the District during the Lease Year.” ‘The Lease also provides that “iJn the case of excess payments of Operation Expenses, the Landlord shall refund the District for same. The District shall have the right to examine documents in Landlord’s possession which evidence the Operation Expenses paid by the Landlord during a particular Lease Year.” 11, Asof January 2010, MLK Associates had never provided the District with any determination of whether the payments by the District for calendar years 2000 to 2009 exceeded or fell short of the reimbursable operating expenses. 12, To the extent that the District paid monthly estimated operating expenses in excess of the reimbursable operating expenses for calendar years 2000 to 2009, MLK Associates should have identified and returned the excess amounts to the District, 13. On or about February 18, 2010, MLK Associates presented the District with a spreadsheet for calendar years 1992 through 2009 that purported to show that the District owed additional rent charges, that is, additional operating expenses, in the amount of approximately $3 million. 14, In March 2010, independent auditors, hired by the District, performed an analysis for the 2007, 2008, and 2009 calendar years regarding the property located at2100 Martin Luther King, Jr. Avenue, S.E., with respect to MLK Associates” operating expense statements for the purpose of determining the appropriateness and accuracy of the additional rent charges billed to the District. 15, During the review and analysis by the independent auditors, MLK Associates presented the auditors with a spreadsheet for calendar years 2000 through 2009, entitled “Summary of Operating Expenses” (“March 2010 Summary”), that purportedly showed the reimbursable operating expenses already paid by the District, as well as additional operating expenses in the amount of approximately $3.6 million that were purportedly owed by the District. 16. MLK Associates provided the independent auditors with general ledgers, invoices, service contracts, real estate tax bills, rent rolls and other pertinent information to support the operating expenses claimed for calendar years 2007, 2008, and 2009. ‘The auditors identified approximately $1.25 million in expenses - included by MLK, Associates in the March 2010 Summary for these three years - that were not supported by the documents provided by MLK Associates during the auditors’ review, Deducting these unsupported expenses from MLK Associates’ claim leaves the supported reimbursable operating expenses at approximately $425,000. Therefore, for calendar years 2007, 2008, and 2009, the District’s payments to MLK Associates, approximately $1,040,000, exceeded the supported reimbursable operating expenses by more than $600,000. Charitable and Pi ical Contributions 17. Inthe March 2010 Summary, for calendar year 2007, MLK Associates billed the District $500 as its pro rata share of the cost of a March 11, 2007 “fundraiser,”thereby representing that the charge was a reimbursable operating expense. MLK ofa fundraiser held at the Bath Club in Associates billed the District part of the cos Miami Beach, Florida, allocating $500 to the District as its share of the bill, which included a charge of $1050 for champagne and a $1060 gratuity. The charges for this fundraiser were not reimbursable operating expenses of the Building because they did not contribute to the operation, management, maintenance, and repair of the Building, Contrary to MLK Associates” representations, the cost of this fundraiser was not a reimbursable operating expense, and the inclusion of this charge was improper and false. 18. In the March 2010 Summary, for calendar year 2008, MLK Associates also billed the District $5,000 for a charitable donation on December 21, 2007. The Peebles Corporation ~ R. Donahue Peebles, the CEO and chairman of the Peebles Corporation, is the Managing General Partner of MLK Associates ~ made the donation to the Anacostia Economic Development Corporation and charged the donation to the District as an operating expense of the Building, The donation was not a reimbursable operating expense because it was not an expense incurred in operating and maintaining property, and the inclusion of this charge was improper and false. 19. Inthe March 2010 Summary, for calendar years 2007, 2008, and 2009, MLK Associates billed the District $3,700 for contributions to political campaigns, thereby representing such contributions to be reimbursable operating expenses. For calendar year 2007, MLK Associates included a $500 contribution to the Mark Long campaign, a $500 contribution to the Michael Brown campaign, and a $500 contribution to the Matti Bower campaign as operating expenses. For calendar year 2008, MLK Associates included a $500 contribution to the “Barry for Ward 8” campaign, a $500contribution to the “Re-elect Evan 2008” campaign, and a $1,000 contribution to the “Friends of Michael A. Brown” campaign as operating expenses. For calendar year 2009, MLK Associates included, as an operating expense, a $200 contribution to the Michael A. Brown campaign. Despite MLK Associates’ representations, these political contributions were not reimbursable operating expenses, and the inclusion of these charges was improper and false. Management Fees 20. The Lease provides that management fees can be billed as operating expenses for up to three percent (3%) of the net rent payment; it is standard in the District and other jurisdictions for management fees billed as operating expenses to be limited to a percentage of the net rent payment, However, in the March 2010 Summary, for calendar years 2007, 2008, and 2009, MLK. Associates did not limit its management fees to 3% of the net rent in accordance with the Lease but, rather, charged management fees in the amounts of $198,583 for 2007, $253,230 for 2008, and $180,583 for 2009 - approximately $492,600 more than the management fees allowed by the Lease. Nevertheless, MLK Associates represented these fees as consisting entirely of reimbursable operating expenses. Notwithstanding MLK Associates’ representations, the inclusion of excessive management fees as reimbursable operating expenses was improper and false. Business Franchise Taxes 21. MLK Associates represented in the March 2010 Summary that the amounts it paid in business franchise taxes, totaling $145,815.00 for calendar years 2007, 2008, and 2009, were reimbursable operating expenses to be paid by the District.Busiriess franchise taxes, which are tax‘ imposed on entities doing business with the District, are the responsibility of MLK Associates and have no connection with expenses incurred by the Landlord for the operation and maintenance of the Building. MLK Associates’ representation that business franchise taxes should be included as reimbursable operating expenses was improper and false. Accounting Fees and Legal Fees 22. Inthe March 2010 Summary, for calendar years 2007, 2008, and 2009, MLK Associates billed the District $10,654 in accounting fees for the preparation of its federal and state partnership income tax returns, thereby representing that these amounts constituted reimbursable operating expenses. ‘These accounting fees were not related to the operation or maintenance of the Building and were the sole responsibility of MLK Associates, The inclusion of these fees as reimbursable operating expenses was improper and false. Similarly, for calendar year 2009, MLK Associates included legal fees in the amount of $2,700 as reimbursable operating expenses. ‘These legal fees were not related to the operation or maintenance of the Building and were the sole responsibility of MLK Associates. ‘The inclusion of these fees as reimbursable operating expenses was improper and false Transaction Fees for Loans and Mortgages 23. Inthe March 2010 Summary, MLK Associates included transaction costs of approximately $83,542 for loan modification fees, loan commitment fees, mortgage renewal fees, and appraisal fees related to the mortgage for calendar years 2007, 2008, and 2009. MLK Associates represented these transaction costs to be reimbursable operating expenses even though they were not related to the operation or maintenance ofthe Building. The inclusion of these transaction costs as reimbursable operating expenses was improper and false. Cleaning and Janitorial Services 24. Pursuant to Addendum C of the Lease, entitled “Services, Utilities and Maintenance,” MLK Associates, as the landlord of the Building, “shall, at its own cost, and expense, maintain the entire demised premises. . . [and] shall, in connection with fu hing the aforementioned maintenance and repairs, have readily available maintenance personnel . . . or service by maintenance contract with commercial n of, maintenance services adequate to insure . . . the continuous availability and operati the aforementioned maintenance and repairs ....” In addition, MLK Associates must “at its own cost and expense . . . as part of the rental consideration,” furnish “[d]aily cleaning and janitorial services and supplies, including all tools and equipment necessary . ...” According to the Lease, MLK Associates was solely responsible for the payment of all cleaning, janitorial, and trash removal services related to the demised premises and could not charge the District for these operating expenses. 25. — Contrary to the Lease provisions allocating cleaning and janitorial costs for the demised premises exclusively to the landlord, in the March 2010 Summary, MLK Associates billed the District approximately $493,464 for cleaning, janitorial, and trash removal services for calendar years 2007, 2008, and 2009, thereby representing that these services were reimbursable operating expenses. The inclusion of these costs as reimbursable operating expenses in the March 2010 Summary was improper and false.Other Expenses 26. Inthe March 2010 Summary, for calendar years 2007, 2008, and 2009, MLK Associates billed the District $10,211 in banking fees, corporate filing fees, courier and mail services, office supplies, licenses and permits, and repairs to an adjacent building, representing that these amounts constituted reimbursable operating expenses, None of these fees were related to the operation and mait jenance of the Building and were the sole responsibility of MLK Associates, The inclusion of these fees as reimbursable operating expenses was improper and false. Count One Knowingly Presenting A False Claim To The District (@.C. Official Code § 2-308.14(a)(1)) 27. The allegations of paragraphs 1 through 26 are realleged as if fully set forth herein. 28. — Onor about February 18, 2010, MLK Associates submitted a false spreadsheet to the District that incorrectly showed, for calendar years 1992 through 2009, additional rent charges, namely operating expenses, which the District purportedly owed to MLK Associates., In March 2010, MLK Associates provided a false spreadsheet to the District’ dependent auditors that incorrectly showed, for calendar years 2000 through 2009, additional operating expenses which the District purportedly owed to MLK Associates. 29. By-virtue of these false claims that MLK Associates presented or caused to be presented to the District, MLK Associates is liable to the District for civil penalties of between $5,000 and $10,000 for each violation of the D.C. False Claims Act, as well , including attorney’ fees.Count Two Failure to Repay an Inadvertent Payment Or Overpayment (D.C. Official Code § 2-308.14(a)(9)) 30. The allegations of paragraphs 1 through 26 are realleged as if fully set, forth herein, 31. For calendar years 2000 to 2009, the District made monthly payments of estimated operating expenses to MLK Associates. Pursuant to the Lease, MLK Associates had an obligation to reconcile these payments of estimated operating expenses with the Building’s actual operating expenses and return any amounts in excess of the actual operating fees to the District. 32, For calendar years 2007 through 2009, and, upon information and belief, other years, MLK Asso es was the beneficiary of inadvertent payments or overpayments of more than $600,000 by the District of monies that were not due and knowingly failed to return to the District these inadvertent payments or overpayments. 33. By virtue of these inadvertent payments or overpayments, MLK. Associates is liable to the District for three times the amount of actual damages which the District sustained because of MLK Associates’ acts, plus the District’s costs, including attomey’s fees. Count Three Unjust Enrichment 34, The allegations of paragraphs 1 through 26 are realleged as if fully set forth herein, 35. For calendar years 2007 through 2009, and, upon information and belief, other years, MLK Associates retained more than $600,000 that was actually owed to theDistrict under the terms of the Lease. By retaining monies that were actually owed to the District, MLK Associates retained money that was the property of the District and to which MLK Associates was not entitled. MLK Associates has been unjustly enriched by retaining the use and enjoyment of the monies that should have been paid to the District. 36. By virtue of this conduct, MLK Associates is liable to the District for damages and any other relief the Court deems appropriate. WHEREFORE, the District respectfully requests the Court to enter judgment in its favor and against MLK Associates on its claims and impose damages and penalties as follow: (1) Count One ~ awarding the District civil penalties of $10,000 for each violation of the DC False Claims Act, and the costs of this action, including attomey’s fees; (2) Count Two — awarding the District treble statutory damages in an amount to be determined at trial but not less than $1.8 million, and the costs of this action, including attorney’s fees; (3) Count Three ~ awarding the District the amount by which MLK Associates was unjustly enriched to be determined at trial, but not less than $600,000, plus interest, and the costs of this action, including attomey’s fees; and (4) Awarding the District such further and additional relief as the Court may deem just and proper."The District of Columbia hereby demands a trial by jury by the maximum number of jurors permitted by law. Respectfully submitted, PETER J. NICKLES Attomey General for the District of Columbia GEORGE C. VALENTINE Deputy Attomey General ELLEN EFROS Assistant Deputy Attorney General Chief, Public Advocacy Section Gs DRUMMEY [441 Assistant Attorney Gener? Public Advocacy Section Civil Litigation Division, 6" Floor North 441 4! Street, N.W. Washington, D.C. 20001 (202) 727-2658 (202) 727-6546 (fax) Email: jane.drummey@dc.gov Attorneys for the District of Columbia