Bitter Dispute at Heart of FOIA Suits Against Army

There’s a story behind every FOIA lawsuit. The one behind American Management Services LLC vs. Department of the Army is a doozy, complete with allegations that tens of millions of public dollars have been diverted to fight a private company’s legal battles instead of going to housing for soldiers and their families.

One of the Clark Pinnacle housing developments, this one at Fort Irwin in California.

The case has a long-but-interesting history. American Management Services, doing business at the time as Pinnacle, entered into a joint venture with Clark Realty Capital to form Clark Pinnacle Family Communities. The joint venture was formed in 2002 to pursue contracts to build and manage housing for U.S. military personnel after Congress enacted the Military Housing Privatization Initiative in 1996.

Clark Pinnacle went on to develop housing projects in six locations that included more than 11,000 homes, according to an April 2014 Government Accountability Office report. GAO valued the projects at about $2 billion. The projects were at Fort Benning in Georgia, Fort Belvoir in Virginia, the Presidio at Monterey Bay in California, and three other sites collectively known as the California Military Communities: Fort Irwin, Moffett Field and Camp Parks.

In 2010, things turned nasty. Clark went to the Army with what it said was evidence of mismanagement and fraud by Pinnacle, according to court documents and the GAO report. The Army gave Clark the go-ahead to take legal action to force Pinnacle out of its management role. That has kicked off a series of lawsuits, primarily between Clark and Pinnacle. Pinnacle also brought two FOIA suits against the Army as it seeks documents to bolster its case against Clark.

The animosity runs deep. Pinnacle lawyers write in one of the complaints, “Clark has instigated a scorched-earth litigation campaign to oust Pinnacle from its property management role at each of the four housing projects. After relying on Pinnacle’s experience and reputation to win these projects, Clark is now manipulating its position as the majority partner in the joint venture to terminate Pinnacle’s interests.”

To bolster its case against Clark, Pinnacle submitted a FOIA request to the Army in 2010 seeking the documents Clark provided to the Army when Clark sought to show that Pinnacle wasn’t acting in good faith. Pinnacle also sought all documents in which its pending litigation with Clark was mentioned. The Army claimed Exemption 5, which excludes “inter-agency or intra-agency memorandums” under certain circumstances. Pinnacle sued in the Eastern District of Virginia, losing at both the district and appellate court levels.

On Sept. 14, 2012, Pinnacle made another FOIA request to the Army, seeking documents related to Modified Scope Plans for the housing facilities Clark Pinnacle had built at Monterey Bay, Fort Belvoir, Fort Benning, and Fort Irwin, “including but not limited to preliminary reports, presentations, projections, forecasts, working papers, and assessments,” according to the FOIA request letter, which is part of the court record.

On Dec. 5, while awaiting action on its FOIA request, a Pinnacle lawyer talked with an Army official overseeing the FOIA request named Colleen Hagy. The complaint describes the discussion this way:

“Plaintiff again spoke with Ms. Hagy by telephone. Ms. Hagy stated that Clark had requested that the Army release virtually no records to Plaintiff. Ms. Hagy said that the Army’s position was that everything should be released to the extent possible and that the redactions, if any, should be narrowly tailored. She called Clark’s position ‘unreasonable.’”

But, according to Pinnacle’s complaint, it only received one heavily redacted document. It then appealed, and encountered several delays as the Army seemed to struggle to direct the appeal to the proper office. Pinnacle did receive more documents, about 379 redacted pages. Pinnacle had expected far more.

A year later, on Sept. 18, 2013, the law firm Munger, Tolls & Olson sued the Army again on AMS/Pinnacle’s behalf, this time in the Central District of California. The suit alleges the Army inappropriately delayed and then withheld the documents the company sought. As summarized in a recent order in the case, Pinnacle seeks “release of any withheld records, the release of all documents ‘without improper redactions,’ a declaratory judgment that ‘it was unlawful for the Army to fail to disclose the subject records,’ and attorneys’ fees.”

In the suit, Pinnacle says more is at stake than its tiff with Clark, laying out an argument that Clark is diverting funds that should be going toward the project to instead continue its campaign against Pinnacle.

Pinnacle’s complaint states that “At three of the Clark Pinnacle projects – Monterey, Belvoir, and Benning, Clark submitted documents called “Modified Scope Plans” to the Army to reduce the development budgets of these projects by hundreds of millions of dollars and significantly reduce the construction of new units, while eliminating its obligation to construct community centers and other amenities for soldiers.”

Meanwhile, at the California Military Communities projects, “Clark did not submit a Modified Scope Plan, but instead sought nearly $100 million in additional funds from the Army in order to perform its development obligations,” the complaint continues.

“But almost immediately after the Modified Scope Plans and … capital infusion were approved, and millions of dollars once intended for new construction were made available, Clark hired a team of high-priced litigation and accounting professionals … to begin developing a litigation pretext to terminate Pinnacle. Pinnacle doubts this timing was coincidental. Having just claimed that each of these projects lacked sufficient funding, Clark convinced the Army to let it expend millions of dollars intended for the development, maintenance, and improvement of housing for soldiers and their families to fund its litigation against Pinnacle. All told, on information and belief, Clark has diverted more than $30 million in housing project funds to spend on its litigation with Pinnacle,” according to the complaint.

American Management Services (AMS) General Counsel Andrew Mathews said the $30 million number was “conservative” at the time it was generated, and that it is now almost certainly higher.

The GAO report on the lawsuits and their costs offers insight into AMS’s assertions. It found that money from the rents collected at the military housing facilities in question were being used to pay for the various lawsuits, as Pinnacle claims. It did not, however, estimate the cost. GAO also found that Clark and the Army were using an alternative to standard procedure for approving those expenses with the explicit goal of streamlining the approval process so that less information about the lawsuits was shared within the Army and elsewhere. GAO found that this alternative process was legal.

The GAO report did not find that the housing facilities were being harmed by the diversion of funds, but states that, “rents collected in excess of operating expenses normally are available for other purposes such as construction; capital, repair, and replacement of buildings; and future reinvestment. However, because litigation expenses were also paid from the rents collected at the four … projects involved in the litigation, some funds have not been available for these purposes.”

The government, in its answer to the Pinnacle complaint, offers the standard “deny” or “lacks knowledge” to each of Pinnacle’s allegations. As for the claim that the Army was open to sharing more documents with Pinnacle, but then let Clark dissuade it from doing so, the answer states that “defendant lacks knowledge sufficient to form a belief as to the truth of the matters asserted in paragraph 43 of the Complaint and on that basis denies.”

The Department of Justice lawyer handling the case said he could not comment on pending litigation. The DOJ public affairs office also declined comment, other than to say that Justice Department lawyers were reviewing a recent ruling in the case. Clark officials declined comment.

An Army spokesman said that “throughout this legal process, the primary concern of the U.S. Army is for the care and safety of soldiers and their families.” He declined to comment on specific questions about the condition of the housing facilities, the cost of the suits, or the management of the properties by either Pinnacle or Clark.

The order lawyers in the case are currently reviewing was issued by Judge Dean Pregerson on Nov. 6. In it, he takes the Army to task for not responding to the FOIA request and appeal in a timely way. He writes that “the delay of Plaintiff’s appeal appears to have been the result of bureaucratic mishandling rather than intentional obfuscation weighs some in the balance, but not enough to make the delay reasonable. Agencies are under an obligation to establish clear channels for FOIA requests. … The Court finds that the Army’s unreasonable delay violated FOIA’s timeliness requirements.”

The judge’s determination that the Army had violated FOIA could help Pinnacle if it tries to recoup its legal expenses from the government.

But despite the judge’s slap at the Army, it found that the Army had, for the most part, properly redacted the documents under FOIA’s Exemption 4, which protects from release “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.”

The DOJ lawyers made the redacted documents in question part of the court record when it filed them as part of its Vaughn Index, along with a declaration from Army officials that there were no other documents responsive to Pinnacle’s FOIA request that could be found.

Judge Pregerson ordered that the Army provide him with unredacted versions of the same documents to review in camera, meaning in his private chambers and not in open court or in front of Pinnacle lawyers. In his Nov. 6 order, the judge found that “the Army’s redactions were for the most part permissible under the commercial information exemption.” He did mark up the documents, indicating that some of redactions should be restored.

Both Pinnacle and the Army have the right to appeal the order. Mathews, the AMS General Counsel, said AMS lawyers are still reviewing the ruling and waiting to see if the Army appeals or if it makes the material the judge wanted un-redacted available for AMS to review. Mathews said AMS is “happy the judge recognized that the Army engaged in unreasonable delay.”

An Army spokesman said that “The U.S. Army respects the judge’s ruling and will adhere to the findings.”

What of the housing projects themselves, home to thousands of military families? The matter is still being litigated. According to Mathews, Clark has unilaterally removed Pinnacle from management of the two East Coast facilities, Fort Belvoir and Fort Benning. Pinnacle is now challenging those actions in state court in Georgia, Mathews said.

On the West Coast, Pinnacle remains the manager for the facilities at Monterey Bay and the developments that are part of the California Military Communities project. Clark and Pinnacle had been battling in state court in California. The case has recently been moved to federal court. The case, 5:14-cv-03953, is being handled by Judge Beth Labson Freeman in the Northern District of California.