Case 3:11-cv-00354-O Document 152 Filed 12/20/13

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UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

UNITED STATES OF AMERICA, ex rel. CURTIS LOCKEY and CRAIG MACKENZIE Relators, v. CITY OF DALLAS, TEXAS and HOUSING AUTHORITY OF THE CITY OF DALLAS Defendants.

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Civil Action No. 3:11-cv-354-O

RELATORS REPLY IN SUPPORT OF THEIR RULE 60(b)(2) MOTION AND REQUEST FOR EXPEDITED INDICATIVE RULING The HUD Letter and related news coverage clearly show that Relators firsthand experiences and information exposed that Dallas was not just failing to affirmatively further fair housing (AFFH) but was intentionally keeping low-income housing away from downtown. Defendants cannotand make no attempt todefend the finding that HUD was already on the trail of this alleged fraud such that it would not otherwise go unnoticed. Doc. 138 at 8. Plainly, but for Relators whistleblowing, Defendants wrongdoing never would have been exposed. See, e.g., Doc. 146-2 at 3; see also Exs. 1-6 hereto. Defendants, of course, are free to deny the substantive allegations raised first by Relators and now by HUDthough responsible City officials are urging the City to admit and fix its misconduct. But Defendants lose all credibility by continuing to claim these new allegations merely reprise less specific AFFH allegations from old litigation and reports. 1

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A. The Citys Response that Relators and HUDs New Allegations Add Nothing Material to Old Ones is Cynical and Wrong. The City downplays the HUD Letter as having merely conclude[d] that the City [is] in noncompliance with the Civil Rights Act and fair housing laws. Doc. 150 at 4. This highlights the cavalier attitude toward federal civil rights laws by our Nations ninth largest municipality. The City remarkably suggests the HUD Letter, with findings that independent observers call monumental, Doc. 146-2 at 2, contains no newly discovered evidence. Doc. 150 a 2. It ignores the breadth and detail of HUDs comprehensive findings in maintaining that Relators personal experiences and interactions with the City did not constitute qualitatively different information than what was already publicly disclosed. Doc. 150 at 4-5. In fact, the HUD Letter confirms that Relators put the agency on the trail of Dallass significant violations of federal civil rights laws both with respect to the LTV Tower Project and city-wide. Relators information, now credited by HUD, goes well beyond Walker by showing that Dallas was not just failing to AFFH, but was intentionally promoting segregation. Relators exposed government-sponsored racial segregation that was supposed to have been wiped away by the Walker Consent Decree. Doc. 146-2 at 2. It was not publicly known before Relators came forward that Dallas was engaged in post-Walker efforts to promote housing segregation; Defendants touted precisely the opposite. See Ex. 7 (DHA website) (In December 2004hundreds of millions of dollars and two decades laterthe United States District Court recognized that DHA had fulfilled the courts mandate to end segregated public housing.). Because this case involves false claims beginning February 22, 2005, Doc. 16 at 17, Relators still would qualify as original sources even if Defendants merely continued the same misconduct they promised to end in Walker. See U.S. ex rel. Hoggett v. Univ. of Phoenix, No. 2:10-cv-02478-MCE-KJN, 2013 WL 875969, at **4-5 (E.D. Cal. Mar. 7, 2013). 2

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The City blinks reality by suggesting that HUDs dramatic new findings were based on publicly disclosed information and that HUD simply was analyzing multiple public documents. Doc. 150 at 4-5. That response also defies the law by seeking to deny original source status based on factual findings that are improper at this procedural stage. See Doc. 146-5 at 32 (Fifth Circuit Br. P. 24) (citing cases). DHA baldly, and incorrectly, asserts that the HUD Letter is cumulative of the evidence and argument presented by Relators prior to the Courts judgment. Doc. 151 at 3. DHA misses the point that the HUD Letter represents the

conclusionsafter four years of careful investigationof the federal agency charged with enforcement of the very civil rights laws that underlie Relators False Claims Act allegations. The HUD Letter is the essence of evidence that should be brought before the Court under Rule 60(b), in that it ratifies Relators as being original sources and is plainly material to the Courts consideration of Relators claims. Had the evidence of HUDs findings been before the Court, it would have compelled a different conclusion on the motions to dismiss. See Government Fin. Servs. One L.P. v. Peyton Place, Inc., 62 F.3d 767, 771 (5th Cir. 1995). The City finally asks this Court to punt, urging that [a]ny indicative ruling would do little to aid the Fifth Circuit in its de novo review of the appeal. Doc. 150 at 3. This ignores that such a ruling, expressly authorized by Fed. R. Civ. P. 62.1, would not just aid but would entirely obviate the pending appeal. B. DHA Cannot Separate Itself From the City in this Context.

DHA, criticizing Relators for referring to Defendants jointly as Dallas, contends Relators cannot be original sources as to DHA based on their firsthand experiences with the City. Doc. 151 at 1-2. But, to invoke the public disclosure bar, DHA lumped itself together with the City as Dallas and relied indiscriminately upon City-specific disclosures. It thus used the

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Dallas Observer article of June 10, 2010, which it conceded did not specifically nam[e] DHA, because in DHAs words, the heart of the controversy is Dallas AFFH certifications and this article does impugn affordable housing programs in Dallas. Doc. 58 at 6 (emphases added). Also, without differentiation, DHA cited a 2006 Report Card as having [c]riticize[d] Dallas for not considering certain impediments to fair housing. Id. Likewise, the cited Walker motion alleged that the City had failed to AFFH. See Doc. 101 at 17 (citing Doc. 30-5). Finally, while the HUD complaint specifically named only the City, this Court described it as disclos[ing] these precise allegations by finding it essentially was one accusing the City and DHA of violating the Federal Fair Housing Act. Id. at 18. DHAs attempt to distance itself from the City directly contradicts the very legal arguments DHA employed to secure dismissal of this action. Having relied on City-specific allegations to trigger the public disclosure bar, DHA should not be allowed to separate itself from the City for purposes of the original source exception to that same bar. Relators Fifth Circuit appeal, recognizing the inextricable connection between the City and DHA in this context, did not dispute that public disclosures of the Citys AFFH fraud necessarily also disclosed DHAs fraud. The Court should reject DHAs argument to de-link itself from the City now; to do otherwise would reward DHAs inconsistency. The argument also fails because DHA and the City have mutual and inextricably intertwined AFFH obligations to work in tandem to desegregate low-income housing in Dallas. Relators helped reveal that, in violation of those shared AFFH obligations, DHA and the City had actually joined to promote segregation. At most, DHAs arguments to the contrary should be merits defenses not cognizable for resolution at this threshold juncture.

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The Complaints well-pleaded allegations, which have not been and cannot now be contested at this juncture, establish the interrelatedness of the Dallas Defendants obligations to AFFH in the same municipal jurisdiction. The Complaint alleges that DHA is an agency of the City. Doc. 16 at 13. Case law establishes that DHA is a local government entity and not [a] unit of state government. Housing Auth. of City of Dallas v. Killingsworth, 331 S.W.3d 806, 811 (Tex. Ct. App.-Dallas 2011). Notably, the plaintiff suing DHA in that action for alleged breach of a hiring contract was Jerry Killingswortha key City official who wrongfully helped block the LTV Tower Project. See Doc. 53-2 at 8-9, 12; see also Doc. 146-1 at 14 (HUD Letter quoting officials writing expressing deep concern regarding Killingsworths attitu de toward project and affordable housing). The Complaint details how in this AFFH contextapart from any autonomy that might exist in other contexts, Doc. 151 at 2 n.1the City and DHA must act together to effectuate their shared AFFH obligations in the same municipality. The City violated federal law by failing to identify and analyze specific DHA impediments to fair housing. See Doc. 16 at 122-31. Likewise, DHA (though not required to produce it own AI) is obligated to conduct a functionally equivalent AFFH review of all its programs and policies and to collaborate with the City in the preparation of the Citys AI and Consolidated Plans. Id. at 119. By failing to provide the City and HUD with impediments to fair housing that it had erected, DHA violated these same federal requirements. Id. at 133-34. The inextricable legal link between DHA and the City in this context was recognized in the landmark case that both Dallas Defendants relied on here as a triggering public disclosure. See Walker v. HUD, 734 F. Supp. 1289 (N.D. Tex. 1989). The court there, after discussing how the City had created DHA under Texas law in 1938, found not only that the City can, without

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question, control the activities of DHA but also that the City has actually done so since 1938 under its general relationship with DHA. Id. at 1293. The courts opinion also had a heading describing as a matter of law in this very context, The Citys Responsibility under the CDBG Program to Prevent Discrimination by DHA. Id. at 1292. Based on the inextricable legal and factual connection between the City and DHA, the court was able to join the City to effectuate the judgment that originally had run solely against DHA. See id. at 1314. C. Defendants Alternative Dismissal Argument is Meritless.

Defendants, desperate to avoid answering for their wrongdoing, argue alternatively that the case should be dismissed under 31 U.S.C. 3730(e)(3). That section applies where the FCA action is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party. Id. Relators previously demonstrated why it has no applicability here. See Doc. 94 at 1-19. The recent HUD Letter does not change that analysis. The first reason Defendants argument fails is that when this FCA action was filed HUD was not already a party, 31 U.S.C. 3730(e)(3) (emphasis added), to the administrative investigation. See Doc. 94 at 11-12. The HUD Letter confirms that the only parties are 1600 Pacific LP (the Complainant) and the City of Dallas (the Recipient). See Doc. 146-1 at 2. And it advises that either party may request further review by the reviewing civil rights official. Id. at 29. That HUD now has made findings adverse to the City does not make it a third party to the investigationany more than a court becomes party to a litigation upon making findings or issuing rulings. Defendants argument also fails because the HUD proceeding is neither a civil suit nor an administrative civil money penalty proceeding, 31 U.S.C. 3730(e)(3) (emphasis added).

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See Doc. 94 at 14-15. While HUD has made broad findings against the City, it is not now seeking any monetary penalties. To the contrary, it seeks a voluntary resolution whereby Dallas complies with its fair housing obligations and provides relief for Complainant. Doc. 1461 at 28-29. The HUD letter shows the agency is not seeking any money penalty. Defendants argument finally fails because Relators FCA action is not based upon the HUD proceedings, 31 U.S.C. 3730(e)(3). Relators firsthand experiences are relevant to both: they show here that Dallas fraudulently obtained federal funds by making false AFFH certifications; and they show there that Dallas wrongly blocked the 1600 Pacific project. But, as shown by case law discussed by Relators, see Doc. 94 at 16-19, that does not trigger the bar. Case law recognizes that federal agencies may seek compliance with federal law without displacing remedies under the False Claims Act. See, e.g., U.S. ex rel. Johnson v. Shell Oil, 26 F. Supp. 2d 923, 928 (E.D. Tex. 1998) (agency audit letters and demands for royalty payments were not administrative civil money penalty proceeding and therefore not an election of the Government as contemplated by section 3730(e)(3)). DHA misplaces reliance on U.S. ex rel. Foundation for Fair Contracting v. G & M Eastern Contracting, 259 F. Supp. 2d 329 (D.N.J. 2003), because the federal agency there already had fully resolved wage claims and the court held that to permit such a claim to proceed after the government's enforcement proceeding has obtained redress for the government would make little statutory sense. Id. at 337-38 (emphasis supplied). Here, the FCA allegations go well beyond the scope of the HUD investigation initiated by Relators administrative complaint. HUD has not concluded any enforcement

proceeding nor has it secured any monetary redress for the government (much less any penalties) but instead seeks voluntary compliance by Dallas with its current and prospective civil rights obligations.

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CONCLUSION The Court should issue an indicative ruling that it will grant Relators Rule 60(b)(2) motion and reinstate this case. Respectfully submitted,

s/ Sean Connelly Sean Connelly* (CO Bar No. 33600) Reilly Pozner LLP 1900 16th Street, Suite 1700 Denver, CO 80202 sconnelly@rplaw.com Tel.: (303) 893-6100 Fax: (303) 893-6110 Michael Allen* (VA Bar No. 25141) RELMAN, DANE & COLFAX, PLLC 1225 19th Street, N.W., Suite 600 Washington DC 20036-2456 mallen@relmanlaw.com Tel.: (202) 728-1888 Fax: (202) 728-0848 *Admitted to appear pro hac vice Brian DeVoss (TX Bar No. 24052885) Hartine Dacus Barger Dryer LLP 6688 N. Central Expressway, # 100 Dallas, TX 75206 bdevoss@hdbdlaw.com Tel: (214) 346-3742 ATTORNEYS FOR PLAINTIFFSRELATORS

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CERTIFICATE OF SERVICE I hereby certify that true and correct copies of the foregoing Reply in Support of Relators; Rule 60(b)(2) Motion was filed and served this 20th day of December, 2013, using the CM/ECF system, which will serve as notification of such filings on the following: Earsa Jackson; Strasburger & Price, LLP; 901 Main Street, Suite 4400; Dallas, TX 75202 Counsel for Defendant Dallas Housing Authority Charles Estee; Assistant City Attorney; Peter B. Haskell; and Jennifer Wang, 7BN Dallas City Hall; 1500 Marilla Street; Dallas, TX 75201 Counsel for Defendant City of Dallas Clayton Ray Mahaffey; Asst U.S. Attorney; 801 Cherry St., Suite 1700 Unit 4; Fort Worth, TX 76102 Attorney for United States

s/ Sean Connelly Sean Connelly