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United States ex rel Howard v. Urban Investment Trust

July 29, 2009

UNITED STATES OF AMERICA, EX REL ANN HOWARD PLAINTIFF,
v.
URBAN INVESTMENT TRUST, INC., SYNERGY AFFILIATES, LLC, RUDY MULDER, ROXANNE GARDNER, AND JOHNNY TERZAKIS, DEFENDANTS.



The opinion of the court was delivered by: Wayne R. Andersen District Judge

MEMORANDUM OPINION AND ORDER

This case is before the court on the motion of defendants Urban Investment Trust, Inc. ("Urban") and Johnny Terzakis ("Terzakis") to dismiss Howard's complaint for lack of jurisdiction pursuant to 31 U.S.C. § 3730(b) and Federal Rule of Civil Procedure 12(1). Further, defendant Roxanne Gardner has filed a motion to adopt Urban and Terzakis' motion. For the reasons set forth below, the motion by defendant Roxanne Gardner ("Gardner") to adopt [190] is granted insofar as it seeks to adopt the motion to dismiss filed by Urban and Terzakis. Defendants Urban, Terzakis, and Gardner's motion to dismiss [175] the third amended complaint is denied. Gardner's initial motion to adopt [177] is denied as moot. Finally, Howard's motion for leave to file a fourth amended complaint [188] is granted. The amended complaint is to be filed as a separate document on or before August 28, 2009.

BACKGROUND

Plaintiff Ann Howard was employed as Urban's Senior Residential Accountant beginning in June of 2000. Her duties included adding and reconciling Urban receivables to the general ledger of the Chicago Housing Authority ("CHA") and the United States Department of Housing & Urban Development ("HUD"). Urban had a contract with the CHA that prohibited Urban from using money in the CHA-HUD accounts for any purposes other than those listed in the contract. Under the terms of the contract, Urban was permitted to deduct funds from the CHA accounts for housing expenses and payroll, but was prohibited from using government money for personal uses.

Howard asserts that toward the end of 2000 she observed that there were large discrepancies between the CHA-HUD bank accounts and the CHA-HUD ledgers because large withdrawals were made from the bank accounts without proper documentation. She alleges that the individual defendants asked her to reconcile the accounts to indicate that the undocumented withdrawals had not occurred and that she did so one time, but then refused to do so on other occasions. Howard further alleges that in April 2002, after she refused to reconcile the accounts to make it appear as if the money was in the accounts when it, in fact, was not, another employee was hired who assumed most of Howard's duties. Howard asserts that she left Urban shortly thereafter because she felt she was being harassed due to her refusal to participate in the unlawful transfers and fraud.

For purposes of this motion, defendants Urban, Terzakis and Gardner (collectively "defendants") do not contest the fact there was money missing from the accounts and that there was an embezzlement. Further, defendants do not dispute that Howard reported the schemes internally to Urban managers and the individual defendants themselves and that two of Howard's superiors then reported the embezzlement schemes to CHA investigators.

After Howard left Urban she then brought this action against Urban, Synegy Affiliates, LLC, Rudy Mulder, Gardner, and Terzakis. The action was initially filed on October 29, 2003 and was placed under seal during the government's investigation of the actions alleged in the complaint. On October 30, 2006, Chief Judge Holderman unsealed the complaint and it became a part of the public record.

Howard's third amended complaint asserts claims in Counts I and II pursuant to the qui tam provision of the False Claims Act ("FCA"). See 31 U.S.C. § 3730(b). Count III asserts a claim for retaliation and constructive discharge based upon her unwillingness to participate in defendants' embezzlement scheme and her reporting of that embezzlement to her superiors. Defendants Urban and Terzakis now seek to dismiss the third amended complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil procedure 12(b)(1) and 31 U.S.C. § 3730(e)(4). Defendant Gardner also filed a motion to adopt Urban and Terzakis' motion to dismiss. We grant Gardner's motion to adopt and will treat Gardner as one of the defendants moving for dismissal.

LEGAL STANDARD

A motion to dismiss pursuant to Rule 12(b)(1) asks the court to dismiss a matter over which it allegedly lacks subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). Similar to a Rule 12(b)(6) motion to dismiss, in deciding a Rule 12(b)(1) motion, the "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937, 1940 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Further, the complaint must be construed in a light favorable to the plaintiff and the court must accept all material facts alleged in the complaint as true. Jackson v. E.J. Branch Corp., 176 F.3d 971, 978 (7th Cir. 1999). A Rule 12(b)(1) motion differs from a Rule 12(b)(6) motion in that the court may look beyond the allegations in the complaint and consider other submitted evidence. Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001 (7th Cir. 2001). "The burden of proof on a 12(b)(1) issue is on the party asserting jurisdiction." United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003)(internal citations omitted).

Here, defendants Urban, Terzakis, and Gardner claim that this case should be dismissed for lack of subject matter jurisdiction pursuant to the FCA's public disclosure bar. 31 U.S.C. § 3730(e)(4). The FCA provides that a court shall not have jurisdiction over a complaint brought by a relator when the complaint is based upon public disclosures of allegations or transactions. 31 U.S.C. § 3730(e)(4)(A). However, there is an exception set forth in sub-section (e)(4)(B) that operates when the plaintiff is the original source of the information alleged in the complaint.

DISCUSSION

Pursuant to the statutory requirements set forth above, the Seventh Circuit has held that "[t]he inquiry in to whether a court may hear a qui tam relator's claim has three parts: (1) Have the allegations made by the plaintiff been 'publicly disclosed'? (2) If so, is the lawsuit 'based upon' that publicly disclosed information? (3) If so, is the plaintiff an 'original source' of the information?" United States ex rel. Fowler et al. v. Caremark RX, LLC & Caremark Inc., 496 F.3d 730, 736 (7th Cir. 2007)(citations omitted). Defendants argue that the allegations in Howard's third amended complaint have been publicly disclosed, the lawsuit is based upon that publicly disclosed information, and Howard is not an original source ...


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