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United States of America, Ex Rel. Ann Howard v. Urban Investment Trust

September 5, 2012

UNITED STATES OF AMERICA, EX REL. ANN HOWARD, PLAINTIFF,
v.
URBAN INVESTMENT TRUST, INC., RM HOLDINGS, RUDY MULDER, ROXANNE GARDNER, AND JOHN TERZAKIS, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

Relator and Plaintiff Ann Howard ("Relator" or "Howard") sues her former employer Urban Investment Trust, Inc. ("UIT"), along with inter alia its principals Rudy Mulder ("Mulder"), Roxanne Gardner ("Gardner"), and Johnny Terzakis ("Terzakis"). On behalf of the United States, she alleges that Defendants embezzled government funds in violation of the False Claims Act (the "FCA"), 31 U.S.C. § 3729 et seq. On her own behalf, she claims retaliation in violation of the FCA, as well as intentional direction of emotional distress. Howard initially also sued Synergy Affiliates, LLC. ("Synergy"), which had been her co-employer (as the company UIT hired to manage its payroll and human resources functions.) Those claims, however, have been resolved.

At the relevant time, UIT managed a portfolio of commercial and residential real estate, owned by it or its myriad affiliates and subsidiaries. Its subsidiary Urban Residential Services Company, Inc. ("URSC") entered into an agreement with the Chicago Housing Authority ("CHA"), whereby URSC would manage six housing properties for elderly and/or low income individuals (the "CHA Properties"), in exchange for management and administrative fees. The fees evidently came from the Department of Housing and Urban Development ("HUD") by way of the CHA. UIT/URSC had to maintain separate operating and security deposit accounts for each of these properties, using their funds only for select purposes. URSC had the separate accounts, but may not have respected the rules.

UIT hired Howard as a non-CPA accountant in June 2000, in part to manage the CHA accounts. One must be specially certified to be an accountant for CHA properties; Howard became certified as UIT's CHA accountant in January 2001. In that role, she evaluated the accounts payable and receivable for each property, prepared monthly reports for each, and converted UIT reports into journal entries in CHA's system. Her reports were initially reviewed by Jay Johnson ("Johnson"), head of UIT's residential property operations. (After Johnson left, as discussed below, one Ben Reyes ("Reyes") reviewed the reports.)

UIT affiliates held two additional properties of note, which the parties refer to as the Lakeshore Dunes and South Shore properties. These were not CHA properties; they appear to have been privately owned by UIT-related entities, but "funded" by FHA-insured mortgages and HUD subsidies. It appears to be undisputed that UIT was required to keep funds in the Lakeshore Dunes and South Shore accounts separate, as with the CHA properties. Howard claims that she was the accountant for Lakeshore Dunes; she only had access to South Shore financial information via her co-worker, Kathy Flores ("Flores").

Defendant Roxanne Gardner ("Gardner") started out as UIT's Chief Operating Officer, eventually becoming its CEO; she held a 5% and then 10% interest in UIT, and a similar interest in many of its affiliated companies. Howard contends that Gardner ran UIT's daily operations.

Jack Hart ("Hart") was the Director of Residential Properties. This seems to have made him subordinate to Johnson, and meant that he dealt with many of the properties for which Howard was the accountant.

During her CHA accountant training in late 2000, Howard and her UIT trainer detected that someone had improperly transferred $655,030.55 out of CHA-related accounts. Howard claims that they were directed to balance the books as if the money were still there. At some point, Gardner became aware that this transfer had occurred. (Gardner denies Howard's statement of fact to this effect, but testified at deposition that by the following July, she was aware of the transfer, but believed it was a mistake. Gardner Dep. 249:11-17.) Gardner is one of only a few people who could have made the transfers; no one admits making them.

By affidavit, UIT's Peter Mori ("Mori") stated that he and/or Ginny Heisserer ("Heisserer") monitored UIT and its affiliates' accounts daily, helping to arrange fund transfers between accounts as needed, all under the direction of Gardner and/or Terzakis. Before December 2000, he claims, this procedure did not include the accounts at issue here. However, on December 1, 2000, he claims, a check was issued for which funds were not available. He claims that Gardner stopped payment on the check and directed him to avoid the payee's calls. On December 8, 2000, he claims, $530,700 was removed from the CHA accounts as part of a consolidation of cash into UIT's main account; that day, the amount of the canceled check was wired out of the main account. Mori claims that the transfer included the CHA funds, but cannot recall who signed the transfer order. He claims that he learned none of this until December 11, but fails to note whether he verified the information. (Gardner justifiably challenges his statements as lacking foundation.)

Thereafter, he claims, the residential and CHA accounts were daily "monitored, funded and swept just like any other Urban corporate and portfolio account[.]" Mori Aff. ¶ 94. Mori claims that when he asked about the transfers, Terzakis responded: "What else can I do?" Heisserer gave a somewhat different account, and noted that the transfers were recorded as loans.

Mori further avers that Gardner kept deposit slips for Mulder's personal account and sometimes had the responsibility of depositing money into it, covering his overdrafts with funds from UIT's account. Id. at ¶97. Howard maintains that Gardner either made or supervised improper transfers from the protected accounts into UIT's general account, and from there into the principals' personal accounts or the overdrawn accounts of their other business holdings. In doing so, Howard argues, Gardner profited from the misappropriations, rendering UIT's corporate identity a fiction.

It appears undisputed that in January 2001, and repeatedly thereafter, Howard reported to a Synergy representative that UIT was "embezzling" money. (It is disputed, however, whether she ever used that term.) Howard testified that she "may have" told Jay Johnson about the transfers at the same time; she recalled telling him in January or February that she was concerned about the transfers and felt "harassed" by the situation and the pressure to falsify accounting data. At some point, Howard also shared her concerns with Jack Hart, and allegedly told several employees, including Hart and Mori, that she would not lie or go to jail for UIT.

According to Howard, the improper transfers began again in the spring of 2001 (out of the CHA, Lakeshore Dunes, and South Shore accounts). Gardner claims that she was not aware of these withdrawals until she returned from vacation in July 2001, at which point Mulder and Terzakis assured her that the money would be returned. Johnson claims that after he wrote several memos about the withdrawals and insisted that the money be returned, Gardner fired him. (She claims that their discussion is confidential, but denies that he was fired over unreturned funds.) Howard testified that Johnson's firing scared her.

Hart claims that shortly before Johnson was fired, Gardner instructed him to collect rent due on the Urban-managed residential properties, "because Urban needs the money[,]" even after he explained that the money was not Urban's. Hart Dec. at ¶ 42, 43. Gardner denies this conversation, arguing that Hart's testimony was "compromised" by Howard's counsel allegedly providing him free lunches and legal services in exchange for his testimony. (Those are serious claims, but as immediately relevant here, implicate credibility issues inappropriate for summary judgment.)

In September 2001, Gardner and Howard spoke in person. The content of their conversation is disputed, but it appears at least that Howard told Gardner that the CHA now required bank statements with the mandatory monthly reports (which would expose missing money). Gardner evidently told Howard to turn over the statements, and prepare a report showing how much money was missing.

In October, Howard allegedly received a somewhat cryptic e-mail from Mori. See Pl.'s Ex. P. Howard forwarded the email to her supervisor Linda Tobin ("Tobin"), Jeff Tosello ("Tosello"), and "ideaperday@aol.com." In doing so, she objected to several parts of the e-mail, and stated, in part: "I feel like my job is being threaten[ed] because of my knowledge of Urban's activities of the CHA accounts and that I am being harassed." Id. Whether from Howard or Tosello, Gardner became aware of that e-mail, and spoke with Mori to ascertain his intent.

That month, Hart claims, Reyes tried to "fix" things with the CHA by whiting out parts of UIT's bank statements. Reyes allegedly then signed the altered reports. Gardner again challenges his testimony as tainted.

There appears to be no dispute that Howard did not take her information directly to the CHA. Instead, she complained within UIT, and kept a spreadsheet of funds that she believed were improperly transferred.

Hart claims that he sent a memo to Reyes and Gardner on November 28, 2011, explaining that Urban was behind in bills relating to the CHA, Lakeshore Dunes, and South Shore properties. The next day, he contends, Reyes told him to either resign or be fired along with all of his friends. Hart was fired. In late 2001, he met with Alderwoman Helen Shiller, and they called the CHA Office of Inspector General (the "CHA OIG"), which began an investigation. At some point, Johnson became involved; their reports were based in part on Howard's information.

Around the same time, the UIT principals agreed to split up the partnership. Roxanne Gardner submitted a resignation letter on November 1; it is disputed to what extent she still retained authority over UIT. (Gardner formed a new company, Property Solutions Group ("PSG") that month.) She claims that she resigned in part because Mulder and Terzakis rejected her "strong recommendation" to return any improperly transferred funds. The asset transfer that ended the partnership was not complete until October 2002.

CHA investigators contacted UIT in February 2002, and Mori directed Howard to meet with them. They questioned her about UIT's financial documents and about who could transfer money. They evidently already had UIT's "financial packages." Immediately after the interview, Mori allegedly asked Howard what was said; she responded that she would not lie for UIT. Thereafter, she claims, the harassment worsened. Though at what point and how often is unclear, Howard contends that Mori tried to convince her to "double-count" certain expenses to make it appear that less money was missing. When that failed, she contends, some of her job responsibilities were taken away (in that Reyes required one Jamie Perez ("Perez") to supervise Howard's CHA journal entries, despite Perez's lack of familiarity with CHA accounting principles).

Howard contends that she was hospitalized during her employment for health problems related to the stress of her situation at UIT.

Howard quit on June 2, 2002 (because, she says, she was given a stack of CHA journal entries to enter, without time to verify their truth). Soon thereafter, she contacted the CHA investigators, and gave them some documents. The CHA OIG issued its report that month, finding that improper withdrawals had been made. Later, UIT and the CHA reached a settlement regarding the missing CHA funds (which Howard contends did not cover the amount owed). Late in ...


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