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United States ex rel. United Union of Roofers v. City of Chicago

United States District Court, N.D. Illinois, Eastern Division

November 12, 2014

CITY OF CHICAGO, et al., Defendants.


CHARLES RONALD, District Judge.

Plaintiffs United Union of Roofers, Waterproofers and Allied Workers Local Number 11, and Warehouse Workers' Justice Center, Inc. ("Relators") filed this qui tam action on behalf of the United States against the City of Chicago; Mercy Portfolio Service ("MSP"); Preservation Housing Management, LLC; Preservation of Affordable Housing, LLC; KMA Holdings V., LLC; Brinshore Development, LLC; Safeway Construction Company, Inc.; Suarez Roofing, Inc.; DTA Development & Construction, Inc.; Celadon Holdings, Inc.; Three Corners, LLC; Madison Construction Company; V&G Construction; Oakk Leaf Construction, Inc.; Felipe Garcia; and Veronica Garcia (collectively, "Defendants"). Relators allege that Defendants violated the False Claims Act ("FCA"), 31 U.S.C. S 3729, when they received federal funds paid by the U.S. Department of Housing and Urban Development ("HUD") through the agency's Neighborhood Stabilization Program. Before the Court are Defendants' motions to dismiss pursuant to Federal Rule of Procedure l2(bx6). For the following reasons, the motions are granted and the case is dismissed without prejudice.


A. Facts

In 2008, as part of its Neighborhood Stabilization Program ("NSP"), HUD began disbursing §6.82 billion of grants to state and local governments in an effort to stabilize communities across the country that suffered from an abundance of foreclosed and abandoned homes. The City of Chicago, a grantee, received three rounds of NSP disbursements totaling over §168 million. The City of Chicago designated MPS as sub-grantee to help coordinate the use of the funds and ensure that the ultimate recipients of the NSP funds complied with all federal, state, and city laws and regulations. The City of Chicago directed MPS to issue Requests for Proposals, seeking capable local developers and construction companies who could acquire and rehabilitate distressed property throughout the city. MPS then selected, and the City of Chicago distributed the NSP funds to the selected local developers and construction companies. According to Relators, Defendants fall into two categories: (1) the City of Chicago who applied for and received funds from HUD, along with MPS, who was hired to administer the disbursement of those funds to local recipients; and (2) the local developers and construction companies ("local contractors") who contracted with and received NSP grant money from the City of Chicago.

Prior to receiving the NSP funds, the City of Chicago and MPS "certified [their] compliance with the Davis-Bacon Act requirements as conditions of payment." Second Am. Compl. & Jury Demand ¶ 32. Relators allege that the City of Chicago and MPS "fail[ed] to uphold [their] obligations under the Davis-Bacon Act, " which requires "proper payment of the prevailing wages to workers on the NSP-funded properties." Id . ¶¶ l9-20.

The Requests for Proposals advertised by MPS notified potential fund recipients: "All NSP developers will be required to pay their contractors Davis-Bacon wages and maintain records that demonstrate their compliance." Id . ¶ 42.If selected, recipients of NSP funds were required to oopaywages at rates not less than those prevailing on similar construction in the locality as determined by the Secretary of Labor in accordance with the Davis-Bacon Act." Id . ¶ 50. Relators aver that the duty to comply with the Davis-Bacon Act also flows down to each entrty which receives federal funds, including contractors and subcontractors.

Relators allege that violations of the Davis-Bacon Act occurred at six NSP sites; however, according to Relators, there may be numerous other NSP locations where infractions occurred and may continue to occur. Additionally, Relators allege that these six NSP properties contain eight or more units, which invokes Davis-Bacon Act compliance. Relators allege that the employers at each of these six sites violated the Davis-Bacon Act by certiffing to the U.S. Department of Labor ("DOL") that they pay the prevailing wages determined by the Secretary of Labor, and mandated by the Davis-Bacon Act, yet they actually pay construction workers considerably less. Relators base these alleged violations upon reports from members of their staff who visited each site and spoke with one or more tradesmen on-site. During these conversations, the unidentified tradesmen allegedly told Relators' staff that they work for one of the local contractors, and that their pay is significantly lower than the prevailing Davis-Bacon Act wage. Relators rely "upon information and belief'to assert that Defendants submitted false certifications to the United States govemment as part of the NSP funding process in violation of the FCA. Id . ¶¶ 112, 115, 117, 122, 125, 129, 135.

A. Procedural History

On September 12, 2012, Relators initiated this qui tam action. The United States declined to intervene on October 25, 2013. Relators filed their Second Amended Complaint on April 10, 2014. Relators allege that Defendants presented fraudulent claims for payment in violation of 31 U.S.C. § 3729(a)(l)(a) (Count I), used false records or statements material to the fraudulent claims in violation of 31 U.S.C. § 3729(a)(1)(b) (Count II), and conspired to present the fraudulent claims in violation of 31 U.S.C. § 3729(a)(1)(c) (Count III). Subsequently, Relators voluntarily dismissed Count III. Defendants' motions to dismiss the remaining claims are fully briefed and before the Court.


A. Standard of Decision

A plaintiff s complaint "must contain a oshort and plain statement of the claim showing that the pleader is entitled to relief.'" Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed.R.Civ.P. 8(a)(2). To avoid dismissal under Rule l2(b)(6), plaintiff s "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.' A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." ld. at 678 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court accepts "well-pleaded facts in the complaint as true, but legal conclusions and conclusory allegations merely reciting the elements of the claim are not entitled to this presumption of truth." McCauley v. City of Chi., 671F.3d 6ll, 616 (7th Cir. 2011) (citing Iqbal, 129 U.S. at 680-81).

Additionally, when a plaintiff alleges fraud, as is the case in a claim under the FCA, the complaint is subject to a heightened pleading requirement. United States ex rel. Gross v. Aids Research Alliance-Chicago, 415 F.3d 601, 604 (7th Cir. 2005). The complaint "must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). The complaint must allege oothewho, what, when, where, and how" of the fraudulent conduct. Id. at 605 (citing United States ex rel. Garst v. Lockheed-Martin Corp., 328 F.3d 374, 376 (7th Cir. 2003)). "It is enough to show, in detail, the nature of the charge, so that vague and unsubstantiated accusations ...

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