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City of Chicago ex rel. Rosenberg v. Redflex Traffic Systems, Inc.

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

August 8, 2016

CITY OF CHICAGO ex rel. AARON ROSENBERG, Plaintiff,
v.
REDFLEX TRAFFIC SYSTEMS, INC. AND REDFLEX HOLDINGS, LTD., Defendants.

          MEMORANDUM OPINION AND ORDER

          John J. Tharp, Jr. United States District Judge.

         Aaron Rosenberg was a senior executive with Redflex Traffic Systems, Inc. (“RTSI”) from 2002 to February 2013. Rosenberg initiated this law suit on behalf of the City of Chicago in April 2014 by filing a qui tam complaint alleging that RTSI violated the City’s False Claims Ordinance (“FCO”), Chicago Mun. Code ch. 1-22, by orchestrating a bribery scheme to secure contracts with the City to provide and maintain its digital automated red-light camera enforcement program (“DARLEP”). The City intervened and filed an amended complaint against RTSI and its parent company, Redflex Holdings, Inc. (“RHI”) (collectively, “Redflex”). Redflex has now moved pursuant to Rule 12(b)(1) to dismiss Rosenberg from the suit on the ground that he cannot serve as a qui tam relator, asserting that his allegations had been publicly disclosed, he does not qualify as an original source of those allegations, and his claim is really a claim under Chicago’s False Statements Ordinance, which does not permit qui tam suits. Given the City’s intervention, the last argument is moot, but the Court agrees that Rosenberg was not authorized under the FCO to bring this suit on behalf of the City. Because Rosenberg is subject to the FCO’s public disclosure bar, the Court cannot exercise jurisdiction over any claim he has advanced and therefore grants the City’s motion under Fed.R.Civ.P. 12(b)(1) to dismiss him from the case.

         BACKGROUND

         The facts relevant to this motion are largely undisputed. That is because, for the most part, what is relevant to this motion, which is based primarily upon the public disclosure bar, are not the actual facts relating to the alleged bribery scheme, but what Rosenberg and others have said about the scheme and the import of those statements.

         1.The Allegations of the Rosenberg Complaint

         In the original complaint, which will be referred to as the Rosenberg complaint, the relator alleged that the DARLEP bribery scheme began in 2002 when RTSI, at the direction of RHI’s Chairman Christopher Cooper, and RTSI’s CEO, Bruce Higgins, launched an effort to improve RTSI’s market position in the United States. At the time, Rosenberg was RTSI’s Vice President for Sales and Marketing in North America. Responding to the initiative, Rosenberg began discussions with John Bills of the City’s Department of Transportation. From Bills, Rosenberg learned that the City was planning to issue an RFP for digital automated red light enforcement systems. Though the complaint is vague on details about the developing relationship between Rosenberg and Bills, it alleges that Bills sought RTSI’s assistance with developing the scope of services for the City’s RFP (¶ 27-28), discussed ways to structure financial terms that would be advantageous to RTSI (¶ 29), and that Bills provided inside information about Affiliated Computer Systems, Inc. (“ACS”), the company that he anticipated would be RTSI’s principal competitor for the contract. According to Rosenberg, Bills gave this information to him to curry favor with RTSI so Bills could later ask RTSI to compensate him for his assistance in securing the contract with the City. This information included communications about ACS’s existing ties to the City and its efforts to secure the contract both by opening an office in Chicago and offering a $100, 000 bribe to Bills for his assistance. Bills exhorted RTSI needed to “step up its game” if it wanted to win the contract.

         After the City conducted field tests of competing systems, the Rosenberg complaint alleges, Rosenberg worked with Bills to develop the evaluation protocol for the field tests and on the night before the Evaluation Committee met, Bills reviewed the field test data with Rosenberg and strategized about how to maximize the prospects that RTSI would be selected as the vendor by selecting favorable photographs taken by RTSI’s cameras and manipulating the voting order of the committee members.

         In June 2003, the City accepted RTSI’s proposal and began contract negotiations with RTSI. During the negotiations (and thereafter), the Rosenberg complaint alleges (under a heading “ENTERTAINMENT OF CITY OFFICIALS”) that Bills provided extensive entertainment to RHI/RTSI executives, including Cooper, Higgins, and Finley.[1] This set of allegations also includes a claim that on one occasion (date unspecified), Bills flew to Phoenix to meet with RTSI executives and that RTSI reimbursed him for the cost of the trip and also provided rounds of golf and other entertainment. (¶ 78-79).

         After the City’s initial contract with RTSI was finalized, Rosenberg alleges that Bills told him that “it’s time to make good, ” and indicated that he wanted RTSI to pay him between $100, 000 and $200, 000. Bills suggested that he could be paid by overpaying Network Electric, a subcontractor with ties to Bills and which Bills had required RTSI to use, or by hiring someone close to Bills in a customer liaison position. Ultimately, in August 2003, RTSI hired a friend of Bills, Martin O’Malley, ostensibly as a consultant but really to serve as a conduit for payments from RTSI to Bills. Between 2003 and 2011 (when Bills retired from the City), RTSI paid O’Malley over $2, 000, 000; O’Malley’s invoices were approved by Higgins and Finley. The Rosenberg complaint alleges that some portion (no specific amount is alleged) of these funds was paid to Bills and that RTSI routinely paid travel and other expenses for Bills. For his part of the ongoing scheme, the complaint alleges that Bills protected RTSI from any liability for performance issues under its contract with the City.

         Between 2003 and 2008, the scope of the City’s red-light camera program expanded significantly, increasing the number of systems from 20 to several hundred. The complaint alleges that Bills assisted RTSI in obtaining new contracts with the City by providing specifications that would be favorable to RTSI and allowing RTSI to review and comment on the draft specifications before they were published.

         Finally, the Rosenberg complaint alleges that when Bills retired from the City in 2011, RTSI arranged (at Bills’ request) for Bills to be hired by Resolute Consulting, a public relations firm with which Redflex worked extensively. It was anticipated that this arrangement would circumvent the City’s prohibition on vendors hiring former City employees, and that Bills would continue to support RTSI’s efforts to expand the scope of its red-light contracts with Chicago. At that point, Rosenberg alleges, RTSI stopped making payments to O’Malley because it was not going to “double pay” Bills by making payments to Bills through both O’Malley and Resolute Consulting.

         The long-running bribery scheme gave rise to false claims by RTSI under its contracts with the City, Rosenberg’s complaint claims, because in connection with those contracts, RTSI was required to sign Economic Disclosure Statements (“EDS”) certifying, among other things, that it had not engaged in bribery or attempted to bribe any employee of the City. Because these false certifications caused the City to pay RTSI under the DARLEP contracts, the Rosenberg complaint claims that RTSI’s claims for payment under those contracts are actionable under the City’s FCO.

         2. The Chicago Tribune Articles

         Beginning in October 2012, the Chicago Tribune began publishing a series of articles relating to the City’s DARLEP contracts with RTSI. Between October 2012 and February 2014, the Tribune published dozens of articles concerning the contracts and the relationships between Bills, RTSI, and O’Malley. Perhaps most significant for purposes of this motion are five of the earliest articles, published on October 14, October 17, and November 13 of 2012, and on February 8 and March 3, 2013. In the October 14 article, the Tribune reported that two years earlier, in August 2010, an RTSI executive (not Rosenberg) had alleged that there was “an improper relationship between Bills and O’Malley” and that O’Malley’s role as liaison between RTSI and the City for the red-light program was unnecessary. The executive reported that, after retiring from the City, Bills then went to work for the Redflex-funded Traffic Safety Coalition (run by Resolute Consulting). The executive also alleged that RTSI had paid for Bills’ tab at a luxury hotel in Phoenix. These allegations, the story reported, prompted an internal investigation by RTSI that concluded that there was no improper relationship but confirmed that Bills’ hotel tab had been mistakenly paid by the company. RTSI did not, however, report the mistake to the City.

         Three days later, on October 17, 2016, the Tribune followed up with a report that the City had made RTSI ineligible to bid on a new speed light camera program because of RTSI’s failure to report the 2010 payment for Bills’ hotel. The Tribune also reported that the City had confirmed that its Inspector General was investigating “much broader allegations of wrongdoing involving the company’s relationship” with Bills. The next month, the Tribune reported that RHI had hired Chicago-based law firm Sidley Austin to assist it in responding to the Chicago IG’s investigation and to conduct its own internal investigation regarding the relationship between Bills and O’Malley. Several months later, on February 8, 2013, the City announced that RTSI would be ineligible to bid on a new red-light camera contract when its contract expired, based on findings by Sidley Austin that RTSI had “systematically courted” Bills “with thousands of dollars in free trips to the Super Bowl and other sporting events, ” “hid the extent of the improper relationship from City Hall, ” and that a number of company executives were implicated in the wrongdoing. On March 3, the Tribune reported that RHI had issued information releases to the Australian Stock Exchange reporting the findings of the company’s internal probe and concluding that the conduct would likely be considered by law enforcement authorities as bribery. The Tribune articles relating to RHI’s securities releases reported the substance of the releases (which is detailed further below).

         More articles followed over the course of the next year, including articles reporting on Redflex’s termination of Rosenberg, Findley, and other executives as the result of its internal probe, a lawsuit that RTSI filed against Rosenberg in Maricopa County, Arizona (RTSI is based in Phoenix) and Rosenberg’s counterclaims in that suit against RTSI. Those pleadings included allegations by RTSI that Rosenberg made “inappropriate payments and gifts on behalf of Redflex to employees or agents of Redflex customers; [and] attempt[ed] to conceal his misconduct by, for example, submitting expense reports without supporting documentation, altering the dates chares were incurred and altering the description of the charges on the expense reports so as to disguise their true nature, ” as well as Rosenberg’s contention that he was a scapegoat for the company’s long-standing practice of plying government officials with lavish gifts and bribes to win business. The Tribune reported Rosenberg’s cooperation with the U.S. Attorney’s Office in Chicago in January 2014 and its coverage preceding the filing of the Rosenberg complaint culminated in an article on February 21, 2014, that reported an account of an initial meeting between Bills and RTSI officials, including Rosenberg and Finley, at which Bills reportedly coached the RTSI team on what to do and say during the next day’s proposal presentation at City Hall.

         3. The Inspector General’s Investigation

         As reported in the October 17, 2012 Tribune article, the City’s Office of Inspector General (“OIG”) began an investigation relating to the allegations of financial improprieties in the relationships between Bills, O’Malley and RTSI. The OIG served a request for documents on RTSI on October 18, 2012. That request, which began by reciting the provision of the Chicago Municipal Code that requires vendors to cooperate with the OIG in any investigation pertaining to city contracts, sought documents and information relating to (among other things):

• all communications between RTSI and Bills;
• Rosenberg’s expense account and reimbursement requests;
• the relationship between Bills, O’Malley, and Rosenberg;
• O’Malley’s job duties;
• the process by which O’Malley was hired by RTSI;
• any gifts or payments made to Bills; and
• RTSI’s involvement with the Traffic Safety Coalition and Resolute Consulting.

         By December 2012, the IG was interviewing witnesses and on February 8, 2013, the City announced that RTSI would be ineligible to bid on future DARLEP contracts.

         4. Sidley Austin Meeting with the Inspector General

         The City’s action in declaring RTSI ineligible for further red-light camera contracts came after Sidley Austin attorney Scott Lassar met with a representative of the OIG on January 31, 2013. According to an affidavit by Lassar that Redflex submitted in support of its motion, RTSI retained Sidley Austin in connection with the IG’s investigation. During his meeting with the OIG representative, Lassar attests that he provided “extensive information” about the relationship between RTSI and Bills, including findings that:

• RTSI paid for 17 trips for Bills and O’Malley, including expenses for air fare, luxury hotels, and golf fees;
• Bills had initiated a bribery scheme by offering to help RTSI secure the red-light camera contract in exchange for payments from RTSI;
• Bills told RTSI that it needed his assistance because ATS, a competitor of RTSI, had clout with the City;
• O’Malley was hired by RTSI at Bills’ suggestion and served as a conduit for payments ...

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