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United States ex rel. Hanna v. City of Chicago

United States Court of Appeals, Seventh Circuit.

August 22, 2016

United States of America ex rel. Albert C. Hanna, Plain tiff-Appellan t,
City of Chicago, Defendant-Appellee.

          Argued May 19, 2016

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 4885 - Andrea R. Wood, Judge.

          Before WOOD, Chief Judge, and POSNER and ROVNER, Circuit Judges.

          WOOD, Chief Judge.

         In order to receive federal housing funds, the City of Chicago must certify that it is in compliance with a number of federal requirements related to reducing the city's racial segregation. Albert C. Hanna's suit against the City alleges that it violated the False Claims Act because its policies-in particular, "aldermanic privilege" and strategic zoning of relatively wealthy neighborhoods-have actually increased segregation, making its certifications false. But, as the district court properly recognized, Hanna has not alleged the circumstances of the purported fraud with sufficient particularity to satisfy Federal Rule of Procedure 9(b). We therefore affirm its judgment.


         Chicago is, by its own admission, a "highly segregated city" and has been for more than 50 years. City OF Chicago, 2010-2014 Consolidated Plan 19 (2010). Whites predominately live on the North, Northwest, Southwest and far South Sides, while African-Americans live mostly on the West and South Sides. Id. at 20. (We omit details about other racial or ethnic groups, of which there are many, because they are not central to this case.) This geographic distribution "has remained fundamentally constant" since the 1980 census. Id.

         Hanna is a long-time resident of Chicago's Lincoln Park neighborhood. For more than half a century, his professional and personal activities have included real estate development, real estate financing, civic affairs, and philanthropy in Chicago. He has "a particular concern for providing affordable housing in quality neighborhoods, " and so filed his original qui tarn complaint in 2011. The United States declined to intervene in 2013. We evaluate the allegations in his amended complaint; we assume the truth of these allegations for present purposes. Tricontinental Indus., Ltd. v. Pricewaterhouse-Coopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007).

         Hanna alleges that during the six years before he filed this suit, the City knowingly made false claims and certifications to the U.S. government. One such representation was that it had complied -and would comply-with certain civil rights requirements. It did this in order to receive more than $1 billion in funds from federal programs administered by the U.S. Department of Housing and Urban Development (HUD). Those requirements arise under several laws. Hanna alleges that the City "was required ... to certify that it [would] administer each grant in compliance with Title VI, 42 U.S.C. § 2000d, et seq. and implementing regulations at 24 C.F.R. Part 1, " "the Fair Housing Act, 42 U.S.C. § 3601, et seq., and its implementing regulations at 24 C.F.R. Part 100, " and "42 U.S.C. §§ 608(e)(5), 5304(b)(2), and 12705(b)(15) and applicable HUD regulations." Finally, he asserts that "[a]s defined by HUD and by caselaw, the ... obligation [affirmatively to pursue fair housing] requires the City to conduct '[a] comprehensive review of [its] laws, regulations, and administrative policies, procedures and practices[, and a]n assessment of conditions, both public and private, affecting fair housing choice for all protected classes." He has not, however, given any further details about which specific statutory and regulatory provisions the City violated, what those provisions said, or how exactly the City's conduct violated them.

         Hanna separates Chicago's neighborhoods into two categories: those with "lower poverty rates, good community services and commercial amenities, job opportunities, safe neighborhoods and good schools" he calls "areas of opportunity"; those lacking those attributes he labels "low-opportunity areas." The City knew, Hanna says, which neighborhoods were typified by segregated living patterns (more than 75% minority population) and which were typified by high poverty rates (more than 40% of population with incomes below the federal poverty line). The City also knew that there was predictable overlap between these categories: the desirable areas had larger White populations and smaller African-American and Latino populations than Chicago in general.

         Hanna asserts that despite its knowledge of these facts and its obligation to take affirmative steps to secure fair housing, the City knowingly administered its affordable housing and funding programs, along with its zoning and land use laws, with the purpose and effect of locating affordable, multifamily rental housing units in the less desirable areas and discouraging their location in the better neighborhoods. Doing so perpetuated and intensified the already-existing racial and ethnic segregation of Chicago's neighborhoods.

         The City allegedly enacted these goals through two policies: "aldermanic privilege" and disproportionately down-zoning advantaged neighborhoods-that is, rezoning areas suitable for multifamily development so as to prevent or limit new construction of such projects. Chicago is divided into 50 wards, each of which elects an alderman to sit on the city council. Under "aldermanic privilege, " the City grants each alderman the "full authority to determine whether and where affordable, multifamily rental housing will be built and renovated in the ward." According to Hanna, aldermen in the desirable, largely White areas used their authority to prevent such housing from being built in their wards.

         Through these devices, the City directed hundreds of millions of dollars in federal funds for affordable housing primarily into racially or ethnically segregated, low-income areas. In the 1960s, 1970s, and 1980s, when a majority of the projects built with these funds were not controlled by the City, roughly half of the affordable, multifamily rental housing was located in areas that were already well-to-do. In the 1990s, after the Chicago City Council began administering the funds, that percentage declined to only ten percent. During the six years covered by Hanna's complaint, the City approved funding of more than 2, 600 housing units in 35 developments for low- and moderate-income families and children. Seven percent of those units were located in wealthier areas; 93% were located in low-income areas.

         The complaint also contends that the City grants aldermen control over zoning, land use, building codes, and decisions about affordable housing funding and location within their wards. Aldermen in primarily White, higher-income neighborhoods use this authority to "downzone" areas suitable for multifamily development so that this use would be prohibited or limited. The City's 2004 Zoning Ordinance also downzoned many advantaged areas, thus preventing the building of affordable, multifamily housing unless the alderman personally intervenes to rezone parcels for such use.

         According to the Mayor's Zoning Reform Commission, the 2004 Zoning Ordinance's stated purpose was to "reinforce ... established patterns" and to "preserve neighborhood character." But Hanna contends that this rationale was a smokescreen: the true purpose and effect was to limit development of affordable, multifamily housing units -and therefore opportunities for African-American and Latino families-in predominantly White neighborhoods. The City also downzoned or applied landmark status to more than 5, 200 acres of private, residentially zoned land. (The City's Historic Preservation Ordinance severely limits redevelopment of locations designated as "landmarks.") Nearly two-thirds of that territory was within desirable areas. Meanwhile, the City did not analyze or disclose in its ...

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