United States District Court, D. Minnesota
United States of America, ex rel. Andrew Ellis, et al.,
City of Minneapolis, et al., Defendants. Relators,
Ann M. Bildsten, United States Attorney's Office, 300 S. 4th Street Suite 600, Minneapolis, Minnesota 55415, for the Government.
Paul F. Shoemaker and John R. Shoemaker, Shoemaker & Shoemaker, PLLC, Highland Bank Building, Suite 410, 5270 West 84th Street, Bloomington, Minnesota 55437, for Relators.
Tracey N. Fussy and Sara J. Lathrop, Assistant City Attorneys, 350 South Fifth Street, Suite 210, Minneapolis, MN 55415, for Defendant City of Minneapolis; and
Judith A. Hanson, Assistant City Attorney and Portia Hampton-Flowers, Deputy City Attorney, 750 City Hall and Courthouse 15 West Kellogg Boulevard, Saint Paul, MN 55102, for Defendant City of St. Paul.
REPORT & RECOMMENDATION
TONY N. LEUNG, Magistrate Judge.
This matter is before the Court, Magistrate Judge Tony N. Leung, on Defendant City of Saint Paul's ("St. Paul") Motion to Dismiss or Alternatively for Summary Judgment (ECF No. 174) and Defendant City of Minneapolis's ("Minneapolis") Motion to Dismiss (ECF No. 182). These actions have been referred to the undersigned magistrate judge for report and recommendation to the Honorable Patrick J. Schiltz, United States District Court Judge for the District of Minnesota, under 28 U.S.C. § 636 and Local Rule 72.2(b). Based upon the files, records and proceedings herein, this Court will recommend that the motions be granted.
A. Procedural Summary
On February 18, 2011, Relators Andrew Ellis and Harriet Ellis ("Relators"), along with former Relator Michael W. Blodgett, jointly filed this qui tam action under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733, against St. Paul, Minneapolis, the Metropolitan Council, and various John and Jane Does. (ECF No. 1.)
In March of 2012, Blodgett filed a Motion to Amend the Complaint before the issuance of the summons in this matter. (ECF No. 14.) In June of 2012, the United States Government declined to intervene. (ECF No. 15.) Summonses were issued in July of 2012. In August of 2012, each Defendant filed a Motion to Dismiss or Alternatively for Summary Judgment. (ECF Nos. 19, 21, 23.) On August 21, 2012, Blodgett's Motion to Amend the Complaint was denied without prejudice because it was not signed by Andrew or Harriet Ellis, did not comply with Local Rule 7.1, and violated Federal Rule 8(d)(1). (ECF No. 25.) Following the Court's denial of Blodgett's Motion to Amend, each Defendant filed a letter with the Court withdrawing its motion to dismiss because they had only been served with the original Complaint. (ECF Nos. 28, 29, 30.)
In September of 2012, Relators filed proof of service of the Summonses on each Defendant. (ECF Nos. 36, 37, 38.) Through a series of filings in September and October, Blodgett moved the Court for leave to file a Second Amended Complaint and to dismiss Harriet and Andrew Ellis as relators. (ECF Nos. 34, 53, 57.) In October, each Defendant filed another Motion to Dismiss or Alternatively for Summary Judgment. (ECF Nos. 39, 41, 47.)
On December 21, 2012, the Court denied Blodgett's Motion to Amend and Defendants' various motions. The Court warned, however, that it would dismiss the action if Relators failed to submit an amended complaint that complied with Local and Federal Rules by January 31, 2013. (ECF No. 125.)
On January 31, 2013, without first seeking leave of the Court, Relators and Blodgett filed separate amended complaints. (ECF Nos. 127, 129.) The Court struck both amended complaints and gave the Relators one last chance to file jointly an amended complaint or a motion to sever by February 28, 2013. (ECF No. 136.)
On February 28, 2013, Blodgett filed a Motion to Sever Relators from the case. (ECF No. 137.) In response, Relators requested the following: (1) either (a) Blodgett's Motion to Sever be considered a dispositive motion and briefed as such according to the Local Rules, or (b) a oneweek extension to file an opposing brief and accompanying affidavits; (2) the Court consider appropriate sanctions against Blodgett and his counsel for violating Local Rule 1.3 and Rule 11; and (3) leave to move for dismissal of Blodgett as a co-relator. (Letter 4-5, ECF No. 147.) The Court denied Relators' request to treat Blodgett's motion as dispositive, but allowed Relators time to file a response to Blodgett's motion and granted Relators' request to file a motion to sever Blodgett. (ECF No. 153.)
The Court heard oral argument on Blodgett's Motion to Sever on April 18, 2013, ( see ECF. No. 156), and on July 12, 2013, the undersigned denied the motion (ECF No. 157). Blodgett objected to the Order. (ECF No. 160.) Judge Schiltz overruled the objection and dismissed Blodgett from the case. (ECF No. 172.)
On October 2, 2013, Relators filed a Second Amended Complaint ("SAC") against Minneapolis and St. Paul. (ECF No. 173.) As a result, Defendants Metropolitan Council and John and Jane Does were terminated from the proceeding. In October of 2013, St. Paul filed a Motion to Dismiss or Alternatively for Summary Judgment (ECF No. 174) and Minneapolis filed a Motion to Dismiss (ECF No. 182). The undersigned heard oral argument on the motions. ( See ECF No. 215.)
B. Summary of Relators' Claims
Relators brought three claims against the Defendants under the FCA. Count I alleges that the Defendants "knowingly presented, or caused to be presented, materially false or fraudulent claims for payment or approval in connection with the submission of their requests for federal housing and community development grants and other related funding" in violation of 31 U.S.C. § 3729(a)(1)(A). (SAC ¶ 160, ECF No. 173.) Count II alleges that the Defendants "knowingly made, used, and caused to be made and used, false records and statements material to the false or fraudulent claims for federal housing and community development grants and other related funding" in violation of 31 U.S.C. § 3729(a)(1)(B). ( Id. ¶ 171.) Lastly, Count III alleges that the Defendants conspired to violate 31 U.S.C. § 3729(a)(1)(C) in violation of 31 U.S.C. §§ 3729(a)(1)(A) and 3729(a)(1)(B). ( Id. ¶ 181.)
In order to receive federal housing and community development-related funding from the Department of Housing and Urban Development ("HUD"), grantees must comply with HUD's detailed regulatory requirements. These requirements differ depending on the type of grant, but can include items such as a consolidated plan, annual action plan, annual performance reports, and an analysis of impediments. See 24 C.F.R. §§ 91.5, 91.220, 91.225(a)(1), 91.520.
When a grantee submits an application, plan, report, or analysis to HUD, they must certify that, among other things, "the grant will be conducted and administered in conformity with the Civil Rights Act of 1964 [42 U.S.C. § 200a et seq. ] and the Fair Housing Act [42 U.S.C. § 3601 et seq. ], and the grantee will affirmatively further fair housing." 42 U.S.C. § 5304(b)(2) (alterations in original). In its regulations, HUD defines the duty to affirmatively further fair housing as requiring the grantee to "conduct an analysis to identify impediments to fair housing choice within the jurisdiction, take appropriate actions to overcome the effects of any impediments identified through that analysis, and maintain records reflecting the analysis and actions in this regard." 24 C.F.R. § 91.225(a)(1). The heart of Relators' claims is that the Defendants falsely certified to HUD on an annual basis that they were fulfilling these three obligations in order to receive federal housing funds. ( See SAC ¶ 35.)
A. Motions to Dismiss
Both Defendants have moved to dismiss Relators' Second Amended Complaint. St. Paul argues that because Relators' claims are based on the same underlying facts as an earlier action and Relators are not the original source of the publicly disclosed information, this Court does not have subject matter jurisdiction. St. Paul also asserts that the Second Amended Complaint fails to state a claim for which relief may be granted and fails to plead fraud with particularity.
For its part, Minneapolis argues that Relators' claims fail because the federal regulations do not mandate what an analysis of impediments must contain. Minneapolis also argues that the Second Amended Complaint fails to meet the general pleading standard under Rule 8(a)(2) and the particularity requirement under Rule 9(b). Lastly, Minneapolis argues that this Court lacks subject matter jurisdiction because the claims were publicly disclosed and Relators are not the original source of the information.
B. Standard of Review
St. Paul and Minneapolis have moved to dismiss this case under Federal Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6) for failure to state a claim. Because Defendants' challenges to this Court's jurisdiction do not address "the factual truthfulness" of Relators' allegations, Sierra Club v. Clinton, 689 F.Supp.2d 1147, 1154 (D. Minn. 2010) (citation omitted), the challenges are facial. Accordingly, the "standard of review is the same standard [that courts] apply in Rule 12(b)(6) cases." See Stalley v. Catholic Health Initiatives, 509 F.3d 517, 521 (8th Cir. 2007). Therefore, regardless of whether this Court analyzes the Defendants' motions to dismiss under Federal Rule 12(b)(1) or Rule 12(b)(6), the Court will assume all facts in the pleadings are true and view them in the light most favorable to the nonmoving party. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). The Court will give "no effect, " however, "to conclusory allegations of law." Stalley, 509 F.3d at 521. "A court may consider the complaint, matters of public record, orders, materials embraced by the complaint, and exhibits attached to the complaint in deciding a motion to dismiss under Rule 12(b)." United States ex rel. Newell v. City of Saint Paul, Minn., Civ. No. 09-1177 (DWF/TNL), 2012 WL 2979061, *3 (D. Minn. July 20, 2012), aff'd 728 F.3d 791 (8th Cir. 2013), cert. denied, 134 S.Ct. 1284 (2014).
It is the relators' burden to "assert facts that affirmatively and plausibly suggest that the pleader has the right he claims (here, the right to jurisdiction), rather than facts that are merely consistent with such a right." Stalley, 509 F.3d at 521 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)); see also Newell, 728 F.3d at 795. Moreover, because the FCA is an anti-fraud statute, the complaint must comply with the particularity requirement in Rule 9(b). United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006). Rule 9(b) requires the pleader to provide facts such "as the time, place and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result." Id. In other words, "the complaint must identify the who, what, where, when and how' of the alleged fraud." Id. ...