Annie Howard v. Urban Investment Trust, Inc., et al.
Filing
401
ENTER MEMORANDUM OPINION AND ORDER: Signed by the Honorable Harry D. Leinenweber on 9/5/2012:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA, ex
rel. ANN HOWARD,
Plaintiff,
Case No. 03 C 7668
v.
Hon. Harry D. Leinenweber
URBAN INVESTMENT TRUST, INC.,
RM HOLDINGS, RUDY MULDER,
ROXANNE GARDNER, and JOHN
TERZAKIS, et al.,
Defendants.
.
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
embezzled
the
United
States,
she
alleges
that
Defendants
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
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properties.
These were not CHA properties; they appear to have
been privately owned by UIT-related entities, but “funded” by FHAinsured 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 coworker,
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
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was aware of the transfer, but believed it was a mistake.
Dep. 249:11-17.)
Gardner
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:
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“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
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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.
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In October, Howard allegedly received a somewhat cryptic email 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
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“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.)
in
part
because
Mulder
and
She claims that she resigned
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.
evidently already had UIT’s “financial packages.”
They
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
that
contends
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).
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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
investigators, and gave them some documents.
contacted
the
CHA
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 2002, Howard and Hart, with counsel, met with the
U.S. Attorney’s Office and CHA investigators to discuss this case.
II.
LEGAL STANDARD
The Court applies the ordinary summary judgment standard.
See, e.g., FED. R. CIV. P. 56(a); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248-49 (1986).
III.
DISCUSSION
Defendant Gardner seeks judgment on Counts I-IV.
A.
Counts I & II
Gardner seeks judgment on Counts I and II on two grounds:
first, that the Court lacks jurisdiction over the FCA claims
because Howard is not “original source,” and second, because the
settlement with UIT bars these claims.
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1.
Whether Howard is an original source
To determine whether it has jurisdiction over FCA claims, the
Court asks: (1) “whether the relator’s allegations have been
publicly disclosed[,]”; and, if so, (2) “whether the lawsuit is
‘based upon’ those publicly disclosed allegations[,]”; and, if so,
(3) “whether the relator is an ‘original source’ of the information
upon
which
Consultants,
his
lawsuit
Inc.,
570
is
F.3d
based.”
907,
913
Glaser
(7th
v.
Cir.
Wound
Care
2009).
The
plaintiff bears the burden at each step. Id.
Gardner asks this Court to reconsider Judge Wayne Andersen’s
ruling that Howard is an original source.
In that Motion to
Dismiss, neither party disputed public disclosure.
U.S. ex rel.
Howard v. Urban Investment Trust, Inc., 2009 WL 2252252, at *3
(N.D. Ill. Jul. 29, 2009).
found
that
the
suit
was
Judge Andersen applied Glaser, and
based
upon
the
publicly
disclosed
information, because the CHA’s Final Report and Jay Johnson’s
affidavit were substantially similar to Howard’s Third Amended
Complaint; they “implicate[d] the same people, involve[d] the same
period, and set forth the same type of activity, namely improper
transfers of funds.” Id.
He did not distinguish between the CHA
and non-CHA properties.
Finally, Judge Anderson concluded that Howard was an original
source.
The pertinent version of the statute defines an “original
source” as a person who has “direct and independent knowledge of
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the
information
on
which
the
allegations
are
based
and
has
voluntarily provided the information to the Government before
filing an action . . . based on the information.”
(citing 31 U.S.C. § 3730(e)(4)(B)).
See id. at *4
Judge Andersen noted that it
was undisputed that Howard had independent knowledge. Id.
Despite
Defendants’ arguments that Howard had only voluntarily disclosed
her information within UIT, he found that she had adequately
alleged voluntary provision by claiming that she: (1) voluntarily
provided information to the CHA investigators when interviewed; and
(2) initiated meetings with CHA investigators in June 2002. Id.
All of that occurred, he noted, well before this case was filed in
October 2003.
Gardner now argues that the record now refutes any
claim that Howard volunteered her information.
a.
Voluntariness
The Court assumes, as did the parties and Judge Anderson, that
contact with the CHA may constitute provision to the “government.”
See United States. v. Bank of Farmington, 166 F.3d 853, 866 (7th
Cir. 1999) (noting that a relator might satisfy the requirement by
contacting
the “agency or official responsible for the particular
claim in question[.]”) overruled on other grounds by Glaser, 570
F.3d at 920.
Since that opinion, the Supreme Court has confirmed
his implicit conclusion that a state or local investigation report
constitutes a public disclosure under the FCA.
- 11 -
Graham Cty. Soil
and Water Conservation Dist. v. U.S. ex rel. Wilson, 130 S.Ct.
1396, 1411 (2010).
Defendant
argues that
“voluntary”
means
unsolicited,
not
merely uncompelled, and cites cases finding that people under some
compulsion to cooperate cannot be original sources.
See Def.’s
Mem. In Supp. of Summ. J. 5-6 (citing U.S. ex rel. Barth v.
Ridgedale Elec., Inc., 44 F.3d 699, 701 (8th Cir. 1995); U.S. ex
rel. Stone v. AmWest Sav. Ass’n, 999 F.Supp. 852, 853 (N.D.
Tex.1997)).
Defendant stresses that Howard testified that she did
not intend to approach the government before it contacted her in
February 2002, despite long having known about the alleged fraud.
Furthermore, Gardner argues, Howard testified that she returned to
investigators in June 2002 just to clear her name.
Thus, Gardner
argues, her initial contact was involuntary, as in Barth, and her
subsequent conduct was essentially an effort to seek immunity, as
in Stone.
Defendant further emphasizes that the documents were returned
to Howard with the (hearsay) comment that the CHA already knew what
was going on, and the CHA issued its report shortly thereafter (and
so, it surmises, found Howard’s evidence unhelpful).
Finally,
Gardner argues, once she had been interviewed, Howard had an
ongoing obligation to assist in the investigation (though she cites
no authority to that effect).
All of this, Gardner argues,
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contradicts Howard’s vague and self-serving affidavit on which
Judge Anderson based his original ruling.
Howard stresses that she need not be the only original source,
and that the statute requires neither that disclosure occur by any
particular time pre-filing, nor that she be the source of the
public disclosure. While true, none of this demonstrates that when
giving information to the government, she did so “voluntarily.”
Howard next emphasizes that she was not under subpoena or any
other
legal
compulsion
when
she
spoke
to
the
investigators.
Further, she argues, she called the CHA the day she quit, to have
them deactivate her CHA access, “because” she would not participate
in embezzlement.
she
gave
the
deposition.
argues,
(Howard’s testimony is ambiguous as to whether
“because”
explanation
to
the
CHA,
2008 Howard Dep. 242:12-43:3.)
she
contacted
investigators
or
only
in
Thereafter, she
again,
giving
them
documentation of the embezzlement; she claims that they copied the
documents before returning them.
Finally, Howard notes the pre-
filing meeting at the United States Attorney’s Office.
These
various contacts, she argues, were indisputably voluntary.
Howard distinguishes Stone and Barth on the grounds that
Howard did not wait to talk until she had received immunity (as in
Stone), and no other source had conducted a separate investigation
(as
in
Barth).
She
claims
that
because
Hart
and
Johnson’s
disclosures to the CHA were based on her information, and she
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willingly met with investigators after February, her case is
unique.
As
to
the
first
point,
that
Howard
uncovered
the
information that Hart and Johnson turned over might make her
“original,” but not a “source.”
See Bank of Farmington, 166 F.3d
at 865 (noting that “original” means having direct and independent
knowledge, whereas a “source” is one who “voluntarily provided the
information to the Government before filing an action[.]”) Howard
cites no case in which an uninvited disclosure by a third party was
deemed “voluntary” under the FCA.
Her second point, however,
merits further inquiry.
Relatively few courts have closely analyzed what constitutes
a “voluntary” disclosure under the pre-2010 FCA.
A few cases,
however, offer guidance. As noted above, Defendant cites Price, in
which a relator’s disclosure was deemed involuntary, as he did not
come forward until after his time as CEO was over, and he had
secured immunity.
In U.S. ex rel. Barth v. Ridgedale Elec., Inc., the Eighth
Circuit confronted a case of two sources, only one of whom had
direct, independent knowledge. Barth, 44 F.3d 699, 701-04 (8th Cir.
1995). Nonetheless, the Court affirmed that he was not an original
source, because he did not provide his information “voluntarily” –
his only contact with the government was when a HUD investigator
initiated an interview almost two years after the alleged fraud.
Id.
at
704.
Finding
that
Barth
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“voluntarily”
provided
his
information, it noted, would ignore the FCA’s “clear intent” “to
encourage private individuals who are aware of fraud against the
government to bring such information forward at the earliest
possible time and to discourage persons with relevant information
from remaining silent.” Id. (citations omitted).
The Third Circuit faced a similar situation in U.S. ex rel.
Paranich v. Sorgnard, 396 F.3d 326 (2005).
There, the putative
relator (a chiropractor) was reported to the FBI as overbilling for
services. Id. at 330. Responding to a subpoena, he turned over his
records along with his (and his counsel’s) investigation into the
company that provided the medical device at the center of the
dispute. Id. Despite having turned over much more information than
the subpoena demanded, the relator was not an original source;
production, initiated by the government in the form of a subpoena
relating
to
the
relator’s
practices,
could
not
be
called
“voluntary” consistent with the underlying policy of qui tam
actions. Id. at 340-41.
The court found “other forms of self-
interest[,]” like trying to shift blame, sufficient incentive in
such cases; therefore, “[i]nformation not specifically compelled
but nonetheless brought forward as a result of the government’s
pointed contact should not be deemed ‘voluntarily’ provided.” Id.
Neither party cited a case in which the Seventh Circuit has
squarely
addressed
the
issue.
Nonetheless,
in
Glaser,
it
approvingly quoted Barth’s discussion of the FCA’s underlying
- 15 -
policy and cited Sorgnard for the proposition that the voluntary
disclosure requirement is “designed to reward those who come
forward
with
useful
information
and
not
those
who
provide
information in response to a governmental inquiry.” 570 F.3d at
915, 917.
Although these discussions arose in determining when a
complaint is “based upon” a public disclosure, they offer insight
into how this Circuit views the voluntary production requirement.
Of course, those cases do not precisely square with this one.
Nonetheless, the Court finds that on the current record, Howard’s
2002 meeting was directed by UIT and investigators, and involuntary
under Barth. Regarding the June meetings, Howard’s testimony shows
that whatever she produced (and that is not clear) was in direct
response to the ongoing investigation and based in part on the
desire to clear her name – just the sort of self-interest Sorgnard
found involuntary.
She testified as follows regarding her June
contact with investigators:
Why did I contact them? No. 1, I wanted to clear my name.
No. 1, I wanted them to know I didn’t embezzle anything.
No. 1, I wanted them – another thing I wanted them to
know, Here’s the proof; go after the people who took the
money. . . . My reputation was on the line. And if I
ever planned to get an accounting job, I wanted to make
sure CHA knew I was clear. I was not the cause of the
problem. I wanted to direct them to the problem.
2011 Howard Dep. 151:23-152:19.
counsel,
undisputedly
met
representatives in late 2002.
with
Howard, along with Hart and
U.S.
Attorneys
See id. 153:21-154:17.
indication, however, of what was said.
- 16 -
and
CHA
There is no
Cf. U.S. ex rel. Hafter
D.O.v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1162-63 (10th
Cir. 1999) (noting that even in pleading, relators must offer
details to support original source allegations).
Absent more
information, Howard cannot convert an involuntary disclosure to a
voluntary one just by (possibly) adding a new listener.
Ordinarily, courts need (and perhaps should) not analyze a
relator’s subjective motivations.
Mixed motivations, or a fear
that one may get swept up in an investigation, are likely common in
FCA cases.
Here, however, Howard candidly gave her reasons for
working with the CHA, and that she had not intended to report
before investigators contacted her. Id. at 154:18-156:1.
Here,
voluntariness
FCA’s
must
be
interpreted
with
an
eye
to
the
underlying policy of motivating relators to come forward on their
own. Therefore, the Court finds that Howard can no longer meet her
burden of showing that she is an original source, and that it lacks
jurisdiction over her FCA claims.
Cf. Rockwell Intern. Corp. v.
United States, 549 U.S. 457, 460, 473 (2007) (noting that in FCA
cases, jurisdictional allegations later proved false will defeat
jurisdiction).
b.
Direct and independent knowledge
Having concluded that Howard is not an original source, the
Court need not consider Defendant’s argument about her alleged lack
of direct knowledge.
Howard
contends
However, one further point bears mentioning.
that
Gardner
has
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not
identified
any
public
disclosure of the South Shore information.
Therefore, she claims,
the public disclosure bar does not apply, and she need not prove
that she falls under the original source exception to that bar.
There is an argument that Judge Andersen found otherwise, in
finding that all of Howard’s claims were “based upon” public
disclosures
(though
the
question
undisputed at that stage).
of
public
disclosure
was
Howard points to no new information
undermining that result.
Defendant,
however,
responds
only
that
the
South
Shore
information was disclosed “as referenced at the end of the CHA’s
Final Investigative Report.”
Def.’s Reply 6.
The end of that
Report, however, states that the investigation had uncovered that
“the practice of transferring money from CHA accounts is not
limited to [URSC.]”
Gardner Dec. Ex. 1, at 3.
It refers to CHA
properties managed by non-URSC entities, not non-CHA properties
handled by URSC or UIT.
public
disclosure,
Accordingly, with no direct evidence of
Howard’s
South
Shore
claims
may
proceed,
regardless of her original source status. The remaining FCA claims
are dismissed for lack of jurisdiction.
B.
Count III
In Count III, Howard alleges retaliation in violation of the
FCA.
Gardner argues that she is entitled to summary judgment
because Howard is a “fraud-alert” employee who did not put Gardner
on notice of an impending qui tam action, and because Gardner never
- 18 -
took adverse employment action against her.
Finally, she argues,
UIT’s corporate veil cannot be pierced to reach her.
(Gardner
concedes that Judge Anderson, ruling on Synergy’s motion, denied
summary
judgment
on
protected conduct.)
the
issue
of
whether
Howard
engaged
in
The parties do not explicitly analyze whether
Gardner or UIT must have had the requisite notice or taken adverse
action.
Because this distinction is critical and turns on the
veil-piercing issue, the Court turns first to Gardner’s third
argument.
1.
Veil Piercing
“To pierce a corporate veil under Illinois law, a plaintiff
must
demonstrate
that
there
is
‘such
unity
of
interest
and
ownership that the separate personalities of the corporation and
the individual no longer exist, and that adherence to the fiction
of separate corporate existence would sanction a fraud or promote
injustice.’” Sea-Land Servs. Inc. v. Pepper Source, 993 F.2d 1309,
1311
(7th
Cir.
1993).
(Other
district
circumstances have applied federal law.
courts
in
similar
See, e.g., U.S. ex rel.
Siewick v. Jamieson Sci. & Eng’g, Inc., 191 F.Supp.2d 17, 20-21
(D.D.C. 2002).
The parties have not asked to apply federal law,
however, and the result is the same either way.)
an equitable remedy, but heavily fact-based.
Veil piercing is
Therefore, a court
may appropriately resolve the equitable question once the facts
- 19 -
have been established at trial. Int’l Fin. Servs. Corp. v. Chromas
Tech. Canada, Inc., 356 F.3d 731, 737-40 (7th Cir. 2004).
Gardner argues that veil-piercing is inappropriate because no
evidence contradicts her denial of any wrongdoing, and because UIT
was an adequately capitalized corporate entity whose corporate
formalities were adequately respected.
The Court agrees with
Howard, however, that Gardner’s reliance on Howard’s deposition for
these facts is misplaced. It further notes that Gardner’s approach
of attaching a mass of largely unanalyzed documents (without
specific citations or supporting arguments) to show that UIT
complied with corporate formalities, is unhelpful and fails.
See,
e.g., Def.’s Resp. to Pl.’s Statement of Additional Facts, 15 ¶ 32.
Though there may have been a Board of Directors, Gardner failed to
deny properly Howard’s claim that it never met.
Therefore, the
issue of what formalities were respected is ripe for development at
trial.
Regarding Gardner’s conduct, the Court likewise finds that
Howard has brought forth enough evidence to defeat summary judgment
that Gardner made or authorized improper transfers, without regard
to corporate or legal formalities.
With regard to additional
considerations such as capitalization, neither party has conducted
a
precise
discussion
of
the
level
of
capitalization
needed,
particularly in terms of unencumbered assets, rather than initial
investment or liquid capital.
See Laborers’ Pension Fund v. Lay- 20 -
Com, Inc., 580 F.3d 602, 612-13 (7th Cir. 2009).
whether
the
capitalization
inquiry
should
be
Furthermore,
applied
at
the
subsidiary or parent corporation-level will also depend on factual
issues that require development.
Therefore, Gardner’s claim for
summary judgment on the issue of veil piercing is denied.
The Court pauses to note that veil piercing remains an open
question; it is not a given.
Nor is it necessarily true that if
the veil should be pierced as between the various business entities
that it necessarily should be pierced as to Gardner’s personal
assets. After all, Courts should separately consider whether veilpiercing is appropriate as to any particular shareholder, and
Howard primarily contends that Gardner improperly moved funds to
“prop up” her other business investments and Mulder’s personal
account, not her own.
See Id. at 611-14; Pl.’s Resp. to Summ. J.
15-16.
2.
Personal vs. Corporate Notice and Conduct
The Court turns next to whether Howard must prove what Gardner
personally, or UIT as a corporation, knew or did regarding her FCA
claim. Proceeding on a veil-piercing theory means that Gardner may
be liable for the corporate conduct.
Thus, the Court need not
focus on her personal knowledge or conduct.
F.Supp.2d
at
20-22
(noting
that
officers
Cf. Siewick, 191
are
not
generally
“employers” under § 3730(h), but might be liable under a veil
- 21 -
piercing theory).
She will not, however, be liable for UIT’s
actions after she dissociated from the company – whenever that was.
Howard contends that Gardner remained in charge of UIT until
October 2002, despite her purported November 2001 resignation. For
support, Howard points to several documents, including an excerpt
from the 2002 asset transfer agreement between Mulder, Terzakis,
and Gardner; a letter purportedly written by Gardner, and pages
from Gardner’s personnel file with Synergy, which Howard claims
show that Gardner worked for UIT at least through March 2002, and
did not join PSG until June.
Gardner is correct, however, that
most of these documents lack adequate foundation.
See Thanongsinh
v. Bd. of Educ., 462 F.3d 762, 777-78 (7th Cir. 2006) (noting that
at summary judgment, a party must generally support evidence
offered under the business records exception by an affidavit from
a qualified custodian).
however,
that
such
a
The Court disagrees with Defendant,
foundation
is
required
for
Howard’s
Exhibit BB, which appears to be a signed letter by Gardner,
reassigning
certain
administrative
duties
within
UIT
on
December 11, 2001.
Howard also cites Mori’s statements that during the 2002
transition,
Gardner
at
times
directed
each of
the
three
UIT
spinoffs in dividing up properties and databases, and that PSG was
located in the same building as UIT.
Gardner testified
that
on
paper,
- 22 -
Howard is correct that
at least,
she
retained
her
interest in all of the various properties until October 2002. (She
also testified that after resigning, she continued to “wind up” and
“transition” some unnamed projects and responsibilities.) Howard’s
citation to her own deposition, however, is unhelpful – she merely
testified that she is unsure if Gardner ever gave up control of UIT
in 2001, “because there’s financial documents that say [U]rban
wasn’t — they didn’t split until after I was gone[.]”
2011 Howard
Dep. 148:16-19. Absent those documents, and an adequate foundation
for them, Howard has not created a genuine issue of material fact
with her testimony.
Nonetheless, Howard’s supported evidence is
enough to create a question of material fact as to when Gardner
relinquished what control over the company.
3.
Adverse Employment Action
Having concluded that, at this stage, Gardner’s personal
knowledge and actions are not determinative, the Court finds that
Howard has come forward with sufficient evidence to reach a jury
regarding
actions
whether
during
Howard
Gardner’s
was
subjected
tenure.
She
to
adverse
claims
employment
that
she
was
constructively discharged, and her duties stripped, in the spring
and summer of 2002.
However, the evidence could support an averse action finding
even before that.
The statute defines prohibited retaliatory
conduct to include threats and harassment. 31 U.S.C. 3730(h) (West
2008).
Therefore, the October 2001 letter from Mori, which Howard
- 23 -
claims threatened her job, could support a finding that Howard was
harassed in retaliation for acts that Judge Andersen found may
constitute protected conduct.
4.
Notice
The closer question is whether Howard gave UIT sufficient
notice that she might sue.
The Court concludes that Howard likely
was a “fraud-alert” employee even though she is not a CPA; her job
involved,
in
part,
detecting
and
reconciling
account
inconsistencies. Accordingly, Howard’s reporting of discrepancies,
would not necessarily put UIT on notice that she believed there was
fraud, or might bring an FCA claim.
The Seventh Circuit has not been entirely clear as to what
notice is required from “fraud-alert” employees.
See Brandon v.
Anesthesia & Pain Mgmt. Assocs., Ltd., 277 F.3d 936, 944-45 (7th
Cir. 2002) (noting that where a relator’s job involved ensuring
that billing practices complied with Medicare rules, he had not
given his employer sufficient notice of a possible FCA claim
despite using terms like “illegal,” “improper,” and “fraudulent”;
he never threatened to report the fraud or sue).
Cf. Fanslow v.
Chicago Mfg. Ctr., Inc., 384 F.3d 469, 484 (7th Cir. 2004) (noting
Brandon, but suggesting agreement with circuits that hold that
“‘fraud-alert’ employee[s] may be expected to use words like
‘illegal’ or ‘unlawful’ when sharing” their concerns.); U.S. ex
rel. Stone v. OmniCare, Inc., No. 09 C 4319, 2011 WL 2669659, at *7
- 24 -
(N.D. Ill. Jul. 7, 2011) (noting that tension, and following
Fanslow to find that a fraud-alert employee’s telling the board
that his audit reports found “fraud” was sufficient).
Here,
Howard
testified
that
she
repeatedly
told
various
employees that she would not lie or go to jail to protect UIT, and
that UIT knew that she cooperated with the CHA investigation. Even
if she did not specifically state that she would bring an FCA
claim, her comments sufficiently placed UIT on notice of the
distinct possibility of such a claim.
The Court therefore denies
Defendant’s Motion for Summary Judgment as to Count III.
C.
Count IV
Finally, Defendant moves for summary judgment as to Howard’s
Count IV for intentional infliction of emotional distress (“IIED”).
Gardner is entitled to summary judgment, she claims, because there
is no admissible evidence that Gardner acted in an extreme or
outrageous manner, or knew that her conduct would harm Howard.
This is so, she claims, because Howard only alleges that Gardner
“lied” to her by smiling and saying hello while continuing to
embezzle, and there is no evidence that Gardner embezzled. Gardner
likens her situation to that of Synergy, which was granted summary
judgment because failing to investigate Howard’s claims was not
extreme or outrageous enough to warrant liability.
Howard argues that Gardner is liable for IIED both personally
and under a veil-piercing theory.
- 25 -
See Pl.’s Resp. to Mot. For
Summ. J. 18 n. 12.
Personally, Howard argues that Gardner fired
Johnson for complaining about the transfers, and then “stood by as
Mori and Reyes tightened the screws on Howard, pressuring her to
make fraudulent entries into the CHA’s accounts.
Gardner knew
Howard was suffering physical stress from what was happening at
urban, and Howard was hospitalized twice while working there.” Id.
at 18.
(There seems to be no evidence that Gardner knew of the
hospitalizations, as opposed to the stress.)
The
Court
finds
that
the
allegations
against
Gardner
personally are largely based on her actions toward other employees
and a failure to protect Howard, rather than her actions toward
Howard.
They do not rise to the level of being actionable under
the tort of
IIED.
However,
Howard
has
presented
sufficient
evidence to defeat summary judgment with regard to the IIED claim
against UIT, and thereby against Gardner under a veil-piercing
theory.
The Court concludes that Howard’s evidence, when taken in
the light most favorable to her, fits comfortably within the
holdings
of
Illinois
courts
employees to falsify records.
regarding
employers
who
pressure
See, e.g., Milton v. Illinois Bell
Tel. Co., 427 N.E.2d 829, 832-33 (Ill. App. Ct. 1981).
Therefore,
her claim survives, regardless of whether Howard has produced
medical evidence of the emotional consequences; such medical proof
is not a prerequisite to an IIED claim under Illinois law.
v. Smith, 256 F.3d 477, 495-96 (7th Cir. 2001).
- 26 -
Honaker
Therefore, the
motion for judgment on Count IV is granted in part and denied in
part.
IV.
CONCLUSION
For the reasons stated herein, the Court rules as follows:
1.
Counts I and II of the Complaint are dismissed, except
with regard to the South Shore claims; and
2.
Gardner’s Motion for Summary Judgment is denied as to
Count III, and granted in part and denied in part as to Count IV.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 9/5/2012
- 27 -
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