United States, Ex Rel: Kelly Nicole Wuestenhoefer v. Jefferson et al

Filing 352

ORDER granting in part and denying in part 206 Motion for Summary Judgment; denying 208 Motion for Attorney Fees; granting 244 Motion to Strike ; granting in part and denying in part 245 Motion for Summary Judgment; granting 247 Motion for Summary Judgment; granting 249 Motion for Summary Judgment; granting in part and denying in part 251 Motion for Summary Judgment; granting in part and denying in part 253 Motion for Summary Judgment; granting in part and denying in part 255 Motion for Summary Judgment. Signed by District Judge Debra M. Brown on 1/16/15. (bds)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF MISSISSIPPI
GREENVILLE DIVISION

UNITED STATES OF AMERICA ex rel
KELLY NICOLE HORTON
WUESTENHOEFER; and KELLY
NICOLE HORTON WUESTENHOEFER,
individually
V.

PLAINTIFF

NO. 4:10-CV-00012-DMB-DAS

A.J. JEFFERSON, et al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This False Claims Act and unlawful retaliation action is brought by Kelly Nicole
Wuestenhoefer (“Relator”) on behalf of herself and the United States. Doc. #29. Relator alleges
that her former employer, Defendant South Delta Regional Housing Authority (“SDRHA”); Ann
Jefferson, SDRHA’s former Executive Director; and various other persons and entities, engaged
in “wrongful, fraudulent and illegal conduct” with regard to funds of the United States
Department of Housing and Urban Development (“HUD”). Id. at 12. Relator further alleges that
SDRHA and its employees retaliated against her for her role in uncovering the fraudulent
conduct. Finally, Relator alleges that SDRHA’s accountant, Lloyd and Associates, LLC, and its
owner, Michael Lloyd (collectively, “Lloyd”) wrongfully aided the fraudulent conduct.
Before the Court are a number of pending motions: (1) Lloyd’s motion for summary
judgment, Doc. #206; (2) Lloyd’s motion for attorney fees, Doc. #208; (3) SDRHA’s motion for
summary judgment, Doc. #245; (4) a motion for summary judgment by Defendant Patricia
Logan, Doc. #247; (5) a motion for summary judgment by Defendant Dinnial Love, Doc. #249;
(6) a motion for summary judgment by Defendant Howard Sanders, Doc. #251; (7) a motion for

summary judgment by Defendant Larry Cordell, Doc. #253; (8) a motion for summary judgment
by Defendant Robert Gray, Doc. #255; and (9) Lloyd’s motion to strike, Doc. #244.
I
Summary Judgment Standard
“Summary judgment is appropriate when there are no genuine issues as to any material
facts, and the moving party is entitled to judgment as a matter of law.” Norwegian Bulk Transp.
A/S v. Int'l Marine Terminals P'ship, 520 F.3d 409, 411 (5th Cir. 2008) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 22–23 (1986)). To award summary judgment, “[a] court must be satisfied
that no reasonable trier of fact could find for the nonmoving party or, in other words, that the
evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a
verdict in her favor.” Norwegian Bulk Transp. A/S, 520 F.3d at 411–12 (internal quotation
marks omitted). To this end, “[t]he moving party bears the burden of establishing that there are
no genuine issues of material fact.” Id. at 412.
“If, as here, the nonmoving party bears the burden of proof at trial, the moving party may
demonstrate that it is entitled to summary judgment by submitting affidavits or other similar
evidence negating the nonmoving party's claim, or by pointing out to the district court the
absence of evidence necessary to support the nonmoving party's case.” Morris v. Covan World
Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998) (citation omitted). If the moving party
makes the necessary demonstration, “the burden shifts to the nonmoving party to show that
summary judgment is inappropriate.” Id. In making this showing, “the nonmoving party must go
beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories,
and admissions on file, designate specific facts showing that there is a genuine issue for trial.”
Cotroneo v. Shaw Env't & Infrastructure, Inc., 639 F.3d 186, 191–92 (5th Cir. 2011) (citation
and internal punctuation omitted). When considering a motion for summary judgment, the Court
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“resolve[s] factual controversies in favor of the nonmoving party.” Little v. Liquid Air Corp., 37
F.3d 1069, 1075 (5th Cir. 1994).
II
Relevant Facts
A. HUD’s Funding Regulations
The HUD Housing Choice Voucher (“HCV”) program “pays rental subsidies so eligible
families can afford decent, safe and sanitary housing.” 24 C.F.R. § 982.1(a). HCV programs
“are generally administered by State or local governmental entities called public housing
agencies (PHAs).” Id. HUD provides PHAs with the housing assistance funds necessary to run
the HCV program (“Housing Assistance Payments” or “HAPs”) and with “funds for PHA
administration of the programs.” Id.; Doc. #206-1 at 7.
HAP funding “may only be used for eligible HAP needs of rent, family self-sufficient
escrow payments or utility reimbursements [and] shall not under any circumstances be used for
any other purpose, such as to cover administrative expenses ….” Doc. #245-9 at 4 (emphases
omitted). In instances where a housing authority “is found to have misappropriated HAP funds
by using the funds for any purpose other than valid HAP expenses … HUD will require the
immediate return of the funds of the HAP.” Id.
“[A]dministrative fees may only be used to cover costs incurred to perform …
administrative responsibilities for the [HCV] program in accordance with HUD regulations and
requirements.” 24 C.F.R. § 982.152(a)(3). If excess administrative funds (“administrative fee
reserves”) exist at the end of a fiscal year, “the PHA may use these funds for other housing
purposes permitted by State and local law. However, HUD may prohibit use of the funds for
certain purposes.”

24 C.F.R. § 982.155.

Since 2004, HUD has restricted the use of

3

administrative fee reserves “to activities related to the provision of rental assistance under the
[HCV].” Doc. #244-3 at 3.
PHAs must “maintain an administrative fee reserve [for the HCV] program …. The PHA
must credit to the administrative fee reserve the total of [t]he amount by which program
administrative fees paid by HUD for a PHA fiscal year exceed the PHA program administrative
expenses for the fiscal year [plus i]nterest earned on the administrative fee reserve.” 24 C.F.R. §
982.155. Furthermore, a PHA “must engage and pay an independent public accountant to
conduct audits in accordance with HUD requirements.” 24 C.F.R. § 982.159(a).
HUD requires reports on “Financial Operations and Accounting” for two primary
purposes: (1) “to determine if funds expended during the period were used for the program
activities authorized by HUD in accordance with approved budgets and program regulations;”
and (2) “to monitor HA performance ….” Doc. #245-5 at §§ II-1, II-2.
B. SDRHA
SDRHA is a Mississippi public corporation organized “to provide affordable housing to
qualified individuals in” Bolivar, Humphreys, Sunflower, Issaquena, Sharkey, and Washington
Counties. Doc. #206-1 at 1. The County Commissioner from each of the six counties serviced
by SDRHA appoints an individual to sit on SDRHA’s Board of Commissioners (“the Board”).
Id. The six appointed commissioners elect a seventh person to serve on the Board. Id. The
Board shoulders the responsibility of “oversee[ing] federal funds.” Doc. #311 at 12. Although
the Board governs SDRHA, an Executive Director hired by the Board administers the
corporation’s day-to-day operations. Doc. #206-1 at 1.
During the time period relevant to this suit, SDRHA operated: (1) a Housing Choice
Vouchers program run by HUD; (2) a Section 8 New Construction (“NC”) & Substantial

4

Rehabilitation program run by HUD; (3) SDRHA Owned Rental Housing; and (4) a SDRHA-run
“Homeownership” program.

Doc. #206-1 at 2.

Simultaneously, SDRHA maintained five

separate bank accounts: (1) “Section 8 New Construction/Sub Rehab (“NC Account”); (2)
“Housing Choice Voucher” (“HCV Account”); (3) “Business Activities” (“Business Account”);
(4) “Component Unit/other” (“Component Account”); and (5) “Disaster Voucher Program”
(“DV Account”). Id. at 7. The Business Account operated as SDRHA’s “primary authoritywide operating account.”1 Id.
SDRHA obtained funding from HUD by submitting information to HUD through the
Voucher Management System (“VMS”). Doc. #245-2 at ¶ 5. VMS submissions were submitted
monthly. Id. Based upon the information contained in the VMS submissions, HUD would
deposit three types of funds into the NC Account: (1) NC HAP funds; (2) HCV HAP funds; and
(3) administrative funds. See Doc. #206-1 at 8; Doc. #245-2 at ¶ 6. During the time period
relevant to this suit, “HUD would base their housing assistance payments … on the previous
year’s expenditures. So whatever they would receive in 2008 would be based on what they spent
in 2007 with an inflation factor.” Doc. #206-2 at 20. The administrative fees, in turn, were
“based on the number of units leased on the first day of each calendar month.” Id.
Under then-SDRHA procedures, the HCV HAP funds were transferred to the HCV
account; the administrative funds were transferred to the Business Account; and the NC HAP
funds remained in the NC Account. Doc. #206-1 at 8. If the administrative funds exceeded the
allocable expenses for the NC or HCV programs, then SDRHA created a “payable (due to)”
entry for the corresponding program. Id.

1

According to 1996 HUD guidance, “the ACC permits an HA to pool funds from various sources to promote
efficiency and to facilitate program operations.” Doc. #245-5 at § II-14.

5

Pursuant to SDRHA and HUD’s Consolidated Annual Contributions Contract (“ACC”),
SDRHA was required to use the funds in compliance “with the requirements of the U.S. Housing
Act of 1937 and all HUD regulations and other requirements, including any amendments or
changes in the law or HUD requirements.” Doc. #245-3 at 3. The ACC provided that “[i]f the
[housing authority] is not adequately administering any Section 8 program in accordance with
HUD requirements, HUD may … [d]irect the HA to use the funds to improve administration of
the Section 8 program or for reimbursement of ineligible expenses.”

Doc. #245-3 at 3.

Furthermore,
[u]pon written notice to the HA, HUD may take possession of all or any HA
property, rights, or interests, in connection with a program, including funds held
by a depository, program receipts, and rights or interests under a contract for
housing assistance payments with an owner, if HUD determines that … [t]he HA
has failed to comply with any obligations under this consolidated ACC …
Id. at 3–4.
C. Ann Jefferson’s Tenure as Executive Director
In September 2006, Ann Jefferson was hired as SDRHA’s Executive Director. Doc.
#225 at ¶ 1. At that time, Relator was employed as SDRHA’s Property Manager and Broker and
Accounts Receivable Analyst. Id.
After Jefferson was hired, “she and others in management … did everything toward the
running of the housing authority.”

Doc. #311 at 17.

Although the Board maintained its

responsibility to oversee federal funds, it “had very little to do with the daily activities of the
authority.” Id. at 12–13. The Board held quarterly meetings, at which it would “look at different
[financial] things.” Id. at 11. However, Larry Cordell, a Board member, admitted that this
review was largely cursory, and that the Board members acted as Jefferson’s “rubber stamp” on
matters of spending. Id. at 38–39.

6

“Almost immediately” after her hire, Jefferson terminated SDRHA’s relationship with its
previous accountants – Jason Casterline and Baird and Stallings CPA’s P.A. Doc. #225 at ¶ 2.
In their place, Jefferson hired Charles Buchanan to serve as SDRHA’s auditor and Lloyd to serve
as SDRHA’s fee accountant. Id. Both Buchanan and Lloyd worked with Jefferson when she
was employed at a housing authority in St. Louis. Id.
As the auditor, Buchanan had the “responsibility to make an opinion regarding … the
accuracy of the financial statements.” Doc. #206-2 at 55. In making this opinion, the auditor is
required to have “actually reviewed documents, checks and the compliance issues that an auditor
must abide by under the purview of being a [certified public accountant].” Id. Lloyd, as the fee
accountant, performed a review “lesser than the level of review of an audit.” Id. The position of
fee accountant did not carry a “duty to find fraud.” Id. at 60.
In June 2007, Jefferson fired Darlene Mauceli and Melanie Herbert, “long-term
employees of SDRHA [who] constituted the entire financial Department of SDRHA.” Doc.
#225 at ¶ 3. A few months later, in the fall of 2007, Jefferson “convinced the Board of
Commissioners to … increase her … check-writing authority from $10,000.00 to $200,000.00.”
Id. at ¶ 6.
In May 2009, Jefferson raised the rental rates for homes in SDRHA’s rental program. Id.
at ¶ 8. On July 22, 2009, the residents of SDRHA filed an action in this Court seeking to enjoin
the rate hike. See Lowe v. South Delta Regional Hous. Auth., 4:09-cv-73 (N.D. Miss. Jul. 22,
2009) (“Lowe”), at Doc. #1; Doc. #225 at ¶ 9. On August 21, 2009, U.S. District Judge Allen
Pepper convened an injunction hearing at which Jefferson testified.2 Lowe, at Doc. #28.

2

The case subsequently settled. See Lowe, at Doc. #138.

7

“Several weeks” after the Lowe injunction hearing, Relator received a copy of the hearing
transcript. Doc. #225 at ¶ 10. Upon reviewing the transcript, Relator came to the conclusion that
“Jefferson had committed perjury.”

Id.

Relator contacted Paul Mathis, SDRHA’s former

attorney, and informed him that Jefferson committed perjury during the SDRHA proceeding. Id.
at ¶ 11. Mathis, in turn, informed Judge Pepper of the alleged perjury. Id.
D. SDRHA Accounting Methods
As explained above, SDRHA’s Business Account contained funds for the operations of
its HUD and non-HUD programs. To the extent the funds for one of the HUD programs
exceeded the operating expenses, SDRHA created a “due to” record for the relevant HUD
account.
Lloyd provided monthly statements to SDRHA reflecting the account balances for the
year. Doc. #245-4 at 46. Additionally, at the end of each fiscal year, Lloyd submitted to HUD,
through HUD’s Real Estate Assessment Center, a “balance sheet and income statement for the
entire year of operations, broken down by non-HUD … business activities[,] … the housing
choice voucher program, the new construction program [and] any other activities that may be
going on with South Delta for that particular year.” Id. at 46–47, 64–65.
Buchanan performed annual audits of SDRHA’s financials. See Doc. #245-7. It is
undisputed that the annual audits were transmitted to HUD.
In the course of preparing the “due from/due to” monthly balances, Lloyd became aware
that Jefferson regularly moved to the Business Account “much more” HUD administrative fees
than were necessary for the operation of the programs. Doc. #245-4 at 71–72. Lloyd told
Jefferson that the wholesale transfer of administrative funds “is not a practice that we typically
follow in housing authorities, that you should look at our monthly reports and transfer the

8

balance that is owed and not the whole administrative fees.” Id. Lloyd testified that this “was
her typical management decision to do that the whole time.” Id. at 73.
Lloyd also disagreed with Jefferson on SDRHA’s obligations following administrative
fee transfers. Id. at 73–74. At various points Jefferson told Lloyd that the Business Account
“never” owed the HUD accounts money.

Id.

Lloyd responded that SDRHA’s non-HUD

accounts did, in fact, owe the HUD accounts money. Id. at 74–76. Additionally, Lloyd informed
Jefferson and Buchanan that it was “not a common practice to write off an inter-fund balance”
and that the “proper” thing to do would be to pay off the balances. Id. at 83. While Lloyd
reported the “inter-fund balances” to HUD, he never informed the Board of Jefferson’s stance on
the re-payment of HUD funds. Id. at 74, 83.
Unlike Lloyd, Buchanan followed Jefferson’s mandate regarding the treatment of HUD
funds. See Doc. #206-1 at 7–9. Sometime in 2008, Buchanan prepared an audit “for the period
October 1, 2006 through December 31, 2007” (“FY 2007 Audit”). Doc. #245-7. In the FY 2007
Audit, Buchanan included a notation that:
GASB 34 standards require that year-end interfund receivable and payable
balances be eliminated from the Statement of Net Assets.
Interfund receivables/payables of $373,419 at December 31, 2007, were
eliminated.
Id.
The audit for the fiscal year ending December 31, 2008 (“FY 2008 Audit”) did not reflect
any debt between the Business Account and the HUD accounts. Doc. #245-7. However,
relevant Financial Data Schedule (“FDS”) submissions showed that the Business Account owed

9

$344,076 to the HCV Account. Doc. #206-1 at 8. In 2009, the amount owed to the HCV
Account was “written off”3 by Buchanan and Jefferson. Doc. #206-1 at 8.
The audit for fiscal year 2009 (“FY 2009 Audit”) reflected that the Business Account
owed the HCV Account $174,812. Doc. #245-7. In 2010, this amount was written-off by
Jefferson and Buchanan. Doc. #206-1 at 8.
The audit for fiscal year 2010 (“FY 2010 Audit”) reflected that: (1) the Business Account
was owed $1,871; (2) the HCV Account was owed $20,416; and (3) the NC Account owed
$24,8111. Doc. #206-8 at 15.
The audit for fiscal year 2011 (“FY 2011 Audit”), which was prepared by Bell &
Associates, CPA, of Chicago, Illinois, reflected that: (1) the Business Account owed $68,436; (2)
the HCV Account was owed $83,848; and (3) the NC Account owed $15,412. Doc. #206-9 at
15.
Although the FY 2008–2011 Audits did not specifically reference write offs, all the
documents contained the following notation:
Interfund Transactions
Quasi-external transactions are accounted for as revenue, expenditures or
expenses.
Transactions that constitute reimbursements to a fund for
expenditures/expenses initially made from it that are properly applicable to
another fund, are recorded as expenditures/expenses in the reimbursing fund and
as reductions or expenditures/expenses in the fund that is reimbursed. These
transactions are referred to as Transfer in or Transfer outs. Other quasi-external
transactions are accounted for as receivables or payables when they are to be
repaid to the paying program. All such transactions are eliminated in the
Government-wide statement of Net Assets and Statement of Activities-Proprietary
funds.
3

Lloyd described the act of writing off a debt as: “[t]he auditor makes an adjustment … on the non-HUD books and
on the housing choice voucher books to write off that amount.” Doc. #245-4 at 81. While the debt is eliminated for
the purpose of the audit, it is “still maintained in the financial records of South Delta Housing Authority in the
general ledger system …. Anybody who wanted to look and see what happened to the inter-fund balances could
look at the detail and see what happened.” Id. at 82. Lloyd objected to the write-offs because it was “not a common
practice to write off an inter-fund balance.” Id. at 83. However, because he had already reported the accurate interfund balances to HUD, Lloyd did not tell anyone about the write-offs. Id.

10

See Doc. #245-7 (emphasis in original).
E. Limited Financial Assessment
On November 15, 2011, HUD issued a Limited Financial Assessment (“LFA”) regarding
SDRHA’s finances. Doc. #206-1. The audit identified Lloyd as “the fee accountant,” and
Buchanan as “the auditor.”4 Id. at 3.
With regard to the FY 2008 Audit, the LFA concluded:
The FY 2008 annual report submitted to HUD did not show any balances in the
inter-program due from or due to accounts. However … the accounting records
showed that SDRHA had significant balances in the inter-program accounts.
SDRHA management stated that because of guidance received from HUD, they
incorrectly eliminated the inter-program accounts from the FY 2008 financial
reports. The HCV program had a net receivable of $344,076 that was due from
the Business Activities (Non-HUD) program. The balance appears to have
occurred because HCV administrative fees that were transferred to the Business
Activities … account exceed the HCV related expenses paid out of the Business
Activities … account …. Even though the Business Activities had sufficient
resources to repay the loan, during 2009 SDRHA wrote-off the $344,076 that the
Business Activities … account owed to the HCV program. The [Executive
Director] discussed the balances with the fee accountant because she did not think
the balances were correct. A decision was made to write-off the balances. The
write-off effectively resulted in an unallowable use of federal funds.
Doc. #206-1 at 8.
As to the FY 2009 Audit, the LFA concluded that at the end of FY 2009, “$174,812 was
due from the Business Activities … program [to the HCV Account] and $50,059 was due from
the New Construction program [to the HCV Account].” Doc. #206-1 at 8.

The LFA further

noted that, notwithstanding the fact that both the New Construction and Business Accounts had
sufficient funds to cover their balances, “a decision was made to write-off the 2009 balances.”

4

Notably, the LFA stated that Buchanan was “debarred” for failing “to make working papers from audits of PHA’s
available for a quality control review by HUD.” Doc. #206-1 at 3. While the debarment was effective November
20, 2009, he was allowed to perform SDRHA’s FY 2010 Audit. Id.

11

Id. As with the FY 2008 write-off, the LFA concluded that “[t]he write-off effectively resulted
in an unallowable use of federal funds.” Id.
With regard to FY 2007, the LFA noted that the New Construction Account owed the
HCV account $145,727, and that the New Construction Account had sufficient funds to pay off
the debt. Id. With regard to FY 2010, the LFA noted that the New Construction Account owed
the HCV account $20,416, and that the New Construction Account had sufficient funds to pay
off the debt. Id. at 9. However, the LFA did not state that either the FY 2007 or FY 2010 debt
was eliminated or that SDRHA’s activities with respect to these amounts resulted in an
unallowable use of federal funds.
F. Investigation and Jefferson’s Response
On January 27, 2010, Relator contacted John Alexander of the United States Attorney’s
Office for the Northern District of Mississippi regarding her suspicions regarding Jefferson.
Doc. #225 at ¶ 10. Alexander referred Relator to the Federal Bureau of Investigation (“FBI”).
On February 5, 2010, Relator met with FBI Special Agent Steve Thomason and informed him
“of the general nature of the information that [she] had regarding … Jefferson.” Id. at ¶ 12.
Three days later, Relator repeated this information to Agent Thomason and HUD Office of
Inspector General (“HUD OIG”) Special Agent Angela Pryor. Id. at ¶ 13. Agents for HUD and
the FBI testified that Relator was the person responsible for bringing Jefferson’s activities to the
government’s attention. Doc. #226 at ¶ 3; Doc. #227 at ¶ 4.
On February 10, 2010, Relator provided a container of documents to Agents Pryor and
Thomason. Doc. #225 at ¶ 14. Included in the documentation was at least one invoice which
Relator “strongly suspected was false.” Id. Relator told the agents that she suspected Jefferson

12

and Jimmy Johnson, a SDRHA contractor, “were working together to embezzle money from
HUD … and to provide kickbacks to … Jefferson.” Id.
About two years later, on February 12, 2012, Relator, appearing pro se,5 filed this action
under seal. Doc. #1. The original complaint, which was filed against Jefferson, SDRHA, the
SDRHA Board, and various Board members, charged numerous violations of state and federal
law. Id. Although the claims varied, the crux of the complaint was that Jefferson was engaged
in a conspiracy to embezzle funds and that the Board acted with “indifference” to Jefferson’s
conduct. Doc. #1 at ¶ 20–24. While the complaint did not specifically name Lloyd or Buchanan
as defendants, it alleged that:
Jefferson, with specific design, on or about January 2007, terminated South
Delta’s existing accountants and contracts, she considered essential to her
conspiracy and then hired and retained out of state accountants and other
contractors, she can control and who Plaintiff verily believes have assisted her in
what the Plaintiff believes, is a criminal enterprise that assists Jefferson in
covering up and otherwise, concealing the reporting of her true financial dealings
and other activities, as the executive director, with respect to the disposition of
South Delta’s State and Federal funds.
Doc. #1 at ¶ 21.
Two weeks later, on February 26, 2010, Relator found in the SDRHA offices “blank
invoices” for Johnson Brothers’ Construction.6 Doc. # 225 at ¶ 17. Relator provided these
invoices to Agent Pryor. Id. On April 16, 2010, Relator agreed to act as a confidential informant
for the FBI in connection with its investigation of Jefferson. Id. at ¶ 19.
In support of her investigation, Agent Pryor subpoenaed bank records of SDRHA and
forwarded them to Kathy Howell, a HUD OIG research specialist. Doc. #227 at ¶ 8. Based on
5

Although the complaint represents that Relator was appearing pro se, she later admitted that Mathis “assisted … in
the preparation of the complaint.” Doc. #225 at ¶ 15.
6

FBI Special Agent Dustin Blount offered an affidavit stating that the disclosure of these invoices was independent
of any publicly disclosed information and “materially added” to the investigation. Doc. #226 at ¶ 14. Blount
explained that the invoices “were filled out by Jefferson, or others at her behest, to fraudulently obtain payment of
monies from accounts into which federal funds had been comingled.” Id.

13

the information she developed during her investigation, Pryor convened a meeting with HUD
officials. Doc. #334-1 at ¶ 5. At the meeting, “as a direct result of [Pryor’s] investigation,”
HUD elected to undertake the Limited Financial Assessment of SDRHA. Id.
On June 1, 2010, Relator met with FBI agents to prepare for the execution of a search
warrant on SDRHA premises. Doc. #226 at ¶ 12. To this end, Relator provided the FBI “with a
detailed blueprint of the building, including the location of each individual in the office and the
job titles of each.” Id.
On June 2, 2010, the FBI raided SDRHA. Id. at ¶ 13. Through this raid, the FBI
“obtained additional documentation and bank records that assisted … in the investigation. The
bank records that we[re] obtained in the raid were forwarded to Kathy Howell with HUD OIG to
use in her analysis.” Id.
On June 21, 2010, Assistant United States Attorney Robert H. Norman sent a letter to
John T. Kitchens, who was then acting as Jefferson’s attorney. Doc. #245-17. In relevant part,
the letter stated:
I understand from Special Agent Justin Newsome that you represent Ann
Jefferson, who as you know is under federal investigation for mishandling and
misappropriating South Delta Regional Housing Authority funds.
I am writing to you to confirm Ann Jefferson’s suspicions that Kelly
Wuestenhoefer is cooperating with the Federal Bureau of Investigation and has
provided information relating to the commission of federal offenses.
We learned from other cooperating sources that Ann Jefferson was convinced that
Mrs. Wuestenhoefer was in fact a federal witness and was preparing to terminate
Mrs. Wuestenhoefer’s employment for that reason ….
Id.
In June, July, August, and “early” September of 2010, “Jefferson … began removing job
responsibilities and duties from [Relator] and efforts were made to make work extremely

14

uncomfortable for her in hopes that she would quit.” Doc. #295 at 2–3. More specifically,
Jefferson “began to assign to [Relator] tasks that either could not be … accomplished, or if
[Relator] did accomplish them, [Jefferson] claimed that Relator hadn’t.” Doc. #294 at 2–3.
Jefferson also barred Relator from entering the accounts receivable room in SDRHA. Doc.
#245-18 at 91. Additionally, Jefferson demoted Relator. Doc. #294 at 2.
On September 13, 2010, the FBI raided Jefferson’s home. Doc. #294 at 3.
G. Relator’s Suspension and Termination
Following the raid on SDRHA, the Board developed “a concern about the morale of the
employees … in the agency.” Doc. #245-18 at 85–86. In response to this concern, the Board
conducted a hearing during which they questioned numerous SDRHA employees, including
Angela Brady, Relator, Dinnial Love,7 Pat Logan, and Mattie Minor. Id. at 145–46. According
to Brady, she, Logan, Love, and Minor were instructed by Jefferson “on what we should say to
the board and counsel so as to get [Relator] fired.” Doc. #295 at 3. Specifically, Jefferson told
the employees “to tell the board … that [Relator] was harassing us and threatening us with
retaliation by the FBI , … that we were not comfortable working with her [and] that she was not
doing her job.” Id.
At the hearing, Brady testified that Relator had been “openly defiant” to Jefferson. Doc.
#245-18 at 148. However, Brady told the Board that Jefferson instructed her, Love, and Logan
to lie about Relator. Doc. #295 at 3–4.
On September 23, 2010, citing the “best interest of SDRHA,” the Board voted to place
Relator on administrative leave, with pay. Doc. #245-19. In its letter informing Relator of the
suspension, the Board wrote:

7

Defendant Dinnial Love is the maintenance supervisor for SDRHA. Doc. #249-1 at ¶ 2.

15

It has been alleged that on several occasions you have been advised and reminded
to p[er]form your assigned duties as an employee according to your job
description, including to refrain from the refusal to carry out direct orders which
has and is causing confusion among the staff of SDRHA.
It has further been alleged that you have harassed and intimidated certain
employees with threats of arrest. Most recently, we are advised that you have
failed and refused to perform certain necessary inspections required to make sales
of certain parcels of real property on the basis that you are physically unable to
drive. You have been requested on an earlier date to provide a statement from a
licensed physician verifying your alleged disability. Rather you produced a
statement from a Nurse Practitioner on September 08, 2010 which is unacceptable
to us. Your response to our request was that you did not feel our request for a
statement from a licensed physician was necessary.
Doc. #245-19.
Following Relator’s suspension, the Board received a letter from Mellanie Gentry, a
tenant at SDRHA. Doc. #245-21. The letter stated that, following a meeting with Jefferson
regarding a missing rent check, Gentry received a call from Relator, who stated that “she did not
work in that office at this time, because she was the one who turned Mrs. Jefferies [sic] in to the
[FBI] and they removed her from the office.” Id. Relator also told Gentry that she had placed
her rent check in a folder at SDRHA. Id.
On October 28, 2010, once again citing “the best interest of SDRHA,” the Board voted to
terminate Relator. Doc. #245-22. In its termination letter to Relator, the Board stated:
When you were placed on administrative leave with pay pending our investigation
you were advised to refrain from interfering with the business of SDRHA.
The reason of termination is because we have been advised and believe that you
have discussed SDRHA business with clients of SDRHA, without the authority
[sic] which has interfered with SDRHA business.
Doc. #245-23.

16

H. Criminal Action
On February 17, 2012, the United States of America filed an amended superseding
indictment against Ann Jefferson and Jimmy Johnson. U.S. v. Jefferson, No. 4:11-cr-111 (N.D.
Miss. Feb. 17, 2012) (“Criminal Case”), at Doc. #47-1. Of relevance here, the indictment
charged that Jefferson, in her role as Executive Director for the South Delta Regional Housing
Authority: (1) violated 18 U.S.C. § 641 by “willfully and knowingly” aiding and abetting
Johnson in embezzling and converting approximately $10,000 of United States property when
she awarded Johnson a contract for construction that had already been completed and then
caused SDRHA checks to be written to Johnson for payment on the contract (“Count One”); (2)
violated 18 U.S.C. § 641 when she billed personal expenditures to an SDRHA account which she
knew “included co-mingled federal funds” (“Count Four”); and (3) violated 18 U.S.C. § 1513(e)
when she retaliated against Relator for Relator’s assistance in the FBI investigation regarding
Jefferson’s conduct (“Count Seven”).
Following a four-day trial, Jefferson was convicted on multiple counts of the superseding
indictment, including Counts One, Four, and Seven. Criminal Case at Doc. #54. On May 1,
2014, the Fifth Circuit Court of Appeals affirmed Jefferson’s convictions. U.S. v. Jefferson, 751
F.3d 314 (5th Cir. 2014). In upholding Jefferson’s convictions under Counts One and Four, the
Fifth Circuit held that:
the evidence presented against Jefferson at trial was overwhelming. Johnson,
Jefferson’s co-defendant testified that they embezzled government funds by
creating a fraudulent $10,000 contract for work that had already been completed.
[Angela] Brady corroborated Johnson’s testimony – she helped Johnson cash a
check written on the contract at a pawn shop and returned the funds to Jefferson.
Testimony and exhibits at trial established that SDRHA repeatedly, at Jefferson’s
direction, paid for renovations at her Huddleston properly, many of which were
incorrectly invoiced to other properties. The receipts and requisition orders for a
number of these renovations bore Jefferson’s signature.

17

Id. at 321.
I. Amended Complaint in This Action
On August 1, 2012, Relator filed her first amended complaint against: (1) A.J. Jefferson
in her individual and official capacity as Executive Director for SDRHA; (2) Chaka Williams;
(3) Dinnial Love; (4) Patricia Logan;8 (4) SDRHA; (5) the SDRHA Board; (6) Raymond Brown,
“in his individual capacity and representative capacity as a Board Member of the SDRHA
Board;” (7) Larry Cordell,9 “in his individual capacity and representative capacity as a Board
Member of the SDRHA Board;” (8) Robert Gray,10 “in his individual capacity and representative
capacity as a Board Member of the SDRHA Board;” (9) Howard Sanders,11 “in his individual
capacity and representative capacity as a Board Member of the SDRHA Board;” (10) Angelic
Mister; (11) Michael Lloyd; (12) Lloyd and Associates, LLC; (13) Charles Buchanan; and (14)
certain fictitious defendants. Doc. #29. In her amended complaint, Relator asserts claims for
“Violation of the False Claims Act, “False Claims Act Conspiracy” and “Unlawful Retaliation in
Violation of § 31 U.S.C. § 3730(h). Doc. #29 at 39–40.
Since the filing of the amended complaint, the parties have stipulated to the dismissal of
the following claims: (1) the individual and official capacity claims against Brown; (2) the
individual capacity claims against Mister; (3) the claims against the Board; and (4) the official
capacity claims against Cordell, Gray, and Sanders. Doc. #222; Doc. #337. Additionally, on
April 18, 2013, on Relator’s motion, Patricia Logan in her official capacity as Executive Director

8

Defendant Patricia Logan has served as Executive Director of SDRHA since February 2013. Doc. #245-2 at ¶ 2.

9

Defendant Larry Cordell was a member of the SDRHA Board during the time period relevant to this suit. Doc.
#253-1 at ¶ 5.
10

Defendant Robert Gray is a member of the SDRHA Board. Doc. #255-1 at ¶ 2. He served on the Board during
the time period relevant to this suit. Id. at ¶ 5.
11

Defendant Howard Sanders is the Chairman of the SDRHA Board. Doc. # 251-1 at ¶ 2. He served on the Board
during the time period relevant to this suit. Id. at ¶5.

18

of SDRHA was substituted in the place of A.J. Jefferson in her official capacity as Executive
Director of SDRHA.12 Doc. #78.
On June 13, 2014, Lloyd filed a motion for summary judgment and a motion for attorney
fees. Doc. #206, #208. On September 12, the parties filed a barrage of motions, including: (1) a
motion for summary judgment by SDRHA, Doc. #245; (2) a motion for summary judgment by
Logan, Doc. #247; (3) a motion for summary judgment by Love, Doc. #249; (4) a motion for
summary judgment by Sanders, Doc. #251; (5) a motion for summary judgment by Cordell, Doc.
#253; (6) a motion for summary judgment by Gray, Doc. #255; (7) a motion for partial summary
judgment by Relator, Doc. #257;13 and (8) a motion to strike by Lloyd, Doc. #244.14
Through the relevant pleadings and briefing, it appears that Relator seeks to impose
liability under the False Claims Act based on: (1) SDRHA’s mixing15 of federal and state funds;
(2) Jefferson’s role in the false invoice scheme; and (3) the “write-offs” of interfund balances.

12

The order permitting substitution was issued by U.S. Magistrate Judge Jane M. Virden before the undersigned was
assigned to the case.
13

On December 31, 2014, the Court granted in part and denied in part Relator’s motion for partial summary
judgment. Doc. #101.
14

Additionally, Jefferson filed a document purporting to be a “joinder to the Motion for Summary Judgment and
Memorandum brief in support of Motion for summary judgment filed by Defendants[ SDRHA], Howard Sanders,
Robert Gray, Patricia Logan, Dennial Love and Larry Cordell ….” Doc. #267. Even if this Court were inclined to
let Jefferson join six separate motions for summary judgment without specifying which arguments apply to her case,
her notice of joinder was filed after the September 12, 2014, dispositive motions deadline previously set in this case.
See Doc. #239. Accordingly, this Court deems the purported joinder ineffective as untimely. See Tarlton v. Exxon,
688 F.2d 973, 977 n.4 (5th Cir. 1982) (“[a] party may not belatedly join another litigant's motion ….”).
15

Relator uses the term “comingling” to refer to the placement of federal funds in an account containing non-federal
funds. See Doc. #276 at 4 (referring to “[m]ultiple instances of comingling of federal funds which clearly exceed
the amounts necessary to fund the administrative portion of the federal side of South Delta’s Operation.”); see also
Doc. #224 at 29 (stating that Jefferson “began comingling funds because she knew that in order to embezzle these
federal funds she had to get them into an account over which she had check-writing authority”). Plaintiff’s expert
used a similar nomenclature. See Doc. #281 at 6 (“The transfer of funds from accounts established to administer
HUD funds to accounts established to administer non-HUD funds represents a co-mingling of funds.”). “As
generally used, the term ‘commingling of funds’ refers to the use of one program’s funds to pay expenditures for,
and in excess of the funds available for, another program.” Doc. #245-5 at II-16. This Court will follow the
generally accepted nomenclature and refer to the placement of funds as “mixing” and the misuse of funds as
“commingling.”

19

Relator also brings retaliation claims against SDRHA and the individual defendants based on her
termination and Jefferson’s treatment of her prior to termination.
III
False Claims Act’s Public Disclosure Bar
The purpose of the False Claims Act (“the Act” or “FCA”) is “to provide for restitution to
the government of money taken from it by fraud ….” U.S. v. Hess, 317 U.S. 537, 551 (1943).
Generally, a private individual “may bring a civil action for a violation [of the Act] for the
person and for the United States Government.” 31 U.S.C. § 3730(b)(1). However, the Act
prohibits a private citizen from bringing an action based on public disclosure of fraud, unless that
citizen is an original source of the information. See U.S. ex rel. Reagan v. E. Tex. Med. Center
Reg. Healthcare Sys., 384 F.3d 168, 173–74 (5th Cir. 2004). The purpose of this “public
disclosure bar” is “to accommodate the primary goals of the … Act: (1) promoting private
citizen involvement in exposing fraud against the government and (2) preventing parasitic suits
by opportunistic late-comers who add nothing to the exposure of fraud.” Id. at 174 (internal
quotation marks omitted).
Defendants argue that Relator’s claims regarding the improper write-offs and the mixing
of federal funds are foreclosed by the Act’s public disclosure bar because the relevant
transactions were disclosed by Buchanan’s audits and Lloyd’s financial reports.16

Relator

responds that the reports and audits do not qualify as public disclosures.
A. Applicable Law
Until 2010, the Act provided:
(A) No court shall have jurisdiction over an action under this section based upon
the public disclosure of allegations or transactions in a criminal, civil, or
16

Although Defendants have filed separate motions for summary judgment, each motion raises this argument.

20

administrative hearing, in a congressional, administrative, or Government
Accounting Office report, hearing, audit, or investigation, or from the news
media, unless the action is brought by the Attorney General or the person bringing
the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who
has direct and independent knowledge of the information on which the allegations
are based and has voluntarily provided the information to the Government before
filing an action under this section which is based on the information.
31 U.S.C.A. § 3730(e)(4) (West 2009) (internal footnote omitted)
In 2010, the relevant provision was amended to read:
(A) The court shall dismiss an action or claim under this section, unless opposed
by the Government, if substantially the same allegations or transactions as alleged
in the action or claim were publicly disclosed-(i) in a Federal criminal, civil, or administrative hearing in which the
Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other
Federal report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the
action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who
either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily
disclosed to the Government the information on which allegations or transactions
in a claim are based, or (2) who has knowledge that is independent of and
materially adds to the publicly disclosed allegations or transactions, and who has
voluntarily provided the information to the Government before filing an action
under this section.
31 U.S.C.A. § 3730(e)(4) (West 2014).
Courts have universally held that “the 2010 amendments to § 3730(e)(4) are not
retroactive.” U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc, 764 F.3d 699, 706 (7th
Cir. 2014); see also U.S. ex rel. Boise v. Cephalon, Inc., No. 08-287, 2014 WL 5089717, at *6
(E.D. Pa. Oct. 9, 2014) (“[T]he Supreme Court has twice held that courts cannot apply the 2010
amendments to the public disclosure bar retroactively.”) (citing Graham Cnty. Soil & Water
Conservation Dist. v. U.S. ex rel. Kirk, 559 U.S. 280, 283 n.1 (2010), and Schindler Elevator
21

Corp. v. U.S. ex rel. Kirk, 131 S.Ct. 1885, 1889 n.1 (2011)). To this end, the Supreme Court has
held that “the amendments are not applicable to pending cases.” Schindler, 131 S.Ct. at 1889
n.1.
This action was filed on February 12, 2010, approximately a month before the effective
date of the amendments. See Doc. #1. Accordingly, the Court will apply the Act’s pre-amended
version of the public disclosure provisions.
B. Analysis
The burden rests on a relator “to prove that the allegations in his … claims were not
based upon prior, public disclosures – or, if they were, that he was an original source of the
information.” Bailey v. Shell W. E&P, Inc., 609 F.3d 710, 728 (5th Cir. 2010). Before the 2010
amendments, the Fifth Circuit distilled the public disclosure “into a three-part test, asking 1)
whether there has been a ‘public disclosure’ of allegations or transactions, 2) whether the qui tam
action is ‘based upon’ such publicly disclosed allegations, and 3) if so, whether the relator is the
‘original source’ of the information.” U.S. ex rel. Jamison v. McKesson Corp., 649 F.3d 322,
327 (5th Cir. 2011). In the context of a summary judgment motion, the “defendants must first
point to documents plausibly containing allegations or transactions on which [a] complaint is
based. Then, to survive summary judgment, [the relator] must produce evidence sufficient to
show that there is a genuine issue of material fact as to whether his action was based on those
public disclosures.” Id. As with all summary judgment motions, the court must view the
evidence in the light most favorable to the non-moving party. Id.
Here, Defendants have identified three categories of allegedly public disclosures: (1)
Lloyd’s reporting to HUD of the interprogram balances; (2) Buchanan’s annual audits; and (3)
the LFA. See Doc. #207 at 23; Doc. #246 at 17.

22

The public disclosure of allegations or transactions requirement contains three sub-parts:
“(1) public disclosure; (2) in a particular form specified in the statute; and (3) of allegations or
transactions.” U.S. ex rel. Colquitt v. Abbott Labs., 864 F. Supp. 2d 499, 517 (N.D. Tex. 2012).
As explained above, the burden at this stage of the inquiry rests upon a defendant to show that a
public disclosure of allegations or transactions is plausible. McKesson, 649 F.3d at 327; see also
Little v. Shell Exp. & Prod. Co., 690 F.3d 282, 292 (5th Cir. 2012) (citing McKesson, 649 F.3d at
327).
1.

Public Disclosure

“[I]n order to be publicly disclosed, the allegations or transactions upon which a qui tam
suit is based must have been made known to the public through some affirmative act of
disclosure. This requirement clearly contemplates that the information be in the public domain
in some capacity and the Government is not the equivalent of the public domain.” Kennard v.
Comstock Res., Inc., 363 F.3d 1039, 1043 (10th Cir. 2004) (emphasis in original); see also U.S.
ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 54 (1st Cir. 2009) (“For the purpose of the
FCA, public disclosure occurs when the essential elements exposing the particular transaction as
fraudulent find their way into the public domain.”).

Accordingly, neither disclosures to

government officials nor government reports themselves may be deemed public disclosures,
absent evidence such documents were released to the public at large. See U.S. v. Smith &
Nephew, Inc., 749 F. Supp. 2d 773, 783 (W.D. Tenn. 2010) (“Unlike the Seventh Circuit, courts
of appeals in other circuits have declined to hold that a defendant's disclosures to responsible
government officials qualify as public disclosures capable of triggering the public disclosure
bar.”) (collecting authorities); see also U.S. ex rel. Fine v. MK-Ferguson Co., 861 F. Supp. 1544,

23

1551 (D.N.M. 1994) (“The mere existence of a report, audit, or investigation containing
information pertaining to fraud does not, in and of itself, constitute public disclosure.”).
Here, there is no evidence that the LFA or Lloyd’s reports to HUD were ever placed in
the public domain. In the absence of such evidence, the public disclosure bar cannot apply
regarding them.17 See U.S. ex rel. Garibaldi v. Orleans Parish Sch. Bd., 21 F. Supp. 2d 607, 615
(E.D. La. 1998) (declining to apply public disclosure bar in absence of evidence that relevant
information was made public); U.S. ex rel McCurdy v. Gen. Dynamics Nat. Steel & Shipbuilding
(NASSCO), No. 07-cv-982, 2010 WL 3463675, at *2 (S.D. Cal. Aug. 31, 2010) (same).
In contrast, there is no dispute that the FY 2007 and FY 2008 Audits were submitted to
this Court during the Lowe litigation and that such documents appeared on the civil docket.
Because “[a]ny information disclosed through civil litigation and on file with the clerk’s office
should be considered a public disclosure of allegations in a civil hearing for purposes of section
3730(e)(4)(A),” this Court deems the two audits to have been publicly disclosed. Fed. Recovery
Servs., Inc. v. U.S., 72 F.3d 447, 450 (5th Cir. 1995).
2.

Form

The statutory prescribed forms of disclosure are: “in a criminal, civil, or administrative
hearing, in a congressional, administrative, or Government Accounting Office report, hearing,
audit, or investigation, or from the news media ….”

17

31 U.S.C. § 3730(e)(4)(A) (2009). As

Even if the LFA were a public document, it would not justify invocation of the jurisdictional bar. “Where a qui
tam relator adds new claims based on a public disclosure to his amended complaint, that relator is nonetheless an
original source under the FCA so long as the relator has averred in his original complaint the essential elements of
the previously unknown scheme upon which the new allegations were based, and the alleged participants of that
scheme.” U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc., 519 F. Supp. 2d 7, 11–12 (D.D.C. 2007). Here,
Relator’s original complaint (filed well before the LFA) alleged that SDRHA’s accountants concealed “the reporting
of [Jefferson’s] true financial dealings and other activities, as the executive director, with respect to the disposition
of South Delta’s State and Federal funds.” Doc. #1.

24

mentioned above, the disclosure of the Buchanan audits occurred in a civil hearing.
Accordingly, the second sub-part of the disclosure test has been met.
3.

Transactions or Allegations

“[T]he key for determining whether allegations or transactions have been publicly
disclosed is whether the critical elements of the fraudulent transaction were in the public
domain.” Abbott Labs., 864 F. Supp. 2d at 519 (internal quotation marks omitted). In this
regard, “[t]he critical elements have been sufficiently disclosed if the disclosures, taken together,
would enable the government to draw an inference of fraud.” Id. Put differently, “In order to
disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from
which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id.
(quoting U.S. ex rel. Springfield Terminal Ry. V. Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994))
(emphasis in original, internal citations and quotation marks omitted). Fraud, in turn, “requires
recognition of two elements: a misrepresented state of facts and a true state of facts.” U.S. ex rel.
Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 274 F. Supp. 2d 824, 842 (S.D. Tex. 2003)
(quoting Quinn, 14 F.3d at 655) (internal quotation marks omitted). “[I]f both of those material
facts have been previously disclosed, then enough information exists in the public domain to
expose the fraudulent transaction.” Id. (internal quotation marks omitted).
Relator contends, and this Court agrees, that the disclosures of the write-offs and mixing
carried an implicit statement that the actions were proper. Accordingly, for the transactions to
have been “disclosed” within the meaning of the public disclosure bar, the fact that the write-offs
and mixing of funds were improper must “plausibly” have been in the public domain. See
Jamison, 649 F.3d at 327.

25

First, as explained more fully below, the mixing of the funds was (and is) proper. It
therefore follows that the impropriety of the mixing could not have been in the public domain.
Accordingly, there is no jurisdictional bar to the consideration of the claims based on mixing.
Turning to the write-offs, Defendants have offered absolutely no argument or evidence
which would suggest that the impropriety of the transactions disclosed by the FY 2007 and FY
2008 audits was in the public domain. Indeed, the fact that the provision of the audits directly to
HUD did not lead to discovery of the wrongdoing suggests that the opposite is true. Drawing
every reasonable inference in favor of Relator, the Court concludes that Defendants have failed
to sustain their burden of showing that disclosure of the impropriety of the relevant write-offs
was plausible.

Accordingly, the public disclosure bar also does not prohibit this Court’s

consideration of the False Claims Act claims based on the allegedly improper write-offs. Having
reached this conclusion, “the Court does not need to address whether Relator was an ‘original
source.’” U.S. ex rel. Rose v. E. Tex. Med. Ctr. Reg. Healthcare Sys., No. 2:05-cv-216, 2007 WL
2350648, at *4 (E.D. Tex. Aug. 14, 2007); see also U.S. ex rel. Holmes v. Consumer Ins. Grp.
318 F.3d 1199, 1204 (10th Cir. 2003) (“Because we conclude that no ‘public disclosure’
occurred … we do not proceed to address the ‘original source’ question.”). Thus, that portion of
each Defendant’s motion for summary judgment seeking a favorable ruling based on the
application of the public disclosure bar will be denied.
IV
Claims Based on Mixing
“In determining whether liability attaches under the FCA, [the Fifth Circuit] asks: (1)
whether there was a false statement or fraudulent course of conduct; (2) made or carried out with
the requisite scienter; (3) that was material; and (4) that caused the government to pay out money
or to forfeit moneys due (i.e., that involved a claim).” Gonzalez v. Fresenius Med. Care N. Am.,
26

689 F.3d 470, 475 (5th Cir. 2012) (internal quotation marks omitted).

Throughout these

proceedings, Relator has advanced the mixing of federal and state funds as both a theory of
liability and a measure of damages. See Doc. #224 at 14; see also Doc. #276 at 4.
Defendants argue that the mixing of the funds may not support a claim for violation of
the False Claims Act because the practice is expressly allowed by HUD.18 In arguing that “the
transfer of properly obtained federal funds from [SDRHA’s] HUD account into its operating
account” qualifies as a false claim, Relator cites to a HUD requirement prohibiting the improper
use of HUD funds and requiring “separate accounting of HCV [funds] from public housing funds
to avoid co-mingling or improper use of program funds.” Doc. #276 at 7–8.
While there can be no doubt that “commingling” is impermissible, relevant HUD
regulations provide that a housing authority “does not ‘commingle’ funds by pooling funds or by
making expenditures for various programs from a single account used to pool funds.” Doc.
#245-5 at § II-16. The regulation clarifies that “[u]nless there is a specific legal requirement to
maintain separate bank accounts for a specific purpose, the prohibition against ‘commingling of
funds’ does not mean that the [housing authority] is required to physically segregate program
funds in multiple bank accounts.” Id.
Here, while Relator has cited to a HUD provision requiring separate accounting for HUD
and non-HUD funds, she has failed to cite to a specific legal requirement requiring SDRHA to
maintain its HUD and non-HUD funds in separate accounts. In the absence of such authority,
the Court concludes that, to the extent Relator seeks to impose False Claims Act liability on
Defendants for their role in mixing federal and state funds, such claims must fail because the
mixing of the funds is neither a false statement nor a fraudulent course of conduct.
18

All Defendants raise this argument in their respective summary judgment motions.

27

V
SDRHA’s Motion for Summary Judgment
With regard to Relator’s claims for violation of the False Claims Act, SDRHA identifies
“three groups” of false claims identified by Relator, as derived from “Relator’s Second
Supplemental Responses to South Delta’s second set of written discovery:” (1) “transfers of
properly obtained federal funds from South Delta’s HUD account to South Delta’s general
operating account, (2) payments made out of the general operating account to various contractors
and employees, and (3) the interfund balance write offs.” Doc. #246 at 13–14. SDRHA
contends that summary judgment as to each category of claim is proper because: (1) “[t]he
transfer of properly obtained federal funds from [SDRHA’s] HUD account into its general
operating account is not a false claim;” (2) “[p]ayments made by [SDHRA] to contractors and
employees out of the general operating account are not per se false claims;” (3) “[t]his Court
does not have subject matter jurisdiction over the interfund balance write off claims, but even if
it does, they are not false claims;” (4) “[e]ven if the above transactions are considered ‘false
claims,’ Relator must still prove that [SDHRA] knowingly submitted those false claims; (5)
“Relator cannot prove that any of her alleged false claims resulted in any damage to the
government;” and (6) Relator cannot prove that [SDHRA] conspired with anyone to submit a
false claim.” SDRHA also argues that Relator cannot state a claim under 18 U.S.C. § 1513(e),
the anti-retaliation statute under which Jefferson was convicted; and that summary judgment is
warranted against Relator on her retaliation claim brought under the False Claims Act. This
Court has already concluded that the transfer of HUD funds to SDRHA’s Business Account may
not be considered a false claim. Accordingly, the Court turns to SDRHA’s remaining arguments.

28

A. Payments by SDRHA to Contractors
31 U.S.C. § 3729(a)(1)(A) provides for liability against “any person who … knowingly
presents, or causes to be presented, a false or fraudulent claim for payment or approval.” This
provision “requires proof only of the claim’s falsity, not of its exact contents.” U.S. ex rel.
Grubbs v. Kanneganti, 565 F.3d 180, 189 (5th Cir. 2009).
As explained above, generally liability under the FCA attaches when: (1) there has been a
false statement or fraudulent course of conduct; (2) made or carried out with the requisite
scienter; (3) that was material; and (4) that involved a claim. Gonzalez, 689 F.3d at 475; see also
U.S. v. Bollinger Shipyards, Inc., __ F. 3d __, 2014 WL 7335007, at *4 (5th Cir. Dec. 23, 2014);
U.S. ex rel. Spicer v. Westbrook, 751 F.3d 354, 365 (5th Cir. 2014).
1.

False Statements or Fraudulent Course of Conduct

A “false or fraudulent” claim is any claim “aimed at extracting money the government
otherwise would not have paid.” U.S. ex rel. Kester v. Novartis Pharms. Corp., __ F. Supp. 2d
__, 2014 WL 4230386, at *3 (S.D.N.Y. Aug. 7, 2014) (quoting Mikes v. Straus, 274 F.3d 687
(2d Cir. 2001)). Generally, this provision encompasses two types of conduct – legal falsity and
factual falsity. Id.; see also U.S. ex rel. Bennett v. Medtronic, Inc., 747 F. Supp. 2d 745, 765
(S.D. Tex. 2010) (citing Mikes).
A claim is factually false “where the party submitting the claim supplies an incorrect
description of goods or services provided or a request for reimbursement for goods or services
never provided.” Kester, 2014 WL 4230386 at *4 (internal quotation marks omitted). A claim is
legally false “only when a party affirmatively and explicitly certifies compliance with a statute or
regulation and the certification is a condition to receiving the government benefit.” Bennett, 747

29

F. Supp. 2d 745 (citing U.S. ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d
889, 902 (5th Cir. 1997)).
“[A] plaintiff does not necessarily need the exact dollar amounts, billing numbers, or
dates to prove to a preponderance that fraudulent bills were actually submitted.” Grubbs, 565
F.3d at 190. Accordingly, if a relator “proves the existence of a billing scheme and offers
particular and reliable indicia that false bills were actually submitted as a result of the scheme –
such as dates that services were fraudulently provided or recorded, by whom, and evidence of the
department’s standard billing procedure – a reasonable jury could infer that more likely than not
the defendant presented a false bill to the government, this despite no evidence of the particular
contents of the misrepresentation.”19 Id. at 189–90.
Ample evidence, including her convictions for embezzlement,20 creates a genuine issue
of material fact as to whether Jefferson participated in two fraudulent billing schemes involving
factually false statements: (1) a scheme related to submission of demands for payment on a
fraudulent contract; and (2) a scheme related to submission of false invoices. These convictions
also serve as sufficiently reliable indicia that false statements were made in connection with each
scheme.21
In its reply, SDRHA argues that imputation of Jefferson’s conduct to SDRHA is
improper under the Fifth Circuit’s decision in U.S. v. Ridglea State Bank, which held that under
19

While Grubbs addressed False Claims Act pleading standards, the Court finds its discussion of inferences at trial
applicable to the summary judgment inquiry.
20

As explained in this Court’s December 31, 2014, Order, Jefferson’s convictions do not have preclusive effect
against parties not in privity with Jefferson at the time of her criminal trial. Relator has not identified any basis on
which this Court may find privity against any of the moving defendants. Accordingly, the convictions are not issue
preclusive here. However, the convictions may still be admissible as non-conclusive evidence “to prove any fact
essential to the judgment.” See Fed R. Evid. 803(22) (allowing for admission of “[e]vidence of a final judgment of
conviction”).
21

In its reply brief, SDRHA argues that Relator’s “attempt to prove the contents of the alleged false claims without
producing the actual claim violates the best evidence rule.” Doc. #324 at 10. Because falsity may be proven
without reference to the contents of a document, the Court overrules this objection.

30

the Act, “the knowledge or guilty intent of an agent not acting with a purpose to benefit his
employer, will not be imputed to the employer ….” 357 F.2d 495, 500 (5th Cir. 1966). Ridglea,
however, dealt with imputation of scienter, not conduct, to an employer. Unlike scienter, the
conduct of an employee is attributable to an employer so as long as the relevant acts were
“within the scope and in the course of his agency.” Hitchman Coal & Coke Co. v. Mitchell, 245
U.S. 229, 250 (1917); see also U.S. v. Saks, 964 F.2d 1514, 1525 (5th Cir. 1992) (citing
Hitchman). Alternatively, a master may be subject to liability for the acts of his servant “if the
act is committed outside the scope of employment [and the agent] was aided in accomplishing
the tort by the existence of the agency relationship.” U.S. ex rel. Vavra v. Kellog Brown & Root,
Inc., 727 F.3d 343, 349–50 (5th Cir. 2013).
In determining the scope of an agency relationship, a court should consider the following
factors: “(1) the time, place and purpose of the act; (2) its similarity to acts which the servant is
authorized to perform; (3) whether the act is commonly performed by such servants; (4) the
extent of departure from normal methods; (5) the previous relations between the parties; and (6)
whether the master would reasonably expect such an act would be performed.” Domar Ocean
Tranp., Ltd., Div. of Lee-Vac, Ltd. v. Indep. Reining Co., 783 F.3d 1185, 1191 (5th Cir. 1986)
Considering the foregoing factors, the Court concludes that, notwithstanding Jefferson’s
selfish purpose, there is a genuine issue of material fact as to whether Jefferson’s conduct fell
within the scope of her employment as Executive Director. In reaching this conclusion, the
Court draws the reasonable inferences that the conduct underlying the relevant schemes –
submitting invoices and approving and causing payments on contracts – was performed while
she was serving as Executive Director and was similar to conduct she was authorized to perform
in her day-to-day control of the operations.

See Domar Ocean, 783 F.2d at 1190–1191

31

(employee acted within the scope of employment when he stole cargo on his employer’s boat).
Accordingly, these fraudulent acts may be attributed to SDRHA and the first element of
Relator’s False Claims Act claim based on payments made out of SDRHA’s general operating
account has been met.
2. Scienter
Relator argues that the requisite scienter for fraud may be imputed from either Jefferson
or the members of the Board. However, as explained above, Ridglea held that, under the False
Claims Act, intent of an employee may not be attributed to an employer unless the employee
acted with the purpose of benefiting the employer. To this end, in Ridglea, the Fifth Circuit held
that an employee does not act for his employer’s benefit when he acts with a “purpose … to line
his own pockets and those of his accomplices [and so] earlier wrongdoings would remain
concealed.” 357 F.2d at 498.
In the nearly fifty years since Ridglea was decided the opinion has been called into
question by various courts. See U.S. ex rel. McCready v. Columbia/HCA Healthcare Corp., 251
F. Supp. 2d 114, 118 n.2 (D.D.C. 2003) (noting that 1986 “amendment to the FCA … obviated
the concerns about attributing the heightened level of intent of an employee to an employer that
had promoted the Ridglea decision”); see also U.S. v. O’Connell, 890 F.2d 563, 568 (1st Cir.
1989) (referring to Ridglea as “not persuasive”). Indeed, the Fifth Circuit recently called into
question the continued viability of the opinion. U.S. ex rel Vavra v. Kellog Brown & Root, Inc.,
727 F.3d 343, 351 (5th Cir. 2013) (“[S]ince Ridglea, the Supreme Court has provided additional
guidance in evaluating the elements required to assert vicarious liability under federal suit
provisions.”). However, in the same opinion, the Fifth Circuit called Ridglea, “our court’s
precedent in FCA cases.”

Id. at 352 n.12.

Thus, under binding Fifth Circuit precedent,

32

Jefferson’s scienter (or the scienter of any SDRHA accomplice) may not be imputed to SDRHA
unless she (or the accomplice) was acting for its benefit.
Here, even drawing every reasonable inference in favor of Relator, the Court cannot
conclude that any of the participants of the scheme acted with any purpose other than to line their
own pockets. Accordingly, neither Jefferson nor any SDRHA accomplice acted to benefit
SDRHA and their scienter may not be imputed to the entity.
Relator also argues that the requisite intent may be imputed from the Board’s lack of
oversight of Jefferson. Relator points to the deposition of Cordell, a former Board member, in
which Cordell testified that he could not recall the Board members undertaking any investigation
into Jefferson’s spending and that the Board members acted as Jefferson’s “rubber stamp” with
regard to her spending. Doc. #276 at 18.
The incorporation of recklessness into the False Claims Act’s definition of knowing, was
designed to ensure:
persons who ignore “red flags” that the information may not be accurate or those
persons who deliberately choose to remain ignorant of the process through which
their company handles a claim should be held liable under the Act. The
definition, therefore, enables the Government not only to effectively prosecute
those who have actual knowledge, but also those who play “ostrich”.
House Report 99-660, 99th Cong., 2d Sess., to accompany False Claims Act of 1986 (June 26,
1996). Under this standard, “if a plaintiff can prove that a [entity’s] structure prevented it from
learning facts that made its claims for payment false, then the plaintiff may establish that the
company acted in deliberate ignorance or reckless disregard of the truth of its claims.” U.S. v.
Sci. Applications Int’l Corp., 626 F.3d 1257, 1274–75 (D.C. Cir. 2010).
In light of Cordell’s testimony, the Court concludes that there is a genuine issue of
material fact as to whether the Board members, who bore the responsibility for overseeing the

33

use of federal funds, deliberately chose to remain ignorant as to Jefferson’s spending. This
scienter, which is sufficient for liability under the Act, will be imputed to SDRHA.
3. Materiality
For a false or fraudulent statement to be material under the False Claims Act, it must
“have the potential to influence the government’s decisions.” Longhi, F.3d at 470. As explained
above, during the liability inquiry, a court looks to the falsity, not the contents, of a fraudulent
statement.
As explained in more detail in this Court’s December 31 Order, Doc. #101, Jefferson’s
conviction required that the jury conclude that federal funds were paid as a result of the relevant
schemes. Under these circumstances, the Court finds that there is a genuine issue of material fact
as to whether the falsity of the representations had the potential to influence the Government’s
decisions.
4.

Existence of a Claim

The final element of Relator’s false invoice cause of action requires that the fraudulent
statement or conduct involved a claim. Gonzalez, 689 F.3d at 475. The Act defines a “claim,” in
relevant part, as:
any request or remand … for money or property … that … is made to a
contractor, grantee, or other recipient, if the money or property is to be spent or
used on the Government’s behalf or to advance a Government program or
interest, and if the United States Government … provides or has provided any
portion of the money or property requested or demanded…
31 U.S.C. § 3729(b)(2). As a general matter, “courts have found that the Government ‘provides
any portion’ of the money requested when the Government has given even a drop of treasury
money to the defrauded entity.” U.S. ex rel. Shupe v. Cisco Sys., Inc., 759 F.3d 379, 383 (5th
Cir. 2014) (collecting cases).

34

Under section (a)(1) of the False Claims Act,22 a “plaintiff must prove presentment [of a
false claim] by a preponderance of the evidence.” Grubbs, 565 F.3d at 189. SDRHA argues that
“the mere fact that [SDRHA] paid someone out of its general operating account does not give
rise to FCA liability for [SDHRA]. Instead, the FCA attaches liability to the person that
submitted the false claim.” Doc. #246 at 16. Moreover, SDRHA contends that the Act “requires
Relator to prove every material element for each and every alleged false claim at issue.”
In her response, Relator focuses on the facts underlying Jefferson’s conviction – that is,
that Jefferson was convicted for submitting false invoices – and Jefferson’s deposition invocation
of the Fifth Amendment with respect to the veracity of various specific invoices. Doc. #276 at
12. Relator also argues that SDRHA’s argument “ignores the fact that HUD found as a fact that
SDRHA’s ‘elimination’ of the amounts owed to HUD constituted wrongful misuses of funds
….” Id.
As an initial matter, the Court agrees with SDRHA’s general statement that mere
payment, standing alone, does not prove the existence of a false statement or fraudulent conduct
as required for liability under the Act. Of course, Relator does not seek to prove fraud based on
the payments alone.
a.

Count Four

As to the conduct in Count Four, the Superseding Indictment offered three classes of
fraudulent transactions23 which it claimed to be “all in violation of Title 18, United States Code,
Section 641.” Criminal Case, at Doc. #47-1, at 5. As framed, it is impossible for the Court to

22

Although not specifically identified by Relator, it appears Relator brings the invoice payment claims under 31
U.S.C. § 3729(a)(1)(A).
23

The Superseding Indictment identified: (1) personal purchases at Lowe’s; (2) installation of a shower by
Greenville Glass, and (3) construction work performed by Johnson Brothers Construction. Criminal Case, Doc.
#47-1 at 5.

35

conclude which allegations were essential to the conviction. However, as explained in this
Court’s December 31 Order, the conviction under Count Four required a finding that Jefferson
submitted at least one false invoice and that the invoice resulted in the payment of federal funds
by SDRHA. See Doc. #342 at 7–8. Furthermore, the evidentiary record shows that SDRHA’s
HUD funds – the only federal funds identified by the record – are used to advance a Government
program or interest. Based on these findings, the Court concludes that there is a genuine issue of
material fact as to whether the conduct described in Count Four involved the submission of a
claim, as that term is defined in the Act.24 See generally U.S. ex rel. Branch Consultants, L.L.C.
v. Allstate Ins. Co., 668 F. Supp. 2d 780, 808 (E.D. La. 2009) (“that the government allegedly
made payment … necessarily presupposes the submission of a claim for payment”).
In seeking to establish additional liability under the Count Four scheme, Relator, without
citation or reference to specific transactions, argues that this requirement may be satisfied by
Jefferson’s repeated refusals to testify during deposition when asked about individual, specific
invoices and transactions ….” Doc. #276 at 12.
Jefferson’s deposition is approximately 220 pages long, with the bulk of the pages
representing questions about specific transactions, many of which fall well outside the scheme
suggested by Count Four. It “is counsel’s responsibility to point the court to relevant evidence
within a deposition transcript.” Curl v. Compusa, Inc., No. 3:04-cv-529, 2005 WL 1595663, at
*5 n.5 (S.D. Miss. July 5, 2005); see also Magnum Towing & Recovery v. City of Toledo, 287
Fed. App’x 442, 449 (6th Cir. 2008) (“It is not the district court’s … duty to search through the
record to develop a party’s claims; the litigant must direct the court to evidence in support of its

24

The Court notes that, insofar as Relator has not proven the actual contents of the claim, any recovery for this
violation will likely be limited to the Act’s civil penalty. See Grubbs, 565 F.3d at 190 (“exact dollar amounts
fraudulently billed … will in most cases be necessary to sufficiently prove actual damages above the Act’s civil
penalty”).

36

arguments before the Court.”). The Court declines to sift through Jefferson’s deposition to find
potentially relevant transactions which may support SDRHA’s liability. Accordingly, at most,
the record reveals that Relator has created a genuine issue of material fact as to the submission of
one false claim under the invoice scheme described in Count Four.
b. Count One
Count One of the Superseding Indictment charged that Jefferson caused SDRHA to issue
checks pursuant to a fraudulent contract. To this end, Count One identified the dates and
amounts of the checks and charged the demands and subsequent payment of federal funds as a
single course of conduct.
The Act includes “demands … under a contract” as a type of claim. See 31 U.S.C. §
3729(b)(2)(A). The Court concludes that Jefferson’s conviction for causing the creation of the
checks creates a genuine issue of material fact as to whether she made a false demand for
payment under the fraudulent contract.

Likewise, for the reasons underlying this Court’s

discussion of Count Four, the Court further concludes that there is a genuine issue of material
fact as to whether these demands under the contract were for funds provided by the Government
for a Government purpose.

Accordingly, whether the conduct described in Count One

(fraudulently causing the drafting of two checks) involved a “claim” is an issue reserved for trial.
c.

Summary

In sum, the Court concurs with SDRHA’s contention that “the FCA attaches liability to
the person or entity that submitted the false claim.” Doc. #246 at 16. However, the conduct
underlying Relator’s claim is not the payment itself, but rather Jefferson’s conduct, in her
capacity as Executive Director of SDRHA, having caused the issuance of two fraudulent checks
(as to her conviction under Count One) and the submission of false invoices (as to her conviction

37

under Court Four). Both of these acts are clearly demands for payment from SDRHA, which
when paid upon, equate to a claim against a Government grantee receiving federal funds for a
governmental purpose.
5.

Damages

Any person found liable under the Act “is liable to the United States Government for a
civil penalty of not less than $5,000 and not more than $10,000 … plus 3 times the amount of
damages which the Government sustains because of the act of that person.” 31 U.S.C. §
1329(1). Damages under the Act “are limited to the amount that was paid out by reason of the
false claim.” Longhi., 575 F.3d at 73. In ascertaining the proper amount of damages, “the
Supreme Court will consider any reasonable method of calculating damages which will fairly
reimburse the government for its losses and expenses, without creating a windfall for the
government.” U.S. ex rel. Roby v. Boeing Co., 79 F. Supp. 2d 877, 885 (S.D. Ohio 1999) (citing
Daff v. United States, 31 Fed. Cl. 682, 695 (1994). However, before the government may
recover treble damages, it must demonstrate the element of causation between the false
statements and the loss.” Longhi, 575 F.3d at 473.
With regard to damages, SDHRA argues in full that:
Here, all of the alleged false claims occurred after South Delta had properly
received the federal funds from HUD. Relator’s claims all relate to how money
was used after receipt. As such, Relator cannot prove that the Government
sustained any loss as a result of any of the alleged false claims.
Doc. #246 at 21.

To the extent SDRHA argues that liability is foreclosed by SDRHA’s

possession of the relevant funds, this argument is summarily rejected, because the FCA expressly
allows for liability in cases of fraud against grantees which receive federal funds.
Likewise, the Court rejects SDRHA’s argument that its possession of government funds
inoculated HUD from all loss. This novel theory rests on the erroneous assumption that HUD
38

lost all interest in the money transferred to SDRHA. To the contrary, the record shows that HUD
maintained the right to re-possess all HUD funds in the event of non-compliance with the ACC.
Thus, to the extent Jefferson’s conduct resulted in the payment of HUD funds, it is clear that
HUD suffered a loss.25
As explained in this Court’s previous order, the payment of federal funds was necessary
to Jefferson’s convictions under Count One and Count Four. SDRHA has done nothing to rebut
this evidence. Accordingly, the Court concludes there is a genuine issue of material fact as to
whether the Government suffered damages as a result of the false invoice schemes.
6.

Summary

SDRHA’s motion for summary judgment will be granted in part and denied in part on the
False Claims Act claims arising from Jefferson’s allegedly having caused payments to be made
on a false contract and false invoices. The motion will be denied as to whether Jefferson caused
the issuance of the two checks described in Count One of Jefferson’s superseding indictment and
as to whether she submitted a single factually false invoice. The motion will be granted in all
other respects.
B. Interfund Write-Offs
SDRHA argues that the Court lacks jurisdiction over the write-off claims and that the
write-offs are not “false claims” within the meaning of the False Claims Act. This Court has
already rejected this argument of lack of jurisdiction over the write-off claims. Accordingly, the
question becomes whether the write-offs may be considered false claims.
SDRHA argues that “HUD considered the interfund write offs to be a violation of the
ACC and not a FCA violation.” Doc. #246 at 20. SDRHA also argues that “[t]he write off is not
25

For this reason, the Court rejects SDRHA’s argument that Relator “is attempting to hold South Delta liable to
itself.” Doc. #325 at 5. Under the theory of Relator’s case, SDRHA would not be liable to itself, but to the
Government for SDRHA’s role in causing the loss of funds in which the Government maintained an interest.

39

a ‘request or demand for money or property’ [and] did not result in HUD paying money to
[SDRHA] that it did not owe.” Id. at 19. But, SDRHA has cited no authority, and this Court
has been unable to find any, which would support the proposition that a breach of a contract
cannot also support a False Claims Act action. To the contrary, courts have held that “[e]ven
though an express contract exists between the parties, the United States may plead, in the
alternative … breach of contract … along with its claims under the False Claims Act.” U.S. v.
United Techs. Corp., No. C-3-99-093, 2000 WL 988238, at *3 (S.D. Ohio Mar. 20, 2000) (citing
U.S. ex rel. Roby v. Boeing Co., 184 F.R.D. 107, 111 (S.D. Ohio 1998)). As to the SDRHA’s
second argument, Relator contends that the write-offs violated 31 U.S.C. § 3729(a)(1)(D) and 31
U.S.C. § 3729(a)(1)(G). Doc. #276 at 11.
First, Relator does not explain how or why the relevant write-offs come under the ambit
of subsection (D). This failure to develop the relevant argument effectively represents a waiver
of the point.

See U.S. v. Dominguez-Chavez, 300 Fed. App’x 312, 313 (5th Cir. 2008)

(“Dominguez has failed to adequately raise or develop his due process and equal protection
arguments in his appellate brief, and, thus, they are waived.”); see also El-Moussa v. Holder, 569
F.3d 250, 257 (6th Cir. 2009) (“Issues adverted to in a perfunctory manner, unaccompanied by
some effort at developed argumentation, are deemed waived. It is not sufficient for a party to
mention a possible argument in [a] skeletal way, leaving the court to put flesh on its bones.”).
Second, 31 U.S.C. § 3729(a)(1)(G) provides for liability against any person who:
knowingly makes, uses, or causes to be made or used, a false record or statement
material to an obligation to pay or transmit money or property to the Government,
or knowingly conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the Government.
Relator argues that “[t]he language contained in subsection G quoted above also applies to the
acts of SDRHA in preparing the year-end audits for the years in which money that was clearly
40

owed to the government was simply ‘eliminated.’ Each instance in which the money was simply
written off, constituted a false claim under subsection G of the Act.” Doc. #276 at 11.
A claim brought under the Act’s subsection (G), also known as the “reverse” claims
section, has four elements:
(1) that the defendant made, used, or caused to be used a record or statement to
conceal, avoid, or decrease an obligation to the United States; (2) that the
statement or record was false; (3) that the defendant knew that the statement or
record was false; and (4) that the United States suffered damages as a result.
Reagan, 274 F. Supp. 2d at 840 (quoting Wilkins ex rel. U.S. v. Ohio, 885 F. Supp. 1055, 1059
(S.D. Ohio 1995)).
1. Record of Statement to Avoid an Obligation to the United States
Following a 1999 amendment to the Act, an obligation is defined as “an established duty,
whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensorlicensee relationship, from a fee-based or similar relationship, from statute or regulation, or from
the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). Prior to this amendment, courts
generally applied a stricter definition of “obligation” by holding that, under the reverse false
claims provision, an obligation arose when a defendant “had a present duty to pay money … that
was created by a statute, regulation, contract, judgment, or acknowledgment of indebtedness.”
Am. Textile Mfrs. Inst., Inc. v. The Limited, Inc., 190 F.3d 729, 735 (6th Cir. 1999); see also U.S.
v. Q Intern. Courier, Inc., 131 F.3d 770, 774 (8th Cir. 1997) (“[A]n obligation under the meaning
of the False Claims Act, must be for a fixed sum that is immediately due.”).
As explained above, at the end of each fiscal year, SDRHA was obligated to credit to an
administrative fee reserve the amount by “which program administrative fees paid by HUD for a
PHA fiscal year exceed the PHA program administrative expenses for the fiscal year [plus
i]nterest earned on the administrative fee reserve.” 24 C.F.R. § 982.155. This requirement
41

constitutes a present and fixed obligation to the United States under either formulation of the
obligation inquiry. See U.S. ex rel. Howard v. Urban Inv. Trust, Inc., No. 03-c-7668, 2007 WL
2893031, at *2 (N.D. Ill. Sep. 28, 2007) (relator stated claim under reverse false claims provision
based on defendant’s obligation “to return funds” to housing authority account).
It is undisputed that the audits submitted to HUD stated that no monies were owed to
Government accounts. Insofar as the statements were contained in financial reporting documents
intended to ensure the proper use of HUD funds, the Court concludes that there is a genuine issue
of material fact as to whether the statements resulted in SDRHA avoiding its obligation to credit
the funds to its administrative reserve.
2.

Falsity

Based on the LFA’s conclusion that the write-offs were inappropriate, the Court finds
that there is a genuine issue of material fact as to the falsity of the audits’ representations that no
money was owed to government accounts.
3.

Scienter

Relator argues that the requisite scienter to establish liability for the write-offs exists
because “the testimony of Lloyd reflects that he and Buchanan knew that Jefferson was of the
opinion that, ‘Non-HUD NEVER owes HUD money’ [and] that he knew that she was incorrect
in that but he agreed to go along with the write-off anyway.” Doc. #276 at 18–19.
With regard to accounting practices, a defendant “must manifest, at a minimum, an
extreme version of ordinary negligence in the submission of false claims.” U.S. v. Mack, No. H98-1488, 2000 WL 33993336, at *5 (S.D. Tex. May 16, 2000) (citing U.S. v. Krizek, 111 F.3d
934, 942 (D.C. Cir. 1997)) (internal quotation marks omitted). The statute does not excuse
defendants who claim the defense of confusion over billing practices or records, but also does

42

not punish those who make innocent mistakes.” Id. at *5 (citing UMC Elecs. Co. v. United
States, 43 Fed. Cl. 776, 793 (Fed. Cl. 1999)).
In the present case, the record reflects that Lloyd, SDRHA’s fee accountant, informed
Buchanan that he disagreed with the practice of inter-fund write-offs, that write-offs were not a
“common practice” and that it is “proper” to pay off the balances. Doc. #206-2 at 82–83. Under
these circumstances, the Court concludes that there is a genuine issue of material fact as to
whether Buchanan, acting on SDRHA’s behalf, acted recklessly when he submitted the audits to
HUD. For the same reasons, the Court concludes that there is a genuine issue of material fact as
to whether Jefferson acted with the necessary scietner.26
4.

Damages

As discussed above, SDRHA’s sole argument with regard to damages relies on the
erroneous assumption that the Government cannot be damaged by misappropriation of funds it
pays to a grantee. This argument has already been rejected.
“Damages for a reverse false claim consist of the difference between what the defendant
should have paid the government and what the defendant actually paid the government.” U.S. v.
Bourseau, 531 F.3d 1159, 1172 (9th Cir. 2008). There is no dispute that SDRHA failed to credit
the excess administrative funds to an administrative reserve as required by the ACC and relevant
regulations. Accordingly, there is a genuine issue of material fact as to the issue of damages.

26

Drawing every reasonable inference in favor of Relator, the Court cannot conclude that Jefferson was not acting
for SDRHA’s benefit when she caused the misstatements in the audits, which had the effect of increasing the
balance of SDRHA’s general operating account. Accordingly, Ridglea’s rule against imputing scienter does not
apply to this claim.

43

5.

Summary

Insofar as Relator has established a genuine issue of material fact as to each element of a
reverse false claim with regard to the write-offs, SDRHA’s motion for summary judgment as to
the write-offs will be denied.
C. Conspiracy
The False Claims Act provides for liability against any person who “conspires to commit
a violation” of any of its subsections. 31 U.S.C. § 3729(a)(1)(C). “To prove a conspiracy [a
relator] must be able to show (1) the existence of an unlawful agreement between defendants to
get a false or fraudulent claim allowed or paid by HUD and (2) at least one act performed in
furtherance of that agreement.” U.S. ex rel. Farmer v. City of Houston, 523 F.3d 333, 343 (5th
Cir. 2008). “As a part of that showing, [the relator] must demonstrate that defendants shared a
specific intent to defraud the Government.” Id. (internal punctuation omitted).
SDRHA seeks summary judgment as to Relator’s conspiracy claim on grounds that: (1)
“Relator cannot prove that South Delta defrauded the Government” and (2) the intra-corporate
conspiracy doctrine bars SDRHA agents and employees from conspiring between themselves.
Doc. #246 at 22.
As to the first argument, this Court has found a genuine issue of material fact as to the
existence of a violation of the False Claims Act. However, even without an underlying violation,
SDRHA’s first argument would still be inappropriate because, a claim for conspiracy does not
require an actual violation of the act – only an agreement to violate the FCA and an act in
furtherance of the agreement. See Farmer, 523 F.3d at 343.
“It is a general principle in conspiracy law that a conspiracy requires two or more persons
or entities.” Collins v. Bauer, No. 3:11-CV-00887-B, 2012 WL 443010, at *7 (N.D. Tex. Jan.

44

23, 2012), report and recommendation adopted, No. 3:11-CV-00887-B, 2012 WL 444014 (N.D.
Tex. Feb. 10, 2012) (citing Nelson Radio & Supply Co. v. Motorola, Inc., 200 F.2d 911, 914, (5th
Cir. 1953). Pursuant to this rule, a “corporation cannot conspire with itself any more than a
private individual can, and it is the general rule that the acts of the agent are the acts of the
corporation.” Hillard v. Gerguson, 30 F.3d 649, 653 (5th Cir. 1994). However, “[a]n exception
to the rule exists in the rare instance in which employees have an independent personal stake in
achieving the object of the conspiracy.” H&B Equip. Co., Inc. v. Int’l Harvester Co., 577 F.2d
239, 244 (5th Cir. 1978).
Although unclear, it appears that Relator alleges a conspiracy between Jefferson and
Johnson regarding the submission of the false invoices; and a conspiracy between the “separate
legal entities” of Buchanan, Lloyd, and Jefferson, as to the write-offs. Doc. #276 at 21.
First, as explained above, under binding Fifth Circuit precedent, a relator in a False
Claims Act action may not impute an employee’s intent or knowledge to an employer when that
employee is not acting to benefit the employer. Ridglea, 357 F.2d at 500. Because Jefferson
was not acting for the benefit of SDRHA when she submitted the false invoices, the specific
intent necessary to support conspiracy liability may not be imputed to SDRHA. Id.
Second, Relator alleges a conspiracy between Jefferson, Lloyd (as SDRHA’s fee
accountant), and Buchanan (as SDRHA’s auditor), surrounding the submission of financial
information to HUD. There can be no serious dispute that Buchanan and Lloyd acted as
SDHRA’s agents when they submitted financial information to HUD.27 See Restatement (Third)
of Agency § 1.01 (2006) (“Agency is the fiduciary relationship that arises when one person (a
‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the
27

Relator seems to acknowledge Buchanan and Lloyd’s status as agents of SDRHA by seeking to impute their
scienter to SDRHA. Doc. #276 at 18–19.

45

principal's behalf and subject to the principal's control, and the agent manifests assent or
otherwise consents so to act.”). However, even if the independent benefit exception to the intracorporate conspiracy allowed for a conspiracy between Buchanan or Lloyd (as SDRHA’s agents)
and Jefferson (who arguably had an independent personal stake in covering up her
embezzlement), Relator has pointed to no evidence which would support a shared specific intent
to defraud the Government on the part of either Buchanan or Lloyd. Thus, summary judgment
will be granted in favor of SDRHA on the conspiracy claim.
D. Retaliation
SDHRA has moved for summary judgment on Relator’s retaliation claims brought under
the Act and under 18 U.S.C. § 1513(e) of the Criminal Code. Relator concedes that summary
judgment is appropriate as to the claim brought under § 1513(e). Doc. #276 at 22.
Under the False Claims Act’s anti-retaliation provision:
Any employee, contractor, or agent shall be entitled to all relief necessary to make
that employee, contractor, or agent whole, if that employee, contractor, or agent is
discharged, demoted, suspended, threatened, harassed, or in any other manner
discriminated against in the terms and conditions of employment because of
lawful acts done by the employee, contractor, agent or associated others in
furtherance of an action under this section or other efforts to stop 1 or more
violations of this subchapter.
31 U.S.C. § 3730(h)(1). There are three elements to a claim of retaliation under the Act: “(1) the
employee engaged in activity protected under the statute; (2) the employer knew that the
employee engaged in protected activity; and (3) the employer discriminated against the employee
because she engaged in protected activity.” U.S. ex rel George v. Boston Scientific Corp., 864
F.Supp.2d 597, 604 (S.D. Tex. 2012) (collecting cases) (internal quotation marks omitted).
Although once again less than clear, it appears that Relator argues that SDRHA retaliated against
her by: (1) terminating her employment; and (2) creating a hostile work environment. Doc. #276

46

at 32. SDRHA argues that these claims fail each element of a False Claims Act retaliation claim.
Doc. #246 at 24–28.
1.

Protected Activity

“A protected activity is one motivated by a concern regarding fraud against the
government.” McCollum v. Jacobs Eng’g Group, Inc., 992 F. Supp. 2d 680, 688 (S.D. Miss.
2014) (quoting Thomas v. ITT Educ. Servs., Inc., 517 Fed. App’x 259, 262 (5th Cir. 2013)). “To
engage in protected activity under the Act, an employee need not have filed a lawsuit or have
developed a winning claim at the time of the alleged retaliation. Instead, an employee’s actions
must be aimed at matters that reasonably could lead to a viable claim under the Act.” Boston
Scientific, 864 F.Supp.2d at 604–05 (internal citations omitted) (collecting cases). Stated another
way, the actions must relate to “matters demonstrating a ‘distinct possibility’ of False Claims Act
litigation.” Id. at 605. This standard is satisfied when “(1) the employee in good faith believes,
and (2) a reasonable employee in the same or similar circumstances might believe, that the
employer is committing fraud against the government.” Id.
SDRHA, citing to Dookeran v. Mercy Hospital of Pittsburgh, 281 F.3d 105 (3d Cir.
2002), argues that Relator could not have engaged in protected activity because neither the
elimination of interfund balances nor the mixing of funds may be considered “false claims”
under the FCA. Doc. #246 at 25. In Dookeran, the Third Circuit held that because the activities
a relator complained of were not claims within the meaning of the Act, “there was no possibility
that [the relator] could have filed a viable FCA action. Thus, his activity could not have been
taken in furtherance of an FCA action, as is required to constitute ‘protected activity ….’” 281
F.3d at 109.

47

Here, evidence shows that Relator served as an FBI informant for an investigation into,
among other things, a false invoice/billing scheme perpetuated by the Executive Director of
SDRHA against SDRHA. It is beyond dispute that three of SDRHA’s four operating accounts,
including its “primary” operating account, contained federal funds. Drawing every reasonable
inference in favor of Relator, the Court concludes that there is a genuine issue of material fact as
to whether knowledge of misappropriation of SDRHA funds created a reasonable belief of fraud
against the Government. Shupe, 759 F.3d at 383 (recognizing that False Claims Act liability
attaches where “Government has given even a drop of treasury money to the defrauded entity”).
Accordingly, Relator’s participation in the FBI investigation, which was aimed at stopping the
misappropriation of such funds, falls squarely within the Fifth Circuit’s definition of a protected
activity as an act “motivated by a concern regarding fraud against the government.” 28 Thomas,
517 Fed. App’x at 262.
2.

Knowledge

The “kind of knowledge the defendant must have mirrors the kind of activity in which the
plaintiff must be engaged. What defendant must know is that Plaintiff is engaged in protected
activity as defined [in the first element] – that is, in activity that reasonably could lead to a False
Claims Act case.” U.S. ex rel. Yesudian v. Howard Univ. 153 F.3d 731, 742 (D.C. Cir. 1998).
At the second stage, it is sufficient to show knowledge of a supervisor. See U.S. v. Columbia

28

In reaching this conclusion, the Court rejects SDRHA’s argument that “Relator’s actions cannot be considered
protected activity under the FCA because of one undeniable fact: South Delta committed no fraud.” Doc. #246 at
24 (emphasis in original). First, as explained above, there is a genuine issue of material fact as to whether SDRHA
may be held liable for the relevant fraud. Even if this were not true, SDRHA has cited no authority, and the Court
has been unable to find any, which would support the proposition that an employer can retaliate against an employee
for that employee’s participation in investigation into fraud against the government so long as the employer would
not be liable for the relevant fraud. It is undisputed that Relator participated in an FBI investigation into fraud
involving SDRHA’s federal funds. This activity is protected under the Act.

48

Healthcare Corp., No. H-98-861, 2005 WL 1924187, at *17 (S.D. Tex. Aug. 10, 2005) (citing
Yesudian).
Relator argues that SDRHA obtained the requisite knowledge from two sources: (1) the
June 21, 2010, letter from Norman to Kitchens; and (2) a series of FBI interviews with Board
members during which the Board members were told of the possible misappropriation of funds.
Doc. #276 at 26–27. SDRHA does not deny that it had knowledge of Relator’s role in the
investigation of misappropriation of SDRHA funds. Rather, SDRHA contends that notice of
“‘mishandling and misappropriating South Delta Region [sic] Housing Authority funds,’ does not
satisfy the notice requirement for FCA retaliation.” Doc. #246 at 28 (emphasis in original). The
Court disagrees because, as explained above, there is a genuine issue of material fact as to
whether knowledge of possible misappropriation of SDRHA funds created a reasonable belief of
fraud against the Government.
3.

Causation

Plaintiffs bringing retaliation claims under the FCA must establish that retaliation for
plaintiffs’ protected activity was the but-for cause of the adverse employment action. U.S. ex rel.
Schweizer v. Ocѐ N. Am., Inc., 956 F. Supp. 2d 1, 13–14 (D.D.C. 2013). In seeking to establish
causation, Relator relies on “evidence of direct retaliation.” Doc. #276 at 23.
a.

Termination

In seeking to establish causation as to her termination, Relator cites two pieces of
evidence: (1) Jefferson’s conviction under Count Seven of the superseding indictment, which
charged Jefferson with, among other things “using the board of directors [of] SDRHA to suspend
and then terminate [Relator’s] employment;” and (2) Cordell’s testimony that the Board acted as
a rubber stamp with regard to Jefferson’s spending. Doc. #276 at 29–30.

49

First, as explained in this Court’s previous order, Jefferson’s conviction is not issue
preclusive as to claims brought against SDRHA. Furthermore, to the extent Count Seven
charged an array of retaliatory conduct in addition to the termination, the Court cannot deem the
conviction of evidentiary value as to the motivation for Relator’s termination. Finally, Cordell’s
testimony regarding the Board’s treatment of Jefferson’s spending has no bearing on Relator’s
termination. In short, Relator has failed to create a genuine issue of material fact as to whether
her protected activity was a but-for cause of her termination.
b. Harassment
“The ‘whistleblower’ provision of the False Claims Act prevents the harassment … of
employees who assist in or bring qui tam actions.” Robertson v. Bell Helicopter Textron, Inc.,
32 F.3d 948, 950 (5th Cir. 1994). Relator has introduced evidence showing that Jefferson: (1)
removed Relator’s job responsibilities and duties; (2) barred Relator from entering the accounts
receivable room; (3) assigned Relator impossible tasks; (4) lied about

Relator’s

accomplishments; and (5) demoted Relator. Doc. #295 at 2–3; Doc. #294 at 2–3; Doc. #245-18
at 91.
While Jefferson’s conviction cannot create a genuine issue of material fact as to the cause
of her termination, the Court deems it direct evidence that Jefferson possessed a retaliatory
animus with regard to Relator’s participation in the FBI investigation. Based on this retaliatory
animus, the Court concludes there is a genuine issue of material fact as to whether the
harassment of Relator by Jefferson was caused by Relator’s participation in the FBI
investigation. See Rispoli v. King Cnty., No. 2:04-cv-1500, 2005 WL 2898137, at *3 n.3 (W.D.
Wash. Nov. 3, 2005) (“A reasonable jury could infer causation from plaintiff’s direct evidence of

50

retaliatory animus on the part of one or more of the persons responsible for the adverse
employment actions.”).
Without citation, SDRHA argues “South Delta would only be vicariously liable for acts
that were taken within the course and scope of Jefferson’s employment …” Doc. #325 at 17.
However, an employer may be liable for a supervisor’s harassing conduct where the conduct is
“sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an
abusive working environment.” Harvill v. Westward Comms., L.L.C., 433 F.3d 428, 434 (5th
Cir. 2005) (internal punctuation omitted). In considering whether conduct is severe or pervasive,
a court should consider the “totality of the circumstances, including the frequency of the
discriminatory conduct; its severity; wither it is physically threatening or humiliating … and
whether it unreasonably interferes with an employee’s work performance.”

Id. (internal

quotation marks omitted).
Jefferson’s conduct, which included barring Relator (who worked in accounting) from the
accounts receivable room, was aimed primarily at disrupting Relator’s ability to work.
Accordingly, the Court concludes there is a genuine issue of material fact as to whether the
harassment was sufficiently severe or pervasive to warrant the imposition of vicarious liability
against SDRHA. Thus, summary judgment on the retaliatory harassment claim will be denied.
4.

Summary

SDRHA’s motion for summary judgment on the retaliation claims will be granted in part
and denied in part. The motion will be granted with respect to the retaliation claim brought
under 18 U.S.C. § 1513(e) and to the retaliatory termination claim brought under the False
Claims Act. The motion will be denied as to the claim for retaliatory harassment brought under
31 U.S.C. § 3730.

51

VI
Lloyd’s Motions
Lloyd has filed a motion for summary judgment, a motion for attorney’s fees, and a
motion to strike.
A. Motion for Summary Judgment and Motion for Attorney’s Fees
Lloyd’s motion for summary judgment raised two arguments: (1) that the Court lacks
jurisdiction over the commingling and write-off claims; and (2) the commingling claim fails
because the mixing of federal and state funds is proper. The Court has addressed each of these
arguments. Accordingly, Lloyd’s motion will be denied as to jurisdiction and granted as to the
merits of the commingling claim. Having reached this conclusion, the Court will deny Lloyd’s
motion for attorney’s fees.
B. Motion to Strike
In support of her claims, Relator has submitted a Supplemental Report of Edward W.
Sauls.29 Doc. #244-2. In his report, Sauls, a Certified Public Accountant with more than forty
years of experience, provides opinions regarding, among other things, “the transfers of funds by
SDRHA from HUD … accounts to non-HUD accounts.” Id. at 2. With regard to such, Sauls
“summarized” a report conducted by Kathy Howell of the HUD OIG. Doc. #244-2 at 6. From
this summary, Sauls aggregated the “funds transferred from accounts established to administer
HUD funds to other accounts ….” Id. Sauls then opined that “[t]he co-mingling of Federal and
non-Federal funds perpetuates an environment which allows for systemic fraud.” Id. at 7. Lloyd
has moved to strike the Sauls opinion regarding the interfund transfers as unreliable expert
testimony on the grounds that “Sauls’ damage calculation is premised on [a] wrong accounting
theory.” Doc. #244 at 5.
29

Sauls issued a supplemental report to include updated data. See Doc. #244-2 at 2.

52

Relator responds that Sauls is not opining on the proper method for measuring damages.
Doc. #317 at 7. Rather, Relator contends that Sauls “is just being asked to follow … the money”
and that “[t]he real question being asked in this instance is how does one measure damages in a
False Claims Act … case involving HUD….” Doc. #317 at 6.
1.

Admissibility of Expert Testimony

Rule 702 of the Federal Rules of Evidence allows opinion testimony from “a witness
qualified as an expert by knowledge, skill, experience, training, or education,” but only if:
(a) the expert’s scientific, technical, or other specialized knowledge will help the
trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the
case.
Fed. R. Evid. 702.
In Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), the United States
Supreme Court “assigned to trial courts the responsibility of determining whether expert
testimony under Rule 702 is not only relevant, but reliable.” Hathaway v. Bazany, 507 F.3d 312,
317 (5th Cir. 2007) (internal quotation marks omitted). Commensurate with this duty, a trial
court must make “a preliminary assessment of whether the reasoning or methodology underlying
the testimony is scientifically valid and of whether that reasoning or methodology properly can
be applied to the facts in issue.” Daubert, 509 U.S. at 592–93. To this end, the proponent of the
expert testimony “need not prove to the judge that the expert’s testimony is correct, but she must
prove by a preponderance of the evidence that the testimony is reliable.” Johnson v. Arkema,
Inc, 685 F.3d 452, 459 (5th Cir. 2012).
When considering reliability, Daubert dictates that trial courts should consider “the
extent to which a given technique can be tested, whether the technique is subject to peer review
53

and publication, any known potential rate of error, the existence and maintenance of standards
governing operation of the technique, and, finally, whether the method has been generally
accepted in the relevant scientific community.” Hathaway, 507 F.3d at 318. The Daubert
factors “are not mandatory or exclusive.” Id. Rather, the district court should consider whether
the enumerated factors “are appropriate, use them as a starting point, and then ascertain if other
factors should be considered.” Id. (citing Black v. Food Lion, 171 F.3d 308, 311–12 (5th Cir.
1999)).
2.

Analysis

In analyzing the motion to strike, it is important to distinguish between the contents of the
Sauls opinion and the manner in which Relator seeks to use the opinion. Nowhere in his opinion
does Sauls opine that the proper measure for damages in this case is the aggregate of HUD to
non-HUD transfers. Rather, Relator seeks to use the aggregate of transfers derived by Sauls to
prove damages. The question then is not whether Sauls aggregated the transfers properly (there
can be no serious dispute that he did), but rather whether the aggregation would help the trier of
fact determine a fact at issue—namely, Relator’s damages if liability is proven. In this regard,
Relator argues that:
in False Claims Act cases in which the recipient is a third party … the courts have
consistently held that the measure of damages is restitution or disgorgement.
See[] United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) …. In [this] case
… the recipient of the contractor’s (SDRHA) benefits is not the government
(HUD), but is instead, the low-income housing tenant. Thus the measure of
damages is … disgorgement [or] restitution. In this instance, the measure of
disgorgement or restitution is the amount of federal funds that were commingled.
Doc. #317 at 5–6.
Damages under the False Claims Act “are limited to the amount that was paid out by
reason of the false claim.” U.S. ex rel. Longhi v. U.S., 575 F.3d 458, 473 (5th Cir. 2009).

54

Rogan, the case cited by Relator, provides a perfect example of this formulation. In Rogan, a
healthcare provider provided healthcare to certain individuals eligible for certain conditional
subsidies. 517 F.3d at 453. It was undisputed that the defendant failed to satisfy the relevant
conditions and that “[w]hen the conditions [were] not satisfied, nothing [was] due.”

Id.

Accordingly, the Seventh Circuit concluded that “the entire amount that [the defendant] received
… must be paid back.” Id.
Here, Relator has offered no evidence or argument that the Government paid out any
funds as a result of the interfund transfers. More importantly, as explained above, the interfund
transfers are not false claims. Accordingly, the Court rejects Relator’s argument that Sauls’
aggregation would be helpful to determining the issue of damages in this action. Thus, the
motion to strike the section of Saul’s opinion dealing with interfund transfers will be granted.
VII
Individual Defendants’ Motions for Summary Judgment
Logan, Love, Sanders, Cordell, and Gray have moved for summary judgment in their
individual capacities, arguing that there is no evidence any of them violated the False Claims
Act. More specifically, each of these individual defendants argues that there is no evidence that
any of them conspired to commit a false claim, knowingly submitted a false claim, or knowingly
caused a false claim to be submitted. They also seek summary judgment on the retaliation
claims.
In her response, Relator argues that liability may be found against: (1) Logan and Love
because they “possessed actual knowledge of the Fraud and of the acts of retaliation against
Relator,” Doc. #318 at 3; and (2) Sanders, Cordell, and Gray, (“the Board Members”) because,
as Board Members, they “pass[ed] a new set of operating procedures greatly expanding

55

[Jefferson’]s authority and removing many of the built-in controls and failed to exercise
sufficient oversight over Jefferson, Doc. #303 at 6.
A. Retaliation
As explained in this Court’s previous order, §1513(e) does not provide for a private cause
of action. Furthermore, the False Claims Act’s anti-retaliation provision does not allow for
individual liability. Accordingly, summary judgment in favor of the individual defendants on the
retaliation claims will be granted.
B. Conspiracy
Relator has offered no argument or evidence showing that any of the individual
defendants possessed a shared specific intent to defraud the Government. Accordingly, summary
judgment in favor of the individual defendants on the conspiracy claims will be granted.
C. Logan and Love
The False Claims Act requires that a defendant knowingly presents or “causes” to be
presented, a false claim. See 31 U.S.C. § 3729(a). The causation standard employs traditional
notions of proximate causation “to determine whether there is a sufficient nexus between the
conduct of the party and the ultimate presentation of the false claim ….” U.S. ex rel. Sikkenga v.
Regence Bluecross Blueshield of Utah, 472 F.3d 702, 714–15 (10th Cir. 2006). Proximate cause
is one of “the judicial tools used to limit a person's responsibility for the consequences of that
person's own acts.” Holmes v. Sec. Inv. Protection Corp., 503 U.S. 258, 268 (1992). Under
federal law an act will be deemed a proximate cause of a result if the act is a “substantial factor
in the sequence of responsible causation, and if the [result] is reasonably foreseeable or
anticipated as a natural consequence.” Hecht v. Commerce Clearing House, Inc., 897 F.2d 21,
23–24 (2d Cir. 1990).

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In a False Claims Act action, to establish causation a relator must show an “affirmative
act” going beyond “mere passive acquiescence.”

Regence, 472 F.3d at 714–15.

This

requirement “strikes the appropriate balance between shielding from liability parties who merely
fail to prevent the fraudulent acts of others, and ensuring that liability attaches for ‘affirmative
acts’ that do cause or assist the presentation of a fraudulent claim.” Id. at 715.
Based on her response, it is clear that Relator seeks to impose liability on Logan and
Love for nothing more than mere passive acquiescence. Accordingly, summary judgment in
favor of Logan and Love on the False Claims Act claims will be granted.
D. Cordell, Gray, and Sanders
Relator does not argue that the Board Members actually submitted any false claims.
Rather, Relator contends that the Board Members caused Jefferson’s submission of false claims.
As explained above, Relator has proven the submission of false claims arising from Jefferson’s
invoice scheme and the submission of the audits.
“To ‘cause’ the presentation of false claims under the FCA, some degree of participation
in the claims process is required.” U.S. v. President and Fellows of Harvard Coll., 323 F. Supp.
2d 151, 186–87 (D. Mass. 2004). In this regard, “actually delegating the submission of claims to
one who then files a false claim suffices.” Id.
The evidence shows that the Board was tasked with oversight of federal funds and largely
delegated responsibility regarding federal spending to Jefferson. This delegation is sufficient to
establish causation under the Act.

Accordingly, the question becomes whether the Board

members knowingly caused the submission of the false claims established by the evidence (the
false invoices and the erroneous audits).

57

In seeking to impose liability on the Board Members, Relator cites the following as
evidence of knowledge or recklessness: (1) the firing of the previous accounting team and the
hiring of Buchanan and Lloyd;30 (2) the Board’s passage of a new set of operating procedures
which increased Jefferson’s check writing authority from $10,000 to $200,000; (3) the Board
members’ general practice of acting as a “rubber stamp” as to Jefferson’s spending; (4) Gray’s
admission that when he arrived the procedures at SDRHA were not designed to prevent fraud;
(5) Gray did not know the specifics of SDRHA’s procurement policy; (6) the Board’s hiring of a
law firm to defend Jefferson; (7) various statements made by Cordell and Sanders during FBI
interviews in which they stated they were not aware of certain details of SDRHA’s operations;
and (8) Jefferson invoking the Fifth Amendment when asked whether a Board member ever
questioned her regarding her spending.31 See Doc. #303.
As explained above, the Act’s recklessness standard is designed to incorporate two types
of conduct: (1) ignoring red flags; and (2) willful ignorance as to the relevant claims procedure.
See U.S. ex rel. Hefner v. Hackensack Univ. Med. Ctr., No. 01-cv-4078, 2005 WL 3542471, at
*9 (D.N.J. Dec. 23, 2005). Relator has pointed to no evidence which would suggest that any of
the Board members ignored red flags or remained deliberately ignorant as to the process
surrounding submission of yearly financials to HUD. Accordingly, summary judgment in favor
of the Board members will be granted against Relator’s claims based on the submission of the
audits.

30

Relator does not argue that the Board actually approved either the firing of SDRHA’s previous accounting team or
the hiring of Buchanan or Lloyd. Rather, she speculates that “perhaps” these acts were approved by the Board. This
type of conjecture is of no evidentiary value. See Sanches v. Carrollton–Farmers Branch Indep. Sch. Dist., 647
F.3d 156, 165 (5th Cir.2011) (“[S]peculation, and unsupported assertions are insufficient to avoid summary
judgment.”)
31

Citing to notes from an FBI interview, Relator’s brief also makes a reference to Cordell being unaware “that he
had voted to give the Executive Director authority to modify contracts without commissioner approval.” Doc. #303
at 13. Relator does not cite any evidence that Cordell made such a vote or that the measure passed.

58

In contrast, the Court concludes that the Board Members’ act of rubber stamping
Jefferson’s spending evidences a sufficient level of deliberate ignorance to create a genuine issue
of material fact as to whether the members acted with the requisite level of recklessness to
impose liability for the false invoice scheme. Accordingly, summary judgment in this regard
will be denied.
E. Summary
Logan and Love’s motions for summary judgment will be granted. The motions for
summary judgment of Cordell, Gray, and Sanders, will be granted in part and denied in part.
The motions will be denied as to the claims arising from Jefferson’s submission of false invoices.
The motions will be granted in all other respects.
VIII
Conclusion
For the reasons above: (1) Lloyd’s motion for summary judgment [206] is GRANTED in
Part and DENIED in Part; (2) Lloyd’s motion for attorney’s fees [208] is DENIED; (3)
SDRHA’s motion for summary judgment [245] is GRANTED in Part and DENIED in Part;
(4) Logan’s motion for summary judgment [247] is GRANTED; (5) Love’s motion for summary
judgment [249] is GRANTED; (6) Sanders’ motion for summary judgment [251] is GRANTED
in Part and DENIED in Part; (7) Cordell’s motion for summary judgment [253] is GRANTED
in Part and DENIED in Part; (8) Gray’s motion for summary judgment [255] is GRANTED
in Part and DENIED in Part; and (9) Lloyd’s motion to strike [244] is GRANTED.

SO ORDERED, this the 16th day of January, 2015.
/s/ Debra M. Brown
UNITED STATES DISTRICT JUDGE

59