THE UNITED STATES et al v. THE CITY OF PITTSBURGH, PENNSYLVANIA et al
OPINION resolving 38 defendants' motion to dismiss plaintiffs' amended complaint. Signed by Judge David S. Cercone on 3/31/16. (mwm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
THE UNITED STATES ex rel.
FREEDOM UNLIMITED, INC.,
NORTHSIDE COALITION FOR FAIR )
HOUSING, INC., THE HILL DISTRICT )
CONSENSUS GROUP, INC. and the
FAIR HOUSING PARTNERSHIP OF
THE CITY OF PITTSBURGH,
PENNSYLVANIA and LUKE
RAVENSTAHL, its Chief Executive
Plaintiffs Freedom Unlimited, Inc. ("FUI"), Northside Coalition for Fair Housing, Inc.
("NCFH"), The Hill District Consensus Group, Inc. ("HDCG") and the Fair Housing Partnership
of Greater Pittsburgh ("FHP") (collectively "plaintiffs"), brought this qui tam action on behalf of
the United States of America against the City of Pittsburgh, Pennsylvania ("the City" or
"defendant"), and its former mayor, Luke Ravenstahl ("Ravenstahl") (collectively "defendants"),
pursuant to the False Claims Act ("FCA"), 31 U.S.C. §§ 3729–3733. Plaintiffs allege that
defendants submitted express and implied false certifications of compliance in order to receive
federal funding under programs administered by the United States Department of Housing and
Urban Development ("HUD"). The United States declined to intervene. Presently before the
court is defendants' motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) for
lack of subject matter jurisdiction, 12(b)(6) and 8(a)(2) for failure to state a claim upon which
relief can be granted, and 9(b) for failure to plead fraud with particularity. For the reasons set
forth below, defendants' motion will be granted.
STANDARD OF REVIEW
Under a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, the
plaintiff bears the burden of persuasion in establishing subject matter jurisdiction. Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991). There are two categories of
Rule 12(b)(1) motions: a facial attack on the complaint and a factual attack that challenges the
plaintiff's facts. Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977).
In reviewing a facial attack, "the court must only consider the allegations of the complaint and
documents referenced therein and attached thereto, in the light most favorable to the plaintiff."
Gould Elecs., Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000).
If the attack is factual, however, the court is not confined to the allegations in the
complaint and "can look beyond the pleadings to decide factual matters relating to jurisdiction."
Cestonaro v. United States, 211 F.3d 749, 752 (3d Cir. 2000) (citation omitted). The court,
therefore, must weigh the evidence relating to jurisdiction, "with discretion to allow affidavits,
documents, and even limited evidentiary hearings," and "accord plaintiff's allegations no
presumption of truth." Turicentro, S.A. v. Am. Airlines, Inc., 303 F.3d 293, 300 n.4 (3d Cir.
2002). Further, in a factual challenge the plaintiff bears the burden of proving that jurisdiction
does, in fact, exist. Carpet Group Int'l v. Oriental Rug Imps. Ass'n, 227 F.3d 62, 69 (3d Cir.
It is well-settled that in reviewing a motion to dismiss under 12(b)(6) "[t]he applicable
standard of review requires the court to accept as true all allegations in the complaint and all
reasonable inferences that can be drawn therefrom, and view them in the light most favorable to
the non-moving party." Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). Under
the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561 (2007),
dismissal of a complaint pursuant to Rule 12(b)(6) is proper only where the averments of the
complaint plausibly fail to raise directly or inferentially the material elements necessary to obtain
relief under a viable legal theory of recovery. Id. at 544. In other words, the allegations of the
complaint must be grounded in enough of a factual basis to move the claim from the realm of
mere possibility to one that shows entitlement by presenting "a claim to relief that is plausible on
its face." Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (quoting Twombly, 550 U.S. at 570).
"A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Id. In contrast, pleading facts that only offer "'labels or conclusions' or 'a formulaic recitation of
the elements of a cause of action will not do,'" nor will advancing only factual allegations that
are "'merely consistent with' a defendant's liability." Id. Similarly, tendering only "naked
assertions" that are devoid of "further factual enhancement" falls short of presenting sufficient
factual content to permit an inference that what has been presented is more than a mere
possibility of misconduct. Id. at 1949-50; see also Twombly, 550 U.S. at 563 n. 8 (A complaint
states a claim where its factual averments sufficiently raise a "'reasonably founded hope that the
[discovery] process will reveal relevant evidence' to support the claim.") (quoting Dura
Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347 (2005) & Blue Chip Stamps v. Manor Drug
Stores, 421 U.S. 723, 741 (1975)); accord Morse v. Lower Merion School Dist., 132 F.3d 902,
906 (3d Cir. 1997) (a court need not credit "bald assertions" or "legal conclusions" in assessing a
motion to dismiss) (citing with approval Charles Alan Wright & Arthur R. Miller, FEDERAL
PRACTICE AND PROCEDURE § 1357 (2d ed. 1997) ("courts, when examining 12(b)(6) motions,
have rejected 'legal conclusions,' 'unsupported conclusions,' 'unwarranted inferences,'
'unwarranted deductions,' 'footless conclusions of law,' or 'sweeping legal conclusions cast in the
form of factual allegations.'").
This is not to be understood as imposing a probability standard at the pleading stage.
Iqbal, 556 U.S. at 678 ("'The plausibility standard is not akin to a 'probability requirement,' but it
asks for more than a sheer possibility that a defendant has acted unlawfully.'"); Phillips v. County
of Allegheny, 515 F.3d 224, 235 (3d Cir. 2008) (same). Instead, "[t]he Supreme Court's
Twombly formulation of the pleading standard can be summed up thus: 'stating ... a claim
requires a complaint with enough factual matter (taken as true) to suggest the required element ...
[and provides] enough facts to raise a reasonable expectation that discovery will reveal evidence
of the necessary element.'" Phillips, 515 F.3d at 235; see also Wilkerson v. New Media
Technology Charter School Inc., 522 F.3d 315, 321 (3d Cir. 2008) ("'The complaint must state
'enough facts to raise a reasonable expectation that discovery will reveal evidence of the
necessary element.'") (quoting Phillips, 515 F.3d at 235) (citations omitted). "Once a claim has
been stated adequately, it may be supported by showing any set of facts consistent with the
allegations in the complaint." Twombly, 550 U.S. at 563.
A plaintiff alleging violations of the False Claims Act also must meet the pleading
standard for fraud under Fed. R. Civ. P. 9(b). The United States Court of Appeals for the Third
Circuit ("Third Circuit") has held "that plaintiffs must plead FCA claims with particularity in
accordance with Rule 9(b)." U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 301,
n. 9 (3d Cir. 2011) ("Wilkins") (citing U.S. ex rel. LaCorte v. Smith-Kline Beecham Clinical
Labs., 149 F.3d 227, 234 (3d Cir. 1998)). Rule 9(b) requires a party "alleging fraud…[to] state
with particularity the circumstances constituting fraud," but "[m]alice, intent, knowledge, and
other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). "Rule 9(b)
exists to insure adequate notice so that defendants can intelligently respond." U.S. ex rel.
Richards v. R & T Investments LLC, 29 F. Supp.3d 553, 560 (W.D. Pa. July 3, 2014) (Hornak,
J.) ("Richards") (citing Illinois Nat. Ins. Co. v. Wyndham Worldwide Operations, Inc., 653 F.3d
225, 233 (3d Cir. 2011) (citing Morganroth & Morganroth v. Norris, McLaughlin & Marcus,
P.C., 331 F.3d 406, 414 n. 2 (3d Cir. 2003) ("The purpose of Rule 9(b) is to provide notice, not
to test the factual allegations of the claim.")).
A plaintiff asserting false claims satisfies the standard imposed by Rule 9(b) by alleging
"particular details of a scheme to submit false claims paired with reliable indicia that lead to a
strong inference that claims were actually submitted." Foglia v. Renal Ventures Management,
LLC, 754 F.3d 153, 157-58 (3d Cir. 2014) (quoting United States ex. rel. Grubbs v. Kanneganti,
565 F.3d 180, 190 (5th Cir. 2009)). "Describing a mere opportunity for fraud will not suffice.
Sufficient facts to establish 'a plausible ground for relief' must be alleged." Id. (quoting Fowler,
578 F. 3d at 211.)
The record as read in the light most favorable to plaintiffs establishes the background set
forth below. Plaintiffs are community-based organizations that advocate for equal a) housing
opportunities, b) community development, and c) revitalization in the city of Pittsburgh. HUD is
the federal entity responsible for administering programs related to housing and urban
development. In accord with the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq., HUD
must administer those programs in a manner that affirmatively will further fair housing. 42
U.S.C. § 3608(e)(5).
HUD offers federally funded grants to support housing and community development in
Pittsburgh and other communities. These grants include the Community Development Block
Grant ("CDGB") funding1 and the HOME Investment Partnerships ("HOME") program,2 both of
which endeavor to provide fair housing opportunities for all Americans, particularly "members
of disadvantaged minorities." 42 U.S.C. § 12702 and 24 C.F.R. § 91.1. Any grantee for these
funds must certify that it will comply with all applicable statutes and regulations in its
application for a HUD grant.3
Applicants such as the City must submit a consolidated plan to receive these and other
types of similar funding. The consolidated plan operates as the grantee's application for funding
and includes a certification that CDBG and HOME funds will be disbursed in accord with the
FHA and in a manner that will affirmatively further fair housing. 42 U.S.C. § 12702 and 24
C.F.R. § 91.1; 42 U.S.C. § 5304(b)(2) and §§ 12705(b)(3) and (15).
Affirmatively furthering fair housing requires the grantee to (1) "conduct an analysis to
identify impediments to fair housing choice within the jurisdiction," (2) "take appropriate actions
to overcome the effects of any impediments identified through that analysis," and (3) "maintain
records reflecting the analysis and actions in this regard." 24 C.F.R. § 91.225(a)(1).
CDBG funding is authorized by Title 1 of the Housing and Community Development Act of
1974, 42 U.S.C. § 5301 et seq., and the regulations promulgated pursuant thereto at 24 C.F.R. §
570.1 et seq.
HOME funding is authorized by the HOME Investment Partnerships Act, Title II of the
Cranston-Gonzalez National Affordable Housing Act, as amended, 42 U.S.C. § 12701 et seq.,
and the regulations promulgated thereunder at 24 C.F.R. §92.1 et seq.
The recitation of the statutes and regulations governing a HUD grantee's compliance is derived
from the statutes and regulations referenced in plaintiffs' amended complaint. Defendants
dispute the accuracy of plaintiffs' interpretations of a number of these statutes and regulations.
While, at the very least, plaintiff's interpretations appear at times to be based on zealous
advocacy, they will be recounted in this background section as asserted by plaintiffs.
Impediments affecting disadvantaged minorities are to be addressed in greater detail with
consideration given to all available financial resources. 24 C.F.R. § 91.520(a) and HUD Fair
Housing Planning Guide §§ 1.2, 2.2 and 2.7 (Exhibit 1 to Amended Complaint, Doc. No. 34-1).
Recipients of CDBG and HOME funds submit annual and five-year consolidated plans
detailing proposed disbursements and certifying compliance with applicable laws and
regulations. 42 U.S.C. § 5603(b) and 24 C.F.R. §§ 91.15(b), 91.100 - 91.225. CDBG grantees
also certify that "the projected use of funds has been developed as to give maximum feasible
priority to activities which will benefit low-and moderate-income families or aid in the
prevention or elimination of slums or blight," and agree to comply with other applicable laws
and regulations. 42 U.S.C. §§ 5304(b)(3) and (6) and § 3535(d). For example, CDBG funds
cannot be used for "expenses required to carry out the regular responsibilities of the unit of
general local government" without specific authorization from HUD. 24 C.F.R. § 570.207(a)(2).
CDBG grantees also certify that they are following a citizen participation plan, which
provides an opportunity for citizens to comment on proposed housing and community
development projects. The plan is to encourage participation by citizens with low to moderate
income, who reside in areas experiencing slum or blight or will be affected by the proposal. 42
U.S.C. § 5304(a)(3)(A), (B) and (D) and 24 C.F.R. § 91.105. A compliant citizen participation
plan provides adequate public notice of meetings and "reasonable and timely access to local
meetings[,] . . . records relating to the grantee's proposed use of funds" and sufficiently detailed
information from which citizens can determine how they will be affected by the projects. 24
C.F.R. § 91.220(l)(1)(iv).
A grantee also is to prepare an annual performance report evaluating its progress with
respect to the goals stated in its annual and five-year consolidated plans. 24 C.F.R. § 91.520(a).
The grantee is to identify "measurable outcomes" in its consolidated plans to accomplish these
goals. 24 C.F.R. § 91.220(e) and the HUD Fair Housing Planning Guide §§ 2.10 and 2.11
(Exhibit 1 to Amended Complaint, Doc. No. 34-1). The performance report compares the
grantee's actual and projected "measurable outcome[s]" from its consolidated plans. 24 C.F.R. §
Against this backdrop, plaintiffs allege that from at least 2006 through 2014 defendants
knowingly submitted false certifications of compliance to HUD in order to obtain CDBG and
HOME grant funding.4 Plaintiffs advance three broad categories of false claims. They contend
that defendants falsely certified compliance with obligations to (1) affirmatively further fair
housing, (2) maintain and follow a citizen participation plan, and (3) use CDBG funds only for
eligible expenditures. Assertedly, defendants falsely have expressly certified compliance with
these obligations in each annual application for funding. Plaintiffs also aver that the City falsely
has impliedly certified compliance with each drawdown of funds.
Defendants purportedly have falsely certified in each consolidated plan that they were
complying with their obligation to affirmatively further fair housing, which includes (1)
analyzing and identifying impediments to fair housing choices within the City, (2) taking
"appropriate action" to address impediments, and (3) maintaining records of the analysis and
actions taken. The false certifications were signed by the Mayor. See, e.g., Exhibit 2 to
Amended Complaint, Doc. No. 34-2.
Plaintiff FHP advocates for fair housing on behalf of low income, minority residents.
FHP avers that the City has not conducted an analysis of impediments ("AI") to fair housing
since 2000. FHP acknowledges that the city updated its 2000 analysis in 2007 and the 2007
The original complaint was filed on November 2, 2012. The amended complaint alleged
ongoing fraud and extended the false claims period through 2014.
analysis in 2013. These updates were perfunctory and lacked meaningful analysis. FHP is not
aware of any other analyses during the false claims period.
FHP also alleges that the City has not taken "appropriate actions" to address identified
impairments. Appropriate actions are those with "measurable outcomes" that account for
available resources and their anticipated effectiveness. See HUD Fair Housing Planning Guide
Vol. 1 §§ 2.4 - 2.6 (Exhibit 1 to Amended Complaint, Doc. No. 34-1). Plaintiffs' chief complaint
is that the City falsely certified that appropriate actions have been proposed or taken to (1)
"address residential racial concentration and the lack of affordable housing in areas not
concentrated by race and poverty" and (2) "inequity in amenities available in low income,
minority concentrated neighborhoods throughout the City."
Plaintiffs provided multiple examples of the City's alleged failure to take appropriate
action to address identified impairments. Through consolidated planning, the City has identified
the lack of "decent, safe and affordable housing, particularly rental housing," for low-income,
minority families in areas that are "not low income and minority concentrated." It also has
identified the concentration of governmentally assisted housing, including housing available to
citizens displaced by publicly funded projects, in low-income, minority concentrated
neighborhoods as an impediment. This housing is also occupied "in a racially concentrated
The City identified these impairments as early as 2000. In the February 2007 AI, the City
acknowledged that low-income, minority concentrated neighborhoods also have less amenities
and services. The 2013 AI acknowledges that federally assisted housing remains concentrated in
low-income neighborhoods, but it did not include any analysis regarding racial segregation,
concentration or discrimination.
Several of the City's AI reports falsely reflect that it had appointed FHP to perform
various services, including conducting surveys and coordinating with other community housing
and human service agencies. In the 2007 AI, the City proposed $500,000 for FHP and other
agencies to assess the availability of affordable rental housing for disabled and elderly
individuals and $1,500,000 to increase the accessibility of emergency shelters and transitional
housing for handicapped individuals by 2009. The City also proposed $1,500,000 for FHP and
other agencies to "[m]aintain and support efficient and effective fair housing monitoring,
investigation, and enforcement strategies" and $250,000 to "[f]und and support the delivery of
fair housing services to at-risk groups and victims of housing discrimination" by 2010.
Similarly, the City's 2013 AI suggested that FHP received funding for testing and contract
compliance services. The City did not engage FHP for any of these tasks.
The City's AI reports imply that $3,750,000 in CDBG funding was made available to
FHP and other agencies who were purportedly engaged to perform these services. FHP did not
receive any CDBG funding from 2007 to 2010, but received a mid-year grant of $17,000 in
In 2008, the City proposed spending $2,000,000 to generate additional affordable housing
options for low-income and minority citizens in areas that were not low-income or minority
concentrated. Plaintiffs FHP and NCFH aver that no additional affordable housing has been
built or marketed to minority citizens outside of areas that are not low income and racially
concentrated. Plaintiffs assert that if such housing had been produced, it would generate the
production of affirmative fair housing marketing plans.
The City's Urban Development Authority ("URA") creates affirmative fair housing
marketing plans when five or more units of housing that is not racially and low-income
concentrated is produced with federal assistance. Affirmative fair housing marketing plans have
been included in the City's consolidated annual action plans since 2010. On September 21, 2012,
plaintiff NCFH requested copies of marketing plans from 2011. The City did not provide any
plans. NCFH and FHP are not aware of any marketing plans since that time.
Plaintiffs allege that the City's evaluation of its performance as stated in the June 30,
2010 comprehensive annual performance report is disingenuous. First, the City claimed to
address the lack of economic opportunities in minority neighborhoods through its Mainstreets
Program. Plaintiffs NCFH, FUI and HDCG aver that the Mainstreets Program operated
exclusively in principally white business districts, except for a neighborhood district
experiencing "gentrification and displacement." Second, the City anticipated completion of its
AI in 2010. Plaintiffs FHP and NCFH aver that the analysis was not completed. In July 2011,
the City responded to a Pennsylvania Right to Know law request by NCFH and confirmed that
no AI had been performed since February 2007. Third, the City claimed it had addressed the
impediment of "concentrations of low-income persons, minorities and female headed households
which lack decent, safe and sound housing that is affordable, which impact neighborhoods in the
city" over the past year. Plaintiffs aver that this impediment was not addressed. Finally, the
report proposed a $15,000 grant to NCFH to address the City's strategy for promoting fair
housing. NCFH was not engaged by the City for this task and did not receive the grant.
The February 2013 AI also recognizes that federally assisted housing is concentrated in
low-income neighborhoods. Unlike prior analyses, the AI does not acknowledge that this
housing also is racially concentrated and does not contain any analysis regarding racial
segregation, concentration or discrimination. The City continues to not propose any measurable
outcomes regarding "concentration of assisted housing in areas of low income concentration."
The 2013 AI references, but does not address, the "production of affordable housing and
improving ability to afford housing costs." The AI also is devoid of any analysis regarding
"whether discrimination has produced more severe conditions and restrictions experienced by
racial minorities" and makes "no indication of whether or how affordable housing will be located
in non-minority concentrated areas, specific benchmarks to realize this and how this will be
Plaintiffs also allege that defendants falsely certified that they maintain and follow a
citizen participation plan. See 24 C.F.R. § 91.105. First, the City purportedly falsely certified
that it makes considerable efforts to encourage involvement by citizens who are to have
opportunities to participate in the decision-making process regarding the use of CDBG funding.
These include citizens with low or moderate-income or citizens who reside (1) in assisted
housing, (2) in areas experiencing blight, or (3) where the use of CDBG expenditures are
proposed. Plaintiffs NCFH, HDCG and FUI, whose constituents are members of these groups,
aver that the City has not done this and thus the certification is false.
Second, the City's participation plan fails to address how it will minimize residential
displacement. A compliant citizen participation plan not only indicates how the grantee will
minimize residential displacement, but also provides citizens with access to this information.
The City's citizen participation plan designates the Central Relocation Agency of the Housing
Authority of Pittsburgh ("CRA") as the entity responsible for addressing residential displacement
issues and interested citizens are directed to contact the CRA with inquiries. Plaintiff NCFH,
through its executive director Ronell Guy ("Guy"), learned that the CRA has been closed for
nearly a decade, leaving the City without an entity responsible for minimizing residential
displacement, contrary to its certifications.
Third, the City assertedly falsely certified compliance with its obligation to provide
adequate public notice of citizen participation opportunities. As required, the City annually
holds two public meetings where citizens can "comment on the need for CDBG assistance in the
upcoming fiscal year." Plaintiffs aver that the City's use of small print legal notices does not
provide adequate public notice. 24 C.F.R. § 91.105(e)(2). In some instances, the City
purportedly failed to provide any notice at all. For example, plaintiffs did not receive notice of
any public meetings regarding the City's 2010-2014 comprehensive consolidated plan, and they
were unable to find any printed notice or advertisement regarding any such meetings.
Similarly and despite certifications to the contrary, the City does not mail notices of
public hearings to community based organizations and non-profits, including plaintiffs NCFH
and FHP. FHP attends public meetings held by the City when it has notice of such meetings.
For example, the City held a public hearing on its 2012 AI, which included a grant to FHP, but
FHP never received notice of that hearing and FHP did not learn that the analysis had been
issued until after the comment period had expired.
Fourth, in some instances where citizens were provided with an opportunity to comment,
the City allegedly failed to respond to citizens' objections and did not document its reasons for
rejecting them. In its 2011 consolidated plan, the City falsely certified that it accepted all
commentary from the public hearings held regarding that plan. On August 19, 2010, the City
held a public hearing regarding the plan and George Moses, a member of relator HDCG, had
submitted a written objection and then made an oral objection to the reallocation of CDBG funds
for ineligible expenditures. The City did not respond to Moses' objection and refused to accept
his comments. It likewise failed to document the objection or its reasons for rejecting it in the
2011 consolidated plan.
Fifth, the City's draft annual action plans ("AAP") do not provide adequate information
for citizen participation and substantially differ from those ultimately submitted to HUD. In
other words, the draft AAPs provide insufficient information from which citizens can form an
opinion regarding the proposals and the AAPs submitted to HUD falsely reflect that citizens
have been given an opportunity to comment on the more specific information contained therein.
The draft AAPs typically contain vague information and/or designate the funds as "unspecified
allocations to be made by the Mayor, City Council, the City Planning Department and the URA
as well as program income from prior years' expenditures" while the final versions generally
explain in more specific and concrete detail how the funds will be used.
Plaintiffs highlight multiple examples of instances where the City's draft AAP and its
submission to HUD have differed. They note differences in the 2011 draft AAP and the version
made available on January 10, 2011, regarding a $1,600,000 unspecified local option and
$7,897,859 in proposed CDBG and HOME expenditures. Similarly, the 2012 draft AAP and the
version made available on January 11, 2012, differed with respect to the proposed expenditure of
$4,345,606 in CDBG and HOME funds. The 2013 draft AAP and the version made available on
January 9, 2013, differ regarding a proposal of $5,345,106 in CDBG and HOME funds and
$2,670,000 for "neighborhood business and economic development." The 2014 draft AAP and
the version made available on April 11, 2014 differ regarding a proposal of $7,123,590 in CDBG
and HOME funds.
Finally, plaintiffs allege that a substantial portion of CDBG and HOME funds are
expended entirely outside of the citizen participation process. Such funds are either reallocated
for other purposes or are designated as "Unspecified Local Options" for distribution by the
Mayor, members of City Council, and/or the Department of Planning, without any meaningful
opportunity for citizen commentary or sufficient information regarding these expenditures.
Plaintiff NCFH, through Guy, questioned City officials regarding how determinations to
reallocate CDBG funding during the program year were made. Officials responded that the
Mayor, then Ravenstahl, made these decisions. Plaintiff NCFH avers that CDBG funds have
been substantially reallocated at the direction of the mayor without any notice or opportunity for
citizens to comment.
In this regard, plaintiffs aver that citizens frequently are deprived of any opportunity to
engage in citizen participation regarding the expenditure of HOME and CDBG funds. For
example, Sala Udin ("Udin"), a founding member of relator HDGC, was a former board member
of the URA. Udin alleges that the URA received substantial amounts of CDBG and HOME
funding without any public notice or opportunity for citizens to comment regarding the use of
these funds for development projects. Likewise, on July 28, 2010, plaintiff NCFH received
$15,000 in CDBG funds without any notice or comment opportunity provided to citizens.
Similarly, citizens were not given notice or an opportunity to comment regarding the
expenditures of $15,000,000 in CDBG funds at the Southside Works complex or $10,500,000 at
the Pittsburgh Technology Center, notwithstanding the City's 2010 performance report to the
contrary. By way of further example, on June 4, 2010, the City reallocated $381,200 in CDBG
funds for its public works street resurfacing budget without providing citizens with any notice or
opportunity to comment.
Plaintiffs also highlight the absence of reasonably available information regarding CDBG
and HOME funds. During the mid-2000s, Guy learned that the City had received substantial
CDBG and HOME funding, but had failed to disclose information regarding the disbursement of
these funds. Guy reviewed the City's citizen participation plan in order to assess why her
organization, NCFH, did not receive adequate information about the funding. Guy learned that
the City was not implementing or adhering to the citizen participation plan as represented in its
certifications to HUD. From January through July of 2011, NCFH made informal and formal
(via Pennsylvania Right to Know Law Act requests) inquiries regarding expenditures of CDBG
and other funds because the City did not include this information in its performance reports.
In some instances where the City has provided information regarding these expenditures,
the information provided does not satisfy the standards imposed by HUD, which require grantees
to include information from which citizens can assess whether and how they will be affected by
the proposal. The information also sufficiently must enable them to provide meaningful
commentary for the City's consideration. For example, the City's 2011 annual action plan
designated $2,047,859 to the City URA for "funding to non-profit and for profit developers for
acquisition and rehabilitation of new construction of residential rental housing primarily for low
and moderate income households and special populations," but the draft did not indicate where,
how and/or for whom these funds were to be used.
The City allegedly also has falsely certified that it is complying with applicable laws,
which include the requirement to expend CDBG funds only on eligible activities. From 2006
through 2013, the City assertedly has falsely certified compliance with its obligation not to use
CDBG funds for "regular governmental responsibilities." CDBG funds, which are intended to
"restore deteriorating lower income neighborhoods," have been diverted to pay for activities that
should be funded with tax revenue. Plaintiffs, as entities made up of individuals who reside and
work in the City, aver that a substantial amount of CDBG funds have been used for street
repaving, bridge repair, municipal building repair, and street lighting and traffic control
equipment purchase and repair.
Since at least late 2009, members of plaintiffs NCFH and HDCG have objected to the
City's use of CDBG funds for regular governmental responsibilities. Udin, former chair of the
city council's budget and finance committee, avers that CDBG funds were intermingled with tax
revenue to fund regular governmental expenses without an accounting of how the funds were
specifically used. Udin raised his objections with City officials, including the director of
planning. Udin also voiced his concerns to Guy and Moses, who also objected to the City's use
of CDBG funds for infrastructure costs when the City was formulating its 2005-2009
comprehensive consolidated plan.
In 2010, City councilman Reverend Ricky Burgess, who is not a plaintiff in this action,
conveyed to the council that the use of CDBG funds for regular government responsibilities is
illegal. On March 15, 2011, Burgess unsuccessfully moved to amend the City's capital and
CDBG budget to preclude the use of $2,700,000 in CDBG funding for the local portion of the
capital budget. Burgess' efforts to reform the City's expenditure of CDBG funds were the subject
of several local news articles. Despite objections from plaintiffs and members of City council,
the City allegedly continued improperly allocating CDBG funds for its regular governmental
responsibilities, including infrastructure repair. Plaintiffs aver and believe that the amount of
CDBG funding used for ineligible expenditures was $2,540,000 in 2008, $1,950,000 in 2009,
$4,868,800 in 2010, $5,820,000 in 2011, $3,565,357 in 2012, and $2,682,500 in 2013.
a. Defendants' Contentions
Defendants move to dismiss plaintiff's amended complaint for lack of subject matter
jurisdiction, failure to state a claim, and failure to plead fraud with particularity. They contend
that plaintiffs have not stated a claim under the FCA for several reasons. First, this court is
deprived of subject matter jurisdiction under the FCA's public disclosure bar because the alleged
fraud has been disclosed and plaintiffs are not original sources. Second, plaintiffs fail to identify
a specific false request for payment or allege a scheme to defraud or intentional plan to disregard
HUD regulations. Third, the allegedly false certifications are not conditions of payment. Fourth,
plaintiffs distort the regulations and statutes purportedly violated by the City. Fifth, plaintiffs
have not pled that the certifications are objectively false. Sixth, plaintiffs have not met the
pleading requirements of Federal Rule of Civil Procedure 9(b), which require a party to plead
fraud with particularity. Seventh, plaintiffs' claims are challenges to policy decisions made by
the City that fall short of identifying conduct actionable under the FCA. Finally, defendants
contend that all claims against the former Mayor should be dismissed as duplicative.
b. Plaintiffs' Contentions
Plaintiffs counter that the allegations were not publicly disclosed and they are original
sources in any event. Further, the amended complaint complies with Federal Rules of Civil
Procedure 8(a), 9(b), and 12(b)(6). Plaintiffs deny defendants' contention that they have
misstated the statutes and regulations allegedly violated. And they aver that the certifications
were conditions of payment. The certifications objectively were false and knowingly submitted.
Finally, plaintiffs maintain that the City's deficient analysis of impediments, failure to foster and
permit public participation and ineligible uses of CDBG funds establish proper foundations for
seeking redress under the FCA. 5
The False Claims Act ("FCA") "makes it unlawful to knowingly submit a fraudulent
claim to the government." U.S. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d 837, 840
Plaintiffs do not object to the dismissal of Ravenstahl from this action. Accordingly, the claims
against him will be dismissed and the court's analysis will focus exclusively on the claims
against the City.
(3d Cir. 2014) ("Schumann") (citing United States ex rel. Paranich v. Sorgnard, 396 F.3d 326,
331–32 (3d Cir. 2005) ("Paranich"); United States ex rel. Dunleavy v. County of Delaware, 123
F.3d 734, 738 & n. 6 (3d Cir. 1997) ("Dunleavy"); United States ex rel. Stinson, Lyons, Gerlin &
Bustamante, P.A. v. Prudential Ins. Co., 944 F.2d 1149, 1153–54 (3d Cir. 1991) ("Stinson").
Private parties, known as "relators," are permitted to bring qui tam suits to enforce the FCA on
the government's behalf and to recover a portion of the proceeds from the suit. Schindler
Elevator Corp. v. U.S. ex rel. Kirk, 563 U.S. 401, 131 S. Ct. 1885, 1889, 179 L. Ed. 2d 825
(2011) ("Schindler Elevator Corp.") (citing 31 U.S.C. § 3730(b)(1)); accord U.S. ex rel. Wilkins
v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir. 2011) ("Wilkins") (citing 31 U.S.C. §
3730(b) & (d)).
The FCA has been amended twice during the false claims period at issue. The Fraud
Enforcement and Recovery Act of 2009 ("FERA"), enacted on May 20, 2009, amended the FCA.
Wilkins, 659 F.3d at 303. "The pre-FERA version of the FCA, imposed liability on:
[A]ny person who—
(1) knowingly presents, or causes to be presented, to an officer or employee of the
United States Government or a member of the Armed Forces of the United States
a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or
statement to get a false or fraudulent claim paid or approved by the Government."
Id. (citing 31 U.S.C. § 3729(a)(1)-(2)).
"The post-FERA FCA incorporates a materiality element and imposes liability on:
[A]ny person who—
(A) knowingly presents, or causes to be presented, a false or fraudulent
claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim[.]"
Id. (citing 31 U.S.C. § 3729(a)(1)).
The FERA included "a retroactivity provision which applies only to [the materiality
clause in] section 3729(a)(1)(B) and provides that that clause….appl[ies] to all claims under [the
FCA] that are pending on or after" the effective date, June 7, 2008. Id. at 303-04 (quoting Pub.L.
No. 111–21 § 4(f)(1), 123 Stat. at 1625)).6
Plaintiffs allege that the City submitted false claims from 2006 through 2013 ("the false
claims period"). The false claims period thus would encompass both the pre- and post-FERA
versions of the FCA. Plaintiffs filed their original complaint in 2012 after the post-FERA FCA
went into effect. As noted above, the materiality provision is applicable to all claims that are
pending after June 7, 2008. Despite the allegation of false claims prior to June 7, 2008, plaintiffs
and defendant cite exclusively to the post-FERA FCA and do not allege any substantive
difference between the statutes. Accordingly, the court will deem any argument based on a
perceived distinction between the two as having been waived and apply the post-FERA version
of the FCA to all claims.
The FCA defines a claim as a "request or demand . . . for money or property that . . . is
presented to an officer, employee, or agent of the United States." Id. at 303 (citing 31 U.S.C. §
3729(b)(2)(A)(i)). "A statement is 'false' when it is objectively untrue." U.S. ex rel. Thomas v.
Siemens AG, 593 F. App'x 139, 143 (3d Cir. 2014) (internal citations omitted). The FCA
defines "material" as "having a natural tendency to influence, or be capable of influencing, the
payment or receipt of money or property." Wilkins, 659 F.3d at 303 (citing 31 U.S.C. §
The second relevant FCA amendment is discussed in the context of the public disclosure bar,
The FCA does not require "proof of specific intent to defraud." 31 U.S.C. §
3729(b)(1)(B). It does require that a claim be knowingly presented or made. "'Knowingly'
includes only 'a defendant's actual knowledge, deliberate ignorance, or reckless disregard of the
truth or falsity of information in the defendant's claim to the government.'" U.S. Dep't of Transp.
ex rel. Arnold v. CMC Eng'g, Inc., 947 F. Supp.2d 537, 543 (W.D. Pa. 2013) (Bissoon, J.) aff'd
sub nom. U.S. Dep't of Transp., ex rel. Arnold v. CMC Eng'g, 567 F. App'x 166 (3d Cir. 2014)
("Arnold") (quoting U.S. ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495 F.3d 103, 109 (3d
Cir. 2007)); 31 U.S.C. § 3729(b)(1)(A) (defining "knowingly" as one who has (1) "actual
knowledge of the information;" (2) "acts in deliberate ignorance of the truth or falsity of the
information;" or (3) "acts in reckless disregard of the truth or falsity of the information."). The
scienter requirement reflects Congress' "intention that the [FCA] not punish honest mistakes or
incorrect claims submitted through mere negligence." Id.
A. The Public Disclosure Bar
Defendant challenges the existence of subject-matter jurisdiction by way of the public
disclosure bar. "Federal courts are courts of limited jurisdiction, and when there is a question as
to our authority to hear a dispute, it is incumbent upon the courts to resolve such doubts, one way
or the other, before proceeding to disposition on the merits." U.S. Dep't of Transp. ex rel. Arnold
v. CMC Eng'g, 745 F. Supp. 2d 637, 642 (W.D. Pa. 2010) (Lancaster, J.) (quoting Zambelli
Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 418 (3d Cir. 2010)); accord Arnold, 567 F.
App'x at 168 (addressing public disclosure bar arguments as a preliminary matter "as this
requirement is jurisdictional") (citing Rockwell Int'l Corp. v. United States, 549 U.S. 457, 467-70
(2007)). Thus, defendant's jurisdictional challenge pursuant to Federal Rule of Civil Procedure
12(b)(1) will be evaluated before considering whether plaintiff has stated a claim that can survive
defendant's challenge pursuant to Federal Rule of Procedure 12(b)(6).
The public disclosure bar was amended during the claims period. During the initial part
of the claims period the public disclosure bar contained a jurisdictional limitation. "In 1986,
Congress amended the FCA to encourage private plaintiffs - relators, in FCA parlance - to bring
civil cases if they had information that someone had defrauded the government." Schumann,
769 F.3d at 840 (citing False Claims Amendments Act (FCAA), Pub.L. No. 99–562, 100 Stat.
3153 (codified at 31 U.S.C. § 3729–33 (1988) [and] Graham Cnty. Soil & Water Conservation
Dist. v. United States ex rel. Wilson, 559 U.S. 280, 293–95 (2010) ("Graham County")). But in
an effort "'to strike a balance between encouraging private persons to root out fraud and stifling
parasitic lawsuits,' Congress added the public disclosure bar to withdraw jurisdiction over . . .
suits based on information that had been previously disclosed unless 'the person bringing the
action is an original source of the information.'" Schumann, 769 F.3d at 840 (quoting Graham
County, 559 U.S. 280, 293-95 and 31 U.S.C. § 3730(e)(4)(A) (2008)).
The Patient Protection and Affordable Care Act ("ACA"), Pub.L. No. 111–148, §
10104(j)(2), 124 Stat. 119, 901–02 (2010), effective March 23, 2010, amended the FCA's public
disclosure bar. U.S. ex rel. Zizic v. Q2Administrators, LLC, 728 F.3d 228, 232 n. 3 (3d Cir.
2013) ("Zizic"). Prior to the ACA amendment, the FCA ("pre-ACA FCA") provided:
(4)(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 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
(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. § 3730(e)(4)(A) & (B) (2008).
As amended by ACA, the current public disclosure bar ("post-ACA FCA") states:
(4)(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
(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. § 3730(e)(4)(A) & (B).
The parties dispute whether the pre- or post-ACA FCA should govern the conduct in
question. Plaintiffs argue that the post-ACA FCA should apply to all allegations because they
are part of an ongoing course of conduct that continued past March 23, 2010. Defendant
contends that the pre-ACA FCA is applicable to all allegations in the complaint because
plaintiffs accuse defendant of an ongoing, continued course of conduct that began before the
amendment. It fails to cite any authority to support this proposition.
"[T]he legal effect of conduct should ordinarily be assessed under the law that existed
when the conduct took place." Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S.
939, 946 (1997) ("Hughes") (citing Landgraf v. USI Film Products, 511 U.S. 244, 265 (1994)).
More specifically, the United States Supreme Court has admonished the lower courts to follow
the established "presumption against retroactivity" that governs in the absence of a clear statutory
expression of congressional intent to apply an amendment in the FCA to conduct completed
before its enactment. Hughes, 520 U.S. at 946-52.
In a case that was argued under the pre-ACA version of the FCA, the Court examined the
post-ACA version and noted that '[t]he legislation makes no mention of retroactivity, which
would be necessary for its application to pending cases given that it eliminates petitioners'
claimed defense to a qui tam suit.'" Graham County, 559 U.S. at 283 n. 1 (citing Hughes, 520
U.S. at 948); accord Zizic, 728 F.3d at 232 n.3) (Applying Graham County and finding that the
post-ACA FCA is not retroactive and therefore is inapplicable to claims arising before its
Moreover, where the complaint contains allegations of conduct both before and after the
ACA Amendment, district courts in the Third Circuit have applied the pre-ACA FCA to conduct
occurring before the amendment and the post-ACA FCA to conduct occurring after the
amendment. See U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 69 F. Supp.3d
416, 423 (D. Del. 2014), rev'd on other grounds, 812 F.3d 294 (3d Cir. 2015) (citing U.S. ex rel.
Judd v. Quest Diagnostics Inc., Civ. No. 10–4914, 2014 WL 2435659, at *6 (D.N.J. May 30,
2014) ("Judd") ("Here, however, the initial Complaint was filed after the ACA-amended
provision took effect, while the pre-2010 conduct alleged in the Complaint occurred while the
pre-ACA provision was still in place. Therefore, because the ACA-amended provision is not
retroactive, the pre-ACA provision applies to all pre-2010 conduct alleged in this case."); U.S. ex
rel. Customs Fraud Investigations, LLC v. Victaulic Co., 2014 WL 4375638 at *7 (E.D. Pa.
2014) ("Victaulic") (applying pre-ACA FCA to conduct occurring before March 23, 2010).
Accordingly, allegations of pre-2010 conduct will be assessed under the pre-ACA FCA and
allegations of post-2010 conduct will be assessed under the post-ACA FCA.7
There are several pertinent substantive differences between the pre- and post-ACA FCA.
In Moore, the Third Circuit examined a number of these differences. Among other things, the
ACA amendment "removed the language [in the public disclosure bar] that explicitly stated that
a court was deprived of 'jurisdiction' over the FCA action if the bar applied to that action;
reduced the number of enumerated public disclosure sources; and expanded the definition of
'original source' by allowing a relator who 'materially adds' to the publicly disclosed information
to qualify." Moore, 812 F.3d at 297. Through these changes Congress in effect "overhauled the
public disclosure bar." Id. at 299.
Each of these changes was significant. First, the pre-ACA public disclosure bar
explicitly divests the court of jurisdiction over cases predicated on allegations based on public
disclosures. The post-ACA FCA directs the court to dismiss the action if it is based on public
disclosures. Id. at 298-99 (comparing 31 U.S.C. § 3730(e)(4)(A) (2006) ("No court shall have
jurisdiction over an action under this section. . . ."), with id. at § 3730(e)(4)(A) (2012) ("The
court shall dismiss an action or claim under this section, unless . . . . "). This directive removed
any impediment to the exercise of subject-matter jurisdiction over a FCA claim predicated on
information within the public realm. Id. at 299; accord U.S. ex rel. Zwirn v. ADT Sec. Servs.,
Inc., No. CIV. 10-2639 KSH, 2014 WL 2932846, at *4 n. 2 (D.N.J. June 30, 2014) ("Zwirn")
Plaintiffs' contention that the post-ACA FCA is applicable to conduct occurring prior to its
effective date of March 23, 2010, is misplaced. "The Supreme Court has twice held that the
2010 FCA amendments are not applicable to cases pending before the effective date of the
amendments." Victaulic, 2014 WL 4375638 at *7 (citing Graham County, 559 U.S. at 283 n. 1;
Schindler Elevator Corp, 563 U.S. at 404 n. 1). This is more than sufficient authority to separate
the conduct into pre- and post-ACA segments and apply the version of the Act in effect when the
("The revised statute, which applies here, 'deleted the unambiguous jurisdiction-removing
language previously contained in § 3730(e)(4) and replaced it with a generic, not-obviouslyjurisdictional phrase,' making it 'clear that the public-disclosure bar is no longer a jurisdictionremoving provision.'"); Victualic, 2014 WL 4375638 at *7 ("This Court is persuaded . . . that the
deliberate removal of the jurisdictional language from this subsection suggests that Congress
intended to change the jurisdictional nature of the public disclosure bar."); United States ex rel.
Radcliffe v. Purdue Pharma L.P., 737 F.3d 908, 916 (4th Cir. 2013) ("Purdue") ("It is apparent,
however, that the public-disclosure bar is no longer jurisdictional."). Consequently, an
adjudication of a pleading stage challenge to the amenability to suit based on the public
disclosure bar involving post-ACA conduct is to be undertaken pursuant to Rule 12(b)(6) and not
Rule 12(b)(1). Moore, 812 F.3d at 300.
The changes in the burden of persuasion and the scope of review produced by a shift
from a scheme barring jurisdiction to one calling for dismissal is in itself significant. In
conducting a Rule 12(b)(1) analysis to assure jurisdiction, "the court may [usually] consider and
weigh evidence outside the pleadings," and "[t]he plaintiff has the burden of persuasion to
convince the court it has jurisdiction." Id. at n. 4 (quoting Gould Electronics Inc. v. United
States, 220 F.3d 169, 178 (3d Cir. 2000)). In contrast, in conducting an analysis pursuant to Rule
12(b)(6) "a court generally considers only the allegations in the complaint, accepting them as
true, and the defendant bears the burden of showing that the plaintiff has not stated a claim." Id.
Nevertheless, "the public disclosure bar remains at least a threshold question for
dismissal. The bar's stated purpose of discouraging opportunistic lawsuits would largely be
defeated by shifting the entire public disclosure analysis to a later stage of litigation." Victaulic,
2014 WL 4375638 at *7; cf. Moore, 812 F.3d at 301 ("We must decide [at the pleading stage]
whether 'substantially the same allegations or transactions [of fraud] as alleged in [Moore's]
action or claim were publicly disclosed' in any of the enumerated public disclosure sources.")
(quoting 31 U.S.C. § 3730(e)(4)(A) (2012)); but see U.S. ex. rel. Beauchamp v. Academi
Training Center, Inc., 933 F. Supp.2d 825, 839 n. 23 (E.D. Va. 2013) ("If the public disclosure
bar [were] not jurisdictional, then it would be an affirmative defense and would be appropriately
addressed at the summary judgment stage."). Accordingly, we will assess the applicability of the
public disclosure bar under Rule 12(b)(1) with respect to all alleged conduct pre-dating the ACA
amendment; the remaining allegations will be assessed under a 12(b)(6) standard.
The second major change to the FCA brought about by ACA was a modification of the
enumerated sources of public disclosure. Congress inserted the word "federal" before the phrase
"criminal, civil, or administrative hearing" as well as before the phrase "report, hearing, audit, or
investigation." 31 U.S.C. § 3730 §§ (4)(A),(B). As a result, "information that was disclosed in a
criminal, civil, or administrative hearing now qualifies as a public disclosure only if the
information was disclosed in a federal case to which the government was a party." Moore, 812
F.3d at 299; accord Judd, 2014 WL 2435659 at *5 ("[T]he ACA-amended public disclosure bar
is more limited than the pre-ACA version, because the pre-ACA version encompasses
allegations in both federal and state fora, while the ACA-amended version is limited to federal
fora."). Similarly, public disclosures based on "administrative reports" are now limited to those
from the federal government. Moore, 812 F.3d at 301 ("As stated earlier, to be publicly
disclosed, the alleged fraud must have been revealed through at least one of three sources: (1) 'a
Federal criminal, civil, or administrative hearing in which the Government or its agent is a party';
(2) 'a congressional, Government Accountability Office, or other Federal report, hearing, audit,
or investigation'; or (3) 'news media.'") (quoting 31 U.S.C. § 3730(e)(4)(A)(i)-(iii)). Thus, only
proceedings involving the federal government and federal reports qualify as post-ACA public
disclosure sources. Id. at 299 ("information that was disclosed in a federal case between private
parties no longer constitutes publicly disclosed information"), 302 n. 9 ("Congress did amend
this source so that only 'Federal' reports qualify.").
Third, ACA expanded the definition of an "original source" in § 3730(e)(4)(B). Moore,
812 F.3d at 299. Under the pre-ACA FCA, a relator whose claims are based on publicly
disclosed allegations or transactions can overcome the public disclosure bar if he or she "has
'direct and independent knowledge' of the information on which the allegations in the complaint
are based." Id. (quoting 31 U.S.C. § 3730(e)(4)(B) (2006)). Post-ACA, an original source must
have "knowledge that is independent of and materially adds to the publicly disclosed allegations
or transactions." Id. (quoting 31 U.S.C. § 3730(e)(4)(B) (2010).
An important aspect of this change is whether the relator must have "direct knowledge"
of the fraud to qualify as an original source. Under the pre-ACA FCA, direct knowledge of the
fraud is required. Id. (citing United States ex rel. Stinson, Lyons, Gerlin & Bustamante, P.A. v.
Prudential Ins. Co., 944 F.2d 1149, 1160 (3d Cir.1991) (under the pre-PPACA bar a law-firm
relator lacked direct knowledge because it had learned of the fraud "through two intermediaries,"
one of which was "the discovery procedure by which the memoranda [exposing the alleged
fraud] were produced"). Post ACA the relator no longer has to possess direct knowledge of the
fraud. Id. Instead, the "focus now is on what independent knowledge the relator has added to
what was publicly disclosed."
Although the post-ACA FCA public disclosure bar includes several substantive changes,
the basic steps of the analysis remain unaltered. Both versions of the FCA require the initial
determination of whether the suit is based on publicly disclosed information in one or more of
the enumerated sources. Under the pre-ACA FCA, a court "must first assess whether the
relator's claim is based on publicly disclosed allegations or transactions." United States ex rel.
Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 519 (3d Cir. 2007) ("Atkinson"). This involves
a twostep analysis. Id. First, it must be determined whether the information was disclosed
through one of the sources listed in § 3730(e)(4)(A). Id. Second, "[the court] decide[s] whether
the relator's complaint is based on those disclosures. To be 'based upon' the publicly revealed
allegations or transactions the complaint need only be 'supported by' or 'substantially similar to'
the disclosed allegations and transactions." Id. This same twostep inquiry continues to guide
post-ACA determinations of "whether substantially the same allegations or transactions [of
fraud] as alleged in [the] action or claim were publicly disclosed" so as to trigger application of
the bar. Moore, 812 F.3d at 301.
Defendant avers that the allegations of pre-ACA conduct in plaintiffs' amended complaint
are based entirely on public disclosures. It asserts that the Analysis of Impediments ("AIs"),
Annual and Consolidated Action Plans ("AAPs"), and Consolidated Annual Performance
Evaluation Reports ("CAPERs") are "administrative reports" because they are created by a local
government for submission to a federal entity.8 Defendant highlights the availability of the
"AIs are not to be submitted to, or be approved by, HUD. However, HUD could request
submission of the AI in the event of a complaint or as part of routine monitoring." HUD Fair
Housing Planning Guide (Exhibit 1 to Amended Complaint, Doc. No. 34-1) at 2-7. The
information in the AI reports are incorporated into a grantee's consolidated plan. The goals
identified in the Consolidated Plan are "carried out through Annual Action Plans." Grantees
review their progress regarding those goals in Consolidated Annual Performance and Evaluation
Reports. See https://www.hudexchange.info/consolidated-plan/consolidated-plan-process-grantprograms-and-related-hud-programs/
The City contends that the AIs are submitted to HUD. Affidavit of Michael Petrucci, Appendix
to Motion to Dismiss Amended Complaint (Doc. No. 40-17) at ¶ 36.
documents on the City's website and in its planning office.9
As previously noted, the pre-ACA public disclosure bar divests the court of "subject
matter jurisdiction where: (1) there was a 'public disclosure'; (2) 'in a criminal, civil, or
administrative hearing, in a congressional, administrative, or Government [General] Accounting
Office report, hearing, audit, or investigation, or from the news media'; (3) of 'allegations or
transactions' of the fraud; (4) that the relator's action was 'based upon'; and (5) the relator was not
an 'original source' of the information." Paranich, 396 F.3d at 332.
Under the pre-ACA public disclosure bar, the City's AIs, AAPs and CAPERs are public
disclosure sources enumerated in the statute. First, the public documents would qualify as
"administrative reports." In U.S. ex rel. Dunleavy v. County of Delaware, 123 F.3d 734, 746 (3d
Cir. 1997) abrogated by Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson,
559 U.S. 280 (2010), the court addressed whether a CDBG grantee's annual Grantee
Performance Report ("GPR") was an "administrative report" within the meaning of the public
disclosure bar. Id. at 740-46. It did not analyze the nature of the report, but instead reasoned
that only those administrative reports "originat[ing] with the federal government" would bar suit
because Congress included "modifiers which are unquestionably federal in character." Id. at
745. The Supreme Court abrogated Dunleavy in 2010, holding that a "state or local report . . .
may trigger the public disclosure bar." Graham County, 559 U.S. at 201.
The Court's interpretation of the terms "administrative" and "report" under the FCA
guides the analysis here. The Court examined the plain text of the statute and opined that
The City's website offers AI reports for 2007 and 2012, Consolidated Plans and AAPs for 2010
through 2014, and CAPERs from 2010 through 2013. Also available are draft Consolidated
Plans for 2015-2019, an AAP for 2015, an AI report for 2015 through 2019. An undated version
of the City's citizen participation plan is also accessible. See
"administrative" encompassed the "activities of governmental agencies." Id. at 287 (citing
Black's Law Dictionary 49 (9th ed. 2009)). The federal character of the adjectives preceding
"administrative" ("congressional, administrative, or government accounting office") did not limit
the phrase "administrative report" to only those prepared by federal government agencies. Id. at
293. Instead, an "administrative report" includes a report prepared by any governmental entity.
Id. at 283; see also Schindler Elevator Corp., 563 U.S. at 410 ("As we explained in Graham
County, however, those three adjectives tell us nothing more than that a 'report' must be
governmental."). A year later, the Court in Schindler Elevator Corp. examined the meaning of
A "report" is "something that gives information" or a "notification," Webster's
Third New International Dictionary 1925 (1986), or "[a]n official or formal
statement of facts or proceedings," Black's Law Dictionary 1300 (6th ed.1990).
See also 13 Oxford English Dictionary 650 (2d ed.1989) ("[a]n account brought
by one person to another"); American Heritage Dictionary 1103 (1981) ("[a]n
account or announcement that is prepared, presented, or delivered, usually in
formal or organized form"); Random House Dictionary 1634 (2d ed.1987) ("an
account or statement describing in detail an event, situation, or the like").
Id. at 407-08.
Applying the Supreme Court's analysis in Graham County and Schindler Elevator
Corp., it is clear that the AIs, AAPs, and CAPERs prepared by the City are
"administrative reports" within the meaning of the pre-ACA public disclosure bar. The
reports were prepared by a local governmental body as an "official" mechanism for
providing "information" and a "statement of facts." Furthermore, they are prepared at the
direction of and made available for submission to a federal government agency.
Alternatively, the City's reports made available for submission to HUD would
also qualify under the pre-ACA FCA public disclosure bar as "news media" sources.10
The City's website does not make available the 2000 AI report or Consolidated Plans, AAPs,
Courts in this jurisdiction have held that information obtained through a publicly
accessible website can qualify as "news media" under the public disclosure bar.
Victaulic, 2014 WL 4375638 at *9 (citing U.S. ex rel. Repko v. Guthrie Clinic, P.C., No.
04–1556, 2011 WL 3875987, at *7 (M.D. Pa. Sept.1, 2011) ("The court agrees with those
courts from other circuits that have found information contained on publically available
websites can be public disclosures within the meaning of the FCA."), aff'd, 490 F. App'x
502 (3d Cir. 2012) ("We agree with the District Court's . . . conclusion that the websites .
. . constitute public disclosure of information.")). It generally has been recognized that
publicly "accessible websites are available to anyone with an internet connection and a
web browser, and access is not restricted. Though they are not traditional news sources,
they serve the same purpose as newspapers or radio broadcasts, to provide the general
public with access to information. They are easily accessible and any stranger to a fraud
transaction could discover the relevant information on them." Id. It follows that the
City's submissions prepared for HUD are matters that have been made public through
news media. The AIs, AAPs, and CAPERs were accessible through a public website as
they constitute official postings by government entities and are released for public
consumption and the monitoring of government activity.11
and CAPERs prepared prior to 2010. Thus, the alternative finding that the documents qualify as
"news media" is limited to those publicly made available on the City's website.
The extension of "news media" to include information disclosed on publicly available websites
is consistent with the Court's interpretation of the public disclosure bar. "The . . . sources of
public disclosure . . . especially 'news media,' suggest that the public disclosure bar provides 'a
broa[d] sweep.'" Schindler Elevator Corp., 563 U.S. at 408 (quoting Graham County, 590 U.S.
at 290). Courts from other circuits have also determined that "information contained on publicly
available websites can be public disclosures within the meaning of the FCA." Repko, 2011 WL
3875987, at *7 (citing U.S. ex rel Brown v. Walt Disney World Co., No. 6:06–cv1943, 2008 WL
2561975, at *4, *4 n. 7 (M.D. Fla. June 24, 2008); U.S. ex rel. Liotine v. CDW Government,
Inc., No.2009 WL 3146704, *6 n. 5 (S.D. Ill. Sep. 29, 2009); United States ex rel. Nowak v.
Defendant advances an identical argument as to all documents made publicly available
after March 23, 2010, but acknowledges that the issue of whether the documents would qualify
as "administrative reports" under the post-ACA public disclosure bar appears to be an issue of
first impression. It reiterates that these documents likewise are prepared for and submitted to
HUD, a federal agency, in support of its contention that the reports would still fall under the
public disclosure bar's limitation to "federal" sources.
Applying the plain language of the statute, these documents would not qualify as
administrative reports under the post-ACA public disclosure bar. At their base, the reports are
those of the City. They are not prepared, issued or approved by HUD in the first instance.
Without a showing that they have been adopted by HUD, they remain beyond the reach of a
federal administrative report falling under the post-ACA public disclosure bar.
Nevertheless, the City's submissions continue to qualify as "news media" sources under
the post-ACA public disclosure bar. The post-ACA public disclosure bar did not modify the
definition of "news media." All of the documents reflecting post-ACA conduct are generated at
the direction of and made available for submission to HUD. They are made available to the
public through the City's website. They constitute official postings by government entities and
are released for public consumption and the monitoring of government activity. Thus, the
Medtronic, Inc., No. 1:08cv10368, 2011 WL 3208007, *45 (D. Mass., July 27, 2011); United
States ex rel. Jones v. Collegiate Funding Services, No. 07cv290, 2010 WL 5572825, *31 (E.D.
Va. Sept. 21, 2010) (defendants' "SEC filings, which the government required [defendants] to
file and which the government disclosed to the public on its website, constituted 'administrative
reports' within the meaning of" the FCA); United States ex rel. Davis v. Prince, 753 F. Supp.2d
569, 585 (E.D. Va. 2011) (government report posted on an internet website maintained by an
online publication was publicly disclosed); United States ex rel. Barber v. Paychex, Inc., 2010
WL 2836333, *8 (S.D. Fla. July 15, 2010) ("newspaper and magazine articles, . . . securities
filings, analyst reports and internet websites - constitute the kind of 'public disclosure' covered
by" the FCA).
analysis of whether these publicly available documents qualify as "news media" under the postACA public disclosure bar is identical and the conclusion that they do remains unchanged.
The AIs, AAPs, and CAPERs are considered public disclosures pursuant to two of the
enumerated sources in the pre-ACA FCA and one of the enumerated sources in the post-ACA
FCA. Thus, the first two steps in the disclosure bar analysis have been satisfied as to these
documents. Compare Zizic, 728 F.3d at 235 ("Starting out with the first and second elements,
we analyze whether 'information was [publicly] disclosed via one of the sources listed in §
3730(e)(4)(A).'") (citing Atkinson, 473 F.3d at 519).
The City also contends that plaintiffs' allegations regarding ineligible expenditures were
publicly disclosed via print and online news articles in 2010, two years before the complaint was
filed. "News media" unquestionably includes articles disseminated by local newspapers. See
United States v. Express Scripts, Inc., No. 14-1029, 2015 WL 728029, at *1 & n. 9 (3d Cir. Feb.
20, 2015) (finding that published news articles were public disclosures falling within the ambit
of news media); accord U.S. ex rel. Ryan v. Endo Pharm., Inc., 27 F. Supp.3d 615, 628 (E.D. Pa.
June 23, 2014) ("These [news] articles qualify as public disclosures from news media under the
plain language of 31 U.S.C. § 3730(e)(4).") & U.S. ex rel. Gohil v. Sanofi-Aventis U.S. Inc.,
No. CIV.A. 02-2964, 2015 WL 1456664, at *4 (E.D. Pa. Mar. 30, 2015) ("The article was
published in the 'news media' making the article a source listed in § 3730(e)(4)(A).")
Accordingly, the news articles regarding the City's purportedly ineligible uses and expenditures
of CDBG funds are sources of public disclosure and the information regarding the ineligible
expenditures advanced by plaintiffs in this regard was publicly disclosed.
With respect to the allegations of ineligible expenditures of CDBG funds after March 23,
2010, these allegations were publicly disclosed through the same news media articles. "[A]
claim can be 'based upon' a public disclosure if the public disclosure concerned similar conduct
that occurred in a different time period." U.S. ex rel. Tahlor v. AHS Hosp. Corp., No. 2:08-CV02042 WJM, 2013 WL 5913627, at *8 (D.N.J. Oct. 31, 2013) (citing United States ex rel.
Boothe v. Sun Healthcare Grp. Inc., 496 F.3d 1169, 1174 (10th Cir. 2007) ("Boothe")).
"[C]ourts have reject[ed] the contention that a 'time, place, and manner' distinction is sufficient to
escape the force of the public disclosure bar." Judd, 2014 WL 2435659 at *8 (citing Boothe, 496
F.3d at 1174). Plaintiffs' allegations that the City used CDBG funds for ineligible expenditures
are substantively identical with respect to the periods before and after 2010. "[A]llegations of
different time periods of virtually the same scheme do little to take away from their similarity
under the public disclosure bar." Id. Thus, the information pertaining to ineligible expenditures
were made public through the 2010 new media articles to the extent they reflect the same or a
similar course of conduct.
Third, the "court consider[s] whether the information publicly disclosed . . . constituted
allegations or transactions of fraud." Zizic, 728 F.3d at 235. The "FCA 'bars suits based on
publicly disclosed allegations or transactions, not information.'" Id. at 236 n. 9 (quoting
Dunleavy, 123 F.3d at 740 (quoting Wang v. FMC Corp., 975 F.2d 1412, 1418 (9th Cir. 1992)
(internal quotation marks omitted)). "An allegation of fraud is an explicit accusation of wrong
doing." Id. at 235-36 (citing Dunleavy, 123 F.3d at 741). "A transaction warranting an inference
of fraud is one that is composed of a misrepresented state of facts plus the actual state of facts."
Id. at 236.
The Third Circuit has created "a formula to represent when information publicly
disclosed in a specified source qualifies as an allegation or transaction of fraud:
If X + Y = Z, Z represents the allegation of fraud and X and Y represent its
essential elements. 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 United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 654 (D.C.
Cir. 1994) ("Springfield Terminal"). "Thus, the public disclosure bar applies 'if either Z (fraud)
or both X (misrepresented facts) and Y (true facts) are [publicly] disclosed by way of a listed
source.'" Id.; accord Moore, 812 F.3d at 303 ("Formulaically this appears as follows: 'X
(misrepresented state of facts) + Y (true state of facts) = Z (fraud).") (quoting Dunleavy, 123
F.3d at 741)).
Under this approach "[a] defendant must therefore show that substantially the same
'allegation' of fraud (Z) or 'transaction' of fraud (X + Y) was publicly disclosed through the
sources enumerated in § 3730(e)(4)(A)." Moore, 812 F.3d at 303. A transaction of fraud
requires "of two elements: a misrepresented state of facts and a true state of facts. The presence
of one or the other in the public domain, but not both, cannot be expected to set Government
investigators on the trail of fraud." Springfield Terminal, 14 F.3d at 655.
Plaintiffs allege that the public disclosure bar does not apply because the City's
submissions to HUD reveal only "X," the facts misrepresented by the City, and not "Y," the true
facts. According to plaintiffs, the true state of affairs is that the City failed to affirmatively
further fair housing because it performed a deficient analysis of impediments, failed to analyze
racial discrimination and its effects, and did not identify appropriate actions to overcome those
impediments. The City's certification of compliance thus assertedly misrepresented the fact that
it was compliant with its obligation to affirmatively further fair housing.
The City's submissions to HUD create an inference of fraud because they include "X," a
purported misrepresentation that the City is in compliance with its obligations to further fair
housing, and "Y" the City's actual identification of impairments and appropriate actions to
overcome those impediments. Assuming as plaintiffs' assert that both the impediments to fair
housing and actions to be taken to overcome those impediments were deficient and represent the
misrepresented state of facts forming the basis for the certification that the City was in
compliance with its obligations to affirmatively further fair housing, the "X" was disclosed. But
the "Y" necessarily was disclosed as well. The measures that the City actually intended to and
did take were disclosed. These deficient measures necessarily reflected the "Y," that the City
was not undertaking the analysis and measures that effectively would overcome the impediments
to affirmatively furthering fair housing. Thus, the City's AI reports and submissions to HUD
publicly disclosed the transaction of fraud with respect to its obligations to affirmatively further
The majority of plaintiff's citizen participation claims are not within the scope of the
public disclosure bar. According to plaintiffs, the true state of facts is that the City did not
encourage citizen participation because it (1) failed to provide adequate notice of meetings to
citizens and community organizations, (2) did not document and accept all public commentary,
(3) did not hold public meetings regarding the allocation of CDBG funds to the discretion of the
Mayor and City council, (4) included additional information in its final AAPs that was not
subject to citizen participation, and (5) continued to identify an entity as being tasked with
minimizing residential displacement (the CRA) years after it was no longer in existence.
Plaintiffs allege that the City's certification of compliance misrepresented the fact that it was
complying with its obligation to encourage citizen participation.
The City's submissions to HUD do not create an inference of fraud regarding its
compliance with its citizen participation plan because they include only "X," a purported
misrepresentation that the City is in compliance with its obligations to follow a citizen
participation plan. The City's submissions to HUD do not include "Y," the true state of facts,
with respect to the public notice of meetings and allocations of CDBG funds to the Mayor and
City council. The City's submissions prepared at the direction of HUD do not disclose the true
state of facts with respect to notice being mailed to community organizations, the absence of
documentation of public commentary, or the difference between the information in draft and
final AAPs. Thus, the City's submissions to HUD do not publicly disclose a transaction of fraud
with respect to the City's obligations to encourage citizen participation.
Finally, plaintiffs' claims regarding ineligible expenditures are within the public
disclosure bar. Defendant attached two articles from May of 2010 in support of its contention
that the public disclosure bar prohibits plaintiffs' allegations regarding ineligible expenditures of
CDBG funding.12 These articles include explicit accusations of fraud. The articles specifically
accused the City of (1) using CDBG funding for ineligible expenditures, including street
repaving, paying administrative salaries, and purchasing equipment; (2) improperly allocating
CDBG funds to the Mayor and members of the City's council to spend at their own discretion13
and (3) failing to use CDBG funding for its intended purpose – to aid distressed communities
marked by concentrations of race and low to moderate income residents. One of these articles
includes a statement from a local HUD officer, indicating that the agency intended to review the
See Brandolph, Adam, "Councilman Says City Is Not Properly Using Federal Grants."
TribLIVE.com. May 3, 2010. Accessed March 20, 2015.
See New Pittsburgh Courier Editorial Staff. "Burgess Introduces Bills on Allocating Bloc [sic]
Grants." New Pittsburgh Courier. May 12, 2010. Accessed March 20, 2015.
The public disclosure bar does not bar plaintiffs' claims that CDBG funds were allocated to the
Mayor and City Council without any notice or opportunity for citizens to comment.
City's expenditures of CDBG funding. These news media articles include "explicit accusation[s]
of wrong doing" and thus publicly disclosed "Z", actual allegations of fraud with respect to the
allegedly ineligible expenditures of CDBG funding by the City.
With respect to the allegations of ineligible expenditures of CDBG funds after March 23,
2010, these allegations were publicly disclosed by the news media in the articles discussed
above. As previously noted, a claim will fall within the ambit of the public disclosure bar where
it is predicated on conduct that is substantially similar to that which already has been disclosed.
This is particularly apt where the subsequent course of conduct reflects the same or a
substantially similar scheme. Judd, 2014 WL 2435659 at *8 (citing Boothe, 496 F.3d at 1174).
As previously noted, "allegations of different time periods of virtually the same scheme do little
to take away from their similarity under the public disclosure bar." Id.
Here, plaintiffs' claims are substantively identical with regard to the claims periods before
and after 2010. Thus, plaintiffs' allegations of fraud with respect to allegedly ineligible
expenditures of CDBG funding by the City have been publicly disclosed.
Finally, the court must determine "'whether the relator's complaint is based on those
[public] disclosures.'" Zizic, 728 F.3d at 237 (quoting Atkinson, 473 F.3d at 519); Moore, 812
F.3d at 301 (same). "To be based upon allegations or transactions of fraud, claims need not be
'actually derived from' public disclosures." Zizic, 728 F.3d at 237 (quoting Mistick, 186 F.3d at
385-88)). "Rather, claims need only be 'supported by' or 'substantially similar to' public
The pre-ACA FCA "barred actions 'based upon' publicly disclosed transactions or allegations
of fraud. Some courts held that this language meant the plaintiff must have 'actually derived' his
claims from the publicly disclosed source." Victaulic, 2014 WL 4375638 at *8 n. 9 (citing
Purdue, 737 F.3d at 917). The Third Circuit has "long held that to be 'based upon' the publicly
revealed allegations or transactions the complaint need only be 'supported by' or 'substantially
Here, the public disclosures, the City's submissions generated at the direction of and
made available for submission to HUD and the other qualifying news media reports, not only
support the plaintiffs' claims, but also are the basis for those allegations. Absent the public
disclosures containing the allegedly false certifications and misrepresented facts, plaintiffs would
not be able to advance the claims in the amended complaint. With respect to the news articles
regarding claims of ineligible expenditures, as noted above plaintiffs' amended claims virtually
are identical to the accusations raised therein. Both the news articles and plaintiffs' averments
accuse the City of using CDBG funding for ineligible expenditures, specifically to perform street
repair and purchase equipment. Thus, plaintiffs' claims of failing to affirmative further fair
housing and ineligible expenditures are substantially similar to and supported by the public
"Even if the public disclosure bar would otherwise apply to a claim, it does not when 'the
person bringing the action is an original source of the information.'" Zizic, 728 F.3d at 239
(citing 31 U.S.C. § 3730(e)(4)(A)). As noted, ACA brought about significant changes to the
definition of original source. As a result, the pre- and post-ACA versions of the FCA require
"entirely different" analyses in ascertaining whether a relator can qualify as an original source.
Moore, 812 F.3d at 305.
Under the pre-ACA FCA, "a relator must have direct and independent knowledge of
either Z, the alleged fraud, or both X and Y, the false and true sets of facts, to qualify under the
FCA's original source exception." Schumann, 769 F.3d at 846 (citing Atkinson, 473 F.3d at 519
similar to' the disclosed allegations and transactions." Id. (quoting Atkinson, 473 F.3d at 519)
(quoting Mistick, 186 F.3d at 385-88) (rejecting "a rule that 'based upon' means actually derived
from,' because such a rule would render the original source exception superfluous")). The postACA FCA, "which requires only that 'substantially the same allegations or transactions as
alleged in the action or claims were publicly disclosed,' appears to codify the Third Circuit's
and Springfield Terminal, 14 F.3d at 657)). A relator's knowledge must be "independent from
the information readily available in the public domain," which may be far more broad than the
enumerated sources qualifying as public disclosure sources. Moore, 812 F.3d at 305 (citing
Atkinson, 473 F.3d at 522-23 & 31 U.S.C. § 3730(e)(4)(B) (2012)). In other words, it must be
independent of all information readily available in the public domain. Id.
Direct knowledge is "first-hand, seen with the relator's own eyes, unmediated by anything
but [the relator's] own labor, and by the relator's own efforts, and not by the labors of others, and
. . . not derivative of the information of others." Schumann, 769 F.3d at 845 (quoting Paranich,
396 F.3d at 336 & n. 11). It must be "obtained without any 'intervening agency, instrumentality,
or influence: immediate.'" Id. (quoting Atkinson, 473 F.3d at 520 quoting Stinson, 944 F.2d at
1160). "The independent knowledge requirement means that 'knowledge of the fraud cannot be
merely dependent on a public disclosure.'" Id. (quoting Paranich, 396 F.3d at 336 (quoting
United States ex rel. Hafter v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160 (10th Cir.
1999)). "[A] relator who would not have learned of the information absent public disclosure
[does] not have 'independent' information" under the FCA. Id. (quoting Stinson, 944 F.2d at
Plaintiffs allege that they are original sources of their claims because of their status as
community advocacy groups in the City of Pittsburgh (and the related activities of their
individual members). They aver that through this role, they are "directly aware" of whether (1)
they receive proposed expenditures of CDBG funding as detailed in the City's reports and
documentation prepared for the benefit of and potential submission to HUD, (2) they or their
constituents receive notice of public hearings as required by the City's citizen participation plan,
(3) the City is fulfilling its obligations to affirmatively further fair housing, including generating
fair housing marketing plans, (4) the City is complying with its citizen participation plan, and (5)
the City is spending CDBG funding only on eligible expenditures. Their positions also permit
them to interact with constituents who would be targeted for citizen participation and
participating in actions aimed at affirmatively furthering fair housing through the use of CDBG
and HOME expenditures. They also regularly interact with community leaders who have
oversight regarding these processes. As individuals who reside and work in the City, they also
are "directly aware" that the City regularly and routinely engages in infrastructure and street
repair and that CDBG funding is used for these activities.
Plaintiffs' allegations are insufficient to overcome the pre-ACA public disclosure bar
because they have fail to plead direct and independent knowledge of the alleged fraud or its
premises. The City's publicly disclosed reports and documentation prepared for the benefit of
participating in the HUD programs create the very foundation of plaintiffs' claims failure to
affirmatively further fair housing. The news media reported allegations that the City
inappropriately had used and was continuing to use CDBG funds for ineligible expenditures.
From the City's report and documentation plaintiffs were able to discern that the City was
allegedly falsely certifying compliance with its obligations to affirmatively further fair housing.
From the news articles plaintiffs were able to discern that the City had refused to refrain from
using CDBG funding for ineligible expenditures. In other words, without these public
disclosures plaintiffs would be left with virtually no knowledge or information to prove their
asserted claims of false certifications of compliance with affirmatively furthering fair housing or
the consistent improper use of CBGD and HOME funding. In other words, even when measured
against only the qualifying public sources under the pre-ACA FCA, plaintiffs' claims are not
based on their own independent knowledge or experience, but rather are derived from their
ability to review the City's reports and documentation prepared in order to participate in the
CBGD and HOME funding programs and/or the new media surrounding the City's use of that
funding. In short, these claims essentially are derived from the knowledge of others who are
involved with the processes.
Furthermore, the Third Circuit has consistently rejected "the argument that a realtor's
knowledge is independent when it is gained through the application of expertise to information
publicly disclosed under § 3730(e)(4)(A)." Zizic, 728 F.3d at 240 (citing Atkinson, 473 F.3d at
526 n. 27 and Stinson, 944 F.2d at 1160). Here, "the the Relators' knowledge underlying their
complaint . . . is 'based on research and review of public records, not, with minor exceptions,
[their] own observation[s].'" U.S. ex rel. Lockey v. City of Dallas, 576 F. App'x 431, 438 (5th
Cir. 2014) (affirming motion to dismiss because relators alleging FCA violations based on the
City of Dallas' false certification that it would affirmatively further fair housing were not original
sources) (quoting U.S. ex rel. Reagan v. E. Texas Med. Ctr. Reg'l Healthcare Sys., 384 F.3d 168,
178-79 (5th Cir. 2004)). As such, it fails to clear the independent and direct knowledge
requirements needed to gain original source status.
Moreover, "the extent of reliance on information already in the public domain should be a
consideration during the original source inquiry, even if that information is not a public
disclosure within the meaning of § 3730(e)(4)(A)." Atkinson, 473 F.3d at 522. As the Third
Circuit explained in Zizic:
A relator's knowledge is independent if it does not depend on public disclosures.
Significantly, the concept of a public disclosure under § 3730(e)(4)(B) is broader
than the concept of a public disclosure under § 3730(e)(4)(A); a public disclosure
under § 3730(e)(4)(B) encompasses not only information that is disclosed via the
sources enumerated in § 3730(e)(4)(A), but also information that is part of the
public domain. This distinction is important. On the one hand, reliance solely on
public disclosures under § 3730(e)(4)(A) is always insufficient under §
3730(e)(4)(B) to confer original source status. On the other hand, reliance on
public information that does not qualify as a public disclosure under §
3730(e)(4)(A) may also preclude original source status, depending on the extent
of that reliance, and the nature of the information in the public domain, as well as
the availability of information, and the amount of labor and deduction required to
construct the claim.
Zizic, 728 F.3d at 240 (internal citations and quotations omitted).
Even if the City's reports and documentation prepared for participation in the programs
were not public disclosures under § 3730(e)(4)(A), the plaintiffs' allegations remain insufficient
to defeat the public disclosure bar because they do not reflect information from original sources,
but rather studied extrapolations from the entirety of the publicly available information on the
City's use of CBGD and HOME funding. Such studied dissertations fall short of bestowing
original source status.
Plaintiffs' pleadings also fall short of clearing the original source exception under the postACA FCA. Under the post-ACA FCA, original source status requires "knowledge that is
independent of and materially adds to the publicly disclosed allegations or transactions.”
Moore, 812 F.3d at 305 (quoting 31 § 3730(e)(4)(B) (2012) (emphasis in original)). The inquiry
is more restricted because among other things the relator's knowledge is not measured against all
of the information in the public domain, but instead is measured against only the "information
revealed through a public disclosure source in § 3730(e)(4)(A)." Id.
As previously explained, the City's AIs, AAPs, and CAPERs and the news articles
surrounding the City's alleged improper use of CDGD funding as well as the eruptions in City
council regarding the same continue to be information falling within the "news media" source of
public disclosures enumerated in § 3730(e)(4)(A). As such, they provide the backdrop against
which plaintiffs' claimed independent knowledge is to be measured.
Although the post-ACA narrows the sources of public information to be considered, it did
not re-define the term "independent." To be independent, a relator's knowledge "of the fraud
cannot be merely dependent on a public disclosure." Paranich, 396 F.3d at 336-37 (citing Hafter,
190 F.3d at 1160 ("[A] relator who would not have learned of the information absent public
disclosure d[oes] not have 'independent' information within the statutory definition of 'original
source.'") and Findley, 105 F.3d at 683 ("Independent knowledge is 'knowledge that is not itself
dependent on public disclosure.'") (quoting Quinn, 14 F.3d at 656)). In other words, a relator
must have knowledge of the fraud that is separate from the public disclosures under
consideration, that is "not dependent" or requiring or "relying on" such disclosures. Id. at 337 n.
In addition to being independent, a relator's knowledge must "materially add to" the
publicly disclosed allegations or transactions. The term "add" means to "put (something) in or
on something else so as to improve or alter its quality or nature" and the term "material" is
defined as "significant, influential, or relevant." Moore, 812 F.3d at 306. "So to 'materially add[
]' to the publicly disclosed allegation or transaction of fraud, a relator must contribute significant
additional information to that which has been publicly disclosed so as to improve its quality." Id.
The court's task in evaluating the information advanced by the relator is not to conduct a
simple comparison of the information publicly disclosed in the enumerated sources with the
allegations advanced by the relator. Moore, 812 F.3d at 306. After all, the original source
exception "comes into play only when some facts regarding the allegation or transaction have
been publicly disclosed. The salient issue, then, is how to distinguish additional but immaterial
information from information that 'materially adds' to the publicly disclosed allegation or
transaction of fraud." Id.
Rule 9(b) provides a useful benchmark for measuring when a relator's independent
knowledge "materially adds" to the publicly disclosed information. Moore, 812 F.3d at 307. As
a general matter, a plaintiff alleging fraud must ground its claim "with all of the essential factual
background that would accompany the first paragraph of any newspaper story - that is, the who,
what, when, where and how of the events at issue." Id. (quoting In re Rockefeller Ctr. Props.,
Inc. Securities Litig., 311 F.3d 198, 217 (3d Cir. 2002)). As applied to the post-ACA FCA
setting, "a relator materially adds to the publicly disclosed allegation or transaction of fraud
when it contributes information - distinct from what was publicly disclosed - that adds in a
significant way to the essential factual background: 'the who, what, when, where and how of the
events at issue.'" Id.
Plaintiffs have failed to advance allegations that are independent from and materially add to
what has been publicly disclosed. Devlin, 84 F.3d at 361 (“The fact that the relators had
evidence of the fraud prior to the public disclosure of the allegations establishes that their
knowledge was ‘independent.’ ”). Essentially all of the information comprising the transaction
of fraud as well as the direct accusation of fraud were disclosed through the qualifying reports
and other news media sources.
As to post-ACA failure to affirmatively advance fair housing transactions, plaintiffs add that
FHP did not receive funding for testing and contract compliance services as was represented in
the City's 2013 AI; NCFH's inability to receive copies of the City's marketing plans from 2011
after they were requested in 2012; the representation in the City's 2010 comprehensive annual
performance report that it was addressing the lack of economic opportunities in minority
neighborhoods through its Mainstreets program when NCFH, FUI and HDCG became aware that
the City's Mainstreets program operated exclusively in principally white business districts save
one neighborhood that had experienced gentrification and displacement; and the failure of the
2013 AI to (1) contain any analysis regarding racial segregation, concentration of assisted
housing in low income areas; (2) address meaningfully the production of affordable housing and
the ability to improve the ability to afford housing costs, (3) contain any analysis pertaining to
"whether discrimination has produced more severe conditions and restriction experienced by
racial minorities" and (4) contain projections about whether affordable housing will be located in
non-minority concentrated areas as well as to provide specific benchmarks to realize and market
As to their contentions pertaining to public participation, plaintiffs further aver that neither
they nor their constituents received notice of any public meetings regarding the City's 2010-2014
comprehensive consolidated plan and were unable to find any printed notice or advertisement
regarding such meetings. Along the same lines, the City awarded a 2012 grant to FHP but it
never even received a notice of the hearing where that grant was approved and it did not learn
that the analysis had been issued until after the comment period had expired. The City failed to
respond to specific written comments and subsequent oral objection made by George Moses to
the City's 2011 consolidated plan and then failed to document the objection or its reasons for
rejecting it – making its 2011 consolidated plan false when it can to the certification that the City
was accepting all commentary from the public hearing regarding that plan.15
As to their contentions pertaining to improper use, plaintiffs aver that since 2011 the City's
draft AAPs have frequently contained only a vague reference to the way funds will be designated
and/or utilized, while the final versions contains more specific but different allocations in
Because it already has been determined that plaintiffs' public participation allegations are not
within the scope of the qualifying public disclosures, this supplemental information on public
participation is recounted to assure that plaintiffs' post-ACA allegations have been fully
considered with regard to the affirmatively furthering fair housing and improper use components
of their FCA claim(s).
funding, thereby failing to provide adequate information to foster citizen participation. A portion
of CDBG and HOME funding is expended in a manner that is entirely outside the public
participation that has occurred, with plaintiff NCFH receiving such funding on one occasion and
plaintiffs being able to identify numerous other instances where such funding was used without
public participation regarding its ultimate use. Finally, plaintiffs and others personally have
raised objections to the City's use of CBGD funding for what is asserted to be general
The vast array of information forming the knowledge of plaintiffs was ascertained by a
careful and detailed study of (1) the City's reports and documentation prepared in order to
participate in the CBGD and HOME funding programs as well as (2) the City's responses to
specific "Right to Know" requests. The use of such funding has been raised in City council
meetings and the fallout from the ensuing discussions have been reported in articles and
commentary appearing in news media. As to this aspect of plaintiffs' information, which is the
lion's share of plaintiffs' information, it fails to amount to "independent knowledge" because it is
dependent on the City's activities as reflected in disclosures that qualify as enumerated public
disclosure sources. As with the pre-ACA FCA public disclosure bar, under the post-ACA public
disclosure bar plaintiffs' studied extrapolations from the qualifying publicly available
information on the City's use of CBGD and HOME funding fall short of bestowing original
The balance of information does not materially add to the information that has been
publically disclosed. When viewed against the backdrop of information that cumulatively was
disclosed at the relevant point in time, plaintiffs do not identify information that adds significant
unknown details to the essential factual background of the alleged fraud. To the contrary,
plaintiffs merely advance personal testimonials to minute aspects of what was disclosed in the
public disclosures. Such minute aspects of the deficient operations of the City are not accounts
of "the who, what, when, where, and how of the alleged fraud" that were not already publicly
disclosed. Consequently, plaintiffs are not entitled to evoke the exception to the public
disclosure bar under the post-ACA FCA.16
It follows that further proceedings on plaintiffs' affirmatively furthering fair housing and
improper use components of their pre- and post-ACA FCA claim(s) are precluded by the public
The City also moves for dismissal for failure to state a claim under Rule 12(b)(6) and the
pleading standards of Rules 8(a)(2) and 9(b). "The primary purpose of the FCA 'is to indemnify
the government - through its restitutionary penalty provisions - against losses caused by a
defendant's fraud.'" Wilkins, 659 F.3d at 304 (quoting Mikes v. Straus, 274 F.3d 687, 696 (2d
Cir. 2001) ("Mikes") (citing U.S. ex rel. Marcus v. Hess, 317 U.S. 537, 549, 551–52 (1943)). To
In replacing the jurisdictional aspect of the public disclosure bar with one mandating
dismissal, Congress necessarily jettisoned this analysis into the realm of Rule 12(b)(6). In doing
so, the court no longer has the freedom to weigh and decide what is or is not fact at this stage of
the litigation. Nevertheless, the court is charged by statute with dismissing the action if the claim
is predicated on information publically disclosed in the qualifying sources and the relator cannot
invoke the original source exception. In this regard, plaintiffs do not deny the existence of the
qualifying information upon which this analysis is based. Consequently, the court has taken
judicial notice of the information: not for the truth of its content, but merely for the purpose of
establishing its existence and availability for public consumption. Compare Moore, 812 F.3d at
301 n. 7 ("We also recognize that the defendants attached the two news articles to their motion to
dismiss, and that because these articles were not attached to Moore's complaint, a court would
not usually consider such evidence in deciding a Rule 12(b)(6) motion. Moore, however, has
conceded that these news articles qualify as news media and has not challenged their
authenticity, and so we will judicially notice them for the limited purpose of determining 'what
was in the public realm at the time, not whether the contents of those articles were in fact true.'")
(quoting Benak ex rel. Alliance Premier Growth Fund v. Alliance Capital Mgmt. L.P., 435 F.3d
396, 401 n. 15 (3d Cir.2006)).
state a claim under the FCA a qui tam plaintiff must plead sufficient facts to create a plausible
showing that the following elements are present: "(1) the defendant presented or caused to be
presented to an agent of the United States a claim for payment; (2) the claim was false or
fraudulent; and (3) the defendant knew the claim was false or fraudulent." Wilkins, 659 F.3d
295 at 305 (quoting Schmidt, 386 F.3d at 242) (citing Hutchins v. Wilentz, Goldman & Spitzer,
253 F.3d 176, 182 (3d Cir. 2001) ("Hutchins").
The FCA does not prohibit fraud by anyone who receives money from the federal
government; to the contrary, it "only prohibits fraudulent claims that cause or would cause
economic loss to the government." Garg v. Covanta Holding Corp., 478 F. App'x 736, 741 (3d
Cir. 2012) (quoting Hutchins, 253 F.3d at 179). Thus, although "false claim[s] may take many
forms," Wilkins, 659 F.3d at 306 (quoting S.Rep. No. 99–345, at 9 (1986), reprinted in 1986
U.S.C.C.A.N. 5266, 5274), something more than a funding recipient's improper use of
government funding is required to set forth a claim under the FCA. See Sanders, 545 F.3d at
259-60 ("the fraudulent scheme alleged by Sanders did not involve any claim against the
government inasmuch as allotment payments are not made on behalf of the United States, but
simply are made from the salary of military personnel as they direct") (citing United States ex
rel. Costner v. URS Consultants, Inc., 153 F.3d 667, 677 (8th Cir.1998) ("[O]nly those actions by
the claimant which have the purpose and effect of causing the United States to pay out money it
is not obligated to pay, or those actions which intentionally deprive the United States of money it
is lawfully due, are properly considered 'claims.'").
Moreover, false claims are either factually or legally false. Wilkins, 659 F.3d at 305
(citing U.S. ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir.
2008)). A factually false claim involves a misrepresentation of goods or services that the
claimant has provided to the government. Id. A legally false claim "is based on a 'false
certification' theory of liability." Id. at 305 (quoting Rodriguez v. Our Lady of Lourdes Med.
Ctr., 552 F.3d 297, 303 (3d Cir. 2008), overruled in part on other grounds by U.S. ex rel.
Eisenstein v. City of New York, 556 U.S. 928 (2009)).
A legally false claim can be based on an express or implied false certification. Id. (citing
Conner, 543 F.3d at 1217). A claimant makes an express false certification by "falsely certifying
. . . compliance with regulations which are prerequisites to Government payment in connection
with the claim for payment of federal funds." Id. (citing Rodriguez, 552 F.3d at 303).
Implied false certification occurs when a claimant submits a claim for payment "without
disclosing that it violated regulations that affected its eligibility for payment." Id. This is
because "the act of submitting a claim for reimbursement itself implies compliance with
governing federal rules that are a precondition to payment." Id. (citing Mikes, 274 F.3d at 699);
see also United States v. Science Applications International Corporation, 626 F.3d 1257, 1266)
(D.C. Cir. 2010) ("Courts infer implied certifications from silence where certification was a
prerequisite to the government action sought."). Thus, in contrast to reviewing the expressed
representations made to the government, an analysis of an implied false certification claim
focuses on "the underlying contracts, statutes, or regulations themselves to ascertain whether
they make compliance a prerequisite to the government's payment." Id. at 313 (citing Conner,
543 F.3d at 1218).
"As several courts of appeals have held, however, the implied certification theory of
liability should not be applied expansively." Wilkins, 659 F.3d at 307. In order to state a claim
for implied false certification a plaintiff must "allege not only a receipt of federal funds and a
failure to comply with applicable regulations, but also that payment of the federal funds was in
some way conditioned on compliance with those regulations." Id. at 307 (quoting Rodriguez,
552 F.3d at 304); accord U.S. ex rel. Sobek v. Educ. Mgmt., LLC, No. CIV.A. 10-131, 2013 WL
2404082, at *3 (W.D. Pa. May 31, 2013) (McVerry, J.) ("The test for a claim based on a false
certification theory is whether an alleged violation concerns a 'condition of payment,' i.e.,
whether such violation 'might cause [the government] to actually refuse payment.'") (quoting
Wilkins, 659 F.3d at 309) (citing United States ex rel Conner v. Salina Regional Health Center,
Inc., 543 F.3d 1211, 1220 (10th Cir. 2008)). In other words, a plaintiff must set forth a plausible
showing with sufficient particularity "that if the Government had been aware of the defendant's
violations of the . . . laws and regulations that are the bases of [the] plaintiff's FCA claims, it
would not have paid the defendant's claims." Wilkins, 659 F.3d at 307. This requirement is
necessary to prevent the FCA from being used as a "blunt instrument to enforce compliance with
all . . . regulations rather than only those that are a precondition to payment." Id. (quoting
Rodriguez, 552 F.3d at 304) (quoting Mikes, 274 F.3d at 699) (internal quotation marks
"In determining whether compliance with a regulation was a condition of payment from
the Government, courts have distinguished between regulations which are conditions of
participation in the . . . programs and conditions of Government payment of . . . funds." Id. at
309 (citing Conner, 543 F.3d at 1220; Mikes, 274 F.3d at 697) ("Since the Act is restitutionary
and aimed at retrieving ill-begotten funds, it would be anomalous to find liability when the
"[T]he Third Circuit has not addressed whether preconditions for payment must be expressly
set forth by rule, statute, or other source, or whether such preconditions may be implied." Dale
v. Abeshaus, No. 06-CV-04747, 2013 WL 5379384, at *13 n. 71 (E.D. Pa. Sept. 26, 2013)
(internal citations and quotations marks omitted); accord Zwirn, 2014 WL 2932846 at *11
(noting a circuit split "regarding preconditions for payment under implied certification theories
of liability" and opining that the "Third Circuit does not appear to have joined a side in the split")
(citing Dale and Science Applications, 626 F.3d at 1269-70).
alleged noncompliance would not have influenced the government's decision to pay.").
An important distinction is that a condition of participation is "enforced through
administrative mechanisms, and the ultimate sanction for violation of such conditions is removal
from the government program." Id. at 309. In contrast, conditions of payment "are those which,
if the government knew they were not being followed, might cause it to actually refuse
payment." Id. (citing Conner, 543 F.3d at 1220).18
Relying on a false certification theory, plaintiffs here assert that the City submitted
express and implied false certifications to HUD in order to obtain CDBG, HOME and other
federal funding. Express false certifications of compliance assertedly were made in the
consolidated plans and documentation prepared on behalf of and/or for submission to HUD. The
City also purportedly made implied false claims through drawdowns or requests for
reimbursement made via HUD's Integrated Disbursement and Information System ("IDIS")
because these requests implied that the City had complied with the applicable laws and
regulations. Plaintiffs do not identify any specific drawdown requests that were in violation of
In light of the Third Circuit's distinction between conditions of payment and conditions of
participation, plaintiffs' reliance on U.S. ex rel. Anti-Discrimination Ctr. of Metro New York,
Inc. v. Westchester Cnty., N.Y., ("Westchester") in support of their contention that the
regulations are without further analysis conditions of payment is inapposite. 668 F. Supp. 2d
548, 567 (S.D.N.Y. 2009) (opining that "in the context of a grant applicant for government
funds, the distinction between participation and payment collapses."). While the proposition
noted in Westchester remains pertinent to a complete failure (or non-feasance) to perform a basic
statutory and/or regulatory requirement for a grant to a public entity receiving money for a
beneficent public purpose, it is quite a different proposition to apply such a principle cart-blanc
where the false claim is predicated on what can at best be characterized as mal-feasance –
intentional or otherwise.
The City's argument that plaintiffs must identify specific claims for payment in order to
survive a motion to dismiss or meet the particularity standard under 9(b) is unavailing. The
Third Circuit has "never have held that a plaintiff must identify a specific claim for payment at
The parties do not dispute that Pittsburgh is "an entitlement community," which means
that it receives CDBG funding based on its status as a metropolitan city and its ability to meet
other qualifications. The amount of funding an entitlement community receives is determined
according to a statutory formula. 24 C.F.R. § 570.3. The City contends that its status as an
entitlement community carries with it the consequence that its certifications do not influence the
amount of funding it receives and thus as a matter of law the certifications are conditions of
participation, not conditions of payment.
Plaintiffs point to several regulations in support of their contention that the identified
instances of the City's non-compliance reflect representations that were conditions of payment.
In general, 24 C.F.R. § 91.225(a)(1) delineates the certifications that must be made in a grantee's
consolidated plan and requires that those certifications be "satisfactory to HUD." This includes a
certification that the "grantee will comply with the other provisions of this chapter and with other
applicable laws." 42 U.S.C. § 5304(b)(6).
Plaintiffs cite 42 U.S.C. § 5304(b)(2) in support of their claim that defendant's alleged
non-compliance with the duty to affirmatively further fair housing was a condition of payment.
It provides: "[a]ny grant under section 5306 of this title shall be made only if the grantee
certifies to the satisfaction of the Secretary that . . . the grant will be conducted and administered
in conformity with the Civil Rights Act of 1964 [42 U.S.C. §§ 2000a et seq.] and the Fair
Housing Act [42 U.S.C. §§ 3601 et seq.], and the grantee will affirmatively further fair housing."
the pleading stage of the case to state a claim for relief." Wilkins, 659 F.3d at 308 (citing
Fowler, 578 F.3d at 213) (emphasis in original); accord Foglia, 754 F.3d at 153 (rejecting the
representative sample standard and finding that "requiring this sort of detail at the pleading stage
would be 'one small step shy of requiring production of actual documentation with the complaint,
a level of proof not demanded to win at trial and significantly more than any federal pleading
rule contemplates.'") (quoting US ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir.
Plaintiffs also allege that the certifications regarding a grantee's citizen participation plan
are conditions of payment. They point out that "[a] grant under 5306 . . . may be made only if
the grantee certifies that it is following a detailed citizen participation plan" and that any such
plan must meet several statutory and regulatory requirements, including a certification that the
grantee is "following a residential anti-displacement and relocation assistance plan." 42 U.S.C. §
5304(a)(3), 42 U.S.C. § 5304(d)(1) and 24 C.F.R. § 91.105(b)(1).
Finally, plaintiffs contend that compliance with the regulation specifying that CDBG
funds are not to be used for "general government expenses" also is a condition of payment. 24
C.F.R. § 570.207(a)(2). The receipt of HOME funds assertedly is conditioned on similar
certifications of compliance. 24 C.F.R. § 92.150.
The statutory provisions and regulations identified by plaintiffs are enforced through
administrative mechanisms established and managed by HUD. Among other things, these
administrative mechanisms establish performance criteria used to evaluate a grantee's
compliance and provide numerous opportunities for the grantee to correct identified deficiencies
in compliance. Repeated deficiencies can lead to sanctions.
For example, if a grantee fails to comply with the performance criteria identified in 24
C.F.R. §§ 570.902 (timeliness of CDBG-funded activities), 570.903 (review to determine if
grantee is meeting consolidated plan responsibilities), or 570.904 (equal opportunity and fair
housing review criteria), HUD will provide the grantee with an opportunity to provide additional
information and demonstrate compliance with the performance criteria. 24 C.F.R. § 570.900(4)
& (5). If HUD thereafter finds that the grantee is not meeting the performance criteria, then
HUD may require "appropriate corrective or remedial actions," ranging from a warning letter to
collection proceedings. 24 C.F.R. § 570.900(6) and 24 C.F.R. § 570.910 (identifying corrective
and remedial actions). Prior to imposing a "corrective or remedial action," HUD will consider
the recipient's capacity as described in 24 C.F.R. § 570.905 ("In making the determination, the
Department will consider the nature and extent of the recipient's performance deficiencies, types
of corrective actions the recipient has undertaken and the success or likely success of such
actions.") and balance the various factors as reflected in the attendant circumstances. 24 C.F.R.
The Secretary may impose sanctions if the grantee fails to undertake appropriate
corrective or remedial actions to resolve the performance deficiency. See 24 C.F.R. § 570.911
(reduction, withdrawal, or adjustment of a grant or other appropriate action), 24 C.F.R. §
570.912 (nondiscrimination compliance), or 24 C.F.R. § 570.913 (other remedies for
noncompliance). The most severe sanction imposed by HUD is the reduction or termination of
funding. This sanction is not imposed until HUD provides notice of the "proposed action" and
an "opportunity . . . for an informal consultation." 24 C.F.R. § 570.911(a). HUD retains a great
deal of discretion in deciding an appropriate sanction. See 24 C.F.R. § 570.911(b) ("The amount
of the reduction shall be based on the severity of the deficiency and may be for the entire grant
A grantee's failure to comply with the nondiscrimination provisions of the Act as
recounted in 24 C.F.R. § 570.602 also is subject to additional remedial mechanisms and process.
Upon a finding of noncompliance the Secretary will provide notice and a "request to secure
compliance." 24 C.F.R. § 570.913. If the grantee fails to secure compliance within a reasonable
time, the Secretary may (1) recommend the institution of civil proceedings to the Attorney
General, (2) "[e]xercise the powers and functions provided by title VI of the Civil Rights Act of
1964 (42 U.S.C. 2000d)," or (3) exercise the powers and functions provided for in 24 C.F.R. §
570.913 (other remedies). 24 C.F.R. 570.912(a); see also 42 U.S.C. §§ 5309(b), 5311. The
"other" remedies include notice and opportunity for a hearing before an administrative law judge
and judicial review in federal district court. 24 C.F.R. § 570.913; see also 42 U.S.C. §§ 5309(b),
The regulatory scheme demonstrates that satisfactory compliance with the regulations
applicable to CDBG and HOME fund recipients is a condition of participation. Plaintiffs'
attempt to transform the various deficiencies highlighted in the City's eight year administration
of the programs under review into a claim based on a complete failure that amounts to a
condition precluding payment is unavailing for several reasons.
First, the statutory and regulatory provisions advanced by plaintiff repeatedly call for
compliance to a degree that is satisfactory to the Secretary. For example, the statutory mandate
in 42 U.S.C. § 5304(b) requires that grants under § 5306 "be made only if the grantee certifies to
the satisfaction of the Secretary that" the grantee is in compliance with several requirements
pertaining to public participation, anti-discrimination laws, goals aimed at maximizing the
projected impact of the funding on certain urban conditions, the overall goals of the statutory
program, restrictions on recovering capital costs and so forth. Likewise, the regulatory scheme
requires that grantees "resolve the deficiency to the satisfaction of the Secretary" or face further
corrective measures or sanctions. 24 C.F.R § 570.900(b)(7). Thus, the statutes and regulations
cited by plaintiff contain language that requires "satisfactory compliance" as determined by the
Secretary and such congressional and administrative mandates stop short of reflecting an actual
condition of payment. Compare Richards, 29 F. Supp.3d 553, 564 (holding that a Section 8
housing assistance payment ("HAP") contract was a condition of payment because it provided
that "[u]nless the owner has complied with all provisions of the HAP contract, the owner does
not have a right to receive housing assistance payments under the HAP contract."); Wilkins, 659
F.3d at 309 (regulations reflecting conditions for ongoing participation do not establish a basis to
state a claim predicated on a condition of payment).
Second, the complexity and breath of community development funding demonstrate that
the provisions advanced by plaintiff are conditions of participation. One need look no further
than plaintiffs' amended complaint to form an impression regarding the complexity of the
regulations. For example, plaintiffs originally alleged that the City was required to conduct a full
AI each year. The Fair Housing Guide, Exhibit 1 (Doc. No. 34-1) to plaintiffs' complaint, clearly
indicates that once the initial AI is completed, grantees may "update their AI at least once every
3 to 5 years (consistent with the Consolidated Plan cycle)." Exhibit 1 (Doc. No. 34-1) at 2-6
("Entitlement jurisdictions that have previously completed an AI and have begun taking actions
to address any identified impediments are not required to complete a new analysis at this time.
Instead, those jurisdictions are encouraged to update their AIs consistent with [the Fair Housing
Planning Guide.]"). Similarly, a review of the scope and breadth of the grant program under
which the CDBG and HOME funding is administered demonstrate that the funding is
conditioned on the need to meet numerous requirements and address multiple social, economic,
and environmental evils that have surfaced in the modern urban environment. See 42 U.S.C. §
5310 et seq. The regulations seeking to implement that program equally are complex and
extensive. See 24 C.F.R § 570.1 et seq. The complexity and breadth of the programs and the
numerous goals to be accomplished almost assure that a grantee on the level of the City will face
various instances of non-compliance from time-to-time. Such complexity and multiple
objectives signal that compliance is a condition of participation. Cf. Wilkins, 659 F.3d at 310
("we think that anyone examining Medicare regulations would conclude that they are so
complicated that the best intentioned plan participant could make errors in attempting to comply
Third, HUD has established extensive administrative mechanisms for managing and
correcting deficient performances and noncompliance violations, which include remedies for
violations other than the withholding or repayment of grant funding. The regulatory scheme
provides for annual review (or more frequently if deemed appropriate by the Secretary) for
compliance with (1) the primary and national objectives of the Community Development Act, 24
C.F.R. § 570.901, (2) the timely performance of CDBG-funding activities, 24 C.F.R. § 570.902,
(3) the achievement of consolidated plan responsibilities, 24 C.F.R. § 570.903, (4) the
requirements to administer the grant in accordance with equal opportunity and fair housing
criteria, 24 C.F.R. § 570.904, (5) the grantee's ability to continue to carry out CBGD funding
activities in a timely manner, 24 C.F.R. § 570.905, and (6) the general compliance by all
government entities in an urban county, 24 C.F.R. § 570.906. The regulations vest the Secretary
with the ability to initiate a wide array of actions upon the finding of a deficiency, including the
issuance of a letter of warning, calling for the submission of proposals for correction, issuing a
schedule governing the implementation of corrective measures, implementing management and
responsibility assignment plans, precluding the future receipt of funding based solely on
certification, suspending funding for any identified deficient activity, mandating reimbursement
and reprogramming for any amounts improperly expended, changing the method of receipt from
a letter of credit to reimbursement, and instituting collection proceedings as to certain recipients.
24 C.F.R. § 570.910. The regulations likewise provide for extensive review and interaction as
part of the Secretary's determination of appropriate corrective and remedial measures. 24 C.F.R.
§§ 570.911-13. Such a scheme provides strong support for the notion that the government
considers compliance to be a condition of participation and does not expect ongoing mistake-free
compliance as a condition to receiving each segment of funding. Cf. Wilkins, 659 F.3d at 310
("Further, considering that the Government has established an administrative mechanism for
managing and correcting Medicare marketing violations which includes remedies for violations
other than the withholding of payment otherwise due, it is clear that, although the Government
considers substantial compliance with the marketing regulations 'a condition of ongoing
Medicare participation, it does not require perfect compliance as an absolute condition for
receiving Medicare payments for services rendered.'") (quoting Conner, 543 F.3d at 1221).
Fourth, the regulatory scheme does reflect separate considerations for entitlement
communities such as the City when it comes to deficiencies and subsequent remedial measures.
Past violations are to addressed in a manner that affects funding in a succeeding year. See 24
C.F.R. §§ 570.910(b)(8), 570.911(b). The Secretary may condition the use of funds from a
succeeding year upon an appropriate corrective action. 24 C.F.R. § 570.910(b)(8). After
informal consultation and notice and an opportunity to be heard, and consistent with the general
process outlined in 24 C.F.R. § 570.900(b), the Secretary may "make a reduction in the
entitlement . . . grant amount either for the succeeding program year or, if the grant had been
conditioned, up to the amount that had been conditioned." 24 C.F.R. § 570.911(b). Thus, the
regulatory scheme incorporates a forward-looking approach as to corrective measures needed for
an entity such as the City to meet deficiencies and attain compliance.
The Third Circuit has cautioned against reading the FCA in a manner that would make
every violation of a complex regulatory scheme into a fraud claim. See Wilkins, 659 F.3d at 310
(like other courts, "we question the wisdom of regarding every violation of a Medicare regulation
as a basis for a qui tam suit.") (citing Conner, 543 F.3d at 1221 and Mikes, 274 F.3d at 699-700).
Where there are extensive regulatory measures for maintaining compliance within a complex
regulatory scheme and a federal bureaucracy statutorily charged with implementing that scheme,
using the FCA to regulate performance carries with it the consequence of shifting enforcement of
the scheme to the courts at the expense of losing the expertise of the federal agency. Id. at 31011 ("In the circumstances, we believe that by permitting qui tam plaintiffs to file suit based on
the violation of regulations which may be corrected through an administrative process and which
are not related directly to the Government's payment of a claim, courts unwisely would shift the
burden of enforcing the Medicare regulations to themselves even though the administration of
the vast and complicated Medicare program is best left to the administrators.). Such an approach
has the potential to extend the FCA far beyond its intended purpose. Id. at 311.
Moreover, recognizing the non-compliance raised by plaintiffs as stating a claim under
the FCA would short-circuit the very remedial process Congress saw fit to implement with the
expansive and multi-purposed community development funding in question. Permitting such an
end run around the corrective process and remedial measures governing a government entity's
receipt of such funding would at the very least be a curious application of the FCA. Cf. id. at
310 ("“It would . . . be curious to read the FCA, a statute intended to protect the government's
fiscal interests, to undermine the government's own regulatory procedures.") (quoting Conner,
543 F.3d at 1222). Given these circumstances, we decline plaintiffs' invitation to venture down
such a path.
Against this backdrop plaintiffs' reliance on Westchester is unavailing. In Westchester,
the plaintiffs alleged that the county, a recipient of CDBG funding, "knowingly submitted false
certifications that it would affirmatively further fair housing by, inter alia, failing to analyze
impediments to fair housing choice within the County in terms of race." 668 F.Supp.2d at 551.
The defendant in Westchester contended that there was "no legal obligation to consider race
when it analyzed impediments to fair housing in connection with its certifications." Id. at 550.
Plaintiff avers that the only factor distinguishing its claims from those in Westchester is
that the City has not conceded its failure to analyze racial impediments. In an attempt to
analogize this case to Westchester, plaintiffs baldly assert that the City failed to consider or
analyze the effect of race and race discrimination in identifying impediments to fair housing or to
take appropriate actions to overcome these impediments, contrary to the City's certifications.
But plaintiffs' complaint acknowledges several racially driven impediments identified by the City
in its AI reports. And as previously noted, Westchester involved non-feasance of the statutory
mandate to analyze the impediments to fair housing that are related to race. The County of
Westchester did not undertake that analysis and instead simply opted to conduct an analysis that
focused solely on the availability "affordable housing."
In contrast, the information properly within the court's current review demonstrates that
the City did undertake at various times to analyze all of the impediments mandated for
maintaining its participation in the funding programs. What plaintiffs complain about is the
frequency and thoroughness of the City's ongoing assessments in this and the related areas. Such
undertakings and perceived shortcomings are sufficient to remove plaintiffs' allegations from the
realm of setting forth a plausible showing of violating a condition of payment and place them in
the category of conditions of ongoing participation. The correction of these conditions of
participation is committed to the sound discretion of HUD.
Plaintiffs also argue that the "existence of an administrative enforcement mechanism does
not preclude the possibility of an FCA claim." Sobek, 2013 WL 2404082 at *4 (citing United
States ex rel Onnen v. Sioux Falls Indep. Sch. Dist., 688 F.3d 410, 414-15 (8th Cir. 2012)); see
also United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1176 (9th Cir. 2006)).
This is true. The court in Sobek also observed that in general whether a defendant has "complied
with/and or did not knowingly violate . . . the regulations . . . is a fact intensive defense" which in
that case did "not justify dismissal at the pleading stage." Sobek, 2013 WL 2404082 at *4 (citing
Onnen, 688 F.3d at 414-15). But Judge McVerry aptly opined in Sorek that "[t]he scope of
regulatory requirements and sanctions may affect the fact-intensive issue of whether a specific
type of regulatory non-compliance resulted in a materially false claim for a specific government
payment." Id. (citing Wilkins). And it is this aspect of Sobek that exemplifies in application
why HUD, and not this court, is the entity that must address the City's allegedly deficient
compliance with the statutory and regulatory authority governing community development
In order to avoid turning the FCA into "a blunt instrument to enforce compliance with all
regulations," a plaintiff proceeding under an implied certification theory "must show that if the
Government had been aware of the defendant's violations of the  laws and regulations that are
the bases of a plaintiff's FCA claims, it would not have paid the defendant's claims." Wilkins,
659 F.3d at 307 (citing Conner, 543 F.3d at 1219–20 ("If the government would have paid the
claims despite knowing that the contractor has failed to comply with certain regulations, then
there is no false claim for purposes of the FCA.")). At this stage plaintiffs are required to set
forth a factual showing with particularity that reflects a plausible showing of entitlement to relief
under this legal paradigm. They have failed to do so. Consequently, the City's motion to dismiss
for failure to state a claim must be granted as to all the categories of plaintiffs' FCA claim for this
reason as well.
For the reasons set forth above, defendant's motion to dismiss plaintiffs' amended
complaint will be granted. An appropriate order will follow.
Date: March 31, 2016
s/David Stewart Cercone
David Stewart Cercone
United States District Judge
Donald Driscoll, Esquire
Kevin Quisenberry, Esquire
Michael A. Comber, Esquire
John C. Hansberry, Esquire
Lourdes Sanchez-Ridge, Esquire
(Via CM/ECF Electronic Mail)
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