United States ex rel. Wuestenhoefer v. Jefferson
105 F. Supp. 3d 641
N.D. Miss.2015Background
- Relator Kelly Wuestenhoefer, a former SDRHA employee, filed a qui tam FCA action alleging HUD fund misuses, improper interfund write-offs, false invoicing/contract payments orchestrated by Executive Director Ann Jefferson, and unlawful retaliation after she cooperated with FBI/HUD OIG investigations.
- SDRHA pooled HUD administrative and HAP funds into a Business (operating) account and recorded interfund "due to/due from" balances; certain year-end interfund balances were "written off" in 2009–2010 after debate among Jefferson, fee accountant Michael Lloyd, and auditor Charles Buchanan.
- HUD performed a Limited Financial Assessment (LFA) finding write-offs that resulted in unallowable use of federal funds; Jefferson was criminally indicted and later convicted for embezzlement and for retaliating against Relator; convictions were affirmed on appeal.
- Defendants moved for summary judgment on multiple grounds: public-disclosure bar, that mixing funds was permitted by HUD, lack of FCA claim or scienter, lack of causation/damages, and that individual defendants lacked requisite knowledge or participation; Lloyd moved to strike part of Relator’s expert report.
- The court applied pre-2010 FCA public-disclosure law (complaint filed Feb 12, 2010), held that Buchanan audits filed in prior civil litigation were public disclosures but that the LFA and Lloyd reports were not public, rejected dismissal on public-disclosure grounds, and parsed which FCA theories survive summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Public‑disclosure bar | Relator is original source; audits/reports did not publicly disclose impropriety | Defendants: audits/Lloyd reports/LFA publicly disclosed the transactions barring suit | Court: FY2007–2008 audits were public disclosures but did not plausibly disclose impropriety; LFA and Lloyd reports were not public; public‑disclosure defense denied. |
| Mixing of HUD and non‑HUD funds | Mixing/commingling made claims false and supports FCA liability/damages | Defendants: HUD permits pooling and separate accounting suffices; transfers not false claims | Court: HUD allows pooling absent a specific legal requirement for separate accounts; mixing alone is not an FCA false claim — claims based solely on mixing dismissed. |
| False claims for payments (false invoices/contract checks) and imputation of scienter | Relator: Jefferson caused false invoices and checks; entity and board liability via causation or reckless oversight | Defendants: fraud was Jefferson’s personal profiteering (Ridglea), scienter not imputable; payments from operating account not FCA claims | Court: Genuine issues exist that Jefferson caused false claims (invoice and contract schemes); scienter not imputable to SDRHA from Jefferson’s personal benefit but Board’s deliberate ignorance/recklessness raises a fact issue permitting imputation to SDRHA; summary judgment denied on these invoice/contract claims (limited to specific schemes supported by evidence) and granted in other respects. |
| Inter‑fund write‑offs (reverse false claims) | Relator: write‑offs concealed/avoided obligations to HUD under ACC and regulations (31 U.S.C. § 3729(a)(1)(G)) | Defendants: write‑offs were HUD administrative remedies/contract breaches not FCA; Court lacks jurisdiction or write‑offs not false claims | Court: Write‑offs created disputed issues on obligation, falsity, scienter (auditor/Jefferson/Lloyd), and damages — reverse‑false‑claim theory survives summary judgment. |
| Conspiracy | Relator: Jefferson conspired with contractors/auditors to submit false claims and conceal debts | Defendants: intra‑corporate conspiracy doctrine; no evidence of shared specific intent by agents/auditors | Court: No conspiracy liability as to SDRHA for auditor/fee accountant absent evidence they shared specific intent; conspiracy claims dismissed against SDRHA (except where independent‑stake exception might apply, but Relator provided insufficient proof). |
| Retaliation (§ 3730(h) and § 1513(e)) | Relator: suspension, demotion, harassment, termination were because she cooperated with FBI/HUD OIG | Defendants: actions were for legitimate operational reasons; no causal link to protected activity | Court: § 1513(e) private claim dismissed; FCA § 3730(h) claim for termination failed (no but‑for causation), but claim for retaliatory harassment (hostile work environment) survives as genuine issue of material fact. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U.S. 401 (2011) (2010 FCA amendments not retroactive)
- U.S. v. Jefferson, 751 F.3d 314 (5th Cir. 2014) (affirming Jefferson’s criminal convictions relied on as evidence)
- Grubbs v. Kanneganti, 565 F.3d 180 (5th Cir. 2009) (provable billing schemes and inferences of false claims)
- Longhi v. United States, 575 F.3d 458 (5th Cir. 2009) (FCA materiality and damages principles)
- U.S. ex rel. Vavra v. Kellogg Brown & Root, Inc., 727 F.3d 343 (5th Cir. 2013) (discussion of Ridglea and vicarious scienter)
- Ridglea State Bank v. United States, 357 F.2d 495 (5th Cir. 1966) (employee intent not imputable to employer when acting for personal benefit)