St. Paul back in court on landmark legal case

U.S. District Court Judge Donovan Frank put it plainly Friday morning: he questioned from the bench whether an assistant U.S. Attorney had "concealed" some of the circumstances that led the judge to throw out a federal whistleblower lawsuit this summer.

That case, better known as The United States of America, ex. rel. Fredrick Newell vs. City of St. Paul, Minnesota is the fulcrum of a controversy playing out in the federal courts and in Congress, and often the pages of the Wall Street Journal.

That case involves a St. Paul small businessman, who says he found out that the city was improperly documenting the circumstances under which it got nearly $200 million in federal housing grants. "Specifically, he alleged that the city had falsely certified that it was compliant with Section 3's training and employment requirements for low-income individuals," says a letter signed by four Republican members of Congress including the chairs of two House committees.

At one point, the feds sided with Newell, according to documents dug up by Congressional investigators. And the feds might have asked for the money back.

But along the way, the U.S. Department of Justice apparently found something it wanted more: St. Paul had a date with the U.S. Supreme Court -- in an entirely separate case -- to challenge a legal theory known as "disparate impact." In Magner v. Gallagher, landlords in St. Paul said that the city's aggressive housing code enforcement was disparately hurting minority housing, and thus discriminatory. It's also the theory the feds used to bring mortgage banks to heel for their lending practices in the run-up to the housing crisis. The letter signed by U.S. Rep. Darrell Issa and others estimates the feds won about $750 million from the banks with that theory.

"The symmetry was not lost on the parties," conceded the city's attorney, John Lundquist., an outside counsel hired from Fredrikson & Byron. "What we learned was the DOJ was concerned... the issue of disparate impact was front and center, teed up for Supreme Court review. It had the potential for gutting one of their principal tools in civil rights cases."

And at some point earlier this year, an understanding was reached. Attorneys argued in court today whether it was a gentleman's agreement or a more formal legal settlement. Both sides dropped their cases.

Newell, however, had been counting on the feds to help make his case -- and earn him a piece of the return if HUD got money back from the city. Instead, he watched the feds bow out and the case collapse. It was dismissed in July.

Judge Frank asked Newell's attorney if he was going to suggest "a lawyer from the U.S. Attorney's office and one or more of the attorneys sitting to your right concealed from me the facts... a settlement."

Which is precisely what attorney Tom DeVincke told the judge. He said the deal between the city and the federal government, unmentioned in the arguments for tossing Newell's case, violated a fundamental principle of justice in the courts: full disclosure.

DeVinke asked the judge to vacate his decision to toss Newell and let a full court investigation commence, with an eye, perhaps, of getting a chunk of the $750 million the feds won from the mortgage banks.

"A [private person] can't be treated any worse," DeVincke told the judge. "The U.S. compromised his case and they received everything they wanted out of it."

California GOP Congressman Issa is asking similar questions from his Committee on Oversight & Government Reform, as well. An Oct. 26 letter signed by Issa questions the propriety of the deal, the "quid pro quo" was front and center at today's court hearing. He's been following the case up the Department of Justice chain of command.

Some have questioned how high up the chain it might go. The city hired former U.S. Attorney David Lillehaug to plead its case -- leading to some speculation that he might have appealed as far up the ladder as Attorney General Eric Holder.

"No," Lillehaug said, when asked if that was the case outside the courtroom today. "Not true."

Lundquist, the city's attorney, told the judge that Newell's case might not have survived anyway, and questioned Newell's qualifications as a "whistleblower," rather than a run-of-the-mill government critic.

He also said that the judge didn't have the jurisdiction to force the Obama administration to intervene in the Newell case -- that the feds often decline to get involved in whistleblower cases for reasons they're not obliged to even discuss.

Lundquist says he often works on such cases, known as "false claims act" cases, because they involve alleged improprieties of government funds by a third party - a claimant. "It's standard operating procedure to get the government to decline (to intervene), on the facts, on the law, on the policy," Lundquist said.

"That the DOJ, at a very high level engaged in a fraud to deceive the court... nothing could be further from the truth," he said.

Donovan said he planned to rule on whether Newell could revive his case and start legal discovery within 30 days.

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