As HUD, Dallas wrestle over money meant for low-income housing, appeals court rules on case that sparked investigation

Sources inside Dallas City Hall confirm that city officials, including Dallas Mayor Mike Rawlings, are negotiating a settlement with the United States Department of Housing and Urban Development, which said late last year that

the city's affordable-housing practices reveal a long pattern of discrimination against minorities and the disabled

. The

city has denied the allegations

outlined in

HUD's November 22 letter of findings

, insisting in its response that HUD's letter was "

based on outdated and incomplete information

” and “ignored most of the city’s substantial accomplishments to develop affordable housing.” Nevertheless, sources indicate HUD wants Dallas to return a not-so-small fortune.

City officials won't comment on settlement attempts, and the only thing a HUD spokesperson will say is, "We have not finalized a Voluntary Compliance Agreement with the City of Dallas."

Meanwhile, the federal lawsuit that led to HUD's scathing missive keeps getting shot down in federal court: Yesterday the U.S. Court of Appeals for the Fifth Circuit upheld a previous ruling that dismissed a 2011 complaint filed by developers Curtis Lockey and Craig MacKenzie, who have long claimed that the city killed

their 7-year-old plans to redevelop the former LTV Tower


According to their complaint, city officials who initially approved $102 million in bond funding ultimately killed the deal because they didn't want to fill the 32-story downtown building with low-income housing -- despite the fact some of the money going into the project was federal money aimed at providing affordable housing. Their lawsuit alleges that Karl Zavitkovsky, head of the city's Office of Economic Development, told them “Downtown Dallas is not the right place for low-income housing” and “Low-income housing is not part of the vision for Downtown Dallas.” The pair say they ultimately “came to the conclusion that the City was actively discouraging the development of low-income housing available for people of color outside of the Southern Sector” and that “the City was not promoting housing integration, but rather was furthering segregation.”

Lockey and MacKenzie claim they lost $30 million on the project, and filed a federal False Claims Act against the city by positioning themselves as whistle-blowers who, after 15 months of digging into Dallas' dirt, got HUD to take a long, hard look at the city's fair-housing practices. Says their suit, Dallas has spent years dumping its workforce housing south of downtown -- something with which HUD agreed when it wrote that "the evidence shows that there was a pattern of negative reactions to projects that would provide affordable housing in the northern sector of Dallas."

But despite all that, the courts continue to rule that Lockey and MacKenzie were not whistle-blowers at all, just very good reporters.

The appeals court's ruling essentially says that their first-hand knowledge of the city's pattern of segregation is limited at best, based solely on a few sentences allegedly uttered by a city official. Per the ruling, "The overwhelming majority of the complaint is thus based not on [Lockey and MacKenzie's] personal experiences with the City, but on their research of publicly disclosed information." And that, says the panel, isn't good enough. In the words of the appeals court, they are not the "original source" of the information, which means they can't be whistle-blowers, which means they can't collect under the False Claims Act.

Lockey and MacKenzie's attorney argue that since they're the ones who put HUD on the city's trail, that ought to count for


. The three-justice panel disagrees.

Says the opinion issued by the appeals court, HUD's letter of noncompliance issued in November 2013 "would not have produced a different result as to whether [Lockey and MacKenzie] were an original source of the information underlying their allegations against the DHA. As to the City, the HUD letter simply shows that HUD found the allegations in the [developers']


complaint to have merit; it does not offer insight into whether the[y] had 'direct' and 'independent' knowledge of the information underlying their separate complaint in this FCA action, which is predominantly based on an investigation of publicly disclosed information."

In other words: Lockey and MacKenzie didn't blow the whistle on the city. They merely reiterated what everyone already knew.

Yesterday's outcome, perhaps, is not surprising: Last month the developers' Denver-based attorney, Sean Connelly, made his case to the appeals court panel, which spent much of its time grilling the lawyer about the contents of their complaint. You can listen to the oral arguments


, but long story short, the panel said in July what it reiterated yesterday: Lockey and MacKenzie's lawsuit is built upon a single conversation with a city official surrounded by a lot of historical

"The fundamental allegation of the complaint is that the city of Dallas had an obligation to affirmatively further fair housing," Connelly told the justices, "and not only did they not


further fair housing, they affirmatively undercut it -- intentionally undercut fair housing -- and that's an allegation now supported by HUD, obviously."

"Y'all have done amazing and wonderful research of public documents and so forth, and that's very admirable," responded Justice Catharina Haynes. "But when we're focusing in on what happened to your clients specifically, I am not aware of anything other than this conversation in which this one guy form the city says, 'Low-income housing isn't part of our vision or whatever for Dallas.' ... Your clients felt like they were being jacked around, and I understand that."

Just not enough to side with Lockey and MacKenzie.

Messages were left late Monday for Connelly, who has not yet said if he will appeal to the U.S. Supreme Court, which would be his next stop. Last night we also asked the Dallas City Attorney's office for a response to the ruling. We will update if and when either responds. Until then the ruling is below.

Fifth Circuit Tosses Lockey Et Al v City of Dallas




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