City of Chi. ex rel. Rosenberg v. Redflex Traffic Sys., Inc.

884 F.3d 798

CITY OF CHICAGO, Plaintiff–Appellee,

EX REL. Aaron M. ROSENBERG, Plaintiff–Appellant,

v.REDFLEX TRAFFIC SYSTEMS, INC. and Redflex Holdings, Ltd., Defendants–Appellees.

No. 17-1524

United States Court of Appeals, Seventh Circuit.

Argued February 13, 2018

Decided March 12, 2018

John J. Muldoon, III, Attorney, Muldoon & Muldoon, Chicago, IL, Michael R. Williams, Attorney, Bienert Miller & Katzman, PLC, San Clemente, CA, for Plaintiff–Appellant.

Stephen G. Collins, Attorney, City of Chicago Law Department, Anand C. Mathew, Attorney, Honigman Miller Schwartz & Cohn LLP, Chicago, IL, for Plaintiff–Appellee.

Anand C. Mathew, Attorney, Honigman Miller Schwartz & Cohn LLP, Chicago, IL, for Defendant–Appellee Redflex Traffic Systems, Incorporated, a Delaware corporation.

Steven A. Weiss, Attorney, Honigman Miller Schwartz & Cohn LLP, Chicago, IL, for Defendants–Appellees.

Before Sykes and Barrett, Circuit Judges, and Griesbach, District Judge.^*

Griesbach, District Judge.

In this classic case of chutzpah, Aaron Rosenberg, a former employee of Redflex Traffic Systems, Inc. (RTSI), seeks a share of the proceeds his former employer paid the City of Chicago to settle the case against it arising out of the fraud Rosenberg helped perpetrate. In a thorough decision, the district judge concluded that Rosenberg was neither the original source of the information on which the action was based, nor was he a volunteer within the meaning of the Chicago false claims ordinance that authorized the action. The district court therefore granted the defendants’ motion to dismiss Rosenberg’s claim for lack of jurisdiction and denied Rosenberg’s request for attorney’s fees. Compounding his audacity even more, Rosenberg appeals. We now affirm.

I. Background

RTSI, a Delaware corporation with its principal place of business in Arizona, produces and maintains traffic safety systems for various governmental entities. Aaron Rosenberg, a citizen of California, was RTSI’s Vice President of Sales and Marketing for North America. In 2003, RTSI entered into a contract with the City of Chicago to manage the City’s digital automated red light enforcement program (DARLEP). John Bills, the deputy-commissioner of the City’s Department of Transportation at the time, was responsible for overseeing the City’s contract with RTSI. RTSI retained Martin O’Malley to be its Chicago liaison for the contract.

In March 2012, the Chicago Tribune began printing a series of articles that inquired about the relationship between RTSI and Bills. On March 13, 2012, the Tribune explained that the City sought bids to replace the red-light cameras with automated speed cameras and that Resolute Consulting LLC, a consulting firm that worked closely with RTSI, promoted RTSI’s bid for the project. The article reported Bills, who had supervised RTSI’s DARLEP contract with the City, had recently retired from his position with the City and now worked for Resolute and the RTSI-funded Traffic Safety Coalition.

On October 14, 2012, the Tribune published an article entitled "City red-light camera vendor under scrutiny," which questioned the friendship of Bills and O’Malley. Its investigation revealed that Bills had ties to O’Malley before the City entered into the DARLEP contract with RTSI. Though RTSI claimed it was unaware of this relationship at the time it hired O’Malley to be its Chicago liaison, the Tribune reported it obtained a copy of an August 2010 letter from an RTSI executive to Redflex Holdings, Ltd. (RHL), RTSI’s Australian parent company, which acknowledged Bills’ relationship with O’Malley, asserted O’Malley’s role in the DARLEP contract with the City was unnecessary, and alleged Rosenberg’s expense report revealed RTSI had paid the tab for one of Bills’ stays at a luxury hotel in Phoenix, Arizona in 2010. The article noted RTSI required that Rosenberg attend anti-bribery training but did not report the incident to the City’s Board of Ethics. Three days later, the Tribune reported the City removed RTSI’s bid for the new speed camera contract because it failed to report Rosenberg’s conduct to the Board of Ethics. It revealed that the City Office of Inspector General (OIG) sought to investigate the allegations related to the bribery scheme.

On October 18, 2012, the OIG notified RTSI of the pending investigation, advised RTSI that it had an obligation to cooperate, and served a request for documents on the company. RTSI subsequently hired the law firm Sidley Austin to facilitate its own independent investigation into the bribery allegations and to assist the company with the OIG investigation. In the meantime, the Tribune continued to report on the bribery scheme. It reiterated that the City had rejected RTSI’s bid for the new contract because it was a "non-responsible bidder" and noted Bills was asked to resign from his post on the Cook County Employee Appeals Board. The Tribune reported Sidley Austin would assist RTSI in cooperating with the OIG’s investigation and conduct an internal investigation, and revealed RHL filed a report with the Australian Securities Exchange advising that it would take appropriate actions to ensure its commitment to the highest ethical standards.

On January 31, 2013, Sidley Austin attorney Scott Lassar met with an OIG representative to provide information about RTSI’s relationship with Bills which included RTSI’s findings that RTSI paid for Bills’ and O’Malley’s hotel, airfare, and golf expenses seventeen times; that Bills initiated the bribery scheme by offering to help RTSI secure the camera contract in exchange for compensation; that Bills suggested RTSI hire O’Malley to serve as the liaison for the contract and facilitate the payments from RTSI to Bills; that RTSI paid O’Malley over $2,000,000 from 2003 to 2012; and that Network Electric was a potential conduit for payments to Bills.

As part of the investigation, an OIG representative met with Rosenberg, who was represented by counsel, on February 4, 2013. An attorney from Sidley Austin was also present. The OIG advised Rosenberg that he had a duty to cooperate with the investigation and that his statements would not be used against him in a criminal proceeding. During the interview, which lasted nearly a full day, Rosenberg described the bribery scheme between RTSI and Bills. He revealed the travel and other benefits RTSI provided to Bills, O’Malley’s involvement as a conduit for RTSI’s payments to Bills, the communications within RTSI about the scheme, and upper management’s knowledge of the scheme. RTSI terminated Rosenberg’s employment with the company on February 20, 2013.

Four days after Rosenberg’s interview, the Chicago Tribune reported the conclusions of RTSI’s investigation. It noted the investigation revealed company executives courted Bills with thousands of dollars in free trips to the Super Bowl and other events and raised questions into the company’s hiring of O’Malley. The Tribune revealed RTSI would lose its DARLEP contract with the City. On February 22, 2013, the Tribune reported that RTSI terminated Rosenberg for his "dishonest and unethical conduct" and filed a lawsuit against him in Maricopa County, Arizona, regarding the bribery scheme. In a March 2013 article, the Tribune disclosed that RTSI’s attorneys acknowledged that it was "likely true" that its officials intended to bribe Bills. On March 4, 2013, the Tribune noted RHL had filed a public summary of the investigation with the Australian Securities Exchange. The Tribune reported the scheme came under federal criminal investigation in a March 16, 2013 article. Reports regarding the bribery scheme continued into 2014.

On April 15, 2014, Rosenberg filed this action against RTSI under seal pursuant to the qui tam provision of the City’s False Claims Ordinance (FCO), Chicago Municipal Code §§ 1–22–010 et seq. , in the Circuit Court for Cook County. Rosenberg alleged RTSI engaged in a bribery scheme and other illegal activities to obtain a contract with the City related to its digital automated red-light camera enforcement program. The City subsequently intervened in the action, and RTSI removed the case to federal court, asserting diversity jurisdiction under 28 U.S.C. § 1332. The City then amended the complaint to include allegations against RHL and supplemented the FCO claim with additional claims under the Chicago municipal code, Illinois statutes, and common law.

On February 16, 2016, RTSI and RHL moved to dismiss Rosenberg as relator pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. The court granted the motion and dismissed Rosenberg as relator. The City, RTSI, and RHL reached a settlement and moved to dismiss the lawsuit with prejudice on February 6, 2017. Rosenberg filed a petition for an award of a relator’s share of the settlement proceeds and attorney’s fees for his lawyer’s contributions to the case. The district court denied Rosenberg’s petition. Rosenberg now appeals both district court decisions.

II. Analysis

We review the district court’s dismissal for lack of subject-matter jurisdiction de novo . Glaser v. Wound Care Consultants,Inc. , 570 F.3d 907, 912 (7th Cir. 2009) (citing Scott v. Trump Ind., Inc. , 337 F.3d 939, 942 (7th Cir. 2003) ); see also United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc. , 764 F.3d 699, 707 (7th Cir. 2014) ("We review de novo challenges made pursuant to the FCA’s bars." (citing United States ex rel. Feingold v. AdminaStar Fed., Inc. , 324 F.3d 492, 494–95 (7th Cir. 2003) ) ). Yet, we review findings of fact considered in determining jurisdiction only for clear error. Absher , 764 F.3d at 707 (citations omitted).

The City’s FCO is an anti-fraud ordinance that closely mirrors the federal False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq. Under the ordinance, a party that engages in fraud against the City is liable for civil penalties and treble damages. Chi. Mun. Code § 1–21–010. An action may be brought on behalf of the City by either corporation couns...