[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
DOJ'S QUID PRO QUO WITH ST. PAUL: A WHISTLEBLOWER'S PERSPECTIVE
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
JOB CREATION AND REGULATORY AFFAIRS
of the
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
and the
SUBCOMMITTEE ON THE CONSTITUTION AND CIVIL JUSTICE
of the
COMMITTEE ON JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MAY 7, 2013
__________
Serial No. 113-23
(Committee on Oversight and Government Reform)
__________
Serial No. 113-6
(Committee on Judiciary)
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform http://judiciary.house.gov
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin
DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky PETER WELCH, Vermont
DOUG COLLINS, Georgia TONY CARDENAS, California
MARK MEADOWS, North Carolina STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Economic Growth, Job Creation and Regulatory Affairs
JIM JORDAN, Ohio, Chairman
JOHN DUNCAN, Tennessee MATTHEW A. CARTWRIGHT,
PATRICK T. McHENRY, North Carolina Pennsylvania, Ranking Minority
PAUL GOSAR, Arizona Member
PATRICK MEEHAN, Pennsylvania TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSantis Florida
COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAU?AE1L LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on the Constitution and Civil Justice
TRENT FRANKS, Arizona, Chairman
JIM JORDAN, Ohio, Vice-Chairman
STEVE CHABOT, Ohio JERROLD NADLER, New York
J. RANDY FORBES, Virginia JOHN CONYERS, Jr., Michigan
STEVE KING, Iowa ROBERT C. ``BOBBY'' SCOTT,
LOUIE GOHMERT, Texas Virginia
RON DeSANTIS, Florida STEVE COHEN, Tennessee
[Vacant] TED DEUTCH, Florida
Paul B. Taylor, Chief Counsel
David Lachmann, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on May 7, 2013...................................... 1
WITNESSES
The Honorable Charles E. Grassley, A U.S. Senator from the State
of Iowa
Oral Statement............................................... 10
Written Statement............................................ 14
The Honorable Johnny Isakson, A U.S. Senator from the State of
Georgia
Oral Statement............................................... 19
Mr. Fredrick Newell, St. Paul, Minnesota, Accompanied by Mr.
Thomas Devincke, Malkerson Gunn Martin LLP
Oral Statement............................................... 21
Written Statement............................................ 24
Ms. Shelley R. Slade, Partner, Vogel, Slade and Goldstein, LLP
Oral Statement............................................... 56
Written Statement............................................ 59
APPENDIX
Letter to the Honorable Christopher B. Coleman, Mayor, City of
Saint Paul..................................................... 96
Letters to The Honorable Eric H. Holder, Jr., Attorney General,
U.S. Department of Justice..................................... 101
Letters to the Honorable Thomas E. Perez, Assistant Attorney
General, Civil Rights Division, U.S. Department of Justice..... 109
Letter from Gary L. Azorsky and Jeanne A. Markey, Cohen Milstein. 114
Letter from Ben Bernia, The Vernia Law Firm...................... 118
Mr. Stephen Gillers, Elihu Root Professor of Law, New York
University School of Law, Statement............................ 124
The Honorable Jerrold Nadler, a Member of Congress from the State
of New York, Opening Statement................................. 126
The Honorable Elijah E. Cummings, a Member of Congress from the
State of Maryland, Opening Statement........................... 130
DOJ'S QUID PRO QUO WITH ST. PAUL: A WHISTLEBLOWER'S PERSPECTIVE
----------
Tuesday, May 7, 2013
House of Representatives,
Subcommittee on Economic Growth, Job Creation, and
Regulatory Affairs,
Committee on Oversight and Government Reform, joint with
Subcommittee on the Constitution and Civil Justice,
Committee on the Judiciary,
Washington, D.C.
The subcommittees met, pursuant to call, at 10:06 a.m., in
Room 2154, Rayburn House Office Building, Hon. Jim Jordan
[chairman of the Subcommittee on Economic Growth] presiding.
Present: Committee on Oversight and Government Reform:
Representatives Jordan, DeSantis, Duncan, McHenry, Collins,
Meadows, Issa, Cartwright, Connolly, Pocan, Kelly, Horsford,
and Cummings.
Committee on the Judiciary: Representatives Franks,
Goodlatte, Chabot, King, Gohmert, Nadler, Conyers, Scott, and
Jackson Lee.
Staff Present, Committee on Oversight and Government
Reform: Ali Ahmad, Communications Advisor; Alexia Ardolina,
Assistant Clerk; Molly Boyl, Parliamentarian; Lawrence J.
Brady, Staff Director; David Brewer, Senior Counsel; Ashley H.
Callen, Senior Counsel; Steve Castor, General Counsel; John
Cuaderes, Deputy Staff Director; Adam P. Fromm, Director of
Member Services and Committee Operations; Linda Good, Chief
Clerk; Tyler Grimm, Senior Professional Staff Member;
Christopher Hixon, Deputy Chief Counsel, Oversight; Michael R.
Kiko, Staff Assistant; Justin LoFranco, Digital Director; Mark
D. Marin, Director of Oversight; Laura L. Rush, Deputy Chief
Clerk; Jaron Bourke, Minority Director of Administration;
Jennifer Hoffman, Minority Press Secretary; Carla Hultberg,
Minority Chief Clerk; Adam Koshkin, Minority Research
Assistant; Jason Powell, Minority Senior Counsel; Brian Quinn,
Minority Counsel; Dave Rapallo, Minority Staff Director; and
Rory Sheehan, Minority New Media Press Secretary.
Staff Present, Committee on the Judiciary: Dan Huff;
Counsel; John Coleman, Counsel; Zach Somers, Counsel; Sarah
Vance, Clerk; Heather Sawyer, Minority Counsel; and Veronica
Eligan, Minority Clerk.
Mr. Jordan. The joint committee will come to order. I want
to thank our witnesses for being here today.
Senator Grassley, Senator Isakson, we will get to you as
quickly as we can. You know the routine. You have got to listen
to us first. We have got some brief opening statements and then
we will get right to your testimony.
We have convened this joint hearing to examine the
importance of whistleblowers to good government. These brave
individuals shed light on waste, fraud and abuse, often at
great personal or professional risk and make what we do in
Congress a whole lot easier. We should always be grateful for
the sacrifice these individuals make and proud of their
contributions to the Nation.
Perhaps the most important tools that whistleblowers have
are the qui tam provisions of the False Claims Act. Senator
Grassley, who we will hear from shortly, was instrumental in
amending the False Claims Act in 1986 to ensure whistleblowers
are protected. This year, of the $4.9 billion of False Claims
Act recoveries, $3.3 billion came from whistleblower suits, a
record amount.
It is within this setting that I am so troubled by the quid
pro quo between the Department of Justice and the City of St.
Paul. In 2009, Fredrick Newell filed a whistleblower complaint
alleging that the City of St. Paul, Minnesota, had fraudulently
received millions in Federal dollars. Career DOJ and HUD
attorneys investigated his case for almost 3 years. And by
November 2011, the United States Government was poised to join
the case on Mr. Newell's behalf. These career attorneys told
Mr. Newell that the United States strongly supports his case
and would intervene on his behalf.
Documents support this impression that the case was strong.
In a memo from November 2011, the career attorneys wrote, the
city repeatedly and falsely told HUD and others it was in
compliance. The city knowingly submitted false claims in order
to obtain Federal funds. The career attorneys also wrote, We
believe this is a particularly egregious example of false
certifications given by a city that was repeatedly shown what
it had to do but repeatedly failed to do it. These attorneys
recommended the United States intervene in the case.
Then, Assistant Attorney General Thomas Perez stepped in
and executed a quid pro quo with St. Paul to ensure that the
United States Supreme Court did not consider an unrelated
appeal concerning a controversial theory under the Fair Housing
Act.
To prevent the appeal from getting before the court, Perez
leveraged Mr. Newell's whistleblower case. He promised St. Paul
that the United States would not intervene in the case in
exchange for St. Paul withdrawing the Supreme Court appeal.
Unfortunately, Mr. Perez was successful.
In a closed-door meeting in the St. Paul city hall, he
convinced the city to agree to the deal. The next week, the
Department of Justice declined to intervene in Mr. Newell's
case. The following day, the city withdrew its Supreme Court
appeal. The quid pro quo was complete.
This effectively killed Mr. Newell's case, as St. Paul was
able to dismiss the case on grounds that would not have been
available if the Department of Justice had joined the case. As
a result, Federal taxpayers lost the chance to recover up to
$200 million. In addition, residents of St. Paul lost the
chance to better their community and improve their economic
opportunities, the goal Mr. Newell had all along.
More alarming about this quid pro quo is the precedent that
this case sets for future whistleblowers who bring claims of
waste, fraud and abuse, only to be thrown under the bus for
political purposes.
I want to applaud Mr. Newell for his courage in appearing
here today to tell his story and for his work in identifying
misspent Federal funds. And I look forward to hearing from all
of our witnesses in just a few minutes. And with that, I would
yield to the ranking member, the gentleman from Pennsylvania,
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
I would like to welcome our witnesses here today, including
attorney Shelley Slade, a nationally recognized expert on
government fraud lawsuits and, in fact, a board member of
Taxpayers Against Fraud in this country. Ms. Slade will be able
to clarify some significant misunderstandings that the majority
seems to have about these Federal fraud lawsuits, called qui
tam lawsuits.
And I would like to welcome Mr. Newell, who by all accounts
is an active citizen, committed to advocating for economic
opportunities for low-income individuals and businesses.
The majority has staged today's hearing to discredit the
President's nominee for Secretary of Labor with baseless
accusations of fabricated, dubious----
Mr. Issa. Mr. Chairman, Mr. Chairman.
Mr. Jordan. The gentleman from California.
Mr. Issa. I regret to ask the gentleman to either rephrase
or take down his words. To disparage the reason for this
hearing is to disparage the chair. It is well-known that to
claim that the intent is somehow nefarious and not what the
hearing is about is, in fact, to disparage the chairman.
Would the gentleman take down his words.
Mr. Nadler. Mr. Chairman.
Mr. Jordan. The gentleman from New York is recognized.
Mr. Nadler. Mr. Chairman, to comment on the motivation or
the purpose of the hearing is well within fair comment and this
attempt by the gentleman from California to stop free and fair
debate is wrong. And the words should not be taken down. They
are well within fair comment, and the purpose of the hearing is
open to anyone's comments, as is anything else about the
hearing.
Mr. Issa. Does the gentleman insist that our reason for
this hearing is the nefarious purpose other than, in fact,
righting a wrong that is perceived by the chair and by many
experts?
Mr. Jordan. The gentleman can respond.
Mr. Cartwright. Mr. Chairman, the word ``nefarious'' was
not used, and the only word that was used was that the attempt
is being made to discredit the President's nominee for
Secretary of Labor, and I feel that is an appropriate comment.
Mr. Issa. Mr. Chairman.
Mr. Jordan. The gentleman from California.
Mr. Issa. I would raise the point of order that this
investigation began 10 months ago and has been endlessly
delayed by documents requested, not granted, and that
ultimately, we reach this point only because of a long delay
from the time of the action. So, again, I would ask that the
gentleman recognize the full length of the investigation, the
attempts to right this wrong for many months, long before a
rather obscure member of the Attorney General's staff, by
comparison to being a Cabinet appointee, was ever announced.
Mr. Nadler. Mr. Chairman.
Mr. Jordan. The gentleman from New York is recognize.
Mr. Nadler. What the gentleman from California just said is
his view. It is subject to debate. It is subject to other
people's views and has nothing to do with taking down words and
stifling legitimate debate. He is entitled to his view.
Mr. Issa. Does the gentleman stand by his words accusing
the chair of doing this for that purpose?
Mr. Cartwright. I absolutely do stand by my words, and in
fact, the timing that the gentleman from California raises is
important as well because we expect to hear these
unsubstantiated allegations repeated tomorrow by Republican
Senators at the Senate Health, Education, Labor, and Pensions
Committee hearing on the nomination of Tom Perez as Secretary
of Labor. It is unlikely, however, that these Senators will
repeat the only true facts that today's hearing will uncover,
that experts say that Mr. Perez acted completely appropriately,
within ethical boundaries, and in the best interest of this
country.
Mr. Newell and his attorney were invited to give a
whistleblower's perspective on DOJ's decision not to intervene
in his False Claims Act lawsuit. However, neither Mr. Newell,
nor his attorney is----
Mr. Issa. Mr. Chairman, since the gentleman has returned to
his opening statement, I would ask that my motion be withdrawn
at this time. I will sit through this dialogue, but only under
protest.
Mr. Jordan. The gentleman's complaint has been recognized.
The gentleman may proceed.
Mr. Cartwright. Neither Mr. Newell nor his attorney is an
expert in the Federal law in which Mr. Newell's lawsuit is
based, and more importantly in this case, Mr. Newell is not
technically a qualifying whistleblower for the lawsuit. Experts
we have consulted, including Ms. Shelley Slade, who is one of
the preeminent False Claims Act litigators in our Nation, has
concluded that Mr. Newell's lawsuit brought through the advice
of his attorney was weak, failed to fulfill statutory
requirements, and was susceptible from the moment it was filed
to dismissal. These are the facts.
DOJ intervenes in about 25 percent of all false claims
lawsuits. Mr. Newell's lawsuit was therefore treated in the
same manner as a majority of similar lawsuits brought to DOJ.
The committee's investigation has turned up no evidence
whatsoever of unethical or improper actions by the department.
In fact, the majority cannot point to a single ethics rule or
standard of professional conduct that was violated. The
department's decision not to intervene did not end the case;
rather Mr. Newell was free to pursue his lawsuit without the
Federal Government, as all qui tam relators are in these cases.
However, the case was dismissed by a Federal Court judge
because Mr. Newell failed to meet that statutory requirement of
a qualifying whistleblower, as I mentioned before. He did not
have any original independent knowledge of the false claims by
the City of St. Paul.
So DOJ's decision not to intervene was the correct one and
was supported by senior career officials regarded as the
government's preeminent experts in their field and based on the
facts of the particular case. The majority takes issue with
efforts by DOJ and Tom Perez, then Assistant Attorney General
for Civil Rights and today President Obama's nominee for
Secretary of Labor, to preserve the concept of disparate
impact, an important civil rights enforcement tool that helps
prevent housing and lending discrimination from a potentially
adverse Supreme Court ruling in an unrelated legal matter.
Mr. Perez told the committee staff that disparate impact
was used by DOJ in settling a case involving Countrywide
Financial that was the largest residential fair lending
settlement in the history of the Fair Housing Act. This
settlement helped hundreds of thousands of victims harmed by
widespread practices or patterns of discrimination in lending.
But this valuable enforcement tool faced potential problems in
the context of a case, called Magner v. Gallagher, which was
scheduled to be heard by the U.S. Supreme Court. As every
lawyer knows, bad facts make bad law, and Magner was a strange
case with bad facts. That case, landlords of low-income housing
units, sued the City of St. Paul for alleged aggressive
enforcement of housing safety codes to address: ``rodent
infestation, missing dead bolt locks, inoperative smoke
detectors, poor sanitization, and inadequate heat.'' They
claimed that if they were forced to fix these very basic
problems, they would have to close the buildings, causing
people to lose housing options.
I find it hard to believe that anybody intended the Fair
Housing Act to be used as a shield to prevent landlords from
correcting housing code violations in their buildings. And I
believe it was prudent of the Department of Justice and Tom
Perez to be concerned that a majority of the Supreme Court
might take advantage of the irony to deliver a setback to the
enforcement of these antidiscrimination laws.
Working with St. Paul to withdraw the appeal was in the
best interest of protecting civil rights law and in the best
interest of DOJ. Thank you, Mr. Chairman.
Mr. Jordan. Thank the gentleman.
The chairman of the Constitution Subcommittee of Judiciary,
Mr. Franks, is recognized.
Mr. Franks. Well, let me begin by thanking the Chairman for
allowing the Constitution Subcommittee members to join in
today's hearing. We appreciate that very much and I also want
to express my appreciation for Senator Grassley's and Senator
Isakson's presence.
We have called this hearing to examine the quid pro quo
between the City of St. Paul and Assistant Attorney General Tom
Perez; a quid pro quo that cost U.S. taxpayers the opportunity
to recover over $200 million along with being an injustice and
a disservice to this Nation. This secret deal consisted of the
Justice Department's agreeing to decline intervention in Mr.
Newell's false claims case against the City of St. Paul in
exchange for the City withdrawing an appeal from the Supreme
Court.
To paraphrase the maxim that is inscribed on the wall
outside the Office of the Attorney General of the United
States: the government prevails not when it wins its case in
court but when justice is done.
Over the years, attorneys within the Justice Department had
consistently taken the steps necessary to ensure that they live
up to this maxim. Unfortunately, Assistant Attorney General Tom
Perez has failed to meet these expectations. Instead, Mr. Perez
manipulated the rule of law and pushed the limits of justice to
strike a deal with the City of St. Paul to block the Supreme
Court from hearing an appeal that would have placed in jeopardy
his division's use of an unjust legal theory.
This theory, known as disparate impact, has allowed the
Civil Rights Division to target banks and others for policies
that are neutral and nondiscriminatory in their intent but may,
nonetheless, have a disproportionate impact on certain groups.
It was the use of this theory that in many ways precipitated
the Nation's foreclosure crisis, as lenders lowered their
borrowing criteria to avoid disparate impact claims.
Mr. Perez went out of his way to find leverage to use
against the City to get it to drop its case before the high
court. And after he found that leverage, he began personally
directing and advising officials at the Department of Housing
and Urban Development and career attorneys within the DOJ's
Civil Division, and at the U.S. Attorneys' Office in Minnesota
to get them to switch their position on Mr. Newell's False
Claims Act case.
Once Mr. Perez achieved this goal, he tried to cover up his
secret deal by instructing career attorneys to omit any
discussion of the Supreme Court appeal from their official memo
on Mr. Newell's case. He further attempted to cover the deal up
by insisting that the final deal with the City not be reduced
to writing; instead insisting that your ``word was your bond.''
How sadly ironic that in the same breath, Mr. Perez was
breaking both his word and his bond to uphold justice.
Assistant Attorney General Perez' deal, his secret deal
will have lasting consequences for the Department of Justice,
the City of St. Paul, and the American taxpayers. In overruling
career attorneys and ignoring its own internal procedures, the
Department weakened the False Claims Act and created a large
disincentive for citizens to expose fraud. The City of St. Paul
missed a tremendous chance to improve the economic
opportunities available to the low- and very low-income
residents that Mr. Newell championed. American taxpayers lost a
strong opportunity to recover over $2 million of fraudulently
spent funds and justice was ultimately and deliberately denied.
Mr. Perez' actions in facilitating and executing this quid
pro quo with the City of St. Paul represented a fundamental
disregard for the rule of law. Rather than allowing the Supreme
Court to freely and impartially adjudicate an appeal that the
court had affirmatively chosen to hear, Mr. Perez deliberately
worked to get the appeal off the Court's docket.
Instead of permitting the normal decisionmaking process to
occur within the Civil Division, Mr. Perez usurped the process
to ensure his preferred course of action occurred. That others
within the Justice Department and HUD went along with Mr.
Perez' departure from the rule of law is also a disgrace. I
look forward to the witnesses' testimony. I hope that it can
shed further light on this disturbing chapter.
Again, I want to thank Senators Grassley and Isakson for
taking time out of their busy schedules to be with us here
today, and I would also like to thank our whistleblower witness
Fredrick Newell for his courage and for taking the time to
travel for the second time from Minnesota to be part of this
investigation.
Mr. Chairman, I thank you and yield back.
Mr. Issa. Mr. Chairman.
Mr. Jordan. I thank the gentleman.
Mr. Issa. Mr. Chairman.
Mr. Jordan. The chairman of the full committee is
recognized.
Mr. Issa. In support of my earlier motion, I would ask
unanimous consent that the letter the committee sent, the
Subcommittee Chairman Patrick McHenry, sent on February 27,
2012, to Christopher Coleman, the mayor of St. Paul, less than
30 days after dismissal of the case.
I would also ask unanimous consent that the April 10th 2012
letter, to the Attorney General Eric Holder, again questioning
this action in 2012, more than a year ago, be placed in the
record.
Additionally, I would ask that the September 24, 2012,
letter to the Attorney General, again, questioning this
dismissal on legal grounds be placed in the record.
Additionally, I would ask that the letter of March 27th,
2013 to Thomas Perez be placed in the record.
And last, the April 4, 2013, letter jointly signed by
myself, and Mr. Goodlatte be placed in the record in support of
the time and effort we have put into this investigation.
Mr. Nadler. Mr. Chairman, reserving the right to object.
Can I----
Mr. Jordan. Certainly.
Mr. Nadler. I have no objection to placing anything the
gentleman wants in the record. I was a little confused. You
said you wanted to place it in support of--I am sorry, you said
you wanted to place these documents in the record in support of
something. In support of what?
Mr. Issa. The gentleman, the ranking member of the
subcommittee has chosen to claim motives related to an
impending appointment. These documents clearly show a pattern
from almost the moment that we became aware of them.
Mr. Nadler. So, going to the majority's motive for this
hearing, in effect.
Mr. Issa. Going to the ranking member's assertion of a
motive----
Mr. Nadler. Supporting your opposition, supporting the
beneficent interpretation of the majority's motive for this
hearing. Right?
Mr. Issa. Does the gentleman continue to reserve?
Mr. Nadler. I am just asking you that.
Mr. Issa. The gentleman cast a question for some unknown
reason as to the motives for this hearing. These documents
clearly show that long before anyone could have imagined, first
of all, President Obama perhaps having a second term, but
certainly, the fact that he would elevate this individual with
this kind of a record to be a full Cabinet officer, thus making
it very clear that our investigation began in earnest after
this quid pro quo, long before that time.
Mr. Nadler. I will--since--since I believe anybody can put
anything in the record, I withdraw the objection.
Mr. Jordan. Without objection----
Mr. Issa. Thank you.
Mr. Jordan. --the documents will be made a part of the
record.
Mr. Jordan. We now recognize the distinguished Senator from
the State of Iowa.
Mr. Nadler. Excuse me.
Mr. Jordan. I am sorry, Mr. Nadler. You talked so much, I
thought you gave your statement. We will let you go now.
The gentleman from New York is recognized.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, today's hearing is not about Mr. Newell, or
about protecting legitimate whistleblowers. It is about Tom
Perez, the current Assistant Attorney General of the Justice
Department Civil Rights Division and President Obama's nominee
to be the next Secretary of Labor.
Tomorrow is the Senate's markup of Attorney General Perez'
nomination. The entire purpose of this hearing is to attack the
leadership and reputation of one of this Nation's best public
servants, Tom Perez. Of course, the Constitution grants the
Senate, not the House, the role of providing advice and consent
to the President on nominees. Whatever input into that process
we might wish to have, it should not devolve into the type of
partisan attack that this hearing represents.
My Republican colleagues have declared that Assistant
Attorney General Perez, ``manipulated justice and ignored the
rule of law,'' by successfully negotiating an agreement with
City of St. Paul, Minnesota, to withdraw its appeal to the
Supreme Court in Magner v. Gallagher.
But Assistant AG Perez did nothing wrong. On the contrary,
he acted professionally and appropriately and in full accord
with ethical and professional responsibility requirements to
advance the best interest of the United States.
The Magner case challenged the use of disparate impact
theory to enforce the housing laws. Disparate impact theory
allows the government to challenge policies or practices that
are seemingly neutral on their face but in practice result in
discrimination against a protected class. It is a critical tool
for weeding out all forms of discrimination, whether
intentional or not, and ensuring equality of opportunity for
all. It has long been used by Republican and Democratic
administrations to attack discriminatory lending, employment,
and housing practices.
An adverse ruling from the court in Magner could have
eliminated use of this critical civil rights enforcement tool.
Assistant AG Perez viewed Magner, where landlords of low-income
housing were making the novel argument that disparate impact
theory prevented St. Paul from enforcing its housing codes, as
an extremely poor factual vehicle for presenting this critical
theory to the Supreme Court.
Rightly concerned that bad facts make for bad law, he
seized the chance to reach an agreement with the city to
withdraw Magner and avoid the risk of an adverse ruling. There
was nothing wrong with that. It is what any good lawyer would
do and certainly what the steward of the Justice Department
Civil Rights Division should do to safeguard the best interest
of the United States.
My Republican colleagues are unhappy that the court did not
get the opportunity to eliminate the disparate impact theory.
After all, they dispute the use of disparate impact, and
dislike the robust enforcement of civil rights laws. And they
are unquestionably angry at Mr. Perez for his role in
convincing St. Paul to withdraw its Magner appeal. But their
complaints and the accusations that they have leveled against
Assistant AG Perez have no legitimate, legal, ethical, or
professional responsibility basis.
In fact, when the City of St. Paul suggested that it would
withdraw its Magner appeal if the Civil Division declined to
intervene in Mr. Newell's False Claims Act case, Assistant AG
Perez sought and received guidance from ethics and professional
responsibility experts who approved such an agreement and his
role in negotiating it. This alone debunks any claim of
improper conduct.
Even accepting the Republicans' characterization of the
agreement as a quid pro quo, whereby the city withdrew its
appeal ``in exchange,'' for the decision against intervention
in Mr. Newell's case, there is nothing unethical or improper
with reaching or brokering such an agreement; nor did Assistant
AG Perez pressure career DOJ lawyers into recommending against
intervention in Mr. Newell's case or somehow manipulate the
Civil Division's decisionmaking process.
As the documents and testimony reviewed over the course of
the committee's 18-month investigation in this matter confirm,
the decision not to intervene in Mr. Newell's case was made by
the Civil Division, not Mr. Perez' division, based on its
independent evaluation of the evidence, witnesses, litigation
risks, lack of HUD support for intervention, burden on the St.
Paul taxpayers, and anticipated withdraw of the city's Magner
appeal.
At the end of the day, the Justice Department's top career
lawyers disagreed with earlier recommendations of more junior
colleagues because they concluded that Mr. Newell did not have
a strong False Claims Act case on its merits.
My colleagues are free to disagree with the Civil
Division's final decision in Mr. Newell's case, just as they
are free to disagree with Assistant AG Perez' and the Civil
Rights Division's desire to protect the disparate impact
theory. But let's not pretend that these disagreements have any
legitimate ethical or professional responsibility basis. This
is, at best, a policy disagreement; at worst, simply partisan
politics.
Senator Harkin recognized this when he canceled the hearing
on Occupational Health and Safety to which Mr. Newell had been
invited to testify. Mr. Newell's complaints have nothing to do
with that subject. And Senator Harkin appropriately dismissed
that effort as a transparent, ``attack on the President's
nominee for Secretary of Labor,'' Tom Perez, and refused to
allow what he deemed as an abuse of process to go forward.
It is unfortunate that our committee's majority did not
follow Senator Harkin's lead. It is also unfortunate that Mr.
Newell has been dragged into this partisan fight. His
disappointment that the United States declined to intervene in
his False Claims Act case is understandable. But that decision
was never Tom Perez' to make, and he did not make it.
The decision against intervention in the Newell case by the
Civil Division's top False Claims Act lawyers was the right
choice, as is confirmed by the testimony that we will hear from
Shelley Slade today, as well as by the letters that we have
received from other career False Claims Act lawyers, who
similarly view Mr. Newell's case as a weak candidate for
government intervention.
I would ask unanimous consent to have the letters that we
received made a part of record of this hearing.
Mr. Jordan. Without objection.
Mr. Nadler. Thank you.
Assistant Attorney General Perez has done a tremendous job
leading the Civil Rights Division and it is long past time to
end this smear campaign against him. We should all be thankful
for his services and look forward to his stewardship as
Secretary of Labor.
We do not serve the public interest by holding this hearing
as part of a shameful smear campaign against Mr. Perez.
With that, I yield back the balance of my time.
Mr. Jordan. Thank the gentleman for his statement.
Distinguished Senator from Iowa is recognized for 5
minutes.
STATEMENT OF THE HON. CHARLES E. GRASSLEY, A UNITED STATES
SENATOR FROM THE STATE OF IOWA
Senator Grassley. Thank you for inviting me to testify. It
is important to examine the impact of the deal between the
Justice Department----
Mr. Jordan. Senator, just pull that real close so that we
can all hear you. There you go. Great. Thank you.
Senator Grassley. --to examine the issue between the
Justice Department and the City of St. Paul and the impact that
that has had on the whistleblower Fredrick Newell. I come to
hearings like this not just to testify on the issue, but I want
to encourage whistleblowing. I want to encourage the protection
of whistleblowers. And I want to encourage use of qui tam-type
lawsuits building upon the success of that act that we got
passed and updated in 1986.
The qui tam action that we included in the updated law
allows individual whistleblowers to represent the Federal
Government in certain cases and recover a share of the
proceeds. When courts across the country narrowed the False
Claims Act, I worked with Chairman Leahy to author legislation
that overturned years of court decisions that watered down the
False Claims Act of 1986.
One of our fixes has an important relevance to today's
hearing. Before 2010, the Supreme Court said that private
citizens do not get rewarded unless the original source
information is the basis of the settlement or verdict. Our
provision to fix the public disclosure bar made it clear that
Congress disapproved of this broad interpretation made by the
courts. Instead of allowing organizations and individuals to
string along whistleblowers, only to kick them off the case at
the very end, the provision required the Justice Department
file a timely motion to dismiss claims that violate the public
disclosure bar.
Tom Perez committed the Justice Department to assist the
city in getting Fredrick Newell's qui tam action dismissed on
public disclosure barred grounds in exchange for dismissing a
nonrelated Supreme Court case to further his own favored legal
theory.
In doing so, Mr. Perez circumvented Congress' legislative
intent in reforming the law to help whistleblowers like Mr.
Newell. In the process, Mr. Perez made it impossible that Mr.
Newell would succeed in his suit to recover money for the
United States. We are talking about not just a few million but
hundreds of millions of dollars.
The result is that the department has demonstrated to
future qui tam whistleblowers that they might be helped, but
only if a defendant doesn't have something else the department
wants in exchange.
Senate-confirmed appointees testified before the Judiciary
Committee that they support False Claims Act and that they
would work with whistleblowers to make sure that cases received
consideration and assistance from the Justice Department. It
seems clear that the department did the exact opposite in Mr.
Newell's case. Consequently, the False Claims Act and
whistleblowers everywhere might suffer.
In this case, the department took the authority granted to
them under the law and rather than using it to secure those
millions of dollars for taxpayers, they used it for leverage.
They took the leverage and struck a deal to throw out the case
that the career lawyers, and I want to mention, career lawyers
in the department considered very strong. And along with it,
they threw out the ability to recover a potential hundreds of
millions of dollars of taxpayers' money. And in the process,
the sad thing is, they left Mr. Newell, the whistleblower,
twisting in the wind.
There are a couple of points about this deal to emphasize.
First, even though the department traded away Mr. Newell's
case, Mr. Perez has defended his actions, in part, by claiming
that Mr. Newell still had his, ``day in court.''
What Mr. Perez omits from his story is that Mr. Newell's
case was dismissed precisely because the United States was not
a party. After the United States declined to join the case, the
judge dismissed Mr. Newell's case based upon the public
disclosure bar, finding he was not, ``the original source of
information to the government.''
I will remind you, preventing an outcome like this, is
exactly why we amended the law as Chairman Leahy and I did.
Specifically, those amendments made clear that the original
source defense is not available when the United States joins
the action. That is the whole point. That is why it was so
important for the City of St. Paul to make sure that the United
States did not join the case. That is why the city was willing
to trade away a strong case before the Supreme Court. The city
knew that if the United States joined the action, the case
would go forward. Conversely, the city knew if the United
States did not join the case, it would likely get dismissed.
Now, think about that a while. The department trades away a
case worth millions of taxpayers' dollars. They did it
precisely because of the impact the decision would have on the
litigation. They knew, as a result of their decision, the
whistleblower would get dismissed based upon original source
grounds. And yet, when Congress starts asking questions, they
have the guts to say, ``We didn't do anything improper because
Mr. Newell still had his day in court.''
The second point has to do with the strength of the case.
Throughout the investigation the department has tried to defend
Mr. Perez' actions by claiming the case was marginal, or weak.
The documents, however, tell an entirely different story.
Before Mr. Perez got involved, the career attorneys at the
department wrote a memo recommending intervention in the case.
In that memo, they described St. Paul's actions as, ``A
particularly egregious example of false certification.'' In
fact, the career lawyers in Minnesota felt so strongly about
the case that they took the unusual step of flying to
Washington, D.C., to meet with HUD officials. And HUD, of
course, agreed that the United States should intervene. Of
course, that was before Mr. Perez got involved.
The documents made clear that career lawyers considered it
a strong case, but the department has claimed that Mike Hertz,
the department's expert on False Claims Act, considered it a
weak case.
In fact, 2 weeks ago, Mr. Perez testified before my
colleagues on the Senate Health Committee that Mr. Hertz, ``Had
a very immediate and visceral reaction that it was a weak
case.''
The documents now tell a far different story. Mr. Hertz
knew about the case in November 2011. Two months later, a
department official took notes of the meeting where the quid
pro quo was discussed. That official wrote down Mr. Hertz'
reaction. She wrote, ``Mike, odd. Looks like buying off St.
Paul. Should be whether there are legit reasons to decline as
in past practice.'' Sounds like a very devoted lawyer working
for the taxpayers. That is my editorial.
The next day the same official emailed the Associate
Attorney General and said, ``Mike Hertz brought up the St. Paul
disparate impact case in which the Solicitor General just filed
an amicus brief in the Supreme Court. He is concerned about the
recommendations that we declined to intervene in two qui tam
cases against St. Paul,'' end of email to the Associate
Attorney General.
Now, these documents appear to show that Mr. Hertz' primary
concern was not the strength of the case, as Mr. Perez led my
Senate colleagues to believe. Mr. Hertz was concerned that the
quid pro quo Mr. Perez ultimately arranged was improper. Again,
in his words, it, ``Looks like buying off St. Paul.''
And we have a document that just came to our attention last
night. The Justice Department sent my staff a critical 33-page
slide show about the department's case against St. Paul. In
this document, the career lawyers make their case for
intervention. The department failed to provide this document to
the committee, and we all warned about it in recent interviews
with HUD employees, getting such critical documents so late in
this investigation could be construed as a coverup. I expect
any remaining documents will be immediately forthcoming.
The department's actions and specifically those of Mr.
Perez in orchestrating this deal are to the detriment of the
American taxpayers, the whistleblowers, and the department.
Ironically, the Justice Department and the Obama administration
are currently engaged in waging the war on whistleblowers in
the Federal courts across the country, most notably a case
pending before the Federal courts titled Berry v. Conyers.
While unrelated to this matter, we all need to keep an eye
on this case as it could effectively end protecting
whistleblowers in the Federal Government. I thank Mr. Newell
for having the fortitude to come forward as a whistleblower and
to keep fighting after the Justice Department hung him out to
dry. He should be praised for being here today, and if we do
anything short of that, we are going to discourage further
whistleblowers from coming forth. And we can do the best job of
oversight we can in the Congress of the United States, every
one of us. If all 535 of us are involved, there is no way we
can know where the bones are buried. We have got to rely upon
people that are there where the fraud is being done. And we
have got to encourage them. If we don't, we are never going to
stop all of this fraudulent activity.
I yield the floor.
[The prepared statement of Senator Grassley follows:]
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Mr. Jordan. I want to thank the Senator for his testimony.
And I understand that Senator Grassley has to leave.
And Senator Isakson, you are recognized for your 5 minutes
more or less.
STATEMENT OF THE HON. JOHNNY ISAKSON, A UNITED STATES SENATOR
FROM THE STATE OF GEORGIA
Senator Isakson. Chairman Jordan, Chairman Franks, Ranking
Member Cartwright, Ranking Member Nadler, thank you for the
invitation to introduce Fredrick Newell today, and thank you
for letting me return to my roots in the U.S. House, and thank
you for giving me the opportunity to publicly acknowledge the
great work of my cohort, Senator Grassley, who is an
outstanding Senator in many ways, but particularly on the
whistleblower statute and enforcement of the standards of the
United States of America.
This is a very serious situation which we are about to
discuss, and it is very important that both sides of the story
be told. Two weeks ago, the Senate Subcommittee on Employment
and Workplace Safety, of which I am the ranking member, was to
hold a hearing on OSHA's whistleblower protection statute.
Following on the heels of Thomas Perez' hearing before the
committee, I solicited Fredrick Newell to be my witness at that
hearing, since we were discussing the 22 whistleblower statutes
within the Department of Occupational Safety and Health
Administration, of obviously germane testimony. I felt it was
important that we know what involvement Mr. Perez may have had
in the St. Paul case, but more importantly, that we heard both
sides of the story.
I appreciate the willingness of both of these committees to
reach out to Mr. Newell and provide him the opportunity, which
was taken away from him by the chairman of the committee in the
Senate when they pulled our ability to have that hearing and
Mr. Newell's testimony.
Mr. Newell courageously comes before the committee hearing
today as a vital community leader and a blessed family man. Mr.
Newell was born in Hazlehurst, Mississippi, the ninth of 16
children. After high school graduation, he joined the United
States Navy and served as an intelligence specialist and a
photographer.
Mr. Newell wears many hats. He is currently the pastor of
True Spirit Ministries in St. Paul, Minnesota. Mr. Newell, he
served in the ministry since 1986, at which time he has
occupied positions which included deacon, Bible teacher, and
assistant pastor. In addition to his pastoral work, Mr. Newell
is also a part owner of three construction companies in St.
Paul, Minnesota.
One of these companies, Newell Abatement Services, was
awarded honors as runner-up in the Twin Cities Small Business
of the Year and also the Frogtown Small Business of the Year in
1998.
Mr. Newell has provided the construction training for over
50 individuals from low-income backgrounds, through his
communities and became a catalyst for the U.S. Department of
Housing and Urban Development to force St. Paul to implement
its first ever Section 3 program. As if he is not busy enough,
Mr. Newell is also the President of Access Group, a nonprofit
organization created to empower low-income individuals through
awareness of community engagement.
Mr. Newell is a nationally recognized Section 3 advocate
and has participated in various national forums on the issue.
As I said, he has been married for 28 years and has raised 5
children. I thank him for making the journey to Washington
today to give his testimony. I thank him for having the courage
to blow the whistle. As Senator Grassley said, we will never be
able to get to the bottom of many issues as a Congress if our
citizens are not willing to tell us what they know. It takes a
certain sense of civic responsibility and moral courage to do
what he did.
Mr. Newell, I again thank you for your willingness to
testify. I look forward to the hearing and hearing what you
have to say. And again, I want to thank Chairman Jordan and
Chairman Franks for having the courage to call this hearing
today so that all of the facts can come out.
Mr. Jordan. I want to thank you, Senator, for your
testimony and for your hard work on this issue and for pointing
out the important fact that the hearing last week was canceled
solely because Mr. Newell was invited to give testimony. We
appreciate that.
And I will now get ready for our second panel.
Mr. Conyers. Mr. Chairman.
Mr. Jordan. The gentleman from Michigan is recognized.
Mr. Conyers. Thank you very much. Could I put my statement
in the record? I am honored to have been invited here to be in
the hearing room, and----
Mr. Jordan. The former chairman of the Judiciary Committee
is more than welcome to have his statement entered into the
record.
So, without objection, the statement is entered.
Mr. Conyers. Thank you.
Mr. Connolly. Mr. Chairman, I would also ask unanimous
consent to insert in the record my statement.
Mr. Jordan. Without objection.
Mr. Connolly. I thank the chair.
Mr. Jordan. I will now recognize the second panel.
Mr. Nadler. Mr. Chairman.
Mr. Jordan. Yes. The gentleman from New York.
Mr. Nadler. A point of order, a point of inquiry, I am not
sure which. I thought the next panel was supposed to have Mr.
Newell and Ms. Slade together.
Mr. Jordan. It is my understanding there are three panels,
and Ms. Slade is on the third panel.
Mr. Nadler. Is there a Memorandum of Understanding among
the committees on this subject?
Mr. Jordan. My understanding is that staff----
Mr. Nadler. What?
Mr. Jordan. My understanding is that the staff had worked
that out. We have done this several times in this committee,
may not be the practice in Judiciary Committee, but we have
done this several times where we have had the----
Mr. Nadler. The rules require that there be such a
Memorandum of Understanding. Is there one?
The House Judiciary Committee rules require that there be a
Memorandum of Understanding when there is a joint committee
hearing precisely to work out questions like this.
And it was our understanding that this panel would have
both Mr. Newell and Ms. Slade. I really think they should be
together.
Mr. Jordan. Well, obviously, we think different.
And I will just let the gentleman know that this committee,
the Oversight Subcommittee, has set several hearings, frankly,
in the last few weeks. Mr. Cartwright can attest to this--where
we have had several panels, not all witnesses, minority
witnesses, were on the first panel; sometimes they were only on
the second panel. This is not unprecedented at all for this
committee. My understanding is you have had 10 days notice of
how this hearing was going to be conducted.
Mr. Nadler. I will simply say that I am glad to hear that
the Oversight Committee operates that way. This is a joint
hearing of two committees. The rules of one of them, the
Judiciary Committee, require that there be a Memorandum of
Understanding, and that this kind of question be in that
memorandum. My understanding is that--my understanding as of
this moment is that, in effect, the rules of the Judiciary
Committee are being violated by the absence of such a
Memorandum of Understanding.
Second, we had understood, it had been our information that
there be one panel. I just think in the interest of efficiency.
I have no particular reason beyond that.
Mr. Jordan. If you have no particular reason beyond that,
you are making an awful big deal about it.
Mr. Nadler. Well, I do think the rules should be followed,
but I am wiling to withdraw any objection at this time.
Mr. Jordan. I think the rules should be followed, too, and
this is the precedent of this committee.
The second panel is about the whistleblower. It is about
Mr. Newell, and that is why he is on the second panel.
There will be a third panel. Ms. Slade will be recognized
at that time, and I will stay as long as we have to stay. We
will take as many questions as Mr. Nadler may have.
With that, we will--I will swear in our second panel. Mr.
Fredrick Newell is a small business owner and minister from St.
Paul, Minnesota and is a whistleblower in the False Claims Act
against the City of St. Paul. Pursuant to committee rules, all
witnesses will be sworn in before they testify. Please raise,
if you would, Mr. Newell stand and raise your right hand.
[Witness sworn.]
Mr. Jordan. Let the record show that the witness answered
in the affirmative.
Mr. Newell, we are going to take your testimony, and then
we will swear in Mr. DeVinke here in a second.
So you are recognized for 5 minutes more or less, and we
have been pretty generous as you saw from the Senators'
statements. But you have got approximately 5 minutes. There is
a lighting system there. Just pull that microphone close and
the floor is yours.
STATEMENTS OF FREDRICK NEWELL, ST. PAUL, MINNESOTA, ACCOMPANIED
BY THOMAS DEVINCKE, MALKERSON GUNN MARTIN LLP
Mr. Newell. Thank you, Mr. Chairman.
I do have a prepared statement. I do want to first and
foremost thank God for this opportunity, and I do count it as
an opportunity.
And then, as it is proper and customary, I want to thank
the congressional committee for this opportunity to present
before you as Representatives of our great Nation facts and
concerns that have brought each of us to this occasion.
I also want to thank my attorney here, Mr. Thomas DeVincke,
who is to my left, though has yet to be introduced. He has been
with me for over 8 years in this matter. But yet, in other
words, since 2005, but if the truth be told, he is yet to even
receive any compensation for his actions.
I am here today to bring light to my actions and intent to
work for over 13 years to create opportunities for the minority
and low-income community in St. Paul and count this once again
as an opportunity to that end.
I will be making constant reference in my testimony to a
HUD program called Section 3. Section 3 is a Federally mandated
HUD program that was created to address the national ills
facing this Nation in 1968. The facts of that day were
highlighted by the Kerner Commission, formed by President
Lyndon Johnson. The Kerner Report concluded that this Nation
was moving toward two societies, one black, one white, separate
and unequal. His finding was that the riots of 1968 resulted
from the black community's frustration at a lack of economic
opportunities. The report urged legislation to promote racial
integration and to enrich slums, primarily through the creation
of jobs, job training programs, and decent housing.
To mark the 13th anniversary of the Kerner Report, the
Eisenhower Foundation sponsored two complementary reports,
``The Millennium Breach'' and ``Locked in the Poor House.''
``The Millennium Breach,'' co-opted by former Senator and
Commissioner member Fred Harris, Fred R. Harris, found the
racial divide had grown in the subsequent years within the
city, unemployment at crisis level.
``The Millennium Breach'' found that most of the decade
that followed the Kerner Report America made progress on the
principal fronts the report dealt with, race, poverty and inner
cities. Then progress stopped and in some ways reversed by a
series of economic shocks, and trends, and the government's
actions--and the government's actions and inactions.
Harris reported to date, 30 years after the Kerner Report,
there is more poverty in America. It is deeper, blacker, and
browner than before. And there is more concentrated in the
cities, which have become America's poor houses. From the
Kerner Report, the Section 3 legislation, 24 CFR part 135 was
passed by Congress in 1968. The result in Section 3 program was
established to ensure that contracting, training, and
employment opportunities were provided to low- and very low-
income individuals and communities where HUD funds were
expended.
One of the issues here today must be the intent or the
intended outcome of Section 3. That intended outcome is
employment. It is training and contracting opportunities for
the communities in this country where those Federal funds are
being spent. Basically, Section 3 epitomizes the essence of
fair trade by requiring that the community, that the local
community benefit from the opportunities in their community.
Let us be clear, Section 3 focuses on these three things,
employment, training, contracting, for the low-income
community.
Section 3 is a race-neutral program that takes into account
that the Federal Government is spending money in these
impoverished areas and seeks to use those funds to create those
opportunities that I have mentioned for the residents of those
areas. Those aren't just the inner cities. HUD funds are also
expended in remote areas such as the Appalachian Mountains. HUD
funds are spent in Wyoming, in Idaho, any State or city where
poverty or divestment has occurred.
Section 3 is not a new tool but a critical tool for the
low-income community. The same principles were seen in the Work
Progress, or Project Program, as some called it, or the Works
Project Administration of the 1930s, and 1940s.
As noted in a 2011 Section 3 report by the American
University School of Public Affairs, entitled ``Section 3
Regulation As Policy,'' the merits--that report states, The
merits of Section 3 are compelling, as they aim to provide
preference to low- and very low-income persons and businesses
as a means to promote self-sufficiency among this constituency
and correct for an unlevel playing field in the labor market.
However, through its nearly 43 years, it has encountered a
number of barriers to successful implementation, including
challenges in collecting accurate and useful data from HUD
funding recipients, confusion, or lack of awareness on the part
of the funding recipients and the intended beneficiaries, and a
lack of training to qualify low and very low income people for
the Section 3 opportunities.
It is from this aim that I spent over 13 years of my life
pursuing opportunities for the low-income community, both for
St. Paul and nationally.
So, as you hear the term ``Section 3,'' please think of the
true issues, employment, training, and contracting
opportunities for people who really want and need them just
like in 1968.
Mr. Newell. Now I have elected to use the remainder of my
time to read into the record a letter that I had written or
drafted back in January of this year. This letter was and is
addressed to Attorney General Holder and Secretary Donovan. I
had proposed and intended to send this out back in January,
but, unfortunately, my attorneys felt it best that I did not.
Mr. Jordan. Mr. Newell?
Mr. Newell. Yes.
Mr. Jordan. We may just have you enter that--we can enter
that letter into the record instead of having you read that, if
that's okay.
Mr. Newell. That is fine.
Mr. Jordan. Okay. Thank you for your testimony.
[Prepared statement of Mr. Newell follows:]
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Mr. Jordan. It is my understanding Mr. Newell's attorney,
Thomas DeVincke, is present to assist and advise his client
this morning and may be called upon to answer questions on
behalf of his client. Pursuant to committee policy, we will now
swear in Mr. DeVincke. However, the subcommittees recognize
that Mr. DeVincke is not here as an independent factual witness
but, rather, here in his capacity as counsel to Mr. Newell.
Please raise your right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, whole truth, and nothing but
the truth, so help you God?
Mr. DeVincke. I do.
Mr. Jordan. Let the record show that Mr. DeVincke answered
in the affirmative.
Mr. Nadler. Mr. Chairman?
Mr. Jordan. The gentleman from New York.
Mr. Nadler. Let the record show that I object to Mr.
DeVincke's being sworn. I know he is going to be because of
force majeure. But the fact is, his testimony was not noticed,
and it's improper under the rules of the House.
If he's not testifying, why was he sworn? And if he's
answering questions, he's testifying. And it was not noticed.
It's a violation of the Rules of the House. I object.
Mr. Jordan. Objection is noted.
The gentleman from Arizona, the chairman of the
Constitution Subcommittee, is recognized for his 5 minutes of
questioning.
Mr. Franks. Well, thank you, Mr. Chairman.
Mr. Newell, I want to express a sincere gratitude to you. I
know that, you know, this place is replete with political
nuances, and I understand it; my own comments will be
interpreted as such. But people like yourself, regardless of
what the outcome of this hearing is, are the ones that really
create the kind of forward movement in this country that is
important to all of us. And I appreciate your courage and your
tenacity and just your heart.
Mr. Newell. Thank you.
Mr. Franks. And, with that I guess the first question I'd
like to ask you, just in your own words--I know sometimes we're
all called upon to read statements. I have to do it all the
time, and it's kind of a challenge to really get people to know
what really you're feeling. But can you just tell me, tell us
all, what, honest to God, is your goal in bringing this False
Claims Act case in the first place?
Mr. Newell. My aims were accountable follow-up, and I'm
referring to bringing the False Claim Act lawsuit. It was a
follow-up to actions to make a program work in St. Paul that we
found would help our people.
When I first started, I started somewhere around 2000
pushing for Section 3. And as I did, we found that St. Paul
didn't have a Section 3 program. So I went from that point of
encouraging them to about 2006, when I finally, after St. Paul
deciding they weren't going to start this program, I decided to
file a Federal case in district court. As I did, this district
court kicked the case out, basically saying that Section 3 had
no private right of action in it.
From that point, I went another 3 years of trying to
encourage St. Paul, the public housing agency, and the city to
do Section 3, writing emails, encouraging them, talking to
them, talking to the Section 3 program, providing them with
information to try to get this program off the ground. And when
they didn't do it, then in 2009 is when I filed and encouraged
HUD to come into town.
But had also looked at HUD's programs, their solutions not
to be adequate to what I was really hoping for. So, from that
point, I also simultaneously, or within the months thereafter,
filed a False Claim Act lawsuit.
Mr. Franks. Well, I want you to feel free to consult with
your counsel on any question here. But when DOJ says you were
free to continue your case without them after this quid pro
quo, it doesn't sound like it's really that simple to me, and
I'd like for you to address that.
And, essentially, how did DOJ's secret deal not to
intervene in your fraud case affect your chances of success in
the court? The Senator tried to respond to that to some degree
already, Senator Grassley, but I would like to hear your
perspective on how it affected the potential success of your
case.
Mr. Newell. There is a--I'm told by my attorney there is a
political--I mean, a legal land mine that I have to try to
dodge here. And so if I get kicked under the table, I hope you
will excuse my reactions.
Mr. DeVincke. Congressman, the issue as addressed by
Senator Grassley, who I think got it largely correct, relates
to a jurisdictional defense that's available to claims that are
being pursued by a relator after a case is declined by the
Department of Justice.
That question and the answer to that question touches also,
Mr. Chairman, on your question about why Mr. Newell pursued
Section 3 complaints at every level and has been doing it for
the last 8 years.
In this case, which has been dismissed, as has been pointed
out, by the United States District Court but which is currently
on appeal to the United States Court of Appeals for the Eighth
Circuit, St. Paul successfully raised a public disclosure bar
defense and convinced, prevailed upon the court to conclude
that Mr. Newell was not an original source of the allegations
upon which the fraud counts are based.
That defense is not available against claims that are
pursued by the United States against the United States. That
defense can still be raised as to a relator in a case that is
accepted by the Department of Justice, as we believe this case
would be. But Mr. Newell, importantly, has never pursued these
matters for personal gain.
And the False Claim Act played an important role in Section
3 enforcement on the nationwide model. The only available
remedies available other than a False Claim Act for Section 3
enforcement were administrative complaints before HUD, which
are relatively finite proceedings defined jurisdictionally by
HUD to include matters that have arisen in the past 6 months.
If you've ever seen the one-page HUD complaint form for a
Section 3 complaint, in a sense that form itself confines the
jurisdiction of HUD on those administrative complaints. It's
quite limited.
And as Mr. Newell pointed out, he attempted a direct
complaint against St. Paul alleging a violation of Section 3,
and, again, a jurisdictional defense was raised that the court
lacked subject-matter jurisdiction because the statute did not
confer an implied private cause of action. Respectfully, Mr.
Newell and I disagreed with that conclusion, but we did not
take an appeal, mindful that we didn't want to create some bad
law in the circuit. I think that issue has been raised, which
is always on an attorney's mind no matter what they are working
on; I agree with that thought.
So point being, even if the public disclosure bar was
raised on an intervened case and Mr. Newell's relator standing
was attacked, the lawsuit still would have served a great
purpose for Mr. Newell's Section 3 advocacy. The False Claim
Act filled in or provided another level of enforcement for
Section 3 that HUD had not pursued. To my knowledge, it was the
first use of the False Claim Act in this specific context,
first false certifications of Section 3 compliance. These cases
are filed under seal, but enough time has gone by since it was
filed, and I believe it's only one.
Mr. Jordan. The gentleman's time has expired.
We'll now turn to the gentleman from Pennsylvania, Mr.
Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
Now, I have some legal questions, Mr. Newell. And I'm going
to invite your counsel, Mr. DeVincke, to jump right in and help
you, but, certainly, I don't mean to preclude you, Mr. Newell,
from answering any of these questions. And I welcome you here
today, the both of you gentlemen.
We heard Senator Grassley testify earlier today, and he
talked about this defense, the public disclosure bar defense.
And the idea is that you're not really a whistleblower if
you're complaining about things that are available to the
public in general. And the idea is a qui tam lawsuit can be
dismissed because if it's public information, there really
isn't a whistleblower involved in this particular case.
Am I getting that right, Mr. DeVincke?
Mr. DeVincke. As right as I'd probably get it, sure.
Mr. Cartwright. All right. So that Senator Grassley did
testify that, in this case, if the DOJ had pursued the case,
then the public disclosure bar would not have been available as
a defense. And that wasn't quite right, was it, Mr. DeVincke?
Mr. DeVincke. You want me to disagree with Senator Charles
Grassley about the False Claim Act. You know, I was not top of
my class in law school, so I'm not going to take that
invitation, but I'll just say this: That defense is not
available against the United States and against the United
States bringing its claim. It can be raised as to the relator
at any time is my understanding.
And I'll just say this: This case is still on appeal. That
issue could be litigated at a later date. That's my answer.
Mr. Cartwright. So that Senator Grassley's statement was a
bit of a broad-brush statement. It's not quite as clear as he
said it, is it?
Mr. DeVincke. Things are never that clear, are they? It was
a bit of----
Mr. Cartwright. Thank you.
Mr. DeVincke. --a broad statement.
But I would say, I think--to be fair, he's not here--I
think Senator Grassley was mindful of the amendments that would
not apply to this case, which was prior filed. This is a 2000,
and--I can't speak for the Senator. I'll just say this case was
before the most recent amendments to the act, and perhaps he
had those in mind. But it was a broad statement, yes.
Mr. Cartwright. And, now, Mr. DeVincke, you started to go
into your own pedigree as an attorney, and I don't mean to
interrupt you on that. Now, can you give us here in the hearing
room an idea of how many False Claim Act cases you have
litigated to verdict or judgment other than the Newell case?
Mr. DeVincke. This is the only False Claim Act I've worked
on, and I don't--I don't hold myself out as a False Claim Act
expert. I am an expert on Mr. Newell and Section 3.
But with that in mind, I co-counseled with Michael Allen of
Relman Dane here in D.C., who, to my mind--and it might be too
strong a word, but he in some ways pioneered the use of false
certifications in a False Claim Act lawsuit regarding false
certifications made to HUD, and he did that in the Westchester
County case, which is of some renown in the practice of False
Claim Act litigation. That case----
Mr. Cartwright. I don't mean to cut you off. I only have a
limited----
Mr. DeVincke. Of course.
Mr. Cartwright. --time, Mr. DeVincke. And I appreciate
that. You do not hold yourself out as an expert in False Claim
cases, correct?
Mr. DeVincke. That is correct.
Mr. Cartwright. All right. We do have an expert in False
Claim cases here today, and it's attorney Shelley Slade. Now,
you've heard of her, I take it.
Mr. DeVincke. I have.
Mr. Cartwright. Okay.
Mr. DeVincke. And I do not mean to occupy her panel if
she's supposed to be here. So my apologies if I'm in her----
Mr. Cartwright. I think you're a lot safer not being on her
panel.
All right, so here's my question. The case of Rockwell v.
United States ex rel. Stone, that's a False Claims case, right?
Mr. DeVincke. It is.
Mr. Cartwright. And you are familiar with that, are you?
Mr. DeVincke. I'm having, like, law school flashbacks and
nightmares right now, but, yeah, I've heard of the case. I'm
not intimately familiar with it.
Mr. Cartwright. Is it not the case that Rockwell v. United
States ex rel. Stone, which is a qui tam False Claims case, is
the governing United States Supreme Court case on the issue of
whether the public disclosure bar would be a defense if the
Department of Justice had pursued the claim?
Mr. DeVincke. Correct.
Mr. Cartwright. You're aware that that's the governing law?
Mr. DeVincke. That's correct. I am.
Mr. Cartwright. All right.
Mr. DeVincke. And I think I agree that the defense could
still be raised as to the relator, but the United States would
proceed with the claim.
And I hope I've been clear about how important that was to
Mr. Newell, because Section 3 really suffered from a lack of
visibility and enforcement. And the intervened case, whether a
motion was brought as to the relator under the jurisprudence
controlling a lot that I mentioned----
Mr. Cartwright. I have one more question----
Mr. DeVincke. Oh, sure. I'm sorry.
Mr. Cartwright. --Mr. DeVincke. The question is, not ever
having handled a False Claims case or a qui tam case other than
this one, when you agreed to take the case, did you have any
frame of reference to say whether this was a good case, a bad
case, or a better-than-average case? Did you have any frame of
reference from your own practice?
Mr. DeVincke. Frame of reference? I researched the area of
law generally and spoke to attorneys who practiced in the
field. Is that frame of reference what----
Mr. Cartwright. But from your own experience, you had no
way of judging whether this was better than other qui tam cases
you had handled, because you never handled any other such
cases. Am I correct in that?
Mr. DeVincke. Well, respectfully, I had worked on Section 3
issues with St. Paul----
Mr. Cartwright. I yield back, Mr. Chairman.
Mr. DeVincke. --for many years, and I was well aware that
there are certifications to the United States Government were
made in a knowingly false manner. HUD understood that. The
Department of Justice clearly understood that. There were no
questions in my mind about the strength of the case, in that
there were false certifications for which payment was made.
You know, the issues we would look at, materiality is
always going to be a thorny issue. So you look at whether, you
know, it's a condition of payment versus a condition of
participation. Being in the Eighth Circuit, you look at the
Vigil case.
And--I'm sorry, Chairman.
Mr. Jordan. That's fine. I thank the gentleman.
The gentleman from Florida is recognized, Mr. DeSantis.
Mr. DeSantis. Thank you, Mr. Chairman.
Mr. Newell, thank you for coming here today.
It seems to me whistleblowers are supposed to and can serve
a vital function in highlighting governmental abuses so that
waste and fraud can be remedied and that they shouldn't be
subordinated to the ideological predilections of a political
appointee at the Department of Justice. And I would just note
that the Department of Labor, of which Mr. Perez is nominated
to be the head of, that they have roughly 20 whistleblowing
statutes that are implicated in that agency. And so I think
this is an important issue.
And I just wanted to ask you, Mr. Newell, when you're doing
this as a whistleblower, bringing a case like that, is that
something that's easy to do, or was it difficult for you?
Mr. Newell. Actually, it is difficult if you understand the
potential kickback, if you would, from the communities that
you're in. Everything we've done in--on Section 3 have not been
well received in St. Paul. And thereby our first actions to get
Section 3 off the ground was rebuffed. And when we filed a case
in 2005, then there was some rebuffing. And as such, our
company suffered. And even to when we brought the HUD
complaints, we were even retaliated against. And even to this
date, there is still--as you say, it's not easy. There is much
pushback.
Mr. DeSantis. Thanks. And my next question, I think you
spoke to it. So you do feel that you did face retaliation
through this process?
Mr. Newell. We were--we filed a number of retaliation
cases. And I say ``a number'' based on the fact that that--our
initial filings with HUD was against St. Paul, against the St.
Paul Public Housing Authority, against another entity in the
city, the health department in Ramsey County.
And St. Paul Public Housing Authority was found--HUD did
investigate and found that the housing authority had retaliated
against us. The Ramsey County Health Department retaliation
complaint was investigated maybe 2 years after the complaint
was lodged. And they stated they could--I believe the language
was they could find no connection between the persons whom we
say was involved in the retaliation and the ones who actually
made the decision.
And then we held presently a retaliation complaint against
St. Paul itself that has yet to be addressed, where we had
projects we bidded on or where we had opportunities we sought,
and the city did not respond to us to let us take part in those
projects. We basically documented for 2 years after they did a
voluntary compliance agreement where we went to them, kept
contacting them, saying to them we want these opportunities,
and the city refused to let us in the door.
And as a matter of fact, finally, we was asked by
Department of Justice and HUD, or at least through--I believe
it was through HUD that we stop contacting the city pressing
for those things, because there seemed to be some issue of us
pressuring them.
Mr. DeSantis. Are you going to add something?
Mr. Newell. Yes. My attorney was just kind of pointing out
a point that may be well introduced. And that is, our companies
in time past, when we first started this, or, better still, as
you heard in the introduction, we started in 1995. Our
companies had great potential. As companies, we had
approximately eight different disciplines that we operated in.
And from the year 1997--we started in 1995. About year 1997, we
were working with the Minneapolis public housing program, and
they had a Section 3 program or at least were producing one. As
such, our revenues went from the basic first year, second year
of $20,000, $30,000, $100,000 to where we begin to peak out as
$300,000, $400,000 worth of work from '97 through 2000, where
we had begin to do work and quality work. And so we were doing
demolition, asbestos abatement, lead abatement. We had a number
of other areas. We were licensed as residential builders.
So within that period of time, we had even got accredited,
according to our growth, that we were awarded with two awards
as Entrepreneur of the Year and/or runner-up in a certain
community. After we started pushing for Section 3 in 2000, then
in St. Paul a lot of my efforts went toward trying to get that
program off the ground by a factor of contacting the city,
saying to them, ``We can help with you this program. We've got
people we can work with.'' We even went to the community
development corporation then, got them to nominate low-income
individuals from their communities, saying to them, ``If you
will nominate them, we will put them into the work we're doing.
We'll get them trained using HUD dollars, and we will get them
into jobs.'' Nothing prevailed. We got the people trained, but
no work came out of it.
And so, as a company, when we pushed for Section 3 in St.
Paul, we started getting instant pushback. We were told, we're
not hiring, we're not taking on any new contractors. And the
more we pushed, the more resistance.
Mr. DeSantis. Great. Thank you for that.
I see my time has expired, and I yield back.
Mr. Jordan. The gentleman from New York is recognized for 5
minutes.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Newell, it seems to me we're really talking about two
different things here. One is Section 3.
Mr. Newell. Go ahead.
Mr. Nadler. And the other is the whistleblowers and qui
tam.
Now, in 2007, you filed a Federal lawsuit against the city
of St. Paul, Nails Construction Company et al. v. City of St.
Paul.
Mr. Newell. 2006.
Mr. Nadler. 2006, excuse me. In that lawsuit, you alleged
the city had failed to comply with Section 3 in a number of
ways.
Mr. Newell. Correct.
Mr. Nadler. Why was the case dismissed?
Mr. Newell. The case was dismissed because the Federal
courts, not just on my case but in a number of cases, were
determining that the language that enforced Section 3 did not
provide for a private right of action for individuals to bring
this case before the Federal courts.
Mr. Nadler. But wasn't it also true that the court found
that you had not been on the contracts and had no personal
injury in that case----
Mr. Newell. There was----
Mr. Nadler. --and, therefore, no standing?
Mr. DeVincke. I can comment.
Mr. Newell. Please.
Mr. DeVincke. The court in dicta was not the holding of the
court. The court in dicta mentioned that, because the plaintiff
had not identified a contract to which they would be entitled
under Section 3, they lacked Article 3 standing to pursue the
claim.
Mr. Nadler. Exactly, they lacked standing. So, in other
words, Mr. Newell lacked standing, and the case had to be
dismissed.
Now, presuming----
Mr. DeVincke. If I may--and I understand the time is
short--we respectfully disagree with that.
Mr. Nadler. You disagree with the court. Fine. But that was
the holding of the court.
Mr. DeVincke. Correct.
Mr. Nadler. Mr. Newell, presuming you were able to overcome
the standing issue and other issues, do you think that Congress
should work to create a private right of action under Section
3?
Mr. Newell. I appreciate the question. That's something
that I've been pushing for for the last--since that time, since
2005.
Mr. Nadler. Okay.
Mr. Newell. A lot of our work with Congresswoman Velazquez
has been toward that end.
Mr. Nadler. Well, I would agree with you. But what you're
really saying, or at least my conclusion about what you're
really saying is that your beef is with Congress for not
creating the private right of action and not really with what
we're talking about here today.
Now, would you have--the False Claims Act, as we know, we
have discussed this already--well, if you had--if Congress had
created that private right of action, you would not have needed
to pursue a False Claims Act case, correct?
Mr. Newell. That may be so.
Mr. Nadler. You would have pursued----
Mr. Newell. I think part of it would've been determined by
the possible remedies for the community that we were seeking.
But you made a statement. You said the beef is regarding
not having a private right of action.
Mr. Nadler. Well, the chief----
Mr. Newell. I take--and it would have been in one of my--in
my statements. I take issue only to the point that my beef, I
guess, goes a little deeper. And I don't like the term
``beef,'' but since you used it----
Mr. Nadler. All right, but go ahead.
Mr. Newell. Okay. We pushed for this in 2005 hoping to get
for that community because of the problems that were in that
community. And believe me, Minneapolis-St. Paul is considered
the worst in the country. Please, let me----
Mr. Nadler. Excuse me, I only have 5 minutes--we know--I'll
grant that St. Paul isn't very good on this stuff. So just go
ahead.
Mr. Newell. Okay, then my point is this: We pushed Federal
courts. That did not work. We went to HUD. We did not go to HUD
first because we were concerned that HUD would only do
administrative actions. When we finally got to HUD, we got
administrative actions that was very limiting. But we were also
encouraged by HUD that they would support this False Claim Act
lawsuit. And, as such, we saw this as the true opportunity.
Mr. Nadler. Okay. So HUD said, or someone at HUD said they
would support a False Claims Act. But, of course, you realize
that HUD has to go to the Department of Justice, which makes
all litigation decisions for the Federal Government.
Mr. Newell. And so when we met with the Department of
Justice and HUD in St. Paul, it's similar to how I kind of have
been meeting individuals here. There are times when individuals
will come to you and shake your hand and say, ``Good job.''
That's what--that's the response we got when we met with
Justice and HUD, that they felt this was a good case.
Mr. Nadler. Okay.
Mr. DeVincke. I do want to comment generally that an
express private cause of action would go a long way to address
all of the flaws in the enforcement model that we talked about
earlier.
Mr. Nadler. I certainly agree with that, and we should do
that.
Now, we have discussed in this hearing so far the public
disclosure bar which prohibits lawsuits on the False Claims Act
by people who do not know anything beyond--who aren't alleging
something that isn't publicly already known.
Now, I gather that you are barred, in effect, by the
False--not by the--by the public disclosure bar. You said that
had the Federal--had the Justice Department sued, that would
have eliminated that problem. But--no?
Mr. DeVincke. It doesn't take the issue completely out of
the case----
Mr. Nadler. Yeah, I was coming to that. My understanding is
that Mr. Newell would still have been dropped from the case as
a result of the public disclosure bar, but the Justice
Department could have continued on its own, the United States
could have continued on its own.
But, in effect, what you're saying is that the Federal
Government should have had its own lawsuit with Mr. Newell out
of it.
Mr. DeVincke. No. We would never say that. We're saying
that----
Mr. Nadler. But that's what you're saying would have
happened, at best.
Mr. DeVincke. I'll say this: I believe Mr. Newell is an
original source, and I'm hopeful that on appeal the Eighth
Circuit will agree with me. He does have independent direct
knowledge of the fraud. And because that issue is on appeal,
all I can respectfully say is, you know, I don't want to
speculate in that direction. I will say this: The public
disclosure bar can still be an issue in a case even on an
intervened case, generally speaking.
Mr. Nadler. I see my time has expired. Thank you.
Mr. Jordan. I thank the gentleman.
The chairman of the Judiciary Committee, the distinguished
gentleman from Virginia, is recognized.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Chairman, I would like to start by reminding folks why
we're here today, which is to examine a secret deal struck by a
senior Justice Department official, Assistant Attorney General
Thomas Perez. This secret deal was brokered by Mr. Perez with
the city of St. Paul in order to prevent a case from being
decided by the Supreme Court. In this exchange, Mr. Perez
pressured officials at both the Justice Department and the
Department of Housing and Urban Development to overrule career
attorneys and abandon two pending False Claims Act cases
against St. Paul. This quid pro quo potentially cost American
taxpayers over $200 million.
The Judiciary and Oversight and Government Reform
Committees have been conducting an investigation into this
matter for over 6 months. And I would point out that is long
before Mr. Perez was nominated by the President to a Cabinet-
level position in another department.
And last month, the committees released a report detailing
this background deal. The report found, among other things,
that Assistant Attorney General Perez was personally and
directly involved in negotiating the mechanics of the quid pro
quo, and he personally agreed to the quid pro quo on behalf of
the United States during a closed-door meeting with the mayor
of St. Paul; that despite the Department of Justice's
contention that the intervention recommendation in Newell was
a, ``close call,'' and, a ``marginal,'' contemporaneous
documents show the Department believed that Newell alleged a
particularly egregious example of false certifications, and,
therefore, the United States sacrificed strong allegations of
false claims worth as much as $200 million to the Treasury;
that Mr. Perez attempted to cover up the quid pro quo when he
personally instructed career attorneys to omit a discussion of
the Supreme Court case in the declination memos that outlined
the reasons for the Department's decision to decline
intervention in Newell and Ellis; and that Mr. Perez attempted
to cover up the quid pro quo when he insisted that the final
deal with the city settling two cases worth potentially
millions of dollars to the Treasury not be reduced to writing,
instead insisting that, ``your word was your bond''; and that
Mr. Perez made multiple statements to the committees that
contradicted testimony from other witnesses and documentary
evidence.
So, Mr. Newell, I want to first thank you for coming
forward today and ask you, first of all, how all this made you
feel after you saw the courage you had to take to step forward,
the wrongs that you were trying to right, and to see it all
subverted as a part of a much larger deal.
Mr. Newell. As this issue was brought to light, many people
say, ``Aren't you upset?'' Now, I believe that there's a good
reason that I'm here today and would not have come otherwise.
It wasn't to undercut but to finish the agenda that I had,
which was making Section 3 work.
Section 3 was and is so important to me that when I looked
at disparate impact regulations, my first response was they've
caused the very results by protecting the disparate impact that
disparate impact was designed to do, and that is to not cause
discriminatory effects.
We pressed for Section 3. We took every effort we could,
and we found after court actions and HUD actions that we
couldn't make any inroads on Section 3. And then we found that
the False Claim Act lawsuit was a real possibility. The
administration----
Mr. Goodlatte. Let me interrupt you right there because I
want to ask you a question about that.
So you had discussions with representatives of the
Department of Justice and the Department of Housing and Urban
Development about the False Claims Act case that you thought
you had. What kind of statements did you receive from them
about whether they planned to pursue your False Claims Act
case? And how strong, in your mind, were those signals?
Mr. Newell. The False Claim Act lawsuit went under seal in
2009. And so there weren't a lot of direct communications on
it. There was encouragement from the HUD Department in our
actions. I remember being at one particular seminar with Deputy
Secretary Sims, who was heralding Section 3--I mean, False
Claim Act as the remedy for a lot of the regulatory actions
that couldn't be addressed otherwise. Same individuals came to
me thereafter and shook my hand, who didn't know me, and said
``Hey, good job. Keep up the good action.'' So a lot----
Mr. Goodlatte. Let me ask you one more question, since my
time has expired.
How do you think your experience might affect the
willingness of future whistleblowers to come forward?
Mr. Newell. I think----
Mr. Goodlatte. Isn't that really why you're here today?
Mr. Newell. I'm sorry?
Mr. Goodlatte. Isn't that really why you're here today, to
make sure that the opportunity to step up and call attention to
wrongdoing is not something that is subverted and discouraged
but, in the future, that people don't feel that way? And how do
you think how this case was handled will affect those future
whistleblowers?
Mr. Newell. That is number two on my agenda, it is, because
I do believe that--let's say it this way. One of the
individuals before I left St. Paul who deals with a lot of the
Section 3 businesses made a statement to me, and he said that
one of my biggest concerns is that most of these contractors
who I deal with will not want to go through what you went
through. They will not want to file a complaint, knowing that
the city of St. Paul will retaliate, that the administration
or, if you would, HUD will not support, and that their actions
can cause the kind of actions or results that you've
experienced.
So you're more than correct. It is, in my eye, a real
travesty what has happened. I hope to turn it into an
opportunity, as everything else I've done. But, yes, it is
truly--and I can't imagine that even the administration would
think otherwise, that the efforts that we went through and that
they supported just got sold, according to what I was told. But
being sold, it also sold the Section 3 community and me down
the road.
Mr. Goodlatte. Mr. Newell, I thank you for coming forward
today.
Thank you, Mr. Chairman.
Mr. Jordan. I thank the chairman.
The ranking member of the Oversight Committee is
recognized, the gentleman from Maryland.
Mr. Cummings. Thank you very much.
Mr. Newell, I want to thank you for your testimony.
Mr. Newell. Yes, sir.
Mr. Cummings. Your concerns about people being left out,
not being given opportunities, being treated unfairly----
Mr. Newell. Yes, sir.
Mr. Cummings. --working hard all their lives simply to have
a piece of the American pie, never getting it, and then they
die.
Mr. Newell. Go ahead.
Mr. Cummings. So I can understand your concerns. And I want
to just go to your lawyer.
The majority, Mr. DeVincke, has made a claim that Mr.
Perez--who, by the way, I've known for over 15 years and is one
of the most honorable people I know--manipulated the decision-
making process for intervention in a False Claim Act case--and
I understand that you don't consider yourself an expert, I
understand that, but I'm sure you can easily answer this
question--resulting in a consensus of the Federal Government to
switch its recommendation and decline intervention.
I just want to ask you two questions about intervention
decisions and DOJ's decision-making process. And I'm going to
ask the same thing of Ms. Slade.
And, Ms. Slade, I wish you were on this panel because it
would have made it a lot more--I mean, I think we could have
been much more effective and efficient in our time and our
efforts.
But be that as it may, Mr. DeVincke, are there any
requirements in the False Claims Act that mandate that the
government intervene?
Mr. DeVincke. I can answer that one. No.
Mr. Cummings. Yeah, good.
Mr. DeVincke. I was afraid I wouldn't be able to.
Mr. Cummings. There's nothing that mandates it; is that
right?
Mr. DeVincke. No.
Mr. Cummings. And isn't it true that DOJ intervenes in only
25 percent of False Claims Act cases that are brought to the
Department?
Mr. DeVincke. That I have heard, but I don't know.
Mr. Cummings. Okay.
So, you know, it's certainly no coincidence that today's
hearing is being held 1 day before a committee vote in the
Senate to confirm Tom Perez as the President's nominee for
Secretary of Labor. Today's hearing is an unfortunate and
highly partisan exercise intended to raise unfounded questions
about the reputation of Mr. Perez, despite the fact that there
is no evidence that his actions were anything but professional
and in the best interests of combating discrimination in our
Nation's housing.
The core allegation leveled by the Republicans is that Mr.
Perez, as the head of the Civil Rights Division at the
Department of Justice, inappropriately coordinated a quid pro
quo agreement with the city of St. Paul in which the Department
declined to intervene in two False Claim Act cases in exchange
for St. Paul withdrawing a separate case before the Supreme
Court.
The problem with the Republican theory is that Mr. Perez
did nothing wrong. He obtained clearance from the ethics
officials at the Department. He coordinated properly with the
head of the Civil Division. And he and others at the Department
relied on career experts with decades of experience, who
concluded after a careful review of the evidence that the False
Claims Act cases were too weak to recommend that the government
expend resources to litigate them.
Since then, a host of other legal experts have backed up
the Department's conclusions. For example, in a statement
issued yesterday, Professor Stephen Gillers, who has taught
legal ethics for more than 30 years at the New York University
School of Law, wrote that a Republican report issued last month
suggesting that Mr. Perez acted improperly, ``cites no
professional conduct rule, no court decision, no bar ethics
opinion, and no secondary authority that supports this
argument.'' The reason, he explained, is that there is no
authority that supports it.
In addition, one of today's witnesses, Shelley Slade, is an
attorney with 20 years of experience in False Claim Act cases.
She explained in her written statement, ``I am confident that
the decisions taken by the Civil Division officials with regard
to the Newell qui tam case, including the factors that were
considered in declining the decision, were fully consistent
with the law as well as ethical and professional obligations.''
She went on to say, ``If my law firm had been contacted
about taking on this case, we would have rejected it.
Notwithstanding the apparent strong evidence that St. Paul
engaged in repeated and egregious violations of Section 3 of
the Housing and Urban Development Act of 1986, the qui tam case
presents serious litigation risks on a number of fronts.''
And, with that, I yield back.
Mr. Jordan. I thank the gentleman.
Mr. Newell, you've lived in St. Paul how long?
Mr. Newell. Since 1985.
Mr. Jordan. 1985. You are a successful businessman, award-
winning small-businessman, it was cited earlier. You've been a
pastor in that community for how long?
Mr. Newell. Since--officially, just since 2006.
Mr. Jordan. You've been a pastor in that community. You are
a founder of a nonprofit. You care about the people you live
with and work with and minister to; is that correct?
Mr. Newell. Correct.
Mr. Jordan. And you cite in your testimony, let's be clear,
Section 3, focus on creating employment, training, contracting
for the low-income community.
Mr. Newell. Correct.
Mr. Jordan. That's what it's about. And St. Paul wasn't
doing the job. And you knew they weren't doing the job. You saw
it firsthand, they weren't doing the job. And you said, this is
not right, they are wasting taxpayer money, and they not
helping the people they are supposed to help, the people I care
about, the people I live with, the people I minister to.
And you were mad about it. And you said, ``You know what?
I'm going to take action.'' And even if you couldn't proceed
personally, you wanted the United States to proceed and
intervene because you wanted to fix the problem. Isn't that
correct?
Mr. Newell. That is correct.
Mr. Jordan. And you not only knew that they were wrong, the
Department of Justice knew they were wrong.
Put up slide 1, if you would, please.
Right here it says, ``The United States Attorney's Office
for the District of Minnesota and HUD recommend that we
intervene.'' This is a November 2011 letter to Tony West,
Assistant Attorney General for the Civil Division.
Put up slide 2, please.
``We recommend--'' same letter--``We recommend intervening
in this action to assert false claims actions and common law
claims against the city.'' They know what you know. They know
St. Paul ain't doing the job.
Put up slide 3, if you would, please.
The city knew about its obligation to comply with Section 3
but failed to comply. The Justice Department knew exactly what
you saw firsthand.
Mr. Newell. Correct.
Mr. Jordan. They said it three times now in the same
stinking letter.
Slide 4, please.
We believe this is a particularly egregious example of
false certifications given by the city. Repeatedly shown what
it had to do, repeatedly failed not to do it. Right?
Mr. Newell. Correct.
Mr. Jordan. Now, let's go to--let's go to a year later.
Same people, career attorneys at Justice, writing to the same
guy, Tony West, Assistant Attorney General, Civil Division.
Now, this is exactly like slide 1 except for two words. It
says, ``The United States Attorney's Office for the District of
Minnesota and HUD recommend that we decline to intervene.'' So
something's changed.
Mr. Newell. Correct.
Mr. Jordan. One year later, we got the exact same language,
except they add words, ``We decline to intervene.''
Slight 6, if you could, please.
They say it was a close call, this decision not to
intervene a year later. Now, just a few months before that they
had said it's egregious, it's false, they failed to comply,
we've never seen anything like this, this is a terrible
example, we agree with Mr. Newell, we know how bad it is. And
now they call it a close call.
Slide 7, please.
Again, they say, ``We decline to intervene after going
through it.''
And then we have the--where they go through--in the last
slide, slide 8, they refer to the case. They refer to Magner in
the last case.
And so here's my question to you: What changed their mind?
What event took place between November 2011 and the February
2012 letter? What happened?
Mr. Newell. Well, sir----
Mr. Jordan. Well, let me suggest something here.
Mr. Newell. Go ahead.
Mr. Jordan. I would say this: I would say Mr. Perez got on
the phone and started talking to the folks in St. Paul, at the
city, said, ``Hey, guys, you're in trouble. I got smart people
at Department of Justice who say you guys are in big trouble.''
Mr. Nadler. Point of order, Mr. Chairman.
Mr. Jordan. The gentleman will state his point.
Mr. Nadler. You're asking a witness questions of which he
can possibly have no knowledge. You ought to be asking this of
Justice Department officials as to what changed. Mr. Newell----
Mr. Jordan. I would love to ask Justice Department
officials. All I know is Mr. Newell was supposed to testify a
week ago----
Mr. Nadler. Mr. Newell can have no----
Mr. Jordan. --and the hearing was cancelled.
Mr. Nadler. Mr. Newell----
Mr. Jordan. And I didn't interrupt you during your 5
minutes, so I would like to go ahead and ask the witness
questions.
Mr. Nadler. I am making a point of order. You're asking a
witness questions of which he has no possible knowledge, namely
what changed within the Department----
Mr. Jordan. I'll rephrase it.
Mr. Nadler. Let me finish. Namely what changed within the
Department of Justice.
Mr. Jordan. I'm asking----
Mr. Nadler. Mr. Newell has no knowledge of that.
Mr. Jordan. Mr. Newell has a lot of knowledge of this case.
That's why he's the whistleblower in front of the committee.
Mr. Nadler. He knows nothing of the decision-making process
within the Department of Justice, which is what you're asking
about.
Mr. Jordan. Okay. Well, let's say, Mr. Newell, would you
hazard a guess as to why this dramatic change from Justice,
what events may have transpired in the interim to take the
Justice Department saying it's egregious, they failed to
comply, I've never seen anything like this, to, oh, now it's a
close call, we're not going to weigh in?
And all I'm suggesting is I know one event that took place.
Mr. Perez called the attorneys at St. Paul, talked to the
folks--in fact, on February 3rd, Mr. Perez took what I would
assume was a pretty unprecedented action, got an a plane, flew
to St. Paul, sat down in a closed-door meeting with the lawyers
in St. Paul, and the next thing we know they're saying this is
a close-call case and we're not going to intervene.
Do you know of anything else that could have possibly been
an event that would change what the Justice Department
interpretation of this whole case was?
Mr. Newell. In answer to your question, sir, no.
I was going to say a second ago that in reading much of or
all of the data that's been flowing out--and I'm not referring
only to that he told the reporters reports, but the
understanding from the statements from the Department of
Justice----
Mr. Jordan. Well, let me just ask you this, Mr. Newell,
because my time is running short. Those first four slides I
showed--egregious, both Justice and HUD said we should
intervene, we concur that career--this is Justice and HUD from
Minnesota and--they're all saying we should jump into this
case, this is a strong case, St. Paul is pathetic, they're not
doing the job, we should get involved.
Did they relate that to you guys when you were having
conversation?
Mr. Newell. Yes.
Mr. Jordan. So that's consistent with what they told you.
Mr. Newell. That is consistent with----
Mr. Jordan. And then suddenly this dramatic change. And the
only event I can think of that might have had--and, now, Mr.
Nadler may think it's something else, but I think maybe there's
a chance when Mr. Perez gets on the phone and calls them, gets
on a plane and flies up there personally, I don't know that--
you know, why not just let the same lawyers who've been doing
it handle this case? It was moving along fine. But, no, he
personally flies to St. Paul, goes in a closed-door meeting,
and, shazam, everything changes. Go figure that.
I see my time has expired. With that----
Mr. DeVincke. Mr. Chairman, we can say that--I had most of
the conversations with the United States Attorney's Office. And
I can tell you that as of November 7th of 2011, it was accepted
without debate that the United States would intervene in this
case.
And, in fact, I had been contacted by the Department of
Justice on two fronts: one, to gather information that would
counter and address St. Paul's defense that it did not have
substantial funds to pay a settlement; and, two, that I should
reach out to my local media contacts to get Fredrick's story
out because Justice expected that St. Paul would get its story
out and it would be negative toward my client, and that Justice
wanted me to run point on public outreach on the case.
Mr. Jordan. To me, this is as obvious as it gets. This is
someone in a position of power who said, You know what? Forget
what the facts say. Forget what the people who for over 2 years
have looked at this case and said this case is one we should
intervene in. Forget all that. I care more about this theory
and what may happen in front of the United States Supreme
Court. And because I'm in a position of power, I'm going to
hurt the poor people in St. Paul, Minnesota, that Mr. Newell
pastors to, ministers to, and works with. I'm going to hurt
them.
And that's exactly what--and anyone with common sense can
see this pattern. They can see the memos and the emails sent in
November 2011. And they can see the abrupt change after Mr.
Perez gets on a plane, flies to St. Paul, goes in a closed-door
meeting, and changes people's minds because he is powerful and
he's now going to be potentially the next Secretary of Labor.
And that's why this is wrong, and that's why this hearing is so
important.
With that, I'd yield to----
Mr. DeVincke. Mr. Chairman, may I comment on that briefly?
Mr. Jordan. No. I'm going to recognize Ms. Kelly first;
then we'll----
Mr. DeVincke. Of course.
Mr. Jordan. We'll keep going.
Ms. Kelly, I'm sorry.
Ms. Kelly. I have no questions for this panel.
Mr. DeVincke. If I may comment briefly on the prior
statement?
We don't know or believe that Mr. Perez--personally, I've
never met the man. I don't think he bears any ill will toward
Mr. Newell.
Mr. Newell. Mr. Perez?
Mr. DeVincke. Yeah.
But I do want to say that, you know, my client was
overlooked here in this process. And we feel that Mr. Perez's
department or he himself should have taken Mr. Newell into
account at some point in this process. He was the relator on
this case, and yet he was not told about any resolution
reached. He was not told that the Magner case was connected to
his case in any way. And he wasn't given any share of any
proceeds of anything that the government received ultimately.
And that's on appeal right now. We want to have some
discovery on these issues regarding whether there was a
settlement or an alternate remedy under the statute. But as a
relator, he had rights.
Mr. Jordan. Ms. Kelly, you yield your time back?
Ms. Kelly. Yes.
Mr. Jordan. Okay.
We'll recognize chairman of the full committee, Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman.
I'd ask unanimous consent that my letter to the Honorable
Thomas Perez of May 6th, 2013, be entered in the record.
Mr. Franks. [Presiding.] Without objection.
Mr. Issa. Thank you.
Mr. Issa. In this letter, I'm making it clear that, as of
today, this committee has had zero response as to what is known
to be 1,200 emails, of which at least 35 occasions we know that
these emails were in violation by Mr. Perez of the Federal
Records Act.
And this remains one of the great questions of this
committee, is: If somebody works at the highest levels of law
enforcement, circumvents a Federal law, why is it the Justice
Department, the very entity that to a certain extent is on
trial here today for their wrongful actions against Mr. Newell,
why they refuse to make these records available?
We do have one record I'd like to make available in
realtime.
Could we have the voicemail played, please?
This is an actual call.
[Voice message begins.]
``Mr. Perez: Hey, Greg. This is Tom Perez, calling you at 9
o'clock on Tuesday. I got your message. The main thing I wanted
to ask you--I spoke to some folks in the Civil Division
yesterday, and wanted to make sure that the declination memo
that you sent to the Civil Division--and I'm sure it probably
already does this--but it doesn't make any mention of the
Magner case, it's just a memo on the merits of the two cases
that are under review in the qui tam context. So that was the
main thing I wanted to talk to you about. I think, to use your
words, we're just about ready to rock and roll. I did talk to
David Lillehaug last night. So if you can give me a call, I
just want to confirm that you got this message and that you
were able to get your stuff over to----
[Voice message ends.]
Mr. Issa. Thank you.
Mr. Newell----
Mr. Newell. Yes.
Mr. Issa. --were you aware of this kind of direct action by
Mr. Perez?
Mr. Newell. No, I was not.
Mr. Issa. Earlier, one of the Members, Mr. Nadler,
apparently decided that you didn't have knowledge of certain
things so you couldn't be asked a question. Having heard this,
do you believe that this and other phone calls and emails may
have contributed to your case, your valid case, your valid
concern on behalf of your community essentially being
circumvented by Mr. Perez?
Mr. Newell. Based on everything I've read, even in the
reports from the committee, I would say they all had a definite
bearing.
Mr. Issa. And I think for your counsel: In your experience,
this kind of ex parte intervention, do you find that a little
unusual to come out of somebody who is supposed to stand on
behalf of civil rights as the law is written?
Mr. DeVincke. Mr. Chairman, I will duck your question a
little bit and just say this generally. What was most
disturbing to my client and I was--and we don't know this to be
the fact, but the suggestion in the record evidence that there
may have been an affirmative offer from either HUD or Justice
to aid St. Paul in defending my client's False Claim Act case
when these were the two departments that worked so closely with
my client for so many years and had pledged support to him and
he had dedicated his time and resources to the cause. And then
to find out that, in fact, they provided material support or
may have promised to provide material support to the defendant
in a False Claim Act case was very troubling. And it remains
troubling.
Mr. Issa. Well, there are two things I'd like to put in the
record at this time.
First of all, this committee will not cease its
investigation until we have interviewed individuals who changed
their position as to what caused them to change their position.
We will interview any and all necessary for that. And we look
forward hopefully to finding whistleblowers who will tell us
about these ex parte conversations and how this may have led to
it.
Secondly, I would call on Mr. Cummings, my ranking member,
to join with me to insist that Mr. Perez provide these emails
which were done in violation of the Federal Records Act, to
make them all available to the committee to be reviewed to find
out how many additional documents were used and what the
documents' contents are.
I'd yield to my ranking member.
Mr. Cummings. Let me just ask you this. I understand that
some of these--some of these records were received and reviewed
by committee, the committee staff. Is that right? In camera at
the Department.
Mr. Issa. The--Mr. Perez--you're somewhat correct. Mr.
Perez initially said under oath that there were none, then 1,
then now 34 additional, which we were allowed to see in camera
but not allowed to have copies of.
The committee has requested all roughly 1,200 to be
reviewed since he has, one, had a lack of memory of actual
violations of Federal record, and, quite frankly, the committee
has a right to look at all documents that he used on this
quasi-government email to determine whether or not he has been
truthful.
Mr. Cummings. Well, would the--just this one thing. I'm
happy to--you know I'm happy to cooperate with you. Contrary to
some of the things that have been said on national media, we on
this side do care about whistleblowers. We do care about
whistleblowers. I want to make that real clear. And I resent
anybody saying anything different than that.
And we will work with you. As I've said to you many times,
I will follow the evidence wherever it may lead. And so I'd be
happy to--I just need to know exactly what I'm agreeing to,
that's all.
Mr. Issa. Well, and let me rephrase it. The 34 that we were
allowed to see in camera were redacted. We want the unredacted
versions of that. And we'd like to have all 1,200--in other
words, all the emails that he used--for an in camera,
unredacted review.
Now, if they're personal, the committee, on a bipartisan
basis, can say ``next, next,'' until we've gone through them
all. But in the sense that initially it was claimed he had
zero, then 1, now 35, and we haven't been able to see them in
the entirety, it would certainly seem that we, the committee,
should be the judge of whether any or all of the 1,200
additional ones are germane.
Mr. Cummings. All right, I will join you and work----
Mr. Issa. I thank the gentleman.
Yield back.
Mr. Jordan. [Presiding.] I thank the gentleman.
I now recognize the gentleman from Nevada, Mr. Horsford.
Mr. Horsford. Thank you, Mr. Chairman. I'm going to reserve
my time for the third panel.
Mr. Jordan. Got it.
Mr. Horsford. And I know we have been asking for this to be
both sides of the issue, and we have spent now 2 hours and
haven't heard from the other side.
Mr. Jordan. Okay. Fine.
The gentleman from North Carolina, Mr. McHenry, is
recognized.
Mr. McHenry. Thank you, Mr. Chairman. And thank you for
having this very important hearing and publishing the report.
This committee has worked very diligently over the last
Congress and this Congress to find the truth in what is a very
bad situation, tragic in its results for you, Mr. Newell, and
awful in its intent by somebody who's going through Senate
confirmation today, who is a high-ranking government official,
Mr. Perez. Mr. Perez' actions raise great questions about his
intentions on this matter and even to the question about his
willingness to provide very important information, not even
following through and following through in delivering records
for a subpoena request.
So I do want to ask about this whistleblower lawsuit
because this matters to taxpayers. This matters to taxpayers,
though Mr. Perez has brought himself into great question based
on his actions and his interventions against what was working
through the process with career Department of Justice officials
who, apparently, according to the records we've seen, thought
that, Mr. Newell, you had a strong case.
Now, Mr. Newell, how long were you working with the
Department of Justice on your case?
Mr. Newell. We first met with Department of Justice in
2009, and so it started from that point.
Mr. McHenry. 2009.
Mr. Newell. Correct.
Mr. McHenry. And how long did they work with you until--how
long did they work with you?
Mr. Newell. We finally got an indication or declination in
2012.
Mr. McHenry. 2012.
Mr. Newell. Correct.
Mr. McHenry. Mr. DeVincke, you're an attorney by trade.
Mr. DeVincke. Right.
Mr. McHenry. When you're working with the Department of
Justice, did they give you an indication you had a weak case in
the, you know, 2, 3 years that you're working with them on
this? Did they say, you know what, we're not going to throw
government resources on this whistleblower claim; you know,
we're just going to--I mean, did you get any indication?
Mr. DeVincke. The indications were uniformly that the case
had merit. This position was strengthened by St. Paul's
response to the claims against them, which Justice found to be
further evidence of knowingly false certifications in support
of the case.
Also, Justice served a lengthy subpoena on the city of St.
Paul that resulted in a what we call open-file discovery where
the Justice Department, I believe through the United States
Marshals Service, conducted open-file discovery at city hall in
St. Paul.
Mr. McHenry. So is that--I'm not an attorney, and I know
we've got Judiciary folks here. They are well-versed in that.
Is that kind of standard for a weak case?
Mr. DeVincke. I am no expert on----
Mr. McHenry. I'm sorry. I wish the ranking member would
jump in and tell me that was a bad question to ask.
Mr. DeVincke. I would say----
Mr. McHenry. So let me just ask this.
Mr. DeVincke. They spent 2 years and 9 months, significant
attorney time, investigator time, and resources on the case.
They tied out the damages to the penny. And----
Mr. McHenry. And what was that? What did they come out to?
Mr. DeVincke. $86 million and change----
Mr. McHenry. Oh, and change. Okay.
Mr. DeVincke.--was the received funds. And then----
Mr. McHenry. So we're Congress, so we won't worry about the
change. We'll just talk about the $86 million.
And as a result of that claim, what would the taxpayers
recoup?
Mr. DeVincke. If it was trebled, the maximum recovery under
the damages model that would be most aggressive would be
approximately $260 million, plus penalties, plus fees, plus
costs.
However, there are--that's a simple answer because you're
asking for the biggest number possible. There are alternate
damages models. And we never really got there, just because the
number was so high already. In fact, there was quite a debate
over whether they were even going to spend all the time to tie
out the damages to the penny because, as some attorney at
Justice said, what's the point? We know it's in the tens or
hundreds of millions. And we also know that, it being a taxing-
authority municipality, we're not going to try to essentially
bankrupt the city of St. Paul. That would not be in anyone's
interest.
Mr. DeVincke. So the point being, the actual amount of
damages----
Mr. McHenry. Okay.
Mr. DeVincke. Once you hit a certain number, you go to
settlement.
Mr. McHenry. Thank you.
So, Mr. Newell----
Mr. Newell. Yes.
Mr. McHenry. --are there still problems with the St. Paul
low-income jobs programs?
Mr. Newell. There are.
Mr. McHenry. Okay. Now, have you ever met with the
Assistant Attorney General, Tom Perez?
Mr. Newell. No, I have not.
Mr. McHenry. Okay. Have you ever talked to Mr. Perez about
the problems in St. Paul with Section 3 compliance?
Mr. Newell. With Mr. Perez, no.
Mr. McHenry. Okay. Mr. Newell, you know, when we are going
through these records, we see an obvious quid pro quo by the
Assistant Attorney General.
Mr. Newell. Okay.
Mr. McHenry. That is a deep issue for us, as an oversight
panel, to make sure that we get the facts of your case. And my
understanding is, through this whole process, there are
documents that were jaw-dropping to you and your attorney based
on the fact that you had the Department of Justice moving
forward and they were going to support your claim.
Mr. Newell. Go ahead.
Mr. McHenry. Politics intervened. An Assistant Attorney
General, using his personal email account to get around
government records requests, counter to the law that is
existent for the executive branch, trying to use his personal
email account and some of these games that you played with
voicemails so that he wouldn't have to disclose the fact that
he was putting the screws to you and your case and the
taxpayers.
This is the deeply devastating thing that we have to bring
to light. And I ask my colleagues on the other side of the
Capitol Building to think twice about Mr. Perez' nomination
based on the records that we have simply come through with on
this committee. It raises great question about his government
service. What we want is honorable and good folks that are
there for the government good and the public good, not simply
out for politics.
And this is obviously what Assistant Attorney General Perez
was all about. That's what we see in his records, and that's
why we need more records, to actually verify what we have seen
is, in fact, true.
And, with that, I yield back.
Mr. Jordan. I thank the gentleman.
I now yield to another gentleman from North Carolina, Mr.
Meadows.
Mr. Meadows. Thank you, Mr. Chairman.
And thank you, Mr. Newell, for having the courage to come
and testify, but not only having the courage to come and
testify, to stand up for those that don't have a voice. And we
appreciate your willingness to do that.
And I want to get right to some of the points that have
been made. Obviously, as we look at it, in testimony there has
been an indication from the get-go from Mr. Perez that this was
a weak candidate for intervention. Was that your understanding
from career staff people that you talked to?
Mr. Newell. No, sir.
Mr. Meadows. So you never got that indication, that it was
a weak candidate?
Mr. Newell. No, sir.
Mr. Meadows. All right. Let me go on a little bit further.
And so, as we start to see this, if indeed it was not a weak
candidate, do you believe that they would have been investing
all this time and your time to look at this, the amount of
dollars to pursue this, if they didn't have some hopes that it
would have merit?
Mr. Newell. No, sir.
Mr. Meadows. So when we start to see this--you know, my
colleagues opposite here have created this almost sainthood of
Mr. Perez in terms of who he is. In fact, I think to quote Mr.
Cartwright, he said that there's not a single thing that he has
done wrong.
And would you agree with that, having read some of the
things that are here, would you agree with that
characterization, that there is not a single thing that he has
done wrong?
I can see you are reluctant to answer that, and so I'm
going to go on because my time is limited.
So the committee has done a great job. And as I started to
review all of this, I said, well, obviously, even the President
can't know all this stuff that has gone on with Mr. Perez and
feel good about this nomination because of some of the things
that are there. And so, everything that you have heard from
career attorneys, would you say that it was a marginal case
based on what you have heard from them?
Mr. Newell. I have yet to hear--well, you say have I heard
from any attorney that it was a marginal case?
Mr. Meadows. In general. Did most of the attorneys indicate
that it was a marginal case?
Mr. Newell. And are you referring to attorneys that worked
from Justice, HUD, or what are you referring?
Mr. Meadows. From Justice.
Mr. Newell. I will confess that all communications with the
Department of Justice and HUD was through my attorney.
Mr. Meadows. Okay.
Mr. Newell. But all references to me from my attorney was
that our case was not only a good case, but in the phrase of
Justice was discussing settlement of the case, and that's why
they kept extending----
Mr. Meadows. So they thought there was enough merits there
to discuss settlement?
Mr. Newell. Correct.
Mr. Meadows. All right. Let me go on a little bit further.
We talked just a few minutes ago about these emails, these
nonofficial emails, that have been sent by the Assistant
Attorney General, Mr. Perez.
Were you aware of that, that he was sending personal emails
to different folks?
Mr. Newell. No.
Mr. Meadows. Okay. I have a letter here that was sent to
him that outlines the fact that there has been some 1,200 times
that his personal email has been used. And I'm troubled by some
of the things that I see in there, mainly because we want to
make sure that it gets covered.
In this particular letter, it refers to the fact that there
are 34 separate violations of the Department of Justice, the
Federal Records Act. Were you aware that he was violating the
Federal Records Act some 34 times?
Mr. Newell. No, sir.
Mr. Meadows. All right. Let me go on a little bit further,
because, in this, it is real troubling that he actually sends a
personal email to a New York Times reporter on information from
the Department of Justice that was not public. And to quote
this, it says, ``Just closed a deal 15 minutes ago. Will
announce at 3 o'clock tomorrow.''
Okay? So when you look at this email, he is sending private
information from the Department of Justice to a New York Times
reporter of a deal that, quite frankly, was about Countrywide
Financial Corporation. And so would you not think that that
would be inappropriate?
Mr. Newell. Not--my attorney kind of put the answer that I
would have said, which is simply, I'm not in a position to be
able to, you know, evaluate or judge those particular actions.
Mr. Meadows. Well, I guess my question is, as a citizen,
when I read this, I would say, well, why would a New York Times
reporter be privy to information from the Department of
Justice? Would that not--would you do the same thing? Let me
ask you that, Mr. Newell.
Mr. Newell. Would I----
Mr. Meadows. Would you let somebody, a reporter know about
nonpublic information before it's known to the public if you
were working for the Department of Justice?
Mr. Newell. I'm not clear on the constraints that he would
have.
Mr. Meadows. All right.
Well, I can see my time is out. I yield back, Mr. Chairman.
Thank you for your indulgence.
Mr. Jordan. I thank the gentleman.
I now recognize the gentleman--we started with an Iowa guy,
and we are finishing here with an Iowa guy--the gentleman from
Iowa, Mr. King.
Mr. King. Thank you, Mr. Chairman. Mr. Chairman, I thank
you for this hearing.
And, Mr. Newell, I very much thank you for your testimony
and for your willingness to step up for all this time and take
on something that I think you view as an injustice.
And as I listen to the testimony and the questions in this
hearing, I just reflect upon--you deliver a sermon from time to
time, Mr. Newell?
Mr. Newell. Yes, I do.
Mr. King. And I don't have any knowledge of this, but I'm
going to ask you a question, and that is: Have you ever
contemplated or delivered a sermon on the irony of a
dishonorable man from the Department of Justice delivering
injustice to honorable people?
Mr. Nadler. I have--Mr. Chairman?
Mr. Jordan. The gentleman is recognized.
Mr. Nadler. If Mr. King will not take back his words
referring to the Assistant Attorney General as a dishonorable
man, I think his words ought to be taken down.
Mr. Jordan. I think the gentleman was talking about a
sermon that Mr. Newell may have delivered about honorable----
Mr. Nadler. I think he was referring to the subject of this
hearing, and I think that it was clear from the context.
Will Mr. King make clear that he was not referring to Mr.
Perez when he commented in any way or analogizing Mr. Perez
when he commented on a dishonorable man?
Mr. Jordan. I don't think the gentleman mentioned anyone's
name in his comments. He was talking about----
Mr. Nadler. I asked Mr. King if he would----
Mr. Jordan. And I am the chairman of the committee, and I
was just saying what I heard, what I think what most people
heard----
Mr. Nadler. I'm glad what you heard. I asked Mr. King a
question. I am entitled to do that before I move to take down
his words, if I do.
Mr. Jordan. I was going to let him answer your question.
Mr. Nadler. Fine. Thank you.
Mr. Jordan. All I'm saying is, I think the gentleman was
asking Mr. Newell, in his duties as a pastor----
Mr. Nadler. You don't have to instruct him how to answer
the question. He is smart enough to answer for himself.
Mr. Jordan. I know he is smart enough to answer for
himself. I just wanted to give you my opinion of what I think
most people in the room heard. He can respond.
Mr. King. I thank you both for the endorsement of my
ability to answer this question.
And I'd make the point that I specifically didn't name
anyone. This is a question--I can repeat it again--about a
dishonorable man from the Department of Justice delivering such
injustice to honorable people.
And I would point out that in the previous discussion that
we have had here, I remember Mr. Nadler saying that this is a
shameful smear campaign against Mr. Perez, and went on, and the
gentleman from Maryland said that he is one of the most
honorable men I know.
Mr. Nadler. I agree.
Mr. King. So I have heard the endorsement of Mr. Perez. I
didn't state his name in my question. And I wouldn't be willing
to change the definition or the meaning of what I said, nor ask
my words be taken down, be removed----
Mr. Cummings. Mr. Chairman?
Mr. King. --because the answer is no.
Mr. Cummings. Mr. Chairman?
Mr. Jordan. The ranking member is recognized.
Mr. Cummings. I'm going back to what Mr. Nadler said. It
sounds like he was referring--I mean, just based on what he
just said, it sounds like he was referring to Mr. Perez.
I'm just, I mean, I'm listening here. And, by the way, when
I said honorable, I was saying something good about the person
who I know. I was not, you know, going against his character or
making him sound like some bad person. There is a big
difference between what I did and what you did.
Mr. King. Since you have all brought up this discussion
about the honorability or dishonorability of the individual I
didn't name, I would point out that individual testified before
the Judiciary Committee twice that I can recall, once in 2009,
once in 2011. And in 2009 Mr. Gohmert asked the gentleman you
are referring to if he had seen the video of the New Black
Panthers, and it took five questions to get the answer ``yes''
to that. When I asked him on June 1st of 2011, did you provide
the highest penalty under law to the individual who was the
principal in the New Black Panthers case, his answer was, yes,
the highest penalty under law. We know that wasn't true.
So I'm going to suggest when I say the dishonorable man,
you know the facts that I have just listed here, and that's why
you jumped to the conclusion that I was talking about Mr.
Perez.
Mr. Cummings. Well, who are you talking about?
Mr. King. I asked a hypothetical question to the witness,
and you are all inflammatory here, inflamed because you know
that the question itself goes so close to the real truth that
we are talking about here, and that is the lack of integrity
that is being presented by the President.
Mr. Jordan. The gentleman has 4 minutes and 20 seconds.
Mr. Nadler. Mr. Chairman, I move to take down the
gentleman's words.
Mr. Cummings. By the way, Mr. Chairman, we are not being
inflammatory.
Mr. Jordan. In the practice of the House, I would just--
Members may employ, when referring to references to executive
officials, which Mr. King didn't do, but nevertheless, if he
was referring to an executive official, he is permitted to
employ strong language in criticizing the government,
government agencies, and government policies. So I think the--
and he did not say anything personally offensive toward the
President.
And the gentleman from New York, if he wants words taken
down, he needs to specifically decide which words he wishes
taken down. I don't believe there was a violation of the House
practice or committee rules, and would recognize the gentleman
from Iowa for his remaining 4 minutes and 20 seconds.
Mr. Nadler. Mr. Chairman, my----
Mr. King. Thank you, Mr. Chairman.
Mr. Nadler. --motion has to be disposed of.
Mr. Jordan. Yeah, and I indicated that the gentleman needs
to state which specific words he wants taken down.
Mr. Nadler. I want the words specifically in which it was
clear from the context he was referring to Mr. Perez. He said
the word ``dishonorable.''
Mr. Jordan. The chair rules that the words of the gentleman
from Iowa are not parliamentary because they--excuse me. The
chair overrules the point of order by the gentleman from New
York but asks that the Members please afford all of the Members
the respect that they are entitled and refrain from using
rhetoric that could be construed as an attack on the motives or
the character.
Mr. Nadler. Given the ruling of the chair and hoping that
Mr. King will adhere to those, I will withdraw the motion.
Mr. Jordan. I appreciate the gentleman withdrawing.
The gentleman from Iowa is recognized.
Mr. King. Thank you, Mr. Chairman. I will revert back to my
natural gentle nature and turn to the witness at hand.
And I would ask you then, Mr. Newell, when did you first
suspect that there might have been a quid pro quo?
Mr. Newell. We--right after we got our declination, about I
would say within the next month or so, I was approached by a
gentleman who was part of the Magner case, who then asked me if
I knew of some connecting issues there.
Mr. King. And then when--you've got a question about that.
When was it confirmed? When did you learn about the Perez
involvement?
Mr. Newell. The actual Perez involvement came to my
attention when the letters went out to the--or when I received
copies of the letters to the Secretary of HUD and the Secretary
of--I mean, Assistant Secretary--Attorney General.
Mr. King. And the copies of the letters, they would be some
of the letters that Mr. Issa introduced into the record?
Mr. Newell. Correct. That would be about September or
October of 2012.
Mr. King. Uh-huh. And yet Mr. Perez said that there
wouldn't--this wouldn't be documented, it would be your word
was your bond, if I remember the discussion. Had you run across
that language previously?
Mr. Newell. I have.
Mr. King. And then did it seem curious to you that he would
be willing to put such a message on an audio of a voicemail
that--had you heard that voicemail before today?
Mr. Newell. No, I had not.
Mr. King. Does it seem curious to you that a man that is so
careful about making sure that there isn't a trail would leave
a voicemail?
Mr. Newell. The advice was similar to my own thought, and
that is not a personal--or not wanting to make the speculation
based on knowing his intent.
Mr. King. Let me state, it seems curious to me, Mr. Newell.
Mr. Newell. I understand.
Mr. King. And do you have the sense now that you have been
sold out?
Mr. Newell. If I go by the language of the letter or the
statement made by Miss Tracy, I believe, from the Department of
Justice that that was a global resolution, I kind of count that
as being, ``sold out'' or cut out of what was an actual deal
that was made.
So, in a sense of the word, her statement says they did
make a deal, that they did have a global settlement, a global
resolution. And I, you know, I have not been a party to that
resolution at all.
Mr. King. And, Mr. Newell, I can only imagine what it must
be like to toil every day to help people the way you do in a
number of different ways, multitasking to do so, and step into
something like this, like this qui tam case. And impossible to
anticipate that a very questionable legal theory called
disparate impact could be a legal theory that would be so
important to be defended that the interest of the taxpayers and
the people in the community and those that you work for and
represent should pay such a price to try to advance such a
questionable legal theory. And I question whether justice ever
comes from the levels that we have seen in this way.
And so I just appreciate your testimony. And I hope and I
pray that the energy that you put into the community and into
helping the people you minister, that it is not drained away by
these kind of confrontations, that it strengthened instead of
weakened, and that you can go forward from this and look back
on it being stronger and better. And I thank you for your
contributions to your community and your country.
And I yield back.
Mr. Jordan. I thank the gentlemen.
Mr. Newell, we want to thank you again for your courage in
stepping forward and for the work you are doing in St. Paul to
make life better for the families that you get a chance to
interact with and minister to and work among.
And, Mr. DeVincke, we want to thank you, as well.
We will now move to our third panel. If staff could get the
table ready for Ms. Slade.
Mr. Nadler. Mr. Chairman?
Mr. Jordan. The gentleman from New York. I've said that how
many times, I wonder, today.
Mr. Nadler. You will say it more.
Mr. Jordan. I figured I would.
Mr. Nadler. Mr. Chairman, before we start this third panel,
I just want to note for the record my objection to this
absolute travesty that you have perpetrated here today, in
which the minority party's witness was not permitted to testify
on the same panel. We have had 2-1/4 hours of that panel.
Virtually none of the Republicans are here for the second
panel--for the third panel, rather. Consequently, it will be a
much shorter panel. And you have had 2-1/4 hours of one-sided
presentation before----
Mr. Jordan. If the gentleman would yield?
Mr. Nadler. I will not yield.
Mr. Jordan. If the gentleman wants 2-1/4 hours for Ms.
Slade, he can have it.
Mr. Nadler. Very good. We will take as much time as we
think necessary because there are not--but the fact is, I have
never seen in a committee of this House before where you had
the one side's witnesses on one panel and the other witness on
a subsequent panel.
Mr. Jordan. Because you are not a member of the Oversight
Committee. If you were, you would have seen it.
And you used the word ``travesty.'' The travesty is what
has been done to Mr. Newell. And--
Mr. Nadler. Well, that is the subject of----
Mr. Jordan. No, no, no, no.
Mr. Nadler. That is the subject of the hearing that you
will discuss.
Mr. Jordan. No, you used the term ``travesty.''
Mr. Nadler. About the committee hearing, not about the
subject----
Mr. Jordan. The travesty is families in St. Paul are not
getting the kind of support they need, and now they will be
continued to be denied that because this suit couldn't go
forward. That is the travesty.
Mr. Nadler. The subject matter----
Mr. Jordan. And the travesty is Mr. Newell was supposed to
testify a week ago in a Senate committee and he was denied his
chance to tell his story.
Mr. Nadler. The subject----
Mr. Jordan. He needed a single panel to do that, and that's
why we afforded him that opportunity.
Mr. Nadler. The subject matter of the hearing, namely what
went on in St. Paul and whether that is good or bad or
indifferent, we have talked about for the last 2 hours, will--
--
Mr. Jordan. Indifferent?
Mr. Nadler. Wait, wait.
Mr. Jordan. Minneapolis citizens you're indifferent about?
Mr. Nadler. I'm certainly not indifferent. I'm saying
whether that was good or bad or whatever, the merits of that we
have talked about for the last 2 hours. We will continue
talking about it in the next panel.
What I'm saying was the travesty is not anything to do with
the subject matter but the manner of conduct of this hearing.
Totally unfair.
Mr. Jordan. The longer the gentleman talks, the longer
we'll have to wait for Ms. Slade to give her testimony.
Ms. Slade, we want to thank you for joining us today on
this all-important third panel.
We'd ask that you stand up. We have the practice where
witnesses need to be sworn. And stand up, raise your right
hand.
Do you solemnly swear to tell the truth, the whole truth,
and nothing but the truth, so help you God?
Ms. Slade. I do.
Mr. Jordan. Let the record show that the witness affirmed
the statement.
And you are now recognized, Ms. Slade. You've been here,
saw how this works, and you've probably testified in front of
Congress before.
Ms. Slade is a lawyer here in Washington, D.C.
And you now have your 5 minutes.
STATEMENT OF SHELLEY R. SLADE, PARTNER, VOGEL, SLADE &
GOLDSTEIN, LLP
Ms. Slade. Okay. Thank you.
Good afternoon, Committee Ranking Minority Member Cummings,
Subcommittee Chairmen Jordan and Franks, Ranking Minority
Members Cartwright and Nadler, and members of the subcommittee.
Thank you for the invitation to testify.
I am here in my personal capacity as an attorney with more
than 20 years' experience handling qui tam cases filed under
the False Claims Act. For the last 13 years, I have been a
partner in a law firm dedicated to the representation of False
Claims Act whistleblowers. Before that, I spent 10 years in the
Civil Division of the Department of Justice handling False
Claims Act matters.
I plan to address two issues. First, I will summarize the
law and procedures that ordinarily govern the Department of
Justice's decision-making process with regard to intervention
in qui tam cases. Second, I will provide my perspective as a
qui tam practitioner on the Department of Justice's decision to
decline to intervene in the U.S. ex rel. Newell v. City of St.
Paul lawsuit.
The False Claims Act provides that a private party,
referred to as a qui tam plaintiff, may bring a False Claims
Act action on behalf of the United States by filing a complaint
under seal and serving the complaint on the United States
alone. After the government investigates the case while it
remains under seal--and the investigation may last as long as 4
or even 5 years--the United States must notify the court
whether it will intervene in the case. In those instances in
which the government declines to intervene, the qui tam
plaintiff may proceed to litigate the case on their own under a
private attorney general provision in the law.
The Department has broad discretion in making its
intervention decisions. As the U.S. Supreme Court held in
Heckler v. Chaney, ``An agency's decision not to prosecute or
enforce, whether through civil or criminal process, is a
decision generally committed to an agency's absolute
discretion.''
The courts that have elaborated on this principle in the
False Claims Act context have ruled that a Department of
Justice decision on whether to pursue a qui tam case need bear
no more than a rational relationship to a legitimate government
purpose. Accordingly, courts have upheld even motions to
dismiss qui tam cases, which is not at issue here, over the
objections of the whistleblower, on grounds such as working to
achieve peace among competitors, protecting national security,
and conserving scarce law enforcement resources.
As a matter of practice, when the Department of Justice
decides whether to intervene, it relies heavily on
recommendations from affected program agencies. Those
recommendations often take into account the agencies' broad
programmatic interests.
Although this hearing is focused on Mr. Perez, this hearing
is also implicitly examining whether it would have been
improper or unusual for the Civil Division to take into account
broad programmatic interests of the client agency in deciding
whether to intervene in the Newell case.
I would see nothing the least bit untoward or unusual if
this, in fact, was the case. The Civil Division's decisions on
intervention, by relying on program agency recommendations,
often take into account the agency's broad policy concerns.
Moreover, knowing, as I do, the clear managers who have
overseen the False Claims Act work in the Department, I am
confident that the Civil Division's actions were fully
consistent with the law as well as ethical and professional
obligations.
With regard to the merits of the Newell case, it is
surprising to me that the line attorneys originally recommended
intervention. If my law firm had been contacted about taking on
this case, we would have rejected it. Notwithstanding the
apparent evidence that the city of St. Paul engaged in
egregious regulatory violations and notwithstanding the
commendable efforts of Mr. Newell to correct those infractions,
the case, as a qui tam case, presents serious litigation risks.
To be successful, a False Claims Act plaintiff must
establish much more than violations of a regulation. Most
courts hold that the plaintiff must demonstrate that the agency
consider compliance with the regulation to be a prerequisite
for or material to the payment decision. Yet, in the Newell
case, there appears to be evidence that HUD, one, knew about
the city's failure to submit required Section 3 reports; two,
likely learned about the city's failure to comply with Section
3 during the agency's annual reviews; and, three, on at least
two occasions exercised a legal option to continue funding the
city after having found that the city was out of compliance
with Section 3.
Learning of the factors that the Department of Justice may
have taken into account in deciding whether to intervene in
this case will not, in my judgment, deter whistleblowers or
their counsel from bringing meritorious qui tam cases. Given
the legal challenges, the equities, and the broader
programmatic concerns, the Department's decision-making
process, in my view, was fully consistent with its usual
policies and practices.
Thank you.
Mr. Jordan. Thank you, Ms. Slade.
[Prepared statement of Ms. Slade follows:]
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Mr. Jordan. The gentleman from Pennsylvania is recognized
for 5 minutes.
Mr. Cartwright. Thank you, Attorney Slade, for coming here
today and sharing your expertise. Unfortunately, you are the
only qui tam expert we have heard from in the testimony today.
We had Mr. Newell's attorney admit candidly that he is not a
qui tam expert and a False Claims Act expert. So it is very
important that we hear from your testimony today.
Now, we did hear the chairman of the Judiciary Committee,
Mr. Goodlatte, say on the record today that dropping the Newell
case cost the U.S. Government over $200 million. Did you hear
him say that?
Ms. Slade. I did.
Mr. Cartwright. Well, based on your review of the claims
and the defenses in the Newell case, was this any $200 million
case, counselor?
Ms. Slade. Well, the first point to be made is that there
are serious problems to establishing liability in the case, in
my view.
Second, even if liability were to be established, then
there would be the question of establishing what the damages
were. There are varying court decisions on how you measure
damages in a case like this, where you have a service that's
been delivered but regulatory noncompliance.
I find it extremely unlikely that a court would determine
single damages to be the $85 million figure.
Mr. Cartwright. Okay. And so, unlikely that they were
talking about a $200 million case here. But even beyond that,
assume for the moment that it were a $200 million case, we are
talking about money that would be coming from where? The city
of St. Paul, is that right?
Ms. Slade. That's right.
Mr. Cartwright. And you also heard Mr. DeVincke, Mr.
Newell's lawyer, candidly state on the record that a figure
like that would have just bankrupted the city of St. Paul. Does
that make sense to you?
Ms. Slade. I don't know the particulars of the city's
finances, but it sounds like a lot of money for a city to pay.
Mr. Cartwright. In other words, anybody who suggests to the
public at large that dropping the government's involvement in
the Newell case cost the U.S. taxpayers money, we are talking
about any $1 coming out of that case would have been coming
from the taxpayers of the city of St. Paul. Am I correct on
that?
Ms. Slade. That's right.
Mr. Cartwright. All right.
Now, in this case, was Mr. Newell a whistleblower?
Ms. Slade. I believe your question goes to whether the
court had jurisdiction over the case in light of the public
disclosure bar.
Mr. Cartwright. Right.
Ms. Slade. And there was, again, serious litigation risk on
that front for this qui tam plaintiff.
Mr. Cartwright. And the idea is that the public disclosure
bar means that if you are bringing a False Claims Act case
based on information that is available to the public at large,
you don't have the kind of inside information that makes you a
whistleblower. Am I getting that right?
Ms. Slade. Well, there is an exception to that bar for
somebody with direct and independent knowledge who is
considered an original source.
Mr. Cartwright. Right.
Ms. Slade. That can be a difficult standard to meet in
these cases. And, generally, you need to be an insider,
although not always.
Mr. Cartwright. So did you hear anything or read anything
about this case that would have qualified Mr. Newell for that
exception?
Ms. Slade. I think he had challenges to meeting that
standard, serious challenges.
Mr. Cartwright. So that if anybody mentions this Newell
case as if it is a whistleblower case and he is to be the
commended for coming forth with his secret, inside information,
and saving the American taxpayers money thereby, there is
nothing to that at all, is there?
Ms. Slade. Well, the points you made, I think, overlap to
some degree with the problems of liability, because you have a
situation here where HUD did learn--should have known all along
but did eventually learn and decided to employ a voluntary
compliance agreement as the remedy. And the court would not
ignore that and may well have considered that in connection
with the public disclosure decision without articulating it.
Mr. Cartwright. Thank you, Ms. Slade.
Now, another point that you brought up was the discretion
of the Department of Justice Civil Division to pursue broader
policy goals. Did you talk about that?
Ms. Slade. Yes.
Mr. Cartwright. And that's the biggest point of all here,
is that the United States Department of Justice and the people
who run it do have the unfettered discretion to pursue broad
policy goals of the administration, do they not?
Ms. Slade. That's right. They are representing the program
agencies.
Mr. Cartwright. And are you aware of any restriction placed
upon the Department of Justice from managing its litigation
docket in a way that will promote its policy and broader goals
of the administration?
Ms. Slade. I am not.
Mr. Cartwright. That's the most important answer all day.
Thank you, counselor. Appreciate it.
I yield back.
Mr. Jordan. I thank the gentleman.
The gentleman from Arizona, the chairman of the
Constitution Committee, is recognized.
Mr. Franks. Well, thank you, Mr. Chairman.
And thank you, Ms. Slade, for being here.
Ms. Slade, you have testified that you would not have
recommended intervening in Mr. Newell's case if you had
reviewed it. And, certainly you are entitled to that opinion.
However, career attorneys at DOJ and HUD did disagree with
your assessment. On November 22nd, 2011, the Civil Frauds
section drafted a formal memo recommending intervention and
outlining the reasons. The memo found that, ``The City of St.
Paul was required to comply with the statutes. Our
investigation confirms that the City failed to do so.'' The
memo further stated that, ``We believe that its certification
of Section 3 compliance to obtain HUD funds were actually more
than reckless and that the City had actual knowledge that they
were false.''
Thus, as of November 22nd, 2011, HUD and the Civil Frauds
section and the U.S. Attorney's Office in Minnesota all
strongly recommended intervention in Mr. Newell's case. There
is no documentation that they viewed the case as marginal or
even a close call. Indeed, last week, the highest career
official at HUD to have reviewed the case stated to committee
investigators in a transcribed interview that he still stands
by his original recommendation that HUD should have recommended
intervening in the case.
So, after reviewing all of the evidence in this matter, it
is clear that the only factor, at least from my perspective,
that the only factor that led to the government declining to
intervene in this case was Mr. Perez's desire to have the
Supreme Court not hear the Magner disparate impact case.
So my question to you is, while you were an attorney at the
Justice Department, did you ever provide evidence to a False
Claims Act defendant to help that defendant win a motion to
dismiss on public disclosure bar grounds?
Ms. Slade. No.
Mr. Franks. Would it have been appropriate for you to have
shared such information?
Ms. Slade. I haven't researched that question. I don't know
the answer.
Mr. Franks. Okay. You contend, Ms. Slade, that Mr. Newell
undermined the False Claims Act because the district court
determined that he was not the original source of the
allegations in this complaint; is that correct?
Well, either way----
Ms. Slade. Yeah, it was that he had litigation risks,
serious litigation risks on that front.
Mr. Franks. Okay. And in United States ex rel. Lisitza v.
Johnson & Johnson, the district court determined that your
client was not the original source of the allegations and that
your client's complaint ``simply adds a sprinkle of factual
garnish,'' to the original--to the true original source's
allegations.
So, you know, there is a dual issue here. It sounds like
you are guilty of what you've accused Mr. Newell of doing.
Ms. Slade. You mean--I'm not sure I follow.
Mr. Franks. Well, your client in this stated case was not
the original source of the allegations, and that your-- the
court said this, that your client's complaint, ``simply adds a
sprinkle of factual garnish'' to the true original source's
allegations.
In fact, in Mr. Newell's case, he was the only one pursuing
an FCA case against the city of St. Paul. In your case, your
client was kind of attaching himself to the complaint of
another whistleblower who was already pursuing a case on behalf
of the United States. So help me understand the conflict here.
Ms. Slade. Okay. Well, I will say that we disagree with the
court's decision, but that litigation has not yet been
resolved, so it is not appropriate for me to comment on it.
Mr. Franks. Okay. All right.
Your written testimony notes that--well, I'm afraid my time
has expired. Maybe--no, I'm sorry, I'm looking at the wrong
button here.
Your written testimony notes that during the congressional
investigation of this matter, the former Deputy Assistant
Attorney General, Michael Hertz, who was widely considered at
the time to be the government's preeminent expert on False
Claims Act, was quoted, to use his term, was quoted as saying
this case sucks. You add that this, ``opinion does not surprise
you.''
During the investigation, Hertz was also quoted as saying,
``It looks like buying off St. Paul.'' Does that surprise you?
Ms. Slade. That he would have said that?
Mr. Franks. That he would have said--do you think that he--
what is your perspective of his perspective?
Ms. Slade. Well, I will just state generally that the first
comment, I think, is a very important one to focus on because,
as I understand it, it was said early on when the intervention
memo first came up, the memo recommending intervention.
Apparently, he confided in his deputy, Joyce Branda, that he
felt that the case sucks. And knowing, having worked with and
for Mike for 10 years, he was to the point----
Mr. Franks. It sounds like that's something he might say.
Ms. Slade. And when I asked him----
Mr. Franks. But when he said, ``looks like buying off St.
Paul,'' what is your perspective on that?
Ms. Slade. I have no----
Mr. Franks. Was he confused?
Ms. Slade. I wasn't in that meeting. I can't be a witness
on that topic.
Mr. Franks. No, I understand.
Ms. Slade. Yeah.
Mr. Franks. All right. Well, thank you, Ms. Slade.
And, Mr. Chairman, I would just suggest to you that the
bottom line here is that Mr. Perez intervened in a case, and
the result was that the people of St. Paul were ill-served and
so was this country. And, ultimately, it was to save a false
process of the court to indicate that disparate impact--that he
knew that this was going to be in trouble before the court, and
I believe that's why he did it. And I think that's the real
issue here.
And, with that, I yield back.
Mr. Meadows. [Presiding.] I thank the gentleman, and he
yields back.
And the chair recognizes the gentleman from Michigan, Mr.
Conyers.
Mr. Conyers. Thank you, Chairman Meadows.
We welcome your testimony here today. You've been very
patient in waiting your turn.
And you said that there may be a concern about the
potential public disclosure problem. Would you describe that a
little bit for me, please?
Ms. Slade. Sure.
Well, the False Claims Act, at the time when the misconduct
in this case occurred, the alleged misconduct, had a public
disclosure provision that provided that a court lacked
jurisdiction over a qui tam action if it was based on matters
that had been publicly disclosed in various forums--the media,
litigation, administrative proceedings.
The exception to that bar is where the whistleblower is an
original source of the information, in that he or she has
direct and independent knowledge of it and has gone to the
government before filing suit.
Mr. Conyers. Uh-huh.
Now, even if a lot of allegations here are true, even if
the Newell and Ellis cases were appropriate for intervention,
even if the Associate Attorney General actively sought to
decline intervention in these cases in exchange for the city's
withdrawal of Magner, would anything illegal or improper have
occurred under those circumstances in this case, in your view?
Ms. Slade. I don't know of any law or rule of ethics that
would have prohibited the Department of Justice from acting as
a single entity taking into account and coordinating among its
components to get the best possible outcome for the United
States.
Mr. Conyers. Uh-huh.
Ms. Slade. It seems to me that that's what happened here.
Mr. Conyers. Thank you.
Now, in the Department of Justice for a decade or longer,
can you give me an idea of the professionalism of the Civil
Litigation Division when these False Claim Act cases arise?
Ms. Slade. Sure. I worked closely, as I mentioned, with
Michael Hertz, who sadly passed away about a year ago, and with
Joyce Branda, who had always been his number two. The two of
them not only are extremely capable and experienced--I think
Mike Hertz handled False Claims Act matters for about 30
years--they also have impeccable integrity. They are selfless
public servants. And I can't imagine that a final decision on
this case would have been made in anything but the most ethical
fashion.
Mr. Conyers. I thank you so much for your response to these
questions and commend you for being our most effective witness
here so far. And I----
Mr. Connolly. Would my colleague yield?
Mr. Conyers. Surely.
Mr. Connolly. I thank my colleague.
I just want to say, Ms. Slade, look around. There is
obviously a reason why you were not put on the second panel.
And the press, of course, got the story they wanted, so
apparently your testimony, expert testimony, isn't really
important.
Most of my colleagues on the other side of the aisle that
had plenty to say in terms of assassinating the character of
the pending Department of Labor Secretary are all gone, because
why would they want to hear from an expert? They would rather
hear from some poor soul and his erstwhile lawyer who has zero
experience in this endeavor so that they can make a case
against an honorable man yet again.
And I say to my colleague, Mr. Nadler, on the Judiciary
Committee, I'm very pleased to see you shocked. Unfortunately,
it is de rigueur here at the Oversight and Government Reform
Committee, travesty upon travesty in terms of sham hearings to
assassinate someone's character or to make some blatant
political point rather than actually try to get at the truth.
I apologize to you, Ms. Slade, for the fact that you had to
wait for the third panel and, of course, you have so little by
way of audience here at the committee.
Mr. Conyers. Do you yield back to me?
Mr. Connolly. I'm very pleased to yield back to you, Mr.
Conyers. And thank you for letting me have my moment.
Mr. Conyers. Well, my pleasure, indeed.
I want to associate myself with the shock that you ascribe
to Mr. Nadler. And I thank you very much for your testimony.
Is there anything you would want to add in this discussion?
Ms. Slade. No. Thank you for the opportunity to testify.
Mr. Conyers. Thank you.
I yield back, sir.
Mr. Meadows. I thank the gentleman from Michigan.
And the chair reserves his time, 5 minutes, for later and
will defer to the gentleman from Nevada.
Mr. Horsford. Thank you, Chairman Meadows, and to the
committee.
I also want to express my disappointment in how this
hearing has been conducted. You know, I'm a freshman, but I
still read the rules, and Rule XIV(c) says that a ranking
minority member of the full committee shall select a ranking
minority member for each panel. And that is in the rules. And
that was not followed today. And now we are on the third panel,
and you did not have an opportunity to bring forward the
minority's perspective in the course of this debate until now.
So that's unfortunate, and it is clearly politically motivated
by the majority side.
And we also have two chambers. And I didn't believe that
it's the House of Representatives that is involved in the
confirmation process, but that's reserved for the Senate. But
apparently some Members of the House believe it's their job to
do everything.
I would like to ask Ms. Slade here, you know, the
Republicans have made numerous allegations that there is
something improper about the Department of Justice considering
broader interest of the United States in its intervention
decision in a False Claims Act case. As someone who has been at
the Department of Justice and represented whistleblowers and is
an expert on the False Claims Act in general, let me ask you:
Is there anything unethical or improper in what the Department
of Justice did in this broader interest?
Ms. Slade. I don't see anything unethical or improper about
considering broader programmatic interests of the client
agencies in a decision on a qui tam case.
And I also did want to point out that I believe it may have
been gratuitous to even reference the fact that the Supreme
Court petition for cert was being withdrawn as a factor in the
memo recommending declination. I think it may well be the case,
based on what I know of Mr. Hertz' views on cases and the legal
risks in this case that the Department of Justice, when the
decision got up to his level, that they were going to be
declining. And he is a career manager.
I think it may well be that they were going to decline the
case anyway, so that that reference being in there was in there
for full transparency, that there had been discussion about it,
but it was not necessary to the decision.
Mr. Horsford. Okay. In fact, as you explain in your written
testimony, ``In the False Claims Act, Congress did not dictate
to the U.S. Department of Justice the criteria it should employ
in making this intervention determination. Every single court
that has looked at the issue has emphasized the broad
discretion vested in the Department of Justice to decide what
is in the best interest of the United States in making its
enforcement decisions.''
That is the law; is that correct?
Ms. Slade. Yes.
Mr. Horsford. And so let's also indicate what Professor
Stephen Gillers, who has taught legal ethics at the New York
University School of Law since 1978, examined the Republicans'
allegations. Professor Gillers identified, ``no authority to
support the notion that such a consideration is unethical.''
And Mr. DeVincke is no longer here, so I can't ask him the
question that I had for him.
But, Ms. Slade, on February 9th, 2012, a Department of
Justice memo signed by Tony West authorizing the government to
decline intervention transparently refers to Magner v.
Gallagher as a factor in the Department of Justice's decision-
making. It reads, ``The city has indicated that it will dismiss
the Gallagher petition, and declination here will facilitate
the city's doing so. Under the circumstances, we believe this
is another factor weighing in favor of declination.''
Ms. Slade, is there any problem that you are aware of in
law or legal ethics with linking two cases in the interest of a
single client?
Ms. Slade. No.
Mr. Horsford. So then the entire spectacle that we have had
here today basically, unfortunately, using Mr. Newell as a
pawn--you know, I would really take objection to so many
Members who claim that they are concerned about the interests
of low-income families.
When I read about what was happening in St. Paul and with
some of the landlords here, you literally had them bringing
suits against the city rather than bringing their units up to
code. That's the part of this hearing that was not discussed.
One landlord plaintiff was so negligent about addressing a rat
infestation that his tenant resorted duct-taping rat holes in a
failed attempt at containment.
So if you want to fix something, let's fix that, and stop
making false allegations against members of the public service.
Thank you, Mr. Chairman.
Mr. Jordan. I thank the gentleman.
I'd just point out, the declination statement with the
reference to Magner was put in there even though Mr. Perez said
he didn't want it in there because, I mean, it seems obvious to
me that the career attorneys at Justice said, we've got to
include that, this is what this is all about. That's why they
put it in there.
Ms. Slade, we understand that you are affiliated with an
organization called Taxpayers Against Fraud?
Ms. Slade. That's right.
Mr. Jordan. Is that accurate? Are you testifying on behalf
of Taxpayers Against Fraud today?
Ms. Slade. No, I'm not.
Mr. Jordan. Why not? Did they tell you not to do that, or
did you ask if I could testify on their behalf, or----
Ms. Slade. I was asked to testify in my personal capacity.
There was never any discussion of testifying on----
Mr. Jordan. Are you on the board of that organization?
Ms. Slade. I am, yeah.
Mr. Jordan. Okay. But they didn't give you any instructions
about coming here today?
Ms. Slade. No, they did not.
Mr. Jordan. Okay. Thank you.
Let's put up the--we have--we got this yesterday. I mean,
we've been asking for documents for a long time, but we----
Ms. Slade. Actually, Mr. Jordan, could I correct my
statement?
I did inform Taxpayers Against Fraud staff that I would be
testifying. And I did ask a factual question or two of them,
and I did get back answers to my factual questions.
However, I contacted them having accepted the invitation to
testify already----
Mr. Jordan. Oh, okay.
Ms. Slade. --without any communication before I accepted
the invitation.
Mr. Jordan. In that communication that you had with the
staff people at Taxpayers Against Fraud, which you are a board
member of, in any of that communication did they tell you, you
know what, we wish you weren't testifying on this situation,
this case? We wish you weren't going to this hearing and
testifying?
Ms. Slade. I'm----
Mr. Jordan. It's a pretty simple question.
Ms. Slade. No, I know, I know----
Mr. Jordan. Did they say to do it or not do it? Did they
say, you know, we wish you really weren't doing that, we are
supposed to represent fraud, there is obviously fraud that
occurred here, as evidenced by the memo----
Ms. Slade. I believe I got a communication that they
thought it was a politically motivated investigation and
hearing and that I shouldn't expect it to be really about the
merits of the issues.
Mr. Jordan. What?
Mr. Nadler. And they were correct, obviously.
Ms. Slade. You asked a question.
Mr. Jordan. Okay, well, I want to get to the--not a
politically motivated thing--I want to get to the--this is from
U.S. attorneys from St. Paul who came to Washington, gave a
PowerPoint in front of main Justice. And let's just go the last
page, the conclusions. ``The city has long been aware of its
obligation under Section 3. The city repeatedly told HUD and
others that it was in compliance with Section 3. The city has
failed to substantially comply with Section 3.''
So I guess I want to go back with you. In fact, let's go
back to the very first slide. So we've got this--we've got U.S.
attorneys from St. Paul, from Minnesota, flying to main Justice
saying, you know, it is a strong case.
Let's go back to the very first slide I had up back in--
slide 1, if we could.
I want to go back to where I was with Mr. Newell and Mr.
DeVincke in the last--it is not just Justice or HUD or the
folks in St. Paul. It's Justice, the U.S. attorneys in St.
Paul, and HUD. Everyone recommends they intervene.
Slide 2. ``We recommend intervening in this action to
assert a False Claims action in common law claims against the
city.''
Slide 3. You even used this in your testimony. I think this
is where we talk about ``egregious.'' Is this the one, the
slide that talks about ``egregious''? I guess that's the next
one. ``The city knew about its obligation and failed to
comply.''
Here, slide 4, they use the same term you used in your
testimony. ``This is a particularly egregious example of false
certifications.''
So, I mean, this is pretty strong, Ms. Slade. And I know
you have a background in this and you are the expert and all,
but it seems to me a reasonable person would look at all of
this, U.S. attorneys flying to D.C. saying, look, they didn't
comply, here is a PowerPoint presentation. Everyone agrees,
attorneys in Minnesota, attorneys at HUD, attorneys at Justice,
everyone agrees, even Ms. Slade, the expert, agrees it is
egregious and we should proceed.
And then the one thing that happens, the only thing I can
see, maybe there is something else, but the one big event that
happens between all this communication and the sudden change of
heart is Mr. Perez gets on an airplane, personally flies to St.
Paul, and suddenly everything changes.
And you say, oh, this is common practice. It is common
practice for everyone to agree, for U.S. attorneys to fly to
Washington, make a PowerPoint presentation, HUD attorneys, U.S.
Attorneys in Minnesota, folks at main Justice, everyone agrees,
let's go forward. In fact, they communicated that to Mr. Newell
and his counsel: This is a strong case, we are going to
intervene, we are going to move forward. Mr. Newell is excited
because he doesn't want to personally benefit from this; he
just wants to help the people in St. Paul.
And then suddenly things change. And the only thing I can
see that could cause that is Mr. Perez flying to St. Paul, a
closed-door meeting. Everything changes after that meeting on
February 3rd, 2012.
Ms. Slade. Well, I guess in response I will say that my use
of the word ``egregious'' was with respect to the violations of
Section 3, not with respect to violations of the False Claims
Act----
Mr. Jordan. No, that's how they used it, too.
Ms. Slade. --and there is a difference.
Mr. Jordan. I understand that.
Ms. Slade. That's right.
Mr. Jordan. That's how they used it in the memo.
Ms. Slade. Yeah.
Mr. Jordan. I can read the memo.
Ms. Slade. Right.
And in terms of everybody being on board, you failed to
mention a key player, and that is Michael Hertz. It was going
to be Michael Hertz' decision and then, above him, the decision
of Tony West. And Michael Hertz is the first----
Mr. Jordan. Well, then why did Perez have to fly to St.
Paul? Why didn't Michael Hertz fly to St. Paul? Why didn't Tony
West?
Ms. Slade. I don't know the answer to that.
Mr. Jordan. Oh, well, you just said those are the guys who
made the decision. But all I know is the guy who flew to St.
Paul, got in a closed-door meeting, and then everything changed
a week later, it wasn't Michael Hertz or it wasn't Tony West.
It was--oh, it was Mr. Perez. Imagine that.
Ms. Slade. I think there is a good bit in the record about
the view--first of all, even the memo recommending intervention
identifies some fairly serious possible defenses that could be
made by the city of St. Paul.
Mr. Jordan. Well, they knew--these are--you worked at
Justice, right? You are one of the--you know these lawyers.
They are good, smart people. They had 2-1/2 years, and they all
said, let's intervene. Suddenly they didn't think of that
until--oh, I get it. Tom, he is so smart, he is the only one
who thought about, you know what, there's some problems, and
I'm going to get on a plane and I'm going to fly to St. Paul
and we are going to change everyone's mind.
Is that how it happened? It probably doesn't work that way
normally at Justice, does it?
Ms. Slade. These----
Mr. Jordan. Does it? No, is that the normal practice? One
guy flies to St. Paul and everything changes?
Ms. Slade. I disagree with your characterization of what
the record indicated----
Mr. Jordan. No, you indicated that there were problems with
the case, and what I said is, well, then why did everybody? You
know, you would have a point if two of the three, if the
attorneys in Minnesota said we want to intervene, and the folks
at HUD said we want to intervene, but then the career folks at
Justice, main Justice here in Washington, said, you know what,
we don't think so, there's problems with the case.
Ms. Slade. Either----
Mr. Jordan. Or if it was HUD who said, you know what--the
other two said we want to intervene, and HUD says, no, we don't
want to do that, you would have a point.
But when everybody, every single expert career attorney who
looks at this says we need to intervene--and the two folks you
said who make the decision, they don't show up in the
narrative, they are not flying to St. Paul. It is only Mr.
Perez.
Ms. Slade. There are instances from time to time, and I
have heard of instances in the past year and before, where----
Mr. Jordan. Time to time, and you've heard of them. We
don't want time to time, we don't want you've heard of them.
Mr. Nadler. Could you let her answer instead of
interrupting her all the time, sir?
Mr. Jordan. I think, Mr. Nadler, I'm the chairman, and I
can ask the questions the way I want to ask the questions.
Mr. Nadler. Let her answer the question instead of
interrupting her five times in one sentence.
Mr. Jordan. I will. I will let her answer.
Mr. Nadler. You want to be civil, but it's getting
incredible here.
Mr. Jordan. Well, you used the term ``civil.'' You've
interrupted more people in this hearing than any other member
of the committee.
Ms. Slade, you can--Ms. Slade, you can proceed.
Ms. Slade. Yeah, I was just going to say, the Deputy
Assistant Attorney General for the Civil Division does not
serve as a rubber stamp. The person filling that role does from
time to time overrule, reject the decisions, the
recommendations coming from below and make the decision on
their own----
Mr. Jordan. Which begs my question again. Why didn't that
person, if it was such a close call, why didn't that person,
who you just cited, who from time to time overrules, why didn't
that person get on an airplane, fly to St. Paul, meet with the
attorneys at St. Paul, and cut the deal that way?
Ms. Slade. Well, that person was Mike Hertz. My
understanding is he did say the case sucks when he first saw
the memorandum seeking authority to intervene. So that was his
first opinion of the case, and he was really the ultimate----
Mr. Jordan. Still gets to the question. Why didn't he fly
to St. Paul, then? If he is the guy making the call, why didn't
he do it? Why does Mr. Perez have to step in and do it?
Ms. Slade. I don't know.
Mr. Jordan. Okay. Any further questions for our witness?
Mr. Horsford. Been going to over 2 hours.
Mr. Jordan. Mr. Nadler, I thought you had been recognized.
I had to step out.
The gentleman from New York is recognized.
Mr. Nadler. Thank you.
Ms. Slade, in your written testimony, you comment on the
memorandum from all these slides today. And you quote some of
what the slides show, and then you say, ``These conclusions by
the staff--which ironically are set forth in the original
memorandum recommending intervention--in and of themselves
would have been more than an adequate basis to recommend
declination during the 10 years which I handled qui tam cases
and health care fraud policy matters for the United States and
Civil Division of the U.S. Justice Department,'' Why?
Ms. Slade. There were serious problems with the case in
terms of establishing whether compliance with the Section 3
regulations was a condition of payment, which the courts, most
of the courts require. There are serious problems with
establishing that compliance with those Section 3 requirements
was material to HUD's payment decisions. And particularly
relevant here is the fact that HUD, when it learned of the
problem, worked out a Voluntary Compliance Agreement. That was
their solution, to continue financing the city nonetheless. But
the optics of that and the law are not favorable for the qui
tam plaintiff.
Mr. Nadler. So these factors are factors which would lead a
rational, knowledgeable, experienced attorney to say this isn't
a winning case and we shouldn't do it. Right?
Ms. Slade. That would have been my recommendation at the
time.
Mr. Nadler. Thank you.
Now, secondly, Mr. Jordan, the distinguished gentleman from
Ohio, showed us a bunch of slides. And he said, well, all the
attorneys decided we should,--you know, we have to do this, and
Mr. Perez overruled it.
Wasn't it the case that it was more that these were written
by rather junior attorneys in the division and that the more
senior attorneys, namely Ms. Branda and Mr. Hertz and perhaps
others routinely overrule more junior attorneys when it comes
time to review such things and that they did so in this case
and that they decided that the case ought to be declined on the
merits of the case?
Ms. Slade. From time to time, the deputy assistant attorney
general would overrule the recommendations coming from below.
Mr. Nadler. Not the deputy attorney general. Isn't Mr.
Hertz a career attorney?
Ms. Slade. He was the deputy assistant attorney general----
Mr. Nadler. Okay. So senior career attorneys from time to
time will overrule junior career attorneys on the merits of
whether it makes sense as a legal matter to bring a case.
Ms. Slade. Of course.
Mr. Nadler. And did so in this case.
Ms. Slade. That is my understanding.
Mr. Nadler. So the senior attorneys in the division, which
division was it--Civil Division, not Mr. Perez' division--in
the Civil Division, they decided that, based on the merits of
the case, the case should be declined. Correct?
Ms. Slade. Well, my understanding that there was reference
to the Supreme Court on the petition for cert as a factor that
was stated in the----
Mr. Nadler. But they also declined it on the merits of the
case.
Ms. Slade. They looked at the merits as well.
Mr. Nadler. Now, let's assume that that wasn't the case.
Let's assume--well, before I get to that. Do you think it is
accurate to describe the decision not to intervene in Mr.
Newell's case as hanging him out to dry or leaving legitimate
whistleblowers twisting in the wind?
Ms. Slade. I don't agree with that characterization.
Mr. Nadler. Because?
Ms. Slade. First of all, I think the case has, as I
mentioned, serious litigation risks. Secondly, there is the
private attorney general provision. And if one files a qui tam
lawsuit, one can't expect the government to intervene, even if
it is meritorious. There may be resources at issue. Other
reasons. So one has to be prepared to go forward if the facts
and the law appear at the time of declination to be the same as
they were when you first filed your case.
Mr. Nadler. And the fact that, according to Mr. Newell, the
Department of HUD had told him--I think he said that they would
proceed with this case, that doesn't bind the Justice
Department or make it--or give them not the right but the--the
right to rely on that before it gets to the Justice Department?
Ms. Slade. The department of Justice makes the decision on
litigation in fraud cases. And the HUD lawyers are not as
experienced in False Claims Act matters as the Justice
Department officials.
Mr. Nadler. And Senator Grassley expressed his concern that
whistleblowers would be discouraged from bringing cases because
of Mr. Newell's experience. Do you share his concern?
Ms. Slade. I do not. I have the greatest respect for
Senator Grassley, and all he has done for the False Claim Act
and whistleblowers. On this particular issue, I beg to differ.
I don't think that any competent qui tam attorney looking at
the--this matter closely would be deterred, nor would their
clients.
Mr. Nadler. So any characterization, which is what we heard
all day today, of Deputy Attorney General Perez selling out--
well, let me ask a different question.
The people of St. Paul were allegedly sold out by
attorney--Deputy Attorney General Perez. They were sold out
from the possibility of having to pay a lot of money in damages
out of their tax base. I don't understand that. Could you--if
this suit had proceeded, if the Federal Government had
intervened, had not declined and had won, what would have been
the results to the citizens of St. Paul? Would they have had to
pay a lot of money to somebody else?
Ms. Slade. Yeah. I would think that it would have come out
of their taxes, yes. I think that they would have been the ones
to suffer. It wasn't as if the case was against a Boeing or a
Pfizer or a private entity that had unduly profited as a result
of fraud.
Mr. Nadler. So there is no way of saying that the people of
St. Paul were injured by not having to defend a case which had
they lost would have cost them as taxpayers a lot of money.
Ms. Slade. I believe that is right.
Mr. Nadler. Thank you.
Lastly, let me just ask this. Let's assume that all this
weren't the case. Let's assume that the case had--that the--
that all this weren't the fact. Let's assume that the--Mr.
Newell's case was strong on the law, instead of having many
litigation risks. Let's assume that it was a meritorious case.
And it may be a meritorious case, but let's assume there were
no problems with the case. And that on the merits, the
Department of Justice might have--will have not declined the
case, but that the attorney general or deputy attorney general
decided as a matter of policy that rather than proceed with the
Magner case, it was worth trading off this. Is that within the
purview of the proper exercise of discretion of the department
to make such decisions? And if it made such a decision--which,
again, it is a hypothetical that this case, in fact, had a lot
of merits, which it apparently didn't, and didn't have a lot of
litigation risk, which apparently it does--would there be
anything improper, improper, illegal, unethical with the
department deciding this one is more important than that one?
Ms. Slade. Well, I think that gets us back to the case law
that I mentioned in my written testimony and oral testimony. In
the context of government motions to dismiss qui tam cases over
the objections of a whistleblower, which is a far more extreme
action than merely declining to intervene, in that context, the
courts have said the Department of Justice has unfettered
discretion in making that decision. And several courts, several
courts of appeals have elaborated on that and said, as long as
the decision has a rational relationship to a legitimate
government purpose, the government may even dismiss a case----
Mr. Nadler. And it is certainly a legitimate government
purpose, whether you agree with it or not, to avoid taking
something to the Supreme Court, which the decision maker thinks
may get a result that he thinks is damaging to the United
States.
Ms. Slade. I would agree with that.
Mr. Nadler. Okay. So, to summarize, to summarize, number
one, the Newell case--Newell is not a whistleblower, although
he was a legitimate qui tam complainant because of the public
disclosure bar, one; two, his case had major legal problems
associated with it that could--that could cause and in your
experience would have caused senior litigation attorneys in the
Department of Justice to say we should not get involved in this
case; three, the decision to do so was basically made on the
merits by senior litigation--by senior people in the Civil
Division, namely Mr. Hertz and Ms. Branda, concurred in by the
assistant attorney general; four, that it is common or
oftentimes that the senior litigation--that the senior
attorneys in the department will overrule the junior attorneys
who wrote the memos and slides that we have seen; five, that
there is nothing improper about their doing so; six, that there
is nothing improper about the attorney general agreeing with
them; and, seven, that even if that all--if all that weren't
the case--oh, seven, that by doing so, they weren't hurting the
citizens of St. Paul, who were evading--avoiding, I should say,
not evading--avoiding thereby a possibility of having to pay
higher taxes because of a huge penalty against the City; eight,
that Mr. Newell, who is sympathetic and doing the right thing
here nonetheless had no right to expect that the Federal
Government would intervene in the case; and, finally, that even
if all this weren't the case, it is within the proper
discretion of the Justice Department to decide that it is
better to have a--to--to not decline--to decline in this case
so as to get a result in that case or not to get a result in
that case if that is indeed the tradeoff, and there is nothing
immoral or unethical about that. Have I summarized your
testimony correctly?
Ms. Slade. That was a fairly long question. And I agree
with most of what you said. I did write notes on a couple areas
that I would phrase a little differently. With regard to the
public disclosure issue, I think Mr. Newell had litigation
risk, is the way I would put it. I wouldn't say categorically
that he definitely is not qualified to bring a False Claims Act
case. With regard to the career Department of Justice managers,
I would say that from time to time, they will object----
Mr. Nadler. Overrule.
Ms. Slade. --to a recommendation coming from below. I
wouldn't say commonly.
Mr. Jordan. Can I just pick up there real quickly? Then I
will yield to Mr. Meadows.
You said, ``from time to time.'' How often does that
happen? I mean, you got unanimous, everyone says let's
intervene, let's proceed. How often does it happen? Time to
time. Mr. Nadler tried to get to you confirm his ``routinely.''
You stuck with ``time to time.'' What does that mean? 10
percent? 80 percent?
Ms. Slade. I can't give you a precise number. I just know I
hear of it from time to time.
Mr. Jordan. Your practice. You worked there. How often was
it done?
Ms. Slade. I worked there 13 years ago.
Mr. Jordan. But you worked there. That is why I am asking
how often is it typically done?
Ms. Slade. Very rough guess. Very rough. I mean----
Mr. Jordan. Let me ask you this----
Mr. Nadler. Let her answer.
Mr. Jordan. I think she is going to say ``time to time''
again.
I want to yield to Mr. Meadows, too.
Mr. Nadler. You said a rough guess, and she was about
answer your question.
Mr. Jordan. Give me the answer, then. Rough guess is what
percentage?
Ms. Slade. Okay. Well, first of all, the way things work is
that ordinarily you have a dialogue before you send your memo
up. And sometimes in that dialogue, you will learn that your
supervisors aren't on board or have serious questions about
your analysis. So sometimes that dialogue will result in your
going down a different path.
Mr. Jordan. Well, we are way past that on this.
Ms. Slade. Right. In terms of the actual memo be prepared
and being--going up the chain and then coming back without
approval, when I was--it is very hard to place a number on it.
But I would say maybe 1 out of 30, 1 out of 40.
Mr. Jordan. That few a times.
Ms. Slade. That is a rough guess. It is a guess, nothing
more.
Mr. Jordan. When you say ``from time to time,'' it is like
very rarely. Right?
Ms. Slade. I don't know how you--that number is a guess. It
could be----
Mr. Jordan. One out of 30.
Ms. Slade. Yeah. It is a guess.
Mr. Jordan. I thought 1 out of 10, 10 percent--like 1 out
of 30.
Ms. Slade. I could qualify that. I was not----
Mr. Jordan. Mr. Nadler wants to make 1 out of 30 routine.
Mr. Nadler. She wants to qualify.
Ms. Slade. I was not a reviewer at the departments, so I
didn't see----
Mr. Jordan. You are the expert and you just said 1 out of
30. Mr. Nadler says, that is routine. You say 1 out of 30 is
time to time. We are now saying----
Now let me ask you this way: One out of 30 times that it
gets overturned, how many of those 1 out of 30 take 3 years?
Ms. Slade. Again, 1 out of 30 is a guess. With regard to
the----
Mr. Jordan. One out of 30, 3 years of time, effort, and
frankly, taxpayer money, which Mr. Nadler suddenly cares a lot
about--taxpayer money put to use for 3 years they are all
pursuing it, and it is still overturned.
Ms. Slade. Believe it or not----
Mr. Jordan. And that is routine, according to Mr. Nadler.
Ms. Slade. --time of filing until the decision on
intervention. Qui tam actions will--and this time I will use
the word ``commonly,'' they commonly last more than 2, 3, or 4
years before the government gets to the point of deciding on
intervention.
Mr. Jordan. One out of the 30. One out of 30, great.
Ms. Slade. Again----
Mr. Jordan. Gentleman from if North Carolina is recognized.
Ms. Slade. That is a guess.
Mr. Nadler. Excuse me. I am still on my time, I think.
Mr. Jordan. No, you are not. I gave you 11 minutes.
Mr. Nadler. You said you will give us 2 and a quarter hours
to question this witness.
Mr. Jordan. I know. I didn't say I will give all the 2 and
a quarter to you. Our guys want to ask questions, too. We did a
back and forth. Right? Mr. Gohmert hasn't asked any questions
yet, and you have had----
Mr. Gohmert. Eleven minutes and 45 seconds.
Mr. Jordan. I was being liberal with the time.
Mr. Meadows, then we will go back on anyone on your side.
If Mr. Nadler wants more, we will give him more. Then we will
go to Mr. Gohmert.
Mr. Meadows. Thank you, Mr. Chairman.
And thank you, Ms. Slade, for coming to testify.
And as you mentioned that just a few minutes ago, you said
there was one key person, Michael Hertz, you know, that would
make the difference. Did you speak to Michael Hertz personally?
Ms. Slade. He passed away a year ago.
Mr. Meadows. Yes, he did. So you didn't speak to Michael
Hertz personally.
Ms. Slade. Not about this case.
Mr. Meadows. And so, before today, had you ever met Mr.
Newell?
Ms. Slade. No.
Mr. Meadows. And so were you involved in any discussions
with Mr. Newell, the Department of Justice, and HUD about this
False Claims Act?
Ms. Slade. No.
Mr. Meadows. So were you involved in any discussions with
Mr. Newell's attorney and the Department of Justice, and HUD
with regards to this False Claims Act?
Ms. Slade. No, I was not.
Mr. Meadows. So you have no personal knowledge of this
particular case that you come to testify as an expert witness
today, and you have really no personal knowledge of any of
that.
Ms. Slade. In preparing my testimony, I did first read all
of the documents in Appendix I to the majority report. And I
gained my knowledge about the deliberative process and the
facts----
Mr. Meadows. So when you go to court--you are a litigator,
I would guess. When you go to court, do you normally interview
people before you make a particular assumption? Yes or no.
Would you normally interview somebody?
Ms. Slade. It would depend.
Mr. Meadows. So normally not? I mean, it is a yes or no.
Normally, you would or--more than 50 percent of the time would
you normally have of a conversation with somebody?
Ms. Slade. I am unclear on your question.
Mr. Meadows. Let me go on a little bit further. You said
that it sucks, was the comment by--so how did you know that he
said that if you hadn't talked to him?
Ms. Slade. In the majority report, I believe appendix--
well, in one of the reports I read----
Mr. Meadows. So it was something you read.
Ms. Slade. I read that Joyce Branda was interviewed and
quoted Mr. Hertz as having said that.
Mr. Meadows. I have got a note here that says that--by the
same Michael Hertz, ``looks like buying off St. Paul.'' So how
would you say ``it sucks'' compared to ``it looks like it's
buying off St. Paul''? How do you reconcile those two?
Ms. Slade. I don't think it is difficult at all to
reconcile the two statements if in fact, you know----
Mr. Meadows. Well, it sucks that they are buying off St.
Paul.
Ms. Slade. No. He said the case sucks. So I think it is
fully consistent that he thought the case had some fatal flaws
in terms of legal theories, but at the same time, he was
concerned about the appearance----
Mr. Meadows. So you are coming to day to testify as an
expert witness from a legal theory point of view and not from a
personal knowledge point of view.
Because you--it doesn't sound like you have any personal
knowledge of this case, other than what you have read because
they got you because you 13 years ago worked for the Department
of Justice in their Civil Division. Is that correct?
Ms. Slade. I did work for the Civil Division 13 years ago.
That is true.
Mr. Meadows. Okay. So that is where your expertise comes
from is working for the Civil Division of the Department of
Justice, and that is why you are here today.
Ms. Slade. Well, in addition, I have handled exclusively
qui tam False Claims Act cases during the 13 years since I left
the department.
Mr. Meadows. You have represented whistleblowers.
Ms. Slade. That is right.
Mr. Meadows. And so do you not see a conflict today where
we have a whistleblower that is coming in and you have
represented them and now today you are showing up to discourage
that kind of activity? Do you not see a conflict there in terms
of your mission with the, I guess it was Taxpayers Against
Fraud?
Ms. Slade. I don't see any conflict in providing truthful
information----
Mr. Meadows. Did anybody at Taxpayers Against Fraud see
that as a conflict? Did anybody?
Ms. Slade. Nobody mentioned it to me.
Mr. Meadows. Nobody mentioned that they were concerned
about you coming here today and what it might appear to the
client?
Ms. Slade. I am here in my personal capacity.
Mr. Meadows. I understand you are here in your personal.
Did anybody there say that they were concerned about you doing
that with regards to how it may be affecting other
whistleblowers?
Ms. Slade. I don't think so.
Mr. Meadows. You don't think so.
Ms. Slade. I can't recall that they did.
Mr. Meadows. Let me go on a little bit further, because you
mentioned about the Civil Division.
How often is it--I understand that Mr. Perez was not really
in the Civil Division; he was in the Civil Rights Division,
which is a different division. How often is it that an
assistant attorney general of a different division would
intervene in a Civil Division jurisdiction? Is that common?
Ms. Slade. I can't answer that. I don't know.
Mr. Meadows. In your experience with the Civil Division,
how many times did it happen when you were there--because,
obviously, it is not a normal thing that somebody from the
Civil Rights Division, who had no jurisdiction over this, would
come and intervene. So how many times did that happen when you
were there in the Civil Division?
Ms. Slade. I can't answer because I wasn't at the level at
which those communications took place.
Mr. Meadows. So what level were you at? I mean, they are
bringing you in here as an expert, so we would think that you
would be able to talk about all those things with expert
testimony. So what level were you at?
Ms. Slade. Well, for the first 8 years, I was a trial
attorney; for the last 2 years, I was a Senior Counsel for
Health Care Fraud for the Civil Division.
Mr. Meadows. Okay.
Mr. Perez, from what I understand, spoke directly with
career attorneys in the Civil Division. Is that normal? Yes or
no, is that normal?
Ms. Slade. I can't answer that. Well, what is normal is for
Department of Justice----
Mr. Meadows. Now, I asked you if that was normal. I didn't
ask you what is normal; I asked you, is that normal?
Ms. Slade. I don't know; I didn't overlap with Mr. Perez.
Mr. Meadows. Okay. Did it ever happen when you were there?
Ms. Slade. I don't believe he was there when I was at the
department.
Mr. Meadows. No. Did anybody from the Civil Rights Division
come in and talk to people in the Civil Division and take the
lead in a particular case and start to negotiate anything? Had
that ever happened before, Ms. Slade?
Ms. Slade. I don't know. I wasn't involved.
Mr. Meadows. Are you aware of any? Yes or no.
Ms. Slade. No.
Mr. Meadows. You are aware of none.
Ms. Slade. That is right.
Mr. Meadows. All right. So this would unique, then, with
your recollection of what you are aware of.
Ms. Slade. With regard to the cases I handled, which were a
subset, of course, of the cases handled by the Civil Division,
it didn't happen on my cases.
Mr. Meadows. So how many--you are a litigator. How many
False Claims Acts have you actually been the lead litigator in?
Ms. Slade. At the Department of Justice or since?
Mr. Meadows. Yes.
Ms. Slade. At the Department of Justice, again, this is a
guess. Perhaps there were 20 or 30.
Mr. Meadows. That you were the lead litigator.
Ms. Slade. Roughly, yes.
Mr. Meadows. So did you normally have contacts with other
divisions within the DOJ on a regular basis in terms of that
litigation? So would you go with and have them come in and
confer with you with other departments?
Ms. Slade. We communicated frequently with the Criminal
Division.
Mr. Meadows. All right. And so, as we see this, how often
do you think that, as we are looking at this, is--this is here,
and I can see my time is expiring so I will yield back after
this question.
Now, here we are with St. Paul about to be heard before the
Supreme Court. They had--they had filed it. And just a few
weeks prior to oral arguments, they miraculously decide that
they are going to withdraw. Now, the fact that the case, this
particular case was dropped on February the 9th and they
withdrew on February the 10th, do you not see that as extremely
coincidental in terms of those time frames, February 9th to
February 10th?
Ms. Slade. I think the documents and Appendix I speak for
themselves as to that matter.
Mr. Meadows. I am asking you, not what the documents say.
Do you not see that that is unbelievably coincidental that
those two documents or those two things would have happened
without some kind of outside interference?
Ms. Slade. I believe there has been acknowledgment, has
there not, that there was a linkage between the two events.
Mr. Meadows. So there is a linkage. So who was the causal
effect of that linkage?
Ms. Slade. Are you asking me to interpret what I read in
Appendix I?
Mr. Meadows. Who do you think was the causal effect, Ms.
Slade?
Ms. Slade. I think the Department of Justice----
Mr. Meadows. So the Department of Justice was the causal
effect of why that happened.
Ms. Slade. Department of Justice and the City of St. Paul,
along with----
Mr. Meadows. Which division? The Civil Division or the
Civil Rights Division.
Ms. Slade. I think the Department of Justice was acting as
a single entity with input from----
Mr. Meadows. But don't they have different jurisdictions,
Ms. Slade?
Ms. Slade. They do.
Mr. Meadows. So whose jurisdiction would it have been?
Civil?
Ms. Slade. The qui tam cases, of course, were within the
jurisdiction of Civil. And the civil rights issues within the--
--
Mr. Meadows. But this was not--this was a whistleblower.
This was not a civil rights issue. The--the Supreme Court was a
totally separate issue; it wouldn't have been anything to
interfere in. Isn't that correct?
Ms. Slade. The components of the Department of Justice
are----
Mr. Meadows. Let me finish up. What personal motivation
brought you here today? I mean, you say you are here because
you want to see justice. Is that what it is, Ms. Slade?
Ms. Slade. I was asked to testify. And I want the record to
be----
Mr. Meadows. So you were asked to testify by who?
Ms. Slade. By the minority.
Mr. Meadows. Okay. And your motivation is what?
Ms. Slade. To provide truthful information to the best of
my ability.
Mr. Meadows. Okay. To help taxpayers?
Ms. Slade. In the interests of truthfulness in our public
discourse.
Mr. Meadows. Thank you.
I yield back. Thank you for your patience, Mr. Chairman.
Mr. Jordan. Mr. Cummings and then Mr. Gohmert.
Mr. Cummings. Ms. Slade, let me tell you something. What
just happened, I don't want you to be discouraged. What just
happened. You came here as a lawyer and as someone who was
volunteering your time to be here. You have represented
whistleblowers. And you came here to testify with regard to
this case what you know. We had a gentleman here a few minutes
ago, in the first panel, where this type of case was his first
case. You have talked about years and years of experience. And
I guess my point is, is that when somebody who has represented
whistleblowers can come in and, as you said, simply coming to
give truthful testimony, and it just so happens that your
opinion is--may not, you know, whistleblowers may not love it,
but you are merely telling the truth, to me, that is even more
credibility that you were even--that you would do that.
So I want to just ask you a few questions. And the reason
why I said don't be discouraged is because I want more people
like you, people who have an expertise, more expertise than
many of us, who have spent year after year, first of all, in
training, in law school, and going all through that thing, they
are going through school, I mean, they are going through
various jobs and then ending up where you are now. Everything
that has happened to you up until this moment prepared you for
this moment. And we are the beneficiaries of it. And I thank
you for saying over and over and over again that you simply
came here to tell the truth.
Now, the majority has made the claim that Mr. Perez
manipulated the decisionmaking process for intervention in a
False Claims Act case, resulting in a consensus of the Federal
Government to switch its recommendation and decline
intervention. I would like to ask some questions about
intervention in DOJ's decision making process. Ms. Slade, are
there any requirements in the False Claims Act that mandate
that the government intervene?
Ms. Slade. No, there are not.
Mr. Cummings. Isn't it true that DOJ intervenes in only 25
percent of False Claims Acts cases reported to the department.
Is that right?
Ms. Slade. That number is approximately correct.
Mr. Cummings. All right. When you say ``approximately,''
does that mean it is 26? 27?
Ms. Slade. Over the years, I have heard 20 percent, I have
heard 25 percent, I have heard 18 percent.
Mr. Cummings. But 25 percent is a safe figure.
Ms. Slade. That would be the highest figure.
Mr. Cummings. So most False Claim Act cases are treated no
differently than Mr Newell's.
Ms. Slade, your testimony described the unfettered
discretion provided to the department in decisions regarding
the False Claim Act. Can you explain this unfettered
discretion? What does that mean?
Ms. Slade. It would--the two circuit courts, I believe it
is the Ninth Circuit and the 10th Circuit that have elaborated
on that have stated that what it means is that the government
needs to have a rational relationship between its decision and
any legitimate government purpose. And that is really the
strictest standard. Most courts just say ``unfettered
discretion.'' And it emanates from the U.S. constitution, the
Take Care Clause, that the executive branch is vested with that
discretion.
Mr. Cummings. Ms. Slade, are you familiar with the internal
process of DOJ as far as deciding whether or not to intervene
in a case. Is that correct?
Ms. Slade. That is right.
Mr. Cummings. Given the fact that the department declines
to intervene in the False Claims Act cases most of the time and
the many significant weaknesses in Mr. Newell's case,
specifically, does it surprise you that the government declined
to intervene if Mr. Newell's case?
Ms. Slade. It does not surprise me.
Mr. Cummings. And you have seen no evidence that one DOJ
official manipulated that process to get the specific decision
in the Newell case. Is that right?
Ms. Slade. I wouldn't use the word ``manipulation.'' I
think what happened was a consideration of the broader
interests of the United States in a very thoughtful and
coordinated fashion within the Department of Justice looking at
broader interests and that the--it was not a question of
manipulation; it was a question of trying get to the right
result for the government as a whole.
Mr. Cummings. In fact, you once worked with the career
False Claims Act experts at the department who worked on the
case, Mike Hertz and Joyce Branda. Isn't that correct?
Ms. Slade. I did.
Mr. Cummings. Knowing them, what do you have to say about
the suggestion that they may have been manipulated?
Ms. Slade. In my experience, that is highly, highly
unlikely. They are--again, have great integrity. They are very
experienced. They are very capable. They can't be bullied.
Mr. Cummings. Thank you very much. I see my time is up.
Mr. Meadows. [Presiding.] I thank the gentleman.
And the chair recognizes the gentleman from Texas, Mr.
Gohmert.
Mr. Gohmert. Thank you, Mr. Chairman. And thank you, Miss
Slade, for being here today.
Ms. Slade. Thank you.
Mr. Gohmert. Who is Tony West?
Ms. Slade. Tony West is the--well, was at the time the
assistant attorney general for the Civil Division.
Mr. Gohmert. And who is Brian Martinez?
Ms. Slade. Brian Martinez.
Mr. Gohmert. Yes. A year ago.
Ms. Slade. I am not sure.
Mr. Gohmert. You are not sure.
Ms. Slade. Yeah. I believe I read his name in the
materials, but I am forgetting----
Mr. Gohmert. How about Stuart Goldberg?
Ms. Slade. I don't know his position.
Mr. Gohmert. And James Cole?
Ms. Slade. I don't know his position.
Mr. Gohmert. Or David O'Neill.
Ms. Slade. I am sorry, the last name?
Mr. Gohmert. David O'Neill.
Ms. Slade. I do not know his position.
Mr. Gohmert. Okay. Well, you had indicated previously that
you had reviewed the documents in the case. And so I am sure
you are familiar with the email that was generated from Brian
Martinez and that included the report as to the situation with
regard to U.S. v. City of St. Paul, Minnesota and, in
parentheses, involves two different qui tam cases. Are you
familiar with that? And it has got stuff blotted out. I don't
know if they can be thrown up on the screen.
Ms. Slade. Yes, I have that in front of me.
Mr. Gohmert. Right. And so, well, would you tell us again
exactly what this was--this document was part of? I mean, it
was conveyed by email. But--and that was what was furnished
from the department of attorney general. So what is this
document?
Ms. Slade. Are you referencing the document that was the
memorandum recommending intervention?
Mr. Gohmert. No.
Ms. Slade. Then I may not have it.
Mr. Gohmert. Do you have that where you can put it up on
the screen?
This is the recommendation with regard to major cases. And
it is the list that was the Civil Division significant ongoing
affirmative matters as of 3/8/12.
Ms. Slade. Yeah, I did see that in the materials. I
remember it.
Mr. Gohmert. That was set to the deputy attorney general.
So you are familiar with that, you did see it?
Ms. Slade. I remember it.
Mr. Gohmert. Apparently, we don't have it to put up on the
screen.
But, in any event, you know, you had mentioned in--that the
Justice Department has unfettered discretion in some cases on
what they pursue, what they do not pursue.
But in this report regarding significant cases that was
being sent to the deputy attorney general, this reads,
specifically, it says, The Ellis case alleges that the City of
Minneapolis is inappropriately condemning and knocking down
low-income housing, which has a disparate racial impact.
Government declined to intervene in Newell and has agreed to
decline to intervene in Ellis in exchange for defendants'
withdrawal of cert petition in the Gallagher case and,
parentheses, a civil rights action.
So you had read that. Correct?
Ms. Slade. I saw--I at least saw reference to it in the
materials. I am not sure if I saw the actual document, but I
saw reference to in the materials I read in preparation for
coming here today.
Mr. Gohmert. Right. And this was the document that was
being sent to the deputy attorney general with regard to the
significant cases. And you have done an excellent job of
testifying about all the different considerations that may go
into deciding to pursue or not pursue a case. But in this case,
when a report is going to the deputy attorney general and you
are listing many other cases, obviously, you would submit what
would you felt like would be the most important aspects of the
case for the deputy attorney general to know. Correct?
Ms. Slade. Correct.
Mr. Gohmert. And that is why the preparation of this
document going to the deputy attorney general makes the point,
it doesn't discuss all the other things that you have done an
excellent job of covering; it gets right down to the nitty-
gritty and says government declined to intervene in Newell and
has agreed to decline to intervene in Ellis in exchange for
defendants' withdrawal of cert petition in the Gallagher, the
Magner v. Gallagher case.
That is the report that we were provided that went to the
deputy attorney general to explain to the deputy attorney
general the real nuts and bolts of why this decision was made.
And it does appear to be a quid pro quo from the documents we
were provided. And so do you have any information that would
indicate that on the report of the significant civil cases
going to the deputy attorney general, there was in any way an
intent to give false information to the deputy attorney general
about what was the reason, the real underlying reason for
declining or withdrawal of cert petition in the Gallagher case?
Do you know of any reason they would try to mislead to deputy
attorney general?
Ms. Slade. I have no information one way or the other on
that issue.
Mr. Gohmert. Thank you.
Now, I appreciate my friend, Mr. Cummings, pointing out how
many times you have said, I just came here to tell the truth.
Obviously, you are an excellent trial lawyer. You have
quite a reputation, and you are to be commended. It is good
when we have people that have tried a lot of cases, and we
appreciate you subjecting yourself to the laws of having to
tell the truth before a congressional body. And so we
appreciate you coming up, with those penalties hanging over
your head for not being truthful, so I know you will be.
How many times--can you have any kind of estimate how many
times you may have told witnesses, as you prepared them to
testify in a case that if somebody starts attacking your
credibility, just say something to the effect, I just came here
to tell the truth?
Ms. Slade. I have never told a witness that.
Mr. Gohmert. You have never ever told a witness that if
somebody questions your motivation, I just came to tell the
truth?
Ms. Slade. I have never----
Mr. Gohmert. Not even words to that effect?
Ms. Slade. No, of course, I advise them to tell the truth.
But I don't say that you should maintain that they are only
there to tell to the truth in response to an attack on
credibility. No, I have never, ever.
Mr. Gohmert. How about when you talk to a witness about if
they are attacked and it is made to look as if the lawyer put
words in their mouth, because in proper preparation for a
witness, an attorney will usually say, You may have questions
come up about our conversation. You've talked to witnesses
about that, surely?
Ms. Slade. You mean in terms of asserting privilege?
Mr. Gohmert. No. I am just talking about talking to a
witness before they are to testify in a case, because you can't
have a very good reputation as a trial attorney if you don't
talk to your witnesses before they go in to testify. Do you not
talk to witnesses before going to testify?
Ms. Slade. Well, I would counsel my client, of course.
Mr. Gohmert. Okay.
Ms. Slade. Prepare them for the deposition or whatever the
situation is.
Mr. Gohmert. Right. And would you prepare them for cross-
examination at all?
Ms. Slade. Yes.
Mr. Gohmert. And you have surely heard on cross-
examination, a cross-examiner ask, Did you have a conversation
with your attorney about this testimony?
Ms. Slade. In depositions, I have heard that said, yes.
Mr. Gohmert. And have you not told a witness that they can
expect a question about, Did you talk to your attorney about
this testimony?
Ms. Slade. I think what I usually counsel clients is that
the communications with me are privileged. And of course, they
can acknowledge that they have prepared with their counsel. But
the preparation process is privileged.
Mr. Gohmert. Yes. But that doesn't prevent a question being
asked with regard to someone who is not a client, who is a
witness that you have offered, who is being cross-examined. And
I got to come back. You are saying you never talked to a
witness, who is not a client, and tell them about what to
expect when they come in a courtroom. I am shocked that you
never talked to anybody but a client about what they can expect
during cross-examination. Is that your serious contention
before us? How many cases have you tried?
Ms. Slade. I think you are mischaracterizing what I----
Mr. Gohmert. Okay. Well, then, you characterize it for me.
This was what I got to earlier, and you corrected me when I
said, ``Have you talked to witnesses?'' And you said, ``No,
I've talked to clients.'' And so I want to get back to what I--
apparently, you have talked to witnesses in preparation for
their going before a court to testify, have you not?
Ms. Slade. I have talked to--I am thinking back on my time
at Department of Justice. I don't know if you know this but the
False Claims Act cases, ordinarily, if they are any good and
the government intervenes, and then they settle before trial
about 90 percent of the time or more.
Mr. Gohmert. Right. And that is about standard. But so you
don't try many cases?
Ms. Slade. No. That is right. We don't. We----
Mr. Gohmert. Okay. How about a deposition? Have you not
prepared witnesses for depositions in preparation for cross-
examination, who were not your clients?
Ms. Slade. Well, while at the Department of Justice, I did
prepare client agency employees. But the client agency was our
client.
Mr. Gohmert. So you have never prepared witnesses who are
about to go in and testify and talk to them about what to
expect on cross-examination.
Ms. Slade. I may have. Right now, just thinking back, most
of my focus has been on my qui tam relator clients so----
Mr. Gohmert. So you have never offered a witness in
deposition for anything?
Ms. Slade. Well, when I was with the Department of Justice,
we were offering witnesses from client agencies and those----
Mr. Gohmert. I am asking you a question, and you are
dancing around it. Have you ever provided, proffered, offered a
witness to be--to provide testimony in a deposition?
Ms. Slade. Who wasn't a client, is your question?
Mr. Gohmert. Who was not a client.
Ms. Slade. Sitting here today, I am tired--it's 1:30, I
haven't had lunch. We've been here for about 3 and a half
hours--I cannot recall. I could get back to you on that and
write you a letter with the information.
Mr. Gohmert. You have no idea if you have ever provided a
witness for testimony. Well, I am just blown away that we have
somebody up here as an expert that has never even provided a
witness for a hearing. I am just shocked. I am shocked. I
cannot believe. And I am sure that if trial lawyers across this
country, no matter whether plaintiffs or defense attorneys,
hear this, they will be shocked as well at the kind of people
that are handling the kind of cases that are this important. I
yield back.
Mr. Jordan. Thank the gentleman.
Ms. Slade, if you can stay 5 more minutes, Mr. Nadler gets
5 more minutes.
Mr. Nadler. I won't take time 5 minutes.
I just want to, first of all, join Mr. Cummings in thanking
you for you your testimony. And I suppose--thank you for your
testimony, period.
You have been through a lot. Some of it, you shouldn't have
had to go through.
Let me just say you said that you were--you handled a lot
of qui tam cases when you were with the Department of Justice.
Ms. Slade. That is right.
Mr. Nadler. And since you were with the Department of
Justice, which I think was the last 13 years, you have also
handled a lot of qui tam cases representing whistleblowers?
Ms. Slade. That is right.
Mr. Nadler. So you have handled qui tam cases basically for
23 years.
Ms. Slade. That is correct.
Mr. Nadler. So you are the only witness we have heard today
who has, aside from Mr. DeVincke, who is working on his first
qui tam case, with any experience in judging the strength of a
qui tam case or whether it makes sense or anything else about
it. Is that correct? On an experience basis; I am not talking
about intelligence or anything else.
Ms. Slade. Yes.
Mr. Nadler. Okay. I thank you. I yield back.
Mr. Jordan. Want to thank Ms. Slade for being here today.
Hearing is adjourned.
Mr. Cartwright. Mr. Chairman, I ask----
Mr. Jordan. I am sorry.
Mr. Cartwright. Unanimous consent to enter into the record
statements of four legal experts refuting allegations made by
the majority----
Mr. Jordan. Without objection.
Mr. Cartwright. A letter received yesterday by the
committees----
Mr. Jordan. Without objection. We got them.
Mr. Cartwright. You got them? Thank you, Mr. Chairman.
[Whereupon, at 1:38 p.m., the subcommittees were
adjourned.]
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