HUD Whistle-Blowers’ New Lawsuit about How Dallas Promoted Segregation Could Still Cost Millions.

The Lockey/MacKenzie federal whistle-blower lawsuit accusing Dallas of deliberate racial segregation, dismissed last year because the judge said I had already blown the whistle, is back in court in all new clothes, filed Friday, this time with less of me and more of former City Council member Angela Hunt and other downtown players.

The new litigation offers vivid blow-by-blow detail on the way two downtown tower redevelopers, Curtis Lockey and Craig MacKenzie, claim the city shut down their deal to redo a downtown tower in 2009, including a scene in which a City Hall executive allegedly cupped his telephone during a key meeting and told the pair, “That was Angela Hunt, and she is trying to get me to pull the bonds from your project.”

It’s not a new charge. Hunt, a former City Council member, has said in the past that Lockey and MacKenzie’s account of a phone call from her to kill their deal was a lie. But the focus of the Lockey/MacKenzie filing Friday is new — an attempt to fix problems in the suit they filed last year that was tossed out by U.S. District Judge Reed O’Connor.

Lockey and MacKenzie claimed in the earlier suit they were the first to blow the whistle on Dallas for failing to promote fair housing and deserved a reward under the federal Fair Claims Act. But O’Connor said Dallas’ history of frustrating federal fair housing law was already well known, even citing some of my own stuff. He threw the pair out of court saying you can’t blow the whistle and get a reward on something that’s already been blown.

I really never got that, because Lockey and MacKenzie were my sole original sources for whatever I had written about it, even though I obviously talked to lots of other people to check it out. And the judge’s argument — that the federal government should have known Dallas discriminated because it was right there in Jim Schutze’s column already — struck me as very bizarre.

O’Connor was upheld later by the 5th U.S. Circuit Court of Appeals in New Orleans. But both O’Connor and the 5th Circuit left the door open for Lockey and MacKenzie to fix flaws in their original suit or file a new suit.

The new suit, which I found in my weekend troll of federal filings, avoids very broad fair housing issues and screws down the focus instead to a specific charge of racial discrimination. That way they say they’re blowing the whistle on something that hadn’t been reported by anybody else specifically, certainly not with the detailed knowledge, evidence and authority they say they gleaned from their own experiences with City Hall.

It’s a key point. The Lockey/MacKenzie litigation is potentially the biggest action of its kind ever in the country among several suits blowing the whistle on local governments for fraudulently misusing federal funds intended to further fair housing. Under a federal law enacted during the Civil War, whistle-blowers can claim 25 percent to 35 percent of the total amount of money they can show was taken from the government by fraud.

In the suit that O’Connor threw out last year, Lockey and MacKenzie said they were talking about a fraud of $1.3 billion — all the money they say Dallas has taken from the federal government since 2008 in various direct grants and subsidies aimed at providing fair housing. Had they been able to prove that much fraud, they would have been entitled to a minimum reward of $325 million.

The new slimmed-down version of the suit focuses on federal block grant development funds alone instead of all housing-related federal funds and support. The total fraud, if proved, would be $195 million, cutting their reward to $48.7 million.

In place of some of the sweeping generality of the original lawsuit, the new one offers lots of detail, including the claim that Hunt and others conspired to kill the Lockey/MacKenzie deal for racial reasons.

Lockey and his lawyers declined to discuss the suit with me. Warren Ernst, the city attorney, did not respond to my request for comment. I did speak to Hunt about the remarks attributed to her.

“I never said that,” Hunt said. “I have absolutely no recollection of any phone call with [the official]. I never demanded that bonds be pulled or the project be killed.”

I spoke with Larry Good of Good Fulton & Farrell, who was on a local tax board that had at first indicated it would help fund the Lockey/MacKenzie project, then changed its mind and denied them funding.

The new lawsuit says of Good, “… during a presentation to the (city board), Larry Good, a board member, expressed his opposition to the ‘concentration’ of affordable housing units downtown, comparing the LTV Tower project to ‘post-war tenement public housing projects.’ (Lockey and MacKenzie) understood Mr. Good’s comparison to reflect an opposition to affordable housing available for people of color, and his tenement comments to be ‘code words’ for that opposition.”

Good says Lockey and MacKanzie’s interpretation of his words is incorrect. “In the past,” he said to me in an email, “take the West Dallas Housing Projects or St. Louis’ infamous Pruitt-Igoe Housing, both now demolished, as examples, it was common practice to concentrate low income and affordable housing.

“With the social failure of many of those projects to lift up their residents, urban planning wisdom changed to favor dispersal of said low income and affordable housing units. If one were to compare two options … dispersing 10 percent or 20 percent low income into multiple buildings, or dedicating a high percentage of units in a single building to affordable housing, the former is believed to be the better option in current social planning circles.

“That would be a more accurate interpretation of my comment,” he said. “Has nothing to do with color. I am insulted.”

There is a confusing wrinkle in all this. Lockey and MacKenzie’s whistle-blower litigation is not — repeat, NOT — the same thing as the complaint that the U.S. Department of Housing and Urban Development (HUD) has brought against the city for segregation. The “HUD complaint,” as that one is called, was based on information HUD got from Lockey and MacKenzie four years ago, but it’s a totally separate deal from the whistle-blower suit.

Rather than a court case, the HUD complaint is an administrative action taken unilaterally by HUD based on its own four-year investigation, basically telling Dallas (in my own paraphrase, not a quote), “We believe everything those guys told us about you, and you are in big trouble.”

One aspect of the HUD complaint is a demand that the city pay back Lockey and MacKenzie for the money they say they lost on their deal when the city killed it.

But it’s the least of what HUD has demanded the city do to make up for past sins. In its original finding, HUD presented Dallas with a list of major new programs and changes to programs Dallas must carry out in order to undo the damage of past racial discrimination in housing.

All of that has been the subject of negotiations between HUD officials in Washington and City Attorney Ernst for a couple of months, but those negotiations seem now to be locked in some kind of weird limbo. Knowledgeable sources told me weeks ago that Ernst had assured the City Council that HUD would fold on all of its major claims.

The sources said Ernst told the council that he had agreements in writing from HUD that no money had to be paid to Lockey and MacKenzie as part of settling the HUD complaint and that HUD was withdrawing its “Title VI” complaint, which is the main civil rights accusation against the city. But other equally good sources told me none of that was true.

The mystery now, weeks later, would be this: If Ernst already had agreements in hand kicking Lockey and MacKenzie out of a settlement of the HUD complaint and withdrawing the Title VI complaint, then he already had total victory. There should be a settlement to announce by now and maybe a nice party. Instead there is only radio silence.

And then there is this: In none of this does anybody deny or even question that Dallas has engaged in official and deliberate policies of racial discrimination in the last 10 years.

If anything, the city’s posture has been sort of (my own paraphrase again): “Yeah, maybe we racially discriminated, but we shouldn’t have to pay anything to those squealers who ratted us out for it.”

And then we have the ultimate proof of the pudding, the facts on the ground. Dallas has been taking money from HUD for years supposedly to decrease racial segregation. But HUD commissioned a rigorous study that found that racial segregation in Dallas has been increasing in recent years. Meanwhile, hundreds of millions of dollars in HUD money has been spent to develop fancy condo towers downtown.

Something in this picture is just wrong.