Petition — Greenberg v. Burmah Oil Co.
Supreme Court brief1977
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SUPREME COURT OF THE UNITED‘STATES #°., cucrx
OCTOBER TERM, 1977
no._ gv 492
Gnrren Statres-er—larertes—
Deriri .
by Dorotuy S. GREENBERG,
for herself as well as for the United States of America,
— against — Relator-Petitioner
Tue Burman Or Company Liurrep, Burman O1t INcoRPo-
RATED, BuRMAH Orr TANKERS Limirep, BETHEL Marine, INc.,
SouTHHOLD Marine, INc., Vermont Marine, Inc., BuRMAST
East Suippinc Corp., Burman GAs TRANSPORTATION LIMITED,
Euias J. Kutuxunpis, Summrr Marine Operations, Inc., Sum-
mitt I, Inc., Summitt II, Inc., Sum™itt III, Inc., CHEROKEE i
Suippinc CorRPORATION, CHEROKEE II SHippinc CorPORATION,
Cueroxer III Suippinc Corporation, CHEROKEE IV SHIPPING
CorPoraTION, CHEROKEE V Suippinc CorRPORATION, ENERGY
TRANSPORTATION CorPoraTion, C.Y. CHEN, Josepu J. Cuneo,
Jerome SuHevcsy, Cryocenic Enercy Transport, Inc., LNG
TRANsPoRT Inc., Liguecas TrRANsPorT INc., James Dursin,
Joun C. Butuitt, First Nationa City Bank, Citicorp Leas-
Inc, INc., GENERAL AMERICAN TRANPORTATION CorpP., GENERAL
Dynamics CorPorRATION, CITIMARLEASE (BurMaH I), INc., Citt-
MARLEASE (Burman LNG Carnier) INnc., CrrimarRLease (Bur-
MAH Liguecas), INc., and Citicorp, Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Lipper, Lowey & DANNENBERG
and Burton L. Knapp
747 Third Avenue
New York, New York 10017
(212) 759-1504
Of Counsel: Newman, SHook & Newman, P.C.
RicuHarpD B. DANNENBERG 4330 Republic National Bank Bldg.
FRANK NEWMAN
Burton L. Knapp
Aaron LipPER
STEPHEN LowEY
Dorothy S. Greenberg
Dallas, Texas 75201
(214) 747-9091
Attorneys for Relator-Petitioner
SuBJeEcT INDEX
Page
ee ED 0g hbK cb adc coddccvecerdes iii
PETITION FOR WRIT OF CERTIORARI ............ ]
ST © Ord bdo Ebb SEW Edéc ce ediciones 2
EE a dos Gi Ge ae sd odecdas cc sdddwoedccs 3
QUESTIONS PRESENTED ......ccccccccccccccess 3
STATUTORY PROVISIONS INVOLVED ............ 4
SUR BeeeTE GO Bete GED ccc ccccccccccccccecs 4
REASONS FOR GRANTING THE WRIT ............ 22
I. THE ERRONEOUS APPLICATION OF THE JURIS-
DICTIONAL PROVISIONS OF THE FALSE
CLAIMS ACT BY THE COURTS BELOW SHOULD
NOT BE ALLOWED TO PREVENT A THOROUGH
JUDICIAL EXAMINATION OF A MAJOR FRAUD
BEING PERPETRATED UPON THE UNITED
STATES GOVERNMENT BY A FOREIGN CORPO.
RATION WHICH HAS AVAILED ITSELF OF
UNITED STATES FINANCING FOR SHIP CON.
STRUCTION PURPOSES, CONTRARY TO THE
MERCHANT MARINE ACT OF 1936, BY ORGANIZ-
ING DUMMY CORPORATIONS IN THE UNITED
STATES WHICH HAVE APPLIED FOR AND SE-
CURED CONSTRUCTION DIFFERENTIAL SUB-
SIDIES AND FEDERAL GUARANTEES OF DEBT
OBLIGATIONS THAT ARE ONLY AVAILABLE
BD Ge Ge Rocce cetvaccccsenccncces 22
A. The Kurrus Memorandum was not “fully de-
scribed” in the New York Times’ August 19 ar-
ticle, and accordingly the dismissal for lack of
jurisdiction was clearly erroneous ............ 23
il
Il. THE JURISDICTIONAL PROVISIONS OF THE
FALSE CLAIMS ACT SHOULD NOT BE INTER.
PRETED AND APPLIED IN A MANNER WHICH
BARS ACCESS TO THE FEDERAL COURTS BY
A PRIVATE CITIZEN HAVING POSSESSION OF
MATERIAL DOCUMENTS AND INFORMATION
EVIDENCING THE PERPETRATION OF A
MAJOR FRAUD AGAINST THE UNITED STATES
GOVE, Kovndy cn cberdncsdonadesnecer
A. The Second Circuit’s interpretation of Section
232(C) of the False Claims Act and its applica-
tion thereof to the present action sound a death
knell for the Qui Tam action ................
B. The Second Circuit has erroneously expanded the
jurisdictional barrier posed by Section 232(C)
of the False Claims Act beyond the limits intended
Oe GE ccvasnhéddbameedesinecetéanes
III. THE DAMAGES TO THE UNITED STATES AND
ITS TAXPAYERS ARE ALREADY SUBSTANTIAL.
THE DOCUMENTARY EVIDENCE ESTABLISHES
THAT RESPONDENTS KULUKUNDIS, CHEN AND
BURMAH, AIDED AND ABETTED BY THE
OTHER DEFENDANTS, ENGAGED IN A SUBTER-
FUGE TO DEFRAUD THE GOVERNMENT AND TO
CAUSE FALSE APPLICATIONS FOR FINANCING
TO BE FILED WITH MARAD ................
GUE ceo sccencvecvesevensecvactestsces
PROOF OF SERVICE .... cc cccccccccccccccccees
TABLE OF AUTHORITIES
Page
CASES:
Abrahamson v. Fleschner, 1977 [Current]
CCH Fed. Sec. L. Rep 195,889 (2d Cir. 1977) ....... 34
Bateson-Stolte, Inc. v. The United States, 305 F.2d 386,
158 Ct. of Claims 455 (Ct. of Claims 1962) ......... 30
Branzburg v. Hayes, 408 U.S. 665, 92 S.Ct. 2646,
EEE. Coe hevascvaséeenecetesce 33
Carr v. Learner, 547 F2d 135 (2d Cir. 1976) ......... 22
Grace v. Ludwig, 484 F.2d 1262 (2d Cir. 1973)
fF PeOMPPTTrrrrerrereeeriririt rite Co 34
J. 1. Case Co. v. Borak, 377 U.S. 426, 45 S.Ct. 1555,
8 EF ae ae Se ee 34
Rainwater v. United States, 356 U.S. 590, 78 S.Ct. 946,
DAs Se Oe CUED 6 oo ea dep cei cdccceeuedive 35
S.E.C. v. Capital Gains Research Bureau, Inc., 375 U.S.
180, 84 S.Ct. 275, 11 L.Ed. 2d 337 (1963) ......... 34
United States v. Bornstein, 423 U.S. 303, 95 S.Ct. 523,
GO Ey Bae Be BO GR co ccceccsesdvevceccecs. 34, 35
United States v. McNinch, 356 U.S. 595, 78 S. Ct. 950,
ey Oe Be GE oe bocce connccecasesecccs 35
United States v. Neifert-W hite Co., 390 U.S. 228,
88 S. Ct. 959, 19 L. Ed. 2d 1061 (1968) ....... 34, 41, 43
United States v. Rippetoe, 178 F.2d 735 (4th Cir. 1949).. 27
United States v. Silver, 384 F. Supp. 617 (E.D.N.Y.
1974), aff'd 515 F.2d 505 (2d Cir. 1975) .......... 36
iv
Page
United States ex rel. Marcus v. Hess, 317 U.S. 537,
63 S.Ct. 379, 87 L.Ed. 443 (1943) reversing 127
728 S50 (O65 Gin. Bee. «> cencecénesseecbanses 34, 35
United States ex rel. Ronald Davis, Plaintiff v. Long’s
Drugs, Inc., 411 F.Supp. 1144 (S.D. Cal. 1976) ..... 40
United States ex rel. Sherr v. Anaconda Wire & Cable Co.,
57 F.Supp. 106 (S.D.N.Y. 1944), aff'd,
149 F.2e GEO (BS Che. BGR) occ ccsvepesadeecvhvce 42
United States ex rel. Vance v. Westinghouse Electric
Corp., 363 F.Supp. 1038 (W.D. Pa. 1973) .........- 27
STATUTES:
The False Claims Act,
31 U.S.C. §§231, et seq.:
Section S53, GA USL, GIBB .0sccciccesccnssescens 2
Section 232(A), 31 U.S.C. §232(A) .............. 4
Section 232(C), 31 U.S.C. §232(C) .......... 4, 5, 18, 30
The Merchant Marine Act of 1936,
66 OSL. GRIG8 6. eget oc ceccccsccccescenecesanenl 4
Falls V, SRRBGR, GB GGG, occ ccccscvcungecueeonuane 4, 22
Tike XE, GRIST, GE GSM, occ cvvccvcsecsccucseuanen 4, 22
The United States Shipping Act of 1916,
46 USL. SBE, BWOGE vccccoccecccecssypesceuesueas 22
OTHER AUTHORITIES:
89 Cong. Record 7571 et seg. (1943) .... 2.6.60 ee ees 36, 38
89 Cong. Record 10844 et seq. (1943) ....... 2.20005: 40
v
Janeway, “Lame Duck Legacy Left by Richardson,”
The Washington Star, Jan. 30, 1977 ...............
“Of Ships and Contracts with Envy?”, the New York Times,
i EE BOUT Sees beccccccccesicecives
Note: Qui Tam Suits Under the Federal False Claims
Act: Tool of the Private Litigant in Public Actions,
67 Northwestern U. Law Rev. 446 (1972) ..........
Proxmire, “The Outrageous General Dynamics Loan
Guarantee”, The Cong. Record, $.2207-08,
i cee eeE CES b ees bnedececescece
5 Wright and Miller, Federal Practice and Procedure,
EY ED cc cessecccerescsnccouscoce
5 Wright and Miller, Federal Practice and Procedure,
Civil §1350, pp. 551-553 (1969) ..........2.0005-
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1977
NO.
UNITED STATES OF AMERICA,
Petitioner,
by Dorotuy S. GREENBERG,
for herself as well as for the United States of America,
Relator-Petitioner
— against —
Tue Burman Or Company Limirep, Burman O1 INCOoRPO-
RATED, BuRMAH O1L TANKERS LimITED, BETHEL Marine, INc.,
SoUTHHOLD Marine, INc., VERMONT MARINE, INC., BURMAST
East Suippinc Corp., BuRMAH GAs TRANSPORTATION LIMITED,
Exias J. Kutuxunpis, Summir Marine Operations, Inc., Sum-
miTT I, INc., Summitt II, Inc., Summitt III, Inc., CHEROKEE I
SHipPInG CORPORATION, CHEROKEE II Suippinc CORPORATION,
CHEROKEE III Surpprnc Corporation, CHEROKEE IV SHIPPING
CORPORATION, CHEROKEE V SHIPPING CORPORATION, ENERGY
TRANSPORTATION CORPORATION, C.Y. CHEN, JosepH J. Cuneo,
JeERoME SHELBY, CrYOcENIC ENERGY TRANSPORT, INC., LNG
TRANSPORT INc., LiguecAs TRANSPORT INC., James DuRsIN,
Joun C. Bucuitt, First Nationat City Bank, Citicorp LEas-
ING, INc., GENERAL AMERICAN TRANPORTATION CorP., GENERAL
Dynamics CorPoRATION, CITIMARLEASE (BurMAH I), INc., Citt-
MARLEASE (BurmMaH LNG Carrier) INc., CrrmMaRLEAsE (Bur-
MAH Liguecas), INc., and Citicorp,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
2
TO THE HONORABLE SUPREME COURT OF THE UNITED
STATES:
Petitioner Dorothy S. Greenberg, individually as well as for
the United States of America respectfully prays that a Writ of
Certiorari issue to review the affirmation by the United States
Court of Appeals for the Second Circuit of the judgment of the
federal district court below dismissing the Petitioner’s qui tam
action for lack of jurisdiction. This case involves novel ques-
tions of federal law pertaining to the proper statutory construc-
tions of federal law pertaining to the proper interpretation of
the jurisdictional provisions of the False Claims Act (31 U.S.C.
§231 et. seq.) and the propriety of the application of those
provisions so as to bar the Petitioner’s qui tam action based
upon documents which were admittedly not in the United
States’ Government’s possession at the time she filed suit. The
Petitioner’s action brought to light an alleged fraud being
perpetrated upon the United States Government by a foreign
corporation which availed itself of U.S. financing for ship
construction purposes, contrary to the statutory prohibitions
of the Merchant Marine Act of 1936, by organizing dummy
corporations in the United States.
OPINIONS
The Opinion of the Court of Appeals for the Second Circuit
is reported at 558 F.2d 43 (1977), and appears in the Appendix
at page A.2. The Court of Appeals’ Order denying the Petition
for Rehearing and Rehearing En Banc on July 1, 1977 appears
at page A.2. The Court of Appeals’ Order denying the Petition
in the Appendix at page A.9. The unreported Memorandum
Opinion of the federal district court below appears in the
Appendix at page A.10.
3
JURISDICTION
The Court of Appeals for the Second Circuit affirmed the
judgment of the federal district court on May 11, 1977. A
timely Petition for Rehearing and Rehearing on En Banc was
denied on July 1, 1977. This Petition for Certiorari is filed
within 90 days of that date. The Court’s jurisdiction is invoked
under 28 U.S.C. §1254 (1) (1970).
QUESTIONS PRESENTED
1.
Whether an erroneous application of the jurisdictional pro-
visions of the False Claims Act should be allowed to prevent a
thorough judicial examination of a major fraud being per-
petrated upon the United States Government by a foreign corpo-
ration which has availed itself of U. S. financing for ship
construction purposes, contrary to the Merchant Marine Act of
1936, by organizing dummy corporations in the United States
which have applied for and secured construction differential
subsidies and federal guarantees of debt obligations that are
only available to U.S. citizens.
Il.
Whether the jurisdictional provisions of the False Claims
Act should be interpreted and applied in a manner which
bars access to the federal courts by a private citizen having
possession of material documents and information evidencing
the perpetration of a major fraud against the United States
Government.
4
STATUTORY PROVISIONS INVOLVED
The False Claims Act.
31 U.S.C. Sections 231, 232 (A)(B)(C) (E), 233, 234 and
235.
The United States Shipping Act of 1916.
46 U.S.C. Section 802.
The foregoing statutory sections are set forth in the Appendix
at 4.16.
STATEMENT OF THE CASE
Petitioner — Re!» tor Dorothy S. Greenberg (“Relator”) filed
this action in the federal district court for the Southern District
of New York pursuant to the False Claims Act [31 U.S.C. §232
(A), (C)] on September 30, 1976, on behalf of and in the name
of the United States of America (the “Government’”’). She
sought to recover damages and penalties for the Government on
the grounds that it was fraudulently induced to pay out to
dummy U.S. corporations controlled by Burmah Oil Company
Limited (“Burmah”) “in excess of $60,000,000” in ship con-
stroction subsidies granted by the Maritime Administration on
the basis of false applications made by the dummy corporations
in purported compliance with the Titles V and XI of the
Merchant Marine Act of 1936 (46 U.S.C. §§ 1101 et segq.).
(A.44). Section 232(A) of the False Claims Act vested the
federal district court for the Southern District of New York with
“full power and jurisdiction to hear, try and determine such
suit,” since substantially all of the respondents were found
within the jurisdiction of the Southern District of New York.
(A.17). The Petitioner alleged that “all the documents and
5
information” as listed on Schedule A to the Complaint were “not
in the possession of the United States, the Attorney General
thereof or any of its agencies or instrumentalities.” (A.25).
In accordance with the False Claims Act, on September 30,
1976, Relator caused the verified complaint to be served on
the United States Attorney for the Southern District of New York
and a copy of the complaint accompanied by ten documents
(or sets thereof), amassed by the Relator and listed on Schedule
A to the complaint, to be transmitted, certified mail, to the
Attorney General of the United States in Washington, D.C.
(A.122).’
On December 2, 1976, the sixty-third day after the action
was filed, the Government, by motion papers dated December 1,
1976 and entitled “Notice of Special Appearance and Motion
to Dismiss”, moved, purportedly pursuant to Section 232(C)
of the False Claims Act [31 U.S.C. §232(C)] to dismiss for
lack of jurisdiction, claiming that Relator’s action “was based
upon evidence or information in the possession of the United
States . . . at the time . . . suit was brought.”” (A.122).
This ure is mandated by Section 232(C) of the False Claims
Act, 31 U.S.C. §232(C). Schedule A to the Complaint is entitled:
“STATEMENT OF DISCLOSURE ON BEHALF OF DOR-
OTHY S. GREENBERG PURSUANT TO SECTION 232 (C)
OF TITLE 31 OF THE UNITED STATES CODE”, (A. 52) ;
and lists ten documents or sets thereof. These documents are sometimes
herein referred to collectively as the “ten documents.”
*Thirty-three of the thirty-five named respondents, all appearing by
counsel, also moved to dismiss without supporting by a single
Notice of Motion, dated December 6, 1976, relying on the Government's
pers. The respondents had not answered, their time to move or answer
having been extended to December 6, 1976 informally by correspon-
ES a een a spe-
cial Nor do the Federal Rules of Civil Procedure. 5 Wright
and , Federal Practice and Procedure, Civil §1344 (1969).
6
The Information Furnished the Government on September 30,
1976, by Relator.
In addition to the Complaint, an original document outlining
the details of the allegedly fraudulent transactions, Relator
on September 30, 1976, sent to the Department of Justice the
following documents and compilations:
1. An undated internal memorandum from the files of
Burmah;
2. A Memorandum dated May 12, 1975 from Richard
Kurrus (“Kurrus”) to John J. McMullen (“McMullen”)
(A.55);
3. A second memorandum dated August 2], 1975 from
Kurrus to Mc¥fullen;
4. A 63-page Memorandum of Law dated September 16,
1975, authored by the firm of Kurrus and Jacobi, Esqs.;
5. Two complaints prepared for and on behalf of Burmah
for actions in the Supreme Court of the State of New York
[“5(a)” and “5(b)” to Schedule A];
6. A folder of news releases’ consisting of some 66 pages;
7. A Memorandum of Law relating to the self-dealing of
respondent Elias J. Kulukundis (“Kulukundis”), Burmah’s
former Chief Executive Officer, authored by the law firm of
Seymour & Patten, Esqs. (A. +); and
8. Two memoranda of interviews dated July 28, 1975 and
November 14, 1975 with Kulukundis [“8(a)” and “8(b)”
to Schedule A] (A.80, A.89).
*The news and magazine articles covered a range of subjects —e
Burmah’s financial problems; Burmah’s interest in the
mast East ing Gaapesstions cost enesvens in comuatiien wah Ge
e seeanpeendg the LNG tankers involved in the fraud outlined by the
elator, etc.
7
Item 2 above, a highly material document conceded below to
not be in the physical possession of the Government at the time
of suit, is the full text of a three-page single-spaced internal
confidential memorandum, dated May 12, 1975, from Richard
W. Kurrus, attorney for the respondent Burmah, to its then
Chief Executive Officer, Dr. John J. McMullen. (A.55) That
document (referred to herein as the “Kurrus Memorandum” )
purports to memorialize the events occurring at two meetings
between representatives of Burmah and MarAd,* on May 8
1975, in which Burmah’s attorney Mr. Kurrus participated and
at which the fraudulent applications for ship construction sub-
sidies and federal loan guarantees were discussed. One of the
representatives present for MarAd was Robert J. Blackwell,
“Maritime Administrator, Assistant Secretary of Commerce for
Maritime Affairs.” (A.55).
The Government contended that all of the information con-
tained in the foregoing documents was in possession of the
Government prior to September 30, 1976. In so arguing it
relied on the fact that some of the information, but not all,
was in the possession of (i) MarAd; (ii) Congressman Les
Aspin; (iii) the Department of Justice; (iv) the Securities and
Exchange Commissions; (v) the House Committee on Govern-
ment Operations; and (vi) the General Accounting Office. Ii is
undisputed that not one of the foregoing had assembled or
analyzed all the information prior to September 30th; far less,
had they everything (A.112-114).
*The Maritime Administration, sometimes herein, and in the Appen-
dix, referred to a» MarAd, is an agency in the Department of Commerce.
It has the responsibility for passing upon for ship construc-
tion subsidies and loan guarantees under Titles V and XI of the Mer-
chant Marine Act of 1936, supra. (A. 100-102).
MarAd
Relator contends (and so contended below) that MarAd was
so intimately involved in the alleged fraud that its knowledge
could not be imputed to the Government.
As to MarAd’s alleged knowledge, the Government submitted
an affidavit from MarAd’s General Counsel, Samuel B. Nemirow.
(A.100).° The Government contended below that MarAd was
informed in 1975 of the underlying factual allegations upon
which the Relator’s Complaint was based and that “Relator has
not presented any substantive information not known to MarAd
prior to September 30, 1976.” (A.101). However, MarAd did
not have the Kurrus Memorandum. (A.112-114). Nor did it
have Items 1, 3, 7, 8(a) and (b) of Schedule A. (/bid). Nor had
MarAd taken any action, even though Burmah itself was alleged
to have notified MarAd of the underlying facts. (A.109-111).
MarAd claimed that it received the two New York Supreme
Court complaints, documents 5(a) and 5(b) of Schedule A.
(A.113). MarAd further claimed that it was aware of most of
the newspaper and magazine articles, Item 6 of Schedule A
(A.112-113). While MarAd concededly did not have in its physi-
cal possession the 63-page Memorandum of Law, authored in
September, 1975 by the Kurrus law firm, its General Counsel
claimed to have been “shown” it some time in September 1975.
(A.111). As to whether he read or reviewed it, is not stated.
(A.111).
*Attorney Nemirow attended the first of two ings memorialized
by the Kurrus Memorandum. (A _ ). He did not the lunch later
that day at which Administrator Blackwell is said to have acknowledged
the fiction surrounding the transactions and to have urged that there be
no public airing of the issues. (A. 58-59). The Government submitted
no affidavit from Mr. Blackwell.
9
As to the Kurrus Memorandum, the Government argued that
since it involved meetings with personnel of MarAd, MarAd
had to have known what it contained. (A.113-114).
Elliott Richardson, then Secretary of Commerce, admitted,
however, on November 17, 1976 that most of Relator’s docu-
ments came to the attention of MarAd for the first time as a
result of this action. See pages 11-12, infra.
Congressman Les Aspin
On May 25, 1976, Congressman Les Aspin (of Wisconsin)
reported to the House that on March 3, 1976, he had written
to Mr. Robert J. Blackwell, inquiring as to the propriety of
MarAd’s proposed financing of five ships for the use and trans-
port of LNG from Indonesia to Japan.* Congressman Aspin told
the House that the response from Mr. Blackwell, under date of
April 21, 1976 “was totally unsatisfactory.” Congressional
Record — House, May 25, 1976, page 4909.
*Burmah (through subsidiaries) entered into a Transportation Agree-
ment on ber 28, 1973 with an Indonesian state-owned company
to carry from Indonesia to Japan (the “Pertamina Transaction”).
Companies known as the “Cherokee Companies” were y set up
in the United States by Burmah in order to secure U.S. cing for
construction of the vessels necessary to fulfill the agreement. (See
plaint, 435, A. 42).
The Pertamina Transaction has been totally recast since the filing of
the complaint. As recast, the respondent General Dynamics Corp. on
January 19, 1977 received from MarAd a $727 million loan guarantee
for the of constructing five to seven ships to LNG
between Indonesia and Japan The grant of these antees in January
1977 to say the least has ce controversial. See The New York Times of
Jan 31, 1977, p. 20, ‘4 editorial “Of Ships and Contracts, with
Envy? Janeway, ae by be by Richardson”, The Wash
ington Star of t Teauary 30, 19 30, 1977; ageous General Dynamics
Loan Guarantee” (Remarks of Senator Pocmniie) te in The Congressional
Record, $.2207-08 (Feb. 3, 1977).
10
Congressman Aspin inserted into the Record that correspon-
dence of March 3rd and April 21st, as well as a letter he had
written under date of May 25, 1976, to Congressman Jack
Brooks. Chairman of the House Committee on Government
Operations.
On August 19, 1976, Congressman Aspin, presumably having
had no satisfactory response from MarAd, wrote to then Attor-
ney General Edward Levi, complaining of the matter, forward-
ing to the Justice Department an article from the New York
Times of August 19th and his correspondence with Robert
Blackwell, writing:
Today the New York Times reported that several
agencies are investigating the application of the Bur-
mah Oil Company for Title XI mortgage insurance
guarantees for the construction of 8 LNG tankers at
General Dynamics, Quincy, Mass. facility.
According to the New York Times, a memorandum of
law prepared by a firm acting for one of Burmah’s
subsidiaries flatly states that affidavits of corporate
citizenship submitted to the Maritime Administration
“were fraudulent.”
If this information is accurate, it surely constitutes
prima facie evidence that some parties may be in-
volved in an effort to obtain Title XI guarantees
through fraud.
I am writing to you today to request that the Depart-
ment of Justice undertake an immediate investigation
of any possible fraud in connection with this case. It
is ubvious that we cannot tolerate anyone under any
circumstances providing the Maritime Administration
with fraudulent information. [emphasis ours].”
"The letter from Congressman Aspin was referred to by the Depart-
ment of Justice but not produced.
ll
Some forty-eight days later, under date of October 7, 1976,
Assistant Attorney General Thornburgh, acknowledged the Con-
gressman’s letter. He wrote, in part, as follows:
You specifically mention and request investigaiton of
possible fraud in the submission of affidavits of cor-
porate citizenship to the Federal Maritime Adminis-
tration in order to obtain the Title XI guarantees. In
this connection we understand both the Administration
and the Securities and Exchange Commission are in-
quiring into this matter. I am, therefore, communicat-
ing with both of these agencies requesting all pertinent
information. Upon receipt of that data, a determina-
tion will be made as to what further action would be
appropriate by the Department.
The Relator’s data, however, had already been received on
October 4th, by the Department of Justice; and neither
MarAd nor the Securities and Exchange Commission had all
of Relator’s data; nor had either agency made public or com-
municated to the Department of Justice, any findings.
Congressman Aspin, presumably not having had a response
to his August 19 letter from the Justice Department, wrote
under date of October 2nd, complaining of the matter to Secre-
tary of Commerce Richardson. Secretary Richardson responded
at length on November 17, 1976, and in part referred to the
pendency of this action (filed some 48 days before), as follows:
As you may be aware, the forfeiture contention is
currently the subject of civil litigation in federal dis-
trict court in New York. /n this civil action, most of
the documents which have been the basis for media
reports, such as The New York Times article of August
12
19, have been brought to light and as a consequence,
MarAd has recently been able to review these docu-
ments — most of them for the first time. Nothing in
them, including the “legal memorandum” by Richard
Kurrus, would lead MarAd to change its belief that
the LNG vessels are not subject to forfeiture.
[emphasis ours].*
Thus Secretary Richardson conceded that certain of Relator’s
documents had never before come to the attention of MarAd
and that as a consequence of Relator’s action MarAd “has re-
cently been able to review” them, and “most of them for the
first time.’”
The Department of Justice
The Department of Justice prior to September 30, 1976 had
only (i) Congressman Aspin’s remarks in the Congressional
Record and (ii) the New York Times article of August 19th,
presumably obtained as a result of the Congressman’s letter of
August 19th (A.11).
The letter of Assistant Attorney General Thornburgh to
Congressman Aspin of October 7th establishes that as of that
date the Department of Justice was relying upon MarAd’s and
the SEC’s inquiries into the matter and is an admission that it
*The “legal memorandum” was item 4 to Schedule A of Relator’s
complaint.
*Secretary Richardson’s admission contradicts the sworn afhdavit of
Samual B. Nemirow, Genera] Counsel of MarAd. (A. 111-114).
So
13
‘ .
A? ws? ye
had not prior thereto commenced an investigation. See page 11,
supra.
Of course on October 4th, the Department of Justice had
received Relator’s complaint and the ten documents, mailed on
September 30th. But the SEC had none of these documents.
(A.124-128).
Under date of April 9, 1975, Deputy Assistant Attorney
General Leon Ulman in the Office of Legal Counsel of the
Department of Justice, had sent a “Memorandum” to Dudley
Chapman, Associate Counsel at the White House. When he
submitted that Memorandum he had none of the documents
which Relator furnished or which the Government claimed to
have in its possession prior to September 30, 1976. And of course
he did not have the Kurrus Memorandum.
The Securities and Exchange Commission
The Commission “had none of the material information”
prior to September 30, 1976. (A.11). A staff member of the
Commission, on October 18, 1976, after the filing of this action,
requested Relator’s counsel to furnish the Commission copies
of the documents listed on Schedule A. That request was referred
by Relator to the Department of Justice. (A.126-7).
On September 8, 1976, the Commission had issued an order
directing a private investigation “Jn the Matter of Burmah Oil
Company, Ltd.” and on September 24 and 27, 1976 issued
subpoenae duces tecum to various individuals and corporations.
The “acts or practices” allegedly being investigated
14
... concern Burmah’s relationship to various persons
and entities including Energy Transportation Corpora-
tion and certain of its subsidiaries, involved in financ-
ing and chartering certain vessels to be used in the
transport of LNG.
But it had not yet received any documents. It is a fair inference
that the SEC received the Complaint and the documents listed
on Schedule A thereof as a result of the filing of this action.
(A.126-7).
The House Committee on Government Operations
[The “Brooks Committee” ] (A.119-120)
In a response dated November 29, 1976 to a letter dated
October 22, 1976 of inquiry from the Department of Justice,
sent after the filing of this action, the Brooks Committee had
in its possession five of the ten documents, namely those listed
as numbers 1, 3, 4, 5(a) and 5(b) on Relator’s Schedule A.
It did not have the Kurrus Memorandum nor items 6, 7, 8(a)
and (b) of Schedule A. (A.119-120).
On August 2nd, the Brooks Committee asked the General
Accounting Office to review certain of the issues. On August 3rd,
Chairman Brooks inquired of Administrator Blackwell as to
certain aspects of the Pertamina transaction. See page 9, m.6,
supra.
In June 1976 and subsequent thereto but prior to September
30th, staff members of the Brooks Committee allegedly met
with officials of MarAd “on at least 5 occasions.” (A.115).
But by Augusi, the Brooks Committee had still not made a
determination. In a News Release it stated
The House Committee on Government Operations
has received certain allegations concerning the Gen-
15
eral Dynamics Liquified natural gas tanker program,
and has had some discussions about them with the
Maritime Administration, Congressman Jack Brooks
(D-Tex.), Chairman of the Committee, said today.
‘On the basis of these discussions, it has not yet been
determined whether there is need for further commit-
tee action,’ Brooks said.
The Committee has requested further information
from the Maritime Administration and has asked the
General Accounting Office to review the entire ship
construction loan guarantee program as it is presently
being operated. The committee is awaiting responses
to these requests.
Copies of the letters to the Maritime Administration
and General Accounting Office are attached.
The General Accounting Office (““GAO”’)
This office did not have the Kurrus Memorandum.
While Attorney General Thornburgh referred in his October
7th letter to this agency, the Government did not contend below
that that agency had any of the information supplied by Relator.
MarAd did apparently turn over to the GAO its records involv-
ing the Easco (A.31) and Pertamina Transactions (A.115), but
not any of the Relator’s documents.
The New York Times Article of
August 19, 1976 (A.59).
This article was sent to the Department of Justice by Con-
gressman Aspin on August 19, 1976. It was also contained in
Item 6 to Schedule A of the complaint. This article appeared
on the front page of the Times under the headline
16 17
have been committed in connection with the Burmah
“BURMAH OIL’S AID BID STUDIED FOR POSSIBLE
guarantees and subsidies.
FRAUD”
The article quotes Robert J. Blackwell as stating that his agency, ne pry wen wets ar J. gree yams presi-
. ers, Richard Kurrus of the
MarAd, Washington law firm reported that he had engaged in
‘has no information to indicate that there was fraud
of any type or wrongdoing’ in the Burmah applica-
tions.’
On page 60 of the Times, the article is continued. In the second
column the following is reported:
Internal corporate documents from Burmah and con-
fidential memoranda obtained by the New York Times
pertaining to Burmah’s situation show that serious
questions over the legality of the guarantees and sub-
sidies were raised by lawyers 11 months ago.
One memorandum prepared by the firm of Kurrus &
Jacobi, says: “The continued involvement of those
companies in the ship construction contracts will create
a cloud on the title of the vessels and could subject
them to forfeiture to the United States.’ Some $476
million is involved in these contracts alone.
The memorandum, dated September 16, 1975, said
the financing arrangements ‘present some extremely
perilous legal problems for Burmah.’ It suggested
that ‘forfeiture of the vessels to the United States
a conversation about Burmah on May 8, 1975, with
Mr. Blackwell, the Assistant Secretary of Commerce,
and Samuel Nemirow, assistant general counsel of the
Maritime Administration.
Mr. Kurrus reported that he met with Mr. Blackwell
for lunch later the same day and Mr. Blackwell said
he felt that Elias J. Kulukundis [sic], an earlier presi-
dent of Burmah Oil Tankers, ‘may have acted impru-
— and perhaps even improperly in the deals he
up.
Mr. Kurrus quoted Mr. Blackwell as saying that he
was aware that problems had arisen over the Title XI
financing and that ‘everyone recognized’ that the for-
mal arrangement approved by the Maritime Adminis-
tration ‘was based on friction [sic].’
Asked about this, Mr. Blackwell acknowiedged he had
met with Mr. Kurrus on May 9, not May 8, 1975, and
that they had discussed Burmah’s problems. However,
he flatly denied that he ever said that the financing
arrangements had been ‘based on fictions.’ (A.64-5)
{-
would obviously have devastating consequences.’
(4.63-4) There are no further quotations from the three-page Kurrus
| Memorandum. The remaining reference in the Time article to
The Times article then discusses the Kurrus Memorandum: | the Kurrus Memorandum was —
Other documents obtained by The Times indicate
that officials of the Maritime Administration may
have been aware that violations of Federal law might
Mr. Kurrus expressed shock yesterday when in-
an 7 of his memorandum had been ob-
7 tained by imes. When asked if he wanted it read
°The Kurrus Memorandum contradicts. back to him, he replied, ‘Don’t read it. I don’t pacha
"The reference is to the 63 page Memorandum of Law, item 4 to ~ .
Schedule A of Relator’s complaint. be trapped. That’s too dangerous.” (A.65)
18
What the Government Did Not Know
Nowhere in the moving affidavits submitted by the Govern-
ment was it even suggested that prior to September 30. 1976,
the Government was aware of the alleged complicity of MarAd
and that Administrator Blackwell of that agency
. . recognized the weakness in the theory as to how
these deals were established and that this is what wor-
ried him about a full fledged legal controversy between
Burmah and Energy. [Kurrus Memorandum, A.59].
On September 30, 1976, neither the Department of Justice,
the Securities and Exchange Commission, the General Account-
ing Office, nor any other investigative or prosecutorial agency
of the Executive Branch of the Government had Relator’s docu-
ments, except for the August 19th New York Times article.
Disposition of the Relator’s Action
The District Court entered an Order and Final Judgment,
dated January 6, 1977 and entered January 10, 1977 (A.15),
in accordance with its unreported Memorandum Opinion dated
December 22, 1976, (A.10) dismissing the Relator’s qui tam
action on jurisdictional grounds. The Court’s basis for the dis-
missal was its interpretation of Section 232 (C) of the False
Claims Act [31 U.S.C. §232(C)] and its conclusion that Rela-
tor’s action was “based upon evidence or information in the
possession of the United States, or an[y] agency, officer or
employee thereof, at the time such suit was brought.” /bid.
(A.11).
In its Memorandum Opinion of December 22, 1976, the
District Court found that all but one of the ten documents sub-
19
mitted by Relator to the Government were, prior to September
30, 1976, in possession of the Government — either the Mari-
time Administration,” the House of Representatives’ Committee
on Government Operations, or the Department of Justice. In
making its determination, the District Court adopted one posi-
tion of Relator urged below, to the effect that because of the
alleged complicity of MarAd, knowledge and information in
MarAd’s possession may not be imputed to the Government.
(A.12). Nonetheless, the Court found that all of the substan-
tive evidence or information presented by Relator was in pos-
session of other agencies of the Government, including a Con-
gressional Committee, prior to the filing of this action and the
Court therefore dismissed for lack of jurisdiction. (A.12).
With regard to the Kurrus Memorandum, Judge Knapp
found as follows:
The one new document which the relator claims to
have brought to the Government’s attention is a memo-
The Court found that:
The Maritime Administration had all of the information ex-
cept for the Kurrus Memorandum. The Administration had
obtained certain information relating to possible self-dealin
by Elias J. Kulukundis from a complaint filed in New Yo
State Supreme Court rather than the documents subsequently
eapplied by the relator. The House Committee on Government
Operations had substantially the same information as the Mari-
time Administration. The Committee did not, however, have
the folder of newspaper clippings compiled by the relator.
The Securities and Exchange Commission had none of the
material information. The Department of Justice had only the
New York Times articles and Congressman Aspin’s remarks
in the Congressional Record. [ A. The
Respondent Kulukundis was the form:r Chief Executive Officer of
Burmah and was the immediate predecessor of John J.
McMullen, the original recipient of the Kurrus Snnevshien. (A. 55).
20
randum by a lawyer named Richard Kurrus from
which it might be inferred that certain officials of the
Maritime Administration knew about the alleged
fraud, and perhaps that they were condoning it. The
relator argues that this memorandum in itself consti-
tutes substantial information and also that it warrants
our concluding that the Maritime Administration was
sufficiently involved in the scandal so that we should
disregard any documents or information it possessed
in making our determination. [A.12].
As for the claim that the Kurrus Memorandum consti-
tutes subsiantial information, we so assume for present
purposes. We note, however, that it was specifically
identified and fully described in an August New York
Times article. As a result, the information it contained
was public knowledge. A copy of the article was in the
files of the Justice Department. The information was
therefore in the Department’s possession and the mem-
orandum itself would inevitably have been acquired
by the Department in the course of its investigation
had it been considered important. [A.12].”
As shown under Reason I, infra, the Kurrus Memorandum
was not “fully described” in the New York Times article. Fur-
ther, as of September 30, 1976 (i) there had been no public
legal proceeding or action instituted by the United States, or
'8In its brief in support of its Motion to Dismiss below, the Govern-
ment argued and conceded that: “There are . . . only 4 documents sub-
mitted by Relator that the United States did not have in its i
prior to commencement of this action . . . The first of these, item 2 on
Schedule A, is a three-page memorandum dated May 12, 1975, from
Richard Kurrus to John J. McMullen . . . (the ‘Kurrus Memorandum’).
The remaining three documents, items 7, 8(a) and 8(b), are a memo-
randum of law concerning alleged self-dealing of Elias Kulukundis and
memoranda of conversations with Elias Kulukundis and N.J.D. William,
an official of Burmah.” Government’s Memorandum of Law in Support
of .. . Motion to Dismiss, dated December 2, 1976, pp. 16-17. See also
Nemirow Affidavit (935, 36. (A. 113-114).
21
any agency thereof, arising out of the alleged facts contained
in Relator’s complaint; (ii) there had been no indictments or
grand jury proceedings; and (iii) there had been no Congres-
sional hearings, in public or private session, or Congressional
investigation, other than preliminary Congressional inquiries.
The Government contended however in oral argument before
the District Court on December 10, 1976, the return day of the
motion, and subsequently in a post-argument reply affidavit,
that the Department of Justice was then currently conducting
an investigation. If so, this Department of Justice investigation
was commenced after Relator’s suit was instituted on September
30, 1976.
The United States Court of Appeals for the Second Circuit
affirmed the District Court’s dismissal of the Relator’s suit on
jurisdictional grounds and held in a per curiam opinion that
that Judge Knapp’s finding that the information supplied by the
Relator was in the possession of the United States Government
was “amply supported by the record.” (A.6). The Second
Circuit indicated that the fact that the Government did not have
physical possession of all of the documents supplied by the
Relator was not significant since: “The Government’s possession
of the material information contained in the Memorandum is
enough under the statute to divest the Court of jurisdiction.”
(A.6)
As to the information disclosed by the Relator in the mate-
rials delivered to the United States Attorney for the Southern
District of New York, the Second Circuit was of the opinion
that: “Here, no new information concerning either the existence
or the nature of the fraud was disclosed as a result of Relator’s
efforts.” (A.6). The Relator’s timely application for re-
22
hearing and rehearing en banc was denied on July 1, 1977.
(A.9).
The carefully documented, thoroughly investigated complaint
in this action presents a complex set of factual allega-
tions raising novel issues of law never before squarely pre-
sented for judicial determination. At its heart is an allegedly
massive fraud perpetrated by subterfuge on the Government in
connection with applications for loan subsidies and guarantees
obtained by the principal respondents under Titles V and XI of
the Merchant Marine Act of 1936 (46 U.S.C. $§1101, et seg.)
and the United States Shipping Act of 1916, as amended (46
U.S.C. $801, et seqg.). (A.121-128).
REASONS FOR GRANTING THE WRIT
I.
THE ERRONEOUS APPLICATION OF THE JURISDIC-
TIONAL PROVISIONS OF THE FALSE CLAIMS ACT BY
THE COURTS BELOW SHOULD NOT BE ALLOWED TO
PREVENT A THOROUGH JUDICIAL EXAMINATION OF
A MAJOR FRAUD BEING PERPETRATED UPON THE
UNITED STATES GOVERNMENT BY A FOREIGN COR-
PORATION WHICH HAS AVAILED ITSELF OF UNITED
STATES FINANCING FOR SHIP CONSTRUCTION PUR-
POSES, CONTRARY TO THE MERCHANT MARINE ACT
OF 1936, BY ORGANIZING DUMMY CORPORATIONS IN
THE UNITED STATES WHICH HAVE APPLIED FOR AND
“The present proceeding involves an order of dismissal and accord-
ingly the allegations of the complaint must be accepted as true. Carr v.
Learner, 547 F.2d 135 (2d Cir. 1976). 5 Wright and Miller, Federal
Practice and Procedure, Civil §1350, pp. 551-553 (1969).
23
SECURED CONSTRUCTION DIFFERENTIAL SUBSIDIES
AND FEDERAL GUARANTEES OF DEBT OBLIGATIONS
THAT ARE ONLY AVAILABLE TO U.S. CITIZENS.
A. The Kurrus Memorandum was not “fully described” in
the New York Times August 19 article, and accordingly the
dismissal for lack of jurisdiction was clearly erroneous.
The Government had The New York Times article. It did not
have the Kurrus Memorandum. The New York Times abridg-
ment (A.59) and the full text of the Kurrus Memorandum
(A.55) speak for themselves. The District Court’s conclusion
based on its comparison of the two documents, that the three-
page, single-spaced Kurrus Memorandum was “fully described”
in the Times article and the Second Circuit’s affirmation thereof
were clearly erroneous. (A.12).
The Kurrus Memorandum was indeed identified in the Times
article, but only two of that document’s important points were
quoted — that Mr. Kulukundis “may have acted imprudently
and . . . improperly” and that the arrangement approved by
MarAd “was based on friction” [sic]. Furthermore, these points
were taken out of context, so that their complete meaning was
not apparent.
Highly material disclosures of factual matters contained in
the Kurrus Memorandum were not reported by the Times. The
principal omission is Blackwell’s suggestion that Burmah engage
in a cover up, i.e. Blackwell “warned about a full fledged legal
controversy between Burmah and Energy,” which would lead
to exposure of wrongdoing. A.59)."*
‘The article also omitted the alleged admission of Mr. Blackwell
“. . . that there a to be several things basically wrong with the
overall structure of this deal . . .” (A. 59).
24
In short, the Kurrus Memorandum contains admissions by
Burmah through its counsel of the alleged fraud that were not
reported by the Times. Without the Kurrus Memorandum there
was no documentary evidence of MarAd’s complicity! See Para-
graph “38” of the Complaint. (A.44-5).
The relevant portion of the Kurrus Memorandum, dealing
with the second of two meetings, is as follows: [only the itali-
cized words were quoted in the Times article].
I met with Mr. Blackwell for lunch on the same day. We
had a further discussion of the Burmah-Energy problem. I
explained to Mr. Blackwell that we could understand the
function of the Energy companies under the Title XI insur-
ance financing, but that the role of the Energy companies
beyond that was impossible for us to understand or justify.
Mr. Shelby, as I understand it, came into this deal as a lawyer
representing Burmah. He and Messrs. Chen and Cuneo have
put together the Energy companies and their subsidiaries in
order to meet the legal requirements of United States owner-
ship and control of (a) the company having the bareboat
charter from the owner-lessor, under the leverage lease ar-
rangement and (b) the company holding temporarily the
shipbuilding contracts until permanent financing on the
Cherokee I-V vessels can be arranged.
People having the substantial interest in a project which
Messrs. Shelby, Chen and Cuneo claim usually provide
something of substance. Either they have been finders, they
have invented something or devised the project, put together
the financing under difficult circumstances or brought the
indespensible [sic] parties to the deal together. Messrs.
Shelby, Chen and Cuneo appear to have done none of these
“> =
25
things. They rather appear to us to be capitalizing on their
special position under the Title XI financing and taking this
further to create a vested equity interest in the deal that
cannot be justified. I explained to Blackwell that we could
not at this time understand the consideration for any com-
mitment to Messrs. Shelby, Chen and Cuneo beyond the Title
XI financing arrangements and that the primary purpose of a
meeting with them would be to afford them an opportunity
to explain what consideration, if any, on their part did exist.
I also explained that we had some serious problems con-
cerning actions that Messrs. Shelby, Cuneo and Chen were
taking that appeared to be in conflict with Burmah’s interest.
In this respect, I pointed out that they seem to have a con-
tinuing business association with Mr. Elias Kulukundis.
Furthermore, Messrs. Shelby, Cuneo and Chen are now pur-
suing, according to our information their own private LNG
project or projects which involve General Dynamics, Per-
tamina and possibly other companies who are integral and
essential parts of the Burmah project. I emphasized that we
do not have all of the facts but that if the Energy people are
acting in the ways that we have heard, they would be in our
opinion violating legal obligations which they owe to Bur-
mah and would be acting improperly and illegally by inter-
fering with Burmah’s business relationships to which they
have been introduced while they were ostensibly acting on
Burmah’s behalf.
I also pointed out that this was not a situation where the
Energy people had supplied any significant capital invest-
ment on their own. All expenses, costs and fees have been
paid by Burmah. Under these circumstances, Burmah we
26
feel has a legal right to prevent the Energy people from as-
suming any larger or different role than their involvement
as a conduit in the Title XI financing arrangement
contemplated.
Mr. Blackwell stated that he could appreciate this prob-
lem but that it was obviously not Marad’s problem. He said
that he felt that Mr. Kulukundis may have acted imprudently
and perhaps even improperly in the deals he set up, but that
Burmah had permitted him to operate, had given him a cover
of authority and had perhaps even countenanced the deals.
I explained that the real problem [sic] vis a vis the Energy
people arose because of the special legal problems concern-
ing the Title XI financing and that everyone recognized that
the structure that Marad had approved in this deal (and in
other similar deals such as Maritime Fruit Carriers, Ultamar,
Shell, A. J. Chandris, etc.) was based on a fiction. He said
that he recognized the weakness in the theory as to how these
deals were established and that this is what worried him
about a full fledged legal controversy between Burmah and
Energy.
I explained that we obviously were not interested in pro-
voking such a legal battle if it could reasonably be avoided,
but the way that this deal is presently structured is an un-
viable and impossible situation for Burmah. If we cave in
to the Energy people, we would in a real way be submitting to
blackmail. Furthermore, there is a valid argument | believe
that the Energy people would be permitted to profit unduly
and unconscionably through a United States Government
contract.
ee
27
Mr. Blackwell admitted that there appears to be several
things basically wrong with the overall structure of this deal
that should be rectified if possible. He agreed that Burmah
must take its own actions to place this deal on a sound legal
as well as economically feasible basis. I asked him to bear
with us in attempting to work out these problems and stated
that we would keep him informed of developments. [A.55-58]
Hence, the District Court’s findings that the Kurrus Memo-
randum was “fully described” in the Times article and there-
fore “public knowledge” and that its contents constituted sub-
stantive evidence in possession of the Government prior to Sep-
tember 30, 1976, were clearly erroneous, and should not have
been affirmed by the Second Circuit. Without such an erroneous
finding, Relator could not have been denied jurisdiction to prose-
cute her claims. United States v. Rippetoe, 173 F.2d 735 (4th
Cir. 1949) ; United States et rel. Vance v. Westinghouse Elec-
tric Corp., 363 F.Supp. 1038 (W.D. PA. 1973).
Judge Knapp assumed in his opinion that the Kurrus Memo-
randum constituted substantial new information contributed by
Relator which was not in the possession of the Government at the
time Relator filed suit. (A.12). This assumption and the Dis-
trict Court’s finding that the Kurrus Memorandum contained
information “...from which it might be inferred that cer-
tain officials of the Maritime Administration knew about the
alleged fraud, and perhaps that they were condoning it,” (A.12)
precluded, as a matter of law, dismissal for failure to meet
the jurisdictional requirements. This finding is even more in-
comprehensible in the light of the District Court’s other finding
that evidence of MarAd’s complicity in the alleged fraud indi-
cated in the Kurrus Memorandum is not “information in the
28
possession of the Government.””"* The finding that the Government
did not possess the Kurrus Memorandum at the time the suit
was filed required the District Court to deny the motion to
dismiss.
In its per curiam opinion affirming the decision of the Dis-
trict Court below, the Second Circuit held that: “The Govern-
ment’s possession of the material information contained in the
Memorandum is enough under the statute to divest the Court of
jurisdiction.” (A.6) The Second Circuit was of the opinion
that the Relator supplied “... no new information concern-
ing either the existence or the nature of the fraud . . .” (A.6),
and went on to indicate in a footnote that although the Kurrus
Memorandum revealed the complicity of the Maritime Admin-
istration in the alleged fraud, that nonetheless this information
was clearly disclosed in the New York Times article (A.6-7).
The Second Circuit’s comparison of the information contained
in the New York Times article and in the Kurrus Memorandum
is overly simplistic and wholly inaccurate. The Times’ allega-
tion that MarAd officials “may have been aware of the fraudu-
lent scheme” can hardly be equated in terms of significance with
the detailed revelation of complicity contained in the memo-
randum itself:
He [Blackwell] said that he recognized the weakness in
“The District Court also erroneously found that MarAd was in pos-
session of Items 7, 8(a) and 8(b) to Schedule A. (A. 11 n. 1). The
Government conceded that MarAd was not in ion of these docu-
ments on September 30, 1976. Nemirow affidavit, (35 (A. 113). These
documents substantiate the problems Burmah was having with its former
chief executive officer, Kulukundis, and his alleged disloyalty to Burmah,
which are also alluded to in the Kurrus Memorandum (A. 69 to A. 100).
a ee i i
weet eee 8
29
the theory as to how these deals were established and that
this is what worried him about a full fledged legal contro-
versy between Burmah and Energy.
* * *
Mr. Blackwell admitted that there appears to be several
things basically wrong with the overall structure of this deal
that should be rectified if possible [A.59].
The Government did not possess the Kurrus Memorandum
at the time Relator filed suit and hence the findings of the
Courts below that the Government possessed all of the “evidence
or information” upon which the Relator’s suit was based were
clearly erroneous. The jurisdictional barrier posed by Section
232(C) of the False Claims Act should not have been erected
in the present proceeding.
Indeed as to items 7, 8(a) and 8(b) which the Relator pro-
vided and which were admittedly not in the Government’s posses-
sion (A.113) the Second Circuit held in a footnote to its opinion
that these documents were of little or no relevance to the
alleged fraud. (A.6-7) One can only wonder how a legal ruling
as to the relevance or materiality of a particular document
could be made when there had been no discovery by which to
develop the facts underlying the allegedly fraudulent scheme.
To assert that certain of the documents the Relator provided
were irrelevant when only affidavits and motions were before
the District Court, was utterly premature. The ramifications
and significance of the allegedly fradulent scheme could not be
calculated or measured until discovery had been had by all
interested parties and the known facts had been aired and
examined at a judicial hearing. Unfortunately, the ramifica-
tions of the fraudulent scheme alleged by the Relator will re-
30
main unexplored and unknown because of the erroneous invo-
cation of the jurisdictional provisions of the False Claims Act
by the courts below.
THE JURISDICTIONAL PROVISIONS OF THE FALSE
CLAIMS ACT SHOULD NOT BE INTERPRETED AND
APPLIED IN A MANNER WHICH BARS ACCESS
TO THE FEDERAL COURTS BY A PRIVATE CITI-
ZEN HAVING POSSESSION OF MATERIAL DOCU.
MENTS AND INFORMATION EVIDENCING THE PER-
PETRATION OF A MAJOR FRAUD AGAINST THE
UNITED STATES GOVERNMENT.
A. The Second Circuit’s interpretation of section 232(C)
of the False Claims Act and its application thereof to the
present action sound a death knell for the Qui Tam Action.
The Government did not establish, as is required by Section
232(C) of the Act, as a prerequisite to dismissal, that it was
in possession of all “evidence or information” submitted by
Relator. Nor could it. The Government’s moving papers, on the
contrary, reveal that the Government did not have all the sub-
stantive information, did not have all the documents, and did
not have all the evidence. What it did have was not organized
or assembled and was scattered throughout the “vastness” of
the Washington federal establishment. Cf. Bateson-Stolte, Inc. v.
The United States, 305 F.2d 386 at 388 (Ct. of Claims: 1962).
To be sure, certain of the information was buried in the
archives of various federal agencies. It was, however, disor-
ganized and not analyzed nor integrated — an all too familiar
problem. Congressman Aspin had been repeatedly frustrated
31
by MarAd’s “unsatisfactory” replies to his inquiries, a task
made far more onerous by that agency’s obvious desire to
cover up its own complicity. (A.59). Even the Department of
Justice moved slowly until after the filing of this action. Only
after Relator’s Complaint and the ten documents were filed
with the Justice Department did it take action, prompted by
the fact that it was then faced with a statutory duty to respond
within sixty days. 31 U.S.C. §232(C).’” The complex facts dis-
closed by Relator’s Complaint had not previously been accessi-
ble to any one agency of the Government. These facts are like a
jigsaw puzzle composed of many pieces, with missing parts.
Relator took these pieces, laboriously added the missing pieces,
and in her complaint portrayed a clear picture which had not
been seen or examined before by a disinterested agency of the
Government.
Significantly, the fact that the Government did not possess
the Kurrus memorandum has remained unchallenged through-
out the proceedings below. Yet, the District Court and appar-
ently the Second Circuit were of the opinion that the material
information in the Kurrus memorandum was “fully described”
(A.12) in The New York Times article of August 19, 1976, and
hence that the Relator failed to provide the Government with
any new or significant information when it provided the Govern-
ment with the Kurrus Memorandum (A.6).
The New York Times article simply asserts that “Officials
of the Maritime Administration may have been aware that
violations of Federal law might have been committed in con-
nection with the Burmah guarantees and subsidies.” (A.64)
‘It actually responded on the sixty-third day. Query: Why hadn’t the
Justice Department moved earlier?
32
The presence of the Times article in the files of the Justice De-
partment can hardly be equated with possession of the significant
information contained in the Kurrus Memorandum which was
admittedly not in the Justice Department’s files at the time the
Relator filed her suit. Before a federal district court can be
divested of jurisdiction, under the False Claims Act, Section 232
(C) it must be made to appear that such suit was based upon
“ E ]vidence or information in the possession of the United States
or any agency, officer or employee thereof, at the time such
suit was brought”. (Emphasis added) The fact that the Jus-
tice Departmert’s files contained a newspaper article alleging
possible awareness on the part of certain MarAd officials of
the alleged fraud does not justify nor does it lead a fortiori to
the conclusion that the Government was in possession of all sig-
nificant and specific factual information concerning the fraud
and the extent of MarAd’s complicity therein.
Daily newspapers throughout the United States are filled
with stories about alleged schemes, plots, scandals and swindles
involving the Government or Government officials. The reten-
tion by the Justice Department or any Governmental agency
of each and every newspaper story alleging the existence of a
scandal, scheme or swindle involving the Government and the
existence of clandestine memoranda in connection therewith
will, according to the Second Circuit, divest a federal district
court of jurisdiction with regard to any qui tam action prose-
cuted by a private citizen who does, in fact, possess one of the
clandestine memoranda. Such a simplistic interpretation and
application of Section 232 (C) by the Second Circuit totally
disregards the specificity, materiality and significance of the
information possessed by the private citizen. Such an interpre-
i aD tek eh
am
33
tation and application of the jurisdictional provisions of The
False Claims Act is also directly contrary to the purpose of the
Act and literally serves to bar any private United States citizen
from instituting a qui tam action no matter how great the fraud,
if a suspicious newspaper reporter prints his theories and ideas
regarding the fraud several days before the private citizen files
suit, and the newspaper article has been placed in the files of a
Governmental agency.
The reference in the Times article to the Kurrus memorandum
apparently led the District Court to conclude that the Justice
Department would inevitably have secured the document al-
though it was not in the Department’s possession at the time
the Relator filed suit. (A.12)'* The Second Circuit apparently
felt that the additional information in the Kurrus memorandum
regarding the complicity of MarAd officials was adequately
covered in the Times article supra. Yet it is difficult to perceive
how the Justice Department’s possession of a newspaper clip-
ping with an extremely vague synopsis of the document in
question can be equated in significance with the actual physical
possession of the document containing the specific information.
Unfortunately, the Second Circuit has chosen to interpret
and apply Section 232 (C) of the False Claims Act in this
manner and accordingly has chosen to restrict and severely
limit the ability of private citizens to bring forward mate-
“The New York Times, on occasion has opposed subpoena for docu-
ments in its possession. See Branzburg v. Hayes, 408 U.S. 665 (1972).
Attorney Kurrus would have been obliged to raise the attorney-client
privilege inasmuch as the Burmah respondents themselves in this action
attempted to preserve that claim.
34
rial documents evidencing the perpetration of mejer frauds
against the United States Government. Once a newspaper re-
porter enunciates his ideas and theories in his column as to
alleged improprieties and clandestine memoranda, and the
story is placed in the files of a governmental agency, a qui tam
action by a private citizen possessing one of the clandestine
memoranda is effectively barred.
Congress realized that granting private citizens the right to
sue to recover Government monies paid out as a result of
fraudulent claims would be an important check on bureaucratic
abuses — in certain carefully restricted circumstances — and
a valuable adjunct to governmental prosecutorial activity. Com-
pare J. J. Case Co. v. Borak, 377 U.S .426, 434, 84 S.Ct. 1555,
12 L.ed.2d 423 (1964) ; Grace v. Ludwig, 484 F.2d 1262; 1267
(2d Cir. 1973), cert. den. 416 U.S. 905 (1974).
The False Claims Act is remedial in nature and has been
interpreted by the Supreme Court broadly; United States v.
Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed. 2d 514 (1976) ;
United States v. Neifert-White Co., 390 U.S. 228, 88 S.Ct. 959,
19 L.Ed. 2d 1061 (1968; United States ex rel. Marcus v. Hess,
317 U.S. 536, 63 S.Ct. 379, 87 L.Ed. 443 (1943); and re-
medial statutes must be construed to effectuate the purpose in-
tended. S.E.C. v. Capital Gains Research Bureau, Inc., 375 U.S.
80, 195, 84 S.Ct. 275, 11 L.Ed.2d 337 (1963); J. 1. Case v.
Borak, supra, at 433. Cf. Abrahamson v. Fleschner, ....
re [Current] CCH Fed. Sec. L. Rep. {[95,889 at
pages 91273-91274 (2d Cir. 1977). A writ of certiorari should
therefore be issued to correct the Second Circuit’s erroneous
interpretation and application of the False Claims Act and to
an 1 a ane
ee ee ee ee en ee ee
Dieta tielicnecsenniss a etecriasinninenneninted aru
35
breathe vitality back into its provisions as Congress had
intended.
B. The Second Circuit has erroneously expanded the juris-
dictional barrier posed by Section 232 (C) of The False Claims
Act beyond the limits intended by Congress.
As is evident from a review of the Act’s legislative history,
Congress in amending the False Claims Act in 1943, did not
intend to deny access to the Courts, except where it was clear
that a relator was merely copying public information. A denial
of access here is in effect a denial of a remedy, which should
not be countenanced.
There is nothing novel about frauds on the United States
Government. The Courts and commentators recognize that the
original impetus for the Act was the widespread fraud in mak-
ing claims in connection with the supply of goods and services
to the federal government during the Civil War. The purpose
of the Act was to encourage the apprehension of profiteers by
providing reasonable financial incentives to private parties to
expose and prosecute frauds against the Government. United
States v. Bornstein, supra at 309-310, n.5; U.S. ex rel. Marcus
v. Hess, supra at 544; Rainwater v. United States, 356 U.S. 590,
592 (1958); U.S. v. McNinch, 356 U.S. 595 at 599 (1958);
See Note, Qui Tam Suits Under the Federal False Claims Act:
Tool of the Private Litigant in Public Actions, 67 NORTH-
WESTERN U.L. REV. 446 (1972).
“The Supreme Court has said that the congressional purpose
behind the False Claims Act was to ‘protect the funds and prop-
erty of the Government from fraudulent claims, regardless of
the particular form, or function, of the government instru-
mentality upon which such claims were made.’ Rainwater v.
36
United States, supra, 356 U.S. at 592, 78 S.Ct. at 948. In
short. the purpose was to stop the ‘plundering of the public
treasury.’ United States v. McNinch, supra, 356 U.S. at 599,
78 S.Ct. at 950. While it is clear that the False Claims Act was
not designed to reach every kind of fraud practiced on the
United States, United States v. McNinch, supra, at 599, 78 S.Ct.
950; ... it is equally clear that its purpose was to reach ‘all
fraudulent attempts to cause the Government to pay out sums
of money.’ United States v. Neifert-White Company, supra, 390
U.S. at 233, 88 S.Ct. at 962.” [United States v. Silver, 384 F.
Supp. 617, 619 (E.D. N.Y. 1974), aff'd 515 F.2d 505 (2d Cir.
1976).]
The pattern of widespread corruption which led to the pass-
age of the Act in 1863 mushroomed during World War II, lead-
ing to a significant amount of litigation under the Act. See, 67
NORTHWESTERN U.L. REV., supra, at 455. Among these was
a new breed of suit which became known as the “parasitic”
False Claims Act suit. These were cases where, following a
criminal indictment for defrauding the federal government,
private litigants merely copied, frequently in haec verba, the
indictment and findings of the grand jury into their own civil
complaints. The Justice Department found itself forced to pre-
pare its own civil complaints prior to obtaining any indictment
in order to win the race to the courthouse. 89 Cong. Rec. 7571,
7572 (1943).
One of these cases led to the 1943 amendments to the Act.
That case, Marcus v. Hess, supra, involved the rigging of bids
by electrical contractors on Pittsburgh Public Works Adminis-
tration projects. The Third Circuit denied recovery to the pri-
vate litigant on the ground that Congress, when it enacted the
en Pee
oes Satie Mba tte:
Si
So _——— »
—— ee Te
37
statute, did not intend to reward those who merely copied gov-
ernment indictments. 127 F.2d 233 (1942).
This Honorable Court reversed, and found that the Act did
not specifically require that the private litigant contribute any
new information. The purpose of the Act was to encourage pri-
vate suits to recover money from those who would “cheat the
United States”, and this purpose was not inconsistent with piggy-
backing on government indictments. The decision concluded that
only Congress, and not the Supreme Court, could change the
law so as to prohibit so-called “parasitic” civil actions. 317 U.S.
at 544-46.
Mr. Justice Jackson dissented and argued that Congress did
not intend to reward private litigants unless they based their
suit on information not in the possession of the Government. His
argument was predicated upon an analysis in an amicus brief
which had been submitted by the Department of Justice.
After that decision, then Attorney General Biddle sent a
memorandum to Congress to revise or entirely eliminate the
qui tam provisions of the False Claims Act. See S. Rep. No. 291,
78th Cong., 1st Sess. (1943). Biddle said that the competitive
scramble with private litigants was impairing the ability of the
Justice Department effectively to prosecute fraud against the
Government. He said the Government no longer needed private
attorney generals as it had in 1863, when the statute was enacted.
By the end of 1943, approximately 250 suits seeking damages
totalling $144 million had been filed by private litigants. See 89
Cong. Rec. 7581, 7572, and 10,845-46 (1943).
Congress responded by enacting the amendments of 1943.
In March of that year the House of Representatives passed H.R.
1203, entitled “A Bill to Eliminate Private Suits for Penalties
38
and Damages Arising Out of Frauds against the United States,”
which would have entirely proscribed qui tam actions. This bill
was rejected by the Senate. The bill which ultimately was
passed into law merely limited qui tam actions, at the same
time severely reducing the share of any recovery to which the
private litigant would be entitled. See 89 Cong. Rec., supra, at
7571-80 and 7596-97 passim. The 1943 Act, therefore, re-
affirmed a continuing Congressional belief in the efficacy and
usefulness of qui tam actions, while controlling certain abuses
which had grown along the fringes of the original legislation.
When in March of 1943, the House of Representatives had
passed H.R. 1203, the House’s action was substantially without
debate. 39 Cong. Rec. 7577 to 7578 (1943).
Thereafter the Senate Committee on the Judiciary, Chaired
by Senator Van Nuys, introduced into the Senate a modified
version designed to eliminate the qui tam suit only under certain
conditions. See Sen. Rep. No. 291, 78th Cong. Ist Sess. (1943).
Even these conditions were subsequently liberalized after debate
and conference committee action by the Senate and House.
THE SENATE DEBATES ON H.R. 1203
Senator Van Nuys of Indiana, Chairman of the Committee of
the Judiciary, offered an amendment to Section 3491 of the
Revised Statutes (31 U.S.C. §232) which would have ousted the
Court of jurisdiction if the relator’s suit was not
“based upon information, evidence, and sources original with
such person and not in the possession of or obtained by the
United States in the course of any investigation or proceed-
ing instituted or conducted by it.” [emphasis added]
—
SRR Re SR, RT es Ot ee en eet Ve Coline Oe.
ae
* i a ee eee
39
He offered in detail] Attorney General Biddle’s views. 89 Cong.
Rec. pp. 7570-7572.
Thus at pages 7571 and 7572, Chairman Van Nuys was con-
cerned about copying from public government proceedings:
In other words, the informer would have no personal knowl-
edge of the facts at all, but would hurry to the courthouse as
soon as a grand-jury indictment was returned in open court
and copy verbatim the language of the indictment, changing
the caption and the prayer from a criminal action to a civil
action. [page 7571]
It was clearly his intent however to “protect bona fide, honest
informers.” 89 Cong Rec., also at pages 7608-7609."
There was substantial debate over the requirement that the
information had to be “original” with the relator. /bid. at
7573-7576, 7596-7597; and 7609-7614.
At page 7615 Senator Wheeler of Montana moved to strike
out the language “original with such person” and stated that:
If that is done, it seems to me it could eliminate one of the
most objectionable features which has been complained of be-
cause then a citizen would not be confined to evidence which
was original to him. Certainly: in Court, no person should be
confined to the proposition that all the evidence must origi-
nate with him and that if he obtains evidence from some
other source he cannot use it. If that were true in any trial a
great many suits could not be maintained. Certainly a man
“Mr. VAN NUYS. Mr. President, taking up the bill at this time,
and discussing it by sections, let me say that ail Sou 1, down to line 3
on 2 ending with the word “suit” is written exactly in the words of
the old law of 1863. From there on we tried to protect bona fide honest
informers.” [emphasis added }
40
should be able to use any evidence he can procure, which is
not in the possession of the United States, or does not origi-
nate from a grand jury investigation or an investigation by
a committee of Congress, or something of that kind.”
Chairman Van Nuys agreed to adopt the foregoing amend-
ment when it went to conference. /bid. 7615-7616." The Con-
ference Report is found at page 10844 of Volume 89 of =e
Congressional Record and the debate in conection therewith is
referred to in United States ex rel. Vance v. Westinghouse
Electric Cor p., at pages 1041-1042, and particularly n.4 at page
1042.
From the foregoing, the intent of the Senate which, in con-
trast to the House, actively debated the bill, can be synthesized
as follows: The Court should have jurisdiction even if the
relator was not the original source of information, provided
that a relator had not copied that information from some public
proceeding. U.S. ex rel. Ronald Davis, Plaintiff v. Long’s Drugs
Inc., 411 F.Supp. 1144 (S.D. Cal. 1976).
Indeed, the District Court in U.S. Ex Rel Donald Davis,
Plaintiff expressly rejected the argument that Section 232(C)
was designed to reach more than just those cases where ~
plaintiff “pirated his information from government sources :
“Defendants emphasize here the case of United States v.
Aster, 176 F Supp. 208 (E. D. Pa. 1959) aff'd. 275 F.2d 281
, — , Siemens
“Relator Greenberg while bringing to the attention of the
anaeuiain not otal with her, that is, it ey ae a
the files of Burmah and its representatives, did not copy om any ere -
jury investigation or from any a of a Congressional
mittee. For, at the time she filed, there not been any.
2!The amendment was adopted and the language deleted.
41
(3d Cir. 1959), . . . in arguing that section 232(C) was designed
to reach more than just those cases where plaintiff pirated his
information from government sources. This court has serious
reservations though as to the validity of the Aster decision in
light of the above legislative history which indicates that Con-
gress intented to eliminate only parasitical suits and the recent
opinion of the Supreme Court in United States v. Neifert-W hite,
390 U.S. 228, 88 S.Ct. 959, 19 L.Ed2d 1061 (1968). It would
not appear consistent with the Congressional purpose to bar
false claim actions brought on behalf of the government when
the relator possesses original information which he has volun-
tarily turned over to the United States prior to commencing suit
and the government declines to act to protect the public treasury.
[Emphasis Added]
In contrast with the policy of section 232(C) to limit suits
not based on original information, the policy underlying the
principal section of the False Claims Act, section 231, is to
protect the United States Treasury from all maner of fraudu-
lent claims. The Supreme Court has recently held that the False
Claims Act is to be liberally construed to further the policy of
compensating the United States for fraudulent claims. The
Supreme Court in United States v. Neifert-White, 390 U.S. 228,
88 S.Ct. 959, 19 L.Ed.2d 1061 (1968) examined the legislative
history of the Act and stated:
Debates at the time suggest that the Act was intended
to reach all types of fraud, without qualification, that
might result in financial loss to the Government. In its
present form the Act is broadly phrased to reach any
person who makes or causes to be made ‘any claim
upon or against’ the United States . . . Jn the various
42
contexts in which questions of the proper construction
of the Act have been presented, the Court has con-
sistenily refused to accept a rigid, restrictive reading,
even at the time when the statute imposed criminal
sanctions as well as civil. See, e.g., United States
ex rel. Marcus V. Hess, 317 U.S. 537, 63 S.Ct. 379,
87 L.Ed. 443 (1943).’ (emphasis added). 390 U.S.
at 232, 88 S.Ct. at 962.”
[U.S. ex rel. Ronald Davis, Plaintiff, supra, at 1152.]
THE RELATORS ACTION WAS NOT A PARASITIC ACTION
From the foregoing legislative history, it is clear that the
1943 edition of subsection C to Section 232 of the False Claims
Act was designed to prevent the filing of “parasitic” actions,
actions by parties who have no information of their own to con-
tribute, and who merely plagiarize information in indictments
returned in the courts, newspaper stories, or Congressional in-
vestigations. See United States ex rel Sherr v. Anaconda Wire &
Cable Co., 57 F.Supp. 196, 107-08 (S.D.N.Y. 1944) aff'd 149
F.2d 680 (2nd Cir.) cert. den. 326 U.S. 762 (1945). In the
present action, specific and detailed information provided by the
Relator by virtue of the Kurrus Memorandum can hardly be
characterized as a plagiarization of the New York Times article
of August 19, 1976. The Relator’s action is, therefore, not a
“parasitic” action which Section 232(C) was intended to pre-
vent and should not have been dismissed. The Second Circuit’s
expansion of the jurisdictional barrier posed by Section 232(C)
beyond the limits intended by Congress creates a dangerous
precedent which will frustrate and discourage the filing of qui
tam actions by bona fide informers who can provide the Govern-
ment with documents which at the time of suit, are not in its pos-
session. Such an unwarranted restriction of access to the federal
‘ee he td, cite teen saad malate a
43
courts totally ignores this Honorable Court’s directive to avoid a
“rigid, restrictive reading” when confronted with a question
regarding the proper construction of the False Claims Act,
United States v. Neifert White, supra, 390 U.S. at 232, 88 S.Ct.
at 962.
iil.
THE DAMAGES TO THE UNITED STATES AND ITS
TAXPAYERS ARE ALREADY SUBSTANTIAL. THE DOCU.
MENTARY EVIDENCE ESTABLISHES THAT RESPON.
DENTS KULUKUNDIS, CHEN AND BURMAH, AIDED AND
ABETTED BY THE OTHER RESPONDENTS, ENGAGED
IN A SUBTERFUGE TO DEFRAUD THE GOVERMENT AND
TO CAUSE FALSE APPLICATIONS FOR FINANCING TO
BE FILED WITH MARAD.
The essence of the alleged fraud is that deliberately false
applications were submitted to MarAd, claiming that the appli-
cants were United States citizens, when in fact they were not,
inasmuch as they were controlled by Burmah (A.128-136).
The Government has already paid out $79 million in con-
nection with ship construction financing for the Cryogenic
Companies established by Burmah (A.34). See Paragraph
18 of the Nemirow Affidavit (A.106). The construction cost
for the three vessels which are nearing completion is $280
million. Approximately $150 million of the foregoing is guar-
anteed under Title XI Financing. The United States has guar-
anteed the prompt payment in full of interest and unpaid prin-
cipal in the event of default in payment of funds borrowed to
44
finance the construction. [Nemirow Affidavit 176 and 18]
(A.102: 106)
If Burmah failed to meet the interest payments and other
carrying charges of the loans as well as the principal thereof
when they become due, the United States Government will in all
likelihood have to make those payments. This is by no means a
remote possibility, as Burmah today is not financially a healthy
company. Its financial plight was referred to in a footnote on
the first page of Exhibit 14 of the Government’s moving papers:
“Burmah Oil has been much in the news lately. The
British Government was required to step in and guar-
antee a large part of Burham’s dollar obligations in
light of Burmah’s large losses during the past year in
its tanker operations. See, N.Y. Times (city ed), Jan.
3, 1975, p. 37, c.1; the Wall Street Journal (Eastern
ed.), Jan. 3, 1975, p. 6, c.1.”
Since that time Burmah has incurred increasing losses, re-
porting for the six months ended June 30, 1976 a loss after
taxes of approximately thirteen and one-half million pounds
or approximately $24 million.
If, in fact, Burmah controlled directly or indirectly by con-
tract, understanding, arrangement or any other means the appli-
cants for C.D.S. Financing or for Title XI Financing, i.e., the
Cryogenic Companies in connection with the Easco Transaction
or the Cherokee Companies in connection with the Pertamina
Transaction, it must follow that false claims have been sub-
mitted to the Government.
The significance of this was not lost on Mr. Blackwell of
Mar in his private correspondence of May 1, 1975 with one
of the parties in connection with the applications of the Chero-
kee Companies when he wrote:
Oe ee ee ee ee
(Pill tag en ee tie a hcl
45
I have read with concern the recent exchange of cor-
respondence between the Energy/Cherokee interests
and Burmah Oil Incorporated. Many of the facts set
forth in these letters do not comport with the under-
standing of the project held by the Maritime Admin-
istration nor in our view with the representations
made to us when we considered and issued the com-
mitment to guarantee obligations incurred in the fi-
nancing of the five LNG vessels being constructed at
General Dynamics. If the letters of April 18 and April
28 from Burmah are accurate reflections of the status
of the parties, substantial doubt is created concerning
compliance with the citizenship requirements of sec-
tion 2 of the Shipping Act, 1916, as amended.
Since Title XI guarantees are available only to per-
sons qualified as United States citizens pursuant to sec-
tion 2 who are in no way subject to control by non-
citizen interests, will be necessary to immediately
define with some degree of specificity the roles of the
participants in this transaction.
Blackwell did not really want all the facts to come to light
as is indicated by his exchange with Burmah’s attorney on May
8th, reflected on page 3 of the Kurrus Memorandum.
“I (Kurrus) explained that the real problem vis-a-vis
Energy people arose because of the special legal
problems concerning the Title XI financing and that
everyone recognized that the structure that MarAd had
approved in this deal (and in other similar deals
such as Maritime Fruit Carriers, Ultramar, Shell, A.J.
Chandris etc.) was based on fiction. He (Blackwell)
said that he recognized the weakness in the theory as
to how these deals were established and that this is
what worried him about a full fledged legal contro-
versy between Burmah and Energy.
I explained that we obviously were not interested in
provoking such a legal battle if it could reasonably be
avoided, but the way that this deal is presently struc-
wh
tured is an unviable and impossible situation for Bur-
mah. If we cave in to the Energy people, we would in
a real way be submitting to blackmail. Furthermore,
there is a valid argument I believe that the Energy
people would be permitted to profit unduly and uncon-
scionably through a United States Government contract.
Mr. Blackwell admitted that there appears to be sev-
eral things basically wrong with(the-eyerall structure
of this deal that should be rectifiad if possible.” [Em-
phasis added—parenthetical material ours.]. (A.59).
Any doubt as to control by Burmah of the Cryogenic and
Cherokee Companies as well as over the entire transactions is
dispelled by the document entitled
“A Proposal tc Japan Line, Ltd. for the Formation of a Trans-
portation Joint Venture of Liquified Natural Gas”, authored
by the defendant Burmah Oil Tankers Limited, a Bermuda
corporation and wholly owned subsidiary of Burmah with offices
at 1185 Avenue of the Americas, New York, New York 10036
and dated May 29, 1975. (A.141).”
That document discusses the Pertamina and Easco trans-
actions as follows:
“In addition to the five LNG carriers which are the
principal subject of this suggested joint venture Bur-
mah also has under construction three other LNG car-
riers also at General Dynamics, making a total of
eight ships in all. At present the first second and fourth
ships to be delivered are designated as the “Easco”
ships and the remaining five ships considered in this
proposal are designated as the “Cherokee” ships. In
the case of the Easco ships, financing has been com-
2This document was not submitted by relator with the Complaint and
Schedule A (A. 138).
ee le a PL ee Pad
2 et anh Oa eet otis
47
pletely arranged and the first of the Easco vessels is
scheduled for delivery in November, 1976. Because
the financing has been arranged with Title XI and
Construction Differential Subsidy (“CDS”) has been
approved for the Easco ships, they will be operated
under U.S. flag conditions.”
~ * *
The proposal discusses the anticipated profitability of the
transactions and the background. Burmah’s control is substan-
tiated in those sections of the proposal relating to Background,
as follows:
“III BACKGROUND
All eight vessels are being constructed by the General Dynam-
ics Shipbuilding Division at Quincy, Massachusetts. These
vessels are now estimated for delivery from November 1976 to
April 1979 at three to six month intervals.
The three Easco vessels were originally dedicated to the
transportation of LNG from Algeria to the East Coast of the
United States for a joint venture of two utilities (“Eascogas”).
However, in July 1974 the Algerians rescinded the LNG sales
contract underlying the transportation agreement. As a result
of this action and the subsequent delay in formation of a new
sales contract, Burmah has notified Eascogas that these ships
could no longer be exclusively reserved for the Eascogas project.
Instead, it is contemplated that these ships will be considered
to fulfill the requirements of the transportation agreement
which Burmah signed with Pertamina for the transportation of
Indonesian gas to Japan. However, this is not definite and the
possibility of a new transportation agreement with Easco is
also being considered.
48
In addition to these vessels, Burmah Tankers has also caused
an additional five identical ships to be contracted at General
Dynamics to service the Pertamina Transportation Agreement,
the basic terms and conditions of which are summarized in
Section V of this proposal. This agreement provided a major
advantage in that the Indonesian liquefaction plant is sched-
uled for completion in early 1977. In most LNG transportation
projects, it is not unusual for the first vessel to be delivered and
proceed directly into layup to await the completion of the
liquefaction plant.
“The Easco ships are being constructed with Construction
Differential Subsidies of $21,252,000 per ship and Title XI
guaranteed financing provided by the U. S. Government. The
remaining five have a preliminary commitment for U. S. Govern-
ment Title XI construction financing and Construction Differen-
tial Subsidy is not contemplated. The U. S. Government pro-
vides these shipbuilding incentives with the requirement that the
vessels be operated under U. S. registry with at least 51%
U. S. ownership. As noted previously, registration under non-
U. S. flag of the Easco ships would possibly require repayment
of the construction subsidies. Even with repayment of subsidy
the construction costs are less than $95,000,000 and could not
be duplicated anywhere else in the world.
“As noted the construction and long-term financing for the
Easco vessels has been arranged. The ownership of these
three vessels rests in a financial group led by the First National
City Bank and includes The First National Bank of Chicago
and General American Transportation Corporation (GATX),
a major transportation leasing company. In the case of the
second series of five ships, neither the construction or long-
3
§
¢
i
49
term financing arrangements are yet complete and: at the present
time, Burmah Oil is providing the funds for the construction
of these five ships. Steps wili soon be taken to arrange both the
construction and long-term financing. Therefore, if non-U.S.
flag operation is to be considered, a decision must be made
before U.S. financing is finalized.
“While the details of ownership and operation are complex,
all eight ships are, in one form or another, guaranteed by
Burmah. Since Burmah is to be the long-term charterer of the
ships, and it has guarantee construction financing and the time
charter payments, that supports the long-term financing. Clarifica-
tion of the various interrelationships can be provided. At this
time, it is sufficient to state that the purpose of the different
corporations is to provide got [sic] U.S. construction benefiting
for Title XI financing.” [Emphasis Added]
50
CONCLUSION
Both the interpretation and the application of the jurisdic-
tional provisions of the False Claims Act by the ceurts below
create a precedent which severely limits the ability of private
citizens who possess material documents evidencing the perpetra-
tion of a major fraud against the U.S. Government from bring-
ing to light and prosecuting on behalf of the Government those
individuals who are responsible.
The Relator has shown that the Government has paid out over
$60 million in subsidies which are illegally benefiting a foreign
corporation. These subsidies amount to an illegal credit approxi-
mately three times that granted to the Lockheed Corporation,
and unless the decisions of the courts below are reversed, the
dismissal of the Relator’s action stands as precedent for U.S.
financing of foreign-owned tankers in direct violation of the
Merchant Marine Act of 1936.
For the reasons stated, Petitioner prays that her Petition for a
Writ of Certiorari to the United States Court of Appeals for the
Sscond Circuit be granted.
Respectfully submitted,
Lipper, Lowey & DANNENBERG
and Burton L. KNAPP
747 Third Avenue
New York, New York 10017
(212) 759-1504
—"" wen
NewMAN, SHOOK & Newman, P.C.
4330 Republic National Bank Bldg.
Dallas, Texas 75201
(214) 747-9091
Attorneys for Relator-Petitioner
Dorothy S. Greenberg
51
Of Counsel:
RicHARD B. DANNENBERG
FRANK NEWMAN
Burton L. Knapp
AARON LIPPER
STEPHEN LOWEY
PROOF OF SERVICE
Proof of service of three copies of Petitioner’s Petition for
a Writ of Certiorari to the United States Court of Appeals for
the Second Circuit upon each of the parties separately repre-
sented by counsel was filed by FRANK G. NEWMAN, a member
of the Bar of the United States Supreme Court, with the Clerk
of the United States Supreme Court on the same date the
petitions were filed.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.