Petition for a Writ of Certiorari — United States v. Neifert-White Co.

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Reasons for granting the writ._.____..--_-_..__- 5

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Appendix: pi

’ 1. Opinion of the Court of Appeals. iia ae

. 2. Judgment of the Court of -Appeals__-____- , 25

‘3. Opinion and Order of the District Court _- 26

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Cases:

Rainwater v. U: nited ‘States, 244 F. 2d 27, ty:

_affirmed, 356 U.S. en -- 3,5,6,9

Sell v: United States, 336 F. 2d 467.________ 6

' Toepleman v. United States, 263 F. 2d 697, |

certiorari denied, 359 U.S. 989___.______ ere

United States v. Brown, 274 F. 2d 107______- 9

’ United States v. Cato and Toepleman, decided

sub nom. United States v.-McNinch, 356

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United States v. Cherokee ern 0., 216

a eta ee eed | 6

United States v.-Cohn, 270 US. 339__-_ 4,6,7 .

United States v. McNinch, 356 U.S. 595_____- 8

United States v. Silliman, 167 F. 2d 607, certi-

orari denied,.335 U.S. 825__._._g.--__-_- 10

United States v. Veneziale, 268 F. 2d) 504_ 8

' United.States ex rel. Marcus v. Hess 317 US. |

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266-695—67——_1

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Ve TERM, 1967

UNITED STATES OF AMERICA, ‘PETITIONER

- NerFert-Wutte Company :

- PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

a f 2d 372. -

i ed ee en ee ee

' STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

: , ove : ; ; : \\ \ .

‘The Solicitor General, on behalf of. the United

States prays that a writ of certiorari issue to. review

the judgment of the United States Court of Appeals _

for the;Ninth Circuit entered i in this case on J. anuary

20, 1967.

OPINIONS BELOW .

The opinion of the United States District Court for

the District of Montana (App., infra, pp. 26-34)! is re-.

‘ported at 247 ‘F’. Supp. 878. The opinion of the court _

of appeals Ae iam .. infra, p PP. Te) is — at 372 —

JURISDICTION

‘The judgment of the court of appeals (App., infra,

p. 25) was entered on January 20, 1967. By order of

Mr. Justice Douglas, the time. for filing a petition for

a writ of certiorari was extended to and including

(1)

June 19, 1997. The jurisdiction of this Gen ete °

voked under 28 U.S.C. 1254(1). : |

QUESTION PRESENTED

"Whether the False Claims Act, 31. U.S. C. 231, ex-

tends to a false and fraudulent application: for a fed-

eral loan which results in the disbursement of federal

funds to which the applicant isnot entitled. |

STATUTE INVOLVED

, The False Claims Act, 31 U. S.C. - provides in

pertinent part:

Any person not in the atthe: or naval °

forces of the United States * * * who. shall

make or cause to be made, or. present or cause.

to be presented, for payment or approval, to.or

by any: person- or officer in the civil, military,

" or naval service of the United States, any claim:

‘upon or against the Government of the United "

‘ - States, or any department or officer thereof,

knowing such claim to be false, fictitious, or

fraudulent, or who, for the purpose of. obtain-

ing or aiding to obtain the payment or ap-

proval of such claim, makes, uses, or causes'to be ©

- made or used, any false bill, receipt, voucher,

roll, account, claim, certificate, affidavit, or de-

position, knowing -the same to. contain any

fraudulent or fictitious statement or entry * *\*

_ shall forfeit and pay to the United States thé

sum of $2,000, and, in additien, double the

amount of damages which the United States

- may have sustained by reason of the doing or -

committing such act, together with the costs

of suit; and such forfeiture and damages shall

be sued fori in the same suit.

This -action was instituted’ by the United States

against the respondent Neifert-White Company to re-

cover statutory forfeitures under the “False Claims 3

- Act, 31 U.S.C. 231. The facts are as follows.”

In order “to encourage the storage of grain on farms,’

where’ it can be stored. at the lowest cost * * *” , the

Commodity Credit. Corporation (CCC) was feats

ized by the Commodity Credit Corporation Charter

. Act of 1948 to “make loans to grain growers needing

storage facilities when such growers shall apply to-’

the Corporation for financing the construction or pur->-

} chase of ‘suitable storage * * *. 15, U.S.C. 714b(h).?

Acting under its general authority to adopt “regula-

lations governing the manner in which * * * the

~ powers vested in-it-may-be exercised” (15° U.S.C. 714:

b(d)), the CCC has provided for the granting of

farm storage facility loans in amounts not exceeding

80 per cent of the actual purchase price of the stor-

- age bins. 23 FR. 9687: To facilitate the enforcement

of this limitation, ‘the “regulations require that the

grain grower’s loan application bé accompanied by an

invoice .reflecting the actual cost of the storage bins

and the amount of the down Tr made by him Fie

. (bid.).

* 1 Since the complaint was dismissed for the failure to state a

claim upon which relief could. be granted, for presént purposes

the facts are undisputed. —

2 The Commodity. Credit Corporation is “an agency and in-

strumentality of the United States, within the Department of

Agriculture * * *” (15 U.S.€. 714) and within the meaning

of the False ‘Claims Act, see ainwater v. United States, 356

"ao 590, 591-592. :

2

hy —s

4

Respondent Neifert-White 8 a dealin in grain stor-

age: bins. In connection with sales of bins in 1959 to

bins was: deliberately overstated (R. 2-15).° These

twelve grain farmers, an officer of respondent pre-

pared invoices in ‘which the pur chase price: of the

false i invoices were prepared for the purpose of fraud-

ulently inducing the CCC to extend loans to respond-

ent’s customers in amounts in’ excess of the 80 per

cent limitation (R. 2-15). They were submitted: to the

CCC together with the loan applicatioris and the

7 agency relied upon them in determining the amount

. of the loans to be extended: (R. 2-15).

Nery”,

- This suit under the False Claims Act, 31 U.S.C.

: 231, supra, p. 2, was thereaftér instituted by the

__United_States-to -recover~from the respondent the

forfeitures authorized by that statute with respect to

those who, “‘for the purpose of * * * aiding to ob-

tain the payment or approval”’ of a ‘‘false, fictitious,

or fraudulent’ claim against the United States, know-

ingly cause “to be made-or used, any false bill, re-

.° eeipt, voucher * * wi On _respondent’s motion; the

--action was * dismissed. by the district court on the

ground that ‘an application flor a CCC loan is not a

“elaim’’ within the meaning of the Act (App., infra,

" pp. 29-33). The court of appeals affirmed. Relying prin-

cipally up upon language in United States v..Cohn, 270 ©

U.S. 339, 345-346, it concluded that the loan applica-

tions did not constitute ‘‘claims’’ because they “were

not based upon assertions of legal right against the

Government” (App., infra, p. 24).

s¢R, —” refers to the typewritten record in the court of ap--

cf : ae which has been. —.* with the Clerk.

§

‘REASONS FOR GRANTING THE WRIT

Reading the False Claims Act as cibeheiie aly

claims “based upon assertions of legal right” against

the government (App., infra, p. 24), the court below

withdrew the protection of that Act from the CCC's

extensive loan programs—protection that had beer

accorded them since: at least this Court’s decisions in

Rainwater v. United States, 356 U.S. 590, and United

States v. Cato and* Toepleman, decided sub nom.

United States v. M cNinch, 356 U.S. 595. The decision

of the court below conflicts with those of other courts.

of appeals; if permitted to,stand it will have: a sub-

stantial adverse impact upon the administration of.

~ numerous federal loan‘and subsidy programs involving’

_ the annual disbursement of billions of dollars from

..the public Treasury. |

1. As the court below implicitly ecinintiedged, its |

requirement that the “claim” involve an “assertion

of legal right’? has. not been imposed by any - -other |

——eourt as a basis for defeating False Claims Act liabil-

ity in circumstances akin to those here presented. To

the contrary, the Act has been consistently held ap-

plicable to false and fraudulent endeavors to obtain

the disbursement of federal funds or the transfer of

public property without regard :to whether a legally

enforceable — to the funds or property had been |

asserted.

~. Thus, in United: States v. Ratiwitise, 244 F.2¢d27 .

(C.A. 8), affirmed, 356 U.S. 590, imposition of statu- .

- tory penalties under the Act was upheld as to those

who had made false representations to the CCO for

the purpose of obtaining loans on cotton crops. See .

.

cia lia Do a Se LACTIS BE canard . eae rr: Pin i ial

also, United States v. Cato and Toepleman, supra,

' both of which involved similar C€C loan applications:

Although thé single question in this Court was wheth- i

er a claim filed with the CCC was a claim .“‘against

the Government of the United States’’ within the ot ine |

meaning of the Act, the resolution of that i issue, as well :

. as the ultimate imposition of liability, presupposed that

the loan applications were “claims’”’ under the Act.

Similarly, Sell v. United States, 336 F. 2d 467

_(0.A. 10),. held the Act applicable. to-a fraudulent.

application for assistance (in the form of surplus —

_ grains). under an emergency grain-feed program ad-' .

ministered by the CCC. The coett expressly concluded

~~

'. .that the application ‘was a ‘claim’ as contemplated

by the Act.” 336 F. 2d at 474. See algo, Toepleman , ae

United States; 263 F. 2d 697.(C.A. 4), certiorari

denied, 359 U.S. 989; United States v. Cherokee’ Im-

'*, plement:Co., 216 F. ‘Gane: ‘874 (N.D. Iowa) (applica-

equipment).

' tion for CCO. loan to finance’ asa of farm

Although’ conceding that, in abesttor, Toepleman

_ and Sell,,“the government was permitted to recover - B

OE, PE GOR SN oP Ly IT TTT Silt

[even though] it is doubtful: that the disbursement of

federal funds was made pursuant to an assertion of |

_. right,” the court below nevertheless found those deci- ° | |

' sions to be unpersuasive bécause in none was the “as- . |

sertion of right’? test specifically rejected (App., infra, |

pp. 20-21). At the same time, however, the court was

unable. to point to any holdings of other courts ‘spe-

cifieally adopting that test. : ¢

2. As previously noted, the court of appeals based

_ its interpretation almost exclusively upon this Court’s ©

fe

4 &

- eee 7

statement in United Siates. v: Cohn, 270-U.S. 339,

345-346, that “[t]he provision relating to the pay-

ment or approval of ‘a claim-upon or against’ the Gov-

: ernment relates solely to the payment or approval of-

-~7 a-claim for ee to which a right is ef

; asserted against the Government, based upon the Gov--

ernment’s own liability to the claimant.” Taken in its

- Context, that statement does not require the conclu-

Sion that a false application seeking the disbursenient

.of public monies is not subject to the False Claims Act

unless founded on an assertion of an enforceable right.

Rather, it was addressed to entirely discrete circum~

stances. } aN eae :

In Cohn, bythe use of false documents, the defend--

ant had. improperly obtained the release of merchan- *

dise being held by the customs authorities. No customs

duties were owed on .the importation of the mer-

chandise, however, and the United States had no

_¢laim of ownership. It. was to these factors that the

Court’s statement was addressed, for, as -the Court

pointed out (270 U.S. at 346), “obviously” the statu-

tory provision relating to “claims” does not include

7 * * an application for the entry and delivery

| (of non-dutiable merchandise, as to which no — x

claim is asserted against thé Govérnment, to ,

which the Government makes no claim, and b,

which is merely in the temporary possession,

_ of an agent of the Government for delivery to ’

the person who may be entitled to its possession. d

This is not the ais Wat of a “claim upon or

against” the Government, within the meaning

of the statute; and the delivery of the posses-

266-695—67——_2 a .

*&

8 |

sion is ‘el the “approval” of sii a claim.‘

‘The court ‘of ‘appeals also noted (App, infra, —

-p. 17) that- the Cohn dictum had been quoted as hayv-

ing “relevancy” in this Court’s opinion in United ©

States v. McNinch, 356 U.S. 595, 600, n. 10. The

_ “single issue in that case, however, was whether an

“application for credit insurance not calling for the

- immediate disbitysement of federal funds: was a

“claim.” In holding that it was not, ws Court. stressed

(356.U.S. at 598-999) : | 3

In agreeing to insure a home improvement vi

loan the FHA disburses no funds nor does it -

otherwise suffer #mmediate financial detriment.

It simply contracts, for a premjum, to reim-

burse the lefding institution in the event of fu-

ture default, if any. [Emphasis supplied: ] *

Here, unlike: McN: inch, the government was called

upon immediately to disburse funds on the — of

‘the false applications. Po eh ls Nap 4

> 8. There ’is no sourid: reason why the. sioeiailitlies

of the False Claims Act to a fraudulent application

*See also, United States ex rel. Marcus v. haa 317 US. 537,

545, where the Court noted :

y The situation here is, in no sens like that discussed in

United States v. Cohn, 270 U.S. 399, 345-347, where the

“government: acted solely as bailee and no person had any

claim against it for a payment. ‘The Court in the Cohn

case held that there had been no “wrongful obtaining of

_- Thoney * * * of the government’s,” while there has been

--, such a “wrongful obtaining” here on claims which were

presented either directly or indirectly to the government

* with fall knowledge by the claimants of: their fraudulent 7

basis,

5 It is significant that the Court expressly reserved oidalons

__. “as to whether a lending institution’s demand. for reimburse-

-_ eee i inal a a

eee ge Peis i

| for a federal loan should depénd upon whether Con-

-. gress made the granting of the loan mandatory or |

permissive. The primdry purpose underlying the en-

actment of the False Claims Act was to stop the.

“plunder of the public treasury.” United States v.

McNinch, supra, 356 US. at 599.° Where, as here,

the United States has been induced by fraud to. dis-

_ burse its funds, the ‘impact on the publit. purse ‘is no

_ less because the falge assertion was one of efi bility

_ to’ receive, rather than legal entitlement to, the funds

- sought. - . dg tee at hae es

. The consequences of the ‘distinction drawn by the

court of appeals are brought into sharp focus when

_it*is applied to a farmer who falsely certifies that he

_. is eligible for both (1) federal price support pay-

. ments on his crop, and (2) a loan to finance the pur--

_ chase of. storage facilities for that crop. The court be-

low agrees (App., imfra, p. 19) that the false repre- :

, entation of eligibility, for -price support’ payments .

ment on a defaulted loan originally procured by a fraudulent

application would be a ‘claim’ covered by the False Claims ~

Act.” 356 U.S. at 599, n. 6. Subsequently, in United States v. .

: Veneziale, 268 F. 2d 504, the Third Circuit answered that ques- .

tion in the affirmative. ‘ : 7

_ ° The court below emphasized (App., infra, p..23) this Court’s —

admonition in McNinch that, because the civil provisions of

the Act incorporates the Act’s criminal] provision, the rule

of strict construction of criminal statutes should normally be

followed. See 356 U.S. at 598. We think it clear, however,

that because no novel ‘Teading or application of the Act is

sought (see cases discussed, supra, pp. 5-6), the rule of con-

struction followed in a companion case to. McNinch—involving, tts

as here, an application for a GOC loan—should: govern, é.z., ;

that “even penal provisions’ must be ‘given their fair meaning

. in accord with the evident intent of Congress,’ Rainwater v.- -

- United States, supra, 356 U.S. at 593. , . ae

ae

- : . , .

id. . 10

., would constitute a violation of ‘the False Claims Act ° .

(see United States v. Brown, 274 F. 2d 107 (C. A. 4))

‘because it involves an “assertion of right.” Since;~

however, the grant of a storage-facility loan is discre- -,

tionary, the second. false representation would not be

‘Similarly actionable.eThis disparity would result al-°

_ though the vice in both cases is identical: the use of

f false pretenses to. obtain federal funds. It needs no

"argument that, if the. government were to become

aware of the deceit in sufficient time, no federal funds"

‘would be disbursed: on a fraudulent application re-

‘gardless of whether that application were labeled as

_ “of right” or, instead, were addressed to the discre-

‘tionary atithority of the particular agency.

4. The question is a recurring one, We are advised -

by the Department of Agriculture that, during the

fiscal year ending June 30, 1966, the CCC made al-

most 4% million loans on price support “commodi-

ties alone, in the total amount of almost two billion

dollars. In addition, it extended more ‘than nine thou-

vo gand storage-facilities and equipment loans in a total

se amount of approximatelyJ3% million dollars. Sub-

stantial numbers of loans) Wrolving in the aggregate

enormous sums of federal money, are made under -

other lending programs administered by the Depart-

ment of Agriculture, and other governmental agen- 3

cies, ' : |

Moreover, while entitiement to some grants-in-aid rs

and other forms of subsidy may ‘be asserted “asa

matter of right,”’ the great majority of such disburse-

ments are made ona discretionary basis (¢.9., grants ;

in connection with the poverty program and the scien-

11

_tifie and educational. programs administered: by the .

Department of Health, Education and Welfare). .

Thus, if the interpretation ‘given the False Claims’

Act by the court below is allowed to stand, additional .

billions of dollars in annual federal .expenditures

. would be deprived of this important—and —* ef-

: fective—statutory protection.’

CONCLUSION

It as olay submitted that this petition for |

a writ of certiorari should be granted.

THURGOOD MARSHALL,

_ Solicitor General.

Cart EARDLEY,;~

Acting Assistant Attorney General.

J. Nicuoras McGratu, Jr.

Assistant to the Solicitor es

Aan S. ROSENTHAL,

_ Ricuarp 8. SaLtzMan,

‘e | | \ ‘Attorneys.

JUNE 1967. ;

* To be sure, the decision below does not leave the government

completely remediless. In other.cases there may be an action at

common law (see, ¢.g., United States v.-Silliman, 167 F. 2d 607 .

(C.A. 3), certiorari denied, 335 U.S. 825) ; and an offender may

of course be prosecuted crithinally (see 18 U.S.C. 1001; 15 U.S.C.

714m). But no other civil remedy is nearly as effective or com- .

prehengive as that provided by the False Claims Act. And if that

Act is (as we think) applicable, the penalties of the criminal:

law may be resérved for circumstances wath particularly call for

‘such sanctions, ”

i antiaaes HM ee