Petition for Writ of Certiorari — United States v. Cochran

INDEX

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Jurisdiction - - -- -------------------------> ‘ 1

Question presented __- ------ ee sae at 2

Statute and regulations inv olv ed. a aaa Jeena 2

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Reasons for granting the writ- ‘ 5

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CITATIONS

Case:

United States v. Emory, 314 U.S. 423- - ----------- 3

Statutes:

False Claims Act, 12 Stat. 696, 698, R. S. 3490, 5438,

oe Oy. OO. BBR. .. 2.2 ncn canecconsssees-onssses"* 2

National Housing Act, Title I, “48 Stat. 1246, as

amended, 12 U.S. C. 1701, et seq---------------- 2

399857—56——1 @)

Inthe Supreme Gourt of the United States

OcroBperR TERM, 1956

No.

Unrrep STaTes OF AMERICA, PETITIONER

v.

Harvey Cocuran

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FIFTH CIRCUIT

The Solicitor General, on behalf of the United

States of America, prays that a writ of certiorari

issue to review the judgments entered in this case on

June 30, 1956, by the United States Court of Appeals

for the Fifth Circuit.

OPINIONS BELOW

The opinion of the District Court (R. 39) is not

reported. The opinion of the Court of Appeals (App.,

infra, pp. G-13) is not yet reported,

JURISDICTION

The judgment of the Court of Appeals was entered

on June 8u, 1956 (App. rafra, p. 13). The jurisdie-

tion of this Court is invoked under 28 U.S. C. 1254

(1).

(1)

nok SERRE REA OUR ees

QUESTION PRESENTED

Title I of the National Housing Act authorizes the

Federal Housing Administrator to guarantee the re-

payment of loans made by approved lending institu-

tions to homeowners for home improvements. Re-

spondent filed with a number of authorized lending

institutions FHA loan credit applications falsely

representing the purposes for which the loans would

be used and his own financial condition. The lending

institutions made the loans and, pursuant to their

contracts with FHA, obtained FHA insurance on

them.

The question presented is whether respondent, in

fraudulently causing the lending institutions to obtain

FHA insurance of the loans, ‘‘cause[d] to be pre-

sented for payment or approval * * * any claim

upon or against the * * * United States’ within the

False Claims Act, and is therefore liable to the United

States for the $2,000 liquidated damages provided in

the Act for each such fraudulent claim.

STATUTE AND REGULATIONS INVOLVED

The pertinent parts of the False Claims Act (12

Stat. 696, 698, R. S. 3490, 5438, 31 U.S. C. 231) and

of the National Housing Act (48 Stat. 1246, as

amended, 12 U. S. C. 1701, et seq.), and regulations

issued pursuant thereto, are set forth in Appendix C

(at pp. 32-39) to the petition for a writ of certiorari

to the Third Circuit in United States v. Tieger, filed

coneurrently, to which this Court is respectfully

referred.

STATEMENT

Title I of the National Housing Act (12 U. Ss. C.

1701 et seq., (App. C, Tteger petition, pp. 36-39))

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authorizes the Federal Housing Administrator to

insure, upon such terms and conditions as he might

preseribe, qualified lending institutions against losses

custained as a result of loans made by them for the

purpose of financing alterations, repairs, and im-

provements on real property. The FHA enters into

contracts with the lending institutions undertaking to

indemnify them against losses on loans reported for

insuranee to the FHA up to an aggregate amount

equal to ten per cent of the total value of such loans.

A borrower, who wishes to obtain home improvement

loans under that program, applies to the lending

institution on an FHA form (‘FHA Title I Credit

Application (Property Improvement Loan)”’). Re-

| sponsibility for determining that the borrower is A

reasonable credit risk rests with the lending institu-

tion, which is permitted to rely on statements of fact

made by the borrower.

Within 31 days after the loan is made, the lender

reports the details of the loan transaction to the

FHA on an FHA form provided for the purpose,

and certifies that the requirements have been complied

with. After the loan is made and the transaction has

been reported to the FHA, the FHA computes the in-

surance premium to be paid by the lending institution,

records the transaction on its official records, and

acknowledges the loan for imsurance. See FHA regu-

lations set forth in App. C, Tieger petition, pp. 23-36 ;

and United States v. Emory, 314 U. 5. 423, 430, 433.

In this ease, the United States sought to recover

liquidated damages under the False Claims Act for

six false claims made, either by respondent or at his

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instigation, for the purpose of obtaining six FHA-

insured loans for home improvement pursuant to Title

I of the National Housing Act. The complaint al-

leged that respondent, on six occasions between

August 1951 and March 1953, had filed with various

FHA-approved lending institutions FHA loan credit

applications falsely representing the amount of his

outstanding indebtedness and in certain instances the

purposes for which the loans would be used (R.

4-6)... Relying on respondent’s —misrepresenta-

tions, the lenders made the loans (R. 4-6). There-

after, as provided in their contracts with FHA, the

lending institutions requested and obtained insurance

coverage from the FHA pursuant to Title I of the

National Housing Act. Repayments on the loans

were still being made at the time of the institution of

this action (R. 25).

After trial, the District Court gave judgment for

respondent (R. 43). On the Government’s appeal,

the Court of Appeals for the Fifth Circuit affirmed,

following United States v. Tieger, supra, and holding

that no claim had been presented to the Government

within the purview of the False Claims Act since

there had not yet been any default on the loans

(App., infra, pp. 6-11). Judge Rives dissented (App.,

infra, pp. 11-13).

1 Prior to this action, respondent had been convicted in the

District Court for the Southern District of Texas on six counts

of violating the criminal provisions of 18 U.S. C. 1010 (a). The

provisions of the present complaint followed closely the allega-

tions of the indictment returned against respondent prior to the

conviction. (R. 4-6.)

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REASONS FOR GRANTING THE WRIT

On facts substantially the same as those in United

States v. Tieger, in which a petition for a writ

of certiorari is being filed concurrently, the Court

of Appeals for the Fifth Circuit has held, following

the Third Circuit’s ruling in Tieger, that although

the FHA was induced to guarantee repayments of the

loans granted by virtue of respondent’s false repre-

sentations, no claim had been presented to the Gov-

ernment within the purview of the False Claims Act.

For the reasons set out in our petition in Tteger, we

believe that the Fifth Cireuit has reached an errone-

ous decision on a question of far-reaching importance.

CONCLUSION

Accordingly, it is respectfully submitted that this

petition for a writ of certiorari should be granted,

J. Lee Rankin,

Solicitor General.

GrorGE CocHRAN Dovs,

Assistant Attorney General.

MELVIN RICHTER,

Wiiitiam W. Ross,

Attorneys.

SEPTEMBER 1956.

APPENDIX

OPINION OF THE CouRT AND DIssENTING OPINION OF

Rives, Circuit J uDGE

Filed June 30, 1956

In the United States Court of Appeals for the

Fifth Cireuit

No. 16027

UNItED STATES OF AMERICA, APPELLANT

versus

Harvey CoCcHRAN, APPELLEE

Appeal From the United States District Court for the

Southern District of Texas

(June 30, 1956)

Before Hutcueson, Chief Judge, and Rives and

Brown, Circuit Judges

Hurcueson, Chief Judge: The appellant, United

States, sought to recover from the appellee, Cochran,

$12,000.00 for causing to be presented for approval to

the Federal Housing Administration six claims upon

the Government of the United States, knowing such

claims to be false, fictitious or fraudulent, in violation

of the False Claims Act, 31 U. S. C. A. See. 231.*

‘ As pertinent here, the act provides:

“Any person * * * who shall * * *. Cause to be presented,

for payment or approval, * * * any claim upon or against the

* * * United States * * *, knowing such claim to be * * *

fraudulent, or who for the purpose of obtaining * * * the pay-

ment or approval of such claim, makes, uses, or causes to be made

or used, any false bill, receipt, voucher, roll, account, claim, certifi-

cate, affidavit, or deposition, knowing the same to contain any

(6)

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The facts were stipulated,* and, plaintiff and defend-

ant moving for summary judgment, the district judge

filed findings of fact and conclusions of law, in which,

correctly saying: ‘‘It is not every attempted fraud

against the government that falls within the purview

of the statute in question, but only those which come

clearly within its terms.’’, he held that what Cochran

was charged with and admitted doing did not consti-

tute the making of a false claim under the act, and

entered judgment accordingly.

fraudulent or fictitious statement or entry, * * * shall forfeit and

pay to the United States the sum of $2,000, and, in addition, double

the amount of damages which the United States may have sus-

tained * * *.” 31 U.S.C. See. 231.

2“At various times during the period Aug. 1, 1951, to about

Mar. 24, 1953, the defendant applied for and borrowed from the

following named banks or credit institutions, on the date indi-

cated, certain sums of money and executed notes therefor as

follows:

“Name of Bank: Amount of Note Date

“(a) Merchants and Employees Industrial

Bank, Houston, Tex_-------------------- $800. 00 §-1-51

“(b) The Second National Bank, Houston, Tex_ $1,650.00 10-1-51

“(e) First National Bank, Houston, Tex_----- $360.00 9-25-52

“(d) T. J. Bettes & Co., Houston, Tex--------- $500.00 12-15-52

“(e) Merchants & Employees Industrial Bank,

Houston, Tex_...._.-------------------- $695.00 2-24-53

“(f) National Bank of Commerce, Houston,

NR ae eee $1,000.00 3-24-53

“That to secure said loans, the defendant made, filed and

submitted to each institution named, certain Federal Housing

Administration Title 1 Credit Applications, which applications

misrepresented the defendant's obligation and debts.

“At the time of submission of the credit applications to each

institution, the defendant knew them to be false.

“The defendant in applications (b), (d), and ( f), in addition

to the misrepresentation of obligations and debts, further set

forth reasons for which the loans were sought and which rea-

sons the defendant knew to be false.

“Defendant knew at the time of submission of the credit ap-

plication and the application for loan that each loan was of the

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Appealing therefrom, the United States, in its

brief, under the heading, “A. The civil remedy pro-

vided by the False Claims Act must be liberally

type described as Federal Housing Administration Title 1 Home

Improvement Loan.

“Each of said loans was, in accordance with procedures estab-

lished and set up by the Federal Housing Administration, re-

ported to the Federal Housing Administration for the purpose

of obtaining insurance on the net proceeds of the notes, which in

each case was less than the actual amount of the note, the dif-

ference being legitimate interest, carrying charges and costs,

which were in accordance with legal and usual practices passed

on to the defendant, and the net proceeds of each of said notes

was in fact insured by the Administrator of the Federal Hous-

ing Administration under the authority conferred upon him by

12 U.S. C. A. 1708 (a).

“The defendant actually received certain sums of money in

connection with the execution by him of each said note from

each of the lending institutions involved, each of said institu-

tions acting partially or entirely in reliance upon the credit

applications submitted to them by defendant.

“That defendant has defaulted in the payment of none of the

notes above mentioned, and all of the installments have been

paid as they came due.

“The lending institutions have not made demand upon the

Federal Housing Administration for reimbursement of the net

proceeds of said notes under the terms of policies of insurance

issued.

“That there is attached hereto, and by agreement is made a

part of said stipulation, the indictment, Criminal Cause No. 12144

in the Houston Division of the Southern District of Texas. At-

tached hereto further is the judgment of conviction in the above

case in which verdicts of guilty were rendered as to the defend-

ant in Counts 1, 2, 3, 4, 6, and 7, and a not guilty verdict as to

Count 5.

“That Counts 1, 2, 3, 4, 6 and 7 correspond to the institutions

set forth in Stipulation ITT, being (a), (b), (ec), (d), (e), and

(f). * * * (Violation Section 1010, Title 18 U.S. C.).

“With respect to each of the loans named in Stipulation of

Facts herein filed, the premium for insurance was paid and in-

surance, as authorized by 12 U. S. C. A. 1703 (a), was in effect

on each said loan.”

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9

construed’’, is here stressing “the need for a fune-

tional interpretation of the statute” and citing in

support United States ex rel Marcus vs. Hess, 317

U. 8. 537. While not making its meaning completely

clear, it seems to be urging upon Us: that Section

931 must be viewed, not as ordinary penalty statutes

are viewed, as confined in scope and operation to and

by the language used, but as a sort of catch all

statute announcing and containing a general declara-

tion of principle against fraud and overreaching ;

that proof that the person proceeded against under

it had done any specific thing denounced as an

offense is not required, but only proof that the de-

fendant has acted badly toward the United States;

and that, under such proof, he must, and may be,

subjected, to the penalties the statute provides, not

for having violated its terms but for transgressing its

spirit.

Chafing at the uniform construction of the statute,°

the United States in effect insists that the statute

in fact and in law applies here where neither money

nor property was claimed from or against the United

States. It does this on the theory that the defendant,

in applying to the banks for credit on an F. H. A.

Joan form, made a claim upon the government for the

extension of its credit in support of the loans applied

for, the government was cheated, and this was in

effect a false claim upon which the United States

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’“Jn order to bring a case within the statute, it is necessary

to show that a claim is presented against the United States or

in rem against its property. This interpretation of the statute

is so entirely settled as to be beyond any question. U’. S.v. Cohn,

270 U. S. 339." U.S. v. Mercur, Inc., 83 F. (2) 178 at page 181.

“We think the chief purpose of the statutes here was to pro-

vide for restitution to the government of money taken from it by

fraud.” U.S. ex rel Marcus v. Hess, 317 U.S. 587.

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was fraudulently induced to part with money or

property.

It goes without saying that the acts of the defend-

ant were criminal and that he was correctly prose-

euted and convicted under the applicable statute,

See. 1010, Title 18 U. S. C. for making false state-

ments in connection with procuring the loan from

the bank. It is quite another thing, however, to say

that, because he was so guilty, he was subject to the

penalties provided in Section 231. Section 1010 does

not so provide. It specifically denounces as an offense

the making ‘‘for the purpose of obtaining any loan

or advance of credit from any * * * or corporation

with the intent that such loan or advance of credit

shall be offered to or accepted by the Federal Housing

Administration for insurance * * * any statement

knowing the same to be false’’, and under this statute,

which plainly dealt with and plainly denounced his

actions as an offense, defendant was correctly prose-

cuted and convicted.

What the government is in effect doing here is

reading into See. 231, the language of See. 1010, or,

putting it differently, reading Sec. 231 as though it

contained the same or similar language to See. 1010,

whereas, as plainly appears in note 1, supra, nowhere

in it is there any language having such purport

or effect. Every word and line of this statute

breathes the purpose to deal, it has the effect of

dealing, only with the acts of persons falsely claim-

ing money or property in the circumstances and with

the effect dealt with in the statute. The statute does

not deal with or denounce fraud in general. It can-

not be read as doing so. In the Mareus ease, on

which the government so strongly relies, the court

thus correctly states the rule controlling here:

il

Sound rules of statutory interpretation exist

to discover and not to direct the congressional

will. True Sec. 5438 is criminal and for that

reason in interpreting so much of its language

as it shares in common with Sec. 3490 we must

give it careful scrutiny lest those be brought

within its reach who are not clearly included;

but after such scrutiny we must give it the fair

meaning of its intendment. [Emphasis sup-

plied. ]

Since writing the foregoing, our attention has been

called by the United States to an opinion of the Third

Circuit, Judge Biggs dissenting, in U. S. v. Martin

Tieger (decided June 14, 1956). In it, Judge Hastie,

speaking for the court, in an opinion dealing con-

cisely, clearly, and correctly, we think, with the pre-

cise question here involved reached the same conclu-

sion that we have reached, that ‘‘The district court

correctly concluded that the statute deals only with

false claims upon the government for money or prop-

erty, and no such claim is revealed. * * *”’.

The judgment appealed from was right. It is

AFFIRMED.

Rives, Circuit Judge, dissenting:

While I appreciate the logic and force of the ma-

jority opinion in this case and also of the majority

opinion of the Third Circuit in United States v.

Tieger, 3rd Cir. No. 11,591, decided November 14,

1955, m/s, both seem to me to construe too narrowly

the False Claims Act. That Act, I think, should be

given “the fair meaning of its intendment”, which

is “to provide protection against those who would

‘cheat the United States’.”” United States ex rel.

Marcus v. Hess, 317 U. 8S. 537, 542, 544. It provides a

civil remedial action for liquidated damages instead

of a penalty. United States ex rel. Marcus v. Hess,

supra at pp. 548, et seq. Cf. Rex Trailer Co. v. United

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States, 350 U. S. 148, 152, et seq.; United States v.

Weaver, 5th Cir., 207 F. 2d. 796, 798.*

Inducing the Government to pledge its credit by a

false and fraudulent claim therefor seems to me as

much within the False Claims Act as so inducing it

to part with its money or property. True, the right

to recover money from the Government is contingent

on default on the loan, and a further claim upon the

happening of that event might give rise to an addi-

tional right of action under the False Claims Aet.

When, as here, however, the fraud is discovered

after the Government has approved the loan for in-

surance, but before default, the Government should

not be forced to wait until the borrower defaults on

the loan and causes the lender to make a further

claim on the Government. Two separate claims may

be involved, the first for the approval of the loan

for insurance, the second for the payment of the in-

surance.

Chief Judge Biggs dissenting in United States v.

Tieger, supra, has so well expressed the views which

I entertain, that I forego further discussion.

‘It follows that appellee’s claim of double jeopardy is with-

out substance. United States ex rel. Marcus v. Hess, supra at pp.

D48, et seq.: United States ex rel, Ostruger v. Contractors, 317

U_S. 562, 563: U’nzted Ntates v. Grannis, et al., 4th Cir., 172 F. 2d.

507, 511.

* Indeed the credit insurance constitutes intangible property.

Burnet v. Wells, 289 U.S. 670, 679; Vance on Insurance (2nd ed.),

§ 280, pp. 929-952; 29 Am. Jur., Insurance, $ 126, pp. 112, 145,

notes 15-18.

13

I respectfully dissent.

A True Copy:

Teste:

[SEAL ] JOHN A. FEEHAN, JrF.,

Clerk.

By Cuara R. JAMEs,

Deputy Clerk of the United States Cowt

of Appeals for the Fifth Circuit.

JUDGMENT

EXTRACT FROM THE MINUTES OF JUNE 30TH, 1956

No. 16027

UNrrep STATES OF AMERICA

versus

Harvey CocHRaNn

This cause came on to be heard on the transcript

of the record from the United States District Court

for the Southern District of Texas, and was argued

by counsel;

On consideration whereof, It is now here ordered

and adjudged by this Court that the judgment of

the said District Court appealed from in this cause

be, and the same is hereby, affirmed.

“Rives, Cirewt Judge, dissenting.”

* * * ~ *

U S GOVERNMENT PRINTING OFFICE: 1986