United States v. Bornstein – Oral Argument – October 08, 1975

Media for United States v. Bornstein

Audio Transcription for Opinion Announcement – January 14, 1976 in United States v. Bornstein


Warren E. Burger:

We will hear arguments next in 74-712, United States against Bornstein.

Mr. Jones, you may proceed whenever you are ready.

Keith A. Jones:

Mr. Chief Justice and may it please the Court.

This case under the False Claims Act, raises out of respondent’s fraudulent supply of non-conforming electron tubes for use in army radio communications kits.

The facts were as follows; in 1962, the signal supply agency, acting on behalf of the Department of the Army, entered into a contract with a private company, Model Engineering and Manufacturing Corporation, for the supply of radio kit sets.

Each set was to contain a transmitter, a receiver, a power supply, transformer, and radio accessory kit.

A radio accessory kits operated with 4X150G electron tubes, the Contract required that these be “JAN” branded.

“JAN”, J-A-N is an acronym standing for Joint Army Navy.

The manufacturer is authorized to use the JAN designation, only after its manufacturing process has passed certain Government test for quality control and the tubes themselves pass certain Government inspection tests.

Thus by calling for JAN tubes in the contract, the contract in effect require the furnishing of tubes that were certified as having met certain Government standards as to both manufacture and performance.

The requirement of JAN tubes in the contract can therefore be seen to be more than a mere technical formality, although the record is silent on this point, it may reasonably be inferred that the radio sets, which as I have indicated, included both receiver and transmitter will be used for the Army for field communications, and that a tube failure can impair the military operations that might be dependent upon such communications.

The rigid quality control and performance standards, represented by JAN branding, is therefore served to minimize the risk of such a tube failure.

This consideration I believe, indicates the practical importance of the contractual requirement that the tubes to be supplied would be JAN tubes, and it also underlines the seriousness of the respondents’ fraud, which I will now describe.

The respondents who are the owners and operators of a corporation, United National Labs, that entered into a contract with the prime contractor, Model Engineering for the supply of the JAN tubes called for by the contract.

It is undisputed in this case that the respondents caused and are responsible for all the acts of their corporation, United National Labs, and therefore it is appropriate in further describing the facts in this case to raise the corporate veil and talk solely in terms of the respondents’ individual acts, attributing the acts of the corporation to the respondents as well.

The respondents were dealers in electron tubes and they entered into the subcontract with Model Engineering, knowing that the tubes to be furnished there under were to be used in the military procurement contract.

At the time, they entered into this subcontract, the prevailing market price for JAN tubes of the type specified in the contract was approximately $40.00 per tube.

Instead of buying and supplying these kinds of tubes, the respondents instead bought cheaper tubes at prices ranging from $15.00 to $18.00 and they falsely stamped each tube with a JAN designation.

As we have here a case of fraud, pure and simple, committed solely for the purpose of making a dishonest profit.

The respondents made three shipments of a total of 397 falsely branded tubes, the tubes were packaged in 21 separate boxes, and each box was accompanied by a packing list to which the respondents have fixed a false government inspection stamp.

The respondents billed Model Engineering, the prime contractor for the tubes, on three separate invoices.

In turn Model Engineering incorporated these tubes into the radio kit sets that it supplied to the Army, and it billed the Army for the tubes on 35 separate invoices or claims for payment.

Each of these claims for payment represented falsely because of the respondents’ fraud, that the electron tubes furnished in the radio kit sets were Government inspected JAN tubes.

The Government paid these 35 claims for payment.

When respondents’ fraud was subsequently discovered after some negotiation, Model Engineering, the prime contractor, paid the Government a total of a little bit more than $16,000.00 for the breach of contract that had been occasioned by the respondents’ fraud.

Harry A. Blackmun:

Did Model paid it or did they, was it withheld from the Government payment to Model?

Keith A. Jones:

Well I think that the Government owed Model monies in connection with some other contract and that the $16,000.00 odd here was withheld from that other payment.

Harry A. Blackmun:

In this connection, is, are the respondents responsible, liable to Model?

And if so, has Model ever instituted suit against them.

Keith A. Jones:

Well, that raises two questions, one of contract law that I cannot answer because these respondents are individuals and I do not know whether they would be liable in contact to Model Engineering, it was their corporation, United National Labs that actually was in the privative contract relation with Model.

Keith A. Jones:

The second question is a factual one and I simply do not know the answer to it, and I do not think it is in the record.

Well certainly there is incipient liability, is there a possibility of a fraud–

Keith A. Jones:

Yes there is and that is the basis for the Government’s concession that it would be appropriate in determining double damages to allow a certain credit for the payment that Model Engineering made, I will get to that aspect of the case in a moment.

William H. Rehnquist:

Well if they defrauded the Government the defrauded Model too.

Keith A. Jones:

That is correct.

William H. Rehnquist:

So it would not have to be based on contract well is suppose?

Keith A. Jones:

The respondents is individuals themselves might be liable in tort, perhaps that is so Mr. Justice Rehnquist.

At any rate, under the theory that they will be liable in one form or another, we have not pressed the full double damages liability but rather have indicated that some kind of allowance may be appropriate on account Model’s payment to the Government.

Like in the full amount —

Keith A. Jones:

Like in the full now but only as against the double damages that had to be competed–

–expect that amount in view?

Keith A. Jones:

No we do not expect, that is correct.

Substantially doubled.

Keith A. Jones:

Well, I will get to the double-damages aspect to the case in a moment.

Now first I would like to layout the rest of the facts in the–

If there is liability there, then I suppose your suggestion, I think there was one in the brief of the respondents’ profiting by the fraud may well evaporate.

Keith A. Jones:

Well, I certainly hope so.

A trial in the case, the District Court determined that the Government’s actual injury from the breach of contract was approximately the same that Model had paid to the government that are $39.70 more.

The District Court further determined that respondents acts in supplying the falsely stamped tubes thereby causing a submission of false claims to the Government violated the False Claims Act, and the respondents have not contested that determination either in the Court of Appeals or in this Court.

The issues in this case pertain to the consequences that flowed from the District Courts finding of a violation of the False Claims Act.

There are two issues; one concerns the question of whether there are multiple forfeitures that maybe imposed against respondents for their violation.

The Government takes the position that the respondents here are subject to a total of 35 $2,000.00 forfeitures under the Act.

One for each of the 35 false claims for payment that where madders has resulted to their fraud.

The respondents’ assert that they are subject to only one forfeiture payment because they say their fraud affected only one subcontract, and that is how they would measure the number of forfeitures under the Act, and the Court of Appeals sustained the respondents’ position.

Warren E. Burger:

Is it Government practice from the accounting side to require a separate voucher for each shipment?

Keith A. Jones:

In this case there were actually 8 Government vouchers of payment, Model submitted 35 invoices for payment.

Warren E. Burger:

They accumulate them and then pay in groups, apparently.

Keith A. Jones:

Yes, that is apparently what took place in this case and I do not know over what course of time the various claims and payments were made.

The other issue in the case is, we have already talk about a little bit, is the question of the proper measurement of double-damages.

Both Courts below sustained the respondents’ contention that the Government’s single damages under the Act for purposes of computing double-damages, is limited to the amount of the Government’s injury less its recoveries from the prime contractor.

Keith A. Jones:

Accordingly, the Courts below determined single damages of $39.70, and double damages of $79.40.

Our position on this issue is that for determining single damages you look to the Government’s actual injury at the time of the discovery of the fraud, to get double-damages, you double that amount.

The Government’s injury was $16,000.00, to double that you get $32,000.00, but we have further submitted that the respondent should be allowed a credit against that $32,000.00 double-damages liability in the amount of the recoveries from the prime contractor.

Now before turning to an analysis of these two separate issues, I would like to point out to the Court the combined effect of the Court of Appeals decisions on these issues taken as a whole, and that effect we feel is to eviscerate the False Claims Act as the deterrent to subcontractor fraud.

The Court imposed upon the respondents in this case a poultry penalty of only $2,079.40, and that penalty — penalty imposed by the Court of Appeals permits the respondents to retain over three-quarters of the illegal gain that they made on by supplying the Government with cheap tubes rather than the JAN tubes required by the contract.

And we submit that the puny threat of such disproportionately small penalty is unlikely to deter any subcontractor from attempting to defraud the Government.

If the fraud goes undetected, the subcontractor reaps a dishonest profit and pays no penalty whatsoever.

If on the other hand, as in this case the fraud is discovered, the subcontractor nevertheless pays back to the Government only a small of fraction of the dishonest profit on the illegal gain.

Byron R. White:

But is he not subject to criminal prosecution and is it not their deterrence on the criminal side?

Keith A. Jones:

There is some deterrents on the criminal side, it was not terribly effective in this case.

Byron R. White:

Well, you have just said that if fraud is not discovered there is no deterrence, this is true crime also is it not?

Keith A. Jones:

Yes, but what we are now talking about is placing at least a substantial deterrence once there is a discovery.

I would further point out that although these respondents were prosecuted and convicted of a conspiracy, apparently, there is no criminal statute, which by its terms would prohibit the substantive act of causing a false claim to be made.

If you look at 18 U.S.C 287, it punishes the making of false claims.

What we are concerned with in this case with regard to contractors is causing a third party to make false claims.


Keith A. Jones:

Well, I do not know if you can be an aider and abettor, if there is no substantive crime by another person, and there would be no substantive crime by the prime contractor because he unknowingly made a submission of false claims.

Not saying there is no possible criminal punishment other than under a conspiracy clause, but I am just pointing out that the criminal and the civil statutes are not coterminous, that is by no means positive that you can always punish criminally the kinds of act that we are now trying to impose a civil penalty on.

To summarize the Court of Appeals decision, the Court of Appeals has in our view converted the False Claims Act into little than an inexpensive license to defraud the Government.

License moreover, so I have just indicated, that must be paid for only if the fraud is discovered, and we believe congress could not and did not intend that result.

Indeed as I know, hope to show, Congress intended a very different result indeed.

I begin for purposes of convenience of exposition, with the question of double damages, because I have one important thought to add to what we said in our brief on that issue, and I would like to address at the outset.

Respondents’ contention here is that the prime contractors payment to the government of a single contract damages, in effect absolves the respondents from any liability under the False Claims Act double-damages provision.

And this contention can fairly be tested I think, by asking what would the consequences have been, if the single contract damage as payment have been made not by the prime contractor but by the respondents themselves.

Could respondents have insulated themselves from any liability for double-damages, by coming forward after the discovery of the fraud, merely with the payment of single damages?

William H. Rehnquist:

What if before the discovery of the fraud, what if the day after they sent the stuff, they simply had a change of heart, and before the Government ever discovered the fraud they sent single damages.

Keith A. Jones:

Well I would think that from a purely, trialling logical reading of the Act, that double-damages would have in fact been — the liability for double damages would in fact have been incurred as of the date of the fraud.

But there might be a question of whether had there been a payment the next day, that had actually been an injury to the Government.

William H. Rehnquist:

But you say the liability for double-damages becomes fixed when they cause to be submitted to the Government, the false–

Keith A. Jones:

Well that is, well, the violation of the Act has become complete at that point.

Byron R. White:

Or otherwise I suppose anytime the—prime contractor or anybody else defrauds the Government, seems to have defraud the Government, he could reduce his liability to single damages by paying.

Keith A. Jones:

Well that is exactly our point.

The respondents seem to think that-that they or the prime contractor can come in after the fraud has been discovered and after the injury has already been sustained and reduced their liability under the double-damages provision of the Act, from double-damages to single damages merely by coming forward voluntarily with the payment.

But that is clearly not the case, respondents could not have escaped their own liability for double damages simply by offering single damages.

William H. Rehnquist:

Yet if Model had discovered the fraud and refused to submit the invoices to the Government, then although the respondents’ fraud was complete they never would have been become liable to the Government.

Keith A. Jones:

Well in that case, there might not have even been a violation of the False Claims Act.

Byron R. White:

It would not have caused anybody —

Keith A. Jones:

It would not have caused the submission of a false a claim and there would have been no injury to the Government for purposes of the double-damages provision either.

Well, we believe that this analysis that I have just gone through, which I am sorry to say was not set forward with any clarity on our brief, is dispositive of respondents double-damages claim in this case.

I would recommend to the Court the reading of our brief for further arguments on this point, but I would like to turn for the remainder of my argument to the question of multiple forfeitures.

The first clause of the False Claims Act, which is the relevant clause in this case, provides, and I quote with some deletions, none of which I hope change the substance.

Any person who shall make or cause to be made any claim upon the United States or any department or officer thereof, knowing such claim to be false, shall forfeit and pay to the United States the sum of $2,000.00.

As well, as established as to prime contractors, this language imposes a separate $2,000.00 forfeiture for each False Claim for payment.

Since the Act imposes a forfeiture on any false claim the statutory volition is complete upon the presentation of the first false claim, and a forfeiture arises on account of that violation.

Each additional false claim constitutes a separate and complete violation of the Act that gives rise to an additional forfeiture.

As a prime contractor, who for example knowingly submitted 35 false claims for payment to the Government, unquestionably would be liable for 35 separate forfeitures.

We believe that the same reading of the Act before supplies to subcontractor fraud.

In the first place, it was established by this Court’s opinion in United States exrel. Marcus against Hess, that a subcontractor violates the Act when its fraud causes the prime contractor to submit a false claim for payment to the Government.

The subcontractor’s violation is complete when the prime contractor submits its first false claim and a forfeiture arises at that time.

Every additional submission of a false claim is a separate and complete violation of the Act that gives rise to an additional forfeiture.

In short, the plain language of the Act requires the number of forfeitures to be determined in the same fashion, whether the fraud originates with the prime contractor, or as in this case, the subcontractor.

This we believe to be as sensible and natural result, because after all the Government’s injury is the same whether the fraud originates with the contractor or the subcontractor, the need for deterrence is the same, whether the fraud originates with the contractor or the subcontractor, and there is no reason to distinguish between these two cases.

The respondents’ argument moreover, which is that you measure the subcontractor’s forfeitures by the number of subcontracts, has utterly no basis in this statutory text, which has nothing in the language of the Act that produces that result.

And not only is our results supported by the statutory text, serves the twin purposes of deterrence and restitution that underlie the Act.

As we have pointed out in the brief, and I would not repeat those arguments here, there will be a mockery of the legislative intent to lump, as respondents would have this Court do, all the subcontractors fraudulent practices and their elections into a single statutory violation.

Now, this more or less furnishes the Court with our affirmative presentation on this issue, I will address what seemed to me to be the two threads of argument that the respondents present here.

One appears to be that the False Claims Act should be narrowly construed in the manner of criminal statute.

Well, I am not sure what kind of narrow construction they would intend since there is no apparent basis in the language of the Act for their result anyway.

But I would point out that the Court has already rejected the principle of construction upon which they rely.

In the United States ex rel.

Keith A. Jones:

Marcus against Hess, the Court held that the forfeiture provisions of the Act imposes civil not a criminal sanction, and perhaps more to the point in United States against Neifert-White Co. the Court stated, and I quote, in the various context in which questions of the proper construction of the Act have been presented.

The Court has consistently refused to accept a rigid restrictive reading, even in the time when the statute imposed criminal sanctions as well as civil.

The statute no longer imposes any criminal sanctions.

It is a wholly civil statute that should be liberally construed in a manner that will effectuate its underlying purposes of deterrence and restitution.

Respondents’ argument appears to be that although 35 false claims for payment were presented to the Government in this case, they nevertheless have committed only a single causative act, a single act of causation deserving of a penalty.

It is difficult to know what basis the respondents’ have for making that suggestion.

In the first place it is clear that they have committed many separate fraudulent acts, they falsely stamped each of 397 electron tubes, they falsely have fixed government– false government inspection stamps to each of 21 packing list.

They have submitted 3 false invoices to the prime contractor and they made false oral representations to the contractor as well.

Byron R. White:

Could the Government take the position that there are 190 in effect false claims, 199 false claims, affected by the respondents?

Keith A. Jones:

Well I think the suggestion is that the Government could take the position that there were 397 violations of the Act as a consequence of the false stamping of each of the 397 tubes.

The Court of Appeals seems to assume that the stamping of the tubes would constitute a violation of the Act and of the second clause of the Act.

I think that it is arguable whether the Government would be able to prevail the cause, the categories of documents with respect to which false entries are punished under the second clause of the Act, would not appear to include the tubes —

Byron R. White:

You have all kinds of numbers, you have 199–

Keith A. Jones:

Well the 199 is a number of the respondents’ drew out of the hat, and I think they arrived at because there were 397 false tubes and they said well, each radio kit set contains two tubes and therefore a 198 kit sets would include false tubes.

No one on the government side has ever suggested that the figure 199.

The only figures that I can run through them are 35 false claims under the first clause of the Act.

397 falsely stamped tubes under the second clause of the Act, but I question whether you could find a violation with regard to that.

21 falsely stamped package list, and that probably is a violation, causing the Government to issue–

Under 2?

Under 2, but we are–

Which is not involved.

Keith A. Jones:

Which is not involved, none of these other numbers are involved.

8 false vouchers issued by the Government, also under the second clause, and 1 conspiracy, and 3 false invoices issued to the prime contractor.

But we are just the taking the position here that the false claim submitted in violation of the first clause without regard to any of the other clauses of the Act, constitute a basis for the forfeitures.

We would say that the respondents’ course of fraudulent conduct, whether it is conceived of consisting of one act or many, nevertheless cause the submission of the 35 false claims, and it is the number of false claims that is determinative of the number of forfeitures under the Act.

Lewis F. Powell, Jr.:

You take that position even though there is no indication, as I understand it that the subcontractor had any control over the number of invoices–

Keith A. Jones:

That is correct, Mr. Justice Powell.

Lewis F. Powell, Jr.:

But if he filed 500, would your position be the same?

Keith A. Jones:

Well we might not have seek to impose 500 penalties but as a reading of the Act–

Lewis F. Powell, Jr.:

At a principle under your theory you would take that position.

Keith A. Jones:

That is correct, we take the position that respondents could reasonably have anticipated that the prime contractor might submit more than one false claim for payment as a result of their fraud.

More generally, our position is that when a subcontractor seeks to defraud the Government, he does so at its peril and at the anticipatable risk that the prime contractor will submit multiple false claims as a result of the fraud.

There were 35 such false claims filed here, we think 35 forfeitures should be imposed.

I would like reserve–

Warren E. Burger:

One of the reasons for submitting frequent claims is to get the money back into the capital of the performing contractors, is that not so?

Keith A. Jones:

Yes, I think–

If they do not want to wait a year or year and a half–

Keith A. Jones:

I assume that is right when you have a contract that extends over a long period of time, you have payments during that time.

I would like to reserve the balance of my time.

Very well.

Mr. Rossmoore.

William Rossmoore:

Yes Sir, may I—Mr. Chief Justice and may it please the Court.

I represent the respondent Gerald Page in this matter.

I do not think there is any dispute as to the facts, with one exception, that is Mr. Jones’ statement that the repayment by Model to the Government was made in the form of a deduction from other contractor — from other contracts between Model and the Government.

I think the documents which are included in the Government’s appendix make it quite clear that the deduction was from payments due under this very same contract.

I pointed out the numbers involved in my brief on pages 17 to 18, and I think if you will look at that you will see it is perfectly clear that it comes under this same contract.

Well, addressing myself first to the question of the number of forfeitures, Mr. Jones here dealt with a different numbers that might be used, and as a matter of fact, the Government’s position from the beginning of this litigation has not been at all consistent.

As Judge Gibbons pointed out in the decision in the Court of Appeals, originally the Government based its claims for forfeitures, not at all on vouchers submitted by Model to the Government but on its claim that the respondents submitted 30 invoices to Model and it asserted 30 forfeitures on that basis.

The shift came when I think it found out that there were only three invoices and then this theory came in that the respondents were now liable for the one forfeiture for each of 35 invoices submitted by Model to the Government, plus one forfeiture each for the joint act of misbranding the tubes, one forfeiture for the combined acts of submitting 21 packing lists, and one forfeiture for the combined acts of submitting 21 certificates, a total of 38, I take it that at this point they are now asking only for 35.

I think that what this demonstrates is that in fact the Act as the Government reads it is not all clear.

I submit however, that if properly read the Act is clear and I note that Mr. Jones in reading the Act to this Court persisted in reading from the codification in 31 U.S Section 231.

As I have pointed out in my brief that is not the correct wording of the Act, this Court has so recognized that in the U.S. ex rel. Marcus against Hess case, the Neifert-White, the Rainwater case, and other cases.

If you read the Act as it is actually written, I think that you will find —

William H. Rehnquist:

Where in your brief is that?

William Rossmoore:

That is on pages four and five of my brief, Sir.

The Act does not say that anyone who submits a false claim or causes the — pages four and five, Mr. Justice Brennan.

Anyone who — does not say that anyone who causes the submission of a false claim shall forfeit $2,000.00.

It says that anyone who commits any of the Acts prohibited by the prior criminal section, that was Section 5438, shall forfeit $2,000.00.

Now one of the Acts prohibited by Section 5438 is the causing to be made of a false claim.

But the forfeiture is imposed by the statute on the Act committed by the respondent or the defendant in the Trial Court.

William Rossmoore:

It is not impose on the submission of one or more false claims, as long as the respondent caused the submission of a false claim he then becomes for that Act liable for one $2,000.00 forfeiture.

And I think that whether or not this is now solely a civil statute, the criminal statute having been absorbed elsewhere.

It was written as a criminal statute originally and the language which was quite clear that forfeitures were to be only to be imposed for Acts committed by the person charged with the forfeiture.

And I think it is for that reason that I have stressed the correct reading of the statute, the correct language as it actually exists on the statute books.

Warren E. Burger:

Well as applied to this case, do you think that operates as much of a deterrence for this kind of corrupt conduct on the part of the contractors?

William Rossmoore:

Well, the deterrent effect as it works out in this case may, certainly is not as great as if you impose 35 forfeitures.

The deterrent affect comes from the criminal statute and I think the record here shows that these, both of these respondents were charged criminally, did plead guilty and were sentenced.

Now, the fact that they were not deterred previously, that is true of both any deterrent statute and any criminal statute.

They could have gone to jail for a long period of time and they could have been fined, I think it is $10,000.00, this being a first offense, those penalties were not visited upon them.

But I think the threat of the criminal, the criminal process, the threat of the jail term would certainly be a much greater deterrent than the possibility of fortuitous imposition of fines.

Warren E. Burger:

There is nothing uncommon about having civil penalties in a situation like this be a vastly more of them criminal in terms of–

William Rossmoore:

Nothing at all, and in many cases it so works out.

And some of the — I guess even in the Hess case, the criminal penalty is actually imposed were greater than — would have been imposed have the defendant there been prosecuted criminally.

But the purpose of the statute, and I think this Court has recognized it in the Hess case, is to provide restitution for the Government.

Is that all, just restitution?

William Rossmoore:

I believe that is all.

And I think that that is the language of the Court in the Hess case so states.

We think that the chief purpose of the statute here was to provide restitution to the Government of money taken from it by fraud, and that the device of double damages plus a specific sum was chosen to make sure that the Government would be made completely whole.

Now, it may also incidentally have a deterrent effect and somebody who is starting out to commit a fraud might examine, sit down and say, well gee, if do this, it is going to cost me seventy thousand dollars or a hundred-thousand dollars, I do not give a damn about the criminal penalty but I am not going to subject myself to that.

I do not think that is the way people get into this kind of situation, I think as the record shows here, these respondents actually backed into it.

They entered into a contract which they could not fulfill and then they have found out that the way they could fulfill it was committing the fraud, and they were involved not in considering the penalties at all, they certainly were not considering the number of forfeitures.

They certainly committed illegal acts, they certainly were subject to the criminal penalties and they are subject to the civil penalties that this statute provides.

William H. Rehnquist:

Well, they certainly caused to be presented a claim to the Government, under the RS 5438 that you have set forth at pages four and five of your brief, did you not?

William Rossmoore:

Yes, there is no question about that, but the question is are they to be charged with a $2,000.00 forfeiture for each act then committed by somebody else over which they had no control.

William H. Rehnquist:

But would the language caused to be presented? —

William Rossmoore:

Yes, but the witness statute says as anyone who commits an act shall be fined $2,000.00, the Act is causing to be presented a claim or claims.

William H. Rehnquist:

Well, I do not read 5438, if you look at the top of page five perhaps, I have missed something that you have seen, look at the top of page five of your brief, any claim upon or against the Government of the United States or any Department or Officer there of knowing such claim to be false, fictitious or fraudulent.

Now that just says claim, it does not say —

William Rossmoore:

That is right Mr. Justice, but if the Section 3490 says that the forfeiture should be visited upon the act committed by the respondent not by the –not upon the claims submitted.

The Act causes the claim, yes, but the punishment or the penalty or the forfeiture goes against the act committed.

William H. Rehnquist:

But the Act prohibited is causing to be submitted a claim.

William Rossmoore:

That is right, Sir.

But one act can cause the submission of one claim or a hundred claims or 400 or 397 claims in this particular case.

And perhaps it can be made clear that Government’s argument is that somehow the subcontractor gets off easier than the contractor in this case, because if the contractor himself were committing the fraud he submitted 35 claims.

Well that is true, but the contractor had the power each time that he submitted a claim and let us assume he knew he were submitting a false claim to say gee, you know I have talked to my lawyer and I realized I am going to be in trouble, I am not going to submit anymore of these, I may be stuck with what I have submitted but I am not going to submit anymore.

The subcontractor does not have that option, he is done, he did his — he committed his fraud, he submitted the false goods and then he is subjected to the multiplication of claims by acts over which he has neither knowledge nor control.

And that is why I say that the act — that the impact of Section 3490 is on the act committed by the respondent not on the subsequent acts committed by the contractor, even though that is one of those subsequent acts, this is a necessary change, it is the claim submitted.


William Rossmoore:

Yes, the act that the respondent here committed was causing a claim to be submitted, it was not submitting one or 35 or 397 claims.

I suppose the problem with the statute and the problem that this Court and many of the lower courts have wrestled with is that it does find its impact in such a great variety of situations and there has not been no broad statement as to what the rule is.

It has been applied on a case-by-case basis and the Courts of Appeals has come to different conclusions although most of them I think, except for the Court in the Ueber case agree with the position that we take in this case.

And at the risk of being presumptuous, I would like to state what I think might be a formulation of a rule for consideration by this Court which would operate fairly, and which would be in accordance with the language of the statute.

And that is that a forfeiture should be imposed for each act or series of acts or cause of conduct by the defendants in the case involved, which result in the payment of a false claim or claims by the United States.

This formulation puts the emphasis where it belongs on the acts committed by the person charged with the forfeiture.

So much for the forfeiture question, I would want the touch briefly on just two thoughts with respect to the double-damages issue.

One is, and I think it is clear, in again in Mr. Justice Black’s opinion in the Marcus against Hess case, that the double-damages provision originally came in to this statute because of the key term provision, the informers’ provision, whereby it was thought that most of these actions at that time would be brought by informers, the informer would get half of the recovery and the Government would then be made whole by its half of the recovery.

Obviously if that was the intent, if the Government had already been paid or reimbursed as it was in this case by a credit in the same contract, no informer would consider bringing a suit, there would be nothing to sue for, the Government had not been damaged.

Warren E. Burger:

What about other related statutes like 18 U.S Code 2001, was there ever informant fee involved under that?

William Rossmoore:

That is the criminal statute is it not?

I think there were informant fees but it did not relate to the question of damages, there are many statues where there are informant fees.

I think the Public Contracts Act, the situation has worked out pretty much as we contend here that any payment by the Government is first deducted before the doubling of damages.

The informer feature still remains in our statutes although in a much modified form in the 31 U.S.C Section 232, which is the successor to the revised statutes 3493.

At present though, and it is only under limited circumstances, the informer can get up to one-fourth of the recovery but it is still there.

One final thought, in the Hess case itself or in the Trial Court in U.S. ex rel. Marcus against Hess, there were a number of instances where the Government discovered the fraud before it made payment.

The defendants’ argued that since the fraud had been discovered, there were no damages and therefore there should be no forfeitures.

And the District Court decision which was eventually affirmed in this Court held that true there were no damages to be doubled but there was still a claim for forfeitures.

This was pointed out again in this Court in the Rextrailer case on page 153 footnote five.

And I think that in at least in part answers the question of whether the Government can first double the damages and then deduct any credit.

I think the answer is that it cannot and should not both because of the history of the way this statute was put together in the key term actions and because of the interpretations that have been placed upon it.

I will yield the rest of my time to Mr. Ballan for further comments, he represent Mr. Bornstein.

Warren E. Burger:

Mr. Ballan.

Jack Ballan:

Mr. Chief Justice and may it please the Court.

I do not wish to be repetitive.

I hope you will bear with me if I am.

I would like to just emphasize a few points that perhaps have also been mentioned before.

One is that this statute ambiguous, and indeed the last paragraph of the Circuit Court’s opinion indicates, when it cries out for interpretation or revision and perhaps that is why we are here.

And I raise this because I think that the Court’s have been struggling with this ambiguity and these ambiguities and these overlapping sections, and have come up with reasonable guidelines, not sufficient admittedly but reasonable guidelines to date.

And may I say that in each case that I have read I can find no exception.

There has been a minimization of claims from the subcontractor through the contractor.

In other words, this is the only case that I know off and I stand to be corrected if I am wrong, where the acts of the subcontractor have been maximized rather than reversed.

Even in the Ueber case, which is very heavily relied upon by the Government, there were 442 false invoices submitted to the general contractor — by the two general contractors by the subcontractor, they were reduced to 54.

And it makes it clear in this case that there was a pass through that these invoices that were ultimately submitted arouse out of truly arouse out of it and truly were caused by the acts of the subcontractor.

In this case, I think it is fair to say that we did not truly cause the 35 claims to be filed.

We did cause claims to be filed but not 35, and as I think Mr. Justice Powell indicated the Government could have got to 500 in this instances, if it wished to, it could look for all types of false documents and include them in their false claims.

But this would be a gross injustice, I think and it would be a misreading of the statue which admittedly has some problems.

Now, I think it is fair then to say that the subcontractor here should be charged with his acts, and not the fortuitous acts of the general contractor, which are as has been said before, totally beyond his control.

Now Mr. Chief Justice, you have indicated some concern about deterrence as we are and we are not here to defend or prove certainly of what was done, but the deterrence does in fact take place with the criminal sanction, which was imposed and can always be imposed by the statute here and that these two gentleman received a two-year jail sentence which are in stipulations, which was suspended, and as businessmen certainly that is quite a serious deterrent.

Warren E. Burger:

Does Congress’ numerous statutes provided these kinds of deterrent civil penalties in very large amounts?

Jack Ballan:

I think you are right, Sir.

To my knowledge very–

Warren E. Burger:

Very well, from the civil penalty being much-much greater than the criminal penalty.

Jack Ballan:

Well, we are dealing with this statute and how it has been interpreted, the Government — the petitioner has relied heavily on Marcus and Hess, which is the only Supreme Court decision to deal with the question of multiple forfeitures.

And in that case also, there was a reduction, a minimization of-of claims and of penalties or forfeitures because the Court’s have been struggling with this ambiguous statutes and have been in each instance reducing them to a reasonable level and a reasonable standard.

With respect to the double-damages, may I just say that in this instance, the statute says double-damages sustained are to be charged against the subcontractor, these two individuals, and may I suggest that there were no damages at all in this case.

That when the restitution was made, when the payment was made by Model, the contractor, who never went after the respondents herein, although he might have or it might have.

When that payment was made of $18,000.00 to the Government, the Government was rendered whole financially and economically–

William H. Rehnquist:

Well supposing, I am hurt in an automobile accident and I incurred $2,000.00 hospital bills, and as approximate result of the negligence of the driver at the other car.

Now, if I have hospital insurance that pays me offer that right away, you would not say that none of that—I never would sustained those damages would you, in dealing with the tortfeasor?

Jack Ballan:

No, I would not say that, I would agree with the implication of your question.

However this is a question of fraud and I do think that when we are dealing with a tort action or a negligence action that the approximate causes are certainly the responsibility of the original tortfeasor.

Jack Ballan:

But in this instance, with a fraudulent claim, with fraud being charged the response I think they should be charged only and I think the statutes and the cases indicate with their acts of fraud.

William H. Rehnquist:

Well as a matter of principle, I would think you would extend proximate cause further when you are dealing with someone who defrauds than with someone who is merely negligent.

Jack Ballan:

Well Sir, Mr. Justice Rehnquist, in this case our problem is that the upper limits of that are totally beyond our control and do result in very unfair consequences.

For example, this contract with which we were subcontractors was a two-million dollar contract.

There were, as the Government pointed out, about five or six component parts and these sets that were sent out, we provided a small part of one of those five or six parts, namely two tubes for each unit.

Now, the total of that we have received was approximately about $13,000.00 or $16,000.00 I believe was what we received in payment.

Now, we are unable to control the ultimate or the subsequent subdivision or multiplication by the general contractor when he submits his invoices–

William H. Rehnquist:

Okay, that is an argument on the forfeitures point, but you are making an argument on the double-damages point.

Jack Ballan:

Well on that, I making a statutory argument, Sir, and I am referring to the rationale of the client case, which is the only Circuit Court decision on this matter, and in that case, they read the statute, which does not provide for when the doubling takes place.

And they felt that a rationale approach would be to fix the amount lost if there is restitution made, as it was in this case, to then subtract the difference and then double and they came up with a figure indicating that there was really no loss to the government, it was miniscule.

If Model had not made restitution, had not paid $18,000, then we certainly would have been held accountable for a doubling of a loss of 16,000 to 18,000 or namely 32,000 to 36,000.

But the payment was made.

There was no law sustained by the government except in its subsequent prosecution of this matter.

I believe that the rest has been stated by my colleague and I will probably repeat anything unless there are any questions.

Thank You.

Warren E. Burger:

Mr. Jones.

Keith A. Jones:

Thank you, Mr. Chief Justice, I just wanted to address myself to the argument that there is some difference between the revised statutes and the False Claims Act, as codified in the 31 USC.

It seems to me that there is no difference whatsoever in the language of practical effect.

In either case you look to determine that whether there was a false claim.

If so you ask, did the subcontractor cause it?

If so there was a violation, then in this case you look to the second false claim, did the subcontractor cause it?

Yes he did by his fraud.

That is th second violation.

William H. Rehnquist:

What if you should just look though to the act of the subcontractors as your opponents are suggesting, and say that what is forbidden by RS 3490 is the doing or committing of the act, the subcontractor’s act is single in submitting the thing to the prime.

Keith A. Jones:

The reason I think that that is inappropriate analysis is that the doing or committing such act refers to the act described in 5438, and the acts described in the 5438 are the causing of false claim to be submitted.

William H. Rehnquist:

Okay, how many times do the subcontractor in this case cause a false claim to be submitted?

Keith A. Jones:


William H. Rehnquist:

I would think you could argue equally well that it did it once.

Keith A. Jones:

Well, he argues that his fraudulent course of the conduct constituted a single causative act or that is that essence as I take it of that argument.

It seems me that that is wrong for two reasons which inter-relate.

Keith A. Jones:

One is that we have here multiple acts if you are focusing upon the acts of the respondent we have isolated some 400 odd different fraudulent acts.

On the other hand if you are concerned with the act as defined in the statute, that act is to cause the false claim and then it seems to me you have to look to determine whether a false claim was submitted and if so whether there was act or acts of the respondent that caused that submission and in this case, each one of the false claim was– the submission jof each one of the false claim was caused by the respondent within the intendment I take it of Section 5438.

Thank You.

Warren E. Burger:

Thank you gentlemen.

The case is submitted.