United States v. McNinch

PETITIONER:United States
RESPONDENT:McNinch
LOCATION:United States District Court for the Northern District of Illinois, Eastern Division

DOCKET NO.: 146
DECIDED BY: Warren Court (1957-1958)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 356 US 595 (1958)
ARGUED: Apr 01, 1958
DECIDED: May 26, 1958

Facts of the case

Question

Audio Transcription for Oral Argument – April 01, 1958 in United States v. McNinch

Earl Warren:

Number 146, United States of America, Petitioner, versus Howard A. McNinch et al.

Mr. Doub you may proceed.

George Cochran Doub:

If the Court please.

These are three separate cases decided by the Court of Appeals for the Fourth Circuit.

Each involves the proper scope of the Civil False Claims Act.

In the McNinch case, originating in South Carolina, the Fourth Circuit held that the Civil False Claims Act did not apply to fraudulent applications for loans guaranteed by the Federal Housing Administration.

In the Toepleman case, originating in North Carolina, the Fourth Circuit held that the Civil False Claims Act did not apply to fraudulent applications for loans to the Commodity Credit Corporation because it was a wholly owned government corporation, and a wholly owned government corporation, according to the Fourth Circuit, is not a part of the Government of the United States.

And in the Cato case, originating in the Eastern District of Virginia, the same decision was made.

Now, the facts in the McNinch case were these, the defendants where the officers and — and the salesmen of an unincorporated home construction business.

They presented to a South Carolina bank, an FHA approved lending institution, a false and fraudulent FHA loan application on the forms of FHA for the purpose of obtaining FHA guaranteed loans for the construction or repair of homes.

Now, the applications were fraudulent and fictitious.

They included false credit reports in order to bring the applications within the eligibility provisions of the statute.

Our complaint under the Civil False Claims Act alleged, the applications or claims were filed with the intent that they should be reported to and accepted by FHA for insurance.

That is the guarantee.

Well, in reliance upon the integrity of the applications, the bank approved the loans, reported them to FHA, FHA guaranteed payment of the loans to the bank in the event of a default and the bank made the loan as guaranteed by FHA to these applicants.

And those actual payments were obtained.

Now, the compliant further alleges a conspiracy by the defendants to defraud the United States under this — the same provisions of the Civil False Claims Act and it alleges in that connection that the defendants obtained 2000 counterfeit credit report forms of a credit company for this fraudulent purpose.

Now, I might say, because great significance is attached to — to this fact by the lower court and by the defendants, after the discovery of the fraud, but before these suits were instituted and before criminal suits were instituted, the defendants bought back these — these notes, so there’s been no default on the notes and there has been no loss by FHA.

Now, the facts in these cases are typical of thousands referred by the FHA to the Department of Justice originating all over the United States.

As a matter of fact, this type of fraud, our experience shows that my division is more prevalent numerically.

We have more cases numerically of this type than under any government program.

Now under —

Felix Frankfurter:

When did this — when did this problem, under this general statute, first began to show the difficulties the courts have found it, or at least have reached results that you now seek to get upset in time?

George Cochran Doub:

Well this is — this is the first decision of the Court of Appeals.

Felix Frankfurter:

It must have been a District Court decision, how do they go?

George Cochran Doub:

They go both ways.

Felix Frankfurter:

When do they begin to go one way or the other?

What I’m getting at is I’m always troubled.

The department takes a long time to get a ruling from this Court instead of getting an elucidation of ambiguity on the hill.

George Cochran Doub:

[Laughter]

George Cochran Doub:

I don’t recall that, I don’t believe I can answer that point.

Now, let me remind you of the provisions of the Civil False Claims Act.

It provides for the payment to the United States of the sum of $2000 as liquidated damages or imputed damages or forfeitures, as to each fraudulent claim, and in addition, double the amount of actual damages.

It’s applicable to anyone who makes or causes to be made or presents or causes to be presented a false claim, for payment or for approval, by any person or officer in the civil — civil service of the United States.

And it covers any claim upon or against the Government of the United States or any department or officer thereof, and it also applies to obtaining or aiding to obtain so it is a broad, comprehensive statute and there are no qualifying or exclusionary clauses.

Now, in the —

May I ask you a question?

When you say — you said that they made restitution (Inaudible) going to report back to denounce prior to that point.

What was it (Inaudible)

George Cochran Doub:

Well, the record doesn’t show that, Your Honor.

In Marcus against Hess, Mr. Justice Black said for the — for unanimous Court on this point in interpreting the Civil False Claims Act.

He said if — the Court said it is a civil remedial statute and not a penal statute.

It’s to be accorded the fair meaning of its intent.

It was immaterial that the false claims were filed against a third party and not directly with the United States.

In other words, there, they were filed with their municipality.

And here, they were filed with a South Carolina bank.

It was also — you also held that the object of a statute was to provide protection against those who would cheat the United States and to reach any person without regard to whether that person had direct contractual relations with the Government, and that is also true here.

The Court also held that the test of application of the Act was whether, ultimately and eventually, there might result payment of government money.

I might say that in that case, that was a case where fraudulent claims were asserted by contractors against a municipality which was under contract with PWA.

In other words, PWA was supplying a great deal of the funds for the construction of this municipal public improvement.

And so, though the false claims were presented to the municipality, the loss was ultimately born by the Treasury of the United States, although not in — in its entirety, only in part.

Now, the Fourth Circuit followed the opinion of the Third Circuit with Chief Judge Biggs dissenting in the opinion in the Cochran case of the Fifth Circuit with Judge Reed dissenting, holding that such fraudulent applications did not constitute claims against the Government within the meaning of the False Claims Act.

Now, the — these circuits strictly interpreted the word “claim” in the False Claims Act as a demand for money or property as a right, and since no demands were made for the payment of the loans, the Act did not cover the transaction.

And the opinion suggests that if there had been an actual default on the loans, and if there had been an actual payment by FHA, then the Act would apply.

But here, these applications were made upon FHA titled loan credit forms, here the defendants made the fraudulent applications with the objective and intent in understanding that they would be reported to and accepted by FHA for guarantees.

Here, they knew the bank wouldn’t have made these loans except for the Government’s guarantee.

Now, what was the essence of this transaction?

Upon FHA approval of this bank, which happened before these applications were filed, and upon the filing of these applications on these FHA forms, with the representations made in — in them, that brought them within the scope of the Act and entitled them to the loan, and entitle the bank to the guarantee of the Government.

And when the bank made that guarantee, it became unqualifiedly committed as the guarantor of any future losses.

So, we say that these applications were in reality and practically in — in substance directed against the assets of the United States.

George Cochran Doub:

And it’s our position that the word “claim” under the statute goes beyond a simple demand for the immediate payment of money.

Here, the claim, the fraudulent claim was to the pledge of the credit of the United States and it was that guarantee which we made, and we say that guarantee was a property.

Now, you’ll notice this no restrictive language in the statute as to the word “claim”.

It says, any claim, which would ordinarily mean all claims.

It refers not merely to payment, but payment or approval of a fraudulent claim.

Now, the Third Circuit and the Fifth Circuit interpret this statute as directed the claims for money or property.

We don’t object to that.

And — and I think that’s undoubtedly so, but we say the word “property” shouldn’t have been restricted by those circuits to tangible property, that, of course, it covers property in its ordinary sense, tangibles or intangibles.

Does the Government remain or the FHA remain on the hook, once it is discovered that there has been a fraudulent application for a loan?

George Cochran Doub:

If the bank is at — if the bank did not know of the misrepresentations, the — the Government has logged on its contract to guarantee.

So, all we’re — the — the real issue in this case we — we submit is this, is a contract of guarantee — is a pledge to the credit of the United States property, if so, this was a claim for property under the Civil False Claims Act.

Now, we say property should be deemed to include a franchise, a patent, a copyright, a contract of insurance, a contract of guarantee, a contract of indemnity, any that shows an action of any legal right.

I might remind you of what this Court said in the Arenz case in 290 U.S. 66, which I don’t think is on our brief, in construing the word “property” in a statute.

We said — it’s Fidelity and Deposit Company against Arenz, 290 U.S. 66.

And this is a way you construe the word “property” in a federal statute.

Property is a word of very broad meaning and when used without qualification, expressly made or plainly implied, it reasonably may be construe to include obligations, rights and other intangibles as well as physical things.

And then in Lynch against United States in 292 U.S., and an opinion by Justice Brandeis who held at War Risk Insurance policies being contracts for property and created vested rights.

And so, we say here, that FHA applications, fraudulent ones, that these defendants for a loan guaranteed by FHA were a claim for a contract of indemnity.

Now, the — the Third Circuit and the Fifth Court and the Fourth Circuit has made — made another false distinction, we believe.

They say that the test of liability is whether that’s what’s involved on the loan, which suggest that the Government, after discovering a fraud, would sit idly by to ascertain whether a default occurred before the six-year statute of limitation as far as the action, or see whether the defrauders — would accord the defrauders an opportunity to buy the notes in case of a default to prevent a call upon the guarantee.

Of course, it would be practically an invitation to fraud.

It would be an engine of fraud.

It would be an invitation to take a gamble.

If the fraud isn’t discovered, there’s no problem.

If fraud is discovered, buy the notes back, and you could have a loss of evidence, the Government has to wait after it discovers the fraud for — for perhaps years.

Where do you find the word “property”, according to Government of property in the statute?

George Cochran Doub:

I did not say it was in the statute.

I said —

Oh, I’m sorry.

George Cochran Doub:

— that the Third Circuit and the Fifth Circuit have interpreted the statute as —

I see.

George Cochran Doub:

— applying the claims for money or property.

I see.

George Cochran Doub:

And I accept that.

Now, it’s not necessary under this statute, if the Court please, that the Government suffer a pecuniary loss.

The statute isn’t in terms of loss.

The wrongful act is not the obtaining of money or property by fraud, it’s not defrauding the Government.

The wrongful act, the offense is not cheating the Government, but it is attempting to cheat the Government.

Then Mr. Justice Black said in his opinion in Marcus against Hess, it applies to those who would cheat the Government of the United States and then the — the $2000 liquidated damage, a forfeiture provision.

Obviously, it designed to cover, to impute damages to the Government, although, it maybe unable to prove any.

Though the statute assumes an injury by that forfeiture provision, it imputes liquated damages and that — are desirable, because whenever there is an attempted fraud, though not successful, is investigative expense and clerical expense and legal expense.

So, we say there is no requirement statutory or judicial that specific damages be shown.

In Rex Trailer Company, Mr. Justice Clark said for the Court in — for unanimous Court in that case, and that the language of that statute, the Surplus Property Act, was somewhat similar to this, it can be distinguished but he said the fact that no damages are shown is not fatal.

And we say his language there should be applied here.

So, we suggest respectfully that there is no valid distinction between default and pre-default claim.

The distinction made is artificial.

It’s unrealistic.

And so, it follows that when there is a fraudulent application, a fraudulent claim for a guaranteed FHA loan, the statute has been violated, and that is the wrongful act, filing the claim.

And that wrongful act, which is its basis, is the same, whether there is a loss, actual loss by the government or not, default is not critical, but the filing of the false claim is.

Now, that brings me to the Toepleman case and the Cato case, one is in North Carolina and one from Virginia.

There, the Government brought suits under the same Civil False Claims Act for alleged frauds upon the Commodity Credit Corporation.

Commodity Credit had authorized the defendant corporations as Commodity’s agents to make non-recourse loans to purchasers of eligible 1948 crop cut.

Now, the defendants submitted to Commodity Credit Corporation hundreds of notes, fraudulent notes of alleged cotton producers.

Hugo L. Black:

What do you mean by fraudulent?

George Cochran Doub:

Well, if they falsely certify that the note makers had produced cotton.

As a matter of fact, the note makers had sold their cotton to the defendants and had no further interest in the cotton.

And the defendants persuaded and are induced the producers of the cotton to sign these notes or — or rather applications, these false statements that they had produced the cotton even after they had purchased their cotton and they had no further interest in it.

They also falsely certified that the benefit of the loan would accrue solely to the note maker and that was untrue because they — they weren’t going accrue to the note makers, they were going to accrue to the defendants who had purchased this cotton.

They also falsely alleged the benefits below, and it had not been transferred to any other party.

Now, on the basis of these false statements, the defendants obtained payment of these fraudulent notes from the Commodity Credit Corporation.

George Cochran Doub:

Now, actually they made no dispersement to the purchasers or rather to the producers, the latter having no interest in them and they retained these commodity payment.

In other words, here was just a fraudulent scheme of some cotton brokers to protect themselves from loss.

The price of cotton went up, and probably that was one thing.

But if the price of cotton fell, this cotton they had bought from the real producers, then they would be protected by obtaining these payments on these fraudulent notes from the Commodity Credit Corporation.

William O. Douglas:

(Inaudible)

George Cochran Doub:

Well this commodity —

William O. Douglas:

Against the commodity claim?

George Cochran Doub:

In these cases, yes.

In these cases, there were losses?

William O. Douglas:

And did the Government paid the losses?

George Cochran Doub:

Yes.

William O. Douglas:

The Government agency paid for the losses?

George Cochran Doub:

That’s right, Mr. Justice.

Now, the Court of Appeals held —

William O. Douglas:

But in the other cases, there was no loss or no —

George Cochran Doub:

No actual loss, because these defendants bought up these notes and I think they bought them up after they — they discovered that we had discovered the fraud.

Now, the Court of Appeals held that the civil False Claims Act did not apply to frauds upon the Commodity Credit Corporation of the type I have just described on one simple single ground and that is that Commodity Credit was a wholly owned government corporation.

And a wholly owned government corporation is not a part of the Government of the United States.

Felix Frankfurter:

Well, not — not in the lose sense of the term but it’s not a part of the Government of the United States within the meaning of False Claims Act?

George Cochran Doub:

That’s correct.

Felix Frankfurter:

Which is a very different one.

George Cochran Doub:

Well, I accept your qualification.

So, the Court held that a wholly owned government corporation, though operating exclusively as an instrumentality of the United States, though executing a Federal Government program with public money is not a part of the Federal Government within the meaning of the statute.

Felix Frankfurter:

When was this statute put into the Court, 1940?

When did — I ordered my —

George Cochran Doub:

I think it came in at 1940, I might say this about the — about the statute.

It originated in 1863 by virtue of the extensive frauds perpetrated upon the Government during the Civil War.

It was reenacted in 1873 and reenacted again in 1878.

Now, the — the —

Felix Frankfurter:

And then didn’t get into the code until when.

Felix Frankfurter:

Now —

George Cochran Doub:

I don’t recall and it was codified in the code.

I might say that the — there are two separate statutes that are involved in the 3490, 3490 which was adopted in 1878 or reenacted then, refers to — incorporates by reference the criminal statute known as 5438 and we agree with counsel for the defendants in all of these cases that in interpreting these statutes, you must interpret the — the 5438, the criminal statute which was embodied in this by reference in 3490 as it was enacted in 1878.

And that criminal statute has been modified and amended many times since then.

We agree those amendments were not incorporated into the Civil False Claims Act.

Felix Frankfurter:

What bothers me, and seriously bothers me Mr. Doub, is why when you’ve got a technical statute like this, and by technical statute, I mean no more than that not general loose phrases when used, but specific phrases, namely, the Government of the United States or any department or office that thereon, I say not a general phrase, the Government of United States which is — which has expansive, which has a supple term, expanding term, but or any department or office of that kind of particularity.

The last codification was 1878.

Now, in 1878, I don’t know an incorrect — you inform me, I don’t suppose there was a government corporation, they were government incorporated, government charted corporation —

George Cochran Doub:

There’s only one.

Felix Frankfurter:

Pardon me.

George Cochran Doub:

There was only one.

Felix Frankfurter:

What was it?

Smithsonian?

George Cochran Doub:

Smithsonian.

Felix Frankfurter:

Smithsonian.

Even there, the Government didn’t own all the stock.

Anyhow, but certainly between 1878 and down to 1940, beginning with the Panama Canal and so on, you had a vast number, proliferating phenomenon in regard to government owned corporations.

And what I don’t understand is when you come to recodify why a phrase like that with its limitations of time couldn’t have been changed though it’s the including things without having all this litigation.

I can — I can not only can understand but I, I wrote the opinion in Kieffer, that’s a different problem, whether the – that the immunity statute should apply.

That’s a very different — not the immunity statute, but the immunity assumptions.

But when you come to a statute which has this particular recession, I cannot understand why you do not get clarifying legislation, why Congress puts it in and then we are argued – it’s argued to us, “Oh well don’t bother about that phrase.

It includes everything that in the course of time has been within the general agents of the United States,” which is your argument.

That’s the sum of it, isn’t it?

George Cochran Doub:

Well —

Felix Frankfurter:

I don’t mean to — I do injustice through what they follow, I know but that’s the sum of it.

George Cochran Doub:

Well, I’ll state the sum of it this way, the respondents contend that the question here is whether Congress in reenacting this False Claims Act in 1878 considered and intended and determined that a government corporation so, such as the Commodity Credit Corporation, should be included within its terms and they say Congress didn’t so intend because there were no such corporations, that was your point —

Felix Frankfurter:

In 1940, in 1940 that was —

George Cochran Doub:

1878 sir.

Felix Frankfurter:

Oh sure, not in 1878 but what about 1940 where in proposals, when everyone of these provisions in draft was sent to Department of Justice and to every branch of the Governments for their comments.

George Cochran Doub:

Well, I’m afraid I didn’t — it was not in the Court of Justice and with Justice Frankfurter and I did owe responsibility for these statutes that we’re talking about.

Felix Frankfurter:

The sins of your predecessors shall descend upon you.

[Laughter]

George Cochran Doub:

Through our answering the defendants’ contention, as I have stated it, we submit that’s not equality.

It’s not necessary for the Government to show that Congress in 1878 determined to include a specific form of government activity which is not then developed.

The true inquiry, we say is, did Congress then intends by the use of this broad language of the Act to include all fraudulent claims against the Government regardless of the type of Government agencies which existed then or might develop thereafter.

In another words, did by using this broad language, Congress intend that the Act should be applied not only to existing known departments of the Government, but to any new types of government agencies, to any new corporate forms of activity provided, then in reality and in substance, they were a part of the Government.

Now, we’re unable to find sufficient distinction to be drawn between commodity credit and the Government itself.

Let me explain what commodity credit is.

It’s defined in the statute to be an agency, an instrumentality of the United States.

Within the Department of Agriculture, it was created for the purpose of stabilizing foreign income and prices, so it has a public purpose.

It’s not a private banking venture, for instance like, a national bank incorporated under federal law.

It’s manned entirely by officers and employees of the Department of Agriculture.

All of its personnel are — their salaries are paid by the Department of Agriculture.

It has no officers, it has no directors, it has no employees outside the Department of Agriculture or independent of agriculture.

Now it’s been — the statute further provides that commodity has all the rights, privileges and immunities of United States with respect to priority of payment of debts from — under — in bankruptcy.

Its obligations are deemed in the instrumentality for the United States.

It — its income is exempted from federal and state taxation.

Suits may be brought directly against the United States on its obligations.

Although, if charter says it might sue and it may be sued, and the United States may sue anyone in its own name upon claims of commodity credit.

All of its capital came from the Treasury of United States and it’s authorized to borrow up to $14.5 billion upon the credit of the United States.

Hugo L. Black:

Has it borrowed that much yet?

George Cochran Doub:

It hasn’t borrowed any — it — it borrows from the Treasury of the United States and then periodically, Congress cancels the debt.

The —

Felix Frankfurter:

Is there any, Mr. Doub, is there any government, is there any corporation, any corporate body in which the Government has shares and somebody else has also shares?

George Cochran Doub:

Yes, there are such types of corporations and —

Shipping corporations.

George Cochran Doub:

There are number of them listed and I’ll give you a — a reference, if I may, later.

Felix Frankfurter:

Would they be — would they be the Government of United States?

George Cochran Doub:

No, they would not, they would not, neither would national banks, neither would any corporations in which the Government merely has a —

Felix Frankfurter:

Well, the Government has any — doesn’t hold any shares of stock in a national bank, does it?

George Cochran Doub:

No, but they are — there are agencies and instrumentalities of the United States with certain purposes.

But what’s involved here is something very different from that — before I’d like to — before I leave the Commodity Credit, I want to point this out, the Agricultural Act of 1949 direct the Secretary in making cotton loans to support the price of cotton through the use of Commodity Credit Corporation and other means available.

The 1948 Act is similar language.

Now, in Rainwater, the Court of Appeals for the Eighth Circuit held that commodity credit was nothing but a book keeping device for the handling of government money.

It was a matter of form which should not be allowed to obscure substantive realities, and in view of your functional interpretation of this False Claims Act in Marcus against Hess.

And the Eighth Circuit could find no material distinction between your decision as to the Reconstruction Finance Corporation and this situation, because in Cherry Cotton Mills against United States where you permitted the United States to sue on obligations due the RFC, this Court said that the Congress chose to call it a corporation.

It does not honor its characteristic so to make it something other than what is actually is, an agency selected by the Government to accomplish purely a governmental purpose.

Now, we say that the restrictive decision of the Fourth Circuit, which is in direct conflict with the Eighth Circuit, limiting the scope of the False Claims Act, we think it ignores the realities of the situation and the substance of the situation in adhering their corporate section formalism.

And we think it’s at variance with your decision in Marcus against Hess.

Remember, there, you held that the statute applied, the claims against the municipality where the laws ultimately was born by the Treasury of United States.

Felix Frankfurter:

Would you say TVA is a formalism?

George Cochran Doub:

Yes.

I do, sir.

Felix Frankfurter:

You do say that?

George Cochran Doub:

Yes.

Felix Frankfurter:

Well, there’s a lot of reality behind that formalism, isn’t there? I don’t —

George Cochran Doub:

TVA is a —

Felix Frankfurter:

— know what to say, I don’t know what you gain by calling it a formalism.

A certain very important social purposes, economic purposes, political purposes, behind the utilization of that kind of thing.

George Cochran Doub:

We have a far stronger case here Mr. Justice Frankfurter than we would have it if we were dealing with TVA.

Felix Frankfurter:

I’m not —

George Cochran Doub:

Here, we’re dealing with nothing but a shell.

Felix Frankfurter:

I’m not this — I didn’t get to try to get it shell, I’m just trying to get clarity, of course.

George Cochran Doub:

As I was suggesting in Marcus against Hess, if you held a test of liability under this Act and its coverage was the source of the money and whether the financial loss will ultimately be born by the United States.

There, you treated False Claims within the Act when they were not against a wholly owned government corporation but against a wholly independent, independent entity with no relation to the United States except under contract, namely, state municipalities and school district and if you held the act of cowardice unanimously on that point.

What do you do with the circumstances in 1918?

The criminal False Claims Act was amended to add specifically government owned corporations or as nothing was done about the Civil False Claims Act?

George Cochran Doub:

My answer to that is this, that amendment goes far beyond what we are contending for.

If it — it extended the False Claims Act to any corporation in which the United States had a stock interest.

Now, we’re not going that far.

George Cochran Doub:

We’re not contending for that, we are not contending that if the United States had a stock interest in a railroad or some other venture and there’s a private capital in that venture, perhaps, a private management, courses that you wouldn’t cover but that that amendment would, that amendment would apply to such corporation.

Then why didn’t they also include within that coverage the Civil False Claims Act as well.

They amendment it only criminally to be applied to partially owned government corporations that they didn’t carry even that amendment into the Civil — Civil False Claims Act, Civil False Claims liability.

George Cochran Doub:

Well, of course there was no reason to amend the — no they didn’t.

No amendments were made —

So why didn’t they, that’s a simple problem.

George Cochran Doub:

Yes.

Well, I think that’s the principal contention of the respondent and that they rely largely upon that amendment to the criminal act and the courts — the — the criminal act that’s applicable here is the one that’s enacted in this 1878 form.

I raised it with you because I thought it was a strong argument and I wanted to hear what your answer was?

George Cochran Doub:

Well, my — my contention is that if that amendment had merely provided that it should — the statute should be extended to apply to wholly owned government corporation, then I think they’d have a good point.

But it doesn’t do that, it goes far beyond that.

It applies to any corporation in which the United States has a stock interest and that could be a majority stock interest or a minority stock interest or 10 shares.

There is a reason why the Government — why the Congress should be one of those corporations — false claims respecting those corporations, partially owned corporations held criminally liable but not civilly liable.

George Cochran Doub:

Well, of course, we’re executing intentions —

Well, I know that and you’ve got that serious thing right on the face of it.

George Cochran Doub:

Yes.

I don’t believe that — I don’t believe that that’s enough to — to — for you to accept, the — the notion that the Commodity Credit Corporation, a mere shell — within the Department of Justice is not a part of the Government of the United States, suppose it became desirable and Congress deemed it efficient and desirable for the — for us to incorporate veterans administration or federal housing administration or perhaps the Department of Justice.

Functions are performed in the same way, only then to be said we are outside the Government, we’ve been pushed through the door, we’ve taken on some sort of debts of a — of a private corporation, I think it’s an emphasis upon artificial formulas and it goes beyond what I could accept.

So, we contend that, first, that all wholly owned government corporations fulfilling a public purpose in utilizing treasury bonds could be deemed a part of the Government of the United States or a department thereof, and this is an appropriate time at long last to override to override — to override several decisions made when there were a few pioneered corporations created, that is United States Fleet Corporation in 1918.

And the Court did accept them as separate entities.

Felix Frankfurter:

I should think — I should think that there was such decisions by this Court, it would have been a — so long incentive and has been an impulse to rubbing them, wiping them off the books if times have changed and the — and the codification process after that proceeded as it had and when it picked on.

George Cochran Doub:

Well, Mr. Justice Brennan, I took a different position from that, in Western Union Telegraph Company against United States Fleet Corporation.

There, he held a wholly owned government corporation.

It was a department of the United States.

Felix Frankfurter:

For what purpose?

George Cochran Doub:

That was for the — in interpreting a contract between Western Union and the United States, and the question was whether the Fleet Corporation was entitled to favorable government rates under a contract that provided it would be applicable to the Government of the United States and its departments.

Now, the — the language of that contract is identical with the language in this statute by coincidence and yet you said for unanimous court, you said for unanimous court that the United States Fleet Corporation was a wholly owned government corporation and that was a department of the United States.

But if you don’t accept that theory, you’re not prepared to go that far, and to say that wholly owned government corporations, operating exclusively for a public purpose, exclusively with public funds is not — are not part of the Government of the United States, then we ask you to hold that in any event, the Commodity Credit Corporation, merely a creature or agency within the Department of Agriculture without any independent office or directors or any office of its own, that in any event, that mere conduit to fulfill the Secretary’s programs should be deemed a part of the United States and within the statute.

Drawing a distinction between that and FHA?

George Cochran Doub:

Well, FHA, the problem is entirely different.

George Cochran Doub:

FHA is not a corporation, so the question in McNinch case is the — is the other one.

Earl Warren:

Mr. Epps.

A. C. Epps:

Mr. Chief Justice and may it please the Court.

I, in this case, am counsel for Cato Brothers, the two individual Cato men and Mrs. Dunn nee Stone, that’s one of these three cases, they are three separate cases from three separate districts in three different States being heard.

I say that because a — a portion of the argument only deals with my clients.

I must say that the petitioner’s argument, while I find it persuasive and powerful, is addressed, I think, to the wrong form.

I think they could be talking to Congress and not to this topic.

The Hess case has been referred to and I refer to certain language of this Court in the Hess case, page 542, sound rules of statutory construction exist to discover and not direct to Congressional will.

The Government presses upon those strong arguments of policy against the statutory plan.

But the entire force of these considerations as directed solely at what the Government think Congress should have done, rather than what it did, and then finally on 547, and finally their conditions have changed since the Act was passed in 1863.

But the trouble with these arguments is that they are addressed to the wrong form.

Conditions may have changed, but the statute has not.

Now, I was talking about this statute and I think that that is the point.

Now, the Government has known about this government corporation technicality since 1938.

They were held against in the Southern District of New York in the Salzman Salant case, in 1938 in the Southern District of New York in the Gilchrist case.

They have had us on the griddle since 1948, there — this is our 10th anniversary in this case.

And they haven’t done anything so far as Congress is concerned.

We think that 20 years is time enough for the problem to go to Congress.

Now, they are found to argue that a functional approach or expediency, if you will, is to make a note, the Act of Congress which Mr. Justice Harlan referred to in 1918, and to change the intent of Congress in 1878 which was the last time the statute was amended.

This case involves, if you please, the construction of a criminal statute, 5438 of the Revised Statutes, as they’d existed in 1878 and that criminal statute, if you please, should not be extended by interpretation and in line with fundamental principles, it must define a criminal act with certainty.

Now, how do we get to that and why do I say that?

This is a case upon the case of the incorporation by reference, if you please.

The Government has now graciously conceded that they misquoted the statute.

They did so — they — perhaps, my purpose is very important.

The Revised Statutes, 3490, unchanged since 1878, if you will, is on page 2 of our brief and this doesn’t say anything about the Government, it doesn’t say anything about the Government, it doesn’t say anything about the problem.

And this was the statute which they are suing us on.

Any person, not in the military or naval forces of the United States or in the militia called into or actively employed in the service of the United States who shall do or commit any of the acts prohibited by any of the provisions of Section 4400 and 38 Title Crimes, shall forfeit and pay to the United States the sum of $2000, and in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such acts together with the cost for suit and such forfeiture and damages shall be sued buying the same suit.

That is the civil statute which is unchanged.

And that is the incorporating statute, if you please.

Now, Revised Statutes 5438, which were incorporated as we have seen, define the crime, and this is a criminal statute which we say cannot be extended by interpretation and must define the crime of reasonable service.

A. C. Epps:

As it existed in — in 1878, that statute did not say anything about the government corporation.

It didn’t know anything about government corporations, except the Smithsonian Institute which merely said.

But this is — part of the fact that that statute has been off, it has been amended, repealed, reenacted and as Mr. Justice Harlan pointed out in 1918, they came in and included a government corporation.

And incidentally, it was not a partially owned government corporation because Mr. Justice Holmes in U.S. against Walter, if it please the Court, said it was such a corporation that — that was totally owned by the Government and it had to be or else the law would have been unconstitutional, the amendment would have been unconstitutional.

And it specifically held that it was limited to such corporations as were instrumentalities of the United States, so I think that put such questions to rest.

Now, —

Felix Frankfurter:

(Inaudible)

A. C. Epps:

The affect of this amendment, of these amendments to the incorporated statute —

What’s — what’s that decision, excuse me.

What’s —

A. C. Epps:

United States against Walter, if you please sir, 263 U.S. 15.

It’s cited in our brief.

Mr. Justice Holmes’ opinion and he says quite clearly that if it was the type of corporation which — in which the United States was a monarch and stock holder, for example, that it would be unconstitutional for the — for the statute to say any corporation in which their stock is owned, because the man might trade with any corporation at his peril, but if he reads into that amendment, the limitation that the corporation covered by that amendment must be an instrumentality of the United States, he does so in that Walter case.

And that’s a — that’s a complete answer to the argument of the Hybrid Corporation which the Government is making here.

Now — yes sir.

Felix Frankfurter:

Haven’t they — aren’t there some corporations which have some properties, corporate properties which have come to the Government by way of alien property custodian, in there which is a mix — what you call a hybrid corporation.

A. C. Epps:

Sir I would speak only from ignorance, I do know that there are certain corporations that — that are not wholly owned such as Federal Land Bank, I think, is one of them.

There are some mentioned in the Government Corporation Control Act to some four or five of them.

Land Bank is one of them.

That is the case which you give maybe but — and I would think there would be.

Now, the effect of the amendment of the incorporated statute, if you please, cannot change the ambit or the scope of the incorporating statute, the civil statute which has not been changed since 1878, must be read and so must the incorporated statute be read as both existed in 1878, not 1940 sir.

But as they both stood in 1878, because this Court —

Felix Frankfurter:

Allowing as having — I think I ought to distribute my favors equally.

A. C. Epps:

Yes sir.

Felix Frankfurter:

Having found some difficulty with Mr. Doub’s argument, I’d like to put to you that the — that the content of a term of generality, for instance, I would have no trouble at all if this was the Government of the United States myself.

A. C. Epps:

Yes sir.

Felix Frankfurter:

Because you can’t fix the meaning, the content of a term like the Government to what was the Government in 1878.

And therefore, this sought that, it must be as of the time that it was written, doesn’t mean that a word isn’t ambulatory as it were, if it doesn’t live like a tree.

A. C. Epps:

May it please the Court, I think that we can show by what Congress itself said it meant in 1918.

Felix Frankfurter:

Well —

A. C. Epps:

And what the Court said it meant, that it did not mean a government corporation and I think we are bound by that.

Felix Frankfurter:

You can do that, all I’m saying is that you are not to be bound as you said, as one of this — in reading a statute, a statute is — is of course a literary composition, but its also something else, it’s a projection into the future.

A. C. Epps:

Yes sir.

Felix Frankfurter:

And therefore, it carries all the meaning that fairly may be contained through the course of time as to the content of the term.

A. C. Epps:

With certain qualifications, if you please sir, a criminal statute since this is a criminal statute and that’s the only thing that has been amended, must define a crime with certainty and must not be extended by interpretation.

Now, the case of the proprietors of the Bridge against —

Felix Frankfurter:

Warren.

A. C. Epps:

That say as that when you say bridge in — in 1790, you don’t mean railroad bridge 70 years later and so it took — there has the limitation on the point Mr. Justice Frankfurter, makes I believe.

Now, we say that this modern trend argument is trying to put an amendment now into this criminal statute which is not there.

But it was put there in 1918, put there by Congress, which meant that it wasn’t covered before Congress put it there.

Now, one comment about our facts that I want to go into the legislative history and the judicial decisions, it was found as a matter of fact that our claims were submitted to the Commodity Credit Corporation, not the United States Government, and it was found as a matter of fact that the Government suffered no legally recoverable damages in our case.

With the amendments which I shall take, Mr. Justice Frankfurter, it seems highly important that we must search the meaning of Section 5438 of the Revised Statutes.

As it existed, or what it meant in 1878, as it has been shown to have been interpreted since that time, and we look to the legislative history and we look to judicial opinion.

Now, the — this legislative history shows clearly that Congress did not intend to cover a government corporation, about 5438 in 1878 and that their cases show that they — it didn’t — it didn’t cover, it did not cover.

Now, it’s already been pointed out that 5438 makes it a crime to present a claim against the Government of the United States, Department of the United States or any officer that govern, that’s all.

Now, while it’s true that this was 3490 should be construed broadly to protect the Treasury, still in 1918 after 5438 had gone through various amendments and become Section 35 of the Criminal Code, if you please, in 1918, Section 35 was amended by Congress to include or any corporation in which the United States of America is a stockholder, and that means as we have seen that it must be such a corporation as to be an instrumentality of the United States, not just any corporation.

Congress was too broad, it would have been unconstitutional if it had been that board.

Now, was this amendment an extension of the terms of the law or was it just a clarification?

We think that we can show clearly that it wasn’t extension.

Now, the committee reports in talking of that amendment had this to say, representative guard says, the amendment served to fully reenact and reinforce the provisions of Section 35 of the Criminal Code, so that it will include all the offense heretofore contained there in, and an offense against any corporation in which the United States is a stockholder.

Again, when it was explained the Bill, Mr. Representative (Inaudible), said, “The only amendments to the existing laws are the extension of the penalty of this Act to false and fraudulent claims that are presented against corporations in which the United States is a stockholder,” an extension if you will.

Once again, when the Bill was received from the Senate, Mr. (Inaudible) said, “This amendment”, and I have to quote him, “At Section 35 as amended to extend the law to false and fraudulent claims made against a corporation in which the United Stated is a stockholder.

Well, if they were going to extend the law to the corporations in which the United States was a stockholder, it could never applied prior to 1918.”

Where is that legislative history referred to?

A. C. Epps:

In page 12 and 13 of our briefs.

It’s a –H.R. Report 668, 65th Congress Second Section 9 (Voice Overlap) —

Felix Frankfurter:

Did the Government propose this amendment?

Did the — did the Department of Justice or the Government or the —

A. C. Epps:

That’s my understanding sir.

The reason they had done it sir and the Bramblett case, this is my next point, but I’m glad to get to it, the reason they had done it was that prior to 1918, they had tried to prosecute people under 5438 or then Section 35 and they said it didn’t cover government corporations, so they had to come —

Felix Frankfurter:

They — they — you said they said, who is they?

A. C. Epps:

The Court said so.

Felix Frankfurter:

The Court said so.

A. C. Epps:

Yes sir, the Court said it didn’t cover.

Now that’s in the Bramblett case sir, cited in our brief, U.S. against Bramblett, shows that history, 120 F.Supp. and it’s 348 U.S. 503.

There were judicial cases that said that they didn’t cover.

Now, there are other cases which deal with the history, United States against Bowman states that Section 35 was amended in — in 1918 to extend the act to cover a government corporation, United States against Bowman that is.

A very helpful case is Pierce against the United States, decided this Court in 1941 involving, if you please, the TVA.

And Section 32 of the Criminal Code which has language almost identical to Section 35, now, this man had pretended to be an officer of the TVA.

And in doing so, the Government tried to prosecute him for pretending to be an officer of the United States.

The particular words of the statute in 32 are just about identical to the words here using government or officer of department thereof.

And this Court said that the crime could not be proved under Section 32 of the Criminal Code and by way of passing and pointed out the extension of 35 that it was similar.

And –-

Felix Frankfurter:

What — what case is that Mr. –-

A. C. Epps:

Pierce against the United States, if you please sir.

Felix Frankfurter:

Where, at the lower court?

A. C. Epps:

This court sir in 1941.

Felix Frankfurter:

Well, there was the earlier case that I was looking up if I recall.

A. C. Epps:

Was it Walter U.S.?

Felix Frankfurter:

No, Strang.

A. C. Epps:

Strang yes sir.

Felix Frankfurter:

That way — that was —

A. C. Epps:

It was in Strang too sir.

Strang was Section —

Felix Frankfurter:

41.

A. C. Epps:

— 41, I was just get to that, that was the Fleet Corporation sir and it was a question of whether a man could have interest and still deal with the Government.

But Pierce is a later case and it involves the TVA and is very, very helpful on this point.

Did you ask for that citation?

Felix Frankfurter:

No, but your –-

A. C. Epps:

All right.

Felix Frankfurter:

Take your time.

A. C. Epps:

All right sir.

As I say, this man had been pretending to be or was charged with being a — officer of the TVA.

Now, after he was indicted and before the case got to this Court, Congress changed Section 32 to include all any corporation in which the United States of America is a stockholder.

This Court, speaking to Mr. Justice Reed said, “The statute in effect at the time of the commission of the alleged defenses did not speak of pretenses of acting under authority of corporations owned or controlled by the United States.”

It was passed in 1884, six years later than (Inaudible).

It was passed in 1884 before the United States owned or controlled corporations operating hotels, boat lines of generating plants.

The amendments, subsequent to the occasion fixed by the indictment, extended its scope first to the Home Owners’ Loan Corporation and later to all corporations owned or controlled by the United States.

These legislative extensions of the scope of the Act were in accord with the growing importance of the administrative corporation but a comparable judicial enlargement of a criminal act by interpretation is at war with the fundamental concept of the common law that crimes must be defined with appropriate definiteness.

Now, we say sir that 5438, as it existed in 1878, cannot be extended by interpretation.

I have already cited the Salzman and Salant and the Gilchrist cases decided in 1938, 20 years ago.

Now, the Rainwater case says that the Section 5438 should be liberally construed, and I think there is a little bit of confusion in that decision, because while we admit that 3490, a civil remedy must be liberally construed, 5438, the criminal section, the incorporated statute, if you please, cannot be and should not be liberally construed.

Now, the Hess case has been cited and rightly so, we cite the Hess case to show that you cannot say that 5438 has one meaning when it is incorporated in the civil statute and another meaning when you read it as a criminal statute.

Mr. Justice Black’s opinion there amply shows that.

He says, “True, 5438 is criminal and for that reason, in interpreting so much of its language as it shares in common with 3490, we must give it careful scrutiny lest those be brought within its reach who are not clearly included.”

Then again, on page 542 of the opinion, he says, “This qui tam policy, allowing informers to institute civil suit under Section 3490,” which incidentally has now been written over the law, “cannot be used to detract from the meaning of the language in the criminal section and we cannot say that the same substantive language has one meaning if criminal prosecutions are brought by public officials and quite a different meaning whether same language is invoked civilly by an informant.”

Now, the Hess case is not the same case as our case, in the first place, the Hess case did not involve a government corporation.

The Hess case announces a rule of construction of Section 3490 and the informer statutes, if you please.

But we say, in our case, you don’t have to construe it.

Why, because Congress itself has said what it meant when dealing with a government corporation.

We read the — the legislative history, Congress said what it meant.

The cases have said that it did not prior to 1980, and 5438 did not reach a – this crime of a false claim against the government corporation.

It is interesting to note that in the opinion, in the Hess case, the Court deals with the fact that in 1863, which was the time this informer’s act first started and that federal aid to states was known, it was in the minds of Congress and it dwells on that.

On the other hand, I point to the opinion in the Pierce case, which says in 1884, six years after our statute, the concept of the government corporation was not in the minds of Congress and it could not be.

Now, –-

Felix Frankfurter:

Is the phrase “government department or officer thereof.”

Did that originate in the False Claims statute in 1963?

A. C. Epps:

So far as I know, I cannot answer that sir, I’m sorry.

So far as I know, that’s where –-

Felix Frankfurter:

I’m wondering why.

A. C. Epps:

But I know that the cases in dealing with it have said that it does not include a government corporation.

Felix Frankfurter:

I suppose — I suppose the reason for the particularity is in order to avoid the general rule which you invoked of not having a criminal statute construed beyond the —

A. C. Epps:

Ordinary meaning of the —

Felix Frankfurter:

Delicately narrow limits of what the words carry.

A. C. Epps:

Yes sir.

Now, —

Felix Frankfurter:

So they thought they covered it and what you are saying is they didn’t cover —

A. C. Epps:

Well, –-

Felix Frankfurter:

Because a new phenomenon had a reason.

A. C. Epps:

No sir.

I don’t think they thought they covered it, they didn’t think anything about it.

Felix Frankfurter:

No, they thought they covered the instrumentalities that where the Government as of 1878 –

A. C. Epps:

That is correct.

— and did not adjust themselves for this new device.

A. C. Epps:

That is correct sir and the instrumentality in the Walter case has shown that it was not covered because Mr. Justice Holmes says that in 1918, they included the instrumentality of the Government, that’s what they did in 1918.

Now, I have co-counsel, I must respect that time.

In closing, I’d like to say that the Government is now seeking a judicial amendment to an Act of Congress and would nullify the one Act of Congress and would change the meaning of another Act of Congress, and finally that a criminal law should not be extended by implication and that a crime should be defined with appropriate definiteness.

Finally, we think the Government should go to another part of Washington, namely, Capitol Hill with its argument and not to this problem.

Thank you.

Earl Warren:

Mr. Gardener.

Edwin P. Gardner:

Mr. Chief Justice, may it please the Court.

I represent the McNinch portion of the case.

I’d like to clarify a few factual situations for the purpose of — of dismissing the complaint, of course, we had to admit the allegation.

What happened actually in the McNinch case was that the McNinch people were contractors operating and repairing houses, and in turn, they finance their customers to Title 1 policies ensured by the FHA.

Now, the direct question we have here is whether or not an application where they actually ballooned the — the financial resources of the applicant, who owned the house, who was getting the loans, the loans made in his name, not in McNinch’s name, but then went to the bank.

Our sole question here, as I see it, with the exception of what Mr. Epps has put forward and I believe FHA as far as they intend one of the statute go is the same as the government corporation.

But the main question here is the question of whether or not the ballooning of an application for loan to be made by bank to a third party constitutes a claim within the contemplation of the statute.

Now, this case has been decided by United States versus Cochran, 235 F.2d 131 certiorari denied 352 U.S. 941, and also by United States versus Tieger, 234 F.2d 589, certiorari denied 352 U.S. 941.

The facts are the same.

I think, hereto, we’ve got to look to what Congress meant.

Edwin P. Gardner:

Now, two of our people were prosecuted under Section 1010 Title 18 U.S.C.

It appears on page 8 of the McNinch’s brief.

Now, in the 5438, which is the False Claims statute, a criminal statute, the penalties were five years or $10,000, and that was a claim.

In 1010 to which two of our people plead guilty, the criminal penalty is two years or $5000.

Now this statute was enacted, as I understand in 1939, and deals entirely with what we have here, statements to the FHA —

William O. Douglas:

That’s one of your —

Edwin P. Gardner:

Sir?

William O. Douglas:

It’s in dispute, is it?

Edwin P. Gardner:

No sir, 1010 is not here.

I was trying to point out that what our people were convicted of was a lesser crime and a statute much broader in scope than the original False Claims statute and the civil count for it as is here now, 1010 deals primarily with exactly what happens and the whole essence of it says, anything that you do to influence FHA to make somebody else a loan so that it can be ensured is criminal.

And as was said in the — in the Cochran case, certainly our people were properly prosecuted.

Well, what is said in the Cochran case, I believe, is true here.

What the Government is trying to do is to read into Section 538 which is now Section 231, the civil portion of the 3349, is to read into 231 that same language as is contained in 1010.

And that isn’t possible because in order to be guilty under the Hess case, and Mr. Justice Black so stated, “In order to be guilty under the civil portion of the False Claims Act, you had to have committed the Act under the criminal act.”

So, actually, you have to have the same counterpart for both the civil act and the criminal act.

Now what our people did was an act — criminal act under Section 1010.

I would assume that the Government thought that the acts that our people committed were not such that could have been — they could have been prosecuted under the False Claims statute.

Certainly, Congress didn’t apparently think that on this representation as concerns on influence for an FHA loans to a lending institution certainly didn’t think that that fell within the False Claims statute or act they — or else they wouldn’t have enacted the Act.

Now, I think Mr. Hastie in Tieger hit the nail right on the head and I might — I would like to point out here that I believe Mr. Doub said that all three of the cases are both the Third, the Fifth and the Fourth Circuit seem to think that this might have someday become a claim if there had been any loss of money by the Government.

I think the only reference that I can find and remember is the statement in the Tieger case where Judge Hastie said, “True, the contract, Tieger, induced might have led to what undoubtedly would be considered a claim against the United States but it never did.”

And he goes on further to say, “Tieger did the same McNinch did.”

He says, “And certainly, there is no indication that Tieger intended or even anticipated any default by the Bar and a consequent claim on the guarantor.”

Now, what the Government is saying here is that an application made by a third party probably prepared by McNinch, what it was — I think what happened was McNinch knew that you had to have a certain amount of income and when he filled out these application banks, he boosted their income a little bit, the man signed it, sent it down to the bank along with the other necessary papers, the bank made him the loan and then the bank for a premium that pays FHA, sends it off to FHA and ask them to insure it.

Now, FHA, true, is bound if the bank acted in good faith.

But the bank does not have to go against the insurance, doesn’t have to make this claim, most of the time, in small amount as like this, if there is a default, they prefer to collect how much security they have.

But the question is, can the ballooning on that application in any sense of the meaning of the statute in 1878 be a claim?

Cochran says it was not, Tieger says it was not, there wasn’t intended to be one.

Certainly, it have to be within the purview of the statute —

What was the purpose?

Edwin P. Gardner:

Sir.

What was the purpose of making the false statement?

Edwin P. Gardner:

To FHA?

Yes.

Edwin P. Gardner:

I — it would have pass sir that financial qualifications of the applicant, it had to be at a certain level for a certain amount of loan.

Apparently, some of these people made with — on illustration, I’d say $50 a week when one maybe should make $60 a week.

The applicants were actually — applications were signed by the applicants.

They were aware that it was ballooned.

Now —

Hugo L. Black:

If your argument is that circumstances, facts did not amount to what the statute called the claim?

Edwin P. Gardner:

That’s it exactly Mr. Justice, that’s it exactly.

William O. Douglas:

Suppose they had been at false, then would you argue it in the case?

Edwin P. Gardner:

Mr. Justice Douglas, I am glad I am not faced with that.

I — I think Tieger had some merit there because in order to have a default, you would first have to be — the man that ballooned it would have to know that there was a default.

He’d also have to or not pay it because he intended to defraud.

I think you have to have the intent there Mr. Justice Douglas.

But here, sir?

But here, the mere ballooning of application, certainly in my opinion, was not contemplated by Congress at the time they enacted the Civil False Claims Act.

And it certainly indicated that they later came along and if I would like to pull from the 1010 statute and it says the main body of it, 1010 says, and for — or for the purpose of influencing in any way the action of such administration.

Now I think it’s also to be noted that —

William O. Douglas:

Well, that was in progress of the things that are present here (Voice Overlap) —

Edwin P. Gardner:

That’s what it was called sir, reading it says, if I might read it to you, “Whoever, for the purpose of obtaining any loan or advance of credit from any person, partnership, association, 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, or for the purpose of obtaining any extension or renewal of any loan, advance of credit, or mortgage insured by such administration, or the acceptance, release, or substitution of any security on such loan, advance of credit, or for the purpose of influencing, in any way the action of such administration.”

And then it goes to say, he will be fined $5000 or two years whereas your False Claim statute says, if you claim, then you to be are fined $10,000 or five years.

Certainly, Congress in enacting 1010, realized that these acts of these, our defendant, then they will properly prosecute because they did rather a false statement.

They were properly prosecuted but I think the Government, if they had thought this was true, it would have prosecuted on the Civil Claims Act, I think that’s true because of this, they have prosecuted since 1939 numbers of cases under 1010.

And this is the first series of cases brought under the False Claims Civil Act as the late Judge Parker said, that they seem to have taken the little Jack Horner theory, somebody stuck his finger in the pie and come up with a plum.

Hugo L. Black:

Do you think that there could be a prosecution under that Act after the prosecution under this one, are they that different?

Do you think it could be a prosecution under the old act, after prosecution under this one, criminal prosecution?

Edwin P. Gardner:

I — It is possible I don’t believe so Mr. Justice Black.

Hugo L. Black:

Was any question like that raised in the case?

Edwin P. Gardner:

No sir, there has been no questions.

Edwin P. Gardner:

The — the decision in — in Cochran, I believe, and also in Tieger says if it’s possible to view this commercially advantageous privilege of exchanging a little money for such an aleatory promises a claim — excuse me, they just say it that this is a conditional contract and if a conditional contract was contemplated in the original statute as being a –a claim, Tieger and Cochran say that it isn’t.

Earl Warren:

You have five minutes, Mr. — the red light will come on.

Edwin P. Gardner:

Tieger says both the legislative history and certain language of the False Claims Act point to the soundness of the construction which thus restricts the claim against the United States to this conventional meaning of demand for property or money.

And then the court there goes on to cite the Cohn case where it said that it is a claim for property or money.

And of course as Judge Hastie said, the Government has said that this is dictum and I would like to quote from what he says, he says, “Seeking to minimize the force of this construction, the Government calls it ‘dictum’, meaning, a parament of the construction was more restrictive than the exigencies of the case required.”

But he goes on to say that “to an inferior court, it’s been pointed out to us that it’s a claim for property or money.”

And he thinks in, as I — believe that such was not contemplated within the meaning of the original Act.

Of course, Mr. Epps has explained the history behind and of course Mr. Justice Black has pointed out in the Hess case that sound statutory interpretation of both the Acts require that they’d be considered together.

I might add —

Hugo L. Black:

Would the Commodity Credit Corporation case come under this statute —

Edwin P. Gardner:

No sir.

Hugo L. Black:

— which you find completely guilty.

Edwin P. Gardner:

No sir, it would not.

Our statute is exclusively for FHA, Mr. Justice Black, and I believe that is a strengthening part.

It deals with — I believe the Government in their brief said they have thousands of these things.

I think that’s why FHA put it in there.

They realized it wasn’t a claim but is a deterrent.

I don’t know under commodity whether there are any parallel criminal statutes, Mr. Justice.

Hugo L. Black:

What is the difference in the claims?

Edwin P. Gardner:

In the claims —

Hugo L. Black:

Between the two?

Edwin P. Gardner:

Oh, I think there is quite a distinct difference between the claims and the two, Mr. Justice Black.

There was money paid out in commodity, actually paid to the defendants —

Hugo L. Black:

On a False Claims Act?

Edwin P. Gardner:

Yes sir, a false note, that’s — that’s correct.

In — in the FHA proposition, the only thing that was falsified, Mr. Justice Black, was the ballooning of credit application.

Hugo L. Black:

So it plainly comes under the new Act?

Edwin P. Gardner:

Yes the criminal act.

I don’t think it comes under civil counterpart of the False Claims Act which we have here now.

And, it’s then seen by three courts, Third, Fifth and Fourth Circuits.

Edwin P. Gardner:

I would also like to point out that as in Cochran — I mean in Rainwater and Cato, there is a conflict on this particular point being the same in both Tieger, Cochran and McNinch here, there has been no conflict between the four.

Thank you.

Earl Warren:

You must be finished, have you?

Edwin P. Gardner:

I don’t believe I have any more time.

Earl Warren:

I think you have one minute according to the time.

Edwin P. Gardner:

Well I’ll waive that.

Earl Warren:

Very well.

We’ll adjourn then.