670 F.2d 996 | Ct. Cl. | 1982
Lead Opinion
This case comes before the court on defendant’s exceptions to the opinion, findings, and conclusion of law of Trial Judge Hogenson, submitted by him after trial in accordance with Rule 134(h). The exceptions to the fact findings and proposed substitute findings are all overruled as either irrelevant or contrary to the evidence.
Plaintiff, a corporation organized under the laws of the Republic of Senegal, brought this suit to recover on an arbitration award, thereafter amending its petition for a money judgment pursuant to an order of the court. The arbitration proceedings had been instituted according to the terms of a contract between plaintiff and the defendant’s Agency for International Development in an attempt to resolve a dispute arising under that contract.
In March 1965 two American businessmen, Robert F. Lusher and Ezra Cornell IV, traveled to Senegal with an official of the Agency for International Development (AID) for the purpose of determining whether it would be feasible to construct a large housing project there under an investment guaranty program administered by AID. After deciding that the project could be constructed in Dakar, Lusher organized a Delaware corporation, Builders International, Inc. (Builders Delaware), as the vehicle for conducting the initial preparations.
In 1967 Lusher and Cornell organized a Senegalese corporation, Builders International (Senegal) S.A., (Build
The housing project, know as "Patte d’Oie,” was planned to include approximately 800 units as well as a sewage treatment plant, roads, and electrical and water distribution systems. The project was planned, financed, and constructed according to the conditions of a program administered by AID pursuant to the Foreign Assistance Act of 1961. Under this program AID would guaranty loans made by private investors who agreed to provide permanent financing to Senegalese citizens who purchased the houses Builders constructed. Builders in turn would give AID the right of approval over the plans and specifications of the project. Builders would secure its own construction loans.
As part of the application for the program, Builders submitted detailed cost estimates for the project in 1967 and 1968. These estimates contained a breakdown of the items used in constructing the several types of houses and indicated the quantity of items needed, the unit price, and the total price. After AID approved the project, Builders entered into contracts with AID and with third parties to provide for the financing and construction of the project. In this case two insurance companies, the investors, agreed to provide Builders with up to $5 million in guaranteed loans to finance the project. In return, AID entered into a "Contract of Guaranty” with the investors under which AID obligated itself to repay any losses incurred by the investors on their loans to Builders. In addition, on June 1, 1968, Builders Senegal and the Government of Senegal entered into a separate contract with AID known as the "Company Agreement,” which gave AID control over certain of the financial and planning decisions pertaining to the project. Pursuant to this agreement, Builders could not increase the sales prices without AID’s prior approval and AID reserved the right to approve the plans and specifications of the houses, as well as the time at which Builders could commence construction. The agreement further provided that AID would be obliged to consider requests to increase the sale prices of the houses only in certain circumstances. If AID were to require changes in
On June 20,1968, Builders engaged Enterprises Generale du Cap Vert de Travaux Publics et Particuliers Batiments (EGCAP) to be the general contractor for the Patte d’Oie Project. The contract documents included several "devis estimatifs” prepared by EGCAP, which were cost breakdowns of the total house price into items of construction. Each item listed in the devis estimatifs was accompanied by a stated unit of measurement, a unit price, quantity, and total price. The total cost of construction for a B-3 house in the 1968 devis estimatif was subsequently reduced in reaching the contract price.
EGCAP commenced initial operations to clear the site that same month and began constructing the houses in late November or early December 1968. In constructing the individual houses, Builders employed a method known as a steel-frame system. This method involved the use of steel trusses and steel laths to form a frame to which cement or plaster could be applied. AID approved the use of this system in the project although the Federal Housing Authority (FHA) had informed AID earlier that it had some reservations about the system. Sometime before the actual construction began Builders received word from FHA that a contractor employing a method similar to the steel-frame system on a project in Puerto Rico had experienced some difficulties with it. On the basis of this report AID subsequently decided to review the use of the steel-frame system by Builders. In December 1968 two officials from FHA went to Dakar to evaluate the steel-frame system. These officials informed Builders that a number of changes would have to be made in the plans and specifications of the project and, in addition, recommended to AID that Builders be required to switch from the steel-frame system to a conventional method of construction.
During March 1969 Builders prepared revised plans and specifications for the remaining sections of the project in order to comply with the changes AID had ordered. After AID had approved the new plans Builders delivered them to EGCAP to obtain new devis estimatifs for the project. In order to implement the changes, Builders was forced to reopen and modify its construction contract with EGCAP. EGCAP took advantage of this opportunity to recost the project and to correct errors that it had made in the 1968 devis estimatifs. Subsequently, on April 9, 1969, EGCAP provided Builders with revised devis estimatifs to reflect what it anticipated it would cost to complete the project. EGCAP’s total cost for a B-3 house increased in the 1969 devis estimatif by approximately $148 over the cost in the 1968 devis and by approximately $632 over the contract price.
After receiving the 1969 devis estimatifs Builders negotiated with EGCAP and agreed on a new lump-sum price for which EGCAP would construct the remainder of the houses. The parties did not reduce the terms of the new price agreement to writing. Instead, they continued construction of the project on the basis of an oral agreement according to which EGCAP was to receive a total sum for each type of house it completed. In reaching this agreement the parties concentrated on determining the total bottom-line cost of construction for each house type and did not attempt to establish an item-by-item breakdown of the costs involved as they had done previously.
Having reached an agreement with EGCAP regarding the cost of completing the project, on April 30, 1969, Builders requested AID’s approval for increases in the sales prices. Builders sought the increased prices in order to reflect the increased costs that it had incurred in implementing the changes AID had ordered, as well as to offset increased costs it had experienced for land, construction, urbanization, and other overhead costs. Together with the April 30, 1969 request for a price increase Builders submitted to AID new cost estimates which incorporated the increases it had incurred in its contract with EGCAP, as well as other cost increases not within the EGCAP contract, and a contingency factor of 8 to 10 percent of its costs. The total cost for a B-3 house in the April 30, 1969 estimates was $5,394.96. This represented an increase of $1,357.01 over Builders’ 1967 estimate of $4,037.95 and an increase of $1,466.17 over the 1968 estimate of $3,928.79 for the same type of house.
In February 1973 Builders submitted a request for arbitration pursuant to § 5.01 of the Company Agreement. Builders sought damages for AID’s alleged failure to allow Builders to increase its sales prices to reflect the higher costs it incurred as a result of the changes AID had made in the steel-frame system. As Builders was preparing for arbitration, Lusher asked Chapman to join him in Hong Kong as an employee of Builders Federal, a construction company operating in Hong Kong in which Lusher held an interest, and to assist in preparing Builders Senegal’s case. Chapman had no employment contract for this work, but Lusher promised to pay him $50,000 from the arbitration award if it was favorable to Builders.
After conducting extensive hearings, the arbitration panel determined that the United States had breached the Company Agreement and awarded Builders $495,898.45 plus 75 percent of the costs of arbitration. Because this was less than he expected to receive, Lusher informed Chapman that he would not be able to pay him the $50,000. Chapman thereafter threatened to tell the FBI that Builders had presented false evidence to the arbitration tribunal if he did not receive the $50,000.
In October 1976 Builders, by amended petition, asked this court for a money judgment against the United States in an amount equal to the arbitration award.
At trial the defendant admitted that absent fraud it was bound to pay the arbitration award. The sole issues at trial, therefore, were whether Builders had in fact corruptly practiced fraud against the government or had submitted a false claim. The government has alleged that the April 30, 1969 cost estimates greatly exceeded the amount of an increase that could be justified solely by the cost increases Builders had experienced on the project. The government has argued that Builders arbitrarily inflated its costs so that it could induce AID to grant a correspondingly larger increase in the sales prices, thereby increasing Builders’ profits or reducing its losses. In support of its position the government has relied on the devis estimatifs and the cost estimates as well as the testimony of Mr. Chapman that Builders had arbitrarily selected figures to misrepresent its costs on the 1969 estimates. Mr. Lusher ánd Mr. Cornell also testified at trial and essentially contradicted Mr. Chapman’s testimony that Builders had fraudulently compiled the 1969 estimates.
The initial question to be considered is whether this court has jurisdiction to hear the plaintiffs claim. The defendant argues that the jurisdiction conferred on this court by the Tucker Act, 28 U.S.C. § 1491 (1976), does not extend to this controversy because the contract on which plaintiffs claim is based is not one that could obligate funds appropriated to AID under the investment guaranty program.
Defendant’s first point here is that the program was to be financed by fees to be paid for the loan guarantees. It was to be run without imposition of any monetary burden upon appropriated funds. Defendant asserts the law to be that there is a nonappropriated fund exclusion from the jurisdiction of this court, by which claims under the contracts of
Defendant rightly shows that Congress intended the "risk guarantee” it authorized to flow to the lenders, the "institutional investors,” not the builders. However, we have before us a valid, authorized contract with a builder. It exacted certain obligations from the builder, the purpose being to obtain some handle to prevent him enhancing the risk of liability to the lenders. In return, by the very able and sound decision of the arbitrators, the United States incurred express and implied obligations to the builder. These it breached, as they held, by its unauthorized stop order
As part of the Foreign Assistance Act of 1961, (the Act) Congress authorized the President to issue guaranties to eligible investors for financing the construction of housing projects in less-developed friendly countries.
In the present case, the United States, acting through AID, entered into separate contracts of guaranty with the two insurance companies that had provided the capital investment to finance the Senegal project. As consideration for AID’s entering into the contracts of guaranty, Builders and the Government of Senegal entered into the Company Agreement with AID which provided that Builders would be liable to AID for the full amount of any payments AID might make under the contracts of guaranty that were due to the fault of Builders. Builders also agreed not to begin construction without obtaining the approval of AID, and granted to AID the right to approve the plans, specifications, and selling prices of the houses. The agreement further provided that Builders could request increases in the sales prices only for certain reasons. If AID were to require Builders to change the plans and specifications of the project, however, it was obliged to allow Builders to reflect the consequential cost increases in the selling prices of the houses affected by the change.
It is evident from its terms that the Company Agreement is incidental to the contracts of guaranty previously entered into between AID and the investors. The degree of control conferred on AID over the particular construction and financial aspects of the project indicates that the agreement was intended to prevent AID from incurring any liability under the contracts of guaranty by ensuring that Builders would plan, construct, and sell the houses in a manner that did not jeopardize the private investment. Such a contract helps make the guaranty program more fiscally sound, thereby furthering the professed purpose of the Act to assist less-developed countries in providing their people with decent housing. As such, the contract was within the statutory authority of the President to make contracts "in furtherance of the purposes” of the Act. 22 U.S.C. § 2395(b) (1976).
In its counterclaim the defendant contends that Builders violated 28 U.S.C. §2514 (1976) by corruptly practicing fraud against the United States in the statement and proof of its claim at the arbitration and at trial. Section 2514
At trial, the evidence introduced in support of defendant’s fraud counterclaim consisted of Mr. Chapman’s testimony that Builders had arbitrarily inflated its cost estimates and documentary evidence of alleged discrepancies between Builders’ 1969 estimates and EGCAP’s 1969 devis estimatifs. In determining whether the defendant has met its burden of proof, a basic issue is the weight to be accorded to Chapman’s testimony. This testimony is the only evidence directly showing that Lusher and Cornell intended to defraud the United States by manipulating the construction costs.
Chapman testified at trial that he, Lusher, and Cornell falsified the April 30,1969, cost estimates by increasing the unit prices of several items when there were few, if any, increases in EGCAP’s unit prices. Chapman further stated that each of them knew that the total price increase requested was more than their actual cost increases would justify, and, furthermore, that they intended to conceal the fraud by not giving the government officials copies of EGCAP’s 1969 devis estimatifs. According to Chapman’s testimony at trial, Builders subsequently presented this false evidence at the arbitration hearing in order to support its claim that the increased prices were justified as a direct
The reason Chapman changed his testimony is clear: as he stated at trial, he believed that Lusher had cheated him and he wanted revenge. Lusher did not pay Chapman $50,000 that he had promised him for assisting in the preparation of Builders’ case at the arbitration hearing. In addition, several months before Chapman told the FBI that Builders had submitted false evidence at the arbitration hearing he had been discharged by Lusher from his employment with Builders Federal. Chapman’s son was also discharged by Builders Federal a short time later. Given the apparent enmity that existed between Chapman and Lusher toward the end of Chapman’s employment with Builders Federal, as well as Chapman’s desire to seek revenge, and his demeanor on the witness stand, it is impossible to attach much weight to his testimony. Standing alone, his testimony that Lusher and Cornell deliberately falsified the April 30, 1969 cost estimates with the intention of defrauding the government falls far short of the clear and convincing evidence that must be produced to support a forfeiture pursuant to 28 U.S.C. § 2514 (1976).
With regard to the forfeiture issue, the pertinent question becomes whether the documentary evidence produced at trial, either alone or in conjunction with Chapman’s testimony, is sufficient to show that the claim was false and that Builders’ officers intended to defraud the government by submitting it. In prior cases this court has found a violation of §2514 by relying primarily on documentary evidence alone. In O’Brien Gear & Machine Co. v. United States, 219 Ct. Cl. 187, 591 F.2d 666 (1979), the plaintiffs books included unsupported entries, inconsistencies in its checking account, and a lack of supporting documentation in its cash and bank accounts. Id. at 194, 591 F.2d at 669. In addition, plaintiffs office manager gave credible testimony that the owner of the company and another employee had carried on a scheme of making out and endorsing checks in
In Kamen Soap Products Co. v. United States, 129 Ct. Cl. 619, 124 F.Supp. 608 (1954), this court also ordered a forfeiture of the plaintiffs claim primarily because several documents submitted in support of the claim were contrary to the established facts. Id. at 644, 124 F.Supp. at 621-22. The evidence adduced at trial showed that the documents, which were said to have been prepared in the course of plaintiffs business during 1947, were actually printed on forms not used by plaintiff until 1949, and came to light only after the plaintiff had received notice that the previously submitted documents did not support its claim. Id. at 641-42, 124 F.Supp. at 620. The court found it unlikely that the documents were genuine, and that being the case, their use at trial constituted clear and convincing evidence of fraud in violation of § 2514.
In each of these cases there was little doubt that the documents submitted by the plaintiffs were not what they were alleged to be. Microfilm récords indicated that the checks made out to the plaintiffs supplier in O’Brien had been forged and an analysis of the paper on which the documents in Kamen Soap were written showed that they could not have been prepared at the time the plaintiff contended. In the present case, although there are inconsistencies between the unit prices in EGCAP’s 1969 devis estimatif and Builders’ 1969 estimate, they do not possess the same indicia of fraud as was present in either O’Brien or Kamen Soap.
Here, the inconsistencies alleged to show the fraud are found in Builders’ April 30,1969 cost estimates. There are a number of items in these estimates for which the unit prices increased over the previous estimates despite the absence of a corresponding increase in the unit prices for
After having reviewed the cost estimates and the devis estimatifs, it is impossible to find that they provide clear and convincing evidence of fraud. In the absence of additional credible evidence of intent and the falseness of the estimates, the defendant simply has not proven a violation of § 2514. Chapman’s testimony on this matter is not sufficiently persuasive. What the documents do show clear and convincingly is that following the reopening of the contract with EGCAP, Builders was forced to draft the 1969 revised estimates in a manner that differed from that used in preparing the 1967 and 1968 cost estimates. In 1969 Builders agreed with EGCAP on a total price for constructing the houses and then used this lump-sum figure in preparing its revised cost estimates. In preparing the estimates Builders allocated its increased costs and the contingency factor among the individual items and adjusted the unit prices in order to obtain what it perceived as a fair representation of its costs. That the unit prices in Builders’ 1969 estimate do not correspond to the unit prices in EGCAP’s 1969 devis estimatif is not unusual given the manner in which Builders and EGCAP reached an agree
The defendant next contends that Builders is liable to the United States in the amount of $2,000 for making a false claim in violation of 31 U.S.C. § 231 (1976), the False Claims Act. That section provides that "[a]ny person * * * who shall make or cause to be made, or present or cause to be presented, * * * any claim upon or against the Government of the United States, * * * shall forfeit and pay to the United States the sum of $2,000.” There has been some disagreement among the courts in defining the scope of the statute. A number of courts have held that liability under the Act must be predicated upon the submission of a false claim with the intent to defraud the government. See United States v. Mead, 426 F.2d 118, 122 (9th Cir. 1970); United States v. Hanger One, Inc., 406 F.Supp. 60, 70 (N.D. Ala. 1975), rev’d on other grounds, 563 F.2d 1155 (5th Cir. 1977); United States v. Goldberg, 158 F.Supp. 544 (E.D. Pa. 1958). Other courts, however, including this one, have ruled that a person may violate § 231 by submitting a claim to the government knowing it to be false. See United States v. Cooperative Grain and Supply Co., 476 F.2d 47, 56-58 (8th Cir. 1973); Acme Process Equipment Co. v. United States, 171 Ct. Cl. 324, 347 F.2d 509 (1965), rev’d on other grounds, 385 U.S. 138 (1966); United States v. Fox Lake State Bank, 225 F.Supp. 723, 724-25 (N.D. Ill. 1963). In Cooperative Grain the Eighth Circuit Court carefully analyzed § 231 and concluded that the statute required a "knowing” submission of a false claim. The court defined "knowing” in a civil sense and thus reasoned that either actual knowledge or a negligent misrepresentation in submitting the claim could constitute a "knowing” submission sufficient to support a violation of § 231. In Miller v. United States, 213 Ct. Cl. 59, 550 F.2d 17 (1977), this court cited Cooperative Grain in support of the proposition that a negligent representation of a claim satisfies the knowledge requirement of § 231.
It is concluded that the defendant has failed to prove either a violation of 28 U.S.C. §2514 (1976) or 31 U.S.C. § 231 (1976). It is recommended that the court conclude that plaintiff is entitled to recover on the arbitration award.
Lusher’s wife was also a part-owner of Builders Delaware. At the time of the arbitration, the corporation remained in existence though it had become essentially dormant.
The project included a number of different types of houses, each designated with a letter and a number. The parties have agreed that the B-3 type of house would be representative of all other house types for the purpose of this litigation.
The total figure for a B-3 house in the 1968 devis estimatif was 1,082,145 c.f.a. (Senegalese francs). The contract price for a B-3 house was 961,087 c.f.a. The total in the 1969 devis was 1,118,947 c.f.a. Because the rate of exchange fluctuated substantially over the life of the project, it is not completely accurate to use the same conversion rate for the 1968 and 1969 figures. Nonetheless, for convenience the
Builders had first sought an order confirming the award in the District Court for the District of Columbia. That court ruled that it lacked jurisdiction and transferred the case to this court.
As enacted, the statute provided that the guaranties could be issued "in connection with projects, including expansion, modernization, or development of existing enterprises, in any friendly country or area.” The statute currently provides that the President may issue guaranties for "financing the construction of self-liquidating housing projects and related community facilities.” 22 U.S.C. § 2181 (1976).
Concurrence Opinion
concurring:
I concur with the result reached by the per curiam opinion of the majority. I wish, however, to clarify why this suit is within our jurisdiction.
Plaintiff was required by the document it signed with the government of Senegal and the Agency for International Development (AID), an agency of the United States, to submit all disputes to arbitration. A dispute was arbitrated
Defendant’s principal argument against suit is that 28 U.S.C. § 2517(a) (1976) precludes jurisdiction in this court if appropriated funds will not be used to pay the judgment we might enter. In particular, defendant contends Congress has never specifically appropriated public moneys to the particular AID program in which plaintiff participated. In defendant’s view, that Congressional failing is sufficient to remove this dispute from our jurisdiction.
It is well settled that 28 U.S.C. § 2517(a) bars suit only where Congress has affirmatively precluded the use of appropriated funds. Whether Congress has actually appropriated funds for the particular program is thus irrelevant. See, e.g., L’Enfant Plaza Properties, Inc. v. United States, ante at 278; Convery v. United States, 220 Ct. Cl. 106, 109-112, 597 F. 2d 727, 729-730 (1979); DeMauro Construction Corp. v. United States, 215 Ct. Cl. 364, 375-376, 568 F. 2d 1322, 1328-1329 (1978).
The statutes applicable to AID show that Congress intended the agency’s expenses, presumably including adverse arbitration awards, to be paid primarily from nonappropriated moneys the agency collects as guaranty fees. See, e.g., 22 U.S.C. § 2183(b). Equally clear, however, is the import of 22 U.S.C. § 2183(e), which provides:
(e) Authorization of appropriations
There is hereby authorized to be appropriated to the President such amounts, to remain available until expended, as may be necessary from time to time to carry out the purposes of [22 U.S.C. §§ 2181-2183].
Congress obviously thought appropriated funds might be needed to satisfy AID’s expenses, and I see no reason to exclude adverse arbitration awards as an appropriate expense. See also 22 U.S.C. §2395(i). It follows that 28 U.S.C. § 2517(a) does not bar plaintiffs suit to enforce the arbitrators’ award.
Nothing else need be said to conclude the matter is within our jurisdiction. I therefore concur.
Upon the findings and foregoing opinion, which are adopted by the court, the court concludes as a matter of law that plaintiff is entitled to recover $495,898.45 plus 75 percent of the costs of arbitration, and judgment is entered to that effect with the case remanded to the trial judge pursuant to Rule 131(c)(2) for a determination of the total amount of recovery.
Amended per order of Feb. 19,1982.
