Defendants move, under Fed.Rules Civ.Proc. 34, 28 U.S.C., to inspect and copy certain portions of the minutes of the Grand Jury which found Indictment No. 65-51 filed in this Court February 20, 1951, against several persons, including William Grunstein and Ben Grunstein & Sons Company, two of the defendants in this civil proceeding. Such indictment also refers to the other defendants in this proceeding, not making them defendants therein, and alleges that all of them were parties to the very conspiracy, which is now a part of the present civil proceedings brought by plaintiff, the United States, under the False Claims Act, 31 U.S.C.A. § 231 et seq., 12 Stat. 698. To Count 1 of this •indictment, involving such conspiracy, the two above named defendants pleaded guilty, and have been sentenced. As to the others, the proceedings under such indictment have long since been terminated. Defendants ask, not for a disclosure of the entire minutes, including ■those as to the deliberations and other action of the Grand Jurors themselves, nor even as to all the testimony adduced before that body, but only as to the minutes covering the testimony, as to matters relevant to the .ease at bar, of either any of the nine defendants in these proceedings, or of any other witnesses who are to testify in these proceedings, on the part of either the plaintiff Government or the defendants.
Defendants allege, as the necessary “good cause”- for such application, the fact that plaintiff has present access to these entire minutes, thus giving plaintiff a great tactical advantage over defendants, who lack same. This is because, if any of the above individuals testified before the Grand Jury in a way which would be helpful to the Government, the Government knows it, and can use it to refresh their memory if necessary, and without any check thereon by defendants as to any qualifying interpretations of such testimony. Au contraire, if any of such individuals have testified before the Grand Jury in a way helpful to the defendants, the defendants will not know it, and therefore cannot use it to their equivalent advantage.
Basically, therefore, the issue here is, as to how to coordinate justly the policy of the Federal Rules of Civil Procedure for free, full discovery before trial for both parties, with the traditional policy as to the secrecy of Grand Jury proceedings.
Our highest court has already alluded to this necessary coordination, though without specific regard to Grand Juries. In Hickman v. Taylor, 1947,
But, as the United States Supreme Court, says, this discovery must be “consistent with recognized privileges”, and one of these privileges is that of the Grand Jury as a public institution, as well as of the witnesses that appear before it. Since there is no question as to the relevancy of the evidence which is sought to be discovered, the sole question thus is, as to the extent of this privilege of secrecy as to the Grand Jury minutes.
Again our highest court has spoken. In United States v. Socony-Vacuum Oil Co., 1940,
Looking at the parties themselves, the ends of justice would clearly call for a discovery of what plaintiff knows of this relevant testimony, to defendant, in order that the parties may be placed on a parity. So we turn to the question as to how far the above policy of secrecy, for the protection of both the public and the witnesses, countervails this unbalanced situation between the parties themselves.
This traditional secrecy doctrine clearly makes basically secret the deliberations and other action of the Grand Jurors themselves, when acting as such. This doctrine has indeed been incorporated in the Federal Rules of Criminal Procedure, F.R.Cr.P. 6(e), 18 U.S.C., 1 which, while applicable primarily to criminal proceedings, sets forth in addition that a lawful disclosure may be had only by court order.
Again we find that the specific bases for this doctrine of secrecy have already been laid down by authorities controlling here. In U. S. v. Rose, 1954,
“(1) To prevent the escape of those whose indictment may be contemplated; (2) to insure the utmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; (3) to prevent subornation of perjury or tampering with the witnesses who may testify before grand jury and later appear at the trial of those indicted by it; (4) to encourage free and untrammeled disclosures by persons who have information with respect to the commission of crimes; (5) to protect innocent accused who is ex *201 onerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was no probability of guilt.”215 F.2d at page 628 . 2
Since both the Grand Jury’s deliberations and the trial of the indictment emanating therefrom have now terminated, and here in convictions, none of the above reasons for the rule of secrecy now apply to the present application, save “(3) to prevent subornation of perjury or tampering with the witnesses who may testify before grand jury and later appear at the trial of those indicted by it” and “(4) to encourage free and untrammeled disclosures by persons who have information with respect to the commission of crimes”, not only at present, but perhaps more importantly, in the future. As to- the first of such reasons for secrecy, it should be borne in mind that this same reason applies to every possible witness known to one party in a civil proceeding, whose name is desired by the other, a form of discovery clearly requisite. For the Federal Rules of Civil Procedure are based on the conclusion, that this possibility is not as great a danger as is the danger of surprise, which habitually resulted previously, when such discovery was generally refused. That this conclusion is sound, is fortified by the fact that the party who already knows of this witness can, by these very same discovery rules, see that this witness’ story is not tampered with, by having his depositions taken and sworn to, before he is subjected to any such possible pressure from the other side. As to reason (4), supra, investigation by the Grand Jury into criminal activities is so important to the body politic, that witnesses as to such matters should not be discouraged, by fear of unnecessary pressures, if not violence, by others, from testifying before Grand Juries. On the other hand, the privilege attending such witnesses, both for their own benefit and that of the body politic should not go so far as to invite possible perjury. This would be the case, were any such witness, from that very fact, to be free from any possible later inquiry as to his testimony before the Grand Jury in that regard. Here these witnesses are, on the one hand, the defendants themselves, and on the other hand, other witnesses, who may possibly, not surely, be called, either for plaintiff or defendants.
Considering the defendants themselves, their counsel have expressly represented to the Court that they will each and all take the witness stand on their own behalf in the present trial. Such being the case, that very action waives any possible claim of privilege on their own behalf, as to what they may have testified to in that regard before the Grand Jury. For no one can be permitted to testify only in part, as to what he has said or done, in regard to a particular transaction. He must not only tell the truth, but the whole truth, including prior possible admissions. Willard C. Beach Air Brush Co. v. General Motors Corp., D.C.N.J.1953,
Here it should be noted that the Grand Jury is an arm of the Court, not an arm of the plaintiff, the United States Government, which in the present civil ease is acting through, not the Court, but its executive arm, the Department of Justice. “The Constitution itself makes the grand jury a part of the judicial process * * *. The proceedings before a grand jury constitutes ‘a judicial inquiry’ * * Cobbledick v. U. S., 1940,
We now turn to the witnesses before the Grand Jury, other than the defendants in the present civil proceedings, as to whom it is not now known whether they will testify at the present trial. If not called as witnesses at the trial, and the disclosure requested has been compelled, then the traditional Grand Jury secrecy policy will have been violated, with the ill effects, above noted, to both the public and the witnesses; and all without any necessity, so far as defendants here are concerned. This is because, if they are not called, then plaintiff Government has not taken unfair advantage of its knowledge of the nature of their Grand Jury testimony, insofar as same may have been favorable to plaintiff, but only if same, has been favorable to the defendant. But, if the latter is the case, defendants have long had another ready remedy. For while they cannot demand that plaintiff advise them of the civil witnesses it expects, to use at the trial, they have the right to demand the list of witnesses, known to plaintiff, who know facts which are relevant to the case at bar. This list would of course include the names of all the witnesses in that regard before the Grand Jury. Then defendants, by examining these witnesses personally, or on deposition, can ascertain from them the very evidence they gave the Grand Jury. Indeed, after taking such discovery, if there' is any real question still, for any unusual reason, as to what such witness may have told the Grand Jury, defendants can then apply to the Court, either to obtain a copy of such testimony for themselves, ór perhaps better still, to have the Court itself inspect same, to see if same should, in fairness, be revealed to them.
This, it will be noted, is the application, to the limited privilege of Grand Jury secrecy, of the very principles and procedure already approved by our highest court, for application to the limited privilege of the legal profession’s “work product” in Hickman, supra,
However, if such witnesses, not expected to be called at the trial, are nevertheless ultimately so called, thereupon the discovery of their Grand Jury testimony should be given defendants, or to the Judge himself, to determine if de
*203
fendants should fairly see it, and this whether such minutes of his testimony have been called to the witness’ attention before the trial or at the trial. United States v. Socony-Vacuum Oil Co., supra; U. S. v. Krulewitch, 2 Cir., 1944,
Of course, as to unexpectedly called witnesses, in order to avoid surprise due to the recent production of the Grand Jury minutes of their testimony, the Court should defer the further examination of such witness by the defendants, if necessary to permit their proper use of such minutes for the impeachment of the witness, if he is called by plaintiff, or for his rehabilitation, if he is called by defendant, and such minutes have been used to impeach him.
It should be noted that the present situation differs substantially from (1) cases where the object of the inspection of the Grand Jury minutes is to attack the indictment, 3 or (2) where the Grand Jury minutes constitute the very gist of the criminal charge against the defendants, as in perjury cases, 4 or (3) where the indictment emanating from the Grand Jury in question is still alive, 5 or (4) where the discovery is asked, not as to the testimony of a particular witness or witnesses, but of the entire minutes of the Grand Jury proceedings, save the action of the Grand Jurors themselves. 6
Here (a) the proceedings are civil, not criminal, (b) the criminal proceedings have long since been terminated, and (c) the discovery asked is quite limited. Indeed, as far as can be found, the only reported decision under circumstances generally similar to the present, is that of U. S. v. General Motors Corp., D.C.Del.1954,
An order may therefore be presented authorizing defendants to be furnished a copy of so much of the minutes of the above referred to Grand Jury testimony as includes that of (1) the defendants, who represent that they will take the stand in their own defense, and of (2) any other witnesses before such Grand Jury, who will definitely take the stand at this trial, as soon as such fact definitely appears.
Supplemental Opinion
This Court has previously advised counsel that, before stating its opinion as to the proper measure of damages applicable in this False Claims Act proceeding, 31 U.S.C.A. § 231, covering over four hundred counts and asking judgment in the millions, it would prefer awaiting the conclusion of the evidence *204 to see what measure of damages would most clearly do justice between the parties. However, defendants strongly urge that it might well be prejudicial to have the Government submit to the jury its projected schedules consisting of some 72 pages of foolscap, carrying well over 57,000 different mathematical items, summarizing the defendants’ alleged liability to plaintiff upon one damage theory, were this damage theory thereafter to be stricken as unjust. For that reason, and because the plaintiff Government has now presented substantially its entire case as to defendants’ alleged long-continued and carefully calculated frauds in circumvention of the meat inspection system of the United States Army, including bribery, the Court will now state its opinion as to the measure of damages which, under plaintiff’s evidence, must be applied to achieve justice.
The - only case in which the United States Supreme Court has passed on the measure of damages applicable in a False Claims Act proceeding, as in the case at bar, is United States ex rel. Marcus v. Hess, 1942,
We therefore turn to the District Court opinion in Marcus, sub nom United States ex rel. Marcus v. Hess, D.C.W.D.Pa.1941,
At first glance, and overlooking the fact that Marcus deals with a case of fraud as to the price paid the United States, the above principle sounds somewhat similar to the so-called out-of-pocket rule, which defendants contend should be here applicable. This rule is stated as the difference between the price paid by the person defrauded and the value of the property he has received in fact from the fraud doer. However, nowhere does the Court in Marcus require or permit proof of the value of what the United States there in fact received from the fraud doer. Instead of that factor, to be subtracted from the contract price, it substitutes the differing factor of “the fair and reasonable low bid”, which the United States would have accepted had there been no fraud. In addition, this value of the goods actually furnished the United States in Marcus is the equivalent of the actual cost of such goods, plus profit, and this *205 cost of such goods is expressly rejected from consideration by the Court at page 216 of 41 F.Supp. So in applying the measure of damages the District Court rejects the out-of-pocket rule, and this rejection the Supreme Court says “We * * ■ * approve * *
To make the matter even more clear, let us turn to Feeser, Inc., v. American Can Co., D.C.Md.1932,
In addition, though this is not so important, it would really seem that in Marcus the Court applied the so-called benefit-of-the-bargain rule. ■ This last, in a case where the fraud is as to the goods received by the person defrauded, as in the ease at bar, as distinguished from where the fraud is as to the price paid by the person defrauded, as in Marcus, all agree, is the difference between the value of what plaintiff would have received, but for the fraud, and the value of what he did receive in fact, due to the fraud. This might be more simply stated as being the value of the property which the person defrauded would have received but for the fraud, less, as a credit, the value of the property which he has in fact received. Such being the so-called benefit-of-the-bargain rule in cases where the fraud is as to the goods, this rule, when applied to cases where the fraud is as to the price paid, as in Marcus, should be analogously, the difference between the price paid by the person defrauded, due to the fraud, and the price which he would have paid had there been no fraud. This is immediately seen to be “the difference between the contract price and the fair and reasonable low bid * * * ”, the very rule adopted in the District Court, in Marcus and approved in such case by our highest court.
Nor is the tenor of the rest of the Supreme Court’s opinion in Marcus to the contrary. True, in discussing “double jeopardy” the Court said that the statute was to “afford the government complete indemnity for the injuries done it”,
Thus in the only case in which the United States Supreme Court has passed upon the measure of damages in a False Claims Act proceeding, it has affirmed (1) the refusal to apply the so-called out-of-pocket rule, which defendants contend that precedents compel this Court to follow, and (2) has held the so-called benefit-of-the-bargain rule applicable, which defendants contend that precedents prevent this Court from following.
Now let us turn to all the other Federal cases decided under the False Claims Act, which are claimed to bear on the damage question. Very recently, in United States v. American Packing Corp., D.C.N.J.1954,
Again, in United States v. American Precision Products Corp., D.C.N.J.1953,
Under such facts this Court said as to the “Actual Damages. The damages suffered by plaintiff from the falsity or fraud of defendants are, irrespective of mitigation [a factor non-existent in Grunstein], the difference between what plaintiff advanced in reliance on such false claims, and what plaintiff would have advanced if the false items had not been included in the claims.” (Parentheses this Court’s.) As seen above, these “advances” were a percentage of the value of the goods purchased by the contractor for later delivery to the United States — the equivalent of the substandard meat already delivered by Grunstein to the United States. Thus American Precision laid down the rule that the damages were “the difference between” 80% of the value of the goods which the contractor falsely certified he had delivered in compliance with the contract, and 80% of the value of what he had in fact delivered. Applying this to the case at bar the damages would be the difference between the value of the *207 standard meat, which Grunstein falsely certified he had delivered in compliance with the contract, and the value of the substandard meat, which the Grunsteins had in fact delivered. This is obviously not the out-of-pocket rule, as claimed by defendants. On the contrary, it would seem to be the benefit-of-the-bargain rule.
In Faulk v. United States, 5 Cir., 1952,
Nor would this Court go so far as to say that no case could arise under the False Claims Act, where the so-called out-of-pocket rule could be applied. The true principle would seem to be that the fraud doer should repay the person defrauded “such damages as naturally and proximately resulted from the fraud.” [
Indeed, if we look through the long line of cases, both Federal and State, dealing with damages in common-law fraud actions, so often alluded to as conflicting, we find such conflict to be more apparent than real. Every one of them, in essence, attempts to give the person defrauded such damages as he can prove “naturally and proximately resulted from the fraud”, be it Marcus, or Smith, or Sigafus, or otherwise. In cases where the person defrauded can. credibly and reasonably establish that which he would have received but for the fraud, it is that which the Court gives him, less what he has already received from the fraud doer. 3 In other cases where the evidence, as to what the. person defrauded has lost due to the fraud, has been but speculative, so that he cannot credibly establish such value, then such person is remitted to what .he can credibly establish he has lost, i. e., *208 the contract price, less again the value of what he has already received. In still other cases, where the person defrauded, as a reasonable man, could not expect to receive what the words of the contract called for — as where a gold mine of fabulous wealth has been purchased for a contract price of a relative pittance — there, since the person defrauded cannot reasonably have expected to receive that which the contract called for, he cannot justly claim that he has been defrauded of that which the contract called for. There again he is remitted to proof of the contract price, less again the value of what he has already received from the fraud doer. 4 Finally, there are relatively a few cases in which the courts have applied the so-called out-of-pocket rule solely in reliance on the above authorities, which have properly applied such rule to speculative situations or those of unreasonable expectation, and quite regardless of the fact that the situations in these latter cases were neither speculative nor involved unreasonable expectations. 5
All but the last above group are at once seen to be quite in accord with the general principle that the person defrauded is always entitled to recover such damages as he can prove “naturally and proximately resulted from the fraud.” All but such last group are fully in accord with Marcus, in its refusal under the facts there existing to apply the so-called out-of-pocket rule, and in its application of the so-called bénefit-of-the-bargain rule. As for the last group of cases, suffice it to say that they are not only opposed to the fundamental principle above stated, and to the principles governing the decision of our highest court in Marcus, but they are opposed to the great weight of authority throughout the entire country. Selman v. Shirley,
Indeed, reviewing the exhaustive collection of common-law fraud cases in
Doubtless the major reason why so many courts in the normal business transaction, as distinguished from the speculative transaction, have veered away from the out-of-pocket rule in favor of the benefit-of-the-bargain rule, is because: First, the out-of-pocket rule does not in fact do justice to the person defrauded. Second, it treats the wilful fraud doer more leniently than the law treats one who honestly breaches his contract. In fact, it places the defrauder in a position in which he cannot lose. As to the injustice to the person defrauded, when he can prove he expected to receive, by contract, goods of a certain kind, and he in fact has been furnished goods of another kind, can a court in justice overlook the fact that he has suffered a loss which “naturally and proximately results from the fraud,” due to his not receiving what he did want, and his being delivered what he did not want? As to the defrauder, how can he lose under the out-of-pocket rule? If his fraud is not discovered, he pockets his dishonest profit. But even if his fraud is discovered, he need only pay his actual money profit, to the extent of the difference between the contract price he has received and the value of the unwanted goods he has delivered. He need repay the person defrauded not a penny, due to his delivery of the unwanted goods in place of the wanted goods. But if, instead of being a wilful fraud doer who violates his contract, he is an honest man who violates such contract, the honest man must repay this very difference between the value of the wanted goods and the value of the unwanted goods delivered.
Largely because of the above many courts which previously, for good or bad reason, as above indicated, have applied the out-of-pocket rule in fraud cases, have, as in New Jersey, now determined that “as to some cases what is called the ‘out-of-pocket’ rule may furnish just and adequate compensation; in others the so-called ‘benefit-of-the-bargain’ rule may be the more just and accurate. The just method of determining damages necessarily varies with the facts of the particular case * * *.” Zeliff v. Sabatino, 1954,
So we turn to the final question — whether the facts of this case, in justice, require this court to apply the so-called benefit-of-the-bargain rule or the so-called out-of-pocket rule — and this, even admitting the fact that our highest court, in the only case before it, under the False Claims Act, which deals with the measure of damages, has refused to apply the out-of-pocket rule and has applied instead the benefit-of-the-bargain rule. Here the evidence so far is plenary, not to say .overwhelming, that over a period of some two years defendants continually and ealculatedly defrauded the Government in their meat contracts with it, by circumventing in all conceivable ways the Government’s system of meat inspection, including even bribery. Clearly, such being the facts, justice calls strongly for the return to the Government, not of lost profits, but of that of which the Government has been credibly proven to have been defrauded. This proof is not speculatively, but clearly, set forth in the written specifications of the meat to be furnished, expressly referred to in writing in every Government purchase order. In turn, the values of such specified meat are established by the National Provisioner, in evidence. All these 400-odd transactions are analyzed and summarized, together with the other transactions of the de *210 fendants during the same period in the proposed Government schedules above al-. luded to. Under such circumstances, the normal business rule is applicable, as applied in Marcus, that the “damages which the United States may have sustained” (as called for by the False Claims Act) are measured by the value of the property which the United States would have received by the contract but for the fraud, less the value of the property which the United States has in fact received from the fraud doer. 7
In conclusion it would therefore appear (1) that in the only case in which the United States Supreme Court has considered the measure of damages in False Claims Act proceedings, it has applied not the so-called out-of-pocket rule, but the benefit-of-the-bargain rule; (2) that while the benefit-of-the-bargain rule is not necessarily the only rule that can be applied to such cases, it has been applied in most such cases which have considered the matter, as well as in most common-law fraud cases throughout the courts of the entire country, because of the inherent equity of such rule in the normal business transaction; that (3) all courts agree that the fraud doer should repay the party defrauded the damages which have “naturally - and proximately resulted from the fraud.” . But (4) this general rule must be applied in accordance with the facts of the particular case. Thus (5) since the evidence in the case at bar clearly establishes the value of the meat, which defendant was under contract to , deliver, that value, less the value of the meat in fact delivered, is the just measure of the actual damages which plaintiff has sustained, according to the pres- • ent evidence. For this recovery should • go under such facts, if, and when, liability is established.
Notes
. “Disclosure of matters occurring before tbe grand jury other than its deliberations and the vote of any juror may be made to the attorneys for the government for use in the performance of their duties. Otherwise a juror, attorney, in•terpfetér or stenographer may disclose matters occurring before the grand jury only when so directed by the court preliminarily to or in connection with a judicial proceeding * * *. No obligation of secrecy may be imposed upon any person except in accordance with this rule.”
. See also the similar treatment of this •matter by that recognized legal authority, the late Colonel Wigmore, in 8 Wigmore, Evidence, Sec. 2362.
. U. S. v. Violon, C.C.S.D.N.Y.1909,
. U. S. v. Rose, 3 Cir., 1954,
. U. S. v. Crolich, D.C.S.D.Ala.1952,
. Metzler v. U. S., 9 Cir., 1933,
. In United States v. Rohleder, 3 Cir., 1946,
. The Maryland District Court there relied upon Smith v. Bolles, 1889,
. W. P. Walker & Co. v. Walbridge, 5 Cir., 1905,
. Roosevelt v. Missouri State Life Ins. Co., 8 Cir., 1935,
. Pittsburgh Life & Trust Co. v. Northern Cent. Life Ins. Co., C.C.Pa.1905,
See also Nupen v. Pearce, 8 Cir., 1916,
. That Restatement Torts, Deceit, Sec. 549, is not entirely to the contrary, note its Illustration 2, p. 114, thereunder, which apparently applies the benefit-oftlio-bargain rule. Note also the fact that it recognizes, even when the out-of-pocket rule is applied, the right of the person defrauded to recover, in addition to the out-of-pocket measure, any “pecuniary loss suffered otherwise”.
. Defendants contend they will prove that . the Government could not have expected reasonably to receive the meat which the Government’s purchase orders call for. Of course, if that conclusion is found by the jury • to be correct, then the Government cannot expect to receive in this fraud action as damages, that which it did not reasonably expect to receive in fact. Under such circumstances, it would be entitled' to receive the contract pi’iee, which it certainly would 'not have paid out but for the fraud, less the value of the goods it has received in fact from defendants. "