UNITED STATES of America, Appellant, v. Patrick H. DE WITT et al., Appellees.
No. 17101.
United States Court of Appeals Fifth Circuit.
April 3, 1959.
Rehearing Denied June 10, 1959.
265 F.2d 393
W. C. Peticolas, George W. Finger, El Paso, Tex., Andress, Lipscomb, Peticolas & Fisk and Scott, Hulse, Marshall & Feuille, El Paso, Tex., of counsel, for appellee.
Before TUTTLE, JONES and BROWN, Circuit Judges.
JOHN R. BROWN, Circuit Judge.
Presented here are questions whether a real estate dealer is liable to the Government for the civil penalties and damages under the False Claims Act,
The Complaint, filed August 14, 1956, covers fifty separate sales of real estate made to veterans in El Paso, Texas, by DeWitt and Rearick (Dealer) or their salesmen. Mortgage Investment Company (Lender) was the party who loaned the money in many, but not all, of these transactions. As to twenty-nine specified transactions, the parties made a stipulation. The Court, however, in granting summary judgment against the Government lumped these and the other twenty-one transactions together as though the facts were identical.
Subsequent to the judgment below an event occurred which considerably alters this litigation, and certainly the nature and reach of the civil penalties under the False Claims Act. In May 1958 the Supreme Court decided United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001, and Rainwater v. United States, 356 U.S. 590, 78 S.Ct. 946, 2 L.Ed.2d 996. Up to that time the Government was contending, as they had in a somewhat similar situation before us in United States v. Cochran, 5 Cir., 1956, 235 F.2d 131, certiorari denied 352 U.S. 941, 77 S.Ct. 262, 1 L.Ed.2d 237, approved in note 10 of McNinch, that when the Dealer falsely represented to the Lender that the veteran intended to occupy the property as his home a false claim as to the whole transaction was made against the Government since it was thereby induced to guarantee payment of the loan. Mc-
In terms of dollars involved, the Government‘s complaint under the False Claims Act nearly collapsed. But there was yet enough of a relatively small item to make it into a case of substantial proportions. For under the basic veterans legislation a so-called gratuity, generally in the sum of $160, was payable out of public funds to the Lender to be applied by it on the veteran‘s loan.
In addition to this the Government seeks against the Dealer (and salesmen) the (1) difference between the Veterans Administration valuation and the higher price obtained in the Dealer‘s sale to a third party, (2) the cancellation of all Certificates of Guaranty if not in the hands of bona fide third parties, and as to all Certificates of Guaranty not thus cancelled, that (3) the Government be indemnified for any money which the Veterans Administration ultimately is required to pay by reason of the loan guaranties. Number (1) affirms the sale to the third party and seeks a part of the fruits of it, and this seems completely inconsistent with (2) and (3). Each, however, rest on notions of common law fraud, United States v. Borin, 5 Cir., 1954, 209 F.2d 145, with no aid from the False Claims Act.
While the Lender was included in these broad prayers, it is now conceded that no fraud as such was charged or made out as to it. Money relief against it is restricted, therefore, to restitution of the gratuity payments received. Other relief is restricted to a cancellation of Certificates of Guaranty on mortgages not assigned to bona fide third parties. It is uncontradicted that no mortgages remain unassigned, so the suit as to Lender relates to the restitution of the gratuities only.
Discussion of the main problem is much simplified by considering it in terms of a transaction typical of those of the twenty-nine covered by the stipulation. The Dealer, as real estate agent for a seller, made a contract to sell a home to a veteran. The contract provided that it was subject to approval by the Veterans Administration. The veteran then made application for a Home Loan Guaranty. This application stated that he intended to occupy the house as his home. The VA issued a Commitment to the Lender that it would thereafter issue a Certificate of Guaranty. Up to this point neither the sale nor loan was closed and the record is silent on the veteran‘s interim intention. But after issuance of the Commitment and either before or at the formal loan closing, the veteran aban-
The result was that such sale was financed almost altogether (substantially 100% of the VA‘s appraised value) by the Federally guaranteed veteran‘s loan though neither the Dealer nor the subsequent third party Purchaser were eligible in that transaction for the benefits accorded by Congress on behalf of a grateful Nation.
As to the Dealer two problems emerge from this. First, was this a violation of the basic Servicemen‘s Readjustment Act of 1944,
The dealer makes two principal arguments in its behalf. First, Congress, if it did not mean to change the law, i.e., add to it something which formerly was missing, at least thought the matter unclear enough to require a clarifying amendment.4 The Dealer‘s next step is
On careful consideration of these arguments we think they are without decisive merit. The law might have been more clearly worded. But when the obvious purpose of this legislation to supply badly needed homes in large numbers to the millions of service people returning to civilian life is taken into account, the Act seems plain enough. The statute provided that the United States would guarantee 60% of the purchase money loans upon houses purchased in accordance with the terms and provisions of the program. Not less than three times did the Act define loans eligible for guaranty in terms of those made to a veteran to be “used for purchasing residential property or constructing a dwelling to be occupied at his home * * *.”6 (Emphasis supplied.)
The Act therefore required that at the very time the loan was closed the veteran intended to occupy the house as his home. In the twenty-nine stipulated cases this was not so. In the remaining cases the Government was entitled to show by stipulation, or by evidence on motion for summary judgment, or trial, that this was not so.
What is the significance of this against the Dealer under the False Claims Act? On this we are, of course, concerned only with the transactions in which the 4% gratuity was paid. Where none was paid, there was no “claim.” McNinch v. United States, supra.
The Dealer obtained summary judgment presumably on the basis reflected in the District Court‘s so-called Findings of Fact. Of course, in a summary judgment proceeding under
tion 694(a), (d), (e) and (f) authorize automatic and prior approval loans generally.
We find nothing in the record to support any of these statements. The sole proof to show the nonexistence of genuine controversy was the affidavit of each of the Dealers and individual salesmen affirming that none of them had actual knowledge prior to December 1953 that the Lender was required to sign a Certificate of Loan Disbursement or that the Lender was required to certify anything in connection with the loan.
Whatever our differences, later discussed, on the grant of the Government‘s counter motion for summary judgment, we are in full agreement that granting one for the Dealer and Salesmen was too hasty action. Putting to one side the complete absence in twenty-one transactions of the facts stipulated as to the twenty-nine, the whole thing for all fifty cases depends on the sufficiency of the affidavit, note 8, supra, which undertakes to state on oath that none of the Dealer-Salesmen had “actual knowledge” that a Certificate of Loan Disbursement had to be signed and filed by the Lender.
The Dealer urges, of course, that if these facts were deficient it was up to the Government properly to controvert them by evidentiary details. But as is too often the case, this is again a misreading of the principles so often announced by us on summary judgment. It is risky business to file no controversion. But it is not fatal to a trial on the issues involved if the moving papers show on their face that the matter is of a nature presenting a dispute, Inglett & Co. v. Everglades Fertilizer Co., 5 Cir., 1958, 255 F.2d 342, 348, or there is substantial doubt on it, Heyward v. Public Housing Administration, 5 Cir., 1956, 238 F.2d 689, 696; Bruce Construction Corp. v. United States for Use of Westinghouse Electric Supply Co., 5 Cir., 1957, 242 F.2d 873.
The affidavit here falls in that category. To deny that one had “actual knowledge” is really a conclusion. Stated in this way and undoubtedly so out of a desire fairly to represent the matter without misleading or dishonest exaggeration — it suggested that if they “knew” it was by the process of constructive or legal imputation. That would, or might, depend on what subsidiary details were known. Yet none of these was stated. Moreover, in the context of this total record, which included the stipulation, the specimen papers in the six steps of the transaction, note 5, supra, the Court had to recognize that there was a serious question of what these extensive real estate Dealers and Salesmen knew about the Veterans Housing program.
This brings us to the Lender. We are of the opinion that summary judgment in Lender‘s favor was correct and should be affirmed. As it is admitted that Lender did nothing but make the loans on what it thought was a valid transaction and had no knowledge, actual or constructive, that the veteran no longer intended to occupy the house as his home, the Lender‘s action was not within the False Claims Act. Neither this Act nor the Acts of Congress providing for loan guaranties were intended under circumstances such as these to impose on such lenders the burdens which the contrary result would bring about. See also
The judgment is therefore affirmed as to Mortgage Investment Company of El Paso, Texas, but is reversed and remanded10 for further and other consistent
Affirmed in part and reversed and remanded in part.
JOHN R. BROWN, Circuit Judge (dissenting).
I differ with the Court in only one respect. I would reverse and remand for trial the 29 claims covered by the stipulation. The Court, by its action, orders the entry of summary judgment for the Government.
I.
First, I think that the Trial Court should be free to determine whether the Dealer-Salesmen might not rightfully be permitted to withdraw from this stipulation. Stipulations are to advance the cause of justice, to simplify fact settings, to sharpen questions of law, and permit a decision on them. Where, on the resolution of the law point (such as we have made on the question of the veteran‘s intent to occupy the home) adherence to the stipulation would or might produce an injustice or cause an unintended hardship, the Court may relieve counsel of their stipulation. Indeed, we regard the right and power of the Trial Judge to do this as vital and indispensable. Laird v. Air Carrier Engine Service, Inc., 5 Cir., 1959, 263 F.2d 948; and see Brinson v. Tomlinson, 5 Cir., 1959, 264 F.2d 303; Carnegie Steel Co. v. Cambria Iron Co., 1902, 185 U.S. 403, 414, 22 S.Ct. 698, 46 L.Ed. 968; Aronstam v. All-Russian Cent. Union of Consumers’ Societies, 2 Cir., 1920, 270 F. 460, 464; Russell-Miller Milling Co. v. Todd, 5 Cir., 1952, 198 F.2d 166, 169.
The stipulation here on the 29 cases served a useful purpose. From the outset the Dealer-Salesmen took the position that even though they knew of the change in the veteran‘s intention, the Act, until the 1956 amendments, did not make that significant. To obtain a square ruling on that legal point, they stipulated the ultimate fact that at the time of loan closing the veteran did not intend to occupy the house as his home. But that stipulation was made in a setting in which they took just as persistently the position that no one knew or had good reason to believe that the veteran‘s intention at that moment was significant. In other words, the contention was that if this was an incorrect understanding of the law, the error in understanding and application was innocent and in good faith.
The Dealer-Salesmen were good prophets in the Trial Court for the Judge held that they were right both on the construction of the Act and on the good faith. They guessed wrong as to us — completely as to the interpretation of the law, and partially on good faith — since we are all in agreement that this latter could not be disposed of on Dealer‘s motion for summary judgment.
But without any of the subsidiary details compressed into the ultimate fact conclusions set forth in the stipulation, this Court proceeds to hold that this amounts to a confession that Dealer made a false claim knowing it to be false, with the purpose falsely to obtain money from the Government.
I cannot believe that, in the posture of this case at the time the parties were anxious for the Trial Court to make a ruling on the construction of the statute, any businessman would have made any such concession, or that his lawyer would have permitted it to be done. At least the litigants and counsel should have the opportunity of having the Trial Court determine whether they are entitled to be relieved from the stipulation when the consequences are now so harsh and assuredly unexpected.
II.
Second, and more important, I do not think that the nature of the intent under the False Claims Act can be elucidated
ed Complaint. McNinch, supra, cuts these off. If recoverable, this relief will depend upon applicable principles con-cerning liability and measure of damages for common law fraud as to which we have expressed no opinion.
The Court ignores the intention of the person making or causing to be made the claim. It regards mistaken as synonymous with false, an erroneous understanding of the law the equivalent of an evil purpose to cheat the Government. It reasons that since the law has always required the veteran‘s purpose to occupy the property as his home at both the time of the application and loan closing Dealer made a false claim since it “knew” of this law, but nonetheless persisted in filing a claim for the gratuity which Dealer “knew” was not payable. This rests entirely on knowledge of the law being imputed to the Dealer on the necessary fiction — but still a fiction — that citizens are presumed to know the law.
The question here is whether that fiction can justifiably be transposed onto the False Claims Act to set in train the penalties which here exceed $67,000.
The False Claims Act does not so read. Nor can it safely be read apart from the facts. In other words, its true interpretation and construction on the nature of the intention of the one making the claim should not be determined as an academic matter.
The Act penalizes any person “who shall make * * * any * * * claim * * * knowing such claim to be false, fictitious, or fraudulent * * *,” note 1, supra. As a minimum the statute requires that the claim be known to be false, known to be fictitious, known to be fraudulent. What is the meaning of the known? Is it enough that the statement made be inaccurate, incorrect, mistaken as a factual proposition? Or is it that the actor understands (a) that the facts are not as he represents them to be, and (b) that to submit the fact will be to obtain money from the Government which he knows is not owed? Is it that the actor must consciously appreciate both the inaccuracy of the factual representation and the non-liability of the Government if the accurate fact were stated?
Similar questions arise as to the meaning of “false.” Is a claim “false” merely because it is inaccurate or incorrect or mistaken? Must there be some purpose that one make a misrepresentation aware that it is wrong and is being asserted to obtain that which the actor knows is otherwise not payable? Does “false” acquire meaning by immediate association with “fictitious, or fraudulent“? Does the intent to defraud have to exist with respect to a statement which is “false“? At least one Court indicates that this is so, United States v. National Wholesalers, 9 Cir., 1956, 236 F.2d 944, certiorari denied 353 U.S. 930, 77 S.Ct. 719, 1 L.Ed.2d 724. Or is the intention to defraud confined to those assertions or representations which are “fictitious” or “fraudulent” as distinguished from “false“?
A careful examination of all cases under the False Claims Act fails to indicate any satisfactory answers to these serious questions. This Court then is making them wholly as an academic matter on the basis of a stipulation made in conclusionary terms.
A consideration of the False Claims Act and the analogous problem of intent in criminal cases demonstrates, I think, that we have jumped the gun on this serious question. That the False Claims Act is remedial and civil in nature, and hence not penal for purposes of double jeopardya does not minimize its being “drastically penal” in fact. United States ex rel. Brensilber v. Bausch & Lomb Optical Company, 2 Cir., 1942, 131 F.2d 545, affirmed 320 U.S. 711, 64 S.Ct. 187, 88 L.Ed. 417. Indeed, here we are dealing with $67,000 as the penalty (including double the gratuity) in the 29 cases with the prospect of another $48,000 as to the remaining 21. To impose such terrific consequences upon a citizen
Much of the quibblingb about the remedial or civil or penal nature of the False Claims Act is put to rest by the latest characterizations of this Act by the Supreme Court.c
As we are “construing the provisions of a criminal statute * * *,” United States v. McNinch, 356 U.S. 595, at page 598, 78 S.Ct. 950, at page 952, 2 L.Ed.2d 1001, note c, supra, principles relating to criminal law are of immediate relevance. “Knowing” the claim to be false then is equivalent, or at least akin, to wilfully submitting a false claim. “The two words ‘knowingly’ and ‘wilfully’ are often used as equivalents. Certainly, the mere omission of the word ‘wilfully’ is not to be construed as eliminating the element of criminal intent from the crime.” Zebouni v. United States, 5 Cir., 1955, 226 F.2d 826, 828. In the context of this very Act relating to veterans’ housing, we have defined wilful to mean “conscious that what he was doing was unlawful.” Corcoran v. United States, 5 Cir., 1956, 229 F.2d 295, 299.
The process in reaching the result in this case apparently is that (a) since the implied representation that the veteran would occupy the house as his home was
But this is to do what we condemned in Hargrove v. United States, 5 Cir., 1933, 67 F.2d 820, 823, 90 A.L.R. 1276, 1280. “The court here fell into the error of not distinguishing between the elements of an offense, where the statute simply denounces the doing of an act as criminal, and where it denounces as criminal only its willful doing. In the first class of cases, especially in those of offenses mala prohibita, the law imputes the intent. * * * In the second class of cases, a specific wrongful intent, that is, actual knowledge of the existence of obligation and a wrongful intent to evade it, is of the essence.” McBride v. United States, 5 Cir., 1955, 225 F.2d 249, 253–254. See also Babb v. United States, 5 Cir., 1958, 252 F.2d 702, 707–708.
In assaying the legal consequences of action, there is a vast difference between intending to do the act which a statute might denounce and, on the other hand, purposely doing such act but with the added ingredient of a consciousness that it was illegal, i.e., in violation of known law. St. Johnsbury Trucking Company v. United States, 1 Cir., 1955, 220 F.2d 393; 22 C.J.S. Criminal Law § 29 (1940); 14 Am.Jur., Criminal Law § 23e (1938). A conviction for a false FHA loan application under
The efforts of this and other Courts in wrestling with the complex problem of the kind of intent required under any penalty statute should serve as a warning that we ought not to undertake the formidable task as academicians. We ought to judge the law on the facts, and the law against the facts.
In this case the precise problem is whether Congress intended that the heavy sanctions of the False Claims Act flow from the purposeful submission of facts which happen to be incorrect, or whether the actor must have been conscious that the asserted fact was wrong and nevertheless submitted it deliberately knowing it to be incorrect and conscious that to do the latter was to claim a payment which the Government did not owe were the true facts known.
This should be answered in the light of facts, not an ultimate conclusion.
I, therefore, respectfully dissent to this extent.
Rehearing denied; BROWN, Circuit Judge, dissenting.
Notes
“1. R.S. § 3490 (1878): ‘Any person * * * who shall do or commit any of the acts prohibited by any of the provisions of section fifty-four hundred and thirty-eight [R.S. § 5438 (1878)] shall forfeit and pay to the United States the sum of two thousand dollars, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act * * *.’
“R.S. § 5438 (1878): ‘Every person who makes or causes to be made, or presents or causes to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval services of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent * * * shall be imprisoned at hard labor for not less than one nor more than five years, or fined not less than one thousand nor more than five thousand dollars.‘”
“(d) No loan for the purchase or construction of residential property shall be financed through the assistance of the provisions of this title unless the veteran applicant, at the time that he applies for the loan, and also at the time that the loan is closed, certifies * * * that he intends to occupy the property as his home. No loan for the repair * * * of residential property shall be financed through * * * this title unless the veteran * * *, at the time that he applies * * *, and also at the time that the loan is closed, certifies * * * that he occupies the property as his home. For the purpose of this title the requirement that the veteran recipient of a guaranteed or direct home loan must occupy or intend to occupy the property as his home shall be construed to mean that the veteran as of the date of his certification actually lives in the property personally as his residence or actually intends upon completion of the loan and acquisition of the dwelling unit to move into the property personally within a reasonable time and to utilize such property as his residence.”
We have assiduously declined to read or consider Hearings Before the Subcommittee on Housing of the House Committee on Veterans’ Affairs, 84th Cong., 1st Sess. (1955), pt. 200, 84th Cong., 2d Sess. (1956), as to which considerable reference is made in the various briefs, as this relates to hearings in which evidence on the merits of this case was given, but which is not properly in the record here or below as facts upon which summary judgment was granted or denied.
Step One. The veteran made a contract to buy a house. In a typical contract under “Terms of Sale” it provided “No * * * dollars cash * * * on delivery of deed. $8350.00 to be financed on G.I. — 20 year loan. This sale is subject to approval by the Veterans’ Administration and the lending agency. * * *”
Step Two. The veterans signed VA form for Application for Home Loan Guaranty or Insurance. This was also signed by the Lender. This form transmitted veteran‘s eligibility papers, copy of Certificate of Reasonable Value (appraisal), credit report and the sales contract. Under “Purpose, Amount, and Terms of Proposed Loan — give narrative description of purpose of loan” it was stated “to purchase a home.”
Step Three. The VA then issued to Lender a Certificate of Commitment stating that “the Application * * * has been examined and the loan determined to be eligible for guaranty” but then provides that: “Upon receipt of this Certificate of Commitment and of a duly executed ‘Certification of Loan Disbursement’ showing full compliance with the applicable regulations, the Administrator will issue: A certificate of Guaranty for 60 percent of the Loan Amount Reported * * *”
Step Four. The Lender, after disbursing the amount of the approval loan, signed and filed with the VA its Certification of Loan Disbursement which states:
“This Is To Certify That:
“(1) The proceeds of the loan were expended for the purposes described in the Application originally submitted and in the amounts shown in the statement of loan disbursements and costs hereinafter set forth.
“(2) There has been no change in the identity of the property or security described in the Application except as follows: [none] * * *
“(5) The loan conforms otherwise with the applicable provisions of the Act and the regulations.”
Step Five. Thereafter the VA delivered to the Lender its Loan Guaranty Certificate which states:
“This is to certify that pursuant to the Servicemen‘s Readjustment Act of 1944 * * * and the regulations effective thereunder on the date of this certificate, 60 percent of the indebtedness outstanding from time to time under the loan identified above is guaranteed.”
Step Six. Usually within about sixty days the VA sent to Lender a check for the amount of the 4% gratuity, usually $160, which, in accordance with a prior written direction signed by the veteran, Lender applied on the loan or, in a few cases, for the payment of insurance.
“Any loan made to a veteran under this subchapter, the proceeds of which are to be used for purchasing residential property or constructing a dwelling to be occupied as his home or for the purpose of making repairs, alterations, or improvements in property owned by him and occupied as his home, is automatically guaranteed if made pursuant to the provisions of this subchapter * * *.”
Subsection 694a(b) provides for non-automatic loans, i.e., prior approval loan guaranties where the veteran‘s dwelling is to be “occupied as his home.” Sec-
“(d) A certificate of commitment shall entitle the holder to the issuance of the evidence of guaranty * * * upon the ultimate actual payment of the full proceeds of the loan for the purpose described in the original report and upon the submission within 30 days thereafter of a supplemental report showing that fact and:
* * *
“(4) That the loan conforms otherwise with the applicable provisions of the act and the regulations concerning guaranty or insurance of loans to veterans.
* * *
“(f) * * * No certificate of commitment shall be issued and no loan shall be guaranteed or insured unless the lender, the veteran, and the loan are shown to be eligible; * * *.
“(g) Subject to compliance with the regulations concerning guaranty * * * of loans to veterans, the certificate of guaranty, * * * will be issuable within the available entitlement of the veteran on the basis of the loan stated in the final loan report or certification of loan disbursement. * * *.” 38 C.F.R. § 36.4303 (1956).
“These Defendants state that up until December of 1953 they had no actual knowledge that the lender was required to sign a Certificate of Loan Disbursement at the time of the closing of the loan. In fact, these Defendants * * * had no knowledge that there was any such instrument as a Certificate of Loan Disbursement and had no knowledge that the lender was required to certify anything in connection with the loan. * * * these Defendants, having no knowledge that such a certificate was required or made, could not under any circumstances conspire or cause to be made a certificate of which they had no knowledge. * * * Since [none of] the Defendants, * * * had any actual knowledge that such certificate was required to be made or was actually made, they could not have caused such false certificate to have been made.
“3. * * * In each instance, the contract of sale between the seller and the veteran was made subject to approval of the loan by the Veterans Administration, and when such approval was made, and in each instance the approval was made, by the Veterans Administration, these Defendants understood that the veteran had purchased the house and that thereafter the veteran could sell such house and that such veteran did not have to intend to occupy the house at the time of the loan closing. That the Defendants acted in good faith in disposing of the properties or purchasing the properties under these circumstances. * * *”
This is also emphasized by the stipulation itself, note 9, supra. It does not state that Dealer knew of the veteran‘s change of intention and then concealed it from the Lender, or that Dealer knew that the loan could be guaranteed only if the veteran‘s intent remained the same. Nor does it state that Dealer knew that under the catch-all certification of item (5) quoted above this comprehended the veteran‘s then existing intentions.