The United States of America, on behalf of the United States Postal Service, alleges that Raymond & Whitcomb Co. (hereinafter, “R & W”) illegally used the non-profit mail rate for 6.1 million mailings not eligible for that rate, causing the Postal Service to suffer a deficiency of $398,960.05. The United States has brought this civil action under the Federal Debt Collection Procedure Act, 31 U.S.C. § 3001 et seq. (Count I), unjust enrichment common law (Count II), and the False Claims Act, 31 U.S.C. § 3729 et seq. (Count III). The United States seeks actual damages, treble damages, and a civil penalty of at least $5,000 for each of 753 false mailing statements. Both parties have moved for summary judgment. For the reasons given below, summary judgment is granted to the United States on Count I (Federal Debt Collection Procedure Act) and Count II (unjust enrichment). Summary judgment is denied to both parties in all other respects.
I. BACKGROUND
Except as otherwise noted, the facts in this section are undisputed. R & W, a New York corporation, is a commercial travel agency that specializes in cruises and tours for institutional clients and their members. Compl. ¶ 6; Answer ¶ 6. R & W works almost exclusively with non-profit institutions, such as the Metropolitan Museum of Art (hereinafter, “Met”) and the Smithsonian Institution (hereinafter, “Smithsonian”) (collectively, “Institutions”), on travel programs that advance their educational missions. Def.’s R. 56.1 Stmt. ¶ 2. 1 R & W does not provide conventional retail travel services to the public. Def.’s R. 56.1 Stmt. ¶ 1.
From November 1, 1992 to August 31, 1996 (hereinafter, “complaint period”), R & W played a role in the operation of each Institution’s travel tour programs. Pl.’s R. 56.1Stmt. ¶ 1. Targeting its members, each Institution made its tours educational in focus. “The objective of the Smithsonian study tour program is to provide special opportunities for Smithsonian members to learn about the history and culture of other areas of the world through travel with scholars and authorities provided by the Institution.... The focus of a Smithsonian study tour is educational.” Def.’s R. 56.1 Stmt. ¶¶ 4, 26. “The Metropolitan travel program is essentially the same as the Smithsonian study tour program, with education of Metropolitan members and the advancement of the educational mission of the Metropolitan as its goal.” Def.’s R. 56.1Stmt. ¶ 30. The Smithsonian tours are available only to its members, with Smithsonian personnel dictating the basic tour blueprint, helping staff the tour, and scrutinizing and approving all aspects of the tour. Def.’s R. 56.1 Stmt. ¶¶ 6-8, 11-15, 18-19, 22. “The Metropolitan has final approval over every facet of its travel program.” Def.’s R. 56.1 Stmt. ¶¶ 31-32. The Met tours were at least “primarily for members” of the Met, and members were the targets of the brochure mailings that the Met directed. Compl. ¶ 21; Def.’s R. 56.1Stmt. ¶ 32.
R & W’s work for the tour programs included the following: helping plan itineraries; procuring and paying for cruise ship, hotel, and tour reservations; hiring travel staff; and, in the actions at issue here, printing and mailing brochures and tour bulletins (hereinafter, “disputed mailings”). Pl.’s R. 56.1 Stmt. ¶¶ 7-9. R & W’s financial gain or loss from its work with the Institutions depended on the number of paying participants in the tours. Pl.’s R. 56.1 Stmt. ¶¶ 10-13. R & W had each tour priced so as to earn R & W a profit, and most tours generated a profit of $100,000 to $300,000 for R & W. Pl.’s R.
The disputed mailings included 6.1 million pieces of mail in 753 separate submissions to the Postal Service during the complaint period. Pl.’s R. 56.1 Stmt. ¶¶ 2, 3. 2 For the disputed mailings, R & W paid the postage as well as the costs of printing the brochures and bulletins. Pl.’s R. 56.1 Stmt. ¶¶ 6, 7. R & W hired St. John Associates, Inc. (hereinafter, “St.John”), a mailing agent, to submit the mailings to the Postal Service. Pl.’s R. 56.1 Stmt. ¶ 15. All disputed mailings were mailed at the non-profit standard mail rate (formerly, the special bulk third-class rate) (hereinafter, “non-profit rate”), which is available only to authorized non-profit organizations such as the Institutions. Pl.’s R. 56.1 Stmt. ¶ 4. At the non-profit rate, postage for the disputed mailings was $398,960.05 cheaper than it would have been at the regular third-class bulk rate. Pl.’s R. 56.1 Stmt. ¶ 5.
For each of the 753 submissions, St. John signed the required Postal Service mailing statement claiming that, under applicable Postal Service regulations, the mailed material was eligible for the nonprofit rate. Pl.’s R. 56.1 Stmt. ¶¶ 3, 17, 18. St. John, acting in accord with instructions it received from R & W, claimed such eligibility by listing either the Met or the Smithsonian, but not R & W, as the holder of the non-profit permit that allowed the use of the non-profit rate. PL’s R. 56.1 Stmt. ¶¶ 16,19, 20. While the Met and the Smithsonian each had such a permit, R & W, which was not a non-profit entity, never did. PL’s R. 56.1 Stmt. ¶¶ 19, 22. St. John sent, along with its own invoice, each mailing statement to R & W. PL’s R. 56.1 Stmt. ¶ 21.
By 1991, R & W knew of the Postal Service regulations on cooperative mailings and knew that the Postal Service had investigated the eligibility for the nonprofit rate of Met and Smithsonian travel mailings. PL’s R. 56.1 Stmt. ¶¶ 24, 25. R & W argues that these Postal Service investigations vindicated the sort of travel-related mailings at issue here. Def.’s. Resp. to PL’s R. 56.1 Stmt. ¶¶ 26. R & W asserts that in hiring and instructing St. John, it merely acted on behalf of, and under instructions from, the Institutions to help the Institutions mail brochures to 'their own members under their own nonprofit mailing permits. Def.’s Resp. to PL’s R. 56.1 Stmt. ¶¶ 15-16, 26.
II. ANALYSIS
A. Summary Judgment Standards
The basic summary judgment standard is that “Uncertainty as to the true state of any material fact defeats the motion.”
Gibson v. Am. Broad. Cos.,
B. Prohibition on Using Non-Profit Rate for Cooperative Mailings
Each Institution, a non-profit entity, qualifies for the non-profit rate; R & W, a for-profit commercial entity, does not. The Domestic Mail Manual (hereinafter, “DMM”),
3
which is adopted as a Postal Service regulation,
see
39 C.F.R. §§ 111.1, 111.5, 211.2(a)(2), prohibits use of the nonprofit rate when the mailings are for a cooperative venture between a non-profit and a for-profit entity. “An organization authorized to mail at the Nonprofit Standard Mail rates may mail only its own matter at those rates. An authorized organization may not lend the use of its authorization to mail at the Nonprofit Standard Mail rates to any other person or organization.”
DMM
§ E670.5.1. “No person or organization may mail, or cause to be mailed ..., any ineligible matter at the Nonprofit Standard Mail rates.”
DMM
§ E670.5.2. “A cooperative mailing may be made at the Nonprofit Standard Mail rates only when each of the cooperating organizations individually is authorized.”
DMM
§ E670.5.3.
See also Siebert v. Conservative Party of N.Y.,
The question is whether the disputed mailings were truly the mailings of each Institution or instead were cooperative mailings of each Institution in conjunction with R & W.
4
R & W asserts that it was not a joint venturer with the Institutions, but merely their agent, aiding in the execution of non-profit activities that the Institutions controlled. The cooperative mailing inquiry certainly looks to traditional agency principles.
See
Richards Decl. Ex. A,
Customer Support Ruling PS-209,
July 1989, updated Oct. 1996 (hereinafter, “PS-209”) (“A cooperative mailing may be considered proper if the authorized organization uses a for-profit entity ... as an agent.”). “[Traditional indicia of an agency relationship include ‘(1) consent; (2) fiduciary duty; (3) absence of gain or risk to the agent; and (4) control by the principal.’ ”
Berger v. Iron Workers Reinforced Rodmen Local 201, et al.,
Various other factors relating to not only risk-sharing, but also participation in the endeavor, distinguish the cooperative mailing inquiry from a pure agency law analysis. The Postal Service has established that it determines whether a mailing is cooperative by a multi-factor test that is not entirely coextensive with pure agency law considerations. The inquiry looks at:
The identity of the party that devised, designed, prepared, and paid for the mailpiece ... [and] the postage in the mailing; How the unauthorized parties are compensated; How the profits and revenues ... are divided ... [and] whether the parties share the risk; How managerial decisions are made ... and who makes those decisions; The contribution each participant makes ... (e.g., money, service, managerial decision making, etc.); The intent and interests of the participants; and, Any other evidence that may be relevant....
PS-209. See also Richards DecLEx. B, U.S. Postal Serv. Public’n Í17, Special Bulk Third-Class Rates, Apr. 1990, at 3 (“A mailing may be determined to be an illegal cooperative mailing if an unauthorized organization participated in the preparation of the piece; paid the costs of printing or postage ...; or, compensated the authorized organization for the úse of its permit.”). Apart from these fluid factors, “the mailing must be owned by the authorized nonprofit entity at the time of the mailing in order to be mailed at the special rates.” PS-209. See also Pub. 417A (stating same rule).
Here, a sizeable financial risk and reward from each travel tour program attached to R
&
W. R
&
W’s financial fate from its work with the Institutions depended on the number of paying participants in each tour, with successful tours yielding up to a $300,000 profit for R & W and undersubscribed tours causing losses for R & W. Pl.’s R. 56.1 Stmt. ¶¶ 10-14. R & W also paid the postage costs as well as the costs of printing the brochures and bulletins in the disputed mailings. PL’s R. 56.1 Stmt. ¶¶ 6, 7. The Postal Service warns against using the non-profit rate in just such a “joint business venture” in which “[t]ypically, both parties contribute something (a list of names and use of the special rate authorization by the nonprofit party, and payment of printing/mailing costs by the commercial party) and both parties take something out (a share of the proceeds/profits)”; the Postal Service even lists, as an example, “[mjailings which offer ... travel programs, or other services
R & W’s counter-arguments do not create material issues of fact here because they are simply disputes as to degree, such as the extent to which the Institutions bore “a much greater risk,” Def.’s Mem. at 5, 20, and to which R & W “ultimately passed on to the traveling member” its costs, Def.’s Mem. at 19. The various considerations that R & W presses do not outweigh the substantiality of the R & W financial role. Even if the Institutions retained ultimate decision-making power, R & W contributed much of the substance of the travel programs. R & W served as the travel professional that helped shape the substance of the tours by helping with the selection of itineraries, cruise ships, hotels, tours, and travel staff. Pl.’s R. 56.1 Stmt. ¶¶ 7-9. It also is not critical whether the disputed mailings were submitted by R & W or by another entity, such as either Institution or St. John. R
&
W’s cooperative stake in the venture establishes that the disputed mailings were submitted on behalf of R & W. The cooperative mailing rule prohibits any non-profit rate makings “
‘in behalf of or produced
for an organization not authorized to mail at the special bulk rates.’ ”
Owen v. Mulligan,
In sum, even if the Institutions had total control and did the overwhelming share of the work, R & W’s risk-, reward-, and expense-sharing still would make it a sufficiently weighty investor that it would be more than a mere functionary of the Institutions. Moreover, it is clear that R & W had more input into the substance of the endeavors than a mere silent investor would have. Accordingly, any reasonable fact finder would conclude that the disputed mailings were cooperative mailings between R & W and one of the Institutions, and therefore were ineligible for the nonprofit rate.
C. Count I: Federal Debt Collection Procedure Act
The Federal Debt Collection Procedure Act, 28 U.S.C. § 3001
et seq.
(hereinafter, “FDCPA”), “provides the exclusive civil procedures for the United States[ ] to recover a judgment on a debt.” 28 U.S.C. §§ 3001(a), (a)(1).
See Nat’l Labor Relations Bd. v. E.D.P. Med. Comp. Sys.,
Unpaid postage supports a claim under the FDCPA, which defines eligible “debt” as “an amount that is owing to the United States on account of a direct loan, or ... a fee, duty, lease, rent, service, sale of real or personal property, overpayment, fine, assessment, penalty, restitution, damages, interest, tax, bail bond, or other source of indebtedness to the United States.” 28 U.S.C. §§ 3002(3)(A), (B). As discussed above, any reasonable fact finder would conclude that R & W paid a lower postage rate than it should have for mailing services that it chose to procure. R & W therefore has “failed to raise an issue of material fact as to [the debt] ..., and therefore that the government is entitled to judgment as a matter of law.”
United States v. Werner,
The United States’s unjust enrichment claim is that the Postal Service was not properly paid for providing the service of delivering the disputed mailings. There was no valid contract (express or implied in fact) between R & W and the Postal Service because, as discussed above, federal law bars use of the non-profit rate for the disputed mailings. “A promise to pay for services is sometimes implied by law, but this is done only when the court can see that they were rendered under such circumstances as authorized the party performing to entertain a reasonable expectation of their payment by the party soliciting the performance.”
Davidson v. Westchester Gas-Light Co.,
“ ‘[T]o make out a claim in quantum meruit, a claimant must establish (1) the performance of the services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services.’ ”
Martin H. Bauman Assocs., Inc. v. H & M Int’l Transp., Inc.,
E. Count III: False Claims Act
The United States bases its cause of action under the False Claims Act, 31 U.S.C. § 3729 et seq., on the allegation that R & W submitted to the Postal Service 753 mailing statements falsely certifying that the disputed mailings were not cooperative mailings and failing to disclose R & W’s role. While a typical False Claims Act action alleges an excessive payment from the United States to the defendant, the statute also supports a “reverse false claim” action alleging an insufficient payment to the United States from the defendant. Any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government” is liable under 31 U.S.C. § 3729(a)(7).
“A claim under § 3729(a)(7) requires proof: (1) that the defendant made, used, or caused to be used a record or statement to conceal, avoid, or decrease an obligation to the United States; (2) that the statement or record was false; (3) that
a. Causation of the Falsity
R
&
W asserts that the mailing statements were the work of St. John, ’on behalf of the Institutions, and that the decision to use the non-profit rate was that of the Institutions. As discussed above, however, R & W was a participant in the venture, not just a functionary of the Institutions. It was R & W that hired St. John to complete and submit the mailing statements; R & W also instructed St. John to claim the non-profit rate by listing only the Institutions as the mailers. This is sufficient for R & W to be liable even though it was St. John that actually completed and submitted the mailing statements. “[T]he statute is violated not only by a person who makes a false statement or a false record ..., but also by one who engages in a fraudulent course of conduct that causes the government” to lose money by honoring a false claim.
United States v. Incorporated Village of Island Park,
False Claims Act liability attaches not only to the actual maker of the false statement, but also to “any person who knowingly assisted in causing the government to pay claims which were grounded in fraud, without regard to whether that person had direct contractual relations with the government” or only had contact with the government through an “intermediary.”
United States ex rel. Marcus v. Hess,
b. Obligation to the United States
The presence of the requisite obligation to the United States is evident from the contrast between the present case and
United States v. Q Int’l Courier, Inc.,
A finding of wrongful use of the nonprofit rate yields a clear actual obligation to pay the deficiency, unlike a finding of wrongful use of the international rate at issue in
Q Int’l. Q Int’l
explicitly made such a distinction, stating that if the applicable postal rules actually “created a duty to pay full domestic postage as to each piece of mail sent ... [, w]e are satisfied as a legal matter that such a duty would qualify as an ‘obligation’ under the False Claims Act.”
Q Int’l,
c. Knowledge of Falsity
The difficult question regarding R & W’s False Claims Act liability is whether R & W
knowingly
caused the falseness of the mailing statements submitted to the Postal Service. R & W argues that it relied on the Institutions’ expertise in nonprofit rate eligibility and St. John’s expertise in postal submissions. Most significant is R & W’s assertion that it reasonably followed the view of the Institutions, which are non-profit entities that hold the requisite non-profit rate permit, that the disputed mailings qualified for the nonprofit rate. “The Act’s scienter requirement is something less than that set out in the common law” for fraud-based causes of action.
Wang ex rel. United States v. FMC Corp.,
(b) Knowing and knowingly defined. — For purposes of this section, the terms “knowing” and “knowingly” mean that a person, with respect to information —
(1) has actual knowledge of the information;
(2) acts in deliberate ignorance of the truth or falsity of the information; or
(3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.
31 U.S.C. § 3729(b).
Under this standard, “[t]he requisite intent is the knowing presentation of what is known to be false.”
United States ex rel. Kreindler & Kreindler v. United Techs. Corp.,
2. Raymond & Whitcomb’s Motion for Summary Judgment
The United States survives R & W’s motion for summary judgment with evidence sufficient to “raise a fact question regarding whether Defendant ... knew the substance of the false forms.”
United States v. Oakwood Downriver Med. Ctr.,
The certification that the signer of a mailing statement adopts creates a duty to investigate whether the material qualifies for the non-profit rate or is a cooperative mailing. One who signs a certification cannot choose to remain unaware of the veracity of that certification like the proverbial ostrich who buried its head in the sand so as to see no evil, hear no evil, and speak no evil. Thus, a failure to conduct a proper investigation before making a false statement may be sufficiently reckless to yield False Claims Act liability.
See, e.g., United States ex rel. Compton v. Midwest Specialties, Inc.,
Moreover, as stated above, any reasonable fact finder would conclude that the mailing statements were false in their certifications that the disputed mailings were not cooperative mailings; they were cooperative mailings. The clarity of the falsity supports the United States’s position that a failure to know of the falsity was at least reckless. Thus, a reasonable fact finder could conclude that R & W “had at least a reckless disregard for the falsity of its claims.”
United States ex rel. Compton v. Midwest Specialties, Inc.,
3. The United States’s Motion for Summary Judgment
The United States’s evidence is sufficient only to allow, not to compel, a reasonable fact finder to conclude that R
&
W acted “knowingly” within the meaning of the False Claims Act. Where the alleged falsity is an inaccurate certification of compliance with a legal requirement, the United States must prove, if not intent to deceive, at least reckless or “willful blindness to the existence of a fact.”
United States v. Inc. Village of Island Park, 888
F.Supp. 419, 439 (E.D.N.Y.1995). Both the Met and the Smithsonian are respected, established, well-funded non-profit institutions. A reasonable fact finder could conclude that R
&
W, in relying on the Institutions’ expertise as to nonprofit rate eligibility, acted unjustifiably and negligently, but not recklessly or in deliberate ignorance. Such a finding would be insuf
III. CONCLUSION
For the reasons given above, the United States’s motion for summary judgment is granted in part and denied in part while R & W’s motion for summary judgment is denied in its entirety. The United States is granted summary judgment on Count I (Federal Debt Collection Procedure Act) and Count II (unjust enrichment). This judgment is in the amount of $398,960.05, the undisputed difference in postage between the regular rate and the non-profit rate. Pl.’s R. 56.1 Stmt. ¶ 5. Summary judgment is denied to both parties in all other respects.
Notes
. Except as otherwise noted, citations to paragraphs in "PL's R. 56.1 Stmt.” or "Def.’s R. 56.1 Stmt.” also refer to the other party's responses to the cited paragraphs, and therefore are citations to undisputed facts.
. The United States alleges that of the 6.1 million mailings, over 3.5 million were for the Met and over 2.5 million were for Smithsonian. Compl. ¶¶ 20, 22. While it is unclear to what extent R & W admits this breakdown of the 6.1 million total, it is sufficient for present purposes that R & W admits that the 6.1 million included mailings for both the Met and the Smithsonian. Answer ¶¶ 20, 22; Def.’s Resp. to Pl.’s R. 56.1 Stmt. ¶ 2.
. The quoted portions of the Domestic Mail Manual are the same in the 1999 version, see DMM Issue 54, January 10, 1999, and the 1996 version, see DMM Issue 50, July 1, 1996.
. R & W argues that the cooperative mailing inquiry does not apply because statute and regulation explicitly permit the non-profit rate for travel-related mailings. Under the cited rule, an organization cannot use the nonprofit rate for mail that "announces the availability of ... any travel arrangement, unless the organization ... is authorized to mail at the [nonprofit] rates[,] ... the travel contributes substantially ... [to] the purposes ... for the organization’s authorization!,] ... and the arrangement is designed for ... members, donors, supporters, or beneficiaries” of the organization. 39 U.S.C. § 3626(j)(l)(C); DMM § E670.5.4(c) (same quoted language as statute).
This rule in no way broadens the right to use the non-profit rate for travel mailings that otherwise would be ineligible cooperative mailings. Rather, it establishes that the nonprofit rate "shall not apply” to "any travel arrangement, unless the organization ... is authorized” and the travel endeavor is a legitimate non-profit endeavor. 39 U.S.C. § 3626(j)(l)(C) (emphasis added). See also DMM § E670.5.4 ("Nonprofit Standard Mail rates may not be used ...”) (emphasis added). Essentially, it bars the non-profit rate for travel mailings, with an exception allowing the rate for truly non-profit endeavors. It thus has no effect on the cooperative mailing inquiry.