UNITED STATES v. NEIFERT-WHITE CO.
Legal provision: 31 U.S.C. 231
Argument of John S. Martin, Jr.
Chief Justice Earl Warren: Petitioner, versus Neifert-White Co.
Mr. John S. Martin, Jr.: Mr.Chief Justice and may it please the Court.
This case is here on a writ of certiorari to review a judgment of the Ninth Circuit Court of Appeals, affirming an order of the District Court of the District of Montana, which dismissed the complaint in the government's action under the civil provisions of the False Claims Act against the respondent, Neifert-White Company.
Respondent is a corporation which acts as a dealer in grain storage bins.
The complaint in this action charged or alleged that, on 12 separate occasions in 1959, respondent engaged and made sales to various individuals.
These sales were financed by loans obtained from the Commodity Credit Corporation.
According to the applicable regulations of the Commodity Credit Corporation, the corporation was authorized to issue loans on storage facilities in an amount not to exceed 80% of the purchase price of that facility.
The complaint in this action alleged that, in each of the 12 instances referred to, the respondent submitted to the Commodity Credit Corporations false invoices which fraudulently stated and inflated the purchase price of the bins in question.
The result of this fraud being that, in each of the 12 instances, the Commodity Credit Corporation was caused to issue loans which were, in fact, in access of 80% of the purchase price that was actually paid by the purchases.
In dismissing the complaint in this action, the -- and in affirming that dismissal, the court below ruled that a loan application is not a claim within the meaning of the False Claims Act.
Therefore, the only and the sole issue presented by this case with this Court's decision is whether or not a loan application is a claim within the meaning of the False Claims Act.
It is the Government's position that it is and that the court below was in error in narrowly construing the provisions of the False Claims Act.
The relevant statutory language appears at page 2 of the Government's brief and, without reading all of that language, further Court-- the key language in this statute which is of concern here is that the statute applies to any claim upon or against the Government.
The Government's position that that language means -- what the Court referred to -- this Court referred to in United States v. McNinch when it said that the conception of a claim against the Government, and this language appears at page 10 in our brief, the Court said, “the conception of a claim against the government normally connotes a demand for money over some transfer of property.”
That is the test which we submit should be applied to determine whether or not there has been a claim against the Government.
Is the applicant seeking the payment of government funds for the transfer of government property?
We think that the construction that we urge is consistent with the legislative purpose in enacting the False Claims Act that it is supported by the language of the statute, is in line with the cases decided by this Court and, in addition, that the standard set down by the court below, whether or not there is an assertion of a legal right, is not a meaningful standard which can be clearly applied by either the Justice Department or the courts below.
Looking first at the language of the statute --
Justice John M. Harlan: Does the court below split on this?
Mr. John S. Martin, Jr.: Well, Mr.Justice Harlan, the answer to that is this.
The Courts -- this is the first case to come before this Court and also in the Courts of Appeals where the question of whether or not a loan is a claim within the meaning of the False Claims Act has been expressly considered by the courts.
It has, in a number of cases, three cases appear in -- that came before this Court, United States v. Rainwater, United States v. Cato, and United States v. Toepleman were here before this Court and the issue raised in those cases was whether the Commodity Credit Corporation was the United States within the meaning of the False Claims Act.
Implicit in the holding that sustained an action under the False Claims Act against those defendants was that a loan is a claim.
Mr. John S. Martin, Jr.: So that --
Justice Byron R. White: Well, is that at --
Was that at issue?
Mr. John S. Martin, Jr.: No, it was not.
Justice Byron R. White: It wasn't argued or anything?
Mr. John S. Martin, Jr.: It was not, Mr.Justice White, except -- with this exception, that the word -- the meaning of the word “claim” was argued in a slightly different context in a companion case.
You had Cato and Toepleman were decided in the opinion of the Court in United States v. McNinch.
McNinch involved an application for credit insurance.
Justice Byron R. White: Well, did the Court in those cases disaffirm the idea that it had to be a legal right?
Mr. John S. Martin, Jr.: Well, the Court did not expressly deal with that question, Mr.Justice White.
It did, as I just quoted in the Court's language in McNinch, and I think important in that is what Mr.Justice Black writing for the Court said in that case.
He said that, in dealing with McNinch which was the case involving an application for credit insurance and the government was arguing that case that the application for credit insurance was a claim.
And, Mr.Justice Black, speaking for the Court in that case, said that, normally, the term “claim,” this language is again in our brief at page 10, he recognized that, literally, the term “claim” could be considered to cover and I am quoting the assertion of “a right or privilege to draw upon the government's credit.”
So, he recognized in that case that the term “claim” could have that reached under literal application, but he said in McNinch that the problem was that there was no demand for immediate transfer of government funds or government property.
And, the Court said in a footnote in the McNinch opinion that we will leave to another day the question of what happens when there has been a default on the loan the Government is required to payout, whether that, in that context, becomes a claim.
So that, the -- I do think that these cases have some value because the question of what was a claim was at issue, although in a different context, and no one ever dispute it, either the attorneys or the Court, that an application for a loan was a claim.
We think that the construction that we urge is consistent with the legislative purpose.
The Court made clear in McNinch and it had said in US ex rel. Marcus v. Hess that a claim-- that the purpose of the False Claims Act was to protect the public treasury.
Certainly, in the type with as many government loan programs that we have today, this is an important method in which the public treasury can be depleted by fraudulent loan applications.
Just to point out the statistics in the Commodity Credit Corporation alone, that last year they issued approximately $1.4 billion with loans on crops.
The grains -- the storage facility program resulted in the issuance of approximately $15 million worth of loans.
These are only two of the Government's loan programs and, we submit, as we said in our brief, that these government loan funds are entitled to the protection of the False Claims Act.
I would also point out to the Court that counsel has stated in his brief that the government does not need the protection of the False Claims Act because it -- civil provisions because it does have the criminal provisions of Section 1001 of Title 18, and that any false claim in a loan application for a statement of loan application would be covered by that.
However, I do think the statutory framework sets up a range of possible alternative action the government could take.
Criminal action is one, but there are a number of cases where there may be false statements contained in loan applications or other types of claims where it's a single instance, it's relatively minor, where perhaps the invocation of criminal sanctions is too severe.
It seems to us that the forfeiture provisions of the False Claims Act provide the Government with a reasonable alternative way of proceeding in that type of case, and so that this does perform a fairly substantial function.
Justice William J. Brennan: Has there ever been an effort, Mr.Martin, to get legislative amendments?
Mr. John S. Martin, Jr.: No.
This is the first -- as I say, this is the first case in which the issue has come up.
Justice William J. Brennan: But, I gather though, the issue has been lying around for quite a while there.
Mr. John S. Martin, Jr.: No.
It's never been raised.
I don't think that it's ever been thought of until this --
Justice William J. Brennan: And it's been assumed --
Mr. John S. Martin, Jr.: It has been assumed --
Justice William J. Brennan: Along what application was it?
Mr. John S. Martin, Jr.: I take it, a loan application was a claim.
It was assumed in the cases that have come before this Court.
Now, as I stated, we think that our reading of the statute comports with the intent of Congress.
We think that it is consistent with the decisions which deci -- the cases decided by this Court.
We also think that the rule which the court below laid down is really not a meaningful test.
To say that the False Claims Act will apply where there is an assertion of a legal right leads to the question what does that mean in the context of this case?
These applications -- these loan applications were submitted under what we conceded below.
I want to privies my remarks by saying we conceded below the person making a loan application could not go into Court and force the Commodity Credit Corporation to make the loan.
There are, to a certain extent, some discretionary factors to be considered by the Commodity Credit Corporation.
One, is there a need for the facility that is set out in the regulations?
But, at the same time, we concede it was not an enforceable right, in that, you could not go into Court to enforce it.
I would refer the Court to the language of the statute establishing the Commodity Credit Corporation, and that's set forth in a footnote at page 11 of our brief.
It says that to encourage the storage of grain on farms where it could be stored at the lowest cost, the corporation shall make loans to grain growers needing storage facilities.
The Commodity Credit Corporation views this as an expressed intent of Congress, that such loans shall be granted where the applicant otherwise qualifies so that there is, in a real sense, a right conferred on the farmer to apply for this type of loan.
And, the Commodity Credit Corporation views it at -- as the duty of the corporation to make the loan where the farmer otherwise qualifies.
Justice Byron R. White: What action would a fellow refuse the loan if he simply -- if the Commodity Credit Corporation said “Sure, we think you'd qualify but we just don't like you.
We're not going to make the loan.”
Mr. John S. Martin, Jr.: Well, I think there's a broad discretion.
I don't think an action normally lies.
There may be situations--
Justice Byron R. White: It wouldn't, would it?
Mr. John S. Martin, Jr.: I would think it would not normally lie.
There may be situations where, if there were some type of act of discrimination being practiced by the corporation that a right might be created by the Court through a mandamus proceedings but I think, normally, this is -- Congress left this discretion to the Commodity Credit Corporation, but I don't think that means that the applicant doesn't, in a meaningful sense, have a right.
I'd also point out to the Court the problems that exist in trying to interpret this.
If you say that the loan application is not a claim, does a claim accrue under this statute, under these regulations which provide the regulations setting up the loan program, which appear at 7 Code of Federal Regulations Section 1474.727.
Justice William J. Brennan: Is that in your brief, Mr.
Mr. John S. Martin, Jr.: No, it is not, Mr.Justice Brennan.
But, those regulations indicate that the way these transactions are handled or that the loan application is made when it is approved, the -- by a county committee that processes the loan applications, when the county committee approves the loan, a commitment is issued in which the Commodity Credit Corporation agrees that it will issue the loan.
Now, at this point, there's a binding legal obligation on the Government on the corporation to issue the loan once the other qualifying acts take place, so that it is then do we have a situation where to question the word “claim” depends upon whether or not there is a commitment or whether or not, as under other programs, if you have the loan application made and the funds immediately dispersed, would you say that that is not a claim but if you have a loan application with a commitment issued and then an ap -- another step taken before the loan is actually issued, does that become a claim?
It seems to me that that ype of incongruous result follows from the test which the Court laid down below.
We do not think that that's a meaningful test.
We think that the test should be, as we've indicated, whether or not the application calls for the disbursement of government funds or the transfer of government property.
It's a clear test.
It's a test that is within the intent of Congress.
It's a test that provides very -- it's very easy of application for it's a clear standard.
We think it is the one that should be adopted by the Court in this case.
We feel, for these reasons, that the judgment below should be reversed.
I'd like to reserve whatever time I have left.
Justice John M. Harlan: What's the measure of the penalty?
Mr. John S. Martin, Jr.: The penal -- the civil provisions provide for $2,000 forfeiture, also for double the amount of actual damages proved.
Argument of Patrick F. Hooks
Mr. Patrick F. Hooks: May it please the Court.
We believe that the issue stated by the government is somewhat too broad.
Quite selfishly, we believe the issue to be whether these particular loans and the filing of the invoice in connection there with -- in connection there with in the 12 several counts are a claim within the meaning of the False Claims Act.
I think one reason, in answer to Mr.Justice Brennan's question to Mr.Martin, that this particular question has not been before the Circuit Court because this is a somewhat different loan situation in other government programs and, in particular, that in Rainwater and Kegel.
They were dealing, and I think this is illustrated in U.S. v. Templeton, a Circuit Court decision cited in the Government's brief, they were dealing with the form of subsidy.
It isn't really a loan in the normal sense because the farmer goes in, in wheat situations.
Justice Byron R. White: Well, it isn't even a loan, is it?
Mr. Patrick F. Hooks: It isn't really a loan.
Justice Byron R. White: It's a guarantee.
Mr. Patrick F. Hooks: It's a purchase.
The farmer, if the market goes up, can pay off the loan and sell on the market.
Justice Byron R. White: Yes, but in Rainwater, what is it?
Mr. Patrick F. Hooks: I -- the facts aren't set forth in sufficient length in the opinion, Mr.Justice White, for me to understand the cotton loan, but it looks just like a wheat loan that I am familiar with.
But, here, we're dealing with a loan that's on all fours with the bank loan.
The regulations provide that when the committee -- if the committee does exercise its discretion and grant a loan for a farm storage facility, they take a channel mortgage.
They take a severance agreement.
They have the right, in addition to a channel mortgage, to take a mortgage on, first mortgage, on the farmer's real property.
The regulations provide that the farmer pays all the recording cost and filing fee.
He also -- before disbursement can be made, the facility, as erected, must be inspected by the Government.
Justice Byron R. White: Yes, but what would you say if there was a -- the Government was really obligated?
Mr. Patrick F. Hooks: Well, I think if they were obligated, the Circuit Court would be wrong.
Justice Byron R. White: So, it wouldn't make any difference whether it was a loan or not or a secured loan.
Mr. Patrick F. Hooks: No, but we do point this out, that this is a situation.
I think there is one point there, Mr.Justice White.
I think you then would get involved in the question of whether there was financial detriment to the Government because, really, aren't they -- they are just changing assets.
They have the security.
I think a bank, when they make --
Justice Byron R. White: Yes, but they put out the funds.
Mr. Patrick F. Hooks: They put out the funds but they take back the security.
Justice Byron R. White: The security could be destroyed, especially when it doesn't change the possession, which it doesn't.
Mr. Patrick F. Hooks: We believe that the concession made by the Government was dictated by the facts that there was no legal obligation on the part of the Government.
The court below, citing U.S. v. Cohn at 270 Montana which I believe to be the first false claim decision decided by this Court, said that this is not a claim situation because it does not involve a claim for money or property to which a right is asserted against the Government based on the Government's liability to the claimant.
Now, since 1926, that has been the accepted definition of what is a claim under the False Claims Act.
That decision was cited as having relevance in the McNinch case at 356 U.S.
The Government argues against this interpretation and says Cohn is no longer of importance because of Marcus v. Hess.
We disagree violently with that interpretation.
All Marcus v. Hess holds is that the one committing the alleged fraud does not have to be the claimant.
There, we had collusive agreements between a bunch of contractors on a program which the PWA was entered into -- had entered into certain municipalities and school districts in Pennsylvania.
Because of the fraud practiced by the contractors, the Government money was paid out, but to hold that that is not a claim situation because the contractors could not sue the Government would be to say that the Government could back off at any time from paying the municipalities.
The Government was in the program.
It was a claim situation, and the only thing Marcus v. Hess stands for in that regard is that the False Claims Act touches everyone who causes a false claim to be made.
An excellent example of the Hess Doctrine is found in U.S. v. Lagerbusch in the Third Circuit.
There, Lagerbusch worked for Hercules Powder Company.
Hercules had a cost plus contract with the Government.
Lagerbusch submitted some kind of false payroll record or somehow got excess moneys to which he was not entitled from Hercules.
It was cost plus.
Hercules filed a claim based in part on that.
There was a claim situation, a right asserted.
Lagerbuschcould not sue the Government but the Government had a right asserted against it.
Justice John M. Harlan: Do you think it could have been prosecuted under this set of facts under the false claim?
Mr. Patrick F. Hooks: Neifert-White?
Neifert-White was prosecuted, Your Honor.
Justice John M. Harlan: They were?
Mr. Patrick F. Hooks: Were prosecuted not under a false claim, the criminal but -- under 317 (m), I believe, of the Commodity Credit Act on two counts.
Chief Justice Earl Warren: What were the charges?
Mr. Patrick F. Hooks: Pardon?
Chief Justice Earl Warren: What were the charges?
Mr. Patrick F. Hooks: Filing a false statement.
The exact statute is 15 U.S.C. 1771 --714 (m)(a), two counts but there was no false claim.
It is not the counterpart -- the criminal counterpart of the civil statute.
It's just a false statement.
Justice Byron R. White: What's that citation?
Mr. Patrick F. Hooks: 15 U.S.C. paragraph 714 (m)(a), whoever makes any statement knowing it to be false, whoever willfully overvalues any security for the purpose of inducing action with the Government, and so forth.
Justice Hugo L. Black: Well, that's very much alike, except there's not the call of false claims -- presenting the false claims.
The facts seem to be very similar.
Mr. Patrick F. Hooks: It's merely a false statement.
Justice Hugo L. Black: It's a false statement which is found -- which does apply.
Mr. Patrick F. Hooks: Which really set--
Justice Hugo L. Black: Made the Government due, why?
Mr. Patrick F. Hooks: For the purpose of influence in any way the action of the Commodity Credit Corporation or for the purpose of retaining for himself another money, property, or anything of value.
Justice Hugo L. Black: Well, wasn't that the purpose of money -- obtaining money under this False Claims Act?
Can you not describe it pretty well?
Mr. Patrick F. Hooks: I think the language is significantly different.
Justice William J. Brennan: But, I gather, the identical facts that we have here upon which that prosecution rested, didn't it?
Mr. Patrick F. Hooks: Yes, Your Honor.
Justice William J. Brennan: The same application.
Mr. Patrick F. Hooks: Same, in fact, I can't recall the two particular counts but there were two there in --
Justice Byron R. White: Which case started first?
Mr. Patrick F. Hooks: The criminal action was commenced and concluded long prior to the civil action.
Justice Byron R. White: Concluded by a conviction?
Mr. Patrick F. Hooks: I believe, nolo contendere.
Justice Byron R. White: I see.
Mr. Patrick F. Hooks: Both counts.
Because, very frankly, I represented the client at that hearing and we're guilty of making a false statement but that's a far cry in our opinion for making a false claim under the civil section.
Justice John M. Harlan: What was the fine?
Mr. Patrick F. Hooks: I believe it was $250 on both counts.
Justice Hugo L. Black: What did he make the false claim for?
What do you want to get by inventive?
Mr. Patrick F. Hooks: Well, Your Honor, it's the same case.
It's outside the record that these loans were fully repaid.
There isn't any loss to the Government.
Justice Hugo L. Black: There's what?
Mr. Patrick F. Hooks: There's no loss to the Government here.
The loans were fully repaid.
This man actually was passing on --
Justice Hugo L. Black: Suppose there hadn't been a loan?
Mr. Patrick F. Hooks: It still would not be a false claim, in our view, because there is no legal right asserted to -- against the Government for money or property of the government based on the Government's obligation to any claimant.
Justice Hugo L. Black: The scheme is based on, I gather, based on the idea that the Government is liable to lose something that they are liable to have to pay a claimant.
Mr. Patrick F. Hooks: Well, I can't see how the Government could any -- ever lose in this particular transaction.
Justice William J. Brennan: Well, is it in the element under the False Claims Act that the Government in fact loses?
Mr. Patrick F. Hooks: No.
The payment of money?
Justice William J. Brennan: No, even though the Government -- as happened here, I gather, the loans were fully repaid, nevertheless if it was -- if the application was a false claim, there'd still be liability under the statute, would there not?
Mr. Patrick F. Hooks: There would.
In Rex Trailer v. U.S., in a footnote, this Court -- and I think this destroys a good portion of the Government's argument, the thrust of it seems to be that there has to be an outgo of money.
That isn't so.
In Rex Trailer Sales v. U.S., this Court said, in viewing Marcus v. Hess, that in the Marcus situation the Government discovered some of the fraud on behalf of the contractors before they paid it.
So, they didn't pay but that was still a claim situation.
And, the Third or Fourth Circuit in the Ridglea Bank --State Bank case which is cited in the Government's reply brief is the same situation.
A claim is a claim.
The payment of money per se is not necessary to make it so.
But, in answer to your question, Mr.Justice Black, I can't conceive of how the Government could lose money in this situation.
I would deny vigorously that that was ever the intent.
Justice Hugo L. Black: On the intent of Congress?
Justice William J. Brennan: It would only be gross in aptitude on the part of the ASC officials, it seems to me, and that's the local committee who handles loans because they have the discretion.
They have all these protections for security.
Chief Justice Earl Warren: Well, he wouldn't have been eligible at all unless he'd have the units or whatever it was that they falsely represent his entitled to, would he?
Justice William J. Brennan: For the farmer or Neifert-White, Your Honor?
Chief Justice Earl Warren: The farmer.
He'd have to have the units, didn't he?
Mr. Patrick F. Hooks: He had to purchase the grain bins.
Chief Justice Earl Warren: Yes.
Mr. Patrick F. Hooks: Under this program, the purpose was to encourage farm storage of grain products.
Chief Justice Earl Warren: Yes.
Mr. Patrick F. Hooks: They could borrow up to 80% and, if they were qualified and went through all the rigmarole to get the loan, then they had to go out and buy one.
These were just --
Chief Justice Earl Warren: Well, was he qualified?
Mr. Patrick F. Hooks: The farmers in these cases?
Chief Justice Earl Warren: Yes.
Mr. Patrick F. Hooks: Yes, each and all of these farmers qualified.
Chief Justice Earl Warren: They qualified on his false affidavit?
Mr. Patrick F. Hooks: They qualified on their own.
They had to do that first.
Chief Justice Earl Warren: Well, you mean if he hadn't --
Mr. Patrick F. Hooks: The only place Neifert-White comes in is that -- it's provided in the regulations that the farmer, in connection with his application, must submit an invoice showing the price of the bins, price of the product that he buys, and that's what Neifert-White.
They put in a statement based on the butler list price, a fair trade price, FOB towns in Montana.
The actual price that Neifert-White charged the bins out to the growers was somewhat smaller.
Justice William J. Brennan: Well, let's see.
That is if the item was actually sold to the grower at $100.
It was invoiced for the purpose of the loan, say, at $200.
Is that it?
Whatever the figures are, is that the way the thing worked?
Mr. Patrick F. Hooks: Yes, they're on from $38.40 --
Justice William J. Brennan: Yes.
Mr. Patrick F. Hooks: To $366, the high and the low here.
Justice William J. Brennan: But is -- I mean, is this the way it worked?
Mr. Patrick F. Hooks: Yes.
Justice William J. Brennan: That, in fact, the grower was charged by Neifert-White, say, $50 or $38, whatever it may be, but they were invoiced at some higher price for the purpose of the loan.
Is that it?
Mr. Patrick F. Hooks: That's right.
Justice William J. Brennan: Yes.
Mr. Patrick F. Hooks: It was -- it would be about $120 invoice price and the farmer paid $100.
That would be roughly comparable.
We believe and submit to this Court that the view of the Ninth Circuit is one not only consistent with Cohn, consistent with McNinch, but it's consistent with all of the cases decided because -- and cited in the brief because, when you go through those cases, in most of them you will find there is a claim situation.
US v. Brown is an example.
U.S. v. (Inaudible).
There -- that's the follow up of the McNinch case where there was a default in the FHA loan but, there, there's no discretion in the Government.
Once there's a default, there's a demand and the Government is going to pay.
We believe that, as the Court said in Tieger, that -- the Circuit Court said in Tieger and quoted in McNinch, that normal usage of the language that when you have a claim it's a demand and, when you demand, you have a right to get it.
Here, that's not present.
Justice Abe Fortas: Well, is your posi -- is it your position that there was no claim here because the farmer did not have a right to get the loan?
Mr. Patrick F. Hooks: That is our position, Your Honor.
Justice Abe Fortas: Now, the farmer, under the statute, had some thought of a right, didn't he?
That is to say the statute authorized the making of these loans, right?
Mr. Patrick F. Hooks: The statute and the regulations authorized the making of the loans.
Justice Abe Fortas: And, is it your position that that was totally discretionary?
Mr. Patrick F. Hooks: Totally discretionary with the Commodity Credit Corporation.
They have found --
Justice Abe Fortas: I thought that --
Mr. Patrick F. Hooks: I'm sure he used good faith and the Government has conceded that in the --
Justice Abe Fortas: Doesn't the Act -- doesn't the Act authorize the Commodity Credit Corporation to make loans to the farmer's needing storage facilities, when the growers shall apply?
Do you construe that as totally discretionary?
Mr. Patrick F. Hooks: Well, certainly it's something that a farmer, if he were denied, could not seek legal redress.
That's our position.
Justice Abe Fortas: And, you don't challenge -- if you assume that we get over that hurdle, if the Court gets over that hurdle, you don't make any point about the culpability or the involvement of Neifort-White under 3490, do you?
Mr. Patrick F. Hooks: Under the -- the fact that the filing of an invoice is a claim, no, sir.
We – it --
Justice Abe Fortas: Your --
Mr. Patrick F. Hooks: That situation is clearly covered by the statute.
Justice Abe Fortas: Your sole point here, as I understand, is that since the Commodity Credit Corporation had discretion to make or not to make the loan, therefore it's not a claim under the Act.
Mr. Patrick F. Hooks: It is not a claim.
It doesn't come within the definition of Cohn.
We don't feel it comes within the definition of any of these other cases.
Chief Justice Earl Warren: Is it your position on the question of discretion that if two farmers come in and have identical -- make identical representations on the identical set of facts that they have the discretion to make a loan to one and not to the other?
Mr. Patrick F. Hooks: Yes, sir.
Chief Justice Earl Warren: And, on what basis do they do that?
Mr. Patrick F. Hooks: Well --
Chief Justice Earl Warren: Can they do it?
Mr. Patrick F. Hooks: They can do it on the farmer's past growing history, his need --
Chief Justice Earl Warren: No.
Mr. Patrick F. Hooks: You have --
Chief Justice Earl Warren: I'm saying, on the identical set of facts.
On the identical set of facts, can they -- do they have discretion to give it to one and deny it to another?
Mr. Patrick F. Hooks: So far as I can read the statute and the regulations, they would.
I think it would be an arbitrary discretion -- arbitrary exercise of the Government's power.
Chief Justice Earl Warren: Well, it wouldn't be illegal if it were exercised with them, would it?
Mr. Patrick F. Hooks: All I -- as I read the regulations, Mr.Chief Justice, they could grant it at their whim.
Chief Justice Earl Warren: Well, certainly, these programs are not for the purpose of letting some minor official pick and choose among his friends whom you'll give the benefits of the Act to, are they?
Mr. Patrick F. Hooks: Well, no.
In this particular circumstance, the committee de -- the determination is a committee rather than an official and they're elected by the farmers themselves.
Chief Justice Earl Warren: Sure, but they don't have the right to just pick and choose who they want to give the right to, do they?
Mr. Patrick F. Hooks: I would not believe so.
Chief Justice Earl Warren: That's all I want -- all I was interested in.
Mr. Patrick F. Hooks: But, I -- from the regulations and the statute, I think it's quite clear that they have -- they do have the right to deny.
Chief Justice Earl Warren: Yes, of course.
I have some discretion under that point.
Mr. Patrick F. Hooks: And, I again point out that we concur on the Government's concession on this point, as did the Circuit Court, that there was no legal obligation.
The Government contends in brief at some length that this, of course, is an open door in connection with all of their programs.
I think the cases cited in all of the circumstances under false claim reflect how the variances occur between programs, whether there is a claim situation or not.
And I don't certainly -- personally have facts of all of these programs where you could -- where I could differentiate them.
I think it's something that will have to be determined on a case by case basis because I think each program is in fact different.
Justice Abe Fortas: Suppose a farmer went to an appropriate agency within the Commodity Credit Corporation and said “will you lend me money to buy a grain storage bin or whatever it is?”
And the Commodity Credit Corporation said “Yes.
Upon presentation of an invoice, we'll lend you the money.”
And then, Neifert-White gave him this presumptively false invoice.
What about that?
Could Neifert-White be pros -- be sued under the statute?
Mr. Patrick F. Hooks: We would say no, Your Honor.
Justice Abe Fortas: Sir?
Mr. Patrick F. Hooks: We would say no.
Justice Abe Fortas: Why not?
Mr. Patrick F. Hooks: Because it's basically what happened here.
Justice Abe Fortas: Well, that's what I was --
Mr. Patrick F. Hooks: And it is not a --
Justice Abe Fortas: That's why I asked you the question.
Mr. Patrick F. Hooks: It is not a claim situation because --
Justice Abe Fortas: That's why I asked you the question because the problem here is, on your theory, is whether this is really totally nothing more than an application for the favorable exercise of Government discretion or whether there is something resembling a legal right.
If the Government -- if the Commodity Credit Corporation said, “Yes, Mr.Farmer, you may have the loan upon presentation of an invoice.”
And if he had come in with a proper invoice and no question that he would have been entitled to the loan, isn't that right?
Mr. Patrick F. Hooks: At that time, he'd be entitled --
Justice Abe Fortas: And here, you came -- what happened here is -- the only thing that happened here is, as I said, is that came -- the farmer came in with a fraudulent invoice.
Mr. Patrick F. Hooks: We believe that, certainly, this situation is narrowly squarely within Cohn.
That test has to be observed but, as pointed out in McNinch, what we're dealing with here is essentially a criminal statute and, as this Court said in McNinch, its provisions must be carefully restricted.
And, as the Court also observed in McNinch, it's not designed to reach every fraud perpetrated upon the Government, and the Cohn definition which is the foundation of the Circuit Court decision has been the accepted definition in all of the false claims decisions since 1926.
The Government's open door argument, I think, should properly be addressed to Congress rather than to the Court if the Government in fact, in the proliferation of government programs, needs additional sanctions which they can impose civilly.
Certainly, it would be relatively easy to do so in connection with the legislation enacting the programs and as we have discussed before, they have the criminal provisions.
The criminal provisions have been criminally enforced against Neifert-White here.
We believe that, just as in McNinch and Tieger where the Government sought to extend the provisions of the Act beyond a historic definition of Cohn, beyond the purpose of Congress, the Courts said “no, we'll not go that far.
It is not designed to reach every fraud.”
This Court should likewise reach the same result and affirm the Circuit Court opinion.
Chief Justice Earl Warren: Is there anything in the legislative history that will help us in determining what the purpose of Congress was?
Justice Abe Fortas: I believe so.
The Government brief cites, all of the Government brief in the case, all the way along the line, have cited the speeches of Senator Howard in 1863 that the purpose is -- was to prevent plundering.
Justice Hugo L. Black: To prevent what?
Mr. Patrick F. Hooks: To prevent the plundering of the treasury.
This statute came out of the Civil War and apparently, there was a horrendous and widespread raid on the treasury.
And we think that the legislative history shows just that plundering a financial outcome, the Government being defrauded, payment of money is on an assertation of right.
Chief Justice Earl Warren: Well, it became common practice to what these petitioners did in this case or the respondents read it.
It would result to a plundering of the treasury, wouldn't it?
Mr. Patrick F. Hooks: Well, there, again the Government never lost a nickel in this situation.
Chief Justice Earl Warren: They didn't on this deal but, to everybody, it had gotten into the habit of making those false inventories in order to get bones that would eventually result in all probability, will it not, the plundering of the treasury?
Mr. Patrick F. Hooks: It would only result if there was a breakdown on the local level where they did not get adequate security.
It's the only way it could result in that.
Here, it should be borne in mind that the Government only loaned, in one case, $38 more than they should've on a $400 loan.
These are set forth in the complaint.
We're dealing with a very minor amount of money.
In our view, it is not in any sense a plunder situation.
Justice Abe Fortas: You're not suggesting, are you, that the statute applies only to major fee rates?
Mr. Patrick F. Hooks: No, Your Honor.
Justice Abe Fortas: Not to minor fees.
Mr. Patrick F. Hooks: No, Your Honor, but I expressed those figures because it does not, with a security, seem to us it is a plunder situation that was contemplated by the enactors of the False Claims Act in 1863.
Thank you very much.
Chief Justice Earl Warren: Mr.Martin.
Rebuttal of John S. Martin, Jr.
Mr. John S. Martin, Jr.: If the Court please.
First, I'd address myself to this very question which counsel ended that as a situation of can there be damaged to the Government.
Certainly, there is in the particular situation before the courts.
There is security of nature.
There is some attempt by the local committees to check on that security.
However, the rule which was laid down by the court below would apply to any loan situation and I think that I suppose I'm somewhat onerous by my own experience having been in New York at the time the Salad Oil Scandal broke when the greatest frauds in a country's history was perpetrated in all loan situations as the greatest losses that we've had, I'm sure, in the financial world in the last decade where all loans obvious -- supposedly secured loans.
But, in fact, there was no such security.
Now, the Court's reading below would apply to that situation as well as the one we have here.
I'd also like to address myself to counsel's reliance on the case of United States v. Cohn.
As we set forth in our brief, Cohn was a situation which a shipment of cigars that come in from the Philippines, they're being held in a customs house.
These were non-dutiable at the time.
Cohn procured Cato's so far as out of customs custody by falsely representing that the Bill of Lading hadn't arrived and by falsely procuring a bond that the Bill of Lading would be produced.
In fact, the Bill of Lading had arrived and it's being held in a bank for payment and he was -- Cohn was supposed to make the payment and then take the Bill of Lading to the Customs people.
So, he procured goods from Custom's custody by use of this false statement.
However, it was non-dutiable merchandise and the Government had no interest in it.
It was on the basis of those facts because the Government was not dispersing any of its property or its money.
Then, the Court held that there was no claim.
I think that is the exact distinction which this Court placed on the Cohn case in U.S. ex rel. Marcus v. Hess and we've set out the language at page 15 whatthe Court in Hess said.
And, I think it applies here also, quoting from Hess, “the situation here is in no sense like that discussed in United States v. Cohn, 270 U.S. 339, 345-347, where the Government acted solely as barely and no person had any claim against it for a payment.”
The Court in Co -- in the Cohn case held that there had been no wrongful obtaining of money of the governments.
Well, there has been such a wrongful obtaining here on claims which were presented either directly or indirectly to the Government with full knowledge by the claimants of the fraudulent basis.
I think also significant is the fact that, in US ex rel. Marcus v. Hess, the false statements that were involved, if it were involved, were the fraud that was perpetrated all predated the contract.
As I read the facts of that case, what happened was that there was a Public Works Administration project proposed and the collusive -- it was collusive bidding which was the fraud involved in Marcus.
So that, the fraud took place before there was any obligation on anyone's part to make any type of payment.
What happened was there was a collusive bidding.
That was the fraud.
Then, contracts issues binding the local government to make payment for the work done and that was supported through government payments also, but you have very much the situation as Mr.Justice Fortas point out here where the -- you have the fraud then a contract and then payment.
Well, here, you have the situation of the loan application, a commitment, and then payment.
Now, I agree, Mr.Justice Fortas, with your analysis that, here, there was a binding obligation.
We also submit to the Court that we don't feel that that distinction should be applied.
We think that whether or not a loan is handled through a commitment procedure or whether the loan, when the loan is approved, the funds are immediately dispersed, whether that should be a controlling difference in the application of the Act.
But, I think that the fact that you do have the situation here where you literally fall within the definition of the court below shows that the rule which the Court set down is not a helpful one.
As I said, we feel that the -- a rule that said that any time you're making an application for the payment of government funds, the disbursement of government property, that is a claim against the Government.
All of the programs that we're dealing with, whether or not they involve discretion on the part of the issuing officer where they give him some discretion to determine of the available funds who shall get them or whether there is a need and, even if that discretion is not reviewable in the Court, all of these programs manifest an intent of Congress that, in certain situations, these loans shall issue.
And, they place a duty on that officer, who was sworn to enforce the laws of Congress, to make the loans when the situation is right for such a loan to be made.
So, there is a right in the individual who applied.
Whether or not that right may be enforced in the Court of law is another question, but there certainly is a right to the payment.
And, for all of these reasons, we would ask the Court to adopt the test that we suggest and to reverse the judgment of the court below and reinstate -- order the reinstatement of the complaint.