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Parties Involved:
United States of America
Appellant
Peter D. Van Oosterhout
Appellee

Document Text:

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1 The district court also granted summary judgment in favor of Van Oosterhout on a separate

False Claims Act count and three counts brought under the Financial Institutions Reform,

Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a (1994), see Vanoosterhout, 898 F.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 10, 1996 Decided October 8, 1996

No. 95-5413

UNITED STATES OF AMERICA,

APPELLANT

v.

PETER D. VAN OOSTERHOUT,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

Jeffrey Clair, Attorney, United States Department of Justice, argued the cause for appellant, with

whom Frank W. Hunger, Assistant Attorney General, Eric H. Holder, Jr., United States Attorney,

and Barbara C. Biddle, Assistant Director, United States Department ofJustice, were on the briefs.

Phillip S. Kushner argued the cause for appellee, with whom Gerald A. Messerman was on the brief.

Before: WALD, SILBERMAN, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: The government filed this action under the False Claims Act to

recover monies paid out under Small Business Administration (SBA) loan guaranties when River

CapitalCorporation, a small businessinvestment company financed by SBA-guaranteed debentures,

defaulted on its obligations. Van Oosterhout, who was President and Director of River Capital, is

alleged to have been personally responsible for the submission to the SBA offinancialstatementsthat

falsely stated River Capital's financial position in order to obtain SBA-guaranteed financing. The

district court granted summary judgment in favor of Van Oosterhout on the ground that the False

Claims Act counts are barred by the Act's six-year statute of limitations, United States v.

Vanoosterhout, 898 F. Supp. 25, 27-29 (D.D.C. 1995), and the government appealed.1 We affirm.

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Supp. at 29-30, but the government has not appealed those portions of the district court's

decision. 

I.

River Capital was established under the Small Business Investment Act of 1958, 15 U.S.C.

§§ 681-687m (1988), as a Small Business Investment Corporation (SBIC). From 1983 to 1987, the

SBA provided financing to River Capital by guaranteeing forty-three subordinated debenturesissued

by River Capital. As part of the guarantee program, River Capital was under an ongoing obligation

to file annual reports with the SBA disclosing its financial condition, see 13 C.F.R. § 107.1002(e)

(1988), and to file new applications any time additional financing was desired, see 13 C.F.R. §

107.201 (1988). The counts at issue on appeal are premised on River Capital's August 3, 1987

application to the SBA for additionalfinancing. On River Capital's behalf, Van Oosterhout allegedly

made false statements certifying the continuing correctness of an earlier annual report and its full

compliance with program requirements. The SBA subsequently guaranteed $2.5 million of River

Capital debentures on September 29, 1987.

On July 1 and August 1, 1988, River Capital defaulted on interest payments due on

outstanding debentures. Under SBA regulations, the SBA had discretion to either accelerate River

Capital's indebtedness or forebear acceleration and seek to work out a cure for the default. If the

SBAdecided to accelerate, its procedures called for it to transferRiverCapitalfrom"operating status

into liquidation statusin order to protect the creditor position of SBA." The SBA ultimately decided

to accelerate, and on August 24, 1988, transferred River Capital to "liquidation status."

On August 30, 1988, the SBA notified Chemical Bankthe party that, as trustee for the

financing, held legal title to the debenturesofthe transfer ofRiverCapitalto liquidation status. The

SBA then sent an acceleration letter to River Capital on September 1, 1988, notifying River Capital

of itstransfer to liquidation status, declaring all of itsindebtednessimmediately due and payable, and

demanding payment in full. On September 9, 1988, without demand or application, the SBA made

a guarantee payment to Chemical Bank.

After pursuing various criminal charges against Van Oosterhout, the government filed this

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civil suit on September 1, 1994, alleging, inter alia, that Van Oosterhout had violated the False

Claims Act, 31 U.S.C. §§ 3729-3733 (1994), when he "knowingly present[ed], or cause[ed] to be

presented, to an officer or employee of the United States Government ... a false or fraudulent claim

for payment or approval," id. § 3729(a)(1), and "conspire[d] to defraud the Government by getting

a false or fraudulent claim allowed or paid," id. § 3729(a)(3). Treating Van Oosterhout's motion to

dismiss as a motion forsummaryjudgment, the district court held that River Capital's August 3, 1987,

allegedly false application for additionalfinancing ripened into a "false or fraudulent claim" actionable

under the statute when, on August 24, 1988, the SBA transferred River Capital to liquidation status.

As this suit was filed more than six years after the transfer, the district court held the suit barred by

the False Claims Act's six-year statute of limitations. Vanoosterhout, 898 F. Supp. at 29.

II.

A civil action to recover damages under the False Claims Act may not be brought:

(1) more than 6 years after the date on which the violation of section 3729 is

committed, or

(2) more than 3 years after the date when facts material to the right of action

are known or reasonably should have been known by the official ofthe United

States charged with responsibility to act in the circumstances, but in no event

more than 10 years after the date on which the violation is committed,

whichever occurs last.

31 U.S.C. § 3731(b). As it is the six-year statute that applies to this case, the key question is when

Van Oosterhout is alleged to have committed a "violation ofsection 3729" by presenting an allegedly

false claim to the SBA.

It might be thought that appellant never actually made a "claim" against the government at

all. In United States v. McNinch, 356 U.S. 595 (1958), the leading Supreme Court case on the issue,

the Court held that an application for credit insurance from a federal agency was not a "claim" within

the meaning of the False Claims Act. The Court reasoned that " "the conception of a claim against

the government normally connotes a demand for money or for some transfer of public property' ";

in agreeing to insure a home improvement loan, however, the government had "disburse[d] no funds

nor [had] it otherwise suffer[ed] immediate financial detriment." Id. at 599 (quoting United States

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v. Tieger, 234 F.2d 589, 591 (3d Cir. 1956)). As the debtor had not defaulted on the loan, the Court

left open the question of whether "a lending institution's demand for reimbursement on a defaulted

loan originally procured by a fraudulent application would be a "claim.' " Id. at 599 n.6. Importantly,

the Court implicitly recognized that an actual payment (with or without a demand for payment) or

an "immediate financial detriment" would be equivalent to a claim under this statute.

Subsequently, every court to have considered the question left open by McNinch has

concluded that the actions of the innocent third-party lender can effectuate the "claim" against the

government. It is generally accepted that the false application for a guaranteed loan by the debtor

establishes only an "inchoate" violation of the Act that does not ripen into a claim actionable under

the statute until a later event oflegal consequence between the lender and the government. See, e.g.,

United States v. Ekelman &Assoc., Inc, 532 F.2d 545, 552 (6th Cir. 1976) (false application ripened

into claim when lender sought guarantee payment from government); United States v. Ettrick Wood

Products, Inc., 683 F. Supp. 1262, 1263-64 (W.D. Wisc. 1988) (false application ripened into claim

either on date lender's demand for payment was made on government or date on which funds were

disbursed).

As we noted, an actual payment to the lender qualifies asthe event that effectuatesthe "claim"

for the government has "disburse[d] ... funds," McNinch, 356 U.S. at 599, but is it necessary, short

of that, for the lender to make a demand? Both parties seem to agree, as do we, that a third-party

lender's demand is not indispensable, unless, of course, it is a precondition to liability. See Ekelman

& Assoc., 532 F.2d at 552. The government concedes that the moment it becomes liable to the

lenderin McNinch's terms, an "immediate financial detriment," 356 U.S. at 599the claim has

ripened. The dispute here concerns the point at which that occurred. The government argues that

it did not become legally obligated to pay Chemical Bank in behalf of the bondholders until it

accelerated River Capital's debt, which it could do only after sending River Capital notice of its

liquidation on September 1, 1988. It relies on SBA regulations that provided that after a debtor

defaulted on its interest payments, the SBA could only accelerate the entire indebtedness by giving

the debtor written notice. 13 C.F.R. § 107.203(b)(1) (1988).

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2 A section of the offering circular entitled "Description of Debentures" similarly indicates that:

A Guarantee Payment, as defined herein, will occur only following an SBA

administrative action to transfer the applicable SBIC from operating status into

liquidation status (an "Acceleration Event"). 

3 The parties discuss at length United States v. Rivera, 55 F.3d 703 (1st Cir. 1995), but that

case dealt with an issue not really presented here: whether a violation occurred when a lender

made a demand but actual liability did not attach until a condition subsequent. See id. at 710. 

We disagree. The government is focusing on its remedies vis-a-vis the debtorwhich are set

forth in its regulationsnot, as is relevant in this context, on its legal obligations to the lender. It is

SBA's offering circular which preceded the issuance of the bonds, and not the regulations, that tells

us quite clearly when SBA became liable to Chemical. The offering circular draws a distinction

between an acceleration and an "Acceleration Event," stating that:

Upon the occurrence of an Acceleration Event, SBA will pay to the Trustee 100% of

the principal amount of such Debenture together with interest accrued to the

applicable Payment Date (an "Acceleration Payment").2

An "Acceleration Event" is in turn defined as occurring "upon an event of a default and

transfer of the SBIC into liquidation status by SBA." The government's argument that it could delay

its liability to Chemical by holding offperhaps indefinitelyon giving a liquidation notice to the

debtor not only runs squarely against the plain language of the offering circular, it makes little sense.

Under the offering circular, the bondholders would expect their guarantees to be honored once the

debtor defaulted and SBA recognized, by transferring the account to liquidation status, that it was

dealing with a very troubled loan. They would be indifferent to SBA's subsequent efforts to recover

as much as it could through the actual liquidation, which would require acceleration of the loan.

Accordingly, here the "Acceleration Event" occurred when the SBA, after River Capital had

twice defaulted, transferred River Capital to liquidation status on August 24, 1988; as a result, the

government became legally obligated to make what the offering circular calls an "Acceleration

Payment" to Chemical Bank on that date. River Capital's allegedly false August 3, 1987 application

thus ripened into a "false claim"the alleged violation of the statuteon August 24, 1988. As this

suit was filed "more than six years after the date on which the violation of § 3729 [was] committed,"

31 U.S.C. § 3731(b)(1), it is barred by the False Claims Act's statute of limitations.3

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The judgment of the district court is

Affirmed.

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