Source: https://supreme.justia.com/cases/federal/us/356/595/
Timestamp: 2019-04-23 03:59:19+00:00

Document:
1. A claim against the Commodity Credit Corporation is a claim "against the Government of the United States, or any department or officer thereof" within the meaning of the civil provisions of the False Claims Act. Rainwater v. United States, ante, p. 356 U. S. 590. Pp. 356 U. S. 595-596.
2. The Federal Housing Administration, an unincorporated agency in the Executive Department created by the President pursuant to congressional authority to administer a number of federal housing programs and operating with funds originally appropriated by Congress, is a part of the "Government of the United States" within the meaning of the civil provisions of the False Claims Act. Pp. 356 U. S. 596-598.
3. A lending institution's application to the Federal Housing Administration for credit insurance is not a "claim" as that term is used in the False Claims Act. Pp. 356 U. S. 598-600.
242 F.2d 359, affirmed in part, reversed in part, and cause remanded.
In Cato and Toepleman, the District Court found the defendants had submitted false claims for crop support loans to the Commodity Credit Corporation, and entered judgment in favor of the Government for the forfeitures provided by the False Claims Act. The Court of Appeals reversed on the ground that a false claim against Commodity was not a claim "against the Government of the United States, or any department or officer thereof" within the meaning of that Act. The sole question before us, so far as these two actions are concerned, is whether the Court of Appeals erred in so deciding. For the reasons set forth in Rainwater, we hold that it did.
lending money for the repair or alteration of homes. [Footnote 3] After a lending institution has been approved by the FHA, that agency promises to insure, upon payment of a specified premium, any home improvement loan made by the institution. A borrower desiring to obtain an insured loan applies directly to the private lender, which has final authority to decide whether the loan should be made. If a loan is granted, the lender reports the details to the FHA which automatically insures the loan as soon as the required premium is paid.
The Government's complaint in McNinch charged the defendants with causing a qualified bank to present a number of false applications for credit insurance to the FHA. [Footnote 4] The defendants moved to dismiss the complaint, asserting that it failed to state a cause of action. The District Court granted the motion, holding that an application for credit insurance was not a "claim" within the meaning of the False Claims Act. The Court of Appeals affirmed on that same basis, as well as on the alternative ground that a false claim against the FHA was not a claim "against the Government of the United States, or any department or officer thereof."
1. In our judgment, the Court of Appeals quite plainly erred in holding that the FHA was not part of the "Government of the United States" for purposes of the False Claims Act. The FHA is an unincorporated agency in the Executive Department created by the President pursuant to congressional authorization. Its head, the Federal Housing Commissioner, is appointed by the President with the Senate's consent, and the powers of the agency are vested in him. The agency is responsible for the administration of a number of federal housing programs, and operates with funds originally appropriated by Congress. In short, the FHA is about as much a part of the Government as any agency can be.
2. Although the problem is not easy, we believe the courts below were correct in holding that a lending institution's application for credit insurance under the FHA program is not a "claim" as that term is used in the False Claims Act. We acknowledge the force in the Government's argument that, literally, such an application could be regarded as a claim, in the sense that the applicant asserts a right or privilege to draw upon the Government's credit. But it must be kept in mind, as we explained in Rainwater, that, in determining the meaning of the words "claim against the Government," we are actually construing the provisions of a criminal statute. [Footnote 5] Such provisions must be carefully restricted not only to their literal terms, but to the evident purpose of Congress in using those terms, particularly where they are broad and susceptible to numerous definitions. See United States ex rel. Marcus v. Hess, 317 U. S. 537, 317 U. S. 542; United States v. Wiltberger, 5 Wheat. 76, 18 U. S. 95-96.
The judgment of the Court of Appeals is affirmed in McNinch and reversed in Cato and Toepleman, and the cause is remanded for further proceedings not inconsistent with this opinion.
R.S. §§ 3490, 5438 (1878), which are set out in note 1, Rainwater v. United States, ante, p. 356 U. S. 590.
In Cato, the suit was filed in the Eastern District of Virginia. The defendants were Cato Brothers, Inc., a Virginia corporation, and Wilfred Cato, William Cato, and Magie Stone, all directors and officers of the corporation. Toepleman was brought in the Eastern District of North Carolina. Named as defendants were Frederick Toepleman and Garland Greenway, as individuals and partners. After trial, the District Court exonerated Greenway, and he is no longer involved. In McNinch, the action was instituted in the Eastern District of South Carolina. The defendants were Howard McNinch, Rosalie McNinch, and Garis Zeigler.
In general, see 48 Stat. 1246, as amended, 12 U.S.C. § 1701 et seq.; 24 CFR §§ 200.2-200.3, 201.1-201.16.
In somewhat greater detail, the complaint made the following assertions: the defendants Howard and Rosalie McNinch were officers of an unincorporated home construction business, and the defendant Zeigler was one of their salesmen. The defendants presented several applications for FHA-insured loans to a qualified bank. The loans were sought on behalf of homeowners for the purpose of financing residential repairs and improvements which the business had contracted to make. The applications contained statements misrepresenting the financial eligibility of the homeowners, and were accompanied by fictitious credit reports. The bank, relying on this false information, granted the loans, which, in turn were routinely insured by the FHA.
See note 8, Rainwater v. United States, ante, p. 356 U. S. 592, and the text at that point.
Since there has been no default here, we need express no view as to whether a lending institution's demand for reimbursement on a defaulted loan originally procured by a fraudulent application would be a "claim" covered by the False Claims Act.
Cong.Globe, 37th Cong., 3d Sess. 952-958.
"I will simply say to the Senate that this bill has been prepared at the urgent solicitation of the officers who are connected with the administration of the War Department and Treasury Department. The country, as we know, has been full of complaints respecting the frauds and corruptions practiced in obtaining pay from the Government during the present war; and it is said, and earnestly urged upon our attention, that further legislation is pressingly necessary to prevent this great evil; and I suppose there can be no doubt that these complaints are, in the main, well founded. From the attention I have been able to give the subject, I am satisfied that more stringent provisions are required for the purpose of punishing and preventing these frauds, and, with a view to apply a more speedy and vigorous remedy in cases of this kind, the present bill has been prepared."
(Emphasis added.) Cong.Globe, 37th Cong., 3d Sess. 952.
See United States v. Tieger, 234 F.2d 589, certiorari denied, 352 U.S. 941; United States v. Cochran, 235 F.2d 131, certiorari denied, 352 U.S. 941.
"While the word 'claim' may sometimes be used in the broad juridical sense of 'a demand of some matter as of right, made by one person upon another, to do or to forbear to do some act or thing as a matter of duty,' Prigg v. Commonwealth of Pennsylvania, 16 Pet. 539, 41 U. S. 615, it is clear, in the light of the entire context, that in the present statute, the provision relating to the payment or approval of a 'claim upon or against' the Government relates solely to the payment or approval of a claim for money or property to which a right is asserted against the Government, based upon the Government's own liability to the claimant."
These are the allegations which, for present purposes, we must assume are correct.
The South Carolina bank had been approved by FHA as a lending institution. The bank approved the requested loans and applied to FHA for insurance. FHA insured the loans. Thereupon, the proceeds of the loans were deposited to the accounts of these respondents in the South Carolina bank.
The statute, R.S. §§ 3490, 5438, 31 U.S.C. § 231, covers anyone who fraudulently "makes or causes to be made, or presents or causes to be presented, for payment or approval . . . any claim" against the United States. No claim has been tendered against the United States for "payment." But a claim has been presented for "approval" in the meaning of the Act. For the United States has been induced by fraudulent representations to insure these loans. One who has the endorsement of the United States on his paper has acquired property of substantial value. It is a property right of value because it represents a claim against the United States. It is, of course, contingent until a default occurs. But, when fraudulent, it represents an effort to "cheat the United States" (United States ex rel. Marcus v. Hess, 317 U. S. 537, 317 U. S. 544) to the extent that the United States underwrites the losses on the loans. The fact that precise damages are not shown is not fatal, as Rex Trailer Co. v. United States, 350 U. S. 148, 350 U. S. 153, holds.
credit risk insurance from the Government by fraudulent means is a form of plundering as flagrant as the presentation for "payment or approval" of any other type of claim against the Treasury. As Judge Rives said in his dissent in United States v. Cochran, 235 F.2d 131, 135, "Inducing the Government to pledge its credit by a false and fraudulent claim" is as much within the Act as "inducing it to part with its money or property."
The Federal Housing Commissioner is empowered to insure qualified lending institutions against losses sustained as a result of loans made by them for the purpose of financing alterations, repairs, and improvements upon or in connection with real property, 48 Stat. 1246, as amended, 12 U.S.C. § 1703(a). Under the Regulations (24 CFR §§ 200.2-200.3), a lending institution is first approved by FHA to grant loans eligible for insurance and is given a contract of insurance under which the FHA in general agrees to indemnify the insured against losses sustained by it up to an aggregate amount equal to 10% of the total sums advanced by the institution in eligible loans and reported to FHA for insurance. A borrower desiring to obtain a loan makes application to the lending institution, either directly or through contractors, on an FHA form which provides for the disclosure of certain information, 24 CFR § 200.3(a). Within 31 days after the loan is made, the lending institution must report the details of the loan transaction to the FHA on an agency form provided for that purpose, 24 CFR § 200.3(c). After the details of the transaction have been reported to it, FHA computes the insurance premium which will be due and payable by the lending institution, records the transaction, and acknowledges the loan for insurance. Ibid.

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