Source: https://law.justia.com/cases/federal/appellate-courts/F3/55/703/579226/
Timestamp: 2019-08-26 02:55:47
Document Index: 622916079

Matched Legal Cases: ['§ 3729', '§ 1715', '§ 2', '§ 3729', '§ 3731', '§ 3729', '§ 3731', '§ 3731', '§ 3729']

United States, Appellee, v. Guillermo Alemany Rivera, Defendant, Appellant.united States, Appellee, v. Edgar M. Stella Perez, Defendant, Appellant, 55 F.3d 703 (1st Cir. 1995) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › First Circuit › 1995 › United States, Appellee, v. Guillermo Alemany Rivera, Defendant, Appellant.united States, Appellee,...
United States, Appellee, v. Guillermo Alemany Rivera, Defendant, Appellant.united States, Appellee, v. Edgar M. Stella Perez, Defendant, Appellant, 55 F.3d 703 (1st Cir. 1995)
US Court of Appeals for the First Circuit - 55 F.3d 703 (1st Cir. 1995)
Heard Sept. 12, 1994. Decided June 6, 1995
The United States filed this civil action in the district court against defendants Guillermo Alemany Rivera ("Alemany") and Edgar Stella Perez ("Stella"). Seeking damages under the False Claims Act ("FCA"), 31 U.S.C. §§ 3729-3733 (1982), the government alleged that defendants had caused a false claim for mortgage loan insurance benefits to be presented to the Department of Housing and Urban Development ("HUD"). The district court denied defendants' motion to dismiss and granted summary judgment in favor of the government, awarding it $1,966,592. United States v. Stella Perez, 839 F. Supp. 92, 97-98 (D.P.R. 1993). We hold that the government filed this suit after the applicable limitations period had expired. We therefore reverse.
During the 1970s, Alemany and Stella engaged in a scheme to defraud HUD and the Department of Health and Human Services ("HHS") in connection with a federally-insured $12.46 million mortgage loan. At that time, Stella was president, chairman of the board of directors, and medical director of Hospital Nuestra Senora de la Guadalupe, a hospital in Puerto Rico; defendant Alemany was a former comptroller of the hospital. The hospital had obtained the mortgage loan in 1974 from a private lender, Merrill, Lynch, Hubbard, Inc. ("Merrill Lynch"), for the purpose of renovating and expanding its facilities. HUD had agreed to insure the hospital's loan pursuant to the National Housing Act, 12 U.S.C. § 1715z-7 (1982).
In July of 1982, defendants were charged under a nine-count criminal indictment based upon the events described above. The indictment alleged that they had conspired to defraud the government and had made false statements in support of fraudulent claims. 18 U.S.C. §§ 2, 152, 371, 1001 (1982). After a 30-day trial, a jury convicted defendants on all nine counts. Stella was sentenced to 20 years in prison and placed on probation for an additional five years on the condition that he pay $686,349 in restitution;1 Alemany was sentenced to 10 years in prison and fined $10,000. This court affirmed both convictions and both sentences. United States v. Alemany Rivera, 781 F.2d 229, 238 (1st Cir. 1985), cert. denied, 475 U.S. 1086, 106 S. Ct. 1469, 89 L. Ed. 2d 725 (1986).
On October 25, 1985, the government brought the instant civil action against defendants, seeking recovery under the FCA. An individual is liable under the FCA if he or she "knowingly presents, or causes to be presented, to an officer or employee of the Government ... a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(1) (1982). As in the criminal indictment, the government alleged that defendants had conspired to divert the proceeds of the government-insured mortgage loan through their control of the two supply corporations and through the submission of inflated requests for loan proceeds. In so doing, the government asserted, defendants caused Merrill Lynch to submit an inflated "claim" for payment under the insurance contract after the hospital defaulted on the loan.
The government moved for summary judgment. Defendants filed an opposition and moved to dismiss on the ground the action was barred by the statute of limitations. Ruling that the action had been filed within the applicable limitations period, the district court denied defendants' motion. The court thereupon granted summary judgment for the government, holding there were no remaining genuine issues of material fact. The court ruled that the factual allegations in the civil complaint were identical to the allegations in the prior criminal action. Accordingly, the court held that defendants were collaterally estopped from re-litigating any of the factual issues, as these had already been determined at the criminal trial. See Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 568-69, 71 S. Ct. 408, 414, 95 L. Ed. 534 (1951). The court awarded damages based on "uncontroverted evidence in the record."
Defendants argue on appeal that the district court erred in ruling that this suit was not barred by the statute of limitations. The FCA's statute of limitations provides that an action "must be brought within 6 years from the date the violation is committed." 31 U.S.C. § 3731(b) (1982).2 The elements of a "violation" of the FCA are, as noted above, that an individual "knowingly presents, or causes to be presented, to an officer or employee of the Government ... a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(1) (1982).
Recognition of a false claim action of this sort followed upon the Supreme Court's decision in United States v. McNinch, 356 U.S. 595, 78 S. Ct. 950, 2 L. Ed. 2d 1001 (1958). In McNinch the Court held that a lending institution's mere application for credit insurance, even if fraudulent, did not amount to a "claim" as that term is used in the FCA. Id. The concept of a claim against the government, the Court said, "normally connotes a demand for money or for some transfer of public property." Id. The Sixth Circuit found such a demand to exist where, as here, after fraud was perpetrated on a lending institution for which the perpetrator of the fraud had secured government insurance, the lender presented its own claim to the government for payment or insurance. United States v. Ekelman & Assoc., 532 F.2d 545, 552 (6th Cir. 1976). See also United States v. Veneziale, 268 F.2d 504, 505-06 (3d Cir. 1959). The lender's claim in effect completes the perpetrator's violation of the FCA, commencing the running of the statute of limitations. The Supreme Court itself has yet to endorse this theory, but all the parties in the present case accept it, as, for present purposes, do we.
We accordingly proceed on the theory that the "violation" here was "committed," see 31 U.S.C. § 3731(b) (1982), for statute of limitation purposes, whenever Merrill Lynch can properly be said to have presented its insurance claim to the government. See United States v. Bornstein, 423 U.S. 303, 309, 96 S. Ct. 523, 528, 46 L. Ed. 2d 514 (1976) (false claim may be presented through an innocent third party); United States ex rel. Marcus v. Hess, 317 U.S. 537, 544-45, 63 S. Ct. 379, 384, 87 L. Ed. 443 (1943) (provisions of the FCA "indicate a purpose to reach 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"). The claim was "false or fraudulent" in that the amount claimed was inflated by $686,349, the amount that defendants pocketed as a result of their fraudulent scheme. See Veneziale, 268 F.2d at 506.3
We quickly dismiss Alemany's argument that the claim was presented on June 1, 1979, 30 days after the hospital missed a payment on the loan.4 Alemany argues that, 30 days after the missed payment, defendants' grace period had expired and Merrill Lynch was entitled to seek reimbursement from the government under the terms of its insurance contract. At this point, however, Merrill Lynch had not yet "presented" a "claim" to the government for payment. Although Merrill Lynch was by then entitled to submit a demand for government funds, there is no evidence that Merrill Lynch had yet done so. Indeed, it was possible, if highly unlikely, for Merrill Lynch to choose not to present a claim to the government at all and to have instead looked to the mortgage for reimbursement. See United States v. Stillwater Community Bank, 645 F. Supp. 18, 19 (W.D. Okla. 1986); but cf. United States v. Goldberg, 256 F. Supp. 540, 541-42 (D. Mass. 1966). In any event, no claim was yet presented, and no "violation" of the FCA occurred, on or before June 1, 1979. See Stella Perez, 839 F. Supp. at 95. The district court did not err in denying Alemany's motion to dismiss on this ground.5
The harder question--and the place where we part company with the decision below and with the government--is whether, as Stella now argues, Merrill Lynch presented a claim to the government in July of 1979, when Merrill Lynch submitted formal documents notifying HUD of the default and applying for federal insurance benefits relative to the defaulted mortgage loan. In its opinion the district court nowhere discussed the July filings with HUD as possible "claims" triggering the running of the statute of limitations. This is understandable as neither Stella nor anyone else raised the point below. Both defendants argued to the district court that the claim and violation should be deemed to have occurred on June 1, 1979. Ordinarily, this court will not consider for the first time on appeal arguments not raised below, absent "exceptional circumstances." Desjardins v. Van Buren Community Hosp., 969 F.2d 1280, 1282 (1st Cir. 1992); United States v. Krynicki, 689 F.2d 289, 291 (1st Cir. 1982). But we think that special circumstances warrant our considering the point now. The government has answered Stella's argument on its merits without in any way objecting to, or questioning, Stella's right to raise it for the first time on appeal. We can only assume from the lack of objection that the government does not believe that it is now materially prejudiced by the absence of consideration of the matter below--or else perhaps, that the government has some other reason for waiving objection to our consideration of this argument. Whatever the reason, as the government has offered no objection and has responded on the merits, we are disposed to address Stella's argument, especially because it is so germane to the question that was extensively addressed below--namely, when the claim was presented and when the statute of limitations commenced to run. The actions taken in July 1979, were, moreover, closely related in character and sequence to the actions in June and October that the district court did consider. See Knight v. United States, 37 F.3d 769, 772 n. 2 (1st Cir. 1994).
We realize that Stella's argument relies on material outside the pleadings, the July forms themselves, which the district court had before it, making it technically a cross-motion for summary judgment, rather than a motion to dismiss. See Fed. R. Civ. P. 12(b); 5A Charles Wright & Arthur Miller, Federal Practice and Procedure Sec. 1366 (1990). On appeal, we are not bound by the label that defendants and the district court have attached to the motion. William J. Kelly Co. v. Reconstruction Fin. Corp., 172 F.2d 865, 866 (1st Cir. 1949); Wright & Miller, Sec. 1366, at 497-98 n. 20. The only question is whether the government has received, as it is entitled to under Fed. R. Civ. P. 12(b), a reasonable opportunity to present relevant opposing evidence. While aware that Stella's argument on appeal referred to the July documents, the government has at no time objected to Stella's reference to those documents, nor has it argued that it has been materially prejudiced by the reference. We take this as indicating that the government sees no need for further opportunity to present evidence in response to Stella's argument. See Moody v. Town of Weymouth, 805 F.2d 30, 31-32 (1st Cir. 1986) (adopting a pragmatic approach to Rule 12(b) conversions and holding harmless the district court's failure to notify a party of such conversion where the party "has received the affidavit and materials, has had an opportunity to respond to them, and has not controverted their accuracy"); see also Whiting v. Maiolini, 921 F.2d 5, 6 (1st Cir. 1990).6 The question is thus whether either party is entitled to judgment as a matter of law.
The paradigmatic example of a false claim under the FCA is a false invoice or bill for goods or services. See, e.g., Bornstein, 423 U.S. at 309, 96 S. Ct. at 528. The term, however, applies more generally to other demands for government funds. See, e.g., United States v. Neifert-White, 390 U.S. 228, 230, 88 S. Ct. 959, 960, 19 L. Ed. 2d 1061 (1968) (false application for government loan); Sell v. United States, 336 F.2d 467, 474 (10th Cir. 1964) (fraudulent claim for federal assistance). In McNinch, the Supreme Court indicated that a "claim" under the FCA is a "demand for money" that induces the government to disburse funds or to "otherwise suffer immediate financial detriment." McNinch, 356 U.S. at 599, 78 S. Ct. at 952. In Neifert-White, the Court further elaborated, defining a claim to be "a false statement made with the purpose and effect of inducing the Government immediately to part with money." 390 U.S. at 230, 88 S. Ct. at 960.
Enacted during the Civil War, the FCA's specific aim was to clamp down on widespread fraud by government contractors who were submitting inflated invoices and shipping faulty goods to the government. See S.Rep. No. 99-345, 99th Cong., 2d Sess. 8, reprinted in 1986 U.S.C.C.A.N. 5266, 5273 (briefly summarizing the history of the FCA). In furthering this goal, the statute attaches liability, not to the underlying fraudulent activity or to the government's wrongful payment, but to the "claim for payment." Indeed, a contractor who submits a false claim for payment may still be liable under the FCA for statutory penalties, even if it did not actually induce the government to pay out funds or to suffer any loss. See, e.g., Rex Trailer Co. v. United States, 350 U.S. 148, 153 & n. 5, 76 S. Ct. 219, 222, 100 L. Ed. 149 (1956); United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). This focus on the claim for payment appears to reflect a congressional judgment that fraud by government contractors is best prevented by attacking the activity that presents the risk of wrongful payment, and not by waiting until the public fisc is actually damaged. By attaching liability to the claim or demand for payment, the statute encourages contractors to "turn square corners when they deal with the government." Rock Island, Arkansas & Louisiana R.R. Co. v. United States, 254 U.S. 141, 143, 41 S. Ct. 55, 56, 65 L. Ed. 188 (1920) (Holmes, J.). Thus, in deciding whether a given false statement is a claim or demand for payment, a court should look to see if, within the payment scheme, the statement has the practical purpose and effect, and poses the attendant risk, of inducing wrongful payment.
The contents of the July 17 application, therefore, even when viewed in the light most favorable to the government, Rivera v. Murphy, 979 F.2d 259, 261 (1st Cir. 1992), indicate that it was a "demand for money" within the meaning of McNinch. By submitting the application, Merrill Lynch told HUD that it was exercising its rights under the insurance contract. Moreover, in providing detailed financial information about the mortgage, the completed form specified the amount Merrill Lynch expected to receive under that contract. In setting forth both the amount and method of payment, the application resembled, in many ways, an invoice, bill, application for loan proceeds, or other demand for money from the government. The completed form can be read as essentially saying to HUD, "We are owed this amount under the terms of our insurance contract." It was quite literally a demand for payment from the government. The very title of the form states that it is an "application" for government funds. Compare Neifert-White, 390 U.S. at 230, 88 S. Ct. at 960 (holding that an application for a government loan was a "claim" under the FCA).
The contents of the form, moreover, had the "purpose and effect" of inducing the government to part with its money. See Neifert-White, 390 U.S. at 232, 88 S. Ct. at 961. Inflated because of defendants' earlier fraudulent conduct, the figures in the form were what the insured said it was owed and should be paid by the government. The application created the risk that the government would, in reliance upon those figures, be induced to pay the "fraudulent" amount. There is no evidence that Merrill Lynch submitted any later forms that could have been used to fix the amount of payment.
The government has failed, however, to support the above argument. No regulations have been called to our attention suggesting that, within the HUD insurance scheme, the filing of the July 17 form really had no purpose or effect of inducing payment and was instead only a means to notify HUD of its estimated liability. Nor, as noted, has evidence been pointed out that Merrill Lynch made other required filings with more detailed financial information. These, had they occurred, might have suggested that the July 17 form was understood to be merely a preliminary estimate, not to be relied upon in fixing the amount of payment. However, the government has nowhere pointed or alluded to any later papers submitted, or required to be submitted, by Merrill Lynch which could have formed the basis for calculating the amount of payment. The completed July 17 form, on its face, fully supports Stella's contention that it was a demand for payment from the government. The government has pointed to no facts that would contradict this reading of the form and no facts suggesting that the figures on the form posed no risk of wrongful payment, relying instead primarily upon the legal arguments presented below. Accordingly, no genuine issue of material fact remains to preclude summary judgment for defendants on this issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986).
The government's principal argument is a legal one. It relies on the statement in McNinch that the insufficient claim there (the request for government insurance coverage of a future loan) did not, among its other failings, cause the FHA to "suffer immediate financial detriment." McNinch, 356 U.S. at 599, 78 S. Ct. at 952. The government contends that, in determining whether a request for government funds caused an "immediate financial detriment," the key factor is the legal effect of such a request, as specified under the terms of the contract. The government points to the terms of the insurance contract, under which the government's obligation to pay insurance benefits arises only upon assignment of the mortgage. See 24 C.F.R. Secs. 207.259(a), 242.260 (1981). As, under the terms of the insurance contract, submission of the completed July 17 form did not give rise to an instant unconditional obligation to pay, the government contends that the form could not have been a "claim" under the FCA.
We think the government reads too much into McNinch 's reference to immediacy. Lack of immediate financial detriment is cited in McNinch as one of several reasons an application for credit insurance falls short of being a claim. In Neifert-White, a later case in which the question was whether a fraudulent application for a government loan constituted a "claim" under the FCA, the Supreme Court held that the application was a "claim" under the FCA even though it triggered no instant legal obligation to pay out funds.9 "This remedial statute reaches beyond 'claims' which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money." Neifert-White, 390 U.S. at 233, 88 S. Ct. at 962 (emphasis added).10 Neifert-White makes clear that the FCA reaches not only claims that trigger the government's legal obligation to pay, but more generally all claims that are "made with the purpose and effect of inducing the Government immediately to part with its money." Id.11 The key inquiry is thus whether the demand for payment, whether or not it gives rise to an unconditional legal obligation to pay right away, has the practical effect of inducing the government to suffer immediate financial harm.12
As this action was instituted on October 25, 1985, over six years later, it was barred by the FCA's statute of limitations. We do not reach the other arguments on appeal. We note that the government still has two remaining claims against defendant Stella for unjust enrichment and payment by mistake. Because the district court granted the government full relief against Stella under the FCA, it had no occasion to address the government's two alternative theories of liability, and its judgment against both Alemany and Stella was a final, appealable order. See Indiana Harbor Belt R.R. v. American Cyanamid Co., 916 F.2d 1174, 1883 (7th Cir. 1990). However, because we reverse the district court's holding on the FCA claim, we must remand to permit consideration of the government's alternative claims against Stella.
This was the statute as it stood when the events at issue in this case occurred. All parties in this suit appear to agree that this earlier version applies. The current statute, in any event, contains essentially the same language. See 31 U.S.C. § 3731(b) (1) (1988)
We review a district court's decisions on motions for dismissal and summary judgment de novo. See Heno v. FDIC., 20 F.3d 1204, 1205 (1st Cir. 1994); Pagano v. Frank, 983 F.2d 343, 347 (1st Cir. 1993)
Alemany's reference to Jankowitz v. United States, 209 Ct. Cl. 489, 533 F.2d 538, 547 (1976) is unavailing, since the court in that case explicitly refused to decide whether the limitations period begins to run at default or upon submission of a claim for mortgage insurance
This reading of the term was reemphasized in the 1986 amendments to the FCA, which defines a "claim" as a "request or demand" for payment. 31 U.S.C. § 3729(c) (1988); S.Rep. No. 99-345, 1986 U.S.C.C.A.N. at 5284-85