Court Opinion

ID: 9464441
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:33:13.363642+00
Date Added: 2024-06-11T17:38:37.643948
License: Public Domain

MEANOR, District Judge,
dissenting.
I dissent because I believe that the majority has misconstrued the False Claims Act and has misapplied binding precedents in so doing. While I sympathize with the majority’s desire to ameliorate what otherwise seems to be an unduly harsh result, I do not believe that the path taken is legitimately open.
The facts are virtually undisputed and are well stated in Judge Luongo’s opinion for the district court, United States v. Hibbs, 420 F.Supp. 1365 (E.D.Pa.1976) and in the majority opinion.
*353There can be no question but that Hibbs, as to the six properties in question, made false certifications concerning their condition to the FHA. The FHA relied on these statements in issuing its mortgage insurance and had the statements not been false, FHA insurance would not have issued regarding the six mortgages in question. It is clear that the defaults by the mortgagors on these six properties were not caused by nor were they in any way related to the conditions that were the subject of Hibbs’ false certifications.
Normally, one would believe that the government’s damages, when called upon to pay its FHA insurance following default of a mortgagor, would be the difference between the amount required to be paid because of the mortgage insurance obligation and the market value of the property, plus the costs of foreclosure and sale. Here that difference is the full amount of the insurance obligation because the properties, at the time of default, were valueless. The lack of value resulted from a lead paint condition of the properties and a prohibition against their sale because of it. The lead paint condition was not the subject of any certification by Hibbs and the lack of value of these properties can in no way be said to be Hibbs’ responsibility. I suspect that if, as would normally have been the course, these properties had had post-default sale value approximating the amount of the outstanding mortgage balances, the majority would not be straining precedent, and the result would be different.
For me, the case is a simple one, clearly controlled by the language of the False Claims Act and two cases which bind us.
It cannot be denied that the two controlling statutes set forth in pertinent part in the court’s opinion, Rev.Stat. § 3490 and § 5438,* assess double the damages sustained by the United States “by reason of” the presentation of a false claim. It should be emphasized that it is the damages arising out of the false claim for which liability is imposed and not damages arising out of the cause of the falsity of the claim.
Here Hibbs did not make a false claim. Rather, because of his false certifications, he caused a false claim to be made within the interdiction of § 5438. A rational argument can be made that the false claim Hibbs caused was the application for FHA mortgage insurance. That result is absolutely foreclosed by United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958) which held squarely that an application for credit insurance was not a “claim” within the meaning of the False Claims Act.
Following McNineh the question arose as to what, if any, action for damages under the False Claims Act was given to the United States when a false statement in a credit application triggered the grant of FHA insurance. That question was answered in United States v. Veneziale, 268 F.2d 504 (3d Cir. 1959) by a holding that a false statement in a credit application would give rise to an action for double the damages sustained by the United States as a consequence of honoring its credit insurance obligation.
Thus, under the binding authority of McNineh and Veneziale it is clear that Hibbs:
1. caused six false claims to be made;
2. those false claims were the claims that the FHA honor its credit insurance obligations on each of the six properties in question;
3. and that Hibbs, therefore, is obligated to pay double damages arising out of the payment of these six obligations.
Since the six properties were valueless, or virtually so, the damages of the United States on the payments of these six insurance commitments are the total amounts paid.
The False Claims Act awards double damages sustained by the United States by reason of the false claim. It does not *354award damages occasioned by the cause of the falsity of the claim. If it did, then the majority’s direction of a damage award in an amount double the diminution of the value of the government’s security would be quite proper. What the court has done is to award damages on the thesis that McNinch had gone the other way and held that the claim for credit insurance is the false claim in a context such as this. Damages, hence, are said to be those occasioned by the cause of the false claim, and not those brought about by the false claim itself. Since I am of the opinion that in modifying the damage award of the district court, the majority has contravened both McNinch and Veneziale, I dissent and vote to affirm.

 § 5438 was repealed in 1909. Act of March 4, 1909, c. 321, § 341, 35 Stat. § 1153. It has continuing vitality only insofar as it specifies the acts giving rise to civil liability under § 3490. U. S. v. Bornstein, 423 U.S. 303, 307 n.1, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976).