DocketNumber： 94-1081
Filed Date： 6/6/1995
Status： Precedential
Modified Date： 9/21/2015
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 94-1081
UNITED STATES,
Appellee,
v.
GUILLERMO ALEMANY RIVERA,
Defendant, Appellant.
No. 94-1082
UNITED STATES,
Appellee,
v.
EDGAR M. STELLA PEREZ
Defendant, Appellant.
____________________
[Hon. Raymond L. Acosta, U.S. District Judge] ___________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
____________________
Before
Torruella, Chief Judge, ___________
Campbell, Senior Circuit Judge, ____________________
and Stahl, Circuit Judge. _____________
____________________
Robert H. Kiernan with whom Robert M. Simels, P.C. was on brief _________________ _______________________
for appellant Edgar M. Stella Perez.
Pedro J. Varela for appellant Guillermo Alemany Rivera. _______________
Sushma Soni, Attorney, Appellate Staff, Civil Division, _____________
Department of Justice, Frank W. Hunger, Assistant Attorney General, ________________
Guillermo Gil, United States Attorney, and Douglas N. Letter, ______________ ___________________
Attorney, Appellate Staff, Civil Division, Department of Justice, were
on brief for appellee.
____________________
June 6, 1995
____________________
CAMPBELL, Senior Circuit Judge. 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.
I.
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
-3- 3
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).
During the course of the renovation project, loan
proceeds were periodically disbursed to the hospital
according to the following procedure. Stella, as president
of the hospital, filled out a portion of a HUD "Form 2403,"
listing various items of completed construction and attaching
corresponding invoices. Stella then forwarded the form to
Merrill Lynch, which filled out a portion of the form and
forwarded it to HUD. After approving the disbursement, HUD
sent a Certificate of Mortgage Insurance to Merrill Lynch.
Merrill Lynch then released loan funds to the hospital or
directly to the suppliers and contractors. Occasionally,
loan funds were also disbursed from a separate equipment
escrow account, upon HUD's receipt of a letter from Stella
with attached invoices for purchased equipment.
Defendants siphoned off a portion of the loan
proceeds through their control of a furniture company, Casa
Cardona, Inc., and its subsidiary, an equipment company
called AAA Hospital Supply, Inc., which they incorporated
soon after the hospital secured the loan. Through these two
companies, Stella and Alemany sold equipment and furnishings
to the hospital at substantially inflated prices and charged
the hospital for equipment that the companies never provided.
-4- 4
The hospital paid for the equipment with the loan proceeds,
which were disbursed to the companies by Merrill Lynch
pursuant to the procedure described above. In all,
defendants submitted 20 separate fraudulent requests for loan
proceeds between 1974 and 1978, as to which HUD, upon
paperwork furnished by defendants, issued certificates of
insurance.
On May 1, 1979, the hospital was unable to make a
scheduled payment on the loan. After the 30-day grace period
expired, the hospital filed a petition for bankruptcy under
chapter 11. Merrill Lynch formally declared the loan to be
in default on July 1, 1979. On July 2, 1979, Merrill Lynch
filed a "Mortgagee's Application for Insurance Benefits,"
along with a letter notifying HUD of the default and of its
intention to exercise its rights under the insurance
contract. The July 2 document contained only very basic
information, identifying the project and the lender. Then,
on July 17, 1979, Merrill Lynch filed a more detailed
"Mortgagee's Application for Partial Settlement," setting
forth specific financial information about the defaulted
loan, including the amount in default and the unpaid
principal balance. On October 25, 1979, Merrill Lynch
assigned the mortgage to HUD, as the terms of its insurance
contract required. On January 17, 1980, after approving the
claim, HUD disbursed to Merrill Lynch approximately $12.1
-5- 5
million, representing the unpaid principal balance on the
mortgage, less certain credits.
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 (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
____________________
1. The district court later vacated the restitution order.
-6- 6
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 (1951). The court awarded ____________
damages based on "uncontroverted evidence in the record."
II.
Defendants argue on appeal that the district court
erred in ruling that this suit was not barred by the statute
-7- 7
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).
The present case is complicated by the fact that
Alemany's and Stella's fraud acted, in the first instance,
upon a private lender, Merrill Lynch, rather than directly
upon the government. This fraud, however, was followed by
the hospital's default, resulting in Merrill Lynch's claim to
HUD for reimbursement for its loss on the defaulted loan
under the federal insurance that defendants had helped
procure. Although, from Merrill Lynch's perspective, the
claim it presented may not have been "false or fraudulent,"
that claim was inflated by defendants' earlier fraud; and the
case law allows the United States, in such circumstances, to
sue defendants under the FCA for having "caused" the filing
of a "false" claim against the government.
____________________
2. 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). ___
-8- 8
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 (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 ___ _____________ _________
-9- 9
U.S. 303, 309 (1976) (false claim may be presented through an
innocent third party); United States ex rel. Marcus v. Hess, ____________________________ ____
317 U.S. 537, 544-45 (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, 218 F.2d at ___ _________
506.3
Although the parties all agree that a false or
fraudulent "claim" under the FCA was "presented" when the
loan holder, Merrill Lynch, made its claim for payment on the
insurance contract, they differ as to precisely when
____________________
3. In holding that a lender's claim for mortgage insurance
benefits is a claim under the FCA, the Third Circuit panel in
Veneziale wrote: _________
The claim before us now is certainly
"grounded in fraud" in that a fraudulent
misrepresentation induced the government
to assume the obligation which it has had
to perform. We are satisfied that the
government, having been compelled to pay
an innocent third person as a result of
the defendant's fraud in inducing the
undertaking, is entitled to assert a
claim against the defendant under the
False Claims Act.
Id. at 506. Similarly, in this case, defendants' fraudulent ___
statements induced the government to assume more insurance
obligations than it otherwise would have.
-10- 10
presentation of the claim took place. Alemany argues that
the claim was presented on June 1, 1979, after the 30-day
grace period following the hospital's missed payment had
expired. Stella took a similar position when arguing in the
district court, but he now argues that the claim was actually
presented somewhat later, in July of 1979, when Merrill Lynch
filled out, executed and submitted to HUD two applications
for reimbursement under its insurance contract. Under both
Alemany's and Stella's contentions, the present suit is
untimely, having been instituted more than six years later,
on October 25, 1985. The district court held, however, and
the government contends, that Merrill Lynch's claim was not
presented until October 26, 1979, when Merrill Lynch formally
assigned its mortgage on the hospital's property to the
government, thereby complying with a condition precedent to
HUD's obligation to pay Merrill Lynch under the insurance
contract. See 24 C.F.R. 207.258, 207.259(a), 242.260 ___
(1981) (detailing the mortgage insurance payment process).
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
____________________
4. 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).
-11- 11
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
____________________
5. Alemany's reference to Jankowitz v. United States, 533 _________ _____________
F.2d 538, 547 (Ct. Cl. 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.
-12- 12
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
-13- 13
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 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, 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
-14- 14
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.
To answer this, we must determine when Merrill
Lynch's interest in federal reimbursement became a "claim"
for purposes of the FCA recognizing, of course, that the
malefactors were the defendants, not Merrill Lynch, the
latter being merely a vehicle through which defendants'
earlier fraud ripened into a cognizable claim under the FCA.
The paradigmatic example of a false claim under the
FCA is a false invoice or bill for goods or services. See, ___
____________________
6. As we indicate below, the government has not suggested
that it would submit any additional evidence supporting its
arguments on appeal, if given the opportunity to do so. See ___
Moody, 805 F.2d at 31-32 ("Because plaintiff has not shown _____
that he would have done something different had the district
court taken him by the hand and told him defendants' motion
had been converted into a motion for summary judgment and
that this something would likely have defeated defendants'
motions, we conclude plaintiff has not demonstrated prejudice
and that therefore there would be no point in remanding.").
-15- 15
e.g., Bornstein, 423 U.S. at 309. 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 ____ ______________ _____________
(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. 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.
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
-16- 16
suffer any loss. See, e.g., Rex Trailer Co. v. United ___ ____ ________________ ______
States, 350 U.S. 148, 153 & n.5 (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 (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.
Applying this understanding of the statute along
with the language in McNinch and Neifert-White, we conclude _______ _____________
that the application filed by Merrill Lynch on July 17,
constituted a "claim for payment" against the government. An
official HUD document titled "Mortgagee's Application for
Partial Settlement," the July 17 form required Merrill Lynch
to furnish detailed information about the loan, including:
the name of the insured project, the project number, the
-17- 17
date, the names of the mortgagee and servicer, the amount of
payment in default, the date of default, the nature of the
default, the aggregate cash escrows on hand, the unpaid
principal balance, and the undisbursed mortgage proceeds.
The form also set forth, in some detail, the method through
which the mortgagee would obtain payment under the terms of
the contract once the mortgage was assigned. The form
required the mortgagee to send notice of assignment by
telegram and specified how payment could be obtained either
in cash or through debentures.7 Merrill Lynch completed the
form and provided the requested answers.
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
____________________
7. The form provides: "On the date of the assignment or
deed is filed for record, a telegram is to be sent to [this
address], advising the date that the assignment or deed was
filed for record . . . . If the mortgage has been finally
endorsed for insurance, partial settlement of approximately
90% of the unpaid principal balance will be made upon receipt
of the telegram above . . . . The final settlement will be
made after receipt of the fiscal data and title requirements,
which are to be submitted within 45 days after the assignment
. . . ."
-18- 18
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 _______ _____________
(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. 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 asks us to hold that the mortgage
assignment executed by Merrill Lynch in October was the
-19- 19
"claim" under the FCA. But the mortgage assignment merely
transferred the mortgage to the government, in compliance
with a condition to payment which had to be met, as a matter
of course, in effectuating the July 17 claim. The assignment
of the mortgage contained no figures constituting a payment
amount and did not purport to demand money. The July 17
form, per contra, allowed for the possibility that funds __________
might be disbursed, under some circumstances, simply upon
HUD's receipt of notice of the assignment, further suggesting
that the form was intended to be relied upon in fixing the
amount of payment. The government has mentioned no facts
contradicting this reading. Once Merrill Lynch submitted the
completed form, the government had an actionable claim under
the FCA.
The government appears to argue that the July 17
form is more accurately characterized, not as a demand for
payment, but as merely notice from Merrill Lynch of its
intention eventually to file a claim. We take this to be an
argument that, as a factual matter, the July 17 form did not
have the purpose and effect of inducing payment and
accordingly presented no risk of wrongful payment in reliance
thereof. If the form could in fact be characterized as
merely notice, we would agree with the government that it is
not a "claim," as notice ordinarily does not put government
-20- 20
funds at risk or attempt, by itself, to induce the
disbursement of funds.8
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
____________________
8. The earlier document submitted by Merrill Lynch on July
2 was arguably merely notice, as it provides only the most
basic information about the mortgage loan. We need not
decide the point, as the July 17 application was clearly
sufficient to constitute a claim.
-21- 21
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 (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. 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. 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
-22- 22
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 (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
____________________
9. The government makes much of the fact that the
assignment of the mortgage conferred on the government "all
rights and interest arising under the mortgage and credit
instrument so in default, and all claims against the
mortgagor, or others, arising out of the mortgage
transaction," implying that the government could not have
sued (and thus that the statute did not begin to run) until
it was assigned the mortgage. This reveals a confusion,
however, between a suit against defendants under the terms of
the mortgage and a suit under the FCA. The fact that the
former could not be instituted by the government until
assignment is irrelevant with respect to whether a suit under
the FCA could be instituted.
10. Compare the July 17 form to the paradigmatic case
under the FCA: an invoice for payment. The FCA attaches
liability to an invoice, not because it triggers an
obligation to pay (though it may well do so), but because it
poses a risk that the government may, in reliance upon the
false statements contained in the invoice, wrongly pay out
funds. Claims that trigger a legal obligation to pay merely
constitute a special subset of claims posing a particularly
high risk of mistaken payment.
-23- 23
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
We hold that the July 17 form's demand for funds
had the practical effect of inducing payment in a
sufficiently "immediate" manner to satisfy the requirement in
McNinch. While the payment of funds was not literally _______
"immediate," in that nearly six months would elapse between
the application and the transfer of the bulk of the funds,
this lag is not by itself dispositive. Some similar delay
might be expected in the government's payment of an invoice
or a loan application, both of which are plainly claims under
the FCA. Indeed, most of the funds in this case were not
disbursed to Merrill Lynch until nearly three months after
the mortgage was assigned. We do not read the immediacy
language in McNinch as suggesting that government funds must _______
be unconditionally available on literally the same day as the
____________________
11. 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.
12. This is not to rule that the subsequent assignment
could never, alone, be sufficient to constitute a "claim"
under the FCA. It is just that we need not reach this issue
since the "claim for payment" was clearly submitted in this
case several months earlier, on July 17, 1979.
-24- 24
claim is made. In McNinch, the lack of immediacy was noted _______
in the context of an application for mortgage insurance, the
submission of which could occur several years prior to the
occurrence of any liquidated claims for the disbursement of
government funds, if, indeed, any claim for disbursement ever
arose at all. McNinch, therefore, presented the different _______
situation of there being as yet no crystallized claim of any
sort. In this case, we hold that Merrill Lynch's filing of a
specific claim for government insurance on the government's
form on July 17, 1979 was a "claim" within the FCA.
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.
Reversed. ________
-25- 25
Rock Island, Arkansas & Louisiana Railroad v. United States , 41 S. Ct. 55 ( 1920 )
Rex Trailer Co. v. United States , 76 S. Ct. 219 ( 1956 )
United States v. Albert Veneziale , 268 F.2d 504 ( 1959 )
William J. Kelly Co. v. Reconstruction Finance Corp. , 172 F.2d 865 ( 1949 )
United States v. Neifert-White Co. , 88 S. Ct. 959 ( 1968 )
Anderson v. Liberty Lobby, Inc. , 106 S. Ct. 2505 ( 1986 )
Richard M. Moody v. Town of Weymouth , 805 F.2d 30 ( 1986 )
United States of America, and Cross-Appellee v. Ekelman & ... , 532 F.2d 545 ( 1976 )
Emma Rivera v. Paul Murphy , 979 F.2d 259 ( 1992 )
Aaron Sell v. United States , 336 F.2d 467 ( 1964 )
United States v. Judith Ann Krynicki , 689 F.2d 289 ( 1982 )
United States v. Stillwater Community Bank , 645 F. Supp. 18 ( 1986 )
Floyd v. Heno v. Federal Deposit Insurance Corporation , 20 F.3d 1204 ( 1994 )
United States of America, Ex Rel. James M. Hagood v. Sonoma ... , 929 F.2d 1416 ( 1991 )
United States v. McNinch , 78 S. Ct. 950 ( 1958 )
United States v. Guillermo A. Alemany Rivera, United States ... , 781 F.2d 229 ( 1985 )
Emich Motors Corp. v. General Motors Corp. , 71 S. Ct. 408 ( 1951 )