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UNITED STATES v. AMERICAN PRECISION PRODS. CORP.

July 17, 1953

UNITED STATES
v.
AMERICAN PRECISION PRODUCTS CORP. et al.



The opinion of the court was delivered by: HARTSHORNE

This is a civil action brought by the United States of America as plaintiff, by virtue of the provisions of Revised Statutes, Sections 3490 and 5438, now 31 U.S.C.A. § 231, commonly known as the False Claims Act, of which this Court has jurisdiction under Ibid. Sec. 232. So far as pertinent, the False Claims Act provides:

'Any person * * * who shall make or cause to be made, or present or cause to be presented, for payment or approval, * * * any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent, or who, for the purpose of obtaining or aiding to obtain the payment or approval of such claim, makes, uses, or causes to be made or used, any false bill, receipt, voucher, roll, account, claim, certificate, affidavit, or deposition, knowing the same to contain any fraudulent or fictitious statement or entry, or who enters into any agreement, combination, or conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim * * * shall forfeit and pay to the United States the sum of $ 2,000, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act, together with the costs of suit; * * * .'

 Since early deliveries were called for, and both corporations were short of funds, the contracts had incorporated in them the standard progress payment clause providing for periodic partial payments to be made by the U.S. Treasury Department to the contractor during performance in an amount equalling 80% of the value of inventory then on hand, plus 80% of the estimated value of work and supplies in their then state of completion, as certified by a progress payment invoice to be submitted by the contractor to the Treasury. Under this clause 'Precision', January 31, 1947, submitted its progress payment invoice, signed and sworn to by Nathaniel Elin, to the U.S. Treasury Department, calling for an 80% payment, in the amount of $ 85,627.23, on the first of the above two contracts. On the second of such contracts, and on the same date, it submitted its similarly executed progress payment invoice, calling for 80% payment, in the amount of $ 21,333.93. Both these invoices were duly paid by plaintiff.

 April 10, 1947 similar progress payment invoices were submitted by 'Precision' to the Treasury Department on the above contracts, calling for payment in the respective amounts of $ 89,278.61 and $ 39,227.25. Both these invoices were duly paid to 'Precision' by plaintiff.

 May 8, 1947, similarly executed progress payment invoices were submitted by 'Precision' to the Treasury Department calling for payment in the respective amounts of $ 74,255.67 and $ 17,644.91. However, an inspection of 'Precision's' plant and work raised a question in the minds of the Government as to the correctness of these last invoices, so same were not paid, and shortly thereafter, indeed after the expiring of the delivery dates under the contract, and without delivery, the above companies were subjected to reorganization proceedings under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. Deliveries under the contracts accordingly were never made, plaintiff having filed its claim as a creditor in such proceedings for the amount of its above payments, and having received its dividend thereon as a priority creditor under the statute. 31 U.S.C.A. § 191.

 Under such facts the issue is as to the liability under the above False Claims Statute of both 'Precision' and 'Foundry', now out of business, and of the individual defendants, officers and stockholders of both companies. Such individual defendants moved for dismissal, and in the absence of objection by the Government thereto, the complaint was dismissed as to Sadye Elin, Francis X. Connors, Helma Kennedy, Harvey Gross, Nicholas Biase, Louis Ross, and Jacob C. Abramson. There thus remained at the termination of the trial, as defendants, the two corporations, 'Precision' and 'Foundry' and the two individual defendants, Nathaniel Elin and his son, Charles Elin. It should be added that previously defendant Nathaniel Elin had pleaded guilty, and been sentenced, on an indictment charging him with the very conspiracy with which he is charged in the complaint herein, paragraph XVIII, such complaint also charging the substantive offenses recited in the False Claims Act.

 The remaining questions are as to (1) the responsibility of Nathaniel Elin's son, Charles Elin, and as to (2) the measure of damages, under this installment payment contract.

 Charles Elin

 There is no proof that Charles Elin either made or caused to be made, or presented or caused to be presented, the invoices in question. While he was a nominal officer of 'Precision', this position was purely nominal, a gift with stock, from his father, Nathaniel, while he, a young man, was in service in World War II. Even after his return he was merely 'carrying out orders' as a sales employee, primarily of 'Foundry', in connection with its work for third parties, not the United States Government, and with no authority over 'Precision's' financial transactions whatever. Thus he cannot be found to have participated in the substantive offenses set forth in the False Claims Act. He can only be held liable if he shall have been party to a 'conspiracy to defraud the Government of the United States * * * by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim'.

 It is settled law that to be a party to a conspiracy, whether criminal or civil, one must actually participate therein by aiding or abetting it in some way. Mere acquiescence or standing by and watching others conspire does not suffice to impose either criminal or civil conspiratorial responsibility. 'The essential elements whether of a criminal or 'civil' conspiracy are the same * * *.' 11 A.J., Conspiracy, Sec. 45. 'Mere passive cognizance of the crime or unlawful act to be committed or mere negative acquiescence is not sufficient' to impose responsibility. Id. Sec. 4; Young v. U.S., 5 Cir., 1931, 48 F.2d 26; Patterson v. U.S., 6 Cir., 1915, 222 F. 599, certiorari denied 238 U.S. 635, 35 S. Ct. 939, 59 L. Ed. 1499; U.S. v. Lancaster, C.C., Georgia 1891, 44 F. 896, 10 L.R.A. 333.

 This being the clear principle applicable to the particular tort of conspiracy here in question, we are not left to rely solely on the rule of responsibility of corporate officers for torts generally. This is sometimes laid down as requiring participation, sometimes as acquiescence with knowledge, when the officer 'should have objected and taken steps to prevent it.' 14-A C.J. 175; 3 Fletcher, Cyclopedia Corporations, Sec. 1135 (1947 Revision); 19 C.J.S., Corporations, Sec. 845. But cf. 19 C.J.S., Corporations, Sec. 846, calling for 'active participancy' as a basis for liability, and 3 Fletcher, supra, Sec. 1137. Indeed, the cases which pass on the question, and find responsibility, are generally those which find that the officer liable did actively participate in the tort. U.S. ex rel. Marcus v. Hess, D.C.W.D. Pa. 1941, 41 F.Supp. 197, 212, affirmed 1943, 317 U.S. 537, 63 S. Ct. 379, 87 L. Ed. 443.

 In any event, the present question being one as to responsibility for a statutory conspiracy, conjoined with other affirmative acts, it is clear that, to be liable, defendant Charles Elin must be found to have participated affirmatively in a conspiracy to defraud the United States, by obtaining or aiding to obtain the payment or allowance of a false claim. We search the record in vain for any such participation by Charles Elin in any such conspiracy, save that of introducing the production manager of 'Precision', one Ross, to whose dismissal as a defendant plaintiff has not objected, to an acquaintance of Elin, where some pistons could be purchased. Those ...


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