The opinion of the court was delivered by: MEANEY
The United States of America instituted the present suit against the defendants for damages and forfeitures to which it alleges it is entitled. The Government asserts that the defendants conspired to file or caused to be filed false claims against it, which claims were paid, and that by reason thereof the Government suffered damages and is entitled to the twofold remedy of forfeitures in the sum of $ 2,000 for each fraudulent claim and an amount equal to double the damages sustained by reason of the payment of the fraudulent claims.
A motion for summary judgment was filed by the plaintiff against the American Packing Corporation, William Schwartz, Samuel Goldberger, Emanuel Kohn, and Adolph Kaplan, on the ground that in prior criminal proceedings these five defendants entered pleas of guilty to an indictment (No. 114-51) charging them with conspiracy to defraud the United States, and judgments of conviction were entered against these five defendants. The conspiracy set forth in the indictment to which they pleaded guilty is that which is included in the complaint in this civil action. Charged in the same indictment were Celina Kaplan, Robert O. Bayne, Max Gerstl, Henry Herzfeld, and John F. Jones, the latter not a defendant in the instant suit. After the entry of the aforementioned pleas the indictment was dismissed as to the defendants other than the five who pleaded guilty. A motion for summary judgment based on the pleas to the indictment was denied by this court, 113 F.Supp. 223, on the ground that while the plea constituted a judicial admission of participation in the overall conspiracy, it was an evidential admission as to the overt acts charged in the indictment and hence the Government was put to its proof in the instant civil action.
At the opening of the trial the defendant, Henry Herzfeld, was granted a separate trial. The defendant, American Packing Corporation, which was in the hands of a trustee in bankruptcy since 1949, filed no answer and made no appearance by counsel. The defendant, Emanuel Kohn, filed an answer but did not appear, nor was he represented by counsel during the trial. Original counsel for Kohn (Mr. Samuel I. Kessler) produced a letter written by Kohn in which Kohn consented to Kessler's withdrawal from the case and agreed to submit to the judgment of the court without appearance personally or by counsel. At the conclusion of the plaintiff's case the complaint was dismissed as to Sol Schwartz for failure of proof of his participation in the fraudulent practices alleged in the complaint.
With this preliminary statement the court proceeds to a discussion of matters pertinent to the findings of fact and conclusions of law hereinafter to be made.
It may be well at this point to discuss the question of possible forfeitures and damages and determine the principles which will affect the conclusion ultimately to be arrived at. With respect to forfeitures, the basis for such claims rests on section 3490 of the Revised Statutes, 31 U.S.C.A. § 231. In the event that there is proof which satisfies the court that any of the acts prohibited by section 5438 of the Revised Statutes, 31 U.S.C.A. § 231, 18 U.S.C.A. §§ 286, 287, have been done, then there is no question that forfeiture ensues. In the instant case the further question to be decided is whether for the 98 contracts which are the subject matter of the suit there shall be one forfeiture of $ 2,000, or whether the Government is entitled to a $ 2,000 forfeit for each of the 98 contracts involved. The complaint in each count alleges that the defendants made or caused to be made, or presented or caused to be presented for payment or approval, a claim upon or against the United States which was known to them to be false, fictitious or fraudulent, and for the purpose of obtaining the payment or approval of the said claim, made, used or caused to be made or used, a false, fictitious or fraudulent bill or invoice. It further alleges that the defendants agreed, combined and conspired together and with other persons to defraud the United States and/or the Department of the Army, or officers thereof, by obtaining, or aiding to obtain, the payment or allowance of the said false, fictitious or fraudulent claim. With reference to the alleged conspiracy, it may be contended that there is no proof that there was a separate conspiracy involving the individual defendants for each contract. But if there was an overall conspiracy affecting each of the contracts in question, the incidence of the fraud on individual contracts may be shown by proof of acts with relation to those contracts which resulted in the presentation of separate and fraudulent claims. It would seem then that if false claims were presented for each of the 98 contracts, the Government would be entitled to 98 separate forfeitures of $ 2,000 each. That the defendant company would be responsible for the forfeitures in such case is patent. Now comes the problem of whether this liability extends to any or all of the individual defendants. It is the contention of the plaintiff that the individual defendants entered into an agreement or combination and conspired to defraud the Government of the United States by obtaining, or aiding to obtain, the payment or allowance of false claims in each of the 98 contracts, and further that they actually obtained or aided to obtain such payment in each individual contract. If this be sustained by the proof, then the individual defendants would be jointly and severally liable with the defendant corporation for the fofeitures, and this whether they personally played a part in or even knew of all the acts which had as their ultimate object the making or causing to be made the fraudulent claims alleged in the complaint. Their conscious participation in any of the fraudulent activities would be sufficient to render them liable.
These principles are borne out by the case of U. S. ex rel. Marcus v. Hess, 317 U.S. 537, 63 S. Ct. 379, 87 L. Ed. 443. In the Third Circuit, in the case of U. S. v. Rohleder, 157 F.2d 126, 131, Judge McLaughlin writing for the Court of Appeals in the application of the doctrine of the Hess case, points out that in the case of 56 P.W.A. projects, forfeitures were declared on each of the individual projects, for each of which there was a contract. True, he did limit recovery of the penalties to the contracts, in contradistinction to the many false forms filed in each contract, which, as in the Hess case, were 'absorbed into their respective projects.' See, further, Faulk v. U. S., 5 Cir., 198 F.2d 169; U. S. v. Grannis, 4 Cir., 172 F.2d 507, in support of the construction of the False Claims Statute which allows separate forfeitures for each definite and individual violation of the Act.
As to the matter of damages, the language of the statute is explicit and allows recovery of double the amount of damages which the United States may have sustained by the doing or committing such act. The questions that arise in the subject of damages are: Were there damages, and if so, what is the measure of such damages, and now are they to be assessed? Let it be stated at the outset that the plaintiff concedes that because of the nature of the evidence and the character of the frauds alleged to have been committed by the defendants, it is impossible to figure accurately the exact amount of loss sustained by the United States Government. That there was damage to the United States is evident according to the plaintiff's theory, from the testimony of substitution of inferior products for those called for in the contracts. Should the findings of fact sustain this contention, the method of adjudging the amount of damages becomes important. Because of the complexity of the methods used in fulfilling the contracts, and the fact that all of the contracts were of a similar nature and to be filled by the same contractor and were actually filled by a series of uninterrupted activities in the same plant, this court feels and has ruled that a lump sum in damages might be allowed covering all of the losses resulting to the Government from the use of improper material in filling all of the contracts, without regard to the loss from each individual contract, should damage be shown. In other words, the sum total of all the improper material furnished in fulfilling the contracts may be used in measuring the amount of loss to the Government rather than the individual losses in each contract, since these latter are almost incapable of determination. No other formula could be arrived at because of the impossibility of showing exactly what meat went into each package of processed meats used for the contracts in question by reason of the system used by the defendant company in processing carcasses and packaging the processed meat. The ruling of this court, in this instance, is based on the principle set forth in the case of Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S. Ct. 574, 90 L. Ed. 652, and the cases therein cited. The Supreme Court held that difficulty of ascertainment alone could not defeat recovery of damages if a just and reasonable estimate of the damage based on relevant date can be made. Speculation and guesswork may not be the basis for establishing the amount of damages; but given evidence of material and relevant facts, in a case where more precise information is prevented by the acts and wrongdoing of the party charged, then an appraisal of the resultant damage may be made from the available proof "probable and inferential as well as direct and positive". Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 51 S. Ct. 248, 251, 75 L. Ed. 544. The risk of uncertainty must be borne by the party through whose fraud or wrongdoing the damage was created. Otherwise there would be every inducement for such party to preclude recovery by using skill and foresight in falsifying or destroying or failing to keep records, and in resorting to such other skulduggerous practices as might prevent accurate measure of damages.
For clarification, certain other matters may now require brief mention. In determining the character of the carcasses used in the plant for processing for the Army contracts in question, the court weighed the evidence and concluded that in its interpretation of the records of the defendant corporation with symbols used thereon, it must give greater weight to the testimony of those who worked and made up report sheets rather than to the self-serving and largely unsupported statements of the corporation's owners and officers. It further had in mind the evidential admissions made in the plea of guilty which was entered to an indictment charging conspiracy to defraud the Government, which indictment set forth as overt acts many of the allegations which are the bases of the instant action. It is true that the plea was entered by only American Packing Corporation, Goldberger, Kaplan, Kohn and William Schwartz, and the indictment on motion of the United States Attorney was dismissed as to other defendants. What motivated the dismissal, whether a question of policy or unavailability of proof at the time, or other considerations, is immaterial provided the proof in the case at bar be sufficient to establish the Government's contention as to participation in the conspiracy by all of the defendants in this action. But as against those who pleaded guilty, the admissions supported by independent testimony have cogent force in affecting the findings of fact. And if it be shown that the other individual defendants actually agreed and acted in concert with them to defraud the Government, the same cogency will attach to them.
The defendants during the trial with long continued instancy brought out evidence of acceptance by the Army of the questioned products. But the character of the examination at the ultimate point of acceptance proved to be so casual as to be a practical nullity as evidence of compliance with the contract when weighed against the evidence contradictory thereof.
Where the records themselves show seeming inconsistencies in each such case, the record most favorable to the defendants was accepted and any claim for damage abandoned.
In attempting to decide one of the most important factors entering into the assessment of damages (the nature of the carcasses used for processing), the court was confronted with irreconcilable, conflicting testimony. The two witnesses for the defense were two officers of the corporation who had already admitted participating in a conspiracy to defraud the Government and had evidentially admitted the substitution of inferior material for that required by the contract. Their testimony at this trial constituted a denial of what they had already admitted in the criminal proceedings brought against them, the subject of which was the same as that of the present action. In so far as the available records are concerned, their interpretation differed completely from that given by the Government witnesses, particularly the witness Steve Kowalski who worked on the carcasses used for the filling of the contracts in question. His duties were those of a cutter, in addition to which he kept for the records of the corporation a daily production sheet of all the carcasses cut into forequarters and hinds, which sheet sets forth the nature of the carcasses, whether from steers, heifers, cows or bulls. The testimony of other witnesses and cross-checking with other material records (such as invoices, kill sheets, receipts, etc.) were urged by the plaintiff as supporting Kowalski's testimony as well as giving independent proof of the Government's contentions as to the carcasses. There was special disagreement as to certain symbols used in classifying animals, the defense asserting that these symbols referred to quality, while the plaintiff insisted that the same designations (A, AA, and B) referred to the kind of animal rather than its quality. Again each party tried to substantiate its position by reference to other testimony and exhibits, the plaintiff, for instance, stressing the evidence that the documents no prepared by Kowalski bore out his testimony that the symbols related to kind and not quality in so many instances that it could hardly be a continual coincidence. Further, the Government makes stressful reference to the fact that the listings in so many documents of the corporation relate to B high good or C low good as the nomenclature for quality or grade, and not the symbols above mentioned. The defendants claim that broker's invoices call animals furnished 'bulls or cattle' and insist that the designation 'cattle' signified steers, while the Government tracing the animals included in these invoices asserts that the receipts and kill sheets show that all animals included as cattle in this type of invoice were actually bulls. In this connection it may be well to point out that the court's recollection and reexamination of the evidence show that there were but twenty-six instances of variation between the kill sheets and the invoices which specified the kind of animal the carcasses of which were used for these Army contracts. The overwhelming majority of the results of contrasts and comparison between the invoices and the kill sheets showed agreement as to cows, heifers and bulls.
As to the prevalence of what are called bologna bulls (in contradistinction to butcher or choice or commercial or good bulls) in market reports, the evidence seems to point out that this type of bull is the common type on the market, the others being far less plentiful.
While these do not exhaust the matters considered by the court in trying to arrive at its factual conclusions, yet they are suggestive of the mass of evidence sifted and appraised.
With the foregoing discussion in mind, the court makes the following findings of fact and conclusions of law.
1. This is a civil action brought by the United States of America under the provisions of sections 3490 and 5438, Revised Statutes, 31 U.S.C.A. § 231, 18 U.S.C.A. §§ 286, 287. Jurisdiction of this court is given in section 3491, Revised Statutes, 31 U.S.C.A. § 232.
2. Defendant, American Packing Corporation, at the times mentioned in the complaint herein, was a corporation organized and existing under ...