Falter v. United States, 107.

Citation23 F.2d 420
Decision Date09 January 1928
Docket NumberNo. 107.,107.
PartiesFALTER et al. v. UNITED STATES.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

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Davies, Auerbach & Cornell, of New York City (Martin A. Schenck, Frederic C. Scofield, and Emily C. Holt, all of New York City, of counsel), for plaintiffs in error Canter and Weiss.

Bandler, Haas & Collins, of New York City (Nash Rockwood, Harry S. Bandler, and John F. Collins, all of New York City, of counsel), for plaintiff in error Falter.

Edwin G. Davis, of Washington, D. C., for the United States.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

L. HAND, Circuit Judge (after stating the facts as above).

The question going to the heart of the case is whether a fraud was proved within the statute, especially in the light of what the judge said to the jury. The defendants argue that it was error to instruct them that it was a fraud to defeat the right of the United States "to fully contract," or to deprive it of "its dominion as an owner" and "its freedom to contract as such." Some of these quotations are not in the judge's instructions, but only in his description of the indictment, but that we pass. As we view it, these locutions under the circumstances properly enough described the substance of an offense punishable under section 37. The United States had not, we shall assume, bound itself by legal obligation to fill any of the contracts made by its officers in the Surplus Property Division of the War Department. In appealing to those officers for favor, because Gottesman had not got the deliveries due him, Canter and Weiss were not, therefore, standing upon any right, but appealing to the compunctions of the United States for its failure to perform its moral obligations. We confess to an entire failure to understand how this can be material on the issue of fraud. Behind it seems to lie the notion that a man may not be defrauded out of what he knows he is under no legal obligation to give. If in fact Cole was induced to make the substituted contracts by Falter's deceit, it makes not the slightest difference that he was not bound to recognize the claims at all. A man may defraud me by saying that he has rescued my son from death, as well as by saying that he has furnished him with board and lodging.

In the case at bar it is not necessary to extend section 37 beyond the criminal liability recognized at common law. A conspiracy to perpetrate a civil fraud was a crime, though the fraud itself was not one. In the early eighteenth century frauds in general were probably still crimes, even when not of a public character, and not within the statute of false tokens (33 Hen. VIII, c. 1), Reg. v. Mackarty, 2 Ld. Raym. 1179; though the question was not settled, Reg. v. Jones, 1 Salk. 379. Afterwards the doctrine was narrowed, and only frauds of a public nature remained criminal, Rex v. Wheatley, 2 Burr. 1127; yet a conspiracy to defraud still retained its early criminal character, Rex v. Warburton, L. R. 1 C. C. 274; Rex v. Kenrick, 5 Q. B. 49. While there are no crimes against the United States, except by statute, any fraud upon the United States is of a public character, and would at common law have itself been a crime, and quite independently of that a conspiracy to defraud the United States would also have been criminal. The section is at least coextensive with a conspiracy at common law, and indeed covers much more. Haas v. Henkel, 216 U. S. 462, 30 S. Ct. 249, 54 L. Ed. 569, 17 Ann. Cas. 1112; U. S. v. Foster, 233 U. S. 515, 34 S. Ct. 666, 58 L. Ed. 1074; U. S. v. Barnow, 239 U. S. 74, 36 S. Ct. 19, 60 L. Ed. 155; though it continues to demand some element of dishonesty, some cheat or false dealing, Hammerschmidt v. U. S., 265 U. S. 182, 44 S. Ct. 511, 68 L. Ed. 968; Fasulo v. U. S., 272 U. S. 620, 47 S. Ct. 200, 71 L. Ed. 443.

Now a civil action of deceit would have been lain under the circumstances at bar. When Falter told Cole that Gottesman has unfilled orders, and thus procured from him an abatement of price, it was a common-law deceit. His false utterance concerned existing facts; i. e., that the orders had been issued, and that the quantities they prescribed had not been delivered. This did not involve any statement as to the validity of the orders in law; Cole did not so understand it, and Falter knew that he did not. Nor did it matter that Cole had available the evidence of their untruth. Such considerations ordinarily concern only the plaintiff's reliance upon the representations. Andrus v. St. Louis, etc., Co., 130 U. S. 643, 9 S. Ct. 645, 32 L. Ed. 1054; Slaughter v. Gerson, 13 Wall. 379, 20 L. Ed. 627; Farnsworth v. Duffner, 142 U. S. 43, 12 S. Ct. 164, 35 L. Ed. 931. Those cases do, indeed, contain general statements that, if the plaintiff has the means at hand by which he can check the fraud, he may not complain; but these are to be read in the light of the facts. When the parties do not have equal means of knowledge, it is immaterial that the victim, if more suspicious, could have discovered the cheat, Smith v. Richards, 13 Pet. 26, 10 L. Ed. 42; Tooker v. Alston, 159 F. 599, 16 L. R. A. (N. S.) 818 (C. C. A. 8); Martin v. Burford, 181 F. 922 (C. C. A. 9); Vulcan Metals Co. v. Simmons Mfg. Co., 248 F. 853 (C. C. A. 2).

It is perhaps doubtful whether the point has any relevancy whatever to a conspiracy to defraud, except as it may bear upon intent; that is, whether the accused could have intended his victim in fact to rely upon the deceit. Assuming, however, that it is relevant, it is clear that the defendants here do not fall within the exception. Falter had just been in entire charge of the Textile Branch; he knew what had been done, and what were the records, far better than could Cole, who had just been substituted for him. The documents were extremely voluminous and confused; an inquiry into the facts was, as the trial proved, troublesome, and would be very laborious. It was natural, though perhaps not excusable, for Cole to rely on Falter's superior knowledge. This Falter knew and relied upon in practicing upon his credulity and possibly upon his indolence. To say that the defendants are to be excused because of the success of their contrivances would be to sanction the very consummation of their crime.

There was ample evidence proving the representations and their falsity. Cole's testimony alone suffices, and must be ignored, if the point is to have even a colorable validity. That he contradicted his evidence, given on other occasions, is quite true; but the jury was to decide at which time he told the truth. Even if it were not enough, standing alone, the evidence as a whole is so sinister in its implications as to give inherent credibility to what he said. Moreover, the prosecution might have relied alone upon the letter of November 21st. It is quite true that its falsity was involved in a maze of documentary evidence, which it is extremely difficult to unravel. But there was at least some evidence to support the verdict, even as to it. For example, the first item of 207,000 yards of gray sheeting seems at one time to have been canceled. The next of 471,000 yards of gray jeans Falter himself reduced to 283,000 on November 6th, and could give no convincing explanation for its later appearance at the original amount. No sale could be found before November 21st of 738,000 yards of "Osnaberg gray." Exhibit D-14, relied upon by the defendants, is not an accepted bid, and Purcell's evidence, that the letter which answered it was the equivalent of an acceptance, the jury was free to disregard, in view of his relation to the case.

In any event the defendants received large quantities of goods in excess of the amounts left undelivered, even if the letter be taken at its face, and these at lower prices than those current when the sales were made. Thus, nearly 1,000,000 yards of gray sheeting were procured, over 1,300,000 yards of gray duck, 200,000 yards of bleached jeans, and 80,000 yards of "Osnaberg gray, 30 pounds 7 ounces." An effort is made to account for these by adding those contracts made in December with the Universal Trading Company, but it is precisely these which the prosecution challenged as substitutions for original contracts never in fact made. The similarity in price between these December contracts and those made in September and November was some evidence of the truth of this contention. It is not necessary to hold that the case was demonstrated, but to say that there was no evidence which justified the verdict would be wholly unwarranted.

The main outline of the case being so disposed of, we take up the supposed errors occurring in the...

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