United States v. National Wholesalers, 14692.

• Decision Date: 18 September 1956
• Docket Number: No. 14692.,14692.
• Citation: 236 F.2d 944
• Parties: UNITED STATES of America, Appellant, v. NATIONAL WHOLESALERS, a corporation; M-D Parts Manufacturing Company, National Parts Company and Henry Mezori, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

236 F.2d 944 (1956)

UNITED STATES of America, Appellant, v. NATIONAL WHOLESALERS, a corporation; M-D Parts Manufacturing Company, National Parts Company and Henry Mezori, Appellees.

No. 14692.

United States Court of Appeals Ninth Circuit.

September 18, 1956.

Warren E. Burger, Asst. Atty. Gen., Alan S. Rosenthal, Melvin Richter, Paul A. Sweeney, George S. Leonard, Attys., Dept. of Justice, Washington, D. C., Laughlin E. Waters, U. S. Atty., Los Angeles, Cal., for appellant.

William H. Neblett, Los Angeles, Cal., for appellee.

Before FEE and CHAMBERS, Circuit Judges, and FOLEY, District Judge.

CHAMBERS, Circuit Judge.

National Wholesalers, a California corporation, was low bidder in the year 1950 to supply the Department of the Army with 6,600 generator regulators for motor vehicles at $23.50 each. The call for bids had specified catalogue items DR (for Delco-Remy) 1118502, GM (for General Motors) 1118502, or IHC (for International Harvester Corporation) 50301-R1 "or equal." The bid call also made reference to Army ordnance stock numbers for the item.

By the terms of the bid call which had been previously mailed to 56 prospective bidders, it was required that if "or equal" was offered by the bidder he should so state. Not mentioning "or equal," National Wholesalers said on its bid that it was "bidding" DR-1118502 regulators. Thereupon, the proper Army contracting officer in behalf of the United States entered into a contract incorporating within it the bid. In our judgment, properly construed, the contract required the bidder to furnish the proprietary Delco-Remy regulator and nothing else.

It seems that in the background of National Wholesalers' plan to obtain the contract was its belief that it could obtain a supply of Delco-Remy regulators perhaps sold by the government as World War II surplus. It would now sell them back to the government. But due to changes in specifications¹ on the Delco-Remy regulators, the old surplus model would not meet current specifications. Caught in this dilemma, National Wholesalers decided that it would manufacture regulators substantially meeting the specifications of the Delco-Remy model. What it made is described in the record as a "Chinese copy." The government now has some lingering contentions that the Chinese copies were not as good as the specified Delco-Remy. The trial court found that the substitutions were "equals."

The controversy here principally stems from the fact that surreptitiously National Wholesalers caused spurious Delco-Remy labels² to be printed which it attached to its product prior to delivery to the Army. For some months the Army, in ignorance, accepted the regulators as delivered in installments by National Wholesalers in performance of its contract.³ After 4,086 regulators of the contracted 6,600 had been inspected and received by the Army, the shoddy operation of the contractor was discovered. A "stop order" on receipt of deliveries was issued and off for testing to the Detroit Arsenal went one of the bogus regulators supplied by National Wholesalers along with a sample of the genuine Delco-Remy article. The tests were very favorable to the contractor. The substituted article, as to performance, was found to be within established limits of tolerance variations for "or equal" items.

At this point the Army about faced and its contracting officer advised the contractor by letter that the counterfeit labeled product would be accepted as "or equal." So much of the case turns upon the letter that it is set forth in full as follows:⁴

"All Communications Should be Accompanied by Carbon Copy and Addressed to Los Angeles Ordnance District U.S. Army 35 North Raymond Avenue Pasadena 1, California

"To Insure Prompt Attention In Replying Refer to LAD No. 160-96/5 Nat'l W Attention of Legal Br 16 October, 1950. "National Wholesalers, Inc 4395 East Olympic Boulevard Los Angeles, California. "Gentlemen:

Subject: Contract No. DA-20-018-Ord-3951

"Under date of 15 February, 1950, an Invitation for Bids, WD Form 106, was issued by Detroit Ordnance District inviting the submission of bids for furnishing 6,600 each Regulator, generator, Assy., Mfr\'s Part Nos. DR-1118502, GM-1118502, IHC-50301-R1, or equal. ORD-7069022, ORD-7069023. Ordnance Stock No. 2580-1118502. Vehicle Application SNL G541, G671, G506, F501, G508.

"Under date of 6 March, 1950, you offered to furnish 6,600 each Regulator, generator, Assy., Mfr\'s Part No. DR-1118502 at a price of $23.50 each; on 1 April, 1950, your bid was accepted by the Government; and under date of 12 April, 1950, the contract thereby created was transferred to the Los Angeles Ordnance District for administration.

"Subsequently Regulators were submitted to the Resident Ordnance Inspector for inspection and a total quantity of 4,086 Regulators were inspected and accepted by the Government. It then came to the attention of the Contracting Officer that Regulators which had been manufactured locally were being offered for inspection and acceptance, and on 14 September, 1950, the Resident Ordnance Inspector was therefore instructed not to accept such Regulators pending a decision as to whether they were in conformity with the requirements of the contract.

"In this connection your attention is directed to the fact that in your bid you offered to furnish one of the approved items listed in the Invitation, and that on page 1 of Schedule `A\' of your bid you indicated by appropriate underscoring (a) that you were not a manufacturer of the articles quoted on and (b) that you do regularly carry a stock of such articles. This was construed to mean that you regularly carry a stock of genuine Delco-Remy Regulators, and since the Regulators tendered for acceptance bore a Delco-Remy name plate, it was assumed that they were the approved items upon which you bid. Also, the `Special Conditions\' which constitute a part of your bid established a procedure for qualifying `or equal\' items, which had not been followed, thereby entitling the Government to cancel the contract for default pursuant to the provisions of the contract, should it elect to do so.

"The instructions previously furnished the Resident Ordnance Inspector to discontinue acceptance of such items was therefore confirmed and arrangements were made with Detroit Arsenal for the testing of one of the Regulators in order to determine its acceptability as an `or equal.\' As a result of the tests conducted by Detroit Arsenal it has been determined that the Regulator tested qualified as an `or equal\' and the Resident Ordnance Inspector is being advised and instructed accordingly.

"Very truly yours "/s/ John MacL. Hunt, "Ordnance Corps, Contracting and Purchasing Officer."

After receiving the letter, National Wholesalers quickly finished the delivery of the remaining 2,514 regulators under the contract and was promptly paid for these, as it had been on the first 4,086.⁵

It is to be remembered that the American intervention in Korea began on June 27, 1950. There probably was a mobilization urgency in October, 1950, and responsible officers may have thought it more important to get the remaining regulators into their supply, than it was to get into the business of litigation or to pursue those who were guilty of an imposition on the government. They overlooked the fact that one of the finest things for which this country stands is that the American label guarantees contents are the product that the label represents them to be, and that is true whether the label is on Bethlehem's steel or on Mrs. Lerua's tamales. That is one of the many things an American soldier fights for. Ill becomes its officers to traffic with deceptive labels, even if they qualify as "or equals."

In the quieter days of peace, apparently someone in the Army began to reflect on National Wholesalers' imposition. The case found its way to the United States Attorney's office in Los Angeles. On July 3, 1953, he filed a civil complaint against National Wholesalers, against two of its affiliated companies, and against Henry Mezori who controlled all three. It asked under the False Claims Act for $2,000 for each of the 17 false invoices submitted by Mezori's company, or a total of $34,000. The pertinent section (see 31 U.S.C.A. § 231) is as follows:

"Any person not in the military or naval forces of the United States, or in the militia called into or actually employed in the service of the United States, who shall make or cause to be made, or present or cause to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval service of the United States, 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, or who, having charge, possession, custody, or control of any money or other public property used or to be used in the military or naval service, who, with intent to defraud the United States or willfully to conceal such money or other property, delivers or causes to be delivered, to any other person having authority to receive the same, any amount of such money or other property less than that for which he received a certificate or took a receipt, and every person authorized to make or deliver any certificate, voucher, receipt, or other paper certifying the receipt of arms, ammunition, provisions, clothing, or other

...