United States v. De Witt

Decision Date10 June 1959
Docket NumberNo. 17101.,17101.
Citation265 F.2d 393
PartiesUNITED STATES of America, Appellant, v. Patrick H. DE WITT et al., Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Maurice S. Meyer, Atty., Dept. of Justice, Washington, D. C., Samuel D. Slade, Acting Chief, Appellate Section, Dept. of Justice, Washington, D. C., George Cochran Doub, Asst. Atty. Gen., Russell B. Wine, U. S. Atty., San Antonio, Tex., for appellant.

W. C. Peticolas, George W. Finger, El Paso, Tex., Andress, Lipscomb, Peticolas & Fisk and Scott, Hulse, Marshall & Feuille, El Paso, Tex., of counsel, for appellee.

Before TUTTLE, JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

Presented here are questions whether a real estate dealer is liable to the Government for the civil penalties and damages under the False Claims Act, 31 U.S.C.A. § 231 et seq. or damages for common law fraud, and whether a mortgage lender is liable for equitable restitution because the Veterans Administration guaranteed a purchase money loan to a veteran who did not then intend to occupy the property as his home. The District Court granted summary judgment in favor of the dealer-salesman as well as for the lender. The Government appeals.

The Complaint, filed August 14, 1956, covers fifty separate sales of real estate made to veterans in El Paso, Texas, by DeWitt and Rearick (Dealer) or their salesmen. Mortgage Investment Company (Lender) was the party who loaned the money in many, but not all, of these transactions. As to twenty-nine specified transactions, the parties made a stipulation. The Court, however, in granting summary judgment against the Government lumped these and the other twenty-one transactions together as though the facts were identical.

Subsequent to the judgment below an event occurred which considerably alters this litigation, and certainly the nature and reach of the civil penalties under the False Claims Act. In May 1958 the Supreme Court decided United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001, and Rainwater v. United States, 356 U.S. 590, 78 S.Ct. 946, 2 L.Ed. 2d 996. Up to that time the Government was contending, as they had in a somewhat similar situation before us in United States v. Cochran, 5 Cir., 1956, 235 F.2d 131, certiorari denied 352 U.S. 941, 77 S.Ct. 262, 1 L.Ed.2d 237, approved in note 10 of McNinch, that when the Dealer falsely represented to the Lender that the veteran intended to occupy the property as his home a false claim as to the whole transaction was made against the Government since it was thereby induced to guarantee payment of the loan. McNinch of course, held that under the False Claims Act,1 extension of the Government's credit was not the making of payment of a claim.

In terms of dollars involved, the Government's complaint under the False Claims Act nearly collapsed. But there was yet enough of a relatively small item to make it into a case of substantial proportions. For under the basic veterans legislation a so-called gratuity, generally in the sum of $160, was payable out of public funds to the Lender to be applied by it on the veteran's loan. 38 U.S.C.A. § 694(c). This was the making and payment of a claim, Rainwater v. United States, supra, and if other conditions are satisfied this sets in train the imposition of a $2,000 penalty for each separate transaction.

In addition to this the Government seeks against the Dealer (and salesmen) the (1) difference between the Veterans Administration valuation and the higher price obtained in the Dealer's sale to a third party, (2) the cancellation of all Certificates of Guaranty if not in the hands of bona fide third parties, and as to all Certificates of Guaranty not thus cancelled, that (3) the Government be indemnified for any money which the Veterans Administration ultimately is required to pay by reason of the loan guaranties. Number (1) affirms the sale to the third party and seeks a part of the fruits of it, and this seems completely inconsistent with (2) and (3). Each, however, rest on notions of common law fraud, United States v. Borin, 5 Cir., 1954, 209 F.2d 145, with no aid from the False Claims Act.

While the Lender was included in these broad prayers, it is now conceded that no fraud as such was charged or made out as to it. Money relief against it is restricted, therefore, to restitution of the gratuity payments received. Other relief is restricted to a cancellation of Certificates of Guaranty on mortgages not assigned to bona fide third parties. It is uncontradicted that no mortgages remain unassigned, so the suit as to Lender relates to the restitution of the gratuities only.

Discussion of the main problem is much simplified by considering it in terms of a transaction typical of those of the twenty-nine covered by the stipulation. The Dealer, as real estate agent for a seller, made a contract to sell a home to a veteran. The contract provided that it was subject to approval by the Veterans Administration. The veteran then made application for a Home Loan Guaranty. This application stated that he intended to occupy the house as his home. The VA issued a Commitment to the Lender that it would thereafter issue a Certificate of Guaranty. Up to this point neither the sale nor loan was closed and the record is silent on the veteran's interim intention. But after issuance of the Commitment and either before or at the formal loan closing, the veteran abandoned his intention of occupying the house. Knowing this, but before actual closing of the loan, the Dealer agreed with the veteran to buy the house for a specified price. The loan was thereupon closed, the deed delivered to the veteran, and the Lender advanced the funds to the account of the Seller on behalf of the Purchaser, the veteran, under the loan made to him. Simultaneously, but unknown to Lender, the veteran deeded the house to Dealer who thereafter sold it at a profit to a third party having no veteran's eligibility.

The result was that such sale was financed almost altogether (substantially 100% of the VA's appraised value) by the Federally guaranteed veteran's loan though neither the Dealer nor the subsequent third party Purchaser were eligible in that transaction for the benefits accorded by Congress on behalf of a grateful Nation.

As to the Dealer two problems emerge from this. First, was this a violation of the basic Servicemen's Readjustment Act of 1944, 38 U.S.C.A. §§ 694, 694a, 694d, and pertinent regulations? Second, if it was, did the Dealer's activities in relation to the sale, the veteran and the Lender constitute the making or causing to be made of a claim "* * * knowing such claim to be false, fictitious, or fraudulent * * *" under the False Claims Act? On the first, the Government contends that the statute requires that the veteran, both at the time of loan application and at the time of loan closing, must intend to occupy the house. The Dealer, on the other hand, asserts that until the 1956 amendments2 the bona fide intention3 relates only to the time of the loan application.

The dealer makes two principal arguments in its behalf. First, Congress, if it did not mean to change the law, i.e., add to it something which formerly was missing, at least thought the matter unclear enough to require a clarifying amendment.4 The Dealer's next step is to say that if Congress was uncertain about what it had legislated, then the citizen (Dealer) was entitled to the same luxury. Second, under the mechanical system5 for processing veterans' loans reflected by the statute and implemented by regulations, the veteran was to sign only the original loan application. Consequently, the Dealer asserts, Congress hardly could have meant that the veteran was making two representations as to two different intentions — one expressed in the paper, the other implied in accepting the loan funds.

On careful consideration of these arguments we think they are without decisive merit. The law might have been more clearly worded. But when the obvious purpose of this legislation to supply badly needed homes in large numbers to the millions of service people returning to civilian life is taken into account, the Act seems plain enough. The statute provided that the United States would guarantee 60% of the purchase money loans upon houses purchased in accordance with the terms and provisions of the program. Not less than three times did the Act define loans eligible for guaranty in terms of those made to a veteran to be "used for purchasing residential property or constructing a dwelling to be occupied at his home * * *."6 (Emphasis supplied.)

The statutory mandate was that the loans be for the purchase, construction or improvement of a dwelling to be occupied by the veteran as his home. The guaranty was for the making of the loan, not the agreement to make it. Issuance of the Certificate of Commitment (Step Three, note 5, supra) was, of course, an important thing. But it did no more, and consistent with the law could do no more, than assure7 the holder that if the loan represented in the Application is made in accordance with the Act and regulations, as the Certificate of Disbursement expressly recites the facts to have been, then the Government will guarantee the loan.

The Act therefore required that at the very time the loan was closed the veteran intended to occupy the house as his home. In the twenty-nine stipulated cases this was not so. In the remaining cases the Government was entitled to show by stipulation, or by evidence on motion for summary judgment, or trial, that this was not so.

What is the significance of this against the Dealer under the False Claims Act? On this we are, of course, concerned only with the transactions in which the 4% gratuity was paid. Where none was paid, there was no "claim." McNinch v. United States, supra.

The Dealer obtained summary judgment presumably on the basis reflected in the District Court's...

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