United States v. Mead

• Decision Date: 24 March 1970
• Docket Number: No. 22180.,22180.
• Parties: UNITED STATES of America, Appellant, v. Lennard L. MEAD et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

426 F.2d 118 (1970)

UNITED STATES of America, Appellant, v. Lennard L. MEAD et al., Appellees.

No. 22180.

United States Court of Appeals, Ninth Circuit.

March 24, 1970.

COPYRIGHT MATERIAL OMITTED

Leonard Schaitman (argued), Alan S. Rosenthal, Howard J. Kanshner, Attys., Dept. of Justice, Washington, D. C., Larry L. Dier, Asst. U. S. Atty., Wm. Matthew Byrne, Jr., U. S. Atty., Los Angeles, Cal., for appellant.

David Kinley (argued), Wm. L. Callender, Oxnard, Cal., Wm. L. Boyes, Camarillo, Cal., Paul B. Noel, Thousand Oaks, Cal., Carl A. Stutsman, Jr., of Hill, Farrer & Burrill, Los Angeles, Cal., for appellees.

Before CHAMBERS and JERTBERG, Circuit Judges, and WEIGEL,^* District Judge.

CHAMBERS, Circuit Judge.

Lennard Mead and the other appellees are in trouble over a series of government payments for "farmer's conservation practices." These payments were pursuant to a Department of Agriculture conservation program developed under the authority of the Soil Conservation and Domestic Allotment Act, 16 U. S.C. §§ 590a-590q. Mead was a farmer-contractor who constructed conservation practices on the farms of his mother (Violet) and the other appellees.

The basic concept of the Agricultural Conservation Program was that the federal government was to assist farmers and ranchers in carrying out approved conservation practices. The Program authorized the government to pay to or for each farmer the lesser of a fixed percentage of the cost price of dirt ditches or dams or a fixed price per unit of work performed (here, price per cubic yard of earth moved). In no event was the payment to exceed a fixed amount for the account of each farmer in a single program year.

The mechanics of the Program allowed government payments to be made directly to the contractor who did the work. Here Mead made out claims for payment with his invoices attached showing "prices" higher than the cash price to the farmers. Appellees submit and the district court found that in no instance was the claimed cost of a project higher than its actual or fair market value. The payments were all made by the government to Mead but the farmers signed the claims (in one case it was a foreman). In some cases the farmers paid some cash (but not the fixed percentage of the claimed cost of the project which the farmer was to bear). In others they furnished services to Mead or gave him pasture.¹

Now Mead and the farmers are faced with a complaint for statutory double damages and penalties under the False Claims Act, 31 U.S.C. §§ 231-233. Also, the government pleaded payment by mistake as an alternative theory of recovery. The trial court ruled with the defendants and the government appeals. As to false claims, we affirm and as to mistake, we reverse and remand.

Here the defense was largely that the prices shown the government were the "true value" and thus were not false. A second defense was that the government had not shown intent to defraud the government. The government would have us recede from our statement in United States v. National Wholesalers, 9th Cir., 236 F.2d 944, cert. den., 353 U. S. 930, 77 S.Ct. 719, 1 L.Ed.2d 724. But we adhere to our position that an actual intent to deceive must be proved. We cannot believe that the Congress intended to catch the hapless with the heavy penalties which may be imposed under the False Claims Act. Here is a contractor-farmer (Mead) who appears clumsy rather than venal. And, all the claims in controversy here were handled with the greatest informality. There was some signing in blank and generally the claims were partially prepared by the agents of the Department of Agriculture. It is a far different situation from that in National Wholesalers where it would be difficult to find a more callous presentation of claims. Here, on the evidence on false claims, the trial court could have found in favor of the government, but it did not have to do so. And, it did not.

As to the mistake theory on which we reverse and remand, we would summarize that in all or part of the payments the government was misled as to the correct calculation of its authorized share of the cost.

Having summarized our conclusions, we go into some detail. We do this as to false claims because of the attack on National Wholesalers and we do it as to mistake because we reverse.

I. THE FALSE CLAIMS ACT THEORY

A. WERE THE CLAIMS FALSE?

The government argues that the claims were false because Mead's invoices overstated his actual charges to the applicant farmers and ranchers. Mead's position was that he regarded the terms cost and value as being synonymous and that his statements of the cost of the projects were not in excess of the actual or fair value of the projects. He billed the government for its share in an amount which he regarded as the "true cost figure" and, in contrast, merely accepted all he could get from the farmers. The evidence showed that in some instances, Mead prepared duplicate invoices. He sent an invoice to the government which stated his estimation of the value of the project. His invoices to the farmers allowed them cash discounts and thus stated amounts which were substantially smaller than their share of the "actual value" of the project as it was submitted in the invoice to the government.

Whether the claims were false depends upon the interpretation of the regulations and forms established by the Department of Agriculture in order to carry out its conservation program. Since judicial construction of the applicable regulations and forms is lacking, resort must be had to their language and apparent purpose. The applicable regulations for 1959 appear in 23 Federal Register sections 1101.1001(a), 1101.1011(a), 1101.1027(b). During the other two years in question (1957-58) the regulations were the same as in 1959. These regulations refer to "cost sharing * * * to achieve the maximum conservation benefits," "maximum federal cost-share," and "cost of the material or service." The regulations specify that the farmer or rancher will make a substantial contribution to the project. "The farmer or rancher will pay that part of the cost of the material or service * * * which is in excess of the Federal cost-share attributable to the use of the material or service." (Emphasis added).

A number of Agricultural Conservation Program (ACP) forms are involved in this case. Form ACP 201 is captioned REQUEST FOR ACP COSTSHARING. This form requires the farmer's signature and contains an explicit request for cost-sharing. Form ACP 247 refers to "the extent which the federal government will share in the cost of performing the practice." Form ACP 245 requires the farmer to answer the following inquiry:

"Did any other person including a State or Federal agency bear any part of the expense such as labor, equipment, seed or fertilizer, or otherwise bear any part of the expense of carrying out this practice? Yes or no. (Emphasis added).

This form seems designed to allow the government to compute its share taking into account the amount which the farmer himself has actually contributed to the project.

The district judge in his findings of fact concluded that the claims were not false because they were based on the undisputed fair market value of the completed projects and the United States had not made payments on the claims in excess of the fair market value of the United States' agreed share of the project. Based on our construction of the applicable regulations and forms, we conclude that fair market value or actual value is not the correct measure of the cost of the projects. Thus, Mead's figures which he submitted as the cost of the projects were erroneous. An additional consideration is that cost is a concept clearly distinguishable from value. City Ice Delivery Co. v. United States, 4th Cir., 176 F.2d 347.

The Agricultural Conservation Program of 1957-59 was intended to encourage farmers and ranchers to take conservation measures they ordinarily would not take by having the federal government share part of the cost. The government did not undertake to make a gift of conservation projects but rather to make a contribution to the cost of the project. A practical consideration is that the cost of constructing a conservation project is more readily ascertained than is the elusive concept of value of a project. This program was designed to assist the farmer in paying for his own project, not to have the farmer contribute what he can to a federal project.

B. SPECIFIC INTENT TO DEFRAUD AND KNOWLEDGE OF FALSITY

The Ninth Circuit has adopted the rule that to recover under the False Claims Act, the government must prove that the defendant had the specific intent of deceit. In United States v. National Wholesalers, 9th Cir., 236 F.2d 944, cert. den. 353 U.S. 930, 77 S.Ct. 719, 1 L.Ed.2d 724, recovery was sought against a successful bidder for a government contract who delivered spuriously labeled voltage regulators to the Army. In applying the Act, this Court stated the requirement that "undoubtedly there must be the intent to work a deceit on the government." 236 F.2d at 950. The government urges that the False Claims Act dispenses with the specific intent to defraud requirement in all but two categories of conduct which are not involved here.² However, the government's position rests upon a shaky foundation of semantic distinctions. The juxtaposition of the three adjectives, "false, fictitious, or fraudulent" probably resulted from a draftsman's desire to encompass the varying ways in which fraud is defined. Judicial definition of fraud indicates that there is not an accepted distinction between a knowingly false claim and a fraudulent claim. United States v. Interstate Engineering Corp., D.N.H., 288 F.Supp. 402; Travelers Indemnity Co. v. Harris, E.D.Mo., 216 F.Supp. 420.³ No reason is apparent why only two of the six types of conduct proscribed in the False Claims Act should require the element of specific intent to defraud....