U.S. v. Rivera

• Decision Date: 12 September 1994
• Docket Number: Nos. 94-1081,94-1082,s. 94-1081
• Citation: 55 F.3d 703
• Parties: UNITED STATES, Appellee, v. Guillermo Alemany RIVERA, Defendant, Appellant. UNITED STATES, Appellee, v. Edgar M. Stella PEREZ, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 703

55 F.3d 703

UNITED STATES, Appellee, v. Guillermo Alemany RIVERA, Defendant, Appellant.

UNITED STATES, Appellee, v. Edgar M. Stella PEREZ, Defendant, Appellant.

Nos. 94-1081, 94-1082.

United States Court of Appeals First Circuit.

Heard Sept. 12, 1994.

Decided June 6, 1995.

Robert H. Kiernan with whom Robert M. Simels, P.C., New York City, was on brief for appellant Edgar M. Stella Perez.

Pedro J. Varela, Hato Rey, PR, for appellant Guillermo Alemany Rivera.

Sushma Soni, Atty., Appellate Staff, Civ. Div., Dept. of Justice, Frank W. Hunger, Asst. Atty. Gen., Guillermo Gil, U.S. Atty., and Douglas N. Letter, Atty., Appellate Staff, Civ. Div., Dept. of Justice, Washington, DC, were on brief for appellee.

Before TORRUELLA, Chief Judge, CAMPBELL, Senior Circuit Judge, and STAHL, Circuit Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

The United States filed this civil action in the district court against defendants Guillermo Alemany Rivera ("Alemany") and Edgar Stella Perez ("Stella"). Seeking damages under the False Claims Act ("FCA"), 31 U.S.C. Secs. 3729-3733 (1982), the government alleged that defendants had caused a false claim for mortgage loan insurance benefits to be presented to the Department of Housing and Urban Development ("HUD"). The district court denied defendants' motion to dismiss and granted summary judgment in favor of the government, awarding it $1,966,592. United States v. Stella Perez, 839 F.Supp. 92, 97-98 (D.P.R.1993). We hold that the government filed this suit after the applicable limitations period had expired. We therefore reverse.

I.

During the 1970s, Alemany and Stella engaged in a scheme to defraud HUD and the Department of Health and Human Services ("HHS") in connection with a federally-insured $12.46 million mortgage loan. At that time, Stella was president, chairman of the board of directors, and medical director of Hospital Nuestra Senora de la Guadalupe, a hospital in Puerto Rico; defendant Alemany was a former comptroller of the hospital. The hospital had obtained the mortgage loan in 1974 from a private lender, Merrill, Lynch, Hubbard, Inc. ("Merrill Lynch"), for the purpose of renovating and expanding its facilities. HUD had agreed to insure the hospital's loan pursuant to the National Housing Act, 12 U.S.C. Sec. 1715z-7 (1982).

During the course of the renovation project, loan proceeds were periodically disbursed to the hospital according to the following procedure. Stella, as president of the hospital, filled out a portion of a HUD "Form 2403," listing various items of completed construction and attaching corresponding invoices. Stella then forwarded the form to Merrill Lynch, which filled out a portion of the form and forwarded it to HUD. After approving the disbursement, HUD sent a Certificate of Mortgage Insurance to Merrill Lynch. Merrill Lynch then released loan funds to the hospital or directly to the suppliers and contractors. Occasionally, loan funds were also disbursed from a separate equipment escrow account, upon HUD's receipt of a letter from Stella with attached invoices for purchased equipment.

Defendants siphoned off a portion of the loan proceeds through their control of a furniture company, Casa Cardona, Inc., and its subsidiary, an equipment company called AAA Hospital Supply, Inc., which they incorporated soon after the hospital secured the loan. Through these two companies, Stella and Alemany sold equipment and furnishings to the hospital at substantially inflated prices and charged the hospital for equipment that the companies never provided. The hospital paid for the equipment with the loan proceeds, which were disbursed to the companies by Merrill Lynch pursuant to the procedure described above. In all, defendants submitted 20 separate fraudulent requests for loan proceeds between 1974 and 1978, as to which HUD, upon paperwork furnished by defendants, issued certificates of insurance.

On May 1, 1979, the hospital was unable to make a scheduled payment on the loan. After the 30-day grace period expired, the hospital filed a petition for bankruptcy under chapter 11. Merrill Lynch formally declared the loan to be in default on July 1, 1979. On July 2, 1979, Merrill Lynch filed a "Mortgagee's Application for Insurance Benefits," along with a letter notifying HUD of the default and of its intention to exercise its rights under the insurance contract. The July 2 document contained only very basic information, identifying the project and the lender. Then, on July 17, 1979, Merrill Lynch filed a more detailed "Mortgagee's Application for Partial Settlement," setting forth specific financial information about the defaulted loan, including the amount in default and the unpaid principal balance. On October 25, 1979, Merrill Lynch assigned the mortgage to HUD, as the terms of its insurance contract required. On January 17, 1980, after approving the claim, HUD disbursed to Merrill Lynch approximately $12.1 million, representing the unpaid principal balance on the mortgage, less certain credits.

In July of 1982, defendants were charged under a nine-count criminal indictment based upon the events described above. The indictment alleged that they had conspired to defraud the government and had made false statements in support of fraudulent claims. 18 U.S.C. Secs. 2, 152, 371, 1001 (1982). After a 30-day trial, a jury convicted defendants on all nine counts. Stella was sentenced to 20 years in prison and placed on probation for an additional five years on the condition that he pay $686,349 in restitution; ¹ Alemany was sentenced to 10 years in prison and fined $10,000. This court affirmed both convictions and both sentences. United States v. Alemany Rivera, 781 F.2d 229, 238 (1st Cir.1985), cert. denied, 475 U.S. 1086, 106 S.Ct. 1469, 89 L.Ed.2d 725 (1986).

On October 25, 1985, the government brought the instant civil action against defendants, seeking recovery under the FCA. An individual is liable under the FCA if he or she "knowingly presents, or causes to be presented, to an officer or employee of the Government ... a false or fraudulent claim for payment or approval." 31 U.S.C. Sec. 3729(1) (1982). As in the criminal indictment, the government alleged that defendants had conspired to divert the proceeds of the government-insured mortgage loan through their control of the two supply corporations and through the submission of inflated requests for loan proceeds. In so doing, the government asserted, defendants caused Merrill Lynch to submit an inflated "claim" for payment under the insurance contract after the hospital defaulted on the loan.

The government moved for summary judgment. Defendants filed an opposition and moved to dismiss on the ground the action was barred by the statute of limitations. Ruling that the action had been filed within the applicable limitations period, the district court denied defendants' motion. The court thereupon granted summary judgment for the government, holding there were no remaining genuine issues of material fact. The court ruled that the factual allegations in the civil complaint were identical to the allegations in the prior criminal action. Accordingly, the court held that defendants were collaterally estopped from re-litigating any of the factual issues, as these had already been determined at the criminal trial. See Emich Motors Corp. v. General Motors Corp., 340 U.S. 558, 568-69, 71 S.Ct. 408, 414, 95 L.Ed. 534 (1951). The court awarded damages based on "uncontroverted evidence in the record."

II.

Defendants argue on appeal that the district court erred in ruling that this suit was not barred by the statute of limitations. The FCA's statute of limitations provides that an action "must be brought within 6 years from the date the violation is committed." 31 U.S.C. Sec. 3731(b) (1982). ² The elements of a "violation" of the FCA are, as noted above, that an individual "knowingly presents, or causes to be presented, to an officer or employee of the Government ... a false or fraudulent claim for payment or approval." 31 U.S.C. Sec. 3729(1) (1982).

The present case is complicated by the fact that Alemany's and Stella's fraud acted, in the first instance, upon a private lender, Merrill Lynch, rather than directly upon the government. This fraud, however, was followed by the hospital's default, resulting in Merrill Lynch's claim to HUD for reimbursement for its loss on the defaulted loan under the federal insurance that defendants had helped procure. Although, from Merrill Lynch's perspective, the claim it presented may not have been "false or fraudulent," that claim was inflated by defendants' earlier fraud; and the case law allows the United States, in such circumstances, to sue defendants under the FCA for having "caused" the filing of a "false" claim against the government.

Recognition of a false claim action of this sort followed upon the Supreme Court's decision in United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958). In McNinch the Court held that a lending institution's mere application for credit insurance, even if fraudulent, did not amount to a "claim" as that term is used in the FCA. Id. The concept of a claim against the government, the Court said, "normally connotes a demand for money or for some transfer of public property." Id. The Sixth Circuit found such a demand to exist where, as here, after fraud was perpetrated on a lending institution for which the perpetrator of the fraud had secured government insurance, the lender presented its own claim to the government for payment or insurance. United States v. Ekelman & Assoc., 532 F.2d 545, 552 (6th Cir.1976). See also United States v. Veneziale, 268 F.2d 504, 505-06 (3d Cir.1959). The lender's claim in effect completes the perpetrator's violation of the FCA, commencing the running of the statute of limitations. The Supreme Court itself has yet to endorse this theory, but all the parties in the present case...