878 F.2d 535 (1st Cir. 1989), 88-1797, United States v. Rule Industries, Inc.

Docket Nº:88-1797.
Citation:878 F.2d 535
Party Name:Cont.Cas.Fed. (CCH) 75,678 UNITED STATES of America, Plaintiff, Appellee, v. RULE INDUSTRIES, INC., et al., Defendants, Appellants.
Case Date:June 22, 1989
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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878 F.2d 535 (1st Cir. 1989)

Cont.Cas.Fed. (CCH) 75,678

UNITED STATES of America, Plaintiff, Appellee,

v.

RULE INDUSTRIES, INC., et al., Defendants, Appellants.

No. 88-1797.

United States Court of Appeals, First Circuit

June 22, 1989

Heard March 1, 1989.

Jerome P. Facher with whom Thomas N. O'Connor and Hale and Dorr, Boston, Mass., were on brief for defendants, appellants.

Jeffrey S. Robbins, Asst. U.S. Atty., with whom Frank L. McNamara, Jr., U.S. Atty., Boston, Mass., was on brief for plaintiff, appellee.

Before CAMPBELL, Chief Judge, BOWNES, Circuit Judge, and FUSTE, [*] District Judge.

LEVIN H. CAMPBELL, Chief Judge.

Pursuant to a contract with the General Services Administration ("GSA"), defendant Rule Industries, Inc. ("Rule") supplied the United States government with hacksaw

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blades. Rule had certified in the contract that the hacksaw blades were "domestic end products" for purposes of the Buy American Act, 41 U.S.C. Secs. 10a-10c (1982 & Supp. V 1987) and the regulations implementing the Act, 48 C.F.R. pt. 25.1 (1987). Alleging this certification was false, the government brought this action for penalties under the False Claims Act, 31 U.S.C. Secs. 3729 et seq. (Supp. V 1987), against Rule, its president, and its general manager. A jury found that the hacksaw blades were not domestic end products and that Rule's contrary certification was knowingly false. Defendants appeal from the denial of their motions for a directed verdict and their motions for a judgment notwithstanding the verdict, as well as the district court's refusal to give defendants' requested jury instructions. We affirm.

I. BACKGROUND

During 1981 and 1982, GSA solicited bids for various kinds of high speed steel hacksaw blades. In soliciting these bids, GSA was required to comply with the Buy American Act, which provides in pertinent part:

Notwithstanding any other provision of law, and unless the head of the department or independent establishment concerned shall determine it to be inconsistent with the public interest, or the cost to be unreasonable, ... only such manufactured articles, materials, and supplies as have been manufactured in the United States substantially all from articles, materials or supplies mined, produced, or manufactured, as they case may be, in the United States, shall be acquired for public use....

41 U.S.C. Sec. 10a.

Consequently, the "Solicitation, Offer and Award" contract form issued by GSA, which embodied the contract between the winning bidder and GSA, contained the following "Buy American Act" certification:

The offeror certifies as part of his offer that: each product, except the products listed below, is a domestic end product (as defined in the clause entitled "Buy American Act"), and that components of unknown origin have been considered to have been mined, produced or manufactured outside of the United States.

A box entitled "Excluded End Products" and a space for "Country of Origin" followed the certificate. The clause entitled "Buy American Act" provided in pertinent part:

In acquiring end products, the Buy American Act (41 U.S.C. Sec. 10a-d) provides that the Government give preference to domestic source end products. For the purpose of this clause:

(i) "Components" means those articles, materials, and supplies, which are directly incorporated in the end products;

(ii) "End products" means those articles, materials, and supplies, which are to be acquired under this contract for public use; and

(iii) A "domestic source end product" means ... an end product manufactured in the United States if the cost of the components thereof which are mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components....

The definitions provided by this clause for "components" and "end products," as well as the "50 percent test" for "domestic end products," are found in the Federal Acquisition Regulations, 48 C.F.R. Sec. 25.101. The terms of the "Solicitation, Offer and Award" further provided that "bids under this solicitation offering domestic source end products normally will be evaluated against bids offering other end products by adding a factor of fifty percent (50%) to the latter...."

Rule was the winning bidder, entering into four contracts to supply GSA with 10 and 12 inch length high speed steel hacksaw blades. Two contracts covered the period November 1981 through November 1982, and two covered the period December 1982 through November 1983. In each of these contracts, Rule certified that the hacksaw blades were "domestic end products"; the space for exceptions to the Buy American Act was left blank. Thus, taking into account the language of the "Buy American Act" clause in the contract, Rule

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certified that the hacksaw blades were manufactured in the United States and that the cost of the hacksaw blades' components (i.e., those articles, materials and supplies "directly incorporated" into the hacksaw blades) mined, produced or manufactured in the United States exceeded 50 percent of the cost of all of the hacksaw blades' components. Because Rule certified that its hacksaw blades were domestic end products, the 50 percent markup was not applied to its bid.

The hacksaw blades subsequently supplied to GSA under these contracts were produced as follows:

1. Hacksaw Blanks. Rule purchased "hacksaw blanks" from Fagersta, Inc., a Swedish company, and Hitachi Metals, a Japanese company. Hacksaw blanks are thin strips of steel cut from coil steel. They are rounded at each end, and holes are punched into both ends of the blank. The general dimensions of the blanks are essentially the same as the finished product, the hacksaw blade. The hacksaw blanks that were used to make the hacksaw blades in this case were made in either Sweden by Fagersta or in Japan by Hitachi Metals.

2. Milling. After purchasing the hacksaw blanks from Fagersta and Hitachi, Rule milled the blanks at its plant in Gloucester, Massachusetts. The milling process cut the appropriate amount of teeth into the blanks. Rule's contract with GSA called for 18, 24, and 32 pitch hacksaw blades.

3. Setting, Flame Treating and Tempering. Each blade was then set by bending waves into the milled teeth. The set blades were flame-treated by passing them through an open flame and then tempered by placing the blades in large ovens.

4. Painting, Printing and Packaging. Rule then painted and printed identifying marks on the blades, and finally packaged the blades for delivery to GSA. Rule delivered over 4,700,000 hacksaw blades to GSA.

Although satisfied with the quality of Rule's hacksaw blades, the government brought this action under the False Claims Act, 31 U.S.C. Sec. 3730 1 upon discovering that hacksaw blades were made from foreign-made hacksaw blanks. The government named as defendants Rule, William N. Anastos, Rule's president, and Gary M. Sable, Rule's general manager. According to the government, the hacksaw blanks were a "component" of the hacksaw blades, and because the foreign-made blanks accounted for approximately 90% of the cost of all the hacksaw blade's components, the blades were not a "domestic end product" as Rule had certified in the contract. Thus, the government alleged, defendants "knowingly present[ed], or cause[d] 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).

After defendants' motions for a directed verdict were denied, the court submitted special interrogatories to the jury in regard to the government's False Claims Act claim. One of the interrogatories asked the jury to answer the following question:

Has the plaintiff proved by a preponderance of the evidence that the hacksaw blade sold by Rule Industries to GSA was not a domestic end product?

If the jury answered "yes" to this question, it was then asked to determine whether the government had proved by clear and convincing evidence that defendants had "knowingly made false claims or a false statement to get a false claim paid" under Rule's four contracts with GSA, and to assess the appropriate statutory penalty.

By its responses in the verdict, the jury found that defendants had submitted false claims to the government. In essence, the jury determined that the hacksaw blanks were components of the hacksaw

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blades for purposes of the Buy American Act, and that Rule's certification that the hacksaw blades were domestic end products was false since the blank accounted for well over 50 percent of the cost of all the hacksaw blade's components. The jury also determined that defendants had knowingly 2 made this false claim on each of 302 invoices submitted to GSA for payment, and consequently assessed a penalty of $604,000, a $2,000 penalty for each false claim as provided by the False Claims Act, 31 U.S.C. Sec. 3729. The district court denied defendants' motions for a judgment notwithstanding the verdict. Defendants now appeal.

We discuss below, in turn, each of defendants' claims of error.

II. AN ISSUE FOR THE JURY OR FOR THE COURT?

Defendants contend that the district court erred in refusing to direct a verdict on the issue of whether the hacksaw blades sold to GSA were domestic end products. According to defendants, the district court, not the jury, should have applied the law (the Buy American Act and the Federal Acquisition Regulations) to the undisputed facts (the manufacturing process of the hacksaw blades supplied by Rule, industry practice regarding this process, the source and cost of the various parts of the hacksaw blade). Had the court done so, it had to rule, in defendants' view, that the hacksaw blades were domestic end...

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