Bernstein v. United States, 5704
| Citation | 256 F.2d 697 |
| Decision Date | 28 July 1958 |
| Docket Number | No. 5704,5705.,5704 |
| Parties | Abe BERNSTEIN; Morey Bernstein; Sam Bernstein; Bernstein Bros. Pipe and Machinery Company, a corporation; Maurice Levy; Rose Levy; Albert Bensik; and Modern Specialty Distributors, a partnership, Appellants, v. UNITED STATES of America, Appellee. UNITED STATES of America, Cross-Appellant, v. Abe BERNSTEIN; Morey Bernstein; Sam Bernstein; Bernstein Bros. Pipe and Machinery Company, a corporation; Maurice Levy; Rose Levy; Albert Bensik; and Modern Specialty Distributors, a partnership, Cross-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
COPYRIGHT MATERIAL OMITTED
Morrison Shafroth and Charles Rosenbaum, Denver, Colo., for appellants and cross-appellees.
Hershel Shanks, Washington, D. C. (Joseph D. Guilfoyle, Washington, D. C., Donald E. Kelley, Denver, Colo., and Morton Hollander, Washington, D. C., on brief), for cross-appellant and appellee.
Before BRATTON, Chief Judge, and HUXMAN and MURRAH, Circuit Judges.
This is an appeal from a civil judgment in a suit by the United States against the appellants and others under the fraud provisions of the Surplus Property Act of 1944, 58 Stat. 765, 780, now Section 209(b), Federal Property and Administrative Services Act of 1949, 63 Stat. 377, 392, 40 U.S.C.A. § 489(b).
On the critical dates of the complaint, Section 26(b) of the 1944 Act provided in substance that every person who engages in any fraudulent scheme or device for the purpose of securing or obtaining any surplus property of the United States, or who agrees or conspires to do so, shall be liable to the United States for enumerated elective remedies. Jurisdiction of suits under the Act was vested in the United States. Section 26(c).
The trial court's judgment is based upon an ultimate finding to the effect that in the Fall of 1946, the appellants entered into an agreement or conspiracy to defraud the United States in connection with the sale of surplus property of the United States in San Antonio, Texas, by arranging to have war veteran Bensik, an employee of Bernstein Brothers, Inc., apply for a veteran's priority certificate for the purchase of the property in question, ostensibly in his own behalf, for use in his own business, but actually in behalf of and for the benefit of Bernstein Brothers, the purpose and object being to enable the Company to gain possession and control of priority surplus property which, for lack of such priority, it would not be entitled or eligible to obtain.
The underlying facts are that appellant, Bensik, a war veteran doing business as the Modern Specialty Distributors in Pueblo, Colorado, was distributing grave monuments and other odds and ends, including some reconditioned Stewart-Warner airplane heaters. Appellant, Bernstein Brothers Pipe and Machinery Company, is a large established retail and wholesale dealer in both new and used pipe and machinery in Pueblo. The individual appellants, Bernsteins, are officers and principal owners of the corporation. Appellant, Levy, is a brother-in-law of the corporation president, and General Sales Manager of the company. Bensik started working for the corporation as a salesman in February 1946 for $250 per month, but continued to conduct his own small business on the side. On October 20, 1946, Bensik made an application and was certified by the War Assets Administration in Denver, Colorado, for a veteran's priority to purchase $3,000 worth of gasoline engine compressors. In his application, he represented that no person other than himself had any proprietary interest in his enterprise in excess of fifty percent of the invested capital or of the gross profits or income thereof; that he was not a broker, and would not handle the surplus property as a broker; and was not purchasing the property for the use and benefit of any other enterprise, dealer, broker, merchant or other undisclosed partner or principal.
About the time of his application and certification for the engine compressors, the War Assets Administration offered 928 Herman Nelson airplane heaters and 3341 Stewart-Warner heaters for sale as surplus property in San Antonio, Texas. The property was offered concurrently to all priority groups, including World War veterans, and all levels of trade — all priority groups to bid without price, awards to be made to priority groups at the lowest acceptable price. With notice of this offering, Bensik returned to the War Assets Administration office in Denver on November 18 or 19, and asked to be recertified for $25,000 worth of surplus property, including $20,000 worth of "heating and ventilating equipment and machinery — Texas". At the same time, he submitted a letter from a Pueblo bank stating that he was a legitimate dealer and wholesaler of equipment and supplies, and had on deposit with the bank at that time $25,000. The bank credit was arranged by appellant Levy, who gave the bank his personal check for $25,000 in exchange for a cashier's check for that amount "payable to ourselves" for Bensik's account. Previously, and on October 31, Bernstein Brothers issued its check to Levy for $21,532 in payment of his annual salary, less taxes, and Levy apparently financed the transaction with this check and another from Morey Bernstein in the sum of $7,500, which was never honored. In connection with his application for the recertification, Bensik submitted a grossly exaggerated financial statement in which he listed $28,000 in cash, evidently including the $25,000 bank credit represented by the cashier's check. He also certified in connection with this priority application that he had made necessary arrangements to become "an established dealer, jobber or distributor of the kind who customarily take into their possession and have full control for the purpose of reselling property of the kind covered by this order"; that he was not a broker and would not use the property ordered to operate as such; and that he would not engage in "drop sale" in his disposal of the property.
On the basis of these latter representations, Bensik's application was reviewed and he was recertified for the purchase of $20,000 worth of the heating and ventilating equipment as a specialty distributor. The original application was stamped "initial stock for resale". On the next day after the last certification, the $25,000 cashier's check was redeposited to Levy's account. He thereupon issued a check to his wife for $20,000 and she secured a cashier's check for $20,000 "payable to the order of ourselves December 13, 1946". This check was left with the bank for Mr. Bensik. The check to Levy's wife (Bernstein's sister) was a loan to finance the Bensik transaction.
On December 10, Bensik was awarded 600 Herman Nelson heaters at a unit cost of $33.26, or a total sum of $19,956. The awards were made on the basis of Bernstein Brothers' non-priority highest best bid on the whole offering of both the Herman Nelson and Stewart-Warner heaters. Bensik did not go to San Antonio and never examined the heaters before bid or purchase, but appellant, Sam Bernstein, was in San Antonio to bid on the heaters without priority. While there, Bernstein, in a chance conversation with a stranger, later discovered to be a bidding competitor, unwittingly stated that he was working through Mr. Bensik, and inquired whether the stranger "would be interested in purchasing for companies."
After the award of the heaters to Bensik, Sam Bernstein arranged to have them shipped to Bernstein Brothers warehouse in Pueblo and paid the freight. On December 13, 1946, three days after the award of the heaters to Bensik, and before arrival at the Bernstein Brothers warehouse, Rose Levy and Bensik entered into an agreement, by direction of her husband, Maurice Levy, under which Rose Levy agreed to loan Bensik $20,000, to be used for the purchase of the 600 heaters. It was agreed that the merchandise would be shipped to Pueblo and stored in the Bernstein warehouse; that Bensik would proceed to sell the heaters, and after payment of all charges, the proceeds would be applied toward the repayment of the $20,000 loan, plus interest. The remainder of the proceeds were to be divided between the parties, forty-five percent to Levy and fifty-five percent to Bensik. It was agreed that all of the proceeds from the sale would be placed in an account known as the Levy-Bensik special account, and that all checks written on such account would be signed by both parties. It was to be distinctly understood that the parties did not intend by their agreement to constitute a partnership, but that the moneys provided to be paid to Levy over and above the loan should merely constitute "interest and return on the said loan." Bensik executed his note to Rose Levy for the $20,000 loan. The $20,000 cashier's check was thereupon deposited in a new account for the Modern Specialty Distributors, and a check was drawn on this account by Bensik to the Treasurer of the United States in payment of the heaters previously awarded to him.
On December 24, and before arrival of the merchandise in Pueblo, Bensik formally agreed in writing to sell Bernstein Brothers 510 of the heaters at $35 each f. o. b. San Antonio, payment to be made as delivery to the Bernstein warehouse was completed. The 510 heaters were duly transferred to Bernstein Brothers for a profit of $1.74 per unit to Levy and Bensik, netting Bensik $488.70. Bernstein Brothers finally sold the 510 heaters for a gross price of $141,154.24, or an average price of $276 each. Bensik advertised and eventually sold the remaining 90 heaters for a total profit of $24,000, which he divided with Rose Levy in accordance with their contract.
During this time, Bensik purchased from Bernstein Brothers the smaller and less expensive Stewart-Warner heaters for $125 each and resold them for $195, and the government emphasizes this disparity in purchase and sale of...
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