Eastern School v. United States

• Decision Date: 20 July 1967
• Docket Number: No. 229-57.,229-57.
• Citation: 381 F.2d 421,180 Ct. Cl. 676
• Parties: EASTERN SCHOOL, a partnership consisting of Frank Simon, Benjamin Eizenman, Oscar Goldman, Phillip Laster and Samuel Frank v. The UNITED STATES.
• Court: U.S. Claims Court

180 Ct. Cl. 676, 381 F.2d 421 (1967)

EASTERN SCHOOL, a partnership consisting of Frank Simon, Benjamin Eizenman, Oscar Goldman, Phillip Laster and Samuel Frank v. The UNITED STATES.

No. 229-57.

United States Court of Claims.

July 20, 1967.

COPYRIGHT MATERIAL OMITTED

Benjamin Eizenman, Douglaston, N. Y., for plaintiff.

Frances L. Nunn and Louis S. Paige, Washington, D. C., with whom was Asst. Atty. Gen. Barefoot Sanders, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

OPINION

LARAMORE, Judge.

We are told by government counsel that this is the last of the so-called "schools" cases.¹ Thus, this opinion is our final contribution to a body of jurisprudence produced by the G.I. Bills which were enacted for the benefit of returning servicemen after World War II and the Korean War. In the typical "schools" case, the primary issue has been whether a school is entitled to a higher tuition rate for veterans' instruction than it has been allowed by the Veterans' Administration (VA). This has been largely a factual inquiry (although governed by a legal standard, i. e., "fair and reasonable compensation") which has presented difficult problems of accounting and cost allocation. There have also been subsidiary issues; for example, the proper point of first accrual of the cause of action, the meaning of the terms "customary cost of tuition" and "fair and reasonable compensation," and the presence of fraud in the presentation of claims to the VA. The present case raises both the primary issue and all the subsidiary issues on an extremely lengthy, and at times confusing, record. We note at this time our gratitude to Trial Commissioner Franklin M. Stone who prepared very thorough findings of fact after trying this case under difficult circumstances.² The transcript is replete with instances in which the Commissioner acted with admirable patience and judicial restraint.

Plaintiff is a partnership known as "Eastern School." It was organized in 1946 and commenced operation as a trade school in New York City under the name of "Eastern School of Radio & Television" in 1947. In 1949 the name of the school was abbreviated to the partnership name. On March 18, 1949, plaintiff and the VA entered into contract V3006V-292 which specified tuition rates for the following two courses for the period January 1 through December 31, 1949: Radio Technician course, $.495 per student-hour; FM and Television Technician course, $.5866 per student-hour. These tuition rates are not in issue. The dispute is over the proper rate for a course called "Radio Technology" which plaintiff offered for the first time on February 1, 1949. This course was also encompassed by the above-numbered contract in a supplemental agreement dated September 16, 1949. The tuition rate was set by the Administrator of the VA at $.50 per student-hour based upon the estimated costs of operation. On December 31, 1949, the contract and supplemental agreement expired leaving the rate for the Radio Technology course undetermined.

At this point some history is helpful. After the initial contract expired, a new rate had to be established as veterans continued to enroll in the course through 1950 — in fact, until 1957. The administrative procedure had its origin in the 1944 G.I. Bill. Section 400(b) of the Servicemen's Readjustment Act of 1944, 58 Stat. 284, 289, provided as follows:

The VA Administrator shall pay to the educational or training institution, for each person enrolled in full time or part time course of education or training, the customary cost of tuition, * * *: Provided * * * That if any such institution has no established tuition fee, or if its established tuition fee shall be found by the Administrator to be inadequate compensation to such institution for furnishing such education or training, he is authorized to provide for the payment, with respect to any such person, of such fair and reasonable compensation as will not exceed $500 for an ordinary school year. Emphasis added.

In regulations made effective July 1, 1948, the VA arbitrarily chose 30 weeks as the minimum period for the establishment of a customary tuition cost. That only covered nonprofit institutions, however. For "courses of 30 weeks or more," profit institutions were required to submit "detailed, certified financial statements showing the most recent actual cost experience of the institution for the specific courses involved" so that a "fair and reasonable compensation" could be determined. Change 4 to Manual 7-5, 38 C.F.R. § 21.530 (1949 Ed.). The regulations stated that "all expenses, except expenses for sales commissions and promotional plans, which are reasonable and necessary for the operation of the courses involved will be included in the cost statement," suggesting that any reasonably related expense would be compensable. This regulation was in effect on January 1, 1950 when plaintiff's contract, covering the preceding 11 months and providing for a rate of $.50 per student-hour, expired.

This scheme — particularly the treatment of "customary cost of tuition" — was not entirely satisfactory to either the VA or the schools, so Congress responded with two remedial bills. The first was appended to the Independent Offices Appropriation Act of 1950, 63 Stat. 631, 653 (1949). It provided that for courses subject to contract for two successive years the tuition rate would be the rate established by the most recent contract. For courses without a "customary cost," a "fair and reasonable" rate would be fixed by the VA. Administrative review was assured by the creation of a "Veterans' Tuition Appeals Board." The second bill, enacted the following year, preserved the customary cost definition of the first, changed the name of the administrative board to the "Veterans' Education Appeals Board" (VEAB), and elevated the provisions to permanent law status. Veterans' Education and Training Amendments of 1950, 64 Stat. 336, 338-339. The history of these provisions is more thoroughly treated in Hemphill Schools, Inc. v. United States, 133 Ct.Cl. 462, 465-468 (1955).

Thus, at the time plaintiff and the VA were negotiating a new rate for the Radio Technology course for the calendar year 1950, the VA interpreted the law to mean that a prerequisite for a customary rate was a 2-year history, and that where there was no customary rate a fair and reasonable rate would have to be determined by the contracting officer. On October 13, 1950, the contracting officer determined that a rate of $.3127 per student-hour was fair and reasonable, and offered plaintiff a contract on that basis. Plaintiff objected to the rate and rejected the offer. Thereafter, on November 1, 1950, the VA renewed its offer with a rate of $.36 per student-hour. Plaintiff appealed the second determination to the VEAB on November 10. Its Notice of Appeal contended that $.533 per student-hour was the minimum fair and reasonable rate, or alternatively, that a customary cost of tuition of $.50 per student-hour should apply. A hearing followed. Almost one year later, on November 1, 1951, a VEAB hearing examiner announced his decision holding that the Radio Technology course had not acquired a customary cost of tuition because it had not been under contract for two successive years, so that a fair and reasonable tuition rate had to be determined; this he set at $.51 per student-hour. The latter determination was appealed by the Administrator of Veterans' Affairs to the Board which, on January 15, 1953, issued a final decision holding that a fair and reasonable rate for the calendar year 1950 was $.419 per student-hour. Plaintiff was accordingly paid at the rate of $.419 for the year 1950. For the period after 1951, plaintiff was paid at the same rate because at the end of 1951, $.419 became the customary cost of tuition. Plaintiff reserved its right to contest all payments in court.

Plaintiff filed its petition³ here on May 15, 1957, claiming the difference between the $.419 per student-hour paid by the VA for instruction of veterans enrolled in the Radio Technology course and $.533 per student-hour which is allegedly the fair and reasonable rate.⁴ Alternatively, plaintiff asks for the difference between $.419 and $.50 which is allegedly the customary rate. It alleges that the VEAB decision was arbitrary, capricious, and not supported by substantial evidence; specifically it charges the Board with "arbitrarily and capriciously disregarding the cost data submitted by Eastern School, and fixing rates that were neither fair, reasonable nor equitable."

The government answered on September 13, 1957, and raised the statute of limitations as an affirmative defense. 28 U.S.C. § 2501 (1964 Ed.). It alleged that the portion of the claim which accrued before June 4, 1951 was time-barred. Three years later, in July 1960, the defendant obtained leave of the court to amend its answer to add three counterclaims. The first and second counterclaims were founded on the False Claims Act which provides that any person who submits or aids in making a false claim "shall forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of the damages which the United States may have sustained by reason of the doing or committing such act, together with the costs of suit". 31 U.S.C. § 231 (1964 Ed.). The first counterclaim is based on the language: "Any person * * * who shall make * * * any claim upon or against the government of the United States * * * knowing such claim to be false, fictitious, or fraudulent * *." It relates to "346" students⁵ whose tuition plaintiff received directly from the VA after it submitted vouchers showing the attendance of each student. The second counterclaim is based on the language: "Any person * * * who, for the purpose of obtaining or aiding to obtain the payment or approval of a false claim * * * causes to be made or used, any false * * *...