U.S. v. Azzarelli Const. Co.
| Decision Date | 30 April 1981 |
| Docket Number | No. 80-1333,80-1333 |
| Citation | 647 F.2d 757 |
| Parties | , 1981-1 Trade Cases 63,994, 28 Cont.Cas.Fed. (CCH) 81,367 UNITED STATES of America, Plaintiff-Appellant, v. AZZARELLI CONSTRUCTION COMPANY et al., Defendants-Appellees, State of Illinois, Intervening Defendant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Stephen P. Juech, Asst. Atty. Gen., State of Ill., Antitrust Div., Barry T. McNamara, Chicago, Ill., for defendants-appellees.
Before BAUER, WOOD and CUDAHY, Circuit Judges.
The United States filed this civil action seeking damages and forfeitures under the False Claims Act, 31 U.S.C. § 231 et seq. (1976), from several defendants (the "Contractors") involved in a highway construction project bid-rigging conspiracy. The State of Illinois intervened for the purpose of moving to dismiss the claims of the United States. Upon the motion of the Contractors and the State of Illinois, the district court dismissed the complaint. 1 We affirm.
The complaint alleges that the United States and the State of Illinois concluded a cooperative agreement for the financing and construction of two public highway projects in Illinois. Under the Federal-Aid Highway Act, 23 U.S.C. § 101 et seq. (1976), the Federal Highway Administration furnished 70 percent of the funds used to pay for the projects. As required under the Highway Act, the state sought competitive bids on the highway projects and required affidavits from all bidders certifying that they had not undertaken any action in restraint of competitive bidding.
The complaint further alleges that the defendants secured the contracts for these two projects through the use of collusive bidding practices. The successful bidders also allegedly knew that the fraudulent claims that they submitted to the State of Illinois would be partially reimbursed by the United States. This illegal conspiracy allegedly damaged the United States by raising the costs of the two highway projects above levels that would have pertained in the absence of the fraudulent acts of the defendants. As authorized by the False Claims Act, the complaint seeks the $2,000 statutory forfeiture for each fraudulent claim filed by the Contractors, as well as double damages.
The False Claims Act was enacted shortly after the Civil War to stop the frauds perpetrated by government contractors during that period. As originally enacted, the Act contained both criminal and civil provisions. As codified at the present time, 2 the civil remedies provide for double damages and $2,000 statutory forfeitures from any person
who shall make or cause to be made, or present or cause to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent, or who, for the purpose of obtaining or aiding to obtain the payment or approval of such claim, makes, uses, or causes to be made or used, any affidavit, knowing the same to contain any fraudulent or fictitious statement or entry, or who enters into any agreement, combination, or conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim
31 U.S.C. § 231 (1976). The complaint alleges that the Contractors violated each of the three clauses of the above-quoted portion of the Act by causing a false claim to be presented, by filing false affidavits for the purpose of obtaining payment of the false claim and by entering into a conspiracy to obtain the payment of the false claim.
Without purporting to exhaust the various elements of the statute, it is well established that the claim must be made "upon or against the Government of the United States " 31 U.S.C. § 231 (1976). Because the statute prohibits acts that cause a false claim to be presented, the requirements of the statute can be met even where the claim is actually filed with a state agency, as in the instant case, and the state then channels the claim to the federal government for payment. United States ex rel. Marcus v. Hess, 317 U.S. 537, 544, 63 S.Ct. 379, 384, 87 L.Ed. 443 (1943). See also United States v. Bornstein, 423 U.S. 303, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976) ().
There must, however, still be a claim presented "upon or against the Government of the United States" to sustain civil liability under the False Claims Act. As suggested earlier, Congress created the Act in response to the widespread loss of federal funds through fraud during the Reconstruction era. As the Supreme Court has stressed many times, "(i)t seems quite clear that the objective of Congress was broadly to protect the funds and property of the Government from fraudulent claims " Rainwater v. United States, 356 U.S. 590, 592, 78 S.Ct. 946, 952, 2 L.Ed.2d 996 (1958). See also United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 961, 19 L.Ed.2d 1061 (1968); United States v. McNinch, 356 U.S. 595, 598-99, 78 S.Ct. 950, 952, 2 L.Ed.2d 1002 (1958); United States v. Ekelman & Associates, Inc., 532 F.2d 545, 551 (6th Cir. 1976). Otherwise stated, the allegedly false claim must be one that is capable of causing an injury to the funds or property of the United States if the claim is in fact paid.
The differences between United States v. Cohn, 270 U.S. 339, 46 S.Ct. 251, 70 L.Ed. 616 (1926), and United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 (1943), provide a clear illustration of how this principle applies. In Cohn, the Government was temporarily in possession of the merchandise of another person. A fraudulent claim was presented against the Government for the delivery of the merchandise. The Supreme Court found the False Claims Act inapplicable because no claim was asserted against the money or property of the Government. Cohn, 270 U.S. at 345-46, 46 S.Ct. 252-253. In and of itself, the claim was not one that could injure the United States.
In United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 317, 87 L.Ed. 443 (1943), the Court faced a bid-rigging scheme similar to the one alleged here. The defendants contracted with local governmental units for Public Works Administration projects. Although successful bidders were actually paid by the local authorities, the payments were made from a joint bank account containing both federal and local funds. The Court ruled that the defendants were liable under the False Claims Act. Cohn was distinguished on the ground that there the Government was merely a bailee, while in Marcus the defendants wrongfully obtained money which was the property of the Government. Marcus, 317 U.S. at 545, 63 S.Ct. at 384.
In order to ascertain whether the Contractors were liable here, therefore, we must determine whether, under the Federal-Aid Highway Act, the false claims actually impaired funds in the treasury (or injured the treasury) of the United States. Because the Highway Act provides no obvious resolution for this question, we must examine the statutory scheme in some detail.
Highway Act construction projects are financed by funds drawn from the Highway Trust Fund. Congress authorizes the Secretary of Transportation to apportion, by the use of various statutory formulae, a specific sum of money to the states. 23 U.S.C. § 104 (1976). Through the apportionment, the federal contribution to each state becomes fixed for the period in question. The apportioned funds are then "available for expenditure" by the states on qualifying highway projects. 23 U.S.C. § 118 (1976).
Funds available to the states are administered by the Federal Highway Administration and the Secretary of Transportation. A state must secure certain approvals from the Secretary before federal funds may be committed to any particular highway construction project. First, the state must obtain the Secretary's approval of a program containing specific projects proposed as recipients of the funds apportioned to that state. 23 U.S.C. § 105 (1976). The state must then submit each particularized construction project for approval, 23 U.S.C. § 106 (1976), eventually leading to a formalized "project agreement" concerning the construction and maintenance of the project in question. 23 U.S.C. § 110 (1976). Eventually, the state advertises for bids on the project, contracts with a private party for the desired construction and submits the contract for the approval of the Secretary of Transportation. 23 U.S.C. § 112 (1976).
The state supervises the construction project and pays the contractors out of state funds. Following a federal inspection to determine whether the project conforms to various Highway Act standards, 23 U.S.C. § 114 (1976), the state is entitled "to payment out of the appropriate sums apportioned to it of the unpaid balance of the federal share payable on account of such project." 23 U.S.C. § 121(b) (1976). 3
Assuming, without deciding, that the Government here still possessed a proprietary interest in the funds so that the allegedly false claims were filed "upon or against" the United States, 4 the Government must still show that the claims injured the United States. Under the Federal-Aid Highway Act, the Government contributed a fixed sum to Illinois to assist in the construction of the two highways at issue here. The ceiling on the federal contribution imposed by the Highway Act, however, operated to insulate the United States from any overcharge. Although the overcharge may have increased the contribution of the United States...
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