U.S. v. Bornstein
| Decision Date | 27 January 1975 |
| Docket Number | Nos. 73-1885,No. 73-1887,No. 73-1885,No. 73-1886,73-1886,73-1885,73-1887,s. 73-1885 |
| Citation | 504 F.2d 368 |
| Parties | UNITED STATES of America, Appellant in, v. Philip L. BORNSTEIN, Appellant in, et al. Appeal of Gerald PAGE, into 73-1887. |
| Court | U.S. Court of Appeals — Third Circuit |
Jack Ballan, Fairlawn, N.J., for appellant in No. 73-1885 and appellee in No. 73-1886.
Jonathan L. Goldstein, U.S. Atty., Caroline E. Arch and William A. Carpenter, Asst. U.S. Attys., Newark, N.J. for appellant in No. 73-1886 and appellee in Nos. 73-1885 and 73-1877.
William Rossmoore, Newark, N.J., for appellant in No. 73-1887 and appellee in No. 73-1886.
Before SEITZ, Chief Judge, and VAN DUSEN and GIBBONS, Circuit Judges.
Appeals by the defendants and an appeal by the plaintiff United States of America bring before us for interpretation the False Claims Act. Act of March 2, 1863, ch. 67, 12 Stat. 696, 698, 31 U.S.C. 231. The United States on November 3, 1967 brought an action for double damages and forfeitures against defendants Philip L. Bornstein, Gerald Page, individuals, and United National Labs, Division of Sonora Electromatics, Inc., a New Jersey corporation. Bornstein and Page were officers and owners of that corporation, which by order of July 19, 1973 was dismissed as a defendant. The individual defendants are referred to hereafter as 'United.' The case was tried to the district court on a stipulation of facts. On June 26, 1973 the district court filed an opinion 1 determining that judgment should be entered in favor of the United States and against United for double damages, in the sum of $79.40, and forfeitures in the sum of $70,000. A judgment was entered for $70,079.40 and costs. United appeals from the judgment awarding $70,000 in forfeitures. The United States appeals from the award of $79.40 in double damages.
In August 1962 the United States Signal Supply Agency entered into a supply contract with Model Engineering and Manufacturing Corporation, Inc. (Model) under which Model was to supply radio kit sets to the Army. Each radio kit was to contain two electrom tubes designated 'JAN type 4 X 150G per MIL E-1 specifications.' 'JAN' stands for Joint Army Navy qualification approval standard. Tubes may be 'JAN' branded by the manufacturer only after they have passed government inspection at the place of manufacture during the manufacturing process. As proof of such source inspection, the government inspector imprints his 'Eagle' acceptance stamp on packing lists accompanying each shipment of tubes. He also affixes his signature to a written certification that the tubes have passed all the required tests, in this case those specified in MIL E-1. During the relevant time the only authorized manufacturer of JAN type 4 X 150G tubes was Eitel McCullough, Inc. (Eimac). Although JAN type 4 X 150G tubes are manufactured to military specifications, surplus or obsolete tubes of that model are commercially useable. On April 30, 1963 Arthur H. Richardson, Inc. (Richardson) a franchised distributor for Eimac, purchased 451 tubes, JAN type 4 X 150G, from Eimac which had been placed in a termination inventory because of a design change, for $15.52 a tube. In May 1963 United wrote to Model that it could supply JAN type 4 X 150G tubes for $32.00 per tube. The market price for such tubes from Eitel's current production was then $40.00. In July, United purchased ten JAN type 4 X 150G tubes from Richardson and shipped them to Eitel for preliminary inspection. Model advised United respecting the ten sample tubes that they were electrically and physically acceptable but had no code date and no JAN marking. In December 1963, Model issued to United a purchase order for 1008 JAN type 4 X 150G tubes at $32.00 a tube. United made an initial delivery of 120 tubes, which Model returned as unacceptable because they were not JAN labeled and had not been government source inspected. United assured Model it could deliver JAN tubes to fill the purchase order. It purchased 380 JAN type 4 X 150G tubes from Richardson for $17.50 each, and affixed on each tube the JAN designation, the manufacturer's qualification code, and the acceptance date. United then shipped each tube to Saxon Laboratories, Inc. (Saxon) for testing. At Saxon's plant the impression of a facsimile government inspector's 'Eagle' stamp was affixed to twenty-one separate packing lists identifying each tube by serial number. The twenty-one packing lists covered twenty-one boxes, which included a total of 397 tubes. The stipulation does not disclose the source of the seven tubes in addition to the 390 acquired from richardson. The twenty-one boxes were shipped to Model in three shipments With each shipment United issued to Model a 'Certificate of Compliance' certifying that the parts complied with the specifications referred to in the purchase order. Model included the 397 tubes in its shipments to the Signal Supply Agency, and filed with the United States thirty-five invoices covering the entire contract price. The United States paid the thirty-five invoices.
Later the government learned that some 442 of the JAN type 4 X 150G tubes shipped by Model were falsely branded JAN. It replaced these tubes with JAN type 4 X 150G tubes which it purchased for $40.82 each or a total of $18,042.44. It then made a claim against Model. In November 1964 Model paid the United States $18,000 on account of the 442 falsely branded tubes. The government was able to trace 397 of the 442 tubes by serial number to United. The government retained the 397 tubes which have a commercial value not clearly established by the stipulation. The stipulation reflects no costs to the government other than $40,82 to replace the misbranded tubes.
The district court calculated the government's damages by multiplying the $40.82 replacement cost by 397, for a total of $16,205.54, and by deducting from that amount $16,165.84. The latter figure was calculated by dividing the $18,000 refund from Model by 442, the total number of falsely labeled tubes, or $40.72 a tube and multiplying $40.72 by 397. Thus the district court calculated the government's damage at ten cents a tube ($40.82-- $40.72) or $39.70, and doubled that figure to $79.40.
The district court calculated the statutory forfeiture on the basis of a single $2,000 forfeiture for each of the 35 invoices submitted by Model to the United States for payment.
The government contends on appeal that the district court erred in calculating damages. It contends that the damage award should have been $32,411.08, which it calculates: 397 X $40.82 = $16,205.54 and $16,205.54 X 2 = $32,411.08. Since it is the plaintiff it had the burden of proving damages. Its claim is, in the words of the statute, for 'double the amount of damages which the United States may have sustained by reason of the doing or committing such act.' 31 U.S.C. 231. Nowhere in its brief does it demonstrate the relationship between the figure of $16,205.54 and the amount of damages which it sustained. Rather it makes the disingenuous contention that the $18,000 refund by Model should be entirely omitted from the calculation of damages on the authority of the collateral source rule. This despite the fact that it stipulated:
'In November, 1964, Model paid the United States $18,000 for the Government's claim relating to the payments of the 442 falsely branded JAN 4 X 150G tubes which are referred to in the Complaint.' Appellants' (Bornstein and Page) Appendix at 16a.
To avoid the effect of its stipulation that it was refunded $40.72 for every tube, it asserts that the $18,000 payment should be disregarded entirely because it took the form of a setoff against funds due to Model on other contracts. The government's answers to interrogatories included in the stipulation, paragraph 25, establish that this form of payment resulted because Model was experiencing a shortage of working capital. In accepting Model's offer of an $18,000 setoff the Assistant Attorney General wrote:
Appellant's (Government) Appendix at A-5.
By some reasoning process which escapes us, the government concludes that the damages referred to in the letter are different from the damages caused by United's false claim, even though in both instances they refer to 397 of the same tubes and to a replacement cost of $40.82 per tube. By similar logic the government could recover damages of $40.82 a tube from United had it never paid the Model invoices in the first place.
We do not suggest that in a claim for double damages under the False Claims Act the government's recovery is limited to the replacement cost of nonconforming materials. Nor need we decide in this case whether the ordinary contract rules of damages apply. The point is that the government was the plaintiff and had the burden of proving damages. It proved by stipulation no other element of damage to it than the $40.82 replacement cost of the tubes, for $40.72 of which it had been reimbursed by Model. Its proof of damages established no greater loss than 10 cents a tube. Nor do we suggest that had the claim against Model been for forfeitures under the False Claims Act the recovery of such forfeitures should be applied in reduction of the claim for damages against United. There is no suggestion in the stipulation that any claim for...
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