U.S. v. General Dynamics Corp.

• Decision Date: 17 March 1994
• Docket Number: D,No. 1786,1786
• Citation: 19 F.3d 770
• Parties: , 39 Cont.Cas.Fed. (CCH) P 76,644 UNITED STATES of America, Plaintiff-Appellant, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellee. ocket 93-6002.
• Court: U.S. Court of Appeals — Second Circuit

Page 770

19 F.3d 770

62 USLW 2624, 39 Cont.Cas.Fed. (CCH) P 76,644

UNITED STATES of America, Plaintiff-Appellant, v. GENERAL DYNAMICS CORPORATION, Defendant-Appellee.

No. 1786, Docket 93-6002.

United States Court of Appeals, Second Circuit.

Argued June 17, 1993.

Decided March 17, 1994.

David A. Koenigsberg, Asst. U.S. Atty. for the S.D. of N.Y., New York City (Roger S. Hayes, U.S. Atty. for the S.D. of N.Y., Nancy L. Savitt, Beth A. Kaswan, Richard W. Mark, Gabriel W. Gorenstein, Asst. U.S. Attys. for the S.D. of N.Y., New York City, of counsel), for plaintiff-appellant.

David W. DeBruin, Jenner & Block, Washington, DC (Nicholas D. Chabraja, David C. Bohan, Jenner & Block, Washington, DC, of counsel), for defendant-appellee.

Before: CARDAMONE and MAHONEY, Circuit Judges, and CEDARBAUM, District Judge. ^*

MAHONEY, Circuit Judge:

Plaintiff-appellant, the United States, appeals from a judgment entered October 5, 1992 in the United States District Court for the Southern District of New York, Kenneth Conboy, Judge, that dismissed its claims against General Dynamics Corporation ("GD"). ¹ The judgment is supported by a thorough and comprehensive opinion, familiarity with which is assumed. See United States v. Davis, 803 F.Supp. 830 (S.D.N.Y.1992).

This case involves the Construction Differential Subsidy program established under Title V of the Merchant Marine Act of 1936, as amended, 46 App.U.S.C. Secs. 1151-1161, which is designed to encourage ship purchasers to place their orders for ship construction with American rather than foreign shipyards. Under this program, the Secretary of Transportation provides a construction differential subsidy ("CDS") in the amount of the differential between a competitively bid price or (as in this case) a price negotiated with an American shipyard for the construction of a ship, and the estimated cost of building the ship under similar plans and specifications in a representative foreign shipyard.

Section 1152(a) requires that "the proposed ship purchaser and the shipyard submit backup cost details and evidence that the negotiated price is fair and reasonable." The main theme of the government's complaint in this action is that GD submitted false cost data and estimates in the summer of 1976 to the United States Maritime Administration ("MarAd") in support of CDS applications with respect to the construction of two ships designed to carry liquified natural gas (the "Vessels"). Except as specified in the following paragraph of this opinion, we affirm the dismissal of the government's claims on the basis of the district court's opinion. See 803 F.Supp. at 860-65.

Based upon federal common law and the False Claims Act (the "FCA"), 31 U.S.C. Secs. 3729-3731, the government sought damages resulting from kickbacks paid to GD employees by Frigitemp Corporation ("Frigitemp") to procure subcontracts for work on the Vessels. ² Although the Anti-Kickback Act of 1946 (the "AKA"), ch. 80, 60 Stat. 37 (1946), as amended at the time of the events at issue in this litigation, ³ provided no remedy to the government against prime contractors such as GD, the district court nonetheless held that the AKA preempted any other federal remedies against GD. The court accordingly dismissed the claims premised upon the alleged Frigitemp kickbacks (the "Frigitemp Claims"). See 803 F.Supp. at 865-71. We reverse and remand on this issue.

Accordingly, we affirm in part and reverse and remand in part.

Background

We set forth only those facts relevant to the Frigitemp Claims. GD, through its Quincy Shipbuilding Division ("Quincy"), awarded subcontracts for sphere insulation and joiner work on the Vessels to Frigitemp. P. Takis Veliotis, a defendant in this action, was the general manager of Quincy from 1973 to October 1977. For purposes of this appeal, we accept that Veliotis arranged for Frigitemp to be awarded the subcontracts in return for kickbacks to be paid by Frigitemp to Veliotis and another Quincy official, defendant James H. Gilliland. See supra note 2. The United States alleges that GD passed the costs of the kickbacks on to the government by including the kickbacks in the cost estimates for the Vessels that GD submitted to MarAd. The government claims that the CDS's paid to GD were wrongfully inflated, and seeks recovery against GD for consequential damages under the FCA and federal common law.

The district court conducted a bench trial of this case from December 10, 1991 to March 10, 1992. The court dismissed the complaint as to all claims against GD. With respect to the Frigitemp Claims, the court held that "the Anti-Kickback Act preempts the Government's statutory and common law claims with respect to the Frigitemp kickbacks." 803 F.Supp. at 871.

This appeal followed.

Discussion

The United States seeks recovery against GD for excess CDS's paid to GD resulting from false submissions made by GD to MarAd incorporating the Frigitemp kickbacks into GD's cost data. The government argues that under the FCA and federal common law, it is entitled to recover any amounts paid out due to false claims. The FCA provides a statutory remedy for recovery by the government of damages caused by fraud. The Supreme Court has described the FCA as intended to reach all types of fraud, without qualification, that might result in financial loss to the Government. In its present form the Act is broadly phrased to reach any person who makes or causes to be made "any claim upon or against" the United States, or who makes a false "bill, receipt, ... claim, ... affidavit or deposition" for the purpose of "obtaining or aiding to obtain the payment or approval of" such a false claim. In the various contexts in which questions of the proper construction of the Act have been presented, the Court has consistently refused to accept a rigid, restrictive reading, even at the time when the statute imposed criminal sanctions as well as civil.

United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S.Ct. 959, 961-962, 19 L.Ed.2d 1061 (1968) (citation and footnotes omitted). In addition, the government's common law right to recover funds wrongfully paid is well established. See, e.g., Safir v. Gibson, 417 F.2d 972, 977 (2d Cir.1969) (recovery of subsidies paid by federal government permitted under common law principles in absence of statutory prohibition).

GD argues that any remedy that might otherwise be available to the government under federal law is preempted by the AKA. The issue is whether a remedial scheme provided by one federal statute, the AKA, precludes remedies potentially available to the government under both a previously enacted federal statute, the FCA, and federal common law. The district court concluded that the AKA provides the exclusive federal remedy for damages resulting from kickbacks. We review the district court's resolution of this issue de novo. See United States v. Edwards, 960 F.2d 278, 281 (2d Cir.1992) (district court's construction of federal statutes subject to de novo review).

The Supreme Court recently decided a similar issue in Connecticut National Bank v. Germain, --- U.S. ----, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). In Germain, the question presented was whether an interlocutory order of a district court sitting as a court of appeals in bankruptcy was appealable to the appropriate court of appeals under 28 U.S.C. Sec. 1292(b) (1988) in view of the provisions of 28 U.S.C. Sec. 158(d) (1988). See --- U.S. at ----, 112 S.Ct. at 1148. Section 1292 vests the circuit courts with appellate jurisdiction over certain interlocutory orders of the district courts. Germain argued that because Sec. 158(d), a jurisdictional statute specifically tailored to bankruptcy appeals, does not provide for circuit court jurisdiction over interlocutory orders of the district courts sitting as courts of appeals in bankruptcy, Sec. 158(d) must be read to preclude appellate jurisdiction over interlocutory orders in this limited category of cases that would otherwise be provided by Sec. 1292. See --- U.S. at ----, 112 S.Ct. at 1148.

Explicating the central role of Sec. 158 with respect to the issue of jurisdiction in bankruptcy appeals, the Court stated:

Bankruptcy appeals are governed for the most part by 28 U.S.C. Sec. 158. This section comprises four subsections, three of which concern us here. Subsection (a) gives the district courts authority to hear appeals from final and interlocutory orders of the bankruptcy courts.... Subsection (b) permits the judicial council of any circuit to establish a bankruptcy appellate panel to fill the role of the district courts under subsection (a). Subsection (d), which is pivotal in this case, provides:

"The courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section."

Germain, --- U.S. at ----, 112 S.Ct. at 1148 (quoting Sec. 158(d)).

The Court nonetheless concluded that although Sec. 158(d) provides only for appellate jurisdiction over final orders of district courts sitting as courts of appeals in bankruptcy, nothing in Sec. 158 precludes the application of Sec. 1292, which grants the circuit courts general jurisdiction over interlocutory orders of district courts, to authorize appeals of such orders from district courts sitting as courts of appeal in bankruptcy. See --- U.S. at ---- - ----, 112 S.Ct. at 1149-1150. In reaching this conclusion, the Court noted that Sec. 158(d) and 28 U.S.C. Sec. 1291 (1988), the companion provision to Sec. 1292 that provides general appellate jurisdiction to courts of appeals over final decisions of the district courts, overlapped but were not entirely duplicative, because "each section confers jurisdiction over cases that the other section does not reach." --- U.S. at ----, 112 S.Ct. at 1149. The Court then stated: "Redundancies across statutes are not unusual events in drafting, and so long as there is no 'positive...