United States v. Davio

• Decision Date: 30 December 1955
• Docket Number: Civ. A. No. 10707.
• Citation: 136 F. Supp. 423
• Parties: UNITED STATES of America, Plaintiff, v. Charles A. DAVIO and Catherine Davio, his wife, and George S. Davio and Gladys Davio, his wife, jointly and severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

136 F. Supp. 423

UNITED STATES of America, Plaintiff, v. Charles A. DAVIO and Catherine Davio, his wife, and George S. Davio and Gladys Davio, his wife, jointly and severally, Defendants.

Civ. A. No. 10707.

United States District Court E. D. Michigan, S. D.

December 30, 1955.

COPYRIGHT MATERIAL OMITTED

Fred W. Kaess, U. S. Atty. and Willis Ward, Asst. U. S. Atty., Detroit, Mich., for plaintiff.

Thomas Giles Kavanagh, Jr., Detroit, Mich., for defendants.

LEVIN, District Judge.

The United States of America filed this action for damages against defendants under the Act of March 8, 1946, c. 80, § 1, 60 Stat. 37, 41 U.S.C.A. § 51, commonly known as The Anti-Kickback Act.¹

The undisputed facts disclose that during the years 1944-45, one August Brune was supervisor of the reproduction department of the Fisher Body Division of the General Motors Corporation employed in Michigan. During that time, Fisher Body was the major subcontractor under North American Aviation, Inc. of Kansas, a prime contractor with a cost-plus-a-fixed-fee contract with the United States Army Air Force. Brune, as supervisor of the reproduction department of Fisher Body, had the authority to award subcontracts for the making of blueprints to lower tier subcontractors. He did not establish the contract price, but merely awarded these subcontracts, at a price predetermined by his superiors, to subcontractors who had the available time and facilities for the making of the blueprints. Brune was also limited in his choice to a list of qualified subcontractors prepared by his superiors.

The defendants, doing business as The Wolverine Blueprint Company, had previously been engaged in blueprint subcontract work for Fisher Body. Having failed to receive additional subcontracts from Fisher Body, defendants communicated with Brune who informed them that they would not receive any more orders for blueprints unless they shared their profits from the subcontracts with him. The defendants agreed to share their profits with Brune and thereafter they again received subcontracts for blueprints from Fisher Body.

During the years 1944-45, defendants paid Brune $27,425, based upon 20% of the contract price, as his agreed share of their profits. The evidence shows that defendants did not charge Fisher Body any more for the blueprints after they began paying these kickbacks than they had charged under prior subcontracts where apparently no kickbacks were involved. There is no evidence that Brune's superiors participated in any way in these kickback transactions.

The Government seeks to recover from the defendants, pursuant to the above Act, these commissions or kickbacks paid to Brune.

There is insufficient evidence to support a finding that Catherine Davio, the wife of Charles A. Davio, and Gladys Davio, the wife of George S. Davio, were partners with their husbands in the business, and the complaint may be dismissed as to them.

Defendants' contention that the present action by the Government is barred by the provisions of 28 U.S.C. § 2462 (1952)² is without merit. That statute prescribes a five-year period within which an action for enforcement of a "civil fine, penalty, or forfeiture" must be instituted. It has no application to cases wherein the Government is seeking to recover civil damages and is not attempting to apply a penalty. See United States v. Fontenot, D.C., 33 F.Supp. 629; cf. Meeker & Co. v. Lehigh Valley R. Co., 236 U.S. 412, 35 S.Ct. 328, 59 L.Ed. 644; Keen v. Mid-Continent Petroleum Corporation, D.C., 58 F.Supp. 915.

In the present case, the extent of these civil damages is limited to the total amount of the kickbacks the defendants paid Brune. The legislative history of the Anti-Kickback Act clearly indicates that the amounts recoverable pursuant to the Act are for civil damages. S.Rep. No. 177, 79th Cong., 1st Sess. (1945); H.R.Rep. No. 212, 79th Cong., 1st Sess. (1945). It is within the province of Congress to provide for the recovery of civil damages, United States v. Weaver, 5 Cir., 207 F.2d 796, for the United States may protect its interests by means other than penal sanctions. Cotton v. United States, 11 How. 229, 231, 13 L.Ed. 675. The general rule is that statutes of limitations do not ordinarily run against the United States. Guaranty Trust Co. of New York v. United States, 304 U.S. 126, 132, 58 S.Ct. 785, 82 L.Ed. 1224. Thus, 28 U.S.C. § 2462 is an exception that is to be strictly construed. United States v. Weaver, supra.

Defendants' prime contention is that The Anti-Kickback Act is not intended to have retrospective effect and, therefore, the Act cannot serve as the basis for the Government's action to recover the kickbacks paid by defendants to Brune during 1944-45 prior to its enactment in 1946.

There is a presumption that statutes promulgating substantive law are to be construed and applied prospectively unless a contrary intent is manifested in clear and unambiguous terms. Shwab v. Doyle, 258 U.S. 529, 42 S.Ct. 391, 66 L.Ed. 747; Hiatt v. Hilliard, 5 Cir., 180 F.2d 453. However, contrary to defendants' contention, the words of this statute unequivocally evidence the intent of Congress that the statute shall operate retrospectively. The second sentence of Section 1 provides that: "The amount of any such fee * * *, whether heretofore or hereafter paid or incurred * * * shall not be charged * * *." The meaning of the words "heretofore or hereafter" are unmistakable. They clearly provide for retrospective, as well as prospective, operation of the statute.

The defendants argue that if the Act operates retrospectively it is unconstitutional because it deprives them of vested property rights contrary to the due process clause of the Fifth Amendment of the United States Constitution, and is in effect an ex post facto law.

At the time the Act became effective, the defendants had no vested, constitutional right to withhold from the Government, and retain for themselves property to which the Government was entitled by virtue of the public policy of the Nation, and the application of well-known common law principles.

It has long been held that contracts for the payment of commissions for securing Government contracts or congressional favors which have a tendency to corrupt are void as against public policy. Hazelton v. Scheckels, 202 U.S. 71, 26 S.Ct. 567, 50 L.Ed. 939; Crocker v. United States, 240 U.S. 74, 36 S.Ct. 245, 60 L.Ed. 533; Tool Co. v. Norris, 2 Wall. 45, 17 L.Ed. 868. The kickbacks paid to Brune definitely had a tendency to corrupt him for the continued awarding of blueprint orders to the defendants was conditioned upon the payment of kickbacks to him and did influence his choice of subcontractors.

As early as 1941, the payment of kickbacks in many if not all types of war subcontracts was explicitly prohibited as against public policy. See Executive Order No. 9001, 6 F.R. 6787, December 27, 1941, as amended by Executive Order No. 9296, 8 F.R. 1429, Jan. 30, 1943, eff. as of December 27, 1941, 50 U.S.C.A.Appendix, § 611 note. Also see 10 C.F.R. § 811.1181 (1944 Supp.) for a war department regulation suggesting the need of eliminating kickbacks in war subcontracts. In addition, the payments in this case were made in the State of Michigan, which had announced its public policy with respect thereto by enacting a statute denouncing them as a misdemeanor. P.A.1931, No. 328, § 125, C.L.1948, § 750, Mich. Stat.Ann. § 28.320.

Out of an abundance of caution, and perhaps because it was doubtful of the efficacy of other remedies,³ Congress passed the Anti-Kickback Act, 41 U.S.C.A. § 51 et seq., but recovery of the kickbacks is not dependent upon the validity or invalidity of the Act or any of its provisions.

At common law an agent acts in a fiduciary relationship towards his principal, 2 Restatement, Agency § 387 (1933), and any profits, commissions or fees which he receives through his capacity as an agent belong to the principal and may be recovered by the principal, regardless of the fact that the principal may or may not have suffered any pecuniary damages as a result of his agent's secret profits. City of Findlay v. Pertz, 6 Cir., 66 F. 427; 2 Restatement, Agency §§ 388, 403 (1933). The principal may rescind the contract under such circumstances or he may affirm it and recover his pecuniary damages resulting from the surreptitious dealings between the agent and the third person. 2 Restatement, Agency §§ 312, 313(1).

English courts have permitted principals to recover from third parties any liquidated sums paid by such parties to the principal's agents as commissions or kickbacks as part of a commercial transaction, even in the absence of pecuniary damages to the principal, on the theory that the commissions represent a loaded price, and that the third party would have sold the goods or services involved at a price less the amount of the bribe. Mayor etc. of Salford v. Lever (C.A.1891), 63 L.T.R.(N.S.) 658; Grant v. Gold Exploration & Development Syndicate, Ltd. (C.A.1900), 82 L.T.R.(N.S.) 5; Hovenden and Sons v. Milhoff (C.A.1900), 83 L.T.R.(N.S.) 41; Industries & General Mortgage Co., Ltd. v. Lewis (1949 K.B.), 2 All E.R. 573. This view has been followed in this country. Donemar, Inc., v. Molloy, 252 N.Y. 330, 169 N.E. 610. But see Kuntz v. Tonnele, 80 N.J.Eq. 373, 84 A. 624.

Fraudulent conduct, to the detriment of the principal, in such case is presumed. This rule was long ago recognized in England. E. g., Mayor etc. of Salford v. Lever, supra. In addition, the English courts have conclusively presumed that the prices are loaded in secret commission cases, even if the price paid is the market price. E. g., Industries & General Mortgage Co., Ltd. v. Lewis, supra. Thus, the Government has a common law right of action for recovery of the kickbacks paid by defendants irrespective of the fact that there was no proof that Fisher Body, Brune's principal, or the Government, as the ultimate beneficiary of the...