United States v. Hangar One, Inc.

• Decision Date: 04 August 1975
• Docket Number: No. CA-74-H-646-S.,CA-74-H-646-S.
• Citation: 406 F. Supp. 60
• Parties: UNITED STATES of America, Plaintiff, v. HANGAR ONE, INC. (formerly known as Southern Airways Company), Defendant.
• Court: U.S. District Court — Northern District of Alabama

406 F. Supp. 60

UNITED STATES of America, Plaintiff, v. HANGAR ONE, INC. (formerly known as Southern Airways Company), Defendant.

No. CA-74-H-646-S.

United States District Court, N. D. Alabama, S. D.

August 4, 1975.

COPYRIGHT MATERIAL OMITTED

Raymond E. Hopkins, Fraud Section, Civ. Div., Dept. of Justice, Washington, D. C., Donald A. Cockrill, Wayman G. Sherrer, U. S. Atty., N. D. Ala., Charles D. Stewart, Asst. U. S. Atty., Birmingham, Ala., for plaintiff.

Harry R. Teel, Bradley, Arant, Rose & White, Allen Poppleton, Joseph W. Spransy, Birmingham, Ala., for defendant.

MEMORANDUM OF DECISION

HANCOCK, District Judge.

This action, filed by the United States of America under the False Claims Act (31 U.S.C. §§ 231-235) and for fraudulent breach of contract, is before the Court for decision on defendant's motion for summary judgment.

Those acting for plaintiff in the premises represent this action to be a completely justified effort (a) to recover damages allegedly sustained from a series of covert, surreptitious and fraudulent activities by the defendant over an extended period of time and (b) to impose upon defendant certain civil penalties provided by law for such activities. As viewed by defendant, the action is but another scene in a drama of planned harassment of defendant pursuant to which persons acting for the plaintiff in the premises, by repeatedly raising in litigation issues that are known to them to be baseless, have set about to break defendant financially so that defendant cannot pursue litigation whereby wrongdoing of persons for whose conduct plaintiff is responsible will be exposed and established.¹ While it cannot be said that there are no facts in this record from which inferences supportive of defendant's view can be drawn, or that, if confronted squarely with the question, the court would not so find, the court, in the present posture of the action, prefers to proceed on an assumption that the action is the result of an inability (or refusal) of those acting for plaintiff to recognize that a contract can be subject to more than one reasonable construction and that a party to a contract by pursuing a course of action predicated upon his own reasonable construction of the contract does not thereby subject himself to liability for fraud.

For the convenience of the parties, there is attached to this Memorandum of Decision (a) as Appendix A, a list of acronyms and similar abbreviated designations used herein, with a brief description of each, (b) as Appendix B, a list of names of persons who are referred to herein, with a short identifying statement about each such person, and (c) as Appendix C, a table reflecting the nature and location of exhibits which are referred to herein.

Three contracts between defendant (whose name has been changed from Southern Airways Company "Southern" to Hangar One, Inc. since the execution of the contracts) and plaintiff, one dated October 3, 1966, one dated December 22, 1967, and one dated February 14, 1969, provide the background. In essence, insofar as this civil action is concerned, in these plaintiff-drawn contracts (herein sometimes collectively referred to as the "Supply Contracts" and individually referred to as the "1966 Supply Contract", the "1967 Supply Contract" and the "1969 Supply Contract"), the parties agreed that, during calendar years 1967 to 1969, inclusive, defendant would tender for delivery to plaintiff, and that plaintiff would accept and pay defendant a fixed price for, more than 2,000,000² 155 mm HE M107 Howitzer metal parts ("shell")³ which, when subjected to inspections pursuant to specified inspection procedures, had properly passed such inspections. Defendant, before delivering any lot of shell, was required by such procedures to make two types—(a) a "one hundred percent an every unit inspection" for each of the characteristics that the Supply Contracts classified as a "critical" defect and (b) a "sampling plan inspection" (an inspection of sample units randomly drawn from the lot) for each of the characteristics that the Supply Contracts classified as "major" or "minor" defects.

The gist of the action is plaintiff's claim that, during the course of the performance of the 1967 and 1969 Supply Contracts, defendant produced and delivered a total of approximately 18,000 shell (about one-half of that number under each of those two contracts) that plaintiff claims defendant knew to be "defective" and that circumstances appertaining to the inspections made before delivery thereof necessarily amount to fraud on the part of defendant (i. e., as alleged in paragraph 8 of the original complaint, that defendant "returned, or caused to be returned, defective shells to the production line" and that defendant "failed to perform the required inspections for defects" emphasis supplied). The 18,000 "defective" shell were delivered in twenty-four of the 153⁴ separate production lots (each of which contained approximately 16,000 shell) that were delivered throughout the said contract periods.⁵

Plaintiff charges that defendant's invoices to plaintiff for the production lots, in which plaintiff claims these 18,000 "defective" shell were contained, constitute violations of the False Claims Act, 31 U.S.C. §§ 231-235. Plaintiff also charges defendant with breaches of contract, alleging that the breaches consisted of the same acts and omissions (which in this aspect are characterized as "fraud or such gross mistakes as amount to fraud"⁶) upon which its False Claims Act charges are predicated. More particularly plaintiff's charges, stripped of their formality, are that defendant (a) breached the 1967 and 1969 Supply Contracts because defendant employed or used the "sampling plan inspection" (rather than the "one hundred percent inspection" process) to inspect for the presence of two defects which plaintiff claims (and defendant denies) are classified by the Supply Contracts as "critical" defects and (b) violated the False Claims Act because defendant obtained payment for such shell by submitting invoices therefor which were supported, respectively, by a document containing a representation (by a government official) that the shell so invoiced had been subjected to and had passed the inspections that defendant was required to make by the particular Supply Contract under which they were delivered.

As is hereinafter shown, there exist disputes as to the proper interpretation of contractual language (i. e., as to whether two characteristics are classified by the contractual language as "critical" defects or as "minor" defects) between Frankford Arsenal⁷ ("FA, the agency by which plaintiff drafted the contractual language that gives rise to the part of the dispute here under discussion) and Ammunition Procurement Supply Agency ("APSA", the agency by which plaintiff entered into the Supply Contracts containing that language), on the one hand, and defendant and Defense Contract Administration Services ("DCAS", the agency by which plaintiff administered the Supply Contracts), on the other hand.

DCAS, in administering the Supply Contracts for plaintiff, as aforesaid, (a) approved the inspection plans utilized by defendant in its performance of the Supply Contracts, (b) exercised continuing surveillance over defendant's performance of the Supply Contracts by, inter alia, monitoring defendant's inspection activities, (c) determined the acceptability of, and accepted or rejected, shell tendered by defendant for acceptance under the Supply Contracts, and (d) received, determined the propriety of, and paid,⁸ the invoices of which plaintiff here complains. No claim has been made herein at any time by plaintiff that any DCAS personnel have been guilty of any failure to perform any duty, or of any collusion, or of any exercise of bad faith in or about the performance of any of that agency's duties in the premises.

At the respective times that each of the 153 lots produced by defendant under the Supply Contracts was tendered to, and accepted by,⁹ plaintiff (which acted in the premises by and through DCAS), the QARIC,¹⁰ a DCAS employee, or his authorized representative, signed and delivered to defendant a certificate in the form of that set forth in Form DD 250 (the hereinafter discussed government form that was used to evidence the government's acceptance of purchased material) reading:

ACCEPTANCE of the listed items the shell in lot in question has been made by me or under my supervision and they conform to contract . ..¹¹

About once each two weeks during all times that it was engaged in performing the Supply Contracts, defendant, in accord with the Supply Contracts, applied for and was paid a "progress payment". In connection with each application by defendant for such a payment, the QARIC, or his authorized representative, also signed a certificate thereon reading:

The contractor's Quality System is acceptable and in accordance with contract requirements. The quality of the items produced is acceptable.

Roland Smith was QARIC at defendant's Sylacauga facility until mid-August 1969 when he was succeeded as such by W. E. Snider. Snider was QARIC until defendant completed its performance of the Supply Contracts. F. B. Mayes was Assistant QARIC at that facility throughout the entire time that defendant was engaged in its performance of the Supply Contracts. With respect to the two kinds of certificates mentioned next above, an affidavit by each of these officials reads, in substance:

In my judgment each of the two kinds of certificates . . . that were signed during my tenure . . as such officer are true and correct. Nothing has come to my attention at any time that has caused me to suspect that anyone of them is or may be erroneous in any respect. I now affirm that it is now my judgment that said lots which were accepted for the Government . . . during my tenure met all of the quality requirements of the . . . Supply contracts as I understood and applied those

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