United States v. Mercur Corporation, 225.

• Decision Date: 13 April 1936
• Docket Number: No. 225.,225.
• Citation: 83 F.2d 178
• Parties: UNITED STATES ex rel. KESSLER et al. v. MERCUR CORPORATION et al.
• Court: U.S. Court of Appeals — Second Circuit

83 F.2d 178 (1936)

UNITED STATES ex rel. KESSLER et al. v. MERCUR CORPORATION et al.

No. 225.

Circuit Court of Appeals, Second Circuit.

April 13, 1936.

Marshall McLean, of New York City (James L. Nesbitt and Sarah H. McLean, both of New York City, of counsel), for appellants.

Clark, Carr & Ellis, of New York City (Clarence J. Shearn and Paul A. Crouch, both of New York City, of counsel), for appellees.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an appeal by the plaintiffs from a judgment for the defendants entered after a motion by the defendants for judgment on the pleadings under rule 112 of the Rules of Civil Practice of the State of New York.

On November 30, 1926, the United States entered into an agreement of lease with the defendant Mercur Corporation covering premises in Newark, N. J., belonging to the government and known as "Port Newark Army Supply Base." The lease was for a period of ten years, revocable, however, at the will of the Secretary of War or by the lessee upon three months notice in writing. It was executed on behalf of the United States by the Assistant Secretary of War and purported to be authorized under the Act of July 11, 1919 (41 Stat. 129).

It provided that the lessee should operate and use the property for "terminal storage warehouse and/or manufacturing purposes," with the right to sublet such portions of it as the lessee saw fit, charge against the gross revenues collected all operating expenses including depreciation of equipment, expend 95 per cent. of the balance in making repairs, betterments, and renewals under the supervision and approval of the Quartermaster General, and retain the remaining 5 per cent. "as the property of the lessee." It also provided that the lessee should maintain an accurate accounting system of all expenses incurred and revenue derived from the maintenance and operation of the property and render a monthly report thereof to the United States. It also reserved to the United States the right to continue to store certain "German War Relics" on the premises until they could be removed and required the lessee to furnish a bond of $10,000 for the faithful performance of the "lease." On January 20, 1927, the parties entered into a "First Supplemental Agreement" to the lease, which recited that the lessee was negotiating for the storage of a large amount of sugar on the premises, that the aggregate receipts from this sugar in 2½ years would amount to $1,000,000, and that an expenditure of $200,000 for betterments, repairs, or renewals would be required in order to provide suitable storage facilities. It was accordingly agreed that the lessee should so expend $200,000, and that if it should supply that sum and should not be disturbed in the use of storage facilities until it had received storage charges in the amount of $400,000, it should be permitted to retain 10 per cent., instead of 5 per cent., from the first $400,000 received for the storage of sugar, and the $200,000 expended in providing the necessary facilities should be deducted from the remainder of the $400,000. The lessor agreed not to revoke the lease prior to September 1, 1929, provided the $200,000 was expended in betterments. A "Second Supplemental Agreement" made on May 21, 1927, provided for an additional advance of $150,000 by the lessee for repairs with a similar 10 per cent. payment upon the first $700,000 received from the storage of sugar. A "Third Supplemental Agreement" on May 27, 1927, provided for an additional advance of $100,000 by the lessee for repairs with a like 10 per cent. payment upon the first $900,000 received from the storage of sugar. A "Fourth Supplemental Agreement" under date of March 8th, 1928, modified the existing agreements by a provision for the recognition of the rights of sublessees and by a provision that the Mercur Corporation might apply 50 per cent. of the net profits towards reimbursing itself for the cost of betterments and renewals made upon the space used for the storage of sugar. A "Fifth Supplemental Agreement" under date of December 30, 1930, provided that the lease should not be revoked by the United States prior to August 31, 1936, and that there should be a right of occupancy under the subleases up to that date and finally that the net profits should be disposed of as follows: "Ninety per cent (90%) shall be expended in making, under the general supervision and with the approval of the Quartermaster General, * * * repairs and renewals to and upon said property * * * or shall be otherwise disposed of as the Quartermaster General may direct; ten per cent (10%) shall be the property of the lessee."

Under each of the foregoing supplemental agreements, as well as under the original lease, the United States was not to be liable for any losses sustained or obligations incurred by the lessee in connection with the operation of the premises or the repairs or betterments.

The complainant brought this action under section 3490 of the Revised Statutes (31 U.S.C.A. § 231). That section provides that a person "who shall do or commit any of the acts prohibited by any of the provisions of section fifty-four hundred and thirty eight, Title `Crimes' section 80 of Title 18, shall forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing of such act, together with the costs of suit; and such forfeiture and damages shall be sued for in the same suit."

Revised Statutes, § 5438, which was incorporated by reference in section 3490, provides, among other things, as follows: "Every person who makes * * * or presents * * * any claim upon or against the Government * * * knowing such claim to be false * * * or who, for the purpose of obtaining * * * the payment or approval of such claim, makes * * * any false * * * account * * * 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 * * * by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim," shall be subjected to a specified fine or imprisonment.

While section 5438 was amended, repealed, and finally since the time when it was referred to in section 3490 superseded by a broader enactment (18 U.S.C.A. § 80), it stands, so far as section 3490 is concerned, as it was written when incorporated by reference. It is quite immaterial that the superseding act alone appears in the United States Code, for the Code only embodies a prima facie statement of the statutory law. It is well settled that where a statute incorporates another, and the one incorporated is thereafter amended or repealed, the scope of the incorporating statute remains intact and "no subsequent legislation has ever been supposed to affect it." Kendall v. United States, 12 Pet. 524, 625, 9 L.Ed. 1181; In re Heath, 144 U.S. 92, 93, 94, 12 S.Ct. 615, 36 L.Ed. 358.

Section 3491 of the Revised Statutes (31 U.S.C.A. § 232) provides that a suit to recover the forfeiture and double the amount of damages which the United States may have sustained may be brought and carried on by any person as well for himself as for the United States; and section 3493 (31 U.S.C.A. § 234) provides that the person bringing such suit and prosecuting it to final judgment shall be entitled to receive one-half the amount of the forfeiture as well as one half the amount of the damages, the other half to belong to the United States.

By virtue of section 3490 (incorporating section 5438) and sections 3491 and 3493, this suit was brought. The amended complaint contains four causes of action, and includes the lease and supplemental agreements as exhibits.

The first cause of action sets forth the lease of Port Newark Base by the United States to Mercur Corporation, and the execution of the various supplementary agreements and alleges that the Mercur Corporation was required to spend 90 per cent. of the net revenues in the maintenance of the premises and was required to submit accounts of revenues and expenses, that it made up its accounts "to show and establish a right * * * to apply to its own use, and made deductions from gross revenues, of certain sums received on account of storage of large quantities of sugar * * * which sums said defendant * * was not entitled to claim or deduct under the terms of the said lease and agreement and supplements thereto from the said gross revenues and said accounts and reports asserted a right, as against the government of the United States, to the sums thus claimed and deducted * * * and the said accounts and reports were false and untrue and were submitted for the purpose of establishing a right to said sums so claimed and deducted as against the Government of the United States, and were submitted for its approval. That the sums so falsely, improperly and illegally applied, deducted and claimed as against the Government * * *, and as proved, amounted to $458,446.94."

It further alleged that the ownership over the gross revenues as received "was vested in the United States * * * by the terms of the agreement and the supplements thereto, and the practice and procedure of the parties thereunder, and no part thereof became the property of defendant Mercur Corporation until presentation and allowance of its monthly accountings." It claimed the right...