United States v. United States Cartridge Co.

• Decision Date: 08 August 1952
• Docket Number: No. 14389.,14389.
• Citation: 198 F.2d 456
• Parties: UNITED STATES v. UNITED STATES CARTRIDGE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

198 F.2d 456 (1952)

UNITED STATES v. UNITED STATES CARTRIDGE CO.

No. 14389.

United States Court of Appeals Eighth Circuit.

August 8, 1952.

George W. Meuth, Asst. to Chief of Frauds Section, Claims Division, Washington, D. C., and J. Gregory Bruce, Chief of Frauds Section, Claims Division, Washington, D. C. (Holmes Baldridge, Asst. Atty. Gen., Claims Division, George L. Robertson, U. S. Atty., William V. O'Donnell and Marvin C. Hopper, Asst. U. S. Attys., St. Louis, Mo., and Charles W. Tayler and Douglas J. Titus, Attys., Dept. of Justice, Washington, D. C., on the brief), for appellant.

Robert H. McRoberts, St. Louis, Mo. (Marion S. Francis, Thomas V. Connelly, and Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., on the brief), for appellee.

Before SANBORN, JOHNSEN and COLLET, Circuit Judges.

SANBORN, Circuit Judge.

The Government has appealed from a judgment dismissing an action brought by it under Sections 3490 to 3492, inclusive, of 31 U.S.C., 1940 Ed., § 231-233, the Revised Statutes of the United States, 31 U.S.C.A. §§ 231-233, to recover from the defendant (appellee) the forfeitures and double damages prescribed by Section 3490 for the commission of any of the acts prohibited by Section 5438 of the Revised Statutes, 18 U.S.C., 1940 Ed., § 80,¹ including the making or presenting of false, fictitious, or fraudulent claims and false certificates to obtain the payment of such claims.² The Government contends that, under the evidence and the applicable law, the District Court should have entered judgment for the Government against the defendant for $214,878,725.12.

The action was originally brought December 21, 1943. An amended complaint was filed February 9, 1945. The amended complaint was amended October 7, 1946. The case came on for trial June 12, 1950. The District Court's opinion, including its findings and conclusions, was filed January 16, 1951, 95 F.Supp. 384,³ and judgment was entered on that day.

The defendant, a wholly-owned subsidiary of the Western Cartridge Company, of East Alton, Illinois, operated, under the general supervision of the Ordnance Department, the Government-owned St. Louis Ordnance Plant for the mass production of small arms ammunition (.30 and .50 caliber cartridges) for the armed forces under a cost-plus-a-fixed-fee contract with the Government. The contract was entered into in December, 1940. The St. Louis Ordnance Plant was not then in existence. The contract recited that the Government contemplated entering into a contract with the Western Cartridge Company for the construction of the plant under the supervision of that Company, and desired to have the defendant, "as an independent contractor on a cost-plus-a-fixed-fee basis, make all necessary preparations for the operation of said plant, including the training of operating personnel (other than the key personnel required to be trained by Western under the terms of its contract with the Government previously referred to), but excluding the procurement and supervision of the installation of manufacturing facilities; and operate said plant. * * *"

The manufacture of ammunition at the plant started on November 11, 1941, before the plant was completed. Apparently the plant was not completed until the spring of 1942. It consisted of 300 buildings having about 4 million square feet of floor space. It had eight complete manufacturing units and a capacity of 12,000,000 rounds of ammunition every 24 hours. About 1200 persons were on its supervisory staff, and at times the plant employed as many as 36,000 workers on three shifts. During its operation, which continued throughout the duration of hostilities in World War II, the plant manufactured about 7 billion rounds of ammunition.

This controversy between the Government and the defendant grew out of the defendant's alleged failure to maintain a proper system of inspection and to produce the quality of ammunition called for by the contract.

The contract contained the following provision under Title I ("Operation"), Article I-F-"Contractor's Inspection System":

"The Contractor shall maintain a satisfactory system of inspection, gaging and gage checking concurrent with manufacture, and no ordnance material shall be submitted for the Government inspector\'s approval which has not previously been inspected by agents of the Contractor and found to be up to the contract standard."

Reduced to its lowest terms, the claim upon which the complaint of the Government is based is that between February 1, 1942, and September 30, 1943, the claims presented by the defendant for its fixed fee, together with the certificates supporting such claims, were false, fictitious, or fraudulent because the defendant during that period resorted to certain schemes, tricks, and devices in connection with the manufacture, inspection, and packing of the ammunition produced, which caused defective ammunition to be intermingled with each lot of ammunition, rendering all of the lots unsuitable for use; that the acceptance of this ammunition by the Government was brought about by the fraudulent practices of the defendant, of which the Government was ignorant; and that the Government paid the false claims presented by the defendant in reliance upon its false certificates and representations that the claims were correct and just.⁴

The defendant in its answer denied that it had made or presented false claims or certificates, or employed any of the schemes, tricks, or devices with which it was charged, or that the Government had sustained any damage by reason of the payment of the claims in suit. The defendant set up a number of defenses, some of which were, on motion of the Government, eliminated by the court. See United States v. United States Cartridge Co., D.C., 78 F. Supp. 81. The defendant alleged that, by the terms of the contract, all work, including the handling of funds, was to be performed at the expense and risk of the Government, and that it had agreed to indemnify and hold the defendant harmless against any loss, expense, damage or liability of any kind arising out of or in connection with the performance of the work, except to the extent that such loss, expense, damage or liability might be due to the personal failure on the part of the corporate officers of the defendant or of other representatives of the defendant having supervision and direction of the operation of the plant as a whole, to exercise good faith or that degree of care which they normally would exercise in the conduct of the defendant's business. The defendant further alleged that, by the terms of the contract, it was agreed that the defendant should not be liable for any failure in the performance of the contract except to this same extent, and that none of its corporate officers and none of its representatives having supervision and direction of the plant as a whole had any knowledge of the making of any false, fictitious, or fraudulent claims or certificates or of the doing of the acts or things charged against the defendant in the complaint as finally amended. The defendant alleged that nothing of which the Government complained was due to the personal failure of the corporate officers of the defendant or of any representative of the defendant having supervision and direction of the operation of the plant as a whole.

The issues were tried by the District Court without a jury. The Government introduced much testimony tending to show that during the period in suit there was a failure on the part of the defendant to maintain an adequate and satisfactory system of inspection during the process of manufacture of ammunition; that some ammunition was improperly graded; that rejected ammunition was resubmitted for acceptance without being reworked; that defective ammunition was intermingled with other ammunition; that ammunition which had not been submitted to nor accepted by the Government was surreptitiously intermingled and packed with accepted ammunition; and that, as a result of the tricks, schemes, and devices alleged by the Government, much of the ammunition produced during the period in suit was substandard and failed when used by the armed forces.

The defendant's evidence was to the general effect that no substantial irregularities in the maintenance of the established system of inspection had taken place; that the system of inspection set up was adequate and satisfactory; that any breakdowns in the system were due to the sporadic and isolated acts of employees acting contrary to their instructions; and that none of the schemes, tricks, or devices of which the Government complained were known to, approved, or ratified by the corporate officers of the defendant or any of its representatives having supervision and direction of the plant as a whole, or were the result of any failure of such officers or representatives to exercise good faith or that degree of care which they would normally have exercised in the conduct of the defendant's business.

The District Court in an exhaustive opinion dealt in detail with every aspect of this controversy. 95 F.Supp. 384. We shall endeavor to refrain from needless repetition. We do not understand that the District Court's recital of the evidentiary facts is seriously challenged, the Government's contention being mainly that the court's findings as to the ultimate facts were induced by an erroneous view of the law.

The ultimate basis for the dismissal of the case by the District Court is stated in the court's opinion as follows at page 428 of 95 F.Supp.:

"It is our conclusion the plaintiff has failed to sustain its burden of proof. This record fails to present substantial evidence there was personal failure on the part of the corporate officers of defendant, or defendant\'s agent or agents having supervision and direction of the operations of the plant as a whole, to exercise good faith or that degree of care which they normally exercise in the conduct of defendant\'s

...