United States v. Weekly Publications

• Decision Date: 05 November 1947
• Citation: 74 F. Supp. 763
• Parties: UNITED STATES ex rel. RODRIQUEZ v. WEEKLY PUBLICATIONS, Inc., et al.
• Court: U.S. District Court — Southern District of New York

74 F. Supp. 763

UNITED STATES ex rel. RODRIQUEZ v. WEEKLY PUBLICATIONS, Inc., et al.

District Court, S. D. New York.

November 5, 1947.

Pomerantz, Levy, Schreiber & Haudek, of New York City (William E. Haudek and Julius Levy, both of New York City, of counsel), for plaintiff.

Whitman, Ransom, Coulson & Goetz, of New York City (Joseph M. Proskauer, Eugene Eisenmann, and Patrick H. Sullivan, all of New York City, of counsel), for defendants.

LEIBELL, District Judge.

This is a "qui tam" action to which Secs. 231 and 232 of Title 31 U.S.C.A. apply. It seeks to charge the defendants with damages, in the nature of a penalty, for falsely and fraudulently presenting for allowance and approval claims against the United States knowing such claims to be false and fraudulent. It is alleged that defendants tendered a magazine to the Postmaster for mailing at second class rates, when that class mailing privilege had been lost through the failure of the defendant corporation to retain, out of its agency subscription contracts, at least 30% net, over and above all commissions.

In the answer to the amended complaint, filed March 4, 1947, the defendants allege as an affirmative defense and as a counterclaim against Rodriquez (the informer), the following:

"Seventeenth: During the period mentioned in the amended complaint defendants were not personally familiar with the Postal rules and regulations relating to second class mail.

"Eighteenth: Throughout the period mentioned in the amended complaint, plaintiff Rodriquez was a trusted employee of defendant Weekly Publications, Inc. and one of his chief duties and functions was to ensure compliance by Weekly Publications, Inc. with all applicable and effective Postal statutes, rules and regulations.

"Nineteenth: All arrangements or agreements made by or on behalf of Weekly Publications, Inc. during the period mentioned in the amended complaint for the payment or allowance of commissions or compensation in connection with the solicitation of subscriptions to `Newsweek' magazine were submitted in advance to plaintiff Rodriquez for approval and were approved by him.

"Twentieth: All payments or allowances of commissions or compensation with respect to the solicitation of subscriptions for `Newsweek' magazine which were paid or allowed by Weekly Publications, Inc. during the period mentioned in the amended complaint were paid or allowed in reliance upon the said approval of plaintiff Rodriquez and his assurance that there was compliance with the applicable Postal statutes, rules and regulations.

"Twenty-First: If there was any infraction or violation of any applicable Postal statutes, rules or regulations by defendants during the period mentioned in the amended complaint, such infraction or violation was not intended by any of the defendants but was the result of the negligence or fraud of plaintiff Rodriquez and constituted a violation of his duties to defendants.

"Twenty-Second: Plaintiff Rodriquez is liable and should make good to defendants and indemnify them against any loss or liability resulting from this action, including defendants' expenses and counsel fees in defending this action.

"Wherefore defendants demand judgment (1) dismissing the amended complaint herein and (2) awarding them judgment upon their counterclaim against plaintiff Richard Rodriquez, together with the costs and disbursements of his action."

On October 10, 1947, Rodriquez moved this Court for an order dismissing the affirmative defense and counterclaim, on the grounds that the allegations failed to state a defense or counterclaim, and could not be asserted as a counterclaim in this action.

Considering the above quoted allegations as a special defense, it appears that most of the facts alleged could be proved under defendants' denial of the charge of fraud. However, under Rule 8(c), Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, a defendant is required to set forth affirmatively certain special defenses enumerated in said subdivision, "and any other matter constituting an avoidance or affirmative defense." If there be any doubt about the defendants' right to offer proof of these matters under a general denial, the special defense should not be stricken. If it is mere surplusage, no harm will be done by letting it remain. Its presence will not embarrass the judge presiding at the trial and much might be made of its deletion. The wiser course is to let the special defense stand. Thierfeld v. Postman's Fifth Ave. Corporation, D. C., 37 F.Supp. 958; Best Foods, Inc., v. General Mills Inc., D. C., 59 F.Supp. 201.

Rodriquez moves to dismiss the counterclaim on the ground that he is not an "opposing party" and that therefore the counterclaim may not be pleaded under Rule 13(a) and (b), F.R.C.P. This is a qui tam action.¹ The "plaintiffs" named in the title on the summons, the complaint and the amended complaint, are the United States of America on the relation of Richard Rodriquez, and Richard Rodriquez in his own behalf. The statute permits the informer to bring and carry on the suit, under conditions, such as are present in this case, "as well for himself as for the United States." 31 U.S.C.A. § 232.

In passing upon an appeal from an order of Judge Bright in this suit, denying a motion of Rodriquez to strike out a notice of appearance of the United States, filed under the statute as amended, Judge A. N. Hand described the claim pleaded in the original complaint filed, November 18, 1943, and the effect of the statutory amendment of December 23, 1943. He wrote, United States v. Weekly Publications, 2 Cir., 144 F.2d 186 at page 187:

"This is a qui tam action brought by the relator Rodriguez on November 18, 1943, for himself and the United States under the informer statute (Revised Statutes, §§ 3490-3493, 31 U.S.C.A. §§ 231-234) to recover $2,606,000 and statutory penalties, counsel fees and cost. The action is founded upon the claim that the defendants cheated the Post Office Department out of $1,303,000 by obtaining mailing rates for their publications which yielded that much less than the proper amount through false representations made to the Department. On December 23, 1943, Congress amended the Informer Statute by repealing § 3493 and by substantially reducing the maximum percentage of any recovery which might have been awarded to an informer under the prior statute and by enabling the court to fix the amount within limits which were lower than the 50% allowed before the amendment. The amendment provided that the court in which a suit is brought at the instance of the informer shall stay proceedings and cause written notice to be given forthwith to the Attorney General (who shall have sixty days to appear and carry on the suit) by sending to him a copy of the complaint together with substantially all information material to the effective prosecution of the proceeding. If the United States shall fail to enter an appearance within the period of sixty days or decline in writing to do so within that time the person bringing it may carry it on. But if the United States shall enter an appearance the suit shall be carried on solely by it. The amendment likewise states that the United States shall not be bound in its conduct of the suit by any action of the person who brought it and may proceed in all respects as if it were instituting the suit, `Provided that if the United States shall fail to carry on the suit with due diligence for a period of six months from the date of its appearance therein or within such additional time as the court after notice may allow, such suit may be carried on by the person bringing the same' at the sole cost and charge of such person."

Although the United States of America, under the amended statute, entered its appearance in this action on March 4, 1944, and obtained from this Court various extensions of time "to prosecute and/or continue the prosecution of this case," the government finally on October 3, 1945, applied for an order "granting leave to the United States to withdraw its entry of appearance herein and to withdraw from this action." The motion was granted without opposition and an order to that effect was entered November 23, 1945.

On July 2, 1946 an amended complaint was filed.

Paragraphs 1, 11, 12 and 13 of the amended complaint allege:

"1. This suit arises under the Revised Statutes, Sections 3490 and 3491, 31 U.S. C.A. 231 and 232."

"11. (a) Since 1937, Weekly has fraudulently induced the Post Office to admit and carry, as second class matter at second class rates, over 1,000,000 `Newsweek' subscriptions, representing in excess of 66,000,000 magazine mailings.

(b) Weekly paid approximately $497,000. to the Post Office Department, computed at second class mailing rates.

(c) The true and proper rate for said magazines, as provided for by the Postal Rules and Regulations, was in excess of $1,800,000."

"12. By reason of the aforesaid false and fraudulent claims, the United States has been damaged in excess of $1,303,000."

"13. By reason of the acts and transactions herein set forth, the defendants are jointly and severally liable to the United States for double the damages sustained by it in a sum upwards of $1,303,000 and, in addition, defendants are liable jointly and severally to pay the sum of $2,000 for each such transaction, together with the costs of this action, to be distributed pursuant to the terms and provisions of the Revised Statutes, section 3491, 31 U.S.C.A. section 232."

The prayer for relief is as follows:

"Wherefore, plaintiff demands judgment jointly and severally against the defendants herein in favor of the United States and Richard Rodriquez in the amount of $2,606,000., being double the damages sustained by the United States and, in addition, the amount of forfeitures and penalties determined by this Court, together with appropriate interest and costs of this action."

Judge Rifkind sustained the...