United States v. Weekly Publications

• Decision Date: 15 November 1946
• Citation: 68 F. Supp. 767
• Parties: UNITED STATES ex rel. RODRIGUEZ v. WEEKLY PUBLICATIONS, Inc., et al.
• Court: U.S. District Court — Southern District of New York

68 F. Supp. 767

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

District Court, S. D. New York.

November 15, 1946.

Pomerantz, Levy, Schreiber & Haudek, of New York City, for plaintiffs.

Whitman, Ransom, Coulson & Goetz, of New York City, for defendants.

RIFKIND, District Judge.

Defendants move to dismiss the amended complaint, pursuant to Federal Rules of Civil Procedure, rule 12(b) (6), 28 U.S. C.A. following section 723c, for failure to state a claim upon which relief can be granted. Plaintiff, Rodriguez, an informer, brings a qui tam action on behalf of the United States and himself to recover from defendants statutory forfeitures and double damages under the provisions of sections 5438, 3490 and 3491 of the Revised Statutes, 31 U.S.C.A. §§ 231 and 232. Defendant Weekly Publications, Inc. (hereinafter "Weekly"), is publisher of a weekly magazine, "Newsweek", and the individual defendants are its principal officers.

The amended complaint alleges as follows: Since 1937, the individual defendants entered into a conspiracy to cause defendant Weekly to present for allowance and approval false and fraudulent claims against the U. S. Government, that is, claims that the Post Office admit and carry Weekly's magazines to its subscribers as second-class mail at second-class rates.

Pursuant to statute and postal laws and regulations, the United States Government grants, upon compliance with specified conditions, a second-class mailing permit to a magazine publisher, which permits the latter to mail magazines at lower rates. One of the conditions upon which magazines are admitted as second-class matter is that the publisher shall secure, on subscription sales, at least 30% of the regularly advertised subscription price, after deducting the amount paid or allowed to soliciting employees or agents as commission or salary. To assure continuous compliance with said condition, the Postal Laws and Regulations require a publisher to submit to the Post Office Department, in advance, all contracts which he desires to make with concerns, employees and agents soliciting subscriptions.

Each week from 1937, Weekly has, under a second class mailing permit, tendered copies of its magazine to the Postmaster for mailing to its subscribers, representing that such copies were second-class matter. Such representations were false, and so known to be by defendants, in that Weekly received less than 30% of the regularly advertised subscription price after deducting commissions and salaries of agents and employees. By reason thereof, the magazines were not second-class matter. Defendants did not reveal to the Post Office their arrangements with agents and employees soliciting subscriptions.

In 1943 Weekly submitted to the Post Office, for approval, its arrangements with soliciting agents and employees by which Weekly received less than 30% per subscription. These arrangements were in fact those theretofore in effect. Defendant falsely represented that such arrangements were merely those to be put into effect in the future. Approval was denied.

In reliance upon the aforementioned representations, the Post Office Department, since 1937, has allowed Weekly's claim that it be charged second-class rates, instead of higher rates. By reason of defendants' false claim, defendants paid $1,303,000 less than they should have, thereby causing damage to the United States in that sum. Defendants are liable to the United States for double the damages and statutory forfeitures.

The statute under which the action is brought provides, 31 U.S.C.A. § 231: "Any person * * * who shall make or cause to be made, or present or cause to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent, * * * or who enters into any agreement, combination, or conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim, * * * 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 such act, together with the costs of suit; * * *."

As provided by 31 U.S.C.A. § 232, subd. (B), "such suit may be brought and carried on by any person, as well for himself as for the United States * * *."

The determination of the motion to dismiss depends upon the meaning of "make or present, for payment or approval, any claim upon or against the United States", under section 231.

As to the purpose of the informer's statute, the court, in United States v. Griswold, D.C.Or., 1885, 24 F. 361, affirmed 9 Cir., 30 F. 762, said at page 366 of 24 F.: "The statute is a remedial one. It is intended to protect the treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly. It was passed upon the theory, based on experience as old as modern civilization, that one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain".

In other words, the purpose is to prohibit the drawing of any money from the treasury of the United States by false or fictitious claims.

The informer's statute did not receive kindly treatment in United States v. Bausch & Lomb Optical Co., 2 Cir., 1942, 131 F.2d 545, at page 547, wherein the court said: "This would be the necessary result were the statute of the usual kind and entitled to a broad interpretation; but it is not, for it is not only penal, but drastically penal. Cases cited. For this reason it has been strictly construed," citing, among others, United States ex rel. Marcus v. Hess, 3 Cir., 127 F.2d 233, 235. The court continued: "Furthermore, so far as it perpetuates the odious and happily nearly obsolete qui tam action, it should be regarded with particular jealousy".

The Bausch & Lomb case was affirmed, without opinion, by an equally divided court in November, 1943; 320 U.S. 711, 64 S.Ct. 187, 88 L.Ed. 417, rehearing denied 320 U.S. 814, 64 S.Ct. 256, 88 L.Ed. 492.

The Hess case, supra, which was cited with approval by the Court of Appeals in the Bausch & Lomb case, was reversed, however, by the Supreme Court in January, 1943; 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443, rehearing denied 318 U.S. 799, 63 S.Ct. 756, 87 L.Ed. 1163. The informer's statute received a much more cordial reception in the Supreme Court; page 544 of 317 U.S., page 384 of 63 S.Ct., 87 L.Ed. 443. The court said at pages 540-542 of 317 U.S., at page 382 of 63 S.Ct., 87 L.Ed. 443:

"The Court below, construing § 5438 31 U.S.C.A. 231 with `utmost strictness' on the premise that qui tam or informer actions `have always been regarded with disfavor' by the courts, emphasized the absence of a direct contractual relationship between the respondents and the United States, and held that `The claims of the defendants then were simply against the local municipalities. Since the defendants had no claim upon or against the United States, this action was not authorized by the informer statutes.'

"We cannot accept either the interpretive approach or the actual decision of the court below. Qui tam suits have been frequently permitted by legislative action, and have not been without defense by the courts. * * *.

"Congress has power to choose this method to protect the government from burdens fraudulently imposed upon it; * * *."

The court continued, at page 549 of 317 U.S., at page 386 of 63 S.Ct., 87 L.Ed. 443: "Is the action now before us, consisting of double damages and the $2,000 forfeiture, criminal or remedial? It is enough for present purposes if we conclude that the instant proceedings are remedial and impose a civil sanction."

Sections 226 of Title 39 U.S.C.A., sets forth the conditions upon which a publication shall be admitted as second-class matter, one of which is that the publications have "a legitimate list of subscribers. Nothing herein contained shall be so construed as to admit to the second class rate regular publications designed primarily * * * for circulation at nominal rates".

Postal Laws and Regulations, 1940, section 526, 39 C.F.R. 5.27(c) (2), provides:

"3. The...