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  • United States v. Albert Veneziale, 268 F.2d 504, 3rd Cir. (1959)

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    This document is a court case regarding whether a fraudulent loan application that resulted in the US government paying out on a loan guarantee constitutes a violation of the False Claims Act. The court had previously ruled that fraud in the loan application alone was not a violation, but this case involved an actual default on the loan requiring the US to pay. The court ultimately ruled that this situation did violate the False Claims Act since the fraud directly resulted in the US incurring damages by paying out on the loan guarantee. The judgment was reversed and remanded for entry of a new judgment consistent with the finding that the False Claims Act was violated.

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    Filed: 1959-06-29 Precedential Status: Precedential Citations: 268 F.2d 504 Docket: 12820_1

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    This document is a court case regarding whether a fraudulent loan application that resulted in the US government paying out on a loan guarantee constitutes a violation of the False Claims Act. The court had previously ruled that fraud in the loan application alone was not a violation, but this case involved an actual default on the loan requiring the US to pay. The court ultimately ruled that this situation did violate the False Claims Act since the fraud directly resulted in the US incurring damages by paying out on the loan guarantee. The judgment was reversed and remanded for entry of a new judgment consistent with the finding that the False Claims Act was violated.

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    16 views3 pages

    United States v. Albert Veneziale, 268 F.2d 504, 3rd Cir. (1959)

    Uploaded by

    Scribd Government Docs
    This document is a court case regarding whether a fraudulent loan application that resulted in the US government paying out on a loan guarantee constitutes a violation of the False Claims Act. The court had previously ruled that fraud in the loan application alone was not a violation, but this case involved an actual default on the loan requiring the US to pay. The court ultimately ruled that this situation did violate the False Claims Act since the fraud directly resulted in the US incurring damages by paying out on the loan guarantee. The judgment was reversed and remanded for entry of a new judgment consistent with the finding that the False Claims Act was violated.

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    of 3

    268 F.

    2d 504

    UNITED STATES, Appellant,


    v.
    Albert VENEZIALE.
    No. 12820.

    United States Court of Appeals Third Circuit.


    Argued April 21, 1959.
    Decided June 29, 1959.

    Herbert E. Morris, Washington, D.C. (George Cochran Doub, Asst. Atty.


    Gen., Chester A. Weidenburner, U.S. Atty., Newark, N.J., Morton
    Hollander, William E. Mullin, Attys., Dept. of Justice, Washington, D.C.,
    on the brief), for appellant.
    No attorney for appellee.
    Before MARIS, GOODRICH and HASTIE, Circuit Judges.
    HASTIE, Circuit Judge.

    This is an appeal from a judgment for the defendant in a civil action by the
    United States for double damages and a statutory forfeiture under the False
    Claims Act, 31 U.S.C.A. 231. The government's complaint alleges that the
    defendant Veneziale caused George and Margaret Boyce to make a fraudulent
    application for a bank loan wherein it was falsely represented that the loan was
    wanted for home improvements when it was in fact wanted and the proceeds
    were used to buy real property from Veneziale. This fraudulent application
    became one of the essential documents which induced the Federal Housing
    Administration to guarantee payment of the bank loan. Later, there was a
    partial default on the loan with the result that the government was required to
    pay under its guaranty the sum of $944.03. Under the provisions of the False
    Claims Act,1 the United States now demands of Veneziale $1,888.06, double
    the damages actually incurred, plus the statutory penalty of $2,000. A separate
    count of the complaint asserts that $944.03 is due as damages suffered from
    actionable fraud, without regard to the False Claims Act. The case was tried to
    the court below sitting without a jury. There was a recovery on the second

    count. However, at the conclusion of the trial the court dismissed the statutory
    claim for double damages and forfeiture under the False Claims Act, ruling that
    this fraudulent obtaining of a pledge of the government's credit is not within the
    statute even though the government has had to pay a substantial sum under its
    guaranty. The United States has appealed.
    2

    In United States v. Tieger, 3 Cir., 1956, 234 F.2d 589, a suit for a statutory
    penalty under the False Claims Act presenting facts indistinguishable from the
    facts now before us, except that in Tieger there had been no default on the loan
    and the government was not out of pocket on its guaranty, we held that no
    violation of the False Claims Act had been established. Accord, United States
    v. Cochran, 5 Cir., 1956, 235 F.2d 131. Since that time the Supreme Court has
    considered the problem of the Tieger case and has ruled in accord with our
    decision. United States v. McNinch, 1958, 356 U.S. 595, 78 S.Ct. 950, 2
    L.Ed.2d 1001.

    In our Tieger opinion we stressed the fact that the government had been
    subjected to no liability on its guaranty. In the McNinch opinion the Supreme
    Court expressly left open the question whether the additional facts of default on
    the loan and demand upon the government as guarantor would make a case
    under the False Claims Act. See 356 U.S. at page 599, 78 S.Ct. at page 952.
    That question is before us now.

    The False Claims Act provides statutory remedies for the wrongdoing of 'any
    person * * * who shall * * * cause to be presented, for payment or approval * *
    * any claim upon or against the * * * United States * * * knowing such claim to
    be * * * fraudulent * * *.' Here it is clear that the fraudulent statement in the
    loan application as to the purpose of the borrowing was an essential
    inducement to the Federal Housing Administration guaranty upon which the
    government has now had to pay. Thus the wrong of the defendant was an
    important, even an essential factor in subjecting the government to an
    enforceable demand for money. Although the wrongdoer neither sought nor
    obtained any transfer of government funds or property to himself, it has long
    since been settled that a fraudulently induced contract may create liability under
    the False Claims Act when that contract later results in payment thereunder by
    the government, whether to the wrongdoer or someone else. United States ex
    rel. Marcus v. Hess, 1943, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443. In that
    case the wrongdoing was collusive bidding on federally assisted state contracts.
    The United States later made payments by disbursing federal grants to aid the
    local government in paying its obligations under the collusively obtained
    contracts.

    Beyond this the only difficulty we see is presented by the argument that the
    guaranty under which the government made payment was not a false claim but
    was a bona fide obligation of the United States to another innocent party. But
    so was the obligation of the United States to the local government in United
    States ex rel. Marcus v. Hess, supra. And this led the Supreme Court to rule
    that the provisions of the False Claims Act 'indicate a purpose to reach any
    person who knowingly assisted in causing the government to pay claims which
    were grounded in fraud, without regard to whether that person had direct
    contractual relations with the government.' See 317 U.S. 544-545, 63 S.Ct. 384.
    The claim before us now is certainly 'grounded in fraud' in that a fraudulent
    misrepresentation induced the government to assume the obligation which it
    has had to perform. We are satisfied that the government, having been
    compelled to pay an innocent third person as a result of the defendant's fraud in
    inducing the undertaking, is entitled to assert a claim against the defendant
    under the False Claims Act.

    The judgment will be reversed and the cause remanded for the entry of a new
    judgment consistent with the district court's findings on the facts and the
    present decision on the applicable law.

    The False Claims Act, 40 Stat. 1015, 31 U.S.C.A. 231 reads in part as follows:
    'Any person * * * who shall make or cause to be made, or present or cause to be
    presented, for payment or approval, * * * 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, * * * 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; and such forfeiture and
    damages shall be sued for in the same suit.'

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