The opinion of the court was delivered by: GOETTEL
The defendant, Jerome Rapoport, a lawyer and former attorney-adviser at the federal Small Business Administration ("SBA"), was convicted of causing a false loan application to be made to a federally insured bank in violation of 18 U.S.C. § 1014. United States v. Rapoport, 75 Cr. 1246 (S.D.N.Y.), aff'd, 545 F.2d 802 (2d Cir. 1976), cert. denied, 430 U.S. 931, 97 S. Ct. 1551, 51 L. Ed. 2d 775 (1977). The Government filed this action under the False Claims Act ("Act"),
to recover a statutory penalty of $ 2,000 plus double the $ 6,084.86 in damages that it alleges it sustained "by reason of" the false claim. The Government now moves for summary judgment on the ground that Rapoport's criminal conviction estops Rapoport from raising any material issue of fact. For the reasons set forth below, the motion is granted with respect to the $ 2,000 statutory penalty, but is denied with respect to the claim for additional damages.
In the spring of 1974, one Allan Pollak, the owner and founder of the Entre Nous Corporation ("Entre Nous"), met with Rapoport about acquiring an SBA-insured loan. Rapoport told Pollak that he was quite experienced in obtaining SBA-insured loans and offered his assistance in exchange for a fee of ten percent of the loan. Although he was dissatisfied with the fee, Pollak eventually agreed to the arrangement because he had been unable to acquire a loan from other sources.
Rapoport instructed Pollak on such matters as how to prepare the papers, whom to deal with at the bank, and how to present the loan application to bank officials. Rapoport advised Pollak that his fee would have to be listed as a "consultant's fee" and warned him that the bank would not approve his loan application if it was aware that he had engaged Rapoport for the sole purpose of acquiring the loan.
Pollak, pursuant to Rapoport's instructions, answered "none" in response to Item 10 of the loan application, which requested the names of all attorneys, accountants, and other parties engaged by the loan applicant to acquire the loan.
This application was subsequently submitted to the Manufacturers Hanover Trust Co. ("Manufacturers Hanover"), which, after receiving SBA approval, tentatively approved a loan for $ 150,000, of which $ 80,000 was to be disbursed without restrictions and $ 70,000 to be held in escrow for the purchase of certain specific items.
In June of 1974, Pollak, presumably worried about the false statements on his loan application, met with Assistant United States Attorney George Wilson and told Wilson about his dealings with Rapoport. In light of the criminal charges that could be instituted against him, and in exchange for a grant of immunity, Pollak agreed to cooperate with the Government by, among other things, tape-recording some of his conversations with Rapoport and testifying for the Government at Rapoport's trial.
Sometime in July of 1974, and before any money had been disbursed to Entre Nous, Manufacturers Hanover received a grand jury subpoena calling for the bank's records on Entre Nous. August McCarthy, the Manufacturers Hanover official in charge of the loan, advised Pollak that no money would be disbursed until the subpoena was cleared up. Pollak thereupon contacted Wilson and asked him to intercede. Wilson assured McCarthy that the subpoena "was not in any way to be construed a detrimental thing for Entre Nous's credit worthiness, and that there was no reason ... that should forestall the bank from closing and disbursing the loan." (Testimony of August McCarthy, United States v. Rapoport, supra, Appellant's Appendix on Appeal at 140a.) Manufacturers Hanover thereupon disbursed the $ 80,000 to Entre Nous in August and placed the balance in a special escrow account. One month later, Entre Nous, which was already in default on its interest payments to Manufacturers Hanover, requested an additional $ 15,000 from the escrow account to meet its payments. At Rapoport's criminal trial, McCarthy testified that he initially denied this request, but eventually agreed after he received a phone call from the SBA asking him to reconsider his decision. McCarthy further testified that the SBA's
explanation for its request was that the SBA "had been asked to reconsider this by someone from the U.S. Attorney's Office." (Id. at 144a.)
Entre Nous eventually defaulted on the loan. Manufacturers Hanover liquidated the collateral, leaving a balance of $ 3,085.88, which was satisfied by the SBA. Meanwhile, after two trials resulting in "hung juries," Rapoport was convicted of causing the false statement about attorneys' fees, thus creating the foundation for the present case and motion.
Originally enacted to punish and prevent frauds being perpetrated by contractors during the Civil War, the Act is used to compensate the government for false claims brought against it. United States v. Bornstein, 423 U.S. 303, 309, 96 S. Ct. 523, 527, 46 L. Ed. 2d 514 (1976); United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S. Ct. 379, 87 L. Ed. 443 (1943). The Act has been used in a variety of situations: to recover against a physician convicted of medicare fraud, United States v. Zulli, 418 F. Supp. 252 (E.D.Pa.1976); to recover against a contractor for bribing a federal agent, United States v. Cripps, 460 F. Supp. 969 (E.D.Mich.1978); to recover against a congressman for submitting false travel vouchers to the clerk of the House of Representatives, United States ex rel. Hollander v. Clay, 420 F. Supp. 853 (D.D.C.1976); to recover against a veteran for hospitalization benefits received for nonservice-connected disability, United States v. Shanks, 384 F.2d 721 (10th Cir. 1967); and to recover against government contractors billing for nonexistent or worthless services, United States ex rel. Weinberger v. Equifax, Inc., 557 F.2d 456 (5th Cir. 1977), cert. denied, 434 U.S. 1035, 98 S. Ct. 768, 54 L. Ed. 2d 782 (1978).
The Act is found in Revised Statutes § 3490
and provides, in pertinent part:
Any 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," shall forfeit and pay to the United States the sum of two thousand dollars, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act ....
Revised Statutes § 5438 (repealed) provides, in pertinent part:
Every person who makes or causes to be made, or presents or causes 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 ... shall be imprisoned at hard labor for not less than one nor more than five years, or fined not less than one thousand nor more than five thousand dollars.
For the purposes of this motion, it is important to distinguish between the two forms of recovery provided for in the Act: a $ 2,000 forfeiture and double the amount of damages sustained by the government "by reason of" the false claim. The Government argues that Rapoport's criminal conviction entitles it to summary judgment for both the $ 2,000 forfeiture plus double the amount of money the SBA paid to Manufacturers Hanover on its guarantee of the Entre Nous loan. The defendant responds that summary ...