
USCA1 Opinion

	




          June 23, 1993                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                        _____          No. 92-2108                              UNITED STATES OF AMERICA,                                Plaintiff, Appellant,                                          v.                  AMERICAN HEART RESEARCH FOUNDATION, INC., ET AL.,                                Defendants, Appellees.                                     ___________                                     ERRATA SHEET               The  opinion of  this  Court issued  on  June 18,  1993,  is          amended as follows:               On page 9, line 1:  insert a comma between "understanding"           and the quotation mark that immediately follows.                             UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-2108                              UNITED STATES OF AMERICA,                                Plaintiff, Appellant,                                          v.                  AMERICAN HEART RESEARCH FOUNDATION, INC., ET AL.,                                 Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                     [Hon. Norman H. Stahl, U. S. District Judge]                                            ____________________                                 ____________________                                        Before                                  Cyr, Circuit Judge,                                       _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            Paul  D. Scott, Attorney,  Department of Justice, with whom Stuart            ______________                                              ______        M.  Gerson,  Assistant Attorney  General,  Jeffrey  R. Howard,  United        _ ________                                 __________________        States Attorney,  Douglas N. Letter, Attorney,  Department of Justice,                          _________________        Michael  F.  Hertz, Attorney,  Department  of Justice,  and  Steven D.        __________ _______                                           _________        Altman, Attorney, Department of Justice, were on brief for appellant.        ______            Kenneth I. Schacter with whom David  M. Cohen, Richards &  O'Neil,            ___________________           _______________  __________________        David Jordan and Jordan & Gfroerer were on brief for appellees.        ____________     _________________                                 ____________________                                    June 18, 1993                                 ____________________                 BOUDIN,  Circuit Judge.    In this  case, involving  the                          _____________            underpayment  of  postage  based  on  misrepresentations, the            district court ruled that  the False Claims Act, 31  U.S.C.              3729, did  not (prior to its amendment  in 1986) apply to so-            called "reverse false claims"  whereby the government is paid            less than its due.  A back-up claim for unjust enrichment was            dismissed  on  res judicata  grounds.    We  agree  with  the                           ____________            district court on the interpretation of the  False Claims Act            but disagree that the  unjust enrichment claim was barred  by            res  judicata.  Accordingly, we affirm in part and vacate and            _____________            remand in part.                 The  facts can  be briefly  stated.   Robert Paltrow  in            1983-1984  set up  two corporations--American  Heart Research            Foundation, Inc. ("AHRF") and American Cancer Research Funds,            Inc. ("ACRF")--purportedly to promote research  to cure these            diseases.   In July 1984  Paltrow submitted an application to            the  United  States  Postal  Service  to  obtain for  ACRF  a            reduced-rate mailing permit; the application represented that            ACRF  was  a scientific  non-profit  entity  helping to  cure            cancer.                 ACRF  used  the  permit  to  mail  millions  of  letters            soliciting  for funds.   AHRF, without  applying for  its own            permit,  used ACRF's  permit for  its own  solicitations.   A            direct  mail   organization  controlled  by   Paltrow,  North            American   Communications,   Inc.   ("NAC"),  conducted   the                                         -2-                                         -2-            mailings.  As a result of the special permit, the postage was            approximately one-half  the usual  rate for bulk  third class            mail,  and  ACRF  and  AHRF paid  the  Postal  Service  about            $472,000  less  than  they  would have  without  the  special            permit.                 In fact ACRF and AHRF were not non-profit  scientific or            charitable  organizations  but  were old-fashioned  swindles,            raising money on charitable pretexts  for the benefit of  the            organizers.   In addition  to raising  funds,  ACRF sent  out            purported  scientific  surveys,   of  no  scientific   value,            apparently  to gull  the public  into taking  ACRF seriously.            Needless to say,  the application ACRF filed  with the Postal            Service, making  the necessary claim that it  was a qualified            non-profit organization under the applicable regulations, was            false.    AHRF's  mailings  were based  on  the  fraudulently            obtained ACRF permit.                 The solicitations occurred in 1984 and 1985.   In spring            1986, the  government filed  a  criminal information  against            ACRF and AHRF  asserting ten  counts of mail  fraud under  18            U.S.C.   1341;  NAC and  Paltrow were named  in the  criminal            information  as  participating in  the  scheme  but were  not            separately charged.   The  government also filed  a complaint            for injunctive relief under  18 U.S.C.   1345.   That section            gives the government a  civil action for expedited injunctive                                         -3-                                         -3-            relief  where mail fraud is occurring  or is threatened.   No            damage claim was asserted in this action.                 In April  1986 Paltrow pleaded  ACRF and AHRF  guilty on            all ten counts  of mail fraud  in the criminal  case, and  he            admitted  that he and NAC  employed ACRF and  AHRF to defraud            the  public.  The civil injunction action was resolved on the            same day by a  consent order enjoining Paltrow and  all three            entities from  charitable fund-raising through the  mails.  A            $100,000 criminal fine was imposed on the bogus charities and            the  court ordered  that the  funds fraudulently  obtained be            turned over to legitimate charities.                 In 1990, after some preliminary negotiations failed, the            government filed the present case under the False Claims  Act            against Paltrow  and his  three entities.   The  suit claimed            underpayment  of  postage  in  the  amount  of  $472,478  and            multiple  damages  as  provided  by  the  statute.    In  the            alternative,  the  government  sought  single  damages  on an            unjust enrichment  theory.    On  cross-motions  for  summary            judgment, the  district court dismissed the  False Claims Act            claims on the ground that  the statute did not apply, and  it            dismissed  the  unjust  enrichment   claim  on  res  judicata                                                            _____________            grounds.                 We  agree  with  the  district  court's   well  reasoned            treatment of the False Claims Act.  The statute, prior to the                                         -4-                                         -4-            1986 amendments, provided the government with a double-damage            civil action against anyone who                  (1) knowingly presents  . . . to . .  . the [United                 States]  Government  .  . .  a false  or fraudulent                 claim for payment or approval; [or]                 (2)  knowingly makes    . .  .  a false  record  or                 statement to  get a false or  fraudulent claim paid                 or approved[.]            31  U.S.C.    3729(a)(1),  (2).   In  1986, the  statute  was            amended  not only to provide  for treble damages  but also to            apply to one who knowingly uses "a false record or statement"            in order to "conceal, avoid, or decrease an obligation to pay            .  .  . money  .  .  . to  the  Government."1   31  U.S.C.               3729(a)(7).                 The  current version  of  the False  Claims Act  clearly            embraces reverse false claims, such as that presented in this            case,  whereby  someone  uses  a false  statement  to  secure            services  from the  government at  a reduced  rate.   But the            government  on this  appeal has  not pursued  its contention,            rejected  by  the district  court,  that  the 1986  amendment            enacting section  3729(a)(7) applies retroactively.  Thus the            question is whether securing  reduced rate mailing privileges            by  dint of a false statement can be classed as presenting "a                                            ____________________                 1False Claims Amendments  Act of 1986,  Pub. L. No.  99-            562,  100  Stat.  3153  (1986),  adding  inter  alia  section                                                     ___________            3729(a)(7) which employs the  quoted language.  See generally                                                            _____________            S. Rep. No. 345, 99th Cong., 2d Sess. (1986).                                         -5-                                         -5-            false or fraudulent claim for payment  or approval" or making            a false statement to get such a "claim" paid or approved.                 We think the  natural weight of the  words, properly the            starting   point   for  the   inquiry,   leans  against   the            government's  reading.   A  "claim for  payment or  approval"            sounds to ordinary ears like a bill from an army supplier for            uniforms or some  like invoice presented  for payment or  for            approval to permit payment.  The False Claims Act was in fact            enacted in 1863  in the  wake of scandal  to "combat  rampant            fraud  in Civil  War defense  contracts."   S. Rep.  No. 345,            supra,  at 8.    An  attempt  to  secure  services  from  the            _____            government at reduced rates may be just as fraudulent, but at            least  judged  by  "normal usage  or  understanding,"  United                                                                   ______            States v.  McNinch, 356  U.S. 595,  598 (1958),  it is  not a            ______     _______            "claim for payment or approval" of payment.2                 In McNinch,  the Supreme Court held  that an application                    _______            for   credit  insurance,   requesting  the   Federal  Housing            Administration to insure certain bank loans, was not a "claim            for payment or approval"  within the meaning of  the statute.            Quoting a lower court decision, the Court said that a "claim"            against the government "normally  connotes a demand for money                                            ____________________                 2The original  1863 statute reinforces this  point.  Its            language spoke of presenting  "for payment or approval .  . .            any claim upon  or against the Government  . . .  ."  Act  of                      _______________________________            Mar.  2, 1863, c.  67, 12 Stat. 696.   The underscored phrase            was  omitted in a subsequent revision  but without any intent            to alter substance.  31 U.S.C.   3729 (1982) (see explanatory                                                          ___            note).                                         -6-                                         -6-            or for some  transfer of  public property,"  adding that  the            statute  "was  not designed  to  reach  every  kind of  fraud            practiced on  the Government." Id.  at 599. If  McNinch stood                                           ___              _______            alone,  it   would  resolve   our  case,  for   a  customer's            underpayment for postal services does not involve any payment            by the government or transfer of its property.                 As is often the  case, there is a contrapuntal  theme in            the case law.   United States v. Neifert-White Co.,  390 U.S.                            _____________    _________________            228  (1968), held that  the False Claims  Act did  apply to a            falsified loan  application made  to a federal  agency where,            unlike  McNinch,  the  false  statement was  made  "with  the                    _______            purpose and effect of  inducing the Government immediately to            part  with money."  Id.  at 232.   Neifert-White said broadly                                ___            _____________            that  "the  Act was  intended to  reach  all types  of fraud,            without qualification, that might result in financial loss to            the  Government."    Id.  (footnote  omitted).    While  this                                 ___            language  is helpful to  the government  in the  abstract, we            read it as directed to the subject of the Court's discussion,            namely, claims, however unconventional, asking the government            immediately "to part with money."  Id.3                                               ___                                            ____________________                 3Not  only  did  the  Court  make  its  broad  statement            immediately after distinguishing  McNinch on the  ground that                                              _______            it  involved   no  payment  of  government   money,  but  two            paragraphs  later, in  the course  of summing  up, the  Court            repeated the point: "This  remedial statute [the False Claims            Act] reaches beyond `claims' which might be legally enforced,            to all fraudulent attempts to cause the Government to pay out                                                               __________            sums of money."  Id. at 233 (emphasis added).            _____________    ___                                         -7-                                         -7-                 Subsequent  to Neifert-White,  the Supreme  Court quoted                                _____________            with approval, albeit in a footnote, its statement in McNinch                                                                  _______            that "claim" in  the statute normally connotes  "a demand for            money  or  for some  transfer  of public  property."   United                                                                   ______            States  v. Bornstein,  423 U.S.  303, 309  n.4 (1976).   This            ______     _________            reiterated equating  of "claim" with  a demand  for money  or            property  is   fatal  to  the  government's   position  here:            securing  a   reduced  rate   for  mailing,  even   by  false            statements,  is not a  claim for money  or property.   In the            federal  hierarchy, a  footnote  in a  Supreme Court  opinion            normally outweighs  a covey  of lower court  decisions.   The            lower courts are,  in any  event, divided as  to whether  the            pre-1986  False  Claims Act  could  be  stretched to  include            reverse  false  claims.    Compare, e.g.,  United  States  v.                                       _____________   ______________            Lawson, 522 F. Supp. 746 (D.N.J. 1981), with United States v.            ______                                  ____ _____________            Douglas, 626 F. Supp. 621 (E.D. Va. 1985).            _______                 The government is correct  that the Senate Report issued            when  the statute was expanded in 1986 took the position that            the statute  had always  embraced underpayments and  that the            new language merely clarified  the statute.  See S.  Rep. No.                                                         ___            345, supra, at 19.   We are reluctant, however,  to give much                 _____            weight in  construing a Civil War statute  to Committee views            first  expressed over 100 years later.  This is especially so            when, as here, the original language of the Civil War statute                               ________            was even  more favorable  to the  construction that we  adopt                                         -8-                                         -8-            than the pared down  version later adopted with no  intent to            alter substance.                 No doubt the effect of fraud on the government is pretty            much  the same whether too much is extracted from the federal            treasury or too little paid in.  That is why Congress amended            the  statute  in 1986.    But  it is  one  thing  to construe            ambiguous language broadly in accord with a remedial purpose;            it is quite another matter to stretch language beyond "normal            usage or understanding," McNinch,  356 U.S. at 598, when  the                                     _______            natural  reading  matches  the  very  problem  that concerned            Congress  at  the time  the statute  was  enacted.   When the            Supreme Court  has thrice  affirmed that natural  reading and            emphasized that a "claim"  in this context refers to  one for            money or property, we think that  all doubts vanish as to the            course this court should follow.                 We turn now to the government's  alternative remedy--its            claim  for  single  damages  based on  an  unjust  enrichment            theory--and here  our views  differ from  those  of the  able            district  judge.   The  district court  held that  the "claim            preclusion" branch of res judicata barred the government from                                  ____________            asserting an unjust enrichment claim after it secured a final            judgment in  its civil  injunction action involving  the same            transactions.  We  conclude that for reasons  peculiar to the            civil injunction  statute, a successful  action brought under                                         -9-                                         -9-            that  statute does not preclude a later separate claim by the            government for monetary relief.                 Claim preclusion,  formerly the merger or  bar aspect of            res judicata, precludes a party who has won or lost a case on            ____________            the merits from  reasserting the  same cause of  action in  a            subsequent case.   In  some jurisdictions, this  doctrine has            been  expanded  so  that  a  final  judgment  on  the  merits            extinguishes any further "rights of the plaintiff to remedies            against  the [same] defendant with respect to all or any part            of the transaction, or  series of connected transactions, out            of which  the [earlier] action arose."   Restatement (Second)                                                     ____________________            of Judgments    24 (1982).   See Diversified  Foods, Inc.  v.            ____________                 ___ _______________________            First  National Bank  of Boston,  985 F.2d  27, 30  (1st Cir.            _______________________________            1993).  This broader definition, which converts old fashioned            res judicata  doctrine into a  kind of compulsory  joinder of            ____________            related claims,  was  adopted  by this  court  in  Manego  v.                                                               ______            Orleans Board of Trade, 773 F.2d 1,  5 (1st Cir. 1985), cert.            ______________________                                  _____            denied,  475 U.S.  1084 (1986),  for cases where  federal law            ______            controls the issue.                 Under ordinary  circumstances, Manego and Section  24 of                                                ______            the  Restatement  would pose  a  formidable  obstacle to  the            government's   unjust  enrichment  claim  brought  after  its            successful injunction  action.  The parties  are identical in            the two actions, both actions were civil, and  the injunction            action  resulted in a final judgment on the merits.  Finally,                                         -10-                                         -10-            the  two  remedies--an  injunction  and the  disgorgement  of            unjust  enrichment--are premised on  the same  transaction or            series of transactions, and that is normally enough where the            transactions test of Manego is followed.                                 ______                 Res judicata is nevertheless a judge-made doctrine based                 ____________            upon practical concerns:  hostility to relitigation, wariness            about  double recovery,  and anxiety  that resources  will be            wasted  by successive  suits where  one would  have sufficed.            The  doctrine is  not  to be  applied  where other  practical            concerns  outweigh the  traditional  ones and  favor separate            actions.   See, e.g., Brown  v. Felsen, 442  U.S. 127 (1979).                       _________  _____     ______            Here, we  believe that those other  concerns counsel strongly            in favor of allowing the government to bring a damage action,            whatever the  underlying theory,  even though  the government            brought and  concluded a separate injunction  action under 18            U.S.C.   1345.                 The purpose of section  1345 is  "to allow  the Attorney            General to put  a speedy end to a fraud  scheme by seeking an                              __________            injunction  in  federal  district   court"  as  soon  as  the            requisite  evidence is secured.  S. Rep. No. 225, 98th Cong.,            2d Sess.  402 (1984)  (emphasis added).   The  statute itself            directs   the  district   court  to   "proceed  as   soon  as            practicable" to  a hearing  and determination.   18  U.S.C.              1345(b).    The  legislative  history  shows  that   Congress            authorized  this  expedited  action  precisely  because  "the                                         -11-                                         -11-            investigation of fraudulent  schemes often  takes months,  if            not years, before the case is ready for criminal prosecution"            and  in   the  meantime  "innocent  people   continue  to  be            victimized."  S. Rep. No. 225, supra, at 402.                                           _____                 The  same  concerns  that  prompted  Congress  to  adopt            section  1345 suggest  that  courts should  not handicap  and            delay  injunction actions  by insisting  that the  government            assert  at the  same time  any civil  damage claims  that may            arise from  the same  transactions.  Commonly  the government            may want to secure additional facts,  including the amount of            damages,  before asserting such  claims and may  well wish to            negotiate  with  the  defendant  as to  settlement  once  the            ongoing violation has ceased.  To require that the government            resolve  these matters within, and on the same time table as,            the expedited injunction action makes no sense.                 The   government  is   not  automatically   exempt  from            limitations on  claim splitting, Federation  Dep't Stores  v.                                             ________________________            Moitie, 452  U.S. 394, 398 (1981), but those limitations will            ______            not  be  applied  where   they  would  frustrate  a  specific            statutory  objective.  Brown, 442  U.S. at 135-36.   See also                                   _____                         ________            Restatement  (Second) of  Judgments    26(1)(d) (1982).   For            ___________________________________            this  reason  the  government  is  permitted  to  enjoin  the            continuation of an  illegal merger or other  violation of the            antitrust laws and then bring its own separate  damage action                                         -12-                                         -12-            for any damages it may have suffered.4  In our  view the same            policy  permits  the  government  to  litigate an  injunction            action under  section 1345 to  final judgment and  then bring            its own damage action as a separate case.                 The treatment  of the unjust enrichment  claim on remand            is a  matter for the district  court.  We express  no view on            whether any aspect  of the government's claim may be governed            by the  issue preclusion  (or collateral estoppel)  branch of            res  judicata, nor do we address any other questions that may            _____________            be presented by  that claim.   The judgment  of the  district            court is  affirmed so  far as it  dismissed the  government's                      ________            claims  under the  False Claims  Act, and  it is  vacated and                                                              ___________            remanded  as  to the  claim  based on  the  unjust enrichment            ________            theory.                 It is so ordered.  No costs to either side.                 ________________                                            ____________________                 4See, e.g.,  ITT v.  GT & E,  369 F.  Supp. 316,  326-27                  _________   ___     ______            (M.D.N.C.  1973), remanded  on other  grounds, 527  F.2d 1162                              ___________________________            (4th Cir.  1975); United  States v.  Grinnell  Corp., 307  F.                              ______________     ______________            Supp. 1097 (S.D.N.Y. 1969).  See  generally II P. Areeda & D.                                         ______________            Turner, Antitrust Law   323, at  109 (1978) ("[T]he equitable                    _____________            suit  in the  public  interest ought  not  to be  delayed  or            affected by the government's concern whether or not it should            seek proprietary relief as well.").                                         -13-                                         -13-
