The opinion of the court was delivered by: MURPHY
Pursuant thereto pertinent regulations were adopted and published:
establishing requirements for contracts with educational institutions; prescribing a method of determining fair and reasonable compensation; requiring institutions under contract to furnish necessary books, supplies and equipment, including tools to eligible enrolled veterans. Preliminary to determination by the Veterans Administration of the rate of tuition, each institution was required to submit a statement of costs, including therein all reasonable and fair expenses,
including specifically the cost of consumable instructional supplies, depreciation and reasonable rent actually incurred in providing the instruction. Based thereon the rate of tuition was to be determined by the Manager subject to the proviso that fair and reasonable compensation would not exceed actual cost to the school, plus an allowed percentage of profit.
In addition the schools were to be reimbursed for the cost of the tools plus 10% allowed for the work involved. Where the tools were purchased from an outside source a regulation provided 'that the school will assure itself that the Veterans Administration is not billed at an unreasonable price', and that 'such items will be billed at cost to the institution'.
Regulations adopted in compliance with the Act have full force and effect of law and form a part of all contracts between the Veterans Administration and the educational institutions. Karas v. United States, D.C., 118 F.Supp 446, at 449, affirmed 3 Cir., 214 F.2d 130. As a matter of law and by specific provision in each contract herein involved, the parties agreed that the terms of the contract were subject to and governed by appropriate regulations.
Defendant Weinberg negotiated and signed all contracts as president of each particular school, except as to Diamond where he signed as treasurer, and as to each school presented cost statements to the Veterans Administration certifying as to their truth and accuracy.
Between December 3, 1948 and November 9, 1950, the five schools billed the Veterans Administration and were paid:
There was substantial competent testimony showing that the five schools billed the Veterans Administration for excessive amounts contrary to law and the intent, purpose and meaning of the contracts amounting to an overpayment for tools of $ 67,407.30,
an overstatement of consumable supplies of $ 14,997.85.
The modus operandi was as follows: In four of the schools defendant Weinberg was president, treasurer and one of three directors; defendant Bird vice president and director; in Diamond defendant Weinberg was treasurer and director, and to have charge of all purchases of tools and consumable supplies. All issued stock was divided; Northeast, each 20 shares; Lee, each 50 shares; Parker, Weinberg's interest 37 1/2 shares, Bird's interest 62 1/2 shares; Marshall, defendant Weinberg et ux each 50 shares; Diamond, Bevans 50 shares, each defendant 25 shares.
Unknown to each other before the school venture, defendants became close personal friends within a few months. A joint bank account was opened, each depositing $ 20,000;
a check for $ 30,000 given to Attorney Louis Shaffer to purchase a building to be occupied by the Lee School; $ 22,500 by defendant Bird, $ 7500 by defendant Weinberg to Attorney Donald Mills to purchase the Crown School.
All of the schools, except Diamond, paid monthly rental for space in defendant Weinberg's office: Northeast, $ 75; Lee, $ 100; Parker, $ 50; Marshall, $ 50. The books and records of all five schools were kept there in charge of the same bookkeeper.
Defendant Weinberg had formerly had experience in buying and selling tools and supplies and was familiar with wholesale and retail prices and volume discounts. Mr. Edwin J. Jones of Charles B. Scott Co., Mr. Calvin A. Tinsley of Harris Hardware and Supply Co., Mr. Harold J. Harris of Stull Brothers, all large suppliers in the area, testified that if the schools were to purchase directly from them in large amounts they would have been able to obtain prices; as to Scott at cost plus 10% or at least 33 1/3% off list; Harris Hardware, cost plus 10%; Stull Brothers, 20% off list. Instead of permitting the schools to purchase tools and consumable supplies in the market place at the best prices obtainable, defendant Weinberg arranged and ordered that all tools and consumable supplies for the five schools were to be ordered from, purchased by, and supplied through his office which would handle all contacts with the Veterans Administration. February 15, 1949,
defendants organized Mercury Distributors Inc.
The stock was equally divided, the interest of each defendant receiving 25 shares. Defendants named John Yekel, a long time employee of defendant Weinberg at $ 50 weekly, as president at a salary of $ 65 per week;
defendant Bird vice president; Arthur Jenkins, brother-in-law of defendant Weinberg, as secretary and treasurer to serve without pay; defendant Weinberg sales manager. Although Jenkins was named treasurer, all money matters were to be in charge of defendant Weinberg. Neither Yekel or Jenkins had any financial interest in the schools. Both disclaimed any knowledge of prices charged to the schools, either as to amounts, percentage of mark-up, or by whom such matters were determined. Yekel testified that the schools were charged higher prices than Charles B. Scott Co., Harris Hardware and Supply Co., and Stull Brothers; that the price to the companies was determined on a friendship basis, and that the marked up price on Mercury invoices would merely add to the school's account with th Veterans Administration. Besides the five schools Mercury Distributors dealt with six other area trade schools having contracts with the Veterans Administration and charged them the same prices as the schools in question. The books and records of Mercury were kept by the same bookkeeper who kept the books of the schools.
When a representative of the Veterans Administration, checking into the reasonableness of rent, cost of consumable supplies and tools to the schools, to ascertain the true cost thereof and to see if they were billed to the Veterans Administration at a reasonable price, learned of Mercury he reported to the Veterans Administration; returned and asked permission of defendant Weinberg to examine Mercury's books and records. Defendant Weinberg refused permission stating that he was doing so upon advice of counsel. Defendant Weinberg advised that Mercury was a corporation and that there was a mark-up in prices charged the schools over that at which Mercury purchased them, n20 in some cases 35 -- 40 -- 50%.
Total sales of tools by Mercury
plus discount $ 190,423.92
Cost of goods sold (purchases
less inventory adjustment --
deductions of purchase
discounts) -- January 29,
1949 -- January 31, 1950 124,298.48
© 1992-2004 VersusLaw ...