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UNITED STATES v. EILBERG

October 22, 1980

UNITED STATES of America
v.
Joshua EILBERG



The opinion of the court was delivered by: POLLAK

In February of 1979, Joshua Eilberg, a lawyer who had been a Congressman from northeast Philadelphia for six terms (January of 1967 to January of 1979), pleaded guilty to one count of a federal criminal indictment. That count charged a violation of 18 U.S.C. § 203. Under Section 203, a Member of Congress is guilty of a crime if he, "otherwise than as provided by law for the proper discharge of official duties ... receives ... any compensation for any services rendered ... by himself or another at a time when he is a Member of Congress ... in relation to any proceeding (or) application ... in which the United States is a party or has a direct and substantial interest, before any department (or) agency...." The criminal conduct admitted by Mr. Eilberg was that he had received a share of the fee paid by Hahnemann Hospital to the (then) law firm of Eilberg, Corson, Getson & Abramson *fn1" for services performed while Mr. Eilberg was a Congressman, by Mr. Eilberg and other members of the firm, in connection with Hahnemann's application to a federal agency, the Community Services Administration, for a major construction grant.

After the criminal proceedings were concluded, the United States brought this civil action for sums allegedly owed the United States by the former Congressman. The complaint sets out three "claims for relief." But these three claims comprehend only two causes of action.

 The first cause of action-conceptualized in alternative forms in the first and second claims for relief-is perceived by the United States as arising directly from the unlawful course of conduct acknowledged by Mr. Eilberg in his guilty plea. It asserts that the United States is entitled to recover the share received by Mr. Eilberg of his firm's Hahnemann fee, this constituting the "compensation" received by Mr. Eilberg in violation of Section 203. The first claim for relief predicates the asserted entitlement on a theory of breach of fiduciary duty and a consequent constructive trust of which the United States is the beneficiary. The second claim for relief predicates the same asserted entitlement on a theory of breach by Mr. Eilberg of his implied agency contract with the United States and resultant unjust enrichment recoverable by the United States.

 The second cause of action-set forth in the third claim for relief-rests upon another (chronologically, and perhaps factually, overlapping) course of conduct which, it is alleged, was pursued by Mr. Eilberg while he was in Congress and which, it is further alleged, defrauded the United States of an as-yet undetermined sum of money. Specifically, it is asserted that, each month, from May of 1973 to January of 1978, Mr. Eilberg certified that telephone toll calls charged by Mr. Eilberg, or family members, or associates, to Mr. Eilberg's Congressional telephone credit card were official calls when, in fact, they dealt with matters unrelated to Mr. Eilberg's responsibilities as a Congressman. The United States contends, in effect, that, by virtue of these allegedly false certifications, Mr. Eilberg avoided reimbursing the United States for long-distance calls which he, not the United States, should have borne the cost of. The United States views each of these alleged false certifications as a violation of the False Claims Act; and for each culpable certification the United States seeks, pursuant to the Act, double the damages sustained and a $ 2,000 penalty. 31 U.S.C. § 231.

 Mr. Eilberg's motion to dismiss challenges the substantive viability of both causes of action. And the Clerk of the House of Representatives-resisting a proposed subpoena for House records (logs of, and other materials relating to, Mr. Eilberg's toll calls) with which the United States hopes to document its claim under the False Claims Act-denies the justiciability of the second cause of action.

 I.

 What is at stake in the first cause of action is a sum-alleged by the United States to approximate $ 35,000-constituting Mr. Eilberg's aggregate distributive share, received by him in acknowledged contravention of 18 U.S.C. § 203, of the fee paid by Hahnemann Hospital to Mr. Eilberg's law firm for legal services rendered in connection with Hahnemann's application for a grant from the Community Services Administration. *fn2" The United States is not the only suitor for Mr. Eilberg's share of the Hahnemann fee. In litigation now going forward in the Court of Common Pleas, arising out of the break-up of Mr. Eilberg's firm, two of Mr. Eilberg's former partners-Lawrence Corson and Allan Getson-are seeking to recover, inter alia, the same share of the same fee. To protect their state law claim against Mr. Eilberg from what they deem an unwarranted, or in any event, subordinate, federal claim which may nevertheless be pressed by the United States as preemptive of, or at least competitive with, their state law claim, Messrs. Corson and Getson moved to intervene in this federal proceeding. For reasons explained in a previous opinion, United States v. Joshua Eilberg, 89 F.R.D. 473 (E.D.Pa. 1980), I granted that motion.

 It is common ground that the United States' first cause of action has no statutory basis. The cause of action, if it exists, is one rooted in federal common law-rocky soil which produces only a small harvest. Cf. United States v. Standard Oil Company, 332 U.S. 301, 67 S. Ct. 1604, 91 L. Ed. 2067 (1947); and see Hart and Wechsler, The Federal Courts and the Federal System 830-32 (2d ed. 1973); Friendly, In Praise of Erie-And of the New Federal Common Law, 39 N.Y.U.L.Rev. 383, 411-12 (1964). The question is whether the cause of action here pressed by the United States-whether characterized as one sounding in breach of fiduciary duty or as one sounding in unjust enrichment-is an authentic part of the federal common law.

 The bedrock of the asserted cause of action is a decision announced by the Supreme Court seventy years ago. In United States v. Carter, 217 U.S. 286, 30 S. Ct. 515, 54 L. Ed. 769 (1910), Mr. Justice Lurton, on behalf of an unanimous Court, sustained a civil action brought by the United States against a former captain in the Army Engineers who was alleged to have taken a large bribe for the letting of a profitable harbor improvement contract. The cause of action thus upheld was one which sought to compel the defendant Oberlin M. Carter " ... to account for illicit gains, gratuities, and profits received by him ..." Mr. Justice Lurton explained the nature of the cause of action in the following words ( id. at 305-6, 30 S. Ct. at 519-520):

 
If it be once assumed that the defendant Carter did secretly receive from Greene and Gaynor a proportion of the profits gained by them in the execution of the contracts in question, the right of the United States in equity to a decree against him for the share so received is made out. It is immaterial if that appears whether the complainant was able to show any specific abuse of discretion, or whether it was able to show that it had suffered any actual loss by fraud or otherwise. It is not enough for one occupying a confidential relation to another, who is shown to have secretly received a benefit from the opposite party, to say, "You cannot show any fraud, or you cannot show that you have sustained any loss by my conduct." Such an agent has the power to conceal his fraud and hide the injury done his principal. It would be a dangerous precedent to lay down as law that unless some affirmative fraud or loss can be shown, the agent may hold on to any secret benefit he may be able to make out of his agency. The larger interests of public justice will not tolerate, under any circumstances, that a public official shall retain any profit or advantage which he may realize through the acquirement of an interest in conflict with his fidelity as an agent. If he takes any gift, gratuity, or benefit in violation of his duty, or acquires any interest adverse to his principal, without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.

 This venerable judge-fashioned public remedy for a federal official's fraud has retained its vitality. In United States v. Kearns, 193 U.S. App. D.C. 344, 595 F.2d 729 (1978), the Court of Appeals for the District of Columbia found that the United States had stated a viable claim in a complaint alleging (1) that the two defendants, while senior officials of the Export-Import Bank, had sold, at a price nearly three times the market, shares they each held in a Thai pulp and paper company with which the defendants had previously been associated (and to which the Bank had loaned several million dollars before the defendants assumed their posts at the Bank), and (2) that the company purchasing the defendants' shares was a subsidiary of a Japanese conglomerate which did a lot of business with the Bank. Speaking through Judge Bazelon, the court said: "The purpose of the ... remedy is not to restore particular funds to the Government, but to provide a means of enforcing the loyalty of its agents. The action pursued here is a proper tool, based on common-law notions of principal-agent relations, for controlling the possible loss of impartial public administration." Id. at 734.

 Mr. Eilberg contends that United States v. Carter is without application in an instance such as the one at bar, in which the proposed target of the federal common law civil suit has been charged and found guilty under 18 U.S.C. § 203. Mr. Eilberg points out that Congress has fashioned a particular statutory remedy for the benefit of the United States as a companion to criminal proceedings successfully maintained under the chapter of the criminal code-Chapter 11, "Bribery, Graft, and Conflicts of Interest"-which includes 18 U.S.C. § 203. The argument is that the adoption of a statutory remedy was preemptive, foreclosing the pursuit by the United States of any pre-existing common law remedies for Mr. Eilberg's acknowledged crime. The statutory remedy, set forth in 18 U.S.C. § 218, is a delegation to the President, or to agency heads designated by him, of authority to "rescind any contract ... (or) ... grant ... awarded ... by or for any agency of the United States ... in relation to which there has been a final conviction for any violation of this chapter...."

 The contention that Section 218 is a pro tanto narrowing of United States v. Carter was considered in United States v. Podell, 572 F.2d 31 (2d Cir. 1978), a civil action brought by the United States to recover legal fees and campaign contributions which former Congressman Bertram L. Podell had received and conspired to receive, in contravention of 18 U.S.C. § 203, for services performed in relation to proceedings pending before the FAA-as admitted by Mr. Podell in an antecedent plea of guilty. Noting that Section 218 describes the rescission of a contract or grant as a remedy "(i)n addition to any other remedies provided by law," Chief Judge Kaufman, speaking for the Second Circuit, rejected the contention.

 Reliance on Section 218 to oust the common law cause of action is not only syntactically vulnerable, it imputes to Congress a policy judgment which has no discernible supporting rationale. Section 218 comes into play after a conviction under Section 203 or some cognate provision of Chapter 11 of Title 18. Under Mr. Eilberg's reading of Section 218, a criminal conviction would not make rescission of a tainted grant an available remedy additional to recoupment from the public malefactor of his illicit fee. It would insulate the malefactor from recoupment, in exchange for a remedy of rescission very frequently not directed at the malefactor and whose invocation might in many instances be deemed by the President or his surrogate not to be in the interests of the United States.

 And so, agreeing with the ruling in United States v. Podell, I deny the motion to dismiss the first and second claims for relief. *fn3"

 II.

 In its third claim for relief-embodying its asserted second cause of action-the United States sues under the False Claims Act, 31 U.S.C. § 231. The gravamen of the claim is the allegation that Mr. Eilberg, while a Congressman, in fifty-six consecutive monthly certifications to the Clerk of the House and the House Committee on Administration, misrepresented as official an undetermined number of telephone toll calls which were paid for out of the House contingent fund, and for which, but for the alleged misrepresentations, Mr. Eilberg would have had to reimburse the United States.

 Section 231 provides, in pertinent part, as follows:

 
Any person not in the military or naval forces of the United States, or in the militia called into or actually employed in the service of the United States, 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, 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.

 A.

 The first question posed by Mr. Eilberg's motion to dismiss the United States' third claim for relief is whether a false certification constitutes a false "claim" within the meaning of the False Claims Act when the effect of such certification is not to trigger the payment of money by the United States but to insulate the certifier from having to reimburse the United States for money expended by the United States.

 Although the False Claims Act has been considered by the Supreme court on several occasions, *fn4" there appears to have been no occasion for the Court to address the precise issue posed here. Of the few relevant lower court cases, the most recent seems to be one in this district-Judge Davis' decision nine years ago in United States v. Marple Community Record, Inc., 335 F. Supp. 95 (E.D.Pa.1971). There the question was whether Section 231 had been breached by false representations to postal authorities that a periodical's subscription roster was large enough to entitle the periodical to a second-class mailing permit. Judge Davis held that the Government's attempt to mount a claim under the False Claims Act was unavailing: " ... (H)istory and semantics indicate that fraud associated with an obligation owed by an individual to the government does not fall within the purview of the Act." Id. at 100. In reaching this conclusion, Judge Davis expressly rejected the reasoning of Judge Rifkind, who had reached precisely the contrary result twenty-five years before in United States ex rel. Rodriguez v. Weekly Publications, 68 F. Supp. 767 (S.D.N.Y.1946).

 The crux of Judge Rifkind's ruling was as follows (id. at 770):

 
Even if we were to say that the claim must be for money, such was the claim made by defendants when it demanded, as of right, a substantial postal subsidy. Let us suppose that it was permissible for defendants to mail their magazines at regular postage rates, and then, subsequently, to submit to the post office a demand or claim for a remission of part of the postage paid on the ground that the publication was entitled to second-class rates. This would not be unlike a claim for a refund of taxes. Certainly if the demand or claim by the publisher were false, such misconduct would come within the statute. I see no real difference in the present situation, but merely a difference in bookkeeping form.

 I find that Judge Rifkind's analysis is persuasive; that the analysis is harmonious with the Supreme Court's subsequent observation that its own cases construing the False Claims Act have "consistently refused to accept a rigid, restrictive reading ...," United States v. Neifert-White Co., 390 U.S. 228, 232, 88 S. Ct. 959, 961, 19 L. Ed. 2d 1061 (1968); and that it is applicable here.

 B.

 The second ground on which Mr. Eilberg predicates his motion to dismiss the third claim for relief is that pursuit of the claim is expressly foreclosed by 2 U.S.C. § 95:

 
No payment shall be made from the contingent fund of the House of Representatives unless sanctioned by the Committee on House Administration of the House of Representatives. Payments made upon vouchers approved by said Committee shall be deemed, held, and taken, and are declared to be conclusive upon all the departments and officers of the Government: Provided, That no payment shall be made from said contingent fund as additional salary or compensation to any officer or employee of the House of Representatives.

 The same contention-that the statutory recital that "(payments) ... approved by said Committee ... are ... conclusive upon all the departments and officers of the Government" precluded the United States from bringing suit under the False Claims Act-was pressed in United States ex rel. Hollander v. Clay, 420 F. Supp. 853 (D.D.C.1976), a suit under the False Claims Act against Congressman William L. Clay of Missouri. The suit sought double recovery, together with the statutory $ 2,000 per false claim, for disbursements to Congressman Clay from the House contingent fund, such disbursements constituting reimbursement to the Congressman for allegedly false travel vouchers reporting trips greatly inflated in cost or never taken at all. After reviewing the mid-nineteenth century genesis of Section 95, which reflected mounting Congressional hostility to Treasury attempts to audit the expenditures of members of the Senate and House who sought Treasury reimbursement, Judge Flannery found that "the term conclusive meant only that the Treasury must honor the request of a coordinate branch of government for disbursement of funds." Id. at 858. And given (as the Supreme Court determined a quarter of a century ago in United States v. Bramblett, 348 U.S. 503, 75 S. Ct. 504, 99 L. Ed. 594 (1955)) that Congressmen enjoy no general exemption from judicial pursuit for pressing false claims on the federal fisc, Judge Flannery concluded-correctly in my view-that Section 95 should not be read to bar effective implementation of the Act.

 C.

 Under Resolution 10 of the House of Representatives, documents in the custody of the House are subject to subpoena only after "a proper court has determined upon the materiality and relevancy" of the material intended to be the target of compulsory court process. See In re Grand Jury Investigation, 587 F.2d 589, 591-92 n.1 (3d Cir. 1978). Shortly after initiating this suit, the United States filed a "Motion for a Determination of Materiality and Relevancy" of certain documents in the files of the Clerk of the House, Hon. Edmond L. Hershaw, Jr., the production of which the United States deems necessary. The documents sought to be subpoenaed are described as follows:

 
(any) and all billings and other records maintained by the Clerk ... relating to telephone toll calls from or charged to the Office of former Representative Joshua Eilberg ... for the period from and including May of 1973 through and including January of 1978; and all controlling House Regulations pertinent to such billings and records.

 The Clerk resists the motion on the following ground (Memorandum in Opposition to Motion of the United States Attorney for A Determination of Materiality and Relevancy, pp. 5-6):

 
The United States Attorney contends, and requests judicial concurrence in the contention, that certain records of the House are relevant and needful for use in the civil action presently pending. The materiality and relevancy of the documents sought to be discovered must be contingent upon the propriety of the underlying cause of action. If this Court lacks, or is compelled by judicial doctrine to refuse, jurisdiction over the subject matter or if the question is non-justiciable under traditional judicial standards then it cannot and should not issue a finding of materiality and relevancy. It is the contention of the Clerk of the United States House of Representatives that the precepts of the judicially-formulated "political question doctrine" inescapably lead to the conclusion that the underlying cause of action is "not justiciable in federal court because of the separation of powers provided by the Constitution." Powell v. McCormack, 395 U.S. 486, 517 (89 S. Ct. 1944, 1962, 23 L. Ed. 2d 491) (1969).
 
It is submitted by the Clerk that the jurisdiction of an Article III court cannot be invoked for purposes of sifting through each and every phone call made by a congressman and his staff in order to ascertain which if any were improperly determined to be "official" by the House of Representatives without interfering in the due function of a coordinate branch and violating of (sic) the separation of powers doctrine. The interposition of the judiciary in such a manner into the internal affairs of the legislative branch is foreclosed by the application of the political question doctrine which renders the dispute nonjusticiable.

 In summary form, the syllogism advanced by the Clerk comes to this:

 2. Among the subjects which the House of Representatives has addressed, pursuant to its constitutionally allocated rule-making power, are (1) which toll telephone calls Members of the House should reimburse the United States for, and (2) who should determine whether particular telephone calls fall within the to-be-reimbursed category. In particular, pursuant to Section 57 of Title 2-a 1971 statute which confers on the Committee on House Administration the authority to "fix and adjust from time to time ... the amounts of allowances (including the terms, conditions, and other provisions pertaining to those allowances) within the following categories: ... allowances for telephone and telegraph and other communications ...," (2 U.S.C. § 57)6-the House of Representatives, through rules published by the Committee on House Administration, has directed each Member to review telephone toll billings for "improper charges, or charges for unofficial calls for messages noted on the originals of the bills." Regulations and Accounting Procedures for Allowances and Expenses of Committees, Members and Employees of the United States House of Representatives, Committee on House Administration, 96th Cong., 1st Sess. 128 (1979). *fn7"

 3. Thus, the norm of "unofficialness," as the talisman of what telephone toll calls a Congressman should reimburse the United States for, is one embodied in a House rule-namely, the requirement that toll billings be screened for "unofficial" calls. Moreover, via the same rule, the house has imposed on each Member the responsibility of reviewing that Member's own toll bills, thereby in effect establishing each Member as a duly constituted ...


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