Payne Hackenbracht & Sullivan

False Claims Act

The criminal False Claims Act establishes penalties for individuals and corporations who make "any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious or fraudulent ...." 18 U.S.C. 287. It is universally accepted that because criminal statutes are to be strictly construed, Smith v. United States, 360 U.S. 1 (1959), the courts must take care to ensure that reasonable limits are observed when dealing with a pervasive statute such as 18 U.S.C. 287. See, e.g., United States v. Beer, 518 F.2d 168, 170 (5th Cir. 1975). Although a defendant charged under this statute may find some solace in this general principle given the high burden of proof the government must meet in a criminal prosecution, it is significant that the courts throughout the United States have been less than uniform in their interpretation and application of the criminal False Claims Act.

I. Elements of the Crime

The statute establishes the following elements which the prosecution must prove beyond a reasonable doubt to secure a conviction:

(1)A claim for property or money is made;

(2)The claim is against or to a department or agency of the United States;

(3)The claim was false, fictitious or fraudulent;

(4)The person must have known at the time that the claim was false, fictitious or fraudulent; and

(5)The false, fictitious or fraudulent claim was material.

See U.S. Attorneys' Manual, 9-42.181 (1985). Each of the foregoing elements will be analyzed in turn.

II. Presentation of Claim

The U.S. Supreme Court has defined a "claim" under 18 U.S.C. 287 to include "all fraudulent attempts to cause the Government to pay out sums of money." United States v. Neifert-White Co., 390 U.S. 228 (1968). Thus, in United States v. Mastros, 257 F.2d 808 (3d Cir.), cert. denied, 358 U.S. 830 (1958), the Court ruled that a settlement proposal seeking the collection of money from the government qualified as a claim under 287. This definition is sufficiently broad to include false statements of factual data presented in support of a claim under a government contract.

In United States v. White, 765 F.2d 1469 (11th Cir. 1985), a construction contractor who had performed extensive work for NASA at the Kennedy Space Center was convicted by the trial court for submission of false claims stemming from change order work. On appeal, the defendants contended that because their claims under the fixed-price contracts were merely estimates presented to the government as an opening position in the process of negotiation, they could not constitute false, fictitious or fraudulent claims under 18 U.S.C. 287. While acknowledging that the settlement of change order costs is necessarily a matter of negotiation, the appellate court rejected this contention and affirmed the conviction. 765 F.2d at 1472, 1481-82.

In reaching its decision, the Court found it significant that final submission of the cost proposals was made after the change order work was complete:

There is a line between estimates which reflect reasonably incurred expenses and estimates which are so grossly inflated when compared to actual costs that they are by their very nature fraudulent. That line has been crossed in this case.... Even if the estimates were truly based on mathematical formula, appellants had a duty to make sure that they reflected reasonably incurred costs. Checking available physical data on change orders was the obvious means to accomplish this end. The appellant's avowed failure to do so evidenced a reckless disregard of the truth, with a conscious purpose to avoid learning the truth. Such action is sufficient to show that a false statement was made knowingly or wilfully. 765 F.2d at 1481-82. The Court similarly relied on the contractor's representations during negotiations that the proposals reflected actual costs. Id.; see also United States v. Collins, 596 F.2d 166, 168 (6th Cir. 1979) (submission of grossly overstated salary figures for purposes of negotiation was strong evidence of fraudulent intent); United States v. Weiler, 385 F.2d 63, 65-66 (3d Cir. 1967) (A defendant cannot be relieved of the consequences of a material misrepresentation for lack of knowledge when the means of ascertaining the truth are available).

In a somewhat similar situation, the U.S. Court of Appeals for the Sixth Circuit reversed the conviction of a government contractor who had submitted a claim based on cost estimates following the termination of a fixed-price contract. Maxwell v. United States, 277 F.2d 481 (6th Cir. 1960). The Court found persuasive the contractor's repeated indications during negotiations that its submissions were estimates which were not reflected in the company's books and the unchallenged testimony that comparative actual costs could not be determined. 277 F.2d at 509. The difficulty of defining and proving a claim, however, is amply illustrated by the case of United States v. Litton Systems, Inc., Docket No. 578-00031B (S.D. Miss. 1984) where the company was charged with filing with the Navy a false claim for delays arising out of a contract for the manufacturing of submarines.

Throughout the trial, the company contended that the materials it had submitted were intended as a proposal for equitable adjustment, rather than a demand for money. Significantly, the Court instructed the jury to determine whether the materials were a claim or a proposal by examining the "course of conduct" between the parties to determine whether they intended to treat the questioned documents as a demand for money or a negotiating proposal.... Ultimately, at the end of the eight week trial, the jury acquitted the defendant. B. Elmer et al., Procurement Fraud Investigations: Basic Principles & Guidelines, Briefing Papers No. 84-9, 1985 Revision Note (Federal Publications). Because this case is not reported, we must rely on the cited Briefing Paper report, short of reviewing the trial transcripts.

Finally, the requirement that the claim is made against or to the Government is typically one which is easily established by the prosecution. This is especially true given that there is no need to show actual injury to the Government stemming from the false, fictitious or fraudulent claim. United States v. Miller, 545 F.2d 1204 (9th Cir. 1976), cert. denied, 430 U.S. 930 (1977).

III. False, Fictitious or Fraudulent

Section 287 prohibits making a claim against the Government knowing it to be either false, fictitious or fraudulent. Therefore, a person may be criminally liable for submitting any one of the three types of proscribed claims. United States v. Irwin, 654 F.2d 671, 683 (10th Cir. 1981), cert. denied, 455 U.S. 1016 (1982); United States v. Milton, 602 F.2d 231, 233n.5 (9th Cir. 1979).

According to a recognized standard jury instruction, the terms "false" and "fictitious" are essentially synonymous:

A statement is `false' or `fictitious' if untrue when made, and then known to be untrue by the person making it or causing it to be made. 2 E. Devitt & C. Blackmar, Federal Jury Practice and Instructions 28.04 (3d ed. 1977). The same authority defines "fraudulent" as follows:

A statement or representation is `fraudulent,' if known to be untrue, and made or caused to be made with the intent to deceive the Government agency to whom submitted. Id. at 28.04. Although presented in a jury instruction with respect to a prosecution under 18 U.S.C. 1001, these definitions apply equally to the crime established by 18 U.S.C. 287. Irwin, 654 F.2d at 683n.15; Milton, 602 F.2d at 233.

IV. Criminal Intent

The Eighth Circuit has recognized that, consistent with general principles of criminal law, the prosecution must prove beyond a reasonable doubt that the defendant charged with violating 287 acted with the requisite criminal intent. Johnson v. United States, 410 F.2d 38, 47 (8th Cir.), cert. denied, 396 U.S. 822 (1969); Kercher v. United States, 409 F.2d 814, 817 (8th Cir. 1969). As the Court noted in United States v. Maher, 582 F.2d 842, 847 (4th Cir. 1978), cert. denied, 439 U.S. 1115 (1979), the criminal intent essential for conviction may be proved by a showing that the defendant acted either (1) with a specific intent to violate the law, or (2) with an awareness that his actions were morally wrong, whether or not he knew he was violating the law. See Johnson, 410 F.2d at 47; see generally United States v. Bishop, 412 U.S. 346 (1973); Morrissette v. United States, 342 U.S. 246 (1952). The Eighth Circuit has further characterized the element of intent as "the specific will to act, an element of deliberateness or wilfulness or in other words, not inadvertent or accidental." United States v. Cooperative Grain & Supply Co., 476 F.2d 47, 58 (8th Cir. 1973); see also United States v. May, 625 F.2d 186, 190 (8th Cir. 1980).

While motive and purpose are relevant to the issue of criminal intent, they are not determinative of it. Thus, "the defendant could have formed the requisite criminal intent by acting with a consciousness that he was doing something wrong while pursuing a legitimate business goal, or he could have been aware of the prohibitions of the False Claims Act and could have chosen to pursue his business goals in spite of those prohibitions hoping that his illegal acts would not be discovered." Maher, 582 F.2d at 847. In either event, a conviction under 287 would be proper. Cognizant of the prosecution's burden in this regard, the Eighth Circuit affirmed a conviction under 287 where the jury apparently did not believe that defendant acted out of a genuine misconception of the law, or found his belief in the legality of his conduct to be so unreasonable or impermissible that it did not constitute a justifiable excuse for his conduct. United States v. Rifen, 577 F.2d 1111 (8th Cir. 1978).

Given that the statute is silent with regard to criminal intent, those circuits which have confronted the issue have concluded that 287 generally does not require proof of a specific intent to defraud. See, e.g., Maher, 582 F.2d at 847-48. Although it is not clear precisely where the Eighth Circuit stands on this issue, the Court is unlikely to depart from this trend by reading a new element into the statute. See Cooperative Grain & Supply Co., 476 F.2d 47 (civil False Claims Act does not require intent to defraud). Indeed, in reviewing a prosecution for making a fraudulent claim under 287, the Eighth Circuit concluded that the jury was permitted to infer an intent to defraud from a finding that defendant had submitted a claim with guilty, actual knowledge that it was false. United States v. Rifen, 577 F.2d at 1113. Thus, in holding that an intent to defraud need not be proved in a 287 false claim prosecution, the Court in United States v. Milton, 602 F.2d 231, 233n.7 (9th Cir. 1979), declined to decide whether a specific intent to defraud must be shown in a prosecution under 287 for submission of a fraudulent claim.

Moreover, it is generally recognized that a defendant's good faith bears directly on his culpability. Such a defense may be established where the defendant can show that its actions were the result of a good faith reliance on an expert, together with full disclosure to that expert. See United States v. Smith, 523 F.2d 771, 778 (5th Cir. 1975), cert. denied, 429 U.S. 817 (1976); United States v. Mitchell, 495 F.2d 285 (4th Cir. 1975); Bursten v. United States, 395 F.2d 976 (5th Cir. 1968), cert. denied, 409 U.S. 843 (1972); United States v. Cox, 348 F.2d 294 (6th Cir. 1965); United States v. Baldwin, 307 F.2d 577 (7th Cir. 1962), cert. denied, 371 U.S. 947 (1963). Full disclosure of all the relevant facts is essential to this defense. Thus, in a prosecution under 18 U.S.C.1001 where the defendant was found to have knowledge contrary to his expert, the Fifth Circuit rejected the defense:

Claimed negligence on the part of his [expert] in failing to discover these irregularities is irrelevant. ... The fact that material is not intentionally hidden fails to meet the requirement that it be fully disclosed. The reliance defense serves the purpose of negating intent to commit an offense. It will not avail as a means of shifting criminal responsibility. United States v. Smith, 523 F.2d at 778.

V. Knowledge

In addition to proving criminal intent, the prosecution must prove beyond a reasonable doubt that the defendant submitted the claim with knowledge that it was either false, fictitious or fraudulent. United States v. Maher, 582 F.2d at 847. As noted previously, the matter of intent is an essential element in establishing criminal liability. United States v. Kershman, 555 F.2d 198, 201 (8th Cir.), cert. denied, 434 U.S. 892 (1977). Although knowledge and intent are overlapping concepts, the element of knowledge is clearly distinct from that of intent. United States v. Cooperative Grain & Supply Co., 476 F.2d 47, 58 (8th Cir. 1973).

A. Actual Knowledge

According to the U.S. Attorneys' Manual with regard to a prosecution under 18 U.S.C. 1001, "to commit an act `knowingly' is to do it with knowledge or awareness of the true facts or situation, and not because of mistake, accident or some other innocent reason ...." U.S. Attorneys' Manual, 9-42.142 (1985). In defining the knowledge requirement under 18 U.S.C. 287, the Eighth Circuit has noted that "the rules of `scienter' for the criminal mens rea should apply ... [and that] usually actual guilty knowledge is required for scienter." Cooperative Grain & Supply Co., 476 F.2d at 59. The Court therefore has sanctioned the standard criminal instruction that an act is done "knowingly" if done voluntarily and intentionally. See Kershman, 555 F.2d at 201; Milton, 602 F.2d at 233n.6; 1 E. Devitt & C. Blackmar, Federal Jury Practice & Instructions 14.04 (3d ed. 1977). Given their nature, criminal intent and guilty knowledge may be proved by the defendant's conduct and by all pertinent circumstances. Kershman, 555 F.2d at 201; United States v. Marley, 549 F.2d 561, 563 (8th Cir. 1977).

B. Imputed Knowledge

It is widely recognized that the element of knowledge in a criminal prosecution also may be established by something less than actual knowledge. When knowledge of the existence of a particular fact is an element of an offense, such knowledge is established if a person is aware of a high probability of its existence, unless he actually believes that it does not exist. Model Penal Code 2.02(7). See also Turner v. United States, 396 U.S. 398, 416 & n.29 (1970); Leary v. United States, 395 U.S. 6, 46n.93 (1969). Therefore, knowledge may be inferred where an individual is aware of the probable existence of a material fact and deliberately fails to make further inquiry. See United States v. Kershman, 555 F.2d 198, 200 (8th Cir. 1977); United States v. Jewell, 532 F.2d 697, 700-704 (9th Cir.), cert. denied, 426 U.S. 951 (1976) (approving the premise that "knowingly" in criminal prosecutions can be established where positive knowledge is lacking only because the defendant consciously avoided it).

The Eighth Circuit approved the following standard jury instruction regarding proof of guilty knowledge:

The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him. A finding beyond a reasonable doubt of a conscious purpose to avoid enlightenment would permit an inference of knowledge. Stated another way, a defendant's knowledge of a fact may be inferred from willful blindness to the existence of the fact.

It is entirely up to you as to whether you find any deliberate closing of the eyes, and the inferences to be drawn from any such evidence. A showing of negligence or mistake is not sufficient to support a finding of willfulness or knowledge.

United States v. Graham, 739 F.2d 351 (8th Cir. 1984), citing 1 E. Devitt & C. Blackmar, Federal Jury Practice & Instructions 14.09 (3d ed. 1977); see also United States v. Massa, 740 F.2d 629 (8th Cir. 1984), cert. denied, 471 U.S. 1115 (1985). In reaching its conclusion that the trial court did not err in giving the foregoing instruction, the Court noted that deliberate ignorance and positive knowledge are equally culpable. See also United States v. Jewell, 532 F.2d at 700; United States v. Gentile, 530 F.2d 461, 469 (2d Cir.), cert. denied, 426 U.S. 936 (1976).

The rule that "willful blindness" is equivalent to knowledge is well-established in criminal law and was designed to prevent an individual from circumventing criminal sanctions by deliberately closing his eyes to the obvious risk that he was engaging in unlawful conduct. See United States v. Sarantos, 455 F.2d 877, 881 (2d Cir. 1972); United States v. Evans, 559 F.2d 244, 246 (5th Cir. 1977), cert. denied, 434 U.S. 1015 (1978). However, its scope is limited:

A court can properly find wilful blindness only where it can almost be said that the defendant actually knew. He suspected the fact; he realised its probability; but he refrained from obtaining the final confirmation because he wanted ... to be able to deny knowledge. This, and this alone, is wilful blindness.... Any wider definition would make the doctrine of wilful blindness indistinguishable from the civil doctrine of negligence in not obtaining knowledge. G. Williams, Criminal Law: The General Part, 57 at 159 (2d ed. 1961). The Eighth Circuit therefore has carefully referred to such deliberate ignorance as "studied avoidance of positive knowledge." Kershman, 555 F.2d at 200; see also Cooperative Grain & Supply Co., 476 F.2d at 59 (guilty avoidance of knowledge can form the requisite criminal scienter in rare cases). Indeed, as the dissent noted in United States v. Jewell, 532 F.2d 697, 707 (9th Cir. 1976), "true ignorance, no matter how unreasonable, cannot provide a basis for criminal liability when the statute requires knowledge."

Based on these principles, several courts have concluded essentially that "one who acts with reckless indifference as to whether a representation is true or false is chargeable as if he had knowledge of its falsity." Irwin v. United States, 338 F.2d 770, 774 (9th Cir. 1964), cert. denied, 381 U.S. 911 (1965); United States v. Marley, 549 F.2d 561, 564 (8th Cir. 1977). The Model Penal Code defines reckless behavior as follows:

A person acts recklessly with respect to a material element of an offense when he consciously disregards a substantial and unjustifiable risk that the material element exists or will result from his conduct. The risk must be of such a nature and degree that, considering the nature and purpose of the actor's conduct and the circumstances known to him, its disregard involves a gross deviation from the standard of conduct that a law-abiding person would observe in the actor's situation. Model Penal Code 2.02(2)(c) (emphasis supplied); see also Rolf v. Blyth, Eastman, Dillon & Co., 570 F.2d 38, 47 (2d Cir.), cert. denied, 439 U.S. 1039 (1978). Given this definition, guilty knowledge may not be established by a showing of mere negligence or carelessness. See, e.g., McAllister v. United States, 747 F.2d 1273 (9th Cir. 1984), cert. denied, 474 U.S. 829 (1985); United States v. Hanlon, 548 F.2d 1096, 1101 (2d Cir. 1977); United States v. Jacobs, 475 F.2d 270, 287n.37 (2d Cir.) cert. denied, 414 U.S. 821 (1973). As a result, the courts have sanctioned jury instructions which provide that the knowledge requirement of 287 can be satisfied where the person making the claim acted with reckless disregard for its truthfulness and with the conscious purpose to avoid learning the truthfulness of the claim. See, e.g., United States v. Cook, 586 F.2d 572, 579 (5th Cir. 1978), cert. denied, 442 U.S. 909 (1979); see also Jacobs, 475 F.2d at 287n.37; United States v. Sarantos, 455 F.2d 877, 881 (2d Cir. 1972). Although the Court in Sarantos recognized that acting with a reckless disregard for the truth was essentially the same as acting with the conscious purpose to avoid learning the truth, it preferred the use of both terms in the jury instruction "to better impress on the jurors' minds the importance of finding a deliberate disregard of the facts." Id. at 882.

Despite the widespread use of such an instruction, the Second Circuit has specifically disapproved use of the term "reckless disregard for the truth" due to its concern that a jury might improperly convict an individual upon a finding of carelessness or negligence. Hanlon, 548 F.2d at 1101; United States v. Bright, 517 F.2d 584 (2d Cir. 1975). To remedy this problem, some courts have turned to use of the term "deliberate disregard" to clearly establish the substantial burden which the prosecution must meet in a criminal proceeding. See, e.g., United States v. Gentile, 530 F.2d 461, 470 (2d Cir.), cert. denied, 426 U.S. 936 (1976) ('deliberate disregard' implies that knowledge could be inferred if the jury found that the defendant was aware of the risk that his conduct was illegal but proceeded nonetheless).

C. Limitations & Defenses

While it is clear that the requisite knowledge may be proved inferentially by something less than actual knowledge, the Court must take care to ensure that the jury is fully apprised of the prosecution's burden. Therefore, while a "deliberate avoidance" instruction would undoubtedly be sanctioned in a prosecution under 287 given a sufficient factual basis, the Court must clearly convey to the jury the limited scope of the rule permitting conviction in the absence of actual knowledge of the false, fictitious or fraudulent nature of the claim.

In this regard, the Ninth Circuit has recognized that the approach adopted in Section 2.02(7) of the Model Penal Code is essential to a "deliberate avoidance" instruction. Thus, in United States v. Valle-Valdez, 554 F.2d 911 (9th Cir. 1977), the Court held that a defendant may be convicted on the basis of his deliberate avoidance of knowledge only where he is aware of the high probability of a material fact and thereafter acts with a conscious purpose to avoid learning the truth. This ruling qualified the Court's opinion in United States v. Jewell, 532 F.2d 697 (9th Cir.), cert. denied, 426 U.S. 951 (1976), by adopting the position set forth in the dissent. 532 F.2d at 705-708; See also United States v. Glick, 710 F.2d 639 (10th Cir. 1983), cert. denied, 465 U.S. 1005 (1984).

Despite such limitations, the courts have uniformly recognized that the "deliberate avoidance" instruction should rarely be given due to the possibility that the jury will convict on a negligence standard. See United States v. Alvarado, 817 F.2d 580 (9th Cir. 1987), cert. denied, 108 S.Ct. 2880 (1988). Thus, the Eighth Circuit has ruled that the instruction is proper only where there is evidence which supports an inference of deliberate ignorance:

A conscious avoidance instruction is `properly given only when the defendant claims a lack of guilty knowledge and there are facts and evidence that support an inference of deliberate ignorance.' United States v. McAllister, 747 F.2d 1273, 1275 (9th Cir. 1984), cert. denied, 106 S.Ct. 92 (1985). The reason such an instruction should not be given in all cases is `because of the possibility that the jury will be led to employ a negligence standard and convict a defendant on the impermissible ground that he should have known [an illegal act] was taking place.' United States v. Beckett, 724 F.2d 855, 856 (9th Cir. 1984) (per curiam). United States v. White, 794 F.2d 367 (8th Cir. 1986). In the absence of evidence that the defendant made a conscious effort to avoid knowledge of the criminal act, the Court held that the district court erred in giving the conscious avoidance/deliberate ignorance instruction. Id.; see also United States v. Meneses-Davila, 580 F.2d 888 (5th Cir. 1978).

There are significant limitations to securing a conviction with less than actual knowledge which also must be reflected in the jury instruction. First, as with a showing of actual knowledge, the prosecution may not meet its burden by establishing that submission of the false, fictitious or fraudulent claim was the result of negligence, carelessness, inadvertent error or some other innocent reason. See 1 E. Devitt & C. Blackmar, Federal Jury Practice & Instructions 14.04 (3d ed. 1977); United States v. Kershman, 555 F.2d 198, 201 (8th Cir.) cert. denied, 434 U.S. 892 (1977); United States v. McAllister, 747 F.2d 1273 (9th Cir. 1984), cert. denied, 474 U.S. 829 (1985); United States v. Gentile, 530 F.2d 461, 470 (2d Cir.) cert. denied, 426 U.S. 936 (1976). Any jury instruction regarding knowledge must incorporate this limitation.

Additionally, it is well-established that the knowledge required in a criminal prosecution is judged by a subjective standard. United States v. Massa, 740 F.2d 692 (8th Cir. 1984), cert. denied, 471 U.S. 1115 (1985); United States v. Kershman, 555 F.2d at 201. Honesty and good faith on the part of a defendant is therefore always a valid defense to a charge requiring knowledge of a material fact. See United States v. Gentile, 530 F.2d at 470 (An honest belief in the truth of the representations made by a defendant is a defense, however inaccurate the statements may turn out to be).

The Model Penal Code adopts this approach by establishing a scheme whereby the prosecution cannot impute to the defendant knowledge of a particular fact if he actually believes to the contrary. See Model Penal Code 2.02(7); United States v. Precision Medical Laboratories, Inc., 593 F.2d 434, 445 (2d Cir. 1978). Thus, the Court in United States v. Bright, 517 F.2d 584 (2d Cir. 1975), reversed a conviction because the trial court failed to balance a "deliberate ignorance" instruction with the Model Penal Code warning that the defendant's subjective belief was the determinative factor. Id. at 586-89; see also United States v. Jewell, 532 F.2d 697, 704n.21, 707 (9th Cir. 1976) (The dissent notes that failure to emphasize this limitation may allow a jury to convict on an objective theory of knowledge, that is, on a reasonable man standard); United States v. Olivares-Vega, 495 F.2d 827, 830nn.10 and 11 (2d Cir.), cert. denied, 419 U.S. 1020 (1974).

VI. Materiality

The Eighth Circuit has determined that materiality of the false, fictitious or fraudulent claim is an essential element of a prosecution under 18 U.S.C. 287. United States v. Adler, 623 F.2d 1287, 1291n.5 (8th Cir. 1980); United States v. Pruitt, 702 F.2d 152, 155 (8th Cir. 1983). The Court has further ruled that materiality is a matter of law typically to be determined by the trial court. See Pruitt, 702 F.2d at 155; Adler, 623 F.2d at 1292n.8 (one judge on the panel deciding the case expressed his preference for submitting the materiality issue to the jury).

The test for determining the materiality of a false claim or statement is whether the falsification "has a natural tendency to influence, or was capable of influencing, the decision of the tribunal in making a determination required to be made." United States v. Gonzales, 286 F.2d 118, 122 (10th Cir. 1960), cert. denied, 365 U.S. 878 (1961); see also United States v. Beer, 518 F.2d 168, 170-171 (5th Cir. 1975). Recognizing this standard, the Eighth Circuit has noted as follows:

We think that a statement is material if it has a tendency to induce the government to act, and that this requirement is certainly satisfied by a statement that is adequate to induce the agency to make a decision whether or not to pay. What makes a statement material is that it is required to put the claimant in a position to receive government benefits, whether rightfully or wrongfully.

United States v. Adler, 623 F.2d at 1291; see also United States v. Pruitt, 702 F.2d at 155; United States v. Voorhees, 593 F.2d 346, 349 (8th Cir.), cert. denied, 441 U.S. 936 (1979). Commenting on this standard, the Circuit Court for the District of Columbia held that a material statement must have "probative weight" in the process of reaching a decision. United States v. Weinstock, 231 F.2d 699, 701, 703 (D.C. Cir. 1956).

In adopting the same position, the Fourth Circuit has noted that the purpose of 10 U.S.C. 287 is to "protect the government against those who would cheat or mislead it in the administration of its programs." United States v. Snider, 502 F.2d 645, 652n.12 (4th Cir. 1974), quoting United States v. Johnson, 284 F.Supp. 273, 278 (W.D. Mo. 1968), aff'd, 410 F.2d 38 (8th Cir.), cert. denied, 396 U.S. 822 (1969). The Court noted further that the materiality requirement is directly linked to the purpose of the statute:

Implicit within the utilization of the materiality standard under 287 and 1001 is the notion that the criminal intent necessary under the statute includes not only an intention to make the statement but also an intention to deceive or mislead the person or agency to whom it is proffered. United States v. Snider, 502 F.2d at 652n.12.

Accordingly, the Fifth Circuit has concluded that the materiality requirement is designed to exclude "trivial" falsehoods from the purview of the statute. United States v. Beer, 518 F.2d at 170-171. This position is reflected in United States v. East, 416 F.2d 351 (9th Cir. 1969), where the Court noted that "the test for determining the materiality of the falsification is whether the falsification is calculated to induce action or reliance" by a federal agency. Id. at 353 (emphasis supplied).

While it is clear that the government need not actually have relied upon or acted to its detriment as a result of the false claim, the prosecution must establish that the falsification was capable of inducing payment. See United States v. Beer, 518 F.2d at 172; United States v. Whitaker, 848 F.2d 914 (8th Cir. 1988); United States v. Jones, 464 F.2d 1118, 1122 (8th Cir. 1972), cert. denied, 409 U.S. 1111 (1973); U.S. Attorneys' Manual, 9-42.143 (1985). Indeed, "if the functioning of a department or agency would not have been materially affected had it relied upon the statement, then the statement must necessarily be immaterial." Beer, 518 F.2d at 172.

To the extent that the claim could not have been resolved without a detailed audit by the agency, and given that with respect to certain alleged falsifications the claim itself included backup material which demonstrated the actual facts, it can be argued that the falsifications had no probative weight and therefore were incapable of influencing the agency's decision. Similarly, it can be argued that the alleged falsifications were not calculated to induce agency action or reliance, but were merely "trivial" mistakes.

The U.S. Attorneys' Manual notes that the best method of establishing materiality is through the use of expert testimony. Materiality is best shown by the testimony of expert witnesses, generally those who make the decisions on the application or statements in the particular case as to the influence that defendant's allegedly false statement might have had on the ultimate result of the transaction. U.S. Attorneys' Manual, 9-42.143 (1985). This approach should similarly be adopted by the defense in establishing the lack of materiality, preferably through the use of former government employees who were responsible for evaluating such contractor submissions.

VII. Corporate Criminal Liability

It is generally accepted that corporations may be held criminally liable for the acts of their agents or employees. See New York Central and H.R.R.R. v. United States, 212 U.S. 481 (1909). To convict the corporation, the agent must have committed the prohibited act with the criminal intent required to violate the statute. Therefore, the rule has developed that the knowledge or guilty intent of employees may be imputed to the corporation only if the agent acted within the scope of his employment and with the intent to benefit the corporation. See New York Central, 212 U.S. 481; United States v. Ridglea State Bank, 357 F.2d 495 (5th Cir. 1966).

Moreover, the prosecution need not prove specifically which agent possessed the necessary intent, or that any single agent acted with such intent. Rather the knowledge of a number of employees or agents may be combined to prove that the corporation had the requisite criminal intent to violate the statute. See B. Elmer et al., Procurement Fraud Investigations: Basic Principles & Guidelines, Briefing Papers No. 84-9, p. 5-6 (Federal Publications, September 1984), citing Inland Freight Lines v. United States, 191 F.2d 313 (10th Cir. 1951).

According to this rule, a corporation is liable for the fraudulent or criminal activity of its employees, even where such acts were contrary to corporate policy or express instructions. United States v. Basic Construction Co., 711 F.2d 570, 572-573 (4th Cir.), cert. denied, 104 S.Ct. 371 (1983). However, as the trial court in Basic Construction noted, the existence of such policies and instructions may be considered in determining whether the agents were acting to benefit the corporation. Id. at 572; see also United States v. Hilton Hotels Corp., 467 F.2d 1000 (9th Cir. 1972); United States v. Beusch, 596 F.2d 871 (9th Cir. 1979). Where the defense can establish that the agent acted to advance the interests of parties other than their corporate employer, the corporation may not be held liable under a statute requiring knowledge or guilty intent. See Ridglea State Bank, 357 F.2d at 498-500; Standard Oil Co. of Texas v. United States, 307 F.2d 120 (5th Cir. 1962).

This general rule of corporate liability has been applied in support of convictions under 18 U.S.C. 287. Thus, in United States v. Milton Marks Corp., 240 F.2d 838 (3d Cir. 1957), a carbine cartridge clip manufacturer was held liable for presenting a fraudulent claim to the Government on the ground that the anufacturer's general foreman had willfully included a large quantity of defective clips in shipments to the Government. The foreman's misconduct was sufficient to sustain a charge of corporate criminality. Id. at 839. Similarly, the Court in United States v. Empire Packing Co., 174 F.2d 16 (7th Cir.), cert. denied, 69 S.Ct. 1534 (1949), affirmed a conviction under 287 where the president of the corporation withheld information from the employee preparing a claim. The Court concluded that the president's guilty intent was imputable to the corporation for the purpose of proving its guilt. Id. at 19-20.