United States District Court, Northern District of Illinois, E.D
March 6, 1981
UNITED STATES OF AMERICA, PLAINTIFF,
A AND C INVESTMENTS, INC., MICHAEL COUGHLIN, KATHRYN MICHON AND EUGENE V. KELLY, DEFENDANTS.
The opinion of the court was delivered by: Leighton, District Judge.
This cause is before the court on the motions of certain
defendants to dismiss Count I, II, III, and V, and for a more
definite statement as to Counts IV and VI. For the following
reasons, the motions are denied as to all but Count V. Also
before the court is the application for entry of default
against defendant Eugene V. Kelly. Because it appears that
Kelly was served on October 7, 1980, and has not answered or
otherwise pled, the request for entry of default is granted.
Plaintiff, the United States of America, brought this civil
action based on the same facts as those in criminal action No.
78 CR 498, United States v. Kelly, et al., (N.D.Ill., filed
Jan. 30, 1978), where defendants Coughlin and Michon entered
into a plea agreement with the United States. The civil action
is for damages and forfeiture arising out of contract No.
071-75-140 between A and C Investments and the Department of
Housing and Urban Development for the repair of structural
defects in certain houses located in Harvey, Illinois. Coughlin
and Michon were president and vice-president, respectively, of
A and C Investments at the time in question, and Kelly was a
government employee with the responsibility of supervising the
award of the contract to repair the Harvey houses. It is
alleged that they schemed to defraud the United States in
connection with the contract.
Count I claims that defendants violated the False Claims
Act, 31 U.S.C. § 231-35, by conspiring to defraud the
government in connection with the contract. Count II alleges
that the defendants violate that Act by presenting false and
fraudulent claims for payment under the contract. In Count III,
the United States seeks to void the contract and recover from A
and C Investments, Coughlin, and Michon all consideration paid
them. Count IV seeks to recover the amount of money paid to
Kelly as a bribe, and Count V seeks to state a claim for breach
of contract. Finally, Count VI alleges that money paid out
under the contract was paid under mistake of fact.
Defendants A and C Investments, Coughlin, and Michon have
moved to dismiss. These defendants claim that Count I should
be dismissed because a corporation cannot conspire with its
officers and agents, and that Michon and Coughlin fall within
that category. However, as the United States points out, Count
I alleges that a conspiracy to defraud existed between the
corporate defendant, two of its officers, and a government
employee. Consequently, Count I alleges a conspiracy on its
face between two or more persons, and defendants' arguments to
the contrary are without merit.
The moving defendants also claim Counts I and II, dealing
with fraud, are defective in that they do not plead
specifically enough to satisfy Rule 9(b), Fed.R.Civ.P.
However, in United States v. Hughes, 585 F.2d 284, 286-88 (7th
Cir. 1978), the court held that proof of fraud or intent to
defraud is not necessary to establish liability under the Act.
Because Counts I and II are statutory claims, rather than
common law claims for fraud, Rule 9(b) has no application.
With respect to Count III, the moving defendants argue that
the claim is impermissibly based on a criminal statute and is
penal in nature. However, the right of the United States to
cancel and annul contracts fraudulently obtained is
well-established. United States v. Mississippi Valley
Generating Co., 364 U.S. 520, 563, 81 S.Ct. 294, 315, 5 L.Ed.2d
268 (1961). In K & R Engineering v. United States,
616 F.2d 469, 476 (Ct.Cl. 1980), the court noted that the policy of
protecting the integrity of the federal procurement process
from fraudulent activities of unscrupulous government
and dishonest government agents support claims similar to
those presented here. Consequently, this court concludes that
defendants' arguments are without merit.
With respect to Count IV, defendants appear to request
either dismissal or a more definite statement. According to
defendants, dismissal is apparently warranted on the basis
that it does not meet the Rule 9(b) requirements. However,
Count IV seeks to recover the bribes allegedly paid to Kelly,
and Rule 9(b) therefore does not apply. In addition,
defendants alternatively seek a more definite statement under
Rule 12(e). Because all that is required by Rule 8 is a "short
and plain statement of the claim giving defendants fair notice
of plaintiff's claim and the grounds on which it rests," and
because this court finds that Count IV satisfies that
requirement, the request for more definite statement is
denied. Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 102, 2
L.Ed.2d 80 (1957).
Defendants Coughlin and Michon seek dismissal of Count V on
the theory that an action for breach of contract may not be
brought unless privity of contract is alleged. Plaintiff,
however, claims that it will be able to prove through
discovery that the corporate form should be disregarded so as
to impose liability on Michon and Coughlin. While the
corporate veil may be pierced in the interests of justice,
Bangor Punta Operations, Inc. v. Bangor & A.R. Co.,
417 U.S. 703, 94 S.Ct. 2578, 41 L.Ed.2d 418 (1974), the defendants'
reply brief notes that the complaint is devoid of reference to
such a claim, and argues that the count should be stricken for
failure to state that claim. Because this court finds that the
allegations of Count V are insufficient to state a claim
against Coughlin and Michon on the basis of disregarding the
corporate form of A and C Investments, those defendants' motion
to dismiss that count as to them is granted, with leave to
amend. See, e.g., Dernick v. Bralorne Resources, Ltd., 84
F.R.D. 92, 94 (S.D.Tex. 1979); Newman v. Forward Lands, Inc.,
430 F. Supp. 1320 (E.D.Penn. 1977).
Finally, defendants' contentions concerning Count VI are, at
best, specious. In this count, the United States seeks to
state a claim for mistake of fact in payment of contract
amounts to A and C Investments. Defendants claim that the
allegations contained therein instead attempt to state a claim
for mistake of law, and argue that such a claim is not
recognized under Illinois law. This court has carefully
reviewed the complaint, the memoranda, and the relevant law,
and finds that a claim for mistake of law has been set forth
against the moving parties. The United States clearly has a
federal right to recover funds wrongfully or illegally paid,
United States v. Wurts, 303 U.S. 414, 415, 58 S.Ct. 637, 638,
82 L.Ed. 932 (1938), and this right has been satisfactorily
alleged as a claim to satisfy Rule 8(a), Fed.R.Civ.P. The court
has carefully considered defendants' numerous and lengthy
remaining arguments, and finds them to be without merit.
In conclusion, defendants' motion to dismiss or for more
definite statement is denied as to Counts I, II, III, IV, and
VI; and, with leave to amend, is granted with respect to Count
V. Plaintiff may file an amended Count V within 30 days from
the date hereof. In addition, plaintiff's motion for default
as to defendant Kelly is granted.
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