U.S.A. v. Paltrow

• Court: District Court, D. New Hampshire
• Decided: April 24, 1995
• Docket: CV-90-163-L
• Status: Published

Opinion

U.S.A. v. Paltrow CV-90-163-L 04/24/95 THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

United States

v. #90-163-L

Robert Paltrow, American Heart Research Foundation, Inc.

ORDER

This case is once again before the court on a motion for

summary judgment. Reference is made to U.S. v. American Heart

Research Foundation, 996 F.2d 7 (1st Cir. 1993). The court is

culling from that opinion the facts here delineated.

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 solic­

itations. A direct mail organization controlled by

Paltrow, North American Communications, Inc. ("NAC")a

conducted the 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 scien­

tific 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 gualified non-profit organization under the

applicable regulations, was false. AHRF's mailings

were based on the fraudulently obtained ACRF permit.

2 The solicitations occurred in 1984 and 1985. In

spring 1986, the government filed a criminal inform­

ation 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

relief where mail fraud is occurring or is threatened.

No damage claim was asserted in this action.

In April 198 6 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.

3 In 1990, after some preliminary negotiations

failed, the government filed the present case under the

False Claims Act against Paltrow and his three enti­

ties. 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.

Judge Stahl, ruling on a motion for summary judgment filed

by the defendants, dismissed counts I through IV based on the

False Claims Act and count V, a back-up claim for unjust

enrichment, on the basis of res judicata.

The judgment of the district court (Stahl, J.) was affirmed

by the First Circuit court so far as it dismissed the

government's four claims under the False Claims Act, and the

decision was vacated and remanded as to the claim based on the

unjust enrichment.

In affirming, remanding and vacating in part, the First

Circuit court stated the following: "The treatment of the unjust

4 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 that may be presented by that

claim." American Heart Research Foundation, 966 F.2d at 12.

Defendants are once again before the court on a motion for

summary judgment. The basis of the instant motion for summary

judgment may be categorized as follows:

1. The action for unjust enrichment is time barred by the

statute of limitations.

2. Defendants have not been unjustly enriched.

3. Defendants are not liable for the actions of American

Cancer Research Funds, Inc. "ACRF" and American Heart Research

Foundation "AHRF" under theories resembling piercing the

corporate veil.

DISCUSSION

Summary judgment under Fed. R. Civ. P. 56(c) is proper only

if, viewing the record in the light most favorable to the non­

moving party, the documents on file disclose no genuine issue of

material fact and the moving party is entitled to judgment as a

matter of law. Oliver v. Digital Equipment Corp., 846 F.2d 103,

105 (1st Cir. 1988). "Only disputes over facts that might affect

5 the outcome of the suit" are material. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute over a material

fact is genuine "if the evidence is such that a reasonable jury

could return a verdict for the non-moving party." JCd. ; Oliver,

846 F.2d at 105. The moving party initially must "demonstrate

the absence of a genuine issue of material fact." Celotex Corp.

v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party has

made the reguired showing, the adverse party must "go beyond the

pleadings" and designate specific facts to demonstrate the

existence of a genuine issue for trial. Fed. R. Civ. P. 56(e);

Oliver, 846 F.2d at 105.

In essence the defendants' position concerning the

limitations period is that the tort statute of limitations should

apply to the government's claim for unjust enrichment. There is

a three year statute of limitations for tort actions. 28 U.S.C.

§ 2415 (b).

The government counters by taking the position that the

government instituted this action on April 30, 1990 and a six

year statute of limitations is apposite in this case. The six

year statute of limitation is set forth in 28 U.S.C. § 2415 (a).

Further, that despite a protracted and convoluted history in this

case, including a transfer from the Western District of

Pennsylvania, a bankruptcy reorganization by defendant NAC,

6 dismissal by the District Court of certain counts, and review and

reinstatement of Count V by the Circuit Court, the government

maintains defendants Paltrow and NAC are trying to muddy the

waters by, for the first time and on the eve of trial, raising

the issue of statute of limitations almost five years after this

action's inception.

28 U.S.C. § 2415 is entitled "Time for Commencing Actions

Brought by the United States." Further, 28 U.S.C. § 2415 (a)

provides that "every action for money damages brought by the

United States or an officer or agency thereof which is founded

upon any contract express or implied in law or fact, shall be

barred unless the complaint is filed within six years after the

right of action accrues or within one year after final decisions

have been rendered in applicable administrative proceedings

reguired by contract or law . . . ."

28 U.S.C. § 2415 (b) provides that "every action for money

damages brought by the United States or an officer or agency

thereof which is founded upon a tort shall be barred unless the

complaint is filed within three years after the right of action

accrues."

In Desmond v. Moffie, 375 F.2d 742 (1st Cir. 1967) the court

ruled, in a fraudulent conveyance case, that in deciding whether

the three or six year statute of limitations applies a court must

7 determine the essential nature of a plaintiff's claim.

Three courts of appeal have reached the conclusion that the

United States may choose the six-year period in unjust enrichment

cases. United States v. First National Bank of Cicero, 957 F.2d

1362 (7th Cir. 1992); United States v. P/B STCO 213. 756 F.2d

364, 374-76 (5th Cir. 1985); United States v. Dae Rim Fishery

Co., 794 F .2d 1392 (9th Cir. 1986).

The defendants cite Blusal Meats, Inc. v. United States, 638

F.Supp 824, 832 (S.D.N.Y. 1986), to support their three year

statue of limitations argument. The court in Blusal Meats, Inc.

stated that the factual basis for the government's claims is that

the defendant knowingly and purposefully presented false

documents to obtain money. That is a tort, and suit must be

brought upon it within three years. 28 U.S.C. 2415(b). The

three-year limitation is not to be changed to a six-year

limitation by calling the suit one for "unjust enrichment."

This argument has some cogency. Notably, in a fraud action

one must prove defendant's culpability, whereas in an unjust

enrichment action proof of wrongful conduct by the defendant is

not reguired. Simonds v. Simonds, 45 N.Y.2d 233, 408 N.Y.S.2d

359, 364, 380 N.E. 189, 194 (Ct. Ap p . 1978).

However, the government's argument also has cogency. As

noted in the government's pleadings, "[t]he fact that Defendants Paltrow and NAC were engaged in a scheme to defraud, however is

irrelevant for statute of limitations purposes. The action

before this court and pled is one for unjust enrichment, which

sounds in guasi-contract and is governed by a six-year

limitations period. In effect. Defendants demanded and received

a service from the United States for delivery of mail and failed

to pay the proper rate for that service. The six-year period

would obviously apply if the misuse of the permit were simply the

result of a mistake. Defendants' egregious conduct does not

change this fact. In (sic) would be ludicrous and ineguitable if

Defendants were able to benefit from a shorter statute of

limitations period simply by virtue of being more culpable, in

that they knowingly conceived of, and engaged in, this scheme

against the Postal Service as opposed to inadvertently deriving

benefit from it."

In light of the essential nature of the case and the

semblance of the action to guasi or implied contract, the

defendants' motion for summary judgment, based on the three year

limitations period, is denied. Because unjust enrichment is a

species of implied contract, the six year limitations period of

Section 2415 (a) is applicable. United States v. Island Park,

791 F. Supp. 354, 369 (E.D.N.Y. 1992).

Further, in reviewing the records and the arguments submitted by the parties, the court agrees with the government's

position that defendants' second basis for its motion for summary

judgment, lack of unjust enrichment, is not appropriate for

summary judgment as it involves issues of fact.

Finally, the court agrees with the government's position

that the third basis offered by defendants in support of summary

judgment, piercing the corporate veil, is not appropriate.

Principally, this theory also involves contested issues of fact.

Motions for summary judgment denied.

April 24, 1995

Martin F. Loughlin Senior Judge Robert L. Eberhardt, Esg. Daniel R. Solin, Esg. David W. Jordan, Esg. Kenneth I. Schacter, Esg.