United States of America v. Christeson
Filing
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ORDER granting in part and denying in part 5 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 6/11/18. (DJP)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
4:17-CV-04128-KES
ORDER GRANTING IN PART AND
DENYING IN PART PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
vs.
CRAIG JOHN CHRISTESON,
Defendant.
Plaintiff, the United States of America (United States), brought this action
against defendant, Craig John Christeson, for violation of the False Claims Act
(31 U.S.C. § 3729-3733), common law fraud, unjust enrichment, payment by
mistake, and breach of the fiduciary duty of loyalty. Docket 1. Plaintiff now
moves for summary judgment. Docket 5.
BACKGROUND
The undisputed facts, 1 viewed in the light most favorable to the
defendant, are as follows:
The United States filed its statement of undisputed material facts. Defendant
has not objected to the facts and the time for objections has passed. As a
result, under D.S.D. Civ. LR 65.1(D), the movant’s statement of material facts
are deemed admitted.
1
From May 2000 through March 2015, Christeson was employed by the
United States Postal Service (USPS). Docket 7 ¶ 1. From January 2010 until
January 2014, Christeson was the postmaster in the Madison, South Dakota
post office. Id. In January 2014, he became the postmaster in the DeSmet,
South Dakota post office. Id.
The USPS sells postage meters to permit customers to print out their
own postage. A spoiled postage meter strip occurs when an envelope is put
through a postage meter, but the postage strip generated is not used. Id. ¶ 3.
When this occurs, a customer may bring the spoiled postage meter strip to the
post office and receive a credit or refund. Id. As postmaster, Christeson was in
charge of verifying and issuing credit or refunds to customers for spoiled
postage meter strips. Id. ¶ 2.
Between June 26, 2013, and March 27, 2015, Christeson used his role
as postmaster to falsely certify that he had received spoiled postage meter
strips from customers when he had not. Id. ¶ 4. Christeson would then print
out a money order in the name of the customer, cash the money order at the
post office, and keep the money for himself. Id. During this time period, at the
Madison post office and DeSmet post office, Christeson falsely certified that he
had received approximately sixty-one spoiled postage meter strips. Id. ¶ 5.
Because of Christeson’s actions verifying false claims for spoiled postage meter
strip refunds, and issuing and cashing money orders, the USPS suffered
damages totaling $8,970.71. Id. ¶ 10.
2
Christeson pleaded guilty to the criminal offense of Theft of Government
Property (18 U.S.C. § 641) for knowingly submitting fraudulent claims for
spoiled postage meter refunds to the USPS. Id. ¶ 11. He was sentenced to a
term of probation and restitution was ordered payable to the USPS in the
amount of $8,970.71. Id. This civil action was then commenced against
Christeson. Docket 1.
Christeson has failed to file an answer to the complaint and is in default.
The United States moved for summary judgment and Christeson failed to
respond. The deadline for a response has passed.
LEGAL STANDARD
Summary judgment is appropriate if the movant “shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party can meet this
burden by presenting evidence that there is no genuine dispute of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). To avoid summary
judgment, “[t]he nonmoving party may not ‘rest on mere allegations or denials,
but must demonstrate on the record the existence of specific facts which create
a genuine issue for trial.’ ” Mosley v. City of Northwoods, 415 F.3d 908, 910
(8th Cir. 2005) (quoting Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th
Cir. 1995)).
Summary judgment is precluded if there is a dispute in facts that could
affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). For purposes of a summary judgment motion, the court views the
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facts and the inferences drawn from such facts “in the light most favorable to
the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 588 (1986).
DISCUSSION
I.
False Claims Act
Under 31 U.S.C. § 3729(a)(1)(A), a person cannot knowingly present or
cause to be presented “a false or fraudulent claim for payment or approval.” To
establish a prima facie case under 31 U.S.C. § 3729(a)(1), the government must
prove “that (1) the defendant made a claim against the United States; (2) the
claim was false or fraudulent; and (3) the defendant knew the claim was false
or fraudulent.” U.S. ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 767
(8th Cir. 2002). The False Claims Act (FCA) defines “knowingly” as: (1) having
actual knowledge that the information was untrue, (2) acting in deliberate
ignorance of the truth or falsity of the information, or (3) acting in reckless
disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b).
Although “ ‘innocent mistakes and negligence are not offenses under the Act,’ ”
the FCA does not require proof of specific intent to defraud the government.
Madonna Towers, 278 F.3d at 767 (quoting U.S. ex rel. Oliver v. Parsons Co.,
195 F.3d 457, 464-65 (9th Cir. 1999)). “The requisite intent is the knowing
presentation of what is known to be false. In short, the claim must be a lie.”
Hindo v. Univ. of Health Sci./Chi. Med. Sch., 65 F.3d 608, 613 (7th Cir. 1995)
(quotation and citation omitted). The Eighth Circuit Court of Appeals has also
held that a guilty plea in a criminal case can serve as a basis for establishing
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the essential elements of an FCA claim. See United States v. Aleff, 772 F.3d
508, 510 (8th Cir. 2014) (affirming a district court judgment where “[t]he
district court found that [defendants’] guilty pleas established the essential
elements of an FCA claim.”).
Here, Christeson’s guilty plea in his criminal case included admissions
that establish the essential elements of an FCA cause of action. United States v.
Christeson, 4:15-CR-40117, Docket 27. He admitted that he submitted
certifications for spoiled postage meter strips to the USPS. He also admitted
that these certifications were false. Finally, Christeson admitted that he made
these false certifications with the knowledge that they were false. Because the
government has proven all the elements necessary for an FCA cause of action,
summary judgment is granted.
II.
Common Law Fraud
The South Dakota Supreme Court has explained that the essential
elements of fraud are:
[T]hat a representation was made as a statement of fact, which was
untrue and known to be untrue by the party making it, or else
recklessly made; that it was made with intent to deceive and for the
purpose of inducing the other party to act upon it; and that he [or
she] did in fact rely on it and was induced thereby to act to his [or
her] injury or damage.
Stene v. State Farm Mut. Auto. Ins. Co., 583 N.W.2d 399, 404 (S.D. 1998)
(alterations in original) (emphasis omitted) (quoting Dahl v. Sittner, 474 N.W.2d
897, 900 (S.D. 1991)).
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Here, Christeson falsely certified that he had received spoiled postage
meter strips from customers when he knew that he had not. Because
Christeson committed these false certifications with the intent to receive money
from the USPS, and the USPS relied on Christeson’s false certifications in
releasing money to Christeson, Christeson committed common law fraud.
Therefore, summary judgment is granted.
III.
Unjust Enrichment
The South Dakota Supreme Court has explained that “[u]njust
enrichment occurs ‘when one confers a benefit upon another who accepts or
acquiesces in that benefit, making it inequitable to retain that benefit without
paying.’ ” Hofeldt v. Mehling, 658 N.W.2d 783, 788 (S.D. 2003) (quoting Parker
v. W. Dakota Insurors, Inc., 605 N.W.2d 181, 187 (S.D. 2000)). To prevail on a
claim of unjust enrichment, the government must show that (1) the defendant
received a benefit; (2) the defendant was aware that he received a benefit; and
(3) it is inequitable for defendant to retain the benefit without paying for it. Id.
(citing Action Mech., Inc. v. Deadwood Historic Pres. Comm’n, 652 N.W.2d 742,
750 (S.D. 2002)).
The South Dakota Supreme Court has also stated that unjust
enrichment is an equitable remedy. Id. “An essential element to equitable relief
is the lack of an adequate remedy at law.” Rindal v. Sohler, 658 N.W.2d 769,
772 (S.D. 2003). Because of the mandatory penalties specified by the FCA, the
government has an adequate remedy at law. Therefore, the government’s
motion for summary judgment on its unjust enrichment claim is denied.
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IV.
Payment by Mistake
The Eighth Circuit Court of Appeals has stated that “[w]here monies are
erroneously paid by agents of the United States, whether the error be one of
fact or of law, the Government may always recover the money improperly paid.”
Stone v. United States, 286 F.2d 56, 58-59 (8th Cir. 1961). Here, the USPS
mistakenly believed the spoiled postage meter strips that Christeson certified
actually existed. Because of this mistake in fact, the government is entitled to
recover the money that was mistakenly paid to Christeson. Therefore, summary
judgment is granted on this claim to the government.
V.
Breach of the Fiduciary Duty of Loyalty
In support of its claim that Christeson breached the fiduciary duty of
loyalty, the government points to several sources under both South Dakota law
and common law but does not explain how Christeson’s conduct is applicable
under either.
Under South Dakota law, the government cites to SDCL § 60-2-13, which
states that “[a]n employee who has any business to transact on the employee’s
own account, similar to that entrusted to the employee by the employer, shall
always give the employer the preference.” The government then points to
Bushman v. Pure Plant Food International, 330 N.W.2d 762 (S.D. 1983) to
support the proposition that an employer may use SDCL § 60-2-13 to claim
damages. Bushman, however, was a case involving employees breaching the
fiduciary duty of loyalty by working to set up their own competing business
while still acting as agents for their original employer. Bushman, 330 N.W.2d at
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763-64. Neither Bushman, nor any other case addressing the statute, supports
the notion that SDCL § 60-2-13 is applicable here, where the result was
embezzlement by the employee, not the advancement of a competing business
interest.
As for common law, the government rests its argument primarily on
Restatement (Third) of Agency § 8.01 (Am. Law Inst. 2006), which merely states
that “an agent has a fiduciary duty to act loyally for the principal’s benefit in all
matters connected with the agency relationship.” The government then claims
that embezzlement of an employer’s funds is a classic example of a breach of
fiduciary duty without identifying a single case or authority of any kind to
support the proposition.
In summary, there is no support for the proposition that defendant’s
conduct implicates the common law fiduciary duty of loyalty as alleged by the
government. Therefore, the government’s motion for summary judgment on its
breach of the fiduciary duty of loyalty claim is denied.
VI.
Damages
The government seeks damages based on its FCA cause of action. Under
31 U.S.C. § 3729(a)(1), a defendant found in violation of the statute “is liable to
the United States Government for a civil penalty of not less than $5,500 and
not more than $11,000 . . . plus 3 times the amount of damages which the
government sustains because of the act of that person.” The Eighth Circuit
Court of Appeals has also stated that “the measure of the government’s
damages would be the amount that it paid out by reason of the false
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statements over and above what it would have paid if the claims had been
truthful.” United States v. Coop. Grain & Supply Co., 476 F.2d 47, 63 (8th Cir.
1973). “The civil penalty is determined by counting ‘[e]ach individual false
claim or statement . . . .’ ” United States v. Munoz-Escalante, 5:14-CV-5085KES, 2015 WL 6158021, at *4 (D.S.D. Oct. 20, 2015) (quoting United States ex
rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C. Cir. 1995)).
Under the FCA, Christeson is liable for $353,441.42. The USPS suffered
$8,970.71 in damages based on the sixty-one false refund claims certified by
Christeson. Under 31 U.S.C. § 3729(a)(1), the court must triple that figure to
$26,912.13. As for civil penalties, the court must determine “the number of
false claims for which [the] statutory penalty should be assessed . . . .” Hays v.
Hoffman, 325 F.3d 982, 992-93 (8th Cir. 2003). Christeson falsely certified
spoiled postage meter strips sixty-one times. See United States v. Christeson,
4:15-CR-40117, Docket 27. Thus, Christeson submitted sixty-one “false
claims” to the government. The government seeks the minimum penalty
amount of $5,500 for each false claim. As such, Christeson is liable to the
United States for $335,500 (61 X 5,500) under the FCA.
When the court sentenced Christeson in his criminal case, it ordered him
to pay $8,970.71 in restitution to the USPS. The court’s damage award in this
case must take that into account. See United States v. Thompson, No. CV 155060-JLV, 2017 WL 3738500, at *6 (D.S.D. Aug. 30, 2017); Munoz-Escalante,
2015 WL 6158021, at *4. Under 31 U.S.C. § 3729, the proper damage award is
the treble damage figure plus the civil penalties less the amount paid, or to be
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paid, in restitution to the USPS ($26,912.13 + $335,500 - $8,970.71 =
$353,411.42). See United States v. Karron, 750 F. Supp. 2d 480, 493 (S.D.N.Y.
2011). Thus, Christeson must pay the government $353,441.42 under the
FCA.
VII.
Excessive Fines Clause
The Eighth Circuit Court of Appeals has held that the FCA treble
damages in combination with per-claim penalties are punitive for the purposes
of the Eighth Amendment’s Excessive Fines Clause. Aleff, 772 F.3d at 512. “A
punitive sanction violates the Excessive Fines Clause if it is grossly
disproportional to the gravity of a defendant’s offense.” Id. (quoting United
States v. Moyer, 313 F.3d 1082, 1086 (8th Cir. 2002)) (internal quotation
omitted). Proportionality is determined by a variety of factors, including the
reprehensibility of the defendant’s conduct, the relationship between the
penalty and the harm to the victim, and legislative intent. Id. (citing Cooper
Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 435 (2001); Qwest
Corp. v. Minn. Pub. Util. Comm’n, 427 F.3d 1061, 1069 (8th Cir. 2005)).
The judgment here is not grossly disproportional. In Aleff, the court held
that an FCA damage award was not grossly disproportional even though the
defendants only caused economic loss and the FCA judgment was about 4.3
times the actual damages. Id. The court found that there was no violation of
the Excessive Fines Clause because the defendants’ fraud lasted for six years
and the judgment was within the FCA’s statutory limits. Id. Like in Aleff,
Christeson’s intentional fraud lasted multiple years and the judgment sought is
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within the FCA’s statutory limits. In fact, the civil penalty amount ($335,000) is
based on the minimum penalty contemplated by the statute.
Although the judgment in this case is approximately thirty-nine times
the actual damages suffered by the USPS, the Eighth Circuit has not identified
a threshold ratio that violates the Excessive Fines Clause. In United States ex
rel. Smith v. Gilbert Realty Co., Inc., one of the few cases where a court
invalidated a mandatory FCA civil penalty as unconstitutionally excessive, the
district court found a judgment that was approximately 178 times larger than
the actual damages suffered to be a violation of the Excessive Fines Clause.
840 F. Supp. 71, 74 (E.D. Mich. 1993). The district court did not, however,
comment on what ratio would be acceptable. Id. Moreover, the court remedied
the constitutional violation by looking to the nature of defendant’s conduct and
concluding that only instances of intentional fraudulent conduct would be
counted for purposes of the per-violation civil penalty. Id. at 74. In the present
case, each of Christeson’s sixty-one violations was an instance of intentional
misconduct. Thus, the FCA penalty assessed against Christeson is not
excessive.
VIII. Conclusion
No questions of fact remain on the issue of whether Christeson violated
the False Claims Act, committed common law fraud, or was mistakenly paid by
the USPS, so summary judgment is granted in favor of the government on
counts one, two, and four of the government’s complaint. Because a claim for
unjust enrichment is prohibited in this case, summary judgment is denied on
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count three. Defendant’s conduct did not violate the fiduciary duty of loyalty,
so summary judgment is denied in favor of the government on count five. Thus,
it is
ORDERED that plaintiff’s motion for summary judgment (Docket 5) is
granted in part and denied in part.
DATED June 11, 2018.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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