Full opinion text
ORDER KERN, Chief Judge. On January 27, 1999 Magistrate Judge Joyner entered his Report and Recommendation in the above styled case regarding the Plaintiffs’ and Defendants’ cross motions for summary adjudication. The Magistrate Judge recommended that the Plaintiffs’ motion and Defendants’ motion for partial summary judgment be GRANTED IN PART and DENIED IN PART. Specifically, the Magistrate concluded that Koch Industries Inc. (hereinafter “KII”) can be liable under the False Claims Act (“FCA”) in connection with its purchases from 100% division order leases, and that there are material questions of fact regarding KII’s knowledge of the existence of a federal or Indian royalty interest on the 100% division order leases from which it purchased oil. Furthermore, the Magistrate found, if liability under the FCA is established, a penalty of between $5,000 and $10,000 be assessed against KII for each lease on an MMS-2014, Osage Royalty Report or monthly check stub when KII reported and paid for less oil than it actually took from that lease during the previous month. The parties have filed timely objections and responses to Magistrate Joyner’s Report and Recommendation. 28 U.S.C. § 636(b)(1) and Fed.R.Civ.P. 72(b). This Court has conducted a de novo review of the record, including the parties’ written objections to the Magistrate’s conclusions. Any part of the Magistrate’s report to which the parties have not raised any objection has been accepted and adopted by this Court. See Moore v. United States, 950 F.2d 656 (10th Cir.1991); and Talley v. Hesse, 91 F.3d 1411, 1412-1413 (10th Cir. 1996). I. Summary of Undisputed Facts-. During the relevant time period, KII purchased crude oil from numerous federal and Indian leases. The federal and Indian leases at issue in this lawsuit are administered by the United States Department of the Interior (“DOI”). The Minerals Management Service (“MMS”) is an agency within the DOI and the MMS is responsible for collecting royalty payments on the federal and Indian leases at issue in this lawsuit, except for Osage Indian leases. The Osage Agency is an agency within the Bureau of Indian Affairs (“BIA”), and the BIA is itself an agency within the DOI. The Osage Agency is responsible for collecting royalty payments on the Osage Indian leases at issue in this lawsuit. Thus, all royalties paid for crude oil purchased by KII from the federal and Indian leases at issue in this lawsuit were ultimately paid/transmitted to the United States via an agency within the Department of Interior either the MMS or the Osage Agency. Each time KII purchases oil from a lease it must “gauge” that oil to determine how much oil was purchased and at what price. For all of the purchases at issue in this lawsuit, Plaintiffs allege that KII’s employees and agents, at management’s direction or with management’s knowledge, created or used a false run ticket, tank table, and/or meter correction factor. KII allegedly engaged in these falsehoods in an effort to reduce its obligation to pay for the oil it purchased from the federal and Indian leases at issue in this lawsuit. When KII purchases oil it may or may not assume the lessee’s royalty obligation. If KII does not expressly assume the lessee’s royalty obligation, KII remits 100% of the proceeds to the lessee, and the lessee is then responsible for paying the royalty owner. KII refers to these as 100% division order purchases because the division order on these leases requires 100% of the proceeds to be paid to the lessee. Under these circumstances, KII pays for the oil it purchases by issuing the lessee a monthly check. The stub of each check contains a detailed accounting of all the transactions involving that lease for the prior month. The stub contains the volumes, prices, and other details in support of the amount of the check. The lessee then uses the monthly check stub to prepare MMS-2014’s and Osage Royalty Reports. There were two primary legal issues presented for ruling before the Magistrate based on the undisputed facts. First, the parties sought a legal ruling as to whether KII can be liable under the FCA in connection with its purchases from 100% division order leases. And second, if liability under the FCA is established, the parties sought clarification regarding which of KII’s acts constitutes separate, individual violations of the FCA for which a civil penalty must be imposed. Having reviewed the Magistrate’s decision de novo, the Court finds the Report and Recommendation should be affirmed and adopted in its entirety. II. Objections and Discussion-. A. Defendants’ First Objection: The Magistrate Erred in Finding that False Claims Act Penalties Could Be Based on a Per Lease Deconstruction of the Submissions to the Government Made by KII; and Plaintiffs’ First Objection: The Magistrate Erred in Concluding That Penalties Should Be Not Imposed under 31 U.S.C. § 3729(a)(7) Based on the Run Tickets, Tank Strapping Reports, and Meter Prover Reports Which Contain the Actual False Data Created by Defendants and Which Ultimately Resulted in the Underpayment of Royalties to the Federal Government. The legal question at issue required the Magistrate to determine which actions of the Defendants served as a triggering mechanism for an FCA penalty. Undertaking an analysis of Supreme Court precedent on the matter, the Magistrate concluded: “[I]f Plaintiffs can demonstrate, after viewing all of the line items relating to a particular lease together, that KII reported and paid for less oil than it actually took from that lease during the previous month, then a penalty should be imposed in connection with that lease.” (Emphasis added). Both parties object to the Magistrate’s conclusion. Plaintiffs have alleged that KII falsified hundreds of run tickets each month for separate crude oil purchase transactions on federal and Indian leases, that the information from each false run ticket ended up on a monthly summary (the MMS-2014 or Osage Royalty Report), and that while the run tickets were kept for audit purposes only, the summary was sent to the Government along with a check for the total sum owed. Thus, Plaintiffs ask this Court to overrule the Magistrate’s finding, and impose a fine for each fraudulent run ticket, tank strapping report, and meter prover report. Defendants, on the other hand, move this Court to overrule the Magistrate’s finding and apply a fine only for false MMS-2014’s, Osage Royalty Reports, or check stubs submitted by KII. Defendants contend that the Magistrate erred by recommending that the documents be “deconstructed” to determine the number of alleged falsities subsumed in each form, and concluding that the Defendants are subject to penalties for each lease at issue. The FCA does not clearly indicate how Courts should deal with multiple violations of the FCA when charging violators with penalties. The FCA states that if a person commits any violation listed in § 3729(a), that person “is liable to the United States Government for civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person ...” The ambiguity in Congress’ language offers little guidance on how to properly determine the number of penalties to be imposed in a given case, but the Supreme Court rejected the single penalty reading of the FCA in Marcus v. Hess, 317 U.S. 537, 552, 63 S.Ct. 379, 87 L.Ed. 443 (1943). In Marcus, the trial court found that defendants had engaged in a collusive bidding scheme of PWA contracts. The plaintiff argued that the FCA’s penalty should be applied to “every form” submitted by defendants in the course of their fraudulent scheme. Defendants argued that once liability under the FCA has been established, the Act only imposes one penalty. The Supreme Court rejected both arguments and found that defendants should be penalized “for each separate P.W.A. project.” Id. at 552, 63 S.Ct. 379. (Emphasis added). In United States v. Bornstein, 423 U.S. 303, 307-308, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976), the. Supreme Court once again recognized that Marcus established multiple penalties were permitted under the FCA. In Bomstein, a prime contractor (Model) had a contract with the Government to provide radio kits containing electron tubes meeting certain specifications. A subcontractor (United), which was to supply the tubes, sent to Model in three separately invoiced shipments tubes that were not of the required quality but were falsely marked to indicate that they were. The radio kits that Model in turn shipped to the Government contained 397 of these falsely marked tubes. Model then sent thirty-five invoices to the Government for the kits, each invoice including claims for payment for the falsely marked tubes. The Government alleged that United was liable for thirty-five $2,000 forfeitures, one for each invoice that it “caused” Model to submit. The Supreme Court held that a correct application of the Act’s language requires that the focus in each case be upon the specific conduct of the person from whom the Government seeks to collect the forfeiture. Thus, here United committed three acts that caused Model to submit false claims to the Government, and hence is liable for three $2,000 forfeitures representing those three shipments. The Court held that penalties must be imposed on the false invoices, but not on all the false information created by defendants in furtherance of its fraud. This Court finds that Bomstein clearly precludes Plaintiffs’ claim that a penalty should be imposed for every false entry made on the run tickets, tank strapping reports, and meter correction factors. The false information received by the lessees in this case is closely analogous to the false tube markings and false packing lists created by United in furtherance of its fraud, for which the Supreme Court clearly stated an FCA penalty should not attach. Bornstein, 423 U.S. at 312, 96 S.Ct. 523. Furthermore, the run tickets, tank tables, and meter correction factors are subject to modification until an MMS-2014, Osage Royalty Report or monthly check stub is prepared and submitted to the DOI or a lessee. The run tickets, tank tables, and meter correction factors are, therefore, subsumed within their respective MMS-2014’s, Osage Royalty Reports, and monthly check stubs. Thus, until KII has created a false MMS-2014, Osage Royalty Report or monthly check stub, KII has not committed its self to paying for less oil than it actually took from a particular lease. Therefore, Plaintiffs' objection is overruled. Defendants rely heavily on Bomstein in support of their proposition that only a single penalty can be imposed in connection with an MMS-2014, Osage Royalty Report, or monthly check stub. Defendants contend that the MMS-2014s, Osage Royalty Reports, and monthly check stubs constitute submissions analogous to the three invoices for which a penalty was imposed in Bomstein. This Court disagrees, and finds Bomstein distinguishable. First, the Court in Bomstein found that the defendants had actually only submitted three false invoices to the prime contractor. The prime contractor had then used the information from those three invoices to create 35 submissions. Here, the Defendants have allegedly created hundreds of false entries which were then tallied and “crunched” to create a report on oil purchased in relation to each lease. The information as to each lease was then collected and submitted together on one form, either an MMS-2014, Osage Royalty Report, or monthly check stub. Defendants urge this Court to find a parallel between the MMS-2014, Osage Royalty Report, or monthly check stub and the original three false invoices in Bomstein. No such analogy can be drawn. The three false invoices in Bomstein are most closely analogous to the false lease totals given to Plaintiffs. Defendants should not be allowed to benefit from the fact that information relating to several leases was collected together in one submission form. The fact that the leases were reported together on one piece of paper does not transform the Defendants’ multiple acts of fraud. Alternately, Defendants rely heavily on United States v. Krizek, 111 F.3d 934, 938-940 (D.C.Cir.1997), arguing once again for a single penalty for each MMS-2014, Osage Royalty Report, or monthly check stub. In Krizek, Dr. Krizek submitted an HCFA 1500, seeking reimbursement for services provided to recipients of Medicare and Medicaid. An HCFA 1500 relates to a single patient and it contains up to six CPT codes, identifying the procedures performed on the patient. The D.C. Circuit imposed one penalty for each HCFA 1500, refusing to impose a penalty for each false CPT code on the form. KII argues that an MMS-2014, Osage Royalty Reports, and monthly check stubs are the same as the HCFA 1500 at issue in Krizek. The HCFA 1500 is not functionally equivalent to the forms used by Defendants. In Krizek, the obligation at issue related to a specific patient, and here, the obligation relates specifically to a mineral lease. The lease is the most closely analogous entity to those which triggered liability and penalties in cases construing the FCA. See Marcus, holding that liability should attach for false entries related to each “project.” The basic violation alleged by Plaintiffs is that KII received delivery of oil from a particular lease over the course of a month and then paid for less than it actually took during that month. The violation relates to each lease as it was reported on monthly, and Defendants should not be allowed to escape additional penalties under the FCA because more than one lease was included on each report. The Magistrate’s finding that a penalty should be imposed in connection with each lease from which KII allegedly took more oil than it paid for, is affirmed. B. Defendants’ Second Objection: Magistrate Erred in Finding that KII Can Be Held Liable In Connection With Its Purchases From 100% Division Order Leases: The Defendants object to the Magistrate’s finding that KII can be held liable under the FCA for fraudulent submissions made on 100% division order leases. Defendants argue that KII’s relationship with the Government on 100% division order leases is insufficiently direct to support liability. KII has no contract with the Government, submits no forms or payments for these purchases, and has no direct contractual relationship with the Government. Defendants posit that the Magistrate erred in its conclusion on two fundamental bases. First, Defendants contend that the Magistrate erroneously construes the 1986 amendment to the False Claims Act to find that the definition of “claim” can be interpreted to permit an indirect, reverse false claim. Second, Defendants assert that the Magistrate erred because the “indirect reverse claim” has an insufficient federal nexus to be subject to the terms of the False Claims Act. Defendants argue that the 1986 amendment to the FCA expressly provides for a cause of action for direct reverse false claims, but not indirect reverse false claims. Defendants contend the Magistrate Judge erred in concluding that indirect reverse false claims are included because Congress did not expressly exclude them from the ambit of the Act. An indirect false claim is when a subcontractor prepares a false record which causes a government prime contractor to submit a false request for reimbursement to the government. See e.g., Tanner v. United States, 483 U.S. 107, 129, 107 S.Ct. 2739, 97 L.Ed.2d 90 (1987) (holding: “[T]he fact that a false claim passes through the hands of a third party on its way from the claimant to the United States does not release the claimant from culpability under the Act.”) Here, given Plaintiffs’ allegations, the 100% division order leases are indirect reverse false claims because KII attempted to reduce its obligation to pay money by causing the lessees on 100% division order leases to submit a false record to the DOI. KII allegedly caused the lessee to submit a false record to the DOI by submitting false monthly accountings to the lessees. In 1986, Congress amended the, FCA and added § 3729(a)(7) and § 3729(c). Congress added subsection (a)(7) to make it clear that the FCA imposed liability for reverse false claims. Section 3729(a)(7) provides as follows: Any person who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person... Congress added subsection (c) to more specifically define “claim.” Specifically, Congress added subsection (c) to make it clear that the FCA imposed liability for indirect false claims so long as government funds were involved. Subseetion(c) provides as follows: Claim Defined. — For purposes of this section, “claim” includes any request or demand whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded. Defendants argued before the Magistrate, and reiterate here, that because subsection (a)(7) and (c) were added at the same time, the absence of any reverse false claim language in subsection (c) conclusively demonstrates that Congress did not intend the FCA to impose liability for indirect reverse false claims. Defendants also assert the proposition that “Claim defined” is a thorough and unequivocal definition of “claim.” However, the Magistrate found that subsection (c) is not an attempt to exhaustively define “claim.” Rather, subsection (c) explains what a claim “includes,” but leaves the definition open to interpretation by the courts. The Magistrate found, further, that such an open definition of “claim” is supported by the legislative history of the FCA. Congress added subsection (c) to accomplish one purpose- — “to overrule [United States v.] Azzarelli[, 647 F.2d 757 (7th Cir.1981) ] and similar cases which [had] limited the ability of the United States to use the act to reach fraud perpetrated in federal grantees, contractors or other recipients of Federal funds.” S.Rep. 345, 99th Cong., 2d Sess., p. 22, reprinted in 1986 U.S.C.C.C.A.N. 5266 (July 28, 1986). The legislative history from Congress recognizes that a claim may take many forms, but a claim at its essence is the creation or use of any false record which ultimately causes a loss to the government. Id. at 9-10 and 21-22. The Magistrate therefore concluded that, given the history and purpose of the Act, the term “claim” as used in the FCA also “includes” indirect reverse false claims like those at issue in this case. This Court, having conducted a de novo review on this issue, is in agreement with the Magistrate’s analysis. Congress’ intent in expanding and amending the FCA in 1986 was to enable the statute to reach further to protect the Government from fraud due to false filings. The Court is not persuaded by Defendants’ argument that, because Congress did not explicitly include indirect reverse false claims in the language of the 1986 amendment, that it intended to exclude them. The language of the statute, particularly that section which defines a “claim,” appears to have been constructed with flexibility and the possibility of permissive interpretation in mind. Additionally, the Court is persuaded by an examination of the legislative history of the FCA, and rejects the Defendants’ contention that Congress did not intend to extend the FCA to reach indirect reverse false claims. As the Magistrate pointed out, to accept Defendants’ position on this issue is to accept the proposition that the 1986 amendment was intended to aid the Government in protecting itself from the submission of a false record in an attempt to get money from the Government, but not to protect itself from a false statement submitted in an attempt to reduce an obligation to pay money to the Government. This proposition flies in the face of the permissive language of the statute and the legislative history of the 1986 amendment. While it is true that Congress did not explicitly include indirect' reverse false claims within the gambit of the FCA, it is not clear to this Court that Congress intended to exclude them. In light of the policy justifications for the FCA and the 1986 amendment, the Court is in agreement with the Magistrate on this issue. Alternately, Defendants contend they should not be held liable for the 100% division order leases, because there is not a sufficient nexus between the federal Government and the Defendants regarding these contracts. Defendants urge this Court to examine the issue in the context of the absence of a contractual relationship between Defendants and the Government regarding these leases. Defendants contend that Congress went to extreme lengths to ensure that the False Claims Act did not reach every kind of fraud practiced on the Government. Defendants argue that applicable case law supports the contention that the FCA, legislative history, and Supreme Court interpretations do not support a finding of liability on 100% division order leases. Plaintiffs, on the other hand, frame the issue as a matter of statutory construction, contending that Defendants’ liability arising from fraudulent claims filed in reference to the 100% division order leases turns on whether Defendants were aware of the loss the Government would incur due to their fraud. Plaintiffs have alleged that KII violated the FCA when it falsified measurements on 100% division order federal and Indian leases, because those false measurements caused the lessee or operator to understate its royalty obligation to the Government. When KII fraudulently altered run tickets in 100% division order leases, it not only “made a false record or statement to conceal, avoid or decrease an obligation,” it also “caused” the lessee to make a false record or statement. In either case, the only question is whether KII did so “knowingly.” The Magistrate did not find, conclusively, that Defendants were liable under the FCA for 100% division order leases, but that there exists a material issue of fact as to whether the Defendants “knowingly” induced the falsification of documents in relation to federal or Indian leases. Thus, the Magistrate concluded, this was not an appropriate issue for summary judgment. The FCA defines “knowing” and “knowingly” as: [T]he terms “knowing” and “knowingly” mean that a person, with respect to information— (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information and no proof of specific intent to defraud is required. 31 U.S.C. § 3729(b). The evidence introduced before the Magistrate suggested that, applying the three prongs of § 3729(b), a reasonable jury could find that Defendants knew that a federal or Indian lease was involved in many of the 100% division order leases from which Defendants purchased oil. The names of several of the 100% division order leases contain some indication that they are federal or Indian leases, and there is some evidence that a sign or other marking physically present at the lease would identify the lease as a federal or Indian lease at the time of the purchase of the oil. Evidence was introduced demonstrating that Defendants required the lessees from which it purchased to complete a form titled “Purchase and Connection Acknowledgment” and “Federal Lease Notification,” and that these forms would alert Defendant that a federal interest was on the lease. Finally, there is also evidence that the operators of federal and Indian leases and the Bureau of Land Management would occasionally send materials to the Defendants which would identify a particular lease as a federal or Indian lease. Defendants have attempted to distinguish the facts of this case from Supreme Court precedent which interprets the FCA, in hopes of precluding even the mere question of liability for 100% division order leases at trial. Defendants have cited several cases in which the Supreme Court analyzed the nexus between the defendant and the Government in order to determine if the claims at issue were covered by the FCA. However, none of these cases explicitly precludes an FCA claim where there are facts present which may provide a sufficient nexus to trigger liability. The Magistrate concluded, and this Court agrees, that there are genuine issues of material fact as to whether Defendants were aware that these contracts involved either Indian or federal leases. Denial of summary judgment on this point does not immediately signify that liability must attach; rather, it indicates that the “knowingly” prong of the FCA is one of fact, and should be decided by the finder of fact at trial and not prematurely decided on summary judgment. Thus, this Court finds that a genuine issue of material fact exists as to whether the Defendants knowingly caused the inducement of fraud of the federal Government. Therefore, summary judgment is not appropriate, and the Magistrate’s finding that the Defendants may be held liable for the 100% division order leases is affirmed. C. Plaintiffs’ Third Objection: The Magistrate’s Recommendation Should Have Included Language Which Mandates an FCA Penalty Each Time a KII Entry Was “False.” Plaintiffs object to the Magistrate’s recommendation to the extent that it suggests that KII should only be penalized for false entries which resulted in KII taking more oil than it paid for, rather than penalizing KII for each false entry, regardless of whether the Government suffered a loss. Plaintiffs argue that the Government need not actually suffer a loss in order to assert and obtain statutory damages under the False Claims Act. Citing US ex rel. Precision Co. v. Koch Industries, Inc., 1995 U.S.Dist. LEXIS 20832, *58 (N.D.Okla.1995). Therefore, Plaintiffs request that the Court modify the Magistrate’s report to the extent that it recommends a contrary ruling. As an initial matter, this Court has affirmed the Magistrate’s finding that Defendants will be imposed a penalty each time a monthly lease total was false. The Court rejected Plaintiffs’ argument that the run entries, etc. should serve as the basis for an FCA penalty. That said, this Court finds that it need not reach the question of actual damages under the FCA. If the Defendants are imposed a penalty for each alleged false entry on the total amount of oil taken on a lease in a given month, then actual damages exist per se. To find that the total oil taken was greater than the total oil paid for is, in essence, to find both that the entry was false and that the Government has, necessarily, suffered some actual damages in underpayment. The Court finds that the only way Plaintiffs’ argument would be relevant is if the Court accepted the Plaintiffs’ proposition that each run entry should serve as a basis for an FCA penalty, which it did not. Additionally, as Defendants point out, Plaintiffs’ Third Objection is seeking clarification on an issue not actually raised before the Magistrate. That is, the question of whether actual damages must be proven in order for penalties to be imposed was never specifically briefed and argued. Therefore, Defendants contend this question of law was not an issue before the Magistrate, and is not a proper objection before this Court. The Court finds that the Magistrate’s recommendation, finding that Defendants are liable under the FCA where it is shown that Defendants took more oil than was paid for, is affirmed. III. Conclusion: The Court finds that the Plaintiffs’ Objection (#432) and the Defendants’ Objection (# 431) to the Magistrate’s Report and Recommendation (# 425) are DENIED in their entirety. The Magistrate’s Report and Recommendation (# 425) is AFFIRMED and ADOPTED in its entirety. Plaintiffs’ Motion for Partial Summary Adjudication (# 211) and Defendants’ Motion for Partial Summary Adjudication (# 219) are hereby DENIED in part and GRANTED in part. TABLE OF CONTENTS I. INTRODUCTION.1132 A. Gauging — Run Tickets, Tank Tables and Meter Correction Factors.1133 B. 100% Division Order vs. Non-100% Division Order Leases.1134 C. KII’s Payment Methods.1134 1. When KII Has Assumed the Lessee’s Royalty Obligation — Non-.. 100% Division Order Leases 1134 a. Purchases From Federal and Non-Osage Indian Leases.1134 b. Purchases From Osage Indian Leases .1135 2. When KII Has Not Assumed the Lessee’s Royalty Obligation — 100%.. Division Order Leases 1135 II. LEGAL ISSUES PRESENTED BY THE UNDISPUTED FACTS.1135 III. IF LIABILITY UNDER THE FCA IS ESTABLISHED, THE COURT SHOULD IMPOSE A PENALTY AGAINST KII OF BETWEEN $5,000 AND $10,000 FOR EACH LEASE ON AN MMS-2014, OSAGE ROYALTY REPORT OR MONTHLY CHECK STUB WHEN KII REPORTED AND PAID FOR LESS OIL THAN IT ACTUALLY TOOK FROM THAT LEASE DURING THE PREVIOUS MONTH.1136 A. The MMS-2014’s, Osage Royalty Reports and Monthly Check Stubs Should Be Used to Determine the Number of Penalties in this Case, Not the Run Tickets, Tank Tables or Meter Correction Factors. .. 1136 1. Supreme Court Precedent. 1137 a. Marcus v. Hess .1137 b. United States v. Bornstein.1137 2. Tenth Circuit Precedent — Fleming v. United States.1138 3. Decisions From Other Courts of Appeal.1139 a. United States v. Rohleder.1139 b. United States v. Grannis.1140 c. Miller v. United States .1141 d. United States v. Krizek.1143 4. Plaintiffs’ Attempt to Distinguish The Cases Discussed Above.1143 5. KII’s Eighth Amendment Argument.1145 B. A Penalty Should Be Imposed for Each Lease on an MMS-2014, Osage Royalty Report or Monthly CheCK Stub When KII Reported and Paid for less Oil than it Actually Took from That Lease During the Previous Month.1145 IV. KII CAN BE LIABLE UNDER THE FCA IN CONNECTION WITH ITS PURCHASES FROM 100% DIVISION ORDER LEASES.1147 A. The FCA Imposes Liability for Indirect Reverse False Claims.1147 B. There Are Material Questions of Fact Regarding KII’s Knowledge of the Existence of a Federal or Indian Royalty Interest On The 100% Division Order Leases From Which It Purchased Oil.1148 V. DOES RECORDING A VALUE ON A RUN TICKET OTHER THAN THE VALUE WHICH WAS ACTUALLY OBSERVED BY A GAUGER MAKE THE RUN TICKET PER SE FALSE?. 1149 RECOMMENDATION .'.1150 OBJECTIONS.1150 REPORT AND RECOMMENDATION JOYNER, United States Magistrate Judge. The following motions have been referred to the undersigned for report and recommendation pursuant to 28 U.S.C. § 636 and Fed.R.Civ.P. 72: 1. Plaintiffs’ Motion for Partial Summary Adjudication, [Doc. No. 211]; and 2. Defendants’ Cross Motion for Partial Summary Judgment, [Doc. No. 219]. For the reasons discussed below, the undersigned recommends that Plaintiffs’ motion and Defendants’ motion for partial summary judgment be GRANTED IN PART and DENIED IN PART. If liability is established under the False Claims Act (“FCA”), 31 U.S.C. § 3729(a)(l)-(7), a civil penalty is to be assessed. The parties’ motions for partial summary judgment ask the Court to determine how the FCA’s civil penalty will be applied given the facts of this case. The undersigned finds that Koch Industries, Inc. (“KII”) may be penalized under the FCA for each lease listed on an MMS-2014, Osage Royalty Report or Monthly Check Stub if KII reported and paid for less oil than it actually took from that lease during the previous month. I. INTRODUCTION The federal and Indian leases at issue in this lawsuit are administered by the United States Department of the Interior (“DOI”). The Minerals Management Service (“MMS”) is an agency within the DOI, and the MMS is responsible for collecting the royalty payments on the federal and Indian leases at issue in this lawsuit, except for Osage Indian leases. The Osage Agency is an agency within the Bureau of Indian Affairs (“BIA”), and the BIA is itself an agency within the DOI. The Osage Agency is responsible for collecting royalty payments on the Osage Indian leases at issue in this lawsuit. Thus, all royalties paid for crude oil purchased by KII from the federal and Indian leases at issue in this lawsuit were ultimately paid/transmitted to the United States via an agency within the Department of Interior — either the MMS or the Osage Agency- A. Gauging — Run Tickets, Tank Tables and Meter Correction Factors Each time KII purchases oil from a lease it must “gauge” that oil to determine how much oil was purchased and at what price. In the majority of purchases at issue in this lawsuit, KII hand gauged the oil. When KII hand gauges oil, it is purchasing oil from a particular storage tank on or near a lease. To hand gauge a tank, KII’s employee or agent takes several physical measurements including the level of the oil in the tank before and after the oil is run out of the tank (the top and bottom gauge), the temperature of the oil before and after the oil is run out of the tank (the opening and closing temperature), the gravity of the oil and the basic sediment and wTater (“BS & W”) content of the oil. KITs employee or agent records these measurements on a run ticket. See Doc. No. 211, Exhibit “A.” The measurement information on each run ticket is entered into KII’s computerized oil accounting system. For each run ticket, KII’s oil accounting system determines the price to be paid for the oil in part by using the gravity and BS & W measurements on the run ticket. KII’s computerized accounting system also calculates the net volume of oil removed from the lease in part by using the top and bottom gauge and opening and closing temperature measurements on the run ticket. For each tank from which KII purchases oil, KII complies a tank table. The table states each tank’s capacity in barrels for various height increments. Tank tables are prepared by KII based on KII’s prior, physical measurement or “strapping” of the tank. To calculate the net volume of oil purchased, KII’s computerized accounting system compares the opening and closing gauge measurements on the run ticket with the previously compiled “tank table” for the tank from which the oil was purchased. There are times when the oil KII purchases is gauged by a meter, and it is not hand gauged (e.g., when oil is purchased from a pipeline and not a storage tank). In these meter gauging situations, measurement information is recorded by the meter and that information, like the run ticket information, is entered into KII’s computerized oil accounting system. To calculate the net volume of oil purchased from a particular meter, KII’s computerized accounting system multiplies the net volume of oil recorded on the meter by a meter correction factor. Meters are mechanical devices, and like any mechanical device, they have a margin of error. KII periodically calibrates/“proves” each meter to determine the meter’s margin of error. A meter’s margin or error is reflected and compensated for with a meter correction factor. A meter correction factor is derived by dividing the actual volume (i.e., the test amount) of oil passed through a meter by the volume recorded by the meter. For example, if 10 barrels of oil were passed through a meter during a “proving” and the meter registered 8 barrels of oil, that meter’s correction factor would be 10/8 or 1.25. Thus, to determine the actual amount of oil passed through that meter, any volume recorded by the meter would need to be multiplied by 1.25. For all of the purchases at issue in this lawsuit, Plaintiffs allege that KII’s employees and agents, at management’s direction or with management’s knowledge, created or used a false run ticket, tank table and/or meter correction factor. According to Plaintiffs, KII engaged in these falsehoods in an effort to reduce its obligation to pay for the oil it purchased from the federal and Indian leases at issue in this lawsuit. In particular, Plaintiffs allege that (1) when KII hand gauged oil, its employee or agent recorded false measurements on the run ticket; (2) when KII measured/strapped a tank to develop a tank table, its employee or agent recorded false tank measurements; and (3) when KII calibrated/proved a meter, its employee or agent calculated a false meter correction factor. See Doc. No. 414, Second Amended Complaint, Count I, ¶¶ 45-52. B. 100% Division Order vs. Non-100% Division Order Leases During the relevant time period, KII purchased crude oil from numerous federal and Indian leases. Pursuant to the terms of the relevant mineral leases, the lessees on these federal and Indian leases are responsible for paying or transmitting to the United States, via the Department of the Interior, a royalty for any crude oil production. The United States’ royalty may be paid by either the lessee or the purchaser of the oil. When KII purchases oil it may or may not assume the lessee’s royalty obligation. If KII does not expressly assume the lessee’s royalty obligation, KII remits 100% of the proceeds to the lessee, and the lessee is then responsible for paying the royalty. KII refers to these as 100% division order purchases because the division order on these leases requires 100% of the proceeds to be paid to the lessee. If KII does expressly assume the lessee’s royalty obligation, KII first satisfies itself as to the correct ownership interest in the lease. If one of the interests is a federal or non-Osage Indian royalty interest, KII executes a Payor Information Form, which is required by the MMS to identify KII as the party responsible for paying the royalty on the particular lease. KII then makes royalty payments directly to either the MMS for federal and non-Osage Indian leases or to the Osage Agency for Osage Indian leases. C. KIFs Payment Methods 1. When KII Has Assumed the Lessee’s Royalty Obligation — Non-100% Division Order Leases a. Purchases From Federal and Non-Osage Indian Leases To document its purchases from federal and non-Osage Indian leases on which it has assumed the lessee’s royalty obligation, the MMS requires KII to prepare and file a form 2014, titled “Report of Sales and Royalty Remittance.” KII prepares a monthly MMS-2014 to reflect its purchases for the prior month. One MMS-2014 is prepared each month for all federal leases and one MMS-2014 is prepared each month for all non-Osage Indian leases from which KII purchases (i.e., two MMS-2014’s per month). If KII did not purchase from a particular lease during the previous month, the lease is listed on the MMS-2014, but with a zero quantity and price. Each month, KII reports and pays for its prior month’s purchases by submitting completed MMS-2014’s and by wire transferring its payment to the MMS. See Doc. No. 219, Exhibit “A-2.” The only payment document KII routinely files with the MMS is the MMS-2014. While the MMS may ask to see run tickets, tank tables or meter correction factor calculations during an audit, these items are not filed with or sent to the MMS. Nevertheless, if KII has created or used false run tickets, tank tables or meter correction factors in connection with purchases being reported on an MMS-2014, then the MMS-2014 will itself be false. The MMS-2014 will be false because the use of false run tickets, tank tables and meter correction factors will cause the MMS-2014 to report that KII took less oil than it actually took from the federal and Indian leases shown on the MMS-2014. b. Purchases From Osage Indian Leases To document its purchases from Osage Indian leases on which it has assumed the lessee’s royalty obligation, KII is required by the Osage Agency to prepare a Royalty Report. As with the MMS-2014, KII prepares a monthly Osage Royalty Report to reflect its purchases for the prior month. One monthly Osage Royalty Report is prepared for all Osage leases from which KII purchased oil during the prior month. Each month, KII reports and pays for its prior month’s purchases by submitting a completed Osage Royalty Report, along with its payment, to the Osage Agency. See Doc. No. 219, Exhibit “A-3.” The only payment document KII routinely files with the Osage Agency is the Osage Royalty Report. While the Osage Agency may ask to see run tickets, tank tables or meter correction factor calculations during an audit, these items are not filed with or sent to the Osage Agency. Nevertheless, if KII has created or used false run tickets, tank tables or meter correction factors in connection with purchases being reported on an Osage Royalty Report, then the Report will itself be false. The Osage Royalty Report will be false because the use of false run tickets, tank tables and meter correction factors will cause the Report to reflect that KII took less oil than it actually took from the Osage Indian leases shown on the Report. 2. When KII Has Not Assumed the Lessee’s Royalty Obligation — 100% Division Order Leases When KII does not agree to assume the lessee’s royalty obligation, KII pays for the oil it purchases by issuing the lessee a monthly check. The stub of each check contains a detailed accounting of all of the transactions involving that lessee for the prior month. The stub contains the volumes, prices, and other detail in support of the amount of the check. The lessee then uses the monthly check stub to prepare MMS-2014’s and Osage Royalty Reports. II. LEGAL ISSUES PRESENTED BY THE UNDISPUTED FACTS The liability provision of the False Claims Act provides as follows: (a) Liability for certain acts. — Any person who— (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; [or] (7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.... 31 U.S.C. § 3729(a). Count I of Plaintiffs’ Second Amended Complaint alleges that KII “violated 31 U.S.C. § 3729(a)(7) and other provisions of the False Claims Act by knowingly making, using, and causing to be made or used [false run tickets, tank tables, and meter correction factors] to conceal and decrease [KII’s obligation] to pay moneyl7royalties] to the United States Government in exchange for crude oil.” Doc. No. 414, ¶ 51. In their motion for partial summary judgment, Plaintiffs argue that KII should be penalized between $5,000 and $10,000 under § 3729(a) each time KII falsified a run ticket, tank table or meter correction factor. KII argues that if Plaintiffs can establish liability under the FCA, then KII may only be penalized between $5,000 and $10,000 for each MMS-2014, Osage Royalty Report and monthly check stub created by KII. If the MMS-2014 and Osage Royalty Report are the records that are to be used to calculate the FCA’s penalty, Plaintiffs argue in the alternative that a penalty must be imposed for each line-item on the MMS-2014 and Osage Royalty Report because each line item represents a different federal or Indian lease. The Court must, therefore, determine how the FCA’s penalty provision will be applied given the facts of this case. In its motion for partial summary judgment, KII argues that it cannot be liable or subject to penalties under the FCA regarding the 100% division order leases because when KII purchases from a 100% division order lease, KII does not submit any records or make any payments directly to the government. When KII purchases from a 100% division order lease, Plaintiffs allege that KII submits a false run ticket or check stub to a lessee in an attempt to pay for less oil than KII actually took. According to Plaintiffs, KII’s submission of false records to the lessee causes the lessee to prepare a false MMS-2014 or Osage Royalty Report and pay the MMS or Osage Agency less royalties than that to which the government would otherwise be entitled. That is, the conduct alleged by Plaintiffs indirectly causes the government to receive less royalties. While KII recognizes that the FCA would impose liability for conduct that indirectly causes the government to pay for more oil than it purchased, KII argues that the FCA does not impose liability for conduct that indirectly caused the government to be paid for less oil than was sold from one of its leases. The Court must, therefore, determine whether the FCA imposes liability when conduct proscribed by the FCA indirectly causes the government to receive less money than that to which it would otherwise be entitled. KII states in its motion that Plaintiff must prove the following to establish liability under § 3729(a) for purchases made from 100% division order leases: that KII knowingly (1) caused a lessee to make or use a false record or statement; (2) to conceal, avoid or decrease an obligation to pay or transmit money; (3) to the government. KII suggests that it cannot be held liable for purchases made from 100% division order leases because Plaintiffs cannot establish that KII knew that there was an obligation to the government. In other words, KII argues that even if it submits a false run ticket or check stub to a lessee in an attempt to pay for less oil than KII actually took, and even if those false records cause the lessee to prepare a false MMS-2014 or Osage Royalty Report which in turn causes the lessee to pay the government less of a royalty than that to which the government is entitled, KII cannot be liable under the FCA because KII has no way of “knowing” that the obligation it ultimately reduced was an obligation to the government. Plaintiffs argue that summary judgment in KII’s favor is precluded because there are genuine issues of material fact regarding KII’s knowledge, as that term is defined in 31 U.S.C. § 3729(b). III. IF LIABILITY UNDER THE FCA IS ESTABLISHED, THE COURT SHOULD IMPOSE A PENALTY AGAINST KII OF BETWEEN $5,000 AND $10,000 FOR EACH LEASE ON AN MMS-2014, OSAGE ROYALTY REPORT OR MONTHLY CHECK STUB WHEN KII REPORTED AND PAID FOR LESS OIL THAN IT ACTUALLY TOOK FROM THAT LEASE DURING THE PREVIOUS MONTH. A. The MMS-2014’s, Osage Royalty Reports and Monthly Check Stubs Should Be Used to Determine the Number of Penalties in this Case, Not the Run Tickets, Tank Tables or Meter Correction Factors. It must be recognized at the outset that the language of the FCA is not a model of clarity on this issue. The FCA states that if a person does any of the things listed in § 3729(a), that person “is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person....” On its face, this language does not unambiguously authorize multiple penalties. If the defendant violates the Act in any number of ways, “he is liable to the United States for a civil penalty.” This United States Supreme Court impliedly rejected the single penalty reading of the FCA in Marcus v. Hess, 317 U.S. 537, 552, 63 S.Ct. 379, 87 L.Ed. 443 (1943). Nevertheless, the ambiguity in Congress’ language is evident, and the act offers little guidance on how to properly determine the number of penalties to be imposed in a given case. “When the Almighty himself condescends to address mankind in their own language, his meaning, luminous as it must be, is rendered dim and doubtful by the cloudy medium through which it is communicated.” The will of Congress is no less subject to inevitable distortion by reason of the inadequate medium through which it must be communicated. Grossman v. Young, 72 F.Supp. 375, 378 (S.D.N.Y.1947) (citing The Federalist No. 37, at 243 (James Madison) (M.Dunne ed., 1901)). 1. Supreme Court Precedent a. Marcus v. Hess In Marcus the United States approved several Public Works Administration projects in the Pittsburgh area. These PWA projects were administered by local governmental units rather than the United States. These local governmental units would enter into subcontracts with local contractors to complete the projects. The defendants in Marcus were officers and members of the Electrical Contractors Association of Pittsburgh (“ECAP”), who had entered into subcontracts to perform work on various PWA projects. Marcus v. Hess, 317 U.S. 537, 539, 63 S.Ct. 379, 87 L.Ed. 443 (1943). The plaintiff alleged and the trial court in Marcus found that defendants had engaged in a collusive bidding scheme. The officers and members of the ECAP agreed to rig the bidding process on the PWA contracts. The ECAP would average the prospective bids which its members would submit. The ECAP would then select one of its members as the one to receive the contract. The chosen member would submit a bid equal to the average bid and all other members would submit a bid higher than the average. In this manner, ECAP fraudulently controlled the bidding process for electrical work on the PWA projects. Marcus, 317 U.S. at 539, n. 1, 63 S.Ct. 379. In the trial court, plaintiff argued that the FCA’s penalty should be applied to “every form” submitted by defendants in the course of their fraudulent scheme. Defendants argued that once liability under the FCA has been established, the act only imposes one penalty. Without much discussion, the Supreme Court rejected both arguments and found that defendants should be penalized “for each separate P.W.A. project.” Marcus, 317 U.S. at 552, 63 S.Ct. 379. The Court rejected the one penalty argument, finding that Congress could never have intended to allow defendants “to spread the burden progressively thinner over projects each of which individually increased their profit.” Id. b. United States v. Bornstein In Bornstein, the United States contracted with Model Engineering & Manufacturing Corporation, Inc. (“Model”) to provide radio kits to the Army. These kits were to contain electron tubes of a specified quality. Model subcontracted with United National Labs (“United”) to supply the electron tubes. The radios were to contain new 4X150G electron tubes bearing markings showing that they had been manufactured in a plant whose quality control standards measured up to government requirements. The tube’s markings were also to indicate that during manufacture the tubes had been inspected and approved by a government inspector at the plant. United States v. Bornstein, 423 U.S. 303, 307-308, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976). United bought several hundred surplus tubes and falsely stamped them with the required markings. United also prepared 21 packing lists, each falsely stamped with a government inspector’s “Eagle” acceptance stamp. United then sent 21 boxes of tubes to Model in three separately invoiced shipments. Model installed the tubes and sent 397 radio kits to the United States with falsely marked tubes in 35 separately invoiced shipments. Bornstein, 423 U.S. at 307-308, 96 S.Ct. 523. The United States sued United and argued that United was liable for 35 penalties — one for each invoice United caused Model to submit to the United States. The trial court agreed with the United States and assessed 35 penalties against United. The Court of Appeals reversed, holding that because there was only one subcontract between Model and United, there should be only one penalty. The Supreme Court granted certiorari to resolve the following question: How should the number of penalties under the False Claims Act be counted when the United States sues a subcontractor on the ground that the subcontractor has caused the prime contractor to present a false claim. Bornstein, 423 U.S. at 306-308, 96 S.Ct. 523. The Supreme Court began by recognizing that its decision in Marcus established that the FCA permits multiple penalties. To decide how many penalties were appropriate in Bomstein, the Court held that the focus must be on the conduct of the party from whom the penalty is sought (i.e., United’s, not Model’s, conduct). Focusing on United’s conduct, the Court found that United committed three acts which caused Model to submit false claims to the United States — the three separately invoiced shipments to Model. The Court held that United was not liable for 35 penalties based on the 35 invoices Model sent to the United States because “[t]he fact that Model chose to submit 35 false claims instead of some other number was, so far as United was concerned, wholly irrelevant completely fortuitous and beyond United’s knowledge and control.” Bornstein, 423 U.S. at 312, 96 S.Ct. 523. In Bomstein, the Court imposed penalties on the false invoices sent by United, not on all of the false tube markings and false packing lists created by United in furtherance of its fraud. In Hess the Court also refused to impose penalties for all of the false records the ECAP submitted in furtherance of its fraudulent and collusive bidding scheme, holding instead that a penalty should be imposed against each false bid submitted and accepted by the United States. The undersigned finds that the acts by KII in this case which most closely resemble the acts generating penalties in Marcus and Bomstein are the creation of false MMS-2014’s, Osage Royalty Reports and monthly check stubs, and not the creation of all of the false records (e.g., run tickets, tank tables, and meter correction factors) which might have been created in furtherance of KII’s alleged fraud. 2. Tenth Circuit Precedent— Fleming v. United States Don Fleming operated a feed mill in New Mexico and he was a certified dealer under the Emergency Feed Program administered by the Commodity Credit' Corporation, an agency of the federal government. Farmers eligible under the Emergency Feed Program received a Farmers Purchase Order (“FPO”) for a specified amount of designated surplus feed. Farmers were entitled to take these FPO’s and transfer them to a dealer like Fleming as partial payment for surplus feed. Dealers like Fleming were authorized to submit the FPO’s to the government in exchange for a Dealers Certificate with a face value equal to the value of the FPO’s. Dealers could then use the Dealers Certificates to purchase surplus feed from the government. Before a dealer could exchange an FPO for a Dealers Certificate, he was required to sign a certificate on the FPO, certifying that (1) he sold and actually delivered the designated surplus feed to the named farmer,'and (2) that he accepted the FPO as partial payment for surplus feed. Fleming v. United States, 336 F.2d 475, 477 (10th Cir.1964). The evidence at trial established that on 15 occasions, Fleming accepted an FPO from a farmer, gave the farmer a credit on his books, but did not in fact deliver any surplus grain to the farmer. Rather, the farmer would use the credit on Fleming’s books at a later date to purchase non-surplus grains offered for sale at Fleming’s mill. The evidence also established that Fleming created invoices and attached those invoices to the FPO’s, falsely reflecting that the farmer had received a quantity of surplus grain. Fleming then executed the certificates on the FPO’s, falsely certifying that he had actually delivered surplus feed to the farmer. Fleming redeemed the 15 FPO’s for Dealers Certificates and then exchanged the Dealers Certificates for government surplus grain. Fleming, 336 F.2d at 477-78. The trial court found that Fleming’s actions were a violation of the FCA. The trial court then imposed 15 penalties — one for each FPO submitted by Fleming. The Tenth Circuit affirmed the trial court’s award of penalties. Neither the trial court nor the Tenth Circuit imposed additional penalties for the false invoices attached by Fleming to support the false certifications in the FPO’s. Fleming, 336 F.2d at 480. Consistent with the Tenth Circuit’s approach in Fleming, the undersigned finds that penalties should not be imposed on the run tickets, tank tables and meter correction calculations at issue in this case because, like the invoices in Fleming, those records are used only to support the allegedly false statements made in the MMS-2014’s, Osage Royalty Reports and monthly check stubs. 3. Decisions From Other Courts of Appeal a. United States v. Rohleder In Rohleder the United States Navy entered into a contract with Cramp Shipbuilding Company (“Cramp”) for the construction of six light cruisers. Before Cramp could begin construction, the contract required Cramp to make $12,000,000 in improvements to its shipyards. Cramp entered into 16 fixed-fee-plus-cost subcontracts with Charles Rohleder to make the improvements to Cramp’s shipyards. Cramp’s contract with the Navy required Navy approval for orders of material over a certain price. Consequently, all of Cramp’s subcontracts with Rohleder also required approval from Cramp for orders of materials over a certain price. The Navy would not approve an order of materials unless it was accompanied by three or more bids. United States v. Rohleder, 157 F.2d 126, 127-28 (3rd Cir.1946). The trial court found that under the 16 contracts, Rohleder submitted 90 purchase orders that contained one or more fraudulent bids. Rohleder would obtain bids from dealers which were higher than the bid Rohleder ultimately wanted the Navy to accept, with the dealer understanding that the bid the dealer was making would never be accepted. Rohleder was paid by Cramp on the 90 purchase orders, and Cramp was ultimately reimbursed by the Navy when Cramp submitted its Final Cost Certificate to the Navy. The trial court imposed 16 penalties — one for each of the 16 subcontracts under which Rohleder had submitted false bids. The United States appealed, arguing that 90 penalties should be imposed — one for each purchase order under which Rohleder had submitted false bids. Rohleder, 157 F.2d at 128 and 130. The Third Circuit rejected the United States’ argument and affirmed the trial court, holding that [t]he fraud was committed with respect to the contracts. The purchase orders were part of those contracts and not definite projects in themselves. They are analogous to the great number of spurious forms in the Hess case which were absorbed into their respective projects. The grouping by the Trial Judge of the ninety purchase orders under their respective contracts generally corresponds to the distinctions made in [Marcus v. Hess ]. It is reasonable and has a sound basis in the-record. Id. at 131. Consistent with the Third Circuit’s holding, the undersigned finds that in this case the grouping of many run tickets, tank tables, and meter correction factors under their respective MMS-2014, Osage Royalty Report or monthly check stub generally corresponds to the Supreme Court’s holding in Marcus, is reasonable, and has a sound basis in the record. b. United States v. Grannis In Grannis, the Fourth Circuit reached a substantially similar result as that reached by the Third Circuit in Rohleder. Edward Grannis and others entered into a fixed-fee-plus-cost contract with the United States to build an antiaircraft firing center known as Camp Davis. The “cost” portion of the contract included a rental fee paid to Grannis for use of equipment he owned and reimbursement for any equipment Grannis rented. United States v.