Full opinion text
HULEN, District Judge. I. Plaintiff sues to recover forfeitures and double damages (by brief plaintiff asks judgment for $214,878,725.12) under the fraudulent claims statutes, U.S.Code Annotated, Title 31, § 231, based on payments for ammunition delivered by defendant to plaintiff between “February 1, 1942 and October 31, 1943”, on a cost plus fixed fee contract dated December 5, 1940. Defendant denies receiving any money from plaintiff, by presenting “false” claims; further it denies that its representatives having supervisory authority of the manufacturing plant “as a whole” did personally fail “to exercise good faith” or usual care in execution of the contract, which defendant claims to be a condition precedent to fixing liability under the contract. The trial, before the Court by jury waiver, represents over three thousand pages of record, plus six hundred and seven exhibits, many of which are voluminous in themselves. The amended complaint contains eight assignments of fraud directed to specific instances in either the manufacturing, inspecting processes, or packing and delivery of small arms ammunition, under the contract. The answer pleads (third defense) plaintiff sustained no pecuniary loss; (4) defendant was entitled to its fixed fees under the terms of the contract; (5) no representatives of defendant having supervision of the plant as a whole had knowledge of any of the acts complained of; (6) no agent of defendant having any duty in connection with the preparation of the claims had any knowledge of any of the acts complained of; (7) repeats the fifth defense by way of pleading estoppel under the terms of the contract; (8) alleges conduct of defendant met terms of contract and that plaintiff by the contract has waived and released defendant from any claim under it; (9) settlement of all claims under the contract requiring submission of all disputes to plaintiffs contracting officers; (10) plaintiff has administratively determined defendant performed the contract; (11) the contract requires arbitration of all disputes; (12) settlement of all claims by subsequent contract for sufficient consideration; (13) release; (14) accord and satisfaction; (15) bar by virtue of release; (16) bar by settlement of all claims between the parties. Defenses 9 to 16, inclusive, were stricken on motion. See 78 F.Supp. 81. Twenty-five vouchers representing claims by defendant, on which plaintiff made payments under the contract, are identified in paragraph 6 of the amended complaint. These vouchers cover the period February, 1942 to September, 1943. By amendment to the amended complaint it is charged that due to the specific acts of fraud described, each of the vouchers constituted a false claim under the statute. Plaintiff charges that due to avoidance of inspection requirements defendant “on numerous occasions between February 1942 and October 1943 * * * permitted defective” ammunition to flow into production and become a part of lots of ammunition accepted by plaintiff. The issues: First, is defendant guilty of fraud under the purview of the false claims statute; second, if so do the terms of the contract relieve defendant of liability. II. Defendant is a wholly owned subsidiary of the Western Cartridge Company, now Olin Industries, Inc. In 1940 plaintiff solicited Western, through John M. Olin, President of Western, to undertake the manufacture of small arms ammunition. Western was one of two major industrial organizations in this country with substantial experience in the field of production of ammunition for war purposes. Mr. Olin was reluctant to have Western undertake the enterprise because its production capacity was then extended. While in Washington in the latter part of 1940, Mr. Olin learned of the serious weakness in the arms reserves of this country due in part to shortage of ammunition resulting from furnishing England with arms and ammunition after the lifting of the English and French armies at Dunkirk. Negotiations followed which resulted in execution, on December 5, 1940, of the contract for operation of the St. Louis Ordinance Plant for plaintiff by defendant. The St. Louis Ordinance Plant was located in the City of St. Louis, a location influenced by the problem of securing personnel for its operation. Over four million square feet of floor space was provided in three hundred separate buildings on a large site of several hundred acres. Burdett E. Bassett was general manager of the St. Louis Ordnance Plant. He had been general superintendent of Western’s plant at East Alton. As general manager he was given authority by the officers of the defendant company to carry out the terms of its contract with plaintiff. With a skeleton force of trained employees obtained from Western, defendant through Mr. Bassett took over the St. Louis Ordnance Plant from its inception, installing equipment and securing and increasing production as individual buildings on the site were completed. The men obtained from Western were used to instruct new employees. Training schools for this purpose were set up. There were over 80,000 employees engaged, at various times, in operation of the plant during the war period. Of these less than fifty had experience in manufacture of small arms. Defendant experienced difficult problems in securing proper machine tools and getting .them adjusted and running properly. That was only part of their troubles. Many people hired left during the training period, others before they were assigned to jobs, and others soon after they went on the production line. In securing and retaining personnel, defendant competed with other war and commercial industries in the City of St. Louis and manpower calls by the Armed Services. Many of the employees were without previous experience in any manufacturing. Some were engaging in salaried work or factory routine for the first time. Some were actuated solely by patriotic motives to help in the war effort. We are concerned .with a period of grave national crisis. Both plaintiff and defendant sought .to impress the employees with the importance of their work in the successful waging of war, and the imperative need of the Armed Forces for the product of the plant. Armed guards patrolled the grounds. They were at every gate. Sabotage warnings were posted throughout the plant. Many of the employees had members of' their immediate families in the Armed Forces, some serving overseas. These circumstances together with outside influence, present when a nation is at war, tended to create an atmosphere of suspense. There was keen alertness, in the furtherance of what was considered a patriotic duty, to discover evidence of irregularity in production of ammunition. Some employees made reports to the Federal Bureau of Investigation. An investigation followed. On December 21, 1943 eleven employees were indicted for violating Title 18, Section 88, and Title 50, Section 103 of the United States Code. The indictments charged the defendants named with conspiracy to defraud in performing certain acts and utilizing certain devices whereby defective ammunition was delivered to the United States in violation of the contract made between the United States and the United States Cartridge Company. Of the eleven indicted seven were part time employees and four were full time employees in supervisory capacities. One case naming five of the eleven employees was tried in April 1944, resulting in acquittal of all defendants. The remaining cases were dismissed shortly before this case went to trial and some of the defendants were used as witnesses in this case. On January 6, 1943, a special board of inquiry was appointed by the United States Ordnance Department to investigate operations of the plant, with particular attention to inspection procedure and equipment. The report of the board (which some of the members testified they did not agree to in full, although it bears their signatures) found the defendant’s operation was “no better nor worse” than the operations of other similar plants.. The report commented on lack of mutual confidence among the employees. Defendant undertook operation of the plant about the middle of 1941 and it was two years before the plant in its entirety was finished and in operation. In some cases manufacturing operations would commence in a building before it was completed. Production was started in Building 105 in January 1942; in Building 104 in November 1941; in Building 102 in February 1942; in Building 103 in April 1942. Four of the units were devoted to manufacture of .30 caliber ammunition and four to .50 caliber ammunition. Two of the units manufactured primers and loaded tracer bullets. Each of the manufacturing units was complete in itself except for the raw material and primer production. During maximum production over 30,000 persons were employed on a 24-hour basis of three shifts, six days a week. Eight to ten per cent of the personnel were on a salary basis; the balance were paid by the hour. Operating at its maximum approximately one-fourth of the employees were engaged in inspection and testing duties, ten per cent in keeping production machinery in operating condition, and the remainder in direct production activities. During the history of the plant’s operation over seven billion rifle and machine gun cartridges were produced. Production for the period involved in this suit is a matter of speculation. Capacity production was fourteen million cartridges during a twenty-four hour day. During the years 1942 and 1943 plaintiff exerted constant pressure on defendant to expedite production. We cite an instance • — soon after production got under way, the Secretary of War addressed a letter to the Chief of Ordnance containing this paragraph with reference to defendant: “Please see to it that * * * and Mr. Olin of Western are made aware of how critical the situation is on .50 caliber ammunition. There is no time to lose.” Shortage of ammunition for our Armed Forces was so critical at times that it was shipped by express. In some instances passenger trains were held past their departure time in order to carry the express cars. Mr. Bassett had two assistants, Mr. Kel-so and Mr. Dawson. Mr. Kelso’s duties were devoted to production, Mr. Dawson’s to schedules and tool procurement. Passing down from Mr. Bassett, whose overall supervision included departments that were not concerned with production, G. C. Storms, as general superintendent, had supervisory authority over the production parts or buildings of the plant as a whole. Mr. Storms’ assistant was B. E. Rogers. Next in order downward, and upon equal plane, was J. C. Stewart, in charge of plant maintenance; A. E. Allen, in charge of plant control, which had to do with scheduling the raw material into the units; C. E. Krus of the tool and guage department; Mr. Rogers of the manufacturing department; and W. N. Hurley, in charge of inspection department. Manufacture of small arms ammunition involves many varied and intricate processes. It starts with cupping of raw brass for cartridge cases. After cupping the case goes through a burning field. Before the cup reaches its final shape there are four draws and two trimmings, followed by a heading operation and shaping of the shoulder to receive the bullet. The bullets go through operations, varying according to whether they are tracer or armor piercing. After the case is completed a primer is inserted. Care must be taken that air vents are left open, otherwise the shell will not fire. The primer must be inserted at the proper angle and depth. After the case is loaded with powder, the bullet is inserted. Seventy different manufacturing operations were performed on a shell before it reached completion. Some of the defects that may develop during the process of manufacture which, depending on their extent, may result or should result in discarding the shell as scrap, or its downgrading from A to B ammunition, are: Cases — too long or short, have dents and cracks, cracked heads, scratches, folds, wrinkles, round heads, scaly metal, thin heads, insufficient lacquer, defective taper, split necks, no lettering, oil or water in the case. Bullets — blunt point, scratches, too long or too short. Primers — crushed, mashed, loose, inverted, cocked, or too hard. The overall shell may be insufficient in weight, too long or short. To insure manufacture and delivery of ammunition free from defects a comprehensive system of inspection, consisting of 52 separate inspection and gauging operations, accompanied all steps in the manufacture of the shell and its component parts. Cups are inspected for deep scratches, bent tops, thickness of the wall, thickness of the base and height. On each of the draws inspections are made of the formation of the case by the use of gauges. The formation of the head on the case is done on a horizontal machine. These machines are under constant inspection. Samples are taken. The head thickness of the case is tested, as are diameter of the head and diameter of the extractor groove. There is a mercury cracking test, mouth and neck anneal test. This is to determine if 'the case may crack in storage. There are two separate tests, one for the body and one for the mouth. There is a 100% inspection of cartridge cases by the use of a machine. This is a visual inspection of the head and mouth of the case. The inspector looks for buckles, dents, scratches, etc. Fifty to sixty cases of .50 caliber ammunition can be inspected a minute; ninety to ninety-five cases of .30 caliber ammunition a minute. After the primer insert operation, inspectors examine the inside of the case to see if the vent is present, waterproofing is on, and the head of the casing is crimped properly, and the primer is in good condition. This inspection takes place at the primer inserting machine. Before the metal is formed in the cup, it is inspected as to thickness, in addition to laboratory tests. Before the primer is inserted the anvil of the primer is inspected as to diameter and height. . After the anvil is inserted in the cup there is a 100% inspection under a glass of the top of the anvil. Here deep scratches,, cocked anvils, inverted anvils, and defective foiling paper are looked for. The cannelures on bullet jackets are made by machines. This process is inspected as to the location of the cannelure, whether there is a long or short cannelure. At the same time the inspector should pick out long bullets, pointed bullets, and examine for scratches and die marks. An inspector performing this duty can inspect sixty or sixty-five bullets a minute. There are separate inspections for tracer bullets and armor piercing bullets. .In tracer bullets the mixture must be checked to see if it is too high or low after assembly. After the bullet is inserted in the case by a roller . or’ die into the ■ bullet canne-lure, final assembly inspection follows, to see that the bullet pull is sufficient and the powder content is proper and the overall length is correct. This is done b.y a snap gauge and also a profile gauge.. Inspections at the loading machines must be made constantly to see that the bullets are not going in crooked, that the crimp is correct, that the bullets are not being inserted too far or sticking out too long. After the cartridge has been completely assembled it goes to the gauge and weighing machine. In this machine the shell goes into a pro-, file alignment die which is similar to the chamber of a rifle. There is also a gauge for shoulder to head, contour and dimension. The shells are weighed while going through this machine. After the cartridges have been weighed and gauged they go .to the inspector’s box. Any shells failing to pass the test of the gauge and weigh machine go into reject boxes according to the defect causing their rejection. Ammunition which passes the gauge and weigh machine test is then given a visual 100% final inspection. Here again inspectors look for scratches, dents, bent bullets, had heads, and other visual defects. Ammunition which passes the 100% visual inspection goes .to the Ordnance Department of plaintiff for inspection to determine rejection or acceptance. In addition to the line inspectors, defendant had “reinspect girls”. Reinspect girls were from person-. nel well versed in inspection. They passed upon ammunition which had been rejected by the line inspectors. Inspections not only went to examination of the product during process of manufacture hut to the machines producing the product to determine if they were turning out component parts according to specification. Ammunition might be subjected by the Ordnance Department to spot check, laboratory or firing range test, or both. This check was of a small percentage sample of the lot submitted at any given time. Ammunition inspected and accepted by the Ordnance Department was thereby approved for delivery to the packing department for packing and delivery to the shipping department and plaintiff. At one time the Ordnance Department got their samples from the packing room. Later they inspected the ammunition following the 100% visual and' weighing and gauging inspection by defendant. III. Certain defects in small arms ammunition present hazards when used by men in combat. If water or moisture comes in contact with the primer it could cause a misfire. Such conditions might not affect the primer until days or months after the cartridge has been assembled. Defective primer cups may cause misfires. If the primer cup is too thick or too hard the firing pin will not make a sufficient indentation to detonate the primer mix. During the latter part of 1942 and 1943, while the American Forces were engaged in the African and Italian campaigns, misfires of cartridges caused guns to jam in planes. Most of the planes were equipped with six guns. There were instances during this period when American flyers returned from missions with one or more, and in some instances all six guns, jammed. This minimized or destroyed the striking power of the plane and subjected the flyer to danger because of their inability to defend themselves. It lowered the morale of those who had the experience. How many flyers failed to return from combat mission for that reason will never be known. A systematic inspection of the ammunition was made in the field. The source of ammunition causing some of the trouble was found to be the St. Louis Ordnance Plant. It was traced by lettering on the shells and shell containers. Some of the ammunition had been repacked after it left defendant’s control. Inspection in the field reduced the cause of defective ammunition and jammed guns to corroded shells due to moisture in the shell containers, hard primors which failed to fire upon the firing pins functioning in the regular manner, split cases, thin heads, and loose bullets. During the time the Air Force was receiving this defective ammunition it was being drawn from English ammunition dumps. Subsequently, when the Air Force moved to fields near Naples and received ammunition from American dumps, defective ammunition was no longer found in unusual quantities. During the time ammunition was received from English dumps the containers showed evidence of violence which could have broken the sealed metal liners and permitted moisture to permeate and corrode the shell. The record does not show the quantity of defective shells received by the Armed Forces originating from the St. Louis Ordnance Plant, nor what proportion of defective ammunition was traceable to one or more of the defects mentioned. Plaintiff, by the contract, had the right of control and to give defendant instructions for the production of ammunition out of certain materials. Prior to September 12, 1942, the brass specifications for the manufacture of component parts of ammunition by defendant was “70-30” — 70% copper and 30% zinc. On this date the Government issued orders changing the percentage to “68-32”. This order resulted from a shortage of copper. Defendant protested when the change was ordered by plaintiff and declared in plain terms, to representatives of plaintiff, that their experience at Western with “68-32” brass had been unsatisfactory and, in their opinion, satisfactory ammunition could not be made with it. Over defendant’s protest defendant was ordered to use “68-32” brass. Due to their anticipation of- trouble defendant segregated its use to buildings 105 and 204. Defective ammunition in those buildings resulted immediately. Cartridges showed up with scaly metal, cracks, laminations, folds, and cracked heads. During the use of “68-32” brass personnel in the manufacturing and inspection departments were alerted to watch for the defects anticipated and to scrap all shells showing such defects. “68-32” brass was in use for approximately three months, then the order for its use was rescinded by plaintiff. Defendant was not permitted to give the reason for its use and this, together with the defects that resulted, could have created suspicion among the personnel. Shortly after the time of its use there appeared in a daily newspaper in the City of St. Louis a news item about the production of defective ammunition by defendant, and a picture of a cartridge with a cracked head, this being one of the types of defects which were anticipated by the use of “68-32” brass. Even under these circumstances defendant was compelled to remain silent as to the reasons for use of “68-32” brass. Not until this trial were these facts made public. Following publicity on production of defective ammunition the Board of Inquiry was set up by the Ordnance Department and some employees indicted. Another accepted procedure in production of ammunition was mouth and neck anneal tests. This test has a tendency to accelerate the aging of metal, so certain defects such as cracks which might ordinarily take months to occur or become observable, show up under the mouth and neck anneal test. On March 3, 1942 plaintiff instructed defendant .to omit the mouth and neck anneal tests and these tests were not reinstated until late in 1942. As a result of elimination of these tests, cracks may have developed in the casing resulting in loose bullets and other defects that could cause misfire and jammed guns. The cracking resulting in the loose bullets may have developed or become apparent long after the ammunition left the plant. IV. The. prime issue turns on interpretation of the December 5th, 1940 contract. Contract negotiations were started by .the Government submitting a form. From the outset Mr. Olin insisted the contract contain a clause limiting defendant’s liability to personal failure on the part of the corporate officers of defendant, or other representatives of the defendant having supervision and direction of the operation of the plant as a whole, .to exercise good faith or that degree of care which they normally would exercise in the conduct of the contractor’s business. A provision to that effect appears in the contract in four different sections. A preliminary statement attached to the contract sets forth that the Government contemplates a contract “for management service covering supervision, direction and control of the production aspects” of the plant and for training key personnel. The latter service is covered by paragraph 1, Article I-B of the contract. In paragraph 9 of Article I-B the liability limitation provision relied upon by defendant as a defense to this action appears for the first time. Article I-D provides for reimbursement for expenditures made by defendant in operating the plant and its fixed-fee compensation. Article I-E specifies defendant is to do all things necessary about the operation of the plant including employment of all persons engaged in work under the contract “who shall be subject to the control and constitute employees of” defendant. Article I-F requires the contractor to maintain “a satisfactory system of inspection, gaging and gage checking” and further provides that no ammunition “shall be submitted for the Government inspector’s approval” which has not previously been inspected by the defendant and found to be up to the contract standard. Title II of the contract, sub-paragraph 1 of Article II-A goes to the subject of reimbursement' — the Government to pay “all costs and expenses ,of every character and description” incurred by the contractor. Again in sub-paragraph 1(g) of Article II-A appears a provision that losses and expenses actually sustained by the contractor and found not due “to the personal failure on the part of the corporate officers of the Contractor or of other representatives of the Contractor having supervision” of the operation of the plant as a whole, “to exercise good faith or that degree of care which they normally exercise in the conduct of the Contractor’s business”, shall be borne by the Government. Subpara-graph l(k) of this title provides for administrative expense “incident to the operation of the Plant” of $60,615.00 per month. Subparagraph 1(1) of this title provides the defendant shall be reimbursed “for Ammunition reworked because of rejection and for Ammunition finally rejected”. Expenses of operation were to be reimbursed weekly. The fixed-fee compensation was to be paid monthly, based on ammunition accepted. Title III defines the position of defendant as that of an independent contractor and “in no wise an agent of the Government”. Article III-C, paragraph 1, empowers the Government to require defendant to dismiss any employee the Government deems incompetent "or whose retention is deemed to be not in the public interest”. Paragraph 2, Article III-C, requires defendant to use all reasonable efforts in all acts under the contract to protect the interest of the Government. Subparagraph 1 of Article III-F makes the approval of the Government a condition for the “extent and character of the work to be done by the” defendant under the contract. In case of dispute as to extent and character of work “the decision of the Contracting Officer” of the Government “shall govern”. Subparagraph 3 of the same Article specifies that title to all work completed or in course of manufacture, to all ammunition completed or in process of being manufactured, shall be in the Government; also to all materials, tools, and equipment. In paragraph 5 of Article III-F again appears the limitation of liability provision with respect to relieving defendant from liability “for any failure or delay in the performance of .this contract, or accountable for the loss or destruction of or damages to any materials, tools, machinery, equipment, supplies, Ammunition or other property located or stored at said Plant or used in connection with the operation thereof”. Subparagraph 2 of Article III-G gives the Government power at all times to inspect the work, and to do this the representatives of plaintiff at all times were given “access to the premises, work and materials” and the books and records of “every description” of the defendant. Article III-P sets forth that the contractor shall submit to plaintiff’s Contracting Officer within a reasonable time after execution of the Contract “a chart showing the executive and administrative personnel to be regularly assigned for full or part-time service in connection with the work under this contract, together with a written statement of the duties of each person and the administrative procedure to be followed by the Contractor for the control and direction of the work”. This chart was to be kept up to date. Article III-Q empowers the Government “at any time, by a written order * * * [to] make changes in or additions to the drawings and specifications, issue additional instructions, require additional work * * *, or direct the omission of work covered by the contract”. [Emphasis added throughout Division IV.] V. The certificate with respect to violation of Section 80 is on the back of the voucher. Defendant argues it was not signed by anyone representing the defendant. It is true that defendant’s signature appears only under the certificate containing the language first quoted, but in the margin opposite defendant’s signature there appears: “certificate (s) on reverse side made a part of this voucher”. The voucher is fairly susceptible of the construction, defendant’s signature oh the front of the voucher covers the certificate on the back of the voucher. It is immaterial whether it does or not. Defendant’s servant certified that the voucher “is correct and just”.. If it was a false voucher it would not be a just voucher. The certificate, that the voucher is “just” is broad enough to cover the matters referred to in the certificate on the back of the voucher. If the defendant is liable, and to the extent of liability under the contract, for acts of fraud of its servants in connection with performance of the contract, it would be liable if there were no certificate of any character on the voucher, because when defendant presented the voucher to the-plaintiff for a payment under the contract, it impliedly represented the payment to be honestly due defendant under the contract terms. This question we dispose of now so as to find the base for the charge in this case. It is, first, the statute on false claims and, second, the claims for compensation filed by defendant with plaintiff. We now pass to a consideration of the issues, legal and factual. VI. In view of certain theories regarding liability, legal and factual, now being urged, at the outset we delineate the character of case with which we are concerned. Plaintiff charges the defendant with violation of the False Claims Statute, Title 31, § 231, U.S.C.A., the pertinent part of which reads: “Any person [individually or by conspiracy] * * * [1] who shall make or cause to be made, or present or cause to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent, or [2] who, for the purpose of obtaining or aiding to obtain the payment or approval of such claim, makes, uses, or causes to be made or used, any false bill, receipt, voucher, roll, account, claim, certificate, affidavit, or deposition, knowing the same to contain any fraudulent or fictitious statement or entry, * * * shall forfeit * * * the sum of $2,000, and * * * double the amount of damages * * * sustained * * *." Broadly, we are called on to determine did the defendant by virtue of acts of its servants, for which it is responsible, make- or cause to be made, and present to the plaintiff, false claims for the payment of money resulting from performance of the contract for the manufacture by defendant of small arms ammunition. The claims in suit are vouchers, twenty-four in number, but identical in the representation claimed by plaintiff to be false and therefore proscribed by the statute. There is supporting data attached to each voucher, which plaintiff would class under the second part of the statute. The vouchers, over the signature of the defendant’s servant, contain this provision: “I certify the above bill is correct and just”. On the back of each voucher is an additional certificate: “I certify that I am familiar with the provisions of Section 35 of the Federal penal code, as amended (Title 18, United States Code, Section 80) and that I have not, nor has any one acting for or in my behalf of the firm or company which I represent committed any act or offense denounced by the said Section 35 in connection with the transactions for which reimbursement is sought on this voucher.” The burden of proof rests upon plaintiff. As to proof necessary to sustain the burden, the authorities which have ruled cases under the False Claims Statute appear to be uniform in their holdings. “To prevail, the United States must prove fraud of some sort. Fraud implies a misrepresentation of material fact, either express or implied.” See United States ex rel. Weinstein v. Bressler, 2 Cir., 160 F.2d 403, loc. cit. 405. Plaintiff must go further and prove the defendant guilty of “knowingly concealing or falsifying material facts or making false or fraudulent statements or representations for the purpose of obtaining approval or payment of such claims by the Government.” See Hillgrove v. Wright Aeronautical Corporation, 6 Cir., 146 F.2d 621, 622. There must be an intent to “defraud the government”. See United States v. Shapleigh, 8 Cir., 54 F. 126, 128. To summarize — ’“Fraud consists in the false representation of a material fact, made with knowledge of its falsity and with the intent to deceive the other party, which representation must be believed and acted upon by the party deceived to his damage.” See Cahill v. Curtiss-Wright Corporation, D.C., 57 F.Supp. 614, 616. Plaintiff cannot sustain the burden of proof by offering evidence there was a false representation in the claim for money for ammunition presented to plaintiff by the defendant, but must go further and present a record containing substantial evidence on which to base a finding that the defendant in presenting the false claim did so with the knowledge of its falsity and with intent that the plaintiff would rely and act on such false representation, and that the plaintiff did believe and rely on such false representation. It follows that evidence of irregular acts standing alone, even if fraudulent, in the process of manufacturing ammunition, do not meet the test to make a case under the statute: “The fraud must be used in connection with making a claim against the Government”. See Cahill v. Curtiss-Wright Corporation, supra. Plaintiff in its brief emphasizes a provision of the contract (Title I, Art. I-F) which reads: “The contractor shall maintain a satisfactory system of inspection, gaging and gage checking concurrent with manufacture, and no ordnance material shall be submitted for the Government inspector’s approval which has not previously been inspected by agents of the contractor and found to be up to the contract standards.” With this provision of the contract as a premise and certain acts of the employees of defendants, claimed to be fraudulent, inferentially at least, we are asked to conclude that the corporation could not delegate the obligation to set up a satisfactory system of inspection as called for by the contract and is therefore guilty of fraud. As we view this case the system, as such, of inspection set up by defendant has no direct relation to the issues in this case. Failure to set up a system of inspection as called for by the contract is not pled as a basis for any false claim. But if it were, the evidence shows a complicated system of inspection was inaugurated and maintained by defendant that was continually under the scrutiny, both open and secret, of the plaintiff. We construe the complaint to allege — at least the evidence so shows, and we so find — the acts of the defendant for which plaintiff seeks relief are isolated digressions from the established system of inspection. There were fifty-two separate inspections and gauging operations in production of the cartridge during seventy manufacturing operations. Defendant set up and maintained a school for training employees; it prepared manuals which were examined and approved by plaintiff’s Small Arms War Plants Office. Defendant kept production process manuals which described in detail manufacturing operations. There is a large volume of inter-plant communications urging compliance with instructions, that there should be no deviation from specifications, and urging production of high quality ammunition. This was the standard for all manufacturing processes. The contract provides and the evidence shows action in accordance therewith. Defendant was under constant supervision by representatives of the plaintiff. Plaintiff could have terminated the contract at any time. It retained complete control over the operations as to the extent and character of work done by the defendant. It could issue instructions with respect to the manner in which the contract was being executed and ammunition produced. Nowhere in the record do we find any complaint made by plaintiff during execution of the contract that defendant had failed to comply with the terms of the contract calling for setting up of inspection processes. Plaintiff’s present position on this point is in sharp contrast with its declaration at the time contract negotiations were concluded. The original complaint in this case was filed December 21, 1943. On February 9, 1945 an amended complaint was filed. On September 30, 1946, an amendment to the complaint was filed. The record shows that substantially all of the acts of defendant upon which the .complaint is based were known to the plaintiff during the plant operation, by plaintiff’s inspectors and other agents of the Government. We presume plaintiff had full knowledge of the facts when it filed its amended complaint on February 9, 1945. The renegotiation contract was executed “as of the 30th day of August 1946". We find this paragraph at the top of page 3 of the renegotiation contract: “Whereas, the Contracting Officer, as evidenced by his execution of this instrument, has administratively determined that the Contractor has satisfactorily completed all of its work and and satisfactorily performed all of its obligations under the Contract.” We conclude the record is without substance to support plaintiff’s claim of a violation of the contract by failure to maintain a satisfactory system of inspection, or that such failure constituted fraud leading to a false claim. VII. We now go to the allegations of fraud contained in the complaint and the specific acts plaintiff claimed to support them, to determine, absent contract terms relied on as a defense, whether or not there is fraud in any one or more of the particulars charged. Paragraph 5 of the amendment to -the amended complaint sets forth , certain “schemes, tricks and devices employed by the defendant” out of which it is charged that the falsity of the claims grew. Subparagraphs (a), (b), (e), (f), (g) and (h) we have placed in one division because each charges acts of the defendant in the process of manufacture of ammunition prior to and including delivery of the ammunition to the United States Ordnance Department for its inspection, as a result of which plaintiff either accepted the ammunition or rejected it. Subparagraphs (c) and (d) of paragraph 5 describe conduct of the defendant with respect to actual delivery of ammunition to plaintiff, and discussion of these two subparagraphs we treat last. (a) Subparagraph (a) charges: “On October 16, 1942 the defendant did submit some 700,000 rounds of .50 caliber ammunition for acceptance by the United States without having subjected the same to satisfactory visual inspection. This was accomplished by placing skids of ammunition within the U. S. Ordnance Department area as having been fully visually inspected and ready for acceptance, whereas such ammunition had been in fact only ‘spot-checked’ or not finally inspected at all.” As to details and parties present on October 16, 1942, in Building 105, there is dispute between plaintiff and defendant, but that defendant did submit a substantial quantity of ammunition at this time for acceptance ‘by the United States Ordnance Department without 100% visual inspection is not denied by defendant. There was a bank of approximately 700,000 rounds of ammunition in Building 105 on the morning of October 16, 1942. During that day this ammunition was passed to the Ordnance Department for inspection and acceptance. The ammunition so delivered contained a large quantity that received no visual inspection at that time by the defendant’s inspectors. A general inspector by the name of Paul Thaller had supervision of the inspection in Building 105. Mr. DeGrote, assistant chief inspector of the company’s manufacturing units as a whole, was in the area where tbe bank of ammunition was located during the morning of October 16th. Mr. Thaller testified, Mr. DeGrote told him that the ammunition bank would have to be eliminated that day. Prior to that Mr. Wuigk, general inspector supervisor in Building 105, told Mr. Thaller it would he necessary to eliminate the bank during Thaller’s shift. Mr. Bolling, an assistant process inspector, told him the bank would have to be eliminated or he would lose -his job. At about 3 p. m. Wuigk instructed Thaller to start shoving “the ammunition across”, which Thaller understood to mean —send it to Ordnance without visual inspection. Acting on these instructions the balance of the ammunition was sent to the Ordnance Department without receiving 100% visual inspection. Witness Betty Dearing testified to taking part in the inspection process, that she reported the irregularity of sending ammunition to the Ordnance Department without being visually inspected to William M. Hurley, the chief inspector of the defendant company. She further testified that at that time Mr. Hurley informed her inspection of ammunition was not a requirement and that it was done only as a courtesy to the Ordnance Department. In view of the emphasis laid on inspection in the production of ammunition and visual inspection at various periods during its production, .and the reaction of some of the employees to the failure to inspect 100% visually on October 16th, it is our opinion that Miss Dearing is in error in her recollection of her conversation with Mr. Hurley. Summarizing plaintiff’s theory of the testimony on the acts relied on to show a right of recovery on this assignment, we quote from plaintiff’s brief: “The acts and conduct of the defendant, its officers, agents and employees as conclusively shown by the evidence herein clearly established the violation by the defendant of each of the first three clauses of Section 5438 [Sec. 231, 31 U.S.C.A.] These acts consist of: ****** “(iv) The submission by defendant of ammunition to the Ordnance Department as Grade A which had not been inspected prior to submission as required by the contract specifications; * * *". Paragraph (iv) of the summary must refer to the elimination of the bank on October 16, 1942. No claim is there made that the record shows any of this ammunition to be defective or if defective that any such defective ammunition passed to the Government. On page 67 of the brief it is argued that by the commission of the acts, including the one now under consideration, defendant “caused the plaintiff to accept lots of .ammunition which it would not have otherwise accepted”. So we construe plaintiff’s position to be that by virtue of delivery of ammunition constituting the bank without 100% visual inspection, “defective ammunition thereby” was intermingled with every lot of ammunition described in the voucher covering that period. The fact that some 700,000 rounds of ammunition was “passed” on October 16th in Building 105 in and of itself carries no notice to the plant manager that visual inspections were not being executed according to instructions. The regular force of inspectors on hand was twenty-nine. They inspected 346,940 cartridges or an average in excess of 11,000. Inspectors in other departments where there is no charge of irregularities handle approximately the same number of cartridges. Fifty additional inspectors were brought into the department to help eliminate the bank. Those brought into the department did not work the full shift and some may not have had sufficient experience to keep up with inspectors of the regular force. If 720,000 cartridges were handled it would leave 373,060 to be inspected by approximately fifty inspectors brought into the department as against 346,940. shells inspected by the regular force of twenty-nine inspectors. We think this is some evidence of an effort to inspect, also of the pressure under which the bank was moved. As we read the results of the Ordnance inspection of ammunition submitted to it in eliminating the bank of October 16, 1942, they show the quality of the ammunition was not below the average for that period and the per cent of visual defects found was not in excess of the number of visual defects permitted under the specifications. Assuming, for the sake of -argument, the conduct of defendant’s servants in removing the hank of ammunition constituted evidence of willful wrong, does it rise to that character of fraud required to sustain a claim under the Statute ? To do so it must first be assumed, without any substantial evidence to support the assumption, that due to failure to inspect visually 100,000 to 125,000 rounds of ammunition, or even the whole of the bank, that defective ammunition was passed to Ordnance. Based on this inference, it must be inferred the Ordnance inspectors by their inspection of the ammunition failed to detect such' defective ammunition. As -a result Ordnance 'accepted the ammunition and it was delivered to plaintiff and became the subject of a claim, and was paid for under voucher covering the payment of fixed fees for the period from October 12, 1942 to November 8, 1942. There is no evidence- from which it could be concluded that this ammunition in the course of production had not received all other inspections uqder defendant’s system, and some of it may have received a visual inspection on some other day. Neither is there any evidence from which it could be concluded that any of the ammunition in this entire bank was defective beyond the amount that was to be expected and allowed in the usual operation of the plant. We are unable to find from this record, the actions of the defendant’s employees in moving this bank of ammunition show any attempt on their part to defraud the Government; It is hard to .believe, had defendant intended to deceive the Government on this occasion it would have executed its plan in the open by a large number of employees who knew the regular procedure for handling ammunition, with apparently no effort made to hide precisely what was being done. Taking the operation of the plant as a background and the circumstances under which its manufacturing operations were being carried on, we are led to believe the motive for the October 16th activity was to speed up production under pressure exerted by the plaintiff to obtain delivery to meet a ’ grave national emergency. Therefore, under the pleading and the False Claims Statute we find there is an absence of proof that any of the ammunition was defective, that the defendant knew any of the ammunition, or had cause to believe any ammunition in the bank that passed to the plaintiff was defective. Under the pleading and the statute it is necessary the plaintiff trace, by substantial evidence, defective ammunition into the whole or part of the bank in question; also knowledge of such defective ammunition on the part of the defendant at the time of its delivery to the Ordnance Department, and that the Ordnance Department accepted such defective ammunition, and such defective ammunition was represented in a particular voucher with the knowledge of the defendant. Fraud grows out of dealings between parties under the False-Claims Statute. The weakness of plaintiff’s case on this claim is further evident when we go to its. argument under the heading of damages. There it is stated: “The standard by which damages are measured, when a wrong has been done, and the law gives a remedy, is, that the compensation recoverable on account of the wrong shall be equal to the injury.” Unless defective -ammunition was passed to the Ordnance Department and accepted by them, and as a result sent to-the packing department and the ammunition delivered to plaintiff, the plaintiff could sustain no “injury” thereby. (b) Subparagraph (b) charges: “On sundry occasions between May 1, 1942 and October 1943 the defendant submitted for acceptance by the United States .50 caliber ammunition as Grade A which had not passed the inspection requirements for Grade A. It had been agreed between the United States and defendant that certain types of ammunition would not be submitted for acceptance except as Grade Bl The defendant nevertheless did cause the acceptance by the United States as Grade A of several hundred thousand rounds of ammunition, which could properly have been accepted only as Grade B, by removing surreptitiously cards placed with boxes of Grade B ammunition and substituting therefor cards indicating that the ammunition was Grade A.” A large segment of the record bears on this assignment. Plaintiff’s answers to interrogatories stated the irregularities under this heading occurred in Buildings 104, 105 and 204, between May 1, 1942 and October 1943, and affected several hundred thousand rounds of ammunition. The activities of defendant’s servants which are involved originate with Paul Thaller, who on July 1, 1942, was made general inspector for one shift in Building 105. The practices presently to be referred to followed instructions from Thaller. If he received authority to give these instructions from any higher authority, there is no substantial evidence to show it. After Thaller became general inspector in Building 105 the practice was engaged in, at times, of upgrading ammunition from B to A either by changing markings on the cards (attached to the ammunition containers, i. e. tote boxes or skids), or destroying the B cards and substituting new A cards. Thaller gave instructions to his subordinates to effect this practice of changing B cards to A cards. In some cases the ammunition had been graded by the reinspect girls as B ammunition and was upgraded to A ammunition. In some cases skids of ammunition which had been rejected or downgraded by the Ordnance Department and returned to' defendant was upgraded by substituting the cards and resubmitting to Ordnance for inspection by them as Grade A ammunition. In some instances skids of ammunition were taken from the defendant’s final inspection department on the second floor to the loading department where the cards were changed. In some cases the skids, after the cards had been changed on the first floor, were put on conveyor belts and sent back upstairs. Skids which were thus put on conveyor belts would in the usual course pass through the gauge and weigh and final visual inspection operation. There is no evidence the ammunition so placed on conveyor belts did not follow the usual course of inspection thereafter. Some of the skids of ammunition which were taken to the first floor, where the cards were changed from B to A, were brought back to the second floor by elevator and placed with other lots for submission to Ordnance. An effort was made for two days, at least, to' move the ammunition from the inspection department down to the first floor for the purpose of changing the cards from B to A and return it to the second floor and submit to Ordnance, without Ordnance inspectors learning of defendant’s servants’ actions in that regard. In other cases the cards were changed from B to A on the inspection floor in plain view of anyone in the department and with no effort to conceal from anyone. Some of the witnesses testified to changing or seeing the cards changed from B to A as early as May and June of 1942. These dates must be errors because Thaller, who-gave the instructions which resulted in the change of cards, did not occupy a position to give such instructions until July, 1942. Thaller testified that they began changing cards in September of 1942 and continued for about three months, that there were periods of weeks during this time when no changes were made. He also testified that in his opinion the ammunition was Grade A and that he was doing no wrong in directing the card changes so that it could be submitted as Grade A ammunition. Aside from the testimony of Septowski no effort was made to show what disposition was made by the Ordnance Department of ammunition which was submitted to them as Grade A by virtue of change of cards. The testimony of this witness indicates one weakness in plaintiff’s case. Even though there were irregularities in the handling of ammunition by defendant’s servants, and assume it was willful and wrong and would constitute a base for fraud, failure to trace to acceptance of the ammunition by the Ordnance Depart-merit leaves the subject one of speculation in a vital particular. What action did the Ordnance Department take with respect to the ammunition? Did it accept or reject the ammunition? That Ordnance was conducting a visual inspection is indicated by the following excerpt from this witness’ testimony: “A. Well, on numerous occasions, what I am trying to explain to you is when I took them in there they in turn had the A card on' them, then if they rejected them again to B card then in turn I had to put the new card on again. In other words, I went through the process of keeping moving those skids back in back through the Ordnance Department. * * * * * * “Q. Well, do you know what final disposition was made by Ordnance of any one of the something over 70 skids which were handled in the manner in which you have described, the final disposition made of it by Ordnance? A. Well, the only thing I can tell you when I brought them up there, in other words, when they put them in if they rejected them down then I regraded them and run- them through again, I kept running through, until they were all gone. That is the only thing I can tell you. =t= * * * * * A. Well, if Ordnance rejected them then they had their so-called stickers and stuff on them. I took them off, put them into fresh boxes and took them back up to Ordnance again. “Q. Supposed Ordnance classed them as grade B; you wouldn’t have anything more to do with them, would you? A. Yes, they would run them through again. “Q. You mean Ordnance wouldn’t accept them as grade B? A. They didn’t accept them as grade B. In other words, they just kept pushing them back through.” Even though an inference may be discernible in this witness’ testimony that the seventy skids of ammunition referred- to by him were finally accepted by the Ordnance Department, in view of other testimony as to the manner in which the Ordnance Department conducted its inspections by firing and other tests which took some time, and the fact that this witness was not a regular employee of the final inspection or gauging and weighing department of defendant but was only called to work there occasionally during one shift, his conclusion that the ammunition was finally accepted by the Ordnance Department does not rise to substantial proof but is an opinion of the witness. Many of the witnesses testifying on this assignment told of either changing cards or seeing the cards changed, without any explanation as to what had been done to the ammunition prior to the cards being changed. In a letter from the defendant to the Commanding Officer of the Ordnance Department in charge of inspection at defendant’s plant, dated August 27, 1942, and approved by the Ordnance Department, appears this paragraph: “Inasmuch as quite a number of skids of ammunition which have been reworked by the contractor have been found to contain no defects whatsoever by the Ordnance Inspection Department, it is our recommendation that any skid of ammunition submitted as Grade “A” and down graded to “B” or rejected on gauging, can be reworked by the contractor and resubmitted to the Ordnance Inspection Department as Grade “A". This procedure shall be followed for one resubmission as Grade “A” only.” To what extent changing of cards resulted from this exchange of correspondence we are left to speculate and guess. The ammunition upgraded by changing cards may in some instances have been in conformity with this letter. This circumstance was not eliminated. Take the testimony of Mr. Septowski. His regular occupation was in the second visual inspection. On the occasions when he went to Thaller’s department and moved ammunition to the Ordnance Department for inspection, on which cards had been changed from B to A, he testified, prior to having the skids that he was to move pointed out, he had never before seen the ammunition. “Q. And therefore you don’t know of your own personal knowledge what had been done to those skids before you took them out of the department and handled them in the way that you have described? A. The only thing I can say to that is they had me take them downstairs and had me take and put these other cards on it.” Another phase of the testimony offered under this assignment was given by witness Becker. He testified that in April, while in Building 105, he was ordered by his superior, the general inspector for the building, to take “no letter” ammunition and spread it on skids of current-run ammunition. “No letter” ammunition is ammunition which does not bear the manufacturer’s identification letter. We are asked to construe this testimony as showing that “no letter” ammunition was thus submitted “as Grade A ammunition”. Again, the question is — what action did Ordnance inspectors take on this ammunition? Was it defective? We find there is no substantial evidence that plaintiff was caused to accept any defective ammunition as the result of changing of B cards to A cards, or any of the irregularities specified under subparagraph (b) of paragraph 5 of the amended complaint, and therefore we find a failure of proof that any false claims could have been presented by defendant based on matters set forth in paragraph (b). The testimony of Mr. Andereck is revealing on the character of inspection made by Ordnance. Defendant’s numerous inspections during production should serve to reduce rejections by plaintiff through its Ordnance Department to a minimum and thereby expedite production. But Ordnance Department inspections were not of a perfunctory nature. Plaintiff did not depend upon defendant’s inspections. It depended on Ordnance inspections. The Ordnance Department conducted such character of inspections of ammunition submitted to it by defendant as Ordnance considered necessary to determine that defendant was delivering ammunition in accordance with specifications. In Division (b) of plaintiff’s appendix to its brief, comment is made on the resignation of James E. Westrich who was general inspector supervisor in Building 105. Here we find illustration of the effectiveness of the inspections made by the Ordnance inspectors. Production was being handicapped because of a large bank of defective ammunition which had accumulated. This resulted in Mr. Westrich’s resignation. His successor was Edward J. Schaller. That the Ordnance Department inspections were responsible for a substantial proportion of the accumulation of defective cartridges is shown by the testimony of Walter C. Andereck, Chief Ordnance Inspector for 105, who testified to a conversation with Schaller, at about the time he became general inspector supervisor in Building 105, as follows: “A. Mr. Schmidtke who was Mr. Schaller’s immediate superior at that time, came to my office and wanted me to meet the new inspector in charge of the inspection in Building 105, and we went to Mr. Schaller’s office which was formerly Jim Westrich’s office; at that time I was introduced to Mr. Schaller, and it was more or less the usual introduction, and at that time Mr. Schmidtke left, I believe to go to 104. Mr. Schaller stated that we had been a little rough on Jim Westrich, that he wasn’t getting— * * * * * “A. That I had, the Ordnance department, that he had not been getting a Grade A ammunition, and if I would take a little easy on him and let him get some Grade A ammunition and some of that rejected ammunition passed, he was sure we could get together on dinne