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United States v. Erie Basin Metal Products Inc.

May 1, 1957

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
ERIE BASIN METAL PRODUCTS, INC., DEFENDANT-APPELLANT.



Author: Major

Before DUFFY, Chief Judge, and MAJOR and LINDLEY, Circuit Judges.

MAJOR, Circuit Judge.

This action was commenced May 1, 1953, by the United States, pursuant to the Renegotiation Act of 1943, as amended (50 U.S.C.A.Appendix, § 1191), to recover excessive profits in the amount of $1,270,000, allegedly realized by the defendant under its contracts and subcontracts subject to renegotiation during its fiscal year ending November 30, 1943. The excessive profits were determined by the Chairman of the War Contracts Price Adjustment Board on January 4, 1946, and a Unilateral Determination and Order entered, a copy of which was mailed to the defendant. The government during the course of the proceeding conceded that defendant was entitled under Sec. 3806 of the 1939 Internal Revenue Code (26 U.S.C.A. § 3806) to a tax credit against the renegotiated liability, in the amount of $884,125.52, and other small credits, leaving a net balance owing by defendant on its renegotiated liability in the amount of $385,874.48. On July 29, 1946, defendant, pursuant to authority contained in the Renegotiation Act of 1943, as amended, filed its petition in the Tax Court of the United States for a redetermination de novo of its alleged excessive profits for the year in question, which proceeding is still pending in that court.

Previous to the entry of the aforesaid Unilateral Determination and Order and on about December 18, 1945, defendant submitted to plaintiff a Contract Termination Claim in the form of a settlement proposal in connection with one of its terminated war contracts, in accordance with the provisions of the Contract Settlement Act of 1944 and regulations thereunder (Title 41 U.S.C.A. § 101 et seq.) (subsequently referred to as the Settlement Act). This Termination Claim No. W 11-021-CWS-569 (referred to as contract No. 569) pertained to a contract entered into with plaintiff through the Chemical War Service of the War Department which had been terminated by the government on August 15, 1945. The proposed claim as amended was in the amount of $1,157,968.91.

The sole issue in the District Court, as here, arises from defendant's affirmative defense that the alleged balance of its renegotiated liability had been satisfied, liquidated and paid in full under circumstances subsequently to be discussed. The District Court found:

"The defendant has not met the burden of proof of its affirmative defense of payment to the plaintiff of the net principal amount of excessive profits of $385,317.76 or any part thereof that it owes to the plaintiff and that it therefore owes the same and has owed it since November 30, 1943."

Thereupon, on September 14, 1956, the court entered judgment in favor of plaintiff in the amount thus found due and owing, together with interest at the rate of 2 1/2% per annum, from May 23, 1946. From this judgment defendant appeals.

This case has previously been before this court. United States v. Erie Basin Metal Products, Inc., 231 F.2d 294. On that appeal there was a question as to whether the defense of payment could properly be invoked in a suit of the instant character and, if so, whether the District Court had rendered a decision on that issue. We held that the defense could be raised but that the court had not decided the issue, and for that reason reversed the judgment. In so doing we stated (at page 297):

"The judgment is reversed and the cause remanded, with directions that the judgment be vacated, without prejudice to the right of the District Court to decide the affirmative defense of payment or to continue the case pending a decision by the Court of Claims."

Upon remand, another trial was had, the court decided the issue of payment adverse to defendant and, as already noted, entered the judgment here in controversy. It perhaps is pertinent at this point to note that defendant on August 13, 1951 (almost two years prior to the commencement of the instant action) instituted an action in the Court of Claims against the government to recover, among other things, the balance alleged to be due on account of its Termination Claim under contract No. 569.We need not repeat that which we stated in our previous opinion regarding this suit (page 296). That action, however, so we are advised, is still pending. Thus, we have three cases pending in three separate courts between the same parties and growing out of the same general subject matter. In this court defendant is not permitted to attack the unilateral determination of its renegotiated liability but is limited to its defense of payment. We need not be concerned with the effect, if any, which our decision on the issue thus presented will have upon the cases pending either in the Tax Court or in the Court of Claims. We would not mention the matter except that the District Court, evidently sensing the incongruity of the situation, in its conclusions of law stated that the instant judgment "is not to be given or to have the effect, by way of the principle of res adjudicata or otherwise, to restrict or limit the assertion, prosecution and enforcement of the termination claims of Erie Basin which are set forth in the pleadings in said proceedings in the Court of Claims." In our view, neither the District Court nor this court can properly place such a limitation upon the Court of Claims. The effect which that court accords to our decision is for it to decide. We digress further to state that we agree with the observation of the District Court in United States v. Clark, 72 F.Supp. 393, 394, that this multiplicity of suits is a "travesty of the judicial process." It is not for the courts, however, to resolve the incongruity which the situation presents.

As already noted, while this action to recover excess profits was instituted pursuant to the Renegotiation Act of 1943, defendant's settlement proposal of its Termination Claim was made under the Settlement Act which became effective July 21, 1944. Thus, the issue of payment involves in the main the provisions of the latter Act.Also as previously noted, defendant's proposed claim as finally amended was in the amount of $1,157,968.91. No question is raised but that this claim was made in accordance with the Settlement Act and that it was submitted and considered by the authorized government officials.

Section 6(c) of the Settlement Act provides:

"Any contracting agency may settle all or any part of any termination claim under any war contract by agreement with the war contractor, or by determination of the amount due on the claim or part thereof without such agreement, or by any combination of these methods. Where any such settlement is made by agreement, the settlement shall be final and conclusive, except (1) to the extent otherwise agreed in the settlement; (2) for fraud; (3) upon renegotiation to eliminate excessive profits under section 1191 of Appendix to Title 50, unless exempt or exempted under such section; or (4) by mutual agreement before or after payment. Where any such settlement is made by determination without agreement, it shall likewise be final and conclusive, subject to the same exceptions as if made by agreement, unless the war contractor appeals or brings suit in accordance with section 113 of this title: Provided, That no settlement agreement hereunder involving payment to a war contractor of an amount in excess of $50,000 (or such lesser amount as the Director may from time to time determine) shall become binding upon the Government until the agreement has been reviewed and approved by a settlement review board of three or more members established by the contracting agency in the bureau, division, regional or district office, or other unit of the contracting agency authorized to make such settlement, or in the event of disapproval by the settlement review board, unless approved by the head of such bureau, division, regional or district office, or other unit. Failure of the settlement review board to act upon any settlement within thirty days after its submission to the board shall operate as approval by the board. The sole function of settlement review boards shall be to determine the over-all reasonableness of proposed settlement agreements from the point of view of protecting the interests of the Government * * *."

Defendant contends that on June 27, 1946, following negotiations between the parties, the contracting agency's local representative, the Chicago Contract Settlement Board of the Chemical Warfare Service, approved a final and complete settlement and found a balance due defendant on the claim in the amount of $1,084,156.46. The government contends to the contrary. There appears in the record a copy of the "Minutes of Contract Settlement Board Meeting," which recites that three named members of the Contract Settlement Board met on June 27, 1946, to consider a proposed settlement of contract No. 569. The minutes, signed by the Secretary of the Board, state:

"2. Board approved the settlement proposed by the negotiator in a net amount of $1,084,156.46 after credits and partial payments. The approval was subject to possible modifications for additional interest and for credits in the event the Independence plant facility should be sold and the contractor receive the proceeds.

"3. Items particuarly considered by the Board in their discussions on this problem were the correctness of treating expenditures at Independence as being expenses rather than capital improvements, post-termination expenses and items of other costs. After careful consideration of those items with the negotiator, the Board felt that the items were reasonable and approved the negotiator's proposed settlement."

The record also contains an exhibit relative to the same claim, bearing date of June 27, 1946, which according to its heading appears to be a communication from "Contract Settlement Review Board" to ...


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