364 U.S. 520 (1961), 26, United States v. Mississippi Valley Generating Co.

Docket Nº:No. 26
Citation:364 U.S. 520, 81 S.Ct. 294, 5 L.Ed.2d 268
Party Name:United States v. Mississippi Valley Generating Co.
Case Date:January 09, 1961
Court:United States Supreme Court

Page 520

364 U.S. 520 (1961)

81 S.Ct. 294, 5 L.Ed.2d 268

United States


Mississippi Valley Generating Co.

No. 26

United States Supreme Court

Jan. 9, 1961

Argued October 19, 1960



Respondent sued the United States in the Court of Claims to recover costs and damages incurred under a government-terminated contract to construct and operate a power plant to provide electric power for the Atomic Energy Commission. The Government contended that the contract was unenforceable because it grew out of a proposal resulting from negotiations in which the Government had been represented by an unpaid part-time consultant to the Budget Bureau, who was at the same time an active officer of an investment banking company which was expected to profit from the transaction by becoming financial agent for the project. It was shown that, while acting for the Government, he had also acted for the sponsors of the project by obtaining from his own company estimates of the cost of the financing, and that he had stopped acting for the Government (without resigning) shortly before his company was retained by the sponsors as financial agent.

Held: the consultant violated 18 U.S.C. § 434, and public policy forbids enforcement of the contract. Pp. 523-566.

1. By acting for the Government in a business transaction from which he and his company could be expected eventually to derive a profit, the consultant violated 18 U.S.C. § 434. Pp. 548-562.

(a) The obvious purpose of § 434 is to insure honesty in the Government's business dealings by preventing federal agents who have interests adverse to those of the Government from advancing their own interests at the expense of the public welfare. P. 548.

(b) It is not limited in its application to those in the highest echelons of government service, to those government agents who have only a direct financial interest in the business entities with which they negotiate on behalf of the Government, or to a narrow class of business transactions. P. 549.

(c) It establishes an objective standard of conduct, and whenever a government agent fails to act in accordance with that standard, he is guilty of violating the statute, regardless of whether there is actual corruption or any actual loss suffered by the Government. P. 549.

Page 621

(d) It attempts to prevent honest government agents from succumbing to temptation by making it illegal for them to enter into relationships which are fraught with temptation. Pp. 549-550.

(e) In view of the statute's evident purpose and its comprehensive language, it is clear that Congress intended to establish a rigid rule of conduct to which there are no exceptions. Pp. 549-551.

(f) Since the consultant acted as the Government's key representative in the crucial preliminary negotiations which eventually resulted in this contract, it would be unrealistic to say that he was not the type of "agent" of the United States to whom § 434 was intended to apply. Pp. 551-552.

(g) A different conclusion is not required by the facts that he took no oath of office, had no tenure, served without salary, performed duties which were merely consultative and were not prescribed by statute, and was knowingly permitted to continue in his position and to draw his salary as vice president of his company. Pp. 552-553.

(h) On the record, it cannot be said that his activities did not constitute "the transaction of business" for the Government within the meaning of § 434. Pp. 553-555.

(i) Since there was a reasonable expectation that the consultant's company would be selected as financial agent for the project, he was "indirectly interested in the pecuniary profits or contracts" of the sponsors, within the meaning of § 434. Pp. 555-557.

(j) The statute lays down an absolute standard of conduct which the consultant violated by entering into a relationship which made it difficult for him to represent the Government with the singleness of purpose required by the statute. Pp. 557-559.

(k) The consultant's expectation while acting for the Government that he and his company would benefit from profits to be realized from financing the transaction infected the transaction, and the taint was not removed by the subsequent decision of his company to forego its usual fee. P. 559, n. 17.

(l) Since the consultant had reason to believe that his company would be selected as financial agent if the negotiations resulted in a contract, the absence of a formal agreement to that effect did not prevent his activities from violating § 434. P. 560.

Page 522

(m) He was not exempted from the coverage of the statute by the fact that his goal of advancing the cause of private power coincided with the Administration's general objective. P. 560.

(n) Even if the consultant did not think that his activities involved any conflict of interest, that is irrelevant. Pp. 560-561.

(o) The knowledge of his superiors in the Budget Bureau and their approval of his activities did not exempt him from the coverage of § 434. P. 561.

(p) The statute is directed at an evil which endangers the very fabric of democratic society, and it is neither unjust nor inequitable to apply it to one who acted as the consultant did in this case. Pp. 561-562.

2. Nonenforcement of this contract is required in order to extend to the public the full protection which Congress decreed by enacting § 434. Pp. 563-566.

(a) The purpose of the statute to protect the public can be fully achieved only if contracts which are tainted by a conflict of interest on the part of a government agent may be disaffirmed by the Government. P. 563.

(b) Nonenforcement of contracts made in violation of §434 and its predecessor statutes is not a novel remedy, but one which has been recognized by the Court of Claims on at least two occasions. P. 564.

(c) The inherent difficulty in detecting corruption lying beneath the surface of a contract conceived in a tainted transaction requires that contracts made in violation of § 434 be held unenforceable, even when the party seeking enforcement may appear to be entirely innocent. Pp. 564-565.

(d) That the conflict of interest here involved was directly caused by high officials of the Budget Bureau does not require enforcement of this illegal contract. Pp. 565-566.

3. Since the Government has received no tangible benefits from respondent, no recovery quantum valebat is in order. P. 566, n. 22.

75 F.Supp. 505, reversed.

Page 523

WARREN, J., lead opinion

MR. JUSTICE WARREN delivered the opinion of the Court.

We granted certiorari to review the decision of the Court of Claims because the conflict of interest problem presented by this case has a far-reaching significance in the area of public employment and involves fundamental questions relating to the standards of conduct which should [81 S.Ct. 296] govern those who represent the Government in its business dealings.

The person with whose activities we are primarily concerned is one Adolphe H. Wenzell, Vice President and Director of First Boston Corporation,1 which is one of the major financial institutions in the country. At the suggestion of First Boston's Chairman, and subsequently at the request of the Bureau of the Budget, Wenzell undertook to advise the Government and act on its behalf in negotiations which culminated in a contract between the Government and the Mississippi Valley Generating Company (MVG), the respondent herein. The contract called for the construction and operation by the respondent of a $100,000,000 steam power plant in the Memphis, Tennessee, area. Ultimately, the plant was to supply 600,000 kw. of electrical energy for the use of the Atomic Energy Commission (AEC). Before the plant was constructed, but after the respondent had taken some steps toward performing the contract, the AEC, which was the governmental contracting agency, canceled the contract because the power to be generated by the proposed plant

Page 524

was no longer needed. The respondent then sued the Government in the Court of Claims for the sums it had expended in connection with the contract.

The Government defended on several grounds, but primarily on the ground that the contract was unenforceable due to an illegal conflict of interest on the part of Wenzell. Specifically, the Government contended that, at the time of Wenzell's employment by the Government, it was apparent that First Boston was likely to benefit, and as subsequently developed, in fact, did benefit, from the contract here in question; that Wenzell, as an officer of First Boston, was therefore "directly or indirectly" interested in the contract which he, as an agent of the Government, had helped to negotiate; that he consequently had violated the federal conflict of interest statute, 18 U.S.C. § 434;2 and that his illegal conduct tainted the whole transaction and rendered the contract unenforceable.

A sharply divided Court of Claims rejected all of the Government's defenses and awarded damages to the respondent in the sum of $1,867,545.56.3 175 F.Supp. 505.

Page 525

Because of the view which we take of the conflict of interest question, it will not be necessary for us to determine the validity of the other defenses raised by the Government in the court below, important though they may be.4 With regard to the conflict of interest defense, there appear to be but two legal principles [81 S.Ct. 297] involved: (1) did the activities of Wenzell constitute a violation of 18 U.S.C. § 434; and (2) if so, does that fact alone preclude the respondent from enforcing the contract? For reasons which we shall set forth in detail below, we think that the Court of Claims was in...

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