Armour & Co. v. Reconstruction Finance Corporation

• Decision Date: 30 June 1947
• Docket Number: No. 329.,329.
• Citation: 162 F.2d 918
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals
• Parties: ARMOUR & CO. v. RECONSTRUCTION FINANCE CORPORATION.

162 F.2d 918 (1947)

ARMOUR & CO. v. RECONSTRUCTION FINANCE CORPORATION.

No. 329.

United States Emergency Court of Appeals.

Heard March 10, 1947.

Decided June 30, 1947.

As Amended July 31, 1947.

COPYRIGHT MATERIAL OMITTED

George E. Leonard, Jr., of Chicago, Ill., for complainant.

Carl A. Auerbach, Associate Gen. Counsel, Office of Price Administration, of Washington, D. C. (James L. Dougherty, Acting Gen. Counsel, and John C. Erickson, Counsel Reconstruction Finance Corporation, and Richard H. Field, Gen. Counsel, Harry H. Schneider, Asst. Gen. Counsel, William R. Ming, Jr., Chief, Irving J. Helman, Nancy Fraenkel Wechsler and Miss Catherine W. Goldman, Attys., Office of Price Administration, all of Washington, D. C., on the brief), for respondent and intervenor.

Before MARIS, Chief Judge, and MAGRUDER and McALLISTER, Judges.

Heard at Chicago, March 10, 1947.

MARIS, Chief Judge.

The complainant is a slaughterer of livestock and a distributor of meat. It has participated in the meat and livestock subsidy program and has filed claims for livestock slaughter payments for each month since October 1, 1944. On September 6, 1945 an indictment was returned to the United States District Court for the Eastern District of Pennsylvania charging the complainant and 19 of its employees with having conspired to violate the laws of the United States.¹ On September 27, 1945 the complainant was advised by the local office of the Reconstruction Finance Corporation that RFC expected "letter OPA withholding subsidy from Armour and Company covering six months" and that the "September claim will not be paid until matter is clarified." On October 4, 1945 the Acting Regional Price Administrator wrote the Reconstruction Finance Corporation that he had conducted an investigation of five branch houses of complainant and found that they had wilfully violated price regulations and conspired to evade the regulations by means of tie-in sales, that the violations occurred during the periods from October 2, 1944 to November 27, 1944, from January 23, 1945 to March 7, 1945 and on August 1, 1945, that he had referred the matter to the United States attorney for criminal prosecution and that an indictment had been returned on September 6, 1945. The Regional Price Administrator recommended that there be withheld a percentage of the livestock slaughter payments for the subsidy periods during which the violations occurred.² No notice or hearing was accorded to the complainant by the Office of Price Administration prior to or after the communication of October 4, 1945 nor was a copy of the letter sent to the complainant by either the Office of Price Administration or the Reconstruction Finance Corporation. On October 10, 1945 the Reconstruction Finance Corporation acting under Section 7003.10 of Revised Regulation No. 3 withheld $500,000 from the complainant's livestock slaughter payments. Upon recomputation this sum was reduced to $480,859.43.³

The complainant protested Section 7003.10 of Revised Regulation No. 3 and the action of the Reconstruction Finance Corporation thereunder in withholding the livestock slaughterer subsidy payments. The directors of RFC denied the protest. In the letter accompanying the order of denial they stated:

"I. That said withholding was made pursuant to a determination by the Price Administrator that Armour and Company had wilfully violated a meat or livestock regulation; * * *

"II. That said withholding was authorized and required and was not discriminatory, arbitrary or capricious."

They annexed a copy of the Acting Regional Administrator's letter of October 4, 1945 which recommended withholding pursuant to Section 7003.10(a) of Revised Regulation No. 3 and Section 7(b) (1) of office of Economic Stabilization Directive No. 41. The complainant filed its complaint in this court naming the Reconstruction Finance Corporation as respondent.⁴ The Price Administrator intervened. The complainant contends, inter alia, that Section 7003.10(a) of Revised Regulation No. 3 of Reconstruction Finance Corporation upon which the respondent relies is contrary to law because it provides a form of punishment for violation of the Emergency Price Control Act, 50 U.S.C.A.Appendix, § 901 et seq., not authorized by the Act, and that it denies the complainant due process of law because it provides for administrative determination of substantive rights without notice and hearing.

On October 10, 1945, when Reconstruction Finance Corporation first withheld the subsidy payments Section 7003.10(a) of Revised Regulation 3,⁵ as amended by Amendment 6,⁶ read as follows: "Reconstruction Finance Corporation shall declare invalid, in whole or in part, any claim filed by an applicant who, in the judgment of the Secretary of Agriculture or the Price Administrator, has wilfully violated any regulation or order of their respective agencies applicable to the purchase or sale of livestock or to livestock slaughter or to the sale or distribution of meat * * *"

The Office of Economic Stabilization, which had been given overriding authority over the entire subsidy and stabilization program by executive order,⁷ issued Directive 41⁸ which in Section 7(b) (1) provided that: "Defense Supplies Corporation is directed to continue its present procedure of declaring invalid, in whole or in part, any claim for subsidy payment filed by an applicant who, in the judgment of the Price Administrator, has wilfully violated any meat or livestock regulation or order issued by the Price Administrator. Such a judgment shall be made only in the event the alleged violation is referred to the United States Attorney for prosecution."

Amendment No. 2 to Directive 41 substituted Reconstruction Finance Corporation for Defense Supplies Corporation wherever the latter appears in the directive.⁹

The complainant asserts that Section 7003.10(a) of the regulation is directed solely to enforcement of price regulations promulgated under the Emergency Price Control Act. It points to the fact that Section 205 of the Act makes provision for enforcement of its terms by injunction, by civil suits for damages, by criminal proceedings and by suspension of licenses. It argues that neither this section nor any other section of the Act provides for the denial of subsidies to one who has violated its provisions. The Act, the complainant says, has created new rights and the remedies provided in the statute for enforcement of those rights are exclusive.¹⁰ Consequently, it argues, the section of the regulation under attack is unauthorized by law and to that extent the regulation is invalid.

We have heretofore held that the livestock slaughter subsidy was basically a production subsidy and as such was authorized by Section 2(e) of the Act.¹¹ That section expressly provided that payment of the subsidies authorized by the section should be "upon such terms and conditions" as are determined to be necessary to attain their purpose. We have also previously pointed out that these subsidies were not mere gratuities or bounties but were closely articulated with the price control program and operated as compensatory in nature so as to validate a lower level of legal maximum prices than otherwise would have been permissible under the standards laid down in the Act for the guidance of the Price Administrator.¹²

Under these circumstances we think it was wholly reasonable to condition the receipt of the subsidy upon compliance with the price regulations which the subsidy was thus designed to supplement and support. To deprive violators of the subsidy was not for the purpose of penalizing them but to prevent the diversion of subsidy funds from the accomplishment of the object for which they were intended. We conclude that Section 7003.10(a) of Revised Regulation No. 3 was authorized by Section 2(e) of the Act.

The complainant also contends that the provisions of Section 7003.10(a) operate to deny it due process of law. It points to the fact that a subsidy claim is required to be invalidated by the RFC solely upon the determination by the Price Administrator that the claimant has violated a livestock or meat regulation, and that this determination is not required to be made after hearing or even after notice to the claimant. The respondent asserts in reply that in administering the section a distinction has been made in practice between invalidation of subsidy claims involving the permanent withholding of payment of the subsidy claims on the one hand, and mere temporary withholding of payment of a subsidy claim on the other hand. It says that while subsidy payments have been withheld upon certification of violation by the Price Administrator in advance of a judicial determination of guilt such withholding has in practice uniformly been regarded by it as temporary and contingent upon a subsequent judicial determination of the claimant's violation. Permanent withholding, it says, has only been made when the Price Administrator's determination of the claimant's violation is based upon a judicial determination of his guilt.

We pause to consider the distinction thus made by the respondent. While we have no reason to suppose that the practice has not been as suggested, we observe no basis for it in the regulation. Section 7003.10(a) reads only in terms of the invalidation of subsidy claims. If a claim is invalid it can furnish no basis for payment either now or in the future. No hint is given in the regulation that it is intended to authorize temporary withholding of payment upon a claim the invalidity of which is still to be decided. It may be conceded that such temporary withholding has obvious advantage for the government and does no irreparable harm to the claimant. It may well be, therefore, that the RFC is acting within its authority thus to withhold subsidy payments temporarily. But the legal basis for such action is not before us. Suffice it here to say that we find no support for the practice in ...