Boeing Company v. United States

• Citation: 202 Ct. Cl. 315,480 F.2d 854
• Decision Date: 20 June 1973
• Docket Number: No. 429-70.,429-70.
• Parties: The BOEING COMPANY v. The UNITED STATES.
• Court: U.S. Claims Court

202 Ct. Cl. 315, 480 F.2d 854 (1973)

The BOEING COMPANY v. The UNITED STATES.

No. 429-70.

United States Court of Claims.

June 20, 1973.

Harold F. Olsen, Seattle, Wash., attorney of record for plaintiff. Bruce Michael Cross, and Perkins, Coie, Stone, Olsen & Williams, Seattle, Wash., of counsel.

M. Morton Weinstein, Washington, D.C., with whom was Asst. Atty. Gen., Harlington Wood, Jr., for defendant.

Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.

OPINION

PER CURIAM:

This is a review case under the Wunderlich Act, 41 U.S.C. §§ 321-22. Plaintiff manufactures aircraft, missiles, space vehicles and other products; both for the United States and for private customers. Often its Government contracts are of the cost-reimbursement type. The parties being at odds as to the allocability and allowability of various state and local taxes assessed upon the plaintiff, the contracting officer on August 5, 1966, rendered a single consolidated decision applicable, it is said, to 146 contracts. His position was adverse to Boeing's on all points now before us. Boeing appealed to the Armed Services Board of Contract Appeals, which on September 5, 1969, rendered a decision, favorable to Boeing, except that it held with respect to a group of contracts subject to Revision No. 11 to the 1960 edition of ASPR (Armed Services Procurement Regulations), i.e., subparagraph (v) of ASPR 15-205.41(a) (Appendix III), personal property taxes on commercial (nongovernment) inventory were unallowable for allocation to that group, because the cited regulation provided, it held, to the contrary. 69-2 BCA ¶ 7898 (1969). It reaffirmed this decision on May 26, 1970, overruling a Government motion for reconsideration. 70-1 BCA ¶ 8298 (1970).

Plaintiff's petition here alleges legal errors in the portion of the Board decision unfavorable to it. Defendant's answer and counterclaim alleges legal errors in the portions of the Board decision favorable to Boeing. There is no dispute as to the facts. Chief Trial Commissioner Richard Gamer has considered the briefs and arguments of counsel and has submitted an opinion and recommended conclusion of law under Rule 166(c). The court having considered requests for review thereof by both parties, and having heard oral argument, agrees with the commissioner's opinion and adopts the same as its own, with modifications not affecting the result.

The larger part of the commissioner's opinion deals with the portion of the Board decision favorable to defendant, and demonstrates that it is correct and should be affirmed. We agree. It would be superfluous to add anything to what the commissioner says or to the able findings and analysis of the Board, and we do not do so.

At its conclusion, the commissioner's opinion summarizes the issues which the Board decided in Boeing's favor, but recommends no decision by us. He would hold this court unable to review a Board decision favorable to a contractor for legal error, lack of support in substantial evidence, and whether arbitrary or capricious, citing S & E Contractors, Inc. v. United States, 406 U.S. 1, 92 S.Ct. 1411, 31 L.Ed.2d 658 (1972). However, we deem it unnecessary to resolve these questions here. The parties have fully briefed and argued the Board decision in its entirety, as much the portions holding for defendant, as those for plaintiff. The Board's carefully considered and thorough findings and opinion on all issues are their own best argument for their correctness as a matter of law. We are unanimous that defendant has stated no case on the merits against the Board decision, and this being so, we are in a position to let more water go over the dam, before we oblige defendant by trying to resolve its and our own uncertainties about the Wunderlich Act and the S & E decision. Assuming arguendo that we have the full power defendant urges, we agree even so with the Board and hold that defendant is not entitled to have it reversed. Monett v. United States, 419 F.2d 434, 190 Ct.Cl. 1 (1969), cert. denied, 400 U.S. 846, 91 S.Ct. 91, 27 L.Ed.2d 82 (1970).

During the years involved, 1960 to 1964, Boeing had several divisions engaged in different segments of its vast enterprises. In its accounting, Boeing treated all involved state and local taxes as applicable to Boeing, not its divisions, accumulated them in a Headquarters Administrative pool, and charged them back to the divisions on a labor-hours basis. Defendant's complaint was and is that this threw a disproportionate load of tax costs on certain divisions, notably the Aerospace Division, that were heavy users of manpower and that produced primarily for the Government. Defendant said that almost all state and local taxes could be attributed directly to the divisions that incurred them in course of their operations, and to do so would reduce defendant's cost reimbursement obligations by many millions over the years involved.

The Board, rejecting defendant's argument, relied largely on our decision, Lockheed Aircraft Corp. v. United States, 375 F.2d 786, 179 Ct.Cl. 545 (1967), and on ASPR § XV, particularly 15-201-4 (Appendix II), both of which sanctioned a "benefit theory" to allocate debatable indirect expense. (The applicable regulations changed from time to time, but for present purposes it is unnecessary to trace all their variations.) The "benefit" it supposed to be related to the number of employees in that the taxes support many activities, such as schools, which require support in order to provide a civilized environment for Boeing's employees. In Lockheed we called "benefit" an "extremely slippery concept" but said no one "would quarrel with the general proposition that it is fair to allocate to government contracts the costs of services which facilitate performance of the particular contracts or are essential to the existence and continuance of the business entity." 375 F.2d at 794-795, 179 Ct.Cl. at 558, 561. The Board was also of the opinion, with record support, that Boeing's method of allocation accorded with generally accepted accounting principles, as the regulations also required, though defendant denied this.

The above is inadequate even as a summary of the intricate skein of fact and law that makes up this case, but it is wasteful of print and paper for us to duplicate the Board decision on this issue in its entirety, and we do not do so. Those wishing the full details can read the Board decision. It suffices to add that the Board decision is, in our opinion, clearly correct as an exposition of the applicable law, in the portions of it which are adverse to defendant as much as in the portions that are in defendant's favor. It would avail defendant nothing for us to take jurisdiction of its counterclaim for Wunderlich Act review.

Commissioner Gamer's opinion is modified by eliminating the brief closing portion which discusses the defendant's counterclaim and the legal effect of the S & E decision.

Accordingly, plaintiff's motion for summary judgment is denied. Defendant's motion for summary judgment is denied. The petition is dismissed. Defendant's counterclaim is dismissed.

Commissioner Gamer's opinion, as modified by the Court, follows:

Plaintiff is a manufacturer of aircraft and such other products as missiles and space vehicles.

In the 1960-1964 period it made sales to the Government under numerous contracts which provided that its costs of manufacturing the products would be reimbursed (sometimes referred to as "cost-plus-fixed-fee" (CPFF) contracts). The parties herein are in dispute concerning the proper amount of plaintiff's overhead costs which is allocable to its performance of such cost reimbursable contracts.

The dispute narrows down to the propriety of plaintiff's including in such overhead, as an alleged item of indirect cost of performing its Government contracts, a portion of the property taxes assessed by the State of Washington and its local political subdivisions on such personal property as inventories of materials, tooling, and work-in-process which were being used only in the performance of non-Government, commercial contracts (such property sometimes being collectively referred to as commercial inventory or property). Although such State and local taxes were not imposed during such period on personal property used in the fulfillment of Government contracts, plaintiff seeks to allocate to its costs of performing such contracts a portion of the taxes assessed on the commercial property. The particular taxes involved were those assessed on the commercial property located in plaintiff's plants in the areas of Seattle, and closely adjoining Renton, Washington. In these plants plaintiff manufactured during the years in question both military and commercial products.

All of the contracts here involved incorporated by reference the applicable provisions of Part 2, Section XV of the Armed Services Procurement Regulations (ASPR) in effect at the time the contracts were executed. These provisions related to cost principles for determining the reimbursability to the contractor of costs on cost-reimbursement type contracts.

For various reasons, the contracting officer disallowed all the overhead costs plaintiff claimed which represented portions of the taxes assessed on its commercial property. On appeal to the Armed Services Board of Contract Appeals, the contracting officer was reversed with respect to certain Government contracts but sustained as to others.¹ In this case, plaintiff contests, under the Wunderlich Act,² the decision of the Board insofar as it disallows such costs (the claim amounting to over $650,000), while defendant, by a counterclaim, seeks reversal of the decision insofar as it permits their allowance.

In Lockheed Aircraft Corp. v. United States, 375 F.2d 786, 179 Ct.Cl. 545 (1967), the court held that the aircraft manufacturer there involved could, in calculating costs incurred in performing...