Cecile Industries, Inc. v. Cheney, No. 92-1010

CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit
Writing for the CourtBefore PLAGER, and RADER, Circuit Judges, and PLUNKETT; RADER
Citation995 F.2d 1052
Docket NumberNo. 92-1010
Decision Date15 June 1993
Parties38 Cont.Cas.Fed. (CCH) P 76,527 CECILE INDUSTRIES, INC./Ronald Lipshie, Trustee in Bankruptcy, Appellant, v. Dick CHENEY, Secretary of Defense, Appellee.

Page 1052

995 F.2d 1052
38 Cont.Cas.Fed. (CCH) P 76,527
CECILE INDUSTRIES, INC./Ronald Lipshie, Trustee in
Bankruptcy, Appellant,
v.
Dick CHENEY, Secretary of Defense, Appellee.
No. 92-1010.
United States Court of Appeals,
Federal Circuit.
June 15, 1993.
Rehearing Denied Aug. 10, 1993.

Page 1053

Marc Lamer, Kostos & Lamer, P.C., Philadelphia, PA, argued for appellant.

John K. Lapiana, Atty., Commercial Litigation Branch, Dept. of Justice, Washington, DC, argued for appellee. With him on the brief were Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director and James M. Kinsella, Asst. Director. Also on the brief was Kathleen D. Hallam, Office of General Counsel, Defense Personnel Support Center, Philadelphia, PA, of counsel.

Before PLAGER, and RADER, Circuit Judges, and PLUNKETT, District Judge. *

RADER, Circuit Judge.

Cecile Industries, Inc. (Cecile) appeals from a decision of the Armed Services Board of Contract Appeals. The Board held that the administrative offset provisions of the Debt Collection Act of 1982, Pub.L. No. 97-365 § 10, 96 Stat. 1749, 1754-55 (1982), codified at 31 U.S.C. § 3716 (1988) (DCA), do not apply to the Federal Government's offset of money within a single contract. Cecile Industries, Inc./Ronald Lipshie, Trustee in Bankruptcy, 91-3 BCA (CCH) p 24,099 at 120,626, 1991 WL 129851 (1991). The Board also permitted the Government to cure its failure to comply with those provisions before effecting an offset between separate contracts with Cecile. Id. at 120,627. Because the DCA did not abrogate or constrict preexisting common law rights to intra- or inter-contractual offsets, this court affirms.

Background

On June 14, 1979, the Defense Personnel Support Center (Center) awarded Cecile contract DLA100-79-C-2851 (contract 2851) for the manufacture of 40,572 extreme cold weather sleeping bags at a price of $3,634,034.04. The contract called for insulation in the bags to contain more than 80% goose down. Contract 2851 also contained a Value Engineering Clause, which entitled Cecile to share in any cost savings suggested by Cecile. Due to a cost-saving suggestion, Cecile earned $272,865.30 in Value Engineering royalties.

Later the Center awarded Cecile contracts DLA100-81-C-2414 (contract 2414) and DLA100-82-C-4247 (contract 4247) for additional sleeping bags. Both contracts contained a standard Government Furnished Material (GFM) bailment clause. Under this clause, the Center supplied basic materials to Cecile and deducted their cost from the contract price. Cecile did not use all of the furnished materials. Therefore it returned unused materials for a refund. The GFM refunds due to Cecile totaled $18,853.15 under contract 2414 and $65,587.22 under contract 4247.

Cecile delivered the bags covered by contract 2851 and received full payment. The Center discovered later that the bags did not contain 80% goose down. After Cecile failed to correct the problem, the Center terminated the contract for default. The estimated cost of correcting the problem came to $1,605,998.40. The Center reduced the contract price by that amount. Cecile did not appeal the termination or the price reduction.

When Cecile sought payment under the Value Engineering clause of contract 2851, the Center offset the royalty amount against Cecile's debt from the nonconforming bags. The Center also withheld Cecile's GFM refunds under contracts 2414 and 4247 as offsets against Cecile's debt from contract 2851.

Page 1054

Cecile submitted a claim to the contracting officer seeking release of these withheld funds. When the contracting officer did not issue a final decision, Cecile appealed to the Board.

The Board held that the DCA did not apply to the mutual offset of debits and credits between parties under the same contract. Thus, the Board concluded, the notice and opportunity provisions of 31 U.S.C. § 3716 did not apply to the Center's withholding of Value Engineering royalty payments under the 2851 contract. The Board applied, however, those provisions to the Center's inter-contractual offsets of GFM refunds under contracts 2414 and 4247. The Board gave the Center ninety days to cure its failure to comply with those provisions.

Standard of Review

The scope of this court's review of Board decisions is set forth at 41 U.S.C. § 609(b) (1988):

[T]he decision of the agency board on any question of law shall not be final or conclusive, but the decision on any question of fact shall be final and conclusive and shall not be set aside unless the decision is fraudulent, or arbitrary, or capricious, or so grossly erroneous as to necessarily imply bad faith, or if such decision is not supported by substantial evidence.

This court thus reviews the Board's legal conclusions de novo. Federal Data Corp. v. United States, 911 F.2d 699, 702 (Fed.Cir.1990). The Board's interpretation of the scope of the DCA presents such a legal question reviewable under the de novo standard.

The Debt Collection Act

31 U.S.C. § 3716 provides notice and other procedural protections when the Government undertakes to collect a debt by administrative offset:

(a) After trying to collect a claim from a person under section 3711(a) of this title, the head of the executive or legislative agency may collect the claim by administrative offset. The head of an agency may collect by administrative offset only after giving the debtor--

(1) written notice of the type and amount of the claim, the intention of the head of the agency to collect the claim by administrative offset, and an explanation of the rights of the debtor under this section;

(2) an opportunity to inspect and copy [relevant agency records];

(3) an opportunity for a review within the agency of the decision of the agency related to the claim; and

(4) an opportunity to make a written agreement ... to repay the amount of the claim.

31 U.S.C. § 3701(a)(1) defines "administrative offset" to mean "withholding money payable by the United States Government to, or...

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48 practice notes
  • General Accounting Office; Department of Justice; Department of Treasury,
    • United States
    • Federal Register November 22, 2000
    • 22 Noviembre 2000
    ...(A) The offset is in the nature of a recoupment; (B) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures ......
  • General Accounting Office; Department of Justice; Department of Treasury,
    • United States
    • Federal Register November 22, 2000
    • 22 Noviembre 2000
    ...(A) The offset is in the nature of a recoupment; (B) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures ......
  • Federal claims collection: Interest rates on overdue debts,
    • United States
    • Federal Register March 08, 2007
    • 8 Marzo 2007
    ...arise out of the same transaction or occurrence; (ii) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures......
  • Federal claims collection,
    • United States
    • Federal Register July 25, 2002
    • 25 Julio 2002
    ...to the FDIC arose from the same transaction); or (b) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993), which provides that procedural protections under administrative offset do not supplant or restrict established procedures ......
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37 cases
  • Dunn & Black, P.S. v. U.S., No. CV-04-0229-LRS.
    • United States
    • United States District Courts. 9th Circuit. Eastern District of Washington
    • 25 Febrero 2005
    ...3716. These statutes, though, have not displaced the United States' common-law right of setoff. See Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 Like other creditors, the United States may assert right of setoff against parties who are claiming rights derivatively from other parties aga......
  • Montavon v. US, Civ. A. No. 94-265-A.
    • United States
    • United States District Courts. 4th Circuit. United States District Court (Eastern District of Virginia)
    • 11 Octubre 1994
    ...3701(a)(1), 3716. These statutes have not displaced the United States' common-law right of setoff. See Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 15 Courts have sometimes been required to distinguish carefully whether the IRS proceeded by levy or by setoff. For example, when the IRS p......
  • Mcbride Cotton and Cattle Corp. v. Veneman, No. 99-824-PHX-ROS.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Arizona
    • 5 Septiembre 2003
    ...Eldridge factors weighs in favor of the government's interest in collecting unpaid debts. See, e.g., Cecile Industries, Inc. v. Cheney, 995 F.2d 1052, 1055 (Fed.Cir.1993) (noting that contractual offset is valuable tool for debt collection and "[i]ndisputably, the Government has long e......
  • U.S. v. Peterson, No. CV 08-3160
    • United States
    • United States District Courts. 7th Circuit. United States District Courts. 7th Circuit. Central District of Illinois
    • 8 Septiembre 2010
    ...supplement common law remedies like setoff. The Government can still use the common law remedies. See Cecile Industries, Inc. v. Cheney, 995 F.2d 1052, 1055 (Fed.Cir.1993). The cases cited by the Petersons do not address whether the Government could have used common law remedies in addition......
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11 provisions
  • General Accounting Office; Department of Justice; Department of Treasury,
    • United States
    • Federal Register November 22, 2000
    • 22 Noviembre 2000
    ...(A) The offset is in the nature of a recoupment; (B) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures ......
  • General Accounting Office; Department of Justice; Department of Treasury,
    • United States
    • Federal Register November 22, 2000
    • 22 Noviembre 2000
    ...(A) The offset is in the nature of a recoupment; (B) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures ......
  • Federal claims collection: Interest rates on overdue debts,
    • United States
    • Federal Register March 08, 2007
    • 8 Marzo 2007
    ...arise out of the same transaction or occurrence; (ii) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993) (notice and other procedural protections set forth in 31 U.S.C. 3716(a) do not supplant or restrict established procedures......
  • Federal claims collection,
    • United States
    • Federal Register July 25, 2002
    • 25 Julio 2002
    ...to the FDIC arose from the same transaction); or (b) The debt arises under a contract as set forth in Cecile Industries, Inc. v. Cheney, 995 F.2d 1052 (Fed. Cir. 1993), which provides that procedural protections under administrative offset do not supplant or restrict established procedures ......
  • Request a trial to view additional results

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