First Nat. City Bank v. United States, 9-75.

• Decision Date: 26 January 1977
• Docket Number: No. 9-75.,9-75.
• Citation: 548 F.2d 928
• Parties: FIRST NATIONAL CITY BANK v. The UNITED STATES.
• Court: U.S. Claims Court

548 F.2d 928

FIRST NATIONAL CITY BANK v. The UNITED STATES.

No. 9-75.

United States Court of Claims.

January 26, 1977.

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Joseph H. Levie, New York City, atty. of record, for plaintiff. Franklin N. Meyer, New York City, of counsel.

Stephen Anderson, Washington, D.C., with whom was Asst. Atty. Gen. Rex E. Lee, Washington, D.C., for defendant. Leslie H. Wiesenfelder, Washington, D.C., of counsel.

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

ON REHEARING EN BANC

DAVIS, Judge.

This case, before the court on cross-motions for summary judgment, was first heard by a panel. On June 16, 1976, a majority of the panel determined that plaintiff bank was entitled to recover $54,369.37 free of defendant's set-offs; the issue of interest on the award was remanded to the Trial Division, 537 F.2d 426, 210 Ct.Cl. 375. The writer of the present opinion dissented in part, coming up with a result not too far in monetary terms from the majority's determination but rejecting the main basis of that decision — the no set-off provisions of the Assignment of Claims Act of 1940. The defendant moved for rehearing en banc attacking that foundation of the decision. Rehearing en banc was granted and the case has been orally reargued en banc. As a result of the consideration by the full court, we vacate the earlier panel decision and now substitute the following discussion and decision.

I Facts

The genesis of the claim is found in a December 28, 1966, contract between Trilon Research Corp. (Trilon) and defendant. For a consideration of $87,318.46 Trilon agreed to prepare and update certain Navy technical manuals. On April 19, 1967, defendant made an initial progress payment under the contract to Trilon in the amount of $46,527.43.

The contract contained the usual financing and assignment clauses, incorporating by reference the provisions of the Armed Service Procurement Regulations (ASPRs), Paragraph 7-103.8 ASSIGNMENT OF CLAIMS (Feb. 1962), which in turn is based on the Assignment of Claims Act.¹

Pursuant to these provisions, Trilon,² Franklin National Bank (Franklin), and the Small Business Administration (SBA) entered into a financing arrangement. Trilon obtained a loan of $250,000; $125,000 from Franklin and the balance from the SBA. As collateral, Franklin and the SBA took a lien on Trilon's inventory and receivables. The lenders, with Franklin acting as trustee, also obtained an assignment of Trilon's right to Government contract payments, including but not limited to, the contract at issue in the present case.³ Defendant received notice of Trilon's assignments on May 12, 1967. The parties completed the initial financing in July 1967.

By November 1968, Trilon had completed its work on the technical manual contract. In addition to the $46,527.43 progress payment already made to Trilon, defendant had further paid Franklin (as trustee) the remaining $40,791.03. However, "accord and satisfaction" was delayed due to a dispute concerning amounts Trilon had earned for extra work.

One year later, after Trilon had fully completed the manuals contract, plaintiff entered the scene by making loans to financially troubled Trilon. The initial loan was for more than $250,000. In September 1969, the SBA advised Franklin that it had agreed to subordinate its one-half interest in Trilon's inventory and receivables (including Trilon's Government contracts) to plaintiff. Subsequently, plaintiff loaned Trilon additional amounts and is now owed more than $400,000 by Trilon.

Still later, in September 1971, Franklin found itself in severe economic difficulty. Franklin "called" its loans to Trilon and threatened to call the SBA's loan. Attempting to forestall this action, Trilon issued a $45,000 check payable to Franklin and drawn on plaintiff. However, plaintiff held a prior right to the $45,000 based upon the independent loans to Trilon. To permit Trilon to continue work on its ongoing Government contracts, Franklin and plaintiff entered into a refinancing arrangement. Franklin transferred its security interests in Trilon's receivables (including Government contract rights) to plaintiff. Plaintiff paid Franklin $52,812.⁴

As a result of the refinancing, in November 1971, Trilon executed a second "notice of assignment" of the technical manuals contract. Trilon assigned the payment rights to plaintiff. The notice was sent to defendant which remitted the documents to plaintiff to obtain a release of Trilon's prior assignment to Franklin. Such release was not obtained.

From late 1968 through 1971, the dispute over Trilon's entitlement to additional compensation on the technical manuals contract continued. Progress toward resolution finally began in February 1972, when the Contracting Officer (CO) ruled that Trilon had earned an additional $62,181.37. Trilon filed a notice of appeal, but the parties subsequently reached an agreement to adopt the CO's figure. Significantly, a copy of defendant's agreement to resolve the dispute was sent by the Government not to Franklin or the SBA but to plaintiff.

However, plaintiff and defendant failed to agree on plaintiff's right to receive the $62,181.37. Defendant claimed that it had sufficient set-offs⁵ to obliterate plaintiff's entitlement to the award. Plaintiff countered that the technical manuals contract contained set-off protections enabling it to receive the $62,181.37, free of defendant's set-off claims.

On December 3, 1973, defendant submitted this question to the General Accounting Office (GAO). The Comptroller General held that plaintiff could recover $7,812 free of defendant's set-off claims.⁶ However, the GAO disallowed the balance of the $62,181.37 on the basis that plaintiff was precluded from use of the set-off protections because it had not participated in the financing of the technical manuals contract. Since plaintiff had not extended funds toward the contract, reasoned the GAO, plaintiff could not assert the set-off protections contained in the Assignment of Claims Act and the ASPRs. Comp. Gen. Dec. B-180271 (Aug. 22, 1974).

Plaintiff then brought the instant action in its own name⁷ to recover the $54,369.37 ($62,181.37 less $7,812) plus interest, disallowed by the GAO.⁸

II Assignment of Claims Act

On rehearing, defendant's only point is that the set-off protections of the Assignment of Claims Act, 31 U.S.C. § 203 (1970) and 41 U.S.C. § 15 (1970), are not available to this plaintiff.⁹ We therefore consider that problem first.

Trilon's technical manuals contract included by reference the standard financing and assignment provisions provided in the Armed Services Procurement Regulations (ASPRs). Drafted with an eye to the Assignment of Claims Act, the ASPRs permit assignment and reassignment in certain instances. They also grant set-off protection to assignees:

If this contract provides for payments aggregating $1,000 or more, claims for monies due or to become due the contractor from the Government under this contract may be assigned to a bank, trust company, or other financing institution, * * * and may thereafter be further assigned and reassigned to such institution. Any such assignment or reassignment shall cover all amounts payable under this contract and not already paid, and shall not be made to more than one party, except that any such assignment or reassignment may be made to one party as agent or trustee for two or more parties participating in such financing. Unless otherwise provided in this contract, payments to an assignee of any monies due or to become due under this contract shall not, to the extent provided in said Assignment of Claims Act, as amended, be subject to reduction or set-off. ASPR ¶ 7-103.8 (1962) (emphasis added).

This ASPR is based on the Assignment of Claims Act, 31 U.S.C. § 203 (1970) and 41 U.S.C. § 15 (1970). As a general rule, the Act prohibits assignments of claims against the Government. However, it is common ground that Congress has provided for certain assignments in order to encourage financing of Government contracts and has granted set-off protection rights to eligible assignees:

The provisions of the preceding paragraph invalidating assignments of claims against the Government shall not apply in any case in which the moneys due or to become due from the United States * * * under a contract providing for payments aggregating $1,000 or more, are assigned to a bank, trust company, or other financing institution * * *: Provided,

* * * * * *

3. That unless otherwise expressly permitted by such contract any such assignment shall cover all amounts payable under such contract and not already paid, shall not be made to more than one party, and shall not be subject to further assignment, except that any such assignment may be made to one party as agent or trustee for two or more parties participating in such financing;

* * * * * *

* * * Payments to be made * * * to an assignee of any moneys due or to become due * * * shall not be subject to reduction or set-off for any liability of any nature of the assignor to the United States * * * which arises independently of such contract * * *. 31 U.S.C. § 203 (1970) and 41 U.S.C. § 15 (1970).

It is these statutory provisions containing the set-off protection language, as incorporated into the technical manuals contract through the ASPR cited above, that plaintiff relies upon.

There are, however, two barriers to plaintiff's invocation of the Act. The first is that plaintiff was neither an assignee nor a reassignee under the statute or the contract clause. Franklin was, of course, the original assignee. First National City Bank never became a proper reassignee because Franklin refused (in 1971) to release its prior assignment and on that ground the Government would not accept the attempted reassignment to First National. If one thing is clear under the statute and the clause, it is that, with...