Grace Line v. United States

• Decision Date: 06 May 1958
• Docket Number: No. 5,Docket 24416.,5
• Citation: 255 F.2d 810
• Parties: GRACE LINE, Inc., Libelant-Appellee, v. UNITED STATES of America, Respondent-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

255 F.2d 810 (1958)

GRACE LINE, Inc., Libelant-Appellee, v. UNITED STATES of America, Respondent-Appellant.

No. 5, Docket 24416.

United States Court of Appeals Second Circuit.

Argued November 6, 1957.

Decided May 6, 1958.

Kirlin, Campbell & Keating, New York City (Walter P. Hickey, L. DeGrove Potter and Clement C. Rinehart, New York City, of counsel), for libelant-appellee.

George Cochran Doub, Asst. Atty. Gen., Paul W. Williams, U. S. Atty., S. D. New York, New York City, Paul A. Sweeney, Washington, D. C., Benjamin H. Berman, New York City, and Herman Marcuse, Washington, D. C., Attorneys, Dept. of Justice (Leavenworth Colby, Chief Admiralty & Shipping Section, Dept. of Justice, Washington, D. C., of counsel), for respondent-appellant.

Before SWAN, MEDINA and WATERMAN, Circuit Judges.

MEDINA, Circuit Judge.

In form the decree in admiralty from which the government appeals was entered pro confesso on motion of the libelant Grace Line, Inc., based upon exceptions and exceptive allegations addressed to the sufficiency of the answer, which asserted payment of the claim sued upon.

It is alleged in the libel that between December 31, 1954 and February 16, 1955 Grace carried six shipments of ore for the United States for which freight charges in the amount of $10,732.22 became due and payable. The validity of this freight claim is not disputed. But the United States paid only $2,490.75, and the remaining $8,241.47, for which the judgment pro confesso was entered, was withheld and applied by the Comptroller General against the freight bill because of damages alleged to have been suffered by the United States in a wholly unrelated series of transactions, during the period from December 14, 1952 to April 6, 1953, in connection with which it is claimed that some of the goods transported by Grace were delivered in a damaged condition and some were lost.

The bills of lading under which the 1952-1953 shipments were made provided that "the Carrier shall be discharged from all liability in respect of * * * every claim whatsoever with respect to the goods unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered * * *." The bills also incorporated by reference the Carriage of Goods by Sea Act, 46 U.S.C.A. § 1301 et seq., which includes a similar one year time bar. No judicial proceedings were instituted by the United States against Grace for the loss of, or damage to, the 1952-1953 shipments within the one year period.

Grace's libel in the court below claimed that freight was due under the 1954-1955 shipments, but made no mention of Grace's earlier transactions with the United States. The government's answer alleged, by way of set-off or defense, that Grace was indebted to the United States in an amount greater than that claimed in the libel because of its mishandling of the earlier shipments. Grace's exceptions to the sufficiency of this answer were sustained on the grounds: (1) that the government's claim based on the 1952-1953 shipments arose from a transaction unrelated to the libel and thus could not be made the subject of a set-off in an admiralty proceeding; and also (2) that this earlier claim was time-barred.

On this appeal the government urges several grounds for reversal. Its first contention is that the Comptroller General's withholding and applying of funds due a creditor because of the creditor's alleged indebtedness to the United States results in the discharge of "mutual debts" and thus constitutes "payment"; and that an admiralty court must always consider payment as a defense to a libel. The government bases this argument on the provision in 31 U.S.C.A. § 71 that all claims by or against the United States "shall be settled and adjusted in the General Accounting Office," which it asserts is part of a "comprehensive statutory plan" made up of this and several other statutes, located in different parts of the United States Code Annotated,¹ authorizing the withholding of money by the Comptroller General whenever a creditor of the United States is also allegedly indebted to the United States.

The specific issue on this first phase of the case is: what did the Congress mean by 31 U.S.C.A. § 71, which provides: "All claims and demands whatever by the Government of the United States or against it, and all accounts whatever in which the Government of the United States is concerned, either as debtor or creditor, shall be settled and adjusted in the General Accounting Office." The question is one of statutory interpretation. We think it merely pricks the surface of the problem to dispose of the case by saying that it is absurd to suppose that the statute was intended to provide the government with a means of keeping stale claims alive indefinitely with respect to those having more or less continuous business relations with the United States.

The semantics of the government approach here is in terms of the defense of "payment." But the underlying thesis must be that the Congress intended to by-pass the process of adjudication and provided in lieu thereof a unilateral decision by the Comptroller General. We can find nothing in the statute to warrant any such inference. It is not provided that the withholding shall constitute payment or a discharge of the debt, nor does the general context, nor any word or phrase therein, indicate that the normal processes of adjudication are to be overridden. Indeed, there is no dispute about the right of the government to proceed, as it often does, to reduce its claim to judgment if it can. Moreover, in the view of the Comptroller General,² and under the cases,³ the withholding by the Comptroller General is subject to judicial review; and no legislative history has been brought to our attention which supports the contention that administrative action by the Comptroller General in withholding money due to a creditor of the United States makes it unnecessary for the government to prove its claim on the merits, subject to such defenses as may exist in law or in fact, if it is to be applied against a claim of the creditor in settlement thereof. In other words, the attempted setoff must be a legally enforceable claim; and the fact that the Comptroller General has decided the claim in favor of the government ex parte by withholding the amount thereof from a payment justly due to a creditor of the United States neither constitutes a payment of and discharge of the debt nor does it stop the running of the applicable Statute of Limitations against the government claim in alleged satisfaction of which the Comptroller General takes this unilateral action. Here the period of limitations had plainly run.⁴

The statutory scheme, such as it is, constitutes no more than a method for co-ordinating the claims and debts of the various government departments and agencies.

The government cites Section 322 of the Transportation Act of 1940, 49 U.S. C.A. § 66, and its application in United States v. Western Pac. R. Co., 352 U.S. 59, 77 S.Ct. 161, 1 L.Ed.2d 126, recently decided by the Supreme Court, as part of the "comprehensive statutory plan" which, it argues, shows that Congress intended that unilateral withholding and applying by the Comptroller General was to constitute payment of a creditor's claim. Consideration of the Western Pacific case and 49 U.S.C.A. § 66 as applied therein, however, lends further support to our view, as expressed above, of the extent and effect of the Comptroller General's power to withhold and apply. In that case three railroads had carried shipments of bomb casings filled with napalm gel, which is inflammable but not self-igniting, for the United States. The railroads billed the United States at the highest, first-class, rates for "incendiary bombs" and the government paid the bills of two of the railroads as presented. On post-audit, however, the General Accounting Office made deductions from subsequent bills of these two railroads on the ground that the shipments of napalm gel should have been carried at the lower, fifth-class, rate. The General Accounting Office had acted pursuant to 49 U.S.C.A. § 66 which provides: "Payment for transportation of * * * property for or on behalf of the United States by any common carrier subject to the Interstate Commerce Act * * * shall be made upon presentation of bills therefor, prior to audit or settlement by the General Accounting Office, but the right is reserved to the United States Government to deduct the amount of any overpayment to any such carrier from any amount subsequently found to be due such carrier." The railroads sued in the Court of Claims to recover the sums withheld from their subsequent bills and the government's defense rested on three contentions which went to the merits of the carriers' claim for payment of their subsequent bills. There was no contention that those bills had been "paid" by the withholding.

The statute on which the government relied in Western Pacific expressly reserved the right to the United States to deduct any overpayment from any subsequent bills, and this additional time was given to the government solely because the General Accounting Office was required to pay the carrier's bills "upon presentation * * *, prior to audit or settlement * * *." Of course, if the Comptroller General already had the power, under the previously enacted 31 U.S.C.A. § 71 and other statutes authorizing the withholding of money, to "pay" creditor's claims by merely unilaterally applying amounts allegedly due the United States, regardless of the nature of, or time limitation on, the...