Hadden v. United States

• Citation: 105 F. Supp. 1010,123 Ct. Cl. 246
• Decision Date: 15 July 1952
• Docket Number: No. 49884.,49884.
• Parties: HADDEN et al. v. UNITED STATES.
• Court: U.S. Claims Court

105 F. Supp. 1010

123 Ct. Cl. 246

HADDEN et al. v. UNITED STATES.

No. 49884.

United States Court of Claims.

Decided July 15, 1952.

John A. Hadden, pro se. (McKeehan, Merrick, Arter & Stewart, Peter Reed, Samuel K. Walzer, Arter, Hadden, Wykoff & Van Duzer and Richard C. Weiss, Cleveland, Ohio on the briefs).

Wm. A. Stern, II, Washington, D. C., Holmes Baldridge, Asst. Atty. Gen. (Carl

Eardley and John I. Heise, Jr., Washingon, D. C., on the briefs), for the defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and HOWELL, Judges.

JONES, Chief Judge.

This action was brought by plaintiff as trustee in bankruptcy for Manufacturers Trading Corporation (also referred to as Manufacturers), a financing institution, for the sum of $63,000 which it claims by virtue of an assignment from Union Industries, Inc., of monies due under Contract NOrd 7426 between the defendant and Union Industries, Inc. Defendant filed a counterclaim for taxes in the amount of $71,367.68, plus interest, allegedly due from Manufacturers for the taxable year 1947. Plaintiff thereafter moved for summary judgment, here under consideration. Subsequently defendant filed a claim for set-off,¹ and four additional counterclaims. The parties have treated plaintiff's motion for summary judgment as extending to the additional counterclaims and set-off as well as to the original claim and counterclaim, and the issues have been briefed and argued on that basis. We will therefore consider each in turn.

Plaintiff's Claim

Defendant has conceded liability on the claim set forth in plaintiff's petition, under Contract NOrd 7426, and plaintiff is therefore entitled to recover $63,000, subject to such set-offs or counterclaims as may hereafter be determined.

Defendant's First Counterclaim

Subsequent to the filing of defendant's first counterclaim for taxes due from Manufacturers for the taxable year 1947, the Commissioner of Internal Revenue issued to Manufacturers a certificate of overassessment for that year. Defendant has therefore conceded it is not entitled to recovery on its first counterclaim.

Defendant's Set-Off

The claim set forth in defendant's pleading entitled "set-off" is founded upon an alleged overpayment of $302,000. by defendant to Manufacturers under Contract NOrd 5923.

In April 1944, the Navy entered into Contract NOrd 5923 with the Canonsburg Steel and Iron Works (sometimes called Canonsburg) for the manufacture of anti-aircraft shells. Shortly thereafter Canonsburg was liquidated and all its assets transferred to Union Mining Co., the sole stockholder of Canonsburg. The name of Union Mining Co. was subsequently changed to Union Industries, Inc., herein referred to as Union, and Contract NOrd 5923 was amended by substituting Union as the contractor in the place of Canonsburg. The monies due or to become due under that contract were assigned to Manufacturers by Union, as a result of a factoring agreement between Union and Manufacturers entered into in June 1945.

Contract NOrd 5923 was terminated by the Navy effective August 16, 1945. After termination Union filed application under the Contract Settlement Act of 1944, 58 Stat. 649, 41 U.S.C.A. § 101 et seq., for partial advance payments on its termination claim. As a result of these applications, four partial advance payments totaling $302,000 were made on Union's termination claim between September 26, 1945, and January 24, 1946. Those payments were all made either directly to Manufacturers, as assignee, or to an agent of Manufacturers who turned the money over to Manufacturers.

Defendant alleges and plaintiff denies that the contractor (Union or one of its predecessors) had been unable to procure materials necessary for the performance of the contract, and that prior to the termination of the contract the Government had furnished such materials with the understanding that the contractor would reimburse the Government for their value, alleged to be $487,289.91.

Defendant alleges that at the time Union submitted its applications for partial advance payments on the termination claim Union knew that its liability to the defendant for the Government-furnished materials exceeded the amount due Union under its termination claim, and that Manufacturers knew or was chargeable with the same knowledge when it received the advance payments from the Government. Defendant further alleges that defendant's officers were unaware of the existence of the contractor's liability for the Government-furnished materials when they made the alleged overpayments, and that those overpayments were made by mistake.

In January 1947, defendant's contracting officer, apparently having discovered the alleged mistake, made a determination that even prior to the partial advance payments there had been a net liability of Union to the defendant of $253,801.64 on Contract NOrd 5923, and that all the advance payments by defendant to Manufacturers on that contract were erroneous overpayments.

In July 1950, Manufacturers was adjudicated a bankrupt. Defendant filed its Proof of Claim for the alleged $302,000 overpayments against Manufacturers in the United States District Court for the Northern District of Ohio. The referee in bankruptcy conducted a hearing thereon and disallowed defendant's claim. Upon review the referee's order of disallowance was affirmed by the district court and the Court of Appeals. United States v. Hadden, 6 Cir., 192 F.2d 327.

As its first defense to defendant's set-off plaintiff invokes the doctrine of res judicata and asserts that the judgment of the bankruptcy court, affirmed by the Court of Appeals, was a final adjudication upon the merits and precludes defendant from reopening the matter by way of set-off in the instant proceedings. Despite defendant's assertion at one point in its brief that it it unnecessary to determine at this time whether the previous decision is res judicata, there can be no serious doubt as to the propriety of asserting such a defense on a motion for summary judgment. See Love v. United States, 104 F.Supp. 102, 122 Ct.Cl. ___.

Defendant has also asserted that the previous decision is not res judicata because the referee in bankruptcy had no jurisdiction to pass on the defendant's right to recover the alleged overpayments from plaintiff. According to defendant the referee in bankruptcy in the district court lacked jurisdiction because "issues involving the Contract Settlement Act were being litigated and the Court of Claims has the sole jurisdiction of such matters." Defendant has submitted nothing other than this bare assertion to support its position, perhaps in recognition of its precariousness.

Subject to qualifications and exceptions not here material, the Court of Claims has exclusive jurisdiction under the Contract Settlement Act of termination claims by a plaintiff contractor against the United States. It is quite clear, however, that the Court of Claims does not have jurisdiction under the Contract Settlement Act, or any other act, of claims brought by the United States as an original party plaintiff against a private contractor. Such jurisdiction has always been in the federal district courts. Of course, once the Court of Claims' jurisdiction has been invoked by a contractor as original party plaintiff the United States has the right to assert by way of counterclaim against the plaintiff contractor such claims as it may have arising out of terminated contracts. But the Contract Settlement Act in no way purports to destroy or limit the alternative right of the United States to institute an independent suit in the federal district courts upon a claim such as the one under discussion.²

If the United States were deprived of that right, as it would seem to be under the defendant's contention, and limited to recovery on such claims only by counterclaim in the Court of Claims, a contractor whose liability on a terminated Government contract exceeded his credits thereon could escape his net liability by the simple expedient of refraining from invoking the jurisdiction of the Court of Claims. No such intention is manifest in the Contract Settlement Act, or in any other act of Congress, and we conclude that the district court had jurisdiction to determine the claim submitted to it by the Government in the bankruptcy proceedings.³ Defendant's argument that the Court of Appeals' decision is not res judicata because that court had no jurisdiction must therefore be rejected.

In further response to the asserted defense of res judicata defendant relies upon a clause included in its Proof of Claim against the bankrupt filed in the bankruptcy proceedings. That clause reads as follows:

"That the filing of this claim is not to be construed as a waiver of the right of the United States, or of any agency or instrumentality thereof, to follow any property, or the proceeds thereof, into the hands of whomsoever the same may be, including the receiver or trustee in bankruptcy, or as a waiver of any other claim or right of action or set-off or of any other right whatsoever that the United States, or any agency or instrumentality thereof, has or may have against the bankrupt, the receiver, the trustee or any other person."

We are unable to give this provision the effect for which defendant contends. In the first place it is not the "filing of this claim" but the judgment thereon which is asserted as a bar to the set-off in the instant proceedings. Secondly, it is not a "waiver" by defendant which prevents it from reasserting its claim by way of set-off, but the fact that its claim has already been decided. And finally we cannot see how a claimant may submit its claim to a court otherwise having jurisdiction, and at the same time reserve a right to disregard that court's determination of the merits of the claim, in the event it decides against the claimant.

Defendant next contends, however, that the first action was against Manufacturers as assignee of...