Madden v. United States

• Decision Date: 20 January 1967
• Docket Number: No. 399-62.,399-62.
• Citation: 371 F.2d 469
• Parties: Murdaugh Stuart MADDEN and Clifford J. Hynning v. The UNITED STATES.
• Court: U.S. Claims Court

371 F.2d 469 (1967)

Murdaugh Stuart MADDEN and Clifford J. Hynning v. The UNITED STATES.

No. 399-62.

United States Court of Claims.

January 20, 1967.

Clifford J. Hynning, Washington, D. C., attorney of record, pro se and for plaintiff Murdaugh Stuart Madden.

Manfred J. Schmidt, Washington, D. C., with whom was Asst. Atty. Gen., Barefoot Sanders, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, and SKELTON, Judges.

OPINION

PER CURIAM.^*

The present plaintiffs, two Washington lawyers, successfully prosecuted a claim on behalf of Industrial Finishers, Inc., an Ohio corporation, against the Cleveland Ordnance District (of the Army) for an equitable adjustment under a contract performed by Finishers for Cleveland Ordnance. They accepted the retainer on a contingency basis which was later amplified by an express agreement for 30 percent of the recovery. After they had established Finishers' right to an equitable adjustment in the amount of $34,000 (reflecting a fee of $10,200), the Small Business Administration asserted rights to $20,000 of the fund under an assignment theretofore executed by Finishers, and the Internal Revenue Service asserted tax liens for $16,904.67. Ordnance ultimately disbursed the fund to SBA and IRS, leaving nothing for plaintiffs. They sue here, claiming an attorney's lien under Ohio law.

Defendant argues, among other defenses, that the right of setoff where the Government is both debtor and creditor is established by statute (31 U.S.C. § 227) and by controlling decisions. "One whose own appropriation and payment of money is necessary to create a fund for general creditors is not a general creditor. He is not compelled to lessen his own chance of recovering what is due him by setting up a fund undiminished by his claim, so that others may share it with him. In fact, he is the best secured of creditors; his security is his own justified refusal to pay what he owes until he is paid what is due him." United States v. Munsey Trust Co., 332 U.S. 234, 240, 67 S.Ct. 1599, 1602, 91 L.Ed. 2022 (1947). See also General Casualty Co. of America v. United States, 127 F.Supp. 805, 808, 130 Ct.Cl. 520, 526 (1955), cert. denied, 349 U.S. 938, 75 S.Ct. 783, 99 L.Ed. 1266; Standard Accident Ins. Co. v. United States, 97 F.Supp. 829, 831, 119 Ct.Cl. 749, 766 (1951), and Seaboard Surety Co. v. United States, 67 F.Supp. 969, 972, 107 Ct.Cl. 34, 46 (1946), cert. denied, 330 U.S. 826, 67 S.Ct. 863, 91 L.Ed. 1275 (1947).

Plaintiffs would negate defendant's right of offset "by invoking the doctrine of equitable estoppel" because of alleged deceptive practices by the Government agencies, primarily Small Business Administration. It is unnecessary to decide the applicability of equitable estoppel in a proper case because in this instance the alleged deceptive practices are not established in fact.

As shown by the findings, Finishers (plaintiffs' client), in June 1958, undertook a contract with Cleveland Ordnance for the modification of certain shell cartridge cases. At the same time Finishers obtained a loan from the Small Business Administration, payable in monthly installments over a period of 10 years. In the performance of the contract, Finishers incurred substantial losses attributable, according to it, to requirements imposed by the contracting officer, because of which Finishers pressed the claim for an equitable adjustment which ultimately resulted in the creation of a fund (in the hands of Ordnance) of $34,000.

Six months after the SBA loan was made, in January 1959, Finishers failed to make the monthly payment due on the SBA loan. Regular payments were never resumed, and the loan was ultimately called. Meanwhile, however, there were many conferences between Finishers and SBA looking toward possible methods of retrieving the business losses and restoring the borrower's credit to acceptable levels.

In June 1959, the plaintiff Madden was requested and agreed to handle Finishers' claim against Cleveland Ordnance for an equitable adjustment. Mr. Madden agreed to take the case on a contingent fee basis without specifying the percentage of the contingent fee.¹

Three weeks later, in one of many conferences between Finishers' president, Mr. Paul R. Dukes, its Cleveland attorney, Mr. Howard C. Cook, and SBA's Cleveland Loan Examiner, Mr. T. J. Nolan, Mr. Dukes told Mr. Nolan that Finishers' claim against the Government had been filed in the approximate amount of $60,000 by attorneys in Washington on a contingent basis. Mr. Nolan informed Mr. Dukes that SBA would like to have some assurance from the Washington attorneys as to the validity of the claim and some idea as to when it would be settled; also assurance from Mr. Dukes that if the claim was valid, he (Mr. Dukes) would pay the interest on the loan until such time as funds were received as a result of the claim; otherwise, SBA would have to take steps to protect its interest.

After another 2 weeks, on July 10, 1959, Mr. Madden, at the request of Mr. Dukes, wrote to SBA, saying that he was confident Finishers would be successful since the Army had ordered modifications of the contract. Mr. Madden received no acknowledgment of or reply to his letter until the SBA letter of October 5, 1959, hereinafter noted.

Meanwhile, during August and September 1959, SBA continued to press Mr. Dukes for measures by which the status of Finishers' loan might be improved. The exchanges between Mr. Dukes and Mr. Nolan culminated in late September in an arrangement whereby Finishers would pay $500 per week until the end of the year to cover interest charges² and consent to an assignment of 50 percent of its claim against Ordnance ("but in no event on an amount not less than would be required to pay the principal amount delinquent on account of the loan");³ in return for which SBA "would continue to work with him for the next 90 days which would no doubt be sufficient time for the settlement of the * * * claim."

On September 30, 1959, Finishers executed for delivery to SBA "in consideration of the extension of credit" an assignment of $20,000 "of any and all amounts now due or owing, or which may hereafter be or become due or owing * * * by the United States * * * to the assignor * * *" under the Ordnance contract. The assignment was prepared by Mr. Cook, Finishers' Cleveland attorney, as "a modification of the form usually utilized by * * * him in the State of Ohio," and its execution was supervised by him. The amount of the assignment was related to the amount of the additional security requested by SBA in the light of the delinquency of the debt of Finishers to SBA.

Finishers' contract with Ordnance contained, as Article 8(a) of the General Provisions, the text of the Assignment of Claims Act of 1940, as amended (31 U.S.C. § 203, 41 U.S.C. § 15) which authorized the assignment of claims for monies due or to become due to a contractor from the Government to "a bank * * * or other financing institution, including any Federal lending agency." The Act specifically provided that "any such assignment shall cover all amounts payable * * *." Emphasis supplied.

When Finishers made the assignment to SBA of $20,000 of its claim against Ordnance, the claim had not been allowed, wherefore no monetary amount had been determined. The claim was being discussed, however, in terms of $40,000 to $60,000, and there can be no doubt from the evidence of record that both Finishers and SBA intended an assignment of part only (approximately half) of the estimated value of the claim.

If any of the individuals who participated in the assignment transaction, including its ultimate approval by the Regional Director of SBA, was aware of the requirement (by contract and statute) that "any such assignment shall cover all amounts payable" under the contract, the fact is not in evidence. By reason of the presence of the requirement in the contract, it goes without saying that they should have been aware of it.

On October 5, 1959, SBA wrote to Mr. Madden, referring to his letter to SBA of July 10, 1959, and saying:

* * * As you no doubt know we have a direct interest in this claim, insofar as our loan is concerned and the subject Borrower\'s operations.

We would be pleased if you will advise us as to what progress you have made in the settlement of the claim.

Mr. Madden forwarded the letter to Mr. Dukes who, on...