McSweeny Trade School v. United States, 50096.

• Decision Date: 11 January 1955
• Docket Number: No. 50096.,50096.
• Parties: McSWEENY TRADE SCHOOL, Inc., v. The UNITED STATES.
• Court: U.S. Claims Court

127 F. Supp. 591

131 Ct. Cl. 445

McSWEENY TRADE SCHOOL, Inc., v. The UNITED STATES.

No. 50096.

United States Court of Claims.

January 11, 1955.

Stanley L. Fildew, Detroit, Mich., for plaintiff.

William A. Stern II, Washington, D. C., with whom was Warren E. Burger, Asst. Atty. Gen., for defendant.

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

LARAMORE, Judge.

The plaintiff, a trade school, sues to recover $132,206.83 for tuition and tools furnished veteran students pursuant to a contract with the Veterans' Administration. The defendant asserts three counterclaims based on prior contracts. The plaintiff was engaged in teaching automobile mechanical courses to veterans and nonveterans in Detroit, Michigan. The plaintiff furnished instruction books, supplies and equipment to veterans under two contracts with the Veterans' Administration (hereinafter referred to as the VA) covering the period from October 11, 1948, to March 31, 1949. The tuition rate for these two contracts was 62.5 cents per clock hour of instruction. Negotiations on the third contract, No. V3029-V-753, which was to become effective April 1, 1949, began in January 1949. On February 23, 1949, pursuant to the VA's request, the plaintiff submitted cost data for November and December 1948 and a projection thereof for the first 10 months of 1949. This data contained a 1,182 hours' attendance error for December 1949. This error's effect on the tuition rate is minute and was inadvertent. The data reflected a cost to the plaintiff of $900 a month rental for the school premises. This data also contained the price, which was the dealers' price, that the plaintiff expected to charge the VA for the tools to be furnished under the contract. The cost of the tools was not an item included in the tuition rate, but rather was to be paid for separately. The plaintiff requested a tuition rate of 99.2 cents per clock hour of instruction. The VA, without any direct verification, which was the practice, reviewed the data and allowed 75 cents per clock hour of instruction. The contract, V3029-V-753, was executed by the plaintiff on March 14, 1949, and by the VA on March 29, 1949, and covered the period from April 1, 1949, through March 31, 1950. This contract was performed and the VA paid the plaintiff the 75-cent tuition rate and the dealers' price for the tools.

During the period of negotiations for the fourth contract, V3029-V-2176, the plaintiff was operating under a memorandum agreement dated February 1, 1950, which provided that the school would be paid for services in the amounts set forth in the formal contract. It further provided that it would remain in effect until the formal contract was approved. The plaintiff requested a 75-cent tuition rate, but the VA only allowed 49 cents stating that that was the amount determined to be fair and reasonable. The formal contract was signed on August 16, 1950, but the VA did not finally approve it until after September 18, 1950, after the plaintiff's school was closed for lack of funds. The record indicates that the plaintiff was under a great deal of pressure to accept the 49-cent rate, inasmuch as it was in need of funds and the VA had refused to pay the plaintiff anything for the instruction, etc., furnished under the memorandum agreement until the contract was signed. The plaintiff submitted vouchers and requested payment under the contract. On September 28, 1950, the VA paid the plaintiff $9,598.52 of its claim.

The plaintiff filed its petition in this court on April 9, 1951, claiming $132,206.83. This sum represented 75 cents per clock hour of instruction for the period from April 1, 1950, to September 18, 1950, the period covered by the memorandum agreement, and the $15,590.59 cost of tools furnished during that period. On May 17, 1951, the VA sent the plaintiff's attorney a notice that the tuition rate for the third contract, V3029-V-753, should have been negotiated at 55 cents per clock hour and enclosed a summary of the recomputation.

The defendant admitted in its amended answer that the plaintiff furnished instruction, etc., under the memorandum agreement and the fourth contract, and agreed at the trial that $88,777.90 is due the plaintiff under the fourth contract. Of this, $73,187.31 represents tuition at the rate of 49 cents per hour and $15,590.59 represents charges for tools.

Therefore, the only part of the plaintiff's claim that is in dispute is the $43,444.12, which represents the difference between the 75-cent rate that the plaintiff contends it is entitled to under Public Law 610, 64 Stat. 336, 338, 38 U.S.C.A. following section 745, and the 49-cent rate that the defendant concedes is due the plaintiff.

The defendant has three counter-claims. The first is for $66,648.20, which represents the difference between the 75-cent rate paid the plaintiff under the third contract, V3029-V-753, and the 55-cent rate that the defendant contends was a fair and reasonable rate for that contract. The defendant contends that the plaintiff misrepresented the rent that it was paying and the number of students that it expected to instruct when it submitted the cost data which was used in determining the 75-cent rate for the third contract, V3029-V-753. The defendant contends that Mr. McSweeny was the owner of the lease for the school premises and that he was only paying the owner $650 a month for the whole building, whereas the cost data indicated that he was paying $900 a month for half of the building. The evidence clearly does not support this contention. Kathleen E. Snider was the owner of the premises located at 3646 Woodward Avenue. She had originally leased the premises to Mr. McSweeny, but through the execution of new leases and various assignments, which are in the record, Mrs. McSweeny became the lessee several years before Mr. McSweeny contracted with the defendant. Mrs. McSweeny subsequently transferred the lease to a corporation of which she owned the entire stock. Mrs. McSweeny, and later her corporation, subleased 13,000 square feet of the premises to Mr. McSweeny and the plaintiff for $900 a month with an option in the sublessee to sublease the entire premises for $1,850 a month. The entire premises were subsequently subleased to the plaintiff. Some of this rental was in fact paid and some is still owing. Expert testimony established that the fair rental value of the premises in 1948 was $18,000 a year. The rental figure employed in determining the tuition rate was only $13,250. It is clear, therefore, that the defendant has failed to show any misrepresentation as to the rent.

The defendant's contention that the plaintiff misrepresented the number of students that it expected to instruct in order to obtain a higher tuition rate is also without merit. The plaintiff was requested to submit cost data for November and December of 1948 and a 10-month projection thereof. The plaintiff projected 129,600 hours on the estimated enrollment of 100 students for 30 clock hours of instruction per week. This data was furnished on February 23, 1949. The plaintiff's records show that there were 70 new enrollments and an average of 90 men in attendance and six absent for the month of January. They also show that there were 29 new enrollments and an average of 101 in attendance and nine absent in February. This did not represent such a sharp increase in students that would require the plaintiff to notify the VA that its 100 estimate was so inaccurate that a new tuition rate was warranted. It is true that the enrollments increased considerably toward the end of the contract. This was partly due to the VA's request of plaintiff to take several hundred students from another school that had closed. This could not have been foreseen and we believe that the plaintiff's estimate at the time made with the facts then available was reasonable. The defendant has not proved that the plaintiff misrepresented any material fact and its first counterclaim must, therefore, fail.

The defendant's second counterclaim is for $57,245.86. This sum represents the discount that Mr. Allen or his corporation obtained from the tool supplier for the tools that were furnished the plaintiff for the first three contracts. The defendant contends that it is entitled to recover this sum because it represents an unreasonable cost for the tools and was, therefore, a breach of the contracts. When the contracts were entered into the plaintiff submitted the dealers' prices as the expected cost of the tools and the dealers' price lists were made a part of the contracts. The VA regulations contained two pertinent restrictions relating to charges for tools, which were as follows:

"(e) Charge. The amounts billed by the institution to the Veterans' Administration for `supplies' rests on the following: (1) The institution will assure itself that the Veterans' Administration is not billed at an unreasonable price. * * * (6) If the institution furnishes items of `supplies,' specifically purchased for trainees only, i. e., not handled through a book or supply store for all students, such items will be billed at cost to the institution." 38 C.F.R. 21.539.

The plaintiff contends that the prices charged were reasonable since the plaintiff had a poor credit standing and, therefore, could not take advantage of a larger discount, and further that the above regulations were only guides in determining a reasonable price and were...