Monolith Portland M. Co. v. Reconstruction Fin. Corp., 12200.

• Decision Date: 21 December 1949
• Docket Number: No. 12200.,12200.
• Parties: MONOLITH PORTLAND MIDWEST CO. v. RECONSTRUCTION FINANCE CORPORATION.
• Court: U.S. Court of Appeals — Ninth Circuit

178 F.2d 854 (1949)

MONOLITH PORTLAND MIDWEST CO. v. RECONSTRUCTION FINANCE CORPORATION.

No. 12200.

United States Court of Appeals Ninth Circuit.

December 21, 1949.

COPYRIGHT MATERIAL OMITTED

Edward R. Young, Alfred L. Black, Jr., Joseph T. Enright and Donald J. Dunne, Los Angeles, Cal., for appellant.

Allan E. Charles, John F. Porter, San Francisco, Cal., R. C. Goodale, Washington, D. C., Lillick, Geary & McHose, Benjamin & Lieberman, Los Angeles, Cal., for appellee.

Before HEALY and GOODRICH¹, Circuit Judges, and GOODMAN, District Judge.

GOODMAN, District Judge.

Whether a contractor may maintain a court action against the United States for damages because of the termination by the United States of a war contract pursuant to the War Mobilization and Reconversion Act of 1944, 58 Stat. 785, 50 U.S.C.A. Appendix, § 1651 et seq., or whether relief ab initio can only be sought administratively under the Contract Settlement Act of 1944, 41 U.S.C.A. § 101 et seq., 58 Stat. 649, is the main question presented in this appeal.

The contract in suit was made on June 28, 1943 between appellant, a cement company, and Defense Plant Corporation, a subsidiary of respondent Reconstruction Finance Corporation. The motivation for the contract was the mutual desire of appellant and the United States Government to determine the feasibility of commercially extracting alumina from our native anorthosite ores by a method developed by appellant. Defense Plant Corporation undertook to furnish the money necessary to construct and operate a test plant. Appellant agreed to supervise the construction of the plant and to license to Defense Plant Corporation the use of its process. The contract provided that appellant should operate the plant for Defense Plant Corporation for ten years subject to the right of either party to cancel the operating agreement upon thirty days notice, at any time after 60 days after completion of the plant. Defense Plant Corporation agreed that, should it decide to dispose of the plant during the continuance of the operating agreement or within six months of its termination, appellant would have the first option to purchase.

In 1945, the Reconstruction Finance Corporation dissolved Defense Plant Corporation and succeeded to its rights and liabilities under the contract. On September 10, 1946, when the plant was nearing completion, the Reconstruction Finance Corporation terminated the contract upon an order issued pursuant to the War Mobilization and Reconversion Act of 1944, 58 Stat. 785, 50 U.S.C.A.Appendix, §§ 1651-1678, by the Director of War Mobilization and Reconversion. Less than two months thereafter appellant commenced this proceeding, in the State Court, from whence it was removed to the United States District Court for the Southern District of California. Appellant prayed for relief in the alternative: either possession of the plant, plus $516,000 to complete it, and $1,200,000 to make a test run, or $7,500,000 with which to build and operate another plant; and for reimbursement for expenses incurred before the termination of the contract, to-wit, $197,524.76 together with interest.

The District Court concluded that the Director's order was within his authority under Section 202 of the War Mobilization and Reconversion Act.² It found that provision for fair compensation upon such termination is accorded by the Contract Settlement Act of 1944, 58 Stat. 649, 41 U.S.C.A. §§ 101-125, and that appellant had not exhausted the administrative remedy prescribed by that Act. It thereupon dismissed the cause. This appeal is from the judgment of dismissal.

The main grounds urged on appeal are threefold:

1. The Reconversion and Settlement Acts do not apply to the contract in suit.

2. Assuming their application, the Settlement Act provides only an optional, not a mandatory remedy.

3. In any event, appellant complied with the Settlement Act, but got no administrative relief and hence is entitled to judicial relief.

The Contract Settlement Act took effect on July 21, 1944, and the War Mobilization and Reconversion Act a few months thereafter on October 3, 1944. Appellant contends that the Acts were not intended to apply to contracts executed prior to their passage. Both Acts were designed to promote the orderly termination and settlement of war contracts. Each was an essential element of a unitary remedy. The Reconversion Act incorporated the Office of Contract Settlement, established by the Settlement Act, into the Office of War Mobilization and Reconversion. The Settlement Act, Sec. 3(a), expressly applies to contracts previously made. We find no merit in the claim that the Reconversion Act is not likewise applicable.

To appellant's argument that the Acts cannot constitutionally apply to prior contracts, it should be sufficient to reply that the judicial determination even of constitutional issues ordinarily must await the exhaustion of prescribed administrative remedies. Aircraft & Diesel Equipment Corp. v. Hirsch, 1947, 331 U.S. 752, 67 S.Ct. 1493, 91 L.Ed. 1796. But considering its merits, we find the point to be unsubstantial. It has long been settled that the United States may terminate and settle war contracts without answering in Court for damages. This is so even though there is no termination provision in the contract, and even though the terminating statute is applied retroactively. De Laval Steam Turbine Co. v. United States, 1931, 284 U.S. 61, 52 S.Ct. 78, 76 L.Ed. 168; Gromfine and Edwards, "Termination after World War I," 10 Law and Contemporary Problems 563, 567-571 (1944). It is true, as appellant points out, that the mere fact that the Reconstruction Finance Corporation is a government agency does not extend to it all the powers and immunities of the sovereign. Reconstruction Finance Corporation v. J. G. Menihan Corp., 1941, 312 U.S. 81, 83, 61 S.Ct. 485, 85 L.Ed. 595. But, it is also true that the Congress could endow Reconstruction Finance Corporation with such governmental powers and immunities as it saw fit. Keifer & Keifer v. Reconstruction Finance Corporation, 1939, 306 U.S. 381, 389, 59 S.Ct. 516, 83 L.Ed. 784. The short answer is that at the time Reconstruction Finance Corporation succeeded to the rights and liabilities under this contract and at the time the contract was terminated, Reconstruction Finance Corporation was expressly designated in the Reconversion Act as one of the contracting agencies authorized to terminate war contracts. Sec. 601(b). Whatever may have been the status of Reconstruction Finance Corporation or Defense Plant Corporation at the time the contract was made is immaterial. De Laval Steam Turbine Co. v. United States, supra.

Appellant also contends that the Reconversion and Settlement Acts are not applicable to the contract in suit because it is not a "prime contract for war production" which the Reconversion Act, Sec. 202, authorizes to be terminated. The term "prime contract for war production" is not defined in the Reconversion Act, but the term "prime contract" is defined in the Settlement Act. The correlation between the Acts compels the conclusion that the Congress referred to the same type of contract in both instances. The Settlement Act, Sec. 3(a), declares a "prime contract" to be "any contract, agreement, or purchase order heretofore or hereafter entered into by a contracting agency and connected with or related to the prosecution of the war". The present contract, on its face, is clearly of this description. But even if it were not, this is not an issue of fact requiring resolution by the District Court, as a prerequisite to the judgment of dismissal. The Settlement Act, Sec. 20(b), provides that "any contracting agency may prescribe the amount and kind of evidence required to identify * * * any contract * * * as a war contract for any of the purposes of this act. Any determination so made * * * that any contract * * * is a war contract, shall be final and conclusive for any of the purposes of this act." Since the Congress intended the contracting agency to have exclusive jurisdiction to determine whether a contract is subject to the Settlement Act, whatever remedy that Act provides must be exhausted before the appellant may have judicial review of the agency's determination. Macauley v. Waterman Steamship Corp., 1946, 327 U.S. 540, 66 S.Ct. 712, 90 L.Ed. 839; Myers v. Bethlehem Shipbuilding Corp., 1938, 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638; United States v. Sing Tuck, 1904, 194 U.S. 161, 24 S.Ct. 621, 48 L.Ed. 917.

2. Appellant urges that the Settlement Act does not in haec verba command an initial administrative remedy. But the Act is none the less mandatory.³ The considerations which motivated its passage make this abundantly clear.

At the time the Act was under consideration by the Congress there were in effect approximately 100,000 War Department prime contracts, involving a total of 43 billion dollars. These involved about 1,000,000 sub-contracts. The face amount of Navy contracts then in effect was 34 billion dollars. Already 21,774...