Patterson v. UNITED STATES, NORTHWESTERN NAT. BANK OF MPLS.

• Decision Date: 17 December 1965
• Docket Number: No. 320-63.,320-63.
• Citation: 354 F.2d 327
• Parties: E. Harold PATTERSON, Receiver for the Electro Nuclear Systems Corporation v. The UNITED STATES, NORTHWESTERN NATIONAL BANK OF MINNEAPOLIS, Third-Party Defendant.
• Court: U.S. Claims Court

354 F.2d 327 (1965)

E. Harold PATTERSON, Receiver for the Electro Nuclear Systems Corporation v. The UNITED STATES, NORTHWESTERN NATIONAL BANK OF MINNEAPOLIS, Third-Party Defendant.

No. 320-63.

United States Court of Claims.

December 17, 1965.

Joseph A. Mattingly, Leonardtown, Md., for plaintiff.

Edward Weintraub, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant.

James A. Halls, Minneapolis, Minn., for third-party defendant.

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

COWEN, Chief Judge.

In this case, now before the court on cross-motions for summary judgment, plaintiff E. Harold Patterson, as receiver for the Electro Nuclear Systems Corporation of Minneapolis, Minnesota, seeks to recover the sum of $3,700 from the United States, being part of the proceeds alleged to be owing by the Government on certain contracts it had entered into with the above-named corporation.

On May 23, 1963, Norman C. Witbeck, an employee in Electro's now defunct Bethesda, Maryland, branch office, obtained a judgment in the Circuit Court for Montgomery County, Maryland, against the corporation for back wages in the amount of $3,412.02, plus interest and costs. Since the company had been encountering serious financial difficulties, however, it was unable to satisfy the judgment, and Witbeck was compelled to search for corporate assets on which to levy attachment. In pursuing this course, Witbeck soon discovered that all tangible assets of Electro had been appropriated to other debts and that the only property available for possible satisfaction of the judgment was the Government contracts on which payment had not yet been made. In an effort to reach the proceeds alleged to be due on these contracts, Witbeck returned to the same Maryland court and petitioned for appointment of a receiver to collect a sum sufficient to satisfy his judgment. The court granted the relief requested and appointed plaintiff Patterson receiver with authority to collect from the Government an amount not to exceed $3,700.

Prior to the appointment of Patterson as receiver, Electro had assigned all the proceeds on the contracts in question to the Northwestern National Bank of Minneapolis as security for loans made. After it was made a party to this action, the bank filed an answer which states that long prior to plaintiff's appointment as a receiver, Electro had assigned all contracts it had entered into with the United States to the bank, that such assignments complied in all respects with the Assignment of Claims Act of 1940, and that the bank's rights to the money payable under the contracts are superior to plaintiff's rights. Plaintiff claims that defendant owes a total of $26,345.89 on the contracts with Electro and also points out that in response to interrogatories propounded to it, the assignee bank declared that its interest in the proceeds due on the contracts amounts to some $22,069.67. If plaintiff's figures should prove to be correct, it appears that there would be a residue of more than $4,000 to be applied for the benefit of Electro or its creditors after the satisfaction of the amount due the bank. However, the amount owed by the United States has not been established and appears to be in dispute. Defendant asserts that some of the contracts are presently before an administrative body for a final determination on the question of compensation. Also, we do not know to what extent the amount due Electro is subject to reductions or offsets by the defendant. The Government has refused to recognize or pay plaintiff on demand, asserting that under the Assignment of Claims Act of 1940 (31 U.S.C. § 203 (1958)), it is authorized to pay only the validly designated assignee of the claims in question, i. e., the Northwestern Bank.

The primary question presented by the motions of the parties is whether plaintiff, as a special receiver appointed by a state court to collect a portion of Electro's claims against the United States in order to satisfy the judgment of an individual creditor, may maintain an action against the defendant in this court; and, if not, whether if plaintiff amends his petition to show that he has been appointed the general receiver for Electro by a court of competent jurisdiction, he would then have standing to sue.

The statute in issue reads, in relevant part, as follows:

All transfers and assignments made of any claim upon the United States, or of any part or share thereof, or interest therein, whether absolute or conditional, and whatever may be the consideration therefor, and all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, * * * shall be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. * * *

The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States * * * are assigned to a bank, trust company, or other financing institution, * * *

The prohibitory language contained in the first paragraph of the statute above dates back in essentially its present form to 1853 (10 Stat. 170, Rev.Stat. § 3477 (1875)), and originally to an 1846 statute (9 Stat. 41).¹ Over the years it has consistently been recognized by the courts to have two purposes — primarily, to prevent fraud; and secondarily, to avoid multiple litigation. More specifically, Congress is said to have had as its major objective the prohibiting of trafficking in claims against the Government such as by persons who would be in a position to exert political pressure or improper influence in prosecuting claims before the departments, the courts, or the legislature. United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171 (1949); Spofford v. Kirk, 97 U.S. 484, 24 L.Ed. 1032 (1878); Goodman v. Niblack, 102 U.S. 556, 26 L.Ed. 229 (1880); Price v. Forrest, 173 U.S. 410, 19 S.Ct. 434, 43 L.Ed. 749 (1899). Secondarily, the courts have ascribed to Congress the motive of enabling the United States to deal exclusively with the original claimant instead of with several parties, thus obviating the necessity of having to inquire into the validity of specific transfers or assignments of the claim, minimizing subjection to successive litigation upon the same claim, and eliminating the risk of double payment or multiple liability. United States v. Aetna Casualty & Surety Co., supra; Spofford v. Kirk, supra; Seaboard Air Line Ry. v. United States, 256 U.S. 655, 41 S.Ct. 611, 65 L.Ed. 1149 (1921); Singer v. United States, 126 Ct.Cl. 417, 115 F.Supp. 166 (1953).

Although the statute was strictly construed for a period of time following its original enactment to invalidate virtually all assignments, the development of case law in succeeding years indicates a gradual broadening of the types of transfers excluded from the prohibitory mandate of the act. Thus, the courts have held the following assignments or transfers to be by "operation of law," and exempt from the relevant statutory provision: transfers by intestate succession or testamentary disposition, Erwin v. United States, 97 U.S. 392, 24 L.Ed. 1065 (1878); by consolidation or merger to the successor of a claimant corporation, Seaboard Air Line Ry. v. United States, supra; by judicial sale, Western Pacific R. Co. v. United States, 268 U.S. 271, 45 S.Ct. 503, 69 L.Ed. 951 (1925); by subrogation to an insurer, United States v. Aetna Casualty & Surety Co., supra; by statutory provision to a trustee in bankruptcy, McKay v. United States, 27 Ct.Cl. 422 (1892), Accord, Erwin v. United States, supra; and by voluntary assignment of all the assets of an insolvent debtor for the benefit of creditors, Goodman v. Niblack, supra.

The right of a receiver to sue in this court, notwithstanding the anti-assignment statute, was recognized in Redfield v. United States, 27 Ct.Cl. 393 (1892), under the authority of Goodman v. Niblack, supra. This court, however has expressly limited the application of the Goodman exception to include only "general" receivers — those who had been appointed receiver of all the assets of the original claimant and not merely a portion of those assets sufficient only to satisfy the claims of an individual creditor to the exclusion of other creditors. George Howes & Co. v. United States, 24 Ct.Cl. 170 (1889). In the Howes case, the court dismissed the claim of a "limited" receiver, acting on behalf of a single creditor and attempting to attach or collect sums due to the debtor from the Government. The court pointed out that the anti-assignment statute was aimed at just such a situation.

This proceeding was in the nature of an equitable attachment of a

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