SANDNES'SONS, INC. v. United States, 800-71.

• Decision Date: 14 July 1972
• Docket Number: No. 800-71.,800-71.
• Parties: SANDNES' SONS, INC. v. The UNITED STATES.
• Court: U.S. Claims Court

199 Ct. Cl. 107, 462 F.2d 1388 (1972)

SANDNES' SONS, INC. v. The UNITED STATES.

No. 800-71.

United States Court of Claims.

July 14, 1972.

Numa L. Smith, Jr., Washington, D.C., Atty. of record for plaintiff; Barron K. Grier, Gary G. Quintiere and Miller & Chevalier, Washington, D.C., of counsel.

Thomas W. Petersen, Washington, D.C., with whom was Asst. Atty. Gen. Harlington Wood, Jr., for defendant.

Before COWEN, Chief Judge, LARAMORE, Senior Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA and KUNZIG, Judges.

ON DEFENDANT'S MOTION FOR DEFAULT JUDGMENT AND/OR FOR A JUDGMENT IN AID OF EXECUTION OF THE RENEGOTIATION ORDER OF AUGUST 4, 1971

NICHOLS, Judge.

This case is a petition for a redetermination of excessive profits under Section 108 of the Renegotiation Act of 1951, 50 U.S.C. App. § 1218, as amended by P.L. 92-41, 85 Stat. 97 (1971). Petitioner, a closely held corporation, during its fiscal year ended May 31, 1967, had manufactured and sold wire rope assemblies and fittings, nylon cargo nets, sling cargo nets and cargo sets. Its renegotiable sales, according to the petition, were $3,875,535 and its renegotiable net profit was $417,969, of which the Renegotiation Board determined that $125,000 was excessive. Plaintiff has not paid the refund and has not filed a bond to stay the execution of the Board's order. It says it is unable to do so because it is insolvent and in bankruptcy. It is said a bank has seized all its assets. Defendant would have us default the plaintiff, or, in the alternative, enter a judgment in aid of execution of the Board's order. Plaintiff says that each alternative, if adopted, would effect an unconstitutional denial of due process of law.

The statute cited above does not prescribe any consequence of not filing a bond except that execution of the Board's order is not stayed. The seminal Renegotiation Act of 1943 (Section 701(b) of the Revenue Act of 1943, P.L. No. 78-235, 58 Stat. 21, approved February 25, 1944) expressly provided that the filing of a petition for redetermination (then in the Tax Court):

shall not operate to stay the execution of the order of the Board * * * (Sec. 701(e)(1)).

Upon making an agreement or entering an order the Board was to direct the service Secretaries to eliminate excessive profits by withholding from amounts otherwise due the contractor, or by action in the "appropriate courts of the United States" (Sec. 701(c)(2)(E)). The Tax Court was not an "appropriate court" and Government suits were always in the District Courts. When an order was appropriately enforceable as a counterclaim, the Court of Claims was also an "appropriate court." Frantz Equipment Co. v. United States, 122 Ct.Cl. 622, 105 F. Supp. 490 (1952). It seems clear that "redetermination" and "collection" were wholly separate and distinct legal operations, neither one having anything to do with the other, the no-stay language barring any stay. United States v. Shanaman, 123 F.Supp. 402 (E.D.Pa.1954). Courts sometimes balked at or complained of the ignominious role assigned them, of summarily enforcing administrative orders, on whose validity they were not allowed to pass. United States v. Miller, 111 F.Supp. 368 (E.D.Mich.1953); Marie & Alex Manoogian Fund v. United States, 212 F.2d 369 (6th Cir. 1954); United States v. Hopkins, 95 F.Supp. 14 (N.D. Ohio 1950); United States v. Clark, 72 F.Supp. 393 (D. Oregon 1947). At times bonds were accepted to stay collection. Barton, Renegotiation of Government Contracts 166 (1952) but we believe this was done by administrative fiat, not judicial. Of course, the problem did not arise in the case of a contractor who eliminated excessive profits by agreement instead of by order, because his agreement could provide for extended terms of payment if needed.

The 1951 Act, as first passed (Act of March 23, 1951, 65 Stat. 7, 50 U.S.C. App. § 1211 and ff), in most respects paralleling that of 1943, eliminated the no-stay language and instead provided that:

* * * The filing of a petition under this section shall operate to stay the execution of the order of the Board * * * if within ten days after the filing of the petition with the Tax Court (now Court of Claims) a good and sufficient bond * * * Section 108(b).

Thus the law provided a clear cut authorized way of obtaining a stay, i.e., by filing a bond. In view of the repeal of the no-stay language, there might be some ambiguity whether the language excluded obtaining a stay in any other way, or for any other reason. This question is now academic, as will appear. Characteristic features of the 1943 Act, again reverted to, are the total separation of the redetermination and collection functions, the court assigned the former having no say about collection, and the latter, none as to the scope and coverage of the Act, nor the validity of proceedings purportedly conducted thereunder, nor even, apparently, the right to grant a stay pending Tax Court determination of such matters, absent a bond. In Hermetic Seal Products Co., P. R. v. United States, 307 F.2d 809 (1st Cir. 1962), a case involving, as here, a bankrupt contractor, the First Circuit did grant a stay pending a Tax Court determination whether the Renegotiation Act of 1951 applied to the contracts involved, which were performed in Puerto Rico. At 309 F.2d 482 (1962), cert. denied, 371 U.S. 954, 83 S.Ct. 510, 9 L.Ed.2d 501 (1963), the stay was vacated on account of the failure to furnish a bond.

Public Law 92-41 makes us the redetermining court, and as we are also a collecting court by way of offset, 28 U.S.C. § 1503 or counterclaim, 28 U.S.C. § 2508, the two functions are for the first time united. Still, without any clear indication that the position of the parties respecting collection is altered, no change would be implied. We are inclined to the view that upon the filing of a petition here, and non-filing of a bond, the Government's claim for assistance of a court in "execution" of the Board's order is a compulsory counterclaim under our Rule 40(a). Plaintiff argues that the language respecting judgment on counterclaims in 28 U.S.C. § 2508—

If upon the whole case it the court finds that the plaintiff is indebted to the United States it shall render judgment to that effect, and such judgment shall be final and reviewable.

means that we cannot render judgment on a counterclaim while the claim in chief is undecided, and that the defendant's motion is, in effect, a counterclaim, by whatever name called. This general language, however, enacted long before we had renegotiation jurisdiction, must yield to specific language enacted especially for renegotiation cases. There is another significant though little noticed change in P.L. 92-41. The statute now reads in part:

* * * The filing of a petition under this section shall operate to stay the execution of the order of the Board * * * only if within ten days after the filing of the petition the petitioner files with the Court of Claims a good and sufficient bond * * *

The emphasis is supplied, and the word only is new, having been added by the Act of August 1, 1956, ch. 821, § 11(a), 70 Stat. 791. The committee report, S.Rep. No. 2624, at 3 U.S.C.Cong. & Adm. News pp. 3823, 3833 (1956), calls attention to it. It is free from ambiguity and can only mean that the Government normally is entitled to our assistance in executing the order of the Board at once upon the filing of a petition without a bond. We reject, however, the motion to default the petitioner, because the statutory scheme has never made payment or the furnishing of security in any way a precondition for a redetermination of excessive profits, either expressly or by necessary implication. It has simply meant the Government remains free to collect in any way it is authorized to use, while the redetermination is pending, absent the bond.

Thus we turn to the constitutional issue, and if plaintiff is right we must either hold the statute unconstitutional in part or give it an interpretation, to avoid the constitutional questions, that otherwise we would probably reject.

Plaintiff calls our attention to the undenied fact that there purports to be no due process in renegotiation cases before the "redetermination" formerly in the Tax Court, now in this. Lichter v. United States, 334 U.S. 742, 791-792, 68 S.Ct. 1294, 92 L.Ed. 1694 (1948); Lykes Bros. Steamship Co. v. United States, 459 F.2d 1393, 198 Ct.Cl. ___ (decided May 12, 1972). It also invites us to consider the growing hostility in the Supreme Court towards schemes to collect first, litigate later, on due process grounds. Cases are: Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), (garnishment of wages at commencement of law suit); Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970), (taking person off welfare without notice and hearing); Bell v. Burson, 402 U.S. 535, 91 S.Ct. 1586, 29 L.Ed.2d 90 (1971), (lifting driver's license summarily on happening of an auto accident); Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), (replevin of chattels after installment sales). In Swarb v. Lennox, 314 F.Supp. 1091 (E.D.Pa.1970), a three-judge district court struck down on due process grounds the Pennsylvania cognovit note system with respect to makers earning under $10,000. The affirmance, 405 U.S. 191, 92 S.Ct. 767, 31 L.Ed.2d 138 (1972), is on such limited grounds as not to be helpful here. D. H. Overmyer Co. v. Frick Co., 405 U.S. 174, 92 S.Ct. 775, 31 L.Ed.2d 124 (1972), upholds as valid an Ohio cognovit note entered into by a corporation after arm's-length bargaining. At p. 186, 92 S.Ct. at 782 the Court says:

* * * The Overmyer-Frick agreement, from the start, was not a contract of adhesion. There was no refusal on Frick\'s part to deal with Overmyer unless Overmyer agreed to a cognovit. * * *

In Fuentes v. Shevin, supra, the Court again limits Overmyer to a true arm's-length bargain. Since Government...