U.S. v. Southern Fabricating Co., Inc.

• Decision Date: 01 July 1985
• Docket Number: No. 84-7337,84-7337
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. SOUTHERN FABRICATING COMPANY, INC.; Southern Sash Sales & Supply Co., Inc.; Southern Metals Company, Inc.; Elton H. Darby, and John F. Darby, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 780

764 F.2d 780

UNITED STATES of America, Plaintiff-Appellant, v. SOUTHERN FABRICATING COMPANY, INC.; Southern Sash Sales &amp Supply Co., Inc.; Southern Metals Company, Inc. Elton H. Darby, and John F. Darby Defendants-Appellees.

No. 84-7337.

United States Court of Appeals Eleventh Circuit.

July 1, 1985.

Frank W. Donaldson, U.S. Atty., Frank S. James, III, Asst. U.S. Atty., Birmingham, Ala., Leonard Schaitman, Marleigh D. Dover, Marc Johnston, U.S. Dept. of Justice, Civ. Div., Appellate Staff, Washington, D.C., for plaintiff-appellant.

Bradley Arant Rose & White, Thad G. Long, Birmingham, Ala., James D. Hughston, Hughston Hughston Hughston, Tuscumbia, Ala., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Alabama.

Before KRAVITCH and CLARK, Circuit Judges, and PECK ^*, Senior Circuit Judge.

PER CURIAM:

The United States appeals from an order of the United States District Court for the Northern District of Alabama granting partial summary judgment and dismissing two counts of its complaint against Southern Sash Sales and Supply Company ("Sash"), Southern Fabricating Company ("Fab"), Southern Metals Company ("Southern Metals"), and Elton and John Darby ("the Darbys"). Sash is the parent corporation of both Fab and Southern Metals. At all times relevant to this action, the Darbys were officers and directors of Fab and Sash, as well as controlling shareholders of Sash; Fab was a wholly-owned subsidiary of Sash.

Fab was a manufacturer of ammunition box hardware during the Korean and Vietnam conflicts. This hardware was purchased by corporations that had renegotiable contracts with the Department of the Army pursuant to the Renegotiation Act of 1951, 50 U.S.C.App. Sec. 1211 et seq. Prior to 1966 and after 1968, Fab's profits were modest. During 1966 through 1968, however, Fab had profits of approximately $5,000,000.00. These included "excessive profits" which Fab was required to eliminate and restore to the United States under the Renegotiation Act. Also between 1966 and 1968, the Board of Directors of Fab declared dividends in excess of $4,000,000.00 to Sash as well as salaries and bonuses to the Darbys.

In 1972, the Eastern Regional Renegotiation Board commenced proceedings against Fab under the Renegotiation Act. On October 10, 1980, the United States obtained a consent judgment in the Court of Claims against Fab in the amount of $2,212,500.00 for excessive profits earned by Fab between 1966 and 1969. In January 1981, this judgment was registered with the United States District Court for the Northern District of Alabama. After learning that Fab, Sash's subsidiary, was an inactive corporation with limited assets, the United States brought a four-count action against Sash, Fab, Southern Metals and the Darbys, seeking recovery of $2,212,500.00. The complaint alleged that the Darbys, as directors of Fab, caused enormous dividends to be paid to Sash during the years 1966 to 1968, which rendered Fab insolvent and violated both the Renegotiation Act and the priority rights of the United States under 31 U.S.C. Sec. 3713. The United States also sought to recover all salary and bonus payments received by the Darbys from Fab in the years 1966 through 1981 and to set aside an alleged fraudulent conveyance to Southern Metals.

On cross motions for summary judgment, the district court construed Counts I and II of the complaint as "action[s] for money damages brought by the United States ... founded upon any contract" within the meaning of 28 U.S.C. Sec. 2415(a) and relied on the act's six-year statute of limitations to bar a recovery under them. The United States appeals the judgment only as to Count I.

In district court the United States argued that Sec. 2415 did not apply because Count I was predicated on "piercing the corporate veil," an equitable action not governed by that statute's time restrictions. On appeal, however, the United States argues that the district court erroneously failed to address the applicability of Sec. 2415(a) to the enforcement of a consent judgment. The United States claims that Count I is an action to enforce the 1980 consent judgment by "piercing the corporate veil" and is not "founded upon [a] contract" within the meaning of Sec. 2415 because such judgments are not "contracts." The appellees urge that this contention was neither raised in nor considered by the district court and, therefore, may not now be advanced on appeal.

Generally, an appellate court will not consider a legal issue or theory raised for the first time on appeal. Sanders v. United States, 740 F.2d 886, 888 (11th Cir.1984). The decision whether to consider such an argument is left to the appellate court's discretion. Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826, 837 (1976); Roofing & Sheet Metal Services, Inc. v. La Quinta Motor Inns, Inc., 689 F.2d 982, 989 (11th Cir.1982) (quoting Singleton ). In exercising this discretion, "we will consider an issue not raised in the district court if it involves a pure question of law, and if refusal to consider it would result in a miscarriage of justice." Id. at 990; see Martinez v. Mathews, 544 F.2d 1233, 1237 (5th Cir.1976). ¹ Moreover, "[a]bsent plain error we would not reverse the district court on an issue not clearly presented to it for decision." Nathan Rodgers Construction & Realty Corp. v. City of Saraland, 676 F.2d 162, 163 (5th Cir. Unit B 1982). ²

The United States failed to assert in the district court that because Count I was an action to enforce the consent decree, it was not subject to the constraints of Sec. 2415. Consequently, the district court was not "clearly presented" with the issue. We must consider, therefore, whether the district court's use of the limitations period contained in Sec. 2415 would constitute "plain error" had this new contention been clearly before it. Because it is undisputed that Sec. 2415 would not control if the United States' characterization of Count I is correct, see United States v. Kellum, 523 F.2d 1284, 1287 (5th Cir.1975) (consent judgment not a "contract" within meaning of Sec. 2415), our analysis focuses on the district court's understanding of Count I.

Count I first enumerates the relevant procedural events leading to the October 1980 consent judgment, and then alleges as follows:

10. During the period 1966 through 1969, and continuing to the present, Southern Fab has been controlled by its parent, Southern Sash, to such a degree that Southern Sash at all times completely dominated the business affairs of Southern Fab.

11. During the period 1966 through 1969, and continuing to the present, Southern Fab was used as a mere extension of Southern Sash, to defeat the creditor rights of the United States.

12. Southern Sash's...