United States Rubber Company v. United States
| Citation | 142 Ct. Cl. 42,160 F. Supp. 492 |
| Decision Date | 02 April 1958 |
| Docket Number | No. 50406.,50406. |
| Parties | UNITED STATES RUBBER COMPANY v. UNITED STATES. |
| Court | Court of Federal Claims |
Myron Kalish, Brooklyn, N. Y., for plaintiff. Arthur, Dry & Dole, New York City, were on the brief.
Edward L. Metzler, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant.
This case involves a claim for unemployment compensation taxes paid to the State of North Carolina as a contract cost in the performance of a cost-plus-fixed-fee Government contract. Plaintiff further seeks a declaratory judgment as to other excess taxes not yet accrued.
The Commissioner was directed to make findings of fact and to recommend legal conclusions in the light of the findings of fact under the Rules of this court.
Pursuant to such reference, the Commissioner has submitted his findings of fact and conclusion of law.
The court, after having considered the evidence, the briefs and argument of counsel, adopts the findings and opinion of Commissioner C. Murray Bernhardt with minor changes which are printed below.
Plaintiff is therefore entitled to recover, and judgment is entered to that effect. The amount of recovery will be determined pursuant to Rule 38(c), 28 U.S.C.A.
It is so ordered.
The plaintiff seeks to recover as a contract cost the unemployment compensation taxes which it paid to the State of North Carolina for the years 1944, 1945, 1946, 1948, and 1949, and a declaratory judgment as to other excess taxes not yet accrued, to the extent those taxes exceeded the amounts it would have paid had it not been for the performance of a cost-plus-fixed-fee Government contract in that State during World War II. The difference will be referred to as "excess taxes." Federal Cartridge Corporation v. United States, 1948, 77 F.Supp. 380, 111 Ct.Cl 372, which established a precedent in this area, was followed by a series of decisions by the Appeal Board, Office of Contract Settlement, laying down useful but not controlling guides in the same field under factual and statutory variations. The court has had more recent occasion to consider the general subject in Houdaille Industries, Inc., v. United States, Ct.Cl., 151 F.Supp. 298. This opinion relates only to the separated issue of liability.
For some years prior to World War II the plaintiff engaged in business in the State of North Carolina to the extent of maintaining a small sales office with about ten employees. In November 1942, plaintiff entered into a cost-plus-fixed-fee Navy contract numbered NOrd-3102 covering the operation of a Government-owned shell loading plant in North Carolina. The contract was terminated for the Navy's convenience on August 14, 1945, subsequently postponed to November 4, 1945, to permit winding up activities, and the parties entered into a termination settlement agreement on March 7, 1947, containing several exceptions to the general release, including the following:
"(ii) Claims by the Contractor against the Government which are based upon responsibility of the Contractor to third parties and which involve costs reimbursable under the Contract, but which are not now known to the Contractor."
The quoted provision is referred to hereafter as the "unknown claims" clause.
On August 25, 1948, the plaintiff filed a claim for reimbursement of the excess taxes sought here with the Navy Bureau of Ordnance. No findings having been made on the claim, the plaintiff on August 22, 1949, filed an appeal with the Appeal Board, Office of Contract Settlement. During the pendency of that proceeding the Navy filed its findings belatedly on March 20, 1950, it having been stipulated with the Board's approval that the tardy findings be accepted nunc pro tunc. On August 17, 1951, after a hearing, the Board rejected the claim (United States Rubber Company v. Navy, 5 App. Bd. OCS No. 324, page 166), whereupon the present suit was filed.
Beginning in 1936, all employers of a specified class in North Carolina, including plaintiff, were subject to the North Carolina Unemployment Compensation Law, later retitled the Employment Security Law (volume 2c, Gen.Stat. North Carolina ch. 96, 1950 recomp.) and were required to pay unemployment compensation taxes to the State Employment Security Commission at a flat rate of 2.7 percent of taxable payrolls (i. e., that part of each employee's annual wages not exceeding $3,000). By amendment, commencing with calendar year 1943, a graduated merit rate of tax contributions was promulgated, ranging from .27 percent to 2.7 percent of the employer's taxable payrolls, entitlement to a merit rate depending on the previous employment experience of the particular employer in accordance with a prescribed statutory formula. The State maintained a separate reserve account for each employer, made up of the total contributions by the employer excepting a small percentage credited to a statewide pooled account, less unemployment benefits paid to that employer's discharged employees.
The statutory computation date for determination of the employer's tax rate for each year was June 30 (changed as of 1946 to July 31) of the year preceding the calendar year to which the tax rate was applicable. In order to qualify for a merit rate (i. e., a rate lower than the 2.7 percent maximum) for a particular calendar year the employer was required to have, as of the computation date governing that year, a reserve account balance of (1) at least five times the largest amount of benefits paid in any one of the three fiscal years preceding the computation date, and (2) at least 2.5 percent of the employer's total taxable payrolls for the same three-year period. The tax rate for each employer meeting those tests was then calculated by taking the percentage ratio borne by the reserve account balance to the total payroll for the stated three-year period, and determining from a table set forth in the law the appropriate tax rate. The tax rate fluctuated within permissible extremes conversely with the percentage ratio.
In North Carolina the unemployment compensation taxes were paid on an employer basis, not on a plant basis. During the period of plaintiff's performance of contract NOrd-3102 its tax rate was computed on the total of its concurrent commercial and war contract payrolls, and credits and debits to its reserve account were also derived from those conbined sources. The taxes assessed against the NOrd-3102 payroll were reimbursed plaintiff as contract costs, while plaintiff bore the taxes assessed against its own private payroll. Plaintiff's rates of tax for the years 1944 through 1954, computed upon its combined commercial and war contract payrolls, and the rates which it would have paid had it not been for its performance of contract NOrd-3102, are shown in the following schedule which also shows the amount of excess taxes presently claimed for the years 1944, 1945, 1946, 1948, and 1949:
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| | Rate of tax |
| | computed |
Year | Rate of tax | exclusive of |
| actually | war plant | Difference
| paid | experience | claimed
------------------------------|----------------|---------------|------------
| Percent | Percent |
| | |
1944......................... | 2.70 | 1.39 | $ 319.59
1945......................... | 2.70 | .27 | 2,990.78
1946......................... | 2.70 | .27 | 7,628.58
1947......................... | 2.70 | 12.70 | None
1948......................... | 2.70 | 11.39 | 18,917.17
1949......................... | 2.70 | 1.00 | 23,637.81
1950......................... | 2.70 | 2.70 | None
1951......................... | 2.70 | 2.70 | None
1952......................... | 2.70 | 2.70 | None
1953......................... | 2.70 | 2.70 | None
1954......................... | 2.70 | 2.70 | None
| | |__________
| | | 53,493.93
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The principal issues thus presented are (1) whether the release provisions of the final settlement agreement bar plaintiff's recovery and (2), if not, whether the excess taxes claimed are reimbursable costs under contract NOrd-3102.
It is plaintiff's contention that, as of March 6, 1947, the excess taxes were "unknown claims" within the meaning of that exception to the release, and hence not barred. The subject divides itself into the excess taxes for 1944, 1945, and 1946 on the one hand, and those for subsequent years on the other. As to the earlier years, if facts were available but not properly assimilated by plaintiff at the time of the termination agreement, plaintiff's failure to comprehend their significance in terms of recoverable expense does not of itself except them from the force of the release. The test is not the state of plaintiff's knowledge, but the availability of information which, properly digested, could reasonably be expected to acquaint plaintiff with the existence of a reimbursable cost. At the time of the termination agreement there was information available to plaintiff from data within its possession from which it could compute for each year through 1946 the separate payrolls, tax rates, and taxes for both its commercial operations and its operations under contract...
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