United States v. McMurtry

• Decision Date: 25 August 1930
• Citation: 48 F.2d 258
• Parties: UNITED STATES v. McMURTRY.
• Court: U.S. District Court — Southern District of New York

48 F.2d 258 (1930)

UNITED STATES v. McMURTRY.

District Court, S. D. New York.

August 25, 1930.

Charles H. Tuttle, U. S. Atty., of New York City (Frank W. Ford, Asst. U. S. Atty., of New York City, of counsel), for the United States.

John J. Cunneen, of New York City, for defendant.

AUGUSTUS N. HAND, Circuit Judge.

Congress in 1916 created a Council of National Defense, the purpose of which was the "co-ordination of industries and resources for the national security and welfare." Section 2 (50 USCA § 1). Its duties among other things were "to supervise and direct investigations and make recommendations to the President and the heads of executive departments as to * * * data as to amounts, location, method and means of production, and availability of military supplies; the giving of information to producers and manufacturers as to the class of supplies needed by the military and other services of the Government, the requirements relating thereto, and the creation of relations which will render possible in time of need the immediate concentration and utilization of the resources of the Nation." Section 2 (50 USCA § 3). It was empowered to adopt rules and regulations for its work and to organize subordinate bodies for its assistance in special investigations either by the employment of experts or the creation of committees. Section 2 (50 USCA § 4).

On March 4, 1918, the President undertook to reorganize a subordinate board of the Council of National Defense known as the War Industries Board by making it an administration body responsible only to himself. He had been authorized under section 120 of the Act of June 3, 1916 (50 USCA § 80), to place an order for needed material with any person, which was to be given preference over all private engagements, and under the Overman Act of May 20, 1918 (40 Stat. 556), he was authorized "to make such redistribution of functions among executive agencies as he may deem necessary." Section 1.

The War Industries Board set up an Administrative Committee called the Wool Division which met representatives of the wool dealers and growers and promulgated regulations fixing the prices of the 1918 wool clip on the basis of those approved by the government as the Atlantic seaboard prices on July 30, 1917. The regulations provided that the government should have a prior right to acquire all of the 1918 wool clip or any portion thereof at the prices fixed by the War Industries Board, the remainder to be subject to allocation for civilian purposes under the direction of that Board. According to the terms of the regulations, the growers were to receive fair prices for their wool based on the Atlantic seaboard prices as established on July 30, 1917, less freight to seaboard, moisture, shrinkage, and interest, and less a gross profit to the dealer which should in no cases exceed 1½ cents per pound on the total season's business, such profit to cover all expenses from grower to loading wool on board cars. On consignments forwarded to distributing centers the prices to be paid for the wool to approved dealers were to be the Atlantic seaboard values of July 30, 1917, plus a commission of 4 per cent. to be paid by the government, if bought by the government, or by the manufacturer to whom the wool is allocated for other than government purposes — this commission to include grading and other expenses of handling.

The regulations provided that all the wool of the 1918 clip must be distributed through approved dealers in approved centers of distribution, and defined approved dealers as those dealers authorized by the War Industries Board to handle wool who are located in the distributing centers. The regulations also contained the following clause upon which the claims of the government in this action are based: "As a guard against profiteering, the books of all approved dealers in distributing centers shall be at all times open to government inspection, and if it be found that their gross profits, including the aforesaid commission of 4 per cent, are in excess of 5 per cent on the season's business then those gross profits shall be disposed of as the government decides."

These regulations have been held invalid by the Court of Appeals of the Fourth Circuit in United States v. McFarland, 15 F.(2d) 823, 833, and by the Court of Appeals of the First Circuit in United States v. Smith, 39 F. (2d) 851, on the ground that there was no authority either in the act creating the Council of National Defense, or in the Overman or Lever Acts authorizing the fixing of prices for the sale of wool, and it has been substantially conceded by the government that the validity of the regulations cannot be sustained, so far as they purported to fix prices.

But the Wool Division obtained from approved dealers to whom it issued permits agreements to conduct their business in accordance with the regulations, and the government insists that any dealer who signed such an agreement and sold wool to the government became bound to perform his contract in accordance with the regulations, entirely irrespective of whether they were issued under proper authority or not.

The defendant in the case at bar applied for a license as an approved dealer and executed an agreement in the following form:

"May 27, 1918.

"I, the undersigned, having received from the Wool Division of the War Industries Board a permit to operate as an approved wool dealer in a distributing center, hereby agree to operate subject to the rules heretofore adopted or to be adopted by said Board for the handling of the 1918 domestic clip.

"My permit is subject to immediate revocation for failure to comply with said regulations.

"John E. McMurtry & Co. "New York, N. Y."

The government contends that the foregoing instrument when followed by the receipt of wool from McMurtry and the payment to him of a 4 per cent. commission gave rise to an obligation on his part to repay to the United States any excess of his gross profits (including his commission of 4 per cent.) which exceeded 5 per cent. of the season's business. Indeed Judge Rose, writing for the Circuit Court of Appeals of the Fourth Circuit, in United States v. McFarland, supra, though dismissing the claim against McFarland because (among other reasons) McFarland had entered into no specific agreement to operate subject to the regulations of the Wool Division, distinguished McFarland's relation from that of one who had executed an...