United States v. Mississippi Valley Generating Co

• Decision Date: 09 January 1961
• Docket Number: No. 26,26
• Parties: UNITED STATES, Petitioner, v. MISSISSIPPI VALLEY GENERATING CO., etc
• Court: U.S. Supreme Court

364 U.S. 520

81 S.Ct. 294

5 L.Ed.2d 268

UNITED STATES, Petitioner,

v MISSISSIPPI VALLEY GENERATING CO., etc.

No. 26.

Argued Oct. 19, 1960.

Decided Jan. 9, 1961.

Rehearing Denied March 20, 1961.

See 365 U.S. 855, 81 S.Ct. 798.

[Syllabus from pages 520-522 intentionally omitted] Sol. Gen. Mr. J. Lee Rankin, Washington, D.C., for petitioner.521 Messrs. John T. Cahill and William C. Chanler, New York City, for respondent.

Mr. Justice WARREN delivered the opinion of the Court.

We granted certiorari to review the decision of the Court of Claims because the conflict-of-interest problem presented by this case has a far-reaching significance in the area of public employment and involves fundamental questions relating to the standards of conduct which should govern those who represent the Government in its business dealings.

The person with whose activities we are primarily concerned is one Adolphe H. Wenzell, Vice President and Director of First Boston Corporation,¹ which is one of the major financial institutions in the country. At the suggestion of First Boston's Chairman, and subsequently at the request of the Bureau of the Budget, Wenzell undertook to advise the Government and act on its behalf in negotiations which culminated in a contract between the Government and the Mississippi Valley Generating Company (MVG), the respondent herein. The contract called for the construction and operation by the respondent of a $100,000,000 steam power plant in the Memphis, Tennessee, area. Ultimately, the plant was to supply 600,000 kw. of electrical energy for the use of the Atomic Energy Commission (AEC). Before the plant was constructed, but after the respondent had taken some steps toward performing the contract, the AEC, which was the governmental contracting agency, canceled the contract because the power to be generated by the proposed plant was no longer needed. The respondent then sued the Government in the Court of Claims for the sums it had expended in connection with the contract.

The Government defended on several grounds, but primarily on the ground that the contract was unenforceable due to an illegal conflict of interest on the part of Wenzell. Specifically, the Government contended that at the time of Wenzell's employment by the Government, it was apparent that First Boston was likely to benefit, and as subsequently developed, in fact, did benefit, from the contract here in question; that Wenzell, as an officer of First Boston, was therefore 'directly or indirectly' interested in the contract which he, as an agent of the Government, had helped to negotiate; that he consequently had violated the federal conflict-of-interest statute, 18 U.S.C. § 434, 18 U.S.C.A. § 434;² and that his illegal conduct tainted the whole transaction and rendered the contract unenforceable.

A sharply divided Court of Claims rejected all of the Government's defenses and awarded damages to the respondent in the sum of $1,867,545.56.³ 175 F.Supp. 505.

Because of the view which we take of the conflict-of-interest question, it will not be necessary for us to determine the validity of the other defenses raised by the Government in the court below, important though they may be.⁴ With regard to the conflict-of-interest defense, there appear to be but two legal principles involved: (1) Did the activities of Wenzell constitute a violation of 18 U.S.C. § 434, 18 U.S.C.A. § 434; and (2) if so, does that fact alone preclude the respondent from enforcing the contract? For reasons which we shall set forth in detail below, we think that the Court of Claims was in error and that both of these questions must be answered in the affirmative.

I.

Because the outcome of this case depends largely upon an evaluation of Wenzell's activities on behalf of the Government, a rather detailed statement of the facts is necessary in order to understand fully the nature of those activities and to place them in their proper context. The voluminous evidence in the case was heard by a trial commissioner. Based upon the commissioner's report and the briefs and arguments of counsel, the Court of Claims made very extensive findings of fact which cover approximately 200 pages in the transcript of record. Fortunately it will not be necessary for us to consider the original evidence, since both parties have agreed to rely upon the Court of Claims's findings, and since we also conclude that those findings are sufficient to dispose of the issues presented. However, it should be noted that our reliance upon the findings of fact does not preclude us from making an independent determination as to the legal conclusions and inferences which should be drawn from them. See United States v. E. I. Du Pont De Nemours & Co., 353 U.S. 586, 598, 77 S.Ct. 872, 879, 1 L.Ed.2d 1057; Great Atlantic & Pacific Tea Co. v. Supermarket Equipment Corp., 340 U.S. 147, 153—154, 71 S.Ct. 127, 130—131, 95 L.Ed. 162.

First. At the outset, we think it is appropriate to discuss, in a general way, the origin of the contract here in question and the negotiations which led to the ultimate agreement. The story of this contract begins in the early days of 1953. Almost immediately after assuming office, President Eisenhower announced his intention to revise the Government's approach to the public power question. In his first State of the Union Message, delivered on February 2, 1953, the President indicated that it was his intention to encourage either private enterprise or local communities to provide power-generating sources in partnership with the Federal Government. Consonant with this policy, Joseph M. Dodge, Director of the Bureau of the Budget, decided in the fall of 1953 to eliminate from the Tennessee Valley Authority's (TVA) budget for the fiscal year 1955 a request for funds to be used for the construction of a steam-generating plant at Fulton, Tennessee. The proposed TVA plant was to have served the commercial, industrial, and domestic power needs of the City of Memphis and its environs. When Gordon Clapp, the General Manager of TVA, learned of Dodge's decision, he immediately informed persons working in the Bureau of the Budget that if provision for the Fulton plant were eliminated from TVA's budget, TVA would take the position that the amount of power then being supplied by TVA to the AEC should be reduced so that sufficient power would be available to meet the growing demands of TVA's other customers. As a result of this statement by Clapp, the Bureau of the Budget began drafting a statement for the President's budget message to the effect that steps would be taken to relieve TVA of some of its commitments to the AEC, and that if efforts in that direction proved unsuccessful, the possibility of the construction of a plant by TVA at Fulton would be reconsidered.

On December 2, 1953, Dodge met in his office with Lewis I. Strauss, Chairman of the AEC, and Walter J. Williams, General Manager of the AEC. Dodge said that he hoped to avoid further expenditures by TVA for the construction of power-generating plants, and that he thought the AEC should investigate the possibility of reducing its consumption of TVA-generated power by contracting with private industry for the construction of a plant that would supply 450,000 kw. of additional power for the AEC at its Paducah, Kentucky, installation by 1957. Dodge inquired whether the plan outlined by him would be feasible, and Williams replied that he could not answer the question until he had consulted with J. W. McAfee, the President of Electric Energy, Inc., a private utility company which had previously entered into long-term power contracts with the AEC similar to the one described by Dodge.

After the meeting, Williams arranged to meet with McAfee, and this meeting occurred on December 8, 1953. Williams asked McAfee whether he knew of a private power company that might be interested in building a plant to supply the AEC with as much as 450,000 kw. of generating capacity by the middle of 1957. McAfee stated that it might be difficult for his company to do the job, but he agreed to make some inquiries about the matter. Later, on December 14, 1953, McAfee wrote a letter to the AEC indicating that he thought a group of private investors could be formed to supply the AEC the amount of power requested. Because of the Budget Bureau's continuing interest in the progress of the plan, a copy of McAfee's letter was requested by and sent to William F. McCandless, Assistant Director for Budget Review in the Bureau.

Sometime prior to December 14, 1953, Edgar H. Dixon, President of Middle South Utilities, learned from McAfee that the AEC might be seeking an additional source of power in the Paducah area. On December 23, 1953, Dixon came to Strauss' office for a meeting with Williams, Strauss, and Kenneth D. Nichols, who had been selected to succeed Williams as General Manager of the AEC. The purpose of the meeting was to discuss the possibility of having private utility companies build additional generating capacity near Paducah for the purpose of relieving TVA of its commitments to the AEC there. Shortly after the meeting had concluded, Williams called McCardless at the Bureau of the Budget to inform him of what had transpired at the meeting. On the next day, December 24, 1953, Rowland Hughes, Assistant Director of the Bureau of the Budget, wrote to Strauss, stating that it would be helpful if the AEC would continue negotiations with private power interests with a view toward reaching a firm agreement for the supply of power to the AEC at Paducah.

On January 4, 1954, McAfee wrote a letter to Williams in which he expressed some doubts about the plan suggested by the Government. He thought that it might be wiser for TVA to reduce its commitments to the numerous municipalities which it supplied with power, or for TVA to arrange with neighboring power companies to buy power from them. Shortly after Williams received this letter, a meeting was held in...