United States v. Pownall

• Decision Date: 22 March 1946
• Docket Number: No. 4771.,4771.
• Citation: 65 F. Supp. 147
• Court: U.S. District Court — Southern District of California
• Parties: UNITED STATES v. POWNALL et al.

65 F. Supp. 147

UNITED STATES v. POWNALL et al.

No. 4771.

District Court, S. D. California, Central Division.

March 22, 1946.

Charles H. Carr, U. S. Atty., and Ronald Walker, and Robert E. Wright, Asst. U. S. Attys., all of Los Angeles, Cal., for plaintiff.

Leo R. Friedman and Jos. I. McMullen, both of San Francisco, Cal., for defendants.

YANKWICH, District Judge.

By its complant, the Government seeks to recover excess profits in the sum of $113,709.19, with interest at the rate of six per cent per annum, from March 13, 1945, earned by the defendants on a war contract, as determined on December 27, 1944, by the War Contracts Price Adjustment Board under the Renegotiation Act of 1942 (Public Law 753, 77th Congress, 2nd session, Title VIII; 50 U.S.C.A.Appendix § 1191), as amended and reenacted by the Revenue Act of 1943 (Public Law 235, 78th Congress, 2nd session, Sec. 701; 50 U.S. C.A.Appendix § 1191). The determination is now final.

Actually the computed excess profit is $628,373.14. The amount which it is sought to recover is arrived at by deducting the sum of $514,663.95, as a tax credit, on the assumption that it was returned by the defendants as income for tax purposes and that taxes have been or will be paid on it.

The facts back of the controversy are undisputed. The only issue is one of law, arising from the defendants' attack on the constitutionality of the Renegotiation Acts. Each side has made motions for judgment on the pleadings, or, in the alternative, for summary judgment. However, at my suggestion, the facts were stipulated in open court, in order that an adjudication might be made on the merits.

The Renegotiation Act of 1942 and the re-enactment of 1943 are both challenged as involving unlawful delegation of legislative power, as violative of due process — because of their alleged vagueness, indefiniteness, and retroactive character — and as unconstitutional interferences with private contracts.

A thorough study of the questions thus presented in extensive briefs before submission, and after the oral argument and submission, has led me to the conclusion that none of the grounds urged for the infirmity of either statute is valid.

The opinion of the Ninth Circuit Court of Appeals in Spaulding v. Douglas Aircraft Co., Inc., 154 F.2d 419, filed after the submission of this cause, passes on and rejects most of the contentions in this case.¹ That opinion and the fact that I have recently had occasion to discuss very fully the war powers of the Congress in Gray v. Commodity Credit Corporation, D.C.Cal. 1945, 63 F.Supp. 386, make it unnecessary to state, with any degree of elaboration, the grounds for the conclusion reached here. More, an attempt to cover the grounds covered by the Circuit Court's opinion would be useless. For that opinion must control me. Any additional reasons might, perhaps, be justified by pride of authorship. In the face of so recent a decision of the higher court, its exercise now would not be in good taste.

However, certain issues particular to this case call for comment.

In this, as in other cases which deal with the exercise of legislative power in war time, one can make a rather plausible argument by disregarding realities. This was attempted in Gray v. Commodity Credit Corporation, supra, and also here. And it was done by applying to war-time legislation constitutional norms which obtain only in peace time, and by considering war contracts as private contracts unrelated to governmental war activities. This cannot be done. It is quite true, as a general proposition, that the Constitution governs in time of crisis or war, as well as in time of peace. Ex parte Milligan, 1866, 4 Wall. 2, 71 U.S. 2, 18 L.Ed. 281; Home Building & Loan Association v. Blaisdell, 1934, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, 88 A. L.R. 1481.

However, restrictions on personal and property rights are sustained in time of war which would not be given judicial sanction in peace time. See, Hirabayachi v. United States, 1943, 320 U.S. 81, 93, 63 S.Ct. 1375, 87 L.Ed. 1774; Toyosaburo Korematsu v. United States, 1944, 323 U.S. 214, 65 S.Ct. 193; Bowles v. Willingham, 1944, 321 U.S. 503, 64 S.Ct. 641, 88 L.Ed. 892; Yakus v. United States, 1944, 321 U.S. 414, 64 S.Ct. 660, 88 L.Ed. 834; Steuart & Bros. v. Bowles, 1944, 322 U.S. 398, 64 S.Ct. 1097, 88 L.Ed. 1350; and see my opinion in Gray v. Commodity Credit Corporation, D.C.Cal. 1945, 63 F.Supp. 386, 394, 395, and cases in Notes 1, 2, 10, 12 and 19. It is true that the defendants were subcontractors, and did not deal directly with the Government. But the money which came to them from the prime contractor — the money used in constructing the implements of war for which the defendants manufactured parts (automatic screw products, including assembly rings, prongs and sockets)— had its source in the Treasury of the United States. It was public money voted by the Congress. And it is inconceivable that the Congress, which declared war and provided the means for conducting it successfully, should not be able, in the exercise of its unlimited power to wage war, to declare that excessive profits made by a subcontractor, be returned to the Government, through an administrative procedure for renegotiation, aiming to determine whether the profits were excessive.

The immensity of the Government's effort in this war and the variety of contractual relations between it and private industry which manufactured the weapons of war led to modification of some accepted concepts. Thus, for instance, section 35 of the Criminal Code, 18 U.S.C.A. § 82, which prohibited larceny of personal property of the United States or of any corporation in which the United States was a stockholder, was amended in 1938, § 35(c), 18 U.S.C.A. § 82 — which, although not a war year, was a year of crisis — to include "any property which has been or is being made, manufactured, or constructed, under contract for the War or Navy Departments of the United States." As the law stood before the amendment, only property which was in the complete ownership of the United States or of a corporation in which the United States was a stockholder, was made the subject of the offense. By the amendment, the offense was extended to cover objects in the process of manufacture. Or, differently put, the original statute dealt with completed objects owned by the United States. The amendment included uncompleted objects in the process of manufacture for the United States. In a prosecution before me, under the amended section, I held that it covered not only a finished product, but also materials held available for its construction. United States v. Anderson, D.C.Calif., 1942, 47 F.Supp. 943. The aim of the Congress, of course, is apparent. As many implements of war, airplanes, tanks and the like, were being manufactured by private industry under contract for the War and Navy Departments, the Congress sought to protect from theft the property interest of the Government in the implements being manufactured and the materials which went into their construction. This for the obvious reason that the Government, either through fixed-price or cost-plus contracts, was paying for them. The right of the Government to defend by a penal statute its property even in inchoate form cannot be questioned.

Resort to penal sanction is indicative of the new approach which periods of crisis or war force the legislative branch of the Government — an approach which, admittedly, was unknown to the older or common law concepts of property. In the absence of direct legislative command, courts, even in times of peace, have sought to protect the moneys of the United States when contributed to a joint enterprise. And this despite the fact that the project, when the Government helped finance, became, upon its completion, the property not of the Government, but of the other party to the joint venture. In pursuit of this policy, courts have followed money contributed by the Government to a joint project with state public agencies, in order to fasten responsibility for fraudulent acts in conjunction with contracts entered into between the state agency and private individuals, which were paid for only partly with government funds. See, United States ex rel. Marcus v. Hess, 1943, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443. We might well apply to the situation here the language of Mr. Justice Black in the case just cited:

"Government money is as truly expended whether by checks drawn directly against the Treasury to the ultimate recipient or by grants in aid to states." United States ex rel. Marcus v. Hess, supra, 317 U.S. at page 544, 63 S.Ct. at page 384, 87 L.Ed. 443. (Emphasis added)

Change the phrase "grants in aid to states" to "payments to prime contractors," and the identity of the situation is clearly revealed. Money paid by the United States Government to a contractor, a portion of which flows down to a subcontractor, is as much an expenditure of government money as money expended by...