United States v. Westmoreland Manganese Corp.

• Decision Date: 23 September 1955
• Citation: 134 F. Supp. 898
• Parties: UNITED STATES of America, Plaintiff, v. WESTMORELAND MANGANESE CORPORATION et al., Defendants. White River Distributors, Inc., et al., Intervenors.
• Court: U.S. District Court — Eastern District of Arkansas

134 F. Supp. 898

UNITED STATES of America, Plaintiff, v. WESTMORELAND MANGANESE CORPORATION et al., Defendants White River Distributors, Inc., et al., Intervenors.

Civ. A. 238.

United States District Court E. D. Arkansas, N. D.

July 30, 1955.

Second Opinion September 23, 1955.

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Osro Cobb, U. S. Atty., G. Thomas Eisele, Asst. U. S. Atty., and Gerland P. Patten, Special Asst. to the U. S. Atty., for plaintiff.

M. F. Highsmith, Batesville, Ark., Goodwin & Riffel, Shields M. Goodwin, Little Rock, Ark., for defendant, Westmoreland Manganese Corp.

W. D. Murphy, Jr., and J. J. McCaleb, Batesville, Ark., for Jeffery Lumber Co., Ira Sherrill, Padgett Lumber Co., General Steel Products Co., Latrobe Const. Co., and Choctaw, Inc., all lien claimants, and also for Koppers Co., Inc., Firestone Tire & Rubber Co., Donley Pipe & Supply Co., Bituminous Casualty Corp., Batesville Truck Lines, Inc., Westinghouse Electric Supply Co., Central Scientific Co., Continental Gin Co., Trans World Airlines, Inc., Carnegie Institute of Technology, Transall, Inc., and Fisher Scientific Co., judgment creditors, and also for Cummins Diesel Sales Corp., Southwestern Bell Tel. Co., The Todd Company, Inc., and Industrial Electric & Supply Co., common creditors.

Catlett & Henderson, E. DeMatt Henderson, Little Rock, Ark., for Bragg's Electric Const. Co., a lien claimant.

Charles F. Cole, Batesville, Ark., for Gardner-Denver Corp., a judgment creditor.

Barber, Henry & Thurman, A. L. Barber, E. A. Henry, Little Rock, Ark., for Mill & Mine Supply Co., Crow-Burlingame Co., and Arkansas Foundry Co., lien claimants, and also for Crane Company and B. F. Goodrich Co., common creditors.

Townsend & Townsend, A. E. Townsend, Jr., Little Rock, Ark., for White River Distributors, Inc., White River Oil Co., and Batesville Equipment Co., common creditors.

Mahaffy, Smith & Williams, W. A. Eldredge, Jr., Little Rock, Ark., for Clark Equipment Co., a judgment creditor.

Luke Arnett, Little Rock, Ark., for C. R. Thornbrough, Commissioner of Labor of the State of Arkansas, a tax claimant.

LEMLEY, District Judge.

Statement

This litigation, the record in which is voluminous, had its origin in a contract entered into between the plaintiff, United States of America, and the principal defendant, Westmoreland Manganese Corporation, under the terms of which the Government agreed to advance Westmoreland almost four million dollars for the purpose of acquiring mineral lands in Independence and Izard counties, Arkansas, for the construction thereon of a washing and concentrating plant for manganese ore, and for working capital for the operation of such plant, the output of which was to be sold to the Government. The parties commenced performance under the contract, and the Government advanced to Westmoreland nearly three million dollars for the purposes aforesaid, repayment of which was secured by a real estate and chattel mortgage and supplement thereto, covering the Westmoreland properties already existing and those to be thereafter acquired, dated May 22, 1952. On October 29, 1953, the Government, acting under the terms of an amendment to the contract, dated April 2, 1953, terminated said contract, and thereafter commenced this action to recover judgment for the amount of its advances and to foreclose its mortgages, which action was resisted by Westmoreland. At the time the contract was terminated, Westmoreland was indebted not only to the Government, but also to other creditors who had supplied to it services and materials during the life of the contract; the amount of the claims of creditors, other than the Government, exceed $370,000. Some of those creditors were made parties defendant by the Government, and others intervened herein, all claiming that for various reasons their claims were superior to that of the Government.

It is obvious from the foregoing that in order to dispose of the case we were required to decide two basic controversies, namely the controversy between the Government and Westmoreland as to whether or not the former was entitled to foreclosure, and the controversy between the Government and the other creditors relative to priority of claims. After a lengthy trial we announced from the bench on June 30, 1955, that we were satisfied that the Government was entitled to foreclosure as against Westmoreland, and that we would prepare and file a formal memorandum relating to that controversy, which was subsequently done; we did not, at the time, announce any decision as to the controversy between the Government and the other creditors which, at the time, was still being briefed; and in the memorandum which we filed relating to the issues between the Government and Westmoreland we stated that should it become necessary for us to pass upon the issues between the Government and the other creditors, such issues would be made the subject of a separate memorandum. As it developed, we were called upon to pass upon such issues, and on September 23, 1955, we filed a second memorandum dealing therewith. In addition to those two memorandums we have found it necessary on several occasions in the course of this litigation to prepare letter-opinions disposing of various motions filed by Westmoreland.

For purposes of publication the two formal memorandums above referred to have been combined in one document. The memorandum dealing with the controversy between the Government and Westmoreland appears below under the heading, "First Memorandum"; and that dealing with the issues between the Government and the other creditors appears under the heading "Second Memorandum."

First Memorandum

This cause was tried to the Court, and the taking of testimony was completed on June 29, 1955. On June 30, 1955, the Court read a prepared statement announcing its decision and making its ultimate findings of fact and conclusions of law with respect to the issues between the plaintiff, United States of America, and the defendant, Westmoreland Manganese Corporation; that statement was signed by the Court and filed as a part of the record in the case and a copy thereof is attached to this memorandum as an appendix hereto.¹ In the course of said statement, it was said that a formal memorandum bearing upon those issues would be filed, which memorandum follows:

The plaintiff, hereinafter called the Government, brought this action against the defendant, Westmoreland Manganese Corporation, hereinafter called Westmoreland, to foreclose a certain real estate and chattel mortgage and supplement thereto, executed by Westmoreland on May 22, 1952, for the purpose of securing advances made to the latter by the plaintiff pursuant to a contract entered into between the parties on April 7, 1952.² Under the terms of that contract,

Westmoreland undertook to construct and put into operation in Independence County, Arkansas, a gravity concentration plant for the processing of manganese ore to be sold to the Government at stated prices over a period of years; and the Government undertook to advance funds to Westmoreland to enable it to carry out its undertakings, such moneys to be repaid over the life of the contract.³ It is the theory of the Government that by virtue of the provisions of an amendment to the original contract, which amendment was executed on April 2, 1953, it is presently entitled to judgment against Westmoreland for the amount of its advances, plus interest and to a foreclosure of its mortgage and the supplement thereto. Westmoreland contends, on the other hand, that said amendment is void because of lack of consideration and because it was procured by fraud, and that the Government's complaint should be dismissed.

The original contract between the parties provided that Westmoreland should acquire certain mineral lands in Independence and Izard Counties, Arkansas, should construct and put into operation a plant for the processing of manganese ore, and over a period of years should sell to the Government at stated prices at least 264,000 long dry tons of such ore for stockpiling purposes. Westmoreland obligated itself to complete the plant and to be in production as soon as possible, and agreed further that by the end of a year from the date of the contract, that is to say, by April 7, 1953, its production would be at the average rate of 2,000 long dry tons per month. In order to assist Westmoreland in carrying out its undertakings the Government agreed to advance funds for land acquisition, for the acquisition and construction of new facilities, and for working capital the maximum sum of $3,807,250.00, which, as indicated, was to be repaid over the life of the contract and not later than January 1, 1960. Of the total sum just mentioned $418,600 was to be used for land acquisition; $2,788,650 was to be used for the acquisition and construction of the facilities;⁴ and $600,000 was to be used for working capital.

The mortgage provided that should Westmoreland make default in the performance of any of its obligations thereunder or under the contract, and should the default remain unremedied for sixty (60) days after notice thereof, the Government should have the right to declare all advances made by it under the contract to be due and payable and to foreclose its mortgage.

Subsequent to the execution of the contract and mortgage, the parties entered upon the performance of their agreement, and the Government advanced to Westmoreland the sum of $2,877,006.50 over a period extending from May 22, 1952, through February 14, 1953. About February 21, 1953 the Government refused to countersign certain checks drawn by Westmoreland against its special bank account in one of the Batesville banks, and by order of W. S. Stringham, the Company's general manager, construction operations were brought to a halt and have never been resumed.⁵ At the time of the shut-down the plant...