Wildermuth v. United States

• Decision Date: 17 April 1952
• Docket Number: No. 10448.,10448.
• Parties: WILDERMUTH et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Seventh Circuit

195 F.2d 18 (1952)

WILDERMUTH et al. v. UNITED STATES.

No. 10448.

United States Court of Appeals Seventh Circuit.

February 1, 1952.

Rehearing Denied April 17, 1952.

Camden R. McAtee, Washington, D. C. Ora L. Wildermuth, Gary, Ind., for appellant.

Gilmore S. Haynie, U. S. Atty., Ft. Wayne, Ind., James E. Keating, Asst. U. S. Atty., South Bend, Ind., Holmes Baldridge, Asst. Atty. Gen., Herman Wolkinson, Attorney, Department of Justice, Washington, D. C., for appellee.

Before MAJOR, Chief Judge, and KERNER and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

By this action, brought under the Tucker Act, as amended, 28 U.S.C. § 1346(a) (2), plaintiffs sought to recover the sum of $9,795, claimed to be due for architectural services rendered under a contract of employment by the United States executed on April 6, 1942.

On March 2, 1942, the President, having officially ascertained that an acute shortage of school facilities existed in Calumet Township, Lake County, Indiana, advised the Federal Works Administrator that use of federal funds had been approved for construction of a 10 room school house, at that location, for an estimated cost of $84,000. Shortly later, the Administrator contracted with plaintiffs for "all professional architectural services necessary for the development" of such a project, as authorized by the Lanham Act, as amended, 55 Stat. 362, 42 U.S.C.A. § 1532. Included in the contract, among others, were the following provisions:

"13. Abandonment of Project. If the Administrator shall at any time during the performance of this contract deem it * * * expedient or if it shall become necessary for the Government to abandon or involuntarily defer the work under this contract or any part thereof before completion of the services to be rendered hereunder the Architect/Engineer shall be entitled to just and equitable compensation as determined by the Administrator for any uncompensated work satisfactorily performed prior to such time."

* * * * * *

"18. Disputes. All disputes arising under the contract shall be decided by the Administrator whose decision shall be final and conclusive upon the parties hereto. * * *"

When the project was later abandoned, on October 28, 1942, a dispute arose over plaintiffs' compensation, due to the following circumstances. The written agreement, as originally proffered plaintiffs, provided, in part, that "The government will pay to the Architect a fixed fee of $3,600 dollars, which shall constitute complete compensation for the Architect's services. * * * 70 percent will be paid upon the approval, by the Administrator, * * * of the documents required to be submitted under Section 2(b) hereof. This section required submission of four sets of preliminary studies, drawings, cost estimates and progress schedules, etc.; 20 percent will be paid upon the award of the major construction contract; and the balance will be paid upon the completion and acceptance of all work required for the completion of the Project." Before signing the tendered contract plaintiffs appended a rider to the quoted clause reading: "Except that the above fee is based on an estimated construction cost of $73,660 and, if this * * * cost (is) exceeded by more than five (5%) percent, then this fixed fee shall be adjusted in proportion to the actual or estimated construction cost." Plaintiffs then executed the writing, as amended by the rider, in duplicate, and forwarded both copies to Washington, for defendant's approval.

At this point the parties diverge. Defendant insists that, upon receipt of the document, it advised plaintiffs by telephone that the rider would have to be deleted and that plaintiffs thereupon consented to its removal. This assertion was supported by a contemporaneous office memorandum of the conversation. Plaintiffs denied all recollection of the occurrence, and emphatically insisted that they never consented to the excision of the rider. In addition, defendant offered the original document (i. e., the first impression of the contract) which bore no rider. Where it had been attached the word "Insert" was partially obliterated by ink scratches, accompanied by the initials "D.R.K." (apparently those of D. R. Kennicott, Regional Engineer of the Federal Works Administration). Plaintiffs, in rebuttal, produced their carbon copy of the contract, duly executed by defendant and containing the rider.

We return to the uncontroverted facts. Plaintiffs prepared preliminary drawings for a 10 room school building to cost $73,660, which were submitted to the regional engineer. It having been found later that adequate facilities could not be constructed for that sum, plaintiffs, at the request of the regional engineer, prepared additional preliminary drawings for a 10 room building to cost an estimated $123,046. These drawings were submitted, but, prior to their approval, a still larger building of 13 rooms, costing an estimated $169,048, was proposed. Plaintiffs then submitted preliminary drawings for this building, which were accepted. However, prior to any construction work, the Federal Works Administration completely abandoned the project. At that time plaintiffs had been paid $2,520 (70% of $3,600).

Plaintiffs applied for additional compensation under Clause 13 of the contract. They were informally offered, and rejected, $4,615 as full settlement. They then pursued the dispute provisions of Clause 18, seemingly on the grounds that they were equitably entitled to additional compensation. They presented a claim to the Commissioner of the Bureau of Community Facilities¹ the essence of which was that they had prepared three sets of preliminary drawings; that they had received the "approval fee" (i. e., 70% of the total) on only one set, namely the first; that, by the terms of the rider, coupled with the fact that two additional sets had been prepared and submitted, they were entitled to 70% of two additional fees, computed on the basis of the increased estimated costs of each of the proposed buildings. The Commissioner denied their claim on the following grounds: (1) that, inasmuch as the rider had been excised from the contract with plaintiffs' permission, plaintiffs' compensation was limited to 70% of $3,600; (2) that, irrespective of the effect or existence of the rider, plaintiffs could not recover, as the Administrator had no authority under the Lanham Act to contract for any work other than that approved by the President, and the two enlarged projects had not been so approved.² He found further that plaintiffs had no equitable claim, as they had disposed of their plans for $8,150, when in 1944, the Calumet School Township undertook, with substantial financial assistance from the government, the construction of a 13 room school house.

In their complaint in the District Court, plaintiffs set forth the contract, including the rider, and averred that they had been compensated for only the first set of drawings. The trial court determined first that the rider had been excised from the contract, with the consent of both parties.³ It then concluded that, by the terms of the agreement, the Commissioner's decision on any dispute arising thereunder was "final and conclusive"; that such a clause was valid and binding on the parties; and that, absent a showing of bad faith or gross error, his decision was binding on the court. Judgment for defendant was entered, from which plaintiffs appeal, asserting that the trial court erred: (1) in finding that the rider had been properly deleted from the contract, and, (2) in holding that the determination of the Commissioner was binding and conclusive.

Although there may be some merit to plaintiffs' first contention, we feel that the case can best be disposed of upon the second issue, viz., the validity and effect of the dispute clause and the consequent effect of the Commissioner's decision thereunder. This is particularly true in view of the latter's ruling that, regardless of the presence of the rider, plaintiffs were not entitled to additional compensation inasmuch as the President had not approved the second and third projects.

It should be borne in mind that the dispute settlement clause here involved is general in its terms, i. e., it encompasses "all disputes arising under the contract." Thus, whether the instant dispute be one of fact or law, if the clause is valid, the Commissioner's decision, by the express terms of the contract, is "final and conclusive," absent, of course, vitiating circumstances. A review of the decisions of the United States Supreme Court indicates clearly that such a clause is valid and that decisions rendered under it are binding on the parties thereto.

As early as 1878 the Court was called upon to determine the validity and effect of a clause which provided that the distances upon which fees for the shipment of Army stores would be fixed were "to be ascertained and fixed by the chief quartermaster." Kihlberg v. United States, 97 U.S. 398, 24 L.Ed. 1106. Sustaining the clause and a decision rendered under it, the Court said, 97 U.S. at page 401: "The terms by which the power was conferred and the duty imposed are clear and precise. * * * His action cannot, therefore, be subjected to the revisory power of the courts without doing violence to the plain words of the contract." While this case was concerned only with a question of fact, in 1900, the Court extended the rationale to "all or specified matters of dispute" when, in a considered dictum, in United States v. Gleason, 175 U.S. 588, 602, 20 S.Ct. 228, 233, 44 L.Ed. 284, it said: "It is competent for parties * * * to * * * contract that the decision of an * * * officer of all or specified matters of dispute * * * shall be final and conclusive". Then, in 1926, all doubts seem to have been resolved by Goltra v. Weeks, 271 U. S. 536, 46 S.Ct. 613, 617, 70 L.Ed. 1074. There plaintiff was the lessee of government ships. The lease provided for its termination by...