B-131809, JUL. 22, 1957

B-131809, JUL. 22, 1957

TO MR. DAVID BRADY, ATTORNEY AT LAW:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF OCTOBER 22, 1956, TO OUR CLAIMS DIVISION CONCERNING THE INDEBTEDNESS OF THE PENN-OHIO STEEL CORPORATION TO THE UNITED STATES IN THE AMOUNT OF $209,249.79, PLUS INTEREST AT THE PER ANNUM RATE OF 5 PERCENT FROM APRIL 30, 1956. THE AMOUNT CLAIMED REPRESENTS THE UNEXPENDED ACCUMULATED MAINTENANCE PAYABLE AS ADDITIONAL RENTAL UNDER LEASE AGREEMENT NOY/R/-60049.

THE RECORD SHOWS THAT THE NAVAL INDUSTRIAL RESERVE FOUNDRY AT BIRDSBORO, PENNSYLVANIA, WAS FORMERLY OCCUPIED BY THE PENN-OHIO STEEL CORPORATION UNDER LETTER OF INTENT NOY-R-60049, DATED JUNE 29, 1948, PROVIDING FOR A FIVE-YEAR TERM BEGINNING ON JUNE 30, 1948, WITH RENEWAL OPTIONS IN THE LESSEE FOR TWO SUCCESSIVE FIVE-YEAR TERMS SUBJECT TO TIMELY NOTICE (120 DAYS PRIOR TO EXPIRATION OF EXISTING TERM). PARAGRAPH 9 OF THE LETTER OF INTENT PROVIDES FOR TERMINATION OF THE RIGHTS THEREUNDER BY THE DEPARTMENT DURING THE THEN EXISTING NATIONAL EMERGENCY, OR ANY FUTURE NATIONAL EMERGENCY, DECLARED BY THE PRESIDENT OR THE CONGRESS WITHOUT PRIOR NOTICE OR UPON A DETERMINATION BY THE SECRETARY OF THE NAVY THAT THE INTEREST OF NATIONAL DEFENSE AS REQUIRES AND IN THAT EVENT THE LESSEE WOULD BE ENTITLED TO 120 DAYS' NOTICE. BEGINNING IN 1951 USE OF THE PLANT FOR ARMY PROCUREMENT BECAME NECESSARY IN THE INTEREST OF NATIONAL DEFENSE. THE LETTER OF INTENT WAS SUPERSEDED BY A FORMAL LEASE AGREEMENT DATED JUNE 2, 1952, BOTH INSTRUMENTS CONTAINING SUBSTANTIALLY THE SAME PROVISIONS. THE LEASE PROVIDES FOR A FIVE-YEAR TERM EFFECTIVE AS OF JULY 8, 1948, AND CONTAINS A RENEWAL OPTION IN FAVOR OF THE LESSEE SIMILAR TO THE RENEWAL OPTION IN THE LETTER OF INTENT. ARTICLE 7 OF THE LEASE PROVIDES FOR AN ANNUAL RENTAL OF $126,000 PAYABLE QUARTERLY IN ADVANCE. ARTICLE 8 OBLIGATES THE LESSEE TO REPAIR AND MAINTAIN THE FACILITIES AND LIMITS LESSEE'S LIABILITY FOR SAME TO $150,000 PER ANNUM, EXCLUSIVE OF DAY-TO-DAY OPERATING MAINTENANCE WHICH IS TO BE BORNE BY THE LESSEE. PARAGRAPH (C) OF ARTICLE 8 STIPULATES THAT IN THE EVENT THE LESSEE'S EXPENDITURES FOR PROTECTING, REPAIRING, PRESERVING, AND MAINTAINING THE FACILITIES OTHER THAN DAY-TO-DAY OPERATING MAINTENANCE DO NOT EQUAL THE MAXIMUM OF $150,000 PER ANNUM THE DIFFERENCE WILL BE CARRIED FORWARD AND ADDED TO THE MAXIMUM AMOUNT TO BE EXPENDED FOR EACH SUCCEEDING YEAR OR YEARS AND THAT UPON EXPIRATION OR TERMINATION OF THE LEASE ANY UNEXPENDED PART THEREOF--- NOT IN THE DETERMINATION OF THE CONTRACTING OFFICER REQUIRED FOR THE PERFORMANCE OF LESSEE'S OBLIGATION--- WILL BE REQUIRED TO BE PAID AS ADDITIONAL CASH RENT. ARTICLE 9 OBLIGATES THE LESSEE TO BEAR ALL RISK OF LOSS OF, OR DAMAGE TO THE FACILITIES DURING THE TERM OF THE LEASE AND TO PROCURE AND MAINTAIN AT ITS OWN EXPENSE PROPERTY DAMAGE INSURANCE AS THEREIN REQUIRED. ARTICLE 11 CONTAINS PROVISIONS FOR TERMINATION OF THE LEASE UPON A DETERMINATION OF THE SECRETARY OF THE NAVY THAT THE INTERESTS OF NATIONAL DEFENSE SO REQUIRES, SUBJECT TO 120 DAYS' PRIOR NOTICE. THE FOREGOING PROVISIONS ARE SIMILAR TO THE PROVISIONS IN THE LETTER OF INTENT.

BY LETTER OF JUNE 21, 1954, THE SECRETARY OF THE NAVY NOTIFIED PENN OHIO AS FOLLOWS:

"WITHOUT PREJUDICE TO THE POSITION OF THIS DEPARTMENT THAT THE LEASE EXPIRED WITHOUT THE EXERCISE OF YOUR OPTION TO RENEW FOR AN ADDITIONAL FIVE-YEAR TERM AND TO THE EXTENT YOU MIGHT BE CONSIDERED AS HAVING ANY RIGHT TO RE-ENTER THE PREMISES ORIGINALLY LEASED TO YOU, I HEREBY TERMINATE AGREEMENT OF LEASE NOY/R/-60049 IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 11 (B) THEREOF SUCH TERMINATION TO BE EFFECTIVE ONE HUNDRED AND TWENTY (120) DAYS FROM DATE OF RECEIPT BY YOU OF THIS LETTER. I HAVE DETERMINED THAT SUCH TERMINATION IS IN THE INTEREST OF NATIONAL DEFENSE.'

THE GOVERNMENT'S CLAIM IS BASED UPON THE PROVISIONS OF ARTICLE 8 (C) REQUIRING THE LESSEE TO PAY THE GOVERNMENT ANY UNEXPENDED PORTION OF THE AMOUNT TO BE EXPENDED FOR PROTECTION, PRESERVATION, AND MAINTENANCE OF THE FACILITY, IT BEING ADMINISTRATIVELY REPORTED THAT FROM THE BEGINNING OF THE LESSEE'S OCCUPANCY OF THE PLANT THE MAXIMUM AMOUNT STIPULATED IN THE LEASE TO BE EXPENDED BY THE LESSEE FOR PROTECTING, REPAIRING, PRESERVING, AND MAINTAINING THE PREMISES, OTHER THAN DAY-TO-DAY OPERATING MAINTENANCE, WAS SUBSTANTIALLY IN EXCESS OF THE AMOUNT ACTUALLY NEEDED AND THAT THE COVERAGE ACCUMULATED AS A POTENTIAL RENTAL OBLIGATION TO BE DISCHARGED UPON TERMINATION OF THE LEASE.

WHILE THE RECORD SHOWS THAT THERE IS NO DISPUTE AS TO THE AMOUNT OF ACCRUED MAINTENANCE, IT APPEARS TO BE YOUR VIEW THAT YOUR CLIENT IS NOT INDEBTED TO THE UNITED STATES BECAUSE OF NAVY'S FAILURE TO PERFORM ITS PART OF A COMPROMISE AND SETTLEMENT AGREEMENT WHICH IT IS ASSERTED INCLUDED, AMONG OTHER THINGS, AN AGREEMENT ON THE PART OF YOUR CLIENT TO PAY THE ACCRUED MAINTENANCE CHARGE AND AN AGREEMENT ON THE PART OF NAVY WHICH WOULD PERMIT PENN-OHIO TO REOCCUPY THE PLANT AFTER TERMINATION OF THE USE OF SAME BY THE ARMY OR ITS CONTRACTOR. IN OTHER WORDS, IT APPEARS TO BE THE POSITION OF PENN-OHIO THAT ITS OBLIGATION FOR THE ACCRUED MAINTENANCE CHARGE IS CONTINGENT UPON PERFORMANCE BY NAVY OF THE TERMS AND CONDITIONS OF THE SO-CALLED COMPROMISE AND SETTLEMENT AGREEMENT OF JANUARY 1952.

THE RECORD SHOWS THAT DURING THE EARLY PART OF 1951 THE DEPARTMENT OF THE ARMY NOTIFIED THE DEPARTMENT OF THE NAVY THAT THE FACILITY WAS REQUIRED FOR THE PRODUCTION OF STEEL CASTINGS FOR ARMORED TANKS BY THE BIRDSBORO STEEL FOUNDRY AND MACHINERY COMPANY. FOLLOWING A DETERMINATION THAT THE FACILITY WAS REQUIRED FOR THIS PURPOSE, PENN OHIO WAS REQUESTED TO VACATE ON A VOLUNTARY BASIS, THUS OBVIATING A FORMAL 120 DAYS' NOTICE AS REQUIRED BY THE LETTER OF INTENT AND THE AGREEMENT OF THE LEASE. THE RECORD SHOWS THAT YOUR CLIENT STARTED VACATING THE PLANT ON DECEMBER 28, 1951, AND THAT IT HAD COMPLETELY VACATED THE SAME AS OF APRIL 29, 1952.

IN THE MEANTIME, FOLLOWING A DETERMINATION IN 1951 THAT THE PLANT WAS REQUIRED FOR NATIONAL DEFENSE PURPOSES BY THE ARMY, NEGOTIATIONS WERE HAD BETWEEN REPRESENTATIVES OF THE DEPARTMENT OF THE NAVY AND YOUR CLIENT WITH RESPECT TO A PROPOSED AGREEMENT UNDER WHICH PENN-OHIO WOULD BE PERMITTED TO REOCCUPY THE PLANT FOLLOWING TERMINATION OF THE USE OF SAME BY ARMY OR ITS CONTRACTOR. OTHER MATTERS WHICH WERE THE SUBJECT OF DISCUSSION INCLUDED THE MATTER OF MAKING THE PLANT AVAILABLE TO THE ARMY, THE EXECUTION OF A FORMAL LEASE AS CONTEMPLATED BY THE LETTER OF INTENT, PAYMENT OF THE BALANCE DUE THE GOVERNMENT FOR ACCUMULATED MAINTENANCE, AND ADJUSTMENT OF RENTAL FOR THE PERIOD FOLLOWING NOTICE THAT USE OF THE PLANT WAS REQUIRED BY THE ARMY FOR NATIONAL DEFENSE. THE RECORD SHOWS THAT ORIGINALLY THESE MATTERS WERE DISCUSSED IN A CONFERENCE ON DECEMBER 29, 1951, BETWEEN REPRESENTATIVES OF PENN-OHIO, THE ARMY, AND THE NAVY FOR THE PURPOSE OF ARRANGING FOR ARMY'S OCCUPANCY OF THE PLANT AND THAT ANOTHER CONFERENCE WAS HELD IN THE BUREAU OF SHIPS ON JANUARY 8, 1952, ATTENDED BY REPRESENTATIVES OF PENN-OHIO, THE BUREAU OF SHIPS, AND THE BUREAU OF YARDS AND DOCKS. THESE CONFERENCES WERE FOLLOWED BY OTHERS AND CORRESPONDENCE BETWEEN REPRESENTATIVES OF THE NAVY AND THE DEBTOR.

AN EXAMINATION OF THE RECORD INDICATES THAT IT WAS INTENDED THAT A SUPPLEMENTAL LEASE WOULD BE EXECUTED WITH PENN-OHIO PERMITTING IT TO RESUME OCCUPANCY OF THE PLANT UPON TERMINATION OF USE OF SAME BY THE ARMY'S CONTRACTOR, THE FINAL TERMS OF SUCH SUPPLEMENTAL LEASE, HOWEVER, TO BE SUBJECT TO APPROVAL BY THE SECRETARY OF THE NAVY. SO FAR AS THE RECORD DISCLOSES, NO SUCH APPROVAL WAS EVER GIVEN BY THAT OFFICIAL AND IN THE ABSENCE THEREOF THE TERMS AND CONDITIONS OF THE SO-CALLED COMPROMISE AND SETTLEMENT AGREEMENT ARE NOT BINDING ON THE GOVERNMENT. EVEN IF THE SECRETARY OF THE NAVY HAD APPROVED THE PROPOSED SUPPLEMENTAL AGREEMENT THERE IS NOTHING IN THE RECORD INDICATING ANY AGREEMENT OR INTENTION TO MODIFY OR WAIVE THE PROVISIONS IN THE LETTER OF INTENT OR THE LEASE AGREEMENT FOR TERMINATING THE DEBTOR'S TENANCY DURING A NATIONAL EMERGENCY OR IN THE INTEREST OF NATIONAL DEFENSE. AS A MATTER OF FACT THE ACT OF AUGUST 5, 1947, 61 STAT. 774, AUTHORIZING THE LEASING OF FACILITIES SUCH AS HERE INVOLVED EXPRESSLY STIPULATES THAT EACH LEASE SHALL CONTAIN A PROVISION AUTHORIZING THE SECRETARY OF THE DEPARTMENT CONCERNED TO REVOKE THE LEASE AT ANY TIME, UNLESS THE SECRETARY SHALL DETERMINE THAT THE OMISSION OF SUCH PROVISION WILL PROMOTE THE NATIONAL DEFENSE OR WILL BE IN THE PUBLIC INTEREST. SINCE THERE IS NO SHOWING THAT ANY SUCH DETERMINATION WAS MADE IN THE INSTANT CASE, IT MUST BE CONCLUDED THAT THE SECRETARY OF THE NAVY HAD THE UNQUALIFIED RIGHT AT ALL TIMES TO TERMINATE ANY RIGHT YOU MAY HAVE HAD TO RESUME OCCUPANCY OF THE PLANT. THEREFORE, THE ABOVE TERMINATION OF THE LEASE BY THE SECRETARY OF THE NAVY ON JUNE 21, 1954, OPERATED TO TERMINATE ANY AND ALL RIGHTS YOU MAY HAVE HAD TO REOCCUPY THE PLANT.

ASIDE FROM THE FOREGOING, THE ASSISTANT SECRETARY OF THE NAVY HAS CONCLUDED THAT THE MAINTENANCE OBLIGATION ACCRUED UNDER THE ORIGINAL LETTER OF INTENT; THAT IT WAS WHOLLY INDEPENDENT OF THE SO-CALLED AGREEMENT MADE IN JANUARY 1952, AND THAT SETTLEMENT OF THE MAINTENANCE CLAIM WAS NOT CONDITIONED UPON THE CONCLUSION OF AN AGREEMENT CONCERNING YOUR CLIENT'S REOCCUPANCY OF THE PLANT. AN EXAMINATION OF THE RECORD FURNISHES NO BASIS FOR DISAGREEING WITH SUCH CONCLUSION.

WHILE THE RECORD DISCLOSES THAT YOU ARE OF THE VIEW THAT THE EXECUTION OF THE LEASE AGREEMENT IN JUNE 1952 WAS PART OF THE PROPOSED COMPROMISE AND SETTLEMENT AGREEMENT, THE FACT IS THAT THE EXECUTION OF SAME IS EXPRESSLY REQUIRED BY PARAGRAPH 17 OF THE LETTER OF INTENT AS FOLLOWS:

"IT IS UNDERSTOOD AND AGREED THAT THIS LETTER OF INTENT SHALL BE SUPERSEDED BY A FORMAL LEASE OF THE PROPERTY DESCRIBED IN PARAGRAPH 1 HEREOF, ENTERED INTO PURSUANT TO PUBLIC LAW 364 OF THE EIGHTIETH CONGRESS. SUCH LEASE SHALL CONTAIN ALL APPLICABLE PROVISIONS REQUIRED BY FEDERAL LAW OR EXECUTIVE ORDER.'

IT HAS BEEN ADMINISTRATIVELY DETERMINED THAT THE EXECUTION OF THE FORMAL LEASE WAS PURSUANT TO THE FOREGOING REQUIREMENTS OF THE LETTER OF INTENT AND THAT IT WAS NOT IN PERFORMANCE OF OR DEPENDENT UPON THE SO-CALLED AGREEMENT OF JANUARY 1952. WE FIND NO BASIS FOR DISAGREEING WITH SUCH DETERMINATION.

IN ADDITION TO THE FOREGOING, THE RECORD SHOWS THAT YOU ARE OF THE VIEW THAT PENN-OHIO IS ENTITLED TO A CREDIT OF $60,000 ASSERTED TO HAVE BEEN EXPENDED FOR SECURITY, PROTECTION AND INSURANCE FOR NAVY'S BENEFIT DURING THE PERIOD DECEMBER 28, 1951, TO APRIL 29, 1952. AS INDICATED ABOVE, ARTICLE 9 OF THE LEASE AGREEMENT OBLIGATES THE LESSEE TO BEAR ALL RISK OF LOSS OF, OR DAMAGES TO, THE FACILITIES DURING THE TERM OF THE LEASE AND TO PROCURE AND MAINTAIN AT ITS OWN EXPENSE PROPERTY DAMAGE INSURANCE AS THEREIN PROVIDED. IN VIEW OF THIS PROVISION AND SINCE THE PLANT WAS NOT COMPLETELY VACATED BY PENN-OHIO UNTIL APRIL 29, 1952, THERE APPEARS TO BE NO PROPER BASIS FOR CREDITING THE DEBTOR FOR THAT AMOUNT.

WITH RESPECT TO YOUR SUGGESTION AS TO A CONFERENCE IN THE MATTER, IT IS OUR VIEW THAT NO USEFUL PURPOSE WOULD BE SERVED BY SUCH A CONFERENCE SINCE OUR POSITION, BASED UPON THE FACTS AND CIRCUMSTANCES AS DISCLOSED IN THE RECORD, IS CLEARLY SET FORTH ABOVE. IN OUR JUDGMENT THERE IS NO ADDITIONAL EVIDENCE AVAILABLE WHICH WOULD JUSTIFY CHANGING THE CONCLUSION REACHED HEREIN.

THEREFORE, UNLESS THE AMOUNT OF $209,249.09, PLUS INTEREST AT 5 PERCENT PER ANNUM FROM APRIL 30, 1956, IS REMITTED TO THIS OFFICE WITHIN THIRTY DAYS FROM THE DATE OF THIS LETTER, IT WILL BE NECESSARY FOR OUR OFFICE TO REFER THE CLAIM TO THE DEPARTMENT OF JUSTICE FOR NECESSARY ACTION TO ENFORCE COLLECTION.