B-155915, FEB. 5, 1965, 44 COMP. GEN. 463

B-155915: Feb 5, 1965

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IS A LITIGATION EXPENSE. REFERS TO THE FOLLOWING THREE CLAIMS AGAINST KOREAN CONTRACTORS WHO HAVE DEFAULTED ON MILITARY CONSTRUCTION CONTRACTS: CLAIM AGAINST KEUK EE CONSTRUCTION COMPANY. OUR VIEWS HAVE BEEN REQUESTED IN CONNECTION WITH A PROBLEM THAT IS COMMON TO THESE THREE CLAIMS. WHICH WILL LIKELY BE A RECURRING ONE IN KOREA. THE PROBLEM TOGETHER WITH THE FACTS AND CIRCUMSTANCES GIVING RISE THERETO ARE SET FORTH BELOW. COUNSEL IS OF THE OPINION THAT BOTH CLAIMS ARE ENFORCEABLE BUT HAS ADVISED THAT CENTRAL ENGINEERING COMPANY IS INSOLVENT AND COULD NOT SATISFY A JUDGMENT. IT HAS BEEN LEARNED THAT THE TRANSFER OF ASSETS BY DEFENDANTS TO AVOID ENFORCEMENT AND SATISFACTION OF JUDGMENTS IS AN ALL TOO COMMON PRACTICE IN KOREA.

B-155915, FEB. 5, 1965, 44 COMP. GEN. 463

COURTS - FOREIGN - LITIGATION EXPENSES - FOREIGN CURRENCY PURCHASES THE FOREIGN CURRENCY REQUIRED FOR DEPOSIT WITH THE REGISTRY OF THE COURT TO OBTAIN A "WRIT OF PRELIMINARY ATTACHMENT," A CONDITION PRECEDENT TO INSTITUTING SUIT ABROAD AGAINST FOREIGN CONTRACTORS TO RECOVER EXCESS REPLACEMENT COSTS UNDER DEFAULTED MILITARY CONSTRUCTION CONTRACTS TO INSURE THE ENFORCEABILITY OF JUDGMENTS THAT MAY BE RECOVERED, IS A LITIGATION EXPENSE, AND IN THE ABSENCE OF STATUTORY AUTHORITY FOR DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT TO RESORT TO LITIGATION IN PERFORMING THEIR DUTIES AND RESPONSIBILITIES, THE AGENCIES WHOSE ACTIVITIES GAVE RISE TO THE CLAIMS MAY NOT PROVIDE THE FOREIGN CURRENCY AND THE ATTORNEY GENERAL, AS CHIEF LAW OFFICER, HAS THE DUTY TO INSTITUTE, PROSECUTE AND DEFEND COURT ACTIONS, DEFRAYING EXPENSES FROM JUSTICE DEPARTMENT APPROPRIATIONS, AND THE 1965 APPROPRIATIONS OF THE DEPARTMENT "FOR LEGAL ACTIVITIES NOT OTHERWISE PROVIDED FOR" MAY BE USED TO PURCHASE THE REQUIRED FOREIGN CURRENCY, PURSUANT TO THE AUTHORITY OF SECTION 507 OF THE PUBLIC WORKS APPROPRIATION, 1965.

TO THE ATTORNEY GENERAL, FEBRUARY 5, 1965:

LETTER DATED JANUARY 8, 1965, FROM THE ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, REFERS TO THE FOLLOWING THREE CLAIMS AGAINST KOREAN CONTRACTORS WHO HAVE DEFAULTED ON MILITARY CONSTRUCTION CONTRACTS:

CLAIM AGAINST KEUK EE CONSTRUCTION COMPANY, SEOUL $47,850.48 (G.A.O. REF: DWZ 2251423-TP-3);

CLAIM AGAINST CENTRAL ENGINEERING COMPANY, SEOUL $3,326.77 (G.A.O. REF: DWZ2257559-TP-3); AND

CLAIM AGAINST HAN SUNG INDUSTRIAL COMPANY, SEOUL $5,665.76 (G.A.O. REF: DWZ1854811 (1/-WRT-1). THE CLAIMS CONSIST PRINCIPALLY OF EXCESS COSTS INCURRED BY THE GOVERNMENT UNDER REPLACEMENT CONTRACTS.

OUR VIEWS HAVE BEEN REQUESTED IN CONNECTION WITH A PROBLEM THAT IS COMMON TO THESE THREE CLAIMS, AND WHICH WILL LIKELY BE A RECURRING ONE IN KOREA. THE PROBLEM TOGETHER WITH THE FACTS AND CIRCUMSTANCES GIVING RISE THERETO ARE SET FORTH BELOW.

IN CONNECTION WITH THE FIRST TWO CASES, YOUR DEPARTMENT HAS OBTAINED THE VIEWS OF A COMPETENT KOREAN COUNSEL ON THE VALIDITY OF THE CLAIMS UNDER KOREAN LAW. COUNSEL IS OF THE OPINION THAT BOTH CLAIMS ARE ENFORCEABLE BUT HAS ADVISED THAT CENTRAL ENGINEERING COMPANY IS INSOLVENT AND COULD NOT SATISFY A JUDGMENT. THE THIRD CASE HAS NOT AS YET BEEN REFERRED TO COUNSEL.

BEFORE INSTITUTING SUITS ABROAD--- AND THEREBY INCURRING THE ATTENDANT EXPENSES FOR COUNSEL FEES AND COURT COSTS--- YOUR DEPARTMENT ALWAYS ATTEMPTS TO INSURE THE ENFORCEABILITY OF ANY JUDGMENTS THAT MIGHT BE RECOVERED. IT HAS BEEN LEARNED THAT THE TRANSFER OF ASSETS BY DEFENDANTS TO AVOID ENFORCEMENT AND SATISFACTION OF JUDGMENTS IS AN ALL TOO COMMON PRACTICE IN KOREA. SUCH SHAM TRANSFERS CAN BE AVOIDED BY SECURING THE DEBTOR'S ASSETS PRIOR THE COMMENCEMENT OF SUIT THROUGH A "WRIT OF PRELIMINARY ATTACHMENT.' TO OBTAIN SUCH A WRIT, A PLAINTIFF IS REQUIRED TO DEPOSIT WITH THE REGISTRY OF THE COURT AN AMOUNT EQUALLING ONE-THIRD OF THE DAMAGES SOUGHT. YOUR DEPARTMENT'S ENDEAVORS TO OBTAIN A WAIVER OF THIS REQUIREMENT ON BEHALF OF THE UNITED STATES HAVE MET WITH NO SUCCESS.

THE AMERICAN EMBASSY IN SEOUL HAS SUGGESTED THAT YOU CONSIDER USING FOR DEPOSIT PURPOSES KOREAN CURRENCY GENERATED BY PUBLIC LAW 480 SALES IN KOREA. THE DEPARTMENT OF STATE AND THE TREASURY DEPARTMENT HAVE INFORMED YOUR DEPARTMENT THAT PUBLIC LAW 480 FUNDS, WHEN AVAILABLE, COULD PROPERLY BE UTILIZED FOR THIS PURPOSE (SEE 7 U.S.C. 1704 (F). HOWEVER YOUR DEPARTMENT UNDERSTANDS THAT AGENCIES DESIRING TO USE THESE FOREIGN CURRENCIES MUST ARRANGE FOR THEIR PURCHASE THROUGH AN INTERNAL TRANSFER OF DOLLAR FUNDS FROM THE "PURCHASING" AGENCY TO THE SELLING AGENCY. THE ASSISTANT ATTORNEY GENERAL ADVISES THAT ALTHOUGH YOUR DEPARTMENT RECEIVES AN APPROPRIATION FOR FOREIGN COUNSEL FEES, THAT APPROPRIATION WOULD NOT BE SUFFICIENT TO COVER EXPENSES OF THE SIZE OR TYPE INVOLVED HERE.

THE ASSISTANT ATTORNEY GENERAL'S LETTER CONTINUES:

THIS PROBLEM IS LIKELY TO BE A RECURRING ONE BECAUSE OF THE MAGNITUDE OF OUR MILITARY PROCUREMENT PROGRAM IN KOREA. TO DEMONSTRATE TO DEFAULTING LOCAL CONTRACTORS THAT THE UNITED STATES IS PREPARED TO ENFORCE VALID CLAIMS IN LOCAL COURTS WOULD HAVE A SALUTARY EFFECT ON OUR PROCUREMENT PROGRAM IN KOREA. ACCORDINGLY, I WOULD APPRECIATE YOUR VIEWS AS TO THE COURSE WHICH WE SHOULD PURSUE IN THESE CASES. IT OCCURS TO ME THAT PERHAPS THE AGENCIES WHOSE ACTIVITIES GIVE RISE TO THESE CLAIMS COULD BE ASKED TO PROVIDE THE FUNDS FOR THE REQUIRED DEPOSITS.

WE HAVE BEEN INFORMALLY ADVISED BY YOUR DEPARTMENT THAT THE AMOUNT REQUIRED TO BE DEPOSITED WITH THE REGISTRY OF THE COURT INCIDENT TO OBTAINING A "WRIT OF PRELIMINARY ATTACHMENT" IS FOR THE PURPOSE OF SHOWING GOOD FAITH. IF, UPON CONCLUSION OF THE COURT PROCEEDING, ANY COSTS OR OTHER EXPENSES ARE ASSESSED AGAINST THE UNITED STATES YOUR DEPARTMENT WOULD PAY THESE EXPENSES FROM ITS APPROPRIATIONS AVAILABLE FOR LITIGATION EXPENSES. HOWEVER, RATHER THAN USE DOLLARS TO PURCHASE FOREIGN CURRENCIES IN KOREA FOR DEPOSIT PURPOSES YOUR DEPARTMENT DESIRES TO BORROW ON A TEMPORARY BASIS KOREAN CURRENCIES AVAILABLE TO THE AGENCIES WHOSE ACTIVITIES GAVE RISE TO THE CLAIMS OR THOSE OF OTHER FEDERAL AGENCIES HAVING SUCH CURRENCIES AVAILABLE IN EXCESS OF THEIR NEEDS. UPON CONCLUSION OF THE COURT PROCEEDINGS YOUR DEPARTMENT WOULD RETURN THE FOREIGN CURRENCIES DEPOSITED WITH THE COURT TO THE AGENCY WHICH MADE THEM AVAILABLE TO YOUR DEPARTMENT. IN OTHER WORDS THESE OTHER AGENCIES WOULD, IN EFFECT, LOAN KOREAN CURRENCY TO YOUR DEPARTMENT AND AT THE CONCLUSION OF THE PARTICULAR CASE FOR WHICH A DEPOSIT WAS REQUIRED THE FUNDS WOULD BE RETURNED TO THE LENDING AGENCY, WITH ANY RESULTING EXPENSES ASSESSED AGAINST THE UNITED STATES BY THE COURT BEING PAID BY YOUR DEPARTMENT FROM ITS LITIGATION EXPENSE APPROPRIATION.

THE GENERAL RULE IS THAT, IN THE ABSENCE OF SPECIFIC AUTHORITY BY THE CONGRESS FOR DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT TO RESORT TO LITIGATION IN THE COURTS IN THE PERFORMANCE OF THE DUTIES AND RESPONSIBILITIES WITH WHICH THEY ARE CHARGED, IT IS THE DUTY OF THE ATTORNEY GENERAL, AS CHIEF LAW OFFICER OF THE GOVERNMENT, TO INSTITUTE, PROSECUTE, AND DEFEND ACTION ON BEHALF OF THE UNITED STATES IN MATTERS INVOLVING COURT PROCEEDINGS, AND TO DEFRAY THE NECESSARY EXPENSES INCIDENT THERETO FROM APPROPRIATIONS OF THE DEPARTMENT OF JUSTICE RATHER THAN FROM APPROPRIATIONS OF THE ADMINISTRATIVE OFFICE WHICH MAY BE INVOLVED IN THE PROCEEDINGS. SEE 38 COMP. GEN. 343; 19 ID. 551; 15 ID. 81.

INASMUCH AS THE DEPOSIT IN QUESTION IS REQUIRED AS A CONDITION PRECEDENT TO OBTAINING A "WRIT OF PRELIMINARY ATTACHMENT," IT MUST BE CONSIDERED A LITIGATION EXPENSE. THUS, THE GENERAL RULE MENTIONED ABOVE WOULD BE FOR APPLICATION. HENCE, THE AGENCIES WHOSE ACTIVITIES GIVE RISE TO THE CLAIMS MAY NOT PROVIDE THE FUNDS FOR THE REQUIRED DEPOSIT, IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY SO PROVIDING.

WE NOTE, HOWEVER, THAT FOR FISCAL YEAR 1965 YOUR DEPARTMENT RECEIVED AN APPROPRIATION OF $19,350,000 FOR, AMONG OTHER THINGS, "EXPENSES NECESSARY FOR THE LEGAL ACTIVITIES OF THE DEPARTMENT OF JUSTICE NOT OTHERWISE PROVIDED FOR" (PUBLIC LAW 88-527, 78 STAT. 711, 716). THIS APPROPRIATION WOULD BE AVAILABLE FOR EXPENSES OF THE TYPE INVOLVED HERE AND COULD BE USED TO PURCHASE FOREIGN CURRENCIES PURSUANT TO THE AUTHORITY IN SECTION 507 OF THE PUBLIC WORKS APPROPRIATION ACT, 1965, PUBLIC LAW 88-511, 78 STAT. 682, 694. SEE ALSO, IN CONNECTION WITH PUBLIC LAW 480 FUNDS, 7 U.S.C. 1705.