B-48991, B-62469, MARCH 24, 1949, 28 COMP. GEN. 543

B-48991, B-62469, MARCH 24, 1949, 28 COMP. GEN. 543

SET-OFF - CONTRACT PAYMENTS - EXCESSIVE PROFITS DETERMINED BY RENEGOTIATION AMOUNTS OTHERWISE DUE A CONTRACTOR UNDER ITS CONTRACTS WITH THE GOVERNMENT PROPERLY MAY BE WITHHELD FOR SET-OFF BY THE GENERAL ACCOUNTING OFFICE, BY VIRTUE OF ITS AUTHORITY IN SECTION 236, REVISED STATUTES, AS AMENDED, AGAINST AMOUNTS WHICH HAD BEEN DETERMINED THROUGH CONTRACT PRICE RENEGOTIATION PURSUANT TO THE RENEGOTIATION ACT OF 1942, AS AMENDED, TO BE DUE THE UNITED STATES AS EXCESSIVE PROFITS REALIZED UNDER PRIOR CONTRACTS, EVEN THOUGH THIS OFFICE IS NOT SPECIFIED IN THE SAID RENEGOTIATION ACT AS ONE OF THE DEPARTMENTS AUTHORIZED TO ELIMINATE EXCESSIVE PROFITS BY WITHHOLDING AMOUNTS OTHERWISE DUE A CONTRACTOR.

COMPTROLLER GENERAL WARREN TO THE POSTMASTER GENERAL, MARCH 24, 1949:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 15, 1948, FORWARDING A LETTER DATED OCTOBER 29, 1948, FROM THE VAN DORN IRON WORKS COMPANY, CLEVELAND, OHIO, PROTESTING THE WITHHOLDING OF AMOUNTS OTHERWISE DUE THE COMPANY UNDER CONTRACTS WITH THE POST OFFICE DEPARTMENT TO COVER AMOUNTS WHICH HAD BEEN DETERMINED BY THE WAR DEPARTMENT TO BE DUE THE UNITED STATES AS EXCESSIVE PROFITS FOR THE YEARS 1942, 1943, AND 1944. YOU REQUEST THAT, IF POSSIBLE, ACTION BE TAKEN TO RELEASE PAYMENTS TO THE VAN DORN IRON WORKS COMPANY SO THAT IT CAN CONTINUE TO FULFILL ITS CONTRACTUAL OBLIGATIONS TO THE POST OFFICE DEPARTMENT.

THERE NOW HAS BEEN RECEIVED FROM THE ACTING CHIEF OF FINANCE, DEPARTMENT OF THE ARMY, A LETTER DATED FEBRUARY 11, 1949, WHEREIN IT IS STATED THAT THE CONTRACTS OF THE VAN DORN IRON WORKS COMPANY WERE RENEGOTIATED FOR THE FISCAL YEARS 1942, 1943, 1944 UNDER THE RENEGOTIATION ACTS OF 1942 AND 1943 AND THAT " UNILATERIAL ORDERS WERE ISSUED BY THE SECRETARY OF WAR AND THE WAR CONTRACTS PRICE ADJUSTMENT BOARD; AFTER TAX CREDITS, THE NET DEBT UNDER THESE ORDERS AMOUNTED TO $1,972,359.71.' IT IS STATED FURTHER THAT, ALTHOUGH A SUFFICIENT AMOUNT HAS BEEN RECOVERED TO REDUCE THE ACCOUNTS TO AN APPROXIMATE TOTAL OF $1,550,000, AN EXACT FIGURE CANNOT BE STATED AT THIS TIME DUE TO THE FACT THAT THE AMOUNTS SET OFF BY THE GENERAL ACCOUNTING OFFICE AND THE DATES OF INVOICES COVERING SUCH AMOUNTS HAVE NOT BEEN OBTAINED, AND THAT---

IT IS FELT THAT THE INTERESTS OF THE GOVERNMENT REQUIRE THE APPLICATION TO RENEGOTIATION INDEBTEDNESS OF ALL AMOUNTS SET OFF TO DATE, AND TO TAKE SIMILAR ACTION ON ANY OTHER ITEMS COMING DUE THE CONTRACTOR FROM ANY GOVERNMENT DEPARTMENT OR AGENCY.

ALSO, THERE HAS BEEN RECEIVED A LETTER DATED JANUARY 14, 1949, FROM ASSISTANT ATTORNEY GENERAL H.G. MORISON, FILE HGM:RM-77-57-226, STATING THAT THE DEPARTMENT OF THE ARMY REQUESTED THE DEPARTMENT OF JUSTICE TO TAKE LEGAL ACTION FOR COLLECTION OF CLAIMS AGAINST THE VAN DORN IRON WORKS COMPANY ON ACCOUNT OF THE RENEGOTIATION OF ITS CONTRACTS; THAT THE COMPANY'S ATTORNEYS HAVE COMMENCED NEGOTIATIONS TO SETTLE THE CLAIMS ON THE BASIS OF INABILITY TO PAY; AND THAT " SAID NEGOTIATIONS, HOWEVER, ARE FAR FROM COMPLETE AND THERE IS NO REASON AT THE PRESENT TIME FOR RELEASING THE SUMS WITHHELD BY THE POST OFFICE DEPARTMENT.'

IN THE LETTER OF OCTOBER 29, 1948, THE VAN DORN IRON WORKS COMPANY PROTESTED AGAINST THE WITHHOLDING BY THIS OFFICE OF ANY AMOUNT OTHERWISE DUE UNDER ITS CONTRACTS WITH THE POST OFFICE DEPARTMENT ON THE GROUND THAT THIS OFFICE IS NOT INCLUDED IN THE " RENEGOTIATION ACT" AS ONE OF THE DEPARTMENTS AUTHORIZED TO ELIMINATE EXCESSIVE PROFITS "BY WITHHOLDING AMOUNTS OTHERWISE DUE THE CONTRACTOR.' IT WAS STATED THAT THE MATTER OF THE COMPANY'S INDEBTEDNESS TO THE UNITED STATES FOR THE REFUND OR EXCESSIVE PROFITS IS THE SUBJECT OF LITIGATION IN BOTH THE TAX COURT OF THE UNITED STATES AND THE DISTRICT COURT OF THE UNITED STATES FOR THE REFUND OF EXCESSIVE PROFITS IS THE SUBJECT OF LITIGATION IN BOTH THE TAX COURT OF THE UNITED STATES AND THE DISTRICT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF OHIO, EASTERN DIVISION, AND THAT " NOT UNTIL EITHER OF THESE TRIBUNALS HAS ENTERED A FINAL JUDGMENT AGAINST US WILL THERE EXIST A DEBT ON THE PART OF THIS COMPANY IN FAVOR OF THE UNITED STATES.' ALSO, IT WAS STATED THAT THE WITHHOLDING OF PAYMENTS OTHERWISE DUE THE COMPANY FOR SET-OFF AGAINST THE INDEBTEDNESS WILL SERIOUSLY JEOPARDIZE, IF NOT ALTOGETHER PRECLUDE, PERFORMANCE UNDER THE CONTRACTS WITH THE POST OFFICE DEPARTMENT.

SUBSECTIONS (A), (B), AND (C) OF SECTION 403 OF THE ACT OF APRIL 28, 1942, 56 STAT. 245, WERE AMENDED BY THE ACT OF OCTOBER 21, 1942, 56 STAT. 982. SECTION 403 (C) (1) OF THE SAID ACT OF OCTOBER 21, 1942, 56 STAT. 983, PROVIDED THAT WHENEVER IN THE OPINION OF THE SECRETARY OF A DEPARTMENT, AS DEFINED IN THE ACT, THE PROFITS REALIZED OR LIKELY TO BE REALIZED FROM ANY CONTRACT WITH SUCH DEPARTMENT OR FROM ANY SUBCONTRACT THEREUNDER WHETHER OR NOT MADE BY THE CONTRACTOR MIGHT BE EXCESSIVE, THE SAID SECRETARY WAS AUTHORIZED AND DIRECTED TO REQUIRE THE CONTRACTOR OR SUBCONTRACTOR TO RENEGOTIATE THE CONTRACT PRICE. SECTION 403 (C) (2), 56 STAT. 983, PROVIDED THAT:

UPON RENEGOTIATION, THE SECRETARY IS AUTHORIZED AND DIRECTED TO ELIMINATE ANY EXCESSIVE PROFITS UNDER SUCH CONTRACT OR SUBCONTRACT (I) BY REDUCTIONS IN THE CONTRACT PRICE OF THE CONTRACT OR SUBCONTRACT, OR BY OTHER REVISION IN ITS TERMS; OR (II) BY WITHHOLDING, FROM AMOUNTS OTHERWISE DUE TO THE CONTRACTOR OR SUBCONTRACTOR, ANY AMOUNT OF SUCH EXCESSIVE PROFITS; OR (III) BY DIRECTING A CONTRACTOR TO WITHHOLD FOR THE ACCOUNT OF THE UNITED STATES, FROM AMOUNTS OTHERWISE DUE TO THE SUBCONTRACTOR, ANY AMOUNT OF SUCH EXCESSIVE PROFITS UNDER THE SUBCONTRACT; OR (IV) BY RECOVERY FROM THE CONTRACTOR OR SUBCONTRACTOR, THROUGH REPAYMENT, CREDIT OR SUIT, OF ANY AMOUNT OF SUCH EXCESSIVE PROFITS ACTUALLY PAID TO HIM; OR (V) BY ANY COMBINATION OF THESE METHODS, AS THE SECRETARY DEEMS DESIRABLE. * * *

SECTION 403 OF THE ACT OF APRIL 28, 1942, SUPRA, WAS FURTHER AMENDED BY TITLE VII OF THE ACT OF FEBRUARY 25, 1944, 58 STAT. 78, 85, TO PROVIDE, AMONG OTHER THINGS, FOR THE CREATION OF A WAR CONTRACTS PRICE ADJUSTMENT BOARD WITH AUTHORITY TO INSTITUTE RENEGOTIATION PROCEEDINGS WHENEVER IN ITS OPINION THE AMOUNT RECEIVED OR ACCRUED UNDER CONTRACTS WITH THE DEPARTMENTS AND SUBCONTRACTS REFLECTED EXCESSIVE PROFITS. SECTION 403 (E) (1), 58 STAT. 86, PROVIDES THAT ANY CONTRACTOR OR SUBCONTRACTOR AGGRIEVED BY AN ORDER OF THE BOARD AS TO THE AMOUNT OF EXCESSIVE PROFITS MAY WITHIN NINETY DAYS AFTER THE MAILING OF NOTICE OF SUCH ORDER, FILE A PETITION WITH THE TAX COURT OF THE UNITED STATES FOR A REDETERMINATION THEREOF. UPON SUCH FILING, THE COURT SHALL HAVE EXCLUSIVE JURISDICTION, BY ORDER, TO DETERMINE FINALLY THE AMOUNT, IF ANY, OF SUCH EXCESSIVE PROFITS AND SUCH DETERMINATION SHALL NOT BE REVIEWED OR REDETERMINED BY ANY COURT OR AGENCY. THE SAID SECTION PROVIDES FURTHER THAT " THE FILING OF A PETITION UNDER THIS SUBSECTION SHALL NOT OPERATE TO STAY THE EXECUTION OF THE ORDER OF THE BOARD UNDER SUBSECTION (C) (2).' THE SAID SUBSECTION (C) (2), 58 STAT. 83, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

UPON THE MAKING OF AN AGREEMENT, OR THE ENTRY OF AN ORDER, UNDER PARAGRAPH (1) BY THE BOARD, OR THE ENTRY OF AN ORDER UNDER SUBSECTION (E) BY THE TAX COURT OF THE UNITED STATES, DETERMINING EXCESSIVE PROFITS, THE BOARD SHALL FORTHWITH AUTHORIZE AND DIRECT THE SECRETARIES OR ANY OF THEM TO ELIMINATE SUCH EXCESSIVE PROFITS (A) BY REDUCTIONS IN THE AMOUNTS OTHERWISE PAYABLE TO THE CONTRACTOR UNDER CONTRACTS WITH THE DEPARTMENTS, OR BY OTHER REVISION OF THEIR TERMS; OR (B) BY WITHHOLDING FROM AMOUNTS OTHERWISE DUE TO THE CONTRACTOR ANY AMOUNT OF SUCH EXCESSIVE PROFITS; OR (C) BY DIRECTING A CONTRACTOR TO WITHHOLD FOR THE ACCOUNT OF THE UNITED STATES, FROM AMOUNTS OTHERWISE DUE TO A SUBCONTRACTOR, ANY AMOUNT OF SUCH EXCESSIVE PROFITS OF SUCH SUBCONTRACTOR; OR (D) BY RECOVERY FROM THE CONTRACTOR, THROUGH REPAYMENT, CREDIT, OR SUIT ANY AMOUNT OF SUCH EXCESSIVE PROFITS ACTUALLY PAID TO HIM; OR (E) BY ANY COMBINATION OF THESE METHODS, AS IS DEEMED DESIRABLE. * * *

WHILE THE GENERAL ACCOUNTING OFFICE IS NOT SPECIFIED IN THE ACT AS ONE OF THE DEPARTMENTS OF THE GOVERNMENT AUTHORIZED TO ELIMINATE EXCESSIVE PROFITS, THE COURTS HAVE HELD THAT THE DETERMINATION OF THE AMOUNT OF EXCESSIVE PROFITS PURSUANT TO THE RENEGOTIATION LAW CREATES A DEBT WHICH THE CONTRACTOR IS BOUND TO PAY UPON DEMAND AND THAT INTEREST UPON SUCH A DEBT IS RECOVERABLE EVEN THOUGH THE LAW DOES NOT EXPRESSLY PROVIDE FOR THE RECOVERY THEREOF. SEE UNITED STATES V. STRONTIUM PRODUCTS CO., ET AL, 68 F.1SUPP. 886, AND SAMPSON MOTORS, INC. V. UNITED STATES, 168 F.2D 878.

THE ACTION OF THIS OFFICE IN WITHHOLDING THE AMOUNTS OTHERWISE DUE UNDER THE CONTRACTS WITH THE POST OFFICE DEPARTMENT WAS IN STRICT ACCORDANCE WITH THE STATUTORY DUTY OF THE GENERAL ACCOUNTING OFFICE UNDER THE PROVISIONS OF SECTION 236, REVISED STATUTES, AS AMENDED BY SECTION 305 OF THE ACT OF JUNE 10, 1921, 42 STAT. 24, 31 U.S.C. 71, WHICH PROVIDES THAT:

ALL CLAIMS AND DEMANDS WHATEVER BY THE GOVERNMENT OF THE UNITED STATES OR AGAINST IT, AND ALL ACCOUNTS WHATEVER IN WHICH THE GOVERNMENT OF THE UNITED STATES IS CONCERNED, EITHER AS DEBTOR OR CREDITOR, SHALL BE SETTLED AND ADJUSTED IN THE GENERAL ACCOUNTING OFFICE.

BY NECESSARY IMPLICATION, WHENEVER THERE IS INVOLVED ANY CLAIM OR DEMAND WHATEVER BY THE UNITED STATES AGAINST ANY PERSON WHO HAS A CLAIM OR DEMAND AGAINST THE GOVERNMENT, THE GENERAL ACCOUNTING OFFICE NOT ONLY HAS THE AUTHORITY, BUT IS REQUIRED, IN THE PROPER DISCHARGE OF ITS DUTY TO SETTLE AND ADJUST SUCH OPPOSING CLAIMS OR DEMANDS, TO SET OFF ONE INDEBTEDNESS AGAINST THE OTHER AND TO CERTIFY FOR PAYMENT OR COLLECTION, AS THE CASE MAY BE, ONLY THE NET BALANCE. AS WAS STATED BY THE SUPREME COURT OF THE UNITED STATES IN THE RECENT CASE OF THE UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234, 239-240:

* * * THE GOVERNMENT HAS THE SAME RIGHT "WHICH BELONGS TO EVERY CREDITOR, TO APPLY THE UNAPPROPRIATED MONEYS OF HIS DEBTOR, IN HIS HANDS, IN EXTINGUISHMENT OF THE DEBTS DUE HIM.' GRATIOT V. UNITED STATES, 15 PET. 336, 370; MCKNIGHT V. UNITED STATES, 98 U.S. 179, 186. MORE THAN THAT, FEDERAL STATUTE GIVES JURISDICTION TO THE COURT OF CLAIMS TO HEAR AND DETERMINE " ALL SET-OFFS, COUNTER-CLAIMS, FOR DAMAGES, WHETHER LIQUIDATED OR UNLIQUIDATED, OR OTHER DEMANDS WHATSOEVER ON THE PART OF THE GOVERNMENT OF THE UNITED STATES AGAINST ANY CLAIMANT AGAINST THE GOVERNMENT IN SAID COURT * * *" JUDICIAL CODE SEC. 145, 28 U.S.C. SEC. 250.

(2) THIS POWER GIVEN TO THE COURT OF CLAIMS TO STRIKE A BALANCE BETWEEN THE DEBTS AND CREDITS OF THE GOVERNMENT, BY LOGICAL IMPLICATION GIVES POWER TO THE COMPTROLLER GENERAL TO DO THE SAME, SUBJECT TO REVIEW BY THAT COURT * * *.

SINCE THE AMOUNTS DETERMINED TO BE DUE FROM THE VAN DORN IRON WORKS COMPANY ARE NOT ONLY CLAIMS OF THE UNITED STATES BUT ACCOUNTS IN WHICH THE GOVERNMENT OF THE UNITED STATES IS CONCERNED, THE UNITED STATES HAS THE RIGHT OF SET-OFF AND IT NECESSARILY FOLLOWS THAT THE ACTION OF THIS OFFICE IN WITHHOLDING THE AMOUNTS IN QUESTION FOR APPLICATION AGAINST THE CONTRACTOR'S INDEBTEDNESS TO THE UNITED STATES WAS LEGAL AND PROPER.

THE AUTHORITY OF THE GENERAL ACCOUNTING OFFICE TO EXERCISE THE RIGHT TO SET-OFF IN A SITUATION SIMILAR TO THAT HERE PRESENT WAS RECOGNIZED BY THE UNITED STATES COURT OF CLAIMS IN THE CASE OF CHERRY COTTON MILLS, INC. V. UNITED STATES, 103 C.1CLS. 243. IN THAT CASE THE PLAINTIFF SOUGHT TO RECOVER THE SUM OF $3,104.87, REPRESENTING ITS CLAIM FOR REFUND OF PROCESSING AND FLOOR STOCK TAXES WHICH HAD BEEN ALLOWED BY THE COMMISSIONER OF INTERNAL REVENUE AND SCHEDULED TO THE GENERAL ACCOUNTING OFFICE FOR SETTLEMENT. THE SAID SUM WAS APPLIED BY WAY OF SET-OFF TO REDUCE THE PLAINTIFF'S INDEBTEDNESS TO THE RECONSTRUCTION FINANCE CORPORATION. IT WAS ALLEGED IN THE PETITION THAT THE INDEBTEDNESS OF THE PLAINTIFF TO THE RECONSTRUCTION FINANCE CORPORATION, A BODY CORPORATE, WAS NOT A CLAIM OR DEMAND BY THE GOVERNMENT OF THE UNITED STATES AND THAT, CONSEQUENTLY, THE SAID SUM OF $3,104.87 WAS ERRONEOUSLY APPLIED BY THE GENERAL ACCOUNTING OFFICE IN REDUCTION OF THE INDEBTEDNESS TO THAT CORPORATION. HOWEVER, THE COURT STATED AT PAGE 252 THAT:

WE DO NOT REGARD AS MATERIAL THE PART WHICH THE GENERAL ACCOUNTING OFFICE PLAYED IN THE TRANSACTIONS HERE IN QUESTION. WE THINK IT WAS THE DUTY OF SOMEONE, ON BEHALF OF THE GOVERNMENT, TO SEE THAT THIS SET OFF WAS MADE. WHETHER THE STATUTE DEFINING THE FUNCTIONS OF THE COMPTROLLER GENERAL LODGED THAT DUTY THERE, OR NOT, IS A MATTER WHICH WOULD SEEM TO BE NO CONCERN OF THE PLAINTIFF. IT HAD NO RIGHT TO COLLECT MONEY FROM THE UNITED STATES WHEN IT OWED A PAST DUE DEBT TO THE UNITED STATES. HOW THE GOVERNMENT, INSIDE ITS OWN ORGANIZATION, TOOK CARE THAT ITS RIGHT OF SET- OFF SHOULD NOT BE OVERLOOKED, IN ITS MULTIPLICITY OF TRANSACTIONS, IS NOT MATERIAL. IN SHORT, WE THINK THAT THE MONEY FOR WHICH THE PLAINTIFF SUES IS NOW WHERE IT RIGHTFULLY AND LAWFULLY BELONGS, AND SHOULD STAY THERE.

THE SUPREME COURT GRANTED CERTIORARI, 326 U.S. 705, AND THE JUDGMENT OF THE COURT OF CLAIMS WAS AFFIRMED. SEE CHERRY COTTON MILLS, INC. V. UNITED STATES, 327 U.S. 536.

WITH RESPECT TO THE CONTRACTOR'S CONTENTION THAT THE WITHHOLDING OF PAYMENTS OTHERWISE DUE IT UNDER THE CONTRACTS WITH THE POST OFFICE DEPARTMENT FOR SET-OFF AGAINST ITS INDEBTEDNESS WILL SERIOUSLY JEOPARDIZE, IF NOT ALTOGETHER PRECLUDE, PERFORMANCE UNDER THE CONTRACTS, IT MAY BE STATED THAT SUCH CONTENTION AFFORDS NO LEGAL BASIS FOR RELEASING THE AMOUNTS WHICH HAVE BEEN WITHHELD BY THE GENERAL ACCOUNTING OFFICE. IN THE CASE OF AIRCRAFT AND DIESEL EQUIPMENT CORPORATION V. HIRSCH, 331 U.S. 752, INVOLVING A SOMEWHAT SIMILAR SITUATION, THE SUPREME COURT 10F THE UNITED STATES HELD, QUOTING FROM THE SYLLABUS, THAT: APPELLANT'S ALLEGATIONS THAT IT WOULD SUFFER IRREPARABLE INJURY AS A RESULT OF THE WITHHOLDING OF THE FUNDS DUE FROM ITS CUSTOMERS ARE INSUFFICIENT TO SUSTAIN THE INTERVENTION OF A COURT OF EQUITY, PARTICULARLY, TO AVOID OR ANTICIPATE THE CONGRESSIONALLY AUTHORIZED PROCEEDING.

ACCORDINGLY, IT IS CLEAR THAT THIS OFFICE PROPERLY MAY NOT AUTHORIZE THE RELEASE OF THE AMOUNTS WITHHELD UNDER THE CONTRACTS WITH THE POST OFFICE DEPARTMENT.