B-114809, DEC. 7, 1962

B-114809, DEC. 7, 1962

TO MR. D. ROBERT GERVERA:

THIS REFERS TO YOUR LETTER OF NOVEMBER 15, 1962, WITH ENCLOSURES, ON BEHALF OF YOUR CLIENT MR. FRANK F. LILLY CONCERNING THE SET OFF OF MONIES IN HIS CIVIL SERVICE RETIREMENT ACCOUNT AGAINST AN INDEBTEDNESS TO THE UNITED STATES WHICH AROSE INCIDENT TO HIS FORMER EMPLOYMENT WITH THE BUREAU OF NARCOTICS.

IN YOUR LETTER YOU CONTEND THAT THE SATISFACTION OF A RESTITUTION ORDER, AS MODIFIED, ARISING FROM THE CRIMINAL CASE AGAINST MR. LILLY FULLY SATISFIED ANY AMOUNT OWED BY HIM TO THE UNITED STATES ARISING OUT OF THE MATTER. YOU CITE THE CASE OF UNITED STATES V. STOEHR, 196 F.2D 276 (3RD CIR. 1952) IN SUPPORT OF THIS CONTENTION. IN THE STOEHR CASE, THE DEFENDANT HAD BEEN CONVICTED ON THREE COUNTS OF A THREE COUNT INDICTMENT FOR EVADING INCOME TAXES. HE WAS SENTENCED TO A PRISON TERM ON THE FIRST TWO COUNTS, HIS SENTENCE WAS SUSPENDED ON THE THIRD COUNT AND HE WAS PLACED ON PROBATION ON THE CONDITION THAT HE MAKE RESTITUTION OF ALL INCOME TAXES DUE WITHIN 90 DAYS AFTER THE COMMENCEMENT OF HIS PROBATION PERIOD. THE COURT HELD THAT "IF, ON THE DATE OF HIS RELEASE FROM IMPRISONMENT THERE HAD BEEN NO FINAL DETERMINATION OF DEFENDANT'S TAX LIABILITY, THIS CONDITION, UNLESS MODIFIED, WOULD * * * BE INOPERATIVE.' THIS HOLDING DID NOT GO TO THE QUESTION OF THE DEFENDANT'S CIVIL LIABILITY. MOREOVER, IF WE ASSUME THAT THE RESTITUTION ORDER ABSOLVED THE DEFENDANT IN THE STOEHR CASE OF ALL CIVIL LIABILITY, THAT CASE IS DISTINGUISHABLE FROM LILLY'S BECAUSE THE TOTAL OF CIVIL LIABILITY I.E., "ALL INCOME TAXES" WAS COVERED IN THE THREE-COUNT INDICTMENT UPON WHICH CONVICTION WAS HAD. IN OTHER WORDS, IN THE STOEHR CASE THE COURT CONSIDERED EVERYTHING THAT MIGHT GIVE RISE TO A CIVIL ACTION IN ITS DECISION. THIS WAS NOT TRUE IN LILLY'S CASE. THE DEFENDANT LILLY PLEADED GUILTY TO AND WAS CONVICTED ON ONLY ONE COUNT OF TWELVE AND THE FACTS CONCERNING THE OTHER COUNTS WERE NOT THE SUBJECT OF ANY JUDICIAL FINDING IN THE CRIMINAL PROCEEDINGS.

OTHER CASES HAVE CONSIDERED RESTITUTION ORDERS UNDER 18 U.S.C. 3861. YOUR ATTENTION IS DIRECTED TO UNITED STATES V. FALLETTE, 32 F.SUPP. 953 (E.D.PA. 1940), KARRELL V. UNITED STATES, 181 F.2D 981 (9TH CIR. 1950) AND UNITED STATES V. TAYLOR, 305 F.2D 183 (4TH CIR. 1962). EACH OF THESE CASES WENT TO THE POINT OF THE PROPER AMOUNT OF RESTITUTION. NONE OF THEM HELD THAT A RESTITUTION ORDER PRECLUDED CIVIL LIABILITY. IN THIS REGARD SEE 24B C.J.S. CRIMINAL LAW, SECTION 2004 (B).

YOU MAINTAIN IN THE MEMORANDUM SUBMITTED WITH YOUR LETTER OF NOVEMBER 15, 1962, THAT THE GOVERNMENT'S CLAIM IS BARRED BY THE DOCTRINE OF RES ADJUDICATA. YOU DIRECTED OUR ATTENTION TO COFFEY V. UNITED STATES, 116 U.S. 436 (1886), IN SUPPORT OF THIS CONTENTION. IN THE COFFEY CASE THE SUIT WAS IN LIBEL AND SOUGHT TO HAVE AN ADJUDICATION OF THE FORFEITURE OF THE DEFENDANT'S PROPERTY ON THE BASIS OF A STATUTORY PUNISHMENT. THIS CASE WAS DISTINGUISHED IN STONE V. UNITED STATES, 167 U.S. 178 (1897), AND HELD NOT TO APPLY WHEN THE ONLY RELIEF SOUGHT WAS A JUDGMENT FOR THE VALUE OF PROPERTY WRONGFULLY CONVERTED BY THE DEFENDANT. THE SUPREME COURT WENT FURTHER IN HELVERING V. MITCHELL, 303 U.S. 391 (1938), WHICH WAS A SUIT TO RECOVER A 50 PERCENTUM ADDITION UNDER A REVENUE ACT. THE COURT CONSIDERED THIS ADDITION AS A CIVIL ADMINISTRATIVE SANCTION AND REFUSED TO FOLLOW THE COFFEY CASE. SEE ALSO MARCUS V. HESS, 317 U.S. 537 (1943).

WE ARE FAMILIAR WITH THE CASES CITED BY YOU IN SUPPORT OF THE POSITION THAT IN A COURT OF LAW, A SETOFF CAN ONLY BE HAD WHEN DAMAGES ARE LIQUIDATED. HOWEVER, THERE ARE NUMEROUS EXCEPTIONS TO THE RULE IN WHICH EQUITABLE DEFENSES ARE AVAILABLE. HOFFMAN V. GLEASON, 107 F.2D 101 (6TH CIR. 1940); BROWNLEY V. PEYSER, 98 F.2D 337 (CRT.APPL.D.C. 1938). IT WAS LILLY'S DUTY TO KEEP ACCURATE AND COMPLETE RECORDS OF TRANSACTIONS WITH THE DEALERS IN THE CASE AND HE CANNOT PROFIT FROM HIS FAILURE TO DO SO. CF. 16 COMP. GEN. 365. THE FIGURE STATED IN OUR CERTIFICATE OF INDEBTEDNESS MAY CONTAIN SUMS WHICH REPRESENT BONA FIDE PURCHASES AND THE TOTAL AMOUNT STATED MAY NOT REPRESENT LIQUIDATED DAMAGES. WE BELIEVE, HOWEVER, IF THIS MATTER GOES TO TRIAL, THAT THE EVIDENCE WILL SUPPORT THE CONCLUSION THAT THE AMOUNT SET OFF CAN BE PROVED IN A COUNTERCLAIM TO BE LESS THAN THE ACTUAL DAMAGES SUFFERED BY THE GOVERNMENT.

AS TO YOUR POSITION THAT SCOTT COMPANY AND STOCKETTE-FISKE COMPANY HAVE BEEN ALLOWED TO SETTLE FOR $2,513.07 AND $1,671.19, RESPECTIVELY, AND THAT YOUR CLIENT HAS PAID AN AMOUNT NOT MUCH LESS THAN THESE AMOUNTS, WE MUST POINT OUT THAT NO OFFER IN COMPROMISE HAS BEEN MADE IN BEHALF OF YOUR CLIENT. ALSO, INASMUCH AS THE AMOUNT PAID BY YOUR CLIENT WAS PAID PURSUANT TO A COURT ORDER, NONE OF THAT SUM CAN BE CONSIDERED IN AN OFFER IN COMPROMISE. AS OF NOVEMBER 7, 1962, $6,837.80 HAS BEEN SET OFF FROM MR. LILLY'S RETIREMENT ACCOUNT.

ALSO, ON THE PRESENT STATE OF THE CASE WE SEE ONLY THREE COURSES TO PURSUE: (1) THE PRESERVATION OF STATUS QUO; (2) A SUIT BY YOU IN WHICH THE AMOUNT, IF ANY, DUE THE UNITED STATES FROM YOUR CLIENT MAY BE JUDICIALLY ESTABLISHED; OR (3) THE SUBMISSION BY YOU OF AN OFFER IN COMPROMISE OF THE GOVERNMENT'S CLAIM. ANY SUCH OFFER MUST BE REFERRED TO THE ATTORNEY GENERAL FOR HIS CONSIDERATION. HIS ACCEPTANCE OF ANY SUCH OFFER WOULD BE BINDING ON OUR OFFICE. WE ARE AWARE OF NO OTHER LAWFUL BASIS UPON WHICH WE ARE AUTHORIZED TO RELEASE ANY PART OF THE FUNDS NOW HELD BY THE GOVERNMENT.