B-128839, JAN. 10, 1957
Highlights
FREEDMAN: REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 22. IN SUPPORT OF SUCH CONTENTION YOU HAVE CITED ADDITIONAL LEGAL AUTHORITIES. THAT FRAUD OR OTHER PATENT WRONG WILL AFFORD THE ONLY LEGAL JUSTIFICATION FOR A DISREGARD OF THE "CORPORATE ENTITY" DOCTRINE. AS YOU WERE ADVISED IN OUR EARLIER DECISIONS ON THIS MATTER. GLOSS AS A PRIVATE CONTRACTOR AGAINST THE OUTSTANDING INDEBTEDNESS OF HIS CORPORATION WAS NOT PREDICATED UPON ANY FRAUDULENT CONDUCT ATTRIBUTABLE TO SUCH PARTY. OUR ACTION IN THE MATTER WAS DICTATED BY THE CIRCUMSTANCE THAT THE STOCK OF THE CORPORATE FIRM OF HARRY N. WAS OWNED BY MR. THUS THAT THERE WAS SUGGESTED SUCH AN AFFINITY OF INTEREST BETWEEN THE TWO PARTIES. IN THE CIRCUMSTANCES WE BELIEVE THAT THE WITHHOLDING OF AMOUNTS DUE ON HIS INDIVIDUAL CONTRACTS IS PROPER IN THE DISCHARGE OF THE DUTY OF THE ACCOUNTING OFFICERS OF THE UNITED STATES TO DISAPPROVE PAYMENTS WHERE THERE IS REASONABLE GROUND FOR DOUBT AS TO THE PROPRIETY THEREOF.
B-128839, JAN. 10, 1957
TO SAMUEL J. FREEDMAN:
REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 22, 1956, REQUESTING RECONSIDERATION OF OFFICE DECISIONS DATED SEPTEMBER 12, 1956, AND NOVEMBER 16, 1956, WHICH SUSTAINED THE GOVERNMENT'S ACTION IN HAVING APPLIED AMOUNTS OTHERWISE DUE MR. HARRY M. GLOSS FOR A QUANTITY OF SWITCHES FURNISHED THE DEPARTMENT OF THE NAVY UNDER CONTRACT NO. N104 48608, AGAINST THE INDEBTEDNESS TO THE UNITED STATES OF THE FIRM OF HARRY M. GLOSS, INCORPORATED--- A CORPORATION OWNED AND OPERATED BY MR. GLOSS AND HIS IMMEDIATE FAMILY.
YOUR LETTER OF DECEMBER 22 REITERATES YOUR BASIC CONTENTION THAT THE OUTSTANDING INDEBTEDNESS OF THE CORPORATION TO THE UNITED STATES FOR EXCESS COSTS ARISING OUT OF DEFAULT UNDER SEVERAL EARLIER GOVERNMENT CONTRACTS CANNOT BE IMPUTED TO MR. GLOSS PERSONALLY, OR AS AN INDIVIDUAL CONTRACTOR, AND IN SUPPORT OF SUCH CONTENTION YOU HAVE CITED ADDITIONAL LEGAL AUTHORITIES, HOLDING, IN SUBSTANCE, THAT FRAUD OR OTHER PATENT WRONG WILL AFFORD THE ONLY LEGAL JUSTIFICATION FOR A DISREGARD OF THE "CORPORATE ENTITY" DOCTRINE.
AS YOU WERE ADVISED IN OUR EARLIER DECISIONS ON THIS MATTER, THE GOVERNMENT'S ACTION IN HAVING APPLIED AMOUNTS DUE MR. GLOSS AS A PRIVATE CONTRACTOR AGAINST THE OUTSTANDING INDEBTEDNESS OF HIS CORPORATION WAS NOT PREDICATED UPON ANY FRAUDULENT CONDUCT ATTRIBUTABLE TO SUCH PARTY. RATHER, OUR ACTION IN THE MATTER WAS DICTATED BY THE CIRCUMSTANCE THAT THE STOCK OF THE CORPORATE FIRM OF HARRY N. GLOSS, INCORPORATED, WAS OWNED BY MR. GLOSS PERSONALLY, AND BY MEMBERS OF HIS IMMEDIATE FAMILY, AND THUS THAT THERE WAS SUGGESTED SUCH AN AFFINITY OF INTEREST BETWEEN THE TWO PARTIES--- THE INDIVIDUAL AND THE CORPORATION--- AS WOULD JUSTIFY A DISREGARD OF THE CORPORATE ENTITY THEORY IN ORDER TO BEST SERVE THE PUBLIC INTEREST IN THIS INSTANCE. SEE, IN THIS CONNECTION, THE RULE STATED IN NEW COLONIAL ICE COMPANY V. HELVERING, 292 U.S. 435, AT PAGE 442.
OBVIOUSLY, THE APPLICATION OF THE CORPORATE ENTITY THEORY TO THE FACTS OF THE PRESENT CASE WOULD OPERATE TO PERMIT MR. GLOSS TO AVOID ANY LEGAL RESPONSIBILITIES TO WHICH HE MIGHT BE SUBJECT AS THE PRINCIPAL STOCKHOLDER AND OWNER OF THE CORPORATION BEARING HIS NAME. IN THE CIRCUMSTANCES WE BELIEVE THAT THE WITHHOLDING OF AMOUNTS DUE ON HIS INDIVIDUAL CONTRACTS IS PROPER IN THE DISCHARGE OF THE DUTY OF THE ACCOUNTING OFFICERS OF THE UNITED STATES TO DISAPPROVE PAYMENTS WHERE THERE IS REASONABLE GROUND FOR DOUBT AS TO THE PROPRIETY THEREOF. SEE LONGWILL V. UNITED STATES, 17 C.CLS. 288; CHARLES V. UNITED STATES, 19 C.CLS. 316.
ACCORDINGLY, OUR DECISIONS OF SEPTEMBER 12 AND NOVEMBER 16, 1956, ARE HEREBY AFFIRMED.