B-142275, MAR. 26, 1965

B-142275, MAR. 26, 1965

TO EDWIN J. MCDERMOTT, ESQUIRE:

THIS IS IN RESPONSE TO YOUR LETTER OF FEBRUARY 26, 1965, QUESTIONING OUR CLAIM SETTLEMENT OF FEBRUARY 16, 1961, WHEREIN, INTER ALIA, YOU WERE ADVISED THAT THE SUM OF $14,000 DUE UNDER CONTRACT NO. DA-36-243 QM-/CTM/- 486, WAS CERTIFIED FOR PAYMENT TO THE BANKERS TRUST COMPANY.

OUR RECORDS DISCLOSE THAT YOUR CLIENT (MORTON M. ROSE) WAS FORMERLY AN OFFICER AND PRINCIPAL STOCKHOLDER OF THE AERO-FAB CORPORATION. PRIOR TO FILING A PETITION UNDER CHAPTER 11 OF THE BANKRUPTCY ACT AERO FAB ENTERED INTO THE SUBJECT CONTRACT WITH THE MILITARY CLOTHING AND TEXTILE SUPPLY AGENCY (MCTSA). AS A RESULT OF BACK TAXES THE INTERNAL REVENUE SERVICE IN MARCH 1958, SEIZED AERO-FAB'S PLANT AND INVENTORY. A RECEIVER WAS SUBSEQUENTLY APPOINTED BY THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KENTUCKY. UNDER AUTHORITY CONTAINED IN SECTION 6672 OF THE INTERNAL REVENUE CODE OF 1954 THE GOVERNMENT ON MAY 16, 1958, MADE A PERSONAL ASSESSMENT AGAINST MR. ROSE FOR THE FULL AMOUNT OF TAXES WITHHELD FROM THE EMPLOYEES OF AERO-FAB.

ON JULY 2, 1957, FOUR DAYS AFTER AWARD OF THE CONTRACT, AERO-FAB ASSIGNED TO THE BANKERS TRUST COMPANY, ALL MONEYS AND CLAIMS FOR MONEY DUE OR TO BECOME DUE FROM THE UNITED STATES OF AMERICA UNDER THE SUBJECT CONTRACT. APPROPRIATE NOTIFICATION OF THIS ASSIGNMENT WAS COMMUNICATED TO THE CONTRACTING OFFICER ON JULY 16, 1957. ON APRIL 25, 1958, (ONE WEEK PRIOR TO THE FILING OF A PETITION UNDER CHAPTER 11) BANKERS TRUST INFORMED THE CONTRACTING OFFICER THAT AERO-FAB WAS INDEBTED TO THE TRUST COMPANY IN THE AMOUNT OF $66,476.23 PLUS INTEREST OF $446.87. AFTER PAYMENT OF THE AMOUNT CLAIMED, MCTSA ON JANUARY 20, 1959, WROTE TO THE TRUST COMPANY ASKING WHETHER ITS EQUITY HAD BEEN SATISFIED AND WHETHER IT WOULD VOID THE ASSIGNMENT. RESPONDING THERETO ON JANUARY 28, 1959, BANKERS TRUST INFORMED THE CONTRACTING AGENCY THAT ALTHOUGH ALL ADVANCES HAD BEEN LIQUIDATED AS OF THE DAY OF WRITING IT HAD BEEN REQUESTED BY THE ASSIGNOR TO CONTINUE THE ASSIGNMENT IN EFFECT SO THAT IT MIGHT SECURE FUTURE FINANCING.

ON MAY 15, 1959, BANKERS TRUST ADVISED THE CONTRACTING AGENCY THAT AS A RESULT OF AN ADVANCEMENT ON MARCH 12, 1959, THERE WAS DUE UNDER THE ASSIGNMENT $14,065 ($65 REPRESENTS TWO MONTHS INTEREST). ON FEBRUARY 29, 1960, THE RECEIVER FOR AERO-FAB WROTE TO OUR OFFICE RECOMMENDING PAYMENT. THE AMOUNT CLAIMED WAS IN FACT PAID ON JULY 1, 1960.

IN YOUR LETTER OF FEBRUARY 26, 1965, YOU STATE:

"AERO-FAB CORPORATION ENTERED INTO A WRITTEN AGREEMENT WITH ALBERT TURNER AND CO., INC. WHEREUNDER AERO-FAB CORPORATION AGREED TO ASSIGN THE CONTRACT PROCEEDS UNDER THE ASSIGNMENT OF CLAIMS ACT TO BANKERS TRUST COMPANY OF NEW YORK, AND GAVE ALBERT TURNER AND CO., INC. OR ITS OFFICERS ALBERT TURNER AND/OR JOEL TURNER, THE RIGHT TO BORROW MONEY FROM BANKERS TRUST COMPANY BY EXECUTING AERO-FAB CORPORATION PROMISSORY NOTES THEREFOR AND OPENED A SPECIAL ACCOUNT IN BANKERS TRUST COMPANY GIVING ALBERT TURNER AND/OR JOEL TURNER THE SOLE RIGHT TO DRAW CHECKS THEREON.

"THEREUPON JOEL TURNER WENT TO BANKERS TRUST COMPANY AND ON MARCH 12, 1959 EXECUTED A NOTE ON BEHALF OF AERO-FAB CORPORATION AND BORROWED $14,000 WHICH HE THEN WITHDREW FROM THE AERO-FAB CORPORATION SPECIAL ACCOUNT AND PUT THE PROCEEDS "IN HIS POCKET" NOT RETURNING SUCH PROCEEDS TO THE RECEIVER. * * *

"THE FOREGOING FACTS, WHICH IT IS SUBMITTED, CONSTITUTE A FRAUD ON THE UNITED STATES BY BANKERS TRUST COMPANY AND ALBERT TURNER OR JOEL TURNER, CAME TO LIGHT IN THE COURSE OF PROCEEDINGS INSTITUTED BY MORTON M. ROSE IN THE UNITED STATES COURT OF CLAIMS AT DOCKET NO. 264-61. DEFENDANT FILED MOTION TO DISMISS FOR LACK OF JURISDICTION TO WHICH THE PLAINTIFF'S RESPONSE CONSENTED, AND ON SEPTEMBER 20, 1963 THE UNITED STATES COURT OF CLAIMS ALLOWED DEFENDANT'S MOTION TO DISMISS ORDERING THE DISMISSAL TO BE WITHOUT PREJUDICE.'

SIMPLY STATED, THE QUESTION FOR CONSIDERATION IS WHETHER THE $14,000 PAYMENT WAS PROPERLY PAID TO THE ASSIGNEE OR WHETHER IT SHOULD HAVE BEEN WITHHELD AND APPLIED AGAINST AERO-FAB'S LIABILITY TO THE GOVERNMENT. UNDER THE ASSIGNMENT OF CLAIMS ACT, AS AMENDED, 31 U.S.C. SEC. 203 AND 41 U.S.C. SEC. 15, CONTRACTORS ARE PERMITTED TO ASSIGN TO A BANK OR OTHER FINANCING INSTITUTION ,MONEYS DUE OR TO BECOME DUE" UNDER A GOVERNMENT CONTRACT. BASED UPON THE ABOVE STATUTORY AUTHORITY THE CONTRACT PROVIDED AS FOLLOWS:

"46. ASSIGNMENT OF CLAIMS. (REPLACES GENERAL PROVISION NO. 8, STANDARD FORM 32).

"A. PURSUANT TO THE PROVISIONS OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED (31 U.S. CODE 203, 41 U.S.C. 15), IF THIS CONTRACT PROVIDES FOR PAYMENTS AGGREGATING $1,000 OR MORE, CLAIMS FOR MONIES DUE OR TO BECOME DUE THE CONTRACTOR FROM THE GOVERNMENT UNDER THIS CONTRACT MAY BE ASSIGNED TO A BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION, INCLUDING ANY FEDERAL LENDING AGENCY, AND MAY THEREAFTER BE FURTHER ASSIGNED AND REASSIGNED TO ANY SUCH INSTITUTION. ANY SUCH ASSIGNMENT OR REASSIGNMENT SHALL COVER ALL AMOUNTS PAYABLE UNDER THIS CONTRACT AND NOT ALREADY PAID, AND SHALL NOT BE MADE TO MORE THAN ONE PARTY, EXCEPT THAT ANY SUCH ASSIGNMENT OR REASSIGNMENT MAY BE MADE TO ONE PARTY AS AGENT OR TRUSTEE FOR TWO OR MORE PARTIES PARTICIPATING IN SUCH FINANCING. NOTWITHSTANDING ANY OTHER PROVISION OF THIS CONTRACT PAYMENTS TO AN ASSIGNEE OF ANY MONIES DUE OR TO BECOME DUE UNDER THIS CONTRACT SHALL NOT, TO THE EXTENT PROVIDED IN SAID ACT, AS AMENDED, BE SUBJECT TO REDUCTION OR SETOFF.'

SINCE PASSAGE OF THE 1951 AMENDMENT TO THE ASSIGNMENT OF CLAIMS ACT (65 STAT. 41) THE UNITED STATES IS PRECLUDED FROM RECOVERING PAYMENTS BACK FROM AN ASSIGNEE--- EVEN IF ERRONEOUS--- EXCEPT FOR FRAUD. UNITED STATES V. HADDEN, 192 F.2D 327; MERCANTILE NATIONAL BANK AT DALLAS V. UNITED STATES, 280 F.2D 832. FOR THERE TO BE RECOVERY ON THE BASIS OF FRAUD THE FRAUD COMPLAINED OF MUST BE ON THE PART OF THE ASSIGNEE AND NOT THE ASSIGNOR OR HIS AGENT. APPEAL OF DAVAL HANDBAGS, INC., ASBCA NO. 3899. IN THE INSTANT CASE THE ONLY EVIDENCE POINTING TO ANY IMPROPRIETY ON THE PART OF THE ASSIGNEE BANK IS THAT THE BANK MADE A FURTHER ADVANCE ON THE ASSIGNMENT AFTER IT HAD BEEN APPRISED OF THE BANKRUPTCY PROCEEDING. THIS ALONE, HOWEVER, DOES NOT ESTABLISH ANY WRONGDOING ON THE PART OF THE BANK. IT IS WELL ESTABLISHED THAT AN ASSIGNEE IS NOT REQUIRED TO LOOK TO THE APPLICATION OF ITS LOAN PROCEEDS. CENTRAL BANK. V. UNITED STATES, 345 U.S. 639; AMERICAN FIDELITY COMPANY V. NATIONAL CITY BANK OF EVANSVILLE, 266 F.2D 910. NOR IS IT INCUMBENT UPON AN ASSIGNEE TO PROVE THAT ADVANCES MADE BY IT WERE USED FOR THE PERFORMANCE OF THE CONTRACT. 36 COMP. GEN. 19, 23. IN THE CENTRAL BANK CASE, SUPRA, THE COURT HELD THAT AN ASSIGNOR'S INDEBTEDNESS TO THE GOVERNMENT FOR TAXES WITHHELD FROM ITS EMPLOYEES COULD NOT BE SET-OFF BY THE GOVERNMENT AGAINST PAYMENTS DUE UNDER A VALID ASSIGNMENT.

EVEN IF IT COULD BE PROVED THAT THERE WAS SOME IMPROPRIETY ON THE PART OF ALBERT AND/OR JOEL TURNER, THE ESTABLISHMENT OF THIS FACT WOULD IN NO WAY AFFECT THE PAYMENT TO BANKERS TRUST. CHELSEA FACTORS, INC. V. UNITED STATES, 181 F.SUPP. 685. THEREFORE, SINCE THE $14,000 WAS PROPERLY PAID TO THE ASSIGNEE ONLY AFTER CONCURRENCE BY THE RECEIVER FOR AERO-FAB, WE FIND NO BASIS FOR QUESTIONING OUR PRIOR SETTLEMENT.