537 F.2d 417 | Ct. Cl. | 1976
Lead Opinion
delivered tbe opinion of the court:
We have before us another variation on the theme of the rich but impecunious government contractor who has realized and should refund excessive profits, at least according to orders of the Renegotiation Board, but who camiot stay enforcement of the orders because of inability to obtain a bond. It is one of the paradoxes of our time. We convened an en bane court to consider the case because of the possibility we might be obliged to overrule or modify our decision in Sandnes' Sons, Inc. v. United States, 199 Ct. Cl. 107, 462 F. 2d 1388 (1972). However, we find no occasion to do so. The list of cases involving the same problem also includes O'Brien Gear & Machine Co. v. United States, 199 Ct. Cl. 1014 (1972): Bannercraft Clothing Co. v. United States, 207 Ct. Cl. 199, 518 F. 2d 605 (1975); Manufacturers Service Co. v. United States, 207 Ct. Cl. 185, 518 F. 2d 1202 (1975). This is the first case since Sandnes’ in which the working of the statute, as constructed in Sandnes’, is asserted to violate the Constitution.
Solitron Devices, Inc. (Solitron) is a publicly held company. Its securities are traded on the American Stock Exchange. It is a New York corporation with a principal place of business in Tappan, New York. It is in the electronics business and has several manufacturing facilities, both in this country and abroad. General R. F. Fittings, Inc., was a wholly owned subsidiary but in 1971 became a division of Solitron, and is included in any reference to the parent unless the context indicates otherwise. Solitron, so far as the instant case is concerned was engaged in the manufacture of electronic components such as rectifiers, transistors and diodes. Part of this was defense business, subject to the Renegotiation Act of 1951, as amended, 50 U.S.C. App. Sec. 1211, et seq. (Act), but the correct allocation of sales and costs to such business is in dispute. Solitron does not deny that some at least of its contracts and purchase orders carried the notice prescribed in 50 U.S.C. App. Sec. 1214. It does assert that if the Act were correctly construed and applied to its busi
The Renegotiation Board commenced renegotiation with respect to Solitron’s fiscal years ended February 28, 1967, February 29, 1968 and February 28, 1969 and 1970 (four years) and by orders dated January 24,1975, determined that Solitron realized excessive profits of $491,112, $1,283,413, $483,451 and $1,460,783 respectively. A separate order assessed General 14. F. Fittings for $150,000 for a short year, September 1, 1968 to February 28, 1969. These figures are large reductions from those the Regional Board originally had recommended, so it would appear Solitron was at one time menaced with exactions that greatly exceeded the orders now before us. The figures allow for state taxes but are before adjustment for Federal income taxes.
Solitron has filed its statutory petition in this court to obtain our redetennination of its excessive profits, under the Act Sec. 1218, as amended, alleging it realized no excessive profits. But it has not filed the bond to stay execution of the Board orders. It says it cannot obtain one, or if it could, it would only be by furnishing such collateral that it would be unable to continue business. Defendant has, according to its usual practice, counterclaimed for the amounts of the orders. It has collected a little of them but relatively not much, by other collection measures the Act authorizes. The motion before us now is for judgment in aid of execution. If recovery is had on such a judgment, according to our decision in Sandnes\ supra, it will not prevent Solitron from continuing to prosecute its litigation here, and if successful, it could of course recover with interest- refunds to the extent necessary to effectuate our redetermination.
Solitron realized a renegotiable loss of $4,200,000 in its fiscal 1971, which could not be carried back to the renegotiated years. It paid dividends until the end of its fiscal 1973 year. Its 1971, 1972 and 1973 dividends distributed over $1,000,000. It has repurchased its own debentures. It has invested in real estate. Its working capital February 28,1975, was $3,781,000 but cash was only $474,000. In Barron’s of March 29, 1976, we find its stock listed at 4% high, 3% low. We have not attempted to analyze the financial statement furnished in detail.
Because of economic conditions it may have now come about that bonds to stay renegotiation collection are obtainable only by companies that could pay the proposed refund in cash without inconvenience. And it is clear also that the impact of renegotiation includes not only companies that chose not to prepare for the day of renegotiation reckoning, but also companies that, e.y., by losses in years not under review, never had the ability to pay the refund that appears fair and just from scrutiny of a profitable year or years only.
Counsel have reargued the statutory scheme and we adhere to our exposition of it, that the whole court was agreed on in Sandnes\ In brief, by Sec. 1215 (b) (1) of the Act, upon the entry of an order the Board may authorize the Service Secretaries to collect by withholding techniques on current payments. Or by Sec. 1215 (b) (3) actions may be brought in “the appropriate courts of the United States” to recover from the contractor or persons directed to withhold from him. By Sec. 1218 an entirely different action was authorized to redetermine the excessive profits de novo, originally in the Tax Court, now in this. And in that section it is provided that the petition for redetermination stays collection only if a bond is timely filed. Thus before we were brought into the picture
Plaintiff notes the stay provision in Sec. 1218 which cross references to Sec. 1215 (b) and the “execution of the order of the Board” as the thing stayed. It argues that this means the Sec. 1215(b) (1) withholding procedure. However, suit under Sec. (b) (3) is also “execution” under Sec. 1215(b) and that such suits are “execution” is also shown by the fact that parties ordered to withhold from the contractor under Sec. 1215 (b) (1) may also be sued. Plaintiff would reach an absurd result with the effect of the bond apparently being only to stay collection 'by means other than suits and not to st’ay suits. The effect of the bond clearly is to stay collection by any means, and by an obvious negative pregnant, with no bond, collection by any available means, including suits but not limited to suits, is not stayed.
Plaintiff then turns to its Constitutional 'argument. Insisting that in reality it owes nothing, it says we cannot constitutionally enter judgment according to the statutory scheme without some ¡kind of due process preliminary hearing, since there was avowedly none at the Board level. The right to recover a refund after trial, if the findings establish entitlement, it says is not enough. Plaintiff is vague about what kind of preliminary court survey of the case would be sufficient. As a practical matter, in view of the judgmental nature of renegotiation, we think none would. Plaintiff is doubtless really demanding that there should be no collection at all until the processes of this court have been traversed in their entirety and presumably, until the Supreme Court has denied certiorari. The administrative process of determining excessive profits is not a speedy one, as this case illustrates. So far the judicial process has, alas, not been particularly speedy either. If plaintiff is right, no one would ever eliminate ex
In Sandnes’, too, the plaintiff would have had us hold that ■the procedure we thought the statute required was unconstitutional as to any contractor who was unable to file a bond. A fair reading of our majority and dissenting opinions will show all thought the scheme was not facially unconstitutional. The majority thought it might be unconstitutional as applied to a few exceptional Catch-'22 situations, where it might lead to a petitioner being effectively “chilled” in his appeal to this court, without ever having had a due process hearing. The majority wanted to be shown that the contractor had got into its predicament without its own fault or negligence, and further, that the Government would or at least could use the judgment in a manner to prevent further prosecution of the petition in this court. The showing never ■was made in Sandnes’, as the contractor never went before the Trial Division to make it, and this might have been anticipated, for the opportunity to make such a showing was not what it had sought. Three judges in dissent would have entered the requested judgment without further ado, not believing the statutory scheme could be unconstitutional as to any state of facts, or at least any suggested by the record before us.
Should we be satisfied to follow Sandnes’ as a precedent, we would have to consider the matters we wanted to know more about in Sandnes’. Here we know enough to make reference to the Trial Division unnecessary. It is quite apparent that management had nine years, almost, from the time the statutory notices started coming in until the final orders, to commence making preparations for the evil day to come. However unjust they thought the demand would be, prudent management would have suggested some hedge against
In Sandnes’ we directed an inquiry (199 Ct. Cl. at 117, 462 F. 2d at 1394):
'b. Whether plaintiff’s financial condition is due in any part to dividends or other distributions made from the notice of commencement of renegotiation, to now.
In Sandnes’ the contractor was in bankruptcy. In view of this we were also uncertain what if any effect the judgment would have, surmising that like the Board order, it would simply be an item to be proved in the bankruptcy. We directed inquiry as to that point. Plaintiff here is not in bankruptcy and the possibility that our judgment could be used in a destructive way therefore has more plausibility. Plaintiff is not insolvent but we accept at least arguendo that if defendant had the judgment it could, if it so willed, put plaintiff in a situation of stringency for cash and working capital, and might make it unable to meet other current liabilities. It would be imprudent for the Government to do so, no doubt, as killing the golden goose, but this does not guarantee it will not do it. It would seem however, if Government really 'attempted at whatever cost to itself as well as to the contractor, to collect on a liability that our ultimate decision on the merits may wash out entirely, a receivership would be a good defense. Plaintiff’s not being in bankruptcy or receivership means its management, so long as this state continues, could dispose of assets while the case was pending here, a factor not present in Sandnes’.
Commissioner v. Shapiro, 424 U.S. 614, was decided March 8,1976, and of course was much discussed in oral argument before us. It shows that “collect now, litigate later” has its limits even in the generally open field of Internal Revenue enforcement. Defendant had assessed taxes on Shapiro and served levies upon various banks in which he had accounts or safe deposit boxes. He was about to be extradited to Israel to be tried for fraud there, and relied on the seized funds to finance his defense and for bail money there. He had a suit pending in the Tax Court which had not been decided. The damage from the seizures would obviously not be repaired by ultimate victory in the Tax Court. The question was whether the Anti-Injunction Act, IRC Sec. 7421(a) barred Shapiro’s injunction suit, with the IRS merely asserting there was a tax liability, or whether some inquiry had to be made as to its factual basis. The Government would have required Shapiro to prove there was no factual basis for the tax, not informing him what facts it had. The Court affirmed the D.C. Circuit, holding for Shapiro. The Court said that to 'allow the Government to seize and hold property merely on a good-faith allegation that a tax was due, would raise
These statements are supported by a footnote 11, citing Goldberg v. Kelly, 397 U.S. 254 (1970) ; and Sniadach v. Family Finance Corp., 395 U.S. 337 (1969), of which we had the benefit in our Sandnes’ decision, and North Georgia Finishing, Inc v. Di-Chem, Inc., 419 U.S. 601 (1975), which has come down since. This latter case holds a Georgia garnishment statute unconstitutional because a writ tying up a banking account may be had at the outset of litigation just by filing a conclusory affidavit and a bond with a clerk of court or other non-judicial officer. The footnote, however, distinguishes Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974), where it was held that no probable cause hearing is required where complainant will eventually be made whole for any inadequacy in compensation for confiscated property.
North Georgia Finishing, Inc., supra, likewise distinguishes Mitchell v. W. T. Grant Co., 416 U.S. 600 (1974), where a “sequestration” statute passed constitutional muster because there the seller-creditor holding a vendor’s lien could obtain the writ only from a judge who had to be satisfied by an affidavit setting forth the facts, beyond mere conclusory allegations There is much debate among the Justices, which need not concern us here, whether Mitchell v. W. T. Grant Co., overrules Fuentes v. Shevin, 407 U.S. 67 (1972), and is in turn overruled by North Georgia Finishing, Inc., supra.
Defendant relies on two other recent Supreme Court tax cases interpreting the Anti-In junction Act, IRC Sec. 7421 (a), that go unmentioned in Shapiro, but assuredly are not to be regarded as overruled sub silentio. In Bob Jones University v. Simon, 416 U.S. 725 (1974), that Act was held to bar a suit to enjoin the IRS from removing plaintiff from the list of tax-exempt private schools. It was asserted that this would cause donors to stop contributing for fear of losing their own tax deductions, an irreparable injury that ultimate victory in the school’s own tax litigation would not repair. It was held that the school could not maintain the suit because it could not bring the case within Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962), i.e.,
It seems fair to say from the recent cases that the indigence-of the debtor, and the fact that the contract to be enforced was one of adhesion, have lost some of the importance we-assigned to them in our Bandnes’ discussion. On the other hand, there is no more reason than before to believe that the due process requirements engrafted on the legal remedies of private creditors will be transferred entire to the extraordinary remedies granted the Government in the enforcement of its Revenue Acts .and other important monetary legislation. We think an Act is facially constitutional, if it is in that class and if it authorizes a temporary deprivation of property without a hearing, but permits the ultimate making' whole of the debtor in case he prevails in the due process hearing ultimately provided. Any exception must be in the instance of some extraordinary hardship as in Shapiro’s. case, irreparable because victory in an ultimate trial manifestly would not malee him whole. This is nearly the formula the majority had in mind in the Sandnes’ case.
We can and have read the Board’s opinions attached to the petition, and see that they are at least facially reasonable, not bearing the indicia of bias and prejudice, nor appearing the work product of a kangaroo court. Plaintiff asserts bad faith in refusing to consider a Price Waterhouse audit submitted late in the case. The Board explains its position as to this. Whether the audit is decisive for plaintiff of course remains to be determined.
Plaintiff asserts that our function in entering the judg-ment in aid of execution is ministerial, unworthy of an Article III court. It was performed by District Courts before Pub. L. 92-41, supra, albeit with some grumbling. We have necessarily taken the case under our scrutiny to the extent indicated. On the whole, we think our pre-execution judicial scrutiny of the case will stand comparison with that under the Louisiana “sequestration” law, upheld in Mitchell v. W. T. Grant Co., supra.
Thus we think the basis for departing from the statutory procedure on constitutional due process grounds clearly exists only, if at all, when enforcement of that procedure, as written, threatens a contractor with substantial injury which would not be reparable by the final judgment obtained after trial on the merits. Albeit dictum, here we will say now that Shapiro teaches us not to view such instances lightly when their existence is shown. This is not such a case. We are not dealing with the installment buyer of a TY set he cannot afford. We are dealing with a publicly held company, considered responsible enough to be awarded millions worth of defense contracts over many years. Though the long time con-
Accordingly, defendant’s motion for judgment in aid of execution is granted. The tax credit computations furnished by the Internal Revenue Service must be. used. If they are wrong, this can be corrected in the final judgment. Judgment is entered for defendant in the following amounts with interest as provided by law:
Fiscal Year:
1967 _ $191,112.00
1968 '_ 1,283,413.00
1969 _■_ 483,451.00
1970 _ 1,460,783.00
For General R. F. Fittings_ 150, 000. 00
Dess tax credits as follows :■
Fiscal Year:
1967 _ $235,733.76
1968 _ None
1969 _ None
1970 _Not known:
Defendant stipulates maximum possible, 48%.
For General R. F. Fittings_ None
Fiscal Year:
1967 _ $255,378.24
1968 _ 1,283,413.00
1969 _’_ 483,451.00
1970 __ 759,607.16
For General R. F. Fittings--- 150,000. 00
Concurrence Opinion
joined by Kunzig, Judge, concurring:
I concur in the result and in the court’s opinion so far as ifc goes, but feel it necessary to add a few words because the majority opinion does not squarely address one of the two constitutional defenses asserted by plaintiff to defendant’s motion for summary judgment in aid of execution of the orders of the Renegotiation Board entered against plaintiff.
Plaintiff correctly observes that the U.S. Court of Claims is a court created under article III of the Constitution. Glidden Co. v. Zdanok, 370 U.S. 530, 571-84 (1962). Plaintiff then refers us to article III, section 2, of the Constitution. Section 2 provides that the federal judicial power extends to all “cases and controversies” to which the United States shall be a party. But, plaintiff says that pre-hearing entry of a money judgment by this court based not upon facts and evidence, but solely upon the board’s orders, would not be an act of a sufficiently judicial nature to be performed by an article III court. In other words, such a judgment would be void since not produced by an exercise of the judicial power of the United States. Plaintiff views the renegotiation, statute as attempting to vest in the judiciary jurisdiction over matters which are purely legislative or administrative in their substance when in section 108 it would authorize issuance of pre-redetermination “judgments” in aid of execution of administrative orders. Plaintiff says that this is just not adjudication by the court of a justiciable controversy. This particular question has not heretofore been squarely addressed in a majority opinion of this court in renegotiation cases. I think we must now speak to it. Of course, it is not contested that legislative or administrative jurisdiction cannot be conferred upon article III courts. To do so would
Plaintiff asserts that for us to enter a $2.9 million judgment against it without evidence upon which we can exercise the judicial power of the United States, indeed lacking even an administrative record, and in face of the policy of the Eenegotiation Act that no presumptive validity attaches to the unilateral declarations of the Eenegotiation Board, simply makes the court a rubber .stamp for the board and transforms the court into an extention of the administrative processes of the executive branch. Alternatively, plaintiff suggests that if section 108 of the Act requires this court to enter a judgment on behalf of defendant in such a factual void, that section should be held to be unconstitutional “as it is patently antithetical to the concept of justiciability embodied in Article III of the Constitution.” On justiciability generally, see Baker v. Carr 369 U.S. 186 (1962).
Plaintiff’s constitutional arguments are serious and twofold. First, that to go along with defendant’s demand for judgment because plaintiff has not posted the required bond would be premature and deny plaintiff due process if there is no hearing on that issue, or indeed upon all the issues presented by the pleadings. The court’s opinion deals adequately with plaintiff’s due process issue as it pertains to a demand for hearing before judgment in aid of execution of the board’s orders. The second issue, however, which the opinion does not address, is whether the judicial power of the United States attaches at all in the present posture of the case.
We have here a peculiar statute that requires a contractor “to pay now and litigate later.” But, it does provide plaintiff with the opportunity, in a de novo hearing at a later date, to show, on the merits, that the board determination was wrong and to recapture, with interest, any sums wrongly found by the board to have been excessive profits. It is in the present initial stage of the case that we have this ancillary proceeding with reference to stay of execution. As defendant suggests, this is the time for the court to inquire into whether the board’s orders were entered against the proper party, whether the procedures followed in entering the board orders were lawful, whether plaintiff has paid the amount
As to the jurisdictional issue, this proceeding involves a justiciable case or controversy to the extent it seeks, and defendant opposes a judicial determination of the ultimate issue *of excessiveness. The ancillary or collateral relief now being ¡sought — judgment in aid of execution of the board’s orders— could not be awarded in the absence of plaintiff’s own petition for redétermination. We would have no jurisdiction absent •an affirmative claim for relief. In order words, plaintiff "Drought us a case or controversy when it filed its petition. We -do not decide the merits thereof at this stage, but under the ■statute must go forward as it directs without prejudice to plaintiff’s light and opportunity to prove to us that the board was wrong and that its profits were not excessive. The judicial power has been invoked. Yes, it is hard to have to put nip the money first and litigate later. But, this statutory -scheme was on the books when plaintiff took the contract with notice of it. By entering renegotiable business and by failing to provide the bond the statute requires, plaintiff, in my view, has waived the right to any hearing on the merits -■of the .excessiveness issue prior to execution of the board’s ■orders. Also, the Supreme Court has sanctioned the constitutionality of the pay now, litigate later scheme in upholding •unilateral revenue determinations similar to the scheme in the Renegotiation Act, where adequate opportunity is afforded for a later judicial determination of the legal rights. Phillips v. Commissioner, 283 U.S. 589, 593-95 (1931). Of course, there is room for argument that the basic purpose of the Renegotiation Act is not to gather revenue, if that makes .any difference, which I think not. Sandnes’ Sons, Inc. v. United States, 199 Ct. Cl. 107, 462 F. 2d 1388 (1972). But,