Mississippi Valley Generating Co. v. United States

175 F.Supp. 505 (1959)

MISSISSIPPI VALLEY GENERATING CO., on Its Own Behalf and to the Use of Others

v.

UNITED STATES.

No. 479-55.

United States Court of Claims.

July 15, 1959.

*506 *507 John T. Cahill and William C. Chanler, New York City, for plaintiffs. Robert G. Zeller, New York City, was on the briefs.

Kendall M. Barnes, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant. John B. Miller, Herman Wolkinson and Robert E. Kaufman, Washington, D. C., were on the brief.

MADDEN, Judge.

The plaintiff, an Arkansas corporation, made a contract with the United States, dated November 11, 1954. The Atomic Energy Commission, (AEC), was the agency which acted for the Government in the transaction. The contract required the plaintiff to build and operate a large plant for the generation of electricity, the plant to be located at West Memphis, Arkansas, across the Mississippi River from Memphis, Tennessee, and to sell the electrical energy there generated to the United States. After the site for the plant had been acquired and some preliminary work had been done by the plaintiff, but before any considerable amount of construction of the plant had taken place, an important event occurred which eliminated the Government's need for the electricity which it had contracted to buy from the plaintiff.

Because of the elimination of its need for the electricity, the Government, through the AEC, on July 11, 1955, orally, and on August 1, 1955, by letter, notified the plaintiff that the Government was terminating the contract. On November 23, 1955, the AEC wrote the plaintiff that the Government had concluded that there had never been a valid contract between the parties. The Government's position is that, there never having been a valid contract, it is not liable to the plaintiff for any costs incurred by the plaintiff prior to the termination of the contract nor for any damages caused to the plaintiff by its termination. The plaintiff's position is that the contract was valid, and that the Government is liable to the plaintiff for the costs which the plaintiff incurred in connection with the contract.

The Tennessee Valley Authority, (TVA), an agency of the United States, operates the largest unified enterprise in the country for the generation and distribution of electricity. Its general field of operation is the area drained by the Tennessee River and its tributaries. Since its establishment in 1933, it has constantly expanded its operations as the demand for electricity has increased. The AEC uses a large amount of electricity in its three plants at Oak Ridge, Tennessee, Paducah, Kentucky and Portsmouth, Ohio. TVA supplied the current used at the Oak Ridge plant and a considerable part of that used at the Paducah plant. The Portsmouth plant was supplied by the Ohio Valley Electric Corporation, (OVEC), a corporation formed by several nearby private utilities in 1952 for the purpose of contracting with the AEC and building a generating plant to supply electricity to the AEC's Portsmouth establishment.

TVA was supplying some 1,000,000 kw of electricity to AEC at Paducah, from *508 TVA's generating plant at Shawnee, Kentucky. To meet the growing demands upon it, particularly in and about Memphis, Tennessee, TVA desired to build a new plant, to be operated by steam, at Fulton, Tennessee, on the Mississippi River upstream from Memphis, with a capacity of about 450,000 kw. Both houses of Congress had in 1952, however, rejected proposed amendments to TVA appropriation bills which amendments would have appropriated money to start construction of the Fulton plant.

The policy of the Eisenhower Administration, which took office in January 1953, was to have either private enterprise or local communities, rather than the United States, provide electric power generating facilities. The President's State of the Union message of February 2, 1953, announced this policy. The President's new Director of the Budget, Mr. Joseph Dodge, eliminated from the 1954 fiscal year budget the appropriation for the Fulton plant, which appropriation President Truman had proposed in that budget.

The Administration's policy with regard to public power was observed with approval by Mr. George D. Woods, chairman of the board of directors of First Boston Corporation, one of the leading investment banking concerns in the United States. First Boston had its offices in New York. Mr. Woods wanted to help to make the policy succeed. He obtained an appointment with Mr. Dodge, the Director of the Budget, and offered the services of First Boston. Mr. Dodge, a Detroit banker, new in the Government, wanted to have a study made to determine the controverted question of the extent to which the Government was really subsidizing the TVA. He needed a man experienced in public utility financing and expert in accounting and problems of the cost of money, and had not found such a man. Mr. Woods said that First Boston had such a man, Mr. Adolphe Wenzell, and he would see if Wenzell would undertake the work.

Wenzell was willing and, with the approval of his other superiors, he did accept the assignment. He served as a part-time consultant to the Bureau of the Budget, without compensation, but was to have $10 per day in lieu of subsistence, and reimbursement of his transportation expenses. It was understood that Wenzell would not sever his connection with First Boston and that he would continue to receive his regular salary from it. Wenzell began this work on May 20, 1953, and made his report to Dodge about September 20. In all, he spent 29 days in the Bureau of the Budget, and became acquainted with many of its staff. He had access to all pertinent reports and documents. His report, not surprisingly, indicated that the Government was, to a considerable extent, subsidizing the TVA. When he made his report to Dodge, he asked for and received permission to retain a copy, but was told that it was a confidential Bureau document and should not be shown to anyone else. Some time later Woods asked Wenzell to see the report and Wenzell let him read it.

The work which Wenzell did for the Bureau of the Budget in 1953 resulted in his getting acquainted with Rowland R. Hughes, then the Assistant Director, later the Director, who, as we shall see, was a principal actor in the events in 1954 leading to the contract here in litigation.

In the fall of 1953 the Bureau of the Budget decided that it would not include money for the Fulton plant, desired by TVA, in the TVA appropriation figure to be presented to Congress in 1954, for the fiscal year ending June 30, 1955. Mr. Gordon Clapp, the General Manager of TVA, when he learned of this Budget decision, took the position that TVA must be allowed to reduce the amount of electricity it was supplying to AEC so that it would have electricity to satisfy the growing needs of other patrons. The Bureau began to draft language to be included in the President's budget message to the effect that an attempt would be made to relieve TVA of some of its power delivery to AEC, and that if that *509 could not be done, the problems of the Fulton plant would be reconsidered.

Director Dodge in December of 1953 suggested to Admiral Lewis I. Strauss, Chairman of the AEC, and Mr. Walter J. Williams, AEC's General Manager, that capital expenditures by the Government for the Fulton plant could be avoided if AEC would contract with private industry for the construction of a generating plant that would supply 450,000 kw of power to AEC at its Paducah plant and thereby release the power which TVA was supplying there, so that that power could be used by TVA for its other requirements. Mr. Dodge reminded these men that, in two other instances, private utilities had made long-term contracts to supply power to AEC. Mr. Williams said he would consult with Mr. McAfee, who was president of one of the companies referred to by Dodge. McAfee's response was encouraging.

Dodge delegated to Hughes, the Assistant Director, the responsibility for the Bureau's part in pursuing the inquiry. AEC's only interest was in being assured an adequate supply of power. The interest of the Bureau of the Budget was that the necessary power be obtained, if possible, in a manner consistent with the Administration's policy of promoting a private enterprise economy and keeping Government expenditures as low as possible.

Edgar H. Dixon, president of Middle South Utilities, Inc., which owned utilities operating in Arkansas, Louisiana and Mississippi, learned from McAfee that AEC might be seeking an additional source of power in the Paducah area. He was interested because of the possibility of selling power and because he, like Woods of First Boston, wanted to lend a hand to the Administration in its effort to put the business of generating power into private hands. Dixon went to see Strauss, and conferred with him and his principal assistants. Hughes, at the Bureau of the Budget, learned of the meeting. He requested AEC to proceed with negotiations with private interests with a view to having additional power available not later than the fall of 1957. McAfee and Dixon were invited to a meeting to be held in Strauss's office on January 20, 1954.

About January 15, 1954, Hughes suggested to Dodge that Wenzell be again requested to assist the Bureau, because of his study of TVA and his knowledge of commercial transactions. By that time, the Administration had decided that the AEC should make a contract to purchase power from private sources, and that the Fulton plant would not be built. The Administration's fixed purpose, by that time, was to find private enterprisers willing to contract with it, and to make a fair and prudent bargain with them. Wenzell had had no part in those decisions.

For the Bureau of the Budget to know what would be a fair bargain, it had to know what interest rate the enterprisers would have to pay on the bonds which they would have to sell to finance the project. Wenzell was an officer of First Boston, a large enterprise whose business it was to find purchasers for such bonds. Since Hughes knew him and trusted him, it was natural that he should look to him for advice on the cost of money. Wenzell came to Washington on January 18, 1954, and conferred with Hughes. Hughes told him of the meeting with Dixon and McAfee, arranged for the 20th. He learned that Wenzell knew both these men, and asked him to attend the meeting and use his influence to impress upon them the need for prompt action on their part in getting up a proposition to the AEC. Hughes then arranged for Wenzell to see Strauss, whom he had not met before. Strauss also emphasized to Wenzell the necessity for prompt action.

At the January 20 meeting, McAfee and Dixon pointed out that if an additional generating plant should be built near Paducah, and the AEC should later need less power, there would be no other market for the power in that area. It was recognized that the real need for power was in the Memphis area, some *510 200 miles from Paducah, and that the new power, though bought and paid for by AEC, would be delivered to TVA and used by it to supply its customers. Dixon thought a more logical arrangement would be for TVA to contract directly for the needed power, rather than have AEC contract for it. The meeting moved to Hughes' office in the Bureau of the Budget. It was decided that Dixon would prepare a study of what it would cost for his company to construct a plant, across the river from Memphis in the territory of his Middle South company, capable of generating some 450,000 to 600,000 kw of power. To the suggestion of McAfee and Dixon that the arrangement of having AEC contract for power to be delivered to and used by TVA was awkward, Hughes responded that the decision as to what agency of the Government would make the contract would be made by the Government.

At the close of the meeting in Hughes' office, Wenzell and Dixon agreed that Wenzell would meet with a Mr. Seal of Ebasco, a company which performed engineering services for Dixon's companies, to enlighten Seal and thus expedite the study which Dixon was to make. Wenzell met with Seal in New York and reported to him the substance of the discussions up to date. He urged him to get to work on the study which Dixon had promised. On January 27 Seal and a Mr. Canaday, a vice president and director of Dixon's Middle South company, went to Wenzell's office in New York. They were engaged in formulating a plan for the project. Wenzell told them he would give them any help he could on the subject of the cost of money for the project. On January 29, Hughes telephoned Wenzell to find out what had happened at Wenzell's meeting with Canaday and Seal.

Wenzell had another meeting with Canaday and Seal, other visits with Hughes, and received a request from Dixon that Wenzell get the opinion of First Boston on what the interest rates would be on the bonds in such a project. Wenzell called together the First Boston experts on the subject, and telephoned the answer to Dixon. During the following days, Wenzell had several meetings with representatives of the interested private utilities at some of which other representatives of the Government were present. All these meetings were held either at the request of or with the knowledge of Hughes with whom Wenzell was in frequent touch by telephone.

When McAfee learned that the proposed plant was to be located in the Memphis area, he lost interest because that location was outside the area of the companies in which he was interested. Another company showed some interest in collaborating with Dixon, but shortly abandoned the idea. Hughes was disturbed because he feared that if Dixon could not get another company to join in the project, he might abandon it. About February 18, Dixon told Wenzell that he was to have a meeting the next day at the offices of The Southern Company, the owner of public utility companies operating, generally, in Georgia, Alabama and Mississippi. Wenzell reported this to Hughes who asked him to attend the meeting. Eugene A. Yates was the chairman of the board of directors of Southern, and was at the meeting, as were the other important officials of Southern.

Wenzell had known Yates for many years but had not, before this meeting, talked to him about the project here in question. Dixon made an earnest plea that Southern join in the project. Wenzell telephoned Hughes, reporting what occurred at the meeting. About February 20 Southern decided to take part in the project. Yates immediately notified Hughes. Dixon's Middle South and Yates' Southern are sometimes hereinafter called the sponsors.

Canaday and Seal had been working up a proposal and, on February 20, after Southern had agreed to join in the project, they began to put the proposal in draft form. On February 23, Dixon and Wenzell met Hughes at the Bureau of the Budget. Dixon showed Hughes an early draft of the proposal. On the same day *511 Dixon, Yates, Kenneth D. Nichols, the General Manager of AEC, Wenzell and Mr. McCandless of the Bureau of the Budget reviewed the tentative draft to see whether it was complete enough to merit consideration by AEC. The draft which was reviewed said that it assumed a cost of money which had been given to it by responsible financial specialists, and that the offer was conditioned upon the sponsors' being able to obtain the money at those rates. In fact, the advice as to the cost of money had been given orally by Wenzell to Dixon, and had been incorporated in a draft of a letter written by Wenzell and addressed to Dixon on February 23, intended to be signed by First Boston, but never actually so signed or delivered.

On February 25, Dixon's Middle South company and Yates' Southern company submitted to AEC a formal proposal offering to form a new corporation which would finance and construct generating facilities from which 600,000 kw of electric power would be delivered to TVA at the middle of the Mississippi River at Memphis, the power to be paid for by AEC. The proposal went into detail as to the terms of the contract, the method of computation of the charges for the power, reimbursement for taxes, etc. When AEC received the proposal, it asked the Bureau of the Budget for its opinion. Hughes introduced Canaday, Seal, and Barry of Southern, to Mr. Schwartz, Chief of the Resources and Civil Works Division of the Bureau. Hughes told Schwartz that he wanted an analysis of the proposal by March 2, and that the men whom he had introduced would be available to answer questions. The Bureau staff commenced the study. The AEC staff began a similar study.

Hughes advised Schwartz that Wenzell would come to see him on March 1. When he arrived, the staff was completing the study and preparing the memorandum which Hughes had requested. Wenzell sat in the conference and took the position that the estimates of costs in the proposal were too high.

On March 2 there was a meeting of the Bureau staff and Wenzell and Seal of Ebasco. Seal was shown the proposed staff memorandum and was questioned about various items in the proposal of February 25. After Seal had left, the staff, with Wenzell participating, completed its memorandum, which said that it did not have sufficient information to make a close analysis, comparing costs with those of TVA, and that active participation by TVA would be required for such an analysis. The memorandum concluded by saying: "We believe that the rates involved are sufficiently close that negotiations should be entered into by the parties concerned." Wenzell then went to Seal's office, told him that the memorandum had been completed, and that Clapp of TVA and Nichols of AEC were to meet with Hughes on March 3.

Between March 3 and March 9, Wenzell, in New York, had telephone conversations with Hughes, Schwartz, Canaday, Seal, Yates and Dixon. All of these conversations related in some way to the project. On March 9, representatives of the Bureau of the Budget, AEC and TVA met and reviewed the draft of the analysis of the February 25 proposal. Wenzell was not present. Later in the day, in the Bureau, the completed draft was distributed to a group which included Wenzell, and a member of the staff gave an oral summary of the analysis. All present were of the opinion that the estimated costs in the proposal were too high. Wenzell was asked to so advise Seal and to find out whether the sponsors would make a better proposal. Wenzell advised Seal that the estimated costs were too high. Wenzell discussed with Dodge the subject of the estimated costs, told him that he, Wenzell, was not qualified to advise the Bureau on that subject, and suggested that the services of Francis L. Adams, Chief of the Bureau of Power, Federal Power Commission, be obtained. Dodge said he would find out whether Adams would be available.

On March 10, Dixon and Yates met with Mr. Linsley, chairman of First Boston's *512 executive committee, in Linsley's office. Wenzell was present. Dixon was well acquainted with Linsley and had frequently asked for his opinion on security issues and the condition of the money market. Dixon wanted Linsley's opinion on the current situation with regard to financing a project such as the OVEC, which First Boston had assisted in financing some years before, and which was comparable to the proposed project.

On March 11 Wenzell attended a meeting of the staff of the Budget Bureau. As a result of the meeting, an AEC representative, Mr. Cook, telephoned Dixon and told him wherein the estimated costs were too high. A copy of the AEC-TVA analysis was given to Seal and Canaday who were asked to study it, and submit their comments, together with the sponsors' minimum cost proposal by March 15 or 16. On March 16, Dixon, Yates, and their principal assistants met with Dodge. In preparation for this meeting, Dixon and his associates had met in his hotel room and prepared a draft of a letter to be sent to AEC in reply to the AEC-TVA analysis. Wenzell may have been present at the meeting. In any event, he was given a copy of the draft and made changes on it in his handwriting. The letter was never put in final form, signed, or delivered to AEC. Wenzell was present at the meeting with Dodge. Dixon and his associates urged Dodge to have an analysis made of their February 25 proposal by someone other than the AEC-TVA group. Wenzell renewed his suggestion that Adams of the Federal Power Commission be requested to make such an analysis. On March 19 Adams began to do that. On March 24 Adams and representatives of the Bureau of the Budget met with Seal, and Adams told him that the figures in the February 25 proposal were too high, and asked him to have the sponsors submit new estimates of costs. Adams had, on March 23, discussed with Wenzell the subject of the cost of money for the project. Wenzell, between March 17 and March 30, had telephone conversations with representatives of the sponsors, and of the Bureau. On March 30 he was asked by the Bureau to be present at a meeting on April 3.

The sponsors had become aware that their February 25 proposal would not be acceptable. They prepared new cost estimates and submitted them to Hughes, Adams and others on April 3, at the meeting which Wenzell had been requested by the Bureau to attend and did attend. The sponsors were told that if they would submit a new firm proposal based upon their revised cost estimates, it would deserve serious consideration. It is probable that during this meeting Wenzell stated to Dixon, Yates and Hughes that the information which he had previously given them with regard to the interest rate on the bonds of the proposed project was still valid.

Also on April 3d Wenzell talked to Nichols at AEC. Nichols told him that the sponsors' new figures were close to being acceptable. He asked Wenzell to encourage the sponsors to refine their figures and to submit a proposal based on a fixed price for the construction of the new facilities, with details as to the basis on which the charges for power would be calculated. He told Wenzell that AEC could not consider a proposal which was not firm as to capital costs, nor one which did not contain cancellation provisions acceptable to the AEC. After the meeting with Nichols, Wenzell returned to New York, and did not make any more trips to Washington in connection with the project here involved.

The sponsors prepared a new proposal, after numerous discussions in Washington involving representatives of the sponsors, the Bureau of the Budget, and AEC. Dixon delegated a representative to inquire of various investment bankers and institutional investors as to the cost of money for such a project. This inquiry showed that the rate of interest would be about 3½%, which was the figure that Wenzell had on prior occasions given to Hughes and to the sponsors.

*513 On April 12, 1954, the sponsors submitted their new proposal, which was dated April 10. A representative of the sponsors had, some days before the submission, informed Wenzell that it contained a statement that the sponsors' offer was conditioned upon their being able to arrange financing upon the terms which responsible financial specialists had advised them would be available. On the morning of April 12, before the sponsors went to Washington to submit their proposal, they met in Linsley's office at First Boston. Wenzell was present. Linsley was requested to and agreed to give them a written opinion, signed by First Boston, confirming Wenzell's prior statements as to the current rate of interest on bonds for such projects.

The April 10 proposal received intensive study and analysis by the Bureau of the Budget, AEC and TVA, and representatives of the sponsors were called in for information and discussion. On April 24 Hughes, who had, on April 16, 1954, succeeded Dodge as Director of the Bureau, recommended to the President that the Bureau be authorized to instruct AEC to proceed to negotiate a contract with the sponsors, and to instruct AEC and TVA to work out the necessary interagency arrangements. On May 27 a proposal was received from another group headed by a Mr. Von Tresckow. This proposal was studied, and on June 14 Hughes and Strauss presented summary analyses of the Dixon-Yates proposal, the Von Tresckow proposal and of the cost of the proposed Fulton TVA plant, to congressional leaders in conference with the President.

On June 16, with the approval of the President, Hughes gave to AEC and TVA the instructions which, he had, on April 24, recommended to the President. On June 30, AEC wrote the sponsors that their April 10 proposal "constitutes a satisfactory basis for negotiation of a definitive contract", and that AEC was ready to begin negotiations. Negotiations began on July 7 and ended with the signing of the contract here in litigation on November 11, 1954.

The Conflict of Interest Defense

Adolphe Wenzell's study of TVA for the Bureau of the Budget in 1953 is of significance in this case only as background. Through that work he became acquainted with Dodge, Hughes and others of the Bureau staff. He became recognized by Hughes as a man sympathetic to the Administration's purposes and policy with regard to public power and private enterprise. His company, First Boston, was expert in the financing of large utility enterprises. When the Administration decided that it would, if it proved feasible, obtain the needed additional electric power by contracting with a private generating enterprise, Hughes thought of Wenzell as a possible useful consultant and obtained Dodge's permission to employ him.

It hardly needs to be said that Wenzell and his permanent employer, First Boston, wanted the explorations into the possibility of making a contract for the erection of a generating plant with private capital to eventuate in a contract. Their enthusiasm in this purpose equalled, no doubt, but could hardly have exceeded, that of the President of the United States and his Director of the Bureau of the Budget. Wenzell was not hired by the Director to discover reasons why a contract should not be made. He was hired because he was a knowledgeable person and was on the Administration's side of the political-economic controversy about public versus private generation of electric power. It could hardly have been expected that the Administration would hire as a consultant an expert from the ranks of the enthusiasts for public power. The Administration's policy was a perfectly legitimate one, and it had a right to use all legitimate means to make its policy succeed. Its powerful urge to get a contract put it at a possible bargaining disadvantage, but no claim is made in this case that the contract which was made was an improvident one.

*514 Wenzell's function of advising the Government as to the cost of money, a large element in the cost of electric power produced by a plant built with borrowed money, was not an arduous one. A few well placed telephone calls by any responsible person would probably have obtained such information.

Hughes really used Wenzell as an expediter. When Hughes learned that Wenzell knew McAfee, Dixon, and other important utility executives who showed an interest in the project which the Administration hoped to consummate, he used Wenzell to keep their interest alive and to get it into the form of a proposal which the Government could consider. Time was important. The construction of the needed plant would take years after a contract had been made. Those who preferred that the additional power should be obtained from a plant built by TVA with Government money were politically powerful, and were able and persistent. If the need became pressing, and there was no promise that private enterprise would satisfy it, the Administration's policy could not be maintained.

Wenzell discussed the subject freely with the representatives of the private sponsors. At the stage of proceedings during which he was employed by the Bureau of the Budget, there were no secrets. Every intelligent person knew that the Administration wanted to make a contract, and was anxious that private enterprise come forward with a proposal that would be acceptable. Hughes directed Wenzell to sit in the meetings of the sponsors and report to Hughes what he heard. He participated in the conferences of the agency staffs. He, no doubt, was able to give to Hughes a better overall view of events than any other person, and did, we should suppose, expedite the formulation of the proposal which formed the basis for the later negotiation of details and exact figures.

Wenzell had substantially nothing to do with the substance of the contract. He knew little about construction costs and said so, recommending Adams to the Bureau for that function. The cost of money was determined by forces beyond the control of the contracting parties. While the contract itself contained nothing of Wenzell's work, the fact that it was made at all may have been a result of his work. At any rate, he served the Administration faithfully in the tasks it assigned to him.

The Government says that the contract is invalid because of Wenzell's activities. It says that he had conflicting interests. As between the parties, the Government and the plaintiff which succeeded to the interest of the Dixon-Yates sponsors, we see not the slightest conflict of interest in Wenzell's position. The interest which he shared with the President and the Bureau of the Budget, that the negotiations should produce a contract, was the Government's interest, though it coincided with the sponsors' interest. He served the Government, did what he was assigned to do, did nothing for the Dixon-Yates interest and received nothing from it.

The Government says that a conflict of interest resulted from Wenzell's position with First Boston. When the Government hired Wenzell, it knew of his position with First Boston, and it knew what business First Boston was in. It wanted Wenzell's advice as to the cost of money borrowed to build generating plants. There was, of course, a substantial possibility that if the Administration's hope that private capital would build the necessary plant should be realized, First Boston, as one of the largest and most experienced firms engaged in arranging the financing of such enterprises, might be employed by the company which got the contract. As early as January 1954, it occurred to Mr. James, counsel for Dixon, that because of the public versus private power controversy which lay behind the whole project, and because First Boston would be a logical choice of the sponsors to manage the financing of the enterprise, if a contract should be made, critics of the project might make something of Wenzell's participation. At his *515 counsel's suggestion, Dixon spoke to Wenzell, calling attention to the possibility of criticism, and suggesting that Wenzell discuss the matter with the Bureau of the Budget and with his counsel. Wenzell on the same day, February 23, spoke to Hughes about the matter, saying that it might become a matter of embarrassment to the Administration, and suggesting that Hughes discuss the subject with his political advisers. Hughes said that Wenzell was exaggerating the importance of the matter, but advised him to discuss it with his principals in First Boston and with First Boston's lawyers, and then talk to Dodge about it. Wenzell, on February 23, discussed the subject with Mr. Coggeshall, President of First Boston, who arranged for him to talk to Mr. Raben of Sullivan and Cromwell, First Boston's counsel. Wenzell told Raben that he had orally advised Dixon as to the cost of money borrowed for such projects, and had written a draft of a letter containing the same information. He said that First Boston had not been employed by the sponsors to handle the financing, but that it might be requested to do so if the Government and the sponsors should succeed in making a contract. Raben advised Wenzell to terminate his employment as consultant in the Bureau of the Budget forthwith, and in writing; to advise First Boston that if it was later requested to handle the financing, if a contract should be made, it should consider whether it would be wise to do so, or, at least, whether it would be wise to accept a fee for doing so. Raben also told Wenzell to keep Dodge and Hughes informed of any developments in the matter. Raben telephoned to his senior partner, Arthur Dean, who was in Washington. Dean said he did not think there was a conflict of interest, but there was a problem of policy. He confirmed Raben's advice as to what should be done.

Wenzell did not resign from the Bureau of the Budget immediately, but continued to work for it until April 3. Hughes did not call upon him for any services after that date. He never submitted a written resignation.

At least as early as April 12, Wenzell was of the opinion that if the Government and the sponsors made a contract, First Boston would be asked to undertake the financial arrangements for the sponsors. As it turned out, his assumption was unfounded, because, a month after that time, Dixon felt perfectly free to place 40 percent of the financing business with Lehman Brothers, and would, apparently, have felt perfectly free to place all of it elsewhere than with First Boston if he had so desired.

As we have said, the Government pleads the activities of Wenzell as a justification for its repudiation of its contract with the plaintiff. This presents a problem which obviously requires exploration. Ordinarily, in a conflict of interest case, there is a person who is acting for the Government in the negotiation of a contract but, who at the same time, has an interest in the other party to the contract which interest would cause him, or tempt him, to promote the contract, or permit favorable terms to be inserted in it, because that other party, and he through it, would profit by his acts. Ordinarily the conflicting interest of such a person is unknown to his superiors, or to those of his superiors who are faithful to their duties to the Government.

The instant situation is unusual in several respects. Wenzell had no interest in the plaintiff, which the Government seeks to make the victim of Wenzell's situation. He was not hired by the plaintiff; he owned no stock in the plaintiff. He had an interest in First Boston which company, by the logic of circumstances, might be offered the work of arranging the financing of the project when and if a contract for the project should be made. The sponsors had, during the time that Wenzell had been working for the Bureau of the Budget, made no commitment to or had any discussion with First Boston about handling the financing of *516 the hoped for project. That the sponsors did not feel that they were, somehow, under an unexpressed but honorary commitment to First Boston is evident from the fact that, when the time came, in May, to make arrangements for the financing of the hoped for project, Dixon, as we have seen, insisted over the objection of First Boston that Lehman Brothers should have a 40 percent interest in the financing, because that firm had some special talents that might be of use.

The sponsors, though they had not employed Wenzell, nor given him any interest in their enterprise, were the first to see the possibility that criticism might be directed at Wenzell's activities. They, rightly as it seems to us, saw the problem not as a conflict of interests problem but as a political public versus private power problem which presaged a fight with no holds barred. They in effect told Wenzell that he ought to get out. They could not fire him because they hadn't hired him. Wenzell reported the sponsors' admonition to Hughes, who saw no reason for alarm and kept on assigning tasks to Wenzell, and to First Boston, which obtained advice of counsel that Wenzell ought to get out, but did not follow it up by getting him out. So the two entities that had the power to remove Wenzell from the scene, the Government and First Boston, did not do so, and the entity that urged his removal but had no power to effect it, is sought to be made the victim of his nonremoval. Wenzell is sought to be assigned the role of a fifth-column, a secret weapon fortunately though without evil purposes planted by the Government, but adequate to destroy the enemy if it became necessary to resort to such a weapon. There is, it seems to us, something essentially cynical about the Government's Wenzell defense.

The Government concedes that the contract which it seeks to repudiate was an honest one, arrived at after hard and skilful bargaining by representatives of the Government who had complete fidelity to their trust, and which became useless to the Government only because of the intervention of a force majeure, the decision of the City of Memphis to generate its own power. The purpose of the contract being thus frustrated, the Government summons, in order to escape its responsibilities under its honest contract, the great moral and legal generalization that a servant cannot faithfully serve two masters. We think the applicability of the generalization to the instant situation must be carefully scrutinized, lest, not uniquely, a worthy principle be used to arrive at an unworthy result.

Suppose the Government wanted to determine the feasibility of building a bridge in a difficult location. An experienced and reputable bridge engineer is an official of a steel company. The Government employs him as a consultant to work with Government staff engineers and other consultants to determine whether, and how, the bridge could be built, and to work out the terms of a contract with a contractor who has shown an interest in building the bridge. The consultant works through the feasibility stage of the investigation, and during the preliminary stage of negotiation with the contractor, when the question was whether the bridge could be built at a price which the Government would consider it prudent to pay. Then the consultant ceases his work. The terms and details of the contract are laboriously worked out by faithful representatives of the Government and the contractor. The contract is signed. The contractor then begins to place its orders for the steel which it will need to build the bridge. It, for good business reasons, orders some of the steel from the company whose engineer had been employed by the Government as a consultant. Some event intervenes which convinces the Government that the bridge ought not to be built at all, and it cancels the contract. The contractor has been subjected to expense by the steps it took toward performance before the contract was canceled. It requests reimbursement for those expenses. The Government disclaims *517 liability, on high moral principles. It concedes that the contract was an honest one, fairly negotiated and agreed upon. It is obvious that if its intervening change of mind had not occurred, and the contract had continued to be regarded as advantageous to the Government, the Government would have insisted upon performance and would have sought to recover damages from the contractor if it had refused or failed to perform. But, it says, we, with full knowledge of the possibility that his company might make a profit by selling steel to the contractor if it should be decided that it was feasible to build the bridge, and if a contract to build it should be made, employed a consultant who had a part in the early stages of the deliberations about the bridge. The purported contract is, therefore, for moral reasons, a nullity.

In the hypothetical case, and in our instant case, the possibility of the consultant's principal employer's indirectly making a profit out of the project about which he was consulted, would extend to almost any conceivable private industry from which a competent consultant could be obtained. If an industry is not engaged in the kind of business about which the Government needs practical advice, it will not be called upon to furnish a consultant. If, then, the Government intends to treat the possible indirect interest of a consultant's employer as injecting a taint of illegality into any contract which might eventuate, the whole transaction becomes futile nonsense, a nullity before the beginning of even preliminary discussion. The Government itself has introduced the impurity into the draught, and later spurns it, because it itself has polluted it.

In Muschany v. United States, 324 U. S. 49, 66-67 , 65 S.Ct. 442, 451 , 89 L.Ed. 744 , the Supreme Court said, with regard to the Government's argument that the contracts there in question were in violation of public policy and were therefore void:

"Our inquiry at this point, since corruption is not shown, is as to whether the likelihood of disadvantage to the Government is so menacing as to prohibit such contracts regardless of the effect in a particular case.

"* * * Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. Vidal v. Mayor, Aldermen and Citizens of Philadelphia, 2 How. 127, 197 , 11 L.Ed. 205 . As the term `public policy' is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy. Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353 , 51 S.Ct. 476 , 75 L.Ed. 1112 ; Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38 , 61 S.Ct. 414 , 85 L.Ed. 500 . It is a matter of public importance that good faith contracts of the United States should not be lightly invalidated. Only dominant public policy would justify such action. In the absence of a plain indication of that policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards, this Court should not assume to declare contracts of the War Department contrary to public policy."

Our conclusion is that Wenzell's activities were not within the prohibition of the statute, 18 U.S.C. § 434 , [1] on which the Government relies, nor were they *518 such as to render the contract in question unenforcible on grounds of public policy.

We think that, to reach the conclusion that the criminal statute here in question had in fact been violated, we would have to discard all the precedents with regard to the proper interpretation of criminal statutes. We would have to conclude that 18 U.S.C. § 434 was intended by Congress to be an expansive net long enough and broad enough to catch a Government employee and subject him to fine or imprisonment if he saw in the transaction a possibility that it might eventuate in a profit to him, or if he thought, mistakenly, that it would eventuate in a profit to him.

As we have seen, Wenzell's employer, First Boston, through which Wenzell's criminal conduct must be established, if it is established, did not have an interest in the Dixon-Yates transaction until after Wenzell's Government employment had terminated. There is not a shadow of evidence that it had any agreement or commitment, written or oral, formal or informal, contingent or otherwise that, in the event that the proposal which was in preparation when Wenzell's Government employment ended should result in negotiations which should, in the course of events, result in a contract, First Boston would be given the opportunity to earn a commission by selling the bonds of the corporation which would be formed to sign and perform the contract. The evidence is perfectly plain that there was no such agreement or understanding. As we have seen, a month after Wenzell's Government employment had terminated, Dixon-Yates felt perfectly free to give the bond-selling business to whomever it pleased.

To treat such a prospect, or hope, or even mistaken belief in a nonexistent understanding, as a direct or indirect interest, subjecting the possessor of it to a fine or imprisonment or both, would seem to us to require that we discard all that the Supreme Court has taught us as to how to interpret a criminal statute. Kordel v. United States, 335 U.S. 345 , 69 S.Ct. 106 , 93 L.Ed. 52 ; United States v. Halseth, 342 U.S. 277 , 72 S.Ct. 275 , 96 L.Ed. 308 ; Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284 , 74 S.Ct. 593 , 98 L.Ed. 699 ; Yates v. United States, 354 U.S. 298 , 77 S.Ct. 1064 , 1 L.Ed.2d 1356 .

It is suggested that there is something sinister about the fact that Wenzell did not, as the lawyers for First Boston advised him to do on February 26, resign from his Government work "immediately, and in writing." Three days earlier, Wenzell had discussed with Hughes the possibility that if a contract should be made with the sponsors, First Boston might be asked to participate in the financing of it. Hughes thought that Wenzell was exaggerating the importance of the matter, and kept on calling on Wenzell to do chores for him in connection with the contract, until April 3. The fact that Wenzell did not resign "in writing", he having been employed by means of a telephone call, and all of his assignments having been given him orally, shows that he did not understand the importance which the lawyers attached to having documentary evidence in the file for a possible Congressional investigation or a lawsuit. We see nothing sinister in his not being cagy. The lawyers did not advise Wenzell to resign because they saw in his situation a conflict of interest. They saw in it a question of policy, for First Boston. On March 9 Wenzell was told by Dodge, the Director of the Bureau of the Budget, that since there was, at that time, not even a proposal which could be used as a basis for negotiation, and in any event a long period of negotiation would precede the making of a contract and its financing, there was no immediate problem with regard to First Boston's possible participation in the financing. He said that if there was a possibility that First Boston might participate in the financing, Wenzell should wind up his *519 work for the Bureau of the Budget as soon as possible. As we have seen, Hughes, Dodge's Assistant Director, kept on giving Wenzell chores to do for some three weeks longer, until April 3. We think that Wenzell's failure to resign ostentatiously and immediately, as a lawyer might have done, is of no significance.

The Government urges, in effect, that the doctrine which it calls to its defense is a prophylactic generalization which must be applied in cases of honest transactions in order to keep it available and effective in cases of dishonest transactions. The thought is that the Government, like the infant and the idiot, must have the protection of a broad legal incapacity. In this case the actor for the United States was the Director of the Budget, acting immediately under and on behalf of the President of the United States. What he did was done legally, honestly, and with complete fidelity to the interests of the Government. The powers of even the Government's highest officials are defined by statute. We do not see in the case before us an instance in which the Government needs, as additional protection against the honest acts of its highest officials, a diaphanous cloak of immunity woven from an asserted vague and undefined public policy. We point again to the language of the Supreme Court in the Muschany case.

The Government has interposed other defenses, in addition to the one founded upon the activities of Adolphe Wenzell. Because this opinion is already long, our treatment of these defenses will be brief.

The "Replacement" Defense

The Government says that section 164 of the Atomic Energy Act of 1954, 68 Stat. 951 , 42 U.S.C.A. § 2204 , did not authorize the AEC to make the contract here in question. We quote the part of the section here pertinent in a footnote. [2] The argument, in brief, is that the electric power contracted for in the contract in question was not to be used by AEC, and was not to be furnished to TVA "in replacement" of power furnished by TVA to AEC. The legislative history of section 164 shows that its language was written for the purpose of authorizing the very kind of a contract that was eventually made. If furnishing power to TVA at Memphis so that TVA could continue to furnish power to AEC at Paducah without neglecting to fulfill the expanding needs of its existing customers is not aptly describable as replacing to TVA power furnished by it to AEC, then Congress can be said to have used inept language. That would, if true, be no reason for a court to frustrate the undoubted intention of Congress.

The "Waiver" Defense

The Government says that certain statutory requirements of section 164 of the Atomic Energy Act of 1954, supra, were not complied with, and that the contract, as a consequence, never became effective. It relies on the following language in section 164:

"Any contract hereafter entered into by the Commission pursuant to this section shall be submitted to the Joint Committee and a period of *520 thirty days shall elapse while Congress is in session (in computing such thirty days, there shall be excluded the days on which either House is not in session because of adjournment for more than three days) before the contract of the Commission shall become effective: Provided, however, That the Joint Committee, after having received the proposed contract, may by resolution in writing, waive the conditions of or all or any portion of such thirty-day period."

The contract here in question was submitted to the Joint Committee on Atomic Energy on November 11, 1954, the day the contract was signed. Congress was not in session at that time, and that Congress did not reconvene. The new Congress convened on January 5, 1955. The Joint Committee had been in session for some days before November 11, considering drafts of the contract, and considering whether the committee should waive the 30-day waiting period. On November 13 the committee adopted, by a 10 to 8 vote, a resolution waiving the waiting period. On January 28, 1955, the Joint Committee adopted, by a vote of 10 to 8, a resolution rescinding the resolution of waiver of November 13, 1954.

The Government says that the Joint Committee had no authority to sit when Congress was not in session and that the purported submission of the contract to the committee on November 11, and the committee's purported waiver of the waiting period on November 13, were ineffective. AEC, in a brief filed with the Securities and Exchange Commission in proceedings in January 1955, seeking that Commission's approval of the plaintiff's equity financing, took the position that the Joint Committee had the power, though Congress was not in session, to waive the 30-day waiting period. The defendant herein, the United States, took the same position in a brief filed as amicus curiae with the United States Court of Appeals for the District of Columbia, in proceedings to review the SEC's order approving the plaintiff's equity financing. The General Counsel of the AEC, and the Assistant Comptroller General of the United States, in formal official opinions, took the same position. We agree with these several opinions of representatives of the United States, rendered ante litem motam.

The "Indemnity" Defense

The Government says that the contract in question violated the following provision of section 12(a) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79 l (a):

"It shall be unlawful for any registered holding company, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, directly or indirectly, to borrow, or to receive any extension of credit or indemnity, from any public-utility company in the same holding-company system or from any subsidiary company of such holding company * * *."

In order to insure that the plaintiff would have sufficient income to amortize its bonds, as payments for that purpose came due, an agreement between the plaintiff and the operating subsidiaries of the sponsors was drafted, under which the subsidiaries agreed to take and pay for any surplus power which the plaintiff might have on hand because of the failure of TVA to take the agreed amount, and the subsidiaries also agreed to make up any shortage of power which the plaintiff might incur because of, for example, the disabling of its generators. The sponsors guaranteed the performance of the agreement by their respective subsidiaries. This agreement was called the "back-up and surplus power agreement." The making of this agreement was required by section 2.02 of the contract here in suit. The agreement was never actually executed because the Government's cancellation of the plaintiff's contract intervened.

*521 The Government says that this agreement was a violation of section 12(a) of the Holding Company Act, quoted above. The SEC in its decision approving the plaintiff's equity financing, expressly held that the back-up and surplus power agreement was not a violation of section 12(a) of the Holding Company Act. The interpretation of that provision of that Act, and its application to various possible arrangements within utility systems, is peculiarly a subject for the expert handling of the Securities and Exchange Commission. We are not persuaded that its decision was erroneous.

The "Regulatory Approvals" Defense

The Government says that the contract had not become effective because the plaintiff had not, at the time the Government terminated the contract, secured all the regulatory approvals which were required. The Government refers to section 8.15 of the contract which reads as follows:

"Regulatory Approvals and Indebtedness : The obligations of the parties hereunder shall be subject to the following:

"(1) the receipt of all regulatory approvals, in form and substance satisfactory to the Company, necessary to permit the Company to perform all the duties and obligations to be performed by it hereunder or necessary to permit it to issue shares of its capital stock to the Sponsoring Companies and to issue the indebtedness referred to herein;

"(2) the execution and performance by institutional investors and banks of contracts or commitments, in form and substance satisfactory to the Company, providing for the issuance by the Company and the purchase by such investors and banks of the indebtedness referred to in the recitals of this contract; * *."

The Government points out that, though the SEC had approved the plaintiff's equity financing, that approval had been appealed to the United States Court of Appeals for the District of Columbia; that though the plaintiff had applied to the SEC for approval of its bank loan agreements and bond sale agreements, the SEC had not yet acted upon this application. It urges that since the regulatory approvals had to be "in form and substance satisfactory to the Company" (plaintiff), not only had the contract not become effective in point of time, but it was invalid for lack of mutuality, since the plaintiff could escape liability under it by being dissatisfied with the approvals which the pertinent regulatory bodies would give it.

The parties expressly agreed, as shown in our findings 8, 9 and 191, that the contract became effective December 17, 1954. They must, therefore, have construed the provisions of section 8.15, quoted above, as conditions subsequent. As such, they would mean that the plaintiff could escape liability only if it could not, after diligent effort, obtain regulatory approvals which would be satisfactory to a reasonable person, in the circumstances. There is no indication that the plaintiff was not diligent in seeking the necessary regulatory approvals, or would have been dissatisfied with such approvals as were practically attainable. So far as appears, the only reason the plaintiff did not get the approvals was that the Government's cancellation of the contract rendered the plaintiff's applications moot.

We conclude that none of the Government's defenses is valid, and that it is liable to the plaintiff for its breach of the contract.

The Measure of Damages

The plaintiff does not seek to have its damages measured by the usual rule, which would entitle it to the profits which it would have made if it had been allowed to perform its contract and receive the compensation provided in the contract. The plaintiff says that the contract in question provided its own *522 agreed measure of damages in case the Government should cancel the contract. It points to section 7.07 of the contract, entitled "Cancellation Prior to Completion." That section, which is quoted in full in finding 205, provides in paragraph 1 that if, prior to the commencement of commercial operation of the third unit of the plant, the power requirements of AEC should be so reduced that it no longer needed the power contracted for, and if TVA did not elect to take the power, AEC should be entitled to cancel the contract by written notice, the effect of the cancellation being stated in paragraph 2.

Paragraph 2 of section 7.07 provides that if the notice of cancellation should be delivered prior to the time when the plaintiff had incurred expenditures of $40,000,000 on the project, then

"the AEC shall pay to the Company as cancellation costs such amount or amounts that there shall be available for distribution to the Sponsoring Companies net assets, including at cost to the Company land acquired for the site of the Facilities, equivalent to the investment of the Sponsoring Companies in the equity of the Company up to the effective date of such cancellation, after payment and satisfaction of all reasonable liabilities, costs, indebtedness, cancellation or revocation costs and damages, and all other reasonable costs, expenses, charges and losses resulting from such cancellation, including carrying charges on indebtedness of the Company to the earliest practicable date for the retirement thereof after the receipt of payment by the AEC under this paragraph, together with any premium payable upon the redemption of such indebtedness; * * *"

The Government points out that there was no reduction in the power requirements of the AEC, hence the Government could not have canceled and did not cancel the contract pursuant to the provisions of section 7.07. The plaintiff says that it has the right to waive the wrongfulness of the cancellation and have its damages measured by the provisions agreed upon for cases of rightful cancellation.

The Government's insistence that its cancellation was a breach of contract, rather than a cancellation permitted by the contract, is an attempt by the Government to profit from its own wrong. We say this because we suppose that the Government would not take this position unless it thought it saw in it an advantage to be gained by having the damages determined by a measure other than that agreed upon in section 7.07 of the contract.

We think that paragraph 1 of section 7.07, fairly, though not literally, read, was applicable to the cancellation here in question. The cancellation took place because the Government no longer needed the power contracted for. The indirect and awkward arrangement of the contract was to have AEC purchase power to be delivered to and used by TVA. Section 7.07(1) said that if AEC's power requirements were reduced so that it did not need the power contracted for, and if, then, TVA did not elect to take it, AEC might cancel the contract, with the cancellation consequences provided in section 7.07(2). In fact, as both parties knew, AEC was never intended to get the power, and the lack of need for it by TVA would be the event that would necessitate and justify the cancellation of the contract. The essential purpose of section 7.07 was to provide a method of measuring damages if cancellation should occur, as it did, before the plant was built and put in operation.

We further think that the plaintiff's argument that the condition upon which the Government might lawfully cancel the contract, with a defined and limited liability for damages, was a condition which it could insist upon, or waive, at its election, and that the Government cannot elect to be a wrongdoer, an unjustified *523 contract breaker, in order to gain some real or supposed advantage from its assumed turpitude, is a valid argument.

If the parties had foreseen what in fact occurred, and had covered that occurrence by an agreement specifically and unquestionably applying to the events that occurred, as to how to measure the damages, we do not see how the Government could have urged that it should pay less for a wrongful cancellation than for a rightful one. That much, at least, may be said for the fairness of the plaintiff's contention. In any event, the measuring of damages for the breach of a contract which is to be performed over many years, here 25 years, is a speculative and unsatisfactory task. It is not unnatural that a court, in such a case, would wish that the parties had agreed upon a formula which would permit the damages to be measured by arithmetic, rather than by speculation and prophecy. When the parties have in fact agreed upon a formula readily applicable to the situation at hand, though they did not agree to its application to that exact situation, we think a court has the right to make use of the formula, if to do so seems fair to the court. In short, we do not think that one of the parties has a right to require a court to measure damages by a hard and unsatisfactory method, when that party has agreed to an easier and more satisfactory method for a closely comparable situation.

The language of the second paragraph of section 7.07 of the contract, quoted above, is our guide as to what items should be included in the plaintiff's recovery. It was at all times during the negotiation contemplated that the sponsors were to form a new corporation which would sign and perform the contract. The expenses which the sponsors paid or became obligated to pay were proper charges against the new corporation, the plaintiff, and are therefore proper subjects of recovery by the plaintiff. The expenditures made and obligations incurred by the plaintiff after its incorporation, in connection with the negotiation of the contract, its performance, and the mitigation of damages after its cancellation are recoverable. The counsel fees and expenses incurred by the sponsors are not vulnerable on the ground of duplication of services. It was natural that each sponsor should have the advice of its own counsel with regard to this important venture. The costs of administrative and court proceeding engaged in for the purpose of obtaining the necessary regulatory approvals is includible. Interest at the legal rate on the money invested by the sponsors in the stock of the plaintiff, computed to the date of termination of the contract, is a recoverable item, according to the language of section 7.07 of the power contract and of section 4.02 of the "interpretative memorandum."

Counsel fees and other expenses incurred in preparing for and prosecuting the instant litigation may not be recovered.

In paragraphs 19 and 22 of its petition, the plaintiff says:

"The plaintiff will also incur additional expenses prior to the satisfaction of the judgment herein, the amount of which will be supplied by amendment hereto."

The parties stipulated at the trial that, with regard to post-petition claims, only the question of liability would be presently decided, and the amount of the recovery, if any, would be determined in further proceedings. Expenditures made and obligations incurred after the filing of the petition, incident to the termination and settlement of commitments made in connection with the making and performance and termination of the contract, are recoverable.

The claims asserted on behalf of plaintiff and several of the use-plaintiffs for "compensation for the loss of the use of their money represented by their respective claims" are not recoverable. These claims amount to a request for an allowance of interest on the judgment *524 awarded, and since neither the Power Contract nor any applicable statute provides for such an award of interest, none is recoverable in this action. 28 U.S.C. § 2516 . United States v. Thayer-West Point Hotel Co., 329 U.S. 585 , 67 S.Ct. 398 , 91 L.Ed. 521 .

We conclude that the plaintiff is entitled to recover on the following claims in the amounts indicated:

Amount Amount

Claim Finding claimed allowed

Dickmann-Pickens-Bond Construction Co. ........ 210 $14,553.03 $14,553.03

J. A. Jones Construction Company .............. 212 143,160.33 [1] 143,160.33

Pandick Press, Inc. ........................... 213 38,338.76 38,338.76

Reid & Priest ................................. 214 7,097.12 7,097.12

House, Moses & Holmes.......................... 215 7,500.00 7,500.00

Arthur Andersen & Co. ......................... 216 16,469.66 16,469.66

Middle South Utilities, Inc. .................. 217 4,651.86 [2] 3,032.11

The Southern Company........................... 218 29,391.29 [3] 21,147.45

Arkansas Power & Light Co. .................... 219 7,484.09 7,484.09

First National City Bank of N.Y. .............. 220 500.00 500.00

White & Case................................... 220 500.00 500.00

Mississippi Valley Generating Co. ............. 221-230 618,658.07 [4] 616,158.76

Ebasco Services, Inc. ......................... 231 570,727.59 [5] 565,028.02

Cahill, Gordon, Reindel & Ohl.................. 233-235 235,198.76 [6] 232,491.75

Winthrop, Stimson, Putnam & Roberts............ 236-238 104,128.67 [7] 103,296.63

Willkie, Owen, Farr, Gallagher & Walton ....... 239-240 75,787.85 75,787.85

Milbank, Tweed, Hope & Hadley.................. 241-242 15,000.00 15,000.00

Total amount allowed .................................................. 1,867,545.56

Judgment will be entered for the plaintiff in the above total sum, said sum representing the amounts found to be due the plaintiff on a portion of its claim. The amount due the plaintiff on the remaining portion of its claim will be determined in further proceedings pursuant to Rule 38(c), 28 U.S.C.

It is so ordered.

ALBERT V. BRYAN, District Judge, sitting by designation, and LARAMORE, Judge, concur.

ALBERT V. BRYAN, District Judge (concurring).

The very law points now mooted to defeat the contract as unauthorized were originally vouched by the Government to conclude it. These remain unbowed. Besides, admittedly every act now pleaded to impugn the contract, as the opinion of the court also well recounts, was "begun, continued and ended" in good faith and in the full knowledge of the Government. In truth there was no imposture.

To vitiate the contract as a potential imposture, the Government would invoke the biblical precept, embedded in public policy and statute, denouncing duplicity in agency. With this doctrine it would first condemn its own agent for pursuing aboveboard the honest directions of his Government. Then the principle would be interposed against the plaintiff notwithstanding that the Government's agent was never the agent of the plaintiff or ever "interested" in the plaintiff's "pecuniary profits or contracts"—notwithstanding, too, that the Government gave the plaintiff no choice but to deal through this agent. All this the court's opinion patly demonstrates. Certainly *525 the principle is not so salutary it must be vindicated by visitation upon an unoffending contractor.

A covenant of a contract is a pledge— something "more than a promise, and lesse than a Oath"—to perform or respond in damages. The bargain good or bad, the United States faithfully keeps her covenants.

REED, Justice (Retired), sitting by designation (dissenting).

The court finds in Muschany v. United States, 324 U.S. 49, 66-67 , 65 S.Ct. 442 , 89 L.Ed. 744 , a precedent for upholding the validity of the present contract. Corruption as a basis for the invalidation of a government contract is considered neither in the Muschany case nor in this case. Both cases turn on whether the conduct was in violation of public policy and therefore void.

The court cites, in support of its position, the conclusion reached in the Muschany case that a contract to be invalid as a violation of public policy must be "so menacing as to prohibit such contracts regardless of the effect in a particular case." The Muschany case calls for maintenance of contractual obligations of the United States unless a dominant public policy or a statutory enactment declares its invalidity. [3]

In the Muschany case, the Government purchased land through its own agent by a contract that allowed the agent cost plus a fixed fee, a method specifically approved by a statute, The National Defense Act of 1940. [4] In this present case now under consideration, there is a dominant public policy against a negotiator with a conflict of interest which is embodied in a statutory enactment punishing such conduct as criminal. [5]

In such situations a contract made in violation of the criminal statute is unenforceable. Accepting the argument of the majority that no improper motive influenced any action of Mr. Wenzell does not in our opinion make the Mississippi Valley contract valid. If contracts are made in violation of positive law, they are unenforceable. [6]

The Supreme Court of the United States approved that rule many years ago in the Bank of United States v. Owens, 2 Pet. 527 , 7 L.Ed. 508 . There the charter of the bank provided a limitation of six percent upon its loans or discounts. It was held that more was taken. The charter, however, did not provide that a contract for a greater sum was void. The court declared the answer was obvious; an unlawful contract could not be enforced, and decreed no recovery.

Again in Miller v. Ammon, 145 U.S. 421 , 12 S.Ct. 884 , 36 L.Ed. 759 , recovery on a bill for a sale of liquor without a valid license was denied, the Supreme Court holding:

"The general rule of law is, that a contract made in violation of a statute is void; and that when a plaintiff cannot establish his cause of action without relying upon an illegal contract, he cannot recover. * * * And in Harris v. Runnels, 12 How. 79 , 13 L.Ed. 901 , this court, after noticing some fluctuations in the course of decision, and observing *526 `that we have concluded, before the rule can be applied in any case of a statute prohibiting or enjoining things to be done, with a prohibition and a penalty, or a penalty only for doing a thing which it forbids, that the statute must be examined as a whole, to find out whether or not the makers of it meant that a contract in contravention of it should be void, or that it was not to be so,' added: `It is true that a statute, containing a prohibition and a penalty, makes the act which it punishes unlawful, and the same may be implied from a penalty without a prohibition; but it does not follow that the unlawfulness of the act was meant by the legislature to avoid a contract made in contravention of it. When the statute is silent, and contains nothing from which the contrary can be properly inferred, a contract in contravention of it is void.'" 145 U.S. at pages 426-427, 12 S.Ct. at page 886 . [7]

This court has strongly supported the application of the rule against the validity of contracts where an officer or agent of the United States participates in their adoption. In Curved Electrotype Plate Co. of New York v. United States, 50 Ct.Cl. 258 , a suit on an implied contract to pay for the Government's use of a patent was dismissed on the ground of an interest in the contract by the Public Printer responsible for its use. This court said, at page 271, referring to section 1783, Revised Statutes, the forerunner of 18 U.S.C. § 434 , the section the Government relies on here:

"* * * section 1783, Revised Statutes, forbids any person directly or indirectly interested in the pecuniary profits or contracts of a commercial corporation acting as an officer or agent of the United States for the transaction of business with such corporation. It is not clear that by the alleged transfer to his sister-in-law of his stocks in this and other concerns Mr. Benedict intended to deprive himself of all ownership therein. Certainly the statement that his purpose was to give the full benefit of the stock in plaintiff corporation to his brother in case the latter was able to repay him the advances he had made is inconsistent with an absolute transfer of his stock to his sister-in-law, because, if it was hers, he could not give his brother the benefit of it, even if the advances were repaid. Certain it is that Mr. Benedict regarded himself as equitably entitled to compensation out of the corporation's receipts, and he says as much."

See Rankin v. United States, 98 Ct.Cl. 357 , which is in accord. Compare Architects Building Corp. v. United States, 98 Ct.Cl. 368, 380 , where a ministerial act, signing a contract, was held permissible under Revised Statutes 1783. This court said, at page 380:

"We believe this is one of the exceptions to the general rule. It was not the intention of the statute to cover a case of the nature of the instant case where the action of the President of the Corporation, who happened to be an agent of the Government, was solely for the purpose of officially signing the lease or voting on its acceptance, and where he took no part in the negotiations and derived no benefit, his actions being purely ministerial and in no way detrimental to the interests of the United States and transcended no public policy."

It appears that the English courts apply the same rules as to contracts in violation of statutes. In Barton v. Piggott, L.R. 10 Q.B. (1874) 86, a surveyor of highways, forbidden by statute to have an interest in a contract for work or materials, unless a license in writing was *527 first obtained, had his accounts for such work subsequently approved by the appropriate justices who were authorized to approve beforehand. It was held unlawful to allow accounts declared illegal by another provision of the statute.

Pollock on Contracts (13th ed.), 275, phrases the present English rule in these words:

"(b) The imposition of a penalty by the legislature on any specific act or omission is prima facie equivalent to an express prohibition.

"These rules are established by the case of Bensley v. Bignold, which decided that a printer could not recover for his work or materials when he had omitted to print his name on the work printed, as then required by statute. It was argued that his right under the contract was untouched by the Act, which contained no specific prohibition, but only a direction sanctioned by a penalty. But the Court held unanimously that this was untenable, and a party could not be permitted to sue on a contract where the whole subject-matter was `in direct violation of the provisions of an Act of Parliament.' And Best, J. said that the distinction between mala prohibita and mala in se was long since exploded. The same doctrine has repeatedly been enounced in later cases.

"Thus, for example, by the Court of Exchequer:

"`Where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no Court will lend its assistance to give it effect. It is equally clear that a contract is void if prohibited by a statute, though the statute inflicts a penalty only, because such a penalty implies a prohibition.'

"It is needless to discuss the `policy of the law' when it is distinctly enunciated by a statutory prohibition." [8]

Such unanimity of view as to the invalidity of contracts that violate specific statutory prohibitions brings us to an examination of the statute here in question. It appears below. [9] It was enacted to meet a specific menace to the fair negotiation of federal contracts and is akin to other statutory requirements to insure against corrupt influences, such as the requirement for statutory authority in the contracting officer or prior advertisement, or those that bar fiduciaries from profiting from dealings with their cestui que trust. [10] This section of the Code originated as Sec. 8 of An Act to prevent and punish Frauds upon the Government of the United States. It was enacted March 2, 1863, 12 Stat. 696 , as a result of prolonged investigation and reports to Congress on the war contract frauds of that era. [11]

Government contracts are not only large in number and value but are negotiated by numerous contracting officers of varying ability and experience. The statutes for the protection of the Government are not because of frequent fraudulent influences but are to guard against the situations that may arise. They *528 should be fairly interpreted so as to carry out their purpose to protect against a tendency to overreach the Government but are not to be extended to situations "not clearly within its terms." [12] In such cases as we have before us, it must be plain not only that, as we have shown above, the law makes illegal contracts that the statutes forbid, but that the questioned actions violate the statute.

Mr. Wenzell acted as an agent of the United States for the transaction of business with the business entity, which transactions immediately resulted in a contract with the Atomic Energy Commission for the construction of generating facilities. The entity became the Mississippi Valley Generating Company. The words, "such business entity," were inserted in § 434 to insure that all types of business arrangements were included. [13] The fact that Mr. Wenzell received no salary from the Government but only reimbursement of expenses does not affect our conclusion that he was employed and acted as an agent of the United States in analyzing the cost of TVA's production of electricity for the Budget Bureau. This was to be compared with the cost of generation by private operators. To accomplish this analysis, Mr. Wenzell was furnished detailed information as to TVA operations, including costs. [14] The knowledge thus acquired was passed on to First Boston, his employer and a prospective agent for the sale of the private securities of the sponsoring company, in the fall of 1953, by Mr. Wenzell, although the Bureau had forbidden such disclosure as it was a confidential Bureau document. Finding 35. With First Boston's previous experience in a similar transaction with Ohio Valley Electric Corporation, Mr. Wenzell's company was well equipped to handle the financial affairs for any builders of the needed generating plant. Mr. Wenzell submitted his report to the Bureau of the Budget September 20, 1953. Finding 29.

Shortly thereafter steps were taken by the responsible officials of AEC and the Budget to negotiate with private power companies for furnishing the needed electricity. The Government considered it desirable to recall Mr. Wenzell for assistance in the negotiation. He was recalled and came in the middle of January 1954, as a Budget Bureau consultant, and worked for it in and out of Washington until April 3, 1954. Finding 106. His expenses for this period were paid sometimes by the Government, sometimes by First Boston. Finding 99. Mr. Wenzell consulted frequently in this period with the private sponsors of the construction plan as a representative of the Budget Bureau to work out a plan for private construction of the facilities. He was the only representative of the Budget Bureau at an important meeting on January 20, 1954. Finding 50. Various meetings followed concerning the sponsors' proposals in which Messrs. Wenzell and Dixon, an active sponsor of Mississippi Valley, participated. Findings 50-67. The negotiators submitted a proposal to the AEC on February 25, 1954. This proposal was analyzed by the Budget Bureau, and Mr. Wenzell participated in the work. The conclusion was reached that the sponsors' proposed cost was too high. [15] The sponsors revised their cost estimates after various contacts with Mr. Wenzell. The Budget asked him to see Seal, a sponsor's representative, about new figures. He did so. Finding 84. He discussed the sponsors' offer with the sponsors' representatives, Messrs. Dixon and Yates, at a meeting with a senior officer of First Boston on March 10, 1954. Finding 86. During the period between the first and second proposals, there were several telephone calls and meetings between Wenzell and the sponsors' representatives concerning *529 these proposals. [16] Later, at a general discussion at which Mr. Wenzell was present, the sponsors were told they were close "to submitting acceptable figures." Findings 97-98. Their formal proposal dated April 10, 1954, was made to the AEC on April 12 at Washington. This was done after a conference that morning with First Boston over the cost of the necessary construction money, some one hundred million dollars, at which Mr. Wenzell and other First Boston officials, including the Chairman of the Executive Committee, were present. Finding 107. On that date "Wenzell expected that First Boston would handle the financial arrangements for the sponsors if a contract resulted from the April 10 proposal." Finding 108. The April 10th proposal was accepted by AEC as a "Satisfactory basis" for the negotiation of the contract finally concluded on November 11, 1954. Findings 129-131.

These facts establish, we think, that Mr. Wenzell was an employee of the United States participating in the transactions that culminated in the contract in question within the terms of § 434 of Title 18 U.S.Code. But before the contract should be declared unenforceable under the section in question, it must also be established that the agent was "an officer, agent or member of, or directly or indirectly interested in the pecuniary profits or contracts" of the business entity with which he transacts business for the Government, that is, the sponsors who became the Mississippi Valley Generating Company. We think he was directly interested, within the meaning of the statute, in the contract of Mississippi Valley with AEC. His negotiations were with the sponsors of the business entity that made that contract.

The majority opinion, we think, misjudges the thrust of the statute. It argues that it is not shown that First Boston had an interest in the contract as financial agent or otherwise until after Wenzell's governmental employment had terminated. Assume that fact as true. The defense to this suit is not that First Boston violated § 434, but that Wenzell did.

The statute covers a person, not an officer, agent, or member of the Mississippi Valley business entity who is indirectly interested in the contracts of that business entity and acts as an agent of the United States for the transaction of business with such business entity. This covers Mr. Wenzell's situation.

Mr. Wenzell was a Vice President of First Boston receiving a salary and a bonus based upon the amount of business he brought the firm. Finding 125. If solely or partially through his contacts with the officials of Mississippi that business entity was induced, persuaded, or found it convenient to employ First Boston as its agent to "place the debt" of Mississippi with bond buyers, Mr. Wenzell could confidently expect recognition from First Boston.

The exact date of the contract between the Mississippi Valley business entity and First Boston on financing does not appear in the record. It was apparently at the meeting in Boston on April 12, 1954, to consider the submission of the sponsors' new proposal that arrangements were made. Findings 116 and 124. The retainer facts appear in detail in Findings 107-128.

The action of First Boston in refusing a fee for its services in the loan was predicated on the advice of counsel as to the questionable legality of Mr. Wenzell's dual role as government negotiator and official of the financial agent of Mississippi Valley. First Boston, at an executive committee meeting, October 21, 1954, decided not to accept compensation for its services, except out-of-pocket expenses, because the company thought the financing had flowed directly from the offer of Mr. Wenzell's services to the Budget by First Boston's President, Mr. Woods. Finding 117. It had been determined in May preceding that the fees would be split 60% to First Boston and 40% to Lehman Brothers. Finding 115. *530 First Boston's fee for the OVEC financing, a transaction akin to this one was $150,000, plus $20,000 expenses. Finding 27. Apparently the question of waiving a fee came up in First Boston's Executive Committee meeting of July 1, 1954. No action was then taken. Until November 17, 1954, after the contract between Mississippi Valley and AEC was signed, neither Lehman Brothers nor any representatives of the sponsors "had notice of First Boston's attitude regarding the charging of a fee." Finding 117. But whether the financing was to be without compensation or not, First Boston considered it a valuable feather in its cap to be in the "senior position" of such a large financial transaction. Finding 113.

The problem raised by Mr. Wenzell's activities in connection with his representation of the United States in its negotiations with Mississippi was not new on July 1, 1954. Both the First Boston and Mississippi Valley sponsors had had the matter brought to their attention. Prior to the time the first proposal of the sponsors was submitted to the Budget and AEC, February 25, 1954, the sponsors' counsel advised Mr. Dixon of the possible conflict of interest because of Mr. Wenzell's representation of the Government, if First Boston was asked to handle the financing. Mr. Dixon immediately spoke to Mr. Wenzell about the matter. Finding 68. A similar warning also came to Mr. Wenzell from members of the Budget Bureau staff during Wenzell's participation in the negotiations concerning the second offer of the sponsors. Finding 76. Mr. Wenzell spoke to Mr. Hughes of the Budget about the possible conflict question raised by the sponsors of Mississippi Valley. He advised him to talk to counsel and then to the Director of the Budget. Mr. Wenzell then talked with Mr. Coggeshall, the President of First Boston who told Wenzell to take it up with First Boston's counsel, Sullivan & Cromwell of New York. On February 26, 1954, the day after the sponsor's first proposal to the AEC, Mr. Wenzell was advised by Sullivan & Cromwell to resign "forthwith and in writing" from the Budget Bureau. He was "also advised that if the proposal was later accepted and First Boston was requested to handle the financing the board of directors of First Boston should consider whether they wanted to accept the business and, if so, whether they should charge a fee." Finding 72. Mr. Wenzell did not resign immediately, nor ever in writing, but continued to negotiate for the Government on the new contract with the sponsors and First Boston, as shown above. No explanation has been offered of the failure of Wenzell to resign promptly after his attorney advised him to do so on February 26, 1954, nor as to why, after being advised of the possible charge of conflict of interest, as set out in unchallenged findings 78 and 79, he continued to attend meetings in the Budget Bureau where the sponsors' offers to the Government were discussed and analyzed. For us these facts show a complete indifference to an obvious conflict of interest in violation of 18 U.S.C. § 434 .

The steps taken by Mr. Wenzell between the first unsatisfactory proposal of the sponsors of the Mississippi Valley contract and the proposal that ripened into the contract, February 25 to April 12, 1954, appear to us to have been taken when his interest in securing the financial representation of the sponsors by First Boston was direct, positive, and looked useful to his financial advantage as helpful to his employer, First Boston. The acts were carried out with full advice as to their questionable character. They violated the words of the statute. Cf. Waskey v. Hammer, 223 U.S. 85 , 32 S.Ct. 187 , 56 L.Ed. 359 .

That statute was intended to protect the public against participation in negotiations by civil servants with interests conflicting with those of the Government, to prevent abuses, and inspire confidence. The record shows that Mr. Wenzell's study of TVA operating costs and practices, and his subsequent association with and advice to the sponsors of the Mississippi Valley contract negotiations were with the knowledge and approval of the *531 Budget Bureau. This, we think, does not validate the contract. The Government has been fortunate in securing the services of many able Americans who serve without compensation but so long as they retain an interest in their respective companies, they cannot, under the statute, negotiate contracts with them for the Government. He may advise the Government as to business matters but he cannot act as an agent of the Government for the transaction of business with any business entity in which he has an interest. This is the public policy the criminal statute lays down.

We have here no problem of unjust enrichment of the Government without payment for the benefits furnished it by the Mississippi Valley Generating Company. To now say that the contract is invalid may seem harsh since the evidence does not disclose a payment or an express promise of direct financial benefit to Mr. Wenzell or the First Boston, but if the statute in question is to perform its intended function in the protection of the Government against prohibited actions that might influence contracts by public agents with private connections, courts must carry out the legislative purpose. The Government has vigorously defended this suit to recover damages for breach of contract on the ground of the invalidity of the agreement. We think the Government's position on that ground of public policy is well taken and the petition should be dismissed.

JONES, Chief Judge (dissenting).

I agree with the dissenting opinion of Justice REED, but would add the following:

I would further emphasize the fact that the invalidity of the Power Contract does not rest upon the showing that it was entered into in bad faith, or corruptly, or for the purpose of perpetrating a fraud upon the Government. Nor do we have a criminal prosecution in which it is incumbent upon the defendant to establish criminal intent.

Rather, the issue is based on a principle older than this country itself, that no man who works for the Government may at the same time transact business with an entity in which, directly or indirectly, he has a pecuniary interest. The maxim that a servant cannot faithfully serve two masters is an ancient one and is grounded on the frailties of human nature. The warning it carries is proven each day by experience. Where loyalty is divided, the devotion and singleness of purpose demanded of its fulfillment is missing. The maxim has special significance for the Government because of the high standards of ethical conduct which it exacts from its employees.

For many years Congress has been concerned with the possible evils resulting from a compromise of this fealty by Government employees. To guard against the damaging effects of fraud in its various forms—by striking at one of its prolific sources—Congress as early as 1862 enacted a "conflict of interest" statute. 12 Stat. 577 . To make certain that it covered any agent of the Government, Congress amended the law on February 25, 1863. 12 Stat. 696 . Since that time this law has undergone little modification. The policy it sanctions is one seeking to remove the temptation to violate the trust relationship of Government service. Michigan Steel Box Co. v. United States, 49 Ct.Cl. 421 ; Rankin v. United States, 98 Ct.Cl. 357 . The legislation is thus directed at a temptation to commit wrong. Not the fait accompli.

The application of the statute is not defeated by a failure to establish deliberate fraud or corruption on the part of the servant who feels, or might feel, the nudge of interests adverse to those of the Government. Indeed, the contract may be disaffirmed without a showing that the Government suffered actual damages as a result of the activities of the employee concerned. The purpose of the statute, broadly phrased to curb evasion, is to prohibit the transaction of Government business by its employee with a business *532 entity in whose profits or contracts he has a pecuniary interest whether it be direct or indirect. [17]

Did the activities of Adolphe H. Wenzell fall within the terms of 18 U.S.C. § 434 ? I think so. To me it is inescapable in the light of the undisputed facts in this case that Wenzell was employed to act and did act as an agent of the United States for the transaction of business with the Dixon-Yates group, the business being the prospective contract between the Government and the entity to be organized by the sponsors for that purpose.

The assertion that the numerous activities conducted by Wenzell to facilitate the contract sought by the sponsors were not the acts of an "agent of the United States for the transaction of business" does not comport with the facts. The record discloses what occurred in some but not in all the meetings and telephone calls between Wenzell and the Dixon-Yates group. At least we know that he procured and furnished to the Budget Bureau and to the sponsors information on the probable cost of interest on money to be borrowed by the plaintiff. Early in the inception of the project and before the sponsors' first proposal was submitted, it was well recognized by the officers of the Government, by the sponsors, and by Wenzell as well, that the interest rate on money borrowed by the utility company with whom the Government would contract would be an important element in the total cost to be paid by the Government. Findings 47 and 57. Therefore, the very matter to which much of Wenzell's effort was devoted was not only a part of the business being transacted with the Government but a vital element in it.

The majority seems to believe that the "interest" of Wenzell in the contract of the sponsoring group was so remote that it would not justify the invalidation of the Power Contract, but I view the facts differently. It must be remembered that Wenzell was not drafted by the Government. On the contrary, his employment as a consultant for the Budget Bureau was a direct outgrowth of the telephone calls made by the chairman of the board of directors of First Boston to Dodge and the resulting conference between the two men on May 11, 1953. Finding 24.

There is not the slightest doubt that the Dixon-Yates group was fully cognizant of the dual position of Wenzell. In fact, they were disturbed about it to the extent that they suggested that he resign in writing, but he did not do so, and they also knew that he continued to have an interest in the program. Could they have been more interested in avoiding the appearance of evil rather than the evil itself?

When large projects are involved there is always a tremendous drive for the privilege of handling and financing. It is highly competitive as it should be in a free economy. But this very fact makes it all the more important that the Government permit no unfair advantage as between competitors. They should all be on the same dead level of equality. This is an added reason for not permitting any interested party's serving in a dual capacity.

It is argued that Wenzell had no connection with the performance contract, but only with the financing. But they are as closely linked as the law of supply and demand. Very few one-hundred-million-dollar contracts can be performed without financing, and the financing of a large contract is an immensely profitable undertaking. Does anyone doubt that First Boston and Wenzell expected to finance the contract, and that Dixon-Yates expected them to do so?

Because of First Boston's experience in arranging for the financing of the project for the Ohio Valley Electric Corporation, the sponsors were well aware that if a contract resulted from their proposals, there was a strong probability that First Boston would be employed to *533 handle the financing, and we may infer from the facts and circumstances in the record that this probability was equally well known to First Boston and Wenzell.

As a vice president of First Boston, he was entitled to a bonus on the business he brought to the firm and was greatly interested in a successful and expeditious closing of the Dixon-Yates contract, not only because of the fee First Boston would earn as financial agent but also because of the prestige it would gain in handling a transaction of such magnitude. While the record does not show that he served as a consultant in the Budget Bureau after April 3, 1954, he stayed long enough to learn that the sponsors' revised cost estimates were being favorably viewed by the Government and that a new proposal based on the revised figures would receive serious consideration. In addition, he did not regard his services with the Government as terminated until April 10, 1954, by which time the sponsors had drafted the second proposal and permitted him to review the provision in which he was most interested—the provision relating to interest rates on money to be borrowed by plaintiff.

The representatives of the sponsors were not novices in the handling of the proposed project with the Government. They were experienced businessmen who dealt in big figures and knew their way around. Clearly they were aware of the tremendous advantages of having a "friend on the inside." Otherwise, it is difficult to understand why they consulted Wenzell so frequently.

Finally, the argument that Wenzell's services with the Budget Bureau had no influence whatever in the retainer of First Boston as financial agent is, it seems to me, completely refuted by the statement of the chairman of the board of First Boston. He declared that the firm's decision not to charge the sponsors a fee was dictated by the fact that the retainer of First Boston by the sponsors had resulted directly from his conversation with Dodge in May 1953, when Wenzell's services were offered to the Budget Bureau. Finding 117.

In the conclusion reached by the majority, considerable reliance is placed on the Administration's unflinching and hurried insistence upon a contract with a private utility company; the diligence with which Wenzell pursued his duties in the Budget Bureau; the sponsors' awareness of Wenzell's duality and the disclosure of this situation to the Budget Bureau; Wenzell's departure before the actual drafting of the contract began, and the fairness of the resulting Power Contract.

This conclusion of the majority seems to stem from an understandable desire to avoid a harsh result in this case, but the difficulty I find with the majority decision is that the policy so clearly expressed in 18 U.S.C. § 434 leaves no room for equitable considerations. To my mind, the policy means that in a situation such as that revealed in this case, the tendency or likelihood of a disadvantage to the Government invalidates the Power Contract. I cannot join in chipping out exceptions to a policy so forceably laid down by Congress nor agree that the conflict of interest statute means little when it says much. If that policy is to be narrowed or limited by exceptions, it is the function of Congress and not of this court to spell out such limitations and exceptions.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Wilson Cowen, and the briefs and argument of counsel, makes findings of fact as follows:

CONTENTS

Findings

I. The Contract

A. General ................................................... 1-9

B. Performance by Plaintiff .................................. 10-17

C. Termination of the Contract ............................... 18-21

*534

II. The Conflict of Interest Defense

A. Eisenhower Administration's Power Policy in

1953 and 1954 .......................................... 22-23

B. Wenzell's Work in Budget Bureau in 1953 .................. 24-35

C. Development of Plan to Secure Power From Private

Sources in Lieu of TVA Fulton Plant .................... 36-44

D. Preparation, Submission, and Review of Sponsors'

Proposals, and Wenzell's Activities in Connection

Therewith .............................................. 45-106

E. Retainer of First Boston and the Decision as to its

Fee .................................................... 107-128

F. The Decision to Negotiate a Contract on the Basis

of the April 10 Proposal ............................... 129-132

G. The Negotiation of the Power Contract .................... 133-136

III. The Replacement Defense ........................................ 137-164

IV. The Waiver Defense ............................................. 165-173

V. The Public Utility Holding Company Act Defense ................. 174-189

VI. Lack of Regulatory Approvals Defense ........................... 190-203

VII. Lack of Mutuality Defense ...................................... 204

VIII. Damages

A. General .................................................. 205-207

B. Mitigation of Damages .................................... 208-209

C. The Claim of Dickmann-Pickens-Bond Construction

Co. .................................................... 210

D. The Claim of Jackson Life Insurance Company .............. 211

E. The Claim of J. A. Jones Construction Company ............ 212

F. The Claim of Pandick Press, Inc. ......................... 213

G. The Claim of Reid & Priest ............................... 214

H. The Claim of House, Moses & Holmes ....................... 215

I. The Claim of Arthur Andersen & Co. ....................... 216

J. The Claim of Middle South Utilities, Inc. ................ 217

K. The Claim of The Southern Company ........................ 218

L. The Claim of the Arkansas Power & Light Company .......... 219

M. The Claims of The First National City Bank of

New York and of White & Case ........................... 220

N. The Claim of Mississippi Valley Generating Company ....... 221

(a) Payment to Ebasco on 1954 Billing ................. 222-228

(b) Ebasco, as Agent for MVG .......................... 229

(c) MVG Charges ....................................... 230

O. The Claim of Ebasco Services Incorporated ................ 231

P. The Claims of Cahill-Gordon, Winthrop-Stimson,

Willkie-Owen, and Milbank-Tweed ........................ 232

(a) The Claim of Cahill, Gordon, Reindel &

Ohl ............................................. 233-235

(b) The Claim of Winthrop, Stimson, Putnam

& Roberts ....................................... 236-238

(c) The Claim of Willkie, Owen, Farr, Gallagher

& Walton ........................................ 239-240

(d) The Claim of Milbank, Tweed, Hope &

Hadley .......................................... 241-242

(e) Reasonableness of the Attorneys' Fees ............. 243-245

Q. Post-Petition Claims ..................................... 246

*535 I. THE CONTRACT

A. General

1. Plaintiff herein is Mississippi Valley Generating Company (hereinafter called MVG), a corporation organized under the laws of the State of Arkansas. Seventy-nine percent of the issued and outstanding stock of MVG is owned by Middle South Utilities, Inc. (hereinafter called Middle South), and the remaining 21 percent is owned by The Southern Company (hereinafter called Southern). Middle South and Southern are sometimes hereinafter referred to as the sponsors.

2. This suit was brought by MVG on behalf of itself and for the use of and benefit of 24 parties referred to as use-plaintiffs. The suit is based upon a contract, hereinafter called the Power Contract, entered into between MVG and defendant, acting through the Atomic Energy Commission (hereinafter called AE C), under which MVG agreed to construct and operate a steam electric generating station and related facilities at West Memphis, Arkansas. The Power Contract and certain supplemental agreements were duly executed and delivered on November 11, 1954. The contract and annexed interpretative and explanatory document were received in evidence as plaintiff's exhibits 2-8, 11, and 15. These exhibits and all other exhibits referred to herein are by such references incorporated in these findings.

3. The Power Contract resulted from the following:

(a) On April 10, 1954, Middle South and Southern submitted to the AEC a proposal wherein the sponsors agreed to organize a new corporation (MVG), which would construct and operate the plant and other facilities in accordance with the terms of the proposal. For Middle South the proposal was signed by its president, Edgar H. Dixon, and for Southern by J. M. Barry, chairman of Southern's executive committee;

(b) on June 30, 1954, AEC wrote the sponsors that the proposal constituted a satisfactory basis for the negotiation of a definitive contract and that AEC was ready to begin negotiations; and

(c) on July 7, 1954, the parties began negotiations which terminated with the signing of the Power Contract on November 11, 1954.

4. Middle South is a public utility holding company which owned 100 percent of the stock of the Arkansas Power & Light Company, Louisiana Power & Light Company, and Mississippi Power & Light Company, and approximately 96 percent of the common stock of New Orleans Public Service Company. Dixon was a director of each of these four subsidiaries of Middle South, and he also became president of MVG when it was organized.

Southern is a public utility holding company which owned 100 percent of the stock of Alabama Power Company, Georgia Power Company, Mississippi Power Company, and Gulf Power Company. Eugene A. Yates, at all times material to this action, was chairman of the board of directors of Southern.

5. Section 8.22 of the Power Contract provided in part as follows:

" Effective Date: The effective date of this contract shall be the latest of the following: (a) the date when this contract is executed and delivered by the parties hereto; (b) the date when item (3) of Section 8.15 shall be delivered to the Company; (c) the date when item (4) of Section 8.15 shall be delivered to the Company; or (d) the date on which the time shall have elapsed during which the contract must remain on file with the Joint Committee on Atomic Energy pursuant to Section 164 of the Atomic Energy Act of 1954 or the date when said Joint Committee shall have waived such requirement as provided in said Section."

6. Items (3) and (4) of Section 8.15 of the Power Contract, referred to in section 8.22, provided as follows:

*536 "The obligations of the parties hereunder shall be subject to the following:

* * * * * *

"(3) the receipt by the Company of an opinion of the General Counsel to the AEC to the effect that the AEC has power and authority to execute this contract and the undertakings herein described and to obligate the United States of America for all payments which may be required to be made by the AEC to the Company pursuant to any of the provisions hereof, and that the persons executing and delivering this contract on behalf of the AEC have full power and authority to do so; and

"(4) the receipt by the Company of an opinion of the Comptroller General of the United States to the effect that the AEC has power and authority to enter into this contract and to obligate the United States of America for all payments which may be required to be made by the AEC to the Company pursuant to any of the provisions hereof, and that the AEC has authority to pay cancellation costs under this contract out of any funds now or hereafter appropriated to it by Congress."

7. (a) The opinion of the General Counsel to the AEC dated November 11, 1954, was rendered and delivered to plaintiff.

(b) On November 13, 1954, the Joint Committee on Atomic Energy adopted a resolution waiving the 30-day period specified in Section 164 of the Atomic Energy Act of 1954. However, as is more fully set forth in findings under the heading of "The Waiver Defense", the Joint Committee on Atomic Energy adopted a resolution on January 28, 1955, revoking the waiver.

(c) The opinion of the Comptroller General of the United States was embodied in two opinion letters dated October 5, 1954 and December 13, 1954, respectively, and copies of these were delivered to plaintiff. The second letter was delivered on December 17, 1954.

8. Since December 17, 1954, the date of the delivery of the second opinion of the Comptroller General, was the last of the dates specified in section 8.22, the Power Contract became effective on December 17, 1954.

9. Because of the time which had elapsed prior to the execution of the Power Contract, a letter agreement was entered into between MVG and defendant on November 11, 1954, stating that if by February 15, 1955, the effective date of the contract had not occurred as provided in section 8.22 and valid regulatory approvals necessary in connection with the issuance of MVG's capital stock had not then been obtained, either MVG or the United States might terminate the Power Contract by written notice without liability of either party to the other. By an exchange of correspondence during the period from February 11 to February 28, 1955, it was agreed that those provisions of section 8.22 of the Power Contract that were covered by the letter agreement had been satisfied and that the Power Contract was effective. As a result, the letter agreement was no longer operative.

B. Performance by Plaintiff

10. Subsection 1 of section 8.15 of the Power Contract provided that the obligations of the parties would be subject to the receipt by plaintiff of regulatory approvals in form and substance satisfactory to it and necessary to enable it to perform its obligations under the contract or necessary to enable plaintiff to issue its equity and debt capital. On November 17, 1954, six days after the execution of the Power Contract, plaintiff filed with the Securities and Exchange Commission (hereinafter called SEC) an application for approval of MVG's equity financing. On February 9, 1955, after extended hearings in which there was vigorous opposition to plaintiff's application, the SEC entered an order authorizing plaintiff to issue and sell to the sponsors capital stock in the amount of $5,500,000. On March 14, 1955, this order of the SEC was appealed to the Court of Appeals for the District of Columbia, as *537 more fully described herein under the heading of "Lack of Regulatory Approvals Defense."

On April 22, 1955, plaintiff filed an application with SEC for permission to issue and sell bonds and to make bank loans. As of July 11, 1955, when defendant notified plaintiff that the Government proposed to terminate the contract, testimony had been closed in this proceeding before the SEC, plaintiff's proposed findings having been filed on June 20, 1955. In the hearing, plaintiff encountered strong opposition from the same parties who had opposed its application in the equity proceedings and had taken the appeal to the Court of Appeals. The issues raised by the opposition were substantially the same in both proceedings, and in view of the SEC order in the equity proceeding, plaintiff could reasonably expect favorable action from SEC on its application to sell bonds and make bank loans. However, because of the opposition encountered and the appeal referred to, it was also apparent that there would be some delay, to an extent not ascertainable, before authority would be finally granted to plaintiff to issue and sell its debt obligations.

11. The condition of subsection 2 of section 8.15 of the Power Contract was the execution and performance by institutional investors and banks of contracts and commitments providing for the sale to such investors of plaintiff's debt capital in a form satisfactory to plaintiff. Bond purchase and bank loan agreements in a form satisfactory to plaintiff had been entered into with insurance companies and banks before the Power Contract was terminated. Plaintiff advised AEC of this action and sent it copies of the bond purchase and loan agreements.

12. Both the bond purchase agreement and the bank credit agreement required that, at the time of each borrowing thereunder, an opinion of counsel be furnished to the effect that plaintiff had "obtained all orders, certificates, approvals, authorizations or consents of the Securities and Exchange Commission" to enable it to issue and sell bonds, or to borrow money and issue notes, as the case might be, and that "such orders, certificates, approvals, authorizations and consents are valid and are in full force and effect, the times (if any) prescribed by statutes or regulations for appeals therefrom or rehearings thereon have elapsed and none of them are the subject of any pending attack on appeal or by direct proceedings or otherwise * * *".

13. Under date of June 14, 1955, Ebasco Services Incorporated (hereinafter called Ebasco), the architect-engineer employed by plaintiff to design the power plant and act as construction manager, estimated that plaintiff's cash requirements would be $6,175,000 by December 31, 1955. It was also estimated that these cash requirements would increase rapidly each month thereafter and that by the end of June 1956, plaintiff's total cash requirements would amount to $27,575,000.

14. If plaintiff had exhausted the equity capital of $5,500,000 before the debt proceedings had been favorably concluded, it would have been necessary for plaintiff to discontinue work on the project unless (a) it could have persuaded the banks and insurance companies to waive the requirements of valid SEC approval of the debt financing, or (b) obtained temporary bank loans until approval was secured. However, both the appeal on the equity financing and the SEC debt proceedings became moot when defendant terminated the contract. The record affords no basis for making an accurate determination as to when the debt proceedings would have been favorably concluded. A finding that plaintiff would have had or that it would not have had funds available for the construction of the plant after the date of termination, would be speculative. Plaintiff did not encounter any problem of lack of funds before the contract was terminated. Of the $5,500,000 of capital stock which the SEC had authorized plaintiff to issue and sell, plaintiff had actually issued and sold to the sponsors stock in the amount of $1,100,000. By the date the contract was terminated, plaintiff had *538 large outstanding commitments, but it had actually spent less than one-half of the $1,100,000.

15. Although all of the regulatory approvals required under the terms of the Power Contract had not been obtained by plaintiff as of the date of termination, the evidence shows that from the date the Power Contract was signed and until it was terminated, plaintiff was diligent in its efforts to obtain all of the required regulatory approvals.

16. Before the negotiations on the contract began, the defendant had made it clear to plaintiff that the proposed power to be generated at the new plant would be needed by the fall of 1957, and during the negotiations, plaintiff was told that the first of the three units of the power plant was to be in operation within 32 months after the effective date of the contract.

In section 2.01 of the Power Contract, plaintiff agreed to use its best efforts to have the three generating units of the power plant ready for commercial operation not later than 32, 34, and 36 months, respectively, after the effective date of the contract. In view of the defendant's express need for the power by the fall of 1957, and in order to meet the target dates which were known long before the Power Contract was signed, the sponsors and plaintiff began activities looking toward performance of plaintiff's obligation under what eventually became section 2.01 of the Power Contract months before that document was executed. These early activities included taking options on land which was to be the site of the plant, primary engineering work, the preparation of a schedule of construction activities, and some exploratory work on the site.

By the end of 1954, plaintiff, through Ebasco, had made limited commitments for many of the items of equipment needed and for a construction office and warehouse.

In the early part of 1955, a construction office was opened at the site and major construction was started on June 1, 1955. By the time the contract was terminated, three of the basic construction contracts had been let and many of the purchase orders had been issued.

The record as a whole shows that at the time the Power Contract was terminated plaintiff had used its best efforts to comply with the obligation set forth in section 2.01 of the Power Contract.

17. Aside from sections 2.01 and 8.15 (covered by preceding findings), there were a number of provisions in the Power Contract and in the interpretative memorandum annexed thereto which imposed affirmative obligations upon plaintiff. The defendant offered no evidence that plaintiff had failed to perform any of the obligations set forth in these provisions. The undisputed evidence establishes that at the time the defendant terminated the contract, plaintiff had performed such obligations imposed upon it by the contract in all instances where performance was timely, or that it was proceeding diligently toward performance.

C. Termination of the Contract

18. Near the end of June 1955, plaintiff learned that the President of the United States had requested the Director of the Bureau of the Budget to confer with AEC and the Tennessee Valley Authority (hereinafter called the TVA) to determine whether to cancel the Power Contract because of the decision of the city of Memphis to construct its own electric generating facility, thereby relieving TVA of the obligation to furnish Memphis with power.

19. On July 11, 1955, at about 5 p. m., plaintiff was advised by telephone by the Chairman of AEC that the President of the United States had decided to order termination of the contract. On August 1, 1955, the oral notice was confirmed in a letter from AEC to plaintiff. The letter expressed the hope that it would be possible for the parties to agree on a mutually acceptable basis for bringing the contract to an end.

20. On July 12, 1955, representatives of plaintiff met with the President of the United States, and thereafter there was *539 a series of meetings with representatives of AEC. In compliance with a request from AEC, plaintiff supplied estimates of termination costs as of June 30, September 30, and December 31, 1955. During these meetings there were discussions about plaintiff's commitments to third parties and as to steps that could be taken to minimize the outstanding claims. Plaintiff also worked with AEC in attempting to settle some of the smaller claims. However, the representatives of AEC were unable to give plaintiff any specific instructions on actions that should be taken in connection with the termination of the contract. The AEC representatives stated that they had not received any directive regarding the matter. The post-termination discussions were broken off by AEC in October 1955, and on November 23, 1955, AEC wrote plaintiff that upon the advice of its counsel, it had concluded that the contract was not an obligation which could be recognized by the Government.

21. From the date the Power Contract was executed until the letter of November 23, 1955, no representative of the defendant had indicated to plaintiff that it had failed in any way to discharge its obligations under the contract. However, at the meetings between plaintiff and the AEC after the contract had been terminated, AEC reserved the question of whether the contract was invalid because of a conflict of interest. This is the basis of one of defendant's affirmative defenses, the facts regarding which are set forth under the heading "Conflict of Interest Defense."

II. THE CONFLICT OF INTEREST DEFENSE [1]

A. Eisenhower Administration's Power Policy in 1953 and 1954

22. It was the basic Eisenhower Administration policy on power during 1953 and 1954 that the Government would seek to have either private enterprise or local communities provide power generating sources in partnership with the Government. This policy was first announced in the President's State of the Union Message of February 2, 1953.

23. In accordance with the Administration policy and in furtherance of its objective to reduce the budget, Joseph M. Dodge, Director of the Bureau of the Budget, eliminated from the TVA budget for the fiscal year 1955 a request for funds for the construction by TVA at Fulton, Tennessee, of a steam generating plant which was to serve the commercial, industrial, and domestic power needs of the city of Memphis and its environs. TVA's request for a similar appropriation in the budget for the fiscal year 1953 had been disallowed by the Truman Administration, but it had been included in the budget for the 1954 fiscal year, which President Truman left with Congress when the Eisenhower Administration took office. In March 1953 during his review of the then pending budget, Dodge disallowed the request for the fiscal year 1954. In the spring of 1953 and again in 1954, efforts to add an appropriation for the TVA Fulton plant were defeated in Congress.

B. Wenzell's Work in Budget Bureau in 1953

24. Through three telephone calls he made early in May 1953, George D. Woods, chairman of the board of directors of First Boston Corporation, obtained an appointment with Dodge on May 11, 1953. First Boston is and was one of the leading investment banking concerns in the country. It underwrites security issues for both private and governmental entities. When the two men met in Washington, D. C., on the afternoon of May 11, Woods stated that he had read the published announcements of the Administration's policy of reducing the Government's participation in business activities, that he was wholeheartedly in accord with the policy, and that if there was anything which he or his firm could do to further the policy, they were ready and willing to be of service and assistance. Dodge, who had *540 not been in office very long, was interested in having some power studies made, particularly for the purpose of ascertaining the subsidy the Government was providing to TVA. He had not been able to find the individual he thought appropriate to make the study and asked Woods for a suggestion, stating that the Bureau needed the services of a man who had worked on utility financing transactions and was experienced in accounting and money costs. Woods replied that First Boston had such a man, Adolphe H. Wenzell, an engineer who had worked on many utility financing transactions and was qualified for the undertaking. Woods agreed to ascertain if Wenzell could be made available.

25. Upon his return to New York Woods discussed the matter with Wenzell and found that he was willing to undertake the assignment. Woods also talked with his principal associates, James Coggeshall, Jr., president of First Boston, and Duncan Linsley, chairman of the corporation's executive committee, and learned that they had no objection to Wenzell's services being made available to the Bureau. Thereupon, Woods telephoned Dodge and made arrangements for Wenzell to meet Dodge on May 15, 1953.

At the time, Wenzell was one of 40 vice presidents of First Boston and one of its numerous directors. He had been employed by First Boston since its inception in 1934 and had been with its predecessor since 1923. Wenzell was an engineer, specializing in utility matters and serving in the buying department of the corporation. This department was concerned with investigations and negotiations leading up to an undertaking by First Boston to underwrite securities. His entire business life and experience had been devoted to this type of work. At times, he supervised and personally conducted investigations of utility properties and the soundness of the management for the purpose of obtaining information that would enable First Boston to determine whether it should be identified with any financing for the company under investigation. He was regarded as an expert in this field.

26. Pursuant to the arrangements made, Wenzell met Dodge in the latter's office in Washington on May 15, 1953. Dodge talked with Wenzell about his experience, background, and the nature of the work to be done. From this and from a preliminary investigation he had made, Dodge was satisfied that Wenzell could perform the desired service. Accordingly, it was agreed that Wenzell would act as a consultant to the Bureau of the Budget on a part-time basis, spending one or two days a week in Washington at the Bureau, and then returning to First Boston's office in New York City to resume his work there. Wenzell was to serve without compensation, but it was agreed that he would be paid $10 per day in lieu of subsistence and that his necessary transportation expenses would be paid by the Government through the use of transportation requests which were furnished to him for that purpose. It was understood that he would not sever his connection with First Boston and that he would continue to receive his regular salary from it.

Dodge instructed Wenzell to make a commercial, financial analysis of TVA, including a summary of its development and a comparison of its accounting and financial practices with those of privately owned utility companies—all with the ultimate objective of estimating the amount and showing the sources of the Government's subsidy to TVA. Dodge emphasized that he did not want an audit, an engineering examination, or a survey of TVA properties.

27. TVA is a very large supplier of electrical energy to the AEC. However, the AEC also purchases huge amounts of energy from private suppliers. One of these suppliers is the Ohio Valley Electric Corporation (hereinafter designated as OVEC), composed of a group of private utilities which, in 1952, contracted with AEC to supply it with 1,800,000 kw. at Portsmouth, Ohio. This is one of the largest generating plants in the world, and a large amount of financing was required *541 by the utilities that banded together to carry out this undertaking.

First Boston was employed by OVEC to arrange for this financing, consisting of directly placing the securities of OV EC with large institutional investors. It did so, and received a fee of $150,000 for its services, plus $20,000 for expenses.

The OVEC transaction was substantially completed in 1952, but in 1953, when Wenzell was first employed by the Budget Bureau, First Boston was performing some services in connection with the OVEC project.

28. Wenzell began work in the Bureau on May 20, 1953, and was introduced to the staff of the Resources and Civil Works Division, which handles the budget and legislative work relating to the Departments of Agriculture and Interior, the Federal Power Commission, TVA, and other agencies. Dodge had told Wenzell that he was to use TVA reports as the basic documents for the study, but the staff of the Resources and Civil Works Division was instructed to provide him with any additional information he needed for that purpose.

29. Wenzell completed his assignment and submitted his report to Dodge about September 20, 1953. Between May 20, 1953, and the date the report was delivered, he made 11 trips to Washington and spent 29 days in the Bureau. On his first trip from New York on May 20, 1953, First Boston paid his transportation expenses, but the Government paid such expenses thereafter. During this period, he received $10 per diem from the Government for subsistence. He also submitted supplemental vouchers to First Boston for his subsistence expenses, and these were duly paid.

30. In the course of Wenzell's study, a considerable volume of written and printed data was made available to him by the Bureau staff. The material included TVA annual reports, General Accounting Office reports of TVA audits, TVA financial statements, material presented to the Bureau by TVA in justification of its budgets, a report on TVA's proposed electric generating plant at Fulton, a statement of tax equivalents paid by TVA, and the like. He also had discussions with one or more members of the staff on the financial status of TVA.

31. On August 31, 1953, Wenzell met with members of the Bureau staff and discussed generally his conclusions on his study of TVA operations. His comments regarding TVA operations were favorable but he stated that, in his opinion, not enough of TVA's hydroelectric power costs were charged to power. He also expressed concern about any further expansion of TVA's service area.

While he worked at the Bureau during this period, Wenzell was assigned an office next to that of Rowland R. Hughes, the Assistant Director of the Bureau of the Budget. Before Wenzell's report was completed, he showed it to Hughes, who made several suggestions regarding it.

32. Wenzell's report consisted of a concise summary of TVA operations, a comparison of its power system operations with those of private power companies, and a statement of the fiscal problems to be faced if future power requirements in the area were to be supplied by TVA. His report, in evidence as defendant's exhibit 10, was accompanied by his conclusions and recommendations, including the following:

(a) the electric generating capacity and annual power output of TVA is the largest in the country;

(b) the original purpose and program of the TVA, i. e., the hydro development of the Tennessee River Basin, was nearing its end;

(c) since 1951, TVA had been changing from a predominantly hydroelectric operation to a steam electric operation, because of the completion of the unified steam development program and a tremendous increase in the demands for power caused by TVA's efforts to supply a large portion of AEC's requirements;

(d) in addition to costs that properly belong to navigation and flood control, TVA had allocated an additional substantial portion of the cost of multiple-use *542 facilities to navigation and flood control, whereas these costs should have been allocated to power operations;

(e) a comparison of the assets and revenues used by TVA for calculating payments made by it in lieu of general or local taxes with similar assets and revenues of 14 adjacent private power companies showed that TVA paid only 50 percent as much general and local taxes as the private companies;

(f) on the basis of the true costs to the Government of long-term money, the deficiency in the earnings of the power division of TVA for the year ended April 30, 1953, was a substantial sum; this sum was a Government subsidy.

Among the alternative suggestions for future power supply to the TVA service areas were the following:

(a) the municipalities or cooperatives by themselves, or as a group, should have the right to construct steam plants to supply their expected load growth;

(b) the need for additional power in the area could be supplied by wholesale steam generating companies, which would sell the power to TVA under long-term contracts, and TVA would then distribute the power through its transmission network in the area;

(c) municipalities and cooperatives around the periphery of the service area could be served by adjacent power companies, but this idea was contrary to public utility practice and policy.

He also wrote that in order for TVA to escape the dilemma of being primarily interested in navigation and flood control on one hand and being forced into the steam power business on the other, TVA should retain ownership and control of all of the multiple-use dams and other navigation and flood-control facilities but the balance of its power system assets should be transferred to a fully tax-paying corporation, the entire capitalization of which, in the first instance, would be owned by the Government. The new corporation would purchase the entire output of power at the dams at a price which would include equivalent local taxes, interest at a rate equal to the cost of long-term Government money, and amortization of cost over a long period of time. All future capital requirements for expansion would be obtained through the sale to the public of regular corporate security issues without any kind of Government guarantee, and a definite program would be established to liquidate all of the Government-owned securities by sale to the public. In his report, Wenzell concluded that the adoption of this plan would accomplish the objective of getting the Government out of the subsidized power business without surrendering any measure of control over navigation and flood control in the Tennessee River Basin.

33. When Wenzell's report was delivered to him, Dodge went over it briefly but did not read it carefully until later. Dodge never adopted or used any of the recommendations made in the report, nor did he consult Wenzell on any policy matters connected with the budget. Since he had not requested Wenzell to include recommendations in his report, Dodge was surprised to see them and they did not impress him. Wenzell's recommendations were not a factor in the policy decision, later communicated by Dodge to Strauss, that the AEC should enter into a contract with the utility companies.

On October 19, 1953, Dodge wrote Wenzell, expressing appreciation for the work Wenzell had done and stating that the report "was an extremely valuable contribution, not only for the material contained in it but its use as a foundation for further studies in consideration of the same subject." The letter also stated that the report "has been examined by two important individuals whose reaction to your work equal my own." The individuals referred to were President Eisenhower and Ex-President Hoover, who were given copies of Wenzell's report.

34. Neither the Chairman of AEC, its General Manager, nor its Deputy General Manager, who was responsible in AEC for the discussion and development of data that led to the decision to *543 negotiate the Power Contract and who headed the AEC group in negotiating the contract, had seen or were aware of Wenzell's report until four months or more after the date of the execution of the Power Contract.

35. When he handed his report to Dodge, Wenzell asked permission to retain a copy. Dodge agreed that since Wenzell was the author, he could have a copy on the condition that it would not be shown to anyone else since it was a confidential Bureau document. However, in the fall of 1953, after Wenzell had completed his assignment and had resumed his regular work in First Boston, Woods asked Wenzell for a copy of the report made to Dodge. Wenzell gave his copy to Woods, who read it over the weekend and returned it with the comment that Wenzell had done a good job. Neither Wenzell nor Woods received permission from anyone in the Bureau for Woods to read the report.

C. Development of Plan to Secure Power From Private Sources in Lieu of TVA Fulton Plant

36. As previously stated, the Budget Bureau had decided in the fall of 1953 not to include any provision in the budget for the fiscal year 1955 for the TVA projected steam plant at Fulton Tennessee. The reasons for this decision, as subsequently stated by Hughes (defendant's exhibit 88), were:

(a) It was imprudent to embark upon a construction program requiring expenditures of one hundred million tax dollars in fiscal years 1955, 1956 and 1957 at a time when government borrowing was verging on the debt limit;

(b) both the Senate and House of Representatives, in considering TVA appropriation bills in the previous session of the Congress, had rejected amendments to provide funds for starting construction of the Fulton steam plant, and

(c) there was pressing need to explore the far-reaching implications of a Federal policy of spending Federal tax dollars for Federal steam plants to meet the power needs of this particular region and, if decided upon, to explore the impact of such a policy throughout other regions of America.

In a discussion with congressional leaders, Dodge had been told that if a request for funds for construction of the TVA plant in Fulton should be included in the budget, the request would not be approved by Congress.

When Gordon Clapp, the General Manager of TVA, learned of the decision during the fall of 1953, he informed representatives of the Bureau of the Budget that if provision for the Fulton plant was eliminated from TVA's budget, TVA would take the position that the power then being furnished by TVA to AEC should be reduced so that a like amount of power would be available to TVA to meet the growing needs of its other customers. TVA was then under a firm contract with AEC to supply its Paducah, Kentucky, installation substantially the entire output of TVA's generating plant at Shawnee, Kentucky, near Paducah. TVA was also supplying a large block of power to the AEC installation at Oak Ridge, about 360 miles east of West Memphis, Arkansas. As a result, the Bureau of the Budget began drafting a statement for the President's budget message to the effect that an attempt would be made to relieve TVA of some of its power load to AEC and that if this did not prove to be practicable or successful, the matter of the construction by TVA of a plant at Fulton would be reconsidered.

37. On December 2, 1953, Dodge met in his office with Lewis I. Strauss, Chairman of the AEC, and Walter J. Williams, then AEC's General Manager. Dodge stated that it was desirable to avoid capital expenditures for new TVA steam generating capacity and that the Budget Bureau had considered that this objective could be accomplished by having AEC contract with private industry to construct a plant that would supply 450,000 kw. of additional power for AEC at its Paducah, Kentucky, installation by 1957, and by having AEC release a like amount of power which TVA was then *544 supplying to it so that the released power would be available for TVA's other requirements. Dodge referred to Electric Energy, Inc. (hereinafter called EEI) and OVEC, two different groups of private utility companies which had previously entered into long-term power contracts with AEC to build steam generating stations and to supply power to AEC at its installations in Paducah, Kentucky, and Portsmouth, Ohio. Dodge inquired whether the plan outlined by him would be feasible, whereupon Williams stated that the answer to the question would require discussions with J. W. McAfee, president of Union Electric Company and also president of EEI.

After the meeting, Williams arranged to meet McAfee, who had been helpful in arranging for the construction by EEI of a plant at Joppa, which was then being completed to furnish AEC power at its Paducah installation. When McAfee met with Williams on December 8, 1953, Williams asked whether EEI or some similar corporation would be interested in building a plant to supply AEC with as much as 450,000 kw. of generating capacity by the middle of 1957. McAfee stated that it would be difficult for EEI to add generating capacity at Joppa and suggested either a plant upstream from Cairo but downstream from the Joppa plant, or a plant near the town of Shawnee. He agreed to make some inquiries about the matter. Later, on December 14, 1953, Williams telephoned McAfee, requesting that the latter write the AEC and indicate his interest in furnishing the generating capacity mentioned on December 8. On December 14, 1953, McAfee wrote the requested letter, stating that he thought a group of private investors could be formed to supply AEC the amount of power requested at its Paducah project upon substantially the same rates and terms as provided for in the contract between AEC and EEI. Williams had earlier cautioned McAfee to make only general inquiries and not to disclose the particular project under discussion. Accordingly, in his letter, McAfee stated that when he received more specific information he would be in a position to discuss the project with financial institutions and prospective members of a managing group so that more definite information could be supplied.

A copy of McAfee's letter was sent to William F. McCandless, Assistant Director for Budget Review in the Budget Bureau, who had been told of the meeting with McAfee and had requested a copy of the letter in order that he might show it to Dodge. The Budget Bureau's interest in any proposal which might be submitted by McAfee's group was two-fold: first, the Bureau was concerned with relieving the burden on the budget of the large capital outlay required for building additional facilities for TVA; second, in such a transaction, the Budget Bureau acts as the Administration's mechanism to make certain that the project is defensible. Dodge realized that the Budget Bureau would later be called upon by both the White Hhouse and a congressional committee to give an opinion about the project.

38. On December 17, 1953, Hughes met with Gordon R. Clapp, Chairman of the Board of TVA, and with members of the staffs of the Budget Bureau and TVA. At this meeting, Clapp was informed that no money would be included in the 1955 budget to provide new steam plants for TVA but that arrangements were being made to reduce by the fall of 1957 existing TVA commitments to AEC by some 450,000 kw., thus providing TVA with power for reasonable growth in industrial, municipal, and cooperative loads through 1957. At Clapp's request, it was agreed that an attempt would be made to relieve TVA of a minimum of 500,000 kw. and that this amount would be increased to 600,000 kw. if possible. Clapp was told that if negotiations for furnishing the AEC load requirements from other sources were not consummated, the question of starting additional generating units in the TVA area would be reconsidered. On the following day, December 18, 1953, the statements made to Clapp were confirmed in a letter sent to him by Dodge.

*545 After December 17, 1953, Dodge delegated responsibility for carrying on the project to Hughes, and thereafter Dodge's connection with the matter became less and less frequent. He resigned on April 15, 1954, and was succeeded by Hughes.

39. Sometime prior to December 14, 1953, Dixon learned from McAfee that AEC might be seeking an additional source of power in the Paducah area. Dixon was interested in the information for two reasons: (1) the potential sale of electric power, and (2) his feeling that his company should make a contribution to the effort of supplying the electric power needs of the Government through investor-owned power companies rather than through publicly-owned power companies.

On December 23, 1953, Dixon met in Strauss' office with Williams, Strauss, and Kenneth D. Nichols, who had been selected to succeed Williams as General Manager of AEC when the latter resigned on January 31, 1954. The purpose of the meeting was a discussion about having private utility companies build additional generating capacity near Paducah for the purpose of relieving TVA of its commitments to AEC there. There was also a discussion about the power situation in the Tennessee area, and there were maps indicating the power loads and utility plants in that area. Dixon referred to and produced a copy of a letter which Mississippi Power & Light Company, one of the subsidiaries of Middle South, had written to TVA under date of October 15, 1953, proposing to supply to TVA for a term of 20 years a block of 450,000 kw. of power in lieu of the construction by TVA of its proposed Fulton plant, and for that purpose to construct near Memphis a plant which would deliver the power to TVA at the Tennessee State line.

On the same day, Williams telephoned McCandless at the Budget Bureau to inform the latter about the meeting. On the next day, Williams sent McCandless a copy of the letter which had been left by Dixon.

40. On December 24, 1953, Hughes, as Acting Director of the Budget Bureau, wrote to Strauss, stating that the Bureau understood that as a result of preliminary conversations between AEC and private interests, arrangements could probably be worked out to supply AEC at Paducah with 500,000 (and possibly up to 600,000) kw. more of electric power from non-Federal sources than AEC was then scheduled to receive by 1957 and that these arrangements would relieve TVA of its previous commitments to AEC in like amounts, freeing such power for normal load growths in the TVA area. He also stated that the TVA budget would be based on that expectation, but that if satisfactory arrangements could not be developed to provide such power for AEC installations from private sources, reconsideration would be given to TVA's request for appropriations to build additional power facilities. Hughes' letter expressed the understanding that the arrangements he referred to related solely to existing firm commitments for permanent power between TVA and AEC. The letter stated that it would be helpful if AEC would proceed with the negotiations with a view to reaching a firm agreement with private interests to supply the amount of power stated above by not later than the fall of 1957. Hughes requested that the Bureau be kept currently informed regarding the negotiations, because of the necessity of submitting supplemental appropriations to Congress during the following spring in the event the arrangements mentioned were not consummated.

41. On the basis of the opinion expressed in McAfee's letter of December 14, 1953, the section of the President's budget message relating to TVA was formulated and later released. In the message, which was delivered to Congress on January 21, 1954, the President stated as follows with respect to additional power plants for TVA:

"Although no appropriations are included in the 1955 budget for new power generation units by the Tennessee Valley Authority, expenditures *546 will increase for continuation of construction of power plants presently underway, and for operation of power plants after they are completed. Expenses for operation of flood control, navigation, and fertilizer facilities will continue at about the 1954 level. Expenditures for power and fertilizer operations are more than offset by the income from sales. In order to provide, with appropriate operating reserves, for reasonable growth in industrial, municipal, and cooperative power loads in the area through the calendar year 1957, arrangements are being made to reduce, by the fall of 1957, existing commitments of the Tennessee Valley Authority to the Atomic Energy Commission by 500,000 to 600,000 kilowatts. This would release the equivalent amount of Tennessee Valley Authority generating capacity to meet increased load requirements of other consumers in the power system and at the same time eliminate the need for appropriating funds from the Treasury to finance additional generating units. In the event, however, that negotiations for furnishing these load requirements for the Atomic Energy Commission from other sources are not consummated as contemplated or new defense loads develop, the question of starting additional generating units by the Tennessee Valley Authority will be reconsidered."

42. On January 4, 1954, McAfee wrote Williams, stating that since their discussion in Washington, McAfee was impressed with the necessity of considering other alternatives. He suggested the following, in order of priority, as a means of relieving the Federal budget of avoidable capital expenditures in the TVA area: (1) that TVA no longer assume full responsibility for supplying the needs of municipalities, and as existing contracts expire, that the municipalities which needed a greater supply of power than was available from TVA, be obliged to purchase power from others or construct municipal power plants; (2) that TVA arrange with neighboring power companies to buy power from them, and (3) the plan under discussion, i. e., a contract between AEC and private industry to supply power to AEC at Paducah.

Strauss was notified of the receipt of the letter, copies of it were distributed in AEC, and it was discussed in that agency.

43. On January 14, 1954, Hughes and McCandless attended a meeting in Strauss' office with Strauss, Williams, and Nichols. Reference was made to the two letters from McAfee and to the proposal which Mississippi Power & Light Company had submitted to TVA on October 15, 1953. Nichols pointed out to Hughes and McCandless that if AEC purchased more power from private utilities in lieu of the power being furnished by TVA under firm contracts with AEC, the cost to AEC would be greater and the supply less certain because of possible delays in the construction of the plant and the location of reserve power. He stated that McAfee was not eager to enter into such contract and that from an engineering point of view, Paducah was not the proper location for the new power plant, because if the AEC's needs there were reduced, it would be difficult and expensive to use the surplus power elsewhere. Finally, he suggested that if the power was needed in the Memphis area, it would be better for the city of Memphis or for TVA to enter into a power contract with private utilities to construct a plant in that area along the lines that had been suggested by Dixon and McAfee.

McCandless requested that the AEC pursue the matter further with McAfee.

After the meeting in Strauss' office, Williams arranged for McAfee and Dixon to attend a meeting in Strauss' office on Wednesday, January 20, 1954.

44. There is no evidence that Dixon, McAfee, or any representative of defendant had any contact with Wenzell during the period from November 1, 1953 to January 14, 1954. Neither McAfee *547 nor Dixon knew of the report Wenzell made in September 1953.

D. Preparation, Submission, and Review of Sponsors' Proposals, and Wenzell's Activities in Connection Therewith

45. About the middle of January 1954, Hughes suggested to Dodge the advisability of requesting Wenzell to again assist the Bureau, because of Wenzell's study of TVA and his knowledge of commercial transactions. By that time, the Administration had decided that AEC should proceed to make a contract with private utility companies and that the TVA plant at Fulton would not be built. Dodge authorized Wenzell's return and thereafter, when Wenzell was working at the Bureau, Dodge saw little of him until March 1954.

The Bureau was concerned that any proposal which it considered met its fiscal standards, namely (1) that the cost of the power to be contracted for by AEC would be reasonable in relation to the cost of other power used by AEC, and (2) that the cost of power under any proposal could be reconciled with the estimated cost of power from the proposed TVA Fulton plant, taking into account the cost of interest and taxes paid by the private companies. Wenzell was to assist the Bureau again as a part-time consultant during the exploratory discussions on the project, particularly with respect to the probable interest cost of any financing plans that might be discussed. His work was to be in the technical area of comparative costs.

46. In response to a telephone call made by Hughes on January 14, Wenzell met Hughes in Washington on January 18, 1954. Hughes told Wenzell that the Government had decided to have a private power company construct a large steam generating plant near Paducah, Kentucky, to supply approximately 600,000 kw. of power to the AEC in substitution for a like amount of power then being supplied to AEC by TVA in the same location. Hughes showed him a paragraph in the President's budget message reflecting the decision that had been made (finding 41); stated that meetings had already been held with the utility executives during the month of December, and said that another meeting at the AEC had been arranged for January 20 with Dixon and McAfee. Hughes emphasized the need for great speed on the project, and after learning that Wenzell knew both Dixon and McAfee, Hughes asked Wenzell to attend the meeting and to use such influence as he had with the private utility people to impress upon them the need for prompt action on the matter.

Wenzell had met Dixon about 1943. In 1948 or 1949, he had talked to Dixon in connection with services that First Boston proposed to render to Arkansas-Missouri Utilities Company, a customer of Arkansas Power & Light Company, one of Middle South's subsidiaries.

On the same day (January 18, 1954), Hughes made an appointment by telephone for Wenzell to see Strauss in order that Wenzell could learn further particulars about the meeting to be held on January 20. No mention was made at the time about the cost of interest rates involved in financing the project.

47. During the afternoon of January 18, 1954, Wenzell went to the AEC building and had a very brief meeting with Strauss. All visitors at AEC were required to sign a "Visitor's Registration" card which contained a space for the name and address of the visitor and his "Organization". On that occasion and on each occasion thereafter when Wenzell visited the AEC, he specified his address as "100 Broadway, N. Y. City", which was the address of the offices of First Boston, and inserted "First Boston Corp." in the space specified for the organization. Wenzell did this to provide information as to where he could usually be found by anyone looking for him.

Wenzell told Strauss that he was there at the request of Hughes and was trying to get some background of the program and plan. Strauss had never met Wenzell before, and there is a conflict in the testimony of Wenzell and Strauss as to *548 whether Wenzell stated he was connected with the Bureau of the Budget. The greater weight of the evidence shows that Hughes told Strauss that Wenzell was a banker connected with the First Boston Corporation as an officer or a partner, and that Strauss was to acquaint Wenzell with the background and purpose of the meeting to be held on January 20, 1954. Strauss assumed that Wenzell was to attend the meeting to advise all concerned on matters within his competence. Strauss was aware that the cost of money, i. e., the interest rate on the securities which might be issued by the private utility companies, was an important element in the total cost to the Government of any facilities that might be constructed. Strauss stated that the AEC was trying to move forward rapidly with the program that Hughes had outlined to Wenzell. Strauss also emphasized that it was important that the private utility companies give serious consideration to the matter to be discussed and that it be handled without delay. Wenzell told Strauss that he was a vice president of First Boston, and Strauss stated that he was familiar with that firm. It was then arranged that Wenzell would discuss the matter the following day with Williams. Wenzell returned to New York City that evening.

48. On January 19, 1954, Dixon received a telephone call at his New York office from Wenzell who stated that he would be present at the meeting on January 20 as a representative of the Bureau of the Budget and that Dixon should not be surprised to see him there.

49. Pursuant to the arrangements previously made, Wenzell returned to Washington from New York on January 19 to see Williams at AEC. On his own volition and without consulting any representative of the defendant or of First Boston, Wenzell took with him Paul Miller, an assistant in First Boston's buying department. Miller had participated actively in the financing of the OVEC project in which First Boston had acted as financial agent for OVEC. Wenzell thought that it was inevitable that various questions relating to financing an enterprise such as the OVEC project would arise at the January 20 meeting and that it would be desirable to have an expert available to answer such questions.

At the AEC building, Miller registered as representing First Boston, as did Wenzell. Wenzell and Miller met with Williams and Cook of the AEC, and were advised by Williams of the discussions that had previously been held with Dixon and McAfee. Cook was present, because he had been designated as the official who was to be responsible for looking after the project for AEC after Williams' resignation, which occurred on January 31, 1954. There was no discussion about financing, and there is no evidence of any statements made by either Wenzell or Miller. Cook and Williams were told that Wenzell was a consultant to the Bureau of the Budget, but Cook did not know until later that Wenzell was also an officer of First Boston. Wenzell and Miller remained overnight in Washington.

50. On the morning of January 20, Wenzell and Miller first met with Hughes and then went to the AEC to attend the scheduled meeting, which was delayed until afternoon because of McAfee's late arrival. At AEC Wenzell and Miller had a general discussion about the proposed project with Williams. At 3 p. m. the meeting convened. In addition to Wenzell and Miller, it was attended by McAfee and Dixon, and by Williams, Cook, MacKenzie, and Sapirie of AEC. Strauss was present for a few minutes. Wenzell was the only representative of the Budget Bureau at the meeting. Miller was not a representative of any Government agency but, as earlier stated, had come to Washington at Wenzell's request.

51. The proposal that had been discussed before the meeting was the construction of additional facilities in the Paducah area to supply power to AEC as a substitute for power then being furnished by TVA to AEC at Paducah, so that AEC could release a like amount of power to TVA for use by its other consumers. *549 McAfee and Dixon stated that they were ready and willing to do anything possible, without regard to profit, to help with the problem of furnishing power. Thereupon, there was much discussion about the wisdom of constructing a new plant near Paducah where so much power generation was already concentrated. It was pointed out that if the AEC cancelled its existing contracts at Paducah or reduced its power consumption there, there would be great difficulty in marketing the tremendous oversupply of power in that area.

It was made plain that the purpose of the power plant to be constructed was not to satisfy any increased need of the AEC but to relieve TVA's need in the Memphis area, and this led to a discussion of the possibility of building the plant near Memphis to produce power for delivery to TVA. Since the AEC had no projects in the Memphis area and required no power there, a question arose as to whether AEC should act as the contracting agency with the private utility companies, as had originally been proposed by the Government. It was stated that AEC would contract and pay for the power but that it would be physically delivered to TVA, and that the effect of this would be to release an equivalent amount of power which TVA was supplying to AEC at Paducah. Dixon stated that he thought it would be a much better plan to have TVA contract directly for the proposed new plant instead of having AEC act as contracting party. No questions were raised regarding the details of financing the proposed plant, and there is no evidence that Miller made any statements or suggestions at the meeting.

After the meeting at the AEC had adjourned, there was a conference shortly thereafter in Hughes' office in the Budget Bureau in accordance with arrangements that Williams had made. The conference was essentially a continuation of the meeting at the AEC. In attendance were MacKenzie, Cook, Williams, McAfee, Dixon, Wenzell, Miller, McCandless, and Hughes. McAfee and Dixon reiterated their desire to be of assistance but again expressed their concern about the location of another plant at the Paducah area, pointing out that such a plant would require additional transmis

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