# Petitioners Reply Brief — Hart v. Federal Reserve Bank > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1099%3A4 ## Record - **Collection:** Supreme Court brief - **Document type:** Petitioners Reply Brief - **Published:** January 1, 1968 - **Citation:** 390 U.S. 924 ## Text & bd ee LS ose BRR ice t= tcp ELTA oiken Scie abet cepae ieaOb ei cle Saas acinar Pa saa ata - INDEX. The Purpose of ‘Sicceaitee’ Order No. 9112 ......-\ea- The Malconstruction of Executive Order Compounded Why Justice Department Gannot Invoke Doctrine of Estoppel to Protect, Federal Reserve Bank .,)...... ‘Why Defense of Federal Reserve Bank by J ustice De- _ partment Is Contrary to Public Policy ..... iaaae Interrogatories. Propounded by the Plaintiffs. to ~ Nicholas deB Katzenbach, Attorney General of the United States—Filed April 8, 1965 ... uti : Supplementary Statement of Reasons hie’ Writ EE Slice ncedhawessiceewonacdeuen "Appendix A—Excerpt From Testimony of Hon. Rob- ‘ ert P. Patterson, Under Secretary of War, Before ’ Committee on Banking and Currency, Uni es Senate, 77th Cong. 2d Sess, on S. 2250, a-Bill to Mobilize the Productive Facilities of Small Busi- ness inf the Interests of Successful Prosecution of the War, and for Other Purposes, Part 2, March 20, Be ET GE bh ven saws euceOeastidcivbiounecsé , Appendix B—Announcement Concerning War Financ- ing by Board of Governors of the Federal Reserve System Published in Federal Reserve ~~ . April, 1942, page 424 ........5..-.cce0e nace Appendix C—Liaison Officer’s. Certificate to Federal Reserve Bank of Atlanta ..................: Pree Appendix D—Letter to Solicitor General ila aaadhae Appendix . E—Reply of Solicitor General to Appen- ; dix Do... e see een ee. F Pati SPCR Las Dept he eat i 20 25 26 33 Fe cae a a ii RF 9 ty | CITATIONS, . = Cases. Johansen v, ,U. S., 949 U. a 497, 72.8. Ot 849, 96 . L: ed: BOE Kesueuscitvdeenceueneneeundsenesdnir 2 7 "Lee v. Munroe & Thornton, 11 U. 8. 866, 3 Le ed. 373... 24 Scott Paper Co. v. Marcolus Mfg. Co., 326 U. 8. 249, - ee ee ee eee 26 Steele, use of Corn Exchange National Bank = 118 U. 8. 128, 5 8. Ct. 396, 28 L. ed. 952 .. pan ence. 30 U.S. v. Hart et al., 312 F. 2d 127, 130 sactuephaan tabas 27 U. S. v. Nice, 241 U. S. 591, 36 8. Ct. 696, 60 L. a. OP cei a U. S. v. Prescott, 3 How. 578, 11 L. Ba De civacatee 24 : Wisconsin Central R. Co. v. United States, 164 US _ 190, 17 8. Ct. 45, 41 L. ed. 399 cacueues eéaenweien 24 > ; First War Powers Act, 1941, Titel ...... Mocs. First War Powers Act, 1941, Title II, Sec. 201 erases a a Military Appropriations Act, ve June 20, 1941, isaac enivcas 8 : Mobilization of Small Business Act (56 Stat. 351). ae ~ National Housing Act jummnent of 1942 (56 Stat.” | We, ee ee Snetictestioetet ae \ + Title 31, U. 8. €. A. 626 a ie Readies iden 8 United States Constitution: sees astee oe gon ~ Art. I, See: 9, Cl. 7 pVeecoeetueccovestedavessptese, “0 | Cong. Ree., Vol. 88, Part 3 pp. 3228, 3576 ......... oe ie Cong. Ree., Vol. 88, Part 4, pp. 4503-4507 ,.....:...17,19 Federal Reserve Bulletin, April 1942, pages 299, 424..3, 20 i ae : eget Aa _ ee - — 7 Fed. Reg. 10192, Codified at 10 C. F. R. 81.320—. 6 > —_— First Cumulative NID Sc cueccnncBecveceous on Banking and ‘Currency, United States Senate, Seventy-seventh Congress, Second Session on’ ‘A. R. 6927; April 28 and 29, 1942, PP. 4, 8 ........ seen. | _ Hearings Before the ‘ inteidiites on Banking and Cur- -rency, United States Senate, on S. 2250, March 20, BE éckiwiteetbeddcanecasclduincicléwnbacaces Ai Rep. No. 2030, Gelteonen haat to Accompany ' -H. R. 6868, Sixth Supplemental N. ational Defense . Appropriation Bill, 1942 ............c..ccccccee ed s- Hearings Before a Subcommittee of ‘the Committee . 16 ‘House Report No. 2039, Report of the House Commit- © tee on Banking and Currency to anneal H. R.. UE SC Abare hausensweegedenedscdnctdbewcdveatiea : i York Times, March 27, 1942, page1........ = v Senate Report No. 1219, ‘‘Conversion of Small Busi- - - ness Enterprises to War Production’’, Senate Com- mittee on Banking and Currency, March 26, 1942... 5 oT) 7. e ‘ 4 : P ‘ ¢ ‘“ ; : . : ~ Py ~ “e 7 P . Fy . al bd ° e * . ‘se . e ad *. é « ’ .- . oe . . . nn a . eo & - ~ . . 4 ° © ‘ . b ® & - 7 . o ’ . . . y e . ¢ . : O. No. 738. | | _ IN THE SUPREME COURT OF THE UNITED STATES, OCTOBER TERM, 1967. JOSEPH W. HART, LUELLA F. HART and J: CARL-RUSSELL } Petitioners, a V FEDERAL RESERVE BANK OF. ATLANTA, Respondent. : rs ————— ——— — es ww "On Petition for a Writ of Certiorari to the United States Court. of Appeals for the Sixth Circuit. - & PETITIONERS’ SUPPLEMENTAL BRIEF AND REPLY TO THE BRIEF FOR RESPONDENT. The Justice Department should not have asserted in the brief on behalf of the federal reserve bank that Ex- ecutiye Order No. 9112 ““specifically’’ granted authority- to the War Department to guarantee ‘fany contract found | by the War Department to be ‘necessary, appropriate or convenient for the prosecution of the war’’’ (Respond- - ent’s Brief,. page 7); This general language of the ex- ecutive order must be read in the light of the central G = purpose of the order and the history and surrounding circumstances of its issuance. Johansen v. U. 8.,- 342 U. 8. 427, 72 8. Ct, 849, 96 L. ed. 1051.° In construing a statute, this Court in U. 8. v. Nice, 241 U. S. 591, 36 S. Ct. - 60 L. ed. 1192, stated: | ‘The words, although general, must be hvaid in the light of the act as a whole, and with due regard to the situation in which they were to be applied. That they were to be taken with some implied lim- i itations and not literally, is obvious.’’ “ ‘THE PURPOSE OF EXECUTIVE ORDER NO. 9112. ‘Executive Order No. 9112. was a procurement. order, designed to increase production of war -materials, sup- plies and equipment by assisting small manufacturing concerns to take subcontracts under prime. contractors with the armed services—especially the Army. It was never in contemplation—by. either the Président or the Congress—that the armed services would be empowered to enter into the-field of private defense housing by add- . ing another government guaranty on top of F. H. A. 90- percent-of-value insured housing loans authorized by other legislation and for which an appropriation was made to» Federal Housing Administration. Executive order No. 9112 read as a whole is not rea- sonably susceptible of*the construction that the president. . assumed the power to authorize the War Department, the * Navy Department and the Maritime»Commission to guar- antee loans. to. anybody they pleased for any purpose they ' pleased so long as they were engaged in any business or operation deemed by them to be necessary, appropriate or convenient for the prosecution of the war. In the first paragraph of the preamble the lacie of the order is _ Stated in these. words _ “*. . in order that contracta of the War Depart- ment, the Navy Department, and the United States Maritime Commission . . . which are now outstand- ing or may hereafter be entered into for war produc- _ tion, including the obtaining or. conversion of a ties, may be promptly and effectively performed... .’ In the second paragraph of the preamble the purposes . of the order are indicated as being consistent with (and not outside of) the objeéts for which appropriations had . been made to the three departments by the Cape This a a rr paragraph is as follows: ‘*Whereas the War Department, the — Depart- ment, and the Maritime Commission have available to them. amounts appropriated by Congress which may be used for the purpose of making or guaran- teeing loans, discounts or advances or commitments in connection therewith for the purpose of financing contractors, subcontractors and others engaged in such production or otherwise to “ae war pro- duction. si - In the Federal Reserve Bulletin for April 1942 at page 299, Executive Order No. 9112 was printed together with a statement by the White House that the order was aimed at curing a situation which had interfered with the all-out participation of small business enterprises in war production. We quote from the Federal Reserve Bulletin . a8 follows: | War Finanting Contracts. Ngo ‘The President of the United States on March 96, 1942, issued an Executive Order authorizing the War and Navy Departments and the Maritime Commission to eater into financing. eontracts to facilitate the prosecution of the war. There is published below the text of this Order together with a statément by the | White House. ; | ‘ o “ ae The White House, Washington, D. C. | | March 26, 1942. | The Executive Order authorizing the diene of contracts to facilitate the prosecution of the war is aimed at curing a situation which has interfered with the all-out participation of many small: business. enterprises in war production. Senators Murray, Mead and Capper have been particularly anxious to bring about this participation. Full production of the 7 nation’s smaller businesses is essential to victory. The Order was prepared by, the War Production Board, the War and N avy Departments and the Mari-: time Commission. It is the opinion of Messrs. Nelson, _ Patterson, Forrestal and Admiral Land ‘that this order will greatly speed the war production of small business and subcontractors generally. The basic purpose of the Order is to put working, capital financing on a war basis. Up to now peace- time restrictions on banks and credit agencies have . made it difficult for them to finance war‘ production although the banks have been anxious to use their resources for prosecution of the war. Under the ‘Order,. the War Sanaa ‘the Navy Department, and the Maritime Commission may guar- antee or make loans when they are needed for war production.. These guarantees will support the opera- ‘ tions of the banks, the Federal Reserve System, the Reconstruction Finance Corporation, and other credit agencies. They will not be made under peacetime credit rules. They will be made. by production men, wherever additional financing is essential for addi- tional production. Peacetime restrictions on credits cannot hold up production of war supplies *heeded by od the armed forces. . =: ae The text of the order follows: | (See appendix to petition, page 52. ) On ewe 26, 1942, the same day President Roosevelt issued Executive Order No. 9112, The Senate Committee . on Banking and Currency submitted Sen’: Report No. 1219 entitled ‘‘Conversion of Small Business Enterprises to War Production. ”? In this report, which recommended the passage of S. 2250, a bill to mobilize the productive . facilities of small business in the interests of Successful prosecution of the war, appears a. statement that on. February 5, 1942, the -bill 8. 2250 was reported unani- mously by the Committee on Small Business and referred to the Committee on Banking and Currency. It is stated that extensive hearings were then held by: a subcom- mittee at which various persons expressed -their views . with respect to the problems confronting small business enterprises and the necessity of mobilizing their activities | - to the fullest extent in connection with the war effort. The New. York Times on March 27, 1942, on the first page, reported the issuance of the mnie order under the following caption: “ORDERS WAR LOAN S TO SMALL BUSINESS —PRESIDENT . MOVES TO GUARANTEE WORKING .CAPITAL TO OBTAIN CAPAC- ITY ARMS PRODUCTION.”’. _In the’ body of the news article it was stated that Sena- tors -Murray of Montana, Mead of New York and Capper of Kansas were invited to the White House for the cere- monies in connection with the signing of the executive . order by President Roosevelt and that Under Secretaries ~ . Patterson and Forréstal and- Admiral Land were also | ‘present. The same news —— contained the following statement: : jw Gan _ Financing ‘‘On a War Basis’. The White House said that the basic purpose of the order was to put working capital financing on a war basis, and added: mer . ‘‘Peacetime regtrictions on banks and .eredit agen- _ cies have made it difficult for them to finance war production, although the banks have ‘been anxious to use their resources for prosecution of the war.”? Under-Secretary Patterson explained that a small business enterprise, which had a normal annual turn- over of $100,000 in peacetime products, might now find itself with $5,000,000 worth of war subcontracts on its books. Unless easy money was provided, he went on, the concern probably would not: be able to. - meet its charges for labor and raw materials. Until today, Mr. Patterson added, the War Depart- ment had been authorized by law to advance only up to 30 per cent of the contraet cost to prime contrac- tors, and to make na loans: whatever to subcontrac- tors. Under the new policy each of. them may~be helped up to 100 per cent, if necessary. | In the hearings befare the Committee on Banking and Currency United States Senate on S. 2250 on Friday, March 20, 1942, Hon. Robert Patterson, Under Secretary of War, testified that a systent for the financing of sub- contractors and supplies had been given careful study by the Army, the Navy, the Maritime Commission, and the War Production Board, as well as the Federal Reserve System, that the system was then being formulated and was expected to take effect very shortly under a proposed . Executive Order which they thought was proper under the First War Powers Act, ‘‘whereby Army and. Navy funds already appropriated for supplies can. be used to take the risk of loss in advances made to subcontractors * . _ by the regular banking connections of those subcontrac- ~ tors ...’? An excerpt from Under Secretary Patterson’s testimony is printed in the appendix to this brief. The intent of -President Roosevelt as to the authority conferred upon the War Department, Navy..Department. _ and the Maritime Commission by Executive Order. No. 9112, of course, is that which he had when ‘he signed the - order. The order itself discloses that he deemed that his authority to make the order was derived from the Con- _ stitution of the United States and the various provisions of the First War Powers Act, 1941, approved December 18, 1941 and by all other acts of Congress. — The part of the First, War Powers Act, 1941, deemed to confer authority upon the President to issue Executive Order No. 9112 obviously was Title Il, which was as em Laer | “Title II—Contracts ‘Sec. 201. The President may authorize any de- . partment or agency of the Governmeiit exercising functions in connection with the prosecution of the © war effort, in accordance with regulations prescribed _ by the President for the protection of the interests of the Government, to enter into contracts and into amendments or modifications of ‘contracts heretofore or hereafter made and to make advance, progress _ and other payments thereon, without regard to the provisions of law relating to the making, perform- ance, amendment, or modification of contracts when- ever he deems such action would facilitate the prose- * -cution of the war; ...? - Appendix to Petition, page 31. from the Treasury but in Consequence of Appropriations made by Law (Art. I, Sec. 9, Cl. 7). And there has been - The Constitution. forbids that money shall be drawn - eee in force for a long time a law providing: “Bxcept as otherwise provided by law, sums appropriated for the various branches of expenditure in the public service shall be applied to the objects for which they. are respec- tively made, and for no others.” (Title 31, U. 8. @. A. 626, emphasis added.) We find no provision in the First War Powers Act, 1941 that would make it lawful for the President to authorize the: War Department, Navy De- - partment or the Maritime Commissién to apply money appropriated for specific objects to guarantee any con- tract foynd by them to be “necessary, appropriate ( or con- - venient for the prosecution of the war.” Congress, by the Military Appropriation Act, 1942; .ap- ‘proved June 20, 1941, 55 Stat. 366, had made appropria- tions for the Military Establishment ‘ander the headings ~* - “Military Activities—Expediting Production” for the ob- _ —_ ject of enabling the Secretary’'of War, with the approval ~~...’ of the President, “to.expedite the production of -equip- _ ment and Supplies for the. Army for emergency national defense purposes, including. all of the objects and pur- - poses specified under each of the appropriations available to the War: Department during the fiscal year 1942, for procurement or production of equipment or supplies for erection of structures, or for acquisition of land; the fur- nishings of Government-owned facilities at privately owned plants; the procurement and training of civilian personnel i in connection with the production of equipment and material and the use and operation thereof; and for _ any other purposes which in the discretion of the Secre- ° tary. of War are desirable in expediting production for military purposes and are approved by the President, .” By the final proviso to this paragraph of the uatary ieee Act, 1942, it was provided: + — . . Provided further,, That no obligation shall be eivnered for or on account of objects appropriated edantelianamen te * ae oe for under this head of the Military Establishment ex- _ ept in pursuance of specific appropriations.” ~ By Executive Order No. 9070 issued February 24, 1942, President, by virtue of Title I of the First War Powers Act, 1941, approved’ December 18, 1941, had directed that all functions, powers, and duties relating to defense hous- ing of the War Department and the Navy Department with respeét-to housing units for persons (with families) . engaged: in national defense activities (except housing units located on military or naval reservations, posts, or - bases) under Title IV of the Naval Appropriation Act for | the fiscal year 1941; should be administered - under the direction and supervision of a National Housing Admin-. istrator (Appendix to Petition, p. 49). | On March 31, 1942, S. 2250, the bill for conversion. of small business enterprises to war production, came on for consideration by the Senate. (Vol. 88, Cong. Rec., Part 3, p. 3228.) Each of the three senators who were invited” to the ceremonies. for the signing of Executive Order No. 9112 by President Roosevelt made statements concernin the purpose of the executive order and showing how. it ‘was related to the bill the Senate was considering. First, Senator Murray said: a ‘“‘Mr. Murray: . . .,A few days ago, the President issued an Executive order in which he authorized tlie ‘War Department, the Navy ‘Department, and - the Maritime Commission to make loans and discounts, adyances and.commitments, in order to ite and _ aid in bringing about complete utilization of small . business. The President invited three members of our committee to the White House at the time when he was, signing the Executive order; this ackowledged © the efforts of our’ committee to solve the problem. My understanding is that the Executive order will great- ly aid in achieving the objects we have sought to . a | ; | - | Pe. ; | . —19— : Vee se | ‘accomplish through ‘our efforts in’ connection with the SNPS —." a ee “bill”: (pp. 3228-3229). : » Senator Capper stated: ~—S “ay believe tr appieciate fully some of the possibil- ea ities in the ‘President’s. Executive : order taking off * SE the’ restraints ‘on lending by Government, by BR. F.C.) Shee '. by banks, and by ‘other lending agencies, so that “Us - eau capital may be provided ‘wherever necessary, oe eo . appropriate, or convenient to the war effort. _Fap- oe. 2° preciate the fact. that some’ of the Government-uui- i . ‘ derwritten loans “willbe ‘made to small industries; os |, but, under that order there is no one, no agency, no © _« “yesponsibility for seeing. that the small concerns get _ =” a any ‘of ‘its benefits. | i eo x The’ Smaller War Plants Corporation propeced in = - s ‘the pending, bill will be in. ‘position, will have the a aN aoe _‘Fesponsibility (ander control of the War Production af OR BE to so that it will not do anything to hamper war po, ae | _. production) to utilize the. very broad powérs created a rs ie " by.the- President’s Exeeutive order allowing unlimited : re ee - lending for, war production’? (p. 8235). ane : ee: 7 Senator - Mead, the other senator, who was invited to he ‘the ceremonies in the White House ‘for the’ signing of ° ; _ Executive. Order. No. 9112, stated: | “Mr, Mead: Mr. Président, as one who. is very’ “deeply interested in the problems ‘of small business, * Sas one. Who, as far back as 1936, introduced a bill to SQ BR a te Set up a system of guaranteed loans for small busi- - , Ne et: ness, I wish to- make: a few observations concerning st, (thas, : the measure which is-now before the Senate for con- _ @*~_.“ sideration. The bill, like the President’s order, ‘seeks — put working capital, financing, on a war basis, and .. seeks to eliminate peacetime” restrictions | on» ‘banks’ and other: credit ait 80 that we ay cut away PC ee ee 2 aie —i1-- en ° the red tape and expedite the war-production pro- | a gram . . .”” (p. 3237). ne Senator Taft, in his statement ny the Senate, em- phasized that the purpose bas the. executive order by the | . President was . ‘to guarantee thes ein Finance Corpora- tion or anybody else against loss on contracts: In other words the Army and the Navy are ‘making the. loans themselves. - ' Senator Taft further said that the main purpose of the bill under consideration by the Senate was not the loan, the financing. Its main purpose, he said, was ‘‘to mobil- ize small industry to take war contracts. The financing provision is included only because financing is .in many cases an ‘essential tool to enable the. other work to be © done cao oe 3268). ' , . Senator Ellender stated: : ‘*Mr. Ellender: Permit me to read one of the para- graphs from the President’s statement, which I failed to read. I did not think it was necessary; but,- in view of the question propounded by the Senator, let me read it: © | . liaison officer was to certify to the reserve bank that an . applicant for financing was qualified ‘from ‘the technical - or production standpoint to carry out a contract, subeon- tract or order for war ‘supplies or equipment.’’ The application showed on its face that Country Club Village Corporation was not a prime contractor holding a prime contract with any unit: of the Government. It a showed also that Country Club Village Corporation was not a subcontractor having a subcontract or order for supplying war products. It stated in the printed par. 7 reading: ‘‘7. War, produets to be supplied by applicant for ‘loan’? that the, war products were ‘*“Defense housing. is The certificate. issued by the liaison officer is printed in the appendix hereto. How it came about that the fed- eral reserve bank, with notice from the application itself’ that the guarantee was not for a loan to finance either 9 contractor or subcontractor under a prime contract with the War Department but for a housing loan, nevertheless issued the guarantee is unexplained i in this record. Regulation V contained a statement ( Section 5),: that _ the War Department, Navy Department, and Maritime Commission, after consultation with the Board of Gov-_ ernors of the Federal Reserve System, would issue general instructions with respect to the operations of the Federal Reserve Banks under the Exetutive Order, including pro- . visions regarding the relationships of ‘the Federal Reserve _ Banks with liaison officers or other field representatives of such agencies. It stated: “The operations of the Federal Reserve Banks : under the Executive Order shall be conducted in. accordance - with such instructions. ie 2 : The Wat Destine did not ennabne Wuseuiive Order “No. 9112 as relating to housing, Neither did the Board. of Goveinors of the Federal Reserve System. By Section 7 of Regulation V it was provided: " **With respect to financing of production, lia as may be otherwise. authorized specifically or by. gen- eral instructions of the: War Department, Navy De- partment or Maritime Commission, the maturity of any loan made or guaranteed in whole or in ‘part by a Federal Reserve Bank on behalf of such agency ’ Shall be consistent with the needs of the borrower for | the fulfillment of the contracts or orders for which the financing is provided’’ (Emphasis added). The War Department i) instructions for the handling: of - loans made under Regulation V were published in the. Federal Register (7 Fed. Reg. 10192, codified at 10 C. F. R.. 81.320—First. Cumulative Supplement).. The regulations '. governing Guaranteés, Loans and Commitments, and Ad- vance Payments are a part of Chapter VIlI—Procurement ‘and Disposal of Equipment and Supplies. ‘See. 81 319 sets forth War Department policy in connection with prime ae contractors (b) and in ‘connection with subcontractors (c). _ Subsection (d) deals with cooperation between céntract- ing officers, liaison officers and the Federal Reserve Banks to devise “the most practical method of: financing from — the standpoint of maximum war production by the con- tractor.” This subsection provides: “if a guaranteed loan ora direct loan, it may or may not be policed as to ex- penditures by the supply service most interested.” And finally, subsection (d) provides that there should be a determination of. the method of fimancing at the time of the award of. the contract to prime contractors. Sec. 81.320 of the War Department Regulations covers, ‘ Ss the subject of guarantees, loans and commitments under Executive Order No. 9112. This section sets out par. (5) a | ¥ Executive Order No. 9112, directing the agencies to ae make reports of. all contracts entered into by them pur- _ suarft to the ‘terms of. this executive order, in accordance with’the provisions of ‘paragraph 1 of the regulations pre- scribed. in Title II of; Executive Order No. 9001, dated _ - December 27, 1941. This paragraph relates to contracts ©. . and purchases—not: to. housing. By Title I, par. 2 of Executive Order No. 9001, the. things contracted for were defined very specifically, as ~ — follows: ©. : | Be “2. The contracts hereby authorized to be made _ Include agreements of all kinds (whether in the form . of letters of intenf, purchase orders, or otherwise) for all types of things and services necessary, ap- propriate or convenient for the prosecution of war, - for the invention, development, or production of,. or résearch Concerning any such thirgs, including but not limited to, aircraft, buildings, vessels, arms, arma- ment equipment, ‘or supplies of any kind, or any portion thereof, . 5 -” | _ Subsection (b) of Section 81.320 of the War Department regulations provides that the administration of the powers ° conferred upon the War Department by Executive Order : 9112 are vésted in the Advance Payment and Loan Branch, Fiscal Division, Headquarters, Service of Supply. Sub- . section (eJ provides that financial contracting officers ~ attached to the Fiscal ‘Division, ‘Headquarters, Services of Supply,.are to coordinate with the Federal Reserve © Banks in arranging financing for businesses whose op- erations are necessary, appropriate or convenient for the prosecution of the war. By subsection (d) it is provided that liaison officers are attached to the Advance Payment and Loan Branch, Fiscal Division, Headquarters, Services of Supply. Subsection (e) deals with the procedure for obtaining guaranteed loars by contractors.. By subsection ~ ~ —24—. (g) it was provided that loans and guarantees must be _- submitted to the Advance Payment and Loan Branch | when the amount exceeded $100,000. ~ Unquestionably, the certification by the liaison officer ; of the War Department dated October 31,. 1942, prior to the issuance of the War Department Meidiaiiens on De- cember 8, 1942, on the basis of which Federal. Reserve - ‘Bank of Atlanta, as Fiscal Agent of the United States on behalf of the War Department, guaranteed to the two Alabama banks 90% of the loan to finance» eee rl Club * Village Corporation +35 + ae the ocaueuntion of “495 single family dwelling pnits with other improvements, including streets, water distribution systems,-and power lines; said dwelling units to be located on a tract of. land situate in Mobile County, Alabama, on Old Shell Road near Springhil va was without authority of law. This was an illegal trans- ~ action and Federal Reserve Bank of Atlanta was charge- able with knowledge of this fact. The Supreme Court has declared that public policy demands that every de- pository of public money shall be held to strict accounta- bility. U. 8. v. Prescott, 3 How. 578, 11 L. ed. 734; Lee v. Munroe & Thornton, 11 U. 8. 366,-3-L.-ed. 373, -_ —- —- Plaintiffs-A ppellants sought a discovery from the Fed- eral Resérve Bank concerning the transaction and the certification on which it relied for the authority to’ pay -out funds belonging to the United States of America under the guarantee agreement. The discovery was de- | nied by the court below. - A , In Wisconsin Central B. Co. v. United States, 164 U. 8. 190, 17 8. Ct. 45, 41 L. ed. 399, the Supreme Court de- © clared: “As a general rule, and on grounds of public policy, | _ the government cannot be a by the action of its LS officers, who must be held to the performance of their “duties within the strict limits of their legal authority, where, by misconstruction of the law under which they have dssumed to act unauthorized payments are made. Whiteside v. United States, 93 U. S. 247; Hawkins v. United States, 96 ¥ S. 689, and. cases be- fore cited.’? ss) The Justice Viepnetment is plainly wrong in stating in, its Brief thatthe Federal Reserve Bank \ was lawfully i in- volved in the transaction. WHY JUSTICE DEPARTMENT CANNOT INVOKE — DOCTRINE OF ESTOPPEL TO PROTECT FEDERAL RESERVE BANK. | In ‘the » footnote at the bottom of page 7 of its Brief, the. _ Justice Department contends that petitioners -should bé estopped to challenge the “authority of the Federal Re- serve Bank and.the War Department to grant the guaran- tee for. which they themselves: had applied.” Heretofore, ‘ J _ petitioners have corrected the statement that they applied for ‘the guarantee. The application for the guarantee was made by one of: the financing institutions, The First Na- . tional Bank-of Birmingham. The application contains the | following statement: § (Country. Club Village Corporation). has-been ad-— vised that financing institution is applying for this guarantee in the amount and subject to ths terms herein. indicated. In this litigation, satidlaleds are not seeking to. set. aside the judgment against them which the Government . has obtained. They are seeking to recover from the fed- eral reserve bank the loss which both the United - States and themselves have sustained as the-result‘ of the vio- a “12. The applicant for the loan herein veleered. to — 26 — v tatlen of. the laws of. the United States aun the public money. It ill behooves the Justice Department to try to protect the malefactors. It would seem that the Justice Department would try. to. protect. the interests of the United States. * In Scott Paper Co. v. Marcolus 5 Mrz, Co., 326 U.S. 249,. 66-8. Ct. 101, 90 L. ed. 47, this Court said: “Estoppel cannot, any more than private contract, be the means of successfully avoiding the _Tequire- _ ments of legislation enacted for the protection of the ‘Public interest.” ' “Tei is indeed a ra spectacle i in this case: ssaliiideicen , before the Court are seeking to protect the public interest by upholding the Constitution and laws of the United States for the proteetion of public funds, while the Jus- tice Department is trying to defeat them by raising all manner of _— technicalities. ; WHY DEFENSE OF FEDERAL RESERVE BANK BY JUSTICE DEPARTMENT -I8 CONTRARY TO: | PUBLIC POLICY. ~ The J in Department’ in its Brief for the inieiauea contends that the Federal Reserve Bank was acting as - agent for the United States. We have shown that the acts of the Federal Reserve Bank were without authority of law and not binding on the ‘Government. —The Justice L Department says that petitioners a liti- gated the issues of, fairness of the sale of the corporate property and the adequacy of the price therefor, and lost. ’ That statement is true. But the reason they have lost is that the Justice Department has not yet? produced the "evidence in the files of the War Department and the. Fed- eral Reserve Bank that will oa why the sale of property ; sideration. ot een - was made by: private sale en masse for 80 small a con-— The Justice: ‘Departrnent says that - “Petitioners in the past have had ample oppor- tunity.to prove the ‘fraud’ they seek to demonstrate in this action; their proof has been found to be ‘en- tirely unconvincing’ and to refute rather than sub- | stantiate their contentions. They are not. entitled to _. try to revive these claims in this suit’? (Respondent's : Brief, p. 9), oe The Court of Appeals, i in its opinion affirming the deci-: _ Sion of the district court i in the prior suit, said: — [2, 3] The government ’s certificate of indebtedness of the appellants herein which was not questioned was --~~ prima facie evidence of the balance of such’ déBb ow- ing by the appellant. "We detect no reversible error: ‘» in the District Court’s finding that this evidence was eee not satisfactorily rebutted through ‘the appellants’ —~ claim of bad faith dealings on the part of the banks with the government ’s assent, the testiniony of the »n- pellants’ own witnesses having detracted materiail, from their claim that the price, at which these prop- erties were sold was unfair and inequitable. More- over, the defense of bad faith was an ‘‘avoidance”’ within Rule 8 (c) Federal Rules of Civil Procedure, Title 28, U. S: C. A., and the defendant did not carry the burden of substantially proving this-defense. U. 8. v. Hart, et al., 312 F. 2d 127, 130, , poheraeeis The J ustice Department should be abashed to act upon the failure of the defendants to carry the burden of prov-. _ ing their defense of bad faith dealings with the collateral in the _prior suit. Defendants (petitioners before this’ Court) ‘failed because the Justice Department answered ’ the defendants’ Interrogatory No. 9 in the — suit that ; s - ee, ‘¢Plaintiff (United States of Anibrics) had no knowl- edge’’ of the matters inquired about in the interrogatory ‘Federal Reserve Bank of Atlanta had knowledge about the matter. They had to have some reason for making the — sale of the subdivision at, the time it was made, for the consideration they agreed to accept and for reledsing the lien to enable the sale to be made. If their decision. was -an honest: ‘and good faith decision and they’ thought that ‘they were acting for the best interests of the United . States; they would surely be willing to open their files. and show there was no fraud in the sale. In this . ‘present action, petitioners propounded inter- - rogatories to the acting attorney general of the United States as follows: | | Interrogatories, Propounded by the Plaintiffs to Nicholas deB Katzenbach, Attorney General of the United States—Filed April 8, 1965. - The plaintiffs, Joseph W. Hart, Luella F. Hart and J. Carl Russell, in pursuance to Rule’ 33 of the Federal _ Rules of Civil Procedure, propound the following inter- ; rogafories. to be answered by Nicholas deB Katzenbach, Attorney General ‘of the United States, personally: ‘ Interrogatory No. 1—Has an: investigation ever been. am made by the Department of Justice, the’ Federal Bureau’ of Investigation, or any other officer, agency. or depart- ment of the United States of | America of. the sale of Country Club Village housing project in Mobile, Alabama, made in: October, 1945, by Federal Reserve Bank of At- lanta, purporting to act as fiscal agent of the United | States of America, The First National Bank of Birming- | ham, Birmingham, Alabama, and The Merchants Natiofial ‘Bank of Mobile, Mobile, Alabama, to R. B. Ellinor or Spring Hill Homes, Inc., for $37,170.00 to be paid by (See Petition page 18). But, the War Department. and = ‘a post-dated check. to determine whéther this was a ied faith sale, for a fair and adequate consideration and for the best interests of the United States. of America? ‘Answer: Interrogatory No. 2.—If such investigation has. been ‘made,’ will you file a-copy of the report or reports of such investigation as exhibits to your. answer to these: | - interrogatories? |= ~ - % Answer: Acie 7 Interrogatory No. 3.—If such iideaiiaaiien has not - been ‘made, will you cause to. be madé a full and thorough investigation of ‘the sale, examining particularly the files of the War Department and Federal Reserve Bank of Atlanta, and state your conclusion whether or not said — € was made in good faith, for a full, adequate and © ni ir consideration and in the best interests of the United States of America, giving reasons for’ your conclusion. Answer: | Intetrogatory No. 4.— After welstiine all pertinent facts surrounding said sale, does it appear’ that the interests of the United States of America will be best served: by the United States continuing to. attettipt to collect the judgment rendered . in its favor against the plaintiffs, Joseph W. Hart and J. Carl Russell, and’ defending this action for Federal Reserve Bank of Atlanta on’ the grounds that it is protected by governmental’ immunity - or does it appear in this case, in the language of the _ United States Supreme Court in Land v. Dollar, 330 U..& 731, 738, that the ‘‘dominant interést of the sovereign is | . on the side of the vietim .. .’—in this case the plaintiffs? © pe Answer: | ? si >Fyke Farmer, : F sensed for Plaintiffs. Se ee ee ee eee eee - ° os —80e — 4 oe Why did the Justice Department avoid answering these © interrogatories? (Petition , for Certiorari, p. 19). - After: the. Petition was filed and before the Brief: of . _. Respondent was ‘filed, petitioners’ attorney wrote a letter - to the Solicitor Géneral. This letter, together with the reply of the Solicitor General i is par. in oe Appenttx at pages 4 43-47. | _ SUPPLEMENTARY STATEMENT OF REASONS ‘WHY WRIT .SHOULD . BE GRANTED. , This Court has previously held that a private sale of the property of the United States by a-naval.contractor, - without survey, inspéction or appraisement, for $2,000.00 — which the buyer resold 4or $8,975.56, was ‘Megat because .. without authority of law, ‘saying: The fact: that.the account of the appeilant was dite. tled: by the officers of ‘the Navy Department by charg- . ing him with the value of the old material at $2,000 is no bar to the recovery of its real value by the gov- ernment, The whole transaction was illegal, and ap- ‘ pellant is chargeable with knowledge of. the fact. It was, in effect, a private sale of. the property of the United States without: survey, inspection or appraise-— ment, at a grossly inadequate price. The fact that the — account had been settled by the officers of the- Navy Department did not cure the unauthorized acts. Both the disposition of the property and the settlement of ‘the account.were without authority of law and not binding-on the -Government. : Steele, use of Corn Exchange National Bank Vv. We ~ S. 128, 5 8. Ct. 396, 28 L. Ed. - 952. | The J ustice Department i in its Brief for aopeialion ‘has © made" no reply to that section ‘of the argument in the ) eed wither; ibe Petition: urider the heading, ‘Want of Authority in Fed.’ eral: ie Sale Se of Atlanta to Release Lien to Allow _ Private Salé\of Subdivision to be Made’? (p. 25). Petitioners submit that public policy forbids that the ” «Judicial Department of the Government -condone fraud on the United States and overrides the public policy: be- hind the doctrine of res judicata or collateral estoppel by judgment, insofar as it may, have application to this case. Instead of opposing petitioners’ efforts to enforce the liability of the federal reserve bank, the-Justice Depart- ment should be on their side. (See Motion of tlie Defend- ants filed August 24, 1965 in the action in which the United. _ States recovered the judgment against: petitioners Hart © and Russell, Appendix to Petition, page 34.) This case, from the standpoint of the amount involved, is little. The principle and public policy involved is very: big: honesty. in Government, faithful stewardship of the _ publie funds, protection of the public irterests under law. LA Respectfully submitted, ‘' » FYKE FARMER, 511 American Trust Building, ‘Nashville, Tennessee 37201, ou a Attorney for Petitioners. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385603_1099%3A4. Public record. Not legal advice.