Petition for Writ of Certiorari — Hurd-Darbee, Inc. v. United States

LIBRARY |

SUPREME COURT, U. 573 ~ 44 1

IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

Court of Appeals No. 73-1120

——4————

HURD-DARBEE, INC., a Michigan corporation,

Petitioner

vs.

UNITED STATES OF AMERICA,

Respondent

the

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE

SIXTH CIRCUIT

—_—p——

EDWARD F. LANGS

THOMAS A. ROACH

Attorneys for Petitioners

McClintock Donovan Carson & Roach

2150 Guardian Building

Detroit, Michigan 48226

(313) 963-3400

Interstate Brief & Record Co., 1036 Beaubien St.. Detroit, Michigan 48226

WO. 2-8745—WO. 2-8732

TABLE OF CONTENTS

Page

Emden 00. Amterties. ..0..0. cic vivescccwscctoccctces ii

EE bss vsincccicddnccecraeankegsaness 1

DT. ct dcien sencgamennageredincant 2

Questions Presented for Review ............... . 2

Constitutional Provisions and Federal Statutes In-

es amiaetuceas eithauaw pene sen 3

Te GD oo ce wccencssvcccnececcoes 5

Reasons for Granting the Writ .............. .. 7

Na tna Ro a 12

Appendix A—U. §S. District Court Opinion........ 13

Appendix B—Court of Appeals Opinion ........ 28

&:

eae INDEX TO AUTHORITIES

Cases: Page

American Surety Company v. Hill Company, 254

Sw Piet 6

Des Moines Gas Co. v. Des Moines, 283 US 153,

_ 858 Ct Sil, 59L Edi... 10

- Monongahela Navigation Co. v. United States, 148

US 312, 13 S Ct 622, 37 L Ed 463........__ 8,9, 11

United States v. 967.905 Acres of Land, 305 F

PO AP OI ee cccecececess..., 10

Youngstown Sheet & Tube Co. v. Sawyer, 343 US

579, 72 SC 863, 96 L Ed 1153 (1952) ........ 11

Statutes:

Federal Rules-of Civil Procedure, Rule 18...... 5

U.S. Const, Am V..... 2... 4,6, 7,11

IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

Court of Appeals No. 73-1120

———

HURD-DARBEE, INC., a Michigan corporation,

Petitioner

vs.

UNITED STATES OF AMERICA,

Respondent

ee oe

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE

SIXTH CIRCUIT

en ee

Petitioner prays that a Writ of Certiorari issue to re-

view the Judgment of the United States Court of Appeals

for the Sixth Circuit entered on June 13, 1973.

‘OPINIONS BELOW

The opinion of the District Court for the Eastern Dis-

trict of Michigan, Southern Division (Civil Action No.

27850) rendered December 7, 1972 has not been officially

reported.

The Per Curiam opinion of the Court of Appeals for

the Sixth Cireuit (No. 73-1120) rendered June 13, 1973

has not been officially reported.

Copies of said opinions are appended hereto.

JURISDICTION

The Per Curiam opinion of the Court of Appeals for

the Sixth Circuit was decided and filed on June 13, 1973

(No. 73-1120). A copy of said opinion is appended to this

petition as Appendix B. The Jurisdiction of this Court

is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED FOR REVIEW

Petitioner Hurd-Darbee, Inc. (‘‘Hurd”), a private con-

tractor, was the successful bidder for the contract to

operate the United States Air Force Language School at

Lackland Air Force Base, Texas from July, 1961 to Aug-

ust, 1965. During said period Petitioner developed an on-

going business, with between forty-five (45) and sixty-

five (65) employees, with special expertise and experience

in teaching English to foreign nationals. Petitioner aver-

aged a profit of $43,413.50 per year from its organiza-

tion.

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After issuing an Invitation for Bid for the contract for

services for the 1965-1966 contract year, the Gov yer ment

withdrew the bid claiming the services were no longer

necessary. However, the services were continued as the

Air Force proceeded to convert the school to Civil Service

status. Government officials then called a meeting of all

of Petitioner’s employees (at least forty-five) at the Lan-

guage School, advised them they would be without a job

unless they joined Civil Service, and then proceeded to

hire virtually all of Petitioner’s employees at a substantial

increase in pay.

The Petitioner now seeks to be compensated for the

intangible value of the organization it developed which

was taken over by the Government.

The questions presented for Review are:

1. Can there be expropriation under the Fifth Amend-

ment even though no “physical assets” are taken?

2. Whether the acts of the Government in taking over

the Lackland Language School by calling all of Petitioner’s

employees together at one meeting, advising them they

would be without jobs unless they joined civil service, and

then proceeding to hire virtually all Petitioner’s employees

at said Language School (at least forty-five) constitute

an expropriation of the on-going value (goodwill) of Peti-

tioner’s business so as to entitle Petitioner to compensation

as required by the Fifth Aemndment to the Constitution.

CONSTITUTIONAL PROVISIONS AND

FEDERAL STATUTES INVOLVED

The Constitutional provisions relating to the Questions

Presented for Review are those sections of the Fifth

and Fourteenth Amendments which require due process

of law and require compensation for the expropriation of

private property as follows:

,

' ‘

‘

4

AMENDMENT V—CAPITAL CRIMES; DOUBLE JEOPARDY;

SELE-ANCRIMINATION; DUE PROCESS; JUST

COMPENSATION FOR PROPERTY

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment or in-

dictment of a Grand Jury, except in cases arising in the

land or naval forces, or in the Militia, when in actual

service in time of War or public danger; nor shall any

person be subject for the same offense to be twice put

in jeopardy of life or limb; nor shall be compelled in any

criminal case to be a witness against himself, nor be de-

prived of life, liberty, or property, without due process of

law; nor shall private property be taken for public use,

without just compensation.

AMENDMENT XIV~—CITIZENSHIP; PRIVILEGES AND

IMMUNITIES; DUE PROCESS; EQUAL PROTECTION;

APPORTIONMENT OF !REPRESENTATION;

DISQUALIFICATION OF OFFICERS;

PUBLIC DEBT; ENFORCEMENT

Section 1. All persons born or naturalized in the

United States, and subject to the jurisdiction thereof, are

citizens of the United States and of the State wherein

they reside. No State shall make or enforce any law

which shall abridge the privileges or immunities of citi-

zens of the United States; nor shall any State deprive

any person of life, liberty, or property, without due pro-

cess of law; nor deny to any person within its jurisdiction

the equal protection of the laws.

STATEMENT OF THE CASE

This Civil Action was originally filed under the juris-

dictional provisions of 28 U.S.C. $§1346 and 2674, with a

five-count Complaint claiming damages for the Govern-

| ment’s expropriation of Petitioner’s entire business or-

- ganization at Lackland Air Force Base, damages for fail-

ure to follow statutory procedures in awarding bids and

damages for the illegal and tortious seizure of Peti-

tioner’s property. It is Petitioner’s contention that the

acts complained of constituted a Tort under Texas law

and the other counts were joined under FR Civ P, 18.

The facts were stipulated to by the parties. A fair pre-

sentation of the facts is set forth in the United States

District Court opinion which is Appendix A. Although

Petitioner accepts those facts as presented, it, of course,

does not accept the conclusions derived therefrom.

For four years (July, 1961-August, 1965) Petitioner

HURD-DARBEE, INC. was the lowest qualified bidder

and operated, as an independent contractor, the language

school at Lackland Air Force Base, Texas. The school’s

mission was to teach English to foreign nationals. Al-

though Petitioner was the lowest bidder on the contract

for the next year (August, 1965-August, 1966), it was dis-

qualified for financial reasons (disputed). The Air Force :

then tried to hire other contractors to perform the con-

tract. When this proved unsuccessful, the Government can-

celied the Invitation for Bid claiming the services were

no longer needed.

Persons who have experience and skill in teaching Eng- :

lish as a foreign language to foreign nationals are far

more difficult to locate than ordinary language teachers.

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6

The officials at Lackland apparently recognized they had

no other source than Petitioner when they called together

all of Petitioner’s employees, advised them they would

be without jobs unless they joined Civil Service, and then

offered all present a substantial pay increase to join Civil

Service.

The Government then proceeded to hire virtually all

of Petitioner’s employees at Lackland to do exactly the

same job they were doing for Petitioner. In effect, the

only difference at the school was that the Respondent took

over the operation of the school from Petitioner.

Petitioner commenced this action asking for compen-

sation for the on-going value of its business which the

Government thereby expropriated. The Respondent, the

United States District Court and the Court of Appeals

have taken the position the Government can take over

privately-owned businesses in this manner, although the

Court of Appeals did state:

“The action of the Air Force in dealing with

the employees of appellant was certainly not a

model of ethical business behavior.”

Petitioner submits that said acts constitute a tortious

and wrongful conversion of property under Texas law,

American Surety Company v Hill Company, 254 S.W. 241

(1923), or at least a deprivation of property by the United

States of America which entitles Petitioner to compen-

sation therefor under the Fifth Amendment to the Con-

stitution.

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REASONS FOR GRANTING THE WRIT

The important question of Federal law presented, whe-

ther there can be an expropriation without physical as-

sets, has never been decided by this Court. Further, the

Court of Appeals decision in this action is in conflict with

the decisions of this Court which have held that intangible

value is compensable under the Fifth Amendment when

attached to a physical asset.

The Court of Appeals, after recognizing that ‘“The

word ‘property’ as used in the Fifth Amendment has a

broad meaning and includes the entire bundle of rights,

not just the physical assets, against which the govern-

ment moves”, nevertheless distinguished two cases on

which Petitioner relied because ‘‘the underlying action

of the government was against the physical property of

a citizen.”

‘Petitioner submits that the Fifth Amendment requires

compensation for expropriated intangible property even

though no physical assets are taken. The same logic which

requires compensation for intangible value attached to :

physical assets should apply to intangible value without

the physical assets.

The Lackland Language School Division of Hurd-Dar-

bee, Inc., the Petitioner, was created for the purpose of

teaching English to foreign nationals. Such a mission re-

quires skills different from those of the ordinary language

teacher who teaches a foreign language to one who speaks

English. As most companies prefer to locate near their

best markets, the Language School Division and the per-

| sonnel were located at Lackland Air Force Base in San

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Antonio, Texas, the site of the market for such services.

Over the years Petitioner had developed a compatible or-

ganization, implemented new teaching methods, produced

learning manuals and had developed a profitable organi-

zation with the ability to under-bid all competitors. This

organization provided its owners with an average net

profit of $43,413.50 per year. The organization has ma-

tured beyond the usual organization costs and growing

pains into a successful working unit so competent that

the Government saw fit to take it intact. This organiza-

tion, the result of the efforts of Petitioner’s management,

represented real value to its owners. At trial, R. G. Hud-

son, an executive recruitment specialist, testified the cost

of recruiting and hiring just the persons necessary to

meet the specifications set forth in the Invitation for Bid

would be at least $40,875.00. The on-going value of the

business was not included in that figure. It is common

knowledge that many organizations are built around a

few key employees, let alone forty-five or more.

If one accepts the position that Petitioner’s on-going

business had value (goodwill) including said cost of or-

ganization and development, etc., then the opinion of the

Court of Appeals in this action is in conflict with Monon-

gahela Navigation Co. v United States, 148 US 312,138

Ct 622, 37 L Ed 463 (1893).

The Plaintiff there owned a toll bridge which crossed

the Monongahela River. The Government took the bridge

for its own use and the issue of compensation was argued

before the U. S. Supreme Court. In a very fine opinion

setting forth the history of the Fifth and Fourteenth

Amendments, Justice Brewer found that plaintiff was en-

titled to going-concern value where the Government ac-

tually took over a going business, as in the Hurd-Darbee

a

situation. The Court applied the following test in deter-

mining the value of property taken:

“‘The value of the property, generally speaking,

is determined by its productiveness—the profits

which its use brings to the owner. Various elements

enter into this matter of value.”

The Court then proceeded to show that the demand for

the use of the lock and dam on the Monongahela was great,

while a precisely similar property on a stream where there

was less commerce would be less valuable. The Court sum-

marized its point as follows:

“The value, therefore, is not determined by the

mere cost of construction, but more by what the

completed structure brings in the way of earnings

to its owner. For each separate use of one’s prop-

erty by others, the owner is entitled to a reason-

able compensation and the number and amount of

such uses determines the productiveness of the

earnings of the property and therefore largely its

value.”

Just as the particular location and existence of the de-

veloped business in the Monongahela case resulted in on-

going-concern which produced earnings, Petitioner ha:

developed an on-going organization located .at Lackland.

The District Court opinion appended hereto describes

how the Procurement Officers at Lackland could find no

other qualified on-going concern to provide the services

which Petitioner provided at the Language School. There-

fore, Petitioner’s location at Lackland Air Force Base

resulted in it having greater value than if the organiza-

tion had been located elsewhere. That the Government was

unable to perform the services desired without Petition-

er’s organization is no excuse for expropriation without

compensation.

10

In Monongahela, the Court concluded:

__ “Hence it is manifest that the income from the

bridge was a necessary and proper subject of in-

quiry before the jury.”

The Court of Appeals decision in this action is also

clearly in conflict with a whole line of authority of this

Court as set forth in Des Moines Gas Co. v Des Moines,

283 US 153, 35 S Ct 811, 59 L Ed 1244 (1915). This case

involves the Government takeover of Utilities and this

Court concluded that the going-value of a company is an

element in the value of a property taken for public use.

That opinion cites numerous cases in support of the prop-

osition that the value of an on-going business is greater

than the sum total of its assets.

Further, it is axiomatic that Patents which are strictly

intangible in nature, have value capable of being taken

by another.

The takeover by the Government of an entire on-going

business organization without proper compliance with

the Fifth and Fourteenth Amendments has long been de-

clared illegal. Youngstown Sheet d Tube Co. v Sawyer,

343 U.S. 579, 72 SC 863, 96 LEd 1153 (1952).

It is not even necessary that the Government take the

business. It is enough if they destroy it, or render it un-

suitable for its business purpose. In United States v 967.-

905 Acres of Land, 305 F Supp 83 (1969), the Court held

that a condemnee was entitled to compensation for his

on-going business where the owner was forced to aban-

don his previous activities.

Petitioner submits that the Court of Appeals was clearly

in conflict ‘with Monongahela, Des Moines and long estab-

lished patent law when it ruled:

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11

“. . . the Fifth Amendment requirement of com-

pensation was not satisfied unless the owner was

paid for property rights which adhered directly

to the assets which were affected by the govern-

mental action . . .” (see App. B, Page 31 below)

The Court of Appeals in this action pointed out that

the Government’s actions were “not a model of ethical

business practice”. Petitioner submits that when Peti-

tioner loses his businéss from the unethical use of Gov-

ernment power, that the Government is required to com-

pensate petitioner for said loss.

To distinguish between the hiring away of one, two or

several employees from the hiring of an entire organiza-

tion may be a difficult concept to administer; however,

the anti-trust cases provide much precedent for rules

which have to be applied on a case by case basis depend-

ing on facts unique to a particular situation. If the Gov-

ernment needed and wanted the on-going business, the

Government was required to proceed with due process of

law before taking Plaintiff's on-going concern. This the

Government did not do.

Therefore, Petitioner submits it is entitled to be com-

pensated for the intangible value of its on-going business

(goodwill) which the Respondent expropriated.

Because this Court has never decided the important

issue of whether the government must comply with the

Fifth Amendment when depriving one of strictly intangi-

ble property, and because the Court of Appeals Opinion

in this action is in conflict with cases which hold the value

of intangible property is compensable when incidental to

tangible property, petitioner prays that this Court grant

this Petition and issue a Writ of Certiorari.

EO Ea NT a Ot

CONCLUSION

For the reasons aforementioned, Petitioner prays that

a Petition for Writ of Certiorari to the Court of Appeals

for the Sixth Circuit be granted.

Respectfully submitted,

EDWARD F. LANGS

THOMAS A. ROACH

Attorneys for Petitioner

McClintock Donovan Carson & Roach

2150 Guardian Building

Detroit, Michigan 48226

Telephone: (313) 963-3400

13

APPENDIX A

OPINION AND ORDER OF jUDGMENT FOR

DEFENDANT

(U. S. District Court—Eastern District of Michigan—

Southern Division)

(Hurd-Darbee, Iné. v. United States of America)

(No. 73-1120)

(Filed December 7, 1972)

At a session of said Court, held in the Federal Building,

in the City of Detroit, Wayne County, Michigan, this 7th

day of December, 1972.

Present: The Honorable Fred W. Kaess, Chief United

States District Judge.

This is a civil action against the United States of Amer-

ica under §$1346 and 2674 of Title 28 of the United States

Code.

Plaintiff’s claim arises out of the following facts. The

USAF Language School is a military organization oper-

ated by the United States A‘r Force. It has been in opera-

tion at Lackland Air Force Base, Texas, for a number of

years. Its mission is the instruction in the English lan-

guage of military personnel, both officer and enlisted, and

occasionally civilians, from various allied foreign coun-

tries. The purpose of this is to enable these allied per-

sonnel to enter into programs conducted at military in-

stallations throughout the United States for their further

training in equipment use and military methods. The Lan-

guage School is one of a number of specialized military

training organizations under the 3275th Technical School,

USAF, at Lackland Military Training Center.

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Lieutenant Colonel Harold F. Coverdale, USAF, is

Commander of the Language School which is operated and

supervised by him and his military staff. Civilian em-

ployees of the Air Force are employed in accordance with

Civil Service Regulations as language instructors. In

order to supplement the number of such civilian em-

ployees authorized and available, the Air Force has for

several years past, by advertised procurements for non-

personal services and Government contracts, purchased

instructor services from civilian firms engaged in supply-

ing such services. Detailed specifications were issued for

each instructor. The requirements were estimated, based

on anticipatd student loads, and were bought on instructor

months as the unit of purchase. For four consecutive years,

Hurd-Darbee, Inc., of Detroit, Michigan, was the lowest

responsive and responsible bidder, was awarded the in-

structor services contract, and performed the services.

Under said arrangement, the instructors were hired by

and paid by Hurd-Darbee, Inc. Further, the instructors

reported to a supervisor employed by Hurd-Darbee, Ine.

The last of these contracts was for the term 1 September

1964 to 31 August 1965 (Tab 1-A).

Hurd-Darbee, Inc. was the responsible bidder perform-

ing at the same time IFB #41-615-65-163 was issued for

the year 31 August 1965 to 31 August 1966.

Correspondence from the Basement Procurement Divi-

sion, 3700th Maintenance and Supply Group, Lackland

Military Training Center, to the Language School re-

sulted in the Language School’s requirements and author-

ity for the procurement, for the 1 September 1965 through

31 August 1966 contract term being submitted on Request

for Purchase, AF Form 9, dated 21 May 1965 (Tabs 1-A,

1-B). The Invitation for Bids on Standard Form 33 was

prepared by Mrs. Lorraine E. Weyman, senior agent in

charge of the Nonpersonal Services Section of the Ser-

15

vices Branch of the Basement Procurement Division, and

was issued on 14 June 1965. The procurement had been

set aside for small business synopsized to the Commerce

Department Field Office, Chicago. The Invitation for Bids

was sent to thirty-nine bidders, including the then current

contractor, Hurd-Darbee, Inc. (Tabs 1-A, 1-C, 1-D). Eight

bids were received. The bids were publicly opened at the

- designated time and place on 21 July 1965 by Mr. Verner

L, Shaw, Deputy Base Procurement Officer. Mrs. Weyman

was present and recorded the bids as Mr. Shaw opened

and read them. Also present were Lieutenant Colonel Cov-

erdale, Commander of the Language School, and Mr. Wil-

liam F. McCarthy, the representative of Hurd-Darbee,

Inc. Hurd-Darbee, which was then on the last laps of its

1964-1965 contract term, was the low bidder with its price

of $454.75 per instructor month. Mr. MeCarthy telephoned

his employer and informed Mr. Hurd that Hurd-Darbee

was the low bidder and had the contract tentatively until

the audit agency could ‘‘check out” the firm. Mr. McCar-

thy had been aware from the Invitation for Bids that such

an investigation ‘‘would be required or probable” (Tabs

1-D, 1-E, 2-A, 2-C, 6-B).

During the early part of 1965, Mr. Shaw had received

an unsolicited letter of 15 December 1964 from the U.S.

Navy Area Audit Office in Chicago, which had attached to

it a report on Hurd-Darbee’s financial condition which was

considered by the Navy Audit Office to show a weakness

which could impair the performance of Government con-

tracts yet to be completed. These latter included Hurd-

Darbee’s contract for furnishing instructor services to

the Language School. Lieutenant Colonel Coverdale, while

the Invitation for Bids were out to bidders, had expressed

concern to Mr. Shaw in connection with Hurd-Darbee’s fi-

nancial condition. He had informed Mr. Shaw also that

the paychecks of Hurd-Darbee’s instructors had been re-

Aeron wrt bas

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NP ORE IIL NR, PWIA GALES. SS IPE LT

16

turned unpaid by the contractor’s bank in June or July,

1965. When it was found on 21 July 1965 that Hurd-Dar-

bee was the low bidder, Lieutenant Colonel Coverdale, who

had previously asked for a financial survey of whichever

bidder was low, reminded Mr. Shaw of this. Mr. Shaw

informed Lieutenant Colonel Coverdale that he, Shaw,

would not be able to make the prerequisite Certificate of

Contractor Responsibity for award to Hurd-Darbee un-

less he had first a formal Pre-Award Survey in the area

of financial capability, which is included in Responsibility

(Tabs 1-A, 2-A, 2-B, 2-C, 2-F, 6-B, 6-C, 6-D). Paragraph

J, on page 13 of Standard Form 36, included in the In-

vitation for Bids, advised bidders that financial condi-

tion was among the factors subject to survey in arriving

at a determination of bidder’s ability to perform (Tab

1-D). The use of pre-award surveys to determine a con-

tractor’s responsibility is always required as standard

procedure under ASPR 1905.4 when the contracting officer

does not have all the information required for him to make

a determination regarding contractor’s responsibility.

On 22 July 1965, the day after bid opening, Mrs. Wey-

man addressed DD Form 1524, Pre-Award Survey of

Prospective Contractor to the Defense Contract Admin-

istration Services Region (DCASR), Detroit, requesting a

financial capability survey of Hurd-Darbee. She requested

reply by 2 August 1965. An extension was required by

» DCASR and Mrs. Weyman’s request date was changed to

+ 12 August 1965.

On 16 August Mrs. Weyman had not received the re-

port. She telephoned the DCASR office and was informed

of the finding that Hurd-Darbee’s financial condition was

unsatisfactory and that the report had been mailed (Tabs

1-A, 2-D). The fact that the pre-award survey results were

17

not communicated until 16 August 1965, which resulted

in a situation whereby Hurd-Darbee, Inc., was prevented

from obtaining a Certificate of Competency from the Small

Business Administration because of a fifteen day require-

ment of the 8.B.A.

Also, on 16 August 1965 a TWX was dispatched from

the Office of the Secretary of the Air Foree to Head-

quarters, Air Training Command, the higher headquarters

of Lackland Military Training Center. The T\\X stated

that the Invitation for Bids for language instruction would

be canceled because review by the Secretary’s General

Counsel had determined that such contract might well

be subject to attack by the Civil Service Commission and

the Comptroller General. The TWX advised that the

needed services should be temporarily continued either

by extension of present contract or negotiation for as

short a term as possible, not to exceed six months (Tab

3-A).

Also, on 16 August 1965, Mr. Shaw, after learning of

the DCASR’s findings and recommendation, telephoned

procurement officials at Headquarters, Air Training Com-

mand and discussed this and the possibility of requesting

a Certificate of Competency for Hurd-Darbee from the

Small Business Administration. There was not sufficient

time for such processing but it was decided to telephone

the Small Business Administration and request expedit-

ing. It was necessary that the Language School Com-

mander know by 25 August whether there would be a con-

tract. Mr. Shaw had been advised, in his conversation

with his higher headquarters on that date, to consider

award to Hurd-Darbee for a six inonth period, notwith-

standing the DCASR report which had been made on the

basis of a twelve-month contract. Mrs. Weyman then, still

18

on 16 August, at Mr. Shaw’s direction, telephoned Mr.

Hurd to ask if he was interested in negotiating an exten-

sion for six months. When Mr. Hurd inquired about the

twelve-month contract on which he had bid, Mrs. Wey-

man informed him that because of recent rulings, they

would be unable to procure these services by contract for

more than a six-month extension. Mr. Hurd stated that

he would telephone a price to her (Tabs 1-A, 2-A).

Mr. Shaw instructed Mrs. Weyman to immediately con-

tact the next low bidder, English Language Services, so

that negotiation with the next low bidder could begin.

English Language Services agreed on price and instruc-

tors’ reporting date of 23 August but later that same day

telephoned that an increase in price would be necessary

as well as change of reporting date because of its bringing

instructors from outside of San Antonio. This was agreed

upon and the contract was to be signed on 20 August

1965 (Tab 1-A).

On 19 August 1965, four telegrams of protest were re-

ceived from Mr. Hurd of Hurd-Darbee. All activities were

held in abeyance until the protest had been processed in

accordance with regulations and decided at Headquarters,

Air Force Logistics Command, Wright-Patterson Air

Force Base, Ohio. The protest was denied at that Head-

quarters on 25 August 1965 and Mr. Hurd was so in-

formed (Tabs 4A, 4B, 4-C).

Meanwhile, Lieutenant Colonel Coverdale had on 19 Au-

gust consented to extend instructors’ reporting dates un-

til 1 September.

On 25 August, when notified of the ruling on Hurd-

Darbee’s request, a DD Form 1524 Pre-Award Survey was

immediately requested on English Language Services, and

on several other low bidders, from the respective DCASR

“19

offices (Tab 2-E). On that same day, Mrs. Weyman phoned

the Baltimore DCASR and learned that English Language

Services was not in satisfactory financial condition for

award of a contract (Tab 1-A).

Meanwhile, on 17 or 18 August, Lieutenant Colonel Cov-

erdale, Colonel R. M. Batterson, Commander of the Tech-

nical School, and Mr. John Miller, the Civilian Personnel

Officer, Lackland Military Training Center had a meeting

in which alternatives were discussed. The target date was

24 August and a commitment had to be made for the con-

tinuing of the Language School mission on 1 September

after Hurd-Darbee’s contract expired on 31 August. Lieu-

tenant Colonel Coverdale had been advised of the rulings

on Hurd-Darbee’s financial status. Because of the emer-

gency created by not having a commitment at that late

date, it was determined that an emergency hiring of civil-

ian instructors could be accomplished if in event of no

contract by the required date. On 19 August 1965, Lieu-

tenant Colonel Coverdale had written a letter to the Base

Procurement Division, setting out the urgency of the si-

tuation but consenting to delay in instructors reporting

times until 1 September 1965 (Tabs 2-C, 3-C).

Due to the DCASR recommendation on 25 August on

the second low bidder, English Language Services, and

the fact that the third low bidder, World Technical Sup-

ply, was not qualified, it was decided by the Base Procure-

ment Division to cancel the Invitation for Bids and re-

sort to direct hire of instructors. Bidders were so notified

on 2) August (‘T'abs 1-A, 2-A, 5-A, 5-B).

Also, on that Wednesday, 25 August 1965, after learn-

ing of the denial of Hurd-Darbee’s protest, Lieutenant

Colonel Coverdale called an emergency meeting of the

Language School’s approximately forty or forty-five con-

9 etait

Sidaudhind 2 ieach's AAS cla ERNE Ae tap ait tale vias Vins lb SAS ll i Ma al

Ek Se + Per

tractor’s instructors. Mr. Sylvester W. Dracy and Mr.

Orville P. Clark of the Civilian Personnel Office, Lackland

Military Training Center, participated in the meeting.

Lieutenant Colonel Coverdale informed the assembled in-

structors that there was no contract with any bidder

effective on 1 September, that if award were to be made,

he did not know when or to whom it would be made or

become effective. He also told them that he was aware of

their own contracts with Hurd-Darbee which expired on

31 August 1965, and that, to the best of his knowledge,

none of them had contracts with Hurd-Darbee for Sep-

tember or a subsequent time. Lieutenant Colonel Coverdale

also stated that there was a requirement for instructors to

preclude mission failure of the School and that there

would be an emergency hiring on a thirty-day basis. He

further told the instructors that the decision as to whe-

ther they would seek Civil Service employment would be

their own. He pointed out that representatives of the

Civilian Personnel Office were present to answer ques-

tions and facilitate completion of application forms. Mr.

Dracy explained that the grade would be GS-7 and in-

formed the instructors of the annual salary of $6,050.00 per

annum, while most instructors at Hurd-Darbee, Inc. were

earning between $4,000 and $5,500 per annum. They were

told that this was an emergency in which the Government

could waive some of its qualification requirements for

this temporary employment. The application forms were

given to those who asked for them and blank forms were

left in the building. Those who had elected to apply were

processed and sworn in on 29 August, the following Mon-

day. Some persons who had not attended the meeting ap-

plied and were accepted for the temporary appointments.

The terms of employment of the newly hired instructors

began on 1 September 1965. Their contracts of employ-

- * oi Ce Ro er

ad cotillion pp iemminaniimeandneetaiee PEA8 Se Te —

;

21

ment with Hurd-Darbee, Inc., expired on 31 August 1965.

The hiring of the instructors, for employment to begin

on 1 September, did not affect Hurd-Darbee’s perform-

ance of its own contract, which was satisfactorily per-

formed until its normal expiration on 31 August 1965

(Tabs 2-C, 6-A, 6-B, 6-C, 6-D and 6B).

. Subsquently, Air Force Procurement, approached a

private contractor in.California to take over the Lack-

land Language School by employing the Hurd-Darbee,

Inc. personnel who had by this time been sworn into Civil

Service.

William F. McCarthy, Hurd-Darbee’s contract repre-

sentative and supervisor, was one of those whose indivi-

dual contract expired on 31 August and who elected to ap-

ply for the Civil Service appointment. He was one of

two administrative persons employed by Hurd-Darbee on

its Language School contract at Lackland Air Force Base.

Lieutenant Colonel Ed Baxter served as Lieutenant Colo-

nel William McCarthy’s assistant and acted for him when

Lieutenant Colonel McCarthy was not available. Hurd-

Darbee had no material property in the Language School

or on Lackland Air Force Base. The Air Force furnished

all equipment and furniture. The contract called for it to

supply only instructors to supplement the Civil Service

instructors already working in the Language School (Tabs

2-C, 6-B, 6-E).

Hurd-Darbee subsequently filed additional protests of

not being awarded the contract and of the Government’s

“expropriation” of its ‘entire property, equipment and

organization of 60 teachers and supervisory personnel”.

These were duly processed and forwarded for decision ;

(Tabs 7-A, 7-B). This installation has no information

as to final disposition of Hurd-Darbee’s 30 October 1965

$0 2 eaters mens eGERGNEON

protest to the Secretary of the Air Force. The previous

protests were denied.

Hurd-Darbee, Inc. was unable to respond to Invitations

for Bids by procurements of the Olmstead and Wright-

Patterson Air Force Base for similar services (RFP No.

36-600-66-5012) because Hurd-Darbee, Inc. no longer had

personnel to perform the contract if it were awarded to

Hurd-Darbee, Inc.

Neither the United States Government or any of its

agencies paid any compensation to Hurd-Darbee, Inc. for

the actions taken by defendant which form the basis for

this lawsuit.

Hurd-Darbee, Inc. stipulated to the following facts re-

garding its financial status:

(a) On 31 March 1965 Hurd-Darbee, Inc.’s financial

statements showed a deficit in working capital of $44,800

and a deficit in net worth of $13,100.

(b) Hurd-Darbee, Inc. admits there were a number of

overdrafts on the account, but denies that fact was the

reason they were asked to close their account.

(ec) Hurd-Darbee, Inc. admits that several paychecks

were returned for non-sufficient funds when the defend-

ant’s checks to Hurd-Darbee, Inc. were not sent on time,

but were held up when defendant received notice that

plaintiff was attempting to finance its receivables.

(d) Hurd-Darbee, Inc. admits that commercial check

mailed in payment of Employees’ withholding income tax

and FICA tax, received by Cognizant Government Office

under date of 27 July 1965, was returned due to non-suf-

ficient funds. A certified check was processed on 6 August

1963 in the total amount of $4,430.43 to meet that obliga-

2B

tion. However, Hurd-Darbee, Inc. takes the position the

check bounced because Hurd-Darbee, Inc. was not sent

its monthly check by the Lackland Language School in

accordance with standard procedure.

(e) That for the eight-month period ending 31 March

1965 Hurd-Darbee, Inc. had a profit of $14,320 before

_ taxes, or 2.9% on its total sales of $494,334.

(f) Hurd-Darbee, Inc. recently performed under con-

tract #DA-36-038-AMC-773(a), incurring a large loss due

to excess of over-run costs which Hurd-Darbee, Ine. con-

tended resulted from numerous verbal change orders which

were later not acknowledged by the Government Contract-

ing Officer on said contract, and delays caused by Con-

tracting Officer’s failure to produce information required

to complete the contract. This cause of action was subse-

quently settled out of court between Hurd-Darbee, Ine.

and the United States.

(g) At the time the evaluation was made for Hurd-

Darbee, Inc., pursuant to a statement dated 31 March

1965, the net worth deficit had been reduced from $27,452

as of 31 July 1964 to $13,100 as of 31 March 1965. In ad-

dition, the operating loss had been reduced from $68,958

as of 31 July 1964 to $44,800 as of 31 March 1965.

(h) The Manufacturers National Bank of Detroit with-

drew its line of credit on 31 October 1964 and said Bank

was thereupon paid-in-full for all amounts due and ow-

ing at said time.

The evidence in this ease clearly establishes that there

was no conversion of any of the plaintiff’s tangible prop-

erty by the Government. Plaintiff claims that the hiring

of all its instructors, once it lost the contract, was a con-

ye

version of its intangible property. The Court cannot agree.

An employer has no property right in its employees which

can be converted. If employees are wrongfully hired away

from an employer, it is a tortious interference with con-

tract rights not a conversion. 45 Am Jur 2d §10 p 287.

The sole case which plaintiff relies on for the proposition

that employees constitute property capable of being taken

has been reversed. Dillon v. U. S., 230 F.Supp. 487

(1964), reversed at 346 F.2d 683 (9th Cir. 1965). Since

recovery of damages for a tortious interference with con-

tracts is not permitted by 28 US.C. §2680(h), plaintiff

may not recover for the loss of its employees.

The Government cannot be liable for breach of con-

tract. Plaintiff’s contract with the Government had run

out, and it had no reasonable expectation of further con-

tracts. The Government had no duty to contract with

plaintiff and could withhold new contracts with impunity

even if plaintiff could prove that it would perform satis-

factorily, and was, in fact, performing satisfactorily, cred-

itably, and was not inadequately capitalized or on the

verge of insolvency. Leo Spear Construction Company

v. The Fidelity and Casualty Company of New York,

446 F.2d 439 (2nd Cir. 1971). Plaintiff cannot say the

Government was bound to give it business. The evidence

at trial showed that the Government was considering ex-

tending plaintiff’s contract for no more than six months

in any event, and plaintiff wholly failed to make any show-

ing that it could get any other contracts with anyone

thereafter. Plaintiff cannot claim against the United

States the value of rights which the Government may

grant or withhold if it chooses. U.S. v. Twin City Power,

350 U.S. 222, 228; ef. U. S. v. Virginia Electric Co., 365

US. 624.

25

Plaintiff also claims that Section 10 of the Adminis-

tretive Procedure Act. 5 U.S.C. $702, entitles it to recover

the costs of preparing and submitting the bid.

Section 10 provides that:

“A person suffering legal wrong because of agency

action, or adversely affected or aggrieved by agency

action within the meaning of a relevant statute, is

entitled to jurisdictional review thereof.”

It has been held that this Section does grant a cause

of action to a bidder who is adversely affected by acts of

Government Procurement Officers. Scanwell Laborator-

tes, Inc. v. Shaffer, 424 F.2d 859 (D.C. Cir. 1970).

However, the bidder’s exclusive remedy under the Ad-

ministrative Procedure Act is provided for in 5 U.S.C.

§706(2), which provides:

“Scope of review. * * * [The reviewing Court]

shall * * * (2) hold unlawful and set aside agency

action, findings, and conclusions found to be (A) ar-

bitrary, capricious, an abuse of discretion, or other-

wise not in accordance with law; * * *.”

Plaintiff is not entitled to recover money damages for

any alleged violation of the Administrative Procedure

Act. In fact, recovery of this type is specifically barred

by 28 U.S.C. §2680(a), which provides:

“The provisions of this chapter and section 1346

(b) of this title shall not apply to—

(a) Any claim based upon an act or omission of an

employee of the Government, exercising due care,

in the execution of a statute or regulation, whe-

ther or not such statute or regulation be valid,

or based upon the exercise or performance or

the failure to exercise or perform discretionary

function or duty on the part of a federal agency

or an employee of the Government, whether or

not the discretion involved be abused.”

Thus, money damages cannot be recovered for any injury

which rises out of discretionary acts which were performed

by the Government employees in the present case. S é 8

Logging Co. v. Barker, 366 F.2d 617 (1966).

Plaintiff claims that its financial situation should not

have been an impediment to the award of the language

school contract because almost the whole of plaintiff's

expenses were salary, and the Government’s monthly pay-

ments under the contract were more than sufficient to

cover plaintiff’s salary expenses. However, the Lackland

Air Force School was only one division of Hurd-Darbee.

The corporation could have operated unprofitably even

though one of its divisions remained in the black. In as-

sessing the financial stability of the corporation, Govern-

ment employees would be negligent in their duties if they

evaluated only one division of the corporation and ig-

nored the others.

Plaintiff also claim: that the contracting officer should

not have relief on the official Government report he re-

ceived on plaintiff’s financial condition. No matter how

many sources of information Mr. Shaw had relied on,

plaintiff could criticize him for not relying on still more.

Plaintiff has not proven a branch of any duty by the of-

ficer, and Mr. Hurd admitted in substance the accuracy

of the pre-award survey on which Mr. Shaw relied (T.

213-255).

It is true that an official of the SBA testified that his

files contained no record of a request from Lackland Air

22K

ee eee eS rel ARRET

‘27

Force Base for an SBA certificate of competence for

plaintiff. It is also correct that the pertinent regulations

directed Lackland to request a certificate of compe-

tence. However, it is also correct that the same regula-

tions permit a waiver of the requirement that a certifi-

cate of competence be requested, ASPR 1-705.4-B, and

the waiver was made in the instant case. (T. 153-154, Tab

' 4C). More important, perhaps, is the fact, continuously

overlooked by plaintiff in all of plaintiff’s pleadings and

briefs, that the entire solicitation for bids was cancelled

by the Government (T. 137-210).

Plaintiff claims that defendant “entered into a deal”

with another contractor. No such fact was ever proved

by plaintiff or admitted by defendant. What did happen

was that the invitation for bids was cancelled altogether.

The invitation for bids contained a reservation of the

_Government’s right to reject all bids (Tab 1-D). Plaintiff

also claims that defendant gave a false reason for can-

celling the IFB. However, plaintiff heretofore never al-

leged, and certainly did not prove, that the defendant

ever gave such a reason for cancelling the IFB. Never-

theless, the alleged statement that the services were no

longer required is accurate because the defendant deter-

mined that it could perform those services ‘itself.

In summary, plaintiff has failed to establish that it is

entitled to recover money damages based on a contract or

on a tort theory.

Therefore, IT IS ORDERED that judgment be, and

hereby is, entered for the defendant.

/s/ Fred W. Kaess

Fred W. Kaess

Chief United States District Judge

|

RE ET

APPENDIX B

Appeal from the United States District Court for the

Eastern District of Michigan, Southern Division

(No. 73-1120)

(U. S. Court of Appeals—Sixth Circuit)

(Hurd-Darbee, Inc. v. United States of America)

(Filed June 13, 1973)

Decided and Filed...........++++++++:

Before: Celebrezze, Miller and Lively, Circuit Judges.

Per Curiam. The facts were stipulated by the parties

and trial was before the district judge without a jury.

The Air Force has operated an English language school

for foreign military personnel at Lackland Air Force

Base, Texas for a number of years. Although the school

is operated and supervised by the military, civilian em-

ployees of the Air Force serve as language instructors.

In addition, for a number of years prior to the time in-

volved in this controversy, the teaching corps at the lan-

guage school was supplemented by government contracts

with civilian firms which supplied instructors for the

school. These contracts were let for terms of one year

from September 1 and were entered into after an invita-

tion to bid, a bid opening and an award to the successful

bidder.

For four consecutive years the appellant had been

awarded a contract to supply language instructors to the

school and the last of these contracts was for the term be-

ginning September 1, 1964 and ending August 31, 1965. In

ait AL e te oars AN Sot

29

May of 1965 an invitation to bid was sent to a number of

prospective bidders and when the bids were opened ap-

pellant was found to be the low bidder. Its representative

at the opening was advised that a pre-award check would

have to be made as to the eligibility of appellant for the

contract. There had previously been some question about

financial stability of Hurd-Darbee and at the trial it was

" stipulated that at the time of the bidding appellant had a

deficit in working capital and net worth, although both

had been reduced in the period of the last contract and

the company had shown a profit during the immediately

preceding eight-month period. Because neither appellant

nor the second or third low bidder could satisfy the fi-

nancial requirements of the Air Force, there were incon-

clusive discussions about the possibility of a new con-

tract for a term not to exceed six months. On August 25,

1965, all bidders were notified that the invitation for bids

had been canceled and that the Air Force would hire in-

structors directly after August 31, 1965.

On the same day the military officer in charge of the

English language school called an emergency meeting of

the 40 or 45 instructors employed by appellant and in-

formed them that there was no contract with any bidder

after August 31, that the school needed instructors to

carry on its work and that the Air Force planned to hire

instructors on an emergency 30-day basis. The instructors

were advised of Civil Service requirements and that if

they were hired as Civil Service personnel the salary for

each instructor would be approximately 40 per cent in

excess of that which was being paid by Hurd-Darbee. The

entire teaching force previously furnished by appellant

was employed directly as of September 1, 1965 by the Air

Force. The hiring of the instructors did not effect Hurd-

Darbee’s performance of its own contract which was

satisfactorily compieted on August 31, 1965.

The complaint, as amended, sought damages for wrong-

fully converting and expropriating ‘“‘all of Plaintiff’s en-

tire organization at Lackland Air Force Base and its en-

tire property and personnel ... ” without the payment

of any compensation therefor. The Air Force furnished all

of the physical equipment required to conduct the Eng-

lish language school and appellant does not allege that any

physical assets were expropriated. Its argument is that

it had built up a going organization capable of perform-

ing a service at a profit and that when the government

hired all of its instructors it deprived appellant of prop-

erty consisting of the intangible value of its organization

and that the Fifth Amendment requires compensation

to be paid for such a taking.

Appellant concedes that the government had the right

to reject all bids as of September 1, 1965 and that it had

no vested right to continue to be a government contrac-

tor. Thus we are not concerned with issues related to the

financial condition of appellant in August 1965 which oc-

cupied a great deal of attention in the district court pro-

ceedings. With respect to the issue now before this Court,

the district court made this statement:

‘‘An employer has no property right in its em-

ployees which can be converted. If employees are

wrongfully hired away from an employer, it is a tor-

tious interference with contract rights, not a con-

version. 45 Am. Jur. 2d § 10, p. 287. The sole case

which plaintiff relies on for the proposition that em-

ployees constitute property capable of being taken

has been reversed. Dillon v. U.S., 230 F. Supp. 487

(1964), reversed at 346 F.2d 633 (9th Cir. 1965).

Since recovery of damages for a tortious interference

with contracts is not permitted by 28 U.S.C. § 2680

(h), plaintiff may not recover for the loss of its em-

ployees.”

oe ee

AKO Like

ee RDP hE Od

‘31

Appellant cites Des Moines Gas Co. v. Des Moines, 238

US. 153 (1915) for the proposition that the government

must consider “‘going value” of a scccessful enterprise in

addition to the value of its physical assets in setting the

rates of a public utility. Also relied upon is Monongahela

Navigation Company v. United States, 148 U.S. 312 (1893).

_ That case held that when the government condemned a lock

and dam in the Monongahela River it was required to pay

the owner the value of its franchise to take tolls as well

as the value of the tangible property taken. In each of

these cases, of course, the underlying action of the govern-

ment was against the physical property of a citizen and

the Court held that the Fifth Amendment requirement of

compensation was not satisfied unless the owner was paid

for intangible property rights which adhered directly to

the tangible assets which were affected by the govern-

mental action. The word “property” as used in the Fifth

Amendment has a broad meaning and includes the entire

bundle of rights, not just the physical assets, against which

the government moves.

The problem in the present case is that no definable

property, either tangible or intangible, was taken from ap-

pellant. The only contract which it had with the govern-

ment was continued uninterrupted to its normal termi-

nation date. It had no right to be awarded a new contract

by the Air Force and, in fact, had no contracts with its

own employees beyond August 31, 1965. In Acton v. United

States, 401 F.2d 896 (9th Cir. 1968), cert. denied, 393 U.S.

1121 and 395 U.S. 945 (1969), it was held that the owners

of revocable uranium prospecting permits which were

canceled by the government were not entitled to compen-

sation for the taking of property. When appellant put to-

gether the organization which consisted of a group of in-

PDS TALL ALE NA TLDS het ee ene what

32

structors capable of teaching the English language to for-

eign military personnel it acquired no vested right to a

government contract. It understood that these contracts

were for one year only and that at the end of any year the

government might award a contract to some other sup-

plier of similar services. Furthermore, the government had

the right to reject all bids. The risk of non-renewal of its

contract is very similar to the risk taken by persons who

operate under prospecting permits and grazing permits

granted by the federal government. The risk of cancella-

tion of such permits and the risk of non-renewal of a ser-

vice contract are such that the person dealing with the

government pursuant to such a permit or contract ac-

quires no property rights which are compensable upon

revocation or non-renewal.

Since appellant had no property right in the services

of its employees, their mass resignation to accept the of-

fer of the Air Force did not deprive it of any property

for which compensation must be paid. According to the

testimony of its principal stockholder and head book-

keeper, Hurd-Darbee, Inc. had other business activities

which were not directly connected with its contract to

furnish instructors at Lackland Air Force Base. The cor-

poration continued as a going business after the govern-

ment contract expired. At most it was deprived of a busi-

ness opportunity when its employees resigned, asuming

that other markets for such services existed. In a dif-

ferent setting it has been stated that the obligation to pay

compensation does not extend to the loss of a business

opportunity. United States ex rel. Tennessee Valley Au-

thority v. Powelson, 319 US. 266, 284 (1943); United

States v. Sowards, 370 F.2d 87 (10th Cir. 1966).

ie aaemniiainiemaaliads

: 33

The action of the Air Force in dealing with the em-

ployees of appellant was certainly not a model of ethical

business behavior. Nevertheless, the government is speci-

fically exempted from liability for tortious interference

with contracts and no statutory basis for the present ac-

tion has been shown. Since neither a statute nor the Con-

stitution confers a right to recover for the acts complained

of, the district court correctly entered judgment tor the

United States.

Affirmed.

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