Brief for the US in Opposition — Paisner v. United States (No. 686)

pn

INDEX

Page

Opinion below _-_. | be 3 l

Jurisdiction. _. Ew . , : 1

Question presented-_._... .--._-.--.--- oie 3 2

Statute involved a a, oe a Re aa | eae

Statement. ___- :

Argument. ___. E See a 6

Conclusion. . Su ; | 11

, CITATIONS Me

Cases: ae

Causey Vv. United States, 240 U.S. 399... ._:.. 6,8,9

Clark v. United States, eS : bad

Miller v. Ammon, 145 ULS. 421_.. Matera ss 7

Pan American Petroleum and Transport Co. v. United

States, 273 U.S. 456... Chote fae eae ona 6

Sutton v. United States, 256 U.S. 575 : a

United States vo Trinidad Coal and Coking Company,

a4 OA : ee ef

Waskey v. Hammer, 223 U.S. 85_--.. 7

Statute: |

Walsh-Healey Public Contracts Act, 49 Stat. 2056, ef

seq., 4] U.S. C. 35, ef eee. .- 2y Gy Gy. 15 Oe Oy 10, 11

Miscellaneous: .

41 C. F. R. 203.10. _- Sige nee €_ So enaaepety 10

6 Williston, Contracts ( tet. ed., 1938) §1770_.__.- ; 9

~: (1)

ae | ge a ee eee ey

Gn the Supreme Gourt of the United States

OcToBER TERM, 1957

No. 686

Harry PAIsNER AND SAMUEL PA‘SNER, CO-PARTNERS,

D/B/A QuaLITY MANUFACTURING COMPANY, PETI-

TIONERS 3

Vv

THE UNITED STATES

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF CLAIHS

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinions of the Court of Claims (Pet. App.

15-23) are reported at 150 F. Supp. 835.

TURISDICTION

The judgment of the Court of Claims was entered

on May 8, 1957. A motion for rehearing, timely

filed, was denied on October 9, 1957. The petition

for a writ of certiorari was filed on December 23,

1957. The jurisdiction of this Court is invoked under

28 U.S. C. 1255 (1).

(1)

‘ 2

* QUESTION PSESENTED ~

Whether a contractor, who through deception

"obtains a series of Government contracts after hav--

ing been debirred “under Section 3 of the Walsh-

Healey Act from the award of such colitracts, Is

entitled te any profits on eoods manufactucetl anal

\

co

delivered tnder such contracts.

STATUTE INVOLVED

Section 3 of the Walsh- appma coats Contracts

Net, wy Stat. 2O3S7T, 41 VU . 37, provides::

The Comptyfler General is-authorized and

directed tgAfistribute a list to all agencies of

the United States contamning the names of

persons or firms found by the Seegetary of

Labor to have breached any of the agreements

or representations required by -this Aet.

i Unless the Secretary of Laber otherwise ree-

ommends no contracts shall be-awarded'to such

persons or firms or to any firm, corporation,

Snartuership, ‘or associatigy in) Which such

personggor firms have a controling interest

until three years haye elapsed from the date

the Sceretarse of Labor determines such breach

‘a } ave ce marred.

STATEMENT

During World War II, the petitioners, Harry

Paisner and Samuel Paisner, then trading as a

partnership under the name of Westchester Hats,

committed certain violations of the Walsh- Heal

Public Contracts Act (49 Stat. 2036, et. seq., 41

U. S. C. 35, et seg.) in the perforniance of their

a

Government contracts (Pet. App. 15224). On April

24, 1950, the Secretary of pag wifter investis gatioy,

hearings, and a report and recommendations by a

trial examiner, found tiat petitioners were eullty

the violations as charged (Pet. App. 15, 24). Pur-

suant to Section 3 of the Walsh=tlealey Act, supra,

petitioners were debarred from entering into or being

eawarded Government contracts for a period of three

years commencing April 24, 1950 (Pet App. 15, 24).

Petitioners were duly -advised of them imelgibility

(Pet. App. 25). ;

In the cneantime, petitioners had changed their

oe name to Quality Manufacturing Com-

pany in, 1946 CPt. App. 16, 24). Under that new

hare, petitioners, im 19 30 and agaim-in gol, bid for”

and obtained, two Gove rifi@at conte: acts although, as

they knew, they were then ur ae of debarred

bidders (Pet. Ape. 16, 2D). <* ‘hese contracts were

fully performed and petitioners were paid the con-

tract price of $L81 50.46 (Pet. App. 16, 30).

In December AQOL, _ Quality Manufacturing Com-

eee

pany filed a bid form, signed by Warry Paisner-as———

a partner, for a contract calling for the manufacture

of 90,000 sleepmg bags (Pet. App. 16, 26). Peti-

tioners were awarded this third contract and c¢om-

meneed performance (Pet. App. 16, 27). On March

18, 1952, the Government, on discovering that Paisner

was ineligible to bid, issued a stop order, later c@on-

firmed by a letter to petitioners on April 10, 1952,

4

which ecarceled the contract as void ab initio (Pet.

App. 16, 27).’ ie

Before awarding the sleeping bag contract, the

Government had made a routine examination of the

list of debarred contractors but, because the list

carried the names of Harry Paisner, Samuel Paisner,

and Westchester Hats, nad failed to connect Quality

Manufacturing Company withthe offenders (Pet-

App. 16, Pr): -There were incorporated by reference

into the contract certain regulations of the Seeretary

of Labor whereby petitioners. represented that they

were not ineligible to receive Government contracts

beeause of sanctions imposed for. violations of the

Walsh-Healey Act (Pet. App. 26 27).

Petitioners delivered a total of 12,106 sleeping

bags, which the Government accepted (Pet. App. 17,

28). However, payment for these was rertused. ~Peti—

tioners brought this suit to recover the contract price

of the completed and accepted units and for profits

lost on the balance .of the vanceled. contract (Pet.

App. 17). The Government counterclaimed for the

cost incurred~in reletting the balance of the third

contract, whieh was found to be $896, and for

$181,580.46, the amount paid petitioners for the full

performance of the two earlier contracts (Pet. App.

17). 7 |

The Commissioner of. the Court of Claims, who

tried the case and filed a writtef opinion, ruled that

1 After this cancellation, but before the last delivery on

May 16, 1952, petitioners were reinstated as eligible for Gov-

ernment contracts. (Pet. App. 17.)

4)

petitioners, as perpetrators of a fraud in contracting

‘illegally with full knowledge of their debarment,

should be required to forfeit all sums paid to them -

under the first two contracts and should not be

» allowed to,recover for the units delivered and ac-

cepted under the third contract. ‘The Commissioner

thus denied petitioners any recovery ggid awarded

the United States the full amount of its counter-

elaims, that is, the Sum of $896 and. the sum. of

$181,586.46 (Pet. App. 20). |

The Court of Claims affirined in part, and reversed

in part, the Commissioner’s determination. The

‘ourt of Claims held that petitioners were entitled

to recover the contract price of the 12,106 sleepmeg

hags which they completed and deliveree, less their

profits on these units. The Government was awarded

= judgement on, its first counterclaim in the amount of

$896, representing the cost-of—removal of Govern-

ment-owned material from petitioners’ premises and,

in addition, the sum of $21,789.66, representing peti-

tioners’ profit on the two earlier contracts which

were completely executed, rather than the return of

the total payments of $181,580.46, which had been

awarded by the Cornmissioner. A judgment was

entered in the Governmem’s favor in the sum of

$12,153.45 “(the profits on the two earlier contracts

plus $896, less the value of the units delivered, on.

the third contract). Judge Whitaker dissented stat-

ing that he would deny petitioners recovery for the

units delivered on the third eontract but weuld

prechide thesGovernment from recovering the profits

on thetwo earlier contracts. | N

6

ARGUMENT :

The decision below, holding void the contracts

which petitioners procured knowi.g that they were

debarred from receiving Government contracts, rests

upon the application of settled principles of coutract

law to the facts of this case. And since the court

balow would have heen justified in following the

ruling of its Commissioner im not permitting peti-

tioners to retain any sums received for goods de-

livered and Recepted, petitioners” principal attack on

the judgment below—-which merely required them to

foreeo the profits on their fraudulently obtained and

» ; 7

unauthorized contracts—is without any basis in law

orweason. Moreover, thove is no contliet of decisions

and the-case is-a unique one, Faising ‘ho issue of

large importance in the administration of the W alsh-

Healey Public Contracts Acts Further review by this

Court is therefore not warranted.

1 It is well established that a contract with the

United States 1s void ab initio and? unenforteable

neainst the. United States if entered into in viola-

tion of a statutesprohibiting it or in the absence of-

statutory anthorization Pan American Petroleum

| ~

aud Transport Co. x. l nited “States, 973 U. 8. 406;

Nutton Vv. cae: States, 256 U. S>ag: Causey Vo

United States, 240 S. 3995: United Salon, Trini-

~.

i

PAs petitioners porn out. this cas® “seems to be one of~.

first impression” (Pet. 8). It is sigatficant to note in this

connection that the Walsh-Healey Act hasbeen in effect for

more than vi vears, 1 Stat. ZOS8, «>

ee | | ;

~

é

dad Coal and Coking Cempeny, 137 U.S. 160. And

it is manifest that Section 3 of the Walsh-Healey

Act, supra, p. 2, entirely deprived the contracting

officers of authovity to award any of the three con-

tracts in question to petitioners. Seeticn 3 is an

explicit command to Government contracting officers

that they cannot contract with certain persons. ‘To

treat contracts entered into, in the fact of this prohi-

bition, as fully valid and Jegal, as petitiogers urge

(Pet. 8). would frustrate the major purposes: of the

Walsh-Healey Act, for it would inake ineffective the

intended sanction against contractors who lave know-

ingly solicited and accepted forbidden contracts and

are allowed to retain the full fruits of their miseon-

duct: Moreover, the contention that a eontract im vio-

lation of a statutory prokibition is illegal and void

only if Congress uses express Janguage to this effect is

baseless. Washkey v. Hammer, 223 U.S. 85; Miller v.

Ammon, 145 U. S. 421.) Significantly, there was ne

disagreement in the opinions of the majority, the

dissenter, and the Commissioner as to the fact that

the contracts in question Were Jllegal ard void,

though there was disagreement as to the consequences

that should tlow from this fact.

2. It is the general rule that, where conisacts with

the United States are void from a failure of au-

thority to bind the United States, the latter may

retain the benefits of performance without lability

to pay the contractor on ai quantum meruit or

quantam valebat basis, even though the contractor

may he innocent of wrongdoing. Sutton v. United

&%

8

States, 256 U. 8. 575;° and there is authority for

the proposition the United States may recover any

monies paid pursuant to such a prohibited con-

tract and yet retain the benefits of the performance.

See, e. g., Causey v. United States, 240 U. S. 395; .

United States v. Trinidad Coal- and Coking Com-

pany, 137 U. S. 160. Moreover, Clark v.: United

States, 95 U. S..539, and the related cases cited by

petitioners (Pet. 11) do not support their contention

that the illegality in' this case did not bar a quantum

_meruit recovery. Those cases present imstances

where the contracts themselves are not forbidden

but are merely irregular as not complying with laws

prescribing the manner of their execution. These

laws, regulating the mode or manner of letting

contracts, implicitly acknowledge that the contracts

are authorized and could be properly let arid thus

when they are performed they are honored to the

extent of granting recovery of reasonable value, in -

contrast to the ease where, as here, there is a lack

of autiiority to let any contract to the claimants. In

5 Petitioners seek: to distinguish the Sutton case (Pet. 10) by

stating that there Congress definitely and specifically—pro-

hibited all contracts forgwhich no appropriations had_ been

passed and consequently for work and materials which the

Government did not desire er require. This is precisely what

| Congress sought to accomplish through Section 3 of the

- Walsh-Healey Act. The language of the statutory prohibti-

tions is similar. And, indeed, with reference to the Walsh-

Healey Act, the clear intent of. Congress, as expressed in the

Act, is that unless the Secretary of Labor interceded, which

he did not in this instance, it did not want any supplies from

debarred contractors and that all~such contracts were pro-

hibited.

2

ae or

terms of this distinction,‘ Section 3 of the Walsh-

Healey Act, in withdrawing all authority to let con-

tracts to an ineligible contractor, refers no.more to

the manner of letting than did the comparable statu-

tory prohibition in the Sutton case, supra. °

Application of these principles of contract law te

the facts in this case would have supported the con-» .

elusion of the Commissioner that_ petitioners were ~

entitled to no recovery on its claim and_ that the’,

United States should. have full recovery on its, if,

counterclaims. “See, e. g., Causey v. United States, 7 2

240 U.S. 399; United States v. Trinidad Coal ae 4

Coking Company, 137 U. S. 160. The fact that the

Court of Claims awarded the United States less than

such a full recovery an@ required petitioners to

forego: only their profigs certainly provides no basis

for complaint by petitioners. Indeed, although the

Walsh-Healey Act does have a number of provisions

applicable to violators which are merely compensa-

tory, it seems clear that Section 3, which prescribes

a three-year debarment, imposes an additional sanc-

tion which is a penalty and punitive in nature. Peti-

tioners’ conscious ‘disregard of Section 3 and their

*In referring to Clark and related cases, Professor Williston

says “the contract remains unenforceable even after full per-

formance by the sellef;\gut as the provisions of the statute

are held to be rather Po purpose of compelling govern-

ment officials to complh—with statutory directions. for the

formation of contracts than to render illegal a contract made

otherwise, ene who has performed a contract where the

required formalities were not observed) may recover on a

quantum meruit or quantum valebat.” 6 Williston, Contracts

(Rev. ed., 1938) § 1770.

10

submission of “bids embracing the Secretary of

qr, abor's promulgated stipulations of eligibility and

non-participation by meligible contractor, with its

consequen. inducement on respondent's agents to

contract. certainly was deceptive and reprehensible

gs found by the court below. Petitioners can raise

no equity in their faver by showing that they merely

attempted to defraud the United States by the’ repr e-

sentations which their bidding embraces and that

they were not successful because the United States

relied on another source for the information upon

whieh it acted. To permit petitioners full recovery

world completely destroy the purposes of this provi-

sion and reward petitioners for ther tacties in obtain-

Wag a three contracts in question, i

There is also no merit to petitioners’ coute ntion

(Pe et. 9) that the period of their ineligibility’ under

Section 3 commenced on June 24, 1948, when the

trial examiner made his report to the Secretary of

Labor, and expired on June 23, 1991, before the see-

ond and third contracts were awarded. The report

ef the trial examiner is advisory and contaiis only

refommendations: it im no way purports to he the

Secretary’s act. $1 CO. BP. Re 205.10. Under the

explieayterms of Section 3, the three-year period of

inclizipwity runs ‘from: the date the Secretary of

determines” and finds that the Walsh-Healey

Labor

ated. Here the Secretary of Labor made

ding until April 24, 1950.) Petitioners

remained eligible to bid for and receive awards until

Act was vit

no such

1]

this final determination. While petitioners new state

that it would be an ‘tanomalous and embarrassing

situation” if these found’ e@tilty of violations by the

_trialexaminer could continue to take valid contyacts

(Pet. 9), the record shows that petitioners — not

content to rely on the trial examiner's findings and

recommendations in 1948 but petitioned the Seere-

tary not to accept them and thus -by their appeal

forestalled the Secretary's determination until 1950.

Petitioners’ contention, if accepted, would permit the

-absurd result that a violator of Walsh-Healey Act

could suspend the operation Of the Ac hy petitions

to the Secretary net to accept the findings of his sub-

ordinates, and later count this period as part of the

three-vear period of ineligibility.

CONCLUSION

For the foregoing reasons, it is respectfully sub-

mitted that the petition for a writ of certiorari

should be denied.

J. LEE RANKIN,

Solicitor Grengral.

Georce CocurRan Dovp,

Assistant Attorney General.

Morton HOLLANDER,

Peter H. Scuirr,

Attorneys.

JANUARY 1958.

U ft GOVERN MT AT PR mT mS OFFICE (988