United States v. The Goldfield Corporation As Successor To American Chrome Company, 384 F.2d 669, 10th Cir. (1967)
Uploaded by
Scribd Government DocsUnited States v. The Goldfield Corporation As Successor To American Chrome Company, 384 F.2d 669, 10th Cir. (1967)
Uploaded by
Scribd Government Docs384 F.
2d 669
UNITED STATES of America, Appellant,
v.
The GOLDFIELD CORPORATION as successor to American
Chrome
Company, Appellee.
No. 9143.
United States Court of Appeals Tenth Circuit.
Nov. 2, 1967.
Robert V. Zener, Atty., Dept. of Justice (Barefoot Sanders, Asst. Atty.,
Gen., Lawrence M. Henry, U.S. Atty., Alan S. Rosenthal and Jack H.
Weiner, Attys., Dept. of Justice, Washington, D.C., with him on brief), for
appellant.
Robert H. Harry, Denver, Colo. (L. Richard Freese, Jr., Denver, Colo.,
with him on brief), for appellee.
Before MURRAH, Chief Judge, WILBUR K. MILLER, 1 Senior Circuit
Judge, and HICKEY, Circuit Judge.
HICKEY, Circuit Judge.
The United States, appellant, brought this action against appellee Goldfield, as
successor to American Chrome, a subsidiary, for an accounting and restitution
of allegedly exorbitant and unconscionable profits realized under a contract to
procure chromium for stockpiling.
A team representing the government negotiated the contract with the officers of
American Chrome. It is alleged that during the course of negotiations American
Chrome induced a material conflict of interest on the part of Lukens, a
government negotiator and fiscal advisor to the team, and as a result the
contract was drawn to the disadvantage of the government. No violation of a
statute is claimed to have been committed.
Following the judgment by the court for Goldfield, the United States initiated
Following the judgment by the court for Goldfield, the United States initiated
this appeal. We affirm.
A letter contract was the result of the negotiations in January, February and
March of 1952. In October, 1953, a formal contract was executed and made
retroactive to, and supplanted the letter contract. The evidence relates to that
period of time which was prior to the letter contract and is unrelated to the
formal contract.
Both the letter contract and the formal contract provided for redetermination of
the contract price only after the first and second production years instead of
after each year of the eight-year term. Under the provision for the
redetermination of the contract price after each year covered by the provision,
the unit price would be adjusted to fairly reflect costs. It is the government's
contention that this clause resulted in exorbitant and unconscionable profits
because the company's costs went down in the later years of the contract but the
unit price remained the same and the percentage of profit increased.
The negotiations began on January 8, 1952, and as early as January 21, 1952,
the two-year limitation on the price redetermination provision appeared as a
prospective term of the contract. The first draft of the contract, which was
presented to the company negotiators on February 8, 1952, contained the twoyear limitation on redetermination of price. The questioned provision was
retained in subsequent drafts and was included in the letter contract which was
executed by the United States on April 11, 1952.
The District Court found that sometime subsequent to February 11, 1952, the
company expressed an interest in employing Lukens as comptroller. At various
times between February 27 and March 15, 1952, Lukens conferred with
company officials concerning the offer of employment. Company officials
entertained the Lukens family at a luncheon on March 15, 1952, to explain the
living conditions at Nye, Montana, where the mine was located, to Mrs.
Lukens.
It would appear Lukens accepted American Chrome's offer of employment
before the letter contract was signed by the government on April 11, 1952.
Lukens received an increased salary from the corporation and also some
incentive stock in the corporation.
American Chrome signed the letter contract on April 21, 1952, and notified the
government at that time of its employment of Lukens as comptroller.
Thereafter, Lukens had no connection with the preparation or negotiation of the
contract.
10
After Lukens' resignation, the Division of Compliance for the General Services
Administration conducted an investigation of all persons connected with the
negotiation of the contract on behalf of the government. The report of the
investigators concluded: 'This investigation does not indicate any irregularity,
favoratism, or undue influence on the part of Lukens in favor of the American
Chrome Company.' Within a year after completion of the entire transaction a
Senate Committee investigated the stockpile program and referred the
American Chrome contract to the Justice Department.
11
The pre-trial order stated the issue as seeking recovery of excessive and
unconscionable profits caused by the conduct of the appellee in influencing the
government agent to retain the two-year limitation on price redetermination.
12
The trial court found, on conflicting testimony, that the profits were not
excessive nor unconscionable and, therefore, the government failed to meet its
burden of proof. The trial court also specifically found that the government had
failed to show 'the officials of the company induced and promoted an improper
relationship with Lukens.'
13
Because the trial court's decision was based on documentary evidence rather
than live testimony, the government argues that this court cannot apply the
'clearly erroneous' standard of Rule 52(a), Fed.R.Civ.P. This court has
specifically held that notwithstanding the fact the trial court did not have an
opportunity to judge the credibility of the witnesses, the court's findings are not
to be set aside unless clearly erroneous. Epperson v. Connecticut Fire Insurance
Co., 314 F.2d 486, 491 (10th Cir. 1963).
14
Even though the statement of the issue in the pre-trial order and the theory of
the government in the trial was whether a conflict of interest on the part of
Lukens actually resulted in the contract being drawn to the disadvantage of the
government, the government here contends it was only necessary to show that
Lukens had accepted employment with American Chrome after the negotiations
had begun; thereafter, public policy gives rise to a presumption the conduct of
appellee was tainted and harm to the government resulted.
15
The basis of an action for restitution is that '(a) person is not permitted to profit
by his own wrong at the expense of another.' Restatement of the Law,
Restitution 3 (1937). 'A third person who has colluded with a fiduciary in
committing a breach of duty, and who obtained a benefit therefrom is under a
duty of restitution to the beneficiary.' Id. 138.
16
The government contends the benefit received by American Chrome was the
excessive and unconscionable profit. It is argued the government should
recover an amount equal to the court's determination of tainted profits.
17
United States v. Mississippi Valley Generating Co., 364 U.S. 520, 81 S.Ct. 294,
5 L.Ed.2d 268 (1961), known as the Dixon-Yates case, is relied upon as
establishing a public policy which, under the facts of this case, gives rise to a
presumption that Lukens' dealings constituted a conflict of interest and resulted
in excessive and unconscionable profits.
18
In Dixon-Yates the Supreme Court examined 18 U.S.C. 434 to establish the
standards of public policy applicable to the facts of that case. Because the facts
of the case at bar are not similar to Dixon-Yates, we examined 18 U.S.C. 201
and view it as a statement of the public policy in cases where a government
employee, upon a promise of benefit to himself, is induced to violate his duty to
his government for the benefit of a third party. Thus, the United States has the
burden to prove American Chrome's purpose in employing Lukens at a better
salary was to reward him for including and maintaining the two-year limitation
on price redetermination in the contract. United States v. Irwin, 354 F.2d 192
(2nd Cir. 1965).
19
It is contended this burden is satisfied by a presumption arising out of the
public policy declared; however, the presumption must rest upon some fact
from which it can be deduced. The pretrial order indicated the fact from which
the presumption could be deduced was excessive and unconscionable profits.
Since the contract has been fully performed, the court has the benefit of the
accomplished facts which are before it to decide whether the profits were in
fact excessive and unconscionable. It follows that because the trial court has
determined the profits were not excessive and unconscionable, and because
such finding is not clearly erroneous, the basic fact necessary to give rise to the
presumption does not exist.
20
The trial court tried the case on this theory and found against the government,
saying: 'The plaintiff (appellant) has failed to show by clear and convincing
evidence that the officials of the company, or, more importantly, that the
activities of these individuals were directed toward or were the cause of, the
provisions of the contract limiting the redetermination of the price to the first
two years of production.'
21
The whole record indicates the findings are not clearly erroneous, nor has a
mistake been made in the applicable law.
22
Affirmed.
Of the United States Court of Appeals for the District of Columbia sitting by
designation
