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Docket Number

No. 10979.

Attorney(S)

John W. Hughes, Chicago, Ill., Harold R. Burnstein, Chicago, Ill., for appellant. Warren E. Burger, Asst. Atty. Gen., Frederick N. Curley, Atty., Civil Division, U.S. Department of Justice, Washington, D.C., Timothy T. Cronin, U.S. Atty., Howard W. Hilgendorf, Asst. U.S. Atty., Milwaukee, Wis., Melvin Richter, Washington, D.C., for appellee.

Judges

James Earl Major

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Smart Summary

Summary of Opinion: United States v. Speed Queen Corp., No. 10979 (7th Cir. Feb. 10, 1954)

Factual and Procedural Background

This action was brought by the United States under Section 403(c)(2) of the Renegotiation Act (50 U.S.C.A. Appendix § 1191(c)(2)) to recover excessive profits allegedly realized by Speed Queen Corporation during its fiscal year ending December 31, 1945. After the defendant answered, the district court granted the plaintiff's motion for summary judgment and directed submissions on the amount of the judgment.

The principal excessive-profits amount found due was $177,930.65. Against this sum the government had made nine separate withholdings totaling $43,951.80, which the defendant conceded it was entitled to have credited. The sole issue presented on appeal was whether those withholdings should be applied first to reduce the principal indebtedness (excessive profits) or first to satisfy accrued interest and then to reduce principal. The two calculation methods produced a difference of about $2,500 in the judgment amount. The district court applied the method of first crediting interest (the government's position), and this appeal followed.

Legal Issues Presented

Whether amounts withheld by the Government "in liquidation of the renegotiation indebtedness" must be applied first to interest accrued on the principal and the remainder to reduce principal, or must be applied first to reduce the principal amount of excessive profits.

Arguments of the Parties

Appellant (Speed Queen Corp.)

The withholdings should be credited first and directly against the principal indebtedness (the excessive profits), consistent with the statutory language of subsection (c)(2) of the Renegotiation Act.
No case was cited by defendant as directly deciding the precise question; defendant relied on the plain statutory directive.

Appellee (United States)

The withholdings should be applied first to interest accrued on the principal and only the remainder, if any, applied to reduce the principal. The government relied on a general rule—supported by several precedents—that payments are first applied to interest and then to principal.
The government noted that the Secretary had consistently followed the practice of applying withholdings first to interest.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Story v. Livingston, 13 Pet. 359, 10 L. Ed. 200	General principle that a creditor is entitled to calculate interest when a payment is made and payments are to be applied first to interest and then to principal.	Cited by the district court to support the general rule; the appellate court held such cases inapplicable to the present statutory scheme and refused to follow the rule here.
Ohio Savings Bank Trust Co. v. Willys Corp., 8 F.2d 463 (2d Cir.)	Same general rule regarding the application of payments to interest first, then principal.	Cited by the district court; appellate court found the rule irrelevant because the statute prescribes application to excessive profits and interest was not determinable at the time of withholding.
Helvering v. Drier, 79 F.2d 501 (4th Cir.)	Same general rule regarding application of payments to interest first.	Cited by the district court; appellate court rejected its applicability under the Renegotiation Act's plain terms.
Whiteside v. Washington Loan Trust Co., 68 App.D.C. 172, 95 F.2d 83	Same general rule regarding application of payments to interest first.	Cited by the district court; appellate court held the general principle cannot override the statute's clear command.
Interstate Engineering Co., Inc. v. District of Columbia, 72 App.D.C. 152, 112 F.2d 214	Same general rule regarding application of payments to interest first.	Cited by the district court; appellate court found the line of authority inapplicable to the statutory context governing renegotiation withholdings.
United States v. Edward Valves, Inc., 207 F.2d 329 (7th Cir.)	Held that a Board regulation fixing interest at 6% was invalid; interest is allowable as damages for delay in payment and the district court has discretion to fix a fair rate.	Relied upon by this court to show that interest is not an element of excessive profits but is a separate damage for delay, and that the rate is discretionary and not known at the time of withholding.
Iselin v. United States, 270 U.S. 245	Principle that courts cannot enlarge a statute or supply omissions that Congress omitted; judicial function does not include amending statutes.	Quoted and applied to emphasize that accepting the government's construction would effectively amend the statute, which courts may not do.

Court's Reasoning and Analysis

The court began from the text of subsection (c)(2) of the Renegotiation Act, which directs the Board to eliminate "such excessive profits" and authorizes elimination "by withholding from amounts otherwise due to the contractor any amount of such excessive profits." The court concluded this language plainly directs elimination of excessive profits (the principal) and does not authorize or direct elimination of "such excessive profits and interest."

The court analyzed the government's contention that withholdings could be first applied to interest and identified two obstacles to that contention. First, the court noted its prior holding in United States v. Edward Valves, Inc., that the Board regulation fixing interest at 6% was invalid because not authorized by Congress. Consequently, the rate of interest recoverable in an action to collect excessive profits is not known at the time of withholding; interest is recoverable only as damages for delay and its rate is discretionary with the court based on the record in each case. Given that uncertainty, the court reasoned, the Board (or Secretary) could not, at the time of withholding, calculate and thereby certify an amount of interest to the Treasury as required by the statute's certification and appropriation-reduction provisions.

Second, the court observed that adopting the government's position would effectively add "interest" to the statutory phrase directing elimination of excessive profits, thereby enlarging the statute beyond its plain words. Relying on Iselin v. United States, the court held that supplying such an omission or enlarging the statute is not the judicial function.

Because the general rule (payment applied to interest first) relied on by the district court and supported by several precedents applies only when a creditor is entitled to calculate interest at the time payment is made, the appellate court found those precedents inapposite here. The appellate court emphasized that a longstanding general principle cannot overcome an unambiguous statutory requirement.

On this statutory and practical basis (uncertainty of interest rate and statutory language requiring certification to the Treasury), the court concluded that withholdings must be applied first to reduce the principal indebtedness (excessive profits).

Holding and Implications

Holding: The district court's judgment was erroneously calculated and is reversed. The withholdings by the government must be applied first to reduce the principal amount of the indebtedness (excessive profits).

Implications: The direct effect is that the judgment must be recalculated with the government's withholdings credited first against principal, which will reduce the amount due accordingly (in the case at bar, the different methods produced about a $2,500 difference). The opinion rests on the plain statutory language and the uncertainty of interest at the time of withholding; it does not purport to establish a broader principle beyond enforcing the statute's command, and it does not purport to amend or enlarge the statute.

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UNITED STATES v. SPEED QUEEN CORP.

MAJOR, Chief Judge.

This is an action brought by plaintiff, pursuant to Section 403(c)(2) of the Renegotiation Act, 50 U.S.C.A.Appendix, § 1191(c)(2), to recover excessive profits realized by the defendant during its fiscal year ending December 31, 1945. After answer by defendant, the court allowed plaintiff's motion for summary judgment and directed the parties to submit statements and authorities relative to the amount of the judgment. It appears that the principal amount due and owing by defendant as excess profits was the sum of $177,930.65. However, against this amount there were nine separate withholdings by plaintiff, totaling $43,951.80, for which amount defendant was, without dispute, entitled to credit.

While other questions were previously involved, the sole issue presented to this court is, as stated in plaintiff's brief, whether "the amounts of money otherwise due appellant and properly withheld by the Government in liquidation of the renegotiation indebtedness be applied first to reduce the principal amount due or be applied first against interest accrued on the principal and the remainder towards reduction of the principal amount due." The defendant's position is that the amount of withholdings should first be applied against the principal indebtedness while that of the government is that they should first be applied against interest and only the remainder, if any, against the reduction of principal. The difference in these two methods of calculating the amount of the judgment is about $2,500.00.

The district court embraced the theory of calculation proposed by plaintiff. The court cited a number of cases (relied upon by plaintiff in this court), Story v. Livingston, 13 Pet. 359, 10 L. Ed. 200; Ohio Savings Bank Trust Co. v. Willys Corp., 2 Cir., 8 F.2d 463, 44 A.L.R. 1162; Helvering v. Drier, 4 Cir., 79 F.2d 501; Whiteside v. Washington Loan Trust Co., 68 App.D.C. 172, 95 F.2d 83; and Interstate Engineering Co., Inc., v. District of Columbia, etc., 72 App.D.C. 152, 112 F.2d 214, in support of the general proposition that a creditor is entitled to calculate interest whenever a payment is made, and that such payment is first to be applied to interest and any balance applied to diminish the principal. Relying upon this general rule, the district court in its opinion stated: "This court does not believe that the statutory language cited by the defendant can be construed to overcome a principle so long established, nor do the cases cited by the defendant justify a deviation from the rule prescribed in the Story case."

Defendant contends that this general rule is without application because the statute plainly and specifically provides that the withholdings shall be credited against the principal (excessive profits). No case is cited and we know of none where the precise question has been decided. Plaintiff points out that this same procedure has been consistently followed by the government and should not now be overruled.

The question as to whether the government is entitled to interest on the amount of excessive profits determined and, if so, the rate which may be recovered, has been before the courts in a number of cases. We need refer, however, only to United States v. Edward Valves, Inc., 207 F.2d 329, a decision of this court, wherein the citation of other cases and authorities may be found. This court held that a Board regulation fixing the rate at 6% per annum was invalid because not authorized by Congress. We held, however, that interest was allowable at a fair rate "as a measure of damage for the delay in payment," that the rate of interest allowable was discretionary with the district court, its discretion to be based upon the record before it, and that interest at the rate of 4% was not an abuse of discretion.

Subsection (c)(2) provides that after the entry of an order determining excessive profits, "the Board shall forthwith authorize and direct the Secretaries or any of them to eliminate such excessive profits (A) by reductions in the amounts otherwise payable to the contractor under contracts with the Departments, or by other revision of their terms; or (B) by withholding from amounts otherwise due to the contractor any amount of such excessive profits * * *" (then follow other designated methods for the elimination of excessive profits not here material).

Thus, the language employed plainly directs only the elimination of "excessive profits," and one of the methods is by withholding amounts otherwise due the contractor. Plaintiff's theory, however, of applying the withholdings first to interest requires an amendment of the direction to an elimination of "such excessive profits and interest." Since the courts have invalidated the Board's regulation fixing interest at the rate of 6%, the Board has no way of knowing at the time excessive profits are determined what rate of interest the government will be entitled to recover when it brings its action in court, and, even then, interest is allowable not as an element of the excessive profits owing by the contractor but as damages for the delay in payment. As previously shown, the rate of interest allowable is discretionary with the court, depending upon the record made in each case. If the Board's regulation fixing the rate of interest at 6% is void because unauthorized by statute, as has been held, it is not discernible how withholdings may be applied first to interest when the statute plainly requires their application to excessive profits (the principal amount owing).

Subsection (c)(2) contains a provision which further demonstrates the inconsistency of plaintiff's contention. It provides: "Upon the withholding of any amount of excessive profits or the crediting of any amount of excessive profits against amounts otherwise due a contractor, the Secretary shall certify the amount thereof to the Treasury and the appropriations of his Department shall be reduced by an amount equal to the amount so withheld or credited. The amount of such reductions shall be transferred to the surplus fund of the Treasury."

The uncertainty as to the rate of interest which the government might recover as damages for the delay in payment when and if an action for recovery is subsequently brought in court would appear to make it impossible for the Secretary to "certify the amount thereof to the Treasury." Interest calculated at that stage in the proceeding would be largely a matter of speculation. In any event, it would be so uncertain as to preclude the certification of an amount, as is required. We suspect that the procedure which we are advised "has been consistently followed" by the Secretary was initiated on the basis of its regulation fixing interest at the rate of 6%, which, of course, would permit the calculation of interest to a certainty. The invalidation of the regulation, however, has transformed what might have been definite and certain to that which is indefinite and uncertain. More than that, it has removed any basis for the contention that interest forms a part of the excessive profits recoverable as such but that it is only recoverable on the theory of damages for the delay in payment.

In our view, the provision in question is plain and unambiguous, it is not susceptible of interpretation. The government's theory, if embraced, would in reality require an amendment of the statute. This is not a court function. As was stated in Iselin v. United States, 270 U.S. 245, 251, 46 S.Ct. 248, 250, 70 L.Ed. 566, "What the government asks is not a construction of a statute, but, in effect, an enlargement of it by the court, so that what was omitted, presumably by inadvertence, may be included within its scope. To supply omissions transcends the judicial function."

Thus, the cases relied upon by the district court (heretofore cited) are not relevant to the instant situation. Those cases are limited to situations where the creditor is entitled to calculate interest at the time payments are made. Here, the creditor (government) was not entitled to calculate interest at the time payments (withholdings) were made because the rate of interest to which it was entitled was not known at that time. Moreover, a general principle, no matter how long it has endured, can not overcome the plain mandatory requirements of a statute.

We conclude that the judgment appealed from was erroneously calculated, that the withholdings by the government should have first been applied to reduce the principal amount of the indebtedness (excessive profits). For the purpose of recalculation in conformity with this view, the judgment is

Reversed.

UNITED STATES v. SPEED QUEEN CORP