Empire Ordnance Corp. v. United States , 128 F. Supp. 744 ( 1955 )

Whitaker, Judge,

delivered the opinion of the court:

The Empire Ordnance Corporation (hereinafter referred to as “Empire”) was awarded $935,000 by the Appeal Board of the Office of Contract Settlement. This amount was offset against amounts due the defendant by Empire’s subsidiaries.

A suit filed by Empire in this court to recover the amount awarded it by the Appeal Board was dismissed with prejudice on March 30, 1954, together with defendant’s counterclaims (127 C. Cls. 834), pursuant to a stipulation by the parties.

Plaintiffs McHale and Gutt say they had attorney’s liens on the amount awarded Empire and they sue the defendant, McHale for $93,500, and Gutt for $10,000, the amount of fees agreed upon by them and Empire after the award had been made.

Plaintiffs McHale and Gutt had no contract for fees prior to the rendition of their services. After the Appeal Board had ruled in favor of Empire, the Board of Directors of Empire passed a resolution fixing McHale’s fee at $93,500, and Gutt’s fee at $10,000, which were apparently acceptable to McHale and Gutt. The resolution provided, inter cilia:

* * * * *

That this corporation does hereby consent that each of said attorneys as aforespecified, namely, Hon. Frank M. McHale, Morris Gutt, Esq. * * * have a right to receive the amount above specified from any award rendered in connection with the decision of the Appeal Board of the Office of Contract Settlement under date of 4th June 1948, and that each of said attorneys be deemed to have a right to receive same in such manner and to prosecute any lien therefor as may be necessary and the officers of this corporation be and they hereby are authorized, empowered and directed to make, execute and deliver to each of such attorneys and to the Department of the Army, or to any other agency of Government and to the Appeal Board of the Office of Contract Settlement any authorization, direction, assignment, agreement or other document which may be necessary to fully effectuate the purposes hereinbefore specified to the end that such attorneys shall receive payment of fees as aforespecified.

These liens or assignments are ineffectual because of the Anti-Assignment Act. Section 203 of Title 31 U. S. C. provides in part:

All transfers and assignments made of any claim upon the United States, or of any part or share thereof, or interest therein, whether absolute or conditional, and whatever may be the consideration therefor, and all powers of attorney, orders, or other authorities for receiving payment of any such claim, or of any part or share thereof, shall be absolutely null and void, unless they are freely made and executed in the presence of at least two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof. Such transfers, assigmnents, and powers of attorney, must recite the warrant for payment. * * *

A warrant for the payment of the award to Empire had not been issued at the time of the passage of the foregoing resolution and was never issued.

In view of this statute, plaintiffs McHale and Gutt did not acquire liens on the award, as against the United States, and the United States had a right to offset the liabilities of Empire’s affiliates against this amount, notwithstanding the asserted liens.

This matter was fully discussed in Ralph Pittman v. United States, 127 C. Cls. 173, 116 F. Supp. 576; cert. den., 348 U. S. 815, and will not be repeated here.

On the authority of that case, plaintiffs’ petitions will be dismissed.

Laeamoke, Judge; Madden, Judge; Littleton, Judge; and J ONES, Chief Judge, concur.

¡FINDINGS OF FACT

The court, having considered the evidence, the report of Commissioner C. Murray Bernhardt, and the briefs and argument of counsel, makes findings of fact as follows:

1. Frank M. McHale and Morris Gutt, additional plaintiffs herein, are duly admitted attorneys at law and are residents, respectively, of Indiana and New York. Each claims an attorney’s lien for legal services rendered Empire Ordnance Corporation (hereinafter “Empire”) in the amounts, respectively, of $93,500¹ and $10,000, with interest from March 8, 1949. The services were performed in connection with the prosecution of Empire’s claim before the Office of Contract Settlement, as hereinafter set forth.

2. From 1943 to his resignation on January 19, 1944, McHale was a director of Empire and its affiliated companies. At times material to this action McHale and his wife owned, respectively, 3% and 2% of the stock of Empire. At times material to this action Gutt was resident counsel for Empire.

3. On or about January 10, 1945, McHale entered into an oral contract to represent Empire in the recovery from the United States under Section 17 (a) of the Contract Settlement Act certain losses sustained by Empire arising from its performance of a subcontract with a government prime contractor for the manufacture of airplane struts. Because of Empire’s precarious financial condition at the time, McHale understood that compensation for his services would be paid from amounts recovered, although the arrangement did not preclude the possibility of his being paid from whatever funds which might come into Empire’s possession from other sources, the prospect of which was unlikely. There was no specific amount of compensation agreed upon; such amount was to depend on various factors including the amount recovered and work performed. It was agreed that McHale would be compensated for his out-of-pocket expenses.

4. In July 1945 Empire filed a claim pursuant to the Contract Settlement Act in the amount of $3,267,294, which was later reduced to $2,050,592.48. The claim was prosecuted by McHale as chief counsel for Empire and was denied by the Contracting Officer of the Air Force on June 28, 1946.

5. On or about June 28, 1946, Gutt entered into an oral agreement with Empire to participate with McHale in the prosecution of Empire’s claim. Gutt understood that compensation for his services would be paid from amounts recovered. There was no specific amount of compensation agreed upon; such amount was to depend on various factors including the amount recovered and work performed. This compensation was to be in addition to his compensation as Empire’s resident counsel.

6. Thereafter both McHale and Gutt participated in prosecuting Empire’s claim, in association with a third attorney, one Garrett, who had rendered services to Empire theretofore in connection with the same matter.

7. On September 23, 1946, Empire appealed from the adverse decision of the Air Force to the Appeal Board of the Office of Contract Settlement (hereafter “Appeal Board”), where a hearing was held in January 1947. On June 4,1948, the Appeal Board ruled in favor of Empire, leaving the amount of the award subject to negotiation in accordance with prescribed principles. After negotiations the parties agreed upon a formula and, on March. 8, 1949, the Appeal Board made an award of $935,000 to Empire.

8. On November 15, 1948, the Board of Directors of Empire adopted the following resolution:

Resolved, That there be paid to Hon. Frank M. Mc-Hale for the valuable services rendered this corporation in connection with the claim heretofore presented in its behalf against the Department of the Army, the sum of ten percent (10%) of the award proposed to be provided in the amount of Nine Hundred Thirty-five Thousand ($935,000.00) Dollars, to wit, Ninety-three Thousand Five Hundred ($93,000.00) [sic] Dollars, which sum shall include reimbursement for expenses incurred by him in connection with the services rendered; that this corporation pay to Morris Gutt, Esq., its resident counsel, the sum of Ten Thousand ($10,000.00) Dollars determined to be a fair and reasonable fee for the services rendered by him in connection with the claim and prosecution thereof against the Department of the Army; # * *

Resolved, That this corporation does hereby consent that each of said attorneys as aforespecified, namely, Hon. Frank M. McHale, Morris Gutt, Esq. * * * have a right to receive the amount above specified from any award rendered in connection with the decision of the Appeal Board of the Office of Contract Settlement under date of 4th June 1948, and that each of said attorneys be deemed to have a right to receive same in such manner and to prosecute any lien therefor as may be necessary and the officers of this corporation be and they hereby are authorized, empowered and directed to make, execute and deliver to each of such attorneys and to the Department of the Army, or to any other agency of Government and to the Appeal Board of the Office of Contract Settlement any authorization, direction, assignment, agreement or other document which may be necessary to fully effectuate the purposes hereinbefore specified to the end that such attorneys shall receive payment of fees as aforespecified.

9. On November 30, 1948, McHale and Gutt filed with the Appeal Board a motion requesting recognition of their attorney’s liens against any award granted Empire. Concurrently with its ruling of March 8, 1949 awarding Empire $935,000, the Board ruled that it lacked jurisdiction to pass on the question of attorney’s liens. Empire and all interested Government agencies had been theretofore apprised by McHale and Gutt of their claim to attorney’s liens.

10. Subsequent efforts by McHale and Gutt to assert administratively with the Department of Justice and the General Accounting Office their attorney’s liens failed.

11. The amount awarded to Empire on March 8, 1949, by the Appeal Board was never paid, but was applied to renegotiation debts owed to the Government by four corporations affiliated with Empire resulting from unilateral orders entered on April 18,1947 under the Renegotiation Act.²

12. Neither McHale nor Gutt has received payment for their services or reimbursement for out-of-pocket expenses in prosecuting Empire’s claim.

13. A suit filed by Empire in the United States Court of Claims to recover the amount awarded it by the Appeal Board was dismissed with prejudice on March 30, 1954, together with defendant’s counterclaims (127 C. Cls. 834), pursuant to a stipulation by the parties.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiffs Frank M. McHale and Morris Gutt are not entitled to recover and their petitions are dismissed.

1 This sum Includes a small but unknown amount for out-of-pocket expenses advanced by McHale to Empire.

2 These unilateral orders eventually ripened into final judgments affirmed by the Second Circuit Court of Appeals.