Opinion
No. F-203.
April 7, 1930.
Suit by the Helvetia Milk Condensing Company, Inc., against the United States, wherein defendant filed a counterclaim.
Judgment for defendant.
The plaintiff sues to recover interest on a refund of taxes which was allowed to it by the Commissioner of Internal Revenue on August 24, 1925, and certified to the Comptroller General for payment, but which he refused to pay, interposing a counterclaim for an alleged excess of profits made by plaintiff above that allowed by the agreement between plaintiff and defendant, on sales of evaporated milk for the Army, Navy, and Marine Corps during the World War.
The case having been heard by the Court of Claims upon the report of a commissioner and the evidence, the court makes the following special findings of fact:
1. The plaintiff is a corporation duly organized and existing under the laws of the state of Illinois, with its principal office at Highland, Madison county, Ill., and has existed as such at all times hereinafter mentioned.
During the years 1917 and 1918, the plaintiff was engaged in the manufacture of evaporated milk. In 1921 the plaintiff acquired all the assets and liabilities, as well as the capital stock of the Highland Milk Condensing Co. (No. E-588), growing out of the sale of evaporated milk to the Army, Navy, and Marine Corps in 1917 and 1918.
2. For the years 1909, 1912, 1913, 1914, 1915, 1916, and 1917 the Commissioner of Internal Revenue assessed and collected corporation excise and income and excess-profits taxes from the plaintiff in the sum of $91,885.60 over and above the amount of such taxes due and payable, and for the years 1910 and 1911 underassessed and failed to collect corporation excise taxes in the sum of $369.42. For the years 1909 to 1917, inclusive, the Commissioner of Internal Revenue assessed and collected corporation excise and income and excess-profits taxes from the plaintiff in the net sum of $91,516.18 over and above the amount of such taxes due and payable.
3. On or about the 15th day of December, 1920, the plaintiff duly filed with the Commissioner of Internal Revenue, in accordance with the provisions of the Revenue Act of 1918, claims for credit and refund of all of said taxes assessed, demanded, and collected, as aforesaid (together with claim for refund of other taxes alleged to have been unlawfully assessed and collected).
4. On or about the 22d day of October, 1924, the Commissioner of Internal Revenue duly allowed said claims for credit and refund of said corporation excise and income and excess-profits taxes to the amount of said sum of $91,516.18, and the same was credited as of December 15, 1920, on income and excess-profits taxes due and payable by the plaintiff upon said date. On the 24th day of August, 1925, the Commissioner of Internal Revenue calculated and allowed interest on said sum in the amount of $11,133.54 and certified such amount to the Comptroller General for payment to plaintiff.
5. September 7, 1917, the United States Food Administration invited the manufacturers of milk to hold a conference with a view of making suggestions as to fixing prices during the war, and a conference was held at Washington, September 26, 1917, of the manufacturers of evaporated and condensed milk. At this conference plaintiff was present. On a roll call vote taken, the manufacturers were unanimously in favor of voluntary regulation.
It was moved that thirty cents per case on evaporated milk and forty cents per case on condensed milk would be a fair and reasonable profit to recommend to the Food Administration, and by a standing vote the industries represented at the meeting unanimously recommended these figures.
A circular, No. 272, United States Food Administration, Public Information Division, states in part as follows:
"Manufacturers of canned milk representing ninety-five per cent. of the entire industry in the United States in conference with the United States Food Administration to-day agreed voluntarily and unanimously to submit their business to the supervision of the Food Administration during the period of the war, and to take no war profits but to make the profit on their goods sold to the public the same as on goods to the Army and Navy.
"Since the first of May they have been furnishing supplies to the Army and Navy at a price and on a basis of profit determined by the Federal Trade Commission. This they obligated themselves in their conferences today to continue throughout the war, and further they agreed to supply the commission for relief in Belgium and the American Red Cross at the same prices as that made to the Government.
"The canned-milk men expressed their willingness to cooperate with the Food Administration by limiting the price to the public so as not to return to the industry a greater profit than was received before the war. During that period, they declared, a profit of 30¢ a case on evaporated milk, and 40¢ a case on condensed milk was considered fair. In meeting the greatly increased demand on account of needs created by the war, the manufacturers said they had found difficulties in the increased price of fresh milk and the high cost of tin plate. These have forced the increased prices for their product during the last 18 months. The only way in which they as manufacturers can limit the cost of their commodity to the public, they declared, is through the limitation of profits, since they can not control the cost of the raw materials upon which they depend."
6. December 2, 1918, the milk manufacturers war committee wrote the food purchase board of the United States Food Administration in part as follows:
"* * * In view of the fact that the entire agreement between the milk manufacturers war committee and the Army, Navy, and Marine Corps has not heretofore been reduced to writing in a single document, the committee sets forth the following as its understanding of the agreement, as it has existed in the past, and as it shall continue for the above designated period, with the exception of two slight modifications which will be noted hereafter.
"1. It is the understanding of the committee that the Army, Navy, and Marine Corps shall purchase their requirements as nearly as may be from month to month, proper allowance being made for such reserves as it may be necessary to carry regularly against future needs."
* * * * * *"8. The milk manufacturers agree that profit made on sales to the Army, Navy, and Marine Corps as an average for the period in question shall not be more than 42¢ per case on evaporated milk and 59¢ per case on condensed milk, calculated on the basis of Federal Trade Commission cost accounting as set forth in the pamphlet issued by the Trade Commission under date of July, 1917, entitled `Uniform contracts for cost accounting, definitions, and method.'
"The 42¢ per c/s profit on evaporated milk and 59¢ per case profit on condensed milk represents the same margin of profit as a net profit of 30¢ per case on evaporated milk and 40¢ per case on condensed milk, the higher figures being reached by agreement with the Army, Navy, and Marine Corps to meet the Federal Trade Commission basis of accounting, which does not take into account certain items of cost which are regularly borne by the industry.
"At the close of the period during which supplies may be purchased on this basis, following January 1st, 1919, investigation of the costs by the respective companies shall be made by the Federal Trade Commission or some other agency agreed upon by the buyers and manufacturers. In the event that any manufacturer has made, during the period, an average of more than 42¢ per case on evaporated milk, and 59¢ per case on condensed milk the excess above such margin of profit shall be refunded by the respective manufacturers to the Army, Navy, or Marine Corps, respectively. In the event a manufacturer has made less than 42¢ per case profit on evaporated, and 59¢ per case on condensed milk, neither the Army, Navy, nor Marine Corps shall be obligated to make any additional payments."
On the facts set forth in findings 5 and 6 is based the agreement.
7. Pursuant to the said agreement the War and Navy Departments purchased from plaintiff 34,676 cases of evaporated milk, for which they paid plaintiff the total sum of $188,776.24.
8. Subsequent to January 1, 1919, the United States Federal Trade Commission, to which the matter of investigation to determine the cost of production and profit was referred, made an audit of plaintiff's books of account. Because plaintiff's books of account showed opening and closing inventories only semiannually and not monthly, the difficulty, if not impossibility, of calculating the exact cost of production for the months of November and December, 1917, was explained to Mr. Adolph Meyer, the treasurer of plaintiff company, by the Federal Trade Commission auditor sent to make an audit of the accounts. Mr. Meyer suggested as being fair and sufficiently accurate if, and agreed on behalf of plaintiff that, the cost of production for November and December be calculated by the auditor on the basis of applying to such months the average monthly cost for the six months' period ended December 31, 1917. This method was adopted by the auditor. By such method of calculation it was ascertained and found that plaintiff had been paid by the War and Navy Departments on account of purchases of evaporated milk during the term of said price agreement the sum of $11,117.56 in excess of the profits allowable under said agreement.
9. Demand was made upon plaintiff by the United States to refund to it the excess profits so determined and found by the United States Federal Trade Commission to have been paid, but plaintiff has at all times refused, neglected, and failed to refund the said sum to the United States, or any part thereof.
10. After the said audit, determination, and finding had been made by the said United States Federal Trade Commission, the departments which had made purchases of evaporated milk from plaintiff during the term of said agreement certified to the General Accounting Office the total amounts which they had overpaid plaintiff for such purchases, and the General Accounting Office, by settlement certificates, withheld payment of the sum of $11,133.54, otherwise due plaintiff as a refund of interest on taxes erroneously collected, and applied the same as a partial set-off against plaintiff's indebtedness to the United States in the sum of $11,117.56 (plus interest), representing excess profits paid to plaintiff prior to January 1, 1919, by the War and Navy Departments, as found by the Federal Trade Commission.
11. Upon the assumption that said agreement was and is valid, and in consideration of the allowance of interest by the Commissioner of Internal Revenue, there is now due and owing the United States by plaintiff, or its successor in interest, the sum of $11,117.56, plus $4,447.00, representing interest at six per cent. per annum upon said sum from January 1, 1919, to August 24, 1925, the date of allowance by the Commissioner of Internal Revenue, aggregating $15,564.56, less $11,133.54 due plaintiff, or a difference of $4,431.02, plus $886.20, representing interest on said last named sum at six per cent. per annum from August 24, 1925, to January 1, 1929, making a net total due the United States, as of January 1, 1929, in the sum of $5,317.22.
G.M. Owlett, of Wellsboro, Pa. (Crichton Owlett, of Wellsboro, Pa., on the brief), for plaintiff.
Percy M. Cox, of Washington, D.C., and Herman J. Galloway, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GRAHAM and GREEN, Judges.
The only question in this case is involved in the counterclaim of the defendant. The right of the plaintiff to recover interest on a tax refund allowed it in the sum of $11,133.54, certified by the Commissioner of Internal Revenue to the Comptroller General for payment on August 24, 1925, is admitted. The defendant's counterclaim for $11,117.56, with interest, grows out of a contract, dated December 2, 1918, between the plaintiff and the Army, Navy, and Marine Corps, for supplying milk, which contract is embodied in a communication from the Milk Manufacturers' War Committee to the United States Food Administration. (Finding 6.) This agreement was reached at a conference of the United States Food Administration with the manufacturers of milk on September 26, 1917, at which conference the plaintiff was present.
Under this agreement the manufacturers agreed that the profits made on sales should not be more than 42 cents per case on evaporated milk and 59 cents per case on condensed milk, calculated on the basis of Federal Trade Commission cost accounting as set forth in the pamphlet issued by the Federal Trade Commission under date of July, 1917, entitled "Uniform Contracts for Cost Accounting, Definitions, and Method." It was provided that in case "any manufacturer has made, during the period, an average of more than 42¢ per case on evaporated milk and 59¢ per case on condensed milk the excess above such margin of profit shall be refunded by the respective manufacturers to the Army, Navy, or Marine Corps, respectively. In the event a manufacturer has made less than 42¢ per case profit on evaporated, and 59¢ per case on condensed milk, neither the Army, Navy, nor Marine Corps shall be obligated to make any additional payments."
Under this arrangement the War and Navy Departments purchased from the plaintiff 34,676 cases of evaporated milk, for which they paid plaintiff the sum of $188,776.24. Subsequent to January 1, 1919, the United States Federal Trade Commission, to which the matter of investigation to determine the cost of production and profit was referred, made an audit of plaintiff's books of account. Because plaintiff's books of account showed opening and closing inventories only semiannually and not monthly, the difficulty, if not impossibility, of calculating the exact cost of production for the months of November and December, 1917, was explained to Mr. Adolph Meyer, the treasurer of plaintiff company, by the Federal Trade Commission auditor sent to make an audit of the accounts. Mr. Meyer suggested as being fair and sufficiently accurate (and this was agreed to on behalf of plaintiff) that the cost of production for November and December be calculated by the auditor on the basis of applying to such months the average monthly cost for the six months' period ended December 31, 1917. This method was adopted by the auditor. By such method of calculation, it was ascertained and found that plaintiff had been paid by the War and Navy Departments on account of purchases of evaporated milk during the term of said price agreement the sum of $11,117.56 in excess of the profits allowable under said agreement. Demand was made upon the plaintiff by the United States to refund the excess profits so determined and found by the United States Federal Trade Commission to have been paid, but the plaintiff refused and failed to refund the sum.
By said agreement the question of cost of production was to be determined by the United States Federal Trade Commission, and, as just stated, this investigation was made and the balance last stated was found to be due the defendant. The contract provided a forum in the Trade Commission to determine the question of cost. The Trade Commission determined it. There is no question raised here of fraud, gross mistake, or dishonesty in reaching its conclusion, and it is therefore binding upon this court. Whether or not the commission made a mistake of judgment is not a matter for our consideration. Where an umpire has been provided with power to decide a question, this court will not undertake to review that finding except in the face of some showing of fraud, accident, or mistake so unconscionable and gross as to raise an implication of fraud. Penn Bridge Co. v. United States, 59 Ct. Cl. 892, 897; Brinck v. United States, 53 Ct. Cl. 170, and cases cited therein; also Kennedy v. United States, 24 Ct. Cl. 122, and particularly the case of Cheyenne Milling Co. v. United States, 59 Ct. Cl. 927.
The defendant, therefore, under the findings is entitled to recover the difference between the sum of $15,564.56 due defendant and $11,133.54, the amount of plaintiff's claim, or $4,431.02, plus interest on last named sum, amounting to $886.20, from August 24, 1925, to January 1, 1929, making a total due the United States of $5,317.22, as claimed by defendant. Let judgment be entered for defendant in this sum.
BOOTH, Chief Justice, and GREEN, Judge, concur.
WILLIAMS and LITTLETON, Judges, did not hear this case and took no part in its decision.