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Hardt v. Heller Bros. Co.

decided: November 19, 1948.


Author: Mclaughlin

Before MARIS, McLAUGHLIN, and O'CONNELL, Circuit Judges.

McLAUGHLIN, Circuit Judge.

This diversity case is an appeal from a judgment of the district court sitting without a jury, which awarded compensation to appellees for their services on a quantum meruit basis in and about the procuring of a Certificate of Necessity for the appellant. The lower court found the fair value of appellees' services to appellant in connection therewith to be $45,000 and that appellees were entitled to six per cent interest on the principal sum from July 3, 1941. The interest down to the date of the judgment amounted to $16,575 and brought the total of the judgment to $61,575.

The fact finding by the trial court that a contract of employment did exist between appellees and appellant, though strongly contested below, is not attacked on this appeal. The sole dispute pertains to the amount of compensation allowed.

Certificates of Necessity were part of the national wartime emergency program. They were authorized by Section 124 of the Internal Revenue Code, 54 Stat. 999, Oct. 8, 1940, P.L. 801, 76th Cong., and amendments thereto, 26 U.S.C.A. ยง 124, known as "The Tax Amortization Law". They were issued to qualified manufacturers. They certified that a contemplated increase in facilities was necessary in the interest of national defense and allowed an annual deduction of 20% of the cost at the election of the taxpayer. This permitted amortization of such facilities in five years, which period under the program's theory would exhaust their prospective use. The certificates were designed to provide reasonable protection against bankruptcy at the end of the effort to the manufacturer undertaking "the rapid expansion which the national defense required for an activity of uncertain duration." Report of the Under Secretary of War, Feb. 15, 1945. The certificates were issued by either the War or Navy Departments. The instant matter came under the War Department. Prior to the issuance of a certificate, the application was investigated by the Office of Production Management and the Army-Navy Munitions Board.

Near the beginning of the year 1941, the appellant, Heller Brothers Company, which had then been engaged in the manufacture of steel for many years, was desirous of expending into war work. Arthur H. Hunter was a steel salesman for Heller Brothers. He had a contract with his employer allowing him 50% of the profits on orders secured by him. He also had control of a patented line of steel products. He was very much interested in the expansion program. Prior to any connection of appellees with the matter he, with other personnel of the appellant, had prepared an application for a Certificate of Necessity on behalf of Heller Brothers. A New York firm of engineering consultants was assisting in this. The application had not been filed with the War Department.

On or about February 10, 1941, Hunter had a conference with appellees. He claimed that this had to do with a contemplated joint expansion of Heller Brothers and a new corporation of his own. The latter was to take over his personal contracts, purchase steel from Heller Brothers, fabricate it and in turn sell it to the trade. Hunter said that he was to see to it that appellees' expenses were taken care of and that their services were to be paid for by giving them stock in his new company. Hardt said that the only agreement was that he and Hartzell were to obtain for Heller Brothers a Certificate of Necessity in the sum of $1,500,000 and a Reconstruction Finance Corporation loan in the same amount. He stated that then or later Hunter did promise them stock in the new company but that he was not impressed with the idea and that the engagement of Hartzell and himself was for Heller Brothers. At two later conferences with Arthur Heller, Treasurer of appellant, present, Hardt testified that it was mutually agreed that he and Hartzell would be suitably compensated by appellant. Immediately following the first of those two conferences appellees entered upon their duties. As to what they did the trial court in its finding Number 23 found that: "On behalf of defendant, plaintiffs made a thorough study and examination of the plant, equipment, organization, personnel, history, finances, and a capacity of the defendant; compiled relevant data, made many trips to Newark and Washington; conferred frequently with defendant's officers and with government officials in Washington whose duty it was to pass on the application for a Certificate of Necessity; prepared and submitted requisite information to these officials in Washington; planned and directed the presentation of defendant's application."

The application above mentioned is the one which was prepared by Hunter. From the testimony it was not changed by appellees in any respect. They did file it on April 5, 1941. After examination of it, the Army and Navy Munitions Board found that it contained insufficient information, that it had not been submitted in triplicate as required and that it lacked the requisite number of appendix copies. Appellant was advised to submit further information. This was attended to under the supervision of appellees and presented to the Board on or about June 5, 1941. The certificate was issued July 3, 1941 as of June 25, 1941. Regarding this, Major Neufeld, present chief of the Army Tax Amortization Branch, a witness in the case, testified that "since the certificate was issued on the basis of that information, there is no doubt that had that information been originally with the application why the certificate would have gone through without fail."

Though after the Certificate of Necessity was issued, Heller Brothers Company did not carry our its intended development and only expended $114,575.23 under the certificate, we do not see that those facts mitigate against the value of appellees' services, especially since it has not been suggested that appellees were in any way responsible for appellant's later course of conduct.

As seen from the above finding of the district court, appellees did put in a large amount of time on their endeavors. They kept no records of this or of their expenses and it is impossible from the testimony to ascertain just how much of that time was given to the certificate matter. While it can be accepted that the portion so devoted was sizable, the record does not bear out their contention that it was "three or four months." It is asserted on their behalf that the time spent is perhaps one of the least important factors in fixing their compensation. Whatever may be its value in that respect, it is obvious from the trial proceedings that considerable of appellees' efforts during the critical period were in furtherance of the Reconstruction Finance loan. For example, Hardt testified that "I handled the matter of R.F.C. loan as a certified public accountant.I spent some twenty-five to thirty days actual time, full days in Washington, incurring hotel and taxicab sundry and other expenses." Recovery was denied appellees for their services relating to that loan as contrary to Sections 13-15 Title 13 of the Code of Federal Regulations. That phase of the action is not before us except as it is material in connection with appellees' activities from February to June in 1941. One inescapable conclusion from the rather confusing testimony is that if requisite care had been taken in the preparation of the application prior to its filing or later if the additional needed information had been furnished promptly, the certificate's issuance might have been appreciably hastened.

Great stress is laid by appellees upon Hardt's acquaintanceship with a top executive of the Office of Production Management by reason of which it is urged that consideration of the application was expedited. The trial court found Hardt to be a person of substantial business background and prestige. He is a certified public accountant, though he insisted that his labors in seeking the certificate were not restricted to the accountancy field. However, the record fails to disclose that Heller Brothers' application received any different treatment than was accorded thousands of similar meritorious applications. The report of the Under Secretary of War states, "speedy plant expansion and conversion were vital military necessities," and the background ot the Tax Amortization Law was "to provide a law susceptible of speedy administration." Out of 31,047 applications for Necessity Certificates in the period between the passage of the Tax Amortization Act and the transfer of the certification authority to the War Production Board, 26,775 certificates were issued covering the whole or part of the application and having a dollar value of almost five billion dollars. Only 4,272 cases were denied, withdrawn or otherwise disposed of. Despite tremendous difficulties, "Nevertheless" (as the report concludes), "we got the plants, which in turn produced the guns, tanks, and planes." Major Neufeld testified that of the five or six hundred applications which he had personally processed, about 50% would go through without any conferences or further correspondence. Twenty-five per cent of the applicants were asked for information by correspondence, which they would furnish and that would be the end of it. "As to the balance, the applicant or applicant's representative would come in and discuss the case, perhaps two or three times at the most, and the case would be disposed of." According to Major Neufeld, after certain difficulties were eliminated in the beginning, the average time to get a certificate through "was about between two and a half and three months." Regarding appellant's application he said, "I have seen the record in this Heller Brothers case and what was involved in that, and during the period of time which I processed cases individually, I had at least fifteen to twenty steel company cases, and there was nothing complex about it that I can recall."

In any event, according to Hardt, it was after appellees had ascertained from the Office of Production Management "just exactly what would be required by the War Department" that they filed the application which was determined to be insufficient. Hardt himself stated on the stand that he was not asking compensation because he knew the O.P.M. executive.

Hardt was permitted over objection to give his opinion of the value of the services rendered by Hartzell and himself and fixed this at $125,000 including expenses.*fn1 While they were working to obtain the certificate appellees asked Heller Brothers for expense money, but they never did make any stated demand for compensation prior to this suit which was started almost three years after the issuance of the certificate. Hardt did testify that "we asked for our money repeatedly." Two witnesses for the defense, both of them accountants, testified regarding the value of appellees' services. The first of these, Howard H. McConnell, a senior partner of a large accountant firm who had supervised the preparation of 40 or 50 applications for Necessity Certificates, stated that a fair charge for accountants' services in relation to the preparation and filing of applications for and the procuring of Certificates of Necessity would be $50 a day for the senior doing the work and $100 a day for the supervision of a partner. His firm's services in such a matter consisted in preparing the applications for filing. He said that as a result of that preparation the applications were filed and the certificates granted. He thought that Hardt was entitled to $100 a day. Harry H. Steinmeyer, also a member of a well known and reputable firm of accountants, was the second expert defense witness on the value of appellees' services. He was familiar with reviewing and supervising the type of application in question. His experience included handling applications after they had been filed where the War Department did not particularly like the way the information had been prepared and wished more information. He said that the final result in those cases would be that the application was perfected and a certificate issued. His firm's charge was the same in all of the cases of which he had knowledge. The charge was $100 a day for partners, $50 a day for the staff man who actually worked on the job, and, where it was necessary to put the work through the firm's Washington office, the charge was $100 a day for the services of their Washington representative, who is an attorney. Regarding appellees' services he said that "on any engagement of that kind we would accept it only on a per diem basis."

On its facts, the issue before us is quite like the situation in Kuhn v. Princess Lida of Thurn & Taxis, 3 Cir., 119 F.2d 704. The governing principle of that opinion as stated by Judge Jones for the court, 119 F.2d at page 706, is that, "An incorrect conclusion by a trial court qualifies as a 'clearly erroneous' finding, for the correction whereof on appeal Rule 52(a) [Federal Rules of Civil Procedure, 28 U.S.C.A.] specifically provides." This sound doctrine finds full support in the recent Supreme Court ...

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