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Northern Metal Co. v. United States

decided: August 27, 1965.

NORTHERN METAL CO., APPELLANT
v.
UNITED STATES OF AMERICA



Before Hastie and Freedman, Circuit Judges, and Weber, District Judge.

Author: Freedman

This is an appeal from a judgment entered in favor of respondent on the ground that the libel was filed more than two years after the cause of action arose and thus was barred under the Suits in Admiralty Act, § 5, as amended, 46 U.S.C. § 745, which provides: 'Suits as authorized by this chapter may be brought only within two years after the cause of action arises. * * *'

The facts are presented in rather fragmentary form. From the sparse record they may be briefly summarized. On April 30, 1957 libelant entered into a contract to perform terminal stevedoring and processing operations for the United States Army. The contract was performed and invoices were issued which were promptly paid by the Government. Later the Army claimed that it had been overcharged in the amount of $530.96, for which it demanded repayment.

On November 24, 1961 libelant submitted to the Army an invoice amounting to $24,647.21 for similar services performed under a subsequent contract. On November 30, 1961 the Government paid the invoice after deducting the amount of the alleged overcharge on the prior contract.*fn1 Libelant protested the deduction and on March 9, 1962 the contracting officer decided the dispute and issued his findings and decision that libelant had been overpaid on the earlier contract and that the deduction was proper.*fn2 Libelant appealed to the Armed Services Board of Contract Appeals, which affirmed the decision of the contracting officer on August 7, 1963.*fn3 On November 27, 1963 libelant brought this action to recover the $530.96, claiming that the decision of the Board was arbitrary, capricious and so grossly erroneous as to imply bad faith, and was unsupported by substantial evidence. The action thus was instituted a few days after the expiration of the two-year period if computed from the date of the invoice and a few days prior to its expiration if computed from the date when the Government made the deduction.

On these facts the learned District Judge granted respondent's motion for summary judgment.

Libelant first contends that its cause of action arose on November 30, 1961 when the Government made the deduction, rather than on November 24, 1961 when the invoice was submitted to it. If this is correct the action was timely. The second contention is that the cause of action arose only after the administrative remedy required by the contract was completed. Finally, it is argued that the statute was tolled during the pendency of the administrative remedy.

I

Libelant clearly has a claim for the unpaid balance of the present contract, a claim which was due on November 24, 1961 when the invoice was submitted.

Libelant argues, however, that when the Government's failure to pay is based on an alleged overpayment in an earlier transaction two causes of action exist, one for 'a failure to pay the full amount of current charges' and the other for a 'wrongful deduction'. Thus the designation of the claim in the libel would determine the time of commencement of the statutory period. It is clear, however, that whether the libel describes the cause of action as a failure of respondent to pay the current bill in full or as a wrongful deduction from the payment makes no difference and the case would not be altered on the Government's assertion that the reason for the withholding is the overcharge on an earlier contract. For in any event the reason which led the Government not to pay the invoice in full does not, when expressed, create a new cause of action. The Government's nonpayment of this sum -- or its deduction, as libelant calls it -- is not a tort for which a separate cause of action arose. It is nothing other than the nonpayment of part of the contract price.

The cases on which libelant relies*fn4 are inapplicable. They are not suits brought in admiralty. They were brought under § 322 of the Transportation Act of 1940, 49 U.S.C. § 66, which expressly authorizes the Government to pay transportation charges on presentation of bills and before audit, but reserves to it the right to deduct the amount of any later discovered overpayment from unrelated claims admittedly due to the carrier.*fn5 Thus the carrier is paid immediately upon submission of its bill instead of waiting for audit, and in return is required to refund all overcharges which the Government later claims. Thereupon the parties are restored to their original footing and the carrier is obliged to collect the sum refunded by establishing the correctness of its bill to the Government agency or by proving it in the courts.

In United States v. N.Y., N.H. & H.R. Co., 355 U.S. 253, 78 S. Ct. 212, 2 L. Ed. 2d 247 (1957), the carrier sought to relieve itself of the burden of proof by framing its pleading as a claim for payment in full of the current bill rather than the repayment of the deduction which represented the earlier overcharges. The Government, however, in its answer pleaded a credit for the overcharges and alleged that it had paid the balance by check. In response, plaintiff was compelled to admit that it received the check, leaving a balance due and unpaid. The Court rejected artificialities in pleading which would obscure the true issue, saying: '* * * Conventional principles of contractual setoff should not govern the determination of the carrier's burden of proof in this action merely because the complaint frames an action for recovery of the full amount of the 1950 bill rather than the amount deducted therefrom. * * * The true dispute between the parties, arising from the determination and collection of the overpayments as authorized by § 322, involves the lawfulness of the 1944 bills. It is the substance, not the form, which should be our concern.' (pp. 262-263, 78 S. Ct. p. 218). In cases under the Transportation Act, therefore, the so-called deduction by the Government is a significant act; it is the congressionally authorized recoupment of the overpayment made before audit.

The Suits in Admiralty Act, however, does not contemplate that the Government will raise the propriety of earlier overcharges by a deduction from the current bill. The Government's position in admiralty cases is the same as that of any private maritime litigant. It may plead a setoff only if it arises out of the same transaction. In a case such as this, where the Government's claim is on an unrelated transaction, the proper remedy in admiralty is to raise the issue affirmatively in a separate action. United States v. Isthmian Steamship Co., 359 U.S. 314, 79 S. Ct. 857, 3 L. Ed. 2d 845 (1959); Grace Line, Inc. v. United States, 255 F.2d 810 (2 Cir. 1958).*fn6

The parties each rely on different aspects of Isthmian Steamship Co. v. United States, 302 F.2d 69 (2 Cir. 1962). There as in the present case libelant had entered into successive contracts with the Government, an earlier contract had been performed, the Government had paid the full amount of the appropriate invoice, and when libelant submitted its invoice on a subsequent contract the Government refused to make full payment but instead deducted an amount which it claimed to be an overpayment it had discovered on the post audit of the earlier invoice. More than two years after the presentation of the second invoice, but less than two years after the Government's deduction of the overpayment, libelant sued for the difference deducted. The Court of Appeals for the Second Circuit in a per curiam opinion affirmed the decision below that the claim was barred by the expiration of the two-year period.

Libelant seeks to distinguish this decision as based on a libel which clearly claimed a failure to pay the current charges. The case was heard twice in the district court. In the first instance, Isthmian Steamship Co. v. United States, 191 F.Supp. 335 (S.D.N.Y.1957), the Government's motion to dismiss was denied on the ground that the libel had alleged that the Government had made an unlawful deduction which constituted the cause of action and was within the statutory period. At the trial of the case, Isthmian Steamship Co. v. United States, 191 F.Supp. 338 (S.D.N.Y.1961), this ruling was put aside on the ground that it had resulted from a reading of the libel as pleading payment in full and a subsequent unlawful deduction, whereas the trial had made it clear that the claim was for charges accrued for which payment had ...


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