The opinion of the court was delivered by: KAUFMAN
These are four separate actions brought by the United States, pursuant to Sec. 403(c) of the Renegotiation Act, 50 U.S.C.A.Appendix, § 1191(c), against Wissahickon Tool Works, Inc. (hereinafter referred to as 'Wissahickon'), Roxboro Steel Company (hereinafter referred to as 'Roxboro'), Wilkes Barre Carriage Co., Inc. (hereinafter referred to as 'Wilkes Barr'), and West Pittston Iron Works, Inc. (hereinafter referred to as 'west Pittston'), to recover allegedly excessive profits for the fiscal year which ended July 31, 1943.
The complaints allege that defendants are Delaware corporations doing business in this district; that renegotiation proceedings were commenced and notices thereof given defendants; that no agreements were reached; that orders were entered by the War Contracts Price Adjustment Board determining that defendants had obtained excessive profits; that reviews of the orders were thereafter initiated and that subsequently orders were entered by the Board determining the amounts of excessive profits of defendants, less credits, if any, for income and excessive profits taxes; that demands for these amounts have been made on defendants and no parts thereof have been paid.
Defendants in their answers set up numerous defenses, which the United States now moves to strike as insufficient in law. In addition, defendants have alleged counterclaims and set-offs which the United States moves to strike on the ground that the court lacks jurisdiction over the subject matter thereof. The United States has also moved for judgment on the pleadings in each of the actions. Three of the defendants have moved to make James W. Johnson, the Collector of Internal Revenue for the Third District, an additional party defendant as to some of the counterclaims alleged.
The motions were argued together and the issues involved are so similar as to warrant their disposition in one opinion.
Counsel for defendants has conceded in his brief that the contentions raised in subsections (c), (d), (e), (f) and (g) of paragraph Fourth of Roxboro's answer, paragraph First (a) of Wilkes Barre's and West Pittston's answers and paragraph Second of Wissahickon's answer have all been passed upon and overruled in Lichter v. United States, 334 U.S. 742, 68 S. Ct. 1294, 92 L. Ed. 1694. Consequently, no discussion of these contentions is necessary.
The Supreme Court also held in the Lichter case that the 'renegotiation of war contracts was not a taking of private property for public use', 334 U.S.,at page 787, 68 S. Ct.at page 1317, that 'the collection of renegotiated excessive profits * * * (was) not a deprivation of * * * property without due process of law in violation of the Fifth Amendment,' 334 U.S.at page 788, 68 S. Ct.at page 1318, and that the Tax Court remedy provided for in the statute afforded 'procedural due process.' 334 U.S.at page 791, 68 S. Ct.at page 1319. These rulings dispose of the contentions raised in subsections (a) and (b) of the aforementioned paragraphs.
Subsection (h) of the aforementioned paragraphs challenges the constitutionality of the Renegotiations Act in that it 'arbitrarily excludes from the element of cost items that are reasonable and properly chargeable to the cost of doing business and the cost of carrying out and belonging to the contracts sought to be renegotiated'.
Section 403(a)(4)(B) of the Act provides that 'costs shall be determined in accordance with the method of cost accounting regularly employed by the contractor in keeping his books', subject to the exclusion of any item which the Board or Tax Court deems 'unreasonable or not properly chargeable to such contract'. The only items specifically excluded from the computation of cost are (1) a recomputation of the amortization deduction pursuant to Section 124(d) of the Internal Revenue Code, 26 U.S.C.A. § 124(d), until after such recomputation has been made as provided in the statute and (2) those arising by reason of the application of a carry-over or carry-back. If no method of keeping books is regularly employed by the contractor, or if the method employed does not in the opinion of the Board or Tax Court properly reflect such costs, costs are to be 'determined in accordance with such method as in the opinion of the Board or * * * Tax Court * * * properly reflect such costs.
The contention that these provisions are unconstitutional is without merit for it is apparent that the statute makes no 'arbitrary' exclusion as to any particular item of cost. On the contrary it grants to the Board and, upon redetermination, to the Tax Court, the power to make those 'pragmatic adjustments which may be called for by particular circumstances.' Cf. Federal Power Comm'n. v. Natural Gas Pipeline Co., 315 U.S. 575, 586, 62 S. Ct. 736, 743, 86 L. Ed. 1037.
In paragraph Fifth of Roxboro's answer, paragraph Second of Wilkes Barre's and West Pittston's answer and paragraph Third of Wissahickon's answer, defendants contend that the law is unconstitutional in that it separates the alleged excessive profits of defendants for the particular years involved and does not permit defendants to deduct losses which occurred in other fiscal years in relation to war contracts, and that by so doing the statute has fixed an arbitrary period for the measurement of excessive profits which has resulted in the taking of defendant's property for public use without just compensation in violation of the Fifth Amendment.
As has heretofore been noted, the Supreme Court in the Lichter case has held that the renegotiation of war contracts was not a taking of private property for public use. 334 U.S.at page 787, 68 S. Ct.at page 1317, 92 L. Ed. 1694, the court said: 'The recovery by the Government of excessive profits received or receivable upon war contracts is in the nature of the regulation of maximum prices under war contracts or the collection of excess profits taxes, rather than the requisitioning or condemnation of private property for public use.'
It is contended in paragraphs Third and Sixth of Roxboro's answer, paragraph Third of Wilkes Barre's and West Pittston's answers, and paragraph Fourth of Wissahickon's answer that the action by the War Department Price Adjustment Board in making its determination was so arbitrary and capricious as to deny defendants the due process of law required by the Fifth Amendment.
It is also contended in paragraphs Seventh of Roxboro's answer, paragraph Fourth of Wilkes Barre's and West Pittston's answers, and paragraph Fifth of Wissahickon's answer that the action of the War Contracts Price Adjustment Board, in failing to exempt defendants from the provisions of the Act under subsection (i)(4), was so arbitrary as to constitute a denial to defendants of the due process of law required by the Fifth Amendment.
It does not appear from the pleadings that defendants ever instituted proceedings in the Tax Court in accordance with Subdivision (e) of the Act, and it is settled that this court has no power to consider the validity of the renegotiation proceedings before the Board, unless such proceedings had been instituted. Lichter v. United States, 334 U.S. 742, 789-793, ...