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UNITED STATES v. EIN CHEM. CORP.

April 17, 1958

UNITED STATES of America, Plaintiff,
v.
EIN CHEMICAL CORPORATION, Max Ein Minerals Corporation and Max M. Ein, Defendants



The opinion of the court was delivered by: BRYAN

The plaintiff United States moves on various grounds, pursuant to Rule 12(b) and (f), Fed.Rules Civ.Proc., 28 U.S.C.A., to strike from the answer of the corporate defendants a separate defense, two counterclaims and a set-off and counterclaim.

The action arises out of alleged overpayments made to defendants by the Economic Cooperation Administration in 1950-1951 for sulphur supplied by defendants to France under the Foreign Aid Acts by way of economic assistance, 22 U.S.C.A. § 1501 et seq.

 According to the allegations of the amended complaint the payments made by the Economic Cooperation Administration to the defendants for the sulphur supplied to France were made directly by that agency in dollars because defendants would not supply sulphur against payment in local currencies. Under the regulations of that agency defendants were required to submit signed statements certifying that the prices and other terms of the shipments were in compliance with the statutes and with the agency regulations. Regulation No. 1 of the Economic Cooperation Administration, amended May 3, 1949, 14 F.R. 2166, § 201.19(d) and § 201.22(d)(3), promulgated pursuant to 22 U.S.C.A. § 1503(f) (Repealed August 26, 1954, 68 Stat. 861), required that payment to an exporter should not exceed any one of the following ceilings: (a) The exporter's contract price to his customer; (b) contract price to his customer; (b) the United States at the time; (c) The domestic price prevailing in the United States at the time, plus the normal export mark-up, and (d) The price charged by the exporter to other customers in comparable sales.

 The complaint alleges that the statements certified by defendants on their applications for payment falsely stated that the prices and terms complied with the statute and regulations, whereas, in fact, the prices charged were in excess of those permitted, that such overcharges as disclosed by post-audit amounted to $ 182,476.50 over the prescribed ceilings, and that defendant, after demand, paid only $ 26,000 on account of this sum, leaving a balance of $ 156,476.50 due.

 There are two causes of action. The first contains three 'counts' which proceed respectively upon the theories that (a) defendants by obtaining overpayments for the sulphur from the Government by means of these false certificates thereby became obligated pursuant to the statute, regulations and the terms of the certificates to repay such overpayments to the Government, (b) that the overpayments were a breach of the agreement between the parties governing these transactions, and (c) that the overpayments were made by mistake, induced by defendants' misrepresentations. The Government seeks to recover on this cause of action the balance of such overpayments in the sum of $ 156,476.50 alleged to be due.

 The second cause of action is brought under the False Claims Act, 31 U.S.C.A. §§ 231-233. It alleges that the overpayments were induced by false, fraudulent or fictitious claims or certificates made by defendants to the Economic Cooperation Administration. It seeks penalties of $ 2,000 for each false claim and certificate submitted and double the amount of damages sustained by the Government therefrom in the total sum of $ 386,935.

 The answer of the corporate defendants, after denying any wrongdoing or that they received any overpayments, sets up four defenses, two counterclaims, and one set-off and counterclaim on behalf of defendant Ein Chemical only, and, in addition, one complete and one partial defense based on the statute of limitations. The present motion is directed only against the first and second counterclaims, the fourth defense and the set-off and counterclaim. Since the first counterclaim bases the relief it seeks upon the allegations of the first three defenses, it will be dealt with first.

 The First Counterclaim

 The first counterclaim seeks

 'a judgment declaring the rights of the parties; more specifically declaring and adjudging that the Act of Congress and the regulation of the Administrator set forth in the complaint were and are as to the defendants in this action invalid and unconstitutional.'

 This prayer for relief is based entirely upon the allegations of the first, second and third defenses which are incorporated in the counterclaim by reference.

 The first defense alleges that the corporate defendants are middlemen and that Regulation No. 1 of the Economic Cooperation Administration, relied on in the complaint, as applied to them necessarily excluded them and other small businesses in similar position from participating in the Foreign Aid Program. It is asserted that the Regulation is invalid and void because it violates the policy of Congress as laid down in § 1510(i)(1) of Title 22 U.S.C.A. by which the administrator was directed to assist small business to participate equitably in the furnishing of commodities and services provided under the program.

 The second defense alleges that the statute and regulations relied on in the complaint compel defendants to sell sulphur to foreign importers at cost to them and thus precludes them from acting as middlemen in such sales, whereas it permits producers and suppliers of sulphur to make such sales at a profit. It is asserted that defendants as one class of citizens are thus penalized for doing what other citizens are permitted to do and that defendants are thereby deprived of their privileges and immuities as citizens in violation of Article IV, Section 2 of the Constitution.

 The third defense alleges that 1, on the same facts, the statute and regulations relied on in the complaint deprive defendants of their property without due process of law and take their property for public use without just compensation in violation of the Fifth Amendment to the Constitution.

 Thus, the first counterclaim proceeds upon the theory (a) that Regulation 1 of the administrator is invalid as in violation of the statute, and (b) that the statute is void as in violation of the Constitution and seeks a declaratory judgment to this effect.

 The Government asserts that the court has no jurisdiction over the subject matter of the counterclaim and that it must be dismissed for want of jurisdiction. It also urges that the counterclaim should be stricken for redundancy since it merely repeats matters of defense already fully and adequately raised by the first three defenses.

 It is fundamental that the United States cannot be sued without its consent. Panella v. United States, 2 Cir., 216 F.2d 622; Munro v. United States, 303 U.S. 36, 58 S. Ct. 421, 82 L. Ed. 633. This is equally true whether the claim is asserted in the form of an original action or as a counterclaim. United States v. Shaw, 309 U.S. 495, 60 S. Ct. 659, 84 L. Ed. 888; United States v. U.S. Fidelity & Guaranty Co., 309 U.S. 506, 60 S. Ct. 653, 84 L. Ed. 894; Nassau Smelting & Refining Works v. United States, 266 U.S. 101, 45 S. Ct. 25, 69 L. Ed. 190; Illinois Central R. Co. v. Public Utilities Commission, 245 U.S. 493, 38 S. Ct. 170, 62 L. Ed. 425; United States v. Patterson, 5 Cir., 206 F.2d 345, 348; United States v. Davidson, 5 Cir., 139 F.2d 908; United States v. Merchants Transfer & Storage Co., 9 Cir., 144 F.2d 324. Thus, the test is whether defendants could have maintained an original action for a declaratory judgment upon the allegations of first counterclaim. In re Greenstreet, Inc., 7 Cir., 209 F.2d 660; United States v. Patterson, supra.

 The Declaratory Judgments Act, 28 U.S.C. §§ 2201-2202, under which suits for declaratory judgments in the Federal Courts must be brought, is essentially a procedural statute. Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240, 57 S. Ct. 461, 81 L. Ed. 617, 108 A.L.R. 1000. It does not create new substantive rights but merely grants an additional remedy where jurisdiction already exists. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S. Ct. 876, 94 L. Ed. 1194.

 Neither by the Declaratory Judgments Act nor otherwise has the United States given its consent to be sued in an action of the character of this counterclaim. Stout v. United States, 2 Cir., 229 F.2d 918; Di Benedetto v. Morgenthau, 80 U.S.App.D.C. 34, 148 F.2d 223, petition for certiorari dismissed 326 U.S. 686, 66 S. Ct. 25, 90 L. Ed. 402; Love v. United States, 8 Cir., 108 F.2d 43, certiorari denied 309 U.S. 673, 60 S. Ct. 716, 84 L. Ed. 1018; Gibson v. United States, 6 Cir., 161 F.2d 973.

 Questions of the invalidity of regulations or the unconstitutionality of statutes may be raised against the Government by way of defense, as has been done here in the first three defenses. They may also be raised by an action against the officers of the Government who seek to enforce as against the ...


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