Earl Warren: Number 45, United States of America, Petitioner, versus New York, New Haven & Hartford Railroad Company. Mr. Rosenthal.
Alan S. Rosenthal: May it please the Court. In this case, which is here on certiorari to the First Circuit, this Court is called upon to determine the effect of Section 322 of the Transportation Act of 1940 upon the traditional obligation of common carriers to establish the validity of their claims against the Government. Section 322, the terms of which are set forth at page 3 of the brief of the United States and which is before this Court last year in the Western Pacific case requires, the Government to pay transportation bills upon presentation prior to audit or settlement by the General Accounting Office. The Section goes on, however, to reserve the Government the right, should a post-audit disclose an overpayment to deduct the amount thereof from any amount subsequently found to be due to the carrier. Now, in this case, the Government paid in compliance with the statutory mandate certain bills rendered by respondent promptly upon presentation without any audit. On the post-audit, and the General Accounting Office questioned the correctness of these bills. When the respondent failed to resolve the doubts that were raised in this regard and failed to make a refund of the determined overpayment, a deduction was made as authorized by the statute in the payment of a subsequent bill rendered by respondent. This litigation was then instituted ostensibly on the subsequent bill to recover the deduction. And the question before this Court is whether the carrier had the burden of demonstrating that the charges for these shipments, this earlier -- earlier transportation services, were correct. In other words, that they had not overcharged the Government on the bills which had been paid without audit in the first instance. Now, the underlying facts are simply stated this. During 1944, the Government ships several carloads of naval property to points on respondent's lines in Massachusetts and Rhode Island. In each instance the bill of lading called for an open freight car of a particular length. In each instance, the initial carriers supplied a freight car of a longer length which was unnecessary for the particular services. And in rendering its bills, the respondent computed each charges on the basis of the minimum weights fixed for the larger car furnished rather than for the cars which had been ordered. On the post-audit, these facts came to light. Because no showing was made by respondent that the initial carrier had been unable to supply the ordered cars, which are the only circumstances concededly in which it could bill for the longer furnished cars, the General Accounting Office requested a refund between the charges for the cars ordered and the charges for the cars furnished. When respondent neither complied with this demand nor explained the failure to furnish the ordered cars, the deduction was made as authorized by Section 322 from amount subsequently found to be due the carrier. In this case, it was a bill which the carrier had rendered in connection with the 1950 transportation services. Respondent then sued to recover this amount which had been deducted. In its complaint, however, it alleged no facts at all, respecting the 1944 shipments upon which the deduction had been predicated. Instead, the complaint simply alleged the performance of the 1950 service and the rendition of its bill therefore.
Speaker: What was the time element between the original shipment which is claimed the Government has been overcharged done and the General Accounting Office audit any deduction to the subsequent bill?
Alan S. Rosenthal: Approximately six years, Your Honor.
Speaker: Six years?
Alan S. Rosenthal: The period -- that period, as Your Honor will recall, of course, this was post war and there was the audit of the bills from the -- the wartime era. We have some statistics in our brief. And I think this Court in the Western Pacific case last year refer to similar statistics with respect to the -- the large number of bills that the General Accounting Office would require to audit especially in this -- this period that followed immediately after the war. I am told now that -- advised by the General Accounting Office that the period necessary for audit has been substantially reduced. Now, the -- I have indicated the complaint alleged nothing with respect to this 1944 shipments, alleged simply the performance of the 1950 shipments. In its answer, the Government admitted the performance of the 1950 shipment and the correctness of the charges for that shipment. The answer went on, however, to plea Section 322 as a statutory defense. The words -- the answer pleaded that as authorized by the statute, the Government had adjusted the 1944 bills by deducting from the amount due on the 1950 bill. It explained the basis of the determination of overpayment. It went onto alleged that the respondent had never supplied for the Government with any facts respecting the availability of the cars which had been ordered. The respondent there filed a response in which he had been -- in which is denied that it had overcharged the Government on this 1944 shipments. And the issue was thus narrowed to the correctness of the charges for those 1944 shipments, in other words, to the merits of the administrative adjustment which the Government had made pursuant to the statute. Now, both of the courts below have held that the burden of establishing the essential facts on this issue, the facts on the merits of the Government's defense based upon the statute rested upon the United States. And we submit, if it please the Court, that this holding is an error. Now, we think that fundamental to any discussion of the burden approved question is the long established principle that a claimant against the Government has the burden of establishing the validity of its claim. Now, traditionally, the -- the protection of the public treasury, bills submitted in connection with the rendition of a contractual service for the United States have been audited prior to payment under rulings of the Comptroller General recognized by the Court of Claims as far back as the 1880s. In connection with this pre-payment examination, it is incumbent upon the claimant to produce evidence satisfactory establishing that claim. If it doesn't produce that evidence, the evidence leaves some doubt as to the validity of the claim. The claim is not paid and the claim is recourse as a suit under the Tucker Act. The Court of Claims has continually held in such a suit the claimant's burden as the same as on the administrative level. It must alleged and proved the facts establishing clear liability in the part of United States for the amount assertedly due to the claimant. Now, prior to the enactment of the Transportation Act of 1940, these procedures were concededly applicable to common carriers as well as to all other claimants. The carrier was paid only that amount which the preaudit determined it was entitled to it. It must be satisfied with the results of the preaudit. It could bring suit under the Tucker Act and in that suit, it would have the obligation of demonstrating that its bills were correct and that the Comptroller General's determination was in error. So we say that the issue here really narrows it down to this, and that is whether Section 322, by substituting a post-audit for a preaudit procedure was intended to or does in fact operate to relieve the carrier of this traditional obligation, which today is concededly applies to all other claimants against the United States. Now, in our brief, we set forth in some detail the background of the legislative history of Section 322. In sum, it is this. If the section is -- was designed to serve a single purpose of enabling common carriers to obtain prompt payment on their bills. It was inserted in the Transportation Act solely because of the insistence of industry spokesman that the delays attendant to the prepayment audit of bills was -- gave rise to economic hardship. There wasn't the slightest intimation anywhere that the Government's right to require the carrier to establish a doubtful claim would be, in any wise, affected by the conversion from the preaudit to the post-audit procedure. To the contrary, it appears that all concerned believed that the public treasury would be fully protected by the right of deduction that was expressly placed in the statute. The only inference, we submit, that the legislative history of this section permits is that the carriers were to receive the benefit of prompt payment but that the Government was to retain an impaired the right should a post-audit indicate to the Comptroller General that there was a basis for doing so, to put these carriers to their approval. Now, in this connection, we think it is of no little significance that the Association of American Railroads, itself, the industry spokesman for the railroads, in seeking executive support for this change from the preaudit to the post-audit procedure indicated that if the Government pay bills upon presentation without examination to determine whether they were correct and should they subsequently determine that there had been an overpayment, the carrier would refund the amount of the -- administratively determine over -- overpayment reserving the right, of course, to bring suit in the Court of Claims if it were dissatisfied with the Comptroller General's determination.
Speaker: Does -- does that mean, if I understand it correctly, that your view that there's a 322 deduction on bill A, along comes the railroad and three years later, choose on bill B, you say that the railroad has to allege as part of its cause of action on bill B that there are no valid offsets --
Alan S. Rosenthal: Oh, no.
Speaker: -- against those charges?
Alan S. Rosenthal: No, Your Honor, the railroad knows when the deduction is made, the railroad is appraised of the particular bill --
Speaker: Yes.
Alan S. Rosenthal: -- previous bill which was administratively determined to have contained an overpayment --
Speaker: Yes.
Alan S. Rosenthal: -- and which is, therefore, the subject of this particular deduction, to the railroad knows precisely why the deduction has been made. Now, it is our position that the railroad, when it brings suit then to recover the amount of the deduction which is made from these amounts subsequently found to be --
Speaker: No, I'm talking about to recover the amount of a new bill not the deduction.
Alan S. Rosenthal: Well, but that's what the suit, in effect, Your Honor, is to recover the -- the deduction which was made because of the administrative adjustment on the earlier bill.
Speaker: You -- yes, but it's the consequence of that when it wants to recover on a new bill as to which there is no dispute about the deduction that it also has to alleged and prove that there are no amounts owning by it to the Government or offsets with the Government had claimed in respect to prior bills.
Alan S. Rosenthal: To -- well, Your Honor, the Government, in this case, when the railroad suit on its original -- on this 1950 bill, the Government set up a statutory defense. It -- it set up the defense that on this bill, it exercises the right which it concededly has under the statute to adjust the 1944 bills through the vehicle of this 1950 bill. Now, this is the defense, we submit. It is not a counterclaim. We are defending on a basis that we had --
Speaker: But that's a conventional offset.
Alan S. Rosenthal: Well, we -- it's -- it's a particular right which is conferred upon us by -- expressly by this statute. Now, our position is that at that point, the -- what the -- the real issue here, what it narrows itself down to is whether or not in this particular instance, the Comptroller General properly or improperly exercised this right which the statute concededly confers upon him. That is the -- the issue. And I -- we submit that then the carrier to meet our defense must show that the Comptroller General improperly deducted these amounts. Now, the result below -- below, of course, relieves the -- the common carriers once and for all, for all times, of ever establishing the validity of these claims which were paid upon presentation and the legislative history does -- does not, of course, indicates that that was nothing intend of Congress. Furthermore, if Congress had intended that the carrier could come in -- ostensibly on the second bill and thereby relieved itself once and for all of any obligation to prove the correctness of the original charges, Congress would not have inserted this deduction provision at all. The Congress wanted to place upon the Government, wanted to change the whole system and place upon the Government in the future, insofar as common carriers are concerned, the obligation to disprove the correctness of railroad charges it wouldn't have provided for deduction. All that it need to do was say that the carriers to be paid promptly. And then if the Government was dissatisfied with the results of the -- the prompt payment that the Government on the audit came to the conclusion that there was no repayment, the Government then could affirmatively bring suit under Section 1345 of Title 28. And we think that not only the legislative history but indeed, the terms of statute itself set up the statutory scheme that the carrier cannot hide behind the -- the subsequent bill. And I might note in that connection that Congress did -- obviously did not intend, in any of instances, that there would be any dispute as to the bill which served as the basis for making the deduction because going back to the terms of 322 once more, the section says that the amount may be deducted from any amounts subsequently found to be due the carrier. So in none of these instances would there ever be any dispute with respect to the bill that -- that served as the basis for the deduction. And we submit that the carrier cannot, consistently with the statutory scheme, command and allege this or ostensibly bring suit upon this -- this later bill and then sit back and say it is up to the Government to disprove that -- to prove that our earlier bills were incorrect. And we say in the first instance, true enough they can do it as they did here, but we have the right to plea, not as counterclaim but as a statutory defense, that what we did is authorized by the statute. It is a necessary result of the change from the preaudit to the post-audit procedure.And as you will --
Speaker: Judge Magruder points out you'd had that right to deduct the part of statute as a right to common law.
Alan S. Rosenthal: That -- that is quite true but the -- that the Congress felt it necessary here to reiterate it expressly where that common law right, of course, is -- at all times existed, we think, emphasizes the congressional view that this was going -- was to be in the nature of a conditional payment that the railroads were to get all of the money on their bills promptly. And in most instances, of course, there's no challenge. And the --
Felix Frankfurter: Before Justice Harlan interrupted you, if I'm -- I understood you indicated that 322 does something affirmative rather make the reservation of a preexisting common law right.
Alan S. Rosenthal: No, 322, we -- we submit, does this. It reflects the congressional intent that while the carriers are to be paid promptly in presentation should be subsequently that the Comptroller General, on the post-audit, determine that there has been an overpayment, that the Government then can put itself into the position -- the status quo ante and put itself into the position that would have occupied as to those bills as to which there are some questions.
Felix Frankfurter: What you are thinking that -- that after first 322, is the same permission (Inaudible) prior to the 322.
Alan S. Rosenthal: That's right.
Felix Frankfurter: Is that what you're saying?
Alan S. Rosenthal: It is -- it is permitted to place itself into the same position as to those bills as to which there are some question. Of course, that's a relatively small percentage of the bills that it would have been under the old procedure had it been able to audit the bills in advance. And that is the protection. It's a very sensible protection because the -- the major complaint of the carriers under the preexisting procedure was after all they render millions of bills and most of those bills are -- are clearly correct, that they weren't getting paid for years even on the bills as to which there would be no dispute because of this preaudit. Under this procedure, they collect an old bill. As to most of them, there will be no dispute. As to those bills which there is a dispute, then they have to restore the Government to the -- restore the status quo prior to payment and reserving, of course, this right. And that's what these carriers were seeking as the -- as the Association of American Railroads' position indicates.
Charles E. Whittaker: (Inaudible)
Alan S. Rosenthal: That's right.
Charles E. Whittaker: (Inaudible)
Alan S. Rosenthal: That's correct.
Charles E. Whittaker: (Inaudible)
Alan S. Rosenthal: That's correct.
Charles E. Whittaker: (Inaudible)
Alan S. Rosenthal: We -- we submit, Your Honor, that we did not. That -- that what we -- the Comptroller General has authorized and this Court recognized last year in the Western Pacific case to make a unilateral setoff and a unilateral basis. We defended on the ground that we have done exactly what the statute authorizes to do. Now, as -- as far back as the Grand Trunk Western case, this Court indicated that before making deductions, and this was even absent the -- the special considerations which are present because of 322, that making a deduction that the fiscal officers of the Government do not need to first go into court to establish that their deduction is correct. They are entitled to do it unilaterally. Now, the Government did that unilaterally here. It had the perfect right to do it. Now, that represents this issue then. And what the -- what the respondent's recovery is conditioned upon is that in this particular instance, the Comptroller General did not properly exercise that right. Now, we would again like to -- to stress that their -- both the -- the reservation of the provision for deduction and we think also the legislative history itself indicates that the Congress did not intend to transfer as to this very limited special class of all the claimants against the Government to transfer the burden unto the Government to disprove their claims.
Felix Frankfurter: May I ask if one of the (Inaudible)
Alan S. Rosenthal: But they have their money and that's the --
Felix Frankfurter: I know but that they have their money and don't know whether they have the right --
Alan S. Rosenthal: Well, as to --
Felix Frankfurter: -- to pocket it or keep it, they have to do something about it.
Alan S. Rosenthal: As -- all right. But that's --
Felix Frankfurter: Is that right?(Voice Overlap) --
Alan S. Rosenthal: That -- that's --
Felix Frankfurter: -- of fact.(Voice Overlap) --
Alan S. Rosenthal: That's true.
Felix Frankfurter: -- before you argue consequently. Is that true that if you -- if the Government is right, and I'm not saying it isn't. I thought that was (Inaudible) that -- that there is a contingency. Where it gets the money, it must make appropriate provision, bookkeeping or whatnot, to keep that amount of money in reserve because non constat, there has -- it has to prove that it properly sent that bill.
Alan S. Rosenthal: That's right.
Felix Frankfurter: (Voice Overlap) --
Alan S. Rosenthal: But that -- that is -- that's a fact. But in overall -- but, we submit first of all, of course, that there is, as they would know from experience, a relatively small percentage of bills which --
Felix Frankfurter: You don't (Voice Overlap) --
Alan S. Rosenthal: -- aren't challenged. And on overall basis, this does not require the railroads to keep large sums of money in reserve. But the fact is that this is a consequence which stems from this special privilege which has been extended to this one class of claimants as against all other classes.
Felix Frankfurter: I thought I've asked (Inaudible) I thought that we were asked to review this because it's the case that was --
Alan S. Rosenthal: Well, there are -- that -- that is correct. This is a test case of -- there are 40 some odd other cases similarly involved --
Felix Frankfurter: (Inaudible) we're talking about or is it?
Alan S. Rosenthal: No, this is -- this is, indeed, a -- a test case. Now, the -- the effect --
Felix Frankfurter: (Inaudible)
Alan S. Rosenthal: The effect of the court -- of the holding below is to place the -- the Government now in the position of having to undertake the investigation of all carrier claims which are presented against it that the burden is now shifted to the Government affirmatively to disprove all of the representations which the carriers make in connection with their own bills.
Felix Frankfurter: But if you say this is only a relative small fact, that's not a great burden on you --
Alan S. Rosenthal: Well --
Felix Frankfurter: -- there isn't anymore out there.
Alan S. Rosenthal: We -- we submit that is --
Felix Frankfurter: (Voice Overlap) --
Alan S. Rosenthal: -- in terms of anyone railroad, it is not a large burden. In the statistics which were set forth in a footnote in our brief, footnote 19 on page 25, indicate that in one particular year which was selected, there were over 600,000 vouchers audited and which resulted in 25,000 -- with almost 26,000 notices of overpayment. Now, in terms of any individual carrier, and there are large numbers in the United States, that is not too significant. In terms of place in the -- the obligation on the Government, and every one of those vouchers carries -- not paid them for presentation, every one of those vouchers, the Government now under the holdings below would be obligated to go out and affirmatively disprove.
Felix Frankfurter: Well, what it practically (Inaudible) practically about these things, what it --
Alan S. Rosenthal: That --
Felix Frankfurter: (Inaudible) every voucher would have to be independent in a large (Inaudible) it has to be at work?
Alan S. Rosenthal: Well, there's -- there's no -- there's no question that it would be an increase burden. The extent to which it would be increased would depend impart upon how many of the particular disputes resolved were -- were involved rather questions of fact and also, I suppose, upon the degree to which the railroads will cooperate. But the fact is that --
Felix Frankfurter: (Voice Overlap) I conceive that the force -- the magnitude of this problem on either side. That's what I'm (Inaudible)
William J. Brennan, Jr.: Well, Mr. Rosenthal, I gather in essence that your argument comes down to this, that before 322, whenever an issue of overcharge arose, the burden was upon the railroads to sustain its complaint.
Alan S. Rosenthal: That's correct.
William J. Brennan, Jr.: And that all the 322 did, adapted for the convenience of the carriers so that they'd get their money little earlier than otherwise they did, made no change in the instance where issues of overcharge, the road --
Alan S. Rosenthal: That's --
William J. Brennan, Jr.: -- it still had the burden upon the carrier to establish the claims.
Alan S. Rosenthal: That is -- that is --
William J. Brennan, Jr.: Is that it?
Alan S. Rosenthal: -- precisely, Mr. Justice Brennan, our position. That -- and we think that again that the legislative history in background of the statute, the terms of the statute itself --
William J. Brennan, Jr.: Well, as a practical matter, when issues of overcharge arise, I suppose most of them are resolved by negotiation between the carrier and the Government.
Alan S. Rosenthal: That's correct.
William J. Brennan, Jr.: And these things arise only when the issue persists and hasn't been resolved between the party?
Alan S. Rosenthal: That -- that would be solved. Of course, in this case --
William J. Brennan, Jr.: And will that run anything like 25,000 years?
Alan S. Rosenthal: Well, there was -- there's no breakdown on -- as to how what percentage of these overpayments involved questions of fact. Now, there are a number of cases presently pending, what percentage their represent, I do not know, which involved this question of the availability of cars. As to -- as to those cases, of course, this question is -- is foremost. If the Court pleases, I --
William O. Douglas: Let me ask one question. I understand (Inaudible)
Alan S. Rosenthal: That's right.
William O. Douglas: (Inaudible) but it doesn't give the Government -- the Government (Inaudible)
Alan S. Rosenthal: Absolutely not, that as this statute has been consistently interpreted by the General Accounting Office, it imposes a mandatory duty upon the fiscal offices of the Government to pay those bills as long as, upon presentation, as long as on the face. There's -- there's no objection to them.
Earl Warren: Mr. Sweeney.
Edmund M. Sweeney: Mr. Chief Justice, Justices, may it please the Court. When this case started off, it was on a very elemental claim. We thought that we were suing on a simple contract to collect transportation charges for services that we rendered in 1950. At the outset, the Government filed what -- what really purported to be a general denial of the charges in 1950. Subsequently, however, they filed a substitute answer. And then, in that answer, they said, "All right. We admit. You did perform those charges -- those services. Those charges were proper. And you are due those charges. However, we have paid you, they said. "We paid you a check of $117 and some odd, and then we have taken out over $1000 which is our right under 322, Section 322 of the Transportation Act because six years prior in 1944, you furnished cars that were longer than the size of cars ordered." And we say -- we have determined that there were cars available of the right size. So therefore, we claimed a credit for the difference. Now, that point, of course, the elemental part of the case began to back down because as the right way, the Government then said to the District Court, "The railroad cannot, in anyway, claim relief here because they have not alleged the facts which would show that our claim as to the 1944 situation was true." And the railroad rebelled. That railroad said, "We do not have to allege in any suit for a 1950 charge that we did not -- we're not overpaid in 1944." The thing hinged -- the -- the case hinged on that point and the Government refused to go forward any proof and so the claim is filed for summary judgment, would grant a summary judgment on the basis that there was no factual issue outstanding as to the 1950 charges. And that as to the allegations in regard to 1944, they were a -- an affirmative defense. They were a set off by way of counterclaim and that the Government had the burden of proof, so held the District Court and so held the First Circuit on appeal. Now, the Government's position is based solely upon the fact that all of these new rights in judicial procedure come to the Government by virtue of the provisions of 322, Section 322 of the Transportation Act. And we say, and our position here today is, that it is neither just nor reasonable nor, in any way, necessary to attribute those particular properties through Section 322 and that those provisions are not nor can they be read into Section 322.
William J. Brennan, Jr.: Well, Mr. Sweeney, how -- how -- assuming you're right, how does the Government get its money back if it was overcharged?
Edmund M. Sweeney: If the Government was overcharged and it can proved in it set off that we have the cars available in 1944, then they -- their setoff would be allowed against our charges of 1950.
William J. Brennan, Jr.: Do they'd have to go out and affirmatively prove then the --
Edmund M. Sweeney: Yes.
William J. Brennan, Jr.: -- fact that --
Edmund M. Sweeney: Yes.
William J. Brennan, Jr.: -- upon which they based the allegation of both.
Edmund M. Sweeney: Yes, Your Honor. Now --
William J. Brennan, Jr.: But you didn't -- which was not the case before 322.
Edmund M. Sweeney: It was not the case, Your Honor, because it would never arise. You see --
William J. Brennan, Jr.: No, but before 322, as I understand it, the practice was if you submitted a bill that was pre-audited and the Government said, "You've overcharged this by $1100," then it'd be the railroad's burden to establish in court that in fact, there was no overcharge.
Edmund M. Sweeney: That is correct. There are two points I'd like to bring out here though. First of all, it was an unfair advantage to be given to the Government as a shipper because once the Government was in commerce, they should be just like any other shipper. And the -- and the rule provided that the other shipper had to pay us upon delivery. Actually, I honestly believe that a railroad, at any time, could just stop serving the Government until they were paid like any other shipper, but, of course, naturally, they wouldn't. Now, the second point I would like to make on that is this. That the Government has placed great reliance upon what now has become to be a tenant of this, tenant of this, and that is this. That it is traditional that everybody that has a claim against the Government must prove it. Well, now, we believe that, and we could have sued on the deduction itself. And if we had sued on the deduction, we would have to prove whether or not we have the cars available. But I say that 322, in no way, permits me or prohibits me from choosing the forum in which I wish to go in. And I also say that it does not, in any way change, the judicial rules which allows the plaintiff to frame the issue. Now, the Government is trying to claim here that 322 changes all the -- the fundamentals of practice and procedure in that whenever the Government appears as a counter claimant against the railroad that all rules are on, new rules are on that the railroad then has to disprove the Government's case. And we respectfully submit that that certainly would not be.