Opinion ID: 305491
Heading Depth: 1
Heading Rank: 1

Heading: The Renegotiation Act

Text: 4 Before evaluating the competing contentions of the parties in any detail, it is first necessary to understand the general contours of the Renegotiation Act and the procedural context in which each of these suits arises. The Renegotiation Act vests broad powers in the Renegotiation Board to eliminate excessive profits 3 secured by contractors and subcontractors engaged in the national defense program. See 50 U.S.C.App. Sec. 1211. The Board exercises these powers by requiring every contractor or subcontractor subject to the Act to file a Standard Form of Contractor's Report containing detailed financial information. See 50 U.S.C.A.App. Sec. 1215(e)(1) (1972 pocket part); 32 C.F.R. Sec. 1470.3(a) (1972). On the basis of this information, the Board makes an initial determination as to whether the particular contract should be subject to renegotiation. If the Board decides to proceed, the case is referred to one of the Regional Renegotiation Boards which examines the Standard Form of Contractor's Report and gathers any additional information needed. Personnel employed by the Regional Board then prepare a Report of Renegotiation which includes a recommendation with respect to the amount, if any, of excessive profits for the fiscal year under review. 32 C.F.R. Sec. 1472.3(d) (1972). 5 Upon receipt of the Report of Renegotiation the Regional Board examines the data de novo and makes its own tentative determination as to the amount of excess profits. 32 C.F.R. Sec. 1472.3(e). A conference is then held between the contractor and the regional personnel assigned to the case, at which the contractor is informed of the tentative determination and given an opportunity to present additional data and arguments. At the conclusion of the conference the contractor may either agree to the tentative determination or proceed to the next step. If he elects to contest the tentative determination, a second conference is arranged with a panel of the Regional Board. The panel hears any additional arguments the contractor may wish to make, and then submits its recommendation for a final disposition to the Regional Board-a recommendation which may be for a greater or lesser liability than that contained in the tentative determination. See 32 C.F.R. Sec. 1472.3(f), (h) & (i). Thereupon the Regional Board makes a final recommendation which, again, may be greater than, equal to, or less than the tentative determination. 32 C.F.R. Sec. 1472.3(i). 6 If the contractor is still dissatisfied, he then has recourse to the Renegotiation Board itself. Upon taking such an appeal, the contractor has his case assigned to a division of the Board which is not bound or limited in any manner by any evaluation, recommendation or determination of the Regional Board. 32 C.F.R. Sec. 1472.4(b). The division studies the case de novo still another time and makes a recommendation to the Renegotiation Board. The Board then makes a final determination which, characteristically, may be in an amount greater than, equal to, or less than the prior determinations. 32 C.F.R. Sec. 1472.4(d). 7 The term final determination is something of a misnomer, however, since even at this stage the renegotiation process continues. The Board proceeds to negotiate with the contractor in an effort to secure his voluntary agreement. Only if this effort fails does the Board enter a final order determining the amount of excess profits. 32 C.F.R. Sec. 1472.4(d). This order brings the administrative process to a conclusion, but it still does not exhaust the contractor's remedies. An appeal of right lies to the United States Court of Claims which is explicitly directed to ignore all that has occurred before and to redetermine de novo the amount, if any, of excess profits. See 50 U.S.C.A.App. Sec. 1218 (1972 pocket part). The Court of Claims decision is reviewable in the Supreme Court by writ of certiorari. 50 U.S.C.A.App. Sec. 1218a (1972 pocket part). 8 At first blush this labyrinthine system of conferences, recommendations and seemingly endless de novo reviews may appear exceedingly wasteful. Upon closer examination, however, it becomes apparent that the Board's bureaucratic structure is carefully attuned to its statutory purpose. The Act's legislative history, as well as the Board's very name, make clear that Congress preferred negotiation to confrontation. Indeed, the Act itself requires the Board to endeavor to make an agreement with the contractor or subcontractor with respect to the elimination of excessive profits. 50 U.S.C.A.App. Sec. 1215(a) (1972 pocket part). The Board's elaborate system of review is what provides the incentive for the contractor to reach such an agreement. To be sure, the adamant contractor is free to stand on his legal rights and pursue the statutory route all the way to the Court of Claims and beyond. But such a course entails considerable risk, since the de novo nature of each review means that the contractor's liability may well be increased if he pursues his remedies to the next rung of the bureaucratic ladder. Moreover, this risk bulks still larger when one considers the extremely vague standards which the Board uses to measure excessive profits. See note 3 supra. Given the dangers and uncertainty inherent in pursuing administrative appeals to their conclusion, it is hardly surprising that most contractors reach quasi-voluntary agreements at the lower and middle levels of the bureaucracy. 4 9 These observations lead, in turn, to a paradox which has important implications for our decision in these cases. Although the recommendations made by the lower bureaucratic levels are in no sense final or formally coercive, they are nonetheless exceedingly important to the contractor. Indeed, their importance derives from their non-finality, since it is the possibility that they will be reversed and increased which provides the incentive to accept them without resort to theoretically available de novo appeals. 10 Thus appellees in these cases freely concede that they are still at the beginning of the administrative process and that, if the preliminary injunction were lifted, the initial unfavorable determination might well be reversed. In No. 24,778 the Eastern Regional Board has made a tentative determination that Astro Communications Laboratory owed the Government $225,000 for the year under review. Astro had held a conference with the Eastern Regional Board personnel assigned to the case and a meeting with a panel of the Regional Board had been scheduled when the District Court's injunction brought the process to a halt. In No. 24,685 the Eastern Regional Board had already made a final determination that Bannercraft Clothing Company owed $1,400,000 for excessive profits in 1967 before the District Court intervened. Bannercraft appealed this decision to the Renegotiation Board which, after meeting with the contractor, announced its determination that the company owed $175,000 for 1966 and $1,450,000 for 1967. Bannercraft then obtained an injunction aborting the final stages of negotiation required before the Board can issue a binding order. Finally, in No. 71-1025 the David B. Lilly Company has been informed by personnel of the Eastern Regional Board that they would recommend to the Regional Board an assessment against the company of $7,000,000 for excess profits realized in fiscal 1967. The District Court granted a preliminary injunction before Lilly had decided whether to exercise its right to a conference with a panel of the Regional Board. 11 Clearly, then, in all three cases the administrative remedies are not yet exhausted. Even in No. 24,685, which is farthest advanced, Bannercraft still has a final opportunity to negotiate a lower settlement with the Board, followed by a complete de novo reexamination of the case in the Court of Claims and possible review in the Supreme Court. But although appellees concede that their liability may be reduced or eliminated, rather than increased, at a later stage of the administrative process, they nonetheless insist that they need documents in the Board's possession to decide whether to risk further review. These documents, appellees contend, would reveal the strength of the Board's case against them and the facts on which the Board relies in assessing liability. Without them, meaningful negotiation as envisioned by the statute becomes difficult or impossible. 12 From this perspective, the availability of later administrative relief is largely irrelevant. Appellees claim that they need the documents now so they can take part in the vital negotiating process presently under way. Future de novo review, they say, cannot compensate for present ignorance, especially when that ignorance could have an important bearing on intermediary decisions which as a practical matter may end the dispute. 13 Of course, the mere fact that appellees need present access to the documents does not mean that District Courts are entitled to enjoin ongoing proceedings until their status is decided. Even a forceful demonstration of pending irreparable injury will not support an injunction if the trial court has no jurisdiction to issue it or if the exhaustion doctrine makes its issuance premature. The existence of present need for judicial intervention does have a bearing on both jurisdiction and exhaustion, however, and appellees' demonstration of such a need must be kept in mind when these issues, to which we now turn, are examined.