Court Opinion

ID: 9419584
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:50:19.957207+00
Date Added: 2024-06-11T17:22:19.188490
License: Public Domain

Mr. Justice Black,
dissenting.
The Constitution provides that the government shall not take private property for a public purpose without payment of just compensation. The problem here is whether the arrangements now before us give rise to en-forcible agreements or whether the rights of the parties are to be governed by the constitutional requirement for “just compensation” for the land needed by the government. More specifically, the question is whether in the situation revealed by this record the law demands that certain property holders shall receive in payment for their properties amounts which, even in the absence of a finding of fraud, may well be far in excess of what is “just compensation,” thereby imposing an unjust burden on the public. The Court says “Yes”; I say “No.”
The agreements were executed under the following circumstances. A War Department representative agreed that one McDowell should undertake to secure options to buy 18,000 acres of land at Weldon Springs, Missouri, *70where the government was about to build a war munitions plant. Under the original agreement, McDowell was to receive from the government a commission of 5'% of the gross sale price of each parcel of land. Later, McDowell, presumably with the acquiescence of the contracting officer, adopted a plan under which the landowners executed options for a price which included the 5% commission. Thus, the less the cost of the lands the less McDowell would make; the greater the cost, the greater his commission.
The ensuing results were, if not inevitable, at least not surprising. With phenomenal speed McDowell obtained 270 separate options and promptly recommended their purchase to the Department at the stipulated prices. On what appears to have been no more than an inescapably formal examination of these recommendations,1 129 options were accepted and contracts of purchase were executed at an expense of approximately a million dollars to the government. After an investigation of the whole affair by the Department of Justice the remaining 149 contracts were repudiated by the government, condemnation pro*71ceedings were filed, and immediate possession of the land was awarded the government. See 46 Stat. 1421. In the condemnation proceedings the government sought, as to the uncompleted McDowell transactions, to pay no more than just compensation for the properties.
This Court now holds that the government is irrevocably bound by the contracting officer’s “acceptance” of the McDowell options. And while the immediate judgment directly affects only the two pieces of property here involved, the principles announced uphold the validity of all the McDowell-procured agreements, even though the agreed cost stipulated in those agreements might in condemnation proceedings be judicially determined to exceed just compensation. The District Court in these two cases did not determine what would be just compensation. It found no more than that the option agreed price of these particular lands was not “unreasonably excessive.” The District Court did not find that the agreed prices represent a fair market value; the opinion of the Circuit Court of Appeals makes it clear beyond doubt that it was impossible to make such a finding. The record shows that the government will now be required to pay the petitioners in No. 31 a value, as of 1940, of $4,500.00, or $165.00 per acre, for land which petitioners bought in 1939 for $1,000.00, or $33.33 per acre. The other petitioners are to be the beneficiaries of a similar “contract” bounty. For lands and improvements which cost them $2,250.00 in 1934, or about $24.00 per acre, the government must pay $12,000.00, or $127.00 per acre.2
*72The details of the negotiations between McDowell and the landowners are set out in the opinion of the Circuit Court of Appeals and need not be repeated at length here. Reference is there made to successive recommendations by McDowell on the same parcel of land for purchase at $4,500.00, $10,000.00 and $4,900.00. In another instance a landowner refused the request of one of McDowell’s representatives to up the price of his property $50.00 per acre. Still other illustrative items included in agreed prices, such as those which the Court today holds invulnerable, are “one year’s loss in salary of each partner” and $6,500.00 for “loss of business.”
Nothing but the clearest and most unequivocal Congressional enactment could in my judgment bind the government to such arrangements. There is no such enactment. And even if Congress had not itself condemned such contracts as these, conceivably, they are within the ban of principles previously enunciated by this Court.3 For the terms of McDowell’s contract, which was an integral part of the purchasing, system here involved, were such that the harder he worked to reduce the price of the land he bought, the less he made. He could not possibly serve most profitably his own interest and that of the government at the same time. Only by acting to the financial disadvantage of the government could he act for the financial advantage of himself.
It was to protect the public from the dangerous tendency of the excesses of just such contracts that Congress *73has repeatedly prohibited4 the War Department from using “the cost-plus-a-percentage-of-cost system of contracting.” Congress had in 1936 received a report from a special Senate Committee investigating the munitions industry pointing out the evils of that contracting system. That report said: “It is generally admitted that exorbitant profits were made under cost plus a percentage of cost contracts in the World War. . . . The profiteering under cost plus a percentage of cost contracts in the last war was so flagrant that Congress has expressly disapproved of their use for Government procurement.” 5
The same Senator who made this report, initiated a Senate discussion which led to the immediate adoption of the prohibition of “cost-plus-a-percentage-of-cost” contracting in the Act here involved. He excoriated the cost-plus-a-percentage system as a “vicious” one.6 It was this *74“system of contracting” which Congress forbade, a system which from its very nature keeps constantly dangling before the eyes of the government’s contractual agent hope of a progressively increasing reward for himself for every added dollar of cost he can get the government to pay. This system of contracting was not deemed “vicious” for lack of “certainty” as to costs, but because of the “certainty” of its inexorable tendency to elevate those costs to heights which would impose unfair burdens on the public treasury.
That this was the moving purpose in prohibiting such a contract system is further shown by the fact that Congress at the same time permitted a “cost-plus-a-fixed-fee form of contract.” Certainly Congress could not thereby have intended to reduce the scope of its sweeping condemnation of “cost-plus-a-percentage-of-cost system.” On the contrary, permission to use the fixed fee contract but underlines the Congressional intent absolutely to prohibit any War Department agent from using a system of contracting which would impose upon the government inflated costs by providing an incentive to pad costs or to take too rosy a view of value. Whatever other disadvantages the cost-plus-a-fixed-fee system may have, no *75incentive to raise the cost arises from the fixed fee. But when a percentage fee or compensation is provided for, which diminishes or increases in proportion to costs, there is ample motive or at least tendency to increase such costs.7
That incentive looms large in the contracts here involved.8 It matters not into what form the arrangement is cast. It is conceded that had this contract required McDowell himself to buy and take title to the lands, the arrangement with him would have been within the Congressional prohibition as a “cost-plus-a-percentage-of-cost” contract. But the fact that he did not take title himself did not lessen the tendency of the contractual arrangement to invite him to increase his reward by inducing the government to pay a high price for the land. The difference created by this slight deviation in the structure of the arrangements did not alter their effect. The “vicious” tendency at which Congress hit was still present. The government was still obligated to pay the *76landowner’s price — the land’s cost plus a percentage to McDowell of that cost. Furthermore, the effect, if any, of McDowell’s not taking title himself, was to aggravate the government’s peril, for McDowell did not take any risks of purchase. To hold that these arrangements are legal is to .leave unchecked a system of government purchasing which Congress has declared to be incompatible with the public interest.
It is said that statutes providing for the renegotiation of war contracts indicate that in “certain instances the government seeks to recover abnormally high contract profits.” These efforts of Congress to safeguard the public interest against unjust exactions provide no excuse for the narrow construction the Court today gives the “cost-plus-a-percentage-of-cost” prohibition. They but emphasize the intention of Congress to devise many safeguards against unfair procurement prices which might unjustly enrich some few people at the expense of the many. I should think that if these statutes could be given any effect, under the circumstances of these cases, they would but provide an added reason why the government should not be required to pay these landowners more than “just compensation.” Certainly, in the light of the legislative policy articulated in the renegotiation statutes, I can see no reason why this Court should work overtime to shrink the scope of the cost-plus-a-percentage-of-cost statutory prohibition.
The Court’s judgment in effect upholds McDowell’s percentage agreement with the government and the option agreements with the landowners made pursuant thereto. It requires full payment not only of the stipulated land prices but of McDowell’s commissions as well. This is so because the $4,500.00 and $12,000.00 included the cost of the land plus the percentage of that cost which was McDowell’s commission. Thus, affirmance of the District Court judgments necessarily must imply that *77McDowell’s commission agreements with the government are valid.
The landowners’ rights are indissolubly intertwined with McDowell’s.9 Both must stand or fall together on the validity of McDowell’s and the landowners’ arrangements with the government. And under those arrangements the government was to pay cost of the lands for which McDowell negotiated plus five percent of that cost. This was a “cost-plus-a-percentage of cost system- of contracting.” Such an integrated scheme of illegal arrangements should not bé permitted to support these judgments. The government should be required to pay no more than just compensation for the lands it has condemned.10
*78; Einally, I cannot agree to the Court’s statement that this case comes to us “without any suggestion of fraud or unfairness such as would justify holding the contract invalid.” The Court’s opinion states that those who deal with the government must do so “with absolute honesty,” and that “the doctrines of fraud, unconscionable dealing and unjust enrichment are to be strictly applied to insure fair and honest dealing between the government and its citizens.” In my judgment, we are squarely confronted with the issues of fraud, unconscionable dealing, and unjust enrichment. I think we should remand the case to the Circuit Court so that it can pass upon those questions.
We are not faced here with a situation in which findings, upon “ample evidence,” have been clearly made by a master and unequivocally and jointly affirmed by both a District Court and Circuit Court of Appeals — as in United States v. Bethlehem Steel Co., 315 U. S. 289, 297-9.11 The District Court and the Circuit Court of Appeals did not, *79in the instant case, both concurrently find an absence of fraud, unconscionableness and unjust enrichment.
The District Court did state in its opinion that there was “no fraud,” and that the option prices were “not unconscionable.” This finding of the absence of fraud was, however, unsupported by the primary findings of fact made by it, and that court’s conclusion rested upon legal assumptions which I think contrary to many decisions of this Court. The same is true of the finding of unconscionability. As to “unjust enrichment,” the District Court made no finding at all, and I believe that its primary findings of fact are inconsistent with any holding that these landholders would not be “unjustly enriched” if the government is forced to pay the option prices.
The Circuit Court of Appeals found it unnecessary to pass upon either of these questions. It refused to indulge in what it termed a “judicial paring” of the cost-plus-a-percentage-of-cost statutory prohibition, and held the contracts void under that statute.
The District Court considered that the government’s argument required it affirmatively to find the following three facts in order to hold that there was fraud: “(1) The agent’s commission was added to the purchase price, (2) the price did not represent the reasonable market value of the land, and (3) McDowell misrepresented the value of the land to Col. Valliant.”
As to the latter point, the District Court, in its opinion, stated that there was no misrepresentation by McDowell. The Circuit Court of Appeals did not affirm this finding. It did say that the record and findings of the trial court left no question “as to the actual good faith of the Quartermaster Department in the matter.” But after narrating certain activities of McDowell, it observed that “These inconsistencies and disguisings can hardly be commended as desirable methods of handling expenditures of public funds. The excuse made by the Quartermaster Depart*80ment on the trial was its desire to get the job done as speedily as. possible and ‘because in one single voucher we could provide for the payment of a number of different services/ The result reached in the opinion requires no further pursuit here of these particular matters.” The Circuit Court’s opinion, taken in its entirety, shows beyond doubt that it did not approve the District Court’s findings as to McDowell’s dealings.
The District Court further based its conclusion that there was no fraud on a finding that the agent’s commission was not added to the purchase price. This finding the Circuit Court of Appeals expressly rejected. This Court has done likewise.
The third and last element which the District Court had posed concerning the presence of fraud was whether “the price did not represent the reasonable market value of the land.” Neither the District Court nor the Circuit Court of Appeals found that the price did represent such a value. If such a holding has been made at all, it is by this Court, and I cannot agree to it. The District Court escaped the necessity of making a finding as to market value by holding that market value was immaterial since “The circumstances of this case show that other considerations were in the minds of the parties when the option was taken. The necessity of national defense had flashed upon the country. The imminence of the peril was impressive. The land must be acquired at once, without the delay incident to condemnation. . . . The land was sought, but more was demanded; immediate possession was essential to its undertaking.”
I can accept neither the court’s conclusion, nor its reasoning. In. the first place, this Court has long held “market value” to be the proper standard of value in eminent domain proceedings, and in considering market value it has consistently been held that landowners are not entitled *81to increased amounts because the government announces that it needs property in a vicinity. United States v. Miller, 317 U. S. 369, 374, 376-377. Secondly, it is novel doctrine that when national peril requires the government to acquire property, the owners are as a matter of law entitled to get more than market value because more is “demanded.” Furthermore, the court’s assumption that the government was without power to get immediate possession of the land by condemnation proceedings was wholly erroneous. Declaration of Taking Act, 46 Stat. 1421.
Having thus put aside consideration of the fair or market value of the property, the court limited itself to finding that the option prices did not represent an “unreasonably excessive value.” What line marks the distinction between reasonable excess and unreasonable excess does not appear from the District Court’s opinion nor from this Court’s opinion today. An examination of the particular facts in No. 31 suggests the difficulty of ever ascertaining what would be an unreasonably excessive value. In 1939, $800 back taxes had accumulated on 33 acres of land. The Muschanys bought it, paying the $800 taxes, $100 to the owners, and approximately $100 was allegedly expended for attorney’s fee, abstract of title, etc. In 1940, the “necessity of national defense had flashed upon the country.” The finding of the District Court, which was not approved by the Circuit Court of Appeals, is apparently approved by this Court today to the effect that 350% profit on this purchase of land is not “unreasonably excessive,” even though the purchaser has held it for only one year. The only subsidiary finding of fact which the District Court made to support this phenomenal rise in value was that in 1937 a road had been built which shortened the distance to St. Louis by about 15 miles. But this road had been built two years before the Muschanys paid *82off the back taxes and took the property into their possession. The Court today, however, refers to certain other events which had occurred, and which are evidently relied upon as justifying this increase in value from $1,000 to $4,500 in the short span of a single year. It is clear that there was one reason, and one reason only, for the $4,500 price. That reason was that the government needed the land to help win the war and McDowell had a cost-plus-a-percentage-of-cost contract.
The Circuit Court of Appeals in discussing this question of value said, “There is, however, no occasion for us here to review either the government’s or the landowners’ evidence as to the value in the two cases. If the value of the land were the issue to be determined, we might hesitate to reject the trial court’s findings in either case, under Rule 52 (a), Federal Rules of Civil Procedure, 28 U. S. C. A. following § 723c. But the findings referred to are not determinative of the issue here being considered.” The Circuit Court of Appeals then went on to decide the only question that it did decide, which was whether McDowell’s contract with the government violated the cost-plus-a-percentage-of-cost statute.
At the very least, I think the government is entitled to have the Circuit Court of Appeals pass on the questions of fraud, unconscionability, and unjust enrichment which this Court says “are available whenever and wherever transgressions take place.”
Mr. Justice Frankfurter and Mr. Justice Rutledge join in this dissent.

 At the time of these purchases, the Real Estate Section of the Quartermaster Corps was in charge of land procurement. Because of intensive National Defense activity, this section had under way purchase of lands for one hundred and eight separate projects, involving between twelve and fifteen thousand individual parcels, with an estimated value of about fifty million dollars. The Colonel in charge of the section had at his disposal a staff of three commissioned officers and about forty-one civilian employees. This Army office, in charge of nation-wide land purchases, was therefore compelled to rely chiefly upon McDowell’s valuations.
The Muschany transaction is a typical one. November 29, 1940, McDowell sent the option agreement to the Washington purchasing office recommending its “acceptance as a fair value to the United States.” Four days later, December 3, without separate appraisal of any kind, the Washington contracting officer marked it “accepted.” This was the only contract executed with the landowner by the government, if such an action can be called a contract at all.

 In referring to the District Court’s finding that $12,000.00 was “not an unreasonably excessive valuation of the land in question,” the Circuit Court of Appeals made this comment:
“The latter finding is perhaps a bit strained, since the substance of the evidence on behalf of the landowners was simply that the land had a farm value of only $50 an acre (a total of $4,725), but, as the landowners’ only value-witness put it, 'I think someone from *72St. Louis that wants a site would pay as high as $125 an acre [a total of $11,800] for that ground.’ ”

 Marsh v. Whitmore, 21 Wall. 178; Michoud v. Girod, 4 How. 503; Providence Tool Co. v. Norris, 2 Wall. 45; Hume v. United States, 132 U. S. 406; United States v. Carter, 217 U. S. 286; Crocker v. United States, 240 U. S. 74; see also the opinion of District Judge Collet in 45 F. Supp. 1016.

 “As a result of experiences with cost-plus-a-percentage-of-cost contracts during the first World War and the early part of this war, use of this type of contract is now almost without exception prohibited by statute.” C. C. H., War Law Service, Government Contracts, Par. 1015. See Act of June 28, 1940, § 2 (a), 54 Stat. 676, 677; Act of May 2, 1941, § 2 (c), 55 Stat. 148; Act of December 18, 1941, Title II, § 201, 55 Stat. 839. See also Act of June 30, 1941, § 9, 55 Stat. 393, and Act of June 5, 1942, § 13, 56 Stat. 317. The regulations issued by the President under the First War Powers Act of 1941, applicable to the War Department, the Navy Department, and the United States Maritime Commission, likewise expressly prohibit cost-plus-a-percentage-of-cost contracting. Executive Order No. 9001, December 27, 1941, as amended, Title II, § 6.

 Senate Report No. 944, 74th Cong., 2d Sess., Special Committee Investigating the Munitions Industry, Part 4, at page 22.

 “There are two general classes of 'cost-plus’ contracts. One class is generally known as 'cost-plus-a-percentage’ contracts and the other as 'cost-plus-a-fixed-fee’ contracts. They are materially different. Under those in the first class the fee or profit of the contractor is made dependent on the cost of the work with the idea that the amount of the fee will automatically adjust itself to the variations in the cost of the work resulting from changing conditions and requirements during the fife of the job. It is self-evident that under this class of contract it is to the financial interest of the contractor to have the cost of work run high. Under the second class, the fee is not affected by variations in costs, but only by changes in the scope of the work. From this it follows that it is to the advantage of the contractor to accomplish the work at as low costs as possible.” The Law of Government Contracts, Graske (1941) pp. 122-3.

 The Circuit Court of Appeals in discussing the general tendency of this system of contracting to increase costs to the government said: “The probability of that general result in the Weldon Springs transactions is, as we have indicated, quite cogently suggested (and indeed demonstrated) by the record.”

 The difficulty of an attempt to segregate McDowell’s commissions from the land costs is indicated by the manner in which the Circuit Court of Appeals found he computed his commissions. It said that the option agreements included “commissions upon his own commissions, commissions upon the commissions of the Kansas City Title Insurance Company for closing the transactions, and commissions upon the amounts included in the contracts for revenue stamps and recording fees. . . . What particular elements McDowell had fused into the real estate values recommended by him in any specific transaction were apparently not known to the Quartermaster Department at the time the contracts were approved.” The Muschanys’ option agreement, in Case No. 31, which the government contracting officer marked “accepted,” did not show the amount of McDowell’s commission; it showed only that the purchase price was $4,500.00. There is neither finding nor evidence from which it can be determined what part of this purchase price, if any, represents McDowell’s commission. In fact, petitioners strangely enough contend that there is no evidence to show that McDowell is to get any part of the $4,500.00 as a commission. The same situation exists in No. 32.

 Were this contract not invalid as violating the Congressional prohibition against the cost-plus-a-percentage-of-cost system, there would still remain the question as to whether the government was compelled to pay more than “just compensation” in these condemnation proceedings. We have never decided that there may not be circumstances short of those necessary to hold private contracts illegal, under which-*78the government may, in condemnation proceedings, obtain judicial ascertainment of just compensation, despite a single contracting officer’s agreement to pay more, and despite his attempted waiver of the Constitutional provision that the government need only pay “just compensation” for land it takes for public use. Danforth v. United States, 308 U. S. 271, actually decided quite different questions under a different statute, different pleadings, and quite different circumstances. In condemnation proceedings, Danforth filed a counterclaim seeking judgment against the government for a price stipulated in an agreement. The government attacked the counterclaim and it was stricken in District Court on two grounds only: (1) the government had not consented to the suit; (2) the District Court was without jurisdiction because more than $10,000 was involved.

 Even if the Circuit Court of Appeals and the District Court had both passed upon these questions, — and I do not think they did — it does not necessarily follow that we would not review them. See City Bank Farmers Trust Co. v. McGowan, 323 U. S. 594, 600; cf. City Bank Farmers Trust Co. v. McGowan, 142 F. 2d 599, 601, and 43 F. Supp. 790, 795-6.