Court Opinion

ID: 9707652
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:17:39.631905+00
Date Added: 2024-06-11T18:22:36.287465
License: Public Domain

Niemeter, P. J., dissents. Plaintiff was a Signal Corps officer in World War I. On leaving the army he engaged in industrial engineering and the real estate business in New York City until the fall of 1922. He then returned to his native city of Los Angeles where he conducted a real estate and insurance business with his wife under the name of F. J. Buckley and Company. This company also negotiated leases on oil lands. Mrs. Buckley did office work. In 1939 Buckley became an officer and promoter of the Los Angeles Aircraft Corporation. So far as the record shows, the company never got into production. Buckley, however, spent considerable time in 1939, 1940 and 1941 in Washington, D. C., in an unsuccessful attempt to/obtain government financing for the corporation. He did not receive any salary or commission for his services. In September 1941 he returned to Washington to begin his activities in the school field — soliciting training contracts from the government on a commission basis. He says that his first contract was with the Hemphill schools. This contract was not signed until March 19,1942. It was terminated in May. He did not obtain any students for them. In January 1942 he began soliciting contracts for the ' National Schools. By March 11,1942, when his transactions with defendant commenced, he had procured one contract. During his connection with defendant he-“only represented Coyne and National.” Until June 1942 he had no office in Washington other than his room in the Army and Navy Club, where he received mail and from which he sent communications on letterheads of the club. The contracts with the Plemphill schools and defendant were undertakings of Buckley individually. The first contract with the National Schools is not before us. On March 4, 1942 defendant accepted the government’s proposal to train 200 radio mechanics for 25 cents per man-hour of instruction, the price previously quoted for training radio operators and mechanics. On March 11th, at a conference with Lewis, president of defendant, and Richards, his assistant, at the Army and Navy .Club, Buckley agreed to act as defendant’s agent in procuring training contracts from the government for a contingent fee of 5 cents per hour per man on all contracts at 35 cents or more per hour. No contracts at 35 cents or more per hour were obtained. Lewis increased his prices to 27 cents per man-hour of instruction for radio operators and 32 cents for radio mechanics, and subsequent contracts were awarded on that basis. Buckley testified that Lewis offered him on such contracts one-half (3% cents) of the increase for instructing mechanics and 2 cents for operators. Lewis and Richards died prior to the hearing before the master. March 29th, at Los Angeles, Buckley first learned of Executive Order 9001. After consultation with his lawyer he wrote Lewis March 30th suggesting that a letter he had typed March 21st for Lewis’ signature, but which Lewis had not signed, purporting to state the terms of his agreement with defendant, be rewritten and a paragraph inserted stating that Buckley’s organization was not founded on political or other influence but on Buckley’s ability as a capable, successful business sales executive. In early June, Lewis called Buckley’s attention to an article in the United States News of June 5th on payment to lobbyists and agents, and expressed his fear that the government would regard the payments to Buckley (approximately eleven and seven per cent of the gross tuition received) as excessive and refuse to allow them as a deductible expense. Buckley replied that he knew of the investigation going on in Congress over the payment of contingent fees and had attended a number of the hearings. On August 5th, because he “knew of the senate and congressional hearings in Washington relating to agents,” Buckley presented a substitute agreement to Lewis. This proposed agreement was dated March 12, 1942, and was between defendant and Buckley and Company instead of Buckley individually. About the same time he procured from National Schools an agreement between them and Buckley and Company dated February 1,1942 to take the place of the contract providing for payment to him of 5 cents per man-hour of instruction. These contracts — the new one with National Schools and the proposed agreement with defendant— recited/that Buckley and Company was a “bona fide established sales and service agency” and “functions solely as a capable, experienced and ethical commercial organization.” Each provided for compensation payable monthly for maintaining a Washington office for the school and for a percentage of the gross tuition received, instead of so much per man-hour of instruction as in the former agreement. The proposed agreement with defendant extended the activities of the agent from procuring government contracts to the making of contacts with individuals, organizations and governmental authorities. Defendant refused to accept the new agreement and a revised form of agreement submitted August 26th. On that day a conference was had between Buckley, Lewis, and his lawyer Atwood, at which Buckley’s ability to qualify under Executive Order 9001 was discussed. Buckley and Atwood are not. in complete agreement as to what transpired at the conference. Atwood testified that he told Buckley that he could not bring himself within the exception of the executive order, and that he, Atwood, then directed Lewis not to make further payments. Buckley disputes this testimony. He does not contradict Atwood’s statement that he, Bucklev, said he had not been connected with soliciting business from the government before the war. No further payments were made to Buckley. September 2nd Buckley told Lewis there was a bill under consideration that contemplated prohibiting any agent from receiving a commission for procuring contracts; that his Washington attorneys had suggested they could probably work out a basis for a monthly salary for procuring, and use a commission basis for the large volume of work in servicing the contracts. On September 17th, after correspondence between the attorneys for plaintiff and defendant, defendant advised the Signal Corps that Buckley no longer represented it and all contractual relations between Buckley and defendant were terminated. This suit followed. Buckley testified that between $160,000 and $190,000 is due him as commissions. The suit, however, is by Buckley and his wife, doing business as F. J. Buckley and Company. Right of action, if any, against defendant is in Buckley, individually, and not in himseF and his wife. He will be referred to hereafter as the plaintiff. Contracts to pay compensation contingent upon success in obtaining orders or business from the government are void, being contrary to sound morals and public policy. Their vice is in their corrupting tendency, and it is immaterial whether the parties contemplated or used improper influence or other illegal or corrupt means to accomplish the end desired. In Crichfield v. Bermudez Asphalt Paving Co., 174 Ill. 466, a contract for the payment of compensation for procuring paving contracts from the city was declared void, the court saying: “It makes no difference whether the parties were actually guilty of bribery and corruption under the contract or not. If the performance of the obligations imposed by the contract has an evil tendency or furnishes a temptation to use improper means, the contract is illegal and contra tonos mores.” (Italics supplied.) In Lewy v. Standard Elevator Co., 296 Ill. 295, the court said: “There can be no question that ... a contract to perform services which would tend necessarily to improperly influence action as to putlic contracts or the administration of justice is also unenforceable. (Tool Co. v. Norris, 69 U. S. 45; Goodrich v. Tenney, 144 Ill. 422; Crichfield v. Bermudez Asphalt Paving Co. 174 id. 466.) ” (Italics supplied.) Tool Co. v. Norris, supra (1864), like the case before us, involved the right to recover commissions tor procuring a war contract — the sale of muskets to the United States during the Civil War. We quote at length from the opinion: ‘ ‘ Considerations as to the most efficient and economical mode of meeting the public wants should alone control, in this respect, the action of every department of the Government. No other consideration can lawfully enter into the transaction, so far as the Government is concerned. Such is the rule of public policy; and whatever tends to introduce any other elements into the transaction, is against putlic policy. That agreements, like the one under consideration, have this tendency, is manifest. They tend to introduce personal solicitation, and personal influence, as elements in the procurement of contracts; and thus directly lead to inefficiency in -the public service, and to unnecessary expenditures of the public funds. “. . . It (the principle) has been asserted in cases relating to agreements for compensation to procure legislation. These have been uniformly declared invalid, and the decisions have not turned upon the question, whether improper influences were contemplated or used, but upon the corrupting tendency of the agreements. . . . Agreements for compensation contingent upon success, suggest the use of sinister and corrupt means for the accomplishment of the end desired. The law meets the suggestion of evil, and strikes down the contract from its inception. i Í “. . . all agreements for pecuniary considerations to control the business operations of the Government . . . are void as against public policy, without reference to the question, whether improper means are contemplated or used in their execution. The law looks to the general tendency of such agreements; and it closes the door to temptation, by refusing them recognition in any of the courts of the country.” (Italics supplied.) The court was speaking only of contingent fee contracts for the procurement of government business. Contingent fee contracts to prosecute a claim against the government are valid, unless improper means are contemplated or used in the performance of the contract. Trist v. Child, 21 Wall. (88 U.S.) 441; Stanton v. Embrey, 93 U.S. 548. The distinction was recognized in Hazelton v. Sheckels, 202 U.S. 71, where Mr. Justice Holmes said: “But the services contemplated as a partial consideration of the promise to convey were services in procuring legislation upon a matter of public interest, in respect of which neither of the parties had any claim against the United States. An agreement upon such a consideration was held bad in Tool Co. v. Norris, 2 Wall. 45. Of course we are not speaking of the prosecution of a lawful claim.” The contract before the court was an option on land which Congress was considering for the location of a hall of records. It contemplated extensive services by plaintiff to induce Congress to accept the land. No improper influence or means was suggested. In holding the contract bad, the court said: “The promise to convey did not become binding until the services were rendered, and, when rendered, according to the allegations of the bill they were legitimate. We assume that they were legitimate, but the validity of the contract depends on the nature of the original offer, and whatever their form the tendency of such offers is the same. The objection to them rests in their tendency, not in tvhat toas done in the particular case. Therefore a court will not be governed by the technical argument that when the offer became binding it was cut down to what was done and was harmless. The court ivill not inquire what was done. If that should be improper it probably would be hidden and would not appear. In its inception the offer, however intended, necessarily invited and tended to induce improper solicitations, and it intensified the inducement by the contingency of the reward. Marshall v. B. & O. R. R., 16 How. 314, 335, 336.” (Italics supplied.) In Valdes v. Larrinaga, 233 U. S. 705, where, plaintiff says, “Justice Holmes upheld a judgment for plaintiff in an action on a contingent fee contract to furnish technical engineering assistance in the obtaining of a Puerto Rican water franchise,” the court merely held that the contract there involved did not violate public policy under the decisions in Hazelton v. Sheckels, supra, and other cases cited by the defendant. Plaintiff, pin engineer, was to receive 10 per cent of the profits of the franchise. Defendant contended that the contract, based on letters of the parties, was void. The court said: “We shall not speculate nicely as to exactly what the law was in Porto Rica at the time when the contract was made, but shall give the plaintiff (defendant) the benefit of the decisions upon which he relies, such as Hazelton v. Sheckells, 202 U. S. 71. But we discover nothing in the language of the letters that necessarily imports, or even persuasively suggests any improper intent or dangerous tendency.” (Italics supplied.) Sage v. Hampe, 235 U.S. 99, involved a contract for the conveyance of land allotted and patented to members of the Pottawatomie Tribe under an act of Congress which prohibited its transfer within 25 years. In holding the contract void, the court, again spealdng through Mr. Justice Holmes said: “And more broadly it long has been recognized that contracts that obviously and directly tend in a marked degree to bring about results that the law seeks to prevent cannot be made the ground of a successful suit. Providence Tool Co. v. Norris, 2 Wall. 45; Trist v. Child, 21 Wall. [88 U.S.] 441; Oscanyan v. Winchester Repeating Arms Co., 103 U.S. 261; Fuller v. Dame, 18 Pick. 472.” Crocker v. United States, 240 U.S. 74, was an appeal from a judgment denying a claim for letter-carrier satchels delivered under a contract with the government. Claimant had employed Lorenz on a contingent fee to assist in procuring the contract. The court said: “We are of opinion that in the transactions out of which the claim arose there was an obvious departure from recognized legal and moral standards. It began when the company employed Lorenz, upon a compensation contingent upon success, to secure the contract for furnishing the satchels .... Because of their baneful tendency, as here illustrated, agreements like that under which Lorenz was employed are deemed inconsistent with sound morals and public policy and therefore invalid.” Steele v. Drummond, 275 U.S. 199, cited by plaintiff, is not in point. The court expressly distinguished the contract there involved from the contracts in Tool Co. v. Norris, Hazelton v. Sheckels, Crocker v. United States, and other cases, in that “Drummond was not employed by Steele or by the railroad company to secure the passage of the ordinances. He was interested as an owner of property.” Muschany v. United States, 324 U.S. 49, also cited by plaintiff, does not support his contention. In that case the government contracted with a real estate agent to procure options for the purchase of certain lands for an ordinance plant, on a commission basis of 5 per cent of the purchase price. In distinguishing this contract from contingent fee contracts to procure business from the government, the court said (p. 64-65): “Contingent fee contracts to secure Government business for the employer of the recipient have been held invalid because of their tendency to induce improper solicitation of public officers and the exercise of political pressure. Steele v. Drummond, 275 U. S. 199, 206. For the most part these cases have involved situations where a would-be contractor has hired a third person on a contingent fee basis to procure for the former a contract with the Government. But neither the language of these cases nor the policy behind them applies to the situation involved in this case, where the Government, not the would-be contractor, hires an agent for the purpose of soliciting offers from owners of needed land, the agent’s compensation to be contingent on submission of offers acceptable to the Government. We have here a contingent fee contract of an entirely different type. It is the Government here who pays the contingent fee and pays it not for securing a contract from the Government, but a contract for the Government.” (Italics supplied.) In Silverman v. Osborne Register Co. (1946), C. C. A. (D. C.), 155 F.2d 879, the defendant was a manufacturer of ration tokens which the plaintiff as an independent salesman was endeavoring to sell to O.P.A. The government insisted on a contract with the manufacturer. Defendant then submitted a price 15 per cent above that quoted to plaintiff and procured the business. Plaintiff brought suit for the 15 per cent, claiming it as commission under an agreement with the defendant. The trial court held the contract void. The Court of Appeals affirmed the judgment, saying : “. . . we think the trial court correctly applied the underlying principle of the Tool Co. case (69 U. S. 45), and quite rightly disposed of the litigation with a memorandum opinion pointing out: ‘The tendency of such an agreement as we have here, apart from other consideration, was to have the government pay fifteen percent more than it would presumably have paid under the circumstances. Such a contract is illegal and void on the ground of public policy and as a consequence the courts have no alternative in such a situation but to so declare it. ’ ” In- the instant case the government was presumably caused to pay 2 cents per hour more for operators and 3-3/2' cents per hour more for mechanics because of Buckley’s contingent fee. Prior to Buckley’s employment Lewis had quoted a price of 25 cents for operators and mechanics. At the first conference of Lewis and Buckley with Colonel Books of the Signal Corps, Lewis claimed a mistake had been made in quoting the same price for training operators and mechanics because of the greater equipment and higher ratio of instructors needed in training mechanics than in training operators. No mistake was claimed in the quotation on operators. Given permission to submit revised figures, Buckley submitted figures of 30 and 35 cents for operators and mechanics, respectively. Lewis submitted figures of 27 and 32 cents, and contracts were awarded on that basis. Buckley testified that one-half (3-% cents) of the increase on mechanics, and 2 cents (the increase) for operators, was to go to him as commissions. The vice which destroyed Silverman’s agreement is present here and destroys Buckley’s claim to compensation. Buckley seeks compensation for procuring contracts from the United States Government for the training of men in the Armed Services. “The validity and construction of contracts through which the United States is exercising its constitutional functions, their consequences on the rights and obligations of the parties, the titles or liens which they create or permit, all present questions of federal law not'controlled by the law of any State.” U. S. v. Allegheny County, 322 U. S. 174, 183. Plaintiff contracted for a contingent fee, payable on procuring contracts from the government. The public policy of the United States declares such contracts void because of their evil and dangerous tendency, without inquiring into what was done in a particular case. Hazelton v. Sheckels, supra. In Sage v. Hampe, supra, the Supreme Court of the United States reversed, on grounds of public policy, a judgment of a state court, affirmed by the Supreme Court of Kansas. It said: “The case at first sight seems like those in which a State decides to enforce or nof to enforce a domestic contract notwithstanding or because of its tendency to cause a breach of the law of some -other State. Graves v. Johnson, 179 Massachusetts 53, 156 Massachusetts 211. But the policy involved here is the policy of the United States. It is not a matter that the States can regard or. disregard at their will.” Executive Order 9001 requires a warranty from a contractor with the United States that he “had not employed any person to solicit or procure this contract upon any agreement for a commission, percentage, brokerage or contingent fee.” Excepted from the warranty are “commissions payable by contractors upon contracts or sales secured or made through bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business.” The extent and nature of the legal consequences of this order must be determined by Federal decisions. Deitrick v. Greaney, 309 U. S. 190. There are no Supreme Court decisions. Reynolds v. Goodwin-Hill Corp., C. C. A. (2nd Cir.), 154 F.2d 553 (1946), and Bradley v. American Radiator & Standard San. Corp., C. C. A. (2nd Cir.), 159 F. (2d) 39 (1947), are the only Court of Appeals cases in point discussed in the briefs. In the Reynolds ease plaintiff sued for commissions for procuring contracts for the defendant from the United States Army Engineering Corps. The trial court found that plaintiff was and had been for many years the general sales agent or sales director of defendant, charged with soliciting contracts for defendant in all phases of its business, civilian and governmental. The reviewing court (Judges Learned Hand, Swan and Phillips), speaking through Judge Hand, held that it was bound by the findings of the trial court as to the nature of plaintiff’s employment, and that plaintiff was within the exception of the executive order. In sustaining his claim, the court said (p. 555): “The critical words are: ‘bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business. ’ ... The purpose of the section is reasonably plain: the payment of contingent fees was permitted when made to an agent employed generally to drum up business for the contractor, presumably because it was thought wise to allow contractors to do business in their accustomed way, in spite of the possibility that the inducement of a commission might on occasion result in abuses. But it was also thought that to employ persons to procure specific contracts upon a contingent fee, was likely to result in selecting those who had, or were supposed to have, some especial access to officials; and that this could not be tolerated.” (Italics supplied.) In the Bradley case the court (Judges Swan, Augustus N. Hand and Clark) in a per curiam opinion said of the statement just quoted, “It is true that the pronouncement as to the employment of an agent to procure specific contracts upon a contingent fee was a dictum but we still think it was a correct interpretation of the Executive Order.” Bradley, a manufacturer’s agent for the sale of metal castings, procured a-contract from defendant for the payment to him of one-fourth of one cent for each cast iron nose for incendiary bombs manufactured by defendant on orders procured by plaintiff from the government. He procured orders for noses in excess of 19,000,000. He brought suit for commissions alleged to be due. The trial court struck the complaint on defendant’s motion. In affirming this action the reviewing court said: ‘‘In order to prevail the appellant must bring himself within the exception of Executive Order No. 9001, 50 U.S.C.A. Appendix sec. 611 note, 6 F.R. 6787. The complaint shows that he has not done so. . . . The exception creates a privileged class who may receive contingent fees for securing government contracts, while others may not. Not only should grants of special privileges be jealously restricted, but such a restriction is also in the interest of maintaining the integrity of governmental contracting procedure. Moreover, the use of the words ‘Maintained by the contractor’ suggests an intention to restrict the exception to continuing relationships between the contractor and his agent. The contract alleged in. the complaint violates the public policy declared in the Executive Order.” (Italics supplied.) Plaintiff in his reply brief cites the recent case of Beach v. Illinois Lumber Mfg. Co., (D.C. E.D Ill.) 92 F. Supp. 564 (1949), where plaintiff recovered contingent commissions for procuring contracts from the government. The facts found by the court bring the plaintiff within the exception of the executive order under the holding in the Reynolds case. Do the facts before us bring Buckley within the exception? His contract with defendant was limited to the procurement of specific government contracts, an employment condemned in the Reynolds and Bradley cases. This work was a new field in which Buckley began his activities in September, 1941. Six months later, March 11, 1942, when he became the agent of defendant, he had procured one contract. He had no office except his room in the Army and Navy Club. His name individually, not that of his company, was listed under the club telephone. He had no stationery but used that of the club. The setting implied acquaintance with and access to the procurement officers of the Armed Forces. It is not the setting of a “bona fide sales and service agency” which “functions solely as a capable, experienced and ethical commercial organization.” The facts do not make Buckley a bona fide established commercial or selling agent. His agreement with defendant violated public policy as declared by Executive Order 9001. Defendant is in pari delicto. Public interest requires that the court leave the parties where it finds them. Silverman v. Osborne Register Co., supra. The decree dismissing the complaint should be sustained.