
    371 F. 2d 469
    MURDAUGH STUART MADDEN AND CLIFFORD J. HYNNING v. THE UNITED STATES
    [No. 399-62.
    Decided January 20, 1967]
    
      
      Clifford J. Hynning, attorney of record, fro se and for plaintiff Murdaugh Stuart Madden.
    
      Manfred J. Schmidt, with whom was Assistant Attorney Generad Barefoot Sanders, for defendant.
    Before Cowejst, Chief Judge, Laramore, Dureee, Davis, ColliNs, and SkeltON, Judges.
   Per Curiam :

The present plaintiffs, two Washington lawyers, successfully prosecuted a claim on behalf of Industrial Finishers, Inc., an Ohio corporation, against the Cleveland Ordnance District (of the Army) for an equitable adjustment under a contract performed by Finishers for Cleveland Ordnance. They accepted the retainer on a contingency basis which was later amplified by an express agreement for 30 percent of the recovery. After they had established Finishers’ right to an equitable adjustment in the amount of $34,000 (reflecting a fee of $10,200), the Small Business Administration asserted rights to $20,000 of the fund under an assignment theretofore executed by Finishers, and the Internal Revenue Service asserted tax liens for $16,904.67. Ordnance ultimately disbursed the fund to SB A and IRS, leaving nothing for plaintiffs. They sue here, claiming an attorney’s lien under Ohio law.

Defendant argues, among other defenses, that the right of setoff where the Government is both debtor and creditor is established by statute (31 U.S.C. § 227) and by controlling decisions. “[0]ne whose own appropriation and payment of money is necessary to create a fund for general creditors is not a general creditor. He is not compelled to lessen his own chance of recovering what is due him by setting up a fund undiminished by his claim, so that others may share it with him. In fact, he is the best secured of creditors; his security is his own justified refusal to pay what he owes until he is paid what is due him.” United States v. Munsey Trust Co., 332 U.S. 234, 240 (1947). See also General Casualty Co. v. United States, 130 Ct. Cl. 520, 526, 127 F. Supp. 805, 808 (1955), cert. denied, 349 U.S. 938; Standard Accident Ins. Co. v. United States, 119 Ct. Cl. 749, 766, 97 F. Supp. 829, 831 (1951); and Seaboard Surety Co. v. United States, 107 Ct. Cl. 34, 46, 67 F. Supp. 969, 972 (1946), cert. denied, 330 U.S. 826 (1947).

Plaintiffs would negate defendant’s right of offset “by invoking the doctrine of equitable estoppel” because of alleged deceptive practices by the Government agencies, primarily Small Business Administration. It is unnecessary to decide the applicability of equitable estoppel in a proper case because in this instance the alleged deceptive practices are not established in fact.

As shown by the findings, Finishers (plaintiffs’ client), in June 1958, undertook a contract with Cleveland Ordnance for the modification of certain shell cartridge cases. At the same time Finishers obtained a loan from the Small Business Administration, payable in monthly installments over a period of 10 years. In the performance of the contract, Finishers incurred substantial losses attributable, according to it, to requirements imposed by the contracting officer, because of which Finishers pressed the claim for an equitable adjustment which ultimately resulted in the creation of a fund (in the hands of Ordnance) of $34,000.

Six months after the SBA loan was made, in January 1959, Finishers failed to make the monthly payment due on the SBA loan. Kegular payments were never resumed, and the loan was ultimately called. Meanwhile, however, there were many conferences between Finishers and SBA looking toward possible methods of retrieving the business losses and restoring the borrower’s credit to acceptable levels.

In June 1959, the plaintiff Madden was requested and agreed to handle Finishers’ claim against Cleveland Ordnance for an equitable adjustment. Mr. Madden agreed to take the case on a contingent fee basis without specifying the percentage of the contingent fee.

Three weeks later, in one of many conferences between Finishers’ president, Mr. Paul R. Dukes, its Cleveland attorney, Mr. Howard C. Cook, and SBA’s Cleveland Loan Examiner, Mr. T. J. Nolan, Mr. Dukes told Mr. Nolan that Finishers’ claim against the Government had been filed in the approximate amount of $60,000 by attorneys in Washington on a contingent basis. Mr. Nolan informed Mr. Dukes that SBA would like to have some assurance from the Washington attorneys as to the validity of the claim and some idea as to when it would be settled; also assurance from Mr. Dukes that if the claim was valid, he (Mr. Dukes) would pay the interest on the loan until such time as funds were received as a result of the claim; otherwise, SBA would have to take steps to protect its interest.

After another 2 weeks, on July 10, 1959, Mr. Madden, at the request of Mr. Dukes, wrote to SBA, saying that he was confident Finishers would be successful since the Army had ordered modifications of the contract. Mr. Madden received no acknowledgment of or reply to his letter until the SBA letter of October 5, 1959, hereinafter noted.

Meanwhile, during August and September 1959, SBA continued to press Mr. Dukes for measures by which the status of Finishers’ loan might be improved. The exchanges between Mr. Dukes and Mr. Nolan culminated in late September in an arrangement whereby Finishers would pay $.500 per week until the end of the year to cover interest charges and consent to an assignment of 50 percent of its claim against Ordnance (“but in no event on an amount not less than would be required to pay the principal amount delinquent on account of the loan”); in return for which SBA “would continue to work with him for the nest 90 days which would no doubt be sufficient time for the settlement of the * * * claim.”

On September 30, 1959, Finishers executed lor delivery to SBA “in consideration of the extension of credit” an assignment of $20,000 “of any and all amounts now due or owing, or which may hereafter be or become due or owing * * * by the United States * * * to the assignor * * *” under the Ordnance contract. The assignment was prepared by Mr. Cook, Finishers’ Cleveland attorney, as “a modification of the form usually utilized by * * * [him] in the State of Ohio,” and its execution was supervised by him. The amount of the assignment was related to the amount of the additional security requested by SBA in the light of the delinquency of the debt of Finishers to SBA.

Finishers’ contract with Ordnance contained, as Article 8(a) of the General Provisions, the text of the Assignment of Claims Act of 1940, as amended (31 U.S.C. § 203, 41 U.S.C. § 15) which authorized the assignment of claims for monies due or to become due to a contractor from the Government to “a bank * * * or other financing institution, including any Federal lending agency.” The Act specifically provided that “any such assignment shall cover all amounts payable * * [Emphasis supplied.]

When Finishers made the assignment to SBA of $20,000 of its claim against Ordnance, the claim had not been allowed, wherefore no monetary amount had been determined. The claim was being discussed, however, in terms of $40,000 to $60,000, and there can be no doubt from the evidence of record that both Finishers and SBA intended an assignment of part only (approximately half) of the estimated value of the claim.

If any of the individuals who participated in the assignment transaction, including its ultimate approval by the Regional Director of SBA, was aware of the requirement (by contract and statute) that “any such assignment shall cover all amounts payable” under the contract, the fact is not in evidence. By reason of the presence of the requirement in the contract, it goes without saying that they should have been aware of it.

On October 5, 1959, SBA wrote to Mr. Madden, referring to his letter to SBA of July 10, 1959, and saying :

* * * As you no doubt know we have a direct interest in this claim, insofar as our loan is concerned and the subject Borrower’s operations.
We would be pleased if you will advise us as to what progress you have made in the settlement of the claim.

Mr. Madden forwarded the letter to Mr. Dukes who, on October 21, wrote to Mr. Madden as follows:

We are very much interested and concerned about our claim for reimbursement, and if the writer can help with any information at the present time please let me know.
Small Business Administration is interested in our claim progress, as per their letter to you of October 5th, because the writer has signed over half of what we obtain when the time comes, to pay against reimbursement of the SBA loan.

This exchange of correspondence made no particular impression upon Mr. Madden at the time. He had filed Finishers’ claim with the contracting officer at Ordnance and there was little more that he could do until the contracting officer rendered his decision. Since he had no responsibility for Finishers’ efforts to improve the status of its loan with SBA, he did not undertake to inform himself of the progress of those efforts. Mr. Hynning, when he came into the picture a year later (October 1960), likewise failed to attach any importance to the letter of October 21, 1959, from Mr. Dukes to Mr. Madden which, presumably, was in Mr. Madden’s file.

On May 11, 1960, Ordnance’s contracting officer denied Finishers’ claim, and Mr. Madden, on June 14, docketed an appeal to the Armed Services Board of Contract Appeals. The board scheduled a hearing for November 15, 1960.

Meanwhile, although SBA continued to work with Mr. Dukes in his efforts to attain a satisfactory payment structure for his loan, the results were discouraging. In September 1960, Finishers ceased operations.

Hearings on the claim were held by ASBCA on November 15 and 16, 1960, with Mr. Hynning appearing for Finishers. At the request of Government counsel, the board ordered a severance of the issues, for determination separately of the issues of liability and damages. Seven months later (June 1961) the ASBCA sustained Finishers’ appeal and remanded the case to the contracting officer in Cleveland for negotiation of the amount of the price adjustment.

When Mr. Hynning went to Cleveland, in July 1961, to negotiate the adjustment, he learned for the first time of Finishers’ assignment to SBA. Although he was astonished and somewhat perturbed by it (and considered it legally invalid as being in contravention of the Assignment Act of 1940), he persevered in his efforts to negotiate an adjustment and, in October 1961, obtained Ordnance’s confirmation of settlement in the amount of $34,000. A month later the Internal Revenue Service served on Finishers a Notice of Levy for $16,904.67 for taxes assessed and unpaid. SBA had already filed with Ordnance copies of its assignment from Finishers.

Thereafter, correspondence was exchanged between Mr. Hynning, on the one hand, and attorneys for SBA, Ordnance, and IRS, on the other, and between attorneys for SBA and attorneys for IRS. The end result was that plaintiffs’ claim was referred to the General Accounting Office which disallowed it by letter of July 3, 1962, to Mr. Hynning, advising him:

* * * The relationship of attorney and client is purely a matter of their mutual arrangement and does not render such attorney privy to contractual relationship between the Government and its contractors.
It is the general rule that attorney fees are not allowed in suits against the Government without an express statutory provision allowing them. Piggly Wiggly Corp. v. United States, 112 Ct. Cls. 391.

Ordnance thereupon paid $20,000 to SBA and $14,000 to IRS, thereby exhausting the fund.

The inferences of conspiracy, deception, misrepresentation, and knavery, without which plaintiffs cannot prevail, are not warranted by the evidence.

The evidence upon which plaintiffs must rely for such inferences relates to two separate episodes in the unfolding of the transactions. One episode pertains to the actions of SBA in obtaining the assignment and the alleged conspiracy of silence and concealment thereafter, with SBA’s Loan Examiner, Mr. Nolan, and Finishers’ president, Mr. Dukes, and its Cleveland attorney, Mr. Cook, as participants. The other episode concerns the actions of attorneys for SBA, for IBS, and for Ordnance in the negotiations more than 1 year later with Mr. Hynning concerning disbursement of the fund. There is nothing in the evidence to relate one group of participants to the other.

The correspondence which passed between attorneys in the later of the two episodes reflects the determination of the Government attorneys to protect the interest of their respective agencies, even at the expense of plaintiffs, if necessary, and there is about it an aura of lack of candor toward Mr. Hynning. As of that time, however, the merit or lack of merit of the charges of improper silence, ignorance, and deception on the part of those who participated in the assignment transaction was already fixed, and the maneuvers of the attorneys in protecting the rights of their agencies could have no effect upon those facts. In other words, the Government’s rights of offset, on behalf of both SBA and IBS, were already fixed, and the validity of the SBA assignment or the priority of the IBS tax levy had nothing to do with the final outcome, absent proof of the alleged conspiracy, deception, or misrepresentation.

As noted in the findings, the evidence as a whole does not warrant an inference that knowledge of the assignment by Finishers to SBA was deliberately withheld from plaintiffs by Finishers, SBA, or Ordnance, or that any action by any of the three was designed or intended to keep such knowledge from plaintiffs.

SBA’s Loan Examiner, Mr. Nolan, was not a lawyer, and the office routine of SBA within which he worked apparently did not require scrutiny for legal clearance of his action in obtaining the assignment from Finishers. Having applied a banker’s instinct to the improvement of the appearance of Finishers’ paper, he was content to have Finishers’ Cleveland lawyer, Mr. Cook, draw up and supervise the execution of the assignment. Mr. Cook, as Finishers’ loan attorney, appears to have been oblivious to the Assignment of Claims provision in Finishers’ contract with Ordnance or to any possible impact of such an assignment upon the prosecution by other lawyers of Finishers’ claim for an equitable adjustment. Mr. Dukes evidently thought he was apprising Mr. Madden of the situation when he wrote, on October 21, 1959, that he had “signed over half of what we obtain when the time comes, to pay against reimbursement of the SBA loan.” Moreover, both plaintiffs knew or should have known of the existence of the SBA loan (apart from the assignment), and they are charged with knowledge of the Government’s right to offset a debt owed to it. In all the circumstances, there was no such obligation on SBA, itself, to notify the plaintiffs of the assignment as could possibly destroy or diminish the Government’s ancient right of set-off.

The failure by plaintiffs to establish a basis upon which to preclude defendant’s right to offset Finishers’ debts to SBA and IBS, independently of the assignment to SBA and the levy of IBS, requires recognition of the right of offset as superior to the claimed attorneys’ lien. Therefore, discussion is unnecessary of (1) the validity of the assignment, (2) the priority of the levy, (3) the impact or lack thereof of the Anti-Assignment Act upon the claimed attorneys’ lien, (4) the effect on the Government’s right of set-off of proved malfeasance or misrepresentation by its representatives, (5) whether plaintiffs had an attorneys’ lien under whatever law was applicable, (6) what law is applicable to determine such a lien, or (7) the jurisdiction of this court over any claim grounded on an attorney’s lien. In particular, the court does not reach or decide whether an attorney can ever assert an attorney’s lien against the United States for tbe collection of fees to which his client (a claimant against the Government) has agreed. See Pittman v. United States, 127 Ct. Cl. 173, 116 F. Supp. 576 (1953), cert. denied, 348 U.S. 815 (1954) ; Empire Ordnance Corp. v. United States, 130 Ct. Cl. 719, 128 F. Supp. 744 (1955); and Kearney v. United States, 152 Ct. Cl. 202, 285 F. 2d 797 (1961), cert. denied, 366 U.S. 935.

The plaintiffs are not entitled to recover and their petition is dismissed.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner W. Ney Evans, and the briefs and arguments of counsel, makes findings of fact as follows:

1. (a) On June 18, 1958, Industrial Finishers, Inc., an Ohio corporation, entered into a contract with Cleveland Ordnance District for the modification of certain shell cartridge cases, for a consideration of $121,526.73.

(b) On July 23, 1958, Finishers obtained a loan from and executed a note to the Small Business Administration, Cleveland office, in the amount of $125,000, secured by mortgages (on real estate and chattels), at 5% percent interest, payable in consecutive monthly installments including principal and interest of $1,387.75 over a period of 10 years, subject to immediate acceleration upon failure to make any payment when due.

(c) In the performance of its contract with Ordnance, Finishers incurred substantial losses, attributable in whole or in part, according to Finishers, to requirements imposed by the contracting officer, because of which Finishers pressed a claim (hereinafter described) for an equitable adjustment.

(d) Six months after the SB A loan was made, i.e., on January 23,1959, Finishers failed to make the monthly payment then due on the loan. Payments were never resumed, and the loan was ultimately called.

2. (a) On or about June 11, 1959, the plaintiff Madden, a Washington attorney, was requested by Finishers to handle its claim against Ordnance for an equitable adjustment. Mr. Madden, after reviewing Finishers’ file, agreed to take the case on a contingent fee basis (subject to reimbursement of expenses), without specifying the exact percentage of the contingent fee.

(b) On June 30, 1959, Mr. Paul K. Dukes, president of Finishers, and Mr. Howard C. Cook, Finishers’ Cleveland attorney, reviewed the company’s situation with SBA’s Cleveland Loan Examiner, Mr. T. J. Nolan. Note was made of Finishers’ adverse financial situation, with current liabilities of $81,700.50 as against $36,819.16 in current assets. Mr. Dukes told the Loan Examiner that he had filed a claim with the Government in the approximate amount of $60,000 as a result of Finishers’ loss under the Ordnance contract, and said the claim was being handled by attorneys in Washington on a contingent basis. The Loan Examiner informed Mr. Dukes that SBA would like to have within the next week some assurance from the Washington attorneys as to the validity of the claim and some idea as to when it would be settled; also assurance from Mr. Dukes that if the claim was valid, he (Mr. Dukes) would pay the interest due on account of the loan until such time as funds were received as a result of the claim; otherwise SBA would have to take steps to protect its interests.

(c) On July 2, 1959, the Small Business Specialist in the office of Ordnance advised SBA that in his opinion Finishers had “an excellent chance of being reimbursed for their losses on the cartridge case contract.”

(d) On July 9, 1959, Finishers (Mr. Dukes) wrote to SBA “* * * to state our situation at the present time on our * * * activities to consolidate and strengthen our operations,” and advised:

* * * Only today has the writer been able to complete the information necessary to our Washington attorney Mr. Murdaugh Madden to activate his case for a possible $60,000 adjustment in our recent government contract. The writer has asked that he direct the letter to your office indicating how quickly he would be able to start processing this claim and his interpretation of how valid the claim would be. * * *

(e) On July 10, 1959, Mr. Madden wrote to SBA, Cleveland:

At the request of Mr. Paul B,. Dukes, President of Industrial Finishers, Inc., I am writing you this letter to give an appraisal and report on the status of the claim of Industrial Finishers, Inc. against the Army. This is a claim for reimbursement of some forty to sixty thousand dollars of additional costs arising from a change made by the government in the specifications and inspection requirements under the contract.
I have been retained by Industrial Finishers, Inc. to pursue this matter for them and have every confidence that they will be successful since it does appear, from the record, that after acceptance of a large number of items under the contract, which were processed in strict accordance with the drawings and specifications, the Army felt that a modification was necessary and insisted that it be put into effect for the remaining items under the contract. In the normal case of this sort, these additional costs are recoverable and I feel that they will be recovered here.
‡ $ $ $ $

(f) Mr. Madden received no acknowledgment of or reply to his letter until the SBA letter of October 5, 1959, hereinafter noted (finding 6(c)). He regarded the October 5, 1959, letter as a belated acknowledgment of his letter of July 10, 1959, coupled with a request to keep Cleveland SBA informed as to further developments in Finishers’ claim for equitable adjustment.

3. (a) On August 19, 1959, SBA again wrote to Mr. Dukes:

In view of the serious condition of your loan, we request that you advise us immediately as to wbat progress you have made in the settlement of your claim with * * * Ordnance. We * * * cannot continue to carry your loan in a delinquent status. * * *

(b)On August 27, 1959, Mr. Dukes replied with a further review of Finishers’ unproductive record but improving outlook and, with respect to the progress of the Ordnance claim, said:

* * * this sort of activity is not a matter of weeks for conclusion but of many months and may be a year before any agreement is reached. * * *

(c) On August 31, 1959, SBA advised Mr. Dukes that his letter of August 27 was not a satisfactory answer to SBA’s inquiry of August 19; and, since “it might be a matter of weeks, or months or a year, before any agreement is reached with respect to your * * * [Ordnance] claim * * SBA “requested that you advise us as to what you intend to do to bring your loan current.”

(d) On September 25, 1959, SBA’s Loan Examiner, Mr. Nolan, conferred with Mr. Dukes in Finishers’ Toledo office as to measures by which the status of the loan might be improved. An arrangement was agreed upon, and subsequently recommended to SBA by Mr. Nolan, whereby Finishers would pay $500 per week (beginning immediately, September 25) up to the end of the year 1959 (which would cover the interest charges and make them current); and Mr. Dukes “would consent to the assignment of 50% of his claim but in no event on an amount not less than would be required to pay the principal amount delinquent on account of the loan”; in return for which SBA “would continue to work with him for the next 90 days which would no doubt be sufficient time for the settlement of the * * * claim.”

4. (a) On September 30, 1959, Finishers executed for delivery to SBA, as “an instrumentality of the United States” and “for and in consideration of the extension of credit” to Finishers by SBA, an assignment of $20,000—

* * * of any and all amounts now due or owing, or which may hereafter be or become due or owing, or remain unpaid * * * by the United States * * * to the assignor under or pursuant to the terms of a certain contact * * * [being the Ordnance contract]. * * *

(b) Negotiations leading to the execution of the foregoing assignment were conducted between Mr. Dukes as president of Finishers, Mr. Cook, Finishers’ Cleveland attorney, and Mr. Nolan, SBA Loan Examiner. The amount of the assignment ($20,000) was determined by the amount of additional security requested by SBA in the light of the delinquency of the debt of Finishers to SBA. The assignment was prepared by Mr. Cook, as “a modification of the form usually utilized by * * * [him] in the State of Ohio;” and its execution was supervised by him.

5. Article 8(a) of the General Provisions of the contract between Finishers and Ordnance was as follows:

8. Assignment of Claims
(a) Pursuant to the provisions of the Assignment of Claims Act of 1940, as amended (31 U.S. Code 203, 41 U.S. Code 15), if this contract provides for payments aggregating $1,000 or more, claims for monies due or to become due the Contractor from the Government under this contract may be assigned to a bank, trust company, or other financing institution, including any Federal lending agency, and may thereafter be further assigned and reassigned to any such institution. Any such assignment or reassignment shall cover all amounts payable under this contract and not already paid, and shall not be made to more than one party, except that any such assignment or reassignment may be made to one party as agent or trustee for two or more parties participating in such financing. Notwithstanding any provisions of this contract, payments to an assignee of any monies due or to become due under this contract shall not, to the extent provided in said Act, as amended, be subject to reduction or set-off. {The preceding sentence applies only if this contract is with the Department of Defense, the General /Services Administration, the Atomic Energy Commission, or any other department or agency of the United States designated by the President pursuant to clause 4. of the proviso of section 1 of the Assignment of Claims Act of 19140, as amended by the Act of May 15, 1951, 65 Stat. 41.)

6. (a) On October 1, 1959, Mr. Cook (for Finishers) described in finding 4(a), together with nine checks, each transmitted to Mr. Nolan, at SB A, the assignment of claim in the amount of $500, dated serially a week apart from October 5 through November 30,1959. Mr. Dukes had given Mr. Nolan one check for $500 on September 25. These 10 checks were “evidence of intent of * * * Finishers * * * to pay $500.00 per week until the end of 1959, so that the interest on the loan * * * may be made current by year end.”

(b) On October 2, 1959, Mr. Nolan prepared a memorandum to “Files” reviewing the status of Finishers’ loan, reporting his conference in Toledo on September 25, and recording his recommendation that SB A accept the arrangement of $500 per week to cover interest and an assignment of claim to cover delinquent principal. The recommendation was subsequently approved by the Regional Director of SBA.

(c) On October 5, 1959, SBA’s Acting Chief, Financial Assistance Division, directed the following letter to Mr. Madden.

We refer to your letter dated July 10, 1959, wherein you advised us that you have been retained by the subject Borrower to process a claim in connection with a contract Borrower processed for the Army, and under which a loss was sustained.
As you no doubt know we have a direct interest in this claim, insofar as our loan is concerned and the subject Borrower’s operations.
We would be pleased if you will advise us as to what progress you have made in the settlement of the claim.

(d)On October 7, 1959, Mr. Madden forwarded the foregoing letter to Mr. Dukes.

7. (a) On October 21, 1959, Mr. Dukes wrote to Mr. Madden:

We are very much interested and concerned about our claim, for reimbursement, and if the writer can help with any information at the present time please let me _ know.
_ Small Business Administration is interested in our claim progress, as per their letter to you of October 5th, because the writer has signed over half of what we obtain when the time comes, to pay against reimbursement of the SBA loan.
iji if: # # Hí

(b) On November 24, 1959, SBA’s Acting Chief, Financial Assistance Division, forwarded to the Regional Attorney of SBA the original and two copies of Finishers’ assignment to SBA, and a copy of Finishers’ contract with Ordnance, with a request “that the interested party be put on notice of this Agency’s interest in the claim.”

(c) On January 5, 1960, Mr. Dukes wrote to Mr. Madden requesting, rather urgently, a progress report on the claim against Ordnance. If Mr. Madden replied in writing, the letter is not in evidence. The two were, however, in touch by telephone from time to time.

(d) On January 13, 1960, SBA forwarded a Notice of Assignment, accompanied by a copy of the instrument of assignment by Finishers, to the contracting officer of Ordnance. Acknowledgment of receipt was made by Ordnance on January 15. Meanwhile, additional copies of the assignment were distributed internally in the offices of SBA, Cleveland.

(e) On January 21, 1960, the Regional Director of SBA made formal demand upon Mr. and Mrs. Dukes as guarantors, for payment of Finishers’ indebtedness, stated to be in the amount of $121,190.13, plus interest at 5% percent from April 28, 1959..

(f) On January 28, 1960, Mr. Dukes replied, reviewing the prospects of Finishers and asking for a meeting to “work toward a satisfactory payment structure.”

(g) On May 11,1960, the [Regional Director instructed the Regional Attorney of SBA “to proceed with legal action by appropriate referral to the U.S. Attorney * * The requisite papers (copies of the mortgages, guaranty, and letters of demand) were forwarded to Washington for instructions from the Washington office to the United States Attorney.

(h) On July 1, 1960, SBA’s Chief, Loan Liquidation Section, orally agreed to give Mr. Dukes until August 1, 1960, to try to find some solution of his problems, possibly through sale of the business.

(i) As of September 6, 1960, Mr. Dukes was continuing his efforts to resuscitate the business which, at that time, was no longer in operation.

(j) The defendant did not itself inform either plaintiff of the assignment to SBA until July 10, 1961 (see finding 9(a)).

8. (a) Meanwhile, on May 11, 1960, Finishers’ claim against Ordnance was formally denied by the contracting officer, and Mr. Madden docketed an appeal on June 14 with the Armed Services Board of Contract Appeals. A hearing before the ASBCA was scheduled for November 15, 1960.

(b) On October 26, 1960, Mr. Madden, by letter to Mr. Dukes, gave notice of the scheduled hearing, and asked Mr. Dukes to confirm by endorsement (which Mr. Dukes did) “our fee arrangement which we agreed upon in our telephone conversation of July 6, 1960 * * * a thirty * * * percent contingent fee of any recovery at the administrative level * * with Finishers to pay all costs. The letter further advised:

Mr. Clifford Hynning * * * has agreed to work with me on this matter. He will be in touch with you before the end of this week about a trip out there to go over your. records and make final preparations for the hearing.

(c) Pursuant to the arrangement between Messrs. Madden and Hynning, the latter took over the conduct of the case and carried it through, as hereinafter indicated.

(d) Hearings on the claim were held by the ASBCA on November 15 and 16, 1960, at the Pentagon Building, near Washington, with Mr. Hynning appearing for Finishers. At the request of Government counsel, the board ordered a severance of the issues, for determination separately of the issues of liability and damages.

(e) On June 20, 1961, the ASBCA sustained Finishers’ appeal and remanded the case to the contracting officer of Cleveland Ordnance for negotiation of the amount of the price adjustment.

9. (a) On July 10, 1961, Mr. Hynning conferred in Cleveland with representatives of Ordnance and later with representatives of SBA. At Ordnance, where he was negotiating the price adjustment, he was given a copy of Finishers’ assignment to SBA. He had had no prior express knowledge of it. In the course of discussion, both Mr. Hynning and a representative of Ordnance questioned the validity of the assignment on the premise that the statute did not permit a partial assignment.

(b) In his conferences later on the same day with SBA’s Chief, Loan Liquidation Section and its Regional Attorney, Mr. Hynning again questioned the validity of the assignment of $20,000 as a partial assignment, expressing his opinion that it was invalid. The Regional Attorney commented that if the settlement, when made, would insure payment of the legal fees and the residue would insure $20,000 being available under the assignment, then there would be no question arising as to SBA receiving such $20,000; but if the residue was less than $20,000, then there would probably be a problem with Internal Revenue, which also had a right of setoff.

(c) At the close of the conference with SBA, Mr. Hynning agreed to pursue the settlement negotiations in order to insure payment of the award as expeditiously as possible.

10. (a) On October 19, 1961, Ordnance confirmed settlement of Finishers’ claim in the amount of $34,000.

(b) The amount of plaintiffs’ contingent fee was thereupon determinable as $10,200. Such a fee was reasonable.

(c) On October 31, 1961, the Internal Revenue Service prepared and on November 15, 1961, it served a Notice of Levy notifying Finishers that there was due, owing, and unpaid $16,904.67 on account of taxes assessed against Finishers, and asserting a lien under section 6321, Internal Revenue Code of 1954.

11. (a) On November 21, 1961, Mr. Hynning wrote to Mr. Michael Roth, one of the attorneys for Cleveland Ordnance, as follows:

Pursuant to a conversation with Mr. Hosenball and with you on the settlement of the claim for equitable adjustment by Industrial Finishers, Inc., I would like your agency to prepare a series of checks, aggregating $34,000., all made out to the same payee, but with different addresses as follows:
1. Industrial Finishers, Inc., c/o Clifford J. Hynning, * * * in the amount of $10,850.00.
2. Industrial Finishers, Inc., c/o Arthur Young & Company, * * * in the amount of $825.00.
3. Industrial Finishers, Inc., in the amount of $20,000.00.
4. Industrial Finishers, Inc., in the amount of $2,325.00.
The first check made out care of me, should be mailed forthwith to the address indicated above, which is my law office. The second check should be mailed to Arthur Young & Co., in Toledo. The third and fourth checks should be held pending an agreement between Mr. Dukes and Small Business Administration and Internal Revenue Service as to how the proceeds of these checks should be divided.
*****
P.S. Since dictating the above, I have had a long distance telephone conversation with Mr. Tom Lunt, assistant Regional Counsel of Small Business Administration, wherein he said that it would be satisfied with an arrangement where the checks aggregating $20,000. were withheld by the Department of the Army. I explained to him that I had advised Mr. Dukes to invite an appropriate representative of the Internal Revenue Service to meet with him and the Small Business Administration in order to settle, if possible, the disposition of the $20,000. That appeared to be agreeable to Mr. Lunt. He specifically stated that he would have no objection to the immediate release of the check to be made out to Industrial Finishers, Inc., care of myself.

(b) On November 27,1961, SBA’s Loan Servicing Representative, placed in the files the following report:

Assistant Regional Counsel, T. C. Lunt, together with the writer and Al Slaman conferred with Mr. Albert Both, Special Procedures Section, Internal Revenue Service, regarding an agreement as to disbursement of $34,050 due from Cleveland Ordnance in settlement of Borrower’s claim.
Mr. Both, at this time, advised that after further referral to his Instruction Manual he would have, to submit the matter to his Washington Office for decision at that level. He pointed out that it probably would take some time to obtain a decision.
Pie indicated that Internal Revenue’s levy, while covering the last period hi 1959 and all of 1960 was assessed as of March 4, 1960 and that it appeared that the assignment of $20,000 in our favor, dated September 30, 1959 probably had priority. He also indicated that while Internal Revenue would probably accept some amount less than its total levy of $16,904, it would have to obtain clearance from the Washington Office.
Various other legal matters were discussed between Mr. Roth and Mr. Lunt, and Mr. Lunt pointed out that unless a decision was reached soon, Borrower’s attorney might tie up the funds for a long time with the possibility that liens for fees might get some priority, thereby reducing the fund substantiallv.
Mr. Roth suggested and requested that Mr. Lunt immediately furnish his [sic] with a letter outlining the matter for inclusion in his memorandum to his Washington Office and pointing out that our $20,000 claim is prior to that of Internal Revenue Service. Mr. Roth could not furnish information as to how long it would take but desired our letter which Mr. Lunt, subsequently, delivered to him together with copy of the assignment and notification accepted by Army Ordnance.

(c) The letter from Mr. Lunt, SB A Regional Attorney, to Mr. Albert Roth, attorney for the Internal Revenue Service, dated November 27,1961, follows:

There is on hand with Army Ordnance, Cleveland District, the sum of $34,050.00, which sum represents a settlement with Industrial Finishers, Inc. for a claim against Army Ordnance, arising from Contract DA-33-019-ORD-2791.
Army Ordnance will not disburse the funds held, as there are conflicting claims to such funds by Internal Revenue Service and Small Business Administration. They have indicated, however, that the funds would be disbursed if an agreement as to priorities could be reached between us.
Small Business Administration’s claim in the amount of $20,000.00 arises out of an Assignment of the proceeds of the Government contract by Industrial Finishers, Inc. to Small Business Administration on September 20,1959. I enclose a copy of the Assignment and of the Notification of Assignment accepted by Army Ordnance on J anuary 13, 1960.
The claim of Internal Revenue Service is in the amount of $16,904.67. The earliest date of assessment of Internal Revenue claim is March 4, 1960. It would appear, therefore, that Small Business Administration’s claim is prior to that of Internal Revenue Service.
There are other claims outstanding which could tie up the fund for an indeterminable period of time. As Army Ordnance has indicated that they would disburse the funds immediately upon agreement between Small Business Administration and Internal Revenue as to the priorities of their particular claims, I would appreciate a letter from your office directed to Army Ordnance indicating that the claim of Small Business Administration is prior to that of Internal Revenue Service.
Army Ordnance has indicated that upon receipt of such a letter they would then disburse $20,000.00 to Small Business Administration and the balance of the fund in the amount of $14,050.00 to Internal Revenue Service.

(d) On November 30, 1961, Mr. Iiynning addressed the following letter to the contracting officer at Cleveland Ordnance, the Regional Counsel of SBA, and the Director of Internal Revenue Service at Toledo:

A fuller examination of the law and surrounding circumstances has convinced me that the assignment by Industrial Finishers, Inc. on September 30,1959, in favor of Small Business Administration, in the amount of $20,000 is superior to any tax claims contained in a notice of levy subsequent to that date.
It is a fact that the attorney’s lien in this case arose prior to the SBA assignment, as shown by a letter dated July 10, 1959 sent by my co-counsel to the Small Business Administration. This letter was probably part of the chain that subsequently led to the execution of the assignment in favor of Small Business Administration two and one-half months later.
I understand that the Internal Revenue Service recognizes the priority of the attorney’s lien in this case since the attorney succeeded in an administrative proceeding before the Armed Services Contract Appeals Board in securing a fund of $34,000.00 payable to Industrial Finishers, Inc.
Since the fund is sufficient to satisfy both the attorney’s lien and the SBA assignment, it is not necessary to determine the priority between such attorney’s lien and such SBA assignment. The remainder after the satisfaction of these two will then be payable to the Internal Revenue Service under its levy as monies owing to Industrial Finishers, Inc. after satisfaction of the lien and assignment. Thus Ordnanance [sic] can effect a distribution of $34,000.00 owing to Industrial Finishers with the agreement of all the parties concerned.
I therefore request that Ordnance issue checks as follows:
(1) Industrial Finishers, c/o Clifford J. Hynning, * * * in the amount of $10,850.00;
(2) Industrial Finishers, Inc., c/o Arthur Young and Company, * * * in the amount of $850.00;
(3) Industrial Finishers and Small Business Administration in the amount of $20,000.00;
(4) Industrial Finishers, Inc. and Director, Internal Revenue Service, $2,325.00.
I am authorized by Mr. Lunt of the Small Business Administration to state that it has no objection to the above disbursements. I assume that the Internal Revenue Service will advise Ordnance that it is also agreeable to such disbursements.
I should appreciate Ordnance mailing me promptly the check to Industrial Finishers in the amount of $10,850.00 as soon as it is issued.

(e) On December 22, 1961, Mr. Hynning wrote to the Assistant Regional Counsel of the Internal Revenue Service in Cleveland reviewing Ms activities in relation to Finishers’ claim and stating that—

* * * my attorney’s charging lien as distinguished from a general or retaining lien, was both choate and perfected before the assertion of your tax lien on October 31, 1961. The major legal work had been substantially completed at the time of the rendering of the decision by the Armed Services Board of Contract Appeals in favor of Industrial Finishers on June 20, 1961. In any event, the final step in the proceeding was the acceptance of the settlement on October 19, 1961. All of these dates were of course prior to the tax lien, which was asserted on October 31, 1961.
I am reliably informed that the Chief Counsel’s office of the National office regards the charging lien of an attorney, i.e., where an attorney as a result of a legal proceeding, whether before a court or an administrative body, creates a fund for the benefit of the taxpayer and those claiming against him, as superior to any tax lien subsequently asserted. I have further been informed that it is the policy of the Service to respect such charging liens. * * *
*****

(f) Ultimately, plaintiffs’ claim was referred to the General Accounting Office which disallowed it by letter of July 3, 1962, to Mr. Hynning:

Your claim for $10,850.00 stated to be due as an attorney’s lien in your favor arising by reason of your appearing as attorney for Industrial Finishers, * * * is disallowed for the reasons stated below.
The appearance of counsel on behalf of a contractor performing services for the Government in no way obligates the Government to pay for such representation by an attorney. The relationship of attorney and client is purely a matter of their mutual arrangement and does not render such attorney privy to contractual relationship between the Government and its contractors.
It is the general rule that attorney fees are not allowed in suits against the Government without an express statutory provision allowing them. Piggly Wiggly Corp. v. United States, 112 Ct. Cls. 391.

(g) Ordnance thereupon paid over to SBA $20,000 and to the Internal Revenue Service $14,000, thereby exhausting the fund.

12. On November 1, 1962, the United States District Court for the Northern District of Ohio, Western Division, entered judgment against Finishers and Mr. and Mrs. Dukes in favor of the United States for $122,905.52, plus interest, and ordered foreclosure of the two mortgages upon failure to make payment.

13. At the trial of the action, Mr. Earle 0. Morrison, a technical advisor with the Division Director of the Litigation Division, Office of Chief Counsel, Internal Revenue Service, testified that—

* * * there is a Bureau policy that an attorney’s fee may be allowed out of a fund created by him where the United States will benefit.

The foregoing was later qualified by the following statements :

That is where private litigants are involved. But here was a suit against the United States, to whom the taxpayer owed a couple of hundred thousand dollars, and there was not anything due him.
Our policy with respect to that is that we do not allow it. * * * we refer it to the General Accounting Office.
* * * We do not allow fees due the attorneys * * * prior to the tax lien where the suit is against the Government. * * *

14. The Small Business Administration was created by the Act of July 18, 1958, 72 Stat. 384, to “be under the general direction and supervision of the President and shall not be affiliated with or be within any other agency or department of the Federal Government.” The management of the Administration was “vested in an Administrator,” who “may sue and be sued in any court of record of a State having general jurisdiction * * *” although “no attachment, injunction, garnishment, or other similar process * * *” could be issued against him or his property. “Any interest held by tlie Administration in property, as security for a loan, shall be subordinate to any lien on such property for taxes due on the property to a State * *

15. (a) The relationship of attorney and client between Mr. Madden and Finishers came into being in the District of Columbia when Mr. Madden agreed to undertake to represent Finishers.

(b) The contract between them, whereby Finishers agreed to pay 30 percent of the amount of recovery at the administrative level, was made in Ohio, when Mr. Dukes accepted Mr. Madden’s terms.

(c) Some of the legal services rendered by plaintiffs to Finishers were performed in plaintiffs’ offices in the District of Columbia.

(d) The territorial situs of the hearings held by the ASBCA was in the Commonwealth of Virginia, wherein the Pentagon Building is located. Some of the plaintiffs’ legal services were performed there, in the course of the hearings.

(e) Otherwise, all of the principal transactions involved in this suit took place in Ohio, including the following:

(1) The underlying contract between Finishers, an Ohio corporation, and Cleveland Ordnance was made and performed in Ohio.

(2) Finishers borrowed money from SBA in Ohio.

(3) The security for Finishers’ loan from SBA was property (real estate and chattels) located in Ohio.

(4) The Federal tax liens accrued from transactions in Ohio and were asserted there.

(5) Finishers’ claim for an equitable adjustment arose in Ohio and was there presented to and denied by Cleveland Ordnance.

(6) Finishers’ assignment to SBA was made in Ohio.

(7) The negotiation of the amount of the equitable adjustment took place in Ohio and reflected an appreciable portion as well as the completion of plaintiffs’ legal services.

16. (a) Mr. Dukes’ letter of October 21, 1959, to Mr. Madden, stating that “Small Business Administration is interested in our claim progress, as per their letter to you of October 5th, because the writer has signed over half of what we obtain when the time comes, to fay against reimr bursement of the SBA loan” was the only advice in the nature of notice of Finishers’ assignment to SBA given to Mr. Madden. He did not realize its significance at the time. Except for the presence in Mr. Madden’s file of Mr. Dukes’ letter of October 21, 1959, Mr. Hynning had no inkling of the assignment until he was shown a copy of it at the office of Cleveland Ordnance on July 10, 1961.

(b) The evidence as a whole does not warrant an inference that knowledge of the assignment was deliberately withheld from plaintiffs by Finishers, SBA, or Ordnance, or that any action by any of the three was designed or intended to keep such knowledge from plaintiffs or either of them.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiffs are not entitled to recover. The petition is therefore dismissed. 
      
       This opinion is largely based on portions of the opinion prepared by Trial Commissioner W. Ney Evans at the direction of the court. The court does not consider certain issues discussed by the commissioner.
     
      
       Tlie specific agreement for a contingent fee of 30 percent of the recovery was made 16 months later, in October 1960.
     
      
       Interest charges for the year 1959 would have been of the order of $6,650.
     
      
       Payments on principal for tlie year 1959 ■would Rave been of tbe order of $19,000.
     
      
       SBA, standing on its rights under the assignment from Finishers, had persuaded IRS to yield priority to SBA, authorizing payment to SBA of the full amount of the assignment, while IRS, in accepting the balance, suffered a reduction of its claim.
     
      
       Finding 16(b) and n.24.
     
      
      
         Finishers’ principal place of business was in Toledo, Lucas County, Ohio. The corporation ceased doing business in July 1960, and in 1963 failed to renew its corporate charter under the laws of Ohio. The corporation was existing at all times material to this action.
     
      
       Identified as Contract No. DA-33-019-ORD-2791.
     
      
       Cleveland Ordnance District was an instrumentality of the united States Army, stationed in Cleveland, Ohio.
     
      
       The loan was approved (by Loan Authorization) on June 17, 1958.
     
      
       Both mortgages were duly recorded in the Recorder’s Office of Lucas County, Ohio.
     
      
       On February 23, 1959, Finishers requested permission of SBA to make payments of interest only for tbe 6 months beginning January 23, in order that it might consolidate its position. The request was refused on March 20, when the payments due in January and February were demanded. Two months later, on May 18, SBA reminded Finishers that its payments were 4 months delinquent and demanded advice as to when and how the condition would be corrected. After some further correspondence, a meeting was arranged and held, at which representatives of Finishers and representatives of SBA discussed the situation.
     
      
       From the outset of his retainer, it was clear to Mr. Madden that Finishers was in financial difficulty, because of which he believed that payment for legal services would have to come from the recovery, if any, on the claim.
     
      
       Through the Acting Chief of the Financial Assistance Division.
     
      
       Interest charges for the year 1959 (none of which had been paid) would have been of the order of $6,650. Payments of $500 per week for 14 weeks would have amounted to $7,000.
     
      
       As of this time the validity of the claim had not been determined nor, of course, the amount. Discussions of its size were in terms of $60,000 or $40,000.
     
      
      
         Payments on principal for the year 1959 (none of which had been made) would have been of the order of $10,000, more or less.
     
      
       Subsequently, these checks (with two exceptions) proved nonnegotiable and were returned to Finishers.
     
      
       Enclosed with the letter was Finishers’ check to Mr. Madden for $74.17, in payment of a statement for expenses.
     
      
       As of the time of trial there were also unreimbursed expenses of $238.
     
      
       Dates of assessment extended from March 4, 1960, through March 10, 1961.
     
      
       The text of section 6321 follows: “Lien for Taxes. If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the united States upon all property and rights to property, whether real or personal, belonging to such person.”
     
      
       15 U.S.C. § 633(a).
     
      
       15 U.S.C. § 633(b).
     
      
       16 U.S.C. § 634(b) (1).
     
      
       15 U.S.C. § 646.
     
      
       Finding 7(b).
     
      
       Finding 6 (c), (d).
     
      
       Emphasis supplied.
     
      
       SBA’s Loan Examiner, Mr. Nolan, was not a lawyer, and the office routine of SBA within which he worked apparently did not require scrutiny for legal clearance of his action In obtaining the assignment from Finishers. Having applied a banker’s Instinct to the improvement of the appearance of Finishers’ paper, he was content to have Finishers’ Cleveland lawyer, Mr. Cook, draw up and supervise the execution of the assignment. Mr. Cook, as Finishers’ loan attorney, appears to have been oblivious to the Assignment of Claims provision in Finishers’ contract with Ordnance (which was itself a recitation of the statutory provision) or to any possible impact of such an assignment upon the prosecution by other lawyers of Finishers’ claim for an equitable adjustment.
     