
    LOUIS ROSNER D/B/A FRANKLIN CUSHION AND DRAPERY COMPANY v. THE UNITED STATES
    [No. 49180.
    Decided July 13, 1953.]
    
      Mr. Edwin J. McDermott for the plaintiff.
    
      Mr. Gordon F. Harrison, with whom was Mr. Assistant Attorney General Holmes Baldridge, for the defendant.
   Howell, Jvdge,

delivered the opinion, of the court:

This suit is brought under the War Contract Hardship Claims Act, known as the Lucas Act, 60 Stat. 902, as amended by 62 Stat. 869, 992, 41 U. S. C. § 106 note, to recover the net loss alleged to have been sustained by plaintiff without fault or negligence on his part in the performance of Government contracts between September 16, 1940 and August 14, 1945.

The parties have stipulated that the net loss incurred by plaintiff on all of his Government contracts between September 16,1940, and August 14,1945, was at least $5,120.26. In its brief, defendant has conceded that $833.83 paid by plaintiff as factor’s charges for services in connection with his Government contracts is an allowable cost of performing the contracts, thus increasing plaintiff’s net loss to $5,954.09. Plaintiff urges that his actual net losses should include an additional sum of $3,816.80 representing amounts he withdrew from his business to compensate for his work of supervision and general management in connection with his Government contracts. Defendant argues, however, that “salary” to a sole proprietor for work on Government contracts is not an allowable item of cost of performance of the contracts under paragraph 101.7 of Executive Order 9786, 11 F. R. 11553.

The defendant contends that plaintiff’s recovery is barred by paragraph 204 of Executive Order 9786, 11 F. R. 11553. The defendant also contends that, in any event, plaintiff’s loss is limited to not more than $1,168.72 on the ground that this is the only part of plaintiff’s loss as to which plaintiff has filed a proper “written request for relief” within the meaning of Section 3 of the Lucas Act.

In 1942, plaintiff entered into three contracts with the Quartermaster Corps of the War Department which provided that plaintiff would furnish and deliver certain quantities of cotton mattress covers to the defendant. One of the contracts was terminated by a supplemental agreement under which the plaintiff accepted $5,552.13 in full settlement. Under the other two contracts, deliveries were delayed and liquidated damages and other damages were assessed against the plaintiff. On August 25,1943, the plaintiff wrote to the contracting officer seeking' relief from the liquidated damages of $10,257.03, the transportation costs of $1,168.72, and other damages for which plaintiff was liable under Article 26 of the contracts. This letter of August 25, 1943, defendant admits, is a proper “written request for relief” within the meaning of the Lucas Act.

• Subsequently, by means of supplemental agreements executed pursuant to the First War Powers Act, 1941 (50 U. S. C., Supp. IY, app. § 611), the defendant released the plaintiff from the assessment of the liquidated damages. The plaintiff’s requests with respect to the transportation costs and other damages, however, were not granted. The losses incurred by the plaintiff in performing the contracts were not due to fault or negligence on his part.

Plaintiff’s claim for losses under the Lucas Act was filed with the Department of the Army within the statutory period, and the claim was denied. Subsequently, plaintiff filed a timely petition in this court.

With respect to the defendant’s contention regarding paragraph 204 of Executive Order 9786, 11 F. R. 11553, this contention has been fully considered and rejected in some of our previous decisions, e. g., Howard Industries v. United States, 113 C. Cls. 231; American Construction Co. v. United States, 123 C. Cls. 408, cert. den. 345 U. S. 922; and we find no reason for departing from them.

Plaintiff’s business was a sole proprietorship. During the performance of the Government contracts, plaintiff performed certain necessary supervisory services which we have found were essential to the performance of these contracts. Of the total amount withdrawn by plaintiff as salary, he has allocated $3,816.80 to work on the Government contracts, and defendant does not dispute the correctness of this allocation. Defendant contends that this amount is not an allowable cost of performing the contracts, however, because a sole proprietor, like an individual partner in a partnership, is the owner of the business and his “pay” represents a distribution of profits.

• This same argument was made in connection with the allow-ability of partners’ salaries as a necessary cost of performing Government contracts in Atlantic Corporation, Assignee v. United States, ante, p. 464, and we decided that where the services performed by the salaried partners are essential to the functioning of the organization and would be required whether they were performed by a partner or by recruited personnel, the cost of such services is properly a charge to operating expenses without regard to who performs them.

We believe that what we said in the Atlantic case respecting the salaries of partners is equally applicable to salaries of sole proprietors, and accordingly we hold that the $3,816.80 salary to the plaintiff is properly allocable to the Government contracts and is a proper item of cost to be considered in determining his actual net loss. Whether or not this item may be used in computing plaintiff’s recoverable net loss under the Lucas Act depends upon whether his request for relief was sufficiently broad to cover this amount.

As to defendant’s contention that plaintiff’s recovery cannot be more than $1,168.72, Section 3 of the Lucas Act provides in part that

Claims for losses * * * shall be limited to losses with respect to which a written request for relief was filed with such department or agency on or before August 14,1945, * * *.

Since the defendant concedes that plaintiff’s letter of August 25, 1943 was a proper “written request for relief” within the meaning of the Act as to the transportation costs of $1,168.72, the main issue here is whether this letter also requested relief with respect to the field inspection charges of $292.86, the excess costs resulting from the partial termination of one of the contracts of $811.42, and the balance of plaintiff’s losses which were due to his production costs exceeding the price paid him for those mattress covers which he did produce and deliver. This balance includes $3,816.80 representing salary to plaintiff, $833.83 representing factor’s charges, and $2,154.26 representing the balance of his operating loss.

We are satisfied that plaintiff’s letter did request relief with respect to the field inspection charges and the excess costs resulting from the partial termination of one of the contracts, but did not do so with respect to the balance of plaintiff’s losses. In his letter, the plaintiff requested that “all other damages be waived,” that he be relieved “from all liquidated and other damages” and “from the consequences of the imposition of liquidated damages and costs of all character,” and that the “entire amount of damages be forgiven.” These requests pertained to damages or excess costs for which the plaintiff was liable to the defendant under Article 26 of the contracts (see finding 8), and thus included the field inspection charges of $292.86 and the excess costs resulting from the partial termination of one of the contracts of $811.42.

Nowhere in this letter of August 25, 1943, however, did the plaintiff ask for relief with respect to those losses he suffered due to his production costs exceeding the price paid to him for those mattress covers which he did produce and deliver. The plaintiff’s references to his distressed financial condition were for the limited purpose of showing proper cause under the then existing Army regulations for his being relieved of the imposition of liquidated damages and other damages. These statements did not ask for reimbursement of such losses, and thus were not requests for extra-legal relief with respect thereto.

Accordingly, we are of the opinion that plaintiff’s letter of August 25, 1943 requested relief with respect to $2,273 of his losses, and that plaintiff is entitled to recover this amount. Inasmuch as that letter did not request reimbursement for costs representing plaintiff’s sole proprietor’s salary allowance, the factor’s charges, and the balance of his operating net loss properly allocable to these contracts as necessary costs of performance, plaintiff is not entitled to recover such amounts under the Lucas Act.

The plaintiff is equitably entitled to the amount of $2,273.00 in settlement of its claim. An order will be entered, pursuant to Section 6 of the Lucas Act, directing the Department of the Army to settle such claim, in accordance with the findings of this court, in the amount of $2,273.00.

It is so ordered.

MaddeN, Judge; Whitakee, Judge/ LittletoN, Judge; and JoNEs, Chief Judge, concur.

The court makes findings of fact, based upon the evidence, the report of Commissioner Paul H. McMurray, and the briefs and argument of counsel, as follows:

1. The plaintiff is an individual doing business as Franklin Cushion and Drapery Company, whose principal office and place of business is in Philadelphia, Pennsylvania.

2. During the period between September 16, 1940, and August 14, 1945, plaintiff entered into three contracts with the defendant, acting through the Quartermaster Corps of the War Department. These contracts were as follows: Contract No. W669 qm-20379, dated July 28, 1942, which provided that contractor should furnish and deliver 65,000 covers, mattress, cotton (medical) at the fixed unit price of $0.45 for a total consideration of $29,250; Contract No. W669 qm-22547, dated October 20, 1942, which provided that contractor should furnish and deliver 65,000 covers, mattress, cotton (medical), at the fixed unit price of $0,465 for a total consideration of $30,225; and Contract No. W669 qm-23125, dated November 12, 1942, which provided that contractor should furnish and deliver 300,000 covers, mattress (cotton) at the fixed unit price of $0.22 for a total consideration of $66,000.

3. Keference to Navy contract NI40 S-94406 dated November 26, 1941, is made in plaintiff’s petition. Plaintiff was not one of the parties to the Navy contract and by agreement of counsel that contract is not being considered.

4. By Modification “D” entitled “Supplemental Agreement,” contract W669 qm-22547 was terminated in accordance with the terms of a negotiated settlement, mutually agreed to by the parties on January 21, 1944. Pursuant to the agreement, plaintiff accepted $5,552.13 in full settlement.

5. Deliveries under the remaining two contracts were delayed and liquidated damages were assessed against the plaintiff. On August 25, 1943, plaintiff wrote to the contracting officer seeking relief from the liquidated damages totaling $10,257.03, and transportation costs of $1,168.72. In that letter of August 25, 1943, plaintiff made reference to various regulations of the then War Department and the Quartermaster Corps, including Procurement Regulation 308-E, pursuant to which, contracting officers may be authorized to extend by supplemental agreement the time fixed for performance in any contract and to waive accrued liquidated damages, based upon the First War Powers Act of 1941 and Executive Order 9001.

6. After consideration of plaintiff’s request for relief of August 26,1943, supplemental agreements were entered into under each of the two contracts, appropriate authority having first been delegated to the respective contracting officers pursuant to Procurement Regulation 308-E. With respect to contract W669 qm-20379, the supplemental agreement is dated May 16, 1944 and referred to as Modification “A”; with respect to contract W669 qm-23125, the supplemental agreement is dated June 16, 1944 and referred to as Modification “B”. These supplemental agreements stated that they were entered into in accordance with and pursuant to the First War Powers Act and Executive Order 9001; that the Government released and discharged the claimant from all liability for liquidated damages accrued to and assessed by the Government against the claimant under the related contracts; and that the claimant waived any and all claims for damages against the Government of any nature whatsoever arising under these contracts.

The plaintiff agreed at the time of the execution of the above-mentioned Modification “A” to pay to the Government $116.60, the amount of field inspection costs incurred after final delivery requisition date. Likewise plaintiff agreed at the time of execution of Modification “B” to payment to the Government of $177.36, the amount of field inspection costs incurred after the final delivery requisition date of the contract involved. Plaintiff also agreed in connection with the execution of Modification “B” to payment to the Government of $811.42, the amount of excess costs resulting from the partial termination of the contract involved in Modification “B”. It was further agreed that the total sum referred to in this finding, $1,104.28, could be deducted and collected under the contracts in question.

7. The plaintiff was allowed the liquidated damages asked for in his letter of August 25, 1943, but not the amount relating to transportation costs. Following the execution of Modifications “A” and “B,” described above, no further request for relief of any nature was made by the plaintiff until he filed an administrative appeal under the Lucas Act, on February 5,1947.

8. The provisions of Article 26 of contracts W 669 qm-20379 and W 669 qm-23125 are as follows:

Article 26. Delay s-Liquidated Damages. — If contractor refuses or fails to make delivery of acceptable material or supplies within the time or times specified in Article 1, or any extension or extensions thereof, the actual damage to the Government for the delay will be impossible to determine, and in lieu thereof the contractor shall pay to the Government, as fixed, agreed and liquidated damages for each calendar day of delay in the delivery of any article, a sum equal to one-fifth of one percentum (% of 1%) of the price of such article for each day’s delay after the time specified for delivery, and the contractor and his sureties shall be liable for the amount thereof: Provided, however, That if the contractor fails to make delivery of any portion of the material or supplies within the time specified in Article 1, the Government reserves the right to terminate the right of the contractor to deliver all or any portion of the undelivered material or supplies, and to purchase similar material or supplies in the open market or secure the manufacture and delivery thereof by contract or otherwise, charging against the contractor and his sureties any excess cost occasioned the Government thereby, together with liquidated damages accruing until such time as the Government may reasonably procure similar material or supplies elsewhere: * * *.

9. Plaintiff’s claim filed pursuant to the Lucas Act and Executive Order 9786 dated October 5, 1946, was denied on December 30, 1948, by the War Contract Hardship Claims Board. The Board held that no request for relief was pending on August 14, 1945. The Board further held that after final action had been taken under the First War Powers Act of 1941 and Executive Order 9001 on the plaintiff’s request of August 25,1943, nothing in the nature of a request for relief was filed before August 15,1945.

10.In the performance of the above three contracts, the plaintiff suffered a net loss of $9,077.89, which includes the following costs:

Transportation costs_ $1,168.72
Field inspection charges_ 292. 86
Excess costs resulting from termination_ 811.42
Plaintiff’s salary allowance_ 3, 816.'80
Factor’s charges_ 833.83
Balance of operating loss_ 2,154.26
Net Loss on All Contracts_$9, 077. 89

This loss was suffered without fault or negligence on the part of the plaintiff.

11. The plaintiff paid $833.83 as factoring fees for services in connection with his Government contracts. This amount does not include any sums paid by the plaintiff to his factor as interest on cash advances.

A factor furnishes various services, which may include checking the credit of customers, rendering a collection service, keeping books of accounts, maintaining an accounts receivable ledger, acting as selling agent, furnishing warehouse facilities, and counseling on sales and trends of the industry. Plaintiff was under a yearly contract with his factor which required that all sales be handled by the factor. The factor carried an accounts receivable ledger for plaintiff, which showed the costs, debits, and credits and accounts receivable; kept a record of plaintiff’s various costs; furnished counsel and advice; sent men at least once a month to inspect plaintiff’s records and received a copy of every shipping receipt and did all the office work on the government accounts. Plaintiff did not keep an accounts receivable ledger.

12. Plaintiff supervised and managed the performance of the work under the contracts and withdrew from his business a sole proprietor’s salary allowance of $150 per week, which was reasonable compensation for the services performed by him. The parties have stipulated that the amount of plaintiff’s salary allowance chargeable to the contracts was $3,816.80.

CONCLUSION OP LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is equitably entitled to the sum of $2,273.00 in settlement of its claim. Therefore, pursuant to Section 6 of the Lucas Act, 60 Stat. 902, as amended by 62 Stat. 869, 992, the Department of the Army is directed to settle such claim in the amount of two thousand two hundred seventy three dollars ($2,273.00).  