author: HOLLOWAY, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. C. George SWALLOW, Defendant-Appellant.
    No. 73-1822.
    United States Court of Appeals, Tenth Circuit.
    Argued July 9, 1974.
    Decided Feb. 24, 1975.
    Rehearing Denied April 2, 1975.

      Richard D. Lynton, Boulder, Colo., for defendant-appellant.
    W. Allen Spurgeon, Asst. U. S. Atty., Denver, Colo. (James L. Treece, U. S. Atty., Paul D. Cooper, Asst. U. S. Atty., Denver, Colo., on the brief), for plaintiffappellee.
    Before SETH and HOLLOWAY, Circuit Judges, and TALBOT SMITH, District Judge.

       Of the Eastern District of Michigan, sitting by designation.

   HOLLOWAY, Circuit Judge.

Appellant Swallow challenges his convictions under a four count federal income tax indictment. Count I alleged a willful attempt, from late 1966 until 1969, to evade and defeat payment of income taxes for the years 1953, 1954 and 1955. Counts II, III and IV accused him of a willful attempt to evade and defeat his federal income taxes for the years 1966, 1967 and 1968. The charges and convictions were all of violation of 26 U.S.C.A. § 7201. Defendant received a five year sentence, subject to release under 18 U.S.C.A. § 4208(b).

On this appeal Swallow urges four principal contentions, arguing that: (1) the trial court erred in not sustaining a motion to acquit due to insufficiency of the evidence, particularly stressing the lack of evidence as to counts II, III and IV; (2) the defendant was substantially prejudiced by improper closing argument by government counsel who stated certain facts as proven that were unsupported by proof; (3) the trial court erred in refusing to give two instructions requested by defendant, thereby denying a charge on his theory of defense; and (4) the ineffectiveness of defendant’s representation by his trial counsel denied him a fair trial and his constitutional right to counsel. It is convenient to discuss the facts in the treatment of these issues, to which we now turn.

1. The Sufficiency of the Evidence

Defendant challenges the sufficiency of the evidence on all counts, while stressing particularly the lack of proof to support the convictions under counts II, III and IV. We must examine the proof tending to support the convictions since, after a verdict of guilty, the evidence must be viewed in the light most favorable to the government to determine whether there is sufficient substantial proof, direct and circumstantial, together with inferences reasonably drawn therefrom, on which the defendant might be found guilty beyond a reasonable doubt. United States v. Twilligear, 460 F.2d 79 (10th Cir.)

A. Count I

As stated, count I charged Swallow with a willful attempt from late November, 1966, continuing through March 14, 1969, to evade and defeat payment of income taxes for 1953, 1954 and 1955. Generally the government proof was that there was a total assessment for 1953, 1954 and 1955 taxes against Swallow for $7,111. Swallow maintained on November 25, 1966, that he possessed only $37 in cash, owned no real estate or personal property, except one term insurance policy he could not find, and was heavily in debt. These representations were made in a statement of financial condition submitted to the IRS in November, 1966, and similar statements were made to IRS agents in December, 1968, and March, 1969.

There was government proof tending to show the following facts as to Swallow’s assets. He and his wife had conveyed a residence in Aurora, Colorado, in 1961 to one Markey. Markey testified that Swallow told him he was in need of funds, and that he asked Markey to refinance the debt on the house with the understanding that the house would revert to Swallow when Swallow could assume the payments. Markey obtained a loan of $12,000, paid off an old mortgage and closing costs, and paid a balance of over $3,000 to Swallow. The conveyance to Markey had been recorded, but in November, 1961, a transfer back to Mrs. Swallow was not recorded, although shown in a notary’s notebook. The Swallows never gave up possession of the property and as late as 1966 through 1968, they were making payments on Markey’s loan. Markey made some tax payments, but was reimbursed for them by the Swallows. In November, 1966, the balance due on the loan was $10,-001.29. The appraised value of the house at that time was about $16,000, leaving an equity of about $6,000.

Between 1961 and 1964 Swallow executed five chattel mortgages on personal property located at the residence. The mortgages recited a total consideration of $4,300, but Markey testified that he had never paid any consideration to Swallow and that he neither received nor used any of the property. Swallow mortgaged the same furnishings and appliances in 1963 to Mineralag Corporation, a corporation run by Swallow and discussed later, for $8,000 and in 1964 he mortgaged them to one Linkon for $12,-000. In 1964 Swallow executed an instrument purporting to sell the furnishings and appliances to Markey for $10, but Markey testified he never received any of the property.

There was also proof tending to show that Swallow held a Metropolitan Life Insurance policy with a net cash value of $500 on November 28, 1966. Swallow also had a Connecticut General Life Insurance policy with a net cash value of $1,299 on that date. The total asset value of these and another policy was over $1,900 on November 28, 1966 — the date that the financial statement of Swallow was given to the IRS.

There was also, as detailed below, a considerable flow of cash received by Swallow in 1966, 1967 and 1968 from persons advancing or investing funds in the “Mineralag” venture. While the funds were not intended by those sending them to become assets of Swallow’s, the record proof as to their handling permits the inference that they were treated by Swallow as subject to his disposition, without an intent to repay, for his business and personal expenditures. Thus the inference of the existence of substantial funds treated by Swallow as his assets is permissible, supporting also the inference of misrepresentation.

We must conclude that there was substantial evidence of misrepresentations by Swallow as to assets made in his statements to the Internal Revenue Service, which proof supports the conviction on count I.

B. Counts II, III and IV

Counts II, III and IV charged a willful attempt to evade and defeat Swallow’s income taxes for 1966, 1967 and 1968 in violation of 26 U.S.C.A. § 7201. To sustain convictions of such offenses the prosecution must establish beyond a reasonable doubt that there was a substantial tax deficiency, willfulness and some affirmative act constituting an attempt to evade or defeat the tax. Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882; Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418.

The principal government theory of a substantial tax deficiency argued to the jury was that the loans were not good faith loans to Swallow, and that there was no effort, nor any evidence to indicate any intent by Swallow, to repay the loans (R.X., 36-37). The trial court instructed on this theory (R.X., 70-71). When earnings are acquired, lawfully or unlawfully, without consensual recognition of an obligation to repay or restriction on their disposition, there is income. James v. United States, 366 U.S. 213, 219-220, 81 S.Ct. 1052, 6 L.Ed.2d 246. And this principle applies to loans obtained in bad faith and without an intent to repay them, as well as to money illegally obtained by embezzlement as in the James case. United States v. Rosenthal, 470 F.2d 837, 842 (2d Cir.), cert. denied, 412 U.S. 909, 93 S.Ct. 2298, 36 L.Ed.2d 975; United States v. Rochelle, 384 F.2d 748 (5th Cir.), cert. denied, 390 U.S. 946, 88 S.Ct. 1032, 19 L.Ed.2d 1135.

The proof of the government in support of the bad faith loan proposition tended to show the following facts in establishing the element of a substantial tax deficiency. Swallow was involved in a corporate enterprise in 1966, 1967 and 1968. He represented that he was engaged in agricultural research to produce a mineral fertilizer known as “Mineralag” for sugar beets and other crops. Acting mainly through a St. Louis stockbroker, Stocker, and a friend, Riley, individuals were induced during the years 1966 through 1968 to send money to promote Swallow’s research. In all, more than fifty persons sent over $229,000 to finance the venture. Most of them had no personal contact with Swallow before sending in their money, although Swallow later met and corresponded with a number of them.

The payments were made in various ways. The checks were made out in many instances to a Mineral Aggregates Corporation or to Geyser Minerals Corporation, companies run by Swallow. In numerous instances the checks were made to Swallow individually. After the funds were received, notes were executed to the persons forwarding the funds. The notes were signed by Swallow “individually and as principal borrower & as president of Mineral Aggregates Corp. — cosignor.” Stock certificates were also issued to the persons forwarding the funds, which Swallow described in correspondence as a bonus or gratuity. Several exhibits admitted in evidence referred to the transactions as loans to Swallow, with the funds being reloaned by Swallow to the corporation for research work. See Plaintiff’s Exhibit 72 — G; Defendant’s Exhibits I, K and M. In September and October of 1967 Swallow requested that all stock •issued by Mineral Aggregates be exchanged for stock in a newly organized Nevada corporation, Geyser Minerals Corporation.

As stated, over $229,000 was received through various transactions of this sort in 1966, 1967 and 1968. Several of the persons forwarding the funds requested repayment, but no repayment was made to any of over 40 such witnesses who testified. It was a permissible inference on this record to find that Swallow obtained loans in bad faith without an intent to repay them, and thus had income.

Appellant Swallow relies on In re Diversified Brokers’ Co., 487 F.2d 355 (8th Cir.), as showing that no tax liability attached to him. There, however, in a bankruptcy proceeding it was found that the taxpayer corporation alleged to owe taxes, and the lenders, had treated the transactions as bona fide loans, although the company could not repay all of them, and the holding of no tax liability was based on this finding. Id. at 357. A contrary finding against Swallow that the loans here were obtained in bad faith is supported by the record.

In addition to such proof about these funds received by Swallow, there was also government proof tending to show that Swallow benefited from approximately $34,000 in payments from the corporate accounts for personal expenditures on himself and his family. These items included clothing, his daughter’s honeymoon expenses, payments on household repair, and numerous similar items. Almost all of these checks were drawn by Swallow’s wife.

While Swallow did not testify, his counsel argued that these payments for the benefit of Swallow and his family were merely repayments by the corporations to Swallow on loans made to the companies by Swallow of the funds he had received from the some fifty persons who loaned the money to Swallow. However, as discussed below under proposition 3, there was no proof that such expenditures were intended or treated as repayments on advances by Swallow to the companies. Again the inference of substantial income is permissible on this record.

An expert witness for the government summarized the evidence on receipt of funds by Swallow under both the theory of bad faith loans and the theory that the personal expenditures from corporate funds were for Swallow’s personal benefit. Using information from Form 1040’s filed by Swallow for 1966, 1967 and 1968, this witness testified that there would be a tax liability of $116,736 for the three years if the total funds received by Swallow and the corporations' were treated as his income. The expert testified that the tax liability for the three years would be $6,025, if the personal expenditure items alone were treated as income to Swallow.

Considering the proof in the light most favorable to the government as we must in reviewing the convictions, we must conclude that there was substantial proof to sustain the first element of the § 7201 offense — a substantial income tax deficiency.

The second element of the offense is that of willfulness. In connection with it the government must prove beyond a reasonable doubt that there was an attempt to evade the tax, made voluntarily and intentionally and with the specific intent of evasion. United States v. Dowell, 446 F.2d 145 (10th Cir.), cert. denied, 404 U.S. 984, 92 S.Ct. 448, 30 L.Ed.2d 368. Such intent may be drawn from circumstantial evidence alone if the proof is substantial. United States v. Ramsdell, 450 F.2d 130 (10th Cir.); United States v. Brown, 446 F.2d 1119 (10th Cir.).

In connection with willfulness, the government proof tended to show a failure to report income for three successive years; that there were no books or records for either Mineral Aggregates Corporation or Geyser Minerals Corporation, as Swallow stated himself to the IRS agents (R.V., 20-21); and that there were substantial payments from corporate accounts to others for personal expenses of Swallow and his family.

Swallow argues that his submission of the essentially blank Form 1040’s could only have drawn the attention of the IRS, and that he also requested taxpayer assistance on the 1968 form. These circumstances are said to negative any inference of willfulness and require acquittal. We cannot agree. These are circumstances that were relevant on the factual question of willfulness, but they did not decide the matter. Willfulness involves a specific intent which must be proven by independent evidence, and which cannot be inferred from the mere understatement of income. See James v. United States, 366 U.S. 213, 221, 81 S.Ct. 1052, 6 L.Ed.2d 246. But here we are satisfied that there was substantial circumstantial evidence, as outlined above, to go to the jury on the question of willfulness, and that the proof is sufficient to sustain the factual finding against the appellant on the issue. See United States v. Rosenthal, 470 F.2d 837, 842-43 (2d Cir.), cert. denied, 412 U.S. 909, 93 S.Ct. 2298, 36 L.Ed.2d 975; United States v. Merrick, 464 F.2d 1087, 1092 (10th Cir., cert. denied, 409 U.S. 1023, 93 S.Ct. 462, 34 L.Ed.2d 314.

The final element of the § 7201 offense is an affirmative act constituting an attempt to evade or defeat the tax. The conduct must amount to a willful and positive attempt to evade a tax in any manner or to defeat it by any means. See Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418. It may involve concealment of assets or covering up sources of income, or handling one’s affairs to avoid making records usual in transactions of the kind involved, or any conduct whose likely effect would be to mislead or conceal. Id. at 499, 63 S.Ct. 364. Again, the withholding of information on the forms, combined with the lack of records of the corporate accounts, as well as the expenditures from the corporate accounts directly to others to pay personal expenses for his family and himself, suffice to support the finding against Swallow as to affirmative acts to evade the tax.

In sum, we are satisfied that the required elements of the offenses as to all counts were supported by sufficient proof to sustain the convictions, viewing the evidence in the light most favorable to the prosecution as we must in reviewing jury verdicts of guilty.

2. The Prosecution’s Closing Argument

Appellant Swallow argues that he was substantially prejudiced by improper closing argument by the prosecution which constitutes plain error, seriously affecting his substantial rights and requiring reversal. Specifically, he points to argument that the government had shown beyond any doubt that certain mining claims were not valid; that they were not owned by anyone; and were certainly not owned by defendant or the Mineral Aggregates Corporation or Geyser Minerals Corporation. On the contrary, defendant says there was proof of a number of recorded mining claims which were not invalidated and that at best the record shows only nonownership of certain claims, but no proof that appellant owned no claims. He argues there was violation of the high standard required of government counsel, relying on Handford v. United States, 249 F.2d 295 (5th Cir.), inter alia.

The mining claims were related to the legitimacy of operations of the Mineral Aggregates Corporation and its successor, Geyser Minerals Corporation. It is true that if the jury was led to believe that defendant and the corporations in fact owned no mining claims the credibility of defendant’s research program to develop the “Mineralag” fertilizer was damaged, along with his claim of legitimacy of the loans having been obtained in good faith for the research project.

On this point, while the government did in fact submit some proof that the defendant had no interest in certain mining claims (R.VL, 114 — 118), the defense did submit evidence of other mining claims in which the defendant did have an interest. See Defendant’s Exhibits V, W, X and Y. Thus the record does not bear out the broad claim made in the prosecution’s closing argument that defendant owned no interest in mining claims.

While the argument was unfounded and unfortunate, we cannot agree that reversal is justified. There was no objection as is generally required to premise the argument on appeal. Appellant says an objection would only have magnified the impact of the prosecution’s argument. We are not persuaded that such an objection to a misstatement, and a resulting correction, would have had an adverse effect on the defense before the jury. The argument was not an inherently prejudicial one that could not be cured by objection and a curative retraction or instruction to disregard the statement. E. g., United States v. Schwartz, 325 F.2d 355 (3d Cir.); Ginsberg v. United States, 257 F.2d 950, 955 (5th Cir.). Since the argument was one susceptible to correction by a contemporaneous objection, we feel we should follow the general rule that the issue may not be raised for the first time on appeal. Findley v. United States, 362 F.2d 921, 923 (10th Cir.); but see United States v. Ludwig, 508 F.2d 140 (10th Cir. 1974). We conclude there was no plain error affecting substantial rights that would call for reversal despite the absence of objection at trial. See Rule 52(b), F.R.Crim.P.

3. The Defendant’s Requested Instructions On the Loan Repayment Theory of Defense

Appellant argues that he was prejudiced by rejection of two tendered instructions and that the charge given did not present his theory of defense. Appellant’s defense theory regarding the money transactions included two aspects. The first was that all payments by the individuals sending in funds were bona fide loans evidenced by promissory notes. The second was that the checks drawn on the corporate accounts in payment of personal expenses of the defendant and his family constituted repayments of loans made by the defendant to the corporation.

Appellant points to letters in evidence, Defendant’s Exhibits I and K, as showing that he had been loaned funds by numerous parties and that he had re-loaned the funds to the corporations for the research project. And he refers to cross-examination of the prosecution’s summary witness on the tax implications of repayment of a loan. The witness testified that there would be no tax liability if the sums spent on personal expenses were repayments of loans (R. IX, pp. 88-89). Thus appellant argues that there was evidence supporting a defense theory which would have shown that there was no taxable income to him, and which would have constituted a defense. Therefore appellant contends that the refusal of the two requested instructions on the theory was reversible error, relying on United States v. Noah, 475 F.2d 688 (9th Cir.), cert. denied, 414 U.S. 1095, 94 S.Ct. 728, 38 L.Ed.2d 553, and similar cases.

The court gave only an instruction on loans which essentially stated that a loan agreed to be repaid does not constitute gross income, but that where there is no good faith intent by the borrower to repay, such funds are taxable income.

We must agree that the defendant was entitled to instructions on any theory of defense finding support in the evidence and the law, and that a refusal of such instructions is reversible error. Beck v. United States, 305 F.2d 595 (10th Cir.), cert. denied, 371 U.S. 890, 83 S.Ct. 186, 9 L.Ed.2d 123; United States v. Noah, supra. Even though the evidence may be weak, insufficient, inconsistent or of doubtful credibility, its presence requires an instruction on a theory of defense. United States v. Indian Trailer Corporation, 226 F.2d 595, 598 (7th Cir.); Tatum v. United States, 88 U.S.App.D.C. 386, 190 F.2d 612, 617.

We cannot agree, .however, that the proof here entitled defendant to the tendered instructions on the theory that the funds paid from the corporate accounts for family expenses were repayments of loans. We have noted Defendant’s Exhibits I and K, also Plaintiff’s Exhibit 72-G, which is of a similar nature. The relevant portions of the exhibits follow the tenor of Defendant’s Exhibit I which stated:

We the undersigned as addressed have loaned money to Mr. George Swallow and he reloaned our loans made personally to him to Geyser Minerals Corporation for agricultural research in the application of a natural resource rock admixture plant nutrient product tradenamed Mineralag now “Seed Gro” ....

The exhibits support the proposition that the funds were loaned to Swallow and were reloaned by him to the corporations for the research project. However, defendant points to no proof, and we find none, that the numerous payments for personal expenditures benefiting Swallow and his family were intended for, or treated as, repayments on loans by Swallow to the companies, or related to such repayments. On this state of the record we must hold that the trial court was not obliged to give the additional tendered instructions. United States v. Hagen, 470 F.2d 110, 113 (10th Cir.), cert. denied, 412 U.S. 905, 93 S.Ct. 2291, 36 L.Ed.2d 970. The charge given was sufficient.

4. The Claim of Ineffectiveness of Trial Counsel

Defendant asserts that by refusing to subpoena or call important witnesses, and by refusing to introduce important documentary evidence, his trial counsel effectively refused to present any meaningful defense and denied the defendant any semblance of a fair trial. On brief he argues that while the record cannot disclose what defense evidence was available but not presented, it is clear that the defense presentation at trial was minimal and virtually no defense at all, citing the absence of evidence as to the cost expended for extensive tests on the Mineralag product and the paucity of proof on defendant’s ownership of mining claims, among other things.

While defendant relies on these deficiencies in the record, he also argues that the effectiveness of counsel issue involves matters requiring evidence outside the present record. He says the issue of ineffectiveness of trial counsel is raised here principally by way of preserving that issue for subsequent proceedings, should this appeal not prevail.

In this connection defendant refers to an earlier motion made in this court for a limited remand, which was denied. The motion and a supporting brief urged us to follow a procedure used in the District of Columbia Circuit favoring the presentation of a claim of ineffectiveness of trial counsel by a motion for a new trial on the ground of newly discovered evidence. See, e. g., United States v. DeCoster, 159 U.S.App. D.C. 326, 487 F.2d 1197, 1204-05; United States v. Brown, 155 U.S.App.D.C. 177, 476 F.2d 933; United States v. Thompson, 154 U.S.App.D.C. 347, 475 F.2d 931. In that Circuit, if an appeal is pending and a District Judge indicates disposition to grant such a motion, a remand is made; if the motion is denied, an appeal therefrom is consolidated with the appeal from the conviction and sentence. See United States v. DeCoster, supra, 487 F.2d at 1205. Here, however, we have ascertained that no such motion has been made. Thus we have nothing before us calling for any action or expression on such procedure for developing a further record on the claim of ineffectiveness of trial counsel.

We do have before us appellant’s claim of ineffectiveness of trial counsel as allegedly shown by the present record. While it is true that the defense proof offered was limited and not extensive, we cannot speculate that additional or more convincing evidence was available and not presented, or that further evidence was available but was not sought by investigation by trial counsel (R. X, pp. 16, 63, 89-90). On the present record before us, we conclude that the claim of ineffectiveness of trial counsel is not supported. See Lorraine v. United States, 444 F.2d 1 (10th Cir.). The affirmance of this court is, of course, without prejudice to development of this claim by further proceedings.

Affirmed.

      . Swallow’s financial statement claimed total assets of $37.00 in cash and total liabilities of over $640,000. He stated that he had a $5,000 term life insurance policy — “all term insurance, can’t find policy.” He stated that he owned no real estate, furniture and fixtures, or accounts receivable, and that his total assets were $37.00.

      . In 1968, Mrs. Swallow paid the taxes directly (Pl.Ex. 9-E).

      . Later Geyser Minerals Corporation was the corporate name used in lieu of Mineral Aggregates Corp.

      . In a letter dated October 22, 1969, that was written to one of the note-holders, Swallow declared a “moratorium” on all loan interest payments (Ex. 77-M). Later, in a letter dated June 25, 1971, Swallow evidenced little interest in fulfilling his outstanding financial obligations (Ex. 55-E).

      . This witness used information from Form 1040’s filed by Swallow for the three years. These were forms where Swallow listed only his name, and that of his wife and two daughters. He detailed no income or deductions.
      The witness, using the information on the forms, calculated the tax by treating Swallow as a married taxpayer filing separately and by using the standard deductions, no itemized deductions having been shown on the forms.

      . The refused instructions were defendant’s requested instructions 28 and 29 which read as follows:
      INSTRUCTION 28
      You are instructed there is a distinction between a loan and forms of income (salary or dividends). For income tax purposes, a loan is not income. Likewise, repayment of a loan made by the accused to a corporation is not income.
      Therefore, if you find that the transactions were loans or repayment of loans, then there is no income and, therefore, no tax deficiency.
      INSTRUCTION 29
      You are instructed that if you find that the accused borrowed money which he loaned to the corporations, then the repayment of these loans by said corporations would not be income even if these repayments were used for family expenditures.

      . The instruction on this question as given was as follows:
      A loan which the parties to the loan agree is to be repaid does not constitute gross income as that term is defined by the internal Revenue Code. However, merely denominating a transaction as a loan is not sufficient to make it such; and where there is no good faith intent on the part of the borrower to repay the funds advanced, such funds are income under the income tax laws and are taxable as such. (R. X, pp. 70-71).

      . In the docketing statement submitted by trial counsel, this court was advised of the fact that appellant was not satisfied with trial counsel’s actions. Trial counsel requested permission to withdraw to allow an impartial and separate attorney to review the record to insure defendant his day in court. This court then appointed new counsel who has briefed and argued the appeal.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    Michael S. ROSS, Plaintiff-Appellant, v. The UNITED STATES ATTORNEY’S OFFICE for the CENTRAL DISTRICT OF CALIFORNIA including Messrs. Robert C. Bonner and Michael Sulner, Assistant and Deputy Attorney, Criminal Complaints, Defendant-Appellee.
    No. 74-1919.
    United States Court of Appeals, Ninth Circuit.
    Feb. 20, 1975.
    Michael S. Ross, in pro. per.
    Clarke A. Knicely, Asst. U. S. Atty., Los Angeles, Cal., for defendant-appellee.

      Before KOELSCH and GOODWIN, Circuit Judges, and RENFREW, District Judge.

       The Honorable Charles B. Renfrew, United States District Judge for the Northern District of California, sitting by designation.

   OPINION

PER CURIAM:

The well-settled principle that mandamus does not lie to compel a United States District Attorney to perform a discretionary act (Inmates of Attica Correctional Facility v. Rockefeller, 477 F.2d 375 (2nd Cir. 1973)) is dispositive of this appeal.

Affirmed.


author: Before ELY, TRASK and WALLACE, Circuit Judges. ELY, Circuit Judge

text:
    SIERRA CLUB et al., Plaintiffs-Appellants, v. Donald P. HODEL, as Administrator of the Bonneville Power Administration, Defendant-Appellee.
    No. 74-3366.
    United States Court of Appeals, Ninth Circuit.
    Feb. 25, 1975.
    William D. Rives (argued), of Davis, Wright, Todd, Riese & Jones, Seattle, Wash., for plaintiffs-appellants.
    Larry A. Boggs, Dept, of Justice (argued), Washington, D. C., for defendantappellee.
   ORDER

Before ELY, TRASK and WALLACE, Circuit Judges.

The motion for injunction pending appeal is denied except as follows: No additional new clearing work shall be done on the power line corridor so that the timber, shrubs, etc. on the remaining approximately nine miles of planned corridor will not be cut or affected until the regular panel hearing this case orders otherwise.

ELY, Circuit Judge

(dissenting):

The National Environmental Policy Act, 42 U.S.C. § 4321 et seq., became effective on January 1, 1970. Almost one year thereafter, i. e., on December 7, 1970, the Power Sales Contract that the appellant challenges was executed. This execution occurred despite the fact that no environmental impact statements, as required by 42 U.S.C. § 4332, were prepared and therefore subject to consideration before the execution of the contract. The contract involved massive projects which will, if completed and utilized, undeniably have a severe impact upon the environment of a large geographical area.

During the oral argument conducted in connection with the appellants’ application for an injunction suspending work on the project pending the disposition of their appeal, the appellee’s attorney conceded that there had been a “technical” violation of the law in the execution of the contract without the existence and benefit of the required environmental impact statement. In the light of this concession and in consideration of La-than v. Brinegar,- 506 F.2d 677 (9th Cir. 1974) (en banc), and National Forest Preservation Group v. Butz, 485 F.2d 408, 412 (9th Cir. 1973), I conclude that there is a fair likelihood that the appellants will be successful in their appeal to this court.

I would therefore grant the appellants’ motion in its entirety, halting all further work on the project pending the disposition of the appeal on the merits. Such action, I think, would involve less risk to the appellee.


author: ORDER

text:
    ROTH PROPERTIES COMPANY, Plaintiff-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Defendant-Appellee.
    No. 74-1936.
    United States Court of Appeals, Sixth Circuit.
    March 13, 1975.
    Bennet Kleinman, Kahn, Kleinman, Yanowitz & Arnson, Laurence Glazer, Gary D. Greenwald, Cleveland, Ohio, for plaintiff-appellant.
    Gilbert E. Andrews, Acting Chief, Scott P. Crampton, Gary R. Allen, Asst. Attys. Gen., Louis A. Bradbury, Tax Div., Dept, of Justice, Washington, D. C.,

      Meade Whitaker, Chief Counsel, I. R. S., Washington, D. C., for defendant-appellee.
    Before EDWARDS, CELEBREZZE and LIVELY, Circuit Judges.
   ORDER

On receipt and consideration of an appeal in the above-styled case; and

Noting from the briefs, oral arguments and record no basis for holding that the findings of fact of the Tax Court are clearly erroneous.

The decision and order of the Tax Court is hereby affirmed for the reasons set forth in the Memorandum Findings of Fact and Opinion of the Tax Court, filed January 29, 1974.


text:
    The OHIO MASONIC HOME, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    No. 74-1640.
    United States Court of Appeals, Sixth Circuit.
    Feb. 25, 1975.
    Hugh Barnett, Martin, Browne, Hull & Harper, Springfield, Ohio, for petitioner.
    Elliott Moore, Sandra McCandless, Associate Gen. Counsel, N. L. R. B., Joseph E. Mayer, Peter G. Nash, John S. Irving, Jr., Patrick H. Hardin, Washington, D.C., for respondent.
    Before PECK and MILLER, Circuit Judges, and HERMANSDORFER, District Judge.

       Honorable Howard David Hermansdorfer, United States District Court for the Eastern District of Kentucky, sitting by designation.

   ORDER

This order is before the Court upon a petition of The Ohio Masonic Home to review an order of the National Labor Relations Board and upon the cross-petition of the Board to enforce the order. The decision and order of the Board are reported at 205 NLRB No. 65.

Being fully advised in the premises, the Court concludes that the findings of fact of the Board are supported by substantial evidence on the record considered as a whole, and therefore,

It is ordered that the order of the National Labor Relations Board be and it hereby is enforced.


text:
    ESTATE of Norma S. BRADLEY, Deceased, et al., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 74-2135.
    United States Court of Appeals, Sixth Circuit.
    March 12, 1975.
    Joseph L. Arnold, Lexington, Ky., for appellant.
    Scott P. Crampton, Gilbert E. Andrews, Asst. Attys. Gen., Loring W. Post, Michael J. Roach, Louis A. Bradbury, Tax Div., Dept, of Justice, Washington, D. C., Meade Whitaker, Chief Counsel, Internal Revenue Service, Washington, D. C., for appellee.
    Before McCREE and LIVELY, Circuit Judges, and HERMANSDORFER, District Judge.

       The Honorable H. David Hermansdorfer, United States District Judge for the Eastern District of Kentucky, sitting by designation.

   ORDER

The appeal from the decision of the United States Tax Court entered March 21, 1974 having come on to be heard upon the briefs and record on appeal, and upon oral argument, upon consideration, it is ORDERED that the decision be, and it hereby is, AFFIRMED for the reasons set forth in the Memorandum Findings of Fact and Opinion of the United States Tax Court reported at 33 T.C.M. 70 (1974).


text:
    Robert PUGH and Nathaniel Henderson, on their own behalf and on behalf of all others similarly situated, Plaintiffs-Appellees, Thomas Turner and Gary Faulk, on their own behalf and on behalf of all others similarly situated, Plaintiffs-Intervenors, v. James RAINWATER, Morton S. Perry, and Sidney Segall, Judges, etc., et al., Defendants-Appellants.
    No. 72-1585.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.
    Leonard R. Mellon, Asst. State’s Atty., Barry Richard, Asst. Atty. Gen., Miami, Fla., for defendants-appellants.
    Bruce S. Rogow, Miami, Fla., for Pugh & Henderson.
    Phillip A. Hubbart, Public Defender of Dade Co., Miami, Fla., for Pugh.
    Louis M. Jepeway, Jr., Peter L. Nimkoff, Miami, Fla., amicus curiae for Dade County Bar Ass’n.
    Before BROWN, Chief Judge, and TUTTLE and INGRAHAM, Circuit Judges.
   PER CURIAM:

This case was formerly decided by this Court sub nom. Pugh v. Rainwater, 5 Cir., 483 F.2d 778. The judgment of this Court was affirmed in part and reversed in part by the Supreme Court, Gerstein v. Pugh, 420 U.S. 103, 95 S.Ct. 854, 43 L.Ed.2d 54, decided February 8, 1975.

The Supreme Court’s opinion affirmed that part of the judgment of this Court and of the trial court which held that the Fourth Amendment requires a timely judicial determination of probable cause as a prerequisite to detention of a prisoner arrested upon information filed by the state prosecutor. It reversed that part of the opinion and judgment of this Court and of the trial court which required an adversary hearing with the right to counsel, confrontation, cross-examination, and compulsory process for witnesses. The Court remanded the case for further proceedings “consistent with this opinion.”

In light of the range of choices which the Supreme Court’s opinion suggests as possibly meeting the requirements for the holding of a hearing to determine probable cause, we deem it appropriate to remand this issue to the trial court for its further consideration in light of the opinion of the Court.

The opinion and judgment of this Court heretofore entered is affirmed to the extent that it requires a timely judicial determination of probable cause as a prerequisite to detention. It is reversed to the extent that it required an adversary hearing as outlined in the district court’s decree. The case is remanded for further proceedings consistent with this opinion.


author: NICHOLS, Judge: BENNETT, Judge

text:
    BETHLEHEM STEEL CORPORATION v. The UNITED STATES.
    No. 44-68.
    United States Court of Claims.
    Feb. 19, 1975.

      George Vradenburg, III, New York City, for plaintiff. Albert R. Connelly, New York City, attorney of record.
    Howard G. Slavit, with whom was Asst. Atty. Gen. Carla A. Hills, for defendant. Steven J. Bercik, Washington, D. C., of counsel.
    Before DURFEE, Senior Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   NICHOLS, Judge:

This case of Wunderlich Act review of a contract dispute under Dispute Clause procedure (41 U.S.C. §§ 321-322) is now before us for the third time. On the first occasion, 423 F.2d 300, 191 Ct.Cl. 141 (1970), we held that the Armed Services Board of Contract Appeals (ASBCA) had erred as a matter of law in not following certain Armed Services Procurement Regulations (ASPR) we considered applicable to the dispute. After Board preliminary proceedings reported at 71-1 BCA 18640, Bethlehem on May 10, 1971, applied to us for an order terminating stay and for other relief. This we denied in an unreported order, without opinion. The Board proceedings then resumed and resulted in the decision now under review, 73-1 BCA 19898. We affirm.

Our 1970 decision details the controversy as it had evolved up to that time and we need not repeat it all here. Briefly, Bethlehem had built five Navy destroyers under two fixed price contracts, Nobs-3556 and 3648, both of which contained clauses allowing for labor and material escalation, but enabling the Contracting Officer to deny any upward adjustment thereunder in whole or in part, if he found that it was not required to enable the Contractor to earn a fair and reasonable profit under the contract, Art. 6, Par. (e). After full performance, plaintiff claimed $3,347,000 escalation under Nobs-3556 and $2,404,900 under Nobs-3648. The latter claim has now been allowed by the Board in its entirety and having been dismissed is not before us for review. The original Board decision allowed $1,064,151 under Nobs-3556 making a total profit of 5% of costs. The Board’s theory was that plaintiff had agreed to a limit of 5%. We were unable to find evidence of agreement to that limit. Further, the Board had determined the level of reasonable profit without reference to the published guidelines of the Department of Defense which told how contract clauses limiting contractors to reasonable profit levels (hereinafter, profit limitation provision) were to be interpreted and applied.

In Newport News Shipbuilding & Dry Dock Co. v. United States, 374 F.2d 516, 179 Ct.Cl. 97 (1967), we had already held that in making a profit limitation decision under a Navy contract clause of the same type, the Board had erred in not following published guidelines. On retrial, the Board, as we indicated it should, followed the guidelines enacted after the contract date and before its original decision, hereinafter called the “unweighted guidelines.” It allowed Newport News full escalation, 71-1 BCA 18705. The case was settled on that basis. In Bethlehem, the fact appeared that the Department of Defense had superseded the original “unweighted guidelines” with so-called “weighted guidelines”, after the original Board decision in Newport News and before that in Bethlehem.

Plaintiff in Bethlehem argued for use of the “weighted guidelines” on retrial. Defendant seemed to argue for no guidelines at all, attacking the “weighted guidelines” as unsuitable for the Bethlehem contract even if required for most others. This was because, in defendant’s view, the “weighted guidelines” would fail to allow weight for the fact the Navy had awarded this contract to Bethlehem, though it was a high bidder, to keep its Quincy, Massachusetts facility in the shipbuilding business. At that point, however, defendant indicated no preference for the “unweighted guidelines”.

This issue caused us much concern. Since, in Newport News we had held a guideline regulation to apply to a contract written at an earlier date, when no guidelines existed, it seemed consistent that any further amending or superseding provisions should be applicable likewise, right up to the original Board trial on the facts. This would make the amended or “weighted guidelines” the proper ones to use in the Bethlehem retrial. What happens, however, if the guidelines are amended or modified again, between the original trial and retrial of the issue? In Newport News, apparently by mutual consent, the new guidelines were not given effect at the retrial and the Board used the ones it should have used at the original trial. It was nevertheless obvious to us that this was not the only possible answer.

The determination of a supposedly reasonable level of profit by administrative fiat after the event, and not by operation of the market place, is not an easy operation that anyone can perform. Without guidelines the power to do it confers, as we said in Bethlehem I, a kind of roving absolutism inimical to our institutions (423 F.2d p. 308, 191 Ct.Cl. p. 155). In the administration of our most widely used system of profit limitation under Government contracts, the Renegotiation Act of 1951, 50 U.S.C. (App.) §1191 and ff., and its predecessors back to 1942, the need for guidelines has been recognized from the beginning, almost, and they are provided both in statutory provisions and in regulations. 50 U.S.C. (App.) § 1213(e); 32 C.F.R. § 1460.1 and ff. The ASPR indicated a recognition of the same need, and we were understandably reluctant to believe there could be any profit limitation provisions in Department of Defense contracts, they were not intended to apply to. By the same token, new regulations, we would presume, reflected more extended experience with profit limitation, and would if applied to previously existing contracts, produce a more satisfactory result than previous regulations or no regulations at all. On the other hand, it certainly was possible the authors of regulations might be unaware at times of all the previously awarded contracts remaining unsettled, to which they might apply, and they might obtain unforeseen and undesired results. If this occurred, they should be free to correct their errors.

As we have recently held in Hills Transp. Co. v. United States, 492 F.2d 1394, 204 Ct.Cl. 51 (1974) whether, in the absence of express provision, a procurement regulation can have retroactive application to a contract earlier awarded, is not to be decided by any wooden rules, but by reference to the character and intent of the contract and of the regulation involved. Here, factors favoring retroactive application are the long lapse of time under these shipbuilding contracts, between original award and final settlement, and the remedial effect of a guideline regulation, any regulation, as against the assignment of a “roving absolutism” to a Contracting Officer in granting or denying escalation.

In view of the foregoing considerations we deemed it unwise to nail defendant inescapably to the mast of the “weighted guidelines” method. While stating that as things were, plaintiff was entitled to use of that method on retrial, we held that even then, defendant could make a retroactive change in the method. Our words, as reported, were as follows:

* * * * * *
As we have said, we see no injustice or anomaly in applying profit limitation techniques, as the Pentagon may have amended and prescribed them from time to time, up to the date of the determination. We would presume that changes were intended to clarify and simplify, as well as to reduce the impact of subjective factors in the mind of the administering official. To some extent amendments may reflect earlier departures in actual practice, to a large extent no doubt they are the product of experience. If anything has been slipped in which would impair vested rights unless limited to prospective application only, let' it be pointed out. If we have erred in thinking the “Weighted guidelines method” is feasible to apply to the instant contracts, the Pentagon even now could amend or supplement its regulation, and the Board would be bound, provided no impairment of vested rights was attempted. Any amendment purporting to reaffirm the position now claimed, that officials determining a reasonable level of profit under clauses such as Article 6(e) are not subject to any published guidelines whatever in certain cases, at least would advisedly be made in light of the recent statement of the Supreme Court: “ * * * a broad, roving authority, a type of administrative absolutism [is] not congenial to our lawmaking traditions.” Gutknecht v. United States, 396 U.S. 295, 306, 90 S.Ct. 506, 24 L.Ed.2d 532 (1970). [423 F.2d at 307, 191 Ct.Cl. at 154-55.]

It was express that the change should, if made, be in the regulations, and therefore by the rule-making arm of the Secretary of Defense, not his adjudicatory arm, the ASBCA. A change in the rules by the latter would be nothing but a reversion to the “do it yourself guidelines” and “seat of the pants navigation” we condemned in the Newport News decision and again in this. Members of the ASBCA are required to be “learned in the law” and can hardly be also expected to be so expert as not to need guidance as to the techniques of reasonable profit determination. If the rule-making body was to change the rules, it was implicit that body should follow its customary formalities in making rules, and receive the advice from within and without the Government that it normally would. Both the “unweighted guidelines” and the “weighted guidelines” afford internal evidence that the needed expertise exists within or is available to the Department of Defense. A third implicit requirement was that the purported “rule” should really have general application and not be just an attempt to influence a lawsuit. We referred to “The Pentagon” meaning that all bodies in or about that vast structure might perform in the roles appropriate to them under the organization of the Department.

What actually happened was put before us in Bethlehem’s 1971 motion. It is assumed for purposes of this opinion that our denial of the motion did not establish a “law of the case” barring consideration now. The ground was unstated and it could have been on several grounds.

Shortly after our decision came down the Navy legal member put before the ASPR Committee, the rule-making committee having supervision over the ASPR, a request for a “deviation”. Quoting parts of our decision, he advanced the Navy’s position that the “weighted guidelines” were not intended to apply to contracts awarded, as Bethlehem’s was, before 1963. The Committee decided, as recorded in its minutes, that mandatory retroactive application of the weighted guidelines was not intended, and particularly with respect to escalation clauses. Deviation was not required. The Committee also agreed application of the weighted guidelines was. not feasible and they were intended only for negotiation of future contracts. A deviation was approved to the extent .others might think the guidelines applied. In’ taking this action, the Committee recognized it would leave the unweighted guidelines in ASPR 3-808 for application. They were not considered as effecting a substantive change in the contract. The Navy member had listed ten contracts with unsettled escalation' claims under similar clauses, to which the “deviation” would apply. This included the two Bethlehem contracts here involved. The Navy’s reason for asserting unfeasibility appears to have been primarily that the “weighted guidelines” effectuated an objective that obtained in 1963 to attract more contractors to defense work. This need did not exist in 1954 when the Bethlehem contracts were awarded and the object was then to place contracts at the lowest possible prices.

The ASBCA subsequently held, correctly it would appear, that under ASPR 1-109.3, the Committee had authority to approve a “deviation” of this kind, provided it was unanimous, and a major policy was not involved. Both these conditions were satisfied. See also DOD Instr. 5126.3, December 20, 1961; Government Contract Reports § 825. It could have published a regulation or directive, without higher level approval, subject to those conditions.

The ASBCA considered it was bound by this “deviation” to apply the unweighted and not the weighted guidelines. It correctly read our decision as holding that it was not the proper body to make this kind of decision, and that one properly made elsewhere would bind it.

The Board, after trial, applying the non-weighted guidelines, awarded plaintiff full escalation under Nobs-3648, but only $687,840 additional escalation over the previous decision under Nobs-3556, being 6.3% of cost. The sum of $2,282,-849 would have been required for full escalation, and the Board denied the excess of this figure over $687,840.

Plaintiff does not attack the Board’s techniques in applying the unweighted guidelines, or rather its attack does not focus upon any variation between those techniques and one or more identified parts of the .non-weighted guidelines themselves. In general, the Board appears to make a conscientious and reasoned effort to apply them fairly. Plaintiff says it has a “vested” right to the “weighted guidelines” and under them would recover full escalation as a mathematical certainty. We are not so sure as to that but defer to the Pentagon’s experts who, as plaintiff notes, themselves believe such guidelines would produce substantially higher results, at least.

If defendant wanted to use the unweighted guidelines, it is regrettable it did not so inform us in 1970. To have disposed of all Art. 6(e) escalation claims by a uniform method would have had advantages apparent to any mind, and the method was already in use for Newport News. Any benefit from future advances in profit control technique could have been sacrificed in the circumstances. Nor did defendant tell us then that the weighted guidelines were purposely inflated to attract more bidders. We also deplore the failure to inform Bethlehem of the contemplated change in the rules. There are certain amenities normally to be expected in the conduct of litigation. To obtain ex parte a change in the ground rules and present them to the adjudicating tribunal as fait accompli and binding on it, will not impress the ordinary mind as entirely cricket. However, our problem is whether to react only to clear cut and demonstrated illegality, or whether to allow our sense of undirected outrage to prolong this already inordinately prolonged litigation, to the advantage of no one knows whom. In the case of the Government, we realize that the right hand often does not know what the left hand does. Actions are taken that are, in the aggregate, outrageous, yet may be quite innocent in the minds of the individual actors.

We cannot make our own determination of a reasonable profit level in view of our holding in Newport News that the issue is factual, and our obligation to leave factual issues to Board determination despite previous errors, unless the Board procedure is inadequate and unavailable. United States v. Anthony Grace & Sons, 384 U.S. 424, 86 S.Ct. 1539, 16 L.Ed.2d 662 (1966). The slow progress of this case does not seem imputable to the Board so much as to the novelty of the issues and the complexity of the case. If the job of determining a reasonable profit level has to be done all over again, it is the Board that must do it.

The “unweighted guidelines” used here were considered and approved by us in the Newport News case supra. No contention is made that these guidelines are not fair and reasonable, of themselves. In plaintiff’s eyes, they are just not as productive of a high level of reasonable profit as the preferred set. As a matter of fact the “unweighted guidelines” bear a strong family resemblance to the Congressionally enacted set in the Renegotiation Act, cit. supra. In adjudicating Bethlehem I, we formed the impression the Department of Defense had abandoned them as unsatisfactory, but this is now shown to have been erroneous. The “weighted guidelines” were put in effect for wholly different reasons, as has appeared above.

Plaintiff’s serious legal attack on the Board decision has three main heads: (1) the alleged ex parte approach by the Navy member to the ASPR Committee, (2) that Bethlehem has a vested right in use of the “weighted guidelines” method, and (3) that it was “feasible” to use those guidelines.

1. As a matter of law, this court has often regarded ex parte approaches as invalidating adjudicatory actions. Camero v. United States, 375 F.2d 777, 179 Ct.Cl. 520 (1967); Jarett v. United States, 451 F.2d 623, 195 Ct.Cl. 320 (1971). However, it has not attempted to apply the same standards to rule making. Everyone knows that an ex parte approach may lie behind many a statute. When we indicated therefore, that a change in the rules must originate in a rule making body, we indicated that such a change might be effected by the procedures normal to such bodies. Plaintiff has not cited a statute or regulation applicable to the ASPR Committee, invalidating an ex parte approach by one of its members. We wonder if an approach to an organized body by one of its own members can ever be deemed ex parte in the pejorative sense of the word.

2. Plaintiff also says it had a vested right in the use of the “weighted guidelines” procedure. This echoes a provision in our former opinion, quoted above, intimating that in changing its regulation, the defendant could not impair vested rights. Where does the alleged vested right of the plaintiff originate? Not in the contract, wherein plaintiff did not bargain for use of any method of determining a reasonable level of profit in case Art. 6(e) had to be administered. Not in the regulation itself, since our reading of it makes it inherently subject to change, unless the change impairs vested rights of other origin. Not in our former decision. We are not empowered to create vested rights against the Government except in the form of money judgments. Such rights might come into being as res judi-. cata, collateral estoppel, or “law of the case”, but we see none of these here. There has been no final judgment to give rise to the first two, and as to law of the case, it works against plaintiff if at all, insofar as our “law of the case” stated in Bethlehem I was purposely hedged, and plaintiff’s contention just comes back to depend on plaintiff’s interpretation of that decision, which we reject.

The irreparable flaw in plaintiff’s claim to a vested right in the “weighted guidelines” is that in 1954 plaintiff deliberately made contract Nobs-3556, including Art. 6(e). If Art. 6(e) subsequently came up for implementation, the most plaintiff could demand was determination of its acceptable profit level by some fair and reasonable method, of general applicability, and not one freshly invented for its particular case. This has now been accorded to it.

3. Plaintiff also says it would be “feasible” to apply the “weighted guidelines” echoing our language that these guidelines might be changed if it were not “feasible” to use them. Plaintiff also says use of these guidelines leads inexorably to allowance of its entire escalation claim without deduction. The Board in response quotes dictionary definitions of “feasible” as “possible” or “practicable” or “capable of being done”, and other definitions as what is “suitable” or “reasonable”. It concludes, correctly, that we intended the broader meaning. The paragraph taken as a whole, indicates that a general change in the regulations made for any legitimate reason is acceptable. “Unfeasibility” of the prior regulation is merely an example. We regret having used such an ambiguous terminology. In the area of profit limitation the subjective cannot be avoided entirely. If a technique of determining a reasonable level of profit produces a result that shocks the sense of fairness or justice, use of it is not “feasible”, and should be avoided.

The Board also points out, correctly, that the major premise of Bethlehem I decision was our objection to decision of profit limitation issues under Art. 6(e) of the involved contracts, by the use of do-it-yourself or seat-of-the-pants guidelines. A minor premise was the belief, right or wrong, that the regulations provided proper published guidelines for all cases, and the conclusion, that such published guidelines should be followed. As the Board points out, use of the “unweighted guidelines” per rule adopted under the ASPR constitution, implements, rather than violates, every significant part of our decision. Had we known they wanted to use the “unweighted guidelines” we would probably have expressed our approval. We may have thought matters would be handled differently than they were, in some respects, but we did not frame a mandate to demand all that we expected. Indeed, to describe our opinion as a mandate at all is an exaggeration. In 1970 we did not have the power to tell the Board what to do, that we now have under 28 U.S.C. § 1491, as amended by Pub.L. 92-415. The Board suspended the case to allow plaintiff to apply to this court when it declared its dissatisfaction with the guidelines to be followed. It did more than the law then required of it, to ascertain our wishes and apply them. Our so-called mandate was in reality, and was intended, more as a summary of the legal options open to defendant on the retrial of the case.

In view of the foregoing, the Board decision under review is not contrary to substantial evidence, is not contrary to law, and is not arbitrary or capricious. By Wunderlich Act standards, it must therefore be affirmed.

Plaintiff’s motion for summary judgment is denied. Defendant’s cross motion for summary judgment is allowed. Judgment is entered for plaintiff in the amount determined by the Board, which was for Contract Nobs-3556, $1,064,151 under the original decision and $687,840 additional under the decision now under review, or a total of $1,751,991, with adjustment for any portion of the said sum already paid.

BENNETT, Judge

(dissenting):

During the year 1954, plaintiff was awarded two contracts, Nobs-3556 and Nobs-3648, for the construction of three destroyers and two destroyers, respectively. Plaintiff was not the low bidder for the Nobs-3556 contract, but was awarded the contract nevertheless in pursuance of the Government’s policy of continuing the existence of an essential defense facility. Plaintiff was the only shipbuilder asked to submit a proposal for Nobs-3648, and, on the same policy ground, was awarded that contract as well.

Both contracts contained provisions requiring the contractor to exclude from its cost estimates any contingency allowances intended to offset anticipated increases in labor and material costs during the period of construction. In return, the Government promised to reimburse the contractor, according to an agreed formula, for any increases in labor and material costs which ultimately occurred during that period, except as limited by the following article 6(e) of the contracts:

(e) The Contracting Officer may deny, in whole or in part, any upward adjustment in the contract price required under this Article if the Contracting Officer finds that such adjustment is not required, in whole or in part, to enable the Contractor to earn a fair and reasonable profit under this contract.

When plaintiff entered into the contracts at issue, there were no published guidelines for determining “fair and reasonable profit” in a given case. Sometime prior to August 1963 the Department of Defense published “unweighted” guidelines, and in August 1963 those unweighted guidelines were superseded by the “weighted” guidelines method of determining reasonable profits. 32 C.F.R. §§ 3.808-1 et seq. (1965).

When plaintiff’s contracts were completed (the last of the five destroyers was delivered on February 26, 1958), plaintiff sought from the contracting officer labor and material escalation costs of $3,347,500 on Nobs-3556 and $2,404,-900 on Nobs-3648. In neither case was the amount of the escalation costs in dispute, but the contracting officer refused to permit recovery of any of those costs on the basis that such adjustment was unnecessary “to enable the Contractor to earn a fair and reasonable profit.” Article 6(e), supra. If the decision of the contracting officer had stood, plaintiff’s profit on the two contracts would have been 3 percent and 2.3 percent of cost, respectively; the full escalation sought by plaintiff, on the other hand, would result in profit margins of 9.3 percent and 9.6 percent.

Plaintiff’s appeal to the ASBCA from the contracting officer’s decision was partially successful, the board awarding plaintiff that portion of escalation costs which brought its profit margin on both contracts to 5 percent of cost. Though the weighted guidelines were in effect at the time of the board’s decision, the board did not use them or refer to them.

Plaintiff appealed to this court from the ASBCA decision. The result was the court’s opinion in Bethlehem Steel Corp. v. United States, 423 F.2d 300, 191 Ct.Cl. 141 (1970), which is hereafter referred to as Bethlehem I. In that opinion the court recalled that in an earlier case with very similar facts, it had applied the existing Department of Defense regulations which set out unweighted guidelines for determining a reasonable profit margin, to a contract entered into prior to the effective date of those regulations. It followed that in Bethlehem I plaintiff was also entitled to application of the existing regulations, i. e., the weighted guidelines, and the court so held (with a reservation to be discussed, infra):

* * * Plaintiff desires to take its chances under the “Weighted guidelines method” and it has a legal right to do so. [423 F.2d at 307, 191 Ct.Cl. at 154.]

Indeed, even defendant in Bethlehem I accepted the general principle that the weighted guidelines should apply to contracts entered into prior to the regulation’s effective date:

* * * Defendant does not now deny that it [the regulation setting out the weighted guidelines] would govern most decisions limiting or refusing otherwise justified labor and material escalation under Article 6(e), and there is nothing in it [the regulation] that suggests an intent to narrow the former scope. * * * [423 F.2d at 305, 191 Ct.Cl. at 150.]

Defendant argued in Bethlehem I, however, that plaintiff should be an exception to the rule because plaintiff had been awarded the shipbuilding contracts in spite of the fact that other contractors could have built the ships at lower cost, and in order that plaintiff would not close down its facilities. In rejecting this argument, the court noted, first, that the desired exception was not to be found in the regulation and had “every earmark of having originated in the active mind of defense counsel.” The court also rejected defendant’s assertion that the parties had agreed to a profit level of 5 percent in consideration of plaintiff’s being awarded the contract, and that the weighted guidelines would result in a higher unintended level of profits:

* * * The alleged agreement to a 5% level, in a contract that viewed prospectively could have resulted in anything from a loss to a windfall profit level, according to its terms, must be regarded as located in defendant’s counsel’s eyes alone. [423 F.2d at 306, 191 Ct.Cl. at 152.]

After its determination that plaintiff had a “legal right” to application of the weighted guidelines, however, the court added the following comments:

As we have said, we see no injustice or anomaly in applying profit limitation techniques, as the Pentagon may have amended and prescribed them from time to time, up to the date of the determination. We would presume that changes were intended to clarify and simplify, as well as to reduce the impact of subjective factors in the mind of the administering official. To some extent amendments may reflect earlier departures in actual practice, to a large extent no doubt they are the product of experience. If anything has been slipped in which would impair vested rights unless limited to prospective application only, let it be pointed out. If we have erred in thinking the “Weighted guidelines method” is feasible to apply to the instant contracts, the Pentagon even now could amend or supplement its regulation, and the Board would be bound, provided no impairment of vested rights was attempted. * *. [423 F.2d at 307, 191 Ct.Cl. at 154.]

Seizing upon the above comments, which the majority now identifies as an option open to defendant on retrial of the case, the Navy promptly requested from the ASPR committee a “deviation” from the use of weighted guidelines with respect to plaintiff’s contracts and eight other shipbuilding contracts. The ASPR committee granted the deviation, stating that application of the weighted guidelines to contracts entered into prior to the effective date of the regulation is not feasible, since the weighted guidelines effect a substantive change in the standards existing at the time the contracts were entered into and were intended for the development of a profit objective for negotiation of future contracts. In lieu of the weighted guidelines, the ASPR committee prescribed application of the superseded unweighted guidelines to plaintiff’s contracts.

Defendant was successful in convincing the ASBCA to follow the ASPR committee’s “deviation” and thus to apply the unweighted guidelines. In doing so, the ASBCA ruled that plaintiff was entitled to full escalation on the Nobs-3648 contract, but only partial escalation (to a 6.3 percent profit margin) on the Nobs-3556 contract. Plaintiff is convinced, and defendant’s actions seem to confirm the fact, that if the ASBCA had used the weighted guidelines rather than the unweighted guidelines, plaintiff would have recovered virtually all of the escalation under the Nobs-3556 contract. Plaintiff thus requests that this court reaffirm its statement in Bethlehem I that plaintiff has a “legal right” to application of the weighted guidelines.

The issue presented for decision here is easily stated. Has defendant shown that the weighted guidelines method is not “feasible” to apply to the contract at issue? If not, then plaintiff has a legal right to its application. It is my belief that the weighted guidelines are entirely feasible to apply and that plaintiff should receive the benefit of their application. I would remand to the board for that purpose.

The term “feasible” has, of course, more than one meaning. As Judge Nichols indicates, it can mean “possible” or “reasonable” or “suitable.” There can be no dispute that it is possible to apply the weighted guidelines to plaintiff’s contracts. In fact, both plaintiff and defendant are able to anticipate what the approximate result of such an application would be. Furthermore, it would not be “unreasonable” to apply those guidelines in the sense that their use would result in an unusual or absurd result, or as Judge Nichols states, one that “shocks the sense of fairness or justice.” Rather, it appears that if they were used appropriately in the manner demonstrated in some detail by the court in Bethlehem I, the result would be an indicated profit margin for plaintiff of between 9 percent and 12 percent. The maximum profit plaintiff can receive from escalation here is 9.3 percent, in any event.

Defendant has suggested three reasons why the use of weighted guidelines is “unsuitable,” if we are to use this as the definition of the word “feasible.” I will deal with them in turn.

First, defendant states that it is desirable that all shipbuilding contractors whose contracts contained article 6(e) should have the reasonableness of their profits determined by the same method —namely, unweighted guidelines. But there is no inherent reason why this should be so. We were aware in Bethlehem I that the unweighted guidelines had in all likelihood been applied in the Newport News, supra, contract, and others. We nevertheless stated that plaintiff was entitled to the benefit of the existing regulation specifying weighted guidelines. It was presumed that the weighted guidelines represented an improvement over the earlier method, particularly because they reduced the “impact of subjective factors in the mind of the administering official.” Moreover, defendant’s interest in consistency was not apparent in Bethlehem I wherein defendant argued that no guidelines should be applied to determine the reasonableness of plaintiff’s profits. It seems that defendant desires consistency of treatment only when it sees some advantage to itself arising therefrom.

The second of defendant’s arguments with respect to feasibility is that the greater profits which plaintiff would receive upon application of the weighted guidelines were not contemplated when the contract was entered into. The short answer to this contention is that the court expressly rejected it in Bethlehem I; the court stated that there was no agreement respecting profit, and that the contract could have resulted in anything from a loss to a windfall profit level, as both parties realized.

The third and final of defendant’s arguments is a reiteration of the ASPR committee’s stated reason for granting the deviation. That reason, as has been stated above, was that retroactive application “is not feasible, since it [the weighted guidelines] effected a substantive change in the standards existing at the time the contracts were entered into and were intended for the development of a profit objective for negotiation of future contracts.” Looking first to the alleged frustration of “intention,” it is noteworthy that there is no evidence in the record to support the ASPR committee’s statement that only prospective application was intended. As the court noted in Bethlehem I, the regulation contains no such limitation and there is no reason to infer one. In addition, defendant did not argue in Bethlehem I for prospective application only, but agreed rather that the regulation would generally cover contracts such as the one in question. Even the “Notes and Filing Instructions” which accompanied the regulation and which were cited by the ASPR committee state:

The revised paragraph 3-808 is authorized for immediate use and maximum practical use is encouraged. However, to allow for an initial training period in the use of the weighted guidelines method, mandatory use is not required until after 1 January 1964. Mandatory use is prescribed for all applicable procurements initiated after 1 January 1964.

Defendant argues further, though, that the fact that the weighted guidelines had the potential for higher profits in order to attract the “best possible industrial capabilities” proves that only prospective application was intended. The conclusion does not follow from the premise, however. First, it should be noted that the court in Bethlehem I was aware that the regulation had the potential for greater profits. The regulation itself, section 3.808 — 1(a), states that use of weighted guidelines “will result in a wider range of profits which, in many cases, will be significantly higher than previous norms.” The regulation also states that effective national defense requires attraction of the “best industrial capabilities” and that such capabilities would be dissuaded by “low profit opportunities.” Thus, the ASPR committee said nothing which the court had not already read in the regulation itself. Secondly, though the emphasis on potentially higher profits may have been directed to attracting future business, this does not prove that prior contracts were to be excluded from coverage, in the absence of a statement to that effect which could easily have been written into the regulation. The court was aware at the time of Bethlehem I that the guidelines, whether weighted or unweighted, were used primarily in negotiating the price to be paid a contractor on a future contract. Determining reasonable profits after completion of contract performance is an unusual situation. Nevertheless, in both Newport News, supra, and Bethlehem I, the court found that absent language in the regulation to the contrary, the existing guidelines were to apply. Indeed, there is no reason why the guidelines cannot be applied. The “Notes and Filing Instructions” accompanying the weighted guidelines include the statement: “This method is a rational, uniform, and equitable approach for evaluating the factors which must be considered in determining a proper profit or fee objective.” What is rational, uniform, and equitable for others is equally so for plaintiff.

The ASPR committee’s statement that the weighted guidelines represent a substantive rather than a procedural change contradicts the entire basis for decision in Bethlehem I and must be dismissed. The new regulation does not guarantee higher profits, but represents simply a less subjective method of determining fair and reasonable profit. That the less subjective procedure has the potential for higher profit computations only confirms the known fact that changes in procedure can have an effect on substance.

To summarize thus far, I have demonstrated that there is no valid reason why the weighted guidelines cannot feasibly be applied to plaintiff’s contract. Indeed, neither the ASPR committee nor counsel in this case has brought anything to the court’s attention which the court was unaware of at the time it stated that plaintiff had a legal right to the application of weighted guidelines, or which could have had a bearing on the court’s decision. Defendant is in reality still clinging to its assertion, rejected in Bethlehem I, that the parties did not contemplate that plaintiff would recover more than a 5 percent profit.

The majority opinion states that the court’s opinion in Bethlehem I was less a “mandate” than a “summary of the legal options open to defendant.” If this be so, and surely it is not, then Bethlehem I was no more than an advisory opinion— something which this article III court has no authority to give. In reality, Bethlehem I mandated that the weighted guidelines be used, but protected its flank by suggesting that if, for reasons unknown to the court, the application of weighted guidelines would lead to an unfair or absurd result, “the Pentagon” could amend or supplement the regulation to prevent such a result. The court did not give “the Pentagon” carte blanche to evade the mandate on any pretext, or, as Judge Nichols states to “attempt to influence a lawsuit.” Yet the Pentagon attempted to do just that.

This case bears a certain similarity to Pacific Far East Line, Inc. v. United States, 394 F.2d 990, 184 Ct.Cl. 169 (1968). In that case MARAD adopted new criteria for determining the amount of profits which the Government could recapture from a subsidized ship operator. MARAD had originally indicated that the new criteria would be retroactively applied to Pacific Far East Line’s earlier years of operation, but when it realized that this would benefit PFEL in the sum of $750,000, it withdrew retroactive application. The court would not permit such a reversal by MARAD for the following reason:

* * * We are left with the bald circumstance that MARAD changed its method of accounting after it discovered that PFEL was entitled to a large sum under its original procedure. MARAD’s only concern must have been to secure for the defendant the maximum amount of money in the form of recapture. As such, this situation takes on the appearance of market place haggling and unreasonable retroactivity which offended this court in American President Lines, Ltd. v. United States, 291 F.2d 931, 936, 154 Ct.Cl. 695, 705 (1961). * * *. [394 F.2d at 1001, 184 Ct.Cl. at 189.]

In the same way, defendant in this case has reversed itself with regard to the use of weighted guidelines after realizing that plaintiff stands to recover greater profits from their use. Defendant’s evasion of the Bethlehem I decision in order to influence the results in this lawsuit should not be permitted. Defendant has failed to show weighted guidelines are not feasible here or would produce unfair or absurd results. The majority opinion upholding defendant’s change of rules in the middle of the game impairs plaintiff’s vested rights against “roving administrative absolutism.” The majority condemns as not “cricket” and as “deplorable” and as “outrageous” what has happened here but tolerates it. This is because the issue of a reasonable profit level is said to be factual and for administrative determination according to guidelines which are fair and reasonable and of general application although subject to change at any time for any legitimate reason. My conclusion is that even as stated the test does not fit the facts before us in such a way as to support the majority’s result in the case.

I have dealt above with the first of two main arguments plaintiff makes in this case, namely, that the weighted guidelines should have been applied because infeasibility thereof has not been demonstrated, particularly because this court in Bethlehem I was aware of the factors relied upon by defendant as allegedly showing infeasibility. However, plaintiff has a second cogent argument. Plaintiff says that the board acted arbitrarily and capriciously in applying unweighted guidelines. The majority opinion passes off without elaboration or refutation this second argument which plaintiff develops at length. Plaintiff makes a good case against the board’s implementation of the unweighted guidelines. On either or both grounds plaintiff should prevail, and defendant should lose this case.

DURFEE, Senior Judge, and KUN-ZIG, Judge, join in the foregoing dissenting opinion.

      . Newport News Shipbuilding & Dry Dock Co. v. United States, 374 F.2d 516, 179 Ct.Cl. 97 (1967).

      . 423 F.2d at 305, 191 Ct.Cl. at 151.

      . Other shipbuilding contractors received escalation, even though such escalation brought profit levels to 15.2 percent, 15.32 percent, and 10.1 percent in three instances.

      . 423 F.2d at 307, 191 Ct.Cl. at 154.