text:
    The HICKS CORPORATION v. The UNITED STATES.
    No. 22-71.
    United States Court of Claims.
    Nov. 14, 1973.

      Michael J. Rubin, Washington, D. C., with whom was Acting Asst. Atty. Gen., Irving Jaffe, for defendant.

    Before DAVIS, NICHOLS and KUN-ZIG, Judges.

       On June 15, 1973, the court allowed the motion of plaintiff’s former attorney of record to withdraw as such from the case, No appearance of counsel was made for plaintiff at the time of submission of the case to the court and there was no oral argument.

   PER CURIAM:

This case comes before the court on plaintiff’s request, filed April 16, 1973, for review by the court of a recommended decision filed by Trial Judge George Willi pursuant to Rule 166(c) on March 20, 1973. The court has considered the case on the record and the briefs of the parties. Since the court agrees with the decision of the trial judge, as hereinafter set forth, it hereby affirms and adopts the same as the basis for its judgment in this case. Therefore, it is concluded that plaintiff is not entitled to recover and its petition should be dismissed; that judgment in the amount of $55,067.57 should be entered for defendant on its first counterclaim ; and, that defendant’s second, third, fourth and fifth counterclaims are remanded to the trial judge for further proceedings of an appropriate nature. Plaintiff’s petition is to be dismissed and judgment is to be entered for defendant on its first counterclaim at the conclusion of the proceedings remanded to the trial judge.

OPINION OF TRIAL JUDGE

WILLI, Trial Judge:

By cross-motions for summary judgment the parties present a single issue common to four of the six counts of the petition herein. It is the correctness, subject to the finality standards of the Wunderlich Act, 68 Stat. 81, 41 U.S.C. §§ 321-322 (1964), of three decisions of the Armed Services Board of Contract Appeals (Board) upholding the default termination of four contracts for the supply of various missile components to the Army and Navy. The Hicks Corporation, 67-1 BCA n 6303, 6304 and 6305.

Except to the limited extent hereafter discussed, plaintiff’s attack on the subject decisions totally lacks the substantive particularity essential to an efficacious challenge. For the most part, both its pleadings and moving papers simply adumbrate those statutory factors and ultimate circumstances for which the Wunderlich Act, supra, would deny finality to a board decision. That approach is insufficient, as a matter of law, to bring the merits of such a decision into issue. Sundstrand Turbo v. United States, 59-60, 389 F.2d 406, 422-423, 182 Ct.Cl. 31 (1968).

Each of the four contracts mentioned above may be correlated with the particular count of the petition to which it relates and to the Board decision rendered in respect to it as follows:

Count II: Army Contract No. DA-01-021-AMC-10604(Z): 67-1 BCA 1J6305
Count III: Army Contract No. AMC(Z) 01-021-64-11572(Z): 67-1 BCA |[ 6305
Count IV: Navy Contract No. NOw 63-0530-f: 67-1 BCA fl 6303
Count V: Navy Contract No. NOw(Z) 63-0376-f: 67-1 BCA ff 6304

In each of these counts plaintiff relies on the same two factors to excuse its acknowledged failure to make progress because of lack of capital. First, it urges that working capital was impaired by the additional costs and inefficiencies engendered by the Government’s change, while performance was under way, from 100 percent inspection to lot sampling and its withdrawal of Government in-plant inspectors during the second and Saturday work shifts. Neither of these actions exculpates the defaults that followed. Plaintiff neither contends, nor do the contractual inspection provisions suggest, that the Government was required to provide the services of resident inspectors for the second, Saturday or any other of plaintiff’s work shifts. As to the change in inspection method, the Board correctly pointed out that each of the contract’s standard inspection clauses expressly authorized the lot sampling of which plaintiff complains. 67-1 BCA J[ 6304 at 29,179. Government conduct authorized by the terms of a contract cannot serve either to excuse the contractor’s failure to perform or to create for him an actionable claim for money damages or other relief.

The second allegedly unwarranted source of capital impairment invoked by plaintiff to justify its inadequate performance progress is set forth in Count I of the petition. There plaintiff recites the difficulties experienced in attempting to perform an earlier (1962) Army contract, No. DA-01-021-ORD-13055, for the supply of Nike rocket motor cases. In a decision rendered November 12, 1964, at which time the four contracts detailed in Counts II through V were outstanding, the Board found certain specifications of that contract to be defective and remanded the matter to the contracting officer for determination of an appropriate adjustment in contract price. 65-1 BCA ff 4516.

On December 18, 1964, while the parties were negotiating the amount of the equitable adjustment, plaintiff closed its plant for lack of operating funds. On January 5, 1965, plaintiff was paid $48,720 by the contracting officer. Although it appealed the adequacy of that payment, it used the money to reopen its plant on January 11, 1965. On March 22, 1965, while the appeal was pending, the contracting officer increased the equitable adjustment by $64,040.62. Plaintiff again appealed and in a supplementary decision of March 18, 1966, the Board held that the adjustment should be still further increased by $53,249, which amount was paid that date. 66-1 BCA 5469.

Meanwhile, _ on May 6, 1965, plaintiff had again closed its plant for lack of working capital and this time the closing was permanent. It was this closing that precipitated the default termination of each of the four contracts represented in Counts II through V. A survey of plaintiff’s financial condition following the plant closing disclosed that while it was due $19,571 on unpaid vouchers for finished goods that had been delivered and had $33,109 outstanding on unpaid progress payment billings, it had a current balance of unliquidated progress payment receipts totaling more than $660,000 and had been paid some $54,000 [under Army Contract 10604 (Count II)] for 270 rocket motor adapters that it had not delivered. All of these matters are chronicled in the Board’s opinion affirming the default termination of the two Army contracts detailed in Counts II and III of the petition herein and are not presently disputed by the plaintiff. 67-1 BCA If 6305. In that opinion, speaking of those two Army contracts in addition to the two basically contemporaneous Navy contracts (Counts IV and V) that were similarly defaulted, the Board concluded: (1) that insufficient operating capital was the effective cause of plaintiff's May plant closing and its consequent inability to make progress on all of the defaulted contracts; (2) that performance could only have been resumed by the infusion of additional Government credit; (3) that such assistance was discretionary with the contracting officer; and (4) that his refusal to extend more credit in an attempt to recoup prior unliqui-dated advances could not be deemed an abuse of discretion under the circumstances. 67-1 BCA at 29,181.

The thrust of plaintiff’s contention respecting the Government’s alleged tardiness in fully redressing the defective specification problem encountered under the 1962 Army contract framed in Count I is that the four default terminations effected in the summer of 1965 for an undisputed failure to make progress because of a lack of working capital cannot be permitted to stand since at that time the Government still had not paid the $53,249 that the Board ultimately found due in March 1966 (66-1 BCA 5469) in furtherance of its prior liability determination of November 1964. 65-1 BCA ft 4516. Assuming, but not deciding, that the contracting officer should have voluntarily paid plaintiff this additional sum at the time that he allowed the equitable adjustments totaling more than $112,000 in January and March 1965, pursuant to the Board’s remand, the failure to do so can only bear relevantly on the termination that followed if it be concluded that $53,000 would likely have prevented the plant closing that occurred in May, Preuss v. United States, 412 F.2d 1293, 1299, 188 Ct.Cl. 469, 480 (1969); H & H Mfg. Co. v. United States, 168 Ct.Cl. 873, 879-880 (1964). The record lends no support to such an inference.

Leaving aside the significance of the unliquidated progress payments that had been accumulated under various contracts and reached a balance of over $660,000 by May 1965, an additional receipt of $53,000 at that time would not have increased working capital because it would have been preempted by plaintiff’s existing indebtedness of $54,000 represented by the payment that it had received under Army Contract No. 10604 (Count II) for 270 Nike missile adapters that it had never delivered.

Finally, the Board record pertaining to Navy Contract No. 63-0376-f (Count V), 67-1 BCA jj 6304, included a letter of May 20, 1965, from plaintiff’s president to the Navy in which he undertook to outline the background of the firm’s financial plight. He explained that the company had experienced such severe stress over a span of the prior two years that the controlling shareholder had been moved to advance it $850,000, “ * * * jn Spite of what [had] been demonstrated to him as a hopeless situation * * * ” and had within the last ten days advanced $100,000 to pay employment and real estate taxes. The history and extent of financial duress recounted by plaintiff’s president clearly refute the notion that $53,000 could have meant the difference between sinking and swimming in the summer of 1965. In sum, there was more than substantial record support for the Board’s conclusion that a fresh infusion of Government credit would have been plaintiff’s only salvation. Koppers Co. v. United States, 405 F.2d 554, 559, 186 Ct.Cl. 142, 150-51 (1968). Accordingly, the Board’s approval of the default terminations disputed by Counts II through V of the petition must be upheld.

Count VI of the petition refers to a 1963 Army supply contract, No. DA-01-009-AMC-2KZ), for Honest John missiles and related parts. Plaintiff avers that defendant breached this contract by altering its inspection procedures in the same manner as previously described herein with respect to the four defaulted contracts. Further, it alleges that it appealed the contracting officer’s denial of redress for these Government actions and that, by an order of October 3. 1968, the Board dismissed the appeal, designated as Docket No. 11003. Examination of the Board record in that matter discloses that the referenced order was a dismissal of the appeal with prejudice and that the action was taken in pursuance of a letter request of September 30, 1968, from plaintiff’s attorney stating, in substance, that plaintiff had elected to submit that appeal and six others to the Army and Navy Adjustment Boards for relief under Pub. L. 85-804 (50 U.S.C. § 1431 et seq.) and was therefore “ * * * willing to withdraw the subject eases with prejudice, to demonstrate to the Army and Navy Contract Adjustment Boards that [it] has no recourse to legal relief.” By its action plaintiff voluntarily and irrevocably extinguished its rights to sue on the contract and, while the record does not reflect how it fared before the Army Adjustment Board on this contract, action on such a claim is entirely discretionary in any event. Winder Aircraft Corp. of Florida v. United States, 412 F.2d 1270, 1272, 188 Ct.Cl. 799, 802 (1969).

The foregoing disposes of plaintiff’s assorted claims.

Defendant’s answer, in addition to denying liability on plaintiff’s claims, set up five separate counterclaims. Plaintiff filed a reply pleading, generally denying the various liabilities asserted against it.

The first counterclaim is for entry of judgment for excess reprocurement costs totaling $55,067.57 incurred in respect to completion of the defaulted contracts involved in Counts II and III of the petition. Following plaintiff’s unsuccessful appeal on the termination question, the Board upheld the contracting officer’s assessment of these costs. 67-2 BCA f 6684. Plaintiff presents no direct challenge to that determination, contending only that its validity depends upon that, heretofore affirmed, of the default terminations. In these circumstances the Government is entitled to judgment on its first counterclaim. As-tro-Space Laboratories, Inc. v. United States, 470 F.2d 1003, 200 Ct.Cl. 282 (1972).

The second and third counterclaims are for the recovery of unliquidated progress payments assertedly advanced under the Count IV and V contracts, respectively, and the fourth and the fifth deal with amounts allegedly due under contracts wholly extrinsic to this suit. Defendant’s motions for summary judgment on these four counterclaims must be denied for lack of ripeness. In the face of the denials in plaintiff’s reply pleadings, defendant has not accompanied its motions by affidavits or other appropriate materials reasonably refuting the existence of material issues of fact subject to genuine dispute. It therefore has not been able to show that it is entitled to judgment as a matter of law. Marley v. United States, 423 F.2d 324, 331-334, 191 Ct.Cl. 205, 218-222 (1970). Accordingly, disposition of defendant’s second, third, fourth and fifth counterclaims must await further proceedings reasonably adapted to that end.

CONCLUSION

For the reasons given, the petition should be dismissed; judgment in the amount of $55,067.57 should be entered for defendant on its first counterclaim and defendant’s second, third, fourth and fifth counterclaims are remanded to the trial judge for further proceedings of an appropriate nature.

      . Both the plant closing and subsequent reopening are reflected in the Board’s opinion dealing with the default termination of the two Army contracts involved in Counts II and III. 67-1 BCA at 29,180.

      . In the present proceeding plaintiff makes no substantive effort to impugn that decision as representing less than full redress of the defective specification problem.

      . There is reason to believe that, in fact, the deterioration of plaintiff’s financial condition had even earlier beginnings. In the late fifties its resources were being appropriated to the personal gratification of its then president and controlling shareholder. Hicks Co., 56 T.C. 982, aff’d, 470 F.2d 87 (1st Cir. 1972).

      . 67-1 BOA 1Í 6305.

      . While it is recognized that in both its papers supporting its summary judgment motion and replying to defendant’s cross-motion plaintiff asserts that the validity of defendant’s second and third counterclaims is dependent upon the validity of the default termination of the two contracts (Counts IV and V) from which they stem, it is not felt that the concession of counterclaim liability implicit in a literal reading of these assertions is sufficient to either satisfy or displace the burden of proof resting on defendant as an applicant for affirmative relief.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    Leonard A. COHEN v. The UNITED STATES.
    No. 380-68.
    United States Court of Claims.
    Nov. 14, 1973.
    Allen Kirkpatrick, Washington, D. C., attorney of record for plaintiff.
    Donald E. Townsend, Washington, D. C., with whom was Acting Asst. Atty. Gen., Irving Jaffe, for defendant.
    Before COWEN, Chief Judge, KASH-IWA and BENNETT, Judges.
   OPINION

PER CURIAM:

This case comes before the court on defendant’s motion, filed September 14, 1973, that the court adopt as the basis for its judgment in this case the recommended decision, filed August 2, 1973, by Trial Judge Hal D. Cooper pursuant to Rule 134(h), plaintiff having on September 19, 1973, filed a response stating no objection to the defendant’s said motion. Upon consideration thereof, without oral argument, since the court agrees with the Trial Judge’s decision, as hereinafter set forth, it hereby grants defendant’s motion and affirms and adopts the decision as the basis for its judgment in this case. Therefore, plaintiff is not entitled to recover and plaintiff’s petition is dismissed.

OPINION OF TRIAL JUDGE

HAL D. COOPER, Trial Judge:

This is a suit for patent infringement pursuant to 28 U.S.C. § 1498 involving reissue patent No. Re. 26,475, entitled “Composite Space Vehicle.”

By agreement of the parties, the defense of intervening rights under 35 U. S.C. § 252 was severed and tried in advance of trial on the issues of validity and infringement. Based on the facts established at that trial, it is concluded that intervening rights have been established and are dispositive of this case.

Reissue patent No. Re. 26,475, granted October 8, 1968, is a reissue of U.S. Patent No. 3,173,627, granted March 16, 1965. The reissue patent discloses a space vehicle in which the occupant is rotated within the vehicle during periods of extreme acceleration or deceleration about an axis transverse to the direction of the acceleration or deceleration forces. In this way, the effective direction of the acceleration or deceleration forces on the internal organs and blood of the occupant is constantly changed, thereby substantially lessening the destructive effect of these forces. Rotation of the occupant is accomplished by providing a rigid support on which the occupant rests, with the support rotationally supported within the space vehicle. The axis of rotation of the rigid support substantially coincides with the longitudinal axis of the occupant.

The first seven claims of the reissue patent are identical to the seven claims appearing in the original patent and are directed to a space vehicle. The reissue patent contains an additional claim, claim 8, that did not appear in the original patent and which is not limited to a space vehicle.

The petition, as amended, alleged infringement of claims 5, 6 and 8 by human centrifuge systems located at various Air Force and NASA installations. Subsequently, plaintiff withdrew claims 5 and 6 from consideration and restricted the accused devices to the human centrifuge employing a special spin capsule installed at the School of Aerospace Medicine, Brooks Air Force Base, San Antonio, Texas. The case proceeded to trial with only claim 8 alleged to be infringed and the Brooks installation as the only accused device.

The accused structure consists of a special spin capsule adapted to be supported on the end of a centrifuge arm. The capsule consists of a cab that is supported for rotation in a circular direction relative to the arm. A seat, on which a human subject is supported, is secured to the floor of the cab. By rotating the centrifuge arm acceleration and deceleration forces (“g” forces) can be applied to the human in the capsule while, at the same time, the capsule can be spun, thereby permitting study of the effects of spinning on a human while he is subjected to these “g” forces.

The facts as to the Government’s procurement and use of the Brooks centrifuge and the special spin capsule are not in serious dispute. The centrifuge itself was procured in 1963. The special spin capsule was ordered, delivered, installed, acceptance tested, and accepted, all prior to October 8, 1968, the issue date of the reissue patent. There has been no use of the special spin capsule subsequent to October 8, 1968; however, the capsule is presently in storage at Brooks.

It is axiomatic that there can be no infringement of a patent prior to its issuance. Gayler v. Wilder, 51 U.S. (10 How.) 477, 492, 13 L.Ed. 504 (1850); Coakwell v. United States, 372 F.2d 508, 178 Ct.Cl. 654, (1967). Nor can there be infringement of a claim added to a reissue patent unless the infringing activities occurred after the reissuance of the patent. Daniel v. O & M Mfg. Co., 105 F.Supp. 336 (S.D.Tex. 1952). See Sontag Chain Stores Co. v. National Nut Co. of Calif., 310 U.S. 281, 60 S.Ct. 961, 84 L.Ed. 1204 (1940) ; Southern Saw Service v. Pittsburgh-Erie Saw Corp., 239 F.2d 339 (5th Cir. 1956), cert, denied, 353 U.S. 964, 77 S. Ct. 1047, 1 L.Ed.2d 914 (1957). Since the acts of procurement and use of the accused equipment occurred prior to the reissuance of the patent in suit, those acts cannot as a matter of law give rise to any liability on the part of the Government, even if claim 8 is otherwise valid and infringed.

However, in Coakwell v. United States, supra, it was held that articles procured before the grant of a patent, but available for use after issuance of the patent, constituted an infringing use. See also, Olsson v. United States, 25 F.Supp. 495, 87 Ct.Cl. 642 (1938), cert, denied, 307 U.S. 621, 59 S.Ct. 792, 83 L.Ed. 1500 (1939). In this case, there is no dispute that the special spin capsule, although, presently disassembled, is available for use with the centrifuge should the Government elect to so use it.

Defendant contends, however, that, by reason of its procurement of the specific accused structure prior to the grant of the reissue patent, it has acquired intervening rights which immunize continued use of that structure from a claim of infringement. The defense of intervening rights is based on 35 U.S.C. § 252 which provides, in pertinent part:

* * -X- -X- * *
No reissued.patent shall abridge or affect the right of any person or his successors in business who made, purchased or used prior to the grant of a reissue anything patented by the reissued patent, to continue the use of, or to sell to others to be used or sold, the specific thing so made, purchased or used, unless the making, using or selling of such thing infringes a valid claim of the reissued patent which was in the original patent. * * *

Under this provision, one who, prior to the grant of a reissue patent, makes or procures or uses something that does not infringe a claim of the original patent, has the right to continue using the specific thing so made, procured or used without regard to the reissue patent. Southern Saw Service v. Pittsburgh-Erie Saw Corp., supra.

This rule of intervening rights is applicable here. Having acquired the accused structure during the intervening period between the original patent and the reissue patent, and there being no allegation of infringement of any of the claims appearing in the original patent, defendant is to be accorded intervening rights as to that structure and is free of liability for its use thereof.

The only remaining matter is defendant’s contention that it should be permitted to repair the spin capsule to restore it to its original operable condition and to use the capsule, as repaired, without liability to plaintiff. Plaintiff concedes that defendant may repair the capsule to the form used prior to October 8, 1968, but urges that defendant should not have the right to modify it to any other form. In particular, plaintiff contends that defendant should not be permitted, under the guise of “repair,” to 'modify the capsule so that the back rest of the seat, in an upright position, is at less than 13° to the vertical.

The doctrine of intervening rights, as set forth in 35 U.S.C. § 252, is limited to the “specific thing” purchased or used prior to grant of the reissue patent. This doctrine does not authorize the modification of that “thing” to a different form. Nor has defendant presented any evidence that would indicate that, for it to protect its investment in the spin capsule, modifications of any kind are required. Accordingly, to the extent defendant premises its right to use the spin capsule without liability to plaintiff on the defense of intervening rights, it must restrict its repair of the capsule to the arrangement in which it was procured, i. e., with the back rest of the seat at an inclination of 13° to the vertical.

In summary, it is concluded that, being possessed of intervening rights in the accused special spin capsule, defendant has the right to repair it to the form in which it was originally procured and to use it in that form for its originally intended purpose, subject only to the requirement that its use does not infringe an original valid claim of patent No. 3,173,627 which is incorporated into the reissue patent in suit.

Intervening rights being dispositive as to the only device accused, there is no need for a further trial to determine whether claim 8 is valid and, if so, infringed.

The petition must be dismissed.

      . The petition, as amended, also alleged a claim for compensation under 28 U.S.C. § 1491, asserting violation of an implied contract between plaintiff and defendant. No proof was offered in support of that claim and the parties have agreed that aspect of the case may be dismissed with prejudice.

      . This would require reassembly of the seat into the capsule, replacing the wiring and reconnecting the hydraulic system and instrumentation.

      . The 13° inclination apparently is important to the issue of infringement. With the back rest at a vertical position, the axis of rotation of the capsule would coincide with the longitudinal axis of the human occupant and it is this concept that plaintiff alleges to have invented. With a 13° inclination to the back rest, the axis of rotation of the capsule and the long axis of the occupant are no longer exactly coincident. In a paper filed subsequent to the trial, plaintiff now suggests that the spin capsule may not infringe even claim 8 when used with a seat having a back rest at a 13° inclination.


author: SKELTON, Judge:

text:
    COCA-COLA BOTTLING COMPANY OF BALTIMORE et al. v. The UNITED STATES.
    Nos. 174-70 thru 181-70.
    United States Court of Claims.
    Nov. 14, 1973.

      William P. McClure, Washington, D. C. attorney of record, for plaintiff
    John D. Heckert and John I. Coldren III, Washington, D. C., of counsel.
    Scott P. Crampton, Asst. Atty. Gen., for defendant. Gilbert E. Andrews, Jr. and Frances Foltz Kane, Washington, D. C., of counsel.
    Before COWEN, Chief Judge, DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG, and BENNETT, Judges.
   OPINION

SKELTON, Judge:

These suits were brought by eight wholly-owned subsidiary corporations of the Coco-Cola Company, engaged in the business of bottling and selling carbonated beverages, to recover Federal income taxes totaling $181,995.19, plus assessed interest and statutory interest, for the calendar years 1962, 1963, and 1964. The tax was paid as the result of the disallowance of investment credit which plaintiffs had claimed under Sections 38, 46, and 48 of the Internal Revenue Code of 1954, with respect to returnable glass bottles and returnable wooden or plastic cases that were purchased and put into service by the plaintiffs during the years in issue. The suits are before the court on a stipulation of facts by the parties for a decision on an issue of law.

The parties agree that the returnable bottles and cases were tangible personal property used in plaintiffs’ trade or business and have stipulated the percentages of bottles and cases that last more than eight years, from six to eight years, from four to six years, and less than four years, so that there is no dispute regarding the applicable useful life of these properties for investment credit purposes. The parties disagree as to whether the bottles and cases constituted property on which depreciation was allowable under the applicable statute and regulations pertaining to the investment credit, and, if so, whether plaintiffs’ “qualified investment” was the original cost of these properties, or cost less deposit value.

The three specific questions presented in these suits are as follows:

1. Whether these returnable bottles and cases could be “property with respect to which depreciation * * * [was] allowable” within the meaning of section 48 of the Internal Revenue Code, even if it were determined that plaintiffs did not in fact depreciate such property, but rather, deducted the cost as a current expense.

2. If not, whether plaintiffs’ method of accounting (under which they deducted currently the cost less deposit value of bottles and cases placed in service during the year and also deducted the deposit value of bottles and cases when broken and scrapped at the plant) constitutes a method of depreciation within the meaning of section 167 of the Code.

3. If plaintiffs prevail on either question one or question two and are thus found to be entitled to the investment credit on returnable bottles and cases, whether their “qualified investment” within the meaning of section 46(a) and (c) (i.e., the amount on which the investment credit is computed) should be determined by reference to their cost, or rather, by reference to cost reduced by the amount of security deposits.

We have found against plaintiffs on both question one and question two for all of the reasons set out below. Because we have determined that plaintiffs were not entitled to claim the investment credit on returnable bottles and cases during the years at issue, it was not necessary for us to consider the proper means of determining plaintiffs’ “qualified investment.” The material facts may be briefly summarized.

One marketing method used by plaintiffs was to bottle their beverages in returnable glass bottles and place the bottles in wooden or plastic cases for delivery to customers. These bottles and cases were purchased new from various manufacturers. Upon receipt, the newly purchased bottles and cases were made available for use in plaintiffs’ plants by placing them in the respective plaintiff’s supply inventory. As soon as they were needed, which could even have been the same day, they were removed from the supply inventory and filled with beverage for the first time.

When the beverages contained in the bottles were placed in the eases and delivered by plaintiffs to their customers, the customers were required to pay for the beverage and to make a deposit on the bottles and cases. Upon return of the empty bottles and the cases, the deposits were refunded. During the taxable years in issue, the deposit value on bottles, with the exception of the large 26-ounce size, was between one-quarter and one-third of their cost. On 26-ounee bottles, the deposit value was 42 percent to 49 percent of their cost. The deposit value on cases varied from about 2 percent to 25 percent of cost on 24-pocket cases, and from 30 percent to 36 percent of cost on 12-pocket cases. Defendant does not dispute, for purposes of this case, that title to the returnable bottles and cases remained with the respective plaintiff when its bottles and cases were in the possession of customers.

Some bottles and cases were broken and scrapped in the plant when they were too damaged to be reused. These, broken and scrapped bottles and cases had little or no junk or scrap value and there was no relationship between deposit value and junk or scrap value. Other bottles and cases were “lost in the trade,” i. e., not returned by customers, and surveys were conducted by plaintiffs to determine the amount of such losses.

Prior to 1939, those plaintiffs who were then owned by the Coca-Cola Company capitalized their bottles and cases and claimed depreciation deductions on them. In 1939, however, the Coca-Cola Company requested and received permission from what was then the Bureau of Internal Revenue for its bottling subsidiaries to change their method of accounting for bottles and cases. Similarly, in 1947, permission was requested of the Commissioner of Internal Revenue, and received, for several newly-acquired bottling subsidiaries to use the same new method. During the years in issue, plaintiffs accounted for their returnable bottles and cases in accordance with the method approved in 1939 and 1947. Under this method, each plaintiff wrote off the cost less deposit values of bottles and cases in the year they were purchased and put into service, and it wrote off the deposit value in the year when these bottles and cases were either discarded at its plant or “lost in the trade.”

On its tax returns for the years in question, each plaintiff deducted the cost less deposit value of newly-purchased bottles and cases as well as the deposit value of bottles and cases scrapped at its plant. This deduction was not made on the depreciation schedules attached to the returns, but is instead made on the returns as a cost of goods sold entitled “container expense.” Although the deposit value of bottles and cases “lost in the trade” is written off, no deduction is claimed since the deposits collected from the customers cover this expense.

The method of accounting used by plaintiffs during the years in issue, briefly stated, was as follows. Plaintiffs maintained asset accounts in which they carried the deposit value of returnable bottles and cases. The remainder of the cost of new bottles and cases (the difference between deposit value and purchase price) was charged to a “container expense” account immediately after receipt, when the bottles and cases were first placed into inventory. When the bottled beverage was sold, plaintiffs debited the full amount received to cash, or to an account receivable. Credits were made to deposit liability and cash accounts for the respective parts of the amount received that represented the sales price of the bottled beverage and the deposit value of the bottles and cases. When bottles and cases were returned, the deposits were refunded in cash, or by a credit to the customer’s account receivable, and the deposit liability account was reduced accordingly. The deposit value of bottles and cases broken and scrapped in the plant was written out of the asset account and charged to expense, while the deposit value of bottles and cases determined to be “lost in the trade” was written out of the asset account and charged to deposit liability.

In 1965, plaintiffs requested permission to change from the above-described method of accounting for the bottles and cases to a method whereby the cost of bottles and cases would be depreciated down to (but not below) deposit value over the period of average useful life. The Commissioner of Internal Revenue granted plaintiffs permission to change to a depreciation method of accounting for all returnable bottles and cases acquired on and after January 1, 1965. Plaintiffs also requested and were given a ruling that they were entitled to the investment credit on bottles and cases acquired on and after January 1, 1965.

For the years involved, 1962, 1963, and 1964, plaintiffs filed separate Federal income tax returns on a calendar year basis, claiming the investment credit for returnable bottles and cases. Upon audit, the claimed credits were disallowed and deficiencies were assessed. The assessed deficiency amounts plus assessed interest were paid. Claims for refund were timely filed and denied and these suits followed.

Sections 38 and 46 grant to taxpayers a tax credit of seven percent of their “qualified investment” in “section 38 property.” The term “section 38 property” as defined in section 48(a)(1), “includes only property with respect to which depreciation * * * is allowable.” The threshold issue in these cases is whether depreciation is “allowable” within the intendment of section 48 if plaintiffs could have recovered their cost through depreciation but elected instead to expense currently.

Section 1.48-1 (b) of the Treasury Regulations, 26 C.F.R. 1.48-1 (b), states in relevant part:

(b) Depreciation allowable (1) Property is not section 38 property unless a deduction, for depreciation * * -x- with respect to such property is allowable to the taxpayer for the taxable year. A deduction for depreciation is allowable if the property is of a character subject to the allowance for depreciation under section 167 and the basis (or cost) of the property is recovered through a method of depreciation, including, for example, the unit of production method and the retirement method as well as methods of depreciation which measure the life of the property in terms of years. •X* * *
* * -X* -X- * *
(3) If the cost of property is not recovered through a method of depreciation but through a deduction of the full cost in one taxable year, for purposes of subparagraph (1) of this paragraph a deduction for. depreciation with respect to such property is not allowable to the taxpayer. * * * [Emphasis supplied.]

The regulations thus focus upon the situation of the particular taxpayer and specifically state that a deduction for depreciation is not “allowable” if the cost is recovered through deduction of the full cost in one taxable year.

Plaintiffs maintain that Congress, in using the term “allowable” in section 48, was merely describing the type of property with respect to which the investment credit was available and did not intend to make eligibility for the investment credit depend on the particular method of cost recovery used. Accordingly, plaintiffs argue that the above-quoted regulations are invalid insofar as they deny the investment credit to a. taxpayer who could have taken depreciation but chose rather to expense currently. If Congress had intended such a result, it would have used the term “allowed” rather than the term “allowable.”

Defendant, on the other hand, supports the validity of the regulations. It contends that section 48 requires that depreciation be “allowable” to the taxpayer and urges that depreciation is not “allowable” to the taxpayer if an election has been made to expense.

Treasury regulations, construing as they do complex tax statutes, must be upheld unless they are unreasonable or in clear conflict with the statutory language. Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501, 68 S.Ct. 695, 92 L.Ed. 831 (1948); Fawcus Machine Co. v. United States, 282 U.S. 375, 378, 51 S.Ct. 144, 75 L.Ed. 397 (1931); Wills v. Commissioner, 411 F.2d 537, 543, n. 1 (9th Cir.-1969). Moreover, considering the specific delegation of authority to the Commissioner in section 38(b) to prescribe regulations governing the operation of the investment credit, section 1.48-1 (b) of the Treasury Regulations is entitled to even more than the usual great weight accorded Treasury Regulations and should not be overturned unless clearly unlawful. Brewster v. Gage, 280 U.S. 327, 50 S.Ct. 115, 74 L.Ed. 457 (1930); Lucas v. American Code Co., 280 U.S. 445, 449, 50 S.Ct. 202, 74 L.Ed. 538 (1930). There is support for the regulations here in question in the legislative history (see H.R.Rep.No.1447, 87th Cong., 2d Sess. 10, A8, A12, A17 (1962); S.Rep.No.1881, 87th Cong., 2d Sess. 143, 149, 154 (1962)) and in the plain terms of section 48(a), which limits the investment credit to “property with respect to which depreciation * * is allowable.” The word “allowable” would be meaningless unless it referred to a particular taxpayer. If Congress had meant to include property of a type which generally might be depreciated, and had not intended that a taxpayer’s particular circumstances be considered, it could easily have referred less specifically to “depreciable property.”

Defendant has cited two cases which interpreted section 48 as requiring that depreciation be “allowable” to the particular taxpayer. In Myron A. Anderson, 54 T.C. 1035 (1970), aff’d, 446 F.2d 672 (5th Cir. 1971), the taxpayer had no basis in the oil well equipment on which an investment credit was claimed because it had been purchased with the proceeds from the sale of production payments subject to a pledge to use the proceeds to purchase such equipment. The Tax Court did not consider it necessary to decide whether section 1.48-1 (a) and (b) was valid, since it held for the government on the ground that tax basis is an essential element in determining “qualified investment” under section 46(c) and without a basis there could be no “qualified investment” and thence no investment credit. The United States Court of Appeals affirmed the Tax Court’s decision under section 46(e) and held further that section 1.48-1 (a) and (b) was valid, insofar as it required that the depreciation deduction be allowable to the taxpayer.

Millers Nat’l Life Ins. Co., 54 T.C. 457 (1970), the second case cited by defendant, considered whether an insurance company, taxable on its investment income but not on its underwriting income, could take the investment credit on property used in its underwriting activities. Since it had been previously decided in Rockford Life Ins. Co. v. Commissioner, 292, U.S. 382, 54 S.Ct. 761, 78 L.Ed. 1315 (1934), that depreciation could not be taken on assets used in the production of non-taxable underwriting income, the Tax Court held in Millers Nat’l Life Ins. Co. that neither could the investment credit be taken on such assets.

In Anderson, depreciation was not allowable to the taxpayers because they had no basis in the oil well equipment, and in Millers Nat’l Life Ins. Co., depreciation was not allowable to the taxpayer because the asset was used in the production of non-taxable underwriting income. The instant case is clearly anala-gous to the two aforementioned cases. Here depreciation is not allowable to the taxpayers because they elected instead to expense the bottles and cases.

One strong indication that Congress did not intend to allow the investment credit to taxpayers who recovered their cost by expensing rather than through some method of depreciation, is the fact that in 1962 and 1963, section 48(g) required taxpayers to reduce their depreciable basis in the investment credit property by the amount of investment credit. Obviously, such a basis adjustment could not be accomplished where taxpayer has written off the entire cost of the property since there would be no basis left to adjust.

We therefore hold that section 1.48-1 (b) of the Treasury Regulations is valid and properly states that a depreciation deduction must be allowable to the particular taxpayer in order for property to be “section 38 property” and that a deduction for depreciation is not allowable to the taxpayer if the full cost of property is recovered in one taxable year.

Plaintiffs submit, in the alternative, that their method of deducting currently the cost less deposit value of newly purchased bottles and cases, and the writing off of the deposit value of bottles and cases when they were either broken and scrapped at the plant or determined to be “lost in the trade” constituted a method of depreciation, thus entitling plaintiffs to the investment credit under the criteria set out in section 1.48-1 (b), since depreciation was in fact taken.

Depreciation has long been recognized and defined as a consistent, gradual process of estimating and allocating the cost of a capital investment over the estimated useful life of the asset in order to match cost against earnings. Fribourg Navigation Co. v. Commissioner, 383 U.S. 272, 277, 86 S.Ct. 862, 15 L.Ed.2d 751 (1966); Massey Motors, Inc. v. United States, 364 U.S. 92, 104, 80 S.Ct. 1411, 4 L.Ed.2d 1592 (1960); United States v. Ludey, 274 U. S. 295, 300-301, 47 S.Ct. 608, 71 L.Ed. 1054 (1927); Treasury Regulations § 1.-167(a)-l(a). In Massey Motors, supra, at 104 of 364 U.S., at 1418 of 80 S.Ct. the Supreme Court summed it up by stating:

Finally, it is the primary purpose of depreciation accounting to further the integrity of periodic income statements by making a meaningful allocation of the cost entailed in the use (excluding maintenance expense) of the asset to the periods to which it contributes. This accounting system has had the approval of this Court since United States v. Ludey, 274 U.S. 295, 301 [47 S.Ct. 608, 71 L.Ed. 1054] (1927), when Mr. Justice Brandéis said, “The theory underlying this allowance for depreciation is that by using up the plant, a gradual sale is made of it.” * * *

Plaintiffs method of accounting for bottles and eases is not in accord with this description of depreciation. Contrast the above-quoted language with the following recent statement on expense accounting by this court in Anders v. United States, 462 F.2d 1147, 1149, 199 Ct.Cl. 1, 4, cert, denied, 409 U.S. 1064, 93 S.Ct. 557, 34 L.Ed.2d 517 (1972):

As noted above, Service had previously expensed these rental items, so that they were no longer shown on Service’s books and records as assets. “The expense deduction as permitted by regulation is intended to reflect the cost of [items] actually consumed during the taxable year * * Spi-talny v. United States, 430 F.2d 195, 197 (9th Cir. 1970). * * *

The present consumption of an item is the exact opposite of the gradual sale of an asset and it is therefore apparent that current expensing is the antithesis of depreciation.

Plaintiffs stress the fact that they did not deduct the deposit value of the bottles and eases in the year of purchase, and suggest that they thereby deferred the deduction of a substantial part of the cost (approximately 32%). This is not accurate. Plaintiffs were not entitled to deduct, nor did they deduct, the deposit value of the bottles and cases which were “lost in the trade,” i. e., not returned by customers, since plaintiffs were reimbursed for such losses from the deposits. With regard to bottles and cases ultimately determined to have been “lost in the trade,” therefore, plaintiffs actually recovered their full cost in the year they were purchased. They recovered their cost less deposit value (through a current tax deduction) when the bottles and cases were purchased and first placed in inventory and they recovered the deposit value (by collecting security deposits) shortly thereafter when the bottles and cases were delivered to customers for the first time. Thus, it is only with respect to bottles and cases broken and scrapped in the plant that the deduction of the deposit value was deferred. The record indicates that the percentage of the cost of bottles and cases actually deferred, to later years, under the above analysis, was roughly between 10 percent and 15 percent. Thus, plaintiffs were writing off approximately 85-90 percent of their cost in the first year. Plaintiffs’ method of accounting for bottles and cases was a far cry from a “gradual sale” and made no attempt to match cost recovery against income.

Plaintiffs argue that the deductions claimed were reasonable and rely on the second paragraph of section 167(b), which states:

Nothing in this subsection shall be construed to limit or reduce an allowance otherwise allowable under subsection (a).

This language does not advance plaintiffs’ cause, however, since the allowance must be “otherwise allowable under subsection (a)” and subsection (a) states in relevant part:

(a) General rule.—
There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear * * *. [Emphasis supplied.]

Plaintiffs must do more than prove their deductions were reasonable. They must prove that they were depreciation deductions and this they have failed to do. Plaintiffs have not even attempted to show that the deductions claimed were comparable to what they would have received if they had depreciated the property under one of the methods prescribed in section 167 (b).

Plaintiffs also assert that if the retirement-replacement-betterment method of accounting used by the railroads constitutes a method of depreciation (see Chicago, Burlington & Quincy RR v. United States, 197 Ct.Cl. 264, 455 F.2d 993 (1972), rev’d on other grounds, 412 U.S. 401, 93 S.Ct. 2169, 37 L.Ed.2d 30 (1973); Boston & M. RR v. Commissioner, 206 F.2d 617 (1st Cir. 1953)), then so does their method. The two methods, in fact, are quite dissimilar. Under retirement-replacement-betterment accounting, the cost of additions and betterments are capitalized and remain on the books until the property is retired and not replaced in kind. Only replacements in kind are expensed currently. Such replacements, together with retirements, reduced by salvage value, comprise the depreciation deduction. Moreover, salvage is an important element of the method. In contrast, plaintiffs’ method had no step comparable to the capitalization of additions or betterments. They expensed the cost less deposit value of all bottles and cases, without regard to whether they were replacements or additions. Furthermore, under plaintiffs’ method of accounting, salvage was insignificant.

Plaintiffs contend that the deposit value on their books was comparable to the unrecovered cost basis that the railroads carry ' on their books for their track system. However, plaintiffs’ bottle and case asset accounts, stated at deposit value, were directly offset by deposit liability accounts. The track asset accounts of the railroads, on the other hand, are not subject to any offsetting liability. As pointed out eai’lier, plaintiffs actually have no unreeovered cost basis in their bottles and cases once they are placed in service, except where such bottles and cases are later scrapped at the plant.

Concerning plaintiffs’ alternative argument, we hold that the method of accounting used by plaintiffs during the disputed years was not a method of depreciation.

Accordingly, we hold that plaintiffs were not entitled to claim the investment credit on returnable bottles and cases for the years 1962, 1963, and 1964.

CONCLUSION OF LAW

Upon the foregoing opinion, which includes the necessary facts made as a part of the judgment herein, and the facts as stipulated by the parties, the court concludes as a matter of law that plaintiffs are not entitled to recover and the petitions are dismissed.

      . Only the year 1964 is involved in Docket Nos. 176-70,177-70, and 178-70.

      . As amended by the Revenue Act of 1962, Pub.L. 87-834, § 2, 76 Stat. 962, 963, 967 (1962). All statutory references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated.

      . The cost of 6%-ounce, 10-ounce, 12-ounce, and 16-ounce bottles ranged from $.0583 to $.0781 per bottle, and a deposit value of $.02 per bottle was used by all companies, except the two West Coast companies which used a deposit value of $.03 per bottle. The cost of a 26-ounce bottle was from $.1014 to $.1170 and a $.05 deposit value was used. The cost of 24-pocket cases was $1.07, except on the West Coast where it was $1.12. Different plaintiffs used deposit values of $.02, $.12, $.27 and $.28. The cost of 12-poeket cases was $1.10, $1.27, and $1.30, and a deposit value of $.40 was used by all companies that used them.

      . 26 U.S.O. § 48(a) (1) (1964) reads, in pertinent part, as follows:
      “§ 48. Definitions; special rules.
      “(a) Section 38 property.—
      “(1) In general.—
      “Except as provided in this subsection, the term ‘section 38 property’ means—
      “ (A) tangible personal property, or

        * * * * ■ *
      “Such term includes only property with respect to which depreciation (or amortization in lieu of depreciation) is allowable and having a useful life (determined as of the time such property is placed in service) of 4 years or more.” •

      . Section 48(g) was repealed’by the Revenue Act of 1964, Pub.L. 88-272, § 203(a), 78 Stat. 19 (1964).

      . On tlie basis of the average balance in the bottle asset account each year, Coca-Cola Bottling Company of Baltimore, for example, charged off approximately 16 percent for broken bottles in both 1962 and 1963 and 11 percent in 1964. Coca-Cola Bottling Company of California charged off about 11 percent in 1962 and 1963 and 9 percent in 1964.

      . 26 U.S.C. § 167(b) (1964) reads as follows :
      “(b) Use of certain methods and rates.— “For taxable years ending after December 31, 1953, the term ‘reasonable allowance’ as used in subsection (a) shall include (but shall not be limited to) an allowance computed in accordance with regulations prescribed by the Secretary or his delegate, under any of the following methods:
      “ (1) the straight line method,
      “(2) the declining balance method, using a rate not exceeding twice the rate which would have been used had the annual allowance been computed under the method described in paragraph (1),
      “(3) the sum of the years-digits method, and
      “(4) any other consistent method productive of an annual allowance which, when added to all allowances for the period commencing with the taxpayer’s use of the property and including the taxable year, does not, during the first two-thirds of the useful life of the property, exceed the total of such allowances which would have been used had such allowances been computed under the method described in paragraph (2).
      “Nothing in this subsection shall be construed to limit or reduce an allowance otherwise allowable under subsection (a).”


text:
    FILTROL CORPORATION v. The UNITED STATES.
    No. 295-64.
    United States Court of Claims.
    Nov. 14, 1973.

      Stuart T. Peeler, Los Angeles, Cal., for plaintiff. Fuller Holloway, Washington, D. C., attorney of record. J. Patrick Whaley, and Musick, Peeler & Garrett, Los Angeles, Cal., of counsel.
    Frances Foltz Kane, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr., and Joseph Kov-ner, Washington, D. C., of counsel.
    Before COWEN, Chief Judge, KASH-IWA and BENNETT, Judges.
   ON PLAINTIFF’S MOTION TO DISMISS AND ON THE MERITS

PER CURIAM:

Plaintiff brought this suit to recover Federal income taxes for the years 1953 through 1957, seeking to recover the partial disallowance of its depletion deductions at the Cheto mine and the amount by which its depletable gross income, which represented the cost of containers, was reduced by the Commissioner of Internal Revenue. The issue relating to container costs was abandoned prior to trial. In its amended answer, the defendant raised two defenses by way of set-off: (1) plaintiff had no economic interest in the Cheto mine; and (2) plaintiff had taken excess depletion on all of its mines because it had used an end-product cutoff point.

After a lengthy trial before our former trial judge, James F. Davis, the trial judge filed his opinion, findings of fact, and recommended conclusion of law in which all issues were determined in favor of the defendant.

On August 30, 1973, after plaintiff had filed its exceptions to the trial judge’s findings of fact, and both parties had filed their briefs to the court, plaintiff filed a motion to dismiss its petition with prejudice. Alternatively, plaintiff withdrew its Notice of Intention to Except to those findings of fact which relate to the economic interest issue, and moved the court to adopt such findings of fact, the trial judge’s opinion relating to the economic interest issue, and his recommended conclusion of law.

After hearing oral argument on the motion to dismiss and on the merits, the court finds that the granting of plaintiff’s motion to dismiss at this stage in the proceedings would be prejudicial to defendant and, in the exercise of discretion, the court denies the motion. Stevenson v. United States, 197 F.Supp. 355 (M.D.Tenn.1961). See also Church of Scientology of Hawaii v. United States, 485 F.2d 313 (9th Cir.), decided September 6, 1973, and cases cited therein.

However, the court concludes that the granting of plaintiff’s alternative motion would not prejudice defendant’s fights. Such action gives defendant the benefit of an opinion and detailed findings of fact on the economic interest issue and forecloses plaintiff’s right to recover on any of the grounds alleged in the petition. It is therefore unnecessary for the court to reach or consider the issue raised by defendant’s plea of set-off that plaintiff had taken excess depletion on all of its mines because it had used an end-product cutoff point.

Therefore, the court affirms and adopts the trial judge’s Findings of Fact 1 through 13, 16 through 29, and 31, his opinion on the economic interest issue, and his recommended conclusion of law. Accordingly, the court concludes that plaintiff is not entitled to recover and its petition is hereby dismissed.

OPINION OF TRIAL JUDGE

JAMES F. DAVIS, Trial Judge:

The “economic interest” issue

Section 23(m) of the 1939 Code and § 611(a) of the 1954 Code provide that the owner of “mines * * * [and] other natural deposits” shall be entitled to a “reasonable allowance for depletion * * * according to the particular conditions of each ease.” Treas.Reg. 118, § 39.23(m)-l [1939 Code], and Treas.Reg. 1.611-1 (b) [1954 -Code] provide that the depletion deduction is allowable to the owner of an “economic interest” in mineral deposits, but not to one who has only an “economic advantage derived from production.” Treas. Reg. 118, § 39.23(m)-l states in pertinent part:

(b) * * * An economic interest is possessed in every case in which the taxpayer has acquired, by investment, any interest in mineral in place * * * and secures, by any form of legal relationship, income derived from the * * * sale of the mineral * * *, to which he must look for a return of his capital. But a person who has no capital investment in the mineral deposit * * * does not possess an economic interest merely because, through a contractual relation to the owner, he possesses a mere economic advantage derived from production. Thus, an agreement between the owner of an economic interest and another entitling the latter to purchase the product upon production or to share in the net income derived from the interest of such owner does not convey a depletable economic interest.

The “economic interest” concept had its genesis in Palmer v. Bender, 287 U.S. 551, 53 S.Ct. 225, 77 L.Ed. 489 (1933), and that concept has been elaborated upon and refined in a host of judicial decisions, among others Commissioner of Internal Revenue v. Southwest Exploration Co., 350 U.S. 308, 76 S.Ct. 395, 100 L.Ed. 347 (1956), and Helvering v. Bankline Oil Co., 303 U.S. 362, 58 S.Ct. 616, 82 L.Ed. 897 (1938).

When a taxpayer is the owner in fee or a lessee of mineral property, few problems arise since the Code expressly provides that the depletion deduction “shall be equitably apportioned between the lessor and lessee.” Most difficulties stem from situations where the taxpayer is not an owner in fee or a lessee, but rather has some contractual relationship with one or the other of the owner or lessee (or both) which the taxpayer contends amounts to an “economic interest.” Such is the case here.

During the years in issue, plaintiff acquired some of its calcium bentonite clay from the Cheto mine in Arizona. The Cheto bentonite was shipped to Vernon or Jackson for processing. Prior to the 1950s (particularly in the 1920’s and 1930’s), plaintiff obtained bentonite from the Chambers mine, near the Cheto property. In the late 1930’s plaintiff’s geologists and mining engineers discovered the Cheto deposit and found the clay to be suitable for plaintiff’s use. The mining contractor at the Chambers mine (McCarrell) thereafter obtained leases (along with his co-lessee Gurley) to the Cheto property from the Santa Fe Pacific Railroad Company, which owned the land in fee. McCarrell then moved his mining operations to the Cheto mine and commenced mining Cheto clay which was disposed of to plaintiff and others. Later, McCarrell' and Gurley acquired ownership in fee to some Cheto property.

In 1944, McCarrell and Gurley entered into an agreement with plaintiff whereby McCarrell and Gurley agreed to conduct mining operations and plaintiff agreed, in essence, to purchase the mined clay and to compensate McCarrell and Gurley on the basis of actual costs of mining plus a per-ton fee for clay mined. Included in the payment was a 10-cents-per-ton royalty, to be paid to Santa Fe, the lessor. In 1949, a new agreement was entered into, much like the 1944 agreement. The details of the 1949 agreement and the operations thereunder are set out in findings 20-29. In essence, McCarrell became the mining contractor by agreement with his co-lessee Gurley, and plaintiff had exclusive rights to certain of the mined clay on a mining cost-plus-fee basis. McCarrell and Gurley continued, however, to sell Cheto clay to others from property not covered by agreement with plaintiff. During the 1950’s problems developed between plaintiff and Mc-Carrell (findings 25-28) which ultimately resulted in plaintiff’s getting leases to part of the Cheto property directly from Santa Fe in 1963 and 1964.

Defendant contends that plaintiff’s 1949 agreement with the lessees was simply an exclusive sales contract and gave rise to nothing more than an “economic advantage” in the Cheto clay, rather than a depletable “economic interest.” Plaintiff, on the other hand, says that its relationship with the lessees, lessor and the mining contractor was such that it was the “real party in interest” to the lease and that, accordingly it acquired by investment, an interest in the clay mineral in place. Plaintiff says that it was the real party in lease negotiations between McCarrell and Gurley, and Santa Fe; that the lease was granted to McCarrell and Gur-ley simply as accommodation parties; and that it had a substantial investment in the clay in place, both financially and through control of the mining. In particular, plaintiff says that it exercised such control over mining that it was the lessee in fact, and that its expenditures for research and development of Cheto clay, as well as expenditures on roads and the like at the mine, constituted a substantial investment in the clay mineral in place.

The record supports defendant and establishes the following:

(a) Filtrol was not owner, lessee, sub-lessee, or mining contractor of the Cheto property involved in this suit during the years in issue. (Findings 20-28.) See CBN Corp. v. United States, 364 F.2d 393, 176 Ct.Cl. 861 (1966), cert, denied, 386 U.S. 981, 87 S.Ct. 1284, 18 L.Ed.2d 228 (1967); Tidewater Oil Co. v. United States, 339 F.2d 633, 638, 168 Ct.Cl. 457, 466 (1964). Rather, Filtrol was a purchaser of clay from the lessees, Mc-Carrell and Gurley, on an exclusive sale, cost-plus-fee basis; and Filtrol’s payments to the lessees were the price paid for the clay and did not constitute an investment in the clay mineral in place. (Finding 21.) Cf. Coleman v. United States, 388 F.2d 337, 181 Ct.Cl. 982 (1967); CBN Corp., supra.

(b) The 1949 lease between McCarrell and Gurley, and Santa Fe, was not contingent upon Filtrol’s making any investment in the mineral in place or in processing facilities. Cf. Food Mach. & Chem. Corp. v. United States, 348 F.2d 921, 172 Ct.Cl. 313 (1965). Though Fil-trol participated in the negotiations leading up to the 1949 lease, the evidence does not support the inference that Filtrol was an indispensable or silent party to the lease. In fact, Filtrol expressly refused to become a lessee or sublessee. Santa Fe was willing to lease property directly to McCarrell and Gur-ley, had done so since 1939, and continues to do so. There is no evidence that in 1948, Santa Fe would have preferred to lease to Filtrol. Santa Fe’s interest was simply in assuring itself that (i) the lessees would be able to meet the tonnage requirements under the lease, and (ii) Santa Fe would be able to get freight revenues from transporting mined clay. Filtrol’s exclusive purchase agreements with the lessees satisfied Santa Fe in these regards. (Finding 20.) Cf. Food Machinery, supra.

(c) Filtrol’s participation in directing and overseeing the mining operations (including financing the building of a! road and loading ramp, and furnishing technical assistance through geologists and engineers) did not constitute an investment in the Cheto clay in place, but rather was incident only to Filtrol’s desire to minimize mining costs and ensure the quality and quantity of mined clay. (Findings 21, 24.) Cf. Parsons v. Smith, 359 U.S. 215, 79 S.Ct. 656, 3 L. Ed.2d 747 (1959).

(d) Filtrol’s expenditures relating to research and development of Cheto clay did not constitute an investment in the mineral in place, but rather constituted expenditures for .product and customer development. (Finding 31.) Filtrol did not build its Vernon, California plant (or any other plant) as incident to, or in anticipation of, the lease agreement of 1949. Filtrol did" not build the Vernon plant (or any other plant) expressly and solely to process Cheto clay, nor were any of Filtrol’s plants dependent for operations solely on Cheto clay and the Cheto mine. (Findings 16, 27.) Cf. Food Machinery, supra; Scofield v. La Gloria Oil & Gas Co., 268 F.2d 699 (5th Cir. 1959), cert, denied, 361 U.S. 933, 80 S.Ct. 372, 4 L.Ed.2d 355 (1960).

In short, Filtrol did not acquire by investment an interest in,the Cheto clay mineral in place. Filtrol, through its contractual relationship with the lessees of the Cheto property, possessed a mere economic or pecuniary advantage in the mining and production of Cheto clay. Accordingly, Filtrol had no economic interest in the Cheto mine during the years in issue and is not entitled to percentage depletion deductions for the years 1953-57.

The result here reached is fully consistent with the Ninth Circuit’s decision in Grimes v. United States, 295 F.2d 623 (1961). That case held that for the year 1953, McCarrell and Gurley, as owners in fee of part of the Cheto property and lessees of Santa Fe for another part, had an “economic interest” in the Cheto mine with respect to clay mined and sold to Filtrol. To hold here that Filtrol had the same “economic interest” would permit, in effect, a multiple depletion allowance for the same property (at least for the year 1953); would be contrary to the facts here established; and would be inconsistent with the Grimes decision. Plaintiff has made no persuasive showing that it should prevail or that Grimes was decided incorrectly.

       Filtrol appeared in the Grimes litigation as amicus curiae and argued that it, rather than McOarrell and Gurley, was the lessee of the Cheto property. The Government supported that argument, in its attempt to deny McOarrell a depletion deduction, but the court expressly refused to consider it. See Grimes, supra, n. 2.