source: Caselaw Access Project

author: DAVIS, Judge

license: Public Domain

text:
    MIAMI VALLEY BROADCASTING CORPORATION and Carolina Broadcasting Company v. The UNITED STATES.
    No. 236-68.
    United States Court of Claims.
    June 19, 1974.

      Bernard J. Long, Jr., Washington, D. C. , for plaintiff; Richard L. Braunstein, Washington, D. C., attorney of record. Dow, Lohnes & Albertson, Washington, D. C., of counsel.
    Joseph Kovner, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Gilbert E. Andrews, Washington, D. C., of counsel.
    Before COWEN, Chief Judge, and DAVIS, and KUNZIG, Judges.
   OPINION

DAVIS, Judge

Plaintiffs seek judgment ' for $866,166.97, with interest, for refund of alleged overpayments of federal income tax and assessed interest for taxable years 1959, 1960, 1961 and 1962. They paid the amounts of tax as computed on their returns for such years, and also the deficiencies and interest, as assessed or determined by the Internal Revenue Service; timely filed claims for refund for those years, which were denied; and thereafter timely filed their petition, seeking relief on the same grounds asserted in their claims.

Plaintiff Carolina Broadcasting Company (Carolina) is and was a wholly owned subsidiary of plaintiff Miami Valley Broadcasting Corporation (Miami Valley), respectively corporations of Delaware and Ohio. They filed consolidated income tax returns for the years 1959-1961, and Carolina filed its separate return for 1962. The tax liabilities in issue arise out of the business affairs of Carolina, and Miami Valley is a plaintiff only because of the filing of the consolidated returns.

On May 14, 1959, after obtaining approval of the Federal Communications Commission (FCC), Carolina purchased all of the outstanding stock of WSOC Broadcasting Company (WSOC company) for an agreed price of $5,600,000. WSOC company was a corporation which owned and operated radio and television stations WSOC-AM, FM, and TV, broadcasting at Charlotte, North Carolina. The stockholders of WSOC company were the sellers of the entire business of that company.

Effective June 1, 1959, WSOC company was liquidated in accordance with the provisions of 26 U.S.C. §§ 332 and 334(b)(2), and all of its assets were distributed to and all of its liabilities assumed by Carolina. Those assets and liabilities related to the operation of the radio and television stations and that business continued without interruption under direct control of Carolina upon liquidation of WSOC company.

On June 1, 1959, Carolina’s total adjusted cost basis of the WSOC company stock, to be allocated to the assets acquired from WSOC company, was $6,719,696, which included the $5,600,000 paid for the stock and $1,199,696 in liabilities assumed in the liquidation.

Section 1.334-l(c) (4) (viii) of the Treasury Regulations provides that, upon complete liquidation of a subsidiary under 26 U.S.C. § 334(b)(2), the parent corporation’s adjusted basis in its subsidiary’s stock is to be allocated among the various assets received (except for cash and its equivalent), both tangible and intangible (whether or not depreciable or amortizable), in proportion to the net fair market value of such assets on the date received.

The parties are in agreement that, after deduction of $193,122 in cash and $231,348 in accounts receivable distributed to Carolina in the liquidation, Carolina’s adjusted cost basis to be allocated to all other assets, tangible and intangible, was $6,295,226. The parties further agree that the amounts allocable to two items of intangible assets, i. e„ the transmitter site lease and the film contracts, were respectively $84,076 and $209,917, leaving a balance of $6,001,233.

This balance of $6,001,233 remains for allocation to all other assets, i. e., the tangible assets and the following intangibles: NBC television network affiliation contract, ABC television network affiliation contract, the NBC radio network affiliation contract, and the FCC radio and television licenses. (The radio network affiliation contract and the radio licenses had only minimal values in relation to the other intangibles, because of lack of past and prospective profitability of the radio operations.) Essentially this case involves the allocation of this $6,001,233 among these assets for tax depreciation and amortization purposes.

I

The tangible assets are the land, improvements, technical installations, equipment and supplies, and other physical items, all of which constituted the well-designed, completed, tested and fully operational plant and facilities existing in the operations of WSOC-AM, FM and TV, as of June 1, 1959. The first question before us concerns the basis for depreciation of these tangible assets during the taxable years; the Internal Revenue Service disallowed depreciation deductions calculated by taxpayers on a higher basis than the Service thought proper.

A. The reproduction cost of each of the separate tangible assets is not in dispute, being in the amounts set forth in finding 6, totaling $2,178,072 for all the assets. Defendant argues that that sum is the amount to be allocated to the tangible assets. The reproduction costs of those assets included catalogue prices, labor, freight, sales tax and supervision, but did not contain any element of increase in value because such assets were parts of an assembled and operating plant. The Government argues that, at least in this instance where the physical assets were practically new, already assembled, and in good working order, nothing should be added for so-called “turnkey value” — the value of an equivalent plant with guaranteed equal performance.

The answer lies, we think, in Section 1.334-l(c) (4) (viii) of the Regulations, supra, which refers us, for this basis allocation, to the net fair market value of the tangible assets — not to the seller’s cost or even for that matter the buyer’s actual cost. Reproduction cost can be an adequate measure of fair market value, especially where as here there is no real market, since that is what the buyer would have to pay if he did not purchase the particular item from the seller but had it replaced by fabrication or construction (1 J. Bonbright, Valuation of Property 156-57 (1937)).

By the same token, we agree with plaintiffs that fair market value would take into account the fact that this buyer received (and was entitled under its contract to receive) a put-together plant in good all-round working shape, not a congeries of uncoordinated physical assets liable as not to fail to work as a unit. The “turnkey” product was worth more than the sum of the untested and uncoordinated parts, even though they were all constructed and installed in place. Normally a buyer would'pay an increment for such an assurance that the plant and equipment would all work together without need of costly and time-consuming adjustments and coordination.

In this case the total of the itemized reproduction costs for the individual items did not include any charge related to (or market value based upon) this “turnkey” guarantee that a fully tested and operational plant was and would be available to be handed over. The overhead, contingencies and profit included in those individual sums appear to cover only the costs of the contractor’s and subcontractor’s work on the individual items. The charges of a “turnkey contractor”, with responsibility for overall supervision and coordination of the complex project, aré not reflected in the tabulation. If Carolina had to obtain an equivalent plant with guaranteed equal performance, the cost of that plant would in all probability have included the total of the reproduction costs of the individual' assets ($2,178,072), plus increments covering construction interest, and the contractor’s contingencies, overhead and profit for the “turnkey” aspect.

It makes no difference on this point that the plant was virtually new, or that the seller (the WSOC company) may not, have paid such “turnkey” costs to someone else, or that “turnkey” contracts may not be a general industry practice, or that the Cox chain (of which plaintiffs formed a part) never used such contracts. We are determining the fair-market value of this plant and these tangible assets which plaintiffs actually received in the spring of 1959, in the state in which they were acquired — not what the seller had paid out or what plaintiffs and the broadcasting industry may do in other circumstances. If the seller of this property did not pay out “turnkey” costs to another, it assumed or bore them itself in this instance, and would undoubtedly seek to charge its buyers for them if it could. The fact that the plant was new would be irrelevant if, as we think clear, the cost and worth of a new “turnkey” plant exceeds that of a new plant which has not been tested and coordinated, and is not guaranteed to be in good working shape. There is no sound reason to believe that plaintiffs or any other purchaser of these assets in the Charlotte market would not have paid such an increment in 1959 in order to obtain the plant in its then operating condition.

Plaintiff’s appraiser, Horace W. Gross, arrived at a total reproduction cost of the tangible assets of $2,696,-964 — $518,892 above the total reproduction costs of the individual assets —which he termed “turnkey value.” He used the agreed reproduction costs of the individual assets and added costs which would have been incurred in their assembly into a fully operational plant under a turnkey contract with guaranteed performance. No element of profitability was included in such computation, except, of course, the profit to be realized by the contractor on the construction project.

Mr. Gross’ assessment of the total reproduction cost was accepted by the trial judge as reasonable and sufficiently accurate. We have no ground for rejecting the trial judge’s general appraisal of this evidence. He did reduce the total to $2,600,000 because the WSOC plant and facilities had been in operation for about 2 years and some minor wear and tear would have occurred, but plaintiff correctly observes that the appraiser’s assessment already took account of depreciation (insofar as it had occurred) and that at the trial stage defendant did not seek any reduction from the total of the reproduction cost figures for the individual items. In those circumstances the reduction was not warranted. We therefore find the total reproduction cost (including the “turnkey” factor) to be $2,696,964.

B. To his total reproduction cost of $2,696,964, Mr. Gross added almost $1 million to arrive at his total fair market value of all tangible assets in the sum of $3,636,783, which he termed the “immediate use value” as of June 1, 1959. He based this increment on the financial benefit to be derived by Carolina from the immediate and continuing use of the broadcast facility during the period after June 1, 1959, which would have been required to construct an equivalent plant. Such a construction period would have been 2 years, absent lengthy delays. The television industry was affluent in 1959, there was considerable demand for broadcasting equipment, and some delays were reasonably to be expected.

In the appraiser’s view, the financial benefit to be derived from immediate and continuing broadcast operations over the 2-year construction period was primarily that Carolina would realize net earnings and cash flow which would otherwise be lost during such period, and also that Carolina could increase its rate of earnings during such period to a point above that which could be expected at the commencement of operations delayed to the end of the construction period, and that Carolina would effect savings in unproductive overhead, such as salaries and taxes, which would be incurred in such period.

The trial judge considered the increment sought by taxpayers to be too high but he accepted an additional sum of $600,000 (over and above the total reproduction cost, including the “turnkey” increment) as part of depreciable fair market value of the tangible assets. We cannot agree that in this case any extra sum is allowable (over total reproduction cost) for the purposes of depreciation.

Insofar as this additional amount is intended to reflect the increased value of the individual tangible assets because they were assembled, installed, integrated, tested, coordinated, and in operating order, that type of increment is already reflected, as shown supra, in our figure for total reproduction cost. To the extent that the extra $600,000 (or more) is thought to represent pure goodwill, it is of course not depreciable or amortizable. Winn-Dixie Montgomery, Inc. v. United States, 444 F.2d 677, 683 n. 8 (5th Cir. 1971); cf. Meredith Broadcasting Co. v. United States, 186 Ct.Cl. 1, 18-21, 405 F.2d 1214, 1224-1225 (1968).

If the supplement stands for a separate “going concern value” — in the sense of the special value inherent in a functioning established plant continuing to operate, to do business, and to earn money, with its staff and personnel— then that element, too, is not to be considered as an enhancement in the market value of depreciable assets for the purposes of depreciation. United States v. Cornish, 348 F.2d 175, 185-186 (9th Cir. 1965); Winn-Dixie Montgomery, Inc. v. United States, supra, 444 F.2d at 685; Northern Natural Gas Co. v. United States, 470 F.2d 1107, 1109-1110 (8th Cir.), cert. denied, 412 U.S. 939, 93 S.Ct. 2773, 37 L.Ed.2d 398 (1973). As the Eighth Circuit said in Northern Natural Gas Co.:

This allowance for depreciation is intended to provide a nontaxable fund to restore income-producing assets at the end of their useful life and their capacity to produce income has ceased or, to allow a taxpayer to recoup his investment in wasting assets free of income tax. [citation omitted] With this in mind, we conclude that the basis for depreciation of a purchaser of a going concern should not include the “enhanced” portion of the acquired assets’ value. Though the assets of a going concern may have a greater actual value when acquired in their combined form and therefore cost more to acquire, at the end of these assets’ useful life they will not be separately replaced with new tanks and cylinders [the assets in that case] with like enhanced value, but only by tanks and cylinders at the ordinary prices of suppliers. The going concern value or enhancement in the assets’ value remains and is independent of the exhaustion of the individual assets. See Cornish, supra [348 F. 2d] at 185.
We do not view our holding as being in conflict with [Int.Rev.Code] § 1012 which dictates that the basis for depreciation shall be the cost of the acquired property. This was not a transaction involving the purchase-of assets with a fair market value of X dollars which, following the end of their useful life, will be replaced by like assets of similar cost. Here, the acquired assets carried additional value due to their being combined in a particular manner in a going concern and this additional value will not depreciate but will continue to exist possibly for the life of the business which acquired the assets.

For this reason a “going concern” component cannot be used, for depreciation purposes, as part of the basis of the depreciable tangible assets.

Taxpayers argue that the increment here does not represent such “going concern value” but rather the element of immediate availability or immediate use value, i. e. the ability to have and to use the plant on June 1, 1959, rather than to have to wait some two years for its equivalent to be reproduced. It is said that, unlike the present case, in Northern Natural Gas Co. and Cornish (the leading cases on the non-depreciability of an increment for “going concern value”) there was no contention or showing that replacement of the assets would take time or be delayed. Here the construction of an equivalent plant would consume at least two years.

The difficulty is that, assuming that such an “immediate use value” can sometimes enhance the fair market value of a tangible depreciable asset (see 1 J. Bonbright, Valuation of Property 157-58 (1937)), plaintiffs have not proved this to be such a case. Professor Bonbright warns that “the practical difficulties of estimating in monetary terms those losses which would result from the delay are likely to be so serious that an appraiser or a court will not attempt it”, and he pointed out that the common law tends to limit the appraisal to replacement cost “through its vaguely defined restrictions against allowances for consequential speculative damages, speculative values, or lost opportunities to make a profit.” Ibid. This view cautions that, to be allowable at all, “immediate use value” must be shown persuasively and clearly, and by a proper measure.

The overall criterion is, as we emphasize again, fair market value, and we are not persuaded either (a) that in 1959 a “willing buyer — willing seller” negotiation for this plant would have added an appreciable sum over total reproduction cost (including the “turnkey” increment) for “immediate use”, or (b) that even if such an increment would have been added it would be measured by the anticipated profits from the plant during the next two years. This is not, so far as we know, an instance in which buyers would be desperate or exceedingly anxious to obtain this plant at once; though plaintiffs wanted to enter the Charlotte market, there is no adequate showing that they were so intent on entering only that market, and entering it in the spring of 1959, that they (or any other purchaser) would have paid a significant sum above total reproduction cost for this particular plant at that particular time. Combined with this great factor of doubt is the unlikelihood that, if any increment were added at all, plaintiffs would agree to have it gauged by the “lost” profits of an equivalent plant for the next two years; there is no reason to believe that if the taxpayers had had to wait for two years for a plant they would not have used their capital to good advantage in some other or substitute endeavor to make up at least a good part of these so-called “lost” profits. Fair market value of the tangible property would not be enhanced, if at all, by the full amount of the so-called “lost profits.” Indeed, the use of full profitability as the measure smacks of “going concern value” rather than an “immediate use” increment — and there is much in the evidence and the trial judge’s discussion to suggest that a proper separation between the two concepts was not maintained in the presentation and consideration below.

We are led by these grave doubts to hold that in this case plaintiffs have failed to prove the existence of any excess value in the tangible assets attributable to freedom from delay and, if any did exist, a correct standard of measurement. The fair market value of the tangible assets must stand at $2,696,964.

II

The next set of issues involves the duration for amortization purposes of the ABC and NBC television affiliation contracts.

Since the expiration of the DuMont television network in 1955, there have been only three national commercial television networks, CBS, NBC and ABC. They have been the major source of high-level competitive programming for local stations. During the 1960’s, CBS accounted for about 40 percent of all television network revenues. As between NBC and ABC, NBC has been stronger in overall program popularity and network service.

Generally, in any market where the number of television stations is the same or greater than the number of networks, and where there are at least three competitive stations, each of the three networks enters into an exclusive affiliation contract with one television station in that market. This is a standard primary affiliation contract for which the station does not pay the network. Such contract provides inter alia that: (1) the network, at its own expense, will provide programming to the station; (2) the network promises the station to offer it first call for all programs broadcast in that community; and (3) the network agrees to pay the station a specified percentage of the station’s network time rate paid to the network by the national advertiser sponsoring the network program.

Commercial television is dependent upon revenues from advertisers. Advertisers seek large audiences, and the popularity of television programs is of paramount importance to them, whether on a national, regional or local basis: Network programs generally have substantially exceeded local programming in popularity, and network affiliated stations have in general attracted much larger audiences than independent stations in the same market. Only in the very large markets, such as New York City, Chicago, San Francisco-Oakland, and Washington, D. C., have independent stations been able to attract audiences comparable to those of affiliated stations, and thus to attain comparable revenues. For the various reasons detailed in the findings of fact herein, the economics of the television industry is such that generally an affiliated station has substantially greater advertising revenues and profits than an independent station in the same market. One very important factor is that an affiliated station not only receives its share of the revenues from the sale of network time to national advertisers, whose announcements are interspersed throughout a network program, but also revenues from sale by such station (without network involvement) to national and local advertisers of the highly lucrative adjacencies to network programs, the intervals of time reserved to the affiliated station between network programs or between segments of long network programs. The use by national advertisers of adjacencies is called “national spot” advertising, sold by an advertising agency or agencies of the local affiliated station, subject only to a sales commission.

Network affiliation is such a powerful factor in the concentration of profitability in the television industry that the relationship between each television network and one local station in a given market, as extended throughout the nation, has been termed an oligopoly. However, the national network systems stem in substantial part from the circumstance that only a few of the 12 very high frequency (VHF) channels are available for television broadcasting in a given market, and despite the availability of 70 ultra high frequency (UHF) channels in recent years, television networks have continued to favor VHF stations, because UHF commercial stations have generally failed to become competitive for technical and other reasons.

On the date of liquidation of WSOC company, June 1, 1959, there were only two commercial television stations operating in the Charlotte, North Carolina, market. These were both VHF stations, one being subject station, WSOC-TV (Channel 9), and the other WBTV (Channel 3). No other VHF station has ever operated in that market. In 1961, the FCC refused to allocate another VHF channel there.

The strongest of the two stations was WBTV, which commenced operations in July 1949. Until 1957, when subject station commenced operations, WBTV maintained network affiliations with all three television networks, but thereafter was exclusively affiliated with CBS.

Subject station, WSOC-TV, began broadcasting in April 1957, and immediately obtained primary affiliation contracts with both NBC and ABC, maintaining such dual affiliation until September 30, 1967, when it terminated the ABC contract, and thereafter has had exclusive affiliation with NBC.

In November 1964, UHF commercial station WCCB-TV (Channel 18) commenced operations in the Charlotte market, and has remained in continuous operation since that time. When WSOCTV terminated its ABC contract in 1967, WCCB-TV became and has remained affiliated with that network.

The only other commercial television station ever broadcasting in the Charlotte market was another UHF station, WCTU-TV (Channel 36), which began broadcasting in July 1967, and has continued to the present time, being an independent station, unaffiliated with any network.

Since the advent of television, the FCC has sought to provide multiple competitive television broadcasting in the larger cities, and in particular has attempted in each of the top 50 markets, which on June 1, 1959, included Charlotte, North Carolina, as the 25th market in audience size, to provide at least three competitive television stations. ABC, having a lesser number of affiliated stations than CBS and NBC, has consistently exerted pressure • toward that end, obviously supported nationwide by its affiliated stations.

In 1952, the FCC allocated 70 UHF channels to television, and expressed the hope that the UHF band would be fully utilized, and that UHF television stations would compete on a favorable basis with VHF as an integral part of a single, nationwide television service. It was even contemplated that commercial television might be transferred from the VHF to the UHF band.

In the late 1950’s, it had become apparent that UHF television had not become competitive with VHF, and the FCC proposed allocation of a third VHF station in a number of markets, including Charlotte, North Carolina, although such proposal was rejected in 1961.

In 1959, the FCC recommended the enactment by Congress of the All-Channel Receiver legislation, prohibiting shipment in interstate commerce of new television sets not equipped to receive both VHF and UHF signals. UHF television broadcasting had been seriously handicapped by the paucity of home sets equipped to receive its signals. Such legislation was, of course, enacted in time by Congress.

Considering the circumstances existing in the Charlotte, North Carolina, market, and in the light of the actions and announced policies of the FCC, it was reasonably predictable as of June 1, 1959, that within 10 years, a third commercial television station would become established and competitive in such market, that there would then be a restructuring of such market in the normal pattern of each television network being exclusively affiliated with one television station, that CBS would remain exclusively affiliated with the strongest station WBTV, that WSOC-TV (by Carolina) would move to make a choice between NBC and ABC for an exclusive affiliation, that both NBC and WSOC-TV would prefer and accomplish exclusive affiliation between them, and that ABC would be left to affiliate with the new competitive station in the market. These expectations actually came to pass.

From all of the evidence in this case, it is found that the ABC television network affiliation contract with WSOC-TV had a reasonably predictable life of 10 years as of June 1, 1959, with amortization of the cost basis of that asset to be computed accordingly during the taxable years in suit. The Internal Revenue Service disallowed claimed amortization deductions for the ABC network contract.

With respect to WSOC-TV’s television network affiliation contract with NBC, however, it is concluded that plaintiffs are not entitled to amortization deductions on Carolina’s allocable cost of that asset during any of the taxable years in issue, because the testimony and evidence fail to establish that such affiliation contract had a reasonably ascertainable future life. Commissioner of Internal Revenue v. Indiana Broadcasting Corp., 350 F.2d 580 (7th Cr. 1965), cert. denied, 382 U.S. 1027, 86 S.Ct. 645, 15 L.Ed.2d 539 (1966); Westinghouse Broadcasting Co. v. Commissioner of Internal Revenue, 309 F.2d 279 (3d Cir. 1962), cert. denied, 372 U.S. 935, 83 S.Ct. 881, 9 L.Ed.2d 766 (1963); Roy H. Park Broadcasting, Inc., 56 T.C. 784 (1971); Gulf Television Corp., 52 T.C. 1038 (1969).

Plaintiffs’ position, controverted by defendant, is that the NBC television network affiliation contract had a useful life of not more than 30 years from June 1, 1959, seeking to have this court adopt the theory of plaintiff’s expert witnesses, opposed by defendant’s expert witnesses, that whether or not WSOCTV’s affiliation with NBC terminates by 1990, the economic characteristics of such affiliation contract will be so different that it must be considered an entirely different asset than the contract acquired by Carolina in 1959, and that the value which Carolina paid for such contract in 1959 will have been exhausted by 1990. The factual basis for plaintiffs’ predictions in this respect is set forth in the extensive findings of fact. Basically plaintiffs’ argument is that in the light of the pronouncements and actions of the FCC to foster competition and attain diversity of programming in television broadcasting, the growth of competitive television outlets, both commercial and otherwise, and natural forces inherent in commercial television must inevitably eliminate the network-affiliate oligopoly. Plaintiffs state that they expect the television networks and their affiliates to continue to operate profitably, but that the value of a television station’s affiliation with a network will be exhausted in the time indicated.

The competitive forces upon which plaintiffs rely are in the main the pronouncements of the FCC against the control of supply of television programming by the three networks, FCC actions toward providing greater competition and additional outlets within a given market, the availability of the UHF band for licensing and operation of additional stations, and the nature, state of development and competitive potential of noncommercial public or educational television (PTV), subscription television (STV), and cable or community antenna television (CATV).

Upon careful consideration of the opposing opinions of the expert witnesses, and upon consideration of all of the evidence in this ease, it is concluded that the record as a whole persuasively indicates that, as of 1959-1962, the NBC television network affiliation contract might be expected to remain in force for a wholly unpredictable period of time, and that the value of such contract would not be exhausted by any reasonably ascertainable time. The findings detail the facts as to the status of PTV. STV, and CATV, and the other circumstances which plaintiffs invoke. Suffice it here to say that we are not at all convinced by the plaintiffs’ predictions that, as of 1959-1962, the demise of network power was foreseeable by 1990 (or any other date). The preponderance of the evidence is to the contrary.

Ill

There remain the questions of the allocation of cost basis to the television network affiliation contracts and to the FCC television license.

Plaintiffs would have the court allocate $3,600,000 to the tangible assets (but see Part I, supra), thus leaving about $2,400,000 for allocation to the radio and television network affiliation contracts and the FCC radio and television licenses. Plaintiffs seek to have 90 percent of the residual sum (or about $2,200,000) allocated to the television network affiliation contracts with 55 percent of the latter sum to the NBC contract and 45 percent to the ABC contract. Thus, plaintiffs would have only aboüt $200,000 allocated to the FCC television license and to the NBC radio network affiliation contract and radio licenses. Disregarding the radio network affiliation contract and the radio licenses, defendant seeks to have 80 percent of the residue (over the allocation to the tangible assets and other agreed values) allocated to the FCC television license, 14 percent of the residue .to the NBC television contract and 6 percent to the ABC contract.

The NBC radio network affiliation contract and the FCC radio licenses had minimal values. Neither of such intangibles is shown to have an ascertainable future life, which is also the case with respect to the FCC television license and the NBC television network affiliation contract. Consequently the radio contract and the radio licenses are lumped respectively with the NBC television network contract and the television license in allocating basis to the three remaining intangibles, i. e., the two network television contracts and the FCC television license.

The adjudicated cases cited by the parties furnish little in the way of guidelines for the allocation of basis to the intangibles in this case, but rather indicate that the determination must be made largely on the facts and circumstances peculiar to each case. Mathematical precision is impossible, and the broadest kind of estimates must be made. Meredith Broadcasting Co. v. United States, 405 F.2d 1214, 1227, 186 Ct.Cl. 1, 24 (1968). See Roy H. Park Broadcasting, Inc., supra; Indiana Broadcasting Corp., 41 T.C. 793 (1964), rev’d on other grounds, Commissioner v. Indiana Broadcasting Corp., supra.

Within the framework of the evidence adduced in this case, it is concluded that plaintiffs and defendant both seek unreasonable allocations in furtherance of their purposes, and that the percentages of the residue fairly and reasonably allocable to the three intangibles as of June 1, 1959, and during the taxable years in suit, are as follows: NBC television network affiliation contract, 39%; ABC television network affiliation contract, 26%; and the FCC television license, 35%.

In Meredith Broadcasting Co. v. United States, supra, this court stated in the light of the facts and circumstances of that case that an FCC television license is, from a practical standpoint, a more permanent arrangement than network affiliation contracts, rejecting as unpersuasive the taxpayer’s argument that the license had no value, that it was merely a license to lose money, and that profitability of operations should not be ascribed to the license, but rather to the network affiliation contracts. Nevertheless, the court recognized that the network affiliations had substantial value, even though there was considerable chance that they would continue to exist for only a relatively short period of time, as proved to be the case. The court allocated remaining basis 50 percent to the television network affiliation contracts, 35 percent to going concern value (including the licenses), and 15 percent to television advertising contracts.

An FCC television license has value in relation to its use in profitable, or potentially profitable operations. It can be transferred from one holder to another only with the approval of the FCC which administers a stringent policy against trafficking in broadcast licenses. In the circumstances existing in the Charlotte market, the WSOC television license had substantial value, because the WSOC operations had been and were reasonably expected to be profitable. However, such license did not have overwhelming value merely because the WSOC television operations would not have existed without the license.

It is clearly established in this case that the profitability of the WSOC-TV operations, established as of June 1, 1959, by experience over the preceding 2 years, and reasonably expected to improve thereafter, was due to its television network affiliations' WSOC-TV’s most valuable intangible assets were its NBC and ABC television network affiliation contracts. Unlike the gamble involved in the Meredith case, WSOC-TV reasonably could expect, as we have found, to retain the ABC affiliation for 10 years and the NBC affiliation indefinitely and much longer.

Of course, with WBTV exclusively affiliated with CBS, and with no other competitive station in the Charlotte market, WSOC-TV was assured of affiliations with NBC and ABC for the asking and without cost in 1959. Obviously the sellers of WSOC-TV would not have operated their television broadcast business without obtaining such readily available affiliations, and they must have regarded such affiliations as valuable assets of their business. The actual existence of such affiliations, as well as their ready availability and prospective long lives, figured prominently in the decision of the buyer to purchase, and the buyer and sellers must have given full consideration to these circumstances in fixing of the agreed purchase price. It cannot be found that such affiliations had little or no value, because they could have been readily obtained by the buyer without cost, assuming unrealistically that they did not exist at the time of the sale agreement in 1959.

The detailed facts which establish the prospective profitability of the WSOCTV operations are set forth in the extensive findings of fact made in this case, repetition of which would unduly prolong this opinion.

Mention must be made, however, of the circumstance that in the appraisal report prepared by Horace W. Gross for plaintiff in 1959, the fair market values of the NBC and ABC television network affiliation contracts were determined respectively to be only in the sums of $665,990 and $471,476. These low values stemmed from mistaken assumptions that such contracts would terminate in 1963.

In his testimony before this court in 1971, Mr. Gross stated that if he had assumed in 1959 that the ABC contract had a life of 8 years (and it was in fact terminated in 1967) and that the NBC contract then had a 30-year (as plaintiff now argues), or even an indefinite life, he would have valued such contracts respectively over 8- and 10-year periods. The use of the 10-year period for the NBC contract, he explained, was because a buyer would seek to recover his investment in the television station within that period of time, as was said to be usual in the industry.

Based on 8 years for the ABC contract and 10 years for the NBC contract, he calculated that such contracts had a total value of $2,194,000 in 1959. In doing so, he took the 1958 television network revenues of WSOC-TV ($307,379 from NBC and $198,521 from ABC), the basis of his appraisal in 1959, and by increasing the 1958 network revenues from each network at the rate of 6.7 percent per year, he arrived at the amount of the expected ABC revenues for the next 8 years, and at the amount of the expected NBC revenues for the next 10 years. He then discounted such future earnings, as to each network, on an annuity basis to arrive at separate values for the network contracts, and then added these two discount values to reach his total appraised amount for both contracts as of 1959.

In allocating the total appraised amount to the two network contracts, he considered such factors as WSOC-TV’s opportunity to exert leverage on each of the two networks for better station, rates on the basis of competition for the station’s time, increased revenues to be derived from having both networks, improved station programming because of choice between competing programs of the two networks on the basis of relative popularity, and the avoidance of local program expense by maximum use of the network programs of both networks to fill the station time.

Taking these factors into consideration, Mr. Gross concluded that the NBC contract, with the programs of that network being the more popular, was worth more in 1959 to WSOC-TV than the ABC contract. He allocated 55 percent of the total value of the television network affiliation contracts to the NBC contract and 45 percent to ABC.

No weight is given to the fair market values of the television network affiliations contracts reached by Mr. Gross in his 1959 appraisal, because of his mistaken assumption as to the lives of such contracts, but careful consideration is given to his 1971 appraisal, in the light of all of the evidence relating to profitability of operations of WSOC-TV.

IV

In summary, it is concluded that the total cost basis of Carolina in the sum of $6,719,696 for all assets acquired by Carolina upon liquidation of WSOC company as of June 1, 1959, was allocable as of that date to the various assets involved, as follows:

Cash ...........................$ 193,122.00
Accounts receivable ............... 231,348.00
All other tangible assets ........... 2,696,964.00
Transmitter site lease ............. 84,076.00
Film contracts ................... 209,917.00
NBC television network affiliation contract ...................... 1,288,663.91
ABC television network affiliation contract ...................... 859,109.94
FCC television license ............. 1,156,495.15
Total cost basis ...............$6,719,696

Since plaintiffs are entitled to additional depreciation and amortization deductions over and above those allowed by the Internal Revenue Service for the taxable years in issue, it is concluded that plaintiffs are entitled to recover, with the amounts of recovery to be determined in further proceedings under Rule 131(c).

CONCLUSION OF LAW

Upon the findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover and judgment is entered to that effect. The amount of recovery will be determined pursuant to Rule 131(c).

       Parts IX and III of this opinion incorporate, with minor additions and with modifications needed to adjust to our conclusions in Part I, the relevant segments of the opinion of Trial Judge Hogenson. In Part I, A, we agree with the trial judge’s conclusion with a modification; in Part I, B, we come to a different result. We adopt, with changes reflecting our conclusions in this opinion, the trial judge’s numbered findings of fact, but we think it unnecessary to print them for general distribution.

      . Contemporary sales of comparable property have been, recognized as normally the reliable and preferable test of fair market value. But that approach seems inapplicable to the market value of a broadcast business, or to its tangible or intangible assets, because the nature of the broadcast industry is that in-comparability is the hallmark of individual radio and television stations, not only from market to market throughout the country, but even within any given market or area. Reproduction cost, basically used by the appraisers in this case to assess the fair market value of the tangible assets and accepted by both sides, is a relevant factor when reasonably applied, but it must be recognized that in certain circumstances fair market value may be more or less than the strict reproduction cost of the property appraised. Jack Daniel Distillery v. United States, 379 F.2d 569, 578, 180 Ct.Cl. 308, 323 (1967).

      . Defendant challenges Mr. Gross’ “turnkey” inerements but on this record we consider them reasonable. The witness explained the items and there was no contradictory testimony or evidence,

      . Aside from two unclear Tax Court memorandum decisions which may have been referring primarily to “turnkey” value (Philadelphia Steel & Iron Corp. v. Commissioner, 23 T.C.M. 558, 564 (1964); WEG Dial Telephone, Inc, v. Commissioner, 25 T.C.M. 233, 242 (1966)), there are no contrary rulings. Los Angeles Gas Co. v. R. R. Commission, 289 U.S. 287, 307, 313, 53 S.Ct. 637, 77 L.Ed. 1180 (1933), did not deal with tax depreciation but with the value of a utility for rate-making purposes. Similarly, Perrault v. Commissioner, 25 T.C. 439, 451 (1955), aff’d per curiam, 244 F.2d 408 (10th Cir. 1957), cert. denied sub. nom. Gunn v. Commissioner of Internal Revenue, 355 U.S. 830, 78 S.Ct. 41, 2 L.Ed.2d 42 (1957), did not involve the addition of “going-concern value” to the depreciable basis of physical assets but enhancement of the value of a machine by a necessary patent. In Commissioner of Internal Revenue v. Seaboard Finance Co., 367 F.2d 646, 650-652 (9th Cir. 1966), there was no issue as to the amortizability or depreciability of “going concern value” which the Tax Court had held not depreciable.

      . Plaintiffs would add an increment of almost 40%. The trial judge’s increment, would be about 26% ; he lowered plaintiff’s figure only because he thought a portion of the added value, attributable to the expected profitability during the 2-year period, should be assigned to the intangible assets.

      . The WSOC company seems to have operated its television station out of temporary or makeshift quarters until its television studio building was completed and equipped in January 1959.

      . Defendant’s two experts each added an increment to the reproduction cost of the individual items. It is quite unclear how much and whether these increments represented “going concern value” (which we have held supra to be unallowable for depreciation purposes as a matter of law, even if proved as fact) rather than “immediate use value.” It is also unclear how much of the increment, if any, the witnesses deemed depreciable. In any event, the court is not bound by such opinion testimony. Sternberger v. United States, 401 F.2d 1012, 1016, 185 Ct.Cl. 528, 535-536 (1968).

      . In their last briefs to the court, taxpayers refer, alternatively, to the “two year time saving” as a separate intangible asset amortizable over the two years. Without deciding that this issue is properly before us, we note that for the reasons given above plaintiffs have failed to prove the existence or worth of any such intangible.

      . This Part incorporates, with our conclusion, the portion of Trial Judge Hogenson’s opinion relating to these issues. The court agrees with and adopts this part of his opinion.

      . An excellent summary of the basic elements of television broadcasting and the contractual relationships between the television networks and local stations is set forth in this court’s opinion in Meredith Broadcasting Co. v. United States, 405 F.2d 1214, 1216-1220, 186 Ct.Cl. 1, 4-11 (1968).

      . This Part incorporates the portion of the trial judge’s opinion dealing with these matters, with the computation modifications made necessary by our conclusions in Part I, ' supra. Except for these changes in computation, the court sees no adequate reason to depart from the trial judge’s considered allocation and therefore adopts his discussion of these matters.


author: PER CURIAM: SKELTON, Judge

text:
    Herman R. TESTAN and Francis L. Zarrilli v. The UNITED STATES.
    No. 128-72.
    United States Court of Claims.
    July 19, 1974.
    As Amended Nov. 1, 1974.
    Edwin J. McDermott, Philadelphia, Pa., attorney of record, for plaintiffs.
    Leslie H. Wiesenfelder, Washington, D. C., with whom was Asst. Atty. Gen., Carla A. Hills, for defendant. .
    Before COWEN, Chief Judge, LARA-MORE, Senior Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA and BENNETT, Judges.
   OPINION

PER CURIAM:

This case is before the court on exceptions by both parties to a recommended decision and findings by Trial Judge Spector. Plaintiffs, civilian lawyers, were employed by the Defense Personnel Support Center, Defense Supply Agency (DPSC) at Philadelphia, Pennsylvania. The suit is for back pay from 1970 and an order for reclassification to operate in futuro under Pub.L. 92-415, 86 Stat. 652. We heard it en banc on plaintiffs’ motion. The plaintiffs were classified at GS-13 and claim GS-14. They exhausted their remedies with the Civil Service Commission (CSC). The trial judge would hold that the refusal to reclassify at GS-14 was arbitrary and capricious but that the court cannot award the pay of a higher position to a person actually employed in a lower one. However, he would direct the CSC to reclassify for the future under Pub.L. 92-415.

We agree that the position of the CSC was arbitrary and capricious. Plaintiffs’ case is built mainly on the classification of attorneys doing similar work for another agency. Plaintiffs try cases before the Armed Services Board of Contract Appeals (ASBCA). The comparison attorneys do so also, on behalf of the Air Force Logistics Command (AFLC) at Dayton, Ohio. The Commission flatly refused to consider them or their jobs. Ordinarily, we agree, it is not arbitrary and capricious to refuse to consider the grade of employees other than the ones complaining. This case is peculiar in its facts. Where, as here, employees all belong to a small readily manageable cadre, their jobs have a large nexus of duties shared in common, and the other employees are specifically pointed out by the complaining employees, we deem the case to be different. There may be a perfectly good explanation for the apparent discrepancy. We think as a reviewing court we are entitled to be informed by the CSC what it is, and not to have to take it on faith or speculate about it. Otherwise, we are in no position to assure ourselves that the mandate of the statute, 5 U.S.C. § 5101, (calling for equal pay for equal work), is being complied with. As the trial judge observes, the classification of lawyers is always difficult because of the spate of vague, subjective terminology in lawyer’s job descriptions. We think, in the circumstances here involved, the grades of other lawyers representing other procuring agencies before the ASBCA provide an essential benchmark. Without consideration of them, or at least some of them no confidence can be felt that the statute has been obeyed.

There is no iron rule that we cannot ever award the pay of a higher position to the incumbent of a lower one. We do that in Selman v. United States, 498 F.2d 1354, 204 Ct.Cl. — (decided June 19, 1974). Compare also, Jarett v. United States, 451 F.2d 623, 195 Ct.Cl. 320 (1971). The question always is as to legal entitlement to the higher position. If entitlement depends on the exercise of discretion by someone else we cannot substitute our own "discretion. Allison v. United States, 451 F.2d 1035, 196 Ct.Cl. 263 (1971); Pettit v. United States, 488 F.2d 1026, 203 Ct.Cl. 207 (1973). Here, as in Pettit, a remand under Pub.L. 92-415 affords the opportunity to employ the authority having the statutory discretion, to exercise it under proper directions. In Bookman v. United States, 453 F.2d 1263, 197 Ct.Cl. 108 (1972), we scrutinized the function of the CSC in classifying Government positions. We decided it was discretionary and not subject to our review except for arbitrary and capricious action or lack of support for a decision by substantial evidence. We adhere to that standard here. The theory of Allison and Pettit, however, was that the findings of the agency endowed with the discretion, if newly and correctly made, could create a legal right which we could then enforce by a money judgment. We did, not consider our decisions therein to be merely declaratory, and neither is this one today.

It is unnecessary to construe the Back Pay Act, 5 U.S.C. § 5596, since, if it does not cover the situation here involved, neither does it limit the Tucker Act jurisdiction 28 U.S.C. § 1491, as it previously existed. It was so held in Allison and Pettit, supra. Defendant would in effect refuse any judicial review to a person perhaps denied equal pay for equal work in a job classification, in possible violation of 5 U.S.C. § 5101. When Congress desires to achieve this result, it knows how to do it. See, Chambers v. United States, 451 F.2d 1045, 196 Ct.Cl. 186 (1971).

In accordance with the foregoing, we are constrained to differ with.the trial judge both as to our supposed lack of power to award back pay and our supposed possession of poorer to direct the reclassification of the plaintiffs to Grade GS-14.

Accordingly, on considering the recommended decision and findings of Trial Judge Spector, and the exceptions of the parties thereto, and their briefs and oral arguments, it is

This case is remanded to the Civil Service Commission pursuant to Pub.L. 92-415, 86 Stat. 652 and Rule 149(b) for a period of not to exceed six (6) months from the date of this order to conduct further administrative proceedings consistent with the court’s per curiam opinion and decision of July 19, 1974. Further proceedings in the court shall be stayed during the period fixed by this order of remand. Plaintiffs’ counsel is designated to advise the court by letter to the clerk of the status of the remand proceedings, and such advice shall be given at intervals of 90 days or less, commencing from the date of this order.

SKELTON, Judge

(dissenting):

This court does not have jurisdiction nor authority to remand this case to the Civil Service Commission.

The Supreme Court held in clear and .unequivocal language in United States v. King, 395 U.S. 1, 89 S.Ct. 1501, 23 L.Ed.2d 52 (1969), that this court can only render judgments for money presently due, and cannot render declaratory judgments. We have not rendered, a judgment for money in the present case. Consequently, we have neither the authority nor jurisdiction to issue any other kind of judgment or order in the case, except one of dismissal. Public Law No. 92-415, 86 Stat. 652, now a part of 28 U.S.C. § 1491 (1972), known as the Remand Statute, did not change the law in this regard nor enlarge our jurisdiction, except “to complete the relief afforded by the judgment [for money presently due], the court may, as an incident of and collateral to any such judgment, * * * [i]w any case rnthin its jurisdiction * * * remand appropriate matters to any administrative or executive body * * *.” (Emphasis supplied.) Since tfyere is no money judgment here, which is the only kind this court can enter, there is no relief in the judgment to be completed, and there is nothing that the remand order can be “an incident of and collateral to.” Also, the court is acting in a case not “within its jurisdiction.” Consequently, the Remand Statute is inapplicable to this case. See Kirby v. United States, 201 Ct.Cl. 527, 537 (1973), cert. denied, 417 U.S. 919, 94 S.Ct. 2626, 41 L.Ed.2d 224 (1974). Therefore, the remand order is an exercise by the court of general equity powers which it does not possess, and is in the nature of a declaratory judgment as to the rights of the plaintiffs, which this court has no power to issue. See United States v. King, supra.

In addition to being without jurisdiction or authority to issue the remand order, as pointéd out above, the court is also without jurisdiction to consider any part of plaintiffs’ suit, because they have not alleged a claim upon which relief can be granted by this court. This is true because the plaintiffs are asking this court to promote them to higher positions and award them the salaries incident thereto, even though they have never been appointed to those positions by the agency for whom they work. Such relief is wholly beyond the jurisdiction of this cóurt. This problem and the law relating to it was thoroughly discussed in my dissenting opinions in Chambers v. United States, 451 F.2d 1045, 196 Ct.Cl. 186 (1971); Allison v. United States, 451 F.2d 1035, 196 Ct.Cl. 263 (1971); and Pettit v. United States, 488 F.2d 1026, 203 Ct.Cl. 207 (1973), and I incorporate those dissenting opinions herein and, where applicable, make them a part of this dissenting opinion by reference. My dissent in the Allison case is especially applicable to the instant case, and, for emphasis, I repeat certain pertinent portions of that dissent in the following paragraphs, which I apply to the case before us.

This court does not have jurisdiction of this case for many reasons. The plaintiffs have not alleged a cause of action on which relief can be granted. They are asserting claims for salaries of jobs, but their petition does not allege that they were ever appointed to those jobs, nor that they performed services therein. Without these essential allegations, the petition does not state a cause of action. We have so held in the cases of Price v. United States, 65 Ct.Cl. 91 (1928), cert. denied, 277 U.S. 587, 48 S.Ct. 434, 72 L.Ed. 1001; Barea v. United States, 115 Ct.Cl. 44 (1949), and Hyman v. United States, 157 F.Supp. 164, 138 Ct.Cl. 836 (1957).

The failure of the department to promote the plaintiffs, whatever the cause, did not give them a cause of action against the United States, because they had no constitutional, vested, or inherent right to the jobs they are claiming. This is unquestionably the law. See McAuliffe v. New Bedford, 155 Mass. 216, 29 N.E. 517 (1892); Jenson v. Olson, 353 F.2d 825 (8th Cir. 1965), and Bailey v. Richardson, 86 U.S.App.D.C. 248, 182 F.2d 46 (1950), aff’d, 341 U.S. 918, 71 S.Ct. 669, 95 L.Ed. 1352 (1951).

Article 2, Section 2 of the Constitution provides that officers of the United States shall be appointed by the President or the heads of the departments, as Congress may direct. There is no other way a person can obtain a government job. See United States v. Smith, 124 U.S. 525, 8 S.Ct. 595, 31 L.Ed. 534 (1888); United States v. Mouat, 124 U.S. 303, 8 S.Ct. 505, 31 L.Ed. 463 (1888), and Thomason v. United States, 85 F.Supp. 742 (N.D.Cal.1948), aff’d, 184 F.2d 105 (9th Cir. 1950). Government employment is not a contract, is not property and the due process clause of the Constitution does not apply. Bailey v. Richardson, supra; Crenshaw v. United States, 134 U.S. 99, 10 S.Ct. 431, 33 L.Ed. 825 (1890); Taylor v. Beckham, 178 U.S. 548, 20 S.Ct. 1009, 44 L.Ed. 1187 (1900), and Jenson v. Olson, supra. Since the plaintiffs were never appointed to these jobs, they had no vested or property rights in them. Consequently when they were not promoted, they were not denied anything that they had a right to.

It is fundamental that the salary of a government job is incident to and attaches to the job. In other words, it is a part of the job and goes with it. Because of this principle, the salary is payable only to the person appointed to the job, and a government employee is entitled only to the salary of the position to which he has been appointed. See Borak v. United States, 78 F.Supp. 123, 110 Ct.Cl. 236 (1948), cert. denied, 335 U.S. 821, 69 S.Ct. 43, 93 L.Ed. 375; Price v. United States, 80 F.Supp. 542, 112 Ct.Cl. 198 (1948); Ganse v. United States, 376 F.2d 900, 180 Ct.Cl. 183 (1967); United States v. McLean, 95 U.S. 750, 24 L.Ed. 579 (1877); Amundson v. United States, 120 F.Supp. 201, 128 Ct.Cl. 80 (1954), and Dvorkin v. United States, 101 Ct.Cl. 296, cert. denied, 323 U.S. 730, 65 S.Ct. 66, 89 L.Ed. 586 (1944). A corollary principle is that where an employee has received the salary of the office to which he was appointed, he has received all that he was entitled to. Price v. United States, supra; Ganse v. United States, supra. It follows from these authorities that the only way the plaintiffs could get the salaries of the jobs they are claiming was to be appointed to these positions, which did not happen. Also, when they received the salaries of the jobs to which they had actually been appointed, they had received all they were entitled to. These principles were applied in the above cited cases and in Donnelly v. United States, 134 F.Supp. 635, 133 Ct.Cl. 120 (1955), and Tierney v. United States, 168 Ct.Cl. 77 (1964), which were “promotion” cases. Amundson v. United States, supra, was also a promotion case.

It is clear that since the plaintiffs have not alleged nor shown that they have met the requirements set forth in the above authorities, they have not alleged a cause of action and this court does not have jurisdiction of their ease.

As pointed out above, Article 2, Section 2 of the Constitution places the appointing power in the heads of the department, if directed by Congress. Such power has been given to the head of the department here. This court has no authority to take over that function. The Supreme Court and all other courts have always held that the appointment of government employees is an executive agency function that involves discretion and it will not be interfered with by the courts. Ex parte Hennen, 38 U.S. (13 Pet.) 230, 10 L.Ed. 138 (1839); Decatur v. Paulding, 39 U.S. (14 Pet.) 497, 10 L.Ed. 559 (1840); United States v. McLean, 95 U.S. 750, 24 L.Ed. 579 (1877); Keim v. United States, 177 U.S. 290, 20 S.Ct. 574, 44 L.Ed. 774 (1900); Donnelly v. United States, supra; Tierney v. United States, supra, and Amundson v. United States, supra.

During the more than 100 years this court has been in existence we have never promoted any government employee. Our jurisdiction has always been and still is limited to the granting of money judgments. United States v. King, 395 U.S. 1, 89 S.Ct. 1501, 23 L.Ed.2d 52 (1969). This principle was expressed very well by Judge Laramore in speaking for the court in Umbeck v. United States, 149 Ct.Cl. 418 (1960), when he said:

* * * Furthermore, it is the function of the agency rather than the court to make promotions, and to allow plaintiff to recover on this theory would be in effect granting a promotion to plaintiff. It is well settled that this court’s jurisdiction extends only to the granting of a monetary judgment. United States v. Jones, 131 U.S. 1 [9 S.Ct. 669, 33 L.Ed. 90]; United States v. Alire, 6 Wall. 573 [73 U.S. 573, 18 L.Ed. 947]; Hart v. United States, 91 Ct.Cl. 308. [Id. at 429.]

Again in Bortin v. United States, 138 F.Supp. 251, 133 Ct.Cl. 856 (1956), we said:

Nor did plaintiff have any right to complain because, later on, an adjudicator other than he was promoted to assistant adjudication officer. -It is still true, fortunately, that “promotion is the prerogative of an agency so long as the employee promoted meets the requirements for the position to which promoted.” It would be quite detrimental to the public service if an agency head had no discretion in selecting men to do important jobs. He is already circumscribed more than a little in his control over his subordinates. [Id. 138 F.Supp. at 253, 133 Ct.Cl. at 860.]

The appointment of the plaintiffs to these jobs retroactively by the court would be the exercise of equitable powers this court does not possess. United States v. King, supra.

The majority opinion in its present posture is actually a declaratory judgment. This is so because the plaintiffs’ claims are not “limited to actual, presently due money damages from the United States,” which the Supreme Court said in United States v. King, supra, was necessary in order to give, this court jurisdiction. Otherwise, a declaration of the right of a claimant is a declaratory judgment. Here no court having appropriate powers has held that the plaintiffs are entitled to any money, nor has declared their rights to any amount of damages. We have no jurisdiction to entertain their claims or to declare their rights.

Finally, in the instant case, the record shows that the decision of the Commission was neither arbitrary nor capricious and was supported by substantial evidence. Furthermore, there is a rule of long standing that in discretionary matters, such as those involved here, the officers of the government are presumed to have discharged their duties in good faith and in a legal and proper manner. It takes well-nigh “irrefragable proof” to overcome this presumption. No such proof exists in the present case. United States v. Chemical Foundation, Inc., 272 U.S. 1, 14, 47 S.Ct. 1, 71 L.Ed. 131 (1926); Grover v. United States, 200 Ct.Cl. 337 (1973); Kozak v. United States, 458 F.2d 39, 40, 198 Ct.Cl. 31, 35 (1972), and Knotts v. United States, 121 F.Supp. 630, 631-632, 128 Ct.Cl. 489, 492 (1954).

I would enter judgment for the defendant and dismiss the plaintiffs’ suit.

LARAMORE, Senior Judge, and BENNETT, Judge, join in the foregoing dissenting opinion.


author: SKELTON, Judge:

text:
    Clifford C. TERRY v. The UNITED STATES.
    No. 13-73.
    United States Court of Claims.
    June 19, 1974.

      Don Bradshaw, Houston, Tex., attorney of record, and Hugh J. Plummer, Houston, Tex., for plaintiff.
    Rose E. Adewale-Mendes, Washington, D. C., with whom was Acting Asst. Atty. Gen., Irving Jaffe, for defendant.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG and BENNETT, Judges.
   SKELTON, Judge:

Prior to March 31, 1969, the plaintiff, Clifford C. Terry, was employed by the United States Post Office Department as a Distribution and Window Clerk in Houston, Texas. He was a nonprobationary member of the competitive civil service and, as such, was entitled to the protection of the Lloyd-LaFollette Act, 5 U.S.C. § 7501 (1970). Such protection included the right to be discharged from employment only for such cause as would promote the efficiency of the civil service. He was also entitled to rely on the administrative regulations issued by the Post Office Department and the Civil Service Commission (CSC) which pertained to the discharge of Federal employees with his status.

On March 17, 1969, a Postal Inspector conducted an audit of the plaintiff’s cash account which revealed a shortage of approximately $101 in the plaintiff’s fixed credit funds. Just prior to the audit, but after the plaintiff knew an audit was about to commence, the Inspector observed the plaintiff attempting to place money from his pocket into his cash drawer. The Inspector told the plaintiff to put the money back into his pocket. After the audit, the Inspector questioned plaintiff about the shortage. Plaintiff then left the premises and returned with two money order receipts.

After further questioning, plaintiff signed a written statement which had been prepared by the Postal Inspector. Part of the statement admitted that the plaintiff had issued for his personal account two money orders in the total amount of $50 and had placed in his cash account only $20 as payment therefor. The money order receipts which the plaintiff had brought to the premises corroborated the written admission.

By letter dated March 20, 1969, the Postal Inspector charged plaintiff with misuse of official funds and notified him that disciplinary action, including discharge from employment, was being proposed. The charge read as follows:

You are charged with misuse of official funds while employed as a clerk in the South Houston, Texas post office on March 3, 1969, in that you issued Money Order No. 7,488,422,434 in the amount of $15.00 with fee of 350, and Money Order No. 7,488,472,435 in the amount of $35.00 with fee of 350 for your personal use and placed only $20.00 in your cash drawer for these two money orders. You converted $30.70 of fixed credit funds to your personal use to account for these two money orders at the close of business on March 3, 1969.

The plaintiff was given ten days within which to reply.

By letter dated April 24, 1969, the Regional Director of the Post Office Department advised plaintiff that the charge against him was supported by the fact of the shortage in his fixed credit and his initial explanation for the shortage, and that he was therefore discharged from employment. The plaintiff appealed the decision through the agency appellate system. After conducting a hearing, the Post Office Department issued its appellate decision in a letter dated November 21, 1969. The decision- sustained the charge against the plaintiff and stated that his removal would serve the best interest of, and promote the efficiency of the Post Office Department. The letter also advised the plaintiff of his right to appeal to the CSC.

Plaintiff appealed the agency decision to the Dallas Regional Office of the CSC. On February 26, 1970, the Regional Office held a hearing at which the plaintiff, the investigating Postal Inspector, and the South Houston Postmaster testified. The Regional Office concluded that the evidence supported the agency’s charge, that the plaintiff’s removal was processed in accordance with required procedures, and that the agency’s action was, therefore, proper. The. CSC Board of Appeals and Review (BAR) affirmed the decision of the Regional Office on September 9, 1970. There is no doubt that the most damaging evidence upon which the Regional Office and the BAR relied in reaching their decisions was the plaintiff’s written statement of March 17, 1969.

Plaintiff filed his petition in this court against the United States on February 5, 1973. He asks that the defendant be ordered to reinstate him to his former position and to pay him all back pay from March 31, 1969, until reinstatement. The ease is before us on cross-motions for summary judgment and is ready for disposition on facts which are undisputed. The plaintiff ^lso contends, as an alternative to his motion for summary judgment, that summary judgment for the defendant is improper because genuine fact issues are involved which must be resolved by this court. The arguments of the parties in support of their respective positions are stated below.

The defendant’s first argument in support of its motion for summary judgment concerns the effect of the Postal Reorganization Act, 39 U.S.C. § 101 et seq. (1970), on this court’s jurisdiction over claims by discharged employees of the former United States Post Office Department. The Postal Reorganization Act established the United States Postal Service (Postal Service) to replace the U. S. Post Office Department. The defendant argues that under the authority granted by 39 U.S.C. § 2002(a) (1970), the Comptroller General approved the transfer to the Postal Service of the unexpended balances of the former Post Office Department for the fiscal year 1971, which began July 1, 1970, but not for prior years. Therefore, the defendant argues, liabilities attributable to the operations of the former Post Office Department, but which cover periods after June 30, 1970, are liabilities of the new Postal Service, not the United States. It contends that since 28 U.S.C. § 1491 (1970), under which the plaintiff claims this court has jurisdiction of his claim, limits this court’s jurisdiction to claims “against the United States,” this court has jurisdiction over only that portion of the plaintiff’s claim which covers the period before July 1,1970.

Section 5 of the Postal Reorganization Act, Pub.L. 91-375, Aug. 12, 1970, 84 Stat. 774, contains the saving provisions of the Act. Section 5(c) contains the provisions applicable to the case at bar. We believe that Section 5(c) read as a whole indicates that Congress intended the Postal Reorganization Act to have no effect on administrative or judicial proceedings commenced prior to enactment of the Act, except that the Postal Service would assume those functions concerned with such proceedings which had been handled by the Post Office Department prior to the Act. The Act became law on August 12, 1970, and Section 2002(a) became effective on July 1, 1971, after plaintiff’s claim arose and after plaintiff had initiated proceedings before the CSC. The administrative proceedings before the CSC were part of the adjudicatory process which was provided by law to allow adjudication of claims of discharged employees. Therefore, we hold that the Postal Reorganization Act had no jurisdictional effect on the proceedings in this case involving the plaintiff’s claim that he was improperly discharged. Since the plaintiff could maintain an action against the United States in this court prior to enactment of the Postal Reorganization Act, he may still maintain such an action under the facts of this ease.

Plaintiff’s argument in support of his motion for summary judgment is that his written statement to the Postal Inspector on March 17, 1969, was obtained in such a manner as to make it inadmissible against him; and that without the statement, the charge of misuse of official funds, and the adverse decision of the CSC, were not supported by substantial evidence. The plaintiff contends that the statement was inadmissible because the Inspector coerced it from him by forcing him through threats to choose between losing his job if he failed to answer the Inspector’s questions and surrendering his fifth amendment privilege against self-incrimination if he did answer the questions. He cites the Supreme Court’s decisions in Gardner v. Broderick, 392 U.S. 273, 88 S.Ct. 1913, 20 L.Ed.2d 1082 (1968); Uniformed Sanitation Men Ass’n, Inc. v. Commissioner of Sanitation, 392 U.S. 280, 88 S.Ct. 1917, 20 L.Ed.2d 1089 (1968), and Garrity v. New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed.2d 562 (1967), and this court’s decision in Kalkines v. United States, 473 F.2d 1391, 200 Ct.Cl. 570 (1973), as direct support for his position.

In Kalkines, we relied on Uniform Sanitation Men, and Gardner and Garrity to a lesser extent, in holding that an employee may not be put to a choice between possibly going to jail for answering questions and losing his job for not answering, and then be fired for not answering. The plaintiff in that case had been under criminal investigation during the same time that he was being investigated by his employing agency, the Bureau of Customs of the Treasury Department. The Bureau of Customs’ investigators never told the plaintiff that he had a constitutional privilege to remain silent. On the contrary, he was specifically told of agency regulations which required him to disclose any information requested by customs agents. Since the customs agents also failed to advise the plaintiff that if he did disclose requested information, such information or its fruits could not be used in a criminal prosecution, we held that discharging him for failing to disclose the requested information was improper.

Plaintiff in the ease at bar argues that the Postal Inspector placed him in the same dilemma that the customs agents placed the plaintiff in Kalkines. Therefore, the argument continues, the written statement given to the Inspector was the product of coercion. Plaintiff states that several Postal Manual regulations were in effect on March 17, 1969, which support his argument that his failure to answer questions would have resulted in his dismissal from the Post Office Department. He states that he either knew or should have known of the allegedly coercive regulations, and, therefore, he should have been warned that any information he disclosed or its fruits could not be used against him in a criminal prosecution. Since he was not so warned, he argues that his written statement was improperly considered by the CSC.

Because the Postal Inspector was investigating the possible commission of a criminal offense, and because Postal Inspectors were authorized by regulation to make arrests, the investigation of plaintiff was a criminal investigation, as well as a postal investigation. Nevertheless, we conclude that the investigation of the plaintiff did not place him in a position where he should have reasonably believed that he would lose his job if he failed to disclose possibly incriminating information.

The BAR found that the plaintiff’s written statement was not given under circumstances which would make it inadmissible in the adjudication of his case. While such a finding is not as specific as it could have been, we think it encompasses a finding that the plaintiff was not told that he would lose his job if he remained silent. Before the BAR, one of the plaintiff’s complaints was that he was unduly pressured into making his statement. Also, when the plaintiff filed a list of errors and corrections in the transcript of the agency hearing, one of his corrections was that the Postal Inspector had told him he would be fired if he remained silent. Therefore, we think the issue of whether or not the plaintiff was threatened with dismissal for remaining silent was clearly before the BAR, and that the issue was decided against the plaintiff.

This court has said on many occasions that we will not disturb a CSC decision in a dismissal case unless the decision was arbitrary, capricious, or not supported by substantial evidence. Grover v. United States, 200 Ct.Cl. 337 (1973); and cases cited therein. At the agency hearing, the Postal Inspector testified that he never told the plaintiff that he would be fired if he did not admit guilt. Additionally, at the CSC hearing, the Inspector and the South Houston, Texas Postmaster testified that plaintiff had willingly made his statement. Also, the Postmaster testified that nine days after the statement was made, he had a meeting with plaintiff to discuss possible actions that could be taken against plaintiff. According to the Postmaster, plaintiff never suggested that he had been subjected to any undue pressure prior to making his statement. The testimony of the Inspector and the Postmaster clearly constitutes substantial evidence in support of the BAR’S finding that plaintiff was not threatened with losing his job if he remained silent.

Even though plaintiff was not specifically threatened with discharge for failing to speak, he claims that the Kalkines decision still made his statement inadmissible because the existing Post Office Department regulations at the time of his statement could reasonably have been interpreted so as to have required him to give incriminating information to investigators. However, the Postal Manual regulations on which the plaintiff relies cannot be so interpreted. Those regulations say essentially that postal employees must cooperate in any postal investigation or face the possibility of an involuntary separation. They do not state or suggest that the duty to cooperate is absolute and unqualified at all times and in all circumstances. Most importantly, they do not require employees to disclose all information in their possession which pertains to postal matters under investigation. The cited regulations only require postal employees to do what every citizen is required to do, i. e., to come forward and speak where one has relevant knowledge of a matter under investigation by authorized officials. Such regulations do not purport to abrogate the constitutional privilege of each employee to refuse to give incriminating testimony against himself.

The fact that plaintiff received no specific threats of a job loss for failing to speak, and the fact that his employing agency operated under no regulations which could reasonably be interpreted to have required him to give incriminating information to investigators, sharply distinguish this case from the situation which was involved in Kalkines. In that case, investigators threatened the plaintiff with a discharge for remaining silent and the employing agency had regulations which required him to either give possibly incriminating information or face a possible discharge. The regulations and the threats left no doubt that the plaintiff in that case faced a job loss if he failed to give possibly incriminating answers. The coercion resulting from placing an employee in a vise formed on one side by threats and regulations that would result in a discharge for failing to speak, and formed on the other side by the fear of a jail term for incriminating himself, made the resulting statements inadmissible against Kalkines. However, in the case at bar, there was no such coercion. One element of pressure was missing here because during the investigation the plaintiff was not threatened that his failure to speak would result in his discharge from the Post Office Department, and the regulations did not so provide. Therefore, we hold that plaintiff’s written statement was not coerced from him by forcing him through threats or the regulations to choose between losing his job for remaining silent and surrendering his fifth amendment right against self-incrimination.

Defendant, in its second argument in support of its motion for summary judgment, contends that' the CSC decision sustaining the plaintiff’s dismissal was supported by substantial evidence in the record and was neither arbitrary nor capricious. Plaintiff opposes defendant’s motion on several grounds, one of which centers around his allegation that the CSC hearing examiner refused his request to provide at his own expense a court reporter in order to get a complete record of the hearing. Plaintiff concedes that no statutes or administrative regulations required the keeping of a verbatim transcript of CSC hearings. However, he. argues that in view of the sensitive constitutional areas of inquiry which were involved, the refusal to allow the keeping of an exact record constituted an arbitrary and capricious abuse of discretion.

For the purpose of disposing of the defendant’s motion for summary judgment, we assume that plaintiff’s allegations concerning his request for a court reporter are true. This court was faced with a very similar situation in Horn v. United States, 177 F.Supp. 438, 147 Ct.Cl. 234 (1959). In that case, we held that the CSC’s denial of a verbatim transcript was neither arbitrary nor capricious where a comprehensive summary of the hearing was prepared, and where the plaintiff was allowed to request changes in the summary, all of which were made. We still adhere to that holding, and such adherence requires that we reject the plaintiff’s argument in the instant case. A comprehensive summary of plaintiff’s hearing before the CSC was prepared and submitted to the CSC Regional Office and to the BAR. Plaintiff presented additions and corrections to the summary which were noted by the Regional Office and the BAR. This procedure allowed plaintiff to receive a full consideration of his objections to his discharge. Therefore, the CSC’s denial of a verbatim transcript was neither arbitrary nor capricious.

Plaintiff also contends that summary judgment for the defendant is improper because the fifth amendment guarantee of procedural due process requires that a judicial tribunal, and not an administrative agency, determine the voluntariness and admissibility of his written statement. In support of this contention, he cites the reasoning of Jackson v. Denno, 378 U.S. 368, 84 S.Ct. 1774, 12 L.Ed.2d 908 (1964).

In Jackson, the Supreme Court dealt with New York’s former procedure for determining the voluntariness and admissibility of a confession in a criminal case. The New York trial court had submitted the voluntariness issue to the jury along with the other issues in the case. The jury was instructed to disregard the confession if it was involuntary, and to determine guilt or innocence solely from the other evidence. Alternatively, if the confession was voluntary, the jury was to determine its truth or reliability and afford it weight accordingly. The Supreme Court held that this procedure did not satisfy the requirements of the Due Process Clause of the Fourteenth Amendment.

The issue raised by plaintiff’s contention is to what extent the Constitution extends procedural due process protection to a .terminated Federal employee in an administrative proceeding. The decision in Jackson did not speak to this issue since that case involved a criminal trial. However, the Supreme Court recently addressed this issue in Arnett v. Kennedy, 416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15 (1974). In that case, a non-probationary employee in the competitive civil service contended that his dismissal for cause without a prior hearing denied him procedural due process. The Court held that the Constitution did not require a hearing prior to dismissal. Mr. Justice Rehnquist, speaking for a plurality of the Court, said as follows:

In sum, we hold that the Lloyd-LaFollette Act, in at once conferring upon nonprobationary federal employees the right not to be discharged except for “cause” and prescribing the procedural means by which that right was to be protected, did not create an expectancy of job retention in those employees requiring procedural protection under the Due Process Clause beyond that afforded here by the statute and related agency regulations. We also conclude that the post termination hearing procedures provided by the Civil Service Commission and OEO adequately protect those federal employees’ liberty interest, recognized in Roth, supra, in not being wrongfully stigmatized by untrue and unsupported administrative charges. * * * [Id. at 163, 94 S.Ct. at 1649.]

By the use of this language, Justice Rehnquist seems to imply that a nonprobationary Federal employee has at least a liberty interest that is entitled to some procedural due process protection when the employee is terminated for cause.

The six . Justices other than the plurality seemed to agree that a Federal employee has a property interest that is entitled to procedural due process protection when the employee is discharged for cause. We believe the opinions in Arnett clearly support the proposition that the fifth amendment guarantee of procedural due process extends some protection to a nonprobationary employee who is discharged for cause.

With these principles in mind, we examine the plaintiff’s contention that the procedural due process protection which extends to government employees includes a requirement that a judicial tribunal, and not an administrative agency, determine the voluntariness and admissibility of the employees’ statements. The Supreme Court’s decision in Jackson v. Denno, supra, certainly does not support this argument.

The Jackson decision dealt only with the roles of the judge and the jury in a criminal trial. The Court was primarily interested in insuring that criminal procedures would be fully adequate to insure that defendants were afforded adequate protection under the Due Process Clause of the Fourteenth Amendment against the use of involuntary confessions. It struck down the practice of simultaneously giving the jury the evidence going to the voluntariness of a confession, as well as all of the corroborating evidence tending to show that the confession was true and that the defendant committed the crime. The Court reasoned that the jury might believe the confession and believe that the defendant had committed the very act with which he was charged, all being circumstances which might seriously distort evaluation of the accused’s credibility and assessment of the testimony concerning the critical facts surrounding his confession. Therefore, the Court held that criminal defendants are entitled to a hearing on the voluntariness issue separate and apart from any consideration of the guilt or innocence issue; and that both issues may not be decided by the same jury.

The Jackson opinion included no discussion of the proper functions of an administrative agency and a judicial tribunal in a case involving administrative proceedings, so it is of no help to the plaintiff in the instant case. Additionally, we believe the several opinions in Arnett preclude a favorable decision for the plaintiff on the issue of whether or not an administrative agency may determine the voluntariness and admissibility of a confession.

If procedural due process required the voluntariness issue to be decided by a judicial tribunal, we see no reason why the entire hearing would not be required to be conducted by such a tribunal. Although the Arnett case dealt only with procedural due process requirements as to the time of a hearing, the Court strongly indicated that an administrative agency could conduct any required hearing. Certainly Justice Rehnquist’s language which is quoted above indicates that the plurality believed that the applicable statutes and regulations afford discharged Federal employees all the procedural protection to which they are entitled. The remaining Justices, all of whom indicated that procedural due process guarantees extend to discharged employees, never questioned in the slightest the practice of allowing administrative agencies to conduct required hearings. Therefore, the Court strongly indicated that hearings before administrative officers are sufficient to provide, discharged Federal employees any procedural protections to which they are entitled. We know of no reason why the issue concerning the voluntariness of a confession should be treated any differently from the other issues which an administrative body, or a hearing officer, must decide during the course of a hearing. Therefore, we hold that the CSC acted properly in determining the voluntariness of the plaintiff’s statement and in ruling on the statement’s admissibility-

plaintiff’s final argument in support of his contention that summary judgment for the defendant, should be denied is that there is a fact question as to the voluntariness of his confession which must be resolved by this court. He alleges that his written statement was coerced from him, and that he was warned of neither his right to remain silent nor his right to counsel prior to his making the statement.

As we noted above, the BAR found that plaintiff’s written statement was not made under circumstances which would make it inadmissible in the adjudication of his case. We believe this finding was adverse to plaintiff’s claims of coercion and lack of warnings. Therefore, the issue is whether or not the record contains substantial evidence in support of the BAR’S finding.

The record of the agency hearing shows that the investigating Postal Inspector testified that prior to taking plaintiff’s statement, he told .plaintiff that he (the plaintiff) did not have to make a statement and that he had á right to have an attorney present. The record also indicates that the Inspector testified that he did not speak threateningly to plaintiff during the interrogation. The record of the hearing before the CSC Hearing Examiner shows that the Inspector again testified that he had given plaintiff complete warnings and had not threatened him. The same record also shows that the South Houston Texas Postmaster testified that he met with plaintiff on March 26, 1969, to discuss the plaintiff’s situation, and that during the meeting, the plaintiff made no allegations of coercion. The first paragraph of the written statement signed by the plaintiff stated as follows:

I, C. C. Terry, having been duly sworn wish to make the following statement. This statement is made of my own free will. No threats or promises have been made to me. I have been advised that I do not have to make any statement and that any statement I make can be used against me. I have also been advised of my constitutional rights including my right to an attorney. I understand my rights and I do not desire an attorney at this time.

This statement may not prove a lack of coercion, but it is at,least some evidence that the plaintiff received the proper warnings. The statement itself provides the warnings concerning the right to remain silent and the right to legal counsel. We believe that all of this evidence, which was before the BAR, constitutes more than substantial evidence in support of the finding that plaintiff’s statement was, not inadmissible. Therefore, we hold that the BAR properly found that plaintiff’s statement was admissible.

Plaintiff’s statement, and the testimony of the Postal Inspector and the Postmaster concerning the statement, certainly support the charge that plaintiff misused official funds. In addition, the BAR had other evidence before it which tended to show that plaintiff had misused official funds. The shortage in the plaintiff’s fixed credit funds, plaintiff’s attempt to place money in his cash drawer, and the money order receipts which corroborated plaintiff’s written statement supported a finding of misuse of funds by plaintiff. The sum of this evidence, as the defendant contends, easily constitutes’ substantial evidence in support of the BAR’S finding that plaintiff misused official funds as charged. Therefore, we hold that the BAR properly found that there was sufficient cause for plaintiff’s discharge.

For the reasons stated above, we hold that the decision of the BAR was supported by substantial evidence and was neither arbitrary nor capricious. Accordingly, plaintiff’s motion for summary judgment is denied, defendant’s motion for summary judgment is granted, and plaintiff’s petition is dismissed.

      . 39 U.S.C. § 2002(a) (1970) provides in pertinent part as follows :
      “§ 2002. Capital of the Postal Service.
      “(a) * * * The value of assets and the amount of liabilities transferred to the Postal Service upon the commencement of operations of the Postal Service shall be determined by the Postal Service subject to the approval of the Comptroller General, in accordance with the following guidelines :
      “(2) All liabilities attributable to operations of the former Post Office Department shall remain liabilities of the Government of the United States, except that upon commencement of operations of the Postal Service, the unexpended balances of appropriations made to, held or used by, or available to the former Post Office Department and all liabilities chargeable thereto shall become assets and liabilities, respectively, of the Postal Service.”

      . Postal Reorganization Act, Pub.L. 91-375, § 5(c), Aug. 12, 1970, 84 Stat. 774 provides:
      “ (c) (1) Except as provided in paragraph (2) of this subsection—
      “(A) the provisions of this Act shall not affect suits commenced prior to the date this section takes effect; and
      “(B) in all such suits proceedings shall be had, appeals taken, and judgments rendered, in the same manner and effect as if this Act had not been enacted.
      “No suit, action, or other proceeding commenced by or against any officer in his official capacity as an officer of any department or agency, functions of which are transferred by this Act, shall abate by reason of the enactment of this Act. No cause of action by or against any department or agency, functions of which are transferred by this Act, or by or against any officer thereof in his official capacity shall abate by reason of the enactment of this Act. Causes of actions, suits, actions, or other proceedings may be asserted by or against the Postal Service or such official of that Service as may be appropriate and, in any litigation pending when this section takes effect, the court may at any time, on its own motion or that of any party, enter an order which will give effect to the provisions of this subsection.
      “(2) If before the date on which any provision of this Act takes effect any department or agency, or officer thereof in his official capacity, is a party to a suit, and under this Act—
      “(A) such department or agency is transferred to the Postal Service; or
      “(B) any function of such department, agency, or officer is transferred to the Postal Service;
      such suit shall be continued by the Postal Service.”

      . Postal Reorganization Act, Pub.L. 91-375, § 15(a), Aug. 12, 1970, 84 Stat. 787. See note following 39 U.S.O. § 2002 (1970).

      . The Postal Manual regulations cited by plaintiff are §§ 717.311, 744.17, 833.1, 833.3. Section 717.311 provides in pertinent part:
      “Removal is an action to effect the absolute separation of an employee other than temporary or probational for cause, involving misconduct, delinquency, or inefficiency or other cause not covered by one of the separation terms described in this part, for example:
      “b. Serious infractions of postal regulations.”
      s*s >’,i ífc í¡: sfc
      Section 744.17 provides:
      “Employees shall cooperate in any postal investigation.”
      Section 833.1 provides in pertinent part:
      “Investigations are made by postal inspectors to determine responsibility for * * *
      5jí í|í SjC . SjC
      “e. Loss of Government funds, accountable paper or property through theft, embezzlement, or otherwise.”
      Section 833.3 provides:
      “Postmasters and employees are often called on for information and assistance during investigations of the subjects mentioned in 833.1. Such co-operation must be extended. (See 744.17).”

      . 39 C.F.R. § 831.9 (1969). Section 831.9 provided in pertinent part:
      “(a) Authorization. Postal Inspectors are authorized to perform the following functions in connection with any matter within their respective official duties as established by the Chief Postal Inspector.
      s¡: * 5¡: s¡s *
      “(3) Make arrests without warrant for felonies cognizable under the laws of the United States if they have reasonable grounds to believe that the person to be arrested has committed or is committing such a felony.”
      * * * * *

      . Justice Powell filed an opinion concurring in part and concurring in the result in part, in which Justice Blackmun joined. Justice White filed an opinion concurring in part and dissenting in part. Justice Douglas filed a dissenting opinion. Justice Marshall filed a dissenting opinion, in which Justice Douglas and Justice Brennan joined.

      . Justice White in his opinion stated:
      “[W]here there is a legitimate entitlement to a job, as when a person is given employment subject to his meeting certain specific conditions, due process requires, in order to insure against arbitrariness by the State in the administration of its law, that a person be given notice and a hearing before he is finally discharged. * * ' *
      }*« Sj« í¡!
      “To be sure, to determine the existence of the property interest, as for example, whether a teacher is tenured or not, one looks to the controlling law, in this case federal statutory law, the Lloyd-LaFollette Act, which provides that a person can only be fired for cause. The fact that the origins of the property right are with the State makes no difference, for the nature of the procedures required. While the State may define what is and what is not property, once having defined those rights the Constitution defines due process, and as I understand it six members of the Court are in agreement on this fundamental proposition.” [Arnett v. Kennedy, supra at —, 94 S.Ct. at 1661.]