source: Caselaw Access Project

author: SAFFELS, District Judge.

license: Public Domain

text:
    Arloha M. PINTO, Plaintiff, v. UNITED STATES of America, Defendant.
    Civ. A. No. 84-2249.
    United States District Court, D. Kansas.
    Aug. 13, 1984.
    On Motion for Reconsideration Oct. 12, 1984.

      Charles C. Shafer, Jr., Kansas City, Mo., for plaintiff.
    Julie Robinson Trice, Asst. U.S. Atty., Dist. of Kansas, Kansas City, Kan., Ludwig H. Adams, Trial Atty., Dept, of Justice, Tax Div., Washington, D.C., for defendant.
   MEMORANDUM AND ORDER

SAFFELS, District Judge.

This is a summary proceeding pursuant to 26 U.S.C. § 7429(b) to review jeopardy assessment procedures taken by the Internal Revenue Service (hereinafter IRS) against the plaintiff arising from alleged tax deficiencies for the years 1977 through 1979.

The statute provides an expedited procedure whereby a taxpayer may have a United States District Court determine the reasonableness of a jeopardy assessment and the reasonableness of the amount assessed. The procedure is summary, and final disposition on the merits may be made through other methods. In the case at bar, the taxpayer is challenging the alleged tax deficiencies in the United States Tax Court. The purpose of 26 U.S.C. § 7429(b) is to grant immediate relief in those cases where the IRS has overstepped the boundaries of reasonableness. Hohman v. United States, 535 F.Supp. 1218, 1220 (D.C.Cir. 1982).

Pursuant to 26 U.S.C. § 6861, the Secretary may make an assessment prior to judgment if he believes the assessment or' collection of the deficiency will be jeopardized by delay in making the assessment. The Secretary is justified in making a jeopardy assessment if it appears a taxpayer is designing to quickly depart from the United States or to conceal himself, or to place his property beyond the reach of the government, or his financial solvency appears to be imperiled. See Joint Committee On Taxation, General Explanation of the Tax Reform Act of 1976, H.R. 10612, 94th Congress, 2nd Sess. 356, n. 1 (1976).

The burden of proof of establishing that the imposition of the jeopardy assessment under § 6861 is reasonable is upon the Secretary. 26 U.S.C. § 7429(g)(1). The burden as to the reasonableness of the amount assessed is upon the taxpayer. However, the Secretary is required to provide a written statement describing on what the determination of the amount was based. 26 U.S.C. § 7429(g)(2).

“It is clear from the legislative history of the Act that the District Court is to make a de novo determination in considering the reasonableness of the assessment and the appropriateness of the amount assessed. See Loretto v. United States (E.D.Pa.1977) 440 F.Supp. 1168 at p. 1171. What is reasonable under the circumstances means ‘something more than “not arbitrary or capricious,” and something less than “supported by substantial evidence.” ’ Ibid. at p. 1172.” Davis v. United States, 511 F.Supp. 193, 197 (D.Kan.1981).

Plaintiff filed this action, and this court promptly held a hearing on August 6, 1984. The court is now prepared to rule.

This case stems from the filing by the IRS of proposed additional federal income tax liabilities and fraud penalties for the years 1977, 1978 and 1979 by statutory notices issued in 1981 against the taxpayer. The taxpayer petitioned the Tax Court as a result of the statutory notices, and the cases (Docket Nos. 13061-81 and 1489-82) are presently pending in the tax court. The total assessment claimed by the IRS is Two Hundred Fifty-Nine Thousand Six Hundred Twenty-Five and 09/100 Dollars ($259,625.09).

On April 19, 1984, Clarence M. King, Jr., District Director of the IRS, issued a “Notice of Jeopardy Assessment and Right of Appeal” to the taxpayer. It stated, in pertinent part:

Under section 6861 of the Internal Revenue Code, you are notified that I have found you to be designing quickly to depart from the United States and to place your assets beyond the reach of the Government by concealing them by dealing in cash, attempting to sell your residence located at 3708 West 119th Terrace, which is the only known asset sufficient to satisfy your liability for 1977, 1978 and 1979 tax and penalties now before the United States Tax Court, and by removing your assets from the United States, thereby tending to prejudice or render ineffectual collection of income tax for the taxable years 1977, 1978 and 1979....

In making its jeopardy assessment, the IRS relied on the following information developed through investigation:

(1) The affidavit of Robert E. Sanders, an architect for the City of Leawood, Kansas, that he had spoken with Marcel Sam Lambert (taxpayer’s husband), who told him that he had just returned from Germany, liked it there and wanted to live there. According to the affidavit, Lambert said he was selling his house and intended to move quickly to Germany.
(2) Lambert did not own the house in Leawood, but rather it was owned by his wife, the taxpayer. The investigation established that the taxpayer’s house was for sale and had a local listing.
(3) The IRS investigation indicated that the taxpayer had been to Germany in 1984.
(4) The taxpayer has a current passport.
(5) The taxpayer had engaged in a course of conduct, which in the opinion of the IRS was designed to conceal assets. In particular, the taxpayer had in 1977 engaged in a series of cash transactions, including the purchase, in cash, in a single day, of thirteen cashier’s checks in amounts of less than Ten Thousand Dollars ($10,000) at different Kansas City area banks. The IRS inferred that the taxpayer was attempting to avoid disclosure requirements imposed on banks for similar transactions in amounts of Ten Thousand Dollars or more.
(6) The taxpayer has been seen to drive expensive automobiles, including those manufactured by Mercedes Benz, without registration of such automobiles in her name.
(7) The only asset in taxpayer’s name sufficient to satisfy the claimed liability is the house, which is listed for sale. Taxpayer has no visible means of support other than that provided by her husband.

Additionally, the court hearing established that plaintiff’s husband, Mr. Lambert, controls plaintiff’s finances. Mr. Lambert, by his own testimony, established that he is involved in secretive financial arrangements, usually on a cash basis, and often in amounts of hundreds of thousands of dollars, with at least one individual and corporation with addresses in Argentina, the Cayman Islands and the Bahamas. The nature and secrecy of these transactions by the person who controls plaintiff’s finances is sufficient reason, in the court’s opinion, for reasonable apprehension by the IRS about the dissipation of the assets securing the alleged indebtedness.

Plaintiff contends that the government has not established sufficient reason for the jeopardy assessment. Plaintiff brought forward the testimony of Mr. Lambert that he does not intend to become a resident of Germany. He testified that he does like Germany, but that does not mean he will leave this country. Further, plaintiff contends that the mere fact that her husband likes Germany does not mean the taxpayer would move to Germany. She contends that she has family remaining in the United States and she would not want to leave.

Plaintiff further contends that the government engaged in very little investigation before assessing the jeopardy assessment. Plaintiff contends that the IRS should not have relied on the affidavit of Robert Sanders, and that the IRS could have talked to Mr. Lambert or plaintiff before the jeopardy assessment. The IRS has not talked to Mr. Lambert or the plaintiff.

Plaintiff contends that the so-called concealment of assets through dealing in cash took place in 1977, a long time ago. Plaintiff did not quickly depart the country then, and she maintains that the 1977 transactions do not suggest that she now intends to quickly depart the country. Further, plaintiff explains that the reason she drives Mercedes automobiles is that her husband, Mr. Lambert, deals in Mercedes Benz automobiles out of his home. Further, plaintiff contends that the reason for the trip to Germany on this and a previous occasion was so that her husband could purchase Mercedes Benz automobiles.

Plaintiff states her possession of a current, valid passport does not indicate she intends to quickly depart the country. Plaintiff contends that numerous people throughout the United States have valid passports without any intent to depart the country on a permanent basis. Further, plaintiff has indicated a willingness to deposit her passport with the court for safekeeping until a decision by the Tax Court on her tax deficiencies.

The court has had an opportunity to review the evidence, and finds the decision of the Secretary to be reasonable for the following reasons:

(1) The only asset sufficient to satisfy the claimed liability, plaintiffs house, is for sale. Plaintiff has no other visible means of paying any possible judgment of the Tax Court.
(2) The circumstances indicate a substantial likelihood that upon the sale of the house and the conversion of that asset into cash, the cash could be placed beyond the reach of the government. This could happen through the plaintiffs departure from the country, a foreseeable possibility in light of the affidavit of Mr. Sanders, the past trips to Germany, and the possession of a passport. Dissipation of the cash could also occur through Mr. Lambert’s secretive financial dealings in cash with one or more individuals from foreign countries.

The court therefore finds that the government has established its burden of showing the reasonableness of the jeopardy assessment herein.

As to the amount of the assessment, plaintiff has not established that the amount of the assessment, essentially a lien on the taxpayer’s property, is excessive. It is noted by the court that the claimed tax deficiency is an amount comparable to the asking price on plaintiff’s house.

IT IS BY THE COURT THEREFORE ORDERED that the clerk of this court enter judgment in favor of the defendant, the United States of America, in this action.

ON MOTION FOR RECONSIDERATION

This matter is before the court on plaintiff’s motion for reconsideration of the court’s order dated August 13, 1984, and for an order requiring the government to show cause why William L. Wells, Internal Revenue Service Agent, should not be held in contempt of court.

Plaintiff sought review pursuant to 26 U.S.C. § 7429(b) of a jeopardy assessment taken by the Internal Revenue Service [hereinafter IRS] against plaintiff arising from alleged tax deficiencies for the years 1977 through 1979. By order dated August 13, 1984, this court upheld the jeopardy assessment imposed by the government.

In this motion for reconsideration, plaintiff argues as follows. (1) If there is a tax due, the tax impact is against Marcel Sam Lambert, plaintiff’s husband, not plaintiff. Therefore, plaintiff contends that the government is proceeding against the wrong taxpayer. (2) Plaintiff contends that IRS Agent William L. Wells is guilty of perjury in connection with his testimony to this court. Plaintiffs argument is based on what she sees as certain discrepancies between Mr. Wells’ testimony and an affidavit relied on in this case given by Robert E. Sanders, City Architect of Leawood, Kansas.

The court shall first address the question of the reasonableness of the tax. This court held that the amount of the jeopardy assessment was not unreasonable and that plaintiff had not established that the amount of assessment, essentially a lien on the taxpayer’s property, was excessive. Plaintiff’s contention that the tax deficiency is actually that of her husband and not her own is not relevant to the court’s determination of the jeopardy assessment. As stated in Haskin v. United States, 444 F.Supp. 299, 304 (C.D.Cal.1977): “Section 7429(b) does not contemplate that this Court attempt to determine the ultimate tax liability. A determination pursuant to Section 7429 will have no effect upon the determination of the correct tax liability in a subsequent proceeding.” Therefore, the court finds that it is not in its jurisdiction under the jeopardy assessment statute to determine the correct tax liability of the plaintiff. Therefore, plaintiff’s motion for reconsideration must be denied.

As to plaintiff’s motion for an order requiring defendant to show cause why IRS Agent William L. Wells should not be held in contempt of court, the court finds no basis to believe that Agent Wells perjured himself in the testimony before this court. The court is not convinced that the alleged discrepancies exist, and further is unconvinced that even if the discrepancies do exist that such discrepancies would amount to perjury.

IT IS BY THE COURT THEREFORE ORDERED that plaintiff’s motion for reconsideration and for an order to show cause is hereby denied.


author: HULL, District Judge.

text:
    TENNESSEE VALLEY AUTHORITY v. IMPERIAL PROFESSIONAL COATINGS.
    No. Civ. 3-84-239.
    United States District Court, E.D. Tennessee, N.D.
    Aug. 20, 1984.

      Herbert S. Sanger, Jr., Gen. Counsel, James E. Fox, Associate Gen. Counsel, Peter K. Shea, Richard B. Campbell, Tennessee Valley Authority, Knoxville, Tenn., for plaintiff.
    Henri Wolbrette, III, McGlinchey, Stafford, Mintz, Cellini & Lang, Kathleen A. Manning, New Orleans, La., James A. Ridley, III, Kramer, Johnson, Rayson, McVeigh & Leake, Knoxville, Tenn., for respondent.
   MEMORANDUM

HULL, District Judge.

This is an action for judicial review of a decision by the Tennessee Valley Authority [TVA] Board of Contract Appeals [Board] rendered pursuant to the Contract Disputes Act of 1978, 41 U.S.C. § 607(g) (Supp.1984). The Board held that under the Changes Clause of a requirements contract between Imperial Professional Coatings [IPC] and TVA for paint to coat concrete at proposed nuclear power plants, IPC was entitled to an equitable adjustment when TVA ceased to have requirements for the paint after it decided to cancel construction of the plants. The case is before the Court on cross-motions for summary judgment.

In this case, federal law governs the contract rights and obligations of TVA. Tennessee Valley Authority v. U.S. Carbon Products, Inc., 427 F.Supp. 474, 477 (E.D.Il.1976); Tennessee Valley Authority v. Mason Coal, Inc., 384 F.Supp. 1107, 1115 (E.D.Tenn.1974) aff'd. 513 F.2d 632 (1975). The decision of the Board is final and conclusive on questions of fact and shall not be set aside unless clearly erroneous, but is not final and conclusive on questions of law. 41 U.S.C. § 609(b).

The facts of the case are agreed on by the parties, are accurately set forth in the Board’s decision, and will be only briefly recited. In 1978, pursuant to a bid, TVA awarded to IPC a contract to supply protective coating paint for proposed nuclear reactors. The estimated amount of the contract was $2,717,426.79, as reflecting the estimated amount of materials and surfaces to receive the protective coatings at the prices specified by IPC. In early 1982 TVA deferred construction of the nuclear plants. The decision to defer construction presumably was made on the basis that anticipated growth in the demand for electric power had been overestimated. (Letter to IPC from C.H. Strickland, August 6, 1982). Prior to deferral of construction activities by TVA, TVA had ordered and IPC had shipped approximately $1,414,-000.00 worth of the paint. After TVA notified IPC that no further orders would be placed, IPC filed a claim with the TVA contracting officer. The contracting officer held that the contract was a requirements contract and that TVA had no obligation to order more than its requirements. IPC appealed the decision to the Board which held that cancellation of the plants was unforeseen by either party, that IPC did not assume the risk of cancellation, and that IPC was entitled to an equitable adjustment under the Changes Clause of the contract.

The parties do not dispute that this is a requirements contract or that TVA made a good-faith decision to cease construction of the nuclear power plants, thereby terminating its requirement for paint. The dispute centers on whether IPC is entitled to an equitable adjustment on the theory that TVA’s decision to cease construction was a change within the changes clause of the contract.

The pertinent contract provisions are set forth below:

“Quantity. This is a requirement contract for the materials which are required for painting the areas designated in the invitation to bid, Hartsville Nuclear Plants A and B, and Phipps Bend Nuclear Plant which is expected, but not guaranteed, to be completed about first quarter 1986. The area stated is TVA’s estimated area, and the quantity is the theoretical quantity for estimated areas for the term of this contract; however, TVA does not guarantee to purchase any maximum or minimum amount as TVA’s actual requirements may differ from the TVA estimate. Any quantity for which TVA has not requested delivery as of the date of completion of painting of the designated area of each plant is automatically cancelled.

“Changes. The Contracting Officer may at any time, by written order, and without notice to the sureties, make changes in the work within the general scope of the contract, including changes in the drawings and specifications. If such changes cause an increase or decrease in the amount of work under this contract or in the time necessary for its performance, an equitable adjustment will be made in the price or the time allowed for performance, or both, and the contract shall be modified in writing accordingly____

IPC’s position is that: (1) The requirements contract provides an objective measurable standard (the designated areas described and measured in the invitation to bid) for what is required, and specifically provides for equitable adjustment if that standard is changed, such as by a decision to cancel the plants.

(2) Neither party.foresaw or contemplated a cancellation of the project and the facts and circumstances surrounding the contract indicate the parties did not intend for IPC to assume the risk of cancellation.

TVA’s position is that: (1) Because this is a requirements contract it obligated itself to purchase whatever its requirements proved to be and that IPC assumed the risk of a decrease or cessation of requirements caused by TVA’s good-faith decision to cancel the plants.

(2) A decrease in requirements caused by cancellation of the plants is not a change compensable under the changes clause.

A requirements contract is “ ‘a contract in which the purchaser agrees to buy all of its needs of a specified material from a particular supplier, and the supplier agrees, in turn, to fill all of the purchaser’s needs during the period of the contract.’ ” Mason v. United States, 615 F.2d 1343, 1346, 222 Ct.Cl. 436 (1980), quoting Media Press, Inc. v. United States, 566 F.2d 1192, 215 Ct.Cl. 985 (1977). The purpose of a requirements contract is to give the buyer an assured source of supply over an extended period of time without obliging him to purchase a specified quantity, thus enabling him to meet the fluctuating needs of his business. Note, Requirements Contracts: Problems of Drafting and Construction, 78 Harv.L.Rev. 1212, 1215 (1965). In light of this purpose, courts have generally permitted a buyer to cut back or eliminate entirely his orders if there is a bona fide decrease in needs. Id.; Fort Wayne Corrugated Paper Co. v. Anchor Hocking Glass Corp., 130 F.2d 471 (3rd Cir.1942); In re United Cigar Stores, 72 F.2d 673 (2d Cir.1934), cert. den. sub nom. 293 U.S. 617, 55 S.Ct. 210, 79 L.Ed. 706 (1934).

With these general principles in mind, the Court will address IPC’s argument that although the contract at issue is a requirements contract for paint for nuclear plants and TVA’s requirement for the paint ceased with the good-faith cancellation of the plants, IPC is entitled under the contract to an equitable adjustment.

The essence of this dispute is whether IPC assumed the risk of a good-faith decision to cancel the nuclear plants or whether such a decision is a change within the meaning of the “changes” clause of the contract entitling IPC to equitable adjustment. The Court finds no merit in IPC’s contention that neither party intended that IPC assume the risk of a cancellation of the plant. The intent of the parties is to be determined from the face of the contract. Brawley v. United States, 6 Otto 168, 173, 96 U.S. 168, 173, 24 L.Ed. 622 (1877). The clear terms of the contract indicate that the risk of cancellation was on IPC. The contract clearly states that TVA does not guarantee to purchase any maximum or minimum amount. The purpose of a minimum/maximum clause is to protect the seller. Utah Intern, Inc. v. Colorado-Ute Elec. Ass’n, Inc., 425 F.Supp. 1093 (D.Colo.1976). Thus, where the contract provides for a minimum purchase, then even if the business closes down pursuant to sound business judgment the buyer must buy the minimum. Id. In the absence of a minimum quantity term, the Courts have generally permitted a buyer to decrease orders pursuant to bona fide needs of the business. Note, at 1220. Had the seller intended a contrary result he could have protected himself by providing a minimum limitation on quantity. Id. In this case, not only did IPC not require a minimum limitation, IPC specifically agreed to no limitation.

IPC appears to argue that the area designated to be painted imposes a limitation on the quantity of paint that TVA was required to order. The areas designated on the invitation to bid merely provided a standard by which TVA’s good-faith requirements could be measured. Had the contract not referred to an objective standard such as requirements or needs of the business but had left the quantity determinable at the personal whim of the contracting officer, the contract would have lacked mutuality. Note, at 1215. By specifying an objective standard, TVA did not agree to purchase a specified amount. See M. W. Kellog Co. v. Standard Steel Fabricating Co., 189 F.2d 629 (10th Cir.1951). TVA agreed to purchase only its good-faith requirements. Had TVA not cancelled the plants, TVA would have been obligated to purchase the paint needed for the completed plants. However, nothing in the contract or the law of contracts prevented TVA from making a good faith, bona fide decision to cancel the plants when it determined that the demand for electricity had been overestimated and consequently that the nuclear plants were no longer needed. When TVA cancelled the plants, its requirement for IPC’s paint ceased and the risk of a decrease or termination of requirements was on IPC. See Fort Wayne Corrugated Paper Co., supra; In re Cigar Stores, supra. IPC might have protected itself against this occurrence by requiring in the contract a termination clause which would have guaranteed it compensation should the project be terminated. See Note at 1221.

IPC argues, however, that the “changes” clause protects it against a unilateral decision by TVA to cancel the plants. The Court finds this argument to be without merit. It has been held that a change in the government’s needs or requirements is not redressable under a “changes” clause. Kleen-Rite Corporation, 81-2 B.C.A. (CCH) 1115,450 (October 24,1981). Redress under the “changes” clause “is limited to a change in the method of fulfilling the need and/or other facts extraneous to the need.” Id. (citations omitted). A decision to cancel the nuclear plants is neither a method for fulfilling the need or a factor extraneous to the need. Because the demand for electricity was overestimated, the need for nuclear plants was not as great as anticipated, thus TVA no longer had any need for the plants cancelled or for paint to coat them.

None of the cases cited by IPC supports its position. In Ted J. Grimsrud, 1962 B.C.A. (CCH) U 3562 (October 31, 1962), the Board held that the seller’s right to recover under a requirements contract for snow removal service after the base closed depended solely on the termination clause. As previously noted, the contract at issue here contains no termination clause. California Bus Lines, 76-1 B.C.A. (CCH) ¶ 11,655 (December 9, 1976), held that in a requirements contract for bus service, a route deletion caused by a matter extraneous to the need for bus service, i.e., lack of motor fuel, is not a risk to be born by the seller because the need for bus service still exists. As stated previously, the decision to cancel the plants was not a decision extraneous to the need for the plants but was a decision made because need had declined. North Chicago Disposal, 82-1 B.C.A. (CCH) II 15,488 (December 27, 1981), held that in a contract which guaranteed a fixed monthly fee for collection of garbage and in which the fee was independent of the amount of garbage collected, the government assumed the risk that sufficient garbage would require collection. North Chicago Disposal has no relevance to the case at hand. In Maya Transit Company, A, 75-2 B.C.A. (CCH) ¶ 11,552 (October 22, 1975), the Board held that in a limited form requirements contract where the government agreed to buy all its needs which it could not supply itself with existing capabilities, the government’s decision to cancel, due to budget limitations, one route and to supply that route itself amounted to the development of additional capabilities by the government and thus came under the “changes” clause. In the case sub judice, as previously noted, the need for nuclear plants decreased, thus necessitating the decision to cancel the plants. In Maya Transit Company the need still existed. Old Atlantic Services, Inc., 74-1 B.C.A. (CCH) ¶ 10,494 (February 21, 1974), held that a change in the contract performance schedule which caused an increase in the cost of performance was a change compensable under the “changes” clause. Again, Old Atlantic Services did not involve a decrease in need as does the case sub judice. In Deseo Services Contractors, 77-2 B.C.A. (CCH) ¶ 12,752 (September 2, 1977), the Board held that the changes clause was applicable when the government changed scheduled service on cars under a requirements contract to provide vehicle maintenance from 4-month to 6-month intervals. The Board specifically stated that the claim was not based on actual requirements turning out to be less than the estimate, which was a risk born by the seller.

IPC's argument that an equitable adjustment is proper by virtue of Section 2-306 of the Uniform Commercial Code is also without merit. Section 2-306(1) does not preclude good faith reductions that are highly disproportionate to normal prior requirements or stated estimates. R.A. Weaver & Assoc., Inc. v. Asphalt Constr. Inc., 587 F.2d 1315, 1322 (D.C.Cir.1978); see also Note at 1220.

In summary, the Court holds that a good-faith decision to cancel the nuclear plants for which paint was contracted is a risk assumed by the seller, IPC, and is not a change compensable under the “changes” clause. If IPC did not intend to assume the risk of cancellation, it could have protected itself by requiring in the contract a minimum clause or a termination clause. “If the contract did not express the true agreement, it was [IPC’s] folly to have signed it.” Brawley v. United States, 6 Otto 168, 173, 96 U.S. 168, 173, 24 L.Ed. 622 (1877).

For the foregoing reasons, defendant’s motion for summary judgment is denied and plaintiff’s motion for summary judgment is granted, and this case is dismissed.

Order Accordingly.

      . The amount of damages, if any, was not before the Board and is not before this Court.

      . IPC distinguishes between requirements contracts tied to a subjective standard, i.e., such as the “unbridled discretion" of the purchaser, and requirements contracts tied to an objective standard, such as the instant contract. IPC argues that the seminal case Brawley v. U.S., 6 Otto 168, 96 U.S. 168, 24 L.Ed. 622 (1877), involved a subjective standard requirements contract and therefore is inapplicable to the case sub judice. In Brawley, the contract was for 880 cords of wood, more or less, "as shall be determined to be necessary, by the post commander, for the regular supply, in accordance with army regulations, of the troops and employees of the garrison of said post, for the fiscal year beginning July 1, 1871, and ending June 30, 1872.” Id., 96 U.S. at 169. Contrary to IPC’s assertion, the contract was tied to an objective standard i.e. the wood needed in the regular supply according to army regulations for the troops in the stated time period. Id., 96 U.S. at 173. the post commander determined that only 40 cords of wood were needed. The Supreme Court held that under the terms of the contract the post commander need only purchase the good-faith requirements of the troops. Id. The needs of the troops in accordance with army regulations provided the standard by which to measure the post commander's good faith in ordering only 40 cords of wood. Id.

      . IPC argues that M. W. Kellogg Co. v. Standard Steel Fabricating Co., 189 F.2d 629 (10th Cir. 1951) supports its position that the areas designated in the bid imposed a minimum quantity limitation on TVA. In M. W. Kellogg, the company contracted to purchase steel to construct a fluid catalytic cracking unit. The purchase order contained drawings and specifications which estimated the amount of steel required to complete the unit to be 125 tons, more or less. Actual completion of the unit according to the drawings and specifications required a little more than 52 tons of steel. The question for the court was whether M.W. Kellogg agreed to purchase only the amount required for construction of the unit or the fixed quantity stated in the purchase order. The court held that the contract was a requirement contract which obligated M.W. Kellogg to purchase only the amount of steel used to complete the project as described in the drawings and specifications. Similarly, in this case, had TVA not cancelled the plants, it would have been obligated to follow the specifications in the bid and to purchase the paint needed to coat the plants as specified. By arguing that TVA is now obligated to purchase the amount of paint that would have been required to complete the project, notwithstanding that the project was in good-faith cancelled, IPC essentially takes the position that the contract was a requirement contract for a fixed quantity. This unusual argument ignores the fact that in a requirement contract for construction of a building, the buyer's requirements are determined at the time the project is completed, or in this case terminated. See M.W. Kellogg, 189 F.2d at 631-32.

      . In Fort Wayne Corrugated Paper Co. v. Anchor Hocking Glass Corporation, 130 F.2d 471 (3rd Cir.1942), Capstan Glass Co. agreed to buy not less than 90% of its needs of corrugated paper from Fort Wayne for a five year period. Capstan's needs were estimated not to exceed 500 carloads per year. In 1927 a sudden recession of business caused a sharp decrease in demand for glass containers. Anchor Hocking Glass Company purchased the assets of Capstan and operations of the Capstan plant were suspended. The Court held that because of the good faith closing of the plant, Anchor Hocking, had no requirements and therefore plaintiff had no cause of action for recovery under the contract. In In re United Cigar Stores, 72 F.2d 673 (2d Cir.1934), cert. den. sub nom. 293 U.S. 617, 55 S.Ct. 210, 79 L.Ed. 706 (1934), plaintiffs predecessor, Consolidated, contracted to sell to United all the ice cream needed for United’s stores for a ten year period. Subsequently the contract was assigned to plaintiff. Thereafter United filed a voluntary petition in bankruptcy. The court held that no breach of the contract had occurred because buyer in good-faith ceased to have requirements when it became bankrupt.


author: JULIAN ABELE COOK, Jr., District Judge.

text:
    UNITED STATES of America, Plaintiff, v. STATE FARM INSURANCE COMPANY, Defendant.
    Civ. A. No. 83-4788.
    United States District Court, E.D. Michigan, S.D.
    Sept. 12, 1984.

      Carolyn Bell Harbin, Asst. U.S. Atty., Detroit, Mich., for plaintiff.
    William D. Eggenberger, and Paul D. Hofmeister, Detroit, Mich., for defendant.
   ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

JULIAN ABELE COOK, Jr., District Judge.

On November 2, 1983, the United States of America commenced this action on behalf of the Veterans Administration [VA] to recover the cost of medical treatment, which had been rendered to Ronald Mytty [Mytty], a veteran of the United States Armed Forces, under 38 U.S.C. § 610(a)(1)(B) and 38 U.S.C. § 612(f)(1). Defendant, State Farm Insurance Company [State Farm], filed an answer to the Complaint, asserting that (1) it was not liable for the cost of the services which had been rendered to Mytty and (2) the action was barred, in whole or in part, by M.C.L.A. § 500.3145. The parties have filed Cross Motions for Summary Judgment which are now before this Court for resolution.

On October 9, 1981, Mytty was seriously injured as the result of a hit and run automobile accident which occurred in South-field, Michigan. He was hospitalized at the YA Medical Center from October 28, 1981 to January 30, 1982 where he underwent a partial amputation of his right leg. ' Subsequently, he received out-patient care in March and April of that year.

It is undisputed that Mytty was insured under a no-fault policy, which had been issued by State Farm to Enio Mytty.

In a letter, dated April 6, 1982, the VA notified State Farm of its claim for the reasonable value of the services rendered to Mytty in connection with the accident. The VA subsequently provided documentation of the services rendered. In a letter, dated August 2, 1983, State Farm formally notified the VA that it would not honor the claim.

The Government seeks reimbursement for the services which had been rendered to Mytty, pursuant to 38 U.S.C. § 629 which provides in part:

(a) In any case in which a veteran is furnished care and services under this chapter for a non-service-connected disability that was incurred—
(2) as the result of a motor vehicle accident to which applies a State law that requires the owners or operators of motor vehicles registered in that State to have in force automobile accident reparations insurance, or
the United States has the right to recover the reasonable costs of such care and services from the State, or political subdivision of a State, employer, employer’s insurance carrier, or automobile accident reparations insurance carrier, as appropriate, to the extent that the veteran, or the provider of care and services to the veteran, would be eligible to receive reimbursement or indemnification for such care and services if the care and services had not been furnished by a department or agency of the United States.

State Farm contends that the statute does not apply to this case because the accident, which gave rise to Mytty’s medical care by the VA, occurred on October 9, 1981 and prior to November 3, 1981, the effective date of the statute. Thus, State Farm concludes that M.C.L.A. § 500.3109 operates to bar any reimbursement to the Government.

In addition, State Farm argues that even if the Court should find that 38 U.S.C. § 629 applies to this case, the action is barred by the one year statute of limitations prescribed in M.C.L.A. § 500.3145.

The Government contends that 38 U.S.C. § 629 applies to all services which were rendered after November 3, 1981, regardless of the date of the accident. It argues that the statute is triggered when the VA provides care and treatment to an eligible veteran as a result of an automobile accident, and not by an occurrence of that accident.

The Government goes on to argue that M.C.L.A. § 500.3109 is not an absolute bar to reimbursement. It points to Michigan case law which does not permit an insurance carrier to set off benefits, which had been received by an insured under Medicare or for Social Security retirement benefits, see LeBlanc v. State Farm Insurance Co., 410 Mich. 173, 301 N.W.2d 775 (1981) and Jarosz v. Detroit Automobile Inter-Insurance Exchange, 418 Mich. 565, 345 N.W.2d 563 (1984).

Moreover, it argues that M.C.L.A. § 500.-3109 is not a bar to reimbursement because subsection (e) of § 629 explicitly provides that “no law of any State or of any political subdivision of a State and no provision of any contract or agreement entered into, renewed or modified under any State law, shall operate to prevent recovery by the United States” of costs of care and services rendered under the subsection (a). In the Government’s view, this language clearly indicates Congress’ intent to preempt legislation such as M.C.L.A. § 500.3109.

Next, the Government argues that the statute of limitations set forth in M.C.L.A. § 500.3145 does not bar recovery because the United States is not bound by the statute of limitations of a state or subject to defenses of laches in enforcing its rights. It contends that the applicable statute of limitations is 28 U.S.C. § 2415(a) which sets forth a six year limitation on actions by the Government to recover damages that are founded upon an express or implied contract.

Alternatively, the Government argues (1) that it can pursue this cause of action without limitation, and (2) even if M.C.L.A. § 500.3145 applies, it was tolled until State Farm gave formal notice of the denial of the Government’s claim.

At the outset, this Court must determine whether 38 U.S.C. § 629 applies to this action. Upon adoption of this statute, Congress unequivocably stated that subsection 629(a) “shall apply with respect to care and services furnished [to eligible veterans] on or after the date of the enactment of this Act [November 3, 1981]” (emphasis added). Act, Nov. 3,1981, P.L. 97-72, Title 1, Section 106(b), 95 Stat. 1051, 38 U.S.C. § 629 note (West Supp.1983). This Court has not found any case which interprets the effect of this language. Moreover, the parties have not directed this Court to any such case law. Therefore, the Court must look to the plain meaning of the statute to discern the Congressional intent.

Although subsection (a)(2) refers to “care and services” which have been rendered as a result of a motor vehicle accident, it does not follow that an accident giving rise to those services must occur on or after November 3, 1981. It is a well established maxim that courts should apply the least restrictive interpretation to a Congressional enactment. If the Court accepts State Farm’s interpretation, it would deprive the Government’s recovery of a substantial revenue for services which have been rendered for non-service connected injuries. Moreover, the language of the statute emphasizes that it is effective for “care and services” rendered on or after November 1, 1983. It makes no reference to the events in subsection (a) which might give rise to the need for such services. Thus, this Court must conclude that the triggering event is not the accident but the care and services rendered by the YA. Thus, any costs, which were incurred for care and services rendered on or after November 3, 1981, are subject to 38 U.S.C. § 629. It is immaterial that the accident occurred prior to that date or that the service might have commenced prior to the effective date.

State Farm also argues that M.C. L.A. § 500.3109 would, nonetheless, bar the Government’s recovery. This argument is without merit. The legislative history of 38 U.S.C. § 629 and the plain language of subsection (e) of § 629 defy such an interpretation. Subsection (e) states emphatically that “no law of any State ... shall prevent recovery” under the statute. The legislative history indicates that subsection (e) was enacted in direct response to such statutes as M.GL.A. § 500.3109.

There can be no doubt that 38 U.S.C. § 629 preempts the Michigan statute which grants a set-off to insurance carriers and, thereby, operates as a bar to the Government’s attempts to obtain reimbursement.

Next, State Farm contends that even if 38 U.S.C. § 629 applies, this present action is barred by the one year statute of limitations on no-fault claims found in M.C. L.A. § 500.3145. This position overlooks the exemptions of the United States from the operation of statutes of limitations except in those instances where it expressly imposes a limitation upon itself. United States v. Thompson, 98 U.S. 486, 25 L.Ed. 194 (1887); United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940); United States v. Weintraub, 613 F.2d 612 (6th Cir.1979). Thus, Michigan’s one year statute of limitations is no defense to the Government’s instant claim.

Congress, however, has imposed a general statute of limitations upon the Government for actions sounding in tort or contract. 28 U.S.C. § 2415(a) imposes a six year statute of limitations on actions “founded upon any contract express or implied in law or in fact.” 28 U.S.C. § 2415(b) imposes a three year statute of limitations on actions “founded upon a tort.”

The question presented here is whether this present action falls within the ambit of § 2415 and, if so, whether it sounds in tort or contract. The Government argues that this action is one of quasi contract or implied contract. It contends that this action for reimbursement is grounded on the principle of unjust enrichment and, therefore, sounds in contract. State Farm contends that this action is governed by an express contract between it and the primary insured, Enio Mytty, which limits recovery to one year following the date of the accident.

The provision contract of insurance does nothing more than reiterate the statutory language of M.C.L.A. § 500.3145 and operates to place the insured on notice of the statutory limitation. Thus, the true limitation is imposed by statute, and not by the terms of the contract.

In United States v. Limbs, 524 F.2d 799 (9th Cir.1975), the Court stated:

The fact that the government’s right to reimbursement derives from statute rather than common law does not affect characterization of the claim as quasi-contractual. A statutory right of recovery may be deemed quasi-contractual if it “is a legal obligation, not based upon agreement, [and] enforced ... by compelling the obligor to restore the value of that by which he was unjustly enriched.” Corbin, Quasi-Contractual Obligations, 21 Yale L.J. 533, 550 (1912) (emphasis deleted). Thus in Steamship Co. v. Joliffe, 69 U.S. (2 Wall.) 450, 456-457, 17 L.Ed. 805 (1864), a right of action by a harbor pilot for half-pilotage fees, although given by statute, was quasi-contractual. In Whitman v. Oxford National Bank, 176 U.S. 559, 567, 20 S.Ct. 477 [480], 44 L.Ed. 587 (1900), a creditor’s suit against a stockholder of an insolvent corporation, although predicated upon a statutory right, was quasi-contractual in nature. See also, e.g., Nathanson v. NLRB, 344 U.S. 25, 27, 73 S.Ct. 80 [82], 97 L.Ed. 23 (1952); Brown v. O’Keefe, 300 U.S. 598, 606, 57 S.Ct. 543 [548], 81 L.Ed. 827 (1937). Indeed, it has been said that “[a] statutory obligation which does not rest upon the consent of the parties, is clearly quasi-contractual in its nature.” W. Keener, Quasi-Contracts 16 (1893). See also Corbin, Quasi-contractual Obligations, 21 Yale L.J. 533, 537 (1912).
At 801.

In this action, Mytty’s injuries arose out of tortious conduct of a hit and run. His right of recovery from State Farm is not based on negligence of the insured or that of the unidentified hit and run driver but upon M.C.L.A. § 500.3114 which prescribes those individuals who are entitled to no fault protection, and upon which Mytty’s claim against State Farm was based. Moreover, the Government’s action is fashioned to prevent the insurance carrier from unjustly benefiting from the fortuitous circumstance of Mytty’s veteran status. The Government has provided medical care and services to Mytty at a significant cost to the taxpayers. But for Mytty’s status, State Farm would have been bound to pay for that care from the outset. The insurance premiums paid by Enio Mytty were assessed with a view toward the risk of an accident such as the one presented here. State Farm’s failure to pay for the reasonable value of the services rendered by the YA has unjustly enriched the insurance carrier and significantly burdened the taxpayers. This is a classic case of unjust enrichment and, as the Court stated in Limbs, supra, at 801:

The government’s claim, however, is founded not upon tort but upon quasi-contract. The right to recover the benefit payments does not have its genesis in the automobile accident; it is triggered by the recovery from the third party. This claim is not for damages suffered as a result of an injury to the government caused by the Limbses; it is for restitution of payments in order to avoid a double recovery. The principle is not to vindicate impairment of a right; it is to prevent unjust enrichment. See generally, W. Keener, Quasi-Contracts 5-25 (1893).

This Court concludes that this action is grounded on a quasi-contract and subject to the six year statute of limitations in 28 U.S.C. § 2415(a). Thus, the Court hereby finds that (1) 38 U.S.C. § 629(a) is applicable to this action, (2) 38 U.S.C. § 629(e) preempts M.C.L.A. § 500.3145, and (3) 28 U.S.C. § 2415(a) is the applicable statute of limitations. In view of this, the Court need not address the issues of state law which have been raised by the parties.

Therefore, the Court grants summary judgment to Plaintiff, and denies Defendant’s Motion for Summary Judgment. State Farm is hereby deemed to be liable for all medical care and services which were rendered to Mytty by the Government in connection with the automobile accident of October 9, 1981.

SO ORDERED.

      . Section 500.3109(1) provides: Benefits provided or required to be provided under the laws of any state or the federal government shall be subtracted from the personal protection insurance benefits.

      . Section 500.3145(1) states: An action for recovery of personal protection insurance benefits payable under this chapter for accidental bodily injury may not be commenced later than 1 year after the date of the accident causing the injury unless written notice of injury as provided herein has been given to the insurer within 1 year ' after the accident or unless the insurer has previously made a payment of personal protection insurance benefits for the injury. If the notice has been given or a payment has been made, the action may be commenced at any time within 1 year after the most recent allowable expense, work loss or survivor’s loss has been incurred. However, the claimant may not recover benefits for any portion of the loss incurred more than 1 year before the date on which the action was commenced. The notice of injury required by this subsection may be given to the insurer or any of its authorized agents by a person claiming to be entitled to benefits therefor, or by someone in his behalf. The notice shall give the name and address of the claimant and indicate in ordinary language the name of the person inured and the time, place and nature of his injury.

      . Subsection (a) also includes injuries incident to employment, workers compensation, and crimes of personal violence.

      . All States have workers' compensation programs; however, six States pose collection problems largely because of exclusionary clauses, or State statutes which do not recognize veterans’ assignment to the Veterans’ Administration, or because the States do not recognize the Veterans’ Administration’s right to recover in litigation cases. Seventeen States have no-fault automobile insurance statutes and two States have no-fault automobile insurance statutes and two States offer statutory and case law problems in recovery actions. Twenty-six States have statutes on compensating victims of crimes of personal violence; however, the Veterans’ Administration has difficulty in collecting in nine States because (1) Federal hospitals are excluded as "other source of recovery,” (2) claims go directly to the victims and claims are not assignable, or (3) veterans are not required to pay for medical care received.
      The reported bill would strengthen and clarify the Veterans’ Administration’s authority to recover the costs of veterans’ nonservice-connected care from State workers’ compensation, “no-fault” auto insurance and crimes of personal violations where a veteran would have entitlement to payment or reimbursement by a third party for appropriate medical care furnished in a non-Federal hospital. 1981 U.S.Code Cong. and Adm.News, pp. 1685, 1693.
      VA has had for many years an active program in most States for recovering health-care costs for disabilities covered by workers’ compensation, automobile no-fault accident insurance, or a State’s crime-victims compensation program. Under the authority granted to the Veterans’ Administration pursuant to the provisions of the Federal Medical Care Recovery Act (FMCRA), which enables us to recover hospital costs from tortiously liable third parties, the VA, in fiscal year 1980, collected $9,081,479. Of that total, approximately one-half was collected under the FMCRA. However, the VA does not have currently a specific statutory basis to pursue collections for injuries when no tort liability need be shown, such as, under workers’ compensation, automobile no-fault accident insurance, or a State’s crime-victims’ compensation program. Rather, such collection efforts are pursued under various State laws. Regrettably, as a result of adverse court decisions and State statutes that are worded in such a fashion as to provide payment to private health care providers, but exclude payment to federal health care providers, we are experiencing difficulties in collecting in a few States. By taking precedence over State laws and State court rulings precluding such recoveries, the proposed bill would forestall future litigation and provide for uniformity of recovery procedures in all States. 1981 U.S.Code Cong, and Admin.News, p. 1713, emphasis added.

      . The language set forth in State Farm’s brief states as follows:
      Action against company. No action shall lie against the company unless, as a condition precedent thereto, there shall have been full compliance with all the terms of this endorsement, provided further than an action for recovery of Personal Protection Insurance Benefits payable under this insurance may not be commenced later than one year after the date of accident causing the injury unless written notice of injury as provided herein has been given to the company within one year after the accident or unless the company has previously made a payment of Personal Protection Insurance Benefits for the bodily injury. If the notice has been given or a payment has been made, the action may be commenced at any time within one year after the most recent allowable expense, work loss or survivors loss has been incurred. However, the claimant may not recover benefits for any portion of the loss incurred more than one year before the date on which the action was commenced.