facts which would warrant singling out these claimants for preferential treatment and, therefore, recommends that this bill be not favorably considered.

The Bureau of the Budget advises that there is no objection to the submission of this report since the enactment of this bill would not be in accord with the program of the President.

Sincerely yours,

KENNETH C. ROYALL, Secretary of the Army.

[Extract from hearing]

Mr. DENTON. We will hear from our colleague Mr. Elston.

STATEMENT OF HON. CHARLES H. ELSTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO

Mr. ELSTON. My name is Charles H. Elston. I have no statement of my own to make with respect to this bill.

Paul W. Steer, of the firm of Steer, Strauss & Adair, of Cincinnati, Ohio, is here representing the claimant, and is prepared to make a statement; and I am glad to present Mr. Steer to your committee at this time and he will proceed to make whatever statement is necessary; and also Mr. Jacob Lichter of the claimant company is here, and it may be that he himself may want to make some statement or at least help in the presentation of the case, and he will be prepared to answer any questions any members of the committee may wish to ask him. I have a post exchange meeting so if you will excuse me I will go on to that meeting.

Mr. DENTON. We are glad to hear you, Mr. Steer.

Mr. STEER. Mr. Denton, I feel that it is better that Mr. Lichter make a statement, and then I should like to supplement his statement.

Mr. DENTON. All right.

Mr. STEER. So I would like Mr. Lichter to proceed.

STATEMENT OF JACOB LICHTER, OF THE SOUTHERN FIREPROOFING CO.,

CINCINNATI, OHIO

Mr. LICHTER. My name is Jacob Lichter. I am a partner in the partnership known as the Southern Fireproofing Co., of Cincinnati, Ohio. The partnership is composed of my wife, Jennie L. Lichter, and myself.

We have been in business since January 1, 1927, and our business consists in contracting for the construction of brick masonry in major buildings throughout the country. We have executed contracts of that nature since 1927 in some 35 States of the Union. A great proportion of the building has been in connection with Government work. We have done a lot of Government work.

The first job we did for the Government was at Randolph Field, Tex., in 1928, where we did the first group of buildings that were constructed in that field. Since that time we have done additional work for the War Department, the Navy Department, the Treasury Department, the Department of Justice, civilian administration, Federal Public Housing Authority, Department of the Interior, Tennessee Valley Authority, and probably some others that I don't recall right at the moment.

The business in which this claim arises is that in 1942. In that year practically all of our business was Government work, and a great part of it was Army work relating to war construction. It was the work of brick masonry in connection with these war projects and it was essentially the same type of brick masonry that we have been doing since the inception of our business.

Each contract was obtained by competition with other people in the same line of business, and each contract was a subcontract under a contract, the prime contract having been obtained by competition of the prime contractor with other prime contractors.

Mr. DENTON. Do I understand you were a subcontractor?

Mr. LICHTER. We were subcontractors; yes, sir. In other words our business is obtained in the same manner and all our business in prior years has been obtained in the same manner, and our business is in the same nature as our business in prior years has been. The costs or the basis on which we figured our bases was determined in this 1 year just as it was in prior years.

On April 28, 1942, Congress passed the bill known as the Renegotiation Act. Mr. STEER. Could I interrupt a moment, Mr. Lichter.

You mentioned your cost and said it was for the same type of work you had customarily done throughout these years. I am not sure Mr. Denton and Mr. Lee would understand why that is important in your statement.

Mr. LICHTER. What I mean to point out: It was not new material or a new machine or a new gun, or something upon which costs were not known prior to the passage of the law.

Mr. STEER. Were you here in 1942, Mr. Denton?

Mr. DENTON. No, sir.

Mr. LICHTER. The reason for the passage of the law was argued in council, and the reasons set out essentially were that the armed forces and the various departments of the Government were about to purchase and obtain at the earliest possible moment aircraft, munitions, guns, and other matériel on which there was no experience as to cost. There was no machinery set up to make exactly those things, and no basis on which to award a contract at a reasonable price. Nevertheless, the services found it necessary to have these machines made and to interest manufacturers in making them. In order to do that they had to agree on prices that would assure these manufacturers making the materials and equipment certainly no loss and probably some profit. Hence they had to lean on the side of safety for these manufacturers. In doing so they thought that there would be a chance for these manufacturers to make excessive profits and the law was for the purpose of obtaining a refund to the Government of the excessive profits obtained in that way.

(Mr. Keating arrived.)

Mr. STEER. Mr. Elkins was here and introduced us and Mr. Lichter has started on his statement.

Mr. KEATING. You are attorney, Mr. Steer?

Mr. STEER. Yes; and Mr. Lichter is one of the parties in the claim.

Mr. KEATING. Well I am especially interested, not in hearing the merits, which I must say have a good deal of interest to me, but the legal proposition. This has been a case which has been to the Supreme Court of the United States? Mr. STEER. Yes.

Mr. KEATING. How, as a legal matter, do you anticipate we can take action after the Supreme Court has held that you do not have a cause of action? That is the particular thing that I would appreciate if you would discuss.

Mr. STEER. I intended to do that. Mr. Lichter was giving the background. Mr. KEATING. I do not want to interrupt. You may remember this was a case tried in the district court.

Mr. STEER. We lost all the way through.

Mr. KEATING. It went to the circuit court and was affirmed. It went to the Supreme Court and was argued and affirmed, and it was argued they do not have a cause of action. Wouldn't you be interested first in hearing that side of it? Mr. DENTON. Yes.

Mr. STEER. In fact, Mr. Lichter was about to get into that. explain the legal aspects a little better.

STATEMENT OF PAUL W. STEER, ESQ.

Perhaps I can

Mr. STEER. During 1943 Mr. Lichter was in touch, and I was in touch with him. I was aware of the matter. I am retained counsel of the company. We were in touch with the Price Adjustment Board and their arguments in regard to renegotiation of contracts, as to profits on the job.

Now all the contracts this firm had were obtained on competitive bids, and Mr. Lichter's jobs were gotten through competition with other subcontractors. Mr. LICHTER. We are subcontractors under the general prime contractor. Mr. DENTON. You are subcontractors?

Mr. LICHTER. Yes.

Mr. STEER. The report of the Department of the Army bureau, they were talking about renegotiation and Mr. Lichter originally-I don't know whether he has shown in that statement-he was interested in whether the Renegotiation Act was constitutional. as a great number of other people were, and the constitutionality of which was decided in this Lichter case in the Supreme Court.

The original Renegotiation Act was passed April 22, 1942-and this is 1942 business. Another thing Mr. Lichter was talking to them about at that time was, several of these contracts had been taken and were virtually completed before the passage of the law. I mean, that was the basis of the discussion and the reason for the discussion. However, that is all water over the dam now, but in 1944-in February-the last amendment to the Renogotiation Act was made and it was in the midst of discussions about how much, if anything, was owed by the

Southern Fireproofing Co. of Cincinnati on renegotiations, and the amendment provided subcontracts under prime contracts with a department of the Government for a building or facility were exempt. And at that stage, Mr. Lichter pointed out, well, despite all of our other discussions, here we have an exemption and we are through.

It has always been hard for us to understand why that was not apparent to the Army.

Mr. DENTON. Was that question raised in this one case?

Mr. STEER. Yes, I will get to that in a very short time; but, nevertheless, they say: "No, you are not exempt. We are going to go ahead and renegotiate." Well, they followed a unilateral order issued, ordering a refund of $27,000, claiming the firm had realized excessive profits of $70,000 during the calendar year 1942, less a tax credit of $42,980.61, or the sun of $27,019.39.

Mr. DENTON. Can you tell me what percentage of profit was allowed you by the Government?

Mr. STEER. Wo do not know how the order was arrived at. It was never disclosed.

Mr. DENTON. This was discussed at Cincinnati?

Mr. STEER. Columbus. Cincinnati, and Washington.

Mr. DENTON. When they called you in on the conference, didn't they tell you what profits they put it on, what percentage?

Mr. STEER. Mr. Lichter was there and he will affirm my statement, and I will say it was never at any time stated what percentage they were allowing us.

Mr. DENTON. I sat on a board of officers in Cincinnati, and know how they handled it.

Mr. LICHTER. Gentlemen, I will say this, that I requested information as to how they arrived at their cost, in an attempt to find out how they arrived at a determination in renegotiating, but I never could get any information at all from them. I requested it of the Price Adjustment Section in various interviews. Mr. DENTON. Who did you deal with?

Mr. LICHTER. Colonel Van Der Wert, Chairman of the Price Adjustment Section in the Office of the District Division, Legislative Division, Columbus. Mr. DENTON. Didn't they tell you what percentage of profit you were entitled to on a certain production, according to your productive capacity?

Mr. LICHTER. No, sir; they asked me to give them a statement of our business, broken down in a manner such as in accordance with an outline which they gave me. They also asked for a similar break-down for the preceding 6 years. gave them that.

Then they came in with an arbitrary determination.

We

Mr. DENTON. Did they carry on any negotiations with you and want to settle at a certain figure?

"

Mr. LICHTER. No, sir. They said, "Here it is.' I said, "How do you arrive at that?" I said, "How do you arrive at such an outrageous figure, in the light of our experience and what we have done here, and in the light of what we have done in previous years?" All I would get was a glassy stare. They said, "We cannot disclose how we arrive at that." The same thing occurred in Washington, to which the matter was referred by Colonel Van Der Wert, the Price Adjustment Section in Washington.

Mr. KEATING. With whom were you in contact?

Mr. LICHTER. Colonel Van Der Wert.

Mr. KEATING. Of the Air Force?

Mr. LICHTER. No, sir; he was an engineer in the office of the district engineer. Mr. KEATING. And with whom was your contract here in Washington?

Mr. LICHTER. I would have to look up the record. I don't remember the names. I have the names somewhere. After passage of the law I became very little interested in any of them.

Mr. KEATING. But you say they never explained in any way how they arrived at their figures?

Mr. LICHTER. No, sir; it was an arbitrary amount.

Mr. KEATING. And they refused to answer your question as to how they arrived at their figures?

Mr. LICHTER. Yes, sir.

Mr. STEER. With reference to Mr. Denton's question, I believe the question of the amount is not relevant because of the way things developed, in that in October the unilateral order was issued. We had made our preliminary investtigations of the act, of course, and had reached the conclusion that we were exempt; but then, with the unilateral order being issued, we had to re-roll up our sleeves. I take full credit, or discredit, for the decisions that were made

then, although they were made jointly by Mr. Lichter and me. I am in contact with Mr. Lichter every day personally as well as being his business associate. I concluded as before these contracts were exempt and that the renegotiation law permitted those defenses to be raised in the district court as well as in the Tax Court for 1942 business by specific reservation in the act itself.

So on that basis, on the theory that we were exempt, and because we would be in a better position defensively if it were in the district court, we let the 90 days go by in which we could have filed a petition with the Tax Court. Subsequently, I think in December 1944, or thereabout, the Government filed its action against Mr. Lichter and the Southern Fireproofing Co. doing business in the district, and then we raised the question of this exemption.

Mr. KEATING. Did they sue for the full $70,000?

Mr. STEER. That is right, but they allowed the tax credit. The eventual sum as stated in the petition that they were entitled to recover would be the $27,000. Mr. KEATING. Did they set out in the action $27,000 or $70,000? In other

words, did they give credit for the tax?

Mr. STEER. Yes; the principal of the judgment.was $27,000.

Mr. DENTON. Was the unilateral settlement for $27,000? Was there any credit for it in the order?

Mr. STEER. There was never any question but what they thought-that is, the War Department thought they were only entitled to $27,000.

So the case came on in the district court and if you wish to read it in some detail, it is in the memorandum brief which we filed.

The findings of fact and conclusions of law raised were to the effect that these contracts were, in the language of the act, "subcontracts" under a contract with the Department, awarded as a result of competitive bidding for the construction of building structure, improvement, or facility for the Government, but the court said the act does not permit us to raise those defenses there; that the Tax Court had been given exclusive jurisdiction.

Mr. KEATING. Did the act itself say that these defenses were only available in the Tax Court, or was that a judicial interpretation that the court put on it? Mr. STEER. I think it says it. Historically I want to get to the point that I still think I am right in, not just two or three matters. We went up to the Circuit Court of Appeals and we raised those two questions again—that we were exempt and that we had the right to present that in the district court, and the district court had a right to decide that and the Tax Court did not have exclusive jurisdiction. The Circuit Court of Appeals affirmed it and then we went to the Supreme Court of the United States.

Mr. KEATING. Did the circuit court write an opinion?

Mr. STEER. Yes.

Mr. KEATING. And they passed on that point expressly, saying the only place you could raise that question was in the Tax Court?

Mr. STEER. In the Tax Court. Then it went up to the Supreme Court and all along we were saying that the contracts were exempt, but we could not say that here. They said that the Tax Court was the only one who could decide so and that we had let our rights go by when we passed up the Tax Court

When the Supreme Court opinion came down there were three cases heard at the same time. The constitutionality was affirmed and there were two dissents, by Jackson and Douglas. Jackson dissented generally in the Lichter case and Douglas wrote an opinion.

Mr. KEATING. Jackson did not dissent expressly on the ground this defense could have been raised in any court?

Mr. STEER. No, we do not know why he dissented. The only real question raised was the question whether or not we could do it, and the court decided otherwise and he dissented, so we assume it was on the point because there were three cases and he dissented in our case.

Mr. KEATING. Only?

Mr. STEER. Only-I do not know whether in one other; he did not do it in all. So it must have been he exempted on the constitutionality but dissented for some reason peculiar to our case, which as far as we could see was as to whether we had a right to go to the Tax Court or the district court. Justice Douglas wrote the dissenting opinion and he said it was clear we did have the option either or trying our matters in the district court or in the Tax Court because it was 1942 business; that for business after 1943 the act is very clear. Our contention was that it was 1942 business and that just maintained the status quo and saved the rights that we already had.

Mr. DENTON. To put it in the district court?

Mr. STEER. Yes.

Mr. DENTON. Who wrote the prevailing opinion?

Mr. STEER. Justice Burton.

Mr. KEATING. And he held, in effect, and without going into detail, that the wording of the act was sufficiently broad; that it required you to go into the Tax Court to raise this question as to any position of any kind?

Mr. STEER. That is right, and that was counter to our feeling and counter to what I think was clear thinking. Justice Douglas said you made the right decision and the Supreme Court said that you made the wrong decision procedurally. Mr. KEATING. Did they all concede throughout that if you had been in the right court you would have had an express exemption under the law?

Mr. STEER. All the way through.

Mr. KEATING. Justice Burton said that in the Supreme Court, in effect; did he? Mr. STEER. That is right.

Mr. DENTON. Why was it you did not go in the Tax Court?

Mr. STEER. There were two reasons: First, with the act being as clear as we thought it was, we did not realize that the Government would persist in enforcing the order; and, secondly, it was in home ground where we could try the matter in the district court and get the thing tried instead of the unknown procedures of the Tax Court at that time; and, thirdly, we thought we would be in a better position defensively. It is easier to defend a matter than it is to file a petition in the Tax Court and pay it and then try to get it back.

Mr. DENTON. You don't pay it in the Tax Court.

Mr. LICHTER. You don't have to pay it in the Tax Court.

Mr. STEER. Well, now, we thought we would be in a better position. That is our reasoning.

Mr. KEATING. That is the basis upon which you feel you are entitled to equitable relief by Congress, even though the courts have decided against you? Mr. STEER. Yes, sir.

Mr. KEATING. In other words, your position is on broad grounds that the court has decided the matter on technical grounds, that you are in the wrong tribunal, and in the face of the fact that if you had been in the right tribunal you would have had no doubt about your recovery, according to the finding of the district court affirmed all the way up. Is that your statement?

Mr. STEER. Yes.

Mr. DENTON. Your mistake was in taking the wrong tribunal?

Mr. STEER. That is right. I am responsible for it and it seems to me that is why I can make that plea to you with conviction and sincerity. I think it is unfortunate that my decision as counsel on a procedural matter should affect a citizen adversely.

Mr. DENTON. Let me ask you a couple of other questions. In what period of time was this construction work done?

Mr. STEER. All before July 1, 1943.

Mr. DENTON. And over how long a period of time?

Mr. STEER. It was considered '42 business.

Mr. DENTON. Then the work was done in 1942?

Mr. STEER. Yes.

Mr. DENTON. All done in 1942?

Mr. LICHTER. Yes, sir.

Mr. KEATING. Before January 1, 1943?

Mr. LICHTER. Yes, as far as the law is concerned; it must be before July 1, 1943, because that is the date before which the business was exempt.

Mr. DENTON. This was construction work in 1942? Mr. STEER. Yes; as it exempted it retroactively. Lichter was at when Mr. Keating came in.

That was the point Mr.

You see, when the original Renegotiations Act was passed, as you all remember, it was blunderbussing every contract with the Government which was renegotiated, whether costs were known or unknown. Now with the construction business the Government is just as smart as anybody else. They give out the work by competitive contracts so there really could not be any excess profits. Now that is not true of antiaircraft guns when they have to tool up.

Mr. DENTON. Of course, you did have an element of uncertainty in regard to labor: that is, labor on construction work.

Mr. STEER. That is true; but the Government in all these things fixed the wages, too. Remember, they were never reduced but they were always higher.