United States v. Mississippi Valley Generating Co., 364 U.S. 520 (1960)

United States v. Mississippi Valley Generating Co.

No. 26

Argued October 19, 1960
Decided January 9, 1961
364 U.S. 520

CERTIORARI TO THE COURT OF CLAIMS

Syllabus

Respondent sued the United States in the Court of Claims to recover costs and damages incurred under a government-terminated contract to construct and operate a power plant to provide electric power for the Atomic Energy Commission. The Government contended that the contract was unenforceable because it grew out of a proposal resulting from negotiations in which the Government had been represented by an unpaid part-time consultant to the Budget Bureau, who was at the same time an active officer of an investment banking company which was expected to profit from the transaction by becoming financial agent for the project. It was shown that, while acting for the Government, he had also acted for the sponsors of the project by obtaining from his own company estimates of the cost of the financing, and that he had stopped acting for the Government (without resigning) shortly before his company was retained by the sponsors as financial agent.

Held: the consultant violated 18 U.S.C. § 434, and public policy forbids enforcement of the contract. Pp. 523-566.

1. By acting for the Government in a business transaction from which he and his company could be expected eventually to derive a profit, the consultant violated 18 U.S.C. § 434. Pp. 548-562.

(a) The obvious purpose of § 434 is to insure honesty in the Government’s business dealings by preventing federal agents who have interests adverse to those of the Government from advancing their own interests at the expense of the public welfare. P. 548.

(b) It is not limited in its application to those in the highest echelons of government service, to those government agents who have only a direct financial interest in the business entities with which they negotiate on behalf of the Government, or to a narrow class of business transactions. P. 549.

(c) It establishes an objective standard of conduct, and whenever a government agent fails to act in accordance with that standard, he is guilty of violating the statute, regardless of whether there is actual corruption or any actual loss suffered by the Government. P. 549.

(d) It attempts to prevent honest government agents from succumbing to temptation by making it illegal for them to enter into relationships which are fraught with temptation. Pp. 549-550.

(e) In view of the statute’s evident purpose and its comprehensive language, it is clear that Congress intended to establish a rigid rule of conduct to which there are no exceptions. Pp. 549-551.

(f) Since the consultant acted as the Government’s key representative in the crucial preliminary negotiations which eventually resulted in this contract, it would be unrealistic to say that he was not the type of "agent" of the United States to whom § 434 was intended to apply. Pp. 551-552.

(g) A different conclusion is not required by the facts that he took no oath of office, had no tenure, served without salary, performed duties which were merely consultative and were not prescribed by statute, and was knowingly permitted to continue in his position and to draw his salary as vice president of his company. Pp. 552-553.

(h) On the record, it cannot be said that his activities did not constitute "the transaction of business" for the Government within the meaning of § 434. Pp. 553-555.

(i) Since there was a reasonable expectation that the consultant’s company would be selected as financial agent for the project, he was "indirectly interested in the pecuniary profits or contracts" of the sponsors, within the meaning of § 434. Pp. 555-557.

(j) The statute lays down an absolute standard of conduct which the consultant violated by entering into a relationship which made it difficult for him to represent the Government with the singleness of purpose required by the statute. Pp. 557-559.

(k) The consultant’s expectation while acting for the Government that he and his company would benefit from profits to be realized from financing the transaction infected the transaction, and the taint was not removed by the subsequent decision of his company to forego its usual fee. P. 559, n. 17.

(l) Since the consultant had reason to believe that his company would be selected as financial agent if the negotiations resulted in a contract, the absence of a formal agreement to that effect did not prevent his activities from violating § 434. P. 560.

(m) He was not exempted from the coverage of the statute by the fact that his goal of advancing the cause of private power coincided with the Administration’s general objective. P. 560.

(n) Even if the consultant did not think that his activities involved any conflict of interest, that is irrelevant. Pp. 560-561.

(o) The knowledge of his superiors in the Budget Bureau and their approval of his activities did not exempt him from the coverage of § 434. P. 561.

(p) The statute is directed at an evil which endangers the very fabric of democratic society, and it is neither unjust nor inequitable to apply it to one who acted as the consultant did in this case. Pp. 561-562.

2. Nonenforcement of this contract is required in order to extend to the public the full protection which Congress decreed by enacting § 434. Pp. 563-566.

(a) The purpose of the statute to protect the public can be fully achieved only if contracts which are tainted by a conflict of interest on the part of a government agent may be disaffirmed by the Government. P. 563.

(b) Nonenforcement of contracts made in violation of §434 and its predecessor statutes is not a novel remedy, but one which has been recognized by the Court of Claims on at least two occasions. P. 564.

(c) The inherent difficulty in detecting corruption lying beneath the surface of a contract conceived in a tainted transaction requires that contracts made in violation of § 434 be held unenforceable, even when the party seeking enforcement may appear to be entirely innocent. Pp. 564-565.

(d) That the conflict of interest here involved was directly caused by high officials of the Budget Bureau does not require enforcement of this illegal contract. Pp. 565-566.

3. Since the Government has received no tangible benefits from respondent, no recovery quantum valebat is in order. P. 566, n. 22.

75 F. Supp. 505, reversed.