UNITED STATES v. ISTHMIAN S. S. CO.

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Argument of Ralph S. Spritzer

Chief Justice Earl Warren: Number 285, United States of America, Petitioner, versus Isthmian Steamship Company.

Mr. Spritzer.

Mr. Ralph S. Spritzer: Mr. Chief Justice, Your Honors.

This is an admiralty case which presents two issues.

The first of these which I'll State quite generally for the moment involves the question whether the courts below improperly delimited or restricted the controversy which was tendered for trial.

The second question which is quite distinct is whether the District Court, having rendered judgment for the respondent, the Isthmian Steamship Company, made an award of the interest, compound interest which exceeds the statutory limit imposed by these suits in Admiralty Act.

The libel in this case was filed by the Isthmian Steamship Company against United States.

And the pleadings disclosed that there are two commercial transactions involved.

I need not go into any of the detail of those transactions merely it is, however, necessary to state their substance.

First, in 1946, the United States, through its agency, the War Shipping Administration, leased or chartered eight government-owned vessels to Isthmian.

The amount of the charter hire was to be determined on a sliding scale.

It was made dependent upon the amount of net voyage profits that were realized from the operation of the ships.

A disagreement led ultimately to dispute, and the United States claimed Isthmian not acquiescing.

The Isthmian owed some $115,000 in charter hire beyond what it had paid.

Now, the second transaction, in 1953, an Isthmian vessel known as the Steelworker, which is not one of the vessels involved in the charter parties, carried a large quantity of military freight for the Government and in due course, submitted a freight bill.

That bill was for $116,000 using round figures.

At this point, the United States paid Isthmian roughly $1000 in cash and advised Isthmian that it was applying the balance of the amount due on the affreightment in satisfaction of the Government's preexisting claim against Isthmian for additional charter hire.

Isthmian thereupon went to court initially as it happens to the wrong court.

It filed suit in the Court of Claims alleging all of the facts, which I've just outlined.

It asserted in the Court of Claims complaint that the Government's claim for additional charter hire was groundless and that the Government was withholding money which was due to Isthmian.

Now, the Court of Claims dismissed that complaint on the Government's motion.

The Government argued, we think correctly in its motion, that whether one view the subject of the litigation as being Isthmian's claim for maritime freight or a claim that the Government was improperly withholding money because it -- charter hire claim was groundless.

In either event, it was a maritime transaction and within the exclusive jurisdiction of the District Court.

And the Court of Claims agreed and Isthmian thereupon when into the District Court, filed a libel there but followed a different tactic at this point.

Wherein its libel, it makes no reference whatever to the Government's claim for additional charter hire.

Isthmian's libel as the Court will note in the record merely pleads that it had performed within the limitations period certain freight services that it submitted a bill for $416,000 and that it received only $1000.

Now, the Government's answer to that libel unqualifiedly admitted the correctness of Isthmian's freight bill.

The Government then pleaded that it had applied the balance, that is the $115,000, in satisfaction of a claim which the United States asserted against Isthmian, and the answer then proceeded to set forth the facts upon which that additional claim for charter hire is based.

In addition to filing this -- in addition to making this affirmative defense, the Government also filed a cross-libel in which it repeated its claim for additional charter hire.

Now, Isthmian's response to the Government's position in the pleading was two-fold.

First, it said that the Government's defense that it had withheld the amount due on the freight bill and applied it to the Government's preexisting claim could not be regarded as a plea in the nature of payment or satisfaction, could not be regarded as an affirmative defense.

It said it must be regarded as a counterclaim.Secondly, it argued if you regard it as a counterclaim, then it is not in our -- in Isthmian's view, cognizable in admiralty because Isthmian argues admiralty can only recognize counterclaims which arise out of the same transaction which is the basis of the libel.

Both courts below accepted that position and concluded on that basis that a judgment pro confesso should be entered for Isthmian and that the United States then should institute a second suit to determine if it is entitled to get back with the right hand what it has just been ordered to pay over was left.

Justice Charles E. Whittaker: (Inaudible)

Mr. Ralph S. Spritzer: The District Court did that.

It said once it struck out the affirmative defense, there was no common issue and that it was then independent counterclaim and that admiralty could not hear an independent counterclaim.

Justice Charles E. Whittaker: The thought of the interest is to overrule a motion to consolidate (Inaudible) in fact strike out the cross-libel.

Mr. Ralph S. Spritzer: Well, he first ruled, as I recall it, that this was not a matter of affirmative defense and he struck that from the answer.

Then he said at this point the libel and the cross-libel no longer have a common issue and therefore cannot be heard and the Government has relegated to bringing it back in lawsuit.

I should add one further word about the proceedings below.

The Court of Appeals opinion here is really the opinion in the Grace Line's case and not in this case.

We reprinted the Grace Line's opinion as an appendix to our petition.

The Grace Line's case involved the same issue as this but involved additional issues, and we did not petition in the Grace Line case because of the fact that there were these additional complicating factors in that case.

Justice Potter Stewart: That case involved what?

Time limitation --

Mr. Ralph S. Spritzer: It involved a limitation problem in addition.

Justice Potter Stewart: And those problems are not present here.

Mr. Ralph S. Spritzer: They're not.

Justice Potter Stewart: All right.

Mr. Ralph S. Spritzer: Correct, Your Honor.

Now, it's apparent, I think, that the result which -- of the kind which has been reached here would certainly not be required inequity or under the Rules of Civil Procedure whether one views the Government's position here as the assertion of an affirmative defense or as the assertion of a permissive counterclaim.

And the question which this case presents is whether the result is required in admiralty.

Justice Potter Stewart: Is it the distinction used to be made between a -- between a counterclaim and a setoff?

Didn't the -- did the Court -- the Court of Appeals had in fact hold that an admiralty would have jurisdiction only if this were a setoff?

Mr. Ralph S. Spritzer: Yes.

Justice Potter Stewart: Is that right?

Mr. Ralph S. Spritzer: If it arose from the --

Justice Potter Stewart: (Voice Overlap) --

Mr. Ralph S. Spritzer: -- same transaction.

I perhaps been using the term “setoff” and “counterclaim” --

Justice Potter Stewart: Well, that --

Mr. Ralph S. Spritzer: -- more loosely as synonymous.

Justice Potter Stewart: (Voice Overlap)

Mr. Ralph S. Spritzer: I think that's what the Court of Appeals was saying.

Yes.

Now, our first line of argument doesn't involve a consideration of the Admiralty Rules at all because the argument is this, that the United States has a right which is founded on statute and finds support in decisions of the Court over many decades, its substantive right to withhold and apply when it is both debtor and creditor.

At that so, if there is such a power in the United States, then the courts are, of course, open to determine whether the United States had a valid claim, open to determine whether the United States had a proper basis for making this administrative setoff.

We say however if there is this right to withhold and apply when the United States is both debtor and creditor, one doesn't reach any question under the Admiralty Rules because our defense then is that we've made satisfaction we paid.

It is a plea in the nature of satisfaction.

And we say in that situation, the -- the controversy, the real controversy as the Court to put it in the somewhat similar New Haven case last term, the real controversy is whether the claim to -- upon which the Government is resting when it says we're applying what we owe you in satisfaction of what you owe us, whether that claim of the Government is a valid one.

Now, basically, the -- the position of the respondent which we have to meet its basic objection to this line of argument, I think, is summed up by what is said at page 23 of the respondent's brief.

And they quote Williston for the proposition that mutual debts do not extinguish one another either automatically or by manifestation of election of one party either agreement of the parties or judicial action is necessary.

And then they go on to say that lapse of time may borrow recovery on one-forth debt and leave the other still enforceable.Now, acknowledging that this may be the general rule, and we don't think it would add exception, we don't think it touches the question whether the United States has a statutory right to make it administrative setoff without agreement of the other party when it is both debtor and creditor.

Now, such a right is not unknown, we think, to private party relationships.

A primary example of it in the common law is what is often times referred to as the banker's right of setoff.

I think it's settled in almost every jurisdiction in this country perhaps in all that if a bank holds my note and I'm delinquent on it or to demand note, and I have a deposit with the bank that the bank may apply that deposit in satisfaction of my obligation on the note.

If I think that the bank has made a mistake and that I'm not obligated on my note and I sue to get my deposit from the bank, the bank has a good defense if it can show that it in fact had a valid enforceable claim against me based on the note.

Now, we think this is analogous -- excuse me.

Justice Charles E. Whittaker: (Inaudible) but I have no trouble here and that is the rule, as you denounce it, I had a (Inaudible) and to the extent they (Inaudible) a pro tanto discharge of that.

Now, would it be fair that (Inaudible) announcement of the judges to make findings but only the (Inaudible) rent is not liquidated.

Mr. Ralph S. Spritzer: That's quite true, Your Honor.

And I think it is, Your Honors, quite correct in suggesting that in most jurisdictions at least the banker's setoff is limited to liquidated debts.

And I am imposing that by way of an analogy to -- to illustrate the kind of power which we are claiming.Obviously, we must rest upon statutes which pertain to the United States and decisions which pertain to it.

Now, turning then from the -- this private banker illustration to the public banker, to the position of the Comptroller General of the United States.

We believe there's a long tradition which finds its counterpart in continental law countries as well as at common law that the sovereign may settle accounts between itself and those with whom it deals in the situation where it finds itself both debtor and creditor.

And that goes back that power at least to the -- so far as statutory basis is concerned, to at least to 1817 when Congress enacted the predecessor of 31 U.S.C. 71 upon which we here rely.

And that statute provides broadly that all claims or demands by or against the United States Government shall be settled and adjusted in the General Accounting Office.

Justice Charles E. Whittaker: (Inaudible)

Mr. Ralph S. Spritzer: Yes.

Yes.

I think it has been construed time and again as giving a power entirely beyond the power to adjust between different departments of the Government, a power to settle where the Government is both creditor and debtor and where there is a dispute between the private party involved.

Justice Charles E. Whittaker: Is that why (Inaudible)

Mr. Ralph S. Spritzer: Yes.It has -- has been so applied.

This, I would like to make perfectly clear, does not suggest that the adverse party can't secure a full determination by the Court as to whether the Government's claim which gives it -- its asserted basis for withholding as a valid claim.

I'm --

Justice Charles E. Whittaker: (Inaudible)

Mr. Ralph S. Spritzer: No, I think the Government has a quite independent power in Section 227 to withhold payment of judgments.

And I think that's quite apart from 31 U.S.C. 71 and the cases which have relied on 31 U.S.C. 71.

At least since the McKnight case in 98 U.S., we think the Court has repeatedly indicated or held that the Government has the authority and as the Court has indicated the duty to set off one against the other when it is both debtor and creditor.

More recently in the Munsey Trust case, the Court used the language that when the Government acts under this Code Section, it strikes a balance between the debts and credits of the Government.

Now, what happens when the Government follows this practice which has been traditional with the General Accounting Office?

Well, normally, the complaining party filed a complaint if he doesn't acquiesce that the Government has a basis for withholding in which he alleges that the Government's claim, the claim upon the basis of which it made the deductions is invalid and that issue gets determined.

That, for example, was the situation in the Alcoa Steamship case which we cite in our brief, a case which was before the Second Circuit and later came here.

In that case, the Government paid a freight bill which was submitted by Alcoa and later on decided that the maritime freight had not in fact been earned.

It then withheld an equivalent amount in paying a subsequent bill.

Alcoa sued upon the subsequent bill reciting the facts as to both transactions.

And Judge Learned Hand in the Court of Appeals said in that case that the question in the case, I think one may interpolate only, the only question in the case was whether the United States overpaid when it paid the first bill.

Now, we're, of course, not questioning that the Government made itself liable under the suits in Admiralty Act or amenable to the ordinary admiralty practice.

What we are suggesting is that the suits in Admiralty Act doesn't touch the question whether the Government has what we urge to be this long settled power to settle and adjust debts in a manner I've indicated.

Justice Felix Frankfurter: Could you clear up one thing for me?

Am I right in understanding that the Government contends or rather does not contend that the legality or correctness of its claim has the validity of the claim or the amount of the claim could all had been settled in this libel suit?

Mr. Ralph S. Spritzer: That is our contention.

Yes.

That it all should have been settled --

Justice Felix Frankfurter: I mean that the --

Mr. Ralph S. Spritzer: -- in one litigation.

Justice Felix Frankfurter: Yes.

But most specifically that whether or not -- was it audit a general -- properly withheld could have been contested by the respondent in this case?

Mr. Ralph S. Spritzer: Yes, but we say that there were -- the -- the Government acknowledged when it withheld that it owed the freight.

Owed the --

Justice Felix Frankfurter: Yes.

Mr. Ralph S. Spritzer: -- money on the freight bill.

The Government said, “We're holding that money in satisfaction of our claim for additional charter hire.”

We say when Isthmian does not acquiesce in our view that we can properly withhold and apply that the real complaint, the real subject matter of the litigation is whether we have a basis for withholding in applying.

Justice Felix Frankfurter: Let me put it more concretely to my simple mind.

The controversy here is whether this claim by Isthmian as against the claim by the Government unrelated, if you please, unrelated claim, all been settled in this single litigation or whether the Government owing this thing should have paid and then brought a separate suit for its claim.

Mr. Ralph S. Spritzer: That is --

Justice Felix Frankfurter: That was the controversy then.

Mr. Ralph S. Spritzer: That is what the controversy --

Justice Felix Frankfurter: It's all it is about, is it?

Mr. Ralph S. Spritzer: That's what this is about.

That's all.

Justice Felix Frankfurter: And the claim is that something inherent in admiralty precludes this thing from being settled in a single litigation.

Mr. Ralph S. Spritzer: Yes.

Justice Potter Stewart: Is that right?

Mr. Ralph S. Spritzer: Now, I have been, up to this point, contending that this was properly a matter of affirmative defense that it was in the nature of a plea of satisfaction or payment.

If it was that, then nobody would doubt that it was within the admiralty jurisdiction.

Now, let me get to the further -- to the other side of --

Justice Felix Frankfurter: That's a -- that's a claim, that's an argument that was -- was appealed to (Inaudible) let us say (Inaudible) I mean what difference?

That's -- that's a legal technical thing, isn't it?

Mr. Ralph S. Spritzer: Is it --

Justice Felix Frankfurter: (Voice Overlap) the Court is in satisfaction or not.

Mr. Ralph S. Spritzer: It is a technical matter but in this instance, the technical argument, as it were, enables the Court to deal with the reality and not with the mere formality that it enables the Court to decide the one issue, the only issue that's really in dispute between the parties.

Justice Felix Frankfurter: Namely, whether you all --

Mr. Ralph S. Spritzer: Namely, whether we have a good claim for additional charter hire.

Justice William J. Brennan: Tell me, Mr. Spritzer --

Mr. Ralph S. Spritzer: Yes.

Justice William J. Brennan: -- does it made any difference, a matter of burden of proof or any other practical phase of the lawsuit that the Government should have to sue separately rather than to maintain this -- this counterclaim in this case?

Mr. Ralph S. Spritzer: I think in this case probably the only practical difference is that the result reached below requires a multiplicity of litigation rather than a single one.

Justice Felix Frankfurter: You haven't even the disturbing factor, jury trial or not in this case?

Mr. Ralph S. Spritzer: That's right.

And that brings up to the point --

Justice John M. Harlan: Of course, you haven't got any statute of limitation's point.

Mr. Ralph S. Spritzer: In this case.

That's right.

Justice John M. Harlan: But if you're right in a case where the statute of limitation is involved, that the Government has this power to apply so as to enable it to set up a defense of payment, it could do that even though the statute limitations had run on its affirmative claim if it had chosen to sue separately?

Mr. Ralph S. Spritzer: I would suppose that that would depend upon --

Justice John M. Harlan: That'd be a (Voice Overlap) --

Mr. Ralph S. Spritzer: -- the statute and how you construe it --

Justice John M. Harlan: Yes.

Mr. Ralph S. Spritzer: -- as to whether the statute applies --

Justice John M. Harlan: So it does --

Mr. Ralph S. Spritzer: -- to the claims or to lawsuits.

Justice John M. Harlan: It may be a procedural quirk in this instance but it does have consequences --

Mr. Ralph S. Spritzer: It does.

Justice John M. Harlan: -- that leave behind this, doesn't it?

Mr. Ralph S. Spritzer: It does.

May I point out --

Justice Felix Frankfurter: Does it need to have those consequences?

Mr. Ralph S. Spritzer: Pardon, sir?

Justice Felix Frankfurter: Does it need to have those consequences?

Mr. Ralph S. Spritzer: Well --

Justice Felix Frankfurter: The mere fact that you allow this to be settled in one suit doesn't disallow you to say, of course, it must be a billing claim and not one which is told as to which the statute has filed the claim.

Mr. Ralph S. Spritzer: Well, let me point, if I may, to -- to this practical consequence, Your Honor.

If we suppose, and this is not the case here, that the Government is subject to a one-year or two-year statute of limitation, if that so and the General Accounting Office follows its usual practice and withholds payment on a subsequent bill because it has a preexisting claim, if we do that and our action of withholding is not available to us as a defense but must be asserted as an -- as the basis of an independent suit, we cannot afford to rest and wait to be sued.

We cannot wait until our action of withholding is challenged because time may run out.

In other words, we may be required to give up this method of adjusting.

And -- and the Government is involved in multiple transactions, of course, with all of these major shipping companies.We may have to go ahead and make sure that we bring suit on every claim which involves a point of difference rather than wait for the other party to decide to what extent it's going to challenge the Government's action and withholding.

Justice Felix Frankfurter: But that doesn't quite or does it reach my suggestion, my feeling that the mere fact if you're allowed to settle it all in one litigation for the right to challenge judicially, the rightness of, whatever you call it, counterclaim setoff --

Mr. Ralph S. Spritzer: Yes.

Justice Felix Frankfurter: -- ought not to enlarge the substantive rights of the Government on what they would be if the Government had to sue independently?

Mr. Ralph S. Spritzer: Well, our initial argument is that the -- we are not seeking to enlarge that --

Justice Felix Frankfurter: Well, if the statute of limitation --

Mr. Ralph S. Spritzer: -- that the Government has --

Justice Felix Frankfurter: -- if Justice Harlan's suggestion prevails for the instance that the possibility of what he suggested.You would enlarge it if a suit by the Government would have a good defense of the statute of limitations, that defense ought not to be (Inaudible) because you set it off in a -- in a libel suit by the --

Mr. Ralph S. Spritzer: That's right.

But our first --

Justice Felix Frankfurter: -- libelant.

Mr. Ralph S. Spritzer: -- our first line of argument is that we are not seeking to enlarge the Government's powers but are resting on what we believed to be a statutory power which has a long history.

Justice John M. Harlan: But the --

Justice Felix Frankfurter: Yes.

But --

Justice John M. Harlan: Excuse me.

Justice Felix Frankfurter: But I was construing that statute -- that statute not to give power to the Accounting Office to get something by way of setoff which they couldn't get by way of independent suit.

Mr. Ralph S. Spritzer: Well, in this --

Justice Felix Frankfurter: That would -- that's the construction of the statute I'm suggesting.

Mr. Ralph S. Spritzer: Yes.

I think that it gets back to it, Mr. Justice.

Justice John M. Harlan: Yes, but your argument is that one of the virtue, one of the arguments in your favor is that it does permit the Government to deal as a practical matter with the enormous amount of business it has not to worry about the statute of limitations.

Mr. Ralph S. Spritzer: Well, in most instances -- in many instances, I should say, the Government does not have to worry in any event because it's not subject to a --

Justice John M. Harlan: No --

Mr. Ralph S. Spritzer: -- specific statute --

Justice John M. Harlan: -- but the --

Mr. Ralph S. Spritzer: -- (Voice Overlap) such case.

Justice John M. Harlan: Yes.

Mr. Ralph S. Spritzer: The -- the Grace Line's case did involve a statute of limitations question.

That is, I suspect, the -- the more unusual rather than the customary.

Justice Felix Frankfurter: Mr. Spritzer, you're usually very unequivocally clear but I do not yet know whether you're contending, though this isn't in this case, that by virtue of this statute, a stale claim, i.e. one that could not be sued upon, could be used to wipe out a claim against the Government.

That you read the statute so as to dispense, so as to told the statute of limitations that otherwise would be there.

Mr. Ralph S. Spritzer: Well --

Justice Felix Frankfurter: Now, what is meant?

Mr. Ralph S. Spritzer: -- in this case, there is no question --

Justice Felix Frankfurter: There's no problem.

Mr. Ralph S. Spritzer: -- of the stale claim because there's no statute of --

Justice Felix Frankfurter: All right.

Mr. Ralph S. Spritzer: -- limitations to apply.

If the Government does have this power to withhold and there is a statute of limitations applicable, then, I think, one would have to construe that statute in order to decide whether the statute not only relates to the filing of suit but also relates to administrative action by way of effectuating an administrative setoff.

Now, I -- I don't think the Court has resolved -- has had occasion to deal with that second possibility.

Justice Felix Frankfurter: Has not had?

Mr. Ralph S. Spritzer: No.

Justice John M. Harlan: Does the --

Justice Felix Frankfurter: It's not merely the statute of limitation if you forgive me.

It's not merely statute of limitation but other defenses.

I don't have to read this statute as a personal advice.

I see no reason for reading it so as to lift all defenses that would be available against the Government if separate suits were brought --

Mr. Ralph S. Spritzer: I know --

Justice Felix Frankfurter: -- in case it's a -- in case it's a defense.

Mr. Ralph S. Spritzer: I know of no possible effect which this -- which deciding this case in one lawsuit could have upon the respondent's rights --

Justice Felix Frankfurter: In this case.

Mr. Ralph S. Spritzer: -- in this litigation.

Now, the only other possible question is the operation in unrelated -- in other situations of the statute of limitation.

I don't see how it would affect any defenses which go to the merits at all or burden of proof for that matter.

Justice Felix Frankfurter: Fraud overreaching would be a good defense assumed -- assumed for the moment that that limitation has gone the other way.

That would be a good defense if brought separately.

Now, I don't see no reason why one should construe the statute so as to erase all such defenses.

Mr. Ralph S. Spritzer: I -- I can't see how the opposing party would be any more limited if it had to set out its claim in -- its full claim in its libel other than -- than that it is at present.

The -- the fact of the matter is that -- that Isthmian in the Court of Claims said the Government is not paying us because it's withholding on the basis of a groundless claim.

When it got to the District Court, it said the Government is not paying us --

Justice Felix Frankfurter: I understand.

Mr. Ralph S. Spritzer: -- then.

At that point, the Government said, “Well, this is the full story.”

And we pleaded the additional facts in our answer, and we failed to see why the Court can't make as full disposition by reading both sides pleading as it can in the situation where the full story is told in the libel by the moving party.

Justice Charles E. Whittaker: May I ask you in that connection then?

What effect does it give to the local rules that in the admiralty courts (Inaudible)

Mr. Ralph S. Spritzer: Well, our -- our first argument, as I've attempted to indicate, is that the rules do not apply because this is a matter of defense.

Justice Charles E. Whittaker: Yes.

Justice John M. Harlan: Of payment.

Justice Charles E. Whittaker: Of payment.

Mr. Ralph S. Spritzer: That's right.

Satisfaction or (Voice Overlap) --

Justice John M. Harlan: If it's construed as payment --

Mr. Ralph S. Spritzer: -- in the nature of satisfaction (Voice Overlap)

Justice John M. Harlan: -- then it's necessary -- if it's construed as payment, then I suggest it necessary carries the consequence that in a statute of limitations case, the statute is to be construed this way.

The statute is in no effect as against the Government (Voice Overlap) --

Mr. Ralph S. Spritzer: I -- I would think that that would depend upon a construction of the particular statute, Your Honor.

I -- I agree that it might have consequences from the standpoint of limitations problem.

Now, our -- our argument on the rules is that admiralty's reluctance to hear independent counterclaims and the reasons which prompt that have no application to a situation where there are only two parties, no third party rights, where there's only one real matter in dispute and that matter is admittedly a maritime matter.

And we think if the rules are to be -- are construed as barring the local rules, as barring a full disposition of the controversy in that situation, that they would run counter to the basic policy of the general admiralty rules which is to promote the effective and fair disposition of maritime matters in a single case.

I am going to have to rest as to the interest question on the Government's brief, Your Honor.

Chief Justice Earl Warren: Mr. Rinehart.

Argument of Clement C. Rinehart

Mr. Clement C. Rinehart: Mr. Chief Justice, may it please the Court.

The argument for the United States has obscured the only question presented by the record produced to its real substance.

The sole question presented is merely this.

Whether as both the District Court and the Court of Appeals held suits against the United States in admiralty shall, as Section 3 of the Act expressly requires, proceed and to be heard and determined according to the principles of law and to the rules of practice obtaining in like cases between private parties.

That's the express language of the statute.

The District Court, applying a rule of practice regarding setoffs which would unquestionably guard in a suit between private parties, sustained exceptions to the answer of the United States which have admitted the claim in the libel but have sought contrary to the rule to set off a claim of the United States against the respondent which was wholly unrelated to the contract upon which the libel was based.

Justice Felix Frankfurter: Am I barred by decisions of this Court to hold that this kind of a case between private parties was not allowed the defense that was -- to be adjudicated in this libel suit?

Mr. Clement C. Rinehart: There are 31 decisions all uniform on the point in the various circuits where maritime cases have been dealt within.

They've been the rules since about 1832 at least when Mr. Justice Story --

Justice Felix Frankfurter: That may be the trouble.

That may be the trouble.

Mr. Clement C. Rinehart: Well, perhaps it is.

But the point that I'm making is that it is the rule and that the only way in which a -- a rule of practice in admiralty may properly be changed is to follow the statutory procedure laid down in Title -- in Section 2073, which I've quoted in the brief.

Just as you have to have certain procedures to change the rules of civil practice or -- well, they're all equity and law oppose together in the civil suits now.

You --

Justice Felix Frankfurter: What is the -- what is the controlling case to which you would refer holding that non-related -- that the defense not arising out in the same transaction can't be dispose of in a single libel suit?

Mr. Clement C. Rinehart: There is no case one way or the other in this Court, Your Honor, but the --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Clement C. Rinehart: -- there are 31 decisions which I cited in the margin of pages 12 -- 13 and 14 of my brief and many of them in the Courts of Appeals and many of them quite recent ones.

Justice Felix Frankfurter: Well, I am a little troubled as I used to think that admiralty was very advance in its --

Mr. Clement C. Rinehart: Well --

Justice Felix Frankfurter: -- procedural way.

Mr. Clement C. Rinehart: -- of course, as Your Honor will recall, setoff is the -- is the creature of statute.

It -- it wasn't something that existed all the time.

It's been cut down by admiralty.

The -- the -- it's the other way around.

The statute have set off -- enlarge what was the rule in common law proceedings.

And it wasn't until 1910 when the equity rules were changed to permit.

Up until 1910, equity was like admiralty as now.

And there was a statutory rule changed by rule merging.

Justice Felix Frankfurter: But haven't we have -- haven't we saw change that rule outlaws that one might say a progressive body of law like admiralty would have absorbed it by now without formal absorption.

Mr. Clement C. Rinehart: Well, I -- I don't think so, Your Honor, because admiralty presents very particular situations which do not exist in either law or in equity.

And I tried to set out in -- on pages 15 and 16 of my brief some of the considerations which make it a special situation in admiralty.

But the point that I am making is that the rule does exist and that the statutes --

Justice Felix Frankfurter: Or obey.

Mr. Clement C. Rinehart: -- have said that they only may change the rule by the rulemaking procedures that are specified in the Title 28, Section 2073.

Justice Felix Frankfurter: This Court --

Mr. Clement C. Rinehart: I beg your pardon, sir?

Justice Felix Frankfurter: This Court the next Monday enunciated new Admiralty Rules.

Mr. Clement C. Rinehart: Well, they could enunciate a new Admiralty Rule so I suppose if you disregard the fact that the statute says that they have to be proclaimed in a certain way before this session of Congress begins to take effect 90 days after --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Clement C. Rinehart: -- being announced and things of that sort that --

Justice Felix Frankfurter: That is put by Admiralty Rules too, isn't it?

Mr. Clement C. Rinehart: Yes, sir.

That is expressly the -- the section that deals expressly with changes in the Admiralty Rules.

And all I'm saying is right or wrong the rule exist and the suits in Admiralty Act requires that it'd be observed and --

Justice Felix Frankfurter: None of their rule that expressly -- is there a specific rule governing this situation?

You read the general rule.

And that general rule like (Voice Overlap) --

Mr. Clement C. Rinehart: It's a --

Justice Felix Frankfurter: -- statutes that have grow with time or sought new conditions.

Mr. Clement C. Rinehart: It's not only a general rule announced in these uniform decisions throughout the admiralty courts of the country from their very inception but also, it is recognized in the general rules of this Court in Rule 44 of the General Admiralty Rules and in the --

Justice Felix Frankfurter: The general rule, not that it should be in accordance with but is there an admiralty rule that specifically deals with the problem of this kind of a defense not allowed?

Mr. Clement C. Rinehart: Well, if Your --

Justice Felix Frankfurter: Is there a specific rule?

I'm not saying you're not right on the general proposition.

Mr. Clement C. Rinehart: It -- by that --

Justice Felix Frankfurter: I want to know if there's a specific rule dealing with this problem.

Mr. Clement C. Rinehart: Well, Your Honor, perhaps, I don't understand but do you mean a -- a specific statement in the rules as promulgated now by this Court?

There is no such actual --

Justice Felix Frankfurter: But is there -- is there a specific rule of the Southern District of New York dealing with --

Mr. Clement C. Rinehart: Yes, Your Honor.

Yes, Your Honor.

Justice Felix Frankfurter: -- this very problem?

Mr. Clement C. Rinehart: Yes, Your Honor.

That's quoted.

Justice Felix Frankfurter: Where is it?

Mr. Clement C. Rinehart: That's quoted right on the -- in my brief.

Justice Felix Frankfurter: What page?

Mr. Clement C. Rinehart: No, it's in the Government's brief.

Excuse me.

Justice William O. Douglas: That's the one you read at the beginning of your argument?

Mr. Clement C. Rinehart: Yes.

Justice Felix Frankfurter: But that's -- that's what I call a general rule, Mr. Rinehart.

Is there a rule which says --

Mr. Clement C. Rinehart: Rule 16, page 4, Your Honor.

It's a -- it's a different (Voice Overlap)

Justice Felix Frankfurter: Is there a rule which says that no setoff can be allowed except arising out at the same transaction?

Mr. Clement C. Rinehart: Well, it's been repeated in decision from time to time.

They are saying that -- there's no jurisdiction in admiralty to consider an unrelated setoff.

Justice Felix Frankfurter: I'm not denying that.

And that may be binding on me.

But I regard it as a general rule and not a rule that specifically deals with this problem.

Mr. Clement C. Rinehart: Well, you mean related to government suits, Your Honor?

Justice Felix Frankfurter: No, any suit.

Is there a rule that deals with setoff and counterclaims?

Is there a statute -- is there a rule promulgated by the District Court --

Mr. Clement C. Rinehart: Yes, Your Honor.

Justice Felix Frankfurter: Where is it?

Mr. Clement C. Rinehart: In the -- that's Rule 16.

You -- I don't understand Your Honor's distinction between a --

Justice Felix Frankfurter: (Voice Overlap) --

Mr. Clement C. Rinehart: -- general rule and --

Justice Felix Frankfurter: All right.

Mr. Clement C. Rinehart: -- and a rule.

That's a rule.

Justice Felix Frankfurter: Well, you -- you point me to Rule 16.

All right.

Chief Justice Earl Warren: We'll recess now, Mr. --

Mr. Clement C. Rinehart: Yes, Your Honor, and also Rule 44.

Chief Justice Earl Warren: We'll recess now.

Print this transcript Transcript: 

Argument of Clement C. Rinehart

Mr. Clement C. Rinehart: -- to appoint but I think Mr. Spritzer gave a wrong impression about the second suit, the independent suit filed by the Government on the -- the identical cause of action, the identical words, was brought before, the set off was pleaded in this case.

And that suit still is going on to -- to the issue and testimony has been taken but the Government doesn't proceed with it because they're waiting to hear how this case comes out.

So we have the result that the identical words appeal on two pieces of paper, one of them is called an answer in this suit and the other is called a libel in the independent suit that's still pending and they will be decided before the same judges and the merits of the case will be determined.

And that also satisfies the -- the requirement of Section 227 that you spoke of, Mr. Justice Whittaker because that only requires a new suit to be brought by the Government in case a judgment is recovered against the Government on the -- respondents claim here.

Justice William J. Brennan: Well, what does your -- what does your --

Mr. Clement C. Rinehart: If the debt is not already in suit.

Justice William J. Brennan: What does your client gain by his victory here, I don't follow with any --

Mr. Clement C. Rinehart: Well, our -- our client gains exactly the thing that I think is one of the reasons that the Government doesn't want this to happen.

If the Government -- if we obtain the decree or hold the decree which we now have, then the Government is required to either accept our claim or to assert its -- or prosecute its suit, its independent suit to a conclusion.

And if it fails to do so, then we are entitled successfully, then the statute expressly provides Section 227 of Title 31 that as compensation for the delay, our client is entitled to interest.

Congress has so provided and that's the remedy that they were entitled to have of what -- they get to this set off voice, why of course, that's a different sort of situation.

Justice John M. Harlan: And you would get -- in other words, you would get the full amount of your judgment in cash --

Mr. Clement C. Rinehart: Yes, sir.

Justice John M. Harlan: -- subject to the Government's right in this other suit or under a new proceeding under this other section to suit to recover the amount on the other claim.

Mr. Clement C. Rinehart: Well, we wouldn't get any cash, Your Honor, until their suit had been concluded because they have a suit pending and the general accounting office would be entitled to withhold payment of our judgment until that other suit was concluded.

Justice Charles E. Whittaker: Mr. Rinehart, may I see if I understand what you said that interest only is involved.

Isn't what the Government sought to do in this case was to prosecute this independent claim at the same trial?

And would you not be entitled to interest in any case on your claim?

Mr. Clement C. Rinehart: Well, as I understood the suit -- I mean the question that was asked by, Mr. Justice Brennan, as what difference it makes to us now --

Justice Charles E. Whittaker: Yes.

Mr. Clement C. Rinehart: -- to our client now.

And I -- I -- I think that --

Justice William J. Brennan: Well, I -- I --

Mr. Clement C. Rinehart: -- that was my answer.

Justice William J. Brennan: -- I understand why you understood it that way, I didn't phrase it too well.

But what I -- the question I meant to ask was the one that Justice Whittaker is reaching now.

Could not this whole thing have been disposed of in the one suit without any disadvantage to your client?

Mr. Clement C. Rinehart: Well, I think that that is probably so except that within the violation of the Admiralty Rule and that is -- that's in this particular case was because I think that the cross claim that the Government has set up is within admiralty jurisdiction but the moment you -- you depart from the rule, you get into all the troubles that you have in Admiralty where you have limited jurisdiction over the subject matter.

You have actions in rem and you -- and all sorts of complications that would arise and that's one reason why I think that it would be wrong for the Court, on the basis of the facts in one particular litigation to make a change in the general rule which has existed for nearly a century and a half and presumably with good reason.

And it -- it should be done by independent rule making if it is to be done when all the pros and cons can properly be considered, but not on the basis of the record of particular facts in the particular case.

Justice Charles E. Whittaker: May I ask, as in that connection for any statutes, Mr. Rinehart.

Are not Rules 16 and 17 of the District Court in New York rules of practice?

Mr. Clement C. Rinehart: That's right, Your Honor.

Justice Charles E. Whittaker: Now then, isn't Section 227 a substantive law?

Mr. Clement C. Rinehart: Well --

Justice Charles E. Whittaker: And I wonder then if that's so, whether or not 227 being substantive if it is, wouldn't take precedence over those rules of practice and in this particular case, allow the Court to determine both of those claims in one suit.

Mr. Clement C. Rinehart: Well, it -- 227 of course doesn't -- that if the matter is all -- not already in suit, the Government shall bring suit, that's what Section 227 --

Justice Charles E. Whittaker: No, it says a little more.

It says that, “If there's are judgment against the United States and the United States has a claim against the judgment creditor, the controller must withhold payment.

And if the Government's claim is not in suit, then he must put it in suit and continue to withhold until the Government claim is liquidated and then off set.”

Mr. Clement C. Rinehart: That's what I understand that section to be.

Yes, sir.

Justice Charles E. Whittaker: Now -- now that I don't quite understand if that's -- if that's a rule of substantive law, then why wouldn't that supersede these local rules of practice which the District Court was authorized to promulgate and did under the names -- numbers of 16 and 17.

Mr. Clement C. Rinehart: Well, I don't understand that that entitles the -- the Section 227 entitles the United States to prosecute the suit that's called for, in a way, was in violation of the rules of practice of the particular Court.

And this would be in violation of the rules of admiralty to permit the set off of an unrelated counterclaim, was in the same suit.

I don't understand that Section 227 is intended to overrule the practice that exist and which another statute, the suits in Admiralty Act requires to be observed in the case.

Justice Charles E. Whittaker: I'm thinking about this practicality.

And here you've got both parties in the Court.

And there is the original libel in the cross-libel.

The Government can't pay on the -- in a judgment rendered on the original libel until the cross-libel has been liquidated, under Rule 220 -- under Rule -- statute 227.

Mr. Clement C. Rinehart: That's right, Your Honor.

Justice Charles E. Whittaker: And then why in the interest of direct settlement and conservation of motion, wouldn't it be best to settle those matters into one action and get this thing closed up?

Mr. Clement C. Rinehart: Well Your Honor, I -- I really don't see any difference between a prosecuting -- a -- a claim which the Government's claim is labeled as set off in the one hand and taking the same claim and labeling it a libel in the same trials and the same considerations have to be brought before the Court and the Court has to make its decision.

And then there's no -- and so, there's nothing impracticable in -- in letting the Government go ahead, doesn't -- has done with an independent suit.

Justice Felix Frankfurter: Could -- could --

Mr. Clement C. Rinehart: That will be done.

Justice Felix Frankfurter: Mr. Rinehart, let me --

Mr. Clement C. Rinehart: Yes.

Justice Felix Frankfurter: -- ask you this.

Buttoning on to what you've just said.

You brought this libel against the Government.

Mr. Clement C. Rinehart: Yes, sir.

Justice Felix Frankfurter: And the Government filed an independent libel for its charter money.

Mr. Clement C. Rinehart: Yes, Your Honor.

Justice Felix Frankfurter: Could two libels -- is there anything in the rule or in admiralty practice that bars the Court from consolidating those two proceedings in a single hearing before a single judge?

Mr. Clement C. Rinehart: Yes, Your Honor.

Justice Felix Frankfurter: There is.

Mr. Clement C. Rinehart: And that's -- that's what the District Judge held, there was a motion to consolidate by the Government.

And --

Justice Felix Frankfurter: Now, why -- what route -- what rule is that the same?

Mr. Clement C. Rinehart: Well, because it -- it offends -- it makes -- you can only file a cross-libel, that's what it would technically be.

This independency will be a cross-libel.

If it arises out of the same transaction as the original libel, now the -- that's what the -- the rule of this Court says too, Rule 44 which is quoted in the brief.

Justice Felix Frankfurter: But -- but there is a difference, deal -- take -- take this Court.

A suit is filed here, a petition for certiorari filed, is granted and we set the case down for argument, be granted.

Two weeks later or a month later, there's another petition, fully independent party, totally different party.

And this Court consolidates those two cases in argument, fused within one case in argument, dividing time appropriately, dispose of it in one opinion.

Now, why -- just tell me what rule, either explicit rule or what practice in admiralty and the reason for it that disabled the District Courts from granting a libel that's filed by -- is -- by -- is -- by Isthmian Steamship Company against the United States in a totally separate libel filed on a separate day by Uncle Sam against the Isthmian Company.

What is there in rules, either of the local, of the -- the Southern District or this Court or admiralty practice with bars consolidating those two proceedings and having them heard by a single judge.

Assuming both -- assuming further that they're both plain admiralty cases, not raising questions of jury trial, I don't see why I have to -- I like to disclose my mind to counsel.

I see no reason why I can't devise a limited rule because I can't devise a larger rule.

But why I can't decide one type of case because some other type of case would be different and raise different considerations.

Mr. Clement C. Rinehart: Well, Your Honor, of course that -- that isn't the hypothesis on which the Government's argument proceeds.

They say they admit our claim so there wasn't any issue to be fought out and brought up to this Court on whether we had a -- our client had a good claim or not.

The whole thing is the --

Justice Felix Frankfurter: No, but there is this -- this wastefulness of -- of -- I'll come back to what you say you might lose and the Government doesn't want to give.

There is this waste of -- of judicial -- I don't mean time but judicial energy and -- and a lot of waste in having extra security of action to which Justice Whittaker referred to.

Mr. Clement C. Rinehart: Well, that's -- that's what I failed to understand, Your Honor.

The same cause of action asserted by the Government in the same words is going to be tried, whether we try it and call it a setoff or whether you try it and call it a libel.

And that -- and the merits of the Government's claim are going to be adjudicated.

Now, that takes only one trial, one judge's time and he -- he -- perhaps the same judge had --

Justice Felix Frankfurter: Perhaps -- perhaps, you are raising it --

Mr. Clement C. Rinehart: Well, it may --

Justice Felix Frankfurter: -- with objective conditions.

Mr. Clement C. Rinehart: Well, of course there may be a different judge but it's in the same Court at any rate.

Justice Felix Frankfurter: Why do you have to have all these separate courts, separate judges, separate papers, different clerks?

Mr. Clement C. Rinehart: No, the same clerks --

Justice Felix Frankfurter: -- different (Voice Overlap) --

Mr. Clement C. Rinehart: -- same -- same room, one has a different number on it than the other, that's all.

But result -- result would be --

Justice Felix Frankfurter: Well, what I can understand --

Mr. Clement C. Rinehart: -- entirely --

Justice Felix Frankfurter: I can well understand and that's why a person's descriptive.

I can well understand if the claiming, the libeling would lose anything.

I'm just now -- I'm putting to one side the rule of the Court and your rightful appeal that it's my business to obey the law, I try to.

And I'm assuming that there's no block in the room, I'm assuming this is the reason taken, what is there that prevents this thing from being cleaned up in a single proceeding provided -- provided that you're not -- your client is not of pocket or isn't inconvenience or hasn't his claim in the slightest degree impaired.

Mr. Clement C. Rinehart: You're -- you're assuming there isn't any existing rule, Your Honor.

Justice Felix Frankfurter: What?

Mr. Clement C. Rinehart: Absolutely.

Justice Felix Frankfurter: I think -- yes.

Yes.

Right.

Mr. Clement C. Rinehart: Fundamentally, of course , there's nothing in this particular state of facts that I can see that would make it --

Justice Felix Frankfurter: But -- but this isn't a -- this isn't a white crow, this isn't the case, the libel which never will arise again.

Mr. Clement C. Rinehart: Oh, no -- no, Your Honor.

I don't say that that -- that this is a unique case at all but I do say there are plenty of them in admiralty that aren't anything like this.

That it would be --

Justice Felix Frankfurter: Well then, why get --

Mr. Clement C. Rinehart: -- affected by a change in the rule.

And that it --

Justice Felix Frankfurter: And if -- if other cases present embarrassment to the prosecution of a rightful claim, then that's a good reason for qualifying it and say that's not a case in which cross claims, using the word “broadly” should be applied.

Mr. Clement C. Rinehart: Well if -- just so long as the certainty is in the practice, that's what is the main consideration because of course, you can't keep changing the -- the rules all the time very happily for the members of the bar at any rate.

Of course, one judge may think, well the reason for the rule doesn't apply in this case and we won't pay any attention to the statute --

Justice Felix Frankfurter: Well, I -- but you suggested a little while ago that it would be disadvantaged as to interest.

Mr. Clement C. Rinehart: Well, I think that -- I think we would be.

Justice Felix Frankfurter: Now, if you're disadvantaged, that raises that -- that sort of -- that -- that's a very relevant, substantial -- now why would you be disadvantaged?

Why couldn't the judgment be entered on your claim?

I think you shouldn't be disadvantaged merely because the Government can say, “We've done it at defense.”

Mr. Clement C. Rinehart: Well, I think that Your Honor is right and I agree with you fully but of course, you always run the risk that somebody may take a different view of the thing, and here we -- we have a claim that is undisputed.

We're entitled to have it paid and that's (Voice Overlap) --

Justice Hugo L. Black: Well, are you entitled to have it paid.

Suppose you get a judgment --

Mr. Clement C. Rinehart: Only one way or another, Your Honor.

Justice Hugo L. Black: Suppose you get a judgment now, can you get it paid?

Mr. Clement C. Rinehart: What do you mean, get cash for it?

Justice Hugo L. Black: Oh, yes.

Mr. Clement C. Rinehart: No Your Honor, we cannot until the other case --

Justice Hugo L. Black: Cannot get cash.

Mr. Clement C. Rinehart: -- has been concluded.

No, that's correct.

Justice Hugo L. Black: Do not get cash until the Government filed a new suit or filed some closer suits.

Mr. Clement C. Rinehart: No.

No, the -- the suit is already pending.

Justice Hugo L. Black: Well, in his case it's already pending.

Justice Hugo L. Black: But --

Mr. Clement C. Rinehart: Yes.

Justice Hugo L. Black: -- you don't have to be tried out too in all the courts into that case.

Mr. Clement C. Rinehart: Oh, that's (Voice Overlap) --

Justice Hugo L. Black: And then the Government would have to continue to pay you interest because it was not all decided in one suit.

Mr. Clement C. Rinehart: No, it -- it would be simply because they -- they didn't (Voice Overlap) --

Justice Hugo L. Black: If the Government lost --

Mr. Clement C. Rinehart: -- they held back money that was owing --

Justice Hugo L. Black: If the Government's lost --

Mr. Clement C. Rinehart: On -- on --

Justice Hugo L. Black: -- which is all right.

Mr. Clement C. Rinehart: Yes.

Justice Hugo L. Black: Which is all right.

If the Government losses -- but why if it were decided that this rule does pay the substantive rule of law.

Wouldn't it also be true that your interest would be protected if you tried it all that in one suit, the same as though you waited until a second suit could be filed and maybe go through another Court, somebody have to pay some extra cost.

But why -- why shouldn't this and Justice Frankfurter asked --

Mr. Clement C. Rinehart: Why -- and certainly --

Justice Hugo L. Black: Why shouldn't the others be allowed?

Mr. Clement C. Rinehart: I think it should be allowed, Your Honor.

If the Government doesn't maintain its counterclaims successfully then I think that the interest should be allowed on our undisputed claim.

Justice Hugo L. Black: Well, if the Government --

Mr. Clement C. Rinehart: Or we get it automatically under the statute the way it is now.

It isn't led to the discretion --

Justice Hugo L. Black: Well --

Mr. Clement C. Rinehart: -- of any --

Justice Hugo L. Black: Well, would it be any how --

Mr. Clement C. Rinehart: -- (Voice Overlap) --

Justice Hugo L. Black: Would it be anyhow if Congress has given the right to the Government to have its claims tried in this way, what right has the circuit up there to adopt rules, it deprive it of the benefit of this kind of a proceeding.

Mr. Clement C. Rinehart: Well, it isn't anything that the Second Circuit has adopted, Your Honor.

This is the -- the rule in admiralty has existed from the beginning.

It's never been enlarged by statute presumably because they've got a special situation of limited jurisdiction, peculiar jurisdiction in rem in all sorts of things that make it -- I think inadvisable to have a rule permitting unlimited settlements.

Justice Hugo L. Black: That's -- you raise all these questions but none of them apply to this case.

Mr. Clement C. Rinehart: Well, I -- I know but the rule applies, Your Honor --

Justice Hugo L. Black: Well, it may -- may be so, that may be so that that's --

Mr. Clement C. Rinehart: Whether the reasons for a rule applies or not, it's another point.

But the point is that Congress has passed the law which says that the rules that govern private litigation shall govern suits against the Government.

And the first thing the Government does in this suit is to ask for a special rule, an exception to be made in favor of the Government when Congress says that -- that the ground rules that apply to the other litigants also apply to the Government.

Justice Hugo L. Black: Congress has also said that the Government shall have certain rights in connection with its lawsuit.

Mr. Clement C. Rinehart: Well, they're not --

Justice Hugo L. Black: It's 227.

Mr. Clement C. Rinehart: -- they're not being deprived of any right whatsoever in this case.

There's no prejudice whatever that the Government suffer -- suffers.

Now --

Justice Hugo L. Black: Well, somebody's got to suffer some prejudice in having the basis of extra cost.

Mr. Clement C. Rinehart: Well --

Justice Hugo L. Black: At least that much.

Mr. Clement C. Rinehart: I hope we -- [Laughter] but --

Justice John M. Harlan: May I ask you, one question?

Mr. Clement C. Rinehart: Yes.

Justice John M. Harlan: Assuming that the rule -- assuming that one were to agree with you on Rule 16.

The reason that Judge Dimmick as I see it refused to consolidate was because of the Local Admiralty Rule, Rule 13.

Mr. Clement C. Rinehart: Which is the same as the -- this Court's general rule to Rule 44.

Justice John M. Harlan: That's -- that's consolidation now.

Mr. Clement C. Rinehart: Yes.

Justice John M. Harlan: That's assuming that you couldn't plead -- the Government couldn't plead this -- the subject matter of its independent suit by way of set off to your suit.

Mr. Clement C. Rinehart: That is correct, Your Honor.

Justice John M. Harlan: Or maybe --

Mr. Clement C. Rinehart: You -- you -- if you may not do it by setoff, you may not do it by cross-libel either in admiralty.

You have to -- to the difference between setoff and cross-libel is simply this.

That you can't recover affirmatively on a setoff which is pleading on the answer.

Justice John M. Harlan: Yes.

Mr. Clement C. Rinehart: But you may recover affirmatively on a cross-libel.

But in both cases, the cross-libel and the setoff must relate to the transaction or cause of action that is alleged in the libel.

Justice John M. Harlan: So that the District Court, you think if Rule 13 is to be observed, would have had no right to exercise the discretion to consolidate, a general discretion to consolidate that Justice Frankfurter is suggesting.

Mr. Clement C. Rinehart: That -- that's correct, Your Honor, I don't --

Chief Justice Earl Warren: Mr. Rinehart, as I understand that the -- the Government has two arguments.

One is that it is entitled under the -- under the rules to maintain this counterclaim and the second one is that if the rule is different, it wants us to reconsider the rule.

Mr. Clement C. Rinehart: Yes, sir.

Chief Justice Earl Warren: Now, assume that -- assume that we decide the case on that second issue, one way or the other.

I think some of the members of the Court, I'm sure I would, would like to know what financial injury would occur to your client if we decide against your position on that issue?

Mr. Clement C. Rinehart: Well, apart from the -- the interest question which I have already spoken of, I don't -- the -- and that doesn't necessarily mean that we would lose but under Section 227, we have a clear right to the interest.

Now, if the case is reversed and it goes back for trial on the setoff, then of course it's in the discretion of the trial judge as to whether or not, assuming the Government is unsuccessful, he allows interest on our claim.

Chief Justice Earl Warren: Then wouldn't the judge in the same -- be entitled?

The same discretion if it tried it in the two lawsuits?

Mr. Clement C. Rinehart: Well, it --

Chief Justice Earl Warren: As if it tried to be (Voice Overlap) --

Mr. Clement C. Rinehart: -- it would be either be a question of whether or not the Government recovered interest from us under their claim.

Of course, if it's --

Chief Justice Earl Warren: Yes.

Mr. Clement C. Rinehart: -- if these independent suits was tried.

Chief Justice Earl Warren: Yes.

Well -- well, but what difference does it make if the judge decides your interest in one lawsuit instead of two so far as your financial interest is concerned?

Mr. Clement C. Rinehart: The same decision in both cases, I don't see any --

Chief Justice Earl Warren: Well --

Mr. Clement C. Rinehart: -- any in this particular suit.

Chief Justice Earl Warren: Well, are you deprived of any -- any defenses or you -- in the Government's case that -- that you couldn't have in this -- in this one suit?

Mr. Clement C. Rinehart: On the facts of this particular suits, Your Honor, of course, you're putting a question to me that I -- I'm not entirely sure about.

That just now I don't see how that would -- there'll be any defense that we'd be deprived of, we couldn't assert against the Government's setoff.

But --

Chief Justice Earl Warren: Then -- then really what -- what you're arguing for is just a strict maintenance of that -- an adherence to that rule because it is the rule.

Mr. Clement C. Rinehart: Well, as to what the statute requires --

Chief Justice Earl Warren: Yes.

Mr. Clement C. Rinehart: -- Your Honor.

Chief Justice Earl Warren: Well, I -- I see.

That's --

Mr. Clement C. Rinehart: Yes.

Chief Justice Earl Warren: -- what you are not -- because it will result in any -- any financial injury to you.

Mr. Clement C. Rinehart: No.

Then -- then there's another thing that I would like to mention before my time is up and that is if the rule is changed, where you come to suits by the Government against private parties so as to permit the Government to interpose the setoffs.

They're going to be left with a very incongruous situation because by statute, under the Public Vessels Act, when the Government is the actor and sues the private party in admiralty, you may not by statutory rule, Section 3 of the Public Vessels Act assert against the Government any setoff unless that -- these are words arising out of the subject matter for cause of action contained in the Government's libel.

In other words, the private party, when he sues the Government, has to observe the Admiralty Rule and will have to no matter what the Court does about any rule in this case because no decisional rule could change that statute and the Government would have the Admiralty Rule applicable in cases where it was the litigant or of in the libel.

Justice Felix Frankfurter: May I ask, Mr. Rinehart?

Mr. Clement C. Rinehart: Yes.

Justice Felix Frankfurter: One reason why I'm very unsympathetic to the ancient distinction, the only distinction between setoff in Congress' way and then so on.

And also arising out of the same transaction, arising out of the same transaction.

As you well know, the courts have done all sorts of things under that phrase, “Arising out of.”

I mean to say, they've arisen out of something that didn't arise off, merely because of hostility to that narrow procedure.

That's correct, isn't it?

Mr. Clement C. Rinehart: Well, I -- that -- that's certainly --

Justice Felix Frankfurter: Is that correct?

Mr. Clement C. Rinehart: -- their -- indifferent views if there was.

Justice Felix Frankfurter: Now -- yes, while you call it different view.

What I want to know from you is this.

Admiralty courts in applying the rule for which you contend, have they been -- have they been -- what shall I call it, latitude (Inaudible) in finding whether they did or didn't arise out of it?

Mr. Clement C. Rinehart: Well, I -- I won't say that -- that all the decisions are -- are entirely harmonious but I don't think there's very much spread or conflict between them on that particular point, Your Honor.

Now, of course I have the -- I have a number of other points but now I'll have to rely on my brief for those.

But I do think that the -- no prejudice whatever can result to the Government and I do think that if the rule is to be changed, it ought to be changed in the rule making procedure that's proscribed by the statute so that all the pros and cons can be brought out.

Justice Felix Frankfurter: You've done pretty well.