U.S. v. MISSISSIPPI VALLEY CO.

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Argument of Rankin

Chief Justice Earl Warren: Number -- Number 26, United States, Petitioner, versus Mississippi Valley Generating Company.

Mr. Solicitor General.

Mr. Rankin: Mr. Chief Justice, may it please the Court.

This action involves the contract generally -- which it generally been called the Dixon-Yates contract.

It goes back to the year 1954.

The question is whether or not there was a conflict of interest involved which would be a ground for disaffirming or declaring the contract unenforceable.

In 1953, a question came up in this administration about whether the proposal of the TVA to build a new plant at Fulton, Tennessee steam plant, involving a large investment of government money should be approved.

It was included in the budget of President Truman.

And the problem that the Budget Director, Mr. Dodge had was a question of a debt of Lehman and whether or not this -- this proposal should be approved or some new or different should be made with regard to the handling of the power needs in that area.

The Atomic Energy Commission needed additional power for its plant at Paducah.

We've no question about that.

And it had been serviced by the TVA.

The demands of the Memphis area were such that they run the neighborhood of 400,000 kilowatts and therefore, some additional provision had to be made in order to take care of the additional requirements of the Atomic Energy Commission.

In considering this problem, Mr. Dodge talked to Mr. Woods, the Chairman of the Board of First Boston Corporation who was the employer of Mr. Wenzell who will be described in this controversy and was the person who was -- the Government claims is involved in the conflict of interest in this case.

Mr. Wenzell was a vice president, a director and his wife owned 200 shares of the stock of First Boston Corporation.

Mr. Woods, in May of 1953, suggested that the Budget Director hire Mr. Wenzell to make a study of the TVA in its cost and see what could be recommended to the Government.

This study was made and the only bearing that it has on the matter before the Court is that Mr. Wenzell obtained information and knowledge about TVA and its cost and so forth that its fair inference could have been used and probably was in connection with the subsequent contract with Dixon-Yates.

That he made the study and that he exhibited to Mr. Woods, Chairman of the Board in his corporation without the permission of the juror of Bureau of the Budget and they discovered it later.

Then, when the Government thought that provision should be made to try to obtain a contract for the furnishing of electricity by the private utility, Mr. Hughes suggested and called upon Mr. Wenzell to come and advise the Government in regard to that, particularly with regard to the cost of money.

And in January of 1954, Mr. Wenzell's action runs from January of 1954 through April 10th as employee of the Bureau of the Budget in regard to the Dixon-Yates contract.

Justice John M. Harlan: Was Wenzell's connection with First Boston known to Dodge and Hughes when they saw everything?

Mr. Rankin: There's no question of what it was.

Justice John M. Harlan: It was known.

Mr. Rankin: It was known, all the way through.

It was not -- it was known to AEC, to the Atomic Energy Commission too.

They did not know of his employment by Budget, that is the Atomic Energy Commission, that was the contract in agency, until considerably later period after April 10th that the Atomic Energy Commission did not, but the Bureau of the Budget did both Mr. Dodge and Mr. Hughes.

It's the position of the Government that they could not waive the statute and whatever they knew in regard to his action, they had no power to set aside the will of the Congress.

Now, I'll try to develop what all they knew and what happened with regard to the matter.

It's suggested that the question of the cost of money was not an important consideration in this contract.

The Government thinks it was primary and that the record shows that.

Mr. Wenzell was a skilled person in this field and was selected by Budget for his knowledge in regard to the cost of money.

That was the entire purpose in first employment.

He was later used in connection with the costs under the contract to a considerable extent, and in addition to that, as an expediter to try to get a contract informed what the Government could make.

Justice Felix Frankfurter: When you said his employment, Mr. Solicitor, was the -- was the term of the employment formal?

Mr. Rankin: No, they were not but it's --

Justice Felix Frankfurter: Oral -- oral -- the --

Mr. Rankin: Yes.

Justice Felix Frankfurter: -- oral negotiation.

Mr. Rankin: I think that the nature of it is not disputed as far as the record is concerned.

And I am trying to -- I will confine myself to the findings of the Court of Claims which are not disputed.

The contract involved as this largest factor, the cost of money.

It was to involve a cost for the plant of $120,000,000 about a $107,000,000 for the plan itself and the rest were additional working funds.

The cost of money alone, the service charges run around $6,000,000 a year out of something like $9,000,000 that would have to be paid for the energy in order to have this plan and get the benefits of it for the Atomic Energy Commission.

So, it is apparent on the face of it that the cost of money was of great importance.

But beyond that, an examination shows that in considering the cost of money, various formulas were examined by Wenzell and he then resorted to First Boston to get their help and advice for him in regard to the matter.

Now, he then advised Hughes about the cost of money.

And then, Mr. Dixon, the head of the sponsors, one of the heads with Mr. Yates, also asked early that Mr. Wenzell, as a personal favor to him asked First Boston in regard to what this -- these funds would cost, what they could be obtain for it.

Justice Felix Frankfurter: When did First Boston first entered the entire plant action?

What was the very initiatory step of First Boston?

Mr. Rankin: The first time was on January 20th, when Mr. Wenzell, without consulting Mr. Hughes or Mr. Dodge, took Paul Miller from First Boston who had worked on OVEC, the big similar project at Portsmouth, Ohio in earlier time.

He took Mr. Miller who had familiarity with First Boston in their sales department to a meeting of the Budget where they were going to discuss the cost of money and the possibility of this project without consulting Budget people at all.

Justice Felix Frankfurter: This was on his own?

Mr. Rankin: That was -- this was on his own.

That was January 20th.

Justice John M. Harlan: 1954.

Mr. Rankin: Yes.

Later, I think it was in February, he took Mr. Powell Robinson to a similar meeting.

Mr. Robinson was the vice president of First Boston.

He didn't consult his superiors in Budget at all about that.

He took him to the meeting on his own.

Then they examined the various cost -- cost of money and they took it in different ways.

They -- this was to be as finally developed a very thin corporation.

Justice Felix Frankfurter: (Inaudible)

Mr. Rankin: Yes.

The sponsors were to contribute -- I think that's the name of the trade, at least I -- were to contribute $5,500,000 out of the total capitalization involving the debt of $120,000,000.

And so in the trade, it's called "thin" because the equity capital is a very small part of the total contribution.

Now, I don't mean that that's bad in itself but that makes the -- the cost of money a considerable problem.

So they examined the possibility -- the various possibilities, the cost of money based upon whether there was a 95 percent which this approximately what the amount of other capital and only 5 percent of equity capital contributed by the sponsors or 75 percent and 25 percent contributed by the sponsors or 50 percent contributed by the sponsors and 50 percent by borrowing.

Well, you can readily see that the security for the lenders other than the equity contributors increases as the contribution of the equity is made through the transaction and therefore, it affects the interest rate and the amount that has to paid in order to pass such a plan by the capital for it and make it possible to have the electric energy.

Now, they found that it would cost 3.5 percent, the estimate was at 95 percent and 3.5 percent at 75 percent but 3.25 percent at 50 percent contribution of equity and they examined that carefully.

Then Hughes said, "Well, that runs into considerable money, is there anyway by making it a longer term loan, which also has an effect on the cost of money and make it a 40-year?

Let's try that out."

And so, they took these various formulas of trying to determine what the cost of money would be.

And they examined that.

Wenzell didn't examine the loan.

He took it back to First Boston.

He consulted them and got their advice.

Justice Felix Frankfurter: So now, this is the first time that you've mentioned this.

First Boston -- took it back to First Boston.

First Boston says, "As a corporate capacity, a corporate capacity other than proof argumentatively the participation is sufficient," is that right?

Mr. Rankin: Well, what he was doing was going back and asking them in order to substantiate his --

Justice Felix Frankfurter: Well, is -- is Miller and --

Mr. Rankin: It is -- no, First Boston including other people in First Boston.

Justice Felix Frankfurter: Is this right that this is the first time to enter to -- your story as a corporate being?

Mr. Rankin: Well, I think so.

I -- I think at that time, Wenzell had an idea of what his figures were and what he thought might be done and then he goes back to his organization and if that's as much as it happened, we wouldn't claim that there was any conflict because it wouldn't get Dixon-Yates people on the other side of the picture.

Justice Felix Frankfurter: I wasn't getting to the point of -- of liability or responsible -- I just want to get --

Mr. Rankin: Yes.

Justice Felix Frankfurter: -- the sequence of events.

Mr. Rankin: Yes.

And so he took it back to them to get their appraisal of the cost of money to support his opinion and judgment as he was advising the Bureau of the Budget.

Then he proceeded to give the same information to the Dixon-Yates people in regard to the cost of money.

Justice Felix Frankfurter: The information derived from the -- his superior at First Boston?

Mr. Rankin: Yes.

And they, not being satisfied entirely with Mr. Wenzell's advice, wanted to know more specifically, so Mr. Dixon insisted or asked for a meeting with a Mr. Linsley who was Chairman of the Finance Committee of First Boston and another man, Mr. Miller and several others.

And he wanted, as he said the opinion of Mr. Linsley because he wanted that kind of judgment about what the market was going to be concerning this financing.

He was not going to take just the appraisal of Mr. Wenzell but he considered Mr. Linsley, a person of great skill and ability and of course, Mr. Linsley had had much to do, the record shows, with the OVEC matter which is the comparable earlier private financing deal.

So, he specifically, Mr. Dixon, asked for that conference with Mr. Linsley personally so he could discuss market conditions and the appraisal of what the money market was and what the price might be.

I present that to show how important it was considered and it's obvious that on a transaction of this size that if the money arrangements couldn't be made carefully and safely, nobody would dare go into a project of $120,000,000.

Justice John M. Harlan: Are we still into that January (Inaudible)?

Mr. Rankin: I think in February as when --

Justice John M. Harlan: February.

Mr. Rankin: -- we get to the meeting with Mr. Linsley.

Then the -- along in -- about the third week in February, Mr. James, in talking with Mr. Dixon, raised the question of Mr. Wenzell working both sides of the street.

Justice Felix Frankfurter: I miss -- who raised the question?

Mr. Rankin: Mr. James, who was the -- one of the counsel with Mr. Cahill's firm for Mr. Dixon's Middle South Utilities that was one of the sponsors in this matter.

And he said to Mr. Dixon, "What about this?

What about Wenzell working for you and telling you about these things, cost of money and so forth and working about Budget?"

Now, he didn't say that that'll be a conflict of interest under the statute.

But he said that working for both parties, it may raise in very serious problems at least in regard to public relations because of all the heat that's on this matter because of the private utility question as against public utility.

Justice John M. Harlan: Whom he said this to?

Mr. Rankin: He said that to Mr. Dixon, his client.

And Mr. Dixon then said that -- went to Mr. Wenzell and raised the question with Mr. Wenzell and said, "Aren't you disturbed about the fact you're working for both sides in this matter in regard to this contract?"

Now, it was all in a proposal stage at this time but later it became -- I'll demonstrated to you that the proposal was the basis for the contract and the Court so held.

There were two proposals, one in February 25th and one of April 10th.

The one that became the basis for the contract and the Court of Claims so held was the April 10th one.

And I'll try to show you, trace for you the participation by Mr. Wenzell right on through into the April 10th which became the heart of the contract in controversy.

When he raised the question with Mr. Wenzell, he suggested that he take it up with Mr. Hughes of the Budget.

And Mr. Hughes -- he then raised with Mr. Hughes and said, "What about the fact that I have prepared this letter?

And I've advised you and I have also told First or Dixon all the time about the cost of money.

And I've also prepared a letter which was not delivered but which was a letter of confirmation of the cost of money," and it goes into great detail, a considerable detail about the amount that would be involved with terms of the financing and what it would cost according to their appraisal and that they -- and it was on First Boston stationary.

And then I'll trace that letter later and the one that was finally given that was signed.

But this was the draft of the letter that was made by Wenzell.

I think it was long in February in -- when he was discussing the cost of money with Dixon.

And he said, "Well, what if First Boston later becomes involve in the financing?"

And Hughes said that he thought he was exaggerating the problem but that -- and that was a long time off and that he -- if he was bothered by he ought to consult his lawyer and he ought to tell Mr. Dodge.

So he went to --

Justice Felix Frankfurter: (Voice Overlap) if I understand it was Wenzell who raised the question to the Director of the Budget --

Mr. Rankin: That's right.

Justice Felix Frankfurter: -- and he was the Director who -- who specified his -- his doubts, is that it?

Mr. Rankin: Yes, but he did say, Your Honor, if he was disturbed about it, he ought to consult his lawyer and he ought to tell Mr. Dodge.

Now, Mr. Wenzell did proceed to tell Mr. Dodge.

And that -- also said in that conversation that First Boston might, at some later date, become involved in that financing of this contract and if it did, would that be any -- would that bar them the fact that he was working for both of them.

And Dodge said that he thought he should consult his lawyer in regard to it.

And he didn't seem to think it would bar them because that was a long time off and he also said to him, "If you, at some -- First Boston, at some later date, does become involved in the financing, we, in the Budget, should be informed so we could see what kind of advertisings made in regard to it and -- and you feel that's involved."

Now, it later develops that Mr. Wenzell never tells Budget until they discovered through the hearings and all that First Boston had actually been employed with the financing.

They were -- they never gave him the record.

Chief Justice Earl Warren: We'll recess now.

Mr. Rankin: Mr. Wenzell did not do as requested by (Inaudible) through the Bureau of the Budget that First Boston was going to be involved in the financing and give the Budget an opportunity to pass upon the advertising for any fee.

Now, this was all dealing with the first proposal.

The first proposal was dated as of February 25th.

And in that proposal, there was a definition of what the sponsors were willing to do in regarding -- regard to try to make this contract.

And after it was received, Mr. Wenzell participated in advising the -- the Budget in regard to the cost of money.

He also advised Dixon-Yates.

And upon receipt of it, he proceeded then to advise in regard to the cost, not merely the cost of money but the overall cost of the contract or the proposal.

And he referred to the TVA cost and studies the information that was available in regard to TVA cost.

And it was concluded that the proposal of the latter part of February could not be accepted by the Government because it was too high.

It was run about $200 a kilowatt.

And --

Justice Potter Stewart: To whom was the proposal made, Mr. Solicitor General?

To the Budget (Voice Overlap) --

Mr. Rankin: The proposal was made to --

Justice Potter Stewart: -- Atomic Energy Commission or --

Mr. Rankin: The proposal was made to the Budget.

And at that -- at that point --

Justice Hugo L. Black: You mean the head of the Budget?

Mr. Rankin: No, I think it was -- as a government of the matter, it -- it was given to the -- the Budget but I think no question what he was acting on behalf of the Government at the time.

And in this proposal, they felt that the energy charged and the charge for standby or plant cost were out of line compared with the -- with what TVA could do under its Fulton plant proposal and therefore, it could not be accepted by the Government.

Chief Justice Earl Warren: Now, this was Mr. Dixon's proposal.

Mr. Rankin: That's right.

Chief Justice Earl Warren: Yes.

Mr. Rankin: Now, after that, there was a considerable period when it was being studied by Budget and by AEC and Mr. Wenzell, shortly after that, said that he was not qualified in regard to overall cost and the Government should get someone else.

And they did get Mr. Adams from the Federal Power Commission to give further advice in regard to overall cost.

But in regard to the -- that first proposal, Mr. Wenzell did advise the Bureau of the Budget on the cost.

And then that proposal was rejected on March 24th of the same year, 1954.

Now, the Government contends that the second proposal that was made as of April 10th, the estimates were discussed for the second proposal as of April 3rd was so related and so much a part of the first proposal on all that went into that, that you can't separate the two and say that Wenzell had nothing to do with the second proposal and merely with the first, as this suggested by the respondent.

And the reason for this -- there are a number of reasons.

One of them, if you'll keep in mind the date of March 24th that the Government told Dixon-Yates that their proposal -- the first proposal of February was unacceptable.

They come -- came forth in a meeting with Wenzell in the Budget and others at the Government in -- on April 3rd with new estimates.

That's only nine days to try to bring forth an entirely new proposal with a new approach to this problem.

Now, the only real new approach was -- I don't mean that it wasn't substantial but it was -- that they were trying to reduce this overall cost charge in regard to the energy.

But it's the Government's position that you couldn't possibly, within nine days, develop anything like that without relying upon all that had gone before in Wenzell and these people working together, that there was a whole -- all of the problems going to the cost of the equipment, the cost of the money, how it could be financed and so forth, which they've already gotten from Wenzell and which he continued to advice them about up -- through April 3rd.

There is some difficulty in the record about when Wenzell's employment stopped with Budget.

Because he said that he conceived his employment stopped on April 10th.

He actually did nothing more for the Budget beyond April 3rd.

But his testimony was he conceived his employment ended on April 10th.

He did however, right after that, do a great deal of work on the financing with First Boston and also with Dixon-Yates after he was not working for the Budget but the position of the Government, he couldn't just take out of his mind all of the things he'd done on behalf of the Government with Budget and all of his work that he'd done on both sides of the street for both of them and then continue working on the same financial problems in April and May of the same year without it relating to what was done before.

Chief Justice Earl Warren: And he was then working for -- for First Boston?

Mr. Rankin: First Boston.

Yes.

Justice Felix Frankfurter: Do I understand -- do I -- am I right to infer that if -- to the extent that you can disentangle Wenzell from what conceded between April 3rd and April 10th, you know that -- in addition contrary to the fact but assume one could that as to the events between April 3rd and April 10th, he was dissociated from -- from the governmental activity, is that right?

Mr. Rankin: Well, he was -- I cannot --

Justice Felix Frankfurter: I don't mean formally.

He was -- may still an employee but --

Mr. Rankin: Yes.

Justice Felix Frankfurter: -- we had no active (Inaudible)

Mr. Rankin: In that form --

Justice Felix Frankfurter: -- in what was going on between April 3rd and April 10th, is that right?

Mr. Rankin: That's right.

Yes.

Justice Felix Frankfurter: But your --

Mr. Rankin: Now --

Justice Felix Frankfurter: -- position is that that was an organic rule that we trust repeatedly (Inaudible).

Mr. Rankin: Yes.

Now, I'd like to --

Justice John M. Harlan: (Inaudible)

Mr. Rankin: No.

I'm -- he orally left and quit, I -- I think it's the best description of it.

I might say that after this matter came up and Hughes suggested that he consult with a lawyer or counsel with regard to his problem about the conflict.

He did then go to his superior, Mr. Coggeshall of First Boston and asked him and he arranged for him to see Sullivan and Cromwell.

He saw Mr. Raben and Sullivan and Cromwell.

Justice Hugo L. Black: He see who?

Mr. Rankin: Raben because Arthur Dean, the senior partner was not then available in New York and he told him about what he'd done.

Unknown Speaker: (Inaudible)

Mr. Rankin: This is on February.

And that he had drafted this form of confirmation of advice on the First Boston stationary about the money rate and what could be obtained for and that he'd been working for Budget and doesn't tell the detail of what he probably described his duties and that he'd been working with Dixon-Yates.

And Raben told him several things.

He said first that he should resign immediately and he should do it in writing.

This, he never did.

He never did it in writing and he didn't do it immediately.

He postponed it until after --

Unknown Speaker: (Inaudible)

Mr. Rankin: I don't recall that he did.

Unknown Speaker: (Inaudible)

Mr. Rankin: I --I think I better check that before I answer that question (Inaudible).

Justice Felix Frankfurter: Do I infer that Sullivan and Cromwell were independent counsels?

Mr. Rankin: No, it's clear in the record that they were the counsel for First Boston.

Justice Felix Frankfurter: It was the First Boston?

Mr. Rankin: And the President of First Boston made the arrangements for the conference.

He was -- he was the Vice President of First Boston during all this period and the Director.

And then Mr. Raben checked his advice.

Well, Raben further said that if the financing was offered to First Boston, the board of directors should consider whether they should accept it at all and if they did, whether they should accept any fee.

This advice was communicated by telephone to Arthur Dean in Washington, the senior partner.

And he confirmed the advice but suggested that maybe if First Boston was selected, it would want to do it as a public utility rather than accept any fee for it, but he confirmed the advice generally.

Unknown Speaker: (Inaudible)

Mr. Rankin: No, it was oral.

There is no contest as -- in the record about it and the findings are clear in regard to it.

Justice Charles E. Whittaker: Mr. --

Justice Felix Frankfurter: Whatever maybe worth it's not in dispute here --

Mr. Rankin: No.

Justice Felix Frankfurter: -- the advice of both Mr. Raben and Mr. Dean.

Mr. Rankin: That's right.

Now, I don't want to leave the impression that they told him that it was a violation of statute because it didn't, so far as the record shows anything that I know, it didn't show that that was what he said but it was clear that the description according to both parties was given by Mr. Wenzell and that was his response to --

Justice Felix Frankfurter: People can be better than the law, I suppose.

Mr. Rankin: Now, if you would turn to page 121 of the appendix to the petition for certiorari, the Government's petition, you'll find in that appendix the various findings are set out.

And at the bottom of page 120 is finding 67, which sets forth the opinion letter that was drafted by Mr. Wenzell, shown to both Dixon and Hughes.

This letter was not signed but it was back February 23rd.

And when he discussed this letter with Raben, Raben said, "Well, it didn't make any difference whether the letter was signed or not."

He merely confirmed the oral advice that he'd been giving all the time.

But this letter does show in great detail that it is the kind of a letter that is given of opinion in regard to such matters.

And Wenzell in his discussion with Dodge said that it might be construed as a moral commitment in regard to the opinion that he'd already gave that would bind First Boston.

Justice John M. Harlan: May I ask you a general question?

Mr. Rankin: Yes.

Justice John M. Harlan: (Inaudible)

Mr. Rankin: Yes.

We -- we do not challenge the findings at all.

There is an agreement that either party can call upon other parts of the record but we're not challenging your findings.

Now, turning to page 147 of the same document under 109 finding, you will find a letter that was signed by First Boston in connection with the second proposal.

And for all practical purposes, it's -- it's substantially the same.

There is a small change in regard to the amount of the total amount from $130,000,000 to $120,000,000.

And there -- there's a slight change in regard to the 30 years.

Chief Justice Earl Warren: (Inaudible)

Mr. Rankin: It's page 147.

Chief Justice Earl Warren: 147.

Mr. Rankin: Finding 109 and you'll notice about a third -- way down to page dated April 14th.

Chief Justice Earl Warren: Yes.

Yes.

Mr. Rankin: A detailed letter substantially showing the thread of Wenzell's advice all the way through.

And the record is that Mr. James, the attorney for Mr. Dixon, used Mr. Wenzell's first draft 67 -- finding 67 that was not ever signed as the model for the one that was signed.

And it shows how closely it was related all the way through and that advice relied on.

Now, to show the reliance that they did place upon this kind of advice, Mr. Yates, the other sponsor in this matter wrote a letter the first part of March of 1954 to his directors saying that they had received advice from First Boston with Wenzell that this financing could be done at 3.5 percent in accordance with the $120,000,000 and so forth that they we are talking about.

So he was reassuring his directors that this moneys -- advice in regard to the cost of money could be relied upon, was relied upon and that First Boston had given it to them so they could and they could assume that under the market was a fair assumption that they would be able to market these bonds and wouldn't have trouble with the financing.

And that's a part of the record with regard to the matter.

Now, on page 122 of that same volume, there is indented in the upper half of the page, the wording of the proposal and the identical language is used in the April 10th proposal.

We have received assurances from responsible financial specialist, expressing the belief that financial arrangements can be consummated on the basis which we have used in making this proposal and under existing market conditions and then they go on to say and our offer is conditioned upon such consummation.

Now, we call your attention to the fact that that was in both proposals, to show the reliance that was placed upon it and the fact that it was so important to this deal that the whole thing was conditioned upon whether or not that would work out in accordance with the advice that Mr. Wenzell had given.

Now later on, as I presume you all know that the contract was terminated.

It was terminated in the first -- not for the conflict, it was terminated because Memphis came forward and said they would build a plant and that would take care of the -- the entire problem that wouldn't need the capacity of this proposal in order to satisfy the additional requirements of the Atomic Energy Commission.

And then the -- after the April 10th proposal was made, it was -- a study was made for sometime and then a man by the name of Von Tresckow came forth with another proposal, unsolicited.

And that was then examined in the Government as to how it compared with the proposal of the sponsors and it accounted for some considerable delay in trying to analyze that by all of various interested parties that the Government got together to try to determine.

And I -- and then July 7th, they started the negotiations on the contract itself.

And the -- the Court of Claims held as a specific plan that the contract substantially conformed to the April 10th proposal, so that in substance, it was the same as the contract.

Now, there were changes in the contract.

There are modifications and changes but in substance, the Court of Claims found that it conformed to the April 10th proposal.

The Government is not contending that it was overreached of any fraud in connection with the contract at -- after the termination because Memphis came forward offering to build the plant.

The Government sat down to try to find out the termination cost, what it would pay.

And in those discussions, it reserved the right of whether or not the conflict of interest would be taken advantage of -- by the Government as grounds for disaffirmance.

But they did proceed to discuss what the termination cost would be under the terms of the contract itself if they didn't disaffirm, reserving that right.

In the mean time, it was studied in the Government.

There were many hearings before the Senate Committee and there is a -- a hearing before the SEC in regard to the sum of the financing earlier that referred to in the brief.

And then on advice of counsel, the Atomic Energy Commission did disaffirm the contract and say that because of the conflict of interest of Mr. Wenzell, working for First Boston and the Budget at the same time, the contract was disaffirmed and unenforceable against the Government.

Unknown Speaker: (Inaudible)

Mr. Rankin: It's well over $2,000,000.

And then there is no controversy about those various amounts.

The various -- I -- I don't know whether the termination that they talked about is the same as we proved here finally and the Court of Claims allow.

If they are entitled to recover under the law, the Government doesn't contest the amounts that are set forth in the findings.

Unknown Speaker: (Inaudible)

Mr. Rankin: No, the April -- April 10th proposal was given.

You see the second proposal.

There were negotiations by the first proposal ripening into a proposal of February 25th then there was -- that was unacceptable and the Government so advised them March 24th.

And on April 10th, there was another proposal and that was the one that became substantially the contract according to the Court of Claims.

Unknown Speaker: (Inaudible)

Mr. Rankin: Yes, Mr. Justice.

Unknown Speaker: (Inaudible)

Mr. Rankin: Well, the proposal was tendered as of April 10th.

Now, it was not accepted as a basis of -- of contracting until later by the Government.

Unknown Speaker: (Inaudible)

Mr. Rankin: That's right.

Unknown Speaker: (Inaudible)

Mr. Rankin: That -- the negotiations were started July 7th.

Unknown Speaker: (Inaudible)

Mr. Rankin: No, the evidence is just the discussions that I have related about the possibility but the agreement as to actual financing was clearly made as of May 7th when they started working on a plan.

And the testimony of Mr. Dixon was that he thought he had directed First Boston to proceed with the financing as of April 12, but there is apparently a misunderstanding and Mr. Miller was out-of-town.

They try to call April 22nd and someone else they try to reach so that Mr. Dixon was quite unhappy because they didn't have something ready for him in May -- early May and they got down to it.

Now, the fact is later that they brought Lehman Brothers in for half of the financing.

And that proposal was made by Dixon.

It's unexplained as to why, whether it's to try to get rid of the conflict problem or what.

There's no showing in the record that Lehman Brothers had ever done any prior financing for Dixon or Yates.

But they are brought in to it.

And at that conversation between Mr. Dixon and -- and Mr. Woods, Chairman of the Board of First Boston, in regard to bring Lehman Brothers in.

Mr. Woods is very unhappy about it according to the record and talk to as though he was willing to back out.

And then he finally said that if they could have 60 percent of any fee and control of the handling of the financing, they would go ahead with Lehman Brothers in it.

And later, long time later in -- in 1955, after all the controversy in regard to the hearings and -- and charges in the Senate and so forth, the First Boston made a public statement that they were not charging a fee.

And the record is that Lehman Brothers were unhappy with that.

They thought that -- that there should be at least a nominal fee and then it was done as a public service.

The Government doesn't think if there's a question of fee or not fee is important to the matter in the first place.

When First Boston did the OVEC job, they got $150,000 and $20,000 for expenses, a comparable situation.

And it was throughout the period that Wenzell was working for both sides.

He had every reason to think that they would get a fee.

Now, his compensation was based upon a salary with First Boston and a bonus on the business that he was able to bring to it.

So the Government's position is -- is the effect on Wenzell's acting in good faith and completely on behalf of the United States to this involve.

And he had every reason to think he could get this business in there at that time that he would get something comparable to the OVEC fee.

Now in addition to that, the record is very clear that both Lehman Brothers and First Boston thought this was a very valuable financing to have as far as reputation in the business was concern and that they didn't even charge a fee in it that it would help them get other business that would be very attractive.

Justice Felix Frankfurter: That leads me to ask the question I am about to ask.

Suppose the First Boston had announced in the most emphatic and convincing way in March, March 1st for the charging of the fees, does the Government's contention would be different?

Mr. Rankin: No.

Now, I would like to turn briefly to the statute which is on page 2 of the Government's brief and call your attention to the language of it and some of the arguments that are made and what we think the answers to it are -- to them are.

"Whoever, being an officer, agent or member of," and I want to make it very clear, we don't claim he's an officer, agent or member of Dixon-Yates companies or the Mississippi Valley Generating Company, we claim that he was officer, director and his wife was a stockholder of First Boston, "or directly or indirectly interested," and we say that he was at least indirectly, "interested in the pecuniary profits or contracts," of First Boston, "of any corporation".

Justice John M. Harlan: It has -- it has to be contracts to rely on.

Mr. Rankin: Yes, that's right.

Justice John M. Harlan: Where there was no -- there were no pecuniary profits.

Mr. Rankin: No.

Justice John M. Harlan: Is that right?

Mr. Rankin: That's right.

"Of any corporation," we say that's First Boston, "is employed or acts as an officer or agent of the United States for the transaction of business with such business entity --

Unknown Speaker: (Inaudible)

Mr. Rankin: That's First Boston.

Unknown Speaker: First Boston.

Mr. Rankin: -- shall be fined not more than $2,000 or imprisoned not more than two years or both."

Now, he also is acting clearly here, was acting for Dixon-Yates but the benefit he was expecting to get, according to the contention of the Government, was from the contract, the subcontract or the financing contract of First Boston.

We don't claim that he had any direct financial interest in the Mississippi Generating contract.

We say that as a subcontractor, he was expecting it all -- all the time and had a -- a reasonable substantial expectancy, which is the general words of the Court of Claims, that First Boston was going to get this business when he was working for both of them and at the same time that he was -- he was helping the Government, he was helping Dixon-Yates so First Boston will get the benefit.

Now, it provides a fine or imprisonment or both.

And the -- an argument is made that it doesn't say that the contract is unenforceable.

The position of the Government is that this is a declaration of the public policy by the Congress that you just can't -- can't be in that kind of a position where you're working for both sides when you're working for the Government.

And therefore, that being a declaration of public policy, the courts will not give judicial sanction to such a contract.

Now, there is one question raised about the fact that the statute 18-216, a bribery statute, has a provision that the contract maybe declared unenforceable by the President.

And they say that in the -- the legislative history is against our construction of this -- making this contract unenforceable under this statute because it doesn't have that like provision when the statute were considered much the same time back in 1862.

Now, the fact of the matter in that regard is that when Senator Fessenden discussed that addition and the issue then before the Congress was whether or not it should be unenforceable or void.

He said, "All I am doing is trying to have -- incorporating the statute of principal of general law," so it's the position the Government -- it really didn't add anything or subtract anything and that's what the legislative history is.Fessenden then said, "This is just the principle of general law that I am asking to be incorporated in this statute."

And there are a number of cases of the Court of Claims and this Court that -- to the effect that you will not enforce that type of contract of -- under this type of statute.

Now, there is one case that was discussed by the Court of Claims in the majority and the minority opinion that I'd like to discuss very briefly and that's the Muschany case.

In that case, as you will recall, there was a contract for options.Certain options for land were secured and there was provision for a commission to the option agent.

And the majority of the Court, the -- the issue was whether or not this was a commissioned contract or a commission based upon cause or a contract or a cost-plus-fixed-fee.

The majority of the Court held that the contract was in fact a cost-plus-fixed-fee, which was express -- expressly exempted from the other provisions of the statute that prohibited any contract for cost plus the commission.

Justice John M. Harlan: Supposing Memphis have come into the picture itself at the end, does the President in that -- had any right, notwithstanding this conflict (Inaudible) notwithstanding Wenzell's association to the matter, would he -- would he be -- would he had the right to continue that contract (Inaudible)

Mr. Rankin: Well, your case is often --

Justice John M. Harlan: (Voice Overlap) automatically void?

Mr. Rankin: -- often say that they are unenforceable and some of them say it's void and unenforceable and so that -- at least, it's unenforceable.

And at the very least --

Justice John M. Harlan: If the Government wishes to repudiate.

Mr. Rankin: That's right.

The Government -- all of the cases, federal cases seem to make it clear that it's unenforceable giving the election to the Government, then there is also the cases in regard to have been void as against the public policy.

And I think -- I -- I don't think the refinement of whether it would be void or unenforceable has been made by this Court in such a situation.

We are taking the position in this case that it's either void or unenforceable because of our disaffirmance, that at least it's unenforceable because of disaffirmance.

And that we think that the contracts of that type -- probably the best protection for the Government would be that there'd be innovation or new contract that cleaned out whatever the conflict was involved.

This is of great importance to the Government.

I tried to find out the extent of the contract and the problem with the Government in order to be able to give you some light in regard to it.

And I had difficulty getting anything I could cite to you that was public records that -- in hearings or something of that kind.

There are publications that have been made by the Defense Department, GSA and others, and I found that there are over six million contracts a year in the Defense Department alone involving procurement and there are over -- involving over $2,500 in amount.

And there -- that involve some $21 billion in amount.

And then in GSA, there is almost a billion dollars a year in contracting, and then all of the other departments and agencies have a problem.

I only call your attention to that to emphasize what we think the importance of the rule that Congress has laid down here, the principle, in that if the Government is to be protected in this area and the courts would lay down a rule that you had to examine in every case whether or not there was a waiver by some official in the Government or whether or not there was some inequity in the transaction, it would be an -- an endless problem and would -- and would be no protection for the country whatsoever.

Now, there is -- may I finish just in that regard?

There is no question about what -- on a quantum meruit or quantum valebat.

There could be a recovery if there's any benefit from the Government that's recognized here.

There wasn't any benefit from the Government and so it couldn't be that.

But if you didn't have this kind of a rule, you could have a great portion of the contracts in which the -- you would find that it might be a considerable advantage to take a chance at having somebody on the inside that could help you get the contract or help you make it to advantage and you couldn't lose too much because you could always get the quantum meruit or the quantum valebat and then you could take a chance on whether you could get a richer profit if you had it in the contract.

Justice Felix Frankfurter: What I want to know is -- but I'm right and I'm assuming you're wrong, that we must construe this statute in this situation to 18 U.S.C. 434 as though the case before us or the conviction are for a criminal conviction.

Mr. Rankin: But we -- we don't think that you have to find the criminal intent because --

Justice Felix Frankfurter: Well, I'm -- no, but the construction of the statute -- is the construction of the statute say that they would have to make it (Inaudible) to criminal conviction?

Mr. Rankin: Well, this Court has said that this is a criminal statute and that criminal statutes generally are strictly construed.

But on the other hand, it's your duty to -- try to carry out the policy that the Congress has laid down and it has coupled those two things together.

So I don't think it's quite the same as the ordinary criminal statute rule in that you're also --

Justice Felix Frankfurter: But suppose there had been a prosecution of Mr. Wenzell under this statute, which the statute would allow, would it not?

Mr. Rankin: Yes, sir.

Justice Felix Frankfurter: Because there might be good reasons for this --

Mr. Rankin: Yes, sir.

Justice Felix Frankfurter: -- Solicitor General (Inaudible) properly held on the statute.

Suppose there had been, would the focus of our attention be different with that situation in -- on this record, where only (Inaudible)

Mr. Rankin: Well, I think it's a little more in light of -- of this language that the Court has used in regard to the enforceability of the contract so far as --

Justice Felix Frankfurter: But what -- what -- directly, this all turns down indirectly, doesn't it?

Mr. Rankin: Yes.

Justice Felix Frankfurter: Would he be giving a different -- someone writing the opinion, writing differently as to what indirectly means in this case than in a criminal case?

Mr. Rankin: Only in being sure that you carried out the policy of the Congress, the public policy.

Justice Felix Frankfurter: Oh, yes.

Mr. Rankin: But I think you try to do that there, too.

Justice Felix Frankfurter: As you may know I shy off if I'm talking about strict constructions from the statute.

That's the way I've reached in -- after the result of (Inaudible) strict construction.

The Government permits that he must carry out the purpose of Congress.

Mr. Rankin: Well, I --

Justice Felix Frankfurter: (Voice Overlap) the purposely too vague depending whether it's a civil action or a criminal action under the same term.

Mr. Rankin: No, I do not say that.

Chief Justice Earl Warren: Mr. Cahill.

Argument of John T. Cahill

Mr. John T. Cahill: Mr. Chief Justice, may it please the Court.

Mr. Chanler and I appear on behalf of respondent.

We've allocated our hour between this.

I will take 50 minutes of the hour, Mr. Chanler will close with 10.

Now, I have three charts, Mr. Chief Justice.

And with the permission of the Court, I will ask that they'd be handed up.

It's because the timetable, the chronology of events here is important.

In my first chart, we'll go to the principal dates in this matter based on the undisputed Court of Claims findings of fact.

I might say, well, the charts are being handed up that -- not only does the Government concede affirmatively here that there's been no fraud or corruption by anybody at any time in this transaction but they further concede that the contract has "a fair and honest contract".

Now, that was so conceded in open court upon the trial of the action.

This contract -- the finding say was negotiated over four months by the Atomic Energy Commission.

And Mr. Justice Stewart, the proposal was to the Atomic Energy Commission.

My friend fell into error.

With 14 different people on the AEC negotiating team founds specifically by Commissioner Collin to have been a competent and aggressive staff of negotiators.

Commissioner Collin further went on.

And I may say that although there was a dissent in the Court of Claims, the dissenting judges did not dissent on the finding, so that they're unanimous in their affirmance before you.

They found that these negotiations had been "lengthy, odious and hotly contested".

There were 15 negotiating sessions, so formed minutes were kept of them.

There were other minutes -- there were other meetings where the minutes were not kept.

Before the Joint Committee of the House and the Senate on Atomic Energy, Mr. Nichols, the General Manager of the Atomic Energy Commission, produced a chart of 25 changes all important to the Government, he said, including the TVA changes that had been the result of the contracted negotiations in suing on the April 10th proposal returning to the beginning of this first chart on the principal dates because I think that it brings out the chronology here very well.

We have December 23rd, 1953, Mr. Dixon's first meeting on this matter with Adams and Strauss, Mr. Nichols and Mr. Williams, Manager and Assistant General Manager of the AEC in Washington.

Now, we come to the period of Wenzell's unpaid part-time consultancy to the Bureau of the Budget, which was requested --

Justice Potter Stewart: May I ask you --

Mr. John T. Cahill: -- not by us but by the Bureau of the Budget.

Yes, Your Honor.

Justice Potter Stewart: May I ask a general question --

Mr. John T. Cahill: Sure.

Justice Potter Stewart: -- Mr. Cahill.

You've told us that there was no difference of the opinion as to the fact findings of the Court of Claims.

The Government hears and told us generally that they don't quarrel at all that the findings of fact did not sue you, is that also true?

What's your position?

Do you accept the findings of fact?

Mr. John T. Cahill: Oh, yes, Your Honor.

Yes, but may I speak to that?

Justice Potter Stewart: That's why I'm asking you.

Mr. John T. Cahill: But we say in our main brief, it is not facetious that the (Inaudible) statement facts of the Government's brief must not have been acquainted with the man who wrote the argument, in the Government brief.

And I shall -- I hope to demonstrate rather sharply in the reply brief that the disparity between that concession and what has been argued here is egregious and I will come to that in a very short order.

Justice Potter Stewart: But in any event, there's a universal acceptance of the findings of fact by the (Voice Overlap) --

Mr. John T. Cahill: As a matter of record, that is so.

Justice Potter Stewart: Right, thank you.

Justice Felix Frankfurter: And the findings of fact include the only findings the Court made.

Mr. John T. Cahill: That is right and they're unanimous before Your Honor.

The -- all five of the judges below upheld the findings of Commissioner Collin.

Justice Felix Frankfurter: So that any casualization of opinions are not findings of fact for the casualization.

Mr. John T. Cahill: Right, sir.

Now, we have the date of January 18th, 1954 when Wenzell came to Washington having been called by Hughes, then Assistant Director, later Director of the Budget.

We have February 25th, the sponsors' first proposal to the Atomic Energy Commission.

Everyone of this is backed up by a finding.

March 16th, Wenzell's consultancy effectively ended.

Now, what we mean by that was that at that date, he went back to New York.

And thereafter, his only job was to turnover to Adams, who was the Director of the Power Bureau of the Federal Power Commission, such papers as he had and to be sure that Adams knew what he knew about this question of the cost of money.

March 26th, the findings say started the preparation of the detailed cost estimates for the April 10th proposal.

Wenzell did not participate.

That is undisputed.

April 3rd, the Commissioner found the consultancy of -- Wenzell concluded.

April 12th, we submitted the MVG proposal to the AEC, the one that was dated April 10th, April 12th to 24th, intensive review and analysis, both by the AEC and the TVA of our April 10th proposal.

April 28th, Von Tresckow announced his proposal.

Justice Hugo L. Black: Those days are not on the proposal.

Justice Felix Frankfurter: (Voice Overlap) not here.

Mr. John T. Cahill: They're all of record.

Justice Felix Frankfurter: Yes, but they're not on your (Voice Overlap) --

Mr. John T. Cahill: No, they're not on the chart that you have before Your Honor because they have no relation with what ultimately happened.

I'm just filing in because some of these things are gaps that my friend unfortunately did not have the time to cover.

The finding, for example, on May the 12th, and it was of May 12th, the agreement as to the financial agency was concluded with First Boston and Lehman Brothers.

On May 27th, the competitive proposal of Von Tresckow was received.

And on June 14th, President Eisenhower decided on the basis of comparative analysis of our April the 10th proposal and the competing Von Tresckow proposal to direct negotiations be done with us.

Now, we have here a (Inaudible) from April 3rd to June 30th, when, for the first time, we were informed of President Eisenhower's decision that negotiations should be had with us through -- with the competitors.

So that on July 11th, we had the commencement of negotiations of the power contract with the Atomic Energy Commission.

On July 14th, our proposal of April 10th was printed in the congressional record.

On August 18th, the August 11th proof of our power contract was sent to the Joint Committee of the House and Senate on Atomic Energy.

And I might say that the contract was not effective until after extensive hearings had be held, been held before that Committee.

And they adopted a resolution in November when this contract was executed, holding that this was a good contract and in the public interest and that many changes had been made in it to the benefit of the American people.

On October 5th, we received --

Justice John M. Harlan: Was any --

Mr. John T. Cahill: -- a favorable --

Justice John M. Harlan: Excuse me.

Was any -- was any question made to those congressional hearings as to Wenzell's -- Wenzell's -- at this page.

Mr. John T. Cahill: Not -- not at this time.

I'm coming to that if I may.

Justice Hugo L. Black: Was it known at that time?

Mr. John T. Cahill: Yes, it was.

And that's the part I shall deal with explicitly where I say that my friend's agreement with the findings of fact are so much of variance especially with his reply brief.

Justice Potter Stewart: Who was known by whom?

Mr. John T. Cahill: It was known by the Government.

Justice Potter Stewart: Well, the Government's --

Mr. John T. Cahill: Well, take for --

Justice Potter Stewart: -- (Voice Overlap) --

Mr. John T. Cahill: He came to view --

Justice Potter Stewart: Was it known by this --

Mr. John T. Cahill: -- he came to --

Justice Potter Stewart: -- was it known by this congressional committee?

Mr. John T. Cahill: I can't speak as the congressional committee.

I can't speak as the negotiating agencies because it came to the Bureau of the Budget of request --

Justice Potter Stewart: Yes.

Mr. John T. Cahill: -- of Hughes.

Justice Potter Stewart: So Mr. Hughes -- Mr. Dodge --

Mr. John T. Cahill: And they -- Mr. Hughes knew he was --

Justice Potter Stewart: Yes.

Mr. John T. Cahill: -- First Boston when he went over the Atomic Energy Commission and Your Honor knows what security precautions they have.

Every time he signed in, he puts down Wenzell, First Boston on Broadway, New York City.

The finding is that Admiral Strauss knew he was First Boston.

Justice Felix Frankfurter: He knew (Inaudible)

Mr. John T. Cahill: So then, we come to October the 6th where the Atomic Energy Commission reported to the Joint Committee of the Congress that the October 1st proof of contract had been approved by the AEC, which had received favorable letters from the Federal Power Commission, General Accounting Office, Tennessee Valley Authority, Bureau of the Budget, Chief of Engineers and General Council of the AEC.

Now, to show you that this thing was not frozen, there's affirmative finding that as late as the night before this contract was executed at November 10th, it was doubtful "whether there would be a contract" because at that time, demands were made upon us by the negotiating agencies to which we were not sure that we could exceed.

And last, the execution delivery on November 11th after this long period of four months of strenuous negotiation, lengthy, odious and hotly contested as the finding say, we have the contract.

Now, we turn to the second chart, if Your Honors please.

Chief Justice Earl Warren: Are these the only dates in Wenzell's consultancy that -- that you think we should be interested?

Mr. John T. Cahill: That's all, Your Honor.

Absolutely nothing else, Mr. Chief Justice.

Chief Justice Earl Warren: Well --

Mr. John T. Cahill: That is it.

Chief Justice Earl Warren: -- it seemed to me that Solicitor General gave us number, rather dates between January 18th and April 3rd that -- in which Mr. Wenzell did certain things that were more active than just went to Washington.

Mr. John T. Cahill: Oh, Mr. Chief Justice, I will deal with what Mr. Wenzell did during this period of time.Remember, there's only a part-time occupancy with them.

And it was unpaid.

Chief Justice Earl Warren: Oh, I -- I just -- I just wondered that there weren't other dates in there that --

Mr. John T. Cahill: There are other dates, Mr. Chief Justice, but they're all to the common point which I'm about to deal with now, namely --

Chief Justice Earl Warren: Go ahead.

Mr. John T. Cahill: -- the title on the second chart, “From the opinion of the Court of Claims, the cost of money was determined by forces beyond the control of the contracting parties.”

Justice Felix Frankfurter: That is not a finding, is it?

Mr. John T. Cahill: No, that's from the opinion.

Now, the Court of Claims says that Wenzell was a fifth column planted on us by the Government.

Apparently, what the Government contends here was that Wenzell was a fifth column planted by First Boston on the Government.

That seems to be the thrust of their argument.

Now, the thing that Wenzell is supposed to have prolonged from the Government is this mystical information that this project could be financed.

So he forecast for 3.50 cost of money.

Now, that seems to be the constant because it goes all through their brief and the reply brief.

And so just to show how much in error that is as a fundamental assumption, I plotted from the Federal Reserve bulletins for 52, 53 and 54, the yields on Triple A bonds and the yields on the AA bonds.

Your Honors, we'll see that the money market, part from being a constant, gyrated during that period like a fee of the charge.

Now --

Justice Felix Frankfurter: But the 54, that's what he says.

Mr. John T. Cahill: Yes, fairly studied but on the other hand, it wasn't the judgment of Wenzell of First Boston that counted.

It was even the judgment of the Budget Bureau or the AEC.

It's the judgment of the lenders as to what they can get for their money.

And when you're going to borrow an excess of $100,000,000 and you're going to the big institutional lenders such as the Metropolitan Life or the Prudential, the two companies that committed to lend here, it's what those financial vice presidents think they can get from competing applicants for the money and it turned out that Wenzell was wrong.

Justice Felix Frankfurter: It's very often for you to think they're right and it turned out to be wrong.

Mr. John T. Cahill: That is true.

But I'm trying to show you how much in the field of the prophecy of the Farmer's Almanac.

Justice Felix Frankfurter: This is guesswork.

This is guesswork.

Mr. John T. Cahill: Yes, on the gallop hole, Mr. Wenzell was in his prophecy of 3.50.

Justice Felix Frankfurter: Well, you encourage me in -- in my precision at least.

Expert guesses are often wrong.

Mr. John T. Cahill: I agree completely.

I -- I'd like to call the attention to finding 102, where a reference is made.

That's record to 103 and 104 to a meeting between Dixon and Nichols, then General Manager of the AEC.

And I'd like to read this finding.

During that meeting, Dixon said that the best informed judgment which the sponsors had been able to indicate -- to obtain indicated that the interest charges on the debt money would be 3.5 percent.

But he further stated that if it developed, that responses had to pay a higher rate, he would expect the Government to reimburse the sponsors for the additional interest costs.

On the other hand, Nichols took the position that if the actual cost of money to the sponsors was less than 3.5 percent, he would expect to reopen the question of costs so that the Government would obtain the benefit of the lower rate.

The cost of money to which both Nixon and Nichols referred is not a static figure but varies from day to day and sometimes from hour to hour in accordance with the ups and downs of the market.

As well -- here -- here and after appear, the actual cost of the money borrowed was 3.58 percent for MVG's bonds and 3.25 percent for its notes.

In fact, as the Court of Claim said, this agreement -- this information as to the cost of money was such tangible information that “A few well-placed telephone calls by any responsible person would probably have to obtained such information.”

Now, that's what the case is about.

And that's what Mr. Wenzell who came here to do a patriotic duty he's accused of doing.

Now, just to show how far wrong he was, I take my third and last chart.

We have here, at the first line, the Wenzell-First Boston interest estimate, 3.50, the actual interest cost, 3.58.

On the MVG commitment, the 25-year bonds of $104,448,000, the excess of actual interest over estimate on the life of the bonds is over $2,000,000.

Now, we had the right under the contract to go back and reopen it with the Atomic Energy Commission because of that excess of payment.

We who are supposed to have been so greedy could have done that.

The findings are that Dixon said when he first came down here that we were willing to do this business without regard to profit that we were willing to take any rate of return that the Federal Power Commission gave.

The further fact is we agreed that our losses would be limitless on this contract when we agreed to a CI of $600,000 a year on our profit.

And we agreed that in many years, it went over $600,000, we put it in the (Inaudible).

So it went on to $600,000 on another year, they could use to make it up.

At the end of the 25-year power contract, who got the excess?

Not we, the Atomic Energy Commission, the United States Government.

That's how fair and honest this contract was.

Justice Hugo L. Black: May I ask you, Mr. Cahill --

Mr. John T. Cahill: Surely, Mr. Justice Black.

Justice Hugo L. Black: -- to see if I can get the argument.

Do you admit that the fact would apply?

Mr. John T. Cahill: Oh, in no respect.

Justice Hugo L. Black: Will you do it?

Mr. John T. Cahill: Oh, no.

Justice Hugo L. Black: All of this has to be on the basis that the statute does not allow the Government to disaffirm (Inaudible)?

Mr. John T. Cahill: Completely so, yes.

Justice Hugo L. Black: If the statute does apply --

Mr. John T. Cahill: Excuse me?

Justice Hugo L. Black: -- if the statute does apply, would it make any difference whether the contract was good or bad or whether you (Voice Overlap) --

Mr. John T. Cahill: Yes, I think it would.

I think it would because I think that where you admit that there's no fraud, I think that's an important point.

Justice Hugo L. Black: Does it (Inaudible) the statute -- if -- if you --

Mr. John T. Cahill: No, no.

We'll just see -- I don't want to get to that point of enforceability because that's the last point of my argument and I will say this.

Justice Hugo L. Black: I'm -- I'm sorry.

Mr. John T. Cahill: Alright.

But I --

Justice Hugo L. Black: But I was trying to get ready for --

Mr. John T. Cahill: [Laughs] Just for a minute if you'll allow me.

Those cases of non -- unenforceability where the illegality is so inherent in the contract, for the Court to enforce it, it would make the Court an agent for the criminal act.

That's generically the argument but I hope they develop that more at length as I get to the point.

Justice Felix Frankfurter: I think you were to enforce purposes.

What do you mean is the fact may determine whether a situation is brought within the statute, not if a situation is within the statute is to make any difference whether it would have been a profitable contract.

Mr. John T. Cahill: I accept a better statement within my position.

Now, when we're all through this extensive record and the Government left no stone unturned in the trial of this case, we come up with two things which Wenzell did are two only.

Both upon the instructions of Mr. Hughes of the Budget Bureau, one he acted as an expediter because the Government had to have this power and had to have it by 1957 and that was of the essence to the national security.

The other thing about which heard -- we've heard so much, he got from his banking firm, First Boston estimates as to the probable interest rates which would have to be paid on the money bar to finance the project.

Now, on the assumed probable interest rate that Wenzell was conveying to both petitioner and respondent, and he respond for the direction of the Bureau of the Budget, the finding is, and I read it, record 76, finding 55, "The object was to obtain the best possible and to get a figure which would not only be used by Dixon but would be known to the Bureau, so that both would be talking about one in the same factor," end of the finding.

Now, Wenzell's activities were confined to this single question.

Where -- what the Government wanted to know was that Dixon-Yates were talking about the same realistic interest rate that the Government was talking about, as to whether there could be some figure that would form the basis of the start of negotiations.

Now, curiously enough, if Mr. Wenzell was a fifth columnist planted by us on the Government, he concurred that the February 25th proposal, the sponsors was too high and that it should be rejected.

That was a strange behavior indeed, if he was in anyway a fifth columnist and -- in answer to the question that you put me, Mr. Justice Stewart, as to whether the findings are unchallenged.

I want to make just one point to show you the difference between the state of their own challenge and the actuality, and I'll ask you to turn to page 35 of the Government's reply brief which the Solicitor General used extensively in argument.

35, the last sentence at the bottom of the page.

Now, at this point, the Solicitor General made time after time after time in the cause of his argument.

The sentence reads, from page 35 of the Government's reply, "But the Government was unaware of the retention of First Boston and thus, the fruition of the conflict of interest during the entire period of contract negotiations from July 7th until November 11th and did not learn of the retention until February 18th, 1955."

Now, it's interesting to note, first, that the Government recognizes that the period of negotiation did not begin until July 7th but what the Government refuses to recognize is the expressed finding by the court below, unanimous finding that on the very first day of negotiations, the sponsors' negotiators disclosed the Atomic Energy Commission that First Boston had been retained as financial agent.

Now, let me ask you the term of finding 126, appearing at page 117 of the record.

That finding reads as follows, "On July 7th, 1954, during the negotiation of the contract, the AEC representatives were informed that First Boston and Lehman Brothers were acting as financial agents to the sponsors."

Now, could there be a greater and more diametrical variance between the main theme of the Government's argument in this Court and the unchallenged finding which I have just read.

Now, the lawyers who tried this case for the Government were able lawyers if I know for well that this conflict of interest defense depended upon a conclusion that Wenzell have the kind of a present pecuniary interest which is prohibited by Section 434, face had been at voluminous proposed finding flaw, counter findings to us asking for a finding that Wenzell had a present pecuniary interest during the time he was a consultant to the Bureau of the Budget.

They failed to get that finding.

Justice Potter Stewart: Mr. Cahill, I'm a little confused perhaps but you said a moment ago that Mr. Wenzell concurred that the -- the original offer was too high.

Mr. John T. Cahill: Never (Voice Overlap) any objection of it.

Justice Potter Stewart: Yes, well, now -- of course, he -- he -- there's no allegation that he was interested at all in Dixon-Yates as such but rather and he was as -- considerably he was an officer and an employee of First Boston and would it necessarily have been to First Boston's interest to have a high price pay but First Boston was interest in, was that there'd be such a contract entered into so that they could perhaps get for the financing business.

Mr. John T. Cahill: No, it wouldn't be the First Boston's interest to have a high price pay.

Justice Potter Stewart: So in other words, this --

Mr. John T. Cahill: Our -- our interest here was in common with that of the United States.

Our interest is the same on all the sides.

This argument is switching hubs.

I think thus discredits this man who was doing a patriotic service.

We were all interested in doing this without limitation of lawsuit and that was so expressed.

We took the responsibility, therefore, whatever was done here we were all on one side trying to see if President Eisenhower's message on the State of the Union, on the partnership between business and Government in this field could be carried out --

Justice Potter Stewart: Now --

Mr. John T. Cahill: -- the proposed division between --

Justice Potter Stewart: -- my question was -- was only prompted by this, you made -- or I've seen you that you're making something of a point of the fact that Mr. Wenzell concurred in the view that the original offer by the (Inaudible) was too high and my question was prompted by the thought that this would -- this reaction would not at all be antithetical to his position in First Boston.

First Boston didn't care, I suppose, what the price was between Dixon-Yates and the Government.

Mr. John T. Cahill: Oh, yes.

Justice Potter Stewart: Their interest was that a contract be negotiated so that they can get part of the financing business whatever the price was.

Mr. John T. Cahill: Oh, no, Mr. Justice, their interest is on a fair contract being negotiated because of (Inaudible) and if it weren't a realistic figure, they couldn't bar from the constitutional method to a very sophisticated (Inaudible) so we all were at one.

And that rejection in February 25th was on the cost estimate.

The 3.50 interest rate was the same in the February 25th proposal and in the April 10th.

Justice Potter Stewart: It was the construction cost estimate.

Mr. John T. Cahill: That's right.

Justice Potter Stewart: I see.

Not the money cost.

Mr. John T. Cahill: That's right.

Those are constant throughout.

Now, I say that the petitioner here draws a very long bow in his brief when he says that prior to Wenzell's leaving the Government, First Boston did not have an outright commitment and I quote their brief regarding the financing.

Now, no finding supports that statement.

The court below said there is not a shadow of evidence that First Boston had any agreement or commitment, written or oral, formal or informal, contingent or otherwise that in the event of the proposal which was in preparation when Wenzell's government employment ended should result in negotiations which shouldn't the course of events resulted in a contract, First Boston will give them the opportunity to earn a commission by selling the bonds of the corporation which will be form to sign and perform the contract.

The evidence is perfectly plain that there was no such agreement of understanding as we have seen a month after Wenzell's government employment terminated, Dixon-Yates felt perfectly free to get the bond selling business to whom so ever it pleased and they did.

Justice Charles E. Whittaker: (Inaudible)

Mr. John T. Cahill: No, I'm quoting from the opinion of the court below, Mr. Justice Whittaker.

Justice Hugo L. Black: It wasn't a finding of (Inaudible)

Mr. John T. Cahill: No, that's -- that's from the opinion of the court below, Mr. Justice Black.

Justice Hugo L. Black: What I -- I mean was the finding to that effect (Voice Overlap) --

Mr. John T. Cahill: It's -- it's an accurate summary of the findings.

Now, after First Boston was retained, two of its principle financial officers determined that there should be no fee.

Mr. George Woods testified that he made that determination as early as May of 1954.

You'll find that, Your Honors, on page 113 of the record beginning in the last paragraph of finding 116.

It begins, you see, with the detainer on May 12th, 1954 and then picking up in 117.

It says, "During the period between May 25th and the middle of June 1954, Woods, in several conversation with Linsley, he was Chairman of the Executive Committee of First Boston, took the position that it would be the better policy the First Boston not to charge a fee for its services and financial agents for the sponsors.

Linsley agreed with Woods about June 15th, 1954.

It's long before the contract.

Woods' telephoned Dean, that's Arthur Dean of Sullivan and Cromwell, stating that First Boston had decided, as a matter of policy, not to charge any fee.

Now, it's not 1955.

I'm afraid the Solicitor General fell into unconscious error.

Its back in May and June of 1954 long before the contract was executed to that decision to do this as a matter of public service was made and that is the finding, unchallenged in this Court.

Chief Justice Earl Warren: Is there any explanation as to why -- as to why this would be better policy?

Mr. John T. Cahill: Well, I think since First Boston's lawyers felt that we have gotten ourselves and trained in what the court below describes as a free-for-all fight between private power and public power and I'm accurately with no holds barred.

The majority opinion said that as a matter of policy for the good of the cause, they ought to wave their fee and they did and they did it then.

And that is the finding and that there, as early as that.

And that finding is uncontested.

So that it would be impossible for Wenzell to have an indirect pecuniary interest when -- when First Boston had itself, had no direct pecuniary interest.

Now, if I have a minute, I'd like to turn to the contract itself.

The policy of having a contract such as this was common to both the Truman and the Eisenhower Administrations.

The Congress concurred.

It was a policy which the court below finds that Wenzell had absolutely nothing to do with determining.

President Truman determined it, President Eisenhower determined it.

Now, that policy was that TVA should not have $100,000,000 of federal funds for the construction of its proposed power plants at Fulton, Tennessee.

On spring of 1953, and again in 1954, efforts made at the Budget for the TVA Fulton plant but they were defeated in the Congress.

And again in 1955, the Bureau of the Budget eliminated the TVA request for that construction.

Now, another fact in regarding the contract is that there has never been in the history of contract laws respectfully submit a contract negotiated under declare of such merciless publicity as this one was.

It was scrutinized, saved and analyzed from every angle where the negotiating team for the Government had the advantage of drawing on men of so many different sympathies ranging from complete sympathy with the President's policy to complete hostility with it.

Now, in addition to the -- likely negotiations by the AEC are referred to the decisions of the President who after all this Wenzell episode came out called, and the record shows this Dixon to the White House and he said, "I'm glad to meet an American who can take it on the chin as well as I think I can.

And then he was asked thereafter after this Wenzell business came out, did he think that Wenzell had done nothing wrong?

He said, "Indeed, I don't."

I think it was a fair contract.

So in addition to the recommendations of the President of the United States, we have the opinions of the Attorney General and below we have to meet an attempt to repudiated in one of the defenses or written opinion of the Attorney General.

We have the Department of Justice, the Federal Power Commission, the Tennessee Valley Authority, the Comptroller General's Office, the SEC, the AEC, the Joint Committee of the Congress and last but by no means least, the Congress itself because in order to make absolutely certain that this contract was valid, the Congress amended the Atomic Energy Act and added Section 164 primarily for the expressed purpose of authorizing the contract here.

Now, we seek not a penny of problem in this action for breach of contract, although the Federal Government has saved $100,000,000 by our action.

We seek to recover only for our out-of-pocket costs and we've been minimizing more along the line as we've been able to sell off equipment which we have bought but had no longer any useful.

Justice Charles E. Whittaker: (Inaudible)

Mr. John T. Cahill: Because the purpose of the TVA was to secure an appropriation of a $100,000,000 to be put in the budget for the construction of the plant at Fulton, Tennessee.

And it was after both President Truman and President Eisenhower decided it should not be done.

They decided that it was feasible to build this plant and the price of invested capital should be built that way.

Therefore, we did it.

And I have no doubt in my own mind, as I think Mr. Justice Harlan's question may have indicated that Memphis hadn't stepped up and said that it's municipal electric authority would build this plant that the performance of the Dixon-Yates contract would have gone through.

Justice Charles E. Whittaker: (Inaudible)

Mr. John T. Cahill: No, I don't think it cost Memphis' hands.

I think it was fortuitous that Memphis stepped in.

And when Memphis stepped in, that was the costs assigned to us for the termination of this contract but there was no longer any need for our contract.

That's all we were told, Mr. Justice Whittaker.

It was until months later that we were told that it was no longer an obligation of the United States.

We were preceding unsettlement negotiations time to proceed like lawyers to wind up that which have proved to be a frustrated transaction.

Justice Potter Stewart: Mr. Cahill, as I understood Mr. Justice Whittaker, he was trying to get at your theory as to how you would save the Government $100,000,000.

Mr. John T. Cahill: Because the moneys that actually went out was not federal government money.

Justice Potter Stewart: (Inaudible)

Mr. John T. Cahill: That's it.

Justice Potter Stewart: It was -- it was the fact that Memphis (Voice Overlap) --

Mr. John T. Cahill: That's right.

Yes, not U.S. Government.

Unknown Speaker: That's it.

Justice Charles E. Whittaker: (Inaudible)

Mr. John T. Cahill: Oh, no, that didn't make it unnecessary for the Government to do so.

It made unnecessary for us to do so because the credit of the United States was not pledged on our debt.

Unknown Speaker: (Inaudible)

Mr. John T. Cahill: Oh, we were not.

We were doing at the premises of Mississippi Valley Generating.

The obligation here was an obligation of that corporation under which Dixon and Yates were contributing capital from there companies and borrowing money secured under 25-year power contract with the Atomic Energy Commission.

So it's not government money and it was not government credit.

Chief Justice Earl Warren: You don't contend that if TVA built it for $100,000,000 that that would be a total loss for the Government.

Mr. John T. Cahill: Oh, it's certainly not.

Chief Justice Earl Warren: So how do they save $100,000,000?

Mr. John T. Cahill: Well, they save -- save the outlay on the budget of that amount of capital funds, Mr. Chief Justice.

At that time, the -- (Voice Overlap) -- the appropriation was fearlessly close to the -- to the top debt amendment of the United States.

This was a much bruited point at that time.

Chief Justice Earl Warren: Well, they just delayed -- delayed the cost, didn't they?

Mr. John T. Cahill: Oh, No, Your Honor, they saved it because they never had to put out $100,000,000 of United States' money.

The money that went out, as I said to Mr. Justice Whittaker ultimately, was the money of the City of Memphis.

Now, enclosing, if I may, the court below well characterizes the defenses, events in this case which the court below said the Government's case is essentially a cynical case.

And that is the language of the court below.

It says the Government urges, and I'm quoting, in effect, that the doctrine which calls to its defense is a prophylactic generalization which must be applied in cases of honest transactions in order to keep it available and effective in cases of dishonest transactions.

The point is that the Government, like the infant and the idiot, must have the protection of a broad legal incapacity.

In this case, the act of the United States with the Director of the Budget acted immediately under and on behalf of the President of United States.

What he did was done legally, honestly and with complete fidelity to the interest of the Government.

The power of even the Government's highest officials are defined by statute.

We do not see in the case before as an instance in which the Government needs as additional protection against the honest acts of its highest officials, a diaphanous cloak of immunity woven from asserted day, an unedifying public policy.

And the leading newspaper of this country which supports this contract hard and fast said, "After the decision was made to abrogate it and not to pass our out-of-pocket costs, it seems to us, as a matter of common honesty, in no way connected with the public policies, to shove its faith and meet this obligation, otherwise how much is the Government contract worth?"

Justice Felix Frankfurter: As to me, the conclusion may be right but the (Inaudible) sounds to me like a starter, namely, suppose everything is true, suppose the President knew about this, suppose the Director, the Director of the Budget knew about this, suppose Admiral Strauss knew about this, if in fact, there was duality of interest in the part of the negotiator for the United States, does he or does he come within the statute?

Now, what I think about that kind of wealthy is a different story.

Mr. John T. Cahill: In the first place --

Justice Felix Frankfurter: It may be --

Mr. John T. Cahill: -- of course --

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

Mr. John T. Cahill: -- of course --

Justice Felix Frankfurter: -- it maybe (Voice Overlap) --

Mr. John T. Cahill: -- in the first place you understand --

Justice Felix Frankfurter: -- it would.

Mr. John T. Cahill: -- you understand my position, my answer to Mr. Justice Black.

There was no violation --

Justice Felix Frankfurter: I understand.

Mr. John T. Cahill: -- of the statute.

In --

Justice Felix Frankfurter: I -- I wasn't addressing myself to what you say.

I was addressing --

Mr. John T. Cahill: In the --

Justice Felix Frankfurter: -- your adoption of the eloquent from my friend Judge Madden.

Mr. John T. Cahill: And in the second place, Your Honors denied certiorari in this Portuguese Tungsten case last Monday.

Now, I don't know if the ground of the denial have cert naturally but I -- I got out the briefs in that case and the point seemed to be forcefully made that the interest of this individual which was sought to be the basis of disaffirmance of the contract had been known to the government contracting officers from the beginning which is precisely the point here.

Justice Felix Frankfurter: Do you think I'm the worse man to whom -- on whom to urge not only a denial of a certiorari?

[Laughter]

I'm the fellow (Inaudible)

Mr. John T. Cahill: I just -- I just wanted to know, I did my homework.

I read that.

Thank you very much.

Chief Justice Earl Warren: Mr. Chanler.

Argument of William C. Chanler

Mr. William C. Chanler: Mr. Chief Justice, if the Court please.

May I address myself to the unmerited question of enforceability under the statute?

As the Solicitor General has pointed out, this is clearly a penal statute that I'm represented into another penal statute -- statute against bribery will be considered.

In the bribery statute, after some debate, Congress inserted a provision making contracts sustained by bribery voidable at the election of the President as drawn originally, they are absolutely void.

When they adopted 434, the conflict of interest provision, they put in no reference whatever to the enforceability of contracts.

Now, the Solicitor General has pointed out to Mr. Senator President would introduce the amendment and the bribery statute said that it was a common practice.

I think I refer to rely as in authority on Mr. Justice Brennan in his recent opinion in Kelly against Kasuga and the long line of cases that -- that is based on.

This Court has repeatedly held that the courts will not have a sanction of contract unenforceability to a penal statute when Congress had the opportunity of putting it there and didn't do so.

It's perfectly saying that this is that type of a situation.

Now, as this Court has also repeatedly held, when a defense of illegality of a contract is raised based on an alleged violation of a penal statute or the prohibitory statutes that contains no sanction of this kind, the contract will be upheld unless the alleged illegality is so inherent in the contract itself or in the course of action that the contract could not be enforced without making the court a party to illegality.

Now, of course, a classic example of that is where the wrong doer, the person who violated the statute is himself suing.

And in the Solicitor General's reply brief, he cites, I think, five cases in support of his proposition that the Court should set aside contracts -- the contract here because of the alleged violations of Wenzell.

Of course, I don't admit there wasn't.

I'm merely trying to point out that the under the statute, didn't -- that wouldn't necessarily make the contract unenforceable.

The Solicitor General cites five cases in which persons who had made, who had purchased land in direct violation of a prohibitory statute, government land agents who bought government land, a public printer who was supposed to have made a contract with a corporation in which he had an interest has public printer in his private interest, an order of premises who leased it to himself as the -- of a WPA administrator.

Those are the cases they relay on to saying that of course contracts involving a violation of 434 of similar statute are unenforceable.

Of course, that's not this case.

Dixon-Yates, these respondents, hadn't anything to do with Wenzell's activities.

They didn't support him.

He -- he was not their employee.

As a matter of fact, and I shall in a minute, they did everything possible and was successful in doing so in getting him out before he could have possibly been in the position of duality.

But his activities are entirely remote from the contract between Dixon-Yates and the Government, which is the contract with which we are here dealing.

Now, Your Honors have had before you, it's not cited in our brief here, I think you've had -- well, the Court have had six cases dealing with 434 and it's only two with which the contract was set aside were the ones in which I have just mentioned where the public printer and the owner of real estate tried to deal with themselves in a governmental and private capacity.

In other words, they were landlord -- lessor and lessee, lessor in his private capacity and lessee for the Government.

Of course, that violates the statute but he was the violator.

Now, in the other four cases, l won't discuss it here because I see there isn't time.

Muschany, I think, is the most persuasive one, both from the dissenting side and the majority side, as I read that case.

I have discussed it at length in the brief here and you would find it I think at page 72.

I think it's quite plain that a -- even where there was a violation of 434, even where a contract was negotiated by a government agent with direct conflict of interest where private party enforcing the contract has no part in it, it wasn't their fault.

The Government had appointed the agent.

The contract was enforced.

Now, here, of course, Wenzell -- neither Wenzell nor First Boston have any interest in this lawsuit whatever.

They won't gain a penny by the enforcement of this contract.

Enforcement of this contract isn't going to sanction what he did even if the Court should believe that there was some technical violation in his action.

We're not defending him, we're defending -- we're representing Dixon and Yates.

And keeping them -- allowing it then to enforce this contract isn't -- don't anyway sanction anything Wenzell did.

Now, the Solicitor General evidently recognized that in his brief.

Of course, he went off and said, "Well, the trouble here is that Dixon-Yates winked at this alleged conflict and they engaged merely in lip service," and I just want to briefly remind Your Honor just what happened.

The Solicitor General indicated a little of it but not all.

Almost at the outset, Mr. James, Mr. Dixon's lawyer, went to Mr. Dixon in between and they went to Wenzell and they said "Here, if this goes on and a contract develops, you may be in a frantic position.

You better talk to Hughes," and he talked to Hughes.

And Hughes said, "Oh, well, they're exaggerating it.

But talk to Dodge and talk to your own people."

They talked to his own people.

They talked -- First Boston want to get out in a hurry because they didn't want any interference when they're getting this business later.

Dodge said, "Oh, I don't think there's anything to worry about right now.

There's not much of a hurry.

It's going to be a -- no negotiations for months but still, you might as well wind up what you are doing and then get out anyway, if there's any possibility of the First Boston will be in the picture later."

Now, of course that's true at that time in March.

There was nothing.

There was nothing but a discussion about a proposal.

There wasn't going to be any negotiations for three months.

What did Wenzell do when Dodge gave him the instructions?

Dodge was the Director before.

He went to three more meetings of the Bureau discussing the earlier proposal, went back to New York.

He was called to Washington on the 23rd of March by Hughes to turn everything over to Francis Adams of Federal Power Commission, who was coming in as the new Bureau adviser.

He did, he turned everything over to Adams.

He went back to New York.

He was still to come back to Washington on the 3rd of April.

Nobody knows why the record says he wasn't heard to speak to anybody.

He did at the meeting at which the proposers came forth, announced that they had new cost basis and would make a new offer on the cost basis.

Wenzell went back to New York on the 10th of April.

He made some anonymous telephone calls to Washington.

Nobody knows why.

He says that's what he keeps his time terminative.

Probably, he called up to say he was through and say good-bye, entertained by telephone and so, he resigned by telephone.

We don't know.

That's all he did.

In other words, what this winking and lip service is so much obvious, the Solicitor General agreed, consisted in Mr. Dixon's started the chain of events that got Wenzell out before there was any possibility of negotiations or anything of that sort.

Now, so far as there'd being anything wrong about what they did, it was pointed out in our brief, the steps which were initiated to which going to -- going to Mr. -- to his administrative superior and following his instructions are precisely the steps that are laid down today in the Solicitor General's own departmental regulations and the regulations of the Atomic Energy Commission, the Budget -- Bureau of the Budget and a dozen of the government departments as to the proper procedure to be followed if a government employee believes that he maybe confronted with a possible conflict of interest situation.

The regulations say that he is to report to his administrative superior and then take no further actions except in accordance to the directions of the administrative superior.

And that's exactly what happened here.

Now, it was Dixon-Yates that initiated those procedures.

Now, I must say that for the Government now to come and say, "There was something wrong.

Dixon-Yates going to the Government, going to -- oh, we not only went to Wenzell, by the way, when we found he hadn't resigned by the way, Mr. Dixon and Mr. James went themselves to Hughes.

And the finding there, finding 79, is James asked Hughes how it was -- Wenzell hadn't resigned yet.

I think it's 79 if I remember.

Yes.

So that it seems to me their position is absolutely unimpeachable here.

In his reply brief, the Solicitor General seems to rather abandon that fact and he says, "Oh, well, the point is that the agreement was that the contract is voidable by the Government."

Well, I would like to say, but I agree to the -- if that's so, your repudiation comes much too late.

There was some question here about what the purpose of this contract, wasn't about the $90,000,000 -- $100,000,000 dollar savings.

Justice Felix Frankfurter: (Inaudible)

Mr. William C. Chanler: 78, Mr. Justice Frankfurter, I'm sorry.

It's on page -- record 92.

(Voice Overlap) --

Justice Felix Frankfurter: 79 also is relevant here.

Mr. William C. Chanler: Yes.

Justice Felix Frankfurter: (Inaudible)

Mr. William C. Chanler: I believe this is not on the note.

I wish to point out that on -- in exhibit -- there is an exhibit in the record here which is the hearings of the Joint Atomic Energy Commission which contained a letter a letter written by the Director of the Budget, Hughes, who has become director, Senator Saltonstall, Chairman of the Subcommittee of the Senate Financial Committee on June 16th, 1954, after Von Tresckow and Dixon-Yates proposals have been submitted in which he had been corresponding Senator Saltonstall because they wanted to know whether they will justify in taking the $100,000,000 appropriation out of the Budget or whether they would -- could rely on Dixon-Yates or Von Tresckow or somebody to ultimately make the plan or whether they had to use taxpayers' money.

The Budget Director said, "The Federal Government would be relieved by this of the necessity of providing within a period of about 3 years approximately $100,000,000 out of tax revenues or from additions to the public debt."

That's what they wanted this contract for.

They wanted to see if they could have private people do it.

Now, when this proposal -- read this proposal and the other were presenting, they knew that it could be done.

They urged us to hurry, negotiate the contract but the contract was negotiated five months later.

The record shows they urged us to hurry our performance and we worked, worked, hurried to get our performance complete.

This went on through -- until the beginning -- end -- middle of July of 1955, which time we'd spent the money that we are now suing for.

During all this time, the government people themselves knew about Wenzell.

During the last four or five months before Memphis made its offer, the whole Wenzell business took political act would all been in the newspapers.

Everybody knew about it.

The President said it was a fine contract and they told us to perform at a hurry and we did.

And it wasn't until Memphis said, "We'll relieve you and your budget and everybody of the burden.

You don't need to have Dixon-Yates or anybody make this power.

We, Memphis, will do it."

That's why they terminated the contract not because of Wenzell.

Up to that point, they accepted the benefits of this contract.

They had balanced their budget.

They've taken $100,000,000 out of the budget.

I have virtue heading this contract.

And it's perfectly absurd to suggest they ever would have found it out and gone back for the $100,000,000 and put it back in the budget, if it hadn't been for Memphis.

They never would have said, "Oh, but there was somebody called Wenzell there".

He made us -- we've got a fine contract that's very good for us in spite of it but nevertheless, because of this little alleged conflict of interest, we're going to get out of it.

It's absurd to suggest that they never would have done so.

And I think, Your Honors, that I think that in a situation of this kind, where the contract is fair and honest, was entered into, with full, free and honest discussion by people not attached with anyway by Wenzell or anything else.

When Wenzell's position himself was purported to the Government and his removal brought about by these private contractors.

I suggest that under those circumstances, public policy, which would be only test here under 434, public policy requires that the Government's honest contract be enforced.

Chief Justice Earl Warren: Mr. Solicitor General.

Rebuttal of Rankin

Mr. Rankin: Mr. Chief Justice, may it please the Court.

I didn't mean to characterize anybody in this argument.

I didn't think I did.

I do think that several things need recomment, one, in regard to the regulations of the Department of Justice and other departments that are referred to.

Those regulations go much beyond the statute.

In that if there is any kind of conflict problem that doesn't involve contracting at all, the employee or agent or officer is instructed to go to his superior.

There's no effort, no indication of any kind that the Government in any part of it is not recognizing the validity of this statute and living up to it and believing into -- in it.

That -- those regulations go much beyond that as far as keeping the Government clean in all of this area.

Now, in regard to knowing about this contract, counsel called attention to your -- to finding 126 and read you just one paragraph.

If -- if you read the next paragraph, the last paragraph in finding 126 on page 156, you'd see that the finding is, in December, 1954, the AEC had a representative present at the SEC equity hearings where it was stated that First Boston had been retained as financial agent for MVG.

However, there is no evidence that any representative of AEC had knowledge up to that time that Wenzell, while serving as a consultant to the Budget Bureau, had been meeting with and supplying information.

Now, this is the contracting agency to the sponsors regarding the project nor that any AEC representatives knew the extent to which the sponsors were aware of Wenzell's activities in that regard.

Justice Hugo L. Black: What findings (Inaudible)

Mr. Rankin: That's the last paragraph of 126 finding on page 156 of the appendix to the Government's petition for certiorari.

Then the following paragraph, finding 127, makes it clear that they never gave any notice whatsoever to the Budget Bureau that First Boston had been retained as financial agent by the sponsors or that the terms and the conditions upon which the retainer was made.

Now, that's an undisputed finding.

Now, if you go to page 153 in regard to this discussion about the fee, I said it took him quite a long time to decide they wouldn't charge a fee and the record proofs it.

In the middle of page 153 in the finding, it says the decision not to charge a fee was based on Woods' conclusion that the financing which First Boston had been retained to handle had flowed directly from the conversation which Woods had had with Dodge in May 1953, when Woods had offered Wenzell's services and so forth and that First Boston should not charge a fee for assistance in obtaining funds over designed to obviate the necessity of federal expenditures -- expenditure for the expansion of TVA.

Until November 17th, neither Lehman Brothers nor any representative of the sponsors had noticed the First Boston's attitude.

Then it goes on to tell about a discussion back and forth as to whether it was proper not to charge a fee and Lehman said that there should be at least a small fee.

And then they go on to say -- they got down to the question of the SEC hearings on what they were going to testify to and then they came out and made it clear that there would be no fee charge.

Then on page 155 at -- at finding 123 (Inaudible) find the heart of it, Dixon was surprised by First Boston's decision not to accept the fee for its services of financial agent.

The decision was unusual and without presence in the history of First Boston.

Now, all I'm saying is that inherent in it, I was trying to demonstrate in the brief here and in our argument that there wasn't any question with what Wenzell was on both sides and that the advice that he gave that this financial advice was certainly important enough for Hughes with the financial man himself tells he needed help on it.

And he looked to -- he got Wenzell for the very perfect adviser.

And Wenzell was advising both sides on that very important question in that contract.

And then I say that it was inherent, it continued throughout.

And since it's -- it's the taint in the contract that it goes right squarely against the statute to allow the enforceability.

In order to protect the integrity of government contract, it should not be enforced.