Borden v. United States , 116 F. Supp. 873 ( 1953 )

JONES, Chief Judge.

. This is a suit for salary withheld from plaintiff on account of loss of payroll funds for which defendant claims plaintiff was responsible.

Plaintiff contracted with the Army Exchange Service, European Theater, to serve as senior accountant for a period of two years beginning January 12, 1948.

" The contract stipulated that the employer might terminate the contract if it regarded the services of the employee as unsatisfactory, and might withhold salary for all claims against employee for fraud, breach of contract or negligence.

The plaintiff was assigned to the Post Exchange at Bremerhaven, Germany, as chief accountant.

The personnel section was charged with the duty of handling the German payroll. In each of the two months prior to the loss in question a suitcase containing the payroll had been deposited overnight in plaintiff’s case with the knowledge and consent of the plaintiff.

On the occasion in question the plaintiff, as chief accountant, caused his acting cashier to go with the paymaster of the personnel section to the financial office where they obtained Deutsche Marks in the equivalent of $24,588.64 to be used for payroll purposes. The money was carried to the plaintiff’s accounting office on the second floor of the Post Exchange building. After counting the funds, the money was delivered to the personnel officer on the third floor. Richard S. Proctor, personnel manager, had the money counted by the paymaster and gave the plaintiff a receipt for the full amount.

The same day plaintiff was required to attend an official investigation at the staging area of the Bremerhaven Port of Embarkation and was necessarily absent from his office from about 1:00 p.m. to 5:25 p.m., the closing time of the office being 5:30 p.m. At about 4:00 p.m. of that day the paymaster locked the Deutsche Marks in a wooden strongbox and delivered the box from the personnel office to the acting cashier in the plaintiff’s office for safekeeping until the next morning. It was deposited in plaintiff’s safe, but plaintiff was not advised of the delivery of the box and its deposit in the safe.

Upon his return to his office at 5:25 p.m. the plaintiff witnessed his cashier lock the safe and the door to the cashier’s cage, inserted the two keys in an envelope, placed the envelope in the left-hand drawer of his desk and locked the desk. This was customary procedure on the part of the plaintiff.

The safe key was about 5% inches long. Plaintiff had a conference with the other chiefs, including the general manager, following which a directive was issued which provided that the plaintiff was responsible for the safekeeping of the safe key, and that currency was to be deposited in accordance with existing directives at the earliest possible time. The plaintiff decided that the safest place to keep the key would be in his desk, and, after talking with the chief of security requisitioned through that official new locks for his desk and for his office doors. There is testimony to the effect that this was in accordance with the conference of chiefs held on April 28, 1949.

The building was enclosed by a fence and a military guard was maintained at the gate at all hours of the day and night. It was located within a large compound which was also fenced, with a 24-hour guard at its gate.

Between 5:30 p.m. August 10 and 8:05 August 11, 1949, an unknown person or persons broke into plaintiff’s accounting office, forced open the drawer of plaintiff’s desk, obtained the keys, opened the cashier’s cage and the safe, broke open the wooden box, took out the Deutsche Marks, placed the wooden box back in the safe, locked the safe and the cashier’s cage and returned the keys to the envelope in plaintiff’s desk drawer.

The major portion of the funds was recovered, concealed in a sack of cement in the attic, but the equivalent of $1,-677.14 was never recovered. The commanding general of the Bremerhaven Port of Embarkation appointed a board of officers to investigate. During the investigation the board inspected the plaintiff’s office and heard the testimony of 12 witnesses. The board found that plaintiff was negligent in habitually keeping the keys to the cashier’s cage and to the safe in his desk. It recommended that the plaintiff, the chief accountant, be held pecuniarily responsible. Accordingly, the amount of the loss was withheld from plaintiff’s salary.

The facts are set out more in detail in our findings.

Plaintiff sues to recover the amount thus withheld from his salary. The defendant resists recovery on the ground that plaintiff was negligent, and that the contract of employment provided that salary might be withheld in the event of negligence. Plaintiff denies that he was negligent and the issue is thus drawn.

However, at the threshhold we are meji with the plea on the part of the defendant that the United States cannot be sued on a contract of employment between the plaintiff as employee and the Army Exchange Service, European Theater, a non-appropriated funds instrumentality, as employer. The contract was signed Employer, Army Exchange Service, European Theater, by George C. Long, Lt. Colonel, SpS, Chief, Personnel Branch.

As set out in AR 210-50, issued on December 13, 1945, and effective during the period here involved, under the title “Basic Plan for Nonappropriated Funds” it is stipulated that certain revenue producing, welfare and sundry activities are necessary adjuncts to the Army and are designed to supplement activities supplied by the Government from appropriated funds and are designed to contribute to the comfort, pleasure, contentment, and mental and physical improvement of military personnel; the funds are to be dispersed solely for the benefit of military personnel; that such funds are not provided by the Congress; that they are termed nonappropriated funds and are under the control of the Secretary of the Army and Secretary of the Air Force. It is also provided in the Army regulations however, that the activities pertaining thereto are Government instrumentalities and, except as otherwise prescribed by competent authority, are entitled to the immunities and privileges of such instrumentalities. It is further provided that the Army Exchange Service has jurisdiction over them and provides staff supervision of all Army Exchanges and consists of officers and enlisted men and civilian personnel, and that as far as practicable Exchanges will be operated by civilian employees, with army officers in executive control. It is further stipulated in the regulations that Exchange contracts are solely the obligation of the Exchange; that they are not Government contracts and the distinction between Exchange contracts and Government contracts will be observed and clearly indicated at all times. It is further provided by the regulations that the funds accumulated will be dispersed solely for the benefit of military personnel.

In the case of Standard Oil Co. of California v. Johnson, Treasurer of California, 316 U.S. 481, 484, 62 S.Ct. 1168, 1170, 86 L.Ed. 1611, the Court uses the following language:

'“The commanding officer of an Army Post, subject to the regulations and the commands of his own superior officers, has complete authority to establish and maintain an ’ exchange. He details a post exchange officer to manage its affairs. This officer and the commanding officers of the various company units make up a council which supervises exchange activities. None of these officers receives any compensation «other than his regular salary. The object of the exchanges is to provide convenient and reliable sources where soldiers can obtain their ordinary needs at the lowest possible prices. Soldiers, their families, and civilians employed on military posts here and abroad can buy at exchanges. The Government assumes none of the financial obligations of the exchange. But government officers, under government regulations, handle and are responsible for all funds of the exchange which are obtained from the companies or detachments composing its membership. Profits, if any, do not go to individuals. They are used to improve the soldiers’ mess, to provide vai’ious types of recreation, and in general to add to the pleasure and comfort of the troops." [Italics supplied.]

Under the plan of operation these supplies are sold to officers, enlisted men and civilians operating the exchange at a figure slightly above cost and the expenses of operation are paid out of the profits from the operation of the exchange.

In a somewhat similar case, Bleuer v. United States, 117 F.Supp. 509, the District Court of the United States for the Eastern District of South Carolina on December 21,1950, held that the plaintiff had no cause of action against the United States.

In the recent case of Edelstein v. South Post Officers Club, 118 F.Supp. 40, decided April 5, 1951, the District Court of the United States for the Eastern District of Virginia held that the United States has not waived its sovereign immunity as to contract obligations of the club, and that contracts made by the club are not obligations of the United States but solely liabilities of the club.

See also Kenny v. United States, 62 Ct.Cl. 328. In Kyle v. United States, 46 Ct.Cl. 197, 199, the court in dismissing a suit commented on the post fund as follows:

“ * * * This sum is systematically expended in the betterment of post conditions, such as dish towels, powder for destroying objectionable insects, the establishment of an amusement room, etc., the whole matter being under the strict supervision of the proper military authorities. It is a commendable arrangement, tolerated by military authority for the sole benefit of the men in barracks. The United States Treasury received none of the funds. They are paid out without an appropriation. The auditing thereof is not done at the Treasury, but by the council of administration. The United States is in nowise responsible to officers and enlisted men making contributions to the fund, the transaction being between the persons making the same and the authorities receiving it. The defendants are neither parties to nor privity with the transaction in the sense of legal responsibility to respond in damages for its collection or disbursement.”

The instant case presents a strange anomaly. The officers of the army have complete supervision of the post exchange, though in operation civilians are usually employed. The officers serve, however, without pay other than their regular pay as officers of the United States Army. The Army personnel receives the advantages and benefits of the organization. The* activities of the post exchanges and their objectives are so woven into the pattern of the Army and are so closely linked to its major objective that it is difficult to separate the one from the other.

According to some of the decisions, the Exchange Service may not be sued because, being an agency of the Government, it has a privileged status and consent to be sued has not been given. The defendant, however, takes the position that it, the defendant, may not be sued because not a.party to the contract. If its position is correct, the citizen is left without a remedy for breach of a contract which he may have with the Army Exchange Service.

Clearly under the decision in Standard Oil Co. v. Johnson, supra, he may not sue the Exchange Service, because consent has not been granted.

May he sue the defendant? He may do so only if the defendant is obligated under an Exchange contract.

The Army officers are given complete supervision of these Post Exchanges. 'They handle the money. They have control of the funds. The funds are used to make the Army more effective. In •other words the officers run the show. 'The Exchanges are established and maintained for the benefit of Army personnel. 'That is their major, in fact their sole purpose. Even the civilian employees ■are subject to the Articles of War.'

For the Army to contend and to provide by regulation that it is not liable since it did not act in its official capacity would be like a man charged with extramarital activity pleading that whatever he may have done was done in his individual capacity and not in his capacity us a husband.

This, however, is not primarily a question of the reasonableness of regulations, nor whether the regulations were within •¡the framework of the authorizing statute. It is a question of liability under a contract signed by a post exchange.

The contracts are actually made by the post exchange and the operating expenses are apparently paid out of profits on the various articles that are supplied by these exchanges, and .any surplus funds thus accumulated are used for other activities of the same character or for recreation and are not expended for the maintenance of the Army as such.

It is true that occasionally the Army has furnished facilities for the use of a post exchange, but this would not make it liable for the operative contracts of the exchange. In the instances in which the profits of a post exchange were deposited in the Treasury, they were not placed in the general fund, but in a special fund for the use of other post exchanges.

Paragraph 35(h) (1) of AR 210-65, in effect at the time of the transactions involved herein, is as follows:

“Exchange contracts are solely the obligation of the exchange. They are not Government contracts and the distinction between exchange contracts and Government contracts will be observed and clearly indicated at all times.”

If this were a case of first impression we might be inclined to hold that the entire activity is so much an integral part of the Army’s actual operational structure as to make it a direct agency of the Government, nowithstanding the funds are not ordinarily appropriated for the operation of the exchanges. But in the light of the decision of the Supreme Court cited above, and those of other courts to which we have referred, we reluctantly reach the conclusion that plaintiff cannot sue the United States on a contract of employment which is signed by the Army Exchange Service, European Theater.

This disposition makes it unnecessary to pass upon the question of whether the evidence shows that plaintiff was guilty of negligence in connection with the incident in question. However, in order that the entire case may be disposed of at one time, regardless of what rule of law may be applied, we have found that the facts as disclosed by the record are not sufficient to show negligence on the part of the plaintiff. What should he have done with a key that was 5Yz inches long and weighed 5 ounces? It was too big to carry in a pocket. Plaintiff no doubt thought there was graver danger of his living quarters being broken into, or of the key’s being lost in carrying it back and forth than if it were kept in a guarded inclosure.

We think it is proper that this situation should be called to the attention of the Congress. It seems fair that either the Post Exchanges or the Government should be subject to suit and liable for any breach of a contract that had been duly signed by the Army Exchange Service.

The petition is dismissed. It is so ordered.

MADDEN and LITTLETON, Judges, concur.