BNUMBER: B-259532
DATE: March 6, 1995
TITLE: [Letter]
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B-259532
March 6, 1995
Mr. Alan I. Saltman
Saltman & Stevens, P.C.
1800 M Street, N.W., Suite 700 South
Washington, DC 20036
Dear Mr. Saltman:
The purpose of this letter is to inform you of our decision to
withhold payment of the award in favor of your client, Alaska Pulp
Corporation (APC), in Alaska Lumber & Pulp., Inc. v. Madigan, 2 F.3d
389 (Fed. Cir. 1993). This is being done pursuant to 31 U.S.C. sec.
3728, in order to collect the back pay and severance claims presented
by the National Labor Relations Board (NLRB) arising from the decision
in NLRB v. Alaska Pulp Corporation, 296 N.L.R.B. 1260 (1989), as
enforced, No. 90-70614 (9th Cir. 1991) (unpub.). The amount awarded
against the United States in Madigan is $6,915,934.94, plus interest
on $3,745,973.13 from January 1, 1994, until the date of payment at
the rate set by the Contract Disputes Act (CDA), 41 U.S.C. sec. 611. As
of today's date, the total amount owed by the United States under
Madigan is $7,203,656.47. On November 14, 1994, an administrative law
judge (ALJ) issued an "Interlocutory Determination" in the NLRB
matter. Based on the Interlocutory Determination, the NLRB General
Counsel has estimated that, including interest through December 31,
1994, APC's back pay and severance obligations will total
$9,037,022.[1]
The award in Madigan is payable from the permanent, indefinite
appropriation known as the Judgment Fund, 31 U.S.C. sec. 1304, subject to
reimbursement from USDA's appropriations. 41 U.S.C. sec. 612(c). This
Office is directed to "withhold [payment from the Judgment Fund of]
that part of a judgment against the United States Government" which is
equal to "a debt the plaintiff owes the Government." 31 U.S.C. sec.
3728(a). Where the plaintiff consents to this withholding, it ripens
into a "setoff" and the plaintiff's debt is discharged to the extent
of the amount withheld. If the plaintiff refuses to consent to the
withholding, the government is required to proceed with the
withholding and have a civil action brought to adjudicate the validity
of the government's debt claim (if such an action has not already been
brought). 31 U.S.C. sec. 3728(b). Should the plaintiff ultimately win
the civil action to adjudicate the government's debt claim, the
withheld funds must be refunded with six percent interest. 31 U.S.C. sec.
3728(c).
Based on our review of the law, the submissions by your firm, and
those of the NLRB, we conclude that payment of the Madigan award must
be withheld in order to recoup the debt asserted by the NLRB. The
reasons for this conclusion are set forth in the discussion below.
While the statute normally requires us to seek APC's consent to this
action, it is already clear from your firm's submissions that APC
does not agree to this setoff. Since APC does not consent, the funds
at issue cannot be paid to NLRB at this time. Instead, they must be
held in the Judgment Fund, pending final adjudication of the amount of
APC's indebtedness. 31 U.S.C. sec. 3728(b)(2). See Hines v. United
States, 105 F.2d 85, 88 (D.C. Cir. 1939) (observing that, where the
debt is disputed and not yet finally adjudicated, payment may be
withheld but not setoff while the adjudication proceeds).
As noted above, section 3728(b)(2)(B) directs us to "have a civil
action brought if one has not already been brought." We believe that,
for the purposes of section 3728, litigation of this matter has
already been initiated. As you know, the law specifies in great
detail the process by which disputes concerning the claims and
findings of the NLRB make their way into the federal courts. 29
U.S.C. sec. 160. The process contemplated by section 160 is already well
underway.
Under section 3728(c), the government is liable for interest on any of
the withheld amounts which are later found by the courts not due and
owing to the United States. APC's award has been accruing interest
under the CDA. 41 U.S.C. sec. 611. Given our action today, interest
accrual under the CDA is hereby terminated and replaced with interest
under section 3728. Interest accrues under section 3728 at the rate
of six (6) percent per annum, and applies to any and all withheld
amounts ultimately found not due and owing to the government,
including the CDA interest that accrued through today's date.
DISCUSSION
The submissions by your firm challenging the propriety of a setoff
against APC under section 3728 raise two questions: First, is there
"mutuality" between the parties? Second, is the debt claimed by NLRB
"liquidated or certain in amount" within the meaning of the law?
Briefly put, we believe that (1) there is mutuality because the
federal government, as the only entity authorized by law to enforce
collection of NLRB back pay awards, is the creditor for the purposes
of those awards, and (2) this claim is liquidated or certain in amount
since it has been reduced to a sum certain by appropriate officials of
the NLRB using a rational methodology. These positions are explained
in greater detail in the following material.
Mutuality of Parties
It is clear that before setoff may be invoked, there must be mutuality
of parties. This means that the judgment creditor must be the same
person (in the view of the law) as the party who owes the debt to be
collected, and the government must be the same person to whom the debt
is owed. You argue that any amounts APC owes in this matter are due,
not to the government, but to the affected employees, who happen to be
represented by the government. You also suggest that the government
would be taking unfair advantage of its position as the employees'
representative if it were to take setoff in this matter.
Although all funds collected by the NLRB in this matter will
ultimately be turned over to the current and former employees of APC
and not to the Treasury of the United States, the NLRB is the only
entity which may legally pursue their collection. Not even the
awarded employees themselves may sue to recover the back pay. In this
regard, although its actions ultimately benefit the individual,
injured employees, the NLRB acts primarily in the public's interest to
uphold federal labor laws and policies. NLRB v. E.D.P. Medical
Computer Systems, Inc., 6 F.3d 951, 954-55 (2d Cir. 1993). Moreover,
the NLRB may treat back pay awards as the equivalent of debts owed to
the United States. This is because the NLRB acts not as a collection
agent for the employees, but as the champion and enforcer of federal
labor laws and policies. NLRB v. Deena Artware, 361 U.S. 398, 412
(1960) (Frankfurter, J., concurring) ("[The Board's ] primary
function . . . is to prevent the conduct defined as unfair labor
practices."); National Licorice Co. v. NLRB, 309 U.S. 350, 362 (1940)
("The Board acts in a public capacity to give effect to the declared
public policy of the [National Labor Relations] Act."). Consistent
with this view, employees who benefit from an NLRB back pay award
have no property rights to the award until it is distributed to them
by the NLRB.[2] NLRB v. Sunshine Mining Co., 125 F.2d 757, 761 (9th
Cir. 1942).
You have asserted that NLRB v. Nathanson, 344 U.S. 25 (1952), supports
the proposition that NLRB back pay awards are neither debts owed the
government nor collectible by setoff.[3] In fact, the Court held that
the NLRB "is a creditor as respects the back pay awards, within the
meaning of the Bankruptcy Act." Id. at 27. This conclusion was
founded upon the fact that the NLRB is the "public agent chosen by
Congress to enforce the National Labor Relations Act. A back pay
order is a reparation order designed to vindicate the public policy of
the statute." Id. (citations omitted). Although the Court also held
that back pay awards, because the amounts recovered do not ultimately
benefit the Treasury, are not entitled to the same priority in
bankruptcy proceedings as are other debts owed to the United States,
the Court did not alter their characterization as debts owed the
government:
"We do not, however, agree with the lower court that this claim,
enforceable by the Board, is a debt due to the United States
within the meaning of [31 U.S.C. sec. 3713], and therefore entitled
to priority under
. . . the Bankruptcy Act. It does not follow that because the
Board is an agency of the United States, any debt owed it is a
debt owing the United States within the meaning of [31 U.S.C. sec.
3713]. The priority granted by that statute was designed 'to
secure an adequate public revenue to sustain the public burthens
[sic] and discharge the public debts. . . .' There is no
function here of assuring the public revenue. The beneficiaries
of the claims are private persons . . . ."
Id. at 27-28 (citations omitted and emphasis added). (Section 3713
gives the federal government a general priority in the payment of
debts owed by persons whose assets are not sufficient to pay all of
their creditors in full.) See also E.D.P. Medical Computer Systems,
Inc., 6 F.3d at 955, which explains that Nathanson
"did hold that the Board is a creditor because the back pay order
is a 'debt, demand, or claim provable in bankruptcy.' The Court
stated that the Board is the only party entitled to enforce the
award, as designated by Congress. The Court's reasons for not
granting the Board the same priority as other debts owing to the
United States are different from the Court's reasons for holding
that a back pay award is a debt to the Board."
We believe the Court would agree that "[e]ffective debt collection by
the government is not only to fill the public coffers and lower the
federal budget deficit; we should also consider the importance of
effective debt collection as a necessary tool for enforcement of the
federal labor laws." Id.
As part of questioning whether there is mutuality of parties, you have
suggested also that sound public policy would oppose the exercise of
setoff under these circumstances because such would improperly benefit
the United States by "extinguishing" or "diminishing" its judgment
obligations. We disagree. Taking setoff in this case will not alter
how much the government will pay out of the Treasury on account of the
award won by APC. The only thing that will be altered by setoff is to
whom that money will be paid--APC, or the current and former employees
to whom APC has already been found liable by the United States Court
of Appeals for the Ninth Circuit. For this reason, no improper
advantage will come to the government if it is treated as the creditor
in this matter.
Liquidated Debt
It is well-settled that to be eligible for setoff, a debt must be
"liquidated or certain in amount." B-210600, Sept. 18, 1984. This
rule is prescribed in the Federal Claims Collection Standards (FCCS),
4 C.F.R. sec. 102.3(a), and reflects requirements of the common law.
See, e.g., 20 Am. Jur. 2d Counterclaim, Recoupment, and Setoff sec. 61
(1965). You argue that APC's debt will not be liquidated or certain
unless and until the ALJ's recommended order becomes final or the
Board itself otherwise establishes the amount due. You have
suggested, further, that because the matter is subject to judicial
review, it will be several years before this matter is eligible for
setoff.
While the phrase "liquidated or certain in amount" does not appear to
have been further defined in the case law or the FCCS, it cannot mean
that the amount and existence of the debt have been finally determined
as a matter of law. The common law has never required that a judgment
on the debt must be obtained before setoff can be taken. United
States v. American Surety Co., 158 F.2d 12 (5th Cir. 1946); 56 Comp.
Gen. 264 (1977). Neither does the setoff statute. As noted above,
section 3728(b) specifies that, if such has not already been done, a
civil action must be brought after the withholding occurs in order to
adjudicate the government's debt claim. Thus, by its very terms,
section 3728 contemplates that setoff will often take place before the
debt has been finally determined.
Neither can "liquidated or certain in amount" mean that the amount
demanded must represent the final determination of the head of the
agency to which the debt is owed. Under the FCCS, a debt exists when
"an amount of money or property . . . has been determined by an
appropriate agency official to be owed to the United States." 4
C.F.R. sec. 101.2(a). The NLRB General Counsel and Regional Office
staffs are authorized to assert and settle claims on behalf of the
NLRB. 29 C.F.R. sec. 101.7-101.9. Consequently, the FCCS requirement
for a determination by an "appropriate agency official" was satisfied
when the NLRB regional staff and General Counsel first pursued their
claim against APC for a specific sum of money. (Alternatively, the
FCCS requirement was fully satisfied by the ALJ's "Interlocutory
Determination.")
Moreover, we have previously held that setoff is proper even where the
amount claimed is only an estimate by the appropriate official.
B-193432, B-211194, Jan. 5, 1984. There are, of course, limits on how
speculative such estimates may be. In B-210600, Sept. 18, 1984, we
held that to qualify for setoff such an estimate must rest on "valid
presumptions" which are not "too conjectural in nature to be
considered certain or liquidated."
What these authorities suggest is that the common law requirement that
a debt be liquidated or certain in amount means only that the claim
has been reduced by an appropriate administrative official to a
precise amount using a methodology that rationally follows from the
evidence in the record. The NLRB's debt claim satisfies this test.
If you have any further questions concerning this matter, please feel
free to contact Mr. Neill Martin-Rolsky of my staff, at 202-512-8580.
Sincerely yours,
Robert P. Murphy
General Counsel
B-259532
March 6, 1995
DIGEST
GAO initiates setoff against award entered in favor of Alaska
Pulp Corp. (APC) to satisfy debt owed National Labor Relations
Board (NLRB) for back pay and severance pay of APC employees.
NLRB is the appropriate party to whom the debt is owed. Although
NLRB will remit amounts collected to APC employees and not to the
Treasury, NLRB is, legally, the only entity who may pursue their
collection. Because the amount of the debt has been estimated by
a responsible NLRB official, it is sufficiently certain for
purposes of setoff.
1. The ALJ has yet to issue his final, recommended order in this
matter. Under 29 U.S.C. sec. 160, the ALJ's final order will
become the final order of NLRB unless the Board decides to review it,
or one of the parties files exceptions to it within 20 days of the
recommended order.
2. Similarly, funds in a federal employee retirement account are not
available for setoff until the employee withdraws his contribution or
qualifies for an annuity. 58 Comp. Gen. 501, 502-03 (1979).
3. APC's suggestion that GAO has previously viewed Nathanson as
precluding setoff by the government is not correct. GAO has
previously cited Nathanson on only two occasions. See B-161514, July
7, 1967; B-138525, Apr. 21, 1959. In neither one was it cited for the
proposition that setoff could not be taken by the government under
these (or any) circumstances; nor for that matter was setoff even an
issue in those cases.