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.