B-170400, FEB 2, 1971

B-170400, FEB 2, 1971

CIVILIAN EMPLOYEES - NONAPPROPRIATED FUND ACTIVITIES REAFFIRMING PRIOR DECISION HOLDING THAT UNPAID COMPENSATION DUE A FORMER EMPLOYEE OF THE DEFENSE SUPPLY AGENCY MAY NOT BE SET OFF TO SATISFY AN INDEBTEDNESS OWED A NON-APPROPRIATED FUND ACTIVITY SUCH AS THE OFFICERS CLUB SINCE FOR THE MOST PART EMPLOYEES OF NON-APPROPRIATED FUND ACTIVITIES ARE NOT REGARDED AS REGULAR EMPLOYEES OF THE U.S. EVEN THOUGH NONAPPROPRIATED FUND ACTIVITIES ARE CONSIDERED INSTRUMENTALITIES OF THE UNITED STATES.

TO MR. A. R. PRAY:

THIS REFERS TO YOUR LETTER OF NOVEMBER 13, 1970, REQUESTING RECONSIDERATION OF THAT PART OF OUR DECISION OF SEPTEMBER 21, 1970, WHICH HELD THAT UNPAID COMPENSATION DUE A FORMER EMPLOYEE OF THE DEFENSE SUPPLY AGENCY MAY NOT BE SET OFF TO SATISFY AN INDEBTEDNESS OWED A NONAPPROPRIATED FUND ACTIVITY SUCH AS THE OFFICERS CLUB AND THAT NEITHER COULD THE AMOUNT IN THE CIVIL SERVICE RETIREMENT FUND TO THE CREDIT OF THE FORMER EMPLOYEE BE APPLIED TOWARD PAYMENT OF A CLAIM BY AN INSURANCE COMPANY.

YOU SAY THAT OUR DECISION OF SEPTEMBER 21, 1970, APPEARS TO BE IN CONFLICT WITH THE POSITION OF THE DEPARTMENT OF JUSTICE IN PROSECUTING THE EMPLOYEE AND THAT WE HAVE OVERLOOKED CURRENT LAW AND REGULATIONS. YOU ALSO STATE THAT THE COURTS AS WELL AS ARMY REGULATIONS SHOW THAT NONAPPROPRIATED FUND ACTIVITIES AR INSTRUMENTALITIES OF THE UNITED STATES.

IN YOUR LETTER YOU STATE THAT THE FORMER EMPLOYEE WAS CONVICTED OF THE THEFT OF GOVERNMENT PROPERTY IN VIOLATION OF 18 U.S.C. 641 AND 2. U.S.C. 641 PROVIDES IN PART THAT:

"WHOEVER ***STEALS *** MONEY, OR THING OF VALUE OF THE UNITED STATES OR OF ANY DEPARTMENT OR AGENCY, THEREOF, OR ANY PROPERTY MADE OR BEING MADE UNDER CONTRACT FOR THE UNITED STATES OR ANY DEPARTMENT OR AGENCY THEREOF

"SHALL BE FINED NOT MORE THAN $10,000 OR IMPRISONED NOT MORE THAN TEN YEARS, OR BOTH *** ."

UNDER THE ABOVE-QUOTED STATUTE ANY PERSON STEALING MONEY BELONGING TO AN AGENCY OF THE UNITED STATES WOULD BE GUILTY OF A CRIME. AS STATED BY YOU, THE COURTS HAVE HELD THAT NONAPPROPRIATED FUND ACTIVITIES ARE INSTRUMENTALITIES OR AGENCIES OF THE GOVERNMENT. SEE STANDARD OIL CO. OF CALIFORNIA V JOHNSON, 316 U.S. 481 (1942); BRETHAUER V UNITED STATES, 333 F. 2D 302 (1964); UNITED STATES V HOWELL, 318 F. 2D 162 (1963); UNITED STATES V HOLCOMBE, 277 F. 2D 143 (1960); UNITED STATES V FORFARI, 268 F. 2D 29 (1959); AND DANIELS V CHANUTE AIR FORCE BASE EXCHANGE, 127 F. SUPP. 920 (1955). SEE ALSO 38 COMP. GEN. 470, ANSWER TO QUESTION 5 AT PAGE 475 WHEREIN WE HELD THAT A SALE TO AN INTEGRAL PART OF THE NAVY, INCLUDING POST EXCHANGE, SHIPS' STORE OR OTHER ORGANIZATION OR CLUB WHICH IS OPERATED AS AN INTEGRAL PART OF THE NAVY WOULD CONSTITUTE A SALE TO AN AGENCY OF THE DEPARTMENT OF DEFENSE.

WE ALSO CONSIDER THE ARMY AND AIR FORCE EXCHANGE SERVICE AS A GOVERNMENT INSTRUMENTALITY WHICH FUNCTIONS AS AN AGENCY OF THE ARMY AND AIR FORCE UNDER THE EXECUTIVE CONTROL OF THE OFFICERS OF THE SERVICES CONCERNED WHO CONTINUE TO RECEIVE PAY AND ALLOWANCES AS OFFICERS. HOWEVER, EXCEPT FOR FURNISHING SUITABLE FACILITIES FOR THE OPERATIONS, APPROPRIATED FUNDS ARE NOT AVAILABLE FOR EXCHANGE OPERATIONS. IN THIS CONNECTION SECTION 4779(C) OF TITLE 10, U.S.C. PROVIDES:

"NO MONEY APPROPRIATED FOR THE SUPPORT OF THE ARMY MAY BE SPENT FOR *** ARMY EXCHANGES. HOWEVER, THIS DOES NOT PREVENT ARMY EXCHANGES FROM USING PUBLIC BUILDINGS OR PUBLIC TRANSPORTATION THAT, IN THE OPINION OF THE OFFICE OR OFFICER DESIGNATED BY THE SECRETARY, ARE NOT NEEDED FOR OTHER PURPOSES."

ALTHOUGH THE PRECEDING INDICATES SUBSTANTIAL ADHERENCE TO THE PROPOSITION THAT THE EXCHANGE SERVICE IS A GOVERNMENT INSTRUMENTALITY, IT ALSO SUGGESTS LIMITATIONS AND URGES CAUTION IN ENLARGING THE SCOPE AND NUMBER OF LEGAL INFERENCES THAT CAN SAFELY BE DRAWN FROM THE AGENCY'S INSTRUMENTALITY STATUS. SEE B-168451, DATED MARCH 11, 1970, 49 COMP. GEN.

IN STANDARD OIL CO. OF CALIFORNIA, SUPRA, WHILE IT WAS HELD THAT POST EXCHANGES ARE FEDERAL INSTRUMENTALITIES FOR PURPOSES OF THEIR EXPOSURE TO CERTAIN STATE TAXES, THE FACT REMAINS THAT THE EXCHANGES ARE NONAPPROPRIATED FUND ACTIVITIES. IN 1952, AT THE REQUEST OF THE DEPARTMENT OF DEFENSE, CONGRESS ENACTED PUBLIC LAW 397, NOW CODIFIED IN 5 U.S.C. 2105 WHICH EXPRESSLY PROVIDES THAT EMPLOYEES OF NONAPPROPRIATED FUND ACTIVITIES SUCH AS HERE INVOLVED WERE NOT DEEMED EMPLOYEES OF THE UNITED STATES FOR THE PURPOSE OF LAWS ADMINISTERED BY THE CIVIL SERVICE COMMISSION OR THE PROVISIONS OF SUBCHAPTER I OF CHAPTER 81 (EMPLOYEES' COMPENSATION FOR INJURIES) IN SECTION 7902 (SAFETY PROGRAMS FOR EMPLOYEES) OF TITLE 5, UNITED STATES CODE. IT ALSO PROVIDED THAT THE STATUS OF THESE NONAPPROPRIATED FUND ACTIVITIES AS FEDERAL INSTRUMENTALITIES SHALL NOT BE AFFECTED. THE LEGISLATIVE HISTORY OF THIS ACT CLEARLY SHOWS THAT THE ACT WAS PASSED TO ALLAY THE DOUBTS RAISED BY THE STANDARD OIL CASE, SUPRA, AS TO WHETHER OR NOT THE VARIOUS CIVIL SERVICE LAWS AND REGULATIONS WERE APPLICABLE TO CIVILIAN EMPLOYEES OF NONAPPROPRIATED FUND ACTIVITIES.

IN BAILEY V UNITED STATES, 201 F. SUPP. 604 (1962), IN AN ACTION UNDER THE TUCKER ACT AGAINST THE UNITED STATES FOR BREACH OF CONTRACT BETWEEN THE PLAINTIFF AND AN AIR FORCE POST EXCHANGE IT WAS STATED THAT:

"IT IS SETTLED THAT OBLIGATIONS ARISING OUT OF A CONTRACT WITH A POST EXCHANGE ARE NOT LIABILITIES OF THE UNITED STATES UPON WHICH SUIT COULD BE INSTITUTED. BORDEN V UNITED STATES, (COURT OF CLAIMS, 1953), D.C., 116 F. SUPP. 873; PULASKI CAB COMPANY V UNITED STATES, (COURT OF CLAIMS 1958), D.C. 157 F. SUPP. 955; EDELSTEIN V SOUTH POST OFFICERS CLUB (D.C. E.D. VA. 1951), 118 F. SUPP. 40. THESE DECISIONS ARE BASED UPON THE CASE OF STANDARD OIL CO. OF CALIFORNIA V JOHNSON (1942), 316 U.S. 481, 62 S. CT. 1168, 86 L. ED. 1611, IN WHICH THE SUPREME COURT HELD THAT EXCHANGE CONTRACTS ARE SOLELY THE OBLIGATION OF THE EXCHANGE, THAT THEY ARE NOT GOVERNMENT CONTRACTS, AND THAT THE GOVERNMENT ASSUMES NONE OF THE FINANCIAL OBLIGATIONS OF THE EXCHANGE."

PUBLIC LAW 91-350 WAS APPROVED JULY 23, 1970, AMENDING 28 U.S.C. 1346(A)(2) TO PROVIDE COURTS OF THE UNITED STATES WITH JURISDICTION OVER CONTRACT CLAIMS AGAINST NONAPPROPRIATED FUND ACTIVITIES OF THE UNITED STATES. SUBSECTION (A) OF THE FIRST SECTION PROVIDES THAT AN EXPRESS OR IMPLIED CONTRACT WITH THE ARMY AND AIR FORCE EXCHANGE SERVICE, NAVY EXCHANGES, MARINE CORPS EXCHANGES, COAST GUARD EXCHANGES, OR EXCHANGE COUNCILS OF THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION SHALL BE CONSIDERED AN EXPRESS OR IMPLIED CONTRACT WITH THE UNITED STATES. SUBSECTION (C) OF THE FIRST SECTION REQUIRES THAT THE UNITED STATES BE REIMBURSED BY THE APPROPRIATE NONAPPROPRIATED FUND ACTIVITY FOR ANY JUDGMENT OR COMPROMISE SETTLEMENT SO PAID BY THE UNITED STATES. ALSO, PARAGRAPH 7 OF SECTION 1 OF ARMY REGULATION NO. 60-10, DATED MARCH 25, 1969, PROVIDES THAT CLAIMS, JUDGEMENTS, INCLUDING COMPROMISE SETTLEMENTS OF COURT ACTIONS, AGAINST THE UNITED STATES ARISING OUT OF EXCHANGE ACTIVITIES ARE PAYABLE SOLELY OUT OF AAFES FUNDS.

POST RESTAURANTS AND OFFICERS' OPEN MESSES ARE LARGELY FINANCED AND OPERATED THROUGH THE USE OF NONAPPROPRIATED FUNDS AS DISTINGUISHED FROM PUBLIC FUNDS. THAT IS TO SAY, THE REVENUES AND RECEIPTS DERIVED FROM THE OPERATION OF THESE ACTIVITIES DO NOT INURE TO THE BENEFIT OF THE TREASURY AND ARE NOT ACCOUNTED FOR AS PUBLIC FUNDS, NOR ARE THE EXPENDITURES CONNECTED THEREWITH RELATED TO THE PAYMENT OF OBLIGATIONS INCURRED UNDER AUTHORITY OF APPROPRIATED FUNDS.

WE HAVE HELD THAT DEBTS DUE NONAPPROPRIATED FUND ACTIVITIES ARE NOT DEBTS DUE THE UNITED STATES AND THAT THERE IS NO AUTHORITY TO SET OFF DEBTS DUE SUCH ACTIVITIES AGAINST THE AMOUNTS OTHERWISE DUE A CIVILIAN EMPLOYEE. SEE 9 COMP. GEN. 353 (1930); 9 ID. 411 (1930); 11 ID. 161 (1931); 31 ID. 363 (1952) AND 43 ID. 431 (1963). AS POINTED OUT BY YOU IN YOUR LETTER, THE ARMY REGULATIONS CITED IN 9 COMP. GEN. 411 ARE NO LONGER APPLICABLE. HOWEVER, IT WAS THE TYPE OF FUNDS INVOLVED AND NOT THE ARMY REGULATIONS WHICH WAS THE CONTROLLING FACTOR IN THAT CASE. IT WAS STATED IN THAT DECISION THAT SINCE PUBLIC FUNDS ARE NOT INVOLVED IN THE ESTABLISHMENT OR OPERATION OF POST RESTAURANTS, AND SINCE THE ONLY CONNECTION OF SUCH RESTAURANTS WITH THE GOVERNMENT IS THAT THEY ARE ESTABLISHED AND MAINTAINED WITH THE SANCTION OF THE WAR DEPARTMENT, AN INDEBTEDNESS TO A POST RESTAURANT CANNOT BE REGARDED AS AN INDEBTEDNESS TO THE UNITED STATES.

FROM THE FOREGOING IT IS EVIDENT THAT FOR THE MOST PART THE EMPLOYEES OF NONAPPROPRIATED FUND ACTIVITIES HAVE NOT BEEN REGARDED AS REGULAR EMPLOYEES OF THE UNITED STATES EVEN THOUGH NONAPPROPRIATED FUND ACTIVITIES ARE INSTRUMENTALITIES OF THE UNITED STATES. WE AGREE THAT IT SEEMS INCONSISTENT TO SAY THAT AN EMPLOYEE OF SUCH AN ACTIVITY IS NOT AN EMPLOYEE OF THE UNITED STATES WHEN HE HAS BEEN CONVICTED FOR STEALING PROPERTY OF THE UNITED STATES WHICH ACTUALLY BELONGED TO THE NONAPPROPRIATED FUND ACTIVITY. HOWEVER, WE POINT OUT THAT PART OF THE PROPERTY INVOLVED IN THE THEFT, NAMELY, A PISTOL, DID BELONG TO THE UNITED STATES AS DISTINGUISHED FROM THE NONAPPROPRIATED FUND ACTIVITY. PERHAPS THIS WAS THE REASON THAT NO ARGUMENT WAS MADE THAT NO FUNDS OR PROPERTY BELONGING TO THE UNITED STATES WAS TAKEN. IN ANY EVENT ON THE BASIS THAT A DISTINCTION EXISTS BETWEEN THE CRIMINAL ASPECTS OF THE CASE AND THE CIVIL LIABILITY DERIVING THEREFROM, WE DO NOT FEEL JUSTIFIED IN HOLDING, CONTRARY TO OUR OTHER DECISIONS IN THIS AREA, THAT THE FORMER EMPLOYEE IS INDEBTED TO THE UNITED STATES FOR THE TAKING OF PROPERTY OR FUNDS BELONGING TO THE NONAPPROPRIATED FUND ACTIVITY.