Pewee's Claim

When the Federal Government has taken over railroads or coal mines to avert strikes, it has often handed out pay raises which the seized companies had previously refused to give. Last week the U.S. Supreme Court whacked down on the Government's habit of handing out other people's money. In a precedent-setting decision, the court held that the Government, not the company, must pay the losses resulting from added wage costs, and thereby laid the Government open to suits for millions of dollars in claims.

The Government had been challenged by Tennessee's Pewee Coal Co., which was taken over in 1943, along with other mines, to avoid a nationwide coal strike. After increasing its labor costs to meet a War Labor Board recommendation, the Government ran into a streak of bad luck with Pewee and began losing money. Pewee sued in the court of claims, was awarded $2,241.26, the amount of the increased labor costs. Last week the Supreme Court's 5-4 decision upheld Pewee.

Four members of the court (Justices Black, Frankfurter, Douglas and Jackson) argued that "the U.S. normally is entitled to the profits from, and must bear the losses of, business operations it conducts." Justice Reed rejected their argument, but voted with them anyway for a different reason. He held that the Government added to the labor costs "without legal or business necessity to do so," and should hence repay Pewee.

The decision was bound to make the Government think twice in the future before it handed out pay raises in seized companies.

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