Mr. WILLKIE. Beg your pardon.

Mr. BIDDLE. Now, will you listen again?

Mr. WILLKIE. I think that you inferred the other.

Mr. BIDDLE. You told Lybrand, Ross Bros. when they came to your office to make the appraisal, that the income tax returns had nothing to do with it.

Mr. WILLKIE. And they agreed with me.

Mr. BIDDLE. Is that right?

Mr. WILLKIE. They agreed with me.

Mr. BIDDLE. Then the answer is "yes."
Mr. WILLKIE. No, not as you imply.

Mr. BIDDLE. I didn't imply anything.

Mr. WILLKIE. I never said to Lilienthal that we would not let them have it.

Mr. BIDDLE. I said your appraisers.

Mr. WILLKIE. The appraisers-I didn't know Lybrand, Ross Bros. were appraisers.

Mr. BIDDLE. Didn't they make an appraisal?

Mr. WILLKIE. No.

Mr. BIDDLE. An audit then.

Mr. WILLKIE. An audit.

Mr. BIDDLE. I should have said "audit."

Representative JENKINS. You are asking about something that I don't think we know anything about. Who are these "brothers" that you are talking about? [Laughter.]

Mr. WILLKIE. The Tennessee Valley Authority, in these long negotiations we have had, at one point asked us whether or not we would let a nationally known firm of auditors audit the books of the Tennessee Electric Power Co., so that that was one of the factors that could be considered, and so I said, "Why, certainly," and they wanted to know who, and I said, "You name them." And they named five, and I said, "Any one of the five is satisfactory with us," and they selected Lybrand, Ross Bros., and they made an audit.

Mr. BIDDLE. And they paid for it?

Mr. WILLKIE. I thought that we had to pay for part of it, maybe I am wrong about that.

but

Representative JENKINS. When was that audit made with reference to the time that Lilienthal told you through that letter or by word of mouth that he had already seen

Mr. WILLKIE. During the course of that, he asked Lybrand, Ross Bros. to make an analysis of this income tax return, and he and I had correspondence about it, and I said to him, I didn't think that this tax question, just as I have said to this committee, was involved, and he said that he thought it was, but it was more or less unnecessary for me to furnish them because the Treasury Department had already very courteously let him take a look at them.

Representative JENKINS. Just one other question, when these Lybrand, Ross Bros., and Montgomery, when they came to convey Mr. Lilienthal's request with reference to whether or not you considered that these depreciations and so on on these tax returns should be showed to you, what did they say to you and what did you say to them?

Mr. WILLKIE. They agreed with me that they didn't think it had any real place in determining the retirement account.

Representative JENKINS. Had Lilienthal told you at that time that he already had your tax returns?

Mr. WILLKIE. I think so.

Representative JENKINS. Well, of course that proved to you that the T. V. A.

Mr. WILLKIE. I was maintaining to them, just as I am maintaining to this committee, that the two things are entirely different, and he said to me, "Why, you don't need to give me these, I have already got them."

Representative JENKINS. You should have known from that expe

rience.

Mr. WILLKIE. I knew already that they had them. I knew that they had them because he had been talking about them, but I thought the Treasury Department turned them over to him. There wasn't any question about that in my mind.

Representative JENKINS. You should have known from that experience that the T. V. A. is the Government.

Mr. WILLKIE. Well, I

Mr. BIDDLE. You usually think of it in terms of the Government. Mr. WILLKIE. I have heard it argued that it was quite a different thing, in the courts, and not in these matters.

Mr. BIDDLE. It depends upon how you approach it.

Mr. WILLKIE. Yes; it depends upon which position they want to take; and I have always contended it was the Government.

Mr. BIDDLE. How about other properties involved? There was the Alabama Power Co., and the T. V. A. didn't have the Alabama Power Co.'s returns, and you know that they didn't.

Mr. WILLKIE. Do I know whether they looked at them in the Treasury Department?

Mr. BIDDLE. You know that they didn't have the returns.

Mr. WILLKIE. My guess is that they looked at the Treasury Department for anything that they wanted to, but they never said

to me

Mr. BIDDLE. You don't know anything about it?

Mr. WILLKIE. No; I have got a good guess that they did.

Mr. BIDDLE. I have a copy that you were good enough to furnish me, of your letter of Mr. Bourne's letter, your comptroller. Mr. WILLKIE. Mr. Bourne?

Mr. BIDDLE. I beg your pardon. Bourne, on April 21, 1938, he writes to Mr. Schaffer of Lybrand, Ross Bros.:

You have asked us for available depreciation studies of the properties under examination in order that you may make a review thereof pursuant to item 3 of the letter of Tennessee Valley Authority addressed to your firm under date of March 25 and we understand that Mr. Krug has asked, in the absence of our having any such depreciation studies, that you review the Federal income tax returns of the Tennessee and Alabama companies.

In the first place, let me ask you, there is a mass of engineering material, appraisals, and valuations, attached to those income tax returns, is there not?

Mr. WILLKIE. That is right.

Mr. BIDDLE. Then you end the letter, stating what you have already stated, that the courts have held that these two things are not the same.

You say:

Under the circumstances we feel that no good purpose would be served by our turning over the tax returns for examination as information obtained therefrom would be misleading and useless.

Now, that was, therefore, Mr. Schaffer having asked you for them, you refused to give it to them.

Mr. WILLKIE. Wait until you give me my reply. That is Mr. Bourne's reply; and you asked me whether I did.

Mr. BIDDLE. I mean, your company.

Mr. WILLKIE. Let me read you my letter to Mr. Lilienthal.

Mr. BIDDLE. Could we comment on this first, and get on the other thing?

Mr. WILLKIE. As I said, Mr. Bourne wrote Lybrand, Ross Bros.Lybrand, Ross Bros. incidentally were right in the office at the time, it was to make a formal record of the thing, that we did not think that the income tax, just as I have contended to this committeeMr. BIDDLE. And the data attached.

Mr. WILLKIE. Was applicable to this problem.

Mr. BIDDLE. You having not made any depreciation studies you didn't think that the engineers ought to look at the depreciation studies attached to your return?

Mr. WILLKIE (reading):

I have read Mr. Bourne's letter of April 21 to Mr. Schaffer and I must say that I am of the opinion expressed by him that the Federal income tax returns and information filed therewith have no applicability to the problem which you and I are considering.

In your letter to me of March 4 and also in your release to the public press, you have said that you will purchase these properties on the basis of the actual dollars invested in the property. It has been our position that you should pay the actual dollars invested in the entire property as a going business. Proceedings taken in accordance with the highly technical income tax law practice do not afford a basis for valuation in a general sense and certainly not the one which either you or I have selected as the basis for these negotiations, and consequently is inapplicable and will merely lead to confusion. The same kind of confusion would result if we contended that, since the T. V. A. in its last annual report shows no charge for depreciation against its property, therefore there should be no depreciation at all applied to the property which we are selling.

The only basis of depreciation under which the investor can receive his investment in the property, if the property is to be sold either on the basis suggested by you or me, is the amount of depreciation allowed by the State commission to be taken, because that is the only amount that has been recovered through earnings.

Mr. BIDDLE. Is that actual depreciation, by the way? Mr. WILLKIE. It is a retirement reserve which we estimate. Mr. BIDDLE. It is an arbitrary figure set by the State, it has nothing to do with how much the property has depreciated.

Mr. WILLKIE. Isn't the commission appointed and elected to make studies of the valuation of properties, and do just that?

Mr. BIDDLE. You think the Tennessee State commission's ruling should be accepted as actual depreciation for your physical properties, Mr. Willkie?

Mr. WILLKIE. I have no doubt about it at all, and I know of no other body in the United States that has jurisdiction or the facilities to determine it as they have. That is their function, that is what they are elected for, that is their business, training, and that is what they are established for.

If on the other hand, we are now going to adopt some other method of depreciation, then we should adopt some other method of valuation.

Your accountants have been given access to and have examined or are examining all of our books and accounts and your engineers have been furnished an inventory of the property and have been given access to, and are presently

making a physical examination of the property. I notice from your letter that the Secretary of the Treasury, without consulting us, has made available to you our income-tax returns, even though the amount of taxes to be paid thereon has not yet been settled, and that your staff has already reviewed these returns. There is, of course, no method by which we can prevent your use of the material furnished you by the Internal Revenue Department. Although we want to keep an open mind on the subject, we do not see how we can consistently recognize or consent that such tax material has any pertinency to the problem on which you and I are presently engaged.

Mr. BIDDLE. Now, what was the accrued depreciation allowed, accrued depreciation on your income-tax return?

Mr. WILLKIE. There has never been any allowed because the matter has not been settled.

Mr. BIDDLE. You mean it has not been settled for 24 years? Mr. WILLKIE. For 24 years? I will have that figured up for you. Representative WOLVERTON. What was the date of the letter the witness just used?

Mr. WILLKIE. The letter I used was dated May 10, 1938.

Representative WOLVERTON. What was the date of the letter that you used, Mr. Biddle?

Mr. WILLKIE. It was just before that.

Mr. BIDDLE. Just a day or two before, I think; April 21.
Mr. WILLKIE. April 21.

Mr. BIDDLE. Now, Mr. Willkie, what do you think is a fair basis; I would really like your view on what a fair basis would be in approaching this problem. You say, for instance, on page 3, "The Government says 'sell at our price,'." I suppose the Government would say you sell at the C. & S. price, so that obviously you think that neither party should determine.

Mr. WILLKIE. I have offered here today to have the Securities and Exchange Commission decide it.

ARBITRATION

Mr. BIDDLE. I understand that. Let me first ask you what right under the act is given to T. V. A. to delegate their authority to an outsider to determine values?

Mr. WILLKIE. I can't understand why they haven't full authority. Mr. BIDDLE. To arbitrate?

Mr. WILLKIE. Yes, when the T. V. A. was created it was specifically said by the President and others that it was being given the flexibility of a private corporation, so that it could transact business. I know of municipalities that have had questions to be determined who submitted them to arbitration.

Mr. BIDDLE. You as a lawyer think under the T. V. A. Act that T. V. A., being a branch of the Government, would have a right to delegate its power to fix a value to some outsider?

Mr. WILLKIE. As one who is not now active at the bar, and therefore whose legal opinion is worth about what it costs, I think this; that there is no question under the Tennessee Valley Authority Act that the T. V. A. has the power to submit to arbitration the question of what they shall pay for property acquired by them.

Mr. BIDDLE. Would you point to that provision of the act on which you base that?

Mr. WILLKIE. I don't think I have to point to anything.

Mr. BIDDLE. You have to base a power on the expression of the power in the act. Now, where is it expressed?

Representative WOLVERTON. May I inject a question there, either to counsel or the witness? Probably counsel can answer it better. If I remember correctly there was a conciliation agreement entered into for the purchase of the Berry marble property. I am wondering whether the same authority for that applied to this.

Mr. BIDDLE. Yes; that is a very good question, and may I answer it? I think you addressed it either to the witness or counsel.

The difference I take it, and I ask you as a lawyer, between conciliation and arbitration is that arbitration is binding and that conciliation is not, and that was the difference I think in this agreement, that the conciliation agreement itself expressed the provision that any result of the conciliator would not be binding on either party. You hardly would consider an arbitration agreement worth much which had no effect, and had no binding quality, would you, Mr. Willkie? Mr. WILLKIE. Mr. Biddle, on the question of whether the T. V. A. has the authority under this act to submit a question to arbitration and be bound by it, I shall be glad to give to you my written opinion, such as it is worth. I will probably have some other lawyer write it. Mr. BIDDLE. Give me your offhand opinion.

Mr. WILLKIE. There is no question about it, in my mind.
Mr. BIDDLE. Will you point to the act?

Mr. WILLKIE. I can't give you the specific provision, but I will give it to you. I have consulted some of the best lawyers in the country, and they all agree.

Mr. BIDDLE. I feel sure of that, but isn't it true there is no specific provision in the act from which that power could be tortured?

Mr. WILLKIE. I don't think that is correct, I think the T. V. A.if the T. V. A. does not have the power to enter into an ordinary arbitration agreement, then the extraordinary exercise of discretionary power that they are using is clearly wrong.

Mr. BIDDLE. Do you know any other branch of the Government that can arbitrate when it wants to condemn land for public purposes? Have you ever heard of that being done?

Mr. WILLKIE. I have heard of many governmental bodies arbitrating things; yes, States and otherwise.

Mr. BIDDLE. Give us an instance you have known, where instead of condemning property which the Government wishes to obtain, it has a legal right to arbitrate, and has done so.

Mr. WILLKIE. I have never heard the question raised before.

Mr. BIDDLE. I understand that.

Mr. WILLKIE (continuing). If they had the power to acquire, they did not have the power to arbitrate.

Mr. BIDDLE. You say dozens of cases.

Give me one.

Mr. WILLKIE. It is a new legal question. I don't know of any act where the Government has power to condemn that

Mr. BIDDLE. You said you knew of dozens of cases.

Mr. WILLKIE. Municipalities; I have represented them where they agreed to and were bound by arbitration.

Mr. BIDDLE. I was not talking about municipalities. Do you know of one instance where the United States Government has delegated power to arbitrate?

Mr. WILLKIE. No, I am not familiar with that.

Mr. BIDDLE. Then the answer is you don't know of any?

Mr. WILLKIE. No; the answer is not that. The answer is this: Mr. Biddle, you ask me as a lawyer saying to you that I no longer