269 F. 827 | S.D.N.Y. | 1920
(after stating the facts as above).
The sole basis for the plaintiff’s claim of unconstitutionality comes down, therefore, to the Custodian’s power of initial sequestration ex parte. But how does this differ in substance from the customary right upon libels of information in rem to arrest whatever property officials may decide to be forfeit? Such property may not be reclaimed pen
The purpose of this suit is to prevent the sale of 14,900 shares of stock in the Botany Worsted Mills formerly owned by Kammgarnspinnerei Stohr -& Co., a German corporation doing business in Leipzig. All right of this corporation was captured under section 7c and sections 2a and 2b of the executive order of February 26, 1918, by the Alien Property Custodian’s demand on April 5, 1918, and all its rights under the contract of February 20, 1917, mentioned below, were laier captured in February, 1919. Nobody questions, as I understand it, that these demands effectively divested, whatever rights the Leipzig Company had against Stohr & Sons, Incorporate^, but the dispute is as to what these were. I shall assume for argument’s sake that a shareholder may bring a representative suit in the right of his corporation under section 9, and that the plaintiff here has shown a situation justifying his recognition in that capacity. I shall further assume, though the fact is no way proved, that Hans E. Stohr had,a general authority which would cover the execution of contracts for the sale of such property as this for a consideration such as this. This assumption is all that the plaintiff has suggested he could prove, if he had the chance to take proo f in Germany.
The contract, verbally taken, was one of two kinds—either a sale
The result was that on February 19, 1917, the share of the German partners had not been put beyond the reach of capture any better than if the firm had remained in existence. All that was accomplished, and in my opinion all that was desired, was to secure the firm against dissolution in the event of war, and to insure the voting right in two Americans on whom Hans could rely, if his own right to vote on the shares became affected by his enemy character. I doubt whether the parties then or láter thought of any possible confiscation at all; but, if they did, it is clear either that they despaired of any successful evasion of it, or that they were constrained by motives of prudence or conscience. In any event they left the substantial interests of the partners susceptible to capture and confiscation.
On the following day Hans E. Stohr, assuming to act for the Leipzig Company, made the contract here in question with Stohr & Sons,
On the other hand, it is clear, of course, that the contract was not a commercial transaction. The occasion is enough to prove this and the everts leading up to it. Besides, thé contract itself proves that it could not have been due to ordinary commercial motives. The Botany Worsted Mills had been a successful business, already 28 years in existence and one of the largest and best equipped in the United States. No possible reason can be suggested for the sudden sale of nearly a majority of its shares, which was not based upon an emergency. Moreover, the consideration was inadequate. It expressly omitted the good will, which must have had a substantial value, and it fixed no present price at all, so that it insured nothing to the Leipzig Company except a sale of one-fifth each year at the then book value of its “hard assets.” If the shares fell in value the Leipzig Company bore the loss, both in general value and in book value; if they rose, it did not share the gain, except in so far as that was reflected in book values. Possibly it is legitimate to observe, also, that our entrance into the war was likely to have that advantage to woolen mills which the event proved.
Now, Hans K. Stóhr was not acting alone for himself and his family. The record does not show how many outside shareholders there were in the Leipzig Company, but they were many. He was in the position oí selling for an apparently inadequate consideration, to his family, property in which other persons were interested as well as they. The contract, if not, therefore, justified upon the principle of selling to Crassus a burning house, could not be justified at all; it was apparently a fraud. And even if not clearly such, it was voidable at die instance of any single German shareholder who chose to protest. It was not likely that Heyn, a capable adviser, should have seriously expected a contract with such infirmities to stand; indeed, it is not-credible that the parties could have intended it as a commercial bargain at all, _ except it were, what is was not, a desperate catch at salvage.
_ Besides, to give even a colorable plausibility to the bargain, the plaintiff’s position requires the assumption that the contract was mutual in its obligations. The point is not in any sense critical, but perhaps worth notice, because it was pretty clearly not a contract of purchase, but only an option. Of course, I am aware of the doctrine that bilateral
The surroundings confirm that conclusion. As I have shown, while the contract was- heavily weighed against the Leipzig Company, conceivably it might involve Stohr & Sons, Incorporated, in embarrassing obligations, because the transaction was large. After the annual appraisals, the shares might fall; the company might be on an obvious decline. Some recalcitrant Leipzig; shareholder might insist upon ratification of the bargain and place Stohr & Sons, Incorporated, in an awkward predicament. But, if it were only an option, all this would be avoided. The omission to include any promise to pay at least fits with that purpose not to induce the Leipzig Company to call for performance, which may be inferred from the unequal inducements of the contract to either party. If the contract were never intended to be enforced, and if some of the Leipzig shareholders were not altogether reliable, we should look for a contract in substance and in form not dissimilar.
But as an option for $5,000 to purchase during a period of five years $5,000,000 of shares 'at prices which confessedly omitted an important element, of value, the contract is too open a fraud upon the Leipzig Company to admit even of argument. Hans E. Stohr and Heyn were not engaged in any such enterprise; the plaintiff would be the last to suggest that they were. Therefore I think I may say that it is demonstrated that neither was the contract intended to sell out in an emergency so as to escape putative capture, nor was it a genuine business transaction dependent upon an estimate of the mutual advantages of the parties. There remains only the possibility that it was not intended to represent the real purpose of the parties at all, but to serve as a cover for another purpose.
We are, moreover, not left to surmise as to what that purpose was, because the written statements of Hans E- Stohr and Heyn just before the capture very frankly disclose it. It was merely the continuation of what they had doné in 1915, when they put the legal title in the name of Hans E. and Max W. Stohr for convenience of management, and what'they had done in the case of the partnership just before February
Hans E. Stohr wrote two letters to Heyn on February 5, 1918, tyhile Heyn was in Washington, arranging, so far as he could, the affairs of the Stohrs with the Alien Property Custodian. In one letter he said that the shares in question were owned by the Leipzig Company; in the other that the majority of the Botany Worsted Mills was enemy owned. Each was probably intended for transmission to the authorities, and each flatly contradicted the contract of February 20, 1917, at least unless it was an option, which, as I have shown, is incredible. When Heyn came to make his final statement, cumulative upon the earlier reports under section 7a—a statement which Hans expressly approved—he specifically mentioned the contract of February 20, 1917, and referred it exclusively to the supposed danger Lo the voting control of the Botany Worsted Mills. It “had,” said he, “of course, no reference to the status of such control so far as the Alien Property Custodian is concerned. * * * Considerably more than a majority of its stock is controlled by alien enemy interests within the meaning of the Alien Enemy Act.”
This information wa.s given in compliance with section 7a, the second paragraph of which requires a statement as of February 3, 1917, of all enemy shareholders who the corporate officer had cause to suppose then or later owned any shares. Heyn would have had to disclose that Hans E. and Max W. Stohr were trustees on February 3, 1917, for so the books would show. The section in addition required him to say what shares were enemy, owned though standing in the name of another when the report was filed. He was therefore positively required to state the character of the relations arising under the contract of February 20, 1917, and his account of it was authoritative. There can he no question that, had the Leipzig Company had only a vendor’s lien, it would have been a wrong upon Stohr & Sons, Incorporated, to fail to state its full rights. In saying that the “control” for purposes of the act was in the Leipzig Company, I may fairly suppose that he had in mind those provisions, of section 7a under which he was acting; he used “control” as “owned.”
Heyn and Flams S. Stohr are now dead, but the aspect which the plaintiff seeks to put upon the contract is an apocryphal afterthought, which there is no reason whatever to suppose that they, were they alive, would now have the disposition, or the hardihood, to adopt. Their
It is quite true that the right of capture on land depends upon the action of Congress (Brown v. U. S., 8 Cranch, 110, 3 L. Ed. 504), and _ is not a part of our customary law arising from a state of war. Yet the incidents of sea capture might, in the absence of contrary legislative expression, be perhaps looked to as a fair analogy. The reason of the rule which makes the transitu a test of the validity of a transfer, imminente bello, was considered by the Privy Council in The Baltica, supra, and it was held to be the difficulty involved in detecting reserved enemy interests. Therefore a ship was restored when delivery was made to the transferee at an intermediate port. The theory was
“No person sliall by virtue of any assignment * * * to Mm of any ♦ s' * chose in action by - * * an enemy * * * Rave any right or remedy against the ® "■* " obligor * * * unless said assignment * * 15 was made prior to the beginning oí the war.”
It might indeed be open to a good deal of question whether this included an assignment of equitable interests in shares of stock (Brown v. Fletcher, 235 U. S. 589, 35 Sup. Ct. 154, 59 L. Ed. 374), though shares are analogous to choses in action (Jellenik v. Huron Copper Co., 177 U. S. 1, 20 Sup. Ct. 559, 44 L. Ed. 647), and a fortiori equitable interests in shares. But I think that the purpose of the statute is preity clearly indicated, even if its letter do not cover this precise case. It can scarcely be supposed that°an exception would be made in favor of ante bellum transfers of choses in action which did not apply to property so nearly akin as this, or indeed to all property, and it is clear that absolute transfers of choses in action before April 6, 1917, would be valid. Apparently the United States meant not to inquire into such transfers as in fraud of its rights. There is no reason to extend the application of so penal a statute beyond its fair import; therefore the capture must stand upon the ground that the contract conveyed nothing to Stohr & Sons, Incorporated. Upon that ground it finds sufficient support.
It becomes unnecessary to consider the prayer of the plaintiff for letters rogatory.
Upon the understanding that this suit now concerns only the 14,900 shares of the Eeipzig Company, the bill will be dismissed, with costs.
Oppenheim, International Law, vol. 2, § 102; Halleck, International Law, c. 19, §§ 12-21; Wheaton, International Law (5th Eng. Ed., 1916) pp. 417, 416, 419, 424, 425, 426; Hall, International Law (6th Ed. 1909) pp. 431-435; Twiss, The Law of Nations, §§ 53-56; Westlake, International Law, vol. 2 (1907) pp. 36-44; Hague Second Conference, art. 53, “Regulations Respecting the Laws and Customs of War on Land.” Magna Charta, § 41, seems to have contained the germ of the same idea.
Oppenheim, International Law, War, §§ 91, 92; Westlake, International Law, part 2 (Ed. 1907) p. 150; Hall, International Law, part. 3, c. VI (6th Ed.) 499, 500; Wheaton, International Law (5th Eng. Ed.) 576, 577; Twiss, Law of Nations, part 2, §§ 162, 163. The Declaration of London, §§ 56, 57, made certain modifications in the British and American rule.