Kaufman v. Societe Internationale Pour Participations Industrielles et Commerciales, S.A./Dissent Reed

by Stanley Forman Reed

United States Supreme Court

343 U.S. 156

Kaufman  v.  Societe Internationale Pour Participations Industrielles et Commerciales, S.A.

 Argued: Jan. 2, 1952. --- Decided: April 7, 1952

Mr. Justice REED, with whom The CHIEF JUSTICE and Mr. Justice MINTON join, dissenting.

The Court holds that 'when the Government seizes assets of a corporation organized under the laws of a neutral country, the rights of innocent stockholders to an interest in the assets proportionate to their stock holdings must be fully protected.' Such a holding opens wide one door of escape from war damage claims of the United States and its citizens against foreign corporations, organized and controlled by enemies in neutral territory. As the opinion does not indicate whether the alleged nonenemy stockholder must bear the burden of proving his character, we assume that this burden rests on the claimant stockholder in an enemy-tainted corporation. Even so, the difficulty of rebutting an individual's self-serving evidence as to his neutrality is obvious. The war and prewar activities and connections of the many American and neutral residents, stockholders of neutral corporations engaged in world-wide dealings, are known largely only to the interested individual. The definition of 'enemy' in the Trading with the Enemy Act leaves innumerable paths for stockholders sheltered by the Court's decision to escape responsibility for the acts of the corporate agency that their investments have made powerful and efficient to undermine our security. ^[1]

Thus a national of an enemy nation, under Guessefeldt v. McGrath, 342 U.S. 308, 72 S.Ct. 338, 96 L.Ed. --, may now recover, on his showing of his own nonenemy character, all his interest in the assets of vested enemy-dominated neutral corporations. Every dollar that may be drawn by nonenemies from the assets of an enemy-dominated corporation reduces the sums available for national and individual indemnification for war damage. ^[2] As the objective of the Trading with the Enemy Act is not only the sterilization of funds against enemy use during war but also the creation of a reparation pool of enemy and enemy-tainted assets for indemnification of war injuries, such diminutions imperil the purposes of the Act. Cf. Propper v. Clark, 337 U.S. 472, 484, 69 S.Ct. 1333, 1340, 93 L.Ed. 1480.

The Court's holding permits foreign sympathizers, residents of the United States or neutral territory, not covered by the definition of enemies, to avoid sacrifice in war of their financial interests through the trite scheme of investment in neutral corporations, controlled and used by our enemies for our defeat. If the question of the rights of a nonenemy stockholder were at issue in Uebersee Finanz-Korporation v. McGrath, 343 U.S. 205, 72 S.Ct. 618, that nonenemy stockholder, under the Court's opinion in this case, would recover his proportion of the corporation assets, despite the fact that Uebersee 'owned all the stock of a subsidiary Hungarian corporation engaged in the mining of bauxite in Hungary, and in 1939 and 1940 guaranteed a loan by a Swiss bank to this corporation for its operations. The loan was repaid in November 1942. The United States was at war with Hungary from December 13, 1941. During October, November, and December 1941, the Hungarian corporation shipped bauxite to Germany and had a contract to do so until the end of 1942.' 343 U.S. 205, 209-210, 72 S.Ct. 620.

At one time this Nation allowed such easy escape from the penalties of war, relying upon the ownership of corporate stock for protection. ^[3] Behn, Meyer & Co. v. Miller, 266 U.S. 457, 45 S.Ct. 165, 69 L.Ed. 374, demonstrated the futility of such a method of protection. It was to plug this loophole that the Congress enacted in 1941 the existing § 5(b) of the Trading with the Enemy Act, authorizing the President to vest 'any property or interest of any foreign country or national thereof'. ^[4] It surely was not the purpose of Congress to leave the door halfway open.

The Court's holding disregards the normal incidents of corporate responsibility and frustrates the purpose of Congress to repair the gap in our defense policy toward alien property pointed out by our Behn-Meyer decision. The Uebersee case did not decide the issue here presented. It left open the effect of enemy ownership of minor interest in a foreign corporation but it would hardly have been thought until today that Uebersee left open the fate of the property of an enemy-dominated corporation, which corporation was part of a scheme, as shown in n. 2, 'to avoid seizure and confiscation in the event of war.' ^[5] Congress has indicated its attitude quite clearly. ^[6] Today's ruling cuts deeply into the congressional purpose to hold the property of enemy-tainted foreign corporations for satisfaction of war claims.

The result reached by the Court is brought about by a disregard of the ordinary incidents of the relation of a stockholder to a corporation. A stockholder has no present interest in the physical property of an unliquidated corporation. The corporation is responsible for the acts of the corporation. ^[7] The stockholder normally is not. By his contribution to capital and his participation in profits, he puts his investment at risk, according to the conduct of the corporation. He may have claims against management but those claims have nothing to do with corporate assets subject to the demands of creditors or governments. Those corporate assets grow or diminish because of corporate, not shareholder, conduct. ^[8] Surely, if a corporation violated the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, its assets would be subject to the triple-damage claims of wronged competitors, even to its last cent and to the detriment of stockholders who may have protested vehemently but ineffectively against the illegal course of conduct. Surely a corporate deed of the corporation's 'interest, right, or title' to a piece of property would not leave in a stockholder any interest adverse to the grantee.

The Court finds justification for allowing a stockholder to sue in the language of § 9; the Court says the holding 'is based on the Act which enables one not an enemy as defined in § 2 to recover any interest, right or title which he has in the property vested.' No authority is cited for the proposition that a stockholder has an 'interest,' within the meaning of the Act, in the physical assets of the corporation, separate from the interest of the corporation. Corporations may recover on showing their nonenemy character, just as individuals may, but the corporate entity should not be disregarded without some evidence of such congressional intention. The language of § 9, 'interest * * * in (the) property * * * seized', could not normally be taken to mean a stockholder's interest in the administration and profits of the corporation; ^[9] in our opinion it means an interest in the assets actually seized. There is no indication that Congress intended that the mere vesting of the corporate assets by the Attorney General should confer upon each stockholder an enforceable interest in those assets.

Where the corporation subjects its assets to forfeiture by aiding our enemies, the corporation should pay the penalty. The friendly stockholder should not be permitted by strained statutory interpretation to withdraw his contribution to the funds that were used to our injury and so reduce the assets available for war claimants. We see no real difference, as to liability to have assets vested under the Trading with the Enemy Act, between a corporation enemy-dominated as this is alleged to be and an enemy-domiciled corporation producing munitions of war for use against the United States. The Court's opinion refers only to enemy-dominated neutral corporations but the theory of recovery for friendly stockholders appears to be equally applicable to friendly stockholders of enemy corporations.

The Court of Appeals should be affirmed.

Notes

1. 50 U.S.C.App. § 2, 50 U.S.C.A.Appendix, § 2:
2. It is alleged by the United States that the conspiracy of which the respondent Societe was a part had for its objective 'to conceal, camouflage and cloak the ownership, control, and domination by I. G. Farben of properties and interests in many countries of the world, including the United States, other than Germany. Among the various purposes and objectives of the said conspiracy were to assist I. G. Farben:
3. Hamburg-American Co. v. United States, 277 U.S. 138, 140, 48 S.Ct. 470, 471, 72 L.Ed. 822.
4. Clark v. Uebersee Finanz-Korporation, 332 U.S. 480, 483, 68 S.Ct. 174, 175, 92 L.Ed. 880. See note 3, 332 U.S. at page 485, 68 S.Ct. 176, describing the maze of corporate schemes for enemy control of war economy.
5. 332 U.S. at pages 489-490, 68 S.Ct. at page 178: 'It is suggested, however, that this approach may produce results which are both absurd and uncertain. It is said that the entire property of a corporation would be jeopardized merely because a negligible stock interest, perhaps a single share, was directly or indirectly owned or controlled by an enemy or ally of an enemy. It is also pointed out that securities or interests other than stock might be held by an enemy or ally of an enemy and used effectively in economic warfare against this country. But what these interests are, the extent of holdings necessary to constitute an enemy taint, what part of a friendly alien corporation's property may be retained where only a fractional enemy ownership appears, are left undecided. Since we assume from the allegations of the complaint that respondent is free of enemy taint and therefore is not within the definition of enemy or ally of an enemy, those problems are not now before us. We recognize their importance; but they must await legislative or judicial clarification.'
6. 50 U.S.C.App. § 32, 50 U.S.C.A.Appendix, § 32:
7. Cook, Corporations (8th ed.), vol. I, § 11; vol. III, §§ 663, 664.
8. Christopher v. Brusselback, 302 U.S. 500, 503, 58 S.Ct. 350, 352, 82 L.Ed. 388: 'A stockholder is so far an integral part of the corporation of which he is a member, that he may be bound and his rights foreclosed by
9. In the analogous law of prize, it is settled that the nonenemy stockholders of an enemy corporation have no right to recover any portion of seized property which was owned by the corporation. The Polzeath, (1916) P. 241, 256 (C.A.), affirming (1916) P. 117: '* * * the British shareholders are not entitled to intervene. It is suggested that the ship should be appraised, and that payment should be made to the British shareholders in proportion to their holdings. The Court has no such power; it cannot administer the affairs of the company. If any hardship is caused to innocent shareholders by the

declaration of forfeiture their position is that they can only appeal to the merciful consideration of the Crown.'

Steamship 'Marie Glaeser,' 1 Lloyd's Prize Cases 56, 111 (1914):

'Now, with regard to the shareholders in the vessel, it is quite clear that if they are enemy shareholders their property must go with the capture of the vessel in which they have put their money-a vessel sailing under the flag of the enemy. Not only is that so with regard to shareholders who might be citizens of the German Empire, but it is equally so if some of those shareholders happened to be, as they may be-I do not know-persons who are citizens of this country. If a shareholder invests his money by taking shares in a vessel which is liable to capture, he takes that risk.

'If in the case of a British shareholder he likes to present his case to the Crown as one which ought to be leniently dealt with, that is another matter. I have nothing to do with that. I am here only to administer the law, and I must hold that no shareholders have any right whatsoever to be protected from the results of the capture of this vessel.'

Standard Oil Tankers Case, Arbitration Award, Aug. 5, 1926, II Foreign Relations of the United States, 1926, p. 166. Cf. The Pedro, 175 U.S. 354, 367-368, 20 S.Ct. 138, 142-143, 44 L.Ed. 195.