1. When the Alien Property Custodian, under § 5(b) of the
Trading with the Enemy Act, as amended by the First War Powers Act
of 1941, seizes American assets of a corporation organized under
the laws of a neutral country but dominated and controlled by enemy
aliens, the rights of innocent non-enemy stockholders to an
interest in the assets proportionate to their stockholdings must be
fully protected. Pp.
343 U. S.
158-160.
2. Under Rule 24(a)(2) of the Federal Rules of Civil Procedure,
innocent non-enemy stockholders are entitled to intervene in a suit
brought under § 9(a) of the Trading with the Enemy Act by a
corporation, organized under the laws of a neutral country but
dominated and controlled by enemy aliens, to recover American
assets seized by the Alien Property Custodian under § 5(b), as
amended by the First War Powers Act of 1941, when there is a
showing that the rights of such innocent non-enemy stockholders
will not be adequately protected by the corporation in such suit
and they may be bound by the judgment in such suit. Pp.
343 U. S.
160-162.
88 U.S.App.D.C. 296, 188 F.2d 1017, reversed.
The District Court denied petitioners' motion to intervene in a
suit brought by a corporation under § 9(a) of the Trading with the
Enemy Act to recover assets seized by the Alien Property Custodian
under § 5(b), as amended by the First War Powers Act of 1941. 90 F.
Supp. 1011. The Court of Appeals affirmed. 88 U.S.App.D.C. 296, 188
F.2d 1017. This Court granted certiorari. 342 U.S. 847.
Reversed, p.
343 U. S.
162.
Page 343 U. S. 157
MR. JUSTICE BLACK delivered the opinion of the Court.
Acting under § 5(b) of the Trading with the Enemy Act, [
Footnote 1] the Alien Property
Custodian vested in himself the American assets of Interhandel, a
Swiss corporation. [
Footnote 2]
Interhandel sued in the District Court to recover the assets. The
Custodian [
Footnote 3] answered
alleging that the Swiss corporation was dominated and controlled by
officers, agents, and stockholders who were engaged in a conspiracy
with German nationals and with the German Government to
Page 343 U. S. 158
operate the company's business in their interests while we were
at war with Germany. Petitioners, United States citizens who own
stock in Interhandel, filed a motion to intervene. They admitted
the Custodian's charge that Interhandel was dominated by officers
and stockholders who had been engaged in such a conspiracy. They
also admitted the right of the Custodian to retain an interest in
the seized assets proportional to the stock ownership of enemy
stockholders. But petitioners contended that they and other
non-enemy stockholders had claims in the corporate assets which it
was the corporation's duty to protect. Alleging that the dominant
enemy group which had charge of the suit would not press the
corporate claim in a manner that would adequately protect the
claims of innocent shareholders, petitioners asserted a right to
intervene under Rule 24(a) of the Federal Rules of Civil Procedure.
The District Court denied the motion to intervene, 90 F. Supp.
1011, and the Court of Appeals affirmed, 88 U.S.App.D.C. 296, 188
F.2d 1017. Underlying the claimed right of petitioners to intervene
is an important question of the power of the Alien Property
Custodian under the Trading with the Enemy Act, namely: what part
of the assets of a corporation organized under the laws of a
neutral country may the Custodian retain where part of the
corporate stock is owned by enemies, part by American citizens, and
part by non-enemy aliens? This question was reserved in
Clark
v. Uebersee Finanz-Korp., 332 U. S. 480,
332 U. S.
489-490. To consider it, we granted certiorari in this
case. 342 U.S. 847.
First. Interhandel is a neutral corporation organized
in Switzerland. Prior to 1941, even ownership of its stock and
domination by enemy nationals would not have justified seizure of
its assets. In order to reach the enemy interests in such neutral
corporations, Congress amended the controlling Act in 1941. The
background, scope and
Page 343 U. S. 159
consequences of that amendment were discussed in
Clark v.
Uebersee Finanz-Korp., supra. We there held that the 1941
amendment authorized the Custodian to seize and vest in himself all
property of any foreign country or national, even that of friendly
or neutral nations. At the same time, we refused to hold that the
1941 amendment deprived friendly or neutral nations or nationals of
a right to have their assets returned if they could prove that they
were free of any open or concealed enemy taint. The purpose of the
amendment, we found, was "not to appropriate friendly or neutral
assets, but to reach enemy interests which masqueraded under those
innocent fronts."
Clark v. Uebersee Finanz-Korp., supra,
at
332 U. S.
485.
Thus, under the 1941 amendment, the non-enemy character of a
foreign corporation because it was organized in a friendly or
neutral nation no longer conclusively determines that all interests
in the corporation must be treated as friendly or neutral. The
corporate veil can now be pierced. Enemy taint can be found if
there are enemy officers or stockholders; even the presence of some
non-enemy stockholders does not prevent seizure of all the
corporate assets. But such a governmental seizure requires
consideration of the plight of innocent stockholders. For, as
stated in the
Uebersee case, the amendment does not
contemplate appropriation of friendly or neutral assets. While
Congress has clearly provided for forfeiture of enemy assets, it
has used no language requiring us to hold that innocent interests
must be confiscated because of the guilt of other stockholders. Nor
does any legislative history pointed out persuade us that Congress
intended to inflict such harsh consequences upon the innocent. We
decline to read such a congressional purpose into the Act.
Our holding is that, when the Government seizes assets of a
corporation organized under the laws of a neutral
Page 343 U. S. 160
country, the rights of innocent stockholders to an interest in
the assets proportionate to their stock holdings must be fully
protected. This holding is not based on any technical concept of
derivative rights appropriate to the law of corporations. It 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. The innocent stockholder may not have title to
corporate assets, but he does an interest which Congress has
indicated should not be confiscated merely because some others who
have like interests are enemies.
Second. Section 9(a) of the Trading with the Enemy Act
authorizes Interhandel to maintain this action for the recovery of
all its assets because it has alleged that it is not enemy
dominated. Alleging that they and others are non-enemy
stockholders, petitioners charge that it is Interhandel's corporate
duty to assert a claim for the return of their proportionate
interests in the assets even though other stockholders who dominate
the corporation are found to be enemies. Petitioners further allege
that the corporate management refuses to assert such a claim, but
continues to claim only a return of all assets on the theory that
whatever return is obtained must be divided among enemy and
non-enemy shareholders in proportion to their stock holdings. This
position is taken, petitioners charge, because the suit is being
controlled by the very stockholders on whose account the Custodian
seized the property, and whose interests will be worthless if they
are found to be enemies. Petitioners allege that this enemy
corporate management, fearing confiscation of its enemy-tainted
interests, is about to settle the corporate claim with the
Custodian for an amount less than the value of the non-enemy part
of the assets. Should this be done, it is said, the enemy
management contemplates dividing the proceeds proportionately among
enemy
Page 343 U. S. 161
and non-enemy stockholders, thus violating the Act in two ways:
(1) by depriving non-enemy stockholders of part of their property,
and (2) by returning assets to foreign enemy stockholders.
A mere narration of the allegations shows that petitioners'
fears are by no means fanciful. Indeed, the Government agrees with
the dominant corporate management that the interests of enemy and
non-enemy stockholders should be treated alike. The United States
wishes to sell the entire assets of Interhandel. And it is argued
that, if non-enemy stockholders are to be given a chance in court
(which right is challenged), they should be limited to individual
suits for money judgments against the Custodian. Petitioners claim
a proportional right or interest in the specific assets of
Interhandel, and that they may not be driven to accept their share
of whatever price the Government may happen to get from a sale of
these valuable assets. In order to play safe, petitioners have
filed a separate suit in a Federal District Court. But we think the
questions involved in disputes like this can be more appropriately
resolved in the corporate actions authorized by § 9(a) than by
resort to a multiplicity of separate actions. In such suits, the
non-enemy stockholder, in his own right, may assert his non-enemy
character in order to protect his own interest from the enemy taint
caused by other stockholders. Courts trying such corporate actions
have adequate equitable power and procedural flexibility to protect
all interests, even when the corporate recovery is not for the
benefit of all stockholders, but only for those who are
non-enemies.
In view of our holding that Congress has recognized that
non-enemy stockholders of non-enemy foreign corporations have a
severable interest in corporate assets seized by the Custodian, it
follows that the allegations of these petitioners entitle them to
intervene. These allegations, if true, show that petitioners'
interests may
Page 343 U. S. 162
be inadequately represented, and that they may be bound by a
judgment in this corporate action. This brings the claim of
intervention squarely within Rule 24(a)(2) of the Federal Rules of
Civil Procedure. [
Footnote
4]
Reversed.
MR. JUSTICE CLARK took no part in the consideration or decision
of this case.
[
Footnote 1]
40 Stat. 411, 50 U.S.C. App. § 1, as amended by the First War
Powers Act of 1941, 55 Stat. 839, 50 U.S.C. App. (Supp. V) §
5(b).
[
Footnote 2]
Although the corporation is commonly called "Interhandel," its
full legal name is Societe Internationale Pour Participations
Industrielles et Commerciales S.A. etc. The American assets
consisted of bank accounts and over 90% of the capital stock in the
General Aniline & Film Corporation of Delaware, all of the
assets apparently being valued at more than $100,000,000.00.
[
Footnote 3]
In 1946, the Attorney General succeeded to the powers and duties
of the Alien Property Custodian. Exec.Order No. 9788, 11 Fed.Reg.
11981.
[
Footnote 4]
"Upon timely application anyone shall be permitted to intervene
in an action: . . . (2) when the representation of the applicant's
interest by existing parties is or may be inadequate and the
applicant is or may be bound by a judgment in the action;. . .
."
See Sutphen Estates, Inc. v. United States,
342 U. S. 19.
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
non-enemy 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 worldwide 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
Page 343 U. S. 163
the corporate agency that their investments have made powerful
and efficient to undermine our security. [
Footnote 2/1]
Thus, a national of an enemy nation, under
Guessefeldt v.
McGrath, 342 U. S. 308, may
now recover, on his showing of his own non-enemy character, all his
interest in the assets of vested enemy-dominated neutral
corporations. Every dollar that may be drawn by non-enemies from
the assets of an enemy-dominated corporation reduces the sums
available for national and individual indemnification for war
damage. [
Footnote 2/2] As the
objective of the Trading with the Enemy Act is not only the
sterilization of funds against enemy use during war, but also
Page 343 U. S. 164
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,
337 U. S.
484.
II
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 non-enemy stockholder were at issue
in
Uebersee Finanz-Korporation v. McGrath, 343 U.
S. 205, that non-enemy 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. 343 U.S.
205,
343 U. S.
209-210.
At one time, this Nation allowed such easy escape from the
penalties of war, relying upon the ownership of corporate stock for
protection. [
Footnote 2/3]
Behn, Meyer & Co. v. Miller, 266 U.
S. 457, 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
Page 343 U. S. 165
or national thereof." [
Footnote
2/4] It surely was not the purpose of Congress to leave the
door halfway open.
III
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." [
Footnote 2/5] Congress has indicated its attitude
quite clearly. [
Footnote 2/6]
Today's
Page 343 U. S. 166
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. [
Footnote 2/7] 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. [
Footnote 2/8] Surely, if a corporation
violated the Sherman Act, 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
Page 343 U. S. 167
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 non-enemy
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;
[
Footnote 2/9] in our opinion, it
means an interest in the assets actually
Page 343 U. S. 168
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
Page 343 U. S. 169
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.
[
Footnote 2/1]
50 U.S.C. App. § 2:
"The word 'enemy,' as used herein, shall be deemed to mean, for
the purposes of such trading and of this Act --"
"(a) Any individual, partnership, or other body of individuals,
of any nationality, resident within the territory (including that
occupied by the military and naval forces) of any nation with which
the United States is at war, or resident outside the United States
and doing business within such territory, and any corporation
incorporated within such territory of any nation with which the
United States is at war or incorporated within any country other
than the United States and doing business within such
territory."
[
Footnote 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:"
"
* * * *"
"(e) To conceal, camouflage and cloak the ownership, control and
domination by I. G. Farben of properties and interests located in
countries, including the United States, other than Germany, in
order to avoid seizure and confiscation in the event of war between
such countries and Germany."
The Societe alleges that it
"is the owner of 2,050,000 shares of the Common B stock, and
455,448 shares of the Common A stock, of General Aniline & Film
Corporation, of a value in excess of One Hundred Million Dollars
($100,000,000),"
now at stake.
[
Footnote 2/3]
Hamburg-American Co. v. United States, 277 U.
S. 138,
277 U. S.
140.
[
Footnote 2/4]
Clark v. Uebersee Finanz-Korporation, 332 U.
S. 480,
332 U. S. 483.
See note 3, 332 U.S. at
332 U. S. 485,
describing the maze of corporate schemes for enemy control of war
economy.
[
Footnote 2/5]
332 U.S. at
332 U. S.
489-490:
"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."
[
Footnote 2/6]
50 U.S.C. App. § 32:
"The President, or such officer or agency as he may designate,
may return any property or interest vested in or transferred to the
Alien Property Custodian . . . whenever the President or such
officer or agency shall determine --"
"
* * * *"
"(2) that such owner, and legal representative or successor in
interest, if any, are not -- "
"
* * * *"
"(E) a foreign corporation or association which, at any time
after December 7, 1941, was controlled or 50 percentum or more of
the stock of which was owned by any person or persons ineligible to
receive a return under subdivisions (A), (B), (C), or (D) hereof. .
. ."
(A), (B), (C) and (D) refer substantially to national, corporate
or individual enemies.
[
Footnote 2/7]
Cook, Corporations (8th ed.), vol. I, § 11; vol. III, §§ 663,
664.
[
Footnote 2/8]
Christopher v. Brusselback, 302 U.
S. 500,
302 U. S.
503:
"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 authorized corporate action taken without his knowledge or
participation. . . ."
See Pink v. AAA Highway Express, 314 U.
S. 201,
314 U. S.
207.
Anderson v. Abbott, 321 U. S. 349,
321 U. S.
361:
"Some shareholders of Banco claim the right to rescind their
purchases of its shares on the ground of misrepresentations in the
sale. But whether or not such relief might be granted in some
instances, it seems clear that Banco's stockholders are bound by
the decisions of the directors which determined, within the scope
of the corporate charter, the kind and quality of the corporate
undertaking."
[
Footnote 2/9]
In the analogous law of prize, it is settled that the non-enemy
stockholders of an enemy corporation have no right to recover any
portion of seized property which was owned by the corporation.
The Polzeath, [1916] o. 241, 256 (C.A.),
aff'g
[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,
175 U. S.
367-368.