2. Under § 7c of the act, as qualified by § 5, the power vested
in the President to determine enemy ownership, precedent to a
seizure of property, may be delegated by him to the Alien Property
Custodian, whose determination then becomes in effect the act of
the President. P.
255 U. S.
244.
3. The provision made for
ex parte executive seizure,
without prior judicial determination of enemy ownership, does not
violate the rights of the owner, if a citizen, under the due
process clause of the Fifth Amendment, since ample provision is
also made whereby any claimant who is neither an enemy nor an ally
of an enemy may establish his right in a court of equity and compel
a return of the property if wrongly sequestered. P.
255 U. S.
245.
4. A transfer of shares upon the books of the corporation to the
name of the Custodian is a proper incident to their effective
seizure by him. P.
255 U. S.
246.
5. A contract between a German corporation and a New York
corporation, made in anticipation of this country's entry into the
World War, whereby certain corporate shares in another domestic
corporation, owned by the German corporation, were in purport sold
to the New York corporation and were transferred to the latter on
the books of the third company not as a genuine business
transaction but as a mere cover to avoid inconveniences of a state
of war and with no intent to change the beneficial ownership,
held not to have passed any interest entitling the New
York corporation, or a stockholder asserting its rights, to demand
release of such shares from seizure by the Alien Property
Custodian. Pp.
255 U. S.
246-251.
Page 255 U. S. 240
6. The provisions of the Treaty with Prussia of July 11, 1799,
Arts. 23, 24, 8 Stat. 174, granting right to the merchant of either
country "residing in the other" when war arise,
held
inapplicable. P.
255 U. S.
251.
7. Objection to a proposed sale by the Alien Property Custodian
cannot be heard from one who has no interest in the property.
Id.
269 F. 827 affirmed.
The case is stated in the opinion.
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This is a suit to establish a claim to and prevent a sale of
14,900 shares of the capital stock of the Botany Worsted Mills, a
New Jersey corporation, which were seized by the Alien Property
Custodian under the Trading with the Enemy Act as the property of a
German corporation called Kammgarnspinnerei Stoehr & Co.,
Aktiengesellschaft. The plaintiff is a citizen of the United
States, residing in New York, and sues in the right of Stoehr &
Sons, Incorporated, a New York corporation, of which he is a
stockholder, his asserted justification for so suing being that the
directors of the corporation are agents of the Alien Property
Custodian, and so far under his control that it would be useless to
request them to bring the suit.
The grounds for relief urged in the bill are that the shares,
although seized and proposed to be sold as the
Page 255 U. S. 241
property of the German corporation, are in truth the property of
the New York corporation; that, even if it does not own them, it
has a substantial interest in them under a pre-war contract between
it and the German corporation; that the shares cannot be taken from
it consistently with due process of law as guaranteed by the Fifth
Amendment, save through a judicial proceeding, wherein it has a
right and an opportunity to be heard; that the shares were seized
and are about to be sold without any such proceeding or hearing,
and in violation of subsisting treaty provisions, and that the
seizure as made did not conform to designated provisions of the
Trading with the Enemy Act, and the sale as proposed will not be in
accord with other provisions of the act.
After a full hearing, the district court overruled the
objections urged against the initial seizure; found from the proofs
that the German corporation was the beneficial owner, that the New
York corporation had no actual interest in the shares, and that the
contract between those corporations, stressed by the plaintiff,
"was not intended to represent the real purpose of the parties at
all, but to serve as a cover for another purpose;" and, as a result
of the findings, the court held that neither the plaintiff nor his
corporation was entitled to any relief, and accordingly dismissed
the bill. The plaintiff then asked and was allowed a direct appeal
to this Court. His assignments of error cover all the grounds on
which the seizure and proposed sale were attacked in the bill.
We shall assume, as did the district court, that a stockholder
may bring a suit such as this in the right of his corporation,
where there are circumstances justifying such representative
action, and that the plaintiff has shown sufficient reason for
suing in that capacity.
See Equity Rule 27, 226 U.S.
Appendix, p. 8.
The Trading with the Enemy Act, whether taken as originally
enacted, October 6, 1917, c. 106, 40 Stat. 411,
Page 255 U. S. 242
or as since amended, March 28, 1918, c. 28, 40 Stat. 459, 460,
c. 28; November 4, 1918, c. 201, 40 Stat. 1020; July 11, 1919 (41
Stat. 35, c. 6), and June 5, 1920, c. 241, 41 Stat. 977, is
strictly a war measure, and finds its sanction in the
constitutional provision, Art. I, § 8, cl. 11, empowering Congress
"to declare war, grant letters of marque and reprisal, and make
rules concerning captures on land and water."
Brown v.
United States, 8 Cranch 110,
12 U. S. 126;
Miller v. United
States, 11 Wall. 268,
78 U. S.
305.
It is with parts of the act which relate to captures on land
that we now are concerned. They invest the President with extensive
powers respecting the sequestration, custody, and disposal of enemy
property. By § 5, he is in terms authorized to exercise "any" of
these powers "through such officer or officers as he shall direct."
By § 6, he is authorized to appoint and "prescribe the duties of"
an officer to be known as the Alien Property Custodian. By § 7c, as
amended November 4, 1918, direct provision for sequestering enemy
property is made as follows:
"If the President shall so require, any money or other property,
including . . . choses in action, and rights and claims of every
character and description owing or belonging to or held for, by, on
account of, or on behalf of, or for the benefit, of an enemy or
ally of enemy not holding a license granted by the President
hereunder, which the President after investigation shall determine
is so owing or so belongs or is so held, shall be conveyed,
transferred, assigned, delivered, or paid over to the Alien
Property Custodian, or the same may be seized by the Alien Property
Custodian, and all property thus acquired shall be held,
administered and disposed of as elsewhere provided in this
act."
"
* * * *"
"Whenever any such property shall consist of shares of stock or
other beneficial interest in any corporation,
Page 255 U. S. 243
association, or company or trust, it shall be the duty of the
corporation, association, or company or trustee or trustees issuing
such shares or any certificates or other instruments representing
the same or any other beneficial interest to cancel upon its, his,
or their books all shares of stock or other beneficial interest
standing upon its, his, or their books in the name of any person or
persons, or held for, on account of, or on behalf of, or for the
benefit of any person or persons who shall have been determined by
the President, after investigation, to be an enemy or ally of
enemy, and which shall have been required to be conveyed,
transferred, assigned, or delivered to the Alien Property Custodian
or seized by him, and in lieu thereof to issue certificates or
other instrument for such shares or other beneficial interest to
the Alien Property Custodian or otherwise, as the Alien Property
Custodian shall require."
"The sole relief and remedy of any person having any claim to
any money or other property heretofore or hereafter conveyed,
transferred, assigned, delivered, or paid over to the Alien
Property Custodian, or required so to be, or seized by him shall be
that provided by the terms of this act, and in the event of sale or
other disposition of such property by the Alien Property Custodian,
shall be limited to and enforced against the net proceeds received
therefrom and held by the Alien Property Custodian or by the
Treasurer of the United States."
By § 9, as twice amended, anyone "not an enemy or ally of enemy"
claiming any interest, right, or title in any money or other
property so sequestered and held may give notice of his claim and
institute a suit in equity against the Custodian or the Treasurer,
as the case may be, to establish and enforce his claim, and where
suit is brought, the money or property is to be retained by the
Custodian or in the Treasury to abide the final decree. By § 12, as
amended March 28, 1918, the Custodian is
Page 255 U. S. 244
clothed with "all of the powers of a common law trustee" in
respect of all enemy property coming into his hands, and is given
authority, subject to the President's supervision, to manage and
dispose of the same, by sale or otherwise, as if he were the
absolute owner, save as the power of disposal may be suspended by a
suit under § 9. As respects the ultimate disposition of the
property or its proceeds, § 12 says:
"After the end of the war, any claim of any enemy or of an ally
of enemy to any money or other property received and held by the
Alien Property Custodian or deposited in the United States Treasury
shall be settled as Congress shall direct."
The President, by orders of October 12, 1917, and February 26,
1918, committed to the Alien Property Custodian the executive
administration of § 7c, including the power to determine after
investigation whether property was enemy-owned, etc., and to
require the surrender or seizure of such as he should determine was
so owned. In exercising this power, the Custodian, after
investigation, determined in substance that the shares now in
question, which then stood in the name of the New York corporation
on the books of the Botany Worsted Mills, belonged to the German
corporation, that it was an enemy not holding a presidential
license, and that the New York corporation held the shares for its
benefit, and in further exercising this power, the Custodian seized
the shares and required the Botany Worsted Mills to transfer them
to his name on its books in accordance with the provision in § 7c
before quoted.
One objection urged by the plaintiff is that the seizure
permitted by the act is confined to money or property "which the
President after investigation shall determine" is enemy-owned,
etc., and that here there was no such determination by the
President, but only by the Custodian. Whether the objection would
be good if it turned entirely on the words of § 7c, on which the
plaintiff relies, we need
Page 255 U. S. 245
not consider, for they obviously are qualified and explained by
§ 5, which very plainly enables the President to exercise his power
under § 7c "through such officer or officers as he may direct." By
the orders already noticed, the President directed that this power
be exercised through the Alien Property Custodian. It therefore is
as if the words relied on had been "which the President, acting
through the Alien Property Custodian, shall determine after
investigation" is enemy-owned, etc. In short, a personal
determination by the President is not required; he may act through
the Custodian, and a determination by the latter is in effect the
act of the President.
Central Union Trust Co. v. Garvan,
254 U. S. 554;
The Confiscation
Cases, 20 Wall. 92,
87 U. S.
109.
The plaintiff further objects that the shares, although claimed
by and standing in the name of the New York corporation, which
concededly was neither an enemy nor an ally of an enemy, were
seized and transferred to the name of the Alien Property Custodian
in virtue of a determination by an executive officer in an
ex
parte administrative proceeding that they belonged to an alien
enemy -- the gist of the objection being that the shares could not
be taken from the New York corporation consistently with due
process of law without first according it a hearing on its claim in
a court of justice. The objection rests on erroneous assumptions,
and is not tenable.
That Congress in time of war may authorize and provide for the
seizure and sequestration through executive channels of property
believed to be enemy-owned, if adequate provision be made for a
return in case of mistake, is not debatable.
Central Union
Trust Co. v. Garvan, supra. There is no warrant for saying
that the enemy ownership must be determined judicially before the
property can be seized, and the practice has been the other way.
The present act commits the determination of that question to the
President, or the representative through whom
Page 255 U. S. 246
he acts, but it does not make his action final. On the contrary,
it distinctly reserves to any claimant who is neither an enemy nor
an ally of an enemy a right to assert and establish his claim by a
suit in equity unembarrassed by the precedent executive
determination. Not only so, but, pending the suit, which the
claimant may bring so promptly after the seizure as he chooses, the
property is to be retained by the Custodian to abide the result
and, if the claimant prevails, is to be forthwith returned to him.
Thus, there is provision for the return of property mistakenly
sequestered, and we have no hesitation in pronouncing it adequate,
for it enables the claimant, as of right, to obtain a full hearing
on his claim in a court having power to enforce it if found
meritorious.
That the shares were transferred to the Custodian's name does
not affect the question, for, considering the nature of the
property, that was but an incident of an effective seizure and, if
a return of the shares were ordered, a retransfer would follow as
of course.
Treating this as a suit under § 9, the plaintiff having filed a
notice of claim under that section, the next question is: has the
New York corporation such an interest in the shares as entitles it,
or the plaintiff in its right, to demand that they be freed from
the seizure? Whether it has any interest turns on the effect to be
given to the contract between it and the German corporation under
which the plaintiff insists it became the owner or acquired a
substantial interest. The district court, as we have indicated,
found that the contract was not intended to affect the ownership as
between the two corporations, but to serve as a cover for something
else, and that, after the contract, the German corporation remained
as it had been before, the sole beneficial owner. The facts bearing
on the question are as follows:
At the beginning of the World War and during its early stages,
the Stoehr family, consisting of a father and three
Page 255 U. S. 247
sons, were engaged in business in New York as copartners under
the name of Stoehr & Sons. The father and one son were German
subjects residing in Germany; one son, Hans E. Stoehr, was a German
subject residing in the United States, and the remaining son, Max
W. Stoehr, was a naturalized citizen of the United States residing
therein. All were shareholders in the German corporation, and the
father and son in Germany were among its chief officers. All were
directors of the Botany Worsted Mills, and Hans E. Stoehr and Max
W. Stoehr were directing and controlling its affairs, one being its
treasurer and the other its secretary. It was a manufacturing
concern with large holdings, had a well established and extensive
business, had been paying large dividends, and gave promise of
continuing to do so. The German corporation acquired the 14,900
shares in that company long prior to the war, and in 1915, after
the war became flagrant in Europe, transferred them to Hans E.
Stoehr and Max W. Stoehr, be be held in trust for it as the
beneficial owner. Stoehr & Sons, the copartnership, also had
5,690 shares in that company, and these, with the 14,900,
constituted a majority of its stock.
Diplomatic relations between the United States and Germany were
severed February 3, 1917, and, as was commonly understood, war
between them was then imminent. The Stoehrs took that view and
began to adjust their affairs accordingly. They caused the New York
corporation to be organized, and on February 19, 1917, transferred
to it the entire assets and business of their copartnership, taking
in exchange all of its capital stock and putting the same in a
five-year voting trust as a means of protecting and preventing a
severance of their interests. On the following day, February 20,
1917, the contract relating to the 14,900 shares in the Botany
Worsted Mills was made, and the shares were immediately transferred
on its books to the name of the New York corporation.
Page 255 U. S. 248
In that transaction, Hans E. Stoehr acted for the German
corporation and the directors of the New York corporation for it,
the directors being Hans E. Stoehr, Max W. Stoehr, George G.
Roehlig, and Alfred de Liagre, the last two being relatives of the
Stoehrs. The attorney who had advised and assisted them in
transferring the copartnership assets and business also advised and
assisted them in this. The shares were worth approximately
$5,000,000, and yet the initial payment was only $5,000, and even
that was paid by mere book entries. The full stipulated price was
the book value of the shares, with goodwill and other intangible
assets eliminated, and was payable in five future annual
installments. The stock certificates, transferred as just stated,
were left in the custody of the German corporation as collateral
security. If payment was not made when due, nor within 60 days
after demand, the shares were to be retransferred, the $5,000 was
to be retained by the German corporation, and neither corporation
was to have "any further claim against the other" by reason of the
contract. Possibly the stipulated price was less than the actual
value; but, however this may have been, the assets and situation of
the New York corporation were such that it reasonably could not
have been expected to make the required payments.
After the contract, the dividends accruing on the shares were
not paid to the New York corporation, but were credited to it in a
"special" account on the books of the Botany Worsted Mills, this
being directed by Hans E. Stoehr, president of the former and
treasurer of the latter.
War was declared by Congress April 6, 1917, 40 Stat. 1, and the
Trading with the Enemy Act was passed October 6th following. Up to
the latter date, no preparation was made for making the first
payment under the contract, although it was to be about $1,000,000.
Under the act, it became the duty of every domestic corporation to
report fully whether it owed any money to or held any property
Page 255 U. S. 249
for an enemy, and also whether any of its shares were owned by
or held for an enemy. In the report of the New York corporation,
signed by Max W. Stoehr, the 14,900 shares covered by the contract
were not reported as held for the German corporation, nor was the
stipulated price, or any part thereof, reported as owing to that
corporation. But, in the report of the Botany Worsted Mills, signed
by Thomas Prehn, it was said that that company had "reason to
believe" that the German corporation had an interest in the shares.
This led to an insistent call for full information, and resulted in
some correspondence and several conferences at the Alien Property
Custodian's office, in all of which Herbert Heyn represented the
New York corporation and the Botany Worsted Mills, he being the
attorney who had advised and assisted the Stoehrs in adjusting
their copartnership affairs and in making the contract. February 5,
1918, while Heyn was attending one of the conferences, Hans E.
Stoehr, as president of the New York corporation and treasurer of
the Botany Worsted Mills, sent to him, for use at the conference, a
list of the latter company's stockholders, in which the German
corporation was described as having 14,900 shares and the New York
corporation as having only 5,685. In an accompanying letter, he
said, "The majority of the stock of the Botany Worsted Mills . . .
is held by parties who are alien enemies" -- a statement which was
true if the 14,900 shares belonged to the German corporation, and
not true if they belonged to the New York corporation. Four days
later, Heyn, with the approval in writing of Hans E. Stoehr as such
president and treasurer, wrote to the Alien Property Custodian,
saying of the purpose with which the New York corporation was
formed:
"The immediate occasion for the organization of the corporation
in February, 1917, was this: it was assumed that, if there was a
declaration of war between the United States and Germany, the
partnership [of Stoehr & Sons] would probably have to
cease,
Page 255 U. S. 250
being dissolved by reason of the alien enemy character of Eduard
Stoehr, the father, and Geo. Stoehr, the brother, the results of
such dissolution being, of course, obviously unfortunate and
conceivably disastrous"
and saying of the 14,900 shares:
"Regarding the contract for the purchase of said 14,900 shares
of Stoehr & Sons, Incorporated, from Stoehr & Co., of
Leipzig, Germany, it has been fully explained that the control of
Botany might be imperiled by a state of war, because the voting
right on stock of alien enemies or in which alien enemies had the
beneficial interests (as was the case with said 14,900 shares) was
doubtful under the decisions of the courts, and, if deprived of the
voting right, the control of Botany might be lost. This contract
was made with reference to the control of Botany as between its
stockholders, and had, of course, no reference to the status of
such control so far as the alien Property Custodian is concerned.
Such status is not affected whether such shares are in Stoehr &
Co., the Leipzig corporation, or in Stoehr & Sons,
Incorporated, the New York corporation. . . . While Botany is
managed in this country, considerably more than a majority of its
stock is controlled by alien enemy interests."
Max W. Stoehr, the plaintiff, was a director and the secretary
of the New York corporation from the time it was organized until
October 14, 1918. He participated in making the contract relating
to the 14,900 shares, and signed it as secretary. The shares were
seized in April, 1918, and he knew of the seizure. The other
directors at that time were new. He regularly attended their
meetings, but did not suggest to them that the corporation had an
interest in the shares. At a meeting in August, 1918, an attorney
who had been looking into the contract made an oral report, in the
course of which he called in question the purpose with which the
contract was made and said it "would not hold water." Max W.
Stoehr, although present, said nothing in support of the contract.
Not until he
Page 255 U. S. 251
ceased to be an officer of the corporation did he manifest any
opposition to the seizure. His only explanation of his silence
while he remained a director is that he feared he would lose that
position if he took any other course.
The district court, after reviewing the proofs at length,
concluded that the contract was not prompted by commercial motives,
nor based on an estimate of mutual advantages, and was not intended
as a genuine business transaction, but was made to avoid
inconveniences which otherwise might ensue from a state of war, and
that the parties intended to leave the beneficial ownership in the
German corporation, and not to pass it to the New York corporation.
We reach the same conclusion. On no other theory can the acts of
those who were concerned be explained, or their declarations
reconciled. The mere recitation of the facts makes this so plain
that we refrain from any special discussion of them.
The treaty provisions relied on (Articles 23 and 24, 8 Stat.
174) relate only to the rights of merchants of either country
"residing in the other" when war arises, and therefore are without
present application.
Of the objections specially directed against the proposed sale,
it is enough to observe that, as the New York corporation does not
own or have any interest in the shares, it is not in a position to
criticize or attack the sale, and, of course, a stockholder suing
in its right is in no better position.
Decree affirmed.