Zwack v. Kraus Bros. & Co.

• Decision Date: 02 October 1956
• Docket Number: No. 349,Docket 23931.,349
• Citation: 237 F.2d 255
• Parties: John ZWACK, Bela Zwack and Dora Zwack, as co-partners doing business as J. Zwack & Company, Appellees, v. KRAUS BROS. & CO., Inc., Appellant.
• Court: U.S. Court of Appeals — Second Circuit

237 F.2d 255 (1956)

John ZWACK, Bela Zwack and Dora Zwack, as co-partners doing business as J. Zwack & Company, Appellees, v. KRAUS BROS. & CO., Inc., Appellant.

No. 349, Docket 23931.

United States Court of Appeals Second Circuit.

Argued June 5, 1956.

Decided October 2, 1956.

COPYRIGHT MATERIAL OMITTED

Paul L. Ross, Wolf, Popper, Ross, Wolf & Jones, New York City, for appellant.

George A. Spiegelberg, Strasser, Spiegelberg, Fried & Frank, New York City (Peter J. Ryan, New York City, of counsel), for appellee John Zwack.

Otto C. Sommerich, Katz & Sommerich, New York City (Benjamin Busch, New York City, of counsel), for appellees Bela Zwack and Dora Zwack.

Before CLARK, Chief Judge, and HINCKS and WATERMAN, Circuit Judges.

HINCKS, Circuit Judge.

This is an appeal from a decree entered in the Southern District of New York in favor of plaintiffs¹ in an action for the collection of a pre-existing indebtedness and for damages and an accounting of damages and profits resulting from trade-mark infringement and unfair competition. The defendant's appeal not only challenges the decree on its merits but also assigns as errors various rulings on evidence and two preliminary orders, viz., (1) denying its motion to dismiss for failure to join indispensable parties, and (2) granting plaintiffs' motion to bar the defendant from transmitting John Zwack's pre-trial deposition to Hungary. The decree was entered on October 6, 1950 upon an opinion by Judge Palmieri reported in 133 F.Supp. 929. Contemporaneously, findings of fact and conclusions of law were filed which have not been published.

The plaintiffs allege themselves to be partners owning the Hungarian firm, J. Zwack & Co., a manufacturer and exporter of liqueurs, which, they contend, on or about November 18, 1948, was confiscated by the Hungarian government, now the registered owner of the firm in Hungary. The defendant is a New York corporation which since 1934 has been the exclusive distributing agent for J. Zwack & Co. in the United States under an agreement and extensions thereof running until 1960.

During the course of the war in Europe, commerce under the agreement was suspended and funds which were owed by defendant to the Zwack firm were blocked in the United States. At the close of the war amicable business relations were again established. Shortly before the alleged confiscation in 1948, the plaintiff, John Zwack, fled from Hungary and immediately thereafter notified the defendant not to deal with the firm under its new confiscatory ownership. By agreement with the pre-confiscated firm, the defendant had registered in its name in the United States certain trade-marks bearing the name of the Zwack firm.

The judge, in his conclusions of law, ruled in substance

(1) that in 1948 the plaintiffs\' plant, assets and business in Hungary had been "nationalized" by the Hungarian government without consideration and by coercion and duress; and that the nationalization "offends the morals and violates the public policy of the United States and will be given no extra-territorial effect in the United States by the courts of the United States";

(2) that the situs of moneys which became due from the defendant to the plaintiffs in 1940 and the situs of certain trade-marks registered in the United States Patent Office and elsewhere in the United States by and in the name of the defendant while acting as the agent of the plaintiffs in the United States, was in the United States;

(3) that "the continuance of business relations with the Hungarian Government" after the confiscation and notice thereof to the defendant was "a breach of its exclusive agency agreement with the plaintiff" and "was a wrongful act of defendant for which it is accountable to the plaintiff";

(4) that it was also unlawful for the defendant after notice of the confiscation to continue to import and sell in the United States goods bearing the plaintiffs\' name, trademarks and labels;

(5) that "plaintiff was in a position to manufacture in and/or import Zwack products into the United States"² and "had arranged for the necessary financing therefor,"³ and that the defendant\'s use, after notice of the expropriation of plaintiffs\' name and label made it impossible for plaintiffs to manufacture in or import into the United States;

(6) that the plaintiff was entitled to a decree

(a) for the moneys ($17,685.56) which had become due from the defendant in 1940;

(b) to damages resulting from its inability to manufacture in the United States after December 7, 1948;

(c) to an accounting of such profits made by the defendant subsequent to December 7, 1948 as were due to defendant\'s unfair competition and trade-mark infringement;

(d) to an injunction restraining defendant from the use of plaintiffs\' name, trade-name, trade-marks and bottle shapes;

(e) to a mandatory injunction directing the defendant to assign to the plaintiffs certain trade-marks registered by the defendant in its name in the United States.

The decree accorded the plaintiffs all the relief to which by Conclusions 6(a) to 6(e), inclusive, just above stated, they were held to be entitled. It also referred the case to the Master to find and report as to the plaintiffs' alleged damages (6(b), supra) and the defendant's profits (6(c), supra).

Before we can deal with the merits of the controversy we must dispose of a serious question concerning the plaintiffs' standing to bring this suit. Under applicable Hungarian law, which regards a partnership as an entity, the individual partners have no individual rights in the firm assets. Therefore, the plaintiffs' standing to sue can only be based on their claims to sue as partners in behalf of the firm. The defendant seeks to analogize the Hungarian entity concept of the partnership to the American concept of the corporation and argues that the partner's interest in the firm assets consists wholly of a claim of ownership in the firm having its exclusive situs at the firm residence in Hungary. It urges that the transfer of the plaintiffs' shares of ownership was accomplished in Hungary by official acts of the Hungarian government and therefore is not subject to collateral attack outside of Hungary even if confiscatory and therefore against the public policy of the forum. They cite Underhill v. Hernandez, 168 U.S. 250, 18 S.Ct. 83, 42 L.Ed. 456; Banco de Espana v. Federal Reserve Bank, 2 Cir., 114 F.2d 438; and Bernstein v. Van Heyghen Freres Societe Anonyme, 2 Cir., 163 F.2d 246, 249. In reliance on this doctrine the defendant contends that the plaintiffs have no standing to sue and the action should have been dismissed.

The plaintiffs base their claim of right to challenge Hungarian ownership of firm assets in the forum on the doctrine that foreign acts of confiscation are presumed to be against the public policy of the forum, Plesch v. Banque Nationale de la Republique D'Haiti, 273 App.Div. 224, 77 N.Y.S.2d 43, affirmed 298 N.Y. 573, 81 N.E.2d 106, and will not be given extraterritorial effect, Baglin v. Cusenier Co., 221 U.S. 580, 31 S.Ct. 669, 55 L.Ed. 863; Ingenohl v. Walter E. Olsen & Co., 273 U.S. 541, 47 S.Ct. 541, 71 L.Ed. 762; United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141; Vladikavkazsky Ry. Co. v. New York Trust Co., 263 N.Y. 369, 189 N.E. 456, 91 A.L.R. 1426, absent a treaty or other indication of a public policy to do so, United States v. Pink, 315 U.S. 203, 62 S.Ct. 552, 86 L.Ed. 796; United States v. President and Directors of Manhattan Co., 276 N.Y. 396, 12 N.E.2d 518. Thus their argument runs that even if Hungarian ownership of the firm is conclusive as to the firm assets in Hungary, the issue of firm ownership is open to collateral inquiry in the United States courts where firm assets having a situs in the forum are concerned.

We think that, where firm assets existing in the forum are concerned, technical considerations as to the manner in which the foreign state seeks to expropriate them are not controlling. Prior to confiscation the assets of the firm both here and in Hungary were equitably owned by the plaintiffs as the sole partners in the firm. It is clear that the Hungarian government could not directly seize the assets which have a situs in the state of the forum. To allow it to do so indirectly through confiscation of firm ownership would be to give its decree extraterritorial effect and thereby emasculate the public policy of the forum against confiscation. This we decline to do. See 57 Yale Law Journal 108. We sustain the plaintiffs' standing to bring and prosecute the complaint here involved.

We next turn to the pre-trial order reported at D.C., 93 F.Supp. 963, 965, which denied the defendant's motion to dismiss for failure to join Bela Zwack, Dora Zwack, the Hungarian government and the "`presently existing firm of J. Zwack & Company of Budapest, Hungary'" as indispensable parties.⁴ Since Bela and Dora Zwack have since appeared as parties plaintiff by leave of this court we need only examine whether the Hungarian government, as the sole owner of the nationalized firm, is an indispensable party to this action.

It is clear that the Hungarian government is not subject to the jurisdiction of the court below unless it should voluntarily appear. To hold that its joinder is indispensable to the maintenance of this action would not only deprive the plaintiffs of any remedy, a result which a court will properly strain to avoid,⁵ but would effectively accomplish for the confiscating government precisely what we hold it cannot do, i. e., confiscate at will assets having a situs within this country. The decree below did not purport to adjudicate rights between the plaintiffs and the Hungarian government either in Hungary or in the United States but merely settled rights between the parties to the suit as to the property located in the United States. At most it made a preliminary decision of issues between the plaintiffs and the Hungarian...