Beck v. Clark

• Decision Date: 30 March 1949
• Docket Number: Civ. No. 1596.
• Court: U.S. District Court — District of Connecticut
• Parties: BECK v. CLARK, Attorney General.

88 F. Supp. 565

BECK v. CLARK, Attorney General.

Civ. No. 1596.

United States District Court D. Connecticut.

March 30, 1949.

Hobart S. Bird, New York City, R. J. Safarik, New York City, for plaintiff.

Harold Ungar, George B. Searls, U. S. Dept. of Justice, Washington, D. C., Adrian W. Maher, U. S. Atty., Thos. J. Birmingham, Asst. U. S. Atty., for defendant.

SMITH, District Judge.

This is an action, under the Trading With the Enemy Act, § 9(a), 50 U.S.C.A. Appendix, § 9(a), brought by the plaintiff, former record-owner of two hundred shares of common stock in an American corporation, against the defendant as successor to the Alien Property Custodian, to set aside a vesting order vesting the shares in the Custodian on a finding that the transfer of the shares, signed December 31, 1939 and delivered January 18, 1940, from a German national to the plaintiff was a cloaking transaction to protect the shares from seizure in the event of war between the United States and Germany.

The Custodian found that the beneficial interest remained in A. G. F. M., a German corporation, as whose nominee the transferor had held the shares.

There is little dispute as to the substantive law. A sale of stock by a foreign national to an American citizen in contemplation of war is not invalid if absolute and without reservation or right to retransfer, open or secret.

If the transfer is colorable or a sham concealing a continued equitable interest or right to retransfer in the seller, the stock may be seized and the property in it vested as that of the enemy national upon the outbreak of war.

The defendant relies largely upon what he considers evidence of concerted attempts to conceal three types of assets held by the German corporation in the United States: (1) the stock in the American company by sale to plaintiff at a nominal price, $200.00; (2) a patent for scissors, controlled by the German corporation, sold to plaintiff's son for $1,000.00, — also a nominal price; (3) the debt of the American corporation to the German corporation of an amount in excess of $100,000.00 which the plaintiff suggested should also be transferred to the son.

The debt of the American company to the German parent company represented the major part of the American company's liabilities. If enforced, it results in a book insolvency to the extent of about $31,000.00.

There is little, if any, direct evidence of cloaking in the final terms of the sale of the stock, but the course of dealing leading up to it makes the purpose obvious.

For protection from seizure, plaintiff desired the German concern to transfer title to all three or to transfer title to stock and patent and cancel the debt. The Germans, however, either unwilling to depend entirely on the good faith of plaintiff or for the purpose of satisfying the German government, transferred stock and patent for nominal amounts but failed to transfer or forgive the debt, retaining thereby effective control over the American debtor, not realizing that the American government would seize the instrument of that control by vesting the debt.

Plaintiff's whole case hangs on two claims of fact, the bona fides of the stock transaction and the forgiveness of the debt. The first is, of course, of little use without the second.

The major basis of the claim for forgiveness is the reference in the letter of June 3, 1939 to a writing-off by the German parent company of RM 295,000 of the debt of the American company.

It is plain from the other evidence, however, that the write-off was merely intended to reflect the portion of the debt expected to be uncollectable on the basis of the subsidiary's history. Plaintiff had no illusions about this at the time, as shown by the failure to show any forgiveness of the debt on the books of the subsidiary, as well as by the reference to the debt in Scheerer's letter of November 6, 1939 (Plaintiff's...