Conway v. Silesian-American Corp., 85

• Decision Date: 26 December 1950
• Docket Number: No. 85,Docket 21755.,85
• Citation: Conway v. Silesian-American Corp., 186 F.2d 201 (2nd Cir. 1950)
• Parties: CONWAY v. SILESIAN-AMERICAN CORP. et al.
• Court: U.S. Court of Appeals — Second Circuit

186 F.2d 201 (1950)

CONWAY v.SILESIAN-AMERICAN CORP. et al.

No. 85, Docket 21755.

United States Court of Appeals Second Circuit.

Argued November 8, 1950.

Decided December 26, 1950.

Oliver T. Cowan, of New York City(Goldwater & Flynn and William C. Hare, of New York City, on the brief), for appelleeFrancis X. Conway, trustee.

Thomas A. McGrath, of New York City(William Gilligan, of New York City, on the brief), for appellantSilesian-American Corp.

Leonard P. Moore, of New York City(Chadbourne, Parke, Whiteside, Wolff & Brophy, Clair B. Hughes, and Edward R. Neaher, all of New York City, on the brief), for appellantSilesian Holding Co.

Charles E. Scribner, of New York City(Scribner & Miller, Louis G. Bernstein, and Robert J. Sands, all of New York City, on the brief), for appellantsEdward W. Smith and others as Protective Committee for the Holders of the 7% Collateral Trust Bonds due August 1, 1941.

George B. Searls, Atty., Dept. of Justice, Washington, D. C. (Harold I. Baynton, Asst. Atty. Gen., Director, Office of Alien Property, Abe W. Weissbrodt, Atty., Dept. of Justice, Washington, D. C., and Irving H. Saypol, U. S. Atty., of New York City, on the brief), for appellantJ. Howard McGrath, Atty. Gen.

George Zolotar, Sp. Counsel, Securities and Exchange Commission, New York City(Roger S. Foster, Gen. Counsel, David Ferber and Lawrence M. Greene, Sp. Counsel, Securities and Exchange Commission, and Meyer Feldman, all of Washington, D. C., and Ezra Weiss and Kiva Berke, New York City, on the brief), for Securities and Exchange Commission.

Before AUGUSTUS N. HAND, CHASE, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This appeal brings before us as its main feature a district court order approving as fair, equitable, and feasible the trustee's plan for the reorganization of Silesian-American Corporation, a Delaware holding company, which was the conduit whereby American investors in the golden twenties put money into a Polish corporation owning and mining extensive zinc and coal deposits in Upper Silesia.In the light of existing world conditions the mines, now in the possession of the present Polish Government, are obviously beyond reach of any American bankruptcy court.The trustee's plan therefore is in substance a distribution of the salvage from the wreck, consisting in the main, beyond some few assets on hand, of an amount offered by a syndicate of Swiss banks which had received deposits from the original mine owners to retire the debtor's bonds.Objectors to the plan direct their sharpest attack upon the asserted inadequacy of the Swiss offer.Hence the major issue on this appeal is whether the court below was justified in accepting and adopting the trustee's view that the offer constituted an appropriate adjustment of conflicting claims and in any event was all that could be reasonably realized from that source.Other issues involve the possibility of a claim against the present Government of Poland and the desirability of suit by the trustee against the original promoters of the debtor, together with various details of the plan which are attacked by some or more of the objectors.On all these points the district court, in approving the plan, found with the trustee in concluding that nothing more of substance for the bondholders could be reasonably expected.Objectors to the plan, in addition to the debtor and its principal stockholder, Silesian Holding Company, are Edward W. Smithet al., as Protective Committee for the Holders of the 7% Collateral Trust Bonds here particularly involved, and J. Howard McGrath, Attorney General of the United States, as successor to the Alien Property Custodian representing a German interest seized by that office.The Securities and Exchange Commission filed below a very extensive report which went into the history of the debtor in all aspects and the merits of the plan and both vigorously opposed its acceptance and strongly urged the pressing of legal action against the Swiss banks and others.This position it reaffirms here in brief and oral argument urging reversal of the district court order.

The proposal of the Swiss banks calls for a definite and final adjustment whereby, upon its acceptance, those banks will be freed from any liability in the future and will indeed share in substantial amount in the securities and obligations of the corporation, as reorganized for the future collection of contingent claims.It thus presents a somewhat different situation from the other potential claims in favor of the debtor which in theory at least may be still subject to some realization even after execution of the plan.Because of this fact and because the offer does assure the estate of certain definite funds at once, we must consider it in detail.Since decision here is so highly a matter of judgment, indeed of shrewd appraisal of what may be the possibilities of lengthy litigation as against an immediate smaller payment in hand, we obviously cannot find any sure or pat answer.The trustee naturally urges that we must give strong weight to the decision below, suggesting that it must be sustained as a finding of fact based on the preponderance of credible evidence, and therefore not "clearly erroneous" under Fed.Rules Civ.Proc. rule 52(a),28 U.S.C.A.But we are not justified in thus oversimplifying this difficult problem, so much more one of forecasting the future than of restating the past.Naturally careful consideration is due the conclusion of the able district judge who has had this lengthy reorganization so long under his control.At the same time we cannot overlook the fact that the governmental agency charged with substantial responsibility in the premises, the Securities and Exchange Commission, has made an extensive investigation resulting in a detailed and helpful report with a reasoned conclusion which the trial judge has rather summarily rejected.If the considered findings of this agency, with so much better facilities for investigation than those possessed by either this or the trial court, are to have any force beyond their initial impact below, then we think that they will largely offset the usual presumption accorded a decision of first instance.Otherwise much of the statutory purpose in creating an expert body for the consideration of technical problems will be set at naught.Compare6 Collier on Bankruptcy¶ 7.30, 14th Ed.1947.We have elsewhere stressed the importance of due regard for Commission findings, Finn v. Childs Co., 2 Cir., 181 F.2d 431, 438; and we are clear that here, too, we must give weight to the detailed evaluation of the facts made by this reliable and experienced public agency and the conclusion reached, even though this was not accepted by the trial judge.

The facts, so far as they appear of record, come in the main from the various written documents before the court, together with the Commission's report.The supplementing oral testimony from the trustee and associates and from certain representatives of German interests left many gaps which the noncooperative attitude of the Swiss banks — who avoided any disclosures except under pressure — did not fill.But the broad outlines of the story at least are clear.They present a fascinating case study of American investing in continental Europe between the world wars and what happened to it once the nations became again involved in world conflict.To this story we must now turn.

Origin of the debtor.Prior to World War I, certain zinc and coal mines in Upper Silesia, owned and operated by the Giesche family since 1704, were then held by the German firm Bergwerkgesellschaft Georg von Giesche's Erben.(We shall follow the parties in referring to this firm by the perhaps not fully adequate term "Erben.")Unfortunately the Erben mining properties were divided by the German-Polish boundary line set by the Treaty of Versailles in 1922, so that about 80% was allocated to Poland, and the remainder to Germany.For practical reasons the Polish properties were therefore transferred to one of Erben's subsidiaries, a firm incorporated in Prussia about 1907.This firm then became the Polish CorporationGiesche Spolka Akcyjna, referred to as Spolka.

The post-World War I operations of Erben and Spolka appear to have been financially unsuccessful.This was partly due to the fact that Poland had laid a heavy tax on the Spolka properties unpaid in the approximate amount of $10,000,000.Because unsettled conditions made it difficult to borrow German funds to pay these taxes, Erben sought a loan elsewhere.

About this time W. A. Harriman & Co., Inc., investment bankers of New York, opened an office in Berlin and in cooperation with the Guaranty Trust Company of New York made available about $5,000,000 for short-term loans to German enterprises.Through a German banking institution about $2,000,000 was lent to Erben on the strength of a fraudulent balance sheet which overstated the value of Erben's zinc inventory by several million dollars.Then Mr. Irving Rossi, Harriman's Berlin representative, to use his own words,¹"discovered that the balance sheet was false and I notified my company's New York office of that, and in order to find a way to obtain the return of our money I developed a plan under which Harriman, together with the Anaconda Copper Company, would acquire these properties."

The plan contemplated the creation of a new American corporation to make an advance to Spolka with money to be acquired through the sale of securities on the American market.This would permit Spolka to pay off part of its debt to Erben and enable the latter, in turn, to pay Harriman.This is in brief substantially what occurred.

Sometime in 1925 Harriman therefore suggested to the Anaconda Copper Mining Company that it investigate the possibility of organizing an American corporation which would finance the purchase of the Spolka properties from Erben.And on July 30, 1925, Harriman entered...