Dollar v. Land, C. A. 31468.

• Decision Date: 02 December 1948
• Docket Number: No. C. A. 31468.,C. A. 31468.
• Parties: DOLLAR et al. v. LAND et al.
• Court: U.S. District Court — District of Columbia

82 F. Supp. 919

DOLLAR et al. v. LAND et al.

No. C. A. 31468.

United States District Court District of Columbia.

December 2, 1948.

Gregory Harrison and Moses Lasky, both of San Francisco, Cal., and Michael M. Kearney and Clinton M. Hester, both of Washington, D. C., for plaintiffs.

Melvin H. Siegel and Donald B. MacGuineas, both of Washington, D. C., for respondents.

McGUIRE, District Judge.

This is the second time this cause has been before this Court. Originally it was dismissed sua sponte by the trial judge as being a suit against the United States. The plaintiffs appealed. The Court of Appeals reversed and remanded the cause for trial on the merits. Dollar v. Land, 1946, 81 U. S.App.D.C. 28, 154 F.2d 307. Later this judgment was affirmed in the Supreme Court. Land v. Dollar, 1947, 330 U.S. 731, 67 S.Ct. 1009, 91 L.Ed. 1209. Thereupon a lengthy trial was had and the record is voluminous.

The plaintiffs allege that they are stockholders of Dollar Steamship Lines, Inc., Ltd., for the purposes of this opinion called Dollar of Delaware, and whose corporate name was changed to American President Lines, Ltd. consequent to the execution of the contractual agreement in 1938 out of which this litigation arose.

Under this agreement they delivered their common stock, endorsed in blank, to the Maritime Commission representing the United States, and the Commission as a consequence released some of the plaintiffs from certain obligations, agreed to grant the corporation an operating subsidy, make a loan to it, and to obtain for it a loan from the Reconstruction Finance Corporation, contingent upon compliance with certain conditions. All of these things were done and by 1943 the corporation had fully paid all its indebtedness to the United States.

The plaintiffs then made demand for the return of the stock from the then members of the Commission, making the claim it had only been pledged as collateral for the debt which had been paid. The members of the Commission refused to honor this demand, contending that the shares had not been pledged as the plaintiffs claim but were in fact transferred outright — that the United States is the owner of them, and asserting that the delivery of the stock was not by way of collateral, as the plaintiffs say, to secure the indebtedness of Dollar of Delaware but was in fact and in law an outright transfer.

The plaintiffs make the further claim that if the contractual agreement of 1938 is interpreted or construed to vest in the defendants or the Commission or anyone else, any interest or title in the stock other than as collateral to secure the indebtedness of Dollar of Delaware, then the Commission and those purporting to act under its authority, were unauthorized by the Merchant Marine Act of 1936 as amended or by any other law, to take such title.

The plaintiff Dollar of California had been engaged in the transpacific freight and passenger service for many years. In 1923 it purchased from the old Shipping Board seven ships, and in 1925 it purchased from the same seller five other ships for operation in its business. Subsequently two others were built by virtue of construction loans obtained from the government. In 1929 Dollar of Delaware was organized and acquired from Dollar of California all of the ships and became the actual operating company.

These ships, twelve in number, were originally mortgaged to the United States to secure the purchase price, and the indebtedness of Dollar of Delaware was based principally on this transaction and that of the further moneys borrowed for the construction of two new ships referred to above.

There is no need to go into detail with reference to the precarious situation in which the line found itself in the years 1937-1938. Sufficient to say its financial structure was gravely impaired. It was delinquent in payment of its mortgage indebtedness; it had not recovered from the disasterous marine strike of the previous year; there was a general diminution of business apparently affecting the shipping business generally — but since the company's operations were around the world, and particularly in the Orient, the unsettled and continuing political unrest in that part of the world affected it most severely. These facts plus the loss of the S.S. President Hoover in the latter part of 1937 as a result of the perils of the sea, the elimination of Shanghai as a port of call, and the growing importunities and demands of creditors, made the company's ability to go on a matter of the gravest and deepest concern. To add to the seriousness of this general picture, the mail contracts of all steamship companies were cancelled by operation of law in 1937, and then it became impossible for the line to stay in business without a subsidy — this was granted temporarily, pending final resolution of its difficulties.

Whether or not as alleged, its financial condition was aggravated further, apart from the causes above referred to, by mismanagement and by the syphoning off of profits into salaries and affiliates, or as the plaintiffs allege by the failure of the Commission to aid and assist is beside the point — the fact is its position was desperate and bordering on the completely disasterous.

The Commission, charged by law with the responsibility of developing and maintaining a merchant marine both for the purpose of national defense and the continued development of foreign and domestic commerce, was naturally concerned with the imminent possibility that the only American flag line to the Orient might possibly be no longer able to continue in operation — and also because of its heavy indebtedness to the United States was of the opinion and it was agreed that stringent efforts would have to be made by both parties to stave off disaster.

As a consequence negotiations were entered into between them early in 1937 looking toward a possible way out. In August 1938 therefore, as a result of long preliminary negotiations, the controversial agreement was entered into and executed. For some time previous to that there had been suggestions and counter-suggestions and there were proposals for guarantees, collateral and pledges and new money emanating both from the Commission and the plaintiffs. The matter culminated as indicated. On August 19th in that year the agreement was amended so as to eliminate one of the shareholders who refused to come in, and with this change it was executed by all of the parties, as stated.

Under it plaintiffs transferred to the Commission or its nominees 92% of the voting stock of Dollar of Delaware. Of this 2,100,000 shares of B stock and 63,892 of A stock were delivered, endorsed in blank, and transferred to the Commission on the corporate records on October 26, 1938. The remaining 49,313 shares of the A stock, also transferred, being subject however to existing pledges remained in the custody of the pledgee until 1941 when they were in turn transferred on the corporate records to the Commission. The plaintiffs in turn were released from liability in respect to their obligations as noted above. The issue here, as has been said, is the nature and character of the transfer.

It is admitted by the defendants there was no discharge of the indebtedness by reason of the transaction, nor was the debt in any way reduced as a result of it. In the five years that have elapsed between October 1938 and October 1943 the debt however has been paid and the company's financial integrity presumably assured. Dollar of Delaware continues to operate as American President Lines, Ltd., while the defendants continue to hold the stock.

Parenthetically it might here be said Dollar of California has the greater interest of all the plaintiffs. It claims all the 2,100,000 shares of the B stock and 2,075 shares of the A stock. R. Stanley Dollar claims 51,174 shares of the A, H. M. Lorber 9,174 shares of the A, and the Robert Dollar Company 37,722. It may be observed here also that two of the plaintiffs (Robert Dollar Company and R. Stanley Dollar) are preferred stockholders in the company while a third plaintiff (Dollar of California) was in a like position until 1942.

First of all as to the power of the Maritime Commission to enter into a transaction of the character it alleges it did, the Court holds that it has the power to negotiate and to take absolute title to the stock in question. It was created, from a functional point of view, for the purpose of permitting the conduct of its business in a manner similar to that of private enterprise and free as a consequence of the ordinary inhibitions applied to the regular executive branches of the government.

Its powers in this respect are similar to that of a business corporation. See generally Standard Oil Company of California v. U. S., D.C.1945, 59 F.Supp. 100, 106 affirmed, 9 Cir., 1946, 156 F.2d 312. The Court of Appeals for the District of Columbia in Dollar v. Land, supra, 154 F.2d at page 311 said: "We are in agreement with the view taken of this section", 46 U.S.C.A. § 1117, "of the law by the court deciding Standard Oil Company of California v. United States, D.C., 59 F. Supp. 100, involving the Maritime Commission. There the provision", 46 U.S.C.A. § 1117, "was treated in the same fashion as those statutes creating corporate instrumentalities for the conduct of public business."

The history of the Merchant Marine Act of 1936 as amended in 1938, 46 U.S.C.A. § 1101 et seq., and the purpose it was designed to accomplish lends emphasis to this conclusion. Even the language of the section under consideration, 46 U.S.C.A. § 1117, supports this view. "The Commission may enter into such contracts, upon behalf of the United States, and may make such disbursements as may, in its discretion, be necessary to carry on the activities authorized by this chapter, or to protect, preserve, or improve the collateral held by the Commission to secure indebtedness, in the same manner that a private corporation may...