Schmieder v. Hall, 69 Civ. 1939.

• Decision Date: 25 September 1976
• Docket Number: No. 69 Civ. 1939.,69 Civ. 1939.
• Citation: 421 F. Supp. 1208
• Parties: Kurt SCHMIEDER, Plaintiff, v. Louis H. HALL, Jr., as Preliminary Executor of the Estate of Helen B. Dwyer, Defendant.
• Court: U.S. District Court — Southern District of New York

421 F. Supp. 1208

Kurt SCHMIEDER, Plaintiff, v. Louis H. HALL, Jr., as Preliminary Executor of the Estate of Helen B. Dwyer, Defendant.

No. 69 Civ. 1939.

United States District Court, S. D. New York.

September 25, 1976.

COPYRIGHT MATERIAL OMITTED

Werner Galleski, New York City, Berg & Duffy, Lake Success, N. Y., for plaintiff, by James P. Duffy, III, Thomas A. Illmensee, Thomas F. Werring, Lake Success, N. Y., of counsel.

Turchin & Topper, Martin, Obermaier & Morvillo, New York City, for defendant, by John S. Martin, Jr., Morton J. Turchin, New York City, of counsel.

OPINION

WHITMAN KNAPP, District Judge.

This six year old diversity action was tried without a jury on June 30 and July 1, 1976. Plaintiff Kurt Schmieder, a citizen of the Federal Republic of Germany, seeks to impress a constructive trust upon certain property of the estate of the late Helen B. Dwyer. The defendant Louis Hall, Jr., an attorney, is the executor and a principal beneficiary of the Dwyer estate.

In essence, the plaintiff claims that there was a gentlemen's agreement to return to him at some future time certain property which was transferred unconditionally and absolutely to Mrs. Dwyer in 1938. Plaintiff alleges that he was defrauded by Mrs. Dwyer who, he maintains, was acting on behalf of Louis Hall, Sr., the father of the present defendant, and the attorney who drafted all of the relevant documents relating to the transfer of the property.

The defendant, who is being sued in his capacity as executor of the Dwyer estate, vigorously denies the plaintiff's allegations. He contends that there were no such gentlemen's agreement, and that the gift to Mrs. Dwyer was, in fact, unconditional and absolute. Furthermore, the defendant claims that any interest that plaintiff may have had in the property was cut off in 1948 when his property was vested by the Alien Property Custodian pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 1 et seq.

After carefully considering all the testimony, depositions, and documents submitted in this case, we find for the defendant on both the above grounds, and, accordingly, dismiss the plaintiff's complaint.

I. Background

The crucial events in this rather unique litigation occurred almost forty years ago, in 1938, when Helen Dwyer became the recipient of an "irrevocable and unconditional" gift of property, the beneficial owner of which had been plaintiff Kurt Schmieder. Moreover, in order to fully understand these events it is necessary to discuss occurrences which date back as far as World War I. Not surprisingly, with the exception of Schmieder, the principal protagonists in this dispute — Louis Hall, Sr., William Graupner, and Helen Dwyer — are all deceased.¹

During Word War I, property owned by Schmieder's father was seized by the United States Government pursuant to the Trading with the Enemy Act. 50 U.S.C. App. § 1 et seq. In 1928, as his father's sole heir, Schmieder received the return of an amount equal to eighty percent of the value of the property seized. Shortly thereafter, Schmieder devised a scheme to evade legitimate German property taxes on the money thus returned to him.² The evidence indicates that he divided the returned property into two funds. The larger fund was not reported to the German taxing authorities, while the smaller fund was. In the early 1930s, this unreported account was transferred into the name of Schmieder's sister-in-law, Jenny Bochmann, a resident of Switzerland.

Thus, the situation stood in 1934 when the Nazis came into power. The relevance to this lawsuit of that historical event is that the Nazi regime enacted increasingly severe penalties — culminating in the possible sentence of death — for those who concealed property abroad. This factor led Mrs. Bochmann (who had a son living in Germany) and Schmieder to take a series of steps in order to disassociate themselves from the unreported funds. In 1935, Schmieder met Louis Hall, Sr., who was then vacationing in Germany. The meeting took place at the house of a mutual acquaintance, William Graupner. There, Schmieder asked Hall certain general questions concerning the formation of a corporation to hold securities in the United States, and the tax consequences of establishing such a corporation. Hall, Sr. was a senior partner in the New York law firm of Putney, Twombly & Hall, the firm that had previously represented the corporation owned by plaintiff's father which had been the original source of plaintiff's American wealth.

In the fall of 1936, Graupner returned to the United States and told Hall, Sr. that his law firm should draw up the necessary papers to establish a personal holding corporation for a woman named Jenny Bochmann. Acting pursuant to these directions, Hall Sr. supervised the formation of Stoneleigh Corporation. All the shares of Stoneleigh were issued to Mrs. Bochmann in consideration for the transfer to the corporation of the assets in Mrs. Bochmann's name which had been in an account at the New York Trust Company. Herman Graupner, William Graupner's son, was named president of Stoneleigh. Louis Hall, Jr., then an associate in his father's firm, helped draft the papers creating Stoneleigh.

In April, 1937 William Graupner received a letter from Jenny Bochmann stating that she no longer wanted her name used for Stoneleigh and that she wanted to sever all connections with the corporation. Graupner discussed the matter with Hall, Sr., who indicated that there was no way that the property could be held in the United States with the names of the true owners concealed. Hall advised that since Mrs. Bochmann wished to divest herself of all interest in the property, and since Schmieder himself could not take the property back to Germany,³ the only solution would be to give the assets of Stoneleigh away.⁴

William Graupner returned to Germany in the summer of 1937 and told Schmieder what Hall had said. Schmieder was hesitant at first, but by the fall of 1937, he decided to take Hall's advice. He notified Graupner of his decision, explaining that since they had last spoken he had been called in by the German authorities to make a report concerning his foreign holdings. According to Graupner, it was expressly stated to Schmieder that the gift must be absolute with "no strings attached." Schmieder supposedly agreed, and told Graupner that he and Hall should take care of all the necessary arrangements, including the choice of a donee. At the time of this discussion, Schmieder gave Graupner a slip of paper upon which he wrote in German: "I am in agreement with the arrangement which we have discussed for my sister-in-law."⁵

Upon Graupner's return from Europe, he and Hall began to take the necessary steps to dispose of the Stoneleigh Corporation assets. After discussing the possibility of making either of their respective sons the recipient of the gift, they decided that the property should be given to Helen Dwyer, then Hall Sr.'s personal secretary. The necessary papers were drafted by the elder Hall, forwarded to Switzerland, and finally signed and returned by Mrs. Bochmann. Among the papers pursuant to which the gift was made was a letter dated March 15, 1938, from Mrs. Bochmann to Mrs. Dwyer which stated:

"I am the owner of the outstanding stock of Stoneleigh Corporation . . .. I wish to make an absolute gift to you of both my stock in the said corporation and of my claims for advances against it . . .."

The value of the Stoneleigh stock at the time was approximately $120,000.

Helen Dwyer had been the elder Hall's secretary since 1929. Born in 1895, she was orphaned at the age of three and from 1898 to 1914 lived with her aunt and uncle. During the First World War, she married a man who was in the Navy. Tragically, however, early in the 1920s her husband was committed to a mental institution, run by the Veterans Administration, where he remained until his death. Hall, Sr. maintained that it was Mrs. Dwyer's unfortunate past that had prompted the decision to make her the beneficiary of the Stoneleigh assets.

Despite her new wealth, Mrs. Dwyer's lifestyle did not undergo any radical shift. Although she moved from Brooklyn to a larger more expensive apartment on Central Park South in Manhattan, she continued to work as Hall, Sr.'s personal secretary. She expended from the assets of the property approximately $2,000 per year for personal expenses. Shortly after the gift, she had the first of a long series of wills drafted which left the bulk of her estate to various members of Hall, Sr.'s family.

In October, 1941, with war between the United States and Germany imminent, the United States Treasury issued regulations requiring the registration of all property held by United States citizens for or on behalf of foreign nationals. After discussing the matter with Hall, Sr., Mrs. Dwyer contacted a lawyer, not involved with the Stoneleigh transaction, in order to obtain his opinion as to what action she should take. The attorney, George Z. Medalie, Esq., advised her that it would be best to report to the government the facts surrounding the gift.

On October 31, 1941, Mrs. Dwyer reported the unconditional gift on Treasury Form TFR-300. Thereafter, on June 30, 1943, her accounts containing the property she received from Stoneleigh were blocked by the government. From August 1, 1943 to October 15, 1948 Mrs. Dwyer filed nineteen applications for licenses to use some of the funds or for unblocking. She consistently maintained during this period that the gift from Bochmann was genuine and irrevocable, and that she was not holding the property on behalf of any person other than herself.

In December, 1948, the Alien Property Custodian issued Vesting Order No. 12528, whereby he seized all of the property which Mrs. Dwyer had received from Stoneleigh on the ground that it was the property of Kurt Schmieder. Mrs. Dwyer, in turn, commenced an action seeking the return of the property, claiming that it had...