Standard Oil Co. v. Clark

Decision Date22 September 1947
Docket NumberDocket 20406.,No. 185,185
Citation163 F.2d 917
PartiesSTANDARD OIL CO. et al. v. CLARK, Atty. Gen.
CourtU.S. Court of Appeals — Second Circuit

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Theodore S. Kenyon and John W. Davis, both of New York City (Kenyon & Kenyon, Edgar F. Baumgartner, Ralph M. Carson, Harold W. Bissell, and Taggart Whipple, all of New York City, on the brief), for plaintiffs.

M. S. Isenbergh, Sp. Asst. to Atty. Gen., and James L. Morrisson, Atty., Claims Div., Dept. of Justice, of Washington, D. C. (John F. X. McGohey, U. S. Atty., of New York City, John F. Sonnett, Asst. Atty. Gen., Harry LeRoy Jones, Sp. Asst. to Atty. Gen., John Ward Cutler, Acting Gen. Counsel, and Maximilian Friedmann, Atty., Office of Alien Property, Dept. of Justice, both of Washington, D. C., on the brief), for defendant.

Before CHASE, CLARK, and FRANK, Circuit Judges.

CLARK, Circuit Judge.

This is an action to recover property claimed to have been wrongfully seized and vested in himself by the Alien Property Custodian, brought by four corporations usually referred to as the "Jersey" group. The corporations are the parent holding company, Standard Oil Company (New Jersey), referred to as Standard, and three subsidiaries: Standard Oil Development Company, called Development; Standard Catalytic Company, originally S.I.G. Company, thereafter Standard I.G. Company, and usually referred to as S.I.G.; and Jasco, Incorporated. The property in question was vested by the Custodian in himself as being the property of the German corporation, I.G. Farbenindustrie, A.G., called I.G.; but the plaintiffs' contention is that it is, instead, owned by themselves, American corporations. It consists of shares of stock of American corporations and United States patents in the hydrocarbon field for the treatment of natural gas, crude petroleum, coal, and other materials to produce marketable products in the oil, natural gas, and gasoline industries. Specifically it consisted of 200 shares of S.I.G. stock, 5 shares of Jasco stock, 425 shares of Hydrocarbon Synthesis Corporation (USAC) stock, many hundreds of patents relating principally and directly to the hydrocarbon field called Class A S.I.G. patents, many hundreds of patents merely useful in that field called Class B S.I.G. patents, and many Jasco patents relating to the Acetylene Arc, Paraffin Oxidation, Oppanol, and Buna processes.

The case presents a fascinating picture of the interrelationships of two vast private commercial empires, among the largest in the world, acting in hearty co-operation in division of their respective fields of operation and making and executing plans for continuance of that co-operation under the stress of developing friction and approaching war between the countries of which they were, after all, respectively nationals. For the purposes of this appeal we need not attempt to set forth that extensive history in detail; as a matter of fact, Judge Wyzanski, in his careful and searching decision below, Standard Oil Co. v. Markham, D.C.S.D.N.Y., 64 F.Supp. 656, has made the labors of review as light as the momentous nature of the issues permit. Broadly speaking, the great German I.G. Farbenindustrie, A.G., had developed original means and methods of manufacture and production with respect to gasoline, oils, and rubber, of which the Jersey group desired to obtain rights of exploitation, particularly in the light of its concern with the apparently limited reserves of oil in the world. So negotiations were opened in 1926; and from 1929, agreements were entered into by the respective parties to this end, which involved, among other things, the organization of new jointly controlled companies — S.I.G. and Jasco — and payments going into the many millions by the American to the German interests for the rights thus obtained. The District Court has held those arrangements, as had prior to October, 1939, legal so far as the Trading with the Enemy Act is concerned. But at that date the outbreak of World War II had already occurred, and the parties made arrangements then for the transfer of stocks, patents, and other property to the American interests. These latter transfers the court adjudged to be sham, made with the intent of merely passing an apparent title against later possible seizure by the United States Government in the event of war — an event which the parties correctly foresaw — with beneficial ownership still in fact with the German corporation. Hence in broad outline the judgment below returned to the plaintiffs the property acquired before the October, 1939, agreement and refused to return the remainder. And so both opposing parties appealed.

Thus the ultimate issues below and here turn upon the determination of the ownership of the specific blocks of stock and of the patents, the existence or nonexistence of equitable rights in the patents, and the ownership and extent of those rights. These problems are complicated by a consent decree entered in 1942 in a prosecution of the plaintiffs and others, including individual officers of the companies, for violation of the antitrust laws, since this decree has some bearing upon the parties' rights in the patents. Before the specific problems are reached, however, we must also consider two general over-all defenses which were rejected by the court below. These are that plaintiffs are barred from bringing the action at all, since they have acted to conceal the American assets of a then friendly foreign power; and that plaintiffs may not recover because of lack of clean hands and violation of the Sherman Antitrust Act.

1. I.G. and Jersey Interrelations. The earliest transaction between I.G. and the Jersey group important in this case was the Four-Party Agreement, reached in 1929. Pursuant to its terms, S.I.G. was created to exploit outside Germany certain patents belonging to I.G. The patents were divided into two groups, the Class A S.I.G. patents, relating wholly or principally to the hydrocarbon field, and the Class B S.I.G. patents, important in other fields, but also useful in the hydrocarbon field. S.I.G. issued 1,000 shares of stock at $100 per share. This was divided 4/5 to Standard and 1/5 to I.G. S.I.G.'s profits were limited to $11,000 per year, but its royalty income was to be paid to I.G. and the Jersey group roughly in proportion to their stock holdings. This agreement was put into effect and patents and rights in patents were assigned to S.I.G.

In 1930, the parties signed an agreement pursuant to which Jasco was created. The agreement concerned new processes of both I.G. and the Jersey group for producing chemical products from crude petroleum, natural bitumen, or natural gas. In this document both parties agreed to negotiate concerning the terms under which newly discovered specific processes were to be assigned to Jasco for development and exploitation. Jasco issued 10 shares of stock, which were divided evenly between I.G. and Development. Until the later Hague Agreement the only process in which the parties purported to give Jasco substantially more than a right to conduct experiments was the Oppanol process.

In 1938, I.G. and Standard, together with two other parties — the Royal Dutch Shell group and the Kellogg Corporation — formed the Hydrocarbon Synthesis Corporation, also called USAC, to control the exploitation of certain processes for the manufacture of gas and gasoline. Of the 1,700 shares of stock issued by this corporation, Shell and Kellogg each took 425 or ¼, and S.I.G., acting as agent for the I.G. and Jersey interests, took 850.

With the approach of the war the Jersey group sought to forestall interference or participation by the United States Government in the management of its interests and property. Its general means toward this end was to have property interests owned by I.G. transferred or apparently transferred to itself. Pursuing this policy, Standard in early September, 1939, purchased I.G.'s stockholding in S.I.G. for $20,000, the original purchase price.

In late September, 1939, representatives of the Jersey group and I.G. conferred at The Hague, Netherlands. At this conference the parties made a number of formal changes in their Jasco relationship. A recitation was made that Jasco was the equitable owner of all patent rights of the parties in the Oppanol, Paraffin Oxidation, Acetylene Arc, and Buna processes. I.G. agreed to transfer its stock in Jasco to Development. The terms of the Jasco Agreement providing for division of royalties between the parties on a percentage basis were scrapped in favor of a division of Jasco's rights on a territorial basis. I.G. released to Jasco its royalty rights under the Jasco Agreement. In return, Jasco was to assign to I.G. all its patent rights under the four processes outside the United States and nations thought by the parties to be at war with Germany. Presumably Development was to retain ownership and control of the processes in these nations through its stock ownership of Jasco and whatever rights it had under the Jasco Agreement. Other action was also taken at the Hague Conference. Dr. Ringer, one of I.G.'s representatives, brought with him assignments in blank for all the Class A S.I.G. patents which had not yet been assigned to S.I.G., for some of the Class A S.I.G. patents which had already been assigned to S.I.G., for all the Class B S.I.G. patents, and for patents for the Acetylene Arc, Paraffin Oxidation, and Oppanol processes. These he delivered to Howard, Jersey's representative, president of Development and a vice-president of Standard. There was also some discussion at the Hague Conference regarding USAC stock, but there is no evidence of any formal action thereon by the conferees. But by a substantially contemporaneous exchange of cables between I.G. and Development, certain formal changes were made in the ownership of USAC stock. In place of the 850 shares held by S.I.G. as agent, new shares were issued to...

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