The opinion of the court was delivered by: MARSH
This action was instituted by Karl Feller, a citizen of the United States, under Section 9(a) of the Trading With the Enemy Act, 50 U.S.C.A.Appendix, § 9(a), to recover 5,000 shares of no par common stock of Schloemann Engineering Corporation, and carried on the books of the company in his name. These shares of stock were seized and vested in the Alien Property Custodian on January 15, 1944, by Vesting Order No. 2953 as the property of a national of a designated enemy country, namely, Schloemann Aktiegesellschaft (also hereinafter referred to as SAG), a German corporation with principal offices at Dusseldorf, Germany. The Alien Property Custodian caused these stock certificates to be cancelled and in lieu thereof caused one certificate to be issued for 5,000 shares, which is in the possession of the Attorney General as successor to the Alien Property Custodian. The assets of the corporation were sold and the proceeds thereof are also being held by the defendant.
Before discussing the facts of this case, we will dispose of the question of law raised by plaintiff as to the pleadings.
Plaintiff avers that he is the absolute owner of the stock, and that the Alien Property Custodian seized the property upon the false finding that the ownership was in the German corporation known as Schloemann Aktiengesellschaft. Defendant denies these averments. On this state of the pleadings, plaintiff importunes the court to conclude that under Rule 8(c), Federal Rules of Civil Procedure, 28 U.S.C.A., it was incumbent upon defendant to plead affirmatively any matter involving fraud, illegality, or other matter constituting confession and avoidance and, since the answer is silent in this respect, defendant has waived the benefit of such defenses, i.e., to show that plaintiff entered into an agreement to conceal the beneficial ownership of the disputed stock and facts establishing a resulting trust. We do not agree. Section 9(a) of the Trading with the Enemy Act requires that a plaintiff 'establish' the 'interest, right, or title' he claims. This means plaintiff has the burden of establishing that he is the beneficial owner of the property involved. Beck v. Clark, D.C. Conn. 1949, 88 F.Supp. 565, affirmed Beck v. McGRATH, 2 Cir., 1950, 182 F.2d 315; Kaname Fujino v. Clark, 9 Cir., 1949, 172 F.2d 384; Thorsch v. Miller, 1925, 55 App.D.C. 295, 5 F.2d 118, 122-123. Beneficial ownership is the heart of the case; it is a part of plaintiff's prima facie case. The denial in the answer has put the beneficial ownership of the stock in issue, and it need not be raised by an affirmative defense. See Vol. 2 Moore's Federal Practice 1688.
The evidence establishes the following facts. Mr. Feller, the plaintiff, resides in the Western District of Pennsylvania. He was a German national who immigrated to the United States in 1927 and was naturalized in 1932. Prior to coming to this country, plaintiff was employed by SAG. Upon taking up residence here, he engaged in business under the name of Karl Feller, with offices in the Empire Building, Pittsburgh, Pennsylvania. Later in 1927, his connection with SAG was re-established and he managed what in substance amounted to the American branch of SAG, which branch, known as Schloemann Engineering Company, existed continuously from the summer of 1927 until August 14, 1939. (R. 72).
Schloemann Aktiengesellschaft registered under that name in Pennsylvania in 1927 as a foreign corporation. Schloemann Aktiegesellschaft under the 'translation' of Schloemann Engineering Company, and in compliance with Article X of the 'Business Corporation Law' of 1933, 15 Purdon's Pa.Statutes § 2852-1001 et seq., applied for and in December, 1933, received a certificate of authority from the Pennsylvania Department of State to do business as a foreign business corporation. The nature of the business was designing, engineering and selling machinery, particularly motor rollers and extrusion presses. SAG held the exclusive license to certain world wide patents used in manufacturing motor rollers.
The business, assets and good will of Schloemann Engineering Company belonging to SAG.
(R. 82; Exhibit SSS, page 6; and see minutes of first meeting of directors, Exhibit A.) On December 27, 1938, plaintiff caused the Schloemann Engineering Corporation to be incorporated. However, it did not engage in business for some time because it had no working capital or other assets. Under date of August 9, 1939 the corporation entered into a contract of cooperation with SAG
and plaintiff entered into a contract with SAG,
in which, inter alia, he guaranteed performance by the American corporation and agreed to procure $ 50,000 for the American corporation as working capital. Plaintiff knew the $ 50,000 was to be furnished by SAG.
In plaintiff's contract his liability to SAG was limited to that arising from his ownership of the shares of the corporation, which fact tends to refute his contention that this money was a loan from SAG. Schloemann Engineering Corporation began to do business about August 15, 1939, upon receipt by plaintiff on the preceding day of $ 50,000, which sum he turned over to it.
Beyond any reasonable doubt this money belonged to SAG, who caused it to be paid to the plaintiff.
As security for his guaranties, and to insure control of the American corporation by SAG, the plaintiff further agreed
to subject the stock issued in his name to a voting trust. The draft of the voting trust agreement
was executed by plaintiff and by officials of the German corporation but was never put into operation. In passing, we observe that if Mr. Feller had refused to put the voting trust into operation over SAG'S objection a court of equity would likely have enforced this voting trust agreement upon application. 'Equity regards that as done which ought to be done.'
Throughout the period 1927-1939 a confidential relationship existed between plaintiff and the directors of SAG.
Early in this relationship the parties recognized that certain advantages would accrue if the American branch were incorporated. In general these were: (1) to offer assurance to American customers that they were doing business with a responsible American corporation; (2) to facilitate importation of German machinery through customs at minimum tariffs; (3) to place American banking affairs on a sound basis.
Probably in the summer of 1937, an agreement to incorporate and conceal the ownership of the American branch was consummated between plaintiff and certain officers of SAG. This agreement in substance provided that SAG was to furnish the capital in the sum of $ 50,000.00; the concealment was to be accomplished by placing the shares in the name of the plaintiff; control and beneficial ownership in SAG were to be firmly secured.
There is no direct evidence that this agreement to conceal was entered into at a specific time and place, or that it was written or verbal; but the existence of such an agreement is to be inferred from the testimony of plaintiff, from his negotiations with the officials of SAG, from the contracts between the parties, the actions and reactions of the plaintiff and the Germans from 1927 through 1939, and from the circumstances.
An agreement to conceal ownership is not necessarily a conspiracy in the criminal sense, but it closely resembles a conspiracy in that the underlying characteristic is secrecy, and like a conspiracy the proof of its existence is ordinarily to be found from the circumstances.
It was adequately shown that nothing could have been done concerning German assets abroad without a license from the branch of the German government called the 'Devisenstelle,' which was Hitler's agency in control of foreign exchange. This fact implicates the German government as a necessary party, by way of ratification, to the agreement to conceal, which later, in 1939, as between SAG and the German government, took the form of a conspiracy to cloak SAG'S ownership of the American corporation.
Possibly in the fall of 1938 and certainly in the spring of 1939, the plaintiff and his German associates foresaw the approach of war between Germany and the United States.
International relations had been steadily deteriorating. In the United States a boycott of German companies and goods was in progress; restrictions upon or seizures of German property were foreseeable in the event of war; the Devisenstelle and SAG recognized that these hazards could be avoided if the incorporated American branch could be effectively cloaked. Plaintiff testified that he refused to participate in any cloaking arrangement and vigorously protested against such a project.
It is to be noticed that some of his protests seem to be directed more to the means suggested for cloaking rather than to the cloaking itself;
but in spite of these protests negotiations continued (Exhibit CC). A few months later plaintiff received the $ 50,000.00 from the German employer which he exchanged for the shares of the American corporation, issued in his own name. This was in substantial accord with the 1937 agreement and the continuous planning over the years. Thus, the court finds that plaintiff did not abandon or withdraw from the agreement to conceal SAG'S ownership even in the fact of war, but instead, consummated it.
Plaintiff asserts he not only abandoned the plans to conceal SAG'S ownership but, on August 15, 1939, he became the absolute owner of the American corporation. He urges that in the spring of 1939 he intended to secure for himself the beneficial ownership of the American branch to the exclusion of his German employer. There is very little convincing evidence on plaintiff's part of any intention to transfer the ownership of the American assets to himself. It does not appear that he ever notified SAG of this new 'self-allegiance,' or for that matter that he was severing the relationship of principal and agent, which position of trust had existed for twelve years between him and SAG. An agent or ...