Petition — Schmieder v. Hall

Supreme Court brief1977

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; Supreme Court, U. S.

FILED

MAR 4 M97!

ICHAEL RODAK, JR., CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1976

No. 76-1228

KURT SCHMIEDER,

Petitioner,

LOUIS H. HALL, JR., as Executor of the

ESTATE OF HELEN B. DWYER, |

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

WERNER GALLESKI

450 Park Avenue

New York, New York 10022

(212) 371-9040

RICHARD L. MEDVERD

80 Broad Street

Boston, Massachusetts 02110

JAMES P. DUFFY, Ill

3000 Marcus Avenue

Lake Success, New York 11040

ROBERT H. REITER

3100 Connecticut Avenue, N.W.

Washington, D.C. 20008

(202) 387-6728

Atiorneys for Petitioner

THE CASILLAS PRESS, INC.-1717 K Street. N. W.—Washington, 0. C.-223-1220

(i)

TABLE OF CONTENTS

JURISDICTION .

OPINIONS BELOW .

QUESTIONS PRESENTED .

STATUTE AND CONSTITUTIONAL

PROVISION INVOLVED

STATEMENT OF THE CASE .

REASONS FOR GRANTING THE WRIT .

CONCLUSION

APPENDICES .

AUTHORITIES CITED

Cases:

Ex Parte Kawato,

317 U.S. 69

Gmo, Niehaus & Co. v. United States,

153 F. Supp. 428

Miller v. United States,

11 Wall. 268 .

Silesian-American Corporation v. Clark,

332 US. 469. “~~

Page

7, 10

(ii)

Page IN THE

Constitutional Provision: Supreme Court of the United States

Amendment 5, Constitution of the United States . .... 4 OCTOBER TERM, 1976

Statutes: No.

i. - 6 Sk Sis = es 6 oe Se ee Oe

RS ea a eee

KURT SCHMIEDER,

Petitioner,

LOUIS H. HALL, JR., as Executor of the

ESTATE OF HELEN B. DWYER,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

TO THE HONORABLE CHIEF JUSTICE OF THE UNITED STATES

AND THE ASSOCIATE JUSTICES OF THE SUPREME COURT OF

THE UNITED STATES:

Kurt Schmieder, petitioner herein, prays that a writ of

certiorari be issued to review the judgment of the United

States Court of Appeals for the Second Circuit, entered

September 20, 1976, affirming the judgment and orders

of the United States District Court for the Southern Dis-

trict of New York.

JURISDICTION

The judgment of the court below was entered on Sep-

tember 20, 1976. Timely petition for rehearing and sug-

gestion for rehearing en banc was filed, and denied on

November 8, 1976. An extension of time to file Peti-

tion for Writ of Certiorari to and including March 4, 1977

was granted on January 27, 1977. Jurisdiction to review

this judgment is conferred on this Court by Title 28, Sec-

tion 1254, of the United States Code.

OPINIONS BELOW

The opinion of the court below has not been reported,

and is appended as Appendix A. Orders denying rehear-

ing and rehearing en banc are appended as Appendix B

and Appendix C. The opinions of the United States Dis-

trict Court for the Southern District of New York are ap-

pended as Appendices D through K. The opinion of _the

trial court dated September 25, 1975, and its memoran-

dum and order dated March 12, 1976, are reported at

421 F. Supp. 1208 and 421 F. Supp. 1218, respectively.

QUESTIONS PRESENTED

1. Does the Trading with the Enemy Act take away

the right of a German national, long after the cessation

of hostilities, to bring an in personam action not vested

as enemy property for fraud, seeking imposition of a

constructive trust?

2. Does the return by the United States Government

of property seized under the Trading with the Enemy Act

to a person who acquired it by reason of fraud and over-

reaching on the part of an American attorney-at-law wipe

out all the defrauded party’s rights to sue the person re-

ceiving the fruits of the fraudulent behavior?

3.. Can the Federal Executive cut off all rights of a

former enemy to bring legal action, long after the cessa-

tion of hostilities and the operation of the Trading with

the Enemy Act, to invoke the power of equity of the

federal courts for redress of a wrong in personam, rather

than the enforcement of a property interest, when the

vesting order does not by its language even purport to

seize such right?

4. Where a common law gift was not made, but rather

an absolute transfer without consideration and without

donative intent, to the secretary of the transferor’s attorney

who professionally advised the transfer and supervised the

disposition of the funds, does an equitable duty exist re-

quiring the secretary to repay the amount of unjust en-

richment, after the purpose of transfer has been accom-

plished?

5. Can the Trading with the Enemy Act be used by

one receiving property as the result of fraud and over-

reaching as a means of insulating him from any equitable

duty?

6. Can the secretary of an attorney-at-law, who by

reason of his fiduciary relationship causes a client to

transfer property to her, avoid accountability for the

fruits of the poisonous tree?

7. Does the federal common law doctrine against wind-

fall abuse prevent the return of property vested under

the Trading with the Enemy Act to persons other than

those found entitled thereto by law?

dicially determined?

8. Does the closing of the federal courts to the in per-

sonam fraud claim of a former enemy national, not seized

by the United States Government, against an individual,

constitute a violation of the due process clause of the Fifth

Amendment to the Constitution of the United States?

STATUTE AND CONSTITUTIONAL

PROVISION INVOLVED

Sections 5(b)(1) and 7(c) of the Trading with the Enemy

Act (S50 U.S.C. Appendix 88 5(b)(1) and 7(c)), and Article 5

of the Bill of Rights are set forth in Appendix L.

STATEMENT OF THE CASE

Petitioner, a German national, inherited property from

his family, consisting of business interests in the United

States, where petitioner had spent years. He was living

in the part of Germany which after World War II became

Russian-occupied territory until he succeeded in escaping

to West Germany in 1951. Prior to that he was perse-

cuted and imprisoned in East Germany for so-called eco-

nomic sabotage, and prior to and during World War II

was persecuted by the Nazis by reason of his outspoken

opposition to the Nazi creed and his membership in an

opposition political group.

In the nineteen thirties, in order to avoid the use of

his American assets by the Nazis, he concealed his own-

ership through the use of nominees, at great risk to him-

self. In 1938, his American attorney, one Louis H. Hall,

Sr., recommended to him that he divest himself of all

interest in the property, and recommended his secretary,

whom petitioner had never met and with whom he had

no contact or relationship whatever, as transferee. At

the time, petitioner could have transferred the property

to Switzerland and other countries, or even disclosed it

to the German authorities without penalty. However,

petitioner, without any consideration, transferred all his

property in the United States to the secretary, on the

oral understanding with Mr. Hall that his rights would

be recognized whenever the purpose of the. transfer was

accomplished. At the end of 1948, the United States

Government vested the specific property under the Trad-

ing with the Enemy Act, and the secretary filed claim

for the return of the property, and a court action in

the United States District Court for the District of Co-

lumbia for that purpose. She was then represented by

Mr. Hall’s law firm. She filed a motion for summary

judgment, and Judge Alexander Holtzoff wrote an opin-

ion denying the motion, stating that:

“fi]f the case were on trial before me, I should

be inclined to hold on the undisputed evidence

that the plaintiff has no beneficial title. Here is

a stenographer in an office who gets an assign-

ment of property of a client of the office of a

value of $200,000. She does not know the orig-

inal donor. She does not use the property or

spend any of it. There is some inference to be

drawn that she is only a straw. That is no re-

flection on her. As a matter of fact, there is

nothing reprehensible in being a straw, but there

is serious question in my mind whether she has

a beneficial interest in that property. ... The

reason or motive is not important. What is im-

portant is whether there was an intention to vest

a beneficial interest in the plaintiff without any

understanding whatsoever of the principals that

she was to hold it for the benefit of the prior

owner [Kurt Schmieder], or that she was to re-

turn it to the prior owner. That is the ques-

tion. ... I think there is a material issue of

fact as to whether the plaintiff is the beneficial

owner of this property and that cannot be de-

termined as a question of law.”

That opinion was issued in the face of a statement Mr.

Hall had sent to East Germany in June 1948 for petitioner to

sign, indicating an absence of any claim on his part in regard

to the property. Petitioner, in reliance on Mr. Hall’s advices,

had no hesitancy in signing this, and could in any event

make no inquiries from East Germany, which also had

stringent laws prohibiting the ownership of foreign assets.

Subsequently, on the eve of trial, the action was dis-

missed, and outside the court record the parties entered

into an extra-judicial settlement under which the secretary

received fifty-five percent of the property vested.

Following the petitioner’s release from prison and escape

from East Germany, he made inquiry with the son of Mr.

Hall, who had died in 1949, as to the status of the prop-

erty and the whereabouts of the secretary, but received

no information. The son was a member of the same law

firm as his father, and the secretary continued to serve as

his personal law secretary until 1953, when she retired.

In 1967, petitioner discovered the whereabouts of the

secretary through his own efforts, and asked her for an

accounting. This was rejected in her behalf by a former

partner of the law firm.

Respondent, with his sisters, is a principal beneficiary

of the secretary’s property under a will and trust, and is

the executor of her will. He was substituted for her as

defendant following her decease in May 1970. He filed

a number of motions for dismissal and summary judg-

ment, all of which were denied, as per opinions appended

as Appendices D through F. At trial, the court found in

favor of respondent, and on appeal the judgment was af-

firmed. Post-trial motions by petitioner were denied,

and a second action was dismissed on grounds of res

judicata, all of which dispositions were also affirmed on

appeal.

REASONS FOR GRANTING THE WRIT

This Court has held that under the federal common

law, the Trading with the Enemy Act cannot be used as

a means of permitting a windfall to a person who is not

entitled equitably to it, simply because the Act barred an

action by the technical enemy. Ex Parte Kawato, 317

U.S. 69.

What the court below has done is allow the heirs of

an American attorney, who advised a German national that

rather than use other means available to protect his Amer-

ican interests he should transfer them to his secretary, to

benefit by the attorney’s violation of his fiduciary duty.

The dismissal of petitioner’s action was based on the Trad-

ing with the Enemy Act, which the trial court held to have

deprived petitioner of standing to bring the action. Al-

though there have been holdings that where property is

vested under the Act, and thereafter sold to third parties,

no right of action exists against the purchaser, there is

no case where this doctrine has been invoked in an in

personam action against the person in whose possession

the property was vested, who could in no sense be con-

sidered a bona fide purchaser, and was not the recipient

of a common law gift, there being no donative intent.

After having dismissed the action on the ground of

standing, the trial court proceeded to pass on the merits,

holding that petitioner had not satisfied his burden of

proof that the secretary was a party to a !938 conspir-

acy to defraud petitioner, and without this, the action

must fail. According to this, by placing the property in

the hands of his secretary rather than himself, the attor-

ney has apparently succeeded in insulating it from any

attempt on the part of petitioner to reclaim his property,

even though the ultimate beneficiaries of the property are

the children of the attorney, rather than the members of

the secretary’s family.

What this holding does is to grant a license to attorneys

to steal clients’ property, provided they find a straw party

as to whom it is not possible for the client to show direct

involvement in the planning of the wrongdoing. This

Court has been zealous in upholding a high standard of

fiduciary responsibility on the part of attorneys in their

dealings with clients, so as to avoid even the appearance of

conflict of interest. The holding of the court below, particu-

larly in the face of the opinions of Judge Holtzoff of the

United States District Court for the District of Columbia,

and three judges of the United States District Court for

the Southern District of New York indicating that the admit-

ted absence of any consideration or donative intent created

a strong presumption of wrongdoing, runs counter to the

clear position of the Court.

Further, the position of the Court in reducing federal

technical defenses on the ground of standing, except where

expressly stated by Congress, runs counter to the hold-

ing of the court below. Nothing in the Trading with the

Enemy Act requiring a denial of standing was pointed out

by the court below, and none exists, especially as to pri-

vate actions not involving the Federal Government.

The position of the United States, in expressing what

it considers the interest of the Federal Government, is

quite unusual. Rather than supporting an effort to un-

cover and provide relief for what is obviously an over-

reaching on the part of a member of the bar, it suggests

that ratification of its settlement with the respondent is

in the public interest.

The holding of the court below runs counter to the

position of the United States Court of Claims in Gmo.

Niehaus & Co. v. United States, 153 F. Supp. 428,

holding, under the authority of the decisions of this

Court in Miller v. United States, 11 Wall. 268 and Silesian-

American Corporation v. Clark, 332 U.S. 469:

“The doctrine of these cases is that an enemy

does not lose his substantive rights in property,

merely because of the existence of war, or as a

result of a physical act of seizure by persons

purporting to act for the Government, unless

there is an applicable statute declaring auto-

matic forfeiture or authorizing seizure.”

While general vesting authority existed in the present

case, there was no statutory authority for the forfeiture

of rights of petitioner. The Federal Government, having

full knowledge prior to the issuance of the vesting order

of the same facts later before Judge Holtzoff when he

found the inference flowing from them, including the 1948

statement of petitioner, determined to issue a vesting order

finding the property to be that of petitioner, and then

after vesting, the opinion of Judge Holtzoff, and dismis-

sal of respondent’s suit, proceeded to return to respond-

ent by an extra-judicial settlement the majority of the

property subject to the vesting order. Petitioner learned

only fortuitously of the partial return of the property.

Under the Kawato doctrine, a limitation attaches to

the authority of the United States Government when it

vests property, that it shall either be retained by the

Government, or returned to the person who is entitled

to receive it. Thus, instead of suggesting that it is in the

interest of the United States that the settlement with

respondent be upheld, as the Federal Government has

done here, it is submitted that it should have suggested

that the interest of the Government was that a wind-

fall be avoided, and that the court determine either that

the property should go to petitioner or be retained by

the Government as enemy property.

While perhaps the Justice Department has an interest

in defending a settlement which it made in the face and

disregard of the strong position as expressed by Judge

Holtzoff, based on facts substantially identical with those

adduced at trial, including petitioner’s 1948 statement, it

is submitted that it should feel a stronger responsibility

to protect both the public interest and that of the bar in

preserving its integrity.

CONCLUSION

For the above reasons, it is suggested that this case is

one calling for the exercise of the authority of the Court

in maintaining the standards of behavior of the bar, as

well as supervising the basic responsibilities of the lower

federal courts, in accordance with the position taken by

the Court in the maintenance of those standards and re-

sponsibilities. Further, the question of the treatment of

foreign nationals friendly to this country in the federal

courts is one of importance, which should call for review.

Petitioner would point out that a companion action has

been pending in the United States District Court for the

District of Massachusetts since 1971, at which time peti-

tioner learned through the probate proceedings involving

the secretary’s will of the existence of an inter vivos

trust established by the secreta ~ after the petitioner had

traced her whereabouts, comprised of five-sixths of her prop-

erty, in which the children of Mr. Hall were exclusive benefi-

ciaries. This discovery was subsequent to the filing of the

present action in 1969. The Massachusetts action aims at the

impression of a constructive trust on the trust property,

and is directed against Hall, Jr., individually, and as exec-

utor of the secretary’s estate, and against his two sisters

and the trustees. Multi-district litigation rules were not

applicable, and petitioner applied to have the New York

litigation kept dormant until the Massachusetts case, where

all parties and issues were before the court, was decided.

Respondent opposed, and the application was denied. A

motion by respondent and his two sisters for summary

judgment has been filed in Massachusetts.

In the Massachusetts court, the action is based on the

obligation of Hall, Jr., as an attorney, so that the defense

on the basis of which the New York courts found against

petitioner on the merits, the failure to satisfy the burden

of proof that the secretary was a party to a conspiracy,

does not apply, since as to lawyers the burden is reversed.

In the interest of procedural economy, it is suggested

that the present petition be held in abeyance until the

determination of the Massachusetts action, since only

then can the total impact of this case on the public in-

terest be fully appreciated.

Respectfully submitted,