Brief of Petitioners — Melrose Distillers, Inc. v. United States

4

= (BRARY ‘

SUPREME COURT. Us By

Office-Supreme Court, U.S.

FFD.

JAN 30 1959

a -. |, JAMES R. BROWIING, Clerk

Supreme Court of a United States

Octonen eR TERM, 1958

“No. “404

MELROSE DISTILLERS, INC., CVA CORPORATION

anp DANT DISTILLERY AND

. ohaatile ecient CORPORATION,

- Petitioners, _

v.

UNITED STATES OF AMERICA,

: BRIEF ( OF PETITIONERS

; Roy G. HoLMEs,

_Rosert S. Marx,

, Respondent.

900 Tri-State Building,

Cincinnati 2, Ohio.

‘Hirary W. Gans, a |

1904 First National Bank =

~ Building,

_ Baltimore 2, Maryland,

Of Conmsed!

NICHOLS, Woov Marx & Ginter,

- 900 Tri-State Building,

Cincinnati 2, Ohio,

‘| MARKELL, Veazey & GANS,

_ 1904 First National Bank

Building,

Baltimore 2, Maiyland. <

Counsel for Petitioners.

The: Daily Record Co., Baltimore 3, Md.

e .: :

v

OprInions BELOw |

JURISDICTION

STATUTES INVOLVED

Federal

. Maryland

Delaware

QUESTION PRESENTED

. STATEMENT OF THE CASE _*

Ds) ahem

fed

. . (3) The Main Objective of Criminal ‘Puke.

ARGUMENT

(1) Fundamental Difference in Nature and Pur- ;

pose between Civil Action and Criminal Prose-

cution

(2) Post dissolution Existence Is but the Baveenite

Equivalent of Probate of Estate ad ° Deceased .

- Natural Person *

‘Is Attained by Dissolution, of a Corporate

Offender and Abatement Will not Offend Pub-

lic Policy

(4) Dissolution: Abates Criminal Prosecution of

Corporation under Maryland Law

(5) Disselution ‘Abates Criminal Prosecution of

_ . Corporation under Delaware Law; Reasons 3

| Why Collier Case is Wrong

(6) New York Construction of “Action, Suit or

are in aan Related Statute |

_ PAGE

ort nurRnN DN

~~

Oo ry

10

—

ii °

PAGE

3 (7) Government's “Spark-of-life” Theory Unten-

' able .. sch Cole eh cls ia separa taimelinna Was aie copie oa

CONCLUSION - cal eee se ee ees 34

TABLE OF CITATIONS.

| , Cases :

Addy v. Short (1952 Del.), 8 Terry 157, 89 A. (2d) 136 32.

Bahen & Wright v. Com’r. Int. Rev. (1949 C.A: 4),

176 F. (2d) 538... : sie:

_ Bowles v. Farmers Nat'l. Bank (1945 C.A. 6), 147 F.

(2d) 425 i —

rf Callahan v. Clemens (1945), 184 Md. 520, 41 A. (2a) as

Seep eae 15

Chicago Title & Trust Co. v. ‘Wilcox puifing Co. ’

(1937), 302 U.S. 120

Chichester Chemical Co. v. United States (1931 C.A.

. D.C.), 49 F. (2d) 516... 29°

Fay v. Parker (1873), 53 N.H. 342, 16 Amer. Rep.270 12

Felton v. United States (1877), 96 U.S. 699 (703), 19

Fitch v. United States (1945), 323 US. 582. 30

Goldsmith -v. United States (1930 CA. 2), 42 F. (2d) (.

- 133, cert. den. 282 U.S. 837 S30

Haberman v. Equitable Life, etc. (1955 CA. 5), 224.

F. (2d). 401, cert. den. 350 U.S. 948 30

- Hopt v. Utah (1884), 110-U.S. 574. , 18

List v. Pennsylvania (1888), 131 U.S. 396 + 9S

Lovely v. United States (1949 C.A. 4), 175 F. (2d)

er 312, cert. den. 338 U.S. 834° 29

~"Melrose Distillers, Inc., et al. v. United States (1958

, C.A. 4), 258 F. (2d) 726 . 1,9, 33

Menken v. Atlanta (1889), 131 U.S. 405. - (16

Meredith v. Washington Loan, ete. Co. (1926), 151

Md. am, 134 A. 206 . Z : 14.

ili.

~e

-, , PAGE

“Northern Pacific Ry. Co. v. Meese (1915), 239 U.S.

SEES regain 21

Phillips v. Houston Nat'l Bank. (1940 C.A. 5) 108 F.

‘ (3d). O86........2.. 5 30

Roseland v. Phister (1942.C:A. 1), 125 F. (2a) 417 —

Schretber v. Sharpless Cieee), 308 O-M...:..:....::..: 17

Schwarz v. General Aniline & Fiim Corp. (1953),305 _

N.Y. 395, 113 N.E. (2d) 533.. ~ 33

* United States v. P. F. Collier &. Son (1953 CA. iA

- . 208 F. (2d) 936 aereee

United States -v. Line Material Co. (1953 C.A. 6),~ -

202. F.-(2d) 929. - ZT

United States v. M.S.L.B.A% Melrose Distillers, Inc.,

et al. (1956 D.C. Md.), 138 F. Supp. 685°. Chita

United States v. Mitchell (1908 D. Ore.) ; 163 F. 1014 16, 20.

United States v. Pomeroy 1907 C.C. N:Y.), 152 F. 279 17

United States v. Reisinger (1888), 128 U.S. 398 29

United States v. Safeway Stores, et al. (1944C.A. 10),

140 F. (2d) 834. _.. 18, 26

United States v. Union Carbide, etc. Coca (1955 D.C. .

Colo.), 132 F. Supp: 388 ee 32

United States v. U.S. Vanadium Corp. (1956 C.A. 10).,

230 F. (2d) 646, cert. den. 351 U.S. 939° ) oe

Williams v. New York (1949), 337 U.S. 241” 18

3 ee Statutes, Text Books,-etc. ,

Federal Rules of Civil Procedure ( general reference) 31

Federal Rules of Criminal Procedure ( —— ref- |

erence) _* a.

Sec. 1, Title 15, U.S.C.A; (Sec. Fe ticabenam Act) 2

Sec. 2, Title 15, U.S.C.A. (Sec. 2, Sherman Act) "3

Sec. 7, Title 15, U.S.C.A. (Sec. 8, Sherman Act) ;: 43%.

Sec. 15, Title 15, U.S.C.A.. (treble damages, general

" reference) : aon 12°

eo

PAGE

Sec. 24, Title 15, USCA. (corp. officers, ete., ‘guilty

with corporation) . Sane 9. 20

Sec. 1254, Title 28, USCA. (certiorar!) Wastes, 2

Sec. 3651, Title 18, U.S.C.A. (Suspension of sentence ) a

Sec. 72(.b), Article 23, Ann. Code of Maryland (1951) 4,21.

Sec. 74(b), Article 23, Ann. Code-of Maryland (1951). 21

' Sec. 78(a), Article 23, Ann: Code of Maryland (1951) 5,22

Sec. 11, Chap. 399, Acts of Gen. Assembly of Mary-

: land 1957 . seiahatid le 2

Rule 222, Rules of Procedure for Epurts of Appea al

and Appellate Judicial Circuits of ee 24

_ Sec. 278, Title.8, Delaware Code 1953. a. 5,2

_ Sec. 281, Title 8, Delaware Code 1953. + =

. 96 A.L.R. 1322 (death abates crim. proseention ~_o

Ns aa

Sec. 8158, Fletcher Cye: Corporations (Perm: ed: ) oe

Sec. 8220, Fletcher ree sce cone (Perm. ed.) a

In THE

| Supreme Court of the United States.

Ocrosen Tae, 1958

No. 404

MELROSE DISTILLERS, INC., CVA CORPORATION

\ *AND DANT DISTILLERY AND

SS DERTRISUTING CORPORATION,

‘\ Petitioners,

: Vv - .

\ F . 4

yl > STATES OF AMERICA,

: ~ at A; ees

Respondent.

BRIEF OF PETITIONERS -

Bata @

4 2 .

For brevity and cuawebiense the Petitioners will _ re-

ferred to in this brief as “Melrose”, “CVA” or “Dat” or as’

“Petitioner” or “Petitioners” either singly or in combina- |

Gon, as may best serve the cient, :)

The use of italics herein indicates emphasis supplied, ex-

cept | in the entitling of authorities or as- otherwise ex- |

pressly stated. =~ : x

_ References to the printed record. wilk be, for example,

(R. 10).

\

x

Sie ‘OPINIONS BELOW aaN

‘The opinion of the Court of Appeals is reported i in 258 F.

(2d) 726-730, and appears in (R. 68-74): X

\e

7

. 2 .

The opinion of the District Court is reported in 138 F.

Supp. 685-709 (that portion of it which pertains to the Ques-

_tion Presented commences page 706) and ai ceeate in

(R. 40-52).

‘JURISDICTION

7 - The judgment of the Court of Appeals was entered on

August 29, 1958 (R. 74). The jurisdiction of this court is

invoked under Sec, 1254( 1), Title 28, U.S.C.A. which: pe

vides: .

‘, “Cases in’ the courts of appeals.may be reviewed et

the Supreme Court by the following methods. |. «

(1) By writ of certiorari granted upon the petition |

of any party. to any civil or criminal case, before or

after rendition of judgment or decree;”

The petition: for writ of certiorari was filed in the office |

of the Clerk of the’ Court on September 26, 1958, and granted

by this Court (limited to Question No. 1 presented. by the.

petition) | on November 48, 1958 (3. 73);

STATUTES INVOLVED :

"ag Federal Antitrust Statutes

The statutes ‘under which Petitioners were. - indicted’

- in the District Court were Sections 1 and 2 of the Sherman

: Anti-trust Law, hereinafter. immediately following.

‘Section 1, Title 15 U.S.C.A. (July 2, 1890, c. 647, Sec. 1,

26 Stat. 209; as amended August 17, 1937, c. 690, Title VII.

50 Stat. 693) provides, verbatim:

_“Evefy contract, combination: in the ‘form of trust

or otherwise, or conspiracy, in restraint of: trade or

. commerce among the several states; or with foreign

nations, is declared to be illegal: Provinen, That noth-

ing contained in sections 1-7 of this title shall render

illegal, contracts or agreements prescribing minimum

, prices for the resale of a commodity which bears, or

oe eae

. the label or container of which bears, the trade mark,

brand, or name of the producer or distributor of such

commodity and which is in free and open competition

‘with commodities of the same general class produced

. or distributed by others, when contracts or agreements

~ of that description are Jawful as applied to intrastate

transactions, under i dale. law, or public aapeed

now or hereafter in. effect in any state, territory “

the District of Columbia in which guch resale is tok :

made, or to which the commodity is to be transported »

for_such resale, and the making of such contracts or

ents shall not be an unfair method of compe-

‘ or between. producers, or: ‘between wholesalers, or be-

tween brokers, or between factors, or between re-

tailers, or between persons, firms, or corporations in |

competition with each other. Every persop-who shall

‘~. make any contract or engage in any combination or

' conspiracy decigred by Sections 1-7 of this title to be

illegal: shall be deemed guilty of a misdemeanor, and,

on conviction thereof, shall be punished by fine not

exceeding $5,000, or by imprisonment not exceeding

one year, or by beth-said punishments, in the discretion

of the court.” ;

Section 2, Title 15 U.S.CA. (duly 2. 1890, c. 647, Sec. 2, 26

Stat. 209) provides, verbatim:

“Every person who. shall’ "monopolize, or attempt to

monopolize, or combine or conspire with any other

' person of persons, to monopolize any part of: the trade

or commerce among the several states, or with foreign

nations, shall be deemed guilty of misdemeancr, and,

on coriviction thereof, shall be punished by fine not

_ exceeding $5,000; or by im nment not exceeding

one year, or both said punishm ments, in the discretion

of the court.”

‘: err oes eo

ae X Sie 5 4 . S

\ ‘

: Sectisn 7, Title 15 U.S.C.A. | (duly 2; 1890, c. 647, Sec. 8 26.

‘Stat. 210) provides, verbatim: —

“The word ‘person’, or ‘persons’, wherever used in

- .* -Sections\1-7- of this. title:shall be deemed td include

: corperations and- associations isting under or

authorized by. the laws of either the United States, the -.

laws of any of ‘the territories,, the laws of any State,

or the laws of any ‘foreign’ couptry. ee

ane

Since Petitioners were corporations at the time ‘they were

indicted and since an officer: of “each was indicted along ©

| _ with them, there. is involved Section 2441 Title 15 U.S.C.A.

es (Oct: 15, 1914, c. 323, Set. 14, 38 Stat. 736) ‘which iiioms

verbatim: . i: aes

a

“Whenever a. eorporxtion shall violate any of the :

“penal provisions of the antitrust laws, such ‘Violation -

- Shall be deémed to be also that of the individual direc-

tors, officers, or .agents of such corporation. who shall

_have authorized, ordered, or done any of the acts con-

‘ stituting in whole or in part such violatidh, and such ©

- violation shall be deemed a misdemeanor, and .upon

‘conviction. therefor of any. such director, officer; or

- agent he shall be punished by a fine of not exceeding

$5,000 or by imprisonment for. not exceeding one year,

--Or by both, in the discretion of iss court. m

e-

Mislead Statutes ta”

Sincd@&wo of the Petitioners, Melrose end CVA, were |

Maryland corporations when indicted on April 6, 1955, and -

since they dissolved under ‘the laws of Maryland on May 2,

_ A958, the Maryland statutes immediately following are:

_inyolved.* Section 72/(b), Article 23; “Annotated Code Of

se crete (1951), (now 76(b) ) provides, verbatim:

“The dissolution’ of the corporation - shall be. effec-

‘tive when the articles of dissolution have been ac-

cepted. for record by the Commission, provided, how-

. ever, that the corporation shall continue in existence

;

for the. purpose of payline: satisfying angi. Mathai

any existing debts and obligations, collecting and

distributing its assets, and doing all other acts re-

-_ quired to liquidate and wind up its ‘business and

affairs. mie

and Section 78(a) (Now 82 (a)) id., vailieg verbatim:

: “The-dissolution of a corporation shall not- ‘relieve its

stockholders, directors or officers from any obligations

and liability imposed’en them by law; nor shail such

or against the corporation, and all such suits may be ~

continued with such substitution of parties, if any, as

the court‘ directs. No receiver shall institute suit ex-

cept by. order of the court appointing him; and’ “such

suit be brought in his own name as receiyer or, not-

withstanding its ees, 4 in the name of the eorpora- .

tion, to his use.” ‘ ; iF

.

aes

a i i i i a i ee ea

- —<—S —

ee «

- - . °

bd

; inchinvers Statute

Since the Petitioner, Dant, was a ' Delawaré corporation

when indicted on April 6, 1955, and sinée it. dissolved under —

* the laws of Delaware on May 2, 1955, the Delaware statute

immediately following is involved. Section 278 of the Dela- .

ware General Corporation Law (Sec. 278, Title 8, Del. Code,

: 1953 } provides:

“AN corporations, whetake they expire i. their own —

dissolution abate any pending suit or proceeding by...

- limitation or are otherwise dissolved, shall nevertheless

be continued, for, the terffi.of three years from such

expiration. or ‘disgdlution, bodies corporate for the pur-

pose of, prosecuting and defending suits by or against

them, and Of ‘enabling them gradually to settle and

-_ close-their business, .to: dispose of and convey their

+ property, and to divide their capital stock, but for the

t purpose of continuing the business for which the

-- corporation shal] have been established. With respect |:

to any action, suit, or proceeding begun or: commenced

by or against the corporation prior to the expiration |

or dissolution: ane with respect to any action, suit or ©

y" 28

ALK

~

oa

* proceeding naliae: or commenced - by .or agitast’ the

* corporation within. three years after the date of the

"expiration or dissolution, the corporation shall, only for-

the purpose of such actions, suits or proceedings So

- begun or commenced; be continued bodies corporate

beyond the three-year period and until any judgments,

orders, or decrees therein Shall be fully executed. pera

: ‘ QUESTION PRESENTED

- On April 6, 1955, Petitioners, who were, respectively,

_ two Maryland corporations and a:Delaware corporation,

and who were whoily owned subsidiaries of Schenley In-

dustries, Inc., a Delaware corporation, were indicted in

three counts (along with an officer ‘of éach of them, their.

‘corporate parent, and some forty-eight other defendants)

for alleged ‘violations of Sections 1 ‘and 2 of, the Sherman

Act (Sections ‘1 and 2, Title ‘15; US.C.A.) (R. 1-12).

On May 2, 1955, Petitioners,’ Melrose and CVA, were

‘duly dissolved under the laws of Maryland and Petitioner,

- Dant, was duly dissolved under thé laws of Delaware (R,

15, 26, 22), all for, commercial -and legal reasons having

nothing to do with the indictment (R. 20, 24, 31). On June

‘a 1955, motions to dismisS*as to these three petitioners

(on the ground that they were dissolved ) were filed on

their behalf (R. 14, 25, 21) and later adopted into other.

motions, ‘filed November 30, 1955, to dismiss on other »

‘grounds not here pertinent (R. 37-39). 4

On January 30, 1956, the District Court denied the mo-

tions. to dismiss (R. 52-53) and some. two years later on°

January 6, 1958, adjudged Petitioners (and others): guilty

upon pleas of “nolo contendere” and sentenced ‘them to

fines aggregating $18,500 (R. 55-57'. The Court of Appeals

affirraed tR. 74). This Court granted the writ of certiorari .

to the Court of Appeals (R. 75) under which the sole ques-

tion presented for review is:

os

7 a CER UE.

“Can either a Maryland corporation or a Delaware.

+ corporation be further criminally. prosecuted in a fed-

eral court for a federal offense: after its dissolution

under the applicable. state law, where such dissolution

occurs after indictment, before arraignment or plea,

and timely appears. of record in the case?”

STATEMENT OF THE CASE

iE indictment (R. 1-12). covering the period from Jan-

uary 1950 to the date of its return was retutned in the

| District Court on April 6,. 1955, against 24 corporate and.

31 individual defendants. ~ | |

; Among the 24 corporate <Aaleitasts were the three Peti-

tioners herein (R. 2) as well as ‘their. parent corporation,

Schenley Industries, Inc., a Delaware corporation (R. 2) of :

which they were wholly owned subsidiaries (R. 46). Among

| the 31 individual defendants was an officer of each of | jhe.

| -petitioners, described as having been actively engaged in

its management, direction or operation and as having au- - °

thorized, ordered or done some or all of the things. charged -

: against it (R. 3, 5).

The indictment, in a total of tials counts, charged vinla-

P tions of Sections 1 and 2.of the Sherman ‘Act (Sections 1

f and 2, Title 15, U.S.C.A. supra) with respevt to alcoholic

t beverages shipped into Maryland from manufacturers lo-

cated outside of ot

— spiracy to fix and regulate prices (R. 8). The second Count

» alleged a conspiracy to monopolize trade and commerce

| 4R.11). The third Count alleged an attempt to monopolize

‘ trade and commerce ‘(R. 11-12): The same conduct alleged

: in support’ of the first Countywas re-dlleged by reference

> to support the second and third Counts (R. 11-12), and the

+ Government conceded that it had no direct evidence of a

conspiracy but. implied a ‘conspiracy from the conduct al-

| leged (R. 12-13). |

d.. The first Count alleged a con- —

8

On May a. 1955, some 26 ie after the indictnient was -

returned, each of the three Petitioners was dissolved under

the laws of the State which created it (R. 15, 26, 22), for

commercial and legal reasons independent of the indict-

ment (R. 20, 24, 31).

On June 27, 1955, a motion: to dismiss the indictment as

to each of the three Petitioners ( hecause of its dissolution )

was filed by its last directors (R. 14, 25, 21).. These motions

were later adopted and carried forward into other motions .

to dismiss. (filed November 30, 1955) containing other

grounds not here pertinent (R. 37-39).

While these motions to dismiss were pending and on.

ee 28, 1955, Petitioners were arraigned and a plea of

ilty” was entered for each.

, On January 10, 1956, the District Court denied all mo-’.

_ tions to dismiss and that portion of its opinion pertinent

to the questidn’ here presented is conveniently sub-headed

as “V. Motion to Dismiss as against Dissolved veins post

(138 F. Supp. 706 et seq.; R. 46-52).

Almost two years later, on January 6, 1948, the shine of

“not guilty” entered on behalf of these Petitioners on June

28, 1955, were withdrawn (R. 60, 62, 65) ‘and a plea “nolo

contendere” was entered. on benslf of each and accepted

by the court (R. 61, 63, 66) and thereupon Petitioners were

sentenced to the following fines: .

Melrosé $5,000 on Count One *

CVA. 7 . $5,000 on Count One and

. * _ » $1,000 on Count Three

et $5,000 on Count One and

$2,500 on Count ‘Three.

(R. 55, 56, 57).

Petitioners appealed to the United States’ Court of mas

. ie: for the Fourth cia uit which, otthgen holding that

| te

9.

| the questions involved in the Petitioners’ motions to dis-

‘miss in the District Court survived the pleas of “nolo con- ~

tendere”, affirmed the fines imposed by the District Court,

; on August 29, 1958 (258 F. (2d) 726; R. 68-74).

As a matter of factual background (not in this record

but which cannot be disputed) indicative of “double pun- .

: ishment”, ‘if the fines against Petitioners are sustained and.

to be collected from. their stockholders, is the fact that

' their sole’ stockholder, Schenley Industries, Inc., also

; pleaded “nolo contendere” to the same indictment and was

fined $5,000 on each of Counts One and Three. It did not

— appeal. Furthermore; two individual defendants de-

scribed in the indictment as Vice-Presidents, active in the

| direction and operation of Petitioners, Melrose and CVA, -

respectively, were also fined $2,500 each on their pleas of |

: “nolo contendere” to the same indictment. They did not

appeal.

hae SUMMARY OF ARGUMENT,

| .. (1) The lower courts: failed to heed the essential wind

fundamental distinction -which necessarily exists between

civil or remedial liability and so-called “criminal lia- ¢

bility”.

4

(2) State statutes soaieaiian iii existence for

| winding-uip purposes after corporate dissolution aré but

the yb gee equivalent of probate proceedings ° in the

death of a natural person, within the ambit of this Court’s

: equation’ of a corporate dissolution to the ‘death of a

| natural person.

Be, (3) The . doceinanst object of criminal punishment is

| prevention ‘of crime and is fully attained upon dissolution

_ of the corporate offender and no ‘public policy suffers if

5 such dissolution abates a criminal Same epens against it.

~

. 4 . 10 a A

(4) The stated statutory purpose of “post-dissolution”

existence of a Maryland corporation excludes its criminal.

- prosecution and fine. .The 1957' change in that statute is

a clue to its prior meaning. :

(5) The statutory purpose of “post-dissolution” exiit-

_ ence of a Delaware corporation excludes its criminal prose-

eution and fin although there is division among the cir-

cuits on the question. ‘The Collier decision is erroneous.

_- (6). The phrase “action, suit or proceeding” has been

construed by the Court of Appeals of New York, in a not-

too-dissimilar setting, to mean “action” at law, “‘suit” in :

equity or a special Econ ak but not a criminal ‘prése-

cution. -

(7) The “spark-of-life” theory has beeri rejected by

this Court. ,

7 .. ARGUMENT |

(1) There is a Fundamental Difference in Nature ant:

Purpose between a Civil or Remedial Action

and ‘a Criminal Prosecution.

Concerning the Sherman Anti-trust Act, it was said. in”

Roseland y: Phister (1942) 125 F. (2d) 417, -419,-C.C.A. 7:

“The Act is penal so far as criminal liability is

concerned but is remedial insofar as it creates a remedy

for damages.”

The prosecution of Pétitioners under the indictment

returned on April 6, 1955, was, of course, completely penal.

The object was to prove them guilty of violating criminal |

provisions of the Anti-trust Statutes of the United States

- to be followed by’ pecuniary fines which, in the discretion ©

of the court, could be fixed at.any amount from one cent:

. to Five Thousand Dollars (Secs. 1 and 2 Title 15, U.S.C:A.,,

11

| supra). The object was not to prove a remedial liability

against: them or a liability to make whole. Citations are

unnecessary (but available) to support the premise that

a fine imposed in a criminal case is “punishment”. Such

a fine is always a “forfeiture” (although a forfeiture is not

always a fine). It is synonymous with “mulet”. These.

definitions emphasize that such a fine, in nature, is neither

compensatory nor remedial as is-a. civil judgment where

' the aim is compensation of some pre-existing liability,

-whether contractual, tortious or statutory. Such a fine,

upon paymént, becomes public funds in the hands of the

- Government for Governmental purposes and such funds_

are not held as compensation or remedy to or for the bene-

| fit of anyone. The i issue in the criminal case is not remedial

liability to another but simply “guilt or innocence” of the

public offense charged. Even where that issue is resolved

| against the accused it does not necessarily follow that he

_ will suffer any punishment for it is within. the discretion

_ of the court to suspend imposition or execution of sen-

| tence under Sec. 3651 Title 18, U.S.C. A. Furthermore, |

_ under Sec 1 and 2 of the Sherman Act (Sec. 1 and 2 Title

| 15, U.S.C.A., supra) the amount of fine to be imposed upon

_ proof of violation thereof. is not fixed and certain but rests

' in the sound discretion of the court within the statutory

| maximum. The fine; when imposed, being in nature.

' punitive only and in no wise compensatory or. remedial, .

connotes no’ pre-existing or underlying pecuniary obliga-

| tion of the defendant to anyone and thus can have no

' relation back to any previous detriment suffered by anyone

' at the hands of the defendant. Those factors, which in-

| separably inhere in the criminal prosecution, indubitably

point the conclusion that a fine in a criminal case has and

can, have no existence until it is imposed and then, being

| Punishment purely, it has no retroactive operation, signifi-

- dial claim which seemingly was overlooked in the Courts

<s criminal fine- ‘has no existence until imposed and, when'¢

12

cance or implication whatever. Indeed, it would be diffi-

cult if not impossible to imagine a punishment operating

retroactively. Can a convicted person be hanged today —

as of yesterday? Can a convicted person be fined today —-

as of yesterday? This is the essentiat distinction between

liability for a criminal fine and liability for a civil or reme-

below and which went unrecognized in the Collier case

(United States v. Collier (1953) 208 F. (2d) 936 C.A.7)

“upon which the Courts below largely. relied. That the

imposed, carries no backward liability, is.a truism’ which |

finds practical. expression in every application of the rule

that the same person may be criminaliy prosecuted and

- fined for an unlawful aet without in the least affecting his

_civil or remedial liability to any person injured thereby.

- Otherwise stated, no matter hew large his fine in the.

criminal case, the defendant could not plead one penny of

it either in mitigation or in defense of any civil liability

- arising out of the very same.act for which he was fined.”

A gocd example of this is found in the treble-damage sec-

‘ tion of the Federal Anti-trust laws themselves (Sec. 15,

Title 15, U.S.C.A.). This attribute of our law is clearest

recognition that, while a criminal may escapé punishment

by dying:(since only the. criminal cin be punished for the

crime), his estate cannot escape — sating for the loss

or injury which his criminal act h2- caused another. In

the venerable case of Fay v. eilein (1873) 53 N. Hi. 342,

16 Amer. Rep. 270, it was said:

“A synonym of ‘damage’ when. applied to a person

sustaining an injury, is ‘loss’. - Loss is the generic term. |

_ ‘Damage is a species of ‘loss. Loss signifies the - act

of losing, or the thing lost. ‘Damage’ ‘in French |

‘dgmmage’;- Latin ‘damnum’, from. ‘demo’, to take ‘

away) signifies the thing taken away — The lost.thing |

Brats

: 13

which a inte is entitled to have restored to him, so

that he may be made whole again.. When used to

signify the money which a plaintiff ought to recover,

‘damage’ is never nor in-any sense synonymous with,

nor collateral to, the terms ‘example’, ‘fine’, ‘penalty’,

‘punishment’, ‘revenge’, ‘discipline’, or ‘chastisement’. .

Loss or damage sustained — the thing taken away —

may be supplied by compensation; “but the loss, dam- .

age, or thing taken away cannot. be supplied or re-

stored by the vindictive punishment of him: whe has

occasioned the loss or damage.”

(2) The Petitioners’ “Post Dissolution Existence Was but

_ the Equivalent of Probate Proceedings on the

. Death of a Natural Person.

In Chicago Title & Trust Co. v. Wilcox Building Corp.

(1937) 302 U.S. 120, this Court said (124-125) :

“The decisions of this. Court are all to the effect that

- a private corporation in this country can exist only -

under the express law of the state or sovereignty by

_ which it was created. Its dissolution puts an end to its

‘existence, the result of which may be likened to the

death of a natural person.’

The question involved in that case was whether a _dis-

solved Illinois corporation, which still had a limited exist-

ence or “spark-of-life” under state law, couid ‘avail itself. - _

of the Federal Bankruptcy Act which on its face was open

to “any corporation” And which defined corporations as

“all bodies having any of the powers and privileges of cor-

porations”. It will be recognized that the quéstion, in

principle at least, is not remote from that presented here;

which will be more fully treated hereinafter. .

When this Court. ‘equated ‘the corporate dissolution to z

the death of a natural-person, it drew a more accurate

.analogy, seemingly, than Réspondent will admit. On the © e

death ofa natural person, his assets, b, poet to payment of

7] ¥

® ;

-14

his debts, are. ainsi ‘owned by his heirs or legatees.

_/On dissolution of a cerporation, its assets, subject to pay-

ment of ‘its debts, are equitably owned by ‘its stock-

holders (Meredith v. Washington Loan & Trust Co. (1926)

151 Md. (274, 134 A. 206 (209) ). “The first end to be attained

> in each case is payment of obligations existing at the date

of death of the natural. person or existing at the dissdlution

of the corporation. This limitation to obligations existing.

- at the date of death of the ‘natural person or of dissolution

of the corporation is inescapable because no new obliga- .

tions can be incurred by either the dead person or the dis-

solved corporation (except sometimes by statute, a dis-.

solved corporation may borrow money for purposes of

liquidating and winding. up—a situation not here in-

volved). The second end to be’ attained is distribution of

the. remaining assets in each case to these entitled to

them.

- Since, as we have seen, the issué in a criminal case is

simply | that of ‘ ‘guilt or innocence” of a public offense it

_ seems to follow clearly that upon death of the individual

offender or dissolution of the corporate offender, that issue

‘becomes forever moot. No sentence of fine thereafter im-

posed could be an obligation of the deceased person at the

_time Of his death or the dissolved corporation at the time

of its dissolution because the fine; being punishment only,

has no existence until ‘it is imposed and then has no retro-

spective. operation. In the.case of these Petitioners,.it will

be recalled that their dissolutions occurred. on May 2, 1955

(R. 15, 26, 22) and they were neither convicted nor fined

until January 6, 1958,-over 2'2 years later (R: 55-57). Be-

_cause of the essential difference in nature dnd purpose

- between criminal fines and civil judgments their fines were

not, and could not have: been, existing obligations or liabil-

ities of Petitioners at the time of their dissolutions.

6

15 . +

"statutes prolonging the life of: a sissies corporation |

Piieenver 4 i.e., designed to afford a remedy for some obli-

gation existing at the time of dissolution. For a-specific

instance, the Delaware statute was under discussion in

Bahen & Wright v. Com. of Int. Rev. (1949) 176 F. (2d) y

538 C.A. 4, when the court said 539): | :

“Statutes of this type are broadly remedial . .

and in Sec. 8158 Fletcher Cyclopedia Corporations (Perm. —

Ed.) it is said:

“Statutes for winding up the alien of dissolved

corporations are embodiments of equitable doctrines

and afford legal remedy where before there was none.

‘They are remedial, and should. 1 receive liberal con:

struction.”

and sre 8220, id:

. the statutory provision continuing corporations «|

in existence for a limited time after dissolution does

not extend the right to sue such corporations on debts

not in existence at the time of the dissolution.”

Cited to the foregoing section is Callahan v. Clemens (1945

‘Md. Ct. of App.) 184 Md. 520, 41 A. (2d) 473 (476) wherein:

the court, —_——s: of a — dissolution in sineataee

said:

“Dissolution occurred on Feb. 23, 1939, ‘and the rights

of creditors became fied at that time.’

Approaching this court's equation ofa corporate dissolu-

tion to the death of ¢ natural person from another view-

point, one of the incidents of the death of a natural person

is that it abates any crimifal prosecution against him. The

reason is yuapee. In such prosecution the issue is “guilt

or innocence” and when the accused dies even after con-

viction: and pending appeal, that issue is moot and the

‘prosecution abates ab initio. There is.an annotation tosuch

oes

8

16

- effect, replete with cases, entitled “Death of Defendant

Pending Appeal from Conviction as Abating. Criminal

Prosecution” in 96 A.L:R: 1322. In List v: Pennsylvania,

- 131 U.S. 396; and Menken v. Atlanta, 131 U;S. ‘406, it was

held that:

“The death of the accused in a criminal ¢ case wreuaiit

here by writ of error abates the suit.”

_ In United States v. Mitchell (1908 Cir. eK. D. Ove) 163

Fed. 1014, Mitchell had beén corivicted and fined for viola-

tion of a federal statute. While the case was pending in:

this Court on writ of error, Mitchell died: This Court held.

the case abated and dismissed the writ in 199 U.S. 616:

The Government then presented a claim for’the fine against

Mitchell’s estate.. The Circuit Court held that the fine

could not be collected after Mitchell’s death. It said (1016-

1017):

“A fine is a pecuniary sinntlient imposed . upon

-a person convicted of crime . . . Imprisonment, in its .

general sense, is the restraint of one’s liberty. As a -

, punishment it is a restraint by judgment of a court .

and is personal to the accused. It is a thing self-evident

therefore, that the death of a person upon whom such

a judgment is imposed would put an end to an infliction

or enforcement of the punishment. A fine being a

pecuniary punishment imposed upon the person, it —

would’ seem that a like result would follow. If the ac- §

cused should. die before the punishment was in reality

enforced or inflicted; he could not be pecuniarily |

mulcted or punished in verson after he had ceased to

exist. In passing judgment, whether imprisonment or:

fine, it is the purpose of.the coyrt and the law that the

~ accused be personally punished for the amendment of |

his life and of his deportment in the future, and to

deter others from committing like offenses. . . . If °

, the fine is made out of his property, then as to that

he is punished; but; if made out of the property that

has descended to his heirs . . . then it would seem he is

7

not punished, for his day of temporal punishment has

passed. It is, perhaps, within the power of -Congress

to constitute a fine a debt due from the accused in

the same relation as an ordinary debt, so that his es-

tate, in case of his death, would be beholden . ... But

this it has not done, nor attempted to do. It has pro-.

vided merely a process for the enforcement of the

fine as a fine but not as a debt. .

Then: quoting from United States v. Pomeroy; 152 Fed. 279,

the court continued (1017):

“It (the fine) was imposed as a a punishment | of the

defendant for his offense. If, while he lived, ‘it had ‘

been collected,he would have been punished. by the

deprivation ¢ of that amount from his estate; but, upon.

his, death, there is no justice in punishing’ his asd

for his opens. “

And ‘if a prosecution under a. federél criminal statute is

not given survival by some act of Congress, it abates. upon

the death of the accused regardless of state statutes of

survival. In Schreiber v. Sharpless (1883) 110. U.S. 76

(80) Sharpless was sued for penalties under a federzl stat-

ute governing patent infringements. He died before judg-

ment. Continuance of the action against his estate was at-

| tempted and denied. The Supreme Court said:

“The suit was not for... damages... . but for penal-

ties . . . recoverable under the Act of Congress... . .

'At common law actions on penal statutes do not sur-

vive, and there is no act of Congress which establishes

ariy other rule in respect to actions on the penal stat-

utes of the United States. Whether an action survives

depends on the substance of the-cause of action, not on

the forms of praceedings to enforce it.. As the nature

of penalties and forfeitures imposed by acts of Con-

" gress. and cannot be changed by state laws, it follows

- that state statutes allowing suits on sfate penal statutes

' to be seis after the death of the offender, can

have no effect on suits \n the courts of the United States

for the recovery 77 Ities. imposed by an act of

- Congress.” — ,

The above case has not “overruled or departed from —

‘in its ruling so far as we are. aware. It has been cited in

later cases including United States v. Safeway Stores

(1944) 140 F. (2d) 834 (840) C.A. 10. In Bowles v. Farmers

National Bank (1945) 147 F. (2d) 425 (430) C.A. 6 it was

‘“The question of the survival of the action; which

. is purely the creature of congressional enactment,

_is not governed. by state statutes of survival. In the

absence of an act of Congress,:the federal courts are -

-\\ entitled to apply the proper rules of federal law under

their own standards. Under federal law an action for -

’ penalties and forfeitures recoverable under Congres-

sional enactment does not survive, but abates with the |

death of the claimed violator of the statute.’ te

+(3) The Main Objective of Criminal Pesidbicnasit Was

Attained by Petitioners’ Dissolutions and Abatement

of Their jneren thereby Will not Offend Public

Policy. — ;

Since the fine in a criminal prosecution is. piisiional

only, and personal to the offender, it becomes germane to

see what the legitimate aim of such punishment is. In

Hopt v. Utah (1884) 110 U.S. 574, this Court said (579) :

..“The great end of punishment is not the expiation

or atonement of the offense committed, but the pre- ?

vention of future offense of the same kind.”

- More recently in Williams v. New York (1949) 337 US.

241 this Court said (248):

“Retribution is no longer the dominant objective of

the criminal law. Reformation and rehabilitation of

offenders have become important goals of criminal!

jurisprudence.” :

ag

It is submitted that these goals, have been attained when

the corporate offender has’ been dissolved. Its dissolution

has made future érimes.by it impossible. What then is the

purpose’ of the fine? {{ it stands, it must be made out of

the. stockholders and that situation brings to mind what

was said many years ago in Felton v. United States (1877),

96 U. S. 699 (703):

“All punitive legislation contemplates some relation

between guilt and.punishment. To inflict the latter —

where the former does not exist would shock the sense

of justice of everyone.” 9

It also brings to mind what was‘said in United States v

-Mitchell,- supra, (quoting from the Pomeroy case) about

collecting a fine from the estate of the person on whom it

| was imposed: .

* * * there is no justice in punishing his farnily for

his offense.” |

. %, 7

‘The record shows that these three Petitioners were dis-

solved on May 2, 1955, for commercial and legal reasons

independent of the indictment (R. 20, 24, 31). The record

shows that their parent corporation and sole stockholder,

Schenley Industries, Inc.,-was indicted along with them.

‘R. 2, 46--The record shows that an officer of each of

Petitioners was indicted along with them (R. 5). In view

of Section 24, Title 15, U:S.C.A., supra, (added to the Anti- _

trust laws in 1914) under which individual ‘directors,

dficers or agents of a corporation can be punished for the.

corporation's violation of those laws, there can be little .

-plausibility and even less merit, to any contention that

public policy would be offended if dissolution of the corpora-

tion abated a Federal Anti-trust criminal proceeding against -

it. If public policy loaks to prevention of further criminal .

acts by the dissvlved corporation, it is satisfied completely,

2

——

. ! 20.

ro its = dissolution ends the possibility of any further offense |

_.” by it. If public policy locks to prevention | of similar offenses.

.. by other corporations .hie statute just referred to (Sec. 24,

3 Title 15, U.S.C.A.) accomplishes that purpose much more

effectively that the prosecution of an individual noncorpo-

rate offender could. ever ‘do, because in’ every case of a

: corporate offender that statute not only. multiplies the

es prosecutions and punishments. possible from one and the

., same violation, by the number of directors, officers and

- agents which the offending corporation has, but provides

for their imprisonment as well as fine upon conyiction — .

‘punishment greatly in excess of that which could be

_. visited upon the corporation itself as the principal offender. |

If public policy looks to punishment of the dissolved corpo-

ration, punishment cannot’ be visited upon, a dead corpora-

“tion any more than upon a dead person and the opinion of -

. the court in ‘United States v. Mitchell, 163 Fed. 1014 (1017), —

, supra, may well be paraphrased by saying :

| “Its ‘day of temporal punishment has passed.”

-It can. hardly be contended that public policy looks to the

. collection of criminal fines as a reveriue raising activity

on the part of the Government, distinct from the aim of

punishment and prevention of crime, but if such contention

_were to be made the answer would be a reference ta Sec.

24, Title 15, U.S.C.A. under which multiple fines can be

imposed fay the single corporate violation, whereas only:

\ one.can be collected for the/single individual noncorporate —

‘violation. How then can it be. said that’ public ,

be offended if dissolution of a co

~ -eriminal. prosecution against it?— tthe final analysis, the

public policy of thé state in which was created the par-

> tiewlar corporation must govern, for its law alone prescribes

eee

fie’

~ for how long and upon what terms its corporate creature ~

T

Pr

V4

a“ 3 | a 21 | / i fs

exists, In Northern Pacific R, R. Co. v. Meese, (1915), 239

' USS. 614, this Court said (619): ; :

“It is settled doctrine that Federal Courts ‘iinet ‘ac-

oe cept the construction of a state s e deliberately —

adopted wf its highest saith | ge et toe

& The Pértinent ioe Statutes Abate Criminal

Prosecution of a Dissolved Corporation.

: Petitioners, ‘Melrose and CVA, were Maryland corpora-

tions and dissolved under its laws on May 2, 1955 (R. 15, 26).

| The. pertinent sections are short eriough to repeat them )

here for more convenient reference. Sec. 72/ b), Article 23,

Annotated Code of me any (1951) (now 76(b):):, pro-

_vides:. ~ ;

; “The dissolution ‘of the corporation shall be effective

when the Articles of dissolution have been’ accepted ©

for record by the Commission, provided, however, that

- the ‘corporation ‘shall continue in existence .for the:

purpose of paying, satisfying and discharging any ez-.

isting debts and obligations, collecting and distributing

its assets, and doing all other acts required to. liquidate ;

i and wind up its ee and affairs.”

Sec. 741d), Article’ 23, id. “teow Sec. 78(b)) throws light —

on the. meaning of the preceding section 72(b). it refers to

the duties of the directors of a dissolved corporation: as’ _

trustees for the purposes of liquidation, unless and until

_ a receiver, is appointed, wes Says in its pertinent parts:

“They shall proceed ‘to collect and distribute the

assets of the corporation, applying such assets to the

‘extent avdilable to thé payment, satisfaction and dis-

) charge of existing debts and obligations of the corpora-

‘ ~~ tion, including necessary expenses of liquidation, and

distributing the remaining assets among the ‘stock-

holders. Etc. Siavvat rem ane

ite eee 2 2.

Sec. 78(a), Article 22, id. (now Sec. 82 (a)) ) provided cli

to 1957):

“The dissolution of’a cepaniitia shall not ydlere

- its stockholders, directors or officers from any. obliga-

tions and liability imposed upon them by law; nor.

‘ shall such dissolution abate any pending suit or pro-

ceeding by or against the corporation, and all such suits .

- may be continued with such substitution of parties, ©

_ if any, as the court directs. No receiver shall institute

_ suit except by order of the court appointing him; such

** suit may be brought in his own name as receiver or,

notwithstanding. its dissolution, in the name’ of the ©

_ Conpoentien; ‘to his use.”

_ No cases have been found which interpret the foregoing

Maryland statutes with respect to the Question Presented.

The first two sections above quoted clearly say that after

dissolution a Maryland corporation exists only to satisfy

and discharge its existing debts ‘and obligations and to -

liquidate and, wind up its ayairs. It is significant that the ©

word “existing” is applied in both: sections togthe. phrase. /

“debts and obligations”. The third section above quoted

(See. .78(a). (now Sec. 82(a)) says that the dissolution

' shall not abate any pending suit or proceeding by or against

the corporation and all such suits may be continued with

such substitution of ‘parties, if any, as the court directs. .

‘These three. sections must be read in pari materia under

familias rules ef statutory construction. It is the first —

two sections which ordain the sole purposes for which the

corporation exists after dissolution. The third ‘section,

read in the light of the first two, can only have reference

to pending suits or proceedings: to judicially determine

corporate liability to compensate some obligation existing

at the time of the corporate dissolution. If the third sec-

tion be not thus limited in meaning then it is in conflict

b

_-with the first two sections to the extent that it wou per-

. mit an adjudication against the corporation wider. than

the statutory purpose of its continued existence. An “ex-

isting debt and obligation” within the meaning of the first

two sections can only mean, of course, “existing at the date

of the corporate dissolution”. It will be recognized that

the dissolved corpofation could haye an “existing obliga-'

tion” to remedy or compensate a pre-existing claim of

another even though such claim be not yet judicially de- ~

termined. Applicable here in full force is the prior. dis-

~ cussion in this brief of the fundamental ia between

the nature and purpose of criminal prosecution ‘and

remedial or compensatory suits. The issue in the criminal

case is not that of “remedy” to anyone but of “guilt or.

_inngcence:”. When the criminal fine is imposed it is “punish-

meént”’ not compensation for any underlying obligation. The

| finding of guilt relates to the wrongful act but the fine:

being in the discretion-of the court and being punishment.

and not. compensation, has no existence until imposed. -

Therefore, under the quoted Maryland statutes read in pari ~

materia a criminal] -prosecution cannot be embraced within

the term “pending ‘suit or proceeding” in|Sec. 78: a). _Any-

other construction confli¢ ts,with the first two sections | Sec.

72‘b) and 74'b)) since a criminal fine ‘imposed after the

corporate dissolution is not an “existing debt or obligation”

of the corporation at the tinte of its dissolution )

While the Maryland statutes, desitiqubble| to the Question

Presented ‘with ‘respect to Melrose and CVA. the Mary-

land corporations | ‘stood :at all pertinent ‘times as above

set forth, yet changes occurred in them in 1957 which are

tnentioned here solely insofar as they throw light on what.

those. statutes meant before ‘the. changés.| \ By Sec. 11,

Chapter 399, Acts of the General Assembly \ of Maryland

1957, Sec. 781 a") (now 2 iat above quoted, was: amended

« 2

24 2

: by edition: of ineiitiiig after the seuiitvaialien therein, SO

that the section, as amended, read:

. “The dissolution of a corporation shall not saline

its stockholders, directors, or officers from any obli-

‘gations and liability imposed upon them by law.”

: thus omitting “nor shall such dissolution abate any pendirig

suit or proceeding by.or against the corporation, and all

such suits may be continued * * *”* (R. 58-59).' The same

legislature then enacted Rule 222 of the Maryland Rules

‘of Procedure. for the Court of Appeals and Appellate Ju-

dicial Circuits of ‘Maryjiand, which. read:

. “An action by or against a corporation shall not abate

_ by reason ‘of the dissolution, forfeiture of charter,

merger, or consolidation of such corporation. Such

action may be continued with such change of cade

as the court may direct.”

The net effect of the change was the sighiniininant of the

terms “suit or proceeding’ and “suits” by the single word ©

“action”. However, the further significant fact appears to

be that Rule 222 applies only to civil‘ actions since the rules

pertaining to criminal prosecutions commence at Rule 701.

Even the Collier case ( United States v. Collier (1953 C.A.

7), 208 F. (2d) 936, 939), holding, contrary to Petitioners’

contention, that dissolution does not abate criminal prose-

cution of a Delaware corporation) agrees that the word

“action”, standing alone, might reasonably be held as not

including a a crintinal prosecution.” ;

(5) The Pertinent china Statute Abates Criminal

‘Prosecution of a Dissolved Corporation. The .

Collier Case Discussed. :

The Petitioner, Dant, was a Delaware corporation a

dissolved under its laws on’ May 2, 1955 (R. 22):

25

oC

ee again, the appropriate statute is ; short ‘nisi to be

repeated here, in its pertinent-parts, for handier reference.

‘Sec. 278, Title 8, Delaware Code 1953 provides:

“All corporations, whether they expire by dietr a own

limitation or are otherwise. dissolved, shall neverthe-

less be continued, for the term of three years from. .

such * * * dissolution, bodies corporate for the purpose

of prosecuting and defending suits by or against them, -

and of enabling them gradually. to settle’ and - close

their business, to dispose of and convey their property, |

_ and to divide their capital ,stock, but not for the

purpose « of continuing the business for which the corpo-

ration shall have been established: With respect to

“any action, suit; or proceeding begun or commenced by. _

or against the corporation prior to the * * * dissolution

*-* * the corporativn. shall, only for the purpose of

such actions, suit, or proceedings so begun or com-

" menced, be continued bodies corporate beyond the

three-year period and until any judgments, orders, or

decrees therein shall be fully executed.”

Sec. 281, Title 8, id., while not directly involved, throws °

light on the meaning of Sec. 278 because it. provides what .

the trustees or receivers of a dissolved corporation shail

do with its assets and its language guid forbid payment —

of a criminal] fine levied against e corporation after. its

, dissolution. Sec. at, Tide 8, reads, Ansofar as here perti-

nerit: .

“The trustees or receivers a a dissolved corporation. |

otis payment of all allowances, expenses and costs,

and the satisfaction of. all special and general liens

_ upon the funds ‘of the corporation to the extent of °

their lawful priority, shail pay the other debts due

from the corporation, if the. funds in their hands shall

-. be sufficient therefor. and if not, they shall distribute _.

the same ratably among all the creditors who shall

prove their debts in the manner that shall.be directed —

by an order or decr ye of the court for that purpose. . Mt

, 26 ‘ cd

there shall be any balarice remaining after the payment

of the debts and necessary expenses, they shall dis- -

tribute and pay the same to and among those who shall

be justly entitled thereto, as having been stockholders |

of the ‘corporation, or or their aoe representatives. e.

Both of these sections are part of the Delaware law

_ dealing with dissolved corporations and must be read in

" pari materia. So read, their preponderating rationale is

that . criminal prosecution. of the defunct corporation is

excluded, from the purpose of its “ahter- life’. The terms

_ allowances, expenses and costs”; “special ‘and general -

* jiens”, and “debts due from the corporation”, certainly do

not embrace criminal prosecutions or fines assessed after

the dissolution. —

. “No cases have been found wherein Delaware has inter-

preted her own corporate dissolution statutes with respect

| to the Question Presented. However, thage statutes have,

- received interpretations on that point in several of the

Federal Courts of Ajpeal, and there is: conflict. among:

them. Taking up these cases in order of their priority, the

first is United States v. Safeway Stores, et al. (1944), 140°

F. (2d) 834 C.C.A. 10, in which: a Delaware corporation —

and others were. indicted under the Sherman Act. It, and.

four other corporate defendants, had/dissolved just s few

days prior thereto. Motions to dismiss were filed on behalf

‘of each, predicated upon the dissolutions. The District —

on Court granted the motions. The Court of Appeals consid-

____gred the appropriate Delaware statute, which continued |

existence of dissolved corporations for the purpose of de-

-. fending “suits” by or against them, and held that a crim-

inal prosecution was not included. However, the equiva-

lent California statute, also before the court, used the term

“action or proceeding”, and the court held thafa criminal

prosecution was not therein embraced. Thus, between tHe

|

4 . civil, criminal, eT and ,admiralty.”

=

_ two statutes, the court considered the terms “action, suit

and proceeding” which cover the. wording in Sec. 278 of ©

the Delaware statute here under consideration. The opin. .

jon commends itself as well. considered and persuasive.

In arriving ‘at its — the: court noted, — omer 3

things ( 840):

“®The death of an. individual nd the wtsitatiniishan

of his estate, and the dissolution of a corporation and

the: winding up of its affairs, are the same in prin-

ciple.”

The next case came along. some” eight years later. In

United States v. Line’ Material Co. (March 1953), 202 F.

(2d) 929, C.A. 6, a Delaware corporation was indicted un-.

_ der the Sherman Aet in November 1948. it was dissolved :

by merger in July 1949. In May 1952 it moved to dismiss

because ‘its corporate existence~had terminated. At that

: time the- Delaware statute contained - the words “action,

suit or proceeding” as it does in the ‘section here under

“consideration. The District Court granted the motion to

-dismiss. The Court of Appeals affirmed and held for rea-

sons stated in the opinion that criminal prosecutions were

not embraced in the quoted term.

" Later in the same year came United. States v. P. F. Collier

. & Son (Dec. 1953), 208 F~ (2d) 936, C-A. 7, which held

diréctly contrary to C/A. 10 and C’A. 6 on the samé. ques- :

tion. There a criminal information was filed against a

. Delaware corporation for an alleged violation of the Fair

Labor Standards Act. .A motion to dismiss was filed on the

ground that the corporation had -previously dissolved in

the same year. The District Court granted the motion but

the Court of Appeals reversed and. held that the words

“any action, suit or proceeding’ as contained in the Dela-

ware nscseuar slp 940)=>-

het e , rs so we think, all focine of litigation,

f

28

It is submitted that the decision is erroneous for: two rea-

‘sons, the first of which is that the court failed to recognize _

' the fundamental distinction between. “criminal”: liability

“uw.

and “civil” fisbility. This is evident from stich wr

"in the opiniorsas (940): Ie

“|. We see no. reason apes by the same ‘alisin its

" liabilities, both civil and —- _ not also pre-

aves.” _:

= (940):

if dissolution . . . works no extinguishment of

a legal right, we discern no reason why it works an ©

extinguishment oO a legal liability, whether civil or |

criminal.” .

and cate

. no sound reason occu™s ae a legislature would

inaa to relieve a dissolved corporation of its criminal

. liability and at the same time preserve its civil lia-

bility. w

What civil liability is présents no cinhiecs Sila hei

gation to compensate a just claim — tort, contract or statu-_

tory. But what is this criminal liability which the Collier .

_9pinion has placed on equal footing? It is not an obligation

compensate, for the issue in the criminal case is not lia-

bi ity to compensate but simply “guilt or innocence” of a .

_</\ public offense. There can be no “criminal liability” of the

aoe

at the time of ‘the indictment, for the presumption

of innocence attends him then and thereafter until he is

“duly adjudged guilty. Even at that time there is no “crim-

in 1 liability” restirig upon him unless and until the court

‘some form of punishment which, as. has been

wn, is in the discretion of the court and can have no

existence until imposed, and when imposed, ‘can have no

retroactive effect ‘precisely because it is punishment and ©

- not compensation. Speaking of “liability?” as used in a ©

29 |

criminal Stintutes, this Court: said ‘in . ‘United: States, v.

ee 1888), 128 U.S. (403) : |

. this word Siability’ is‘ to cover every

gas of punishment to which a man subjects himself, =

oe violating the common laws of the country.”

and in Lovely v. United States (1949), 175 F. (24) 312,

C.A. 4, cert. den. 338 US. 834, the court quoted with ap-

proval (317):

“and : ‘liability’ -and ‘forfeiture’ are synonymous with

‘punishment’ ‘in connection. with crimes. 25

It is clear, therefore, that the term “criminal jiability”

can only mean punishment and sinee there had been nane \

imposed gp the Collier case at the time of the corporate

dissolutign there, the court was in error in treating it as

something : in, existence to be “preserved” by the statute.

The second reason for suggesting that the Collier decision.

is in error was the failure of the court in that case toapply —

the rule of ejusdem generis in construing the statutory

phrase “action, suit or proceeding” in Sec. 278 of the Dela-

ware Corporation Law. It was the word “proceeding” in i

that phrase which alone induced the court to hold that

criminal prosecutions were included. This.is apparent from

the following language in the opinion (939):

standing alone might er be held as not includ-

ing a criminal prosecution. . s

Thus, in construing a state statute the court had before it

in. the Collier case two words ° ‘suit” and “action” (which

the court agreed suggested only civil nfatters) followed

by the broader word “proceeding”. The rule of ejusdem

generis exists in the law to help construe doubtful phrase-

ology in just such a case.. In Chichester Chemical Co. v.

United States (1931), 49 F. (2d) 516 C.C.A.D.C. it was said:

“When an author makes use, first, of terms each evi-

dently confined and limited to a particular class of a _

“We agree that the word ‘suit’ or the word ‘action’ fe Lae

‘/. eluded in the Aerm “security or securities”, the words

30

‘known species of és and then, after such specific

enumeration, subjoins a term of very extensive sig-

nification, this term, however general and comprehen-

sive in its possible import, yet, when thus used, em-

braces only things of ‘ejusdem generis’ — that is, of

the same kind or species — with those comprehended

by the preceding Jimited.and confined. terms.”

In Goldsmith v. United States (1930), 42 F. (2d) 133,

C.C.A. 2, cert. den. 282° U.S: 837, it was said. (137) = ae

“The rule of ejusdem generis means that, where a

_' general term in the statute follows specific words of a

like nature, it takes its meaning from the latter, and

is presumed to embrace persons or things of the kind —

| designated by the specific words.”

In Phillips v. Houston National Bank. (1940), 108 F. (2d)

934, C.A. 5, it was.said of the rule of ejusdem generis:

“It serves to prevent general words, loosely used in

connection with specific terms, from extending the

seperation of the- instrument into’ a field not really in-

tended.” :

The rule is related to the rule “noscitur a sociis” and some-

‘times: the terms, are used interchangeably although in‘ a

technical sense it is a limited or specific. application of

_ noscitur a sociis. tn Fitch v. United States (1945). 323 U.S.

"582, this Court applied the rule of ejusdem generis | in:

_ holding that the term “a transportation, delivery, insur-

ance, installation, or other charge” as used in the statute,

did not-embrace an advertising and a selling charge which,

the Court said, were dissimilar: in nature to the specific "

_ charges enumerated just before the term “or other charge”.

In Haberman v. Equitable Life Insurance Society (1955!

224 F. (2d) 401 C.A. 5, cert. den. 350 U.S. 948, the question

was’ whether, in a Texas statute defining what was in-

_ “investment contract” included an insurance annuity. The

~ court held it did not. It said (405): an

31

“The rule of construction that the meaning of statu-

story words is to be determined by their context, or

_ noscitur a sociis, should be applied in determining the

meaning of ‘investment contract’ in the Te act.

These words having no fixed technical signi

their meaning must be ascertained. from the s

of the same puesnae type as the si enumerated

ones. It seems certain to us that the legislature meant

by this language to give color and scope to the specific -

terms, and to fill in any interstitial loopholes in. the

area staked out, so to speak, by the specific terms; nd

_ to extend that area radically so as to include quite

_ dissimilar things which have precise and well known

“names which the legislature could easily have included

expressly had it wished to dé so. * * *. While annuities ,

are sometimes called investments, that is not an apt.

characterization.”

It is submitted that if the court in the Collier case bad

applied the rule of ejusdem generis, a different re ult would

have been reached there and in the case at ha 3

Before leaving the Collier case, adverse\| comment is

due with respect to three references. made\therein to

Justify the’ decision in s that case (that “action, suit or pro-

Procedure a prosecution is uniformily referred to as a

“proceeding”. It is not perceived how the choice of a word

by the rule makers in the comparatively recent (1946)

Federal Rules of Criminal Procedure could have the re-

motest bearing on the meaning of a word or phrase in a

completely. unrelated Delaware statute. One is moved to

add that after the Federal Rules -of Civil Procedure came

out, it was only logical to designate the later rules of

|

4

ie eer

criminal practice as the Federal Rules! of Criminal Proce- .

dure. Second, there was reference to Bahen & .Wright v.

_. Com’r 176 F. (2d) 538 CA. 4, But at case was not a

criminal’ case. It. involved administrative proceedings to

collect federal taxes which had accrued during the life of

a Delaware corporation. Since there could be considerable .

‘doubt as to whether administrative proceedings © would

fit under the label of either “suit” or “action”, the case

—_ illustrates a sound reason for use of the word “preceeding”

Sin the statute (in addition to the words “suit” and “action” )

- other-than forcing inclusion of criminal cases or prosecu-

.. tions.» Thifd, there was reference to’.Addy v. Short, 8

«". oerry 157 (Del.) 89 A. (2d) 136, but this, again, was not a

. ‘eriminal case. It held that dissolution of a Delawar¢ corpo-

. ‘ration (and expiration of the three year winding Up period) —

‘ did not extinguish a. possibility of reverter held by the

corporation. It is submitted that none of thase references

_ was apposite to the decision which it was cited te support. |

9 The next chse! was United States v. United States Vartad-

ag ium Corporation, et al. (1956), 230 F. 2d 646, C.A. 10, cert.. ;

|” deni. 351 U.S. 939. On September 2, 1948, a criminal anti-

trust information was filed against a Delaware corporation.

which pleaded “not guilty”. Thereafter in September, 1950,

its corporate“ existence ‘was te inated and a ‘motion was

filed to dismissthe information on that ground.. The Dis-

trict Court granted the motion (sub nom United States-v.

Union Carbide Corporation, 132 F. Supp. 388) and it was

affirmed by C.A.-48, which said (230 F. 2d 649): =.)

% “Since’ the circuits are. not in agreement as ‘to the.

law of Delaware and until the Supreme Court has

_ spoken, we adhere to the’law as declared in the Safe-

“way case... 7 : i ae eh eetien Sag

&

—*

As indicated, this Court denied certiorari. ae

ERs

. : .

= . é

—,

ms . 33 | . 9

_ Finally, in August 1958 came the decision which is here

appealed from, Melrose Distillers et al v.. Unite States ©

(1958) 258 F. (2d) 726 C.A. 4, which so completely espouses

the Collier. case that it shares its infirmities and makes

unnecessary further comment here.

: (6), Wie York has a. “Action, Suit or Proceeding”,

‘in a Distantly Related New York Statute, to

Exclude Criminal Trials.

In Schwarz y. General Aniline & Film Corp. . (1953) 305. *

N.Y. 395 113 N.E. . (2d). 533, Schwarz, an officer and di-

rector of General ‘Aniline, etc., was indicted with it and ~

others for’ violation of the Sherman Anti-trust. ‘Act. He

. pleaded “nolo contendere” and was fined. Section 64 of the”

General Corporation. Law of New -York .was described ‘in

‘the opinion of the Court of. Appeals . of. New York (113

NE. (2d) 535) -as follows:

ao ee ec." contains tincedened provisions

_. for assessment against a corporation, of the expenses

I. of any person who is made 4 party to ‘any action,-suit if.

-« or proceeding’ because of his bemg an officer, di-

~’ rector or employee, unless~ he shall have been ad-

judged that he was liable for neglect or miscondi ct in

_the’ geen saaaad of his duties.” ve 3

Schwarz brought an aetion for- assessment against he

“corporation of his expenses in the anti-trust case. ‘The court

held that ‘the phrase “any action, ‘suit or proceeding” did ,

not include a criminal matter. Said the court ( 536) :

“We note, too, that the quite similar New Jersey,

. Kentuck*' and Delaware statutes * * * all include the

"\ same verbiage: - ‘action, suit or proceeding’, and it is

not claimed that any: of those statutes have ever been

held to contemplate * * * criminal'trials. Our own ~~

conclusion is that the draftsman who. was responsible

‘ for the eanery language, ‘any action, -_ or pro-

an .

\

34 cael

‘ceeding’ was being overcautious in. making sure that

‘the law would apply in an ‘action’ at law; a ‘suit’ in

equity, or a special ‘proceeding’.” Chae &

ee The “Spark-of-Life” Theory Untenable, {

It was Respondent's theory in the Court of Appeais that:

so long as a dissolved corporation retained any life for.

‘any purpose, it was amenable to prosecution under the

- Sherman Act because’of Sec. 7, Title 15, U.S:C.A. (supra). -

It is submitted that th ‘section simply means that corpo-

rations and associations, whether Federal, State, Terri-

torial or Foreign, éan be. guilty. of violating the Sherman’

Act, as well gs natural persotis. No case has been found

which forces upon this sectior strained meaning ascribed to

it by Respondent. Gira

\

‘Furthermore, Respondent's “spark-of-life”. theory is

‘couriter to the principle m Chicago Title und Trust Co. v. .

Wilcox Building Corp. ¢1937), 302 U.S.°120. In that case

the question was close ‘to the Question Presented ‘here.

It was whether a dissolved Illinois corporation, ‘which

stilt. had a very limited existence under state law, could

ac) avail. itself of the Federal. Bankruptcy “Act. The lower :

couft held “yes”. This Court said““No”, and that although

the corporation still had-e’Spark of life it was not sufficient

to permit.it to file a petition under the Bankruptcy Act.

_ Mr. Justice Cardozo wrote a: dissenting opinion (302 U.S.

130-134). In it he pointed out tbat the Federal Bank-

ruptey Act. was available to “any corporation” and ‘that

under its definitions “corporations” meant “all bodies hav-

ing any of the powers and privileges of private corpora-

\ions”. He pointed out that the corporation there involved

'.~ still had corporate powers, although limited. As he put

fit, “a fragment of the corporate power was thus untouched

, 3

- :

| by dissolution” and, “Here the state has elected to keep the.

corporation in existence, maimed but still alive.” He went —

on to say that this was enough to bring it within the reach

of the Federal Bankruptcy Act. Further, he said that it was

“not within the competence of the state to preserve the

artificial entity for a. purpose of her own and destroy it for

‘the purpose of withdrawal from the supremacy of federal

law. ‘This dissenting opinion largely, if not wholly, em-

braces Respondent’s contéhtion under Sec.*7, Title 15, _

-U.S.C.A. But it did not become the law.

: CONCLUSION

It seems appropriate. to say in conclusion, with respect

to Delaware particularly, that corporations in vast num-

ber are organized and existing under its laws. Respondent

says in its Memorandum filed in this court to the Petition

for Certiorari in this case:

_“& substantial, if not the major, number of corporate

‘defendants in Sherman Act cases are Delaware cor-

porations * * A es

From this conceded fact the inference arises that Delaware’

corporation statutes are receiving ‘in other jurisdictions.

appealed from in 1958, the majority holding in the federal

courts of appeals on the question was that federal criminal

prosecution of’a Delaware corporation was abated by its

dissolution under the. Delaware ‘statute. The logical as-

sumption is that if Delaware did not view her own statute }

e same light, she would have amended. Jit to nullify

such holding. ek

~

is‘at all times keenly aware of the interpretations which her -_

From the Safeway case, in .1944 until the decision here

36 ik \\ :

"Tt is respectfully submitted that as to each of the Peti-

tioners, its fine should be set aside, its conviction reversed

and the indictment dismissed, by the appropriate. order,

. judgment or mandate of this court. = ra 4s

Rozert S, Marx,

Roy G. Hotmes,

“900 Tri-State Building,

. Cincinnati 2, Ohio.

Hitary W: GANS,

1904 First, National Bank

’ Building, ,

Baltimore 2, Maryland,

- Counsel for Petitioners.

Of Counsel: ; !

. - Nicnots; Woop, Marx & GINTER,

900 Tri-State Building, iaey

Cincinnati 2, Ohio, .

_ MarKELL, Veazey & GANS,

1904 First National Bank

Building, :

- Baltimore 2, Maryland. ee ,