# Petition for Writ of Certiorari — Clark v. Kind

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1947
- **Citation:** 332 U.S. 808

## Text

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CITATIONS
Cases:

American Insurance Co. v. Lucas, 38 F. Supp. 896, appeal
dismissed, 314 U. 8S. 575, affirmed sub nom. American
Insurance Co. v. Scheufler, 129 F. 2d 143, certiorari
denied, 317 U. 8S. 687, rehearing denied, 317 U. 8. 712__---

SERA 0 GE COND OMe By Magoo on onc wcsbnncwanenccsnd

Bement v. National Harrow Co., 186 U.S. 70__...-.-------

Brassert v. Clark, decided July 30, 1947__._._-----------

Carrington v. Merchants’ Insurance Co., 8 Pet. 495_...-----

Causey v. United States, 240 U. 8. 399_____._-----------

Commonwealth Finance Corp. v. McHarg, 282 Fed. 560-- --

Continental Wall Paper Co. v. Voight & Sons Co., 212

Dobbins’ Distillery Co. v. United States, 96 U. S. 395_-----
Portune, Tea, OS Whent. 206..........0.0........-2065.
Te. WO Won co cdn eens cn canseckuneecnees
SS Uh WROD, UM occa c ci nwkscncscecinensnte
Mitchell v. Sherman E. McEwen Associates, Inc., 360 Ill.

Morton Salt Co. v. G. S. Suppiger Co., 314 U. 8. 488_.----
Pan American Co. v. United States, 273 U.S. 456_....-----
Railroad Co. v. Soutter, 13 Wall. 517__--.-..-----------
Robertson v. Miller, 286 Fed. 503, affirmed, 266 U.S. 243- _-
Rock Island, A. & L. R. Co. v. United States, 254 U.S. 141-
St. Nicholas, The, 1 Wheat. 417__.._.--..-.------------
Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173_---
United States v. Trinidad Coal & Coking Co., 137 U.S. 160-
praeees V. Genel, 11 F. Oa 444... ... 2.2 2 eee ee
Worden v. California Fig Syrup Co., 187 U. 8. 516__------

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Statutes: Page
Trading with the Enemy Act, October 6, 1917, c. 106, 40
Stat. 411, as amended, 50 U. 8. C. App. 1, et seq.:

Section 5 (b)..--------------------------------*>- 13
Section 9 (a). ----------------------------------" 7,14
il ce oo eckapnanennoonsenmae 9, 16
Miscellaneous:
Annual Report, Office of the Alien Property Custodian,
June 1004.......\....--- ~~ +2 52-0 52 oo 3-0 25a 5

Elimination of German Resources for War, Hearings
before Senate Subcommittee on Military Affairs, 79th
Cong., Ist sess., 1945- ------------------------------

Executive Order No. 9788, 11 F. R. 11981.--------------

Restatement, Trusts, Sec. 273.--------------------------

Report of the Alien Property Custodian, February 22, 1919.

Vesting Order No. 770, January 27, 1943, 8 F. R. 2453 ---

Vesting Order No. 5225, September 14, 1945, 10 F. R. 11913.

~~ POO He DD

Inthe Supreme Court of the Binited States

OcToBER TERM, 1947

No. —

Tom C. CLARK, ATTORNEY GENERAL, AS SUCCESSOR
TO THE ALIEN PROPERTY CUSTODIAN, PETITIONER
v.

JOHANNA M. Kinp aND HERMANN H. KIND, as
TRUSTEES UNDER THE Last WILL AND TEsTa-
MENT OF HERMANN KIND, DECEASED

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED
STATES CIBCUIT COURT OF APPEALS FOR THE SECOND
CIRCUIT

The Solicitor General, on behalf of Tom C.
Clark, Attorney General, as successor to the Alien
Property Custodian, prays that a writ of certio-
rari issue to review the judgment of the United
States Circuit Court of Appeals for the Second
Cireuit entered iu this case.

OPINIONS BELOW

The opinion of the Circuit Court of Appeals for
the Second Circuit (R. 426-442) is reported at
161 F. 2d 36. The opinion of the District Court
(R. 404-424) is not reported.

(1)

2

JURISDICTION

The judgment of the Circuit Court of Appeals
for the Second Circuit was entered on April 9,
1947 (R. 442). On July 8, 1947, Mr. Chief Jus-
tice Vinson extended the time for filing a petition
for certiorari until September 6, 1947. The juris-
diction of this Court is invoked under Section
240 (a) of the Judicial Code, as amended by the
Act of February 13, 1925.

QUESTION PRESENTED

Whether, in a suit under Section 9 (a) of the
Trading with the Enemy Act, as amended, a court
of equity should entertain a claim for an interest
in enemy property which has been vested by the
Alien Property Custodian where that interest had
been used to effectuate a scheme to conceal the
enemy’s interest and thereby to defraud the
United States and frustrate its laws.

STATUTES INVOLVED

The relevant provisions of the Trading with the
Enemy Act, as amended, are set forth in the
Appendix, infra, pp. 13-17.

STATEMENT

The plaintiffs, Johanna M. and Hermann H.
Kind, are the trustees and, with two others, the
beneficiaries of the estate of Hermann Kind (R.
184-186). They are citizens and residents of the
United States (R. 28-30, 179). Prior to Septem-

_

3

ber 1939, J. A. Henckels K. G., a German copart-
nership, owed the estate $130,000. Of this sum
$55,000 was owed directly and $75,000 represented
a guarantee of a debt owed the estate by one
Iwersen, a national and resident of Germany and
until 1944 a cotrustee of the estate (R. 428). The
$75,000 debt, and possibly the entire sum, was
secured by a pledge by Henckels K. G. of the
stock of Graef & Schmidt, Inc., the property in
question (R. 428). In the fall of 1939, shortly
after the outbreak of war in Europe, the trustees
of the estate purported to release the indebtedness
of $130,000 in consideration of the transfer by
Henckels K. G. to the estate of all right, title, and
interest in the pledged shares (R. 429-430). The
formal mechanics of this ‘‘release’’ and ‘‘transfer’”’
were an offer by counsel for the trust estate and
an acceptance by Iwersen and another in behalf
of Henckels K. G. (R. 429-432).

In fact, however, Hermann H. Kind and Iwer-
sen (both being trustees and the latter general
manager of Henckels) by correspondence made it
clear that this ostensible transfer was a sham and
that their true intention was to preserve for
Henckels K. G. any amount remaining after sat-
isfaction of the indebtedness (R. 429-436, 440).
Johanna M. Kind, the third trustee, was the set-
tlor’s widow and the mother of Hermann H. Kind
(R. 28-30). While the Cireuit Court of Appeals
“reluctantly”? accepted the District Court’s find-

4

ing that she did not have actual knowledge of the
cloaking agreement between her son and Iwersen
(R. 440), there can be no dispute, from her testi-
mony, that she had accepted Hermann’s word as
to what was being done; that she trusted Her-
mann to “‘take care of everything”’; that, while
he “would explain things in a general way”’ to
her, she “left almost everything to him, the
details’; and that she had heard of Iwersen’s
proposal to hold the surplus for the benefit of
Henckels, but could not remember whether she
had learned of it at the time of the “‘transfer”
(R. 181, 182, 436-437).

In 1948, the Alien Property Custodian,’ having
determined Henckels K. G. to be the beneficial
owner, vested the stock as the property of an
enemy national (Vesting Order No. 770, January
27, 1943, 8 F. R. 2453; R. 12-14). In 1945, the
Alien Property Custodian vested all claims of
Henckels K. G. against the estate, including a
elaim for $63,000 received by the plaintiffs after
the “transfer”? as regular and liquidating divi-
dends on the stock (Vesting Order No. 5225, Sep-
tember 14, 1945, 10 F. R. 11913; R. 24-26, 437).

- The plaintiffs brought this action under Section
9 (a) of the Trading with the Enemy Act, seeking

1 By stipulation and order dated October 29, 1946, the At-
torney General was substituted as defendant, as successor
to the Alien Property Custodian (R. 1), pursuant to Execu-

tive Order No. 9788 (11 F. R. 11981), which transferred to
the Attorney General the property held by the Custodian.

_—_—

5

the return of the stock, or, in the alternative, an
adjudication, and satisfaction by the Custodian,
of a security interest in the stock (R. 1, 11-12).
The Custodian filed a counterclaim for the $63,000
(R. 23-26).

The District Court directed the return of the
stock to the plaintiffs and dismissed the counter-
claim (R. 404, 424). The Cireuit Court of Ap-
peals, finding the purported release and transfer
of the shares a “‘mere form employed to deceive
the United States’’, held that ‘‘no actual purchase
and sale occurred’’, and reversed the judgment
of the District Court insofar as it revested title to
the stock in the plaintiffs (R. 440, 442). But the
court concluded that the estate retained its claim
against Henckels K. G., that it might “‘keep, as
in reduction of that claim, the ‘dividends’ it re-
ceived’”’ and that it might assert its pledgee’s lien
on the stock for the unpaid balance of the claim
(R. 441, 442), thus granting the alternative relief
requested by the plaintiffs.

REASONS FOR GRANTING THE WRIT

1. In this war, as in the last, the enemy has
made determined efforts to cloak its interests in
property, i. e., to conceal enemy ownership be-
hind ostensible American or neutral owners in an
effort to frustrate the enforcement of the Trading
With the Enemy Act. Report of the Alien Prop-

erty Custodian, February 22, 1919, pp. 11-12,
39-41; Annual Report, Office of Alien Property

6

Custodian, June 1944, pp. 28-29. Indeed, in this
war, cloaking was supervised by the German Min-
istry of Economics, which issued secret orders for
the concealment of German property abroad. Ex-
hibit AAA-1, R. 259-262; Brassert v. Clark, de-
cided July 30, 1947 (C. C. A. 2); Elimination of
German Resources for War, Hearings before a
Subcommittee of the Senate Committee on Mili-
tary Affairs, 79th Congress, Ist Sess., 1945, p.
1203 and passim. The Custodian has already
vested some 300 interests on the ground that they
were cloaked for Germans, the property involved
having an estimated value, exclusive of patents,
of $100,000,000. Investigation of suspect transac-
tions is still going forward in Germany and in
this country.

The techniques of cloaking have been varied
and intricate, and the camouflaged situations
thereby created most complex. Elimination of
German Resources for War, supra, pp. 580-583.
But all cloaking has had a common denomina-
tor—the enemy has attempted first to find some-
one who could be trusted and who might reason-
ably be supposed to be the real owner. For this
role a pledgee, and particularly a pledgee whose
interest predated the period of anticipation of the
war, is ideally suited. Protection of his own in-
terests affords a plausible justification for acquir-
ing ownership, and the release of the indebtedness
can be advanced as the consideration for the
transfer. It is not surprising, therefore, that

7

some variant or other of the pledge relationship
should have been found present in many of the
cloaking arrangements thus far uncovered.

In the present case, the first on cloaking to be
decided by an appellate court in this war, the
cloak was an American estate which had a bona
fide, long-existing pledge interest in the property
to be concealed, and these circumstances were
utilized in the attempt to defraud the United
States and frustrate its exercise of a war power.
The fraud having been detected and the cloak
thrust aside, the plaintiffs asked equity to re-
instate them in the position they held before the
fraud. Whether such a claim should be enter-
tained is an important issue, not only because it
bears upon the other cloaking cases, but also
because it raises broad questions of the extent to
which courts of equity should entertain claims
against the Government arising out of transac-
tions which had victimization of the Government
as their objective.

2. A suit under Section 9 (a) is, by the terms
of that Section, a suit “‘in equity’? (Appendix,
infra, pp. 14, 15). One who seeks relief under
Section 9 (a) must, therefore, come with the clean
hands required of all plaintiffs in equity. Robert-
son V. Miller, 286 Fed. 503 (C. C. A. 2), affirmed,
266 U. 8. 243. Cf. Waldes v. Schall, 11 F. 2d 444,
451 (S. D. N. Y.). In the light of the finding of
the Cireuit Court of Appeals that the exthange

758512—47——_2

>

of the pledge interest for title was ‘ta mere form
employed to deceive the United States’’ (R. 440),
a court of equity should not lend its processes to
permit the wrongdoers to salvage their former
interest.

In the course of applying the clean-hands doc-
trine, it has been held, in a variety of situations,
that one who has misused his property in the at-
tempted perpetration of a fraud cannot invoke
the aid of equity to reinstate or enforce his rights
in that property. Cf. Railroad Co. v. Soutter,
13 Wall. 517, 523; Commonwealth Finance Corp.
v. McHarg, 282 Fed. 560, 571 (C. C. A. 2); Bald-
win v. Short, 125 N. Y. 553. The principle is
applied with particular breadth and vigor where
the public—or the United States—is the intended
victim of the misconduct, so that ‘‘the financial
element in the transaction is not the sole or prin-
cipal thing involved.’”’ (Pan American Co. Vv.
United States, 273 U. S. 456, 509.) Worden v.
California Fig Syrup Co., 187 U. S. 516; Morton
Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 493-
494. Cf. United States v. Trinidad Coal & Cok-
ing Co., 187 U. S. 160, 170; Causey v. United
States, 240 U. S. 399, 402. The courts must be
studious to extend no welcome to those who do not
“‘turn square corners when they deal with the
Government’? (Mr. Justice Holmes in Rock Is-
land, A. d& L. R. Co. v. United States, 254 U.S.
141, 148).

8

In prize law there exists the related, equally
applicable doctrine, that one who has misused his
name and property in order to cloak enemy prop-
erty cannot, when the cloak has been uncovered
and the property seized, recover his property em-
ployed in the “‘iniquitous adventure.’’ The St.
Nicholas, 1 Wheat. 417, 419, 431; The Fortuna,
3 Wheat. 236, 245; Carrington v. Merchants’ In-
surance Co., 8 Pet. 495, 520-521. The explicit
provision in the Trading With the Enemy Act for
the forfeiture of all property concerned in a vio-
lation of the Act, as well as for fine and imprison-
ment of the offender (Section 16, Appendix,
infra, p. 16) should not be taken to preclude the
invocation of .the traditional defense of unclean
hands, or the related defense available in the
prize cases, but rather as confirmation that like
results, when compelled by familiar equitable
principles, are consistent with the policy of the
Act. Cf. Bement v. National Harrow Co., 186
U. S. 70, 87-88; Continental Wall Paper Co. v.
Voight & Sons Co., 212 U. 8. 227; The Hampton,
5 Wall. 372, 376. See Sola Electric Co. v. Jeffer-
son Electric Co., 317 U. 8. 173, 177.

These principles are no less germane here be-
cause the fraud in this case was effected by the
use of property in trust. It has long been recog-
nized that property cannot be insulated from the
effects of prize and analogous law by the divorce
of possession and control from ownership. Re-
statement, Trusts, Sec. 273, Comment e; The

10

Hiram, 1 Wheat. 440; The Hampton, 5 Wall. 372;
Dobbins’ Distillery Co. v. United States, 96 U. 8.
395; ef. Mitchell v. Sherman E. McEwen Asso-
ciates, Inc., 360 Ill. 278. On the facts here,
therefore, it is immaterial that one trustee (Jo-
hanna) was not shown to have been explicitly
informed of the cloaking agreement which was
devised by her co-trustees. The considerations of
policy applicable to equitable owners, guilty of
neither fraud nor negligence, apply with greater
force to a sleeping trustee who, in dereliction of
her duty, has abandoned contro] of the property
to co-trustees whom she had at the least strong
reason to suspect of employing it to cloak enemy
property. Cf. American Insurance Co. v. Lucas,
38 F. Supp. 896, 923 (W. D. Mo.), appeal dis-
missed, 314 U. 8. 575, affirmed sub. nom. American
Insurance Co. v. Scheufler, 129 F. 2d 143 (C. C. A.
8), certiorari denied, 317 U. S. 687, rehearing de-
nied, 317 U. S. 712. Johanna was apparently no
more than a straw co-trustee, whose role <% was
to remain inactive so long as things went accord-
ing to plan but to be brought forward in the
robes of innocence if they did not. Cf. The
Hampton, supra.

But even if Johanna’s abdication of her re-
sponsibilities as trustee were insufficient to dis-
qualify her from relief, there could be no justifi-
eation for permitting the facilities of an equity
court to be used by Hermann H. Kind, who, while
both a trustee and beneficiary of the estate, know-

| ee

1l

ingly participated in the cloaking scheme. Cer-
tainly a court of equity should not help him to
recover his substantial share* in the property
which he used to effectuate the fraud.

For the same reasons as apply to the claim for
reinstatement of the pledge, there is error in
the holding of the court below that the plaintiffs
may retain the $63,000 which they received as
dividends while the stock was in their possession
and ostensible ownership pursuant to the sham
transfer. Henckels K. G. has been held to have
been the true owner of the shares in question at
the time the dividends were paid, and the Cus-
todian has vested the claims of Henckels K. G.
against the estate, including this claim for $63,-
000. We believe there is no legal or equitable
ground for treating the $63,000 differently from
the remainder of the plaintiffs’ security interest
in the stock. If, as we maintain, the plaintiffs are
equitab’y cisqualified from asserting this lien, they ~
should not be awarded partial satisfaction in the
amount of the dividends.

* The will of the elder Hermann Kind in substance directs
that the income from the trust estate be paid to Johanna for
life and that upon her death the principal “be divided into as
many equal parts as I shall have left children me surviving,
then living, and children who shall have died, leaving lawful
issue then living,” such equal parts to be transferred and paid
over per stirpes (R. 185, 186). The elder Kind was survived
by Hermann H. and two other children, all of whom are now
living; two of the children have issue, and Johanna is still
alive (R. 29).

12

CONCLUSION

For the reasons stated, it is respectfully sub-
mitted that this petition for a writ of certiorari
should be granted.

Puiuie B. PERLMAN,

Solicitor General.
Avcust 1947.

APPENDIX

Trading with the Enemy Act, ¢. 106, 40 Stat.
411, as amended (50 U. 8S. C. App. 1-31):

Src. 5 (as amended by the First War
Powers Act of 1941, ¢. 593, Sec. 301, 55
Stat. 839, 50 U. S. C. App., Supp. V, 5 (b):

* * * * *

(b) (1) During the time of war or dur-
ing any other period of national emer-
gency declared by the President, the Presi-

dent may, through any agency that he may

designate, or otherwise, and under such
rules and regulations as he may prescribe,
by means of instructions, licenses, or
otherwise—

(A) investigate, regulate, or prohi-
bit, any transactions in foreign ex-
change, transfers of credit or payments
between, by, through, or to any banking
institution, and the importing, export-
ing, hoarding, melting, or earmarking
of gold or silver coin or bullion, cur-
rency or securities, and

(B) investigate, regulate, direct and
compel, nullify, void, prevent or prohi-
bit, any acquisition holding, withhold-
ing; use, transfer, withdrawal, trans-
portation, importation or exportation
of, or dealing in, or exercising any
right, power, or privilege with respect
to, or transactions involving, any prop-
erty in which any foreign country or a
national thereof has any interest,

(13)

14

by any person, or with respect to any prop-
erty, subject to the jurisdiction of the
United States; and any property or in-
terest of any foreign country or national
thereof shall vest, when, as, and upon the
terms, directed by the President, in such
agency or person as may be designated
from time to time by the President, and
upon such terms and conditions as the
President may prescribe such interest or
property shall be held, used, administered,
liquidated, sold, or otherwise dealt with in
the interest of and for the benefit of the
United States, and such designated agency
or person may perform any and all acts
incident to the accomplishment or further-
ance of these purposes; * * * and the
President may, in the manner hereinabove
provided, take other and further measures
not inconsistent herewith for the enforce-
ment of this subdivision.
* * * ~ >

Sec. 9 (as amended by the Act of March
4, 1923, c. 285, 42 Stat. 1511) :

(a) That any person not an enemy or
ally of enemy claiming any interest, right,
or title in any money or other property
which may have been conveyed, transferred,
assigned, delivered, or paid to the Alien
Property Custodian or seized by him here-
under and held by him or by the Treasurer
of the United States, or to whom any debt
may be owing from an enemy or ally of
enemy whose property or any part thereof
shall have been conveyed, transferred, as-

15

signed, delivered, or paid to the Alien Prop-
erty Custodian or seized by him hereunder
and held by him or by the Treasurer of
the United States may file with the said
custodian a notice of his claim under oath
and in such form and containing such par-
ticulars as the said custodian shall require ;
and the President, if application is made
therefor by the claimant, may order the
payment, conveyance, transfer, assignment,
or delivery to said claimant of the money
or other property so held by the Alien
Property Custodian or by the Treasurer of
the United States, or of the interest therein
to which the President shall determine said
claimant is entitled: Provided, That no
such order by the President shall bar any
‘person from the prosecution of any suit
at law or in equity against the claimant to
establish any right, title, or interest which
he may have in such money or other prop-
erty. If the President shall not so order
within sixty days after the filing of such
application or if the claimant shall have
filed the notice as above required and shall
have made no application to the President,
said claimant may institute a suit in equity
in the Supreme Court of the District of
Columbia or in the district court of the
United States for the district in which
such claimant resides, or, if a corporation,
where it has its principal place of business
(to which suit the Alien Property Custo-
dian or the Treasurer of the United States,
as the case may be, shall be made a

ating —

16

party defendant), to establish the interest,
right, title, or debt so claimed, and if so
established the court shall order the pay-
ment, conveyance, transfer, assignment, or
delivery to said claimant of the money or
other property so held by the Alien Prop-
erty Custodian or by the Treasurer of the
United States or the interest therein to
which the court shall determine said claim-
ant is entitled. If suit shall be so insti-
tuted, then such money or property shall be
retained in the custody of the Alien Prop-
erty Custodian, or in the Treasury of the
United States, as provided in this Act, and
until any final judgment or decree which
shall be entered in favor of the claimant
shall be fully satisfied by payment or con-
veyance, transfer, assignment, or delivery
by the defendant, or by the Alien Property
Custodian, or Treasurer of the United
States on order of the court, or until final
judgment or decree shall be entered against
the claimant or suit otherwise terminated.
* * * * x

Sec. 16. That whoever shall willfully
violate any of the provisions of this
Act or of any license, rule, or regulation
issued thereunder, and whoever shall will-
fully violate, neglect, or refuse to comply
with any order of the President issued in
compliance with the provisions of this Act
shall, upon conviction, be fined not more
than $10,000, or, if a natural person, im-
prisoned for not more than ten years, or
both; and the officer, director, or agent of

17

any corporation who knowingly participates
in such violation shall be punished by a like
fine, imprisonment, or both, and any prop-
erty, funds, securities, papers, or other ar-
ticles or documents, or any vessel, together
with her tackle, apparel, furniture, and
equipment, concerned in such violation shall
be forfeited to the United States.

U. S$. GOVERNMENT PRINTING OFFICE; 1947

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_1345%3A1. Public record. Not legal advice.