Petition for a Writ of Certiorari — Charles L. Harney Construction Co. v. Fleming

iLE c FILHD

OP ¥ OCT1 41949

] CHARLES ELMORE CROPLEY

SUPREME COURT OF THE UNIPEB—STZ CLERK

OCTOBER TERM, 1949

No. 392

CHARLES L. HARNEY CONSTRUCTION COMPANY

(Formerty Patm Sprines Hoipine Corporation),

Petitioner,

vs.

MAJOR GENERAL PHILIP B. FLEMING, Inpivipva.tiy

AND as ADMINISTRATOR, FEDERAL WorKs AGENCY, ET AL.,

Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

| UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA.

\ j Haroitp LEvENTHAL,

4 Dav B. Gmeon,

Joun J. Courtney,

Counsel for Petitioner.

—

INDEX

Page

Subject Index

Petition for Writ of Certiorari................ 1

sss Nakina h Sy Ace 1

eG ee ura k din Caen a walks 2

Questions presented ..................... 2

coco ix 6 da ued ah koh k bas x € 3

el i a eh aa ky wt 3

Specification of Errors to be Urged........ 7

Reasons for Granting the Writ............ 8

OG OY ih cian Side bb eater 6 0 0 19

Appendix—Statutes and eee In-

Me Sa os kd Ou vita ack ke bis 20

Cases Cited

Alien v. Sith, 173 U.S. 360... .. 2... 18

Bank of Alameda County v. McColgan, 69 Cal.

mu Cont Gee, toe PF. (3) Sh... .. 5... 2k. 11

Big Sespe Oil Co. v. Cochran, 276 Fed. 216...... 12

Blair v. Commisstoner, 300 U. S.5............. 13

Boyle v. Lakeview Creamery Co., 9 Cal. (2d) 16,

§ Ae (EG OR 8: 6 ere 13

Bruun v. Cook, 280 Mich. 484, 273 N. W. 774. ... 12

Chicago Title € Trust Co. v. 4136 Wilcox Bldg.

EE OSA ee ee CUR a ee os 9

Conn v. Manchester Amusement Co., 79 N. H. 450,

ag a ee nay cae 5 12

Dos Pueblos Ranch and Imp. Co. v. Ellis, 8 Cal.

ee &. SB eee a Pere 15

Erie Ry. Co. v. Tomkins, 304 U.S. 64.......... 10

Erwin v. United States, 97 U. S. 392........... 18

Estate of Trawng, 30 Cal. 2d 811, 185 P. (2d)

EN ee eG ies icc i ced a vs» 15, 16

Fidelity Metals Corp. v. Rizley, 77 Cal. App.

(2d) 289, 175 P. (2d) 592, 595 (1946)........ 12

Hawkins v. Glenn, 131 U.S. 319................ 11

Kay Furniture Co. v. Rovin, 312 Mich. 290, 20

EE ir Ch ye ita Ae Ps ow x 65s 12

—4709

INDEX

Act of August 7, 1946, 60 Stat. 886, 50 U. 8.0.

(appx.) sec. 1632(a) TU rcei gy Oe ra ae ee Mee

Page

Lesnow Brothers, Inc. v. United States, 78 F.

I eA bianca beds 5 oo eee

Levin v. Pittsburgh United Corp., 330 Pa. 457,

Re as es Sea wanes 16

Loney v. Consolidated Water Co., 122 Cal. App.

re Es ns hao eas her's 16

Lyman v. Smith, 137 Fla. 310, 188 So. 337... ... 12

Midwest Air Filters Pacific v. Finn, 201 Cal. 587,

SS ts he I Ee ns aig Sy 15

Minnesota v. Keeley, 126 F. 2d 863 (C.C.A.

I ett hn eae wk oe aa» 3 17

Mutual B. é L. Assn. v. Corwin, 220 Cal. 282, 30

i nab sok Lee ees oo) 15

Nardis Sportswear Co. v. Simmons, 218 8S. W.

3 gy + 8 ee meee 12

Oklahoma Gas Co. v. Oklahoma, 273 U. S. 257... 10

Stenton Electric Mfg. Co. v. Klaxon Co., 115

Py Res Se ee OE gi ee 18

Thomson v. United States, 321 U.S.19 ........ 17

Trubowitch v. Riverbank Canning Co., 30 Cal.

+e Be 3 eB | . Re ere 12, 18

Willard v. Kimball, 277 Mass. 350, 178 N. E.

Ce atk hI ee at dow ny 12

Wood Estate v. Chanslor, 209 Cal. 241, 286 Pac.

ES eM PE aa ae oS st okee's was woke aeRO 15

W yoming-Indiana Oil € Gas Co. v. H. R. Weston,

eee ee 12

Statutes and Regulations:

Surplus Property Act of 1944, 58 Stat. 765, 50

U.S.C. ise ) 1601:

Re i ea Rarer hh poh oe aN de eg hia

a ERED FS ar yap acee mat Mesias Ne ine aan arn 20

he ee a er aie part ewe Dalat 3, 4, 7,8

EM fuck cpa Wiven inte excienehas , 20

So Rear mer te ye ot 21

EE at re Sag Onn en ora 2, 7, 8, 14, 21

_

INDEX

War Assets Corp. Reg. March 6, 1946, sec. 8305.2

I

War Assets Administration Regulation No. 5,

Sec. 8305.20(b) (12 F.R. 2034)..............

War Assets Administrator’s Regulation of June

29, 1946, Vol. 11, F.R., pp. 7611, 7612.........

California Civil Code, Sec. 362................

Miscellaneous:

Ballantine, California Corporation Laws (1932

wu), O00. OP4, we. 478-474. .... .. 2... ok...

Comment, 44 Michigan Law Review 823 (1946) .

Congressional Record, Vol. 90:

I cr 8 a eS

Corpus Juris Secundum Corporations:

Re I I re

wae ee

H. R. Rep. No. 2337, 79th Cong., 2d Sess.........

Hearings before the Subcommittee of the House

21

4,12

17

=

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1949

No. 392

CHARLES L. HARNEY CONSTRUCTION COMPANY

(FormerLy Paum Sprincs Hoipine Corporation),

Petitioner,

vs.

MAJOR GENERAL PHILIP B. FLEMING, Inpivinva..y

AND AS ADMINISTRAZOR, FreperaL Works AGENCY, ET AL.,

meas Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT.

Petitioner, Charles L. Harney Corstruction Company

(formerly Palm Springs Holding Corporation), prays that

a writ of certiorari issue to review the judgment of the

United States Court of Appeals for the District of Colum-

bia Circuit in the above-entitled cause.

Opinions Below

The opinion of the Court of Appeals (R. 49) is reported

in — F. (2d) —, The District Court gave summary judg-

2

ment in favor of petitioner without rendering an opinion

(R. 47).

Jurisdiction

The judgment of the Court of Appeals for the District of

Columbia Circuit was entered on July 18, 1949 (R. 57). The

jurisdiction of this Court is invoked under Section 240 of

the Judicial Code, as amended by the Act of February 13,

1925.

Questions Presented

The principal questions presented by this case are:

1. Whether petitioner, a California corporation whose

hotel taken by the Government in 1942, is precluded by its

voiuntary dissolution from exercising the right of a former

owner, under Section 23 (d) of the Surplus Property Act,

to repurchase real property at the price paid by the Gov-

ernment though below current value notwithstanding the

provisions of Section 399 of the California Civil Code that

a dissolved corporation shall continue in existence in-

definitely for the purpose of realizing upon assets in its

winding-up, and notwithstanding the rulings of the Super-

ior Court of California that under Section 399 petitioner is

in existence and has capacity under state law, and directing

petitioner, to realize the value of its former owner right

whether based solely upon the Surplus Property Act, as

passed in 1944, or in the alternative upon the Act as amended

in 1946.

2. Whether the court below gave due effect to the Cali-

fornia law and decrees of the Superior Court of California

in ruling that petitioner was not the person from whom the

hotel was acquired by the Government, because of changes

in its business and stockholders, and that its dissolution

rendered it incapable of exercising the former owner’s right

under Section 23 (d) of the Surplus Property Act.

A subsidiary question is:

3. Whether Section 23 of the Surplus Property Act of

1944 applied to hotels prior to its amendment in 1946.

Statute Involved

The relevant statutory provisions are set forth in the

Appendix.

Statement

Prior to June 22, 1942, the El Mirador Hotel was owned

by petitioner then named the Palm Springs Holding Corpo-

ration, a California corporation. On June 22, 1942, the

Government took the hotel from petitioner in condemna-

tion proceedings, and paid $425,000.

Thereafter, there were transfers of the stock in petitioner

corporation to the two principal stockholders, Warren B.

Pinney and Ralph D. Lacoe, Jr. On October 1, 1942, they

transferred the stock to Charles L. Harney, P. E. Harney,

Henry F. Wrigley and C. J. Carroll. Thereafter, proceed-

ing under California law, petitioner corporation amended

its charter so as to change its name to Charles L. Harney

Construction Company, its principal office from Los Ange-

les to San Francisco, and its business to a general con-

tracting business. In 1945 petitioner corporation, having

filed a certificate of election to dissolve, was dissolved pur-

suant to a certificate of dissolution dated June 28, 1945, and

filed with the Secretary of State on August 4, 1945 (R.

27-29).

The hotel was acquired under the Declaration of Taking

for permanent use as an Army hospital (later named the

Torney General Hospital). But upon learning in January,

1946, that the Torney General Hospital was surplus to the

needs of the Government, petitioner corporation notified the

War Assets Administration that as former owner of the

4

hotel it intended to exercise its statutory right of repur-

chase. Section 23 of the Surplus Property Act of 1944,

58 Stat. 765, provides that the former owner of surplus real

property shall have a preferential right to repurchase the

property at the price paid him by the Government, subject

to adjustments for increase or decrease in value resulting

from action by the Government. By letter dated January

27, 1947, the War Assets Administration notified petitioner

that since it had been dissolved it was no longer in existence

and was therefore unable to exercise its repurchase priority

(R. 7).

Petitioner, by letter dated March 13, 1947, called atten-

tion to the fact that under Sec. 399 of the California Civil

Code, dissolution does not terminate the existence of a cor-

poration. Section 399 provides that assets omitted from

the winding ‘‘shall continue in the dissolved corporation.”

(R. 7.)

By letter dated April 1, 1947, the War Assets Administra-

tion stated the opinion that the statutory repurchase right

was not an ‘‘asset’’ within meaning of Sec. 399, but further

stated that additional consideration would be given to peti-

tioner’s priority right upon submission of ‘‘satisfactory

evidence’’ that under California law, a dissolved corpora-

tion might acquire real property under the circumstances

of this case. (R. 8.)

Petitioner filed a petition in the Superior Court of the

State of California, pursuant to Sec. 403 of the California

Civil Code. In California corporations in winding up are

under the surveillance of, and subject to the jurisdiction of,

the Superior Court. Section 403 provides for petitions

by the corporation and gives the Superior Court jurisdic-

tion to order and adjudge as to the assets available for

distribution in the case of a corporation previously dis-

solved. The petition recited the facts in the case and

5

prayed for an order authorizing petitioner to submit a

repurchase claim as former owner of the property. (R. 8,

15-18.)

On June 3, 1947, the Superior Court granted the peti-

tion, and entered an order that petitioner is in continued

existence, that the repurchase right as the former owner

‘‘eonstitutes an asset of the said corporation within the

meaning of Sec. 399 of the California Civil Code,’’ and

that the corporation is authorized and directed to submit its

claim as former owner and to offer the adjusted purchase

price prescribed for the former owner, it being understood

that such price is less than present market value. (R. 8,

18-20.)

Petitioner submitted this order, together with the like

opinion of the Secretary of State of the State of California,

as evidence of its authority to acquire the hotel property

under California law. These were presented to the Federal

Works Agency, which had been designated by the War

Assets Administration as its disposal agent for disposition

of this property. They were submitted together with a

tender of $700,000, the sum set by the W. A. A. as the

adjusted price to be paid by the former owner. (R. 4, 8.)

By letter dated August 20, 1947, the Acting Administrator

of the Federal Works Agency advised petitioner that ‘‘as

a matter of law’’ it was not eligible to exercise the repur-

chase priority of a former owner. That ruling was based

upon two propositions: (1) Former owners of commercial

properties such as hotels had no rights under the original

Surplus Property Act, passed October 3, 1944—i. e., prior

to the amendatory Act of August 7, 1946—because section

23(a) of the Act as originally passed defined ‘‘real prop-

erty’’ to exclude ‘‘industrial plants, factories, or similar

structures, and facilities.’’ (2) Accordingly, there was no

‘asset’? in existence at the time of petitioner’s dissolu-

6

tion in August, 1945, and Section 399 of the California Civil

Code is inapplicable. (R. 35-43.)

Petitioner filed a supplementary petition with the Cal-

ifornia Superior Court, advising the court of the F. W. A.’s

August 20, 1947, ruling (R. 20-24.) The court entered a

supplementary order authorizing petitioner to proceed to

realize upon this asset, and stated that Section 399 of the

California Civil Code was applicable whether petitioner’s

repurchase right as former owner ‘‘is based solely upon the

Surplus Property Act of 1944 . . . or upon that Act as

amended by the Act of August 7, 1946.’’ (R. 24-25.)

Petitioner immediately advised respondents of this sup-

plementary order and requested reconsideration of the ad-

ministrative ruling. (R. 9.) By letter of February 2, 1948,

respondent Fleming, advised of his adherence to the August

20, 1947, ruling. He stated that he had considered and re-

jected petitioner’s suggestion that the California proceed-

ing be reopened for participation by the Federal Works

Agency. (R. 43-44.)

An agreement has been executed between Pinney, Lacoe

and the other persons holding stock in petitioner corpora-

tion as of June 22, 1942 (the Pinney-Lacoe group, and the

stockholders who acquired the stock on October 2, 1942

(the Harney group), agreeing that both groups of stock-

holders would share in the benefits derived from the exercise

by petitioner corporation of its rights as former owner.

Notification of this agreement was sent to respondents on

July 28, 1947, prior to the ruling of August 20, 1947. (R.

44-45.)

On February 9, 1948, petitioner brought this action for

declaratory judgment (R. 1) on two grounds: first, that

the Surplus Property Act, as passed on October 3, 1944, did

extend to the former owners of hotels; and second, that

whether petitioner’s right was based solely on the 1944 law,

—

7

or was based on the 1944 law as amended in 1946, peti-

tioner was authorized by California law to realize on this

asset. In granting petitioner’s motion for summary judg-

ment the District Court agreed with both contentions and

issved the declaration which was prayed in the complaint

(R. 11) declaring that petitioner is—

* * * jin possession of and eligible to exercise the

right of a former owner, as provided by Section 23 of

the Surplus Property Act of 1944, both as originally

enacted and as amended * * *%. (R. 47-48.)

The Circuit Court of Appeals reversed on the ground that

the California law and the California court decrees as to

the existence and capacity of petitioner corporation are not

controlling; that section 23(d) of the Surplus Property

Act can not be invoked by dissolved corporations; that

petitioner is not the person from whom the hotel was ac-

quired by the Government; that section 23 of the Surplus

Property Act did not extend to commercial property such

as hotels prior to its amendment in 1946, which was subse-

quent to petitioner’s dissolution under State law, and that

petitioner is not now in existence and thus has no capacity

to exercise the right to repurchase as an asset. (R. 49.)

Specification of Errors to Be Urged

The Cireuit Court of Appeals for the District of Colum-

bia Circuit erred:

1. In holding that Section 23(d) of the Surplus Property

Act, as passed in 1944 and as amended in 1945, can not be

invoked by a dissolved corporation.

2. In failing to give due effect to the Califomia law, and

the decrees of the California Superior Court, with respect

to the existence and legal capacities of petitioner corpora-

tion under section 399 of the California Civi Code.

8

3. In failing to apply the law of California (a) as to the

effect of petitioner’s change in name, business and share-

holders, under which law petitioner’s corporate identity has

never been changed, and (b) as to the effect of petitioner's

dissolution, under which law petitioner corporation has

remained in existence, and has capacity to repurchase its

hotel under section 23(d) of the Surplus Property Act.

4. In ruling that petitioner is not the person from whom

the hotel was acquired by the Government.

5. In ruling that petitioner is not a corporation in being

at the present time and is thus not capable of repurchasing

the hotel property formerly owned by petitioner.

6. In ruling that the section 23 of the Surplus Property

Act of 1944 did not apply to hotels as the Act was passed

in 1944, and was not applicable to hotels prior to the 1946

amendment.

7. In failing to rule that the right to repurchase the hotel

formerly owned by petitioner is an asset which petitioner

can realize on, under California law and under the Surplus

Property Act, both (a) upon the premise, which is correct,

that the right applied to hotels under the Surplus Property

Act as passed in 1944, and (b) even upon the alternative

premise that the right as to hotels is based upon the act

as amended in 1946.

8. In reversing the judgment of the District Court with

instructions to dismiss the complaint.

Reasons for Granting the Writ

The central question in this case is the weight and effect

to be accorded by a Federal court, in determining the ability

of a dissolved corporation to invoke a Federal statute, to

the State law and State court rulings on the capacity of a

dissolved corporation of that State.

— ——

9

The sound doctrine is that whether voluntary dissolution

of a corporation defeats its eligibility to invoke a Federal

statute depends upon the effect of the dissolution under

the corporation statutes of the State involved. Chicago

T. & T. Co. v. 4136 Wilcox Bldg. Corp., 302 U. S. 120. If

the State involved has, like most of the States, passed a

‘‘continued existence’’ statute which beneficiently continues

the existence and relevant capacities of the dissolved corpo-

ration, Congress will not be deemed to have jettisoned the

state continued existence statutes. The Federal statute

may be invoked by the dissolved corporation continued in

existence by the laws of the State of incorporation. Lesnow

Bros. Inc. v. United States, 78 F. Supp. 829 (C. Cl.).

The court below decided that petitioner corporation, dis-

solved in California, could not exercise the right, provided

by section 23(d) of the Surplus Property Act of 1944, of a

natural or corporate person to repurchase surplus real

property, acquired from such person by the Government

during wartime, at the price originally paid by the Govern-

ment, plus increases for improvements made by the Govern-

ment.

The court below stated that the decision of the California

court is not ‘‘in any way controlling’’ as to the application

of a Federal statute. But the court did not appreciate the

importance of appraising dissolved corporations, wherever

encountered in the geography of the Federal system, ac-

cording to the laws of the State of incorporation. For

whether ‘‘dissolution’’ of a corporation is to be held to de-

feat its eligibility under Federal law must depend upon the

meaning and effect of that dissolution under the State law.

The decision below conflicts in principle with Chicago T. &

T. Co. v. 4136 Wilcox Bldg. Corp., and Lesnow Bros., Inc. v.

United States, supra. In view of the importance in our

Federal system of maintaining a proper balance between the

10

spheres of Federal law and State law, of according due

effect and credit to State law and State court decrees,

whether in deciding statutory or non-statutory questions

of law, the decision below should be reviewed by this Court.

The court below in essence approached this case from the

premise of the statement in Oklahoma Gas Co. v. Oklahoma,

273: U. S. 257, 259: **It is well settled that at common law and

in the federal jurisdiction a corporation which has been dis-

solved is as if it did not exist, and the result of the dissolu-

tion can not be distinguished from the death of a natural

person in its effect.’’

But the holding of the Oklahoma Gas case recognized,

even prior to Erie Ry. Co. v. Tompkins, 304 U. S. 64, the

importance of giving full scope in the Federal courts to a

state statute providing for the extended life and powers

of a dissolved corporation, since that ‘‘concerns the funda-

mental law of the corporation enacted by the State which

brought the corporation into being.’’ Oklahoma Gas Co. v.

Oklahoma, 273 U. S. 257, 260.

A corporation dissolving in California does so with full

confidence that it can in no way be jeopardized in respect to

realizing on its assets. The relevant California legislation

(California Civil Code section 399) provides that a corpo-

ration which has voluntarily obtained dissolution by court

order, nevertheless continues to exist for the purpose,

inter alia, of realizing upon assets.

California’s is one of the many continued existence stat-

utes by which most if not all of the states have abandoned

the old common law rule that dissolution of a corporation

means its extinction and, frequently, its inability to realize

upon assets ascertained after dissolution. Some states

mitigate these harsh consequences, and extend corporate

—

11

life, for only a certain period of years, two, three or five.

‘‘Many states, including California, New York and Ohio

have statutes directing that a dissolved corporation shall

continue as an entity without time limit.’’ Hornstein,

Voluntary Dissolution 51 Yale L. J. 64, 71. California, in

abandoning the common law rule in 1929, deliberately pro-

vided ‘‘for the continuation of corporate existence indefi-

nitely’’ rather than a definite period, in order to minimize

the harsh consequences of dissolution under the common

law rule. See Ballantine, California Corporation Laws

(1932 ed.) sec. 394, pp. 473-4. Assets not included in the

winding up may be realized upon at any future time. Bank

of Alameda County v. McColgan, 69 Cal. App. (2d) 464, 159

P. (2d) 31.

These continued existence state statutes are remedial

and are given a liberal construction, Hawkins v. Glenn, 131

U. S. 319, 33. They have been consistently construed to

mean that a corporation though already dissolved may ac-

quire property where that is the way to realize upon an

asset consisting of the right to purchase property at an

advantageous price. The prohibition in these statutes

against continuance in business is deemed not to prohibit

such acquisitions and appurtenant obligations as are inci-

dent to realization upon assets, even though the premises

cannot be used in carrying on the business. See Comment,

44 Michigan Law Review 823 (1946).

Thus the courts have held that a corporation, though

previously dissolved, may under such continued existence

statutes (1) repurchase lands by exercising a right of re-

demption from a judgment sale (purchasing at a price below

current value); (2) exercise an option to purchase land

under a lease provision (at an option price below current

value) ; (3) exercise an option to extend the terms of a lease

(in order to sublease at a higher rental) ; and (4) continue

12

in a joint prospecting venture operating by applying to the

state government for favorable mineral leases (which are

usually though not necessarily granted to those holding

existing leases).' :

California follows this liberal, remedial doctrine that

dissolved corporations may realize upon their assets

through the making of purchases. See Trubowitch v. River-

bank Canning Co., 30 Cal. (2d) 335, 182 P. (2d) 182 (1947).

Accordingly, in 1947 the California Superior Court issued

two decrees holding that petitioner corporation, being a

California dissolved corporation, had the authority, in so

far as the California law is concerned, to realize upon a

former owner right as an asset—assuming that it was an

asset in fact, 7. e. that the former owner’s option was to

repurchase for less than current market value (See R. 18,

R. 24).

These decrees were issued upon a petition filed by the

corporation under section 403 of the California Civil Code—

comparable to a trustee’s request for instructions.” The

rulings were sought by petitioner pursuant to advice of the

War Assets Administration that satisfactory evidence was

required as to the authority of a dissolved corporation

under state law to exercise its repurchase right (R. 7-8,

1 The applicable citations are:

(1) Big Sespe Oil Co. v. Cochran, 276 Fed. 216 (C.C.A. 9) (1921);

(interpreting the California law); Lyman v. Smith, 137 Fila. 310,

188 So. 337 (1939); Bruun v. Cook, 280 Mich. 484, 273 N. W. 774

(1937) ; Willard v. Kimball, 277 Mass. 350, 178 N. E. 607 (1931).

(2) Conn v. Manchester Amusement Co., 79 N. H. 450, 111 Atl. 339

(1920); Nardis Sportswear Co. v. Simmons, 218 S. W. (2d) 451

(Tex. Sup. Ct. 1949).

(3) Kay Furniture Co. v. Rovin, 312 Mich., 290, 20 N. W. 2d 194

(1945).

(4) Wyoming-Indiana Oil ¢ Gas Co. v. H. R. Weston, 43 Wyo.

526, 7 Pac. 2d 206 (1932).

2 A California corporation in the process of dissolution is considered in

the position of a trustee. Cf. Big Sespe Oil Co. v. Cochran, 276 Fed. 216,

223 (C.C.A. 9th).

13

par. (d) ff). Respondent officials could not be required to

appear in the State court and they ignored petitioner’s sug-

gestion that all parties appear before the State court (R. 43,

Exh. I, 2d par.). The Superior Court’s judgments are

properly given effect as a determination of the effect of

Section 399 even though respondents were not parties.

Blair v. Commissioner, 300 U. 8.5, 10. Moreover, as already

noted, the decrees of the Superior Court are clearly correct

under California’s continued existence statute, Civil Code,

Section 399.*

So far as California law is concerned, it is plain that peti-

tioner has the capacity to exercise the repurchase rights

under Section 23. It is likewise plain under the Federal

statute that a former owner need not be a ‘‘ going concern”’

provided it has the capacity to purchase the asset. The

former owner is the only priority claimant under Section

23 who is not required to keep the property and who may

sell the same immediately without restrictions.‘ In passing

3 The court below, while rejecting petitioner’s contention as to the effect

to be given to California law, cited, as adding “further strength ae

to our view” (R. 56), the cases of Boyle v. Lakeview Creamery Co., 9 Cal.

(2d) 16, 68 P. (2d) 968, 970 (1937) ; Fidelity Metals Corp. v. Rizley, 77

Cal. App. (2d) 289, 175 P. (2d) 592, 595 (1946). Those cases involved

special statutes, of California and Nevada, of forfeiture of charter for

failure to pay taxes, and in both cases the court stated that wider powers

would be available to a dissolved corporation invoking the general pro-

visions of Sec. 399 of the California Civil Code.

* See. 8305.20(b), War Assets Administration Regulation 5, 12 Fed.

Reg. 2034: “Conditions in disposal instrument. Unless otherwise author-

ized by the Administration, as a part of each disposal pursuant to this

part, any priority claimant, . . . shall certify in writing that he is

acquiring the property for the uses and purposes set forth in his proposal

and (1) if a purchaser, that he is not acquiring it for the purpose of re-

selling it and in no case will he resell it within three (3) years without first

obtaining the written authorization of the Administration; * * * Pro-

vided, however, that no restriction as to resale’shall be imposed upon a

conveyance to a former owner, or the tenant of a former owner, acquiring

surplus section 23 real property through an exercise of his priority.”

(Emphasis added.)

14

Section 23 (d), Congress rejected the Government’s view

that a former owner had already been treated with com.

plete justice by receiving the value at the time of acquisi-

tion. The legislators insisted that, as a matter of fairness,

where the Government in war-time seized the fee, rather

than a leasehold, and now proposed to sell the real property,

any increase in the value of the property should inure not

to the advantage of the strong-armed Government but

rather to the benefit of the former owner.® A dissolved

corporation can realize on that value though no longer

continuing in business.

Congress avoided any rule which would limit the applica-

tion of the statute to large corporations—like the Chesa-

peake and Ohio Railway Corp. which of course continued

in business and reacquired its Greenbrier Hotel—and would

discriminate against a small single-asset corporation which

would naturally tend, after condemnation of its sole asset,

either to enter a new enterprise or dissolve. The statutory

right is in no way linked to a former owner proposing to

reestablish his business. A former owner is definitely given

the option to repurchase even though the land is no longer

suitable for the same purpose as when acquired by the Gov-

ernment. See. 23(d) (1) (B). Indeed, Congress spe-

cifically passed the former owner provision so that it would

apply to ‘‘Moore Field.’’ In that case after agricultural

land was converted by the Navy into an air field, oil was

discovered nearby. Congress assured repurchase by the

former owners, though the land was no longer suitable for

farming due to the gravel runways.

5 “Surplus Property Act of 1944” Hearings before the House Committee

on Expenditures in the Executive Departments, 78th Cong., 2d Sess., on

H.R. 5125 (Aug. 7, 8, 9, 1944). (See particularly statements of Con-

gressmen Gossett and Wolverton, pp. 54-55).

® See 90 Cong. Rec. 7267-7628; 90 Cong. Rec. 7935.

, wi

15

The court below likewise totally ignores and disregards

the State law when it states that petitioner is not ‘‘and

never was’’ the person from whom the hotel was acquired

by the Government (R. 6). This case does not involve any

‘‘successor’’ corporation. Petitioner is, on the contrary,

the very corporation whose hotel was taken in condemna-

tion proceedings, notwithstanding the changes in name,

business and shareholders. California applies the general

doctrine of corporate entity, that a corporation is con-

sidered a separate entity from its stockholders (remaining

unchanged in its identity by changes in its stockholders).

Estate of Traung, 30 Cal. (2d) 801. California recognizes

the doctrine of separate corporate entity save in excep-

tional circumstances, not present here, where that would

promote a wrong, accomplish an illegal act or perpetrate

a fraud. Wood Estate v. Chanslor, 209 Cal. 241, 286 Pac.

1001; Midwest Air Filters Pacific v. Finn, 201 Cal. 587, 258

Pac. 382; Dos Pueblos Ranch and Impl. Co. v. Ellis, 8 Cal.

2d 617, 67 P. (2d) 340. In fact recovery by petitioner corpo-

ration will inure to the advantage of both the former and

the present shareholders, pursuant to their agreement (R.

44). But quite apart from that agreement petitioner’s

identity and status under California law was in no way

affected by the transfer of its stock.

California likewise follows the general doctrines of cor-

poration law, which provide that a corporation’s identity

is not affected by charter amendments effecting a change of

name or place of business (Mutual B. & L. Assn. v. Corwin,

220 Cal. 282, 30 P. (2d) 509, 514; Calif. Civil Code See. 362;

Corpus Juris Secundum, Vol. 17, Sec. 171; Vol. 18, Sec. 177),

or by the fact that it sells its assets, and after withdrawal of

all stockholders who so desire, amends its charter, changes

its name and proceeds into new enterprises. Estate of

16

Traung, 30 Cal. (2d) 811, 814, 185 P. (2d) 801; Loney vy.

Consolidated Water Co., 122 Cal. App. 350, 9 P. (2d) 888;

19 Corpus Juris Secundum, Sec. 1668; Levin v. Pittsburgh

United Corp., 330 Pa. 457, 199 Atl. 332.

The court below erred in purporting to find a change of

identity of this California entity without consideration of,

and in contravention of, the California corporation law, and

also, indeed, of generally prevailing doctrines of corpo-

ration law.

There is a subsidiary issue in this case, whether the right

of a former owner under Sec. 23 (d) extends to real prop-

erty such as hotels, under the act as passed in 1944, as

decided by the District Judge (R. 47), or solely under the

act as amended in 1946, as held by the court below.

Petitioner submits that Section 23 as passed in 1944

extended to hotels. The administrative agency ruled in

March, 1946, that ‘‘real property’’ as defined in Section

23 (a) of the 1944 act excluded all commercial properties.

That ruling reversed the previous assumption of the ad-

ministrative officials.’ The administrative regulation that

all commercial property was excluded from Section 23 made

nonsense out of Section 23(f) of the 1944 Act providing a

veterans preference for ‘‘real property . . . suitable

for . . . small business purposes.’’ Section 23 (a) was

defined by Congress to exclude industrial plants and ‘‘simi-

lar structures’’ to take care of the administrative objections

that no former owner priority is practicable in the case of

large installations which have been built up by the Govern-

ment—particularly since such installations, which must

7 The files of the disposal agencies show examples of administrative

actions based upon an assumption that Sec. 23(a) applied to commercial

properties—Wilmington Commissary Bldg. (Calif.); Chilkoot Barracks

(Alaska) ; Gold Hill Arsenic Project (Utah).

17

obviously be sold as a single economic unit, were often de-

rived from lands taken from many different owners.®

But the 1944 Act’s definition of ‘‘real property’’ plainly

embraced commercial properties, such as hotels, being sold

in substantially the same parcels and substantially the same

structures as when taken. The 1946 amendment making

that plain was passed by Congress just as soon as it learned

of the 1946 administrative interpretation.® Both the House

and Senate Committees expressly called it ‘‘clarifying

legislation’. H. R. Rep. No. 2337, p. 2; S. Rep. No. 1722,

p. 1, 79th Cong. 2d Sess. The administrative interpretation

was termed ‘‘wholly unjustified.’’ H. R. Rep. No. 2337, p.

2. A clarifying amendment redefining a term evidences no

change in legislative intent. Thomson v. United States,

321 U. S. 19, 23; Minnesota v. Keeley, 126 F. (2d) 863, 866

(C. C. A. 8th).

But in any event the California Superior Court correctly

held Sec. 399 of the California Civil Code to provide capacity

in petitioner to realize on this asset whether based solely

on the 1944 Act or upon that act as amended in 1946 (R.

24-5). Under sec. 399 the claim may mature after dis-

solution of the corporation; the=@ekterne—cheselsed=see-

paseteens, the California dissolved corporation may realize

8 See “Disposition of Surplus Real Property”, Hearings before the Sub-

committee of the House Committee on Public Buildings and Grounds,

78th Cong., 2d Sess., on H. R. 3140, 2377, 2958, 2971, 2112 and 2487 (Nov.

1943 et seq.)—particularly statements of Secretary Stimson, pp. 3, 15, 24;

Justice Dept. (p. 120); Navy Dept. p. 314 and statement of Chairman

Manaseo, p. 35; National Housing Agency, p. 35. See also “Surplus

Property Act of 1944,” Hearings before the House Committee on Expen-

ditures in the Executive Departments, 78th Cong., 2d Sess. on H.R. 5125

(Aug. 1944), at pp. 48-49.

*The War Assets Corporation issued its regulation March 5, 1946,

Three bills were introduced in Congress in June 1946; the House Com-

mittee reported favorably on June 25 within a fortnight, after a Senate

Report, and a Conference, Congress passed the Act of August 7, 1946.

18

upon the asset when it matures. See Trubowitch v. River-

bank Canning Co., 30 Cal. (2d) 335, 182 P. (2d) 152, and

its approval of Stentor Elec. Mfg. Co. v. Klaxon Co., 115

F, (2d) 268 (C. C. A. 3d), permitting suit upon a claim which

matured subsequent to plaintiff’s dissolution. As of the

date of its dissolution in 1945, petitioner corporation had

a claim based upon the 1944 law, a claim upon the Govern-

ment officials to include commercial properties within see-

tion 23(a) in accordance with their practice prior to the

March 1946 ruling, and a substantial expectancy that the

legislature would intercede to protect the claim if necessary,

as it did.

Claims are ‘‘property, though of uncertain value .. .

although the validity of such claims may be denied, and their

value may depend upon the uncertainties of litigation, or

the doubtful result of an appeal to the legislature.’’ Erwin

v. United States, 97 U. S. 392, 395. This Court has specifi-

cally stated the ‘‘inchoate right’’ of a sugar producer to

receive a bounty under proposed legislation pending in

Congress to be an existing ‘‘asset.’’ Allen v. Smith, 173

U.S. 389.

The California Superior Court correctly applied See.

399 of the California Civil Code, and held that petitioner has

capacity, so far as California law is concerned, to realize

upon a former owner asset as based upon the 1944 act alone,

and in the alternative as based upon that act as amended

in 1946. The District Court, in considering the applicability

of this Federal statute to dissolved corporations, correctly

followed the California law and decrees and gave judgment,

also on alternative grounds, in favor of petitioner. The

court below, disregarding the California law and decrees,

reversed the judgment of the District Court. Its ruling is

19

erroneous, and conflicts in principle with decisions of this

Court and the Court of Claims. The question presented,

involving the effect to be given by Federal courts under

Federal statutes to State law and decrees, is one of impor-

tance under our Federal system.

Conclusion

For the reasons stated, this petition for a writ of certio-

rari should be granted.

Respectfully submitted,

Haro_tp LEVENTHAL,

Washington, D.C.

Davin B. Gipeon,

San Francisco, California.

Joun J. Courtney,

Washington, D. C.

October, 1949.

20

APPENDIX

Statutes and Regulations Involved

Section 399 of the California Civil Code reads as follows:

399. Continuation of corporation after dissolution.

A corporation which is dissolved by the expiration of

its terms of existence, by forfeiture of existence by

order of court, or otherwise, nevertheless shall con-

tinue to exist for the purpose of winding up its affairs,

prosecuting and defending actions by or against it,

and enabling it to collect and discharge obligations,

dispose of and convey its property, and collect and

divide its assets, but not for the purpose of continuing

business except in so far as necessary for the winding

up thereof. No action or proceeding to which a cor-

poration is a party shall abate by the dissolution of

such corporation or by reason of proceedings for dis-

solution and winding up thereof.

Any assets inadvertently or otherwise omitted from

the winding up shall continue in the dissolved corpora-

tion for the benefit of the persons entitled thereto upon

dissolution of the corporation, and on realization shall

be distributed accordingly.

The relevant provisions of the Surplus Property Act of

1944, 58 Stat. 765, 50 U. S. C. War App. sec. 1611 et seq. are

as follows:

Sec. 3. As used in this Act—

(h) The term ‘‘person’’ means any individual, cor-

poration, partnership, firm, association, trust, estate,

or other entity.

Sec. 23(a). As used in this section—

(1) The term ‘‘real property’? means property con-

sisting of land, together with any fixtures and in-

provements thereon, located outside of the District of

Columbia, but does not include war housing, industrial

21

plants, factories, or similar structures and facilities,

or the sites thereof, or land which the Board deter-

mines is essential to the use of any of the foregoing;

and

(2) The term ‘‘surplus real property’? means real

property which has been determined under section 11

to be surplus property.

(d)(1)(A) In the case of any surplus real property

which was acquired by any Government agency after

December 31, 1939, the person from whom such prop-

erty was acquired shall be given notice, in such man-

ner (which may include publication) as the Board

by regulation may prescribe, that the property is to

be disposed of by the United States and shall be en-

titled to purchase such property, in substantially the

identical tract as when acquired from such person,

at private sale at any time during the period of ninety

days following such notice * * *%,

(3) The price to be paid for surplus real property

sold under this subsection shall be a price not greater

than that for which it was acquired by the United

States, such acquisition price being properly adjusted

to reflect any increase or decrease in the value of such

property resulting from action by the United States,

or a price equal to the market price at the time of sale

of such property, whichever price is the lower.

War Assets Corporation Regulation of March 6, 1946,

Vol. 11, F. R., p. 2644, and War Assets Administrator’s

Regulation of June 29, 1946, Vol. 11, F. R., pp. 7611, 7612,

provided as follows:

8305.2(11). ‘‘Section 23 real property’? means prop-

erty consisting of land, together with any fixtures and

improvements thereon, located outside of the District

of Columbia, but does not include war housing, in-

dustrial plants, factories, or similar structures and

22

facilities, or the sites thereof, or land which the Ad

ministrator determines is essential to the use of any of ©

the foregoing. ‘‘Similar structures and facilities’’ ag”

used above shall include structures and facilities classi

fied by the Administrator as (1) commercial * * *%

Section 1 of the Act of August 7, 1946, 60 Stat. 886, 50.

U.S. C. War App., sec. 1632, provides:

That section 23(a)(1) of the Surplus Property Aet |

of 1944 is amended to read as follows:

‘*(1) The term ‘‘real property’’ means property con-

sisting of land, together with any fixtures and im-

provements thereon (including hotels, apartment

houses, hospitals, office buildings, stores, and other

commercial structures) located outside the District of

Columbia, but does not include (A) commercial strue- |

tures constructed by, at the direction of, or on behalf

of any Government agency, (B) commercial structures —

which the Administrator determines have been made an |

integral part of a functional or economic unit which

should be disposed of as a whole, and (C) war housing —

industrial plants, factories, airports, airport facilities,

or similar structures and facilities, or the sites thereof,

or land which the Administrator determines essential —

to the use of any of the foregoing; * * *.’’ 4

(4709)