Opposition Brief — Charles L. Harney Construction Co. v. Fleming

Page

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Statutes and regulations involved......................... 2

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CITATIONS

Cases :

Defense Supplies Corp. v. Lawrence, 336 U. 8. 631. ..... 10

Northern Pacific R. Co. v. United States, 330 U. S. 248. . 10

Oklahoma Gas Co, v. Oklahoma, 273 U. 8. 257.......... 10

Statutes :

Surplus Property Act of 1944, 58 Stat. 765, 50 U. S. C.

App. 1611 et seq.:

Es eh thoy ba diva he ge wey dee ese & 16

eS ioe uli xed iaakyihekaPaes avis 16

Le ane walt Re Ca Neca Rebes 6

Rr AOS er ae 6

EE Sate pease atin awh baciriln Cncae 6, 11, 13, 16

Surplus Property Act of 1944, Sec. 23, as amended by the

Act of August 7, 1946, 60 Stat. 886, 50 U.S.C. App.

oi on wd ch vans Sedaka ahweceins 6, 14, 18

Act of June 30, 1949, sec. 502(a) (1), Pub. No. 152, 81st

ia aia cae. bare wis Ge) od 40K VANS oO 8

California Civil Code, section 399................. 11, 14, 19

Miscellaneous:

rt te Ute ra bls geek Was 5, 18

ee ee ae tn waa adn nck ween 5, 18

Federal Rules of Civil Procedure, Rule 52(a).......... 3

H. Rept. No. 1757, 78th Cong. 2d sess................. 12

(1)

—

Inthe Supreme Court of the Wnited States

OcToBER TERM, 1949

No. 392

CuarRLES L. HARNEY CONSTRUCTION COMPANY

(Formerly Palm Springs Holding Corporation),

PETITIONER

Vv.

Masor GENERAL Puitir B, FLEMING, INDIVIDUALLY

AND AS ADMINISTRATOR, FEDERAL WORKS AGENCY,

ET AL,

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE DIS-

TRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW *

The district court cid not write an opinion. The

opinion of the court of appeals (R. 49-56) has not

yet been reported.

JURISDICTION

The judgment of the court of appeals was en-

tered on July 18, 1949 (R. 57). The petition for

(1)

2

a writ of certiorari was filed on October 14, 1949,

The jurisdiction of this Court is invoked under

28 U.S. C. 1254(1).

QUESTIONS PRESENTED

1. Whether Section 23 of the Surplus Property

Act of 1944, as originally enacted and as amended,

providing a preferential repurchase right in the

former owner of surplus real property, confers

such right on a dissolved corporation.

2. Whether, under the facts, petitioner is ‘‘the

person from whom such property was acquired,”

within the meaning of those words in Section 23

of the Surplus Property Act of 1944 as originally

enacted and as amended, and consequently has a

preferential repurchase right as a former owner

under that section.

3. Whether Section 23 of the Surplus Property

Act of 1944 applied to hotels prior to its amend-

ment in 1946.

STATUTES AND REGULATIONS INVOLVED

The relevant provisions of the Surplus Property

Act of 1944, 58 Stat. 765, 50 U. S. C. App. 1611,

et seq., the amendatory Act of August 7, 1946, 60

Stat. 886,50 U.S. C. App. 1632, War Assets Cor-

poration Regulation of March 6, 1946, 11 F. R.

2644, reissued as War Assets Administration Regu-

lation of June 29, 1946, 11 F. R. 7611, 7612, and

Section 399 of the California Civil Code are set

out in the Appendix, infra, pp. 16-20.

3

STATEMENT

On February 9, 1948, petitioner filed a complaint

against the federal officials charged with disposal

of surplus property to secure a judgment declaring

that petitioner had a preferential right to repur-

chase the Hotel El] Mirador in California (R. 2-12).

Upon facts appearing in an affidavit executed by

respondent Philip B. Fleming (R. 25-44) and an

affidavit of John J. Courtney filed by the petitioner

(R. 44-46), the trial court concluded that there

was no genuine issue of fact and that petitioner

was entitled to summary judgment declaring it

to be in possession of the repurchase right of a

former owner under Section 23 of the Surplus

Property Act, both as originally enacted and as

amended (R. 47-48).

The undisputed facts may be summarized as

follows: *

By condemnation proceedings, the United States,

on June 22, 1942, acquired title to certain real prop-

erty in California consisting of 28 acres of land

on which stood the El Mirador Hotel, for an agreed

value of $425,000.00. The owner of the hotel at

the time it was acquired by the United States was

the Palm Springs Holding Corporation, a Cali-

fornia corporation. On September 2, 1942, the

Board of Directors of that corporation adopted a

resolution authorizing the sale of all assets of the

1The case being disposed of on a motion for summary

judgment, the district court did not enter findings of fact and

conclusions of law (Rule 52(a), F.R.C.P.).

4

corporation, except cash on hand, to its two prin-

cipal stockholders, Warren B. Pinney and Ralph

D. Lacoe, Jr., for thé sum of $750.00. This was ac-

complished by a bill of sale executed on September

15, 1942. Thereafter, the only asset of the corpora-

tion, after the purchase of some of its own capital

stock, consisted of cash on hand in the sum of ap-

proximately $235,000.00. (R. 27-28.)

Sometime prior to October 1, 1942, Pinney and

Lacoe acquired control of all outstanding stock of

the Palm Springs Holding Corporation, and, on

that date, they transferred all of the stock of the

corporation to Charles L. Harney, P. E. Harney,

Henry F. Wrigley, and C. J. Carroll (R. 28). These

four individuals had been engaged in the general

contracting business in San Francisco, California.

They wished to continue the construction business

under the corporate form, but did not want to take

the time that formation of a new corporation would

require. There was also an advantage to them for

tax purposes in acquiring the skeleton of a corpora-

tion with an equity invested capital of approxi-

mately $600,000.00 and a possible capital loss on

the sale of its assets of approximately $148,000.00.

The Harneys and their associates paid $260,000

for the stock of the corporation, the only asset of

which was approximately $235,000.00 in cash. (R.

28.)

On October 2, 1942, the day following the acqui-

sition of the stock by the Harneys, the new owners

called a directors’ meeting, elected new officers,

_ ——

5

and passed a resolution amending the Articles of

Incorporation by (a) changing the name of the

corporation to (ae Charles L. Harney Construction

Company, (b) eliminating the provisions for carry-

ing on a hotel business, substituting therefor au-

thority to carry on a general contracting business,

and (ce) changing the principal office of the corpora-

tion from Los Angeles to San Francisco. There-

after the Charles L. Harney Construction Com any

carried on a general contracting business but wid

not engage in any way in the hotel business. On

November 2, 1944, the Charles L. Harney Construc-

tion Company filed a certificate of election to dis-

solve with the Secretary of State of the State of

California, and the company 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. 28-29.)

The former El] Mirador Hotel was declared sur-

plus in February 1946, under the Surplus Property

Act of 1944, 58 Stat. 765, Section 11,50 U.S. C. App.

1620. On March 4, 1946, the property was classified

by the War Assets Corporation as ‘‘commercial

tract, improved.’”’ By regulations of the War As-

sets Corporation (11 F. R. 2644) and of the War

Assets Administrator (11 F. R. 7611), the classifica-

tion of the property as ‘‘commercial tract, im-

proved”’ eliminated it from the definition of ‘‘sec-

tion 23 real property”’ as used in the Surplus Prop-

erty Act of 1944, and, consequently, the property

6

under those regulations was not subject to a former

owner’s priority under that Act (R. 29).

Pursuant to Section 10 of the Surplus Property

Act of 1944, the property was assigned to the Fed-

eral Works Agency on March 15, 1946, for dispo-

sition. The property was advertised and bids were

received which included (1) a bid in the sum of

$700,000.00, the adjusted purchase price for former

owners, received from the petitioner, Charles L.

Harney Construction Company; (2) another bid

in the sum of $700,000.00 received from Warren

B. Pinney and Ralph D. Lacoe, Jr., also claiming

to be former owners; (3) a bid in the sum of

$1,150,000.00 under a veteran’s priority by Irwin

Frank and Lloyd W. Gardner, and (4) ten non-

priority bids in the sum of $1,050,000.00 or less

(R. 29-30).

When petitioner raised the question of its right

as a former owner of the property, respondent

Fleming determined administratively that peti-

tioner was not a priority former owner within the

meaning of Section 23 of the Surplus Property

Act of 1944, as amended by the Act of August 7,

1946, 60 Stat. 886, attaching to his letter so stating

a copy of an opinion by the General Counsel of the

Federal Works Agency (R. 35-43). In seeking a

ruling on its rights, petitioner had relied upon

(1) a letter of the Secretary of State of California,

dated June 2, 1947, expressing the view that the

Surplus Property Act of 1944 conferred a repur-

chase right upon petitioner which constituted an

a

7

asset within the meaning of Section 399 of the

California Civil Code which petitioner corpora-

tion is empowered by state law to pursue, notwith-

standing its dissolution (R. 13-14), and (2) an

order/o? the Superior Court of the State of Cali-

fornia in and for the City and County of San Fran-

cisco, California, dated June 3, 1947, procured by

petitioner in ex parte proceedings, authorizing peti-

tioner to submit a claim as former owner and to pur-

chase the property at the adjusted price and to bor-

row the necessary money from its shareholders (R.

18-20). Following rejection of its claim, petitioner

obtained a further order of said court dated Sep-

tember 5, 1947, also in ex parte proceedings, de-

claring that the right of a former owner, whether

under the Surplus Property Act of 1944 as origi-

nally enacted, or as amended in 1946, is an asset

of petitioner corporation omitted in the winding-up

process, within the meaning of Section 399 of the

California Civil Code, and authorizing the filing

of an offer, petition, complaint or other proceed-

ing to realize upon the asserted asset (R. 24-25).

By letter of February 2, 1948, respondent Fleming

adhered to his previous ruling and this action was

thereupon instituted (see R. 9).

Finally, the affidavit of John J. Courtney, filed

by petitioner (R. 44-45), recites that agreements

had been concluded on and after July 28, 1947, be-

tween those who held stock in the Palm Springs

Holding Corporation as of June 22, 1942, and the

shareholders of petitioner Harney Construction

8

Company, whereby it was agreed that petitioner

would represent the legal and equitable rights of

both the former shareholders of Palm Springs

Hotel Corporation and the subsequent shareholders

of petitioner Harney Construction Company, and

that ‘‘both groups of stockholders would share in

the benefits’? derived from the exercise of the

former owner right.

On these facts, the district court held that peti-

tioner was in possession of the repurchase right of

a former owner (R. 47-48). The court of appeals

reversed the judgment and remanded the case with

directions to enter judgment for respondents. In

so doing, the court of appeals held that the Surplus

Property Act of 1944, as amended, conferred no

former-owner repurchase right on corporations dis-

solved prior to the time property is declared sur-

plus, that petitioner is not the former owner of

the property within the meaning of the statute, and

that the Act, as originally enacted, did not apply

to hotel property (R. 49-56).

ARGUMENT

1. This case does not present any question of

long-range importance since all priorities provided

by the Surplus Property Act expire on December

31,1949. Act of June 30, 1949, sec. 502(a) (1), Pub.

No. 152, 81st Cong. Ist sess. Nor does it, as peti-

tioner asserts (Pet. 8), present any question of

the weight and effect to be accorded state law and

state court rulings ‘‘on the capacity of a dissolved

—

9

corporation of that State.’? The court below con-

ceded (R. 56) that under California law petitioner

has a limited technical existence, even after disso-

lution, to prosecute claims to realize upon assets

which it had at the time of its dissolution, even

though they do not become collectible until some-

time after dissolution. And it conceded that peti-

tioner has capacity to prosecute its claim to a

former-owner priority right and realize upon that

claim if the right exists.

But there is a manifest distinction between the

question of capacity to exercise a right and the

question whether the right exists. Here petitioner

claims a right to purchase United States property.

Clearly no such right can arise under state law.

Petitioner necessarily claims the right under fed-

eral law, the Surplus Property Act. In deciding

that the right does not exist in petitioner, the court

of appeals did not decide that petitioner lacks

capacity to make the claim, but decided only the

purely federal question, whether the Surplus Prop-

erty Act confers the right on a party in petitioner’s

status. Petitioner’s assertion of a conflict ‘‘in

principle’ (Pet. 9) is therefore baseless.

2. The court of appeals correctly held (R. 56)

that the Surplus Property Act does not confer

the right to repurchase upon a dissolved corpora-

tion. Clearly no right to repurchase accrued under

the statute here involved until the property was

declared surplus in 1946. Prior to that time, there

ae

10

was only a possibility that the right might come

into being. In 1946 petitioner was already dis-

solved (R. 29). As a general proposition, statutes

conferring rights on corporations would not be

construed as applicable to dissolved corporations,

absent express language to that effect. At common

law ‘‘and in the federal jurisdiction a corporation

which has been dissolved is as if it did not exist, and

the result of the dissolution can not be distin-

guished from the death of a natural person.’’ Okla-

homa Gas Co. v. Oklahoma, 273 U. 8. 257, 259. See

also Defense Supplies Corp. v. Lawrence, 336 U.S.

631, 634. Moreover, we are here dealing with a

statute which confers a gratuity on former owners

at a sacrifice of the public interest. Thus, in this

case, the adjusted price to a former owner is $700,-

000.00, but the Government has nonpriority bids

as high as $1,150,000.00 (R. 30). Such statutes are

subject to strict construction, and one claiming

to be a beneficiary has the burden of establishing

his right beyond doubt. Northern Pacific R. Co.

v. United States, 330 U.S. 248, 257.

It is submitted that only express language in the

statute would justify a holding that Congress in-

tended that a defunct corporation could be ex-

humed for the sole purpose of allowing its former

stockholders to make a profit of $450,000.00 at the

taxpayers’ expense. Not only can petitioner point

to no such language but, as the court of appeals

pointed out (R. 55), the statute expressly deals

with the contingency of former owners passing

11

out of existence prior to the time property is de-

clared surplus, and did so in terms which exclude

dissolved corporations. Section 23(g) (Appendix,

infra, p. 17) provides for survival of the right to the

‘spouse and children’’ of a former owner, clearly

limiting survival to the case of deceased individual

former owners and even there only to certain heirs.

It is not the province of the courts to extend the

right further than Congress has seen fit to go.

Petitioner in effect recognizes that dissolved

corporations are not within the statute by its heavy

reliance on Section 399 of the California Civil

Code. But that statute does not aid petitioner. It

provides (Appendix, infra, p. 19) in general terms

for a limited technical existence for the sole pur-

pose of winding up its affairs, collection of assets

and payment of debts. It is the counterpart of

probate laws for winding up an individual deced-

ent’s estate. And the statute no more indicates

corporate life in petitioner than do probate stat-

utes indicate life in a decedent.

3. But even if the former owner right of the

Surplus Property Act be thought to extend to dis-

solved corporations, under the undisputed facts

the court of appeals correctly decided (R. 54) that

petitioner is not, in any event, the former owner of

the property involved. Section 23(d) (1) (& of the

Surplus Property Act (Appendix, infra, p. 17)

gives the former owner right to ‘‘the person from

12

which such property was acquired.’’ The object of

Congress was to favor those ‘‘unwilling owners”

from whom the Government had to take property

for war purposes. (H. Rept. No. 1757, 78th Cong.

2d sess., p. 12). Petitioner in no sense qualifies.

To allow petitioner’s claim would simply give a

windfall of $450,000.00 to individuals from whom

the Government took nothing and who have no

claim, moral or otherwise, upon the United States.

On October 1, 1942, Charles L. Harney and P. E.

Harney purchased all of the stock of Palm Springs

Holding Corporation, from which corporation the

Government had previously acquired the prop-

erty in question.” At that time, the only asset of

Palm Springs Holding Corporation was $235,-

000.00 in cash, and the Harneys paid $260,000.00.

Simple subtraction shows that the transaction con-

stituted a purchase of a corporate front and noth-

ing else for $25,000.00. It was entered into to avoid

the delay which formation of a new company would

entail. At the time the Harneys acquired the stock,

the hotel property was already owned by the Gov-

ernment. The right they now claim was not in

prospect in 1942 and they paid nothing on that

account. The complete lack of identity between

petitioner and Palm Springs Holding Corporation

is further shown by the fact that the Harneys im-

mediately changed the name of the corporation,

amended its charter by eliminating the provision

for doing a hotel business and substituting therefor

2 Only qualifying shares went to Henry F. Wrigley and

C. J. Carroll, the Harneys’ associates (R. 28).

—

13

a provision for the carrying on of their general

contracting business, and changing the principal

office from Los Angeles to San Francisco.

It follows that the Harneys have no just claim

to the benefit of the statute. Refuge in the techni-

calities of corporate entity (Pet. 15) cannot confer

on individuals having not the slightest claim

against the Government a windfall of $450,000.00

to the detriment of the Government.’

4, In sustaining the administrative construction

of Section 23 of the Surplus Property Act of 1944,

as originally enacted, as not applying to commer-

cial properties, the court of appeals had before it

the legislative history of that statute showing the

purpose of Congress to limit the former owner

right to former owners of farm property acquired

by the Government. The question of the scope

of the 1944 Act is described by petition (Pet. 16)

as ‘‘subsidiary’’. It actually is of little or no im-

portance here or generally. The statute was

amended in 1946 specifically to include hotel

property. And if, as held by the court of ap-

peals, petitioner’s being dissolved prior to the

3 Petitioner refers (Pet. 15) to an agreement between the

Harneys and former shareholders of Palm Springs Holding

Corporation to share benefits. This is irrelevant. The former

stockholders of Palm Springs Holding Corporation clearly

have no right as against the United States. And if, as the

court of appeals held, petitioner has no right, such right

cannot be established simply by agreement to share proceeds.

Additionally, neither the former stockholders nor petitioner,

if either had a right, could assign any part of it to the other.

(See. 23(g), Surplus Property Act of 1944, Appendix, infra,

pp. 17-18.)

ee a

14

time the property was declared surplus, and peti-

tioner’s lack of identity with the former owner

preclude it from being a former owner within the

purview of the statute, these grounds for denial of

petitioner’s claim are unaffected by the question

of whether such property was included in the law

in 1944 or in 1946. If on the other hand, petitioner

is a former owner and its dissolution is deemed

irrelevant, its rights are complete under the 1946

Act and reference to the 1944 Act becomes un-

necessary. Only if the date of petitioner’s disso-

lution became crucial might the meaning of the

1944 Act conceivably assume some significance.

That possibility is so remote here and so unlikely

to arise in other cases that certiorari would seem to

be plainly unwarranted. For reasons already

stated, supra, pp. 8-9, 11, petitioner’s discussion of

Section 399 of the California Civil Code in this

connection (Pet. 17) is unavailing, as is its ref-

erence to the ex parte rulings of the state court.‘

* The state court’s rulings (R. 18-20, 24-25) may be accepted

as determining petitioner’s capacity to prosecute its claim;

those rulings (R. 18-20, 24-25), correctly appraised, go no

further. Obviously, the state court could not determine the

question of petitioner’s right under federal law in ez parte

proceedings.

15

CONCLUSION

The decision below is correct, there is no con-

flict, and the case does not warrant further review.

The petition for a writ of certiorari should there-

fore be denied.

Respectfully submitted,

Puiip B. PERLMAN,

} Solicitor General.

A. Devitt VANECH,

Assistant Attorney General.

Y Roger P. Marquis,

Frep W. SMITH,

F Attorneys.

NOVEMBER 1949

ss eieamaiaiaide iad —7

16

APPENDIX

The pertinent portions of the Surplus Property

Act of 1944, 58 Stat. 765, 50 U. S. C. App. 1611,

et seq., read as follows:

See. 2. The Congress hereby declares that

the objectives of this Act are to facilitate and

regulate the orderly disposal of surplus prop-

erty so as—

* * * * *

(q) to prevent insofar as possible un-

usual and excessive profits being made out

of surplus property ;

* * * * *

(t) except as otherwise provided, to ob-

tain for the Government, as nearly as pos-

sible, the fair value of surplus property

upon its disposition.

See. 3. As used in this Act—

* * * * *

(h) The term ‘‘person’’ means any indi-

vidual, corporation, partnership, firm, asso-

ciation, trust, estate, or other entity.

Sec. 23 (a), as used in this section—

(1) The term ‘‘real property’’ means prop-

erty consisting of land, together with any fix-

tures and improvements thereon, located out-

side of the District of Columbia, but does not

include war housing, industrial plants, fac-

tories, or similar structures and facilities, or

—

17

the sites thereof, or land which the Board de-

termines is essential to the use of any of the

foregoing ; aud

(2) The term ‘‘surplus real property”’

means real property which has been deter-

mined under section 11 to be surplus property.

* * * * *

(d) (1) (A) In the ease of any surplus real

property which was acquired by any Govern-

ment agency after December 31, 1939, the per-

son from whom such property was acquired

shall be given notice, in such manner (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 entitled to purchase such property, in

substantially the identical tract as when ac-

quired from such person, at private sale at any

time during the period of ninety days follow-

ing such notice * * *.

4 ee

* * * * x

(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

18

price at the time of the sale of such property,

whichever price is the lower.

* * * * *

(g) In the case of the death of a person

entitled under this section to rights as a former

owner or veteran, his spouse and children, in

that order, shall succeed to such rights of the

decedent existing at the time of his death. * * *

‘ No preference right may be assigned or exer-

cised by power of attorney or through a power

to select except as may be permitt~d by regu-

7 lations prescribed by the Board in order to

| prevent the loss of such right by the holder

thereof.

War Assets Corporation Regulation of March 6,

1946, 11 F. R. p. 2644, issued under the authority

of the Surplus Property Act of 1944, and War

Assets Administration Regulation of June 29, 1946,

11 F. R. 7611, issued under the same authority, each

provided as follows:

§ 8305.2(11). ‘‘Section 23 real property”

means property consisting of land, together

with any fixtures and improvements thereon,

located outside of the District of Columbia,

but does not include war housing, industrial

plants, factories, or similar structures and fa-

cilities, or the sites thereof, or land which the

Administrator determines is essential to the

use of any of the foregoing. ‘‘Similar struc-

tures and facilities’? as used above shall in-

clude structures and facilities classified by the

Administrator as (1) commercial * * *.

_—

19

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

886, 50 U. S. C. App. 1632, provides:

That section 23 (a) (1) of the Surplus Prop-

erty Act of 1944 is amended to read as follows:

‘“‘(1) The term ‘real property’ means

property consisting of land, together with any

fixtures and improvements thereon (including

hotels, apartment houses, hospitals, office

buildings, stores, and other commercial struc-

tures) located outside the District of Columbia,

but does not include (A) commercial struc-

tures constructed by, at the direction of, or

on behalf of any Government agency, (B) com-

mercial structures which the Administrator de-

termines 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 Adminis-

trator determines essential to the use of any

of the foregoing; * * *”’.

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 term of existence, by

forfeiture of existence by order of court, or

otherwise, nevertheless shall continue to exist

for the purpose of winding up its affairs, prose-

cuting and defending actions by or against it,

and enabling it to collect and discharge obliga-

tions, dispose of and convey its property, and

20

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 corpora-

tion is a party shall abate by the dissolution

of such corporation or by reason of proceedings

for dissolution and winding up thereof.

Any assets inadvertently or otherwise

omitted from the winding up shall continue in

the dissolved corporation for the benefit of the

person entitled thereto upon dissolution of

the corporation, and on realization shall be

distributed accordingly.

b= U. S. GOVERNMENT PRINTING OFFICE: 1949 862467 204