The opinion of the court was delivered by: BAILEY
These three suits have been consolidated for trial. The three plaintiffs, Paul Wm. Vort, Ernest Nauen, and the Trustees of Fred Basch Estate seek to recover 810 shares of the capital stock of Herman Basch & Co., Inc., a New Jersey corporation, out of a total of 1442 shares of the capital stock of that company vested by the defendant on December 22, 1948. These suits were brought under Section 9(a) of the Trading with the Enemy Act, as amended, 50 U.S.C.A.Appendix, 9(a). The plaintiffs claim that they were the legal and beneficial owners of the 810 shares, above named, at the time of the vesting by the defendant.
The answer of the defendant, among other defenses, claims that the plaintiffs acquired title to these 810 shares pursuant to a conspiracy to defraud the United States by concealing the beneficial interest of the owner of the stock in the event of war between the United States and Germany; that the plaintiffs were controlled by and acted for on behalf of Germans, who were in reality the beneficial owners of this stock, and that the plaintiffs conspired among themselves and with others (including the Germans) to go through a fictitious sale or 'cloaking' transaction to conceal the beneficial interest of the Germans and forestall seizure of the stock by the United States in the event that the United States went to war with Germany.
The defendant also filed counterclaims for the dividends received by each plaintiff on the vested shares of stock between the time of the 'cloaking' sale in 1939 and the vesting in 1948, amounting in all to about $ 145,000. These dividends have also been vested by the defendant.
Herman Basch & Co., Inc., a New Jersey corporation, is engaged in the dressing and dyeing of raw fur skins by means of a secret process, an extremely valuable asset. It has 2000 shares of capital stock outstanding, of which this litigation involves 810 vested from the three plaintiffs. Of the remaining vested shares, 72 were vested from Mr. Fred Klein who has brought suit for their return in the Eastern District of New York, and 560 shares were vested from another stockholder, Mr. Curt Mahler, New York City, who has filed a claim with the defendant for their return. The unvested shares of Herman Basch & Co., Inc., capital stock, amounting to 558 in all, are owned by the plaintiffs and members of their immediate families, and are not involved in this litigation.
In 1939, Herman Basch & Co., Inc., was wholly owned by Althor, Inc., a New York corporation, and continued to be so owned until Althor, Inc., dissolved in 1944. Althor, Inc., was a wholly-owned subsidiary of Thorer & Co., Leipzig, Germany, with 500 shares of capital stock owned by the latter in 1939. When Althor, Inc., dissolved in 1944, shares of Herman Basch & Co., Inc., were distributed to the stockholders of record on the basis of 4 to 1, so that the shares of stock in this litigation are the same as old Althor, Inc., stock, except on a four-to-one basis.
Basch & Co. is engaged in the dressing and dyeing of raw fur skins, its specialty being Persian lamb skins. The skins are processed under secret formulae obtained from the Thorer interests. Prior to 1939 the more substantial part of Basch & Co.'s business was derived from Thorer & Hollender, Inc., and all skins sold by Thorer & Hollender, Inc. were dressed and dyed by Basch & Co.
Thorer & Co., the German owners of Althor, Inc. was a partnership of which the principal active members were Paul Hollender and Herbert Schoenburg. Herman Basch & Co., hereinafter referred to as Basch & Co. was one of a number of business enterprises for fur dressing and dyeing, located in Germany, Sweden, England, France, Africa and the United States. The ultimate object of each unit was the benefit to Thorer & Co. In the United States in addition to Althor, there was Thorer & Hollender, Inc. of New York, engaged in the fur import and selling business, owned except for a very small minority by the partners of Theodore Thorer of Leipzig, Germany.
North Bergen Realty Company, Inc. (hereinafter referred to as North Bergen Co.), was organized under the laws of the State of New Jersey on March 11, 1937, for the purpose of owning, holding, and leasing certain real property located at North Bergen.
North Bergen Co. is the wholly-owned subsidiary of Basch & Co., and the officers and directors of North Bergen Co. are all officers, directors, or stockholders of Basch & Co. The sole function of North Bergen Co. was to lease to Basch & Co. the factory buildings in which raw fur skins are processed.
Herman Basch & Co., Inc., New Jersey, was the basic dyeing company.
In November 1938, Von Rath, a German Attache in Paris was murdered by a Polish Jew, Grynspan, and the Germans in retaliation took severe reprisals upon the Jews, demolishing Jewish shops, Synagogues, and sending thousands of Jews to concentration camps.
The fur trade in New York City was largely in the hands of Jews, who in consequence undertook to boycott all dealings in furs by those firms or corporations controlled by Germans, and a 'boycott' committee was formed for that purpose. This was a serious blow to the business of Thorer & Hollender and of Basch & Co. Attempts were made to conceal the German interests and in January 1939 when the boycott committee was requiring definite proof of American ownership, George Ward notified Paul Hollender of this, and Hollender cabled him:
'Master situation North Bergen best judgment presumably Americanized provisionally.'
Pursuant to this a conference was held between Fred Basch, Paul Vort (one of the plaintiffs), Ernest Nauen, (a plaintiff), Fred Klein, George Ward, Curt Mahler, and James Stevenson, at which time a plan was carried out to give the appearance of record ownership of Althor to Basch Holding Co., the personal holding company of the Herman Basch Estate. A fictitious transfer of Althor's capital stock was executed by antedating a stock certificate, representing the entire Althor's capital stock from 1939 to 1936, in order to provide documentary evidence to show to the Boycott committee that there was no German interest in the plaintiff company. Paul Hollender at this time was very apprehensive of approaching war between the United States and Germany, and while ...