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SOCIETE INTERNATIONALE POUR PARTICIPATIONS INDUSTR

February 19, 1953

SOCIETE INTERNATIONALE POUR PARTICIPATIONS INDUSTRIELLES ET COMMERCIALES, S.A.
v.
McGRANERY et al.



The opinion of the court was delivered by: LAWS

Plaintiff, formerly known as 'I. G. Chemie' and now known as 'Interhandel', is a holding corporation organized in 1928 under the laws of Switzerland, with its principal office at Basle, Switzerland. Between 1942 and 1946, all of its American assets were seized by the United States as enemy owned property. Title to the assets was vested in the Alien Property Custodian and his successor, the Attorney General of the United States, acting under Section 5(b) of the Trading with the Enemy Act, 40 Stat. 411, 50 U.S.C.A. Appendix, § 1 et seq., as amended by the First War Powers Act of 1941, 55 Stat. 839, 50 U.S.C.A. Appendix, § 5(b), and Executive Orders and regulations issued thereunder.

These assets, valued in excess of $ 100,000,000, consisted of bank accounts in six New York banks and over 90% of the capital stock of the General Aniline & Film Corporation, an operating company organized under the laws of the State of Delaware and engaged principally in the manufacture of dyestuffs, chemicals, synthetic detergents, and photographic material. Accruing dividends are held by the Treasurer of the United States.

 Plaintiff filed its action on October 21, 1948, in this Court for recovery of the property under Section 9(a) of the Trading with the Enemy Act, supra, alleging that it is not and was not an enemy or ally of an enemy under the terms of the Act and naming as defendants the Attorney General and Treasurer of the United States.

 Defendants, hereinafter sometimes referred to as the Government, answered that I. G. Chemie, its officers, agents, and stockholders, engaged and participated in a conspiracy or common plan with I. G. Farben, a German enemy corporation, Ed. Greutert & Cie. (and its successor firm, H. Sturzenegger & Cie.), a Swiss banking partnership, and others unknown with the ultimate purpose and objective "* * * to conceal, camouflage, and cloak the ownership, control, and domination by I. G. Farben of properties and interests in may countries of the world, including the United States, other than Germany."

 In opposition to defendants' motion for discovery, plaintiff urged defendants had failed: (1) to designate the documents with sufficient particularity; (2) to show facts from which the court might conclude the documents were relevant and material to the issues in the case; (3) to show that the documents of its alleged subsidiary, the banking firm of H. Sturzenegger & Cie., were within the possession, custody and control of plaintiff. By opinion dated June 23, 1949, this court decided full discovery of the documents should be made by plaintiff, saying:

 
"As to plaintiff's claim that it is not shown to have possession, custody or control of the papers and documents sought to be inspected and copied, the Court finds a prima facie case of control by plaintiff is made out. If it develops that plaintiff, after bona fide efforts to obtain access to records of its subsidiaries, affiliates and others in which plaintiff has an interest, is unable to produce them as ordered, the question of whether further action should be taken by the Court may be considered."

 Societe Internationale Pour Paricipations Industrielles et Commerciales, S. A. v. Clark, D.C.D.C.1949, 9 F.R.D. 263, 265.

 In conformity with the opinion, the court issued its order of July 5, 1949, providing, in sequence: (1) inspection, copying, and photographing of Government documents by I. G. Chemie at Washington, D.C.; (2) completion of the deposition of the witness Sturzenegger; (3) plaintiff should produce and permit inspection, copying and photographing by defendants of designated documents, including those of I. G. Chemie, H. Sturzenegger & Cie., and Osmon A. G., at Basle, Switzerland. The designation of documents, some 700 jackets, 140 account books, and lists of some 2500 original documents, was based upon their description by the Swiss Compensation Office, an arm of the executive branch of the Government of Switzerland, in a series of reports issued pursuant to an investigation into the alleged German character of plaintiff.

 Copying and inspection of Government documents were completed pursuant to the court's order in September 1949. The deposition of the witness Sturzenegger was completed on May 29, 1950. Discovery of plaintiff's documents was to begin thirty days from the date.

 In the interim, the court had denied a motion of the Government that the Sturzenegger documents be produced in Washington rather than Basle, Switzerland, filed on the ground that the witness Sturzenegger had indicated the papers would not be produced because it would be a crime under Swiss laws. The court likewise denied plaintiff's motion to be relieved from their production, filed on the following grounds: (1) under Swiss law plaintiff never had the power by contract, law or judicial process to compel H. Sturzenegger & Cie. to deliver its records to plaintiff; (2) Sturzenegger had indicated he felt obligated to decline to permit plaintiff to exhibit the records to defendants; (3) disclosure would violate Swiss penal laws; (4) plaintiff no longer had an interest in H. Sturzenegger & Cie.

 Two weeks before plaintiff was to make discovery, by order dated June 15, 1950, the Swiss Federal Attorney, taking cognizance of the court's order of production, and considering that submission of the Sturzenegger documents would constitute a violation of Article 273 of the Swiss Penal Code (economic espionage) and Article 47 of the Bank Law (banking secrecy), seized the files and books of H. Sturzenegger & Cie. through the exercise of the preventive police power. The seizure was not a physical taking but one of constructive possession by interdiction. H. Sturzenegger & Cie. was prohibited from transmitting its records to third persons and from permitting third persons to examine them.

 Plaintiff then filed a motion, on June 22, 1950, to be relieved from that portion of the order of July 5, 1949, requiring it to produce the records of H. Sturzenegger & Cie. for inspection. The Government renewed its motion to have the Sturzenegger documents produced in the United States. Both motions were denied without prejudice, the court being of the opinion that sufficient evidence had not been presented for appropriate rulings to be made, and that the pending inspection of plaintiff's documents should proceed pursuant to the order of July 5, 1949. It was stated at that time that the order for production was to stand unimpaired.

 During July and August of 1950 large quantities, although apparently not all, of the documents of I. G. Chemie were examined by defendants in Switzerland, but the papers of H. Sturzenegger & Cie. were not produced. On October 31, 1950, defendants moved for dismissal of the complaint. Plaintiff then filed a motion for reconsideration by the court of its motion of June 22, 1950, seeking relief from the court's order requiring production of the records of H. Sturzenegger & Cie. At the hearing of these motions the Government contended plaintiff had not exercised good faith in attempting to comply with the court's order. Finding it necessary to obtain development of the facts as to this alleged lack of good faith and, in that connection, the state of the law of Switzerland applicable to the seizure order of the Swiss Federal Attorney, this court submitted the questions to a Special Master previously appointed in this case. The court ordered the Special Master to take evidence and report his findings of fact and conclusions to the court for further consideration. D.C., 1951, 11 F.R.D. 294.

 The Special Master submitted his report to the court on December 4, 1951, finding, in substance: (1) plaintiff had sustained the burden of proof in demonstrating its good faith in efforts to obtain production of the Sturzenegger documents; (2) there was no evidence of collusion plaintiff and the Swiss Government in the seizure of the documents; (3) plaintiff's officers did the best they could to obtain the Swiss Government's permission to produce the papers; (4) there was a substantial legal basis for the seizure under Swiss law; (5) obtaining waivers would not appear, at any time, to offer a solution to the problem of production of the papers. These findings were reaffirmed following a hearing on newly discovered evidence, and final findings of fact and conclusions of law submitted by the Special Master on July 9, 1952. On October 15, 1952, plaintiff moved for adoption of the Special Master's report. The Government filed exceptions to the Master's report.

 A motion to limit sanctions under Rule 37 of the Federal Rules of Civil Procedure, if imposed by the court, has been filed by plaintiff-intervenors Kaufman, individually and on behalf of other stockholders similarly situated, in accordance with the opinion of the Supreme Court of the United States, Kaufman v. Societe Internationale Pour Participations Industrielles et Commerciales, S. A., 1952, 343 U.S. 156, 72 S. Ct. 611, 96 L. Ed. 853.

 The following matters are before the court for consideration and decision:

 1. Motion by plaintiff for adoption of the Special Master's report, and exceptions by defendants to the Special Master's report.

 2. Motion by plaintiff for reconsideration of its motion of June 22, 1950, to be relieved from that portion of the order of July 5, 1949, requiring it to produce the records of H. Sturzenegger & Cie. for inspection by defendants, and that, upon such reconsideration, plaintiff's motion of June 22, 1950, be granted.

 3. Motion by defendants for dismissal of complaint under Rule 37(b) for the failure of plaintiff to produce the papers of H. Sturzenegger & Cie.

 4. Motion by plaintiff-intervenors to limit sanctions under Rule 37, if imposed by the court.


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