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HALBACH v. MARKHAM

July 21, 1952

HALBACH et al.
v.
MARKHAM



The opinion of the court was delivered by: MCLAUGHLIN

This case involves the ownership of 4725 shares of stock in General Dyestuff Corporation, a New York corporation. It was settled on January 27, 1945. In accordance with the settlement the suit was dismissed with prejudice on February 2, 1945. Almost six years later, on January 23, 1951, the pending motion under Rule 60(b) (6), 28 U.S.C., was filed on behalf of the plaintiffs. By it plaintiffs seek to vacate the judgment of dismissal, abrogate the settlement and restore the suit to the trial list. The matter was argued orally May 27, 1952, defendant's answering brief was filed June 11, 1952 and plaintiffs' reply thereto on June 23, 1952.

The grounds of the motion are that the settlement releases were executed under duress and that, in effecting the settlement, the defendant acted illegally and beyond the scope of his authority.

 In June 1942 all shares of stock in General Dyestuff Corporation, including the Halbach shares, were vested in the Alien Property Custodian under the Trading With the Enemy Act of 1917, as amended, 40 Stat. 411, 50 U.S.C.A. Appendix, § 1 et seq., as the property of I. G. Farben Industrie, a German enemy corporation. In March 1944 the above titled action was started for the return of the stock. The Alien Property Custodian's answer put the ownership of the shares at issue. Trial of the cause was scheduled to commence January 29, 1945. On January 27, 1945 the matter was settled by the Custodian paying plaintiffs $ 557,500 for their claims to the stock. This was at a rate of $ 118 a share. A stipulation of discontinuance of the litigation with prejudice, signed by the attorneys for the parties, was filed in this court February 2, 1945. It is that stipulation which plaintiff's seek to upset by the present motion.

 Plaintiffs' contentions respecting duress are ably marshalled and presented by counsel but even so, the showing made utterly fails to support that allegation. Aside from vague generalities, accusations and conclusions, Halbach primarily complains that:

 (1). He had been indicted with others in December 1941 and for alleged anti-trust conspiracy and the indictment had not been moved for trial by the Government up to the time he executed his affidavit of January 20, 1951. He does not point to the slightest indication of bad faith in the bringing of the indictment. He recites no effort made on behalf of himself or any of the other defendants to bring on a trial of the indictment. Actually, some time after the affidavit had been executed and this very motion filed, the indictment was tried and Halbach acquitted.

 (2). In July 1942, immediately after the stock of General Dyestuff had been vested in the Custodian, the Treasury blocked his bank account and those of his family. He suggested no connection between the Treasury Department and the Custodian. The named defendant, James E. Markham, in his affidavit states that there was none. What occurred was described by the chief Halbach attorney as 'a minor nuisance' and in fact it was a temporary one. It will be remembered that in July 1942 we were engaged in a life and death war with Germany. There was indication in a defense deposition that Halbach had a history of connections with I. G. Farben, a key enemy industrial corporation. Though of no more than collateral interest in this litigation that may well have been the basis for the protective war time action of the Treasury.

 (3). After the vesting order, in 1941 and 1942, the management of General Dyestuff was pressured to discharge him. There is no wrongful sort of pressure revealed in the proofs. Former Alien Property Custodian, Leo T. Crowley, testified in his deposition that the reasons given him by Government officers in support of their recommendations for the discharge of Halbach were '* * * that they all felt very definitely that Halbach was connected with I. G. Farben, and the chemical combine throughout the whole of Europe and South America.' Mr. Crowley said that, 'i never had any reason to doubt their sincerity.' James P. Markham, who followed Crowley as Alien Property Custodian, said in his affidavit that members of his staff urged him to sever Halbach's connection with General Dyestuff '* * * because they were convinced that he had been a cloak for the enemy.' Mr. Markham stated that he believed his assistants' recommendations were the result of their honest convictions. It happens that Halbach was retained from July of 1942 to August 1950 as consultant with General Dyestuff at a salary of approximately $ 60,000 a year. He was retired from this position in August 1950 at a pension of $ 18,000 a year. It was not until after his retirement that the instant motion was made.

 (4). In January 1945 a headlined series of articles appeared in a newspaper called 'P.M.' These stressed Halbach's I. G. Farben connections. 'P.M.' was in existence for a comparatively short time. It was published in New York City and disappeared completely some years ago. Halbach states that he is convinced much of the material of the articles was secured from Government files and statements of Government personnel and he says that he has no doubt but that the articles were timed to affect the outcome of the suit. The defense concedes that the articles were probably based on material leaked or stolen from the Government. There is no showing, however, that any responsible Government office was concerned. The chief Halbach attorney in his deposition carefully stated that he never had any reason to believe that the articles were inspired by the Government and he recalled that they were almost as critical of the Department of Justice as of Halbach. Plaintiffs do not pretend that there was such an alleged campaign or other vilification in any other newspaper or other medium at that particular time or before or since. In fact at the time when the complained of articles were published, settlement negotiations, initiated on behalf of the plaintiffs, had been proceeding for over a month and a half.

 (5). Government agents questioned his wife who is not said to have been ill at that time. No justified inference can be taken from this as to who the agents are supposed to have been and by whom they were employed or that they had any knowledge of Mrs. Halbach's condition. Nor is there warrant for assuming that there was any questioning contrary to the will of Mrs. Halbach.

 It is clear that discussions which led to final settlement had been started on behalf of the plaintiffs towards the last of November 1944 and had been conducted at arm's length from that time to the latter part of January 1945 by Stoddard M. Stevens, Jr., Esq., a member of the law firm of Sullivan and Cromwell, representing the plaintiffs, and Herbert Weschsler, Esq., then an Assistant Attorney General, on behalf of the defendant. The Government's position was that Halbach had apparently paid $ 210,000 for the acquisition of the shares; that the most plaintiffs could possibly recover was $ 100 a share which was the option price at which General Dyestuff could purchase the stock under an agreement to which the stock was subject; that the Custodian, because of control of General Dyestuff could, if necessary, bring about a situation where he would be able to exercise the options. Another item entering into the estimate of the Halbach stock interest was that when the shares had been transferred to the trust they had been valued at $ 100 a share for gift tax purposes. After several talks between the lawyers, Halbach himself attended a conference early in January 1945. He suggested that in addition to $ 100 a share there should be some consideration for participation in the earned surplus of the corporation from 1939 to 1944. Eventually this was resolved to an allowance of interest during those years amounting to $ 18 a share. The total figure of $ 118 a share was agreed to by both sides. The Bureau of Internal Revenue was queried and indicated that it would accept the $ 100 per share gift tax estimate and would view the settlement recovery as a capital transaction rather than income to the trustees.

 According to Mr. Wechsler, Halbach, on the occasion he was attending the conference, asked if it was possible to discuss the anti-trust indictment against him in connection with the stock settlement. Mr. Wechsler replied that he had no authority regarding anti-trust transactions and that in any event it would be grossly improper to discuss a pending criminal case in connection with the settlement of an entirely distinct civil matter. The question of the Treasury blocking the funds of the trustees arose at a later talk. Mr. Wechsler in his affidavit says that he stated that the issue could not be included in the then pending settlement terms. He further states that until this motion he had never heard the suggestion that Halbach was coerced into the settlement. He says that the pressures in Washington were against a settlement of the Halbach case on any terms by the Government and that he considered he ran a substantial risk of adverse criticism in recommending payment to the Halbach trustees of the substantial sum the settlement involved.

 Mr. Stevens, the senior Halbach attorney throughout the case including settlement negotiations and the settlement, was subpoenaed as a witness on this motion by the Government and testified by deposition. Plaintiffs' attorney was present and participated. Halbach was also present for more than half of the examination. While the Stevens testimony was much confined through objections based on Halbach's privilege arising out of his client-attorney relationship with the witness, it is evident from the Stevens deposition that there was no duress exercised on behalf of the Government to bring about the settlement. The Halbach attorney testified, 'Mr. Wechsler conducted himself, in my judgment, with propriety.' He said, 'The Department of Justice to me was more or less centered in Mr. Wechsler.' And he never saw any evidence or observed any actions that suggested a conspiracy on the part of the Government against Mr. Halbach. He recalled nothing dishonest or unethical in the actions or conduct of the Alien Property Custodian representatives.

 I have treated the trustee plaintiffs, Halbach, his wife and daughters as one single entity, which best comports with the theory of the moving parties that in the aggregate duress was exercised upon them, resulting in the alleged invalid settlement. From the entire record before me I am thoroughly satisfied that no such showing has been made which would entitle them to the relief herein sought. First and foremost, there has been a complete failure to prove duress. In additional at every stage of the proceeding, including the protracted settlement negotiations, Halbach was represented by outstanding independent counsel. And this Federal court was open to him for a consideration on the merits of his family's rights in the stock. Nor has there been offered any satisfactory explanation for an unwarrantable long delay in questioning the validity of the settlement, the release and the stipulation. All of which, among other things, expressly ...


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