Court Opinion

ID: 9443936
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:34:31.347196+00
Date Added: 2024-06-11T17:29:39.244502
License: Public Domain

PARKER, Chief Judge (dissenting).
I do not think that the forfeiture decreed by the court below is justified. The case before us is not one in which rescission of an agreement is asked on the ground of fraud or mistake, or one involving conspiracy to evade the law, but one to forfeit a vessel on the ground that the sale thereof was not approved by the Maritime Commission even though it appears that the sale which is relied upon as the basis of forfeiture was made by the Commission itself. I cannot concur in the view that the government, after making the sale of the vessel through the Maritime Commission, can retain the price paid and then have the vessel forfeited on the ground that the Commission did not approve the sale which the Commission itself made. If the sale was induced by fraud or misrepresentation, this would be a ground for rescission and might furnish a basis for a prosecution for fraud; but it would not furnish ground for forfeiture under the statute relied on, since it cannot reasonably be said that a sale made by the Commission was made without the approval of the Commission.
The facts which I regard as controlling in the decision of the case are undisputed and may be briefly stated. Some years ago there was organized by young Chinese students a patriotic organization known as the “Association for the Advancement of Constructive Enterprises”, or more briefly as the “A” Association, having for its purpose the formation of enterprises the profits of which would be used “to promote scientific, educational, literary and medical developments for the benefit of the Chinese common people”. One of the enterprises brought into being by this association was the China Trading and Industrial Development Corporation (hereafter called China Trading), a Chinese corporation engaged in the export and import business in this country and in China. Two young Chinese, C. C. Wei and C. Y. Chen, were prominently con-*549neeted with both the “A” Association and China Trading.
In late 1947, the Chinese Petroleum Corporation (hereafter called Chinese Petroleum), an agency of Nationalist China, was greatly in need of vessels to transport petroleum from the Persian Gulf to Chinese ports; and Chen and Wei conceived the idea that they could make money for China Trading and further the objects of the “A” Association if they could have China Trading arrange for the chartering of vessels to Chinese Petroleum. With this end in view they employed American counsel who organized the United Tanker Corporation (hereafter called United) under the laws of Delaware and in behalf of that corporation and China Trading made applications to the Maritime Commission for the purchase of tankers which the Commission was authorized to sell. United was chartered December 10, 1947, with two classes of stock, A and B, the investment in both classes of which was insignificant in amount, there being 10 shares of class A stock for which China Trading paid $2,000 and 15 shares of Class B stock held by citizens of the United States for which they paid 20 cents per share.1 The shares of class B stock had equal voting power with shares of class A, and the charter provided that class B stock could be held only by citizens of the United States. The charter provided also that class A stock should be entitled to 90% of the earnings of the corporation and class B to 10% and that in ease of liquidation class A should be repaid the original investment plus 90% of the remaining assets and class B 10% of the remaining assets. The class B stockholders, three in number, were experienced American shipping men, and they were the directors of the corporation and held all of its offices except that of secretary and treasurer, which was held by Wei.
Neither the application of China Trading nor of United was acted upon by the Commission, not because it was thought that they were not entitled to purchase vessels but because no vessels were available for allotment for sale to them. In December 1947, Chen and Wei learned that three tankers had been allotted for sale to the American Overseas Tanker Corporation and as a result of negotiations with that corporation agreed to pay it a bonus of $150,000 for each of the three tankers if they could be transferred in such way that they could be chartered as American flag vessels for use by Chinese Petroleum. American Overseas could not purchase the tankers from the Commission because of the restrictions of a contract into which it had entered with the Metropolitan Life Insurance Company in financing other tankers which it had theretofore purchased. The officers of American Overseas caused another corporation to be chartered, however, called the National Tanker Corporation (hereafter called National), and had the right to purchase the three tankers transferred to it. National was chartered under the laws of Delaware and all of its stockholders, directors and officers were citizens of the United States, being the same persons who were stockholders, directors and officers of American Overseas. Although it had only a nominal paid in capital of $1,000, it proceeded to purchase the three tankers which were worth between a million and a half and two million dollars each, paying for them with funds furnished through United by China Trading and with proceeds of loans obtained from the Chemical Bank and Trust Company of New York in *550■which the Bank of China had a 49% participation.
Before obtaining title to the Mea-cham, National had entered into a contract with United by the terms of which United was to be granted a bareboat charter on the vessel for ten years at a rate which by the end of that period would return the amount of the investment in the vessel. Similar charters were to be executed with respect .to the other vessels, and the stockholders of National agreed to give United an option to purchase their stock in National at a price equal to $150,000 for each of the vessels so purchased by National and chartered to United, option to be exercised between September 15 and October 15, 1948, and in the meantime the stock of National to be placed in escrow. For the protection of United, National agreed that it would engage in no other business and that the assistant treasurer of National would be a person satisfactory to United and that his signature would be essential to the validity of National’s checks.
The bareboat charter was duly executed by National to United in accordance with this agreement. United thereupon executed a time charter to China Trading and China Trading executed voyage charters to Chinese Petroleum. It is clear that China Trading intended that a large part of any profits derived from the enterprise should be used for the purposes of the “A” Association, for almost immediately after the charters were executed, Chen and Wei caused a non-stock corporation, known as the China International Foundation, to be formed under the laws of Delaware, with a group of distinguished American citizens as members and trustees, to provide scholarships for the education of Chinese youth in the United States and to make expenditures for the scientific and cultural advancement of the Chinese people. All of the voting stock of United was transferred to the Foundation, China Trading transferring its class A stock and acquiring for the Foundation and having transferred to it all of the class B stock, which at that time amounted to 75,000 shares. This was in June 1948. Other gifts were made to the Foundation by China Trading, but they are not material to this controversy.
Charter rates declined in 1948 and United was not able to exercise the option for the purchase of the stock of National between September 15 and October 15, 1948, in accordance with the terms of the option, and was obliged to ask for an extension. This was granted by the owners of the stock of National upon the payment of $100,000 in cash and the giving of security to secure the balance of the option price. Not until January 1949 did United exercise its option to purchase the stock. The tanker Meacham continued to be owned by National until November 1949, when it was transferred to the Meacham Corporation, a wholly owned subsidiary of the Foundation, pursuant to a settlement of indebtedness had between the various parties who had been connected with the chartering of the vessel.
From the time of the acquisition of the Meacham by National and the execution of the bareboat charter to United, the vessel had been operated by Sieling and Jarvis, an American firm, as managing agents for United, Mr. Sieling of that firm being one of the directors and stockholders of United. The time charter by United to China Trading and the voyage charters by China Trading to Chinese Petroleum were approved by the Maritime Commission, which had before it at the time of the approval the bare-boat charter from National to United. The Commission had before it at the time of the sale of the vessel to National information to the effect that the bare-boat charter was to be executed by National to United, that United was being given an option to purchase and that the money for the purchase of the vessel by National was being supplied by Chinese interests.
On the facts as stated, I think it clear that no forfeiture of the vessel was incurred either under the Shipping Act or *551the registry statutes. The vessel was transferred to National by the Maritime Commission itself; and, even if National be regarded as an alter ego of United and United as a non-citizen, it cannot be said that a transfer that the Commission itself made was made without the approval of the Commission. If the transfer had been obtained by fraud, this might furnish a basis for rescission or for a criminal prosecution for conspiracy to defraud the United States, but not for forfeiture on the ground of transfer without approval. It is elementary that “forfeitures are not favored; they should be enforced only when within both letter and spirit of the law.” United States v. One 1936 Model Ford V-8 De Luxe Coach, 307 U.S. 219, 226, 59 S.Ct. 861, 865, 83 L.Ed. 1249. Furthermore, National was clearly a citizen within the meaning of the statute. All of its stockholders and all its officers, except an assistant treasurer, were citizens of the United States. It was not, as suggested, an alter ego of United, but of American Overseas Tanker Corporation, having been organized by American Overseas because that corporation was precluded by its contract with Metropolitan Life from handling the vessels. It was used as a means of collecting for the stockholders of American Overseas the profit which was expected from the dealings with United.
National continued to hold title to the Meacham from the time of the sale by the Commission in May 1948 until the transfer to the Meacham Corporation in November 1949. The bareboat charter to United in the meantime is certainly no ground of forfeiture under the statute; for the sale by the Commission to National was with knowledge on the part of the Commission that the bare-boat charter was to be executed. This is established beyond peradventure; and the sale of the vessel under such circumstances was certainly approval by the Commission of the proposed bare-boat charter. In addition to this, the Commission expressly approved the time charter by United to China Trading and the voyage charters by China Trading to Chinese Petroleum, having before it at the time the bareboat charter to United; and this was certainly sufficient approval of the bareboat charter to preclude forfeiture under the statute. The only reason that approval of that charter was not expressly asked and given was that everyone concerned, including counsel for the Commission itself, regarded United as a citizen corporation within the meaning of the statute.
When title was transferred by National to the Meacham Corporation in November 1949, this transfer was not to an alien corporation but to a domestic corporation, the president and directors of which were American citizens and all of the stock of which was owned by the Foundation. As heretofore stated, all of the members and trustees of the Foundation were American citizens. The fact that they were to use the funds of the Foundation for the benefit of Chinese students and for the scientific and cultural advancement of the Chinese people detracts not one iota from their American citizenship or from that of the Foundation. A domestic philanthropic society does not lose its status as such because its funds are to be used in other countries. No one would contend, I think, that an incorporated American missionary society is to be denied the status of a citizen under the statute because its funds are to be expended for the benefit of people in foreign lands.
There has been much argument pro and con as to the citizenship of United when tested by the criteria laid down in the provisions of the Shipping Act; but, in the light of what has been said above, it seems clear that the citizenship of United is not vital to the decision of the case. United at no time had title to the Meacham or even an option to purchase that vessel; and, even if the option to purchase the stock of National be equivalent to an option to purchase the vessels owned by National, a propo*552sition to which I do not subscribe,2 it is clear that an option is not a transfer of title but merely an agreement which may lead to a transfer if the option is exercised. When the option on the National stock was exercised by United, all of the voting stock of United was held by the Foundation which unquestionably complied with the citizenship requirements of the statute, so that United was a citizen corporation; but it should be remembered that the transfer of the vessel was not to United but to the Mea-cham Corporation, a wholly owned subsidiary of the Foundation.
I think, however, that United was from the beginning a citizen of the United States within the meaning of the statute. This was the view of counsel for the Commission who had the facts before him. It was also the view of some of the ablest and most distinguished law firms of the country in handling matters of great importance to the clients whom they represented; and I find nothing in the record upon which to base a contrary conclusion. The fact that Chinese interests supplied the capital upon which United operated is not material, and I think it equally irrelevant that the class A stock, held by the Chinese, was to receive nine-tenths of the profits of the corporation, whereas the class B stock, held by citizens of the United States, was to receive one-tenth, and that upon dissolution the assets were to be divided in like proportion. This was merely giving to the class A stock some of the qualities of preferred stock, not taking the control of the corporation from the class B stock, which represented a majority of the voting power.
It is the control of the corporation which counts under the statute, not the investment of funds or the right to earnings. Section 2(a) of the statute provides that for a corporation to be a citizen within its meaning the “controlling interest” in the corporation shall be owned by citizens of the United States, and section 2(b) is but an elaboration of the basic idea of section 2(a) designed to guard against trusts and other devices which might be employed to vest control in non-citizens. All four of its requirements were met by United. The majority of the stock of United was at all times in citizens, the majority of the voting power was in citizens, there was no contract or understanding by which the majority of the voting power could be exercised in behalf of a non-citizen, and control of the corporation was not conferred upon or permitted to be exercised by non-citizens. At all times the control of the corporation was in the hands of its directors, who were substantial and upstanding citizens of the United States, and who owned the stock by which they could hold themselves in office. The fact that they had paid an insignificant sum for the stock is immaterial ; for the ownership of the stock gave them absolute control of the corporation which any court would recognize and enforce. The amount paid for class A stock was likewise an insig*553nificant amount compared with the business in which the corporation was engaged. The capital upon which the corporation was operating was obtained from loans; and there is nothing in the statute or its history to indicate that the sort of control which a creditor has over his debtor would suffice to nullify for the purposes of the statute the legal control inherent in stock ownership.
There is nothing in the record to justify the contention that the stock held by citizens of the United States was held by them in trust for non-citizens. On the contrary, the evidence is that the corporation was set up for the purpose of complying with the statute and there is nothing to justify an inference that United States citizens who accepted its stock were engaged in an attempt to evade the law or to perpetrate a fraud upon the government. And I find nothing in the record to justify a finding that United was in fact dominated and controlled by the Chinese. No such inference can be drawn from the fact that the Chinese procured or furnished funds with which the corporation operated or that a number of Chinese were employed in its operations. The Chinese, of course, arranged for financing the purchase and operation of the vessel; but any conclusion as to control which might ordinarily be deducible from this circumstance is nullified by the fact that they and their counsel thoroughly understood that to secure a vessel from the Maritime Commission under the circumstances then existing a corporation must be controlled by citizens of the United States; and it was intended that, notwithstanding the financing by the Chinese, unfettered control should rest with the citizens to whom the class B stock was issued and who held it in absolute ownership and not under a trust in favor of anyone. So far as the carrying on of the business of the corporation was concerned, this consisted for the greater part in the management and operation of vessels upon which bare-boat charters were held, and such operation and management was in the hands of Sieling and Jarvis, American shipping agents. I think, therefore, that United was a citizen within the meaning of the statute; but, as pointed out above, I do not think that the citizenship of United is vital in the decision of the case, since the corporations which owned the vessel, National and Meacham, unquestionably complied with the citizenship requirements of the statute.
It is argued that the provision of the Shipping Act is unconstitutional. Since the act forbids the transfer of a vessel from a citizen to a non-citizen without the approval of the Maritime Commission and since no standards are prescribed for the guidance of the Commission in the exercise of the discretion thus vested in it, a grave question arises as to whether this is not an unconstitutional delegation of Congressional power which would render void the section of the act here relied on. See Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S. Ct. 241, 79 L.Ed. 446.
It would seem, furthermore, that section 9 of the Shipping Act has no application here, since it applies only to the transfer of a vessel or an interest therein owned in whole or in part by a “citizen” of the United States and the United States, which owned this vessel, is not a “citizen” but the nation itself. The purpose of the act was to prevent sales by “citizens” without the approval of the Maritime Commission, not to limit the power of the government itself to make sales through the Commission.
I shall not go into these matters at length, however, since it seems clear to me that even though the statute be constitutional and be held applicable to a sale of government vessels by the Commission, no ground of forfeiture exists here for the reasons heretofore stated. It seems clear that National and Mea-cham, the only corporations to which transfers were made, were not non-citizen corporations within the meaning of the statute; and even if they were, the transfer to National, having been made by the Commission, could not be held a transfer without the approval of the *554Commission, and if National was a non-citizen, the statute did not require that a transfer by it be approved. Upon purely legal grounds, therefore, I think the forfeiture should be denied. When equity and justice are considered, little can be said for allowing the government to retain the purchase money received for a vessel it has sold and at the same time forfeit the vessel because of the sale.

. The class B stock was later increased to 30 and then to 75,000 shares and 25,-000 shares of preferred stock were issued and delivered to China Trading for moneys it had advanced; but the class B stock constituted at all times a majority of the outstanding shares of stock and had the voting control of the corporation. After the A and B stock of United was acquired by the Foundation it was converted into a single class of common stock which controlled the corporation not only because it constituted a majority of all the shares of stock outstanding but also because the preferred stock had no voting power.

. The 1918 amendment to section 9 of the Shipping Act added section 37 of the act in its present form, requiring the approval of the Commission for a transfer of a controlling interest or the majority of the voting power in a corporation owning a vessel; but this applies only in time of a national emergency and specifically provides, not for the forfeiture of the vessel, but for the forfeiture of the stocks or bonds transferred. In the hearings had on the passage of the 1918 amendment, Mr. Berling, counsel for the Shipping Board, made the following statement with ■ respect to the proposed addition of section 37: “ * .* * You see the original act prohibited a ship from being transferred to a corporation which is owned abroad, but there is nothing in the act to prevent foreigners from coming in and buying all the stock. You can organize a corporation the stock of which is owned by Americans, and as soon as it is organized you can go to work and have that stock transferred to foreigners and thereby defeat the spirit of the law, and this forbids that any such stock shall be so transferred.” (Hearing before House Merchant Marine and Fisheries Committee, 65th Cong. 2d Sess., April 1918).