The opinion of the court was delivered by: HERLANDS
The pending motions in this litigation present a problem of judicial review in the field of international administrative law.
Plaintiff holds two hundred and forty-five $ 1,000 bearer bonds issued by a German corporation, Vereinigte Stahlwerke Aktiengesellschaft. (This corporation and its successors are referred to as the 'Steel Works.') Those bonds have been declared invalid by an international administrative agency, the 'Board for the Validation of German Bonds in the United States.' This Board (referred to herein as the 'Validation Board') functions under a 1953 treaty and related legislation operative between the United States and the Federal Republic of Germany.
Plaintiff claims that he is entitled to have the issue of the validity of the bonds determined at a full judicial trial before the court and a jury.
Defendants oppose plaintiff's demand for a de novo hearing before the court. They claim that the 1953 treaty and related laws provide for review of the Board's decision only in the traditional sense of 'judicial review' -- a review of the administrative record in order to ascertain whether there was substantial evidence to sustain the Board's determination of invalidity.
The fundamental question thus posed concerns the nature and scope of the review provided by the 1953 treaty and related laws. The answer to that question requires a consideration of (1) the history of German Dollar Bonds during the period between the 1920's and 1945; (2) the problem created in May 1945 by the Russian Army's seizure of negotiable German Dollar Bonds; and (3) the procedures devised in 1952 and 1953 by the United States and Germany, through specific legal measures, to screen invalid Dollar Bonds.
History of German Dollar Bonds
After the First World War, and principally between 1924 and 1930, a large number of bearer Dollar Bonds were sold by German enterprises. These bond issues were underwritten in the United States, and were payable through corporate trustees or paying agents in the United States.
Prior to the outbreak of the Second World War, many of these Dollar Bonds had been repurchased and reacquired by the issuers for eventual retirement, and later submitted to meet sinking fund and amortization requirements. Such reacquired bonds were retained in Germany and no longer represented valid obligations.
During the Second World War, it was impossible to present such bonds to the American trustees or paying agents for cancellation. As a consequence, large numbers of these uncancelled bearer Dollar Bonds, in negotiable form, were held in the vaults of German banks.
Problems Created by Russian Seizure of Dollar Bonds
After the surrender of Germany, Russian occupation forces seized the uncancelled, negotiable Dollar Bonds which they found in the German bank vaults within the area of their control. The face amount of such bonds has been estimated at $ 350,000,000. These looted bonds were returned to circulation by the Russians.
At the same time, other German Dollar Bonds, amounting to about $ 250,000,000, were in the legitimate possession of their bona fide purchasers. There was thus a real possibility that the eventual holders of the looted bonds would share the available assets (limited available foreign exchange) of the German obligors equally with the legitimate bondholders, a large number of whom were nationals of the United States. Moreover, the free and open trading in the United States of all German Dollar Bonds was impeded by the uncertainties arising from the situation described above.
Objectives of Screening Procedures
In order to avoid the indicated consequences and to facilitate the settlement of German external debts, the United States and other nations cooperated with the German Federal Government in creating a procedure whereby all foreign currency bonds, including Dollar Bonds, might be screened. The specific objective was to determine whether they were valid or were among those originally seized by the Russians. In that way, holders of $ 350,000,000 worth of looted Dollar Bonds would not be permitted to share in the limited available foreign exchange assets with the holders of $ 250,000,000 worth of legitimate Dollar Bonds.
The screening procedure for separating legitimate from Russian-stolen bonds and the controlling criteria were set forth in a number of measures. The central idea was to require all German foreign currency bonds, including Dollar Bonds, to be submitted for a determination of their validity.
The pertinent measures, listed chronologically, are:
1. The Validation Law of August 25, 1952
2. The First Implementing Ordinance of February 21, 1953
3. The Agreement on Validation Procedures of February 27, 1953
4. The Second Implementing Ordinance of March 13, 1953
5. The Treaty of April 1, 1953 Validation Law
The Validation Law (Law for the Validation of German Foreign Currency Bonds) was enacted by the German Government on August 25, 1952. It established the procedures and criteria for validation. Its material provisions will be discussed in the course of this opinion.
The schedule of foreign currency bonds attached to the Validation Law lists the bonds to which the provisions of the Validation Law apply. Subdivision C. (IV) lists the bonds which had been offered in the United Stated. Item 81 of that subdivision designates the issue of bonds which are involved in this litigation: 'Vereinigte Stahlwerke Aktiengesellschaft -- 6 1/2% -- 20 year Sinking Fund Debentures, Series A -- Due July 1, 1947.'
The Validation Law is set forth at pages 33 to 89 of Exhibit B, attached to the complaint herein.
First Implementing Ordinance
The 'First Implementing Ordinance' of February 21, 1953, issued under the Validation Law, plays no part in this case. It lists additional bonds which came within the coverage of the Validation Law. (See footnote, page 74, Exhibit B, attached to the complaint herein; also Article 1 of Exhibit A, attached to the complaint herein.)
Agreement on Validation Procedures
The 'Agreement on Validation Procedures' of February 27, 1953, is an executive agreement between the United States and Germany. It is set forth at pages 1 to 17 of Exhibit B, attached to the complaint herein. It is based upon the Validation Law of August 25, 1952. It recites 'that the policy of the Federal Republic of Germany embodied in the Validation Law is in conformity with the policy of the United States,' and that the United States 'wishes to implement' the provisions of the Validation Law 'within the territorial jurisdiction of the United States' by making 'mutually satisfactory' provision 'as to the procedures therefor within the territorial jurisdiction of the United States.'
The 'Agreement on Validation Procedures' established a 'Board for the Validation of German Bonds in the United States,' referred to as the 'Validation Board' (Section 2). That Board is composed of three members; one German, who at the time of the decision adverse to plaintiff, was defendant Dr. Jur. Walther Reusch; one American, Douglas W. Hartman; and a chairman, David A. Stretch, a member of the law firm of Simpson, Thacher & Bartlett, of New York. The chairman sits as an umpire in case of a difference between the German and American members. In addition, there were, as the time of the decision of the Validation Board adverse to plaintiff, three deputy members of the Board: Dr. Walter Skaupy and Dr. Walter Clemens, Germans; and Richard D. Kearney, an American. Dr. Skaupy has replaced Dr. Reusch, who has retired as the German member of the Board. Dr. Clemens is at present the only German deputy. William J. McCarthy has replaced Mr. Kearney as the American deputy.
The Agreement on Validation Procedures also dealt with the subject of Arbitration Boards (Section 3); the publication of certain notices (Section 5); and the binding effect of a decision of the Validation Board and of 'any decision reviewing a decision of the Validation Board pursuant to a legal remedy allowed by' the Validation Law (Section 7).
Second Implementing Ordinance
On March 7, 1953, the German Government approved, and on March 13, 1953 promulgated, a law known as the 'Second Implementing Ordinance under the Validation Law for German Foreign Currency Bonds.' This ordinance was consented to by the United States. The ordinance is set forth at pages 24 to 29 of Exhibit B, attached to the complaint.
The Second Implementing Ordinance implemented the application of the Validation Law to Dollar Bonds (Article 1); transferred the functions of the 'Foreign Representative,' as defined in the Validation Law, to the Validation Board (Article 3); prescribed the form, contents and procedures of evidentiary documents and proceedings before the Validation Board (Article 4); prescribed the action and adjudicatory operations of the Validation Board in respect to validating or invalidating bonds presented to it; and provided for 'the review of decisions of the Validation Board denying validation' by statutory arbitration boards (Article 6).
On April 1, 1953, the United States and Germany signed the Treaty regarding 'Certain Matters Arising from the Validation of German Dollar Bonds.' The Treaty became effective on September 16, 1953. The Treaty is Exhibit A, attached to the complaint. The Treaty confirms and, in effect, incorporates by reference the Validation Law of August 25, 1952, the First and Second Implementing Ordinances, and the Agreement on Validation Procedures.
The Treaty provides that no bond shall be enforceable unless and until it shall be duly validated (Article II); that the members of the Validation Board waive immunity from service of process issuing from 'courts in the United States in proceedings brought to determine whether the requirements for validation of bonds under the Validation Law have been met' (Article III); and that the members of the Validation Board will comply with any judgments, orders or decrees issued by such courts in such proceedings (Article III). (Emphasis supplied.)
Both the Validation Law (Articles 3(1) No. 1, 21(1), 27) and the Second Implementing Ordinance (Articles 4(3)(6), 5) require the Validation Board to validate a bond duly registered with it if the registrant-bondholder establishes that the bond was 'held abroad,' which latter term is defined as 'located on January 1, 1945, outside the borders of Germany as they existed on December 31, 1937 (hereinafter called 'outside Germany').' So far as the case at bar is concerned, the foregoing are 'the requirements for validation of the registered bond' which the registrant-plaintiff 'has to prove' (Validation Law, Article 24(1)), because he claims that he held the bonds outside Germany on January 1, 1945.
Details of Procedure Before Validation Board
The procedure before the Validation Board involves the following features:
(A) If validation is demanded on the ground that the bond was held outside Germany on January 1, 1945, the bond must be registered with the Validation Board (Validation Law, Articles 7(1), 21);
(B) Specified items of information must be set forth together with 'the facts relevant for the registration' and 'an indication or submission of the evidence' (Validation Law, Article 22; Second Implementing Ordinance, Article 4);
(C) The registered bond must be submitted and delivered to the Validation Board or deposited with a suitable institution, unless the Validation Board provides for some other procedure (Validation Law, Article 23);
(D) The registrant has the burden of proving the requirements for validation. 'For this, he may use any evidence, in particular official documents, statements of a bank or broker, and affidavits or other forms of affirmation' (Validation Law, Article 24(1));
(E) 'The issuer as well as the trustees and paying agents shall be given an opportunity to make a statement in respect of the registration and to submit evidence' (Validation Law, Article 24(2));
(F) The Validation Board 'may make such investigation as' it 'considers necessary to ascertain the facts. For this purpose' it 'may request the registrant to submit specified documents or other appropriate evidence' (Validation Law, Article 24(3)). The Validation Board 'may request the courts to take depositions of witnesses and experts and to receive other evidence' (Validation Law, Article 17);
(G) 'If there is reason to believe that a bond * * * cannot be validated,' the Validation Board 'shall inform the registrant of the facts and evidence on which such belief rests and shall give him an opportunity to refute his belief' (Validation Law, Article 24(3));
(H) The registrant has 'a period of three months from the receipt of such request' within which to submit his evidence or statement (Second Implementing Ordinance, Article 5(2));
(I) 'As soon as the Validation Board considers the record as sufficiently complete, it shall make its decision regarding the validation' (Second Implementing Ordinance, Article 5(3));
(J) 'In no case shall validation be denied before the Validation Board has informed the registrant of the facts and the evidence opposing validation and has given him an opportunity to contest ...