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I.G. Farben Shareholders Organization v. UBS AG

September 5, 2006

I.G. FARBEN SHAREHOLDERS ORGANIZATION A/K/A I.G. FARBEN AKTIONARSVEREINIGUNG E.V. I.L., PLAINTIFF,
v.
UBS AG; A/K/A/ UNION BANK OF SWITZERLAND, DEFENDANT.



The opinion of the court was delivered by: Glasser, United States District Judge

MEMORANDUM AND ORDER

INTRODUCTION

This action continues a sixty-year legal battle over the distribution of proceeds from the sale by the U.S. Government ("Government") of a seized corporation, General Aniline & Film Corporation, ("GAF" or "GAF Assets") allegedly owned by I.G. Farben ("Farben"), a company known to have aided Nazi Germany's World War II effort. This action is brought by I.G. Farben Shareholders Organization ("Plaintiff" or "FSO"), a successor in interest to I.G. Farben. FSO is a "legal entity registered and licensed in Cologne, Germany, which retains the majority of the legal interest in all foreign assets of the former I.G. Farbenindustrie-in-Liquidation under German law,"*fn1 including a right to sue on all of Farben's prospective claims. (Compl. ¶ 17).

Here, Plaintiff sued the Union Bank of Switzerland ("UBS" or "Defendant"), successor-in-interest to Interhandel*fn2 for the portion of the proceeds it received from the 1964 auction sale of GAF which had been seized by the Government pursuant to the Trading With the Enemy Act ("TWEA"). In essence, the Complaint asserted that GAF was actually held in trust by Interhandel for Farben's benefit prior to its seizure by the Government, and that the proceeds from the sale therefore should not have gone to Interhandel.

The Complaint sought a declaration, amongst other things, as to whether the Treaty on the Final Settlement with Respect to Germany, Sep. 12, 1990, 29 I.L.M. 1186 ("Unity Treaty") superseded and vitiated 50 App. U.S.C. § 39(d), the Trading With the Enemy Act, "thereby reverting non-vested German property, including assets wrongfully held by the defendant." (Compl. ¶¶ 98-99). Plaintiff also sought an accounting and constructive trust based on claims of unjust enrichment and "tortious injury to personal property." (Compl. ¶¶ 100-107).

On May 26, 2006, the Complaint was dismissed by this Court from the bench. UBS subsequently filed a motion for attorneys' fees pursuant to 28 U.S.C. § 1927 and this Court's inherent power to make such an award. For the following reasons, that motion is granted.

BACKGROUND

I. Overview

The arguments made in the 27-page Complaint can be encapsulated in a few paragraphs. In essence, Plaintiff seeks yet another determination of whether or not the GAF assets, admittedly lawfully seized by the Government pursuant to section 39 of TWEA, should now be returned to the successors in interest to I.G. Farben, a company that indisputably played an essential role in the Nazi war effort of World War II. Plaintiff bases its claim upon a presumed factual predicate that has already been litigated in the highest Courts of both Germany and the United States, and which was settled by the U.S. Government. That factual predicate is that a Swiss Company, Interhandel, the nominal owner of the GAF Assets, was held in secret trust for the benefit of I.G. Farben-- a trust that by Plaintiff's contention was established by Farben at the behest of the Nazi government precisely for the purposes of evading seizure by the Allied powers in World War II.

Plaintiff's argument is also based upon a legal argument heretofore unraised: that the Unity Treaty which dealt primarily with the Unification of formerly divided Germany somehow revived Farben's interest in property seized and vested in the U.S. Alien Custodian in the 1940s pursuant to TWEA, and that the proceeds of the GAF Assets given to defendant UBS by virtue of the Government's settlement with them may, because of the Unity Treaty, now be returned to the successors of the Nazi collaborators from whom they were justifiably taken.

In sum, Plaintiff asks the Court to enforce an alleged trust made for the purpose of defrauding the Government. That argument is duplicative and frivolous on its face, and merits an award of attorneys' fees to UBS.

II. Background of Litigation

With the exception of the question of a secret trust relationship involving the GAF Assets, little else is in factual dispute. Title 50 App. U.S.C. § 1 et seq. grants the executive branch extraordinary powers during wartime to seize enemy and enemy ally assets. In 1942, the U.S. Treasury Department ("Treasury") determined that GAF was an asset of Farben, a company that by Plaintiff's own admission played a significant role in facilitating Nazi Germany's aggression in World War II, including the production of explosives and synthetic gasoline. (Compl. ¶¶ 57-60).*fn3 Via several executive orders issued between 1942 and 1946 and pursuant to Congressional authority provided by TWEA as then in force, the Treasury authorized the seizure of a portion of GAF Assets. (¶ 58). See also Declaration of Thomas Teige Carroll "Carroll Decl." Exs. A, B & C). Those seizures resulted in the vesting of those assets in the U.S. Government. For example, a February 17, 1942 vesting order provided that certain GAF shares were "to be held, used, administered, liquidated, sold or otherwise dealt with in the interest of and for the benefit of the United States." (Vesting Order No. 1, 4 Fed. Reg. 1046 (Feb. 17, 1942)," Carroll Decl. Ex. A). At the time, GAF was a subsidiary of the Swiss company Interhandel, a predecessor of Defendant. (Compl. ¶ 2).

In 1948, Congress amended TWEA, codified at 50 App. U.S.C. § 39, barring the return of vested assets to enemies or their successors in interest. This section provides, in relevant part:

No property or interest therein of Germany, Japan, or any national of either such country vested in or transferred to any officer or agency of the Government at any time after December 17, 1941, pursuant to the provisions of this Act...., shall be returned to former owners thereof or their successor in interest, and the United States shall not pay compensation for any such property or interest therein.

50 App. U.S.C. § 39(a).

The exclusive remedy for such seizure was suit under section 50 App. U.S.C. § 9(a). 50 App. U.S.C. § 39. In La Due & Co. v. Rogers, the Seventh Circuit noted that, "in an action brought under section 9(a) of the Trading with the Enemy Act, the plaintiff bears the burden of proof in establishing the right, title and interest sought to be recovered in the vested property." 259 F.2d 905, 908 (7th Cir. 1958), cert. denied, 79 S.Ct. 588, 359 U.S. 911, 3 L.Ed.2d 575. Plaintiff concedes that it was and is barred from reacquiring the GAF assets from the Government. (Transcript of Oral Argument at 10:5-25, Farben Shareholders Organization v. UBS AG, (2006) (No. 05-4041) (hereinafter "May 26 Trans.")).

Soon after seizure, Interhandel, nominally a Swiss company, sued the American Government, seeking return of the GAF Assets. See Société Internationale Pour Participations Industrielles et Commerciales, S.A. v. McGranery, 111 F.Supp. 435, 437 (D.D.C. 1953). "Interhandel, supported by the Swiss government, took the position that I.G. Chemie [a/k/a Interhandel] had severed its relationship with I.G. Farben in 1940 and was not a German-owned company at the time of the U.S. government seizure, and therefore, the seizure of its American I.G. assets in 1941 was unlawful."*fn4 (¶ 6). As a consequence, Interhandel contended, they were not "enemies" or "enemy allies" subject to TWEA. (¶ 59).

The litigation over the GAF Assets continued for the next sixteen years. Meanwhile, "Farben itself was seized by the Allies and destined for liquidation."

(Compl. ¶ 7). On January 21, 1955, the I.G. Farben Liquidation Act eliminated I.G. Farben and created I.G. Farbenindustrie i.A. ("Farben-in-Liquidation"), for the purpose of winding-up Farben's business obligations. (¶ 66). In 1958, Farben-in-Liquidation attempted to intervene in the ongoing legal dispute between Interhandel and the Government, claiming that it had a beneficial interest in the assets. (¶ 8). Its application was summarily denied by the district court. (¶ 9). Order, Société Internationale pour Participations Industrielles et Commerciales, S.A. v. Rogers, No. 4360-48, at 1 (Dec. 19, 1958) (Carroll Decl. Ex. F).

Litigation between the Government and Interhandel continued. The Government asserted that the Interhandel and therefore the GAF assets were actually owned by I.G. Farben and therefore had been properly seized. The Government also sought corroborating discovery from Interhandel, which, despite several court orders, refused to produce the relevant information. (Compl. ¶¶ 66-75). The district court dismissed the case with prejudice for failure to comply with the discovery order and the appellate court affirmed. See Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Brownell, 243 F.2d 254 (D.C. Cir. 1957). The case went to the Supreme Court, which in 1958 reversed lower court determinations and held that the failure of Interhandel to fully comply with a pretrial production order was not due to its own conduct, but rather because production of those documents might violate Swiss laws, and therefore the district court's dismissal with prejudice was unwarranted. See Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 78 S.Ct. 1087 (1958). The case was therefore remanded for further proceedings.

The litigation continued into the early 1960s when, between 1962 and 1964, Interhandel and the Government negotiated and consummated a settlement whereby GAF was auctioned to the highest bidder. The proceeds of the sale were divided between the Government and Interhandel, which received roughly 40% of that amount. That negotiation was conducted by and at the highest levels of the United States Government, with Attorney General Robert Kennedy being directly involved. (¶ 82). President Kennedy reflected upon the settlement in light of the prospect of ten more years of litigation and adjudged it to be the "best solution" available. (John F. Kennedy, Public Papers of the Presidents of the United States, in Carroll Decl., Ex. G). The value of that distribution is estimated to have been $122,000,000. (¶¶ 9, 84).

Although it was denied intervention in the final settlement of claims to the GAF Assets, Farben, through various actual or purported successors to its legal claims, has pursued those interests in this Court and at least two others. In 1983 Farben-in-Liquidation, a successor to I.G. Farben, brought suit against UBS in Germany, essentially asserting the secret trust theory proposed here. (ΒΆΒΆ 10, 86). In 1988, the Higher Regional Court in Frankfurt decided against Farben on the merits of the trust claim, holding that "there is no legally valid fiduciary agreement between the parties, in addition to which any such agreement that were to exist would be subject to Swiss law and would be statute-barred..." Makro Capital of America, Inc. v. UBS AG, 372 F.Supp.2d 623, 625 (S.D.Fla. 2005) (citing ...


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