Melrose Distillers, Inc. v. United States

PETITIONER:Melrose Distillers, Inc.
RESPONDENT:United States
LOCATION:U.S. District Court for the Southern District of New York

DOCKET NO.: 404
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 359 US 271 (1959)
ARGUED: Mar 30, 1959
DECIDED: Apr 20, 1959

Facts of the case

Question

Audio Transcription for Oral Argument – March 30, 1959 in Melrose Distillers, Inc. v. United States

Earl Warren:

Number 404, Melrose Distillers, Incorporated et al., Petitioners versus United States of America.

Mr. Marx, you may proceed.

Robert S. Marx:

Mr. Chief Justice and members of the Court, I take it that you are all familiar with the question presented so I’ll plunge immediately into the statutes that are involved.

The common law, as Your Honors know, when a corporation was dissolved or put to death either by limitation or forfeiture or by its own act, that was the end of the whole situation and the corporation could no longer prosecute any claims that it might have for its property and anyone who had a claim against it for compensation or for money was without remedy.

Therefore, it was an order to relieve against the harshness of the common law that statutes such as we have here in Maryland and Delaware were enacted to enable a corporation to — for a limited period to recover any property that it might have or to enable those who had been injured by some civil act of the corporation to recover.

The Maryland’s — that is fully set forth at page 15 of our brief where we quote from Fletcher on corporations in which he says, “Statutes of this type are broadly remedial and statutes for whining up the affairs of dissolved corporations or embodiment of equitable doctrine.

They are remedial and should receive liberal constructions.

And that they do not extend the right to sue such corporations on debts not in existence —

Felix Frankfurter:

Do we have to — do we have to determine what Maryland and Delaware cases (Inaudible)?

Robert S. Marx:

Unfortunately, no, ironically.

Felix Frankfurter:

No?

You said unfortunately —

Robert S. Marx:

Unfortunately, we have no guide.

Felix Frankfurter:

No, no.

But we have to determine what Maryland and Delaware law is.

Robert S. Marx:

Yes.

Felix Frankfurter:

All right.

And that’s really is, isn’t it?

Robert S. Marx:

That’s unfortunately it.

That’s why I’ve said I would plunge immediately into a discussion of those Maryland laws.

Is it quite true if the — is there anything about the Government’s second point?

Robert S. Marx:

I don’t think that the Government’s second point rises beyond the Maryland law because if these corporations are not in existence for criminal purposes after they have been dissolved then they are not in existence, the government is not (Inaudible) by its alternative contentions.

Earl Warren:

We’ll recess now Mr. —

Robert S. Marx:

— Maryland statute which is referred to at page 4 of our brief, very short.

The dissolution of a corporation shall be effective when the articles of dissolution have been accepted for a record by the commission.

The record here shows that it was accepted.

Provided, however, that the corporation shall continue in existence for the purpose of paying, satisfying and discharging any existing debts and obligations.

Collecting and distributing its assets and doing all other acts required to liquidate and wind up its business and affairs.

Now, there’s no other purpose for which exists.

It exists for the purpose of paying, satisfying and discharging any existing debts and obligations.

Robert S. Marx:

It’s well settled that a fine in a criminal case imposed after a determination of the issue of guilt or innocence.

Long after the dissolution of a corporation is not an existing debt or obligation.

Now that is followed by another sentence —

Felix Frankfurter:

Why do you say — why do you say that?

It can be (Inaudible)

Robert S. Marx:

No, if Your Honor please, it cannot.

This Court so held on the Mitchell case.

Senator Mitchell, it’s quoted in our brief, I believe he was Senator.

He was found guilty and fined and during the appeal he died.

And that caused the criminal prosecution to be moot and the case was dismissed but the Government sought to collect the fine from its estate on the ground that it was a debt.

It was held it was not —

Felix Frankfurter:

That doesn’t prove that Maryland (Inaudible)

Robert S. Marx:

Well, I believe, if the Court please, that I would sort of categorically say that is the law that it’s not a debt.

It’s about or a fine.

It carries no interest.

You cannot be imprisoned for it.

It has no characteristics of it — it can be imprisoned for it.

You cannot be imprisoned for a debt.

Well, I’m going to pass that point because we covered enough —

Felix Frankfurter:

You can imprison the corporation.

Robert S. Marx:

No.

Felix Frankfurter:

So that you haven’t got (Voice Overlap) —

Robert S. Marx:

Well, you could have (Voice Overlap) — no but if it was an individual, if Your Honor please.

Felix Frankfurter:

Yes, I know but it is individuals of the corporation.

Robert S. Marx:

That’s true.

We — we cover that fully on our brief and the next section I think throws further light on this situation.

The dissolution of a corporation — this is Section 78 (a) shall not relieve its stockholders, directors or officers from any obligation and liability imposed on them by law.

Now, I take if that would mean that if in case of stockholders double liability, they are not relieved.

In case of director’s liability they are not relieved.

In case of unpaid stock subscriptions they are not relieved.

Robert S. Marx:

Labor claims sometimes are imposed upon the officers or directors.

That is the end of the Section insofar as the substance of law is concerned.

That is the semicolon.

Then follows what I submit and on very good authority is purely procedural.

Nor shall such dissolution abate any pending suit or proceeding by or against the corporation.

And all such suits maybe continued with such substitution of parties, if any as the court directs.

Well, of course there cannot be any substitution of parties in a criminal case.

This acts as procedural provision relates to civil procedure as I will demonstrate in just a moment.

No receiver shall institute suit except by order of the court appointing him and such suit maybe brought in his own name as receiver or notwithstanding its dissolution in the name of the corporation to refuse.

Now, in 1956, the Supreme Court of Maryland undertook to codify the Maryland rules of procedure and they provided in those rules of procedure under Rule 222, under the heading, dissolution of a corporation.

An action by or against the corporation shall not abate by reason of the dissolution, forfeiture of charter, merger or consolidation of such corporation.

Such action maybe continued with such change of parties as the court may direct.

Now, I take that court will immediately ask, well couldn’t that be a criminal action?

And the answer is found in the Rules of Civil Procedure under Rule 5 definition.

It has used in these rules the following terms have the following meanings.

Action, action shall include all the steps by which a party seeks to enforce any right in a court of law or equity.

Unless, otherwise, indicated the word action shall include in appeal, take into a court of record from the final decision of an inferior core of administrative body where such appeal is authorized by statute.

And I call, Your Honor’s attention to whenever the word proceeding is used to indicate criminal proceedings it’s always preceded by the word criminal.

In other words, the two are coupled together as they are here.

Action shall not include a criminal proceeding.

Now, as further evidence, that this provision after the semi-calling nor shall dissolution abate any pending suit or proceeding was purely procedural and not part of the substantive law.

After the Maryland Court of Appeals, I believe as the highest court of the State, had codified the Rules of Civil Procedure and the Rules of Criminal Procedure as well.

The legislature came along and in the laws of Maryland of 1957, and this I do not think it’s in our brief, they enacted a long list of laws to remove any procedural matters from the statutes.

And so as eliminating doubt that this was procedural, the enacting clause says, “To remove from the code of public general laws of Maryland, procedural provisions superseded by or inconsistent with the rules or procedure approved and adopted by the Court of Appeals of Maryland on July 18th, 1956 to take effect on January 1, 1957 and known as the Maryland Rules.”

Now, if anyone wishes to make a note of it.

William O. Douglas:

What is the citation of —

Robert S. Marx:

The citation is to Chapter 399 of the laws of Maryland and what I’ve just read will be found at the bottom of page 524, the laws of Maryland of 1957.

It’s a long and acting law and that’s the reason I’m pointing out where it’s to be found.

It’s four or five pages long so that’s the part that’s important here.

Now, when we come to Chapter 399 at page 544, the same volume, we find the Act passed by the legislation which is entitled “effective dissolution”.

Robert S. Marx:

And it simply says the dissolution of a corporation shall not relieve its stockholders, directors or officers from any obligations and liabilities imposed on them by law.

In other words, all of the procedural part which follows the semicolon is deleted because that is procedural.

It’s covered by the Rules of Civil Procedure and so recognized by the legislature.

So I think it’s quite clear.

Now, if there ever was any doubt, it’s been clarified by the legislature and by the highest court of Maryland that the only thing that continues is a civil action and that suit or proceeding relates to civil actions and does not embrace criminal actions.

And since the law is also quite clear that the state which brings a corporation into life may also put in to death or may enable it to continue for certain specific purposes and no other that Maryland has permitted by a remedial legislation a corporation to continue for the purpose of winding up, so to speak, and pay existing obligations but criminal actions are not continued and therefore abate.

In our brief, we’ve endeavored to set forth the distinction which probably is arguing the obvious between civil and the criminal prosecutions and I do not think it’s necessary to argue the obvious here in that respect.

Certainly, the issue in a criminal case is guilt or innocence.

And the fine which is all that could be imposed against the corporation does not come into existence until the preliminary issue is determined.

In a civil case the issue is whether or not the corporation had any liability to respond or compensate for matters which arose prior to its dissolution or whether he had any title of the property which it could recover.

Now, when we come to the law of Delaware, we find that, in substance, the same although the wording is somewhat different.

The Delaware statute is also in our brief and it’s not too long.

It’s at bottom of page 5, all corporations whether they expire by their own limitation or otherwise dissolved, shall be continued for three years from such expiration or dissolution embodies corporate for the purpose of prosecuting and defending suits by and against them and enable them to gradually settle and close their business to dispose off and convey their property and divide their capital stock but not for the purpose of continuing the business for which the corporation shall have been established.

With respect to any action, suit or proceedings began or commenced by or against the corporation, prior to the expiration or dissolution with respect to any action suit or proceeding began or commenced by or against the corporation within three years after the date the corporation shall only for the purpose of such action, suit or proceedings so began or commenced be continued body is corporate.

Now, there is another section of the law which says what those persons who continually may do after dissolutions?

It’s quite clear from that section that they must apply the assets to the existing obligations and that no debt or claim exists at the time of dissolution or until the fine is levied in this case, two years thereafter.

At page 25 of our brief, Your Honors will find that other Section quoted.It’s Section 281 and I think it appears at the bottom of the page.

The trustees are receivers of a dissolved corporation.

After the payment of all allowances, expenses and costs and the satisfaction of all special and general liens upon the funds of the corporation, the extent of the lawful priority shall pay other debts due from the corporation if the funds are sufficient, if not, they shall distribute the same ratably among the creditors who shall prove their debts.

And any balance remaining after the payment of the debts and necessary expenses, they shall distribute and pay to those who maybe justly entitled thereto.

Rather, this clearly has reference to the civil creditors and civil liabilities and that is the only purpose for which is continued the same as under the Maryland statute.

Now, the Government argues that the public policy should motivate the court to interpret the statutes so as to include criminal cases.

We have submitted that there’s no need for doing so, particularly in this case because first place, the question is moot.

The company is no longer in existence.

Secondly, the individuals who are its directors and officers are liable to punishment particularly under the antitrust laws which specifically provide that every director and officer of a corporation shall — who participated in the acts of the corporation shall be equally guilty with the corporation that personal liability to punish or continue in this particular case, an individual officer of each one of these companies was indicted and was fined.

The stockholders whom the corpora — whom the counsel for the Government argues ought to be punished, it would be a startling doctrine.

Stockholders are not guilty of the crimes of the corporation.

And the corporation is a completely separate and distinct entity.

And if we were endeavored to break down that doctrine, we would be molding a policy of far reaching consequences which would destroy the separate corporate entity under which stockholders enjoy various immunities and certainly it’s a unique doctrine that you will punish the stockholders for the crimes of the corporation.

Stockholders may even change from day to day.

Robert S. Marx:

I endeavor to reserve some time for reply and I’ll —

Earl Warren:

You may — you may (Inaudible).

Mr. Solomon.

Richard A. Solomon:

Mr. Chief Justice, members of the Court.

This is a criminal antitrust action under Section 1 and 2 of the Sherman Act in which a large number of corporations and their subsidiaries and substantial number of individual were indicted for conspiracy to fix prices and for attempting to monopoly.

And all of the corporations and all of the defendants, to the best of my knowledge, pleaded nolo contendere and fines have been imposed.

The question here relates to three of the corporations.

One of which is the Delaware corporation, the other of which — other two of which are Maryland corporations.

Who after the indictment were dissolved and their functions were taken over by other aspects of their parent corporation.

Now, the court below decided this matter by a construction of the Delaware and Maryland law.

And they looked into the problem that Judge Marks discussed with you here today as to whether under this relevant state law, the law provided for the continuance on of criminal prosecutions which had been brought prior to dissolution after the dissolution.

And the court below, for reasons which we think are correct and which I’ll go into briefly, decided that under the Delaware and Maryland laws, these criminal prosecutions which had been began prior to dissolution did continue.

But we do not think, if it will please the Court, that it is necessary or even advisable to rest the decision on these grounds.

Because as we shall argue in our alternative ground which we take very seriously, Your Honor, under Section 8 of the Sherman Act — excuse me, under Section 1 and 2 of the Sherman Act, any person who violates the law is guilty of a criminal act.

Now, Section 8 of the Sherman Act, defines the term person there and it defines it as including any corporation existing under or authorized by the laws of any state.

Therefore, we suggest that you don’t have to determine whether Maryland law or Delaware law or the laws of all 48 other states because this would all come up in other states from time to time.

You don’t have to determine whether those laws provide the state could continue to prosecute a criminal action after dissolution.

All you have to do under the plain language of Section 8 of the Sherman Act is to determine whether the corporation is in existence.

And we suggest that this is a very advantageous ground upon which this court might wish to raise.

This case is an important one because it involves Delaware because obviously a large percentage of the corporations involved in interstate commerce are Delaware corporations.

But if you decide this case by upholding the court below and we think that their position is perfectly sound.

But if you’ll limit yourself to the position that the court below took, then inevitably because of the difference in languages of the other statutes either other lower courts or eventually this Court is going to be called upon to decide whether the language in Delaware is or is not applicable to the language in New Jersey, New York, Texas or California or what have you.

And the lower court cases cited in the briefs which do in fact go off on to analysis of other state laws as well show you that you’re going to have 48 positions instead of one.

Now, very briefly, we think it clear that the value of corporate criminal liability isn’t up for question here.

Their course or interest in legal or philosophical arguments that can be made as to what — how a corporation can or cannot be criminally liable for anything.

But it certainly well settled by this time that corporate criminal liability particularly under the Sherman Act is one of the important and effective deterrents on violation of the Sherman Act.

And this is true even though it is also true as Judge Marks stated that the individual corporate officials are also liable.

And it’s true, as the cases have held despite the fact that a parent corporation has in this case, may also be liable.

On the other hand, it seems to me also clear that if by voluntary dissolution and that’s what happened in this case and in most of the other case.

If by voluntary dissolution a cooperation which has been indicted or is about to be indicted can evade its criminal responsibilities.

Richard A. Solomon:

But to that extent of it, a fairly significant extent, the basic sanctions which Congress intends to keep the Sherman Act from being violated have been limited.

Is there any suggestion in this case that the dissolution was for the purpose of escaping the fine?

Richard A. Solomon:

No, sir.

There’s no suggestion in this case and it may very well be as they argue in this case and as they have argued in other cases that the dissolution isn’t directly or indirectly related to escaping fines.

However, I suggest, Your Honor, we’ve cited on page 11 of our brief in a footnote there some 10 or 11 cases in recent years where dissolution has suddenly taken place either immediately before or immediately after in a criminal indictment under the antitrust laws.

We suggest that the problem is likely to become more serious because Congress just recently has raised the maximum find from $5000 to $50,000.

And we also suggest, Your Honor that assuming that a corporation dissolves for reasons of its own, we do not know of any reason, policy wise certainly, why the business judgment to dissolve for other reason should carry with it an exemption from the criminal liability for acts they have already committed.

Now, again, briefly, I don’t think I have to take much time with respect to the argument that’s made at some extent with the briefs with respect to debt of a corporation being analogist to death of an individual.

This was a valid concept in the 18th century when corporations — when they were dissolved did die completely and no further actions of any sort are possible.

But as the modern business corporation evolved in the 19th century was obvious that this was not in appropriate concept.

And therefore, over a period of time starting I think about 1819 in Massachusetts, all of the states have developed special statutory provisions which keep the corporation in effect for certain purposes after it is dissolved.

Normally, the corporation can wind up its business, can sue and be sued and as one court has said in a quotation cited in our brief, in effect do everything necessary to wind up its affairs other than carrying on the business it was originally incorporated for.

According to this court and all other courts while I occasionally have referred to the old common law rule and occasionally have mentioned that under the common law, a corporation was dead and it was dead, have recognized that dissolution is not the death of the corporation and if any analogy is correct, I should think it would probably would be that dissolution is a retirement, a force retirement of a corporation which you can’t continue in business but he’s going to be liable for what’s happened prior to his retirement.

Now, because statute had taken the place of the common law concepts which are out of date here, this Court has held that what must be done when the question comes up as to the extent to which a corporation exist after dissolution is look at the relevant law.

Now, this relevant law starts out of course with Section 8 of the Sherman Act, which says that a corporation is liable criminally if it exist under the laws of the states.

While some of the judges of the lower court level have in dictum suggested that the Government’s alternative position is a sound one.

I’ll make it fair to say that all of the decisions today have gone on analysis of whether state law provides for continuance of criminal liability after dissolution.

And the court below here found that both the Delaware law and the Maryland law did provide for continuance.

But we turn briefly to the Delaware law, and I’ll turn to this first because the conflict of the circuits which I presume is the reason why this Court is listening to this case, arises with respect to Delaware law, there’s no conflict with respect to Maryland law, there are only two cases with respect to Maryland law, both cited in our brief and both cases the courts have found that Maryland law does not abate.

The court — under Maryland law a criminal action is not abated by dissolution.

But let’s look at Delaware law upon which there is a split in the Circuit.

Now, the crucial section of the Delaware law is the Section 278 which Judge Marks read to.

And in our view, the crucial aspect of this Section is the second sentence thereof which reads with respect to any action, suit or proceeding began before the corporation is dissolved or within a three-year period after it is dissolve.

That action shall continue in force until any judgments orders or decrees therein shall be fully executed.

Now, that’s a fairly broad language.

It doesn’t say with respect to any civil action suit or proceeding.

It doesn’t use the word suit which has been alone, which has been the subject of conflicting decisions in lower courts.

It doesn’t say with respect to any action, suit or proceeding except a criminal proceeding.

It uses the broadest possible language which respect to any action, suit or proceeding and therefore the court below has held that — that language given the normal meaning, particularly the word proceeding has always been given.

Thus, include criminal proceedings and that therefore where you have a criminal proceeding started before dissolution or within a three-year period thereafter, you have liability continuing until that suit is decided.

Felix Frankfurter:

Is it your second ground rule, I don’t quite follow why (Inaudible) has taken careful analysis with the Delaware law.

As I understand your second ground is that if by the law of — by the law of the two corporations, a corporation isn’t out of existence is indeed for whatever purposes a state chooses (Inaudible) then it is a corporation however made and disabled and therefore the question of whether or not it should be liable to a federal statute, is a question for it in — in construing or rather implying a federal statute.

So that I don’t see why you — in the argument you now make a proceeding — why you don’t fit into and qualify your own second contention.

Richard A. Solomon:

Well, I don’t mean to be into and qualifying it, I think —

Felix Frankfurter:

Well, but you seek to establish that by factual analysis in reduction, even in the Delaware law, there’s a good deal of vitality to this court, is that right?

Richard A. Solomon:

Well, I don’t even think it’s a court.

It’s a very great —

Felix Frankfurter:

Well, I mean what is said to be a (Inaudible)

Richard A. Solomon:

Well —

Felix Frankfurter:

Am I wrong in —

Richard A. Solomon:

No, your —

Felix Frankfurter:

Your second proposition — your second basis is the one you urge here isn’t properly enough that if there’d be enough life in it and what was the full corporation other meaning and maybe it is.

And that’s all that you have to look to for state laws.

Richard A. Solomon:

Your Honor —

Felix Frankfurter:

The question of federal — construction of federal statute.

Richard A. Solomon:

Your Honor is absolutely correct and, however, in view of the fact that distinguished lower courts have taken a narrow ground and my friend here spent all his time on this narrow ground —

Felix Frankfurter:

Well, I’m not —

Richard A. Solomon:

I — I wanted to at least go in to it somewhat.

Felix Frankfurter:

Do you think — is it going for Sherman law basis on the basis of state law for a fortiori but the manner in which you started out and indicated that you have much more confidence on the second ground than on the third.

Richard A. Solomon:

No, I have equal confidence —

Felix Frankfurter:

All right.

Richard A. Solomon:

But let me —

Felix Frankfurter:

Anyhow, but you — you don’t want to forget the second ground and indeed you want to embrace it.

Richard A. Solomon:

Let me get to the second ground right away.

I think there’s only one real problem about the second ground.

As far back as the Northern Securities case, this Court indicated that states by their corporate laws cannot immunize corporations from the Sherman Act.

In other words, starting with Northern Security, it’s quite clear that Delaware could not have established a corporation and said this corporation shall have X, Y, Z functions but one of the functions it will not have is being liable to federal criminal suit.

Now, that’s Northern Securities that’s one with the law.

The problem was —

Felix Frankfurter:

I think a nearer — a more nearly accurate application — the application you’re making with Northern Securities is that what many state statutes corporate — corporation laws have said, it has functions and policy A, C and D and it can’t consolidate with another railroad at the common railroad corporate statute and nothing the Delaware could do and could disable that would foreclose the government of the United States said in fact to Northern Pacific and the Union Pacific did apply and therefore — I mean a question of violating the Sherman law, the question of fact in such a case did consolidate having engaged or did get together etcetera, etcetera.

Richard A. Solomon:

Well, Your Honor’s difficulty in finding the difficulty with this case is our difficulty too.

As far as I can see, the only grounds that the petitioners have for disputing our ultimate position is some of the language of this Court in the Chicago Title and Trust Company case appearing at 302 U.S. 120 .

Now, in that case, what had happened was that Illinois Corporation had been dissolved by the State of Illinois for failure to comply with the Illinois law.

And two years after or more than two years afterwards, after the time when under Illinois law of this dissolved corporation could sue or be sued.

At that subsequent period, some new people got in control of this dissolved corporation and they attempted to utilize Section 77 (b) of the Bankruptcy Act to reorganize the corporation and the question that the court passed upon in the Chicago Title and Trust Company case was whether that was appropriate, whether the corporation was dead or not.

And the majority of this Court in that case in an opinion by Judge (Inaudible) did find that after the time had expired under the Illinois law for dissolved corporation to sue or be sued, that the corporation could not voluntarily go in to the federal court.

There was a dissenting opinion which was written by Judge Cardozo and I think concurred in by Judge Stone — Justice Stone and Justice Black which indicated that in their opinion there was still a sufficient spark of life even though the corporation could not be sued or sue, even though the two-year period after dissolution have expired.

Who are this people to take advantage of the Bankruptcy Act?

But my friends argue, that since the disposition of Justice Cardozo was not adopted by the majority of the Supreme Court were stopped from arguing what they call our ultimate position which I would like to make our major position here.

Well, I don’t think so.

I think the Chicago Title Company case at most when you read it through, indicates an unwillingness on the part of the majority to allow a corporation which have been dissolved for malfeasance of its own to voluntarily take advantage of the federal law after the period for which it could do anything under the state law had expired.

And whether you agree with the majority or the minority position there, I suggest that is not this case where the problem is on the contrary whether criminal actions under the Sherman Act commenced prior to the dissolution of this corporation should be abated by the voluntary action of the corporation.

Felix Frankfurter:

I wonder if — are you sitting down?

Richard A. Solomon:

No, sir.

Felix Frankfurter:

Before you sit down or perhaps you can dispose this if permitted Mr. Marx here.

Here, there was a money judgment ended while the corporation was alive, is that right?

Richard A. Solomon:

No, sir.

There (Voice Overlap) the money — the indictment was filed and then the corporations were dissolved.

They came into court and put up as one defense their dissolution.

The Court overruled it and then it went on to a nolo contendere plea.

Felix Frankfurter:

So that there wasn’t a judgment held and then a dissolution and then the question of whether that money judgment, that raises — I happen to be interested in a way in a very abstract way — that was a very interesting question where it involves behind the money judgment as to the source of the money judgment in that appeal etcetera, etcetera.

Richard A. Solomon:

That’s not —

Felix Frankfurter:

Here, you didn’t even have a money judgment.

Richard A. Solomon:

Well (Voice Overlap) —

Felix Frankfurter:

The case having gone to judgment.

Richard A. Solomon:

No.The case has not gone to judgment.

Felix Frankfurter:

All right, that’s right.

Richard A. Solomon:

And that allows my friend here to make this argument about existing obligations and you asked about that Mr. Justice Frankfurter.

Actually, we’ve cited in our brief —

Felix Frankfurter:

Were there any existing obligation here?

Richard A. Solomon:

Well, that’s what I was going to discuss.

We cited in our brief at least two lower court opinions in the New York District.

But you’ve indicated that this are existing obligation (Voice Overlap) the contention what criminal —

Felix Frankfurter:

You mean if they’re found guilty, then they enacted judgment for X dollars and then you’ll have the obligation to fix it, is that it?

Richard A. Solomon:

That’s right.

Felix Frankfurter:

They’re potentially — they’re potentially guilty, is that it?

Richard A. Solomon:

They’re equally and potentially guilty, I submit, as if this corporation two days before it had dissolved had been involved in some major tort action.

And yet my friend, I don’t presume but they come in to court and say that that tort action, although the damages and all the other defenses had not been determined and how much it —

Felix Frankfurter:

The law depends on the law of the corporation, wouldn’t it?

Richard A. Solomon:

That’s right.

It all depends on the law of the corporation and the law of the corporations if we’re going to discuss the law of the corporations as I’ve indicated in Delaware any action, suit or proceeding and in Maryland, I think —

Felix Frankfurter:

I think for one, I will be greatly interested if you could point to indication (Inaudible) decision, Maryland and/or Delaware in which they construe the three words that you’ve just uttered as applying to penal action.

Richard A. Solomon:

I cannot sir.

There are no statutes in Maryland and or Delaware that construe this matter in either respect.

Felix Frankfurter:

Have there been many decisions construing the scope of survivability?

Richard A. Solomon:

With respect to criminal actions?

Felix Frankfurter:

No, no, no, generally.

Richard A. Solomon:

Oh yes, there are quite a lot civil, yes but very few criminal.

Felix Frankfurter:

— I object in so constrained if I was to state that they haven’t talked beyond their (Voice Overlap) of some light?

Richard A. Solomon:

You know, I think they have given you some light.

We’ve cited in our brief the Addy case.

I’ve cited on page 26 of our brief in which the Supreme Court of Delaware made clear that a dissolved corporation continues in existence during this three-year period and this is their quote “with whatever rights it had or whatever nature preserved in full vigor.”

Now, that is obviously a quote taken out of context.

I can only say that if you examine that position in full, you’ll find that the Delaware court there although it wasn’t discussing a criminal problem, was saying type of remedial legislation should be given a broad construction.

Felix Frankfurter:

Well, I want to know whether the body of decision indicates an attitude of holding the corporation amenable — an attitude of amenability of subjection to responsibility — to contingent liabilities or the other way around.

For me, that would be very important.

Richard A. Solomon:

Well, the body of decisions in the state courts is very, very meager on this point if it exists at all.

This Court as a matter fact when it granted certiorari here, gave leave to the attorney generals of both Delaware and Maryland to come in here if they had anything to say but unfortunately they haven’t help with this either (Voice Overlap) —

Felix Frankfurter:

You’re ought to be commended if they have nothing to say.

I should think that’s most commendable —

Richard A. Solomon:

Well, I wouldn’t disagree with that either.

I would like to say in the brief time I have remaining that we’ve tried to analyze in our brief, the arguments which had been made in the safe Safeway case and in the Line Material case, cases coming out of the Tenth Circuit and the Sixth Circuit in which they construe the Delaware statute as not saving criminal actions after dissolution of the court.

And I think that we’ve shown that those decisions simply cannot stand up.

The court in the Safeway case, with all due respect, simply focused on the word suit and went off into a long analysis of what the word suit meant and didn’t even discuss the word proceeding or the word action or the word judgment, words which obviously have a much broader scope.

Similarly, the court in the Line Material case was able to find that criminal actions did not survive in Delaware by saying, yes, the word proceeding and action is broader but it merely is tacked on and therefore since suit is the important word, we’re going to stick by what the court said in the Safeway case.

Felix Frankfurter:

Let me give you a little more trouble.

Richard A. Solomon:

Yes, sir.

Felix Frankfurter:

These words suit, proceeding etcetera, are words found in other kinds of statute where courts have to construe their applicability to criminal consequences of criminal proceedings.

Now, am I wrong in having a not very firm notion on the whole, the tendency has been to restrict those terms not to include —

Richard A. Solomon:

I think you might be right with respect to the word suit.

I would say it was much more arguable with respect to the word action.

But with respect to the word proceeding, I would say there’s no real argument whatsoever.

Proceeding is generally a word used with respect to criminal prosecution.

Felix Frankfurter:

For instance if the statute of limitations or right (Voice Overlap) —

Richard A. Solomon:

For instance, in the federal rules —

Felix Frankfurter:

Yes.

Richard A. Solomon:

The federal rules as we have pointed out, Federal Rules of Criminal Procedure throughout used the term proceeding.

The Maryland Rules of Criminal Procedure used the word proceeding.

The Delaware —

Felix Frankfurter:

That’s an inclusive term.

That is an inclusive term, is it?

Richard A. Solomon:

That is right.

It’s an inclusive term and therefore when the statute says all proceedings, we submit, that if you used an inclusive term and attack on the adjective all, you don’t end up with a restrictive answer and therefore — so in other words —

Felix Frankfurter:

So that we were asked to make a good guess, is that right?

Richard A. Solomon:

Good guess —

Felix Frankfurter:

You’re asked to make a good guess if a fair descent reasonable —

Richard A. Solomon:

You are asked if you find it necessary to construe the state statute with respect to the question of whether they are providing for state criminal prosecutions.

You are act to give reasonable reading to broad language bearing in mind the purposes for which the broad language would be adopted.

You are I think have to do so without the benefit of any state interpretations but you do have the benefit, I submit, of some very good interpretations by the federal courts.

I would refer, Your Honor to —

Felix Frankfurter:

Federal?

By the federal what?

Richard A. Solomon:

By the federal courts.

Felix Frankfurter:

Court.

Richard A. Solomon:

I would refer Your Honors to the decision of the lower court in this case.

I would refer You Honors particularly to the decision of the Seventh Circuit in the Collier case.

I would refer Your Honor to what I think is a very interesting decision of the District Court, Judge Weinfeld in United States versus Cigarette Merchandisers Association.

This is not a case of first impression as far the lower courts are concerned.

Felix Frankfurter:

Was that in your brief (Voice Overlap) —

Richard A. Solomon:

Yes sir, it is.

Felix Frankfurter:

— Judge Weinfeld, where is it?

Richard A. Solomon:

United States versus Cigarette Merchandisers Association, 136 F. Supp. 214.

Felix Frankfurter:

What was that case?

Richard A. Solomon:

It is a case — Sherman Act case.

He happens to be construing New York law there but —

Felix Frankfurter:

You mean the same kind of a situation?

Richard A. Solomon:

Same type of situation.

It’s New York law but his analysis of the reason — actually, Judge Weinfeld and the Cigarette Manufacturers case was able to decide it on a strictly New York technical point and he also went on and decided on the general construction.

(Inaudible)

Richard A. Solomon:

United States v. Cigarette Manufacturers Association, 136 F. Supp. 214.

And the Collier case was 208 F. 2d 936.

Well, let me take up the Cigarette case first because it’s easy to answer.

The New York General Construction Law defined action as including punishment for a public offense.

So by the New York law, there, are an action survived and that action was defined by the New York law as including criminal cases.

Felix Frankfurter:

May I trouble you to see it again.

What law of New York defines action to include punishments?

The survival provision of the corporation —

Richard A. Solomon:

The New York General Construction law.

Felix Frankfurter:

You mean whenever you see the word action in New York, it means also a criminal prosecution?

Richard A. Solomon:

It includes punishment for a public offense.

Richard A. Solomon:

I’m quoting.

Felix Frankfurter:

Yes, I understand.

Richard A. Solomon:

The three quotation marks, punishment or a public offense contrary.

In Maryland, we do have to say which I’ve read to the courts before and I don’t think I need to read it again because it takes too much time to read where the Maryland Court of Appeals has affirmatively said action does not include criminal cases.

Felix Frankfurter:

Just as much at large of New York City opposite?

Richard A. Solomon:

As well as the opposite.

Felix Frankfurter:

But did they — did they if I may — the Maryland Court of Appeals say, as general Maryland law action does not include criminal prosecution or did they say it in a special (Voice Overlap) —

Richard A. Solomon:

Yes.

Un — under definition, New York defined action —

Felix Frankfurter:

I understand.

Richard A. Solomon:

— as including a public offense under definitions and under their definitions say, action shall not include a criminal proceeding.

Felix Frankfurter:

As a general Maryland proposition.

Richard A. Solomon:

Yes, in this whole book which includes the Rules of Civil Procedure and otherwise.

Now, I’d like to say one other thing about Delaware.

The Delaware statute was construed in the Safeway case in 1944 and I may say that I have the privilege of arguing before the same court a companion case the Kroger case which was not reported except as a memorandum in which the same question was involved and the same decision.

That was 1944.

It’s a long time since then and Delaware is quite cognizant to how its laws had been construed and it’s made no change in them.

So presumably, they did not feel that any change was necessary by reason of the decision of the Tenth Circuit in several cases that criminal cases did not survive under the Delaware law.

Now, I want to talk about this alternative ground for a moment which counsel designates himself as the alternative ground.

I think so designating which is fairly with the secondary ground which now says, it’s a major ground.

Well, the difficulty it seems to us at least is that (Inaudible) the so-called spark of life theory which was found in this famous case of the Chicago Title and Trust Company against the Wilcox Building Corporation, 302 U.S.

In that case as counsel has properly said, there was an Illinois corporation which was dissolved.

There it was dissolved because of its own misconduct.

Corporations can be dissolved because of the limitation on their existence, they can be dissolved by voluntary act, they can be dissolved by failure to pay their taxes and having an action brought against them or against by the state.

Here, this corporation was dissolved but under Illinois law it could continue for certain purposes and the Federal Bankruptcy Act said, that any corporation could avail itself a bankruptcy and so this corporation which had a spark of life, I use that word because that’s the word in the Court’s own opinion, was taken over by some other stockholders not the stockholders who were guilty and they filed an action in bankruptcy.

And the question was, does that corporation exist and can it avail itself of the federal law which says any corporation which exists may take the step.

And here’s what the majority of the Court said, “How long and upon what terms a State created corporation may continue to exist as a matter exclusively of state power?”

I won’t read it all.

It hardly will be claimed that the federal government may breathe life into a corporate entity thus put to death for the state in a lawful exercise of its sovereign power.

The power to take the long step of putting an end to the court with existence of a state created corporation without limitation, connotes the power to take the shorter one of putting an end to it which such limitations as the legislature sees fit to enact.

Felix Frankfurter:

But you have any doubt that Congress if it wants to do, would provide — I think just to settle in the prima facie respectfully takes the question there from the results of —

Richard A. Solomon:

Justice Cardozo did too.

Felix Frankfurter:

What?

Richard A. Solomon:

Justice Cardozo thought so too.

Felix Frankfurter:

Well, that’s not the common enterprise of us lawyers if we all (Inaudible).

But if he — if a corporation has legal capacity for certain purposes, you don’t suggest that Congress couldn’t say, so long as you have legal capacity to some purposes, you must continue liable for what you did while you have a full capacity.

Richard A. Solomon:

I — I wouldn’t undertake to answer it except for the Court’s own answer.

And since the federal government is powerful to resurrect a court or —

Felix Frankfurter:

Yes, but the question is it dead — you don’t get to resurrection and tell me I’m dead.

Richard A. Solomon:

Well, it had a spark of life so Justice Cardozo’s.

Felix Frankfurter:

All right.

Richard A. Solomon:

But they say that the state has put it and since the federal government’s power is to resurrect a corporation which a state has put out of existence for all purposes, the conclusion seems inevitable that if the state attaches qualifications to its sentence of extinction nothing can been added or taken from these qualifications by federal authority.

Now, I think that is the court’s answer to Your Honor’s question.

Now, going on from that, I may say that there were two or three members of the court who disagree and filed their able dissenting opinions, I confess that when I read the majority and sometimes the dissents that — I’m glad I’m not a member of the court.

It has to decide between the two.

But nevertheless I take the law as it’s finally declared by this Court and never departed from since that case.

Now, counsel says that we’re going back to the 18th century to say that the death of a corporation maybe pointed to the death of an individual.

But I happen to have been a member of a court where Chief Justice pass on to get his judicial career and I have a high respect for Chief Justice Taft’s opinions and I don’t think they’re an acronyms of the 18th century.

Speaking for this Court, he said, in Oklahoma Natural Gas Company against Oklahoma which is cited in our brief.

There is no specific provision in our rules for the substitution of the party litigant of a successor to a dissolved corporation.

It is well settled that a common law and in the federal jurisdiction, a corporation who has been dissolved as if it did not exist and resulted in a dissolution cannot be distinguished from the death of a natural person in its effect.Citing cases and going on and completing the equation because of time limitations, I will not read anymore.

The Court asked and counsel properly replied, this corporation did not endeavor these corporations which were dissolved, did not endeavor to evade any responsibility.

It was somewhat of a coincidence if the solution occurred at the time that it was predetermined as the affidavit shows here by an endeavor to comply with the Federal Trade Commission rule which rule that there should not be separate selling companies but there should be one selling company, and therefore these corporations were dissolved.

When they say that action is — or suit is enlarged by the word proceeding because we have the rules of criminal procedure.

I want to call Your Honors attention to the fact that wherever you find the word procedure being used as meaning something criminal, it’s always proceeded by the word criminal procedure, criminal procedure and that’s to be found if you just open their own brief and read it every time they quote where it says proceeding and means criminal, it says criminal proceeding and nowhere have either of these states ever used that term.

Now, as far as the Addy case is concerned which he speaks of a showing light on this situation, in the Addy case, a dissolved corporation became the reverter under a deed whereby it was provided that if the Government, I think, failed to use certain land as a life saving station, it reverted to the corporation which gave it.

And so they said, “Yes” under the very language of the legislature.

They can — they have a sufficient spark of life to get their property back and distribute it.

That’s the — it’s a winding up process the same as the executors or administrators of a dead man’s estate would get a reverter.