Spirt v. Bechtel , 232 F.2d 241 ( 1956 )

LUMBARD, Circuit Judge

(concurring).

I would prefer to rest on a different ground in affirming the District Court’s dismissal of the first cause of action with respect to the receipt by certain officers of “option profits” alleged to be “compensation” in excess of the $25,000 per year permitted by the Merchant Marine Act.

In my opinion, § 805 of the Merchant Marine Act, 46 U.S.C.A. § 1223 did not create a private right of action nor was it meant to be a measure of the obligation of the defendants to the company as a basis for a suit to recover any excess /“compensation” paid to any of the defendants. 46 U.S.C.A. § 1223(c) provided (prior to its amendment in 1952):

“No director, officer, or employee * * * shall receive from any contractor, holding a contract authorized by sections 1171-1182 or 1191 — 1204 of this title * * * directly or indirectly, wages, salary, allowances of compensation in any form for personal services which will result in such person’s receiving a total compensation for his personal services from such sources exceeding in amount or value $25,000 per annum, and no such person or concern shall be qualified to receive or thereafter to hold any contract under this part, if such person or concern * * * pays or causes to be paid * * * compensation in any form for personal services which result in such person’s receiving a total compensation for his personal services from such sources exceeding in amount or value $25,000 per annum.” (Emphasis supplied.)

46 U.S.C.A. § 1223(f) provides:

“Any willful violation of any provision of this section shall constitute a breach of the contract or charter in force under this chapter, and upon determining that such a violation has occurred the Commission may forthwith declare such contract or charter rescinded > and any person wilfully violating the provisions of this section shall be guilty of a misdemeanor.” (Emphasis supplied.)

The obvious purpose of these provisions of the Merchant Marine Act was to prevent the granting or continuance of subsidies to companies which paid their officers more than $25,000 per year and to prevent the dissipation of such subsidies. Congress was saying that if a company paid its officers more than $25,-000 by way of compensation, the government should not subsidize its operations in any way. The purpose clearly was to protect the federal treasury and to limit the' expenditure of federal monies; the purpose was not to protect any private company or the stockholders of it, directly or indirectly. The inconsistency in finding that such protection of the corporation was intended becomes apparent when we note that if the stockholders prevail in this action they provide a basis upon which the Maritime Commission may rescind the Company’s charter to the detriment of both the corporation and its stockholders. The statutory scheme is clearly ill adapted to the creation of a private right. Companies eligible for subsidies under the Act could choose whether or not to apply for contracts under the Act. If they were granted subsidies they would forfeit them if they paid out more than $25,000 in compensation and in addition they would be ineligible for further subsidies at another time. More than that, if any company that was subsidized wilfully violated this provision of the law those responsible could be prosecuted for committing a misdemeanor.

In the case now before us the stock options were exercised only after receipt of an opinion from the General Counsel of the Maritime Commission that such exercise would not result in unlawful compensation. Under these circumstances it would be difficult to conclude that the giving or receipt of the compensation was a “wilful” violation of 46 U.S.C.A. § 1223(c). “Wilful” is a word of many meanings, influenced by its context, Spies v. United States, 1943, 317 U.S. 492, 497, 63 S.Ct. 364, 87 L.Ed. 418, but in the context of this statute I think it does not include an act which a representative of the appropriate regulatory agency stamps with his approval, especially when appellate judges can differ as to whether the stock options are “compensation.” Cf. United States v. Murdock, 1933, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381; United States v. Martell, 3 Cir., 1952, 199 F.2d 670, certiorari denied, 1952, 345 U.S. 917, 73 S.Ct. 728, 97 L.Ed. 1350.

It is true that not all of the defendants saw the letter from the General Counsel or relied on it specifically. The evidence shows that Gibbons and Harris did see it ■and that Franklin and Hicks, by their own testimony, did not. There appears to be nothing in the record to show whether the other defendants saw it or not. I, am convinced, however, that the plaintiff failed to show that any of the defendants acted wilfully. By a letter of June 13, 1944, Gibbons, the corporation’s Treasurer, requested all of the optionees to refrain from exercising the options because of advice of counsel that approval should be obtained from the Salary-Stabilization Unit of the Bureau of Internal Revenue. By a memorandum dated September 1, 1944, Mr. Fridland, the corporation’s counsel, pointed out to Mr. Gibbons that it was “essential that the stock options be held exempt from salary stabilization as not constituting ‘additional compensation.’ Otherwise, we will run afoul of the $25,000 salary limitation imposed by Section 803(c) of the Merchant Marine Act.” Exception from salary stabilization could not be obtained, so the corporation waited until after the repeal of salary stabilization and then Harris, the President of the corporation, by a letter dated October 22, 1945, applied to the General Counsel of the Maritime Commission for a ruling on the options. After receipt of the General Counsel’s favorable ruling of November 19, Harris sent a memorandum to all the optionees on November 26,1945 reading in part as follows:

“It gives me great pleasure to inform you that the conditions which led to the Company’s request on June 13, 1944 that you refrain from exercising any part of your option to purchase Common Stock of the Company, have now been cleared. Options may, therefore, be exercised * * >>

All of this indicates that the optionees relied on the corporation to clear the options with the appropriate authorities and to make sure of their legality. Thus there was testimony that the directors were familiar with the salary limitations of the Merchant Marine Act. Franklin testified that he was cognizant of the fact that the exercise of the options had to be consistent with the Merchant Marine Act “or else our whole subsidy position might be jeopardized.” He testified further that “it is our practice in the company to make sure that nothing we do is incompatible with the 1936 Act.” Gibbons testified that the Memorandum of November 26, 1945 was sent to all the optionees, and the plaintiff concedes that none of the options were exercised until after that date. Since the optionees relied on the corporation to check the legality of the options, and since the corporation obtained a favorable ruling from the Maritime Commission’s General Counsel before informing the optionees that they were free to exercise them, I think that the optionees, even if they received excess compensation prohibited by the Act, did not do so wilfully. Certainly there is no evidence that they knowingly violated the Act or that they acted with a careless disregard for its requirements.

If the violations were not wilful the sanctions provided by § 1223(f) do not apply. Thus the only applicable sanction would be that provided in § 1223(c) itself : “no such person or concern shall be qualified to receive or thereafter to hold any contract under this part.” If the acts of the defendants were not wilful they were not guilty of any criminal violation.

It is also significant that § 1223(c) did not declare the receipt of prohibited compensation to be “unlawful.” This is in sharp contrast to § 1223(a), (d), and (e) which provide that certain prohibited acts are “unlawful.” Violations of these subsections are misdemeanors whether they are wilful or not, by virtue of 46 U.S.C.A. §§ 1223(a) and 1228. This distinction strongly indicates that no general declaration of unlawfulness- was. intended with respect to the compensation prohibited by § 1223(c).

The authorities cited by our dissenting colleague are not in point, it seems to me, because in those cases there was good reason to believe, and this court found, that Congress was enacting legislation for the benefit of a class. The court therefore concluded that the right of a member of the protected class to bring a civil suit should flow from the legislation. A clear case of this is our recent decision in Fitzgerald v. Pan American World Airways, Inc., 2 Cir., 229 F.2d 499. We were there concerned with 49 U.S. C.A. § 484(b) which protects against unjust discrimination by air carriers. The plaintiffs were persons allegedly harmed by unjust discrimination and were clearly within a class which Congress sought to protect. In Reitmeister v. Reitmeister, 2 Cir., 1947, 162 F.2d 691, 694; Fischman v. Raytheon Manufacturing Co., 2 Cir., 1951, 188 F.2d 783; and Goldstein v. Groesbeck, 2 Cir., 1944, 142 F.2d 422, 154 A.L.R. 1285, certiorari denied, 1944, 323 U.S. 737, 65 S.Ct. 36, 89 L.Ed. 590, we were concerned respectively with persons harmed by disclosure of communications in violation of the Communications Act, 47 U.S.C.A. § 605; persons defrauded in contravention of the Securities Act of 1934, 15 U.S.C.A. § 78j(b); and a subsidiary corporation harmed by a contract made with an unregistered holding company in violation of 15 U.S.C.A. § 79d(a) (2). In each case the plaintiff was clearly within á class intended to be protected by the statute and we relied on that fact in holding that a private right of action existed. Moreover in the Goldstein case the statute specifically declared the contract void, 15 U.S.C.A. § 79z(b), and this was 'a further basis for implying the existence of civil rights of action. Restatement of Torts . § 286, upon which Judgfe FRANK also relies, specifically recognizes that in order to create a private right of action it must be the intent of the enactment “exclusively or in part to protect an interest of the [plaintiff].” See also Restatement of Torts § 288(a); Downing v. Howard, 3 Cir., 1947, 162 F.2d 654, 657-658, certiorari denied 332 U.S. 818, 68 S.Ct. 155, 92 L.Ed. 395. Since the statute we are here considering was not intended or designed to protect the plaintiff’s interest, there is no civil right of action.

Moreover in each of the cases relied on by Judge FRANK we assumed that the conduct complained of constituted a criminal violation. The Restatement takes the view that “If the statute or -ordinance is one which makes an act or failure to act a criminal offense but which makes no provision for civil liability, a particular act or omission does not create civil liability unless it is of such a character or done under such circumstances as to make it criminally punishable.” Restatement of Torts § 286, Comment C. Since the acts here are only criminal if they were “wilfully” performed and it is doubtful that there was any wilfulness, there should be neither criminal nor civil responsibility.¹

Thus I would conclude that Congress intended these provisions of the Merchant Marine Act to be administered by the Maritime Board and that no private right of action by the corporation or on its behalf was created with respect to any violation of the provisions regarding compensation. If that is the case we need not and should not proceed to a determination of whether the proceeds of these stock options were “compensation” within the meaning of the Act. That is a determination primarily for the Board. If, however, such a determination is appropriate in this proceeding, I agree with Judge SWAN that the profits realized did not constitute “compensation.”

I concur in Judge SWAN’S opinion insofar as it relates to the second and third causes of action.

1 . The corporation is, of course, not without remedies to protect itself from wrongful action by its officers. The question fiere is merely whether this corporation, because it is subject to the Merchant Marine Act, has another remedy not available to other corporations and may hold its officers to a stricter standard. If its officers have given salaries, bonuses, stock options, or any other benefits in such aggregate that they amount to a waste of corporate assets in relation to the services rendered to the corporation, then of course the corporation, or the stockholders on its behalf, always have their remedy. However we are not here concerned with any alleged waste of corporate assets in the sense that the enrichments were excessive, except insofar as it is claimed that there was a violation of the Merchant Marine Act.

1 . Judge LUMBAKD agrees with Judge SWAN but adds another reason for affirmanee with which Judge SWAN agrees and which I shall discuss infra.