NOMINATION OF SIMON E. SOBELOFF

MONDAY, JUNE 4, 1956

UNITED STATES SENATE, COMMITTEE ON THE JUDICIARY, Washington, D. C.

The committee met, pursuant to adjournment, at 10:55 a. m., in room 424, Senate Office Building, Senator James Eastland (chairman), presiding.

Present: Senators Eastland, Johnston, Hennings, McClellan, O'Mahoney, Jenner, Watkins, Dirksen, Welker, and Butler. Also present: Joseph A. Davis, chief clerk.

The CHAIRMAN. Proceed, Senator Johnston.

Senator JoHSTON. Mr. Chairman and members of the committee, I want to begin from the outset of this matter. First, I want to read my communication to the late Senator Kilgore under the date of January 13, 1956.

(The letter referred to is as follows:)

Senator HARLEY M. KILGORE,

Chairman, Senate Judiciary Committee,

Senate Office Building, Washington, D. C.

JANUARY 13, 1956.

DEAR HARLEY: As you know, the nomination by the President of Solicitor General Simon E. Sobeloff to be United States Circuit Judge, Fourth Circuit Court of Appeals, vice Morris A. Soper, retired, has been sent to the Judiciary Committee again for consideration and appropriate action.

You will recall, last session when Mr. Sobeloff's nomination came over from the President I requested time in which to conduct a study and inquiry into his background and qualifications for this high position in our judicial system. Several other Senators also desried to make inquiries into Mr. Sobeloff's qualifications and suitability. When Congress adjourned we had not completed our inquiries and, therefore, the nomination expired under section 6 of rule 38, Standing Rules of the Senate.

My studies into Mr. Sobeloff's background and qualifications have brought to my attention the case of The State of Maryland v. The Baltimore Trust Company, in which Mr. Sobeloff was an appointed officer of the court. This case has been pending in Circuit Court No. 2 of Baltimore, since 1935. In the early stages of this litigation, Mr. Sobeloff was appointed by the court having jurisdiction, "to investigate the affairs of the Baltimore Trust Co. and to report to the court on the question of the liability of its officers and directors." For this official and quasi-judicial service by order of the court, Mr. Sobeloff was allowed and paid a fee of $30,000.

The records of the court, I understand, disclose that Mr. Sobeloff thereafter represented and presented claims for clients against this insolvent defendant, the Baltimore Trust Co., wherein many depositors and claimants suffered heavy losses.

Also in my inquiry, the case of the Department of Justice versus the New York law firm of Sullivan and Cromwell came to my attention.

In this case the Justice Department charged the New York law firm with abusing three rules of integrity in an alleged conflict-of-interests case. The Justice Department charged that because a member of the law firm once was an

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attorney for the Economic Cooperative Administration that the firm, in essence,. violated rules of integrity which "forbids an attorney to (1) accept a fee in matters adversely affecting the interest of a one-time client, (2) use confidences reposed by a former client to his own advantage, or (3) accept any employment with a matter which he investigated while in Government employ."

In studying Mr. Sobeloff's activities in the case of Maryland v. Baltimore Trust Company and subsequent suits against the defendant in which Mr. Sobeloff represented clients, it appears to me that a striking parallel exists between Mr. Sobeloff's position and that of the law firm of Sullivan and Cromwell.

Facilities of a Senator, as you well know, for conducting complete investigations into such matters are very limited. We, the members of the Judiciary Committee, are charged with the duty of passing judgment on nominations to our courts. In fairness to our citizens who will be seeking relief through the Fourth Circuit Court of Appeals, in fairness to Mr. Sobeloff, and in fairness to our committee members, I believe this matter, as I have outlined, should be thoroughly and completely investigated by a special subcommittee.

Therefore, I respectfully request that you, as chairman of the committee, appoint a subcommittee to hold hearings and conduct a thorough investigation of the facts concerning Mr. Sobeloff which I have outlined in this letter as well as any other questions dealing with his qualifications, in order that we may determine with finality whether or not Mr. Sobeloff is eligible to be confirmed to this high court position.

I respectfully suggest that the subcommittee be empowered to engage the service of a certified public accountant, attorneys, and/or such personnel as are necessary to study with detail this case and its many ramifications, and any other matters that may arise concerning this nomination.

Your careful consideration of this request will be greatly appreciated.
With kindest regards, I am,

Sincerely yours,

OLIN D. JOHNSTON.

The CHAIRMAN. You want that placed in the record?

Senator JOHNSTON. Yes.

Senator BUTLER. Does the Senator wish to continue and make his record before being questioned?

Senator JOHNSTON. I would like for you to hear me a little further because I think there are some things in the record that you canno'; even doubt.

Now Mr. Shankroff's letter to Senator O'Mahoney dated May 26, 1956.

Senator WATKINS. I think that is already in the record.

Senator JOHNSTON. I want to put it in here and let you hear what is going on.

Senator DIRKSEN. Whose letter is this?

Senator JOHNSTON. This is a letter to Senator O'Mahoney dated May 26. I think this was when the committee made their report. Senator WATKINS. If my memory serves me, I think Senator O'Mahoney had that placed in the record.

Senator O'MAHONEY. I think this is a later letter.

Senator WATKINS. It may be.

Senator JOHNSTON. I think it is. It is May 26.

Hon. JOSEPH C. O'MAHONEY,

United States Senate,

Washington, D. C.

DEAR SENATOR: I wish to reply to certain portions of Mr. Sobeloff's letter to you, dated February 17, 1956, in reference to some of his misstatements of facts. Mr. Sobeloff permitted the court to settle without an appeal a $10-per-share stock assessment liability for $5 per share. This $10 per share was a statutory liability determined by the Court of Appeals of Maryland in a suit brought at the original instance of Mr. Sobeloff.

In his first suit, Mr. Sobeloff opposed the interests of the receiver and through: him the depositors and general creditors. Later in the proceedings in the same.

case, he brought nine suits on behalf of the receiver. Still later in the same case, he opposed the receiver's interests by filing a petition to collect rent for the occupancy by the receiver under a rent-free agreement of parts of the Baltimore Trust Building. These illustrations are facts and demonstrate beyond doubt that Mr. Sobeloff represented conflicting and contrary interests in one and the same case.

In his letter of February 17, he says at page 3 concerning his reports, that there was "no basis for criminal prosecution as there had been no fraud or bad faith, but there had been gross negligence." Mr. Sobeloff evidently refers to his last report which is contradictory in terms of his two prior reports, particularly as those reports relate to Mr. Donald Symington, Mr. James Bruce, Mr. Charles W. Handley, and others. Your attention is respectfully invited to the three reports in question as they are the best evidence of what they contain.

Again, on page 3 of his letter of February 17, 1956, Mr. Sobeloff says a sum of $225,000 was ultimately recovered by the settlements of 15 suits. These suits aggregated claims in excess of $56 million. These were settled for $205,500. The difference of $19,500 in order to aggregate the total of $225,000 was made up of a loan settlement from Mr. James Bruce of $12,000 and a settlement against Mr. Charles B. Gillett for $7,500. Therefore, I submit it is correct to say that while he represented the receiver in complaints based upon his own (Sobeloff's) charges of negligence in fixed amounts he settled these fixed claims for about one-third of 1 percent on the dollar and not on the basis of 4 cents on the dollar as previously suggested.

On page 4 of the letter of February 17, 1956, Mr. Sobeloff says the respective interests meaning stockholders' statutory liability and the suits against the officers and directors-did not clash. The depositors and general creditors were the beneficiaries of both the (a) stockholders' liability and (b) the officers' and directors' liability. How can it be said that to resist a stockholder's statutory liability and then permit a settlement on the basis of $5 for a $10 liability is not adverse to the best interests of the depositors is beyond my conception.

How can it be said that an attorney can in the same suit oppose the interests of the receiver and then later as an attorney represent the receiver in suits against the officers and directors is not representing conflicting interests is likewise beyond my conception.

On page 1 of Mr. Sobeloff's letter of May 20, 1956, he says that I charge him with representing both the seller and the buyer of the Baltimore Trust Building. I have made no such charge. What I said was that in 1943 Mr. Sobeloff by letter and by petition sought to increase the liability of the receiver to the detriment of the depositors in demanding rent for the purchaser (for Mr. Funkhouser, who in fact was the real purchaser in all of the three sales of the building).

The receiver had an agreement and the minutes of the purchasing corporation (Mr. Funkhouser's corporation) showed that the receiver was entitled to occupy the space without payment of rent. For verification I respectfully refer the committee to the files Nos. 1117, 1118, and the petition filed by Mr. Sobeloff and a copy of the letter attached thereto from one of the attorneys for the receiver, dated April 14, 1943. I repeat that the settlements on their face demonstrate an inadequate consideration. Mr. Sobeloff attempts to confuse the issue by asserting that I confuse the amounts involved. I do nothing of the kind. I said, and the complaints when seen show, that their totals aggregate an amount in excess of $56 million. These were the totals in the 15 suits. I used only 1 suit as an illustration of 42 items of negligence where the claims in that 1 suit alone aggregated precisely the sum of $20,206,014.79. The difference in the totals is found in the other 14 suits.

Mr. Sobeloff is again in error when he says on page 3 of his letter of May 20, that no specific amount was claimed.

The fact of the matter is and the complaints will show that there is an itemized, specific list of amounts claimed and these claims were under oath because they were specific. I contend that the settlements on their face prove an inadequacy of consideration. This is true or else the reports made by Mr. Sobeloff on which these suits were based were in error. Certainly he can't be right in both instances, that is, the three reports or the 15 suits.

Referring to my assertion that one of the reports charge criminal negligence by Mr. Sobeloff, I respectfully refer the committee to the reports in question, particularly to those criticizing individuals I have heretofore named. These

reports charge misappropriation and misapplication of funds and securities. To say the least, the attorneys representing the individual involved considered the charges criminal because in one of the answers to one of the suits-namely, in suit No. 21651A, at page 22-the attorney for the defendants says:

"An allegation that part of this consisted of stolen money would shake that confidence."

Mr. Howard Bruce, one of the defendants, stated the foregoing in response to Mr. Sobeloff's complaint. I again respectfully refer to the three reports and to the several complaints as they will be the best evidence of what they contain.

It was Mr. Sobeloff who secured the mandate from the Court of Appeals of Maryland that the proper statutory stock liability amounted to $10 per share. I contend that any settlement for an amount less than that prescribed in the mandate for the benefit of any stockholder's claim represented by Mr. Sobeloff raises the issue that such a lesser settlement conflicts with the duties of Mr. Sobeloff as an officer of the court and later as an attorney for the receiver in his efforts to disclose assets and liquidate the same.

Respectfully submitted.

CHARLES SHANKKOFF.

Now then, I also made a suggestion to the subcommittee with respect to the witnesses and court records to be subpenaed. Here is a list of the witnesses and records I had checked into and I thought ought to have been heard:

Suggested witnesses and records to be subpenaed before subcommittee in re nomination and hearing thereon of Simon E. Sobeloff:

1. John D. Hospelhorn (receiver, Baltimore Trust Co.), 307 North Eutah street, Baltimore, Md.

Senator BUTLER. Does the Senator know he was here and testified? Senator JOHNSTON. I am giving you the whole list. There weren't but just a few of them.

2. Raymond J. Funkhouser, care of R. J. Funkhouser & Co., 138 West Washington Street, Hagerstown, Md.

3. Howard Bruce, Elkridge, Howard County, Md.

4. Stewart S. Jackson, treasurer, Maryland Dry Dock Co., Key Highway, Baltimore, Md.

5. Grover L. Michael, president, McConway Torley Corp., 109 48th Street, Pittsburgh, Pa.

6. J. Purdon Wright, room 1134, Mathieson Building, 10 Light Street, Baltimore, Md.

7. Alexander Gordon, vice president and trust officer, Maryland Trust Co., Calvert and Redwood Streets, Baltimore, Md.

8. Records of the receiver in the Baltimore Trust Co. case.

9. Court records in re receivership of Baltimore Trust Co. case No. 20433a, Circuit Court No. 2, Baltimore, Md.

Now, then, the reason I requested these witnesses, and the reason I requested this court record I think it will clearly show a conflict of interest if you have them all to come in.

Now, then, after that, I think some of these witnesses with the exception of probably 1 or 2 were subpenaed. I am not sure how many. Now, then, I would like to call your attention to Mr. Raymond J. Funkhouser, former client of Mr. Šobeloff. Mr. Funkhouser should bring with him his records and papers and correspondence with Mr. Sobeloff and his records regarding the purchase of the Baltimore Trust Building and his correspondence and papers relating to transactions with Mr. Hospelhorn and Mr. William L. Rigger, who, I am advised, was used as a strawman in these transactions.

(2) Mr. Arthur L. Nusbaum, care of the Tavern, southwest corner of St. Paul Street and Read Street, Baltimore, Md., together with

records and papers in connection with the Colonial Mortgage Co. with the late Donald Symington and with Mr. John D. Hospelhorn, receiver.

(3) Mr. Louis Eliasberg, care of Finance Co., Baltimore, Md., together with his records and papers relating to the Colonial Mortgage Co. with the late Donald Symington and with Mr. John D. Hospelhorn, receiver.

These things I think are very important in that they show the connection in the workings and the linking together.

(4) Clerk, Circuit Court No. 2, Baltimore, Md., with the files in re case 20433, especially the three reports of Simon E. Sobeloff, and the record of receipts and disbursements of the receivership.

(5) The files and statements in the nine cases brought against the officers and directors by John D. Hospelhorn, receiver, for negligence. These suits were commenced August 6, 1935, and are numbered 21647A to 21655A, inclusive.

(6) Clerk of the city court of Baltimore City with the records in 6 cases commenced August 6, 1936, by John D. Hospelhorn, receiver, against Bruce et al., cases 164 to 169, inclusive.

(7) Clerk, Probate or Orphans Court of Harford County, Md., with all papers in estate of Donald Symington, deceased, including a copy of his last will and testament, dated September 25, 1942, administration file No. 11385.

I think it would be very interesting if you get that and see how they let the money slip through their hands.

The CHAIRMAN. How was it done?

Senator BUTLER. Does the Senator contend that Sobeloff had anything to do with that?

Senator JOHNSTON. Yes, sir. He was representing, as I see it, two sides of the question in certain cases.

When Mr. Sobeloff's nomination was sent to the Senate and the subcommittee of the Committee on the Judiciary was appointed to consider it, I wrote the subcommittee a letter in which, among other things, I stated my opposition to Mr. Sobeloff's confirmation in substance for the following reasons:

(a) That charges against his professional conduct were such as to lead one to believe that he had represented conflicting interests in a protracted case noW pending in Circuit Court No. 2 of Baltimore, Md.;

(b) that according to the custom existing for many years the present vacancy in the Fourth Circuit Court of Appeals should be filled by a nomination and an appointment from the State of South Carolina; and

(c) that Mr. Sobeloff's philosophy, prejudgment of issues, and his participation in matters affecting States rights was such as to make him wholly unacceptable to the great majority of the people residing in the area over which the Fourth Circuit Court of Appeals has jurisdiction.

In this statement, I shall dwell upon the first argument and reasons supporting it at the close of my remarks.

I shall now treat of my second objection to the confirmation of this nomination. For many years the custom-and it is a good one-has been followed that insofar as possible each State within a circuit would be represented by a judge resident of each State.

Before I became a member of the Senate I became acquainted with the reasons which prompted the Judiciary Committee to refuse to report out or to confirm the nomination of former Judge Allred as

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