NOMINATION OF SIMON E. SOBELOFF

SATURDAY, MAY 5, 1956

UNITED STATES SENATE,

SUBCOMMITTEE OF THE

COMMITTEE ON THE JUDICIARY,

Washington, D. C.

The subcommittee met, pursuant to call, at 10:35 a. m., in room 424, Senate Office Building, Senator Joseph C.. O'Mahoney (chairman of the subcommittee) presiding.

Present: Senators O'Mahoney and Watkins.

Also present: Joseph A. Davis, chief clerk, and Thomas B. Collins, member, professional staff.

Senator O'MAHONEY. The committee will come to order.

This meeting has been called in accordance with the policy of the committee in order to allow persons who may desire to make comment upon the nomination of Mr. Simon E. Sobeloff, of Maryland, to be a judge of the United States Circuit Court for the Fourth Circuit, vice Morris A. Soper, retired.

In accordance with the policy of the committee, notice of this hearing was published in the Congressional Record, and a copy of that notice will be made a part of the official record at this point.

(The notice of hearing is as follows:)

NOTICE OF HEARING ON NOMINATION OF SIMON E. SOBELOFF TO BE UNITED STATES CIRCUIT JUDGE, FOURTH CIRCUIT

Mr. O'MAHONEY. Mr. President, on behalf of a subcommittee of the Committee on the Judiciary, I desire to give notice that a public hearing has been scheduled for Thursday, May 3, 1956, at 10:30 a. m., in room 424, Senate Office Building, on the nomination of Simon E. Sobeloff, of Maryland, to be United States circuit judge, fourth circuit, vice Morris A. Soper, retired.

Prior to the above-mentioned date, all persons interested in the above nomination should file with the committee such representatives as may be pertinent. The subcommittee consists of the Senator from Missouri [Mr. HENNINGS], the Senator from Arkansas [Mr. McCLELLAN], the Senator from Utah [Mr. WATKINS], the Senator from Idaho [Mr. WELKER], and myself, chairman.

Senator O'MAHONEY. Two subpenas were issued by the committee at the request of Senator Olin D. Johnston, of South Carolina, who this morning addressed to me the following letter:

MAY 4, 1956.

DEAR SENATOR: In accordance with my telephone conversation with you, I find that I have to leave the city today, and attached hereto you will find my statement for the record in opposition to the confirmation of Mr. Sobeloff for the office of judge of the United States Circuit of Appeals for the Fourth Circuit. With kind regards, I am,

Sincerely yours,

OLIN D. JOHNSTON.

This material reached my office this morning. I have asked a representative of Senator Johnston for a full copy of the material which

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is herewith presented by Senator Johnston, in order that I might hand it to the solicitor general, Mr. Sobeloff, who is the nominee in this case.

And I shall be very happy, Mr. Sobeloff, to take a recess if you want to read this material first.

Mr. SOBELOFF. I think perhaps, Senator, I can glance over it during the testimony. There are so many people from out of the city who are here who would like to be heard; and if I need further time, I will ask for it.

Senator O'MAHONEY. That is very generous of you, and we shall proceed in that fashion.

The statement of Senator Johnston is herewith put into the record as though delivered.

STATEMENT OF HON. OLIN D. JOHNSTON, UNITED STATES SENATOR FROM THE STATE OF SOUTH CAROLINA

Senator JOHNSTON. Simon E. Sobeloff is listed as a member of the American Bar Association in 1937-43 by the Martindale Hubbell Lawyers Directory. The Canons of Ethics of the American Bar Association in essence forbids an attorney to:

(1) accept employment in matters adversely affecting the interest of a onetime client; and

(2) to use the confidences and information obtained from a former employment to his subsequent advantage.

Your attention is called to the case of the State of Maryland v. The Baltimore Trust Company, which has been pending in Circuit Court No. 2 of Baltimore, Md., since 1935. In the early stages of this protracted litigation, Mr. Simon E. Sobeloff was appointed an officer of the court to make such investigation as

will enable him to ascertain whether there is any proper cause for holding the officers and/or directors of the Baltimore Trust Co. liable (and if so, the nature and extent of such liability) as a result of the conduct of the affairs of the Baltimore Trust Co., with particular reference to the acquisition and administration of the assets of said institution in connection with which serious losses were suffered.

As a result of the investigation of the conduct of the affairs of the Baltimore Trust Co., a three-volume report was filed by Sobeloff with the court in 1937 which set forth gross negligence and neglect of duty on the part of officers and directors of the Baltimore Trust Co. After the report certain actions were filed in the court seeking damages. For this particular assignment Mr. Sobeloff was allowed and paid a fee of $30,000 out of assets in the hands of the receiver.

The various court records reflect that Simon Sobeloff appeared as one of the solicitors beginning in 1936 for various receiver suits and received additional fees. Also, the records of the court reflect that Mr. Sobeloff acted as counsel for Raymond J. Funkhouser, president of the Baltimore Realty Trust, Inc., who owned the building occupied by the Baltimore Trust Co. Mr. Sobeloff, as counsel for Mr. Funkhouser, president, Baltimore Realty Trust, Inc., owner of the O'Sullivan Building, now known as the Mathieson Building, attempted to collects rents from John D. Hospelhorn, receiver of the Baltimore Trust Co., and for whom Mr. Sobeloff acted as solicitor in litigation

of various cases. This was against agreement of sale by receiver in July 1941, to occupy rent-free space until 1946. Other terms of this agreement were also disregarded.

On April 19, 1956, John D. Hospelhorn, deputy commissioner, Maryland State Banking Commission, 307 North Eutaw Street, Baltimore, Md., advised he was a receiver for the Baltimore Trust Co. which had been in liquidation since 1935. Mr. Hospelhorn stated that the Baltimore Trust Co. in 1931 had assets approximating $100 million and was the largest bank in the South. In 1931 the liquid assets were very low due to large withdrawals and were reduced to $65 million by 1935. A group of responsible citizens in the community decided to establish an $8 million guaranty fund composed of securities and notes and other valuable pledges which were used to borrow cash funds from the RFC to maintain operation from 1931 to 1933, when the Baltimore National Bank took over the banking and trust operations of the Baltimore Trust Co.

The chairman of the Baltimore Trust Co.'s board of directors, Mr. Howard Bruce, presently residing in Howard County, Md., and retired from active business affairs, is most familiar with Mr. Sobeloff's report and activities respecting the Baltimore Trust Co. affairs.

As a result of Mr. Sobeloff's report, filed in 1937, alleging gross negligence and mismanagement by certain officers of the trust company, the directors decided to offer a settlement on the basis of the report concerning their alleged liability (although the written agreement denied any admission on the part of these men of any negligence, neglect of duty, or liability) for a certain sum of money, approximately $300,000.

Judge Eugene O'Dunne, on behalf of the court accepted the payment and Sobeloff presented a bill to the receiver, John Hospelhorn, for $30,000, as his fee. The receiver protested what he termed at that time (1937) to be an exorbitant fee, but Judge O'Dunne approved the fee, stating that through Sobeloff's work they had collected $300,000 that the receiver would not have gotten except for Sobeloff's work, and that the fee represented only 10 percent of what was collected. This sum of money was in addition to the double liability assessment paid by the stockholders on stock owned in the trust company, which double liability has now been removed by statute in Maryland.

According to Mr. Hospelhorn, Mr. Bruce, and certain other directors whom he did not identify, felt that this was simply a threat at a time when they were scared and there was much publicity and talk of fraud, and that this was nothing but a "bite."

Mr. Hospelhorn stated that the receivership of the Baltimore Trust Co. paid a final dividend to the depositors on November 12, 1942, with a total to the depositors of 70.35 percent. It is to be noted that on November 18, 1942, after the receiver's final distribution on November 12, 1942, to the depositors of the Baltimore Trust Co. was ratified by the court, Mr. Hospelhorn, receiver, was notified by Raymond J. Funkhouser, president of the Baltimore Realty Trust, Inc., of a demand for rent for the space occupied by the receiver. Simon E. Sobeloff was of record counsel for Raymond J. Funkhouser in the demand for rent. This claim for rent still remains unsatisfied.

Mr. Hospelhorn stated that no agreements, sales, or any transactions were ever made that did not pass through his hands for deter

mination by the then present conditions as being fair and reasonable and all transactions were passed and approved by the Circuit Court No. 2 under Judge Eugene O'Dunne.

At the time of Sobeloff's investigation his assistant was Mr. Herbert Myerberg. Myerberg did the spade work for the Sobeloff investigation of the officers and directors of the Baltimore Trust Co.

Mr. Hospelhorn stated that all the directors and stockholders paid the double liability on the stock and all felt that they exercised the affairs of the company as prudently as men of good conscience and responsibility could discharge their duty; that Sobeloff's report in 1937, indicating mismanagement and neglect, to them was abominable. When Mr. Hospelhorn was questioned as to any instances wherein Mr. Sobeloff had represented other clients, he stated that Mr. Grover L. Michael, now president of the McConway Torley Corp., 109 48th Street, Pittsburgh, Pa., would be familiar with the details, and to his (Hospelhorn's) knowledge, Sobeloff did not represent any clients of the trust company.

The records of the court, however, reflect that Simon Sobeloff acted as counsel for Raymond J. Funkhouser, president of the Baltimore Realty Trust, Inc., a holding company, owner of the O'Sullivan Building, which was the former trust company building; that Funkhouser was from Hagerstown, Md., and had never been in any way connected with the trust company. Sobeloff, as counsel for Funkhouser, had attempted to collect rent from the receiver, Mr. Hospelhorn, in spite of an agreement approved by the court at the time of the sale of the stock of the holding company for $5,000 in 1941 that the receiver would occupy quarters rent-free until 1946 until completion of liquidation of the trust company.

Mr. Funkhouser, President of the Baltimore Realty Trust, Inc., owner of the O'Sullivan Building, now known as the Mathieson Building, operated through William L. Rigger, a vice president of the holding company. The Baltimore City Directory lists Mr. Rigger's address as 920 West University Parkway, Baltimore, Md.

The 1950 estimated value of the O'Sullivan Building, now Mathieson Building, was approximately $15 million.

Circuit court records of the Baltimore Trust Co. reflect that Simon E. Sobeloff received a fee of $30,000 for the investigative report and in addition received fees for the receiver's litigation of cases against the officers and directors of the Baltimore Trust Co., together with Alexander Armstrong and J. Purdon Wright.

My preliminary investigation discloses that there is indisputable and conclusive evidence that Mr. Simon E. Sobeloff violated certain canons of ethics of the American Bar Association-while a member of the Association-and exhibited a total disregard in letter and in spirit of the conduct required of a judicial officer in violation of his pledge as a member of the American Bar Association to uphold and by example create the highest respect exemplified in the code of behavior demanded of members of this association. In specific instances the records show that:

(1) Mr. Sobeloff accepted employment in matters adversely affecting the interest of a one-time client, namely, the receiver of the Baltimore Trust Co., and as an officer of the Čircuit Court of Baltimore City.