After "transfers" of assets of German nationals had been
forbidden by Executive Orders Nos. 8785 and 8389, issued by the
President pursuant to § 5(b) of the Trading with the Enemy Act,
petitioners, American holders of claims against German banks,
levied attachments on the debtors' accounts in a New York bank and
prosecuted the claims to judgments in New York state courts.
Subsequently, the Alien Property Custodian issued Vesting Orders
vesting in himself the right, title and interest of the debtors in
the accounts. Due to the outstanding attachment levies, the New
York bank refused to release the accounts, and the Custodian sued
in a federal district court for a declaratory judgment that
petitioners "obtained no lien or other interest in" the attached
accounts, and that the Custodian was entitled to possession of the
funds in the accounts.
Held: the Custodian was not entitled to the relief
sought. Pp.
341 U. S.
447-449,
341 U. S.
464.
1. Under New York law, petitioners have judgments, secured by
attachments on balances owned by German aliens, good as against the
debtors, but subject to federal licensing before they can be
satisfied by transfer of title or possession. Pp.
341 U. S.
449-452.
2. The attachment levies in this case are not nullities as
against the right, title and interest of the German banks. Pp.
341 U. S.
452-459.
(a) Attachments such as these have been treated as valid by
consistent administrative practice, and are not to be deemed
invalid by retroactive application of General Ruling No. 12
specifically designating an attachment levy as a "transfer"
prohibited by Executive Order No. 8389. Pp.
341 U. S.
452-459.
3. The attachment proceedings pursued in this case are not
inconsistent with the federal program for control of alien
property,
Page 341 U. S. 447
sine they do not purport to control the Custodian in the
exercise of the federal licensing power or in his power to vest the
res for purposes of administration.
Propper v. Clark,
337 U. S. 472,
distinguished. Pp.
341 U. S.
459-463.
4. As against the German debtors, the attachments and the
judgments they secure are valid under New York law, and they cannot
be cancelled or annulled under a Vesting Order by which the Alien
Property Custodian takes over only the right, title and interest of
those debtors in the accounts. Pp.
341 U. S.
463-464.
182 F.2d 349, reversed.
In declaratory judgment actions against petitioners by the Alien
Property Custodian, the District Court granted the relief sought.
82 F. Supp. 740. The Court of Appeals affirmed. 182 F.2d 349. This
Court granted certiorari. 340 U.S. 882.
Reversed, p.
341 U. S.
464.
MR. JUSTICE JACKSON, delivered the opinion of the Court.
On December 11, 1941, petitioner Zittman, holder of claims
against the Deutsche Reichsbank and the Deutsche Golddiskontbank,
caused attachment warrants to be issued by the appropriate New York
court and levied on accounts maintained by the debtors in New York
City with the Chase National Bank. On January 21, 1942, petitioner
McCarthy, holder of a claim against the Reichsbank, also attached
its accounts with the Chase
Page 341 U. S. 448
Bank. Both attachments were followed by state court actions
which were pursued to default judgments. The judgments remain
unsatisfied because the attached funds were and are "frozen" by
federal government foreign funds controls. The New York courts have
repeatedly extended the ninety-day limitation provided for the
sheriff to reduce the accounts to his possession or commence an
action to do so, [
Footnote 1]
so that the attachments, like the judgments, are outstanding.
The accounts were frozen June 14, 1941, by Executive Order No.
8785, [
Footnote 2] which
extended to assets of German nationals freezing controls initiated
by Executive Order No. 8389, [
Footnote 3] issued April 10, 1940, by the President,
pursuant to the powers vested in him by § 5(b), of the Trading With
the Enemy Act. [
Footnote 4] The
general effect of the basic order was to forbid "transactions" in
the assets of blocked nationals, including all "transfers" of such
funds. [
Footnote 5] In October,
1946, more than four and a half years after the levy of these
attachments, the Alien Property Custodian issued Vesting Orders,
which vested "that certain debt or other obligation owing to" the
German bank "and any and all rights to demand, enforce and collect
the same." The Chase Bank notified the Custodian that, due to the
outstanding attachment levies,
Page 341 U. S. 449
it could not release the accounts. [
Footnote 6] Some sixteen months later, the Custodian
petitioned the United States District Court for the Southern
District of New York for a declaratory judgment that the
petitioners "obtained no lien or other interest in" the attached
accounts, and that he was entitled to take the entire balances. The
District Court granted the relief sought, [
Footnote 7] and the United States Court of Appeals for
the Second Circuit affirmed, per curiam, solely on the authority of
Propper v. Clark, 337 U. S. 472.
[
Footnote 8] We granted
certiorari. [
Footnote 9] The
question is whether the attachment levies were "transfers"
forbidden by Executive Order No. 8389.
I
. RIGHTS OF THE JUDGMENT CREDITORS UNDER NEW YORK LAW.
In the New York courts, petitioners invoked one of several
provisional remedies which, from time out of mind, New York has
extended to its citizens against their nonresident debtors. These,
in appropriate circumstances,
Page 341 U. S. 450
may take the form of receivership [
Footnote 10] or attachment. [
Footnote 11] While these two remedies differ in nature
and incidents, they are alike in being available at the
commencement or during the pendency of an action, are not
independent, but auxiliary, in character, and are not designed
finally to adjudge substantive rights, but to secure such judgment
as may be rendered. As employed in this case, attachment also was
the sole basis of jurisdiction.
The attachment levy on bank balances is perfected by service of
a certified copy of the warrant of attachment on the banking
institution, [
Footnote 12]
which is required to certify to the sheriff making the levy the
balance due to the defendant. [
Footnote 13] The levy does not require the sheriff to
take physical possession of any property, nor does it require any
transfer of title. The effect is prescribed:
"Any such person so served with a certified copy of a warrant of
attachment is forbidden to make or suffer, any transfer or other
disposition of, or interfere with, any such property or interest
therein so levied upon, . . . or sell, assign or transfer any right
so levied upon, to any person, or persons, other than the sheriff
serving the said warrant until ninety days from the date of such
service, except upon direction of the sheriff or pursuant to an
order of the court. [
Footnote
14]"
The account attached must, on the sheriff's demand, be paid over
to him within ninety days, unless, as here, the time has been
extended by order of court, and the sheriff is authorized to
institute an action within that time to recover amounts withheld.
[
Footnote 15]
These creditors prosecuted their actions to judgments which
could be satisfied only from attached property and
Page 341 U. S. 451
by issuance of executions. [
Footnote 16] An attachment merges in an execution when
issued, but it is not annulled until the judgment is paid and
remains in force to keep alive the lien on the property.
Castriotis v. Guaranty Trust Co., 229 N.Y. 74, 79, 127
N.E. 900, 902 (1920).
Execution, if issued, would require a transfer of credit and of
funds, but this step has not been taken, and, it is admitted,
cannot be taken in these cases without a federal license. While
requirement of a federal license creates something of a contingency
as to satisfaction of the judgments, as matter of New York law,
this does not deprive the judgment of its validity, or the
attachment of its lien.
Commission for Polish Relief v. Banca
Nationala a Rumaniei, 288 N.Y. 332, 338, 43 N.E.2d 345, 347
(1942).
Although the provisional remedy of attachment, as used in this
case, has served to provide the basis of jurisdiction and has
created a lien to secure satisfaction of the judgment, it is clear
that it has neither attempted nor accomplished any transfer of
possession, for these attachments, have been maintained for over
nine years, and the accounts are still where they were before the
attachments were levied. That there has been no transfer of title
to the funds by the proceedings to date also is clear. If the
judgment debtors chose to satisfy the judgments by other means, or
to substitute an undertaking for the property attached, they could
do so, and the accounts would be freed of the lien. [
Footnote 17]
Under state law, the position of these judgment creditors is
that they have judgments, secured by attachments on balances owned
by German aliens, good as against the debtors, but subject to
federal licensing before they can be satisfied by transfer of title
or possession.
Page 341 U. S. 452
The Custodian claims, in a collateral attack, that federal
courts should pronounce them wholly void and of no effect.
II
. EFFECT OF FEDERAL FOREIGN FUNDS CONTROL ON ATTACHMENT.
The Government, in the present action, relies heavily on General
Ruling No. 12 under Executive Order No. 8389, issued April 21,
1942, some three to five months after these attachments were
levied, and almost two years after issuance of the Executive Order
which it purports to interpret. [
Footnote 18] Then, for the first time, an attachment levy
was specifically designated as a prohibited "transfer." The
Government asks that it be construed to prohibit such attachments
as here made, and be applied retroactively to these attachments
made before its promulgation. Whether an administrative agency
could thus lump all attachments as prohibited "transfers," without
reference to the nature of the rights acquired or steps taken under
the various state laws providing for attachments, presents a
question which we need not decide here. Some attachments may well
be transfers, and thus prohibited. We deal here only with an
attachment under New York law relating specifically to bank
accounts.
This General Ruling, as thus interpreted to forbid these
attachments, would be not only retroactive, but inconsistent
Page 341 U. S. 453
and irreconcilable with the contentions made one day after its
issuance by both the Treasury and the Department of Justice to the
New York Court of Appeals. These Departments filed a brief
amicus curiae, dated April 22, 1942, in the New York Court
of Appeals in
Commission for Polish Relief v. Banca Nationala a
Rumaniei, supra. The case involved an attachment, identical in
state law character with those here, of bank balances in New York
of the National Bank of Rumania, which had been frozen by Executive
Order prior to levy. The Government's brief was subscribed by the
General Counsel of the Treasury and an Assistant Attorney General,
both members of the New York bar, presumably familiar with the
peculiarities of the New York law of attachment of bank accounts.
It specifically called attention to General Ruling No. 12, and,
referring to the claim of incompatibility between the attachment
and the federal freezing program, it declared: "This is the first
occasion in which a court of last resort in this country has been
called upon to meet this issue. . . ." [
Footnote 19] It went on to advise the Court of Appeals
definitely and comprehensively as to the rights of New York courts
to proceed on the basis of the attachment there involved. In view
of the Custodian's present contentions, it merits extensive
consideration.
The New York courts were advised of five purposes of the Federal
Government's program: "1. Protecting property of persons in
occupied countries"; "2. Preventing the Axis, now our enemy, from
acquiring any benefit from these blocked assets"; "3. Facilitating
the use of blocked assets in the United Nations war effort and
protecting American banks and business institutions";
Page 341 U. S. 454
"4. Protecting American creditors"; "5. Foreign relations,
including post-war negotiations and settlements." [
Footnote 20]
To accomplish these purposes in relation to over seven billion
dollars of blocked foreign assets, it was said that " . . . the
Treasury has had to deal with the problem of litigation,
particularly attachment actions, as affecting blocked assets,"
[
Footnote 21] and the
position of the Treasury was represented as follows:
". . . the Treasury did not want to interfere with the orderly
consideration of cases by the courts, including attachment actions,
and, at the same time, it was essential to the Government's program
that the results of court proceedings be subject to the same policy
considerations from the point of view of freezing control as those
arising or recognized through voluntary action of the parties."
"Indeed, the Treasury regards the courts as the appropriate
place to decide disputed claims and suggested to parties that they
adjudicate such claims before applying for a license to permit the
transfer of funds. The judgment was then regarded by the Treasury
as the equivalent of a voluntary payment order without the creation
or transfer of any vested interest, and a license was issued or
denied on the same principles of policy as those governing
voluntary transfers of blocked assets."
"The Treasury Department did not feel that it could finally pass
on an application for a license to transfer blocked assets where
the facts were disputed or liability denied. The Treasury felt that
it was not practical to pass on the freezing control questions
involved in such applications until there was at least a
determination of the facts by a court of law. . . . [
Footnote 22] "
Page 341 U. S. 455
Notwithstanding this assertion of complete discretion to grant
or withhold approval of ultimate transfers, the Government advised
the Court of Appeals that,
"So far as foreign funds control is concerned, there can be an
attachable interest under New York law with respect to the blocked
assets. . . . [
Footnote
23]"
In language applicable to the case before us now, it said:
"The National Bank of Rumania has property within the
jurisdiction. It has not been divested of all its property rights.
In fact, its interests today in the blocked assets are perhaps by
far the most valuable of all the interests in such assets. This
property has not been confiscated by the Government. The National
Bank of Rumania is prohibited from exercising powers and privileges
which, prior to the Executive Order, it could exercise. . . . [T]he
right of the owner of a blocked account to apply for a license to
make payment out of such an account is a most substantial one, and
that lawful payment can be made if a license is granted. [
Footnote 24]"
And the Government continued:
"An attachment action against a national's blocked account is an
attempt to obtain an unlicensed assignment of the national's
interest in the blocked account -- nothing more and nothing
less."
"In this sense, the attachment action might be regarded as a
levy upon the nationals contingent power (
i.e., contingent
upon Treasury authorization) to transfer all his interest in the
blocked account to A; any judgment in the attachment action
resulting in giving A a contingent interest in the account
equivalent to what he would have obtained by voluntary assignment.
"
Page 341 U. S. 456
"The value of such an interest is of course problematical.
Whether it is worthless or worth full value will depend upon
whether the transfer sought is in accordance with the Government's
policies in administering freezing control."
"Under this analysis of what the nature of any attachment action
against a blocked account must be, in the light of the purposes of
freezing control, it is suggested that an attachment action of this
nature might well be allowed in the New York courts. [
Footnote 25]"
"
* * * *"
"The Federal Government is anxious to keep to a minimum
interference with the normal rights of litigants and the
jurisdiction of courts to hear and determine cases, consistent with
the most effective prosecution by the Government of total war.
Applied to the instant case, this means that the Federal Government
must have its hands unfettered in using freezing control,
recognizing that it is desirable that private litigants be able to
attach some interest with respect to blocked assets in order to
clarify their rights and liabilities."
"This has been suggested in this Brief. The Government believes
that the interests of private litigants in state courts can be
served without interference with the freezing control program.
However, the interest of the Government is paramount to the rights
of private litigations in this field, and should this Court be of
the view that, under the New York law, there cannot be a valid
attachment of the limited interests herein suggested, then the
Government must reluctantly take the position that, in the absence
of
Page 341 U. S. 457
further authorization under the freezing control, there can be
no attachable interests under New York law with respect to blocked
assets. [
Footnote 26]"
As the Government pointed out in the
Polish Relief
case, the Custodian is charged, among other things, with preserving
and distributing blocked assets for the benefit of American
creditors. Few claims are not subject to some question, and the
Treasury does not pay questionable claims. For those claims to be
settled so that they can properly be paid out of blocked assets,
they must be adjudicated valid by some court of law. Because the
debtor rarely is amenable to personal service, any action must be
in the nature of a
quasi in rem action preceded by an
attachment of property belonging to the debtor within the
jurisdiction of the court. If, as the Custodian now contends, the
freezing program puts all assets of an alien debtor beyond the
reach of an attachment, it is not difficult to see that there can
be no adjudications of the validity of American claims, and
consequently the claims, not being settled, would not be satisfied
by the Treasury. The logical end of that course would be complete
frustration of a large part of the freezing program. We cannot
believe that the President intended the program to reach such a
self-generated stalemate.
The New York Court of Appeals took the position urged by the
Federal Government. It held that the interest of the debtor,
although subject to the licensing contingency, was sufficient as
matter of state law to render the levy valid and sufficient as a
basis of jurisdiction to decide any issues between the attaching
creditor and the foreign debtor. At the same time, it acknowledged
that any transfer of the attached funds to satisfy the judgment
could only be had if and when the proper license
Page 341 U. S. 458
had been secured.
Commission for Polish Relief v. Banca
Nationala a Rumaniei, supra.
What the New York courts have done here is not distinguishable
from what the Government urged in the
Polish Relief case.
Indeed, in that case, the Secretary of the Treasury had expressly
denied the application of the petitioner for a license for his
attachment. In spite of that, however, the Government urged that
the attachment was authorized by settled administrative
practice:
"From the very inception of freezing control, litigants, prior
to commencing attachment actions against funds belonging to blocked
nationals, have requested the Secretary of the Treasury to license
a transfer to the sheriff by attachment. In all those cases,
running into the hundreds, the Treasury Department has taken a
consistent position. The Treasury Department has authorized the
bringing of an attachment action. However, the Treasury Department
has not licensed a transfer of the blocked funds to the sheriff
prior to judgment. [
Footnote
27]"
The foregoing is confirmed in this case by a stipulation that
consistent administrative practice treated attachments such as we
have here as permissible and valid at the time they were levied.
[
Footnote 28]
Page 341 U. S. 459
The Custodian now asks the federal courts to declare the state
court attachments nullities. His request here is not merely that he
is entitled to take and administer the fund, but that the
attachments are not effective as against the right, title, and
interest of the German banks. His request is irreconcilable with
the admitted administrative practice and the position urged upon
the New York courts in the
Polish Relief case. He
predicates that reversal of position, and so far has been sustained
in it, upon the decision of this Court in
Propper v. Clark,
supra, to which we accordingly turn.
III
The essence of the Custodian's argument that
Propper v.
Clark requires invalidation of these attachments, as stated in
his brief, is that:
". . . [I]t is little short of absurd to suggest that, while
creditors of an enemy national are precluded from reaching his
blocked property in the absence of a license where they proceed by
the provisional
Page 341 U. S. 460
remedy of receivership, the opposite result will be permitted
where they follow the provisional remedy of attachment. [
Footnote 29]"
The answer to this suggested absurdity is that a distinction in
New York law, all-important here, has eluded the Custodian. The
receiver in
Propper was not a receiver appointed as a
provisional remedy, but was a special statutory receiver which
state law purported to vest with both title and right to
possession, which, in case of blocked assets of a foreign corporate
debtor, would obviously defeat the scheme of federal controls. As
our opinion notes, 337 U.S. at p.
337 U. S. 475,
Propper's claim, adverse to that of the Custodian, was initiated by
a temporary receiver, later made permanent, appointed by a New York
state court pursuant to § 977-b of the New York Civil Practice Act,
which is entitled, "Receivers to liquidate local assets of foreign
corporations." That is a special proceeding added to New York
practice by the 1936 Legislature, [
Footnote 30] and provides for appointment of a
liquidating receiver of assets within the State owned by a foreign
corporation which has been dissolved, liquidated, or nationalized,
or which, voluntarily or otherwise, has ceased to do business.
[
Footnote 31] Upon
application by a creditor of such a corporation, the court appoints
a temporary receiver. [
Footnote
32] Title to all such assets vests in him upon appointment,
[
Footnote 33] and the
statute requires and empowers him to "reduce to his possession any
and all assets, credits, choses in action and property" found in
the State. [
Footnote 34] If
it is established on trial that the corporation has been
Page 341 U. S. 461
dissolved or nationalized, or that its charter has been
annulled, or that it has ceased, for any reason, to do business,
the receivership is made permanent [
Footnote 35] and notice is given to all creditors to
prove their claims. [
Footnote
36] Those allowed, the receiver pays in accordance with
statutory priorities. [
Footnote
37] Any surplus is paid to stockholders of the corporation or,
in the discretion of the court, to a receiver or liquidator, if
any, appointed in the domicile of the corporation or elsewhere.
[
Footnote 38]
This special proceeding, which has nothing but name in common
with the traditional provisional remedy of receivership, [
Footnote 39] was introduced to
protect resident creditors and shareholders against confiscatory
decrees by foreign nations. As one court has said:
"This section became effective on the 8th day of June, 1936, and
marks a distinct change in the policy of this State with respect to
the disposition of property situated here but which belongs to a
foreign corporation that has ceased to do business for any reason,
or has been dissolved, liquidated, or nationalized. "
Page 341 U. S. 462
"The purpose of this statute, clearly, is to administer the
distribution of such assets in this State, irrespective of the
scheme of distribution promulgated in any other State, inclusive of
the domicile of the foreign corporation. . . ."
Oliner v. American-Oriental Banking Corp., 252 App.Div.
212, 297 N.Y.S. 432, 433 (1937),
aff'd, 277 N.Y. 588, 13
N.E.2d 783 (1938).
See also Moscow Fire Ins. Co. v. Bank of New
York & Trust Co., 161 Misc. 903, 924, 294 N.Y.S. 648, 676
(1937).
Such was the position of the receiver whose claims we rejected
in
Propper v. Clark. The courts of New York had themselves
recognized that the
Propper receivership conflicted in
principle with federal funds control, and had pointed out that, in
practice, it might well defeat the federal policy. It was said,
"The principle is well settled that war suspends the right of
nonresident alien enemies to prosecute actions in our courts . . .
and it cannot be denied that the plaintiff [Propper], although
himself neither an enemy nor an alien nor a nonresident, is seeking
to enforce a cause of action which, at least until his appointment,
existed, if at all, in favor of a nonresident alien which is also
an enemy as the term 'enemy' is defined in the Trading with the
Enemy Act. . . . His right to recover must rest upon the rights of
such nonresident alien enemy, and, while Civil Practice Act, sec.
977-b purports to vest a receiver appointed thereunder with title
to claims existing in favor of the foreign corporation, it also is
possible that, under that section, some proceeds of a recovery
herein ultimately may benefit nonresident alien enemies. . . ."
Propper v. Buck, 178 Misc. 76, 78, 33 N.Y.S.2d 11, 13
(1942).
But, as the Government before that decision so unequivocally
urged upon the New York Court of Appeals, attachment proceedings as
pursued in these cases have no such consequences. Nothing in these
state court proceedings
Page 341 U. S. 463
have purported to frustrate the purposes of the federal freezing
program. On the contrary, the effect of the State's action, like
that of the federal, was to freeze these funds, to prevent their
withdrawal or transfer to use of the German nationals. There is no
suggestion that these attachment proceedings could in any manner
benefit the enemy. The sole beneficiaries are American citizens,
whose liens are not derived from the enemy, but are adverse to any
enemy interests. And, if no federal freeze orders were in
existence, these state proceedings would tie up enemy property and
reduce the amounts available for enemy disposition. We agree with
the Government's assurance to the Court of Appeals in the
Polish Relief case that these proceedings, in view of the
fact that they do not purport to control the Custodian in the
exercise of the federal licensing power, or in the power to vest
the
res if he sees fit to do so for administration, are
not inconsistent with the freezing program, and we think they were
not invalidated or considered in
Propper v. Clark, supra.
The latter decision is not authority for the judgment asked and
obtained by the Custodian here.
IV
. THE VESTING ORDER.
The Custodian in this case has only sought to vest in himself
the "right, title, and interest" of the German banks. As we
understand it, he acknowledges that, if the interests acquired by
the attachments are valid as against the German banks, he is not,
under the Vesting Orders involved, as he has chosen to phrase them,
entitled to the attached funds, but he takes the position that no
valid rights against the German debtors were acquired by the
attachments because prohibited by the freezing program. [
Footnote 40] He has, in short, put
himself in the shoes of the German banks. As against the German
debtors, the attachments
Page 341 U. S. 464
and the judgments they secure are valid under New York law, and
cannot be cancelled or annulled under a Vesting Order by which the
Custodian takes over only the right, title, and interest of those
debtors in the accounts. But, of course, as against the Custodian,
exercising the paramount power of the United States, they do not
control or limit the federal policy of dealing with alien property,
and do not prevent a
res vesting, as sustained in the
companion cases, if the Custodian sees fit to take over the entire
fund for administration under the Act. In such case, all federal
questions as to recognition by the Custodian of the state law lien,
or priority of payment, are reserved for decision if and when
presented in accordance with the Act.
This result, as we have indicated, in no way impairs federal
control over alien property, since the petitioners admit that they
cannot secure payment from the attached frozen funds without a
license from the Custodian. The case is therefore more nearly like
Lyon v. Singer, 339 U. S. 841,
339 U. S. 842,
where this Court said:
"We accept the New York court's determination that, under New
York law, these claims arose from transactions in New York, and
were entitled to a preference. Since the New York court conditioned
enforcement of the claims upon licensing by the Alien Property
Custodian, federal control over alien property remains
undiminished."
The decision of the court below is
Reversed.
MR. JUSTICE CLARK took no part in the consideration or decision
of these cases.
* Together with No. 314,
McCarthy v. McGrath, Attorney
General, Successor to the Alien Property Custodian, also on
certiorari to the same court.
[
Footnote 1]
As provided for in N.Y. Civil Practice Act, § 922.
[
Footnote 2]
3 CFR, 1943 Cum.Supp. 948, 6 Fed.Reg., 2897.
[
Footnote 3]
3 CFR, 1943 Cum.Supp. 645, 5 Fed.Reg. 1400.
[
Footnote 4]
40 Stat. 411, 415, as amended by Joint Resolution of May 7,
1940, 54 Stat. 179, and First War Powers Act of 1941, § 301, 55
Stat. 839.
[
Footnote 5]
Executive Order No. 8389, as amended, provides:
"SECTION 1. All of the following transactions are prohibited,
except as specifically authorized by the Secretary of the Treasury
by means of regulations, rulings, instructions, licenses, or
otherwise, if . . . such transactions involve property in which any
foreign country designated in this Order, or any national thereof,
has at any time on or since the effective date of this Order had
any interest of any nature whatsoever, direct or indirect:"
"A. All transfers of credit between any banking institutions
within the United States . . . ;"
"B. All payments by or to any banking institution within the
United States;"
"
* * * *"
"E. All transfers, withdrawals or exportations of, or dealings
in, any evidences of indebtedness or evidences of ownership of
property by any person within the United States; and"
"F. Any transaction for the purpose or which has the effect of
evading or avoiding the foregoing prohibitions."
[
Footnote 6]
The Attorney General has since succeeded to the functions and
powers of the Alien Property Custodian, but, for convenience, the
Respondent interest will be referred to throughout as the
Custodian.
[
Footnote 7]
82 F. Supp. 740.
[
Footnote 8]
182 F.2d 349.
[
Footnote 9]
340 U.S. 882.
[
Footnote 10]
N.Y.Civ.Pract.Act, § § 974�977.
[
Footnote 11]
Id., § § 902�973.
[
Footnote 12]
Id., § 917(2).
[
Footnote 13]
Id., § 918.
[
Footnote 14]
Id., § 917(2).
[
Footnote 15]
Id., § 922(1).
[
Footnote 16]
Id., § 520.
[
Footnote 17]
Id., § § 952, 953.
[
Footnote 18]
General Ruling No. 12(5)(a) under Executive Order No. 8389, 31
CFR, 1943 Cum.Supp., 8849, April 21, 1942, defined a prohibited
"transfer" as
". . . any actual or purported act or transaction . . . the
purpose, intent, or effect of which is to create, surrender,
release, transfer, or alter, directly or indirectly, any right,
remedy, power, privilege, or interest with respect to any property
and without limitation upon the foregoing shall include . . . the
creation or transfer of any lien; the issuance, docketing, filing,
or the levy of or under any judgment, decree, attachment,
execution, or other judicial or administrative process or order, or
the service of any garnishment. . . ."
[
Footnote 19]
Brief of the United States as
amicus curiae, p. 2,
Commission for Polish Relief v. Banca Nationala a
Rumaniei, 288 N.Y. 332, 43 N.E.2d 345 (1942).
[
Footnote 20]
Id. at pp. 5, 7, 9, 11, 13.
[
Footnote 21]
Id. at p. 14.
[
Footnote 22]
Id. at pp. 14�15.
[
Footnote 23]
Id. at p. 42.
[
Footnote 24]
Id. at p. 50.
[
Footnote 25]
Id. at p. 52.
[
Footnote 26]
Id. at p. 53.
[
Footnote 27]
Id. at p. 39.
[
Footnote 28]
The stipulation of facts states:
"
* * * *"
"5. From the inception of 'freezing' controls, all litigants
who, prior to commencing attachment actions against funds belonging
to blocked nationals, had requested the Secretary of the Treasury
to license an attachment, or levy, received from the Treasury
Department a response of the following nature:"
" Under Executive Order No. 8389, as amended, and the
Regulations issued thereunder, no attempt is made to limit the
bringing of suits in the courts of the United States or of any of
the States. However, should you secure a judgment against one of
the parties referred to in your letter, which is a country covered
by the Order, or a national thereof, a license would have to be
secured before payment could be made from accounts in banking
institutions within the United States in the name of such country
or national."
"6. From the inception of 'freezing' controls, the Secretary of
the Treasury, in administering the 'freezing' control program,
adopted the position, in response to numerous requests made of him,
that the bringing of an action, the issuance of a warrant of
attachment therein, and the levy thereunder upon blocked property
found within the jurisdiction of the court which issued the warrant
were not forbidden, but that a license was required to be secured
before payment could be made from the blocked account to satisfy
any judgment recovered in such action."
"7. . . . A license to institute the action and levy the
attachment was in fact not required by the Treasury
Department."
[
Footnote 29]
Brief for Respondent, pp. 16-17.
[
Footnote 30]
L. 1936, c. 917.
[
Footnote 31]
N.Y.Civ.Pract.Act § 977-b(1).
[
Footnote 32]
Id., § 977-b(4).
[
Footnote 33]
Id., § 977-b(19).
[
Footnote 34]
Id., § 977-b(4).
[
Footnote 35]
Id., § 977-b(10).
[
Footnote 36]
Id., § 977-b(11).
[
Footnote 37]
Id., § 977-b(16).
[
Footnote 38]
Ibid.
[
Footnote 39]
Id., § § 974-977. A receiver appointed as a provisional
remedy is not an agent or representative of either party, but holds
the property during the litigation pending final judgment.
Weeks v. Weeks, 106 N.Y. 626, 631, 13 N.E. 96, 98 (1887);
People ex rel. Attorney General v. Security Life Ins. &
Annuity Co., 79 N.Y. 267, 270 (1879).
"The receiver acquires no title, but only the right of
possession as the officer of the court. The title remains in those
in whom it was vested when the appointment was made."
Stokes v. Hoffman House, 167 N.Y. 554, 559-560, 60 N.E.
667, 669 (1901), quoting
Keeney v. Home Ins. Co., 71 N.Y.
396, 401, 27 Am.Rep. 60, 63.
See also Carmody's Manual of
New York Civil Practice (Carr, Finn, Saxe, 1946 Ed.) § 609.
[
Footnote 40]
Brief for Respondent, p. 27.
MR. JUSTICE DOUGLAS, concurring.
I join in the opinion of the Court, since it places control of
the public interest phase of the controversy in the licensing power
of the Custodian. Payment of claims
Page 341 U. S. 465
requires a license. [
Footnote
2/1] A license, of course, may be refused when payment would
accrue directly or indirectly to the benefit of the enemy. But the
policy of the Act is in no way subverted by recognition of a lien
which can ripen into a priority only if payment would have no such
effect. Denial of the lien could be made only if the Act called for
an equality of distribution among claimants, regardless of their
innocence or guilt. I can find nothing in the Act which warrants
leveling the good faith lien claimant to the unsecured status of
the others. [
Footnote 2/2]
[
Footnote 2/1]
See § 5(b) of the Trading With the Enemy Act, 40 Stat.
411, 415, as amended 54 Stat. 179, 55 Stat. 839, and 8 CFR, c. II,
Part 511.
[
Footnote 2/2]
The priority of debt claims contained in § 34(g), 60 Stat. 925,
928, does not purport to deal with creditors preferred by reason of
a lien lawfully acquired in judicial proceedings.
MR. JUSTICE REED, with whom MR. JUSTICE BURTON joins, concurring
in part and dissenting in part.
The Court fails to decide the only question of importance
presented by this case. This question is whether a state
attachment, obtained on assets previously blocked under Executive
Order No. 8785, gives the attaching creditor any right in those
assets that displaces the power of the Government to make such
disposition or use of the assets as it may ultimately determine is
for the best interest of the Nation and its citizens. The Court
defers all questions as to "recognition by the Custodian of the
state law lien, or priority of payment" for later decision. Under
today's decision, the Alien Property Custodian vests the account in
question without knowing what power he has over its handling or
disposition. Such uncertainty will hamper administration, and be an
open invitation to the owners of blocked assets to sell their
interests in the blocked property, as the Custodian phrases it, "to
friendly speculators willing to buy at a discount and to await
payment on the ultimate day of unblocking."
Page 341 U. S. 466
The Custodian sought a determination of this troublesome
question. His petition in the District Court asked that court to
declare that
"respondents Zittman and McCarthy, and McCloskey, as sheriff,
obtained no lien or other interest in the 'Reichsbank-Direktorium'
or the Deutsche Golddiskontbank accounts, or the funds represented
thereby, and that, by virtue of Vesting Orders Nos. 7792 and 7870,
the petitioner is entitled to the entire balances remaining in the
'Reichsbank-Direktorium' and Deutsche Golddiskontbank accounts on
the books of the respondent Chase National Bank, together with all
accrued dividends and accumulations."
The decree sustained that request on the authority of
Propper v. Clark, 337 U. S. 472. It
is to be noted that the prayer referred to liens or other interests
in the accounts, and asked that the balances be turned over. The
Court is of the view that this is not a simple turn-over request,
but also seeks a declaration "that no valid rights against the
German debtors were acquired by the attachments because prohibited
by the freezing program."
While such construction of the petition is possible, I read it
to seek a rather different decision. The Custodian's complaint
prayed a ruling that the attaching creditors obtained to lien or
other interest in the accounts that could determine his action in
administering or distributing the fund in accordance with the
direction of Congress. This is made clear by the statements
excerpted from the Custodian's brief in the margin. [
Footnote 3/1] It
Page 341 U. S. 467
is substantiated by United States Treasury Department General
Ruling No. 12, upon which the Custodian relies. [
Footnote 3/2]
If the Court has any doubt that anything else was meant by the
complaint or decree, the proper course
Page 341 U. S. 468
would be to insert in the decree a modifying proviso to the
effect that "no lien or other interest, except as between the
debtor and creditor, was obtained by the attachment proceedings in
the state court."
See Lyon v. Singer, 339 U.
S. 841.
In my judgment, a valid state attachment, obtained subsequent to
the blocking order, is good as between an alien and his creditors.
I an also sure that such an attachment has no compelling power upon
the Attorney General in his administration of the Trading With the
Enemy Act.
Propper v. Clark, 337 U. S. 472,
337 U. S.
482-486, so holds. It was like the present case -- a
suit by the Alien Property Custodian, after a vesting order, to get
possession of the blocked credits. In
Propper v. Clark, as
in this case, there was a claim that an interest had passed to a
third party, Propper, as permanent receiver by judicial decree
entered between the blocking and vesting orders. There is nothing
in the group of cases in
Lyon v. Singer, 339 U.
S. 841, to weaken the holding in the
Propper
case. The transactions in those later cases likewise took place
after a federal blocking order and before a vesting order by the
Alien Property Custodian. The New York Court of Appeals had decided
that the claimants had preferred claims under New York law against
the assets of the alien. We recognized those claims, since they
were conditioned upon licensing by the Alien Property Custodian,
but we distinctly said that the ruling in
Propper v. Clark
was not affected because, in the
Propper case,
"the liquidator claimed title to frozen assets adversely to the
Custodian, and sought to deny the Custodian's paramount power to
vest the alien property in the United States."
Therefore the clear rule of the
Propper case that the
Custodian vests and administers entirely free from effective
interference over any rights or title secured by the attachment
stands unimpaired. In such a situation, it
Page 341 U. S. 469
does not seem to me that there can be any difference between a
title acquired by receiver, subject to the control of the Custodian
as licensor, and the lien acquired by the attaching creditor,
subject to the same license limitation. The Court's distinction
between
Propper v. Clark and this case should have no
effect on the result here.
I disagree, too, with the Court's interpretation of the brief
filed by the Government in
Polish Relief Commission v. Banca
Nationala a Rumaniei, 288 N.Y. 332, 43 N.E.2d 345. The case
holds only that the attachment is good between the debtor and
creditor. It does not hold it good against the Government, nor did
the Government brief, as I read it, so concede. The brief merely
approved suits between litigants to settle those litigants'
personal rights, not to get transfers of or liens on frozen assets
effective against the Custodian. That is litigation pursuant to
General Ruling No. 12(d),
341
U.S. 446fn3/2|>note 2,
supra. This is clear from
the brief, excerpts from which appear below. [
Footnote 3/3]
Page 341 U. S. 470
As the Court does not agree with me on the propriety of making a
determination at the present time, as above suggested, and has left
open for future litigation "all federal questions as to recognition
by the custodian of the state law lien, or priority of payment," I
forbear from expressing my views at length until this issue is
presented.
As indicated above, I think we should modify the judgment
entered below by some such insertion as I have heretofore suggested
on pp.
341 U. S.
467-468, and, as so modified, affirm that decree.
[
Footnote 3/1]
"Petitioners could not thereafter acquire a property interest in
the blocked accounts which could prevail against a subsequent
vesting by the Custodian."
Resp. brief, p. 9.
"Petitioners stress that nothing in the Trading With the Enemy
Act or in the freezing regulations prohibits the bringing of suits
against enemy nationals in time of war. This is correct. Indeed,
the Treasury Department in administering the controls took the
position from the outset that parties were free to seek
adjudications of their rights
vis-a-vis blocked
nationals."
Id., p. 13.
"Respondent does not contend that the attachments were
absolutely void, or that they were illegal. He agrees that freezing
did not purport to prohibit the resort to judicial process. He
states simply that transfers in blocked property were proscribed,
and that the judicial hand was stayed to that extent. Not
attachments, but transfers, were controlled. That means that a
fixed or absolute lien (as distinguished from 'a potential right or
a contingent lien') could not be created without a release of the
property from federal control. Since the perfecting of a fixed lien
is characteristically subject to numerous contingencies under state
law,
e.g., the entry of a judgment in plaintiff's favor,
it would seem clear that the imposition of a further condition by
operation of federal law -- the procurement of a license -- is not
inconsistent with proceedings by way of attachment."
"In effect, then, the Treasury said this: blocked property is
subject to a federal injunction against transfer. This does not
prevent a state court from issuing a writ which also directs the
holder of the blocked property to keep it intact. And if the state
court, in these circumstances, regards its own process as offering
a sufficient promise of control to warrant an exercise of its
jurisdiction, there is no objection to its declaring the rights of
a suitor as against the owner of the blocked property. But the
state court's power to confer a proprietary interest upon the
suitor necessarily awaits a lifting of the federal injunction."
Id., pp. 49-50.
[
Footnote 3/2]
"(d) Any transfer affected by the Order and/or this general
ruling and involved in, or arising out of, any action or proceeding
in any Court within the United States shall, so far as affected by
the Order and/or this general ruling, be valid and enforceable for
the purpose of determining for the parties to the action or
proceeding the rights and liabilities therein litigated;
Provided, however, That no attachment, judgment, decree,
lien, execution, garnishment, or other judicial process shall
confer or create a greater right, power, or privilege with respect
to, or interest in, any property in a blocked account than the
owner of such property could create or confer by voluntary act
prior to the issuance of an appropriate license."
7 Fed.Reg. 2991.
[
Footnote 3/3]
"Almost from the outset of freezing control, the Treasury has
had to deal with the problem of litigation, particularly attachment
actions, as affecting blocked assets. As will be more fully
developed later in this brief, the Treasury did not want to
interfere with the orderly consideration of cases by the courts,
including attachment actions, and, at the same time, it was
essential to the Government's program that the results of court
proceedings be subject to the same policy considerations from the
point of view of freezing control as those arising or recognized
through voluntary action of the parties."
"Indeed, the Treasury regards the courts as the appropriate
place to decide disputed claims, and suggested to parties that they
adjudicate such claims before applying for a license to permit the
transfer of funds. The judgment was then regarded by the Treasury
as the equivalent of a voluntary payment order without the creation
or transfer of any vested interest, and a license was issued or
denied on the same principles of policy as those governing
voluntary transfers of blocked assets."
P. 14.
"The judicial procedure is generally geared to deal only with
the rights and liabilities of the parties to the proceeding. The
judicial procedure is not the most appropriate field to determine
the great political questions of national and international
magnitude that will inhere in the ultimate disposition of
foreign-owned property in this country and in the determination of
the rights of groups of American and foreign creditors. These great
problems of national policy can be handled adequately only by the
Federal Government. The determination of such national policies
should not be forced by judicial decisions in particular cases
determining the rights and liabilities of the parties to the
proceedings. The questions are political, and for the executive,
not the judiciary. They are federal, not state. They call for
uniform treatment with reference to large national policies, not
for disparate local treatment to accord with local policies.
Moreover Congress and the executive have set up machinery to deal
with the problems, a machinery designed to relate the solution to
the whole was effort and the inevitable postwar problems."
P. 12.
"Freezing control in protecting blocked assets of overrun
countries and their nationals had as a further purpose the desire
to make such assets available at least in part, in the war effort
against the Axis. Needless to say, if there can be unlicensed
transfers of title to blocked property, the true owners of such
blocked property may be prevented from using the property in the
war effort. . . ."
Pp. 9-10.
"'Blocked dollars' are still valuable dollars. With a license,
they are 'free dollars.' More than eighty general licenses and
400,000 special licenses have been issued under the freezing
control, authorizing the use of blocked dollars for stated
purposes. Moreover, 'hope springs eternal in the human breast.'
There are always those who are willing to wait for the day when the
war is over with the expectation that the freezing control will be
lifted."
P. 8.