Source: https://www.law.cornell.edu/supremecourt/text/301/324
Timestamp: 2019-04-25 13:58:26+00:00

Document:
1. A decree of the Soviet Government dissolved a Russian corporation and expropriated all of its assets, including a deposit account with a bank in New York. Subsequently, the President of the United States recognized, and established diplomatic relations with, the Soviet Government, and, for the purpose of bringing about a final settlement of claims and counterclaims between that Government and the United States, it was thereupon agreed, among other things, that the Soviet Government would take no steps to enforce claims against American nationals, but all such claims, including the deposit account, were assigned to the United States with the understanding that the Soviet Government would be notified of all amounts so realized by the United States. Held that, as between the United States and the depositary, the deposit, in virtue of the international compact, belonged to the United States, whatever the policy of the State of New York touching the enforcement of acts of confiscation. P. 327.
2. Judicial notice is taken of the facts that, coincidentally with the assignment, the President recognized the Soviet Government and normal diplomatic relations were established between the two Governments, followed by an exchange of ambassadors. P. 330.
4. The international compact was within the competency of the President, and participation by the Senate was unnecessary. P. 330.
5. The external powers of the United States are to be exercised without regard to state laws or policies. P. 331.
6. What another country has done in the way of taking over property of it nationals, and especially of its corporations, is not questionable in our courts. P. 332.
This is an action at law brought by petitioner against respondents in a federal district court to recover a sum of money deposited by a Russian corporation (Petrograd [p326] Metal Works) with August Belmont, a private banker doing business in New York City under the name of August Belmont & Co. August Belmont died in 1924, and respondents are the duly appointed executors of his will. A motion to dismiss the complaint for failure to state facts sufficient to constitute a cause of action was sustained by the district court, and its judgment was affirmed by the court below. 85 F.2d 542. The facts alleged, so far as necessary to be stated, follow.
The assignment was effected by an exchange of diplomatic correspondence between the Soviet Government and the United States. The purpose was to bring about a final settlement of the claims and counterclaims between the Soviet Government and the United States, and it was agreed that the Soviet Government would take no steps to enforce claims against American nationals, but all such claims were released and assigned to the United States, with the understanding that the Soviet Government was to be duly notified of all amounts realized by the United States from such release and assignment. The assignment and requirement for notice [p327] are parts of the larger plan to bring about a settlement of the rival claims of the high contracting parties. The continuing and definite interest of the Soviet Government in the collection of assigned claims is evident, and the case, therefore, presents a question of public concern, the determination of which well might involve the good faith of the United States in the eyes of a foreign government. The court below held that the assignment thus effected embraced the claim here in question, and with that we agree.
This court has held, Underhill v. Hernandez, 168 U.S. 250, that every sovereign state must recognize the independence of every other sovereign state, and that the courts of one will not sit in judgment upon the acts of the government of another done within its own territory.
that the conduct of one independent government cannot be successfully questioned in the courts of another is as applicable to a case involving the title to property brought within the custody of a court, such as we have here, as it was held to be to the cases cited, in which claims for damages were based upon acts done in a foreign country, for it rests at last upon the highest considerations of international comity and expediency. To permit the validity of the acts of one sovereign State to be reexamined and perhaps condemned by the courts of another would very certainly "imperil the amicable relations between governments, and vex the peace of nations."
Ricaud v. American Metal Co., 246 U.S. 304, 308-309, 310, is to the same effect.
otherwise than as the expression by the de facto government of a civilized country of a policy which it considered to be in the best interest of that country. It must be quite immaterial for present purposes that the same views are not entertained by the Government of this country, are repudiated by the vast majority of its citizens, and are not recognized by our laws.
to come to the conclusion that the legislation of a state recognized by my Sovereign as an independent sovereign state is so contrary to moral principle that the judges ought not to recognize it. The responsibility for recognition or nonrecognition, with the consequences of each, rests on the [p330] political advisers of the Sovereign, and not on the judges.
A treaty signifies "a compact made between two or more independent nations with a view to the public welfare." Altman & Co. v. United States, 224 U.S. 583, 600. But an international compact, as this was, is not always a treaty which requires the participation of the Senate. There are many such compacts, of which a protocol, a modus vivendi, a postal convention, and agreements [p331] like that now under consideration are illustrations. See 5 Moore, Int.Law Digest, 210-221. The distinction was pointed out by this court in the Altman case, supra, which arose under § 3 of the Tariff Act of 1897, authorizing the President to conclude commercial agreements with foreign countries in certain specified matters. We held that, although this might not be a treaty requiring ratification by the Senate, it was a compact negotiated and proclaimed under the authority of the President, and as such was a "treaty" within the meaning of the Circuit Court of Appeals Act, the construction of which might be reviewed upon direct appeal to this court.
Plainly, the external powers of the United States are to be exercised without regard to state laws or policies. The supremacy of a treaty in this respect has been recognized from the beginning. Mr. Madison, in the Virginia Convention, said that, if a treaty does not supersede existing state laws as far as they contravene its operation, the treaty would be ineffective. "To counteract it by the supremacy of the state laws, would bring on the Union the just charge of national perfidy, and involve us in war." 3 Elliot's Debates 515. And see Ware v. Hylton, 3 Dall.199, 236-237. And while this rule in respect of treaties is established by the express language of cl. 2, Art. VI, of the Constitution, the same rule would result in the case of all international compacts and agreements from the very fact that complete power over international affairs is in the national government, and is not and cannot be subject to any curtailment or interference on the part of the several states. Compare United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 316, et seq. In respect of all international negotiations and compacts, and in respect of our foreign relations generally, state lines disappear. As to such purposes, the State of New York does not exist. Within the field of its powers, whatever [p332] the United States rightfully undertakes it necessarily has warrant to consummate. And when judicial authority is invoked in aid of such consummation, state constitutions, state laws, and state policies are irrelevant to the inquiry and decision. It is inconceivable that any of them can be interposed as an obstacle to the effective operation of a federal constitutional power. Cf. Missouri v. Holland, 252 U.S. 416; Asakura v. Seattle, 265 U.S. 332, 341.
Second. The public policy of the United States relied upon as a bar to the action is that declared by the Constitution, namely, that private property shall not be taken without just compensation. But the answer is that our Constitution, laws and policies have no extraterritorial operation unless in respect of our own citizens. Compare United States v. Curtiss-Wright Export Corp., supra, at p. 318. What another country has done in the way of taking over property of its nationals, and especially of its corporations, is not a matter for judicial consideration here. Such nationals must look to their own government for any redress to which they may be entitled. So far as the record shows, only the rights of the Russian corporation have been affected by what has been done, and it will be time enough to consider the rights of our nationals when, if ever, by proper judicial proceeding, it shall be made to appear that they are so affected as to entitle them to judicial relief. The substantive right to the moneys, as now disclosed, became vested in the Soviet Government as the successor to the corporation, and this right that government has passed to the United States. It does not appear that respondents have any interest in the matter beyond that of a custodian. Thus far, no question under the Fifth Amendement is involved.
It results that the complaint states a cause of action, and that the judgment of the court below to the contrary is erroneous. In so holding, we deal only with the case [p333] as now presented, and with the parties now before us. We do not consider the status of adverse claims, if there be any, of others not parties to this action. And nothing we have said is to be construed as foreclosing the assertion of any such claim to the fund involved, by intervention or other appropriate proceeding. We decide only that the complaint alleges facts sufficient to constitute a cause of action against the respondents.
But this Court has often recognized that a state may refuse to give effect to a transfer, made elsewhere, of property which is within its own territorial limits, if the transfer is in conflict with its public policy. Green v. Van Buskirk, 5 Wall. 307, 311-312; Hervey v. Rhode Island Locomotive Works, 93 U.S. 664; Security Trust Co. v. Dodd, Mead & Co., 173 U.S. 624; Clark v. Williard, 292 U.S. 112, 122; Clark v. Williard, 294 U.S. 211. It is likewise free to disregard the transfer where the subject of it is a chose in action due from a debtor within the state to a foreign creditor, especially where, as in the present case, the debtor's only obligation is to pay within the state, on demand. Harrison v. Sterry, 5 Cranch 289; Disconto Glesellschaft v. Umbreit, 208 U.S. 570; Barth v. Backus, 140 N.Y. 230, 35 N.E. 425; Vladikavkazsky Ry. Co. v. New York Trust Co., 263 N.Y. 369, 378-379, 189 N.E. 456. The chose in action is so far within the control of the state as to be regarded as located there for many purposes. Wyman v. Halstead, 109 U.S. 654, 656; Chicago, R.I. & P. Ry. Co. v. Sturm, 174 U.S. 710; Harris v. Balk, 198 U.S. 215; Pennington v. Fourth National Bank, 243 U.S. 269; Security Savings Bank v. California, 263 U.S. 282, 285; Corn Exchange Bank v. Coler, 280 U.S. 218; In re Russian Bank for Foreign Trade, L.R.1933, Ch.Div. 745, 767; American Law Institute, Restatement, Conflict of Laws, §§ 108, 213.
It does not appear that the State of New York, at least since our diplomatic recognition of the Soviet government, has any policy which would permit a New York debtor to question the title of that government to a claim of the creditor acquired by its confiscatory decree, and no reason is apparent for assuming that such is its policy. Payment of the debt to the United States as transferee will discharge the debtor and impose on him no burden which he did not undertake when he assumed the position of debtor. Beyond this, he has no interest for the state [p335] to protect. But it is a recognized rule that a state may rightly refuse to give effect to external transfers of property within its borders so far as they would operate to exclude creditors suing in its courts. Harrison v. Sterry, supra; Security Trust Co. v. Dodd, Mead & Co., supra; Disconto Gesellschaft v. Umbreit, supra; Clark v. Williard, supra; Barth v. Backus, supra.
We recently held, in Clark v. Williard, supra, that the full faith and credit clause does not preclude the attachment of property within the state, by a local creditor of a foreign corporation, all of whose property has been previously transferred, in the state of its incorporation, to a statutory successor for the benefit of creditors. Due process under the Fifth Amendment, the benefits of which extend to alien friends, as well as to citizens, Russian Volunteer Fleet v. United States, 282 U.S. 481, does not require any different result. Disconto Gesellschaft v. Umbreit, supra, 579, 580. The Constitution has no different application where the property transferred is a chose in action, later seized by a creditor in the state of the debtor. Disconto Gesellschaft v. Umbreit, supra. See Harrison v. Sterry, supra. In conformity to this doctrine, New York would have been free to enforce a local policy, subordinating the Soviet government, as the successor of its national, to local suitors. Its judicial decisions indicate that such may be its policy for the protection of creditors or others claiming an interest in the sum due. James & Co. v. Second Russian Insurance Co., 239 N.Y. 248, 257, 146 N.E. 369; Matter of People (City Equitable Fire Insurance Co.), 238 N.Y. 147, 152, 144 N.E. 484; Matter of Waite, 99 N.Y. 433, 448, 2 N.E. 440. See Vladikavkazsky Ry. Co. v. New York Trust Co., supra.
It seems plain that, so far as now appears, the United States does not stand in any better position with respect to the assigned claim than did its assignor, or any other [p336] transferee of the Soviet government. We may, for present purposes, assume that the United States, by treaty with a foreign government with respect to a subject in which the foreign government has some interest or concern, could alter the policy which a state might otherwise adopt. It is unnecessary to consider whether the present agreement between the two governments can rightly be given the same effect as a treaty within this rule, for neither the allegations of the bill of complaint, nor the diplomatic exchanges, suggest that the United States has either recognized or declared that any state policy is to be overridden.
I am glad to have these undertakings by your Government, and I shall be pleased to notify your Government in each case of any amount realized by the Government of the United States from the release and assignment to it of the amounts admitted to be due or that may be found to be due.
There is nothing in either document to suggest that the United States was to acquire or exert any greater rights than its transferor, or that the President, by mere executive action, purported or intended to alter the laws and policy of any state in which the debtor of an assigned claim might reside, or that the United States, as assignee, [p337] is to do more than the Soviet government could have done after diplomatic recognition -- that is, collect the claims in conformity with those laws. Cf. Todok v. Union State Bank, 281 U.S. 449.
GUARANTY TRUST CO. OF NEW YORK v. UNITED STATES.
Julia IOANNOU v. NEW YORK et al.
Caspar W. WEINBERGER, Secretary of Defense, et al., Petitioners v. Anthony M. ROSSI et al.
FIRST NATIONAL CITY BANK, Petitioner, v. BANCO NACIONAL de CUBA.

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