Source: https://supreme.justia.com/cases/federal/us/337/472/
Timestamp: 2019-04-22 04:46:08+00:00

Document:
Pursuant to § 5(b) of the Trading with the Enemy Act, as amended, the President promulgated Executive Order No. 8389 prohibiting certain transactions in property of nationals of certain foreign countries except when licensed by the Secretary of the Treasury. Two days before this was made applicable to Austria by Executive Order No. 8785, petitioner was designated by a New York court as temporary receiver of the assets of an Austrian national (AKM). The asset was a debt owed by the American Society of Composers, Authors and Publishers (ASCAP), and no license permitting its transfer was issued. After issuance of Executive order No. 8785, petitioner was designated permanent receiver. Subsequently, the Alien Property Custodian issued an order vesting in himself title to the claim of AKM against ASCAP.
Held: in a suit by the Custodian against petitioner and ASCAP, judgments were properly entered declaring that petitioner had no right, title, or interest in the claim and directing ASCAP to pay it to the Custodian. Pp. 337 U. S. 474-493.
1. The Joint Resolution of May 7, 1940, amending § 5(b) of the Trading with the Enemy Act, and Executive Order No. 8389, issued April 10, 1940, put into effect a valid plan for control of the property covered by the Executive Order that prohibited any change of title to the property here involved by reason of the subsequent appointment of petitioner as permanent receiver. Pp. 337 U. S. 476-486.
(a) The Joint Resolution of May 7, 1940, ratified Executive Order No. 8389, issued April 10, 1940, including the broad definition of "banking institution" as including "any person holding credits for others as a direct or incidental part of his business." P. 337 U. S. 478-479.
(b) Not being defined, the term "credit," as used in the Trading with the Enemy Act, the Executive Orders and the regulations thereunder, is given its ordinary meaning of the obligation due on accounting between parties to transactions. P. 337 U. S. 480.
(c) Petitioner and ASCAP are "banking institutions" within the meaning of the definitions of that term in the Executive Orders and the prohibition against "transfers of credit between any banking institutions." Pp. 337 U. S. 480-482.
(d) A transfer of the credit here involved from a liability owed by ASCAP to AKM to a liability owed by ASCAP to petitioner would violate the prohibition against "transfers of credit." P. 337 U. S. 482.
(e) Although title to the claim in question had not been vested in the Custodian when petitioner was appointed permanent receiver, the Executive Orders prevented title from being transferred to petitioner, even by judicial action. Pp. 337 U. S. 482-485.
(f) A different result is not required by the administrative interpretation of the Executive Orders. Pp. 337 U. S. 485-486.
2. Under § 977-b of the New York Civil Practice Act, title to the claim did not pass to petitioner by virtue of his appointment as temporary receiver before issuance of Executive Order No. 8785. Pp. 486-492.
(a) Although the state statute is susceptible of varying interpretations and the point has not been ruled upon by the state courts, this Court accepts the reasonable interpretation given to it by the Federal District Court and Court of Appeals, which are skilled in the laws of New York. Pp. 337 U. S. 486-489.
(b) This Court rejects petitioner's suggestion that a decision in the federal courts should be delayed until the courts of New York have settled the issue of state law. Pp. 337 U. S. 489-492.
3. The federal courts were not precluded from adjudging the rights of the respective parties in this case on the ground that the property was in the hands of the state court by virtue of a state receivership. Pp. 337 U. S. 492-493.
In a suit by the Alien Property Custodian under § 17 of the Trading with the Enemy Act, a Federal District Court entered judgments declaring that a receiver appointed by a state court had no right, title, or interest in a debt owed to an Austrian national, and directing the debtor to pay the debt to the Custodian. 70 F.Supp. 202. The Court of Appeals affirmed. 169 F.2d 324. This Court granted certiorari, limited to two issues. 335 U.S. 902. Affirmed, p. 337 U. S. 493.
that the petitioner had no right, title or interest in the claim in question, Markham v. Taylor, 70 F.Supp. 202, and later, a second judgment directing ASCAP to pay the debt to the Custodian. The United States Court of Appeals for the Second Circuit, on appeal by the petitioner, [Footnote 2] affirmed. Clark v. Propper, 169 F.2d 324.
"to take, receive, and reduce to his possession any and all assets . . . tangible and intangible, within the New York of the defendant [AKM], and hold the same until the further order of this Court."
York against ASCAP to recover the royalties which it owed AKM. [Footnote 5] Its disposition is awaiting the outcome of this case. On September 29, 1941, petitioner, upon the default of AKM, was appointed permanent receiver of that association's assets. Thereafter followed the vesting order, September 4, 1943, and this suit, April 22, 1946.
First. The appointment as permanent receiver on September 29, 1941, concededly would have vested in petitioner, as permanent receiver, all right, title, and interest of AKM in its claim against ASCAP if the freezing order of June 14, 1941, had not intervened after petitioner's appointment as temporary receiver on June 12, 1941.
Accepting that position, the question of whether the appointment as permanent receiver related back to the date of the temporary receivership so as to place title to the claim in the permanent receiver as of June 12, 1941, and the question as to whether the appointment as permanent receiver itself vested title in the petitioner notwithstanding the prior freezing order, depend alike upon a determination as to whether the freezing order made invalid any subsequent transfer of title by judicial action.
or any other period of national emergency to prohibit such transfers was given the President by the Joint Resolution. Order No. 8785 declared "the existence of a period of unlimited national emergency."
The same resolution authorized the President to issue rules and regulations and specifically to define "banking institutions." The President had, on April 10, 1940, issued a similar order prohibiting similar transfers applicable to nationals of Norway and Denmark to guard against such transfers brought about by the German invasion of those countries. Executive Order No. 8389, 5 F.R. 1400. It contained, to all intents and purposes, the same definition of "banking institutions." See § 11C thereof. The order and regulations thereunder, and therefore the definition, were approved by the Joint Resolution. [Footnote 11] The definition applicable to transactions of this Austrian national, AKM, under the freezing order of June 14, 1941, is set out below. [Footnote 12] We accept this definition as authorized by the Resolution.
receiver was a transaction that involved "property in which" there was an "interest of any nature whatsoever, direct or indirect" in aliens of designated countries, including Austria. [Footnote 13] But the Executive Order of June 14, 1941, did not prohibit all transactions without license involving Austrian-owned property. It specified the prohibited transactions, however, by categories so all-inclusive as to make it clear the purpose was to require transactions involving property of nationals of designated foreign countries to be carried out under regulations of this Government except certain transactions such as are provided for in General Ruling No. 12, April 21, 1942, 7 F.R. 2991. The Executive Order forbids transfers of credit. As "credit" is not defined by the Order or regulation, we, in considering credits as property subject to vesting under the Trading with the Enemy Act, give it is ordinary meaning of the obligation due on accounting between parties to transactions. This credit, owed by ASCAP to AKM, was in effect directed to be transferred by the permanent receiver order from AKM to the petitioner as receiver. There is, we think, no doubt that a voluntary transfer by a bank of a credit in the transferring bank from the account of a known Austrian to the account of another banking institution would violate Executive Order No. 8785 as a transfer of credit between banking institutions.
us to narrow the broad coverage of the Executive Order. Our prior decisions have made that clear. [Footnote 15] ASCAP and petitioner, the receiver, each hold credits for others as an "incidental part of [their] business," and are therefore "banking institutions." ASCAP held a credit for AKM, and, after the permanent receivership order, held that credit for the receiver, who, in turn, would hold it for AKM's creditors and AKM.
We hold that the transfer of this credit from a liability owed by ASCAP to AKM to a liability owed by ASCAP to the receiver violates the prohibition against transfers of credit.
We turn now to an examination of the effect of the federal Executive Order No. 8785 of June 14, 1941, the so-called "freezing order" on the subsequent state court order of September 29, 1941, appointing the petitioner permanent receiver. That examination is to be made with recognition of the fact that, at the time of the state order, title to the AKM claim against ASCAP had not been vested in the Custodian. That development did not take place until the vesting order of September 4, 1943.
to vest, contrary to the need for protection against transfers of foreign funds. These needs, petitioner says, will be served by the provision against payments to claimants from frozen funds without a license. E.O. 8785, § 1B. [Footnote 16] He further argues that, by the Joint Resolution, Congress did not empower the President to deprive New York of all power to deal with the ASCAP debt in a proceeding under Civil Practice Act § 977-b, covering actions of receivers to liquidate local assets of defunct foreign corporations.
and hold cannot be questioned except as provided in the Trading with the Enemy Act. [Footnote 17] The freezing order of June 14, 1941, immobilized the assets covered, by its terms, so that title to them might not shift from person to person except by license until the Government could determine whether those assets were needed for prosecution of the threatened war or to compensate our citizens or ourselves for the damages done by the governments of the nationals affected. United States v. Chemical Foundation, 272 U. S. 1, 272 U. S. 11; Silesian-American Corp. v. Clark, 332 U. S. 469, 332 U. S. 476.
courts have so held as to this issue in this case, 169 F.2d 324, 327, and in Bernstein v. N. v. Nederlandsche Amerikaansche etc., 173 F.2d 71, 73. The Trading with the Enemy Act is national in range. The effect of a federal freezing order should be the same on subsequent transfers of title in all states. State law determines the effect of the appointment of a receiver on title to the property administered, but federal law determines whether the event of appointment can free the property from the prior control. Cf. Lyeth v. Hoey, 305 U. S. 188, 305 U. S. 191, et seq.
decisive in this case. It is useful only as a statement of the administrative determination as to the effect of litigation without a license.
to be unreasonable. Estate of Spiegel v. Commissioner, 335 U. S. 701, 335 U. S. 707-708; Helvering v. Stuart, 317 U. S. 154; MacGregor v. State Mutual Co., 315 U. S. 280. We shall examine the problem from that point of view.
Having no state case on the precise statute before it, the Court of Appeals turned to cases dealing with temporary receiverships in equity proceedings and under analogous statutes. These cases seem to hold that neither temporary receivers of the equity [Footnote 20] nor statutory [Footnote 21] class obtain title, but, on the contrary, merely a right to possession. The courts below found nothing in § 977-b which evidenced an intent that the result under that section should be otherwise. Admittedly there is no express declaration of such an intent.
"any receiver appointed . . . shall have all the powers and duties . . .
possessed by and conferred upon receivers and trustees by the laws of the state of New York,"
the meaning was "that a temporary receiver under this provision takes the usual powers of other temporary receivers in New York." 169 F.2d 324, 326, 327. It was pointed out that otherwise the specific and restricted grant of powers to a temporary receiver by subsection 4 would be purposeless.
U.S. 233, 321 U. S. 240, et seq.; see McDonald v. Mabee, 243 U. S. 90.
A suggestion appears in petitioner's briefs, but not in the questions presented by the petition for certiorari, that the judgments below should be vacated and the case remanded to the District Court to be held until the parties can secure from the courts of New York a decision as to whether the temporary receiver took title to the claim against ASCAP. Waiving the failure to raise the issue by the petition for certiorari, [Footnote 22] we consider the contention in deference to the earnestness with which the point is pressed in the dissent. [Footnote 23] If the state law is that title passed to the temporary receiver on his appointment prior to the freezing order, the Custodian, by the assumption of the opinion, would obtain nothing by his order vesting AKM property. Such a ruling would make unnecessary consideration of any other issue.
from exercising our jurisdiction when federal determination was subject to equitable discretion and the state issue was the only one in the case. Meredith v. Winter Haven, 320 U. S. 228. [Footnote 24] To refrain from deciding it, we there said, would be to enervate diversity jurisdiction.
state law should have that issue submitted to state courts for decision. See the later decision in the same case, Tompkins v. Erie R. Co., 98 F.2d 49.
federal courts, where it was placed by Congress. See note 17 supra.
The submission of special issues is a useful device in judicial administration in such circumstances as existed in the Magnolia, Spector, Fielderest, and Pullman cases, supra, but, in the absence of special circumstances, 320 U.S. at 320 U. S. 236-237, it is not to be used to impede the normal course of action where federal courts have been granted jurisdiction of the controversy.
the state court had, at most, was a claim against a debtor, ASCAP. The judgment enabled the Custodian to collect the debt that ASCAP owed AKM. Although this judgment determined title to AKM's claim against ASCAP when the adverse claimant was a state receiver, those facts did not prevent the federal court from giving a judicial declaration of the right to the claim. The scheme of the Trading with the Enemy Act contemplates that federal courts may provide such determinations. § 17; cf. Markham v. Allen, 326 U. S. 490, 326 U. S. 495. The congressional purpose to put control of foreign assets in the hands of the President through the Custodian, so that there might be a unified national policy in the administration of the Act, argues strongly for federal determination of issues of rights in the blocked assets. Comity does not require abnegation to the extent that a federal court cannot adjudicate rights to the claim involved.
Tom C. Clark, Attorney General, as Successor to the Alien Property Custodian, was duly substituted for the latter.
ASCAP, having stipulated to the entry of a judgment against it, did not appeal. It filed a motion here to be made a party. It was permitted to argue, and there is now no occasion to grant the motion. It is denied.
For opinions of the New York courts relating to the petitioner's action against ASCAP, see Propper v. Buck, N.Y.Law Journal, October 29, 1941, p. 1268, col. 5; Propper v. Buck, 263 App.Div. 807, 32 N.Y.S.2d 103; Propper v. Buck, 178 Misc. 76, 33 N.Y.S.2d 11, aff'd, 263 App.Div. 948, 34 N.Y.S.2d 134; Propper v. Taylor, 186 Misc. 70, 58 N.Y.S.2d 829, aff'd, 270 App.Div. 890, 62 N.Y.S.2d 602; Propper v. Taylor, 186 Misc. 72, 58 N.Y.S.2d 831, 270 App.Div. 890, 63 N.Y.S.2d 601.
This latter issue was brought forward by the petition for certiorari, Question Presented No. 3, and, before argument, its discussion by brief and at the bar was formally requested by this Court, although no order to that effect was entered.
"§ 616. . . . and any property or interest of any foreign country or national thereof shall vest, when, as, and upon the terms, directed by the President, in such agency or person as may be designated from time to time by the President, and upon such terms and conditions as the President may prescribe such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States, and such designated agency or person may perform any and all acts incident to the accomplishment or furtherance of these purposes. . . ."
See Clark v. Uebersee Finanz-Korp., 332 U. S. 480.
Compare Great Northern R. Co. v. Sutherland, 273 U. S. 182, where the Custodian vested himself by order on a corporation the shares of stock appearing on the corporation's books in the name of an alien enemy.
55 Stat. 838, 840, 50 U.S.C. App. § 617.
"During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by or to banking institutions as defined by the President. . . ."
"SEC. 2. Executive Order Numbered 8389 of April 10, 1940, and the regulations and general rulings issued thereunder by the Secretary of the Treasury, are hereby approved and confirmed."
"F. The term 'banking institution,' as used in this Order, shall include any person engaged primarily or incidentally in the business of banking, of granting or transferring credits, or of purchasing or selling foreign exchange or procuring purchasers and sellers thereof, as principal or agent, or any person holding credits for others as a direct or incidental part of his business, or brokers, and each principal, agent, home office, branch, or correspondent of any person so engaged shall be regarded as a separate 'banking institution.'"
See United States Treasury Department, Administration of the Wartime Financial & Property Controls of the United States Government (1942), pp. 1-4.
Central Trust Co. v. Garvan, 254 U. S. 554; United States v. Chemical Foundation, 272 U. S. 1; Great Northern R. Co. v. Sutherland, 273 U. S. 182; Markham v. Allen, 326 U. S. 490; Clark v. Uebersee Finanz-Korp., 332 U. S. 480.
There is a suggestion that Congress could not, because of the Tenth Amendment, constitutionally abrogate the power of New York through its courts, in peacetime, to deal with the local assets of defunct foreign corporations. The chief reliance is placed upon Clark v. Williard, 294 U. S. 211, a case that held that, as between states, the State of the location of corporation assets had control of their distribution in liquidation. It cannot be seriously doubted that the danger of war was sufficiently grave at the time of the freezing order, June 14, 1941, to justify the President's action respecting Austrian property. Cf. Silesian-American Corp. v. Clark, 332 U. S. 469, 332 U. S. 474-477.
50 U.S.C. App. §§ 7(c), 9(a). Cf. Clark v. Uebersee Finanz-Korp., 332 U. S. 480, 332 U. S. 487; Central Trust Co. v. Garvan, 254 U. S. 554, 254 U. S. 567-568; Great Northern R. Co. v. Sutherland, 273 U. S. 182, 273 U. S. 194; Becker Steel Co. v. Cummings, 296 U. S. 74, 296 U. S. 79; Josephberg v. Markham, 152 F.2d 644, 649.
"The fact that Federal regulations governing transactions in foreign exchange prevent the payment to Standard until a license under Executive Order No. 8389, as amended, . . . is procured does not make conditional the obligation of the New York Agency to pay. (See United States Treasury Department, General Ruling No. 12(4) under Executive Order No. 8389 as amended; also Feuchtwanger v. Central Hanover Bank, 288 N.Y. 342, 43 N.E.2d 434.)"
Cf. id., 299 N.Y. 113, 85 N.E.2d 894. Compare Commission for Polish Relief v. Banca N.A. Rumaniei, 288 N.Y. 332, 43 N.E.2d 345.
"(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."
E.g., Decker v. Gardner, 124 N.Y. 334, 26 N.E. 814; see Keeney v. Home Insurance Co., 71 N.Y. 396, 401.
"is vested with title, and represents the corporation and its creditors as fully as a permanent receiver after final judgment of dissolution."
P. 45. This case, however, involved the right of a temporary receiver to sue, and the opinion deals with that problem, rather than the distinction between a right to obtain possession and title. See In re Warren E. Smith Co., 31 App.Div. 39, 52 N.Y.S. 877, 884.
Connecticut R. & L. Co. v. Palmer, 305 U. S. 493.
Cf. West v. Edward Rutledge Timber Co., 244 U. S. 90, 244 U. S. 100.
Where there is no suggestion to hold and send to a state court for the resolution of a state issue, we decide issues of state law. See cases in federal courts under diversity jurisdiction. Wichita Royalty Co. v. City National Bank, 306 U. S. 103; West v. A.T. & T. Co., 311 U. S. 223; Fidelity Trust Co. v. Field, 311 U. S. 169; Six Companies v. Highway Dist., 311 U. S. 180; Stoner v. New York Life Ins. Co., 311 U. S. 464; Palmer v. Hoffman, 318 U. S. 109, 318 U. S. 117.
See Markham v. Allen, 326 U. S. 490; Commonwealth Trust Co. v. Bradford, 297 U. S. 613; Clark v. Tibbetts, 167 F.2d 397, 401.
decided by the New York courts."
And it concedes that the language of the relevant New York statutes "is easily susceptible to varying interpretations." Yet it puts its own interpretation on those statutes, though that interpretation may be displaced tomorrow by the only courts which have power to render an authoritative interpretation of New York law -- the courts of the New York.
In other cases that have come before us in which decision of a federal issue of the necessity for its decision depended on a seriously doubtful question of State law, we have directed that application should first be made to the courts of the State for final disposition of the State question. Thompson v. Magnolia Petroleum Co., 309 U. S. 478; Railroad Comm'n of Texas v. Pullman Co., 312 U. S. 496; Chicago v. Fielderest Dairies, Inc., 316 U. S. 168; Spector Motor Service, Inc. v. McLaughlin, 323 U. S. 101; A.F. of L. v. Watson, 327 U. S. 582. In each of these cases, the discretion of a federal court of equity could practicably be exercised in a way which retained ultimate jurisdiction of the case while permitting adjudication of the State question in the State courts. In each, there were available State procedures capable of providing a prompt decision, and the litigation had not already consumed such an unconscionable amount of time as to make recourse to them inexpedient. Cf. Public Utilities Comm'n v. United Fuel Gas Co., 317 U. S. 456. The present case meets all those conditions, see N.Y.Civ.Prac. Act § 473, and should receive the same disposition.
"The last word on the meaning of Article 6445 of the Texas Civil Statutes, and therefore the last word on the statutory authority of the Railroad Commission in this case, belongs neither to us nor to the district court, but to the supreme Court of Texas. In this situation, a federal court of equity is asked to decide an issue by making a tentative answer which may be displaced tomorrow by a state adjudication. . . . The reign of law is hardly promoted if an unnecessary ruling of a federal court is thus supplanted by a controlling decision of a state court. . . ."
v. Camden Ins. Assn., 296 U. S. 64, 296 U. S. 73."
Railroad Comm'n of Texas v. Pullman Co., 312 U. S. 496, 312 U. S. 499-501.
"We are of the opinion that the procedure which we followed in the Pullman case should be followed here. Illinois has the final say as to the meaning of the ordinance in question. It also has the final word on the alleged conflict between the ordinance and the state Act. The determination which the District Court, the Circuit Court of Appeals or we might make could not be anything more than a forecast -- a prediction as to the ultimate decision of the Supreme Court of Illinois. . . . As we said in the Pullman case, 'The resources of equity are equal to an adjustment that will avoid the waste of a tentative decision' and any 'needless fiction with state policies.' . . . It is an exercise of a 'sound discretion, which guides the determination of courts of equity.' Beal v. Missouri Pacific R. Co., [312 U.S. 45, 312 U. S. 50]. In this case, that discretion calls for a remission of the parties to the state courts, which alone can give a definitive answer to the major questions posed. Plainly they constitute the more appropriate forum for the trial of those issues. See 54 Harv.L.Rev. 1379. Considerations of delay, inconvenience, and cost to the parties which have been urged upon us do not call for a different result. For we are here concerned with the much larger issue as to the appropriate relationship between federal and state authorities functioning as a harmonious whole."
Chicago v. Fielderest Dairies, 316 U. S. 168, 316 U. S. 171-173.
to deal with the problem so as to avoid unnecessary friction with state policies while selective cases go forward in the state courts for an orderly and expeditious adjudication of the state law questions."
A.F. of L. v. Watson, 327 U. S. 582, 327 U. S. 598-599.
So here, though no constitutional issue is present, regard for the respective orbits of State and federal tribunals is the best of reasons, as a matter of judicial administration, for requiring a definitive adjudication by the New York courts, rather than proceeding on the basis of our own tentative guess as to the meaning of the New York statutes. That federal issues may remain is no justification for refusing to submit to the New York courts a separable issue of New York law. We have no occasion to assume that they will go on to decide these federal questions when a federal court has expressly retained jurisdiction to decide them. Cf. Federal Power Comm'n v. Pacific Power & L. Co., 307 U. S. 156, 307 U. S. 160.

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