Opinion ID: 106959
Heading Depth: 1
Heading Rank: 4

Heading: quasi in rem jurisdiction.

Text: There remains for consideration the quasi in rem issue which the Government argues but which the Court chooses not to decide. Whether the District Court had quasi in rem jurisdiction turns on whether Omar had property or rights to property within the Southern District of New York to which a federal lien could attach. [26] Under New York law, Omar had only a conditional right to payment in New York in the event that a demand made upon the Montevideo branch where the account is maintained was wrongfully refused, Sokoloff v. National City Bank, 250 N. Y. 69, 164 N. E. 745; [27] and two recent decisions by this Court establish that it is New York law which here determines the nature and existence of property rights for federal tax lien purposes. In United States v. Bess, 357 U. S. 51, the taxpayer died leaving income taxes unpaid for a prior year. Several life insurance policies were part of his estate. The Court said: We must now decide whether Mr. Bess possessed in his lifetime, within the meaning of § 3670, any `property' or `rights to property' in the insurance policies to which the perfected lien for the 1946 taxes might attach. Since § 3670 creates no property rights but merely attaches consequences, federally defined, to rights created under state law, . . . we must look first to Mr. Bess' right in the policies as defined by state law. 357 U. S., at 55. [28] Since Bess had had no right to the proceeds of the policies during his lifetime, no federal tax lien could have attached to them. But Bess could have drawn on the cash surrender value; thus under state law he had rights to property during his lifetime to that extent. However, it was also true under state law that no creditor was permitted to attach the cash surrender value of the policies. In answer to the contention that the Government should be treated no differently than any other creditor, the Court said: [O]nce it has been determined that state law creates sufficient interests in the insured to satisfy the requirements of § 3670, state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States. 357 U. S., at 56-57. On the basis of this analysisthat state law creates property rights, but federal law determines whether liens should attach to themthe Court concluded that the lien could be enforced against the beneficiary of the policies to the extent of the cash surrender value. Even under Bess an argument could be made for permitting a federal lien in this instance to attach in New York. New York law, which treats branch banks as separate entities and makes Omar's account payable in the first instance only in Montevideo, was developed primarily to meet the problems created by ordinary garnishing creditors, and arguably has no application to a claim by the United States. But the Court, in Aquilino v. United States, 363 U. S. 509, chose to accept state property law just as it found it, and not to evaluate its underlying rationale in light of the needs of federal revenue collection. There the Government sued a general contractor who had defaulted both on the payment of federal taxes and on the payment of amounts due to subcontractors with mechanics' liens. Money payable by the property owner to the general contractor was the subject of the suit. The subcontractors contended that under New York lien law the general contractor had mere title to the contested fund, holding it in trust for the subcontractors; thus, it was argued, he himself had no right to the property within the meaning of the federal lien statute. In remanding the case to determine if the New York law was as the subcontractors contended, the Court indicated it would accept this argument despite the fact that the only practical effect that New York's definition of the general contractor's property rights could have would be to control which creditors prevailed against the property. (See my dissenting opinion, 363 U. S., at 516.) The Court said: The application of state law in ascertaining the taxpayer's property rights and of federal law in reconciling the claims of competing lienors is based both upon logic and sound legal principles. This approach strikes a proper balance between the legitimate and traditional interest which the State has in creating and defining the property interest of its citizens, and the necessity for a uniform administration of the federal revenue statutes. 363 U. S., at 514. The State of New York has determined that branch banks should be treated as separate entities, primarily in order to avoid the crippling effects which could result from requiring each branch to be aware of and liable to make payments to depositors and garnishing creditors on accounts maintained in other branches. [29] If New York, based upon this policy, has determined that Omar has no immediate right to payment in New York, federal lien law, under Bess and Aquilino, cannot create one. The rule of those cases would not, I think, go so far as to allow an incidental contract provision adopted by two contracting parties simply for their own convenience to thwart the operation of federal lien lawfor instance, an agreement that the parties would meet at a certain place to consummate their transactionbut in the present case the policy determination has been made by the State, not by private parties, and cannot be treated as incidental. The only right to property which New York recognizes in Omar is the conditional right to payment predicated on a wrongful refusal in Montevideo. The Government can, of course, levy on that conditional right, but the satisfaction it will derive from doing so is obviously limited. The Government seeks to analogize various insurance company cases in which liens are permitted to attach to the cash surrender value of policies despite a contract condition that the policyholder must surrender his policy in order to collect. [30] It is contended that just as federal courts can override the requirement of policy surrender, they can override the requirement of demand and wrongful refusal in Montevideo. The insurance cases, however, are readily distinguishable. The policy surrender requirement is of the order of an incidental rule of contract between two private contracting parties; indeed, it has been characterized as a housekeeping detail. [31] And if the purpose of requiring surrender of an insurance policy is to protect the company against suit at some later time, a court decree would fully satisfy it. The District Court guaranteed and could guarantee Citibank no such protection from suit by Omar. In conclusion on the quasi in rem branch of this case, it should be remembered that it is a statute which we are interpreting. [32] Section 1655, 28 U. S. C., pertaining to Lien enforcement; absent defendants, provides for quasi in rem jurisdiction in federal district courts over property within the district. Courts of other countries would recognize that the situs of the Omar account was in Montevideo. [33] Courts of New York State would so hold, [34] and where, as here, the common understanding would be that the situs of an account payable to a Uruguayan corporation in Montevideo is in Montevideo, we should not indulge a wholly novel interpretation of the governing statute. CONCLUSION. The only case cited by the Court relating to injunctions involving property outside the United States is New Jersey v. New York City, 283 U. S. 473, in which this Court enjoined New York City from dumping its garbage in the sea off the coast of New Jersey. [35] In the face of this slender reed stands De Beers, basically indistinguishable from the case at bar, plus the powerful equitable considerations enumerated above. The clear preponderance of the competing considerations leads to the conclusion that the issuance of this freeze order was not appropriate for the enforcement of the internal revenue laws (§ 7402 (a), n. 3, supra ), and therefore that the District Court, even though it possessed the naked power to act as it did, had no jurisdiction ( ibid. ) to issue the challenged order. The same result follows even if naked power be considered as synonymous with jurisdiction (a proposition which for me is wholly unacceptable) for in that event the action of the District Court must be regarded as entailing an abuse of discretion of such magnitude and mischievous radiations in our general jurisprudence as to make the order a proper subject of review by this Court under its supervisory powers. [36] While I have the utmost sympathy with the Government's efforts to protect the revenue, I do not think the course it has taken here can be sustained without extending federal court jurisdiction beyond permissible limits. I vote to affirm the judgment of the Court of Appeals.