Opinion ID: 104910
Heading Depth: 1
Heading Rank: 2

Heading: effect of federal foreign funds control on attachment.

Text: 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. [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 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 . . . . [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; 4. Protecting American creditors; 5. Foreign relations, including post-war negotiations and settlements. [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, [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. . . . [22] 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. . . . [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. [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. 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. [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 litigants 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 further authorization under the freezing control, there can be no attachable interest under New York law with respect to blocked assets. [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 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. [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. [28] 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.