Court Opinion

ID: 3620790
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:02:37.255387+00
Date Added: 2024-06-11T09:22:09.137917
License: Public Domain

On March 16, 1917, the Imperial government of Russia was overthrown. On that date the Provisional government of Russia was set up and on March 22, 1917, the Provisional government of Russia was recognized by the United States. On July fifth of that year Boris Bakhmeteff was recognized by the President of the United States as the Ambassador from the Provisional Government and Serge Ughet as financial attache of the Russian Embassy in the United States. The Union of Soviet Socialist Republics, known and referred to as the *Page 315 
Soviet government, superseded the Provisional government on November 7, 1917. Thereupon the Soviet government dismissed Bakhmeteff as Ambassador, but the United States continued to recognize him to June 30, 1922, and the financial attache down to November 16, 1933. To recover any property of the Imperial, Provisional or Soviet governments held in our country by our nationals, his status was such that he might have brought suit at any time after July 5, 1917, and prior to November 16, 1933 (Guaranty Trust Co. v. United States, 304 U.S. 126). Full recognition was granted by the United States government to the Soviet government on November 16, 1933, and, by that act, every act of the Soviet government prior to recognition was validated (United States v. Belmont, 301 U.S. 324). Recognition being an accomplished fact, every pertinent act of the Soviet government from the beginning must be given full force (Dougherty v. Equitable Life Assur. Society, 266 N.Y. 71).
Decrees, laws, enactments and orders of the Soviet government, promulgated during the years 1918 and 1919, expressly or by implication, both as matter of fact and matter of law, and as understood and construed by that government, (1) nationalized and monopolized the business of insurance in all its forms whereby all Russian insurance companies were dissolved, terminated and liquidated, and their assets, including the assets of all their branches and subsidiaries, in whatever form and wherever located and in whatever manner and wherever held, were confiscated and forthwith became the property of the Soviet government, (2) repudiated, canceled, annulled and discharged all debts of those companies, their branches and subsidiaries, to whomsoever and wherever owing, (3) extinguished all rights of their shareholders, and (4) discharged all obligations and liabilities of the companies. The result was that the Soviet government became the owner and entitled to the immediate possession of all property of the nationalized companies and of their branches and subsidiaries, wherever physically located, as of the date of nationalization. The *Page 316 
property of the Moscow Fire Insurance Company, of Moscow, Russia, wherever physically situate, with all its subsequent accretions, then became the property of the Soviet government, free from all claims of creditors, policy-holders or stockholders, except as nationals of the country where such property was physically located might be permitted by the public policy of that country or by its own and international law to assert their claims. Such conclusions, it seems to me, are unassailable, both in fact and in law, as I shall presently more fully point out. International comity and expediency bar assertion to the contrary in any court of the United States (United States v. Manhattan Co.,276 N.Y. 396; United States v. Belmont, supra; Shapleigh v.Mier, 299 U.S. 468, 471).
The Moscow Fire Insurance Company, of Moscow, Russia, was organized under the laws of the Empire of Russia in 1858 and was admitted to do business within the State of New York in 1899. It organized a United States branch and deposited from its own property in Russia (not originating from contributors or shareholders within the United States) security expressly for the protection only of domestic creditors and policyholders as required by section 27 of the Insurance Law (Cons. Laws, ch. 28) of the State of New York. That deposit remained the property of the parent company, subject only to the claims of domestic creditors (Matter of People [Norske Lloyd Ins. Co.], 242 N.Y. 148). Thereupon the Superintendent of Insurance issued a license to the branch to transact business here. Upon keeping the deposit good the license was renewed from year to year thereafter until 1925. On August 8, 1925, pursuant to the provisions of the Insurance Law, the Superintendent of Insurance was appointed liquidator of the local branch. During the progress of the liquidation the claims of all domestic creditors and of all policyholders through the local branch and of all foreign creditors who had attachments when the Superintendent took possession were paid in full and the question arose as to what disposition should be made of the cash and securities, *Page 317 
aggregating $1,080,399.54, remaining in his possession, legal title to which was then vested in the Soviet government as the successor of the insurance company. He was finally directed to turn the money and securities over to the surviving director of the parent company and/or to the Bank of New York and Trust Company as depositary subject to the order of a court of competent jurisdiction (255 N.Y. 433; 262 N.Y. 453; cf. UnitedStates v. Manhattan Co., supra, p. 401), which he did on April 18, 1933. Thereupon these actions were commenced by creditors and by stockholders of the parent company, none of whom were our nationals. After consolidation of the actions and trial of the issues therein raised, a judgment of distribution was entered by the Supreme Court on August 18, 1934, and subsequently affirmed by the Appellate Division.
The record in that proceeding establishes that the claimants to whom distribution was directed to be made (with the possible exception of three) were all variously residents and citizens of Latvia, Norway, Sweden, Russia, Esthonia, Poland, Germany and France, having claims arising variously out of agency contracts and insurance and reinsurance contracts written and to be performed in countries other than the United States, ownership in shares of the parent company and services rendered by attorneys and others to the parent company and to the liquidating director of the Moscow company in foreign countries. None of the claims of foreign creditors or shareholders arose out of relations with the local branch and adjudication followed our law, not Soviet law, the law of the domicile of the owner of the fund. The validity of those claims depended on the laws of the Imperial government of Russia and its successors (Dougherty v. Equitable Life Assur.Society, supra; Canada Southern Ry. Co. v. Gebhard,109 U.S. 527, 537), or upon the laws of the countries of the citizenship of the claimants or where the claims arose (Severnoe SecuritiesCorp. v. L.  L. Ins. Co., 255 N.Y. 120). Said the Supreme Court in the Gebhard case (supra): "Such being the law, it follows that every person who deals with a foreign *Page 318 
corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts, as the known and established policy of that government authorizes. To all intents and purposes, he submits his contract with the corporation to such a policy of the foreign government, and whatever is done by that government in furtherance of that policy which binds those in like situation with himself, who are subjects of the government, in respect to the operation and effect of their contracts with the corporation, will necessarily bind him. He is conclusively presumed to have contracted with a view to such laws of that government, because the corporation must of necessity be controlled by them, and it has no power to contract with a view to any other laws with which they are not in entire harmony. Itfollows, therefore, that anything done at the legal home of thecorporation, under the authority of such laws, which dischargesit from liability there, discharges it everywhere." (Emphasis mine.)
The Moscow Fire Insurance Company existed "only under the express law of the state or sovereignty by which it was created. Its dissolution puts an end to its existence, the result of which may be likened to the death of a natural person" (Chicago Title Trust Co v. Wilcox Bldg. Corp., 302 U.S. 120, 124). As the corporation went, so went its local branch. Though dead, the parent survived, this court has held, as to its property in this State in the sense that its surviving director might possess its assets with situs here, after satisfaction of the claims of our nationals (255 N.Y. 433).
No amount of argument can change the fact that there is no foundation in our statute law, in the decisions of our courts, in reason, logic or elsewhere for the assertion that the branch of a foreign corporation is a juristic, legal or factual entity, separate and distinct from the parent company, or that it may be placed in the same position as a domestic corporation as to rights and obligations and capable independently to perform corporate functions. The contrary *Page 319 
has been held in this State as a necessary basis for the decision in James  Co. v. Second Russian Ins. Co. (239 N.Y. 248), in the instant case where this court ordered deposit of the fund with the surviving director of the parent company (255 N.Y. 433), and in other cases involving Russian corporations where similar orders and decisions were made. Nothing to the contrary was held by this court in Matter of People (Norske Lloyd Ins. Co.) (242 N.Y. 148, 159). No such broad rule as is claimed here was there laid down nor was there occasion for it. Whatever was said there was limited to the question as to whether assets of an insolvent foreign insurance company located in this country should be applied, if necessary, to satisfaction of claims of policyholders who were residents of the United States, not alone when these policies where written here but when such policies were written abroad, and it was held that the deposit required by the statute "should be security for business transacted by ithere and not elsewhere." (Emphasis mine.) The decision is authority for the proposition which we are now asserting that beyond our own nationals whose claims originated here or those who had liens on the fund prior to the time the Superintendent of Insurance took possession, the control or authority of our courts is limited to turn over the surplus, under proper safeguards, to the parent corporation, its successor or its representative in the foreign jurisdiction. This rule was again definitely emphasized in James  Co. v. Rossia Ins. Co (247 N.Y. 262) and in Matter of People (Norske Lloyd Ins. Co.) (249 N.Y. 139), where the subject of interest on claims against the same company was under consideration, and Judge LEHMAN said (pp. 145, 146): "Other creditors, including American citizens, may share only in the distribution of assets of the foreign liquidators, appointed in the jurisdiction where the corporation is domiciled, to whom the Superintendent of Insurance must transmit any surplus of the funds in his charge, remaining after the payment of those creditors who are entitled to payment therefrom (Matter ofPeople [City Equitable Fire Ins. Co.], *Page 320 238 N.Y. 147)." That we may not distribute the surplus to foreign claimants in our courts, in the absence of liens or attachments by foreign claimants, was most emphatically emphasized in Matterof People (Russian Reinsurance Co.) (255 N.Y. 415), since there was no insolvency and the corporation, though legally dead at its domicile, was still a "juristic" person for whom its directors were empowered to act. See, also, Matter of People
(Second Russian Ins. Co.) (256 N.Y. 177, 181), where this court, citing the case reported in 242 N.Y. 148, said: "As the claim originated in an alien country, through a contract between aliens, it was a foreign claim, not entitled to a share in the distribution made by the Superintendent of Insurance, from the funds received by him." No emergency or occasion now arises for the definition of a "branch" of a foreign company such as has been suggested. To avoid the clear meaning of the statutes and the direct, implicit and constant holdings of this court amounts to writing into the statute something that does not now exist and it is beyond our province or power to do so. The successor of the parent company could sue here, the fiscal agent of its successor, the Soviet government, to the time of the assignment could have enforced its claims (Guaranty Trust Co. v. United States,supra) and, though dead in its domicile, its surviving director, though an exile from Russia and a non-resident here, so this court has held, can take control of its property here, not because it belongs to its local branch as a separate domestic corporation or as a separate entity, but because it still belongs to the parent corporation, a "juristic" person, itself. The branch was independent of the parent company, so far as here material, only to the extent that the statute requires that our jurisdiction shall not be limited so as to hamper our courts in extending, out of its assets in this country, "the protection of all its policyholders and creditors within the United States" (Ins. Law, § 27).
There can be no question of the powers of the Soviet government to take the course it pursued or to put into *Page 321 
effect the result indicated, either before or after recognition by our government, within its own territory and, under Russian law, Russian creditors, policyholders and shareholders have redress only against the State. (See Canada Southern Ry. Co. v.Gebhard, 109 U.S. 527, 537.) Neither can there be any question of the necessary result of the laws, enactments and orders of the Soviet government as affecting property extraterritorially except in so far as the public policy of the place of the location of that property may interfere. By force of the Soviet law, its authority is binding in the United States (Canada Southern Ry.Co. v. Gebhard, supra). We have no domestic policy that may interfere with the effect of its nationalization and confiscation decrees on its relations with foreign creditors and shareholders or on contracts of the nationalized corporation neither made nor to be performed within this country. Wrong to the claimants, if there be any wrong, was done by the Soviet government. As to disputes between nationals of countries other than our own and a foreign country we have no concern. In United States v.Diekelman (92 U.S. 520, 524) it is said: "A citizen of one nation wronged by the conduct of another nation, must seek redress through his own government. His sovereign must assume the responsibility of presenting his claim, or it need not be considered. If this responsibility is assumed, the claim may be prosecuted as one nation proceeds against another, not by suit in the courts, as of right, but by diplomacy, or, if need be, by war. It rests with the sovereign against whom the demand is made to determine for himself what he will do in respect to it. He may pay or reject it; he may submit to arbitration, open his own courts to suit, or consent to be tried in the courts of another nation. All depends upon himself."
At the time of the diplomatic recognition by the United States of the Soviet government and as a part of the diplomatic exchange between the two governments, an assignment was made to the United States of all interest which the Soviet government had in the fund in question. Prima *Page 322 facie, the United States thereby became entitled to the whole fund (United States v. Manhattan Co., supra). In theBelmont case (supra, p. 332), in language equally applicable here, the Supreme Court said: "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." The purpose of the documents exchanged at the time of recognition was to protect and promote the interests of the United States and of its nationals. The assignment, by its own terms, was "preparatory to a final settlement of the claims and counterclaims between the governments of the Union of Soviet Socialist Republics and the United States of America and the claims of their nationals." The assignment is broad and is conclusive on its face. If the purpose and effect of the assignment, read in the light of diplomatic exchanges and recognition of the United States, was not to transfer title to the fund in question and to all other claims against our nationals which the Soviet government might have, it was all an idle ceremony. Its validity, scope and purpose are matters with which the executive branch of our government and of the Soviet government only are concerned and may not be questioned nor its purpose frustrated by the courts (UnitedStates v. Belmont, supra). For the purpose of our courts the Soviet government became vested with legal title to the entire fund and to all its accretions at the time of the nationalization and confiscation decrees free and clear of any claims of creditors (other than our own nationals) against the same and continued to have such interest to the time of the assignment to the United States. Nothing occurred to change the status or the title or ownership to the fund until the assignment whereby the United States succeeded to the rights of the Soviet government.
After unsuccessfully attempting to invoke the jurisdiction of the Federal courts in its effort to procure the fund, which efforts culminated at or about the date of entry of the judgment in the consolidated actions, the United States *Page 323 
forthwith filed a petition to intervene in the State court actions. It asserted it had a valid claim to the entire fund in the hands of the depositary as of the date of acceptance by the latter of the trust, together with all subsequent accretions. Having rightfully intervened and having duly and legally acquired title to the fund, it was entitled to have determined every question that could properly be raised and to contest the right of claimants to sue in our courts and the validity of the claim of each party to the consolidated actions on the merits if necessary, and to assert such defenses thereto as were open to it in the local forum under either the local law or the Soviet law (Cf. Guaranty Trust Co. v. United States, supra). It was not bound or prejudiced by any action taken by any of the parties to the consolidated actions or by any decision made by the courts therein prior to intervention, since neither it nor its claim was before the court prior to that time. The United States government has never had an opportunity to litigate those claims. Upon acontest by an interested litigant it might be shown that none of the claims can be maintained in our courts. Such claimants might be found to be without such a standing as would permit them to contest the claim of the intervener. After the United States intervened the only issue tried or determined in the trial court was whether appellant had a right to intervene and contest the claims of respondents. Decision of that question against appellant was based on findings that the United States acquired no right or title whatsoever to the fund in question by the assignment because the Soviet government had no title to give, but that, even though it acquired thereby some interest, the public policy of the State of New York forbade its recognition.
Of course, the Soviet government neither could (United States
v. Buford, 3 Pet. [U.S.] 12) nor presumed to transfer greater title or a more extensive interest in the fund than it had to give. What it acquired by the nationalization decrees or what limitations may be placed by the confiscation *Page 324 
decrees on claims of creditors of the nationalized company must be determined exclusively by the Soviet law. I have indicated that, in my opinion, the scope and effect of the decrees are not open for consideration as a question of fact in our courts. If otherwise, the result is not changed. What was the applicable Soviet law and the intent and scope of the decrees in question was decided by the referee as a question of fact based upon an examination of various documents introduced in evidence and upon the oral testimony of an expert whose opinion he saw fit to disregard. Where written laws or judicial opinions of foreign courts are involved, the question of construction, if open, is one of law for the court, but where the construction of unwritten laws is involved, what is the law becomes a question of fact (Genet v. D.  H. Canal Co., 163 N.Y. 173; Bank of China v.Morse, 168 N.Y. 458; Fitzpatrick v. International Ry. Co.,252 N.Y. 127). The referee erroneously decided that the purpose, intent and scope of the decrees did not affect or embrace the property here in question. I find no evidence whatever in the record to sustain his conclusion. If open to construction, the decrees are to be construed in the manner they are understood and applied by the Soviet government. There is no dispute in the record as to how they have been construed and applied by that government. The testimony of the government expert, the various relevant documents and the decisions of Soviet officials authorized to construe and to promulgate and enforce rules and regulations thereon establish without contradiction that the intent, scope, purpose and effect of the Soviet decrees was to embrace within their coverage the property of the Moscow Fire Insurance Company physically located within the United States. There was no evidence to the contrary. As matter of law we must so hold. We are not concerned with the validity of the assignment, for that is a political, not a judicial, question.
No one disputes the fact that our State courts have control over the surplus fund and power to order its distribution (United States v. Bank of New York  Trust Co., *Page 325 296 U.S. 463). That control extends only to its preservation for its rightful owner and the power to distribute extends only to distribution to those rightfully entitled thereto according to law. We have no power to distribute it according to our notions of the equities which, however camouflaged, must of necessity be based on a lingering policy of non-approval and non-recognition of the nationalization and confiscation decrees of the Soviet government from which, even now, we hesitate to depart. On no other theory can distribution be ordered here to claimants other than our own nationals or to the intervener. Still, we have said that, however thoroughly convinced in the righteousness and justice of our public policy against nationalization and confiscation of private property we may be, our feelings in the matter must not dictate our judgment (Dougherty and Manhattan
cases, supra), and the Supreme Court, in the Belmont case, has added the controlling weight of its authority by asserting that "no state policy can prevail against the international compact here involved" (p. 327).
The judgment appealed from and the judgment of the Special Term should be reversed and the matter remitted to the Special Term to proceed in accordance with this opinion, with costs to appellant against respondent claimants in all courts.
O'BRIEN, HUBBS and LOUGHRAN, JJ., concur with LEHMAN, J.; RIPPEY, J., dissents in opinion, in which CRANE, Ch. J., and FINCH, J., concur.
Judgments affirmed. (See 280 N.Y. 848.) *Page 326