Zittman v. McGrath McCarthy/Dissent Reed

by Stanley Forman Reed

United States Supreme Court

341 U.S. 446

Zittman  v.  McGrath McCarthy

 Argued: Feb. 28, 1951. --- Decided: May 28, 1951

Mr. Justice REED, with whom Mr. Justice BURTON joins, concurring in part and dissenting in part.

The Court fails to decide the only question of importance presented by this case. This question is whether a state attachment, obtained on assets previously blocked under Executive Order No. 8785, gives the attaching creditor any right in those assets that displaces the power of the Government to make such disposition or use of the assets as it may ultimately determine is for the best interest of the Nation and its citizens. The Court defers all questions as to 'recognition by the Custodian of the state law lien, or priority of payment' for later decision. Under today's decision the Alien Property Custodian vests the account in question without knowing what power he has over its handling or disposition. Such uncertainty will hamper administration and be an open invitation to the owners of blocked assets to sell their interests in the blocked property, as the Custodian phrases it, 'to friendly speculators willing to buy at a discount and to await payment on the ultimate day of unblocking.' The Custodian sought a determination of this troublesome question. His petition in the District Court asked that court to declare that 'respondents Zittman and McCarthy, and McCloskey, as sheriff, obtained no lien or other interest in the 'Reichsbank-Direktorium' or the Deutsche Golddiskontbank accounts, or the funds represented thereby, and that by virtue of Vesting Orders Nos. 7792 and 7870 the petitioner is entitled to the entire balances remaining in the 'Reichsbank-Direktorium' and Deutsche Golddiskontbank accounts on the books of the respondent Chase National Bank, together with all accrued dividends and accumulations.'

The decree sustained that request on the authority of Propper v. Clark, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480. It is to be noted that the prayer referred to liens or other interests in the accounts and asked that the balances be turned over. The Court is of the view that this is not a simple turn-over request but also seeks a declaration 'that no valid rights against the German debtors were acquired by the attachments because prohibited by the freezing program.'

While such construction of the petition is possible, I read it to seek a rather different decision. The Custodian's complaint prayed a ruling that the attaching creditors obtained to lien or other interest in the accounts that could determine his action in administering or distributing the fund in accordance with the direction of Congress. This is made clear by the statements excerpted from the Custodian's brief in the margin. ^[1] It is substantiated by United States Treasury Department General Ruling No. 12, upon which the Custodian relies. ^[2]

If the Court has any doubt that anything else was meant by the complaint or decree, the proper course would be to insert in the decree a modifying proviso to the effect that 'no lien or other interest, except as between the debtor and creditor, was obtained by the attachment proceedings in the state court.' See Lyon v. Singer, 339 U.S. 841, 70 S.Ct. 903, 94 L.Ed. 1323.

In my judgment a valid state attachment, obtained subsequent to the blocking order, is good as between an alien and his creditors. I an also sure that such an attachment has no compelling power upon the Attorney General in his administration of the Trading With the Enemy Act.

Propper v. Clark, 337 U.S. 472, 482-486, 69 S.Ct. 1333, 1339 1341, 93 L.Ed. 1480, so holds. It was like the present case-a suit by the Alien Property Custodian, after a vesting order, to get possession of the blocked credits. In Propper v. Clark, as in this case, there was a claim that an interest had passed to a third party, Propper, as permanent receiver by judicial decree entered between the blocking and vesting orders. There is nothing in the group of cases in Lyon v. Singer, 339 U.S. 841, 70 S.Ct. 903, 94 L.Ed. 1323, to weaken the holding in the Propper case. The transactions in those later cases likewise took place after a federal blocking order and before a vesting order by the Alien Property Custodian. The New York Court of Appeals had decided that the claimants had preferred claims under New York law against the assets of the alien. We recognized those claims since they were conditioned upon licensing by the Alien Property Custodian, but we distinctly said that the ruling in Propper v. Clark was not affected because in the Propper case 'the liquidator claimed title to frozen assets adversely to the Custodian, and sought to deny the Custodian's paramount power to vest the alien property in the United States.' Therefore the clear rule of the Propper case that the Custodian vests and administers entirely free from effective interference over any rights or title secured by the attachment stands unimpaired. In such a situation it does not seem to me that there can be any difference between a title acquired by receiver, subject to the control of the Custodian as licensor, and the lien acquired by the attaching creditor, subject to the same license limitation. The Court's distinction between Propper v. Clark and this case should have no effect on the result here.

I disagree, too, with the Court's interpretation of the brief filed by the Government in Polish Relief Commission v. Banca Nationala a Rumaniei, 288 N.Y. 332, 43 N.E.2d 345. The case holds only that the attachment is good between the debtor and creditor. It does not hold it good against the Government nor did the Government beirf, as I read it, so concede. The brief merely approved suits between litigants to settle those litigants' personal rights, not to get gransfers of or liens on frozen assets effective against the Custodian. That is litigation pursuant to General Ruling No. 12(d), note 2, supra. This is clear from the brief, excerpts from which appear below. ^[3]

As the Court does not agree with me on the propriety of making a determination at the present time as above suggested and has left open for future litigation 'all federal questions as to recognition by the custodian of the state law lien, or priority of payment,' I forbear from expressing my views at length until this issue is presented.

As indicated above, I think we should modify the judgment entered below by some such insertion as I have heretofore suggested on pages 467-468 of 341 U.S., page 844 of 71 S.Ct., and as so modified affirm that decree.

Notes

1. 'Petitioners could not thereafter acquire a property interest in the blocked accounts which could prevail against a subsequent vesting by the Custodian.' Resp. brief, p. 9.
2. '(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.' 7 Fed.Reg. 2991.
3. 'Almost from the outset of freezing control the Treasury has had to deal with the problem of litigation, particularly attachment actions, as affecting blocked assets. As will be more fully developed later in this brief, 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.' P. 14.

'The judicial procedure is generally geared to deal only with the rights and liabilities of the parties to the proceeding. The judicial procedure is not the most appropriate field to determine the great political questions of national and international magnitude that will inhere in the ultimate disposition of foreign-owned property in this country and in the determination of the rights of groups of American and foreign creditors. These great problems of national policy can be handled adequately only by the Federal Government. The determination of such national policies should not be forced by judicial decisions in particular cases determining the rights and liabilities of the parties to the proceedings. The questions are political and for the executive, not the judiciary. They are federal, not state. They call for uniform treatment with reference to large national policies, not for disparate local treatment to accord with local policies. Moreover Congress and the executive have set up machinery to deal with the problems, a machinery designed to relate the solution to the whole was effort and the inevitable postwar problems.' P. 12.

'Freezing control in protecting blocked assets of overrun countries and their nationals had as a further purpose the desire to make such assets available, at least in part, in the war effort against the Axis. Needless to say, if there can be unlicensed transfers of title to blocked property, the true owners of such blocked property may be prevented from using the property in the war effort. * * *' Pp. 9-10.

"Blocked dollars' are still valuable dollars. With a license they are 'free dollars.' More than eighty general licenses and 400,000 special licenses have been issued under the freezing control, authorizing the use of blocked dollars for stated purposes. Moreover, 'hope springs eternal in the human breast.' There are always those who are willing to wait for the day when the war is over with the expectation that the freezing control will be lifted.' P. 8.