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ZITTMAN v. MCGRATH

decided: May 28, 1951.

ZITTMAN
v.
MCGRATH, ATTORNEY GENERAL, SUCCESSOR TO THE ALIEN PROPERTY CUSTODIAN



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.*fn*

Vinson, Black, Reed, Frankfurter, Douglas, Jackson, Burton, Minton; Clark took no part in the consideration or decision of these cases.

Author: Jackson

[ 341 U.S. Page 447]

 MR. JUSTICE JACKSON delivered the opinion of the Court.

On December 11, 1941, petitioner Zittman, holder of claims against the Deutsche Reichsbank and the Deutsche Golddiskontbank, caused attachment warrants to be issued by the appropriate New York court and levied on accounts maintained by the debtors in New York City with the Chase National Bank. On January 21, 1942, petitioner McCarthy, holder of a claim against the Reichsbank, also attached its accounts with the Chase

[ 341 U.S. Page 448]

     Bank. Both attachments were followed by state court actions which were pursued to default judgments. The judgments remain unsatisfied because the attached funds were and are "frozen" by federal government foreign funds controls. The New York courts have repeatedly extended the ninety-day limitation provided for the sheriff to reduce the accounts to his possession or commence an action to do so,*fn1 so that the attachments, like the judgments, are outstanding.

The accounts were frozen June 14, 1941, by Executive Order No. 8785,*fn2 which extended to assets of German nationals freezing controls initiated by Executive Order No. 8389,*fn3 issued April 10, 1940, by the President, pursuant to the powers vested in him by ยง 5 (b) of the Trading With the Enemy Act.*fn4 The general effect of the basic order was to forbid "transactions" in the assets of blocked nationals, including all "transfers" of such funds.*fn5 In October, 1946, more than four and a half years after the levy of these attachments, the Alien Property Custodian issued Vesting Orders, which vested "that certain debt or other obligation owing to" the German bank "and any and all rights to demand, enforce and collect the same." The Chase Bank notified the Custodian that, due to the outstanding attachment levies,

[ 341 U.S. Page 449]

     it could not release the accounts.*fn6 Some sixteen months later, the Custodian petitioned the United States District Court for the Southern District of New York for a declaratory judgment that the petitioners "obtained no lien or other interest in" the attached accounts and that he was entitled to take the entire balances. The District Court granted the relief sought,*fn7 and the United States Court of Appeals for the Second Circuit affirmed, per curiam, solely on the authority of Propper v. Clark, 337 U.S. 472.*fn8 We granted certiorari.*fn9 The question is whether the attachment levies were "transfers" forbidden by Executive Order No. 8389.

I. RIGHTS OF THE JUDGMENT CREDITORS UNDER NEW YORK LAW.

In the New York courts, petitioners invoked one of several provisional remedies which, from time out of mind, New York has extended to its citizens against their non-resident debtors. These, in appropriate circumstances,

[ 341 U.S. Page 450]

     may take the form of receivership*fn10 or attachment.*fn11 While these two remedies differ in nature and incidents, they are alike in being available at the commencement or during the pendency of an action, are not independent but auxiliary in character, and are not designed finally to adjudge substantive rights but to secure such judgment as may be rendered. As employed in this case, attachment also was the sole basis of jurisdiction.

The attachment levy on bank balances is perfected by service of a certified copy of the warrant of attachment on the banking institution,*fn12 which is required to certify to the sheriff making the levy the balance due to the defendant.*fn13 The levy does not require the sheriff to take physical possession of any property, nor does it require any transfer of title. The effect is prescribed: "Any such person so served with a certified copy of a warrant of attachment is forbidden to make or suffer, any transfer or other disposition of, or interfere with, any such property or interest therein so levied upon, . . . or sell, assign or transfer any right so levied upon, to any person, or persons, other than the sheriff serving the said warrant until ninety days from the date of such service, except upon direction of the sheriff or pursuant to an order of the court."*fn14 The account attached must, on the sheriff's demand, be paid over to him within ninety days, unless, as here, the time has been extended by order of court, and the sheriff is authorized to institute an action within that time to recover amounts withheld.*fn15

These creditors prosecuted their actions to judgments which could be satisfied only from attached property and

[ 341 U.S. Page 451]

     by issuance of executions.*fn16 An attachment merges in an execution when issued, but it is not annulled until the judgment is paid and remains in force to keep alive the lien on the property. Castriotis v. Guaranty Trust Co., 229 N. Y. 74, 79, 127 N. E. 900, 902 (1920).

Execution, if issued, would require a transfer of credit and of funds, but this step has not been taken and, it is admitted, cannot be taken in these cases without a federal license. While requirement of a federal license creates something of a contingency as to satisfaction of the judgments, as matter of New York law this does not deprive the judgment of its validity or the attachment of its lien. Commission for Polish Relief v. Banca Nationala a Rumaniei, 288 N. Y. 332, 338, 43 N. E. 2d 345, 347 (1942).

Although the provisional remedy of attachment, as used in this case, has served to provide the basis of jurisdiction and has created a lien to secure satisfaction of the judgment, it is clear that it has neither attempted nor accomplished any transfer of possession, for these attachments have been maintained for over nine years, and the accounts are still where they were before the attachments were levied. That there has been no transfer of title to the funds by the proceedings to date also is clear. If the judgment debtors chose to satisfy the judgments by other means, or to substitute an undertaking for the property attached, they could do so, and the accounts would be freed of the lien.*fn17

Under state law, the position of these judgment creditors is that they have judgments, secured by attachments on balances owned by German aliens, good as against the debtors, but subject to federal licensing before they can be satisfied by transfer of title or possession.

[ 341 U.S. Page 452]

     The Custodian claims, in a collateral attack, that federal courts should pronounce them wholly void and of no effect.

II. EFFECT OF FEDERAL FOREIGN FUNDS CONTROL ON ATTACHMENT.

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.*fn18 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

[ 341 U.S. Page 453]

     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 . . . ."*fn19 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";

[ 341 U.S. Page 454]

     "4. Protecting American creditors"; "5. Foreign relations, including post-war negotiations and settlements."*fn20

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,"*fn ...


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