379 U.S. 378 (1965), 59, United States v. First National City Bank

Docket Nº:No. 59
Citation:379 U.S. 378, 85 S.Ct. 528, 13 L.Ed.2d 365
Party Name:United States v. First National City Bank
Case Date:January 18, 1965
Court:United States Supreme Court

Page 378

379 U.S. 378 (1965)

85 S.Ct. 528, 13 L.Ed.2d 365

United States


First National City Bank

No. 59

United States Supreme Court

Jan. 18, 1965

Argued November 16, 1964




The Commissioner of Internal Revenue, having made jeopardy assessments of some $19,000,000 against a Uruguayan corporation, served with notices of levy and of federal tax lien respondent bank in New York, in whose Montevideo branch the corporation maintained a deposit. Concurrently, petitioner brought a foreclosure action in Federal District Court against the corporation, respondent, and others, pending determination of which an injunction was sought against transfer by respondent of any property or rights held for the corporation's account. Respondent, but not the corporation, was personally served. The District Court granted a temporary injunction under 26 U.S.C. § 7402(a), which gives district courts power to grant injunctions "necessary or appropriate for the enforcement of the internal revenue laws," and the Court of Appeals reversed.

Held: The District Court has jurisdiction to preserve the status quo and prevent further dissipation of assets by issuing its temporary injunction "freezing" the corporation's account in respondent's foreign branch pending personal service on the corporation. Pp. 381-385.

(a) Rules 4(e) and (f) of the Federal Rules of Civil Procedure provide for service in accordance with a state statute of a noninhabitant or person not found in the State. P. 381.

(b) Under § 302(a) of the New York Civil Practice Law and Rules, which became effective after the temporary injunction was issued, out-of-state personal service may be made as provided in § 313 on a nondomiciliary transacting business within the State, a remedy which New York law makes applicable to further proceedings, such as are involved here, in an action pending on the effective date of the statute. Pp. 382-383.

(c) Issuance of the injunction under 26 U.S.C. § 7402(a) was a proper exercise of the equity power of the District Court, particularly as it was acting in the public interest. P. 383.

(d) Respondent's foreign branch was not a "separate entity" without the reach of the District Court's in personam order. P. 384.

Page 379

(e) The District Court reserved power to enter a protective order upon a showing, though none has been made, that the "freezing" of the foreign branch account would violate foreign law or subject respondent to the risk of double liability, and that court is open to any representations which the Executive Branch might make that such "freezing" would embarrass this country's foreign relations. P. 384.

325 F.2d 1020, reversed.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

This case presents a collateral phase of litigation involving jeopardy assessments of some $19,000,000 made by the Commissioner of Internal Revenue against Omar, S.A., a Uruguayan corporation. The assessments charged that income had been realized within the United States on which a tax was due. On the same day, respondent was served with notice of levy and notice of the federal tax lien. At the same time, petitioner commenced an action in the New York District Court naming Omar, as well as respondent and others, as defendants. Personal jurisdiction over respondent was acquired, but, as of the date of argument of the case here, Omar had not yet been served. That action requested, inter alia, foreclosure of

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the tax lien upon all of Omar's property, including sums held for the account or credit of Omar in foreign branch offices of respondent.1 It also requested that, pending determination of the action, respondent be enjoined from transferring any property or rights to property held for the account of Omar; and affidavits filed with the complaint averred that Omar was removing its assets from the United States.

The District Court, on the basis of the affidavits, issued a temporary injunction enjoining respondent from transferring any property or rights to property of Omar now held by it or by any branch offices within or without the United States, indicating it would modify the order should compliance be shown to violate foreign law. 210 F.Supp. 773. The Court of Appeals reversed by a divided vote, both by a panel of three, 321 F.2d 14, and en banc, 325 F.2d 1020. The case is here on a writ of certiorari. 377 U.S. 951.

Title 26 U.S.C. § 7402(a) gives the District Court power to grant injunctions "necessary or appropriate for the enforcement of the internal revenue laws." Since it has personal jurisdiction over respondent, has it power to grant the interim relief requested? We are advised that respondent's only debt to Omar is payable at respondent's branch in Montevideo. It is said that the United States, the creditor, can assert against respondent in New York only those rights that Omar, the debtor, has against respondent in New York, and that, under New York law, a depositor in a foreign branch has an action against [85 S.Ct. 530] the head office only where there has been a demand and wrongful refusal at the foreign branch. Sokoloff v. National City Bank, 239 N.Y. 158, 145 N.E. 917; 250

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N.Y. 69, 164 N.E. 745. The point is emphasized by the argument that any obligation of respondent to Omar is due only in Montevideo -- an obligation apparently dischargeable in Uruguayan currency, not in dollars. Therefore, the argument runs, there is no claim of the debtor (Omar) in New York which the creditor can reach.

We need not consider at this juncture all the refinements of that reasoning. For the narrow issue for us is whether the creditor (the United States) may by injunction pendente lite protect whatever rights the debtor (Omar) may have against respondent who is before the court on personal service. If it were clear that the debtor (Omar) were beyond reach of the District Court so far as personal service is concerned, we would have quite a different case -- one on which we intimate no opinion. But, under § 302(a) of the New York Civil Practice Law and Rules, 7B McKinney's Consol.Laws Ann., § 302, personal jurisdiction may be exercised over a "nondomiciliary" who "transacts any business within the state" as to a cause of action arising out of such transaction, in which event out-of-state personal service may be made as provided in § 313.2 The Federal Rules of Civil Procedure, by Rule 4(e) and Rule 4(f), allow a party not an inhabitant of the State or found therein to be served with a summons in a federal court in the manner and under the circumstances prescribed by a state statute.3 See United States v. Montreal Trust Co., 35 F.R.D. 216.

Page 382

To be sure, this cause of action arose, the complaint was filed, and the temporary injunction was issued before the New York statute became effective. The New York Court of Appeals has, however, indicated that, where the suit is instituted after the effective date of the statute, the statute will normally apply to transactions occurring before the effective date. Simonson v. International Bank, 14 N.Y.2d 281, 290, 200 N.E.2d 427, 432, 251 N.Y.S.2d 433, 440. That court has further indicated that where, as in the instant case, the suit based on the prior transaction was pending on the effective date of the statute, "the new act shall -- except where it `would not be feasible or would work injustice' -- apply "to all further proceedings" in such action. . . ."4 Ibid. It seems obvious that a future [85 S.Ct. 531] attempt by the Government to serve process on Omar would be considered a "further proceeding" in the instant litigation. Accordingly, we judge the temporary injunction, which has only a prospective application, as of now and in light of the present remedy which § 302(a)

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affords.5 And our review of the injunction as an exercise of the equity power granted by 26 U.S.C. § 7402(a) must be in light of the public interest involved:

Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.

Virginian R. Co. v. System Federation, 300 U.S. 515, 552. And see United States v. Morgan, 307 U.S. 183, 194; Hecht Co. v. Bowles, 321 U.S. 321, 330.

If personal jurisdiction over Omar is acquired, the creditor (the United States) will be able to collect from respondent what the debtor (Omar) could collect. The opportunity to make that collection should not be lost in limine merely because the debtor (Omar) has not

Page 384

made the agreed-upon demand on respondent at the time and place and in the manner provided in their contract.

Whether the Montevideo branch is a "separate entity," as the Court of Appeals thought, is not germane to the present narrow issue. It is not a separate entity in the sense that it is insulated from respondent's managerial prerogatives. Respondent has actual, practical control over its branches; it is organized under a federal statute, 12 U.S.C. § 24, which authorizes it "To sue and be sued, complain and defend, in any court of law and equity, as fully as natural persons" -- as one entity, not branch by branch. The branch bank's affairs are, therefore, as much within the reach of the in personam order entered by the District Court as are those of the home office. Once personal jurisdiction of a party is obtained, the District Court has authority to order it to "freeze" property under its control, whether the property be within or without the United States. See New Jersey v. New York City, 283 U.S. 473, 482.

That is not to say that a federal court in this country should treat all the affairs of a branch bank the same as it would [85 S.Ct. 532] those of the home office. For overseas transactions are often caught in a web of extraterritorial activities and...

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