Alley v. Clark, Civil Action No. 7502.

• Decision Date: 01 May 1947
• Docket Number: Civil Action No. 7502.
• Citation: 71 F. Supp. 521
• Parties: ALLEY v. CLARK, Attorney General.
• Court: U.S. District Court — Eastern District of New York

71 F. Supp. 521

ALLEY v. CLARK, Attorney General.

Civil Action No. 7502.

District Court, E. D. New York.

May 1, 1947.

J. Vincent Keogh, U. S. Atty., of New York City (Frank J. Parker, Asst. U. S. Atty., of Brooklyn, N. Y., and Victor R. Taylor, Atty., Claims Division, Department of Justice, of Washington, D. C., of counsel), for defendant, for the motion.

Sidney Friedman, of New York City (Henry J. Vogel, of New York City, of counsel), for plaintiff, opposed.

KENNEDY, District Judge.

This is a suit, said to be authorized by the provisions of Section 9(a) of the Trading with the Enemy Act of October 6, 1917, as amended, 50 U.S.C.A.Appendix, § 9(a), against the Attorney General of the United States, successor to the functions of the Alien Property Custodian, and to the property held by the latter, Executive Order No. 9788, October 14, 1946, 50 U.S.C.A. Appendix, § 6 note, 11 F.R. 11981.

It is necessary to furnish at least a brief statement of the facts out of which the controversy arose. Plaintiff is a resident of Syosset in the Eastern District of New York. On April 28, 1941, he received from one von Clemm $5,000, and on the same day executed a deed of trust, which is annexed to his bill. Under the terms of that deed, Alley was to administer the trust estate for the benefit of two children of von Clemm, Frederick Michael Clemm von Hohenberg and Alison Clemm von Hohenberg, both of whom are American citizens by birth. The citizenship of von Clemm, the grantor under the deed of trust, does not appear, but his residence is given as Syosset, Long Island. Immediately (April 28, 1941) upon the execution of the deed of trust, Alley invested the trust property in a limited partnership formed pursuant to Article VIII of the Partnership Law of the State of New York, Consol.Laws, c. 39. Von Clemm, the grantor under the deed of trust, was the sole general partner. His contribution to capital was $5,000 cash, and his interest in the firm, 50% of the profits and surplus. In addition, he received a weekly drawing account in the amount of $150. Alley and Lambercier, the latter being another limited partner and a Swiss national, each invested $5,000; each had a 25% interest in profits and in surplus. By the terms of the partnership agreement, which also forms part of the plaintiff's bill, the venture was to terminate on April 27, 1946, or sooner by the death of von Clemm, or by notice on his part at the end of any 12-month period subsequent to the date of the agreement. As a matter of fact, von Clemm is apparently alive and so is Lambercier, the other special partner, though neither is a party to this suit.

On December 31, 1942, Leo T. Crowley, then Alien Property Custodian, vested the partnership "interest" of each of the partners in the Bridge Import Company (Vesting Order 353). This was done on the basis of a finding that the partnership "interest" was held for the benefit of International Mortgage and Investment Corporation, an enemy national. On March 14, 1945, James E. Markham, then Alien Property Custodian, vested 263 packages of synthetic and semi-precious stones and ten industrial diamonds, assets of the Bridge Import Company (Vesting Order 4754). These assets were, on December 4, 1945, sold at public action by the Alien Property Custodian and brought $950,000.

Plaintiff alleges in his bill that the "net assets" of Bridge Import Company total about $815,000, and that since the partnership was by agreement terminated on April 27, 1946, he, the plaintiff, is entitled to recover his original contribution of $5,000 plus one-fourth of the remaining "net assets" of the partnership, making a total of $205,000. The Alien Property Custodian has refused plaintiff's demand for the return of his "interest".

The only question raised by the motion to dismiss is whether plaintiff, under the applicable statutes, is entitled to maintain this suit. It is, therefore, essential that these statutes be examined.

Originally, under the Trading with the Enemy Act of October 6, 1917, 50 U.S.C.A. Appendix, §§ 1-31, a person who was not an enemy, or the ally of an enemy, and who claimed any "interest, right, or title in any money or other property" seized by the Alien Property Custodian or in his possession could, in the event of refusal of his demand for its return, maintain a suit in equity either in the District of Columbia or in the Court of his residence district, against the Custodian or the Treasurer of the United States to establish his interest, right or title, and to compel the return of the property involved, 50 U.S.C.A.Appendix, § 9(a). Such a suit was also permitted by a non-enemy "to whom any debt may be owing from an enemy or ally of enemy whose property or any part thereof" had come into the possession of the Alien Property Custodian, 50 U. S.C.A.Appendix, § 9(a). In other words, under the original act, it made no difference whether the plaintiff was seeking to establish an "interest, right, or title in any money or other property," on the one hand, or whether his claim was based upon a "debt" on the other. And Section 9(a) of the statute stands now as it stood in 1917, so far as this matter is concerned.¹ At all times between October 6, 1917, and August 8, 1946, given the other statutory conditions, a non-enemy could maintain a suit in equity in the district of his residence regardless of whether he was asserting an interest, right or title, or a debt claim.

But that situation was changed. Under the terms of a recent amendment, Public Law 671, Act of August 8, 1946, c. 878, § 1, 60 Stat. 925, 50 U.S.C.A.App. §§ 33-35 a new procedure was devised, which, so far as it is relevant here, denies to any debt claimant the right to sue in equity in his own district, and compels him to pursue and administrative procedure which this plaintiff has not followed. Court review of adverse action by the Attorney General is possible only in the District Court of the United States for the District of Columbia, and then only if the claimant has taken all the administrative steps required, 50 U.S. C.A.Appendix § 34(e, i).

And so the question whether the present bill is maintainable depends upon the solution of the problem whether plaintiff is claiming an "interest, right, or title," 50 U.S.C.A.Appendix, § 9(a), or is asserting a debt claim, 50 U.S.C.A.Appendix, § 34.² If the right of a limited partner to recover his original contribution and his share of the partnership surplus is a "debt", the complaint must be dismissed. And this is the argument which the defendant makes.

Section 9(a) of the Trading with the Enemy Act of October 6, 1917, has been construed in a great many decisions. But, as might be expected, very few of them are helpful here. This is because, except in unusual circumstances, it was, prior to August 8, 1946, unnecessary for any judge to make an analysis of the nature of the claim asserted, with a view to determining whether it sprang from an interest, right or title, on the one hand, or a debt, on the other. One of the unusual cases is Banco Mexicano de Commercio e Industria v. Deutsche Bank, 1924, 263 U.S. 591, 44 S.Ct. 209, 68 L.Ed. 465. There the plaintiff, whose bill had been dismissed, was not a citizen of the United States. Congress, amending the Trading with the Enemy Act on June 5, 1920, had provided that non-citizens could maintain suit on a claim only in the event that it "arose with reference to the money or other property" held by the Custodian, 50 U.S.C.A.Appendix, § 9(e). It was necessary, therefore, for the Court to pass upon the question whether the debt claim asserted by Banco Mexicano did, in fact, "arise" with reference to the money in the hands of the Custodian, and the Court decided it did not. The transaction, which formed the basis for the claim, was held to be an ordinary business one, namely, a deposit. This created a pure debtor-creditor relationship between the claimant and the Custodian, and the fact that the former had reduced his debt to judgment, and under the laws of the State of New York had a right to attach the property of the debtor, did not convert his claim into one which "arose" out of the property in the hands of the Administrator, namely, the assets of the debtor bank. It is now necessary, since the enactment of Public Law 671, to classify every plaintiff's claim either as a debt or an interest, without such help from the existing decisions under the statute.

What law is to govern the decision? A limited partnership is a creature of statute, and this partnership was organized under the laws of the State of New York, Partnership Law, Art. VIII. Certainly, therefore, the local statutory rights of a limited partner have a strong bearing on the question that is here for decision. Under the federal statute as it formerly existed, usually the local law supplied the answer to any question concerning the nature of the plaintiff's claim against property in the Custodian's hands, even where that involved examination and application of German law (e. g., Bek v. Miller, 1925, 56 App.D.C. 36, 8 F.2d 797). On the other hand, it is also necessary to consider that Congress, when it used the words "interest, right, or title" and "debt," was here dealing only with the control and disposition of property seized by the Alien Property Custodian, and federal policy and the background of the statute is important.

Why did Congress on August 8, 1946, limit so narrowly the right formerly enjoyed by non-enemy claimants to bring suit on debts, and leave unimpaired their existing right to sue when there was involved an "interest, right, or title in any money or other property"? It seems that one of the principal reasons for the statutory change was the decision of the Supreme Court in Markham v. Cabell, 1945, 326 U.S. 404, 66 S.Ct. 193.³ Cabell asserted in his bill a claim against the Custodian based upon legal fees owed by an enemy corporation. Literally read, Section 9(e) of the Trading with the ...