Kahn v. Garvan

• Decision Date: 13 April 1920
• Parties: KAHN v. GARVAN, Alien Property Custodian, et al.
• Court: U.S. District Court — Southern District of New York

263 F. 909

KAHN v. GARVAN, Alien Property Custodian, et al.

United States District Court, S.D. New York.

April 13, 1920

Motion by the Alien Property Custodian to dismiss a bill in equity brought in this court for want of equity under the following circumstances: The plaintiff is a citizen of the United States, residing in the Southern district of New York, and substituted trustee under a deed of trust of his deceased father. He lays the equity of the bill under two headings First, that as trustee he is entitled in this court to file a bill for the usual trustee's accounting against beneficiaries; and, second, that the bill is in the nature of a bill of interpleader.

The facts alleged in the bill are as follows: One Hirsch Kahn (the plaintiff's father), a citizen of the United States then residing in Germany, on September 23, 1906, executed a deed of trust to his brother, Louis Kahn, also a citizen then residing in New York. This deed conveyed certain personal property in the form of investment securities, the details of which it is not necessary to state, upon trust that, during the life of the said Hirsch Kahn, the trustee should pay over the income of the security, 'if, when and as I may give him (the trustee) notice that I desire the same,' with remainder to his wife, Ida Kahn; in case of her survival, upon the same terms. Upon the grantor's death the trustee was to pay to his two daughters, Recha Blumenfeld and Bella Lowenthal, or their heirs, the sum of $12,000 each, and if his third daughter Selma, should marry before such time, to pay her so much of $47,800 as in his judgment he might think fit. The deed further provided that upon Hirsch Kahn's death the trustee should pay to his son Arthur A. Kahn (the plaintiff), in trust for his son Julius, the sum of $50,000 for his maintenance and support, with remainders over on Julius' death to Arthur and his daughters per stirpes. Upon the death of the survivor of Hirsch Kahn and his wife, Ida, the trustee was to divide the residue of the fund between the four children, Arthur, Recha, Bella, and Selma, per stirpes. There was provision for the substitution of trustees, the sale and purchase of securities, and other incidental matters of administration.

Louis Kahn, the grantee, accepted the instrument on September 23, 1908, and continued to act until the death of Hirsch Kahn in Germany on February 22, 1914, whereupon he resigned, and the plaintiff was appointed substituted trustee on May 22, 1914. The three daughters have married German subjects, as follows: Recha in 1904, Bella in 1902, Selma in 1912-- and have always resided in Germany. The plaintiff has received statements (which he asserts are not sufficient to justify any action) that Ida Kahn died on or about April 8, 1917.

On the 20th day of May, 1918, the Alien Property Custodian served the defendant with three several notices under section 7(c) of the Trading with the Enemy Act (Comp. St. 1918, Comp. St. Ann. Supp. 1919, Sec. 3115 1/2d) and sections 2(a) and 2(c) of the Executive Order of February 26, 1918. These were all alike, and recited that after investigation the Custodian had determined that each of the three sisters was an enemy, that each had a certain right, title, and interest under the deed of trust before mentioned, and that he, as Alien Property Custodian, required that every such right, title, and interest in the said trust be conveyed, transferred, assigned, delivered, and paid over to him as such, to be by him administered and accounted for as provided by law. This notice was signed 'A. Mitchell Palmer, Alien Property Custodian, by J. L. Davis, Managing Director.'

The plaintiff alleges that the three daughters, through duly authorized attorneys, have asserted to him that the demands so made were illegal; that they were not enemies in fact; that there is no legal evidence of the death of the complainant's mother; that he has no authority under the deed to compel a distribution of the fund; and that the demand of the Alien Property Custodian was violative of their rights under the Constitution of the United States, the treaties with Germany, and the laws of nations. He further alleges that he was advised of no hearing held by the Custodian, and that the alleged capture is in violation of the Constitution; that he had objected to the validity of the claims of the Custodian, and had attempted to settle his differences with him, including the payment of certain taxes levied by the state of New York, and the valuation and terms of distribution of the trust, and other incidents arising in the discharge of his duty as such substituted trustee, but that he had been unable to come to an agreement, and that some judicial settlement of his duties and his accounts was essential; that for this reason he joined the Custodian and the three daughters, together with a bank which held some of the securities under conditions not necessary to set forth.

Joseph M. Proskauer, of New York City, for plaintiff.

Spier Whitaker, of Washington, D.C., for defendant Alien Property Custodian.

Max J. Kohler, of New York City, for defendants Blumenfeld, Lowenthal, and Steinhard.

LEARNED HAND, District Judge (after stating the facts as above).

The bill has two aspects: (1) As a trustee's bill, asking an accounting; (2) as a bill in the nature of a bill of interpleader. If it had enough equity under the first aspect, the motion to dismiss the whole bill must be denied, regardless of the second. For the moment, therefore, I may assume, without deciding, that it will not lie as a bill for interpleader, because the daughters have no standing in the court at all, and the property had been lawfully captured.

Upon these assumptions, it is necessary briefly to consider the nature of the 'right, title, and interest' which was the subject of the putative capture. It did not profess to be greater than the right of the enemies as cestuis que trustent, and it did not in law change the substance, or the incidents, of the right itself, any more than if, for example, it had been an unliquidated claim for breach of contract. Nor, indeed, could the Alien Property Custodian under such a demand, or unless he asserted a legal right to the securities themselves, by capture change the character of the enemy's right as obligee. If it be a chose in action, subject to an accounting as a condition of its assertion, he must submit to some judicial determination between himself, as captor, and the trustee as obligor. Such a demand neither enlarges nor contracts the rights seized.

If so, the Alien Property Custodian, as cestui que trust, might pursue against the trustee all the remedies which the enemy might have pursued, if an alien friend. Among such rights is a bill to compel an accounting upon showing that the period had arrived for distribution, and as a condition of reducing the right to possession. Conversely, the trustee has the right, before distributing the res, to file a bill for a voluntary statement and settlement of his accounts (Mildeberger v. Franklin, 130 A.D. 860, 115 N.Y.Supp. 903), so that he may get a valid discharge and close up the estate. Such a right is as much an incident to the right of the cestui que trust as his own substantive right to compel a distribution after such an accounting.

If so, the first question here is simply one of the jurisdiction of this court under section 17 (Comp. St. 1918, Comp. St. Ann. Supp. 1919, Sec. 3115 1/2i). It is now settled that under that section the Alien Property Custodian may himself begin such ancillary proceedings as may be necessary to reduce the res to possession. Garvan v. $25,000 Mortgage Bonds, 265 F. 477, . . . C.C.A. . . . . He could similarly have brought a bill for an accounting in this court under this deed of trust. May not the trustee conversely have resort to this court? In Keppelmann v. Keppelmann, 108 A. 432, the Court of Errors of New Jersey entertained such a bill filed by a trustee asking for instructions, and advised him that he should distribute the res to the Alien Property Custodian as cestui que trust. The trustee might perhaps file this bill in the New York courts, have his accounts stated, and get binding instructions; but it does not follow that he may not file a bill here as well. Section 17 confers on this court general jurisdiction 'to enforce the provisions of' the Trading with the Enemy Act (Comp. St. 1918, Comp. St. Ann. Supp. 1919, Secs. 3115 1/2a-3115 1/2j), and if this be a suit ancillary to that purpose the jurisdiction extends so far. While it is not a bill by the Alien Property Custodian to enforce his rights under the act, a judicial accounting is, as I said, a condition upon its orderly execution, because without it the trustee cannot be compelled to distribute. I think it makes no difference, this being its substantial purpose, who is plaintiff or who is defendant.

The Alien Property Custodian urges that the case of Garvan v $25,000 Mortgage Bonds, supra, is to the contrary. I think not. There he had determined that he was entitled, not to whatever rights as cestuis que trustent the German insurance companies had, but to the very corpus of the res. The court decided that the investigation and decision of the Alien Property Custodian was conclusive, and that the capture went as far as it purported to go, and required delivery of possession, under rule 2(c). Had the Alien Property Custodian in this case demanded, as he most properly did not do, out of the hands of the plaintiff, the securities themselves, a question would arise, similar to that in Garvan v. $25,000 Mortgage Bonds, supra, and Salamandra, etc., Co. v. N.Y. Life Ins. & Trust Co. (D.C.) 254 F. 852, whether any inquiry whatever was justiciable into the validity of the...