Manufacturers Trust Company v. Rogers

• Decision Date: 15 February 1960
• Parties: MANUFACTURERS TRUST COMPANY, individually and as Trustee for American Creditor Banks under German-American Standstill Agreements, French American Banking Corporation, Guaranty Trust Company, City Bank Farmers Trust Company and Bankers Trust Company, Plaintiffs, v. William P. ROGERS, Attorney General of the United States, Defendant.
• Court: U.S. District Court — Southern District of New York

181 F. Supp. 116

MANUFACTURERS TRUST COMPANY, individually and as Trustee for American Creditor Banks under German-American Standstill Agreements, French American Banking Corporation, Guaranty Trust Company, City Bank Farmers Trust Company and Bankers Trust Company, Plaintiffs, v. William P. ROGERS, Attorney General of the United States, Defendant.

United States District Court S. D. New York.

February 15, 1960.

White & Case for plaintiffs, A. Hayne deYampert, New York City, of counsel.

Dallas S. Townsend, Asst. Atty. Gen., Director, Office of Alien Property, S. Hazard Gillespie, Jr., U. S. Atty., Southern Dist. of New York, New York City, Irving Jaffe, Max Wilfand, Attys., Dept. of Justice, Washington, D. C., for defendant.

IRVING R. KAUFMAN, District Judge.

This is an action brought pursuant to Section 9(a) of the Trading with the Enemy Act¹ seeking the return in whole or in part of two accounts in the Manufacturers Trust Company (hereinafter the "Trust Company") aggregating $328,653.20 vested (i. e. seized)² by the Attorney General³ in 1947 as property of an enemy, the German Reichsbank.⁴ Plaintiffs are the Trust Company, individually and as trustees for certain "American Creditor Banks", and several of those banks individually.

Briefly stated, the complaint alleges that pursuant to regulations issued by the German Reichsbank under authority granted by an international credit agreement, the German-American Standstill Agreement of 1941, the Trust Company was named trustee of certain funds for the benefit of American Creditor Banks who were parties to that same agreement. The complaint further alleges that since neither the Trust Company nor the American Creditor Banks are enemies or allies of enemies as defined in the Act, the Trust Company is entitled under section 9(a) to a return of the vested funds, so that it might administer the trust or might distribute it pro rata to the beneficiaries. The complaint also states a claim by the plaintiff banks in their individual capacities as beneficiaries of the alleged trust, the sum claimed in this count aggregating $172,884.25.

In substance, the answer denies that any of the plaintiffs ever acquired any rights to the vested property in any capacity under the above-mentioned standstill agreement or in any other manner.

On the basis of affidavits, briefs, exhibits and oral argument, both sides have moved for summary judgment.

I. Background.

Beginning in the fall of 1930, Germany's foreign creditors began withdrawing the credits they had extended to German nationals. This activity constituted a serious drain on Germany's foreign exchange reserves and in order to combat the danger, the German Government instituted a system of foreign exchange controls administered by the German Reichsbank and the German Golddiskontbank. In a further attempt to prevent the complete collapse of German foreign trade, committees representing the two German banks and their foreign creditors met in Basle, Switzerland in 1931 to work out some arrangement for maintaining the volume of credits extended to Germany. Out of this conference came the German Credit Agreement of 1931. This agreement provided for a six-months' extension of German short-term indebtedness in the amounts and on the terms then existing. In consideration for such extension, interest payments on the indebtedness and payments to cover maturing drafts were excepted from Germany's foreign exchange controls. The creditors kept specified credit lines open and accepted payment on the debts in restricted use Reichsmarks which were deposited in accounts in the Reichsbank. These payments formed the creditors' "registered credit balances" and the creditors involved became "registered holders."

Because the international monetary situation did not improve significantly, and the German economy continued in a precarious state, the 1931 Agreement was extended by successive similar, but not identical, agreements until at least May 31, 1941.

II. The Origin of the "License Fees".

Beginning with the 1936 Agreement, registered holders were given the right to transfer their registered credit balances into "travel mark accounts", which could be used, in accordance with the provisions of the ruling agreement and regulations promulgated by the Reichsbank, by persons resident outside Germany for travel expenses while in Germany. Similarly, the later standstill agreements provided that the creditor banks could sell Reichsmarks from their registered credit balances for benevolent remittances to German nationals by persons outside Germany. This was advantageous to the registered holders because it enabled them, in effect, to sell some of their Reichsmark registered credit balances for their own currency.

It was out of these travel and benevolence transactions that the so-called "license fees" arose. These license fees formed the corpus of the two accounts vested by the Attorney General in 1947, the return of which is prayed in the instant action, and thus their nature and origin is of signal importance to this decision.

Every time an American registered holder transferred part of his registered balance into a travel mark account, he was required to pay into a special account in the Trust Company,⁵ a certain amount of American dollars per 100 marks. A similar requirement attended the transfer of registered balances for benevolent remittances. For the period involved in the instant action, those fees were $4.50 per 100 marks for travel transactions and $3.35 per 100 marks for benevolent-remittance transactions. While these amounts were to be forwarded by the registered holder directly to the special accounts in the Trust Company, they were passed on to the ultimate purchasers of the marks as part of the "global price" paid. In other words, the registered holders were to collect the license fees from the holders of the travel mark accounts, who in turn, either personally or through agents, were to collect the license fees from the purchasers of the marks. (See Exhibit 5 to Wilfand affidavit.) In some situations the holder of the travel mark account or his agents could forward the license fees collected directly to the Trust Company, instead of forwarding it to the registered holder. (See Exhibits 35 & 37 to Wilfand affidavit.) The general procedure in regard to marks used for benevolent remittances was essentially similar.

Beginning with the 1937 agreement the Reichsbank promised to make these license fee accounts available to creditors as sources of foreign exchange in their own currency. On certain specified dates, called apportionment dates, the parties to the relevant standstill agreements had apportioned to them by the Reichsbank that percentage of the accumulated license fees which bore the same relation to the total accumulated fees as that party's extension of credits to German debtors bore to the total credits extended. For instance, if an American creditor bank had extended 10% of all the credits extended to German debtors during a given standstill year, he would have apportioned to him 10% of all the accumulated license fees in the special account in the Trust Company. In order actually to receive his share of the license fees, however, the American creditor had to cause one of his German debtors to pay the equivalent amount in Reichsmarks into the Reichsbank.

III. The Procedure of Contracting.

While each of the successive agreements was negotiated and signed by the German Reichsbank, the German Golddiskontbank, and committees representing foreign creditors, the committee representing the American creditors was not a legal entity and no indebtedness was owed to it. The sole function of the American committee was to negotiate the agreements and advise the American creditors of the action they should take. The American committee did not undertake to bind the American creditors, and indeed had no authority to do so. Rather, in order to become a party to any agreement and become bound to the duties and entitled to the benefits thereof, each individual creditor had to carry out a procedure called "adherence". Essentially, this process demanded that the individual creditors, within a specified time, notify their German debtors on a standard form letter of their willingness to adhere to the current agreement, specifying the credit lines with respect to which adherence was being effected. The German debtors, in turn, forwarded to their respective creditors a standard form letter confirming the adherence. Only then did the relevant agreement become effective as to any particular creditor.

IV. The Vested License Fees.

With the above background set forth, it is possible meaningfully to discuss the specific property involved in this action. That property is composed entirely of license fees accumulated after May 31, 1941, the date the last agreement which had been adhered to by any American creditor expired. The transferors of marks for benevolence and travel continued to collect and remit the license fees to the Trust Company. They were able to do this because they still possessed registered credit balances and travel mark accounts even after the 1940 agreement expired. They apparently acted on the expectation that the 1941 agreement, at that time in the process of negotiation, would continue that requirement and apply to transactions after May 31, 1941.

By early June, 1941 that expectation of the parties seemed close to fruition. On June 10, 1941, the American committee cabled the text of the proposed 1941 agreement to the German committee. On June 14, 1941 the German committee cabled its approval of the proposed draft. On that same date financial transactions with Germany and its nationals were blocked by Executive Order No. 8389, 12 U.S.C.A. § 95a note. Efforts were made by the American committee to obtain a Treasury License to use blocked German funds to service the standstill debt, but such application was denied finally...