Steingut v. Guaranty Trust Co. of New York

• Citation: 58 F. Supp. 623
• Parties: STEINGUT et al. v. GUARANTY TRUST CO. OF NEW YORK (MILLARD et al., Interveners). UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK (two cases).
• Decision Date: 15 December 1944
• Court: U.S. District Court — Southern District of New York

58 F. Supp. 623

STEINGUT et al. v. GUARANTY TRUST CO. OF NEW YORK (MILLARD et al., Interveners).

UNITED STATES v. GUARANTY TRUST CO. OF NEW YORK (two cases).

District Court, S. D. New York.

December 15, 1944.

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Natanson, Pack & Scholer, of New York City, for plaintiff receivers.

Cravath, de Gersdorff, Swaine & Wood, of New York City (Albert R. Connelly, Samson Selig, and Samuel L. Scholer, all of New York City, of counsel), for intervener Millard.

Borris M. Komar, of New York City (David L. Sprung, of New York City, of counsel), for intervener Tillman.

Mathias F. Correa, U. S. Atty., of New York City, Francis M. Shea, Asst. Atty. Gen., and Daniel M. Sandomire, Louis W. Bookheim, Jr., Lester S. Jayson, Howard N. Meyer, and Joseph K. Reichbart, Sp. Assts. to Atty. Gen., for the United States.

Davis, Polk, Wardwell, Sunderland & Kiendl, of New York City (Ralph M. Carson, William C. Cannon, Francis W. Phillips, and William R. Meagher, all of New York City, of counsel), for defendant.

RIFKIND, District Judge.

On December 27, 1917, Russo-Asiatic Bank, a Russian corporation, had a credit balance with the defendant, Guaranty Trust Company, in New York, of $1,484,156.94. The plaintiffs in the equity action lay claim thereto as receivers of the assets in New York of the Russian Bank, appointed under § 977-b of the New York Civil Practice Act. The United States, as plaintiff in the two law actions, lays claim to the same balance as successor in interest to Soviet Russia, by virtue of the Litvinov Assignment of November 16, 1933.

Defendant Guaranty resists both claims as well as the claims of the intervenors whose status will be described hereinafter.

The three actions were tried together but no true consolidation has been effected; there are no pleadings which define the issues between the receivers and the United States.

I. The Receivers' Action.

The action in which the receivers now appear as parties plaintiff has had a long history.

It was commenced on May 12, 1919, as an action by Russo-Asiatic Bank as plaintiff against Guaranty Trust Company of New York as defendant. On July 29, 1939, pursuant to the order of the court, the receivers were substituted as parties plaintiff. During the quarter century between December 27, 1917, when the Russian banking decrees were promulgated, and the Spring of 1943 when this case was tried, many events affecting this action intervened. World War I was concluded; the authority of the Soviet Government was gradually established. For sixteen years, however, the United States officially received the diplomatic representatives of the non-existent Kerensky regime; and in the New York courts the Soviet regime had no effective existence. In November, 1933, the Soviet Government was recognized by the United States and the Litvinov Assignment was executed.¹ In 1936, § 977-b of the New York Civil Practice Act was enacted by the New York Legislature. In 1938, the new Federal Rules of Civil Procedure went into effect, 28 U.S.C.A. following section 723c; and the same year, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, was announced. United States v. Pink, 315 U.S. 203, 62 S.Ct. 552, 86 L.Ed. 796, was decided by the Supreme Court in 1942. To find the path of justice in the midst of such a changing world is not a simple task.

At the threshold, the receivers are met with a challenge to their status on two grounds: first, that § 977-b is unconstitutional under both the federal and New York constitutions; second, that the court appointing the receivers was without jurisdiction so to do. As a second line of defense, the defendant interposes the plea that the claim of the receivers is barred by the statute of limitations. For its third line of defense the defendant claims that, by reason of the set-off of its claims against Russo-Asiatic Bank and other Russian banks, it owes nothing. Lastly, the defendant contends that the Litvinov Assignment has operated to vest any claim which Russo-Asiatic may have had against it in the United States, to the exclusion of the receivers.

I have come to the conclusion that the complaint of the receivers must be dismissed. In order to facilitate understanding of the reasoning by which I have arrived at this conclusion I shall first state the premises from which this conclusion flows and postpone a statement of the steps by which I have reached these premises:

1. The Russian banking decrees of December 27, 1917, were intended to apply to the assets of Russo-Asiatic in the United States.

2. Under the law of Soviet Russia, the State Bank, on December 27, 1917, succeeded to the ownership of Russo-Asiatic's credit balance at the Guaranty Trust Company in New York.

3. Under the law of Soviet Russia, the government of Russia in 1920, succeeded to the ownership of Russo-Asiatic's credit balance, if any, at the Guaranty Trust Company in New York.

4. In November, 1933, by virtue of the recognition of the Soviet regime, it became the duty of the courts to acknowledge the validity of the acts of the Russian sovereignty from its beginning in 1917, including its acts with respect to private banks.

5. On November 16, 1933, by virtue of the Litvinov Assignment, the United States succeeded to the title of Soviet Russia in the credit balance, if any, of Russo-Asiatic in Guaranty Trust Company in New York.

6. Neither on June 10, 1936, when temporary receivers of the New York assets of Russo-Asiatic were appointed by the Supreme Court of New York, nor at any time thereafter did Russo-Asiatic have any assets in New York.

7. Since, at least as against Russo-Asiatic, the United States was from November, 1933, the owner of the credit balance standing in the name of Russo-Asiatic, the receivership never, in fact, extended to that credit balance by the very terms of the order which created it.

8. If the order creating the receivership be read to encompass this asset, then it must be founded on the non-recognition of the validity of the proceedings by which Soviet Russia had acquired it. Such non-recognition is in conflict with the national policy to which the states must yield.

9. There is the possibility, left open by the Pink case, that New York could prefer the local claims of its own citizens; but here two considerations operate against giving effect thereto: (a) There are no "local claims" in the strict sense, since Russo-Asiatic never did business in New York; (b) whatever might be the rights of a New York creditor, if asserted, the receiver is a mere custodian asking possession; Belmont was a custodian who had possession (United States v. Belmont, 1937, 301 U.S. 324, 57 S.Ct. 758, 81 L.Ed. 1134); Pink was a statutory custodian who had possession (United States v. Pink, 1942, 315 U.S. 203, 62 S.Ct. 552, 86 L.Ed. 796); their respective claims did not prevail against the United States.

Four propositions, implicit in the foregoing summary statement, require elaboration:

1. I have found in favor of the constitutionality of § 977-b for the reasons which follow:

On June 8, 1936, § 977-b of the New York Civil Practice Act went into effect. Pursuant to the provisions of that statute, in an action in the New York Supreme Court, Albany County, entitled "Elijah Smith, plaintiff v. Russo-Asiatic Bank, defendant," James A. Martin and Irwin Steingut were, on June 10, 1936, appointed temporary receivers of the assets in New York of Russo-Asiatic Bank. They duly qualified. On June 20, 1936, they served upon the defendant a copy of the order appointing them and a demand for the money owing to Russo-Asiatic. On August 6, 1936, the New York court made an order directing service by publication of the summons in the Smith action. Publication of the summons was made in accordance with the terms of the order. Copies of the summons and of the complaint, praying for the appointment of a receiver of the assets in New York of Russo-Asiatic, were mailed, addressed to Russo-Asiatic Bank at 62 Nevsky Prospect, Petrograd, Russia and at Paris, France.

We may quickly dispose of an argument of defendant that § 977-b is void as a private statute, designed by its legislative sponsors to serve the purposes of the receivers in this very suit. The act is general in terms, City of New York v. Fifth Avenue Coach Co., 237 App.Div. 383, 388, 262 N.Y.S. 228, affirmed, 1933, 262 N.Y. 481, 188 N.E. 29, and has in fact been applied in many other situations other than the one at bar. Propper v. Buck, 1941;² Hirson v. United Stores Corp., 1941;² Ludlam v. Riverhead B. & M. Corp., 1939;² Oliner v. American-Oriental Banking Co., 252 App.Div. 212, 297 N.Y.S. 432, affirmed, 1938, 277 N.Y. 588, 13 N.E.2d 783.

The private motives of the legislators are neither relevant nor open to inquiry. doubt People ex rel. Wood v. Draper, 1857, 15 N.Y. 532, 545; Matter of New York Elevated Railroad Co., 1877, 70 N.Y. 327, 351; Baird v. Mayor, etc. of the City of New York, 1884, 96 N.Y. 567, 581; Waterloo Woolen Mfg. Co. v. Shanahan, 1891, 128 N.Y. 345, 359, 28 N.E. 358, 361, 14 L.R.A. 481.

Since it is not shown that the order in the Smith action did not fully comply with the provisions of the statute, nor that the provisions of the order were not fully executed, the attack upon the constitutionality of the statute and upon the status of the receivers is mounted upon the same proposition, namely, that the New York legislature and the New York courts lacked any power to deal with Russo-Asiatic, which never did any business in New York and had been dissolved by the law of its domicile. Nor, it is contended, could the New York court assert jurisdiction over a debt owing from a New York debtor to Russo-Asiatic without notice to the creditor or its domiciliary successor. Any attempt to exercise such jurisdiction, it is contended, runs afoul of the Fourteenth Amendment and Article...