United States v. New York Trust Co.

• Decision Date: 04 February 1946
• Docket Number: L68-266.,No. L59-81,L59-81
• Citation: United States v. New York Trust Co., 75 F.Supp. 583 (S.D. N.Y. 1946)
• Parties: UNITED STATES v. NEW YORK TRUST CO. et al.
• Court: U.S. District Court — Southern District of New York

75 F. Supp. 583

UNITED STATES v. NEW YORK TRUST CO. et al.

Nos. L59-81, L68-266.

District Court, S. D. New York.

February 4, 1946.

John F. X. McGohey, U. S. Atty. for the Southern Dist. of New York, of New York City (Francis M. Shea, Asst. Atty. Gen., and John F. Sonnett, Acting Head, Claims Division, and Paul A. Sweeney, Atty. Dept. of Justice, both of Washington, D. C., Daniel M. Sandomire, Alexander N. Sack, Howard N. Meyer and Lester S. Jayson, Sp. Attys., Dept. of Justice, all of New York City, of counsel), for plaintiff.

White & Case, of New York City (Chester Bordeau, of New York City, of counsel), for defendant, New York Trust Co.

Morris F. Goldstein, of New York City (Abraham P. Insel, of New York City, of counsel), for impleaded defendant Radin.

Samson Selig, of New York City, for impleaded defendants Gordon and Quinn.

LEIBELL, District Judge.

This is another case involving claims to funds deposited with a New York bank by a Russian corporation, which was later nationalized by the Soviet government. Most of the facts have been stipulated.

Two actions were brought by the United States government against the New York Trust Company. In one action (L 59-81) commenced September 21, 1934, the government claimed the balances standing to the credit of Vladikavkazsky Railway Company on the books of the New York Trust Company in two accounts, $46,584.18 and $11,680. In the second action (L 68-266) commenced November 4, 1937, the government claimed from the New York Trust Company a balance of $20,494.92 standing to the credit of Vladikavkazsky Railway Company. The Trust Company answered claiming a set-off or counterclaim and impleaded three claimants, Gordon, Radin, and Quinn the Receiver. Gordon and Quinn filed answers which set forth their claims. Radin defaulted but at the trial was permitted to answer and participate as a litigant. Radin's answer was similar to Gordon's and set forth the factual basis of Radin's claims. Replies filed by the United States and the New York Trust Company challenged the legal sufficiency of the Gordon, Radin and Quinn claims.

The defendant, New York Trust Company, on May 12, 1937, deposited with the Clerk of this Court the balances in the said three accounts, totalling $78,759.10, which stood to the credit of the Vladikavkazsky Railway Company on the books of the trust company in 1927, when they were transferred to a reserve account. The two actions were consolidated for trial by an order dated March 3, 1938. On stipulation of the parties, except Radin, an order was entered July 15, 1938, that all claims against the New York Trust Company with respect to the three accounts be satisfied out of the fund deposited with the Clerk, without prejudice to claims for further principal or interest. But at the trial the correction of the principal amount was conceded and claims of interest were waived.

The United States government claims these funds under the Litvinov assignment of November 16, 1933. Guaranty Trust Co. v. United States, 304 U.S. 126, 58 S.Ct. 785, 82 L.Ed. 1224; United States v. Pink, 315 U.S. 203, 225, 67 S.Ct. 552, 86 L.Ed. 796. The New York Trust Company claims them by way of set-off against $565,000 principal amount of Russian (Provisional) Government 5% Treasury notes, purchased by the Trust Company on January 27, 1925 and April 6, 1925, from New York banking and brokerage houses for a total cost of $57,206.25. These notes had been issued by the Russian (Provisional) Government dated as of May 1, 1917 and were payable at the National City Bank of New York. They were declared annulled by the Soviet Government on January 21, 1918.

Impleaded defendants Radin and Gordon made their demands upon the balances of the Vladikavkazsky Railway Company, held by the New York Trust Company, through warrants of attachment issued out of the New York Supreme Court on March 17, 1934 and August 25, 1934, for $3,758 and $142,294.31 respectively. The claims are based on bonds of the Railway Company and the former Russian Government's guarantee of the bond interest. Impleaded defendant Quinn made his demands upon the same funds, as temporary receiver of the Railway Company's assets in New York, having been appointed by the New York State Supreme Court July 21, 1936 under Civil Practice Act, § 977-b, in an action instituted by Gordon.

I have reached the conclusion that the United States of America is entitled to these funds.

Discussion.

By the nationalization decree of June 28, 1918 the Russian Socialist Federated Soviet Republic (at that time not recognized by the Government of the United States) declared all the property of private railway companies to be "the property of the Russian Socialist Federated Soviet Republic". The Soviet Commissariat of Justice has the power to interpret existing Russian law. It was so held in United States v. Pink, 315 U.S. 203, 62 S. Ct. 552, 86 L.Ed. 796. Mr. Justice Douglas, in his opinion stated (315 U.S. at page 220, 62 S.Ct. at page 560, 86 L.Ed. 796): "The referee in the Moscow case found, and the evidence supported his finding, that the Commissariat for Justice has power to interpret existing Russian law. That being true this official declaration is conclusive so far as the intended extraterritorial effect of the Russian decree is concerned".

The Commissariat of Justice on April 18, 1924 issued the following interpretation of the nationalization decree of June 28, 1918. "According to the meaning of the decree of SNK (Council of People's Commissars) of June 28, 1918 (Collection of Laws, No. 47, Section 559) the assets of former private enterprises, which had passed into the ownership of the State, must be considered nationalized, even if they had been placed abroad. This follows from the first part of the decree of June 28, 1918. `To declare industrial and commercial-industrial enterprises with all their assets and properties, of whatever such may consist, the property of the Russian Socialist Federated Soviet Republic.' No exception is made in this decree for assets placed abroad. Therefore, there is no basis not to consider these assets, as well, nationalized."

Additional interpretations issued by the Commissariat of Justice on August 9 and November 28, 1937, reaffirm the above quoted interpretation of the scope of the nationalization decree. Any other interpretation is unwarranted. As Judge Rifkind stated, in Steingut v. Guaranty Trust Co. (United States v. Guaranty Trust Co.,) D.C., 58 F.Supp. 623, 632: "To deny the Russian decree an intention to reach extra-territorial assets is to ascribe to the Russian law makers a purpose to bestow those assets upon anyone except Russians. That is a construction which is hardly to be favored".

At the time the nationalization decree of June 28, 1918 was issued, the Soviet government was not officially recognized by the Government of the United States, but the subsequent recognition of the Soviet government on November 16, 1933, had a retroactive effect upon such decrees of the Soviet government, rendering them valid from the time of issuance.

In United States v. Belmont, 301 U.S. 324, 330, 57 S.Ct. 758, 760, 81 L.Ed. 1134, the Court stated: "We take judicial notice of the fact that coincident with the assignment set forth in the complaint, the President recognized the Soviet government, and normal diplomatic relations were established between that government and the government of the United States, followed by an exchange of ambassadors. The effect of this was to validate, so far as this country is concerned, all acts of the Soviet government here involved from the commencement of its existence. The recognition, establishment of diplomatic relations, the assignment, and agreements with respect thereto, were all parts of one transaction, resulting in an international compact between the two governments. That the negotiations, acceptance of the assignment and agreements and understandings in respect thereof were within the competence of the President may not be doubted". See, also, United States v. Pink, 315 U.S. 203 at page 223, 62 S.Ct. 552, at page 562, 86 L.Ed. 796.

Title to the funds in question, originally belonging to the Railway Company, passed by virtue of the nationalization decree of June 28, 1918 to the Soviet Government, and then to the Government of the United States under the terms of the Litvinov assignment of November 16, 1933.

We now come to a determination of the claimed right of New York Trust Company to set-off against the claim of the United States Government (as assignee of the Soviet Government) the amount due on the 5% Treasury notes of a pre-Soviet Russian Government, purchased by the New York Trust Company in January 1925. The Litvinov Assignment of November 16, 1933 passed no greater rights to the United States Government than were held by the Soviet Government at the time of the assignment; the position of the assignee is no stronger than that of its assignor. "For the United States acquired under the Litvinov Assignment only such rights as Russia had. Guaranty Trust Co. v. United States, 304 U.S. 126, 143, 58 S.Ct. 165, 793, 82 L.Ed. 1224". United States v. Pink, 315 U.S. 203, 217, 62 S.Ct. 552, 559, 86 L. Ed. 796. In deciding the merits of the Trust Company's claim to the funds, we must consider the Trust Company's rights against the Soviet Union, prior to the Litvinov Assignment.

Let us assume that instead of assigning its claim to the United States Government on November 16, 1933, the Soviet Government on that date instituted a suit in this Court against the New York Trust Company for the $78,759 standing to the credit of Vladikavkazsky Railway Company on the books of the Trust Company. The Soviet Government's title to those deposits would be good, according to United States v. Belmont, supra. In such a suit the Trust Company could not have set-off any claim based on the $565,000 principal amount of 5% notes issued by the Russian (Provisional)...