Orvis v. Brownell/Opinion of the Court

This suit, under § 9(a) of the Trading with the Enemy Act, asks a decree that petitioners have an interest in vested property of Japanese nationals in the hands of the Alien Property Custodian, that he holds the property subject to petitioners' attachment lien and must satisfy their judgment. The controlling facts are not in controversy. The Japanese nationals involved were indebted to petitioners, while a third party, Anderson, Clayton & Co., was indebted to those Japanese. On June 14, 1941, Executive Order No. 8389, 12 U.S.C.A. § 95a note, became effective as to Japan, and it blocked all transfers of evidences of debt or interests in property of Japanese citizens. Thereafter, petitioners commenced suit against the Japanese debtors in a New York state court, and, without obtaining a license therefor, attached the Anderson, Clayton & Co. credit on June 25, 1943. Judgment was obtained, whereupon petitioners applied for a federal license to permit Anderson, Clayton & Co. to pay it. The application was refused.

Meanwhile, on June 27, 1947, the Custodian vested the Anderson, Clayton & Co. credit by a res vesting order and it was paid over to the Custodian. Petitioners filed notice of their present claim under § 9(a) of the Act for return of an interest in vested property, which was treated as another application for a retroactive license. The claim was dismissed insofar as it was a claim under § 9(a), based on interest in property, but was left and still is pending as a claim for payment of a debt under § 34 of the Act.

The difference between what was denied and what was left pending is important, for if the attachment and judgment create an interest in the property which can be retrieved from the Custodian under § 9(a), the judgment will be paid in full. On the other hand, if it is only an allowable debt under § 34, unless granted a priority it apparently will be paid only in part, since it appears that claims against the Japanese nationals considerably exceed the funds in the Custodian's hands.

Both parties moved for judgment on the pleadings. The District Court granted petitioners' motion and denied that of the respondent. The Court of Appeals reversed. We granted certiorari.

The petitioning judgment creditors here are in the same position as were those in the declaratory judgment action of Zittman v. McGrath, 341 U.S. 446, 71 S.Ct. 832, 95 L.Ed. 1096, in that they have judgments and attachment liens valid under New York law as against their enemy national debtors and as against those whose credits were attached. In the first Zittman case, we held that the executive freezing order did not prevent such an attachment from creating rights between the judgment creditor and the enemy debtor whom the Custodian had elected to succeed. In the second Zittman case, however, we held that where the Custodian elected to vest the res for administration purposes he was entitled to possession, even as against such an attaching creditor whose lien would have been valid under New York law. We are now called upon to decide a question not presented by these earlier cases: whether the freezing order prevented a creditor from thereafter acquiring by attachment an 'interest, right, or title' in property such as will support a claim against the Custodian under § 9(a) of the Act. We hold that the freezing order did have such an effect and that, while it recognized attachment liens insofar as they determined relationships between creditor and enemy debtor, it did not permit the transfer of a property interest in the blocked funds which could be asserted against the Custodian.

The order forbids 'transfers of credit' and 'transfers of any evidences of indebtedness or evidences of ownership of property,' and General Ruling No. 12 specifies that this prohibition extends to the creation of a lien. Admittedly, if the Japanese had made a voluntary unlicensed assignment, it could have created no property interest. Admittedly also, if Anderson, Clayton & Co., with or without the consent of its Japanese creditors but without federal license, had paid over the fund to these petitioners, they would obtain no such interest. We cannot doubt that these administrative interpretations apply to the present transaction and that the general assent by the Government to state attachment procedures which we recited in the Zittman opinion did not extend so far as to recognize them as effecting a transfer. To so interpret it would ignore the express conditions on which the consent was extended. Realistically, these reservations deprive the assent of much substance; but that should have been apparent on its face to those who chose to litigate. The opportunity to settle their accounts with the enemy debtor was all that the permission to attach granted.

Petitioners challenge the statutory authorization for such an order. It is argued that the sole purpose of the Trading with the Enemy Act was to prevent transfers under duress of funds credited to residents of occupied countries. Though this was one of the aims of the Act, its language extends the authorization much farther. The validity of the freezing order as an implementation of the Trading with the Enemy Act was sustained in Propper v. Clark, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480, and we adhere to that holding. Petitioners also contend that the Custodian was not given power, similar to that of a bankruptcy court, to 'annul' liens and attachments. But the question is not whether a lien, concededly valid because obtained prior to the freezing order, may be 'annulled' by the Custodian, but rather whether the freezing order prevented the subsequent acquisition, by attachment, of such a property interest as the Custodian would have to recognize under § 9 of the Act. Because of the supremacy of the Federal Government on matters within its competence, the freezing order, while permitting an attachment for jurisdictional and other state law purposes, prevented the subsequent acquisition of a lien which would bind the Custodian under § 9.

Section 34 of the Act provides liquidation procedures by which debt claims may be allowed and priorities established. The petitioners' claim is pending for that purpose. Judicial review is provided. It would be premature to decide how the Custodian must treat this claim in a general accounting and settlement of his trust, since this proceeding seeks only to forestall such settlement of this claim.

The parties are in disagreement as to the course pursued by the Custodian in allowing payment of attachment creditors. In view of the statutory mandate that the assets shall be 'equitably applied by the Custodian in accordance with the provisions of this section', each case, to some extent, may rest on its own facts. We do not find it either necessary or possible to inquire whether other similar claims have been allowed on the grounds mentioned in § 9, and, if so, whether they were properly allowed by the Custodian.

Petitioners by their unlicensed attachment could obtain no 'interest, right, or title' in this fund recoverable against the Custodian. He may proceed to administer the vested assets according to § 34 of the Act and to consider petitioners' claim and is status thereunder, subject to the review therein provided. The suit under § 9(a), however, must fail.

Judgment affirmed.

Mr. Justice CLARK took no part in the consideration or decision of this case.

Mr. Justice DOUGLAS, with whom Mr. Justice FRANKFURTER concurs, dissenting.