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ROGERS v. SMITH

June 14, 1960

WILLIAM P. ROGERS, ATTORNEY GENERAL OF THE UNITED STATES, AS SUCCESSOR TO THE ALIEN PROPERTY CUSTODIAN, PLAINTIFF,
v.
ELBERT S. SMITH, AUDITOR OF PUBLIC ACCOUNTS, STATE OF ILLINOIS AND JOSEPH D. LOHMAN, STATE TREASURER OF THE STATE OF ILLINOIS, DEFENDANTS.



The opinion of the court was delivered by: Poos, District Judge.

This is a proceeding filed by William P. Rogers, Attorney General of the United States as successor to the Alien Property Custodian, by virtue of the Executive Order No. 9788, published in 11 F.R. 11981 dated October 14, 1946, 50 U.S.C.A. Appendix, § 6 note, invoking the jurisdiction of this Court under Section 17 of the Trading with the Enemy Act as amended (40 Stat. 425, 50 U.S.C.A.Appendix, § 17) and 28 U.S.C.A. § 1345. The defendant, Elbert S. Smith, is the auditor of Public Accounts in the State of Illinois and the defendant, Joseph D. Lohman is the State Treasurer of the State of Illinois. The State of Illinois issued State of Illinois Service Compensation bonds in the amount of $1,000 each dated January 1, 1924, due August 1, 1942, numbered 12926, 12937/45 inclusive, 13628/32 inclusive, and 13876/85 inclusive, bearing interest at the rate of 4 3/4% per annum payable semiannually. By Vesting Order No. 14772 executed June 20, 1950, filed with the Federal Register July 10, 1950 and published in 15 F.R. 4388, dated July 11, 1950 as amended by an amendment issued May 25, 1956, filed with the Federal Register May 31, 1956 and published in 21 F.R. 3734 dated June 1, 1956, the then Attorney General of the United States, predecessor to the plaintiff herein, vested the debts or other obligations evidenced by the bonds described above and the debts or other obligations evidenced by the coupons attached to or detached from said bonds having due dates on or after August 1, 1940, and thereafter demanded payment thereof from the defendants. The defendants and their predecessors in office paid to the Attorney General of the United States the debts evidenced by the bonds above described but for the reason that the coupons appurtenant to said bonds were not annexed thereto and were not presented for payment to them, the defendants have refused payment to the plaintiff of the debts evidenced by these coupons. The defendants contend that the coupons representing the vested debts are bearer instruments, the title to which was in the person who possessed them; that the payment of said debts is conditioned upon the presentation of the coupons evidencing such debts, and that if payment was made to the plaintiff and the coupons were thereafter presented for payment to defendants by persons other than the plaintiff, the defendants might by reason thereof, be held liable therefor. The plaintiff contends that the debts represented by the coupons appurtenant to said bonds, which neither the plaintiff nor his predecessor have ever found or possessed, are the property of the United States and that if payment of said coupons is made to plaintiff pursuant to the terms of the vesting order, then the defendants are amply protected against double liability by the provisions of Section 5(b)(2) and Section 7(e) of the Trading with the Enemy Act as amended, 50 U.S.C.A.Appendix, §§ 5(b)(2), 7(e). These Sections of the Trading with the Enemy Act read as follows:

Section 5(b)(2) of the Trading with the Enemy Act, as amended, provides:

    "(2) Any payment, conveyance, transfer,
  assignment, or delivery of property or interest
  therein made to or for the account of the United
  States, or as otherwise directed, pursuant to this
  subdivision or any rule, regulation, instruction,
  or direction issued hereunder shall to the extent
  thereof be a full acquittance and discharge for
  all purposes of the obligation of the person
  making the same; and no person shall be held
  liable in any court for or in respect to anything
  done or omitted in good faith in connection with
  the administration of, or in pursuance of and in
  reliance on, this subdivision, or any rule,
  regulation, instruction, or direction issued
  hereunder."

Section 7(e) of the Trading with the Enemy Act, as amended, provides:

    "(e) No person shall be held liable in any court
  for or in respect to anything done or omitted in
  pursuance of any order, rule, or regulation made
  by the President under the authority of this Act.
    "Any payment, conveyance, transfer, assignment,
  or delivery of money or property made to the alien
  property custodian hereunder shall be a full
  acquittance and discharge for all purposes of the
  obligation of the person making the same to the
  extent of same. The alien property custodian and
  such other persons as the President may appoint
  shall have power to execute, acknowledge, and
  deliver any such instrument or instruments as may
  be necessary or proper to evidence upon the record
  or otherwise such acquittance and discharge, and
  shall, in case of payment to the alien property
  custodian of any debt or obligation owed to an
  enemy or ally of enemy, deliver up any notes,
  bonds, or other evidences of indebtedness or
  obligation, or any security therefor in which such
  enemy or ally of enemy had any right or interest
  that may have come into the possession of the
  alien property custodian, with like effect as if
  he or they, respectively, were duly appointed by
  the enemy or ally of enemy, creditor, or
  obligee. * * *."

The value of the debts represented by the coupons concerned is $3,562.50 and the plaintiff prays that the defendants who were charged with the responsibility of paying the debts of the State of Illinois, issue warrants according to the laws of the State of Illinois to discharge such debts.

The question presented in this cause is whether the provisions of the Trading with the Enemy Act which authorized the vesting by the President or his delegate of "any property or interest" including "choses in action, and rights and claims of every character and description," confer on the Attorney General as custodian, the right to seize, enforce, and obtain payment of an obligation of an American obligor evidenced by coupons from negotiable bearer of bonds which coupons have not come into the custodian's possession.

Unquestionably, the Act authorizes the seizure of "debts," as evidenced by bearer bonds. Cities Service Co. v. McGrath, supra. Cf. McGrath v. Manufacturers Trust Co., 338 U.S. 241, 246, 70 S.Ct. 4, 94 L.Ed. 31; Propper v. Clark, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480. As the Supreme Court of the United States said in Cities Service Co. v. McGrath, supra, 342 U.S. at page 333, 72 S.Ct. at page 336:

    "We believe that the Trading with the Enemy Act
  grants the authority necessary to vest obligations
  evidenced by domestic negotiable bearer debentures
  even though the debentures themselves are outside
  the United States. By § 7(c) of the Act, enacted
  during World War I, the President is given the
  authority to seize all enemy property,
  `including * * * choses in action, and rights and
  claims of every character and description owing or
  belonging to * * * an enemy * * *.' At the
  beginning of World War II, Congress made an even
  broader grant of authority to the Executive through
  an amendment to § 5(b), providing that `any
  property or interest of any foreign country or
  national thereof shall vest, when, as, and upon the
  terms, directed by the President * * *.' [citing
  cases]. That the obligations represented by
  negotiable bearer debentures come within these
  broad terms is beyond question."

The Custodian therefore has the power to seize a debt represented by a bearer debenture. It follows that he likewise has the power to seize the debt represented by a coupon even if detached from a bearer bond.

The recent history of Section 5(b) likewise shows an intention to cover bonds, particularly bonds which might otherwise be negotiated abroad. Following the Nazi invasion of Denmark and Norway in April 1940, the President, declaring a national emergency, issued Executive Order No. 8389 (5 F.R. 1400, April 10, 1940), 12 U.S.C.A. § 95a note, under the authority of Section 5(b) as amended by the Emergency Banking Act of March 9, 1933 (48 Stat. 1). The Order subjected to licensing controls transactions involving funds in which nationals of the invaded countries had any interest, thereby preventing the Axis from swallowing the American assets of such nationals. Certificates of stocks and bonds of American corporations, physically located in the invaded countries, constituted a particularly vulnerable class of property. In order to dispel any doubts regarding the application of Section 5(b) to property in such form, the section was amended by the Joint Resolution of May 7, 1940 (54 Stat. 179) to include expressly "any evidences of indebtedness or * * * of ownership of property."

When Congress enacted this Joint Resolution of May 7, 1940, it ratified the freeze order which had already been promulgated by the President (Executive Order No. 8389, April 10, 1940, 5 F.R. 1400) and the Treasury regulations implementing that Order (31 C.F.R. § 1943 Cum.Supp. Sec. 130). Those regulations defined "property" to include "any debts, indebtedness or obligations, * * * notes, debentures, stocks, bonds, * * * any other evidences of title, ownership or indebtedness, * * * negotiable instruments" (idem. Sec. 130.2(c)). They required reports of "all [foreign-owned] property subject to the jurisdiction of the United States" and specifically the reporting by every domestic corporation "with respect to any shares of its ...


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