The opinion of the court was delivered by: GODDARD
This is a replevin action brought by the State of The Netherlands to recover four bearer bonds issued by United States corporations and now held by the defendant, the Federal Reserve Bank of New York. This action was commenced in the Supreme Court of the State of New York and later removed to this court by the defendant, with the consent of the plaintiff. The defendant, claiming no title to these securities, and merely a stakeholder herein, interpleaded one Verdun J. Archimedes, who is turn answered and counterclaimed, asserting title to the bonds.
On May 10, 1940, the German Army invaded The Netherlands. On May 13, 1940, Queen Wilhelmina and her government moved to England. The Netherlands armed forces surrendered on May 14, 1940. The United States recognized this government-in-exile as the government of the Kingdom of The Netherlands.
The four bonds were owned on and prior to May 24, 1940 by four Netherlands domiciliaries. On that date the government of The Netherlands issued Royal Decree A-1. According to the allegations of the plaintiff, this decree vested protective title in the State of The Netherlands to all securities belonging to natural or legal persons domiciled in the Kingdom of The Netherlands for the purpose of conserving the rights of the former owners.
On May 18, 1940, Hitler promulgated occupation Decree No. 1 which placed the occupied Netherlands under the civil authority of the 'Reichskommissar' who was immediately subordinated to Hitler and who was given full authority to legislate by personal ordinance.
On June 24, 1940, an enemy property ordinance (No. 26/40 ) was promulgated by the Reichskommissar. This ordinance provided for the appointment of 'administrators' of enterprises which were 'either mediately or immediately under predominant enemy control.' A decree (No. 4 8/41 ) entitled 'Ordinance for the Elimination of Jews from Economic Life' was promulgated by the Reichskommissar on March 12, 1941. All existing powers of owners, managers or representatives of Jewish enterprises were suspended by this decree.
Under these two ordinances, on May 3, 1941, a German citizen, one Alfred Flesche, was designated as 'administrator' of the firm of Lippmann Rosenthal & Co., one of the leading banking partnerships of The Netherlands, with almost absolute powers of ownership under the supervision of the Reichskommissar.
On August 8, 1941, the Reichskommissar promulgated Ordinance No. 14 8/41 which compelled the Jewish residents of The Netherlands to deposit all negotiable assets, including cash and securities, with Lippmann Rosenthal & Co., Sarphatistraat (hereinafter referred to as LIRO), an office set up by the Germans authorities that used the name of the famous Netherlands banking firm. Since the four bearer bonds that are the subject of this action were owned by Jewish nationals of The Netherlands at the time of the German invasion, they were among the negotiable assets turned over to LIRO.
On November 21, 1942, the Reichskommissar ordered the merger of all individual accounts into one collective account as of January 1, 1943. Thereafter no records were kept of property due to any particular persons.
Two of the four bonds in question were transferred from LIRO to Vermogensverwaltungs und Renten Anstalt, a German foundation established as a collecting source for liquidated Jewish capital, and the other two were transferred to Der Lieter der Deutschen Dienstpast in den Besetzten Niederlandischen Gebeiten, the German Postal Service for the Occupied Netherlands.
In the latter part of 1943 the securities 'deposited' by the Jewish Nationals, including the four bonds, were sold in the black market in Paris by an agent of the German Government and the proceeds were credited to the account of Beauftragte bie der Niederlandischen Bank (German Representative with The Netherlands Bank).
The four bonds subsequently were acquired by a Swiss firm known as Arbitrium. In October, 1946, while in Switzerland, the interpleaded defendant, Archimedes, purchased from Arbitrium at a discount some securities issued by United States corporations. They were sent to him at his residence in San Francisco. He disposed of them through San Francisco brokerage firms.
The following January, Arbitrium cabled him that it had some similar securities for sale. He left the United States, went to Switzerland, and again made a purchase, one larger than the first, including the four bonds now in question. At his request, they too were mailed to him in the United States.
In February, 1947, he acquired a third (and still larger) group of securities from Arbitrium.
In March of that year, as he was preparing to leave for Switzerland to make a fourth purchase, our government learned of his activities. He was apprehended and indicted for violation of United States foreign funds control regulations in that he did not declare the importation of foreign purchased securities and in that he did not file and deposit them with the Federal Reserve Bank in accordance with General Ruling No. 5, 5 F.R. 2159, as amended, 8 C.F.R. 511.205. He then deposited the securities still in his control, including the four bonds here involved, with the Federal Reserve Bank as required by the above law. This action followed.
The plaintiff contends (1) that United States freezing control legislation and regulations absolutely prevented the interpleaded defendant from acquiring title to the four bonds; (2) that, even if this legislation does not apply, the interpleaded defendant is not a holder in due course and consequently has no title to the above securities which the plaintiff alleges were illegally taken by LIRO; (3) that, since the plaintiff has legal title by virtue of the Royal Decree A-1 of May 24, 1940, enacted by the Royal Netherlands Government-in-exile in London and promulgated by Queen Wilhelmina, the plaintiff should be awarded immediate possession of the securities.
The interpleaded defendant asserts that neither the Royal Netherlands Decree A-1 nor the United States freezing control legislation applies to this case and that he is a holder in due course of negotiable instruments and consequently he is the present holder of the legal title and is entitled to immediate possession of the securities.
The Royal Netherlands Decree A-1 promulgated on May 24, 1940, provides in part as follows:
'1) Title to claims against persons, partnerships, companies, corporations, firms, institutions and public bodies, which claims belong to natural or legal persons domiciled in the Kingdom of the Netherlands, * * * in so far as these claims are in any form whatsoever capable of being encumbered, pledged, transferred or sold or the like, outside of the Realm in Europe, is hereby vested in the State of the Netherlands, as represented by the Royal Netherlands Government, temporarily resident in London and exercising its functions there * * *'.
'3) The proprietary rights vested in the State of the Netherlands, by virtue of the provisions of the preceding paragraphs, shall only be exercised for the conservation of the rights of the former owners.'
The testimony is that the decree purported to vest in the State of The Netherlands protective title to all claims belonging to Netherlands domiciliaries that were capable of being transferred outside the nation's realm in Europe.
In 1942, the New York Court of Appeals had occasion to consider Royal Decree A-1 when property, located in New York and owned by the Netherlands residents, was attached for the benefit of a non-resident alien. Anderson v. N. V. Transandine, etc., 1942, 289 N.Y. 9, 43 N.E.2d 502. The decree was given effect by the New York Court, with the result that the attachment was vacated at the instance of The Netherlands government. The court reasoned that the decree was not confiscatory; rather, it was meant to conserve the assets of Netherlands nationals and was in keeping with New York public policy because designed, in part, to prevent such property from falling into the hands of what was then a common enemy of The Netherlands and the United States for use in prosecuting the war. Similarly, during the war, an English Court gave recognition to a decree of the Norwegian government in exile which vested in the absent Norwegian Sovereign title to ships located outside Norway, and belonging to nationals inside the occupied country. Lorentzen v. Lydden & Co., Ltd., (1942) 2 K.B. 202.
Changed circumstances, and different facts, require that the application of the Anderson case to the present situation be closely scrutinized. But see State of The Netherlands v. Federal Reserve Bank of New York, D.C.S.D.N.Y., 1948, 79 F.Supp. 966. The bonds, in the case at bar, were located within Netherlands territory that was under military occupation by Germany at the time Decree A-1 was enacted. In the Anderson case, the disputed property was at all material times situated within the United States.
Royal Decree A-1, when promulgated by The Netherlands Government-in-exile, in reality was dependent for its enforcement upon the cooperation of other sovereigns. In Anglo-American law there is a reluctance to give extra-territorial effect to foreign legislation. However, by the time the issue of the enforcement of the decree was determined by the highest New York court, the United States had become an ally of The Netherlands and, for the reasons previously stated, the decree of that country quite naturally was acceptable to the court.
Furthermore, from the standpoint of international law theory, The Netherlands Government-in-exile had the status to legislate in connection with assets of its nationals situated in foreign countries whether or not such countries chose to apply the law within their respective jurisdiction. Military occupation by a belligerent enemy does not transfer sovereignty over the occupied territory to that enemy, but confers only quite limited authority to regulate the area. Oppenheimer, Governments and Authorities in Exile, 36 Am.J.of International Law 568, 571 (1942); VI Hackworth, Digest of International Law, P. 385, 391 et seq. (1943); Article 43, annex to the Fourth Hague Convention, 1907, 36 Stat. 2277, 2306.
The absent sovereign remains the de jure government of the country. Recognition as such by the United States and other nations served only to confirm this principle. (Oppenheimer, supra, . 571; 6 Modern Law Review 208 (1943), but did not necessarily commit them to the acceptance of acts that would not be in accord with the authority of an absent sovereign. Thus, the mere fact that our government recognized The Netherlands Government-in-exile would not confer upon The Netherlands Government-in-exile jurisdiction which did not exist.
In legislating upon the subject of assets of Netherlands domiciliaries located outside the occupied territory, the government-in-exile was performing functions consistent with its then status. As the sovereign, it could endeavor to preserve the interest of its nationals in properties situated beyond enemy control, especially when those residing within the occupied territory might find themselves powerless to protect those interests. In addition, as a belligerent antagonist it endeavored to keep properties which were beyond the territorial reach of the occupying power from, in some way, being applied for the enemy's benefit.
However, it does not follow that the same criteria apply when the legislation concerns assets within the confines of the occupied territory. Though remaining the sovereign, the absent government may, nevertheless, be limited in its further authority to govern the subjugated areas. Cf. 3 Hyde, International Law Chiefly as Interpreted and Applied by the United States, . 1886 (2nd Rev. Ed., 1945.
There is only meagre authority and commentary upon the power of the absent sovereign. In general, the view most prevalent prior to World War II, and influenced by decisions and practices stemming from World War I occurrences, considered the acts of the de jure governments as having, of themselves, no force and effect in occupied territory. Occupation of Cavalla Case, 1920-30 Ann. Digest No. 292, p. 496 (Greece, Court of Thrace, 1930). The available evidence indicates that this doctrine was a part of Anglo-American and Germany jurisprudence. Stein, Law of Belligerent Occupation, 46 Mich.LawRev. 341, 351-58 (1948).
The Belgian authorities have diverged somewhat from this theory asserting that the absent sovereign retained his legislative powers over the occupied territory. But the doctrine was largely an outgrowth of decisions of Belgian tribunals passing upon the effect of decrees of the absent Belgian sovereign after Belgian territory was restored at the conclusion of World War I. Stein, supra, p. 358-69; Feilchenfeld, the International Economic Law of Belligerent Occupation, p. 136-39 (1942). But see, VI Hackworth's Digest, p. 398. Even the Belgian theory recognized that hostile measures, aimed at combatting the occupant and hampering his rule, were not applicable in those regions occupied by the enemy. DeNimal v. DeNimal, Ann. Dig. 1919-1922, No. 311, p. 447; Stein, supra. p. 360. Apparently, The Netherlands jurisprudence accepted at least this much, and may even have embraced the Anglo-American view. Feilschen eld, supra, p. 141.
The decree in question was not a neutral edict. If effective as designed, it would have seriously impaired the negotiability of the bonds in question as well as all other transferable claims. It would have disturbed the commercial life of the occupied community, and cast uncertainty upon numerous normal business and security transactions. Its aim was avowedly partisan- to hinder the use of the assets of Netherlands domiciliaries by the enemy, and it did not specify or distinguish between assets secured by the enemy through legitimate or illegitimate means. Being an instrument of economic warfare, it would not be, and was not, implemented by the occupying authority so as to affect assets within its territorial control.
An examination of the development of the American attitude towards belligerent occupations discloses that it was at least originally considered that conquest suspended the sovereignty of the former possessor in favor of the enemy occupant. United States v. Rice, 1819, 4 Wheat. 246, 254, 4 L. Ed. 562; cf. Thirty Hogsheads of Sugar v. Boyle, 1815, 9 Cranch 191, 3 L. Ed. 701. The Rice case has special weight inasmuch as it was United States Territory that had been seized, and the Supreme Court held that this country's tariff laws did not apply therein. In Coleman v. State of Tennessee, 1879, 97 U.S. 509, 517, 24 L. Ed.1118 the court recognized that under military occupation 'the political relations between the people of the hostile country and their former government or sovereign are for the time severed.' However, 'the municipal laws * * * remain in force, so far as they affect the inhabitants of the country among themselves, unless suspended or superseded by the conqueror.'
Since ratification of the Hague Regulations respecting land warfare, it is no longer understood that military occupation effecting a transfer of sovereignty. 36 Stat. 2277, et seq.; See, especially Article 43, annex to Fourth Hague ...