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Smythe v. Chase National Bank of City of New York

June 20, 1961

R. M. SMYTHE & CO., INC., PLAINTIFF-APPELLANT,
v.
CHASE NATIONAL BANK OF CITY OF NEW YORK, AS TRUSTEE, ETC., AND OTHERS, DEFENDANTS-APPELLEES. PEOPLE OF THE STATE OF NEW YORK, APPELLEE-APPELLANT, V. EUGENE H. NICKERSON AND ABRAHAM J. GELLINOFF AS SPECIAL GUARDIANS, APPELLEES. BARBARA R. MANDELBAUM AND FEDERAL REPUBLIC OF GERMANY, APPELLANTS, V. CHASE NATIONAL BANK OF CITY OF NEW YORK AS TRUSTEE, ETC., APPELLEES.



Author: Anderson

Before CLARK and WATERMAN, Circuit Judges, and ANDERSON, District Judge.

ANDERSON, District Judge.

This action, which was commenced on April 14, 1954, asks for a declaratory judgment to determine what should be done with a fund of $21,649.65, which is the unclaimed balance left over after seven separate distributions made between 1918 and 1925 by the Trustee for bondholders of the Western Pacific Railway Company under a trust agreement dated September 1, 1903, between the Railway and a predecessor of the present Trustee. The State of New York filed a cross-claim. The plaintiffs moved to dismiss the cross-claim and the State of New York moved to dismiss the amended complaint and asked for summary judgment on its cross-claim.

This case has been before this court twice before.*fn1 On the first appeal this court decided that, as jurisdiction rested upon diversity, the distribution of the fund should be governed by New York law, and that the funds were not payable to the bondholders as a class, as the plaintiffs claimed and as the District Court held,*fn2 but rather to each severally, in proportion to his holding, and that, therefore, the amounts due to the unknown bondholders, for whom the $21,649.65, was being held, should not be divided among the known bondholders.

Prior to the first appeal and while the case was pending in the District Court, the State of New York intervened to claim that the fund in question belonged to the State of New York under the New York Abandoned Property Law, because no claim had been presented on behalf of the unknown bondholders for the fifteen years following the seventh distribution by the Trustee on June 30, 1925. The District Court did not pass upon this claim, which it considered moot because it then held the view, reversed on appeal, that the known bondholders were entitled to have distributed to them the fund held for the unknown bondholders. 136 F.Supp. at page 88. In deciding the appeal we said, "Since no motion for summary judgment was made by the State of New York, and since we may not consider the merits of the claim of bona vacantia on the present record, the cross-claim is remanded to the District Court to be disposed of in due course. We express no opinion on whether New York has a claim upon which relief can be granted or whether the District Court has jurisdiction to entertain the claim." 233 F.2d at page 471. We directed that "on remand the trial court should also determine what further efforts should be made to locate the missing bondholders." Ibid.

Upon remand of the case, the District Court entered judgment dismissing the plaintiffs' complaint and the claims of the other known bondholders. The case then came before this court for a second time on the appeal from the judgment of dismissal. This court then stated that in its decision on the first appeal it did not intend to preclude the claimants from "proceeding upon some new theory based upon new facts other than those considered in the claim we rejected; nor did we intend to prejudge any application for leave to serve an amended complaint." 242 F.2d at page 149. Thereupon the case was again remanded for the District Court to determine "all issues raised by the pleadings, other than the claim we have already rejected * * *." Ibid.

The decision in this second appeal was made on March 12, 1957 and on October 12, 1957 the plaintiffs filed their amended complaint, presently before the court, in which they claim to have alleged "new facts" and the adoption of a "new theory" of procedure. The plaintiffs' claims of "new facts" and "new theory" are based upon two sets of allegations. The first is that, since this court's decision on the first appeal, the discovery has been made that twenty of the bonds are held by the Federal Republic of Germany; and that they were acquired by the German government in 1918. The plaintiffs assert that because Germany became an enemy of the United States Government, its ownership of these bonds became invalid and the portion of the fund allocable to these twenty bonds was, therefore, available for distribution among the known bondholders. The plaintiffs' second basis for their claim is that a substantial number of the beneficiaries of the trust, although fully notified of their right to a share in the distribution, had "disclaimed their interest in some or all of the distribution made by the Trustee and that the amount which otherwise would have been distributed to them should be distributed among the known bondholders."

On remand following the second appeal to this court, the District Court, therefore, had before it these questions:

1. whether the plaintiffs in their amended complaint alleged "new facts" and a "new theory" of procedure;

2. what further efforts should be made to locate missing bondholders;

3. whether the District Court had jurisdiction to entertain the claim of the State of New York under its Abandoned Property Law, and if so,

4. whether the undisputed material facts brought the case within the terms of the Abandoned Property Law of New York.

The trial court decided that the alleged "new facts" and "new theory" were not "new" within the meaning and intention of our decision on the second appeal and were indistinguishable from the claims presented in the original complaint which we dismissed;*fn3 and we agree. Acquisition of some of the bonds by an alien enemy does not, ipso facto, terminate the obligations of the debtor corporation to recognize the bonds as valid and outstanding. The Trading With the Enemy Act, as amended, 40 Stat. 1020 (No. 4, 1918), 50 U.S.C.A. Appendix, ยงยง 1-40, makes no provisions for such automatic termination but provides for a seizing and vesting procedure by the Alien Property Custodian. It is undisputed that no such action was taken with regard to these bonds and there is nothing before this court to show that they were not outstanding and valid.

The other basis for the claims of new facts and new theory is likewise untenable. Even if certain bondholders expressly or by implication can be held to have renounced their claims, the portion of the fund which otherwise would have been distributed to them would not in any event be distributed among the known bondholders. This was explicitly held in our decision on the first appeal. The nature and extent of the interests of the bondholders, both known and unknown, are not, for the purposes of this case, ...


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