Moscow Fire Insurance v. Bank of New York & Trust Co.

Moscow Fire Insurance Company was organized in 1858 as a joint stock fire insurance company under the laws of the Russian Imperial Government. In 1899 it was authorized to transact business in this State in accordance with the provisions of section 27 of the Insurance Law (Cons. Laws, ch. 28). That section provides that “ no insurance corporation organized and existing under the government or laws of any state or country outside of the United States ” shall transact business here unless it “ shall have securities or other property within the United States, deposited with insurance departments or state officers and held in trust by a trustee or trustees, as hereinafter provided, for the protection of all its policy holders and creditors within the United States * * The statute fixes the amount of the securities or other property which must be so deposited or held in trust and further provides that “ for all purposes specified in this chapter, the capital of such a foreign insurance corporation * * * shall be the aggregate value of all securities and other property * * * deposited with insurance departments or state officers and held in trust by a trustee or trustees. * * Moscow Fire Insurance Company complied with all the requirements of the statute and

In December, 1918, the Soviet government promulgated a decree “ declaring all kinds of insurance a state monopoly * * *. All private insurance companies were to be subject to liquidation and became state property.” (Dougherty v. Equitable Life Assur. Society, 266 N. Y. 71 , 82.) Other decrees followed by which the existence of all insurance companies in Russia was terminated, their assets in Russia seized, and their business in Russia became part of a government monopoly. Until 1933 the government of the United States did not accord recognition to the Soviet Republic. The decrees of the Soviet government were, completely effective in Russia, but until recognition the decrees of the government could not be given here the force and effect of mandates of a lawful sovereign. Insurance corporations, organized under the laws of a Russian government which had ceased to exist, continued to transact business here through local agents with local capital, in accordance with the statutes of this State, though, as we have said in other cases, at their own domicile their existence was terminated and their property confiscated by decree of a ;i governmental establishment which actually governs; which is able to enforce its claims by military force and is obeyed by the people over whom it rules.” (Russian Reinsurance Co., v. Stoddard, 240 N. Y. 149 , 158.) Such a corporation was actually and effectively dead in Russia. It was legally dead in countries where the Soviet Republic was recognized, and since recognition " is retroactive in effect and validates all the actions and conduct of the government so recognized from the commencement of its existence ” (Oetjen v. Central Leather Co., 246 U. S. 297 , 303), belated recognition by the United States might change retroactively a being endowed with life into a corpse, The result is a tangle of juristic

In spite of the fact that the existence of Moscow Fire Insurance Company was, in 1918, terminated in Russia, its home, by decree of the Soviet Republic, it continued to transact business here until 1925 through its local or United States branch. Then by order of the Supreme Court of this State the Superintendent of Insurance took possession as liquidator of the assets of that branch (constituting the capital of the United States branch), pursuant to the provisions of section 63 (since repealed, see now § 400 et seq.) of the Insurance Law. These assets consisted of securities deposited with the Insurance Department or held in trust for the policyholders and creditors of the company within the United States, as required by the statute. After the Superintendent of Insurance had paid the domestic policyholders and creditors and also the creditors, whether foreign or domestic, who acquired liens by attachment before liquidation was begun, the Superintendent still had in his possession assets of great value. In Matter of People (Russian Reinsurance Co.) ( 255 N. Y. 415 ) the problem of the disposition that should be made of such surplus assets was presented.

Ordinarily any surplus, remaining after the domestic creditors and policyholders of a foreign insurance company doing business here were paid, would be transmitted to the foreign corporation at its domicile or to the domiciliary liquidator or administrator, if the foreign corporation was in liquidation. (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148 .) The decrees of nationalization and confiscation by the unrecognized governmental establishment then ruling in Russia made that course impossible. (Cf. James & Co. v. Rossia Ins. Co., 247 N. Y. 262 .) Alternative courses were urged upon us. The assets of the

In that case we pointed out that “ in the silence of the statute, a decree instructing the liquidator as to the administration of the surplus must conform to the exactions of equity and justice.” Though “ the Superintendent of Insurance has fulfilled the statutory trust when he has paid the domestic creditors * * * for whom the trust was laid upon him,” yet, so we said “ the surplus must be made available for the payment of creditors and policy holders with claims founded upon foreign business ” and any remainder distributed to those entitled to it, where possible through directors of the corporation. “ The present state of the law in respect of these Russian corporations driven from their domicile and there subjected to decrees of confiscation and extinction has been expounded with a full review of the decisions in a recent judgment of this court (Petro gradsky M. K. Bank v. National City Bank, 253 N. Y. 23 ; cf. Severnoe Securities Corp. v. London & Lancashire Ins. Co., 255 N. Y. 120 ). The ruling was that they were still juristic persons, and that their boards of directors, represented by a quorum, were sti'l competent to act. The doctrine of that decision controls the case at hand ” (pp. 422, 423, 425).

Accordingly the Superintendent of Insurance was directed to pay “ to the corporations, represented by directors, a quorum of the board” (p. 424), the surplus remaining after

The assets of the company were deposited on April 18, 1933, with the Bank of New York and Trust Company as agent or depositary of Moscow Fire Insurance Company and of its sole surviving director and conservator, upon a stipulation that they would not be withdrawn except upon the order of a court of competent jurisdiction. Immediately suits were brought in the Supreme Court of the State to determine the disposition of these assets. These suits were consolidated and referred to a referee to hear and determine. While the issues were pending and undetermined, the United States government on November 16, 1933, recognized the Soviet government and by that act of recognition every decree made by the Soviet government from the time it was established was retroactively given the force and effect which must be accorded to the lawful decrees of a legitimate sovereign. Included were the decrees of 1919 and 1920 by which insurance in Russia became a State monopoly; the existence of private insurance companies terminated and their property appropriated. The Soviet government has not itself taken steps to enforce claims against American nationals. All such claims were assigned to the United States government. (Cf. United States v. Belmont, 301 U. S. 324 .) Asserting its rights under that assignment,

Assignment of the claim of the Soviet government to the United States did not divest the State court of its control of the fund which was deposited with the trust company pursuant to order of the court and which remained subject to its order. The courts of this State continued to exercise exclusive jurisdiction over that fund in the action, then pending, to determine how the fund should be distributed. An independent action brought by the United States in a Federal court against the depositary of the fund was dismissed for that reason, and the United States was relegated, for assertion of its claim, to the “ appropriate forum where the funds are held.” ( United States v. Bank of New York & Trust Co., 296 U. S. 463 , 481.) Then the United States intervened in this action and now appeals from a judgment on the merits dismissing its claim.

The rights of the United States are derived solely from the assignment by the Soviet government of its claims against nationals of the United States. The claims of the Soviet government for the moneys or property, in this country, of Moscow Fire Insurance Company are based solely on its decrees of nationalization of insurance companies and of seizure of their assets. The United States asserts here title to property of a branch in this State of a Russian insurance corporation which it is said was transferred, by force of these decrees, from the insurance corporation to the Russian government. Two questions arise: first, whether the Russian decrees were intended to have such effect, and, second, whether even if so intended the courts of this State will give them their intended effect.

In considering those questions, some general principles must be accepted as established premises. They .are to be found expressed or implicit in the prevailing opinion of this court in Dougherty v. Equitable Life Assurance Society ( 266 N. Y. 71 ) and in the opinions of the Supreme Court of the

Before recognition, while the courts of this country were not yet subject to the rule imposed by comity between independent sovereign States that “ the courts of one [country] will not sit in judgment upon the acts of * * * another, done within its own territory,” there was reluctance, rooted in our age-old common law traditions of ordered liberty, to assume that decrees of the Soviet government which confiscated property without compensation or otherwise exceeded the powers which, in accord with common law principles and traditions, a sovereign might properly exercise, should, after recognition, be treated in full sense as “ law ” even within Russia. Whether doubts, then expressed, or

The United States relies primarily upon three decrees. They are described in the findings of the referee as follows:

“ 88. The decree of November 18, 1919 on the annulment of life insurance contracts abolished insurance of life in all its forms in the Republic and annulled all contracts with insurance companies and savings banks with respect to the insurance of life, capital and income.

“ 89. The decree of the Soviet of People’s Commissars dated March 4, 1919, on the liquidation of obligations of State enterprises, provided that stock certificates and shares of joint stock companies, whose enterprises have been either nationalized or sequestered, are annulled and also provided that such enterprises are free from the payment of all debts to private persons and enterprises which have arisen prior to the nationalization of these enterprises, including payments on bond loans with the exception only of wages due to workers and employees.

“ 90. The decree of the Soviet of People’s Commissars dated June 28,1918 provides in Article I that the commercial and industrial enterprises enumerated therein, which are located within the boundaries of the Soviet Republic, together with all their capital and property, regardless of what the latter may consist, are declared the property of the Republic.”

The opinion of an expert witness on the law of Soviet Russia and interpretative decrees or declarations of Soviet boards or officers, supports the contention of the United States that these decrees were intended to apply to the business of Russian insurance companies not only inside Russia but also without Russia, and to transfer to the Russian government all the property of the insurance companies as the “ indivisible property of the indivisible juristic persons.” In spite of such testimony the referee has found that the decrees were not intended to apply to the property in this State of the United States branch of Moscow Fire Insurance Company. ;

Opinions of expert witnesses will not control the judgment of a judge in regard to foreign law “ except to the extent that it is a reasonable inference from statute or from precedent or from the implications of a legal concept, such as contract or testament or juristic personality. [Citing cases.] Unless it is this, the judge must use his own judgment and find the meaning of the foreign law as he would if the meaning to be ascertained were that of a deed or an agreement. This is as true upon appeal as it is upon a trial. At such times and for such inquiries, opinion has a significance proportioned to the sources that sustain it.” (Petrogradsky M. K. Bank v. National City Bank, 253 N. Y. 23 , 34, opinion by Cabdozo, Ch. J., cited with approval in Dougherty v. Equitable Life Assurance Society, supra.) Tested by that standard, the findings of the referee are fully sustained by the evidence even though no expert witness was produced by the respondents to guide the judgment of the referee.

In a long series of decisions the courts of England have held that decrees by the Soviet government nationalizing

There is no need here to consider whether in general Soviet confiscatory decrees are intended to apply to property with situs in this State, or whether, if so intended, the courts of this State would give the decrees such effect. Such questions are left open by the opinion in Dougherty v. Equitable Life Assurance Society (supra), and the doubts there expressed or implied are not to be either confirmed or removed until the questions are more clearly presented. We deal here with a class of property and a juristic person sui generis. Certainly no decree monopolizing the business of insurance in Russia; taking over the conduct of the insurance business formerly conducted in Russia by insurance corporations, and terminating the obligations of such companies could possibly have been intended to apply to business conducted here, or if so intended, could be binding here. This State by its own laws determines what organi

No contention so opposed both to common sense and generally accepted juristic concepts is strongly urged here; but we are told that after capital of the corporation here has been applied in satisfaction of claims of creditors and policyholders here, the decrees do operate to confiscate and transfer to the government. the surplus capital, There is nothing in the decrees to indicate that though the Russian government could not take unto itself the business of insurance conducted by Russian corporations here, yet the Russian Soviet government did intend to take unto itself the property of the company here. The property which the United States government claims is what remains of the capital which this State required the insurance company to deposit here with the Insurance Department or with trustees. It is the property which at all times has been within the State of New York. As the referee has found, it “ has always been held by and the legal title thereto vested in trustees resident in and citizens of the United States.” It has always been subject to the control of the Insurance Department and in a practical sense has always been in the custody of the State. At no time could the insurance company or the Russian government have transferred it to Russia. In strongest sense its situs was in this State, and the control of this State complete. No juristic fiction that the situs of intangible property is the domicile of the owner could overthrow those facts. Over such property it is clear that the Russian government, either Imperial or Soviet, had no power of control, and as the referee properly found, asserted no power of control. In Dougherty v. Equitable Life Assurance Society (supra) the court, as we have said, was dealing with obligations dependent upon Russian law. In United

Even if, as the expert witness testified, the decrees were intended to apply to the “ indivisible ” property of the “ indivisible juristic persons,” the property of the United States branch of a Russian insurance company must fall outside the scope of a decree so defined. The Insurance Law requires that before a foreign insurance corporation is permitted to do business here there must be a definite separation and division of its property and even of its juristic personality. “ The Insurance Law as now written and as an entirety indicates a purpose and policy in dealing with foreign insurance companies doing business in this country which are so definite and plain that they fix upon the words under consideration an interpretation which cannot fairly be avoided. We think that the Legislature in allowing these foreign companies to do business in this State and country intended to treat the domestic agency largely as a complete and separate organization, to place it on a parity with domestic corporations, to supervise and regulate it as such and to require it by the deposit of prescribed assets to set up within this country a capital corresponding to that of domestic corporations and which should be security for business transacted by it here and not elsewhere.” (Matter of

Difficulty still remains, however, in determining the persons or corporations who may share, under the law of this State, in the distribution of the assets of the United States branch of Moscow Fire Insurance Company, regarded as a “ complete and separate organization ” created and regulated by the law of this State. Upon liquidation that separate organization ceased to exist and the parent corporation was not authorized to transact business here. When those who had done business with the United States branch as a separate and complete organization had been paid out of its capital here there was no longer any reason why the State, acting through the Superintendent of Insurance, should retain its Control or custody of the assets here. The parent corporation at its domicile or a domiciliary administrator of the corporation would ordinarily be entitled to its property, and creditors or stockholders might, in accordance with the law of the domicile, present their claims there. Though the Soviet decrees upon which the appellant relies have no extraterritorial effect upon property or corporate branch located here, in Russia the decrees have effected the death of the parent company. (Lazard. Bros. & Co. v. Midland Bank, Ltd., [1933] App.

It was said by Viscount Cave in Russian Commercial & Industrial Bank v. Compioir d’Escompte de Mulhouse (supra) that “ it is not an agreeable task for a British Court of Justice to consider the effect of a series of decrees and orders providing for the compulsory acquisition by a foreign State of the assets of private persons 1 on the basis of complete confiscation ’ ” (p. 123). It is no more agreeable to an American court which administers law based on the same principles and traditions of the common law. None the less the courts of both countries have, after recognition of the Soviet Republic, given to such decrees the force and effect to which they are entitled as part of the law of Russia. But no principle or authority has been cited which should constrain or, perhaps it should be said, would justify the courts of New York in abandoning control of property situated here in the custody of this State, or in subjecting to Russian law rights to such property which are governed by the law of this jurisdiction. Though we may not “ sit in judgment upon the acts of the government of another done within its own territory; ” though this State may not choose between different policies where no choice is left open to us under established rules of law, yet where there is room for choice we are guided by common law principles and traditions embodied in our Constitution, statutes and

Juridical concepts may be important factors in determining legal rights and obligations when concepts and obligation are parts of a consistent system of jurisprudence. The corporate “ fiction ” of a single artificial juristic person cannot be applied with unrelenting logic where one sovereign endows the corporation with life and another sovereign permits a branch of the corporation to do business only as a “ complete and separate organization.” Theories underlying our concept of private property and private rights and obligations are of doubtful validity when, attempting to reconcile what is basically inconsistent, the courts must determine the effect, upon private rights in property situated here, of decrees which elsewhere have destroyed private rights of property and contracts. Perhaps argument might be made that the claims of all persons not our own nationals and not arising through transactions with the "United States branch of a ¡Russian insurance company, though under our law untouched by the Soviet decrees until the United States recognized the Soviet government, are under our law retroactively destroyed by such decrees after recognition. No such question is before us. The United States can challenge the claims of those to whom the property has been awarded only if it has a valid claim

Because the legal title and right of control of the property which the United States is claiming as assignee of the Soviet Republic has at all times been in the State or in a trustee subject to the direction of the State, its situs was here and it has been subject exclusively to the laws of the State. Because the United States branch has been under the law of this State a “ complete and separate organization ” and its assets have constituted “ a capital corresponding to that of domestic corporations,” the Soviet government’s decrees did not automatically terminate the existence of the United States branch or alter the right of the State to control and administer the property according to its own law. At least untiLrecognition of the Soviet government the right of this State to liquidate the capital of the United States branches of Russian insurance companies according to New York law, and to distribute the assets among those who under New York law were its creditors or stockholders, was not open to challenge. The Supreme Court of this State had taken the property into its own custody to make such distribution long before recognition. It had invited claimants to prove their claims. After recognition, the courts of this State were bound to take notice that the parent corporation was legally dead. They had already taken notice that the parent corporation could no longer function. The proceeding for distribution proceeded as before. The law of its domicile ordinarily determines the manner in which property of a corporation is to be distributed, but that rule does not apply invariably. The incidents of ownership of property, especially immovable property, are dependent upon the law of their situs. The property claimed here was in all respects subject to the law of this State. Though the courts of this State are bound to give effect to the decrees of the Soviet government in so far as these decrees terminated the existence of the company in Russia, they might still proceed with the liquidation of

The judgment should be affirmed, with costs.

(dissenting). On March 16,1917, the Imperial government of Russia was overthrown. On that date the Provisional government of Russia was set up and on March 22, 1917, the Provisional government of Russia was recognized by the United States. On July fifth of that year Boris Bakhmeteff was recognized by the President of the United States as the Ambassador from the Provisional Government and Serge Ughet as financial attache of the Russian Embassy in the United States. The Union of Soviet Socialist Republics, known and referred to as the

Decrees, laws, enactments and orders of the Soviet government, promulgated during the years 1918 and 1919, expressly or by implication, both as matter of fact and matter of law, and as understood and construed by that government, (1) nationalized and monopolized the business of insurance in all its forms whereby all Russian insurance companies were dissolved, terminated and liquidated, and their assets, including the assets of all their branches and subsidiaries, in whatever form and wherever located and in whatever manner and wherever held, were confiscated and forthwith became the property of the Soviet government, (2) repudiated, canceled, annulled and discharged all debts of those companies, their branches and subsidiaries, to whomsoever and wherever owing, (3) extinguished)' all rights of their shareholders, and (4) discharged all obligations and liabilities of the companies. The result was that the Soviet government became the owner and entitled to the immediate possession of all property of the nationalized companies and of their branches and subsidiaries, wherever physically located, as of the date of nationalization. The

The Moscow Fire Insurance Company, of Moscow, Russia, was organized under the laws of the Empire of Russia in 1858 and was admitted to do bus^ess^witEInthe State of New York in 1899. It organized a United States branch and deposited from its own property in Russia (not originating from contributors or shareholders within the United States) security expressly for the protection only of domestic creditors and policyholders as required by section 27 of the Insurance Law (Cons. Laws, ch. 28) of the State of New York. That deposit remained the property of the parent company, subject only to the claims of domestic creditors (Matter of People [Norske Lloyd Ins. Co.], 242 N. Y. 148 ). Thereupon the Superintendent of Insurance issued a license to the branch to transact business here. Upon keeping the deposit good the license was renewed from year to year thereafter until 1925. On August 8, 1925, pursuant to the provisions of the Insurance Law, the Superintendent of Insurance was appointed liquidator of the local branch. During the progress of the liquidation the claims of all domestic creditors and of all policyholders through the local branch and of all foreign creditors who had attachments when the Superintendent took possession were paid in full and the question arose as to what disposition should be made of the cash and securities,

The record in that proceeding establishes that the claimants to whom distribution was directed to be made (with the possible exception of three) were all variously residents and citizens of Latvia, Norway, Sweden, Russia, Esthonia, Poland, Germany and France, having claims arising variously out of agency contracts and insurance and reinsurance contracts written and to be performed in countries other than the United States, ownersMp in shares of the parent company and services rendered by attorneys and others to the parent company and to the liquidating director of the Moscow company in foreign countries. None of the claims of foreign creditors or shareholders arose out of relations with the local branch and adjudication followed our law, not Soviet law, the law of the domicile of the owner of the fund. The validity of those claims depended on the laws of the Imperial government of Russia and its successors (Dougherty v. Equitable Life Assur. Society, supra; Canada Southern Ry. Co. v. Gebhard, 109 U. S. 527 , 537), or upon the laws of the countries of the citizenship of the claimants or where the claims arose (Severnoe Securities Corp. v. L. & L. Ins. Co., 255 N. Y. 120 ). Said the Supreme Court in the Gebhard case (supra): Such being the law, it follows that every person who deals with a foreign

The Moscow Fire Insurance Company existed “ only under the express law of the state or sovereignty by which it was created. Its dissolution puts an end to its existence, the result of which may be likened to the death of a natural person ” (Chicago Title & Trust Co v. Wilcox Bldg. Corp., 302 U. S. 120 , 124). As the corporation went, so went its local branch. Though dead, the parent survived, this court has held, as to its property in this State in the sense that its surviving director might possess its assets with situs here, after satisfaction of the claims of our nationals ( 255 N. Y. 433 ).

No amount of argument can change the- fact that there is no foundation in our statute law, in the decisions of our courts, in reason, logic or elsewhere for the assertion that the branch of a foreign corporation is a juristic, legal or factual entity, separate and distinct from the parent company, or that it may be placed in the same position as a domestic corporation as to rights and obligations and capable independently to perform corporate functions. The con

There can be no question of the powers of the Soviet government to take the course it pursued or to put into

At the time of the diplomatic recognition by the United States of the Soviet government and as a part of the diplomatic exchange between the two governments, an assignment was made to the United States of all interest which the Soviet government had in the fund in question. Prima

After unsuccessfully attempting to invoke the jurisdiction of the Federal courts in its effort to procure the fund, which efforts culminated at or about the date of entry of the judgment in the consolidated actions, the United States

Of course, the Soviet government neither could ( United States v. Buford, 3 Pet. [U. S.] 12) nor presumed to transfer greater title or a more extensive interest in the fund than it had to give. What it acquired by the nationalization decrees or what limitations‘may be placed by the confisca

No one disputes the fact that our State courts have control over the surplus fund and power to order its distribution ( United States v. Bank of New York & Trust Co.,

The judgment appealed from and the judgment of the Special Term should be reversed and the matter remitted to the Special Term to proceed in accordance with this opinion, with costs to appellant" against respondent claimants in all courts.

O’Brien, Htjbbs and Lougeran, JJ., concur with Lehman, J.; Rippey, J., dissents in opinion, in which Crane, Ch. J., and Finch, J., concur.

Judgments affirmed. (See 280 N. Y. 848 .)