United States v. First National City Bank

PETITIONER:United States
RESPONDENT:First National City Bank
LOCATION:Harris County Justice of Peace Courts

DOCKET NO.: 59
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 379 US 378 (1965)
ARGUED: Nov 16, 1964
DECIDED: Jan 18, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – November 16, 1964 in United States v. First National City Bank

Earl Warren:

Number 59, United States versus First National City Bank.

Mr. Oberdorfer.

Louis F. Oberdorfer:

Mr. Chief Justice, may it please the Court.

This case is here on a writ of certiorari to the Court of Appeals for the Second Circuit.

The case involves a question, which is important for the administration and enforcement of the revenue laws as they pertain to the tax liabilities and the enforcement of the tax liabilities of non-resident aliens and foreign corporations, which by virtue of realizing income from sources within the United States bring themselves within the orbit of our substantive tax laws.

William O. Douglas:

That is the taxpayers outside of United States?

Louis F. Oberdorfer:

Taxpayers and nonresident, it’s a foreign corporation Omar, S.A.

The question, the narrow question is the extent to which the United States District Court in the Southern District of New York, may exercise its equity power under the classic sources of equity power and the power granted by the Internal Revenue Code to assess the commissioner of internal revenue and enforcing tax liens and reducing to — for collection the assets of a taxpayer.

In the circumstances here, the Internal Revenue Service having served liens and notices of levy on several organization of brokerage houses and investment houses in banks in New York, which held assets of this foreign corporation.

The Internal Revenue Service through the Department of Justice asked the District Court to assist in the enforcement of these administrative remedies available to the Internal Revenue Service and so far as we’re immediately concerned here, asked the Court for a temporary injunction restraining the investment houses in New York and the banks in New York from permitting any transactions with the respect to the assets of this delinquent foreign taxpayer —

Arthur J. Goldberg:

Mr. Oberdorfer.

Louis F. Oberdorfer:

Yes, Your Honor?

Arthur J. Goldberg:

The delinquency is in respect to those — with respect [Inaudible]

Louis F. Oberdorfer:

That’s correct Your Honor.

Well, it’s not disputed for purposes of this proceeding.

They haven’t —

Arthur J. Goldberg:

They didn’t get – [Inaudible]

Louis F. Oberdorfer:

Well, they will have an opportunity either in this proceeding or in the Tax Court proceeding, which they have instituted for adjudication of the liability if any.

But for purposes of the matter as it was before the District Court, there is a liability in the amount of $19 million.

The problem, if I can state the problem first, is whether or not the District Court in entering this temporary injunction, running to the banks and the investment houses, which held assets of this corporation prior to service on the taxpayer can also cover in that injunction transactions with respect to bank deposits, which are payable in the first instance to the taxpayer by the bank at a foreign branch of the bank.

The bank is a single corporation.

It receives deposits at many branches.

These branches are not separate corporations.

In the corporate sense, in no sense are they separate entities and it is our contention, if Your Honors please, that this power of the District Court under statute and under principles of equity temporarily to phrase the transactions with respect to this taxpayer by an injunction running against any stakeholder within the jurisdiction of the District Court includes the power to stop transactions anywhere under the control of the lienee, the stakeholder including transactions, which the stakeholder may claim involves some action by it or refraining from action by it outside the United States.

Mr. Oberdorfer [Inaudible]

Louis F. Oberdorfer:

In the first instance Your Honor, when the — bear in mind that there are two layers of remedy here.

They are the administrative remedies of lien and levy by which the Internal Revenue Service can normally without leave of the Court.

[Inaudible]

Louis F. Oberdorfer:

— where there’s a jeopardy assessment go in and seize bank deposits.

We have — there is in the code and we have invoked here for a number of reasons, the additional power of the Court to help the Internal Revenue Service in this collection process.

Louis F. Oberdorfer:

In the first stage, the administrative stage, the notice of levy and notice of lien were mailed to Omar at its office in Montevideo, Uruguay.

The — they had a notice in many other ways that they were under investigation and that they know of the jeopardy assessment and of the action and as a matter of fact, they have filed a memorandum in this Court, Omar.

We have not, however, until now served Omar by process of the District Court.

There are a number of reasons for that, some of them good and some of them perhaps not so good. We have been in a quandary all during this litigation.

As to —

[Inaudible]

Louis F. Oberdorfer:

That was one of the problems Your Honor and we were concerned about that when this decision of the Second Circuit was on the books and threatening as we think it threatens to disrupt the orderly enforcement of the tax law.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Well Your Honor, if I may advert to those treasury regulations.

One of the principle and to us as — in the executive branch most persuasive arguments raised by the taxpayer in Court and out of Court and they’ve been raised both places, is that the existence of the power that is claimed by the Commissioner of the Internal Revenue here to act with respect to the deposits which — to deposits which are payable at a foreign branch of the U.S. bank will drive away the business of the foreign branches and its in the best interest of the United States to have flourishing prosperous foreign branches.

And the hard case, which was put on the basis of the situation as we originally initiated this action was a Swiss or a Romanian will be loathe to put his money in the foreign branch of the U.S. bank in Romania or Switzerland if he realizes that by doing that he is immediately subject to the vicissitudes or the whims of the Commissioner of Internal Revenue of the United States.

This treasury regulation is a self-imposed, but nevertheless effective restraint on the Commissioner of Internal Revenue for bidding him to seek administratively or by judicial process any remedy with respect to a deposit in the foreign branch of a United States bank except where there is personal jurisdiction over the person, whose account is at stake or whether the deposits in that account or where the deposits in that account, the Commissioner satisfied, came to that account or were credited to that account in an effort to hinder or defeat collection of tax on income realized from sources in the United States.

So, the Australian, Egyptian or Romanian who wants to bank with the United States‘ branch has never had any transactions in the United States need to have a little concern.

On the other hand, there is still a very important area reserved within which we hope with the decision of this Court will be — where would be continued — be allowed to continue and operate.

Arthur J. Goldberg:

Does this regulation apply to [Inaudible]

Louis F. Oberdorfer:

It applies to this case in the sense that under that – we could proceed under that regulation in this case.

It does not —

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Your Honor, the question that would be one way to perhaps to decide, I really haven’t thought thought all the facets of that.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

That’s correct Your Honor.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Well, if I am — if I understand Your Honor’s question correctly, I can say that if the court — that the court can dispose of this matter by dealing simply with the power of the District Court to issue a temporary injunction under the — that would have been authorized so far as the commissioner is concerned by the regulation.

It need not consider any other issue, but one, but as Your Honor put it to validity of the regulation.

Potter Stewart:

That might not be subject to argument about whether or not the — about whether or not the facts fit under the regulations —

Louis F. Oberdorfer:

Indeed, —

Potter Stewart:

– the mere allegation of the Government enough?

Louis F. Oberdorfer:

There’s a finding by the District Court here that it seems to us substantially to restate — substantially to meet the conditions imposed by the regulation —

Potter Stewart:

This is the deposit of a foreign branch in order in effect to evade taxation.

Louis F. Oberdorfer:

There was an liquidation and the court talks about a clear present danger that the liquidation would leave the Government empty handed.

Also, [Inaudible] yes, the this regulation is still subject to place the jurisdictional question that involved the —

Louis F. Oberdorfer:

Indeed there are Your Honor.

Now, if the regulation in itself will concur with the jurisdiction in otherwise —

Louis F. Oberdorfer:

But it frames, it’s like — you could take the regulation or you could take the statement of facts.

It’s there and in the reach of —

Louis F. Oberdorfer:

Either one —

Bearing on the reach of some of the arguments that were made, is to the reach of sustaining the Government’s position?

Louis F. Oberdorfer:

Yes Your Honor.

William J. Brennan, Jr.:

[Inaudible] The issue you want decided, could be decided in the context of the validity of the regulation?

Louis F. Oberdorfer:

Well, Justice Goldberg pushed me into that corner.

It can be decided in terms of the validity of the regulation, but within the scope of the regulation that is —

William J. Brennan, Jr.:

The point is we can’t avoid the decision that you’re asking us to make, even if we limit this to the consideration of the application of the regulation.

Louis F. Oberdorfer:

There’s an ultimate question here of the power of the District Court to enter a temporary injunction where the defendant, the taxpayer has not yet been served.

Byron R. White:

If this case remanded to the District Court to reconsider in the light of the present regulation, which I suppose it would have been if the regulation for example had wholly forbidden this kind of an order.

If it were remanded now for reconsideration in light of the regulation, I suppose the same question would still persist?

Louis F. Oberdorfer:

I don’t think that would —

Byron R. White:

Well, it would come back up on the same question.

Louis F. Oberdorfer:

You wouldn’t have come any closer to the answer.

Byron R. White:

The only time it might not come back up, if you couldn’t satisfy the terms of the regulations.

Louis F. Oberdorfer:

That’s correct.

We believe that, as I was about to say, the regulations and the facts are the same things really.

The fact is that there has been no service of process so far but —

William O. Douglas:

[Inaudible]

Louis F. Oberdorfer:

Yes, Your Honor.

We think — as a matter of fact, the longer we wait, the better chance we have of serving process, we think.

There is under Rule 4(e) of the Federal Rules, we’re authorized to invoke the New York State procedures for service of process on non-residents who had transacted business in the State.

We think that by virtue of the transactions out of which this tax liability grew by virtue of the activities of the Director of the taxpayer, by virtue, if Your Honor please, of its petition to the Tax Court for the — which is to re-determine the deficiency that’s asserted here.

We have the basis for service by substituted service or service by mail and by publication.

Well, that question isn’t really the force?

Louis F. Oberdorfer:

It’s before you only in the tangential sense, Your Honor, there are some cases —

But I would suppose you would have some questions, which are rather [Inaudible]

Louis F. Oberdorfer:

We find that we are very comforted by the recent decision of Judge McLean in the District Court holding in somewhat similar circumstances that the statute is constitutional and it’s —

William O. Douglas:

The reason I asked the question is I wondered what your position would be if it were clear that they never had jurisdiction over Omar and never would be able to get jurisdiction over Omar.

Louis F. Oberdorfer:

Personal jurisdiction?

William O. Douglas:

Yes.

Louis F. Oberdorfer:

We have — that’s our second position Your Honor.

Our position is in two phases.

Our first position is that we’re entitled to the relief we ask pending personal service on Omar.

Our second position assumes as Your Honor’s question does, if we may not be able to serve Omar, in which event, we claim that the Court had jurisdiction to enter this order quasi in rem.

The obligation of the Bank to Omar is a debt, which is owed to the bank — the bank — is owed by the bank, the bank is in New York.

Therefore, under the concepts that were in Harris against Balk and all those cases that there is a reice in New York with respect to which we have jurisdiction and just to pursue that for a moment, because I’m a little out of my order.

We claim, this is a pointed issue between us and the bank, it is also the place where we parted company with the Court of Appeals.

It’s our contention that if we reach the in rem question that this debt is a reice in New York, even though by contract, the deposit is — the taxpayer Omar, is only entitled the payment in the first instance as a technical and legal manner in Montevideo.

New York Court say that, makes lascivious of the debt Montevideo, not New York, therefore, there’s nothing in New York to form the basis for in rem, quasi in rem jurisdiction.

We say that that obligation to pay in Montevideo is a condition to the debt, but it doesn’t destroy the debt in New York, because the corporation is in New York.

Further that we could meet that condition if we had to, we could send somebody down to Montevideo and make the demand and he’d probably get the money, if he didn’t then we could sue in New York.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

This is —

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

We’ve considered this in our brief, Your Honor, and this would be a troublesome question if we had the quasi in rem remedy only, but we do deal with it and we think that the double liability question has — first of all, it’s premature and we think that when and if courts must finally get to it.

They will find that it isn’t — that it’s a red herring.

The double liability question was anticipated by the District Court in a sense when he in framing his order said, “If anybody thinks that compliance with this order will violate foreign law, please come in and tell me” and the bank didn’t come in and tell him that there was any double liability.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Yes.

But I suppose Your Honors are not supposed to have heard that, because they didn’t say it on the record in the District Court.

In any event, we further contend, although this is the frontier you might say that even though, there are these line of cases, we lost one in Canada fairly recently saying that, the courts of one nation will not enforce the tax judgments of another nation, where the judgment is rendered in one jurisdiction and then is followed into the next jurisdiction for collection.

We think that, that is different from the case where we have already collected, the bank won’t have a double liability unless and until it pays us.

In that event, we contend and some of the material that was included in the brief of the bank at least with respect to Uruguay suggests that, if the judgment of the District Court were pleaded in Uruguay as a defense by the bank, it would be a good defense in a claim of double liability.

And beyond that Your Honor, there is this McGrath against City Service case, which suggests that if the bank is driven to the wall on this and is ultimately trapped into this double liability, there is a basis for claiming that they have a right for a just compensation for an unlawful taking and can sue in the Court of Claims on account of it.

We think that’s a long way off.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Sorry?

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Well, there is this — I just referred to McGrath against City Service, we might resist that when the time comes, but as of the moment that seems to be the law, it is the decision of this Court.

Arthur J. Goldberg:

[Inaudible]

Louis F. Oberdorfer:

Well, we would — well, whether we resist the claim or not, they would ultimately be disposed of in this Court.

And we don’t think — we think that the double liability problem, particularly at the temporary injunction stage is premature and insubstantial.

[Inaudible]

Louis F. Oberdorfer:

I’m sorry sir?

How long?

How long would temporary be then?

Supposing it was decided you couldn’t get jurisdiction? Could you just hang on to this money?

Louis F. Oberdorfer:

If it was decided that we could get personal jurisdiction, we would attempt to enforce the lien on the basis of quasi in rem jurisdiction and as I have suggested earlier, this is complex but feasible.

Either the Vice Counsel or the Counsel in Montevideo or a revenue agent, or a receiver or an agent of a receiver would presumably present himself to the bank and demand the payment.

So far as the ultimate legal question is concerned, Your Honors, we believe that the decision of the Court of Appeals is damaging, it’s disabling to the Internal Revenue Service, because it wipes out at any basis for invoking a remedy to sort of hold the forth in the interim between the administrative action and under the administrative process and the effort to get personal jurisdiction over the defendant, who may not just be a nonresident alien or a foreign corporation.

We sometimes have trouble serving process, I’m sure it’s an ancient problem of tax collector serving process on people right here in the United States.

There’s nothing — there is this hiatus, which the order of the District Court helped discover, it’s not perfect, but it gives us an opportunity to find out where everything is and figure out how to serve process and generally to proceed at it in a more business-like way.

I would like to reserve a few moments for rebuttal. Mr. Chief Justice.

Earl Warren:

Mr. Harfield?

Henry Harfield:

Mr. Chief Justice, may it please the Court.

In my judgment, the real and only issue that’s presented here is one of fairness.

This is an appeal from an injunction and the respondent is not and at no time has been appealing on the basis that the Court had no power to issue that injunction.

We have based our appeal on the ground that it was an abusive discretion, that it was an inequitable thing to do and so far, the Court of Appeals has agreed with that.

Now, this is a rather broad statement and I’ve got to support it by reference to the facts.

Let me point out first of all, that the respondent in this case is not the taxpayer.

The respondent has been conducting its business and is in no way delinquent in taxes.

So, we have here a restraint, which is imposed on a third party, not on the ultimate defendant.

This is in effect, a garnishment proceeding and the respondent bank is in the position entirely of a third party stakeholder.

Furthermore, we are talking here about an action, which has as its only purpose the acquisition, the taking of property.

This is a physical action.

Henry Harfield:

Mr. Justice Harlan said we’re talking in effect about a sequestration of property and the property in question is the property of Omar, not of this respondent.

Now, the property that we’re talking about is not the property in the United States.

This is so, by definition. The Court below did not refer, my learned adversary has repeatedly in the briefs and here again, today did not refer to accounts or property, which is collectible in the first instance abroad.

It referred to deposits and to property which collectible only abroad, only abroad.

So, what we’re dealing with here is a situation in which the property that the Government seeks to get and it is property that they want, is property which lies outside the jurisdiction of the United States and this must be so, because there is no issue as to any property in the United States.

Byron R. White:

[Inaudible]

Henry Harfield:

No, sir.

It’s — it’s a —

Byron R. White:

[Inaudible]

Henry Harfield:

No, Mr. Justice White, I suggest that it’s a good deal more than a local ruling.

Byron R. White:

[Inaudible]

Henry Harfield:

The Court of Appeals relied on the New York Rule, which expresses what I believe is a necessary conclusion, if you examine the nature of this property.

The property that we’re talking about is a bank deposit, which is a contract.

It’s not — it might be better for us if it were simply a physical deposit.

Byron R. White:

But did the Court of Appeals rely on anything other than the —

Henry Harfield:

Yes, my point sir, is that the Court of Appeals in relying on New York Law was going beyond that.

It relied not only as it said on the New York Law as such but on the New York Law as a statement of an absolutely sound principle and the principle is not that this is a legal technicality, but that the branch of the bank doing business abroad is —

Byron R. White:

These sorts of rules isn’t designed to deal with foreign deposits as against domestic deposits, but in fact, this is much — that rule would be imposed if the bank is across the street?

Henry Harfield:

It probably would —

Byron R. White:

[Inaudible] —

Henry Harfield:

That is —

Byron R. White:

Do you suggest the results in this case ought to be the same as the branch that you are talking about was it in this country?

Henry Harfield:

No.

I would not for this reason.

Quite clearly, the New York Rule would suggest the same results.

Byron R. White:

Yes.

Henry Harfield:

But I’m not suggesting nor do I think it necessary that be the case, because if the branch were across the street, then the order of this Court would protect the respondent, because it would protect the respondent even if the branch were in a different state, because we —

Byron R. White:

[Inaudible] the Court wouldn’t present him there?

Henry Harfield:

Well, I do.

Byron R. White:

Because of the foreign law?

Henry Harfield:

Yes, Your Honor and as Your Honor is well aware, the foreign law is for the Court to determine.

Now, we have put forward here a series of opinions, which we have necessarily selected at random, because we can’t go around the world and provide unanimity on this and they apparently are now challenged.

But if they are challenged, then under the well accepted rule, I think we should presume that the foreign law corresponds to our own and our own law is very clear that if the Government of far office stand and a Court there were to make an order in that country of far office stand purporting to restrain the First National City Bank here in New York from paying its deposit, which I had made with it, that our Courts would not pay any attention to that.

So, I don’t have to depend on what maybe an inaccuracy proof of the foreign law.

I can rely on our own principles and similarly, I think for that reason, we can rely not just on the New York Rule, but on the fundamental proposition, which is that a bank deposit is localized.

In the case we are talking about here, this was a Uruguayan Corporation, which made a local deposit precisely as the same as if it had gone to one of its local banks and in local currency.

We’re not talking about the same kind of money.

We’re not talking about the same place, we are not talking about the same area of judicial protection.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

I’m inclined to —

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Sorry.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

That is correct.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Well, I should like to abide by the regulation on that, but I can’t.

I think that the regulation would be as Mr. Justice White said just as much subject to challenge.

The question is when does the money —

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Both, both because once the money is outside the jurisdiction of the Court and deposited, then the taint of its birth, so to speak, the fact that it was spirited out in an effort to avoid taxes, doesn’t affect its status in the foreign country.

Therefore, neither on the score of jurisdiction nor on the score of fairness, in other words, if the jurisdiction I think is clear, if it is out the country, it’s out the country just the same as if it were a physical object.

On the question of fairness, it doesn’t make any difference as to the bank’s liability in the foreign country whether the money came out wrongfully or rightly.

So, I stay on both points in that respect.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

That is my point and I’m not saying, Your Honor, that if the bank had participated in the removal of funds as a conspirator, there would not have a liability for that and then it would not be — not entitled to the protection of equity, but my point is, that if the bank is used as a conduit to move the funds out of the country then the fact that once they have been moved out.

They are deposited with the bank there, so as to give in the bank an absolute liability in that country, not subject to the defense that our Courts have ordered otherwise then you have the same problem with double liability and that is the basic problem of fairness, the inability of the Court to protect the bank when it orders it to do something abroad.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

I don’t have any —

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

I don’t have any published figures that I’m aware off, but I can say this with respect to the First National City Bank itself, that unless I’m wrong about one-third of its overall assets, business and alike is in its foreign or overseas division.

Henry Harfield:

That would bring it in that bank to several billion dollars.

Now, that’s pretty rough and I don’t mean it as a representation but —

Byron R. White:

Well, it could be an overseas division, it could include deposits by the American companies who have been subject to —

Henry Harfield:

This is entirely possible, but I’m talking about the amount of foreign currencies, which the American banks accumulate so to speak by going out and doing business in the foreign country subject to those laws.

What they are doing instead of sending money out of the United States to conduct their business they go out with a relatively, in some instances with no capital, and collect the local funds, which are then available for loans and hopefully received as deposits from American Companies.

Byron R. White:

But I feel that if the Internal Revenue Service proceeds against the main office of the branch to sequester or to enjoin the paying out of funds that the bank may have in anyone of its hundred branches in this country.

Henry Harfield:

Yes.

Byron R. White:

If you say that’s part of an injunction that is justified, I mean that the Court would have power to enter it, I think if you would say that this is the — that the main office is an appropriate place to latch on to whatever kind of property this is and wherever it maybe located.

Henry Harfield:

Well, I think that is so, I would not myself regard —

Byron R. White:

If that is so then, the only difference is this case is that the depositor happens to be or that the branch happens to be located abroad and you have just the extra problem of double liability.

Henry Harfield:

Well, it’s double liability.

It’s a question of multiple currencies —

Byron R. White:

But it doesn’t have anything to do with where property is located or what kind of a debt it is or anything like that?

Henry Harfield:

Yes, I think —

Byron R. White:

Well, it couldn’t have?

Henry Harfield:

Well, I think it does, because as I was about to say —

Byron R. White:

Otherwise, this Court could never do it in the case if the branch is in this country?

Henry Harfield:

Yes, Your Honor.

In the case of branches in the Courts — of branches in this country as I was about to say, I don’t think it’s appropriate to serve it solely on the head office, but this is something that the banks have got to live with and that they can live with, because we’re talking about —

Byron R. White:

But not before it has any power to do it?

Henry Harfield:

Well, at this point, once again, I’m basing my argument Your Honor on the fact that it is inequitable for the Court to attempt to extend its power beyond its borders, not on the question of power.

There is no doubt —

Byron R. White:

So, it’s an equity question?

Henry Harfield:

It’s an equity question.

There is no doubt that the Court has the power to order this bank to do anything regardless of the consequences.

There is no doubt that it has the power to order the bank to violate a foreign law.

It has exercised self-restrain in that, but that’s not an abdication of power, so I stay with that point.

This is a question essentially of fairness and the difference between the various branches in the United States and the branches overseas, is that the branches in the United States are dealing with the same currency and when an order is made the order protects the bank at all of those branches.

This is not the case where the branch and where the relationship exists outside the United States under the laws of a totally different sovereign.

Earl Warren:

[Inaudible]

Henry Harfield:

I’m not sure that my client would let me be here.

I would want to be here, Your Honor, because the question is one of protection.

The jurisdiction which it would get would be entirely in personam and I’m not sure that it could protect us even then.[Luncheon Recess]

Earl Warren:

Mr. Harfield, you may continue your argument.

Henry Harfield:

Mr. Chief Justice, thank you, may it please the Court, I would like to devote myself presently to the question of the in rem jurisdiction or a lack of it, but before doing, I’d like to revert to the question, which the Chief Justice put just before the recess as to whether we would be here if there were jurisdiction over Omar.

And my answer to that was that, I would hope that we would be, because the jurisdiction over Omar the in personam jurisdiction would at the most be a rather tenuous one.

Now quite clearly, if Omar were a party to this proceeding and could be effectively hobbled as far as any reprisals against the bank overseas were concerned, the practical risk of multiple liability would to that extent be lessened.

But the difficultly is that as I see it here, if there is to be in personam jurisdiction over Omar, it is purely a conceptual jurisdiction.

This is a Uruguayan Corporation, which is not doing business in the United States to the extent that there’s anything that can bite down on here.

And even if our Courts were to assert the right to pronounce a judgment in personam against Omar, I’m far from satisfied that this would effectively prevent him or if from taking reprisals in Courts of other countries, which would not regard the order of this Court as a defense to that action.

Consequently, I feel that the absence of Omar as a party to this action, while it aggravates the situation is not the sole determinative factor.

I’d to talk for just a moment about the question of the jurisdiction.

Yes sir?

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Yes.

I might as well take that at this point.

The District Court provided in the order that if in consequence of this order, the bank were put in violation of foreign law, then the bank might come back and apply [Inaudible] for relief.

Now, there are two obvious problems about that, which leaves the bank in an extremely unenviable position.

One is, that it is impossible to anticipate what the law of every country that the bank does business in is going to be in every particular.

The record will indicate that the bank has 74 branches in 28 countries.

In each instance, the branch being approved by an agency of this Government.

Byron R. White:

Mr. Harfield, [Inaudible]

Henry Harfield:

The new regulation as I read it Mr. Justice White provides that the commissioner before he applies to the Court must in his own mind determine that there is jurisdiction or if there is not in his judgment personal jurisdiction, then he must determine that there has been a removal of property.

But —

Byron R. White:

[Inaudible]

Henry Harfield:

Well, there is another provision of the regulation, which says that the hence forward was not the case here.

The Commissioner is to specify in serving liens, the general area of the world where he hopes that there will be some money.

In other words, he has to make an affirmative showing and point to the bank —

Byron R. White:

[Inaudible]

Henry Harfield:

I just don’t know.

Henry Harfield:

The —

Byron R. White:

Anyway, [Inaudible]

Henry Harfield:

Well, returning that point, if the service is made broadside, the problem which the bank faces is that it is going to have to determine at its peril whether or not there is a violation of law in any country where there may possibly be property of the taxpayer, the alleged taxpayer.

Now, we have seen very clearly on this argument that the determination as to whether there is a violation of foreign law is something which is not accepted just on the bank’s say so.

And the consequence is that the provision of the order doesn’t afford any very real protection.

Moreover, in the case of a bank account, a bank overseas as here, accepts money on deposit subject to the absolute obligation under the law to repay a like kind and amount of currency on demand.

Now, if that is the law of the place where the bank branch is situated and the branch in reliance on the order here says, “no, we won’t pay,” that becomes an instant violation, which can’t be cured.

If the bank comes back afterwards having then proved to the District Court that it is in trouble and then comes back and says, “I’m sorry, we were guilty of conversion or I’m sorry we were guilty of slandering your credit by refusing to pay your checks” or as in Brazil, where a failure to pay where there is funds on deposit is an act of insolvency.

The curative effect comes too late and this, if I may dwell on that just for a moment, there is very definitely on the temporary aspect of this injunction.

The fact that this is a temporary injunction doesn’t relieve the bank in any respect.

It maybe temporary, but it’s long enough to create the damage, it’s like a temporary cessation of oxygen, which beyond a point is not wholesome.

Hugo L. Black:

Why is that the case [Inaudible]

Henry Harfield:

Because in this case Your Honor, the bank is subject abroad at the place where the property is payable or returnable to an obligation of repayment, which is immediate and if the bank in reliance or in compliance with the order of the Court breaches that obligation, then the moment of breach fixes its liability and the fact that this is only a temporary injunction, doesn’t relieve it.

Hugo L. Black:

Fixed its liability for what, it’s already reliable for the funds?

Henry Harfield:

That’s right.

And if in reliance on in compliance upon the temporary restraint, it refuses to pay the funds, then its liability to the person who is entitled to demand them is complete and perfect and it is liable.

Hugo L. Black:

But is it any more than it was before?

Henry Harfield:

It is a different kind of liability, let me make this as the illustration —

Hugo L. Black:

Well, I’m getting at it is what’s the damage?

Henry Harfield:

The damage maybe the amount of money, it will certainly be the amount of money plus interest for the delay and it may very possibly be for consequential damages.

As in the event of — as I mentioned, in Brazil, if a bank refuses to pay the check of its depositor even though in reliance on the temporary injunction of a Court outside Brazil, that is an act of insolvency and the customer may not only recover back the amount that he has drawn, but he may actually have the bank put into jail and this is a worse situation, obviously where it’s an American Bank, which is trying to do business as a guest in the foreign countries.

Hugo L. Black:

Does it appear which kind of account is it kept in the bank then?

Henry Harfield:

There is no indication in this record Your Honor as to the nature of any particular accounts.

The allegations of the Internal Revenue Service on this were that there were transactions here, which gave rise to expectation that there were some kind of accounts or some kind of property at some of the foreign branches of the bank. And subsequently, after the appeal below the attorneys who represented Omar in the Tax Court wrote a letter in which they said that, at the time of service, there was a current account, one current account in Uruguayan Pesos and an amount due in U.S. Dollars, the total aggregating about the equivalent of $2,000 in Uruguay and they said that, that was all that there was, but we don’t know.

The problem that is faced and this comes back to the question of the so-called New York rule, the problem of jurisdiction in rem or quasi in rem is this, that we are dealing here with a practical separation of function.

The bank, although it is a single corporate entity, operates overseas within the context of the laws of the various foreign countries and the consequence is that the foreign branch of the bank as a practical matter is exactly the same and in exactly the same posture as it were a bank, which were organized and existing under the laws of that country, as if it were a foreign bank.

When a foreign individual or person or a friendly alien as American in that country, deals with that bank, he deals with it subject to the laws of that country and entirely under the same conditions as if it were a bank in that country.

The result of this is that there is not and never has been any property in any real sense in New York.

There is no real tangible property here.

The only property that exists is a right on the part of the depositor, a contract right and that right has no existence except at the place where it was made and in accordance with the laws of the country under which it was made.

Henry Harfield:

The consequence of that is that, it is not only unreasonable in fact, but unnecessary in law to create the fiction that because the bank is a single corporate entity.

It is liable for every deposit at every place where it does business.

The result of that in turn is that the banks contract with its depositor is simply to repay a like kind and amount of the currency it has received at the place it has received it in accordance with the law of that contract, the foreign law of that contract.

And therefore, neither the depositor nor anyone claiming through him can demand at a different area in a different currency, what the bank has contracted to give it back to him at a particular place and in a particular currency.

Referring to our brief, we have pointed out and I think with justice that, just as the bank cannot be expected to respond in London and pay Sterling in respect of an account, which was opened by someone in Rupees in India, neither could the bank having accepted dollars at an account in New York City hope to discharge its liability to its depositor by tendering him Rupees in India or Sterling in London.

There is a localization, an unnecessary localization of international branch accounts.

In consequence of this, the New York Courts have recognized consistently that the account in a foreign branch is not property within the jurisdiction, is not to be treated as property and that neither the depositor nor anyone claiming through him is entitled to leap the barrier to anticipate or alter the obligation and make the demand and be paid in New York.

Now, the —

Byron R. White:

[Inaudible]

Henry Harfield:

MIt’s a different question and yet the thing that runs through it becomes a nominator of it is that if the bank cannot be obliged and should not be obliged to payout and dispose of the money abroad by reason of a pressure put on its head office then the lesser restraint is equally objectionable, because it doesn’t really make any difference whether you call this an injunction or a lien or a levy, in every instance it is an effort by pushing on the bank here to passing on the property there.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Well, assuming those and of course I do, assuming the accuracy of those, —

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Assuming the accuracy of —

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

That there was a danger, a continuing danger that the funds were being taken out of the country.

Arthur J. Goldberg:

[Inaudible]

Henry Harfield:

Well, I think that the — and I do have a concern in the Government’s ability to collect these and I think that the government has demonstrated that it has an ample opportunity to do this, ample power to do it.

In this case, the record indicates that there was here in New York, a combination of securities and accounts payable at Lazard and Lehman Brothers, which were caught.

Now, there is no issue as to anything that is here.

The only problem is when do you catch it and the point that I’m trying to make and it does leave the Government in perhaps less than the condition they would like, but I think not less than in the condition they are entitled to under law, that once the property has been moved out of the jurisdiction, then the motive for moving it out, should not affect the depository where it ends up, because if this property were moved out the United States and wound up in the foreign branch of a British Bank or a Swiss Bank, the fact that it had come out by stealth and conspiracy still would not mean that it was not beyond the jurisdiction.

I think if I may take that as the basis of summing up on this.

The situation is that we have here a claim by the Government for property.

The property is unquestionably situated outside the United States, outside the jurisdiction of the Court.

Indeed, the complaint and the action asks as the ultimate relief that the property which is beyond the jurisdiction be returned to the jurisdiction.

This is a requirement which is beyond the capacity of this respondent bank to do.

The property is outside the jurisdiction and they can return the property only at the risk of penalty to themselves at the place where they have received and/or return of the property.

The injunction or order of the District Court whether temporary or otherwise cannot protect them against that liability.

There is no propriety in my submission for either the District Court or at its — at the Government’s instance the District Court to attempt to reach beyond the borders for property, which it can’t in fact control.

There is a way to do it.

Henry Harfield:

The whole trend has been in the collection of tightly extraterritorial collection of taxes to negotiate treaties with the foreign countries.

And then the government can proceed in an orderly fashion through the techniques of diplomatic and judicial assistance to do this without punishing not the taxpayer, but one of its own citizens.

And this, it seems to me, brings us back to the fact that the Court below properly vacated this injunction, because it is not an instrument of equity.

It was wrong, it was unfair.

Byron R. White:

[Inaudible]

Henry Harfield:

I think it would necessarily cover that, because in the case of the American Company, there is the power to reach that company and direct that company.

Byron R. White:

[Inaudible]

Henry Harfield:

The argument, that’s right.

The argument I’m making is that, if I maybe permitted to say so, the Government is kicking the wrong dog here.

Byron R. White:

[Inaudible]

Henry Harfield:

I would say that —

Byron R. White:

[Inaudible]

Henry Harfield:

It should be entered against the company, that is correct Your Honor.

Byron R. White:

[Inaudible]

Henry Harfield:

Well, if it were entered against the company that would control it and would leave the bank protected.

Byron R. White:

[Inaudible]

Henry Harfield:

It would have to sue for not having done that.

Byron R. White:

Mr. Oberdorfer.

Louis F. Oberdorfer:

Mr. Chief Justice, we are of course sensitive to the fact that this is a proceeding in equity and Mr. Harfield framed the question in terms of equity.

The equities include as Justice Goldberg has pointed out, the fact that the taxpayer here was embarked on a conscious effort in the nature of a transaction in fraud of creditors, the creditor being the United States to get his funds out of the United States before they could be used to apply to a tax liability with the respect to which a taxpayer hadn’t filed any returns, much less paid the tax.

The bank suggests that its foreign branch, although it operates abroad with the protection and the prestige backed by the sovereignty of the United States, should be a kind of privilege sanctuary into which as I understand it, a United States taxpayer can protect his funds from application to satisfy his United States tax liabilities.

Even though he’s been served personally and even though as I understand in response to the questions from Justice White, he is the United States Corporation, not just a foreign corporation nor a United States individual.

So far as the law is concerned, the question then is whether in those circumstances the bank should be exposed to some imaginary unproved, problematical, doubtful, possibly nonexistent double liability.

If in those circumstances, a Court of the United States entered an order against the bank directing it to hold on to funds in Uruguay and after that order it had been entered, this taxpayer who is described in the record and I’ve described sued in Uruguay, sued the United States bank for some kind of tort or breach of contract, the damages of which can’t even be defined and by some quirk of Uruguayan law, the bank in spite of the defense by — of the solemn judgment of the United States Court, in spite of the equities, the bank were held liable in Uruguay in that action.

Now, not only is that we think a far fetched unlikely academic guess, something that this Court should not rely on in making a decision, but the bank attached to its brief in chief and in an appendix on Page 1(a), reports that it asked the Uruguayan Counsel what would happen, if the bank in Uruguay refused to pay under circumstances not as egregious as the equities in this case?

And on Page 9(a) of the Appendix, there is included a letter from Uruguayan Counsel to whom the bank addressed its inquiry, the letter saying that injunction order issued by U.S. Court is not applicable in Uruguay that means this isn’t a defense in Uruguay, unless the injunction is properly submitted and approved by the Supreme Court of Uruguay following the legal requisites required by Uruguayan Law.

In other words, the suggestion is that if you come down to the ultimate essence of this double liability issue and the bank vigorously defends itself in Uruguay as it would and can, as its defended itself here, the Uruguayan Court would not hold the bank liable.

Thank you.

Potter Stewart:

Mr. Oberdorfer it seems if this was a Court of equity, I suppose the Court could have attached any conditions of — reasonable conditions which it chose to the issuance of its restraining order or injunction.

Louis F. Oberdorfer:

It’s correct, Your Honor.

Potter Stewart:

Do you suppose it could have gone so far as to provide that, if you the government wants this injunction, you shall be required to hold the bank harmless and indemnified for any possible double liability?

Louis F. Oberdorfer:

There would be a precedent for that, Your Honor, at least the legal basis for that kind of condition in this McGrath against City Service case decided by this Court.

We think that that the bank would have to make a better showing and we think it can make it, but this double liability before —

Potter Stewart:

Well, if there is —

Louis F. Oberdorfer:

But if the Court entered an order like that, it certainly would have the power to in a proceeding inequity, we would oppose it.

Potter Stewart:

But you could just say, if you want your injunction, those are the conditions to go with it?

Louis F. Oberdorfer:

Indeed so.

Potter Stewart:

And if as you were arguing the risk is very slight, that wouldn’t be much of a very onerous condition?

Louis F. Oberdorfer:

That cuts both ways. It might cause the bank to resist less vigorously than it might otherwise resist it, if it were put upon in Uruguay.

Hugo L. Black:

[Inaudible] with reference to the location of our banks in the that country?

Louis F. Oberdorfer:

Not to my knowledge, Your Honor.

Byron R. White:

Mr. Oberdorfer, do you have any doubt or – what is the situation of this litigation in regard to the new regulation?

This is a pending case that isn’t over?

The bank came in and said, the Commissioner must comply with the new regulation, at this point would he do so or not?

Louis F. Oberdorfer:

We think that — I haven’t thought this through, we think he’s — that he’s complied with the regulations.

Byron R. White:

Well, that isn’t my question.

I mean, does he have to?

Louis F. Oberdorfer:

Well, he didn’t at the time this action was brought, because there weren’t any such regulations, on remand probably so, probably so, probably so.

Byron R. White:

Probably he would have to comply with it and do you have any argument with the Mr. Harfield’s statement that the United States Courts here regularly refused to recognize orders of Foreign Courts similar to this one?

Louis F. Oberdorfer:

I don’t know that they do.

I was trying to project what would happen if the high —

Byron R. White:

But he says that — he makes the assertion that the domestic policy of the Court says that if a Foreign Court entered an order like this, it wouldn’t get to first base in one of our Courts here?

Louis F. Oberdorfer:

I don’t know such cases.

Thank you sir.