MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This case presents a collateral phase of litigation involving jeopardy assessments of some $19,000,000 made by the Commissioner of Internal Revenue against Omar, S. A., a Uruguayan corporation. The assessments charged that income had been realized within the United States on which a tax was due. On the same day respondent was served with notice of levy and notice of the federal tax lien. At the same time petitioner commenced an action in the New York District Court naming Omar, as well as respondent and others, as defendants. Personal jurisdiction over respondent was acquired; but as of the date of argument of the case here, Omar had not yet been served. That action requested, inter alia, foreclosure of
The District Court, on the basis of the affidavits, issued a temporary injunction enjoining respondent from transferring any property or rights to property of Omar now held by it or by any branch offices within or without the United States, indicating it would modify the order should compliance be shown to violate foreign law. 210 F.Supp. 773. The Court of Appeals reversed by a divided vote both by a panel of three, 321 F.2d 14, and en banc, 325 F.2d 1020. The case is here on a writ of certiorari. 377 U.S. 951.
Title 26 U. S. C. § 7402 (a) gives the District Court power to grant injunctions "necessary or appropriate for the enforcement of the internal revenue laws." Since it has personal jurisdiction over respondent, has it power to grant the interim relief requested? We are advised that respondent's only debt to Omar is payable at respondent's branch in Montevideo. It is said that the United States, the creditor, can assert against respondent in New York only those rights that Omar, the debtor, has against respondent in New York and that under New York law a depositor in a foreign branch has an action against the head office only where there has been a demand and wrongful refusal at the foreign branch. Sokoloff v. National City Bank, 239 N.Y. 158, 145 N. E. 917, 250 N.Y. 69,
We need not consider at this juncture all the refinements of that reasoning. For the narrow issue for us is whether the creditor (the United States) may by injunction pendente lite protect whatever rights the debtor (Omar) may have against respondent who is before the court on personal service. If it were clear that the debtor (Omar) were beyond reach of the District Court so far as personal service is concerned, we would have quite a different case—one on which we intimate no opinion. But under § 302 (a) of the New York Civil Practice Law and Rules, 7B McKinney's Consol. Laws Ann., § 302, personal jurisdiction may be exercised over a "non-domiciliary" who "transacts any business within the state" as to a cause of action arising out of such transaction, in which event out-of-state personal service may be made as provided in § 313.
If personal jurisdiction over Omar is acquired, the creditor (the United States) will be able to collect from respondent what the debtor (Omar) could collect. The opportunity to make that collection should not be lost in limine merely because the debtor (Omar) has not
Whether the Montevideo branch is a "separate entity," as the Court of Appeals thought, is not germane to the present narrow issue. It is not a separate entity in the sense that it is insulated from respondent's managerial prerogatives. Respondent has actual, practical control over its branches; it is organized under a federal statute, 12 U. S. C. § 24, which authorizes it "To sue and be sued, complain and defend, in any court of law and equity, as fully as natural persons"—as one entity, not branch by branch. The branch bank's affairs are, therefore, as much within the reach of the in personam order entered by the District Court as are those of the home office. Once personal jurisdiction of a party is obtained, the District Court has authority to order it to "freeze" property under its control, whether the property be within or without the United States. See New Jersey v. New York City, 283 U.S. 473, 482.
That is not to say that a federal court in this country should treat all the affairs of a branch bank the same as it would those of the home office. For overseas transactions are often caught in a web of extraterritorial activities and foreign law beyond the ken of our federal courts or their competence. We have, however, no such involvement here, for there is no showing that the mere "freezing" of the Montevideo accounts, pending service on Omar, would violate foreign law, cf. Societe Internationale v. Rogers, 357 U.S. 197, 211, or place respondent under any risk of double liability. Cf. Western Union Co. v. Pennsylvania, 368 U.S. 71. The District Court reserved power to enter any protective order of that character. 210 F.Supp. 773, 775. And if, as is argued in dissent, the litigation might in time be embarrassing to United States diplomacy, the District Court remains open
The temporary injunction issued by the District Court seems to us to be eminently appropriate to prevent further dissipation of assets. See United States v. Morris & Essex R. Co., 135 F.2d 711, 713-714. If such relief were beyond the authority of the District Court, foreign taxpayers facing jeopardy assessments might either transfer assets abroad or dissipate those in foreign accounts under control of American institutions before personal service on the foreign taxpayer could be made. Such a scheme was underfoot here, the affidavits aver. Unlike De Beers Mines v. United States, 325 U.S. 212, there is here property which would be "the subject of the provisions of any final decree in the cause." Id., 220. We conclude that this temporary injunction is "a reasonable measure to preserve the status quo" (Deckert v. Independence Shares Corp., 311 U.S. 282, 290) pending service of process on Omar and an adjudication of the merits.
MR. JUSTICE HARLAN, with whom MR. JUSTICE GOLDBERG joins, dissenting.
The Court's opinion reflects an expansive view of the jurisdiction of a federal court to tie up foreign owned and situated property with which I cannot agree.
The Internal Revenue Service first focused on Omar, S. A., a Uruguayan corporation, in 1959 when Omar filed a return seeking a $10,000 credit from a regulated investment company. Investigation of this relatively small refund claim revealed the possibility that in fact Omar owed a very substantial amount in taxes to the Government. Omar maintained accounts with several New York securities brokers, and purchase and sale orders
The Service did persist. On October 31, 1962, it issued jeopardy assessments against Omar totaling $19,300,000, and on the same day filed a complaint in the District Court for the Southern District of New York naming as defendants Omar, the brokerage houses with which Omar had dealt, and several banks including the First National City Bank (hereinafter Citibank) which is the respondent here. By this time Omar had in large part succeeded in liquidating its securities and transferring the funds out of the country. Some of the funds were apparently transferred to Citibank's branch in Montevideo, Uruguay, and were on deposit there on the day the complaint was filed. As part of the relief sought, the Government asked the District Court to "freeze" this account (we are not informed as to its size) until such time as personal jurisdiction could be obtained over Omar. Citibank contested the authority of the court to make such an order on the ground that the account had its situs in Montevideo and was therefore beyond the jurisdiction of the court. Personal jurisdiction over Omar had not been obtained at the time the complaint was filed, and has not been obtained in the two years since. Omar is thus not a party to the present litigation. Personal jurisdiction over Citibank was obtained by service upon its home office at 55 Wall Street, New York City.
The Court upholds the freeze order on the basis that the District Court, pending acquisition of personal jurisdiction over Omar, had authority to enjoin Citibank (over which it did have personal jurisdiction) from allowing its Montevideo branch to transfer the funds to Omar.
There can be no doubt that the enforcement powers available to the District Court were adequate to accomplish that much of the end in view. Citibank was before the court. It had sufficient control over the Montevideo branch to require compliance with the freeze order, and if it did not exercise that control, the sanctions of contempt could be inflicted on officers and property of Citibank within the New York district.
The real problem with this phase of the case is therefore this: Granting that the District Court had the naked power to control the Montevideo account by bringing to bear coercive action on Citibank, ought the court to have exercised it? Or to put the question in the statutory terms,
1. Need for Personal Jurisdiction Over Omar.
We should first consider the question in its starkest form. Assuming that there is no quasi in rem jurisdiction over the property (see Part IV, infra, p. 404) and no reasonable likelihood of obtaining personal jurisdiction over Omar, why should the court not use its naked power, to the extent that it could be brought to bear on others situated as was Citibank, to tie up Omar's property all over the world for the avowed purpose of coercing Omar into paying its taxes?
Use of judicial equity powers to coerce a party over whom the court has no jurisdiction or likelihood of obtaining jurisdiction is unheard of. The statute authorizing courts to render such decrees as may be "necessary or appropriate for the enforcement of the internal revenue laws" clearly intends that courts use only their traditional equity powers to that end.
2. Improbability of Obtaining Personal Jurisdiction Over Omar as of the Time the Injunction Was Issued.
It is basic to traditional notions of equity that to justify the issuance of a protective temporary injunction there must exist a substantial probability that jurisdiction, judgment, and enforcement will be obtained with respect to the person sought to be affected.
No other theory is offered by the Court which could justify the freeze order as of the time at which it was issued.
3. Evaluating the Injunction "as of now."
The only course left open to the Court on its theory of the case is to judge the injunction "as of now." Indeed the New York Court of Appeals ruled in Simonson v. International Bank, 14 N.Y.2d 281, 200 N.E.2d 427, that § 302 (a) does not retroactively validate actions in pending cases taken before its enactment, and may be applied to further proceedings in pending cases only if it is equitable to do so.
(a) The so-called "temporary" freeze order has now been in effect for over two years. During this time no form of jurisdiction over Omar has been obtained. It may be argued that it is this appellate review which has been the cause of delay. But Omar is not party to this review. The contesting parties are the Government and Citibank. Nothing pertaining to these proceedings precluded or excused the Government from obtaining personal jurisdiction over Omar and proceeding with the case if it was otherwise able to do so. As far as Omar is concerned, its property has been taken from its control by a court having jurisdiction neither over the corporation nor over the property (see Part IV, infra, p. 404), prior to any judgment of liability being entered against it, and during a time when the Uruguayan peso has fallen over 60%.
In the face of this statement there is no way that the Court can excuse or avoid the fact that the Government, by reason of either neglect or inability, has failed to acquire jurisdiction over Omar in the ample time which has been available to it. Yet the Court inexplicably finds equity in continuing the freeze order.
(b) Whether the situation is examined as of the time the order originally issued or as of now, the Government has to show that the funds to be frozen may be subject to ultimate execution. If the property cannot be subjected to government levy, there is obviously no equity in freezing it. That is the situation presented here. The quasi in rem statute does not permit the court to attach the property directly (see Part IV, infra, p. 404), and no view is expressed by the Court as to how or whether this difficulty could be avoided.
The Government argues that this obstacle can be skirted in the following fashion. Personal jurisdiction under § 302 can be obtained over Omar by mailing a
The reasons why this procedural cake-walking should not commend itself are manifest. Foreign courts in customary
Furthermore the prospect is more than startling that a district court, aware that a foreign country would not enforce its judgment, would nonetheless dispatch a court officer to the foreign jurisdiction to accomplish that end by self-help.
THE DE BEERS AND DECKERT CASES.
It is surprising that the Court has been content to so cursorily lay aside De Beers Consolidated Mines, Ltd. v. United States, 325 U.S. 212, for upon examination that case will be found to be indistinguishable from the present case and should control this litigation on the personal jurisdiction issue.
The United States brought a Sherman antitrust action against De Beers and other African-based diamond companies alleging monopolization and conspiracy in restraint of trade. All were allegedly doing business within the United States. With the complaint the Government requested a preliminary injunction freezing all property in the United States belonging to the defendants. As stated in the opinion, the reasons given in support of the motion were:
Under the Sherman Act district courts had power "to prevent and restrain violations of this act" (26 Stat. 209, 15 U. S. C. § 4 (1958 ed.)), and, under the "all-writs" section of the Judicial Code, to "issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law" (now 28 U. S. C. § 1651 (1958 ed.)). The Court construed these grants of authority as limited to traditional equitable powers. It then demonstrated the remoteness of any levy by the Government against the property of the defendants, and because of the remoteness vacated the freeze order. It should be noted that unlike the present case the property sought to be frozen was within the borders of the United States, and, that without a hold on it, an order to the defendants to stop their alleged monopolistic practices would have been as little likely to meet with voluntary compliance as an order to Omar to pay $19,300,000.
The Government would distinguish De Beers on the ground that under the Sherman Act the trial court could award only injunctive relief, whereas in the present case the judgment, were the Government successful, would be a money award. However, the De Beers Court recognized that levy against the property could ultimately be had as a means of enforcing the injunctive order. Clearly the Court's point in emphasizing the scope of the order which could issue in the first instance was that the possibility of an ultimate levy was too remote in practical terms to justify freezing the property from the outset of the litigation. Remoteness is the determinative point,
The Government puts forth Deckert v. Independence Shares Corp., 311 U.S. 282, instead of De Beers as the case most analogous to the present one. In Deckert a bill in equity was brought against an insolvent and allegedly fraudulent securities vendor and against a third party who held assets of the vendor. By way of interlocutory relief the plaintiffs asked that the assets in the hands of the third party be frozen, and this Court sustained the request. Distinguishing features are many. Deckert involved no international problems. The court had personal jurisdiction over all parties concerned. There was no question of power to enforce a judgment against the frozen funds. The only contingency on which enforcement depended was whether the plaintiff would win the suit; thus, there was virtually no problem of remoteness. And unlike the present case (see infra, pp. 404-409), the frozen funds could have been attached directly by a suit quasi in rem in a state court.
THE OVERALL BALANCE OF EQUITIES AND CONSIDERATIONS AFFECTING JURISDICTION.
Certainly the Court's remark that it must act in light of the "public interest" cannot mean that because the Government is a party here, the Court may ignore its duty to consider the balance of equities. It is, therefore, well to consider just what overall benefits will accrue in the public interest as a result of today's decision.
Except in the context of the comparatively rare case in which the Government has the element of surprise on its side, it must be recognized that the utility of the extra-territorial freeze order as a tax-collecting weapon is minimal. Under the tax regulation adopted during this action the Government declares that it would use the freeze-order power to reach only funds which were transferred out of this country in order to hinder or delay the collection of taxes and which were in banks having an American office.
If the overall benefits of this exercise of power are minimal, the detriments are substantial.
(a) It would expose Citibank, an innocent stakeholder, to exactly the kind of administrative hazards which New York's "separate entity" theory is designed to obviate.
(b) It would subject Citibank to the possibility of double liability if Uruguay did not recognize the United
(c) Citibank alleges that its foreign banking business will be hurt because foreign depositors will be discouraged from using United States banks for fear that their funds can be reached by United States courts. There is no sure way to gauge the seriousness of this possibility, but since Citibank is an innocent stakeholder here, doubt should be resolved in its favor.
(d) The Uruguay Code of Civil Procedure provides, in rough translation:
When Omar sues Citibank in Montevideo for its account, Citibank will plead the United States decree as a defense, and the Court speculates that Uruguay will give it effect (ante, pp. 384-385). In light of Uruguay's reciprocity principle the Court's decision implicitly signifies that our courts would recognize a similar order by a Uruguayan court.
The Court should not lose sight of the fact that our modern notions of substituted service and personal jurisdiction
QUASI IN REM JURISDICTION.
There remains for consideration the quasi in rem issue which the Government argues but which the Court chooses not to decide. Whether the District Court had quasi in rem jurisdiction turns on whether Omar had property or rights to property within the Southern District of New York to which a federal lien could attach.
In United States v. Bess, 357 U.S. 51, the taxpayer died leaving income taxes unpaid for a prior year. Several life insurance policies were part of his estate. The Court said:
Since Bess had had no right to the proceeds of the policies during his lifetime, no federal tax lien could have attached to them. But Bess could have drawn on the cash surrender value; thus under state law he had "rights to property" during his lifetime to that extent. However, it was also true under state law that no creditor was permitted to attach the cash surrender value of the policies. In answer to the contention that the Government should be treated no differently than any other creditor, the Court said:
On the basis of this analysis—that state law creates property rights, but federal law determines whether liens should attach to them—the Court concluded that the lien could be enforced against the beneficiary of the policies to the extent of the cash surrender value.
Even under Bess an argument could be made for permitting a federal lien in this instance to attach in New
The Government seeks to analogize various insurance company cases in which liens are permitted to attach to the cash surrender value of policies despite a contract condition that the policyholder must surrender his policy in order to collect.
In conclusion on the quasi in rem branch of this case, it should be remembered that it is a statute which we are interpreting.
The only case cited by the Court relating to injunctions involving property outside the United States is New Jersey v. New York City, 283 U.S. 473, in which this Court enjoined New York City from dumping its garbage
While I have the utmost sympathy with the Government's efforts to protect the revenue, I do not think the course it has taken here can be sustained without extending federal court jurisdiction beyond permissible limits.
I vote to affirm the judgment of the Court of Appeals.
"Whenever a statute or rule of court of the state in which the district court is held provides (1) for service of a summons, or of a notice, or of an order in lieu of summons upon a party not an inhabitant of or found within the state, or (2) for service upon or notice to him to appear and respond or defend in an action by reason of the attachment or garnishment or similar seizure of his property located within the state, service may in either case be made under the circumstances and in the manner prescribed in the statute or rule."
Rule 4 (f), also effective July 1, 1963, reads in relevant part:
"All process other than a subpoena may be served anywhere within the territorial limits of the state in which the district court is held, and, when authorized by a statute of the United States or by these rules, beyond the territorial limits of that state."
"To Issue Orders, Processes, and Judgments.—The district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such laws."
"(a) Acts which are the basis of jurisdiction. A court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, as to a cause of action arising from any of the acts enumerated in this section, in the same manner as if he were a domiciliary of the state, if, in person or through an agent, he:
"1. transacts any business within the state; or
"2. commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act; or
"3. owns, uses or possesses any real property situated within the state.
"(b) Effect of appearance. Where personal jurisdiction is based solely upon this section, an appearance does not confer such jurisdiction with respect to causes of action not arising from an act enumerated in this section."
"A person domiciled in the state or subject to the jurisdiction of the courts of the state under section 301 or 302, or his executor or administrator, may be served with the summons without the state, in the same manner as service is made within the state, by any person authorized to make service within the state who is a resident of the state or by any person authorized to make service by the laws of the state, territory, possession or country in which service is made or by any duly qualified attorney, solicitor, barrister, or equivalent in such jurisdiction."
"If a judgment directs a party to execute a conveyance of land or to deliver deeds or other documents or to perform any other specific act and the party fails to comply within the time specified, the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done has like effect as if done by the party."
The Court derives support for such a bizarre procedure from the fact that "the District Court remains open to the Executive Branch" (ante, pp. 384-385). But certainly the Court cannot justify a procedure at odds with proper international practice simply because the Executive has not expressed a contrary wish.
I doubt very much whether before today's decision even our own State Department would have found it easy to lend its aid, by way of issuing a passport or otherwise, to such a novel international adventure.
Prior to the recent amendments of the Federal Rules of Civil Procedure (see Rule 4 (e)), a federal district court could not obtain quasi in rem jurisdiction over a debt owed to an absent defendant. Big Vein Coal Co. v. Read, 229 U.S. 31.
26 CFR § 301.6332-1 (as amended by T. D. 6746, 29 Fed. Reg. 9792) Surrender of property subject to levy.
"(a) Requirement—(1) In general. Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the district director, surrender such property or rights (or discharge such obligation) to the district director, except such part of the property or right as is, at the time of such demand, subject to an attachment or execution under any judicial process.
"(2) Property held by banks. Notwithstanding subparagraph (1) of this paragraph, if a levy has been made upon property or rights to property subject to levy which a bank engaged in the banking business in the United States or a possession of the United States is in possession of (or obligated with respect to), the Commissioner shall not enforce the levy with respect to any deposits held in an office of the bank outside the United States or a possession of the United States, unless the notice of levy specifies that the district director intends to reach such deposits. The notice of levy shall not specify that the district director intends to reach such deposits unless the district director believes—
"(i) That the taxpayer is within the jurisdiction of a United States court at the time the levy is made and that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office of the bank outside the United States or a possession of the United States; or
"(ii) That the taxpayer is not within the jurisdiction of a United States court at the time the levy is made, that the bank is in possession of (or obligated with respect to) deposits of the taxpayer in an office outside the United States or a possession of the United States, and that such deposits consist, in whole or in part, of funds transferred from the United States or a possession of the United States in order to hinder or delay the collection of a tax imposed by the Code.
"For purposes of this subparagraph, the term `possession of the United States' includes Guam, the Midway Islands, the Panama Canal Zone, the Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and Wake Island."
"§ 1655. Lien enforcement; absent defendants.
"In an action in a district court to enforce any lien upon or claim to, or to remove any incumbrance or lien or cloud upon the title to, real or personal property within the district, where any defendant cannot be served within the State, or does not voluntarily appear, the court may order the absent defendant to appear or plead by a day certain.
"Such order shall be served on the absent defendant personally if practicable, wherever found, and also upon the person or persons in possession or charge of such property, if any. Where personal service is not practicable, the order shall be published as the court may direct, not less than once a week for six consecutive weeks.
"If an absent defendant does not appear or plead within the time allowed, the court may proceed as if the absent defendant had been served with process within the State, but any adjudication shall, as regards the absent defendant without appearance, affect only the property which is the subject of the action. When a part of the property is within another district, but within the same state, such action may be brought in either district.
"Any defendant not so personally notified may, at any time within one year after final judgment, enter his appearance, and thereupon the court shall set aside the judgment and permit such defendant to plead on payment of such costs as the court deems just."
The bank account is a contract for payment on demand at the Montevideo branch. If demand were wrongfully refused, a cause of action for breach of contract would be created on which Omar could sue in New York. Thus, analytically, it is not the account itself which would become payable in New York, but damages for breach of the contract to pay on demand in Montevideo.
"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."
I would not decide at this juncture whether federal courts in all situations would be required to enforce liens against property which the State would hold to be within its jurisdiction.