Fred S. James & Co. v. Second Russian Insurance , 239 N.Y. 248 ( 1925 )

The Eagle, Star British Dominions Insurance Company, Ltd., plaintiff's assignor, entered into contracts or treaties with the defendant, Second Russian Insurance Company, a Russian corporation, by which the latter reinsured the former's marine risks to the extent therein stated. Losses were sustained and the British company attempted to recover them from its Russian reinsurer. The demand having met with a refusal, the cause of action was assigned to the plaintiff, a domestic corporation. The defendant, which has appeared generally, admits that it is engaged in business in New York, but urges as a defense that its corporate life was ended by a decree of the Russian Soviet government nationalizing the business of insurance companies in Russia; that by the same decree, the companies were released from the payment of debts and liabilities; that Great Britain has recognized the existence of the Russian Soviet government, and by a trade agreement set forth in the answer has confirmed the confiscation of the debts owing to its nationals; that all these things were done before the transfer to the plaintiff; and that the plaintiff, taking no greater rights than its assignor, is seeking to enforce a right of action which at the time of the assignment had already been extinguished. The defendant moved that the plaintiff be directed to reply to its defenses, and the Appellate Division, refusing that relief, has certified questions which require us to determine whether the defenses, variously pleaded, are sufficient on their face.

We deal first with the so-called defense that the corporation which defends is dead and so incapable of defending (Martyne v.American Union Fire Ins. Co., 216 N.Y. 183, 190; Sturges v.Vanderbilt, 73 N.Y. 384). This is obviously not a "defense" at all, if the word defense is employed as one of art, with a proper legal meaning. A corporation with vitality sufficient to answer a complaint has by the very terms of the hypothesis vitality sufficient to permit it to be sued. The shades of dead defendants do not appear and plead. Expedients, of course, there are whereby a court may be informed that jurisdiction has been halted. If the corporation is defunct, those in charge of its assets may place upon the record a suggestion of its death, may stay the progress of the suit, and may even vacate the process that assumes to bring it into court (Nankivel v. Omsk All Russian Government,237 N.Y. 150; Martyne v. Am. Union Fire Ins. Co., supra). Such are not the expedients that by the questions now certified to us we are asked to approve or to condemn. But if we put the questions to one side and view the statements of the answer, verified by the defendant's officers, as a suggestion of its death, to be heeded even in this court, lest a controversy with an unreal litigant be unwittingly determined, the result will not be changed. The decree of the Russian Soviet government nationalizing its insurance companies has no effect in the United States unless, it may be, to such extent as justice and public policy require that effect be given. We so held in Sokoloff v.National City Bank (239 N.Y. 158). Justice and public policy do not require that the defendant now before us shall be pronounced immune from suit. In the circumstances exhibited by this record, we find it profitless to consider whether the decree was intended to put the nationalized companies out of existence altogether or on the other hand to preserve them as corporate entities though in the ownership of the government (Russian Commercial Industrial Bank v. Comptoir D'Escompte de Mulhouse, House of Lords, 40 T.L.R. 837). Our concern is not so much with the consequences intended by the authors of the decree as with those that will be permitted in other jurisdictions where the intentions of its authors are without effect as law. The defendant has complied with the provisions of our statutes prescribing the conditions in which foreign insurance companies may do business within our borders (Insurance Law, §§ 27, 28; Consol. Laws, ch. 28). It has put itself for many purposes in the same category as our own domestic corporations (Comey v.United Surety Co., 217 N.Y. 268, 274). Far from suspending its activities since the promulgation of the decree which is said to have ended its existence, it has since then written policies of insurance covering millions of dollars of risks, has collected premiums in large amounts, and by the admissions of its answer is doing business today. If the Russian government had been recognized by the United States as a government de jure, there might be need, even then, to consider whether a defendant so circumstanced, continuing to exercise its corporate powers under the license of our laws, would be heard to assert its extinction in avoidance of a suit (cf. Thompson on Corporations, § 6569; 2 Morawetz, Private Corporations [2d ed.], § 1003; 37 Harvard Law Review, 610). In the existing situation, the refinements of learning that envelop and to some extent obscure the definition of de facto corporations are foreign to our inquiry. So long at least as the decree of the Russian government is denied recognition as an utterance of sovereignty, the problem before us is governed, not by any technical rules, but by the largest considerations of public policy and justice (MacLeod v. U.S., 229 U.S. 416,428, 429). When regard is had to these, the answer is not doubtful. The defendant asks us to declare its death as a means to the nullification of its debts and the confiscation of its assets by the government of its domicile. Neither the public policy of the nation, as established by President and Congress, nor any consideration of equity or justice exacts an exception in such conditions to the need of recognition. We do not say that a government unrecognized by ours will always be viewed as non-existent by our courts though the sole question at issue has to do with a transaction between the unrecognized government and a citizen or subject of a government by which recognition has been given. To say this might seem to imply, for illustration, that a voluntary conveyance by a British citizen to the Soviet government would be viewed as a nullity in the United States on some theory that the grantee though recognized in Great Britain was without capacity to take. No such sweeping declaration is essential to the decision of the case before us. We deal now with the single question whether the defendant has an existence sufficient to subject it to suit in the domestic forum. That is a question which the law of the forum will determine for itself. Liability to be sued is quite distinct from liability to be held in judgment upon the facts developed in the suit. We keep our ruling within these limits, and hold that the defendant is amenable to the process of our courts.

If existence be assumed, the question remains whether liability has been extinguished. Was it extinguished by the Soviet decree canceling or releasing the debts of the nationalized companies? If not, was it extinguished by the action of Great Britain in negotiating the trade agreement of 1921? As to the Soviet decree, we think its attempted extinguishment of liabilities is brutumfulmen, in England as well as here, and this whether the government attempting it has been recognized or not. Russia might terminate the liability of Russian corporations in Russian courts or under Russian law. Its fiat to that effect could not constrain the courts of other sovereignties, if assets of the debtor were available for seizure in the jurisdiction of the forum (Barth v. Backus, 140 N.Y. 230; Matter of People [City EquitableFire Ins. Co.], 238 N.Y. 147, 152; cf. Matter of Barnett'sTrusts, 1902, 1 Ch. 847). The decree invoked by the defendant is not in any true sense a decree of bankruptcy, though even if it were, there would be limits to its extraterritorial validity. A decree of bankruptcy presupposes a distribution of the assets for the benefit of creditors, and this decree is one of confiscation, appropriating the assets for the benefit of the Soviet republic. One government does not execute the tax laws of another (Stateof Colorado v. Harbeck, 232 N.Y. 71, 82), nor help another in enforcing a penalty or forfeiture (Loucks v. Standard OilCo., 224 N.Y. 99, 102). If this is so where the foreign statute or decree is that of a recognized government de jure, it is still more clearly so where the decree is that of a government to which recognition has been denied. Neither comity nor public policy requires us to enforce a mandate of confiscation at the behest of such a government to the prejudice either of our own citizens or of those of any friendly power seeking justice in our courts.

The defendant insists, however, that though the Soviet decree standing by itself may have been inoperative in England to terminate the right of recourse to assets beyond the territory of Russia, yet the effect of the trade agreement of 1921 between Great Britain and Soviet Russia was to extinguish by force of eminent domain the rights of action of British nationals against Russian corporations and to put their own government in place of the defendant and of others similarly situated as a substituted debtor (citing Ware v. Hylton, 3 Dall. 199, 245; Gray v.U.S., 21 Ct. Claims, 340, 390; 2 Wharton, Digest Int. Law, p. 709, § 248; cf. Hijo v. U.S., 194 U.S. 315, 323; TheBlonde, 1922, 1 A.C. 335). We pass the question whether such an agreement, if made, would be disregarded by our courts because of our refusal to recognize the existence as a government of one of the parties to the compact. We assume, though we are not required to decide, that if the compact existed, we would not treat it as a nullity. A sufficient answer is that no such substitution of liabilities was established by the trade agreement or thought of in its making. All that the trade agreement does is to declare the principles upon which a general peace treaty, if made, will be concluded. The Russian government declares that it recognizesin principle that it is liable to pay compensation to private persons who have supplied goods or services to Russia for which they have not been paid. The British government makes a corresponding declaration. Plaintiff's claim is neither for goods nor for services, even if a recognition in principle of a duty of reparation were thought to be important. Beyond this, both parties declare that "all claims of either party or of its nationals against the other party in respect of property, or rights, or in respect of obligations incurred by the existing or former governments of either country shall be equitably dealt with in the formal general peace treaty referred to in the preamble." We are to observe that the claims here mentioned are those, not against a Russian citizen or corporation, but against the Russian government; and that even as to these, the obligations of the declaration are wholly future and executory. What is equitable is to be agreed upon at some indefinite time thereafter if an agreement can be reached. We should be straining words to the breaking point if we held that Great Britain, by exacting from Russia a promise of just treatment in the future, presently extinguished the rights of action of its nationals which till then had been enforcible.

The order should be affirmed with costs, and the questions certified answered in the negative.

HISCOCK, Ch. J., POUND, McLAUGHLIN, ANDREWS and LEHMAN, JJ., concur; CRANE, J., absent.

Order affirmed.