KOLOVRAT v. OREGON

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Argument of Lawrence S. Lesser

Chief Justice Earl Warren: Number 102, Andja Kolovrat et al., Petitioners, versus Oregon.

Mr. Lesser --

Mr. Lawrence S. Lesser: Mr. Chief Justice, may it please it the Court.

This matter is here on certiorari to the Supreme Court of Oregon.

Notwithstanding the provisions of Article II of an 1881 convention for facilitating and developing commercial relations between the United States and Serbia, which the court below recognized as being in effect between the United States and Yugoslavia, the court below declared a decree to intestate estates as (Inaudible) on the ground that the decedents' next of kin, the petitioners here, being citizens and residents of Yugoslavia were not entitled to inherit under Section 1 (b) of Oregon's reciprocity statute so called, for the reason that the court found, and erroneously we would suggest, that remittances to the United States of the distributive shares of American beneficiaries of Yugoslavia States was subject to the foreign exchange controls that Yugoslavia maintains under the International Monetary Fund Agreement to which the United States and Yugoslavia and some 66 other nations are parties.

Now, Article II of the 1881 convention, reciprocally grants to citizens of each country, most favored nation rights to acquire, to possess and to dispose of real and personal property, situated in the other country and specifically to acquire and dispose of such of property whether by purchase, sale, testament, inheritance or in any other manner whatever.

Now in consequence of an 1853 Treaty between the United States and the Argentine and a 1923 Treaty between Yugoslavia and Poland, these most favored nation rights have become national rights, that is that the citizens of each country are entitled in these respects to the rights of the citizens of the other.

Now, the court below recognized that if the petitioners were entitled to the rights granted by Article II of the Convention, the Oregon reciprocity statute under which they were held, disqualified to inherit would be inapplicable.

However, the court below construed Article II of the Convention as granting rights only to Yugoslavs who are within the United States and by necessary implication only to Americans who are in Yugoslavia.

Now, so far as concerns, the specific language of the convention, we think that the Secretary of State in construing this provision, put it succinctly when he said that the question is whether the words, in Serbia and in the United States as used in the convention, are to be treated as adjectival, that is as modifying citizens of the United States and Serbian subjects respectively or whether they are to be treated as advertent, that is as modifying (Inaudible).

Now on the face of it, the language of the convention is --

Justice William O. Douglas: Is that -- is that in Article II?

Mr. Lawrence S. Lesser: That's Article II, Your Honor.

Now on the face it, the language of the convention is susceptible to the interpretation that the court below put upon it, but only on the face of it and only if the convention's express purpose of facilitating and developing commercial relations between the two countries is completely disregarded.

The inescapable consequence of the interpretation of the court below would be to defeat every objective of the Treaty, necessary to the achievement of its ultimate purpose and to defeat that purpose itself.

For example, under the construction of the court below, if a merchant in one country wanted to buy or sell goods in the other, he would have no treaty right to acquire, to possess or to dispose of such goods or indeed of the money and credits that would be involved in such a sale.

Nor if such a merchant engaged in a transaction of that kind, would he have any treaty guarantee that in the event of his death, the funds and credits and goods that he accumulated in the other country, would descend to his next of kin, who remained at home.

Furthermore, merchants in one country would have no treaty right to the -- to access to the courts of the other, in the event of dispute, nor would there be any treaty protection, whatsoever, against discriminatory practices in relation to the taxation, customs or any other of the multitude of matters affecting trade and commerce and with respect to which the convention purports to think.

And what's more, the goods and credits of the merchants of one country that were in the other would not be exempted from forced loans or military exactions or requisitions as the convention provides.

Now, when -- bear in mind that commerce between countries is and has been typically conducted by merchants (Inaudible), who stay at home themselves and do business abroad by mail and cable or by traveling salesmen or traveling buyers.

The construction of the court below would leave the convention a slim read, if read at all, for facilitating the -- and developing commercial relations between the two countries, but the court below took no such considerations into account and it expressly refused to give any weight whatsoever, to the Secretary of State's carefully considered construction of the convention communicated to and concurred in by Yugoslavia that Article II grants to the citizens of each of country whatever they might be, the right to acquire by inheritance or otherwise, property located in the other and the right freely to possess and dispose of property located in the other.

Nor did the court below give any weight whatsoever to what we consider the most compelling circumstance that the United States had fully relied on the convention so construed to protect all American property rights in Yugoslavia when it negotiated and concluded the Yugoslav Claims Settlement Agreement in 1948, that Yugoslavia had acquiesced in that construction and that the construction adopted by the court below would necessarily result in American property and American property rights in Yugoslavia being wholly without treaty protection except for such property and property rights as belonging to the few Americans that can be found in Yugoslavia.

Justice Felix Frankfurter: But where is -- where is the exchange between Yugoslavia and the United States in the settlement in 1948?

Mr. Lawrence S. Lesser: The -- the exchange sir, I --

Justice Felix Frankfurter: What the -- I understood from you, there was an exchange whereby the 1883 was interpreted in the settlement made by the 1948 --

Mr. Lawrence S. Lesser: Well, it's in the -- it's in the treaty -- it's -- it's in the agreement of 1948 itself, Your Honor.

Justice Felix Frankfurter: Alright, well, just point directly please.

Mr. Lawrence S. Lesser: That is set out on page 32 --

Justice Felix Frankfurter: Of your brief?

Mr. Lawrence S. Lesser: -- of -- of my brief, the provision.

Justice Felix Frankfurter: The Government of Yugas -- agrees to -- Were there any preliminary documents in connection with this settlement?

Mr. Lawrence S. Lesser: Not that I know of, sir.

On the other hand, there was a subsequent exchange of diplomatic correspondence between the United States and Yugoslavia which is set out --

Justice Felix Frankfurter: Antemortem license.

Mr. Lawrence S. Lesser: Well, it didn't have to do with -- with the 1948 settlement, it had to do the 1881 --

Justice Felix Frankfurter: But it was -- there was -- it was in reference to any particular litigation --

Mr. Lawrence S. Lesser: It was in reference to a general problem.

Justice Felix Frankfurter: All right, where is that?

Mr. Lawrence S. Lesser: That is set out beginning at page 7A --

Justice Felix Frankfurter: Page what?

Mr. Lawrence S. Lesser: -- of my brief.

Justice Felix Frankfurter: 70?

Mr. Lawrence S. Lesser: 7A, in the appendix.

Justice Felix Frankfurter: Right.

Mr. Lawrence S. Lesser: And it's also set out in the Government's amicus brief in their appendix.

The Secretary of State's construction of Article II appears to have been that also of the American negotiator of the convention as appears from diplomatic correspondence which the State Department has discovered in the archives.

Justice Felix Frankfurter: I must cover you again.

What is Appendix B7a, which says explicitly whether they reside in Yugoslavia or elsewhere?

What is the -- what is that document, does that -- define that document, what is that?

Mr. Lawrence S. Lesser: I -- I didn't --

Justice Felix Frankfurter: What is the document?

What is Appendix B?

Mr. Lawrence S. Lesser: Appendix B -- Appendix B –

Justice Felix Frankfurter: -- Is a note.

Mr. Lawrence S. Lesser: It's a note.

Justice Felix Frankfurter: What is the note about?

Mr. Lawrence S. Lesser: Pardon?

Justice Felix Frankfurter: What is the note about?

Mr. Lawrence S. Lesser: The note is about the Secretary of State's construction of the 1881 Convention.

Justice Felix Frankfurter: Well that -- on the occasion, he didn't just a write a note saying, I --

Mr. Lawrence S. Lesser: No, --

Justice Felix Frankfurter: -- will construe the act of 1880 –

Mr. Lawrence S. Lesser: No, the -- the Yugoslav Ambassador inquired and the inquiry is set out on page 12A.

Justice Felix Frankfurter: What did he inquire about?

I want to know the occasion of this explicit statement by our Secretary of State that the Treaty covers rights whether the Yugoslav national resides physically in Yugoslavia or in France or anywhere else.

Mr. Lawrence S. Lesser: Well, the precise -- the precise occasion was the inquiry by the Yugoslav Ambassador as to what the view of the United States was in that regard with respect to Article II of the Convention.

The Yugoslav Ambassador pointed out that some questions had been raised in -- in various times and in various places as to the meaning of it.

He pointed out also that in negotiating the 1948 Claims Settlement Agreement.

It was understood by both parties that this worked both ways and so forth and so on and that was it.

Justice Felix Frankfurter: This is 1958.

Mr. Lawrence S. Lesser: 1958, sir.

And the claim certainly --

Justice Felix Frankfurter: It was in connection with this very suit, was it Mr. Lesser?

Mr. Lawrence S. Lesser: I wouldn't say in connection with this suit, but I must say that from what I understand there's been a great deal of litigation involving Yugoslav inheritances.

Justice Felix Frankfurter: True.

Mr. Lawrence S. Lesser: In some of the cases, the treaty wasn't involved at all, in others, it has been.

Now --

Justice Felix Frankfurter: My curiosity is whether this pronouncement by the Secretary of the State was a post motam litem and was directed to a specific litigation in which he gave an opinion as to what the Treaty meant or whether it was a pronouncement, neutral as it were so far as a particular litigation was concerned --

Mr. Lawrence S. Lesser: But --

Justice Felix Frankfurter: -- namely, that there is an inquiry generally or whatever provoked it, maybe in the re-consideration of a treaty, maybe the Yugoslav Ambassador wanted to know what the State Department thought because if they gave one answer, they might propose a modification and if they gave another answer, they would rest on the --

Mr. Lawrence S. Lesser: I --

Justice Felix Frankfurter: It seemed like that or in mind, Mr. Lesser because -- we start again with a proposition that a settled construction by State Department, our treaty governs the courts, that's the general proposition.

Mr. Lawrence S. Lesser: Well, I think Your Honor that the construction by the State Department here is one that was demonstrably that of the negotiator in 1881.

It was that that was adopted in 1948 not only by the State Department, but by the House Foreign Affairs Committee and Senate Foreign Relations Committee, the one they reported favorably.

Justice Felix Frankfurter: What you're saying is that the later construction by the Secretary of State was in confirmation of the attending circumstances of the original treaty?

Mr. Lawrence S. Lesser: Yes, sir.

And the occasion for the Yugoslav Ambassador's inquiry was in fact, the questions that have been raised about this in connection with a series of litigations.

Not -- not this particular --

Justice Felix Frankfurter: Not a suit.

Not (Voice Overlap)

Mr. Lawrence S. Lesser: Not this, oh on.

Now, there have been -- there have been others.

Now the court below construed Article II as it did solely on the ground that the case was doubled, the first case was doubled.

The first construction was doubled by this Court's decision, in Clark against Allen, 331 U.S. 503 and we would suggest that the Court completely misread both Clark and the treaty provisions there involved.

In Clark, an American had bequeathed property located in the United States to a German and the question was what?

The 1923 Treaty with Germany protected the legatee against the consequences of California's so called reciprocity statute.

The German Treaty provided nationals of either High Contracting Party, may have full power to dispose of their personal property of every kind within the territories of the other.

And their heirs, legatees and donees of whatever nationality whether resident or non-resident, shall succeed to such personal property.

Now following the line of cases, beginning with the 1860 decision in Frederickson against Louisiana, which dealt with the series of treaties having almost identical language with that of the German Treaty, this Court held in Clark that the -- that either High Contracting Party met one High Contracting Party and that the phrase, “Within the territories of the other,” modifies their personal property so that the -- such personal property which could be inherited was the personal property within the territory of one country belonging to a citizen of the other.

Accordingly, this point held Clark that the German Treaty did not apply, because that was not a case where a citizen of one country had bequeathed property located in the other, but was a case where a citizen of one country had bequeathed property located in his own.

Now the difference between the German Treaty and Article II of the convention is clear.

Under the German Treaty, the right of a legatee or other beneficiary to succeed depends upon the decedent being a citizen of one country.

And the subject of the gift being property located in the other, the German Treaty expressly provides that the nationality and the residence of the legatee is immaterial.

Now Article II of the convention however, covers both disposition and acquisition by any means whatsoever, of property in one country by citizens of the other, wholly without reference in the -- to a -- wholly without reference to the nationality or residence of the donee.

In the case of disposition or the nationality or residence of the donor in the case of acquisition, the only question being whether this right of citizens of one country to acquire property located in the other by inheritance or otherwise and to possess and to dispose of property located in the other is limited to such of those citizens who themselves are within the territory of the other country within which the property is located.

Now, the court below read the German Treaty as though the phrase, “Within the territories of the other” modified nationals of either High Contracting Party rather than the phrase, “Their personal property of every kind” which is what this Court held.

And it misunderstood Clark as holding and I quote, "That the German Treaty applied only to nationals of either of the party nations who were within the territory of the other."

Now -- no such question arose in Clark, no point had arisen in Clark because the German Treaty specifically support that a donee's right to succeed is out -- is without regard to his nationality or residence.

Now, the decision in Clark did not hinge on the whereabouts of either the testator or the legatee, but rather on the nationality of the testator and the location of the property which was the subject of the gift.

Under the German Treaty, it was decisive that the decedent was an American and that the property was in the United States since the right of a donee to take ownership depends upon the donor, being a citizen of one country, and the property being located in the other.

Now here, that the decedent was an American and that the property is in the United States is wholly immaterial because under the convention, the right of a donee to take depends upon his -- the donee's, being a citizen of one country and the property being within the other.

We think it's clear that Clark is without relevance here, either as a precedent or by way of analogy and that the court below was completely mistaken in relying upon it.

We believe also that the construction of the court below must be rejected as entirely incompatible and inconsistent with the purpose of the convention and one which would make it wholly ineffective.

We think that the construction placed on the convention by the Executive, that's the Secretary of State, the negotiator and by the congressional committees is entitled to exceptionally great weight here, particularly since it was relied on in negotiating and implementing the agreement for the protection of American property rights in Yugoslavia and Yugoslavia acquiesced in it.

Now the convention is a two-way street and if the right of these petitioners to inherit this American property is not protected by it, then neither is any property right or any property in Yugoslavia of any American other than such Americans as native in Yugoslavia.

We think that the construction placed on Article II by the court below is without authority in Clark or elsewhere and is contrary to the basic tenets for the construction of treaties announced time and time again by this Court.

We think that the construction for which we argue the construction of the Secretary of State and of the Congressional Committees, does make the standards, does give effect to the Treaty and is the only proper construction of the convention and that for that reason the decrees below should be reversed.

Now alternatively, the petitioners believe that the decrees below should be reversed because Section 1 (b) of the Oregon reciprocity statute so called, as construed by the court below and applied by it here is inconsistent with the Articles of Agreement of the International Monetary Fund to which the United States and some 66 other nations are parties.

Article VI, Section 3 of the Agreement to which the United States became a party pursuant to the Bretton Woods Agreement Act, provides and I quote, “Members may exercise such controls as are necessary to regulate international capital movement.

Transfers of legacies from one country to another, as Oregon admits, are international capital movement.”

Accordingly, even if Yugoslavia subjects remittances of legacies abroad to its foreign exchange controls, which we suggest is not the case, but if it does, it does so as a matter of right under the fund agreement to which the United States is a party.

And we think it's clear under the decisions of this Court that a state may not pursue a domestic policy which is in conflict with the federal policy and action within the competence of the Federal Government to take.

And by the fund agreement, the United States has agreed to the maintenance by Yugoslavia and the other fund members of controls on capital transfers abroad.

Justice Felix Frankfurter: That means fully -- irrespective of treaties or where no treaty exists, the Bretton Woods Agreement was to accomplish the results that you urge under this Article II.

Mr. Lawrence S. Lesser: With respect -- with respect to this particular case and this is the holding of the court below under Section 1 (b), yes, sir.

Oregon says that citizens of any country which exercises that right, that right given to them by the fund agreement, will be denied right of inheritances -- inheritance that they would otherwise enjoy.

Now, Oregon would thus put an onerous penalty on the exercise by a foreign government of a right which the United States has agreed it may exercise.

If Oregon can do that, then each of the 50 states can take measures within the ambit of its domestic policy which would penalize or encumber the exercise by a foreign government of any right recognized or granted by the United States.

Justice Felix Frankfurter: I think that's (Inaudible) this -- this state of your argument would undercut the great body I should think of state legislation regarding eligibility by -- by foreigners.

Mr. Lawrence S. Lesser: It might get involved sir.

I think that in our petition, we pointed that out.

That there is a great body of state legislation which says that if the -- a foreign government does -- thus and so exchange -- under exchange controls, certain consequences follow.

Now, a number of those foreign governments are members of fund and parties of the agreement, but a number are not.

Now, we think that it's perfectly clear though that a state should not be permitted to say to a foreign government if you exercise the right which the United States has agreed to, we're going to penalize you by depriving your citizens of rights under our laws to which they otherwise be entitled.

We think that for that reason, that the decrees below should be reversed, also.

Thank you, sir.

Chief Justice Earl Warren: Ms. Zorn.

Argument of Catherine Zorn

Ms Catherine Zorn: Mr. Chief Justice.

The two questions here of course, are the interpretations of Article II of the Treaty and the effect of the International Monetary Fund.

Now the Oregon Supreme Court in the exercise of its de novo ennoble powers in equity reversed the trial court and found on appeal that American heirs did not in fact, have a right to receive an -- an unqualified and legally enforceable right to receive payment of their inheritances from Yugoslavia by reason of Foreign Exchange Control Laws as well other evidence in the case.

So that was the factual question, but that leads to two legal questions of the Treaty and the monetary fund.

Now the language in the Treaty of course, reads in this manner, “In all their concerns, the right of acquiring, possessing or disposing of every kind of property, real or personal, citizens of the United States, in Serbia and Serbian subjects in the United States, shall enjoy the rights which respective laws grant”.

Here the language is clear and plain, citizens of the United States and Serbia and Serbian Subjects if in the United States.

We submit that the language of the treaty must be read as it appears in the way in the way it was written.

Here it is clear that the words, in Serbia and in the United States modify the words, persons or citizens or subjects respectively.

A similar language was used in the German Treaty which was a construed in Clark versus Allen.

And in that case, it was held that an American citizen leaving property to a German national did not come within the terms of the Treaty.

So here, an American Citizen in the United States leaving property to foreign nationals would not be covered by the Yugoslavian Treaty.

In -- as a background to this case, the brief amicus curiae as well as the brief of the petitioners I believe, values certain document from material, diplomatic dispatches which were written by Casen and Schiller, who were the negotiators of the Romanian and Serbian Treaties.

It corresponds with the Secretary of State at that time.

I've not gone into it too thoroughly, that is I had only the copies of the -- the diplomatic dispatches that were given to me before the state copies which have been done -- filed down here with the clerk, but to the extent I did go into them.

It appears that the language used by the negotiators of the treaties Schiller and Casen is very clear.

It's admirable for its conciseness.

So it leads to the conclusion that the language in the Serbian Treaty was not inadvertent language, but language that was carefully chosen to express a particular purpose.

Again, this document with material points at the background to the situation at that time.

It had not been too long that Serbia was free to the Turkish rule.

As I understand it at that time under the Treaty's rule, capitulations had been granted, which gave foreigners the same rights within the country, the Serbian country as they enjoyed the home.

And -- and again, I understand that these capitulations were not very popular.

Again, it was the United States who was seeking the treaty with Serbia rather than the other converse situation that it's Serbia seeking the treaty with the United States.

So it may very well be that the fear of exploitation and took these steps to cut down and qualify the rights, which they were granting by this Treaty.

Going on to the International Monetary Fund which the petitioners have argued here is an overriding federal policy, we find the not too much source of material which throws light upon the subject.

The cases are very few.

The authorities are very few, which had interpreted the monetary fund.

One of the best sources, however, is the annual reports of the board and in them, it appears that the policy of the board is to discourage the maintenance of exchange restrictions, rather than to encourage them.

They were the exchange restrictions, many of them were in effect before the -- the World War II and they have continued in effect.

Originally under Monetary Fund Agreement, they were regarded as an emergency measure in the post war period so the countries would get back on their feet.

However, it has been the consistent policy of the fund to discourage foreign exchange controls.

As was mentioned here, inheritances appeared to be capital transfers.

The Monetary Fund Agreement is concerned primarily with the current transactions.

The fund report indicates that the control of transfers -- capital transfers are within the control of the member nations.

So although Yugoslavia has chosen to exercise and maintain fund controls, the United States has not adopted any policy one way or the other, whether or not, it will have the exchange controls or not.

We have not adopted them.

So the -- as far as the United States is concerned, this is a -- it has adopted no overriding federal policy which leaves the state statute free to operate as it was before the United States became a member of the fund.

Justice Felix Frankfurter: May I cover to you to explain with some particularity whether the Bretton Woods Act was nonoperative until there were -- there were some implementing action by the Government either through the Congress or through the Executive Department?

Ms Catherine Zorn: I thought --

Justice Felix Frankfurter: In other words, I gather from what you've just said that the Bretton Woods Act as such, to which the Government -- the -- the United States was a party, as such did not affect the free movement of capital, is that right?

Ms Catherine Zorn: I believe the -- the agreement itself leaves the fund controls of capital transfers pretty untouched.

There are certain exceptions as for example, when a member draws too heavily upon the fund resources, then the fund can step in and ask them to put on controls.

Justice Felix Frankfurter: That is if -- does the fund have to do something or derive by the Act and by the Treaty which then might affect contrary state legislations, is that your view?

Ms Catherine Zorn: I don't believe I quite follow, but my thought is this --

Justice Felix Frankfurter: You said that -- that the Act itself, that there was nothing done to carry out the policy under the Act dealing with or free capital movements?

Ms Catherine Zorn: As far as the United States is concerned, it did not adopt any fund control or any exchange restrictions.

Justice Felix Frankfurter: And therefore the Act itself did not -- did not deal with the matter, is that it?

Ms Catherine Zorn: The Act itself leaves capital transfers pretty much untouched.

It does leave the members free to impose restrictions both on the current transactions as well as on capital transactions, but the United States has not taken any steps so far as capital or -- or either transactions are concerned, either current or capital transactions.

Justice Felix Frankfurter: So the Act was merely an authorizing power?

Ms Catherine Zorn: Yes.

Justice Felix Frankfurter: (Voice Overlap) if some step were taken by the fund.

Ms Catherine Zorn: Yes or by the United States.

Justice Felix Frankfurter: Or by the United States, separately.

There might -- then the problem might arise as Mr. Lesser the dealt with, is that it?

Ms Catherine Zorn: That's right.

Then it would create an overriding policy, but so far the United States had done nothing either way and therefore no policy has been established in this area.

Justice John M. Harlan: So why didn't the board, done anything -- you said, I believe the board --

Ms Catherine Zorn: The annual reports to the board indicate that capital movement is permitted to the members of the fund at all times.

I think that appears in the 1947 annual report at page 33.

"The fund reports on this matter, control of capital movement is permitted to fund members at all times."

So, so far as monetary fund is concerned, it does not impose any overriding federal policy.

The Oregon statute, ORS 111.070 is the law of succession, similar to the California statute is what's considered in Clark versus Allen.

It's a matter of local determination, succession to estates, is not a -- also in Clark versus Allen, the Court pointed out it is not an invasion into the field of foreign affairs.

Therefore, we submit that the -- I might add further too, in regards to Pecuniary and Claims agreement between the United States and Yugoslavia of 1948.

There it is clearly evident that the Yugoslavian Government does impose restrictions of foreign capital transfers in Article VIII and this appears in the record of page 52.

In that article, the United -- the Yugoslavian Government used to give sympathetic consideration to applications for transfers to the United States.

And then goes on to qualify for the amount just small in the -- of importance to persons making the request.

So it is reflected by this section that foreign exchange restrictions apparently are applied, but so far as the United States is concerned, it has adopted no overriding federal policy and therefore, the state statute prevails.

Thank you.

Chief Justice Earl Warren: Mr. Lesser.

Rebuttal of Lawrence S. Lesser

Mr. Lawrence S. Lesser: May I address myself for a moment to the question Mr. Justice Frankfurter put?

Chief Justice Earl Warren: You may.

Mr. Lawrence S. Lesser: The United States became a party to the International Monetary Fund Agreement pursuant to the authority granted to the Executive by the Congress in the Bretton Woods Agreement Act.

At that time, the International Monetary Fund Agreement had already been drafted and it was the subject of hearing it before the Congress, before they passed the enabling statute.

At the time they passed the enabling statute when the United States signed it and at the present day, the fund agreement provided as follows, “Members may exercise such controls as are necessary to regulate international capital movements.”