
    JANIS ZALCMANIS, GERTRUDE JANSONS, LORENA JANSONS, ASJA VIVIANA JANSONS, n/k/a ASJA LIDERS AND THE PUBLIC ADMINISTRATOR OF THE COUNTY OF NEW YORK, STATE OF NEW YORK, ADMINISTRATOR OF THE ESTATE OF KARLIS JANSONS, DECEASED v. THE UNITED STATES
    [No. 250-56.
    Decided June 3, 1959.
    Plaintiffs’ motion for rehearing overruled October 7, 1959]
    
    
      
      Mr. Robert H. Law, III for the plaintiffs. Mr. Robert H. Law, Jr. was on the briefs.
    
      Mr. Theodore D. Peyser, Jr., with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Mr. James P. Garland, and Mr. Lyle M. Turner were on the brief.
    
      
       Plaintiffs’ petition, for writ of certiorari denied by the Supreme Court March 21, 1960, 362 U.S., 917.
    
   Laramoee, Judge,

delivered the opinion of the court:

Plaintiffs, alien residents of the United States, sue to recover interest on a refund of tax and interest made by the Commissioner of Internal Revenue to the Attorney General as successor to the Alien Property Custodian.

A previous motion for summary judgment by defendant was denied without prejudice and plaintiffs were permitted to amend their petition to allege facts sufficient to allow them to bring suit against the United States under 28 U.S.C. 2502. See Zalcmanis et al. v. United States, 137 C. Cls. 543.

The pertinent facts are sufficiently set forth in the body of this opinion.

The first question presented is whether plaintiffs now have alleged and proved a right to sue in the Court of Claims under 28 TJ.S.C. 2502. Section 2502 reads as follows:

Citizens or subjects of any foreign government which accords to citizens of the United States the right to prosecute claims against their government in its courts may sue the United States in the Court of Claims if the subject matter of the suit is otherwise within such court’s jurisdiction.

We think this question can only be answered in the affirmative. Plaintiffs were and are citizens of the Republic of Latvia. The overrunning of Latvia and the resulting incorporation of the country into the Union of Soviet Socialist Republics did not take from them their citizenship in the Republic of Latvia. In fact, the Republic of Latvia as it was constituted before the invasion by the Union of Soviet Socialist Republics is still recognized by the United States, and the treaty between the United States and Latvia, permitting United States citizens free access to Latvian courts is still in full force and effect. However, there are in fact no courts maintained by the government in exile and all claims must be administratively determined. This situation exists through no fault of the plaintiffs. We think it would be a harsh construction of section 2502, sufra, to say that this takes from plaintiffs the right to sue in the Court of Claims. To do so would be to deny the continued existence of the treaty previously referred to when in fact our Government has seen fit to recognize said treaty as a continuing international agreement between the Republic of Latvia and the United States. Until such time as the United States recognizes Latvia as it is constituted today, and no longer adheres to the treaty between the two governments, plaintiffs continue to enjoy the freedom of this court.

This brings us to the question of plaintiffs’ right to recover interest on the refund of taxes.

The taxes here in question were paid by trustees, pursuant to an order of the District Court, Southern District of New York, at a time in which all property of plaintiffs was vested pursuant to the Trading With the Enemy Act, infra, in the Alien Property Custodian. The District Court’s order was because of plaintiffs’ ownership of two vessels which were libeled by Soviet Russia in connection with the nationalization of all private Latvian property. The trustees had been appointed to operate the vessels pending final determination of the libel action. Subsequently both vessels were sunk by enemy action and thereafter insurance moneys were collected on said vessels and held by the trustees as funds obtained from the operation of the vessels. At the time the taxes were paid the insurance moneys were still in the hands of the trustees.

Under section 36(a) of the Trading With the Enemy Act, 50 App. U.S.C., the vesting in the Alien Property Custodian did not render inapplicable Federal tax liability for a period prior to the date of the vesting. Accordingly, the District Court ordered and the trustees paid an assessed deficiency for taxes claimed by the Commissioner of Internal Revenue to be due for the years 1940, 1941, and 1942. The court further ordered that the trustees file claims for refund and take necessary steps to prosecute said claims in the United States District Court.

On June 29, 1946, the District Court ordered the trustees to turn over all funds held by them to the Alien Property Custodian in consequence of the 1943 vesting order. The court determined that the Alien Property Custodian had acquired all right, title, interest and claim in and to said property. The court further ordered that the direction to the trustees to file claims for refund be stricken and ordered the Alien Property Custodian to take necessary steps to prosecute the claims for refund. Thus the plaintiffs and the trustees no longer had any rights or interest in the processing of claims for refund. Consequently, the only person having such a right to process claims for refund was the Alien Property Custodian. On July 13, 1948, the Attorney General of the United States, successor to the Alien Property Custodian, filed claims for refund for taxes paid out of property vested pursuant to Vesting Order No. 1941.

Prior to filing claims by the Attorney General, plaintiffs filed similar claims for refund, apparently as a protective measure. However, at this time plaintiffs had no right or interest in the tax money held by the Commissioner of Internal Revenue.

On May 20, 1952, the Attorney General paid the sum of $89,110.62 to plaintiff Janis Zalcmanis and a similar sum to plaintiff Public Administrator. This action constituted a partial divesting but did not include any right to, or interest in, the claims for refund.

In 1955 it was administratively determined that the taxes paid in 1946 had been erroneously collected. Hence refund was made to the Attorney General, who on June 20, 1954, by Return Order No. 2420, paid plaintiffs the sum of $398,-140.32, without interest.

It is plaintiffs’ contention that they are entitled under section 3771 of the Internal Revenue Code of 1939 to interest on the $398,140.32 from date of payment to date of refund. We think this contention is without merit because the situation falls within the provisions of the Trading With the Enemy Act.

Section 36(c) of the Trading With the Enemy Act, supra, provides in part:

* * * Statutes of limitations on assessment, collection, refund, or credit of Federal taxes shall be suspended, with respect to any vested property or interest, or the earnings, increment or proceeds thereof, while vested and for six months thereafter; but no interest shall be paid upon any refund with respect to any period during which the statute of limitations is so suspended.

Under the above-quoted section interest on a refund of taxes cannot be paid during the period of a suspension of the statute of limitations. The act specifically provides that such suspension shall be in effect while property is vested and for six months thereafter.

The money represented by the tax refund was vested in 1943 and divested and paid to plaintiffs in June of 1955. Under the clear terms of the act no interest would be payable until six months after the divesting.

Since payment under the divesting order was made during the statutory period of the suspension of the statute of limitations, plaintiffs are not entitled to interest as claimed.

Plaintiffs argue that neither the original sum of $597,687.49 paid for taxes, nor the claims for refund should have been vested. A full answer to this contention is that there was a vesting order which could only be set aside by the District Court. Sections 7(c) (4) and 9(a) of the Trading With the Enemy Act, supra.

No such determination was ever made by a District Court.

For the above reasons plaintiffs’ petition must be dismissed.

It is so ordered.

BktaN, District Judge, sitting by designation; MaddeN, Judge; Whitaker, Judge, and JoNes, Chief Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the stipulation of the parties, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiffs Janis Zalcmanis, Gertrude Jansons, Lorena Jansons, and Asja Jansóns are citizens of the'Eepublic of Latvia residing in the United States of America. The remaining plaintiff, The Public Administrator of the County of New York, is the duly appointed Administrator of the Estate of Karlis J ansons, deceased, who during his lifetime was a citizen of the Eepublic of Latvia.

2. Janis Zalcmanis and Karlis Jansons were owners of the Latvian steamships, Abgara and Ciltvaira, and Gertrude Jansons, Lorena Jansons, and Asja Jansons are the widow and daughters of the deceased Karlis J ansons.

3. In June of 1940 the forces of the Union of Soviet Socialist Eepublics invaded the Eepublic of Latvia, took possession of its territory and enacted nationalization laws. At the time of this invasion the plaintiffs’ ships were in the western hemisphere.

4. On or about November 28,1940, the steamships Abgara and Ciltvaira were libeled by the instrumentalities of Soviet Eussia in the United States District Court for the Southern District of New York, Number Admiralty 122-40. The libel actions were for possession of the Latvian ships based upon the fact that Soviet Russia had nationalized all private property.

5. Pursuant to the libel action described in finding 4, Charles Eecht and Joseph G. Kearns were appointed by the District Court as Trustees to operate the vessels pending the final determination of the libel action. This was done in order to keep the vessels on the high seas during the wartime emergency.

6. Both the A bgara and Giltvaira were sunk by enemy action in the Battle of the Atlantic during World War II. The Giltvaira went down on January 19, 1942, and the Abgara was sunk May 6,1942. Thereafter insurance moneys were collected on the said vessels and were held by the trustees as funds obtained from the operation of the vessels.

7. On August 6,1943, the Alien Property Custodian issued Vesting Order No. 1941 which vested these moneys subject to the deduction of any attorney’s fees and trustees’ fees, commissions and expenses as might be payable pursuant to an order of the District Court. The order included the finding that Karlis Jansons and plaintiff Janis Zalcmanis had at least a claim to these moneys and that the national interest of the United States required that they be treated as nationals of Germany, an enemy country. These moneys amounted to $837,225.51.

8. On February 7, 1946, the Commissioner of Internal Revenue determined deficiencies in income, excess profits, and declared value excess profits taxes for the years 1940, 1941, and 1942 attributable to the operation of the Abgara and Giltvaira during those years and the receipt of the insurance proceeds after their sinking. These deficiencies were assessed and, pursuant to order of the District Court and the consent of the Alien Property Custodian, payment was made out of the vested moneys in the amount of $597,687.49 on March 15, 1946. The court also ordered the trustees to file claims for refund and to prosecute said claims in the District Court.

9. In July 1946, pursuant to further orders of the District Court dated June 29,1946, the remaining moneys on deposit in the names of the trustees were paid over to the Alien Property Custodian and the trustees assigned to him all their rights to a tax refund. The court further ordered that the previous order to the trustees to file claims for refund be stricken. The orders directed the Alien Property Custodian to file the necessary claims for refund and to bring, as expeditiously as possible, a suit for recovery thereof. The court determined that by the 1943 vesting order, the Alien Property Custodian had acquired all right, title and claim in and to plaintiffs’ property.

10. On February 18, 1947, claims for refund of this tax were filed by plaintiff Janis Zalcmanis, plaintiff Public Administrator of the County of New York as administrator of the estate of Karlis Jansons, and the same public administrator as administrator of the estate of Janis Freimanis. Similar claims were filed on July 13, 1948, on behalf of the Attorney General of the United States as successor to the Alien Property Custodian. The claims for refund filed by plaintiff Janis Zalcmanis and plaintiff Public Administrator of the County of New York were filed in order to protect any interest said plaintiffs might have in the moneys in the hands of the Commissioner of Internal Kevenue.

11. On May 20, 1952, the Attorney General paid the sum of $89,110.62 to plaintiff Janis Zalcmanis and a similar sum to plaintiff Public Administrator. Each of these sums represented approximately one-third of the vested funds remaining after the March 15,1946 tax payment.

12. In 1955, it was determined that the taxes, penalties, and interest paid in 1946 had been erroneously assessed and collected. The ground for this determination was that the income previously taxed was exempt under sections 212(b) (1) and 231(d) (1) of the Internal Eevenue Code of 1939 as earnings derived from the operation of ships documented under the laws of a foreign country (in this instance, Latvia) which grants an equivalent exemption to citizens of the United States and to corporations organized in the United States. Accordingly, on March 29, 1955, the Treasury Department paid to the Alien Property Custodian the amount previously collected, the sum of $597,704.49, which was refunded without interest. On June 15, 1955, Return Order No. 2420 was issued directing return of one-third of the refund to Janis Zalcmanis and one-third to the Public Administrator of New York County, administrator of the estate of Karlis Jansons, subject to certain expenses. On June 20, 1955, the Alien Property Custodian paid the sum of $199,070.16 to Janis Zalcmanis and a similar sum to the Public Administrator.

13. Plaintiffs Gertrude Jansons, Lorena Jansons, and Asja Jansons appear in this suit in their capacity as the sole heirs, distributees, and next of kin of Karlis Jansons.

14. Prior to the seizure and occupation of the Republic of Latvia by Soviet Russia in June of 1940, a citizen of the United States had the right to prosecute claims against the Republic of Latvia in its courts. Since the occupation of Latvia by Soviet Russia in June of 1940, the Republic of Latvia has had no courts, and claims against it could only be processed administratively.

15. The 1928 Treaty between the United States and Latvia, Treaty Series, No. 765, reads in part:

The nationals of each High Contracting Party shall enjoy freedom of access to the courts of justice of the other on conforming to the local laws, as well for the prosecution as for the defense of their rights, and in all degrees of jurisdiction established by law.

The 1928 Treaty is still in full force and effect.

16. The incorporation of Latvia by the Union of Soviet Socialist Republics is not recognized by the United States.

Dr. Arnold Spekke is Charge d’Affaires of Latvia to the United States and Acting Consul General of Latvia in the United States, and the Diplomatic List of April 1958, issued by the Department of State, shows on page 29 under Latvia the name of Dr. Arnold Spekke as Minister Plenipotentiary, Charge d’Affaires.

CONCLUSION OP LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiffs are not entitled to recover, and their petition is therefore dismissed. 
      
       Treaty between the United States and Latvia, Treaty Series, No, 765.
     