Zittman v. McGrath

Background

Two American creditors used New York court attachments to freeze bank accounts held by German banks in New York after those accounts had been blocked by federal wartime orders. The federal official in charge of blocked foreign property (the Alien Property Custodian) later issued orders claiming the accounts and asked federal courts to declare the state attachments void so he could take the balances.

Reasoning

The central question was whether a New York attachment — a court process that prevents a bank from paying out funds and creates a lien for a creditor — counted as a forbidden “transfer” under federal freezing orders. The Court held that the New York attachments did not transfer title or possession and therefore created valid state-law liens against the German banks. The Court distinguished an earlier case about a special liquidating receiver and said that these ordinary attachments did not defeat the federal freezing program. At the same time, the Court made clear that creditors cannot get the money without a federal license, and it left unresolved how the federal Custodian will recognize lien priority when he administers the fund.

Real world impact

The ruling lets creditors keep their state-law liens on frozen foreign accounts, while preserving federal control over when funds may actually be paid out. Creditors can pursue judgments and priority under state law, but payment from the blocked accounts still requires approval from the federal licensing authority, so the Custodian retains the ultimate control over distributions.

Dissents or concurrances

One Justice emphasized that recognition of liens is consistent with federal licensing rules; another agreed with parts of the opinion but objected that the Court left important federal-administration questions undecided.