Matter of Leikind, 22 N.Y.2d 346 (1968)

A judgment creditor can seek to satisfy a judgment from funds impounded for a non-resident beneficiary, but the Surrogate Court must determine if such satisfaction aligns with the statute’s purpose of preventing funds from being circumvented by foreign governments.

Summary

This case addresses whether a judgment obtained against a Soviet Union resident, who was a beneficiary of a New York estate, can be satisfied from funds impounded due to concerns about the beneficiary’s ability to access those funds. The petitioner, the decedent’s brother, obtained a default judgment against his sister and sought to access her impounded inheritance. The court held that while the judgment was valid, the Surrogate Court must determine whether allowing the judgment to be satisfied from the impounded funds would conflict with the statute’s purpose of preventing the circumvention of funds by foreign governments. The case was remanded for a hearing and further findings.

Facts

Sam Leikind died, leaving a portion of his estate to his sister, Dvaireh Kaminsky, a resident of the Soviet Union. Due to concerns that Dvaireh would not have the benefit, use, or control of the funds due to her residency, the funds were impounded under section 269-a of the Surrogate’s Court Act. The petitioner, Sam’s brother and administrator of the estate, sued Dvaireh in Supreme Court for money owed, based on a letter acknowledging a prior debt. Jurisdiction was obtained by attaching the impounded funds, and service was made by publication. Dvaireh did not appear, and a default judgment was entered against her.

Procedural History

The petitioner sought to satisfy the Supreme Court judgment from the impounded funds, but the Director of Finance refused. The petitioner moved in Supreme Court for an order to release the funds, which was denied, with leave to apply to the Surrogate Court. The Surrogate Court denied the application. The Appellate Division reversed, granting a stay to allow the Attorney-General to challenge the default judgment in the Supreme Court. Both parties appealed.

Issue(s)

1. Whether the impounding of the funds violated the Federal Constitution under the ruling of Zschernig v. Miller?

2. Whether the Surrogate’s finding that the default judgment could not support a release of the funds was an abuse of discretion?

Holding

1. No, because the New York statute, unlike the Oregon statute in Zschernig, contains no provision for reciprocity or escheat and does not facially interfere with foreign relations.

2. No, but the matter should be remanded to the Surrogate for a hearing and further findings as to the effect to be given the default judgment, to determine if satisfying the judgment would conflict with the statute’s purpose.

Court’s Reasoning

The court distinguished this case from Zschernig v. Miller, where the Supreme Court found an Oregon statute unconstitutional because it involved the state courts in foreign affairs. The New York statute, unlike the Oregon statute, lacks reciprocity or escheat provisions and does not on its face require intrusive inquiries into foreign governments. The court stated that impounding funds is permissible if the State courts simply determine whether a foreign country prevents its residents from actually sharing in the estates of New York decedents, without interference with foreign relations.

The court recognized that funds in custodia legis, in which the owner has a present interest, may be attached or garnished for purposes of obtaining jurisdiction. The Supreme Court had acquired jurisdiction over Dvaireh’s funds. However, the judgment does not automatically entitle the petitioner to satisfaction from the impounded funds. Satisfaction can be obtained when the purposes of the restraint have been achieved or if satisfaction would no longer interfere with those purposes.

The primary purpose of the statute is to prevent the transmission of funds to a beneficiary in a foreign country where such transmission might be circumvented by confiscation. The court emphasized that not all obligations derived from the distributee are excluded, only those based on a voluntary transfer or commitment contradicting the distributee’s disability to control the fund.

The court remanded the case to the Surrogate to determine whether the underlying debt was genuine and whether payment to the judgment creditor would be solely for his benefit and not used to defeat the statute’s purposes. The Surrogate is tasked with determining whether satisfaction of the judgment from the impounded funds at this time conforms to the purposes of the statute, not with invalidating the Supreme Court judgment itself.