# Petition — Marx v. Centran Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0798%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1983 - **Citation:** 464 U.S. 995 ## Text | Supreme Court, U.S. FILED OcT }) 5 96. No. $3-6/5° Preemie STEVAS CLERK i i j In the Supreme Court of the United States October Term, 1983 SYLVESTER MARX, Individually, and as a shareholder of Centran Corporation, on behalf of Centran Corporation and all others similarly situated, Petitioner, vs. CENTRAN CORPORATION, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI To the United States Court of Appeals For the Sixth Circuit DonaALp WEISBERGER, Counsel of Record Suite 1425 - 75 Public Square Bldg. Cleveland, Ohio 44113 (216) 621-7113 Counsel for Petitioner —_—— THE GATES LEGAL PUBLISHING CC., CLEVELAND, OHIO—TEL. (216) 621-5647 QUESTIONS PRESENTED 1. Do national banks as part of the business of bank- ing, have the right to borrow unlimited short term monies to finance the purchase for their own accounts, an unlim- ited amount of long term U.S. Bonds, subject only to the rule of prudence of the Comptroller of the Currency, 12 C.F.R. 1.4 et seq., and thereby have the concomitant right to speculate in U.S. Bonds as part of the business of banking for which no private right of action, directly or deriva- tively may be brought by a stockholder of its bank holding company, for its benefit against the directors who served both the bank and bank holding company, for the loss caused by their speculation and their concurrent contra- vention of the National Banking Act, including Chapter 2 and the Bank Holding Company Act? 2. Does the enactment of the Bank Holding Company Act, obliterate all private right of actions for the benefit of or against bank holding companies their directors and officers thereof, that existed prior to its enactment, thereby immunizing bank holding companies, their directors and of- ficers from suit in Federal Court for breach of fiduciary duty to their shareholders and denial of their pre-emptive rights? II PARTIES The Petitioner to this action is: SYLVESTER MARX, individually, and as a shareholder of Centran Corporation, on behalf of Centran Corporation and all others simil- arly situated The Respondents to this action are: CENTRAN CORPORATION CENTRAL NATIONAL BANK OF CLEVELAND JACK C. ROTHWELL, Executive Vice- President Central National Bank of Cleveland and Chairman of the Credit Policy Committee of Centran Corporation JOHN A. GELBACH, Officer of Central National Bank of Cleveland, Director and Officer of Centran Corporation WILSON M. BROWN, Jr., President of Central National Bank of Cleveland, Director and President of Centran Corporation JAMES M. LARGE, Jr., Executive Vice- President Central National Bank and Chairman of Credit Policy Committee of Centran Corporation GORDON J. SEVOLD, Senior Vice-Presi- dent Central National Bank and Treas- urer of Centran Corporation Ill OTES BENNET, Jr., Director of Centran Corporation GLENN R. BROWN, Director of Centran Corporation JOSEPH T. GORMAN, Director of Centran Corporation STEPHEN R. HARDIS, Director of Centran Corporation WILLIAM F. HAUSERMAN, Director of Centran Corporation ALBERT M. HIGLEY, Jr., Director of Centran Corporation GEORGE S. LOCKWOOD, Jr., Director of Centran Corporation JOHN J. LOFTUS, Director of Centran Corporation ROBERT D. McCREERY, Director of Centran Corporation JAMES S. REID, Jr., Director of Centran Corporation KARL H. RUDOLPH, Director of Centran Corporation WARD SMITH, Director of Centran Corporation RENOLD D. THOMPSON, Director of Centran Corporation ERNEST M. WULIGER, Director of Centran Corporation RULE 28.1 STATEMENT Subsidiaries of Centran Corporation: Central National Bank, Cleveland, Ohio Centran Bank of Akron, Akron, Ohio Richland Trust Corporation, Mansfield, Ohio Franklin Bank, Columbus, Ohio Farmers’ and Savings Bank, Loudonville, Ohio Sutton State Bank, Attica, Ohio Investor’s Income Insurance Co., Dallas, Texas Non Bank Subsidiaries: Colonial Financial Services, Inc., Birmingham, Alabama Former Subsidiaries of Centran Corporation: C.F.S. One, Inc. People’s Investment Corporation Major Finance Corporation Protective Loan Corporation Security Capital Leasing, Inc. TABLE OF CONTENTS PIE IIIIND iF PIII tes ccivcsiqoccctonvins—asdnpactintioadsboeciauisianieieeearels I EAA Rh, SE ROE Se PE DERrer eet mew FE io II OT ROR PETA ciniibeabeatetian IV RN IN i acsigusisc 9 anccccteeepsornnabadaiisaniesuinanuamncnieseiiiet 1 UN csc kibstc ta cnccovthcaddinecseaniciooecasdhcecliel padaeaion Senta l Statutes and Regulations Involved 2.0.0.0... 2 oe ae We Ge on eee 2 Reasons for Granting the Wit ......0.......cccceccceecceseeeeeeeneeee 5 1. National banks and their bank holding com- panies with the Comptroller of the Currency have developed the unlimited right of national banks to purchase U.S. Bonds for their own ac- counts, into an unlimited right to borrow there- fore, resulting in a pervasive operational “specu- lative” scheme, with irreparable consequences to the banking system that will continue until this issue is addressed by this court .................... 5 RII 5 sc npncsesitsasscaicnicmencdhntsinse mccbionnsinnneliinhedenstiiaehe tscianane tea 10 Appendix: Order of the United States District Court (Filed be: ee aE AMR ee tee das. PSN ts Al Memorandum of Opinion of the United States Dis- trict Court (Filed July 22, 1983) ....0.0000... 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Armstrong, 152 U.S. 346, 38 ONS URE te ated ree ne a ENC TP RNS OD 8 Statutes en a i een cedstasacipwensmesunlenenieadihia’ 2,7 CIPI ROI at lala cc evnesab eso vssig'esstescccaccbounaoebysaniocianseoouns 2,7,9 Se Gy So sR Iie lr ater ARR eS 2,7,9 ST A oe ee 2,7,9 Rh di sili ip lend in olgneee ohinadcoonerolaame aaa 2,8 Re eg ReneS a nr ooca st Meni A aneAEO RC Te 2,8,9 I I ee 2, tee EERE SIE aR MEINE Sy MT oo oe 2 I So cl dieaeaenaien 2,7 oR 1 RSE ea eter een nC ot BIor. = Mak Ps 2,7 ee NEED fii insvsicsvashasinammineidccaisbipunlendiccoiaataalce 2 OER | eee aw ier er 2, 3, 6 Sn NA TE IS relics cs elonccaasinibinesiuhepelntdaandipammiciaienee 2,8 No. In the Supreme Court of the United States October Term, 1983 SYLVESTER MARX, Individually, and as a shareholder of Centran Corporation, on behalf of Centran Corporation and all others similarly situated, Petitioner, VS. CENTRAN CORPORATION, et al., Respondents. PETITION FOR A WRIT OF CERTIORARI To the United States Court of Appeals For the Sixth Circuit OPINIONS BELOW The opinion of the District Court for the Northern District of Ohio, Eastern Division, appears in the appendix hereto. JURISDICTION The final judgment of the District Court for the North- ern District of Ohio, Eastern Division, was entered on July 22, 1983. A Notice of Appeal to the United States Court of Appeals for the Sixth Circuit was filed August 18, 1983. This Petition For Writ Of Certiorari has been filed subsequent to the foregoing Notice of Appeal, but prior to any final judgment of the Sixth Circuit, Court of Appeals. This Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1), 28 U.S.C. § 2101(e) and 28 U.S.C. § 1291. STATUTES AND REGULATIONS INVOLVED 12 US.C. § 1, 12 USC. § 24(7), 12 US.C. § 82 (repealed October 15, 1982), 12 U.S.C. § 84(8), 12 U.S.C. § 93(a), 12 U.S.C. § 93(b), 12 U.S.C. § 1842(d), 12 U.S.C. § 1849(a), 31 U.S.C. § 3102, 12 C.F.R. § 1.4, 12 C.F.R. § 7.1130, 12 C.F.R. § 7.1131, and 12 C.F.R. § 7.7518 all ap- pear in the appendix hereto. STATEMENT OF THE CASE Central Bank, a national bank, with a borrowing po- tential of $71,000,000 based on its capital and surplus in 1980 bought $307,000,000 of high yield U.S., state and municipal bonds for its own account financed with short term borrowed money from the surplus cash flow at the Federal Reserve Bank, with the plan of selling them at a profit as soon as long term interest rates fell. Unfor- tunately, it lost $50,000,000 while waiting. Central Bank was forced to recapitalize to continue the business of banking, at the expense of the shareholders of Centran, the bank holding company which owned 100% of Central Bank’s stock. Centran recapitalized by diluting the company stock through the issue of warrants to Marine Midland Bank in a $70,000,000 stock transaction prohibited by 12 U.S.C. § 1842(d), damaging Centran’s shareholders in their pre-emptive rights. Central Bank, a national bank, doing business ex- clusively in Ohio, formed a bank holding company, Centran, a Delaware Corporation, with the Comptroller of Currency and Federal Reserve Board of Governor’s approval. There is no authority in either the National Banking Act or Bank Holding Company Act to permit 3 this. Centran, in recapitalizing, denied pre-emptive rights to shareholders of Centran’s common, on the pretext that though no mention of pre-emptive rights was made in the agreement of and exchange of Central Bank’s stock for Centran’s stock, the Delaware law, which vitiates pre- emptive rights under these circumstances, applies rather than the Ohio law. The Petitioner brought action for the benefit of Cen- tran Corp., a bank holding company and Central Bank, its wholly owned subsidiary and against the directors and of- ficers thereof, for damages sustained by Petitioner and others similarly situated, that were sustained as a result of the Respondents contravening the National Banking Act, the Bank Holding Company Act and the Pre-emptive Rights Doctrine. Petitioner also brought a direct class action for denial of pre-ernptive rights. The thrust of Petitioner’s complaint was rooted in the Respondents’ breach of their fiduciary duty to Petitioner in speculating in U.S. Bonds in contravention of the National Banking Act and breach of fiduciary duty in recapitalizing by the dilution of the common stock in contravention of the Bank Holding Company Act and Pre-emptive Rights Doc- trine. Petitioner has contended that these actions were authorized under 12 U.S.C. § 1849(a) and the Federal Com- mon Law. Discovery was had. Stipulations were entered into. The Respondents filed a Motion for Summary Judgment as to Count One; Petitioner filed a Motion to Limit the Scope of the Summary Judgment to the issue of whether there was a class action and filed a Brief supporting the Petitioner’s theory, that a class action existed. The Dis- trict Court found that no class action existed and dismissed the class action. The court then dismissed the derivative 4 action, stating that the reasons for the dismissal of the class action justified the dismissal of the derivative ac- tion. The court then dismissed the pendent claims for a class action and derivative action without prejudice. The dismissal without prejudice as to the state pendent claims seemingly gives the Petitioner the right to file in state court, but since the National Banking Act and the Bank Holding Company Act is an integral part of the defense to the complaint, it is unlikely that jurisdiction would lie in the state court or alternatively the case would be removed to Federal Court. Breach of fiduciary duty in this case, as to speculation in U.S. Bonds is strictly a federal question, as is manifest from the 44 page printed opinion of Judge Manos, as it appears in the appendix herein. The Petitioner duly and seasonably filed his Notice of Appeal to the United States Court of Appeals for the Sixth Circuit and is docketed as Case No. 83-3602. The Sixth Circuit has notified the Petitioner that his Brief is due on October 24, 1983. The decision for which the Writ of Certiorari is ad- dressed is from the order cf the United States District Court granting Respondents’ joint motion for partial sum- mary judgment as to Count 1 of the Amended Complaint and the dismissal of Counts 2 and 3 of the Amended Com- plaint. Count 3 of the Amended Complaint being dis- missed without prejudice and the denial of the Petitioner’s motion to limit the scope of Respondents’ motion for partial summary judgment. The decision is by the Honorable Judge John M. Manos of the Northern District of Ohio, Eastern Division on July 22, 1983. REASONS FOR GRANTING THE WRIT 1. NATIONAL BANKS AND THEIR BANK HOLD- ING COMPANIES WITH THE COMPTROLLER OF THE CURRENCY HAVE DEVELOPED THE UNLIMITED RIGHT OF NATIONAL BANKS TO PURCHASE U.S. BONDS FOR THEIR OWN AC. COUNTS, INTO AN UNLIMITED RIGHT TO BORROW THEREFORE, RESULTING IN A PERVASIVE OPERATIONAL “SPECULATIVE” SCHEME, WITH IRREPARABLE CONSE. QUENCES TO THE BANKING SYSTEM THAT WILL CONTINUE UNTIL THIS ISSUE IS AD. DRESSED BY THIS COURT. ‘“., . no authority, express or implied, has ever been conferred by the statutes of the United States upon a national bank to engage or promote a purely spec- ulative business or adventure... .” It is doubtful the foregoing principle articulated in First National Bank of Ottawa v. Converse, 200 U.S. 425 at page 439, has been altered. Yet the United States District Court below has sanc- tioned speculative activity by a national bank and its bank holding company by denying any remedy to the stock- holders of the bank holding company by his opinion that any action in regard to such speculation, is now within the sole regulatory authority of the Comptroller of the Currency. The District Court sanctioned the unlimited short term borrowing of Central Bank in an amount of $307,000,000 to finance its purchase of long term U.S., state and municipal bonds for its own account, when its borrowing author- ity was only $71,000,000. Central Bank lost $50,000,000 attributable to the foregoing scheme. It had no intent to invest in U.S. Bonds because of its obvious lack of capital to pay for them. To cover the cost of payment for the purchase, it used a device where it placed the purchase of U.S. Bonds with the Federal Reserve Bank and borrowed the surplus monies on a continuing daily basis from other banks that they had placed in the Federal Reserve Bank. Central Bank’s speculation was that its enormous bor- rowing was justified by betting that its purchase of high yield, long term U.S. Bonds would in a short period of time become more valuable by a fall in the long term bond market interest rate and/or the short term interest rate would remain below the interest rate payable on the U.S. Bonds it purchased. The District Court has ruled that the speculation is strictly under the aegis of the Comptroller of the Currency who has sole and exclusive authority to act upon the matters alleged in the Petitioner’s Amended Complaint and the uncontroverted facts before the court. The court held, in effect, that there was no private right of action for breach of fiduciary duty against the directors and officers of a bank holding company for its benefit or against the bank holding company itself, either directly or derivatively where the bank holding company owned 100% of the Central Bank stock and the directors of the bank holding company and Central Bank acted in concert through ar. identical interlocking directorate. The court in its lengthy opinion declined to deal with 12 U.S.C. § 1849(a) which Petitioner had raised in his Brief as a savings provision. By declining to deal with this statute the District Court has effectively held that the enactment of the Bank Holding Company Act precludes any private right of action by a shareholder of a bank 7 holding company for its benefit or against it and its di- rectors and officers, either directly or derivatively. The District Court did find however, that the bank holding company did have a private right of action as a share- holder of its bank for violations of Chapter 2 of the National Banking Act, pursuant tc 12 U.S.C. § 93(a). The District Court found that 12 U.S.C. § 93(b) when read in pari materia with 12 U.S.C. § 93(a) did not confer any private rights whatsoever, even for the bank holding com- pany as a shareholder. The Petitioner’s evidence clearly establishes that 12 U.S.C, § 82 was violated by Central Bank in 1980 and 1981 which shows that Central Bank’s borrowing limit was at $71,000,000 based on its capital and surplus when it bor- rowed $307,000,000 to fund and finance the purchase of $307,000,000 of long term U.S., state and municipal bonds. The court held that the repeal of 12 U.S.C. § 82 two years later made it inapplicable to Petitioner’s case, but even if it was applicable the Comptroller of the Currency’s regulations 12 C.F.R. § 7.1130, 12 C.F.R. § 7.1131 and 12 C.F.R. § 7.7518 made 12 U.S.C. § 82 inoperative. Thus national banks operating from the perspective of the District Court’s opinion, beautifully articulated by the Respondents, have created for themselves the right to borrow unlimited funds to speculate in the U.S. Bond market subject only to the apparent but illusory authority of the Comptroller of the Currency. The purchase of the U.S. Bonds for Central Bank’s own account with excessive borrowed funds for speculative purposes was obviously no secret to the Comptroller of the Currency due to his frequent and constant auditing of the bank. Thus it was done with his tacit approval. The Comptroller of the Currency’s undefined Rule of Prudence, 12 C.F.R. § 1.4 which limits the right of purchase, in no way limits the right to borrow. The Comptroller of the Currency cannot very well enforce the rules of prudence because of the chilling effect it has on the pur- chase of U.S. Bonds and because it conflicts with the stat- utory duty of the Secretary of the Treasury, under whose direction he operates to issue and sell U.S. Bonds on the credit of the United States Government. 12 U.S.C. § 1, provides that the Comptroller of the Currency shall per- form his duties under the general directions of the Sec- retary of the Treasury. 31 U.S.C. § 3102 authorizes the Secretary of the Treasury to issue U.S. Bonds and sell them on the credit of the United States Government. Consequently, there is no viable regulation of a na- tional bank’s speculation in U.S. Bonds with borrowed monies where such bank is a wholly owned subsidiary of a bank holding company, unless shareholders of a bank holding company can bring an action for breach of fiduci- ary duty. There is no direct statutory authority under the Na- tional Banking Act for a bank to borrow money. The borrowing of money by a bank, though not illegal is out of the course of ordinary and legitimate banking business. See Western National Bank v. Armstrong, 152 U.S. 346, 38 L. Ed. 470. 12 U.S.C. § 24(7) has been interpreted by the court as allowing banks to borrow money under the incidental power necessary for the business of banking. This right to borrow incidental to the business of banking was limited by 12 U.S.C. § 82 to the bank’s capital plus 50% of its surplus. It did not except borrowing for the purchase of U.S. Bonds for the bank’s own account for investment, trading or speculating, nor does it authorize borrowing for the bank’s own account. Neither did it em- power the Comptroller of the Currency to modify 12 U.S.C. § 82 in any way, manner, shape or form. The Comptroller, without any authority or factual case before him prior to 1975. sua sponte issued an interpreta- tive ruling in 12 C.F.R. § 1130 and 12 C.F.R. § 1131 ex- empting banks from 12 U.S.C. § 82 when it borrows funds from other banks through the Federal Reserve Bank. The Comptroller of Currency, thus has sanctioned and pro- moted the operational speculative scheme, herein not as to the case at bar, but for the entire national banking industry. National banks have assumed that they have as “‘in- cidental power,” of 12 U.S.C. § 24(7), the right to bor- row short term monies on a daily basis from other banks, the surplus funds that these banks have placed in the Federal Reserve Bank, to finance the purchase of long term U.S. Bonds. They have claimed as authority for their right to borrow for their own accounts, enormous sums of monies, many times their capital assets and surplus, the Comptroller of the Currency’s regulations 12 C.F.R. § 7.1130, 12 C.F.R. § 7.1131 and 12 C.F.R. § 7.7518, when it is apparent and patent that they can not repay the loan financing for their purchase of U.S. Bonds from their capital assets and surplus should they sustain a loss without seriously impairing their ability to function as a bank. These regulations by the Comptroller of the Currency provide that the monies borrowed are not subject to 12 U.S.C. § 82, but are to be considered as a purchase and sale. 12 U.S.C. § 82 limited the borrowings of a bank, subject to exceptions not relevant here, to its capital and surplus. 12 U.S.C. § 82 contains absolutely no authority for the Comptroller of the Currency to enact any regulations whatsoever in regard thereto. Notwithstanding, the Comp- troller of the Currency by his foregoing enactments of regu- lations, obliterated the substance of 12 U.S.C. § 82 in this regard. 10 From reliable sources and information it is believed that other national banks have engaged in the same prac- tice and will continue to engage in the same practice unless such activity is declared illegal by this court. The questions presented are of first impression and are of such imperative public importance as to justify the de- viation from normal appellate practice and to require im- mediate settlement in the Supreme Court of the United States. CONCLUSION Petitioner urges this Court to grant his Petition For Writ Of Certiorari to review the decision of the United States District Court, for the Northern District of Ohio im- mediately and forthwith prior to the consideration of this case by the United States Court of Appeals for the Sixth Circuit, in order that the current practice of speculation by national banks and their holding companies hereinabove detailed may be curbed, curtailed and declared illegal. Respectfully submitted, DONALD WEISBERGER, Counsel of Record Suite 1425 - 75 Public Square Bldg. Cleveland, Ohio 44113 (216) 621-7113 Counsel for Petitioner Al APPENDIX ORDER OF THE UNITED STATES DISTRICT COURT (Filed July 22, 1983) Case No. C82-2720 IN THE UNITED STATES DISTRICT COURT For THE NORTHERN DISTRICT OF OHIO EASTERN DIVISION SYLVESTER MARX, etc., Piaintiff, v. CENTRAN CORPORATION, etc., et al., Defendants. ORDER Pursuant to the Memorandum of Opinion issued in the above-captioned case this date the defendants’ joint motion for partial summary judgment is granted; the plaintiff's motion “to limit [the] scope’ of the defendant’s motion is denied and the remainder of the complaint is dismissed. Such dismissal is without prejudice to the claims alleged in count three of the amended complaint. IT IS SO ORDERED. s JoHN M. Manos United States District Judge A2 MEMORANDUM OF OPINION OF THE UNITED STATES DISTRICT COURT (Filed July 22, 1983) Case No. C82-2720 IN THE UNITED STATES DISTRICT COURT For THE NORTHERN District oF OHIO EASTERN DIVISION SYLVESTER MARX, etc., Plaintiff, V. CENTRAN CORPORATION, etc., et al., Defendants. MEMORANDUM OF OPINION On October 8, 1982 plaintiff, Sylvester Marx, filed the above-captioned case alleging violations of 12 U.S.C. $§ 24 and 84 and 12 C.F.R. § 1.4 by the following defendants: (1) Centran Corporation (hereinafter, Centran); (2) Cen- tral National Bank of Cleveland (hereinafter, CNB); (3) Jack C. Rothwell; (4) John A. Gelbach; (5) Wilson M. Brown, Jr.; (6) James M. Large, Jr.; (7) Gordon J. Sevold; (8) Otes Bennet, Jr.; (9) Glenn R. Brown; (10) Joseph T. Gorman; (11) Stephen R. Hardis; (12) William F. Hauser- man; (13) Albert M. Higley, Jr.; (14) George S. Lockwood, Jr.; (15) John J. Loftus; (16) Robert D. McCreery; (17) James S. Reid, Jr.; (18) Karl H. Rudolph; (19) Ward Smith; (20) Renald D. Thompson, and (21) Ernest M. Wulliger. On January 26, 1983 Marx filed an amended complaint which, in addition to the statutes and regulation A3 cited above, alleges violations of 12 U.S.C. §§ 82, 375(b), 1842(d) and 1847. On March 3, 1983 the parties submitted stipulations of fact. On March 10, 1983 the defendaits filed a joint motion for partial summary judgment. On May 25, 1983 Marx filed a motion “to limit [the] scope” of the defendants’ motion. For the reasons which follow the de- fendants’ joint motion is granted, the motion filed by Marx is denied and the remainder of the complaint is dismissed. The amended complaint contains three (3) counts: (1) count one alleges a class action on behalf of a’' holders of common stock of Centran; (2) count two alleges « deriva- tive action “for the benefit of Centran and its wholly owned subsidiary [CNB]”; and (3) count three alleges a pendent claim of breach of fiduciary duty under the laws of Ohio. All counts are premised on the same facts, a synopsis of which follows below. In 1980 CNB maintained a policy of asset management which permitted an imbalance or “gap” between long- term fixed assets and liabilities and short-term fixed assets and liabilities. This “gap” was managed according to fore- casts regarding interest rates. When such forecasts pre- dicted that interest rates would peak and thereafter de- cline, CNB would purchase securities for its own account with medium and/or long-term dates of maturity at rates of return that were fixed. Such purchases were financed from the proceeds of liabilities with short-term dates of maturity. It was expected that as interest rates declined the short-term liabilities would be “rolled over” at a lower cost, the securities purchased would continue to earn a high rate of return and, therefore, CNB would earn a profit. Obviously, the policy encompassed some risk. If the forecast regarding interest rates proved incorrect and rates on short-term liabilities began to rise, then the cost of the debt could equal and or exceed the rates of return A4 on the securities purchased. Although it is unquestioned that if such an upward spiral occurred CNB could sell the ecurities to reduce the “gap” and restore liquidity, it is equally clear that the market value of the securities would decline as interest rates rose and, therefore, CNB would suffer a loss on any such sale. This is precisely what oc- curred to CNB’s investment portfolio in late 1980 and throughout 1981. The parties stipulate that “... as a con- sequence of negative carrying costs and... losses from selling securities at market prices lower than cost/book value... dainages sustained ny CNB... exceeded Fifty Million Dollars.” Stipulations of Fact, pp. 6-7. With regard to the parties the following facts are also stipulated: (1) In 1978 Marx purchased two hundred (200) shares of common stock of Centran. He is one of approxi- mately nine thousand (9,000) shareholders who own over four million (4,000,000) shares of authorized and issued common stock. (2) Centran is a Delaware corporation which is quali- fied to do business in Ohio. It is a “bank holding com- pany” as that term is defined in 12 U.S.C. § 1841(a) and owns all of the common stock of CNB. (3) CNB is a national banking association chartered by the United States. It is a member of the Federal Re- serve System and is insured by the Federal Deposit In- surance Corporation (hereinafter, FDIC). (4) Jack C. Rothwell was an Executive Vice Presi- dent of CNB and Chairman of the Finance Committee of Centran. He was also manager of the Department of Asset and Liability Management for each organization. (5) John A. Gelbach was the Chairman of the Board of Directors for each organization. From 1979 until May, AS 1981 he was also the Chief Executive Officer of Centran. Currently, Gelbach is retired. (6) Wilson M. Brown, Jr., was President of each organization. In 1979 he became Chief Executive Officer of CNB and in June, 1981 Chief Executive Officer of Cen- tran. He is also a director of each organization. (7) James M. Large, Jr., was an Executive Vice President of CNB and Manager of the Department of Corporate Banking. In April, 1980 he became Chairman of the Credit Policy Committee of Centran. (8) Gordon J. Sevold was a Senior Vice President for Financial Planning and Control of CNB. He was also Treasurer of Centran. (9) From 1979 through 1981 Otes Bennet, Jr., Joseph T. Gorman, Stephen R. Hardis, William F. Hauserman, Albert M. Higley, Jr., George S. Lockwood, Jr., John J. Loftus, Robert D. McCreery, James S. Reid, Jr., Karl H. Rudolph, Ward Smith, Renold D. Thompson and Ernest M. Wuliger were directors of each organization. In 1982 Lockwood and Wuliger did not stand for reelection. Cur- rently, all of the other directors remain on each board. (10) In 1980 Glenn R. Brown was elected a director on the boards of each organization. Although he did not participate in any of the investment decisions of the Board of Directors of CNB, he did ratify the decisions to liqui- date the investment portfolio in 1981 and 1982. Finally, the parties also submitted certain stipulations which concern a transaction between Centran and Marine Midland Banks, Inc. (herinafter, MMBI), which is not a party to this action.’ On March 5, 1982 Centran issued 1. Similar to Centran, however, MMBI is a “bank holding company” under 12 U.S.C. § 1841(a). It is incorporated in a state other than Ohio and maintains its principal place of business in New York. A6 five hundred thousand (500,000) shares of preferred stock which were purchased by MMBI for $70,000,000. MMBI also received a warrant to purchase 2,333,333 shares of common stock at $30. per share. Marx contends that the court should “. . . restrict the scope of the [the] [d]efendants motion . . . to the issue {of} whether [he] and his class have a direct . . . class action and not in any way rule on the merits.” For the reasons which follow the court finds the contention to be without merit. Fed. R. Civ. P. 23(c) (1) provides as follows: As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits. In Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S. Ct. 2140 (1974), the United States Supreme Court held that what the district court had termed a “preliminary mini- hearing” on the merits of the plaintiffs’ claim was not per- mitted under this rule. Specifically, the Court held: We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action. Indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements for it. He is thereby allowed to obtain a determination on the merits of the claims advanced on behalf of the AZT class without any assurance that a class action may be maintained. This procedure is directly contrary to the command of subdivision (c)(1) that the court de- termine whether a suit denominated a class action may be maintained as such ‘‘[a]s soon as practicable after the commencement of [the] action... .” 417 U.S. at 177-78, 94 S. Ct. at 2152. Thus, the precise question presented by Marx’s motion is whether Eisen held sub silentio that any consideration of the merits of a case before a determination of whether it may be maintained as a class action is impermissible. The court holds the question should be resolved in the negative. In Garcia v. Rush-Presbyterian-St. Luke’s Medical Center, 80 F.R.D. 254, 260 (N.D. Ill. 1978), the court was confronted with the same issue and held that when “.. . defendants’ summary judgment motions allow the court to explore and define the proper range of judicial inquiry on the allegations of the complaint, disposition of those mo- tions before certification is appropriate.”’ (Emphasis added). Accord: Haas v. Pittsburgh National Bank, 381 F. Supp. 801, 803 (W.D. Pa. 1974), aff'd (rev’d) on other grounds, 526 F.2d 1083 (3d Cir. 1975), “.. . a district court may con- sider the merits of a plaintiff's case in an action denom- inated as a class action by ruling upon a motion for sum- mary judgment (or a motion to dismiss) prior to ruling upon a motion for class determination .. .”. (Footnote omitted). A contrary rule, “... if carried to a logical ex- treme, would require certification to precede even disposi- tion of motions under Rule 12.” Garcia v. Rush-Presby- terian-St Luke’s Medical Center, supra, 80 F.R.D. at 260. Since such an “extreme” would require the court “to engage in vain and useless effort merely for the sake of form,” Haas v. Pittsburgh National Bank, supra, 381 F.Supp. at 806, Marx’s motion “to limit [the] scope” of the defendants’ joint motion for summary judgment is denied. A8 12 U.S.C. § 93(a) provides as follows: If the directors of any national banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate any of the provisions of this chapter, all the rights, privileges, and franchises of the association shall be thereby forfeited. Such violation shall, how- ever, be determined and adjudged by a proper district or Territorial court of the United States in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be declared dissolved. And in cases of such violation, every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person, shall have sustained in consequence of such violation. (Emphasis added). The defendants’ first contention is that the statute does not provide a private right of action to shareholders of a national bank. For the reasons which follow the court holds the defendants’ first contention to be without merit. In Chesbrough v. Woodworth, 244 U.S. 72, 76, 37 S. Ct. 579, 582 (1917), the United States Supreme Court af- firmed the following ruling by the Court of Appeals for the Sixth Circuit: The general demurrer was rightly overruled. The making and publishing of the reports are not merely for the information of the Comptroller, but are to guide the public, and he who buys stock in a bank in reliance upon the reports has a right of action under § 5239, Rev.Stat. (Comp.Stat.1916, § 9831) [section 93(a)], against any officer or director who, knowing its falsity, authorizes such report. Ag The general demurrer was to a complaint in which a shareholder alleged that directors of national bank vio- lated the provisions of what is currently 12 U.S.C. § 16" which requires that certain reports be made to the Comp- troller of Currency. Premised on Chesbrough, the Court of Appeals for the Ninth Circuit has held that “it is beyond dispute that under proper circumstances Section 93 creates a direct cause of action by the shareholders against the directors of a national bank.” Harmsen v. Smith, 542 F.2d 496, 500 (9th Cir. 1976). Accord: Adato v. Kagan, 599 F.2d 1111, 1117 (2d Cir. 1979), “Individual depositors may sue in their own right... if they have suffered a wrong that is distinctly theirs and not common to all’; Spalitta v. National American Bank of New Orleans, 444 F.2d 291 (5th Cir.), cert. denied, 404 U.S. 883, 92 S. Ct. 212 (1971), (shareholders’ derivative and class action); Seiden v. Butcher, 443 F. Supp. 384 (S.D. N.Y. 1978), (shareholders’ derivative action). Other courts, however, have held that no such standing exists. See: Russell v. Continental IIl- linois National Bank & Trust Co., of Chicago, 479 F.2d 131 (7th Cir.), cert. denied, 414 U.S. 1040, 94 S. Ct. 541 (1973), (investors in an ‘open-end mutual fund” established by the bank); Gollar v. Daniels & Bell, Inc., 533 F. Supp. 1021 (S.D.N.Y. 1982), (shareholders’ derivative action); Stein v. Galitz, 478 F. Supp. 517 (N.D. Ill. 1978), (private de- veloper of federally subsidized rental housing); Valente v. Dennis, 437 F. Supp. 783 (E.D. Pa. 1977), (shareholders of a corporate borrower). In Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080 (1975), the United States Supreme Court held that four (4) factors are relevant to determine whether a private right of action should be implied under any federal statute. Specifically, the court held: In determining whether a private remedy is im- plicit in a statute not expressly providing one, several Al0 factors are relevant. First, is the plaintiff “one of the class for whose especial benefit the statute was en- acted,” Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39, 36 S. Ct. 482, 484, 60 L.Ed. 874 (1916) (emphasis supplied)—that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? See, e.g., National Railroad Passenger Corp. v. National Assn. of Railroad Passengers, 414 U.S. 453, 458, 460, 94 S. Ct. 690, 693, 694, 38 L.Ed.2d 646 (1974) (Amtrak). Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff : See, e.g., Amtrak, supra; Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 423, 95 S. Ct. 1733, 1740, 44 L.Ed.2d 263 (1975); Calhoon v. Harvey, 379 U.S. 134, 85 S. Ct. 292, 13 L.Ed.2d 190 (1964). And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? See Wheeldin v. Wheeler, 373 U.S. 647, 652, 83 S. Ct. 1441, 1445, 10 L.Ed.2d 605 (1963); cf. J. I. Case Co. v. Borak, 377 U.S. 426, 434, 84S. Ct. 1555, 1560, 12 L.Ed.2d 423 (1964); Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 394-395, 91 S. Ct. 1999, 2003-2004, 29 L.Ed.2d 619 (1971); id., at 400, 91 S. Ct. at 2006 (Harlan, J., concurring in judgment). 422 U.S. at 78, 95 S. Ct. at 2088. (Emphasis added). The Court so held because “[t]he increased complexity of fed- eral legislation and the increased volume of federal litiga- tion strongly supported the desirability of a more careful serutiny of legislative intent. . .”. Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 377, 102 S. Ct. 1825, All 1838-39 (1982). (Footnote omitted). Although Cort “re- fined the implied remedy doctrine to provide a more ef- ficient means of determining whether a federal statute includes a private right of action,” Kaschak v. Consolidated Rail Corp., ........ We sepecks , No. 81-3383, Slip op. at 24 (6th Cir. May 26, 1983), (Celebrezze, J., concurring in judgment), the defendants do not cite and this court is unaware of any authority which holds that it overruled any previous decision which implied such a right. There- fore, in light of Chesbrough v. Woodworth, supra, this court holds that shareholders may maintain a private right of action against directors of a national bank under 12 U.S.C. § 93(a) for any knowing violations of “any of the provisions of this chapter.’ Since 12 U.SC. § 93(a) provides that such an action may be maintained against directors only and *‘arx has stipulated that Rothwell, Large and Sevold were never directors, the complaint against them, to the extent it alleges knowing violations of “any of the pro- visions of this chapter,” is dismissed for failure to state a claim upon which relief can be granted. Conley v. Gibson, 355 U.S. 41, S. Ct. 99 (1957). With regard to the defendants who are directors, Marx alleges that they committed knowing violations of 12 U.S.C. §§ 24, 82 and 84, all of which are “provisions of this chapter” for the purpose of 12 U.S.C. § 93(a). The defen- dants contend that they are entitled to summary judgment under each statute. For the reasons which follow the court finds the defendants’ contention persuasive. 12 U.S.C. § 24 provides in pertinent part as follows: Upon duly making and filing articles of association and an organization certificate a national banking asso- ciation shall become, as from the date of the execution 2. Subject matter jurisdiction may be implied under either 28 U.S.C. § 1331 or 28 U.S.C. § 1337(a). Al2 of its organization certificate, a body corporate, and as such, and in the name designated in the organization certificate, it shall have power— Seventh. To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and nego- tiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buy- ing and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter. The business of dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account, and the association shall not underwrite any issue of securities or stock. Provided, That the association may purchase for its own account investment securities under such limita- tions and restrictions as the Comptroller of the Cur- rency may by regulation prescribe. In no event shall the total amount of the investment securities of any one obligor or maker, held by the association for its own account, exceed at any time 10 per centum of its capital stock actually paid in and unimpaired and 10 per centum of its unimpaired surplus fund, except that this limitation shall not require any association to dis- pose of any securities lawfully held by it on August 23, 1935. As used in this section the term “investment securities” shall mean marketable obligations, evidenc- ing indebtedness of any person, copartnership, asso- ciation, or corporation in the form of bonds, notes Al3 and or debentures commonly known as investment securities under such further definition of the term “investment securities’ as may by regulation be pre- scribed by the Compiroller of the Currency. Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. The limitations and restric- tions herein contained as to dealing in, underwriting and purchasing for its own account, investment secu- rities shall not apply to obligations of te United States, or general obligations of any State or of any political subdivision thereof,... (Emphasis added). Although it is uncertain “whether the enumeration of powers contained in § 24 itself imposes a duty, the breach of which will form the basis of personal liability of the directors,” Stein v. Galitz, supra, 478 F. Supp. at 521, the court need not resolve the issue in this case because the parties have stipulated that all of the securities purchased by CNB were “type I securities” which, as a matter of law, are not subject to any of the limitations or restrictions contained in the statute. See: 12 C.F.R. § 1.3(c).6 Accordingly, the defendants’ joint mo- tion for summary judgment on Marx’s claim under 12 U.S.C. § 24 is granted. The second statute that Marx claims the defendants knowingly violated is 12 U.S.C. § 82. This statute was 3. 12C.F.R. § 1.3(c) provides as follows: The term “Type I security” means a security which a bank may deal in, underwrite, purchase and sell for its own account without limitation. These include obligations of the United States, general obligations of any State of the United States or any political suldivision thereof and other obliga- tions listed in paragraph Seventh of 12 U.S.C. 24. (Emphasis added). Alé4 repealed seven days after Marx filed his complaint by the Garn-St. Germain Depository Institutions Act of 1982. Pub. L. No. 97-320, Title IV, § 402, 96 Stat. 1510 (October 15, 1982). In Bradley v. School Board of City of Richmond, 416 U.S. 696, 711, 94 S. Ct. 2006, 2016 (1974), the United States Supreme Court held that “a court is to apply the law in effect at the time it renders its decision unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary.” Accord: Harper-Grace Hospitals v. Schweiker, 691 F.2d 808, 811 (6th Cir. 1982). In this case the court finds that neither limiting condition exists. The legislative history which concerns the repeal of 12 U.S.C. § 82 provides as follows: Section 402 repeals 12 U.S.C. § 82, which estab- lishes borrowing limitations for national banks. Stat- utory limitations on the liabilities of national banks have remained essentially unchanged since original enactment of the National Bank Act of 1864. Since that time, however, the nature of the banking busi- ness—especially the manner in which banks are funded—has altered considerably. The rigid limitations of § 82 adversely restrain bank flexibility and com- petitively disadvantage national banks. Many states have no such statutory restraints upon state-chartered institutions. S. Rep. No. 97-536, 97th Cong., 2d Sess. 60, reprinted in [1982] U.S. Code Cong. & Ad. News 3054 at 3114. (Em- phasis added). It is unquestioned that Congress found 12 U.S.C. § 82 to be anachronistic. Therefore, the court finds the legislative history supports holding that Marx cannot state a claim under the statute because of repeal. Ald The court finds further that such a holding does not “result in manifest injustice’ because even if Congress did not repeal the statute Marx’s complaint would not state a claim under it. Before it was repealed, 12 U.S.C. § 82 provided as follows: No national banking association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, plus 50 percent of the amount of its un- impaired surplus fund, except on account of demands of the nature following: First. Notes of circulation. Second. Moneys deposited with or collected by the association. Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the asso- ciation, or due thereto. Fourth. Liabilities to the stockholders of the as- sociation for dividends and reserve profits. Fifth. Liabilities incurred under the provisions of the Federal Reserve Act. Sixth. Liabilities incurred under the provisions of the Federal Deposit Insurance Act. Seventh. Liabilities created by the indorsement of accepted bills of exchange payable abroad actually owned by the indorsing bank and discounted at home or abroad. Eighth. Liabilities incurred under the provisions of sections 1031-1033 of this title. Al6 Ninth. Liabilities incurred on account of loans made with the express approval of the Comptroller of the Currency under paragraph (9) of section 84 of this title. Tenth. Liabilities incurred under the provisions of section 352 of this title. Eleventh. Liabilities incurred in connection with sales of mortgages, or participations therein, to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. Twelfth. Liabilities incurred in borrowing from the Export-Import Benk of the United States. (Emphasis added). The parties have stipulated that the short-term liabilities incurred by CNB were of two (2) types: (1) “Federal Funds Purchased”; and (2) “Repos”, which are defined as follows: Federal Funds Purchased: The Federal Reserve System requires all member banks to maintain on deposit in the Federal Reserve Bank a certain mini- mum amount. This minimum must be in place at the close of the banking day, to remain overnight. A member bank which has excess deposits overnight can sell them to another member overnight to make up a deficiency in the borrower’s minimum, Banks gen- erally sell or purchase “Fed. Funds” daily, and may do both in the same day to arrive at the nightly mini- mum. The Federal Reserve pays no interest on the member bank’s deposit accounts, so that a bank which maintains excess deposits overnight loses interest earnings on those excess deposits. The structure of the “borrowing” is a Sale by the “lending” bank of _ some of its deposits to the “borrowing” bank which buys that deposit at the close of the day. The “bor- Al7 rower” then sells the bank the purchased funds at the beginning of the next day, but pays back an additional charge for overnight usage which amounts to interest. The Federal Reserve does the bookkeeping based on wire confirmations. Repos. The transaction called a “repo”, for con- venience, is formally structured as a Sale and Re- purchase Agreement. A bank which in substance wants to borrow money for a short term, with full security to the lender, can sell the specified security at an agreed price (usually par) to a buyer who pays the cull purchase price at once. The buyer then owns the security. At the time of sale the Bank agrees to repurchase the same security for a higher price at the end of a specified term of days or weeks. The difference in price can be translated into an annual interest rate. At the end of the specified term, the original seller buys back the security and pays the original buyer the higher price. Stipulations of Fact, pp. 12-13. Before 12 U.S.C. § 82 was repealed, 12 C.F.R. § 7.1130 provided as follows: When a bank purchas-s Federal Reserve funds from another bank, the transaction ordinarily takes the form of a transfer from a seller’s account in a Federal Reserve Bank to the buyer’s account therein, payment to be made by the purchaser, usually with a specified fee. The transaction does not create on the part of the buyer an obligation subject to 12 U.S.C. 84 or a borrowing subject to 12 U.S.C. 82, but is to be considered a purchase and sale of such funds. But see § 7.7365 for federal funds transactions between affiliates. Al8 (Emphasis added). Similarly, 12 C.F.R. § 7.1131 provided: The purchase or sale of securities by a bank, under an agreement to resell or repurchase at the end of a stated period is not a borrowing subject to 12 U.S.C. 82 nor an obligation subject to the lending limit of 12 U.S.C. 84. (Emphasis added). Finally, 12 C.F.R. § 7.7518 provided: For purposes of 12 U.S.C. 82, a national bank’s indebtedness or liability does not include Federal funds purchased (see § 7.1130) obligations to repurchase se- curities sold (see § 7.1131), or bills payable to the Federal Reserve (12 U.S.C. 82(5)). Accordingly, for purposes of § 14.5(b) of this chapter, a national bank’s indebtedness or liability is determined without regard to such items. Also see §§ 7.7355 and 7.7530. (Emphasis added). The court finds that these regulations were validly promulgated by the Comptroller of Currency and that they would have precluded Marx’s complaint under 12 U.S.C. § 82 had it not been repealed. Accord- ingly, the defendant’s joint motion for summary judgment on Marx’s claim under 12 U.S.C. § 82 is granted. The third statute which Marx claims the defendants knowingly violated is 12 U.S.C. § 84 which, provides in pertinent part as follows: (a)(1) The total loans and extensions of credit by a national banking association to a person outstand- ing at one time and not fully secured, as determined in a manner consistent with paragraph (2) of this subsection, by collateral having a market value at least equal to the amount of the loan or extension of credit shall not exceed 15 per centum of the unim- paired capital and unimpaired surplus of the associa- tion. Alg (Emphasis added). Specifically, Marx claims that ‘“[t]he borrowing of the monies by [CNB] for the purchase of United States, state and municipal bonds in excess of the statutory authority as well as the purchase of the bonds in and of itself, constituted a loan from [CNB] to Centran and is in violation of 12 U.S.C. § 84... .”. Amended Com- plaint, p. 8, © 23. (Emphasis added). The court finds Marx’s claim to be without merit. It is undisputed that CNB borrowed funds from other banks which are mem- bers of the Federal Reserve system and used such funds to purchase