Petition for Writ of Certiorari — Coral Gables First National Bank v. American Surety Co.
Supreme Court brief1966
Ask Donna
What actually matters in this document.
Text
7 si Lt i cote
SUPRin ole Tk
pe OCTOBER TERM, 1 1965
No. aa
THE CORAL GABLES FIRST NATIONAL BANK and
PAN AMERICAN BANK OF MIAMI,
Petitioners,
vs.
AMERICAN SURETY COMPANY OF NEW YORK and
. JOHN C. NICHOLAS, As Trustee,
Respondents.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS,
Warp & Warp Wru1aM B. Rowan
1240 duPont Suilding Pan American Bank
Miami, Florida 33131 Miami, Florida 33131
Aitéfneys for The Coral and
Gables First National
Bank Lzo L. Foster
os Brock Building
Tallahassee, Florida
- Attorneys for Pan American —
| =
.
_ PEN PN STAN APE INEST NI ONL LASER ATP EES TIRE OT LSI NANI BPE OLE NET SE A AEE EIRENE) FIORE NEAR OER TS
BL. Mueernas, Inc., 1108 Osk Strest, Kanses City, Mo. 64106, HAsrison 1-9080
TABLE OF CONTENTS
¢ Opinion and Decision of U.S.C.A. 5, 349 F. 2d 595,
Opinion Appéndix A, Decision Appendix B ................ 1-2
Jurisdiction under Title 11, U.S.C., § 47, § 24, National
Bankruptcy Act, Within Time Fixed by Title 28,
U.S.C., § 2101(c)
QUESTIONS PRESENTED 3
Preliminary Statement As to Questions and Back-
ground 3-16
SUMMARIZED QUESTIONS— ere
Question (1) 16
Question (2) 16
Question (3) 7.
Question (4) 17-18
Question (5) * 18-19
Question (6) 19
STATUTES AND CONSTITUTIONAL PROVISIONS
INVOLVED—
Amendment V, Constitution of the United States... 19
Amendment XIV, Section 1, Constitution of the
United States 20.
Section 5198 (Title 12, §§ 85 and 86) 20-21
Title 12, U.S.C.A., § 1, Creating Bureau of Comp-
troller of Currency for National Banks: -........... 21
Title 12, U.S.C.A., § 21, Establishing the Govern- ,
ment of National Banks 21
U. S. Comptroller of Currency Ruling 1135A, Con-
cerning Participation with National Banks and
Other Banks 22
23
“ STATEMENT ...
; Analysis of Procedure and Background Leading Up
: to Issuance of Opinion of U.S.C.A. 5, 349 F. 2d
595 | 23-27
ey
m | INDEX |
REASONS FOR GRANTING THE WRIT RO Po
ARGUMENT 29-35
CONCLUSION aceon SEAT
Authorities Cited
John R. Alley & Co. v. Federal National Bon of Shao
nee, Oklahoma, 124 F. 2d 995 dietjnn
Alton v. Alton, 207 F. 2d 667 BOE gi Sad
Beacon Theaters, Inc. v. Westover, data ts. ticacd
948 . 1
Black, Trustee v. Boyd, U.S.C.A. 6, 248 F. 2a 156. .. 24
Burgess v. Nail, 103 F. 2d 37 . 39
Coral Gables First National Bank v. Constructors of
Florida, Inc. (Fla. App.), 119 So. 2d 741, certiorari
denied 123 So. 2d 349 (S. Ct. Fla.), certiorari denied |
US.C.A. 5, 365 U.S. 811, 81S. Ct. 690, 5 L. Ed..2d 691 . 8,9
Coral Gables First National Bank v. Constructors of .
Florida, Inc., 132 So. 2d 806, certiorari denied Fa.
S. Ct., 133 So. 2d 319, certiorari denied U.S. Supreme ©
“Ct. 82 S. Ct. 687, 369 US. 813 eee en 7 Ye hl
Coral Gables First National Bank v. Constructors, 299
i ee : 11, 13, 14
Coral Gables First National Bank v. Constructors of
Florida,’ Inc., 349 F. 2d 595 2
Coral Gables First National Bank v. Constructors of
Florida, Inc., 365 U.S. 811, 81 S. Ct. 690, 5 L. Ed. 2d ,
691
a. v. Greaney, 309 U.S. 190, 60 S. Ct. 480, 84 L. Ed.
Gene Durfee et uz. v. Julia E. Duke, 375 US. 106, 84
S. Ct. 242 42
First National Bank of Charlotte v. Morgan, 132-U.S. ,
141, 10 S. Ct. 37, 33 L. Ed. 282
21
Gondeck v. Pan American World Airways, Inc, 86 S ;
i oe
INDEX mI
Granville-Smith v. Granville-Smith, 349 U.S. 1, 75 S. Ct.
( 553 een . 30
Kalb v. Feuerstein, 308 U.S. 433, 60 S*Ct. 343, 84 L. Ed.
370 | 43
Leonardi v. Chase National Bank of the City of New
York, (U.S.C.A. 2, 1936) 81 F. 2d 19 38
McCollum v. Hamilton National Bank, 303 U.S. 245, 58
» &. Ct. 568, 82 L. Ed. 819 1, 16, 27
Mercantile: National Bank at Dallas v. Langdeau, 83
-S. Ct, 520, 371 U.S. 555 15,27_
ae National Bank v. Robinson, 83 S. Ct. 914, 373
-U.S. 591 15, 27
Republic National Bank of Dallas v. Langdeau, 371
U.S. 555, 83 S. Ct. 521 east ae
Riley v. New York Trust Co., 315 U.S. 343, 349, 62 S. Ct.
608, 612, 86 L. Ed. 885 42
Schulnacher v. Lawrence, 108 F. 2d 576 28
Southern Construction Company v. Rickard, 371 U.S. 57,
83 S. Ct. 108 14, 27, 32
Sulil Realty Corp. v. Rye Motors, Inc., 257 N. Y.S. 111 36
United States v. Simms, 1 Cranch (U. S.) 252, 2 L. Ed.
98 36
United States v. Stevenson, 215 U.S. 190, 54 L. Ed. 153,
30 S. Ct. 35 is ce
43
United States v. United States Fidelity & Guaranty Co.,
309 U.S. 506, 60 S. Ct. 653, 84 L. Ed. 894
:
7 Texts
1 Am. Jur. 2d 558, § 20 ......
23 Am.:Jur., §§ 64 and 65 .....: 35,
23 Am. Jur., § 45 |
LA. L. R. 3d 904
3
Title 11, US.C., § 47
Title 12, U.S.C.A., § 21
21
21
Title 12, US.C.A., § 1
Title 12, U.S.C.A., §§ 85 and 86
6, 7, 20, 21
3
Title 28, U.S.C., § 2101(a)
National Bankruptcy Act, § 24 -....
3
Amendment V, Constitution of U. S.
20
Amendment XIV, Constitution of U. S.
Comptroller of Currency Ruling 1135A
i
a
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1965 -
No.
~~
THE CORAL GABLES FIRST NATIONAL BANK and
PAN AMERIGAN BANK OF MIAMI,
Petitioners,
Vs.
AMERICAN SURETY COMPANY OF NEW YORK and
JOHN ,C. NICHOLAS, As Trustee,
Respondents. :
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS,
FIFTH CIRCUIT
To Tae Honoraste Eart C. WARREN, CHIEF JUSTICE OF THE
SuPREME CouRT OF THE UNITED STATES; AND THE ASSO-
CIATE JUSTICES OF THE SUPREME COURT OF THE UNITED
STATES:
The petitioners, THE. CORAL GABLES FIRST NA-
TIONAL BANK, a federal banking institution, with its
. principal place of business in the City of Coral Gables,
'‘ County, Florida, and PAN AMERICAN BANK OF
a banking institution created under the laws of the State of
Florida, having its principal: place of business in Miami,
Dade County, Florida, respectfully pray that a writ of cer-
2
tiorari issue to review the judgment and opinion of the
United States Court of Appeals for the Fifth Circuit, in case
No. 21448, rendered on June 30, 1965, petition for rehearing
denied Septeniber 3, 1965, reported in 349 F. 2d 595. Judg-
ment of the United States Court of Appeals for the Fifth
Circuit in the same case was entered on the same day as
the opinion, June 30, 1965. The petition for rehearing from
the order of June 30, 1965, was timely filed. -A copy of the
opinion is certified as a part of the Transcript of the Record
forwarded simultaneously herewith (Tr. 475). A copy of
the said judgment is certified as a part of the same Record
(Tr. 491). -A copy of the petition for rehearing is certified
as a part of the same Record (Tr. 493). A copy of the order
a ee ee
the Record (Tr. gon 3
-
OPINIONS scat
The opinion of the United States Court ofAppeals,
Fifth Circuit, dated June 30, 1965, is now reported as afore-
said, 349 F. 2d 595, and a copy thereof is not only in the
Record as aforesaid, but is reproduced and attached hereto .
as Appendix A, page Al. The judgment of the United
States Court of Appeals for the Fifth Circuit, is reproduced
and attached hereto as Appendix B, page A13. The peti-
‘tion for rehearing is reproduced and attached hereto as
"Appendix C, page“Al5. The order and judgment deny-
ing the petition for rehearing is reproduced and attached
- hereto as Appendix D,-page ‘42. ‘The opinion and judg-
ment of the United States District Court, Southern District
of Florida, dated December 20, 1963, which was the sub-
ject matter of the opinion and judgment of the United
‘States Court of Appeals, Fifth Circuit, is shown in. the
- Transcript of the Record at pages 411 to 429, and is re-
produced and attached hereto as Appendix E, page A44. -
- JURISDICTION
This petition for certiorari is filed with this Court
under the provisions of Title 11, U.S.C., Section 47, and
Section 24, of the National Bankruptcy Act, and within
the time permitted under Title 28, US.C., Section 2101(c).
* QUESTIONS PBESENTED
The Coral Gables First National Bank, a United States
banking institution, in 1956 in the pursuit of its purposes
as a national bank in Coral Gables, Dade County, Florida,
made certain loans to “Constructors of Florida, Inc., a
Florida corporation. Two loans were made in July, 1956, |
both secured by recorded chattel mortgages valid under
the Florida law, said mortgages creating a lien upon cer-
tain itemized road machinery and collateral type of equip-
ment. After, the recording of these two mortgages in July,
1956, Constructors of Florida, Inc., a general contractor,
entered into.a contract with the municipality of West Palm
Beach, Florida, covering certain sewer installations. That
contract was negotiated and entered into in the latter part
of August, 1956, and at or about that time Constructors -
of Florida, Inc., applied for and’ received a performance
bond from American Surety Company of New York.
There was no relationship between the transaction involv-
ing the two chattel mortgages of July, 1956, and the sub-
sequent entry into the contract,and bonding arrangements
On or about November 14, 1956, The Coral Gables
First National Bank entered,into a third type of loan with
Constructors of Florida, Inc., in the original face amount
of approximately $442,000.00. A mortgage was executed
by Constructors of Florida, Inc., dated November 14, 1956,.
which was securell by a second equipment lien on much
of the equipment which had been covered by the first
mortgages of July, 1956, and with the addition of some
“minor pieces of equipment that had not been previously
mortgaged. In addition thereto, as the main security, Con-
structors of Florida, Inc., assigned to The Coral Gables
First National Bank the proceeds of the contractual pay-
, ments from the City of West Palm Beach sewer contract.
This mortgage was duly recorded and consent was ob-
tained from the American Surety Company, as well as
from the City of West Palm Beach.
The Pan American. Bank of. Miami, a Florida banking
institution, which with The Coral Gables First National
Bank was a member of the Federal Reserve System of the
United States, took a participation under a separate agree-
ment under the rules and regulations of the Federal Re-
serve Board and the Coniptroller of Currency, as super-
visor of ‘national banks, for approximately 55% of the third
loan and a slightly higher percentage of the first two
. chattel mortgages of July, 1956. There was no assign-
ment of any title of the mortgages or liens held by the
National Bank. The: participation of the State Bank un-
der the separate contract on the November 14, 1956, mort-
gage was not tered into until several weeks after No-
vember 14, 1956.% The National Bank had made the initial
loans and held title to all three mortgages. In March,
1957, the National Bank; pursuant to the terms of the
third. mortgage of November 14, 3956, contended that
there had been a.default in that mortgage and also that
there was a default for non-payment of certain install-
ment payments on the July, 1956, mortgages. The American
Surety Company took over the control and possession of
Constructors of Inc., on or about March 15, 1957,
and the stock o Constructors of Florida, Inc., was assigned
to certain designated representatives of the Surety Com-
5
pany. The November 14, 195g mortgage and notes were
then renegotiated and certain new trust agreements wer@
entered into under whith the payments from all three
mortgages were paid under the trust agreement to The e
Coral Gables First National Bank, as trustee, which in
turn under the contract was to make distribution on a
certain prorata basis of the sums collected from the City
of West Palm Beach contract. This was the first instance
where the proceeds of the West Palm Bach sewer con-
tract were pledged as additional security for the first two
mortgages, as well as for the third mortgage of November °
14, 1956. Constructors of Florida, Inc., through its con-
trol by the Surety Company, continued on the construc-_ mek
tion work and certain payments were made through June,
1957. No payments were made by the City of West Palm
: Beach directly to The Coral Gables First National Bank
Ras pursuant to that trust after June, 1957, but the payments
| were made diréctly by the City of West Palm Beach to
Constructors of Florida, Inc., for use by the Surety Com-
Pany in the completion of the sewer contract.
= In September, 1957, the National Bank instituted a
eke ae Circuit Court of Dade County, Florida, to tore-
close all three mortgages. The Pan American Bank of
Miami had been joined as a co-party plaintiff because of
the requirements of the Federal Comptroller's regulations
- governing the protection of participation interests with a
national bank where the loan was in default under Comp-
troller of Currency Ruling 1135A. There was no claim “
by the Pan American Bank that it held any title or legal
hi
me 6 +
who had been officers of Constructors of Florida, Inc., and
who had endorsed or guaranteed the payments. The Cir-
cuit Court of Dade County, Florida, was the State Court
of genera) jurisdiction.
The procedure was for the purpose of foreclosing the
lien of the National Bank on the equipment, as well as
cabs for the purpose éf seeking an accounting and impressing
a lien or judgment against American Surety Company
and/or the City of West Palm Beach on the proceeds of
the West Palm Beach sewer contract, the proceeds of
which were claimed to have been wrongfully diverted
from the National Bank. Application for the appointment
of a State Court receiver had been filed but had not been
presented to the Circuit Judge for a because within
a very ‘short time after the suit was fil& an involuntary
petition in Bankruptcy had been filed in the United States
District Court, Southern District of Florida, and a federal
Bankruptcy receiver had been appdinted, to-wit: John
Nicholas, who held possession and custody of all of the
assets, including the mortgaged equipment. The receiver
i and Constructors of Florida, Inc., through the receiver,
filed an answer in the State Court proceedings contending
that the National Bank had exacted usury in the loan
_ Of November 14, 1956. There was no claim of usury inter-
\"_gased by anyone with reference to the two chattel mort-
gage loans of July, 1956.
- Upon the filing of the claim for usury in the State
Court against the National Bank, the National Bank im-
mediately filed motions to strike or dismiss those portions 4
of the answer which set up usury against the National
Bank, because such a procedure for claiming usury against
a national bank by way of counterclaim in an equity fore-
| closure action by a national bank was prohibited by the
° . ‘provisions of the Federal Statutes, Title 12, U.S.C.,.§§ 85,
.
; ‘ > b£
7
and 86; Ait was contended at the outset that the only
remedy permitted for a suit by way of claim of usury
against a national bank was first of all limited to either
a forfeiture of the interest not yet paid, or for double the
amount of the interest actually paid, and it was claimed
that the State Court first-had no jurisdiction to entertain
any action by a borrower-against a national bank except
strictly in the amount of claim permitted under the
statute and in procedure which called for a separate action
in the nature of debt where only two parties could be in-
volved—one the borrower and the other the national bank.
- The claim of the National Bank was based upon the -
controlling opinion of this Court in the case of McCollum v.
Hamilton National Bank, 303 U.S. 245, 58 S. Ct. 568, 82 L.
Ed. 819. The State Court and counsel for the defendants
in that case, while admitting that the McCollum case had
laid down such a rule in the construction of the Statute,
Title 12, U.S.C., §§ 85 and 86,-and that those principles of
law and the determination of the restfictive jurisdiction,
both as to amount and procedure, such a counter-
claim in an equity suit, yet the Constructors of
Florida, Inc., contended that the opinion in the McCollum
case (which was issued by this Court in 1938) was based
" upon facts which arose before the adoption of the Federal
Rules of Civil Procedure which authorized compulsory
counterclaims, and that the Federal Rules of Civil Pro-
cedure established a new doctrine of substantive law rather
than mere adjéctive law, and superseded or by implication
amended the exclusive statutory provisions and remedies
_in Title 12, U.S.C., §§ 85 and 86. It was pointed out to
the Circuit Court of Dade County, Florida, that the
United States Court of Appeals for the Tenth Cifcuit, in
the,case of John R. Alley & Co. vy. Federal National Bank
of vee, Oklahoma, a 1942 decision, 124 F. 2d 995, had
held that such an amendment had been created by’ the
adoption of the Federal Rules of Civil Procedure, and while
, that was the only case of any appellate Court, state or
federal, the Circuit Court of Dade County, Florida, applied
that doctrine and ruled that the procedure by way of
counterclaim in the equity foreclosure action in said Court
‘could be carried on under the provisions of the Florida
Rules of Civil Procedure concerning compulsory counter-
claims, notwithstanding the strict prohibition as to proce-
dure and jurisdiction of any Court, state or federal, covering
both the procedure and the amount of a claim for recovery
of usury. ; . --
The National Bank continued this same objection as to .
jurisdiction and power of the Circuit Court of Dade County,
Florida, to. entertain these counterclaim procedures for
usury against a national bank in this.-manner and form
and in this amount throughout every stage of the procedure.
This same objection was made not only in the State Court,
but it was made in the various appellate Courts of Florida,
and in two instances by a petition for certiorari to this
‘The ‘amount of the usury award and the procedure
was discussed in certain cases by the State Court in The
Coral Gables First National Bank v. Constructors of Florida,
Fla. App. 119 So. 2d 741, certiorari denied 123 So. 2d 349
(S. Ct. Fla.), certiorari denied in this Court, 365 US. 811,
o 81S. Ct. 690, 5 L. Ed. 2d 691. These cases are mentioned ae
in the opinion by the United States Court of Appeals,
Fifth Circuit, in the reported case to which certiorari is ~
sought, on page 596 of the reported opinion. In addition,
there were other cases in the State Court which the United
States Court of Appeals, Fifth Circuit, did not even men-
‘tion in its opinion (see opinion of District. Court of Ap-
peal of Florida, Third District, 132 So. 2d 806, and denial
of certiorari to the Supreme Court of Florida, September 26,
a
me ——
f
9
1961, 133 So. 2d 319). A second petition for certiorari was
filed in this Court on the 21st day of December, 1961, and
certiorari denied March 5, 1962, 369 U.S. 813, 82 S. Ct. 687.
In the meantime, in November, 1958, after the Circuit Court
of Dade County, Florida, had rendered its decree of July,
1958, upholding a large usury claim in an amount com-
pletely excessive of the amounts provided for in the Fed-
eral Statutes, 12 US.C., §§ 85 and 86, and in which the
said State Court had upheld the right to enforce usury by
way of counterclaim under the doctrine of the R. H. Alley
& Co. case, supra, and while an appeal was pending under
supersedeas, Constructors of Florida, Inc., filed a volun-
tary Chapter X Reorganization proceeding in the United
‘States District Court, Southern District of Florida. ‘That
Court took fyll jurisdiction of all‘of the physical assets
of Constructors of Florida, Inc., including title, possession
and custody of the chattel equipment under the mortgages,
and proceeded to liquidate the actual “tangible personal
property by having an open sale in April, 1959. After the
sale of those tangible assets in April, 1959, The Coral
Gables First National Bank purchased the assets ‘on a
credit bid, so that the Circuit Court of Dade County,
Florida, had no jurisdiction in any way over those tangible
assets. The District Court of Appeal of Florida,
District, on March 22, 1960, rendered its opinion on
initial appeal from the judgment and decree of July :
‘and made a substantial reversal of certain of the
of the July, 1958, decree. Not satisfied with the decision
the Banks then pursued an attempted certifearl prosend-
ing to the Supreme Court of Florida, and when that Court
in September, 1960, denied certiorari without taking ju-
risdiétion, a petition was then filed in this Court on De-
cember 1, 1960, which was denied in February, 1961, 365 ©
US. 811, 81 S. Ct. 690, 5 L. Ed. 2d 691. The supersedeas
had been extended so that there was nothing final in the
10
State Court litigation until after this Court in February,
1961, denied the petition for certiorari. It was contended
that the litigation was then back for reconsideration for
new proceedings in the State Court, and the Chapter X
Reorganization Court was required to take over all pend- 4
ing litigation. Such an application for an injunction was |
made to the United States District Court, Southern Dis-
trict of which denied the injunction; but with cer-
tain tions requiring that the proceeds of any judg-
> ments for usury in the State Court be forthwith paid over
to John Nicholas, as Trustee in the Reorganization proceed- @
ings. In April, 1961-(see Tr. p. 201), the Circuit Court of |
Dade County, Florida, entered a modified decree, and as a
part of that amended decree, in paragraph 3, the Circuit
Court of Dade County, Florida, found that there were due
to The Coral Gables First National Bank,. et al., certain
sums of principal and interest on the loans of July 25 and
“July 24, 1956, and then ruled: “but the mortgages al-
legedly securing said loans are not enforceable as said
Banks are not in equity with clean hands.” In the very |
next sentence the Court said: “The Court does not deter- §
mine whether or not said loans are now in default inas |
much as the United States District Court for the Southern
District of Florida, in the proceedings for the reorganiza-
tion of Constructors of Florida, Inc. has assumed juris-
diction of said claims.”
It is true that in other parts of that decree (see Tr.
201) the Circuit Court of Dade County, Florida, in compli-
ance with the ruling of the Appellate Court of Florida,
reduced the interest penalties for usury from the sum of
several hundred thousand dollars, found in the decree of
. July, 1958, to about $80,000.00, yet that amount under the
\ provisions of the Federal Statutes could not have amounted |
: - to more than twice $11,500.00, which was interest actually ,
‘. paid. The Banks took an immediate-appeal, but without
‘ ®
|
11
, Supersedeas, to the Supreme Court of Florida by applying .
for a writ of certiorari, and also took an appeal to the
United States Court of Appeals for the Fifth Circuit, which
resulted in the opinion of the Fifth Circuit, 299 F. 2d 736.
The amount of something over $400,000.00 in penalties was
- _ paid to the Trustee in the Reorganization proceedings, and
said funds are still on hand with the Trustee in the said
Reorganization proceedings.
The Stete Court proceedings on appeal, which were
ignored by the United States. Court of Appeals for the
Fifth Circuit in its last opinion, consisted of procedures in
the Supreme Court of Florida by certiorari, which was
denied, and then by a new’ petition for certiorari in this -
Court filed in December, 1961, which was denied by this
Court on the 5th day of March, 1962, 82 S. Ct. 687. Facts
and opinion referred to Florida Appellate 132 So. 2d 806,
Florida Supreme Court 133 So. 2d 319.
After this Court in March, 1962, denied the writ of
certiorari, then for the first time proceedings were activated
in the United States District Court, Southern District of
Florida, in the Chapter X reorganization. Objections to
the various claims had been made in 1959 and all parties _
had agreed that the hearings in the United States District ©
Court on the objections would not be heard or the issues
determined until the then pending procedures in the State -
Appellate Court had been determined. None of the parties,
to-wit: the Trustee, the Banks or the Surety Company, in
the plan of reorganization ever stipulated or agreed that
they would be bound in the Federal Court by the deter-
mination of the State-Court procedures. The Trustee has
made no such contention, and while thefe is an inference
from the last opinion by the United States Court of Appeals
for the Fifth Circuit that such was the ease, that is not
borne out by the Record (see-Tr. pp.'91-94). (For a de-
12
tailed: discussion of this point see Petition for Rehearing,
pages 18 and 19, App. C, p. AlS),
There were many factors in the State Court litigation
and several parties involved who were not primarily in-
volved in the reorganization proceedings. The National
Bank had persisted in continued objections to the jurisdic-
tion of the Circuit Court of Dade County, Florida in its at-
tempt to entertain a cbunterclaim for usury in the State
Court foreclosure proceedings. That point had been_as-
signed as one of the errors in the lower State Court ‘and© >
had not been disposed of by the Florida Appellate Court.
The stipulation of the Banks, as above referred to in the
Record, did not contain any consent that it, the National
Bank, would accept the jurisdictional deterntination by the
State Court of its claim of jurisdiction in view of the spe-
cific language to the contrary in the Federal Usury Stat-
ute, 12 US.C.A., §§ 85 and 86. The plan itself did not
make any such requirement and these rights were all re-
served by all parties. This point is one of the fundamental
errors which we say was committed by the United States
Court of Appeals for the Fifth Circuit in the last opinion.
r The Record is clear that after March, 1962, and after
’ all appellate procedure had been concluded, both in the
Supreme Court of Florida and in this Court on the applica-
tion for petition for certiorari, the Trustee and his counsel,
John H. Gunn, then set down for argument and disposition
the various objections which had been filed by the Trustee
to the claims of American Surety Company and the claims
of the Banks, and the objections of the Banks to the claims
of American Surety Company had also been set down. The
Record does not disclose that the Trustee took the posi-
tion that the Banks had waived any right of further contest
because of the ct of the State Court litigation. The
issues were before the Referee, sitting as Special
13
Master, in the first instance and then before the District
Judge on these issues. The District Judge himself pro-
ceeded to determine the issues in the light of the mandate _
and opinion of the United States Court of Appeals for the
Fifth Circuit in the decision in 299 F. 2d 736. These issues
were d ed after lengthy litigation and the opinion
and judgment of the United States District Court, Southern
District of Florida, was entered on December 20, 1963,
which is referred to in the Record and a copy of which is
‘attached hereto as‘ Appendix E, page A44. The United
States District Judge undertook this lengthy trial under
‘the provisions of the opinion of the United States Court of
Appeals, Fifth Circuit, 299 F. 2d 736 (see text p. 740), in
which that Court in note 16 said: —
“As in note 15, supra, we likewise expressly disavow
any purpose here to indicate any view on the extent
to which, if any, the State Court judgment is to de-
termine priorities, enforcement of security by the
Banks, or other creditors, or the Jike. Although the
Bankruptcy Court refused to enjoin execution on
the State Court judgment, the funds received by the Re-
ceiver are now, and will remain, subject to the sole con-
Pere cere
It is clear that.in April, 1961, when the State Court
entered its second decree, it did not have any jurisdiction of
any kind over the chattel mortgages of July, 1956, nor of
any of the chattels or equipment used as security for any
. of the three’ mortgages, with the exception of the claim
‘against American Surety Company and the City of West
Palm Beach. ‘In brief, in ‘the order of the District Court
since all of these assets had been for a number of years
in the Reorganization Court and had been sold and dis.
posed of; there could be no judgment of the Circuit Court
-®f Dade County, Florida, that could control the disposition
of the lien of those two-July, 1956, mortgages. In our
‘
©
14
‘opinion the District Court properly held that the so-called
‘doctrine of “clean hands” which would prevent the fore-
closure of those mortgages in the State Court against cer-
‘tain équipment would not determine any question of ulti-
‘mate title or lien on the assets and could not in any way
‘bind the District Court of the United States in the Re-
organization proceedings. Therefore, as a result of the pro-
ceedings in the United States District Court and under the
authority granted to it by the Appellate Court in the opin-
ion, 299 F. 2d 736, both the United States Court of Appeals
for the Fifth Circuit and the subsequent opinion by the
United States District Judge specifically held that there
could be no doctrine of res judicata with reference to some
$131,000.00 as to the specific liens on the chattels which |
had always been in the possession of the Bankruptcy Court, —
either in the involuntary bankruptcy of 1957, or the subse-
quent Chapter X proceedings which began in 1958.
It was pointed. out in the opinion of the United States
District Court that the law of Florida, as well as the de-
cisions of various Federal Courts, clearly held that the mere
-refusal of a State Court to enforce a claim on the doctrine
of unclean hands could not act as a forfeiture of the lien
claims which were definitely fixed by- state law, and it was
the duty of the Court to enforce both the claim and the
liens of the mortgages in the Bankruptcy Court against the
assets in the Bankruptcy Court over which the Bankruptcy
Court had had jurisdiction at all times.
The United States District Court also pointed out that
since these other decisions of the State Court had been
rendered this Court had decided the case of Southern Con-
‘struction Company v. Pickard, 371 U.S. 57, 83 S. Ct. 108.
This case involved the determination. by this Court that
where a statute of the Congress,:such as the. Miller Act; de-
fined and oreated the rights of contractors or claimants un-
‘
15
der a Miller Act bond and also specified the exclusive
method of remedy and enforcement, that the law was final
and exclffsive and no Courts under the guise of rules of
procedure had the jurisdiction to go beyond and in con- —
tradiction of the specific sections on the matter of proce-
dure, venue and jurisdiction. Under the doctrine of this
case the original theory of the Tenth Circuit in the Alley
case, supra, was completely exploded, so that the question
of jurisdiction of the State Court to entertain suits against
a national bank for usury by way of counterclaim was def-
initely held in effect to be improper and without jurisdic-
tion. The District Judge in his opiniofi also specifically
pointed out that this Court in the case of Mercantile Na-
tional Bank at Dallas v. Langdeau, 83 S. Ct. 520, 371 U.S.
555, and in the case of Michigan National Bank v. Robin-
son, 83 S. Ct. 914, 373 U.S. 591,-had revitalized and clarified
the provisions of Title 12, U.S.C.A., §§ 85, 86 through 94,
and that all of the provisions of these protective statutes
pertaining to suits against national banks were still in force
and effect and had not been changed by implication. The
Mercantile National Bank of Dallas case involved suits
against the Republic National Bank of Dallas for fraud
claims in the 98th District Court of Travis County, Texas.
' Notwithstanding the venue provisions of the Texas Regula- .
-tory and Procedural Laws, this Court said that these na-
tional banks: under Federal Statutes specifying the place
- where proceedings may be had against federal associations
could be sued only in the county wHfére the national bank
is located, whether the suits are filed in a Federal Court
or a State Court. It held that the action in a State Court
could not be brought unless that State Court was sitting
in the county in which the bank had its principal place of
business, 3 5
In the Michigan National Bank case.above referred to,
372 U.S. 591, there was an actual claim for usury in certain
~
16: a
transactions in Nebraska, and subsequent suits in the Dis-
trict Court of Lancaster County, Nebraska, affirmed by the
- Nebraska Supreme Court upholding the doctrine that the
state law would control as to venue and procedure. In this
case on appeal this Court in applying the doctrines of Title
12, US.C., § 94, and Title 12, U.S.C., § 86, said that the
United States Statutes as to the procedure in usury claims
against a national bank had to be strictly applied and were
exclusive and controlled over any so-called concept of the
state laws.
Therefore, summarizing the questions presented, they
« May be briefly stated, as follows: -*
(1) Under the provisions of Statute 5198, of which 12
' US.C.A. §§ 85 and 86, are a part, does any court,
‘state or federal, in an action by a national bank to
foreclose chattel mortgages haye the right, juris-
diction or power to entertain a claim of usury as a
counterclaim to that foreclosure action, or must
the jurisdiction and power of that court, or any
o other court, be limited to entertain a suit by the
person who has paid usurious interest in an action
in the nature of an action of debt?
(2) Even in an action in the nature of an action for debt
as specifically recognized and authorized under the
decision of this court in McCollum v. Hamilton
’ National Bank, 303_U.S. 245, 58 S. Ct. 568, 82 L. Ed.
this
the United States and has it always been tle
of the United States since it was rendered in
1938, so as to make null and void the
in the State Court of Florida in the case at bar?
9
Pa
H]
(3)
17
Has the national bank in this case been denied the
protection of the Fourteenth Amendment of the
United States Constitution, in that by certain state
processes it has been deprived of its property with-
out due process of law and has been denied by the
State Courts of Florida the equal protection of the
laws which are guaranteeed to it by the Acts of
LR TING SRT SI LO © ROLE
(4)
ne ieee
:
ii
i
is a ee ee
under Title 12, U.S.C.A., § 85 and 86, any suit for
Suny’ geuitics Geum ahas% ‘bank of an
nature is restricted to a suit in the
affirmative
nature of an action for debt by the borrower against
the national bank, in which suit the bank
is en- -
titled to a jury trial, and where the extent of the
claim is restricted to a claim for the amount
of the usurious interest paid, can any court, state
or federal, grant a claim in excess of the amount
limited by the Act of Congress on the alleged
usurious third mortgage and at the same time enter
which are not even in contest, as an ~
penalty which would be binding upon a Chapter X
or bankruptcy court which at all times had posses-
ceedings? .
- (5) In this circumstance does the State Court have any
jurisdiction under the doctrine of unclean hands to -
pass a judgment which is res judicata upon a reor-
court so as to preclude the
ganization bankruptcy
district judge of the United States Court in the re-
organization
terest, of the liens against the proceeds of the bank-
ruptcy sales? (Note: All of the money, some
- $400,000.00, as a result of the executions in the
through its Trustee in the Reorganization proceed-
ings and have not been distributed or expended.)
The United States District Judge in the decree and
judgment of December 20, 1963, had separately or-
dered that this fund of $131,000.00, plus interest, in
rEitEt
ia
if
H.
i ae
il
E
i
i
:
‘
FAN
(6) Where usury is claimed against a national bank
in a Florida Circuit Court in ordinary foreclosure
on an original mortgage loan of $442,200.00, and
where only $11,500.00 was paid by the borrower for
interest, does any court, state or federal, under the
restrictive terms of Section 5198, also known as
12 US.C.A., $§ 85 and 86, have the jurisdiction or
power to render a judgment based solely upon
claim of usury, the effect of which is t6 wipe ou
the balance of a principal claim of $282,000.00, and
2
STATUTES AND CONSTITUTIONAL
PROVISIONS INVOLVED
(1) Amendment V, Constitution of the United States:
“No person shall be held to answer for a capital, or
otherwise infamous crime, unless on a presentment or
indictment of a grand jury, except in cases arising in the
land or naval forces, or in the militia, when in actual serv-
teh te then ot Wee ox pete Senge; Se ae
be subject for the same offence to be twice put jeopardy
of life or limb; nor shall be compelled in any criminal case
fo be a witness against himself; nor be deprived of life,
liberty, or property, without due process of law; nor shall
private property be taken for public use, without just
compensation.”
eee
20
(2) Section 1, Amendmerit XIV, Constitution of the United
St |
“All persons born or naturalized in the United
States, and subject to the jurisdiction thereof, are citi-
zens of the United States and of the State wherein
_they reside. No State shall make or enforce any law b
which shall abridge the privileges or immunities of citi-
zens of the United States;-nor shall any State deprive
any person of life, liberty, or property, without due .
" “process of law; nor deny to any person within its juris-
: diction the equal protection of the laws.”
- (3) Section 5198, General Statutes of the United States, Por-
tions of Which Are Involved in This Case, under Title
12, US.C.A., §§ 85 and 86: S
Ҥ 85. Rate of interest on loans, discounts and pur-
chases
Any association may take, receive, resefve, and
charge on any loan or discount made, or upon any.notes,
bills of exchange, or other evidences of debt, interest
at the rate allowed by the laws of the State, Territory,
or District where the bank is located, or at a rate of
1 per centum in excess of the discount rate on ninety-
day commercial paper in effect at the Federal reserve
bank in the Federal reserve district where the bank is
located, whichever may be the greater, and no more,
except that where by the laws of any State a different
te is limited for banks organized under State laws,
the rate so limited shall be allowed for associations or-
_ ganized or existing in any such State under this chapter.
When no rate is fixed by the laws of the State, or
Territory, or District, the bank may take, receive, re-
serve, or charge a rate not exceeding 7 per centtim, or
1 per centum in excess of the discount rate on ninety-
- day commercial paper in effect at the Federal reserve
bank in the Federal reserve district where the bank is
located, whichever may be the greater, and such in-
terest may be taken in advance, reckoning the days for
~’ which the note, bill, or other evidence of debt has to
—s
21
run. The maximum amount of interest or discount to
be charged at a branch of an association located out-
side of the States of the United States and the/District —
of Columbia shall be at the rate allowed by the laws {
of the country, territory, dependency, province, domin-
ion, insular possession,’ or other political subdivision
where the branch is located. And the purchase, dis-
count, or sale of a bona fide bill of exchange, payable
at another place than the place of such purchase, dis-
count, or sale, at not more than the current rate of ex-
change for sight drafts in addition to the interest, shall
not be considered as taking or ren 5 ape rate
of interest.”
§ 86. Usurious interest; penalty for taking; limitations .
The taking, receiving, reserving, of charging a rate
of interest greater than is allowed by the preceding |
section, when knowingly done, Shall be deemed a
forfeiture of the entire interest which the note, bill, or
other evidence of debt carried with it, or which has
been agreed to be paid thereon. In caséthe greater rate
of interest has been paid, the person by whom it has op
been paid, or his legal representatives, may Tecover /
back, in an action in the nature of an action of debt, |
twice the amount of the interest thus paid from the -
association taking or receiving the same: Provided,
That such action is commenced within two years from
the time the usurious transaction occurred.”
(4) U.S.C.A., Title 12, § 1, which authorizes the crea-
tion of the Bureau of the Comptroller of Currency for na-
tional banks, and U.S.C.A., Title 12, § 21, authorizing the
creation of national banks through the operation of the
Comptroller of Currency, which creates a complete system
for not only the establishment by the Government of na-
‘ tional banks a8 distinct and separate from any power of
State Courts or the laws of the States in interference with
the operation and control, except as it may be permitted
by Congress (Deitrick v. Greaney, 309 U.S. 190, 60 S. Ct.
480, 84 L. Ed. 694). |
”
22 -/
1 am? COMPTROLLER OF CURRENCY —
“1135A. Sale of loan participations to other banks on
a ‘last in-first out’ basis.
The sale of a participation in a loan to another
bank (usually the sale of the ‘overline’ or legally ex-
. cessive portion of a loan) under an arrangement
whereby the placed portion of the debt must first be
subordinates the interest of the selling
’ bank. It is unsound to place the selling bank in a posi-
tion whereby any loss that may occur on the entire
pose BSG opera bad pace Farge! tees
tion must be borne by it, and ‘overline’
* the intent and purpose of RS. $200 woul be nullified
under an agreement having this effect. To avoid this
possibility, participation arrangements giving to one of
the participating banks an earlier maturity or prefer-
ence with respect to payment of the obligation(s) in
the regular course Uf business, should provide that in
_the event of default. (interest and/or principal pay-
ments “past due and unpaid for such period as the
participants may by agreement determine) on the loan,
* the appointment of a receiver, or bankruptcy of the
borrower, the participating banks shall share in all sub-
sequent loan payments and collections in proportion to
the percentage of participation held by each bank at the
time of the default, the appointment of a receiver, or
bankruptcy. With respect to participations in real es-
tate loans see Paragraph 2715.”
e
STATEMENT
In the statement of questions involved and the refer-
ences to the various opinions. we have set forth in detail
- the steps taken in the Courts of Florida, the timely objec-
tions made and the proceedings in the United States Dis-
trict Court, Southern District’ of Florida, in both the in-
voluntary bankruptcy of Constructors of Florida, Inc.,
which began in October, 1957, and the subsequent proceed-
ings in the voluntary Chapter X Reorganization proceeding
which began in the early part of November, 1958. *
As the result of the questioned procedure beginning
in the Circuit Court of the Eleventh Judicial Circuit in and
for Dade County, Florida, in Chancery, in September, 1957,
the National Bank sought only to foreclose a,mortgage on
chattels. The chief defendant was Constructors of Florida,
Inc., a Florida corporation. There was no diversity of
citizenship. The chattels were present in Florida. Relief
was sought against the City of West Palm Beach, a Florida
municipality, and against the American Surety Company
of New York, which was authorized to do business in the
State of Florida. There were numerous individual defend-
ants who had endorsed or guaranteed the various notes se-
cured by the mortgages. The Chancery Courts, or equity
Courts as they are called in Florida, are for the purpose,
among other things, of foreclosing certain liens, jurisdiction
of which is fixed in the Constitution of Florida and by the
statutes. There are no jury trial systems used in Florida
in the Chancery or equity side of the Court.
Shortly after the equity foreclosure suit had been
‘started an involuntary petition for bankruptcy had been
filed by outside creditors against Constructors of Florida,
me 24
Ine, ed ahah tt th sinitega) eens A reaivel te
Bankruptcy was appointed pending the question of adjudi-
cation. That receiver, together with the Constructors of_
Florida, Inc., principals, filed an answer in the nature of a
counterclaim, claiming an action affirmatively against the
National Bank for usury. At that stage of the procedure,
as we have heretofore set forth, the National Bank raised
the question by motions to strike and dismiss the counter-
claims, setting forth §§ 85 arid 86, U.S.C., Title 12, in which
the question was squarely presented that even though the
foreclosure could continue in the State Court against the
chattels, Constructors of Florida, Inc., had no right to raise
the question of affirmative usury in that proceeding; that
it was relegated to a separate suit in the nature of an action
for debt where the only issues to be involved would be a
claim by Constructors of Florida, Inc., or its receiver, on
the one hand, as plaintiff, and the National Bank as defend-
ant. A jury trial was allowed and was mandatory in such
a case under the Florida law which has maintained a sepa-
ration between equity and law actions. Even where only
the cause of action is maintained under the Federal Rules
of Civil Procedure, yet where the issue is one that was
- triable in a law action with a jury, before the adoption
of the rules the right to a trial by a jury was preserved
(see Black, Trustee v. Boyd, U.S.C.A. 6, 1957, 248 F. 2d
156. See also Beacon Theaters, Inc. v. LA me ocaal 359 US.
500, 79 S. Ct. 948).
The question was also raised that since there was only
an actual payment of interest on the mortgage of November
' 14, 1956, of $11,500.00, the total claims under Title 12,
US.C.A., § 86, would be limited to a claim of double that
amount. It was pointed out that the relief sought, which
called for forfeiture of principal and excessive interest re-
payments and other penalties under the Florida statutes,
was not applicable and that the Circuit Court of Dade
‘25 *
County, Florida, while having jurisdiction for the fore-
‘closure of the lien of the mortgages did not have any right
or jurisdiction in face of the federal statutes to enter-
tain such an action. Notwithstanding this plain objection
the Circuit Court of Dade County, Florida, proceeded,
which ultimately resulted in a usury penalty exaction wip-
ing out the principal of the National Bank’s claim and ex-
acting affirmative damages in excess of $400,000.00. That
Court also attempted to hold that certain mortgages which
were not involved in the usury feature could not be en-
forced in the equity Court of the State of Florida because
the Bank was in equity with unclean hands,
As we have heretofore pointed out, all of the tangible
personal property had heen seized by the Bankruptcy
Court under its receiver and that property was never under
the control or legal custody. of the Circuit Court of Dade
‘County, Florida. .
In the fall of 1958, there was a voluntary petition for
reorganization filed by Constructors of Florida, Inc. The
‘technical difference that was brought about by ‘the ap-
proval of the Chapter.X Reorganization petition was that
the trustee in Chapter X was then vested not only with
possession and custody, but full title to all of the assets of
Constructors of Florida, Inc. Claims were filed by the Na-
tional Bank in the Chapter X proceedings and a tentati =
allowance in the amount of approximately $282,000.00 on
its three mortgages was entered.
Was Waris Coast Wee eal cemebiad bn'o acres ta
the Circuit Court of Dade County, Florida, on June 26, 1958,
amended on July 2, 1958, and a complete and full super-
sedeas bond had been filed pursuant to an appeal from that
decree to the District, Court of. Appeal of Florida, Third
District. That Court, the appellate Court,-did not. make
"any ruling until March, 1960, when there was a decree par-
26
tially in affirmance and partially in reversal on certain -
points. Prior thereto, in April, 1959, the United States Dis-
trict Court, sitting as a Reorganization Court, ordered a sale
of all of the tangible property. This property was sold and
the proceeds of that sale were held under the supervision ¢
of the United States District Court in the name of the
trustee for the entry of proper orders of distribution.
_ After the decree based upon the mandate of the
Florida Appellate Court was entered in April, 1960, the mat-
ter was again appealed, but as a result of the judgment of
boar 1960, no supersedeas was granted and the trustee in
ptcy was paid new money in the sum of approxi-
mately $400,000.00, which was then taken over by the trus-
tee in the Chapter X proceedings and that fund, together
-with the proceeds of the original sale in 1959, in the orig-
inal amount of $106,000.00, plus irterest, is still held in the
trustee’s account under the supervision of the United States
District Court in the reorganization proceedings. Other
features of the background of the litigation have been dis-
cussed by the United States Court of Appeals for the Fifth
- Circuit in its opinion, 299 F. 2d 736, and later in the opin-
ion of the United States District Judge, dated December 20,
1963, a copy of which is attached to this petition as
Appendix E, page A44. Other features were discussed in
* the opinion, the review of which is now sought, by the
United States Court of Appeals for the Fifth. Circuit, 349
F. 2d 595. '
As the result of the last opinion by the United States 3
Court of Appeals for the Fifth Circuit these penalties ex-
acted by the State Court have been upheld without any
retrial of the issues in the Federal Court insofar as the
distribution of money is concegned. There has never
been any trial in any action brought by Constructors of
Florida, Inc., romepete or the trustee, Oy rer entity
21°
visions of Title 12, U.S.C.A,, §§ 85 and 86. The provisions
of the mandatory law of the United States through the
Acts of Congress have been ignored. The actual errors
in the opinion of the United States Court of Appeals, Fifth
Circuit, have been specifically pointed out in the petition
for rehearing, which for the sake of brevity we refer to,
_a copy of which opinion is attached hereto as Appendix
C, page A15. |
REASONS FOR GRANTING THE WRIT
‘
I.
The Courts of Florida, as well as the United Sta
District Court, Southern District of Florida, .and
- United States Court of Appeals for the Fifth Circuit, have
failed or refused to give any consideration of or weight
to the mandatory and exclusive provisions of Title 12,
U‘S.C.A., §§ 85 and 86, in the allowance of certain exorbi-
tant claims in the nature of penalties and forfeitures ‘against
a national bank.
I.
The United States Court_of Appeals for the Fifth
Circuit in its opinion, 349 F. 2d 595, has rendered an opin-
-ion which is in conflict with the decisions of this Court
in the cases of McCollum v. Hamilton National Bank, 303
U.S. 245, 58 S. Ct. 568, 82 L. Ed. 819; Mercantile National
Bank at Dallas v. Langdeau, 371. U.S, 555, 83 S. Ct. 521;
Michigan National Bank v. Robinson, 372 U.S. 511, 83 S.
Ct. 914; Republic National Bank of Dallas v. Langdeau,
371 US. 555, 83 S. Ct. 521; Southern Construction Company
v. Pickard, 371 U.S. 57, 83 S. Ct. 108. The opinjon of the
United States Court of Appeals for the Fifth Circuit is
also in conflict with the 6pinion of the United States Court
of Appeals for the Sixth Circuit in the case of Schumacher
v. Lawrence, 108 F. 2d 576. The controlling subject
matter of the federal opinion, beginning with the McCollum
case and the Schumacher case, is as follows, and we quote
from page 570 of the McCollum case, 58 S. Ct. 568, where
this Court said: . Se a
“One paying a national bank usurious interest and
entitled to enforce the penalty may not cia be it
by way of set-off in a suit brought upon his note to
: SARE. »” |
F «
at
Il ’ d ¢
When a Chapter X Reorganization Court has obtained
moneys through the process of a State Court, which said
‘Cot was acting under a procedure prohibited by the
federal law in an action against a national bank and now
over $500,000.00 of funds received from the“hational
by way of usury penalties, is that Chapter X Reor-
ganization Court to be permitted to disburse those moneys
which are claimed to have been wrongfully extracted and,
therefore, wrongfully held by the trustee when the said
United States District Court has not of itself determined
the equitable issues? We respectfully say that this Court
should grafit this writ so as to determine whether a
Federal Court sitting in reorganization proceedings is en-
titled to make disbursements of money which it has re-
ceived in contravention of and in non-compliance’ with the
federal fequirements, to the end that it is aiding and abet-
ting in the disbursement of funds which have been col-
lected by other sources without due process of law and
icc tol eto gee bury
ARGUMENT :
We are not seeking at this stage of the procedure
to have this Court on this petition for certiorari examine
the records in all of these cases and to try de novo the.
amount of usury penalties, if any, that should have been
extracted or exacted from the National Bank. That is a
matter that no Court having competent jurisdiction, in
our opinion, has ever passed upon iri the type of procedure
or suit exclusively authorized by the federal law. If the
-federal decisions—particularly the decisions of this Court
in the McCollum case, supra,”and other cases—can be
ignored, then what is the use of having a separate federal
banking system? What is the use of having rules and reg-
ulations by the Comptroller of Currency, and what is the
use of having statutory enactments by the Congress? dn
suits against a national bank for usury, if the Congress
many years ago saw fit to set up’restrictive provisions
to prevent suth a condition as resulted in this case, then
where is the protection today which Congress intended at
the inception of the creation of the Federal Banking
System? -
‘ In the opinion of the United States Court of Appeals
for the Fifth Circuit, 349 F. 2d 595, we have pointed out
in the petition for rehearing to that Court the many errors
which we contend were -committed by the Court, as well
as many features of -that opinion, which do not clearly
disclose the actual record and wherein the opinion is based
upon erroneous conclusions of fact as shown in the Record.
The doctrine of res judicata as so sweepingly invoked by _
the United States Court of Appeals, Fifth Circuit, is not
based upon any real determination of issues determined
by a companion or éollateral State Court where that Court ~
had jurisdiction over.the subject matter. 3
A
,
senieiiaaenenenes eee 2 mn meer nearer samnerm PRIES
oo 6
An interesting and, we think, applicable case in theory
is a decision by this Court of Granville-Smith v. Granville-
Smith, 349 U.S. 1, 75 S. Ct. 553. This case was a review
of two decisions by the United States Court of Appeals
for the Third Circuit—the first one the case of Alton v.
Alton, 207 F, 2d 667—and the original Granville-Smith
case in the United States Court of Appeals for the Third
Circuit, 214 F. 2d 820. .These decisions involved the ju-
risdiction of certain District and Territorial Courts set up
under the Act of Congress for the Virgin Islands, Division
of St. Thomas and St. John. Divorces had been granted
by that District Court in hundreds of instances based up-
on the actions of the Territorial Assembly which had pro-
Vinee ene © Cre. Be, ees, Semmens th Snes teretesy
qualified a plaintiff to bring an action for divorce.
In the Alton case Sonia Alton, a resident of West Hart-
ford, Connecticut, went to the Virgin Islands, where she
arrived February 10, 1953. After six weeks and one day
of continuous presente there she filed a suit for divorce
on March 25, 1953. Her husband, David Alton, the de-
_ fendant, entered an appearance and waived service. The
case was referred to a Commissioner, who recommended
that the plaintiff be granted a divorce. When the cause’
came on to be heard before the judge of the District Court,
that judge questioned the evidence as to domicile. The
District Judge entered a judgment denying ‘the divorce
and the plaintiff appealed to the United — Court of
Appeals, Third District.
In the Granville-Smith case, 214 F. 2d 820, involving
a similar set of facts, the United States Court of Appeals
for the Third Circuit relied upon its decision in the Alton
case, 207 F. 2d 667, and, affirmed. The basis for the de-
cision in the Alton case which was relied tpon was that
notwithstanding the act of te Territorial Assembly and
. = -_-
31
the passage of the divorce law and procedure thereunder
authorized and determined that a six weeks continuous
residence was sufficient to give the Court jurisdiction to
enter a divorce, yet that provision in itself did not comply
with the due process clauses of the United States Constitu-
tion as set forth in the Fifth Amendment or in what was
called the Organic Act where the Congress had authorized
the Assembly to pass certain laws for ifs own internal .
jurisprudence and procedure. The Third Circuit pointed
out that the parties can not by their consent confer ju-
risdiction of the subject matter upon a Court which does
not have authority to deal with the subject matter.
When this Court reviewed the Granville-Smith case
above mentioned, it discussed in detail the Organic Act of
1936, wherein the Congress of the United States provided
a.complete government for the Virgin Islands, including
a Legislative Assembly. Without burdening this Court at
this stage of the proceeding with all of the details of that
landmark decision, the results established that the
Congress of the United States assumed the power to
legislation over subject matter which it clearly had
right to control—and even to create in this instance—that
the granting of power or the restriction of power as con-
tained in the Congressional Act was binding. This Court
pointed out that the Congress had limited the type of
powers which the Legislative Assembly for the Virgin
Islands was granted, and held that the grant by the
Legislature did not authorize the passage of a law which
would give the District Court of the Virgin Islands the
power to accept the mere proof of a six weeks residence
‘as proof of honest intent and domicile so as to give the
District Court jurisdiction over a divorce action where
those facts and none other were established in record.
Here was a case where the Congress acted, Legisla-
tive Assembly then acted and created these which .
—-
32
had full and complete power as a matter of general ju- ~
risdiction over divorces in general, but as this Court said,
_ the Congress had not granted to the Legislative Assembly
_or to that Court the power to set up procedural standards
which were not in accord ith the fundamentais of the
United States Constitution on due process under the Fifth
Amendment or the Fourteenth Amendment.
We think it sufficient by reference to this case to show
this Court at this time and at this stage of the procedure
that where the Congress adopted a full and comprehen-
sive system for the creation and operation of national
banks as a. banking system separate and apart from state
procedure or state laws, and as a part of that act permitted
both state and federal Courts to entertain and have ju-
risdiction over usury claims against a national bank, they
had not only the power but perhaps the duty to see what
kind of usury claims could be filed, what kind of procedure
could be used, and what was the limit of the jurisdicti
grant to either the state or the federal Courts in aw: g
penalties for usury against a national bank. The Con-
gress did so in no uncertain terms.
We think the doctrine of the cases above mentioned,
together with the consideration by this Court of its own
Opinion in the case of Southern Construction Company v.
Pickard, 371 U.S. 57, 83 S. Ct. 108, should convince this
Court that this certiorari should be granted. This was a |
case involving certain conflicting claims under a Miller Act
?
suit against a contractor and surety growing ‘out of a .
federal project. The claim was made that the Miller Act,
40 U.S.C. 270b, 40 U.S.C.A. 270b, provided, and we quote
from page 109, second column of the reported decision in
ess eR Cl
“The Miller Act, ‘however, since, that: atte i
stituted under its provisions ‘shall be brought * * *
=
33
in the United States Distriet Court for any district in
which the contract was to be performed and executed
and not elsewhere * * *.’” .
Under this statute Mr. Pickard determined that he
would have to file an action for work which he had per-
formed in Tennessee in the United States District Court
for the Middle District of Tennessee and that he would
“have to file his claim for work done in Georgia in the
appropriate United States District Court there. He first
brought a suit in the United States’ District Court for the
Middle District of Georgia and then, in determining that
he was wrong in including a part of the Tennessee project
in the Georgia suit, he filed suit in Tennessee for that
portion of the work. The contention was-made that under
the Federal Rules of Civil Procedure, Rule 13(a), Pickard
‘was required to file any claims or counterclaims in the
first suit brought, which would include claims for both
the Georgia and the Tennessee projects. This Court re-
versed such a holding by the United States Court of Ap-
--peals for the Sixth Circuit and said (see text, second
column, page 110):
“The requiremeht that counterclaims arising out of
the same transaction or occurrence as the opposing —
party’s claim ‘shall’ be stated in the pleadings was
designed to prevent multiplicity of actions and to
achieve resolution in a single lawsuit of all- disputes
arising out of common matters: The Rule was partic-
© utarly directed against one who failed to assert a
counterclaim in one. action and then instituted a
second action fn which that.counterclaim became the
basis of the complaint. * * *
It is readily ‘eppatent that thig policy has fib 'ap-
plication hefe. In this instance, the plaintiff-respond-
ent, who originally sought: to combine all his claims
ina single suit, correctly concluded that he was re-
od
mon to both. Under these circumstances, we‘hold that
Rule 13(a) did not compel this counterclaim to be
meds in wiketere: of the two sults the first respon-
sive pleading was filed.”
The gist of this case as applied to the facts in the
case at bar was, in our opinion, to hold that where the
Congress creating an act such as the Miller Act, created
substantive rights and provided for a special and exclu-
sive remedy,that remedy was a part of the whole sub-
stantive act and was not amended or cast aside by any
provisions of the Federal Rules of Civil Procedure or any
other rules of civil procedure in any state Court.
We have never questioned on behalf of the National
Bank that Constructors of Florida, Inc., in the early fall
of 1957 could have filed a suit in the nature of an action
for debt on the law side of the Circuit Court of Dade
County;—Blorida, where Constructors of Florida, Inc., '
through its receiver, -would be the sole plaintiff and the
National Bank would be the sole defendant. The receiver
could have sought double the amount of $11,500.00, if he
, could have established before a jury sufficient facts from
* which the jury could find usury. A total claim under
the Federal -Statute, Title 12, U.S.C.A., § 86, would have
been approximately $23,000.00. This suit could have been
carried on while the suit on the equity side of the Court
could have proceeded for the foreclosure of these mort-
gages. Had.this orderly and statutory procedure been
certied on Tn Tine with the stattitory restrictions, this case
35
would not be before this Court. It was not carried on
on that basis and the results have been shocking. We
do not say that there is any evidence of bad faith or over-
reaching intentionally by the Courts of the State of Florida,
or that any real prejudice was shown against a national
bank. However, regardless of the intent, the results were
shocking and amounted to a taking and confiscation of
the National Bank’s property rights without due process
of law. We can find no other reported case within the ju-
risprudence citations of this country, either state or federal,
where such a proceeding has ever been upheld.
CONCLUSION
_ There seemed to be some confusion in the opinion of
the United States Court of Appeals, Fifth Circuit, in both
of its opinions, 299 F. 2d 736, and 349 F. 2d 595, as to what
the Congress meant when it inserted in Title 12, U.S.C.A.,
§ 86, what was intended by the designation of a particular
procedure .in the nature of an action for debt, with a strict
limitation as to the amount that could be recovered. In
1 Am. Jur. 2d 558, 5 ye PG, TT Soe SNe a
action of debt, stating: \/ 9
“The common-law action of debt lies for the re-
covery of a fixed and definite sum of money or of a
‘sum of money which can be ascertained from fixed
data by computation or is capable of cee readily re-
duced to certainty.” —
The quotations from 1 eee: Soethd O00 bor chamamlans
' by the authors’ reference to 23 Jur., § 65, page 655,
under the general heading of “Forfeitures and Penalties”,
Before referring to Section 65 we will point out the state-
ments in the prior Section 64, which are as follows: :
. ©
36
“Thus, where a new-and independent obligation for a
penalty is created by a statute, the statute must be
strictly followed, and where the only remedy is by in-
dictment, and the penalty is not certain, an action for
debt will not lie as it lies upon an ordinary penal stat-
ute. The rule which excludes other remedies where a
statute creates a right and provides a special remedy
for its enforcement rests upon the teem prohibi-
tion of all other remedies.”
In the notes in support of the statement that the
penalty procedure is exclusive and prohibits all other pro-
. cedure where it is defined in the statute (see United States
~ y. Simms, 1 Cranch (U.S.) 252, 2 L. Ed. 98; United States v.
Stevenson, 215 U.S. 190, 54 L. Ed. 153, 30 S. Ct. 35.
In 23 Am. Jur., § 45, p. 637, in the last paragraph of
said section, the authors make this statement:
“The remedy by the infliction of a statutory
penalty may or may not be exclusive. When a statute
imposes a duty. where none exists before and pre-
scribes a penalty for.failure to perform it, eee
ciple is that such remedy is exclusive.” |
See also the case of Sulil Realty Corp. v. Rye Motors, Inc.,
‘Westchester County Court, January 19, 1965, 257 N. Y. S.
111. '
We submit that usury penalties were unknown at the
common law. There is no general usury legislation under
the Acts of Congress. The laws of usury in the various
states have no application to claims for usury against na-
tional banks. Congress could just as well have prohibited
any claim for usury against a national bank, regardless of
the statutory provisions of the various states. Instead of
that it created a special exclusive definition of; usury in
Title 12, US.C., § 85. It. provided for the exclusive and
only remedy and the limitation of the amount of a claim
37
for usury against a national bank. The common law action
for debt or action in the nature of debt was a specialized
type of exclusive remedy to be used only in certain par-
ticular instances. At the time of the inclusion of this stat-
utory provision by the Congress in the national banking
laws of this country there was no ambiguity about the pro-
cedure or the raaximum penalties authorized in said Act.
As we have pointed out above, Florida maintains a dual
system where law and equity actions are still separate.
We have heretofore pointed out that even in a suit in a
United States District Court where there is supposed to
be only one form of action under the Federal Rules of Civil
Procedure, yet if such a suit was brought in the United
States District Court under the Federal Rules of Civil Pro-
cedure it would require the same classification and entitle
the national bank to a jury trial.
The United States District Judge determined in the
decree of December 20, 1963, that the National Bank had
. maintained its objections to the procedure in the State
Court by way of counterclaim in an equity action and to
the penalty sought to be enforced right from the inception
in every stage of the procedure. We emphasize that we
have not waived our position at any time. The United
States Court of Appeals for the Fifth Circuit in the opinion
in 349 F. 2d 595 now under attack recognized that finding
- by the Court below, but reversed the impact of those ob-
- jections by holding that since we had raised that point in
the State Court at every stage of the procedure, it had cer-
tainly been passed upon by the State Court and, therefore,
ee ee
federal limitations was res judicata.
There have been certain opinions which have been
collected in the notes in 1 A. L. R. 3d, beginning at page
904, which have set forth and held in certain instances that
38
the venue features in Section 5198, United States Statutes,
Title 12, U.S.C.A., § 94, could be waived. The controlling
case on this point is a decision by this Court in the case
of First National Bank of Charlotte v. Morgan, 132 U:S. 141,
10 S. Ct. 37, 33 L. Ed. 282, an 1889. decision, and while
this Court said that the actions of a national bank in enter-
ing into and defending a suit in a State Court not in the
‘county of its domicile, without objecting at any time until
appellate proceedings took place, would amount to a waiver,
but ‘the editorial writers in referring to that case haye
overlooked the fact that this Court in that same opinion
said that in the absence of circumstances creating a waiver,
that statute is a fundamental restriction and that the mere
waiver of the venue situation would not give the State
Court in that particular instance jurisdiction where the
claim itself was contrary to the restrictive provisions of
the federal statutes.
"Perhaps the leading case—or at least one of the first
- applicable cases on this subject—is the case of Leonardi v.
Chase National Bank of the City of New York (U.S.C.A.
2, 1936), 81 F. 2d 19. In this case a resident of Florida
sued a national bank with its principal and central office
in the Southern District of New York. It had a branch of-
fice at Brooklyn, in the Eastern District of New York. The
‘bank appeared specially to contest the Court’s jurisdiction
and moved to set aside the service and dismiss the com-
plaint on the’ ground that the National Banking Laws spe-
cifically provided for venue of suits against national banks.
After the Judge of the Eastern District of New York denied
the bank’s motions as to venue, then the bank instead of
attempting an interlocutory appeal, which it could not do,
tried the case of the merits. Plaintiffs recovered (see 11 .
F. Supp. 85), but the appellate Court reversed. In a rather
comprehensive opinion the Court pointed out that the terms
and conditions of the Federal Statute, particularly § 86,
39
Title 12, as well as other pertinent provisions of Section
5198, was clearly a restriction on jurisdiction. It held that _
once a national bank makes 4 timely objection to jurisdic- -
tion of the Court based upon the specific limitations of the
federal act which conditionally granted jurisdiction and
that objection was overruled,.it could go ahead and try the
case on the merits without waiving or consenting to juris-
diction. This did not keep the lower Court from being re-
versed and, as was-said in this opinion,-there was no way.
in which the proceeding in the Eastern District of New York
could be maintained since the Court had “no jurisdiction”.
The case at bar presents even a stronger situation, be-
‘cause the question of the inherent lack of jurisdiction in.
the State Court was maintained throughout the entire pro-
ceedings.
The learned Judge who prepared the opinion for the
United States Court of Appeals, Fifth Circuit, in holding
that the proceédings in the State Court could not be col-
laterally attacked in these ‘proceedings in the Federal Court
relied largely upon the decision from the Tenth Circuit in
Burgess v. Nail,.103 F. 2d 37, and he extracted from that
ee a quotation: ;
” “Error in determination of questions of law or fact
on which the court’s jurisdiction in particular case de-
_ pends, the court having general jurisdiction of the
cause and of the*person, is ‘error in exercise of juris-
diction’ and affords no ground for collateral attack.”
He quotes several other decisions in footnotes 2 and 3,
as shown in the reported decision, 349 F. 2d, on page 600:
We respectfully say that the citations in question are not —
in point, because it is shown in the Burgess decision: relied
upon in the opinion that while the State Court of Oklahoma
hhad. general jurisdiction over certain trusts, and even ‘in-
- volving Indian affairs, it did not have jurisdiction because
4
. 40
of the Federal Statutes to set aside the trusts. The Burgess
decision was written for the Tenth Circuit by Judge
Phillips, who was then a Judge of the Tenth Circuit. This
same Judge Phillips wrote the opinion for the United States
Court of Appeals, Fifth Circuit, now in question. He was
sitting by designation in the Fifth Circuit, designated as
Senior Judge of the Tenth Circuit. His own interpretation
in the last opinion now under question of the Burgess case
opinion which he wrote in 1939, differs from the actual
wording and holding of his decision in the Burgess case.
Great stress is laid upon-the fact that the Circuit Court
of Dade County, Florida was a Court of general jurisdic-
tion and tinder the Constitution of Florida that jurisdiction
is set forth as follows (see second column, page 600, of the
reported decision):
- “*Thescircuit courts shall have exclusive original
jurisdiction in all cases in equity except such equity
jurisdiction as may be conferred on juvenile courts, in
all cases at law not cognizable by subordinate courts
os a™.
We do not question that the Circuit Court had juris-
_ diction of the. foreclosure proceedings as originally insti-
tuted. We do say, however, that the Circuit Court of
Dade County, Florida under its guise of equity power had
' no jurisdiction. under the doctrine of equity to violate the
provisions of Title 12, U.S.C.A., § 86, which only authorized
a common law suit in the nature of an action for debt on
a claim for usury against.a national bank. The Circuit
Court of Dade County, Florida is not a Court of general
‘jurisdiction in law matters, because that is determined by
-—the amount in controversy of the type of procedure in- ~
volved. gist, pa
However, there is one point now raised in this petition
to.this Court which has not heretofore been raised in the
41 a
sarin faintest taints ae sepa tad tee Miia cia
determinations. 'The moneys, whether rightfully or wrong-
fully extracted from the National Bank, are in the posses-
sion of the Federal Court sitting as a Reorganization Bank-
ruptcy Court. $400,000.00 of the money was extracted by
proceedings in the State Court under such type of proteed-
ings that were utterly barred by the Federal Statutes.
“$106,000.00, plus interest, which had always been within ©
the custody of the Federal Court, was not extracted by any
order of an affirmative nature by the equity Court of the
State of Florida. That came about solely by virtue of the
proceedings in the United States District Court.
It is, therefore, clear that we, on behalf of the Banks,
make.the contention that since the State Court had no ju-
risdiction on the usury situation although some $400,000.00
was extracted from the Banks, yet that money has come
to repose in the Federal Reorganization Court. The
$106,000.00, plus interest, has always been in the Federal
Court. It is, therefore, the error of-the Federal Court in
the disposition of these sums wrongfully extracted that we
Say the Federal Courts have committed error. The District
‘Judge fully recognized that he certainly could not be bound
‘by any orders of the State Court with reference to the
tangible property and the,limits thereon which had always
beeh under the control of the Federal Court, and he af-
firmatively ordered those sums repaid in furtherance of the
admitted valid liens of the two July, 1956, mortgages. In
addition thereto, an analysis of the opinion of the United
‘States District. Judge reflects that he felt that under the
decisions relied upon by the Banks he was not bound by
the State Court determination of issues as to the usury
claims, but that he might be bound under the construction
of the United States Court of Appeals, Fifth Circuit, in the
first opinion, 299 F. 2d 736. The-United States District -
a
42
‘Court did not uphold any usury claim, nor did the United
States Court of Appeals, Fifth Circuit, ever pass upon the
‘validity of that claim.
We feel that we will not be carrying out our responsi-
bility to this Court if we do not point out with utter
candor that we, as attorneys for the Banks, are concerned
with our inability to properly construe.certain language by
this Court in the opinion in the case of Gene Durfee et ux.,
Petitioners, v. Julia E. Duke, 375 U.S. 106, 84 S. Ct. 242,
a 1963 opinion. This case involved a dispute about some
border land on the southern boundary of Nebraska and the
northern boundary of Missouri. In the reported decision
of the Durfee case, 84 Supreme Court Reporter, text page
244, this Court discussed the constitutional command of full
faith and credit as implemented by Congress, to the end
that .
“judicial proceedings * * * shall have the same full
faith and credit in every court within the United
States * * * as they have by law or usage in the
ee
We further quote:
“Full faith and credit thus generally requires every
o-
State to give a judgment at least the res judicata effect.
—— the judgment would be accorded in the State
it. “By the Constitutional provision for
tok tee ok the local doctrines of res judicata,
: speaking generally, become a part of national juris-
prudence, and therefore federal questions cognizable
here.’ Riley v. New York Trust Co., 315 U.S. 343, 349,
62 S. Ct. 608, 612, 86 L. Ed. 885.”
It is then pointed out in this opinion, second column
of the text on page 244, that in mdny decisions this Court
_has held that a judgment ofa Court in one state is con-
Se ee ee
ee
43
if the Court in the first state had the power to pass upon
, the merits—had jurisdiction, that is, to render the judg-
ment. The Court quoted from Mr. Justice Bradley, as fol-
lows: »
“As Mr. Justice Bradley stated the doctrine in the lead-
ing case of Thompson v. Whitman, 18 Wall. 457, 21
L. Ed. 897, ‘we think it clear that the jurisdiction of
the court by which a judgment is rendered in any State
may be questioned in a collateral proceeding in andther
State, notwithstanding the provision of the fourth ar-
ticle of the Constitution.and the law of 1790, and not-
withstanding the averments contai in the record of |
the judgment itself.’”
While the ultimate decision by this Court in the
Durfee case would—inferentially at least—imply that
where parties.are before a state Court and the matter of
the’ state Court’s jurisdiction is litigated, regardless of
whether the state Court was right or wrong, there could
be no collateral attack, yet we do find in this Durfee case
an explicit determination that there is another rule where
the doctrines of federal preemption or — immunity
may be controlling.
Tite Coliee Geld wpens Kall ¥: Pendiabelid The U8.
433, 60 S. Ct. 343, 84 L. Ed. 370, and United States v.
United States Fidelity & Guaranty Co., 309 U.S. 506, 60 —
S. Ct. 653, 84 L. Ed. 894. We submit that these two cases
are directly applicable to the facts at bar and are con-
trolling. ,
iented Kallygens heve.sons,n,qquiition au: be the. pieoan
of the Wisconsin County Court, which had general jurisdic-
tion over mortgage foreclosures under the Wisconsin law.
The Frazier-Lemke Act enacted by Congress in the exer-
cise of its supreme power over bankruptcy denying to any
state court jurisdiction over a petitioning farmer-debtor or’
44
‘his property rendered the confirmation of a mortgage fore-
closure sale and/its enforcement without bankruptcy court’s
"consent the county court’s power, and, that when
such a decision was entered it was beyond the jurisdiction
of the Court and’ void. In headnote 4 we find this state-
ment, as announced by the Court in its opinion: ,
Headnote 4: »
“The ftates cannot, in the exercise of control over
local laws and practice; vest state courts with power
: to violate the supreme law of the land.”
Headnote 5:
fannie ensittbidiandh antie-te sepdate butt
ruptcy, Congress can limit the jurisdiction which
Sein forts has. tie hard bas eee,
re “pe ane aadinadin neciomed wala
ruptcy law.
Headnote 8:
“The language and broad policy of the Frazier-
Lemke Act conclusively show that Congress deprived
a Wisconsin county court of jurisdiction to continue or
maintain in any manner mortgage foreclosure proceed-
ings against farmer-debtors without consent, after hear-
ing, of bankruptcy court in which farmer-debtors’ peti-
tion was pending, and hence confirmation of mortgage
foreclosure sale, execution of sheriff's deed, writ of
assistance, and ejection of farmer-debtors from their
___ property, to the extent based upon county court's ac-
tions, were all unlawful.” +
Ry,
ite This Court further held in that case that such an act
deprived the County. Court, a Court of general jurisdiction,
( ra
“the jurisdiction to make any valid or binding orders in the
face of the restrictive provisions of the federal law.
The second case mentioned, United States v. United
¢
States Fidelity & Guaranty Co., raised a problem that is
somewhat similar, but not exactly on factual similarity, to j
the facts in the Kalb case. There was a reorganization —~
proceeding in the Federal District Cofft tor Missouri where
the lessee of certain coal lands of the Choctaw and
Chickasaw Nations were seeking a reorganization. Two
questions were involved in that certiorari proceeding to this
ee ee ee eee
porter, page 655, as sapeeponee
“This certiorari bri tio alight Na a
view: (1) Is a former judgment against the United
States on a cross-claim, which was entered without
» statutory authority, fixing a balance of indebtedness to
, ~ be collected a provided by law, res judicata in. this
litigation for collection of the balance; and (2) as the
controverted former judgment was entered against the
Choctaw and Chickasaw Nations, appearing by
the United States, does the jurisdictional act of April 26,
1906, 34 Stat. 137, authorizing adjudication of cross de-
ae aa a a ee ee eee
ons, permit the.former credit, obtained by the prin-
. dpa ns bac cnet te ee
ant here, to be set up in the present suit.”
There was no question but what there had been some
prior adjudications in one of the Missouri courts, in which |
all of the parties had apparently joined, but this Court held
that the Congress had exempted suits against the Indian
Nations, except as. seemed authorized by” Congress.
g
46
‘This Court held that this immunized the Indian Nations and
the United States acting for them from direct suits, or even
suits by way of counterclaim, except in the event of the
cross or counterclaim provision being made for such a
-counterelaim in “any United States Court in the Indian
: territory”, and the Court pointed out that with this ex-
pressed @9NMMMEgEEm restriction by the Congress such a 7,
judgment was not only void, but.that it did not and could
not have any effect as res judicata.
This Court is certainly not precluded by any of the
past procedure in the State Court, or even in the two
attempted applications for certiorari from the State Court
proceedings, to review this whole matter and to render such
judgments as are reqifired in the control of the disposition
of the funds now under the control of the United States
District Court, Southern District of Florida. We need only
to mention the last expression by this Court as of October
18, 1965, in the case of Gondeck v. Pan American World
Airways, Inc., case No. 919, reported in the November 15,
1965, Advance Sheet of 86 S. Ct. 153. One statement con-
tained-in headnote 1 of the reported decision will show the
pertinency of this case to the question at hand:
“Interest, in finality of litigation must yield where
interests of justice would make strict application of
rules unfair.” @
We respectfully say-that this Court is not precluded
from the consideration of this case because of any doctrine
of-éstoppel or res judicata by the invalid State Court pro-
cedures, but that it should determine the federal questions’
involved and require that the statutory procedure and lim-
,.
vs ed \
eee ee |
od
, 47
itations of the Acts of Congress, Title 12, US.C.A., § 86, be
strictly followed.
Respectfully submitted,
Warp & Warp
1240 duPont Building
Miami, Florida 33131
‘ fa By
WILLIAM GresHAm Warp
Attorneys for The Coral Gables
First National Bank.
~~ Wittram B, Roman
Pan American Bank Building
Miami, Florida
and %
Leo L, Foster
Brock Building
Tallahassee, Florida
: By
_. Witr1am B. Roman
“ae Attorneys for Pan American
Bank of Miami.
Fs aad
o
a
&
Al
APPENDIX A.
IN THE |
United States Court of henecks
FOR THE FIFTH CIRCUIT
No. 21448
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization
AMERICAN SURETY COMPANY OF NEW YORK,
Appellant, ~
versus 4.
THE CORAL GABLES FIRST NATIONAL BANK and
JOHN NICHOLAS, Trustee,
Appellees.
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization
THE CORAL GABLES FIRST NATIONAL BANK,
Appellant,
AMERICAN S COMPANY OF NEW YORK and
Berg NICHOLAS, Trustee,
Appellees. —
ae
: Appeals from the United States District Court for the
Southern District of Florida.
(June 30, 1965.) : -
Before TUTTLE, Chief Judge, and PHILLIPS,*.and
WISDOM, Circuit Judges.
*Senior Judge of the Tenth Circuit, sitting by designation.
(
| ¢
=
7
2
Oe A2
PHILLIPS, Circuit Judge: These appeals are from
an order of the United States District Court for the South-
ern District of Florida entered in a Chapter X reorganiza-
tion proceeding, The reorganization debtor, Constructors
of Florida, Inc., will hereinafter be referred: to as Con-
structors.
A phase of the reorganization proceeding here in-
volved was before this court on a former appeal, Coral
Gables First Nat. Bank v. Constructors of Florida, Inc., 5
Cir., 299 F.2d. 736, and much of the facts here pertinent
are set forth in the opinion in that case. Many of the
facts here pertinent are also set forth in more detail in
a related state court proceeding, Coral Gables First Nat.
Bank v. Constructors of Fla.,. 119 So.2d 741, c.d. 123 So.2d
349, c.d. 365 U.S. 811.
In January, 1957, the‘Coral Gables First National Bank
and the Pan: American Bank of Miami, a Florida state bank,
hereinafter referred tg individually as Coral Gables and
Pan-American and collectively as the Banks, brought an
action in the Circuit Court of Dade County, Florida
(Chancery No. 205613E) to foreclose three chattel mort-
gages given to them by Constructors to secure three loans
dated July 24, 1956, July 25, 1956, and March 20, 1957,
upon which there was ali to be due the sums of
$13,888.95, $92,690.85 and $151,802.46, respectively. Ameri-
can Surety Company of New York, hereinafter referred
to as Surety, and the City of West Palm Beach were
joined as defendants, the Banks alleging that they were
liable for any deficiency remaining after foreclosure. Con-
structors counterclaimed against the banks for penalties’
for usury allegedly charged by the Banks in connection
with the March 20, 1957, loan in violation of Federal and
State law, and Surety counterclaimed against the Banks
for damages it allegedly incurred because of false infor-
J
Se
?
AZ,
mation furnished to it by the Banks as to the financial _
condition of Constructors and also claimed a prior lien
on the property described in the mortgages.
In October, 1957, an involuntary petition in bank-
ruptcy was filed Sgainst Constructors and the Bankruptcy
Court by appropriate orders authorized the State*Court
litigation to proceed to final determination and the receiver
to appear therein in behalf of the debtor. In November,
1958, a petition for reorganization under Chapter X was
filed and an order was entered authorizing the Trustee
in the reorganization proceeding to continue to prosecute
te claims asserted by the debtor in the State Court action.
In December, 1958, a proposed plan of reorganization was
filed which provided for the continuation of the State
Court litigation. The plan in part read:
“Article I.
' Definitions.
“* * * the following terms, when used in the
Plan, shall have the meanings respectively attributed
to them below.
>
_*. ss * & #8
“Bank Litigation: That certain litigation entitled
Coral Gables First National Bank, et al, v. Construc-
tors of Florida, et al, in the Circuit Court of the
Eleventh Judicial Circuit, in and for Dade County,
Florida, in Chancery, case number 205613, togethér
with all appellate or review proceédings which have
arisen or may hereafter arise therefrom.
“Net Pr®ceeds of Bank Litigation: The net
amount recovered by Debtor or Trustee out of Bank
litigation, after payment of all costs, expenses and
attorney’s fees arising therefrom.
e * ¢.¢«/*# ¢ P :
° “et”
A4
“Article IV.
Classification of Creditors
“A. Secured Claims:
“Class I—The claim of American Surety Com-
pany of New York, Or the claim of Pan American
Bank of Miami and Coral Gables First National Bank,
: against the Debtor, to the extent of the value of the
/ Debtor’s property encumbered to secure such claim,
it being understood that whether either of said claim-
ants shall be entitled to be considered secfred, and
the relative priority of their said claims, if valid, will
be dependent upon the final outcome of Bank Litiga-
tion; * * *” (Italics ours)
The plan ,;was approved by the court on December 15,
1958.
On January 5, 1959, Coral Gables filed a claim in the
amount of $282,548.83. Its claim stated in part as follows:
“That the consideration of said debt is for moneys
loaned on security. (See in detail all proceedings ©
_Circuit Court of Dade Co., Florida, Chancery No.
205613E and reference to matters on appeal, District
Court of Appeals, Third District, No. 58-526, said pro-
ceedings being referred to in the petition and previous
orders of this Court entered herein, full reference to
same made a part hereof.)”
On the same date Surety filed a claim in the amount
of $1,691,483.72 “of which $50,000.00 is estimated to be
secured and $1,641,483.72 unsecured.”
On March 6, 1959, Coral Gables filed a consent to the
plan which: stated that it “approves and accepts the plan
of reorganization and consents to the Court entering an
order confirming the plan of reorganization.”
AS
On March 11, 1959, the Bankruptcy Court confirmed
the reorganization plan with certain modifications not here
material. a
. Meanwhile, on June 26, 1958, the Florida State Court
had entered its “Partial Final Decree” in the Bank liti-
gation. That court found that the Banks were joint ad-
venturers and agents of each other and that the Banks
had charged usurious interest in connection with the March
20, 1957, transaction in violation of §§ 687.04 and 687.07,
Florida Statutes, 1957. The court held that because of such
usury Coral Gables was liable to Constructors under 12
U.S.C.A. § 86 for double the amount of interest collected;
that Pan American was liable to Constructors under
§ 687.07, supra, for all the principal and interest paid by
Constructors on the usurious transaction; and that under
§ 687.0% supra, the principal and interest allegedly re-
maining due the Banks on the March 20, 1957, transaction
should be cancelled.
With respect to the other two mortgages, foreclosure
of which was sought, the Court adjudged that while the ~
debts were still owing, the Banks were barred from ob-
taining foreclosure of the mortgages, relief equitable in
nature, because they were “not in equity with clean hands,”
and that the lien of Surety against the personalty de-
scribed in such ‘mortgages: was superior to that of the
Banks. That judgment was appealed to the District Court
of Appeals, Third District, where it was held-that the Cir-
cuit Court of Dade County erred in forfeiting Coral
Gables’ proportionate share of the unpaid principal-of the
March -20,. 1957, loan since. such forfeiture constituted a
?
_ AG ©
| penalty in excess of that permitted to be imposed upon
a national bank by 12 U.S.C.A. Sec. 86,’ adjusted the pro-
portionate participation of the two Banks in the trans-
action of March 20, 1957, and modified the judgment in
one other respect not here material. In all other respects
the judgment below was affirmed. Certiorari was denied
by the Florida Supreme Court (123 So.2d 349) and by
the United States Supreme Court (365 U.S. 811). There-
after, the court below made additional findings, modified
its decree to conform with the mandate of the Court of
Appeals and adjudged that the Banks were also barred
from obtaining foreclosure of the mortgage made in con-
» nection with the transaction of March 20, 1957, because
they were “not in equity with clean hands.” No appeal
was taken from the modified decree. .
In April, 1961, the Banks petitioned the Bankruptcy
Court for an injunction prohibiting further State Court
proceedings and any enforcement of or execution on «the
State Court judgment. That relief was denied and the
Bankruptcy Court authorized the Trustee to execute on
the State Court judgment. The Banks appealed from that
order to this court and we affirmed, holding that the Bank-
ruptcy Court had the power to permit continuance of the
State Court litigation and that the State Court had ju-
risdiction to make and had made a judicial determination
1. 12U.S.C.A. S@. 86 provides as follows:
“The taking, receiving, reserving, or charging a rate of
en ee ee eee oe eacee. senlien,
when knowingly done, shall be.deemed a forfeiture of the
AT 2%
of the claims and cross-claims of the Constructors and the -
Banks. We refrained from expressly determining the
questions of priorities and* enforcement of security by
the Banks and other creditors as those issues were not di-
rectly before us on that appeal.
Based upon this court’s opinion and the State Court
judgment the Trustee then filed additional objections to
the claim of the Banks, objecting to the allowance and
classification of the Banks’ claim as a secured claim, and
to participation by the Banks in the proceeds of the re-
covery made by the Trustee in the Bank litigation- and
asserting that the Banks’ claim should be allowed as an
unsecured claim only in the amount determined to be ow-
ing by the State Court. :
The Banks moved for an order directing-the Trustee
to pay to them the moneys previously recovered by him
in the State Court action stating as its grounds. therefor
the following: “The decree of the State Court is void in-
sofar as the usury fea are concerned, and any money
erroneously collected therefrom is a trust fund now in the
hands of the Trustee in Chapter X Reorganization Pro-
ceedings in this case. The opinion of the State Court is
therefore subject to the claim that it lacked jurisdiction,
and therefore it is a void judgment which is not binding
on anyone and particularly not binding upon this Court.
It is the duty of this Court sitting as a Court of equity
as well as a Chapter X Reorganization Court, to direct
the return of funds which have been specifically traced
and which have not yet been disbursed. These funds
should be returned to the parties from whom they were
recei Nod a
sok aobimhie oe iseccimad ance
objections of the Trustee to the claim of the Banks, the
U. S. District Court for the Southern District of Florida,
oP (PAT CR etch alee
Seth SM TC sedi MH te
e x coe
‘Miami Division, held that the Banks were barred by res
judicata from attacking the determination by the State
Court of its jurisdiction, but that the mortgages held by
the Banks were valid and enforceable. The Court ordered
that the motion of the Banks for an order directing the
Trustee to pay to them the moneys collected in the State
Court action be denied; that the Banks and Surety had
valid liens against the proceeds from the sale of the prop-
erty covered by the mortgages; that the matter of the
relative pridrities between the Banks and Surety be re-
ferred to the Referee in Bankruptcy as Special Master;
that the Banks be awarded a secured claim in the amount
found by the State Court to be due to them against the
proceeds from the sale of the property covered by their
mortgages and an unsecured claim for the deficiency; and
that the Trustee’s objections to the allowance of the Banks’
claim as a secured claim be overruled.
The Banks have appealed from thst order insofar as
it sustained the objections of the Trustee to their claim,
failed to determine the priority of the Banks’ ,claim as
against Surety’s claim, and overruled their motion order-
~ ing the Trustee to pay over to them the moneys recovered
in the State Court action.
Surety has appealed from that order insofar as if al-
lowed the claim of the Banks as a secured claim and over-
ruled the objections of the Trustee to the allowance of
the claim of the Banks as a secured claim.
The Trustee has taken the position that the order of
the Court below should be reversed to the extent that it
fails to give full force and effect to the State Court judg-
ment and in all other respects should be affirmed, but
has not filed a notice of appeal.
5)
‘ A9
The’ Banks contend that. the Circuit Court of Dade
County, Florida, had no jurisdiction to determine the
issue of usury committed by a national bank raised by
Constructor’s counterclaim. We are of the opinion, how-
ever, that that question has been finally adjudicated and
- conclusively settled as between these parties by previous
adjudications not now open to attack by the Banks.
The doctrine of res judicata embodies two main rules
which may be stated as follows: is
(1) The final judgment or decree of a court of com-
petent jurisdiction upon the merits concludes the parties /
and their privies to the litigation, and constitutes a bar to
a new action or suit upon the same cause of action either
before the same or any other tribunal.
— (2) Any right, fact or matter in issue and directly
adjudicated, or necessarily involved in the determination
of an actiofi before a competent court in which a judg-
ment or decree has been rendered upon the merits, is con-
clusively settled by the judgment therein and cannot again
be litigated between the same parties and their privies,
whether the claim, demand, purpose or subject-matter of
the two suits is the same 6r not.
The principle of the first rule is referred.to as “bar
by former judgment,” and the secohd as “conclusiveness
of judgment.”
The action brought by the Banks for an injunction
prohibiting further State Court proceedings which was
the subject of the earlier appeal to this court directly
presented on the merits the issues of whether the’ Bank-
ruptcy Court had the power to direct. the continuance of
the State Court litigation and whether’ the Circuit Court
9. Henderson v. United States Radiator Corporation, 10 Cir.
78 F.2d 674, 675.
To the same effect see: United States v. Burch, 5 Cir., 294
- F.2d 1, 5; Kelliher v. Stone & Webster, 5 Cir., 75 F.2d 331, 333.
A10
of Dade County, Florida, had the power to determine the
claims between-Constructors and the Banks. The order
of the Bankruptcy Court denying such injunctive relief
and permitting execution by the Trustee on the State
Court judgment, after affirmance by this. court conclu-
sively settled those issues between the parties. Such is-
sues cannot again: be litigated on the petition of the Banks
for an order directing the Trustee to pay back the funds
obtained through execution on the State Court judgment.
Although the demand is different, the issues are identical.
Furthermore, the. Banks are also concluded by the is-
sues adjudicated by the State Court and may not relitigate
_those issues in this. proceeding. The claim of the Banks
that the State Court was without jurisdiction to adjudicate
' the issues of usury and the right to foreclose the. mort-
- gages and relative security rights of the Banks and the
Surety to the property described in the mortgages is not
well taken. The determination by a court of general
jurisdiction of. its own! jurisdiction is conelusive as to the
parties and their privies. “In Burgess v. Nail, 10 Cir., 103
F.2d 37, 43-44, the court said:
“* * * Error in the determination of ‘questions
. of law or fact upon which the Court’s jurisdiction in
‘the particular case depends, the court having general
jurisdiction of the cause and the person, is error in
the exercise of jurisdiction. Such an error affords
no ground for collateral attack.’*
4 The Florida Constitution, Article 5, Sec, 6(3), (FS.A.
Const. Article 5, Sec. 6{3)) establishes the jurisdiction of
Circuit Courts in that State as follows:
3. See also: Bostwick v. Baldwin Drainage Dist., 5 Cir., 133
F.2d 1, 4-5, c.d. 319 U.S. 742; Greene v: Uniacke, 5 Cir., 46 F.2d
916, 920-921, c.d. 283 U.S. 847: Stoll v. Gottlieb, 305 U.S. 165, ate
‘Baldwin. v. Travelling Men’s Ass’n., 283 US. ‘$22, "825-526;
CIS. Judgments, Sec. 427, p. 840.
**
A
eek
%
All ae
“(3) Jurisdiction. The circuit courts shall have
exclusive original -jurisdiction in all cases in equity
except such equity jurisdiction as may be conferred
on juvenile courts, in all cases at law not cognizable
by subordinate courts * **.”. -
‘The. Banks. poncede that: they. contested. the juriadie-
Aion. of the State Court in that forum and the court below
so found. Moreover, the Circuit Court’ of Dade County
was required of necessity to determine its own jurisdiction
as an integral part of thé proceedings in the Bank litiga-
tion. Therefore, that determination is conclusive as to that
issue as among the parties to that action and the Banks
may not litigate it again. The court*below did not err
‘in. denying the motion of the Banks for an order directing
the Trustee to pay back to them the funds obtained
through execution on the State Court judgment.
- However, we are of the opinion that’ the court below
erred in failing to treat the determination by the Circuit
6)
of Dade County that the chattel mortgages of the -
Banks were unenforceable as conclusive upon the parties
‘to. that proceeding. “The doctrine of conclusiveness of
judgment applies alike to the decrees of courts exercising
‘equity jurisdiction and to the judgments of courts of law.”*
The Circuit Court of Dade‘ County’ had exclusive
equity jurisdiction.* Since the’ Bank litigation was com-
menced by the Banks for the purpose of foreclosing its
that court of that action, ‘and the parties to the Bank litiga-
tion are also in the instant case. Thus, the deter-
mination by Circuit Court of County ‘that the
mortgages were unepforceable for equita ee is
_ conclusive as t6 those parties oP poe, not. agairf be
ry Sg ST Addin nck’ WA. hd ;
5. ¥-.S.A. Const. Art. 5, Sec. 6(s), supra. me
' Also, Article IV of the Reorganization Plan, supra,
clearly contemplated that the validity of the claimed secu-
rity of Surety and the Banks would be left for determina-
tion by the State Court in the Bank litigation. Not only
did the Banks fail to appeal from the order confirming
that plan, but also they affirmatively approved and ac-
cepted the plan and consented to its confirmation by the
court.
11 U.S.C.A. Sec. 624, provides in part as follows:
Z
“Upon confirmation of a plan—
“(1) The plan and its provisions shall be bind-
ing upon the debtor, upon every other corporation is-
suing securities or acquiring property under the plan,
and upon all creditors and stockholders, whether or not
such creditors and stockholders are affected by the
plan or have accepted it or have filed proofs of their
claims or interests and whether or not their claims
or interests*have-been scheduled or allowed or are
allowable.”
ei ts Anciin: tip er edt “br “a0
ganization plan and since the confirmation order was not
appealed, the détermination by the Bankruptcy Court in
its confirmation order pursuant to 11 U.S.C.A. Sec. 621
that the plan complied with subchapter X of Chapter X .
ee cone one an
equitable and feasible is not now open to attack.*
randiede, Gi ‘seteniantét Coscia’ beliw dient
be affirmed insofar-as it gives effect to the’ judgment. of
the State Court in the Bank litigation and reversed inso-
far as it sustained the ‘validity of the mortgages of the
Banks determined by the State Court to be unenforceable.
a ee ne eee
g 11 henstngten on aed ad Sec. 4712 ((1961) Revision).
v
Al3
AEPENDIX B ~
United States Court of Appeals,
FOR THE FIFTH CIRCUIT
OCTOBER TERM, 1964
eee ee Ee eee ee
No. 21448 | :
D. C. Dockét No. 3736-Bk-Ec |
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization
AMERICAN SURETY COMPANY OF NEW YORK,
Appellant,
- . ‘versus
THE CORAL GABLES FIRST NATIONAL BANK and ,
* JOHN NICHOLAS, Trustee,
Appellees.
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization
\ THE CORAL GABLES FIRST NATIONAL BANK,
mh? ee:
% as 4
4
AMERICAN SURETY COMPANY OF NEW YORK
and JOHN NICHOLAS, Trustee,
\
Appellees. Pe
Southern District of Florida.
Before TUTTLE, Chief Judge, and PHILLIPS,* and
. WISDOM, Circuit Judges.
*Senior Judge of the Tenth Circuit, sitting by designation. _
wy
. Al4
Judgment
This cause came on to be heard on the transcript of
the record from the United States District Court for the
Southern District of Florida, and was argued by counsel;
ON CONSIDERATION WHEREOF, It is now here
ordered and adjudged by this Court that the judgment of
the said District Court in this cause be, and the same is
hereby affirmed in part, and reversed in part; and that
this cause be, and it is hereby remanded to the said Dis-
trict Court for further proceedings in accordance with the
ee : |
It is further ordered and adjudged that the appellee-
appellant, The Coral Gables First National Bank, be con-
- demned to pay the costs of this cause in this Court for
which execution may be issued out of the said District
Docketing cause, etc. ........ $ 25.00
Cost of Printing Record ~.........$1226.75
Total .. $1251.75
Issued as Mandate: Sep 13 1965
* «June 30, 1965
w
Al5
APPENDIX C
United States Court of Appeals
FIFTH CIRCUIT
No. 21,448 &
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization.
AMERICAN SURETY COMPANY OF NEW YORK,
Appellant,
THE CORAL GABLES FIRST NATIONAL BANK
° ahd JOHN NICHOLAS, Trustee, .
Appellees.
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization. f
THE CORAL GABLES FIRST NATIONAL BANK,
and PAN AMERICAN BANK OF MIAMI,
Appe
Vs.
AMERICAN SURETY COMPANY OF NEW YORK
- JOHN NICHOLAS, Trustee, _
Appellees,
Warp & Warp Wr11am B. Roman
1240 duPont i Pan American Bank Building
Miami; Florida 33131 Miami, Florida
Gables First National Lzo L. Foster
Bank Brock Building
Tallahassee, Florida
‘ Attorneys for Pan American
Al7
AUTHORITIES CITED
John R. Alley & Co. v. Federal National Bank of Shaw-
nee, Okla., 124 F. 2d 995 20
Coral Gables First National Bank v. Constructors of
Florida, Inc., 299 F. 2d 736 31
Couch v. United States, 235 F. 2d 519 24
Douglas v. State of Alabama, 85 S. Ct. 1074 1... 21
First National Bank of Birmingham v. Daniel, 239 F. 2d
801 ya
McCollum v. Hamilton National Bank, 303 U. S. 245, 58
S. Ct. 568, 82 L. Ed. 819
Mercantile National Bank at Dallas v. Langdeau, 83
S. Ct. 521 aa
20
37
Michigan National, Bank v. Robinson, 83 S. Ct. 914... 37
37
Republic National “Bank of Dallas v. Langiom, 83
S. Gt. 521
Sibbach v. Wilson & Co., 312 U. S. 1, 61S. Ct.-422, 427,
85 L. Ed. 479 Ps 23
Southern gt ae Company " v. Pickard, 371 U. S.
57, 83 S. Ct. 1 25, 26, 37
Sulil Realty Corp. v. Rye Motors, Inc., 257 N.Y.S. 111 38,39 _
In re Wiid, C.C.N.Y. 1873, 11 Blatchf. 243 Fed. Cas.
No. 17,645 21
Statutes , :
Statute 5197, Title 12, U.S.C.A. § 85 ee 20, 21
Statute 5198, Title 12, US.C.A. § 86 at
Bankruptcy Act, § 256, 11 U.S.C. 656
Bankruptcy Act, § 257, 11 U.S.C. 057 - :
' Texts
1 Am. Jur. 2d, p. 558 “
Judicial Comment on Federal Rules
of Civil Procedure
' 83S. Ct. 43
4
einen a nsataoes *
United States Court of Ap eals
FIFTH CIRCUIT
ey wet
No. 21,448 pe
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization.
AMERICAN SURETY COMPANY OF NEW YORK,
Appellant, s > -.
vs.
THE CORAL GABLES FIRST NATIONAL BANK
and JOHN NICHOLAS, Trustee, -
’ Appelless:
PUNE ain pReNe Ae Po aga
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization. |
THE CORAL GABLES FIRST NATIONAL BANK .
and PAN AMERICAN BANK OF MIAMI,
' Appellant,
vs.
AMERICAN SURETY COMPANY OF NEW YORK
and JOHN NICHOLAS, Trustee,
| Appellees.
» “ : bo ce tata a aah Raa
-
io]
>
ae
‘ _ PETITION FOR REHEARING
_ Come now the appellants, THE CORAL GABLES
FIRST NATIONAL BANK and PAN AMERICAN BANK
OF MIAMI, and respectfully petitioh the Court to grant a
/
~
A20
, Yehearing and a reconsideration of the opinion of June 30,
_“ 1965, for the following reasons:
The opinion prepared for the Court by Judge Phillips,
Senior Judge of the Tenth Circuit, and adopted without dis-
sent by the other two members of this Court, seems to be
based upon three assumptions. The first assumption is
_a matter of law, but is not as clearly pointed out in the
opinion as itjhad been in a statement from the Bench?
made by Judge Phillips at the time of oral argument.
The controversial case, which from a matter of law :
seems to have been the focal point throughout this entire
litigation, was whether the case of John R. Alley & Co. v7
Federal National Bank of Shawnee, Oklahoma was in con-
flict with the then existing decisioh of the Supreme Court
of the United States of McCollum v: Hamilton National
Bank, 303 U. S. 245, 58 S. Ct. 568, 82 L. Ed. 819. These
two cases were discussed in the brief of the appellant
Banks, the first being discussed on pages 7 and 8 and the
, latter case being discussed at page 36. ;
In.the McCollum case the Supreme Court of the United
States pointed out that usury penalties or the right to cl
a penalty for usury against a national bank was
by two statutes of the United States—Section 5197, whid
is now referred to as Title 12, § 85, U.S.C.A., and Sectior
5198, which is Title, 12, § 86. For the purposes of this peti-
tion it is only necessary to consider the McCollum case in
the light of the two statutes above mentioned.
seth 8: tases the-ttghl-cf-a netiensl bank Asin
business in a state as to the rate of interest it may legally
charge. The rate is specifically fixed, but there is the added
provision in Section 85, which is put in there as an excep-
tion, and we quote: eee
¢
- *
A21
“except that where by the laws of any State a dif-
ferent rate is limited for banks organized under State
laws, the rate so limited shall be allowed for associa
idns organized or existing in any such Stafe under
this chapter.”
. This) creates a binding control on the right of a national
bank to charge interest on a loan and fix the rate thereon.
This is a federal law and_ violation of Section 85 is a violation
of a federal law—not a violation of a state law (see Tiffany
v. National’ Bank, Mo. 1873, 18 Wall. 409, 21 L. Ed. 862).
Statute 5198 (12 U.S.C.A., § 86), which section is copied
in the footnote on page 6 of the’ printed opinion, fixes the
‘penalty where a federal bank violates the provisions of
Section 85, and in the same act and as a part of the same
section fixes the exclusive remedy, and we quote:
“In case the greater rate of interest has been
the person by whom it has been paid, or his legal
representatives, may-.recoyer back, in an action in
the nature of an action of .debt, twice the amount
of the interest thus paid from the association taking
or receiving the same.” ;
, . Im the McCollum case and in the other federal. cases
which we have mentioned in our brief, as well as in all
of the state cases’on the subject, the remedy and the pro-
cedure for the enforcement have been held to be exclusive.
It has been held that even where there is no penalty under
the state law, nevertheless where a federal bank has vio-
lated the federal law there is 4 right for recovery (see
In re Wild, C.C.N.Y. 1873,.41 Blatchf. 243 Fed: Cas. No.
17,645). ; , .
In attempting to analyze the position of this Court in its
opinion of June 30, 1965, we have sincerely sought to de”
- termine just why there should be any confusion about the
©
A22
law of this case, because it seems clear that the result of
‘the case under consideration has clearly violated the fed-
eral restrictions, rights, remedies and forfeiture penalties
many times beyond the specific: and exclusive remedies
In the John R. Alley case from the Tenth Circuit
(January 13, 1942) the McCollum decision, which had been
rendered on February 28, 1938, was discussed. In the opin-
et en (see text, first column, p. 997)
it is said:
“It has been held without exception that the right
granted by the statute can be asserted only in a sep-
arate and independent action in the nature of an ac-
tion in debt.” —
quoting cases beginning with Barnet v. Muncie National
Bank, 98 U. S. 555, 25 L. Ed. 212, and ending with the last |
case of McCollum v. Hamilton National Bank, 303 US.
245, 58 S. Ct. 568, 82 L.. Ed. 819. The opinion continues
further: ~ . 5
“The rationale of these cases is that where, as here,
the statute creates a right or offense and provides a
specific remedy or punishment, those provisions are
exclusive and the liability can be eriforced only in an
action brought specificaHy and exclusively for that
purpose.”
Then the opinion continues (see second column, p.
997): : ;
f “All of these decisions antedate the adoption of the
New Rules of Civil Procedure, 28 U.S.C.A. following
section 723c, and our question is to determine whether
the adoption of the new rules has modified the rule an-
nounced in these decisions.”
¢
( =
Then the Court proceeded to hold that since the Fed-
eral Rules of Civil Procedure provided for compulsory
- counterclaims, the exclusive features of Title 12, § 86,
were repealed. The said opinion further laid.down the rule
‘that if there is'a conflict between the procedure provided
for.in-the statute for the enforcement of the right created
thereby and that provided for in the Rules of Civil Pro-
‘cedure, the statutory exclusive remedy is abolished and
yields to the Federal Rules of Civil Procedure. The
Court relied upon the case of Sibbach v. Wilson & Co., 312
U. S. 1, 61 S. Ct. 422, 427, 85 L. Ed. 479. We respectfully
say that a reading of that case would call for a different
conclusion. In.61 Supreme Court Reporter, a page a4; we
find this statement by-the p Reernen Court:
“Hence we diaitdicdke that the Act of June 19, 1934,
was purposely restricted in its operation to matters
of pleading and court practice and procedure. Its
two provisos or caveats emphasize this restriction.
The first is that the court shall not ‘abridge, enlarge,
nor modify the substantive rights’, in the guise of reg-
ulating procedure. The second is that if the rules are
to prescribe a single form of action for cases at law and
suits in equity, the constitutional right to jury trial
inherent in the former must be preserved. There
are other limitations upon the authority to prescribe
rules which might have been, but were not mentioned
in the Act; for instance, the inability of a court, by
rule, to extend or restrict the jurisdiction mies cad
a statute.”
The satetsent inthe’ Alley ‘chet busta: Upen this Sa-
preme Court opinion of 1941, while it may have been the
law of the Tenth Circuit, so far as we can tell has never
been followed by any other Court, either state or federal,
- unless it can be said that the Florida Courts adopted that
procedure in the instant’ case.
A24
In a research of this Alley case we find it mentioned
only several times, but on other points. However, it was
mentioned to some degree in the case of Couch v. United
‘States (U.S.C.A. Dist. of Col., 1956), 235 F. 2d 519. In
that case, which involved a criminal appeal, the trial
judge in the United States District Court had not strictly
. followed Rule 32(a) of the Federal Rules of Criminal Pro-
cedure at the time of entering sentence. The Appellate
Court, in a panel consisting of eight judges, refused to hold
that the Federal Criminal Rules were binding as a matter
of law to the extent that a slight variation would vitiate
* the trial. One judge, Judge Fahy (see second column text,
p. 521), dissented and held that Rule 32(a) of the Federal
Criminal Rules has the force and effect of law and that the
rule meant what it said and there could be no deviation.
He quoted the John R. Alley case as his authority.
This Court has clearly held in the case of First National
Bank of Birmingham v. Daniel, a 1956 decision, 239 F. 2d
801, that the recovery of usury against a national bank
was restricted to twice the’sum paid for interest within a
two-year statutory period prior to the suit. No Court so far
as we can find, excepting the decision of the Tenth Circuit
in the Alley case and the case now in question in the Con-
structors of Florida case, has ever entertained or permitted
a proceeding for usury against a national bank except in
‘strict accord with the statute as to the procedure and the
right to separate suit.
In speaking of the effect of the Rules of Civil Pro-
cedure and proposed amendments Mr. Justice Black and
' Mr. Justice Douglas (see 83 Supreme Court Reporter, page
43) commented upon the fact that they had objected to
some of the proposed amendments which were not adopted
because the amendments were getting away from the lim-
ited purposes of the Federal Rules of Civil Procedure and
we
Gj
—
A25
beginning to abridge constitutional or statutory rights
» which were enjoyed as a matter of substance. These state- -
ments are important not just because they were made by
two Justices of the Court, but because they were made at
a time when the entire Court had before it for consideration
the case of Southern Construction Company v. Pickard, 371
U. S. 57, 83 S. Ct. 108. This was a per curiam opinion by
the entire Court, without any dissent. Here was a suit
“under the Miller Act. The Court points out (see text, p.
109):
_ “The Miller Act, however, requires that suits in-
stituted under its provisions ‘shall be brought * * *
"in the United States District Court for any district in
' which the contract was to be performed and executed
and not elsewhere * * *.’ Since this statute appeared
to prohibit an action in the Georgia District Court on
the Tennessee project, Pickard in April 1957 filed the
present action against petitioners in the United States
District Court for the Middle District of Tennessee re-
lating to the Tennessee project only.”
Then it is pointed out that the Georgia action proceeded
to trial and there were some decisions reached because of s
the dismissal of the counterclaim theory in Georgia. Then
in the Tennessee action it was pleaded that Southern’s
action wa barred by the doctrine of res judicata. In the
proceedings in Tennessee the District Court apparently
allowed the $35,000.00 claim which had originally been in-
_ volved in the Georgia Court, but the Court of Appeals for
. the th Circuit reversed (see 293 F. 2d 493). That Ap-
pellate Court held that since there had been no allocation
_of the $35,000:00 payment as: between the Georgia and
Tennessee projects, that item under Rule 13(a) of the Fed-
eral Rules of Civil Procedure, 28 U.S.C.A., was a potential
compulsory counterclaim and it should have been filed not-
withstanding the provisions of the Miller Act. In other
x
A26
words, the Sixth Circuit following thegdoctrine of the Tenth
Circuit in the Alley case said that the Federal Rules of
Civil Procedure superseded oh naa the statu-
tory provisions for procedure.
The Supreme Court, however, reversed the Sixth Cir-
cuit and the Supreme Court unanimously held that the
statutory relief and procedure fixed in the Miller Act con-
trolled, and in effect it held where the statute provided the
type of procedure and the place of the procedure, that pro-
cedure was properly followed and that was the exclusive
remedy, using these words (see text, p. 110):
“In this instance, the plaintiff-respondent, who orig-
inally sought to combine all his claims in a single suit,
correctly concluded that he was required by statute to
split those claims and to bring two separate actions in
two different districts. The fragmentation of these
claims, thefefore, was compelled by federal law, and
the primary defendant in both actions was thus fo
the first time confronted with the choice of which o
the two pending suits should be resorted to for the
assertion of a terclaim common to both. Under
’ these circumstances, we hold that Rule 13(a). did not
compel this coun to be made in whichever of
. the two suits the first responsive pleading was filed.
Its assertion in the later suit, to which Southern, not
without reason, considered it more appurtenant, by
no means involved the circuity of action that Rule 13
(a) was aimed at preventing.” /
An action for debt; which is provided for as the exclu- .
sive remedy in Title 12, U.S.C.A., § 86, is a well known and
specific common law remedy and has been carried into
practically all of the states at one time or another (see
1 Am. Jur. 2d, p. 558). The authors point out that the
action for debt would lie where there could be a specific
claim even based on a quantum meruit, but that it does
not lie for unliquidated damages. They point out that an
=
~~
A27
action in debt or in the nature of debt lies to recover statu-
toryOpenalties or to recover import duties. It is clear to
understand why the Congress made reference to the action
for debt, because (1) it clearly defined the forfeiture fea-
tures that could be determined; (2) it would not permit
claims for torts, damages or anything of that type—it was
simply restricted to the claim for forfeitifre under statutory
penalties or similar actions; and (3) it was a common
law action in which juries were to hear the evidence and
where no other issues could be involved.
_If this procedure had been followed in the present case
either the Constructors of Florida in its own right, or its
receiver or trustee in Bankruptcy, would have been re-
quired to file a suit in the nature of a plenary action in
debt. The Coral Gables First National Bank, which was
the lender and owned title to all the assets, would have
been the sole defendant. - of Florida would
have had the burden of proving the usury to the satisfaction
of a jury. No other issues would have been involved. If
the jury was satisfied that more than the legal rate of in-
terest had been charged or contracted for, it could not have
entered any judgment except for double the amount of the
interest actually paid, which in this case would have been
double approximately $11,000.00. -The national bank
would have in its other procedure reduced its claim and
taken over security with a deficiency over, if the security
was not sufficient. ‘A
Usury penalties while civil on one side may be
criminal under some of the statutes in some. states.
Florida is one of those states. So the Coral Gables First
8 National Bank, or its officers, could be guilty of a mis-
demeanor. Certainly no one would charge that it could
be convicted in a trial without a jury.
A28
We ‘think that herein lies the main reason for mis-
understanding. Apparently the Courts of Florida, and
even this Court, have followed the doctrine that no sub-
stantive right of the national bank had been violated; that
it makes no difference what type of action was utilized,
what Court heard the case, or what kind of results were
obtained. The theory of this opinion concerning which
we seek a rehearing might easily besummarized by simply
stating that the plaintiffs in the Court below selected the
state Court for the foreclosure of its mortgage, ‘and that,
therefore, anything that happened after that time was up
to the state Court and if it made a mistake or violated
the strict and clear concepts of the federal law, we had
- mo remedy. May we point out that the Supreme Court of
the United States in the case of Douglas v. State of
Alabama (April 5, 1965), 85 S. Ct. 1074, said (text p. 1078):
“* * .* we follow our consistent holdings that the
adequacy of state procedural bars to the assertion of
federal questions is itself a federal question. See
Wright v. Georgia, 373 U.S. 284, 289-291, 83 S. Ct. 1240,
1243-1245, 10 L. Ed. 2d 349. In determining the suf-
ficiency of objections we have applied the general
principle that an objection which is ample and timely
to bring the alleged federal error to the attention of
the trial court and enable it to take appropriate cor-
rective action is sufficient to serve legitimate state
interests, and therefore — to preserve the claim
‘for review here.” :
We, therefore, say that on that principle of law the
procedure used in the state Court in accepting and ruling
on the counterclaim was so clearly violative of the federal
statutes and so clearly resulted in depriving the national
bank of its rights without due process of law ne there
was utter lack of judicial process.
A29
‘The next phase of this Court’s opinion seems to flow
from a total misunderstanding of the record, either on our
part or on the part of the Court. We refer to the bottom
of page 5 and page 6 of the printed opinion, where this
Court discusses the decrees and findings of the state
Court. It is true that in the first opinion of the Circuit
Court of June 26, 1958, termed “Partial Final Decree”,
the Court did enter joint judgments holding that the Coral
Gables Bank, which was a national bank, was a co-ad-
venturer and agents of each other with the state bank,
the Pan American Bank... However, that theory was ex-
ploded by the opinion of the’ Appellate Court. The Ap-
pellate Court announced the correct interpretation of law
that the penalties and remedies fixed under Title 12, § 86,
were exclusive; but it completely failed to apply that
doctrine, which we say was in contravention of a fedefal
right. It is true that we applied for certiorari to the
Supreme Court of Florida and also to the United States
Supreme Court, neither of which was granted.. Then this
Court said in its present opinion (p. 7): “ ie
4 “Thicteithie. the cove below tanks ediitiind? Mhiteas,
modified its decree to conform with the mandate of the
Court of Appeals and adjudged that the Banks were
also barred from obtaining foreclosure of the mortgage
made in connection with the transaction of March 20,
1957, because they were ‘not in equity with clean
hands.’ No appeal was taken from the modified de-
cree.”
From that time on the Court seems to say that the
matter was res judicata. This order on the first mandate
is shown.in the Transcript of Record at page 201, and is
the order upon which execution was issued and the money
paid to the trustee in the reorganization proceedings, but
the controlling factor in that decree is set forth in para-
A30 * a
"graphs III and IV, shown on pages 203 and 204, in which
the Court’ said: 4
“TII.. That Constructors of Florida, Inc., is in-
debted to Coral Gables First National Bank and Pan
American Bank of Miami in the amounts of Fourteen
Thousand Three Hundred Twenty-Six Dollars and
Seventy-Seven Cents ($14,326.77), and Ninety-Five
Thousand Six Hundred Thirty-Six Dollars and
Seventy-Seven Cents ($95,636.77), principal and inter-
est included-to May 1, 1958, respectively, on the loans
of July 25, 1956 and July 24, 1956; but the mortgages
allegedly securing said loans are not enforceable as
said Banks are not»in equity with clean hands. Said —
loans were not in default as of the commencement of
this action. The Court does not determine whether
or not said loans are now in default inasmuch as the
United States District Court for the Southern District
of Florida, in the proceedings for the reorganization
of Constructors of Florida, Inc. has assumed jurisdic-
tion of said ¢laims.
IV? That Constructors of Florida, Inc. is indebted
5to Coral Gables First. National Bank in the*amount of
Eleven Thousand Two Hundred Seventy-One Dollars
and Twenty Cents ($11,271.20) on the loan of Novem-
ber 14, 1956; but the mortgages allegedly securing said
loan are not enforceable as said Banks are not in
equity with clean hands. Said loan was not in de-
fault as of the commencement of this action. The
Court does not determine whether or not said loan is
now in default inasmuch as the United States District
Court for the Southern District of Florida, in the pro-
ceedings for the reorganization of Constructors of
Florida, Inc., has assumed jurisdiction of said claims.”
The federal ‘Court, sitting as a’ reorganization Court
under the provisions of Section 256, 11 U.S.C. 656, had
taken over through its trustee all of the proceedings with
reference to the liens against the actual personal property
A31
under Section 257, 11 U.S.C. 657.: The trustee became
vested with all of the rights of the prior receiver in the
involuntary bankruptcy and had physical possession of the
chattels which were security for the debt. The state Court
had never appointed any receiver or custodian, so that in
the decree of April 14, 1961, as far as the personal property
was concerned the state Court had been completely super-
seded and there could be no adjudication by the state
Court with reference to those claims, or any part thereof,
insofar as that affected the lien or the amounts due or
the parties to whom they were due.
, We think the Court is confused in its factual findings
with reference to the procedure which was followed after
April 11, 1961. Two procedures were followed—one in
the federal Courts and one in the state Courts. In the
federal Court an appeal was taken from the order of Judge -
Emett C. Choate refusing to take over and restrain the
state Court litigation. That appeal restilted in.the opinion
of this Court, 299 F. 2d, page 736. This opinion was ren-
dered on February 26, 1962. That date is important be-
cause at that time this Court, before any ef the state Court
procedure became final, in note 16, on page 740 of 299
Federal Reporter, 2nd Series, said: *
“As in‘note 15, supra, we likewise expressly disavow
any purpose here to indicate any view on the extent
to which, if any, the State Court judgment is to deter-
mine priorities, enforcement of security by the Banks,
or other creditors, or the like. Although the Bank-
ruptcy Court refused to enjoin execution on the State
Court judgment, the funds received by the Receiver
are now, and will remain, subject to the sole control
and disposition of the Bankruptcy Court.”
"Ths ether ‘proceeding to’ thi hate Coket Wee areas
appeal from the order and decree on the mandate of April.
-11, 1961, to which a motion to quash was filed, and the
-~
m6
~
j
seu Se
District Court of Appeal of Florida, Third ‘District, entered
an order quashing the appeal (see 132 So. 2d 806). This _
order quashing the appeal was then covered by a petition
for certiorari to the Supreme Court of Florida by -final
opinion of September 26, 1961, 133 So. 2d 319, case No.
3). 5 : ;
‘Within the time prescribed by law.a second petition
for certiorari was filed in the Supreme Court of the United
States as a petition for writ of certiorari té the District
Court of Appeal of Florida, Third Appellate District, ‘and
that petition was denied“by the Supreme Court of the
United States on March 5, 1962, or some seven or eight
days after this Court had rendered its opinion on the ap-
peal from Judge.Choates’ refusal to grant the injunction.
Therefore, at the time this Court rendered its first opinion
referring the matter back for further action and with the
grant of powers in the opinion of February 26, 1962, the
proceedings in the state Court and its various appellate
processes had not been concluded. The money was in the
hands of the trustee in‘the Chapter X proceedings and
from that time on the United States District Court, South-
ern District of Florida, had taken sole control of all facets
of the case. The printed record before this Court shows
that beginning with May 2, 1962, or within several months
i. after the mandate of this Court and the denial of the peti-
tion for certiorari from the state Court procedures, the
trustee then instituted certain proceedings in the United
States District Court (see Tr. 215 through 378). The trial
procedure which we have above referred to and which this
Court in its opinion clearly overlooked is also set forth
in the printed Transcript of the Record, pages 376, 377 and
378.
We respectfully say that the second phase of this
Court’s opinion as shown on page 7, therefore, is clearly
= A33
erroneous, -because ¢he extensive appeals and appellate
procedures through the Supreme Court of the United
States were pending up until March 5, 1962. Those pro-
cedures were not further followed because, as aforesaid,
the money was in the Registry of the United States Dis-
trict Court and the determination of the amounts, priorities,
liens and the whole question of that distribution were in -
the custody of the federal court.
Whether the failure of this Court to recognize those
procedures, or the correction of the opinion in that regard,
would make any ultimate difference in this Court’s con-
clusions is pure conjecture on our part, but we respectfully
say that it should because it ties directly into the third
phase of this Court’s opinion, which was based upon the
theory of either res judicata or estoppel by the approval
of the plan in 1959. In that regard we respectfully say
that this Court in its opinion overlooked certain basic mat-
ters with reference to the doctrine of res judicata and
the doctrine of estoppel under the plan. We refer the
Court to page 60 of the printed Transcript, wherein the
Court entered a tentative order approving the plan of re-
organization filed on November 21, 1958. This order was
filed December 15, 1958 and, as shown on page 62 of the
Transcript, that order was made without prejudice in any
manner or form to prevent the trustee or any creditor,
or the debtor, or the stockholders, from in ing such
objections as they may deem advisable. On page 72 of the
printed Transcript an order of January 15, 1959 is shown
and reference to the so-called Bank litigation on the. appeal
pending in the District Court of Appeal of Florida, Third
District, was excepted from the operation of said plan.
On page 74, as shown by the order of January 9, 1959, the
' United States District Court in the reorganization proceed-
ings took over all of the furniture, fixtures, equipment and
-A34
other physical chattels of the debtor and directed that they ~~~
‘should be administered by the trustee under the provisions
‘of the Bankruptcy Act and not according to any procedure
‘in the state Court. The Court had the right to do this
under the provisions of Sections 256, 257 and 258 of: the
‘National Bankruptcy Act, as above set forth. Obj
to the claims of both the American Surety y and
the Coral Gables First National Bank, ‘et al. were filed,
and also objections to the plan had been filed.
On February 27, 1959 a joint stipulation and motion
was entered into (Tr. 91) in which Jobn Nicholas, as
‘trustee, American Surety Company of New York, The
‘Coral Gables First National Bank and Fitzgerald Engineer-
ing Company, -Inc. stipulated that the reference on ‘these
plans and objections’ and claims which had been referred
to L. Earl Curry, as Referee. and Special Master, mouid
“be ‘withheld, and this language was used: "
“but that itis not. feasible to determine the validity
or amount of said claims until the outcome of certain
pending litigation, and that it is to the best interest
of the estate that the attached order be entered.”
That order was entered on February 27, 1959, as shown ‘in
the Transcript at pages 92 and 93, and in paragraph “6”
of that order (see Tr. 94) the further determination by the
federal Court of any of these matters affecting the disposi-
tion of the tangible properties held by the trustee and not
ox the stake Cont, ween, venartnd, 0 we quote:
“until -the final outcome of that certain. litigation
CORGIINOY S88 EE enn harstelire
‘ee renee een
Based upon that stipulation -and understanding The
, Coral Gables First National Bank consented to the modifica-
tion of the plan of reorganization, but only with the specific
°
ye A35
done
restrictions as to the time in which the federal Court would
determine these problems. There were many matters in-
volved in the state Court litigation with other parties who
were not involved directly in the usury claims, but which
might have had an indirect involvement in the carrying out
of the plan. Nowhere in the record will this Court find any
agreement by any of the parties that the federal Court
would yield jurisdiction based solely and exclusively upon
the determination made in the state Court. We respect-
fully say that in this respect this opinion is in error. |
On March 11, 1959 the Court entered a special order
confirming the plan of reorganization as modified, but all of
the restrictions contained in the previous stipulations and
orders were reserved. However, as shown in the Transcript
at page 113, the United States District Court in the re-
organization ordered the liquidation of all of the tangible
assets upon which liens were claimed. by The Coral Gables
First National Bank. This point was further emphasized in
the printed Record (see p. 122, 7). In the Transcript on
page 129 there is shown the order confirming the sale, dated
April 10, 1959, showing that the sale of all of the tangible
assets had been handled solely by the trustee under the
Chapter X reorganization proceedings, and after some in-
termediate proceedings following the first order of confir-
mation a new order was entered on May 6, 1959 (Tr. 170)
confirming and reaffirming the sale by the trustee of‘all
of the tangible property assets. That was the situation
until May 23, 1961, or a period of approximately two years,
at which time the trustee then filed a petition (see Tr.
172) terequire The Coral Gables First National Bank to put
the money represented by its credit bid of April, 1959 back
into the Registry of the federal Court. _
On. June 28, 1961 (Tr. 207) the Courtsissued an order
to show cause directed to The Coral Gables First National
+
> a
_
$ A36
_, Bank as to why the money should not be replaced with the
* trustee, and after appropriate proceedings an order was
entered on July 27, 1961 (Tr. 209) in which the sum of
$120,591.69 was decreed to be paid by The -Coral Gables
First National Bank, which was the $106,000.00 bid: plus
‘interest, but directing in paragraph “2” (see Tr. 210), that
the said trustee, John Nfcholas, was directed to deposit that
sum in a special bank account separate from the accounts
containing the trustee’s other funds, and to make no dis-
bursement from this said special bank account except upon
further order of the Court. Paragraph “3” (Tr. 210) pro-
vided: : £5 ’ bee ck M4,
“This order is made without prejudice to the
further determination by this Court on the alleged
legal issues raised in the answer of The Coral Gables |
_ First National Bank to the order to show cause, which °
legal issues are reserved for further | ination by
this Court upon further hearings notice.”
No appeal was taken by anyone on this order. We
respecffully say that all parties in this case knew that the
federal Court—not the state Court—had taken over all of
the tangible property and had taken unto its complete juris-
diction that phase of the litigation.
Rajee ta cencnathcens had este Guaplited th thle Court
‘on the first appeal and after the Supreme Court of the
United States had denied certiorari, then in accordance with’
the understanding of all. of the parties a determination of
‘the priority of the claims and the validity of the mortgage
claims was undertaken by the reorganization Court. An
‘order of Teference was made February 27, 1963 (Tr. 224)
referring the matter to J. B. Booher, the Referee, as Special
‘Master. Then supplemental &nd additional objections to
the claims. ef The Coral Gables First National Bank were
ee Sa een
~ A
if
A37
_ taken before the Referee (see Tr. 228). Extensive briefs
were filed by the trustee (Tr. 228 through 250) and the
same type of memorandum was filed by the Banks, to-wit:
The Coral Gables First National Bank on its own behalf
and as trustee for Pan American Bank of Miami, shown
beginning at page 250 of the Transcript. Extensive exhibits
were attached, and this matter was tried for the first time
in the federal Court in the reorganization proceedings. This
answer, memorandum and exhibits are shown in the
Transcript at pages 350 through 378. Before these pro-
ceedings could be completed, on May 23, 1963, The Coral
Gables First National Bank filed its motion (Tr. 379
through 390), in which it,was pointed out (see Tr. 384)
that pending these hearings in the District Court in the re-
organization proceedings the Supreme Court of the United
States had rendered three pertinent and controlling opinions
—Southern Construction Company, Inc. v. Petitioner et al.,
83 S. Ct. 108, which.we contended exploded the doctrine of
the Alley case and the right of determination of usury claims
by cross.bill in an equity action on the foreclosure of the
mortgage in the state Court. We then pointed out (see
Tr. 385). that the United States Supreme Court in the case ©
of Mercantile National Bank at Dallas v. Langdeau and
Republic National Bank of Dallas v. Langdeau, 83 S. Ct. |
521, in’'a combined opinion involving the provisions of ©
United States Statute 5198, Title 12, US.CA, §§ 85
through 94, in which the Supreme Court had reiterated, re- .
confirmed or reestablished the fact that the specific pro-
visions of Statute 5198, with: references to usury claims
against a national bank were exclusive and that no Court,
whether it be a state Court or a federal Court, had any
power or jurisdiction to proceed otherwise: We point out
(see Tr. 387) that the.Supreme Court of the United States ~~
in an opinion dated March 25, 1963, Michigan National Bank’
Ws Robinson, 83 S. Ct. 914, had also made a similar ruling
in some usury matters involving-a national bank of Mich-
te
‘A328
_ a which had done business in Nebraska. The Nebraska
‘Courts had used their own state procedure and rules for the
_ determination of usury claims against the Michigan bank.
“The Supreme Court, however, held in aceordance with’ the
previous cases just mentioned, that they were in error in
‘doing so and that the provisions of Statute 5198 were ex-
clusive. It was based upon these two concepts—first, that 3
ithe reorganization Court had at all times from the date of
the reorganization in the fall of 1958 assumed exclusive con-
-trol over the intangible assets, and, second, that the pro-
cedure followed by the:state Courts of Florida were in viola-
tion of the restrictive provisions of the federal statutes with
reference to.the usury and penalty claims. Judge Emett C.
Choate in his order of December 20, 1963 made a complete
analysis of these cases and the background and held that
The Coral Gables First National Bank claim on the first
mortgages of July, 1956, being no way involved in the usury
procedure or usury penalties, could not be defeated by any
collateral orders of a state Court and to that extent he
granted relief to The Coral Gables First National Bank. We
respectfully say that there was no error in that proceeding
in that regard and that this Court’s determination in the
third phase of the order that that point was res judicata_or
ee ee eens ee
‘this entire record is considered. ¢
With reference to the second phase of the usury
charge Judge Choate ordered that he felt that he was pre-
cluded not by any state Court procedure, but by. some
language in the first opinion of this Court, 299 F. 2d 736.
This Court apparently in its opinion did not pass upon that
point, but based its conclusién in the third phase of the case
for reversal of Judge Choate upon other grounds, which we
respectfully say are not tenable.
tess Our position is supported by a recent decision of the
Courts of New York in the case of Swulil Realty Corp.,
plaintiff, v. Rye Motors, Inc., defendant, Westchester
r
A39
County Court, January 19, 1965, case reported in 257 N.Y.S.
111. This case involved an attempt by a New York Court to
punish by contempt a Conriecticut national bank for failing
to comply with certain orders of the New York Court. The
Court discussed the provisions of Title 12, US.C.A., § 94,
which is one of the sections in U.S. Statute 5198, and held
that these requirements of the statute affecting claims
against national banks were mandatory in the-absence of a
consent or a waiver, quoting as aytho?ity for that statement
Mercantile National Bank at Dalias v. Langdeau, 371 U. S.
555, 561, 83 S. Ct. 520, 528, 9 L. Ed. 2d 623, which is one of
st
the cases we have relied upon. In paragraph 7 of the opinion
of that Court (text p. 115 of the reported case) that Court
said:
“Sn ont epiebnn, in eae Sea
state granted to a national banking association by the~
National Banking Act (12 U-S.C.A. § 94, supra), in the
* absence of a waiver thereof or consent to submit to
such foreign court’s jurisdiction, is pre-eminent over —
the jurisdiction and venue provisions of the State of
New York as embodied in the provisions of Article 3
and Article 52, of the CPLR. As was said in (Crofoot v.
Giannini, 196 Misc. 213, 92 N.Y.S. 2d 191), since a
national banking association is a creature of federal,
rather than state law, the question of where it can be
sued is governed by federal laws.”
“We say that the'same doctrine applies in this case and
that no Court, state or federal, could have proceeded with
any determinatien of usury. This money is in the federal
Court and should be disbursed only in accordance with the
~ _ federal doctrines. - fot |
We realize that the issues in this case may be such
that a certiorari would be taken to the Supreme Court of
the United States for its ultimate decision, regardless of who
is the successful party. The question as to whether the
Alley case by the Tenth Circuit in 1942 was a valid and
r
A40
proper decision, or as to the question-as to where the later
cases of the Supreme Court of the United States above
mentioned overrule that doctrine nunc pro tunc are-matters
of serious federal constitutional and statutory constructions.
We do say’ sf urge, however, that the state of the
record as disclosed by the present opinion is not an accu-
rate or even a fair representation of the factual matters
as disclosed in the record, and that we are entitled to have
this Court pass squarely upon these questions so that the
issue, if and when presented to the Supremé Court of the
United States, will be squarely determined one way or
the other, We, therefore, say that in the interest of clarity
and in the interest of justice, a rehearing should be granted
and, if the Court feels it Kenceratrt that reargument be per-
mitted.
Respectfully submitted,
Warp & Warp
1240 duPont Building)
.Miami, Florida 33131
W. G. Warp >
S _ Attorneys for The Coral Gables
First National Bank.
i,
¥
.
A4l ,
I HEREBY CERTIFY that the above and foregoing «
petition for rehearing is filed in good faith and riot for the
purposes of any delay.
W. G. Warp
I. HEREBY CERTIFY that a copy of the foregoing ~ |
Petition for Rehearing was this ............ day of July, 1965, )
mailed to Blackwell, Walker & Gray, First Federal Build-
ing, Miami, Florida, and Tom Maxey, 3001 Ponce de Leon
Boulevard, Coral Gables, Florida, attorneys for American
Surety. Company of New York, and John H. Gunn, 1534
‘duPont Building, sient, ‘Florida, attorney for John
Nicholas, Trustee. ¢
W. G.. Warp.
& A42 :
APPENDIX D
i IN THE
United States Court of denial
No. 21448
IN THE MATTER OF CONSTRUCTORS OF FLORIDA;
INC., Debtor in Reorganization.
AMERICAN SURETY COMPANY OF NEW YORK,
Appellant, \
versus
THE CORAL GABLES FIRST NATIONAL BANK and
JOHN NICHOLAS, Trustee,
ees: : ' Appellees.
,
IN THE MATTER OF CONSTRUCTORS OF FLORIDA,
INC., Debtor in Reorganization.
_____THE CORAL GABLES FIRST NATIONAL BANK,
Appellant,
versus
s, AMERICAN SURETY COMPANY OF NEW YORK and =
JOHN NICHOLAS, Trustee,
Appellees.
.
Appeals from the United States District Court for the
Southern District of Florida *
.
e. (Filed Sept. 3, 1965)
A43
On Petition for Rehearing
Before TUTTLE, Chief Judge, PHILLIPS* ad. Wee
Circuit Judges.
PER CURIAM:
PD TOE ay ibe page oe ae
he orn ere on eens ee and the same is,
hereby DENIED. —
“Of the Tenth Circuit, sitting by designation,
Fe
en ee ee eer
ee a ey
A44
Appendix 1,
Memorandum Opinion on Trustee’s Objections to
Claim of Coral Gables First National Bank and
on Bank’s Motion for Order to Pay Funds.
Filed Dec. 20, 1963.
(Title Omitted.)
Statement of Case. _
This matter is before the Court on Objections of John
Nicholas, Trustee, and Supplemental and Additional Ob-
jections of the Trustee to the Claim of the Coral Gables
First National Bank filed in these corporate reorganiza-
tion proceedings, and on the Motion of the Bank for Order
Directing Trustee to. Pay Funds, and upon the Trustee’s
response thereto.
The Pleading Pertaining to the Bank’s Claim and Objec-
tions thereto:
On January 5, 1959, the Bank filed its secured claim
in the amount of Two Hundred Eighty-two Thousand, Five
Hundred Forty-eight and 83/100 ($282,548.83) Dollars,
based on certain mortgages which had been the subject
of extensive State Court litigation.’
1. The Proof of Claim states in part: “$282,548.83, which
includes interest due to May 1, 1958, plus interest from said date,
plus attorney’s fees. See case No. 205,613-E, Circuit Court of
Dade County, Florida—Chancery. .. .
(5) That the consideration of said debt is for monies loaned
on security. (See in detail] all proceedings, Circuit Court of Dade
Co., Florida, Chancery No. 205,613-E in reference to matters on
appeal, District Court of Appeal, Third District, No. 58-526, said
Es
f
8
:
AS
On January 27, 1959, 28 apenas ec ogRTUES
this Claim. These objections were:
(a) “That the Debtor is not indebted to the Creditor
in the amount stated.
(b) That the Proof of Claim is improperly and in-
accurately prepared in that it declares a priority of a
secured creditor for the;creditor when the creditor is un-
secured in a lesser amount than shown by the Proof of
Claim. z nies =
_ (c) That the Creditor has charged the Debtor a
usurious rate of interest and therefore is precluded from
enforcing its claim.”
Subsequently, by order entered in the Court on Febru-
ary 27,.1959, upon the stipulation of all the interested
parties, the Bank’s claim was allowed as a secured claim
in the amount of $156,728.75 and an unsecured claim in the
amount of $125,820.08: However, such allowance was
2 the purpose of voting upon the acceptance or rejection
e Plan of Reorganization in the proceedings,” and
por allowance was “without prejudice to the right of any
interested party with respect to the distribution of the
proceeds of this estate to later object to the classification,
priority of amount” of said claim. The final determination
7. That there are no setotts or counter-claims to the same
(except see litigation files above mentioned).
a
4
~ A4M6
the State Court litigation designated in the Plan of Reor-
ganization as “Bank Litigation” which is discussed at
length below. |
After the State Court litigation had been completed, —
the Trustee, pursuant to the terms and provisions of the
Order of February 27, 1959, filed additional objections to
the claim of the Coral Gables First National Bank which
raised the following points.
i. Se dis ahs “oh lidienbincaedl tnx Chameerse:Be0-
ceedings 205,603-E (the Bank Litigation) ‘that the various
liens, claimed by the Coral Gables First National Bank and
allegedly participated in by the Pan American Bank of
Miami are unenforceable and that, therefore, the entire
bank claim is unsecured.
2. It has finally determined in the benk: pro-
ceedings that the of the Coral Gables First National
Bank is in the proper amount of ban So all of which
is unsecured.
3...The Coral Gables. First National Bank cannot
participate in the proceeds effected by the recovery of the
Trustee from the Coral Gables First National Bank and
the Pan American Bank of Miami by way of usury
penalties; nor, at this time, in the funds realized from the
sale of assets.
The Pleadings Pertaining to the Banks’ Motion. for Order
Directing the Trustee to Pay Funds:
On May’ 23, 1963, the Banks filed their Motion for an
Order Directing the Trustee to Pay Funds. This was a
motion seeking the repayment to the Banks of the monies
ee ee
asc judgment.
~\ me
- * A Response to the Trustee to said Motion was filed
May 31, 1963. The Banks’ motion was in essence a col-
, lateral attack on the jurisdiction of the State Court to
* ‘entertain the counterclaims against the banks which-led
to the judgment against them. The effect: of this attack
will be discussed in detail below. |
History of the “Bank Litigation”: |
_ The history of these organiza proceedings and
cuit, reported at 299 F.2d 736. As that
State Court litigation began when the Claimant, The Coral <
Gables First National Bank, together with the Pan Ameri-
can Bank of Miami instituted an action seeking to foreclose
three chattel mortgages. This action, filed in the Circuit
Court in and for Dade County, Florida, prior to the onset
of any Federal Bankruptcy proceedings, named Construc-
tors of Florida, Inc., the Debtor in these proceedings, as
defendant. -The first two of these mortgages involved
‘amounts due of ‘$13,888.95 and $92,690.85. These are des-
-ignated the July mortgages referring to the month in 1956
when they were executed. . The third mortgage, having an
alleged balance of $151,802.46, is referred to as the Novem-
ber mortgage as it was executed November 14, 1956.. All
of these mortgages had been given to the Banks by Con-
_structors to secure certain loans. -Various. counterclaims
‘were asserted*by Constructors and the other Defendants
in ‘said action to recover usury and related penalties from
the Banks, Thereafter, an ‘involuntary Petition in Bank-
‘ruptcy ‘was filed’ against Constructors, and, subsequently,
‘a: Petition for Corporate Reorganization filed in the Bank-
ruptcy ‘was approved.’ A Trustee was - appointed, anda
; Plan of Reorganization was proposed and confirmed. “The
Receiver in Bankruptcy, and thereafter the Trustee “in
9
. =e ¢
Corporate Reorganization, were substituted for Construc-
tors in the State Court action. Provision was made in the
Plan of Reorganization (which was accepted by the
Banks) for the continuation of the “Bank Litigation” in
the Florida State Courts. |
Aller telel- 0 the iguate by sie Sista Count “a Par-
' tial Final Decree was entered which, among other things,
found the November 14, 1946 loan and mortgage transaction
usurious under Florida law. A substantial judgment in
favor of the Trustee against said Banks on the usury
counterclaims was entered. The judgment determined the
July mortgages to be valid indebtedness due the banks by
the debtor. However, the Chancery Court denied the
Bartks’ prayers for foreclosure of the J uly mortgages on
the ground that these mortgages, and notes secured there-
by, were not in default and not subject to foreclosure in
that action. The State Court further held the liens of the
July mortgages unenforceable as the Banks were not in
equity with clean hands: Apparently on this. basis the
State Court held that liens of the City of West Palm
Beach and of: American Surety Company of New York
against the chattels and equipment encumbered by said
mortgages were superior to any claims of the Banks as-
serted in said action.
An appeal was taken by the Banks to the District
Court of Appeal of, Florida, Third District, which Court
by its opinion reported at 119 So.2d 741 (1960). modified
» said Partial Final Decree in certain respects, not pertinent
- here, but affirmed the denial of foreclosure of the two July. -
mortgages. Thereafter Petitions of the Banks for Writ
of Certiorari were denied by the Supreme Court.of Florida
as reported at 123 So.2d 349 (1960) and by. the Supreme
Court of the United States, 365 U.S. 811 (1961).
fake from the
Constructors of
A49
Upon denial of further appeal, the State Trial Court
entered its Order and Judgment on the Mandate*. which
., on his counterclaim, have and
Tué Orde
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.