Opposition Brief — Wheeler v. Greene
Supreme Court brief1929
Ask Donna
What actually matters in this document.
Text
eee
APR 1 1929
FILE COPY CHARLES ELMGRE GRO
———————_=>=>—_—e—e—————
Supreme Court of the United States
OCTOBER TERM, 1928
No. a 39
J. R. WHEELER,
PETITIONER,
vs.
HOWARD GREENE,
RECEIVER OF THE BANKERS JOINT STOCK
LAND BANK OF MILWAUKEE, WISCONSIN.
RESPONDENT.
Brief for the respondent in opposition to the peti-
tion for a writ of certiorari in the case of Howard
Greene, receiver of The Bankers Joint Stock Land
Bank of Milwaukee vs. J. R. Wheeler, reported in
29 Fed. (2d) 468.
y EDWIN 8. MACK,
‘ ARTHUR W. FAIRCHILD,
Counsel for Respondent. ©
(34,020)
SUBJECT INDEX TO BRIEF.
Objections to granting of writ .................
Ne Oe TNO COND 6 iki cake eit idees cneus
Gs NEE Bd be e KONE Lae hod Kos OS Ae
eee y OF GTEuMONt . 0... ee cessccvvencss
EE id dU NaN Kes CLA Kees eev er ished cHkay is
I, The question involved is one of procedure
IL.
il.
-
and the real question in issue is one of
delay in enforcing the liability ..........
The construction of the Act is plain .....
The Federal Farm Loan Board has wide
general powers ...... Oe Pe rt |
Petitioner’s construction of the Farm
Loan Act, if adopted will involve dupli-
cation of receivership, together with in-
creased expense and delay, and will neces-
sitate ancillary equity suits in thirty
states.
The Congress could not have intended so
unreasonable an interpretation ..........
The fundamental question is the scheme
intended by Congress; and an express
grant of power to levy an assessment is
unnecessary, being implied, as necessary,
to effectuate the scheme of the Act ......
The differences in structure of the Na-
tional Bank Act and Farm Loan Act make
inferences from the phraseology of the
former inapplicable to the latter.
11
12
17
VI.
7
Subject Index to Brief—Continued.
Page
The structure of the National Bank Act,
adopted in 1864, should not control the in-
terpretation of the Federal Farm Loan
Act, adopted in 1916 ..............06.-- 20
The Joint Stock Land Banks are constitu-
tional agencies of Government; and their
administration under the direction and
control of the Federal Farm Loan Board
necessarily implies a single receivership
and enforcement of the personal liability
of stockholders under direction of that
EN os VEC RAEG GENES Rhee eR Whee ens 24
1. Joint Stock Land Banks were created
by the Congress to serve as fiscal
agents of the Government; they were
created for public and not private pur-
RR en Pere eer ce tS Pree 24
2. Proper and expeditious administration
of the affairs of Joint Stock Land
Banks is essential to the fiscal policies
of the Government ................-. 25
3. The Congress intended to continue gov-
ernmental control through insolvency
Ser erry ere eee rere 26
4. The Farm Loan Board’s powers are
ERS ORG NER OSES Nie hee a 26
5. The stockholders’ liability is to be ap-
plied with and in aid of the assets of
the Bank toward the satisfaction of its
oS Pree re rey sor eres 27
6. Purpose indicated in heading of Sec-
PN ee Oe snes sckiecs ved oucains 28
Subject Index to Brief—Continued.
Page
7. Payment of assessments without suit
should be possible ...............0.. 29
8. Right of offset against dividends on
bonds held by stockholders should be
UOOEVNG y -c 6 i Sis bia Pokw es babes 29
VII. Construction of Act by Farm Loan Board 30
VIII. Cases under other statutes .............. 31
1. Cases arising under state statutes are
practically irreconcilable and are not
OOMEVONARE BOGS 5 oi bv si owes wen eons 31
2. The Federal authorities cited by peti-
tioner, so far as they are in point, sus-
tain the right of the statutory receiver
Oe Ui pad vine co nswibas eaneeeeneee 32
Conclusion... ... WN SEHETEP ODN KD ORNS) PaaS s Lbs 33
Appendix (Opinion in Krauthoff v. Kansas City
Joint Stock Land Bank et al., decided Feb. 20,
MRR RPS RS nee een ee Res Fie 35
CASES CITED.
Page
Altman v. McClintock, 20 Fed. (2d) 226 ........ 27
Butterworth v. Hill, 114 U. 8.128 .............. 15
Blamset v. Cardin, 256 U. 8. 319 ............... 30
Bushneli v. Leland, 164 U. 8S. 684 .............. 19
Casey v. Galli, 94 U. B. 678 . ooo. cece ccwscces 19
Christopher v. Norvell, 201 U. 8.216 ........... 19
Commercial National Bunk v. Weinhard, 192 U.
PE ay Sc cad aed ded Wve dw Randa Ventanas 18
——.
Index of Cases Cited—Contimued.
Page
Cook County National Bank v. Umted States,
BU fis We UE Ki Ra Varga dk Cbs st tenees cece 26
Farmers’ & Mechanics’ National Bank v. Dearing,
MC I She ie sod Ak cog Maviny Fass us eet © 25
Gockstetter v. Williams, 9 Fed. (2d) 354 ........ 27
Great Western Mining Co. v. Harris, 198 U. 8.
ase Sa ate nad ghe ie EON SET PRIOR PE PN EN 14
Hale v. Allinson, 188 U.S. 56 ...........0065-- 15
Hynes v. Illinois Trust & st aac Bank, et al.,
De PE ahve dss th cannhass chabeeeh es 29
Jacobs v. Prichard, 223 U.S. 200 .............. 30
Kennedy v. Gibson, 8 Wall. 498 . .9, 10, 13, 14, 18, 19, 33
King, et al. v. Armstrong, 50 Ohio State 222.... 29
King v. Pomeray, 121 Fed. 287 .............+65 33
Knowlton v. Moore, 178 U.S. 41 ..... 6. eee eee 17
Korbly, Receiwer, v. Springfield Institution for
Savings, et al., 245 U. S. 330 ............-- 10, 13
Krauthoff v. Kansas City Joint Stock Land
Bank, et al., 23 Fed. (2d) 71 ....... 2, 10, 14, 26, 29
Krauthof v. Kansas City Joint Stock Land
Bank, etal., (Decided Feb. 20, 1929) ...... 2, 10, 16
Liberty National Bank of South Carolina, et al.,
v. McIntosh, 16 Fed. (2d) 906 ............-- 27
McNeill v. Pace, 69 Fla. 349 ..........0 ee eeees 28, 31
National Lead Co. v. United States, 252 U.S. 140 30
Osborn v. Bank of the United States, 9 Wheat.
Bs has COR PPR EROTAs CENA ORDO RA CODD Cae 25
Pattotion v. Lynde, 106 U.S. 519 ............-- 31
Rankin v, Barton, 199 U. S. 228 ...........54-- 19
Richmond v. Irons, 121 U. 8. 27 ........--45 27, 32, 33
Smith v. Kansas City Title € Trust Company,
BEG UW. Bi IGD eiie eee ccete cere ecesvenes
_——
Index of Cases Cited—Continued.
Page
State ex rel. Stone v. Union Stock Yards etc.
ma, €F Gh, 108 1a, BAB 0.6. os vivid bxbos ccckk 29, 32
Steele v. Randall, 19 Fed. (2d) 40 ............. 14
Swigart v. Baker, 229 U. 8. 187 ............000. 30
zerry v. Lattice, 101 U. B. S16... . oe ccinweccncn 31, 32
Umted States v. Hermanos y Compania, 209 U. 8.
BES ONE So Se Te SF Caen eae CEL NSD 30
United States v. Kate, 271 U. 8. 364... 3. es cs 17
United States v. Knox, 102 U. 8. 422 ........... 19
United States v. Weitzel, 246 U. S. 583 ......... 14
Van Reed v. Peoples National Bank of Lebanon,
ERs Oh ON, ope ww bina Un boas bw aahes Loe 25
Wilson, et al. v. Book, 13 Wash. 676 ............ 29, 31
‘ STATUTES CITED.
Page
Federal Farm Loan Act (U. 8. C. Title 12 §$641-
1021)
Particular Sections Discussed .............. 21-24
Se SOON ae Ea Ree 4
eee 2 CU. BO. $681) ooh Ss. 4,7, 11, 18, 22, 30
wee 2 EU. BO. GGL) oi ae 4, 7, 11, 30
ee Seay es URED on a ees 4,27
Sec. 16-21 (U.S. C. §§814, 816-821, 841-864).. 27
Ses. 17 (U. 8. C. $881) ........... 4, 7, 11, 18, 22, 30
Sec. 29—
Care MMe MRD hak eS a sven eons 5, 14, 24, 28, 30
Pas OW Ree WORE recon cat suwavbaceuces 5, 14, 30
ECT We WOOT oaks cacdiesesvunscs eee 6, 14
PC OO) 2a 6
Statutes Cited—Continued.
BUMMAARY oc 5 ccc cece ccc cevevecncevoneess 21-23
Particular Sections Discussed (References to
U. S. C. Title 12)
NR ee aids Ue ke SAG ua keh beaee ens 18
PE Duke lids vias hw adn yada tesa 23
ee ek hea da p aban eae 22
Ee Saad s dhe cseecabiekens< eens 22
LEONE eer 22, 23
ee el ee ete i ans bie & bi 22
ee eae te tee hw he neke 22, 23
ee 22, 23
_
Supreme Court of the United States
OCTOBER TERM, 1928
No. 711
J. R. WHEELER,
PETITIONER,
vs.
HOWARD GREENE,
RECEIVER OF THE BANKERS JOINT STOCK
LAND BANK OF MILWAUKEE, WISCONSIN.
RESPONDENT.
>
Brief for the respondent in opposition to the peti-
tion for a writ of certiorari in the case of Howard
Greene, receiver of The Bankers Joint Stock Land
Bank of Milwaukee vs. J. R. Wheeler, reported in
29 Fed. (2d) 468.
Respondent opposes the granting of a writ of cer-
tiorari upon the following grounds:
1. The construction of the statute here involved
is plain; administration is proceeding promptly
and efficiently and there is no reason why this
court should assume jurisdiction.
2. The question involved is one of procedure and
the reversal of this decision will not change or
affect the substantive rights of the parties.
3. The decision by the Circuit Court of Appeals
for the Seventh Judicial Circuit in this case and
the similar decisions by the Circuit Court of Ap-
peals for the Eighth Judicial Circuit in the case
of Krauthoff v. Kansas City Joint Stock Land
Bank, et al., decided February 20, 1929,* and
Krauthoff v. Kansas City Joint Stock Land
Bank, et al., 23 Fed. (2d) 71, are in accord with
each other and with applicable decisions of this
court.
Statement of the Case.
The Bankers Joint Stock Land Bank of Milwaukee
was organized under the provisions of the Federal
Farm Loan Act, and had a capital of $1,200,000, div-
ided into 12,000 shares of the par value of $100 each.
Operating with this capital, the Bank issued and
there were outstanding in the hands of the public on
July 1, 1927, $15,771,600 par value of farm loan
bonds, secured by farm mortgages and other collateral
on deposit with the Farm Loan Registrar for the
Seventh Land Bank District, at St. Paul, Minnesota.
The Bank was unable to meet the interest matur-
ing on its bonds on July 1, 1927, and, inasmuch as it
was clearly insolvent, the Federal Farm Loan Board,
proceeding under Section 29 of the Farm Loan Act,
(U. S. C. $961) declared the Bank insolvent and ap-
* A copy of this decision is printed as an Appendix to this brief
infra pp. 35-45)
pointed the respondent, Howard Greene, its statutory
receiver.
Following an investigation of the affairs of the
Bank, by order of the Federal Farm Loan Board, dated
January 11, 1928, a 100% assessment upon the shares
of stock in the Bank was levied payable March 1, 1928,
and the respondent, as statutory receiver, was direct-
ed to enforce collection.
It was determined from initial examination that
the liabilities of the bank (not including as such its
capital stock) exceeded its assets by more than $1,-
500,000 and that this deficiency would be increased in
liquidation. A reappraisal of the properties covered
by the mortgages showed the deficiency must mate-
rially exceed this figure; and there is no question,
therefore, as to the necessity for a 100% assessment of
the stockholders’ liability for payment of the Bank’s
obligations.
There has been a 15% payment made on the bonds
in liquidation; and with 85% of both principal and in-
terest unpaid, the bonds of the Bank are heing traded
in at less than 40% of par, thus confirming the neces-
sity for a 100% assessment.
Stockholders of the Bank have shown their appre-
ciation of the necessity for a full assessment upon
their stock and 256 stockholders of the total of 482
have paid their assessment in whole or in part in the
sum of $507,925.
The year and a half which has elapsed since the ap-
pointment of respondent, as statutory receiver, has .
shown the dangers of stockholders dying, moving away
or becoming insolvent, Under the circumstances,
the delay incident to the granting of a writ of cer-
tiorari must increase the difficulties incident to en-
forcing the rights of the creditors of the Bank.
4
Statutes.
The enacting clause of the Federal Farm Loan Act
provides in part:
‘‘Anact... . to furnish a market for United
States bonds, to create Government depositaries
and financial agents of the United States, and
for other purposes.’’
Section 1 of the Act (U. S. C. §641)* provides:
‘‘That this Act may be cited as the ‘Federal
Farm Loan Act.’ Its administration shall be
under the direction and control of the Federal
pcg Loan Board hereinafter created.’’ [Italics
ours.
Section 3 of the Act (U. 8. C. §651) provides:
‘‘That there shall be established at the seat of
government in the Department of the Treasury
a bureau charged with the execution of this Act
and of all Acts amendatory thereof, to be known
as the Federal Farm Loan Bureau, under the
neral supervision of a Federal Farm Loan
rd.’’ [Italies ours.]
Section 16 of the Act (U. 8. C. §812) provides:
‘‘Shareholders of every joint stock land bank
organized under this Act shall be held indivi-
dually responsible, equally and ratably, and not
one for another, for all contracts, debts, and
engagements of such bank to the extent of the
amount of stock owned by them at the par value
thereof, in addition to the amount paid in and
represented by their shares.’’
Section 17 of the Act (U. S. C. $831) provides in
part:
* Foot Note: For convenience references to Title 12 United
States Code are herein given as “U. S. C.” and references to
Federal Farm Loan Act as “F. L. A.”
5
**That the Federal Farm Loan Board shall have
power— ...
(i) To exercise general supervisory au-
thority over the Federal land banks, the nation-
al farm loan associations, and the joint stock
land banks herein provided for. [Italics ours. ]
(j) To exercise such incidental powers as
shall be necessary or requisite to fulfill its
duties and carry out the purposes of this Act.”
Section 29 of the Act provides in part:
[U. S. C. § 961] That upon receiving satisfac-
tory evidence that any national farm loan asso-
ciation has failed to meet its outstanding obli-
tions of any description the Federal Farm
an Board may forthwith declare such asso-
ciation insolvent and appoint a receiver and re-
quire of him such bond and security as it deems
proper: Provided, That no national farm loan
association shall be declared insolvent by said
board until the total amount of defaults of eur-
rent interest and amortization installments on
loans indorsed by national farm loan associa-
tions shall amount to at least $150,000 in the
Federal land bank district, unless such associa-
tion shall have been in default for a period of
two years. Such receiver, under the direction
of the Federal Farm Loan Board, shall take pos-
session of the books, records, and assets of every
description of such association, collect all debts,
dues, and claims belonging to it, and, with the
approval of the Federal Farm Loan Board or
upon the order of a court of record of competent
jurisdiction, may sell or compound all bad or
doubtful debts, and, on a like approval or order,
may sell all the real and personal property of
such association on such terms as the Federal
Farm Loan Board or said court shall direct.’’
[Italics ours.]
[U. 8S. C. § 962] “ . . . . Such receiver shall
pay over all money so collected to the Treasurer
of the United States subject to the order of the
Federal Farm Loan Board and also make report
to said board of all his acts and proceedings.
The Secretary of the Treasury shall have
authority to deposit at interest any money so re-
ceived.”’ [Italics ours.]
[U. 8. C. §963] ‘* . . . Upon default of any ob-
ligation, Federal land banks and joint stock land
banks may be declared insolvent and placed in
the hands of a receiver by the Federal Farm
Loan Board, and proceedings shall thereupon be
had in accordance with the provisions of this
section regarding national farm loan associa-
tions.”’
[U. S. C. §965] ‘*.. . No national farm loan
association, Federal land bank or joint stock
land bank shall go into voluntary liquidation
without the written consent of the Federal Farm
Loan Board, but national farm loan associations
may consolidate under rules and regulations
promulgated by the Federal Farm Loan
Board.’’
Summary of Argument.
The question involved is one of procedure. Two
Cireuit Courts of Appeals in three decisions have ap-
proved the procedure adopted by the Farm Loan
Board. 256 stockholders, of a total of 482, have paid
their assessment in whole or in part in the aggregate
~ gum of $507,925. Delay will increase the difficulty
of further collections due to insolvency or other simi-
lar cause.
The construction of the Act is plain.
Administration of the Farm Loan Act is expressly
placed under ‘‘the direction and control’’ of the Farm
7
Loan Board; the Board is ‘‘charged with the execu-
tion’’ of the Act, and broad supervisory and incidental
powers are expressly vested in it. (F. L. A. §§1, 3,
17 (i) (j); U. 8. C. §§641, 651, 831.)
The National Bank Act contains no such broad
grant of general powers as the Farm Loan Act vests
in the Farm Loan Board, yet the power to levy an as-
sessment upon stockholders of an insolvent national
bank is implied in the comptroller as essential to the
efficiency and utility of the law. Similar considerations
require the implication of such a power in the Farm
Loan Board under the much broader provisions of the
Farm Loan Act.
The procedure suggested by petitioner would bur-
den creditors of the bank with the expense and delay
of a double receivership including a statutory receiver
to liquidate the assets and a judicial receiver to take
over the proceeds, give notice to creditors, determine
claims, enforce the stockholders’ liability and make
distribution. Stockholders of the bank are located in
over thirty states and a court receivership would re-
quire ancillary proceedings in each of these states. It
is plain that this duplication of receivership, with its
accompanying expense and delay, cannot have been
intended by the Congress.
Petitioner proposes to negative any implied power
in the Farm Loan Board because the receivership pro-
vision of the Farm Loan Act has no express clause
such as set forth in the National Bank Act, for en-
forcement of the stockholders’ liability. The National
Bank Act was adopted in 1864 and the Farm Loan Act
in 1916. One great change in this interval was the
development of legislation conferring increasingly
large powers on administrative boards. Due to this
8
change, what was accomplished by one method under
the National Bank Act (the vesting of powers in the
Comptroller by a series of specific details) was ac-
complished in the Farm Loan Act by a different meth-
od (the vesting in the Farm Loan Board of broad ad-
ministrative powers). It follows, naturally, therefore,
that the National Bank Act has more specific provi-
sions as to a receivership than the Farm Loan Act; and
omission of the detailed provisions found in the Na-
tional Bank Act from the receivership provisions of
the Farm Loan Act does not, by any implication, nega-
tive the existence of such powers.
Joint stock land banks are public corporations
created for governmental purposes. The Congress has
deemed supervision of such agencies by the Farm Loan
Board essential to the fiseal policies of the Government
and such supervision and control, being necessary dur-
ing periods of operation of such banks, the Congress
must have intended to continue such control through
insolvency.
The construction here maintained is that adopted
by the Farm Loan Board and it should be given great
weight.
Cases arising under state statutes are irrecon-
cilable and are not controlling here. The governmen-
tal interest in these constitutional agencies is not pres-
ent in the case of ordinary state corporations. Every
-presumption is in favor of complete administration of
these constitutional agencies by the Government.
The Federal authorities, cited by petitioner, so far
as they are in point, sustain the right of the statutory
receiver to sue.
ARGUMENT.
I.
The Question Involved Is One of Procedure
and the Real Question in Issue Is One of
Delay in Enforcing the Liability.
The substantive rights of the petitioner will not be
affected by a reversal of the lower court, except to the
extent that delay may increase the practical difficulties
encountered by the statutory or court receiver, as the
case may be, in enforcing the stockholders’ liability.
At the time a similar power of assessment was im-
plied in the comptroller in the case of a national bank,
the court, in Kennedy v. Gibson, 8 Wall. 498, saic
f8 Wall. 505] ‘‘ . . . It would be attended with
injurious consequences to forbid action against
the stockholders until the precise amount neces-
sary to be collected shall be formally ascertain-
ed. This would greatly protract the final set-
tlement, and might be attended with large losses
by insolvency and otherwise in the intervening
time. The amount must depend in part upon
the solvency of the debtors and the validity of
the claims. Time will be consumed in the appli-
cation of these tests, and the results in many
cases cannot be foreseen. The same remarks
apply to the enforced collections from the stock-
holders. A speedy adjustment is necessary to
the efficiency and utility of the law; the inter-
ests of the creditors require it, and it was the
obvious policy and purpose of Congress to give
it. If too much be collected, it is provided by
the statute, that any surplus which may remain
after satisfying all demands against the asso-
10
ciation, shall be paid over to the stockholders.
It is better they should pay more than may
prove to be needed than that the evils of delay
should be encountered.’’ [Italics ours.]
Similarly in Korbly, Receiver, v. Springfield Insti-
tution for Savings, et al, 245 U. S. 330, 333, the court
held that the National Bank Act should not be giv-
en a technical construction which would so restrict the
powers of the Comptroller as to delay and impede the
settlement of the affairs of a bank and that the Act
should be given a liberal interpretation to promote the
expeditious winding up of a bank’s affairs.
As pointed out in Kennedy vs. Gibson, 8 Wall. 498,
506, if by error of the assessing authority too large an
assessment were made, the amount would not be lost
to the stockholders, for the excess would be returned to
them.
In the natural course of events, delay in en-
forcing assessment agains the stockholders will result
in insolvency of some and inability to collect from
others because of changes of address, death, or
otherwise. The method of procedure adopted by the
Farm Loan Board and approved by the Circuit Court
of Appeals for the Seventh Circuit in this case also has
been similarly approved by the Circuit Court of Ap-
peals for the Eighth Circuit in the case of Krauthoff v.
’ Kansas City Joint Stock Land Bank of Kansas City,
et al., (Appendix pp. 35-45, before Judges Kenyon,
Johnson and McDermott, and Krauthoff v. Kansas
City Joint Stock Land Bank, 23 Fed. (2d) 71, (Before
Judges Lewis, Pollock and Scott). Under the circum-
stances, there would seem no justification for continued
litigation.
ll
IT.
The Federal Farm Loan Board has Wide
General Powers.
The Federal Farm Loan Act rests fundamentally
on the grant to the Farm Loan Board of comprehen-
sive general powers, so far reaching as necessarily to
be exclusive.
Section 1 of the Act (U. 8. C. §641) provides:
‘‘That this Act may be cited as the ‘Federal
Farm Loan Act.’ Its administration shall be
under the direction and control of the Federal
Farm Loan Board hereinafter created.’’ [Ital-
ics ours. ]
Section 3 of the Act (U. 8. C. §651) provides that
the Federal Farm Bureau is ‘‘charged with the execu-
tion of this Act.’’
Section 17 of the Act (U.S. C. $831), provides:
‘That the Federal Farm Loan Board shall have
power— ...,
(i) To exercise general supervisory au-
thority over the Federal land banks, the nation-
al farm loan associations, and the joint stock
land banks herein provided for. [Italics ours. |
(j) To exercise such incidental powers as
Shall be necessary or requisite to fulfill its
duties and carry out the purposes of this Act.’’
a
III.
Petitioner’s Construction of the Farm Loan
Act, if Adopted, Will Involve Duplication
of Receivership, Together With Increased
Expense and Delay, and Will Necessitate
Ancillary Equity Suits in Thirty States.
THE CONGRESS COULD NOT HAVE IN- |
TENDED SO UNREASONABLE AN INTER- |
PRETATION.
.
Counsel for the petitioner attempt, by a compari-
son of the provisions of the Federal Farm Loan Act
with those of the National Bank Act, to establish an
intention to vest all rights and duties, subsequent to
sequestration of the assets of an insolvent Joint Stock
Land Bank, in a court receiver, saying with reference
to the statutory receiver appointed by the Farm Loan
Board:
[Petitioner’s Brief, p. 21] ‘‘The receiver is
simply a collector or conservator of the assets
of the bank. He takes possession of the books,
records and assets . . . collects all debts, .. .
sells all of the asse’s of the association . . . and
pays over all money collected to the treasurer
of the United States . . . His work is then per-
formed, . . . There is no suggestion anywhere
in the law that the receiver has anything what-
ever to do with the shareholders or their per-
sonal liability, or with the creditors of the bank
and their claims against it.’’
[Petitioner’s Brief, p. 25] ‘‘The Banking Act
has a complete system for the enforcement of
the individual liability of stockholders. . . . .
13
[Reviewing provisions for notice to creditors,
allowance of claims, payment of dividends, ete.,
in National Bank Act, U. S. C. §§191, 192, 193,
194,] . . . In the Farm Loan Act all of these pro-
visions are missing. No provision is made for
giving notice to creditors of the bank for a lim-
itation of the time of filing claims, for the allow-
ance of claims, or the payment thereof, for the
return of any surplus to the shareholders, or for
the payment of the expense of the receivership.
It is therefore perfectly apparent from the stat-
utes that the receiver of the Farm Loan Asso-
ctation was not intended to have any powers or
duties whatever with regard to the enforcement
of the individual liability of the stockholders,
the proof of claims against the association, their
a and the final distribution.’’ [Italics
ours.
Petitioner’s brief thus assumes that the Congress
intended to make the creditors of the Bank bear the ex-
pense of a double receivership including: first, a pro-
ceeding by the statutory receiver appointed by the
Farm Loan Board to collect and liquidate the assets,
paying the proceeds over to the Treasurer of the
United States; and secondly, a proceeding by a judicial
receiver appointed at the instance of a creditor in a
court of equity to take over the fund in the hands of
the Treasurer, give notice to creditors, enforce the
stockholders’ liability and make all distributions to the
creditors.
This suggested interpretation of the Farm Loan
Act is expressly contrary to the principles governing
the liquidation of such institutions established in Ken-
nedy v. Gibson, 8 Wall. 498, 505, (supra pp. 9-10) and
Korbly, Receiver, v. Springfield Institution for Sav-
ings, et al., 245 U. S. 330, 333.
14
The expense of un additional receivership in itself
seems controlling on the question of intention.
The duplication of procedure and expense seems
an absurdity inasmuch as the Receiver appointed by
the Farm Loan Board is an officer of the United States
subject to the order of the Board and represents cred-
itors as well as the corporation.
Under the provisions of Section 29 of the Farm
Loan Act (U.S. C. §§961, 962, 963), such receiver :
(1) Executes bond to the United States for the
faithful performance of his duties;
(2) Assumes control as an officer of the United
States :—
United States v. Weitzel, 246 U. S. 533,
540, 541;
Krauthoff v. Kansas City Joint Stock Land
Bank, et al., 23 Fed. (2d) 71, 73;
Steele v. Randall, 19 Fed. (2d) 40, 42.
(3) Pays all moneys collected to the Treasurer
of the United States ‘‘subject to the order
of the Federal Farm Loan Board.”’
(4) Represents creditors as well as the corpor-
ation :—
Kennedy v. Gibson, 8 Wall. 498, 506.
In addition to the double receivership, it will be
necessary, if the statutory receiver is without author-
ity to enforce the stockholders’ personal liability, to
have ancillary proceedings in more than thirty states
in order that the liability may be enforced.
Great Western Mining Co. v. Harris, 198
U. S. 561, 574.
15
The difficulties and expense incident to the enforce-
ment of the stockholders’ personal liability by a court
receiver is illustrated by the history of attempted en-
forcement by such a receiver in Minnesota.
Hale v. Allinson, 188 U. 8. 56, 65.
How the court receiver could acquire possession of
the fund collected by the statutory receiver and which
is, under the statute, deposited with the Treasurer of
the United States ‘‘subject to the order of the Federal
Farm Loan Board’ is a question of considerable com-
plexity. The members of the Board reside for pur-
poses of territorial jurisdiction at their official resi-
dence, to-wit: The District of Columbia.
Butterworth v. Hill, 114 U. 8. 128, 132.
Any attempt of the United States Court for
the Eastern District of Wisconsin to subject the Treas-
urer of the United States to its jurisdiction for the
purpose of exercising control over the fund specifical-
ly vested by Congress in an executive branch of the
Government would inevitably result in ‘*inextricable
confusion and chaos.’’
In the light of the above authorities illustrating the
complicated and expensive procedure necessary to en-
force the stockholders’ personal liability through a
court receiver, it is plain that the Congress could
not have intended to burden the creditors of insolvent
joint stock land banks:
(a) with the expense of two receiverships,
(b) with the expense and uncertainty of ancil-
lary proceedings,
16
(c) with the delay incident to appointment of
a court receiver in a case where a statutory
receiver is already in existence acquainted
with the facts and competent to determine
claims and enforce the stockholders’ liabii-
ity under the direction of an executive de-
partment of the Government charged with
the execution of the law and the direction
and control of its administration, and
with the uncertainty, delay and expense
arising out of the necessity for a creditor
applying to a court for the appointment of
a judicial receiver to continue the liquida-
tion following sequestration of the assets of
the bank by its statutory receiver.
As stated by the Circuit Court of Appeals for the
Eighth Circuit in Krauthoff v. Kansas City Joint
Stock Land Bank (Appendix; infra, pp. 35-45) :
‘Tt is hardly to be presumed that Congress in-
tended in carrying out the purposes of this Act
to have various receivers for different kinds of
assets, resulting merely in inextricable confu-
sion and chaos. The Act should be carried out
according to its terms and not lose its efficiency
in a maze of philosophical technicalities. It
seems to us the Act is perfectly plain, that the
Farm Loan Board is charged with carrying out
its provisions and to see ‘that the moneys are
applied toward the satisfaction of the bonds.’ ”’
_ The interpretation suggested by counsel for the pe-
titioner would ignore the rule that all laws are to be
given a sensible construction and that where a literal
application of a statute would lead to absurdity or
where a particular construction of a statute would oc-
casion great inconvenience or produce inequality and
17
injustice, that view is to be avoided if a reasonable in-
terpretation can be given to it consistent with the leg-
islative purpose.
United States v. Katz, 271 U.S. 354, 357.
Knowlton v. Moore, 178 U. 8. 41, 77.
IV.
The Fundamental Question is the Scheme
Intended by Congress; and an Express
Grant of Power to Levy an Assessment is
Unnecessary, Being Implied, as Necessary,
to Effectuate the Scheme of the Act.
Petitioner contends (Petitioner’s Brief, pp. 4 to
18) that the particularization of powers granted the
Farm Loan Board and the failure expressly to vest
power in the Board to levy an assessment upon stock-
holders negatives the existence of such a power in the
Board and, therefore, none can be implied.
The fact that the Farm Loan Act vests specific du-
ties in the Farm Loan Board with reference to matters
upon which it is intended to have the Board act per-
sonally and not by delegation of its authority, should
hot prevent implication of a power of assessment. It
was wise to give form to the Act by vesting certain du-
ties specifically in the Farm Loan Board and this was
done without intending thereby to limit the general
powers of the Board.
The powers given to the Farm Loan Board under
the Farm Loan Act are much broader than those given
18
to the Comptroller under the National Bank Act. The
National Bank Act vests a large number of specific
duties in the Comptroller of the Currency (see sum-
mary thereof, infra page 21) ; and it grants no general
powers such as Section 1 and Section 17 (i) and (j) of
the Farm Loan Act (U. S. C. §§641, 831) confers.
There therefore is much greater reason for implying
powers in the Farm Loan Board than in the Comp-
troller.
The National Bank Act contains no provision au-
thorizing the Comptroller to make an assessment upon
stockholders in the case of an insolvent bank; yet this
court held such a power clearly implied.
Kennedy v. Gibson, 8 Wall. 498.
The statutes (U. S. C. Sec. 55) make express pro-
vision for assessment of stockholders of a national
bank only for payment or restoration of the capital
either because the capital is not paid up as required by
law or the capital stock has been impaired by losses.
This express statutory provision for assessment has
no relation to the stockholders’ personal liability for
debts of the bank.
Commercial National Bank v. Weinhard, 192
U. S. 243, 247, 252.
There is no express statutory provision in the Na-
tional Bank Act for the important function of deter-
mining the amount of the stockholders’ liability and
making an assessment. On the petitioner’s theory
(Petitioner’s Brief, p. 27) this absence of express
grant of power in the National Bank Act would re-
quire judicial proceedings for an assessment, presum-
ably by a proceeding in equity brought by the statutory
receiver.
19
However, this Court definitely settled the law to
the contrary, holding power implied in the comptrol-
ler to make a conclusive assessment.
Kennedy v. Gibson, 8 Wall. 498, 505.
Casey v. Galli, 94 U.S. 673.
U. 8. v. Knox, 102 U. 8. 422.
Bushnell v. Leland, 164 U. 8. 684.
Rankin v. Barton, 199 U. 8. 228.
Christopher v. Norvell, 201 U. 8. 216.
In reaching the conclusion that power to levy the
assessment must be implied in the Comptroller, this
court, in the Gibson case, 8 Wall. 498, laid most stress
on the delay which would result, the ‘‘large losses by
insolvency and otherwise in the intervening time’’;
the ‘‘time’’ which would be ‘‘consumed in the apyplica-
tion of these tests,’’ the necessity for a ‘‘speedy ad-
justment’’ as essential to ‘‘the efficiency and utility of
the law,’’ the fact that the interests of creditors re-
quired it, and that it ‘‘was the obvious policy and pur-
pose of Congress to give it.’’
These considerations apply equally in the case at
bar; but the reasons for implying power to levy a con-
clusive assessment apply much more strongly to the
Farm Loan Board than to the Comptroller because of
the wide general powers conferred on that Board.
20
ws
The Differences in Structure of the Nation-
al Bank Act and Farm Loan Act Make In-
ferences From the Phraseology of the
Former Inapplicable to the Latter.
THE STRUCTURE OF THE NATIONAL BANK
ACT, ADOPTED IN 1864, SHOULD NOT CON-
TROL THE INTERPRETATION OF THE FED-
ERAL FARM LOAN ACT, ADOPTED IN 1916.
Petitioner proposes to negative any implied power
in the Farm Loan Board because the receivership pro-
vision of the Farm Loan Act has no express clause on
stockholders’ liability such as is set forth in the Na-
tional Bank Act (Petitioner’s Brief pp. 22-25). His
argument rests essentially on a comparison of a single
section of each of the Acts, and it disregards the grant
of wide general powers to the Farm Loan Board and
the consequent difference in the structure of the Acts.
In considering the differences between the two Acts
one must keep in mind that the National Bank Act was
adopted in 1864 and the Farm Loan Act in 1916. One
great change in this interval was the development of
legislation delegating increasingly large powers to ad-
ministrative boards. This change is reflected in the
Farm Loan Act.
Examined in the light of this change in the method
of legislating, it will be seen that what was accomplish-
ed by one method under the National Bank Act (the
vesting of power in the Comptroller by a series of
21
specific details) was accomplished in the Farm Loan
Act by a different method (the vesting in the Farm
Loan Board of broad administrative powers).
An examination of the provisions of the National
Bank Act makes clear this difference in structure and
corresponding necessity for difference in construction
of the National Bank Act and the Federal Farm Loan
Act.
The fundamental duty of the Comptroller of the
Currency is to require compliance with the Statutes
regarding national bank notes and to keep accurate
watch of them. (U.S. C. §§1, 26-28, 101-110, 124, 132-
134, 137, 138, 151-153, 168-178, 185). So far as the af-
fairs of the bank are concerned, the Comptroller’s
powers are granted in a series of specific details, such
as approval of the bank’s name or location (U. S. C.
§§22, 30) ; definition of purchasable investment securi-
ties (U. S. C. §24); rules for acting as insurance or real
estate broker (U. S. C. §92); approval of stock divi-
dends or reduction of stock (U. S. C. §§58-59) ; ap-
proval of conversion of state bank (U.S. C. §35); or
action as to branches (U.S. C. §36); or consolidation
(U. S. C. §§33, 34, 34a). Further the National Bank
Act has great detail as to the general conduct of the
bank’s business (U.S. C. §4$55, 56, 60, 62, 81-89, 94, 121,
122, 125, 127, 141-146, 161-164).
No general grant of powers to the Comptroller is
contained in the National Bank Act.
—
The Federal Farm Loan Act on the other hand con-
tains a comprehensive general grant of powers to the
Farm Loan Board (F. L. A. §§1, 17 (i) and (j) U. 8. ©.
$§641, 831 see supra p. 11).
It follows naturally, therefore, that the National
Bank Act has more specific provisions as to a receiv-
ership than the Farm Loan Act.
Following out the scheme of specific powers, the
National Bank Act expressly gives the Comptroller
power, in the case of a receivership:
22
(a) To give notice to creditors (U. 8S. C.
$193),
(b) To approve claims (UU. 8. C. §194),
(c) To make ratable dividend of the mon-
ey paid over to him by the Receiver (U.
S. C. §194),
(d) To return any excess to the stockhold-
ers (U.S. C. $194),
(e) To pay the expenses of the receivership
out of the assets’of the Association (U.
8. C. $196),
(f) To call a meeting of stockholders after
payment of claims for the purpose of
determining whether liquidation shall
continue (U. 8. C. §197), and
(g) To protect equities in mortgaged or
— property (U. S. C. §§198, 199,
00).
In the Farm Loan Act none of these powers are ex-
pressly set forth but that Act has provisions (lacking
in the National Bank Act) which confer wide general
powers on the Farm Loan Board.
—
23
The petitioner disregards the wide grant of general
powers to the Farm Loan Board; he bases his ar-
gument solely on this difference in phraseology of the
grants of specific powers in the National Bank Act and
the Farm Loan Act and claims that lack of express
specification of such powers in the Farm Loan
Act evidences an intention to withhold them (See Pe-
titioner’s brief, pp. 14-15). |
Obviously application of such a rule of construction
would lead to chaos. Powers essential to even the lim-
ited receivership permitted by the petitioner’s theory
would be lacking (U. S. C. $§196, 198, 199, 200). The
impossibility of such a rule is evidenced by the costly
and unwieldy double receivership which the petitioner
is led to devise.
It becomes apparent, therefore, that any limitation
of the powers of the Farm Loan Board by reference to
the phraseology of the National Bank Act would be en-
tirely inconsistent with the purpose and tenor of the
Farm Loan Act and contrary to the Act’s plain con-
struction.
Far from the Farm Loan Act conferring less power
on the Farm Loan Board than the Comptroller has in
a receivership, as contended by the petitioner, the fact
is that the Farm Loan Act expressly shows an inten-
tion to give the Farm Loan Board greater power than
the Comptroller in such a case, because a national bank
receiver may make sales of assets only on order of a
court (U. S. C. §192) whereas a joint stock land bank
receiver may make sale on order either of a court or
the Farm Loan Board.
24
Section 29 of the Farm Loan Act (U. S. C. §961)
provides :*
[U. S. C. $961] ‘Such receiver, wnder the di-
rection of the Federal Farm Loan Board, shall
take possession of the books, records, and assets
of every description of such association, collect
all debts, dues, and claims belonging to it, and,
with the approval of the Federal Farm Loan
Board or upon the order of a court of record of
competent jurisdiction, may sell or compound
all bad or doubtful debts, and, on a like approval
or order, may sell all the real and personal
property of such association on such terms as
the Federal Farm Loan Board or said court
shall direct.’’ [Italics ours. ]
VI.
The Joint Stock Land Banks are Constitu-
tional Agencies of Government; and their
Administration Under the Direction and
Control of the Federal Farm Loan Board
Necessarily Implies a Sincle Receivership
and Enforcement of the Personal Liability
of Stockholders Under Direction of that
Board.
1.
Joint Stock Land Banks Were Created by the
Congress to Serve as Fiscal Agents of the Gov-
ernment ; They Were Created for Public and Not
Private Purposes.
The constitutionality of the Federal Farm Loan
Act was definitely established in Smith v. Kansas City
Title &€ Trust Company, 255 U. 8. 180, 209, 210, 211,
* The statement of this section at page 33 of petitioner’s brief
is inaccurate in omitting the words “with the approval of the
Federal Farm Loan Board or” and in substituting a capital
for a lower case initial letter in the following word: “upon.”
25
where the court held that the designation of joint stock
land banks as depositaries of public money and author-
ization of their employment as financial agents of the
Government brought them within the constitutional
power of the Congress to facilitate the fiscal operations
of the Government and that whether technically banks
or not, these organizations may serve the government-
al purposes declared by the Congress for their crea-
tion.
In accord:
Osborn v. Bank of the United States, 9
Wheat. 738, 860, 861.
Van Reed v. Peoples National Bank of Le-
banon, 198 U. §. 554
2.
Proper and Expeditious Administration of the
Affairs of Joint Stock Land Banks ts Essential
+ to the Fiscal Policies of the Government.
The rule was early laid down that national banks
as instruments designed to be used to aid the govern-
ment are within the discretionary power of the Con-
gress; and that the power of the Congress over these
banks is exclusive.
Farmers ¢ Merchants Natl. Bank v. Dearing,
91 U. S. 29, 33, 34.
The same principle applies to joint stock land banks.
a non
3.
The Congress Intended to Continue Govern-
mental Control Through Insolvency Proceed-
ings.
No one disputes the necessity for supervision of
joint stock land banks by the Federal Farm Loan
Board prior to insolvency. If the Congress has deemed
such supervision essential to furtherance of the fiscal
policies of the Government while joint stock land
banks are solvent, certainly the winding up and disso-
lution of such banks should be no less important in its
effect upon such policies.
That was the principle given effect in Cook Coun-
ty National Bank vs. United States, 107 U. S. 445, 448.
4.
The Farm Loan Board’s Powers are Exclusive.
On principle, it seems essential to preservation of
the constitutional purpose of joint stock land banks to
assist in the fiseal operations of the Government, that
the courts refuse to interfere with the officers of the
Government vested with authority to supervise and
direct these agencies.
Krauthoff v. Kansas City Joint Stock Land
Bank, 23 Fed. (2d) 71, (C. C. A. 8th Cir.
1927).
In similar cases involving the administration of in-
solvent national banks the courts have held the admin-
27
istrative machinery established by Congress to be ex-
clusive.
Liberty National Bank of South Carolina v.
McIntosh, 16 Fed. (2d) 906, 909-10 (C.
C. A. 4th Cir. 1927).
Gockstetier vy. Williams, 9 Fed. (2d) 354,
396 (C. C. A. 9th Cir. 1925).
Altman v. McClintock, 20 Fed. (2d) 226,
229, 231 (Dist. Ct., Dist. of Wyo. 1927).
5.
The Stockholders’ liability is to be applied With
and in Aid of the Assets of the Bank Toward the
Satisfaction of Its Obligations.
As above set forth, we believe it clear that the Fed-
eral Farm Loan Act intends the administration of joint
stock land banks to be under the exclusive direction and
control of the Federal Farm Loan Board. Such ex-
elusive direction and control in the case of insolvency
necessarily imports that the Farm Loan Board should
have exclusive direction of the means of realizing pay-
ment of the Bank’s obligations. This inclusion is em-
phasized by the fact that the great mass of every joint
stock land bank’s obligations necessarily are its bonds
which are provided for specially and in detail by the
Farm Loan Act. (F. L. A. §$16, 18, 19, 20, 21, U. S.C.
§§814; 816-821; 841-864.)
As stated by this Court with reference to the simi-
lar stockholders’ liability of national banks in Rich-
mond v, Irons, 121 U. 8. 27, 50: ‘‘ Admitting that this
liability [of the stockholders] is not strictly an asset
28
of the bank, . . . yet it is treated as a means of ereat-
ing a fund to be applied with and in aid of the assets
of the bank toward the satisfaction of its obligations.”
The case of McNeill v. Pace, 69 Fla. 349; 68 So. 177,
(1915) evidences the tendency of the courts where the
statute permits of such a construction to hold that a
statutory receiver may enforce the stockholders’ per-
sona! liability.
The petitioner himself recognizes that the levy of
an assessment upon stockholders and the enforcement
of the collection of the stockholders’ liability by suit
at law are among the powers which ‘‘all relate to the
liquidation and winding up of the bank and are essen-
tial to that operation.’’ (Petitioner’s Brief, p. 15).
6.
Purpose Indicated in Heading of Section 29 of
Act.
Section 29 of the Farm Loan Act (U.S. C. $961) is
designated as providing for ‘‘Dissolution and Appoint-
ment of Receivers’. An examination of Section 29
discloses the purpose of the appointment of a receiv-
er to be the winding up and dissolution of the corpora-
tion. From this it would seem to follow that an in-
terpretation which authorizes the receiver completely
to administer the affairs of the bank should be favored
over one which requires enforcement of the stock-
holders personal liability and distribution of the as-
gets of the bank in a separate proceeding in a court of
equity.
Krauthoff v. Kansas City Joint Stock Land
Bank, 23 Fed. (2d) 71 (C. C. A. 8th Cir.
1927).
State ex rel. Stone v. Union Stock Yards
etc. Bank, et al., 108 Ia. 549; 70 N. W. 752.
Wilson et al v. Book, 13 Wash. 676; 43 Pac.
939,
-_~-
7.
Payment of Assessments Without Suit Should
be Possible.
Certainly, there should be some place where a stock-
holder can pay the assessment without suit, and the
logical person for this purpose and for the enforce-
ment of the liability is the statutory receiver, appoint-
ed by the Federal Farm Loan Board .
>
8.
Right of Offset Against Dividends on Bonds
Held by Stockholders Should be Preserved.
Further if the statutory receiver is not the proper
party to enforce the stockholders’ liability, then the
right to offset dividends on bonds or other claims in
the hands of stockholders may be lost.
See—
King, et al. v. Armstrong, 50 Ohio State 222 ;
34 N. E. 163.
Hynes v. Illinois Trust & Savings Bank et
al., 226 Til. 95; 80 N. E. 753; 10 L. RB. A.
(N. S.) 472.
VIL.
Construction of Act by Farm Loan Board.
The construction here maintained by the respond-
ent is that adopted by the Federal Farm Loan Board
(Ree. p. 4) and such construction should be given great
weight, particularly where, as in this case, administra-
tion of the law is under ‘‘the direction and control’’
(Farm Loan Act §1 U. S. C. 9641) of the Board, the
Board is ‘‘charged with the execution of this Act’’
and broad supervisory and incidental powers are vest-
ed in it by express provisions of the act.
Federal Farm Loan Act, §§1, 3,17 (i) and (j)
29. (U. S. ©. §§641, 651, 831 (i) and (j),
961 and 962.)
This court will, if possible, follow the construction
placed on a statute by the department of the govern-
ment charged with its execution, particularly where the
statute itself directs such department to make the nec-
essary regulations to carry it into effect.
Jacobs v. Prichard, 223 U. 8. 200, 213.
U.S. v. Hermanos y Compania, 209 U. 8. 337,
Swigart v. Baker, 229 U. S. 187,
Blanset v. Cardin, 256 U. 8S. 319,
National Lead Co. v. U. S., 252 U. 8. 140.
31
VIII.
Cases Under Other Statutes.
1,
Cases Arising Under State Statutes are Prac-
tically Irreconcilable and are not Controlling
Here.
Fundamentally in cases arising under state laws
the essential question always is the scheme intended by
the legislature; in other words, what liability did the
legislature intend to create and what remedy did the
legislature intend therefor?
Terry v. Little, 101 U. 8. 216, 217.
In considering decisions under state laws, the pe-
culiar phraseology of the state act must be kept in
mind, such as whether the liability is ‘‘to creditors’’
or ‘for debts,”’ ete., and what, if any, remedy the state
statutes provide, expressly or impliedly.
Patterson v. Lynde, 106 U. 8. 519 at 520.
Where the law fails to provide for a statutory re-
ceiver to administer the affairs of the insolvent cor-
poration, a proceeding by creditors’ bill necessarily is
the only available remedy and the authorities so hold-
ing are not in point here.
A statutory receiver ‘‘to close up the affairs of the
company’’ has been held to have power to enforce the
double liability under language similar to that here.
McNeill v. Pace, 69 Fla. 349; 68 So. 177.
In accord:
Wilson v. Book, 13 Wash. 676, 43 Pac. 939.
—ey
This is so, even where the liability is ‘‘to cred-
itors.’’
State ex rel Stone v. Union Stock Yards, etc.,
Bank, 103 Ia. 549, 70 N. W. 752, 753.
In cases arising under state statutes, the federal
courts deal with the matter as the construction of a
state statute and follow the state rules, and that is the
first point for consideration.
Terry v. Little, 101 U. 8. 216, 217.
The controlling governmental interest in admini-
stration present in the case of constitutional agencies
of the Government, such as joint stock land banks, is
not present in the case of ordinary corporations form-
ed under general state laws. Every presumption
should be in favor of complete administration by the
Government where, as in this case, such administra-
tion is obviously in furtherance of the constitutional
purpose.
2.
The Federal Authorities Cited by Petitioner, so
far as They are in Point, Sustain the Right of
the Statutory Receiver to Sue.
In Richmond v. Irons, 121 U. 8. 27 (cited in Peti-
tioner’s Brief, p. 28) no statutory receiver had been
appointed and a creditors’ bill was the only method
for enforcement of the liability.
a
The case of King v. Pomeroy, 121 Fed. 287 (cited in
Petitioner’s Brief, p. 21) is distinguishable on similar
grounds.
Both of these cases in fact lend their support to the
interpretation of the law which, in a case where a stat-
utory receiver has been appointed, would permit such
receiver to enforce the personal liability of stockhold-
ers.
es 33
In both of these cases (Irons Case, 121 U. S. 27, 49
and Pomeroy Case, 121 Fed. 287, 291) the court speaks
of the enforcement of the stockholders’ liability as a
part of the liquidation of the bank, at least so closely
connected with it as to constitute parts of one series of
transactions.
Further, these cases must be read in the light of the
fact that a statutory receiver of a bank represents
creditors as well as the corporation and should enforce
all rights.
Kennedy v. Gibson, 8 Wall. 498, 506.
CONCLUSION.
The whole argument of the petitioner reduces it-
self to an inference from omission in the Farm Loan
Act of the express provision for enforcement of the
stockholders’ liability set forth in the National Bank
Act. The argument overlooks the fact that even under
the National Bank Act the Comptroller’s power of as-
sessment of this liability is implied; it ignores the
broad general powers given to the Farm Loan Board
which are not given to the Comptroller; and it disre-
2 ——aeaeEEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeeEeEeEeEeEeEeEeEeEOeeee — eee eee ee EOE OOOO OOO —_
a, a a eh
ene
34
gards the confusion, delay and waste that would result
from this construction.
No reasonable construction of the Act can justify a
second receivership; the existence of the statutory re-
ceiver acting under the direction of the Farm Loan
Board, vested by statute with the broadest powers of
administration and liquidation necessarily excludes
any possibility of an accompanying judicial receiver-
ship. The Congress certainly could not have intended
so peculiar or unusual a result; on the contrary the in-
tention of the Act is plain to vest the right to enforce
the stockholders’ persona liability in the receiver ap-
pointed by the Farm Loan Board.
The question involved is essentially one solely of
procedure. The construction of the Act is plain. The
decisions of the Circuit Court of Appeal are in accord
and in conformity with applicable decisions of this
court; and the receivership ought not to be subjected
to the expense and delay of continuance of the litiga-
tion.
We respectfully submit ‘that the petition for a writ
of certiorari should be denied.
EDWIN S. MACK,
ARTHUR W. FAIRCHILD,
Counsel for Respondent.
35
Appendix
UNITED STATES CIRCUIT COURT OF APPEALS
EIGHTH CIRCUIT.
No. 8151.—December Term, A. D. 1928.
EDWIN A. KRAUTHOFF,
Appellant,
Vs.
KANSAS CITY JOINT STOCK LAND BANK OF
KANSAS CITY, MISSOURI, et al.,
Appellees.
Appeal from the District Court of the United States
for the Western District of Missouri.
Before Kenyon, Circuit J udge, and Johnson and Mc-
Dermott, District Judges.
KENYON, Circuit J udge, delivered the opinion of the
court.*
The Kansas City Joint Stock Lend Bank organ-
ized, under the Federal Farm Loan Act, became in-
solvent in 1927, and was by the Federal Farm Loan
Board, under the provisions of the Federal Farm Loan
Act (12 U.S. 0. A, Chap. 7, sections 961 and 963),
placed in the hands of a receiver, who took possession
* Foot Note: Inasmuch as the opinion of the court covers a
number of questions, parts of the opinion bearing on the
principles involved in the enforcement of the stockholders’
double liability have been printed in blackface type.
———ay
of all the assets of the Bank of every description. Ap-
pellant after that time purchased certain of the bonds
of said bank for the express purpose, as admitted in
his argument in this Court, of bringing suits thereon
for himself and for clients whom he hoped to secure.
Two of these he brought as plaintiff in the District
Court of the United States for the Western District
of Missouri, the numbers of which in this Court are
7874 and 7939, and will be designated herein by those
numbers, one in the District Court of the United
States for the District of Kansas (No. 7938, this
Court), and one was brought by a stockholder named
Raab in the District Court of the United States for
the Western District of Missouri, in which appellant
was attorney for the plaintiff (No. 7875. this Court).
The defendants were substantially the same in all of
these cases. The real object and purpose of these four
suits was to oust the receiver appointed by the Fed-
eral Farm Loan Board, and to substitute a receiver
appointed by the Court to take charge of the assets.
The previous suits were dismissed by the trial courts,
and their action was affirmed by this Court (23 F. (2d)
71 and 73), with a modification in one of them upon
petition for rehearing inat the dismissal by the Dis-
tr ct Court be without prejudice.
This Court decided in these cases that the Act
- under which the Kansas City Land Stock Bank was
created prescribed the manner in which it should be
wound up in case of insolvency; that the situation
was similar to the insolvency of a national bank; that
the receiver appointed by the Board was a public offi-
cer, and that he was in possession of the assets in dis-
37
charging his duty at the time the suits were brought,
and that the Court had no right to interfere with such
receiver in the proper discharge of his duties. In
Cases numbered 7874, 7875 and 7939 (23 F. (2d) 71),
argued and decided together, this Court said that
questions might arise during receivership that would
require judicial determination. 3
Appellees urge that every question involved in the
present case has been determined in some of the previ-
ous ones between substantially the same parties.
We have examined appellant’s brief of 198 pages,
which <vidences much research and philosophical med-
zation, to discover what, if any, issues are now pre-
sented that have not been passed on by this Court in
some of these cases.
As a type of the various cases, we refer to Case No.
7874. There the prayer of the petition is almost iden-
tical with the prayer for relief in this ease. In that
case appellant asked judgment against the Land Bank
in the sum of $5,000 with interest, and for a lien upon
the assets in the hands of the registrar, Ryker; that
he have judgment for his interest in the trust fund,
and that the same be ascertained; that the Court ap-
point a receiver to take possession of the bank’s prop-
erty of every kind and character, including that
pledged as security for the bonds; that the total
amount of bonds be ascertained, together with owner-
ship; that an accounting and discovery be had of all
transactions of the Kansas City Joint Stock Land
Bank, or of any individuals or corporations in connec-
tion therewith. These matters are all covered by the
prayer in this suit, which however asks in addi-
tion that the receiver to be appointed be invested
ah
with authority in equity to enforce the outstand-
ing stockholders’ liability due and owing by the
stockholders of the Kansas City Joint Stock Land
Bank of Kansas City. This question was however
referred to in the former opinions of this Court,
and was in fact the basis of Suit No. 7939. On
that subject this Court said (Krauthoff v. Kansas
City Joint-Stock Land Bank, 23 F. (2d) 71,
72-73): “It cannot be thought that there was
any other purpose in making the assets of the
insolvent bank subject to the order of the board
than the use of them,—and the stockholder’s lia-
bility if necessary,—in settlement of the insolvent
estate,_to pay the bank’s debts; nor could those
debts be paid until its creditors and the amount
due each should be ascertained. A receiver ap-
pointed by the Comptroller must report to him,
and a receiver appcinted by the board must report
to it.”’
Appellant devotes some seventy-four pages of his
brief to the question of pledged assets. This question
was in Case No. 7938, appeal from the District Court
of Kansas. Judge Pollock in the District Court said
that the ‘‘Receiver is entitled to the possession of the
securities pledged back of ‘he bonds now outstanding,
either in this jurisdiction or any other jurisdiction or
location, and in my opinion they are no more subject
- to be wrested from his possession and control by a re-
ceiver appointed by this court than by any other per-
son. As the law under which the bonds owned by
plaintiff were issued so provides, it must be held, in
my judgment, this court is powerless at the suit of
plaintiff, who, by the very act of purchasing the bonds,
Sea
3S
consented a receiver, appointed as was defendant
Compton, should in case of insolvency of the Bank,
take possession and hold the same to be applied as the
law directs.’’ This Court upheld that decision and in
a per curiam opinion said: ‘‘It (the suit) was brought
by a creditor who owned bonds issued by Kansas City
Joint Stock Land Bank of Kansas City, Missouri, in
his own behalf and in behalf of all other creditors who
might wish to join in the suit. The bill asks the court
to appoint a receiver of the farm mortgages and
United States Government Bonds pledged with C. A.
Ryker, registrar, as security for the payment of the
bonds. Ryker resides at Wichita, Kansas, and the
suit was brought in that district because that was the
situs of the property that appellant sought to have
impounded in receivership. The ultimate relief sought
was the same as that in the other cases.’’ A petition
for rehearing therein was denied. So it appears the
question of pledged collateral and its protection was
before this Court in the prior cases.
It is entirely within bounds to say that every ques-
tion presented on this appeal has been passed on by
this Court in one or the other of the former appeals
in cases between the same plaintiff (appellant here)
and substantially the same defendants (changes in de-
fendants being merely nominal). The only difference
in this case is that while in the other suits brought by
the appellant ae sued on five bonds; here he adds an
additional bond of $1,000, on which it is alleged that
the interest due is unpaid.
In Case No. 7874, this Court said: ‘“‘The board
found the joint-stock bank to be in default of its obli-
gatious, that it was insolvent, and in May, 1927, placed
40
it in the hands of William R. Compton as its receiver.’’
Therefore it appears that when that case was consid-
ered there had been defaults upon the part of the bank
in the payment of its obligations, and in the bill in
Case No. 7874 is this allegation: ‘‘plaintiff further
states that on or about the 1st day of May, 1927, the
Kansas City Joint Stock Land Bank of Kansas City,
Missouri, made default of its outstanding Federal
Loan Bonds, the interest of which had matured on
that date.’’ So that while the specific question of de-
fault in interest on this bond was not before the court
in the former appeals, the cases were considered on
the theory that defaults in the obligations of the Land
Bank had occurred.
Notwithstanding the fact that appellant in its reply
brief states that it does not in this action seek to sub-
stitute a Court receivership for the statutory receiver-
ship, and that it is asking the court to compel a statu-
tory receiver to fully discharge his duties and to ap-
point a receiver only in case the present receiver does
not discharge his duty as receiver as ordered by the
Court or as lacking in the power to do so, we are sat-
isfied that the whole purpose of this bill, as in the
other cases, shows that this is exactly what has been
and is sought to be done. The only way that appellant
ean work out the theories he has advanced in his brief
_ js to secure the displacement of the present receiver
and to have one appointed by the Court. This suit is
to all intents and purposes the same as Case No. 7874;
though perhaps dressed in a slightly different garb, it
is merely an ingenious attempt to retry questions that
were supposed to have been determined in that case.
en 41
This case would end here by application of the doc-
trine of res judicata, Cromwell v. County of Sac, 94
U. S. 351; Radford v. Myers, 231 U. S. 725; Hart
Steel Co. v. Railroad Supply Co., 244 U. S. 294; United
States v. Moser, 266 U. 8. 236; North Carolina R. R.
v. Story, 268 U. S. 288; Union Cent. Life Ins. Co. v.
Drake, 214 F. 536, were it not that on rehearing in
Cases numbered 7874, 7875 and 7939, this Court said:
‘On Consideration Whereof, It is now here ordered
by this Court that the decree of this Court entered on
November 28, 1927, be, and it is hereby, modified and
amended so as to provide that the dismissal of the ac-
tion in the District Court of the United States for the
' Western District of Missouri, be without prejudice
and thus modified the decree of said District Court will
stand affirmed by this Court in accordance with the
opinion heretofore filed on November 23, 1927.”?
Appellant urges in its brief that the Court modified
the affirmance by providing that the dismissal be
‘without prejudice’’, thus recognizing that in another
case involving the same subject matter other issues
might be presented. It is doubtful if the binding ef-
fect of the doctrine of res judicata was not destroyed
by the modification of the Court upon rehearing. We
do not think the Court intended that the useless per-
formance of trying the same case over again was to
be indulged in. It had tried in its opinion to guard
against any contention that its holding ‘iaited a court
of competent jurisdiction from consideration of ques-
tions that might arise during the receivership. We
have examined the petition for rehearing in Case No.
7874, and the same questions as argued upon the hear-
—
. 42
ing were reiterated there, but it was especially called
to the attention of the Court that it had not made clear
whether or not defendants would be subject to suit
under proper circumstances calling for judicial inter-
ference, and we think that is what the Court desired
to make clear in granting the modification of the opin-
ion. However the language of the modification is
broad and this Court in Harrison v. Remington Paper
Co., 140 F. 385, 399, said: ‘Rulings and decisions in
the course of an action which is finally dismissed with-
out prejudice adjudge nothing because the final jadg-
ment by its terms ig that nothing has been adjudicated,
and this fact is the only res adjudicata. Such a judg-
ment determines that the parties are left as free to
litigate every issue in the action dismissed as they
would have been if it had never been commenced.”’
In No. 7938, the case from Kansas, no rehearing
was granted, so the matters there determined stand as
res judicata.
While probably the holding of this Court in Num-
bers 7874 and 7939 cannot ‘technically be regarded as
res judicata because of the order on rehearing, yet the
reasoning of the Court is entirely in accord with our
present conclusions as to the matters there discussed
and here involved.
As to the question of a Court receiver to en-
force the stockhelders’ liability under the Federal
Farm Loan Act, since the former decisions, the
Court of Appeals of the Seventh Circuit in the
case of Green, Receiver, v. Wheeler, decided
December 13, 1928, has held that a receiver ap-
pointed by the Federal Farm Loan Board has the
power to make an assessment againt the stock-
43
holders similar to the power of the Comptroller
under the National Banking Act to make assess-
ments against stockholders of a bank, and said:
‘‘We are of opinion that, without specific provi-
sion for suit by the receiver against the stockhold-
ers, the purpose of the Farm Loan Act was to pro-
vide a continuous, effective and complete means of
liquidating the debts of insolvent concerns under
the supervision, direction and control of the
Board.’’ With this we agree.
On the question concerning pledged securities and
the protection of pledged collateral, we have before
referred to the holding of the Kansas District Court
affirmed in this Court in No. 7938, which opinion has
been in no way modified.
On page 159 of appellant’s brief, he states: ‘‘The
appointment of a receiver is merely incidental to the
relief prayed by the plaintiff. The assets for which
the appointment of a receiver is prayed, are the assets
which are pledged for the payment of the bonds, as-
sets in which the defendant Langworthy, as statutory
receiver, has no right of possession, unless and unti!
the debt for which such assets were pledged has been
paid. It is not contended in the present suit that the
District Court has the power to appoint a receiver for
any assets within the lawful possession of the statu-
tory receiver under the Federal Farm Loan Act’’. We
think there is lack of merit in this contention. The
Federal Farm Loan Act is a broad one, seeking to
carry out a public purpose. It provides, section 961
(U. S. C. A. Title 12, Chap. 7, See. 961): ‘‘Such re-
ceiver, under the direction of the Federal Farm Loan
Board, shall take possession of the books, records, and
a,
44
assets of every description of such association, collect
all debts, dues, and claims belonging to it, and, with
the approval of the Federal Farm Loan Board, or
upon the order of a court of record of competent juris-
diction, may sell or compound all bad or doubtful
debts, and, on a like approval or order, may sell all the
real and personal property of such association, on
such terms as the Federal Farm Loan Board or said
court shall direct.’’? This provision covers all assets.
It is hardly to be presumed that Congress intend-
ed in carrying out the purposes of this Act to have
various receivers for different kinds of assets, re-
sulting merely in inextricable confusion and chaos.
The Act should be carried out according to its
terms and not lose its efficiency in a maze of phil-
osophical technicalities. It seems to us the Act is
perfectly plain; that the Farm Loan Board is
charged with carrying out its provisions and to see
' ‘that the moneys are applied toward the satisfac-
tion of the bonds.”’
We may say further that we are not impressed with
appellant’s standing in a court of equity. He pur-
chased his bonds after the Board had appointed a re-
ceiver, and frankly admits in argument that he did so
for the sole purpose of bringing lawsuits and attract-
ing legal business. If appellant when he purchased
the bonds was in quest of lawsuits, such quest has been
entirely successful. He knew when he made the pur-
chases that under the provisions of the Farm Loan Act
a receiver could be appointed by the Farm Loan Board
to take charge of all the assets of the insolvent bank.
It was in the bondholder’s centraet that the receiver,
with the approval of the F. val Farm Loan Board,
),
or upon the order of a court of record of competent
jurisdiction, could sell the real and personal property
of the bank on such terms as the Federal Farm Loan
Board or the Court should direct. It would seem that
appellant was not therefore in a position to question
the appointment of a receiver by the Farm Loan
Board. We do not mean to say, nor did this Court, in
iis previous opinions hold, that no questions could
arise in relation to liquidating the affairs of the Farm
Loan Bank that might be the subject of judicial deter-
mination. The Farm Loan Board and its receiver are
not immune from all judicial process or control. Ap-
pellant as a bondholder has been denied no rights and
there is no ground for the intervention of a court of
equity up to this time. While there are some general
allegations of fraud in appellant’s bill, nothing is al-
leged that would constitute fraud or show that the re-
ceiver was not fairly attempting to protect all inter-
ests antrusted to him. We think this case is totally
without equity and the trial Court was right in dis-
missing the same.
45
Affirmed.
Filed February 20, 1929.
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.