Motion — Broderick v. Rosner

INDEX. % ‘=

I. Preliminary statement .......:....2..........

7; DL .ccceuunuteteas dees eee enh' Gn ous ..

DGMATY OF GUUMRGME. «occ ccccccccccccsecesccecs 4

DUE EE cccncceseadtedeeteesescuecesesensesbesess 6 :

Under Article XIII, Section 3, of the Ohio Con- Me

stitution, and Sections 710-75 and 710-95, Gen- 7. ©

eral Code of Ohio, as interpreted by the Ohio :

courts, all stockholders of Ohio banks are sub- / 7

ject to a constitutional and statutory double~ 4

liability sebesdueeene peuéevendasenecseunei 5 A

NEN 2 cl cce cess) shane casedeheederaenkees 10 }

~ Under Sections 710-75 and 710-95, General Code '

of Ohio, as construed by the courts of Ohio,

the determination of the necessity for and the y

amount of stockholders’ assessments by the \ “x

superintendent of banks is an official or public ‘*

act and cannot be controverted in an action & :

brought to recover stockholders’ liability... 10 :

i

en ace deed seunscestesCeccees

Under Article IV, Section 1, of the United States

Constitution, New Jersey is required: (1) to

permit enforcement against stockholders of

Ohio banks residing in New Jersey of the lia-

bility provided under Article XIII, Section 3,

Ohio Constitution, and Sections 710-75 and

710-95, Genera! Code of Ohio; and (2) to ree-

ognize the official determination by the Ohio

superintendent of banks of the necessity for

such assessment, made pursuant to Sections

710-75 and 7)0-95, General Code ‘of Ohio

PEE bedbedbbeceetendacbdaeceetuesteecepetes.

The requirement of Section 94b, New Jersey

Corporation Act, that the assessment may only

be enforced through an accounting in an ac-

tion initiated by a bill in equity, denies to the

determination by the Ohio superintendent of

banks that conclusive effect which attaches to

such determination under the laws of Ohio...

: Conclusion

ee ee

Appendix

i es

Table of Cases Cited.

Aber v. Maxwell, 140 Ark., 203, 215°S. W., 389

Andrews v. State, ex rel., 124 O. S., 348............

Barrick v. Gifford, 47 O. S., 180, 24 N. E., 259.......

Baumgardner vy. State, ex rel., 48 O. App., 5, 192 N. E.,

‘349, motion to certify overruled sub nom Bender

v. State ex rel., No. 24861.............. 8, 9, 11,

ii

19

21

21

17

Blair v. Newbegin, 65 O. S., 425... +6... eee eee e ees

Bronson v. Schneider, 49 0. S., 438, 33 N. E., 233.... —

Bushnell v. Leland, 164 U. S., 684........-----0e5

Commissioner of Banks v. McKnight, 281 Mass., 467,

Feldman v. Standard Trust Bank, 46 O. App., 67, 187

N. E., 743, motion to certify overruled, 127 O. S.,

OR. . ccccvccccocccveccncedesesecqettetesse 7,

Fulton v. Wetzel, 47 O. App., 72, 190 N. E., 776, aff'd.

128 O. S., 109, petition in error dismissed “5 S.

Ct., 207, rehearing denied 55 8S, Ct., 236...... 7,

Gale v. Priddy, 66 O. S., 400, 64 N. E., 437..........

Hancock v. Farnum, 176 U. S., 640..........--+++:

Houston Nat. Ex. Bank v. Chapman, 263 S. W., 929

(Tex. Civ. App.).- 0... .eceereceeeeereeeeeees

Kennedy v. Gibson, 75 U. S., 476, 8 Wall., 498.......

Kulp v. Fleming, 65 O. BD, Th. cccccccccccscccess 8,

Lang v. Osborn Bank, 100 O. S., 51, 125 N. E., 105. .6,

Morgan v. Lewis, 49 O. S., 1, 17 N. E., 558.......---

Snider v. United Banking & Trust Co., 124 O. S., 375

State Bank of Portland v: Gotshall, 121 Ore., 92....

State, ex rel. v. Addams, No. 399, 558, Court of Com-

mon Pleas, Cuyahoga county, Ohio, decided July

9, 1934, unreported... .......-..0eeeeeeerreees

State, ex rel. v. Cole, 14 Ohio Law Abstract, 464....

State, ex rel. v. Snyder, 17 Ohio Law Abstract, 193,

petition in error dismissed 128 O. S., er

State ex rel. v. Weinberger, 44 O. A., 264, 185 N. E.,

OD ng ci ccucveceucevecevsuceseneceteteeecens

ll

il

11

11

Thompson v. State, ex rel.,e119 Okla., 166, 248 P.,

St siatsancweenetadcknscsentsadaadesusanwee

Tunnicliffe v. Noyes, 101 Fla., 794, 135 S., 505......

Whitman v. National Bank of Oxford, 179 U. 8., 559

Younglove v. Lime Co., 49 O. S., 663, 33 N. E., 234... .

Table of Statutes.

Section 710-75, General Code of Ohio: -.......... 3,

Section 710-89, General Code of Ohio............

Section 710-95, General Code of Ohio..............

Section 710-100, General Code of Ohio.............

Section 94b, New Jersey Corporation Act (Ch. 50, p.

ee ae a aa viidecivecdserneciuseadees

Section 32, et seq., 'Chapter 23, General Statutes of

CS) ae a a ey! MA Ae AE Reet

Section 5151, U. S. Revised Statutes (Sec. 63, Title

ys Be, Serr rrr rT Davssueneweuw

United States Constitution. _

}

Article IV, Section 1, United States Constitution. ..

Ohio Constitution.

Article XIII, Section 2, Constitution of Ohio.......

Article XIII, Section 3, Constitution of Ohio........

iv

10

10

to

“Te

IN THE

Supreme Court of the United States

OCTOBER TERM, 1934.

JOSEPH A. BRODERICK, SUPERINTENDENT OF.

BANKS OF THE STATE OF NEW YORK,

Appellant,

vs.

| MARY ROSNER, ESSIE R. STONE, CAMILLA

LOWRY, ET AL.,

Appellees.

MOTION FOR LEAVE TO FILE BRIEF AS AMICUS

CURIAE. |

May It Please the Court: ;

The undersigned, as counsel for Samuel H. Squire,

superintendent of banks of the state of Ohio, respectfully

moves this honorable court for leave to file the accom-

panying brief as amicus curiae.

JOHN W: BRICKER,

Attorney General of Ohio,

Counsel for Samuel H. Squire, Superintendent of Banks

of Ohio, as Amicus Curiae.

Of Counsel :

W. DALE DUNIFON,

First Assistant Attorney General.

J. ROTH CRABBE,

Assistant Attorney General.

BRIEF OF JOnN W. BRICKER, ATTORNEY GEN.

ERAL OF OHIO, AS AMICUS CURIAE.

I.

PRELIMINARY STATEMENT.

There are now pending in the United States District

Court, District of New Jersey, three suits instituted by

the state of Ohio upon the relation of its superintendent

of .banks, seeking recovery of constitutional and statu-

tory liability imposed wpon residents and citizens of

New Jersey, as owners of capital stock of certain Ohio

banks now in the possession of “the superintendent of

banks of Ohio for liquidation. These cases are State

of Ohio ex rel. v. Anna H. McMaster, Law No. 3648;

State of Ohio ex rel. v. Mame C. Holbrook, Law No. 3649;

State of Ohio ex rel. v. Montclair Trust Co., etc., Law No.

The first two of these cases are pending upon motions

to strike out the complaints, such motions being in the

nature of demurrers. In support of these motions the

respective defendants urge the application of Section 94b

of the New Jersey Corporation Act (Ch. 50, p. 124, P. L.

1897), the validity of which is challenged by the appel-

lant in this case. The third of the pending actions has

recently been filed but it may reasonably be expected

that a similar defense will be urged therein. The as-

sessed liability sought to be recovered in the three cases

exceeds $45,000,

7

The Security-Home Trust Co., Toledo, Ohio, and The

Guardian Trust Co., Cleveland, Ohio, stockholders of

which are defendants in the above litigation, as well as

The Union Trust Co., Cleveland, Ohio, and The Standard

Trust Bank, Cleveland, Ohio, are all in the possession

of the superintendent of banks of Ohio for liquidation

under Section 710-89, General Code.* The superintend-

ent has levied an assessment against all of the stock-

holders of each of these banks, pursuant to Article XIII,

Section 3, Ohio Constitution, and Sections 710-75 and

710-95, General Code of Ohio. A number of stockholders

of each of these banks reside in the state of New Jersey.

Unless Section 94b of the New Jersey Corporation Act

is declared invalid by this court, it is manifest that the

superintendent of banks of Ohio is precluded from te-

covering upon such assessments by an action at law in

the courts of New Jersey, although such assessments

have been validly levied under the law of Ohio.

By the points made in our argument, we shall seek to

establish the proposition that Section 94b of the New Jer-

sey Corporation Act and the final judgment of the court

below, based thereon, will result in denial of the full

faith and credit required under Article IV, Section 1,

of the Constitution of the United States, to Article XITI,

~ Section 3, of the Constitution of Ohio, and Sections 710-75

and 710-95, General Code of Ohio, and to the public act

of the superintendent of banks of Ohio, pursuant thereto,

in levying an assessment against the stockholders of

banks organized under the laws of Ohio now in his pos-

‘ session under Section 710-89, General Code of Ohio.

*All pertinent Ohio Constitutional and statutory provisions appear in the

Appendix. ie

~~}

Il.

ARGUMENT.

SUMMARY OF ARGUMENT.

Point A.

Under Article XIII, Section 3, of the Ohio Constitution,

and Sections 710-75 and 710-95, General Code of Ohio,

as interpreted by the Ohio courts, all stockholders of

Ohio banks are subject to a constitutional and statutory

double ltability.

Point B.

Under Sections 710-75 and 710-95, General Code of

Ohio, as construed by the courts of Ohio, the determina-

tion of the necessity for and the amount of stockholders’

assessments by thg superintendent of banks is an official

or public act an@ cannot be controverted in an’ action

brought to recover stockholders’ liability.

Point C.

Under Article IV, Section 1, of the United States Con-

stitution, New Jersey is required: (1) to permit enforce-

ment against stockholders of Ohio banks residing in New

Jersey of the liability provided under Article XIII, See

tion 3, Ohio Constitution, and Sections 710-75 and 710-95,

_ General Code of Ohio; and (2) to recognize the official

lial

determination by the Ohio superintendent of banks of the

neeessity for such assessment, made pursuant to Sections

710-75 and 710-95, General Code of Ohio.

Point D.

The requirement of Section 94b, New Jersey Corpora-.

tion Act, that the assessment may only be enforced

through an accounting in an action initiated by a bill in

equity, denies to the determination by the Ohio superin-

tendent of banks that conclusive effect which attaches to

such determination under the laws of Ohio.

POINT A.

ee meee!

Under Article XIII, Section 3, of the Ohio Constitution,

and Sections 710-75 and 710-95, General Code of

Ohio, as Interpreted by the Ohio Courts, All Stock.

holders of Ohio Banks Are Subject to a Constitu-

tional and Statutory Double Liability.

Since all sections of the Ohio Constitution and General

C‘ode applicable to the issues of this case are quoted in

tite Appendix hereto, reference will be made only to the

pertinent portions thereof in the body of the brief.

The history of double liability of stockholders in Ohio

dates back to the Constitution of 1851. In that Constitu-

tion there appeared what was known as Section 3 of Ar-

ticle XIII, the pertinent provisions of which are as fol-

lows:

‘*Dues from corporations shall be secured by such

individual liability of the stockholders, and other

>.

. 6

° ’

means, as may be prescribed by law; but, in all cases,

such stockholder shall be.Jiable, over and above the

stock by him or her owned, and any amount unpaid

thereon, to a further sum, at least equal in amount

to such stock.’’

This constitutional provision affected stockholders of

all corporations, including banks, and was in effect from

1851 to 1903 in the same form as originally enacted. In

1903 the provision for double liability on stock was re-

pealed and from 1903 until January 1, 1913, there was no

double liability on stockholders of any corporation, in-

cluding banks.

Lang v: Osborn Bank, 100 O. §., 51, 125 N. E., 105.

In the year 1912 a Constitutional Convention was held

in Ohio and as a result an amendment was adopted to the

Congitution which became effective on January 1, 1913,

being that part of Section 3, of Article XIII of the Con-

stitution quoted below in italics. This section as amenfled

has remained in its original form to the present time and

reads as follows: |

‘Dues from private corporations shall be secured

by such means as may be prescribed hy law, but in

no case shall any stockholder be individually liable

\ otherwise than for the unpaid stock owned by him

+ or her; except that stockholders of corporations au-

thorized to recewe money on deposit shall be held

individually responsible, equally and ratably, and

not one for another, for all contracts, debts, and en-

gagements of such corporations, to the extent of the

amount of their stock therein, at the par value

thereof, in addition to the amount invested in such

shares. * * ** (Italics ours.)

<«

ao

7

Under the Ohio Constitution of 1851 and the laws

passed thereunder, the Ohio courts held that stockholders

were only secondarily liable. Ce decisions the

creditors’ right to pursue the stockholders accrued only

when the remedies against the corporation were ex-

hausted either by process or by the insolvency of the cor-

poration. . Morgan v. Lewis, 46 O. S.1, 17 N. E., 558;

Barrick v. Gifford, 47 O. S., 180, 24 N. E., 259; Founglove

vp. Lime Co., 49 O. S., 663, 33 N. E., 234; Bronson v.

Schneider, 49 O. S., 438, 33 N. E., 233.

The 1912 amendment of Article XIII, Section 3, Ohio

Constitution, above quoted, was held to be self-executing

by the Supreme Court of Ohio in the case of Lang v. Os-

born Bank, supra. The constitutional provision has re-

, mained unchanged and the courts of Ohio have consist-

\ ently held stockholders liable thereunder. Lang v.

Osborn Bank, 100 O. S., 51, where it was held that such

liability applies to all indebtedness of the corporation .

while such amendment is in effect; Andrews v. State ex

rel., 124 O. S., 348; Snider v. The United Banking & Trust

Co., 124 O. S., 375; State ex rel. v. Weinberger, 44 O.

“App., 264, 185 N. E., 432; State ex rel. v. Cole, 14 Ohio

Law Abstract, 464 (not officially reported); Feldman v.

Standard Trust Bank, 46 O. App., 67, 187 N. E., 743,:

motion to certify overruled by ‘the Supreme Court, 127 .

O. S., 181; Fulton v. Wetzel, 47 O. App., 72, 190 N. E.,

776, petition in error dismissed, 128 O. S., 109, petition

in error (Wetzel v. Fulton, No. 62, October Term, 1934)

dismissed, 55 S. Ct., 207, petition for rehearing denied,

55 S. Ct., 236; Baumgardner v. State ex rel., 48 O. App.,

5, 192 N. E., 349, motion to certify overruled by the Su-

preme Court of Ohio September 26, 1934, sub nom

Bender v. State ex rel,, No. 24861.

Furthermore, under the decisions of the Ohio courts,

such liability is not penal but is contractnal in nature. —

In the cases of Kulp v. Fleming, 65 O. S.,.321, and Blair

v. Newbegin, 65 O. S., 425, the Supreme Court-of Ohio

had before it the question whether creditors of a Kansas

corporation could use the Qhio courts to recover from

stockholders residing in Ohio, liability imposed by Ar-,

ticle XII, Section 2, of the Consti¢ntion of Kansas of 1859

and the General Statutes of Kansas of 1868, Chapter 23,

Section 32, et seq. Recovery was permitted im each case.

The court in Kulp v. Fleming, held, as disclosed by the

first and fourth branches of the syllabus:* *°

—% & provision of statute that the stockholders

af a corporation shall be individually liable to credi-

tors for the debts of the company does not alone

_ create the liability. It is rather a legislative re-

quirement that whoever becomes a stockholder shall

thereby assume an ‘individual liability, and thus gives

legal effect to the acts of the parties. The actual lia-

bility becomes operative by the act of a shareholder

in becoming such, being founded on his proposal to

become liable which arises fram the membership and

individual agreement to abide by the organic law

of the corporation, and the acceptance thereof by the

creditor by extending credit. Such obligation is con-

tractual. ‘

*Under Rule V1, Rules ¢ of Practice, Supreme Court of Ohio, the syllabus

of the points of law decided is prepared by the judge writing the opinion

and" submitted to the judges concurring therein. The Court has held that

' the syllabus is an accurate and authoritative statement of the law laid down.

State ex rel v. Edmonston, 89 O. S., 93; Merrick v. Ditsler, 91 O. S., 256 ;

Howhorst v. Honhorst , 95 O. S. 408. The syllabus must. of cours- “se read

in the light of the facts. Williamson Heater Co. v. Radich, 128 «). .. 124

9

‘4 The individual liability of stockholders for

debts of a corporation, provision for which is made

by the constitution and statutes of Kansas, ‘is not

penal but is contractual. That liability may be gn-

_ foreed in Ohio. Anda petition of a creditor in a

. *» suit against a stockholder which shows the constitu-

tional and statutory provisions respecting such lia-

bility, and sets forth the construction given by the

court of last resort of Kansas holding the liability

to exist and to be severat and contractual, and al-

leges other facts showing the ownership of the claim

by plaintiff, the ownership of the stock by -defend-

ant, the insolvency of the corporation, its dissobu-

tion under the provisions.of the statute and that it

had suspended business miore than a year before the

commencement of the action, states a case of ac-

tion.’’ ;

%

Furthermore, the cases under the National Banking |

Act are in point’ as to the nature of the liability created

under Article XIII, Section 3, Constitutitn of Ohio, ‘since,

as pointed out by the court in Baumgardner v. State, ex

rel.,.supra, at p. 16, that provision ‘‘is patterned after

the National Banking Act, Section 5151 of the Revised

Statutes of the United States, also known as Section 63

of Title XII, U. S. Code, the title on Banks and Banking.”

The court held that under the rule first stated in Gale v.

Priddy, 66 O. S., 400, 64 N. E., 437, when statutes having

a settled construction are adopted in this state, it is pre-

sumed that such construction is also adopted. The im-

portant decisions to the effect that the liability of a share-

holder of a national bank is contractual are cited in: the

brief of appellant herein, at pages 16 and. 17.

POINT B.

Under Sections 710-75 and 710-95, General Code of Ohio,

as Construed by the Courts of Ohio, the Determina-

tion of the Necessity For and the Amount of Stock-

holders’ Assessments by the Superintendent of

Banks is an Official 6r Public Act and Cannot be

Controverted in an Action Brought to Recover

Stockholders’ Liability. .

Lf .

After the 1912 amendment of Article XIII, Section

3, Constitution of Ohio, became effective, the General As-

sembly of Ohio enacted Sections 710-75, 710-89, 710-95

and 710-100, General Code of Ohio (108 Ohio Laws, Part

1, p. 80, et seq.). Section 710-89 authorizes the super-

intendent of banks to take possession of the business and

property of a bank upon.certain, specified grounds, in-

eluding insolvéney. Section 710-100 authorizes any bank

so taken over to enjoin further proceedings in liquidation

if it deems itself aggrieved by such action of the super-

intendent of banks.

Section 710-75, General Code of Ohio, provides inter

aliq:

‘s* * *

At any time after taking possession of

a bank for the.purpose of liquidation when the su-

perintendent fb banks ascertains that the assets of. .

such bank will be insufficient to pay its debts and lia-

bilities he may enforce the individual liability of the,

stockholders. ” |

11

Section 710-75, General Code of Ohio, which enumer- .

ates certain powers of the sg perintendent of banks, when

in possession of a bank under Section 710-89, provides

that he ‘‘may, if necessary to pay. the debts of such bank,

enforce the individual liability of the stockholders.”’

The courts of Ohio have held that when the superin-

tendent of banks is in possession of a baitk for liquida-

tion, he alone can proceed against the stegkholders to re-

cover their constitutional liability, unless he wrongfully

fails or refuses to do his duty, in conformity with the

statute. Feldman v, Standard Trust Bank, 46 O. App.,

67, motion to certify overruled by the Supreme Court

of Ohio, 127 O. S., 181; Fulton v. Wetzel, 47 O. App., 72,

petition in error dismissed, 128 O. S., 109., -A petition

in error was filed in this court (Wetzel v. Fulton, No. 62,

October Term, 1934), and disnssed, 55 S. Ct., 207, and’

petition for rehearing denied December 10, 1934, 59 S.

Ct., 236; State ex rel. v. Addams, No. 399, 558, Court of

Common Pleas;Cuyahoga county, decided July 9, 1934

(unreported).

The most recent comprehensive ‘decision of the courts

of Ohio on the law of stockholders’ liability is the case

of Baumgardner v. State; ex rel., 48 O. App., 5, 192 N. E.,

349, motion to certify overruled by the Supreme Court. of -

Ohio, September 26, 1934, sub nom Bender v. State, ex

rel., No, 24861. This and the companion case of State

ex rel. v. Snyder, 17 Ohio Law Abstract, 193, petition in

- error dismissed, 128 O. 8., 546, were actions by the super- —

intendent of banks to sisenebe the unpaid liability assessed

o*

o

12

by him against the stockholders of the Ohio Savings Bank |

and Trust'Co., Toledo, Ohio, who reside in Ohio... In the

Baumgardner case the court held in the first, second,

third, fourth and ninth branches of the syll#bus:°

‘*1, Stockholders’ liability under Section 3, Ar-

ticle XIII of the Cmstitution, providing for the

double or superadde.. liability of stockholders, is

primary.

2. Under the provisions of Section 710-75, Gen-

eral Oode, and cognate sections, the taking posses-

sion of the property and business of a bank by the

superintendent of banks for the purpose of liquida-

tion fixes the right of the superintendent to proceed

* with the liquidation, and as incidental to such liqui- '

dation, to ascertain whether the assets.of the bank

will be sufficient to pay its debts and liabilities, and

to enforce the double liability of stockholders.

3. Neither the bank nor its stockholders can con-

‘test-the authority or discretion of the superintendent

of banks to proceed with the liquidation and to ascer-

tain the necessity of enforeing double liability and

determining the amount thereof other than by the .

exclusive remedy provided in Section 710-100, Gen-

eral Code.

s

4. When the superintendent has determined upon -

and made an assessment of 100 per centum of the

liability, the progeeding must be at law.

. . 7 7. * . * . . Pe

OA petition, alleging demand of payment from ©

stockholders, together with the filing of suit for

same, necessarily implies without further averment

‘ Under Section 1483, General Code of: Ohio, the syllabus is prepared by

the judge of the Court of Appeals delivering the opinion. Rule 12, Rules

of Practice of Courts of Appeals of Ohio, conforms to this statutory re-

quirement. Under such provisions the syllabus states the law of the case

(Lebanon v. Schwartz, 4 O. App., 173; Flanery u Cleveland, etc., R. Co.,

26 Ohio C..C. (n. s.) 49, 28 C. D., 7) although it does not necessarily state

all of the points decided Lebanon v. Harvey, 45 O. App., 215, 187 N. E., 28.

13 ;

that the superintendent had decided upon data satis-

factory to him that it was necessary to enforce the

full amount of the liability, and consequently such a.

petition is not defective for failure to state a cause

of action.

* . . . >. * ®*. ® . * *)?

,

In the course of the opinion the court said (48 O. App.,

pp. 22-24): |

‘‘The provisions of the state banking ac: with ref-

erence to the enforcement of the super-added liability

of stockholders, are contained in Sections 710-75 and

710-95 of the General Code. The pertinent parts of

. said sections are as follows:

‘Sec. 710-75.. Individual liability of stockhold-

ers. Stockholders of banks shall be held indi-

vidually responsible equally and ratably, and not

one for another, for all contracts, debts and en-

gagements of such bank, to the extent of the

amount of their stock therein, at the par value.

thereof, in addition to the amount invested in such _

shares. * * -* At any time after taking pos-

session of a bank for the purpose of liquidation

when the superintendent of banks ascertains that

the assets of such bank will be ixsufficinent to pay. -

its débts amd liabilities he may enforce the indi~

vidual liability of the stockholders.” .

‘Sec. 710-95. Powers and duties after taking

passession.- Upon taking possession of the prop-

erty and business of such bank, the superintendent

of banks is authorized to collect money due to such

bank, and to do such other acts as are necessary

to preserve its assets and business, and shall pro-

ceed to. liquidate the affairs thereof, as hereinafter

provided. * * * and may, jf necessary to pay

the debts of such bank, enforcé the individual lia-

bility-of the ‘stockholders.’

% .

iM

*

It will be noted that the last clause of Section 710-.

95, G. C., is in practically the same language as the

last clause of that part of Section 192, Pitle 12, of the

United States Code, above quoted, and that the last

pgrtence of Section 710-75 fixes the time for the en- .

cement of such liability.

The above quoted portion of: Section 192 of the -

- National Banking Acct is in practically the same form

as it was at‘the time of the decision in the case of

Kennedy v. Gibson, 75 U. S., above mentioned, and

‘in applying the said provisions of said section, it was —

held in that case that:

‘It is for the comptroller of curfency to decide

when it is necessary to institute procgéedings

agajynst the stockholders, to enforce their personal

lighility, and how much shall be collected.’

‘His determination is conclusive, and the stock-

holders cannot queation it in the litigation that

* may ensue.’

This holding’was followed and applied in the fed-

eral cases and in the casés from other states herein-

_ before referred to, as well as in many other federal

and state cades.

‘In the opinion of the court | in the case of Kennedy

v. Gibson, supra, the following language is used:

‘The receiver is the instrument of the comp-

troller. He is appointed by the comptroller, and

the power of appoffitment carries with it the power

of removal: It*is for the comptroller to decide >

against the stockholders orce their personal

liability, and whether the whdle or a part, and if

only a part, how much, shall be collected.’ |

‘These questions are referred to his judgment

and discretion, and his determination is conclu-

sive. The stockholders cannot controvert it... It

is not to be questioned in the litigation that may

when it is' necessary § institute proceedings

ae

.

“e.

ensue. .He may make it at such time as he may

deem proper, and upon such data a#shall be gatis-

factory to him. . This “action on his part is indis-

pensable, whenever the personal liability of the

stockholders is sought to be enforced, and must

precede the institution of the suit by the receiver.

The fact must. be ‘dgstinmetly averred in all such

cases, and if put in jssue mist.be proved,’

. A) slying the rule of construction set forth in the

.." * ease d8 Gale v. Priddy, 66 Ohio St.,}400, supra; it is.

clear that by\the amendment of the Constitution of

1912, above referred to, and the Banking Act provid-

ing for the procedural steps ih enforcing the liability

provides. ..\ the ‘Constitution, power is conferred

upon and delegated to the superintendent of banks

at any time after taking possession of the bank for

the purpose of liquidation, to ascertain upon such

data as shall be satisfactory to him that the assets

of such bapk will be insufficient to pay its debts and

liabilities, and upon such ascertainment being made,

to enforce the individual liability, of stockholders;

and it is for him to decide upon such data as shall

be satisfactory to him, when it is ne¢essary to insti-

tute proceedings against the stockholders to epforce

their personal liability and how mych shall be col-

lected, and his ascertainment and decisions are con-

elusive, and, the stockholders cannot question them

in the litigation that may ensue.”’

The case of Kennedy v. Gibson, 75 U. S., 476, 8 Wall.,

- 498, is discugsed in the brief for appellant herein at pages

21 and 22 x |

Furthen in the. course of the opinion in the Baumgard-

ner case, after quoting Section 710-100, General Code of

Ohio, the cdurt said at pages 26 and 27:

“While by this.section the authority to bring such

actjon ‘is conferred on the bank, under the laws of

¥ "16

Ohio a stockholder.would, in the event such bank

refused to bring suck procee@ing upon demand by

him, have the ‘right to bring an action on behalf of

the corporation under such section. So that any

stockholder, under said section, where the supérin-

tendent of banks has taken possession: of the prop-

erty and business of the bank for the purpose of

liquidation, -has a complete and adequate remedy to

enjoin further proceedings in liquidation, which

necessarily includes the proceedings of the superin-

tendent in. ascertaining the necessity of and enfore-

ing double liability, and determining the amount»

thereof, in case the facts did not warrant and the

. superintendent of banks has been guilty of an abuse

of discretion or fraud in taking possession of the

property and business of the bank for the purpose of |

liquidation.

The remedy under this section is excfisive and

when the superintendent of banks has taken posses-

sion of a bank for the purpose of liquidation, neither

the bank nor its stockholders can otherwise contest

the authority or discretion of the superintendent of

banks to proceed with the liquidation and as inci-

dental thereto, to ascretain the necessity of enfore-

ing double liability and determining the amount

thereof.’’ :

In determining the .precise issue before it, the court

upheld the rulings of the trial court in rejecting evidence

offered on behalf of the stockholders, tending to show -

that the assets of the bank at the time the assessment

was made were sufficient to pay its liabilities.

Under the law of Ohio, as well as under the New York

Banking Law, and the National Banking Act, the delega-

tion to an administrative officer of the power to-deter-

-mitie the necessity for an assessment is not a delegation

-.

>

17

of judicial power. In the case of Baumgardner v. State,

ex rel., supra, the court sajd (48 O. App., at pp. 24-25) :

‘It is Held in the case of Bushnell v. Leland, 164

U. S., 684, decided January 4, 1897, that: :

‘Revised ‘Statutes, Sections 5151 and 5234, em-.

powering the comptroller to appoint receivers for _

insolvent national banks, and to make ratable as- ©

sessments upon the stockholders, does not vest in

him a judicial power in violation of\the Constitu-

tion.’. : a .

_ The provisions of the Constitution of this state,

and the Constitution of the United States, with refer-

‘ence to the vesting and exereise of judicial power,

are similar, and the holding of the Supreme Court

that the power conferred on the comptroller to make

ratable assessments on the-stockholders, does not -

vest in him a judicial power in violation of the ¥ed-

eral Constitution, is by analogy ‘applicable toy the.

_power vested in the superintendent of banks ader

\ yo provisions of the Ohio Constitution and Banking,

ct. e * \

‘ a

Furthermore, as the business of banking under the

Constitution and laws of Ohio is of a quasi public

charatter (124 Ohio St., 375, at 380), the determina-_

tion and orders of the superintendent of banks as_an

official of the state under the supervisory and regu-

latory power over corporations reserved in the state

and to its officers under Section 2 of Article XIII

of the Constitution, are of an executive rather than

‘. a judicial character and do not come within the in-

hibition of the Constitution.” lf |

Section 2, Article XIII, Constitution of Ohio, appears

in the Appendix hereto. . Tlie case of Bushnell v. Leiand;

164 U. S., 684, is discussed in the brief for appellant, at

pp. 35, 36. :

18

In summary i appears under the law of Ohio with

relation to the liability of stockholders of Ohio banks (1)

that the liability created by Article XIII, Section 3, Con-

stitution of Ohio, is not penal but contractual in nature;

(2) that the superintendent of banks of Ohio, when in

possession of a bank for liquidation, has the exclusive

right to determine the necessity for and amount of stock-

holders’ liability, and upon failure of the stockholders

to respond to such assessment, after proper notice and

demand, to bring action for its enforcement; (3) that the

superintendent’s determination ‘of the necessity for and

amount of an assessment is binding apon the stockholders

in an action brought by him for the recovery of the as- .

sessed liability; and (4) that the dekegation to the Ohio

. superintendent of banks of the power to levy assessments

is valid. In each of these respects the law of Ohio is

substantially the same as the law of New York.

POINT C.

a4

=z

+

Under Article IV, Section 1, a the United States Con-.

stitution, New Jersey is Required:: (1) to Permit

Enforcement Against Stockholders of Ohio Banks

Residing in New Jersey of the Liability Provided ©

Under Article XIII, Section 3, Ohio Constitution, and

Sections 710-75 and 710-95, General Code of Ohio;

and (2) to Recognize the Official Determination by

the Ohio Superintendent of Banks of the Necessity

for Such Assessment, Made Pursuant to Sections

710-75 and 710-95, General Code of Ohio.

Under the authorities so convincingly arrayed in the

brief for appellant (pp. 38 to 70), it is clear that the meas- »

ure of full faith and credit which, under Article IV, Sec-

tion 1, each state is required to giye “to the public acts,

revords and judicial proceedings. of every other state’’,

must be determined by the statutes and decisions of the

courts of such other state. By reference to the Ohio law,

it is apparent that Naw Jersey must permit enforcement

of the contractual liability imposed upon the stockholders

of Ohio banking corporations who reside in New Jersey.

In a like manner it is equally clear that New Jersey must

recognize the official determination by the superintendent

of banks of Ohio as to the necessity for and amount of

the assessment.

\ _ Upon principles of comity, Ohio lends its courts to aid

ister states in enforcing liability which they impose

2

er

. oe —_ woe

' tfpon the stockholders of their own corporations. Kulp

v. Fleming, 65 O. S., 321; Blair v: Newbegin, 65 O. S.,

425. -Nor has the superintendent of banks of Ohio, in

charge of the liquidation of numerous Ohio banks, found

the-courts of any state, except New Jersey, closed to him

in recovering liability assessed against stockholders of

such banks residing in other states. The principles of

comity involved are discussed in the brief for appellant

at page 39, et seq.

Under Section 94b, New Jersey Corporation Act, ~

the decision of the courts below in, the instant case, it is

clear that New Jersey public policy precludes application .

of any such broad principles of comity. Thereby New

Jersey would nullify the laws of New York, Ohio and

numerous other states. To show that the constitutional

and statutory provisions of New. York and Ohio are by

no means unique, we refer to the following. decisions con-

struing similar provisions of law existing in other states:

State Bank of Portland v. Gotshall, 121 Ore., 92; Thomp-

son v. State, ex rel., 119 Okla., 166, 248 P., 1110; Aber v.

Maawell, 140 Ark., 203, 215 8. W., 389; Houston Nat. Ez.

Bank v. Chapman, 263 8. W., 929 (Tex. Civ. App.) ; Com-

missioner of Banks v. McKnight, 281 Mass., 467, 183 N.

E., 720; Tunnicliffe v. Noyes, 101 Fla., 794, 135 S., 505.

All of the provisions construed in these cases follow

closely the National Banking Act.

Since New Jersey refuses to apply the doctrine of

comity to protect the depositors of New York, Ohio, and

other state banks, these states must resort to the full faith

and credit clause of the United States Constitution. We

contend that this protection is ample and respectfully

refer. the court to the authorities discussed in the brief

for appellant at pp. 39 to 70.

POINT D.

The Requirement of Section 94. New Jersey Corporation

Act, that the Assessment May Only be Enforced

Through an Accounting in an Action Initiated by a

Bill in Equity, Denies to the Determination by the

Ohio Superintendent of Banks that Conclusive Effect

Which Attaches to Such Determination Under the

Laws of Ohio. : hee

Under Section 94b, stockholders’ liability created by

the law of a sister state can be enforced in the courts of

New Jersey only by an action ‘‘in a nature of an equi-

table accounting *.* * to which such corporation and

- its legal representatives, if any, and all of its-ereditors

and all of its stockholders shall be necessary parties.”’

Keeping in: mind the nature of the liability imposed

upon stockholders of banks by the law of Ohio and the

power of the superintendent of banks of Ohio in enfore-

ing that liability, it is inescapable that Section 94b re-

sults in denial of full faith and credit to the laws of Ohio

and to the public act of its superintendent of banks in

levying an assessment against the stockholders of an

Ohio bank. Section 94b would substitute the judgment of

the New Jersey Chancery Court for that of the super-

intendent of banks in the matter of ascertaining the neces-

sity for and the amount of the assessment.

As a practical matter the remedy offered by New Jer-

sey is not available to the superintendent of banks of

22

Ohio. Under Section 94b, all creditors and stockholders

of the corporation are necessary parties to the equitable

action for an accounting.” The superintendent of banks

of Ohio, in charge of the liquidation of The Standard

Trust Bank, Cleveland, Ohio, has levied a 100% assess-

ment against all of its stock. The owners of this stock

reside in 47 states of the Union and several foreign coun-

tries. A score of them reside in New Jersey. The credi-

tors, likewise, are scattered throughout the United States.

Manifestly, it is impossible for the superintendent to

successfully prosecute an action in New Jersey: requiring P

all stockholders and creditors to be made parties, in order

to recover the liability slightly in excess of $3,000.00 owed

by residents of that state. Although the stockholders

and creditors are Jess widely scattered, a similar situa-

tion exists in the case of The Guardian Trust Co., Cleve-

land, Ohio, The Union Trust Co., Cleveland, Ohio, and

The Security-Home Trust Co., Toledo, Ohio.

- We urge that Section 94b is violative not only of the

full faith and credit clause but of the due process clause

of the Fourteenth Amendment. Whitman v. National

Bank of Oxford, 176 U. S., 559; Hancock v. Farnum, 176

U. S., 640.

II.

CONCLUSION.

Urging, as we do, that Section 94b, New Jersey’ Cor-

_ poration Act, is unconstitutional, we submit that the

judgment below should be reversed and the action re-

manded to the New Jersey courts for further proceedings —

“in accordance with the provision of the Constitution of

the United States.. ie?

Respectfully submitted,

JOHN W. BRICKER,

Attorney General of Ohio, :

Counsel for Samuel H. Squire, Superintendent of Banks

of Ohio, as Amicus Curiae.

Of Counsel: ae

' W. DALE DUNIFON, .

First Assistant Attorney General,

J. ROTH CRABBE,

Assistant Attorney General.

Ne a a

APPENDIX.

Article XIII, Section 2, Ohie Constitution.

Corporations may be formed under general laws; but

all such laws may, from time to time, be altered or re-

pealed. Corporations may be classified and there may

se a

be conferred upon proper boards, commissions or officers,

such supervisory and regulatory powers over their or-

ganization, busine’s and issue and sale of stocks and

securities, and over the business and sale of the stocks

and securities of foreign corporations ‘and joint. stock

companies in this state, as may be prescribed by law.

Laws may be passed regulating the sale and conveyance

of other personal property, whether owned by a corpora-

tion, joint stock company or individual.

Article XIII, Section 3, Ohio Constitution. —

Dues from private corporations shall be secured by

such means as may be prescribed by law, but in no case

shall any stockholder be individually liable otherwise

than for the unpaid stock owned by him or her; except

that stockholders of corporations authorized to receive

money on deposit shall be held individually responsible,

equally and ratably, and not one for another, for all con-

tratts, debts, and engagements of such corporations, to

the extent of the amount of their stock therein, at the par

value thereof, in addition to the amount invested in such

25

shares. No corporation not organized under the laws

of this state, or of the United States, or person, partner-

ship or association shall use the word ‘‘bank’’, ‘‘banker’’ -

or ‘“‘banking’’, or words of similar meaning in any foreign

language, as a designation or name under which business

may be conducted in this state unless such corporation,

person, partnership or association shall submit to inspéc-

tion, examination and regulation as may hereafter be

provided by the laws of this state.

Section 710-75, General Code of Ohio.

_ Stockholders of beaks shall be held individually re-

sponsible, equally and, ratably, and not one for another,

for all contracts, debts and engagements of such bank,

to the extent of the amount of their stock therein, at the

par value thereof, in addition to Se amount invested in

such shares. The stockholders ‘in any bank who shall

have transferred their shares or registered the transfer

thereof within sixty days next before the failure of such.

bank to meet its obligations, or with knowledge of such

impending failure, shall be liable to the same extent as if

they had made no such transfer, to the extent that the sub-

sequent transferee fails to meet such liability; but this

_ provision shall not be construed to affect in any way re-

course which such stockholders might otherwise have

against those in whose names such shares are registered

at the time of such failure. In determining the said

period of sixty days, the period or periods when any bank

is in the possession of the superintendent of banks or is

—-

operating under any restriction upon the withdrawal of

deposits or the payment of liabilities shall be excluded.

At any time after taking Ppossessign of a bank for the

purpose of liquidation when the superintendent of banks

ascertains that the assets of such bank will be insufficient

to pay its debts and liabilities he may enforce the indi-

vidual liability of the stockholders.

Section 710-89, General Code of Ohio.

The superintendent of banks may forthwith take pos-

session of the business and property of any bank to which

this act is applicable, whenever it shall appear that such

bank:

1. Has violated its charter or any law applicable

thereto ;

2. Is conducting its business in an unauthorized or

unsafe manner ;

"3. Is in an unsound or unsafe condition to transact its

business ; 7 .

4. Has an impairment of its capital for a period of

ninety days;

5. Has refused to pay its depositors in accordance

with the terms on which such deposits were received ;

6. Has become insolvent; ‘|

7.. Has neglecte or refused to comply with the terms

of a duly issued order of the superintendent of banks;

8. Has refused, upon proper demand, to submit its

records and affairs for inspection to an examiner of the

banking department; or

DZ :

9. Its officers have refused to be examined upon oath

regarding its affairs.

If, by resolution of the board of directors of any bank,

such bank requests such action and gives “notice of the

adoption thereof ‘to the superintendent of banks in per-

son, by telephone, telegraph or mail, the superintendent

shall, as soon théreafter as may be practicable, take pos-

session of the business and property of such bank.

Section 710-95, General Code of Ohio.

The superintendent of banks, upon taking possession

of the business and property of any bank, shall have, exer-

cise and discharge the following power: authority and

duties, without notice or approval of court, but subject to |

the provisions of this chapter, to wit:

1. To collect all money due to such bank.

2. To perform all such acts as are desirable or ex-

pedient in his discretion to preserve and conserve the

assets and property thereof.

3. To exercise all the rights and powers of such bank

under or by virtue of any mortgage, collateral, note, con-

tract, judgment, decree or other instrument.

4. To sell for cash any asset or assets of such bank

at not less than the face or par value thereof, or the actual

amount owing thereon, and to settle, compromise or com-

pound any debt owing to or held by such bank, or any

claim enforceable by the superintendent of banks, when

such bank has a common interest with ten or more per-

sons or corporations in any claims, securities or property,

f

by becoming a party to an agreement between and among

othe parties interested ; and to confer control of such prop-

erty upon a committee.

5. To pay off and discharge any taxes, assessments,

Jiens, claims or charges against the assets or property

-of such bank. |

6. To pay out.and expend such sums as he shall deem

necessary for the preservation, maintenance, conserva-

tion and protection of any such property or any assets or

i property on whieh such bank has a lien by mortgage,

_ pledge or otherwise. , a

7. To institute and maintain against the directors, of-

ficers or employes of such bank, or any of them, any suit

or action which such bank, ‘its shareholders or creditors

might institute and maintain. .

8. To take title in his name or in the name of a nomi-—

nee to any asset, including shares and certificates for

shares of stock of any corporation, and to exercise all

voting power and otherwise of an unqualified owner; but

the transfer or sale of any such asset shall be subject

to the applicable provisions of this section.

9. If he ascertains that the assets of such bank will be

insufficient to pay its debts and liabilities, to enforce the

individual liability of each shareholder thereof as. pro-

vided in Section 710-75 of the General Code. Until an

order to declare and pay a final dividend shall be entered

in the liquidation proceedings the right to enforce such

liability is hereby vested exclusively in the superintend-

ent of banks. |

10. For the parpese of executing and performing any

29

of the powers and duties hereby conferred upon him, in

his name as superintendent of banks ia charge of the

liquidation of such bank, tq institute, prosecute and de-.

fend any and all actions or proceedings within or with-

out this state, and to'execute, acknowledge and deliver

any and all deeds, leases, assignments, releases, contracts

and other instruments necessary or proper. Any deed

or other instrument executed pursuant to the authority

hereby given shall be as valid and. effectual for all pur-:

poses as if the same had been executed by the officers of

such bank by the authority of its board of directors. If

any real estate so conveyed is situated outside of, the

county in which the proceedings for the liquidation of

such bank are pending, a certified copy of the order of

the court approving or ratifying the sale er conveyance

thereof shall be filed.in the office of the recorder of the

county within which such property is situated.

Without prejudice to or limitation of the foregoing

powers, authority and duties, the superintendent of banks

may, upon application to the Court of Common Pleas in

which the proceedings for the liquidation of such bank

are pending, or a judge thereof, and on such terms as

such court, or such judge, may by order approve;

1. Sell or compromise any or all bad or doubtful assets

and debts owing to such bank ; compromise claims against

such bank and sell, lease, exchange or atherwise dispose

of any real estate or personal property, or both; of such

bank, in whole or in part.

2. Sell or exchange assets of such bank, the considera-

tion for which sale or exchange ‘may be, in whole or in

part, claims against such bank; provided, however, no

such sale or exchange of any such assets, shall be made

at less than the appraised value thereof, as fixed by

appraisers appointed as ioe in Section 710-95b of

the General Code.

3. Surrender or abandon any asset, which he con-

siders of no advantage to creditors, including choses in

action, whether the subject of pending litigation or not,

and reject or disclaim any lease or contract which he con-

siders burdensome.

4. Transfer and sell for less than the par or face

value, shares of stock of any corporation the title to

which is in his name or the name of such bank.

5. Enter into a contract or contracts appointing any

state or national bank, a liquidating agent or agents or

otherwise providing for the liquidation thereby of any

asset or assets of such bank, upon the terms, conditions

and considerations expressed in~-said contract or con-

tracts. ' |

In case of doubt or difficulty, the superintendent may

ask the instructions of such court, or a judge thereof, as

to the manner in which he should exercise his powers

and discretion. He shall not be directed or restrained

in the exercise of his powers or discretion otherwise than

in a suit in equity in which it shall be alleged and proved

that he has exceeded-or abused such powers and discre-

tion. -

The superintendent of banks shall give notice of the

hearing of each application made pursuant to this section

31

by publication in a newspaper of general circulation in

the county in which the proceedings for the liquidation

of such bank are pending. Each such notice shall be pub-

lished once and shall set forth the time when such appli-

cation shall be heard, which shall be not less than ten days

after the publication thereof, provided, however, that

such court, or a judge thereof, may by order dispense

with such publication of notice and hear any such appli-

cation at any time hefore the expiration of said ten day

period. At the hearing on any such application, any

shareholder, depositor or ereditor of such bank shall

have the right to appear and be heard.

No order of the Common Pleas Court or judge thereof

entered pursuant to this section shall be deemed a final

order; but by leave of court an independent suit may be

brought not later than five days after such order is en-

tered by any such person deeming himself aggrieved

thereby, to restrain any action thereby authorized.

Section Tae, General Code of Ohio.

Whenever any — bank’ of whose property and busi-

ness the superintendent of banks has taken possession,

as aforesaid, deems itself aggrieved thereby, it may at

any time within thirty days after taking such possession

apply to the Comnion Pleas Court of the county in which

the office of such bank was located, to enjoin further pro-

ceedings in liquidation, and said court, after citing the

superintendent of banks to show cause why further pro-—

ceedings should not be enjoined and hearing the allega-

32

tions and proofs of the parties and determining the facts,

may dismiss such application or enjoin the superintend

ent of banks from further proceedings, and direct him

to surrender such business and property to such person,

partnership, corporation, company, society or associa-

tion.