Opinion
No. 20.
January 8, 1934.
Appeal from the District Court of the United States for the Southern District of New York.
Action by B.C. Schram, receiver of the National Bank of North Hudson at Union City, New Jersey, against Frank J. Schwartz. From an order striking out the answer of the defendant and dismissing his counterclaim, and directing that judgment be entered in favor of the plaintiff for the sum of $1,925, interest, and costs, and from the judgment entered thereon, the defendant appeals.
Affirmed.
This is an action by the plaintiff, as receiver of the National Bank of North Hudson at Union City, N.J., to recover from the defendant, a stockholder, the amount of a stock assessment levied by the Comptroller of the Currency under the authority of the National Banking Act (12 USCA § 21 et seq.). The complaint alleged that the receiver was appointed by the Comptroller pursuant to such act and that the defendant had refused to pay his assessment.
The answer set up an affirmative defense and also a counterclaim alleging that during the month of July, 1931, one F.R. Peterson, a national bank examiner, conducted an examination of the affairs of the bank and, as a result of the examination, declared that it had sustained losses which exceeded its combined capital, surplus, and undivided profits; that on August 5, 1931, the bank examiner, on behalf of the chief bank examiner, directed the cashier of the bank to notify the directors to be present at a meeting to be held that night by the chief examiner at his office in the Federal Reserve Bank in New York City; that seven of the sixteen directors of the bank assembled on the evening of that day at the office of the chief examiner and under his direction, as representative of the Comptroller of the Currency of the United States, executed an instrument reciting that the examination had disclosed losses exceeding the capital, surplus, and undivided profits of the bank and resolving that the bank be closed and placed in the hands of the Comptroller of the Currency through his representative Peterson; that thereupon, on the morning of August 6, 1931, Peterson closed the doors of the bank and posted thereon a notice that he was in charge and that it had suspended its business; that on or about the 8th day of August, the plaintiff Schram arrived at the bank and took possession of the assets under an order signed by one Awalt, the Acting Comptroller of the Currency, reading as follows:
"Whereas, from information on file in this bureau, I am satisfied that the `The National Bank of North Hudson at Union City,' located in the City of Union City, County of Hudson, and State of New Jersey, is insolvent and unable to pay its just and legal debts:
"Now, Therefore, I, F.G. Awalt, Acting Comptroller of the Currency, in pursuance of the power and authority vested in me by law and under the provisions of Section 1 of an Act of Congress entitled `An Act authorizing the appointment of Receivers of National Banks, and for other purposes,' approved June 30, 1876, do hereby appoint B.C. Schram, Receiver of `National Bank of North Hudson at Union City, with all the powers, duties and responsibilities given to or imposed upon a Receiver under the provisions of the Revised Statutes of the United States which authorize the appointment of a receiver."
The amended answer further alleged that the plaintiff Schram thereafter posted a notice on the doors of the bank to the effect that it was "closed" by resolution of its board of directors on August 6, 1931, and about September 21, 1931, posted a further notice reading as follows:
Statement of Condition of the National Bank of North Hudson
August 6th, 1931
Assets
Bills receivable ................. $3,740,382.53 Cash on hand ..................... 88,826.52 Assets other than bills receivable and cash on hand 6,198,037.27 $10,027,246.32
Liabilities
Liabilities unsecured ............ 8,016,725.19 Deposits secured by pledge of assets of the bank aggregating $127,012.82 as collateral ....... 111,291.01 Rediscounts secured by pledge of assets of the bank ............................ 0 Bills Payable secured by pledge of assets of the bank aggregating $930,155.04 as collateral ................... 620,000.00 Total ............................ $ 8,748,016.20
It was also alleged that among the assets of the bank were bonds which had a worth of about $4,963,130.41, that many of these bonds were disposed of by the plaintiff through a pool organized under the direction of the Comptroller, whereby upon the sale of a bond, whether of the National Bank of North Hudson or of any other closed bank, the sales price was prorated among all of the closed banks holding similar bonds, and that the assets of the bank were greatly diminished accordingly. It was further alleged that upon a proper accounting by the receiver and valuation of the uncollected assets remaining in his hands, it had appeared to the satisfaction of the Comptroller that it was necessary to enforce the individual liability of the stockholders in order to pay the debts of the bank and that he accordingly had made an assessment of $600,000 upon the shareholders of the bank and had directed the receiver to take all necessary proceedings by suit or otherwise, to enforce the individual liability of the shareholders.
It was further alleged that the resolution signed by the directors did not bind the stockholders because it was not passed at a directors' meeting, nor assented to by a majority of the directors, and was brought about by the examiners in an effort to justify their erroneous conclusion that the bank was insolvent on August 6, 1931, whereas the bank was not insolvent at that time and that the conclusion that it was insolvent was due to the fact that the examiner erroneously declared assets that were valuable to be of no value; that the determination of the Comptroller that he was satisfied that the bank was insolvent and unable to pay its just and legal debts was not based on any information in his office, but, on the contrary, the statement of the financial condition of the bank posted by the receiver, and set forth above, shows that the bank was solvent and able to pay its just and legal debts, as did the information on file in the office of said Comptroller; that the order of the Comptroller of September 28, 1931, reciting that it was necessary to levy the assessment upon the stockholders in order to pay the debts of the bank was invalid because made by mistake and not made upon any proper accounting or proper valuation of the collected or uncollected assets of the bank. The answer further alleged that there were several pretended liabilities entered into by the receiver since he took possession, not warranted by law, which constituted part of the liabilities, upon which the assessment of the stockholders rested and which did not impose any liability to assessment upon the shareholders or upon this defendant; that the plaintiff was negligent in collecting and preserving the assets of the bank and by reason thereof they have so far depreciated in value that it is claimed that they are insufficient to pay its debts, but, if he had used due care in realizing upon the same, they would have been more than sufficient and there would have been no basis upon which a stockholder's liability could have been predicated. The answer finally demanded a decree that the resolution signed by certain of the directors be declared null and void, that it be determined that the bank was not insolvent, and that the plaintiff be restrained from prosecuting this action to collect any assessment from the defendant in the present suit.
The plaintiff moved upon affidavits to strike out the answer as sham and frivolous and for judgment for the amount of the assessment demanded in the complaint. The motion was granted and judgment for the plaintiff rendered, from which this appeal has been taken.
Morton Lexow, of Suffern, N.Y. (Alton W. Teale, of Suffern, N Y, of counsel), for defendant-appellant.
Edward A. Smarak, of Union City, N.J. (Hugh S. Williamson and Breed, Abbott Morgan, all of New York City, of counsel), for plaintiff-appellee.
Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
The receiver of the National Bank of North Hudson was appointed under the power given to the Comptroller of the Currency by the National Banking Act (U.S. Code, title 12, § 191 [12 USCA § 191]) to appoint a receiver whenever "satisfied of the insolvency of a national banking association * * * after due examination of its affairs * * *." The same act authorizes the receiver "under the direction of the comptroller" to enforce the individual liability of the stockholders if necessary to pay the debts of the association. It has long been held by the Supreme Court that the determination of the Comptroller that an assessment is necessary in order to pay the debts of a national bank which he has placed in the hands of a receiver is conclusive upon its stockholders and cannot be questioned in the litigation that may ensue. Kennedy v. Gibson, 8 Wall. 498, 505, 19 L. Ed. 476; Casey v. Galli, 94 U.S. 673, 681, 24 L. Ed. 168; Germania National Bank v. Case, 99 U.S. 628, 634, 635, 25 L. Ed. 448; United States ex rel. Citizens' Nat. Bank v. Knox, 102 U.S. 422, 426, 26 L. Ed. 216; Bushnell v. Leland, 164 U.S. 684, 17 S. Ct. 209, 41 L. Ed. 598; Deweese v. Smith, 187 U.S. 637, 23 S. Ct. 845, 47 L. Ed. 344, affirming without opinion 106 F. 438, 66 L.R.A. 971 (C.C.A. 8). The National Banking Act affords a complete and adequate administrative remedy unfettered by judicial ascertainment as to the wisdom or necessity of the action of the Comptroller provided the latter proceeds in accordance with the terms of the statute.
It has likewise been held that a stockholder could not interpose a defense to an action of a receiver of a defunct national bank on the ground that the Comptroller had no sufficient evidence to warrant the appointment of a receiver or to justify the making of an assessment. The Circuit Court of Appeals for the Third Circuit so held in Miller v. Stock, 65 F.2d 773, where another stockholder was sued by a receiver of the National Bank of North Hudson. The defendant's counsel argues that the decision in the Third Circuit arose only upon an affirmative defense to a complaint seeking to attack the receiver's suit collaterally and says that the court did not have to deal, as we do, with an equitable counterclaim that attacks the appointment of the receiver and the imposition of the assessment directly. But in Crawford v. Gamble (C.C.A.) 57 F.2d 15, a stockholder who was sued by the receiver of a national bank attempted to question the solvency of the bank and the propriety of the assessment and to assert his rights by means of an equitable counterclaim. The Court of Appeals of the Sixth Circuit affirmed an order striking out the counterclaim and said, at page 17 of 57 F.2d: "He must pay promptly when called upon, and, if it should eventuate that the assessment or any portion thereof is not needed, it will be returned. Any other attitude would destroy public confidence and lessen the security which the creditor and depositor has a right to expect."
In Deweese v. Smith (C.C.A.) 106 F. 438, at page 445, 66 L.R.A. 971, Judge Sanborn said that the decisions of the Comptroller "of questions within his jurisdiction are, like the decisions of the land department and of other quasi judicial tribunals, impervious to collateral attack, and open to avoidance by the court only in a direct attack upon them on the grounds of clear error of law, fraud, or mistake." This language is seized upon by the defendant to support his counterclaim in the present action.
In Liberty National Bank v. McIntosh, 16 F.2d 906, the Court of Appeals of the Fourth Circuit denied an injunction in a suit by a national bank to have the appointment of a receiver declared void and an assessment upon stockholders enjoined. The court said [at page 909 of 16 F.2d]: "The decisions of the Comptroller of the Currency are not subject to collateral attack, nor is his assessment against shareholders, and the amount thereof open to review; but, on the contrary, neither the bank nor the shareholders, clearly in the absence of fraud charged and proved, are entitled to a judicial determination of any question involved in his decision either as to the solvency, the sum due creditors and the amount of assessments as ordered, such matters one and all being exclusively within the judgment and discretion of the Comptroller, and as to which he acts in a quasi judicial capacity."
The Court of Appeals of the Fourth Circuit reiterated the same views in Wannamaker v. Edisto Nat. Bank of Orangeburg, 62 F.2d 696, 700, where a stockholder's bill was filed to enjoin a stockholder's liability assessment, and to vacate the appointment of a receiver. The court said: "It is settled that the determination as to the solvency of a national bank, and the necessity of an assessment against its shareholders, and the amount thereof, is committed exclusively to the judgment and discretion of the Comptroller, and it is not subject to judicial review."
We think it clear from the foregoing that the answer was properly stricken out and the counterclaim dismissed.
The defendant's answer contains no allegations of fraud, and if a mistake can ever be a basis for reviewing the action of the Comptroller, we are clear that it is not such a mistake as is due to a mere error of judgment in valuing assets.
Judgment and order affirmed.