Holmberg v. Armbrecht

• Decision Date: 13 July 1945
• Docket Number: No. 305.,305.
• Parties: HOLMBERG et al. v. ARMBRECHT et al.
• Court: U.S. Court of Appeals — Second Circuit

150 F.2d 829 (1945)

HOLMBERG et al. v. ARMBRECHT et al.

No. 305.

Circuit Court of Appeals, Second Circuit.

July 13, 1945.

Edgar M. Souza, of New York City (Cook, Lehman, Goldmark & Loeb, of New York City, on the brief), for defendants-appellants.

Clarence Fried, of New York City (Franklin S. Wood, of New York City, on the brief), for plaintiffs-appellees.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This appeal presents the interesting question of the applicability of a state statute of limitations to a federally created equitable right. The District Court held that as to "a bill in equity" "the state statute of limitations is not recognized law in this court," citing Russell v. Todd, 309 U.S. 280, 60 S.Ct. 527, 84 L.Ed. 754, and York v. Guaranty Trust Co., 2 Cir., 143 F.2d 503. Decision of this appeal was delayed to await the Supreme Court's review of the latter case; and upon its reversal by Guaranty Trust Co. v. York, 65 S.Ct. 1464, June 18, 1945, the parties herein, with permission of the court, filed supplemental briefs discussing the effect of that most recent precedent. Defendants argue that it is substantially controlling, while plaintiffs contend that it is applicable only to state-created rights enforced under the diversity-of-citizenship jurisdiction of the federal court.

The present action, brought by creditors of the Southern Minnesota Joint Stock Land Bank of Minneapolis to recover an assessment of 100 per cent on the par value of stock of the bank under § 16 of the Federal Farm Loan Act, 12 U.S.C.A. § 812, was instituted in November, 1943, against Charles Armbrecht, as owner of record, and Jules S. Bache, as beneficial owner, of 100 shares of the bank's stock. Plaintiffs rested federal jurisdiction both on the statute and on the diverse citizenship of the parties. This action represented the culmination of a series of legal moves to recover from the stockholders an amount equal to the par value of their stock following the closing of the bank May 2, 1932, in a completely insolvent condition. In an action instituted by these plaintiffs on July 28, 1932, the District Court for the District of Minnesota appointed a receiver for the collection of these assessments. Holmberg v. Southern Minnesota Joint Stock Land Bank of Minneapolis, D.C.Minn., 10 F. Supp. 795; cf. Holmberg v. Anchell, D.C. S.D.N.Y., 24 F.Supp. 594, affirmed Holmberg v. Merrick, 2 Cir., 110 F.2d 1022. Thereafter the receiver, usually obtaining ancillary appointment, brought actions to effect such collection in several state and federal jurisdictions until it became settled that the only method of enforcement of the statutory liability was through an equitable class action brought on behalf of bank creditors. Holmberg v. Carr, 2 Cir., 1936, 86 F.2d 727; Christopher v. Brusselback, 1938, 302 U.S. 500, 58 S.Ct. 350, 82 L.Ed. 388. In one of the actions which thus failed, defendant Armbrecht was named as a party and was served with process in New York City on August 13, 1936.

On May 2, 1942, to avoid any possible effects of the New York statute of limitations, the plaintiffs instituted an action to recover on this stock against various defendants, including Armbrecht, not served in Holmberg v. Anchell, supra, and joined as defendants the partners doing business as J. S. Bache & Company. But the only defendant served was Morton F. Stern, a partner of the firm.¹ At a pre-trial examination he testified that J. S. Bache & Company had no interest in the stock and that at the time of the bank's failure Jules S. Bache was the beneficial owner. Thirteen months thereafter and eleven and one-half years after the bank's failure, this action was commenced against Bache and Armbrecht. Defendants pleaded as affirmative defenses laches and the New York ten-year statute of limitations, N.Y. Civil Practice Act, § 53, applicable when no other limitation is specifically prescribed. The District Court having granted recovery for the $10,000 sought, the validity of these affirmative defenses constitutes the sole issue on this appeal.

In denying the defense of laches the District Court relied on the prior history of these proceedings and agreed with plaintiffs' contention that defendant Bache was guilty of inequitable conduct by placing the stock in the name of Armbrecht in order to avoid possible double liability and by not disclosing the true identity of Armbrecht or his whereabouts so as to make proper service possible. The court also accepted the view that the Bache action could not have been brought before Stern's examination disclosed the identity of the beneficial owner of the stock. Defendants, however, contend that these are conclusions from admitted facts, rather than factual findings, and that they are erroneous, pointing out that the stock was placed in Armbrecht's name long before insolvency, on January 20, 1928 (the District Court's finding that this was done in 1931 is obviously an error, as the documentary records show); that placing stock in the name of a nominee is an old Wall Street custom in no way forbidden by law; that plaintiffs knew of the correct legal procedure as early as 1936, and with reasonable diligence could have discovered and served Armbrecht, who lived throughout the period in the Bronx in New York City, instead of relying upon some process-server's assertion that he could not be found; and that either such an action against Armbrecht or inquiry at the Bache Company would have disclosed at once the interest of Jules S. Bache in the stock, which was not concealed. Decision of these matters and a fuller recital of the facts bearing upon them become unnecessary, however, in view of our conclusion that the rationale of the York case requires the application of the New York statute to this action.

For decision of our problem we must examine both the York case and the earlier case which it expounds, namely, Russell v. Todd. The latter was an action identical with ours here, for a stock assessment under this same provision of the Federal Farm Loan Act. The Court, finding such liability enforceable only by a single representative suit in equity, held inapplicable the New York three-year statute of limitations governing actions against directors or stockholders of banking associations, N.Y. Civil Practice Act, § 49, par. 4, citing state decisions holding this provision inapplicable to purely equitable remedies. It did not have occasion to pass on the ten-year statute (the action there being brought three years and eight months after it accrued), which under state decisions unquestionably affects all forms of equity suits. Equity Corporation v. Groves, 294 N.Y. 8, 60 N.E.2d 19; Ford v. Clendenin, 215 N.Y. 10, 16, 109 N.E. 124, Ann.Cas.1917A, 658; Gilmore v. Ham, 142 N.Y. 1, 6, 36 N.E. 826, 40 Am.St.Rep. 554; Mencher v. Richards, 256 App.Div. 280, 282, 9 N.Y.S.2d 990. In fact it answered the claim that under New York law laches was not a defense and that in the light of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 58 S.Ct. 860, 82 L.Ed. 1290, federal courts "are no longer free to apply a different rule" in the exercise of their statutory equitable jurisdiction by saying, 309 U.S. at page 294, 60 S.Ct. at page 534, 84 L.Ed. 754: "But in this case laches has not been held to be a defense and the Court has not declined to give effect to a state statute shown to be applicable. In the circumstances we have no occasion to consider the extent to which federal courts, in the exercise of the authority conferred upon them by Congress to administer equitable remedies, are bound to follow state statutes and decisions affecting those remedies."

The opinion in the York case begins by quoting this reservation of the Todd case and then says, "The question thus carefully left open in Russell v. Todd is now before us." 65 S.Ct. 1465. And the Court thereupon decides that recovery in a federal court must be barred by a state statute of limitations if recovery in a state court will be thus barred. True, the Court carefully limits its decision to diversity cases, saying, "We put to one side the considerations relevant in disposing of questions that arise when a federal court is adjudicating a claim based on a federal law," citing cases under the rubric "for instance." This express reservation is the foundation of the plaintiffs' present contention herein, but we think they push it beyond what the Court intended. The cases cited were Board of Com'rs v. United States, 308 U.S. 343, 60 S.Ct. 285, 84 L.Ed.313; Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L.Ed. 694; D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956; Clearfield Trust Co. v. United States, 318 U.S. 363, ...