Todd v. Russell

• Citation: 20 F. Supp. 930
• Parties: TODD et al. v. RUSSELL et al.
• Decision Date: 30 December 1935
• Court: U.S. District Court — Southern District of New York

20 F. Supp. 930

TODD et al. v. RUSSELL et al.

District Court, S. D. New York.

December 30, 1935.^*

Mack, Taylor, Spiegelberg & McCauley, of New York City (H. W. Mack and G. A. Spiegelberg, both of New York City, of counsel), for plaintiffs.

Pleasants & Lowry, of New York City (Samuel A. Pleasants, P. W. Lowry, and H. S. Duncombe, all of New York City, of counsel), for defendants Russell, Miller & Carey and Carroll G. Taylor.

KNOX, District Judge.

The history of the litigations seeking to hold the present defendants to liability is long and tortuous. Since the decision here to be made will deal with but one of the controversies between the parties, it may be of assistance to those who hereafter pass upon the remaining disputes, if what has gone before be recited at some length.

Plaintiffs Todd, Work, and Weiss, each a citizen of Ohio, are partners of the firm of J. S. Todd & Co., security dealers in Cincinnati. As such they own 5 per cent. bonds of the Ohio Joint Stock Land Bank of Cincinnati, of the par value of $10,000. That institution defaulted the bonds on September 1, 1927, and was declared insolvent, a receiver being appointed on the date last mentioned. The present action is brought by plaintiffs in their own behalf, and for the benefit of all other creditors of the bank, as their respective interests may appear.

At the time of failure, the bank had outstanding stock of the par value of $250,000. Under the provisions of chapter 245, section 16, of the Federal Farm Loan Act, (12 U.S.C.A. § 812), the owners of such stock became individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of the bank to the extent of their respective holdings at the par value thereof, in addition to the amount paid therefor.

Defendants are the owners, in varying amounts, of stock of the bank. They have not discharged such liability as rests upon them under the aforementioned statute. In the light of the defense of laches raised to the bill of complaint, and defendants' contention that the statute of limitations of the states of residence of the respective defendants is determinative of the time within which this action can be maintained, the places of residence of the several defendants, as well as the dates of such residence, become a matter of moment. Accordingly, these should be set forth. The defendants should also be classified.

Defendants Henry Russell, Lawrence Miller, and Charles Steers composed the partnership of Russell, Miller & Carey, whose principal office was in the city of New York.

Russell has been a resident and citizen of California since December, 1927. Prior to that time he had lived in both New York and New Jersey. During 1927, Steers resided at Portchester, N. Y. The following year he went to Connecticut for a time. Returning to Portchester, he remained there until 1930, when he again took up residence in Connecticut. During these successive periods, Steers was a member of the New York Stock Exchange, and was within the city of New York on substantially every business day of the years following the collapse of the bank. Miller, at all times in question, has been a resident of New York. Wing, likewise, is a New York resident. Defendant Pleasants is a lawyer. Prior to June 7, 1928, he resided in New Jersey. On that day he removed to New York. While a nonresident of New York, Pleasants was in this city upon substantially every business day, and amenable to service of process. Defendant Taylor lived in New York until 1934, when he removed therefrom.

Among other things, the complaint alleges that: (a) The amounts now due and owing by said land bank to plaintiff and other creditors exceed the total par value of said land bank's stock; and (b) the assets of the bank and the value of the same are unknown to plaintiffs; and no accounting of its assets and liabilities has been had, nor has any decree been made whereby the statutory liability of the bank's stockholders has been determined.

After averring various jurisdictional requirements, and setting forth that an accounting of the assets and liabilities of the land bank will be necessary in order to determine the deficiency of assets and the statutory liability of stockholders, as well as for the ascertainment of the sums to be awarded to plaintiff, and to each other creditor of the bank, and that there is no adequate remedy at law for this relief, the bill asks for an appropriate accounting in which defendants' liabilities shall be fixed, and a decree that they discharge the same for the benefit of all creditors entitled to share in a recovery.

To the pleading so summarized, the following defenses, among others, were interposed:

(1) That no accounting is necessary as to plaintiffs, because their relative rights have never been disputed and have been previously determined by: (a) Decree of the United States District Court of Ohio in Crane v. Ohio Joint Stock Land Bank; and (b) the statutory receiver upon the distribution of dividends, and that the acceptances of the dividends constitutes an estoppel.

(2) That no accounting is necessary among the defendants because the full amount of the alleged statutory liability, if any, is unquestionably due by reason of the fact that: (a) The total statutory liability is only $250,000, and the known deficiency on December 15, 1931 (the date of the commencement of this action) exceeded $500,000; (b) that the existence of a 100 per cent. liability was directly adjudicated in Crane v. The Ohio Joint Stock Land Bank.

(3) That the action is barred by the statute of limitations by reason of the fact that the cause of action is legal and a court of equity must apply the statute of limitations to a legal cause of action.

(4) That the action is barred by laches, independently of and irrespective of the statute of limitations.

(5) The defendants have other sufficient defenses not material upon the trial of this special issue.

At this point, a chronology of events, together with some comment, touching upon both former and present proceedings by which plaintiffs, through various agencies, have sought to hold defendants to accountability, should be stated.

Coincident with the declared insolvency of the bank, the Federal Farm Loan Board appointed J. S. Horton as its receiver.

On April 6, 1928, the Federal Farm Loan Board made determination that the assets of the Land Bank were less than its liabilities to the extent of more than $250,000, and assumed to lay an assessment of 100 per cent. against its stockholders. Notice of this action was personally given to holders of stock, and by publication in the Cincinnati Enquirer and Indianapolis News. Further notice to the same effect was contained in reports issued by the bank's receiver, and these were circularized among interested parties. In August of 1928, advertisements were placed in numerous newspapers calling upon bondholders and other bank creditors to file their claims.

On April 16, 1928, Horton, as receiver, first demanded of stockholders, including defendants, that they discharge their obligations to the bank. Defendants ignored the claim. Thereafter, upon January 17, 1929, C. A. Mains, who in the meantime had succeeded to the receivership, called on defendants to make payment of the claims asserted against them. Receiving no favorable response, Mains repeated his request by means of telegrams dispatched on February 4, 1929. His attorneys then came upon the scene, and on April 12, 1929, addressed a letter to Russell, Miller & Carey, insisting that they discharge their liability. Once again, the effort at collection proved futile.

Shortly thereafter Mains surrendered his receivership, and Floyd L. Rogers took his place.

Anterior to these steps, litigation having to do with the procedure by which stockholders of failed land banks might be held to their obligations had engaged the attention of the Federal Circuit Court of Appeals for the Eighth Circuit. Krauthoff v. Kansas City Joint-Stock Land Bank, 23 F.(2d) 71 (November, 1927; rehearing, February, 1928). It was there held that the bank's receiver might properly enforce the rights of creditors of the bank against its stockholders.

Thereafter, on April 2, 1928, Howard Greene, then receiver of Bankers Joint Stock Land Bank of Milwaukee, which had likewise closed its doors, began suit against the stockholders of that institution in an effort to recover upon their statutory liabilities. Two months later the District Court, in which the action had been begun, dismissed the action. On review, the Circuit Court of Appeals for the Seventh Circuit reversed the order of dismissal upon the ground that stockholders of the bank might properly be held to accountability by its receiver. Greene v. Wheeler, 29 F.(2d) 468.

Meanwhile, in April, 1929, Mains, as receiver of the trust that had been committed to his care, brought suit against Samuel A. Pleasants and Carroll G. Taylor, two of the present defendants. On advice from Chester Morrill, secretary and general counsel for the Farm Loan Board, Mains withheld legal action upon his claims against Russell, Miller & Carey. He wished to await the outcome of the litigation that had been the subject of determination in the appellate court for the Seventh Circuit, and which was then on its way towards adjudication by the Supreme Court of the United States. Pending an expression by that tribunal as to the law governing the subject matter then in dispute, the Circuit Court of Appeals for the Eighth Circuit, in Krauthoff v. Kansas City Joint Stock Land Bank, 31 F.(2d) 75, followed the ruling it had previously made, and which is reported in (C.C.A.) 23 F.(2d) 71, supra.

On November 4, 1929, the Supreme Court announced its conclusion in Wheeler v. Greene, 280 U.S. 49, 50 S.Ct. 21, 74 L. Ed. 160, and reversed the decision previously made by the Court of Appeals for the Seventh Circuit. The Supreme Court held that the Federal...