Dresser v. Bates

• Decision Date: 05 March 1918
• Docket Number: 1265-1267.
• Parties: DRESSER v. BATES.
• Court: U.S. Court of Appeals — First Circuit

250 F. 525

DRESSER v. BATES.

Nos. 1265-1267.

United States Court of Appeals, First Circuit.

March 5, 1918

On Motion to Amend Decree April 8, 1918.

Brown District Judge, dissenting in part.

On Motion to Amend Decree. [Copyrighted Material Omitted]

Robert M. Morse, of Boston, Mass. (Paul Dudley Dean and John B Sullivan, Jr., both of Boston, Mass., on the brief), for appellants Dresser and others.

A. E. Pillsbury, of Boston, Mass. (Arthur P. French, of Boston, Mass., on the brief), for appellants Gale and others.

Clarence Alfred Bunker, of Boston, Mass., for appellants Bunker and others.

Frank N. Nay, of Boston, Mass. (William A. Kneeland, of Boston, Mass., on the brief), for appellee.

Before DODGE, Circuit Judge, and ALDRICH and BROWN, District Judges.

DODGE Circuit Judge.

These are appeals from the District Court, in a suit in equity by the receiver of the National City Bank of Cambridge, brought in 1910 under section 24, par. 16, of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1092 (Comp. St. 1916, Sec. 991(16))). Each of the five defendants named in the bill was a director»of said bank during the whole or some part of the period between November, 1906, and February, 1910. The defendants Edwin Dresser, Sumner Dresser, and George W. Gale were directors, and Edwin Dresser was president, during the whole of said period, and for some years prior thereto. The defendants David A. Barber and George E. Richardson were directors from January, 1907, during the remainder of said period. By the defalcations during said period of one Coleman, employed in the bank in various capacities, the bank lost $310,143.02 in all. The defendants Edwin Dresser and George E. Richardson died after the suit was begun, but before the final decree. The defendant Gale has died pending these appeals. The District Court has held the said surviving defendants, and the estates of those deceased, liable for $283,218.20 of said total amount, that having been the amount of Coleman's defalcations after September 30, 1907, and lost to the bank, as the court found, through negligence on their part as directors, from which decree these appeals are taken.

The evidence in the case was heard by a special master. It consisted largely of oral testimony before him bearing upon the question of negligence. It came before the District Court, in connection with exceptions to his final report, upon a printed record containing, among other things, the report of the oral testimony so given. The master expressly found no negligence proved and none of the defendants liable for any part of said total defalcations.

The opinion of the District Court (229 F. 772) sets forth fully the principal facts involved, with the court's reasons for rejecting in part the conclusions reached by the master, and the different conclusions adopted by it. Although the plaintiff receiver recovers less than he claimed by the decree below, he has not appealed therefrom.

1. In dealing with the master's report, the court held that his findings were to be regarded as presumptively correct, and they were sustained, except so far as the court regarded them as clearly against the weight of the evidence reported, or so inconsistent with one another that they could not properly stand. This view as to the weight due to the master's findings the court based upon Kimberley v. Arms, 129 U.S. 512, 9 Sup.Ct. 355, 32 L.Ed. 764, and the terms of the order of reference to the master. Davis v. Schwartz, 155 U.S. 631, 15 Sup.Ct. 237, 39 L.Ed. 289, relied upon by the defendants as requiring that the master's findings of fact be regarded as unassailable, so far as depending 'upon conflicting testimony or upon the credibility of witnesses, or so far as there is any testimony consistent with the finding,' was distinguished on the ground that the order of reference therein dealt with contained no reservation of the right of review, as did the order of reference in this case. We find no error in the view adopted by the court.

2. The earliest in date of the failures in due performance of their duties, found by the court to have been proved against the directors, is a failure to have the bank's books properly examined on September 30, 1907.

When Coleman began his depredations in November, 1906, he was acting as bookkeeper, and also as paying and receiving teller. He had been bookkeeper since January, 1904, and had held both the above positions since October, 1905. He continued to hold them both until November, 1907. In that month a separate teller was employed, and Coleman was thereafter bookkeeper only. From January, 1904, the individual or depositors' ledger, important in this case, was in his sole charge. While bookkeeper only he did not, but while teller also he did, have the handling of the money coming into the bank day by day.

The methods whereby he accomplished and concealed his thefts are set forth in the opinion below, and need not be here restated in detail. They were ingenious, and appear to have been altogether novel. Earl, the cashier, had habitually let him keep the depositors' ledger, without verifying his work thereon at any time, and had also let him deal unsupervised with checks on the bank presented day by day in envelopes received at the bank from the clearing house or from certain banks not acting through that institution. Earl had habitually accepted as correct the total amounts called for from the bank in settlement by the slips received with each envelope and presented to him by Coleman as correct, without himself verifying the slips by the checks in the envelope before Coleman could remove therefrom and suppress his own fraudulently drawn checks. Earl had kept the cashier's ledger according to said slips, and had made the remittances called for by them as if correct in amount, with no attempt at any time to see for himself whether they were in fact correct or not. To the routine thus established Coleman had adapted his methods of depredation and concealment, and to its deficiencies their success was due. There is little or no controversy as to the material facts regarding these matters.

The master and the District Court agree in finding none of the defendants liable for losses to the bank by Coleman's thefts before September 30, 1907. The amount he had taken before that date appears to have been about $27,000 in all. The sums making up this amount having been taken while he was teller, as well as bookkeeper, it is far more probable, as the court finds, that he took them, as a rule, out of the cash coming into the bank, than by resort to his other method; i.e., that of procuring the drawing of a check to his own order, to be included in the clearing house or other envelope received at the bank, abstracted by him before it could come under the cashier's eye, and wrongfully charged up by him on the depositors' ledger, as more fully explained in the court's opinion. What he took in cash he concealed, for the most part, by falsely charging the amount taken to the account of some depositor on said ledger, so as to leave the apparent total due all depositors, according to that book, in agreement with the total appearing from the cashier's ledger, which total, however, was always less than the true amount by the amount of his stealings.

That it was not due to any negligence chargeable to the defendant directors that Coleman was enabled to put his method of stealing into operation, and to keep it from being detected up to the end of September, 1907, may now be taken as established. If the bank's losses thereby, prior to that time, can be attributed to negligence on the part of any official connected with the bank, Earl, its cashier throughout said period, is the only official so negligent. As to Earl, the court said in its opinion:

'Possessed of his knowledge and intelligence, it would seem that, if he had exercised the slightest care in supervising Coleman in the handling of the clearing-house checks and in the keeping of the depositors' ledger, the greater portion of the defalcation never would have taken place.'

But the court, here agreeing with the master, expressly declined to find the bank's directors negligent in employing Earl originally, as they had done in 1903, and it nowhere overruled or disturbed findings by the master that they had not been negligent in retaining him in office. The court regarded the question whether or not they were so negligent as of little importance, in view of the findings made by it.

As to Edwin Dresser, the bank's president and executive head, he appears without dispute to have taken, throughout the period in question and for many years before, a part in its daily operations not taken by any other director, which brought him much more closely than any of them into connection with said operations, and afforded him constant opportunities, not possessed by them, for observing the methods followed in conducting said operations and the manner in which the various employes were performing their duties.

It is undisputed that he had regularly been at the bank every morning for an hour or two, to consider with the cashier questions relating to investment of the bank's funds, and again for an hour or so every afternoon, to ascertain what had gone on during the day; that he had been accustomed to deal personally with matters such as shortages of tellers' cash, or their discharge when found by him incompetent or careless, and to sign at times checks for balances due the clearing house or the First National Bank of Boston, instead of the cashier.

It is also undisputed that he was one of the largest stockholders of the bank, and one of the largest depositors therein; that his personal deposit account ran from $35,000 to $50,000 all the...