309 U.S. 280 (1940), 329, Russell v. Todd

Docket NºNo. 329
Citation309 U.S. 280, 60 S.Ct. 527, 84 L.Ed. 754
Party NameRussell v. Todd
Case DateFebruary 26, 1940
CourtUnited States Supreme Court

Page 280

309 U.S. 280 (1940)

60 S.Ct. 527, 84 L.Ed. 754

Russell

v.

Todd

No. 329

United States Supreme Court

Feb. 26, 1940

Argued January 12, 1940

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. The shareholders' liability, "equally and ratably," for the debts of a joint stock land bank, under § 16 of the Federal Farm Loan Act, is enforceable only by a single representative suit in equity in behalf of all the creditors, in which the existence and extent of insolvency, and the ratable shares of the contribution by shareholders, can be ascertained and an equitable distribution made of the fund recovered. P. 285.

The suit is not any the less in equity because it turns out that the liability of the shareholders equals the full par value of their stock. P. 286.

2. The test of the inadequacy of the legal remedy prerequisite to resort to a federal court of equity is the legal remedy which federal, rather than state, courts afford. P. 286.

The jurisdiction of federal courts of equity, as determined by that test, is neither enlarged nor diminished by the names given to remedies or the distinction made between them by state practice.

3. The Rules of Decision Act embraces rules established by judicial decision as well as statutory rules, but does not apply to suits in equity. P. 287.

4. Equity provides its own rule of limitations through the doctrine of laches, in the absence of any statute of limitations made applicable to equity suits. P. 287.

5. When consonant with equitable principles, federal courts of equity apply as their own the local statutes of limitations applicable to equitable causes of action. P. 288.

6. Even though there is no state statute applicable to similar equitable demands, when the jurisdiction of the federal court is concurrent with that at law, or the suit is brought in aid of a legal right, equity will withhold its remedy if the legal right is barred by the local statute of limitations. P. 289.

7. Where the federal equity jurisdiction is exclusive and is not exercised in aid of a legal right, state statutes of limitations barring actions at law are inapplicable, and, in the absence of any state statute barring the equitable remedy in like cases, the federal court

Page 281

is remitted to and applies the doctrine of laches as controlling. P. 289.

8. In the absence of a controlling Act of Congress, federal courts of equity, in enforcing rights arising under federal statutes, will, without reference to the Rules of Decision Act, adopt and apply local statutes of limitations which are applied to like causes of action by the state court. P. 293.

9. Sec. 49 of the New York Civil Practice Act, barring in three years actions against directors or stockholders of moneyed corporations or banking associations to enforce a liability created by the common law or by statute, appears to have been construed by the state courts as inapplicable to suits where the remedy is exclusively equitable. Held, that the present equitable cause of action given by § 16 of the Federal Farm Loan Act is not barred by the three-year statute of limitations prescribed by that section. Pp. 290, 293.

10. 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 is not considered. P. 294.

104 F.2d 169 affirmed.

Certiorari, 308 U.S. 541, to review the affirmance of a decree, 1 F.Supp. 788; 20 id. 930, 936, which overruled a plea of the statute of limitations and granted relief to the plaintiffs in a suit to enforce shareholders' liability for debts of an insolvent joint stock land bank.

Page 284

STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

The question decisive of this case is whether, in a suit brought in the federal District Court in New York to enforce the statutory liability of shareholders of a joint stock land bank for its debts, the court rightly declined to apply the three-year state statute of limitations.

Respondents Todd, Work, and Weiss, copartners, in behalf of themselves and other creditors of the insolvent Ohio Joint Stock Land Bank of Cincinnati, Ohio, brought suit in the District Court for Southern New York against petitioners, copartners, to enforce their liability as record shareholders of the bank under § 16 of the Federal Farm Loan Act, 39 Stat. 374, 12 U.S.C. § 812. Petitioners, among other defense, pleaded the New York three-year statute of limitations. § 49(4), N.Y.Civil Practice Act. The District Court found, as is conceded here, that the cause of action accrued April 6, 1928; that plaintiffs in the suit had notice of its accrual on April 15, 1928, and that the suit was commenced three years and eight months later, on December 16, 1931. It overruled the plea of limitations and gave judgment for respondents. 1 F.Supp. 788; 20 F.Supp. 930, 936. The Court of Appeals for the Second Circuit affirmed, 104 F.2d 169.

Both courts, holding that the suit was exclusively within the equity jurisdiction of the court, ruled that the doctrine of laches, and not the state statute of limitations, was applicable, and held that respondents had not been guilty of laches. We granted certiorari October 16, 1939, limited to the question of the application of the New York statute, upon a petition which challenged the decision below as in conflict with the decisions of this Court applying the three-year statute of limitations in a suit to enforce the liability of stockholders [60 S.Ct. 530] of a state bank in Platt v. Wilmot, 193 U.S. 602; cf., as to liability of stockholders of national banks, McDonald v. Thompson, 184 U.S. 71; McClaine v. Rankin, 197 U.S. 154.

Page 285

Section 16 of the Federal Farm Loan Act provides that the shareholders of every joint stock land bank

shall be held individually responsible, equally and ratably, and not one for another, for all . . . debts . . . of such bank to the extent of the amount of stock owned by them at the par value thereof. . . .

Unlike the comparable provisions of the National Bank Act, R.S. §§ 5151, 5234, 12 U.S.C. §§ 63, 192, which authorize the receiver of a national bank to enforce the liability of stockholders of an insolvent national bank assessed against them by the Comptroller of the Currency, this section of the Federal Farm Loan Act confers no power on the receiver of a farm loan bank to levy an assessment on the stockholders of an insolvent bank, or to maintain a suit to enforce their liability. Wheeler v. Greene, 280 U.S. 49; Christopher v. Brusselbank, 302 U.S. 500, 502; Brusselback v. Cago Corporation, 85 F.2d 20.

As the liability of the stockholders as prescribed by this section is to pay "equally and ratably," the sole remedy is by plenary representative suit brought in equity in behalf of all creditors of the bank, in which the existence and extent of insolvency, and the ratable shares of the contribution by shareholders, can be ascertained and an equitable distribution made of the fund recovered. But this amount cannot be determined and its distribution effected without resort to the procedures traditionally employed by equity upon a bill for an accounting and for the distribution of a fund brought into its custody. No stockholder is liable for more than his proportion of the debts, not exceeding the par value of his stock. His proportion can be ascertained only upon an accounting of the debts and of the stock and a pro rata distribution of the liability among the shareholders and of the proceeds of recovery among the creditors. Such a suit, during its progress and at its conclusion by a final decree of distribution, requires the exercise of powers which are peculiarly

Page 286

those of a court of equity to bring before it in a single suit all the necessary parties to ascertain their rights and liabilities, and to adjust and settle them by its decrees. Pollard v. Bailey, 20 Wall. 520; Terry v. Little, 101 U.S. 216; Richmond v. Irons, 121 U.S. 27; Christopher v. Brusselback, supra.

When the receiver or officer performing like functions is authorized by statute to assess the shareholders, the assessment is binding on them by reason of their membership in the corporation, and each shareholder then becomes liable in a suit at law for the amount of the assessment. See Christopher v. Brusselback, supra, 503, and cases cited. It is for this reason that there is a divergence between the procedure for recovering assessments of shareholders of national banks and that for enforcing the liability of shareholders in a federal land bank. In the latter case, there is no legal remedy, the relief being afforded exclusively in equity. The test of the inadequacy of the legal remedy prerequisite to resort to a federal court of equity is the legal remedy which federal, rather than state, courts afford. Di Giovanni v. Camden Fire Insurance Assn., 296 U.S. 64; Atlas Life Insurance Co. v. Southern Inc., 306 U.S. 563. And the jurisdiction of federal courts of equity, as determined by that test, is neither enlarged nor diminished by the names given to remedies or the distinction made between them by state practice. Stratton v. St. Louis S.W. Ry. Co., 284 U.S. 530, 534.

The present suit is not any the less in equity because it turns out that the liability of the shareholders equals the full par value of their stock. The amount of the liability could not be determined and assessed without an accounting of assets and liabilities, and distribution could not be effected among creditors without resort to the power traditionally that of a court of equity to make its determination of the rights of the parties effective

Page 287

through its [60 S.Ct. 531] decrees in personam. Here, the decree directs payment into court of the amount found to be due, for distribution among the creditors in conformity to the...

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