Hughes v. Reed

Decision Date08 January 1931
Docket NumberNo. 291.,291.
Citation46 F.2d 435
PartiesHUGHES v. REED et al.
CourtU.S. Court of Appeals — Tenth Circuit

COPYRIGHT MATERIAL OMITTED

E. B. Stroud, Jr., of Dallas, Tex., and Robert B. Keenan, of Tulsa, Okl. (Locke, Locke, Stroud & Randolph, of Dallas, Tex., on the brief), for appellant.

A. J. Biddison and Joseph L. Hull, both of Tulsa, Okl. (Harry Campbell, Valjean Biddison, John H. Cantrell, Preston C. West, N. A. Gibson, A. A. Davidson, and West, Gibson, Sherman, Davidson & Hull, all of Tulsa, Okl., on the brief), for appellees.

Before PHILLIPS and McDERMOTT, Circuit Judges, and POLLOCK, District Judge.

McDERMOTT, Circuit Judge.

This is an action in equity by the receiver of the First National Bank of Sapulpa against its former directors to recover losses alleged to have been incurred by the bank. Two general claims are made: First, that the directors knowingly and intentionally permitted the officers of the bank to make loans in excess of 10 per cent. of the unimpaired capital and surplus of the bank, prohibited by section 5200 of the Revised Statutes as amended (12 USCA § 84). Second, that the defendants failed faithfully and diligently to discharge their duties as directors, in the making of improvident loans, in permitting overdrafts, in withdrawing their own deposits, in failing to heed the warnings of the Comptroller, in failing actively to supervise and direct the bank's affairs, and in improper payment of dividends.

The amended bill, upon which the case was tried, is most general in its terms. It charges that loans were made to named borrowers in excess of the legal limit. But it does not allege when the excess loans were made, or when the loss occurred; instead, exhibits are attached which disclose when the notes were made. But the evidence discloses that the notes were renewals; the bill therefore does not truthfully allege when the loss occurred. Mohrenstecher v. Westervelt (C. C. A. 8) 87 F. 157. Neither does it allege the amount of the loss in any instance. Although the amended bill was not filed until March 22, 1926, and the receiver had been in charge for nearly three years, the plaintiff alleges in each instance that the amount of the loss is unknown. No proof was offered to support many of the charges of the bill. On the other hand, proof was offered and received of the total losses of the bank. It is quite apparent that the theory of the pleader was to charge defendants with everything, with the hope that the proof might develop something. It should be remembered that, while the form of this action is equitable, the relief sought is the recovery of money; the liability is legal, and the wrong complained of is personal and not vicarious; before there can be a recovery against any director, a violation of his statutory or common-law duty must be proven as to him; and the amount of the loss occasioned by his dereliction must be proven. The pleading should allege the wrong, when it was committed, and the loss occasioned thereby, as far as it is possible so to do. The pleader has shot at the covey with a shotgun; he should aim at a particular bird with a rifle. While the pleading is open to criticism, and the motions requiring better particulars should have been sustained in part, we are not prepared to say, as did the master, that it failed to state a cause of action.

Answers were filed, denying generally and specifically, and setting up the statutes of limitation of Oklahoma. The cause was referred to a special master "for the purpose of taking the testimony * * * with directions to report to this court, his findings of fact and conclusions of law." Although the court had settled the pleadings, the master "disposed of the questions of law raised by the respective answers." The findings of fact of the master consist of an affirmative finding as to three formal matters, and twenty-five negative findings, that is, a finding as to each paragraph of the bill, that the allegations of that paragraph were not proven. The result was that exceptions were filed to all but three of the twenty-five findings, and the entire case was before the trial court, without the assistance which normally comes from a reference, to wit, a narrowing of controversies over facts to those facts in actual dispute. The conclusion of law was that the bill be dismissed as to each defendant. The trial court overruled the exceptions, approved the report, and dismissed the bill. The receiver appeals.

The record is not in compliance with equity rule 75 (28 USCA § 723) which provides in part:

"The evidence to be included in the record shall not be set forth in full, but shall be stated in simple and condensed form, all parts not essential to the decision of the questions presented by the appeal being omitted and the testimony of witnesses being stated only in narrative form, save that if either party desires it, and the court or judge so directs, any part of the testimony shall be reproduced in the exact words of the witness."

The rule is applicable to "the evidence," and is not confined to "the testimony of witnesses." An effort has been made to avoid printing the testimony of witnesses in question and answer form, although parts of that are a mere combination of question and answer, rather than a narration. But no effort has been made to "state in simple and condensed form" the 340 exhibits introduced. These exhibits occupy 479 pages of the printed record, of which 296 pages are in fine type. More than 200 pages are devoted to printing in full all reports of the national bank examiner from 1919 on, repeating in each case the printed instructions on the blank. Each report occupies 15 pages of fine print; perhaps one or two lines in each are material. The minutes of every directors' meeting since 1918 are printed in full, including resolutions authorizing small donations to the Red Cross, proxies for meetings of the Federal Reserve Bank, and other details of no possible relevance here. Deposit tickets, notes, and checks are printed in full. To require these hundreds of pages to be set and printed is a sheer waste of money; and the result is a record which this court could only master at the expense of other work of the circuit. It is a clear violation of a rule in force since 1913, and to which the courts have called attention repeatedly. If it were not for the fact that reversible error appears from a superficial examination, the appellant would be required to comply with the rules.

The trial court held that the two-year statute of limitations of Oklahoma was applicable. Strangely enough, this voluminous record does not disclose the one controlling fact, when the suit was brought. The appellant's brief advises us that it was originally filed on May 21, 1925, and the appellees do not deny it. Ordinarily, the doctrine of laches, and not limitations, is applicable in equity. But actions against directors or officers of a bank to recover for derelictions of duty may be brought either at law or, if necessary to avoid multiplicity of suits or if accounting or discovery is necessary, in equity. Bates v. Dresser, 251 U. S. 524, 40 S. Ct. 247, 64 L. Ed. 388; Bowerman v. Hamner, 250 U. S. 504, 39 S. Ct. 549, 63 L. Ed. 1113; Boyd v. Schneider (C. C. A. 7) 131 F. 223; Cooper v. Hill (C. C. A. 8) 94 F. 582; Cockrill v. Cooper (C. C. A. 8) 86 F. 7; Hayden v. Thompson (C. C. A. 8) 71 F. 60; Emerson v. Gaither, 103 Md. 564, 64 A. 26, 7 Ann. Cas. 1114, 8 L. R. A. (N. S.) 738, and note; 3 R. C. L. 467.

Where the jurisdiction of law and equity are concurrent, the applicable statute of limitations of the state governs, and not the equitable doctrine of laches. Curtis v. Connly, 257 U. S. 260, 42 S. Ct. 100, 66 L. Ed. 222 (equitable action against bank directors); McDonald v. Thompson, 184 U. S. 71, 22 S. Ct. 297, 46 L. Ed. 437 (equitable action against stockholders of national bank); Baker v. Cummings, 169 U. S. 189, 206, 18 S. Ct. 367, 42 L. Ed. 711; Metropolitan Bank v. St. Louis Dispatch Company, 149 U. S. 436, 448, 13 S. Ct. 944, 37 L. Ed. 799; Kelly v. Dolan (C. C. A. 3) 233 F. 635; Hale v. Coffin (C. C. A. 1) 120 F. 470, 474; Anderson v. Anderson (D. C. Ga.) 23 F.(2d) 331; Id. (C. C. A. 5) 28 F.(2d) 1007, certiorari denied Sill v. Pennington, 279 U. S. 845, 49 S. Ct. 265, 73 L. Ed. 990; Emerson v. Gaither, 103 Md. 564, 64 A. 26, 8 L. R. A. (N. S.) 738, 7 Ann. Cas. 1114; Insurance Company v. Brown, 11 Mich. 265; Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 15 S. W. 448, 24 Am. St. Rep. 625; 3 R. C. L. 469. There is some confusion in the authorities upon the point, growing out of a failure to distinguish a purely equitable action against corporate officers, as to enforce a trust, and a legal action seeking money damages for a breach of statutory or common-law duty, brought in equity for convenience. It is only in the latter case that concurrent jurisdiction exists.

The Oklahoma statutes of limitation are:

"Second. Within three years: An action upon a contract express or implied, not in writing; an action upon a liability created by statute, other than a forfeiture or penalty.

"Third. Within two years: * * * an action for injury to the rights of another, not arising on contract, and not hereinafter enumerated; an action for relief on the ground of fraud — the cause of action in such case shall not be deemed to have accrued until the discovery of the fraud." C. O. S. 1921, § 185.

The appellant contends that the three-year statute, and the appellees the two-year statute, applies. The amended bill is double-barreled; it alleges in terms a statutory duty and a breach, and a common-law duty and a breach. It is settled that the specific duties placed upon bank directors by the statute do not "relieve such directors from the common-law duty to be honest and diligent, as is shown by the oath which they are required to take `to diligently and honestly administer the affairs of such association' as well as not `to knowingly violate or...

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