First Federal Savings & Loan Ass'n v. Loomis

• Citation: 97 F.2d 831
• Decision Date: 20 May 1938
• Docket Number: No. 6381.,6381.
• Parties: FIRST FEDERAL SAVINGS & LOAN ASS'N OF WISCONSIN v. LOOMIS, Atty. Gen. of Wisconsin, et al.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

97 F.2d 831 (1938)

FIRST FEDERAL SAVINGS & LOAN ASS'N OF WISCONSIN v. LOOMIS, Atty. Gen. of Wisconsin, et al.

No. 6381.

Circuit Court of Appeals, Seventh Circuit.

May 20, 1938.

Orland S. Loomis, Atty. Gen. of Wisconsin, Leo E. Vaudreuil, Deputy Atty. Gen., of Wisconsin, and Benjamin Poss, Sp. Counsel, and Joseph P. Brazy, both of Milwaukee, Wis., for appellants.

William Ryan, of Madison, Wis., and Horace Russell, of Washington, D. C., Gen. Counsel, Federal Home Loan Bank Board, (Emery J. Woodall, of New York City, Associate Gen. Counsel, Federal Home Loan Bank Board, J. Aldrich Hall, and Milton I. Baldinger, both of Washington, D. C., of counsel), for appellee.

Golden W. Bell, Asst. Sol. Gen., and Warner W. Gardner, Sp. Atty., of Washington, D. C., for the United States as amicus curiæ.

Gerard M. Ungaro and Lyman W. Sherwood, both of Chicago, Ill., amici curiæ.

Before SPARKS, MAJOR, and TREANOR, Circuit Judges.

MAJOR, Circuit Judge.

This appeal is from an injunctive decree of the District Court.¹ The questions presented are: (1) Whether the District Court had jurisdiction of the action under sections 24 and 274d of the Judicial Code, 28 U.S.C.A. §§ 41 and 400; (2) whether section 5 of the Home Owners' Loan Act of 1933, as amended, 12 U.S.C.A. § 1464, is a valid exercise of the constitutional power of Congress; (3) whether appellants have a right to assert the invalidity of that act.

Appellee is a federal savings and loan association organized on February 20, 1934, under the act in question. The United States owns fully paid income shares of appellee of the aggregate par value of $275,000. The Home Owners' Loan Corporation, whose capital stock is wholly owned by the United States, is the owner of fully paid income shares of appellee of the aggregate par value of $150,000, and the aggregate of both ownerships constitutes 51 per cent. of appellee's total capital stock. Appellee has its principal place of business in Milwaukee, Wisconsin, and, since its incorporation, has transacted business in that State, without its permission and over its objection.

Under the provisions of section 14.53 of the Wisconsin Statutes the Attorney General of that State is authorized to appear for it in the prosecution or defense of all actions in which the State is interested or is a party. By the provisions of section 294.04 of the same Statutes, he is authorized to bring an action in the name of the State upon his own information, or upon the complaint of any private party, when any person shall usurp, intrude into, or unlawfully hold or exercise any franchise, within the State of Wisconsin. Pursuant to the Statutes of that State the Banking Commission of Wisconsin has authority to issue certificates of incorporation to building and loan associations, without which no such association may function within that State. It also has general supervision and control over the business of such associations incorporated under the laws of that State, including authority to require such associations to follow and observe the provisions of its laws with respect to such associations.

Prior to the beginning of this action the State of Wisconsin, upon the relation of appellants, applied to the Supreme Court of Wisconsin for leave to begin an original action in that court and filed an information against appellee and its officers and directors, of which due notice was given them. State ex rel. Cleary v. Hopkins St. Bldg. & Loan Ass'n, 217 Wis. 179, 257 N.W. 684. That proceeding was in the nature of quo warranto, and sought to determine whether appellee could lawfully engage in a building and loan business in Wisconsin without complying with the laws of that State. It also sought to oust appellee from usurping, intruding into, holding or exercising the franchise or privilege of engaging in or operating as a building and loan association within Wisconsin. That relation and petition, among other matters, set forth the state statutory provisions with respect to the organization and conduct of such associations and alleged that they had been in force for more than sixty years; that such associations were under the administrative agency of the State, through its banking department, which for over twenty years had discretionary powers in granting or refusing certificates of incorporation according to certain standards; that such associations are quasi-public corporations under the control and supervision of appellant, the Commission; that investments of such associations and the quality of mortgages accepted by it are subject to the approval of the Commission, to which such associations must make reports of their financial conditions, and whenever the business of such an association is conducted contrary to law, or when its financial condition is unsound, the Commission may take charge of and liquidate it. It was further alleged that no necessity existed for additional building and loan associations in Milwaukee; that, pursuant to authority from the Commission, seventy-nine such associations existed and were doing business in Milwaukee, a city of 600,000 population; that the last one authorized in that city, on April 28, 1930, had liquidated and discontinued business, and that the State through its Commission, at various times since that date, had determined that additional associations in that city would interfere with, jeopardize, and damage such associations already established, and the building and loan association plan as provided by the State laws.

At this juncture appellee filed its bill in equity in the District Court of the United States, by which it sought the relief granted in the decree, and asked for a declaratory judgment that appellee had the lawful right and franchise to transact business as a Federal Savings and Loan Association within the State of Wisconsin, and that as such it was under the sole authority and control of the laws of the United States.

Among other matters the bill averred that appellants would, unless restrained, bring suits in the courts of the State to prevent appellee from transacting any business; that they were asserting that appellee was unlawfully usurping and exercising a franchise, and transacting business without authority or right to do so; that the acts done and threatened to be done by appellants were wrongful and without authority of law, and would hinder and harass appellee in the transaction of its business, and in the performance of its duties as an instrumentality of the United States, and that the injury caused thereby to appellee would be irreparable, and the amount thereof was not wholly measurable in damages or fully recoverable in an action at law.

Appellants answered the bill in equity and later filed their amended answer setting forth allegations similar to those contained in their petition and information lodged with the Supreme Court, as hereinbefore referred to. The amended answer admitted certain allegations of the bill, and denied others, including appellee's legal existence and its right to do business in Wisconsin. There were further denials that they had made or were making statements derogatory to appellee's business which had damaged it, or would damage it in the future. They accordingly prayed that appellee be declared to be unlawfully engaged in the building and loan business in Wisconsin, and that it be restrained from continuing such business; that the preliminary injunctions be dissolved and the bill dismissed.

Appellee thereupon filed its motion to dismiss the amended answer, and for a decree pro confesso according to the demand of the bill. The court did not pass upon this motion, but without hearing evidence, filed special findings of fact, upon which it concluded:

"1. That the Home Owners' Loan Act of 1933, including section 5 thereof, is valid.

"2. That the plaintiff is a corporation organized and existing pursuant to and by virtue of said Act, and has the lawful right to transact business as a Federal savings and loan association within the State of Wisconsin, and that as a Federal savings and loan association it is under the sole authority and control of the laws of the United States."

Upon these findings and conclusions, and on appellee's motion, it rendered the injunctive decree hereinbefore set forth.

Appellants' first contention is premised on their allegation that appellee had full right and opportunity to assert all of its right and obtain all the relief claimed in this action, by defending in the proceeding brought by appellants, in the name of the State of Wisconsin upon relation of its officials, in the Supreme Court of Wisconsin. We think there is no merit in this contention, under the rulings in Ludwig v. Western Union Telegraph Company, 216 U. S. 146, 30 S.Ct. 280, 54 L.Ed. 423; Terrace v. Thompson, 263 U.S. 197, 44 S.Ct. 15, 68 L.Ed. 255; Pierce v. Society of Sisters, 268 U.S. 510, 45 S.Ct. 571, 69 L.Ed. 1070, 39 A.L.R. 468.

At the threshold of the second and main question presented we are met with appellee's contention that appellants have no right to assert the invalidity of the act upon which appellee's rights are said to be based. Appellee bases its argument in support of this contention on the proposition that inasmuch as Wisconsin is not a party to this action, the mere accident that appellants are public officers of the State gives them no right to assert the invalidity of the statute until it appears that its enforcement might render them personally liable. If we admit the premise, we may concede the proposition, but it is fully met by section 14.53(1), Wisconsin Statutes, 1937:

"The Attorney-general shall:

"Appear for the state and prosecute or defend all actions and proceedings, civil or criminal, in the supreme court, in which the state is interested or a party, and attend to and prosecute or defend all civil cases sent or remanded by the supreme court to any circuit court in which the state is a party; and, when requested...