Agnew v. Board of Governors

• Decision Date: 13 February 1946
• Docket Number: No. 9102.,9102.
• Parties: AGNEW et al. v. BOARD OF GOVERNORS OF FEDERAL RESERVE SYSTEM et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

153 F.2d 785 (1946)

AGNEW et al. v. BOARD OF GOVERNORS OF FEDERAL RESERVE SYSTEM et al.

No. 9102.

United States Court of Appeals District of Columbia.

Argued November 14, 1945.

Decided February 13, 1946.

Writ of Certiorari Granted April 29, 1946.

Mr. Hugh H. Obear, of Washington, D. C., for appellants.

Mr. J. Leonard Townsend, Assistant General Attorney, Board of Governors of the Federal Reserve System, of Washington, D. C., with whom Mr. Edward M. Curran, United States Attorney, of Washington, D. C., was on the brief, for appellees.

Before EDGERTON, WILBUR K. MILLER, and PRETTYMAN, Associate Justices.

Writ of Certiorari Granted April 29, 1946. See 66 S.Ct. 979.

PRETTYMAN, Associate Justice.

Appellants sought from the District Court a writ of certiorari to the Board of Governors of the Federal Reserve System (to which we shall refer as the Board) or, in the alternative, a mandatory injunction, seeking review of an order of the Board which had removed them from office as directors of the Paterson National Bank of Paterson, New Jersey. The District Court dismissed the complaint.

The substantive controversy revolves around the meaning of the words "primarily engaged" in the following statute:

"No officer, director, or employee of any corporation or unincorporated association, no partner or employee of any partnership, and no individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, shall serve the same time as an officer, director, or employee of any member bank except in limited classes of cases in which the Board of Governors of the Federal Reserve System may allow such service by general regulations when in the judgment of the said Board it would not unduly influence the investment policies of such member bank or the advice it gives its customers regarding investments."¹

The Board is empowered,² upon certification by the Comptroller of the Currency, to remove from office a director of a member bank if it finds that he has continued to "violate any law" relating to the bank, after having been warned by the Comptroller. A director who participates in the management of a bank after having thus been ordered removed from office, is liable to a fine of not more than $5,000 or imprisonment for not more than five years, or both.

Appellants were directors of the Paterson National Bank, one since November 27, 1934, and the other since January 13, 1925. Since March, 1941, they have been employees of Eastman, Dillon & Co., a New York concern engaged in the securities business.

After certification by the Comptroller of the Currency and after hearing, the Board made the following findings of fact in respect to Eastman, Dillon & Co.:

The company advertises its business as "Underwriters, Distributors, Dealers and Brokers in Industrial, Railroad, Public Utility and Municipal Securities." For the fiscal year 1943, its gross income from the "underwriting field" (meaning the issue, flotation, underwriting, public sale or distribution, at wholesale or retail or through syndicate participation, of stocks, bonds or other similar securities)³ amounted to 26 per cent of its gross income from all sources; and its gross income from the brokerage business (acting as agent in buying and selling for others) amounted to 42 per cent of its gross income from all sources. For the fiscal year ending February 29, 1944, its gross income from the "underwriting field" amounted to 32 per cent of its gross income from all sources; and its gross income from the brokerage business amounted to 47 per cent of its gross income from all sources. Considering the market value of the securities which were bought and sold by the firm as agent as well as those bought and sold by it for its own account during an indefinite period prior to September 20, 1943, that part lying within the "underwriting field" would represent about 15 per cent of the total market value. If one were to classify the total number of transactions during an indefinite period prior to September 20, 1943, it would be found that those in the "underwriting field" would amount to a similar percentage (15 per cent) of the total number. During the year 1943, the firm ranked ninth among 94 leading investment bankers of the country with respect to its total participations in underwritings of bonds. Excluding municipal and railroad bonds, its participations in underwritings during 1943 amounted to $14,657,000. For a period during 1943 it ranked first among the underwriters.

Upon the basis of the foregoing findings of fact, the Board reached the following "Conclusions of Law":

"The only substantial question, and the one upon which this matter turns, is whether Eastman, Dillon & Co. was, at the times stated in the certificate of the Comptroller of the Currency, `primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities' within the meaning of section 32 of the Act. The Respondents contend that the use of the word `primarily' limits the application of the statute to those cases in which the underwriting business of the securities firm is first in volume in comparison with any other business or businesses in which it engages. It is true that, under one of its definitions, the word has a quantitative meaning. This, however, is not the only accepted meaning. The word `primary' is frequently used in another sense. For instance, red is one of the `primary' colors but it is not the only primary color; Saturn is one of the `primary' planets but it is neither the only nor the largest one. Standard dictionaries cite as examples of the use of the word in the latter sense expressions such as `the primary causes of a war' and `a matter of primary importance.' (Merriam-Webster International Dictionary and Webster's Collegiate Dictionary) The Board is mindful of the rules of statutory construction that, while all of the words of a statute should be considered as having meaning, where a word used in a statute is susceptible of several meanings, that meaning should be adopted which best accords with the intention of the legislature in enacting the statute. Also, a word used in a statute should not be construed to produce an absurd consequence if it is susceptible of another construction in accord with the legislative intent. Section 32 is one of several measures enacted in 1933 designed to divorce commercial banking from investment banking. To say that a securities firm ranking ninth among the leading investment bankers of the country with respect to its total participations in underwritings of bonds, and for a period ranking first, should be held to be beyond the scope of the statute is to say that Congress enacted a statute with the intention that it would apply to no one. The construction for which the Respondents contend, which is based on one accepted definition of the word `primarily', would lead to that result. The other construction, which is based on another accepted definition of that word, would conform to the Congressional intention as established by the legislative history. Accordingly, the Board finds as a matter of law that Eastman, Dillon & Co., at the times stated, was `primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities.'"

In general terms the questions presented are: Had the District Court jurisdiction? If so, what power has the court? Should the Board's interpretation of the statute stand?

It is important that the first two questions be more precisely defined. Generalities as to judicial review serve to confuse rather than to clarify. Three features of the case at bar delimit its questions of jurisdiction and of power. First, the statute involved is a general prohibition directed to all persons whatsoever. It forbids the persons described from being directors of a member bank. The authority of the Board is statutory and extends as far as, but no further than, the acts prohibited by the statute itself. Second, the Board seeks to determine the meaning of the statute as a matter of law; it does not present as the determinative premise of its order a finding of fact that Eastman, Dillon & Co. was primarily engaged in underwriting. It is quite clear and commendably candid about its action and its objective. The facts as to Eastman, Dillon & Co. are the material from which the ruling is fashioned, but the ruling itself is a statutory construction. Third, no statutory method of appeal exists and the persons involved must, in order to test their rights, either seek the process of injunction or submit to criminal prosecution. The order of the Board is a final order.

The question of jurisdiction, therefore, is: Where an administrative agency issues a final order affecting the rights of individuals, which order is based upon a construction of a statute of general application, upon which construction the authority of the agency depends, and where, there being no statutory appeal, the individuals involved have no means of testing their rights except by civil action for injunction or by subjecting themselves to criminal liability by disobeying the order, has a Federal District Court jurisdiction to examine the order of the agency in a civil action for injunction? We think that it has.

We are not at this point considering the range of issues open to review, but merely whether, under the circumstances stated, resort can be had to the court at all. It is the right to challenge, not the extent of the remedial power, which must first be considered. We think it unnecessary to analyze the long line of cases dealing with the subject. Concurring in the St. Joseph Stock Yards...