Allen v. Luke

• Decision Date: 27 July 1908
• Docket Number: 194 (Old 2,135).
• Citation: 163 F. 1018
• Parties: ALLEN v. LUKE et al.
• Court: U.S. District Court — District of Massachusetts

163 F. 1018

ALLEN v. LUKE et al.

No. 194 (Old No. 2,135).

United States Circuit Court, D. Massachusetts.

July 27, 1908

Warner Warner, & Stackpole, for plaintiff.

Chas T. Gallagher and Horace G. Allen, for defendant Charles H Allen.

Gaston Snow & Saltonstall and Tower, Talbot, Hiler & Pillsbury, for defendants Weeks and others.

Herbert L. Harding, for defendant Richardson.

Hurlburt, Jones & Cabot, for defendant Loring.

Ropes, Gray & Gorham, for defendants Luke and others.

Richard D. Ware, for defendant Mason.

LOWELL Circuit Judge.

The receiver of a national bank brought a bill in equity against certain of its former directors to recover money lost to the bank through their alleged misconduct. The defendants demurred to the bill, and the demurrers were sustained. 141 F. 694. The complainant thereafter amended his bill. The creditors of the bank have been paid in full, and the stockholders' agent has been admitted to these proceedings as party complainant, instead of the receiver. The amended bill alleges that the defendants are liable:

A. For violations of the banking act: (1) In respect of unpaid loans made while the bank's reserve was too low (Rev. St. Sec. 5191 (U.S. Comp. St. 1901, p. 3486)); (2) in respect of unpaid loans made in excess of the 10 per cent. limit (section 5200); and (3) in respect of unpaid loans made upon real estate (section 5137).

The prayer for a return of dividends illegally paid, which was made by the receiver in the original bill, is now dropped by the new complainant, the stockholders' agent.

The bill further alleges that the defendants are liable:

B. For breach of their duties as directors at common law and in equity: (1) In respect of unpaid loans made negligently; (2) in respect of unpaid loans made by dishonest or incompetent agents put in office by the defendants; and (3) in respect of unpaid loans made after the liquidation of the bank had been improperly prevented by the defendants' misconduct in continuing a losing business.

The defendants have severally demurred to the amended bill. Their demurrers are alike in some respects, and in some respects are different. Including necessary repetitions, the grounds of demurrer alleged are inevitably numerous. They may be classified as follows:

First. That the bill is multifarious, by reason of the improper joinder of parties and of causes of action. This contention was decided against the defendants in the opinion already rendered.

Second. That the causal connection between the defendants' alleged violation of the banking act and the losses sustained by the bank is not made to appear sufficiently. In this respect, the allegations appear to be sufficient, except as to A (1) the unpaid loans charged to have been made while the reserve was too low. The object of Rev. St. Sec. 5191 is to insure the constant presence of a cash reserve. If this were depleted below the statutory limit, the bank might suffer loss for want of cash on hand, and for such a loss, if one occurred, the defendants might be liable, although the loans made while the reserve was below the limit were paid at maturity. This provision of the statute was not intended to protect the bank against bad loans, and a loss arising from their nonpayment cannot fairly be said to be caused by the directors' violation of law. Moreover, the bill here goes on to allege that the statutory reserve was replenished after the bad loans were made, and before the bank went into the receiver's hands. In this respect the demurrers are sustained.

Third. That the bill and the accompanying schedules fail to distinguish between new loans and renewals. Except in section 5191, the statute makes no distinction between new loans and renewals, and the defendants have already been exonerated from liability under section 5191.

Fourth. That the words used in the bill to describe the alleged action of the defendants, viz., 'participate,' 'approve,' 'permit,' and the like, are not sufficiently explicit; that they do not sufficiently describe the physical acts alleged to have been committed by the defendants and upon which the complainant relies. In this respect the court held the earlier bill demurrable, but upon careful examination of the bill as amended its language appears to be as concrete, explicit, and descriptive as is reasonably possible. There are superfluities in the bill. Thus, on page 41, the bill alleges that the Mason & Hamlin Company 'was insolvent at least as early as May 1, 1900, as the defendant directors and the deceased director represented well knew; that an examination of the affairs of the said company at any time after the said May 1, 1900, would have disclosed such insolvent condition.'

What is the purpose of the latter allegation is not obvious. If the defendants had knowledge of the company's insolvency, it is superfluous to allege their opportunity of obtaining knowledge; but the latter allegation is...