Anderson v. Abbott

Decision Date06 March 1944
Docket NumberNo. 3,3
Citation151 A.L.R. 1146,88 L.Ed. 793,321 U.S. 349,64 S.Ct. 531
PartiesANDERSON v. ABBOTT et al. Re
CourtU.S. Supreme Court

Mr. Allen P. Dodd, of Louisville, Ky., for respondents.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The primary question in this case is whether on these facts shareholders of a bank-stock holding company are liable under § 23 of the Federal Reserve Act, 12 U.S.C. § 64, 12 U.S.C.A. s 64, and § 12 of the National Bank Act, 12 U.S.C. § 63, 12 U.S.C.A. § 63, for an assessment on shares of a national bank in the portfolio of the holding company.

The essential facts1 may be briefly stated.

Banco Kentucky Company was organized under the laws of Delaware in July, 1929. It had broad charter powers in the field of finance. It was organized by the management of the National Bank of Kentucky and of the Louisville Trust Company—banking houses doing business at Louisville. Banco perfected the desired alliance between them by acquiring most of their shares2 in exchange for its shares. The Bank, the Trust Company, and Banco each had the same directors and certain common officers. Some of the shareholders who made the exchange also purchased additional shares of Banco stock at $25 per share. Banco stock was also sold at that price on the market to those who did not own any shares in the Bank or the Trust Company. All told some $9,900,000 in cash was realized by Banco from the sale of its shares—about $6,000,000 of which was financed on loans from the Bank and from the Trust Company. Banco's stock certificates stated that the shares were 'full-paid and nonassessable'. Its certificate of incorporation provided that the stockholders' property should 'not be subject to the payment of corporate debts to any extent whatever'.

The closing date for the exchange of shares was September 19, 1929. Beginning about September 25, 1929, Banco acquired a majority stock interest in each of five banks in Kentucky and two banks in Ohio, and a minority stock interest in another bank in Kentucky. Of these eight banks, two were national. The shares of the state, as well as the national, banks in the group carried a double liability.3 The price paid for the shares in these banks was about $11,500,000—of which some $6,500,000 was paid in cash and $5,000,000 in Banco's shares. Not all of Banco's funds were invested in bank shares. It acquired for $2,000,000 a $2,000,000 note of its president.4 It purchased 625 shares of a life insurance company for $25,000 cash. It purchased and retired 106,000 of its own shares at a cost of over $2,300,000 some $275,000 less than Banco received for them. It received dividends of about $1,180,000 on the bank stocks owned by it and paid them out at once as dividends on its own shares. It borrowed $2,600,000 from a New York bank and paid back $1,000,000. With $600,000 of that loan it purchased from the Bank certain dubious assets5—a transaction which the Kentucky court later set aside. Banco Kentucky Co.'s Receiver v. National Bank of Ky., 281 Ky. 784, 137 S.W.2d 357. It was negotiating for the purchase of the shares of an investment banking house when that house, the Bank and the Trust Company failed. That was in November, 1930—a little more than a year after Banco began its financial career. In November, 1930 a receiver was appointed for the Bank and one for Banco. In February, 1931 the Comptroller of the Currency made an assessment on the shareholders of the Bank in the amount of $4,000,000 payable on or before April 1, 1931. And in March, 1931 the receiver of the Bank notified the stockholders of Banco that he had demanded payment of the assessment from the receiver of Banco and that he intended to proceed against them for collection of the assessment to the extent that he was unable to collect from Banco. In October, 1931 the receiver of the Bank brought an action against Banco as holder of substantially all of the Bank's shares. He obtained a judgment (Keyes v. American Life Ins. Co., D.C., 1 F.Supp. 512) which was affirmed on appeal. Laurent v. Anderson, 6 Cir., 70 F.2d 819. Some $90,000 was paid on that judgment. The receiver of the Bank thereupon brought this suit against those stockholders of Banco who resided in the Western District of Kentucky in which he seeks to recover from each his proportionate part of the balance of the assessment. Similar suits against other stockholders were brought in federal district courts in other states. The District Court, after a trial, dismissed the bill. 32 F.Supp. 328. The Circuit Court of Appeals affirmed that judgment. 6 Cir., 127 F.2d 696. The case is here on certiorari.

I.

We are met at the outset with the contention that the decision in Laurent v. Anderson, supra, holding Banco liable on the assessment is res judicata of the present claim and that petitioner by bringing that suit made an election which bars the present action. We do not agree. Either the record owner or the actual owner of shares of a national bank may be liable on the statutory assessment.6 Richmond v. Irons, 121 U.S. 27, 58, 7 S.Ct. 788, 802, 30 L.Ed. 864; Keyser v. Hetz, 133 U.S. 138, 149, 10 S.Ct. 290, 294, 33 L.Ed. 531; Pauly v. State Loan & Trust Co., 165 U.S. 606, 17 S.Ct. 465, 41 L.Ed. 844; Lantry v. Wallace, 182 U.S. 536, 21 S.Ct. 878, 45 L.Ed. 1218; Ohio Valley Nat. Bk. v. Hulitt, 204 U.S. 162, 27 S.Ct. 179, 51 L.Ed. 423; Early v. Richardson, 280 U.S. 496, 50 S.Ct. 176, 74 L.Ed. 575, 69 A.L.R. 658; Forrest v. Jack, 294 U.S. 158, 55 S.Ct. 370, 79 L.Ed. 829, 96 A.L.R. 1457. A receiver may sue both—partial satisfaction of the judgment against one being a pro tanto discharge of the other. Ericson v. Slomer, 7 Cir., 94 F.2d 437. And see Continental Nat. Bank & Trust Co. v. O'Neil, 7 Cir., 82 F.2d 650. The basis of liability of each is different—apparent or titular ownership in one case, actual or beneficial ownership in the other. Hence the issues involved in each suit are not the same.7 See Reconstruction Finance Corp. v. Pelts, 7 Cir., 123 F.2d 503; Reconstruction Finance Corp. v. Barrett, 7 Cir., 131 F.2d 745, 748. If the receiver were barred from proceeding against one because he had already proceeded against the other, creditors of banks would be deprived of the full benefits of these statutes. The wisdom of the receiver's first suit rather than the fixed statutory liability would be the measure of their protection. There is no justification for such an impairment of the statutory scheme. The rules of election applicable to suits on contracts made by agents of undisclosed principals (Pittsburgh Terminal Coal Corp. v. Bennett, 3 Cir., 73 F.2d 387, 389) have been pressed upon us. But they have no application to suits to enforce a liability which has this statutory origin. Cf. Christopher v. Norvell, 201 U.S. 216, 225, 26 S.Ct. 502, 504, 50 L.Ed. 732, 5 Ann.Cas. 740.

II.

The District Court found, and the Circuit Court of Appeals agreed, that Banco was organized in good faith and was not a sham; that it was not organized for a fraudulent purpose or to conceal enterprises conducted for the benefit of the Bank; that it was not a mere holding company; that it was not formed as a means for avoiding double liability on the stock of the Bank; and that the soundness of the Bank and its ability to meet the obligations could not be questioned until after the formation of Banco. Some of these findings have been challenged. But we do not stop to examine the evidence. We accept those findings, as they were concurred in by two courts and no clear error is shown. Brewer Oil Co. v. United States, 260 U.S. 77, 86, 43 S.Ct. 60, 63, 67 L.Ed. 140; Alabama Power Co. v. Ickes, 302 U.S. 464, 477, 58 S.Ct. 300, 302, 82 L.Ed. 374. We conclude, however, that the courts below erred in dismissing the bill.

It is clear by reason of Early v. Richardson, supra, that if a stockholder of the Bank had transferred his shares to his minor children, he would not have been relieved from liability for this assessment. And see Seabury v. Green, 294 U.S. 165, 55 S.Ct. 373, 79 L.Ed. 834, 96 A.L.R. 1463. That follows because of the policy underlying these statutes. One who is legally irresponsible cannot be allowed to serve as an insulator from liability, whether that was the purpose or merely the effect of the arrangement. A father who transfers his shares to his minor children has not found a substitute for his liability. See Weston's Case, 5 Ch.App. 614. It does not matter that the transfer was in good faith, without purpose of evasion and at a time when the bank was solvent. Early v. Richardson, supra. The vice of the arrangement is found in the nature of the transferee and his relationship to the transferor. Cf. Nickalls v. Merry, 7 Eng. & Irish App. 530. The same result will at times obtain where the transferee is financially irresponsible. This does not mean that every stockholder of a national bank who sells his shares remains liable because his transferee turns out to be irresponsible or impecunious. It is clear that he does not. Earle v. Carson, 188 U.S. 42, 54, 55, 23 S.Ct. 254, 259, 47 L.Ed. 373. But where after the sale he retains through his transferee an investment position in the bank, including control, he cannot escape the statutory liability if his transferee does not have resources commensurate with the risks of those holdings. In such a case he remains liable as a 'stockholder' or 'shareholder' within the meaning of these statutes to the extent of his interest in the underlying shares of the bank. For he retains control and the other benefits of ownership without substituting in his stead any one who is responsible for the risks of the banking business. The law has been edging towards that result. See Hansen v. Agnew, 195 Wash. 354, 80 P.2d 845; Metropolitan Holding Co. v. Snyder, 8 Cir., 79 F.2d...

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