Bachman v. First-Mechanics Nat. Bank of Trenton

• Citation: 69 F. Supp. 739
• Decision Date: 18 January 1947
• Docket Number: No. 9569.,9569.
• Parties: BACHMAN v. FIRST-MECHANICS NAT. BANK OF TRENTON.
• Court: U.S. District Court — District of New Jersey

69 F. Supp. 739

BACHMAN v. FIRST-MECHANICS NAT. BANK OF TRENTON.

No. 9569.

District Court, D. New Jersey.

January 18, 1947.

Ellis L. Pierson and George H. Bohlinger, Jr., both of Trenton, for plaintiffs.

William H. Speer, of Jersey City, and J. Mitchell Reese, and Herbert W. Backes, both of Trenton, for defendant.

FORMAN, District Judge.

Plaintiffs, New Jersey residents, common share-holders of the defendant national bank organized under the laws of the United States with its principal place of business in Trenton, New Jersey, bring this suit for themselves and on behalf of the other common share-holders. They allege, among other things, that the stock of defendant is divided into three classes; namely, preferred "A", held entirely by the Reconstruction Finance Corporation, preferred "B", held for the most part by certain members of the board of directors of the defendant, and common shares of which only a minority interest is held by the board of directors. They further allege that the Reconstruction Finance Corporation and the holders of preferred "B" stock propose an increased issuance of common stock for the purpose of liquidating the preferred "B" stock. They allege that, according to the articles of association of defendant, such action requires the vote of two-thirds of the common share-holders, but that it is proposed that the action should be taken upon the vote of the holders of the preferred "A" stock, the preferred "B" stock and the common stock. No charge of diversity of citizenship is made in the complaint. The plaintiffs allege that the execution of the proposed scheme to increase the common stock will work irreparable damage to those common share-holders who are not holders of the preferred "B" stock. The complaint prays for the following relief:

"1. The First-Mechanics National Bank, which is the defendant of this suit, may answer this action and each and every allegation thereof.

"2. That this court, by its order, decree that the defendant, its officers, directors, agents, servants, tellers and judges of election at the stockholders meeting called for January 14, 1947, or any adjournment thereof, be enjoined from:—

"(a) Proceeding to the election of directors until after defendant association will have performed the acts and things required of it to be performed for the application of the existing reserve fund for retirement of preferred stock as set out in Article Fourth of the Articles of Association, particularly in Sections 9 and 10 thereof, to the end that not less than 130,000 shares of preferred stock "A" now outstanding will have been retired before such election.

"(b) Permitting to be voted any shares of preferred stock "A" or of preferred stock "B" on the matters set out in Paragraph 4 of the Agenda of said meeting contained in the Notice of Meeting unless and until holders of record on the day of meeting having in their names on the stock records of Defendant Association at least two-thirds of all the shares of common stock will have voted in favor of the items set forth in said paragraph 4 of said Agenda.

"(c) Presenting or permitting to be considered an amendment to the Article of Association for the sale of any additional shares of common stock as set out in said paragraph 4.

"(d) Issuing or causing to be issued any new common stock or warrants therefor as proposed in said Notice of Meeting unless and until holders of record on the day of said meeting having in their names on the stock records of Defendant Association at least two-thirds of all of the shares of common stock will have voted in favor of the items set forth in said paragraph 4 of said Agenda."

Since the action described in the bill was contemplated at a meeting of the defendant's stockholders to be held on Tuesday, January 14, 1947, a motion was made on Monday, January 13, 1947 for a preliminary injunction temporarily effecting the relief pending final hearing for which the complaint prayed as above set forth.

In opposition to the motion defendant challenged the jurisdiction of this court to entertain the action.

The plaintiffs pleaded in their complaint jurisdiction over the case in this court by virtue of the following statutes:

"§ 94. Venue of suits.

"Actions and proceedings against any association under this chapter may be had in any district or Territorial court of the United States held within the district in which such association may be established, or in any State, county, or municipal court in the county or city in which said association is located having jurisdiction in similar cases." 12 U.S.C.A. § 94.

They also point to the following sections of the National Banking Act:

"(a) Notwithstanding any other provision of law, whether relating to restriction upon the payment of dividends upon capital stock or otherwise, the holders of such preferred stock shall be entitled to receive such cumulative dividends at a rate not exceeding 6 per centum per annum and shall have such voting and conversion rights and such control of management, and such stock shall be subject to retirement, in such manner and upon such conditions, as may be provided in the articles of association with the approval of the Comptroller of the Currency. The holders of such preferred stock shall not be held individually responsible as such holders for any debts, contracts, or engagements of such association, and shall not be liable for assessments to restore impairments in the capital of such association as now provided by law with reference to holders of common stock." 12 U.S.C.A., § 51b.

"Any national banking association may, with the approval of the Comptroller of the Currency, and by a vote of shareholders owning two-thirds of the stock of such associations, increase its capital stock to any sum approved by the said comptroller, but no increase in capital shall be valid until the whole amount of such increase is paid in and notice thereof, duly acknowledged before a notary public by the president, vice president, or cashier of such association, has been transmitted to the Comptroller of the Currency and his certificate obtained specifying the amount of such increase in capital stock and his approval thereof, and that it has been duly paid in as part of the capital of such association: Provided, however, That a national banking association may, with the approval of the Comptroller of the Currency, and by the vote of shareholders owning two-thirds of the stock of such association, increase its capital stock by the declaration of a stock dividend, provided that the surplus of said association, after the approval of the increase, shall be at least equal to 20 per centum of the capital stock as increased. Such increase shall not be effective until a certificate certifying to such declaration of dividend, signed by the president, vice president, or cashier of said association and duly acknowledged before a notary public, shall have been forwarded to the Comptroller of the Currency and his certificate obtained specifying the amount of such increase of capital stock by stock dividend, and his approval thereof." 12 U. S.C.A. § 57.

"Any national banking association may, with the approval of the Comptroller of the Currency, by the vote of shareholders owning two-thirds of the stock of such association, increase its capital stock, in accordance with existing laws, to any sum approved by the said comptroller, notwithstanding the limit fixed in its original articles of association and determined by said comptroller; and no increase of the capital stock of any national banking association either within or beyond the limit fixed in its original articles of association shall be made except in the manner herein provided." 12 U.S.C.A. § 58.

They assert that the defendant can amend its articles of association and take action to increase its capital stock only pursuant to such federal statutes. They state that they have alleged violations thereof by the defendant which bring it within the jurisdiction of the federal court.

Prior to 1882 the federal courts had jurisdiction of suits involving national banks because they were corporations of federal origin. In that year a statute was passed which was from time to time amended or reenacted until it took its present form as follows:

"Of all cases commenced by the United States, or by direction of any officer thereof, against any national banking association, and cases for winding up the affairs of any such bank; and of all suits brought by any banking association established in the district for which the court is held, under the provisions of chapter 2 of Title 12, to enjoin the Comptroller of the Currency, or any receiver acting under his direction, as provided by said chapter. And all national banking associations established under the laws of the United States shall, for the...