Brusselback v. Cago Corporation

Decision Date13 July 1936
Docket NumberNo. 437.,437.
Citation85 F.2d 20
PartiesBRUSSELBACK et al. v. CAGO CORPORATION et al.
CourtU.S. Court of Appeals — Second Circuit

Root, Clark, Buckner & Ballantine, of New York City (John M. Harlan, of New York City, of counsel), for appellants.

Mack, McCauley, Spiegelberg & Gallagher, of New York City (George A. Spiegelberg and Harry W. Mack, both of New York City, of counsel), for appellees Cago Corporation, Paul Fox, John H. Gertler, and George A. Spiegelberg.

Paskus, Gordon & Hyman, of New York City (Sanford D. Levy and Charles H. Lieb, both of New York City, of counsel), for appellee Michael L. Sinsheimer.

Gifford, Woody, Carter & Hays, of New York City (Charles L. Woody, of New York City, of counsel), for appellees C. Melville Haight, Jr., and Charles E. Roehl.

George C. Howard, of New York City (Clarence McMillan, of New York City, of counsel), for appellee Marie E. Rohn.

Shearman & Sterling, of New York City, for Charles B. Drake.

Frank A. F. Severance, of New York City (Frank A. F. Severance, of New York City, of counsel), for Helen O. W. Nesmith.

F. Wright Moxley, of New York City, for Sirma and Michael J. Devlet.

Gregory, Stewart & Montgomery, of New York City (Charles G. Stevenson, of New York City, of counsel), for George E. Hall, Jessie McHugh, and S. B. Searing.

Before MANTON, SWAN, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

Appellants, holding $132,000 in bonds, creditors of the Chicago Joint Stock Land Bank which was closed by the Federal Farm Loan Board, sue on behalf of themselves and all other creditors to recover, from 91 named stockholders of the bank, the amount of their statutory liability as such stockholders.

The Chicago Joint Stock Land Bank had outstanding $4,000,000 in capital stock, divided into 40,000 shares, when it failed in October, 1932. At the time of its failure, the bank's liabilities exceeded its assets by approximately 12 million dollars, so that the stockholders would be liable to the creditors in the full amount of the par value of the stock owned by each. A suit was brought by creditors in the United States District Court, Northern District of Illinois, Eastern Division, against all the bank's stockholders to assess and enforce their liability, and a decree was entered assessing the stockholders 100 per cent. of the par value of the shares of stock held by them.

It is here alleged that such decree, to the extent that it fixes the necessity for and the amount of the assessment, is effective and binding upon all stockholders of the bank irrespective of whether or not they were served in that proceeding. The bill proceeds to allege that the amount sought in this suit will be held for the benefit of appellees and all other creditors who may file claims against the bank and that an accounting will be necessary to properly apportion the recovery among the creditors. The prayer for relief is that the suit be treated and regarded in all respects as a class suit in equity wherein and whereby appellants sue as representatives of all the creditors of the bank for the purpose of enforcing the liability of the appellee's stockholders, to the end that there may be provided a fund to be administered by the court for the equal benefit of all the creditors of the bank and that the sums realized and collected from the appellees be administered by the court as a court of equity and be distributed ratably and equitably among the creditors of the bank in such manner as the court may direct.

On motions by a number of the appellees, the bill was dismissed as to them, the court holding that an action in equity did not lie since the appellants relied on the 100 per cent. assessment already levied against the stockholders. The court reasoned that since there was no necessity for an accounting to determine the amount of the assessment, and since each creditor could sue each stockholder for the proportion of the appellees' statutory liability to which he was entitled, the remedy at law was adequate. Transfer of the case to the law side was refused on the ground that the bill failed to allege that the jurisdictional amount was involved.

The Federal Farm Loan Act (July 17, 1916, c. 245, § 16, 39 Stat. 374, 12 U.S.C.A. § 812) provides: "Shareholders of every joint stock land bank organized under this charter shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such bank to the extent of the amount of stock owned by them at the par value thereof, in addition to the amount paid in and represented by their shares."

This statute was intended to provide security to creditors as a whole. It creates a liability to creditors as a body, not to each creditor individually, and must be enforced in a representative suit on behalf of all creditors. The amounts collected are considered to constitute a trust fund, which the court will administer for the equal benefit of all creditors. Such a suit can be maintained only in equity where jurisdiction necessarily follows from the nature of the stockholders' liability. Since the stockholders' liability under the Farm Loan Act is one to the creditors as a body, equity jurisdiction is not dependent upon the amount of the liability claimed, whether or no it is the full amount. In Terry v. Little, 101 U.S. 216, 25 L.Ed. 864, a single creditor sued at law to recover for himself from stockholders liable under a statute which provided that "each stockholder * * * shall be liable and held bound individually for any sum not exceeding twice the amount of his * * * shares." In dismissing the action, the court said (101 U.S. 216, at pages 217, 218, 25 L.Ed. 864): "Undoubtedly, the object was to furnish additional security to creditors, and to have the payments when made applied to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors; but as it is to or for all creditors, it must be enforced by or for all. * * * A suit at law by one creditor to recover for himself alone is entirely inconsistent with any idea of distribution. As the liability of the stockholder is not to any individual creditor, but for contribution to a fund, out of which all creditors are to be paid alike, the appropriate remedy is by suit to enforce the contribution, and not by one creditor alone to appropriate to his own use that which belongs to others equally with himself."

Alsop v. Conway, 188 F. 568 (C.C.A.6), certiorari denied 223 U.S. 720, 32 S.Ct. 523, 56 L.Ed. 629, was a suit brought by creditors for themselves and all other creditors to enforce against stockholders, in an amount equal to the par value of the stock held by the defendants, a liability created by a statute very similar to that involved in the case at bar. The court allowed the action in equity, saying at page 575 of 188 F.: "Under these statutes it is clear that a proceeding for the enforcement of the equal and ratable liability imposed by statute can be maintained only by one or more creditors on behalf of all, and not by one creditor to secure payment of his own debt...

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  • Russell v. Todd
    • United States
    • U.S. Supreme Court
    • February 26, 1940
    ...U.S. 49, 50 S.Ct. 21, 74 L.Ed. 160; Christopher v. Brusselbank, 302 U.S. 500, 502, 58 S.Ct. 350, 351, 82 L.Ed. 388; Brusselback v. Cago Corporation, 2 Cir., 85 F.2d 20. As the liability of the stockholders as prescribed by this section is to pay 'equally and ratably', the sole remedy is by ......
  • Todd v. Russell
    • United States
    • U.S. Court of Appeals — Second Circuit
    • May 8, 1939
    ...302 U.S. 500, 502, 58 S.Ct. 350, 351, 82 L.Ed. 388; Wheeler v. Greene, 280 U.S. 49, 50 S.Ct. 21, 74 L.Ed. 160; Brusselback v. Cago Corporation, 2 Cir., 85 F.2d 20. Since this suit of necessity was brought in equity, it is to be governed by the principles of equity rather than the inflexible......
  • Nettles v. Rhett
    • United States
    • U.S. Court of Appeals — Fourth Circuit
    • January 4, 1938
    ...liability has been found to exist, as in Corker v. Soper, 5 Cir., 53 F.2d 190; Durrance v. Collier, 5 Cir., 81 F.2d 4; Brusselback v. Cago Corp., 2 Cir., 85 F.2d 20; Harris Investment Co. v. Hood, 123 Fla. 598, 167 So. 25, but also where the holding company was formed for the bona fide purp......
  • Nemkov v. O'Hare Chicago Corp., 78-1333
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    • U.S. Court of Appeals — Seventh Circuit
    • January 24, 1979
    ...claims, no shareholder was liable to any single creditor for any amount until the total amount was fixed. See Brusselback v. Cago Corporation, 85 F.2d 20, 22 (2d Cir.), Cert. denied, 299 U.S. 586, 57 S.Ct. 111, 81 L.Ed. 432 (1936). All the creditors had to be brought together in a single la......
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