Brusselback v. Chicago Joint Stock Land Bank

• Decision Date: 21 September 1936
• Docket Number: No. 5719.,5719.
• Citation: 85 F.2d 617
• Parties: BRUSSELBACK et al. v. CHICAGO JOINT STOCK LAND BANK. GAGE et al. v. W. E. BRUSSELBACK et al.
• Court: U.S. Court of Appeals — Seventh Circuit

85 F.2d 617 (1936)

BRUSSELBACK et al. v. CHICAGO JOINT STOCK LAND BANK.

GAGE et al. v. W. E. BRUSSELBACK et al.

No. 5719.

Circuit Court of Appeals, Seventh Circuit.

September 21, 1936.

James G. Condon and John M. Tuohy, both of Chicago, Ill., for appellants.

Morris Townley, J. Arthur Miller, and Don Kenneth Jones, all of Chicago, Ill., for appellees.

Before SPARKS and ALSCHULER, Circuit Judges, and BRIGGLE, District Judge.

ALSCHULER, Circuit Judge.

Appellants seek reversal of a decree in equity finding the Chicago Joint Stock Land Bank (herein called Bank) to be insolvent, and ordering an assessment of 100 per cent. upon its shareholders, and appointing as receiver to collect it the same person who was appointed receiver by the Federal Farm Loan Board to wind up the affairs of the Bank.

The bill as originally filed October 1, 1932, charged that the Bank was insolvent; and prayed that the assets of the Bank be administered by a judicial receiver to be appointed by the court instead of by the statutory receiver appointed by the Farm Loan Board, and that the shareholders' statutory liability be fixed and assessed, and ordered paid to a judicial receiver. The District Court held that the statutory receiver was the proper person to administer the assets, and denied a motion for the appointment of a judicial receiver. Brusselback v. Chicago Joint Stock Land Bank of Chicago et al., 1 F.Supp. 736. Thereupon that court made an order directing that the cause of action which sought to fix and enforce the shareholders' statutory liability be separated from that which sought judicial administration of the Bank's assets.

Pursuant to this order two amended bills were filed; one seeking to assess and enforce the shareholders' liability, filed December 7, 1932, and the other to have judicial administration of the assets of the Bank. Holding, as above stated, that the receiver named by the Federal Farm Loan Board was the proper administrator of the assets, the District Court dismissed the last-named bill, and on appeal to this court that decree was affirmed. Brusselback v. Chicago Joint Stock Land Bank et al., 69 F.(2d) 598, certiorari denied, 292 U.S. 641, 54 S.Ct. 774, 78 L.Ed. 1493.

Answers to the first above-named amended bill were filed by various shareholders, including appellants, and motions to dismiss were overruled; and the cause was referred to a master, who heard the evidence, and filed his report finding that the Bank was insolvent and fixing the liability of its shareholders at one hundred per cent. of the par value of their respective stock holdings. The court overruled exceptions to the master's report, and sustaining the report entered a decree for appellees as above stated.

For appellants many propositions are put forth, whereof we shall discuss such only as we deem of sufficient import. It is contended that there is here no diversity of citizenship, and that therefore the federal court does not have jurisdiction. It is replied that there is involved a federal question whereof the federal court has jurisdiction regardless of diversity of citizenship. Wyman v. Wallace, 201 U.S. 230, 26 S.Ct. 495, 50 L.Ed. 738. But appellants contend that the 1925 amendment to the Judicial Code (28 U.S.C. § 42 28 U.S. C.A. § 42) removed such cases from the jurisdiction of the federal courts in providing that "No district court shall have jurisdiction of any action or suit by or against any corporation upon the ground that it was incorporated by or under an Act of Congress." But it is evident that this amendment has application only where the fact of federal incorporation was of itself the basis of the federal jurisdiction. See Bankers' Trust Co. v. Texas & Pac. Ry., 241 U.S. 295, 307, 36 S.Ct. 569, 60 L. Ed. 1010.

Here, however, there is a federal question other than the mere fact of incorporation under federal law, since the liability of shareholders is predicated wholly upon section 16 of the Federal Farm Loan Act (12 U.S.C. § 812 12 U.S.C.A. § 812), which provides: "Shareholders of every joint-stock land bank organized under this chapter 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." The action, being thus predicated upon a federal law, is within the jurisdiction of the federal court regardless of the citizenship of the parties, provided there is involved the jurisdictional amount.

For appellants it is contended that when Brusselback originally filed his bill he held only $4,000 of the bonds, $2,000 due in 1964 and $2,000 in 1965, with no provision for acceleration of the debt in case of default in interest payment; that only $45 of interest was due at the time at which the bill was filed; that therefore the jurisdictional amount of $3,000 was not involved; and that the subsequent joining of other plaintiffs by amendment will not supply the element of jurisdictional amount, because their claims did not accrue until after the filing of the original bill.

Section 29 of the Federal Farm Loan Act (12 U.S.C. § 963 12 U.S.C.A. § 963) provides: "Upon default of any obligation, Federal land banks and joint stock land banks may be declared insolvent and placed in the hands of a receiver by the Federal Farm Loan Board, and proceedings shall thereupon be had in accordance with the provisions of this section regarding national farm loan associations." There was here the finding of insolvency by the Federal Farm Loan Board and the appointment of a receiver for the administration of the Bank's assets. This, however, has been held to be not such a finding of insolvency as will bind shareholders, nor of itself authorize an assessment of their statutory liability. Wheeler v. Greene, 280 U. S. 49, 50 S.Ct. 21, 74 L.Ed. 160.

The amended bill asserted the insolvency of the corporation and a deficiency in the assets to meet its liabilities, and prayed the court to make the assessment and to appoint a receiver to collect it. If the bill were sustained, and the Bank's insolvency appeared and the deficit were found to be not less than the shareholders' full statutory liability, the liability on the Brusselback bonds would not be limited to the amount of the matured interest, but would be the face of his bonds with interest. Pennsylvania Steel Co. v. New York City Ry. Co. (C.C.A.) 198 F. 721, 738. Upon the bill there is thus involved on the Brusselback bonds over $4,000 — more than sufficient to sustain federal jurisdiction.

Besides, as above stated, after the cause had proceeded for a time under the original bill the court deemed that there were in essence two matters involved, each of which should be the subject of a separate bill, and ordered the filing of two separate bills in place of the one. Although the original bill (as well as the amended bills) specified that it was brought in behalf of Brusselback and all other bondholders and other creditors, when the so-called amended bills were filed this bill included as one of the complainants certain trustees of a trust holding $128,000 of the bonds, on which there came due, after the original bill was filed and before the filing of the amended bill, interest of $3,200, which was unpaid when the bill was filed. We believe, as to this question the filing of these separate bills should be considered in the light of the bringing of new suits on the date of their filing, and that the then accrued interest on these trustee held bonds alone supplied the jurisdictional amount.

Such of appellants whose shareholdings were less than $3,000 par make the contention that since, as to each of them, the maximum of recovery would be less than $3,000, the jurisdictional amount is not involved, and the court is therefore without jurisdiction over them. Upon this proposition we are impressed with what was said by the Circuit Court of Appeals for the Sixth Circuit in the case of Robertson v. Conway, 188 F. 579, where what we consider a like question was involved. It was there held that the liability of the various shareholders constituted a trust fund for the payment of all corporate creditors whose claims the corporate assets are insufficient to meet (up to the par of the stock held by the various shareholders), and that all may be joined in the action. To substantially the same effect, so far as here applicable, is Alsop v. Conway, 188 F. 568, decided by the same court at the same time. The same question arose in Brusselback et al. v. Cago Corp. et al., 85 F.(2d) 20, very recently decided by the Circuit Court of Appeals for the Second Circuit. There the same conclusion was reached as in Robertson v. Conway, which was cited as authority. There was also cited with approval R. F. C. v. Central Republic Trust Co., 11 F.Supp. 976 (D.C. N.D.Ill.), wherein on a similar question the same conclusion was reached. We are in accord with the final paragraph of the opinion in the Cago Corporation Case, stating: "The contention of some of the appellees that since the amount claimed against them is less than $3,000, the court is without jurisdiction, is erroneous. The court has jurisdiction over the fund sought to be collected here and such jurisdiction necessarily carried with it jurisdiction over all component parts of the fund. Hence the fact that liability of certain stockholders may be less than $3,000 does not deprive the court of jurisdiction as to them."

Appellants insist that under the statute the liability of the shareholders is secondary only, and may not be invoked until after the assets of the corporation have been exhausted, and that, therefore, this action was prematurely brought and cannot properly be...