O'connor v. Rhodes

• Decision Date: 29 June 1935
• Docket Number: No. 6414.,6414.
• Citation: 79 F.2d 146,65 App. DC 21
• Parties: O'CONNOR et al. v. RHODES.
• Court: U.S. Court of Appeals — District of Columbia Circuit

65 App. DC 21, 79 F.2d 146 (1935)

O'CONNOR et al. v. RHODES.^*

No. 6414.

United States Court of Appeals for the District of Columbia.

Argued May 14, 1935.

Decided June 29, 1935.

Motion for Reargument, etc., Denied July 25, 1935.

Frederick R. Conway, Swagar Sherley, Frederick De C. Faust, Charles F. Wilson, George P. Barse, Leslie C. Garnett, U. S. Atty., John W. Fihelly, Asst. U. S. Atty., Harry Le Roy Jones, and Edward First, all of Washington, D. C., for appellants.

Richard L. Merrick, Philip H. Marcum, R. H. McNeill, Chas. A. Douglas, and Hugh H. Obear, all of Washington, D. C., for appellee.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, HITZ, and GRONER, JJ., Associate Justices.

GRONER, Associate Justice.

Appellee, who was plaintiff below, was a depositor and creditor of the Commercial National Bank of Washington, D. C. In February, 1933, the Comptroller of the Currency found the bank to be insolvent and appointed Baldwin receiver. The bank has ever since been in the hands of the receiver, and a dividend of 50 per cent. has been paid to depositors.

When the receiver took charge, there was on deposit with the bank large sums of money to the credit of the Comptroller of the Currency, the Alien Property Custodian, and the United States Shipping Board M. M. Fleet Corporation. The Comptroller, the Fleet Corporation, and the Alien Property Custodian had each demanded and received from the bank certain of its securities for the safekeeping and return of the deposits. The deposit to the credit of the Comptroller consisted of funds of various insolvent banks then in liquidation. That of the Fleet Corporation "was a special account" out of which the current expenses of the corporation were paid. That of the Custodian, a fund designated "the Retained Administrative Expense Fund," made up of retained percentages of enemy-owned money.

Some time during 1933 or 1934 the receiver paid 100 cents on the dollar of the deposits of the Comptroller, the Fleet Corporation, and the Alien Property Custodian.

In the summer of 1934 Rhodes brought his bill and amended bill in the Supreme Court of the District of Columbia, for himself and others similarly situated, against appellants to require the restoration of the excess (viz., 50 per cent.) of money claimed to have been thus preferentially paid by the receiver of the bank.

The Comptroller, the receiver, and the bank filed a joint motion to dismiss, on the ground that the right to bring the suit belonged primarily to the receiver and, lacking a showing that demand had been made upon the Comptroller or the receiver, and refused by them, the plaintiff had no right to maintain the suit. As a further ground, they charged that the Comptroller had authority to exact the pledge and the bank had authority to make it.

The Fleet Corporation and the Attorney General — on whom the powers and duties of the Alien Property Custodian had been conferred by Executive order — moved to dismiss on the same grounds, and in addition on the ground that the deposits in each instance were public moneys of the United States entitled to priority of payment under Rev. St. § 5153, as amended (12 USCA § 90). The Attorney General moved to dismiss also on the ground that the suit is not maintainable because in effect a suit against the United States. The lower court overruled the motions to dismiss. We granted a special appeal on the statement of urgency, etc. We will discuss the defenses in the order in which we have stated them.

First. Was demand upon the receiver of the bank or the Comptroller necessary to plaintiff's right to bring the suit? We think not.

The amended bill alleges that the sum on deposit to the credit of the Comptroller was withdrawn from the bank and paid to the Comptroller by the receiver, at the Comptroller's direction, and that the money to the credit of the Fleet Corporation and the Alien Property Custodian was withdrawn and paid over by the receiver, likewise at the direction and by authority of the Comptroller. These allegations, together with a number of others of like import — for instance, that the respective claims for payment in full were filed "upon the solicitation and request of" the receiver who, in each case, acted on the direction and authority of the Comptroller — abundantly show that the Comptroller and the receiver were both actively and personally involved in the transactions claimed to be unlawful. This, as we think, is enough to take the case out of the ordinary rule.

Undoubtedly it is the right and duty of the receiver, as appellants claim, to decide when it is necessary to institute proceedings against debtors of the bank, and the receiver in this respect is the instrument of the Comptroller and wholly under his control. Kennedy v. Gibson, 8 Wall. 498, 19 L. Ed. 476. The receiver, in applying the machinery of liquidation, becomes to all intents and purposes the bank — at least he stands in the place of the bank; and while the suspension of the bank does not work a dissolution of the corporation (Bank of Bethel v. Pahquioque Bank, 14 Wall. 383, 20 L. Ed. 840), the receiver, after his appointment, represents the bank, its stockholders and creditors. Case v. Terrell, 11 Wall. 199, 20 L. Ed. 134; Scott v. Armstrong, 146 U. S. 499, 13 S. Ct. 148, 36 L. Ed. 1059. Appellee concedes all of this, and agrees that if the purpose of the suit was to enforce the collection of an ordinary claim or debt belonging and owing to the bank or to enforce liability of its stockholders, the Comptroller's power and the receiver's duty would be exclusive; but insists that where, as here, the bill charges that prior to the appointment of the receiver the bank had contracted with certain persons and corporations unlawfully and in contravention of the banking laws of the United States, and the Comptroller and his receiver adopt and confirm such unlawful contracts, the exception, rather than the rule, is applicable. And appellee says that this is even more the case when the Comptroller himself is charged with being an original party to an alleged unlawful contract. We think this must be true, and further that where the bill alleges, by a statement of appropriate and convincing facts, that demand on the Comptroller would be futile, demand in such case is unnecessary. Here, as we have seen, it is alleged that the Comptroller has caused a sum of money to his official credit to be paid back to himself as Comptroller. To demand that he bring suit for its recovery is the equivalent of a demand that he sue himself. Certainly it will not be claimed that, in the circumstances, he would be a proper person to conduct the suit; and this being true, the right of a creditor to sue in his own name ought not to be questioned. This is even more apparent when it is recognized that here, as is shown by the pleadings, the Comptroller, receiver, and the bank are hostile to the claims asserted by the plaintiff in the suit, and are contending not alone against the creditor's right to sue, but as well against the validity of his claims. To say that in every case the rule of exclusive power in the receiver is positive and admits of no exception, would be to sacrifice substantial rights to matters of form. That is not a purpose for which courts are constituted. See Brinckerhoff v. Bostwick, 88 N. Y. 52-59.

In this view, we think it may be affirmed that while, as a rule, a stockholder's or creditor's suit cannot be maintained until demand has been made upon the receiver, the Comptroller, or the bank, the rule does not apply where the receiver or Comptroller refuses to bring the suit (Ex parte Chetwood, 165 U. S. 443, 17 S. Ct. 385, 41 L. Ed. 782), or where it would be a vain thing to make demand upon them, and it is shown there is necessity for a suit for the protection of the interests of creditors. Thompson on Corporations (3d Ed.) §§ 4594-4596.

Second. Did the bank have authority and capacity to pledge its assets to secure the deposits of the Comptroller, the Fleet Corporation, and the Alien Property Custodian? The question is new.

The right of a national bank to pledge assets to secure a private deposit was decided adversely to the right by the Supreme Court at its present term in the case of Texas & Pac. R. Co. v. Pottorff, 291 U. S. 245, 54 S. Ct. 416, 417, 78 L. Ed. 777. In that case the bank had pledged Liberty bonds to secure the deposit. The receiver of the bank refused to recognize the pledge and the railway insisted that the power to pledge was incidental to the general grant of powers necessary to carry on the business of banking, etc. The Supreme Court said: "National banks lack power to pledge their assets to secure a private deposit. The measure of their powers is the statutory grant; and powers not conferred by Congress are denied. For the act under which national banks are organized constitutes a complete system for their government."

And in Marion v. Sneeden, 291 U. S. 262, 54 S. Ct. 421, 422, 78 L. Ed. 787, decided at the same time, the court said: "For the reasons stated in Texas & Pacific Ry. Co. v. Pottorff, 291 U. S. 245, 54 S. Ct. 416, 78 L. Ed. 777, decided this day, we are of opinion that the Act of 1864 did not confer the power to pledge assets to secure any public deposits except those made under section 45 by the Secretary of the Treasury of the United States. The power conferred by each later act, except that of 1930, was limited to securing specific federal funds. A national bank could not legally pledge assets to secure funds of a state, or of a political subdivision thereof, prior to the 1930 amendment; and since then it can do so legally only if it is located in a state in which state banks are so authorized. In some states national banks had, prior to the 1930 amendment, frequently pledged assets to secure public deposits of the state or of a political subdivision thereof; comptrollers of the currency knew that this was being done; and they assumed that the...