Gerner v. Thompson

• Decision Date: 07 May 1896
• Citation: 74 F. 125
• Parties: GERNER v. THOMPSON et al.
• Court: U.S. District Court — District of Nebraska

74 F. 125

GERNER v. THOMPSON et al.

United States Circuit Court, D. Nebraska.

May 7, 1896

Webster Rose & Fisherdick, for plaintiff.

Charles O. Whedon and Deweese & Hall, for defendants.

SHIRAS District Judge.

This action was originally brought in the district court of Lancaster county, in this state, and was thence removed to this court by the defendants on the ground that the controversy was one arising under the laws of the United States, in that the defendants were proceeded against as directors of the Capital City National Bank, a corporation created under the statutes of the United States, and under the provisions of section 5239 of the Revised States. The jurisdiction of this court can only be sustained upon the theory that the right of action is based upon the provisions of the statutes of the United States, for it is based upon a common-law right of action, then the defendants did not have the right of removal to this court, for the reason that the requisite diversity of citizenship does not exist, and the defendants are residents of the state of Nebraska. In Bailey v. Mosher, 11 C.C.A. 304, 63 F 488, the court of appeals for this circuit held that actions of this character, based upon the provisions of the national banking act, could be brought only in the name of the receiver. The facts in that case as averred in the petition were that Bailey had been induced to loan to the Capital City National Bank the sum of $11,500 in reliance upon the correctness of the official reports made by the directors to the comptroller of the currency, and published in the public newspapers, touching the condition of the bank, it being averred that these reports were intentionally falsified, that dividends had been paid when there were no earnings for the payment thereof, and that other violations of the banking act had been committed, whereby the plaintiff had been damaged in being induced to loan money to an insolvent bank. The court held that the petition counted only on the provisions of the banking act, and not upon the common law, and therefore the action could not be maintained, because it was not in the name of the receiver. The effect of this decision, if I correctly apprehend its meaning, is that rights of action created by the provisions of the banking act are to be deemed part of the assets of the corporation, and as such are enforceable only by the receiver in case the bank has become insolvent; but rights of action arising at the common law and growing out of transactions not injuriously affecting the capital stock of the interests of the shareholders at large, may be enforced by any one suffering special injury thereby. Under the ruling of the court of appeals in Bailey v. Mosher, to maintain this action in its present form it must be held to be an action at the common law in the nature of an action of deceit, in which event this court is without jurisdiction, because the defendants in that event did not have the right of removal; while, on the other hand, if the action is based upon the national banking act, it is not maintainable in the name of the present plaintiff.

In the brief of the counsel for plaintiff it is argued that the attack upon the jurisdiction is largely based upon the ruling made in the case of Welles v. Graves, 41 F. 459, and that this case has been in substance overruled by the court of appeals for this circuit in the case of Hayden v. Thompson, 17 C.C.A. 592, 71 F. 60. Although not necessary in the decision of the real questions arising in this case, it may not be out of place to call attention to the points actually ruled on in Welles v. Graves, and the effect thereon of the subsequent decision of the court of appeals for this circuit, the more especially as there are pending in this court a number of cases arising out of the failure of national banks. Welles was the receiver of the Commercial National Bank, and as such he brought an action at law against Graves et al., who were the directors of the bank, the action in express terms being based upon the provisions of section 5239 of the Revised Statutes. The petition contained 55 separate counts, 9 of which charged that the defendants, as directors, had on nine different dates declared dividends of 5 per cent. upon the capital stock, and caused the same to be paid to the shareholders, when in fact there had been no earnings, and the debts exceeded the assets. The remaining 46 counts charged violation of section 5200, which provides that the liabilities of any person, company, or corporation shall not exceed one-tenth part of the capital stock of the bank. In ruling upon the demurrer to the petition, I reached two-conclusions,-- the one that, to maintain suits by the receiver to enforce the liability of directors arising under the provisions of section 5239, it must appear that a forfeiture had been adjudged by a court of the United States, as under the provisions of that section directors could be held personally liable only for such acts as would work a forfeiture of the charter; and, secondly, that the proceeding should be in equity, and not at law. In the course of the opinion given in that case I pointed out the difficulties that would arise if it should be held that any person could maintain actions at law or in equity to enforce the liability imposed upon directors by section 5239. As I construe the decision of the court of appeals in Bailey v. Mosher, supra, and Stuart v. Hayden, 18 C.C.A. 618, 72 F. 402, it is therein held that, after the appointment of a receiver, he is the only party who can maintain an action against the directors for damages resulting from violations of section 5239. And to the same effect is the ruling of the supreme court in Honor v. Henning, 93 U.S. 228. The decision in the latter case, as well as the reasoning in Hayden v. Thompson, fully support the conclusion reached in Welles v. Graves that proceedings of the nature of that set forth in that case should be in equity, and not at law. Thus it appears that the rulings made in Welles v. Graves have been sustained in all but the one particular, to wit, the one touching the necessity of procuring a judgment of forfeiture of the franchise of the corporation as a basis for enforcing the statutory liability of directors created by the provisions of section 5239. So far as I am now advised, this question had not been passed upon or decided by the court of appeals in this circuit, nor by the supreme court. The assumption that the decision in Hayden v. Thompson is at variance with, and therefore overruled, the view on this question held in Welles v. Graves, is not well founded. In the former case, Hayden, as receiver, sued the shareholders in the bank to recover sums of money paid them as dividends, when none had been earned. The court of appeals held that the proceeding was not based upon section 5239, which was self-evident, but was founded upon the equitable principle that in case of the wrongful diversion of trust funds the same may be pursued and recovered for the benefit of the trust. Thus it is said in the opinion in that case:

'This is a suit, we repeat, to recover diverted trust funds. It rests upon no statute or act of congress. Its foundation lies deeper. It rests on the fundamental principle of equity that he who has received moneys impressed with a trust, without consideration ought to and must restore them.'

In other words, Hayden v. Thompson was a bill in equity against the shareholders of a bank to recover money paid them as dividends when none had been earned, and which money formed part of the assets of the bank, and to which the creditors were equitably entitled in preference to the shareholders; whereas in Welles v. Graves the action was based solely upon the provisions of section 5239, being brought against the directors of the bank for liabilities created by that section. In the former case the question whether a forfeiture of the charter of the bank was a prerequisite to the maintenance of an action against the directors could not possibly arise, and it was expressly stated in the opinion that:

'It is not a suit to recover damages from the directors for a violation of the national banking act, under section 5239; hence the arguments presented and the authorities cited at length to show that complainant has not

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