Holmberg v. Southern Minnesota Joint Stock Land Bank, 2420.

• Decision Date: 03 April 1935
• Docket Number: No. 2420.,2420.
• Parties: HOLMBERG et al. v. SOUTHERN MINNESOTA JOINT STOCK LAND BANK OF MINNEAPOLIS et al.
• Court: U.S. District Court — District of Minnesota

10 F. Supp. 795

HOLMBERG et al. v. SOUTHERN MINNESOTA JOINT STOCK LAND BANK OF MINNEAPOLIS et al.

No. 2420.

District Court, D. Minnesota, Fourth Division.

April 3, 1935.

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John C. Benson and Loring M. Staples, both of Minneapolis, Minn., for complainants.

L. R. Barker, of Minneapolis, Minn., for defendants Southern Minnesota Joint Stock Land Bank of Minneapolis, Roy A. Nelson, and Ervin J. Friede.

Allen & Whitfield, of Des Moines, Iowa, and Prendergast, Flannery & Young, of Minneapolis, Minn., for defendants Fred W. Orth, A. L. Olson, Harry J. Heider, and the First State Bank of Gary, Minn.

Jesse Van Valkenburg, of Minneapolis, Minn., for defendant Dr. E. L. Baker.

NORDBYE, District Judge.

This is a creditors' bill brought on behalf of the plaintiffs and all other creditors who may intervene herein. This form of action to enforce stockholders' liability of a joint stock land bank is suggested and approved by the Supreme Court in Wheeler v. Greene, 280 U. S. 49, 50 S. Ct. 21, 74 L. Ed. 160. On May 2, 1932, the Federal Farm Loan Board, acting under and pursuant to the authority contained in the Federal Farm Loan Act, declared the Southern Minnesota Joint Stock Land Bank of Minneapolis to be in default and to be insolvent, and appointed a receiver. Immediately thereafter the receiver commenced to liquidate the estate and has been liquidating the assets since that time as rapidly as possible. The par value of the outstanding stock is $3,000,000, and according to the statement of condition of the bank as of January 31, 1935, it would appear that there is an anticipated deficiency of nearly $4,000,000. This statement reflects assets of $20,298,239.59, and liabilities in the sum of $24,562,927.18. The deficiency reflects the book value of the real estate owned outright by the receiver, aggregating some $11,000,000 in value, and the deficiency will be further increased if one accepts the appraisers' valuation of this real estate, which, according to the testimony, does not exceed $8,000,000 in value.

The gross mortgage loans total $3,346,750, with accrued interest of some $370,000, the collectability of which is extremely doubtful. Out of 664 loans, only 160 are not in default. It further appears that some 477 loans amounting to approximately $2,808,205.23 are in default three months or over. The operating statement of the receivership indicates that the mortgage loans liquidated to October 31, 1934, were liquidated at a loss of about 16.1 per cent. of the receiver's carrying value. As a further indication of the loss that is being sustained in liquidation, the receiver estimates that some 179 additional loans, which will be liquidated through the Federal Land Bank, will net the estate approximately $889,000, but the carrying value of these loans on the receiver's books approximate $1,111,000. The total expense of the receivership from May 1, 1932, to October 1, 1934, was $1,553,110.56. It must be evident, therefore, that the losses sustained in liquidation and the expenses to which the estate is now subject, will increasingly deplete the receiver's book values and greatly enhance the deficiency that already appears on the receiver's books.

Defendants earnestly urge that the appraisers' valuation of the real estate holdings is based on a market value, and that, in view of the scarcity of sales at this time, it is impossible to determine the true market value, and it is urged that, in determining the value of the real estate, the court should consider the normal value, which is the capitalization of the average income of the property over a designated number of so-called normal years, plus the value of the buildings. Defendants contend that the appraisers' valuation reflects depressed values, and the price the property would bring on a forced sale, and it is contended by the defendants that if the normal value standard is applied to the real estate holdings, there will be an increase in the book value of some $11,000,000 to approximately $14,000,000; consequently, it is urged that the normal valuation of the real estate will largely absorb the apparent deficiency that is reflected by the receiver's book values.

It would seem that we are confronted with an eminently practical problem. Of the 1,475 farms owned outright by the receiver, some 714 are located in the state of South Dakota, where drought conditions have been for several years uniformly bad and where depressed values still continue. Of the 752 Minnesota farms, a majority are situated in Western Minnesota, where agricultural conditions during the past several years have been relatively poor. The appraisers who testified as to the values of these farms are experienced, capable men, and clearly competent to testify as to market values. While it is true that the number of sales are few, nevertheless, the long contact that these men have had with these particular farms and their acquaintance with the values in the...