In Re Equitable Plan Company

• Decision Date: 09 June 1960
• Parties: In the Matter of the Ancillary Proceeding of EQUITABLE PLAN COMPANY, Debtor.
• Court: U.S. District Court — Southern District of New York

185 F. Supp. 57

In the Matter of the Ancillary Proceeding of EQUITABLE PLAN COMPANY, Debtor.

United States District Court S. D. New York.

June 9, 1960.

Kelley, Drye, Newhall & Maginnes, New York City, for petitioner, New York Agency of Toronto-Dominion Bank. Hancock Griffin, Jr., New York City, and John J. Loflin, Jr., New York City, of counsel.

Thacher, Proffitt, Prizer, Crawley & Wood, New York City, for trustee in reorganization of Equitable Plan Co. Edward C. Kalaidjian and Robert S. Stitt, New York City, of counsel.

Sage, Gray, Todd & Sims, New York City, for New York Agency of Royal Bank of Canada. Melber Chambers and Richard M. Siegel, New York City, of counsel.

Shearman, Sterling & Wright, New York City, for Clement J. Ings, Asst. Agent at New York Agency of Bank of Nova Scotia. Herman E. Compter, New York City, of counsel.

HERLANDS, District Judge.

This action is another chapter in the attempt to unravel the affairs and make whole the victims of Lowell Birrell, presently a fugitive from justice under indictment for crimes arising out of his financial activities.

The plaintiff (hereinafter "the trustee") is the trustee in bankruptcy of the Equitable Plan Company, a mutual investment company which owns a large stockholding in Doeskin Products, Inc.

A derivative stockholder suit for the benefit of Doeskin is now pending in the Supreme Court of the State of New York. Plaintiffs therein, who are not parties here, seek cancellation of 1,000,000 shares of the stock of Doeskin which are substantially all of a block issued while the company was under Birrell's domination. The principal defendants in that action are a group of Canadians now in control of Doeskin, who claim to have purchased the shares. They have proposed a settlement of the derivative action whereby they will surrender one-fourth of their purported interest, upon the condition that the remaining three-fourths be deemed legitimate. The offer has been conditionally accepted by counsel for the plaintiffs in the derivative action, and has been referred to a referee by the state court.

Although the trustee (the plaintiff herein) is not a party to the state court action, the referee has permitted him to participate in the hearings. The trustee's position before the referee is that the defendants there knew that the shares which they claim to have purchased in good faith from a Latin American corporation were really held and controlled by Birrell; and that their purported purchase was part of a scheme to continue Birrell's control of and beneficial interest in Doeskin.

In support of his position, the trustee seeks to prove the occurrence of a fraudulent transaction in which the Canadian defendants knowingly cooperated with Birrell in taking $100,000 from Doeskin Products, Inc.

Seeking the evidence he needs in order to prove the fraudulent transaction, the trustee, in an ancillary proceeding in this court, addressed subpoenas duces tecum to three foreign banks: the Royal Bank of Canada, the Toronto-Dominion Bank, and the Bank of Nova Scotia. The subpoenas require the production of records and documents which are located in branches outside the United States. The subpoenas were served at the "New York Agencies" of the respective banks.

The movants herein are the respective "New York Agencies." They have each moved by order to show cause to quash or limit the subpoenas on the grounds that the records sought are not within the jurisdiction of the court and hence cannot be reached effectively by the subpoenas, and that, in fact, the records are not within the possession or control of the "New York Agencies." Their rationale is the legal doctrine that, for some purposes, "Agencies" and branches of banks are entities independent of the home office and of each other.

In support of the enforceability of the subpoenas, the trustee contends that the "New York Agencies" are merely offices through which their respective principals conduct business and that delivery of subpoenas to them is, therefore, proper service upon their principals. He urges that there is no supportable distinction between the "Agencies" of banks and the agents of other corporations.

Provided it has the power to do so, a bank, like any other corporation, may be required by a subpoena duces tecum to produce within the jurisdiction of the court books and records located in a foreign branch. There is a rebuttable presumption that a bank or other corporation is in possession and control of its own books and records. The doctrine —that the home office and the individual branches or "agencies" of a bank are each independent entities—is dictated by the necessities of commercial transactions but is inapplicable to situations not involving an arm's length relationship between the home office, the agency, and the other branches. First National City Bank v. Internal Revenue Service, 2 Cir., 1959, 271 F.2d 616, certiorari denied, 1960, 361 U.S. 948, 80 S.Ct. 402, 4 L.Ed. 2d 381. The cited case upheld a subpoena directed to a domestic bank and served upon its home office, requiring the production of records located in its Panama branch.

In the case at bar, it amply appears in the record, and it is not disputed, that each of the respondent banks regularly and continuously conducts a general banking business in New York by means of its New York Agency. Each bank is licensed by the State of New York to do so, under Article 5 of the New York Banking Law.

The general rule is that a foreign corporation doing business in the district is subject to process, including subpoenas duces tecum; and it must produce its records and documents even though they are outside the United States. In re Electric & Musical Industries Ltd., D.C.S.D.N.Y.1957, 155 F.Supp. 892, petition for mandamus denied, 2 Cir., 1957, 249 F.2d 308; In re Grand Jury Subpoenas Duces Tecum, D.C.S.D. N.Y.1947, 72 F.Supp. 1013. It is immaterial that the agent upon whom service is made does not have control of the books and records required to be produced. It is not the agent who is to respond, but the corporation. The agent is merely the vehicle for reaching the corporation. In re Grand Jury Subpoenas Duces Tecum, supra, 72 F.Supp. at page 1021.

Except with regard to actions seeking control of funds held in a foreign branch, there is no exception in favor of banks to the general rule.¹ Better reason must appear for the creation of such an exception than the fiction of "independent entity." The First National City Bank case, supra, teaches that, where nothing more is involved than the transfer of records or copies thereof...