Inland Waterways Corporation v. Hardee

• Decision Date: 31 October 1938
• Docket Number: No. 7056.,7056.
• Citation: 69 App. DC 268,100 F.2d 678
• Parties: INLAND WATERWAYS CORPORATION et al. v. HARDEE.
• Court: U.S. Court of Appeals — District of Columbia Circuit

69 App. DC 268, 100 F.2d 678 (1938)

INLAND WATERWAYS CORPORATION et al. v. HARDEE.^*

No. 7056.

United States Court of Appeals for the District of Columbia.

Decided October 31, 1938.

COPYRIGHT MATERIAL OMITTED

Leslie C. Garnett, Sp. Asst. to Atty. Gen., and David A. Pine, U. S. Atty., H. L. Underwood, Asst. U. S. Atty., and F. R. Conway, all of Washington, D. C., for appellants.

George B. Springston, Swagar Sherley, Charles F. Wilson, Henry B. Weaver, and George P. Barse, all of Washington, D. C., for appellee.

Before GRONER, C. J., and MILLER and VINSON, JJ.

GRONER, C. J.

This is a suit brought by the receiver of the insolvent Commercial National Bank of Washington City in behalf of its depositors, creditors, and stockholders against Inland Waterways Corporation, United States Shipping Board Merchant Fleet Corporation, Secretary of War Woodring, and H. A. A. Smith, Purchasing Officer of the Panama Canal. The purpose of the bill is to recover what are claimed to have been preferential payments made by the bank to defendants.

In the case of Fleet Corporation, which we shall dispose of first, the bill alleges that the Corporation deposited various sums of money with the bank; that the bank unlawfully pledged part of its assets (United States Bonds) to the Corporation to secure the deposits; that the bank thereafter became insolvent; and that the receiver appointed to administer its assets, erroneously, and acting under mistake of law, acquiesced in the sale by the Corporation of some of the bonds and redeemed the remainder from the Corporation by paying the market value thereof. The prayer of the bill is that the Corporation be declared trustee for the benefit of the receiver of the sums paid to it and the sums realized by it from the sale and that the receiver have a decree for the amount thereof with interest.

No question is raised as to the form of the proceedings.

The Fleet Corporation answered, admitting the material facts and defending on the ground that the pledge was in all respects valid and lawful. The receiver made motions to strike certain parts of the answer and to enter a decree pro confesso. The trial court sustained the motions and decreed for the amounts claimed, subject to dividends of approximately 60% declared and paid to other creditors. This appeal followed.

Some, and perhaps the most important, of the questions argued here by counsel for the Corporation, were decided by us in O'Connor v. Rhodes, 65 App.D.C. 21, 79 F.2d 146. That appeal involved the same facts as this and arose under the following circumstances: In August 1934 Thomas E. Rhodes, a depositor in the bank, instituted in the District Court a proceeding against the bank, Baldwin, then receiver, O'Connor, Comptroller, Fleet Corporation, Alien Property Custodian, and others, alleging, inter alia, substantially the facts we have outlined above and praying for restoration of the funds upon the ground that the payments had been preferentially made to the Corporation. The Comptroller and receiver moved to dismiss on the ground that the right to sue in this respect belonged primarily to the receiver and that the plaintiff had no capacity to maintain the suit in the absence of a showing that the receiver had refused to sue. The Corporation and the Custodian moved to dismiss on the same ground, but also on the ground that the Comptroller had authority to exact the pledges and that the bank had authority to make them. We held, for reasons stated in the opinion, that the suit by Rhodes was maintainable and that the bank was without power to pledge its assets to secure the deposits of the Corporation or the Custodian. On motion for reargument it was shown that the receiver, at the direction of the Comptroller, had reversed his previous attitude as to the validity of the pledge and had himself brought a suit in all respects similar to the Rhodes suit. In these circumstances we modified our opinion to the extent of holding that the lower court might in its discretion stay the Rhodes suit and permit the receiver to prosecute his suit.

The Comptroller and receiver, as well as the Corporation and Custodian, applied to the Supreme Court for certiorari. The petition of the Comptroller and receiver was granted, limited to the question of the right of the depositor, Rhodes, to bring the suit. In view of our disposition of the motion for reargument, which did not foreclose action by the receiver, the Supreme Court affirmed without expressing an opinion on the merits of the case. 297 U. S. 383, 56 S.Ct. 517, 80 L.Ed. 733.

Thereafter the trial court entered a stay order in the Rhodes Case, and the present suit was brought to its conclusion in the trial court.

An understanding of the grounds which the Corporation argues on this appeal requires knowledge of the status of the Corporation, which at the time in question was as follows: By the Shipping Act of 1916, 46 U.S.C.A. § 801, et seq., Congress established the United States Shipping Board and gave it the power (Sec. 810) to create a corporation under the District of Columbia laws for the purchase, construction, and operation of merchant vessels in the commerce of the United States. The Board created the Corporation, capitalized at 50 million dollars, and the United States purchased all the stock. Thereafter the Corporation operated in the same manner as a private corporation created for similar purposes would have operated. It could be sued in the State or Federal courts as other corporations. Skinner & Eddy Corp. v. McCarl, 275 U.S. 1, 48 S.Ct. 12, 72 L.Ed. 131. Its employees were not agents of the United States subject to the provisions of Section 41 of the Criminal Code, 18 U. S.C.A. § 93. United States v. Strang, 254 U.S. 491, 41 S.Ct. 165, 65 L.Ed. 368. It was suable for its torts, Panama Railroad v. Curran, 5 Cir., 256 F. 768, and was liable for breach of contract. Skinner & Eddy Corp. v. McCarl, supra. In the latter case the Supreme Court, in describing its activities, said that one of the reasons for its incorporation was to enable it to conduct its operations with the freedom supposed to be inconsistent with accountability to the Treasury under its established procedure of audit and control over the financial transactions of the United States. And in Sloan Shipyards Corp. v. United States Shipping Board Emergency Fleet Corporation, 258 U.S. 549, 42 S.Ct. 386, 66 L.Ed. 762, the Supreme Court said that the fact that it was formed under the laws of the District of Columbia was persuasive that it was expected to contract and to stand suit in its own person. The activities of the Corporation were changed by the Act of 1920 known as the Merchant Marine Act, 46 U.S.C.A. § 861, et seq. By that Act Congress authorized the Shipping Board to take over the property held by the Corporation in its own name. This was accomplished by a deed of April 16, 1923. After that date the Corporation was utilized by the Shipping Board as an operating agent to complete projects begun by the Board and to liquidate certain other phases of the Board's activities. In February 1927 (44 Stat. 1083, 46 U.S.C.A. § 810a) Congress changed the name of the Corporation to United States Shipping Board Merchant Fleet Corporation, but made no change in its status.

The deposits which the Corporation made and which the bank secured by pledge of its assets represented: First, funds received by the Fleet Corporation in the ordinary course of its business, the disbursement of which was in the control of the proper officers of the Corporation for corporate purposes. Second, as agent for the Board the Corporation would offer for sale vessels which the United States owned and would receive bids from prospective purchasers. The bidders would be required to pay in advance a certain sum as earnest money. This the Corporation would deposit in an account designated — United States Shipping Board Merchant Fleet Corporation, Agent, Good Faith Deposit Account. When the sale was consummated, the unsuccessful bidders would receive back their earnest payments. The money paid by the successful bidder presumably would go into the regular Corporation agency account, designated — U. S. S. B. M. F. Corp., Agent, Deposit Acc't. It was these accounts which the bank secured by a pledge of its assets, and the question for decision is whether under the facts we have outlined the receiver is entitled to a judgment against the Corporation for the amount of the preference it received (less, of course, an amount proportionate to the dividends which had been paid to other depositors).

On this appeal the Corporation argues four points:

1st, that the deposits were of public money and since the pledge was in substantial conformity to R.S. § 5153, 12 U.S. C.A. § 90, it was valid;

2d, that if the pledge was invalid the deposits, being public money, were received by the bank in violation of R.S. § 5497, 18 U.S.C.A. § 182, as the result of which the bank became trustee ex maleficio thereof;

3d, that no recovery can be had against the Corporation because the proceeds of the pledged securities have been deposited in the United States Treasury; and

4th, that the trial court was without jurisdiction because the suit in substance is a suit against the United States.

We shall dispose of these arguments in order.

First. In the circumstances we have narrated we think it clearly appears that the two deposit accounts which stood in the name of the Corporation as agent contained money of the United States. That portion derived from the sale of vessels owned by the United States was obviously the Government's money. The earnest money collected from bidders did not, of course, belong to the United States. The greater part of it was destined to be returned to those whose bids were rejected. But even as to it we think that the custody of the agent was in a sense the custody of the United States. Our opinion in Richmond, F. & P. R. Co. v. McCarl, 61 App. D.C. 290, ...