Lucas v. Federal Reserve Bank of Richmond

• Decision Date: 13 June 1932
• Docket Number: No. 3266.,3266.
• Citation: 59 F.2d 617
• Parties: LUCAS et al. v. FEDERAL RESERVE BANK OF RICHMOND.
• Court: U.S. Court of Appeals — Fourth Circuit

59 F.2d 617 (1932)

LUCAS et al. v. FEDERAL RESERVE BANK OF RICHMOND.

No. 3266.

Circuit Court of Appeals, Fourth Circuit.

June 13, 1932.

R. A. Nunn and R. E. Whitehurst, both of New Bern, N. C. (W. B. R. Guion, of New Bern, N. C., on the brief), for appellants.

Newton D. Baker, of Cleveland, Ohio (M. G. Wallace, of Richmond, Va., and W. H. Lee, of New Bern, N. C., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a final decree dismissing a bill of complaint and intervening petitions adopting its allegations. The complainants were stockholders and creditors of the failed National Bank of New Bern and creditors of the failed First National Bank of New Bern, which prior to its failure had taken over the assets and assumed the liabilities of the former. The bill was filed in behalf of complainants and others similarly situated against the Federal Reserve Bank of Richmond; and the National Bank of New Bern and the receiver of the First National Bank of New Bern were made defendants, under an allegation that the suit was instituted to enforce rights of the National Bank transferred to the First National Bank which the receiver of the latter, notwithstanding demand by complainants, had refused to enforce. A motion to dismiss was made on the grounds of misjoinder of parties and causes of action and failure to comply with Equity Rule 27 (28 USCA § 723), as well as upon the ground that the bill was without equity. As we are of opinion that the bill was properly dismissed on the last ground, it is not necessary to consider the others.

The bill, which alleges four causes of action, sets forth the following facts basic as to all of them: In the year 1923 the People's Bank of New Bern was found to be involved, and its assets were taken over, and its liabilities assumed by the National Bank of New Bern, at the instance of the defendant Federal Reserve Bank, whose officers promised to extend to the National Bank "such additional accommodations in the way of discounts as would be necessary to meet the additional burden" thus assumed by it. The National Bank was indebted to the Reserve Bank at the time; and shortly thereafter the latter, notwithstanding its agreement, required the National Bank to put up additional collateral to its indebtedness to an amount equal to 50 per cent. of the face of the paper previously rediscounted. In 1925 additional collateral to an amount equal to 50 per cent. of the loans and advancements was required, with the result that the Reserve Bank held marginal collateral in an amount equal to the value of the paper rediscounted with it, or approximately $208,000. The amount of the rediscounts and the marginal collateral remained approximately the same from 1925, substitutions being made in the paper rediscounted and also in the paper held as collateral. On March 19, 1929, the First National Bank of New Bern was organized and took over the assets and assumed the liabilities of the National Bank. The First National Bank became insolvent and was placed in the hands of a receiver on October 26, 1929.

The requirement by the Reserve Bank that the National Bank deposit with it the $208,000 of additional collateral is the basis of all four of the causes of action contained in the bill. The first proceeds upon the theory that the Reserve Bank had obligated itself to finance the National Bank in consideration of its taking over the assets and assuming the liabilities of the Peoples' Bank, and that the requirement of the deposit of the $208,000 collateral was wrongful because of this obligation. It avers that the Reserve Bank "contrary to its promise and agreement, demanded and pressed for the liquidation of the paper of the National Bank of New Bern * * *; restricted its credit to the National Bank of New Bern and in addition thereto, unlawfully, wrongfully and in violation of its powers and duties, demanded that said National Bank of New Bern should deposit with it additional notes and bills of its customers * * * to be held by it as security for any sums due by reason of rediscounts"; that this requirement was unreasonable and unlawful and deprived the National Bank of the use of these bills and notes; that the Reserve Bank refused to surrender this additional collateral when demand for same was made by the First National Bank, successor of the National Bank; that this refusal resulted in the inability of the First National Bank to meet its obligations, and in its having to close its doors and suspend business; that, as a result of this conduct on the part of the Reserve Bank, complainants and those in like situation have been damaged in the sum of $1,000,000; and that complainants are entitled to recover of the Reserve Bank the damages sustained by them, and to have an accounting of the collateral which the National Bank was wrongfully required to deposit with the Reserve Bank.

The allegations of the second cause of action are that the Reserve Bank, under the statute creating it, is limited in its acceptance of paper and securities to those of the kind eligible for discount under the act; that the paper which the Reserve Bank required the National Bank to deposit as additional collateral was not of this character; that the requirement was, therefore, unauthorized and unlawful; and that this unauthorized and unlawful conduct produced in the National Bank and in the First National Bank "a condition equivalent to insolvency," and resulted in the closing of the latter with consequent damage to complainants and those in like situation.

The third cause of action proceeds upon the theory that, in requiring the deposit of the collateral security by the National Bank, the Reserve Bank obtained a preference. It alleges that the Reserve Bank, by reason of its access to examination made of member banks, had "a more intimate knowledge" of the condition of the assets of the National Bank and the First National Bank than their own officers; that about the year 1925, the Reserve Bank determined that the National Bank was insolvent and its assets frozen and uncollectible; and that it thereupon caused the collateral security in question to be transferred to it in contemplation of insolvency and with a view of obtaining a preference.

The fourth cause of action alleges that the Reserve Bank required the National Bank and the First National Bank to maintain deposit balances with it in an amount not less than 7 per cent. of demand or 3 per cent. of time deposits, and assessed penalties against them for failure to maintain such balances; that, by reason of the requirement of the Reserve Bank that the additional collateral be deposited with it, they were unable to maintain the required balances, and incurred the penalties assessed against them; and that under these circumstances the penalties were improperly assessed and the Reserve Bank should be required to account for same.

It is clear that the first cause of action states no ground of relief either in contract or in tort. The allegation that the Reserve Bank promised to "extend such additional accommodations in the way of discounts as would be necessary to meet the additional burden assumed" sets forth none of the essential terms of a contract. It does not show the amount of credit to be extended, the period of the credit, the amount or kind of security to be deposited as collateral, or the interest to be paid. The court cannot see by reading it any definite agreement which the law could enforce. In the language of Mr. Justice Holmes, "On the face of it, it does not import a legally binding promise, but rather a hopeful encouragement, sounding only in prophecy." Hall v. First Nat. Bank of Chelsea, 173 Mass. 16, 53 N. E. 154, 155, 44 L. R. A. 319, 73 Am. St. Rep. 255. It is well settled that such a vague promise does not constitute a binding and enforceable contract. American Law Institute Restatement of Law of Contracts, § 32; Williston on Contracts, § 37 et seq.; 6 R. C. L. 644; Jones v. Vance Shoe Co. (C. C. A. 7th) 115 F. 707; Hall v. First Nat. Bank of Chelsea, supra; United Press v. New York Press Co., 164 N. Y. 406, 58 N. E. 527, 53 L. R. A. 288; Brown v. Fahey, 157 Md. 481, 146 A. 264; Ahlstrom v. Fitzpatrick, 17 Mont. 295, 42 P. 757; Yerion v. Allison (Tex. Civ. App.) 242 S. W. 270. But, even if we could read a binding agreement into the vague promise alleged, it does not appear that the Reserve Bank has violated same. It extended to the National Bank and its successor, the First National Bank, a very substantial credit, discounting paper for them over a period of six years; and it is nowhere alleged that the security demanded was other than that required by the dictates of prudence and good banking.

And there is no allegation in the first cause of action of any wrongful or oppressive conduct which would support a recovery in tort. It is not alleged that the Reserve Bank made any false or fraudulent representations to the damage of the National Bank or that it violated any right of that bank in any other particular. The use of the adverbs "unlawfully," "wrongfully," and "fraudulently" do not add anything to the pleading. To state a cause of action it must set forth facts from which the court may see that complainants are entitled to relief, not mere conclusions of the pleader. Chamberlain Machine Works v. United States, 270 U. S. 347, 349, 46 S. Ct. 225, 70 L. Ed. 619; Cairo, etc., R. Co. v. United States, 267 U. S. 350, 352, 45 S. Ct. 247, 69 L. Ed. 651; Fogg v. Blair, 139 U. S. 118, 127, 11 S. Ct. 476, 35 L. Ed. 104.

As to the second cause of action, it is sufficient to say that, in our opinion, there can be no doubt as to the right and power of the federal...