Nettles v. Walcott, No. 24.

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit
• Citation: 107 F.2d 738
• Parties: NETTLES v. WALCOTT.
• Docket Number: No. 24.
• Decision Date: 13 November 1939

107 F.2d 738 (1939)

NETTLES
v.
WALCOTT.

No. 24.

Circuit Court of Appeals, Second Circuit.

November 13, 1939.

107 F.2d 739

W. Randolph Montgomery, of New York City, for appellant.

Albert H. Barclay, of New Haven, Conn., for appellee.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from a decree in equity, dismissing a bill to enforce the liability of a shareholder in the Peoples State Bank of South Carolina. The plaintiff was appointed "Receiver of the Stockholders' Liability" of that bank in a suit filed in South Carolina and authorized by the South Carolina court to bring this suit. The suit in which he was appointed was brought by depositors of the bank on behalf of themselves and all others to enforce the liability of certain shareholders of the bank; not only was the defendant not a party to that suit, but he was not a shareholder in the bank, though he was in another South Carolina company, the Peoples Investment Corporation. He moved to dismiss the bill because, among other reasons, the plaintiff had no capacity to sue in Connecticut; and this appeal is from the judgment in his favor entered upon that motion; it turns upon the sufficiency in law of the bill upon its face. The bill alleged that the bank became insolvent and closed its doors on January 2, 1932, and that it had been in liquidation ever since; that on April 7, 1932, the plaintiff was appointed "Receiver of the Stockholders' Liability" in a depositors' suit in which, on May 19, 1935, judgment was entered against the Peoples Investment Corporation, which had been unlawfully the holder of record of a great many shares in the bank; and that execution had been returned unsatisfied upon this judgment because the judgment debtor had no assets of any kind except the bank shares themselves. That the holding company had been organized to protect its shareholders from liability by issuing its shares to them while it remained an entirely irresponsible shareholder of record of the bank. That the defendant was the holder of 100 shares in the holding company when the bank suspended.

The Constitution of South Carolina (Article 9, § 18) imposes a liability in favor of depositors upon the shareholders of all banks, which, until 1929 the legislature had implemented only by a statute that in substance merely repeated the words of the section. The supreme court of that state decided that the right of action so created lay in the depositors directly, and that they might file a class suit and collect the full amount of the shareholder's liability before it had been determined how much was necessary to make up the deficiency of the deposits. At least in theory it might therefore result that there would be a surplus, and for this reason it was the practice to appoint a receiver in such suits to receive and distribute the collections and return the surplus to the shareholder. This was changed in 1929 by a statute (now § 7855(6) of the South Carolina Code of 1932) which granted to "any receiver appointed to liquidate the assets of any closed State bank * * * full power * * * to demand of * * * stockholders the statutory liability * * * and * * * to bring suit, either individually or collectively, against such * * * stockholders". The question then arose whether the former depositors' suit survived. It was held that it did not, and that the new statute gave the only remedy. Branchville Motor Company v. Adden, 158 S.C. 90, 155 S.E. 277, 281. That decision dismissed a depositors' bill, and would have ended any possibility of any suit of the kind except for a passage in the opinion which read as follows: "It is conceivable that circumstances might arise which would

107 F.2d 740

justify the court in permitting a creditors' bill by the depositors against the stockholders for their protection, in the event that relief could not be had through the receiver"

So the law stood when the Peoples State Bank became insolvent. A creditors' sequestration suit was at once filed against it in the United States District Court for the Eastern District of South Carolina, which appointed liquidating receivers who took over the assets and proceeded to distribute them. A depositor thereupon brought suit in a South Carolina court to enjoin these receivers from enforcing the shareholders' liability under § 7855(6), on the ground that they were not state receivers, and this the supreme court did in...