Oosterhuis v. Palmer

• Decision Date: 12 July 1943
• Docket Number: No. 237.,237.
• Citation: 137 F.2d 322
• Parties: OOSTERHUIS v. PALMER.
• Court: U.S. Court of Appeals — Second Circuit

137 F.2d 322 (1943)

OOSTERHUIS v. PALMER.

No. 237.

Circuit Court of Appeals, Second Circuit.

July 12, 1943.

Milton L. Romm, of Yonkers, N. Y. (Benjamin W. Moore, of Yonkers, N. Y., on the brief), for plaintiff-appellant.

John J. O'Connor, of New York City (Kermit F. Kip, of New York City, of counsel), for defendant-appellee.

Before SWAN, CLARK, and FRANK, Circuit Judges.

CLARK, Circuit Judge.

After the failure of the First National Bank and Trust Company of Yonkers, New York, in 1933, the Comptroller of the Currency levied an assessment on its stock payable June 18, 1934, and made demand on the defendant for the payment of $62,000, as the amount due upon the shares which she held. Thereupon negotiations ensued between her counsel and the receiver of the bank, Arthur E. Muth, for a compromise of the assessment; and these resulted in the fixing by the parties of a settlement figure of $35,000, based upon a survey of defendant's assets and her financial responsibility. In order to secure the approval of the Comptroller of the Currency, defendant made a lengthy "Affidavit of Personal Assets and Offer of Compromise," dated September 26, 1935, wherein she purported to list all her assets and offered to make the compromise. On the basis of this affidavit and the receiver's recommendation, the Comptroller on October 15, 1935, authorized the receiver to petition the court for an order accepting the settlement. The receiver acted promptly, so that on October 21, 1935, the district court, with Judge Goddard presiding, passed the necessary order; and the defendant paid the money and received a full release the next day.

In September, 1938, Walter F. Downey, who had succeeded Muth as receiver in 1937, instituted an action in the district court to collect the assessment, and, being met with the plea of the release and the statute of limitations (cf. Downey v. Palmer, D.C.S.D.N.Y., 27 F.Supp. 993), was allowed to set up in his reply the claim that the compromise had been induced by defendant's fraud. Downey v. Palmer, D.C. S.D.N.Y., 31 F.Supp. 83. Thereafter, however, the district court granted summary judgment for the defendant, holding that the claim for the stock assessment was barred under a three-year state statute of limitations, and that although a claim of fraud would not be barred until six years after its discovery, yet this action was not brought upon such a claim. Downey v. Palmer, D.C.S.D.N.Y., 32 F.Supp. 344. On appeal we reversed this judgment, 2 Cir., 114 F.2d 116, on the ground that under the liberal federal practice the action might be amended, without the necessity of suing anew, to one of fraud in effecting the compromise. On the remand plaintiff amended his complaint; and in due course a trial to a jury was had, which resulted in a verdict and judgment for defendant, and this appeal by plaintiff.

The main issue herein is whether knowledge of the facts constituting the fraud brought home to the receiver, but not to the Comptroller and the district court, prevents recovery. The fraud relied on was the concealment of defendant's assets with respect to her claims for commissions as executrix of the estate of her late husband. In her affidavit for the Comptroller she stated that she had been awarded and paid the total sum of $5,065.31 as such commissions. Actually she had received this sum as commissions on income; but in the same judicial settlement by the Surrogate's Court of Westchester County to which she referred she had been awarded the additional sum of $32,928.20, as commissions on the principal of her husband's estate of $1,729,597.14, and these latter commissions remained due her from the estate. The evidence is clear that both she and her counsel knew of the purpose of the affidavit, and there can be no doubt of the concealment except and as it is excused by the knowledge of the receiver and his assistant. The question of such knowledge upon the part of Frank F. Boone, assistant to Muth, and Muth himself was the disputed fact submitted to the jury. Defendant's lawyer testified that he discussed the matter with Boone, who advised saying nothing as to these commissions, since they were frozen, and that all the receiver was interested in was the cash defendant could raise. Boone denied this. There was also evidence of such knowledge through the receiver's attorney, upon whom the surrogate's decree had been served. In any event, the jury's verdict must be taken as settling the fact of the receiver's knowledge; and we turn, therefore, to the situation as it affected the Comptroller of the Currency and the court.

The evidence made it quite clear that neither of these officials had such knowledge. Testimony was given by the Deputy Comptroller of the Currency and his assistant, the two men who acted in the matter, that they had no such knowledge and would not have approved the compromise had they had it. Indeed, the letter of approval makes specific recitals of the marketable securities and other funds possessed by Mrs. Palmer, as shown by her affidavit, and then says: "In consideration of the information furnished, provided you are satisfied that under the terms of the will no portion of the corpus of the estate is to be received by this debtor, you are in accordance with your recommendation, authorized to petition the court for an order to accept in full settlement of the stock assessment not less than $35,000 cash." The district court's order contained similar recitals of defendant's assets in some detail, "it further appearing that Edith S. Palmer is unable to pay the full amount of said assessment." Finally Judge Goddard himself testified that he had no knowledge of this additional property and would not have approved the settlement had he had it.

Nevertheless, the district court submitted the case to the jury on the theory that knowledge of this asset by the receiver and his assistant, Boone, would be attributed to the Comptroller, whom the receiver represented, and would thus prevent recovery. This theory of the law the plaintiff challenged throughout the trial by motions for a directed verdict, by specific requests to charge, and by specific exceptions to the charge after it was delivered and before the jury retired. It is the point to which the parties have addressed themselves on this appeal.

It is the theory of the defendant, as it was of the court below, that the receiver is an agent of the Comptroller and that knowledge of the agent is to be attributed to the principal. In fact, it is well settled in proceedings of this character that the receiver is but an officer of the Comptroller, not of the court, and that the order of the court is not a judicial, but is rather an administrative, step in the bank's liquidation. Hulse v. Argetsinger, 2 Cir., 18 F.2d 944, 945; Roth v. Hood, 6 Cir., 106 F.2d 616; Dugger v. Cox, D.C.E.D. Tenn., 32 F.Supp. 379, affirmed 6 Cir., 116 F.2d 497; Mitchell v. Joseph, 7 Cir., 117 F.2d 253; Fox v. Young, 145 Pa.Super. 111, 20 A.2d 835; Griggs v. Baumer, 3 Cir., 130 F.2d 899; Michelsen v. Penney, 2 Cir., 135 F.2d 409, 431. But this gets us little further; indeed, it may well be argued that, since the action of the court is...