Pearson v. All Borg

• Citation: 23 F. Supp. 837
• Decision Date: 28 June 1938
• Docket Number: No. 15530.,15530.
• Parties: PEARSON v. ALL BORG et al.
• Court: U.S. District Court — Northern District of Illinois

23 F. Supp. 837

PEARSON v. ALL BORG et al.

No. 15530.

District Court, N. D. Illinois, E. D.

June 28, 1938.

Malato & Horrell, Isidore Goodman, and Theodore E. Rein, all of Chicago, Ill., for plaintiff.

Edward J. Warren, of Chicago, Ill., for defendant E. C. Cook.

Mayer, Meyer, Asutrian & Platt, of Chicago, Ill., for defendant David A. Noyes & Co.

Paden & Kropf, of Chicago, Ill., for defendant Edna Sturve.

McNab, Holmes & Long, of Chicago, Ill., for Thomas H. Hair.

Marshall & Marshall, of Chicago, Ill., for defendant Ben T. Wright.

Henry L. Graf, of Chicago, Ill., for defendant J. W. Morsbach.

Bullinger & Michels, of Chicago, Ill., for defendants Felix Rothchild and Achenbach.

John Taylor Booz, of Chicago, Ill., for defendant E. Klein.

Laff & Zimring, of Chicago, Ill., for defendant Nathan Moskowitz.

Thomas G. Vent, of Chicago, Ill., for defendant Leslie F. Muter.

George Gillette, of Chicago, Ill., for defendant Maurice J. Flynn.

HOLLY, District Judge.

The plaintiff is the receiver of the Peoples National Bank and Trust Company of Chicago (hereinafter referred to as Peoples National Bank), a national banking association. Defendants are stockholders of the National Republic Bancorporation (hereinafter referred to as Bancorporation).

Peoples National Bank was closed by resolution of its Board of Directors on or about June 20, 1932, and thereafter plaintiff was duly appointed as receiver of said Bank by the Comptroller of the Currency. The Comptroller on or about August 12, 1932, made an assessment upon the stockholders of Peoples National Bank in the amount of the par value of each share of said Bank. Bancorporation is a corporation organized under the laws of the State of Illinois with an authorized capital stock of twenty million dollars, consisting of one million shares of the par value of $20 each. Defendants are stockholders of said Bancorporation. Certain of the defendants in this proceeding received their shares in Bancorporation in exchange for shares of stock of Peoples National Bank, 39,415 shares out of a total of 50,000 shares outstanding of Peoples Bank having been transferred to Bancorporation by such defendants in exchange for shares of said stock of Bancorporation. The remaining outstanding shares of stock of Bancorporation were issued in exchange for the stock of certain other banks or were paid for in cash. It is averred in the complaint that Bancorporation owned a majority of the capital stock of seven other banks.

Article 10 of the By-laws of Bancorporation provided for the appointment by the Board of Directors of a management committee consisting of the officers of Bancorporation and one representative of each of the Banks affiliated with Bancorporation and, in the discretion of the Board of Directors, an additional representative of any of the affiliated banks of Bancorporation. It was provided that the Committee should advise with and aid the officers of Bancorporation in all matters concerning its interest and the management of its business.

It was further alleged in the bill that Bancorporation possessed a real estate committee which reviewed and passed upon real estate loans made and to be made by such "unit or member banks" and appointed, employed and retained an appraiser who was authorized to, and who did, appraise and approve loans and security therefor made and contemplated by said "unit or member banks"; that a central mortgage bureau was created in and by said Bancorporation which, among other things, allocated among the various member banks, applications for loans made to such individual member banks; said member banks made daily reports to Bancorporation as to the status of new, renewed and paid loans; that each member bank was required to file copies of its annual reports with the Secretary of Bancorporation, and periodical examinations of the affairs, assets, liabilities and condition of each of said member banks were made by Bancorporation; negotiations were conducted from time to time looking to the acquisition of a majority of the capital stock of additional banks by Bancorporation; that advertising campaigns were conducted advertising to the public the existence of the chain, group or system of banks affiliated with Bancorporation; an identical insignia, being a reproduction of a statue known as "The Republic" was placed upon the stationery of each of said banks and uniformly used; that supplies were jointly purchased and forms of bank documents adopted, including uniform styles of checks, notes, deposit tickets and numerous other forms; that a blanket surety bond in the sum of $500,000 upon all of the officers and employees of all of said unit banks was procured; that the payment of dividends upon the capital stock of said member banks and the amount of said dividends was determined, authorized and directed by Bancorporation; that said Bancorporation determined and designated the directors and officers of each of said member banks and in all other material respects said unit or member banks were operated as a chain, groups or system of banking institutions contrary to the letter, meaning, spirit and intent of the laws of the United States of America and of the State of Illinois.

On or about April 15, 1933, an involuntary petition in bankruptcy against Bancorporation was filed in the District Court of the United States for the Northern District of Illinois, Eastern Division, and on or about May 16, 1933, said Bancorporation was adjudicated a bankrupt and said Bancorporation was on the date of adjudication and has ever since been hopelessly insolvent and unable to pay any amount whatsoever on account of the statutory liability imposed by law upon the holders of shares of capital stock of said Peoples National Bank. Plaintiff further avers that Bancorporation was intended to be and was a mere agency or instrumentality for enabling defendants to operate, dominate and control said Peoples National Bank and the other banks whose stock it held and that defendants actually operated, dominated and controlled said banks; that defendants elected directors of Bancorporation which appointed the Management Committee aforesaid which controlled and regulated the business and affairs of each of said banks and that defendants received dividends upon the stock held by Bancorporation which dividends were derived mainly from dividends paid to Bancorporation by said banks. The allegations concerning the control of member banks by Bancorporation are very largely mere conclusions of the pleader.

It is the contention of plaintiff that the stockholders of said Bancorporation are, in effect, the owners of 39,415 shares of Peoples National Bank standing nominally in the name of Bancorporation as aforesaid, that an accounting is necessary to determine the proportionate share of the aggregate liability for which each individual defendant is severally liable and that discovery is necessary in order to ascertain and determine who are the actual stockholders of Bancorporation and the nature and extent of the interest of each of them in said stock.

Plaintiff prays that an accounting may be ordered to determine the number of shares of stock of Bancorporation that were issued and outstanding at the date of the closing of said Peoples National Bank and for the purpose of determining the proportionate amount of the assessment levied by the Comptroller of the Currency for which each holder of stock of National Republic Bancorporation is liable, that "the corporate form name or fiction known and described as National Republic Bancorporation be set aside and disregarded and that defendants herein named be declared to be the true owner of 39,415 shares of the capital stock of Peoples National Bank and Trust Company of Chicago" and that a judgment be entered accordingly against each of the defendants.

Plaintiff's contentions as set forth in its brief are (1) the real or beneficial owner of stock in a banking corporation is liable for an assessment levied against such stock, though the legal title thereto may be in another, (2) the stockholders of Bancorporation are the beneficial owners of the stock of Peoples National Bank, the title to which was registered in Bancorporation, and (3) the real purpose of Bancorporation was illegal and contrary to the policy of the law and its stockholders are, therefore, personally liable to its creditors.

First. It is well settled that the real owner of shares of a banking corporation is liable for an assessment levied against the shares. Pauly v. State Loan & Trust Co., 165 U.S. 606, 17 S.Ct. 465, 41 L.Ed. 844, Ohio Valley National Bank v. Hulitt, Receiver, 204 U.S. 162, 27 S.Ct. 179, 51 L. Ed. 423.

Second. Are the stockholders of Bancorporation the real and beneficial owners of the thirty nine thousand odd shares of the Peoples National Bank. Plaintiff says yes, that where a corporation is organized for the purpose principally of holding the stock of banking institutions, or where its principal business is acquiring and holding such stocks, the court will disregard the corporate entity and hold its stockholders for the statutory liability imposed upon the holder of the stock of such banks.

The cases upon which plaintiff principally relies to maintain this position are Corker v. Soper, 5 Cir., 53 F.2d 190; Metropolitan Holding Co. v. Snyder, 8 Cir., 79 F.2d 263, 103 A.L.R. 912; Barbour v. Thomas, D.C., 7 F.Supp. 271; Fors v. Farrell, 271 Mich. 358, 260 N.W. 886; Nettles v. Sottile, 184 S.C. 1, 191 S.E. 796; Nettles v. Rhett, 4 Cir., 94 F.2d 42; and Laurent v. Anderson, 6 Cir., 70 F.2d 819.

In Corker v. Soper, supra, the holding company was created by the stockholder for the sole purpose of holding stock owned by his wife and other stock which he had paid for and which had been issued in the name of the corporation before it was organized. He received a dividend on the stock. The corporation issued its notes in payment for the stock, it had no...