Reconstruction Finance Corp. v. Central Republic T. Co.

• Decision Date: 13 August 1935
• Docket Number: No. 14189.,14189.
• Citation: 11 F. Supp. 976
• Parties: RECONSTRUCTION FINANCE CORPORATION v. CENTRAL REPUBLIC TRUST CO.
• Court: U.S. District Court — Northern District of Illinois

11 F. Supp. 976

RECONSTRUCTION FINANCE CORPORATION v. CENTRAL REPUBLIC TRUST CO.

No. 14189.

District Court, N. D. Illinois, Eastern Division.

August 13, 1935.

COPYRIGHT MATERIAL OMITTED

John L. Hopkins, O. John Rogge, James A. Sprowl, Floyd M. Rett, and George E. McMurray, all of Chicago, Ill., and James B. Alley, Max O'Rell Truitt, Harold Rosenwald, and Edward S. White, all of Washington, D. C., for plaintiff.

Henry J. & Charles Aaron, Altheimer, Mayer, Woods & Smith, George S. Anderson, Ashcraft & Ashcraft, Norman Asher, Baldwin & Rugen, John Potts Barnes, Alfred Beck, Albert Belshe, Berger & Newmark, Russell T. Berry, E. A. Biggs, Bither & Bither, Guy M. Blake, Arthur E. Boroughf, George C. Both, L. M. Bowden, Boyle, Murphy & Nelson, Brewer, Smith & Farrell, Bryant, Roberts, Hwass & Lewe, Isidore Brown, George T. Buckingham, Bernard J. Brown, John C. Bulger, Burke, Jackson & Burke, D. F. Bustin, Butler, Pope, Ballard & Elting, Butz, Von Ammon & Marx, Carnahan, Slusser & Mitchell, August J. Calcagno, Cameron & Heath, Castle, Williams, Long & McCarthy, Chapman & Cutler, Joseph Chavkin, Ernest W. Clark, H. J. Clark, Cohen, Tomas & Cohen, Meyer Cohn, Concannon & Dillon, Alfred M. Cordell, Cutting, Moore & Sidley, Cummins, Hagenah & Flynn, Cummings & Wyman, Dankowski & Dankowski, Defrees, Buckingham, Jones & Hoffman, Donald B. Dodd, Homer A. Dodge, Eckert & Peterson, Ellis & Hackett, Samuel A. & Leonard B. Ettelson, Harold A. Fein, Fischel, Kahn, Heart & Epstein, Fisher, Boyden, Bell, Boyd & Marshall, A. L. Flynn, Harry Arthur, Lillian Rose Funk, Lee J. Frank, Frank E. Freund, Robert Friedlander, Herbert J. Friedman, Albert W. Froehde, A. S. & E. W. Froehlich, Gallagher, Rinaker, Wilkinson & Hall, Gann, Secord & Stead, Gardner, Carton & Douglas, Geroulis & Tatooles, John Thornton Gilbert, George Gillette, James R. Glass, Grossman & Edelstein, Harold M. Goldstein, George A. Gordon, Ivan Barton Goode, Charles F. Grimes, J. Milton Guy, Jr., Albert E. Hallett, Jr., Jacob G. Hamer, Walter Hamilton, and Oscar Wyclif Harman, all of Chicago, Ill., Healy & Beverly, of Elgin, Ill., Heile, Cavender, Milchrist & Kaiser, Ernest J. Hewitt, Heineman & Langsett, Samuel C. Horwitz, Arthur J. Hughes, Jacobson, Merrick, Nierman & Silbert, M. A. Jersild, Bernard F. Johnston, Johnson, Johnson & Johnson, Johnson, Swanstrom, Wiles & Clawson, Kamfner, Halligan & Marks, I. J. Karlin, Samuel Kassel, G. A. Kelly, Edward J. Kelly, Henry Eugene & Wm. M. Kelly, Knapp, Beye, Allen & Cushing, Morris Kompel, Edw. H. Kubitz, Urban A. Lavery, Samuel T. Lawton, Lederer, Livingston, Kahn & Adler, John M. Lee, Levinson, Becker, Gilbert, Peebles & Swiren, A. C. Lewis, I. P. Lewis, Isaac B. Lipson, Lord, Lloyd & Bissell, Harry J. Lurie, Luster & Luster, J. Warren McCaffrey, Joseph McCormack, Arthur F. McCormick, Walter E. McCornack, T. B. McGrath, F. H. McKeever, McNab, Holmes & Long, Wm. Mannhardt, John Mann, George S. Marks, Benj. S. Mesirow, F. E. Matthews, K. L. Karr, D. G. Michalopoulos, Creighton S. Miller, Matthew Mills, Montgomery, Hart, Pritchard & Herriott, Meyer Morton, Moses, Kennedy, Stein & Bachrach, Edward Menkin, H. Leo Neiburger, Arthur Wm. Nelson, C. E. Newton, Newby, Rathbun & Burditt, Sidney C. Nierman, Sanford Olson, Pam & Hurd, Pines & Stein, Pomeroy & Martin, Poppenhusen, Johnston, Thompson & Cole, Millard R. Powers, Hyman Reeder, Rosenthal, Hamill & Wormser, Jos. Rolnick, Myer N. Rosengard, Ross, McConnell & Watts, Rubenstein & Becker, Sanders, Childs, Bobb & Westcott, Edgar J. Schoen, Scott, MacLeish & Falk, Schuyler, Weinfeld & Hennessy, Schwartz, Welfeld & Perlman, A. A. Schwarzbach, Seago, Bradley & McRoy, Seyfarth & Leonard, Lester B. Shafton, Shulman, Shulman & Abrams, Sims & Stransky, Joseph G. Slottow, Ben M. Smith, Blake C. Smith, Sonnenschein, Berkson, Lautmann, Levinson & Morse, Spencer & Bryan, Lewis A. Stebbins, S. Sidney Stein, Stebbins, McKinley & Price, Oscar D. Stern, Felix J. Streyckmans, Swanson, Dodge & Bremner, Taylor, Miller, Busch & Boyden, Morris Leibman, Preston Boyden, Tenney, Harding, Sherman & Rogers, C. M. Thomson, Townley, Wild, Campbell & Clark, C. E. Tripp, Frank L. Tuttle, Ungaro & Sherwood, Albert H. & Henry Veeder, Herman Waldman, Wadsworth Watts, Leonard A. Weinberg, White & Hawxhurst, Walter E. Wiles, Wilhartz, Hirsch & Schanfarber, Wilson & McIlvaine, William H. Winslow, Jr., Winston, Strawn & Shaw, C. V. Wisner, Jr., S. R. Wittelle, F. Philip Young, and Zane, Morse, Zimmerman & Norman, all of Chicago, Ill., Perkins & Battle, of Charlottesville, Va., and Alphonse G. Riesenberg, of Cincinnati, Ohio, for defendants.

Herman Fabry, pro se.

WILKERSON, District Judge.

This bill is brought by plaintiff on behalf of itself and all other creditors of the defendant bank to enforce the liability of stockholders under section 6 of article 11 of the Illinois Constitution. That section is as follows: "Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors, over and above the amount of stock by him or her held, to an amount equal to his or her respective shares so held, for all its liabilities accruing while he or she remains such stockholder."

The bill alleges that the defendant bank is indebted to plaintiff for more than $50,000,000 which is past due; that said defendant bank has other unpaid liabilities to other creditors; that the par value of its capital stock is $14,000,000; that it is unable to pay its debts as they mature; that other creditors have threatened to commence separate suits to recover from stockholders the amounts of their claims; that if judgments and decrees are obtained in such suits they may be for large portions of the amounts of the liabilities of such stockholders to creditors of defendant bank; that by means of such suits such creditors may appropriate to themselves an unjust and inequitable advantage over plaintiff; and that the amounts to be collected from stockholders should be applied to the common benefit of all creditors to whom each stockholder is liable under the Illinois Constitution, in accordance with the equitable rights of each of the creditors.

The bill prays that the court may determine who are the creditors of defendant and who are the stockholders liable to each creditor; that the stockholders who are defendants may be required to pay into court the amounts of their respective liabilities; that equitable distribution thereof may be made among the creditors of defendant bank; and that all other creditors may enjoin them from prosecuting suits against the stockholders.

Many motions to dismiss have been filed. In support of those motions briefs and arguments touching many questions have been submitted. Some of the questions raised cannot be disposed of upon a motion to dismiss. It is the rule in the federal courts that a case in equity involving important matters should go to issue and proof where a doubtful question is raised by the pleadings. It is the practice to overrule a demurrer or motion to dismiss unless it is founded upon an absolutely clear proposition that, taking the allegations to be true, the bill must be dismissed at the hearing. The motion to dismiss must be decided on the allegations of the bill alone. If a bill states a prima facie case it cannot be dismissed because the chancellor judicially knows of facts that would support an answer, unless his judicial knowledge is so broad that he can properly hold that there are no facts which would controvert the answer. Kansas v. Colorado, 185 U. S. 125, 144, 22 S. Ct. 552, 46 L. Ed. 838; White v. Federal Radio Commission (D. C.) 29 F.(2d) 113; Krouse v. Brevard Tannin Co. (C. C. A.) 249 F. 538; Ansehl v. Puritan Pharmaceutical Co. (C. C. A.) 61 F.(2d) 131; Bronk v. Charles H. Scott Co. (C. C. A.) 211 F. 338. The obvious application of the rules above stated to some of the points argued in support of the motions makes it unnecessary to refer to those points specifically.

It is argued by defendants that the act of Congress creating the Reconstruction Finance Corporation (15 USCA §§ 601-617) does not confer power upon the corporation to enforce the double liability provision of the Illinois Constitution. It is pointed out that there are states which do not impose a double liability upon the stockholders of state banks, and that Congress must be presumed to have intended that a uniform rule should apply to all state banks. Section 5 of the Reconstruction Finance Corporation Act as amended (15 USCA § 605) provides:

"To aid in financing agriculture, commerce, and industry, including facilitating the exportation of agricultural and other products, the Corporation is authorized and empowered to make loans, upon such terms and conditions not inconsistent with this chapter as it may determine, to any bank, savings bank, trust company, building and loan association, insurance company, mortgage-loan company, credit union, Federal land bank, joint-stock land bank, Federal intermediate credit bank, agricultural credit corporation, livestock credit corporation, organized under the laws of any State or of the United States, including loans secured by the assets of any bank, savings bank, or building and loan association that is closed, or in process of liquidation to aid in the reorganization or liquidation of such banks or building and loan associations, upon application of the receiver or liquidating agent of such bank or building and loan association, and any receiver of any national bank is hereby authorized to contract for such loans and to pledge any assets of the bank for securing the same.

"All loans made under the foregoing provisions shall be fully and adequately secured. The corporation, under such conditions as it shall prescribe, may take over or provide for the administration and liquidation of any collateral accepted by it as security for such loans. Such loans may be made directly upon promissory notes or by way of...