Robinson v. Hospelhorn
| Decision Date | 18 June 1935 |
| Docket Number | 46-51. |
| Citation | 179 A. 515,169 Md. 117 |
| Parties | ROBINSON v. HOSPELHORN, AND FIVE OTHER CASES. |
| Court | Maryland Court of Appeals |
Appeals from Circuit Court No. 2 of Baltimore City; Eugene O'Dunne, Judge.
Suit by the Bank Commissioner of Maryland for appointment of John D Hospelhorn, Deputy Bank Commissioner, as receiver for the Baltimore Trust Company, in which such deputy was appointed receiver and filed a petition for authority to enforce the statutory double liability of Clara C. Robinson, Philip L Poe, Wilmer F. Smith, Robert C. Waters, Mary Washington Thom etc., and the Safe Deposit & Trust Company of Baltimore etc., as the company's stockholders. From an order answering certain preliminary legal questions, the stockholders appeal.
Affirmed in part, reversed in part, and remanded.
Argued before URNER, OFFUTT, PARKE, SLOAN, SHEHAN, and JOHNSON, JJ.
Simon E. Sobeloff, of Baltimore (William L. All, W. Conwell Smith, and Wm. Taft Feldman, all of Baltimore, on the brief), for appellants in Nos. 46 and 47.
D. K. Este Fisher, of Baltimore, for appellants in Nos. 48 and 49.
Chester F. Morrow, of Baltimore (H. Warren Buckler, Jr., and Niles, Barton, Morrow & Yost, all of Baltimore, on the brief), for appellants in No. 50.
Charles G. Page, of Baltimore, for appellant in No. 51.
Joseph C. France and Alexander Armstrong, both of Baltimore (J. Purdon Wright, of Baltimore, on the brief), for appellee in all six cases.
The Baltimore Trust Company, a Maryland corporation carrying on a state banking and trust business at Baltimore City, upon the passage of chapter 46 of Acts of 1933, came under the custody, management, and control of the Bank Commissioner of Maryland, and was not discharged from that custody until the appointment of a receiver in this case.
On January 5, 1935, the Bank Commissioner, who by virtue of the authority of Code, art. 11, § 9, and art. 11, § 71F (chapter 46, § 1, Acts 1933), was authorized to take possession of its property and business until it should resume business or its affairs be finally liquidated, posted on its front door a notice that it was "in the hands of the Bank Commissioner." On the same day he filed the bill of complaint in this case reciting those facts and praying the appointment of John D. Hospelhorn, Deputy Bank Commissioner, as receiver for the institution. An answer consenting to the relief prayed was filed by the Baltimore Trust Company, and by an order of that date Hospelhorn was appointed receiver as prayed with the usual powers of such an officer.
On the same day Hospelhorn, receiver, filed a report and petition in which he stated:
"That (as Deputy Commissioner) your receiver has been familiar with the affairs of the Trust Company since it came into the custody of the Bank Commissioner by virtue of said Act of 1933; and after careful study and consideration, he is satisfied that the remaining assets (being substantially those held for realization and liquidation by the Baltimore Trust Corporation) will be grossly insufficient to pay the balance of the indebtedness. That is to say:
(a) The balance so due depositors and other creditors (not including claims in dispute or unliquidated) is approximately nineteen million eight hundred and twenty thousand ($19,820,000) Dollars; and in addition to this, is the sum of seven million, seven hundred thousand, four hundred ($7,700,400) dollars, represented by the Guaranty Fund Certificates. This guaranty fund was raised for the Trust Company on or about September 21st, 1931; and the contributors (while by an Agreement of September 19th, 1931, they were subordinated to depositors and other creditors) are (your receiver is advised) entitled to recourse to the said statutory liability.
(b) While some of the assets so in process of liquidation and realization are difficult of present appraisal the amount for distribution after full liquidation of the loan of the Reconstruction Finance Corporation, which is a lien on practically all assets (in the judgment of your receiver, supplemented by the best information now available to him) will not (in addition to the full statutory liability) be sufficient to pay the remaining liabilities."
Upon those allegations he prayed authority to enforce the statutory double liability against the stockholders of the trust company.
Interpolated in the record, but having no apparent connection with it, is the following unauthenticated statement purporting to show the bank's condition at the close of business on January 5, 1935:
| Assets | |
| Loans""Collateral ................................... | $ 569,316.74 |
| Investments .......................................... | 35,503,299.25 |
| ------------------- | |
| Total ........................................... | $36,072,615.99 |
| ------------------- | |
| Liabilities | |
| Capital ............................................. | $ 6,250,000.00 |
| Surplus ............................................... | 3,000,000.00 |
| Undivided Profits .............................. | [FNa1] 1,267,600.57 |
| Baltimore Trust""Guaranty Fund ........................ | 7,700,400.00 |
| Liability a/c Outstanding Loan Participations ........... | 569,316.74 |
| Balance due on Cert. of Ind........................... | 19,613,006.23 |
| Balance due on Restricted Balances ...................... | 207,493.59 |
| ------------------- | |
| Total ........................................... | $36,072,615.99 |
| ------------------- |
FNa1. Deficit.
| Reserve for Distribution | $ 24,532.96 |
| Bills Payable ............... | 7,739,016.10 |
| Outstanding Checks ............ | 106,014.92 |
| -------------- | |
| Total ............... | $7,869,563.98" |
| -------------- |
Upon that report and petition it was ordered that the receiver demand and collect from the stockholders of the Baltimore Trust Company or, they being dead or insolvent, from their estates, "ten dollars per share," that being the par value of the stock, and the greatest possible extent of their statutory liability; but it was also provided that the order might be vacated upon cause shown on or before February 25, 1935, after notice which by its terms the receiver was directed to give to the stockholders.
The notice was given, and many stockholders, severally and in various forms, denied the right of the court to impose the assessment made in the order, and on March 20, 1935, the court acting under Code, art. 16, § 220, directed that the following questions of law be raised for the opinion of the court and settled "preliminarily":
"Whether by the true construction of the plan of reorganization and its amendments adopted pursuant to the Emergency Banking Act () and the assent thereto by creditors and their acceptance of Certificates of Indebtedness provided by the plan, and the assent of stockholders, and the subsequent proceedings under said plan, including the formation of the Baltimore Trust Corporation and the transfer to it of the assets of the Baltimore Trust Company and the assent to such transfer by the holders of the Certificates of Indebtedness,--
I. There is any liability upon the stockholders, or any of them, for any assessment assuming an insufficiency of assets to pay depositors and other creditors.
II. Such an assessment can properly be made before the maturity of the certificates of Indebtedness--
(a) if it is assumed that the deficit in the present value of the assets is such as to exceed 100% of the stockholders' liability and that the deficit will remain such until July 1, 1938?
(b) if it is assumed that the deficit in the present value of the assets is such as to exceed 100% of the stockholders' liability, but that by reason of the nature of the assets and a change in business conditions, there will be such an appreciation in the value of the assets by July 1, 1938 as would substantially reduce the amount of the required assessment, or entirely overcome the need for the same?
It is intended that all other questions, including the question of insolvency, vel non, and the extent thereof, the status of subscribers to the guaranty fund, and the question as to the liability of particular stockholders for debts created before they became such, or after the bank passed into the control of the Bank Commissioner, and all other relevant questions are reserved for the future determination of the court, as being unnecessary for present decision."
It further provided that the hearing should be upon certain exhibits herein referred to and such relevant testimony as might be offered, and further that any stockholder or the receiver might appeal.
The parties were accordingly heard, and after the hearing the court "adjudged, ordered and decreed that the answer to question I raised by said order is 'Yes'; the answer to question II (a) raised therein is 'Yes' and the answer to question II (b) raised therein is 'No.' " These appeals are from that order.
While their approaches differ, the appellants all object to the order on one of two grounds, either that the court has no power to impose the assessment at all, or that it has not the power to impose it at this time.
The background of both objections is the same and is to be found in the so called reorganization plan of the Baltimore Trust Company, acts incident thereto and connected therewith, and the banking legislation of this state.
The Baltimore Trust Company, which for convenience will be called the "Old Bank," was one of the early casualties of the depression. It entered into the sanctuary afforded by the Emergency...
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