Schram v. Poole

• Decision Date: 16 June 1938
• Docket Number: No. 8679.,8679.
• Citation: 97 F.2d 566
• Parties: SCHRAM v. POOLE.
• Court: U.S. Court of Appeals — Ninth Circuit

97 F.2d 566 (1938)

SCHRAM v. POOLE.

No. 8679.

Circuit Court of Appeals, Ninth Circuit.

June 16, 1938.

COPYRIGHT MATERIAL OMITTED

Olson & Olson and Richard C. Olson, all of Los Angeles, Cal., and Robert S. Marx, of Cincinnati, Ohio, for appellant.

Farrand & Slosson, George E. Farrand, Leonard B. Slosson, and Edward W. Tuttle, all of Los Angeles, Cal., for appellee.

Before GARRECHT, HANEY, and STEPHENS, Circuit Judges.

HANEY, Circuit Judge.

Appeal has been taken by appellant, as receiver of an insolvent national banking association, from a decree dismissing a bill of complaint filed to recover liability of shareholders, and from an order denying motions made by appellant to set aside the decree, and for leave to amend the bill.

In 1929, stockholders of The First National Bank in Detroit, a national banking association, and Peoples Wayne County Bank, Peninsular State Bank, and Bank of Michigan, Michigan banking corporations, and Detroit & Security Trust Company, a Michigan trust company, conceived a plan to consolidate their stockholdings in various corporations, by organizing a Michigan corporation to acquire the stock of the aforementioned corporations. The boards of directors of the corporations met separately on September 27, 1929, and recommended the plan to the stockholders. Barbour v. Thomas, 6 Cir., 86 F.2d 510, 511.

A written agreement was prepared, which provided that each stockholder appointed, as his agent and attorney, a committee of twelve men, consisting of two representatives of each of the aforementioned corporations, and authorized the committee to organize a holding corporation. More than 97% of the stockholders of the corporations signed the agreement, either individually or by an authorized agent.

The committee, as sole incorporators, pursuant to the agreement and plan, organized the Detroit Bankers Company, under the laws of Michigan. Articles of association were filed on January 8, 1930. The purpose of the corporation as stated therein was to acquire, hold and sell stock of banks and trust companies. The capital authorized was $50,000,000, divided into 2,500,000 shares of common stock having a par value of $20 per share and 120 shares of no par value "trustee" stock, which was the only voting stock for a specified time. The articles of association also contained the following provision: "The holder of each share of common stock of this corporation shall be individually and severally liable for such stockholder's ratable and proportionate part (determined on the basis of their respective stockholdings of the total issue and outstanding stock of this corporation) for any statutory liability imposed upon this corporation by reason of its ownership of shares of the capital stock of any bank or trust company, and the stockholders of this company, by the acceptance of their certificates of stock of this company, severally agree that such liability may be enforced in the same manner and to the same extent as statutory liability may now or hereafter be enforceable against stockholders of banks or trust companies under the laws under which said banks or trust companies are organized or operate. A list of the stockholders of this company shall be filed with the Banking Commissioner and the Comptroller of the Currency, whenever requested by either of those officers."

The members of the committee each subscribed for 10 shares of the trustee stock, and elected themselves directors of the holding company. The directors held their first meeting on January 9, 1930. Thereafter, practically all of the various stockholders, in five corporations, first mentioned, exchanged their stock in such corporations, for stock in the holding company. On the face of the certificates issued by the holding company to such stockholders, there was printed the substance of the provision of the articles of association, and on the back of such certificates, there was printed the full text of the provision except the last sentence.

The holding company caused the merger and consolidation of The First National Bank in Detroit, Peoples Wayne County Bank, Peninsular State Bank and Bank of Michigan into The First National Bank-Detroit. During the holding company's existence, it also acquired control or ownership in about 20 other banks, trust companies and financial institutions.

On February 11, 1933, The First National Bank-Detroit closed its doors. On February 14, 1933, the Governor of Michigan declared a banking holiday, effective to February 21, 1933, upon which day he permitted the opening of banks for limited purposes. On March 6, 1933, the President proclaimed the suspension of banking activity to and including March 9, 1933, and on the latter day extended the suspension. On March 13, 1933, the Comptroller of the Currency appointed one Keys conservator for the bank. On March 20, 1933, the holding company filed a list of its stockholders with the Comptroller of the Currency.

On March 21, 1933, one Thomas succeeded Keys as conservator. On May 10, 1933, one Connally was appointed receiver of the assets of the holding company in a Michigan state court, and a decree was therein entered dissolving that company. On the following day, the Comptroller of the Currency, having found that The First National Bank-Detroit was insolvent, appointed Thomas receiver of such bank.

On May 16, 1933, the Comptroller of the Currency levied an assessment upon the shareholders of The First National Bank-Detroit for $25,000,000, being a 100% assessment, due June 23, 1933, and on June 20, 1933 extended the due date to July 14, 1933, and on July 13, 1933 again extended the due date, to July 31, 1933.

On June 12, 1933, one Backus and others who were stockholders of the holding company filed in a Michigan state court suit against Connally, as receiver for the holding company, apparently to enjoin Connally from attempting to enforce against them liability for assessments against the holding company. The state court held that the stockholders of the holding company were liable for the assessments against the holding company. Appeal was then taken to the Supreme Court of Michigan.

On July 12, 1933, one Barbour and some 30 others, who were stockholders of the holding company, filed a suit in a United States District Court in Michigan against Thomas as receiver for The First National Bank-Detroit to enjoin Thomas from enforcing against them any liability of the holding company upon the assessments. Other stockholders of the holding company intervened. The total amount of stock represented in the suit was over $4,000,000. It was brought as a class action on behalf of all the holding company's stockholders. Thomas filed a cross-complaint alleging that such stockholders were liable on the assessment. The District Court sustained the cross-complaint (Barbour v. Thomas, 7 F. Supp. 271), and the stockholders appealed to the Circuit Court of Appeals.

Schram succeeded Thomas as receiver of The First National Bank-Detroit, on August 15, 1934.

On September 18, 1934, the Supreme Court of Michigan affirmed the decree in the state court suit. It held that the liability of the holding company for the assessment was primarily based upon the statute, but was contractual in its nature; that the acceptance of the certificates of stock in the holding company by the stockholders thereof constituted "an assent to the terms and conditions of the contract as expressed in the articles of association, which contract is an express one"; and that Connally, as receiver of the holding company, could sue upon and enforce the contract. Simons v. Groesbeck, 268 Mich. 495, 256 N.W. 496.

On November 11, 1936, the Circuit Court of Appeals affirmed the decree rendered in the class suit brought against Thomas. It held that the stockholders of the holding company were the "actual owners" of the bank stock. Referring to the decision of the Supreme Court of Michigan, the court said: "We have no quarrel with the ruling that, as between the stockholders of the holding company and its receiver, article IX-A quoted above constitutes a contractual obligation". Barbour v. Thomas, 6 Cir., 86 F.2d 510, 517, certiorari denied 300 U.S. 670, 57 S.Ct. 513, 81 L.Ed. 877. Another opinion regarding interveners in that suit was handed down the same day. Ullrich v. Thomas, 6 Cir., 86 F.2d 678, certiorari denied 301 U.S. 692, 57 S.Ct. 794, 81 L.Ed. 1348.

On May 12, 1936, Schram, as receiver of The First National Bank-Detroit, filed in the court below a bill against appellee, "John Hudson Poole, individually and as Guardian of the Person and Estate of John Hudson Poole, Jr., a minor".

The bill alleged most of the facts above related and that appellee was appointed guardian of the person and estate of the minor by a California state court in 1932; that appellee had in his hands estate and funds of the minor valued at about $1,000,000; and that prior to February 11, 1933 and at all times since, the minor's estate included 900 shares of the stock of the holding company, represented by nine certificates for 100 shares each, "all registered in the name of John Hudson Poole, Guardian of John Hudson Poole, a minor". The allegations of the bill are broad, and allege facts sufficient to impose liability on the owner of the stock in question, (1) by disregarding the corporate entity of the holding company, (2) by considering the holding company as holding the bank stock as agent for the stockholders of the holding company, (3) by estoppel to deny liability, and (4) by allegations that "each and every one of the shareholders of said Detroit Bankers Company by the acceptance of their certificates of stock of said Detroit Bankers Company, entered into a contract whereby they severally agreed to pay their ratable and proportionate part of any assessment levied by the Comptroller of the Currency upon the shareholders of record of the capital stock of said First National Bank-Detroit; that there was a good...