Sowell v. Federal Reserve Bank of Dallas, Texas

• Decision Date: 25 May 1925
• Docket Number: No. 367,367
• Citation: 45 S.Ct. 528,69 L.Ed. 1041,268 U.S. 449
• Parties: SOWELL v. FEDERAL RESERVE BANK OF DALLAS, TEXAS
• Court: U.S. Supreme Court

268 U.S. 449

45 S.Ct. 528

69 L.Ed. 1041

SOWELL

v FEDERAL RESERVE BANK OF DALLAS, TEXAS.

No. 367.

Argued and Submitted May 1, 1925.

Decided May 25, 1925.

Mr. J. D. Williamson, of St. Louis, Mo., for plaintiff in error.

[Argument of Counsel from pages 450-451 intentionally omitted] Mr. Ethan B. Stroud, Jr., of Dallas, Tex., for defendant in error.

Mr. Justice STONE delivered the opinion of the Court.

Writ of error to the United States Circuit Court of Appeals for the Fifth Circuit to review its judgment, affirming a judgment for the plaintiff below of the District Court of the United States for the Northern District of Texas, in an action upon a promissory note.

Plaintiff in error, defendant below, a resident of Texas, executed his promissory note payable to the order of a national bank domiciled in Texas. The note was indorsed, before maturity, to defendant in error, also domiciled in Texas, as collateral security for an indebtedness owing by indorser to defendant in error, in excess of the amount of the note. Three principal grounds of error are assigned: (1) That the District Court was without jurisdiction as the plaintiff below was an indorsee of the note sued upon and as its indorser could not have brought suit upon the note against the maker in that court, Judicial Code, § 24, subd. 1(c), being Comp. St. § 991; (2) that defendant in error as holder of the note failed to present the note for payment at the indorser bank where it was payable and where the maker had funds on deposit sufficient to pay it; (3) that the District Court refused to stay the suit until such time as the defendant should exhaust other collateral held by it as security for the indebtedness of the indorser.

Suit being brought by a federal reserve bank, incorporated under the laws of the United States, it is a suit arising under the laws of the United States. Judicial Code, § 24, 1(a); American Bank & Trust Co. v. Federal Reserve Bank of Atlanta, 256 U. S. 350, 41 S. Ct. 499, 65 L. Ed. 983. And as the defendant in error is not a national bank subject to the provisions of the Judicial Code, § 24, subd. 16, the District Court had jurisdiction of the suit unless jurisdiction is excluded by the so-called 'assignee clause,' Judicial Code, § 24, subd. 1(c), which reads as follows:

'No District Court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any assignee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made. * * *'

It is unquestioned that where the sole ground of jurisdiction is diversity of citizenship, such jurisdiction is excluded by the operation of this clause, and the question now presented is whether the clause has a like effect where the sole ground of jurisdiction is that the suit arises under the laws of the United States.

No inference as to the meaning of the assignee clause can be drawn from its relative position in section 24, and that of the clause giving jurisdiction of suits arising under the laws of the United States. Judicial Code, § 295 (section 1272).

The history of the clause, however, shows clearly that its purpose and effect, at the time of its enactment, were to prevent the conferring of jurisdiction on the federal courts, on grounds of diversity of citizenship, by assignment, in cases where it would not otherwise exist, and not to deprive the federal courts of jurisdiction where it was conferred on grounds other than diversity of citizenship.

The assignee clause was incorporated in the Judiciary Act of 1789, § 11, in substantially its present form. Under that act, jurisdiction could be invoked only by the United States, aliens, and in cases of diversity of citizenship. There was therefore no scope for its application in cases where jurisdiction depended upon the subject-matter of the suit. Jurisdiction in cases arising under the laws of the United States (except for a brief period under the Act of February 13, 1801 [2 Stat. 92, 93], was not conferred until the Act of March 3, 1875 [18 Stat. pt. 3, p. 470]). Before that date jurisdiction over suits brought by federal corporations was denied unless their charters expressly authorized them to sue in the federal courts. Where such authority was granted, the assignee clause was held to be inapplicable and not to defeat the jurisdiction. Commercial National Bank v. Simmons, 6 Fed. Cas. 226, No. 3,062; Bank of United States v. Planters' Bank of Georgia, 9 Wheat. 904, 6 L. Ed. 244. In that case, the court, in holding that the Bank of the United States might bring suit on a note indorsed to it by a citizen of the same state as that of the defendant maker of the note, pointed out that the purpose of the assignee clause was to prevent extending the jurisdiction of the court by the mere process of assignment and not to limit a jurisdiction conferred on other grounds. The court said, at page 909:

'It was apprehended, that bonds and notes, given in the usual course of business, by citizens of the same state, to each other, might be assigned to the citizens of another state, and thus render the maker liable to a suit in the federal courts. To remove this inconvenience, the act which gives jurisdiction to the courts of the Union over suits brought in by citizens of one state against the citizens of another, restrains that jurisdiction, where the suit is brought by an assignee to cases where the suit might have been sustained, had no assignment been made. But the bank does not sue in virtue of any right conferred by the Judiciary Act, but in virtue of the right conferred by its charter. It does not sue, because the defendant is a citizen of a different state from any of its members, but because its charter confers upon it the right of suing its debtors in a Circuit Court of the United States.'

Mr. Justice Story applied the same rule in the case of a claim assigned to the United States, holding that the assignee clause was not applicabel (United States v. Greene, 4 Mason, 427, Fed. Cas. No. 15,258), resting his decision both on the meaning and effect of the assignee clause, and on...