Stein v. Delano

• Decision Date: 16 October 1940
• Docket Number: Civ. A. No. 829.
• Citation: 35 F. Supp. 260
• Parties: STEIN et al. v. DELANO, Comptroller of Currency, et al.
• Court: U.S. District Court — District of New Jersey

35 F. Supp. 260

STEIN et al. v. DELANO, Comptroller of Currency, et al.

Civ. A. No. 829.

District Court, D. New Jersey.

October 16, 1940.

Kristeller & Zucker and Saul J. Zucker, all of Newark, N. J., for plaintiffs and intervening plaintiffs Walter H. Cole and Frank W. Miller.

Bilder, Bilder & Kaufman and Walter J. Bilder, all of Newark, N. J., for intervening plaintiffs Edward M. Waldron, William J. Waldron, Robert E. Waldron, Samuel F. Dixon, Bernard Miller, Philip Lindeman, Arthur W. Barlow and Edward M. Waldron, executor of Estate of Mary Waldron, deceased.

Burnett & Trelease and Charles C. Trelease, all of Newark, N. J., for intervening plaintiffs Harvey G. Redden and John I. Spooner.

Armstrong & Mullen and Arthur C. Mullen, all of Jersey City, N. J., for intervening plaintiffs John F. Monahan and Frank J. McCann.

Harrison & Roche and Robert F. Darby, all of Newark, N. J., for receiver of New Jersey Nat. Bank & Trust Co. of Newark, N. J., and appearing specially for Preston Delano, Comptroller of Currency of United States of America.

WALKER, District Judge.

This matter, by agreement of counsel, comes before the Court on final hearing.

The facts are:

1. The New Jersey National Bank and Trust Company of Newark, New Jersey, was and is a national banking association, organized and existing under the laws of the United States of America.

2. On or about June 11, 1932, the then Comptroller of the Currency of the United States of America, pursuant to authority (Title 12 U.S.C. § 191 et seq., 12 U.S.C.A. § 191 et seq.), appointed a receiver for said association and thereafter the receiver and his successors undertook and proceeded with the necessary steps to close up such association.

3. An assessment of 100% upon all the outstanding capital stock has been levied and a substantial part thereof collected. Full provision has been made for refunding to the United States of America any deficiency in redeeming the circulating notes of the association. The principal sum due on each creditor's claim (except those of shareholders, who are also creditors), proved or adjudicated as required under the terms and provisions of Title 12 U.S.C. § 194, 12 U.S.C.A. § 194, has been paid in full and the Comptroller has paid or has in his possession sufficient monies to pay the expenses of the receivership.

4. At the time each creditor presented his receiver's certificate of proof of claim for a fifth dividend of 5%, which 5% made a total payment of 100% on account of principal due, the receiver's office attached to each certificate of proof of claim a written notice that, a further dividend representing all or part of the accrued interest on the claim would be paid when liquidation of the remaining assets warranted.

5. On March 2, 1940, the plaintiffs, as shareholders, on behalf of themselves and all other shareholders similarly situated,¹ filed herein their complaint under Rule 23, Federal Rules of Civil Procedure for District Courts, 28 U.S.C.A. following section 723c, and thereby seek the following relief; (a) a preliminary injunction and the appointment of a receiver which need not be considered, because of a stipulation stated in open court; (b) that the Comptroller be ordered to call a meeting of the shareholders for the purposes specified and set out in Title 12 U.S.C. § 197, 12 U.S.C.A. § 197; (c) that interest upon obligations held by former creditors be disallowed. (Certain other relief is sought; however, counsel have limited their argument to (c) and decision thereon determines whether the complaint stands or falls.)

6. The summons issued pursuant to Rule 4, Federal Rules of Civil Procedure for District Courts, was served upon the Comptroller of the Currency at Washington in the District of Columbia on the 6th day of March, 1940, and said Comptroller appears specially and moves to quash same on the grounds that he is a resident, citizen and inhabitant of the District of Columbia and is not and was not subject to service of process in this, an action instituted in the District of New Jersey, and said service is without authority of law.

7. The receiver moves to dismiss the action against him and alleges the complaint fails to state a claim upon which relief can be granted.

The first question is: Should the service of a summons in this, an action in the District of New Jersey, be quashed when it appears that it was made at Washington in the District of Columbia upon the Comptroller of the Currency of the United States of America, a resident, citizen and inhabitant of said District of Columbia?

The long established and general rule regarding jurisdiction in personam should be varied only in case of expressed statutory authorization.

The expressed statutory authorization upon which the plaintiffs rely is: "All proceedings by any national banking association to enjoin the Comptroller of the Currency, under the provisions of any law relating to national banking associations, shall be had in the district where such association is located." Section 49 of the Judicial Code, Title 28 U.S.C. § 110, 28 U.S. C.A. § 110.

The proceedings herein are by persons who happen to be shareholders in a national banking association. The end they seek is a ratable distribution of the proceeds of the assets or property of the association remaining in the hands or subject to the order and control of the Comptroller, and the receiver appointed by him, 12 U.S.C. § 197, 12 U.S.C.A. § 197, without deduction of interest on the approved or adjudicated claims of creditors. The fruits of the litigation, if successful, will inure directly to their benefit, and while it can be admitted for the purposes hereof that they and those they represent collectively own all the stock of the institution, it does not follow that in an action such as this, they prosecute as the owners of said institution or for its benefit. This cannot be called a proceeding by a national banking association, and therefor it is not expressly authorized by Section 110, supra. See Wilson v. Awalt, Acting Comptroller of the Currency, et al., D.C., 2 F.Supp. 465; Nagle et al. v. O'Connor, Comptroller of the Currency, et al., 3 Cir., 88 F.2d 936; Adams v. Nagle et al., 303 U.S. 532, 58 S.Ct. 687, 82 L.Ed. 999. In Nagle et al. v. O'Connor, supra, the District Court quashed the service upon the Comptroller, and the correctness thereof was raised in the Circuit Court which did not deem it necessary to directly pass thereon.

The Court believes special reference to the following cases is advisable:

First National Bank of Canton, Pennsylvania v. John Skelton Williams, Comptroller of the Currency, 252 U.S. 504, 40 S.Ct. 372, 64 L.Ed. 690, an action by a going national bank to restrain the Comptroller of the Currency from doing certain things under color of his office. Wegman et al. v. Hulse et al., D.C., 13 F.2d 206, an action by stockholders as a class to restrain the Comptroller of the Currency from compromising a suit brought by the receiver appointed by him against directors of the banking association. Both cases were prosecuted for the benefit of a national banking association and for such indirect benefit to the shareholders as might arise therefrom. The real party in interest in each was a national banking association. These cases are not in conflict with the decision herein.

O'Connor, Comptroller of the Currency, et al. v. Watson et al., 5 Cir., 81 F.2d 833, and Abel et al. v. Hellawell et al., D.C., 25 F.Supp. 446, extend the rule laid down in First National Bank of Canton, Pennsylvania v. John Skelton Williams, Comptroller of the Currency and Wegman et al. v. Hulse et al., supra, to permit the maintenance under Section 110, supra, of derivative actions by shareholders seeking to relieve themselves from statutory double assessment liability. Actions by shareholders to relieve themselves from statutory double assessment liability are for the benefit of the shareholders individually, and not by or for a national banking association within Section 110, supra. Said cases cannot be reconciled.

The alleged service of the summons herein upon Preston Delano, Comptroller of the Currency of the United States of America, a resident, citizen and inhabitant of the District of Columbia, is quashed.

The second question is: Do creditors of a national banking association in liquidation, who accept dividends totaling the full amount of the principal sum due, thereby waive interest?

The provisions of the National Banking Act, 12 U.S.C. § 21 et seq., 12 U.S.C.A. § 21 et seq., constitute a complete system for the establishment, government and liquidation of national banks. Cook County Nat. Bank and another v. United States, 107 U.S. 445, 2 S.Ct. 561, 27 L.Ed 537; Davis v. Elmira Sav. Bank, 161 U.S. 275, 16 S.Ct. 502, 40 L.Ed. 700; Downey v. City of Yonkers and three other cases, 2 Cir., 106 F.2d 69; Deitrick, Receiver, v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L. Ed. 694, rehearing denied, 309 U.S. 697, 60 S.Ct. 611, 84 L.Ed. 1036.

The Act, however, does not specifically provide for interest on claims of creditors and the plaintiffs urge this, in support of their contention that, interest is not payable, and they also urge the ratable dividend which the Comptroller is to make from time to time on claims proved to his satisfaction or adjudicated in a court of competent jurisdiction, 12 U.S.C. § 194, 12 U.S.C.A. § 194, is to be estimated on the value of the claim at the time of the declaration of insolvency. United States v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603; Merrill v. National Bank of Jacksonville, 173 U.S. 131, 19 S.Ct. 360, 43 L.Ed. 640; Kennedy v. Boston-Continental Nat. Bank, 1 Cir., 84 F.2d 592.

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