Stein v. Galitz

• Decision Date: 30 November 1978
• Docket Number: No. 78 C 1249.,78 C 1249.
• Citation: 478 F. Supp. 517
• Parties: Richard A. STEIN, Plaintiff, v. Willard C. GALITZ et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

478 F. Supp. 517

Richard A. STEIN, Plaintiff, v. Willard C. GALITZ et al., Defendants.

No. 78 C 1249.

United States District Court, N. D. Illinois, E. D.

November 30, 1978.

Paul Homer, Friedman & Koven, Chicago, Ill., for plaintiff.

Richard J. Witry, McCarthy, Scheurich, Duffy, Neidhart & Snakard, Mitchell J. Melamed and Jay A. Frank, Morton C. Kaplan, Chicago, Ill., for defendant Allen Schmidt.

MEMORANDUM OPINION AND ORDER

DECKER, District Judge.

The plaintiff in this action, Richard A. Stein, is a private developer under contract with the Department of Housing and Urban Development ("HUD") to participate in the federal government's program of subsidized rental housing. The complaint alleges that the plaintiff has received approval from HUD and the Illinois Housing Development Authority ("IHDA") for the construction of a federally-subsidized low-income housing unit for the elderly on a certain parcel of land at the corner of Lincoln and Galitz Avenues in the Village of Skokie, and that in March, 1976, the Board of Directors of the Village of Skokie adopted an ordinance approving the sale of the parcel of land to Stein for this purpose.

The complaint further charges that in May, 1976, a "meritless and false complaint" was filed in the Circuit Court of Cook County, which sought declaratory and injunctive relief against construction of the proposed low-income housing unit. The plaintiffs in that action were various citizens of Skokie. Stein charges that this litigation was financed by the First National Bank of Skokie (the "Bank"). Judgment for Stein was entered on November 30, 1977.

On April 4, 1978, the instant suit was filed against the individual citizens who were plaintiffs in the state action (The "Lurie defendants"),¹ the Bank, and the individual directors of the Bank (the "directors").² Count I of the complaint charges that the directors have violated the National Bank Act, 12 U.S.C. § 21 et seq., and thus have injured the plaintiff in the amount of $500,000., representing his costs of defending the state court case, and his losses from interference with his business relationships and expectancies. Count II alleges that all of the defendants have violated the Low-Rent Housing Act, 42 U.S.C. § 1401 et seq., and thus have caused injury to the plaintiff in the above-described amount of $500,000. Count III alleges that all defendants are liable for the tort of intentional interference with contractual relationships and prospective advantage, and prays damages in the same amount as Counts I and II. Jurisdiction is based solely on federal question and pendent jurisdiction under 28 U.S.C. §§ 1331, 1337.

On October 27, 1978, the Lurie defendants were voluntarily dismissed, pursuant to an agreement whereby they promised to withdraw their appeal from the state court's decision in favor of Stein. The remaining defendants have filed a motion to dismiss the complaint.

The defendants' motion raises various arguments directed against Counts I and II. These will be separately discussed.

A. Count I — The National Bank Act, 12 U.S.C. § 21, et seq.

Count I asserts that the directors' conduct in permitting bank funds to be used to finance the state litigation was in excess of their authority under § 24 of the National Bank Act.³ That section is entitled "Corporate powers of associations", and it lists various powers granted to national banks. Included among these powers are the following:

"First. To adopt and use a corporate seal.

"Second. To have succession . . .

"Third. To make contracts.

"Fourth. To sue and be sued . . .

"Fifth. To elect or appoint directors

. . .

"Sixth. To prescribe, by its board of directors, by-laws . . .

"Seventh. To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; . . .

"Eighth. To contribute to community funds, or to charitable, philanthropic, or benevolent instrumentalities conducive to public welfare, such sums as its board of directors may deem expedient and in the interests of the association . . ."

The defendants contend that the plaintiff does not have standing to assert a claim under § 24, or in the alternative has failed to state a claim upon which relief can be granted. The plaintiff argues that the complaint does state a claim, either under the Supreme Court's decision in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970), or under § 93.

(1) Data Processing

The Association of Data Processing Service Organizations is an association of firms which sell data processing services to various businesses. In the above-named case, the association and one of its members, Data Processing, Inc., sought to challenge a ruling of the Comptroller of the Currency that, as an incident to their banking services, national banks may provide data processing services to their customers. Named as defendants were the Comptroller and the American National Bank and Trust Company, which allegedly was performing or was preparing to perform such services for two customers with whom Data Systems, Inc., had on-going negotiations.⁴ The basis for the plaintiff's claim was that the business of providing data processing services was beyond the powers granted to national banks in 12 U.S.C. § 24.

The district court dismissed the cause for lack of standing, and this ruling was affirmed by the court of appeals.⁵ The Supreme Court reversed, holding that the plaintiffs were persons "aggrieved by agency action within the meaning of a relevant statute" under the Administrative Procedure Act, 5 U.S.C. § 702. In the course of its discussion, the Court noted that Congress had expressed some concern over the protection of competitors in the enactment of § 4 of the Bank Service Corporation Act, which applies to corporations providing services to banks which in turn own the service corporation, and which provides that:

"No bank service corporation may engage in any activity other than the performance of bank services for banks." 12 U.S.C. § 1864.

The Court found that this concern, together with the allegation of actual economic loss, was sufficient to give the competing data processing service organizations standing to challenge the administrative ruling. 397 U.S. at 152, 156, 90 S.Ct. 827.⁶

In Data Processing, the Court declined to rule on the merits of the question whether the provision of data processing services was beyond the range of activities permitted by the National Bank Act. In a subsequent case, Investment Company Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367 (1971), the Court did reach the merits of a similar case, and held that the operation of a collective investment fund did violate certain express limitations on the activities of national banks contained in 12 U.S.C. § 24.⁷

Since both cases sought judicial review of regulations promulgated by the Comptroller, neither Data Processing nor Investment Company Institute raised the precise question whether a private litigant could bring an action directly against a bank or its directors for redress against violations of § 24. Nevertheless, at least one court has held that individual travel agents and their national association can sue for injunctive relief against a bank's implementation of a proposed travel club, American Society of Travel Agents, Inc. v. Bank of America N. T. & S. A., 385 F.Supp. 1084 (N.D.Calif. 1974); and the Court of Appeals for the District of Columbia has suggested that such an action would be proper, New York Stock Exchange v. Bloom, 183 U.S.App.D.C. 217, 562 F.2d 736 (D.C. Cir. 1977), but cf. C. A. R. Leasing, Inc. v. First Lease, Inc., 394 F.Supp. 306, 310 (N.D.Ill.1975) (dicta).⁸

However, the Seventh Circuit has held that even if a right of action is implied under § 24 in favor of competitors, this does not mean that every party arguably injured by violations of the section may directly sue a bank or its directors. In Russell v. Continental Illinois National Bank and Trust Company of Chicago, 479 F.2d 131 (7th Cir. 1973), the plaintiff alleged that she and other members of the public invested in an "open-end mutual fund" established by the defendant bank in violation of the same express prohibitions of the National Bank Act involved in Investment Company Institute —12 U.S.C. §§ 24 and 378.⁹ The plaintiff sought damages suffered as a result of the fund's purchase of a large block of the common stock of Penn Central Company, which was both an obligor and depositor of the bank.

Justice Stevens, then a judge on the Seventh Circuit, reasoned that while Investment Company Institute may suggest that a private right of action should be implied in favor of a competitor, the position of a fund participant is quite different. In particular, the court found that a fund participant was not within the class of persons intended to be protected by the statute, because the statute was designed to minimize the risk of loss to the bank itself, not to fund participants:

"The basic reason for the legislation does not reflect a concern that the bank will be less capable of performing the activity efficiently than other entrepreneurs; rather it reflects a desire to minimize the risks of loss or insolvency to the bank itself." 479 F.2d at 133.

Citing Thompson v. St. Nicholas National Bank, 146 U.S. 240, 13 S.Ct. 66, 36 L.Ed. 956 (1892), the court found in addition that an award of damages in favor of a fund participant would in fact frustrate the act's fundamental goal of securing the solvency of national banks. 479 F.2d at 134.

In this case, the plaintiff is not within the class of persons, bank depositors, which the National Bank Act was designed to benefit. Indeed, as in Russell, an award of damages in this case would undermine the precise policy the act was designed to implement. Thus, this is not an appropriate case in which to...