Todd v. Russell

• Decision Date: 30 September 1937
• Citation: 20 F. Supp. 936
• Parties: TODD et al. v. RUSSELL et al.
• Court: U.S. District Court — Southern District of New York

20 F. Supp. 936

TODD et al. v. RUSSELL et al.

District Court, S. D. New York.

September 30, 1937.

Mack, Taylor, Spiegelberg & McCauley, of New York City (George A. Spiegelberg and Harry W. Mack, both of New York City, of counsel), for plaintiffs.

Benjamin G. Myron, of New York City, for defendant Samuel A. Pleasants.

Samuel A. Pleasants, of New York City, for all other defendants.

MANDELBAUM, District Judge.

This is an action to collect the statutory liability of the defendants as stockholders as provided by Federal Farm Loan Act, § 16, 12 U.S.C.A. § 812.

The plaintiffs, doing business as J. S. Todd & Co. are the holders of $10,000 principal amount of bonds of the Ohio Joint Stock Land Bank of Cincinnati, Ohio. These bonds were acquired in 1928 after the bank had been placed in receivership. At the time of the failure of the bank, defendants Russell, Miller and Carey held 200 shares of stock of the par value of $20,000, defendant Taylor held 1,745 shares of the par value of $174,500, and defendant Pleasants held 112½ shares of the par value of $11,250, all registered in their respective names. These defendants have not paid their alleged statutory liability as stockholders after assessment, and this action is consequently brought by the plaintiffs on their own behalf, as well as on behalf of all creditors, for the collection of same.

The action is predicated upon section 812 of title 12, U.S.C.A., which reads as follows: "Individual liability of shareholders. Shareholders of every joint-stock land bank organized under this chapter shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such bank to the extent of the amount of stock owned by them at the par value thereof, in addition to the amount paid in and represented by their shares." (Italics by the court.)

During the course of this litigation, several motions were made by the litigants of which brief mention will be made. On July 25, 1932, Judge William Bondy, held that, this being a representative action, the same was properly in equity.¹ On November 2, 1932, Judge Robert P. Patterson ruled upon some of the affirmative defenses pleaded by the defendants. 1 F.Supp. 788. Finally, on December 30, 1935, Judge John C. Knox, in a comprehensive opinion, after a trial on a special issue, overruled the defense of laches as set up in the answer of the respective defendants. 20 F.Supp. 930.

The pertinent defenses interposed by the defendants upon which this court is now called upon to pass may be said to be: (1) That the defendants are not owners (of the stock) and are therefore not liable under the act; (2) that the plaintiffs are not entitled on equitable grounds to assert an estoppel against the denial of such ownership; (3) that the plaintiff is not a proper party plaintiff; and (4) that there is no ground for equitable jurisdiction, since no accounting is necessary for the distribution among the plaintiffs or to determine the amount of the assessment required.

Much discussion is not needed in disposing of defenses 3 and 4. In addition to the fact that Judge Bondy's decision that the instant suit is cognizable in equity and which ruling is the law of the case, I believe that the cases of Wheeler v. Greene, 280 U.S. 49, 50 S.Ct. 21, 74 L.Ed. 160; Brusselback v. Cago Corporation (C. C.A.) 85 F.(2d) 20, certiorari denied 299 U.S. 586, 57 S.Ct. 111, 81 L.Ed. 432, and Brusselback v. Arnovitz (C.C.A.) 87 F.2d 761, rehearing denied March 9, 1937, are a complete answer to the defendants' contentions. I hold therefore these defenses to be insufficient in law, and they are accordingly dismissed.

Defenses numbered 1 and 2 present more serious questions. For the purposes of clarity, the remaining issues may be narrowed to whether the decisions interpreting stockholders' liability arising out of the failure of a national bank are applicable to stockholders' liability arising out of the failure of a joint stock land bank. If they do, then the plaintiffs must succeed. If they do not, the defendants must be declared free from any legal responsibility.

The defendants have meticulously analyzed for the court the pertinent provisions of the National Banking Act (1864, 13 Stat. 99), Federal Reserve Act (1913, 38 Stat. 251), and Farm Loan Act (1916) in their attempt to show, that not only by difference in language, the method of doing business, as well as the organization of Farm Loan Associations, that it was the congressional intention to confine statutory liability to the beneficial owners of the stock, rather than record holders thereof.

They say, that the change in the language used in section 812 of title 12, U.S.C. A. ("The extent of the amount of the stock owned by them"), lends support to their contention that beneficial rather than the record ownership is intended before statutory liability may be imposed.

The provision of the National Banking Act (and the decisions thereunder, infra), upon which the plaintiffs solely rely, reads as follows (section 63 of title 12, U.S.C. A.): "Individual liability of shareholders. The shareholders of every national banking association shall be held individually responsible for all contracts, debts, and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares." (Italics by the court.)

The plaintiffs urge that the above-quoted section 63 is identical with section 812 (joint stock land banks) except that, in the case of national banks, section 63 imposes the liability on the shareholders to the extent of the amount of their stock therein, while section 812 imposes the liability on shareholders to the extent of the amount of stock owned by them. In short, they say "their stock" and "The amount of the stock owned by them" mean exactly the same thing.

The evidence and exhibits reveal that the defendant Taylor is the nominal holder of certain shares held by C. G. Taylor & Co., of which company he was president. Defendants Russell, Miller and Carey are the registered holders of certain shares in behalf of their client, Grafton W. Minot. Defendant Pleasants is the pledgee of certain shares as security for an advance made by him to the Joint Stock Bond & Share Company, Inc., an affiliate of C. G. Taylor & Co.

It is no longer open to question that the record holders of stock of a national bank, regardless of whether they are the beneficial or merely record holders, are subject to the statutory liability imposed by section 63 (title 12, U.S.C.A.).

In Kenyon v. Fowler (C.C.A.2d Circuit), 155 F. 107, affirmed 215 U.S. 593, 30 S.Ct. 409, 54 L.Ed. 341, it was held that one who was notified that shares of stock in a national bank had been transferred into his name, although he had in fact no interest therein, and who indorsed the certificates in blank, but took no steps to have the stock transferred to the name of the true owner, cannot avoid liability for an assessment thereon made by the comptroller to meet the debts of the bank after its insolvency.

Also in Atkins v. Meacham (C.C.A.) 85 F.(2d) 929, at page 930, the court, in holding the defendant liable for the assessment as the owner of the life interest in the stock, said: "The stock was entered on the books of the bank in the name of the defendant and whatever may be claimed, with respect to the certificate for the twelve shares of stock, the defendant admittedly knew that the certificate for the ten shares was issued to her personally and it was on this ten shares that the assessment sued for was made. A person in whose name stock stands on the books of a bank and who knows this fact is liable to an assessment, and becomes estopped to deny that he is a stockholder. And cases cited."

Neither can a pledgee of stock of a national bank escape liability unless the stock is registered in his name as pledgee. Rankin v. Fidelity Trust Co., 189 U.S. 242, 246, 23 S.Ct. 553,...