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Nagle v. O'Connor

March 10, 1937

NAGLE ET AL.
v.
O'CONNOR, COMPTROLLER OF THE CURRENCY, ET AL; TOBIAS ET AL. V. SAME



Appeal from the District Court of the United States for the Eastern District of Pennsylvania; William H. Kirkpatrick, Judge.

Author: Davis

Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

These cases involve the validity of a levy by the Comptroller of an assessment of 100 per cent. on the stockholders of two national banks, the Penn National Bank and the Reading National Bank of Reading, Pa., hereinafter called the Penn Bank and the Reading Bank. They involve the same question of law and were tried together in the District Court and argued together here.

The real question is whether or not in making the assessment the Comptroller transcended the power and authority conferred upon him by Congress.

On February 17, 1933, the Penn Bank and the Reading Bank entered into an agreement with the Farmers National Bank & Trust Company of Reading, Pa., hereinafter called the Farmers Bank, wherein the Penn Bank and the Reading Bank agreed to consolidate with and under the name of the Farmers Bank. The Penn and Reading Banks were forthwith to transfer all of their assets to the Farmers Bank upon the condition that it would assume all liabilities of every kind of the Penn and Reading Banks except liabilities of stockholders as such. The Penn and Reading Banks immediately ceased doing a banking business and transferred all of their assets, which are alleged to have been more than enough to pay their liabilities, to the Farmers Bank which, however, did not pay, as it had agreed to do, the liabilities of the other two banks, but went on conducting a banking business with the combined assets of the three banks until March 18, 1933, when William M. Bertolet was appointed conservator for it. He took possession of the assets of the Farmers Bank which included those coming from the Penn Bank and the Reading Bank, and carried on the banking business of the Farmers Bank, commingling all the assets of the three banks and using them indiscriminately to discharge the obligations of the Farmers Bank, until October 10, 1933, when the Comptroller "abrogated" and set aside the contract between the banks of February 17, 1933, and attempted to allocate among the three banks the assets then belonging to the Farmers Bank. He certified on that day that the Penn Bank and the Reading Bank were unable to transact and carry on business and appointed Bertolet conservator for each of them.

He continued as conservator for each of the three banks until October 27, 1934, when the Comptroller certified that each of the three banks was insolvennt and unable to pay its just and legal debts and appointed receivers for each of them.

On January 15, 1935, he levied an assessment of 100 per cent. of their individual liability upon the stockholders as follows:

"To All Whom It May Concern: Whereas, upon a proper accounting by the Receiver heretofore appointed to collect the assets of The Penn National Bank and Trust Company, of Reading, Pennsylvania, and upon a valuation of the uncollected assets remaining in his hands, it appears to my satisfaction that in order to pay the debts of such association it is necessary to enforce the individual liability of the stockholders therefor to the extent hereinafter mentioned, as prescribed in section 5151 and 5234 of the Revised Statutes of the United States [12 U.S.C.A. §§ 63, 192] section 1, c. 156, Act of June 30, 1876 [12 U.S.C.A. § 191], and section 23, Act approved December 23, 1913, known as Federal Reserve Act [12 U.S.C.A. § 64],

"Now, therefore, by virtue of the authority vested in me by law, I do hereby make an assessment and requisition upon the shareholders of the said Penn National Bank and Trust Company, of Reading, Pennsylvania, for One Million ($1,000,000.) Dollars, to be paid by them on or before the 23rd day of February, 1935, and I hereby make demand upon each and every one of them for the par value of each and every share of capital stock of said association held or owned by them, respectively, at the time of its failure; and I hereby direct Wm. H. McGowan, the Receiver heretofore appointed, to take all necessary proceedings, by suit or otherwise, to enforce to that extent the said individual liability of the said shareholders."

The crux of this case centers in the right of the Comptroller to abrogate and set aside the contract in accordance with which the Penn and Reading Banks conveyed their assets to the Farmers Bank, in consideration for which the Farmers Bank agreed to pay the obligations of the other two banks. There is no allegation anywhere that the banks were then, February 17, 1933, insolvent though they may have been in imminent danger. It is nowhere alleged that the directors of the banks in entering into that agreement were not acting in good faith and for the best interest of all of the banks. There is no hint that the agreement was in any way fraudulent.

Under these circumstances, it was beyond the power of the Comptroller, eight months afterward by mere ipse dixit, to set aside the contracts between the banks and proceed as though they had never been made. Wannamaker v. Edisto National Bank of Orangeburg (C.C.A.) 62 F.2d 696. Congress did not give him such power. No principle of law, which, in our opinion, authorizes the Comptroller to do this has been cited by counsel or the court below.

The authority to levy an assessment upon the stockholders is contained in section 192, 12 U.S.C.A., the National Bank Act, which provides that: "Such receiver, under the direction of the comptroller, shall take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to it, and, upon the order of a court of record of competent jurisdiction, may sell or compound all bad or doubtful debts, and, on a like order, may sell all the real and personal property of such association, on such terms as the court shall direct; and may, if necessary to pay the debts of such association, enforce the individual liability of the stockholders. Such receiver shall pay over all money so made to the treasurer of the United States, subject to the order of the comptroller, and also make report to the comptroller of all his acts and proceedings."

The Comptroller has power to decide when and to the extent it is necessary to enforce the liability of stockholders. These are matters within his administrative discretion and his determination of these questions is ordinarily conclusive and may not be judicially reviewed. Kennedy v. Gibson et al., 8 Wall. (75 U.S.) 498, 505, 19 L. Ed. 476. But in reaching his conclusion as to this necessity, he may not act arbitrarily, capriciously, and in entire disregard of the provisions of the statute. Stockholders are only conditionally liable for the debts of the bank "after all the ordinary resources of the bank have been exhausted." National Bank v. Kennedy, 17 Wall. (84 U.S.) 19, 22, 21 L. Ed. 554. In United States ex rel. Citizens' Nat. Bank v. Knox, 102 U.S. 422, 425, 26 L. Ed. 216, the court said: "In the process to be pursued to fix the amount of the separate liability of each of the shareholders, it is necessary to ascertain, 1, the whole amount of the par value of all the stock held by all the shareholders; 2, the amount of the deficit to be paid after ...


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