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354 COPY X-6743 FEDERAL RES3RVE BANK OF RICHMOND October 25, 1930. Federal Reserve Board, Washington, D. C. A t t e n t i o n Mr. Walter l y a t t , General Counsel My dear Mr. Wyatt: I r e c e i v e d your l e t t e r of October 22nd upon the s u b j e c t of the employment of Honorable Newton D. Baker to a s s i s t i n the case of the Federal Reserve Bank of Richmond v. Attmore and r e l a t e d l i t i g a t i o n s . . I have discussed t h i s m a t t e r with the o f f i c e r s of t h i s bank and a l l of us agree t h a t these cases may well p r e s e n t questions which w i l l make them m a t t e r s of i n t e r e s t to the e n t i r e Federal Reserve System, so that i t w i l l be h i g h l y d e s i r a b l e to bring Mr. Baker i n t o c o n s u l t a t i o n . Mr, Seay h a s , t h e r e f o r e , asked me to request the Federal Reserve Board to make with Mr. Baker such an arrangement as i s u s u a l l y made i n such c a s e s . As you know I have never had any experience i n such arrangements; consequently i f t h e r e q u e s t should come from Mr. Seay to the Federal Reserve Board, l e t me know, but otherwise you may t r e a t t h i s l e t t e r as a r e q u e s t to the Federal Reserve Board to r e t a i n Mr. Baker f o r consultation* I am e n c l o s i n g you herewith a memorandum f i l e d in the t r i a l c o u r t . The docket i n the court of Craven County, N. C., i s so congested that the t r i a l judge has l i t t l e time f o r thorough study. The memorandum which I enclose, Was intended merely as an o u t l i n e of my views f o r the b e n e f i t of my a s s o c i a t e , but he t e l l s me that he d e l i v e r e d i t to the t r i a l judge supplemented only by a few c i t a t i o n s of Noi*th Carolina cases r e l a t i n g to the general s u b j e c t of s t r i k i n g out i r r e l e v a n t or immaterial a l l e g a t i o n s * I have w r i t t e n to my a s s o c i a t e to ask what w i l l be the time allowed us to p e r f e c t an a p p e a l . I took d e p o s i t i o n s i n f i v e o t h e r cases pending i n New Bern, brought to recover upon notes h e l d as marginal c o l l a t e r a l . The examination of the w i t n e s s e s made by the a t t o r n e y s f o r the defendants i n those c a s e s , show t h a t they expect to p r e s s on the court the question of our r i g h t to receive and h o l d marginal c o l l a t e r a l , and a l s o I think showed t h e i r det e r m i n a t i o n to h i n d e r and delay the p r o g r e s s of case as much as p o s s i b l e . They made no s e c r e t of the f a c t t h a t the docket i n t h e i r county was so congested t h a t a t r i a l could not be obtained f o r a t l e a s t a year on any question r e q u i r i n g j u r y t r i a l . They a l s o made demands during the p r o g r e s s of the t a k i n g of the d e p o s i t i o n s f o r the production and e x h i b i t i o n of 8 5 5 Mr. Walter Wyatt, General Counsel, Federal Reserve Board X-6743 -2- October 23, 1930. numerous records and accounts. Some were produced and e x h i b i t e d . The w i t n e s s e s under my advice r e f u s e d many o t h e r s upon the ground t h a t i t would take several days or several weeks to f i n d the documents and t h a t they were e n t i r e l y immaterial to the i s s u e of the c a s e . • I am c e r t a i n t h a t my opponents 1 o b j e c t i s to r a i s e as many questions as p o s s i b l e , hoping t h a t the court may exclude the depositions a t the t r i a l or e l s e permit them to have a continuance upon the ground t h a t the documents should have been produced. I have mentioned the general conditions because I think t h a t we a r e i n r e a l i t y c a l l i n g Mr. Baker i n to consult about m a t t e r s when our opponents a r e much more anxious to avoid a d e c i s i o n than they a r e to o b t a i n one. In other words they are r a i s i n g the questions a s a means of c r e a t i n g delays and with some hope, of course, t h a t by some a ccident a d e c i s i o n w i l l be rendered i n t h e i r f a v o r . I think, however, as I s t a t e d i n the beginning, t h a t the t i o n i s such as to suggest r e t a i n i n g Mr. Baker, I a l s o agree with i t i s a d v i s a b l e to appeal from any adverse r u l i n g to the motion to out the answer i n the Attmore case, but of course, i f Mr. Baker i s t a i n e d he should have the deciding voice on t h a t q u e s t i o n . situayou t h a t strike re- As I have never been involved i n a System case since we adopted the p l a n f o r j o i n t a c t i o n , I do not know j u s t how I should proceed i n p l a c i n g these m a t t e r s b e f o r e Mr. Baker. My suggestion would be t h a t when he has been r e t a i n e d , I should send him copies of a l l papers i n the Attmore case and copies of the d e p o s i t i o n s to which I have r e f e r r e d , and t h a t a f t e r he has had an opportunity to read the papers we should have a conference. I t would be very h e l p f u l , I think, to have you a t t h a t conference, and i f i t s u i t s Mr. Baker's convenience, we could have i t a t your o f f i c e . When you have made arrangements with Mr. Baker, you can communicate with me. Of course, I could go to Cleveland to consult him t h e r e , i f more convenient to him. Very t r u l y yours, (S) Me G. Wallace, Counsel, Mr /m GWm enc* P . S. I should l i k e very much to have a memorandum by you concerning the d u t i e s of the Federal Reserve Agent and h i s r e l a t i o n s to the Bank and to the Board; and Mr. Hoxton advises that he would l i k e to have such a memorandum i n h i s f i l e s f o r h i s own guidance. M. Gr. W e ,356 X-6743-a M M R N U OF MOTION TO STRIKE OUT ANSWER OF DBFEBHANT IN ACTION E OADM OF FEDERAL RESERVE SANK OF RICHMOND v G. S. ATTMORE PARAGRAPH 1 OF THE ANSWER: : Paragraph one of the answer i s not a s p e c i f i c or general d e n i a l of the corresponding a l l e g a t i o n of the complaint as reouired by Section 519 of the Code of North Carolina. I n t h i s paragraph the defendant a p p a r e n t l y concedes t h a t -the p l a i n t i f f has organized under the a c t s of Congress r e l a t i v e to Federal r e s e r v e "banks hut denies t h a t Federal reserve "banks are ""banking c o r p o r a t i o n s " . • The powers of the p l a i n t i f f are p r e s c r i b e d by law (see Section 4 of the Federal Reserve Act; U. S. Code, T i t l e 12, Section 541, e t s e q . ) This paragraph, t h e r e f o r e , p r e s e n t s a question of law and not an i s s u e of f a c t , (see 108 N. C. 147. 12 S. 2 . 896) The l a s t sentence i s p l a i n l y n e i t h e r "a s p e c i f i c or general denial of the a l l e g a t i o n of the complaint" nor "a statement of new matter i n ordinary concise language" as r e q u i r e d by Section 896 of the Code of North Carolina, and can have been i n s e r t e d f o r no purpose except to attempt to arouse passion and p r e j u d i c e on the p a r t of the j u r y . PARAGRAPHS 5 and 8 OF THE ANSWER: These paragraphs a r e p l a i n l y not proper p l e a d i n g . That p o r t i o n which de- mands the production of documents i s n e i t h e r an admission or d e n i a l of matters a l l e g e d i n the complaint, nor a statement of new m a t t e r , f o r the defendant i s app a r e n t l y u n w i l l i n g t o commit himself to the a l l e g a t i o n t h a t any such documents e x i s t , but leaves t h i s to i n f e r e n c e . Section 899, e t s e q . of the Code of North Carolina provides means f o r compelling the production of documents and f u r t h e r provides t h a t the method t h e r e i n p r e s c r i b e d i s an exclusive method. Doubtless one of the o b j e c t s of such a p r o v i s i o n was t o permit the court to determine the p r o p r i e t y of r e q u i r i n g the production of the documents and the a d m i s s i b i l i t y of ~ 2 - X-6743~a t h e i r contents; to determine on matters r e l a t i v e to the production of documents without p e r m i t t i n g the j u r y to be misled or confused by the i r r e g u l a r presentation of matters which a r e w i t h i n the province of the judge. The defendant has not seen f i t to a v a i l himself of the remedy provided "by s t a t u t e and the i n c l u s i o n of a r e f e r e n c e to such a remedy i n the answer i s obviously an e f f o r t to employ the answer as a s u b s t i t u t e f o r a b i l l of discovery, which l a t t e r remedy has been exp r e s s l y a b o l i s h e d , and the reading to the j u r y of t h i s s e c t i o n of the answer can serve no purpose except to convey by suggestion the i d e a t h a t the p l a i n t i f f has i n i t s p o s s e s s i o n s e c r e t documents which i t has wrongfully f a i l e d to produce, when the f a c t i s t h a t i f the production of the documents i s proper the court may i n the manner p r e s c r i b e d by s t a t u t e require the production. PARAGRAPH ONE OF THE FURTHER DEFENSE: This i s a r e s t a t e m e n t of the p o s i t i o n taken by the defendant i n p a r a graph one of the answer and as such i s open to the o b j e c t i o n s s t a t e d above. PARAGRAPH T O OF THE FURTHER DEFENSE: W The matters h e r e i n a l l e g e d are a b s o l u t e l y i r r e l e v a n t to the i s s u e s of the case, which are simply - 1+ I s the defendant l i a b l e upon the notes sued on? 2. Were these notes t r a n s f e r r e d to the p l a i n t i f f so t h a t i t became the holder of them? 3. I s the a l l e g e d balance due by the F i r s t National Bank of New Bern to the defendant a v a i l a b l e as defense in a c t i o n by the p l a i n t i f f ? PARAGRAPH THREE OF THE FURTHER DEFENSE: These a l l e g a t i o n s r e l a t e to matters occurring e i g h t years b e f o r e the execution of the notes i n the s u i t and are t h e r e f o r e wholly immaterial to any cont r o v e r s y between the p a r t i e s to t h i s action* I n a d d i t i o n , the a l l e g a t i o n t h a t "The Peoples Bank becajne unable to f u n c t i o n because of the requirements of the p l a i n t i f f " i s a mere conclusion of the #> - 3 pleader. r-i X-6743-a He should s p e c i f i c a l l y a l l e g e the requirements to which he r e f e r s i n order t h a t the court may he able to determine whether or not such requirements were l a w f u l or u n l a w f u l . The a l l e g a t i o n t h a t the p l a i n t i f f causedthe National Bank of Mew Berne to absorb the s a i d Peoples Bank i s a l s o a conclusion, and furthermore a conclusion impossible as a m a t t e r of law since the proceedings i n the c o n s o l i d a t i o n of Nati o n a l banks a r e s u b j e c t to the control of the Comptroller of the Currency (see U. S. Code, T i t l e 12, S e c t i o n s 33 and 35) so t h a t the p l a i n t i f f could have no power to r e q u i r e or compel a National tank to consolidate with a s t a t e bank. PARAGRAPH FOUR OF THE FJRTHER DEFENSE: This a l l e g a t i o n i s i r r e l e v a n t to the controversy between the p a r t i e s , and i n a d d i t i o n i t ap Dears t o be held i n North Carolina, as elsewhere, t h a t an a l l e g a t i o n t h a t an a c t was done f r a u d u l e n t l y i s a mere conclusion. Tne p l e a d e r should allege, the a c t i o n which c o n s t i t u t e d the f r a u d in order that the court may draw i t s own i n f e r e n c e from the a l l e g a t i o n . PARAGRAPH FIVE OF THE IURTH3R DEFENSE: The a l l e g a t i o n s of t h i s paragraph are i r r e l e v a n t , as the insolvency of the National Bank of New Berne would not debar i t from t r a n s f e r r i n g i t s a s s e t s f o r value. PARAGRAPH SIX OF THE FURTHER DEFENSE: The a l l e g a t i o n s of t h i s paragraph are i r r e l e v a n t , and i n a d d i t i o n the a l l e g a t i o n as to the amalgamation of the two banks i s as a matter of law inpossi-. b l e f o r the reasons s e t out above. The a l l e g a t i o n as t o the use of the funds of Craven County i s wholly i r r e l e v a n t , and i n a d d i t i o n i s a mere conclusion, as there i s no a l l e g a t i o n as t o why or by what means the funds of Craven County came i n t o the hands of the National Bank of New Berne, and i n any event the use or misuse of 3 5 9 ~ 4 — X-6743-a the funds of Craven County "by the National Bank of Hew Berne must be i r r e l e v a n t to any controversy between the Federal Reserve Bank of Richmond and G*. S. Attmore. The i n c l u s i o n of t h i s a l l e g a t i o n can have been intended only to arouse passion or p r e j u d i c e on the p a r t of the j u r y by i n s i n u a t i n g t h a t i n matters wholly unconnected with the p r e s e n t case the p l a i n t i f f has connived a t i r r e g u l a r i t i e s on the p a r t of National banks. PARAGRAPH SEVEN 0? THE FURTHER DEFENSE: This paragraph appears t o be i r r e l e v a n t , a s the defendant does not a l l e g e t h a t h i s notes are held as c o l l a t e r a l by the Federal Reserve Bank of Richmond, and the t i t l e of the Federal Reserve Bank of Richmond to notes of o t h e r persons t r a n s f e r r e d t o i t by the F i r s t National Bank of New Bern cannot be m a t e r i a l i n a controversy concerning i t s t i t l e to the notes of the defendant. The a l l e g a t i o n t h a t other notes were taken i n pursuance of an u l t r a v i r e s c o n t r a c t i s a mere conclusion of the pleader or an a l l e g a t i o n of a matter of law. The p l a i n t i f f has general power to lend money and rediscount notes for member banks and to make advances t o them secured by the pledging of notes or b i l l s made by customers of member banks (U. S. Code, T i t l e 12, Sections 343-7) and p l a i n t i f f i s likewise authorized to e x e r c i s e such i n c i d e n t a l powers as may be necessary to c a r r y on the business of banking within the l i m i t a t i o n s of the a c t c r e a t i n g the p l a i n t i f f (U. S. Code, T i t l e 12, Sections 34-7). There i s no d e f i n i t e l i m i t a t i o n upon the amount of the notes which p l a i n t i f f may discount f o r a member bank nor the amount of advances which may be made to a member bank. l y i n c i d e n t a l to the lending of money. The taking of s e c u r i t y i s obvious- I f the defendant contends t h a t any p a r - t i c u l a r a c t of the p l a i n t i f f i s u l t r a v i r e s , he should a l l e g e t h a t a c t with such p a r t i c u l a r i t y t h a t t h e court may determine whether or not i t was a u t h o r i z e d or 3G0 - 5 p r o h i b i t e d by the Federal Reserve Act. X-6743-a In a d d i t i o n i t has been decided t h a t t i t l e to a s s e t s acquired f o r value by banks organized under t t h e law of the United S t a t e s i n u l t r a v i r e s t r a n s a c t i o n s i s voidable only, and the question of u l t r a v i r e s may be r a i s e d only i n a d i r e c t proceeding by the United S t a t e s . (See Union National v Matthews, 98 U. S. 521; National Bank v Whitney 103 U. S. 99; Swope v Leffingwell 105 U. S. 3; Reynolds v F i r s t National Bank, 112 U. S. 405; Kerfoot v Farmers & Merchants Bank, 218 U. S. 281; also Crowell v Federal Reserve Bank, 12 Fed. 2nd 259) This paragraph a l s o contains a prayer t h a t p l a i n t i f f be required t o account to Craven County and *?. W. G r i f f i n and to R. E. Schumacher, Receiver. None of these persons are p a r t i e s to t h i s a c t i o n and consequently any a l l e g a t i o n as to their r i g h t s i s immaterial. PARAGRAPH EIGHT OF THE FURTI-Mt DEFENSE: This paragraph a l l e g e s t h a t the note f o r $5,000.00 was without cons i d e r a t i o n and was wholly an accommodation o b l i g a t i o n . The Supreme Court of North Carolina, i n Merchants National Bank v Andrews, 102 S. E. 500, 179 N. C. 341, h e l d t h a t a l l e g a t i o n t h a t a note was wi thout cons i d e r a t i o n was a mere conclusion of the p l e a d e r . I t seems t h a t a good pleading should a l l e g e the c o n d i t i o n s and circumstances under which the note was executed i n order t h a t the court may determine whether or not i t was supported by good consideration. I n a d d i t i o n i t i s provided by Section 3009 of the Code of North Carolina t h a t knowledge by the t r a n s f e r e e that a negotiable note was given f o r accommodat i o n has no defense to a c t i o n upon i t , hence the matters and things a l l e g e d in t h i s paragraph are immaterial to the a c t i o n . PARAGRAPH NINE OF THE FURTHER DEFENSE: This paragraph appears to be a mere conclusion. 361 — 6 *• X-5743-a PARAGRAPH TEN OF THE HJRTH3R DEFENSE: This paragraph, appears open to t h e same o b j e c t i o n s as those made to paragraph e i g h t . PARAGRAPH ELEVEN OF THE FURTHER DEFENSE: There appears to be no ground f o r o b j e c t i o n to the a l l e g a t i o n of t h i s paragraph except t h a t the statement " t h a t t h i s defendant i s e n t i t l e d to apply the s a i d d e p o s i t as an o f f s e t " i s a mere conclusion of law and, f u r t h e r m o r e , an e r roneous conclusion (see Sowell v Federal Reserve Bank 286, U. S. 4 4 9 ) . The statement t h a t the note i s i n the hands of R. E. Schumacher i s immaterial. PARAGRAPH TWELVE OF THE FURTHER DEFENSE: There appears t o be no good o b j e c t i o n to t h i s paragraph. I t i s a mere r e p e t i t i o n of a p o r t i o n of the denial of paragraph e i g h t of the answer. PARAGRAPH THIRTEEN OF THE FURTHER DEFENSE: That p o r t i o n of t h i s paragraph t h a t demands the production of w r i t t e n instruments i s open to the objections mentioned under d i s c u s s i o n of paragraphs f i v e and e i g h t of the answer. Furthermore v the court may take j u d i c i a l n o t i c e of the f a c t t h a t r e p o r t s of examinations of National banks are made by the Examiners to the Comptroller of the Currency, who i s an o f f i c e r of the United S t a t e s a c t i n g under the d i r e c t i o n of the S e c r e t a r y of the Treasury (U. S. Code, T i t l e 12, Sections 1, 9 and 481) so t h a t such r e p o r t s could not be e x h i b i t e d by the p l a i n t i f f . PARAGRAPH FOURTEEN OF THE FURTHER DEFENSE: This paragraph i s not an a l l e g a t i o n of any f a c t but an i r r e g u l a r prayer f o r r e l i e f and should be s t r i c k e n , as the r e l i e f obviously cannot be g r a n t e d . The r e l i e f asked i n the f i r s t paragraph i s f o r the b e n e f i t of persons not 3 6 2 — * ** • 7 • X-674o)-a p a r t i e s to the s u i t f o r whose b e n e f i t he has no r i g h t to prosecute an a c t i o n , and i n a d d i t i o n the appointment of a r e c e i v e r to take charge of the a s s e t s and administer them f o r the "benefit of c r e d i t o r s of n a t i o n a l banks would be i n cont r a v e n t i o n of the laws of the United S t a t e s which provide t h a t the r e c e i v e r s of National banks s h a l l a c t under the d i r e c t i o n of the Comptroller of the Currency.
@FedFRASER