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C0 $ t > X-6813. FEDERAL RESERVE BASK 0? RICHMOND February 4 , 1931, F e d e r a l Seserve Board, Washington, D. G» A t t e n t i o n Mr . Walter H y a t t , General Counsel. Dear Mr. Wyattj I enclose herewith two copies of a complaint i n an a c t i o n of W. I* Skinner and Company v . Federal Reserve Bank of Richmond and W. P . Wright, Receiver of t h e National Bank of G r e e n v i l l e , N. C. While the complaint does not contain a complete d e s c r i p t i o n of the check upon which i t i s "based, i t appears from our records t h a t on December 8, 1930, we r e ceived from t h e F i r s t and Merchants National Bank a check f o r $4,748.53 drawn on the National Bank of G r e e n v i l l e . This check was sent to the drawee frank i n our cash l e t t e r of t h e date mentioned, which contained checks aggregating $27,289.01. The checks i n t h i s cash l e t t e r with the exception of those r e t u r n e d were cancelled and charged to the drawers on December 9th and the National Bank of G r e e n v i l l e sent u s the u s u a l s l i p or r e c e i p t d i r e c t i n g u s to charge i t s r e s e r v e accnmit with t h e sum of $27,234.28, which was the amount of the checks contained i n our cash l e t t e r l e s s a few checks r e t u r n e d unpaid. The check mentioned i n the complaint was not r e t u r n e d unpaid. The above mentioned a u t h o r i t y to charge was received by us on December 10th, probably a t or about the opening of b u s i n e s s . At the opening of b u s i n e s s on December 10th the National Bank of Greenville had an a p p a r e n t l y a v a i l a b l e balance i n i t s r e s e r v e account of $17,903.96. No a c t i o n was taken on the a u t h o r i t y t o charge i t s r e s e r v e account with the l e t t e r of December 8th because the account was not s u f f i c i e n t to cover the charge. During the day of December 10th we r e c e i v e d c e r t a i n t r a n s f e r s and c r e d i t s f o r the account of the National Bank of G r e e n v i l l e which t o t a l e d $8,820.43. $8,000.00 of t h i s sum appears to have been a c r e d i t made to the account of t h e National Bank of Greenville by a wire t r a n s f e r ; $818.93 appears to have been the proceeds of a cash l e t t e r deposited by t h e National Bank of Greenville which became a v a i l a b l e on t h a t day; and $1.50 appears t o have been a c r e d i t f o r an exchange charge. At 1:00 P . M. on December 10th we r e c e i v e d a telegram s e n t from Greenville a t 12:58 P . M. advising us t h a t the National Bank of Greenville was closedE. When t h i s telegram was received we had not charged i t s account with the amount of the cash l e t t e r of December 8th and t h e r e f o r e d i d not do so but charged the amount of these checks back t o our endorsing banks i n the u s u a l nay. - 2 - X-6813 Subsequent to the f a i l u r e of the National Bank of G r e e n v i l l e a few returned, items were charged to t h e reserve account, "bat the amount of such r e t u r n items was not l a r g e and we a t p r e s e n t hold a r e s e r v e "balance of $26,625.00. The National Bank of Greenville had r e d i s c o u n t e d n o t e s w i t h , u s g r e a t l y exceeding the amount of the reserve "balance and we - had taken no marginal c o l l a t e r a l a s i t s borrowings had not exceeded i t s "basic l i n e * The complaint i n t h i s a c t i o n i s as you w i l l see r a t h e r informal and does not i n d i c a t e c l e a r l y the exact theory of l i a b i l i t y upon which the p l a i n t i f f i n t e n d s t o r e l y . The a t t o r n e y s who a r e b r i n g i n g a c t i o n , howe v e r , have a v e r y good r e p u t a t i o n , and I am i n c l i n e d to t h i n k t h a t they a r e basing t h e i r claim both upon the s o - c a l l e d Malloy case and the d e c i s i o n i n the E a r l y c a s e . I expect to w r i t e to them and c a l l t h e i r a t t e n t i o n to the f a c t t h a t t h e Regulations of the Federal Reserve Board and our c i r c u l a r s have been r a d i c a l l y a l t e r e d since those d e c i s i o n s ; b u t my p a s t e x p e r i ence with lawyers i n North Carolina gives me l i t t l e reason t o hope t h a t they w i l l withdraw t h i s s u i t b e f o r e a t r i a l . They did not w r i t e to us bef o r e i n s t i t u t i n g the s u i t and so I d i d not have an opportunity to c a l l t h e i r a t t e n t i o n t o our d e f e n s e s . I t seems v e r y probable t h a t t h i s case w i l l e v e n t u a l l y depend upon the d e t e r m i n a t i o n of the v a l i d i t y of Regulation J , S e r i e s of 1930, and may t h e r e f o r e be a case of f a r - r e a c h i n g importance t o a l l F e d e r a l r e serve banks. There a r e , of course, many circumstances which make i t unf o r t u n a t e t h a t t h i s s u i t should be brought i n t h i s d i s t r i c t . I e n t e r t a i n no doubt of the v a l i d i t y of the p r e s e n t form of Regulation J, but having cvr ''past?! to l i v e down, my arguments may be somewhat discounted by the c o u r t . I f t h i s case i s removed to a f e d e r a l c o u r t , the C i r c u i t Court of Appeals of t h i s c i r c u i t w i l l n a t u r a l l y be on the a l e r t f o r any reasons which may enable i t to follow i t s own d e c i s i o n . I f we leave the case i n the s t a t e c o u r t , the s t a t e court of North Carolina may be l i k e w i s e i n c l i n e d to follow the C i r c u i t Court of Appeals and the Supreme Court of the United S t a t e s to the same r e s u l t as t h a t reached i n the E a r l y case without regard to the change in«the r e g u l a t i o n s . We, of course, could not determine whether or not t h i s s u i t should be removed to a f e d e r a l c o u r t as i t could .only be removed on motion of the r e c e i v e r . Of course, i n t h i s case the r e c e i v e r of the f a i l e d bank and the Federal Reserve Bank would have a common i n t e r e s t and I should be disposed to u n i t e i n any move made by the r e c e i v e r ; but because the case seems important and has some i n t e r e s t i n g angles b e s i d e s the bare questions of law involved, I am immediately t r a n s m i t t i n g to you a copy of the comp l a i n t i n order t h a t you might study i t c a r e f u l l y . I t i s , of course, — » 3 - XS813 unnecessary f o r me t o say t h a t any suggestions from you would "be h i g h l y a p p r e c i a t e d , and i f you consider i t wise to send copies of the complaint to Counsel f o r o t h e r Federal r e s e r v e hanks and ask t h e i r opinion as to whether o r , n o t t h i s l i t i g a t i o n should he handled a s a System m a t t e r , i t would he e n t i r e l y agreeable to me to have you do so* With k i n d e s t r e g a r d s , I am Very t r u l y yours t (s) M. G. WALLACE Counsel. rs ( COPY ) X-6813-a NORTH CAROLINA W THE" SUPERIOR COURT MARTIN COUNTY W. I . SKINNER & COMPANY, INCORPORATED COMPLAINT vs FEDERAL RESERVE BANK OF RICHMOND, VIRGINIA, NATIONAL BANK OF GREENVILLE, AND W. P . WRIGHT, RECEIVER OF NATIONAL BANK OF GREEUVlLLfi P l a i n t i f f , complaining of d e f e n d a n t s , a l l e g e s and says: 1; P l a i n t i f f i s a corporation* duly organized under the laws of the S t a t e of Delaware, doing b u s i n e s s in the S t a t e of North Carolina, with an o f f i c e a t Williamston in s a i d S t a t e . 2: Defendant Federal Reserve Bank of Richmond, V i r g i n i a , i s a c o r p o r a t i o n , organized under the laws of t h e United S t a t e s of America, doing b u s i n e ss i n North Carolina, with an o f f i c e at Charlotte. 3fc Defendant National Bank of G r e e n v i l l e i s a banking c o r p o r a t i o n , organized under the laws of the United S t a t e s , and W. P. Wright has been appointed a s Receiver f o r i t . 4; On December 6, 1930, p l a i n t i f f deposited f o r c o l l e c t i o n with Branch Banking & Trust Company, a banking c o r p o r a t i o n organized under the laws of the S t a t e of North Carolina, a t Williamston, North Carolina, a check drawn by P e r s o n - G a r r e t t Company, a Virg i n i a c o r p o r a t i o n , on i t s account in National Bank of G r e e n v i l l e . — 2 — 5: X-6813-a As p l a i n t i f f i s advised and b e l i e v e s , the Branch Banking & Trust Company promptly t r a n s m i t t e d s a i d check to F i r s t & Merchants National BaAk of Richmond f o r c o l l e c t i o n as agent f o r p l a i n t i f f , and i t , as agent f o r p l a i n t i f f , sent s a i d check to t h e Federal Reserve Bank of Richmond to be by i t c o l l e c t e d a s agent f o r p l a i n t i f f . 6: As p l a i n t i f f i s advised and b e l i e v e s , Fed- e r a l Reserve Bank of Richmond on December 8, 1930, mailed s a i d check d i r e c t to t h e n a t i o n a l Bank of Greenville f o r c o l l e c t i o n *and payment, but c a r e l e s s l y and n e g l i g e n t l y f a i l e d to r e q u i r e a s a condition precedent to t h e surrender and c a n c e l l a t i o n of s a i d check t h a t t h e National Bank of G r e e n v i l l e should r e c e i v e and t r a n s m i t only money in payment of s a i d check. 7: As p l a i n t i f f i s advised and b e l i e v e s , Na- t i o n a l Bank of G r e e n v i l l e was insolvent when Federal Reserve Bank of Richmond mailed to i t the check of Per son-Garrett Company, which f a c t was o r should have been known to the Federal Reserve Bank of Richmond. 8: As p l a i n t i f f i s advised and b e l i e v e s , National Bank of G r e e n v i l l e upon r e c e i p t of the check given by P e r s o n - G a r r e t t Company to p l a i n t i f f c a n c e l l e d s a i d check and charged the same to the account of P e r s o n - G a r r e t t Company, but due to t h e c a r e l e s s and n e g l i gent f a i l u r e of defendant Federal Reserve Bank of Richmond to r e q u i r e only money to be t r a n s m i t t e d in payment of s a i d check, mailed to Fede r a l Reserve Bank of Richmond on December 9, 1930, a check o r l e t t e r a u t h o r i z i n g Federal Reserve Bank of Richmond to charge t h e amount of - 3 — X-6813-a the check given p l a i n t i f f to the account of the National Bank of Greenville with Federal Reserve Bank of Richmond. 9; i s p l a i n t i f f i s advised and "believes, de- fendant Federal Reserve Bank, on December 10, 1930, r e c e i v e d the check or o r d e r from t h e National Bank of Greenville d i r e c t i n g Fede r a l Reserve Bank to charge to the account of National Bank of Greenv i l l e the amount of the check given p l a i n t i f f "by P e r s o n - G a r r e t t Company, "but defendant Federal Reserve Bank wrongfully r e f u s e d to honor and pay s a i d check or other order of the National Bank of G r e e n v i l l e , although, as p l a i n t i f f i s advised and b e l i e v e s , Nationa l Bank of G r e e n v i l l e had on deposit and to i t s c r e d i t with the Fede r a l Reserve Bank of Richmond a t the time said check or order was drawn and mailed a sum more than s u f f i c i e n t to pay s a i d check or order. 10; As p l a i n t i f f i s advised and b e l i e v e s , de- fendant Federal Reserve Bank of Richmond had made loans or r e d i s counted n o t e s f o r National Bank of G r e e n v i l l e , none of which were due when National Bank of G r e e n v i l l e mailed i t s check or order to t h e Fede r a l Reserve Bank of Richmond, nor were any of s a i d n o t e s due when Federal Reserve Bank of Richmond received said check or o r d e r , as p l a i n t i f f i s advised and b e l i e v e s , b u t Federal Reserve Bank, as p l a i n t i f f i s advised and b e l i e v e s , on the same day t h a t i t r e c e i v e d the check or order of National Bank of G r e e n v i l l e , charged a g a i n s t the account or deposit owing to National Bank of G r e e n v i l l e the n o t e s given i t by National Bank of Greenville or papers which had been r e - d i s c o u n t e d f o r National Bank of G r e e n v i l l e , t h e r e b y causing an o v e r - d r a f t in the account of National Bank of G r e e n v i l l e P - 4 - X-3813-a with Federal Reserve Bank, or reducing the same to a sum i n s u f f i c i e n t to pay the check or o r d # sent by National Batik 6f G r e e n v i l l e to Federal He serve Bank. Hi As p l a i n t i f f i s advised and b e l i e v e s , de- fendant Federal Reserve Bank has in hand c o l l a t e r a l s a n d n o t e s more than s u f f i c i e n t to discharge and pay any sums "borrowed from i t by National Bank of G r e e n v i l l e or r e - d i s c o u n t e d with i t by National Bank of G r e e n v i l l e , and, as p l ' i n t i f f i s advised and b e l i e v e s , the a c t of defendant Federal Reserve Bank in chrrging a g a i n s t s a i d dep o s i t the n o t e s given by Rational Bank of G r e e n v i l l e or r e - d i s c o u n t e d by i t was wrongful and u n l a w f u l , or i f Federal Reserve Bank had the r i g h t to charge the amount owing to i t a g a i n s t the d e p o s i t of Nationa l Bank of G r e e n v i l l e , p l a i n t i f f , as i t i s advised and b e l i e v e s , i s subrogated to t h e r i g h t s of Federal Reserve Bank of Richmond to the c o l l a t e r a l and o t h e r papers h e l d by i t . 12$ As p l a i n t i f f i s advised and b e l i e v e s , the defendants National Bank of Greenville and W. P. Wright, as Receiver, claim and a s s e r t some i n t e r e s t in said c o l l a t e r a l s or make some cont e n t i o n with r e s p e c t to t h e moneys on deposit with the Federal Reserve Bank of Richmond, which r i g h t s , i f any, a r e s u b o r d i n a t e to the r i g h t s of the p l a i n t i f f . WHEREFORE p l a i n t i f f prays t h a t i t recover of def e n d a n t Federal Reserve Bank of Richmond the sum of $4,748.53, with i n t e r e s t , and t h a t the amount owing to i t be declared s u p e r i o r to any claims which defendant National Bank of G r e e n v i l l e or W. P. Wright, as Receiver of s a i d Bank, may have a g a i n s t the Federal Reserve Bank of Richmond; f o r c o s t s and such o t h e r and f u r t h e r r e l i e f as to t h e ' X-6813-a — 5 ~ Court may seem p r o p e r , (sgd) MacLean & Rodman Attorneys NORTH CAROLINA MAHTIN COTOTY J . E. King, being duly sworn, says: That he i s P r e s i d e n t of W, I . Skinner & Company, Incorporated, t h e above named plaintiff; t h a t the f o r e g o i n g complaint i s t r u e of h i s own knowledge except a s to those m a t t e r s t h e r e i n s t a t e d upon information and b e l i e f , and a s to those, he b e l i e v e s i t to be t r u e . (sgd) J . S. King Subscribed and sworn to b e f o r e me t h i s January (sgd) 28 , 1931. C. D. Carstarphen Notary P u b l i c My Commission Expires
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