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C 0 P Y March 19, 1926. Mr. George J . Li. G» ' . / a l l a c e , Seay, Governor Counsel. additional Topics for Governor 1s Conference. I l y d e a r Governor S e a y : I have c a r e f u l l y read the l e t t e r of the Federal Reserve B o a r d , X - 4 5 5 8 , a n d t h e l e t t e r o f Mr. W a l t e r W y a t t , X - 4 5 5 1 , w h i c h is attached. Mr*• W y a t t h a s d i s c u s s e d s o t h o r o u g h l y t h e p r e s e n t s i t u a t i o n t h a t a d d i t i o n a l d i s c u s s i o n i s l a r g e l y s u p e r f l u o u s . As he s t a t e s a t t h e p r e s e n t time F e d e r a l R e s e r v e Banks may n o t b r i n g s u i t s in, or remove s u i t s t o Federal Courts upon t h e ground t h a t the banks are c i t i z e n s of d i f f e r e n t States from t h a t of other p a r t i e s t o t h e s u i t . A l s o t h e banks may n o t , as f o r m e r l y , b r i n g s u i t s i n , or remove s u i t s t o Federal Courts upon the ground t h a t any s u i t a g a i n s t t h e F e d e r a l R e s e r v e Bank i s one a r i s i n g u n d e r t h e laws of the United States. The r e s u l t i s F e d e r a l C o u r t s w i l l n e v e r h a v e j u r i s d i c t i o n , of l i t i g a t i o n concerning Federal Reserve Banks, u n l e s s t h e s u i t , or a c t i o n , a s b r o u g h t b y t h e p l a i n t i f f shows t h a t a q u e s t - o n i n v o l v i n g the c o n s t r u c t i o n of the c o n s t i t u t i o n of the laws of the United States is involved. This would e x c l u d e us f r o m the Federal Courts i n nearly a l l usual l i t i g a t i o n . I t h o r o u g h l y a g r e e t h a t i t w o u l d b e w e l l t o s e e k some a m e n d m e n t o f t h e A c t s o f C o n g r e s s , a n d I am i n c l i n e d t o t h i n k t h a t t h e t h i r d a m e n d m e n t s u g g e s t e d b y Mr. W y a t t w o u l d b e t h e b e s t . I f t h e f i r s t amendment s u g g e s t e d b y Mr. W y a t t b e a d o p t e d , Federal Reserve Banks c o u l d o n l y remove s u i t s t o F e d e r a l Courts when t h e s u i t was brought i n some S t a t e o t h e r t h a n t h a t i n w h i c h the main o f f i c e of the bank was l o c a t e d . If t h e second s u g g e s t i o n were adopted, t h e amendment w o u l d a u t h o r i z e F e d e r a l Reserve Banks t o i n s t i t u t e s u i t s i n the D i s t r i c t Courts o f t h e United S t a t e s , and would a u t h o r i z e other persons to bring s u i t s against them in the D i s t r i c t Courts of the United States. I t would seem, however, t h a t t h e s e c t i o n must be c o n s t r u e d t o mean e i t h e r t h a t Federal Reserve Banks may not sue or be s u e d i n a n y S t a t e Court, or e l s e t h a t t h e y may s u e i n any S t a t e Court or i n t h e D i s t r i c t Court of t h e U n i t e d S t a t e s . If the former c o n s t r u c t i o n be adopted, i t w i l l somewhat embarrass the b a n k s ; b e c a u s e p r o c e e d i n g s i n Federal Courts are as a r u l e more e x p e n s i v e t h a n t h e y are i n S t a t e Courts, and i t w i l l be inconv e n i e n t t o b e c o m p e l l e d t o r e s o r t t o a F e d e r a l Court w h e n e v e r we found i t n e c e s s a r y t o bring s u i t t o c o l l e c t a note, or f o r other slight cause. The b a n k s m i g h t s u e a n d b e s u e d i n t h e D i s t r i c t Court of the U n i t e d S t a t e s , but could not remove t o t h a t Court a case brought against them in the State Court. 254 -2- Mr• G e o r g e J . S c a y , G o v e r n o r . o"i"i &*-*<• The t h i r d amendment w o u l d m e r e l y r e s t o r e t h e s t a t u s w h i c h e x i s t e d p r i o r t o t h e A c t o f F e b r u a r y 1 3 t h , w h i c h i t s e e m s t o me was f a i r , b o t h t o t h e banks and t o o t h e r p e r s o n s , as i t p e r m i t t e d us t o remove s u i t s i n w h i c h t h e amount i n c o n t r o v e r s y e x c e e d e d , $ 3 , 0 0 0 . 0 0 , but d i d not p e r m i t us t o b r i n g , or remove s u i t s , t o t h e Federal Court i f t h e amount were l e s s . Mr. H y a t t a n d J u d g e U e l a n d i n h i s l e t t e r o f F e b r u a r y 2 3 r d r a i s e other c l o s e l y r e l a t e d b u t somewhat d i f f e r e n t q u e s t i o n s w h i c h t o my mind a r e p e r h a p s o f g r e a t e r i m p o r t a n c e t h a n t h e q u e s t i o n o f Federal j u r i s d i c t i o n - that is to say the question of the location, or d o m i c i l e , o f a F e d e r a l R e s e r v e B a n k . The F e d e r a l R e s e r v e A c t i s n o t s p e c i f i c u p o n t h i s p o i n t , a n d i t s c o r n s t o me t h a t a F e d e r a l R e s e r v e Bank m i g h t be r e g a r d e d a s d o m i c i l e d o n l y i n t h e p l a c c i n w h i c h i t s h e a d o f f i c e , or i n a n y e v e n t , w h e r e some b r a n c h i s l o c a t e d , or e l s e i t might be regarded as in contemplation of law d o m i c i l e d throughout its D i s t r i c t . Judge Ueland p o i n t s out t h a t h i s opponents have u s u a l l y p r o c e e d e d ag-: i n s t h i m u p o n t h e t h e o r y t h a t a F e d e r a l R e s e r v e B a n k was not doing b u s i n e s s i n any S t a t e , e x c e p t t h a t i n w h i c h i t s head o f f i c e , o r s o m e B r a n c h , w a s l o c a t e d . On t h e o t h e r h a n d , i n s e v e r a l s u i t s b r o u g h t a g a i n s t t h i s bank our o p p o n e n t s h a v e t a k e n t h e g r o u n d t h a t a Federal R e s e r v e Bank was i n c o n t e m p l a t i o n of l a w p r e s e n t i n e v e r y S t a t e of i t s D i s t r i c t , and s u b j e c t t o s u i t s i n such S t a t e i n the same manner a s a c o r p o r a t i o n d u l y d o m i c i l e d t h e r e i n . In other words, the s u i t s mentioned b y Judge Ueland p r o c e e d upon the t h e o r y t h a t the Federal Reserve Bank i s a f o r e i g n c o r p o r a t i o n and not d o m i c i l e d throughout its District. The s u i t s a g a i n s t us p r o c e e d upon t h e t h e o r y t h a t wc a r c q u a s i - d o m e s t i c c o r p o r a t i o n s i n e v e r y S t a t e o f o u r D i s t r i c t . The s u i t s a g a i n s t us h a v e n o t b e e n p r e s s e d t o a f i n a l j u d g m e n t , b u t a r e now p e n d i n g . The l o w e r C o u r t s h a v e h e l d t h a t w e w e r e d o i n g b u s i n e s s i n e v e r y S t a t e i n our D i s t r i c t . It is impossible to predict the f i n a l o u t c o m e o f t h e s e s u i t s , b u t i t s e e m s t o me t h a t e i t h e r J u d g e U e l a n d , o r m y s e l f must l o s e . I t s e e m s t o me t h a t a F e d e r a l R e s e r v e B a n k i s e i t h e r d o i n g b u s i n e s s i n e v e r y S t a t e i n i t s D i s t r i c t , and, t h e r e f o r e # . subject to process i n such State as a corporation doing business t h e r e i n , or e l s e i t is not doing b u s i n e s s i n t h a t S t a t e , and, t h e r e f o r e , subject t o attachment as a non-resident. It is d i f f i c u l t t o decide which of these two a l t e r n a t i v e s w o u l d be most a d v a n t a g e o u s t o t h e F e d e r a l Reserve Bank. I f we a r c d o m i c i l e d t h r o u g h o u t our D i s t r i c t , and l i a b l e t o s u i t i n e v e r y S t a t e , we a r e l i a b l e t o t h e c o n s t a n t a n n o y a n c e o f s u i t s i n r e m o t e p l a c e s , or the expense and i n c o n v e n i e n c e of t a k i n g d e p o s i t i o n s , or sending w i t n e s s e s t o t e s t i f y i n s u c h p l a c e s , b u t on t h e o t h e r hand, we w i l l p r o b a b l y be e n t i t l e d t o t h e s t a t u t e s of l i m i t a t i o n s , and c e r t a i n other remedial s t a t u t e s which only apply t o residents of a State. —O ™" Mr. G e o r g e J . So a y , G o v e r n o r . 256 I f t h e C o u r t s h o l d t h a t we a r e n o t d o i n g b u s i n e s s i n a n y p l a c e e x c e p t w h e r e we h a v e a n o f f i c e , we a r c , I t h i n k , l i a b l e t o attachment in other States. There appears t o be n o t h i n g i n the Federal Reserve Act which extends t o Federal Reserve Banks the p r o t e c t i o n which National banks have a g a i n s t attachments b e f o r e a j u d g m e n t . I h i l c a p e r s o n w i t h a c l a i m a g a i n s t us may n o t a l w a y s b e a b l e t o a t t a c h money, or p r o p e r t y , b e l o n g i n g t o us i n t h e hands' o f a member b a n k , t h e y c o u l d u s u a l l y do s o , a n d e v e n t h o u g h t h e p r o p e r t y a t t a c h e d b e l o n g e d t o some member b a n k , a s , f o r e x a m p l e , c h e c k s s e n t f o r c o l l e c t i o n , s t i l l we c o u l d b y t h e a t t a c h m e n t be p l a c e d i n a p o s i t i o n w h e r e we s h o u l d b e c o m p e l l e d t o g i v e g r e a t i n c o n v e n i e n c e t o our member b a n k s , or e l s e submit t o a t t a c h m e n t . As y o u w i l l n o t i c e e i t h e r d e c i s i o n w h i c h may bo made under t h e p r e s e n t law w o u l d have many d i s a d v a n t a g e s and some a d v a n t a g e s t o t h e Federal Reserve Banks. I f i t were p o s s i b l e t o have a s t a t u t e p a s s e d p r o v i d i n g t h a t Federal Reserve Banks s h o u l d be c o n s i d e r e d doing b u s i ness o n l y i n the p l a c e s i n which t h e i r head o f f i c e s , or branches, were l o c a t e d , and should not be s u b j e c t t o e x e c u t i o n or attachment b e f o r e f i n a l judgment, t h e d i f f i c u l t i e s and expense a t t e n d a n t upon l i t i g a t i o n of Federal Reserve Banks would b e . g r e a t l y d i m i n i s h e d . Howe 7Cr, I c a l l y o u r a t t e n t i o n t o t h e f a c t t h a t t h e a b o v e m e n t i o n e d p r o v i s i o n w h i c h would p r o t e c t us w o u l d moan t h a t a n y p e r s o n who u n d e r t o o k t o b r i n g a s u i t a g a i n s t us w o u l d be c o m p e l l e d t o submit t o t h e e x p e n s e a n d i n c o n v e n i e n c e w h i c h now f a l l s u p o n u s , a n d i t w o u l d u s u a l l y mean t h a t a member bank, or o t h e r p e r s o n w i t h a s m a l l c l a i m a g a i n s t t h e F e d e r a l R e s e r v e Bank w o u l d be c o m p e l l e d t o abandon i t r a t h e r t h a n t o p r o s e c u t e i t t o judgment, and i t might bo t h a t such a c o n d i t i o n would l e a d t o such f r i c t i o n and i l l - f e e l i n g t h a t i t would be b e t t e r f o r us t o stand t h e expense and t r o u b l e of s u i t s t h a n t o seek a p r o v i s i o n w h i c h w o u l d r e l i e v e us of t h i s t r o u b l e b u t c a s t i t upon t h o s e who had, or t h o u g h t t h e y had good c l a i m s a g a i n s t u s . I remain Very t r u l y yours, MGW:IB M. G . W a l l a c e , Counsel.
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