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21.a
FOfu'"'EITtJrl: Oi' CHARTER OF NAT!Ol!AL Il.A:TI{ FOR VIOLATION OF LAW.
The Comptroller of the Curro~cy early in 1921 requested the
Department of Justice to i~stitutc suit to forfeit the charter of the
First Nntiono.l :Bank of Hagerstown, Hagerstown, Maryland.
This nctio:1
was trucon pursuant to the provisiQ~s of Section 5239 of the Revised
Statutes and Sectir,n 2 of the Federal ~eserve Act, because of continued
violations of law by the r.ational barJ.::, among them being failure to
maintain the reserves rcquirud by law.
In order to comply with tho
requirements of Section 2 of tho Federal Reserve Act that such proceedings be instituted upon direction of tho Federal Reserve 3oard, the
DoQrd upon request of representatives of the Department of Justice
passed a resclution authorizinG and directing the Comptroller of the
Currency to institute suit in his name to forfeit tho charter of the
First National Daru~ of Hagerstown for violation of stat~te.
Tho United
States District Attorney at Dal tir:1ore thereupon filed suit in the United
States District Court age.inst the First National JJank of Hagerstown
alleging a number of violations of tho liational :Sank Act and tho Fedoral Reserve Act by this bank and its officers and praying tho Court
to appoint a receiver to protect tho depositors of the bailie.
The
Court granted the prayer and a receiver v;as appointed.
A fer1 days
after the proceedings were instituted tho bank was reorganized and
new officers placed i~ charbe and, with tho consent of the Comptroller
of the Currency, the receiver was discharged and the bank reopened.
JL~ appeal was truccn by the bank, however, to the United States Circuit
Court of Appeals from the action of tho District Court in appqinting
a receiver.
This Court dismissed the appeal without exprossly passing
upon the question whether the receiver was lawfully ap?ointod, but
inQicated in no uncertain tcrrr.s that it co~sidercd the course which
had been followed entirely proper under the circumstances.
A copy
of thu opinion of the Circuit Court of Ap::_Jeals is attached hereto.
214
X-4...:43
]'!Ii.ST
~T.AT.
B.A.lTK C:?
H.AG:::::lSTO"ff~T
et o.l. v. ChiSSilTG&,, Comptroller
of Currency,
( CirC'lit Court of .Appvtls 1 F>ur'Gl'. Cu~'Uit.
Appeal fl'Or.l the District
of llfu.rylo.nd, 'J.t Bal. tir:tora;
Co~.u·t
Murch 1, 1922.)
of tho Unitod Sto.tos for the District
J,)lm C. RosG, Judgo.
Suit l)y Daniel R. Crissinger, as Co.r;ptroller of the Currency of the
United
Stat.~s,
against tho
Fi~~:;t
1Iational :Bo.nk of Hagorstown, o. national
oaru{ing corporation, and others.
Froo
.::u.~
order o.;r,>poin ting o. rccci vcr
for the h"l.nk, dcfend&'1 ts ap:pce.l.
E.
F~
Ho.gor~ltovm,
Winc;ert a.nd Miller WL1.gort, both of
Md., for
appelb.nts.
Robert R. Ccroo.n, U.
s.
Atty., of Ba.lti:noro, Md., for ap:polloo.
Before IGWP and WADDILL, Circuit Judges, c.nd McDOWELL, Dictrict
Judge.
W.A!>DILL, Circu.i t
Jud:~_;o.
On the 28th of Sopter:1bor, 1921, the
appellee 1 De.niol E. Cri ssint;·Jr, Co::t;?trollor of tho Currency of tho United
Stat()f.' of
~boricn.,
acting on l1is mm initiative, o.nd o.t the insto.ncc of
t:1e F0dorc.l z;,·:servo :So2rd of tho United
State~·,
filed the oill in ::::guity
in this cause against ·tho :Fi:i.·st Hationa.l :Ba11l;;: of Hagerstown, Md., its
officers and. directors.
Tho puryone of the bill wa.s to bring nb0u.t
the forfeiture of tho ba.nk 1 s ch!lrtor, 1.rr.der soctionB 9786 and 9831 of
tho .bu.:J.k of certain provisions of tl'.e Fedor,ll
.
b:;~.nking
la·;'1s of tho United StF.. . tos •
:r-o~e:rvo
n.'1Ll the
:~ti0r~al
215
-2-
In the bill of complaint the officers an<l directors of the bank,
and the bank itself, are charged with failure to establish and maintain
the reserve required by law;
making now loans without uaintaining the
resEr vc required by 1...-.w;
:po.yi:1g cash di vidonds when the reserve
below legul requiromon t;
m:..:.ki.:.1g oxcessi ve loa:::.s, including loa..."1.S to tho
cashier, officers, ru1d directors of said
firms, anQ corporations;
mcki"~
bar~,
\73.S
as well as other persons,
excessive loans to corporations in
which officers of the bank ':'icre financially interested;
m..'"lldng excess-
ivo loans to the relatives of the officers and directors of the
b~"lk;
entering into an agreement with another bruiking institution with the purpos~
of covering up violations by it of tho banking laws of the United
States;
lending money, taking as security therefor tho bank's own stock;
purchasing for investment, sha::"cs of tho CLI.pi tal stock of private corporations;
e~loying
and. koe:;>ing in the
crr~;loy
of the brull:, a cashier
known to the directors to be engaged in cxtonsive speculative trons"'!
actions in stocks
~"ld
bands.
Sections 9786 a':ld 9831 of the Com...nlcd Stntutcs, referred to, are
as follows:
"Should an~r national banking association in th3 U:n.i ted States no·:•
organized fnil uithin one year after the nassage of this act to become
a member bank or fail to comply with ~1y- of the provisions of this act
applicable thereto, all of the rights, privileges, and franchises of
suCh associ~tion granted to it Ul1Qer the National Bank Act or under the
provisions·of this act shall be thereby forfeited.
~\ny noncompliw1cc
with or violation of this act shall, however, be determined and adjudged by ~"1.Y court of the United States of co~ctent jurisdiction in
a suit brought for that purpose in the district or territory in which
such bank is located, ~"1.dcr direction of tho Federal Reserve Board, by
tho Comptroller of the Currency in his own n~ before the association
shall be declared c.issolvcd. * * *"
Colll!?• Stat .• S.ec.9876, subscc. 6.
"If the directors of any national ~~'l!:ing association shall knowingly violate, or l:no~ingly ~orrr.it 011y of the officers, agents, or
servants b! tlie association to violate any of the provisions of this
216
X-4443
"':"3-
title all t:1e rig~1ts, :pri vi11)ges and fra:1chises of the association
shall oe thoro-by forfeited. Such violation shall, however, be determilwd nnd adjudged by a proper circu.i t, district, or territorial
court of the United States, in a suit brought for that purpose by
the Comptroller of tho Curr<.:ncy, in J.1is own name, before the association shall be declo.red dissolved.. And in cc>sos of such violation,
every director who participated in or asse:1ted to the same shall be
held liable in his personal and individual capacity for all damages
which the association, its shareholders, or any other person, shall
have sustained in consequence of such violation.n Comp. Stat. Sec.
9831 (liational :Banking Lm:).
Section 9826 of the U~1ited States Compiled Statutes (Act Ju..Yle 30,
1876, c. 156, 19 Stat. 63) provides that upon the ascertainment by the
court that tho facts warrant the forfeit"L:.re of tl.1e ·oank 1 s charter,the
Comptroller may appoint a receiver to close and wind up tho affairs of
the bank.
The complainant in this cause does not allege insolvency of the
ballk as a reason for the forfeiture of the bank's charter, but relies
solely upo:::t the irregu.lari ties charged and set forth in tho bi 11 as the
necessity for so doing, and complainw1t particularly
c~Utrged
that, upon
the filing of the bill, it would be necessary and imperative that a receiver should be appointed to hold
~~d
preserve the assets of the bank,
pending the hearing of the cause on lts merits, as otherwise the mere
institution of such a proceeding would result in large numbers of the
bank 1 s depositors, and especially those conveniently at hand, or early
hearing of the actioj1, wit}J.drawing or dema..."'lding immediate payment of
their en tiro deposits, which would operate to the serious diso,dvantage
of tho remaining creditors of the bank, as well as the owners thereof, .
and in the end render the institution unable to pay its remaining obligations.
ceiver.
Prayer was
accordir~ly
made for the appointment of a re-
217
X-4443
-4-
Tho bill rms duly vc:ri:fi(JG.. by :J.ffidavi t, [G1d upon the filing of
the same, the court. on the 28th day of September, 1921, certified U1at
in its j1.l.dgment it was necessary o.nd irrrporativo·;.:
and for the best in,.
torest of all l;arties concerned, th:1t a temporary recci ver slwuld ·oe
choso11, to hold and preserve the assets of tl1e bank Ulltil su.ch time as
tl1o hearing could be· had upon the bill of com1)laint and a:1S\70r thereto,
and appointed Robert D. Garrott as sucl1 recoi vor, who il:C1.'YleG.iately u:;;1on
executing tho bond, in the penalty of $50,000, roqu.irod of l1.im, possessed
himself of all the assets, effects,
llild
o state of tlw ba.'1k.
On tho 6th of October, 1921, t':J.O con;plo.ine::1t filed a petition in
tho cause, reciting as follows:
"First. Tr.nt since the filing of tho ·oill o'Z ccm],ilaint in this
case and tho a:ppointnon t of a receiver for the dofenc.apt bank by this
honorable court the defendants Henry F. Wingert and Miller Wingert, together with their brothers, Willia.r.:J. WL1gert and Lewis P. Win{~ert, and
their sisters, M.~rtha A. Wingert o. nd Julia :E. Reamer, and the cashier
of said bank, J. Edgar Young (hereinaftor called tho vendors), have
entered into a CO:::l.tract "i'Ti t:1 Messrs. AloxaJ.dor Armstrong, W~ Bladea
Lownclos, Emory L. Coblen, Cyrus Floc:::, <Jnd Har:.blocio:l & Company (hereinafter called the :mrchc.sors), whJrcby the scid vo::-:.dors bave legally
bound tnomsol ves to tr~lsfer to the said purchasers' for a co:lsideration,
all of the crq_Jital stock of tno dofc'1da...!t bnri!.: 0'\7ned by tho said voadors,
a;nou:1ti:1g L1 all to fifty-five hu::drod (5,500) s~mros, tho sru,1C con..
ztit·:tti:.;l~~ c. 1.:1ajori ty of tho authol'izod and outstanding ca1Ji tal stock
tJ:1."1'00f • II
The petitioner further <.::.verred that,
b~:
the agroemont sot forth in
the above-quoted rocital, tbc :::)resent officers of the bank, the dofoadant
directors a:1d the cc.s11ior, would forthvri th
take off oct
the
tcr~:1s
iv.:;::~odin tel;y,
n..1d
furt~1.er
te~1der
t:wir
rosig:v:~.tio:.1s
alleged t:1a t he was familiar with
of said al;roew.on't referred to in ··aragraJ7h 1 of the petition
as aforesaid, and arproved the
sa.:~c;
tmt it \las his belief and opinion
that the :::·mrchasers of tho stocl::: of t:t:e
ban~:
w"der the
:10w
agreeoent were
OXlJerionccd rod capable be.r..:::ing r::ten, rrho would in all respects cor:rply
to
21.8 '
X-4443
-5-
with the lo.'l7s of the United St:1teu rcgul:1ting the ma.nageme!'lt o.nd
control of nationo.l banks, nr:..d. he a3kt:d and prayed tl-.at the said receivership proceeding bo disc<LtL.uo::'., t?-.c o.ssets of the bank returned
to it, and. the suit disr.J.issed, upon the com:tnr; in of the receiver's
report showing his tr&""lsactions in tho nrer.1ises.
On the day of the filing of this petition, to wit, on the 6th of
October, 1921, B..L""l order was c:1tered recitin1:; that it was expedient so
to do, m1d that the discontinuance of tho receivership would not work
injury or dav.age to t!:,e bank or its
creditor~,
the receiver was withdrawn,
and f0rthwi th ordered to release and restore to the 11ank the assets in
his posso:rJsion.
The '-'ilP';lla:lts herein, at this time, upon the entering of the order
disco:J.ti:ru.ing tho
roceivers~lip,
made known to the court their intention
to tal::e an appeal from the docroe of the 28th of September, 1921,
an·'-
:pointi::1g the receiver; but they took no steps at the tir:1o to that end,
or to stay fu.r thor pr1J ce odi:1gs ::;:end.ing the appeal, until the 14th day of
October, 1921, whe:1 they presented their petition and assign.tnent
errors,
<:J.:~d
secured a.r.1. a.p!)ea.l,
wit~:co"'J.t
suspension or supersedeas.
of
In
the r::.oan time, a..'1d thereafter, the court :proceeded in tl:o ~ause;as conte~lated by section 129 of the Judicial Code (Comp. St. Sec. 1121), and
later on, on the 28th of November, 1921, on r:1otion of the complainant,
and with the consent and c.pj1roval of tl:J.B bank as then constituted, a.p:proved the action and doine:;s of tho receiver, and directed the bill dis::1issed.
T~1e
cause is now 1:lefore the court solely upon the aflpeal froo the
order appointing t.he receiver; the single assignment of error being t..l1a.t
2:.1.9
X-4443
-6-
such .::x)pointncnt should not hnvc been rJL:tdo in tho absonco of an avornont that the bank i7as insolvent..
The cor:rplainant and the defendant
ba:1k each nove to disniss the ap::;eal, because the
a noot question,
a~d
sa;:~e
:presents only
that the appellants have no further interest in
tho subjcct-natter of the litigation.
(1)
Tho disposition of tho case upon the notion to disuiss nakes
it unnecessary to pass upon the nerits of tho original appointnent.
Without noaning so to do, we r.ny say, in passing, that it appears to
the court that the action taken in the
cir~umstances
of this case was
not only in the discretion of the chancellor, but that the exercise
thereof was wise and prudent.
Sees. 1537, 1541, 1542.
F~moroy 1 s
Eq. Jur. (2d Ed., 1919), vo1.4,
No loss wo.s sustai:1ed by the appointr:1ent of
tho receiver, and it certainly resulted in averting serious consequences.
The contrary course wic;ht r...:we ;:roven nost disastrous, from a financial
viewpoint, to the bo.Zlk and all parties i:1 interest.
(2)
The Dation to disr:1iss the appeal r.1a.J.ifestly should be granted.
There is no longer any justiciable ,controversy betueen the parties; the
receiver has been appointed, has acted, ond been discharged.
He re-
turned and SQrrendered to the bank all of the prop8rty and estate
co~
ing into his possession and subject to his control, and his action hns
been fully m1d finally approved by the court appointing hiD.
pl~inant
The con-
no longer seeks the intervention of the court for any purpose,
but, on the contrary, approves what has been done; and the defendants
in in teres~, the ban];c, its directors, ond officers, as now constituted,
have no cause of co:oplaint, and concur in the action taken..
2 ()0
f.,..
X-4443
-7(3)
Tho o.ppol1.·1nts socking to prosecute tho uppeal have no nannor
of intorost in tho sa"bjoct-;:mt;ter of tho H tic;ation.
Having sold and
part:;d -:;ith thoir l:olC.incs in the ba:ikl~ondonte lito('± Coil?• J-;rr. 575,
and cason· ci tod), thoy crumot a.."ld should not be heard to dictate and
control l i tieo.tion in whic:i1 others alone o.ro in to res ted.
The
[~peal
Dis::1issed •
.
will be
dis~isced
at tho cost of tho
O.]pell~"lts.
@FedFRASER