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FEDERAL RESERVE BOARD ^ WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE T O THE FEDERAL RESERVE BOARD X-6818 February 13, 1931. Dear S i r : R e f e r r i n g to my l e t t e r of February 7 with r e f e r e n c e to t h e case of ? . I . Skinner and Company v . Federal Reserve Bank of Richmond, e t a l . , I enclose for"ydur f u r t h e r information the following documents: (1) Copy of a l e t t e r addressed t o me by Mr. Wallace, Counsel f o r the Federal Reserve Batik of Richmond under date of February 10; (2) Copy of a l e t t e r addressed to me by Mr. Parker, Counsel f o r the Federal Reserve Bank of A t l a n t a under date of February 10; (3) A memorandum summarizing the t e l e g r a p h i c r e p l i e s to my l e t t e r of February 7 r e c e i v e d from Counsel f o r v a r i o u s Federal Reserve Banks; and (4) A copy of a l e t t e r addressed by me to Mr. Wallace under date of February 13. While you w i l l observe from my l e t t e r to Mr. Wallace t h a t an e f f o r t i s being made to reorganize the n a t i o n a l Bank of Greenville and no f u r t h e r s t e p s should be taken looking toward the employment of s p e c i a l counsel to a s s i s t i n t h i s l i t i g a t i o n on a System b a s i s u n l e s s the p l a n s f o r r e o r g a n i z a t i o n f a i l ; i t i s my opinion t h a t , i f the se p l a n s should f a i l and i f i t should become necessary to l i t i g a t e t h i s case, i t ought to be handled a s a System m a t t e r f o r the following r e a s o n s : 1. I t involves s e v e r a l questions of v i t a l i n t e r e s t to a l l Federal Re serve Banks; The Federal Reserve Bank of Richmond d e s i r e s to have i t 2. handled a s a System c a s e and Counsel f o r s e v e r a l of the Federal Reserve Banks have expressed a s i m i l a r d e s i r e ; 3. The check i n question was handled with unusual prompt- !" X-6818 O1 -2- ness; the Federal Reserve Bank had. no s p e c i a l knowledge of the impending insolvency of the drawee hank; t h e r e appear to be no f a c t s upon which a charge of a c t u a l negligenbe could he sustained! and, i n every r e s p e c t , the case appears to he f r e e from embarrassing complications of every n a t u r e , except t h a t i t was brought i n the d i s t r i c t i n which t h e Early case a r o s e ; i 4. The Federal Reserve Banks a r e f o r c e d to t r y most cases of t h i s c h a r a c t e r i n the S t a t e c o u r t s and t h i s case a f f o r d s an unusual o p p o r t u n i t y to t e s t the questions involved i n the Federal c o u r t s ; and 5. In my opinio#, i t i s very important to the Federal Reserve System t o o b t a i n a d e c i s i o n a s soon as p o s s i b l e i n the Federal c o u r t s d i s t i n g u i s h i n g the r i g h t s , d u t i e s and l i a b i l i t i e s of the Federal Reserve Banks under Regulation *f, as amended September 1, 1930, from t h e i r r i ^ i t s , d u t i e s and l i a b i l i t i e s under the preceding r e g u l a t i o n as e s t a b l i s h e d i n the d e c i s i o n of the Supreme Court of the United S t a t e s i n the case of E a r l y v . Federal Reserve Bank of Richmond. Mr. Wallace a d v i s e s me t h a t the Federal Reserve Bank of Richmond would p r e f e r to have t h i s case handled as a System case but i s not d i s posed to i n s i s t upon i t u n l e s s a m a j o r i t y of the other Federal Reserve Banks a r e w i l l i n g to p a r t i c i p a t e , Mr. Wallace f e e l s t h a t , having t r i e d the Early case and the Federal Reserve Batik of Richmond haying been opposed t o the amendments to Regulation J adopted e f f e c t i v e September 1, i t " o u g h t not t o be i n t h e p o s i t i o n of t r y i n g the f i r s t important t e a t case a r i s i n g under the amended r e g u l a t i o n s without the o t h e r Federal Reserve Banks being r e p r e s e n t e d i n t h e case by s p e c i a l counsel. I f , t h e r e f o r e , the plans to r e o r g a n i z e the National Bank of Greenville should f a i l , and i f i t should become necessary to l i t i g a t e t h i s case, I s h a l l recommend to the Federal Reserve Board t h a t s p e c i a l counsel be r e t a i n e d to a s s i s t i n the t r i a l of t h i s case on a System b a s i s . I f the Board approves my recommendation, i t w i l l immediately communicate with a l l Federal Reserve Banks i n # r d e r t o a s c e r t a i n whether they a r e w i l l i n g to p a r t i c i p a t e , and you undoubtedly w i l l be c a l l e d upon to adv i s e and c o n s u l t with your bank oil t h a t q u e s t i o n . I s h a l l keep you f u l l y informed of q l l important developments, i n order t h a t you may inform the o f f i c e r s of your bank. With k i n d e s t r e g a r d s and a l l best wishes, I am C o r d i a l l y yours, Walter Wyatt, General Counsel. TO COUNSEL FOR ALL H&EERAL R3S3BVE BAHKS EXCEPT RICHMOND. X-6818-a FBESRAL B3S2RVS MNK OF RICHMOND February 10, 1931 Federal Reserve Board, Washington, D. C. Attention: Mr. Walter Wyatt. General Counsel. % dear Mr. Wyatt: Replying f u r t h e r to your telegram of February 9 t h , I wish .to say t h a t i n my p e r s o n a l opinion i t would be advisable to remove the a c t i o n brought by Skinner and Company to the f e d e r a l c o u r t . I r e a l i z e t h a t the probable a t t i t u d e of the C i r c u i t Court of Appeals and the p e r s o n a l q u a l i f i c a t i o n s of the d i s t r i c t judge a r e some reasons why a removal might not be a d v i s a b l e , but, on t h e other hand, a f i n a l d e c i s i o n i n the f e d e r a l court would be the only precedent which could be of any h e l p to other Federal reserve banks. A f i n a l d e c i s i o n by the s t a t e c o u r t s of North Carolina would of n e c e s s i t y leave the q u e s t i o n u n s e t t l e d u n l e s s we could o b t a i n a review of the d e c i s i o n of the s t a t e c o u r t by t h e Supreme Court of the United S t a t e s . When the National Bank: of Greenville suspended we h e l d r e d i s counted n o t e s a g g r e g a t i n g $112,218.86 and held, marginal c o l l a t e r a l aggreg a t i n g $38,955.00. We have not had an opportunity to make a c a r e f u l appraisement of the value of the paper h e l d by u s , but the Manager of the Bank R e l a t i o n s Department i s i n c l i n e d to think t h a t most of the paper which we h o l d i s f a i r l y good and t h a t we a r e probably p r o t e c t e d from any l o s s even if we should l o s e t h e reserve b a l a n c e . I t t h e r e f o r e seems t h a t the Receiver has t h e main pecuniary i n t e r e s t , and i f t h i s case i s not to be handled a s a System m a t t e r , my own idea would be to employ as t h e l o c a l a s s o c i a t e the a t t o r n e y r e t a i n e d by the Receiver and t o give him a l l t h e a s s i s t a n c e i n my power i n conducting the case, but to allow him or t h e Receiver to determine what s t e p s were a d v i s a b l e . I am sure you can r e a d i l y a p p r e c i a t e my p o s i t i o n i n t h i s m a t t e r , and n a t u r a l l y i f the case i s made a System m a t t e r I should p r e f e r to have the f i n a l d e c i s i o n s made by you or Mr. Baker i f he i s r e t a i n e d , and i f i t i s not handled a s a System m a t t e r , I should p r e f e r to have the C o m p t r o l l e r ' s O f f i c e assume r e s p o n s i b i l i t y f o r any important d e c i s i o n s , b u t , of course, i n any event, I would expect to use my b e s t e f f o r t s to secure a f a v o r a b l e decision. I remain, Very t r u l y yours, (Signed) M. 0 . Wallace Counsel. MOW R X-68l8-b COPY g7B COLQUITT, PARKER, TROUTimi & ARXWRIGHT ATTORNEYS AT LAW SUITE 1607 WILLIAM-OLIV3H BLDG. ATLANTA, GA. February 10, 1931. Mr. Walter Wyatt, General Counsel, Federal Reserve Board, Washington, D, C. Dear Mr. Wyatt; I wired you y e s t e r d a y , i n e f f e c t , t h a t I 8$w no reason why the case of Skinner v, Federal Reserve Bank of Richmond should, f o r the p r e s e n t a t l e a s t , "be r e g a r d e d as p r e s e n t i n g q u e s t i o n s of System-wide imr portance. The s u i t has e v i d e n t l y been "brought upon the theory t h a t the Malloy case i s a p p l i c a b l e and upon the f u r t h e r theory t h a t the Federal Reserve Bank r e f u g e d , p r i o r to the insolvency of the Greenville bank, to honor a r e q u e s t to charge the r e s e r v e account with the amount of a cash l e t t e r which could have been p a i d out of such r e s e r v e b a l a n c e . N e i t h e r t h e o r y i s well taken under the law or the f a c t s . Any a u t h o r i t a t i v e value of the Malloy case would seem to be removed by the Regulation, and, f o r t h a t m a t t e r , by the Regulations which have been of f o r c e ever s i n c e amendments were made to meet the Malloy c a s e . I cannot b e l i e v e t h a t counsel f o r the p l a i n t i f f w i l l s e r i o u s l y c o n t e s t the m a t t e r on e i t h e r theory when the new Regulation is brought to t h e i r a t t e n t i o n and i t i s made p l a i n t h a t a t no time during December 10th was the r e s e r v e balance i n s u f f i c i e n t funds to a u t h o r i z e a charge to the account of the G r e e n v i l l e bank of the net amount of the cash l e t t e r , Had the account been i n s u f f i c i e n t funds p r i o r to n o t i c e of suspension, I think t h a t the a u t h o r i z a t i o n to charge should have been honored, and I b e l i e v e f u r t h e r t h a t the mere f a c t t h a t e n t r i e s , charging the account, were not made p r i o r to the r e c e i p t of n o t i c e of suspension would not have a l t e r e d the s i t u a t i o n . I t has been my idea t h a t a r e m i t tance d r a f t or an a u t h o r i z a t i o n to charge a r e s e r v e account should be given e f f e c t a s of the time of r e c e i p t and t h a t the p r o h i b i t i o n contained i n Regulation J , a s t o the making of charges a g a i n s t r e s e r v e accounts a f t e r n o t i c e of insolvency, would not be a p p l i c a b l e to cases i n which such n o t i c e was a c t u a l l y r e c e i v e d a f t e r r e m i t t a n c e d r a f t s and/or a u t h o r i z a t i o n s to charge r e s e r v e accounts reached the Federal Reserve Bank. As s t a t e d above, I think the Richmond bank should have p a i d the cash l e t t e r out of the r e s e r v e balance had t h a t balance been s u f f i c i e n t f o r the p u r p o s e . I t not having been s u f f i c i e n t , the case, i n so f a r as concerns t h i s p a r t i c u l a r a s p e c t , should be determined i n f a v o r of t h e Reserve Bank independently of the p r o v i s i o n of Regulation J . X-6818-b -3and but lar 1 the! Of course the case may so develop l a t e r t h a t the v a l i d i t y e f f e c t i v e n e s s of Regulation J may be s e r i o u s l y drawn i n t o q u e s t i o n , u n t i l such time I do ndt b e l i e v e t h a t the case i s of any p a r t i c u s i g n i f i c a n c e * I know, furthermore, t h a t Mr. Wallace w i l l give m a t t e r h i s u s u a l s k i l f u l l and e f f e c t i v e handling! With regards, I ata Very t r u l y yours, (Signed) Robt» S. P a r k e r . BSP/w COPY 2-13-31 X-6818 r c 280 REPLIES OF COUNSEL OF VARIOUS FEDERAL RESERVE BAMS TO MR. WYATT'S LETTER OF FEBRUARY 7, RE SKIMER & COMPANY V. FEDERAL RESERVE BANK OF RICHMOND. Mr. Weed. Boston : "Think case Skinner & Co. v s . Reserve Bank of Richmond could p r o p e r l y "be handled a s Eastern m a t t e r i f Wallace d e s i r e s o u t s i d e counsel." Mr. Logan. New York: "Your l e t t e r February seventh r e g a r d i n g case of Skinner v . Federal Reserve Bank of Richmond.(stop) We f a v o r handling case a s system matter "because i t seems l i k e l y t h a t questions of system i n t e r e s t may he involved.^Stop) We w i l l he glad to pay our pro r a t a share of expenses of handling case as system m a t t e r . " Mr. Williams. P h i l a d e l p h i a : No r e p l y r e c e i v e d up to 11 a.m. February 13th. Mr. flewell, Cleveland: ( S q u i r e . Sanders & Dempsey) "Your l e t t e r seventh r e Skinner v s . Federal Richmond. Believe p r e s e n t s t a t u s of matter does not warrant handling as system case*" Mr. Wallace. Richmond: "Your telegram r e Skinner c a s e . This hank e n t i r e l y w i l l i n g to have case handled a s counsel f o r o t h e r hanks d e s i r e "but p r e f e r s t h a t case he handled as system m a t t e r . " Mr. P a r k e r . A t l a n t a : "Yours February seventh r e f e r r i n g case of Skinner v s . Richmond b a n k . ( S t o p . ) I do not think d e c i s i o n w i l l e n t a i l determination of v a l i d i t y and e f f e c t i v e n e s s of l a s t r e g u l a t i o n J . ( S t o p ) . A u t h o r i t y to charge r e s e r v e account of Greenville Bank wp.s r e c e i v e d when account was i n s u f f i c i e n t to pay cash l e t t e r and balance was never s u f f i c i e n t up to and a f t e r c l o s i n g . ( S t o p ) . . Do not b e l i e v e t h a t Malloy case can be used a s a u t h o r i t y i n view of new r e g u l a t i o n and while new r e g u l a t i o n r e n d e r s Early case i n a p p l i c a b l e even were t h i s not t r u e i n s u f f i c i e n c y of balanco to pay l e t t e r would a f f o r d ground of d i f f e r e n t i a t i o n . ( S t o p . ) Case may involve negligence i n d i r e c t sending but t h i s element always p r e s e n t i n s i m i l a r c a s e s . ( S t o p . ) Think Receiver w i l l wish to remove case and b e l i e v e r e s e r v e bank should j o i n i n p e t i t i o n f o r removal." " Mr. Meyer. Chicago: " I t seems r a t h e r d i f f i c u l t from complaint i n Skinner v s . Federal Reserve Bank of Richmond to determine what p l a i n t i f f w i l l r e l y upon t o r e c o v e r . However i t would seem t h a t v a l i d i t y of r e g u l a t i o n J , w i l l c e r t a i n l y be involved as defense w i l l n e c e s s a r i l y be p r e d i c a t e d t h e r e o n , | n view of t h i s s i t u a t i o n I am ready to advise Federal Reserve Bank of Chicago to have m a t t e r t r e a t e d a s system m a t t e r i f other Federal r e s e r v e banks f e e l t h i s should}, be done." X-6818-c -2- : 281 Mr. McConkey, S t . L o u i s : "The f i g u r e s furnished, by Wallace do not i n d i c a t e s u f f i c i e n t "balances a t any t i n e a f t e r r e c e i p t of s l i p r e f e r r e d to t o j u s t i f y the making of the charges r e q u e s t e d , even under the c o n t e n t i o n i n the E a r l y c a s e . ( S t o p . ) Have no doubt a s t o the v a l i d i t y of r e g u l a t i o n " J " ; n e v e r t h e l e s s when a t t a c h e d i t "becomes a System m a t t e r of utmost importance and i f Wallace d e s i r e s System a s s i s t a n c e i t should "be f u r n i s h e d . " Ueland and Uoland. Minneapolis} No r e p l y up t o 11 a.m. February 1 3 t h . Mr. Leedy. Kansas C i t y : ' " S u i t of Skinner and Company v e r s u s F e d e r a l He servo Bank of Richmond i n my judgnent should "be handled a s a System m a t t e r p a r t i c u l a r l y i n view of s u g g e s t i o n of Wallace t h a t he may "be p r e j u d i c e d i n c o u r t s of h i s d i s t r i c t pad s t a t e by r e a s o n of d e f e n s e s made by him i n o t h e r s u i t s . ( S t o p . ) Aside from q u e s t i o n of a p p l i c a t i o n and e f f e c t of r e g u l a t i o n J , I c o n s i d e r the case important and of concern to a l l o t h e r r e s e r v e banks by r e a s o n of charge t h a t Richmond bank knew o r should have known t h a t drawee bank Was i n s o l v e n t t ( S t o p . ) Also f e e l t h a t every e f f o r t should be made to induce C o m p t r o l l e r ' s o f f i c e to remove c a s e to Federal Court should t h e r e by any d i s p o s i t i o n i n th&t o f f i c e t o allow the case to remain i n the s t a t e court* 11 Locke* Locke. Stroud & Randolph! Dallas! "Re your l e t t e r February seventh * We b e l i e v e cases i d e n t i c a l l y s i m i l a r t o one mentioned i n Wallace l e t t e r of February 4 t h have been s u c c e s s f u l l y defended by Counsel f o r m a j o r i t y of r e s e r v e banks w i t h o u t a s s i s t a n c e of o u t s i d e c o u n s e l . Of course c a s e i s of importance t o e n t i r e System and i f Wallace f e e l s any embarrassment on account of E a r l y c a s e i n making defense we s h o u l d suggest t h e a d v i s a b i l i t y of employment of o u t s i d e Counsel." Mr. Agnew. San F r a n c i s c o : No r e p l y r e c e i v e d up to 11 a.m. February 1 3 t h . X-6818-d COPY February 13, 1931. Mr. M. G. Wallace, Counsel, Federal Reserve Bank of Richmond, Richmond, V i r g i n i a . My dear Mr. Wallace: Although I have communicated with you by telephone and t e l e graph, I wish f o r m a l l y to acknowledge r e c e i p t of your l e t t e r s of Febr u a r y 4 and February 10 with r e f e r e n c e to the case of W. I , Skinner and Company v. Federal Reserve Bank of Richmond and W. P . Wright, Rec e i v e r of the National Bank of G r e e n v i l l e . As I wired you l a s t n i g h t , Mr. Barse, Counsel to the Compt r o l l e r of the Currency, r e a d i l y agreed with our view t h a t t h i s case ou^it to be removed.to the Federal c o u r t s and has i n s t r u c t e d the r e ceiver to have h i s counsel get i n touch with you a t once and take prompt steps to remove the case to the Federal c o u r t . Mr. Barse recognizes t h a t the i n t e r e s t s of the Federal Reserve Bank and the O f f i c e of t h e Comptroller of the Currency a r e i d e n t i c a l i n so f a r a s the questions of law involved i n t h i s case a r e concerned and t h a t , if the case should r e s u l t i n a d e c i s i o n in the a p p e l l a t e c o u r t s , i t would be a most imp o r t a n t t e s t case f o r the Comptroller's O f f i c e as well as f o r a l l the Federal r e s e r v e banks. This morning, however, Mr. Barse c a l l e d on me again and t o l d me t h a t an e f f o r t i s being made to organize a new bank to take over the a s s e t s and assume the l i a b i l i t i e s of the National Bank of Greenv i l l e ; and, of course, t h i s p l a n contemplates t h a t a l l c r e d i t o r s of the National Bank of G r e e n v i l l e would be p a i d i n f u l l , u n l e s s they volunt a r i l y accept some compromise. Mr. Barse s a i d t h a t the proponents of t h i s p l a n a r e very c o n f i d e n t of success and t h a t we should know w i t h i n t h i r t y days whether the p l a n w i l l be consummated. Of course, i f i t i s consummated, Skinner and Company w i l l be p a i d and t h e i r s u i t w i l l be dismissed. I n the meantime, Mr, Barse and I a r e agreed t h a t i t would be a d v i s a b l e to proceed with the removal of the case t o the Federal Court and then mark t i n e u n t i l i t i s p o s s i b l e to determine the outcome of the p l a n to r e o r g a n i z e t h e bank. -Pending the outcome of the r e o r g a n i z a t i o n p l a n , I f e e l t h a t no f u r t h e r s t e p s should be taken to employ s p e c i a l counsel and handle t h i s case a s a System c a s e . I f , however, the r e o r g a n i z a t i o n p l a n s should f a i l and you should be f o r c e d to l i t i g a t e t h i s case, I agree with you t h a t i t ou^txt to be handled a s a System case, not only f o r the reasons s t a t e d by you in your l e t t e r s of February 4 and February 10 and i n your t e l e - X-6818-d -3phone conversation with ne yesterday, "but a l s o because i t appears to be f r e e f r o r . embarrassing circumstances, would make an unusuall y good t e s t case and would f u r n i s h an unusual opportunity t o obt a i n a d e c i s i o n i n the Federal c o u r t s d i s t i n g u i s h i n g the d o c t r i n e of the E a r l y case from the r i g h t s , d u t i e s and l i a b i l i t i e s of the Federal reserve banks under Regulation J a s amended September 1, 1930. As I t o l d you l a s t n i g h t , there i s considerable d i f f e r e n c e of opinion among counsel f o r t h e o t h e r Federal reserve banks over the question whether t h i s case ought to be handled a s a System c a s e . For your f u r t h e r i n f o r m a t i o n i n t h i s connection, I enclose a copy of the l e t t e r which I addressed to Counsel f o r a l l Federal r e s e r v e banks, a meaorandnn giving the t e x t of the r e p l i e s r e c e i v e d from Counsel f o r the v a r i o u s Federal r e s e r v e banks, and a copy of a l e t t e r which I r e ceived from Mr. Parker t h i s morning with r e f e r e n c e to t h i s c a s e . I s h a l l keep Counsel f o r the other Federal r e s e r v e banks f u l l y a d v i s e d of a l l developments; so t h a t , i f the p l a n s to r e o r g a n i z e the bank f a i l and i t becomes necessary to l i t i g a t e t h i s case, i t w i l l be p o s s i b l e to o b t a i n prompt a c t i o n by a l l Federal r e s e r v e banks on the q u e s t i o n of employing s p e c i a l counsel on a System b a s i s to a s s i s t i n t h e t r i a l of t h i s c a s e . With a l l b e s t r e g a r d s , I am C o r d i a l l y yours, Walter Wyatt, General Counsel, Enclosures. WW-sad
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