Source: https://www.law.cornell.edu/supremecourt/text/315/447
Timestamp: 2019-08-21 23:08:55
Document Index: 787643027

Matched Legal Cases: ['§ 264', '§ 42', '§ 264', '§ 264', '§ 34', '§ 725', '§ 264', '§ 604', '§ 24', '§ 341', '§ 1432', '§ 1716', '§ 264', '§ 264']

D'OENCH, DUHME & CO., Inc., v. FEDERAL DEPOSIT INS. CORPORATION. | US Law | LII / Legal Information Institute
315 U.S. 447 (62 S.Ct. 676, 86 L.Ed. 956)
Argued: Jan. 9, 1942.
Decided: March 2, 1942.
Syllabus from pages 447-449 intentionally omitted
Argument of Counsel from pages 449-453 intentionally omitted
Respondent instituted this suit in the United States District Court for the Eastern Division of the Eastern District of Missouri on a demand note for $5000 executed by petitioner in 1933 and payable to the Belleville Bank & Trust Co., Belleville, Illinois. Respondent insured that bank January 1, 1934; and it acquired the note in 1938 as part of the collateral securing a loan of over $1,000,000 to the bank, made in connection with the assumption of the latter's deposit liabilities by another bank. Since 1935 the note had been among the charged off assets of the bank. The note was executed by petitioner in renewal of notes which it had executed in 1926. Petitioner who was engaged in the securities business at St. Louis, Missouri, had sold the bank certain bonds which later defaulted. The original notes were executed to enable the bank to carry the notes and not show any past due bonds. Proceeds of the bonds were to be credited on the notes. 1 The receipts for the notes contained the statement, 'This note is given with the understanding it will not be called for payment. All interest payments to be repaid.' Respondent had no knowledge of the existence of the receipts until after demand for payment on the renewal note was made in 1938. Certain interest payments on the notes were made prior to renewal for the purpose of keeping them 'as live paper'. Petitioner's president who signed the original notes knew that they were executed so that the past due bonds would not appear among the assets of the bank, and that the purpose of the interest payments was 'to keep the notes alive'. The original notes were signed in St. Louis, Missouri, were payable at petitioner's office there, and were delivered to the payee in Illinois. The evidence does not disclose where the note sued upon was signed, though it was dated at Belleville, Illinois, and payable to the bank there.
We held in the latter decision that a failure of a federal court in a diversity of citizenship case to follow the forum's conflict of laws rules 'would do violence to the principle of uniformity within a state' upon which Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, was based. 313 U.S. at page 496, 61 S.Ct. at page 1021, 85 L.Ed. 1477. The jurisdiction of the District Court in this case, however, is not based on diversity of citizenship. Respondent, a federal corporation, brings this suit under an Act of Congress authorizing it to sue or be sued 'in any court of law or equity, State or Federal.' 2 Sec. 12B, Federal Reserve Act, 12 U.S.C. 264(j), 12 U.S.C.A. § 264(j), 48 Stat. 162, 168, 172, 49 Stat. 684, 692. And see 28 U.S.C. 42, 28 U.S.C.A. § 42, 43 Stat. 941. Whether the rule of the Klaxon case applies where federal jurisdiction is not based on diversity of citizenship, we need not decide. For we are of the view that the liability of petitioner on the note involves decision of a federal not a state question under the rule of Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 481, 84 L.Ed. 694.
Sec. 12B(s) of the Federal Reserve Act, 12 U.S.C. 264(s), 12 U.S.C.A. § 264(s), provides that 'Whoever, for the purpose of obtaining any loan from the Corporation * * * or for the purpose of influencing in any way the action of the Corporation under this section, makes any statement, knowing it to be false, or willfully overvalues any security, shall be punished by a fine of not more than $5,000, or by imprisonment for not more than two years or both.' Subdivision (y) of the same section provided, at the time respondent insured the Belleville bank, 3 that such a state bank 'with the approval of the authority having supervision' of the bank and on 'certification' to respondent 'by such authority' that the bank 'is in solvent condition' shall 'after examination by, and with the approval of' the respondent be entitled to insurance. 4
The Rules of Decision Act 1 provides that 'the laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.' Whether 'laws of the several States' as so used included non-statutory law embodied in judicial decisions of state courts was long a subject of controversy. After acting for half a century on the belief that it did, the Court in Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, decided that it did not. Almost a century later that decision with its numerous and sorry progeny was overruled, and the Court answered that it did. Erir R. Co. v. Tompkins, supra. It later held that state decisions on conflicts of laws were also binding on the federal courts. Klaxon v. Stentor Electric Mfg. Co., supra. Thus, the Rules of Decision Act as now interpreted requires federal courts to use state law whether declared by the legislature or by the courts as rules of decision 'in cases where they apply,' except where federal law shall 'otherwise require or provide.' These recent cases, like Swift v. Tyson which evoked them, dealt only with the very special problems arising in diversity cases, where federal jurisdiction exists to provide nonresident parties an optional forum of assured impartiality. 2 The Court has not extended the doctrine of Erie R. Co. v. Tompkins beyond diversity cases. 3
This case is not entertained by the federal courts because of diversity of citizenship. It is here because a federal agency brings the action, and the law of its being provides, with exceptions not important here, that: 'All suits of a civil nature at common law or in equity to which the Corporation shall be a party shall be deemed to arise under the laws of the United States: * * *.' 4 That this provision is not merely jurisdictional is suggested by the presence in the same section of the Act of the separate provision that the Corporation may sue and be sued 'in any court of law or equity, State or Federal.' 5
This issue has a long historical background of legal and political controversy as to the place of the common law in federal jurisprudence. 6 As the matter now stands, it seems settled that the federal courts may not resort to the common law to punish crimes not made punishable by Act of Congress; 7 and that, apart from special statutory or constitutional provision, they are not bound in other fields by English precedents existing at any particular date. The federal courts have no general common law, as in a sense they have no general or comprehensive jurisprudence of any kind, because many subjects of private law which bulk large in the traditional common law are ordinarily within the province of the states and not of the federal government. But this is not to say that wherever we have occasion to decide a federal question which cannot be answered from federal statutes alone we may not resort to all of the source materials of the common law or that when we have fashioned an answer it does not become a part of the federal non-statutory or common law.
I do not understand Justice Brandeis's statement in Erir R. Co. v. Tompkins, 304 U.S. 64, at page 78, 58 S.Ct. 817, at page 822, 82 L.Ed. 1188, 114 A.L.R. 1487, that 'There is no federal general common law,' to deny that the common law may in proper cases be an aid to or the basis of decision of federal questions. In its context it means to me only that federal courts may not apply their own notions of the common law at variance with applicable state decisions except 'where the Constitution, treaties, or statutes of the United States (so) require or provide.' 8 Indeed, in a case decided on the same day as Erir R. Co. v. Tompkins, Justice Brandeis said that 'whether the water of an interstate stream must be apportioned between the two States is a question of 'federal common law' upon which neither the statutes nor the decisions of either State can be conclusive.' Hinderlider v. La Plata Co., 304 U.S. 92, 110, 58 S.Ct. 803, 811, 82 L.Ed. 1202.
Other recognitions of our common-law powers abound in the Constitution. 9
A federal court sitting in a non-diversity case such as this does not sit as a local tribunal. In some cases it may see fit for special reasons to give the law of a particular state highly persuasive or even controlling effect, but in the last analysis its decision turns upon the law of the United States, not that of any state. Federal law is no juridical chameleon, changing complexion to match that of each state wherein lawsuits happen to be commenced because of the accidents of service of process and of the application of the venue statutes. It is found in the federal Constitution, statutes, or common law. Federal common law implements the federal Constitution and statutes, and is conditioned by them. 10 Within these limits, federal courts are free to apply the traditional common-law technique of decision and to draw upon all the sources of the common law in cases such as the present. Board of Commissioners v. United States, 308 U.S. 343, 350, 60 S.Ct. 285, 288, 84 L.Ed. 313.
The law which we apply to this case consists of principles of established credit in jurisprudence selected by us because they are appropriate to effectuate the policy of the governing Act. The Corporation was created and financed in part by the United States 11 to bolster the entire banking and credit structure. The Corporation did not simply step into the private shoes of local banks. The purposes sought to be accomplished by it can be accomplished only if it may rely on the integrity of banking statements and banking assets. In this case the Corporation attempted to realize on a note that was a part of the assets at the time it insured the bank. It is met by the plea that the note was a sham knowingly given to enable the bank to conceal the worthlessness of certain bonds which it had bought from the maker, a broker. This deception was not for the single day on which the note was delivered; its purpose and its effect was to operate as a continuing inducement to existing creditors and to those who might become creditors to rely on this note as a $5,000 item counting towards its solvency. It may not have contemplated the then unborn Federal Deposit Insurance Corporation as the particular object of its deception, but its purpose was to conceal a loss from then unknown and unidentified persons who might be or become creditors or banking supervisors on behalf of the public. Under the Act the Corporation has a dual relation of creditor or potential creditor and of supervising authority toward insured banks. 12 The immunity of such a corporation from schemes concocted by the cooperative deceit of bank officers and customers is not a question to be answered from considerations of geography. That a particular state happened to have the greatest connection in the conflict of laws sense with the making of the note involved or that the subsequent conduct happened to be chiefly centered there is no enough to make us subservient to the legislative policy or the judicial views of that state. 13
I hardly suppose that Congress intended to set us completely adrift from state law with regard to all questions as to which it has not provided a statutory answer. An intention to give persuasive or binding effect to state law has been found to exist in a number of cases similar in that they arose under a law of the United States but were not governed by any specific statutory provision. 14 No doubt many questions as to the liability of parties to commercial paper which comes into the hands of the Corporation will best be solved by applying the local law with reference to which the makers and the insured bank presumably contracted. The Corporation would succeed only to the rights which the bank itself acquired where ordinary and good-faith commercial transactions are involved. But petitioners' conduct here was not intended to confer any right on the bank itself, for as to it the note was agreed to be a nullity. Petitioners' conduct was intended to and did have a direct and independent effect on unknown third parties, among whom the Corporation now appears. 15 The policy of the federal Act does not seem to me to leave dependent on local law the question whether one may plead his own scheme to deceive a bank's creditors and supervising authorities as against the Corporation. Even though federal criminal sanctions might not be applicable to these facts, and even though the doctrine of Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L.Ed. 694, may not fully comprehend the present case, I think we now may borrow a doctrine of estoppel from the same source from which the Court borrowed it in that case, and to reach the same result.
Subdivision (y) also gave respondent power to prescribe rules and regulations for the further examination of such bank. Though subdivision (y) was revised in 1935, as indicated in note 3, supra, subdivision (k)(2) of the amended Act gave respondent's examiners power 'to make a thorough examination of all the affairs' of such banks and in doing so 'to administer oaths and to examine and take and preserve the testimony of any of the officers and agents thereof'. They were directed to make a 'full and detailed report of the condition of the bank to the Corporation.' 12 U.S.C. 264(k)(2), 12 U.S.C.A. § 264(k)(2).
§ 34 of the Judiciary Act of 1789, 28 U.S.C. 725, 28 U.S.C.A. § 725.
Paragraph Fourth of 12 U.S.C. 264(j), 12 U.S.C.A. § 264(j) empowers the Corporation 'To sue and be sued, complain and defend, in any court of law or equity, State or Federal. All suits of a civil nature at common law or in equity to which the Corporation shall be a party shall be deemed to arise under the laws of the United States: Provided, That any such suit to which the Corporation is a party in its capacity as receiver of a State bank and which involves only the rights or obligations of depositors, creditors, stockholders and such State bank under State law shall not be deemed to arise under the laws of the United States.'
A similar provision without more is found in many federal statutes. E.g., 15 U.S.C. 604, 15 U.S.C.A. § 604 (Reconstruction Finance Corporation); 12 U.S.C. 24, 12 U.S.C.A. § 24 (National Banks); 12 U.S.C. 341, 12 U.S.C.A. § 341 (Federal Reserve Banks); 12 U.S.C. 1432, 12 U.S.C.A. § 1432 (Federal Home Loan Banks); 12 U.S.C. 1716(c)(3), 12 U.S.C.A. § 1716(c)(3) (National Mortgage Associations). This is not to suggest, however, that questions not specifically dealt with in these statutes cannot be federal questions simply because of the absence of an express provision that suits 'shall be deemed to arise under the laws of the United States.'
12 U.S.C. 264(d), 12 U.S.C.A. § 264(d).
12 U.S.C. 264(i), (k), (l), 12 U.S.C.A. § 264(i, k, l).
W.T. LANGLEY, et ux., Petitioners v. FEDERAL DEPOSIT INSURANCE CORPORATION.
David MOOR et al., Petitioners, v. COUNTY OF ALAMEDA et al.
CLEARFIELD TRUST CO. et al. v. UNITED STATES.
Suzanne Thomas RICHARDS, etc., et al., Petitioners, v. UNITED STATES of America et al.
UNITED STATES, Petitioner, v. Ethel Mae YAZELL.
UNITED STATES v. STANDARD OIL CO. OF CALIFORNIA et al.
DAVIES WAREHOUSE CO. v. BOWLES, Price Administrator.