Court Opinion

ID: 8802040
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:35:52.430613+00
Date Added: 2024-06-11T17:03:56.583839
License: Public Domain

SPEER, District Judge
(after stating the facts as above). There seems to be no doubt that the bill must be dismissed as to L. A. Lowry, for the reason that he is a citizen of another state. Order may be taken to that effect.
[1] The contention of, J. S. Lowry that the bill cannot be maintained here as to him, because he is a citizen of the Northern district of Georgia, is not well founded. This is a joint suit for joint negligence and misconduct of the directors of the Americus National Bank. Section 52 of the Judiciary Act (Act March 3, 1911, c. 231, 36 Stat. 1101 [Comp. St. 1913, § 1034]), provides that:
“When a state contains more than one district, every suit not of a local nature, iu the District Court thereof, against a single defendant, inhabitant of such state, must be brought in the district where he resides; hut if there are two or more defendants, residing in different districts of the state, it may be brought in either district, and a duplicate writ may be issued against the defendants, directed to the marshal of any other district in which any defendant resides. * * * ”
*389So the motion of J. S. Dowry on this ground must be denied.
[2] The motion to dismiss upon the general grounds must be determined in view of the law fixing the liability of national bank directors' for misconduct which may fairly be construed as willful and intentional neglect of their duties. A leading case on this subject is that of Briggs v. Spaulding, 141 U. S. 132-174, 11 Sup. Ct. 924, 35 L. Ed. 662. There the authorities were examined with great care, and the opinion was pronounced by Mr. Chief Justice Fuller. There was also a dissenting opinion rendered by Mr. Justice Harlan, in which Justices Grey, Brewer, and Brown concurred. It follows that the question in issue received the weightiest consideration. The opinion of the majority of the court may be condensed in this paragraph:
“In any view the degree of care to which these defendants [the directors] were hound is that which ordinarily prudent and diligent men would exercise under similar circumstances, and in determining that the restrictions of the statute and the usages of business should be taken into account. What may be negligence in one case may not be want of ordinary care in another, and the question of negligence is, therefore, ultimately a question of fact, to be determined under all the circumstances.”
The more rigid rule is expressed in the dissent. It is in a quotation, on page 170 of 141 U. S., page 937 of 11 Sup. Ct. (35 L. Ed. 662), from the case of Martin v. Webb, 110 U. S. 7, 3 Sup. Ct. 428, 28 L. Ed. 49:
“Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business, and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations •of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known, in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business.”
The opinions in this case have received the consideration of other courts. Said District Judge Brawley, in Wheeler v. Aiken County Loan & Savings Bank (C. C.) 75 Fed. 785:
“It may be stated as a result of this examination that the law. holds it to be the duty of directors to direct; that they are/not mere figureheads; that they may commit the banking business to duly authorized officers, exercising ordinary care and prudence in their selection, but this does not absolve them from the duty of reasonable supervision, or shield them from liability for the wrongdoing of such officials, if, through gross inattention, such wrongdoing has been permitted or has escaped their notice. While not trustees, in a technical sense, some of the duties required of trustees are demanded of them; and if, through their supine negligence and inattention, the officers of the bank, by systematic neglect of ordinary precautions, or by fraud, bring it to ruin, which could have been prevented by that amount of vigilance and supervision which persons of ordinary discretion generally exercise as to their own affairs, such directors cannot escape responsibility.”
Again, in the case of Robinson v. Hall, 63 Fed. 222-228, 12 C. C. A. 674, 679, the Circuit Court of Appeals of the Fourth Circuit, Circuit Judges Goff and Simonton, and District Judge Hughes presiding, affords much light. Said District Judge Hughes, rendering the opinion;
*390“In the case at bar we have an essentially different state of facts to consider. The frauds and irregularities which resulted in the ruin of the bank went on through a period of more than three years, during all of which time the defendant directors were in office. Many of these irregularities were not things of secret occurrence and sudden development. They were such as must have been known to the defendants, if they gave even the most casual attention to the affairs of the bank. The embezzlement of Bowden, the $45,000 loans to the Northrops and to Eerchner, and the losses resulting, were facts that could not have eluded the most cursory attention of the directors to their duties.” ,
The decision of the court below sustaining demurrers was reversed, and the case directed to proceed on plenary proofs to a decree on the merits.
It is true that, the Supreme Court, in Yates v. Jones National Bank, 206 U. S. 158, 181, 27 Sup. Ct. 638, 644 (51 L. Ed. 1002), through Mr. Chief Justice White, declared that section 5239, Revised Statutes (Comp. St. 1913, § 9831), fixes the exclusive rule of such liability. The section provides:
“If the directors of any national! banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate any of the provisions of this title, all the rights, privileges, and franchises of the association shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper circuit, district, or territorial court of the United States, in a suit brought for that purpose by the comptroller of the currency, in his own name, before the association shall be declared dissolved. And in cases of such violation, every director who participated in or assented 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.”
The learned Chief Justice points out that:
“Where by law a responsibility is made to arise from the violation of a statute knowingly, proof of something more than negligence is required.; that is, that the violation must in effect be intentional.”
In that case the wrong alleged was a misstatement in the making and publishing of the official reports of the condition of the bank. This case was reconsidered by the Supreme Court, in Jones National Bank v. Yates, 240 U. S. 556, 36 Sup. Ct. 429, 60 L. Ed. 788, Mr. Justice Hughes rendering the opinion; and the directors were held liable for knowingly participating in, or assenting to, the violation of the act.
In the case before the court the averments are such that we are driven to the conclusion that the case must be heard on full proof, in order that we may determine whether or not the misconduct and neglect of duty charged was in fact intentional or otherwise; that is to say, not only whether they knowingly permitted, assented to, and allowed the violation of the national banking law, but also whether the facts were such as to charge men in their position with such knowledge. The president selected was a resident of a distant state; no bond was required of the cashier; ,the assistant cashier was notoriously profligate ; he was the principal agent of the bank; the officers and directors approved large loans to insolvents; the cashier and assistant cashier were allowed to pay overdrafts of irresponsible persons to the amount of $80,716.47. Large loans were authorized in excess of the 10 per cent. *391limit on the capital stock; a number of those were to a director. Illegal dividends were declared at a meeting of the directors, where defendants were present. There is much else in the bill indicating such reckless mismanagement that inquiry whether the directors are chargeable with resulting loss seems demanded by equity. This is not an action by individual stockholders to redress individual injuries. It is brought, and the suit is properly filed, in equity.
For the purpose of this motion, all of the averments of the bill must be held to be true, and, taken all together, statements, charges, and prayers are so significant and apparently so meritorious that the duty of the court to overrule the several motions to dismiss seems imperative; and- it will be so ordered.

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