Court Opinion

ID: 9650618
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:46:29.678763+00
Date Added: 2024-06-11T18:12:24.465751
License: Public Domain

SIMONS, Circuit Judge
(dissenting).
I am unable to concur in the majority opinion sustaining liability imposed by the decree upon the appellants, exclusive of Crawford, by reason of losses incurred by the bank in overdrafts permitted the Kentucky Wagon Works and in loans to Wake-field & Company. The negligence issues were decided by the master, who saw and heard the witnesses, against the receiver, and exceptions to the master’s findings in respect to liability other than statutory were overruled by the court. In this situation we ought not to set aside the master’s findings except for clear mistake, and I am not persuaded that such mistake was made.
The test of negligent conduct and its causal relation to injury that follows, is, as has often been said, the existence of a reasonable apprehension that injurious results will follow. The non-officer directors of the bank against whom liability was decreed had organized the officer personnel of the bank with such meticulous care that one or more officers or groups of officers would always check the acts of others; they had required periodical reports from each group they had a competent auditor and had employed reputable independent auditors; they had created a loan committee of eight Vice Presidents and lending officers, of whom four were directors while the others were required to attend Board meetings. This committee reported weekly and in writing in the presence of the President and Cashier. Any inaccuracy or falsity in the President’s reports and representations to the Board would be known to the officer directors on the Board. It was not reasonably to have been anticipated that so far-flung a conspiracy of wrong doing could be formed among so many officials and officer directors and be successfully carried out to deceive other directors as to the size and nature of loans and the contents of reports of bank examiners and auditors.
The fraudulent conspiracy with which appellants were surrounded is fully set forth in the master’s report, quoted verbatim in one of the opinions of the District Judge, and in the previous opinion of this court. The record is silent as to circumstances which should have put the appellants upon their guard as to the integrity of the President, the cashier, or other executive officers. The confidence reposed in such officers by the directors seemed warranted. Under such circumstances there is highest authority justifying their faith in such representations as were made. Bates v. Dresser, 251 U.S. 524, 40 S.Ct. 247, 64 L.Ed. 388, ,dted in our former opinion.
There are, so far as I am aware, no standardized or generally accepted precautions which bank directors are required to take to secure the bank against misconduct by its officers. The reasonableness of the safeguards employed and their appropriateness to insure the safety intended to be preserved, must be adjudged in each particular case, but the general rule is that “in the absence of circumstances calculated to put directors of a bank upon inquiry, they are ordinarily entitled to rely upon statements made to them by competent persons who are in immediate charge of the bank’s business.” 7 Am.Jur. § 306, and authorities there cited. Since the question before us is one of common law liability now to be adjudged under the law of the state where the action is brought, Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, it is important to note that the law of Kentucky is *898as ■ just stated. . Savings Bank of Louisville’s Assignee v. Caperton, 87 Ky. 306, 8 S.W. 885, 12 Am.St.Rep. 488.