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Hoehn v. Crews

July 6, 1944

HOEHN ET AL.
v.
CREWS ET AL., AND SIX OTHER CASES.



Appeal from the District Court of the United States for the Western District of Oklahoma; Bower Broaddus, Judge.

Huxman

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

HUXMAN, Circuit Judge, delivered the opinion of the court.

This litigation had its genesis in an escrow agreement executed by the appellees with the Garber Refining Company. Under this agreement the proceeds from oil production which was in litigation were placed in escrow in the Farmers State Bank of Garber, Oklahoma, to await the outcome of the litigation. At the termination of this litigation in 1930, the escrowed funds became the property of the appellees. An investigation shortly thereafter revealed that practically all of the escrowed funds had been embezzled and dissipated. The appellees also shortly thereafter ascertained that a considerable amount of these funds had found their way into the American National Bank of Enid, Oklahoma.

In the meantime in November, 1929, the American National Bank of Enid had sold its business and transferred its assets to the First National Bank of Enid, Oklahoma. In the transaction it received $240,000 in cash from the First National Bank of Enid. On November 25, 1929, the stockholders and directors of the American National Bank by appropriate proceedings went into voluntary liquidation under 12 U.S.C.A. § 181. Prior thereto, all known claims had been paid and the $240,000 received from the First National Bank had been distributed to the stockholders. On January 20, 1930, a notice of intention to liquidate was published in The Enid Events, a newspaper published in Garber County, Oklahoma. A notice was also published in the Bond News, a newspaper published in New York City, New York. The notice published in the Enid Events did not comply with 12 U.S.C.A. § 182, in that it was not published for two full months. Both notices were published after the distribution of the $240,000 to the stockholders. The appellant directors had no part in or knowledge of any wrongful handling of the trust funds which found their way into the American National Bank, and at the time of the distribution of the $240,000 had no knowledge that such a claim existed or would be asserted against the bank.

On December 16, 1931, the appellees instituted an action against the American National Bank in the state courts of Oklahoma to recover judgment for the escrowed funds which had found their way into that bank. Judgment was entered against the bank October 29, 1937, for $249,000 and interest. The case was appealed to the Supreme Court of Oklahoma where the judgment was subsequently affirmed. On January 20, 1938, and while the state case was pending on appeal in the Supreme Court, this action was instituted against the stockholders and directors of the American National Bank in the District Court of the United States for the Northern District of Oklahoma.

In the first cause of action the appellees sought to establish a trust in the liquidation dividend of $240,000 paid to the stockholders, and sought to recover the same, less any amounts paid back by some of the stockholders. In a second cause of action they sought to enforce the double liability of the stockholders, and in a third cause of action they sought judgment against the members of the Board of Directors of the bank on the theory that they were trustees in the liquidation proceedings and were derelict in the discharge of their duties as such trustees in the distribution of the $240,000 to the stockholders.

Judgment was entered on the first cause of action against those stockholders of whom the court had jurisdiction for the amount of the liquidation dividend they had received.On the second cause of action, judgment was entered against the stockholders for an amount sufficient to satisfy the balance of the judgment remaining unsatisfied by the judgment on the first cause of action. On the third cause of action, judgment was rendered against the directors for $188,280, and interest. It was decreed that no execution issue on this judgment until appellees had exhausted their remedy on the judgments rendered in the first and second causes of action or had shown good cause for failure so to do. Jurisdiction was retained to control the issuance of execution on these grounds.

In some cases, judgment was entered against appellants on all three causes of action. In others, judgment was entered against them on the first and second causes, while in some, judgment was entered on the first and third causes of action, and in one instance judgment was entered on the third cause of action alone. In the main, the various appeals present questions that are common to the cause of action in which the judgment was entered. In some appeals questions were presented which do not arise in the others. The questions that are common to the judgment in which they arose will be treated without reference to any particular appeal. Specific reference to appeals will be made only in those cases in which special questions are presented.

Jurisdiction.

The jurisdiction of the court to entertain the first and third causes of action is challenged by various appellants. There is no diversity of citizenship, so that federal jurisdiction must be based on other grounds. The jurisdiction of the court was invoked under that part of 28 U.S.C.A. § 41(16) which reads as follows: " * * * and cases for winding up the affairs of any such bank." Is this a proceeding to wind up the affairs of a national bank? Our conclusion is that the answer must be in the affirmative. The bank had sold its assets and had ceased functioning as a banking institution. By appropriate resolution it had voted to liquidate and had appointed a liquidating agent. An attempt had been made to publish the statutory notice required in such event. In George v. Wallace, 8 Cir., 135 F. 286, it was held that a suit against an insolvent bank which had gone into voluntary liquidation to enforce a specific lien or to enforce and judicially administer a trust previously created by contract or arising from the insolvency and liquidation proceeding was a suit arising under the laws of the United States within the jurisdiction of the Federal court, as prescribed by statute. In Richmond v. Irons, 121 U.S. 27, 49, 7 S. Ct. 788, 798, 30 L. Ed. 864, the court said:

"In the case of involuntary liquidation under the supervision of the comptroller of the currency, the receiver appointed by him is authorized and required, not only to collect and apply the proper assets of the bank to the payment of its debts, but also, so far as may be necessary, to enforce the individual liability of the shareholders. It thus appears that the enforcement of this liability is a part of the liquidation of the affairs of the bank; at least, so closely connected with it as to constitute but one continuous transaction. When, in the case of voluntary liquidation, the proceeding is instituted by one or more creditors for the benefit of all, by means of the jurisdiction of a court of equity, there seems to be no reason why the nature of the proceedings should be considered as changed. The intention of congress evidently was to provide ample and effective remedies in all the specified cases for the protection of the public and the payment of creditors, by the application of the assets of the bank and the enforcement of the liability of the stockholders. Admitting that this liability is not strictly an asset of the bank, because it could not be enforced for its benefit as a corporation nor in its name, yet it is treated as a means of creating a fund, to be applied with and in aid of the assets of the bank towards the satisfaction of its obligations. The two subjects of applying the assets of the bank and enforcing the liability of the stockholders, however otherwise distinct, are by the statute made connected parts of the whole series of transactions which constitute the liquidation of the affairs of the bank."

In Brown v. O'Keefe, 300 U.S. 598, 604, 57 S. Ct. 543, 547, 81 L. Ed. 827, it was held that:

"If the bank is in course of liquidation by a voluntary liquidator, the liability is enforcible by a creditor or creditors, suing for themselves and for others similarly situated."

The liability to the stockholders for the liquidation dividend they had received, their liability for assessment on their stock, and the liability of the directors, if any, for dereliction of duty, were all liabilities primarily due to the bank for the benefit of creditors. Had a receiver been appointed to wind up the affairs of the bank, he could have enforced all three classes of rights for the benefit of the creditors of the bank. The action by the appellees was in the nature of a creditor's bill to enforce rights belonging to the corporation for the benefit of creditors. The ...


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