1. A suit against a federal reserve bank and its officers
held a suit arising under a law of the United States
within the meaning of § 24, cl. 1, of the Judicial Code, such banks
being creatures of the Federal Reserve Act. P.
256 U. S.
356.
2. A federal reserve bank is not a national banking association
within § 24, cl. 16, of the Judicial Code, which declares that such
associations, for the purposes of suing and being sued, shall
(except in certain cases) be deemed citizens of the states where
they are located. P.
256 U.S.
357.
3. Several country banks of Georgia alleged that they derived an
important part of their income from charges on payment of checks
drawn by their depositors when sent in, usually through other
banks, from a distance; that banks of the Federal Reserve System
were
Page 256 U. S. 351
forbidden to make such charge, and that the defendant federal
reserve bank and its officer, in pursuance of a policy of the
Federal Reserve Board, for the purpose of compelling the plaintiffs
and like bank to become members of the system, or to open clearing
accounts with the defendant (which would deprive them of the
aforesaid charges, reduce their lending power, and drive some of
them out of business), intended to accumulate such checks in large
amount and then require cash payment at par by presentation over
the counter or otherwise, so as to compel plaintiffs to maintain so
much cash in their vaults that they must either give up business or
submit, if able, to the defendant's scheme.
Held that the
bill stated a cause for an injunction. P.
256 U.S. 357.
269 F. 4 reversed.
Appeal from a decree of the circuit court of appeals affirming a
decree of the district court dismissing, for want of equity a bill
brought by divers state banks against a federal reserve bank and
its officers for an injunction. The facts are stated in the
opinion.
Page 256 U. S. 355
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a bill in equity brought by country banks incorporated
by the State of Georgia against the Federal Reserve Bank of
Atlanta, incorporated under the laws of the United States, and its
officers. It was brought in a state court but removed to the
district court of the United States on the petition of the
defendants. A motion to remand was made by the plaintiffs, but was
overruled. The allegations of the bill may be summed up in
comparatively few words. The plaintiffs are not members of the
Federal Reserve System, and many of them have too small a capital
to permit their joining it -- a capital that could not be increased
to the required amount in the thinly populated sections of the
country where they operate. An important part of the income of
these small institutions is a charge for the services rendered by
them in paying checks drawn upon them at a distance and forwarded,
generally by other banks, through the mail. The charge covers the
expense incurred by the paying bank and a small profit. The banks
in the Federal Reserve System are forbidden to make such charges to
other banks in the System. Federal Reserve Act of December 23,
1913, c. 6, § 13; 38 Stat. 263; amended March 3, 1915, c. 93; 38
Stat. 958; September 7, 1916, c. 461; 39 Stat. 752, and June 21,
1917, c. 32, §§ 4, 5; 40 Stat. 234, 235. It is alleged that, in
pursuance of a policy accepted by the Federal Reserve Board, the
defendant bank has determined to use its power to compel the
plaintiffs and others in like situation to become members of
Page 256 U. S. 356
the defendant, or at least to open a nonmember clearing account
with defendant, and thereby, under the defendant's requirements, to
make it necessary for the plaintiffs to maintain a much larger
reserve than in their present condition they need. This diminution
of their lending power, coupled with the loss of the profit caused
by the above mentioned clearing of bank checks and drafts at par,
will drive some of the plaintiffs out of business and diminish the
income of all. To accomplish the defendants' wish, they intend to
accumulate checks upon the country banks until they reach a large
amount, and then to cause them to be presented for payment over the
counter or by other devices detailed to require payment in cash in
such wise as to compel the plaintiffs to maintain so much cash in
their vaults as to drive them out of business or force them, if
able, to submit to the defendant's scheme. It is alleged that the
proposed conduct will deprive the plaintiffs or their property
without due process of law, contrary to the Fifth Amendment of the
Constitution, and that it is
ultra vires. The bill seeks
an injunction against the defendants' collecting checks except in
the usual way. The district court dismissed the bill for want of
equity, and its decree was affirmed by the circuit court of
appeals. 269 F. 4. The plaintiffs appealed, setting up want of
jurisdiction in the district court and error in the final
decree.
We agree with the court below that he removal was proper. The
principal dependant was incorporated under the laws of the United
States, and that has been established as a ground of jurisdiction
since
Osborn v. Bank of the United
States, 9 Wheat. 738;
Pacific Railroad Removal
Cases, 115 U. S. 1;
Matter of Dunn, 212 U. S. 374. We
shall say but a word in answer to the appellants' argument that a
suit against such a corporation is not a suit arising under those
laws within § 24 of the Judicial Code of March 3, 1911, c. 231, 36
Stat. 1087. The contrary is
Page 256 U. S. 357
established, and the accepted doctrine is intelligible, at least
since it is part of the plaintiffs' case that the defendant bank
existed and exists as an entity capable of committing the wrong
alleged and of being sued. These facts depend upon the laws of the
United States.
Bankers' Trust Co. v. Texas & Pacific Ry.
Co., 241 U. S. 295,
241 U. S.
306-307;
Texas & Pacific Ry. Co. v. Cody,
166 U. S. 606.
See further Smith v. Kansas City Title & Trust Co.,
255 U. S. 180. A
more plausible objection is that, by the Judicial Code, § 24,
sixteenth, except as therein excepted, national banking
associations, for the purposes of suits against them, are to be
deemed citizens of the states in which they are respectively
located. But we agree with the court below that the reasons for
localizing ordinary commercial banks do not apply to the federal
reserve banks created after the Judicial Code was enacted, and that
the phrase "national banking associations" does not reach forward
and include them. That phrase is used to describe the ordinary
commercial banks, whereas the others are systematically called
"federal reserve banks." We see no sufficient ground for supposing
that Congress meant to open the questions that the other
construction would raise.
On the merits, we are of opinion that the courts below went too
far. The question at this stage is not what the plaintiffs may be
able to prove, or what may be the reasonable interpretation of the
defendants' acts, but whether the plaintiffs have shown a ground
for relief if they can prove what they allege. We lay on one side
as not necessary to our decision the question of the defendants'
powers, and, assuming that they act within them, consider only
whether the use that, according to the bill, they intend to make of
them will infringe the plaintiffs' rights. The defendants say that
the holder of a check has a right to present it to the bank upon
which it was drawn for payment over the counter, and that, however
many checks
Page 256 U. S. 358
he may hold, he has the same right as to all of them, and may
present them all at once, whatever his motive or intent. They ask
whether a mortgagee would be prevented from foreclosing because he
acted from disinterested malevolence, and not from a desire to get
his money. But the word "right" is one of the most deceptive of
pitfalls; it is so easy to slip from a qualified meaning in the
premise to an unqualified one in the conclusion. Most rights are
qualified. A man has at least as absolute a right to give his own
money as he has to demand money from a party that has made no
promise to him; yet if he gives it to induce another to steal or
murder, the purpose of the act makes it a crime.
A bank that receives deposits to be drawn upon by check, of
course, authorizes its depositors to draw checks against their
accounts, and holders of such checks to present them for payment.
When we think of the ordinary case, the right of the holder is so
unimpeded that it seems to us absolute. But, looked at from either
side, it cannot be so. The interests of business also are
recognized as rights, protected against injury to a greater or less
extent, and in case of conflict between the claims of business, on
the one side, and of third persons, on the other, lines have to be
drawn that limit both. A man has a right to give advice, but advice
given for the sole purpose of injuring another's business and
effective on a large scale might create a cause of action. Banks as
we know them could not exist if they could not rely upon averages
and lend a large part of the money that they receive from their
depositors on the assumption that not more than a certain fraction
of it will be demanded on any one day. If, without a word of
falsehood, but acting from what we have called disinterested
malevolence, a man by persuasion should organize and carry into
effect a run upon a bank and ruin it, we cannot doubt that an
action would lie. A similar result, even if less complete in its
effect, is to be
Page 256 U. S. 359
expected from the course that the defendants are alleged to
intend, and to determine whether they are authorized to follow that
course, it is not enough to refer to the general right of a holder
of checks to present them, but it is necessary to consider whether
the collection of checks and presenting them in a body for the
purpose of breaking down the petitioner's business as now conducted
is justified by the ulterior purpose in view.
If this were a case of competition in private business, it would
be hard to admit the justification of self-interest, considering
the now current opinion as to public policy expressed in statutes
and decisions. But this is not a private business. The policy of
the federal reserve banks is governed by the policy of the United
States with regard to them, and to these relatively feeble
competitors. We do not need aid from the debates upon the statute
under which the Reserve Banks exist to assume that the United
States did not intend by that statute to sanction this sort of
warfare upon legitimate creations of the states.
Decree reversed.