A statute of New Jersey (Corporation Act, § 94(b)) provides that
no proceeding may be maintained in the courts of that State to
enforce a stockholder's statutory personal liability arising under
the laws of another State except suits in the nature of
"an equitable accounting for the proportionate benefit of all
parties interested, to which such corporation and its legal
representatives, if any, and all of its creditors and all of its
stockholders shall be necessary parties."
The Superintendent of Banks of New York brought an action in a
New Jersey court against 557 New Jersey stockholders of a New York
bank to recover unpaid assessments levied upon them pursuant to the
banking laws of New York. The bank had altogether 20,843
stockholders and more than 400,000 depositors and other creditors,
many of whom resided elsewhere than in New Jersey. The court held
the action barred by the New Jersey statute; suggested that leave
might be granted to file a bill in equity pursuant thereto.
Held:
1. The New Jersey statute, as here applied, effectively denies
to the Superintendent the right to resort to the courts of that
State to enforce the liability of stockholders residing there; the
complaint conformed to the New Jersey practice, and the action
would have been entertained but for the statute. Pp.
294 U. S.
639-640.
2. The nature of the cause of action brings it within the scope
of the full faith and credit clause; the subject matter is not such
as permits considerations of local policy to dominate rules of
comity. P.
294 U. S.
643.
3. That the assessment was made under statutory direction by an
administrative officer does not preclude the application of the
full faith and credit clause. P.
294 U. S.
644.
4. That the administrative determination of the assessment made
in New York may be subject to collateral attack does not justify
the New Jersey court in refusing to take jurisdiction of the
Superintendent's suit. P.
294 U. S.
646.
Page 294 U. S. 630
5. Question whether Superintendent's determination as to the
propriety and amount of the assessment are conclusive not decided.
P.
294 U. S.
646.
6. The full faith and credit clause require that the action of
the Superintendent in this case be entertained. P.
294 U. S.
647.
113 N.J.L. 305; 174 A. 507, reversed.
Appeal from a judgment affirming a judgment sustaining a motion
to strike out the complaint in an action brought in the Supreme
Court of New Jersey by the Superintendent of Banks of New York to
enforce an assessment levied on stockholders pursuant to the
banking laws of New York.
Page 294 U. S. 637
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
Pursuant to article VIII, § 7, of the Constitution of New York,
its Banking Law (Consolidated Laws, Chapter Two) provides, §
120:
"The stockholders of every bank will be individually
responsible, equally and ratably and not one for another, for all
contracts, debts and engagements of the bank to the extent of the
amount of their stock therein at the par value thereof, in addition
to the amount invested in such shares. "
Page 294 U. S. 638
The Bank of the United States is a corporation organized under
the Banking Law of New York, and had its places of business in New
York City. Its outstanding capital stock is $25,250,000,
represented by 1,010,000 shares of $25 par value. On November 17,
1933, Joseph A. Broderick, as Superintendent of Banks of the New
York, brought, in the Supreme Court of New Jersey, this action
against 557 of its stockholders who are residents of New Jersey, to
recover unpaid assessments levied by him upon them pursuant to
law.
The defendant moved to strike out the complaint on the ground,
among others, that, by reason of § 94(b) of the Corporation Act of
New Jersey (2 Comp. St. 1910, p. 1656), it failed to set out a
cause of action enforceable in any court of that State. The
section, first enacted March 30, 1897, provides:
"No action or proceeding shall be maintained in any court of law
in this state against any stockholder, officer, or director of any
domestic or foreign corporation by or on behalf of any creditor of
such corporation to enforce any statutory personal liability of
such stockholder, officer, or director for or upon any debt,
default, or obligation of such corporation, whether such statutory
personal liability be deemed penal or contractual, if such
statutory personal liability be created by or arise from the
statutes or laws of any other state or foreign country, and no
pending or future action or proceeding to enforce any such
statutory personal liability shall be maintained in any court of
this state other than in a nature of an equitable accounting for
the proportionate benefit of all parties interested, to which such
corporation and its legal representatives, if any, and all of its
creditors and all of its stockholders shall be necessary
parties."
Broderick seasonably claimed that to sustain the asserted bar of
the statute would violate article IV, § 1, of the Federal
Constitution, which provides that "Full
Page 294 U. S. 639
Faith and Credit shall be given in each State to the public
Acts, Records, and judicial Proceedings of every other State," and
the legislation of Congress enacted pursuant thereto. The trial
court sustained the motion to strike out the complaint,
Broderick v. Abrams, 112 N.J.Law, 309, 170 A. 214, on the
ground that the statute of the state constituted a bar to the
action. Judgment against the plaintiff, with costs, was entered in
favor of each of the defendants, and the judgment was affirmed by
the Court of Errors and Appeals "for the reasons expressed in the
opinion" of the trial court. 113 N.J.Law, 305, 174 A. 507. An
appeal to this Court was allowed.
First. The conditions imposed by § 94(b) of the New
Jersey statute upon the bringing of suits to enforce such
assessments, as here applied, deny to the Superintendent the right
to resort to the courts of the State to enforce the assessment of
liability upon the stockholders there resident. The requirement
that the proceeding be by bill in equity, instead of by an action
at law, would, if standing alone, be no obstacle. But, by
withholding jurisdiction unless the proceeding be a suit for an
equitable accounting to which the "corporation and its legal
representatives, if any, and all of its creditors and all of its
stockholders shall be necessary parties," it imposes a condition
which, as here applied, is legally impossible of fulfillment. For
it is not denied that, according to the decisions of the New Jersey
courts, "necessary parties" means those whose presence in a suit is
essential as a jurisdictional prerequisite to the entry of
judgment, so that no decree can be made respecting the subject
matter of litigation until they are before the court,
Wilkinson
v. Dodd, 40 N.J.Eq. 123, 130, 3 A. 360;
In re Martin,
86 N.J.Eq. 265, 98 A. 510;
McBride v. Garland, 89 N.J.Eq.
314, 104 A. 435, and that to secure jurisdiction personally over
those who are not residents of New Jersey, or engaged in business
there, is impossible.
Pennoyer
Page 294 U. S. 640
v. Neff, 95 U. S. 714;
Wilson v. American Palace Car Co., 65 N.J.Eq. 730, 55 A.
997;
Papp v. Metropolitan Life Insurance Co., 113 N.J.Eq.
522, 530, 167 A. 873. The corporation has no place of business in
New Jersey; only a few of the many stockholders and creditors have
either residence or place of business there.
Moreover, even if it were legally possible to satisfy the
statutory condition by making substituted service by publication
upon nonresident stockholders and creditors (
compare
Kirkpatrick v. Post, 53 N.J.Eq. 591, 594, 32 A. 267; 53
N.J.Eq. 641, 33 A. 1059), the cost would be prohibitive. The number
of the stockholders is 20,843; the number of depositors and other
creditors exceeds 400,000, and the amounts assessed against the
individual defendants are relatively small -- against some, only
$50. The aggregate of sheriff's fees alone as to the nonresident
defendants, aside from expenses of publication and mailing, would
exceed the aggregate amount due from the New Jersey stockholders.
[
Footnote 1] The suggestion, in
the opinion of the Supreme Court, that leave might be granted to
file a bill in equity is therefore without legal significance.
Second. But for the statute, the action would have been
entertained.
Compare 289 U. S.
Masci, 289 U.S.
Page 294 U. S. 641
253. New Jersey has provided courts with jurisdiction of suits
of like nature and procedure otherwise appropriate for their
determination.
McDermott v. Woodhouse, 87 N.J.Eq. 615,
620, 101 A. 375;
Graham v. Fleissner, 107 N.J.Law, 278,
153 A. 526;
Western Nat. Bank v. Reckless, 96 F. 70.
Compare Cochrane v. Morris, 157 A. 652, 10 N.J.Misc. 82.
The plaintiff is not, as in
Booth v.
Clark, 17 How. 322, a foreign receiver. He sues as
an independent executive in whom has been vested by statute the
cause of action sued on.
Converse v. Hamilton,
224 U. S. 243,
224 U. S. 257.
The complaint is in conformity to the state practice (
see
112 N.J.Law, 309, 310, 170 A. 214;
Beatty v. Lincoln Bus
Co., 169 A. 286, 11 N.J.Misc. 938), and it sets forth the
facts essential to a recovery against the stockholder under the law
of New York. It shows that the requirements of a valid assessment
and of the right to enforce the same by action at law have been
complied with, alleging, among other things: that, on December 11,
1930, Broderick, pursuant to § 57 of the New York Banking Law, took
possession of the Bank's business and property; that, since May 6,
1931, he has been engaged in liquidating the same; that, prior to
July 1, 1932, he determined, pursuant to §§ 80 and 120, that the
reasonable value of the assets of the Bank was not sufficient to
pay the creditors in full, and that there was due them $30,000,000
in excess of such reasonable value; that the deficiency then fixed
and determined has continued ever since; that upon the
Superintendent of Banks is imposed the duty of making assessment
upon the stockholders and enforcing the liability of stockholders
for the benefit of the creditors, and that actions to enforce the
liability are to be brought in the name of the Superintendent;
[
Footnote 2] that,
Page 294 U. S. 642
prior to July 1, 1932, he determined that an assessment of $25
against each stockholder for each share of stock held by him was
required for the payment of the Bank's indebtedness; that he duly
made upon each stockholder a demand for the payment thereof on
August 8, 1932, and that among the stockholders upon whom such
demand was made and who failed to pay are the several
defendants.
Third. The power of a State to determine the limits of
the jurisdiction of its courts and the character of the
controversies which shall be heard therein is subject to the
limitations imposed by the Federal Constitution.
McKnett v. St.
Louis-San Francisco Ry., 292 U. S. 230,
292 U. S. 233.
A
"State cannot escape its constitutional obligations [under the
full faith and credit clause] by the simple device of denying
jurisdiction in such cases to Courts otherwise competent."
Kenney v. Supreme Lodge, 252 U.
S. 411,
252 U. S. 415.
[
Footnote 3] It is true that a
State can legislate only with reference to its own jurisdiction,
Bonaparte v. Tax Court, 104 U. S. 592;
Olmsted v. Olmsted, 216 U. S. 386, and
that the full faith and credit clause does not require the
enforcement of every right which has ripened into a judgment of
another state or has been conferred by its statutes.
See
Bradford Electric Light Co. v. Clapper, 286 U.
S. 145,
286 U.S.
160;
Alaska Packers Association v. Industrial Accident
Comm'n ante, p.
294 U. S. 532. But
the room left for the play of conflicting policies is a narrow one.
One State need not enforce the penal laws of another.
Huntington v. Attrill, 146 U. S. 657. A
State may
Page 294 U. S. 643
adopt such system of courts and form of remedy as it sees fit.
It may, in appropriate cases, apply the doctrine of
forum non
conveniens. Anglo-American Provision Co. v. Davis
Provision Co. No. 1, 191 U. S. 373. But
it may not, under the guise of merely affecting the remedy, deny
the enforcement of claims otherwise within the protection of the
full faith and credit clause, when its courts have general
jurisdiction of the subject matter and the parties.
Christmas v.
Russell, 5 Wall. 290,
72 U. S. 300.
Compare Atchison, T. & S.F. Ry. v. Sowers,
213 U. S. 55;
Tennessee Coal, Iron & Railroad Co. v. George,
233 U. S. 354. For
the States of the Union, the constitutional limitation imposed by
the full faith and credit clause abolished in large measure the
general principle of international law by which local policy is
permitted to dominate rules of comity.
Here, the nature of the cause of action brings it within the
scope of the full faith and credit clause. The statutory liability
sought to be enforced is contractual in character. The assessment
is an incident of the incorporation. Thus, the subject matter is
peculiarly within the regulatory power of New York, as the State of
incorporation. "So much so," as was said in
Converse v.
Hamilton, 224 U. S. 243,
224 U. S.
260,
"that no other state properly can be said to have any public
policy thereon. And what the law of Wisconsin [New Jersey] may be
respecting the relative rights and obligations of creditors and
stockholders of corporations of its creation, and the mode and
means of enforcing them, is apart from the question under
consideration."
Compare Bernheimer v. Converse, 206 U.
S. 516,
206 U. S. 532.
In respect to the determination of liability for an assessment, the
New Jersey stockholders submitted themselves to the jurisdiction of
New York. For
"the act of becoming a member [of a corporation] is something
more than a contract; it is entering into a complex and abiding
relation, and, as marriage looks to domicil, membership
Page 294 U. S. 644
looks to and must be governed by the law of the State granting
the incorporation."
Modern Woodmen of America v. Mixer, 267 U.
S. 544,
267 U. S. 551.
Compare Supreme Council of Royal Arcanum v. Green,
237 U. S. 531;
Hancock National Bank v. Farnum, 176 U.
S. 640;
McDermott v. Woodhouse, 87 N.J.Eq. 615,
618, 619, 101 A. 375. [
Footnote
4] Obviously recognition could not be accorded to a local
policy of New Jersey, if there really were one, of enabling all
residents of the State to escape from the performance of a
voluntarily assumed statutory obligation, consistent with morality,
to contribute to the payment of the depositors of a bank of another
which they were stockholders.
Fourth. The fact that the assessment here in question
was made under statutory direction by an administrative officer
does not preclude the application of the full faith and credit
clause. If the assessment had been made in a liquidation proceeding
conducted by a court, New Jersey would have been obliged to enforce
it, although the stockholders sued had not been made parties to the
proceedings, and, being nonresidents, could not have been
personally served with process.
Converse v. Hamilton,
224 U. S. 243,
224 U. S. 252,
224 U. S. 260.
The reason why, in that case, the full faith and credit clause was
held to require Wisconsin courts to enforce the assessment made in
Minnesota was not because the determination was embodied in a
judgment. Against the nonresident stockholders there had been no
judgment in Minnesota. Wisconsin was required to enforce the
Minnesota assessment because statutes are "public acts" within the
meaning of the clause,
Bradford Electric Light Co. v.
Clapper, 286 U. S. 145,
286 U. S. 155;
Alaska Packers Association v. Industrial Accident Commission,
supra;
Page 294 U. S. 645
and because the residents of Wisconsin had, by becoming
stockholders of a Minnesota corporation, submitted themselves, to
that extent, to the jurisdiction and laws of the latter State.
Where a State has had jurisdiction of the subject matter and the
parties, obligations validly imposed upon them by statute must,
within the limitations above stated, be given full faith and credit
by all the other States.
The Superintendent is an independent executive on whom the
legislature has conferred large responsibilities (
compare Isaac
v. Marcus, 258 N.Y. 257, 263, 265, 179 N.E. 487;
Matter of
Broderick, 235 App.Div. 281, 257 N.Y.S. 382), among them, the
determination of the questions involved in stockholders' liability.
He must decide whether there is a deficiency of assets which
requires resort to that liability, and, if so, what proportion of
the full liability it is necessary to enforce and when the
assessments shall be paid. It is urged that, unlike the assessment
involved in
Converse v. Hamilton, supra, that laid by the
New York Superintendent is not conclusive as to its propriety and
amount. The contention rests primarily upon a misconception of a
provision in § 80 of the Banking Law, to the effect that
"the written statement of the superintendent, under his hand and
seal of office, reciting his determination to enforce the
individual liability, or any part thereof, of such stockholders,
and setting forth the value of the assets of such corporation and
the liabilities thereof, as determined by him after examination and
investigation, shall be presumptive evidence of such facts as
therein stated."
This provision does not declare as a rule of substantive law
that the determination is open to attack in an action to enforce
the stockholders' liability. It merely provides, as in the case of
other official acts, a method of proof without the calling of
witnesses. Thus it prescribes a rule of evidence, and may possibly
affect
Page 294 U. S. 646
the manner of pleading. [
Footnote 5] But with such matters we have here no concern.
It is enough, for present purposes, that a complaint alleging the
stock ownership of the defendants, the assessment, the demand, and
failure to pay, together with the determination of the value of
assets and liabilities referred to in § 80, sets forth a good cause
of action. [
Footnote 6]
Broderick v. Aaron, 147 Misc. 854, 264 N.Y.S. 15;
Broderick v. Betco Corp., 149 Misc. 245, 267 N.Y.S. 139;
Broderick v. American General Corp., 71 F.2d 864;
compare Broderick v. Stephano, 314 Pa. 408, 171 A. 582;
Broderick v. McGuire, 119 Conn. 83, 174 A. 314. Even if
the administrative determination of the assessment made in New York
is subject to attack in a suit brought there or in any other State,
that fact would not justify New Jersey in denying to the
Superintendent the right to bring this suit.
Fifth. The Superintendent contends that his assessment
is a "public act" within the meaning of the full faith and credit
clause, and is entitled to receive in every other State of the
Union the same recognition accorded to it by the laws of New York.
He insists that while, under the law of New York, defenses personal
to individual stockholders are open to them whenever and wherever
sued,
Selig v. Hamilton, 234 U. S. 652,
234 U. S.
662-663, his determinations as to the propriety and
amount of the assessment, insofar as they involve merely the
exercise of judgment, are conclusive, and are not subject to review
by any court, except on grounds for which equity commonly
Page 294 U. S. 647
affords relief against administrative orders. He argues that his
powers and duties in respect to the assessment of stockholders, and
the proceeding to enforce liability therefor, are substantially the
same as those imposed by the National Banking Act on the
Comptroller of the Currency,
Van Tuyl v. Scharmann, 208
N.Y. 53, 63, 101 N.E. 881;
Matter of Union Bank of
Brooklyn, 176 App.Div. 477, 485, 163 N.Y.S. 485;
Broderick
v. Aaron, 151 Misc. 516, 523, 272 N.Y.S. 219, and that, as to
these, it has been settled by an unbroken line of authorities
beginning with
Kennedy v.
Gibson, 8 Wall. 498,
75 U. S. 505,
that the Comptroller's determination is conclusive in an action at
law to enforce the stockholders' liability, being subject, like
other administrative orders, only to a direct attack for fraud or
error of law by appropriate proceedings in equity. [
Footnote 7]
United States v. Knox,
102 U. S. 422,
102 U. S. 425.
Whether this contention is sound we have no occasion to consider
now.
See Broderick v. Adamson, 148 Misc. 353, 369-371, 265
N.Y.S. 804. It is sufficient to decide that, since the New Jersey
courts possess general jurisdiction of the subject matter and the
parties, and the subject matter is not one as to which the alleged
public policy of New Jersey could be controlling, the full faith
and credit clause requires that this suit be entertained.
Reversed.
MR. JUSTICE CARDOZO is of the opinion that the judgment should
be affirmed.
[
Footnote 1]
It is stated by counsel without contradiction that, under the
New Jersey practice, before substituted service can ever be made,
the sheriff must have made as to each nonresident defendant a
return
non est inventus. New Jersey Public Laws 1922, c.
88, entitles the sheriff to a fee of $1.50 for making an affidavit
of nonresidence as to each defendant. After such affidavit, the
plaintiff, it is said, would be required to make applications for
leave to effect substituted service on each of the absent
defendants and to present the essential facts showing the necessity
therefor, setting forth residence and place of business of each.
Besides notice sent to each, it would be necessary to publish the
notice once a week during four consecutive weeks in some newspaper.
N.J.P.L. 1912, c. 155, § 13; N.J. Chancery Rules, 36-38. It is
estimated that the 420,000 names of nonresident defendants would
fill at least 80 newspaper pages of 8 columns each.
[
Footnote 2]
Section 80 of the New York Banking Law provides:
"In case any such stockholder shall fail or neglect to pay such
assessment within the time fixed in said notice, the superintendent
shall have a cause of action, in his own name as superintendent of
banks, against such stockholder, either severally or jointly with
other stockholders of such corporation, for the amount of such
unpaid assessment or assessments, together with interest thereon
from the date when such assessment was, by the terms of said
notice, due and payable."
[
Footnote 3]
Chambers v. Baltimore & Ohio R. Co., 207 U.
S. 142, is not to the contrary; there, no claim was made
under the full faith and credit clause.
[
Footnote 4]
See too Canada Southern Ry. v. Gebhard, 109 U.
S. 527,
109 U. S.
537-538;
Hawkins v. Glenn, 131 U.
S. 319,
131 U. S. 329;
Nashua Savings Bank v. Anglo-American Co., 189 U.
S. 221,
189 U. S.
229-230;
Harrigan v. Bergdoll, 270 U.
S. 560,
270 U. S.
564.
[
Footnote 5]
Compare Broderick v. McGuire, 119 Conn. 83, 101-103,
174 A. 314.
[
Footnote 6]
Before the adoption of § 80 by Laws 1914, c. 369, the
Superintendent was required to allege and prove the facts
necessitating the assessment.
Cheney v. Scharmann, 145
App.Div. 456, 129 N.Y.S. 993;
see Matter of Empire City
Bank, 18 N.Y. 199, 211-213. By Laws N.Y. 1934, c. 494, further
changes, of no importance here, have been made in this section.
[
Footnote 7]
Casey v. Galli, 94 U. S. 673,
94 U. S. 681;
Germania National Bank v. Case, 99 U. S.
628,
99 U. S.
634-635;
Deweese v. Smith, 106 F. 438, 445,
aff'd, Smith v. Brown, 187 U.S. 637;
Murray v.
Sill, 7 F.2d 589;
Crawford v. Gamble, 57 F.2d 15;
B. V. Emery & Co. v. Wilkinson, 72 F.2d 10;
see
Studebaker v. Perry, 184 U. S. 258,
184 U. S. 266;
Rankin v. Barton, 199 U. S. 228,
199 U. S. 232.
Compare Bushnell v. Leland, 164 U.
S. 684;
Korbly v. Springfield Savings
Institute, 245 U. S. 330;
Aldrich v. Campbell, 97 F. 663.