1. The shareholders' liability, "equally and ratably," for the
debts of a joint stock land bank, under § 16 of the Federal Farm
Loan Act, is enforceable only by a single representative suit in
equity in behalf of all the creditors, in which the existence and
extent of insolvency, and the ratable shares of the contribution by
shareholders, can be ascertained and an equitable distribution made
of the fund recovered. P.
309 U. S.
285.
The suit is not any the less in equity because it turns out that
the liability of the shareholders equals the full par value of
their stock. P.
309 U. S.
286.
2. The test of the inadequacy of the legal remedy prerequisite
to resort to a federal court of equity is the legal remedy which
federal, rather than state, courts afford. P. 286.
The jurisdiction of federal courts of equity, as determined by
that test, is neither enlarged nor diminished by the names given to
remedies or the distinction made between them by state
practice.
3. The Rules of Decision Act embraces rules established by
judicial decision as well as statutory rules, but does not apply to
suits in equity. P.
309 U. S.
287.
4. Equity provides its own rule of limitations through the
doctrine of laches, in the absence of any statute of limitations
made applicable to equity suits. P.
309 U. S.
287.
5. When consonant with equitable principles, federal courts of
equity apply as their own the local statutes of limitations
applicable to equitable causes of action. P.
309 U.S. 288.
6. Even though there is no state statute applicable to similar
equitable demands, when the jurisdiction of the federal court is
concurrent with that at law, or the suit is brought in aid of a
legal right, equity will withhold its remedy if the legal right is
barred by the local statute of limitations. P.
309 U. S.
289.
7. Where the federal equity jurisdiction is exclusive and is not
exercised in aid of a legal right, state statutes of limitations
barring actions at law are inapplicable, and, in the absence of any
state statute barring the equitable remedy in like cases, the
federal court
Page 309 U. S. 281
is remitted to and applies the doctrine of laches as
controlling. P.
309 U. S.
289.
8. In the absence of a controlling Act of Congress, federal
courts of equity, in enforcing rights arising under federal
statutes, will, without reference to the Rules of Decision Act,
adopt and apply local statutes of limitations which are applied to
like causes of action by the state court. P.
309 U. S.
293.
9. Sec. 49 of the New York Civil Practice Act, barring in three
years actions against directors or stockholders of moneyed
corporations or banking associations to enforce a liability created
by the common law or by statute, appears to have been construed by
the state courts as inapplicable to suits where the remedy is
exclusively equitable.
Held, that the present equitable
cause of action given by § 16 of the Federal Farm Loan Act is not
barred by the three-year statute of limitations prescribed by that
section. Pp.
309 U. S. 290,
309 U. S.
293.
10. The extent to which federal courts, in the exercise of the
authority conferred upon them by Congress to administer equitable
remedies, are bound to follow state statutes and decisions
affecting those remedies is not considered. P.
309 U. S. 294.
104 F.2d 169 affirmed.
Certiorari, 308 U.S. 541, to review the affirmance of a decree,
1 F. Supp. 788; 20
id. 930, 936, which overruled a plea of
the statute of limitations and granted relief to the plaintiffs in
a suit to enforce shareholders' liability for debts of an insolvent
joint stock land bank.
Page 309 U. S. 284
MR. JUSTICE STONE delivered the opinion of the Court.
The question decisive of this case is whether, in a suit brought
in the federal District Court in New York to enforce the statutory
liability of shareholders of a joint stock land bank for its debts,
the court rightly declined to apply the three-year state statute of
limitations.
Respondents Todd, Work, and Weiss, copartners, in behalf of
themselves and other creditors of the insolvent Ohio Joint Stock
Land Bank of Cincinnati, Ohio, brought suit in the District Court
for Southern New York against petitioners, copartners, to enforce
their liability as record shareholders of the bank under § 16 of
the Federal Farm Loan Act, 39 Stat. 374, 12 U.S.C. § 812.
Petitioners, among other defense, pleaded the New York three-year
statute of limitations. § 49(4), N.Y.Civil Practice Act. The
District Court found, as is conceded here, that the cause of action
accrued April 6, 1928; that plaintiffs in the suit had notice of
its accrual on April 15, 1928, and that the suit was commenced
three years and eight months later, on December 16, 1931. It
overruled the plea of limitations and gave judgment for
respondents. 1 F. Supp. 788; 20 F. Supp. 930, 936. The Court of
Appeals for the Second Circuit affirmed, 104 F.2d 169.
Both courts, holding that the suit was exclusively within the
equity jurisdiction of the court, ruled that the doctrine of
laches, and not the state statute of limitations, was applicable,
and held that respondents had not been guilty of laches. We granted
certiorari October 16, 1939, limited to the question of the
application of the New York statute, upon a petition which
challenged the decision below as in conflict with the decisions of
this Court applying the three-year statute of limitations in a suit
to enforce the liability of stockholders of a state bank in
Platt v. Wilmot, 193 U. S. 602;
cf., as to liability of stockholders of national banks,
McDonald v. Thompson, 184 U. S. 71;
McClaine v. Rankin, 197 U. S. 154.
Page 309 U. S. 285
Section 16 of the Federal Farm Loan Act provides that the
shareholders of every joint stock land bank
"shall be held individually responsible, equally and ratably,
and not one for another, for all . . . debts . . . of such bank to
the extent of the amount of stock owned by them at the par value
thereof. . . ."
Unlike the comparable provisions of the National Bank Act, R.S.
§§ 5151, 5234, 12 U.S.C. §§ 63, 192, which authorize the receiver
of a national bank to enforce the liability of stockholders of an
insolvent national bank assessed against them by the Comptroller of
the Currency, this section of the Federal Farm Loan Act confers no
power on the receiver of a farm loan bank to levy an assessment on
the stockholders of an insolvent bank, or to maintain a suit to
enforce their liability.
Wheeler v. Greene, 280 U. S.
49;
Christopher v. Brusselbank, 302 U.
S. 500,
302 U. S. 502;
Brusselback v. Cago Corporation, 85 F.2d 20.
As the liability of the stockholders as prescribed by this
section is to pay "equally and ratably," the sole remedy is by
plenary representative suit brought in equity in behalf of all
creditors of the bank, in which the existence and extent of
insolvency, and the ratable shares of the contribution by
shareholders, can be ascertained and an equitable distribution made
of the fund recovered. But this amount cannot be determined and its
distribution effected without resort to the procedures
traditionally employed by equity upon a bill for an accounting and
for the distribution of a fund brought into its custody. No
stockholder is liable for more than his proportion of the debts,
not exceeding the par value of his stock. His proportion can be
ascertained only upon an accounting of the debts and of the stock
and a
pro rata distribution of the liability among the
shareholders and of the proceeds of recovery among the creditors.
Such a suit, during its progress and at its conclusion by a final
decree of distribution, requires the exercise of powers which are
peculiarly
Page 309 U. S. 286
those of a court of equity to bring before it in a single suit
all the necessary parties to ascertain their rights and
liabilities, and to adjust and settle them by its decrees.
Pollard v.
Bailey, 20 Wall. 520;
Terry v. Little,
101 U. S. 216;
Richmond v. Irons, 121 U. S. 27;
Christopher v. Brusselback, supra.
When the receiver or officer performing like functions is
authorized by statute to assess the shareholders, the assessment is
binding on them by reason of their membership in the corporation,
and each shareholder then becomes liable in a suit at law for the
amount of the assessment.
See Christopher v. Brusselback,
supra, 302 U. S. 503,
and cases cited. It is for this reason that there is a divergence
between the procedure for recovering assessments of shareholders of
national banks and that for enforcing the liability of shareholders
in a federal land bank. In the latter case, there is no legal
remedy, the relief being afforded exclusively in equity. The test
of the inadequacy of the legal remedy prerequisite to resort to a
federal court of equity is the legal remedy which federal, rather
than state, courts afford.
Di Giovanni v. Camden Fire Insurance
Assn., 296 U. S. 64;
Atlas Life Insurance Co. v. Southern, Inc., 306 U.
S. 563. And the jurisdiction of federal courts of
equity, as determined by that test, is neither enlarged nor
diminished by the names given to remedies or the distinction made
between them by state practice.
Stratton v. St. Louis S.W. Ry.
Co., 284 U. S. 530,
284 U. S. 534.
The present suit is not any the less in equity because it turns
out that the liability of the shareholders equals the full par
value of their stock. The amount of the liability could not be
determined and assessed without an accounting of assets and
liabilities, and distribution could not be effected among creditors
without resort to the power traditionally that of a court of equity
to make its determination of the rights of the parties
effective
Page 309 U. S. 287
through its decrees
in personam. Here, the decree
directs payment into court of the amount found to be due, for
distribution among the creditors in conformity to the further order
of the court.
The suit being in equity, brought in a federal District Court,
the question decisive of this case is what lapse of time will bar
recovery in the absence of an applicable federal statute of
limitations. The Rules of Decision Act does not apply to suits in
equity. § 34 of the Judiciary Act of 1789, 28 U.S.C. § 725,
directing that the "laws of the several states" "shall be regarded
as rules of decision" in the courts of the United States, applies
only to the rules of decision in "trials at common law" in such
courts, but applies as well to rules established by judicial
decision in the states as those established by statute.
Erie R.
Co. v. Tompkins, 304 U. S. 64.
From the beginning, equity, in the absence of any statute of
limitations made applicable to equity suits, has provided its own
rule of limitations through the doctrine of laches, the principle
that equity will not aid a plaintiff whose unexcused delay, if the
suit were allowed, would be prejudicial to the defendant.
Wagner v.
Baird, 7 How. 234,
48 U. S. 258;
Stearns v.
Page, 7 How. 819,
48 U. S.
828-829;
Philippi v. Philippe, 115 U.
S. 151,
115 U. S. 153,
115 U. S. 157;
United States v. Beebe, 127 U. S. 338;
Courtner v. United States, 149 U.
S. 662,
149 U. S. 676;
Alsop v. Riker, 155 U. S. 448,
155 U. S. 460;
Abraham v. Ordway, 158 U. S. 416,
158 U. S. 420.
In the application of the doctrine of laches, it recognized that
prejudice may arise from delay alone, so prolonged that. in the
normal course of events. evidence is lost or obscured, and the
English Court of Chancery early adopted the rule, followed in the
federal courts, that suits to assert equitable interests in real
estate will, without more, be barred after the lapse of twenty
years when ejectment or the right of entry for the assertion of a
comparable legal interest in the land would be barred.
Elmendorf v.
Taylor, 10
Page 309 U. S. 288
Wheat. 152,
23 U. S. 173;
Hovenden v. Lord Annesly, 2 Sch. & Lcf. 607. And where
resort was had to equity in aid of a legal right, equity, following
the law, would refuse its aid if the legal right had been barred by
the applicable statute of limitations.
Carrol v. Green,
92 U. S. 509;
Godden v. Kimmell, 99 U. S. 201,
99 U. S. 210;
Wood v. Carpenter, 101 U. S. 135;
Philippi v. Philippe, supra; McDonald v. Thompson, supra;
Pomeroy, Equity Jurisprudence (4th Ed.), § 1441, and cases
cited.
In federal courts of equity, the doctrine of laches was early
supplemented by the rule that, when the question is of lapse of
time barring relief in equity, such courts, even though not
regarding themselves as bound by state statutes of limitations,
will nevertheless, when consonant with equitable principles, adopt
and apply as their own, the local statute of limitations applicable
to the equitable causes of action in the judicial district in which
the case is heard.
Bacon v.
Howard, 20 How. 22,
61
U. S. 26;
Clarke v. Boorman's
Executors, 18 Wall. 493,
85 U. S.
505-506;
Boone County v. Burlington & M. R.
Co., 139 U. S. 684,
139 U. S. 692;
Pearsall v. Smith, 149 U. S. 231,
149 U. S. 233,
149 U. S. 237;
Benedict v. City of New York, 250 U.
S. 321. [
Footnote
1]
Page 309 U. S. 289
Even though there is no state statute applicable to similar
equitable demands, when the jurisdiction of the federal court is
concurrent with that of law, or the suit is brought in aid of a
legal right, equity will withhold its remedy if the legal right is
barred by the local statute of limitations. It thus stays its hand
in aid of a legal right which, under the Rules of Decision Act,
would be unenforceable in the federal courts of law as well as in
the state courts.
Wilson v.
Koontz, 7 Cranch 202,
11 U. S.
205-206;
Michoud v.
Girod, 4 How. 503,
45 U. S. 561;
Stearns v.
Page, 7 How. 819;
Clarke v. Boorman's
Executors, supra, 85 U. S. 505;
Carrol v. Green, supra; Godfrey v. Terry, 97 U. S.
171,
97 U. S. 176,
97 U. S. 180;
Baker v. Cummings, 169 U. S. 189;
Metropolitan National Bank v. St. Louis Dispatch Co.,
149 U. S. 436;
McDonald v. Thompson, supra; Hughes v. Reed, 46 F.2d 435;
cf. 48 U. S.
Baird, 7 How. 234;
Godden v. Kimmell, supra; Wood v.
Carpenter, supra.
But where the equity jurisdiction is exclusive and is not
exercised in aid or support of a legal right, state statutes of
limitations barring actions at law are inapplicable, and, in the
absence of any state statute barring the equitable remedy in like
cases, the federal court is remitted to and applies the doctrine of
laches as controlling.
Wagner v. Baird, supra,
48 U. S. 258;
Badger v.
Badger, 2 Wall. 87,
69 U. S. 94,
69 U. S. 95;
Kirby v. Lake Shore & Michigan Southern R. Co.,
120 U. S. 130,
120 U. S. 139;
Metropolitan Bank v. St. Louis Dispatch Co., supra,
149 U. S. 448;
Speidel v. Henrici, 120 U. S. 377,
120 U. S.
386-387;
see Southern Pacific Co. v. Boegert,
250 U. S. 483,
where no statute of limitations was pleaded. 244 F. 61, 65.
Page 309 U. S. 290
The question remains whether the court below correctly held that
the doctrine of laches, and not the local three-year statute of
limitations, is controlling. The present suit being, as we have
seen and as the court below held, exclusively of equitable
cognizance, in that it is not predicated upon any legal cause of
action, the statute is not one which a federal court of equity will
adopt and apply as a substitute for or a supplement to its own
doctrine of laches unless it is applied to like causes of action in
the state courts.
The present suit was brought in less than four years after the
cause of action had accrued, and it is conceded that the cause of
action is not barred unless by the three-year statute. § 49 of the
Civil Practice Act provides that
"the following actions must be commenced within three years
after the cause of action has accrued:"
"
* * * *"
"4. An action against a director or stockholder of a moneyed
corporation, or banking association . . . to enforce a liability
created by the common law or by statute. The cause of action is not
deemed to have accrued until the discovery by the plaintiff of the
facts under which . . . the liability was created."
This Court has recognized that this statute is a bar to actions
at law, and has so applied it in suits to recover assessments on
shareholders of a bank.
See Platt v. Wilmot, supra.
Respondents, admitting that the statute is a bar to suits at
law, argue that it is inapplicable to suits in equity, and that,
when the remedy at law is so inadequate that resort must be had to
remedies which are traditionally equitable, the limitation is not
that of the three-year, but of the ten-year, statute, which is made
applicable to all actions for which no limitation is otherwise
specially prescribed. § 53, N.Y.Civil Practice Act.
At the outset, we are confronted with those cases in which this
Court, in
McDonald v. Thompson, supra, and
Page 309 U. S. 291
the state courts [
Footnote
2] have recognized and applied the statutory bar to an action
at law to equity suits brought in aid of the legal right to recover
an assessment upon stockholders. But, as we have seen, those cases
are referable to the doctrine accepted and applied in the federal
courts of equity that equity does not give relief predicated on a
legal right which the statute has barred.
Here, the jurisdiction being exclusively in equity to enforce
rights cognizable only in equity, statutes barring legal causes of
action, as we have seen, are not controlling, and we turn to the
argument of petitioners that the three-year statute is a bar as
well to such suits brought in the state courts, even though they
are suits in which it is necessary to resort to remedies which are
exclusively or traditionally equitable.
The precise question thus raised appears not to have been
decided by the New York Court of Appeals. In
Mencher v.
Richards, 256 App.Div. 280, 9 N.Y.S.2d 990, which was a
stockholders' suit brought against directors of a moneyed
corporation for an accounting for profits gained through their
malfeasance in office, the Appellate Division of the Supreme Court
held that the three-year statute did not apply. It pointed out that
the statute relates only to causes of action for which a money
judgment will suffice, and not to suits which, although
Page 309 U. S. 292
specifically within the language of the statute, require resort
to the equitable remedy for an accounting, and that, as to them,
the ten-year statute applies. In so construing the statute, it
followed the rulings of the Court of Appeals that, under the New
York statutory scheme of limitations, suits in equity brought
against corporate directors for an accounting for want of an
adequate legal remedy are governed by the ten-year statute of
limitations, and not statutes fixing a shorter period of
limitations which would be applicable if the suit were at law.
Hanover Fire Insurance Co. v. Morse Dry Dock & Repair
Co., 270 N.Y. 86, 200 N.E. 589;
Potter v. Walker, 276
N.Y. 15, 11 N.E.2d 335. [
Footnote
3]
Cf. Gilmore v.
Page 309 U. S. 293
Ham, 142 N.Y. 1, 36 N.E. 826;
Treadwell v.
Clark, 190 N.Y. 51, 82 N.E. 505.
In the absence of a definitive ruling by the highest court of
the state, we accept the decision of the Appellate Division and the
reasoning of the Court of Appeals upon which it rests as persuasive
that the three-year statute does not apply to suits like the
present where the remedy is exclusively equitable.
See Wichita
Royalty Co. v. City Bank, 306 U. S. 103,
306 U. S.
107.
We take it that, in the absence of a controlling act of
Congress, federal courts of equity, in enforcing rights arising
under statutes of the United States, will, without reference to the
Rules of Decision Act, adopt and apply local statutes of
limitations which are applied to like causes of action by the state
courts.
Cf. Mason v. United States, 260 U.
S. 545;
Jackson County v. United States,
308 U. S. 343. In
thus giving effect to state statutes of limitations as a substitute
or supplement for the equitable doctrine of laches, it must appear
with reasonable certainty that there is a state statute applicable
to like causes of action. As that does not appear here with respect
to the three-year statute, the court below
Page 309 U. S. 294
rightly declined to give effect to that statute, and, as it
found that the cause of action was not barred by laches, it rightly
gave judgment for respondents.
Petitioners argue that, under New York law, laches is not a
defense to actions like the present, and that, in the light of our
decisions in
Erie Railroad Co. v. Tompkins, supra, Ruhlin v.
New York Life Insurance Co., 304 U. S. 202,
federal courts, in the exercise of the equity jurisdiction
conferred upon them by section 24 of the Judicial Code, 28 U.S.C. §
41, are no longer free to apply a different rule. But, in this
case, laches has not bee held to be a defense, and the Court has
not declined to give effect to a state statute shown to be
applicable. In the circumstances, we have no occasion to consider
the extent to which federal courts, in the exercise of the
authority conferred upon them by Congress to administer equitable
remedies, are bound to follow state statutes and decisions
affecting those remedies.
Affirmed.
MR. JUSTICE ROBERTS is of opinion that the judgment should be
reversed for the reasons stated in the dissenting opinion of Clark,
Circuit Judge, in the Circuit Court of Appeals.
MR. JUSTICE MURPHY took no part in the consideration or decision
of this case.
[
Footnote 1]
But federal courts of equity have not always held themselves
bound to follow local statutes which, in ordinary circumstances,
they could adopt and apply by analogy. In each case, the refusal
has been placed upon the ground of special equitable doctrines,
making it inequitable to apply the statute. Laches may bar
equitable remedy before the local statute has run.
Alsop v.
Riker, 155 U. S. 448,
155 U. S.
460-461;
Abraham v. Ordway, 158 U.
S. 416;
Patterson v. Hewitt, 195 U.
S. 309,
195 U. S. 318,
et seq.; Badger v. Badger, 2 Cliff. 137, 154;
Lemoine
v. Dunklin County, 51 F. 487, 492;
Kelley v.
Boettcher, 85 F. 55, 62;
Pooler v. Hyne, 213 F. 154,
159. On the other hand, time has been held to be no bar to an
equitable suit for a trustee's accounting.
Michoud v.
Girod, 4 How. 503,
45 U. S. 561;
cf. 69 U. S.
Badger, 2 Wall. 87,
69 U. S. 92;
Southern Pacific v. Bogert, 250 U.
S. 483. Federal courts of equity have not considered
themselves obligated to apply local statutes of limitations when
they conflict with equitable principles, as where they apply,
irrespective of the plaintiff's ignorance of his rights because of
the fraud or inequitable conduct of the defendant.
Michoud v.
Girod, supra, 45 U. S. 561;
Meader v.
Norton, 11 Wall. 442;
Bailey v.
Glover, 21 Wall. 342,
88 U. S. 348;
Kirby v. Lake Shore & Michigan Southern R. Co.,
120 U. S. 130;
Rugan v. Sabin, 53 F. 415, 420;
Stevens v. Grand
Central Mining Co., 133 F. 28;
Johnson v. White, 39
F.2d 793.
[
Footnote 2]
Schram v. Cotton, 281 N.Y. 499, 24 N.E.2d 305;
Nettles v. Childs, 281 N.Y. 636, 22 N.E.2d 477, 255
App.Div. 849, 7 N.Y.S.2d 1021;
Wright v. Russell, 245
App.Div. 708, 281 N.Y.S. 994; 155 Misc. 877, 280 N.Y.S. 614,
leave to appeal denied, 269 N.Y. 683;
Reisman v.
Hall, 257 App.Div. 892, 12 N.Y.S.2d 442,
a fortiori
suits at law in the federal courts to recover assessments upon
stockholders of banks are barred by the three-year statute.
Platt v. Wilmot, 193 U. S. 602;
Hobbs v. National Bank of Commerce, 96 F. 396;
Seattle
National Bank v. Pratt, 103 F. 62;
Platt v.
Hungerford, 116 F. 771;
Whitman v. Atkinson, 130 F.
759;
Ramsden v. Gately, 142 F. 912.
[
Footnote 3]
In
Hanover Fire Insurance Co. v. Morse Dry Dock & Repair
Co., 270 N.Y. 86, 200 N.E. 589, the Court of Appeals declared,
270 N.Y. at 89, 90, 200 N.E. at 590:
"In an action in equity, the ten-year limitation prescribed by
section 53 of the Civil Practice Act is applicable unless, in a
particular action, a party has a choice of two remedies, one at
law, the other in equity, both complete and adequate, and he
selects the action in equity. In that event, the party whose cause
of action would be barred under the six-year statute, if he should
elect to proceed at law, may not enlarge this time by electing to
proceed in equity. Such is the rule where the remedies are
concurrent. (
Rundle v. Allison, 34 N.Y. 180;
Keys v.
Leopold, 241 N.Y. 189, 149 N.E. 828;
Clarke v. Boorman's
Executors, 18 Wall. 493.)"
"The exception is not applicable in cases of concurrent
jurisdiction, however, if a party's remedy at law is inadequate and
imperfect and he is required to go into equity to procure complete
and adequate relief. (
Rundle v. Allison, supra; Mann v.
Fairchild, 14 Barb. 548.)"
"If relief may be had at law in an action for damages and in
equity for rescission of a contract on the ground of fraud with a
reconveyance of land and an accounting for profits, the action in
equity is subject to the ten-year limitation though the action for
damages is barred under the six-year statute. (
Schenck v. State
Line Telephone Co., 238 N.Y. 308, 144 N.E. 592.)"
In
Potter v. Walker, 276 N.Y. 15, 11 N.E.2d 335, the
court said (pp. 25-26):
"In respect to those causes of action by which is sought to
recover profits received by directors by reason of wrongful acts,
an action at law would not afford adequate relief. To the extent
that an accounting is necessary, the right and the remedy must
necessarily be of an equitable nature. The Appellate Division is
therefore clearly right in applying the ten-year statute of
limitations as to such causes of action. (Civ.Prac.Act, § 53;
Hanover Fire Ins. Co. v. Morse Dry Dock & Repair Co.,
270 N.Y. 86, 200 N.E. 589.)"
Wright v. Russell, 269 N.Y. 683, 245 App.Div. 708, 281
N.Y.S. 994; 155 Misc. 877, 280 N.Y.S. 614, and
Reisman v.
Hall, 257 App.Div. 892, 12 N.Y.S.2d 442, cited by petitioner,
do not qualify this doctrine. There, although representative
actions were brought, the Illinois constitution under which the
liability arose had been interpreted as permitting actions at law,
Golden v. Cervenka, 278 Ill. 409, 116 N.E. 273. Since the
legal action would have been barred within three years, the court,
as in
McDonald v. Thompson, 184 U. S.
71, and consistently with
Potter v. Walker,
supra, applied the same period to the equitable action founded
upon it.