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354

X-6743

FEDERAL RES3RVE BANK

OF RICHMOND

October 25, 1930.

Federal Reserve Board,

Washington, D. C.

Atten t ion

M r.

Walter l y a t t , General Counsel

My dear M r. Wyatt:

I

received your l e t t e r

of

October 22nd upon

t h e

subject

of the

employment

of

Honorable Newton

D.

Baker

t o

a s s i s t

i n t h e

case

of the

Federal Reserve Bank

of

Richmond

v .

Attmore

an d

r e l a t e d l i t i g a t i o n s .

.

I have discussed this matter with t h e o f f i c e r s of this bank and

a l l of u s

agree that these cases

may

well present questions which will

make them matters

of

i n t e r e s t

to the

entire Federal Reserve System,

so

that i t w i l l be highly desirable to bring M r. Baker into consultation.

Mr, Seay h a s , therefore, asked me to request th e Federal Reserve Board t o

make with

M r.

Baker such

a n

arrangement

a s i s

usually made

i n

such cases.

As you

know

I

have never

had any

experience

i n

such arrangements; conse-

quently i f t h e request should come from M r. Seay to t he Federal Reserve

Board,

l e t m e

know,

b u t

otherwise

you may

t r e a t t h i s l e t t e r

a s a

request

t o t he

Federal Reserve Board

to

r e t a i n

M r.

Baker

f o r

consultation*

I am enclos ing you herewith a memorandum f i l e d i n t h e t r i a l

cour t . The docket i n t h e court of Craven County, N. C. , is so congested

that

t h e

t r ia l judge

h a s

l i t t l e time

f o r

thorough study.

The

memorandum

which

I

enclose,

Was

intended merely

as an

ou t l ine

of my

views

f o r t h e

b en e f i t of my a s s o c i a t e , bu t he t e l l s me that he del ivered i t t o t he t r i a l

judge supplemented only by a few c i t a t i o n s of Noi*th Carolina cases relating

t o t he

general subject

of

s t r i k in g

o u t

i r r e l ev an t

o r

immaterial allegations*

I

have writ ten

to my

assoc ia te

to ask

what will

be the

time

allowed

us t o

p e r f e c t

an

appeal.

I

took depositions

i n

five other cases pending

i n New

Bern,

brought

to

recover upon notes held

a s

marg ina l co l la te ra l .

The

examination

of the witnesses made by the a t to rneys f o r t h e defendants i n those cases,

show that they expect t o p ress on the court th e question of our r igh t to

receive

an d

hold marginal co l la tera l ,

an d

also

I

think showed their

d e -

terminat ion

t o

hinder

a n d

delay

th e

progress

of

case

a s

much

a s

poss ib le .

They made no s ec r e t of t he fact that th e docket i n their county was so

congested that a t r ia l cou ld no t be obtained f o r a t l e a s t a year on any

ques tio n re qu i ri ng j ur y tr i a l . They al so made demands during

t h e

progress

of the

tak ing

of t he

deposi t ions

f o r t h e

production

a n d

exh ib i t ion

of

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8 5 5

Mr.

Wal ter Wyatt, General Counsel, X-6743

Federal Reserve Board

- 2 - October 23, 1930.

numerous records a n d ac cou nt s. Some were produced a n d exhib i ted . The

witnesses under my advice refused many others upon th e ground that i t

would tak e seve ra l days

o r

several weeks

to

f i n d

th e

documents

a n d

that

they were e nt i r e ly immaterial

t o t h e

issue

of the

case .

• I am

ce rt ai n that

my

opponents

1

object

i s t o

r a i s e

a s

many questions

a s

possible, hoping

that

th e

court

may

exclude

th e

deposi t ions

a t t he

t r i a l

or

else permit

them

t o

have

a

continuance upon

th e

ground that

th e

documents should have

been produced.

I

have mentioned

th e

general conditions because

I

think

that

we a re in

r e a l i t y c a l l i n g

M r.

Baker

in to

consult about matters when

our opponents a r e much more anxious to avoid a decision than they a r e to

obtain on e . I n other words they a r e r a i s i n g th e quest ions a s a means of

creat ing delays and wi th some hope , of course, that by some accident a

decision wil l be rendered i n thei r favor .

I

think, however,

a s I

s t a t e d

i n t h e

beginning, that

th e

s i t u a -

t ion

i s

such

as to

suggest retaining

M r.

Baker,

I

also agree with

you

that

i t i s

advisable

to

appeal from

any

adverse ruling

to the

motion

to

s t r ike

ou t the

answer

i n t h e

Attmore case,

but of

course,

i f Mr .

Baker

i s r e -

t a ined

h e

should have

t h e

deciding voice

on

that question.

As I have never been involved i n a System case since we adopted

t h e p lan f o r jo in t ac t ion , I do no t know just how I should proceed i n

placing these matters before M r. Baker. My suggestion would be that when

h e h a s been retained, I should send him copies o f a l l papers i n t h e Attmore

case

a n d

copies

of the

deposi t ions

t o

which

I

have refer red ,

and

that af ter

he has had an opportuni ty t o read th e papers we should have a conference.

I t would b e very helpfu l , I think, to have you a t that conference, and i f

i t

s u i t s

M r.

Baker's convenience,

we

could have

i t a t

your o f f i c e . When

you

have made arrangements with

Mr.

Baker,

you can

communicate with

me.

Of

course,

I

could

go to

Cleveland

to

consult

him

there ,

i f

more convenient

to h im.

Very truly yours,

(S ) Me G.

Wallace,

Counsel,

MGrW/mm

enc*

P . S . I should like very much to have a memorandum by you concerning

t h e dut ies of the Federal Reserve Agent a n d h i s r e l a t i o n s to the Bank

and to the

Board;

and Mr .

Hoxton ad vis es th at

he

would like

t o

have

such

a

memorandum

i n h i s

f i l e s

f o r h i s own

guidance.

M G r W e

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, 3 5 6

X-6743-a

MEMORANDUM

OF

MOTION

TO

STRIKE

OUT

ANSWER

OF

DBFEBHANT

IN

ACTION

OF

FEDERAL RESERVE SANK

OF

RICHMOND

v G. S .

ATTMORE

PARAGRAPH 1 OF THE ANSWER: :

Paragraph one of the answer i s no t a s p e c i f i c or genera l denia l of the

corresponding al legation of the complaint as reouired by Section 519 of the Code

of North Carolina. I n this paragraph th e defendant apparently concedes that -the

p l a i n t i f f

h a s

organized under

th e

ac t s

of

Congress relative

t o

Federal reserve

banks

h u t

denie s th at Federal re se rv e banks

a r e

banking co rp or at io ns .

• The

powers

of the

p l a i n t i f f

a r e

presc r ibed

by law (see

Section

4 of the

Federal Reserve

Ac t ;

U. S .

Code, Title

12 ,

Section

5 4 1 , e t s e q . )

This paragraph, the re fo re , pres ents

a question of law and not an issue of f a c t , (s ee 108 N. C. 14 7. 12 S. 2 . 896)

The l a st sentence i s p la in ly ne i the r a s p e c i f i c o r general denial of the

a l l e g a t i o n

of the

complaint

nor a

statement

of new

matter

i n

ordinary concise

language

a s

required

by

Section

896 of the

Code

of

North Carolina,

and can

have

been inserted

f o r n o

purpose except

to

attempt

t o

arouse passion

and

pre jud ice

on

th e

p a r t

of the

jury.

PARAGRAPHS

5 and 8 OF THE

ANSWER:

These paragraphs

a r e

p l a i n l y

n o t

proper pl ea di ng . That po rt io n which

d e -

mands t h e production of documents i s ne i the r an admission or denial o f matters

a l leged i n t h e complaint, nor a statement of new mat te r , f o r t h e defendant i s a p -

parent ly unwil l ing t o commit himself to the a l lega t ion tha t any such documents

e x i s t ,

b u t

leaves this

to

inf eren ce. Section

899 , e t seq . o f the

Code

of

North

Carolina provides means

f o r

compelling

the

production

of

documents

and

fu r the r

provides that

t h e

method therein prescribed

i s an

ex cl us iv e method. Doubtless

one of the

objec ts

of

such

a

provis ion

was to

permit

th e

court

to

determine

the

p ro p r i e t y o f requir ing t h e production of the documents and the a d mi s s i b i l i t y of

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~ 2 -

X-6743~a

their contents ; t o determine on matte rs re l a t ive t o t he production of documents

without permitt ing t h e j u ry to be misled or confused by the irregular presentat ion

of matters which a r e wi thin th e province of the judge. The defendant has no t seen

f i t t o

avail himself

of the

remedy provided

by

s t a t u t e

and the

inc lus ion

of a

re ference

t o

such

a

remedy

i n t he

answer

i s

obviously

an

e f f o r t

t o

employ

the

answer

a s a

s u b s t i t u t e

f o r a

b i l l

of

discovery, which latter remedy

h a s

been

e x -

press ly abol ished,

and t he

reading

t o t he

jury

of

th is sec t ion

of the

answer

can

serve

no

purpose except

t o

convey

by

suggestion

th e

idea that

the

p l a i n t i f f

has in

i t s

possession secret documents which

i t h a s

wrongful ly fa i led

to

produce, when

th e f a c t i s tha t i f t h e production of the documents i s proper th e court may in

th e manner prescribed b y s ta tu te require th e production.

PARAGRAPH ONE OF THE FURTHER DEFENSE:

This i s a res ta tement of the posit ion taken by the defendant i n para-

graph one of the answer and as such i s open t o t he objections stated above.

PARAGRAPH

TWO OF THE

FURTHER DEFENSE:

The

matters herein alleged

a r e

abso lu te ly i r re levan t

t o t he

issues

of

t h e

case, which

a r e

simply

- 1+ I s th e

defendant liable upon

th e

notes sued

on?

2 .

Were these notes transferred

t o t h e

p l a i n t i f f

so

tha t

i t

became

th e

holder

of

them?

3 . I s t he

alleged balance

due by the

First National Bank

of New

Bern

to

t h e

defendant available

a s

defense

i n

ac t ion

by the

p l a i n t i f f ?

PARAGRAPH THREE OF THE FURTHER DEFENSE:

These al legations relate t o matters occurring eight years before t he exe -

cution of the notes i n t h e s u i t and a re therefore wholly immaterial to any con-

troversy between

th e

p a r t i e s

to

this action*

I n

add i t ion ,

th e

a l lega t ion tha t

The

Peoples Bank becajne unable

to

function because

of the

requirements

of the

p l a i n t i f f

i s a

mere conclusion

of the

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# > r - i

- 3 - X-6743-a

p leader . He should specif ical ly a l lege t h e requirements to which h e r e f e r s i n

order that th e court may he able t o determine whether o r n o t such requirements

were lawful

o r

unlawful.

The

a l lega t ion tha t

th e

plaintiff causedthe National Bank

of Mew

Berne

to

absorb

t h e

said Peoples Bank

i s

also

a

conclusion,

and

furthermore

a

conclusion

impossible

a s a

matter

of law

since

t h e

proceedings

i n t h e

consol idat ion

o f Na t -

ional banks

a r e

sub jec t

t o t he

control

of the

Comptroller

of the

Currency

(see U.

S .

Code, Title

12 ,

Sections

33 and 35) so

that

t h e

pl a i nt i f f could have

no

power

t o require o r compel a National tank t o consolidate with a state bank.

PARAGRAPH FOUR OF THE FJRTHER DEFENSE:

This a l legat ion i s i r r e l ev an t t o t he controversy between t h e p a r t i e s , and

i n addi t ion i t ap Dears to be held i n North Carolina, a s elsewhere, that a n a l lega-

tion that an ac t was done fraudulently i s a mere conclusion. Tne pleader should

allege,

th e

action which constituted

t h e

fraud

i n

order that

th e

court

may

draw

i t s

own

inf ere nce from

t h e

a l lega t ion .

PARAGRAPH FIVE

OF THE

IURTH3R DEFENSE:

The

a l l eg a t io n s

o f

this paragraph

a r e

i r r e l e v a n t ,

a s t h e

insolvency

of

t h e

National Bank

of New

Berne would

n o t

debar

i t

f rom tra nsf er r ing

i t s

asse t s

f o r

value.

PARAGRAPH

SIX OF THE

FURTHER DEFENSE:

The a l l eg a t io n s of this paragraph a r e i r r e l e v a n t , and in addi t ion the

a l l eg a t io n

as to the

amalgamation

of the two

banks

i s a s a

matter

of law

inpossi-.

b l e f o r t h e

reasons

s e t o u t

above.

The

a l l eg a t io n

as to the use of the

funds

of

Craven County

i s

wholly i r re levant ,

and i n

addi t ion

i s a

mere conclusion,

a s

there

i s no

a l l eg a t io n

as to why or by

what means

th e

funds

of

Craven County came into

t h e

hands

of the

National Bank

of New

Berne,

and i n any

event

t he u s e o r

misuse

of

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3 5 9

~ 4 — X-6743-a

t h e

funds

o f

Craven County

by th e

National Bank

of Hew

Berne must

be

i r re levan t

to any controversy between t h e Federal Reserve Bank of Richmond and G*. S. Attmore.

The

inc lus ion

o f

th i s a l l ega t ion

can

have been intended only

t o

arouse passion

o r

pre judice

on the

p a r t

of the

jury

by

ins inuat ing tha t

i n

matters wholly uncon-

nected with th e present case th e p l a i n t i f f has connived a t i r r e g u l a r i t i e s on th e

p a r t

of

National banks.

PARAGRAPH SEVEN 0? THE FURTHER DEFENSE:

This paragraph appears

t o b e

i r r e l e v a n t ,

a s t h e

defendant does

n o t

allege

tha t h i s notes a r e held a s c o l l a t e r a l by the Federal Reserve Bank of Richmond,

a nd the

t i t l e

of the


of

Richmond

t o

notes

of

other persons

t r a n s f e r r e d t o i t b y t h e First National Bank of New Bern cannot be mater ia l in a

controversy concerning i t s t i t l e to the notes of the defendant. The a l lega t ion

that other notes were taken

i n

pursuance

of an

u l t r a v i res contrac t

i s a

mere

c on-

clusion

of the

pleader

or an

a l l ega t ion

of a

matter

of la w . The

p l a i n t i f f

ha s

general power

to

lend money

and

rediscount notes

f o r

member banks

and to

make

advances t o them secured by the pledging of notes o r bills made by customers of

member banks

(U. S .

Code, Title

12 ,

Sections 343-7)

and

p l a i n t i f f

i s

likewise

authorized t o exercise such incidental powers as may be necessary to carry on the

business

of

banking within

th e

l i m i t a t i o n s

o f the a c t

crea t ing

th e

p l a i n t i f f

(U.

S . Code, Title 1 2 , Sect ion s 34- 7). There i s no def in i te l imi ta t ion upon the

amount

of the

notes which plaint iff

may

discount

f o r a

member bank

n o r t h e

amount

of advances which may be made to a member bank. The taking of s e c u r i t y i s obvious-

l y

inc iden ta l

t o t h e

lending

of

money.

I f t h e

defendant contends that

a n y p a r -

t i c u l a r ac t of the p l a i n t i f f i s u l t r a v i r e s , he should allege that a c t with such

p a r t i c u l a r i t y t h a t

t h e

court

may

determine whether

or no t i t was

author ized

o r

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3 G

- 5 - X-6743-a

proh ib i ted

by the

Federal Reserve

A c t . I n

addi t ion

i t h a s

been decided that title

t o assets acquired f o r value by banks organized under

t

the law of the United States

i n

u l t r a v i r es t r ansac t ions

i s

voidable only,

and the

question

of

u l t r a vi r e s

may

be

raised only

i n a

direct proceeding

by the

United States.

(See

Union National

v

Matthews, 98 U. S . 521; National Bank v Whitney 103 U. S . 99; Swope v Leffingwell

105 U. S . 3;

Reynolds

v

First National Bank,

112 U. S . 405 ;

Kerfoot

v

Farmers

&

Merchants Bank, 218 U. S . 281; also Crowell v Federal Reserve Bank, 12 Fed. 2nd

259)

This paragraph al so cont ains

a

p rayer tha t p l a i n t i f f

be

required

t o

account

t o

Craven County

and *?. W.

G r i f f i n

and to R. E.

Schumacher, Rece iv er . None

of

these persons

a r e

p a r t i e s

to

this action

and

consequently

any

a l l eg a t io n

as to

the i r r igh ts i s immaterial.

PARAGRAPH EIGHT OF THE FURTI-Mt DEFENSE:

This paragraph alleges that

t h e

note

f o r

$5,000.00

was

without

con -

s id e r a t io n and was wholly an accommodation obligation.

The Supreme Court of North Carolina, i n Merchants National Bank v Andrews,

102 S. E . 5 00, 179 N. C. 34 1,

held that allegation that

a

note

was wi

thout

con -

s idera t ion was a mere conclusion of the pleader . I t seems that a good pleading

should allege

t h e

conditions

and

circumstances under which

th e

note

was

executed

i n

order that

th e

court

may

determine whether

or no t i t was

supported

by

good

consideration.

I n

add i t ion

i t i s

provided

by

Section 3009

of th e

Code

of

North Carolina

that knowledge by the transferee that a negotiable note was given f o r accommoda-

t ion

has no

defense

to

action upon

i t ,

hence

th e

matters

and

things alleged

i n

this paragraph a r e immaterial to the action.

PARAGRAPH NINE

OF THE

FURTHER DEFENSE:

This paragraph appears

to be a

mere conclusion.

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3 6

— 6 *•

X-5743-a

PARAGRAPH

TEN OF THE

HJRTH3R DEFENSE:

This paragraph, appears open t o t h e same objections a s those made to

paragraph eight.

PARAGRAPH ELEVEN OF THE FURTHER DEFENSE:

There appears

to be no

ground

f o r

object ion

t o t he

a l l eg a t io n

of

this

paragraph except that

th e

statement th at th is defendant

i s

e n t i t l e d

to

apply

the

said deposit

as an

o f f s e t

i s a

mere conclusion

of l aw and ,

furthermore,

a n e r -

roneous conclusion

( s e e

Sowell

v


286 , U. S . 4 4 9 ) . The

statement that

th e

note

i s i n t he

hands

of R. E.

Schumacher

i s

immaterial.

PARAGRAPH TWELVE

OF THE

FURTHER DEFENSE:

There appears to be no good objection to this paragraph. I t i s a mere

r e p e t i t i o n

of a

por t ion

of the

denial

of

paragraph eight

of the

answer.

PARAGRAPH THIRTEEN OF THE FURTHER DEFENSE:

That portion

of

this paragraph that demands

t h e

production

of

writ ten

instruments

i s

open

t o t he

obj ect ion s mentioned under dis cu ssi on

of

paragraphs

f ive and e igh t of the answer. Furthermor e

v

th e court may take judicial notice

of the

fact that repor ts

of

examinations

of

National banks

a r e

made

by the

Examiners t o t h e Comptroller of the Currency, who i s an o f f i c e r of the United

States acting under

t h e

d i r ec t io n

of the

Secretary

of the

Treasury

(U. S .

Code,

T i t l e

1 2 ,

Sections

1 , 9 and 481) so

that such reports could

no t be

exhib i ted

by

th e

p l a i n t i f f .

PARAGRAPH FOURTEEN OF THE FURTHER DEFENSE:

This paragraph

i s no t an

a l l eg a t io n

of any

f ac t

bu t an

irregular prayer

f o r

r e l i e f

and

should

be

s t r i ck en ,

as t he

relief obviously cannot

b e

granted.

The re l i ef asked i n t he f i r s t paragraph i s f o r t h e b en e f i t of persons no t

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3 6 2

— *7 *•* X-674o)-a

p a r t i e s t o t he su i t f o r whose benefit he has no r ig h t t o prosecute an act ion , and

i n

addi t ion

th e

appointment

of a

rece iver

t o

take charge

of the

a s s e t s

and

administer them

f o r t h e

benefit

of

cred i to r s

of

national banks would

be in con-

t ravent ion

of the

laws

of the

United States which provide that

th e

rece iver s

of

National banks shall a c t under t h e d i rec t ion of the Comptroller o f t he Currency.

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