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FEDERAL RESERVE BOARD ^

WASHINGTON

T O

T H E FEDERAL RESERVE BOARD

X-6818

February

13 , 193 1.

Dear

S i r :

Refer r ing to my l e t t e r o f February 7 with refere nce to the

case

o f ? . I .

Skinner

a n d

Company

v .

Federal Reserve Bank

of

Richmond,

e t a l . , I

enclose for"ydur further information

th e

following documents:

( 1 )

Copy

of a

le t te r addressed

to me by Mr.

Wallace,

Counsel

f o r t h e

Federal Reserve Batik

o f

Richmond

under date of February 10;

( 2 )

Copy

of a

l e t t e r add ressed

to me by Mr.

Parker,

Counsel f o r t h e Federal Reserve Bank of Atlanta

under date of February 10;

(3) A memorandum summarizing t h e te legraphic rep l ies

to my l e t t e r of February 7 received from Counsel

f o r various Federal Reserve Banks; and

( 4 ) A copy of a le t ter addressed by me to Mr. Wallace

under date of February 13 .

While you w i l l observe from my l e t t e r to Mr . Wallace that a n

e f f o r t

i s

being made

t o

reorganize

th e

national Bank

o f

Greenvil le

and

no

fu rt he r s te ps should

be

taken looking toward

th e

employment

of

special

counsel

to

a s s i s t

i n

t h i s l i t i g a t i o n

on a

System basis unless

t h e

plans

f o r r e o r g a n i z a t i o n f a i l ; i t i s my opinion that, i f the se pla ns should

f a i l a n d i f i t should become nece ss ar y t o l i t i ga t e th i s case , i t ought

t o be handled a s a System matter f o r t h e following reasons:

1 . I t involves several questions o f v i t a l i n t e r e s t t o a l l

Federal Re ser ve Banks;

2. The Federal Reserve Bank of Richmond desires to have i t

handled a s a System case a n d Counsel f o r severa l of the Federal Reserve

Banks have expressed a similar desire;

3. The check i n quest ion w as handled with unusual prompt-

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" O

1

X-6818

- 2 -

ness; t h e Federal Reserve Bank had. no special knowledge of the impending

insolvency

of the

drawee hank; there appear

to be no

facts upon which

a

charge

o f

actual negligenbe could

h e

sustained

a nd , i n

every

r e -

spect , t h e case appears to he free from embarrassing complications o f

every nature, except that i t wa s brought i n t h e d i s t r i c t i n which t h e

Early case arose;

4. The Federal Reserve Banks a r e fo rced t o t r y most cases of

th i s character

i n t h e

State courts

and

th is case af fords

a n

unusual

opportuni ty

t o

t e s t

t h e

questions involved

i n t h e

Federal courts;

and

5 . In my opinio#, i t i s very important t o t h e Federal Reserve

System t o ob ta in a decis ion a s soon a s poss ib l e i n t h e Federal courts

d i s t ingu i sh ing t h e r ig h t s , du t i es a n d l i a b i l i t i e s o f t he Federal R e-

serve Banks under Regulation *f, as amended September 1 , 1930 , from th e ir

r i ^ i t s , d u t i e s a n d l i a b i l i t i e s under t h e preced ing regula t ion a s es t ab -

l i s h e d

i n t h e

dec i s ion

o f t h e

Supreme Court

o f t he

United States

in the

case o f Early v . Federal Reserve Bank of Richmond.

M r. Wallace advises me tha t t h e Federal Reserve Bank of Richmond

would pre fe r t o have this case handled a s a System case b u t i s n o t d i s -

posed

to

ins i s t upon

i t

un less

a

majo r i ty

o f t h e

other Federal Reserve

Banks

a r e

w i l l i n g

t o

p a r t i c i p a t e ,

M r.

Wallace feels that, having tried

th e Early case a n d t h e Federal Reserve Batik of Richmond haying been

opposed t o t h e amendments t o Regulation J adopted effective September 1 ,

i t "ought n o t t o b e i n t h e p o s i t i o n o f t ry ing t h e f i rst important teat

case arising under t h e amended re gu la ti on s without t h e other Federal

Reserve Banks being represented i n t h e case by special counsel.

I f ,

t h e r e f o r e ,

t h e

plans

to

reorganize

t h e

National Bank

of

Greenvil le should fai l ,

a n d i f i t

should become nece ss ary

t o

l i t i g a t e

this case, I shall recommend to the Federal Reserve Board that special

counsel be r e t a i n e d t o a s s i s t i n t h e t r i a l of this case on a System basis.

I f t h e Board approves my recommendation, i t will immediately communicate

with a l l Federal Reserve Banks i n #rder t o ascertain whether they a r e

w i l l i n g t o p a r t i c i p a t e , and you undoubtedly will be called upon to a d -

v i se

an d

consult with your bank

oil

tha t quest ion.

I

shall keep

y o u f u l -

l y

informed

o f q l l

important developments,

i n

order that

you may

inform

t h e o f f i c e r s of your bank.

With kindest regards a nd a l l best wishes, I am

Cordially yours,

Walter Wyatt,

General Counsel.

TO COUNSEL FOR ALL H

EER L

R3S3BVE BAHKS EXCEPT RICHMOND.

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X-6818-a

FBESRAL B3S2RVS

MNK OF

RICHMOND

February

10, 1931

Federal Reserve Board,

Washington,

D. C.

Attent ion:

M r.

Walter Wyatt. General Counsel.

%

dear

M r.

Wyatt:

Replying further

to

your telegram

of

February

9 t h , I

wish

. t o s a y tha t i n my per son al opinion i t would be advisable t o remove

t h e

action brought

by

Skinner

a n d

Company

t o t he

federa l cour t .

I

rea l i ze tha t t h e probable a t t i tude o f t he Circuit Court of Appeals

a nd the

pe rsona l qua l i f i ca t ions

o f t he

d i s t r i c t judge

a r e

some

reasons why a removal might not be advisable, b u t , o n t h e other hand,

a

f ina l dec i s ion

i n t h e

federal court would

be t he

only precedent

which could be of any he lp t o other Federal reserve banks. A f ina l

decis ion

b y t h e

s t a t e cour t s

o f

North Carolina would

of

necessi ty leave

t h e quest ion un se t t led unless we could obtain a review of t he decision

of the

s ta te cour t

b y t h e

Supreme Court

o f t he

United States.

When

t h e

National Bank:

o f

Greenville suspended

we

he ld red i s -

counted notes aggregating $112,218.86

a nd

held, marginal co ll at er al aggre-

gating $38,955.00.

We

have

no t ha d a n

opportunity

t o

make

a

ca re fu l

appraisement o f t he value of the paper held by u s , bu t t he Manager of the

Bank Relations Department

i s

inc l ined

t o

think that most

of the

paper

which we ho ld i s fa i r ly good and t ha t w e a re probably protected from any

loss even

if we

should lose

t h e

reserve balance.

I t

therefore seems

t ha t t h e Receiver h a s t h e main pecuniary in te re st , a nd i f this case i s

not to be

handled

a s a

System matter,

my own

idea would

be to

employ

a s t h e loca l a ssoc ia te t h e a t torney re ta ined b y t h e Receiver a nd t o give

h im a l l t h e

a s s i s t a nc e

in my

power

i n

conducting

t h e

case,

bu t t o

allow

h i m o r t h e Receiver t o determine what steps were advisable. I am sure

you can

readi ly apprec ia te

my

pos i t i on

i n

this matter ,

a n d

na t u r a l l y

i f

t h e case i s made a System matter I should pr ef er t o have th e f ina l

decisions made

by you or Mr.

Baker

i f he i s

re t a ined ,

a nd i f i t i s no t

handled a s a System matter, I should pr ef er to have th e Comptrol ler 's

Office assume responsibi l i ty

f o r a n y

important decisions,

b u t , o f

course,

i n a n y event, I would expect to use my b e st e f f o r t s t o secure a favorable

decision.

I

remain,

Very truly yours,

(Signed)

M. 0.

Wallace

Counsel.

MOW R

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COPY

X-68l8-b

g 7 B

COLQUITT, PARKER, TROUTimi & ARXWRIGHT

ATTORNEYS AT LAW

SUITE 1607 WILLIAM-OLIV3H BLDG.

ATLANTA, GA.

February

10, 1931.

M r.

Walter Wyatt, General Counsel,

Federal Reserve Board,

Washington,

D, C.

Dear

M r.

Wyatt;

I

wired

y ou

yesterday,

i n

e f f e c t , t hat

I 8$w no

reason

why

th e

case

o f

Skinner

v ,


o f

Richmond should,

f o r t h e

presen t

a t

l e a s t ,

"be

regarded

a s

present ing quest ions

of

System-wide

imr

portance .

The

s u i t

h a s

evidently been "brought upon

t h e

theory that

t he

Malloy case

i s

app l i cab le

a n d

upon

th e

further theory that

t h e

Federal

Reserve Bank refuged, prior

t o t h e

insolvency

o f t h e

Greenville bank,

t o

honor

a

request

t o

charge

t h e

reserve account with

t h e

amount

of a

cash

letter which could have been paid out of such reserve balance.

Neither theory i s well taken under t he l a w o r t he f a c t s . Any

au thor i t a t ive va lue o f t h e Malloy case would seem t o b e removed by the

Regulat ion, a n d , f o r that matter , by t he Regulations which have been of

force ever since amendments were made t o meet t h e Malloy case.

I cannot believe that counsel f o r t h e p l a i n t i f f w i l l s e r i ous -

l y

contest

t h e

matter

on

either theory when

the new

Regulation

i s

brought

t o

t he i r a t t e n t i on

a n d i t i s

made p l a i n t ha t

a t no

time during December

10 th w a s t he

reserve balance

i n

su f f i c i e n t f unds

t o

author ize

a

charge

t o

t h e

account

o f t he

Greenville bank

o f t h e ne t

amount

o f t he

cash l e t t e r ,

Had the

account been

i n

su f f i c i en t funds pr io r

t o

notice

of

suspension,

I

think that

t h e

au thor iza t ion

t o

charge should have been

honored,

and I

be l i eve fur the r tha t

t h e

mere f a c t th at en tr ie s, charging

t h e

account, were

n o t

made prior

t o t h e

rece ip t

of

not ice

o f

suspension

would

n o t

have a l te red

t h e

s i t u a t i o n .

I t h a s

been

my

idea that

a

remi t -

tance draft

o r a n

a u t ho r i z a t i on

to

charge

a

reserve account should

b e

given effec t

a s o f t h e

time

of

rece ipt

a n d

tha t

t h e

prohibi t ion conta ined

i n

Regulat ion

J , a s t o t h e

making

of

charges against reserve accounts

a f t e r no t i c e

of

insolvency, would

no t be

appl icable

t o

cases

i n

which such

not i ce w as ac tu a l l y rece ived af t e r remi t tance dr af ts and/or author iza t i ons

t o charge reserve accounts reached th e Federal Reserve Bank. As s t a t ed

above, I think t h e Richmond bank should have paid th e cash l e t t e r out of

t h e reserve balance h a d tha t ba lance been s uf f i c i en t f o r th e purpose.

I t n o t having been suff ic ient , th e case, i n so f a r a s concerns this

par t icular aspect , should b e determined i n favor o f t h e Reserve Bank

independently

of the

p rov i s ion

of

Regulation

J .

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X-6818-b

- 3 -

Of course t h e case may so develop later that t h e va l i d i t y

a n d e f f e c t i v e n e s s o f Regulation J may be seriously drawn into question,

b u t until such time I do nd t bel ieve that t h e case i s of any p a r t i c u -

l a r

1

s igni f icance* I know, furthermore, that M r. Wallace will give

the

matter

h i s

u s u a l s k i l f u l l

an d

effec t ive handl ing

With regards,

I

ata

Very truly yours,

(Signed) Robt»

S .

Parker.

BSP/w

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PY

X-6818

r

c

2-13-31 2 8 0

OF COUNSEL OF VARIOUS FEDERAL RESERVE BAMS TO MR. WYATT'S LETTER OF

FEBRUARY 7 , RE SKIMER & COMPANY V. FEDERAL RESERVE BANK OF RICHMOND.

r.

Weed. Boston

:

"Think case Skinner

& Co . v s .

Reserve Bank

of

Richmond could

proper ly

"be

handled

a s

Eastern ma t ter

i f

Wallace desires outside

counsel."

r. Logan. New York:

"Your letter February seventh regarding case o f Skinner v .

Federal Reserve Bank of Richmond.(stop) We favo r handling case a s

system matter "because i t seems l i ke l y th at questio ns o f system

i n t e r e s t may he involved.^Stop) We w i l l he glad t o pa y our p ro ra ta

share of expenses of handling case a s system matter."

r. Will iams. Philadelphia:

No

repl y receive d

up to 11 a .m.

February

1 3 t h .

r. flewell, Cleveland: (Squire. Sanders & Dempsey)

"Your l e t t e r seventh r e Skinner v s . Federal Richmond. Believe

presen t s ta tus o f matter does n o t warrant handling a s system case*"

r. Wallace. Richmond:

"Your telegram r e Skinner cas e. This hank e nt i re l y wi ll in g t o

have case handled

a s

counsel

f o r

other hanks desire

"but

p re fe r s

that case he handled a s system matter."

r.

Parker . Atlanta:

"Yours February seventh referring case o f Skinner v s . Richmond

bank. (Stop . ) I do no t think decisi on wil l en ta il determination of

v a l i d i t y a n d e f f ec t iv en es s of l as t r egu la t ion J . (S top) .Au thor i ty t o

charge reserve account of Greenville Bank wp.s received when account

was i n s u f f i c i e n t t o pa y ca s h l e t t e r a n d balance was never suf f ic ien t

up to and a f te r c los ing . (S top) . . Do not believe that Malloy case can

be used a s au thor i ty i n view of new r egu la t ion a n d while new r egu la -

ti on rende rs Early case ina ppli cabl e even were t hi s

n o t

t rue insuf-

f i c i en cy of balanco t o pa y letter would afford ground of d i f f e r e n -

tiation. (Stop.) Case

may

involve negligence

i n

direct sending

bu t

this element always present

i n

si mil ar cas es .( St op .) Think Receiver

will wish t o remove case a n d believe reserve bank should join i n

p e t i t i o n f o r removal." "

r. Meyer. Chicago:

" I t seems ra th er d i f f i c u l t from complaint i n Skinner v s . Federal

Reserve Bank o f Richmond t o determine what p l a i n t i f f w il l r e l y upon

t o re co ve r. However i t would seem that validity of r eg u la t io n J ,

wil l ce r ta in ly

b e

involved

a s

defense wi l l n ecess ar i l y

b e

predicated

thereon, | n view of th i s s i tua t ion I am ready t o advise Federal

Reserve Bank

o f

Chicago

t o

have matter treated

a s

system mat te r

i f

other Federal reserve banks feel this should},

be

done."

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- 2 -

X-6818-c

: 281

McConkey,

S t .

Louis:

"The f igures furn ished , by Wallace do not i n d i c a t e s u f f i c i e n t

"balances a t a n y t i n e a f t e r r e c e i p t of s l i p r e f e r r e d t o t o j u s t i f y

t h e

making

o f t h e

ch arges req ues ted , even under

t h e

con ten t ion

i n

t h e

Early case.(Stop.) Have

no

doubt

a s t o t h e

v a l i d i t y

of

regu-

l a t i o n " J " ; nev er the le ss when at t ach ed i t "becomes a System matter

o f utmost importance a n d i f Wallace de si re s System as si st an ce i t

should

"be

f u r n i s h e d .

"

a n d Uoland. Minneapolis}

No

r e p l y

u p t o 1 1 a . m .

February

1 3 t h .

Leedy. Kansas City:

"Sui t

o f

Skinner

a n d

Company versus Federal

He

servo Bank

of

Richmond in my judgne nt shoul d "be handled a s a System matter p a r -

t i c u l a r l y i n view o f suggest ion of Wallace that he may "be p re jud ice d

i n cou r t s o f h i s d i s t r i c t p a d s t a t e by reason o f defenses made by

h i m i n

o the r su i t s . (S to p . ) Aside f rom quest ion

o f

a p p l i c a t i o n

a nd

e f f e c t of r e g u l a t i o n J , I consider t h e case important a nd o f concern

t o a l l other reserve banks by reason o f charge t h a t Richmond bank

knew o r should have known that drawee bank Was inso l ven t t (S t op . )

Also feel that every effort should

b e

made

t o

induce Comptroller 's

o f f i c e t o remove case to Federal Court should there by a ny d i s p o s i -

i n th&t of f ice t o al low t h e case t o remain i n t h e s ta te cour t*

11

Locke. Stroud

Randolph Dallas

"R e your le t t e r February seventh * We bel ie ve cases ide n t -

i c a l l y s i mi l a r

to one

mentioned

i n

Wal lace le t ter

of

February

4 t h

have been successful ly defended by Counsel f o r ma j o r i t y of reserve

banks without assistance o f outside counsel . Of course case i s of

importance t o ent i re System a n d i f Wallace feels a n y embarrassment

on

account

o f

Early case

i n

making defense

we

should suggest

t h e

a d v i s a b i l i t y of employment of outside Counsel."

Agnew. S an Francisco :

No rep ly received up to 11 a .m . February 1 3 t h .

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COPY

X-6818-d

February 13, 1931.

Mr. M. G. Wallace, Counsel,


o f

Richmond,

Richmond, Virginia.

My dear M r. Wallace:

Although I have communicated with you by telephone and t e l e -

graph, I wish formally t o acknowledge receipt of your le t te r s o f Fe b-

ruary

4 a nd

February

1 0

with reference

t o t he

case

of W. I,

Skinner

a n d ompany v . Federal Reserve Bank of Richmond and W. P. Wright, R e -

ceiver of the National Bank of Greenville.

As I wired you las t n igh t , M r. Barse, Counsel t o t he Comp-

t r o l l e r of the Currency, re ad il y agreed with o u r view that this case

ou^it

to be

removed.to

t h e

Federal courts

a n d h a s

i n s t r u c t e d

t h e r e -

ceiver t o have h i s counsel g e t i n touch with y o u a t once a n d take prompt

s teps t o remove t h e case t o t h e Federal court . M r. Barse recognizes

that t h e i n t e r e s t s of the Federal Reserve Bank a nd t he O f f i ce of the

Comptroller

o f t he

Currency

a r e

i d en t i ca l

i n s o f a r a s t h e

questions

of

law involved i n this case a r e concerned a n d t h a t , i f t h e case should

r e s u l t i n a decis ion i n t h e appel la te cour ts , i t would be a most im -

por tan t tes t case

f o r t h e

Comptroller 's Office

a s

well

a s f o r a l l t h e

Federal reserve banks.

This morning, however,

M r.

Barse called

on me

again

and

t o ld me t h a t a n e f f o r t i s being made t o organize a new bank t o take over

t h e a s s e t s an d assume t h e l i a b i l i t i e s of the National Bank of Green-

v i l l e ;

and, of

course, this plan contemplates that

a l l

c r ed i to r s

of the

National Bank of Greenville would be pa id i n full , unless they volun-

tarily accept some compromise. M r. Barse said that t h e proponents of

th is p lan

a r e

very confident

o f

success

a n d

t h a t

we

should know within

thirty days whether t h e p lan wil l be consummated. Of course, i f i t i s

consummated, Skinner a n d Company will be p a id a n d the i r su i t w i l l be

dismissed. I n t h e meantime, M r, Barse a n d I a r e agreed that i t would

be

advisable

t o

proceed with

t h e

removal

o f t he

case

t o t h e

Federal

Court a n d then mark tine until i t i s poss ib le t o determine t h e outcome

of t he p lan t o reorganize t h e bank. -Pending t h e outcome o f t h e r e -

organizat ion p lan ,

I

f ee l t h a t

no

fu rt he r steps should

be

taken

t o

employ special counsel a n d handle th i s case a s a System case.

I f , however, t h e reorganizat ion p lans should f a i l a nd

you

should

b e

fo rced

t o

l i t i g a t e t h i s c a s e ,

I

agree with

you

tha t

i t

ou^txt to be handled a s a System case, n o t only f o r t h e reasons stated

by you in y o u r l e t t e r s of February 4 a nd February 10 a nd in your te le-

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X-6818-d

- 3 -

phone conversation with n e yesterday, "but also because i t appears

to be

f r e e fror . embar rass ing cir cums tanc es, would make

a n

unusual-

l y good test case a n d would furnish an unusual opportunity t o o b -

t a i n

a

decis ion

i n t h e

Federal courts dist inguishing

t h e

doctrine

of

t h e Early case from t h e r igh t s , du t i es a n d l i a b i l i t i e s of the Federal

reserve banks under Regulation

J a s

amended September

1 , 1930.

As I

t o l d

you

la s t night , there

i s

considerable difference

of opinion among counsel f o r t h e other Federal reserve banks over t he

ques tion whether t h i s cas e ought

to be

handled

a s a

System case.

For

your further information i n this connection, I enclose a copy of

t h e

le t te r which

I

addressed

t o

Counsel

f o r a l l

Federal reserve banks,

a meaorandnn giving t h e t ex t of the r e p l i es r ece ive d from Counsel f o r

t h e

various Federal reserve banks,

a nd a

copy

of a

le t te r which

I r e -

ceived from

M r.

Parker this morning with reference

t o

this case.

I shall keep Counsel f o r t h e other Federal reserve banks

ful ly advised

o f a l l

developments;

so

t ha t ,

i f t h e

p lans

t o

reorgan-

i z e t h e bank fai l a n d i t becomes necessary t o l i t i ga t e t h i s c a se , i t

w i l l

be

poss ib le

t o

obtain prompt action

b y a l l

Federal reserve banks

on the quest ion o f employing special counsel on a System basis t o

a s s i s t

i n t h e

t r i a l

o f

this case.

With

a l l

best regards,

I am

Cordially yours,

Walter Wyatt,

General Counsel,

Enclosures.

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