The opinion of the court was delivered by: HIGGINBOTHAM
This is a class action brought by the plaintiffs, holders of fifteen (15) one thousand dollar bearer coupon debentures of the Defendant Eltra Corporation (formerly Mergenthaler Linotype Company), against Eltra Corporation and the First National City Bank of New York City, trustee under the indenture, pursuant to the provisions of the Trust Indenture Act of 1939, c. 411, 53 Stat. 1149, 15 U.S.C. §§ 77aaa et seq. The suit is based upon the alleged failure by the defendants to give notice to the plaintiffs and other holders of Mergenthaler debentures of the impending deadline for converting their debentures into common stock of the Eltra Corporation, prior to the final day, March 31, 1967. As a result thereof, plaintiffs and a large percentage of the debenture holders allegedly suffered severe financial losses when the value of their debentures "plummeted" upon the expiration of their right to convert them into Eltra Corporation common stock, and the Corporation refused to extend the conversion deadline.
Although the debentures admittedly were in the possession of the plaintiffs from January, 1965 and stated on the faces thereof was the notice "Convertible up to and including March 31, 1967," the plaintiffs base their suit on alleged violations by the defendants of obligations imposed by the common law of fiduciary duties and the Trust Indenture Act of 1939, supra, to inform holders of the debentures by direct notice of the impending termination of their power to convert their debentures into common stock of the corporation, or to take other actions which would have prevented the losses suffered by the plaintiffs and others in their class. The plaintiffs contend that this alleged breach of duty by the defendants is graphically demonstrated by the fact that out of outstanding debentures of $3.2 million, some $860,000 (over 25%) were not converted prior to March 31, 1967, to their holders' obvious financial detriment.
The Complaint was filed on November 7, 1967, but with no request for issuance of summons. On January 4, 1968, the plaintiffs requested issuance of summons and on that same day sued out writs of foreign attachment against assets of the defendant First National City Bank of New York (hereafter FNCB) in three Philadelphia banks. Thereafter, on January 11, 1968, copies of the Complaint were served on Eltra's statutory agent in Philadelphia, and on FNCB at its main office, 55 Wall Street, New York City. Eltra has filed an answer to the Complaint; but, within twenty days of being served, FNCB filed a motion to dismiss the suit against it on the ground of lack of venue in this district and also a motion to dismiss the writs of foreign attachment.
It is the position of FNCB that a national bank may be sued only where it is established; and, as a bank is "established" only in the place specified in its charter as its principal place of business, since FNCB has its principal place of business at 55 Wall Street, New York City, venue properly is laid only in the Southern District of New York. In support of this position FNCB relies on the venue section of the National Banking Act 12 U.S.C. § 94,
and cases construing that statute.
A. Where National Banks May be Sued
As the Defendant FNCB correctly contends, it is now settled beyond question that 12 U.S.C. § 94 is mandatory and not permissive. All federal appellate courts which have considered the issue have held that for purposes of venue a national bank is a citizen of the state in which it is established or has its principal place of business, and only in that district can it be sued. Mercantile National Bank at Dallas v. Langdeau, 371 U.S. 555, 83 S. Ct. 520, 9 L. Ed. 2d 523 (1963); Leonardi v. Chase National Bank, 81 F.2d 19 (2d. Cir. 1936), cert. den. 298 U.S. 677, 80 L. Ed. 1398, 56 S. Ct. 941 (1936); Buffum v. Chase National Bank, 192 F.2d 58 (7th Cir., 1951), cert. den. 342 U.S. 944, 96 L. Ed. 702, 72 S. Ct. 558 (1952); Cope v. Anderson, 331 U.S. 461, 467, 67 S. Ct. 1340, 1343, 91 L. Ed. 1602 (1947) (dictum). But the plaintiffs urge that such a finding by the court is not dispositive of the defendant's motion to dismiss.
In opposing FNCB's motion to dismiss, the plaintiffs contend that since the action is based in part on alleged violations of the Trust Indenture Act of 1939, the venue section of that act, 15 U.S.C. § 77vvv
applies; and since it is a national venue statute, allowing suit wherever transactions under the indenture occurred, venue is properly established in this district. This argument rests upon two alternative bases. The plaintiffs first urge that 12 U.S.C. § 94 grants to national banks a purely personal venue privilege which can be waived; and a national bank which, as herein, accepts the obligations of an indenture trustee under the Trust Indenture Act subjects itself to all of the provisions of the Act, including the venue provision, and by so acting waives any personal privilege it once had "by conduct absolutely antithetical to the assertion of that personal privilege." Alternatively, plaintiffs argue that Congress clearly evidenced an intention that the venue provision of the Trust Indenture Act of 1939 should apply to all indenture trustees, including national banks, and to the extent that the venue section of the National Banking Act would preclude such a result, is impliedly repealed by the former provision.
In relying on the doctrine of waiver to support their argument in opposition to FNCB's motion to dismiss, the plaintiffs have assumed a heavy burden. While it is true that the United States Supreme Court held in First National Bank of Charlotte v. Morgan, 132 U.S. 141, 10 S. Ct. 37, 33 L. Ed. 282 (1894), that § 94 of 12 U.S.C. (then § 57 of the National Banking Act of 1864, 13 stat. 99, § 57) in exempting national banks from suit outside their home counties, conferred merely a personal privilege which could be waived by a bank; it is well to bear in mind the admonition of the Seventh Circuit Court of Appeals in Buffum v. Chase National Bank, 192 F.2d 58 (1951), that:
Waiver is a voluntary and intentional relinquishment or abandonment of a known right or privilege, which, except for such waiver, would have been enjoyed . . . it may be expressed formally or it may be implied as a necessary consequence of the waiver's conduct inconsistent with an assertion of retention of the right. . . . It must be proved by the party relying on it. And if the only proof of intention to waive rests on what a party does or forebears to do, his act or omission to act should be so manifestly consistent with and indicative of an intent to relinquish voluntarily a particular right that no other reasonable explanation of his conduct is possible
The plaintiffs have alleged no express waiver by FNCB of its right to be sued only in the Southern District of New York, nor any conduct by FNCB, apart from its assumption of the role of indenture trustee under the Trust Indenture Act of 1939, which indicates an intent on its part to waive such a right, or any conduct "inconsistent with an assertion of retention of the right." Therefore the question arises -- could FNCB reasonably have known that merely by assuming the duties of indenture trustee under the Act, it was thereby waiving its right to be sued only in its home district?
The Trust Indenture Act of 1939 does not expressly state that a national bank in acting as an indenture trustee waives the privilege afforded by 12 U.S.C. § 94; no court has ever held that such a result is demanded; nor is such a conclusion compelled by the nature of the duties assumed. The Act sets forth the requirements for qualifying indentures under which securities required to be registered under the Securities Act of 1933, and certain exempted securities, are issued. Indenture trustees are provided for under the Act to protect and enforce the rights and represent the interests of investors in notes, bonds, debentures and other certificates of interest and participation, who, because of the disproportionate expense involved are unable to take individual action to protect their interests, and due to their wide dispersal and concomitant inability to obtain the names and addresses of other investors, are unable to act in concerted fashion through representatives of their own selection to protect and enforce their common interests.
Because of prior injurious acts caused when trustees did not possess adequate rights and powers, or adequate duties and responsibilities, the Act requires that a properly qualified indenture have at least one "institutional trustee," which is a corporation organized and doing business under the laws of the United States, or any State or Territory, or of the District of Columbia, and which "(A) is authorized under such laws to exercise corporate trust powers, and (b) is subject to supervision or examination by Federal, State, Territorial, or District of Columbia Authority.
Such institutional trustee is also required to have, at all times, a specified minimum amount of combined capital and surplus.
It was obviously contemplated that national banks would act as indenture trustees under the Act, for § 77uuu(b) (Special Powers of the Commission) provides:
(b) The Treasury Department, the Controller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, and the Federal Deposit Insurance Corporation are authorized, under such conditions as they may prescribe, to make available to the Commission such reports, records, or other information as they may have available with respect to trustees or prospective trustees under indentures qualified or to be qualified under this subchapter, and to make ...