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Reconstruction Finance Corp. v. J. G. Menihan Corp.

May 13, 1940

RECONSTRUCTION FINANCE CORPORATION
v.
J. G. MENIHAN CORPORATION ET AL.



Appeal from the District Court of the United States for the Western District of New York; Harold P. Burke, Judge.

Author: Swan

Before SWAN, CLARK, and PATTERSON, Circuit Judges.

SWAN, Circuit Judge.

This appeal is before us upon a record made up pursuant to Rule 76 of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c. The question presented is whether the trial court erred in dismissing the complaint without costs and in denying the defendants' application for an additional allowance on the theory, stated in the court's opinion, D.C., 29 F.Supp. 853, that no provision of law permits the imposition of costs against the Reconstruction Finance Corporation.

In equity and in admiralty the imposition of costs is so largely a matter within the discretion of the trial court that a decree relating to costs alone will not ordinarily be reviewed by an appellate court. Canter v. Insurance Companies, 3 Pet. 307, 319, 7 L. Ed. 688; Du Bois v. Kirk, 158 U.S. 58, 67, 15 S. Ct. 729, 39 L. Ed. 895; Wingert v. First Nat. Bank, 223 U.S. 670, 672, 32 S. Ct. 391, 56 L. Ed. 605. But the rule does not apply when, as in the case at bar, the power of the court, and not merely the exercise of its discretion, is the controverted question. Newton v. Consolidated Gas Co., 265 U.S. 78, 83, 44 S. Ct. 481, 68 L. Ed. 909; United States v. Knowles' Estate, 9 Cir., 58 F.2d 718; Stallo v. Wagner, 2 Cir., 245 F. 636; In re Michigan Central R. Co., 6 Cir., 124 F. 727.

Reconstruction Finance Corporation is a corporation created by the act of January 22, 1932, for the purpose of providing emergency financing facilities in the interest of agriculture, commerce and industry. 47 Stat. 5, see also 47 Stat. 709, 48 Stat. 1108, 15 U.S.C.A. § 601 et seq. Its capital stock is owned by the United States and its affairs are managed by a board of directors consisting of three exofficio members and four other persons appointed by the President of the United States by and with the consent of the Senate. Beyond doubt it is a governmental agency for which the corporate form was adopted for administrative convenience. Baltimore Nat. Bank v. Tax Commission, 297 U.S. 209, 211, 56 S. Ct. 417, 80 L. Ed. 586; Langer v. United States, 8 Cir., 76 F.2d 817, 823. Section 4 of the act creating the corporation gives it power "to use and be sued, to complain and to defend, in any court of competent jurisdiction, State or Federal." 47 Stat. 6, 15 U.S.C.A. § 604. The present suit was brought to enforce supposed property rights in certain trademarks which the plaintiff had acquired under a bankruptcy sale of the previous corporate owner to which the plaintiff had made a loan. On the merits the case went against the plaintiff. D.C., 28 F.Supp. 920. Were it an ordinary private corporation costs would undoubtedly have been awarded to the successful defendants.

Rule 54(d) of the Rules of Civil Procedure reads as follows: "(d) Costs. Except when express provision therefor is made either in a statute of the United States or in these rules, costs shall be allowed as of course to the prevailing party unless the court otherwise directs; but costs against the United States, its officers, and agencies shall be imposedl only to the extent permitted by law. * * * " This rule is merely declaratory of existing law with respect to the imposition of costs against governmental agencies. There is no statutory provision expressly permitting the taxation of costs against the appellee. Hence the appellants must find an implied permission if they are to prevail.

It is well settled that when the United States is a litigant, whether suitor or defendant, costs are not taxable against it in the absence of direct statutory authorization. United States v. Chemical Foundation, 272 U.S. 1, 20, 47 S. Ct. 1, 71 L. Ed. 131; United States v. Worley, 281 U.S. 339, 344, 50 S. Ct. 291, 74 L. Ed. 887; The Glymont, 2 Cir., 66 F.2d 617, 619; United States v. Knowles' Estate, 9 Cir., 58 F.2d 718. But these cases are not necessarily controlling when special governmental activities are conducted through the medium of a corporate instrumentality endowed with many of the attributes of a private corporation, including the power to sue and the liability to be sued. As Mr. Justice Frankfurter remarked in Keifer & Keifer v. Reconstruction F. Corp., 306 U.S. 381, at page 388, 59 S. Ct. 516, at page 517, 83 L. Ed. 784, "the government does not become the conduit of its immunity in suits against its agents or instrumentalities merely because they do its work." There the question was whether a Regional Agricultural Credit Corporation was suable. Its charter was silent on the subject. The problem was stated by the court, 306 U.S. at page 389, 59 S. Ct. at page 518, 83 L. Ed. 784: "Congress may, of course, endow a governmental corporation with the government's immunity. But always the question is: has it done so?"

The opinion then went on to show the recent trend of congressional policy and to hold the legal position of Regional Agricultural Credit Corporation in respect to suability to be the same as though Congress had expressly empowered it to sue and be sued. Other recent cases in the Supreme Court also indicate that when authority is given to sue a governmental corporation it is to be liberally construed. See Continental NAt. Bank v. Rock Island Ry. Co., 294 U.S. 648, 684, 55 S. Ct. 595, 79 L. Ed. 1110; United STates v. Shaw, 60 S. Ct. 659, 84L. Ed. ; Federal Housing Administration v. Burr, 60 S. Ct. 488, 84 L. Ed. . In the case last cited the Housing Administration claimed immunity from garnishment.

In denying this claim the opinion of Mr. Justice Douglas (60 S. Ct. page 490, 84 L. Ed. ) states that, in the absence of reasons to the contrary, "it must be presumed that when Congress launched a governmental agency into the commercial world and endowed it with authority to sue or be sued', that agency is not less amenable to judicial process than a private enterprise under like circumstances would be." It was also held that, although the federal statute was silent on the subject, execution under the judgment was part of the civil process embraced in the "sue and be sued" clause and might be issued against funds in possession of the Housing Administration, though not against funds or property of the United States. In the light of these decisions we are led to the conclusion that in conferring upon the appellee the power to sue and be sued, Congress intended to subject it to the ordinary incidents of a suit, one of which is the imposition of costs against an unsuccessful litigant. If the rendition of a judgment against the Reconstruction Finance Corporation, implicit in permitting it to be sued, is not an interference with its governmental activities, we can see no reason for supposing that immunity was granted with respect to the small additional sum that would normally be added to the judgment as costs.

Further indication that a wholly owned governmental corporation is to be treated as a private corporation when the problem is one of suability is to be found in Sloan Shipyars Corp. v. United States Fleet Corp., 258 U.S. 549, 42 S. Ct. 386, 66 L. Ed. 762. At page 56m of 258 U.S., at page 388 of 42 S. Ct. 66 L. Ed. 762, Mr. Justice Holmes stated that where a governmental instrumentality is incorporated "you have a person, and as a person one that presumably is subject to the general rules of law." Another case looking in the same direction is Missouri Pacific R. Co. v. Ault, 256 U.S. 554, 41 S. Ct. 593, 65 L. Ed. 1087. There, although the clause allowing suit against the Director General of Railroads was not the usual "sue and be sued" clause, and seemed in terms to embrace all kinds of liability, it was held not to sanction the recovery of penalties, but to include interest and costs as part of the usual compensatory damages.

The appellee cites National Home v. Wood, 7 Cir., 81 F.2d 963, and Federal Deposit Ins. Corp. v. Casady, 10 Cir., 106 F.2d 784, as opposed to the conclusion we have reached. The first is readily distinguishable by reason of the statute involved, 38 U.S.C.A. § 11d. See National Home v. Wood, 299 U.S. 211, 212n, 57 S. Ct. 137, 81 L. Ed. 130. With the second we must respectfully disagree if the legal position of the Federal Deposit Insurance Company is the same as that of Reconstruction Finance Corporation in respect to costs.

In our opinion the district court had power to allow costs to the defendants on dismissal of the complaint, and they are to be allowed as of course unless the district court otherwise directs. We think it was also within the power of the trial court, at his discretion, to grant the motion for an additional allowance. We express no opinion as to how his discretion should be exercised; we are concerned only with the question of his power. The order denying the motion is reversed in order that the district court may entertain the application for an additional allowance in the light of the appropriate quaitable considerations. Sprague v. Ticonic Bank, 307 U.S. 161, 59 S. Ct. 777, 83 L. Ed. 1184.

The cause is remanded in order that the district court may exercise his discretion both as to normal costs and as to the motion for an additional allowance. ...


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