Summary
In Matter of Union Bank, 73 Misc. 404; 147 A.D. 593, 204 N.Y. 313, the state superintendent of banks, who was investigating the affairs of the Union Bank, pursuant to the provisions of section 8 of the Banking Law, subpœnaed a former president of the bank to attend before him.
Summary of this case from People v. HebberdOpinion
September, 1911.
Thomas Carmody, Attorney-General (Wilber W. Chambers and August Merrill, Deputies Attorney-General, of counsel), for the Superintendent of Banks.
Martin W. Littleton and Stephen C. Baldwin, for Edward M. Grout.
The Union Bank as a State bank is one of the corporations subject to be inspected by the Superintendent of Banks. Before August, 1908, it had been known as the Mechanics and Traders' Bank. It was then reopened as the Union Bank, under the presidency of Mr. Grout, who remained its president on April 5, 1910, when the State Superintendent of Banks closed it and took possession of its property. In the course of examining the bank's affairs, the Deputy Superintendent of Banks is holding public hearings at which witnesses are called, sworn and questioned. When Mr. Grout's presence was suggested, he first offered to appear voluntarily. Later, he asked to be informed as to the proposed line of inquiry, with an opportunity to refresh his recollection by consulting the accounts of the bank, as to details that he could not carry in mind; but when certain differences arose, it was decided that the authority of the Bank Superintendent to call on Mr. Grout to testify should be tested in court.
This application raises two points: first, the right of the Banking Department to conduct this inquiry; and, second, the constitutionality of Code section 855, enforcing the attendance of defaulting witnesses.
The wording of section 8 of the Banking Law gives power to the Superintendent to investigate the affairs of a bank. The Superintendent and an examiner under him may put persons under oath so that the information thus to be obtained shall have the sanction of sworn testimony. It is contended, however, that this provision is limited to investigating a bank which is then doing business, and that the authority ceases after the business and property of the bank have been taken into possession by the Banking Department under section 19 of the Banking Law. While section 8 undoubtedly applies to banks that are normally transacting business, it would often be quite as essential to look into the "mode of conducting and managing its affairs" after the Superintendent had temporarily closed the bank doors. The taking possession of a bank is often necessary as a temporary protection of the public, while upon the Superintendent is devolved the difficult and responsible duty of deciding whether or not the condition and affairs of the bank are, or can be, put into such a solvent state that it may be allowed to resume business. It is, however, pointed out that by sections 18 and 19 the case of a refusal to disclose information may be a ground for the Superintendent to take possession of the bank, and that this provision indicates that an investigation of a bank before closing, and not after it is taken possession of, is all the power of investigation that the Legislature has authorized.
When the legislative intent is considered, it must be borne in mind that the witness now summoned is not an outsider, a depositor, or merely a stockholder, but the official head of the bank. And, even though the bank books and assets are in the custody of the Banking Department, the corporation has not been dissolved, but maintains its corporate charter existence, with its directors and president still in office. Lafayette Trust Co. v. Higginbotham, 136 A.D. 747. Could the Legislature have intended that the exercise of a right under section 19 to take possession and temporarily assume charge of the bank's property — a step often required in an emergency — should thereby stop and cut off the power to investigate the bank officers and employees as to the concerns of the bank and the conduct and administration of its officers up to the day of closing? Such an interpretation would defeat the purpose of the law, as a Superintendent might then naturally delay his taking possession, if that step, otherwise necessary, was at once to tie his hands from the exercise of the right to examine the officials of the bank, the solvency or impaired condition of which it was necessary officially to ascertain. The State supervision over banking has always been a subject of careful, thorough and minute legislation. No other business (not even insurance) requires such scrutiny, regulation and control. The "Safety Fund" Banking Law of 1829 conferred this power of examination. Section 17 authorized the bank commissioners or either of them, "to examine upon oath, all the officers, servants or agents of said corporations, or any other person, in relation to the affairs and conditions of said corporation." Laws of 1829, chap. 94. And, after bank commissioners were abolished in 1843, this means of investigation was continued in some State official. Powers of administration, the exercise of which is thus necessary to safeguard public interests, should not be cut down or narrowed unduly by construction. Interstate C.C. v. Brinson, 154 U.S. 447, 476; Same v. Baird, 194 id. 25, 46.
Hence, notwithstanding the closing of the Union Bank, the Superintendent of Banks is still empowered to investigate its concerns, the connection of its officers and directors, by testimony obtained under the administration of an oath.
The affidavit of the Superintendent of Banks that Mr. Grout's testimony is material and necessary for the purposes of such investigation can hardly be questioned in view of Mr. Grout's official position, from which he has not been ousted by the temporary closure of the bank. It also appears that the official reports of Mr. Grout are the subject of inquiry before the Superintendent. Hence, the Superintendent of Banks could issue a subpœna under Code section 854 to compel Mr. Grout's appearance.
Code section 855 provides for enforcing such a subpœna where a witness is called before an officer, person or body which is not a court. It directs that in such case any judge may issue a warrant to the sheriff to compel the appearance of such defaulting witness.
I cannot discover any ground to hold this familiar provision unconstitutional. Under it, subpœnas have been enforced in aid of commissioners to take testimony, examinations and many other investigations not strictly in court, but conducted under legal authority. It has been sustained in Matter of Superintendent of the Poor, 6 A.D. 144. The Federal decisions cited do not touch the right to call a witness, but rather the extent of the inquiry after the subpœna has been obeyed. Thus, Mr. Harriman's official acts were disclosed before the Interstate Commerce Commission; it was only when questioned on his private affairs that his objections were sustained. 211 U.S. 407.
The granting of this application cannot deal with objections that might be made to questions touching the affairs of the bank before Mr. Grout became an officer or inquiries into his private affairs, which involve questions under section 856 of the Code. Hence, I think that Mr. Grout was required to obey this subpœna and that a warrant should issue to cause his attendance. But this applies only to such an examination as the State authorizes — that is, one conducted by the Superintendent of Banks under his authority.
In order, however, to afford an opportunity for a voluntary compliance with the subpœna or to review this order on appeal, the warrant will not issue for five days.
Ordered accordingly.