THIRD NATIONAL BANK v. IMPAC LIMITED, INC.
Legal provision: 12 U.S.C. 91
Argument of Thomas P. Kanaday, Jr.
Chief Justice Warren E. Burger: We will hear arguments next in 76-674, Third National Bank against Impact limited.
Mr. Kanaday, I think you may proceed, now.
Mr. Thomas P. Kanaday, Jr.: Mr. Chief Justice and May it please the court.
This case arises out of $700,000 loan that was made by Third National Bank to certain borrowers to finance the construction of a commercial office building.
The payment of the loan was secured by deed of trust under the terms of which certain real property was conveyed to a trustee, who was granted the power to sell the property, in the event of default.
The loan was originally made in May of 1973 and originally matured in May of 74.
However, at the borrowers’ request three different extensions of the maturity date were granted, the last of which expired in July 1975.
In August of 1975, the bank determined that the loan was in default and in September 1975, the bank gave the requisite notice of foreclosure.
The process of foreclosure in Tennessee is an exercise of private contractual right and is not accomplished through judicial means.
After the notice of foreclosure was given, the respondents filed this action in the Tennessee Chancery Court seeking to enjoin the foreclosure.
The chancellor granted a temporary injunction restraining the bank from foreclosing.
The bank then moved to dissolve the temporary injunction relying on the provisions of 12 United States Code Section 91.
The chancellor granted that motion holding that Section 91 of the Banking Act, forbid a Tennessee Court from enjoining the National Bank prior to foreclosure.
Respondents filed an interlocutory appeal to the Tennessee Supreme Court, which in its decision, judicially created an exception to the anti-injunction proviso of Section 91.
The Tennessee Supreme Court held that the anti-injunction proviso does not apply for a bank’s debtors seeking to restrain the foreclosure.
The structure of my argument will be first to examine the grammatical and historical meeting of the anti-injunction proviso in Section 91, then the decisions of this Court and the State Court’s decisions and having done that to explore, whether under the circumstances present in this case, there is any constitutional impediment to its historic and natural construction.
Justice John Paul Stevens: Will you somewhere along the line answer this question and that is, whether respondent Impact instead of being a mortgagee, it simply owned the piece of land and your client sent out of bulldozer and started excavating on the land and the respondent objected and your client said that we are starting our new branch office here and the respondent said well, Gee! I have never sold it to you and it turned out to be simply a mistaken identity on the part of your client.
Would the Tennessee Courts be disabled by the Section, you are relying from issuing an injunction in that situation?
Mr. Thomas P. Kanaday, Jr.: Well, clearly under the decision of the Supreme Court in this case, they would not be disabled if…
Justice John Paul Stevens: Well, under your theory, would they be?
Mr. Thomas P. Kanaday, Jr.: Under our theory, I do not know because in the instance that you pass it to me, the bank is acting on its own initiative without reliance on any contractual rights.
In this instance, we are relying on our rights in the contract, in the deed of trust.
So I do not know.
It might be stretched that far.
There is a…
Justice John Paul Stevens: You say then it is simply, literally, no injunction in whatever circumstances conceivable, at least you say it could be prospective.
Mr. Thomas P. Kanaday, Jr.: Yes sir, this Court in 1888, when it decided the case of Pacific National Bank versus Mixter said that it was an absolute prohibition and that the remedy and that was an attachment case and not an injunction case, I do not think that is important.
Justice John Paul Stevens: Well, but it could be quite important, could it not because if you read the Section of the statute you are relying on is used in generous type I think, attachment and execution are both remedies prior to judgment, initiated by a plaintiff and certainly you could read this word injunction is being so limited.
Mr. Thomas P. Kanaday, Jr.: I do not understand that the limitation that is implied by a reference to the attachment.
The bank is relying on the latter part of section 91 which provides “No attachment, injunction or execution shall be issued against such association or its property before final judgment in any suit, action or proceeding in any state, county or municipal court.”
Justice John Paul Stevens: Do you have to go as far as was suggested in the case of the bulldozer and mistakenly on the wrong property?
Do you have to say the statute would go that far in order to support you?
Mr. Thomas P. Kanaday, Jr.: No, sir, you do not.
Justice John Paul Stevens: You have business relationships and business transactions and documents upon which your proceeding has distinguished from the other which is a trespass, I would take it?
Mr. Thomas P. Kanaday, Jr.: Precisely, that is what I have tried to respond that we are relying on private contractual right between the lender and the borrower that were defying the nature of the relationship and the rights on the happening of certain events, rather than a unilateral action on the part of the bank.
Justice John Paul Stevens: Mr. Kanaday, what in the statute draws a distinction between a breach of contract claim and a tort claim?
There is nothing in the statute?
Mr. Thomas P. Kanaday, Jr.: There is nothing in the plain reading of the statute that draws such a distinction, but I do not think that we have to embrace such an egregious.
Justice John Paul Stevens: No, no, but if you concede that the statute does not apply literally in that situation, are you not saying that in some cases it is read literally and in some cases it is not?
Mr. Thomas P. Kanaday, Jr.: Justice Stevens, I am not saying that I concede how the statute would be read under those extreme cases.
I am saying that important distinctions can be made.
I do not know how to…
Justice John Paul Stevens: Well, if one could distinguish between tort and contract, could one also not distinguish as your opponent does, between cases in which the plaintiff is a creditor and those in which he is a debtor?
Mr. Thomas P. Kanaday, Jr.: Yes, but I am not saying that the statute affords us the liberty to make those distinctions either between tort, contract, debtor, creditor.
I am relying on to the facts of this case where there is a private contractual right that there is an absolute prohibition on the statute from the interference prior to final judgment.
If there is any confusion about the proper construction of anti-injunction proviso, it arises that because in its present form, Section 91 as an amalgam of two unrelated statute.
The first portion of the statute, voids preferential transfers of property by Insolvent National Banks, the second portion of Section 91 prohibits a state court from issuing attachments, injunctions and executions against a National Bank prior to final judgment.
The issue in this case of course, is rather a State Court can issue an injunction against a National Bank before closing on collateral, prior to final judgment.
Now, because of the holding of the Tennessee Supreme Court, I think another way of stating the issue is whether the preceding language relating to preferential transfers in some manner does restrict the otherwise, unqualified meaning and unqualified language of the anti-injunction proviso.
Until, 1864, a National Bank could not even be sued in the state court.
In that year, a statute was adopted affording jurisdiction and actions against National Banks in the state court.
In 1873, the Congress adopted the anti-injunction proviso as a limitation upon the jurisdiction of state courts to grant certain types of remedy at certain stages of the litigation in the state court proceeding.
In 1873, there was a revision of the banking and the judiciary code and as a result of this revision, there was an inadvertent deletion of the anti-injunction proviso and it was left out of the code for some two years by mere inadvertence.
Then, in 1875, there was another revision of the code and the anti-injunction proviso reappeared without explanation at the end of the Section which rewarded preference of transfers by Insolvent National Banks and it has remained in that position through the present day.
It was in that position when this court issued its decisions in Mixter, Van Red and Earle.
The Tennessee Supreme Court reached the result that it did by taking the erroneous view that “We look to the purpose of the statute which was to secure the assets of a bank whether solvent or insolvent for ratable distributions among its general creditors.”
We say that was not the purpose of the statute.
The clear purpose was to limit the jurisdiction of the state court to grant extraordinary remedies at a certain stage in the proceeding.
There was a limitation on the Jurisdictional Grant of the 1864 statute.
The first case that this court has decided on it was Mixter, Pacific National Bank of Boston versus Mixter which in 1888 held that the anti-injunction proviso nullified an attachment which had been obtained by a creditor of a national bank against funds of that bank on deposit in another bank.
The Court clearly rejected the argument that the anti-injunction proviso of Section 91 is somehow limited by its preceding provisions awarding preferential transfer.
The court said, “As it stood originally, as part of Section 57, after 1873 and as stands now in the revised statute, it operates as a prohibition upon all attachments against national banks, under the authority of state court.
The form of its reenactment in the revised statute does not change its meaning in this particular.
All attachment laws of this state must be read as if they contained in expressed terms that they were not able to apply to suit against a national bank, the remedy is taken away all together and cannot be used under any circumstances” and it was further said, that “If the power of issuing attachments has been taken away from the state court, so also is the power of issuing injunctions that is true.”
And that was, this Court’s unanimous construction of the statute in 1888.
The Mixter case then was followed by the case of Earle versus State of Pennsylvania.
In that case, a creditor of a bank customer sought to reach funds on deposit in the bank.
The bank claimed no interest in the funds and was a mere stakeholder.
This court concluded that this was not an action against a bank or its property rights.
It is interesting to note that the Supreme Court in the Earle decision dissolved the attachment against stock which the bank held is collateral for a loan of that customer.
But unhappily, we do not have a statement of the reasoning of the court and doing this, presumably because of the applicability of the anti-injunction proviso.
The present case is clearly not within the ambit of the exception in the Earle case.
For in the present case, the proceeding is brought by the respondents against a national bank as named party defendant and obviously the injunction which they seek would materially affect the bank property rights and its collateral.
The final decision was in 1905 in Van Reed versus People's National Bank, which reaffirmed the holding of Mixter again in an attachment case.
Justice John Paul Stevens: What is the procedure for the bank in this case for closing on its security?
Mr. Thomas P. Kanaday, Jr.: Under the terms of the Deed of Trust, the trustee who is appointed in the instrument, in this case there was a substitute trustee appointed, the bank gave notice to the customer of the default, called the loan, then published in a newspaper in Davidson County, Tennessee, in Nashville, once each week...
Justice John Paul Stevens: It takes no official participation, it takes no participation, it is not a judicial foreclosure?
Mr. Thomas P. Kanaday, Jr.: No sir, the courts are not used at all.
The trustee appointed in the instrument does act to enforce the bank’s right under the power of settle grant (Voice Overlap).
Justice John Paul Stevens: But he is not in any kind of public official?
Mr. Thomas P. Kanaday, Jr.: No sir, I am the trustee in this sale was a matter of fact.
Justice John Paul Stevens: What about at the sale?
Mr. Thomas P. Kanaday, Jr.: The other trustee then reads the notice of foreclosure whereas there has been a default called the note due and it has been advertised in…
Justice John Paul Stevens: But at no time in the whole foreclosure procedure, is there any official participation?
Mr. Thomas P. Kanaday, Jr.: Any public official, no sir, there is not, not at all.
We did not get any…
Justice John Paul Stevens: Well, in your capacity you have the same responsibility I suppose on constrictions as a public official, do you not?
Are you responsible to a court for…
Mr. Thomas P. Kanaday, Jr.: The sale after it is held by the trustee is not reviewed by a court; as I understand some states have a conformation process or something like that.
We do not have that actually; it is entirely a private act.
There is a fiduciary obligation of course that the trustee has, but there is no public review, there is no public empowerment…
Justice John Paul Stevens: Automatic judicial review.
Mr. Thomas P. Kanaday, Jr.: That is correct.
Justice Byron R. White: Was there any constitutional issue presented in the courts below?
Mr. Thomas P. Kanaday, Jr.: Mr. Justice White, there was no constitutional issue presented in this case at all, until after I filed my brief after this court had granted Certiorari and it was raised in the respondents reply.
Justice Byron R. White: What is your position on the – whether the respondent is privileged to attempt to sustain the judgment below by making a constitutional argument?
Mr. Thomas P. Kanaday, Jr.: I think that you are addressing this to the timeliness issue of…
Justice John Paul Stevens: Assume we agree with you except for the constitutional issue that is presented here, do we have to face that or must we…
Mr. Thomas P. Kanaday, Jr.: No, sir I do not think that it is even appropriate that you face this.
Justice John Paul Stevens: Why?
Mr. Thomas P. Kanaday, Jr.: Because in the case of Cardinal versus Louisiana, an unanimous decision which you wrote, you wrote this way “The court has consistently refused to decide federal constitutional issues raised here for the first time on review of a State Court decision.
Justice Byron R. White: So, you think that is a jurisdictional matter, the case is properly here, is not it?
Mr. Thomas P. Kanaday, Jr.: Yes sir, it is.
Justice John Paul Stevens: Well, the respondent now wants to sustain the judgment on constitutional ground.
Mr. Thomas P. Kanaday, Jr.: And your question is what?
Unknown Speaker: Well, it may that is the respondent privileged to argue that this statute that you rely on is unconstitutional?
Mr. Thomas P. Kanaday, Jr.: No, sir I do not think so.
One for the reason that you stated in the Cardinal decision, you noted not only the jurisdictional considerations incident to that rule, but you also noted the policy reasons incident to judicial administration.
You said questions not raised below are those on which the record is very likely to be inadequate, since it certainly was not complied with those questions in mind.
Now, apart from this court role in the appropriate review of this case, I think there is another result of the failure to raise the question in timely fashion and that is a plain waiver of a constitutional right which any party can do in either civil or criminal litigations, by not having raised it in the trial court, not having raised it in the State Supreme Court and it is obvious that it was not raised in those proceedings, because the State Court’s opinion clearly said and I agreed with it at the time on this one point that there was no jurisdiction in any other forum and they devote a portion of the decision to a holding that the case could not be brought in the Federal District Court, which was true as we understood the case at that time, thinking it was strictly a federal statutory construction case.
Unknown Speaker: Mr. Kanaday if the mortgagor wants to challenge the question of default, are they really in default, A) how is it normally done, if there is a State Bank says the mortgagee and in this case how would he do it, once a Federal Bank under your view?
Mr. Thomas P. Kanaday, Jr.: There are two procedures to be followed as I am familiar with the law as it is practiced in Tennessee.
One would be; a pre-foreclosure proceeding to enjoin the sale or to have the sale held but then subject to further orders of the court pending a hearing.
Another approach would be a post-foreclosure proceeding to nullify the sale to set it aside or lacking that, they might be content to file a suit for monetary damages.
Unknown Speaker: What is the normal procedure if you have a State Bank as the mortgagee, what is usually done in this a kind of controversy?
Is it the pre-foreclosure injunction proceeding?
Mr. Thomas P. Kanaday, Jr.: Your Honor, I have seen both types of actions brought during the real estate crunch in 1974 and 1975.
There were plenty of both types of actions and the reason that so many of the actions were brought after foreclosures that Tennessee does have a statute barring an application for an injunction unless it is filed within five days preceding foreclosure and many people sort of trip up on that procedure or requirement which and bring the post…
Unknown Speaker: And that procedure would be available against a National Bank here, that the post-foreclosure procedure would available?
Mr. Thomas P. Kanaday, Jr.: Oh, yes sir.
Chief Justice Warren E. Burger: We resume there at one o’clock Mr. Kanaday.
Counsel you may continue.
Mr. Thomas P. Kanaday, Jr.: I will reserve the balance of my time Your Honor.
Chief Justice Warren E. Burger: Oh! Very well, Mrs. Pigg.
Argument of Gail P. Pigg
Ms Gail P. Pigg: Mr. Chief Justice and May it appease the court.
Petitioner propounds the theory that courts of our land cannot interfere by injunctive relief to protect the citizens of our land from wrongful foreclosure of their property by a National Bank until a final hearing at which time I submit the damage is done.
Chief Justice Warren E. Burger: What do you think the statute means and what was its purpose?
Ms Gail P. Pigg: You Honor I think that the statute clearly on its face, means that its purpose is to protect creditors from ratable distribution, protect the assets of the bank from ratable distribution among its creditors.
The statute defines; it is self defining in that the heading of it regulates transfers by banks and other acts in contemplation of insolvency.
It goes further after that heading and it prohibits transfers, assignments, payments of money of committed act or an act of insolvency or in contemplation there off with a view to prevent the application of the banks’ assets in a court with the National Banking Act and with a view to prefer one creditor over another, then Your Honor, it has a semicolon and it says and no attachment or no injunction attachment or garnishment will issue against any bank, against any, in their case it says state bank, pending a final hearing.
It says also against the bank or its assets and I submit there is an important clause, but Your Honor, Mr. Chief Justice I submit that it is free and clear of ambiguity, that you cannot pull the last clause of that, that entire statute it is one sentence.
I submit that you cannot pull the last clause and apply to wherever it is that you want to apply.
I submit that this is good law and I would like to say initially that I do not argue or that responded does not argue with that law, but the petitioner goes further and says that this court has ruled three times, that the courts cannot interfere with national banks to protect the assets of its debtors pending a final hearing, always pending a final hearing.
Now, I submit that these cases did not hold that.
I would like to take a very quick look at Mixter.
Mixter was decided by Chief Justice White or Mixter was an opinion written by Chief Justice White in 1888.
In that particular case, the bank owed Mixter $15,000.
Mixter began a suit by attachment.
Now, the bank was not insolvent on the date apparently that that attachment issued, but just prior day too, it closed its doors.
Then it resumed business.
During the resumption of business, the attachment issued.
Now, I would like to say to the court that in the Mixter case, I have felt that it must be a typographical error because the year was one year preceding the period of time that is involved and I think when the court reads that case, it will see what I mean.
Nevertheless, the bank was in severe financial difficulty at that period of time.
This would be I think the obvious reason why the court extended or appear to extend the statute to mean that the banks did not have to be insolvent.
The Earle case decided by the court in written and the opinion written by Justice Harlan in 1900 did not go that far.
This was a case in which one Mr. Long as I recall had a judgment for some $31,000.
An attachment issued by garnishment and the court in that instance hailed that this last clause related back to the rest of the Section.
Now, it also in that instance went on to say that this was not an asset of the bank, but nevertheless it clearly allowed the attachment by garnishment to stand.
There is then another case, this is Van Reed decision written by Mr. Justice Dave (ph) in 1905 and this case was another simple attachment by a creditor, in which event the court related back to the Mixter case and extended the statute to apply beyond insolvency, but I submit to the court that these banks clearly protect or these cases clearly protect the bank against interferences of its asserts by the creditors.
Justice Potter Stewart: In those three cases it was the, they were creditors of the bank, is that it?
Ms Gail P. Pigg: Yes sir, they were creditors of the bank, Mt. Justice Stewart.
Justice Potter Stewart: In all three cases…
Ms Gail P. Pigg: And none of these cases and it’s almost frightening to me that the extension that they have extended this far.
None of these cases stands for the proposition.
None of theses cases had before it the question as to whether the bank can wrongfully take away the assets of the debtor’s property or the assets of one of its debtors.
Not a single one and I submit that neither of these cases stands for that proposition.
I have alluded, I think to the fact that property held as security under deem of trust in Tennessee is not owned by Bank and I would like to look to Tennessee law on that point for a moment, and this is our supported course in my brief, but the mortgagee is clearly a creditor.
His only interest in the property is as security.
He is not deemed to be a property owner.
The court has clearly held and this was I think in 1955 Supreme Court case that legal title vests in the trustee, and this has been holding in that state for the last many, many years, certainly since the turn of the century.
Justice Potter Stewart: And who is the trustee in this case?
Ms Gail P. Pigg: The trustee in this case, I believe now is Mr. Kanaday, but the trustee Your Honor in a situation like this is always selected by the mortgagee always.
I know of no exception to that rule.
The trustee is simply selected by the lender.
Unknown Speaker: Doesn’t a mortgagee have inequitable interest in the property?
Ms Gail P. Pigg: Your Honor certainly the mortgagee has an interest from the standpoint of his security interest.
He has and we get into a situation here where it becomes shaded.
Once the property is sold to a bona fide purchaser, now I will get back to answer to your question in just a moment, but once the property is sold to a bona fide purchaser, contrary to what petitioner say is that that property under the Tennessee law is gone.
It is beyond the reach of that mortgagor.
Now, that is assuming that he is a bona fide purchaser of course, but the trustee has only such power as he is granted in that day to trust.
Now, the serious question becomes the serious question throughout this entire matter becomes who determines default.
In the event there is no default the trustee has no power and it is a dry trust.
There are cases again throughout state that state just exactly that and I would like to point that the Jones Kennedy said, it is cited in my brief on page 14, states that the property cannot be recovered, in that instance there was a fraudulent sale, an actual sale whereby the mortgagee fraudulently took the property of back and then sold to a bona fide purchaser, and then the court held that the petitioner could only recover or the plaintiff in that case could recover the damages.
Unknown Speaker: What did the deed of trust say in this case?
Ms Gail P. Pigg: Your Honor the deed of trust in this instance was used was a very standard form of deed trust.
Unknown Speaker: Whatever the standard it was, what did it say about mortgagee, privileges -- and to decide upon?
Ms Gail P. Pigg: In the event of default he can advertise for twenty or twenty one consecutive days or three consecutive weeks and this is stated, but there is nothing in the deed of trust that tells how one determines default.
There is no labor in the deed of trust back that mortgagor.
Chief Justice Warren E. Burger: Well, doesn’t a person declare any default do so at his own peril if he is mistaken?
Ms Gail P. Pigg: Your Honor he does so at his own peril, and forgive me Mr. Chief Justice…
Chief Justice Warren E. Burger: In any situation where the power to declare a default is vested in one person.
Ms Gail P. Pigg: That is not the question before this court.
With the permission of the Court, the question is…
Chief Justice Warren E. Burger: Tell me the answer to my question and we will see if it fits in.
Ms Gail P. Pigg: Yes, I would have to agree that he does so at his peril, but then I would have to parry with the question what is his peril?
What is the remedy of the property owner?
The remedy of the property owner; first of all Tennessee does have the right of equity or redemption, but it is waived in this deed of trust as it is waived and virtually all deeds of trust in state of Tennessee, I know of none that would be different.
So what is his remedy?
He has waived it in the papers and the terms that are decided or controlled by the lender.
He has waived demand notice and protest.
He has waived the equity or redemption.
What can he do?
There is only one thing that he could do if the theory of petitioner were accepted.
He could, petitioner says that he can recover the property, this is error.
He can recover the property if the mortgagee is the successful bidder and retains the property then he could, I am confident recover the property under Tennessee law.
But, if the mortgagee is not the successful bidder he cannot recover the property as previously stated.
His next remedy then and petitioner would delegate him to the second best remedy.
He has only one other and that is to recover damages.
I submit to the court, that to recover damages in this instance is not sufficient.
Damages are simply inadequate and I would turn the attention of the Court to the fact that the Chancellor in the first hearing of the matter before this question arose, before the question of jurisdiction, did find that irreparable damages would occur, if foreclosure were permitted to be held prior to a final hearing.
Then of course when this question arose, he dissolved the injunction only to be reinstated by the Tennessee Supreme Court.
I submit, to the court that beyond the inadequacy of the damages that the legal fees that would be involved in seeking that final redress would be impossible, absolutely impossible for most people.
We are not dealing here only with business hardcore commercially oriented people.
We are dealing here with literally hundreds of thousands of home loans, home improvement loans, automobile loans, office loans, every kind of loan and in each one of those instances, petitioner stands before the court and say that you cannot interfere if they wrongfully foreclose.
Unknown Speaker: But we are only concerned in this case with the Statute involving National Banks as I understand it?
Ms Gail P. Pigg: This is true Your Honor and I am referring always throughout my argument only to National Banks.
When I state that we are concerned, they have mortgage loans and we are concerned with these types of loans.
Unknown Speaker: I think you made a statement if I understood you correctly that there is nothing in the Deed of Trust that indicated what constituted on the event default?
Ms Gail P. Pigg: No, sir this was not so.
I am sorry Your Honor, if I mislead.
There are certain things that are obliviously constitute default.
Unknown Speaker: It sets forth a long list of things that might constitute the default.
Ms Gail P. Pigg: Yes Sir, one of being nonpayment, one on them being a question of whether the property is being damaged or taxes have been paid or insurance has been kept in enforcement there, those are just some of those, but I am talking about when I responded to the question earlier, I am talking about who will make that determination?
Let me, take the example of a case that I have simply followed throughout my briefing, and would prefer to name.
Take the situation of a man who pays the account and it gets wrongfully credited to someone else’s account.
No demand, no notice, no protest, he does not have to be given these.
Advertisement is held for three consecutive weeks, and if he is fortunate enough he finds that in the newspaper which is a legal publication.
From that point he immediately tries to stop that sale.
Tennessee Law as Mr. Kanaday stated to the Court earlier, has a five-day notice requirement.
You must give the mortgagee five-days notice before an injunction can be held or a hearing can be held actually.
So the oppressed party and I will call him the oppressed party at this point because I feel that he is, he attempts to stop the sale and applies to the Court for injunctive relief and the court says to that citizen, we cannot help you.
The Courts do not have power over the banks to stop your property from being sold.
We can help you only, after the act is done and we will try to help you recover damages.
I summit to the court that this is at the point of taking.
It becomes questionable is to whether there is a violation of due process of the Fifth Amendment of that individual.
Now, I want to quickly respond to a question that was asked of the petitioner earlier and that is that I do not attack the statute as unconstitutional because not for one moment do I concede that either Congress or this Honorable Court ever would allow any bank, anywhere to stand in the shoes of the Court and make a determination as to whether a man is in fact in default or is not.
So I certainly do not attack it as constitutional.
I say only that if the construction were accepted which petitioner propounds that it would render it unconstitutional and that is the only way that I enter that argument.
Justice William H. Rehnquist: Well, in that sense if you are right and we agree with petitioner in his suggested construction of statute, we affirm that we have reversed the judgment of the Supreme Court of Tennessee because they were wrong on the statute and the constitutionality of the statute was never challenged.
Ms Gail P. Pigg: Yeah, there was a -- I would have to say to the Court, to Mr. Justice Rehnquist that there has been no challenge of the constitutionality here and perhaps I misunderstood what you were saying.
Justice William H. Rehnquist: Well, I think you have to fish or cut bait on thing.
Either you do assert a constitutional challenge and then you have to demonstrate that you have a right to do so on this state of the record or you say as I understood you to say that you are simply using the constitutional argument as a guidance to statutory construction, which we are free to consider along with all the other statutory guidelines.
Ms Gail P. Pigg: Yeah, this is correct; this is precisely what I am doing.
Justice William H. Rehnquist: Which is precisely what you are doing?
Ms Gail P. Pigg: I am submitting it as the construction as a part of determining the statute.
I do not attack the statute as unconstitutional, I never have.
Unknown Speaker: So, if we disagree with you on the construction of the statute, you do not expect us then to reach any constitutional argument?
Ms Gail P. Pigg: Well, obviously not.
This is an argument from my standpoint and I will proceed from that, but I would submit to the Court that there is an additional situation here.
Whereas the man who has the example that I proposed, of the man who has lost his house, goes back into the sign court rounds with the man next door who did not have used loan with a national bank and the Court the says he cannot grant an injunction in so far as a savings in loan or an insurance company, but not as to a national bank.
What is the feeling of the individual at that point, as to who makes the determination of default?
What is his 39.23 to due process?
Has he had a hearing?
I submit to the court that he has not had a hearing.
He has simply launched the property prior to the time of taking.
I would also go about back and sight Mr. Justice Stewart in the 39.40 because the language is far better than I could say it.
In that if the right to notice and a hearing is to serve its full purpose, it must be granted at the time when the deprivation can still be prevented, that this court does not embrace the proposition if the wrong can be done if it cannot be undone.
I submit first of all that the wrong can not be undone, but if it could, that that does not relay the fact that the oppressed citizen has still lost his property.
The wrong was done at that period of time.
There are three major points that I state here.
First of all, that the statute on its face is free of ambiguity.
Second, that the property is not an asset of the bank.
It is still an asset of the citizen.
Third; that the construction they seek would render in violation of the Fifth Amendment.
I submit to the court somewhere in the petitioner’s brief, I have stated that the wheels of business must continue to run.
I state that the wheels of business must give way and let the Courts determine if there is default.
First of all now, there is nothing here which would interfere with the bank’s rights, ultimately.
If there is a hearing under the Foreclosure Injunction Statute which we have, if there is a hearing then it will be determined at that time whether there is possible or are possibly repairable damages.
From that point, there will be a hearing.
If the Court finds at that time that there are no irreparable damages in the picture and no showing of irreparable damages, then there will not be an injunction granted.
There is only and a determination to be made as to whether there are irreparable damages and whether the bank in fact, has a right to foreclose.
Justice Potter Stewart: Mrs. Pigg did you argue in the Supreme Court of Tennessee that to construe this statute against you would be to impinge your constitutional rights of due process of law?
Ms Gail P. Pigg: Mr. Justice Stewart I did not.
Justice Potter Stewart: You did not make that argument?
Ms Gail P. Pigg: No sir, I did not.
I would state to the Court that I do follow rule 40 of the Supreme Court rules that in that the statement of a question presented would be deemed to include every subsidiary question fairly presented there in it and I do feel that this is a question fairly presented under the issue.
To please the Court, I think the issue is obvious and I think that it really is a quite simple issue.
The Tennessee Supreme Court did not accept petitioner’s theory that the Tennessee Courts could not protect citizens’ properties from wrongful foreclosure.
I submit that that court gave that decision contrary to petitioner’s statement in his brief, very thorough examination and very thorough consideration and that it is certainly in the interest of public policy alone, if not simply to misconstrue a statute, that the State of Tennessee, the Supreme Court of Tennessee be upheld in its decision.
Thank you Your Honors.
Justice Potter Stewart: And you too, you have any further, Mr. Kanaday.
Rebuttal of Thomas P. Kanaday, Jr.
Mr. Thomas P. Kanaday, Jr.: Yes sir, I do.
If as the Tennessee Supreme Court held and if as the respondent urges on this court the prohibition against the issuing of injunctions is somehow, constricted by the preceding language in Section 91 relating to preferential transfers to condition to Insolvent Banks to the securing of a bank’s assets for ratable distributions among its creditors, then, this court find it necessary to ignore the statutory context in which the anti-injunction proviso was adopted and that was as an amendment to the statute conferring jurisdiction on State Courts to hear actions against National Banks.
It will not only be necessary to ignore the context of its enactment.
It will be necessary to ignore the decision of this Court in the Van Reed case while in the Mixter case, as Mrs. Pigg stated, there was no insolvency in the bank at the time that the attachment arose.
It did become an insolvent, but the Van Reed decision dispelled any notion that the application of anti-injunction proviso is in anyway limited by the state of dissolvency of the bank in question or the securing of assets for ratable distribution to its creditors and then make that quite explicit in the Van Reed opinion, there's no intimation that the bank and Van Reed was insolvent or was having financial difficulties or had committed preferential.
Unknown Speaker: Mr. Kanaday, in the jurisdiction where I practice for 16 years, the statutes provide there could be no foreclosure of a mortgage without judicial action and in a judicial action such as was provided by the laws of Arizona, a mortgagor or a debtor could raise any of the issues which your opponent has tried to raise here and the court simply would not grant foreclosure until it had a hearing on those issues.
Now, I take if there's nothing in that statutory procedure that would violate what you refer to as the anti-injunction provisions.
Mr. Thomas P. Kanaday, Jr.: I don’t believe so Your Honor, although, I am not intimately acquainted with that process.
Unknown Speaker: Well, then would it not make some sense to construe the injunction language as I suggested earlier as being the same sort of injunction or the kind of injunction that you would think of in connection with attachments and executions, that is what a plaintiff creditor could get against a bank?
Mr. Thomas P. Kanaday, Jr.: No sir, I don’t think so, one; because it is an absolute unconditional, unqualified prohibition in its expressed terms.
The type of foreclosure that Tennessee has under its deeds of trust is the type that it had since 1796 when it became a state.
This was known to the Congress.
I think that what you are suggesting is an important policy consideration where we determining point is the appropriate legislative policy, but I don’t think it's of any assistance in the construction of the statute as we find it now.
Unknown Speaker: You agreed with Mr. Justice Stevens that the statute couldn’t be read literally out to the very length and breadth of it's literal language, that no repeat, no injunction shall ever be issued by a State Court against a National Banking Association, did you not?
Mr. Thomas P. Kanaday, Jr.: I don’t recall unqualifiedly going along with that.
Unknown Speaker: Well, but what is your position?
Your answer to my bulldozer example was that you really did not have to express an opinion on it, was it not?
Mr. Thomas P. Kanaday, Jr.: That is correct.
We can always conjure up a parade of probables that it carries a case beyond…
Unknown Speaker: Well, but what distinction would you draw in order that my bulldozer example could be governed by and you could get an injunction in that case and you cannot get one in this?
Mr. Thomas P. Kanaday, Jr.: The distinction that I would draw would be limited to the facts of this case.
I am not prepared to tell this Court what would or would not happen in the bulldozer case because we do not have the bulldozer case.
I am prepared to say that there is a basis for a logical distinction where the bank is acting pursuant to a private contract which defines events of default and consequences of those events of defaults as opposed to when the bank acts unilaterally on its own notion.
Unknown Speaker: Now, suppose you would to say an injunction was barred if the bank was engaged in some activities not related to its banking business?
Unknown Speaker: For example, if it started to drill for oil on the land, technically, you think a court of equity may allow on an injunction then if you could show all the usual requirements.
Mr. Thomas P. Kanaday, Jr.: It may well be that when a National Banking Association is acting beyond its powers.
It is not entitled as in those activities to the protection of the National Banking Act.
In the present situation, it is the most usual type of national banking power that it is exercising and that is to realize upon collateral.
Unknown Speaker: Mr. Kanaday, what happens if as a matter of fact the bank violated the contract and the mortgagor did not?
What remedy would the mortgagor have under the laws of Tennessee?
Mr. Thomas P. Kanaday, Jr.: Well, Mrs. Pigg and I seem to have a difference of opinion as to whether or not the sale could be nullified and set aside.
She said that under Tennessee law, this could not happen if it came into the hands of a bona fide purchaser.
As I understand the law in the State of Tennessee that no notion of the good faith purchase of a value in real property, the transfer retakes no better title than the transferor conveyed and so I think that it could be set aside as a matter of conveyance involved.
In addition, the bank acts at its extreme peril because there could be a remedy of damages, which all be it, leaves some room for dissatisfaction which is the conventional remedy for wrongful taking.
Unknown Speaker: As you change a law, I always thought that property could not be compensated adequately for damages.
Well with that aside, assuming that the computer made a mistake and the payment had been made twice what it should have been made and it came out that it had been made and the property is sold to bona fide purchaser, what remedy does the mortgagor have?
Mr. Thomas P. Kanaday, Jr.: In my opinion, they have the remedy to set the sale aside and should that not be granted…
Unknown Speaker: Is that by a statutory law?
Mr. Thomas P. Kanaday, Jr.: No sir it is not.
Unknown Speaker: Is it by case law and if so what is the case?
Mr. Thomas P. Kanaday, Jr.: I do not think that there is any case that I can call to your attention today on that point, but in the conveyancing law in the State of Tennessee, the transferee takes no better title to the transferor and it is actually two parts to it; the transferor would not have the legal power to conduct the sale.
It would be an absence of capacity as though it were a minor.
Unknown Speaker: But I thought the trust agreement waived their right to do that.
Mr. Thomas P. Kanaday, Jr.: It waves to equity of redemption, which is different from the equitable power to void a transaction I think.
Unknown Speaker: So you are saying that a part of equity could order a recession to that sale on the showing that is postulated by Justice Marshall.
Mr. Thomas P. Kanaday, Jr.: Although I admit the mistake and I differ on at construction of Tennessee Legal principle.
Unknown Speaker: Mr. Kanaday, I want to be sure of one thing.
I take it your posture here is that you are relying on the strict language of the statute.
Mr. Thomas P. Kanaday, Jr.: Yes sir, I am.
Unknown Speaker: And I also take it that in effect you have conceded that there might well be a legislative policy that would apply where if the bank is the debtor on the one hand and in a situation of this kind it might be a very different legislative policy.
Mr. Thomas P. Kanaday, Jr.: If I made a concession that there is a different legislative policy implemented in the anti-injunction proviso depending on whether the bank is a debtor or a creditor it was in a inadvertent admission.
I think that policy that is expressed in this act is a concern incident to the Federal regulation of the national banks for the liquidity of the banks, for the ability to immediately realize on important types of assets that are within the bank’s control.
That asset maybe a bank account as it was in Mixter, the asset maybe or the property right which is important to the solvency and the continuing management of the bank, maybe it is collateral, banking up a loan.
I think it is the same policy that underlies the statute further, if the bank is debtor or creditor.
Unknown Speaker: Then I run right smack into Justice Rehnquist’s enquiry about his bulldozer case.
You can say the same thing about that.
Mr. Thomas P. Kanaday, Jr.: I do not know whether that is an appropriate exercise of the banking powers to do that type of an act and I admit that that is a real egregious, horrible that has been applied.
We can be equally disheartened about the widow, whose life savings is in the her home and she only owes a $1000 and the bank wrongfully forecloses, we can postulate like horrible, but I do not think that we are dealing with anything here, but a foreclosure on a $700,000 commercial office building and I think that we make a mistake…
Unknown Speaker: Which I take it is worth more than that.
Mr. Thomas P. Kanaday, Jr.: I could not tell you whether you could make a deal on the building or not Your Honor, the bank might be tempted.
Unknown Speaker: Banks hope that it is worth more than that, don’t they, to get their money back.
Justice John Paul Stevens: Mr. Kanaday am I correct though that your argument based on the history of the statute that this is in the nature of the condition on the consent of the suit in the State Courts would apply equally to the tort case or the bulldozer?
Mr. Thomas P. Kanaday, Jr.: Mr. Justice Stevens, I must admit that because I view the entire injunction proviso as a limitation on the congressional grant of jurisdiction to State Courts that you got me into that corner and if I am going to be faithful to that position, I suppose view it as a jurisdictional limitation that it might well do that.
The factors that we have heard mentioned today, adequacy of other remedies, legal fees, fraction on home loans, the possibility of error in bank judgment, these are all important considerations.
These are the types of the things that Congress in its wisdom should balance in its mind and in its will in formulating the extent to which it would consent for the national banks to be sued in State Court forum.
Chief Justice Warren E. Burger: Mr. Kanaday your time has expired.
Mr. Thomas P. Kanaday, Jr.: Yes sir.
Chief Justice Warren E. Burger: Thank you Mrs. Piggs and Mr. Kanaday, the case is submitted, we will hear arguments…