1 Findings of Fact assessments asserted against him as a stockholder of the Guardian Group: $1,018.05 paid September 27, 1933, to the receiver of the Guardian Bank, and $1,000 paid November 10, 1933, to the conservator of the Union Guardian Trust Company, another of the constituent companies of the Guardian Group. The latter amount is not involved in this action. 27. In his return for the calendar year 1933, the plaintiff reported total income from salaries, dividends, rents, etc., of $114,285.32, less losses on sales of capital assets of $35,917.66, that is, a net total income of $78,367.66. He claimed deductions of $14,162.42 on account of interest, taxes, bad debts and contributions, plus other deductions authorized by law in the amount of $160,470.69, which latter figure included an amount of $145,945.72 for the alleged worthlessness of his stock in the Guardian Group, that is, the total cost of that stock. The aforementioned deduction of $160,470.69 also included an amount of $2,018.05 paid by the plaintiff in 1933 to the receiver of the Guardian Bank and the conservator of the Union Guardian Trust Company, as shown in finding 26. The return showed a net loss of $96,265.45 and no tax due. Without the deductions claimed of $145,945.72 on account of the Guardian Group stock and the assessment of $2,018.05, the return would have shown a net income of $51,698.32. 28. By form letter dated December 4, 1935, the Revenue Agent in Charge at Detroit, Michigan, notified the plaintiff with respect to his return for 1933 as follows: This office is recommending to the Commissioner of Internal Revenue that your income tax returns for the year or years indicated be accepted as correct. I am sure you will appreciate that this action is subject to approval in Washington, and also that, should subsequent information be received which would materially change the amount reported, the Bureau is obliged under existing laws to redetermine your tax liability. No field investigation of the return was ever made by the Internal Revenue Bureau, and no adjustment was ever made by the Internal Revenue Bureau in the return. Findings of Fact 122 C. Cls. 29. Litigation was instituted by some of the stockholders of the Guardian Group in the United States District Court at Detroit seeking to enjoin the receiver of the Guardian Bank from collecting the assessments made against the individual stockholders of the Guardian Group. A cross-bill of complaint affirmatively seeking to collect the assessments was filed by the receiver. Following trial, the court decided in favor of the bank's receiver and entered a judgment in his favor upon the cross-petition. From that judgment, an appeal was taken by the Guardian Group stockholders to the United States Court of Appeals for the Sixth Circuit. 30. While the appeal was pending, most of the stockholders of the Guardian Group declined to pay their proportionate assessments pending final determination of the litigation. The receiver for the Guardian Bank, however, accepted conditional payments on the assessments with the understanding that the payments would be refunded to the stockholders of the Guardian Group if it should be finally decided that the assessments could not lawfully be collected from them. 31. As shown in finding 23, the Guardian Bank was closed on February 11, 1933. It did not function as a bank after that date. The book value of its assets on that closing date was $131,132,808.58 and of its liabilities on the same date was $114,391,990.17. On March 13, 1933, the Comptroller of the Currency appointed B. C. Schram conservator of the Guardian Bank. On May 11, 1933, the Comptroller of the Currency declared the Guardian Bank insolvent and appointed Schram receiver for that bank. 32. During 1933, through collections, sales of assets and loans from the Reconstruction Finance Corporation, Schram, as conservator and receiver of the Guardian Bank, paid a series of dividends aggregating 68 percent of all proved general claims against the bank. At the time of the payment of the last of those dividends, which amounted to 8 percent, 167 of the large depositors, acting through a committee, voluntarily consented to the use of their share of that dividend by the receiver to pay in full all of the depositors with proved claims of $1,000 and less. As a part of that arrangement and after such small depositors had been paid in full, a committee was formed in 1933 known as the Guardian Depositors 1 Findings of Fact Committee to prepare and submit a plan for the purchase of the remaining assets of the Guardian Bank by a depositors' liquidating corporation which would result in the payment of a final dividend to the creditors of that bank and the termination of the receivership. 33. The aforementioned Guardian Depositors Committee, with the cooperation of a committee of the stockholders of the Guardian Group and of the Comptroller of the Currency, prepared a plan of the character referred to in the preceding finding, which plan was approved by the Comptroller of the Currency. The "Outline of Plan" and "Plan” appear in plaintiff's Exhibit 16 at pages 9 to 13, inclusive, and they are incorporated herein by reference. They were mailed to the depositors, creditors, and stockholders of the Guardian Bank on or about October 25, 1934. 4 34. Under the Plan as described in detail therein, it was proposed, among other things: (a) To raise a "Settlement Fund" from the Guardian Group stockholders which, together with assessments already collected by the receivers of the six national banks, would be acceptable by the Comptroller in full satisfaction of all liability for assessments in connection with the six national banks involved. The amount tentatively fixed by the Comptroller to effect such settlement was $5,040,000. When the fund was collected it was to be paid to the receivers of the six banks in proportion to the respective capital of such banks and the liability of all stockholders of the banks and of the Guardian Group and its stockholders for assessment in connection therewith would be settled and released. (b) To form a corporation known as the "Guardian Depositors Corporation." Each subscriber to the Settlement Fund would be entitled to subscribe for stock in the Guardian Depositors Corporation in the proportion which his subscription bore to the amount paid into the Settlement Fund. (c) Each creditor who assigned his claim to the corporation would receive from the corporation the obligation of the corporation in the form of a Participation Certificate to pay such depositor, after all other debts of the corporation should have been paid, his pro rata share of the net proceeds. of the liquidation of assets of such corporation until such. Findings of Fact 122 C. Cls. depositor should have received an amount equal to the unpaid balance of his claim plus interest at the rate of 2 percent per annum. (d) After payment of such Participation Certificates any further distribution would be made upon the stock of the Depositors Corporation and would be redistributed by the Trustees to the subscribers to the capital stock of such corporation pro rata until such subscribers should have had returned to them the amount of their subscriptions, together with interest thereon at the rate of 5 percent per annum from the time when such subscriptions were paid; and thereafter, to the subscribers to the Settlement Fund until there should have been repaid to them the amount of their subscriptions, to the extent that such amount was paid to the receiver of the Guardian Bank, plus interest at the rate of 5 percent per annum from the time such subscriptions were paid to the receiver of the Guardian Bank. Thereafter, all distributions made upon the stock of the Depositors Corporation would be redistributed to the stockholders of the Guardian Bank pro rata. (e) The trustees of stock of the Guardian Depositors Corporation would issue to each subscriber to the stock of that corporation a certificate evidencing such subscriber's right to be repaid the amount of his subscription with interest and to each subscriber to the Settlement Fund a certificate evidencing his right of reimbursement as provided under the Plan. (f) When an amount sufficient to effect the settlement of the stockholders' liability should have been paid in and when claims of a sufficient amount in the opinion of the Committee and the Comptroller to justify it in declaring the Plan operative had been assigned to the Depositors Corporation, the amount necessary to effect the settlement would be paid to the receivers of the various banks upon a sale of all the assets of the Guardian Bank at an appraised value, with the approval of a court of competent jurisdiction. It was expected that this appraisal would be for an amount sufficient, after deducting the expenses of the receivership, to pay the unsecured known creditors of the Guardian Bank an additional 19 percent. 1 Findings of Fact (g) Creditors who preferred not to assign their claims to the Depositors Corporation would be entitled, if the Plan became operative, to receive their pro rata share of the proceeds of such sale in cash. This would mean that the nonassigning creditors, if the Plan became effective, would receive a final cash dividend of approximately 19 percent. Payment of this dividend, however, would depend upon the sale of the assets under the Plan; otherwise, dividends would only be paid from time to time by the receiver in the regular course of his administration as assets were collected and the proceeds distributed over a period of time. (h) The Plan could only be made effective and such sale could only be accomplished if sufficient creditors assigned their claims to the Depositors Corporation so that they might be used to acquire the assets on such sale and only if sufficient of the stockholders subscribed and paid into the Settlement Fund so that stockholders' liability could be discharged. 35. In view of the litigation uncertainties, the Comptroller of the Currency approved the Plan and agreed to accept a total amount of $5,040,000 in compromise of all liabilities to assessment of shareholders of the Guardian Group. Of the total amount, $4,000,000 was to be paid to the receiver of Guardian Bank of Detroit in satisfaction of the $10,000,000 assessment made against the stockholders of that bank. On February 6, 1935, the plaintiff consented to be bound by the provisions of the Plan, in the event the Plan became operative. More than 80 percent of the Guardian Bank's depositors and creditors assigned their claims to the newly organized Guardian Depositors Corporation, and the shareholders of the Guardian Group made voluntary subscriptions to the Settlement Fund in excess of the $5,040,000 required by the terms of the Plan. The Plan was made effective by court order on April 29, 1935. Guardian Depositors Corporation was duly organized to carry out the Plan. The plaintiff bought no stock in the liquidating corporation. 36. On December 24, 1934, under the terms of the Plan proposed October 25, 1934, and referred to in the preceding finding, the plaintiff as one of the stockholders of the Guardian Group paid into the settlement fund a total of $15,890.47 on account of his 2,020 shares of stock in the Guardian 211995-52-5 |